Dissolution Ganesh chandan sum no 2 journal entries

Dissolution of Partnership Firm

Problem: Ganesh and Chandan (March 31, 2011)

Question

Ganesh and Chandan were partners sharing profits and losses in the proportion of 3:2. They dissolve the partnership firm on 31^st March, 2011 when their position was as follows:

Balance Sheet as on 31^st March, 2011

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Sundry Creditors	25000	Debtors	112500
Bank overdraft	20000	Less : R.D.D     12500	100000
Reserve Fund	30000	Stock	225000
Capital Accounts:		Furniture	50000
Ganesh	230000	Motor Car	75000
Chandan	150000	Cash in hand	5000
Total	455000	Total	455000

The Assets realised as follows: Debtors Rs 90,000, Stock Rs 2,00,000, and Goodwill Rs 25,000, Motor Car was taken over by Ganesh for Rs 70,000 and Furniture by Chandan for Rs 60,000.

The Creditors were paid Rs 22,500 in full settlement. The expenses of realisation amounted to Rs 10,000.

Pass necessary journal entries in the books of the firm.

Solution: Journal Entries in the Books of the Firm

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
2011 Mar 31	Realisation A/c ... Dr.     To Debtors A/c     To Stock A/c     To Furniture A/c     To Motor Car A/c (Being sundry assets transferred to Realisation A/c at book value)		4,62,500	1,12,500 2,25,000 50,000 75,000
	Sundry Creditors A/c ... Dr. R.D.D. A/c ... Dr.     To Realisation A/c (Being Sundry Creditors and R.D.D. transferred to Realisation A/c)		25,000 12,500	37,500
	Bank A/c ... Dr.     To Realisation A/c (Being assets realised: Debtors Rs 90,000, Stock Rs 2,00,000, and Goodwill Rs 25,000)		3,15,000	3,15,000
	Ganesh's Capital A/c ... Dr.     To Realisation A/c (Being Motor Car taken over by Ganesh)		70,000	70,000
	Chandan's Capital A/c ... Dr.     To Realisation A/c (Being Furniture taken over by Chandan)		60,000	60,000
	Realisation A/c ... Dr.     To Bank A/c (Being Creditors paid in full settlement)		22,500	22,500
	Realisation A/c ... Dr.     To Bank A/c (Being realisation expenses paid)		10,000	10,000
	Reserve Fund A/c ... Dr.     To Ganesh's Capital A/c     To Chandan's Capital A/c (Being Reserve Fund distributed among partners in 3:2 ratio)		30,000	18,000 12,000
	Bank Overdraft A/c ... Dr.     To Bank A/c (Being Bank Overdraft liability discharged)		20,000	20,000
	Ganesh's Capital A/c ... Dr. Chandan's Capital A/c ... Dr.     To Realisation A/c (Being Loss on Realisation transferred to Capital A/c in 3:2 ratio)		7,500 5,000	12,500
	Bank A/c ... Dr.     To Cash A/c (Being Cash balance transferred to Bank for final settlement)		5,000	5,000
	Ganesh's Capital A/c ... Dr. Chandan's Capital A/c ... Dr.     To Bank A/c (Being final amount due to partners paid to settle their accounts)		1,70,500 97,000	2,67,500
Total			12,95,000	12,95,000

Note: Important

As per the book the amounts paid to Ganesh and Chandan are Rs 1,72,500 and Rs 95,000, respectively, however, as per the solution above these balances should be Rs 1,70,500 and Rs 97,000, respectively.

Working Notes

1. Calculation of Profit/Loss on Realisation

To determine the profit or loss, we compare the total Debits and Credits of the Realisation Account.

Debit Side (Expenses & Losses):

Assets Transferred: Rs 4,62,500
Creditors Paid: Rs 22,500
Realisation Exp: Rs 10,000
-----------------------------------
Total Debit: Rs 4,95,000

Credit Side (Incomes & Gains):

Liabilities (Creditors + RDD): Rs 37,500
Assets Realised (Bank): Rs 3,15,000
Taken by Ganesh: Rs 70,000
Taken by Chandan: Rs 60,000
------------------------------------------
Total Credit: Rs 4,82,500

Result: Since Debit side > Credit side, there is a Loss.

$$Loss = 4,95,000 - 4,82,500 = \text{Rs } 12,500$$

Distribution of Loss (Ratio 3:2):

• Ganesh: \(12,500 \times \frac{3}{5} = \text{Rs } 7,500\)
• Chandan: \(12,500 \times \frac{2}{5} = \text{Rs } 5,000\)

2. Final Capital Settlement

We calculate the final amount payable to partners by adjusting their opening capital with reserves, assets taken over, and realisation loss.

Particulars	Ganesh (Rs)	Chandan (Rs)
Opening Balance	2,30,000	1,50,000
Add: Reserve Fund (3:2)	18,000	12,000
Less: Assets Taken Over	(70,000)	(60,000)
Less: Realisation Loss	(7,500)	(5,000)
Final Payment Due	1,70,500	97,000