How will you deal with the realisation expenses of the firm of Rashim and Bindiya in the following cases:
- Realisation expenses amount to Rs. 1,00,000,
- Realisation expenses amounting to Rs. 30,000 are paid by Rashim, a partner.
- Realisation expenses are to be borne by Rashim and he will be paid Rs. 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were Rs. 1,20,000.
Journal Entry: Realisation A/c Dr. Rs. 1,00,000 To Bank A/c Rs. 1,00,000 (Being realisation expenses paid by the firm)
Journal Entry: Realisation A/c Dr. Rs. 30,000 To Rashim's Capital A/c Rs. 30,000 (Being realisation expenses paid by partner Rashim)
Journal Entry: Realisation A/c Dr. Rs. 70,000 To Rashim's Capital A/c Rs. 70,000 (Being remuneration paid to Rashim for completing dissolution process)
Note: Since Rashim bears the realisation expenses personally, the actual expenses of Rs. 1,20,000 incurred by him are not recorded in the books of the firm. Only the remuneration of Rs. 70,000 payable to him is debited to Realisation Account.
Explanation
This question tests the understanding of different scenarios related to realisation expenses during dissolution. In Case 1, expenses are paid by the firm directly. In Case 2, a partner pays on behalf of the firm, so credit is given to partner's capital account. In Case 3, when a partner bears expenses personally and receives fixed remuneration, only the remuneration is recorded in the firm's books, not the actual expenses incurred by the partner.