www.badlanionline.

com

No.1

Dissolution & Insolvency of Partnership Firms

Q. 1. A, B and C were in partnership sharing profits or losses in
the firms Balance Sheet stood as follows:
Liabilities
Rs.
Capital Accounts:
A
1,80,000
B
50,000
Sundry Creditors
91,000

the proportion of 3 : 2 : 1. The partnership was dissolved when

Assets
Land and Building
Plant and Machinery
Fixtures and Fittings
Stock-in-trade
Sundry Debtors
Cash and Bank
Cs Capital A/c (Dr.)

Rs.
40,000
1,50,000
8,000
22,000
76,000
9,000
16,000
3,21,000
3,21,000
The assets realized, Land and building Rs. 53,000; Plant and Machinery Rs. 1,24,000; Fixtures and Fittings Rs. 3,000;
Stock Rs. 17,000; Sundry Debtors Rs. 58,000.
Expenses of realization amounted to Rs. 1,000.
Show the entries and close the capital accounts of the partners on dissolution.
Q.2. Ram and Hanuman are partners in a firm. They share profits and losses in the ratio of 1 : 2. On 1st April 1999, they decided
to dissolve the partnership and on that date the Balance Sheet of the firm was as under:
Balance Sheet of Ram and Hanuman
As on 1st April 1999
Liabilities
Rs. Assets
Rs.
Sundry Creditors
50,000 Cash at Bank
10,000
General Reserve
60,000 Sundry Debtors
50,000
Hanumans Loan
30,000 Less: Prov. for Doubtful Debts
2,000
48,000
Capital Accounts:
Stock
1,02,000
Ram
1,50,000 Furniture
30,000
Hanuman
1,00,000 Plant and Machinery
80,000
Land and Building
1,20,000
3,90,000
3,90,000
The sales of firms properties realized Rs. 1,00,000 from stock, Rs. 34,000 from furniture and Rs. 1,00,000 from Land
and Building. Rs. 45,000 were collected from Debtors and Creditors were paid-off at a discount of Rs. 1,000.
Machinery and Plant are taken over by Ram at their book value. The expenses of realization amounted to Rs. 4,000.
Pass Journal Entries to close the books of the firm and prepare necessary ledger accounts.
Q.3. Cloud, Storm and Rain were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Due to difference in
opinion, they decided to dissolve the partnership with effect from 1 st April 1999 on which date the firms position was as under:
Balance Sheet
As at 1st April 1999
Liabilities
Rs. Assets
Rs.
Capital Accounts:
Plant and Machinery
80,000
Cloud
60,000 Furniture & Fixtures
45,000
Storm
40,000 Motor Car
25,000
Rain
30,000 Stock in trade
30,000
Current Accounts:
Sundry Debtors
71,000
Cloud
8,000 Cash at Bank
14,000
Storm
10,000 Current Account:
Sundry Creditors
1,20,000 Rain
3,000
2,68,000
2,68,000
The following information is given:
(i)
Plant costing Rs. 40,000 was taken over by Cloud at an agreed valuation of Rs. 45,000 and the remaining
machinery realized at Rs. 50,000.
(ii)
Furniture & Fixture realized at Rs. 40,000.
(iii)
Motor Car was taken over by Storm for Rs. 30,000.

Partnership Accounts

www.badlanionline.com

No.1

(iv)

Sundry Debtors included a Bad Debt for Rs. 1,200 and the rest portion was realized subject to a cash discount of
10%.
(v)
Stock worth Rs. 5,000 was taken over by Rain for Rs. 5,200 and the rest realized at 20% above their book value.
(vi)
A creditor for Rs. 2,000 was untraceable and other creditors accepted payment allowing 15% discount.
Realisation expenses amounted to Rs. 5,000.
You are required to show the Realisation Accounts and the Capital Accounts of the partners on dissolution showing final
payments to them.
Q.4. The following is the Balance Sheet of S and R as on 31.12.1999:
Liabilities
Rs. Assets
Rs.
Sundry Creditors
76,000 Cash at Bank
23,000
Loan from Lalita (wife of S)
20,000 Stock-in-trade
12,000
Loan from R
30,000 Sundry Debtors
40,000
Reserve Fund
10,000 Less:Provisions
2,000
38,000
Capital:
Furniture
8,000
S
20,000 Plant
56,000
R
16,000 Investments
20,000
Profit and Loss A/c
15,000
1,72,000
1,72,000
The firm was dissolved on 31.12.1999 and the following was the result:
(i)
S took over Investments at an agreed value of Rs. 16,000 and agreed to pay-off the Loan to Lalita (wife of S).
(ii)
The assets realized as under : Stock Rs. 10,000; Debtors Rs. 37,000; Furniture Rs. 9,000 and Plant Rs. 50,000. The
expenses of realization was Rs. 2,200.
(iii)
The Sundry Creditors were paid-off less 2.5% discount. S and R shared profits and losses in the ratio of 3 : 2.
Show Realisation Account, Bank Account and the Capital Accounts of the partners.
Q.5. A, B and C sharing profits in 3 : 1 : 1, agree upon dissolution. They each decide to take over certain assets and liabilities and
continue business separately.
Balance Sheet
As on date of Dissolution
Rs.
Rs.
Creditors
6,000 Cash at Bank
3,200
Loan
1,500 Sundry Assets
17,000
Capitals:
Debtors
24,200
A
27,500
Less:BadDebtsProvision
1,200
B
10,000
23,000
C
7,000
44,500 Stock
7,800
Furnitures
1,000
52,000
52,000
It is agreed as follows:
(1) Goodwill is to be ignored.
(2) A is to take over all the Fixtures at Rs. 800; Debtors amounting to Rs. 20,000 at Rs. 17,200. The creditors of Rs. 6,000
to be assumed by A at the figure.
(3) B is to take over all the stocks at Rs. 7,000 and certain of the Sundry Assets at Rs. 7,200 (being book value less 10%).
(4) C is to take over the remaining Sundry Assets at 90% of book values less Rs. 100 allowances and assume responsibility
for the discharge of the loan, together with accruing interest of Rs. 30 which has not been recorded in the books of the
firm.
(5) The expenses of dissolution were Rs. 270. The remaining debtors were sold to a debt collecting agency for 50% of
book values. Prepare Dissolution Account, Partners Capital Accounts and Bank Account.

Partnership Accounts

www.badlanionline.com

No.1

Q.6. X, Y and Z are equal partners. They decided to dissolve the firm on 31.12.1995. On that date their Balance Sheet was
Balance Sheet
Liabilities
Rs. Assets
Creditors
14,000 Cash at Bank
Xs Loan A/c
6,000 Investments
Capital Accounts:
Other Assets
X
30,000
Y
20,000
Z
5,000
55,000
75,000
Additional Information
Investments were taken over by X against his loan in full settlement.
The other assets realized 50% of their book value. The liquidation expenses amounted to Rs. 3,600.
A dispute with a creditor was settle reducing his claims by Rs. 600.
Z became insolvent and contributes 25 paise in the rupee towards the debts of the firm.
Show the necessary accounts as per (i) Garner Vs Murray principle, and (ii) Indian Partnership Act.

:
Rs.
4,000
5,000
66,000

75,000

Q.7. X, Y and Z were in partnership sharing profits and losses equally and agreed to dissolve the firm on 31.6.1993. On that date
their Balance Sheet stood as follows:
Balance Sheet
Liabilities
Rs.
Rs.
Capital Accounts:
Sundry Assets
25,000
X
17,000
Profit and Loss Account
6,000
Y
12,000
Capital Account
29,000
Z
4,000
Creditors
6,000
35,000
35,000
The assets were realized at 50% of the book value. Realisation expenses amounted to Rs. 2,500. Z became insolvent
and recovered Rs. 1,000 from his private estate.
Close the books of the firm under (i) Fixed Capital Method, (ii) Fluctuating Capital Method Applying Garner vs
Murray principle.

Q.8. A, B and C are partners in a firm dealing in hardware and sharing profits and losses 4 : 3 : 3, respectively, decide to dissolve,
and appoint B to realize 5% of the amounts realized from Stock and Debtors as his remuneration, and is to bear all the expenses
of realization.
The following is the Balance Sheet as on Dec. 31, 1997, the date of dissolution:
Liabilities
Rs. Assets
Rs.
Creditors
5,90,000 Cash at Bank
15,000
Capital Accounts:
Debtors
4,55,000
A
3,000
Less: Reserve for Bad Debts
25,000
4,30,000
B
2,00,000
5,00,000 Stock
6,00,000
Capital Account:
C Overdraw
45,000
10,90,000
10,90,000
B reports the results of realization:
Debtors realized Rs. 3,50,000; Stock realized Rs. 4,50,000; Goodwill was sold for Rs. 20,000, Creditors were paid
Rs.5,75,000 in full settlement. Outstanding Creditors Rs. 5,000 had also been paid.
The expenses of realization came to Rs. 6,000 which B met personally.
A and B agree to receive from C Rs. 30,000 in full settlement of the firms claim against him.
Show the necessary ledger accounts (assuming that Garner vs Murray principle is applied).

Partnership Accounts

www.badlanionline.com

Q 9:-`

No.1

A, B ,C and D were partners sharing profits and losses in the ratio of 3:3:2:2. Following was their Balance Sheet as on
31.12.2012
Liabilities
Rs
Assets
Rs
Capital Accounts:
Capital Accounts:
A
60,000
C
48,000
B
45,000
1,05,000 D
18,000
66,000
Creditors
46,000 Furniture
12,000
As Loan
30,000 Trademarks
21,000
Stock
30,000
Debtors
48,000
Less: Provision for
Doubtful debts
46,000
(1,500)
Bank
6,000
1,81,500

1,81,500

On 31.12.2012. the firm was dissolved and B was appointed to realize the assets and to pay off the
liabilities he was entitled to receive 5% Commission on the amount finally paid to other partners as capital. He agreed
to bear the expenses of realization. The assets were realized as follows: Debtors Rs 33,000; Stock Rs 24,000; furniture
Rs 3,000 Trademarks Rs 12,000.
Creditors were paid off in full in Full. In addition, a Contingent liability for Bills Receivable
discounted materialised to the extent of Rs 7,500. Also, there was a joint life policy for Rs 90,000. This was
surrendered for Rs 9,000. Expenses of realization amounted to Rs 1,500. C was insolvent but Rs 11,100 was recovered
from his estate.
Prepare Realisation Account. Bank Account and Capital Account of the partners.
Q.10. A, B, C and D were partners sharing profits and losses in
30th June 1993:
Liabilities
Rs.
Sundry Creditors
15,500
As Loan
10,000
Partners Capitals:
A
20,000
B
15,000
35,000

the ratio 3 : 3 : 2 : 2. The following is their Balance Sheet as at

Assets
Cash at Bank
Sundry Debtors
Less: Provision
Stock-in-trade
Furniture and Fittings
Trade Marks
Drawings Accounts:
C
D

Rs.
2,000
16,000
500
15,500
10,000
4,000
7,000
16,000
6,000

22,000
60,500
60,500
The firm was dissolved as on the above date, B being appointed to realize the assets and pay-off the liabilities. He was
entitled to receive 5% as his remuneration on the amounts finally paid to the other partner towards their capital. The expenses of
realization were to be defrayed by him.
The assets realized as follows:
Sundry Debtors Rs. 11,000; Stock Rs. 8,000; Furniture etc. Rs. 1,000 and Trade-marks Rs. 4,000.
Sundry Creditors were paid-off in full including a contingent liability amounting to Rs. 2,500 in respect of bills
discounted materialized. Expenses of realization amounting to Rs. 500 were paid by B. As C was insolvent, only Rs. 3,700 could
recovered from his private estate.
Close the books of the firm applying the rule in the leading case of Garner vs Murray.

Q.11. Anita and Burdy are in equal partnership. Their Balance Sheet stood as:
Liabilities
Rs. Assets
Anitas Capital
600 Machinery and Plant
Creditors
3,900 Furniture
Debtors

Partnership Accounts

Rs.
1,475
400
500

www.badlanionline.com

No.1

Stock
Cash at Bank
Burdys Drawings

625
300
1,200
4,500

4,500
The Assets were as follows:
Stock Rs. 350, Furniture Rs. 200, Debtors Rs. 500 and Machinery Rs. 700.
The cost of collecting and distributing the estate amounted to Rs. 150. Anitas private estate is not sufficient even to
pay his private debts, whereas in Burdys private estate there is a surplus of Rs. 50.
Prepare a Realisation Account, Bank Account, Profit and Loss Account and Creditors Account showing what dividend
is paid to Creditors.

Q.12. A, B and C were equal partners. Their Balance Sheet on 31.12.2000 stood as under, when the firm was dissolved:
Balance Sheet
As at 31.12.2000
Liabilities
Rs. Assets
Rs.
Sundry Creditors
32,000 Machinery
12,000
As Capital
4,000 Furniture
3,000
Bs Capital
3,000 Sundry Debtors
5,000
Stock
4,000
Cash at Bank
2,800
Cs Capital
12,200
39,000
39,000
The Assets realized as under:
Machinery Rs. 6,000; Furniture Rs. 1,000; Sundry Debtors Rs. 4,000 and Stock Rs. 3,000.
The expenses of realization came to Rs. 1,400.
As personal properties are not sufficient to pay his personal liabilities, whereas in Bs and Cs private estate there is a
surplus of Rs. 2,400 and Rs. 3,000, respectively.
Show necessary Accounts closing the books of the Firm.

Amalgamation of Partnership Firms

Q 1:-

On Dec. 31,2003 M/s A and B and M/s X and Y, two firms have following Balance Sheets.
Balance Sheet of M/s. A & B
Liabilities
Rs.
Assets
Rs.
Sundry Creditors
20,000 Cash at Bank
5,600
Mrs. As Lone
5,000
Stock
24,400
CapitalSundry Debtors
15,000
A
40,000 Office Furniture
4,000
B
20,000 Premises
40,000
85,000
85,000
Balance Sheet of M/s. X & Y
Liabilities
Rs.
Assets
Rs.
Sundry Creditors
25,000 Cast at Bank
6,700
CapitalStock
18,000
X
24,000 Sundry Debtors
20,000
Y
16,000 office Furniture
5,000
Investments
15,000
65,000
65,000
On January 1 2004, both firms have decided to amalgamate. For this Mrs. As lone was paid and Investments of M/s.
X and Y were not accepted by the new firm. The goodwill of M/s. A and B and M/s. X and Y was valued Rs. 8,000 and Rs.
10,000 respectively. Premises of M/s .A and B was revalued at Rs.50,000 and Stock was found overvalued by Rs.4,000 Stock of
M/s X and Y was valued Rs. 2,000 over. Reserve for Bad debts on the debtors of both firms was provided at 5%. The total capital
of the new firm was agreed to be Rs. 80,000, which should be in the new profit sharing ratio of partners being 3:2:3:2

Partnership Accounts

www.badlanionline.com

No.1

respectively. The Goodwill account of the partners will be closed. Adjustment of capital is required to be made by opening
current accounts.
Close the books of
both the firms and give opening entries in books of the new firm M/s A, B,X,Y, Also Prepare Balance Sheet of the newly
constituted firm.
Q 2:-

`B and S are partners of S& Co. sharing profits and losses in the ratio of 3:1, Sand T are Partners of T& Co. sharing
Profits and Losses in the ratio Of 2:1,
On 31st October, 2012, they decided to amalgamate and form a new firm M/s BST & Co. wherein B,S and T would be
partners sharing profits and losses in the ratio of 3:2:1,
There balance sheets on that date were as under:
Liabilities
S & Co.
T & Co.
Assets
S & Co.
T & Co.
Rs.
Rs.
Rs.
Rs.
Due to X & CO.
Due to S & Co.
Other Creditors
Reserves
Capitals
B
S
T

40,000

60,000
25,000

50,000
58,000
50,000

1,20,000
80,000

50,000

Cash in hand
Cash at bank
Due from T & Co.
Due From X & Co.
Other Debtors
Stock
Furniture
Vehicles
Machinery
Building

10,000
15,000
50,000

80,000
60,000
10,000

75,000
25,000

5,000
20,000

30, 000
1,00,000
70,000
3,000
80,000

3,25,000
3,08,000
3,25,000
3,08,000
The amalgamated firm took over the business on the following terms:
(a) Goods of S & Co. was worth Rs 60,000 and that of T & Co. Rs 50,000. Goodwill account was not to be opened in
the books of the new firm, the adjustments being recorded through capital accounts of the partners.
(b) Building, machinery and vehicles were taken over at Rs 50,000, Rs 90,000 and Rs.1,00,000 respectively.
(c) Provision for doubtful debts has to be carried forward at Rs 4,000 in respect of debtors of S & Co. and Rs. 5,000
in respect of debtors of T & Co.
You are required to:
(1) Compute the adjustments necessary for goodwill.
(2) Pass the journal entries in the books of BST & Co. assuming that excess /deficit capital (taking Ts Capital as base
) with reference to share in profits are to be transferred to current accounts.

Partnership Accounts

www.badlanionline.com

No.1

Piecemeal Distribution
Q 1:-

The partners A, B , And C have called you to assist then in winding up the affairs of their partnership on 30 th June ,
2012. Their balance sheets as on that date is given below:
Liabilities
Rs
Assets
Rs
Sundry Creditors
17,000 Cash at Bank
6,000
Capital Account:
Sundry Debtors
22,000
A
67,000 Stock In Trade
14,000
B
45,000 Plant and Equipment
99,000

31,500

Loan-A
Loan-B

1,60,500
(1) The partners share profit and loses in the ratio of 5:3:2
(2) Cash is distributed to the partners at the end of each Month
(3) A summary of liquidation transaction are as follows:

12,000
7,500
1,60,500

July 2012
Rs 16,500 collected from Debtors; balance is uncollectable
Rs 10,000 received from sale of entire stock .
Rs 1,000 liquidation in the business at the end of the month.
August 2012
Rs 1,500 Liquidation expenses paid. As part payment of his Capital, C accepted a
Piece of equipment for Rs 10,000 (books value Rs 4,000)
Rs 2,500 Cash retained in the business at the end of the month.
September 2012
Rs 75,000 received on sale of remaining plant and equipment.
Rs 1,000 liquidation expenses paid. No cash retained in the business
Required: Prepare a schedule of cash payments as of September 30, showing how the cash was distributed.
Q 2:-

The following is the Balance Sheet of A, B, C on 31 st December, 2012 when they decided to dissolve the partnership:
Liabilities
Rs
Assets
Rs
Creditors
As Loan
Capital Account
A
B
C

2,000
5,000

Sundry Assets
Cash

48,000
500

15,000
18,000
9,000

49,000
49,000
The assets realised the following sums in instalments:
1
1,000
2
3,000
3
3,900
4
6,000
5
20,100
34,000
The expenses of realisation were expected to be Rs 500 but ultimately amounted to Rs 400 only.
Show how at each stage the cash received should be distributed between partners. They share Profit in the ratio of
2:2:1.

Partnership Accounts