8. PARTNERSHIP ACCOUNTS - II

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1 SOLUTIONS TO ASSIGNMENT PROBLEMS 8. PARTNERSHIP ACCOUNTS II PROBLEM NO. 1 Realisation Account To Debtors A/c 48,000 By Creditors A/c 48,000 To Stock A/c 60,000 To Fixtures A/c 24,000 By cash A/c (assets realized) To Plant and machinery A/c 1,08,000 Plant and machinery 1,02,000 To Cash A/c (creditors) 45,600 Fixtures 18,000 To Cash A/c (sales tax) 4,200 Stock 84,000 To Cash A/c (realization expenses) 1,500 Debtors 44,400 2,48,400 To Profit on realization By Q capital A/c 4,800 (unrecorded assets taken over) P 3960 Q 3960 R ,01,200 3,01,200 Partner s Capital Accounts P Q R P Q R To Realization A/c 4,800 By Balance b/d 1,20,000 48,000 24,000 To Cash A/c (b/f) 1,47,960 71,160 37,980 By Reserve fund 24,000 24,000 12,000 By Realization A/c (Profit) 3,960 3,960 1,980 1,47,960 75,960 37,980 1,47,960 75,960 37,980 Cash Account To Balance b/d 60,000 By Realization A/c (Creditors) 45,600 To Realisation A/c 2,48,400 By Realization A/c (Expenses) 1,500 By Realization A/c (Sales tax) 4,200 By Partners capitals accounts P 1,47,960 Q 71,160 R 37,980 3,08,400 3,08,400 Note: Unrecorded asset is a gain and credited to realization A/c. since it is taken over by Q, his capital A/c is debited. Hint given in the question is wrong. IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 1

2 Ph: /26 PROBLEM NO. 2 In the books of M/s X, Y & Z Realization A/c Cr. To Plant and Machinery 60,000 By Creditors A/c 70,000 To Furniture 10,000 By Bank O.D (W.N2) 70,200 To Stock 45,000 By X Loan A/c 22,550 To Sundry Debtors 60,000 By D s A/c 90,000 To X s Capital A/c 2,800 To motor cars A/c 40,000 To Capital A/c: X 34,950 x 3/6 17,475 Y 34,950 x 2/6 11,650 Z 34,000 x 1/6 5,825 2,52,750 2,52,750 Cash A/c Cr. To D s A/c 90,000 By X s Capital A/c 59,100 To Z s Capital A/c 6,833 By Y s Capital A/c 37,733 96,833 96,833 Capital A/c Cr. X Y Z X Y Z To Bal. b/d 12,658 By Balance b/d 38,825 26,083 To Cash 59,100 37,733 By Realization 2,800 By Realization 17,475 11,650 5,825 By Cash 6, D s A/c Cr. To Realization 90,000 By Cash A/c 90,000 90, WORKING NOTE: Trading and Profit & Loss of M/s X, Y, Z for the period ended Cr. To Opening stock 55,000 By Sales 45,000 To Purchases 30,000 By Closing Stock 45,000 To gross profit c/d 5,000 90,000 90,000 To Salaries & Wages 12,000 By Gross Profit b/d 5,000 To General & Office expenses 6,000 By Capital A/c (Loss): To Interest on X s loan 550 X 13,550 x 3/6 6,775 (22,000x10%x3/12) Y 13,550 x 2/6 4,517 C 13,550 x 1/6 2,258 1,98,550 1,98,550 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 2

3 Balance Sheet of M/s X, Y, Z as on Liabilities Amount Assets Amount X s Capital 48,000 Plant & Machinery 60,000 () Drawings (2,400) Furniture & fittings 10,000 () Loss (6,775) 38,825 Motor car 40,000 Y s Capital 3 Stock 45,000 () Drawings (2,400) Sundry Debtors (W.N3) 60,000 () Net Loss (4,517) 26,083 Z s Capital A/c 8,000 (+) Drawings 2,400 (+) Net loss 2,258 12,658 Loan A/c X 22,000 (+) Interest ,550 Trade creditors 70,000 Bank Overdraft 70,200 2,27,658 2,27,658 Working Note 1 Creditors A/c Cr. To Bank A/c (b/f) 40,000 By Balance b/d 80,000 To Balance c/d 70,000 By Purchases 30,000 1,10,000 1,10,000 Working Note 2 Bank A/c Cr. To Debtors 25,000 By Balance b/d 30,000 To Balance 70,200 By Salaries & Wages 12,000 By General & Office expenses 6,000 By Drawings (3x3x800) 7,200 By Creditors 40,000 95,200 95,200 By Balanced b/d 70,200 Working Note 3 Debtors A/c Cr. To Balance b/d 40,000 By Cash / Bank A/c (b/f) 25,000 To Sales 45,000 By Balance c/d 60,000 85,000 85,000 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 3

4 Ph: /26 PROBLEM NO. 3 Realisation Account To Sundry Assets: By Creditors 15,700 Debtors 15,850 By Employee s Provident Fund 6,300 Stock 25,200 By Bank A/c: Prepaid Expenses 800 Joint Life Policy 4,500 Plant & Machinery 20,000 Debtors 10,800 Patents 8,000 69,850 Stock 15,600 To Bank Creditors: 12,100 Plant and Machinery 12,000 (15,700 3, ) To Bank A/c Employee s (P.F) 6,300 Patents 60% of (8,000 5,000) 1,800 44,700 To Bank A/c (expenses) 1,500 By Loss transferred: A s Capital A/c 9,220 B s Capital A/c 6,915 C s Capital A/c 4,610 D s Capital A/c 2,305 23,050 89,750 89,750 A B C Capital Accounts D To Balance b/d 3,200 8,415 By Balance b/c 40,000 20,000 By Bank To Realisation A/c 9,220 6,915 4,610 2,305 9,220 6,915 4,610 (Realisation loss) To D s Capital By Bank (Recovery) (Deficiency) 5,360 2,680 2,680 To Bank 34,640 17,320 By A s Capital 2/3 5,360 A By B s Capital 1/3 2,680 By Bank A/c 3,200 49,220 26,915 7,810 10,720 49,220 26,915 7,810 10,720 Bank Account To Balance b/d 535 By Realisation A/c 12,100 To Realisation A/c 44,700 By Realisation A/c 6,300 To A s Capital A/c 9,220 By Realisation A/c 1,500 To B s Capital A/c 6,915 By A s Capital A/c 34,640 To D s Capital A/c (10,720x25%) 2,680 By B s Capital A/c 17,320 To C s Capital A/c (4, ,200) 7,810 71,860 71,860 Working Note: D s loss will be borne by A and B only as solvent partners having credit balance only has to bear the loss on account of insolvency. C will bring his share of loss in cash. B C D IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 4

5 To Land To Buildings To Office Equipments To Computers To Debtors To Stock To Other Asset A/c To Bank A/c (Loan) To Bank A/c To Capital A/c F Kapil 9,600 S Kapil 9,600 R Dev 2,400 B Dev 2,400 PROBLEM NO. 4 Realization Account 50,000 2,50,000 1,25,000 70,000 4,00,000 3,00,000 22,600 5,05,000 70,000 24,000 18,16,600 By Loan from NBFC By Current Liabilities By Bank: Land Buildings Computers Debtors Stock Office Equipments Other Current Assets 5,00,000 70,000 1,00,000 3,00,000 49,000 3,80,000 2,70,000 1,25,000 22,600 18,16,600 Partners Capital Account FK SK RD BD FK SK RD BD To Current A/c To BD A/c To BD A/c To Bank A/c 17,000 2,42,600 To Balance b/d To Realization A/c 17,000 3,42,600 42,500 8,500 1,61,400 87,400 2,59,600 3,59,600 2,12,400 87,400 By Balance b/d By Current A/c By Realization A/c By RD A/c By FK A/c By SK A/c By RD A/c 50,000 9,600 1,50,000 9,600 1,00,000 1,10,000 2,400 2,400 42,500 17,000 17,000 8,500 2,59,600 3,59,600 2,12,400 87,400 Bank Account 75,000 12,46,600 To Debtors To Stock To Machinery To Land and Buildings To Bank 13,21,600 By Realization A/c (Loan) By Realization A/c By RD A/c By FK A/c By SK A/c 5,05,000 70,000 1,61,400 2,42,600 3,42,600 13,21,600 PROBLEM NO. 5 Realization Account 96,060 64,000 28,600 84,000 1,02,400 3,75,060 By Creditors By Bank By Partners Capital (b/f) A s Capital 15,260 B s Capital 15,260 C s Capital 15,260 1,02,400 2,26,880 45,780 3,75,060 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 5

6 Ph: /26 Partners Capital Account A B C A B C To Current A/c of C To Realization A/c To C s Capital A/c To Bank A/c (b/f) 15,260 3,120 1,08,080 15,260 2,080 52,420 9,940 15,260 1,26,460 69,760 25,200 By Bal. (b/d) By Current A/c By Loan from Partners By A s Capital By B s Capital By Bank A/c 60,000 21,200 30,000 15,260 40,000 2,500 12,000 15,260 20,000 3,120 2,080 1,26,460 69,760 25,200 To Balance (b/d) To Realization A/c To A s Capital A/c To B s Capital A/c Bank Account 5,500 2,26,880 15,260 15,260 2,62,900 By Realization A/c By A s Capital A/c By B s Capital A/c 1,02,400 1,08,080 52,420 2,62,900 Hint given in the question is wrong. PROBLEM NO. 6 Amount Available Balance due 1 st Instalment (including cash and bank balances) 5,00,000 Less: Liquidator s Expenses and fee (1,00,000) 4,00,000 In the Books of M/s LMS Statement of Piecemeal Distribution (Under Higher Relative Capital method) Creditors Bank Loan L s Loan L Capital A/c s 5,00,000 10,00,000 15,00,000 10,00,000 5,00,000 Less: Payment of Creditors and repayment of Bank Loan in the ratio of 2:5 (4,00,000) (1,14,286) (2,85,714) Balance Due 85,714 2,14,286 10,00,000 15,00,000 10,00,000 5,00,000 2 nd Instalment 15,00,000 Less: Payment to Creditors and repayment of bank loan in full settlement (3,00,000) (85,714) (2,14,286) Less: Repayment of L s Loan 1 10,00,000 15,00,000 10,00,000 5,00,000 (10,00,000) (10,00,000) 15,00,000 10,00,000 5,00,000 Less: Payment to Mr. L towards relative higher capital (W.N.1) () () Balance Due 13,00,000 10,00,000 5,00,000 M S IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 6

7 3 rd Instalment 15,00,000 Less: Payment to Mr. L towards higher relative capital (W.N.2) (3,00,000) (3,00,000) 1 10,00,000 Less: Payment to Mr. L & Mr. M towards excess capital (W.N. 1& 2) (10,00,000) (5,00,000) (5,00,000) 5,00,000 5,00,000 Less: Payment to all the partners equally () (66,667) (66,667) (66,666) Balance Due 4,33,333 4,33,333 4,33,334 4 th Instalment 30,00,000 Less: Payment to all the partners equally (30,00,000) (10,00,000) (10,00,000) (10,00,000) Realisation profit credited to Partners 5 th Instalment 30,00,000 5,66,667 5,66,667 5,66,666 Less: Payment to all partners equally (30,00,000) 10,00,000 10,00,000 10,00,000 Realisation profit credited to partners 15,66,667 15,66,667 15,66,666 Working Notes: Scheme of payment of surplus amount of out of second Instalment: Capital A/c s L M S Balance (i) 15,00,000 10,00,000 5,00,000 Profit sharing ratio (ii) Capital taking S s capital (iii) 5,00,000 5,00,000 5,00,000 Excess Capital (iv) = (i) (iii) 10,00,000 5,00,000 Profit Sharing Ratio 1 1 Excess capital taking M s Excess Capital as base (v) 5,00,000 5,00,000 Higher Relative Excess (iv) (iv) 5,00,000 So, Mr. L should get 5,00,000 first which will bring down his capital account balance from 15,00,000 to 10,00,000. Accordingly, surplus amounting to will be paid to Mr. L towards higher relative capital. Scheme of payment of 15,00,000 realised in 3 rd Instalment: Payment of 3,00,000 will be made to Mr. L to discharge higher relative capital. This makes the higher capital of both Mr. L and Mr. M 5,00,000 as compared to capital of Mr. S. Payment of 5,00,000 each of Mr. L & Mr. M to discharge the higher capital. Balance equally to L, M and S, i.e., 66,667 66,667 and 66,666 respectively. IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 7

8 Ph: /26 Problem No. 7 Statement showing Realisation and Distribution of Cash Payments 1. After taking into account cash balance and amount set aside for expenses Realisation Creditors Partners Loan Partners Capital 1,000 1, ,000 2, , ,000 6,000 Including saving in expenses 20,100 20,100 34,000 2,000 5,000 27,000 To ascertain the amount distributable out of each instalment realised among the partners, the following table will be constructed: Statement of Distribution on Capital Account (1) Calculation to determine the mode of distribution of 900 Total Balance 42,000 15,000 18,000 9,000 Less: Possible loss, should remaining assets prove to be worthless Deficiency of A s capital written off against those of B and C in the ratio of their capital, 18,000 : 9,000 (Garner vs. Murray) A (41,100) (16,440) (16,440) (8,220) ,440 +1, B C (960) (480) Manner in which the first 900 should be distributed (2) Distribution of 6,000 Balance after making payment of amount shown in step 91) 41,100 15,000 17,400 8,700 Less: Possible loss, assuming remaining assets to be valueless (35,100) (14,040) (14,040) (7,020) Balance available and to be distributed 6, ,360 1,680 (3) Distribution of 20,100 Balance after making payment of amount shown in step (2) 35,100 14,040 14,040 7,020 Less: Possible loss, assuming remaining assets to be valueless (15,000) (6,000) (6,000) () Manner of distribution of 20,100 20,100 8,040 8,040 4,020 Summary: Balance 42,000 15,000 18,000 9,000 Total amounts paid 27,000 9,000 12,000 6,000 Loss 15,000 6,000 6,000 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 8

9 PROBLEM NO. 8 Calculation of Purchase Consideration: Assets: Goodwill Land & Buildings Fixture Debtors Stock Cash in hand () Creditors () Loans () Bank OD Purchase consideration (A B) A & CO. B & CO. Total (A) Total (B) 1,10,000 4,10,300 11,000 1,40,800 5,06,000 1,100 11,79,200 (3,38,800) (15,840) (1,96,900) 5,51,540 6,27,660 Total Purchase consideration 11,3 88,000 2,37,600 2,47,500 5,73,100 (57,200) (10,560) 67,760 5,05,340 Realization A/c To Lands & Buildings To Fixture To Debtors To Stock To Cash To Partners Capital A/c A 99,000 B 99,000 4,10,300 11,000 3,78,400 7,53,500 1,100 1,98,000 17,52,300 By Creditors By Loans By Bank OD By Purchasing Company 3,96,000 26,400 1,96,900 11,3 17,52,300 Partners Capital A/c A B A B To Amount of shares in A Ltd. To Amount of shares in B Ltd. 5,22,500 1,55,100 1,05,160 3,50,240 6,77,600 4,55,400 By Balance b/d By Realization A/c Statement showing discharge of purchase consideration to Partners 5,78,600 99,000 3,56,400 99,000 6,77,600 4,55,400 Capital Balances Shares in A Ltd. Shares in B Ltd. A B 6,77,600 (5,22,500) 1,55,100 (b/f) 4,55,400 1,05,160 (b/f) (3,50,240) IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 9

10 Ph: / EQUITY AND LIABILITIES: 1. Share holder funds a. Share capital 2. Noncurrent Liabilities Long term borrowings 3. Current liabilities Trade payables Balance sheet of A Ltd. as on Note No Amount Total ,65,500 2,20,000 3,38,800 12,24,300 ASSETS: 1. Noncurrent Assets a. Fixed assets i) Tangible Assets ii) Intangible Assets 2. Current Assets a. Inventory b. Trade receivables c. Cash and Cash Equivalents Other Noncurrent Assets (Formation Exp.) Total 5 9 4,21,300 1,10,000 5,06,000 1,40,800 31,900 14,300 12,24,300 Notes to Balance Sheet: 1. Share capital a. Equity share capital (6,27, ,000) = 6,49,660 (Out of 6,49,660, 6,00,000 amount of shares issued for a consideration other than cash) b. Preference share capital = 15,840 6,65, Long term borrowings Mortgage loan (land and buildings) = 2,20, Trade payables = 3,38, Tangible Assets Land & Buildings = 4,10,300 Plant & Machinery = 11,000 4,21, Cash and Cash equivalents Opening Balance 1,100 Add: Cash received for shares 22,000 Add: Loan mortgage 2,20,000 Less: Bank OD (1,96,900) Less: Formation Exp. (14,300) = 31,900 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 10

11 PROBLEM NO. 9 In the books of Black & Green Realization A/c Cr. To Balance at Bank 42,000 By Creditors 64,000 To Investments 15,000 By Mints & Co. A/c (W.N1) 3,16,600 To Debtors 71,000 By Black Capital 12,000 To Stock 59,000 To Vehicles 25,000 To Freeholds 75,000 To Fixtures 18,000 To Capital A/c s Black 87,600 x 8/15 = 46,720 Green 87,600 x 7/15 = 40,880 87,600 3,92,600 3,92,600 Capital A/c Cr. Black Green Black Green To Realization 12,000 By Balance b/d 1,20,000 1,05,000 To Mints & Co. A/c 1,64,720 1,51,880 By Current A/c 10,000 6,000 By Realization 46,720 40,880 1,76,720 1,51,880 1,76,720 1,51,880 Tints & Co. A/c Cr. To Realization A/c 3,16,600 By Black s Capital 1,64,720 By Green s Capital 1,51, ,600 3,16,600 Working Note: 1 Computation of Purchase consideration: Block & Green Brown & Gray Bank 42,000 1,31,000 (1,00,000+31,000) Investments Debtors 71,000 65,000 Stocks 57,000 62,000 Vehicles 2 15,000 Fixtures 20,000 Freeholds 95,000 3,08,000 2,7 () Provisions 4,000 5,000 () Creditors 62,400 54,600 2,41,600 2,13,400 (+) Goodwill 75,000 50,000 P.C 3,16,600 2,63,400 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 11

12 Ph: /26 In the Books of Brown and Gray Realization A/c Cr. To Balance at bank 1,31,000 By Creditors A/c 56,000 (1,00,000+31,000) To Debtors 65,000 By Tins & Co. A/c (W.N1) 2,63,400 To Stock 67,000 By Bank A/c(proceeds of F&F) 1,00,000 To Vehicles 17,000 To Freeholds 50,000 To Bank 1,00,000 To Fixtures 14,000 To Capital A/c (Brown + Gray) (3:2) 75,400 4,19,400 4,19,400 Capital A/c Cr. Brown Green Brown Green To Tints & Co. 1,55,240 1,08,160 By Balance b/d 1,10,000 78,000 By Realization 45,240 30,160 1,55,240 1,08,160 1,55,240 1,08,160 Working Note 1 Tints & Co. A/c Cr. To Realization 2,63,400 By Brown s capital 1,55,240 By Grey s capital 1,08,160 2,63,400 2,63,400 In the Books of new Partnership Firm Balance Sheet of Tints & Co. as on Liabilities Amount Assets Amount Capital A/c s: Balance at bank Black 1,50,000 (42, ,31,000) 80,000 9 Green 1,25,000 Debtors (Less provisions) 1,27,000 Brown 1,25,000 Stock (57, ,000) 1,19,000 Grey 1,00,000 5,00,000 Vehicles (2 + 15,000) 38,000 Creditors 1,17,000 Freeholds 95,000 Goodwill (75, ,000) 1,25,000 Fixtures 20,000 6,17,000 6,17,000 Capital A/c Cr. Black Green Brown Grey Black Green Brown Grey To Cash 14,720 26,880 30,240 8,160 By Sundry Assets To Bal. c/d 1,50,000 1,25,000 1,25,000 1,00,000 1,64,720 1,51,880 1,55,240 1,08,160 1,64,720 1,51,880 1,55,240 1,08,160 1,64,720 1,51,880 1,55,240 1,08,160 By Bal. b/d 1,50,000 1,25,000 1,25,000 1,00,000 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 12

13 PROBLEM NO. 10 In the books of M/s XYZ & C Journal Entries Debit Credit Buildings A/c Machinery A/c Furniture A/c Debtors A/c Cash at Bank A/c Cash in hand A/c Stock A/c Due from Y Co. A/c Advances A/c Goodwill A/c To Creditors A/c To Due to X & CO To Bank loan A/c To X s capital A/c To Y s capital A/c To Z s capital A/c (Being incorporation of assets & liabilities of Mrs. R & CO and Mrs. Y & CO at agreed values) X Capital A/c Y Capital A/c Z Capital A/c To Goodwill A/c (Being goodwill written off) Due to X & Co A/c To Due from Y & Co A/c (Being inter firm owings cancelled) Cash A/c To X s capital A/c To Z s capital A/c (Being necessary cash bought in by X & Z) Y s capital A/c To Cash A/c (Being excess balance paid to Y) Capitals A/c s: X Y Z Creditors Bank Loan 8,50,000 52,000 7,20,000 2,40,000 60,000 5,20,000 1,20,000 1,82,000 91,000 60,667 30,333 3, ,69,833 4,72,000 1,60,000 8,17,500 1,14,500 3,54,000 1,82,000 3,38,500 31,333 3,69,833 Balance Sheet of Mrs. X, Y, Z & CO as on Liabilities Amount Assets Amount 10,65,500 7,10,000 3,55,500 4,72,000 1,60,000 27,62,500 Buildings Machinery Furniture Stock Debtors Cash Bank Advances 8,50,000 52,00 5,20,000 7,20,000 2,40,000 60,000 1,20,000 27,62,500 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 13

14 Ph: /26 Working Notes: 1 Computation of capital contributions X, Y, Z in the forms of X & Co and Y & Co. X & CO Y & CO X Y Y Z Capital A/c Balances Reserves * Realization profit 4,80,000 75,000 2,62,500 3,20,000 25,000 87,500 4,00,000 1,08,000 1,00,000 54,000 8,17,500 4,32,500 7,08,000 3,54,000 11,40,500 Working Notes: 2 X & Co. Y & Co. Building ( 1,00,000) Machinery (4,50,000 3,00,000) Goodwill 1,00,000 1,50,000 1,00,000 80,000 82,000 3,50,000 1,62,000 Working Notes: 3 Adjustments of Capital: X Y Z Capital Account Balances Less: Goodwill written off Desired Capital Actual Capital Balance cash to be brought in 8,17,500 (91,000) 7,26,500 11,40,500 (60,667) 10,79,833 21,30,000 (X 3) (Y 2) Z (1) 10,65,000 7,26,500 3,38,500 7,10,000 10,79,833 (3,69,833) 3,54,000 (30,333) 3,23,667 3,55,000 3,23,667 31,333 Hint given in the question is wrong. PROBLEM NO. 11 Realisation Account Amount Amount () () To Land and building 2,46,000 By Sundry creditors 36,000 To Furniture and fixtures 65,000 By Mortgage loan 1,10,000 To Stock 1,00,000 By Cash account To Debtors 72,500 By Land and building 2,30,000 To Cash A/c (expenses on dissolution) 7,800 By Furniture & fixtures 42,000 To Cash A/c (creditors 36,000 + _18,000) 54,000 By Stock 72,000 To Cash A/c (Mortgage loan) 1,10,000 By Debtors 65,000 By Partners capital A/c (Loss 4:3:2:1) P = 40,120 Q = 30,090 R = 20,060 S = 10,030 1,00,300 6,55,300 6,55,300 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 14

15 Partners Capital Accounts P Q R S P Q R S To Balance b/d 25,000 18,000 By Balance b/d 1,68,000 1,08,000 To Realization A/c (Loss) To R s Capital A/c (Deficiency) 40,120 30,090 20,060 10,030 12,636 8,424 To Cash A/c 2,03,364 1,35,576 By General Reserve By Capital Reserve By Cash A/c (realization loss) By P s Capital A/c By Q s Capital A/c 38,000 28,500 19,000 9,500 10,000 7,500 5,000 2,500 40,120 30,090 10,030 12,636 8,424 By Cash A/c 6,000 2,56,120 1,74,090 45,060 28,030 2,56,120 1,74,090 45,060 28,030 Note: P, Q and S brought cash to make good, their share of the loss on realization. However, in actual practice they will not be bringing any cash, only a notional entry will be made. To Balance b/d Cash Account Amount () 15,500 By Realization A/c: Amount () To Realization A/c: Expenses on dissolution 7,800 Land and building 2,30,000 Creditors (36, ,000) 54,000 Furniture & fixtures 42,000 Mortgage loan 1,10,000 Stock 72,000 By P s capital A/c 2,03,364 Debtors 65,000 By Q s capital A/c 1,35,576 To P, Q, S s capital A/c s (40, , ,030) 80,240 To S s Capital A/c 6,000 5,10,740 5,10,740 Working Note: As per Garner Vs. Murray rule, solvent partners have to bear the loss due to insolvency of a partner in their capital ratio. Calculation of Capital Ratio of Solvent Partners P () Q () S () Opening capital 1,68,000 1,08,000 (18,000) Add: General reserve 38,000 28,500 9,500 Capital reserve 10,000 7,500 2,500 2,16,000 1,44,000 (6,000) Though S is a solvent partner yet he cannot be called upon to bear loss on account of insolvency of R because his capital account has a debit balance. Therefore, capital ratio of P & Q = 216 : 144 = 3:2 Deficiency of R = {(25, ,060) 19, ,000)} = 45,060 24,000 = 21,060. Deficiency of R will be shared by P & Q in the capital ratio of 3 : 2 i.e. P = 21,060 x 3/5 = 12,636 Q = 21,060 x 2/5 = 8,424 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 15

16 Ph: /26 PROBLEM NO Debit Credit a. Profit & Loss adjustment A/c To Stock A/c To Investment A/c b. Profit & Loss Adjustment A/c To Book Debts A/c c. R s Capital A/c To Book Debts A/c Unrecorded assets: Vehicles A/c To Profit & Loss Adjustment A/c R s Capital A/c To Vehicles A/c d. R s Capital A/c To Profit & Loss Adjustment A/c (Salary Refund) e. R s Capital A/c To P s Capital A/c To Q s Capital A/c f. Cash A/c To P s Capital A/c To Q s Capital A/c To Investments A/c To Stock To Investment To Book Debts 4, ,250 9,000 12, ,250 3,600 1,250 5,000 4, ,250 In the Books of P, Q & R Profit & Loss Adjustment A/c 3,600 1, By Vehicles A/c By R s Capital A/c To Partners Capital: P 300 Q 300 R ,000 6,000 Partners Capital A/c P Q R P Q R To Book Debts To Vehicles To P & L Adj. A/c To P & Q Capital To Cash To Balance c/d 61,250 50,250 2,250 9,000 14,750 By Balance b/d By P & L A/c By R Capital By Cash By Cash By P & L A/c 50,000 1,700 5, , ,000 1,700 4, , ,000 1, ,250 50,250 32,000 61,250 50,250 32,000 IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 16

17 Capital A/c s: P 61,250 Q 50,250 Creditors Staff security Deposit Staff provident fund Balance sheet of Mrs. P & Q as on Liabilities Amount Assets Amount 1,11,500 7,000 8,000 7,900 1,34,400 Computation of amount brought in by P & Q: Amount payable to R = 14,750 (+) Minimum cash balance = 7,000 21,750 () Available cash ( ,000) (14,000) 7,750 EQUITY & LIABILITIES: Share holders fund Share capital Noncurrent liabilities: Other noncurrent liabilities Current Liabilities: Trade payables ASSETS: NonCurrent Assets: Fixed Assets Tangible Assets Noncurrent investments Other noncurrent investment [F.D.R] Current Assets: Inventory Trade receivables [Debtors] Cash & Cash equivalents Other current assets Cash [ , ,750 14,250] Stock [18,000 ] Book debt [ ,050] Factory Sec P Factory Sec Q Vehicles FDR of staff security Balance Sheet of P & Q Ltd as on ,000 14,400 5,000 32,000 40,000 28,000 8,000 1,34,400 Note No Amount Total Total ,900 7,000 2,22,900 1,25,000 8,000 14,400 5,000 63,500 7,000 2,22,900 THE END IPCC_33e_Accounts_GroupII_Partnership A/c sii_ Assignment Solutions 17

UNIT - 1: DISSOLUTION OF PARTNERSHIP FIRMS. Go through the circumstances in which a partnership is dissolved.

CHAPTER 15 PARTNERSHIP ACCOUNTS UNIT - 1: DISSOLUTION OF PARTNERSHIP FIRMS LEARNING OUTCOMES After studying this chapter, you will be able to r r r r Go through the circumstances in which a partnership