Question

At the time of dissolution of a firm, Debtors of Rs30,000 were realised at 70% and other Sundry Assets worth Rs1,20,000 excluding goodwill of Rs20,000 were realised at a loss of 20%. Creditors existed at book value of Rs40,000. Gain or loss on Realisation is

• A. Gain Rs33,000
• B. Loss Rs53,000
• C. Gain Rs41,000
• D. Loss Rs13,000

Hint:

Remember:
1. Intangible assets like Goodwill, Patents, etc., if not mentioned to be realised, are assumed to have realized zero value.
2. Tangible assets, if not mentioned, are also assumed to realize zero value.
3. Liabilities, if silent, must always be paid off completely at 100% of their book value.
Calculating only the net differences of transactions:
Debtors loss = $30% \text{ of } 30,000 = 9,000 \text{ loss}$
Sundry Assets loss = $20% \text{ of } 1,20,000 = 24,000 \text{ loss}$
Goodwill loss = $100% \text{ of } 20,000 = 20,000 \text{ loss}$
Total Loss = $9,000 + 24,000 + 20,000 = 53,000$
This short calculation is very reliable when there are no changes in liability settlement values!

Answer 1

The Correct Option is B

Step 1: Understanding the Question:
We are required to find the net gain or loss on the Realisation Account during the dissolution of a partnership firm.
We have information about the book values and realised values of debtors, sundry assets, goodwill, and creditors.

Step 2: Key Formula or Approach:
The net gain or loss is determined by calculating the difference between total debits (book value of all assets transferred + payments made) and total credits (book value of liabilities transferred + asset realisation receipts) in the Realisation Account.

Step 3: Detailed Explanation:

• Determine Book Values of Assets Transferred (Debit Side):
  1. Debtors = Rs 30,000
  2. Other Sundry Assets (excluding goodwill) = Rs 1,20,000
  3. Goodwill = Rs 20,000 (goodwill is also a recorded asset and is transferred to the Realisation Account)
  \[ \text{Total Assets Transferred} = 30,000 + 1,20,000 + 20,000 = Rs 1,70,000 \]
  
• Determine Book Value of Liabilities Transferred (Credit Side):
  1. Creditors = Rs 40,000
  
• Determine Realised Values of Assets (Credit Side):
  1. Debtors realised at 70%:
  \[ 30,000 \times 70% = Rs 21,000 \]
  2. Sundry Assets realised at a loss of 20% (i.e., at 80% of book value):
  \[ 1,20,000 \times 80% = Rs 96,000 \]
  3. Goodwill: No information is given about the realisation of goodwill. On dissolution, if no information is given about the realisation of an intangible asset like goodwill, it is assumed to have realised nil value.
  \[ \text{Total Cash Realised from Assets} = 21,000 + 96,000 = Rs 1,17,000 \]
  
• Determine Payments for Liabilities (Debit Side):
  Creditors are paid at book value since no other agreement is mentioned:
  \[ \text{Payment to Creditors} = Rs 40,000 \]
  
• Calculate Total Debits and Credits:
  \[ \text{Total Debit Side} = \text{Book Value of Assets} + \text{Payment of Creditors} \]
  \[ \text{Total Debit Side} = 1,70,000 + 40,000 = Rs 2,10,000 \]
  \[ \text{Total Credit Side} = \text{Book Value of Creditors} + \text{Realised Value of Assets} \]
  \[ \text{Total Credit Side} = 40,000 + 1,17,000 = Rs 1,57,000 \]
  
• Find Net Gain/Loss:
  Since Debit exceeds Credit, there is a loss:
  \[ \text{Loss on Realisation} = 2,10,000 - 1,57,000 = Rs 53,000 \]
  

Step 4: Final Answer:
The net loss on realisation is Rs 53,000, which corresponds to Option (B).