Raja, Rajan and Rajani were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 31st March, 2024, their Balance Sheet was as follows. On the above date, the firm was dissolved. Assets were realised and liabilities were paid off as follows:
(i) Land and Building was sold for ₹ 20,00,000.
(ii) Plant and Machinery realised ₹ 40,000 less than their book value and furniture was taken over by the creditors in full settlement of their account.
(iii) Debtors and Bills Receivable realised ₹ 90,000.
(iv) 60% of the stock was taken over by Raja at 90% of the book value and the remaining stock realised at ₹ 44,000.
(v) Outstanding wages were paid in full.
(vi) Mrs. Raja's loan was paid with interest of ₹ 10,000.
(vii) Realisation expenses were ₹ 8,000. Prepare Realisation Account.
(i) Land and Building was sold for ₹ 20,00,000.
(ii) Plant and Machinery realised ₹ 40,000 less than their book value and furniture was taken over by the creditors in full settlement of their account.
(iii) Debtors and Bills Receivable realised ₹ 90,000.
(iv) 60% of the stock was taken over by Raja at 90% of the book value and the remaining stock realised at ₹ 44,000.
(v) Outstanding wages were paid in full.
(vi) Mrs. Raja's loan was paid with interest of ₹ 10,000.
(vii) Realisation expenses were ₹ 8,000. Prepare Realisation Account.
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Solution and Explanation
Step 1: Prepare the Realisation Account to record the dissolution of the firm. - Debit Side (Assets Transferred):
- Land and Building: ₹ 9,00,000
- Plant and Machinery: ₹ 6,00,000
- Furniture: ₹ 1,20,000
- Debtors: ₹ 80,000
- Bills Receivable: ₹ 18,000
- Stock: ₹ 1,00,000
- Bank (Creditors taken over): ₹ 80,000
- Bank (Outstanding Wages): ₹ 10,000
- Credit Side (Liabilities Transferred):
- Capitals: Raja ₹ 3,00,000, Rajan ₹ 4,00,000, Rajani ₹ 5,00,000 (Total ₹ 12,00,000)
- General Reserve: ₹ 1,60,000
- Creditors: ₹ 80,000
- Raja's Loan: ₹ 3,00,000
- Mrs. Raja's Loan: ₹ 1,90,000
Step 2: Record realisation of assets and payment of liabilities.
- Land and Building sold for ₹ 20,00,000 (Credit Realisation A/c ₹ 20,00,000) - Plant and Machinery realised ₹ 40,000 less than book value: ₹ 6,00,000 - ₹ 40,000 = ₹ 5,60,000 (Credit Realisation A/c ₹ 5,60,000)
- Furniture taken over by creditors (₹ 1,20,000) in full settlement (No cash transaction)
- Debtors and Bills Receivable realised ₹ 90,000 (Credit Realisation A/c ₹ 90,000)
- 60% of Stock (₹ 60,000) taken by Raja at 90% of book value: 0.9 × ₹ 60,000 = ₹ 54,000 (Credit Realisation A/c ₹ 54,000)
- Remaining 40% of Stock (₹ 40,000) realised ₹ 44,000 (Credit Realisation A/c ₹ 44,000)
- Outstanding Wages paid ₹ 10,000 (Debit Realisation A/c ₹ 10,000)
- Mrs. Raja's Loan paid with interest ₹ 1,90,000 + ₹ 10,000 = ₹ 2,00,000 (Debit Realisation A/c ₹ 2,00,000)
- Realisation expenses ₹ 8,000 (Debit Realisation A/c ₹ 8,000)
Step 3: Calculate profit or loss on realisation.
- Total credits: ₹ 20,00,000 + ₹ 5,60,000 + ₹ 90,000 + ₹ 54,000 + ₹ 44,000 = ₹ 26,48,000
- Total debits: ₹ 10,000 + ₹ 2,00,000 + ₹ 8,000 + ₹ 80,000 (Creditors) = ₹ 2,98,000
- Net credit to assets transferred: ₹ 9,00,000 + ₹ 6,00,000 + ₹ 1,20,000 + ₹ 80,000 + ₹ 18,000 + ₹ 1,00,000 = ₹ 18,18,000
- Loss on realisation: ₹ 18,18,000 - ₹ 26,48,000 = -₹ 8,30,000 (Debit Realisation A/c ₹ 8,30,000)
Step 4: Distribute loss among partners in profit-sharing ratio 2:2:1.
- Total parts = 5
- Raja's share: 2/5 × ₹ 8,30,000 = ₹ 3,32,000
- Rajan's share: 2/5 × ₹ 8,30,000 = ₹ 3,32,000
- Rajani's share: 1/5 × ₹ 8,30,000 = ₹ 1,66,000
- Adjust in Capital Accounts.
Step 5: Final Realisation Account:
- Dr. Side: Assets ₹ 18,18,000, Loss ₹ 8,30,000, Expenses ₹ 8,000, Payments ₹ 2,18,000
- Cr. Side: Assets realised ₹ 26,48,000, Liabilities ₹ 14,40,000
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