Amit and Sumit were partners in a partnership firm in equal ratio. The balance sheet of the firm as on 31st December 2020 was as follows:

Liabilities | Amount (₹)
Capital A/c's: Amit 50,000, Sumit 60,000 | 1,10,000
Creditors | 4,000
General Reserve | 4,000
Loan of Amit's wife |

Question

Amit and Sumit were partners in a partnership firm in equal ratio. The balance sheet of the firm as on 31st December 2020 was as follows:

The firm was dissolved on 31st December 2020 on the following terms:
(i) Amit agreed to pay his wife's loan and took investment at ₹15,000
(ii) Assets were realized as follows: Plant ₹90,000; Debtors ₹10,000; Inventories ₹8,000
(iii) Creditors were settled at ₹3,000
(iv) Expenses on realization were ₹1,000
Prepare Realization Account and Partners' Capital Account of the partnership firm.

Accepted Answer

>

> [!TLDR]
> After dissolution, Amit's Capital A/c closes at ₹50,500 and Sumit's Capital A/c closes at ₹63,500, both paid in cash.
>
> **Terms recap:** Amit takes over his wife's loan (pays it personally) and takes the Investment at ₹15,000. Plant realised ₹90,000; Debtors realised ₹10,000; Inventories realised at book value ₹8,000. Creditors settled at ₹3,000. Realisation expenses ₹1,000. Profit shared equally (Amit:Sumit = 1:1).
>
> **Realisation Account**
>
> | Dr. Particulars | Amount (₹) | Cr. Particulars | Amount (₹) |
> |---|---|---|---|
> | To Plant A/c | 80,000 | By Creditors A/c | 4,000 |
> | To Investment A/c | 20,000 | By Amit's Wife's Loan A/c | 12,000 |
> | To Debtors A/c | 12,000 | By Amit's Capital A/c (Investment taken over) | 15,000 |
> | To Inventories A/c | 8,000 | By Bank A/c (Plant realised) | 90,000 |
> | To Bank A/c (Creditors paid) | 3,000 | By Bank A/c (Debtors realised) | 10,000 |
> | To Bank A/c (Realisation expenses) | 1,000 | By Bank A/c (Inventories realised) | 8,000 |
> | To Amit's Capital A/c (Wife's loan discharged by Amit) | 12,000 | | |
> | To Profit transferred to Capital A/cs: Amit 1,500; Sumit 1,500 | 3,000 | | |
> | **Total** | **1,39,000** | **Total** | **1,39,000** |
>
> (Profit on realisation = ₹1,39,000 − ₹1,36,000 (before profit row) = ₹3,000, split equally.)
>
> **Partners' Capital Account**
>
> | Dr. Particulars | Amit (₹) | Sumit (₹) | Cr. Particulars | Amit (₹) | Sumit (₹) |
> |---|---|---|---|---|---|
> | To Realisation A/c (Investment taken over) | 15,000 | — | By Balance b/d | 50,000 | 60,000 | …

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

Dr. Particulars	Amount (₹)	Cr. Particulars	Amount (₹)
To Plant A/c	80,000	By Creditors A/c	4,000
To Investment A/c	20,000	By Amit's Wife's Loan A/c	12,000
To Debtors A/c	12,000	By Amit's Capital A/c (Investment taken over)	15,000
To Inventories A/c	8,000	By Bank A/c (Plant realised)	90,000
To Bank A/c (Creditors paid)	3,000	By Bank A/c (Debtors realised)	10,000
To Bank A/c (Realisation expenses)	1,000	By Bank A/c (Inventories realised)	8,000
To Amit's Capital A/c (Wife's loan discharged by Amit)	12,000
To Profit transferred to Capital A/cs: Amit 1,500; Sumit 1,500	3,000
Total	1,39,000	Total	1,39,000

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