Question

Pass the necessary journal entries for the following transactions on the dissolution of the partnership firm of Arjun and Kunal after various assets (other than cash) and external liabilities have been transferred to Realisation Account:

(i) Arjun was appointed to look after dissolution work for which he was allowed a remuneration of Rs 10,000. He agreed to bear the dissolution expenses. Actual dissolution expenses paid by Arjun were Rs 9,500.

(ii) A creditor to whom the firm owed Rs 9,000, accepted stock of Rs 3,000 at a discount of 10% and the balance was paid to him in cash.

(iii) Kunal had given a loan of Rs 20,000 to the firm. He was paid Rs 19,000 in full settlement of his loan.

(iv) A piece of furniture, which was not recorded in the books was taken over by Arjun at Rs 27,000 whereas its expected value was Rs 30,000.

Hint:

Remuneration of Rs. 10,000 is debited to Realisation A/c. Expenses borne by Arjun need no entry. Cash to creditor is Rs. 9,000 - Rs. 2,700 = Rs. 6,300. Loan gain is Rs. 1,000 and furniture is taken at Rs. 27,000.

Answer 1

Step 1: What the question asks:
The firm of Arjun and Kunal is dissolved. Assets (other than cash) and outside liabilities are already in the Realisation Account.
We pass one journal entry for each of the four transactions, using the Realisation Account, Cash/Bank and the partner accounts.

Step 2: Working Notes:
Transaction (i): remuneration of Arjun is Rs. 10,000, which is a cost of realisation, so Realisation A/c is debited. The actual expenses of Rs. 9,500 were paid by Arjun himself, as he agreed to bear them. So the firm makes no entry for them.
Transaction (ii): the creditor is owed Rs. 9,000. Stock of Rs. 3,000 is taken at 10% discount, so stock value = Rs. 3,000 - Rs. 300 = Rs. 2,700. Cash paid = Rs. 9,000 - Rs. 2,700 = Rs. 6,300.
The creditor (Rs. 9,000) and the stock (Rs. 3,000) already stand in the Realisation Account. So settling with stock needs no new entry. Only the cash paid is recorded.
Transaction (iii): the loan of Kunal is Rs. 20,000 and he accepts Rs. 19,000 in full settlement. The gain = Rs. 20,000 - Rs. 19,000 = Rs. 1,000 goes to the credit of Realisation A/c.
Transaction (iv): the furniture was never recorded, so it is not in the Realisation Account. Arjun takes it at Rs. 27,000. His Capital A/c is debited and Realisation A/c is credited by Rs. 27,000. The expected value of Rs. 30,000 is not used.

Step 3: Journal of Arjun and Kunal:

Particulars	Dr. (Rs.)	Cr. (Rs.)
(i) Realisation A/c ........ Dr. To Capital A/c (Arjun) (Remuneration allowed to Arjun for dissolution work)	10,000	10,000
(ii) Realisation A/c ........ Dr. To Cash/Bank A/c (Cash paid to the creditor after he took stock at 10% discount)	6,300	6,300
(iii) Loan A/c (Kunal) ........ Dr. To Cash/Bank A/c To Realisation A/c (Loan of Rs. 20,000 settled by paying Rs. 19,000)	20,000	19,000 1,000
(iv) Capital A/c (Arjun) ........ Dr. To Realisation A/c (Unrecorded furniture taken over by Arjun at Rs. 27,000)	27,000	27,000

Final Answer:
Four entries are passed: Rs. 10,000 for remuneration, Rs. 6,300 cash to the creditor, loan settled with a gain of Rs. 1,000, and furniture of Rs. 27,000 taken by Arjun.