Closing the Business

Loss on sale of the machine = ₹50,000 − ₹42,000 = ₹8,000. The sale expense of ₹2,000 is also debited to the Realisation Account. Therefore, the total loss is ₹8,000 + ₹2,000 = ₹10,000, making option C correct. Exam tip: In the Realisation Account, the book value of assets and realisation expenses contribute to loss, while sale proceeds contribute to profit.

The book value of an unrecorded asset is not already included in the books. Therefore, the entire amount realised, ₹18,000, is treated as a gain and credited to the Realisation Account. Hence, ₹18,000 profit is correct. Exam tip: When an unrecorded asset is realised, treat the full realisation proceeds as profit because there is no book value to deduct.

Since the firm is responsible for the expense, Realisation Account is debited with ₹7,000. As the partner paid the amount personally, the firm owes that amount to the partner, so the partner’s Capital Account is credited. The entry is: Realisation Account Dr. ₹7,000; To Partner’s Capital Account ₹7,000. Exam tip: No entry is generally passed when the partner has agreed to bear the realisation expenses personally and the firm is not liable for them.

Loss on debtors = Book value − Amount realised = ₹60000 − ₹54000 = ₹6000. Therefore, option C is correct. The ₹54000 is the amount realised, while the shortfall of ₹6000 is the loss. Exam tip: On dissolution, compare the book value of the asset with the actual amount realised to determine the realisation loss or profit.

The creditors’ book value was ₹45,000, whereas the settlement payment was ₹47,000. The excess payment is ₹47,000 − ₹45,000 = ₹2,000. This excess represents a loss to the firm and is recorded as a loss in the Realisation Account on dissolution. The ₹4,000 option is incorrect because the difference is only ₹2,000. Exam tip: Subtract the creditors’ book value from the amount paid to determine the loss or gain.

The total number of ratio parts is 3 + 2 = 5. B has 2 parts, so B’s share = \(\frac{2}{5} \times ₹25,000 = ₹10,000\). ₹15,000 is A’s share because A has 3 parts. In such questions, first add the ratio parts and then multiply the total profit by the concerned partner’s fraction.

Realisation profit = Sale proceeds − Book value = ₹95,000 − ₹90,000 = ₹5,000. Therefore, a profit of ₹5,000 is recorded in the Realisation Account. Treating ₹90,000 as the sale proceeds would be incorrect because it is the machinery’s book value. Exam tip: proceeds above book value indicate realisation profit, while proceeds below book value indicate realisation loss.

When an unrecorded liability is paid during dissolution, the payment is debited to the Realisation Account because it affects the profit or loss on realisation. The Cash Account is credited because cash goes out. Therefore, the Realisation Account is correct; the Cash Account is not debited. Exam tip: The usual entry is Realisation Account Dr. To Cash Account for payment of an unrecorded liability.

The sum of the profit-sharing ratios is 4+2+2=8. The first partner’s share is 4/8, so the profit received is ₹36,000 × 4/8 = ₹18,000. ₹12,000 represents only one-third of the total and is therefore incorrect. Exam tip: In ratio-based questions, first add all ratio terms and then multiply the total amount by the relevant partner’s fraction.

Total ratio = 1 + 1 + 2 = 4. The third partner’s share is 2/4, so the loss borne by that partner is ₹24,000 × 2/4 = ₹12,000. On dissolution, the loss is generally distributed in the profit-sharing ratio; the ratio figures themselves are not rupee amounts. Exam tip: add the ratio terms first, then multiply the total loss by the concerned partner’s fraction.

The realisation of the unrecorded asset is credited to the Realisation Account by ₹10,000, while payment of the unrecorded liability is debited to it by ₹2,000. Therefore, the net gain is ₹10,000 − ₹2,000 = ₹8,000. ₹12,000 results from incorrectly adding the receipt and payment. Exam tip: In the Realisation Account, realisation proceeds are credited and payments are debited.

Stock is an asset. On dissolution, assets are transferred to the debit side of the Realisation Account at their book values, so the correct answer is the debit side. If a partner takes over the stock, the Realisation Account is subsequently credited with the agreed takeover value; this is different from the initial transfer entry. Exam tip: transfer assets to the debit side and external liabilities to the credit side of the Realisation Account.

The book value of debtors was ₹70,000, whereas the amount realised was only ₹65,000. Therefore, the shortfall is ₹70,000 − ₹65,000 = ₹5,000, which is recorded as a loss in the Realisation Account. ₹4,000 and ₹6,000 result from an incorrect subtraction. Exam tip: when an asset is realised for less than its book value, the difference is treated as a loss.

Generally, realisation expenses are borne by the firm and are debited to the Realisation Account. Therefore, the correct answer is the firm. A partner bears these expenses only when he or she has specifically undertaken to do so. Exam tip: Record ordinary dissolution-related expenses in the Realisation Account.

Gain on settlement = amount payable to creditors − amount actually paid = ₹30,000 − ₹28,000 = ₹2,000. This saving is credited as a gain to the Realisation Account. Exam tip: paying less than the recorded liability creates a gain; paying more creates a loss.

Since the expense relates to the firm’s dissolution, the Realisation Account is debited. A has paid the amount on behalf of the firm, so the firm becomes liable to A; therefore, A’s Capital Account is credited. No Cash Account is recorded because the firm itself did not make the cash payment. Exam tip: For realisation expenses paid personally by a partner, remember: ‘Realisation A/c Dr To Partner’s Capital A/c.’

Total ratio = 2 + 3 + 5 = 10. The second partner’s share is 3 parts, so the share equals ₹28,000 × 3/10 = ₹8,400. ₹7,000 is incorrect because it represents one-fourth of the profit, whereas the second partner is entitled to three-tenths. Exam tip: Divide the total profit by the sum of the ratio terms and multiply by the relevant partner’s ratio term.

The amount received from the sale of an asset during dissolution is recorded on the credit side of the Realisation Account. Receiving ₹4,000 more than the book value creates a profit, but the sale proceeds themselves are credited to the Realisation Account. The resulting profit is subsequently transferred to the partners’ capital accounts in their profit-sharing ratio. Exam tip: Record the book value of an asset on the debit side and its sale proceeds on the credit side of the Realisation Account.

The final balance of the Realisation Account represents the profit or loss arising from the realisation of assets and settlement of liabilities. This profit or loss is transferred to the partners’ Capital Accounts in their profit-sharing ratio. It is not transferred to Cash or Bank, which merely record the receipts and payments made during dissolution. Exam tip: On dissolution, remember that Realisation profit or loss ultimately goes to the partners’ Capital Accounts.

The total ratio is 1 + 2 = 3. The second partner’s share is 2/3, so the loss borne by that partner is ₹18,000 × 2/3 = ₹12,000. ₹6,000 is the first partner’s share because that partner’s ratio is 1/3. Exam tip: Share a dissolution loss in the profit-and-loss-sharing ratio unless the question specifies a different arrangement.

When an unrecorded asset is realised, the cash or bank account is debited and the Realisation Account is credited by the amount received: Bank Account Dr. ₹5,000; To Realisation Account ₹5,000. Thus, the receipt represents a gain on realisation, which is ultimately transferred to the partners’ Capital or Current Accounts in their profit-sharing ratio. Option B shows the reverse treatment, while option C incorrectly bypasses the Realisation Account. Exam tip: Proceeds from an unrecorded asset are credited to the Realisation Account and treated as a gain.

The creditors’ book liability was ₹20,000, but the firm paid ₹22,000 to settle it. The excess payment of ₹2,000 is a loss to the firm and is therefore recorded as a loss in the Realisation Account. When the settlement amount exceeds the book value of the liability, the difference is treated as a loss. Exam tip: Settlement amount − book liability = loss, so ₹22,000 − ₹20,000 = ₹2,000.

At dissolution, non-cash assets and external liabilities are transferred to the Realisation Account. The proceeds from selling assets are also recorded on its credit side. Partners’ capital balances, however, are settled through the partners’ capital accounts and are not transferred to the Realisation Account. Exam tip: Distinguish partners’ capital and loan accounts from external liabilities transferred to realisation.

Since all three partners have equal shares, each partner’s profit is ₹42,000 ÷ 3 = ₹14,000. Therefore, option B is correct. Choosing ₹12,000 would distribute only ₹36,000 in total. Exam tip: For equal-sharing questions, divide the total amount by the number of partners.

Profit on sale of the machine = Sale proceeds − Book value = ₹1,00,000 − ₹90,000 = ₹10,000. Therefore, option C is correct. On dissolution, this profit is credited to the Realisation Account. Exam tip: Compare the sale proceeds with the asset’s book value; if the book value exceeds the proceeds, the result is a loss.