Amara, Madhura, and Prema are partners sharing profits and losses in the ratio of 2:1:1. Their Balance Sheet as on 31.3.2023 was as follows:
Balance sheet as on 31.3.2023
| Liabilities | ₹ | Asset | ₹ |
| :---------- | :---- | :---------------- | :---- |
| Bills payable | 4,300 | Cash in hand | 1,000 |
| Creditors | 5,700 | Bills Receivable | 400 |
| Capitals: | | Stock | 20,000|
| Amara | 30,000| Debtors | 7,000 |
| Madhura | 20,000| Less: PBD 400 | 6,600 |
| Prema | 20,000| Joint Life Policy | 4,000 |
| Joint Life Policy Fund | 4,000 | Machinery | 50,000|
| | | Prepaid Rent | 2,000 |
| Total | 84,000| Total | 84,000|
The firm was liquidated on the above date:
a) Amara took over Joint Life Policy for ₹5,000
b) Stock realised for ₹2,000, Debtors realised ₹4,100 and Machinery was sold for ₹58,000.
c) Bills on hand realised in full
d) One bill for ₹500 under discount was dishonoured and had to be paid by the firm.
Prepare:
i) Realization A/c
ii) Partners' Capital Accounts and
iii) Cash A/c
Answer (2)
To solve the problem, we are required to prepare three accounts: the Realization Account, the Partners' Capital Accounts, and the Cash Account. Let's proceed step by step:
i) Realization Account:
Debits:
Stock: ₹20,000
Debtors: ₹7,000
Machinery: ₹50,000
Credits:
Joint Life Policy taken over by Amara: ₹5,000
Stock realised: ₹2,000
Debtors realised: ₹4,100
Machinery realised: ₹58,000
Liabilities:
Creditors: ₹5,700
Bills payable: ₹4,300
Bills under discount dishonoured: ₹500
Balancing figure (Profit/Loss on Realization):
Profit or loss is shared in the ratio of 2:1:1 (Amara, Madhura, Prema).
ii) Partners' Capital Accounts:
Opening Balances:
Amara: ₹30,000
Madhura: ₹20,000
Prema: ₹20,000
Adjustment for Joint Life Policy:
Amara takes over the Joint Life Policy, which leads to a debit entry of ₹5,000 in Amara’s account.
Share of Profit/Loss on Realization:
This is determined from the Realization Account adjustment.
iii) Cash Account:
Opening Balance:
Cash in hand: ₹1,000
Receipts from Realization:
Stock: ₹2,000
Debtors: ₹4,100
Machinery: ₹58,000
Bills Receivable: ₹400
Disbursements:
Payment to creditors: ₹5,700
Bills payable: ₹4,300
Payment for dishonoured bill: ₹500
Partners Settlements:
Any balance payable to partners will be settled from the Cash Account.
Each of these accounts helps to ensure that when the firm is liquidated, everything is balanced, and all partners are properly compensated according to their investment and the terms agreed upon.
The liquidation process of Amara, Madhura, and Prema's partnership involves preparing the Realization Account, Partners' Capital Accounts, and Cash Account. The Realization Account shows the profits shared among partners, while the Capital Accounts reflect their respective shares and transactions. Finally, the Cash Account summarizes the opening balance, cash realized, and disbursements made.
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