Question

At the time of dissolution of a firm, firm’s total assets were ₹ 5,00,000, creditors were ₹ 1,00,000. Realisation expenses amounted to ₹ 10,000. Assets realised 20% more than the book value and creditors were paid 5% less. Gain/loss on realisation will be

• A. Gain ₹ 95,000.
• B. Loss ₹ 75,000.
• C. Gain ₹ 4,95,000.
• D. Loss ₹ 1,00,000.

Hint:

A faster way to calculate this is to look at the "net changes":
• Profit from Assets: +₹ 1,00,000 (20% of 5L)
• Profit from Creditors: +₹ 5,000 (5% of 1L)
• Realisation Expenses: -₹ 10,000
• Net Result: $1,00,000 + 5,000 - 10,000 = ₹ 95,000$ Gain.

Answer 1

The Correct Option is A

Concept: The Gain or Loss on Realisation is determined by comparing the total amounts credited to the Realisation Account (sale of assets and liabilities settled at a lower value) against the total amounts debited (book value of assets, settlement of liabilities, and expenses).

Step 1: Identify the values and calculate realisations.
• Total Assets (Book Value): ₹ 5,00,000.
• Creditors (Book Value): ₹ 1,00,000.
• Realisation Expenses: ₹ 10,000.
• Amount Realised from Assets: $5,00,000 + 20\% = 5,00,000 + 1,00,000 = ₹ 6,00,000$.
• Amount Paid to Creditors: $1,00,000 - 5\% = 1,00,000 - 5,000 = ₹ 95,000$.

Step 2: Calculate the Gain/Loss. The Realisation Account logic is: $(\text{Assets Realised} + \text{Book Value of Creditors}) - (\text{Book Value of Assets} + \text{Amount Paid to Creditors} + \text{Expenses})$. \[ \text{Gain/Loss} = (6,00,000 + 1,00,000) - (5,00,000 + 95,000 + 10,000) \] \[ \text{Gain/Loss} = 7,00,000 - 6,05,000 \] \[ \text{Gain/Loss} = ₹ 95,000 \text{ (Positive result indicates a Gain)} \]