Shilpa, Meena and Nanda decided to dissolve their partnership on March 31, 2017. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under: **Balance Sheet of Shilpa, Meena and Nanda as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Capitals: | | Land | 81,000 | | Shilpa | 80,000 | Stock | 56,760 | | Meena | 40,000 | Debtors | 18,600 | | Bank loan | 20,000 | Nanda's capital | 23,000 | | Creditors | 37,000 | Cash | 10,840 | | Provision for doubtful debts | 1,200 | | | | General reserve | 12,000 | | | | **Total** | **1,90,200** | **Total** | **1,90,200** | The stock of value ₹41,660 was taken over by Shilpa for ₹35,000 and she agreed to discharge the bank loan. The remaining stock was sold at ₹14,000 and debtors amounting to ₹10,000 realised ₹8,000. Land was sold for ₹1,10,000. The remaining debtors realised 50% of their book value. Cost of realisation amounted to ₹1,200. There was a typewriter not recorded in the books worth ₹6,000 which was taken over by one of the Creditors at this value. Prepare Realisation Account.

Shilpa, Meena and Nanda decided to dissolve their partnership on March 31, 2017. Their profit sharing ratio wa

Numerical Questions · Q12

Shilpa, Meena and Nanda decided to dissolve their partnership on March 31, 2017. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under:

Balance Sheet of Shilpa, Meena and Nanda as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals:		Land	81,000
Shilpa	80,000	Stock	56,760
Meena	40,000	Debtors	18,600
Bank loan	20,000	Nanda's capital	23,000
Creditors	37,000	Cash	10,840
Provision for doubtful debts	1,200
General reserve	12,000
Total	1,90,200	Total	1,90,200

The stock of value ₹41,660 was taken over by Shilpa for ₹35,000 and she agreed to discharge the bank loan. The remaining stock was sold at ₹14,000 and debtors amounting to ₹10,000 realised ₹8,000. Land was sold for ₹1,10,000. The remaining debtors realised 50% of their book value. Cost of realisation amounted to ₹1,200. There was a typewriter not recorded in the books worth ₹6,000 which was taken over by one of the Creditors at this value. Prepare Realisation Account.

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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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On dissolution we open a Realisation Account, transfer all assets (except cash) and all outside liabilities to it at book value, then record the actual realisations and payments; the balancing figure is the profit or loss. Note two points in this question: Nanda's capital shows a debit balance of ₹23,000, which stays in Nanda's own capital account and is not transferred to Realisation; and the unrecorded typewriter (₹6,000) is handed to a creditor, so only the remaining creditors are paid in cash.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Land	81,000	By Bank Loan	20,000
To Stock	56,760	By Creditors	37,000
To Debtors	18,600	By Provision for Doubtful Debts	1,200
To Shilpa's Capital A/c (Bank loan taken over)	20,000	By Shilpa's Capital A/c (Stock taken over)	35,000
To Bank A/c (Creditors paid)	31,000	By Bank A/c (Stock sold)	14,000
To Bank A/c (Realisation expenses)	1,200	By Bank A/c (Debtors realised)	12,300
To Profit transferred to Capital A/cs:		By Bank A/c (Land sold)	1,10,000
Shilpa (3/6)	10,470
Meena (2/6)	6,980
Nanda (1/6)	3,490
Total	2,29,500	Total	2,29,500

Working notes:

Bank loan ₹20,000 is discharged by Shilpa: it is transferred to the credit of Realisation as a liability and assumed by Shilpa (debit Realisation, credit her Capital), so it does not affect the firm's cash. …

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The Realisation Account balances at ₹2,29,500 on each side and shows a net Profit on Realisation of ₹20,940, transferred to the partners in their 3 : 2 : 1 ratio (Shilpa ₹10,470, Meena ₹6,980, Nanda ₹3,490).

Concept and Accounting Treatment

When a partnership firm is dissolved, the Realisation Account records the entire process of converting assets into cash and settling liabilities. All assets except cash (and fictitious assets) are debited to it at book value, and all outside liabilities are credited to it at book value. Actual sale proceeds are credited, actual payments are debited, and the difference is the profit (credit balance) or loss (debit balance) on realisation, shared in the profit-sharing ratio.

Watch out

Two traps in this question. First, Nanda's capital shows a debit balance of ₹23,000 (it appears on the assets side of the balance sheet). This is part of Nanda's own capital account — it is not an asset of the firm and is never transferred to the Realisation Account. Second, the bank loan taken over by Shilpa and the provision for doubtful debts must both be handled correctly, or the account will not balance.

Solution: Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Land	81,000	By Bank Loan	20,000
To Stock	56,760	By Creditors	37,000
To Debtors	18,600	By Provision for Doubtful Debts	1,200
To Shilpa's Capital A/c (Bank loan taken over)	20,000	By Shilpa's Capital A/c (Stock taken over)	35,000
To Bank A/c (Creditors paid)	31,000	By Bank A/c (Remaining stock sold)	14,000
To Bank A/c (Realisation expenses)	1,200	By Bank A/c (Debtors realised)	12,300
To Profit transferred to Capital A/cs:		By Bank A/c (Land sold)	1,10,000
Shilpa's Capital A/c	10,470
Meena's Capital A/c	6,980
Nanda's Capital A/c	3,490
Total	2,29,500	Total	2,29,500

Working Notes

WN1: Transfer of assets

Land ₹81,000, Stock ₹56,760 and Debtors (gross) ₹18,600 are debited to Realisation. Nanda's capital debit balance of ₹23,000 is not transferred — it stays in Nanda's capital account. Cash ₹10,840 is also not transferred.

WN2: Bank loan taken over by Shilpa

The bank loan ₹20,000 is an outside liability, so it is credited to Realisation. Shilpa agreed to discharge it, so she assumes it: the Realisation Account is debited and her Capital Account credited with ₹20,000. Because it goes in at book value and out at book value, it has no net effect on the profit — but both entries must be shown for the account to balance.

WN3: Provision for doubtful debts

The provision ₹1,200 is credited to Realisation (debtors having been transferred at their gross value ₹18,600).

WN4: Stock

Stock worth ₹41,660 is taken over by Shilpa for ₹35,000 (credited to Realisation, debited to her Capital). The remaining stock (₹56,760 − ₹41,660 = ₹15,100 book value) is sold for ₹14,000 (credited to Realisation through Bank).

WN5: Debtors …

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Concept and Accounting Treatment

Solution: Realisation Account

Working Notes

WN1: Transfer of assets

WN2: Bank loan taken over by Shilpa

WN3: Provision for doubtful debts

WN4: Stock

WN5: Debtors …

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