Dissolution

Q.1. Pass journal entries for the following transactions.

(I) Realization expenses amounted to Rs. 40,000.
(II) Realization expenses amounted to Rs. 20,000 were paid by a partner.
(III) Realization expenses amounted to Rs. 20,000 were paid by the firm on behalf of a partner. (IV) A
partner was paid remuneration (including expenses) of Rs. 30,000 to carry out dissolution of the
firm. Actual expenses were Rs. 40,000.
(V) Dissolution expenses were Rs. 32,000. Out of the said expenses, Rs. 12,000 to be borne by the
firm and the balance by a partner, Rs. 32,000 are paid by the firm.
(VI) Dissolution expenses were Rs. 32,000. Out of the said expenses, Rs. 12,000 to be borne by the
firm and the balance by
a partner. The expenses were paid by a partner.
(VII) Realization expenses of Rs. 20,000 were to be borne and paid by a partner.

Q. 2. Pass the necessary journal entries for the following transactions on the dissolution of the
partnership firm of Tony and Rony after the various assets (other than cash) and external liabilities have
been transferred to Realisation Account.
(I) An unrecorded asset of Rs 2,000 and cash Rs 3,000 were paid for liability of Rs 6,000 in full
settlement.
(II) 100 shares of Rs 10 each have been taken over by partners at market value of Rs 20 per share in
their profit-sharing ratio, which is 3:2.
(III) Stock of Rs 30,000 was taken over by a creditor of Rs. 40,000 at a discount of 30% in full
settlement.
(IV) Expenses of realization Rs. 4000 were to be borne by Rony. Rony used the firm’s cash for paying
these expenses.

Q.3 Pass the necessary journal entries for the following transactions on the dissolution of the
partnership firm
(1) Expenses of dissolution were Rs 9,000.
(2) Expenses of dissolution Rs 3,400 were paid by a partner Vishal
(3) Shiv a partner, agreed to do the work of dissolution for a commission of Rs 4,500. He also agreed
to bear the dissolution expenses. Actual dissolution expenses Rs 3,900 were paid from the firm’s
bank account.
(4) Naveen, a partner agreed to look after the dissolution work for which he was allowed a
remuneration of Rs 3,000. Naveen also agreed to bear the dissolution expenses. Actual expenses
on dissolution Rs 2,700 were paid by Naveen.
(5) Vivek, a partner was appointed to look after the dissolution work for a remuneration of Rs. 7,000.
He agreed to bear the dissolution expenses. Actual dissolution expenses Rs 6,500 were paid by
rishi, another partner on behalf of Vivek.
(6) Gaurav, a partner was appointed to look after the work of dissolution for a commission of Rs.
12,500. He agreed to bear the dissolution expenses. Gaurav took furniture of Rs 12,500 as his
commission. The furniture had already been transferred to realization account.

Q.4. Ankit, Bobby and Kartik were partners in affirm sharing profits in the ration 4:3:3. The firm was
dissolved on 31st March 2021. . Pass the necessary journal entries for the following transactions
after the various assets (other than cash) and external liabilities have been transferred to
Realisation Account.
(1) The firm had stock of Rs 80,000. Ankit took over 50% stock at a discount of 20% while the
remaining stock was sold at a profit of 30% on cost.
(2) A liability under a suit for damages included in creditors was settled at Rs 32,000 as against only
Rs. 13,000 provided in the books. Total creditors of the firm were Rs 50,000.

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(3) Bobby’s sister loan was paid off along with interest of Rs. 2,000. (4) Kartik’s Loan of Rs. 12,000 was
settled at Rs. 12,500.

Q. 5 Rakesh Ram and Rohan were partners sharing profits in the ratio of 5:3:2. On 31 st March 2021,
their Balance sheet was as follows.
Liabilities Amount Assets Amount
Sundry Creditors 70,000 Land and Building 3,50,000
Rohan’s loan 20,000 Stock 3,00,000
Mrs. Rohan’s Loan 20,000 Debtors
Capital: 2,00,000
Rakesh 4,00,000 Less: Provision for doubtful 1,90,000
Ram 3,00,000 Debts 70,000
Rohan 1,00,000 8 ,00,000 10,000 _______
9 ,10,000 Cash 9,10,000
The firm was dissolved on the above date on the following terms:
Land & Building and stock were sold for Rs. 6,00,000. Debtors were realized at 10% less than the book
value. Mrs Rohan’s loan was settled by giving her an unrecorded computer of Rs 22,000. Rakesh paid
off one of the creditors Rs 20,000 in settlement of Rs 30,000. Rohan’s loan was fully settled at Rs
18,500. Prepare realisation account.
Q.6 Prem and Suresh were partners in a firm sharing profits in the ratio of 7:8. On 1st April, 2015 their
firm was dissolved. After transferring assets (other than cash) and outsider’s liabilities to realization
account, you are given the following information:
(i) Raman, a creditor accepted land valued at Rs 7,00,000 and paid Rs. 3,00,000 to the firm.
(ii) Gopal, a second creditor for Rs 1,05,000 accepted Rs 90,000 in cash and investment of Rs 14,000
in full settlement of his account.
(iii) Hari, a third creditor amounting to Rs. 75,000 accepted stock of the book value of Rs. 60,000 for
Rs. 45,000 and the balance was paid to him by cheque. (iv) Loss on dissolution was Rs. 45,000.
Pass the necessary journal entries for the above transactions on the dissolution of the partnership firm.
Q.7 J K and L were partners in a firm sharing profits in the ratio of 4:5:1. On 31 st March 2018 their
firm was dissolved. On this date the balance sheet showed a balance of Rs. 1,34,000 in debtors
account and a balance of Rs 14,000 in provision for Bad Debts Account. Both the accounts were
closed by transferring their balance balances to Realisation Account. Rs 4,000 of the debtors became
bad and nothing could be realized from them on dissolution. K agreed to look after the dissolution work
for which he was allowed a remuneration of Rs. 16,000. K also agreed to bear dissolution expenses
for which he was allowed a lump sum payment of Rs. 4,000. Actual dissolution expenses were Rs.
6,500 and the same were paid from the firm’s cash. Loss on dissolution amounted to 37,000.
Pass the necessary journal entries for the above transactions on the dissolution of the partnership
firm.
Q.8 Arnab, Ragini and dhrupad are partners sharing profits in the ratio of 3:1:1. On 31 st March 2021
they decided to dissolve their firm. On that date their balance sheet was as under: Balance Sheet (As
at 31st March,2021)
Liabilities Amount Assets Amount

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 Creditors 60,000 Bank 50,000
Arnab’s Brother’s Loan 95,000 Debtors 1,70,000
Dhrupad’s Loan 1,00,000 (-) Provision for bad debts 20,000 1,50,000
Investment Fluctuation Fund 50,000 Stock 1,50,000
Capital /cs Investments 2,50,000
Arnab 2,75,000 Building 3,00,000
Ragini 2,00,000 Profit and loss A/c 50,000
Dhrupad 1,70,000 6,45,000
_______ _______
9,50,000 9,50,000
The assets were realized and the liabilities were paid as under
(i) Arnab agreed to pay his brother’s loan.
(ii) Investments realized 20% less
(iii) Creditors were paid 10% less
(iv) Building was auctioned for Rs 3,55,000. Commission on auction was Rs 5,000.
(v) 50% of the stock was taken over by Ragini at market price which was 20% less than the book value
and the remaining was sold at market price.
(vi) Dissolution expenses were Rs. 8,000. Rs 3,000 were to be borne by the firm and the balance by
dhrupad. The expenses were paid by him.
Prepare realization account, bank account and partners’ capital account.
Q.9 P and Q were partners in a firm sharing profits in the ratio of 3:2. On 31.03.2011 their Balance
Sheet was as follows:

Liabilities Amount Assets Amount

Capitals: 1,50,000 Goodwill 80,000

P: Rs. 80,000 Land & Building 80,000
Q: Rs. 70,000 Stock 60,000
Creditors 50,000 Debtors 40,000
Workmen Compensation 80,000 Bank 20,000
Fund
2,80,000 2,80,000
The firm was dissolved on 01.04.2011 and the assets & liabilities were settled as follows:
(a) Creditors agreed to take over Land & Building at a valuation of their full claim.
(b) Stock was taken over by Q at Rs. 50,000 for cash.
(c) Bad debts proved Rs. 5,000.
(d) Goodwill was found valueless.
(e) Workmen compensation claim was Rs.80,000.
Pass necessary Journal Entries for dissolution of the firm. (CBSE 2012)

Q. 10. At the time of dissolution of a firm, Realisation expenses of Rs 3,000were paid by the firm on
behalf of Wilson, a partner. You are required to fill in the blanks.
Date Particulars LF Dr (Rs.) Cr. (Rs.)

……………………………….. ……….
……………………………….. ………….
(Being the dissolution expenses paid by the
firm on behalf of Wilson)

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Q. 11. At the time of dissolution of a partnership firm, a creditor for Rs. 2,40,000 accepted machinery
valued at Rs 3,00,000 and paid to the firm balance amount. You are required to complete the following
journal entry:

Date Particulars LF Dr. (Rs.) Cr. (Rs.)

…………………………………………………… …………..
………………………………………………….. …………….
(Being the amount received from a creditor
after adjusting the value of machinery)

Q. 12.
Dr. Realisation Account Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs)
To Stock A/c 10,000 By Provision for doubtful debts A/c 5,000
To Debtors A/c 25,000 By Sundry Creditors A/c 16,600
To plant and machinery A/c 40,000 By Bills payable A/c 3,400
To bank A/c : By Mortgage Loan A/c 15,000
Sundry creditors 16,000 By Bank A/c
Bills payable 3,400 -assets realized :
Mortgage loan 15,000 34,400 Stock
To Bank A/c (outstanding 400 6,700
repairs) 620 Debtors 52,200
To Bank A/c (Expenses) 12,500
Plant & Machinery 6,200
36,000 ………….
By Bank A/c
________ -Unrecorded assets realized _________
1,10,420 By………….. 1,10,420

Dr. Partners’ Capital Accounts Cr.

Particulars Bora Singh Ibrahim Particulars Bora Singh Ibrahim
To…………….. ………. ………. ……….. By Balance b/d 22,000 18,000 10,000
To…………….. ……….. ……….. ……….. By General 2,500 1,500 500
Reserve
______ ______ ______ ______ ______ ______
24,500 19,500 10,500 24,500 19,500 10,500

Dr. Bank Account Cr.

Particulars Amount Particulars Amount
To Balance b/d 19,500 By Realisation A/c 34,400
To Realisation A/c (assets 52,200 (liabilities) 400
realized) By Realisation A/c
To………………. ………. (unrecorded liabilities) ………..
By ………………… ………..
By ………………… ………..
By…………………. .………
By …………………. ……….
_____ _____
80,920 80,920

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Q. 13..
Case Based Questions:
Case I. Komal and Ayushman were partners in a firm. The firm was involved in the activity of dumping
hazardous chemicals into the river. The court intervened and after several constant warning to the firm
against this dumping, it ordered the dissolution of the firm.
At the time of dissolution, the building having book value Rs. 25,00,000 was auctioned for Rs.
30,00,000 and the actioners’ commission amounted to Rs. 1,00,000.
Komal’s brother has granted a loan for Rs. 80,000 to the firm as the firm needed working capital to meet
its operating expenses. Komal agreed to pay off her brother’s loan. Ayushman has also granted a loan
to the firm amounting to Rs. 33,000.
At the time of dissolution, the stock was showing the book value worth Rs. 1,50,000. Ayushman took
over part of stock at Rs. 40,000 (being 20% less than book value). Balance stock realized at 50%. All
the assets and liabilities (except cash/bank a/c and partners’ loan) have been transferred to Realisation
Account.
(i) State any two grounds on the basis of which court may order for dissolution of the firm.
(ii) Differentiate between Dissolution of partnership and dissolution of a partnership firm on the basis
of court intervention.’
(iii) Where and at what amount Building will be recorded at the time of its realization in the realization
account?
(iv) How will you close the Ayushman’s loan account at the time of dissolution?
(v) Calculate the amount realized by the balance stock?
(vi) How will you settle the loan granted by Komal’s brother Rs. 80,000 who she has agreed to pay?

Q. 14.
Case II.
After completing their education, three neighbour’s Elina, Ferry and Gauri established a partnership
firm of manufacturing and selling ‘ Khadi Sarees’ and ‘Khadi Kurtas’ The firm made profit for
consecutive three years. However, during next two years, the firm made huge losses. On detailed
analysis, it was observed that Elina and Ferry were involved in dereliction of duties. Further on
discussion among the partners, both of them refused to perform their duties and hence it was decided
to dissolve to the firm.
Elina, Ferry and Gauri were partners in a firm sharing profits in the ratio of 2:1:1. On 30 th September,
2021 their firm was dissolved. On the date of dissolution, the balance sheet of the firm was as follows:
Balance Sheet (As at 31st March, 2021)
Liabilities Amount Assets Amount
Capital Accounts: Gauri’s Capital Account 500
Elina Profit and Loss account 10,000
1,30,000 2,30,000 Land & Building 1,00,000
Ferry 45,000 Furniture 50,000
1,00,000 17,000 Machinery 90,000
Creditors Debtors 36,500
Outstanding Expenses Bank 5,000
________ ________
2,92,000 2,92,000
The firm was dissolved on the following terms:
Ferry was appointed to undertake the process of dissolution for which he was allowed a remuneration
of Rs 5,000. Ferry agreed to bear the dissolution expenses.
The land and building was sold through a property dealer at a price of 110% of the book value. A
commission of 1% on the selling price of land and building was paid to the property dealer.
Creditors were payable on an average of 3 months from the date of dissolution. On discharging
the creditors on the date of dissolution, they were allowed a discount of 5%.
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 On the basis of the above information, you are to suggest the answer of the following questions along
with passing the journal entries in the following cases.
(i) Distinguish between Reconstitution of partnership and Dissolution of partnership firm on the basis
of closure of books?
(ii) What will be the amount realized from the land and building?
(iii) What amount will be payable to the creditors?
(iv) What will be treatment of the dissolution expenses?

Q. 15. A and B, were partners sharing profits and losses in the ratio of 4:3, decided to dissolve the
partnership firm as at 31-03-15. From the information given below, complete Realisation a/c, Partner's
Capital A/c and Bank A/c:
Dr. Realisation Account Cr.
Liabilities Amount Assets Amount
To Sundry Assets A/c: By Provisions for doubtful debts 500
Machinery 76,000 By sundry creditors 22,650
Stock 34,000 By Bank A/c-assets realized
Investments 30,000 By Loss on Realisation
Debtors 5.730 1,34,730 transferred to Capital a/c :
To Bank A/c-Creditors
1,800 9720
To A's Capital A/c-Expenses
1,70,740 1,70,740

Dr. Partner’s Capital Account Cr.

Liabilities A Amount Assets A B
To Realization A/c 9,720 By ............ ............
To Bank A/c 1,12,070 By ............
By Bank A/c ............ 7,650
1,25,030 9,720 1,25,030 9,720

Dr. Bank Account Cr.

Liabilities Rs. Assets Rs.

To ............. By .............
To realization A/c (assets 1,24,910By A's capital A/c 1,12,070
realized)
To B's capital A/c 7,650
1,35,220 1,35,220
Q. 16. J, K and L decided to dissolve their partnership firm on 31st march, 2012. Their balance
sheet on the day stood asunder:

Liabilities Rs. Assets Rs.

Capitals: J 10,000 Land 45,000

K 10,000 Furniture 5,000
L 10,000 30,000 Stock 4,000
J's Loan A/c 12,000 Debtors 5,000
Creditors 18,000 Bank 1,000

60,000 60,000

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 Land was sold for the 15% above the book value while furniture was realized Rs. 450
less. Stock was realized in full while debtors worth Rs. 300 proved bad. Expenses of
Realisation were Rs. 600. Record the above transactions by passing necessary journal
entries
(Profit on realization Rs. 5,400)
Q. 17. Ramesh and Mahesh were in partnership sharing profits and losses in the ratio of 3:1.
They agreed to dissolve the firm. The assets realized Rs. 1, 50,000. The liabilities of the firm
were as follows:
Creditors Rs. 90,000; Loan from Ramesh Rs. 40000, Ramesh's capital Rs. 20,000 and Mahesh's
Capital Rs. 30,000.
Show through the accounts the distribution of cash realized.
(Realisation loss Rs. 30,000; Ramesh brings in Rs. 2,500 and Mahesh is paid Rs.
22,500; Total of cash A/c Rs. 1,52,500)
Q.18. What journal entries would be passed for the following transactions on the dissolution of
a firm, after various assets (other than cash) and third parties liabilities have been transferred
to Realisation A/c?
1). Loan of Rs. 10,000 advanced by a partner to the firm repaid on the dissolution of the firm
2). X, a partner takes over an unrecorded asset (typewriter) at Rs.300
3). Undistributed balance (debit) of profit and loss account Rs. 30,000. The firm has three
partners X, Y and Z.
4). The assets of the firm realized Rs. 1, 25,000.
5). Y who undertakes to carry out the dissolution proceeding is paid Rs. 2,000 for the same.
6). Creditors paid Rs.28, 000 in full settlement of their account of Rs.30,000.

Q.19. A and B sharing profits and losses in the ratio of 5:2, for the following transactions on the
dissolution of a firm, after various assets and third party liabilities have been transferred to
Realisation account:
1) Bank loan Rs.12, 000 is paid.
2) Stock worth Rs.6, 000 is taken over by partner B.
3) Expenses on dissolution amounted to Rs.1, 500 and were paid by partner A.
4) A typewriter completely written off in the books of accounts was sold forRs.200.
5) Loss on Realisation is of Rs. 14,000.
6) There was a balance of Rs. 21,000 in the general reserve account on the date of dissolution.
7) B also agrees to take over the creditor of Rs. 30,000 for Rs.20,000.
8) A, one of the partners has given loan to the firm of Rs. 10, 000. It was paid back to him at the time
of dissolution.
9) Profit and loss account balance of Rs. 56,000 appeared on the assets side of the balance sheet.
10)Deferred revenue advertising expenditure appeared at Rs.28,000.
11)An unrecorded investment realized Rs. 7,000. Pass journal entries in the books of A and B at the
time of dissolution of the firm.

Q.20. X, Y and Z are in partnership sharing in 7:5:8. They decided to dissolve the partnership.
At the date of dissolution their creditors amounted to Rs. 20,000, cash being Rs.1000 and in
the course of dissolution a contingent liability of Rs. 2,650 not brought into the accounts
matured and to be met. Their capitals stood at Rs. 12,000; Rs. 10,000; and18,000
respectively. X had lent to the firm in addition to capital Rs. 14,000. The asset realizes.
Rs.44,150. Prepare the Realisation account and the partner's capital accounts. Also show
the cash account.
(Realisation Loss Rs. 31500 Total of cash A/c Rs. 45,150)

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 Q.21. X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1. On 30th June,
2015, they agreed to dissolve the partnership, they appointed Y to realize the assets and
distribute the proceeds. Y is to receive 5% commission on the sale of assets (except cash)
as his remuneration and is to bear all expenses of Realisation. Their balance sheet was
as follows:
Balance Sheet
Liabilities Rs. Assets Rs.

Sundry creditors 15,275 Cash at bank 3,740

Reserve fund 12,000 Sundry debtors 20,000
Profit and loss A/c 1,500 Stock 42,200
Capital accounts: Plant and Machinery 61,000
X
Y 70,000
Z 30,000 1,20,000 Goodwill 15,000
Current accounts 20,000 16,625 Current a/c - Z 23,460
X
Y 12,500
4,125
165400 165400

Y reports the result of Realisation as follows:

Sundry Debtors Rs. 12,000, Stock Rs. 18,250, Plant and Machinery at 25% less than book
value. Goodwill was valueless. Creditors were paid in full and the expenses of Realisation
amounted to RS. 380 Which Y, met personally. Prepare necessary Ledger Accounts.
(Realisation loss Rs. 66,000.Final Payment to X Rs. 56,250; Y Rs. 20,425.Cash brought in by Z
Rs. 12,210. Total of Bank A/cRs.91,950)
Q.22. X, Y and Z carrying on business as a partnership firm decided to dissolve the firm on
30.6.2011 when their balance sheet was as follows:
Balance Sheet
Liabilities Rs. Assets Rs.
Creditors 34,000 Cash 25,000
Capitals: Stock 62,000
X 1,20,000 Debtors 37,000
Y 90,000 Tools 8,000
Z 60,000 2,70,000 Car 12,000
Machinery 60,000
Buildings 1,00,000
3,04,000 3,04,000

The partnership deed provided that profits will be divided in the ratio of 3:2:1 respectively among X,
Y and Z. Assets realized as follows: Stock Rs. 40,000, Tools Rs. 5,000. Machinery Rs. 78,000,
Buildings Rs. 84,000. Car Rs. 25,000, Goodwill Rs. 60,000, Debtors Rs. 59,000. Creditors were settled
at a discount of Rs. 720. There was unrecorded asset valued at Rs. 3,000, which was handed over
to X for Rs. 2,000.Prepare Realisation account, cash account and partner's capital accounts.
(Realisation profit Rs. 74,720.Final payment to X Rs. 1, 55,360; Y Rs. 1, 14, 907, Z Rs. 72,
453.Total of cash a/c Rs. 3, 76,000)

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