Question

Piyush and Mita were partners in a firm sharing profits and losses in the ratio of 5 : 2. On 31^st March, 2024, the firm was dissolved. After transferring various assets (other than cash) and third-party liabilities to the Realisation Account, the following transactions took place:

(i) Investments whose book value was ₹50,000 were realised at 70%.
(ii) Unrecorded liabilities of ₹21,000 were paid.
(iii) Piyush took over stock worth ₹78,000 at ₹65,000.

Pass necessary journal entries for the above transactions in the books of Piyush and Mita.

Hint:

While dissolving a firm, all assets and liabilities are transferred to the Realisation A/c, and any partner taking over an asset is debited with the agreed value—not the book value.

Answer 1

Journal Entries:
1. Investment realised at 70% of book value:

Bank A/c                  Dr.   35,000  
   To Realisation A/c                   35,000  
(Being investment worth ₹50,000 realised at 70%)

2. Payment of unrecorded liability:

Realisation A/c           Dr.   21,000  
   To Bank A/c                          21,000  
(Being unrecorded liability paid off)

3. Stock taken over by Piyush at agreed value:

Piyush’s Capital A/c      Dr.   65,000  
   To Realisation A/c                   65,000  
(Being stock taken over by Piyush worth ₹78,000 at ₹65,000)

Explanation:
- For investment, 70% of ₹50,000 = ₹35,000 was received in cash, and hence credited to Realisation A/c.
- Unrecorded liabilities are paid in cash and debited to Realisation A/c.
- When a partner takes over an asset, his capital account is debited with the agreed value (₹65,000). The asset was worth ₹78,000, but that does not affect the entry as only agreed value is considered.