Illustration 5.
Luck, Duck, and Pluck were partners sharing profits and losses as 2 : 1 : 1. Their Balance Sheet as on 31.12.1995 is given below and they dissolved their partnership on that date:
| Liabilities | Rs. | Assets | Rs. |
| :------------------------------ | :------ | :-------------- | :------- |
| Outstanding Income Tax | 4,000 | Sundry Assets | 1,61,000 |
| Creditors | 15,000 | Cash | 9,000 |
| Bank Loan (Secured by a Fixed Asset) | 30,000 | | |
| Duck's Loan | 11,000 | | |
| Capitals: | | | |
| Luck | 40,000 | | |
| Duck | 40,000 | | |
| Pluck | 30,000 | | |
| | 1,10,000 | | |
| | 1,70,000 | | 1,70,000 |
The Bank could collect Rs. 25,000 out of sale of the fixed asset that was pledged. Rs. 3,000 was spent for packaging stock of materials before sale. Other assets were sold on 1st of each month as follows: January, '96-Rs. 12,000; February, '96-Rs. 15,000; March, '96-Rs. 10,000; April, '96-Rs. 30,000; May, '96-Rs. 36,000.
The collections were distributed as and when realized. Show the distribution.
Answer (2)
This question is related to the dissolution of a partnership, which is a topic in accounting. When a partnership is dissolved, the assets are liquidated and the liabilities are paid off. The remaining amounts are then distributed to the partners based on their profit-sharing ratio. Let's go through the process step-by-step:
Bank Loan Secured by a Fixed Asset : The Bank collected Rs. 25,000 from the sale of the pledged fixed asset, although the loan was Rs. 30,000. As a result, Rs. 5,000 still needs to be paid off from available funds upon realization of other assets.
Packaging Cost : Rs. 3,000 was spent packaging stock before sale. This is considered a realization expense and is deducted from the proceeds of the sale of assets.
Asset Realizations :
January '96: Rs. 12,000
February '96: Rs. 15,000
March '96: Rs. 10,000
April '96: Rs. 30,000
May '96: Rs. 36,000
Total proceeds from the sale of assets = Rs. 103,000
Disbursement of Funds :
First, Pay Outstanding Liabilities and Expenses :
Creditors: Rs. 15,000
Remaining Bank Loan: Rs. 5,000
Packaging Expense: Rs. 3,000
Duck's Loan: Rs. 11,000
Outstanding Income Tax: Rs. 4,000
Total liabilities to be settled initially = Rs. 38,000
Therefore, out of Rs. 103,000, these payments amount to Rs. 38,000, leaving Rs. 65,000 for the partners.
Distribution Among Partners According to Profit-Loss Sharing Ratio (2:1:1) :
Funds available for distribution: Rs. 65,000
Total ratio parts: 2+1+1 = 4
Luck receives: 4 2 × 65 , 000 = 32 , 500
Duck receives: 4 1 × 65 , 000 = 16 , 250
Pluck receives: 4 1 × 65 , 000 = 16 , 250
The partners will receive the final distribution as and when the funds are realized from asset sales each month. Each distribution period should ensure all liabilities and realization expenses are settled first before any distribution.
To distribute the proceeds upon dissolution, first, settle all outstanding liabilities, totaling Rs. 38,000. After realizing total asset collections of Rs. 128,000, Rs. 90,000 remains for distribution among partners based on a 2:1:1 ratio, resulting in Luck receiving Rs. 45,000, Duck Rs. 22,500, and Pluck Rs. 22,500.
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