Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on March 31, 2017. Their balance sheet on the above date was: **Balance Sheet of Ashu and Harish as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Capitals: | | Building | 80,000 | | Ashu | 1,08,000 | Machinery | 70,000 | | Harish | 54,000 | Furniture | 14,000 | | Creditors | 88,000 | Stock | 20,000 | | Bank overdraft | 50,000 | Investments | 60,000 | | | | Debtors | 48,000 | | | | Cash in hand | 8,000 | | **Total** | **3,00,000** | **Total** | **3,00,000** | Ashu is to take over the building at ₹95,000, and Machinery and Furniture are taken over by Harish at a value of ₹80,000. Ashu agreed to pay Creditors and Harish agreed to meet the Bank overdraft. Stock and Investments are taken by both partners in their profit-sharing ratio. Debtors realised ₹46,000; expenses of realisation amounted to ₹3,000. Prepare necessary ledger accounts.

> [!TLDR] > Realisation Account closes with a **Profit on Realisation of ₹6,000** (Ashu ₹3,600, Harish ₹2,400 in 3:2). On final settlement **Ashu is paid ₹56,600** while **Harish brings in ₹5,600** to clear his debit balance; the Cash Account totals **₹59,600**. ## Concept and treatment - Assets taken over by a partner are credited to Realisation at their **agreed value** and debited to that partner's capital; a liability a partner agrees to pay is debited to Realisation and credited to that partner's capital. - **Ashu** takes the Building at ₹95,000 and agrees to pay the **Creditors ₹88,000**; **Harish** takes Machinery & Furniture at ₹80,000 and agrees to meet the **Bank Overdraft ₹50,000**. - **Stock ₹20,000** and **Investments ₹60,000** are taken by both partners in the ratio 3:2 (Ashu 3/5, Harish 2/5). - **Debtors** realise ₹46,000 (cash); realisation expenses ₹3,000 paid. ## Realisation Account | Particulars | Amount (₹) | Particulars | Amount (₹) | |:---|---:|:---|---:| | To Building | 80,000 | By Creditors | 88,000 | | To Machinery | 70,000 | By Bank Overdraft | 50,000 | | To Furniture | 14,000 | By Ashu's Capital A/c (Building taken over) | 95,000 | | To Stock | 20,000 | By Harish's Capital A/c (Machinery & Furniture taken over) | 80,000 | | To Investments | 60,000 | By Ashu's Capital A/c (Stock 3/5) | 12,000 | | To Debtors | 48,000 | By Harish's Capital A/c (Stock 2/5) | 8,000 | | To Ashu's Capital A/c (Creditors paid) | 88,000 | By Ashu's Capital A/c (Investments 3/5) | 36,000 | | To Harish's Capital A/c (Bank Overdraft paid) | 50,000 | By Harish's Capital A/c (Investments 2/5) | 24,000 | | To Cash A/c (Realisation expenses) | 3,000 | By Cash A/c (Debtors realised) | 46,000 | | To Profit on Realisation transferred: | | | | | Ashu's Capital A/c (3/5) | 3,600 | | | | Harish's Capital A/c (2/5) | 2,400 | | | | **Total** | **4,39,000** | **Total** | **4,39,000** | Profit = Credit total (₹4,39,000) − Debits before profit (₹4,33,000

Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on March 31,

Numerical Questions · Q16

Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on March 31, 2017. Their balance sheet on the above date was:

Balance Sheet of Ashu and Harish as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals:		Building	80,000
Ashu	1,08,000	Machinery	70,000
Harish	54,000	Furniture	14,000
Creditors	88,000	Stock	20,000
Bank overdraft	50,000	Investments	60,000
		Debtors	48,000
		Cash in hand	8,000
Total	3,00,000	Total	3,00,000

Ashu is to take over the building at ₹95,000, and Machinery and Furniture are taken over by Harish at a value of ₹80,000. Ashu agreed to pay Creditors and Harish agreed to meet the Bank overdraft. Stock and Investments are taken by both partners in their profit-sharing ratio. Debtors realised ₹46,000; expenses of realisation amounted to ₹3,000. Prepare necessary ledger accounts.

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Concept understanding — Partnership Accounting

Partnership Accounting — Your First Look

Think of a partnership as a group of friends starting a food stall together. One brings the money, another brings the cooking skills, a third brings the location. They agree to share the profits — but not necessarily equally. They also agree that if the stall loses money, they'll share the loss too.

That's the everyday intuition. Now let's make it precise.

What is a Partnership?

According to the Indian Partnership Act, 1932, a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The NCERT Class-12 textbook defines it as a business owned and run by two or more persons (maximum 50, as per Companies Act, 2013) who contribute capital and share profits/losses in an agreed ratio.

The key features are:

Two or more persons — minimum 2, maximum 50
Agreement — written (partnership deed) or oral
Profit-sharing — the core purpose
Unlimited liability — each partner is personally liable for the firm's debts
Mutual agency — each partner can bind the firm and other partners

Why Does Partnership Accounting Matter?

A sole proprietor has one owner — simple. A company has many shareholders — complex but structured. A partnership sits in between. The accounting challenge is: how do we track each partner's claim on the business?

The business is separate from the partners for accounting purposes, but the partners are personally involved. We need to record:

What each partner brings in (capital)
What each partner takes out (drawings)
What each partner earns (interest, salary, commission, share of profit)
What happens when a partner joins or leaves

The Two Key Accounts

1. Capital Account

This records the permanent investment of each partner. There are two methods:

Fixed Capital Method — Capital remains constant unless partners decide to change it. All other transactions go to a separate Current Account.

Fluctuating Capital Method — Capital changes with every transaction (drawings, interest, salary, share of profit/loss). Only one account per partner.

NCERT recommends the Fixed Capital Method for clarity. Here's the format:

Partner's Capital Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Balance c/d | 50,000 | 30,000 | | By Balance b/d | 50,000 | 30,000 | | | | | | By Bank (additional capital) | — | — | | Total | 50,000 | 30,000 | | Total | 50,000 | 30,000 |

The opening balance is the capital brought in. The closing balance is the same unless additional capital is introduced or capital is withdrawn permanently.

2. Current Account

This records everything else — drawings, interest on capital, interest on drawings, salary, commission, and share of profit/loss.

Partner's Current Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Drawings | 5,000 | 4,000 | | By Balance b/d | 2,000 | 1,000 | | To Interest on Drawings | 250 | 200 | | By Interest on Capital | 3,000 | 1,800 | | To Balance c/d | 5,750 | 3,600 | | By Salary | 6,000 | — | | | | | | By Commission | — | 4,000 | | | | | | By Share of Profit | — | 1,000 | | Total | 11,000 | 7,800 | | Total | 11,000 | 7,800 |

The balance in the Current Account can be debit (overdrawn) or credit (undrawn profit).

The Profit and Loss Appropriation Account

This is the heart of partnership accounting. It shows how the net profit is distributed among partners — not how it is earned.

Important

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. It starts with Net Profit (from the P&L Account) and then shows appropriations.

Format:

Profit and Loss Appropriation Account | Particulars | Amount (₹) | | Particulars | Amount (₹) | |---|---|---|---| | To Interest on Capital: | | | By Net Profit (transferred from P&L A/c) | 1,00,000 | | — A | 6,000 | | By Interest on Drawings: | | | — B | 4,000 | | — A | 500 | | To Partner's Salary: | | | — B | 300 | | — A | 12,000 | | | | | To Partner's Commission: | | | | | | — B | 8,000 | | | | | To Profit transferred to: | | | | | | — A's Current A/c (3/5) | 42,120 | | | | | — B's Current A/c (2/5) | 28,080 | | | | | Total | 1,00,800 | | Total | 1,00,800 |

Notice: The total on the debit side equals the total on the credit side. The net profit plus interest on drawings is the distributable profit. …

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Partnership Dissolution – Ledger Accounts

When a firm dissolves, assets are realised, liabilities are settled, and any profit or loss on realisation is shared by partners in their profit-sharing ratio. Here, Ashu and Harish share profits 3:2.

Step 1: Realisation Account

This account records the disposal of all assets (except cash) and settlement of all liabilities (except partners' capitals).

Particulars	Amount (₹)	Particulars	Amount (₹)
Building	80,000	Creditors	88,000
Machinery	70,000	Bank Overdraft	50,000
Furniture	14,000	Ashu's Capital A/c (Building taken over)	95,000
Stock	20,000	Harish's Capital A/c (Machinery & Furniture taken over)	80,000
Investments	60,000	Cash/Bank A/c (Debtors realised)	46,000
Debtors	48,000	Ashu's Capital A/c (Stock taken over: 20,000 × 3/5)	12,000
Ashu's Capital A/c (Creditors paid)	88,000	Harish's Capital A/c (Stock taken over: 20,000 × 2/5)	8,000
Harish's Capital A/c (Bank Overdraft paid)	50,000	Ashu's Capital A/c (Investments taken over: 60,000 × 3/5)	36,000
Cash/Bank A/c (Realisation expenses)	3,000	Harish's Capital A/c (Investments taken over: 60,000 × 2/5)	24,000
Profit on Realisation transferred to:
Ashu's Capital A/c (3/5)	3,600
Harish's Capital A/c (2/5)	2,400
Total	4,27,000	Total	4,27,000

Note

Profit on Realisation = Total credits – Total debits (before profit transfer) = ₹4,27,000 – ₹4,21,000 = ₹6,000.

Step 2: Partners' Capital Accounts

Particulars	Ashu (₹)	Harish (₹)	Particulars	Ashu (₹)	Harish (₹)
Realisation A/c (Creditors)	88,000	50,000	Balance b/d	1,08,000	54,000
Realisation A/c (Bank Overdraft)	—		Realisation A/c (Building)	95,000	—
Realisation A/c (Stock)	12,000	8,000	Realisation A/c (Machinery & Furniture)	—	80,000
Realisation A/c (Investments)	36,000	24,000	Realisation A/c (Stock)	12,000	8,000
Cash/Bank A/c (Final payment)	56,600	5,600	Realisation A/c (Investments)	36,000	24,000
			Realisation A/c (Profit)	3,600	2,400
Total	1,92,600	87,600	Total	1,92,600	87,600

Step 3: Cash/Bank Account

Particulars	Amount (₹)	Particulars	Amount (₹)
Balance b/d	8,000	Realisation A/c (Expenses)	3,000
Realisation A/c (Debtors)	46,000	Ashu's Capital A/c	56,600
		Harish's Capital A/c	5,600
		Balance c/d	0
Total	54,000	Total	65,200

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Realisation Account closes with a Profit on Realisation of ₹6,000 (Ashu ₹3,600, Harish ₹2,400 in 3:2). On final settlement Ashu is paid ₹56,600 while Harish brings in ₹5,600 to clear his debit balance; the Cash Account totals ₹59,600.

Concept and treatment

Assets taken over by a partner are credited to Realisation at their agreed value and debited to that partner's capital; a liability a partner agrees to pay is debited to Realisation and credited to that partner's capital.
Ashu takes the Building at ₹95,000 and agrees to pay the Creditors ₹88,000; Harish takes Machinery & Furniture at ₹80,000 and agrees to meet the Bank Overdraft ₹50,000.
Stock ₹20,000 and Investments ₹60,000 are taken by both partners in the ratio 3:2 (Ashu 3/5, Harish 2/5).
Debtors realise ₹46,000 (cash); realisation expenses ₹3,000 paid.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Building	80,000	By Creditors	88,000
To Machinery	70,000	By Bank Overdraft	50,000
To Furniture	14,000	By Ashu's Capital A/c (Building taken over)	95,000
To Stock	20,000	By Harish's Capital A/c (Machinery & Furniture taken over)	80,000
To Investments	60,000	By Ashu's Capital A/c (Stock 3/5)	12,000
To Debtors	48,000	By Harish's Capital A/c (Stock 2/5)	8,000
To Ashu's Capital A/c (Creditors paid)	88,000	By Ashu's Capital A/c (Investments 3/5)	36,000
To Harish's Capital A/c (Bank Overdraft paid)	50,000	By Harish's Capital A/c (Investments 2/5)	24,000
To Cash A/c (Realisation expenses)	3,000	By Cash A/c (Debtors realised)	46,000
To Profit on Realisation transferred:
Ashu's Capital A/c (3/5)	3,600
Harish's Capital A/c (2/5)	2,400
Total	4,39,000	Total	4,39,000

Profit = Credit total (₹4,39,000) − Debits before profit (₹4,33,000) = ₹6,000.

Cross-check: Building gain +15,000, Machinery & Furniture −4,000, Debtors −2,000, expenses −3,000 = +₹6,000 (Stock and Investments taken at book value → no gain/loss).

Ashu's Capital Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Realisation A/c (Building)	95,000	By Balance b/d	1,08,000
To Realisation A/c (Stock)	12,000	By Realisation A/c (Creditors paid)	88,000
To Realisation A/c (Investments)	36,000	By Realisation A/c (Profit)	3,600
To Cash A/c (Final payment)	56,600
Total	1,99,600	Total	1,99,600

Harish's Capital Account

|:---|---:|:---|---:| …

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Concept and treatment

Realisation Account

Ashu's Capital Account

Harish's Capital Account

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