Question

Lata and Dheeraj were partners in a firm sharing profits and losses in the ratio of 7 : 3. On 31^st March, 2024, the firm was dissolved. After transferring various assets (other than cash) and third-party liabilities to Realisation Account, the following transactions took place:

• (i) A debtor whose debt of ₹ 40,000 had been written off as bad, paid ₹ 37,000 in full settlement.
• (ii) Land and building was sold for ₹ 9,00,000 through a broker who charged ₹ 50,000 as commission.
• (iii) Creditors amounting to ₹ 36,000 were paid ₹ 33,000 in full settlement.

Pass necessary journal entries for the above transactions in the books of Lata and Dheeraj.

Hint:

In dissolution, all assets and liabilities are transferred to the Realisation A/c. Any recovery, sale, or settlement is routed through Realisation. Don't forget to adjust for commissions and discounts.

Answer 1

These entries relate to the dissolution of a partnership firm, so the transactions affect the Realisation Account and Cash/Bank Account.

Recovery from debtor previously written off:
Although the amount was written off earlier, any recovery during dissolution is treated as a gain.

Cash A/c                   Dr.    37,000  
   To Realisation A/c                  37,000  
(Recovery from debtor previously written off)

Sale of Land and Building with broker commission:
The sale proceeds are received in cash, but the commission paid reduces the net receipt.
Net receipt = ₹ 9,00,000 - ₹ 50,000 = ₹ 8,50,000

Cash A/c                   Dr.   8,50,000  
Realisation A/c            Dr.     50,000  
   To Realisation A/c                 9,00,000  
(Land and building sold; broker commission paid)

Creditors settled at discount:
Discount allowed = ₹ 36,000 - ₹ 33,000 = ₹ 3,000

Creditors A/c              Dr.    36,000  
   To Cash A/c                        33,000  
   To Realisation A/c                  3,000  
(Creditors settled at a discount)

Note: All gains and losses arising from these transactions will eventually be transferred to the partner's capital accounts in their profit-sharing ratio of 7:3.