Question

Give journal entries for the following transactions: 1. To record the realisation of various assets and liabilities, 2. A Firm has a Stock of Rs. 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%, 3. Remaining Stock was sold at a profit of 30% on cost, 4. Land and Building (book value Rs. 1,60,000) sold for Rs. 3,00,000 through a broker who charged 2%, commission on the deal, 5. Plant and Machinery (book value Rs. 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value, 6. Investment whose face value was Rs. 4,000 was realised at 50%.

Accepted Answer

Journal Entries in the Books of Firm 1. Transfer of Assets to Realisation Account: Realisation A/c Dr. 3,84,000 To Stock A/c 1,60,000 To Land and Building A/c 1,60,000 To Plant and Machinery A/c 60,000 To Investment A/c 4,000 (Being assets transferred to Realisation Account) 2. Aziz took over 50% Stock at 20% discount: Aziz's Capital A/c Dr. 64,000 To Realisation A/c 64,000 (Being 50% stock taken over by Aziz at 20% discount) 3. Remaining Stock sold at 30% profit on cost: Bank A/c Dr. 1,04,000 To Realisation A/c 1,04,000 (Being remaining stock sold at 30% profit) 4. Land and Building sold through broker: Bank A/c Dr. 3,00,000 To Realisation A/c 3,00,000 (Being Land and Building sold for Rs. 3,00,000) Realisation A/c Dr. 6,000 To Bank A/c 6,000 (Being brokerage @ 2% paid) 5. Plant and Machinery handed over to Creditor: No journal entry required as asset given to creditor in full settlement. 6. Investment realised at 50%: Bank A/c Dr. 2,000 To Realisation A/c 2,000 (Being investment realised at 50% of face value) — For numerical problems on dissolution, each transaction must be analyzed separately. Stock taken by partner is debited to Partner's Capital Account. Assets sold are credited to Realisation Account with cash/bank debited. Brokerage is a realization expense debited to Realisation Account. When assets are given to creditors in settlement, no separate entry is needed as both are already in Realisation Account.

Explanation

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