Q.A, B, C and D share profit and loss in the ratio of 4 : 3 : 2 : 1. The partnership was dissolved on 31st March, 2024. The firm's balance sheet on this date was as follows:
Balance Sheet as on 31st March, 2024
Liabilities | Amount (Rs.) | Assets | Amount (Rs.)
Creditors | 1,20,000 | Cash at Bank | 8,000
Bills Payable | 20,000 | Bills Receivable | 40,000
Capitals: A 80,000; C 1,20,000 | 2,00,000 | Debtors | 1,40,000
| | Stock | 92,000
| | Capitals: B 40,000; D 20,000 | 60,000
Total | 3,40,000 | Total | 3,40,000
90% of Book value was realised from Bills Receivable and Debtors. Stock could be sold for Rs. 78,000. Outstanding salary of Rs. 2,000, which was not shown in the said Balance Sheet, was also paid. The realisation expenses amounted to Rs. 6,000. B is insolvent and only Rs. 32,000 could be recovered from him. The rule of Garner vs Murray shall apply. Prepare Realisation Account and Partners' Capital Account. (5+5)
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Start your 14-day free trial to unlock the full solution →Realisation loss Rs.40,000 (4:3:2:1); B insolvent (deficiency Rs.20,000 borne by A and C in capital ratio 2:3 per Garner vs Murray); A paid Rs.56,000, C paid Rs.1,00,000; Bank tallies at Rs.3,04,000.
Profit-sharing ratio A:B:C:D = 4:3:2:1. Note B and D have debit (deficit) capital balances in the Balance Sheet (B 40,000, D 20,000).
Step 1 - Realisation Account:
Debit: Bills Receivable 40,000; Debtors 1,40,000; Stock 92,000; To Bank - Creditors 1,20,000; Bills Payable 20,000; Outstanding salary 2,000; Realisation expenses 6,000. Total = 4,20,000.
Credit: By Creditors 1,20,000; By Bills Payable 20,000; By Bank (assets realised) - (BR + Debtors) 1,80,000 x 90% = 1,62,000 and Stock 78,000 = 2,40,000. Total = 3,80,000.
Loss on Realisation = 4,20,000 - 3,80,000 = Rs.40,000, shared 4:3:2:1 -> A 16,000, B 12,000, C 8,000, D 4,000.
Step 2 - Partners' Capital Accounts:
- A: credit 80,000 - loss 16,000 = Rs.64,000 (before bearing deficiency).
- C: credit 1,20,000 - loss 8,000 = Rs.1,12,000 (before deficiency).
- B: debit 40,000 + loss 12,000 = Rs.52,000 (deficiency); B brings in Rs.32,000, leaving a deficiency of Rs.20,000.
- D: debit 20,000 + loss 4,000 = Rs.24,000; D is solvent and brings in Rs.24,000 (nil balance).
Step 3 - Garner vs Murray: B's deficiency Rs.20,000 is borne by the solvent partners having credit balances - A and C - in the ratio of their capitals as per the Balance Sheet (80,000 : 1,20,000 = 2 : 3). D, though solvent, had a debit balance and so does not bear any part. …
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