Dissolution of Partnership - Test Papers
CBSE Test Paper 01
- Match the following
Choose the correct option from belowWhen assets are sold for cash (i) Bank A/c Dr To Realisation A/c When an asset is taken over by a partner No entry When the assets are given to any of the creditors towards the payment of his dues Partner Capital A/c Dr To Realisation A/c - a(iii), b(ii), c(i)
- a(i), b(iii), c(ii)
- a(ii), b(iii), c(i)
- a(i), b(ii), c(iii)
- Name the Account which is prepared for finding the profit or loss on getting amount from selling of all assets and paying amount of liabilities.
- Dr. side of Realisation Account
- Dr. side of Revaluation Account
- Realisation Account
- Cr.Side of Revaluation Account
- What should be the journal entry when A takes over loan payable to Mrs. A ₹20000
RealisationA/cDr.
To A’s CapitalA/c
20000
20000
Bank A/cDr.
To A’s CapitalA/c
58000
58000
RelisationA/cDr.
To BankA/c
58000
58000
LoanA/cDr.
To A’s Capital A/c
58000
58000
- Bank Loan ₹29,000 was paid at the time of dissolution. What journal entry will be recorded for the same?
Bank Loan A/c Dr.
To Bank Loan A/c
29,000
29,000
Realisation A/c Dr.
To Bank A/c
29,000
29,000
Bank A/c Dr.
To Realisation A/c
29,000
29,000
Bank Loan A/c Dr.
To Bank A/c
29,000
29,000
- As per which section of the Indian Partnership Act, 1932, at the suit of a partner, the Court may dissolve a firm?
- Section 04
- Section 44
- Section 48
- Section 31
- At the time of the dissolution of the firm, how undistributed profits such as General Reserve, Credit Balance of P&L A/C are dealing with?
- The firm of Ravi and Mohan was dissolved on 1.3.2013. According to the agreement Ravi had agreed to undertake the dissolution work for an agreed remuneration of Rs.2,000 and bear all realisation expenses. Dissolution expenses were Rs. 1,500 and the same were paid by the firm. Pass necessary journal entry for the payment of dissolution expenses.
- When an asset is taken over by a partner, why is his capital account debited?
- What is the dissolution of partnership?
- Identify a situation, under which court may order for dissolution of a partnership firm.
- Pass Journal entries in the following cases-
- Expenses of Realisation Rs. 1,500
- Expenses of Realisation Rs. 600, but paid by Mohan, a partner,
- Mohan, one of the partners of the firm, was asked to look into the dissolution of the firm for which he was allowed a commission of Rs. 2,000.
- Motor car of book value 50,000 taken over by creditors of the book value of Rs. 40,000 in final settlement.
- A and B share profits and losses in the ration of 5:2. They have decided to dissolve the firm. Assets and external liabilities have been transferred to Realisation A/c. Pass the Journal Entries to affect the following:
- Bank Loan of Rs. 12,000 is paid off.
- A was to bear all expenses of Realisation for which he is given to commission of Rs. 400.
- Deferred Advertisement Expenditure A/c appeared in the book at Rs. 28,000.
- Stock worth Rs. 1,600 was taken over by B at Rs. 1,200.
- As unrecorded Computer realized Rs. 7,000.
- There was an outstanding bill for repairs for Rs. 2,000. Which was paid off.
- The amount of sundry assets transferred to Realisation Account was Rs 80,000. 60% of them have been sold at a profit of Rs. 2,000. 20% of the remaining were sold at a discount of 30% and remaining were taken over by Ramlal (a partner) at book value. Journalise.
- Rohit, Kunal and Sarthak are partners in a firm. They decided to dissolve their firm. Pass necessary Journal entries for the following after various assets (other then Cash and Bank) and the third party liability have been transferred to Realisation Account:
- Kunal agreed to pay off his wife's loan of Rs. 6,000.
- Total Creditors of the firm were Rs. 40,000. Creditors worth Rs. 10,000 were given a piece of furniture costing Rs. 8,000 in full and final settlement. Remaining Creditors allowed a discount of 10%.
- Rohit had given a loan of Rs. 70,000 to the firm which was duly paid.
- A machine which was not recorded in the books was taken over by Kunal at Rs. 3,000 whereas its expected value was Rs. 5,000.
- The firm had a debit balance of Rs. 15,000 in the Profit and Loss Account on the date of dissolution.
- Sarthak paid the realisation expenses of Rs. 16,000 out of his private funds, who was to get a remuneration of Rs. 15,000 for completing dissolution process and was responsible to bear all the realisation expenses.
- Kumar, Shy am and Ratan were partners in a firm sharing profits in the ratio of 5: 3 : 2 respectively. They decided to dissolve the firm with effect from 1st April, 2013. On that date, the balance sheet of the firm was as follows
Balance Sheet
as at 1st April, 2013
The dissolution resulted in the followingLiabilities Amt (Rs.) Assets Amt (Rs.) Creditors 1,20,000 Plant 80,000 Capital A/cs Furniture 45,000 Kumar 68,000 Motor Van 25,000 Shyam 50,000 Stock 30,000 Ratan 27,000 1,45,000 Debtors 71,000 Cash 14,000 2,65,000 2,65,000 - Plant of Rs. 40,000 was taken over by Kumar at an agreed value of Rs. 45,000 and remaining plant realised Rs. 50,000.
- Furniture realised Rs. 40,000.
- Motor van was taken over by Shyam for Rs. 30,000.
- Debtors realised Rs. 1,000 less.
- Creditors for Rs. 20,000 were untraceable and the remaining creditors were paid in full.
- Realisation expenses amounted to Rs. 5,000.
CBSE Test Paper 01
Dissolution of Partnership
Answer
- a(i), b(iii), c(ii)
Explanation: Situation 1 : When assets are sold for cash (Bank A/c Dr. and Realisation A/c Cr.)
Situation 2 : When asset is taken over by a partner (Partner’s Capital A/c Dr. and Realisation A/c Cr.)
Situation 3 : When the assets are given to any of the creditors towards the payment of his dues (No Entry in such case).
- a(i), b(iii), c(ii)
- Realisation Account, Explanation: realisation account is nominal account. assets sold are recorded on the credit side and liabilities paid off are recorded on the debit side. if credit side is more it is profit and if the debit side is more it is loss.
-
Explanation: When a liability is taken over by a partner, in such a case do not use cash/bank account for the settlement of that liability.RealisationA/cDr.
To A’s CapitalA/c
20000
20000
-
-
Explanation: Repayment of bank loan will take place in debit side of realization account. This transaction will effect only two accounts i.e. Realisation Account and Bank Account.Realisation A/c Dr. To Bank A/c
29,000
29,000
-
- Section 44, Explanation: Section 44 of the Indian Partnership Act, 1932 states that at the suit of a partner, the Court may dissolve a firm.
Undistributed profits are distributed among all partners in their profit-sharing ratio in the Cr side of respective partner's capital account.
Journal
Date Particulars L.F. Debit (Rs.) Credit (Rs.) Ravi’s Capital A/c Dr. 1,500 ... To Bank A/c ... 1,500 (Being expenses of realisation paid by the firm recovered from Ravi as he is supposed to bear realisation expenses) ... ... Note: As Ravi is supposed to bear the Realisation Expenses so if these are paid by the firm; the firm has right to recover it from Ravi. Hence, Ravi's account has been debited and Bank account has been credited.
It is debited because the partner's claim over the firm is decreased by the amount of asset taken over by him, thus his capital account is decreased.
Dissolution of partnership refers to the change in the existing relations of the partners. The firm continues its business.As one or more than one can partner take over the overall business of the firm.
A court may order for dissolution of a partnership firm on insolvency of all the partners or all the partners except one become insolvent.
Journal
Date Particulars L.F. Dr. Cr. i Realisation A/c........Dr. 1,500 To Cash A/c 1,500 (Being expense on realisation paid.) ii Realisation A/c........Dr. 600 To Mohan's Capital A/c 600 (Being expense on realisation paid by partner.) iii Realisation Account........Dr. 2,000 To Mohan's Capital A/c 2,000 (Being expense on realisation paid to Mohan.) iv No Entry Journal
Date Particulars L.F. (Rs.) (Rs.) (a) Realisation A/c Dr. 12,000
......
To Bank A/c
(Being bank loan discharged)...... 12,000 (b) Realisation A/c Dr. 400
....
To A’s Capital A/c
(Being commission to A credited to A's Capital Account).... 400 (c) A’s Capital A/c Dr. 20,000 ... B’s Capital A/c
Dr. 8,000
....
To Deferred Advertisement Expenditure A/c
(Being the deleted advertisement expenditure written off by debiting Partner's Capital Account in Ratio 5:2, i.e. Profit Sharing Ratio).... 28,000 (d) B’s Capital A/c
Dr. 1,200
...
To Realisation A/c
(Being Stock taken over by B at Rs. 1,200 at agreed value)
.... 1,200 (e) Bank A/c
Dr. 7,000
....
To Realisation A/c
(Being unrecorded computer sold for Rs. 7,000)
.... 7,000 (f) Realisation A/c
Dr. 2,000
....
To Bank A/c
(Being outstanding bill paid for repairs)
.... 2,000 JOURNAL
Date Particulars L.F. Amount Rs. Amount Rs. Bank A/c Dr. 54,480 To Realisation A/c
(Being assets having the book value of Rs. 48,000 were sold for Rs. 50,000 and assets having the book value of Rs. 6,400 were sold for Rs. 4,480)54,480 Ramlal's Capital A/c Dr. 25,600 To Realisation A/c
(Being assets having the book value of Rs. 24,000 were taken over by Ramlal at this value)25,600 or Bank A/c Dr. 54,480 Ramlal's Capital A/c Dr. 25,600 To Realisation A/c 80,400 (Being assets having the book value of Rs. 48,000 were sold for Rs. 50,000 and assets having the book value of Rs. 6,400 were sold for Rs. 4,480 & assets having the book value of Rs. 24,000 were taken over by Ramlal at this value) Working Notes :
- Calculation of amount realised from assets
60% of Rs. 80,000 48,000 Add: Profit on Sale 2,000 50,000
Total amount realised from assets Rs. 50,000 + Rs. 4,480 = Rs. 54,48030% of the remaining
(i.e, (20/100 (Rs. 80,000 - Rs. 48,000)6,400 Less: 30% Discount 1,920 4,480
- Calculation of value of assets taken off by Ramlal
The total Book value of assets 80,000 Less: Book Values of assets sold 54,400 25,600
- Calculation of amount realised from assets
Journal Entries
Date Particulars L.F. Dr. Cr. i Realisation Account ........Dr. 6,000 To Kunal's Capital Account 6,000 (Being Liabilities taken over by a partner.) ii Realisation Account ........Dr. 27,000 To Bank Account 27,000 (Being payments of liabilities.) iii Rohit's Loan Account ........Dr. 70,000 To Bank Account 70,000 (Being Partner's Loan paid.) iv Kunal's Capital Account ........Dr. 3,000 To Realisation Account 3,000 (Being unrecorded Assets taken over by a partner.) v Rohit's Capital Account ........Dr. 5,000 Kunal's Capital Account ........Dr. 5,000 Sarthak's Capital Account ........Dr. 5,000 To Profit & Loss Account 15,000 (Being P & L distributed.) vi Realisation Account ........Dr. 15,000 To Sarthak Capital Account 15,000 (Being realisation Expense borne by a partner.) Realisation Account Cr Particulars Amt (Amt) Particulars Amt (Amt) To Sundry Assets A/c By Sundry Liabilities A/c (Creditors) 1,20,000 Plant 80,000 By Kumar's Capital A/c (Plant taken over) 45,000 Furniture 45,000 By Shyam's Capital A/c (Motor van taken over) 30,000 Motor Van 25,000 By Cash A/c Stock 30,000 Plant 50,000 Debtors 71,000 2,51,000 Furniture 40,000 To Cash A/c (Creditors WN2) 1,00,000 Debtors (71,000 - 1,000) 70,000 1,60,000 To Cash A/c (Expenses) 5,000 By Loss on Realisation Transferred to (WN1)
Kumar's Capital A/c
Shyam's Capital A/c
Ratan's Capital A/c500 300 200 1,000 3,56,000 3,56,000 NOTE : In the absence of any information of realisation of an asset, it has been assumed that nothing is realised from that asset (e.g. stock in this case).
Dr Partners' Capital Account Cr Particular Kumar (Rs.) Shyam (Rs.) Ratan (Rs.) Particular Kumar (Rs.) Shyam (Rs.) Ratan (Rs.) To Realisation A/c (Assets taken over) 45,000 30,000 --- By Balance b/d 68,000 50,000 27,000 To Realisation A/c (Loss on the realisation) 500 300 200 To Cash A/c (Final Payment) 22,500 19,700 26,800 68,000 50,000 27,000 68,000 50,000 27,000 Dr. Cash Account Cr Particulars Amt (Rs.) Particulars Amt (Rs.) To Balance b/d 14,000 By Realisation A/c (Creditors) 1,00,000 To Realisation A/c (Plant, Furniture and debtors realised) 1,60,000 By Realisation A/c (Expenses) 5,000 By Kumar's Capital A/c (Final Payment) 22,500 By Shyam's Capital A/c (Final Payment) 19,700 By Ratan's Capital A/c (Final Payment) 26,800 1,74,000 1,74,000 working notes:
1. Loss on Realisation = 1,000
Loss on Realisation transferred to Kumar's capital account = 1,000×5/10 = 500
Loss on Realisation transferred to Shyam's capital account = 1,000 × 3/10 = 300
Loss on Realisation transferred to Ratan's capital account=1,000 × 2 = 200
2. Creditors = 1,20,000
Out of which 20,000 were untraceable
So the creditors were paid in full settlement amounting 1,20,000 - 20,000 = 1,00,000