PARTNERSHIP DISSOLUTION

LESSON – 12
PARTNERSHIP DISSOLUTION
OBJECTIVES
After studying this chapter, you should be able to understand:
• Explain the meaning of dissolution.
• Distinguish between dissolution of firm and dissolution of partnership
• Explain the different modes of dissolution
• Understand the procedure for closing the books of the firm
STRUCTURE
12.1 Introduction
12.2 Differences between Dissolution of partnership & Dissolution of a firm
12.3 Settlement of Accounts
12.4 Preparation of Accounts
12.5 Insolvency of Partner and All Partner Insolvent
12.6 Piece-meal Distribution
Unit Questions.
12.1. INTRODUCTION
The term dissolution stands for discontinuation. This may lead to dissolution of partnership or dissolution of firm. In dissolution of partnership, change in partnership relation takes place. The firm continues its business. In the case of dissolution of firm the dissolution of partnership between all the partners of the firm and termination of the firm’s business take place.

12.2. DIFFERENCES BETWEEN DISSOLUTION OF PARTNERSHIP AND DISSOLUTION OF FIRM
Continuation of Business. In the firm dissolution business ceases to exist but in partnership dissolution the business of the firm is continued.
Partnership Relationship. In the dissolution partnership among partners does not exist. Partnership among partners does exist in partnership dissolution.
Scope. Dissolution of firm implies dissolution of partnership whereas the reverse is not so, i.e., dissolution of partnership does not necessarily mean the dissolution of firm.
CIRCUMSTANCES UNDER WHICH A FIRM IS DISSOLVED
Dissolution by mutual agreement.
Dissolution due to the happening of contingencies.
Dissolution by notice in the case of partnership at will.
Dissolution by court.
CIRCUMSTANCES FOR THE DISSOLUTION OF PARTNERSHIP
Admission of a partner
Retirement of a partner
Death of a partner
Insolvency of a partner
On removal of a partner
Change in the profit-sharing ratio.
12.3. SETTLEMENT OF ACCOUNTS
Regarding the settlement of accounts partnership deed may specify explicitly. If it is not specified in the partnership deed then settlement is to be made on the lines specified below in accordance with provisions of Partnership Act. The act specified two important points:
Treatment of losses, and
Application of assets.
Treatment of Losses. Losses including deficiencies of capital are to paid in the following order:
First out of Profit
Then out of capital
Lastly by partners individually in their profit-sharing ratio.
Application of Assets. Assets of the firm shall be applied in the following manner and order.
In paying firm’s debts to third parties
In paying to each partner, what is due to him on account of advances.
In paying to each partner, which is due to him on account of capital.
The residue, if any, shall be divided among the partners in their profit-sharing ratio.
DIFFERENCES BETWEEN REVALUATION AND REALISATION ACCOUNT
Meaning. Revaluation account is prepared to record the revaluation of assets and liabilities but Realisation account is prepared to record the realization of assets and discharge of liabilities.
Purpose. Revaluation account is prepared to know the profit/loss due to revaluation while realization account is prepared to determine the profit/loss due to realization.
Time of Preparation. Revaluation account is prepared at the time of reconstitution of partnership (admission, retirement/death), whereas realization account is prepared at the time of dissolution.
Recording: Only Revaluation Account only revaluation of assets and liabilities are recorded and in Realisation Account both book values and realisation values are recorded to close down the assets and liabilities.
PROCEDURE
Transfer all assets and liabilities other than cash, capital and reserves to the Realisation A/c at book value.
Open cash, capital and Reserve accounts separately.
Post all the adjustments twice.
Transfer the balance in the P&L A/c and Reserve A/c to the Partners’ Capital A/c in the profit-sharing ratio.
Transfer the balance in the Capital A/c to Cash A/c
All accounts will close.
12.4. PREPARATION OF ACCOUNTS
For dissolution, the accounts to be prepared are: (a) Realisation A/c, (b) Partner’s Capital Account, (c) Cash account or Bank account.
Journal Entries
Realisation A/c Dr.
To Sundry Assets A/c
(For closing all assets at book value except cash or bank balance)
Sundry Liabilities A/c Dr.
To Realisation A/c
(For closing all liabilities at book values except cash, capital and reserves)
Cash A/c Dr.
To Realisation A/c
(For the actual amount realised on sale of assets)
Partners’ Capital A/c Dr.
To Realisation A/c
(For the agreed value of assets taken over by partners)
Realisation A/c Dr.
To Cash A/c
(For payment of liabilities)
Realisation A/c Dr.
To Partners Capital A/c
(For payment of liabilities by a partner)
Realisation A/c Dr.
To Cash A/c
(For expenses of realization)
Partners Capital A/c Dr.
To Cash A/c
(For when a partner is to bear the expenses of realisation)
Realisation A/c Dr.
To Partners’ Capital A/c
(For transferring the profit on realisation to Partners’ Capital A/c.
For loss a reverse entry will be passed)
Partners’ Capital A/c Dr.
To Cash A/c
(For paying the amount due to the partner)
Cash A/c Dr.
To Partners’ Capital A/c
(For the amount received from the partner)
Example 1:
A,B and C sharing profits in the proportion of 3:2:1 agreed upon dissolution of their partnership firm on 31.3.1990 and its balance sheet was as under:
BALANCE SHEET
Liabilities Rs. Assets Rs.
Creditors
Joint Life Policy Reserve
Investment Flutuation Reserve
Capital:
A
B
Mrs. A Loan 18,500
14,000
6,000

40,000
20,000
10,000 Cash at Bank
Debtors 9,300
Less: Provision 600

Stock
Investment (Cost)
C’s Current Account
Machinery
Joint Life Policy 5,420


8,700
7,550
20,830
11,500
40,500
14,000
1,08,500 1,08,500

The life policy is surrendered for Rs. 12,000. The investments are taken over by A for Rs.17,500. A agrees to discharges his wife loan. B taken over all the stock at Rs.7,000 and debtors amounting Rs.5,000 at Rs.4,000. Machinery is sold for Rs.55,000. The remaining debtors realize 50% the book value. The expense of realization amount to Rs.600.
It is found that an investment not recorded in the books is worth Rs.3,000. The same is taken over by one of the creditors at this value.
Show the necessary ledger accounts including the Final Accounts of the partners on completion of the dissolution of the firm.
Solution.
Dr REALISATION A/c Cr.
Particulars Rs. Particulars Rs.
To Machinery
To Stock
To Investments
To JLP
To Debtors
To Cash Expenses
To A’s Capital(Wife loan)
To Cash (Drs.18,500-3,000)
To Capital A/c:
A
B
C 40,500
7,550
20,830
14,000
9,300
600
10,000
15,500

14,235
9,490
4,745 By Creditors
By JLP Reserve
By Investment Fluctuation Res.
By RDD
By Mrs. A’s Loan A/c
By Cash (JLP)
By Cash(Machinery+Debtors)
By A’s Capital A/c(Investment)
By B’s Capital A/c(7,000+4,000) 18,500
14,000
6,000
600
10,000
12,000
57,150
17,500
11,000
1,46,750 1,46,750

Dr. PARTNERS’ CAPITAL A/cs Cr.
Particulars A
Rs. B
Rs. C
Rs. Particulars A
Rs. B
Rs. C
Rs.
To Balance
To Realisation
To Cash A/c -
17,500
46,735 -
11,000
18,490 11,500
-
- By Balance
By Realisation
By Realisation
By Cash 40,000
14,235
10,000
- 20,000
9,490
-
- -
4,475
-
6,755
64,235 29,490 11,500 64,235 29,490 11,500

Dr. CASH A/c Cr.
To Balance
To Realisation A/c
To Realisation A/c
To C’s Capital A/c 5,420
12,000
57,150
6,755 By Realisation (Expenses)
By Realisation(Crs.)
By A’s Capital A/c
By B’s Capital A/c 600
15,500
46,735
18,490
81,325 81,325

12.5. INSOLVENCY OF A PARTNER
PROCEDURE
Find out the loss on realization and transfer it to Partners Capital A/cs in the profit-sharing ratio.
Make the solvent partners bring in cash equal to their share of realization loss.
Find out the deficiency in the Insolvent Partner’s Capital A/c to the Solvent Partner’s Capital A/c according to the rule in Garner Vs. Murray.
RULE IN GARNER VS. MURRAY
Partnership arises on the basis of contract between the partners. The Contract Act prescribes the qualification for contract. An insolvent loses his contractual capacity when he is declared insolvent. Prior to 1904 an important decision was given in the case of Garner Vs. Murray on this point. The facts in the case of Garner Vs. Murray were:
There were three equal partners Garner, Murray, Wilkins.
Capital of all the partners were not equal
Wilkins became insolvent and the firm was dissolved
He was unable to pay anything
Murray took objection to the point that the loss due to the firm on account of insolvency is capital loss and that it should be shared in capital ratio.
Justice Joyce came out with the following striking decisions. The implications of the decision were:
Solvent partners must bring in cash equal to their share of realization loss
Deficiency in the Insolvent Partner’s Capital account is to be shared by the solvent partners in the ratio of their capitals as stood on the day of the dissolution. i.e., in the ratio of their capitals adjusted for Reserve and P&L A/c given in the opening balance sheet.
When the capitals are fixed, the deficiency in the Insolvent Partner’s Capital A/c will be transferred to the Solvent Partners Capital A/c in the opening capital ratio.
CRITICISMS OF GARNER VS. MURRAY
There are two important criticisms regarding this rule. They are:
a) The solvent partners are to introduce cash first to meet the realization loss and then introduce cash for meeting the loss due to insolvency.
b) Solvent partners with surplus capital alone are to meet the insolvency loss. This will induce the solvent partners to reduce their capital to nil or to make it as negative balances.
Steps in insolvency are:
1. Preparation of Realisation account.
2. Capital accounts of Partners
3. Cash account or Bank account
Applicability of Garner vs. Murray in India
There is nothing which prevents to assume that the decision in Garner vs. Murray will also apply to India on the following grounds:
a) Section 48 of Indian Partership Act is almost a copy of Section 44 of British Partnership Act upon shich the decision in Garner vs. Murray is based.
b) Secondly, there has been no case law in India which has examined this issue.
JOURNAL ENTRIES
a) Realisation A/c Dr.
To Sundry Assets
(For closing all assets at book value except cash or bank balance)
b) Sundry Liabilities A/c Dr.
To Realisation A/c
(For Closing all liabilities at book value except cash, capital and reserves)
c) Cash A/c Dr.
To Realisation A/c
(Actual amount realised on sale of assets)
d) Partners Capital A/c Dr.
To Realisation A/c
(For the agreed value of assets taken over by partners)
e) Realisation A/c Dr.
To Cash A/c
(For payment of liabilities)
f) Realisation A/c Dr.
To Partners Capital A/c
(For payment of liabilities by a partner)
g) Realisation A/c Dr.
To Cash A/c
(For expenses of realisation)
h) Partner’s Capital A/c Dr.
To Cash A/c
(For a partner is to bear the expenses of realisation)
i) Partners Capital A/c Dr.
To Realisation A/c
(For the loss on realization and transfer it to Partners Capital A/c in the profit-sharing ratio)
j) Cash A/c Dr.
To Solvent Partner’s Capital A/c
(For the cash brought in by the solvent partners equal to their share of realization loss)
k) Solvent Partner’s Capital A/c Dr.
To Insolvent Partner’s Capital A/c
(For transferring the deficiency in the Insolvent Partner’s Capital A/c to
solvent partners capital account according to the rule in Garner Vs. Murray)
l) Transfer the Balance in the Solvent Partners Capital A/c Dr.
To Cash A/c
m) All accounts will close.
Example 2:
The positions of A, B and C on June 30, 2002 was as follows:
Liabilities Rs. Assets Rs.
Creditors
A’s Loan
A’s Capital A/c
B’S Capital A/c
P& L A/c 63,000
40,000
64,000
36,000
70,000 Cash
Assets
C’s Capital A/c 25,000
1,70,000
78,000
2,73,000 2,73,000
Profit and losses are shared-A 18/35; B 7/35; and C 10/35. The firm is dissolved on the above date. Sundry assets realize Rs.1,40,000. Sundry creditors are paid Rs.60,000 in full settlement. Expenses amount to Rs.8,000. C is insolvent. Assume the capital are not fixed. Close the books of the firm.
Solution.
Dr. REALISATION A/c Cr.
Rs. Rs.
To Sundry Assets
To Cash (Sundry creditors)
To Cash (Expenses) 1,70,000
60,000
8,000 By Sundry Creditors
By Cash (Sundry assets)
By Loss transferred to Capital A/cs:
A
B
C 63,000
1,40,000



18,000
7,000
10,000
2,38,000 2,38,000

Dr. CASH A/c Cr.
Rs. Rs.
To Balance b/d
To Realisation (Sundry Assets)
To A’s Capital A/c(Loss on realn.)
To B’s Capital A/c(Loss on realn.) 25,000
1,40,000
18,000

7,000 By Realisation A/c (Creditors)
By A’s Loan Account
By Realisation A/c(Expenses)
By A’s Capital A/c(Settlement)
By B’s Capital A/c(Settlement) 60,000
40,000
8,000
54,670

27,330
1,90,000 1,90,000

Dr. CAPITAL A/cs Cr.
Particulars A
Rs. B
Rs. C
Rs. Particulars A
Rs. B
Rs. C
Rs.
To Balance
To Realisation Loss
To C’s Capital Deficiency
To Cash
18,000
45,330
54,670
7,000
22,670
27,330 78,000
10,000 By Balance b/d
By P&L A/c (Profit)
By Cash (Loss)

By A’s Capital A/c
By B’s Capital A/c 64,000
36,000
18,000 36,000
14,000
7,000
20,000


45,330
22,670
1,18,000 57,000 88,000 1,18,000 57,000 88,000
12.6. PIECEMEAL DISTRIBUTION
At the time of dissolution, all the assets are realised and liabilities are paid. Hence, it is assumed that all the assets are realised on the date of dissolution. But, in reality, it is not possible to realize all the assets at the same time. Depending on the type of assets, whether current or fixed, the realisation of the same takes some time, i.e., the assets are realised gradually and not at once. However, the available cash, as and when the assets are realised, is used in the order of paying the realisation expenses, outsiders’ liabilities, partners’ loan and finally the partners capital.
If a liability is having any charge over any assets, then the cash realised through the sale of such asset is first used for paying of the liability. If the asset is not having any charge, then the cash realised through the sale of such asset is used for paying all the liabilities. While setting the accounts, after paying the outsiders’ liabilities, the internal liabilities (i.e., partners capital)are paid as and when any asset is realised, without waiting for realisation of all assets.
Piecemeal distribution literally means distribution of available cash immediately on realisation without waiting for the realisation of entire assets.
PROCEDURE
When assets realise gradually all the liabilities cannot be paid on one day. The procedure is pay the external liabilities:
First in the ratio of amount outstanding.
The balance must be utilised to pay off internal loans in the ratio of amount outstanding.
Finally, if there is any balance that will be distributed among Partners Capital A/c under:
(a) Proportionate capital method, or
(b) Maximum loss method.
PROPORTIONATE CAPITAL METHOD
The capitals of the partners will be compared with their respective profit-sharing ratio. Any partner who has contributed in excess of his profit-sharing proportion will be paid first. So that the capitals are brought in the profit-sharing ratio. Finally, the balance outstanding will be loss of partners which will be in the profit-sharing ratio. This method is suitable when the following conditions are satisfied:
(a) Partners’ profit-sharing ratio is not as per their capital contribution.
(b) All the partners are solvent and are likely to remain so.
The steps involved are:
(1) Adjust the capital by adding up capital, current account and reserve. Divide adjusted capital of each partner by his profit-sharing ratio. The smallest quotient should be taken as base capital.
(2) Multiply base capital and profit-sharing ratio of each partner to calculate relative capital.
(3) Calculate the surplus capital by deducting relative capital(as per step 2) from adjusted capital of each partner.
(4) Divide the surplus capital in step 3 by profit-sharing ratio of each partner. The smallest quotient should be taken as revised base capital.
(5) Calculate relative by multiplying revised base capital and profit-sharing ratio.
(6) Deduct revised base capital from surplus capital to arrive at absolute surplus.
MAXIMUM LOSS METHOD
After paying external liabilities and partner’s loan find the cash available for distribution among the partners capital. Deduct from the total capital the amount available. The balance will be maximum loss (assuming no more realisation) which will be distributed in the profit- sharing ratio. The amount due minus the maximum loss will be the amount paid to the partners. The same procedure will be continued, every time when a realisation is made. The final balance will be maximum loss of partners, which will be in the profit - sharing ratio.
In maximum loss method the points to be considered are:
(1) Cash in hand is to be considered as the first realisation.
(2) For calculating capital ratio adjustment is to be made by adding capital balance share of reserve and profit when capitals are fluctuating. In case of fixed capital no adjustments is required.
Section – C
Example 3:
Following is the Balance Sheet of M/s Amir, Bakshi and Chander who share profits and losses in the ratio of 2:2:1.
Liabilities Rs. Assets Rs.
Sundry creditors
Capitals:
Amir
Bakshi
Chander 30,000

30,000
24,000
8,000 Cash in Hand
Sundry Debtors
Stock
Furniture
4,000
24,000
44,000
20,000

92,000 92,000

The firm was dissolved and the assets were realised gradually; Rs.20,000 was received once, Rs.30,000 another time and Rs.18,000 finally. Show how each instalments is to be distributed under Proportionate Capital Method.
Solution.
DISTRIBUTION OF CASH UNDER PROPORTIONATE CAPITAL METHOD
Creditors
Rs. Amir
Rs. Bakshi
Rs. Chandar
Rs.
Balance
Cash given to Creditors

I Instalment: Rs.20,000 to creditors

II Instalment: Rs.30,000
(Rs.6,000 to Cr. and Rs.6,000 to Amir)

Rs.8,000 TO Amir and Rs.8,000 to Bakshi
(to make their capital in the profit-sharing ratio)

Balance 2,000 to all partners(2:2:1)

III Instalment:18,000 to all partners(2:2:1)
Loss 30,000
4,000
26,000
20,000
6,000
6,000
NIL


30,000

30,000
______
30,000
6,000
24,000


8,000
16,000
800
15,200

7,200
8,000 24,000

24,000
______
24,000
______
24,000


8,000
16,000
800
15,200

7,200
8,000 8,000

8,000
_____
8,000
_____
8,000


_______
8,000
400
7,600

3,600
4,000
Example 4:
Kamala, Vimala and Kokila were sharing profit and losses in the ratio of 3:2:1. They decided to dissolve
the firm on 30th June 1996. Their balance sheet as on that date was as under:
BALANCE SHEET
Liabilities Rs. Assets Rs.
Creditors
Capital Accounts:
Kamala
Vimala
kokila 35,000

25,000
25,000
15,000 Fixed Assets
Current Assets 60,000
40,000
1,00,000 1,00,000
All the assets were realised Rs.85,000. That amount realised in first instalment Rs.35,000, in second instalment Rs.25,000 and in third instalment Rs.25,000. Prepare the statement showing distribution of cash under maximum loss method.
Solution.
Particulars Total
Rs. Creditors
Rs. Kamala
Rs. Vimala
Rs. Kokila
Rs.
Balance Outstanding
I Instalment Rs.35,000
Balance Outstanding
II Instalment Rs.25,000
(65,000-25,000=40,000)(3:2:1)
Cash Paid
Balance Outstanding 1
Cash paid 2
Balance Outstanding (1-2)
III Instalment Rs.25,000
(40,000-25,000=15,000)(3:2:1)
Cash Paid 3
Balance Outstanding
Cash Paid 3
Balance Outstanding* [(1-2)-3] 1,00,000
35,000
65,000
40,000
______
25,000
65,000
25,000
40,000
15,000

25,000
40,000
25,000
15,000 35,000
35,000
0


______
0 25,000
-
25,000
20,000
______
5,000
25,000
5,000
20,000
7,500

12,500
20,000
12,500
7,500 25,000
-
25,000
13,333
______
11,667
25,000
11,667
13,333
5000

8,333
13,333
8,333
5,000 15,000
-
15,000
6,667
_____
8,333
15,000
8,333
6,667
2,500

4,167
6,667
4,167
2,500
Balance unpaid (loss on realisation)

Example
Ram, Shyam and Madan share profits and losses in the ratio of 4:2:1. They decide to dissolve the partnership their balance sheet on the date of dissolution being as follows:
BALANCE SHEET
Liabilities Rs. Assets Rs.
Creditors
Bank Overdraft
General Reserve
Capital Accounts:
Ram
Shyam
Madan 5,700
16,250
9,450

40,000
80,000
65,000 Land and Building
Plant and Machinery
Furniture
Investments
Stock
Debtors
Cash 95,720
16,300
2,460
15,000
64,150
22,700
70
2,16,400 2,16,400
The partners also decide that after the creditors have all been paid and providing a sum of Rs.1,200 to meet probable expenses of realisation, all cash should immediately be divided among them. The assets realised as follows:
Realisation 1-15,360; 2-18,400;3-96,399;4-56,300. Expenses of realisation amounted to Rs.1,132. Prepare a statement showing in detail how cash should be distributed among the partners.
Solution:
Particulars Creditors
Rs. Bank loan
Rs. Ram
Rs. Shyam
Rs. Madan
Rs.
Amount due
I Realisation 15,360+70-1,200=14,230
(ratio 5,700:16,250)
Balance Due
II Realisation Rs.18,400
Balance in II Realisation
(18,400-7,720)Rs.10,680
Max. loss=1,94,450-10,680=1,83,770
(in the ratio of 4:2:1)

Deficiency of Ram tfr to others in the ratio of 82,700:66,350

Deficiency of Shyam tfr to Madan
Cash Paid
Balance outstanding
III Realisation Rs.96,366(ratio 4:2:1)
Max. loss=1,83,770-96,399=87,371

Deficiency tfr to other partners-4,526 in
capital ratio
Cash paid
Balance outstanding
IV Realisation 56,300+62=56,362
Max. loss=87,371-56,362=31,003
(ratio 4:2:1)
Cash paid
Unpaid amount 5,700
3,695
2,005
2,005
0 16,250
10,535
5,715
5,715
0 45,100*




45,400
1,05,011
-59,611

+59,611
0
0
0
45,400
-49,926

-4,526
+4,526
0
45,400
-17,716


27,684
17,716 82,700




82,700
52,506
30,194

-33,075
-2,881
+2,881
0
82,700
-24,963

57,737
-2,511
55,226
27,474
-8,858


18,616
8,858 66,350




66,350
26,253
40,097

-26,536
13,561
-2,881
10,680
55,670
-12,482

43,188
-2,015
41,173
14,497
-4,429


10,068
4,429

Unit Questions:
1. What is dissolution of a firm? Distinguish between dissolution of partnership and dissolution of a firm.
2. Discuss the circumstances in which partnership is dissolved and a firm is dissolved.
3. The following was the balance sheet of A and B as at Dec. 31st 2001:
Liabilities Rs. Assets Rs.
Creditors
A’s Loan
General Reserve
Capitals:
A 30,000
B 25,000 20,000
10,000
10,000



55,000 Plant
Patent
Stock
Debtors 19,000
Less: Provision for Bad Debts 1,000

Cash 40,000
6,000
25,000


18,000
6,000
95,000 95,000
A and B shared profits in the ratio of 3:2. On 1st January, 2002, the firm was dissolved. A took over the patents at a valuation of Rs.5,000. The other assets realised as under:
Goodwill – Rs.15,000; Plant – Rs.30,000; Stock – Rs.22,000; Debtors – Rs.18,500.
The sundry creditors were paid off at a discount of 5%. The expenses of realisation came to Rs,3,500. Prepare the necessary Ledger Accounts to close the books of the firm.
4. Aki, Bki and Cki were partners in a firm. They shared profits and losses: Aki 40% Bki 30% and Cki 30%. The firm was dissolved and Bki was appointed to realise the assets and distribute the proceeds. Bki is to receive 5% commission on the amounts realised from sale of assets and to bear all expenses of realisation.
The balance sheet on the date of dissolution was as under:
Liabilities Rs. Assets Rs.
Creditors
Aki’s Capital A/c
Bki’s Capital A/c 59,000
30,000
20,000 Cash
Debtors 45,000
Less: Provision 2,500

Stock
Cki’s Capital o/d 1,500


43,000
60,000
4,500
1,09,000 1,09,000
Debtors realised Rs.35,000. Stock Rs. 45,000. Goodwill Rs.2,000. Creditors were paid Rs.57,500 in full settlement. In addition, outstanding creditors, Rs.500 were also paid. The expenses amounted to Rs.600. Aki and Bki agreed to receive Rs.3,000 in full settlement from Cki.
Show the Realisation A/c, Cash A/c and Capital A/cs of the partners.
5. Mani, Ramu and Sethu are partners sharing profits and losses in the ratio of 3:4:5. They decided to dissolve the firm on 1-7-1989. They decided to realise the assets gradually. Payments to be made as and when assets are realised.
The Balance sheet of the firm on 1-7-1989 is given below:
Liabilities Rs. Assets Rs.
Creditors
Ramu’s Loan A/c
Capitals:
Ramu
Mani
Sethu 10,000
2,000

8,000
12,000
4,000 Sundry Assets 36,000
36,000 36,000
The realisation of assets was as follows:
I instalment Rs.5,000, II instalment Rs.10,000, III instalment Rs,5,100, IV instalment Rs.6,300, V instalment Rs.5,700.
Prepare a detailed statement showing distribution of cash.
[Ans. II instalment Mani gets Rs.3,000; III instalment mani gets Rs.3,450, Ramu gets Rs. 1,650; IV instalment both Mani and Ramu gets Rs.3150 each; V instalment Mani gets Rs.1,425; Ramu gets Rs.1,900, Sethu gets Rs.2,375]






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