A, B & C are partners sharing profits & losses in the ratio of 2 : 2 : 1. Their balance sheet on 1st January, 2018 was as follows:

Balance Sheet
Liabilities | Amount (Rs.) | Assets | Amount (Rs.)
Creditors | 12,000 | Bank | 12,200
Reserve | 5,000 | Debtors 8,000 – Provision 200

Question

A, B & C are partners sharing profits & losses in the ratio of 2 : 2 : 1. Their balance sheet on 1st January, 2018 was as follows:

The firm was dissolved on the said date. Rs. 38,000 were realised from sale of assets. The creditors were satisfied paying Rs. 11,000, liability of compensation for Rs. 3,000 was to be paid. Realisation expenses for Rs. 1,000 were incurred. On the basis of the above information, prepare Realization Account, Bank Account and Partners' Capital Account. (5+3+2)

Accepted Answer

>

> [!TLDR]
> Realisation shows a loss of Rs.2,800 (shared 2:2:1); after crediting the reserve, A, B and C are paid Rs.15,880, Rs.12,880 and Rs.6,440, and the Bank Account closes at Rs.50,200.
>
> Step 1 - Realisation Account:
> Debit (book values of assets transferred, and cash paid out):
>   Debtors 8,000; Stock 6,000; Furniture 2,000; Building 22,000 (assets = 38,000)
>   To Bank - Creditors paid 11,000
>   To Bank - Compensation paid 3,000
>   To Bank - Realisation expenses 1,000
>   Total debit = 53,000
> Credit:
>   By Provision for doubtful debts 200
>   By Creditors (transferred) 12,000
>   By Bank - assets realised 38,000
>   Total credit = 50,200
> Loss on Realisation = 53,000 - 50,200 = Rs.2,800, shared 2:2:1 -> A 1,120, B 1,120, C 560.
>
> Step 2 - Reserve Rs.5,000 distributed 2:2:1 -> A 2,000, B 2,000, C 1,000.
>
> Step 3 - Partners' Capital Accounts:
>   A: 15,000 + reserve 2,000 - loss 1,120 = Rs.15,880
>   B: 12,000 + 2,000 - 1,120 = Rs.12,880
>   C: 6,000 + 1,000 - 560 = Rs.6,440
> …

Transaction	Debit	Credit
Transfer of all assets (except cash/bank)	Realisation A/c	Respective Asset A/c
Transfer of all external liabilities	Respective Liability A/c	Realisation A/c
Sale of an asset	Bank A/c (cash received)	Realisation A/c
Payment of a liability	Realisation A/c	Bank A/c (cash paid)
Payment of dissolution expenses	Realisation A/c	Bank A/c
When a partner takes over an asset	Partner's Capital A/c	Realisation A/c
When a partner takes over a liability	Realisation A/c	Partner's Capital A/c
Profit on realisation (transferred)	Realisation A/c	Partners' Capital A/c (in PSR)
Loss on realisation (transferred)	Partners' Capital A/c (in PSR)	Realisation A/c

Dr.	Realisation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Sundry Assets (all transferred)	xxx	By Sundry Liabilities (all transferred)	xxx
To Bank (liabilities paid)	xxx	By Bank (assets sold)	xxx
To Bank (dissolution expenses)	xxx	By Partner's Capital A/c (asset taken over)	xxx

Item	Amount	Side of Realisation A/c
Debtors (gross)	24,500	Debit
Bad debt reserve (provision)	2,500	Credit
…

Concept understanding — Realisation Account

The Realisation Account: Winding Up the Business Books

What the Realisation Account Actually Is

Why It Matters (The "Why")

Accounting Treatment: The Debit and Credit Rules

The Proforma (Format) of the Realisation Account

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