Question 50 of 53advanced🔧 ApplyNumerical5 marks

The book value of assets (other than cash and bank) transferred to Realisation Account is Rs. 1,00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets are handed over to a Creditor, in full settlement of his claim. You are required to record the journal entries for realisation of assets.

Correct Answer

Journal Entries in the Books of the Firm:

1. Transfer of Assets to Realisation Account: Realisation A/c Dr. Rs. 1,00,000 To Assets (Individually) A/c Rs. 1,00,000 (Being assets transferred to Realisation Account)

2. Assets Taken Over by Atul: Atul's Capital A/c Dr. Rs. 40,000 To Realisation A/c Rs. 40,000 (Being 50% of assets taken over by Atul at 20% discount)

3. Sale of Assets: Bank A/c Dr. Rs. 26,000 To Realisation A/c Rs. 26,000 (Being 40% of remaining assets sold at 30% profit on cost)

4. Assets Handed Over to Creditor: Creditor A/c Dr. Rs. 28,500 To Realisation A/c Rs. 28,500 (Being remaining assets handed over to creditor in full settlement)

Note: 5% of balance assets (Rs. 1,500) being obsolete realised nothing, hence no entry recorded.

Exercise: Questions for Practice - Numerical Questions | Q: 7 | (Page 31)
For More Understanding

Explanation

This question tests the student's understanding of realisation of assets during dissolution. The key is to calculate the amounts step-by-step: (1) Atul takes 50% of Rs. 1,00,000 = Rs. 50,000 at 20% discount, so Rs. 40,000 is debited to his Capital; (2) Remaining assets = Rs. 50,000, of which 40% = Rs. 20,000 is sold at 30% profit = Rs. 26,000; (3) Balance = Rs. 30,000, of which 5% = Rs. 1,500 is obsolete (no entry); (4) Remaining Rs. 28,500 given to creditor. The textbook context confirms these journal entry formats for partner taking over assets and assets handed to creditors.

Solution Steps

  1. Step 1: Calculate Atul's share - 50% of Rs. 1,00,000 = Rs. 50,000. At 20% discount: Rs. 50,000×80000 \times 80% = Rs. 40,000

  2. Step 2: Calculate remaining assets - Rs. 1,00,000 - Rs. 50,000 = Rs. 50,000

  3. Step 3: Calculate sale proceeds - 40% of Rs. 50,000 = Rs. 20,000 (cost). Profit = 30% of Rs. 20,000 = Rs. 6,000. Sale value = Rs. 26,000

  4. Step 4: Calculate balance after sale - Rs. 50,000 - Rs. 20,000 = Rs. 30,000

  5. Step 5: Calculate obsolete portion - 5% of Rs. 30,000 = Rs. 1,500 (realised nothing)

  6. Step 6: Calculate assets to creditor - Rs. 30,000 - Rs. 1,500 = Rs. 28,500

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