Chapter- Dissolution of Partnership

Part A (2 marks Question)

1. Distinguish between ‘Dissolution of Partnership’ and ‘Dissolution of Partnership Firm’ based on:
i. Settlement of assets and liabilities
ii. Economic relationship
2. Give the necessary journal entries in each of the following alternative cases:
i. Realisation expenses paid by the firm amounted to ₹ 500 and the partner has to bear the realisation expenses.
ii. 'A' one of the partners was to bear all the realisation expenses for which he was given a commission of 2% of
net cash realised from dissolution. Cash realised from assets was ₹ 25,000 and cash paid for liabilities
amounted to ₹ 5,000.
3. Record necessary journal entries in the following cases:
i. Creditors worth ₹ 85,000 accepted ₹ 40,000 as cash and Investment worth ₹ 43,000, in full settlement of
their claim.
ii. Creditors were ₹ 16,000. They accepted Machinery valued at ₹ 18,000 in settlement of their claim.
iii. Creditors were ₹ 90,000. They accepted Buildings valued ₹ 1,20,000 and paid cash to the firm ₹ 30,000.
4. If total assets are ₹ 5,00,000; total liabilities are ₹ 1,00,000; amount realised on sale of assets is ₹ 4,20,000 and
realisation expenses are ₹ 5,000. What will be the profit or loss on realisation?
5. All the partners want to dissolve the firm. Y, a partner, demands that his loan of ₹ 2,00,000 be paid before payment of
capitals of the partners. But X, another partner, demands that capitals be paid before payment of Y's loan. Who is
correct?
6. A and B were partners in a firm sharing profits and losses equally. Their firm was dissolved on 15th March, 2018,
which resulted in a loss of ₹ 30,000. On that date the capital account of A showed a credit balance of ₹ 20,000 and
that of B a credit balance of ₹ 30,000. The cash account had a balance of ₹ 20,000. You are required to pass the
necessary journal entries for the (i) transfer of loss to the capital accounts of the partners and (ii) making final
payment to the partners.
7. A and B are partners in a firm sharing profits in the ratio of 3 :2. Mrs. A has given a loan of ₹ 20,000 to the firm and
the firm also obtained a loan of ₹ 10,000 from B. The firm was dissolved and its assets were realised for ₹ 25,000.
State the order of payment of Mrs. A's loan and B's loan with reason, if there were no creditors of the firm.
Part B (5 Marks Question)
1. Madhav, Madhusudan and Mukund were partners in Jagannath Associates. They decided to dissolve the firm on 31st
March 2021. Pass necessary journal entries for the following transactions after various assets (other than cash) and
third-party liabilities have been transferred to realisation account:
i. Old machine fully written off was sold for ₹ 42,000 while a payment of ₹ 6,000 is made to the bank for a bill
discounted being dishonoured.
ii. Madhusudan accepted an unrecorded asset of ₹ 80,000 at ₹ 75,000 and the balance through cheque, against
the payment of his loan to the firm of ₹ 1,00,000.
iii. Stock of book value of ₹ 30,000 was taken by Madhav, Madhusudan and Mukund in their profit sharing
ratio.
iv. The firm had paid realisation expenses amounting to ₹ 5,000 on behalf of Mukund.
v. There was a vehicle loan of ₹ 2,00,000 which was paid by surrender of assets to the bank at an agreed value
of ₹ 1,40,000 and the shortfall was met from the firm's bank account.
2. P and Q share profits and losses in 5 : 3. What Journal entries would be passed for the following transactions on the
dissolution of their firm, after various assets (other than cash) and third-party liabilities have been transferred to the
Realisation Account?
i. Profit and Loss Account (Dr. Balance) appeared in the books at ₹ 30,000.
ii. P was asked to look into the dissolution of the firm for which he was allowed a commission of ₹ 2,500.
iii. Q took over part of the stock at ₹ 6,400 (being 20% less than the book value).
iv. An unrecorded liability amounting to ₹ 10,000 was settled at ₹ 8,000.

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Certified Financial Planner,
Ca Finalist, M.com, B.ed
 v. Motor Car of the book value of ₹ 80,000 taken over by Creditors of the book value of ₹ 60,000 in full
settlement.
3. A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 1-4-2018 they decided to dissolve the
firm. On that date A’s Capital was ₹ 2,00,000, B’s Capital was ₹ 10,000 (Dr.) and C’s Capital was ₹ 25,000 (Dr.). The
Creditors amounted to ₹ 80,000 and Cash balance was ₹ 12,000. The assets realised ₹ 2,00,000; Creditors were paid
at a discount of 10% and the expenses of dissolution were ₹ 1,240. All partners were solvent. Prepare a realisation
account, partner’s capital accounts and the cash account.
4. Pass necessary Journal entries on the dissolution of a firm in the following case;
i. Dharam, a partner, was appointed to look after the process of dissolution at a remuneration of Rs. 12,000 and
he had to bear the dissolution expenses. Dissolution expenses Rs. 11,000 were paid by Dharam.
ii. Jay, a partner, was appointed to look after the process of dissolution and was allowed a remuneration of Rs.
15,000. Jay agreed to bear dissolution expenses. Actual dissolution expenses Rs. 16,000 were paid by Vijay,
another partner on behalf of Jay.
iii. Deepa, a partner, was to look after the process of dissolution and for this work she was allowed a
remuneration of Rs. 7,000. Deepa agreed to bear dissolution expenses. Actual dissolution expenses Rs. 6,000
were paid from the firm's bank account.
iv. Dev, a partner, agreed to do the work of dissolution for Rs. 7,500. He took away stock of the same amount as
his commission. The stock had already been transferred to the Realisation Account.
v. Jeev, a partner, agreed to do the work of dissolution for which he was allowed a commission of Rs. 10000.
He agreed to bear the dissolution expenses. Actual dissolution expenses paid by Jeev were Rs. 12,000. These
expenses were paid by Jeev by drawing cash from the firm.
vi. A debtor of Rs. 8,000 already transferred to Realisation Account agreed to pay the realisation expenses of
Rs. 7,800 in full settlement of his account.
5. Hema and Garima were partners in a firm sharing profits in the ratio of 3 : 2. On 31st March, 2015, their Balance
Sheet was as follows:
BALANCE SHEET OF HEMA AND GARIMA
as at 31st March, 2015
Liabilities ₹ Assets ₹
Creditors 36,000 Bank 40,000
Garima’s Husband’s Loan 60,000 Debtors 76,000
Hema's Loan 40,000 Stock 2,00,000
Capital: Hema 2,00,000 Furniture 20,000
Garima 1,00,000 3,00,000 Leasehold Premises 1,00,000
4,36,000 4,36,000

On the above date the firm was dissolved. The various assets were realised and liabilities were settled as under:
i. Garima agreed to pay her husband’s loan.
ii. Leasehold Premises realised ₹ 1,50,000 and Debtors ₹ 2,000 less.
iii. Half the creditors agreed to accept furniture of the firm in full settlement of their claim and the remaining
half agreed to accept 5% less.
iv. 50% Stock was taken over by Hema on cash payment of ₹ 90,000 and remaining stock was sold for ₹ 94,000.
v. Realisation expenses ₹ 10,000 were paid by Garima on behalf of the firm.
Pass necessary Journal entries for the dissolution of the firm.
6. What Journal entries would be passed for the following transactions on the dissolution of a firm of partners A and B:
a. Old furniture which had been written off in the books was sold for ₹ 20,000.
b. Z an old customer whose account for ₹ 10,000 was written off as bad debt in the previous year, paid 70%
c. A agreed to takeover firm's goodwill (Not recorded in the books of a firm) at ₹ 50,000.

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Certified Financial Planner,
Ca Finalist, M.com, B.ed
 d. There was an old computer which had been written off from the books. It was estimated to realise ₹ 5,000. It
is taken by B a partner at the estimated price less 30%.
e. Investments costing ₹ 20,000 (being 1,000 shares), had been written off from the books. These investments
(shares) are valued @ ₹ 15 each and divided among the partners in their profit-sharing ratio.
7. Pass Journal entries for the following at the time of dissolution of a firm:
a. Sale of Assets- ₹ 50,000
b. Payment of Liabilities- ₹ 10,000
c. A commission of 5% allowed to Mr. X a partner on sale of assets,
d. Realisation expenses amounted to ₹ 15,000. The firm had agreed with Amrit, a partner to reimburse him upto
₹ 10,000
e. Z, an old customer whose account for ₹ 6,000 was written off as bad in the previous year, paid 60% of the
amount written off
f. Investment (Book value ₹ 10,000) realised 150%.
8. X and Y are partners. They decided to dissolve their firm. Pass necessary entries assuming that various assets and
external liabilities have been transferred to Realisation Account:
a. X's loan was appearing on the liabilities side of the Balance Sheet at ₹ 40,000. He accepted an unrecorded
asset of ₹ 60,000 in full settlement of his account.
b. Raman, a Creditor to whom ₹ 25,000 were due to be paid, accepted an unrecorded computer of ₹ 18,000 at a
discount of 10% and the balance was paid to him in Cash.
c. Sudhir, an unrecorded creditor of ₹ 40,000 accepted an unrecorded vehicle of ₹ 20,000 at ₹ 25,000 and the
balance was paid to him in Cash.
d. There was a Contingent liability in respect of a bill discounted but not matured ₹ 20,000.
e. Furniture of ₹ 20,000 and goodwill of ₹ 30,000 were appearing in the Balance Sheet but no other information
was provided regarding these two items.
9. P, Q and R were partners in a firm sharing profits in the ratio of 1 : 2 : 2. Their Balance sheet as at 31st March, 2018
was as follows:
BALANCE SHEET OF P, Q AND R
as at 31st March, 2018
Liabilities ₹ Assets ₹
Accounts Payable 15,000 Land and Buildings 47,000
Bank Overdraft 12,000 Office Equipment 8,000
Q's Loan 18,000 Stock 56,000
Capitals: Accounts Receivable 18,000
P 20,000 Bank 16,000
Q 40,000
R 40,000 1,00,000
1,45,000 1,45,000
Partners agreed to dissolve the firm on that date. You are given the following information about dissolution:
a. Office Equipment was accepted by a creditor for ₹ 7,000 in full settlement. The remaining creditors were
paid in full by cheques.
b. Assets realised as follows:
Land and Buildings ₹ 1,29,000
Stock ₹ 40,000
Accounts Receivable ₹ 15,000
c. Other liabilities were paid in full.
d. Dissolution expenses amounted to ₹ 3,000.
You are required to prepare a Realisation Account, Bank Account and Capital Accounts of the Partners.

Sukhvinder Singh
Certified Financial Planner,
Ca Finalist, M.com, B.ed
 10. Shanti and Satya were partners in firm sharing profits in the ratio of 4 : 1. On 31st March, 2013, their Balance Sheet
was as follows:
BALANCE SHEET OF SHANTI AND SATYA
as at 31 st March, 2013
Liabilities ₹ Assets ₹
Creditors 45,000 Bank 55,000
Workmen Compensation Fund 40,000 Debtors 60,000
Satya's Current Account 65,000 Stock 85,000
Capital A/cs: Furniture 1,00,000
Shanti 2,00,000 Machinery 1,30,000
Satya 1,00,000 Shanti's Current Account 20,000
4,50,000 4,50,000
On the above date:
a. Shanti took over 40% of the stock at 10% less than its book value and the remaining stock was sold for ₹
40,000. Furniture realised ₹ 80,000.
b. An unrecorded investment was sold for ₹ 20,000. Machinery was sold at a loss of ₹ 60,000. Debtors realised
₹ 55,000
c. There was an outstanding bill for repairs for which ₹ 19,000 was paid.
d. the firm was dissolved:
Prepare a Realisation Account.
11. Following is the balance sheet of Vinit and Yogesh as on 31st March, 2015.
Balance Sheet
as at 31st March, 2015
Liabilities Amt (Amt) Assets Amt (Amt)
Creditors 3,60,000 Bank 80,000
Mrs. Vinit's Loan 60,000 Stock 70,000
Yogesh's Loan 1,00,000 Investments 1,00,000
Investment Fluctuation Fund 30,000 Debtors 2,00,000
Capital A/cs (-) Provision for Bad Debts (20,000) 1,80,000
Vinit 2,00,000 Fixed Assets 3,80,000
Yogesh 1,00,000 3,00,000 Profit and Loss A/c 40,000
8,50,000 8,50,000
The firm was dissolved on 31st March, 2015. The assets were realised and the liabilities were paid as under
i. Vinit promised to pay off Mrs Vinit’s loan and took away stock at 20% discount.
ii. Yogesh took away 90% of the investments at a 10% discount.
iii. Sunil, a debtor of ₹ 50,000 had to pay the amount due 3 months after the date of dissolution. He was allowed
a discount of 5% for making payment immediately. The remaining debtors were collected in full.
iv. Creditors were paid ₹ 3,50,000 in full settlement of their claim.
v. Fixed assets realised ₹ 2,82,000 and remaining investment realised ₹ 7,500.
vi. There was old furniture which had been written-off completely from the books. Yogesh took away the same
for ₹ 4,000.
vii. Realisation expenses ₹ 2,000 were paid by Vinit.
Prepare a realisation account, bank account and partners' capital accounts.
12. J, S and R were in partnership sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March,
2018 was as follows:
BALANCE SHEET
Liabilities ₹ Assets ₹

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Certified Financial Planner,
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 Capital Accounts: Buildings 10,000
J 12,000 Plant 22,000
S 8,600 Stock 12,200
R 10,400 Debtors 5,000
Reserve Fund 3,000 Accrued Interest 1,000
Employees' Provident Fund 3,000 Cash 2,800
Depreciation Provision 5,000
Creditors 11,000
53,000 53,000
It was agreed to dissolve the firm, and the terms of the dissolution were:
i. J took over Buildings at book value and agreed to pay off creditors.
ii. Accrued interest was not collected whereas there was a contingent liability of ₹ 600 which was met.
iii. Other assets realised: Plant: ₹ 25,000, Stock: ₹ 11,200, Debtors: ₹ 4,600.
iv. Realisation expenses ₹ 600.
Prepare Realisation Account, Capital Accounts and Cash Account.
13. Niyati, Kartik and Ratik were partners in a firm sharing profits and losses in the ratio of 5: 3: 2. The firm was
dissolved on 31 st March, 2019 by the order of the court. After transfer of assets (other than cash) and external
liabilities to Realisation Account, the following transactions took place:
a. An unrecorded liability of the firm of ₹ 45,000 was paid by Niyati.
b. Creditors, to whom ₹ 67,000 were due to be paid, accepted furniture at ₹ 35,000 and the balance was paid to
them in cash.
c. Kartik had given a loan of ₹ 18,000 to the firm which was paid to him.
d. Stock worth ₹ 85,000 was taken over by Ratik at ₹ 72,000.
e. Expenses on dissolution amounted to ₹ 6,000 and were paid by Kartik.
f. Loss on dissolution amounted to ₹ 40,000. Pass the necessary journal entries for the above transactions in the
books of the firm.
Pass the necessary journal entries for the above transactions in the books of the firm.

Sukhvinder Singh
Certified Financial Planner,
Ca Finalist, M.com, B.ed