Closing the Business

In a Realisation Account, an excess of the debit side represents a loss. Loss = Total Debit − Total Credit = ₹1,94,000 − ₹1,86,000 = ₹8,000. Therefore, a loss of ₹8,000 will be transferred to the partners’ capital accounts. The ₹7,000 option results from an incorrect subtraction. Exam tip: Debit excess means loss, while credit excess means profit in the Realisation Account.

Realisation expenses are costs incurred for settling the firm's assets and liabilities, so they are debited to the Realisation Account. When the partner pays the expense and the firm reimburses ₹9,000, the entry is: Realisation Account Dr. ₹9,000 To Partner's Capital/Current Account ₹9,000. Therefore, the Realisation Account receives a debit of ₹9,000, not ₹18,000. Exam tip: Realisation expenses are debited to the Realisation Account whether they are paid directly by the firm or initially by a partner and later reimbursed.

An unrecorded liability does not appear in the books before dissolution. When it is paid, the Realisation Account is debited by ₹7,600 and Cash/Bank is credited. This increases the realisation expense and therefore increases the realisation loss. It does not increase the partners’ capital. Exam tip: Payment of an unrecorded liability is debited to the Realisation Account.

The total number of ratio parts is 6 + 1 = 7. The smaller partner is entitled to 1 part, so the share is ₹49,000 × 1/7 = ₹7,000. Therefore, option B is correct. Exam tip: divide the total profit by the sum of the ratio terms, then multiply by the relevant partner’s ratio.

Goodwill appearing in the books is a book asset. On dissolution, all book assets are transferred from their respective accounts to the debit side of the Realisation Account so that the profit or loss on realisation can be determined. It is not transferred directly to the Capital Account. Exam tip: the entry is Realisation Account Dr. to Goodwill Account.

The liability was recorded at ₹33,000, but only ₹31,900 was paid to settle it. Therefore, gain = ₹33,000 − ₹31,900 = ₹1,100. When a liability is settled for less than its book value, the difference is credited as a gain in the Realisation Account. Exam tip: for liabilities, gain equals the book value of the liability minus the amount actually paid.

Gross profit on the sale = ₹85,000 − ₹78,000 = ₹7,000. After deducting the selling expense of ₹2,000, the net profit is ₹7,000 − ₹2,000 = ₹5,000. Therefore, option B is correct. Exam tip: In dissolution, deduct expenses related to realization from the profit on sale of the asset.

The total ratio is 3 + 7 = 10. The partner with the larger share is entitled to 7/10 of the profit. Therefore, the share is ₹35,000 × 7/10 = ₹24,500. ₹21,000 corresponds to 3/5 of the profit and does not represent the larger partner’s share. Exam tip: To calculate a partner’s share, divide that partner’s ratio by the total ratio and multiply by the total profit.

After paying the firm’s external liabilities, the loan advanced by a partner is repaid. A partner’s loan is a liability of the firm, whereas partners’ capital is settled only after partner loans. General reserve and profit are not separate liabilities requiring payment in this sequence. Exam tip: remember the order as external liabilities, partner loans, and then partners’ capital.

The total ratio is 1 + 3 + 5 = 9. The third partner’s share is 5/9 of the realisation profit. Therefore, share = ₹36,000 × 5/9 = ₹20,000. Hence, option C is correct. In such questions, first find the total ratio and then multiply the profit by the concerned partner’s ratio fraction.

In a Realisation Account, a surplus of the credit total over the debit total represents profit on realisation. Profit = ₹1,24,000 − ₹1,18,000 = ₹6,000. Therefore, ₹6,000 is correct. Exam tip: credit exceeding debit indicates profit, while debit exceeding credit indicates loss.

An unrecorded asset is not first transferred to the books; the cash received from its sale is credited directly to the Realisation Account. Therefore, it is a credit item. Debit entries generally include assets transferred to the account and losses on realisation, so treating this receipt as a debit is incorrect. Exam tip: Credit the realisation proceeds of an unrecorded asset, but do not transfer the unrecorded asset itself to the Realisation Account.

The total number of ratio parts is 4 + 5 = 9. The second partner’s share is 5 parts, so the loss borne by the second partner is ₹45,000 × 5/9 = ₹25,000. Therefore, option C is correct. Exam tip: To find a partner’s share, multiply the total amount by that partner’s ratio part and divide by the sum of all ratio parts.

The amount payable to the creditor was ₹62,000, but the firm paid only ₹59,000. Therefore, the gain or saving is ₹62,000 − ₹59,000 = ₹3,000. This gain is recorded as a gain in the Realisation Account. Exam tip: Subtract the actual settlement payment from the creditor’s book liability; the difference is the gain.

Once dissolution is complete, assets have been realised, liabilities have been paid, and the partners’ capital accounts have been settled. Consequently, the Realisation Account, Cash/Bank Account, liability accounts and partners’ capital accounts are all closed. Options B and C are incorrect because the Cash/Bank and capital accounts also have no balance after the final settlement. Exam tip: The key result of completed dissolution is closure of all firm accounts.

Profit = Sale value − Book value = ₹1,21,000 − ₹1,12,000 = ₹9,000. Therefore, ₹9,000 is correct. The amounts ₹8,000 and ₹10,000 result from an incorrect subtraction. In dissolution questions, always compare the asset’s realisation value with its book value.

Realisation expenses are debited to the Realisation Account. Since there is no other gain or loss, the debit of ₹4,200 creates a loss of ₹4,200, which is transferred to the partners’ capital or current accounts in their profit-sharing ratio. Therefore, option B is correct. Exam tip: realisation expenses generally create a loss, while profit on the sale of assets reduces that loss.

The total number of ratio parts is 2 + 5 + 3 = 10. B’s share is 5 parts, so B’s profit = \(\frac{5}{10} \times ₹50000 = ₹25000\). Therefore, option B is correct. Exam tip: first find the total ratio parts, then multiply the total profit by the partner’s ratio part.

The ₹7000 gain on settlement of liabilities is offset against the ₹2500 loss on the sale of assets. Therefore, the net result is ₹7000 − ₹2500 = ₹4500 profit. During dissolution, such gains and losses are adjusted through the Realisation Account. Exam tip: When gains and losses have opposite effects, subtract the loss from the gain to find the net result.

After external liabilities and realisation expenses are settled, the remaining cash is distributed in settlement of the partners’ final capital claims. Total sales and purchases are merely transaction figures, while realisation expenses have already been paid or adjusted before the final distribution. Exam tip: Before making the final distribution, settle external liabilities, partners’ loans and capital accounts in the proper order.

The ₹2,000 loss on the sale of furniture and the ₹3,000 realisation expenses both reduce the Realisation Account. Therefore, net loss = ₹2,000 + ₹3,000 = ₹5,000. The ₹15,000 sale proceeds are not added separately because the loss on sale has already been stated. Exam tip: Add the loss on asset realisation and the realisation expenses to find the total loss transferred to the partners’ capital accounts.

An unrecorded asset has no amount already included in the books. Therefore, the entire realisation of ₹12,000 is treated as a gain and is credited to the Realisation Account. This gain is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. A loss would arise only if the asset had a book value greater than the amount realised. Exam tip: For an unrecorded asset, credit the Realisation Account with the amount realised.

An unrecorded liability belongs to the firm, so its settlement is debited to the Realisation Account. Since partner A paid it from personal funds, the firm owes A that amount; therefore, A’s Capital Account is credited. Option C would apply if the firm itself paid the liability from cash or bank. Exam tip: For a firm liability paid personally by a partner, record: Realisation Account Dr. To Partner’s Capital Account.

The total number of ratio parts is 3 + 2 + 1 = 6. The largest partner is entitled to 3 parts, so the share is ₹24,000 × 3/6 = ₹12,000. ₹10,000 represents the second partner’s 2-part share, not the largest share. Exam tip: first find the total ratio parts, then multiply the total profit by the required partner’s part.

The credit side of the Realisation Account records proceeds from the sale of assets and liabilities transferred to the account, while the debit side records assets transferred, liabilities discharged and realisation expenses. Therefore, an excess of credit over debit represents a profit on realisation, which is transferred to the partners’ capital accounts in their profit-sharing ratio. If the debit side exceeds the credit side, there is a loss. Exam tip: Credit more than debit means realisation profit; debit more than credit means realisation loss.