X and Y were partners in a partnership firm sharing profit loss in the ratio of 2:3. Balance sheet of firm on 31 December 2022 as follows:
| Liabilities | Amount ₹ | Assets | Amount ₹ |
|---|---|---|---|
| Creditors | 5,000 | Cash | 6,000 |
| Outstanding Expenses | 2,000 | Inventories | 5,000 |
| General Reserve | 4,000 | Debtors | 10,000 |
| Capital A/c's: X 40,000, Y 60,000 | 1,00,000 | Land & Buildings | 70,000 |
| Furniture | 20,000 | ||
| Total | 1,11,000 | Total | 1,11,000 |
X and Y decided to dissolve the firm. On the basis of following information close the books of the firm:
- ₹ 80,000 from land and building; ₹ 18,000 from furniture; ₹ 8,000 from debtors and ₹ 7,000 from inventories were realised.
- X took liability to pay creditors. Outstanding expenses were paid in full.
- Realisation expenses were ₹ 1,000. Prepare Realisation Account, Partners capital Account of the firm.
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Start your 14-day free trial to unlock the full solution →The Realisation Account shows a profit of ₹7,000 (shared 2:3), and the Partners' Capital Accounts close with final cash payments of ₹49,400 to X and ₹66,600 to Y.
Step 1 — Transfer assets (other than cash) and external liabilities to the Realisation Account at their book values:
Assets transferred (Dr. side): Inventories ₹5,000, Debtors ₹10,000, Land & Building ₹70,000, Furniture ₹20,000 = ₹1,05,000
Liabilities transferred (Cr. side): Creditors ₹5,000, Outstanding Expenses ₹2,000 = ₹7,000
Step 2 — Record actual realisation of assets (debit Bank, credit Realisation):
Land & Building realised ₹80,000; Furniture ₹18,000; Debtors ₹8,000; Inventories ₹7,000 = Total ₹1,13,000
Step 3 — Record payment of liabilities and expenses (debit Realisation, credit Bank), and the liability taken over by X:
Outstanding Expenses paid in full = ₹2,000 (Bank)
Realisation expenses paid = ₹1,000 (Bank)
X took over the liability to pay Creditors (₹5,000) personally — so the firm does not pay this in cash; instead, Realisation A/c is debited and X's Capital A/c is credited with ₹5,000 (X is treated as having settled this liability on the firm's behalf).
Realisation Account
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Inventories A/c | 5,000 | By Creditors A/c | 5,000 |
| To Debtors A/c | 10,000 | By Outstanding Expenses A/c | 2,000 |
| To Land & Building A/c | 70,000 | By Bank A/c (Assets realised: 80,000+18,000+8,000+7,000) | 1,13,000 |
| To Furniture A/c | 20,000 | ||
| To Bank A/c (Outstanding Expenses paid) | 2,000 | ||
| To Bank A/c (Realisation Expenses) | 1,000 | ||
| To X's Capital A/c (Creditors taken over by X) | 5,000 | ||
| Total | 1,13,000 | Total | 1,20,000 |
| To Profit transferred: X (2/5×7,000) 2,800; Y (3/5×7,000) 4,200 | 7,000 | ||
| Grand Total | 1,20,000 | Grand Total | 1,20,000 |
Profit on Realisation = 1,20,000 − 1,13,000 = ₹7,000, shared by X:Y in old ratio 2:3 → X = ₹2,800; Y = ₹4,200 …
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