DEPARTMENT OF TECHNICA EDUCATION

ANDHRA PRADESH
Name of the staff :J. Satyanarayana Rao
Designation :Senior Lecturer
Branch :Commercial & Computer Practice
Institute :Govt. Polytechnic for Women, Guntur.
Year/Semester :III Semester
Subject :Accountancy-III
Topic :Partnership
Duration :50 Minutes
Sub-topic :Model Accounts on Dissolution, when
all partners are solvent.
Teaching Aids :PPT Animation

CCP402.68 1
OBJECTIVE

At the end of the period we will be able to

prepare
• Journal entries while closing the Partnership/Firm

CCP402.68 2
Model Entries
2. When Assets realised Cash A/c Dr.
In cash. To Assets A/c
(Being proceeds against
the sale of Assets)
a) If there is loss on realisa- Realisation A/c Dr.
tion of Assets. To Assets A/c
(Being loss on sale trans-
ferred to Realisation A/c
b) If there is a gain on Assets A/c Dr
Realistion of the Assets. To Realisation A/c
(Being Profit on sale
transferred to Realisation

CCP402.68 3
2. When Liabilities are paid off.

Liabillities A/c Dr.

To Cash/Bank A/c
(Being liabilities are paid off)

a) If there is loss.

Realisation A/c Dr.

To Liabilities
(Being loss on settlement is transferreds to
Relisation A/c)
CCP402.68 4
 b) If there is gain
Liabilities A/c Dr.
To Realisation A/c
(Being gain on settlement is transferred to
Realisation Account)

When cash received against sale of unrecorded Assets.

( It is profit/gain)
Cash/Bank A/c Dr.
To Realisation A/c
(Being sale of unrecorded Assets)
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4. When Cash paid against unrecorded laibilities.

Realisation A/c Dr.

To Cash/Basnk A/c

(Being payment to unrecorded liabilities)

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Example- 1
The following is the Balance Sheet of a firm as on 31st
December, 2000.
Liabilities Rs. Assets Rs.
Sundry Creditors 80,000 Cash in hand 5,000
Bills payable 20,000 Sundry Debtors 20,000
Bank overdraft 15,000 Machinery 60,000
Capital A/cs. Stock 20,000
Ram 1,00,000 Factory Premises 1,50,000
Syam 60,000 1,60,000 Profit & Loss A/c 20,000

2,75,000
2,75,000
CCP402.68 7
Note:- All the partners are solvent.

The firm was dissolved on 31st December, 2006.The

assets were realized as follows;
Debtors :Rs. 15,000
Machinery Rs. 30,000
Stock Rs. 12,000
Factory Premises Rs. 1,00,000
Bank Overdraft and Bills Payable were paid in full.
Crediltors were settled in Rs. 78,000
Realisation expenses amounted to Rs. 2,000.

CCP402.68 8
 Pass journal entries and prepare ledger accounts to
close the books of the firm assuming that the Profit
sharing ration between Ram and Syam is 3:2.

Solution to Example:1
JOURNAL ENTRIES

7 1. Realisation A/c Dr. 2,50,000

Dec.31 To Sundry Debtors 20,000
“ Machinery A/c 60,000
“ Stock A/c 20,000
“ Factory premises A/c 1,50,000
(Being the assets to transferred to relation etc.,)

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2. Sundry Creditors A/c Dr 80,000
Bills Payable Dr 20,000
Bank Overdraft A/c Dr 15,000
To Realisation A/c 1,15,000
(Being various liabilities transferred to Realisation A/c)

3. Cash A/c Dr 1,57,000

To Realisation A/c 1,57,000
(Being amount realised on debtors Rs.15,000,Machinery
Rs.30,000,Stock Rs. 12,000 and Factory premises
Rs.1,00,00)

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4. Realisation A/c Dr. 1,13,000

To Cash A/c 1,13,000

(Being settlement of creditors Rs.7,800 and Bills Payable

Rs.20,000 and Overdraft Rs.15,000)

5. Realisation A/c Dr. 2,000

To Cash A/c 2,000

(Being expenses paid)

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6. Ram’s Capital A/c Dr. 55,800
Syam’s Capital A/c Dr. 37,200
To Realisation A/c 93,000
(Being Realisation loss transfer to capital A/c)

7. Ram’s Capital A/c Dr. 12,000

Syam’s Capital A/c Dr. 8,000
To Profit & Loss A/c
20,000
(Being loss transferred to capital A/c)

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8. Ram’s Capital A/c Dr. 32,200
Syam’s Capital A/c Dr. 14,800
To Cash A/c 47,000
(Being final settlement of partners Account)

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 CASH ACCOUNT
Dr Cr
2006
Dec.31
To Balance B/d 5,000 By Realisation A/c
1,13,000
To Realisation A/c 1,57,000 (Payment of liabilities)
(Sale of Assets) By Realisation A/c
2,000
(Expenses paid)
By Ram’s Capital a/c
32,200
(Final Settlement)
By Syam’s capital a/c
14,800
(Final Settlement)
1,62,000 1,62,000

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 REALISATION ACCOUNT
Dr. Cr.
2006 2006
Dec.31 Dec.31
To Debtors A/c 20,000 By Creditors A/c
80,000
To Machinery A/c 60,000 By Bills payable
20,000
To Stock A/c 20,000 By Bank Overdraft
15,000
To factory premises 1,50,000 By Cash (Assets
1,57,000
To Cash A/c 1,13,000 realised)
(Payment of liabilities) By Loss: Transferred
To Cash A/c 2,000 Ram 55,800
(Expenses paid) Syam 37,200
93,000
------------
-------------
3,65,000 CCP402.68 3,65,000 15
 CAPITAL ACCOUNTS
Dr. Cr.
Ram Syam
Ram Syam
2006 2006
Dec.31
To Realization 55,800 37,200 Dec.31 By
Balance
(Loss)
B/d 1,00,000 60,000
To Profit & Loss 12,000 8,000
A/c (Loss)
To Cash A/c 32,200 14,800

Total= 1,00,000 60,000 Total= 1,00,000 60,000

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 Assignment
Example—2

A,B & C are sharing profits in the ratio of 3:2:1, agreed

upon dissolution of the firm. A was appointed to realize the

Assets and pay off the liabilities for which he was entitled

to a lump sum amount of Rs.10,000. The balance sheet

of the firm on 31st December, 2001.

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 BALANCE SHEET AS ON 31st December,2001.

Liabilities Rs. Assets Rs.

Capital A 5,00,000 Machinery 4,05,000

“ B 2,00,000 7,00,000 Stock 75,000
Creditors 1,85,000 Investments 2,00,000
Investment 60,000 Debtors 93,000
Fluctuations Fund Less:
Provision 6,000 87,000
C’s Capital A/c 1,15,000
Cash 63,000

9,45,000 9,45,000

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 Contd..

The investments are taken by A for Rs.1,80,000. B takes

Overall the stock at Rs.70,000 and debtors amount to
Rs.50,000 at Rs.45,000. Machinery is sold for Rs.5,50,000.
The remaining debtors realise 50% of the book value.

Prepare necessary ledger Accounts on completion of

the dissolution of the firm..

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