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Introduction to Dissolution

On the dissol...

Question

On the dissolution of a firm, if a partner has a debit balance in his capital account then:

He shall not share in the profit/loss on dissolution

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He need not bring cash

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He is required to bring in enough cash to clear off his debit balance

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None of the above

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Solution

The correct option is C He is required to bring in enough cash to clear off his debit balance
At the time of dissolution, the accounts of partners are settled. Accounts are settled by paying them the amount of capital due to them. So, if a partner has debit balance in his capital he has to bring the amount to clear off his debit balance. Suppose. there are three partners, A, B and C. Capital of partners at the time of dissolution are A Rs.30000(CR.), B Rs.10000(CR.), and C Rs. 5000(DR.). In this , Partner C will bring Rs. 5000 to clear off his balance due to him.

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Similar questions

Q. When required amount for premium for goodwill is not brought in by new partner, goodwill account is raised in the books of the firm by debiting goodwill account and crediting partners capital account in old profit sharing ratio and written off in ______ if it agreed not show goodwill in the books of the firm OR ALTERNATIVELY premium for goodwill should be adjusted through partners capital account by debiting new partners share of goodwill to his account and crediting old partners capital accounts in _________.

Name the asset that is not transferred to the debit side of Realisation Account, but bring certain amount of cash against it disposal at the time of dissolution of the firm.

Q. A & B having share capital of Rs.

10, 000

each, share profits and losses equally. They admit C as an equal partner and goodwill was valued as Rs.

30, 000

(book value NIL). C is to bring in Rs.

20, 000

as his capital and the necessary cash towards his share of Goodwill. Goodwill Account will not be shown in the books. If profit on revaluation is Rs.

13, 000

, find the closing balance of the capital account.

Q. Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 31st March,2018 their Balance Sheet was:


Liabilities		₹	Assets		₹
Sundry Creditors		16,000	Cash in Hand		1,200
Public Deposits		61,000	Cash at Bank		2,800
Bank Overdraft		6,000	Stock		32,000
Outstanding Liabilities		2,000	Prepaid Insurance		1,000
Capital A/cs:			Sundry Debtors	28,000
			Less : Provision for D.D.	800	28,000

Deepika	48,000
Rajshree	40,000	88,000	Plant and Machinery		48,000
			Land and Building		50,000
			Furniture		10,000

		1,73,000			1,73,000

On the above date , the partners decided to admit Anshu as a partner on the following terms:
(a) The new profit-sharing ratio of Deepika , Rajshree and Anshu will be 5 : 3 : 2 respectively.
(b) Anshu shall bring in ₹ 32,000 as his capital.
(c) Anshu is unable to bring in any cash for his share of goodwill. Partners' therefore, decide to calculate the goodwill on the basis of Anshu's share in the profits and the capital contribution made by her to the firm.
(d) Plant and Machinery is to be valued at ₹ 60,000, Stock at ₹ 40,000 and the Provision for Doubtful Debts is to be maintained at ₹ 4,000. Value of Land and Building has appreciated by 20% . Furniture has been depreciated by 10%.
(e) There is and additional liability of ₹ 8,000 being outstanding salary payable to employees of the firm. This liability is not included in the outstanding liabilities , stated in the above Balance Sheet. Partners decide to show this liability in the books of account of the reconstituted firm.
Prepare Revaluation Account , Partners' Capital Accounts and Balance Sheet of Deepika , Rajshree and Anshu.

A

and

B

, carrying on business in partnership and sharing profits and losses in the ratio of

3 : 2

, require a partner, when their Balance Sheet stood as:

Liabilities	(Rs.)	Assets	(Rs.)
Creditors A's Capital 51,450 B's Capital 36,750	11,800 88,200	Cash Stock Debtors Furniture Machinery	1,500 28,000 19,500 2,500 48,500
	1,00,000		1,00,000

They admit

C

into partnership and give him

1 / 8^{t h}

share in the future profits on the following terms:
(a) Goodwill of the firm be valued at twice the average of the last three years profits which amounted to

R s . 21, 000; R s . 24, 000

and

R s . 25, 560

.
(b)

C

is to bring in cash for the amount of his share of goodwill.
(c)

C

is to bring in cash

R s . 15, 000

as his capital.
Pass Journal entries recording these transactions, draw out the Balance sheet of the new firm and state new profit sharing ratio.

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