Dissolution & goodwill
Q1. Write one distinction between dissolution of partnership and dissolution of firm?
Q2. X, Yand Z are sharing profits and losses in the ratio of 5 : 3 : 2. They decide to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1st April, 2014. They also decide to record the effect of the following accumulated profits, losses and reserves without affecting their book figures by passing a single entry
Q2. Hema and Garima were partners in a firm sharing profits in the ratio of 3:2 . On March 31, 2015, their Balance Sheet was as follows:
On the above date the firm was dissolved. The various assets were realized and liabilities were settled as under:
(i) Garima agreed to pay her husband’s loan.
(ii) Leasehold Premises realized 1,50,000 and Debtors 2,000 less.
(iii) Half the creditors agreed to accept furniture of the firm as full settlement of their claim and remaining half agreed to accept 5% less.
(iv) 50% Stock was taken over by Hema on cash payment of 90,000 and remaining stock was sold for 94,000.
(v) Realisation expenses of 10,000 were paid by Garima on behalf of firm.
(vi) Pass necessary journal entries for the dissolution of the firm.
Q3. Parul, Payal and Pooja are partners. They decided to dissolve their firm. Pass necessary Journal entries for the following after various Assets (other than Cash and Bank) and the third party liabilities have been transferred to Realisation Account:
(a) There were total Debtors of Rs. 76,000. A Provision of Bad and Doubtful Debts also stood in the books at Rs. 6,000. Rs. 12,000 Debtors proved bad and rest paid the amount due.
(b) Parul agreed to pay off her husband's loan of Rs. 7,000 at a discount of 5%.
(c) The book value of assets (other than cash and bank) transferred to Realization Account is Rs. 1,00,000. 50% of the assets are taken over by a partner pooja, 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, realized nothing and remaining assets are handed over to a Creditor, in full settlement of his claim.
(d) The firm had a debit balance of Rs. 27,000 in the Profit and Loss Account on the date of dissolution.
( e ) Pooja paid realisation expenses of Rs. 15,000 out of her pocket and she was to get a remuneration of Rs. 18,000 for completing the dissolution process.
.Pass the necessary entries at the dissolution a partnership firm of Zulu and Bholu
a. Realization expenses amounted to Rs.5000 were paid by the partner Bholu.
b. Bholu was entitled a commission of Rs.2000 for the realization expenses which were Rs.5500.
c. Realization expenses were Rs.4000 paid by the firm on behalf of Bholu who was given a commission of Rs.3000 for the same.
d. Zulu was paid a commission of Rs.600 for the realization expenses and the actual expenses were Rs.480 paid by zulu by his private funds.
e. Zulu decided took over the business in which assets realized Rs.60000 and liabilities amounted to Rs.10000.
f. Loan from zulu to the firm was Rs.9000 and his capital account shows a debit balance of Rs.1000
Q4. X, Yand Z are sharing profits and losses in the ratio of 5 : 3 : 2. They decide to share future profits and losses equally with effect from 1st April, 2014. At the time of change in the deed the following are the changes in there financial position -
a. Value of land & buildings is increased by Rs.50000.
b. Value of furniture is reduced by Rs.12,100
c. Rs.1000 included in creditors are not likely to be claimed and hence should be written back.
d. Unrecorded investments worth Rs.2,000 are to be recorded.
e. There is claim of Rs.900 against the firm which is disputed and needs a provision for the same.
f. The value of goodwill based on 3 years purchase of the super profits of the business, given that the normal rate of return is 10%.The books of a business showed that the capital employed on December 31, 2014, Rs. 5,00,000 and the profits for the last five years were: 2014– Rs. 40,000: 2013-Rs. 50,000; 2012-Rs. 55,000; 2011-Rs.70,000 and 2010-Rs. 85,000.
g. General Reserve appearing in their balancesheet was Rs. 60,000. Partners do not want to record the revised values and also decided to pass a single journal entry for the above effect . Show your workings clearly.
Q5. Romesh and Bhawan were in partnership sharing profit and losses as 3:2. Their Balance Sheet as on March 31, 2012, was as follows:
Balance Sheet of Romesh and Bhawan as on March 31, 2012
They decided to dissolve the firm. The following information is available:
1. Debtors were recovered 5% less. Stock was realised at books value and building was sold for Rs.51,000,
2. It is found that investment not recorded in the books amounted to Rs.10,000. The same were accepted by one creditor for this amount and other Creditors were paid at a discount of 10%. Bills payable were paid full,
3. Romesh took over some of the Investments at Rs.8,100 (book value less 10%). The remaining investment were taken over by Bhawan at 90% of the book value less Rs.900 discount,
4. Bhawan paid bank loan along with one year interest at 6% p.a,
5. An unrecorded liability of Rs.5,000 paid.
Pass entires for dissolution
Following is the Balance Sheet of X and Y , Who share profits and Loss in the ration of 4:1, as at 31st March, 2012
The firm was dissolved on the above date and the following arrangments were decided upon:
(i) X agreed to pay off his brother's Loan
(ii) Debtors of Rs. 5000 proved bad.
Iiii) Other assets realised - Investments 20 % less; and goodwill at 60 %.
(iv) One of the creditors for Rs. 5,000 was paid only Rs. 3,000.
(v) Buildings were auctioned for Rs. 30,000 and the auctioneer's commision amounted to Rs. 1,000.
(vi) Y took over part of stick at Rs. 4,000 (being 20 % less than the book value). Balance stock realised 50 %.
(vii) Realisation expense amounted to Rs. 2,000.
i) Realisation A/c.
ii) Partner's Capital Accounts
iii) bank a/c
|1. What is dissolution in accounting for partnership firms and companies?|
|2. How is goodwill treated during dissolution of a partnership firm or company?|
|3. What are the reasons that can lead to the dissolution of a partnership firm or company?|
|4. How is the distribution of assets and liabilities handled during the dissolution process?|
|5. What are the accounting entries to be recorded during the dissolution of a partnership firm or company?|