Advanced Level Questions

1. Lion and Tiger were in partnership sharing profits and losses in the ratio of 3 : 1. On 31st March, 2020,
the Balance Sheet of the firm was as follows:

Liabilities
` Assets `

Capital A/cs: Fixed Assets 2,10,000

Lion 2,40,000 Stock 1,12,000
Tiger 80,000 3,20,000 Sundry Debtors 1,96,000
Current A/cs: Cash at Bank 37,200
Lion 42,000
Tiger 20,000 62,000
Loan (Tiger) 30,000
Creditors 1,43,200
5,55,200 5,55,200

They decided to dissolve the partnership firm on the date of the Balance Sheet.

Classmate Ltd. took Stock and Fixed Assets excluding motor car having a book value of ` 41,000, for a
consideration of ` 4,80,000 which is to be satisfied by payment of cash ` 1,60,000, allotment of 1,600
Debentures of ` 100 each valued at ` 75 per share and the balance by allotment of 1,600 Equity Shares
of the face value of ` 100 each.
The Debtors realised ` 1,92,000 and the Creditors were settled for ` 1,40,000.
Following was the agreement between the partners:
(i) The Equity Shares should be allotted in the ratio of the Partners’ Capital Accounts as per
Balance Sheet.
(ii) Lion to take over the motor car at an agreed value of ` 42,000.
(iii) Debentures to be allotted to Tiger to the value of his loan and the remaining to be allotted equally
between the partners.
(iv) Balance remaining to be settled in cash.
You are required to show Realisation Account, Partners’ Capital Accounts, Classmate Ltd.’s Account, Bank
Account and Statement showing distribution of shares and debentures.
Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Fixed Assets A/c 2,10,000 By Creditors A/c 1,43,200
To Stock A/c 1,12,000 By Classmate Ltd. 4,80,000
To Debtors A/c 1,96,000 By Lion’s Capital A/c 42,000
To Bank A/c (Creditors) 1,40,000 (Motor Car Taken Over)
To Gain (Profit) transferred to: By Bank A/c (Debtors) 1,92,000
Lion’s Capital A/c (3/4) 1,49,400
Tiger’s Capital A/c (1/4) 49,800 1,99,200
8,57,200 8,57,200

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Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars Lion Tiger Particulars Lion Tiger
` ` ` `

To Realisation A/c 42,000 ... By Balance b/d 2,40,000 80,000

(Motor Car) By Current A/cs 42,000 20,000
To
Debentures of (Transfer)
Classmate Ltd. A/c 45,000 45,000 By Realisation A/c 1,49,400 49,800
(` 1,20,000 – ` 30,000 = (Gain)
` 90,000) (divided equally)
(See Statement of Distribution
of Shares and Debentures)
To Equity Shares A/c (3 : 1) 1,50,000 50,000
To Bank A/c (Final Payment) 1,94,400 54,800
4,31,400 1,49,800 4,31,400 1,49,800

Dr. CLASSMATE LTD.’S ACCOUNT Cr.

Particulars ` Particulars `

To Realisation A/c 4,80,000 By Bank A/c 1,60,000

(Stock and Fixed Assets By Debentures of Classmate Ltd. A/c 1,20,000
excluding Motor Car) (1,600 × ` 75)
By Equity Shares of Classmate Ltd. A/c 2,00,000
(1,600 × ` 125*)
4,80,000 4,80,000

` `
* Total purchase consideration 4,80,000
Less: Cash received 1,60,000
Value of Debentures Received 1,20,000 2,80,000
Balance being value of 1,600 Equity Shares 2,00,000
∴ Issue price of a share = ` 2,00,000/1,600 = ` 125.

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `

To Balance b/d 37,200 By Realisation A/c (Creditors Paid) 1,40,000

To Classmate Ltd. 1,60,000 By Lion’s Capital A/c (Final Payment) 1,94,400
To Realisation A/c (Debtors Realised) 1,92,000 By Tiger’s Capital A/c (Final Payment) 54,800
3,89,200 3,89,200

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 STATEMENT SHOWING DISTRIBUTION OF SHARES AND DEBENTURES
Particulars Total Lion Tiger
` ` `
(i ) Debentures of Classmate Ltd. 1,600 debentures of ` 100 each,
valued @ ` 75 per debenture 1,20,000
Less: Debentures allotted to Tiger against his Loan 30,000
Balance Distributed between Partners equally against Capital 90,000 45,000 45,000
(ii ) Equity Shares of Classmate Ltd. 1,600 shares of ` 100 each, valued @ ` 125
per share distributed in the ratio of capitals, i.e., 2,40,000 : 80,000 or 3 : 1. 1,50,000 50,000

2. Cat and Rat were in partnership sharing profits and losses in the ratio of 3 : 1. On 31st March, 2020, the
Balance Sheet of the firm was as follows:
Liabilities
` Assets `
Capital A/cs: Fixed Assets 21,000
Cat 24,000 Stock 11,200
Rat 8,000 32,000 Sundry Debtors 19,600
Current A/cs: Cash at Bank 3,720
Cat 4,200
Rat 2,000 6,200
Loan (Rat) 3,000
Creditors 14,320
55,520 55,520

They decided to dissolve the partnership firm as at the date of the Balance Sheet.
Elephant Ltd. agreed to take Stock and Fixed Assets excluding furniture having a book value of
` 4,100, for a consideration of ` 48,000 which is to be satisfied by payment of cash ` 16,000, allotment
of 160 Preference Shares of ` 100 each valued at ` 75 per share and the balance by allotment of 1,600
Equity Shares of the face value of ` 10 each.
The Debtors realised ` 19,200 and the Creditors were settled for ` 14,000.
The following was the agreement between the partners:
(i) The Equity Shares should be allotted in the ratio of the Partners’ Capital Accounts as per
Balance Sheet.
(ii) Cat to take over the furniture at an agreed value of ` 4,200.
(iii) The Preference Shares to be allotted to Rat to the value of his loan and the remaining to be allotted
equally between the partners.
(iv) Balance remaining to be settled in cash.
You are required to show: (a) Realisation Account, (b) Partners’ Capital Accounts, (c) Bank Account and
Statement showing distribution of shares.

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Fixed Assets A/c 21,000 By Creditors A/c 14,320
To Stock A/c 11,200 By Elephant Ltd. 48,000
To Sundry Debtors A/c 19,600 By Cat’s Capital A/c 4,200
To Bank A/c (Creditors) 14,000 (Furniture Taken Over)
To Gain (Profit) transferred to: By Bank A/c (Debtors) 19,200
Cat’s Capital A/c (3/4) 14,940
Rat’s Capital A/c (1/4) 4,980 19,920
85,720 85,720

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Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars Cat Rat Particulars Cat Rat
` ` ` `
To Realisation A/c (Furniture) 4,200 ... By Balance b/d 24,000 8,000
To Preference Shares of By Current A/cs 4,200 2,000
Elephant Ltd. A/c 4,500 4,500 ( Transfer)
(` 12,000 – ` 3,000 = ` 9,000) By Realisation A/c 14,940 4,980
(divided equally) (See Statement (Gain)
of Distribution of Equity and
Preference Shares)
To Equity Shares of Elephant Ltd.
A/c (3 : 1) 15,000 5,000
To Bank A/c (Final Payment) 19,440 5,480
43,140 14,980 43,140 14,980

Dr. ELEPHANT LTD.’S ACCOUNT Cr.

Particulars ` Particulars `
To Realisation A/c 48,000 By Bank A/c 16,000
(Stock and Fixed Assets By Preference Shares of Elephant Ltd. A/c 12,000
excluding Furniture) (160 × ` 75)
By Equity Shares of Elephant Ltd. A/c 20,000
(1,600 × ` 12.5*)
48,000 48,000

` `
* Total Purchase Consideration 48,000
Less: Cash Received 16,000
Value of Preference Shares Received 12,000 28,000
Balance being value of 1,600 Equity Shares 20,000
∴ Issue price of an Equity Share = ` 20,000/1,600 = ` 12.5.
Dr. BANK ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 3,720 By Realisation A/c (Creditors Paid) 14,000
To Elephant Ltd. 16,000 By Cat’s Capital A/c (Final Payment) 19,440
To Realisation A/c (Debtors Realised) 19,200 By Rat’s Capital A/c (Final Payment) 5,480
38,920 38,920

STATEMENT SHOWING DISTRIBUTION OF EQUITY AND PREFERENCE SHARES

Particulars Total Cat Rat
` ` `
(i) Preference Shares of Elephant Ltd. 160 Preference Shares of ` 100 each,
valued @ ` 75 each 12,000
Less: Preference Shares allotted to Rat against his Loan 3,000
Balance Distributed between Partners equally against Capital 9,000 4,500 4,500
(ii) Equity Shares of Elephant Ltd. 1,600 shares of ` 10 each, valued @ ` 12.5
per share distributed in the ratio of capitals, i.e., 24,000 : 8,000 or 3 : 1. 15,000 5,000

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Additional Questions
1. Jathi, Sethi and Rathi were sharing profits in the ratio of 5 : 3 : 2 respectively. On 31st March, 2021, their
Balance Sheet was as follows:
Liabilities ` Assets `

Jathi’s Capital 28,000 Furniture 11,000

Sethi’s Capital 19,000 Investments 7,000
Rathi’s Capital 8,000 Stock 38,000
Sundry Creditors 9,500 Debtors 8,000
Less: Provision for Doubtful Debts 400 7,600
Cash 900
64,500 64,500

The firm was dissolved. Rathi took Investments at an agreed value of ` 7,500. Furniture, Stock and Debtors
in all realised ` 48,400. ` 9,000 were paid to Sundry Creditors in settlement. The Expenses of Realisation
were ` 600. The Partners’ Accounts were settled by receipt or payment of cash.
Show Realisation Account, Partners’ Capital Accounts and Cash Account.
[Ans:. Loss on Realisation—` 7,800; Jathi to be paid—` 24,100; Sethi to be paid—` 16,660;
Rathi pays—` 1,060; Total of Cash Account—` 50,360.]
2. Neba, Smita and Reema are in partnership sharing profits and losses in the proportions of 1/2, 1/3 and
1/6. On 31st January, 2021, they dissolved the firm on which date their Balance Sheet was as follows:
Liabilities ` Assets `

Capital A/cs: Land and Building 57,000

Neba 60,000 Stock 50,000
Smita 40,000 Sundry Debtors 50,000
Reema 10,000 1,10,000 Cash at Bank 3,000
Loan A/c: Neba 10,000
Creditors 40,000
1,60,000 1,60,000

During the course of realisation, a liability under a suit for damages is settled at ` 20,000 as against
` 5,000 only provided for in the books of the firm.
Land and Building were sold for ` 40,000 and the Stock and Sundry Debtors realised ` 30,000 and
` 42,000 respectively. Expenses on Realisation amounted to ` 1,200 were borne and paid by the firm.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account in the books of the firm.
[Ans:. Loss on Realisation—` 61,200; Cash paid to Neba—` 29,400; Smita—` 19,600;
Cash brought in by Reema—` 200. Total of Bank Account—` 1,15,200.]

[Hint: Amount payable under suit for damages is ` 20,000. ` 5,000 have been provided for in the books
and they are included in the Creditors. Therefore, amount to be paid to Creditors ` 35,000 (i.e.,
` 40,000 – ` 5,000). Amount paid under suit for damages will be debited to Realisation Account,
i.e., ` 20,000.]