March 2015 Board Paper Reference
Q. 5. Dissolution of Partnership Firm (Insolvency)
Question: Mr. Aaba and Mr. Baba are equal partners whose Balance Sheet as on 31st March, 2012 was as under:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Sundry creditors | 16,000 | Cash in hand | 500 |
| Capital A/c | Stock | 4,500 | |
| Aaba | 2,000 | Debtors | 4,000 |
| Baba | 2,000 | Plant and machinery | 5,000 |
| Furniture | 2,000 | ||
| Land and building | 4,000 | ||
| Total | 20,000 | Total | 20,000 |
Due to weak financial position of the partners the firm is dissolved. Aaba and Baba are not able to contribute anything from their private estate, hence they are declared insolvent.
The assets are realised as follows:
Stock ₹ 3,000, Plant and Machinery ₹ 3,000, Furniture ₹ 1,000, Land and Building ₹ 2,000 and Debtors ₹ 1,000 only.
Realisation expenses amounted to ₹ 500.
You are required to prepare necessary Ledger Accounts to close the books of the firm.
Solution and Working Notes
Dr. Realisation Account Cr.
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Sundry Assets A/c (Transfer): - Stock - Debtors - Plant & Machinery - Furniture - Land & Building |
4,500 4,000 5,000 2,000 4,000 |
By Cash A/c (Assets Realised): - Stock - Plant & Machinery - Furniture - Land & Building - Debtors |
3,000 3,000 1,000 2,000 1,000 |
| To Cash A/c (Realisation Exp) | 500 | By Partners' Capital A/c (Loss): - Aaba (1/2) - Baba (1/2) |
5,000 5,000 |
| Total | 20,000 | Total | 20,000 |
Dr. Partners' Capital Accounts Cr.
| Particulars | Aaba (₹) | Baba (₹) | Particulars | Aaba (₹) | Baba (₹) |
|---|---|---|---|---|---|
| To Realisation A/c (Loss) | 5,000 | 5,000 | By Balance b/d | 2,000 | 2,000 |
| By Deficiency A/c (Balancing Fig) | 3,000 | 3,000 | |||
| Total | 5,000 | 5,000 | Total | 5,000 | 5,000 |
Dr. Cash Account Cr.
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 500 | By Realisation A/c (Exp) | 500 |
| To Realisation A/c (Assets Realised) | 10,000 | By Sundry Creditors A/c (Final Payment) | 10,000 |
| Total | 10,500 | Total | 10,500 |
Dr. Sundry Creditors Account Cr.
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Cash A/c (Paid) | 10,000 | By Balance b/d | 16,000 |
| To Deficiency A/c (Unpaid Balance) | 6,000 | ||
| Total | 16,000 | Total | 16,000 |
Dr. Deficiency Account Cr.
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Aaba's Capital A/c | 3,000 | By Sundry Creditors A/c | 6,000 |
| To Baba's Capital A/c | 3,000 | ||
| Total | 6,000 | Total | 6,000 |
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