T.S.

Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Illustration 1.
Param and Raman were partners in a firm sharing profits in the ratio of 3 : 2. Their partnership
firm was dissolved on 1st April, 2023. Param was deputed to realise the assets and to pay the
liabilities. He was paid ` 10,000 as remuneration for his services. Balance Sheet of the firm on
31st March, 2023 was as follows:

BALANCE SHEET as at 31st March, 2023

Liabilities
` Assets `
Capital A/cs: Building 1,20,000
Param 42,000 Investments 30,600
Raman 42,000 84,000 Debtors 34,000
Creditors 80,000 Less: Provision for Doubtful Debts 4,000 30,000
Mrs. Param’s Loan 84,000 Bills Receivable 37,400
Raman’s Loan 88,000 Cash 6,000
Investments Fluctuation Reserve 8,000 Profit & Loss A/c 80,000
Goodwill 40,000
3,44,000 3,44,000

Following was agreed upon:

(i) Param agreed to pay his wife’s loan.
(ii) Debtors realised ` 24,000.
(iii) Raman took all investments at ` 27,000.
(iv) Building realised ` 1,52,000.
(v) Creditors were payable after 2 months. They were paid immediately at a discount
of 15% p.a.
(vi) Bills Receivable were settled at a loss of ` 1,400.
(vii) Realisation expenses amounted to ` 2,500.
Prepare Realisation Account, Partners’ Capital Accounts and Cash Account to close the books
of the firm.
Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars
` Particulars `
To Building 1,20,000 By Provision for Doubtful Debts 4,000
To Investments 30,600 By Creditors 80,000
To Debtors 34,000 By Mrs. Param’s Loan 84,000
To Bills Receivable 37,400 By Investments Fluctuation Reserve 8,000
To Goodwill 40,000 By Cash A/c (Assets Realised):
To Param’s Capital A/c (Wife’s loan) 84,000 Debtors 24,000
To Cash A/c: Building 1,52,000
Creditors 78,000 Bills Receivable 36,000 2,12,000
Realisation Expenses 2,500 80,500 By Raman’s Capital A/c 27,000
To Param’s Capital A/c 10,000 (Investments)
(Remuneration) By Loss transferred to:
Param’s Capital A/c 12,900
Raman’s Capital A/c 8,600 21,500
4,36,500 4,36,500

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Dr. RAMAN’S LOAN ACCOUNT Cr.

Particulars
` Particulars `
To Raman’s Capital A/c 25,600 By Balance b/d 88,000
To Cash A/c 62,400
88,000 88,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Param (`) Raman (`) Particulars Param (`) Raman (`)

To Profit & Loss A/c 48,000 32,000 By Balance b/d 42,000 42,000
To Realisation A/c (Investments) ... 27,000 By Realisation A/c (Remuneration) 10,000 ...
To Realisation A/c (Loss) 12,900 8,600 By Realisation A/c (Wife’s Loan) 84,000 ...
To Cash A/c 75,100 ... By Raman’s Loan A/c ... 25,600
1,36,000 67,600 1,36,000 67,600

Dr. CASH ACCOUNT Cr.

Particulars
` Particulars `
To Balance b/d 6,000 By Realisation A/c 80,500
To Realisation A/c 2,12,000 By Raman’s Loan A/c 62,400
By Param’s Capital A/c 75,100
2,18,000 2,18,000

Illustration 2.
Following was the Balance Sheet of D, T and G as at 31st March, 2023:
Liabilities
` Assets `

Creditors 50,000 Bank 20,000

Bills Payable 10,000 Debtors 30,000
G’s Loan 8,000 Stock 20,000
R’s Loan 12,000 Furniture 15,000
General Reserve 20,000 Land and Building 2,45,000
Capital A/cs: G’s Capital 20,000
D 1,00,000
T 1,50,000 2,50,000
3,50,000 3,50,000

The firm was dissolved on the above date. The assets realised and liabilities were paid as follows:
(i) Debtors realised ` 28,000; Creditors and Bills Payable were paid at a discount of 10%.
(ii) Stock was taken by T for ` 15,000 and Furniture was sold to N for ` 12,000.
(iii) Land and Building was sold for ` 2,80,000.
(iv) An unrecorded asset of estimated value ` 1,20,000 was sold for ` 1,00,000.
Prepare Realisation Account, Capital Accounts of D, T and G and Bank Account.

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars
` Particulars `

To Sundry Assets—Transfer: By Creditors 50,000

Debtors 30,000 By Bills Payable 10,000
Stock 20,000 By R’s Loan 12,000
Furniture 15,000 By Bank A/c—Assets Realised:
Land and Building 2,45,000 3,10,000 Debtors 28,000
To Bank A/c—Liabilities Paid: Land and Building 2,80,000
R’s Loan 12,000 Unrecorded Asset 1,00,000
Creditors 45,000 Furniture 12,000 4,20,000
Bills Payable 9,000 66,000 By T’s Capital A/c—Stock 15,000
To Gain (Profit) on Realisation trfd to:
D’s Capital A/c 43,667
T’s Capital A/c 43,667
G’s Capital A/c 43,666 1,31,000
5,07,000 5,07,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars D (`) T (`) G (`) Particulars D (`) T (`) G (`)

To Balance b/d ... ... 20,000 By Balance b/d 1,00,000 1,50,000 ...
To Realisation A/c ... 15,000 ... By Realisation A/c 43,667 43,667 43,666
(Stock) —Gain (Profit)
To Bank A/c 1,50,334 1,85,334 30,332 By General Reserve A/c 6,667 6,667 6,666
—Final Payment
(Balancing Figure)
1,50,334 2,00,334 50,332 1,50,334 2,00,334 50,332

Dr. BANK ACCOUNT Cr.

Particulars
` Particulars `

To Balance b/d 20,000 By Realisation A/c—Liabilities 66,000

To Realisation A/c—Assets Realised 4,20,000 By G’s Loan A/c—Repayment (Note) 8,000
By D’s Capital A/c—Final Payment 1,50,334
By T’s Capital A/c—Final Payment 1,85,334
By G’s Capital A/c—Final Payment 30,332
4,40,000 4,40,000

Note: G’s Capital Account shows a credit balance of ` 30,332 after all adjustments. Hence, his loan has been
paid separately. In case, his Capital Account (after all adjustments) had debit balance, his Loan Account
would have been transferred to his Capital Account to the extent of debit balance.

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Illustration 3.
X, Y and Z were partners sharing profits in the ratio of 2 : 2 : 1. The Balance Sheet as at 31st
March, 2023, when they dissolved the firm was as follows:
Liabilities
` Assets `
X ’s Capital 1,27,500 Other Sundry Assets 1,17,000
Y ’s Capital 1,10,000 Furniture 11,000
Z ’s Capital 17,000 Debtors 1,24,200
Loan 11,500 Less: Provision for Doubtful Debts 1,200 1,23,000
Creditors 16,000 Stock 17,800
Cash 13,200
2,82,000 2,82,000

It was agreed that:

(i) X to take over furniture at ` 8,000 and debtors amounted to ` 1,20,000 at
` 1,17,200 and the creditors of ` 16,000 were to be paid by him at this figure.
(ii) Y is to take over all stock for ` 17,000 and some sundry assets at ` 72,000 (being 10% less
than the book value).
(iii) Z to take over remaining sundry assets at 80% of the book value and assume the
responsibility of discharge of loan together with accrued interest of ` 2,300.
(iv) The expenses of realisation were ` 2,700. The remaining debtors were sold to a debt
collecting agency at 50% of the value.
Prepare necessary accounts to close the books of the firm. (Delhi 2011 C , Modified)

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars
` Particulars `
To Other Sundry Assets 1,17,000 By Provision for Doubtful Debts 1,200
To Furniture 11,000 By Loan 11,500
To Debtors 1,24,200 By Creditors 16,000
To Stock 17,800 By X’s Capital A/c:
To X ’s Capital A/c—Creditors 16,000 Furniture 8,000
To Z’s Capital A/c—Loan with Interest 13,800 Debtors 1,17,200 1,25,200
To Cash A/c—Expenses 2,700 By Y’s Capital A/c:
Stock 17,000
Sundry Assets 72,000 89,000
By Z’s Capital A/c:
Sundry Assets 29,600
[80/100 of (` 1,17,000 – ` 80,000)]
By Cash A/c—Debtors 2,100
[50/100 of (` 1,24,200 – ` 1,20,000)]
By Loss transferred to:
X’s Capital A/c 11,160
Y’s Capital A/c 11,160
Z’s Capital A/c 5,580 27,900
3,02,500 3,02,500

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars X Y Z Particulars X Y Z
` ` ` ` ` `
To Realisation A/c 1,25,200 89,000 29,600 By Balance b/d 1,27,500 1,10,000 17,000
To Realisation A/c (Loss) 11,160 11,160 5,580 By Realisation A/c 16,000 ... 13,800
To Cash A/c 7,140 9,840 ... By Cash A/c ... ... 4,380
(Balancing Figure) (Balancing Figure)
1,43,500 1,10,000 35,180 1,43,500 1,10,000 35,180

Dr. CASH ACCOUNT Cr.

Particulars
` Particulars `
To Balance b/d 13,200 By Realisation A/c—Expenses 2,700
To Realisation A/c—Debtors 2,100 By X’s Capital A/c—Final Payment 7,140
To Z’s Capital A/c—Cash brought in 4,380 By Y’s Capital A/c—Final Payment 9,840
19,680 19,680

Illustration 4.
X and Y, who were sharing profits and losses in the ratio of 3 : 1 respectively, decided to dissolve
the firm on 31st March, 2023 at which date some of the balances were:
X’s Capital—` 1,00,000; Y’s Capital—` 10,000 (Debit Balance); Profit & Loss A/c—` 8,000 (Debit
Balance); Trade Creditors—` 30,000; Loan from Mrs. X—` 10,000; Cash at Bank—` 2,000.
Assets (other than cash at bank) realised ` 1,10,000 and liabilities were paid at
5% discount. Realisation expenses amounted to ` 1,000.
Prepare Realisation Account, Capital Accounts of the Partners and Bank Account assuming
that both the partners are solvent.
Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars
` Particulars `
To Sundry Assets A/c (WN) 1,20,000 By Trade Creditors 30,000
To Bank A/c—Trade Creditors 28,500 By Loan from Mrs. X 10,000
To Bank A/c—Loan from Mrs. X 9,500 By Bank A/c—Assets Realised 1,10,000
To Bank A/c—Expenses 1,000 By Loss on Realisation trfd. to:
X’s Capital A/c 6,750
Y’s Capital A/c 2,250 9,000
1,59,000 1,59,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars X (`) Y (`) Particulars X (`) Y (`)

To Balance b/d ... 10,000 By Balance b/d 1,00,000 ...

To Profit & Loss A/c—Loss 6,000 2,000 By Bank A/c—Cash brought in ... 14,250
To Realisation A/c—Loss 6,750 2,250
To Bank A/c—Final Payment 87,250 ...
1,00,000 14,250 1,00,000 14,250

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Dr. BANK ACCOUNT Cr.

Particulars
` Particulars `
To Balance b/d 2,000 By Realisation A/c—Trade Creditors 28,500
To Realisation A/c—Assets Realised 1,10,000 By Realisation A/c—Loan from Mrs. X 9,500
To Y’s Capital A/c—Cash brought in 14,250 By Realisation A/c—Expenses 1,000
By X’s Capital A/c—Final Payment 87,250
1,26,250 1,26,250

Illustration 5.
X, Y and Z commenced business on 1st April, 2020 with capitals of ` 5,00,000; ` 4,00,000 and
` 3,00,000 respectively. Profits and losses were shared in the ratio of 4 : 3 : 3. Interest on Capitals
was paid at 5% p.a. During 2020–21 and 2021–22 they earned profit of ` 2,00,000 and ` 2,50,000
(before allowing interest on capital). Drawings of each partner were ` 50,000 per year. On
31st March, 2022 the firm was dissolved. Creditors on that date were ` 1,20,000. The assets
realised ` 13,00,000 net.
Give necessary accounts to close the books of the firm.
Solution:
Balance Sheet on the date of dissolution is not given. Further, partners’ capitals and book value
of assets on the date of dissolution are also not given. Hence, first of all balances of partners’
capital are ascertained. After that, Balance Sheet on the date of dissolution, i.e., 31st March,
2022, will be prepared to ascertain the value of assets.
Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Date Particulars X (`) Y (`) Z (`) Date Particulars X (`) Y (`) Z (`)
2021 2020
March 31 To Bank A/c: April 1 By Bank A/c 5,00,000 4,00,000 3,00,000
Drawings 50,000 50,000 50,000 2021
To Balance c/d 5,31,000 4,12,000 3,07,000 March 31 By Interest on
Capital A/c 25,000 20,000 15,000
By Profit &
Loss App. A/c 56,000 42,000 42,000
(Net Profit)*
5,81,000 4,62,000 3,57,000 5,81,000 4,62,000 3,57,000

2022 2021
March 31 To Bank A/c: April 1 By Balance b/d 5,31,000 4,12,000 3,07,000
Drawings 50,000 50,000 50,000 2022
To Balance c/d 5,82,550 4,38,850 3,28,600 March 31 By Interest on
Capital A/c 26,550 20,600 15,350
By Profit &
Loss App. A/c 75,000 56,250 56,250
(Net Profit)*
6,32,550 4,88,850 3,78,600 6,32,550 4,88,850 3,78,600

* Net Profit (2020–21) = Total Profit – Interest on Capital = ` 2,00,000 – ` 60,000 = ` 1,40,000;
Net Profit (2021–22) = Total Profit – Interest on Capital = ` 2,50,000 – ` 62,500 = ` 1,87,500.

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

MEMORANDUM BALANCE SHEET as at 31st March, 2022

Liabilities
` Assets `

Creditors 1,20,000 Sundry Assets 14,70,000

Capital A/cs: X 5,82,550 (Balancing Figure)
Y 4,38,850
Z 3,28,600 13,50,000
14,70,000 14,70,000

Dr. REALISATION ACCOUNT Cr.

Particulars
` Particulars `

To Sundry Assets A/c 14,70,000 By Creditors A/c 1,20,000

To Bank A/c (Creditors Paid) 1,20,000 By Bank A/c (Sundry Assets Realised) 13,00,000
By Loss transferred to:
X ’s Capital A/c 68,000
Y’s Capital A/c 51,000
Z’s Capital A/c 51,000 1,70,000
15,90,000 15,90,000

Dr. PARTNERS’ CAPITAL ACCOUNTS (AFTER REALISATION) Cr.

Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)

To Realisation A/c 68,000 51,000 51,000 By Balance b/d 5,82,550 4,38,850 3,28,600
(Loss)
To Bank A/c (Bal. Fig.) 5,14,550 3,87,850 2,77,600
(Final Payment)
5,82,550 4,38,850 3,28,600 5,82,550 4,38,850 3,28,600

Dr. BANK ACCOUNT Cr.

Particulars
` Particulars `

To Realisation A/c (Sundry Assets Realised) 13,00,000 By Realisation A/c (Creditors Paid) 1,20,000
By X ’s Capital A/c (Final Payment) 5,14,550
By Y’s Capital A/c (Final Payment) 3,87,850
By Z’s Capital A/c (Final Payment) 2,77,600
13,00,000 13,00,000

Illustration 6.
Pass Journal entries for the following transactions on the dissolution of the firm of T and P after
various assets (other than cash) and outside liabilities have been transferred to Realisation Account:
(i) Bank Loan ` 34,000 was paid.
(ii) Furniture worth ` 70,000 was taken by partner T at ` 43,000.
(iii) Partner P agreed to pay a creditor ` 7,500.
(iv) A computer previously written off fully, realised ` 3,900.
(v) Expenses of realisation ` 3,200 were paid by partner T.
(vi) Profit on realisation ` 4,800 was distributed between T and P in 5 : 3 ratio. (Delhi 2011)

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

(i) Realisation A/c ...Dr. 34,000

To Bank A/c 34,000
(Repayment of bank loan)
(ii) T ’s Capital A/c ...Dr. 43,000
To Realisation A/c 43,000
(Furniture taken by T )
(iii) Realisation A/c ...Dr. 7,500
To P ’s Capital A/c 7,500
(Liability of a creditor taken by P)
(iv) Bank A/c ...Dr. 3,900
To Realisation A/c 3,900
(Computer realised previously written off fully)
(v) Realisation A/c ...Dr. 3,200
To T ’s Capital A/c 3,200
(Dissolution expenses paid by T credited to his Capital Account)
(vi) Realisation A/c ...Dr. 4,800
To T ’s Capital A/c 3,000
To P ’s Capital A/c 1,800
(Gain (profit) on realisation transferred to the Capital Accounts of Partners)

Illustration 7.
Parth and Shivika were partners in a firm sharing profits in the ratio of 3 : 2. The Balance Sheet
of the firm on 31st March, 2014 was as follows:
Liabilities
` Assets `
Sundry Creditors 80,000 Bank 1,72,000
Shivika’s Sister’s Loan 20,000 Debtors 27,000
Capital A/cs: Stock 50,000
Parth 1,75,000 Furniture 2,20,000
Shivika 1,94,000 3,69,000
4,69,000 4,69,000

On the above date, the firm was dissolved. The assets were realised and the liabilities were
paid off as follows:
(i) 50% of the furniture was taken over by Parth at 20% less than book value. The remaining
furniture was sold for ` 1,05,000.
(ii) Debtors realised ` 26,000.
(iii) Stock was taken over by Shivika for ` 29,000.
(iv) Shivika’s sister’s loan was paid off along with interest of ` 2,000.
(v) Expenses on realisation amounted to ` 5,000.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account. (Delhi 2015 C)

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars
` Particulars `
To Debtors A/c 27,000 By Sundry Creditors A/c 80,000
To Stock A/c 50,000 By Shivika’s Sister’s Loan A/c 20,000
To Furniture A/c 2,20,000 By Parth’s Capital A/c (Furniture) 88,000
To Bank A/c (Sundry Creditors) 80,000 (` 1,10,000 – ` 22,000)
To Bank A/c (` 20,000 + ` 2,000) 22,000 By Bank A/c (Assets Realised):
(Shivika’s Sister’s Loan) Furniture 1,05,000
To Bank A/c (Expenses) 5,000 Debtors 26,000 1,31,000
By Shivika’s Capital A/c (Stock) 29,000
By Loss transferred to:
Parth’s Capital A/c 33,600
Shivika’s Capital A/c 22,400 56,000
4,04,000 4,04,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Parth Shivika Particulars Parth Shivika
` ` ` `
To Realisation A/c (Assets taken over) 88,000 29,000 By Balance b/d 1,75,000 1,94,000
To Realisation A/c (Loss) 33,600 22,400
To Bank A/c (Final Payment) 53,400 1,42,600
1,75,000 1,94,000 1,75,000 1,94,000

Dr. BANK ACCOUNT Cr.

Particulars
` Particulars `
To Balance b/d 1,72,000 By Realisation A/c—Sundry Creditors 80,000
To Realisation A/c—Assets Realised 1,31,000 By Realisation A/c—Shivika’s Sister’s Loan 22,000
By Realisation A/c—Expenses 5,000
By Parth’s Capital A/c—Final Payment 53,400
By Shivika’s Capital A/c—Final Payment 1,42,600
3,03,000 3,03,000

Illustration 8.
A, B and C are partners sharing profits in the ratio of 5 : 3 : 2. Their Balance Sheet as at
31st March 2022, the date on which they dissolve the firm, was as follows:
Liabilities ` Assets `
A’s Capital 2,00,000 Bank 70,000
B’s Capital 1,50,000 Debtors 50,000
C’s Capital 1,50,000 5,00,000 Stock 60,000
A’s Current A/c 30,000 Furniture 25,000
B’s Current A/c 20,000 Patents 35,000
Profit & Loss A/c 50,000 Machinery 1,00,000
Trade Creditors 70,000 Building 3,20,000
C’s Current A/c 10,000
6,70,000 6,70,000

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Following transactions took place at the time of dissolution:

(i) Realisation expenses were to be borne by A for which he is to get a credit of ` 10,000. Actual
realisation expenses paid out of firm’s Bank Account amounted to ` 12,000.
(ii) B took stock for ` 55,000 and C took over Building for ` 4,00,000.
(iii) Other assets realised: Debtors ` 48,000; Furniture ` 17,000 and Machinery ` 80,000.
(iv) Trade Creditors were settled in full by paying them ` 65,000.
Prepare Realisation Account, Partners’ Current Accounts, Capital Accounts and Bank Account.
Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Sundry Assets—Transfer: By Trade Creditors 70,000
Debtors 50,000 By B’s Capital A/c—Stock 55,000
Stock 60,000 By C’s Capital A/c—Building 4,00,000
Furniture 25,000 By Bank A/c—Assets Realised:
Patents 35,000 Debtors 48,000
Machinery 1,00,000 Furniture 17,000
Building 3,20,000 5,90,000 Machinery 80,000 1,45,000
To A’s Capital A/c—Expenses (WN 2) 10,000
To Bank A/c—Creditors Paid 65,000
To Gain (Profit) transferred to:
A’s Capital A/c 2,500
B’s Capital A/c 1,500
C’s Capital A/c 1,000 5,000
6,70,000 6,70,000

Dr. PARTNERS’ CURRENT ACCOUNTS Cr.

Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To Balance b/d ... ... 10,000 By Balance b/d 30,000 20,000 ...
To Partners’ Capital A/cs 30,000 20,000 ... By C’s Capital A/c ... ... 10,000
(Transfer) (Transfer)
30,000 20,000 10,000 30,000 20,000 10,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To C’s Current A/c ... ... 10,000 By Balance b/d 2,00,000 1,50,000 1,50,000
To Realisation A/c ... 55,000 4,00,000 By Partners’ Current A/cs 30,000 20,000 ...
(Assets taken) By Profit & Loss A/c 25,000 15,000 10,000
To Bank A/c (WN 1) 12,000 ... ... By Realisation A/c (Exp.) 10,000 ... ...
To Bank A/c (Bal. Fig.) 2,55,500 1,31,500 ... By Realisation A/c (Gain) 2,500 1,500 1,000
(Final Payment) By Bank A/c ... ... 2,49,000
2,67,500 1,86,500 4,10,000 2,67,500 1,86,500 4,10,000

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 70,000 By Realisation A/c—Creditors Paid 65,000
To Realisation A/c—Assets Realised 1,45,000 By A’s Capital A/c—Drawings 12,000
To C’s Capital A/c—Cash brought in 2,49,000 By A’s Capital A/c—Final Payment 2,55,500
By B’s Capital A/c—Final Payment 1,31,500
4,64,000 4,64,000

Working Notes:
1. Realisation expenses paid out of firm’s Bank Account are debited to A’s Capital Account being
payable by A. Agreed realisation expenses will be credited to A’s Capital Account and debited to
Realisation Account.
2. Realised value of patents is not given. Hence, it is taken to be nil.

Illustration 9 (Comprehensive Illustration).

A and B were partners from 1st April, 2020 with capitals of ` 60,000 and ` 40,000 respectively.
They shared profits in the ratio of 3 : 2. They carried on business for two years. In the first year
ended 31st March, 2021, they earned a profit of ` 50,000 but in the second year ended 31st March,
2022, a loss of ` 20,000 was incurred. As the business was no longer profitable, they dissolved
the firm on 31st March, 2022. Creditors on that date were ` 20,000. The partners withdrew
for personal use ` 8,000 per partner per year. The assets realised ` 1,00,000. The expenses of
realisation were ` 3,000.
Prepare Realisation Account, Partners’ Capital Accounts and Cash Account.

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Sundry Assets A/c (WN 2) 1,18,000 By Creditors 20,000
To Cash A/c—Creditors 20,000 By Cash A/c—Assets Realised 1,00,000
To Cash A/c—Expenses 3,000 By Loss transferred to:
A’s Capital A/c 12,600
B’s Capital A/c 8,400 21,000
1,41,000 1,41,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars A (`) B (`) Particulars A (`) B (`)
To Realisation A/c—Loss 12,600 8,400 By Balance b/d (WN 1) 62,000 36,000
To Cash A/c—Final Payment 49,400 27,600
62,000 36,000 62,000 36,000

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Dr. CASH ACCOUNT Cr.

Particulars ` Particulars `
To Realisation A/c—Assets Realised 1,00,000 By Realisation A/c—Creditors 20,000
By Realisation A/c—Expenses 3,000
By A’s Capital A/c—Final Payment 49,400
By B’s Capital A/c—Final Payment 27,600
1,00,000 1,00,000

Working Notes:
1. In this question, Balance Sheet of the firm as at the date of dissolution is not given. Therefore, it is
necessary to prepare the Balance Sheet as at that date. For that, we have to prepare Partners’ Capital
Accounts for the years ended 31st March, 2021 and 2022 to arrive at the balance of partners’ capitals as at
31st March, 2022.

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Date Particulars A (`) B (`) Date Particulars A (`) B (`)
2021 2020
March 31 To Cash A/c 8,000 8,000 April 1 By Cash A/c 60,000 40,000
March 31 To Balance c/d 82,000 52,000 2021
March 31 By Profit & Loss
Appropriation A/c 30,000 20,000
90,000 60,000 90,000 60,000
2022 2021
March 31 To Cash A/c 8,000 8,000 April 1 By Balance b/d 82,000 52,000
March 31 To Profit & Loss
Appropriation A/c 12,000 8,000
March 31 To Balance c/d 62,000 36,000
82,000 52,000 82,000 52,000

2. MEMORANDUM BALANCE SHEET

as at 31st March, 2022
Liabilities ` Assets `
A’s Capital A/c (WN 1) 62,000 Sundry Assets (Balancing Figure) 1,18,000
B’s Capital A/c (WN 1) 36,000
Creditors 20,000
1,18,000 1,18,000

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Illustration 10.
The firm of Manjeet, Sujeet and Jagjeet was dissolved on 31st March, 2018. It was agreed that Sujeet will
take care of the dissolution related activities and will get 10% of the value of assets realised. Sujeet agreed
to bear the realisation expenses. Assets realised ` 10,00,750 and realisation expenses were ` 90,000,
which were paid from the firm’s cash. ` 4,50,000 were paid to the creditors in full settlement of their claim.
Pass necessary Journal entries for the above transactions in the books of the firm. (CBSE 2019)

Solution: In the books of Manjeet, Sujeet and Jagjeet

JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)

(i) Bank A/c ...Dr. 10,00,750

To Realisation A/c 10,00,750
(Assets realised)

(ii) Realisation A/c ...Dr. 1,00,075

To Sujeet’s Capital A/c 1,00,075
(10% of assets realised paid as remuneration)

(iii) Sujeet’s Capital A/c ...Dr. 90,000

To Bank/Cash A/c 90,000
(Realisation expenses paid on behalf of Sujeet)

(iv) Realisation A/c ...Dr. 4,50,000

To Bank A/c 4,50,000
(Creditors paid in full settlement)

Illustration 11.
Neeraj, Dheeraj and Sheeraj were partners in a firm since 2015. Due to some personal financial needs
and constant disagreements among them, they decided to dissolve the firm. Vijay, a financial and legal
consultant was appointed to carry out the dissolution process. He opened Realisation Account and
transferred all the recorded assets (including goodwill except the fictitious assets and cash and bank
balances) to the debit of Realisation Account and outsiders’ liabilities to the credit of Realisation Account.
He entered into following transactions:

(i) An old computer which had been written off from the books was estimated to realise ` 8,000. It was taken
by Neeraj (Partner), at the estimated price less 25%.

(ii) A disputed claim of ` 50,000 of a worker for compensation which remained unrecorded in the books was
settled at ` 30,000.

(iii) Dheeraj paid ` 60,000 for using the name of the firm.

(iv) There was an unrecorded asset of ` 60,000, half of which was sold for ` 30,000 and the remaining half was
taken by Sheeraj (partner) for ` 25,000.

Pass necessary Journal entries for the above transactions in the books of the firm.

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Solution: JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)

(i) Neeraj’s Capital A/c ...Dr. 6,000
To Realisation A/c 6,000
(Unrecorded typewriter taken by Neeraj)
(ii) Realisation A/c ...Dr. 30,000
To Bank A/c 30,000
(Payment of unrecorded disputed claim)
(iii) Dheeraj’s Capital A/c ...Dr. 60,000
To Realisation A/c 60,000
(Unrecorded goodwill taken by Dheeraj)
(iv) Bank A/c ...Dr. 30,000
Sheeraj’s Capital A/c ...Dr. 25,000
To Realisation A/c 55,000
(Cash realised for half of the unrecorded asset and other half taken over by Sheeraj)

Illustration 12.
Pass necessary Journal entries on the dissolution of a partnership firm in the following cases:
(i) L, a partner, was appointed to look after the dissolution process for which he was given
remuneration of ` 10,000.
(ii) Dissolution expenses ` 8,000 were paid by the partner, M.
(iii) Dissolution expenses were ` 5,000.
(iv) P, a partner, was appointed to look after the process of dissolution for which he was
allowed a remuneration of ` 7,000. P agreed to bear the dissolution expenses. Actual
dissolution expenses ` 4,000 were paid by P.
(v) N, a partner, was appointed to look after the process of dissolution for which he was
allowed a remuneration of ` 9,000. N agreed to bear the dissolution expenses. Actual
dissolution expenses ` 4,000 were paid by the firm.
(vi) Q, a partner, was appointed to look after the process of dissolution for which he was
allowed a remuneration of ` 18,000. Q agreed to take over stock worth ` 18,000 as his
remuneration. The stock had already been transferred to Realisation Account.
(Delhi 2017)

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Realisation A/c ...Dr. 10,000
To L’s Capital A/c 10,000
(Remuneration provided to L)
(ii) Realisation A/c ...Dr. 8,000
To M’s Capital A/c 8,000
(Dissolution expenses payable to M)

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

(iii) Realisation A/c ...Dr. 5,000

To Bank/Cash A/c 5,000
(Realisation expenses paid)

(iv) Realisation A/c ...Dr. 7,000

To P’s Capital A/c 7,000
(Remuneration allowed to P and dissolution expenses paid by him)

(v) (a) Realisation A/c ...Dr. 9,000

To N’s Capital A/c 9,000
(Remuneration paid to N)

(b) N’s Capital A/c ...Dr. 4,000

To Cash/Bank A/c 4,000
(Dissolution expenses paid by firm on behalf of N)

(vi) No Entry: Neither for remuneration for dissolution, nor for stock
taken over.

Illustration 13.
Pass Journal entries for the following transactions in the books of X, Y and Z sharing profits in
the ratio of 3 : 2 : 1 at the time of dissolution of the firm:

(i) Realisation expenses of ` 2,000 were to be borne by and also paid by X, partner.

(ii) Y, a partner to bear realisation expenses agreed at ` 1,900. Actual expenses paid by
Y were ` 1,500.

(iii) General Reserve has a balance of ` 18,000 on the date of dissolution.

(iv) Y was given loan of ` 50,000 by the firm.

(v) Computers existed at ` 40,000.

(vi) Trade Marks existed at ` 10,000.

(vii) Y, a partner, took a machine at ` 20,000.

(viii) Z, a partner, agreed to pay a creditor of ` 30,000 for ` 20,000.

(ix) A, a partner, had given loan to the firm of ` 10,000. He accepted ` 7,500 in settlement.

(x) There was a contingent liability of ` 37,000 in respect of post-dated cheques discounted.
All the discounted cheques were honoured but an issuer of cheque of ` 5,000 became
insolvent and fifty paise in a rupee was received. The liability of the firm on account of
this bill discounted and dishonoured has not so far been recorded.

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
(i) No Entry for payment of Realisation Expenses.
(ii) Realisation A/c ...Dr. 1,900
To Y’s Capital A/c 1,900
(Realisation expenses payable to Y)
Note: When it is agreed that a partner will bear the realisation expenses
and for this he is paid an agreed amount, Realisation Account is
debited by the amount payable to the partner.
(iii) General Reserve A/c ...Dr. 18,000
To X’s Capital A/c (` 18,000 × 3/6) 9,000
To Y’s Capital A/c (` 18,000 × 2/6) 6,000
To Z’s Capital A/c (` 18,000 × 1/6) 3,000
(General Reserve distributed)
(iv) Cash/Bank A/c ...Dr. 50,000
To Loan to Y A/c 50,000
(Loan to Y received)
(v) Cash/Bank A/c ...Dr. 40,000
To Realisation A/c 40,000
(Computers realised)
(vi) No entry will be passed, Trade Marks are intangible assets and realised
value thereof is not given.

(vii) Y’s Capital A/c ...Dr. 20,000

To Realisation A/c 20,000
(Machine taken by Y )
(viii) Realisation A/c ...Dr. 20,000
To Z’s Capital A/c 20,000
(Creditor of ` 30,000 taken by Z for ` 20,000)
(ix) Loan by A A/c ...Dr. 10,000
To Bank A/c 7,500
To Realisation A/c 2,500
(Repayment of Loan by A, balance transferred to Realisation Account)
(x) (a) Realisation A/c ...Dr. 5,000
To Bank A/c 5,000
(Payment made to the bank for the bill discounted with bank now
dishonoured)
(b) Bank A/c ...Dr. 2,500
To Realisation A/c 2,500
(50% amount of the dishonoured cheque received)

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Illustration 14.
Lal and Pal were partners in a firm sharing profits in the ratio of 3 : 7. On 1st April, 2015, their firm was dissolved.
After transferring assets (other than cash) and outsider’s liabilities to Realisation Account, you are given the
following information:
(a) A creditor of ` 3,60,000 accepted machinery valued at ` 5,00,000 and paid to the firm ` 1,40,000.
(b) A second creditor for ` 50,000 accepted stock at ` 45,000 in full settlement of his claim.
(c) A third creditor amounting to ` 90,000 accepted ` 45,000 in cash and investments worth ` 43,000 in full
settlement of his claim.
(d) Loss on dissolution was ` 15,000.
Pass necessary Journal entries for the above transactions in the books of firm assuming that all payments were
made by cheque.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

(a) Bank A/c ...Dr. 1,40,000

To Realisation A/c 1,40,000
(Amount received from creditor)

(b) No entry

(c) Realisation A/c ...Dr. 45,000

To Bank A/c 45,000
(` 45,000 paid in cash to third creditor)

(d ) Lal’s Capital A/c ...Dr. 4,500

Pal’s Capital A/c ...Dr. 10,500
To Realisation A/c 15,000
(Dissolution loss distributed among partners)

Illustration 15.
Pass the Journal entries for the following transactions on the dissolution of the firm of P and Q after assets (other
than cash) and outside liabilities have been transferred to Realisation Account:
(a) Stock ` 2,00,000. ’P’ took 50% of stock at a discount of 10%. Balance stock was sold at a profit of 25%
on cost.
(b) Debtors ` 2,25,000. Provision for Doubtful Debts ` 25,000. ` 20,000 of these were not recoverable.
(c) Land and Building (Book value ` 12,50,000) sold for ` 15,00,000 through a broker who charged 2% commission.
(d) Machinery (Book value ` 6,00,000) was given to a creditor at a discount of 10%.
(e) Investment (Book value ` 60,000) realised at 125%.
(f ) Goodwill of ` 75,000 and prepaid fire insurance of ` 10,000.
(g) Trade creditors ` 1,60,000. Half of the trade creditors accepted Plant and Machinery at an agreed valuation
of ` 54,000 and cash in full settlement of their claims after allowing a discount of ` 16,000. Remaining trade
creditors were paid 90% in final settlement.

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 T.S. Grewal’s Double Entry Book Keeping—Accounting for Partnership Firms

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

(a) (i) P’s Capital A/c ...Dr. 90,000

To Realisation A/c 90,000
(50% stock at a discount of 10% taken by P)

(ii ) Bank A/c ...Dr. 1,25,000

To Realisation A/c 1,25,000
(50% stock sold at a profit of 25% on cost)

(b) Bank A/c ...Dr. 2,05,000

To Realisation A/c 2,05,000
(Debtors of ` 20,000 proved bad and the rest paid the amount)

(c) Bank A/c ...Dr. 15,00,000

To Realisation A/c 15,00,000
(Land and Building sold for ` 15,00,000)

Realisation A/c ...Dr. 30,000

To Bank A/c 30,000
(Commission @ 2% paid)

(d) No entry

(e) Bank A/c ...Dr. 75,000

To Realisation A/c 75,000
(Investment realised at 125%)

(f ) No entry

(g) (i ) Realisation A/c ...Dr. 10,000

To Bank A/c 10,000
(Cash paid in full settlement of claim)

(ii ) Realisation A/c ...Dr. 72,000

To Bank A/c 72,000
(Cash paid to remaining creditors)

18