Question

On dissolution of a firm, a Partner's Capital Account has a debit balance of Rs70,000. His share of profit as per Realisation Account is Rs90,000. He paid Realisation Expenses Rs33,000 on behalf of the firm and took furniture having book value of Rs50,000 at 30% discount. The amount brought by or amount paid to the partner is _______.

• A. Rs48,000 brought in
• B. Rs1,58,000 Paid
• C. Rs1,54,000 Paid
• D. Rs18,000 paid

Hint:

While solving capital account adjustments, simply treat credit items as plus $(+)$ and debit items as minus $(-)$:
\[ \text{Balance} = - 70,000 \text{ (Opening Dr)} + 90,000 \text{ (Profit Cr)} + 33,000 \text{ (Expenses Cr)} - 35,000 \text{ (Asset taken over Dr)} \]
\[ \text{Balance} = + 18,000 \]
Since the sign is positive, it represents a Credit Balance, meaning the amount is "Paid to the partner".

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks us to find the final settlement amount of a partner's capital account upon the dissolution of a partnership firm, considering various debit and credit adjustments.

Step 2: Key Formula or Approach:
We need to determine the final balance of the Partner's Capital Account by compiling all the debit and credit items:
\[ \text{Closing Balance} = \text{Credits} - \text{Debits} \]
If the net balance is credit (positive), the firm pays the partner. If it is debit (negative), the partner must bring cash into the firm.

Step 3: Detailed Explanation:

• Identify Capital Account Adjustments:
  1. Opening Balance: Debit balance of Rs 70,000. (This is a debit entry).
  2. Share of Realisation Profit: Rs 90,000. (This is a credit entry because profits increase partner's capital).
  3. Realisation Expenses paid by partner: Rs 33,000. Since he paid on behalf of the firm, the firm owes him this money, which increases his capital. (This is a credit entry).
  4. Asset (Furniture) taken over:
  Book value of furniture = Rs 50,000.
  Taken over at 30% discount.
  \[ \text{Value of furniture taken over} = 50,000 - (30% \text{ of } 50,000) \]
  \[ \text{Value of furniture taken over} = 50,000 - 15,000 = Rs 35,000 \]
  This is debited to the partner's capital account because he is taking an asset from the firm.
  
• Prepare Capital Account Summary:
  Total Credits:
  - Share of profit: Rs 90,000
  - Expenses paid on behalf of firm: Rs 33,000
  \[ \text{Total Credits} = 90,000 + 33,000 = Rs 1,23,000 \]
  Total Debits:
  - Opening Debit Balance: Rs 70,000
  - Furniture taken over: Rs 35,000
  \[ \text{Total Debits} = 70,000 + 35,000 = Rs 1,05,000 \]
  
• Calculate Final Settlement Amount:
  \[ \text{Net Balance} = \text{Total Credits} - \text{Total Debits} \]
  \[ \text{Net Balance} = 1,23,000 - 1,05,000 = Rs 18,000 \text{ (Credit Balance)} \]
  Since there is a positive credit balance of Rs 18,000, this amount must be paid to the partner to close his account.
  

Step 4: Final Answer:
The amount paid to the partner is Rs 18,000, which corresponds to Option (D).