7. Dissolution of a Partnership Firm

Q1. X and Y are partners in a firm sharing profits in the ratio of 3 : 2. Mrs. X has given loan of Rs.5,00,000 to the firm and the firm also took loan of Rs.2,50,000 from Y. The firm was dissolved and its assets were realised for Rs.6,25,000. State the order of payment of Mrs. X’s loan and Y’s loan with reason, if there were no other creditors of the firm.

Solution –

Calculation the interest on the loan given to Y:

Interest = Principle x Rate x Time

              = 5,00,000 x 10/100 x 1

             = 50,000

Calculation the interest on the loan taken from X:

Interest = Principal x Rate x time

              = 2,00,000 x 10/100 x 0.5

              = Rs.10,000

Calculation the total loss of the firm:

Loss = 10,000

Calculation the total profit/loss to be shared:

Total profit/loss = Interest on loan to Y – Interest on loan from X – Loss

                          = 50,000 – 10,000 – 10,000

                          = Rs.30,000

Distribution the profit/loss among partners X and Y in the ratio of 3 : 2.

Total parts = 3 + 2 = 5

Share of X = 3/5 x 30,000

                  = 18,000

Share of Y = 2/5 x 30,000

                 = 12,000

X’s share = Rs.18,000

Y’s share = Rs.12,000

Q2. Ajay and Vijay were partners sharing profits and losses in the ratio of 3 : 2. The firm was dissolved on 31^st March, 2026 and the following balances were appearing in the books of the firm:

1. Ajay’s loan – Rs.2,00,000; Om’s Loan – Rs.1,25,000.
2. Creditors – Rs.2,50,000.
3. Capital balances after all adjustments – Ajay: Rs.4,00,000 and Vijay: Rs.3,50,000;

Assets of the firm realised Rs.15,00,000.

You are required to show the amounts and order of payment as per Section 48 of Indian Partnership Act, 1932 on dissolution of the firm.

Solution –

Q3. What Journal entry will be passed when the unrecorded furniture of Rs.20,000 is taken by X, a partner at Rs.15,000 on the dissolution of the firm?

Solution-

Q4. Land and building (Book value) ₹ 1,60,000 sold for ₹ 3,00,000 through a broker who changed 2% commission on the deal. Journalize the transaction, at the time of dissolution of the firm.

Solution:-

Working notes:-

Realization amount = 3,00,000 – 3,00,000 x 2/100

                                                 = 2,94,000

Q5.  a)  Pass the journal entry when an unrecorded liability of

₹ 15,000 is settled at ₹ 10,000 and paid by X ,a partner  on the dissolution of a firm?

(b) Pass a journal entry if a machine having a book value of ₹ 15,000 is given to Rakesh, a creditor of ₹ 22,000 for  ₹ 12,000 towards part payment of his dues?

Solution:-

Q6. Pass journal entries in the following case?

1. Expenses of realization ₹ 600 to be borne by the firm and are paid by Harsh, a partner.
2.  Mohan, one of the partners of the firm, was asked to carry out dissolution of the firm for which he was allowed a salary of ₹ 20,000. Expenses for dissolution were ₹ 5,000.
3. Motor car of book value ₹ 50,000 taken by a creditor for ₹ 40,000 in settlement.

Solution:-

Q7. Pass necessary Journal entires in the following cases:

• Creditors of Rs.85,000 accepted Rs.40,000 in cash and investments of Rs.43,000, in full settlement of their claim.
• Creditors were Rs.16,000. They accepted Machinery valued at Rs.18,000 in settlement of their claim.
• Creditors were Rs.90,000. They accepted Building valued at Rs.1,20,000 and paid cash to the firm Rs.30,000.

 Solution:

Q8. Pass journal entries for the following:

1. Firm agreed to pay Alok ₹ 7,500 towards dissolution expenses. Dissolution expenses were ₹ 10,000, which were paid by the firm.
2. Realization express were ₹5,000. It was agreed that the firm will bear ₹2,000 and balance by Ravi, a partner.
3. Dissolution expenses of ₹ 10,000 were paid by Amit, a partner, on behalf of the firm.
4. Realisation expenses up to ₹ 6,000 was agreed by the firm to reimburse Ajay. Dissolution expenses were ₹7,000.

Solution-

Q9. Charu Dhwani, Iknoor and Paavni were partners in a firm. They had enterd into partnership firm last year only, through a verbal agreement. They contributed Capitals in the firm and to meet other financial requirements, few partners also provided loan to the firm. Within a year, their conflicts arisen due to certain disagreements and they decided to dissolve the firm. The firm had appointed Ms. Kavya, who is a financial advisor and legal consultants, to carry on the dissolution process. In the first instance, Ms Kavya had transferred various assets and external liabilities to Realization Account. Due to her busy schedule; Ms. Kavya has delegated this assignment to you, being an intern in her firm. On the date of dissolution you have observed the following transactions:

1. Dhwani’s Loan of ₹ 50,000 to the firm was settled by paying ₹42,000
2. Paavni’s Loan ₹ 40,000 was settled by giving an unrecorded asset of ₹ 45,000
3. Loan to Charu of ₹60,000 was settled by payment to charu’s brother loan of the same amount .
4. Iknoor’s Loan of ₹80,000 to the firm an she took over Machinery of ₹ 60,000 as part payment.

You are required to pass necessary entries for all the above mentioned transactions.

Solution:

Q10. Simar, Raja and Rita were partners in a firm sharing profits and losses in the ratio of 2:2:1. The firm was dissolved on 31^st, March, 2019. After the transfer of assets (other than cash) and external liabilities to the Realization account, the following transactions took place:

1. A debtor whose debt of ₹ 90,000 had been written off as bad, paid ₹ 88,000 in full settlement.
2. Creditors to whom ₹ 1,21,000 were due to be paid, accepted stock at ₹ 71,000 and the balance was paid to them by a cheque.
3. Raja had given a loan to the firm of ₹ 18,000. He was paid ₹ 17,000 in full settlement of his loan
4. Investment were ₹ 53,000 out of which investment of ₹ 43,000 ₹ 52,000 and the balance of the investment were sold for ₹ 12,000.
5. Expenses on dissolution amounted to ₹ 19,000 and the same were paid by the firm.
6. Profit on dissolution amounted to ₹ 30,000.

Pass the necessary journal entries for the above transactions in the books of the firm.

Solution:-

Q11. Pass necessary journal entries to record the following unrecorded assets and liabilities in the books of Paras and Priya :

1. There was an old furniture in the firm which had been written off completely in the books. This was sold for ₹ 3,000
2. Ashish, an old customer whose account for ₹1,000 was written off as bad in the previous year, paid 60%, of    the amount.
3. Paras agreed to take over the firm’s goodwill (not recorded in the books of the firm,) at a valuation of 30,000.
4. There was an old typewriter which had been written off completely from  the books. It was estimated to realize ₹ 400. It was taken by Priya at an estimated price less 25%.
5. There were   100 shares of ₹ 10 each in stat limited acquired at a cost  of ₹ 2,000 which had been written- off completely form the books. These shares are valued @ ₹ 6 each and divided among the partners in their profit-sharing ratio.

Solution:-

Q12. Pass journal entries for the following at the time of dissolution of the firm of X and Y after the assets (other than cash) and outside liabilities have been transferred to Realization Account:

1. Sale of Assets – ₹ 50,000.
2. Payment of Liabilities – 10,000.
3. A commission of 5% was allowed to X, a partner, on sale of assets.
4. Realization expenses were ₹ 15,000. The firm had agreed with X, to reimburse him ₹ 10,000.
5. The firm was required to pay Rs.5,000 as compensation to an employee for an injury suffered, which was a contingent liability not accepted by the firm.
6. Z, a debtor, whose account of ₹6,000 was written off as earlier, paid 60% of the amount.
7. Investment (Book Value ₹ 10,000) realized at 150%.
8. Realization expenses were ₹ 10,000. The firm had agreed with Y, a partner, to reimburse him up to ₹ 7,500.

Solution:

Q13. Pass necessary journal entries for the following transactions, on the dissolution of a partnership firm of Kavita and suman on 31^st March,2022, after the various assets (other than cash) and third party liabilities have been transferred to Realization Account.

1. Kavita took over amounting to ₹ 1,00,000 at ₹ 90,000.
2. Creditors of ₹ 2,00,000 took over plant and machinery of ₹ 3,00,000 in full settlement of their claim.
3. There was an unrecorded asset of ₹ 23,000 which was taken over by Suman at ₹17,000.
4. Realization expenses ₹ 2,000 were paid by Kavita.
5. Bank Loan of ₹ 21,000 was paid off.
6. Loss on dissolution amounted to ₹ 7,000.

Solution-

Q14. Aman and Harsh were partner in a firm, dissolved their firm. Pass necessary journal entries for the following after assets (other than Cash and Bank) and outside liabilities had been transferred to Realization account:

1. Furniture existed in the book at 50,000 Aman took 50% of the furniture at 10% discount.
2. Profit & Loss Account had credit balance of ₹ 15,000 on the date of dissolution.
3. Harsh’s loan of ₹ 6,000 was settled by paying ₹ 5,500.
4. Firm paid realization expenses of ₹ 5,000 on behalf of Harsh, a partner.
5. There was a cheque for ₹ 1,200 under discount. The cheque was received form soham who became insolvent and a first and final dividend of 25% was received from his estate.
6. Creditors of ₹ 6,000, accepted stock of ₹ 5,000 at a discount of 5% and the balance in cash.

Solution:-

Q15. The partners Rohit, Kunal and Sarthak decided to dissolve their firm. Pass necessary Journal entries for the following after various assets (other than Cash and Bank) and outside liability had been transferred to Realisation Account:

• Kunal agreed to pay his wife’s loan of Rs.60,000.
• Total Creditors of the firm were Rs.40,000. Creditors of Rs.10,000 were given part of furniture of book value Rs.8,000 out of total furniture of book value Rs.28,000 in settlement. Remaining Creditors allowed discount of 10%.
• Rohit had given a loan of Rs.70,000 to the firm for which rs.68,000 were paid in settlement.
• A machine which was not recorded in the books was taken by Kunal at Rs.3,000, whereas its expected value was Rs.5,000.
• The firm had stock of Rs.2,40,000,  25% of the stock was taken over by an unrecorded creditor of Rs.70,000 in full settlement of his claim and the remaining stock was taken over by Rohit at 80% of cost.
• Sarthek paid the ralisation expenses of Rs.16,000 and was to be paid Rs.15,000, including expenses for completing dissolution process.

Solution –

Q16. Pass necessary journal entries for the following Transactions on the dissolution of a firm after various assets (other than cash) and outside liabilities have been transferred to Realization Account.

1. Realization expenses of the firm amounting to ₹ 2,600 were paid by partner, Aman.
2. A creditor of ₹ 4,500 took over stock valued at ₹ 5,200 in full settlement.
3. An unrecorded asset realized ₹ 3,500.
4. Remaining creditors amounting to ₹20,000 were paid at a discount of 5%
5. Remaining stock of ₹ 30,000 was taken over by Bimal, a partner at a discount of 20%.
6. Investment whose face value was ₹ 10,000 was realized at 40%.

Solution-

Q17. Pass the necessary Journal entries for the following transactions on the dissolution of the partnership firm of Tina and Rina after the various assets (other than cash and bank) and external liabilities have been transferred to Realization Account.

(i) There was as outstanding bill for repairs for which Rs.20,000 were paid.

(ii) The firm had stock of Rs.80,000. Tina took over 50% of the stock at a discount of 20% while the  remaining stock was sold off for Rs.52,000.

(iii) The firm had 100 shares of Rs.10 each which were taken over by the partners at market value of Rs.20 per share in their profit-sharing ratio of 3:2.

(iv) Realization expenses of Rs.4,000 were paid by Rina.

(v) Tina had given a loan of Rs.40,000 to the firm which was duly paid.

(vi) Rina agreed to pay off her husband’s loan of Rs.10,000 at a discount of 10%.

Solution-

Q18. Pass necessary journal entries on dissolution of a firm in the following cases:

1. Dharam, a partner, was appointed to look after the process of dissolution at a remuneration of ₹ 12,000. Dissolution expenses were to be borne by the firm. Dissolution expenses ₹ 11,000 were paid by Dharam.
2. Jay, a partner, was appointed to look after dissolution and was to be paid ₹ 15,000, including dissolution expenses. Dissolution expenses ₹ 16,000 were by Vijay, another partner on behalf of jay.
3. Deepa, a partner, was to handle dissolution and for this work she was to be paid ₹ 7,000, in including dissolution expenses. ₹ 6,000 were paid form the firm’s bank account.
4. Dev, a partner, agreed to do the work of dissolution for  ₹  7,500. He took of the same value as his commission. The stock had already been transferred to Realization Account.
5. Jeev, a partner, agreed to do the work of dissolution for which he was allowed commission of ₹ 10,000. He agreed to bear the dissolution expenses. Actual dissolution expenses paid by Jeev were ₹ 12,000. These expenses were paid by Jeev by drawing cash from the firm.

Solution:-

Q19. Pass the necessary Journal entries for settlement of loan by partner at the time of dissolution of firm under each of the following cases:

Case 1 – Loan from Shiv (a partner) Rs.1,00,000 and balance in his Capital Account (Credit) Rs.1,75,000.

Case 2 – Loan from Shiv (a partner) Rs.1,00,000 and balance in his Capital Account (Debit) Rs.80,000.

Case 3 – Loan from Shiv (a partner) Rs.1,00,000 and balance in his Capital Account (Debit) RS.1,37,500.

Solution –

REALISATION ACCOUNT

Q20. Madhur and Neeraj were partners in a firm sharing profits and losses in the ratio of 3 : 2. The Balance Sheet as at 31^st March, 2024 was as under:Balance Sheet of Madhur and Neeraj as at 31^st March, 2024

The firm was dissolved on the above date and the following transactions took place:

• Machinery was taken over by creditors in full settlement of their account.
• Investment were taken over by Neeraj at RS.5,00,000.
• One of the debtors of Rs.1,00,000 was untraceable. Remaining debtors were realised at 10% less.
• Stock was taken over by Madhur at 50% discount.
• Realisation expenses amounting to Rs.1,00,000 were paid by Madhur.

Prepare Realisation Account.

Solution –

Q21. C, D and E were partners in a firm sharing profits in the ratio of 3 : 1 : 1. Their Balance Sheet as at 31^st March, 2022 was as follows:

BALANCE SHEET OF C, D AND E at 31^st March, 2022

On the above date, the firm was dissolved due  to certain disagreement among the partners:

1. Machinery of             ₹ 3,00,000 were given to creditors in full settlement of their account and remaining machinery was sold for ₹ 10,000.
2. Investment realized ₹ 2,90,000
3. Stock was sold for ₹ 1,18,000
4. Debtors for ₹ 20,000 proved bad.
5. Realization expenses amount to ₹ 10,000

Prepare Realization Account.

Solution-

Realisation A/c

Q22. Ramesh and Umesh were partners in a firm sharing Profits in the ratio of their capitals. On 31^st March, 2026, their Balance Sheet was as follows:

On the above date firm was dissolved.

1. Ramesh took 50% of stock at ₹ 10,000 less than book value.
2. Furniture was taken by Umesh for ₹ 50,000 and machinery was old sold for ₹ 4,50,000
3. Creditors were paid in full.
4. There was an unrecorded bill for repairs for ₹ 1,60,000 which was settled and paid at ₹ 1,40,000.

Prepare Realization Account.

Solution:-Dr.                                  Realization A/c       Cr.      

Q23. Pradeep and Paresh partners in a firm decided to Dissolve their partnership firm on 1^st April, 2025. Pradeep was deputed to realize the assets and to pay off the liabilities. He was paid ₹ 10,000 as commission for his services. Balance Sheet of firm 31^st March, 2026 was as follows:

Following terms and conditions were greed upon :

1. Pradeep agreed to pay his wife’s loan.
2. Investment was given to Paresh for ₹ 27,000.
3. Building realized ₹ 3,50,000
4. Creditors were to be paid after two months, they were paid immediately at 10% p.a. discount.
5. Realization expenses were ₹2,500

Prepare Realization Account.

Solution:-

Q24. Ashish and Kanav were partners in a firm sharing profits and losses in the ratio of 3:2. On 31^st March, 2026 their balance sheet was as follows:

BALANCE SHEET OF AHSISH AND KANAV as at 31^st March, 2026

On the above date the decided to dissolve the firm.

1. Ashish agreed to take over furniture at ₹ 38,000 and pay

Mrs. Ashish loan.

• Sundry Debtors realized ₹ 18,500 and plant realized 10% more.
• Kanav took over 40% the stock at 20% less than the book value. Remaining stock was sold at a gain of 10%
• Trade creditors took over investment in full settlement.
• Kanav agreed to take over the responsibility of completing dissolution at an agreed remuneration of ₹ 12,000 and to bear realization expense. Actual expenses of realization amount to ₹ 8,000

Prepare Realization Account.

Solution:-

Realisation Account, Partners’ Capital Accounts and Bank/Cash Account

Q25. A,B and C were partners sharing profits and losses in  the ratio of 2:2:1. Their Balance sheet as at 31^st March 2026 was as follows:

BALANCE SHEET OF A, B AND C as at 31^st March, 2026

On the above date they dissolved the firm and following amount were realized:

Fixed assets ₹  6,75,000; stock ₹  3,39,000; debtors ₹ 1,35,000; creditors were paid ₹ 1,85,000 in

full settlement of their claim. Expenses on realization amount to ₹ 19,000.

Pass the necessary journal entries on the dissolution of the firm.

Solution:-

Q26. Mike and Ajay are partners sharing profits and losses in ratio of the capitals. They decided to dissolve their firm on 31^st, March, 2026, the date on which the balance sheet stood as under:

Following additional information is given:

Sundry assets realized ₹14,00,000 and the liabilities were discharged as follows:

1. Creditors due on 31s May, 2026, were paid at a discount of 3% per annum.
2. Bills payable were discharged at a rebate of ₹ 1,000
3. Workmen compensation claim of ₹ 40,000 was met.
4. Expenses of dissolution amounting to ₹ 30,000 were paid.

You are required to prepare:

1. Realization account.
2. Partner’s capital accounts.

Solution:-

Dr.                                                       Realization A/c                                                          Cr.

Q27. Arnab, Ragini and Dhrupad are partners sharing profits in the ratio of 3:1:1. Last year, conflicts arose due to certain issues of disagreements and on 31^st March, 2026, they decided to dissolve the firm. On that date their Balance Sheet was as under:

BALANCE SHEET OF ARNAB, RAGINI AND DHRUPAD as 31^st March, 2026

The assets were realized and the liabilities were paid as under:

1. Arnab agreed to pay his brother’s loan.
2. Investment realized 20% less.
3. Creditors were paid at 10% less.
4. Building was auctioned for ₹ 3,55,000. Commission on auction was ₹ 5,000.
5. 50% of the stock was taken over by Ragini at market price which was 20% less than the book value and the remaining was sold at market price.
6. Dissolution expenses were ₹8,000. ₹3,000 were to be borne by the firm the balance by Dhrupad. The expenses were paid by him.

Prepare Realization Account and partner’s Capital Accounts.

Solution:- 

Dr.                                           Realization A/C                                                          Cr.

Q28. Bale and Yala are equal partners of a firm. They Decide to dissolve their partnership on 31^st march, 2025 at which date their balance sheet stood as

1. The assets realized were:

Stock ₹ 22,000; Debtors ₹ 7,500; Machinery ₹ 16,000; Building ₹ 35,000.

• Yale t took furniture at ₹ 9,000
• Bale agreed to accept ₹ 2,500 in settlement of his loan account
• Dissolution expenses were ₹ 2,500

Prepare the:

1. Realization account;
2. Capital accounts of partners;
3. Loan by bale account;
4. Bank account.

Solution:-

Dr.                                            Realization A/C                                                                             Cr.

Q29. A and B are partners in a firm sharing profits and Looses in the ratio of 3:2 on 31^st March, 2026, their. Balance sheet was as follows:

           BALANCE SHEET as at 31^st March, 2026

The firm was dissolved on 31^st March, 2026 and both the partners agreed to the following:

1. A took investment at an agreed value of ₹ 8,000. He also agreed to settle loan by Mrs. A.
2. Other assets realized as: stock – ₹ 5,000; Debtors – ₹ 18,500; Furniture – ₹4,500; Plant – ₹ 25,000.
3. Expenses of realization came to ₹ 1,600.
4. Creditors agreed to accept ₹ 37,000 in full settlement of their claims.

Prepare Realization Account, Partners’ Capital Account and Bank Account.

Solution:-

Dr.                                           Realization A/c                                                                          Cr.

Q30. A, B and C were equal partners. On 31^st March, 2026, Their Balance sheet stood as:

The firm was dissolved on the above date on the following terms:

1. For the purpose of dissolution, investment were valued at ₹ 18,000 and A took over the investment at this value.
2. Fixed assets realization ₹ 29,700 whereas stock and Debtors realized ₹ 80,000.
3. Expenses of realization paid were ₹ 1,300.
4. Creditors allowed discount of ₹ 800
5. A post-dated cheque for ₹ 1,500 under discount was dishonoured as the acceptor had become insolvent and was unable to pay and hence the firm paid the bank.

Prepare Realization Account, partners’ Capital Accounts and Cash Account showing how the accounts would finally be settled among the partners.

Solution:-

Q31.  Shilpa, Meena and Nanda decided to dissolve their partnership on 31^stmarch, 2026. Their profit-sharing ratio was 3:2:1 and their Balance Sheet was as under:

BALANCE SHEET OF SHILPA, MEENA AND NANDA as on 31^st March, 2026

It is agreed as follows:

Stock of value of ₹ 41,600 is taken over by Shilpa for ₹  35,000 and she agreed to pay bank loan. The remaining stock was sold at ₹ 14,000 and debtors amounting to ₹ 10,000 realized ₹ 8,000. Loan is sold for 1,10,000. The remaining debtors realized 50% at their book value. Cost of realization amounted to ₹ 1,200. There was a typewriter not recorded in the books worth of ₹ 6,000 which were taken over by one of the creditors at this value. Prepare Realization Account, Partners’ capital Account, and Cash Account to close the book of the firm.

Solution:-

Dr.                                               Realization A/c      Cr.

Q32. Michel Jackson and john are in partnership sharing Profits and losses in the proportions of 1/2, 1/3 and 1/6 respectively. On 31^st March, 2026, they decide to dissolve the firm. On this date the Balance Sheet stood as:

During the realization process, a liability under a suit for damages is settled at ₹ 20,000 as against ₹ 5,000 provided for in the books of the firm.

Land and building were sold for ₹ 40,000 and the stock and the    

Sundry Debtors realized ₹ 30,000 and ₹ 42,000 respectively. The expenses of realization amounted to ₹ 1,200.

There was a car in the firm, which was written off form the books. It was taken by Michel for ₹ 20,000. He also agreed to pay outstanding salary of ₹ 20,000 not provided in books.

Prepare Realization Account, partners’ Capital Accounts and Bank Account in the books of the firm. 

Solution:-

Dr.                                                 Realization A/c                                                          Cr.

Q33. Prashant and Rajesh are partners in a firm sharing. Profits and losses in the ratio of 3:2 on 31^st March, 2026, their Balance Sheet was: