X, Y and Z are partners in a business sharing profits and losses equally. Z dies and the firm is dissolved. On the date of dissolution, the capitals of X, Y and Z were Rs. 20,000, Rs. 15,000 and 10,00 respectively and the outside liabilities amounted to Rs. 65,000. X had advanced Rs. 10,000 as loan to the firm. State how the amount realised shall be used if the assets realised (a) Rs. 1,35,000 (b)Rs. 1,05,000?

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Solution

Solution: Section to which the given problem relates: Section 48(b).
Decision:
Case(a): First, Rs. 65,000 to pay outside liabilities. Next, Rs. 10,000 to pay X's loan, and then Rs. 45,000 to pay the capital of A, B and C and the balance Rs. 15,000 among A, B and C in their profit sharing ratio.
Case (b): First Rs. 65,000 to pay outside liabilities. Next Rs. 10,000 to pay Xs loan. Rs. 30,000 to pay the capital balance of X, Y and Z i.e. after adjusting the loss of Rs. 15,000 (Rs. 1,20,000 - Rs. 1,05,000) in their profit sharing ratio
X will be paid Rs. 15,000 (i.e Rs. 20,000 - 5,000)
Y will be paid Rs. 10,000 (i.e Rs. 15,000 - Rs. 5,000)
Z will be paid Rs. 5,000 (i.e. Rs. 10,000 - Rs.5,000).

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