PREPRATION OF REALISATION ACCOUNT

PREPRATION OF REALISATION ACCOUNT

After passing the necessary entries relating to the dissolution then a special Account named as Realization Account is opened. This Account is debited with all the assets at book value (except cash and bank), is credited with all the liabilities at book value( except partners capital Accounts partners loan and reserves) It is again ,credited with the amount realised on the sale of assets . It is debited with the amount paid or loss on Realization which is transferred to capital Accounts of the partners in their profit sharing ratios.

The specimen of Realization Account is given below.

ion Account                             Cr.

—..

1

All assets ( except cash, bank)

xxxxx

Transfer of all liabilities (exceptpartner’s capitals partner’s      loan,

2

Cash/Bank

xxxxx

reserve)

xxxxx

Payment of liabilities Cash/Bank

3

Payment   of unrecorded (Asset realised)

xxxxx

liabilities

xxxxx

Cash (sale + unrecorded assets)

xxxxx

Cash Partner’s capital

4

Payment   of Realization (Asset Taken over)

xxxxx

expenses

xxxxx

(Partners  capital    Account    loss
Partner’s capital

.

transferred)

xxxxx

5

Liabilities assumed

xxxxx

6

Partner’s capital Account

xxxxx

xxxxx

xxxxx

Total Total

 

11lustration-1:

A and B are partners in a business sharing profits and losses equally. They decided to retire and sell their business on 31′ December, when Their Balance Sheet was

44,7 ll., al, •• ••••

Assets

Amount

Liabilities

Amount

Cash in hand

2,000

Bank Loan

5,500

Sundry Debtors

11,240

Sundry Creditors

10,500

Stock in Trade

12,125

Capital Accounts
Plant and machinery

1,635

A

15,000

Good will

5,000

B

10,000

Total

41,000

Total

41,000

 

Plant and Machinery realized Rs. 9,500 Stock in trade Rs. 11,500 Sundry Debtors Rs. 11,000. The expenses of liquidation amounted to Rs. 1,000. The Bank Loan was paid in full; Sundry Creditors were paid off Rs.525 being allowed as discount.

Required:       Pass Journal entries necessary to close the firm’s books show the
Realization a/c and partner’s capital Accounts.

 

 

 

 

Solution :

Particulars

L.F

Rs.

Rs.

Realization Accounts

39,000

To sundry Debtors

11,240

To sock in trade

12125

To plant and Machinery

10,635

To Goodwill

5,000

Assets transferred to Realization Account
Bank Loan

5,500

Sundry Creditors

10,500

To Realization Account

16,000

Being transfer of liabilities to Realization
Cash Account

32,000

To Realization Account

32,000

Being the amount realized by sale of various assets
Realization Account

15,475

To cash Account

15,475

Payment of sundry liabilities
Realization Account

1,000

To cash Account

1,000

Payment to expenses
A’s Capital Account 3737.50
B’s Capital Account 3737.50
To Realization Account

7,475

Transfer of loss on Realization of capital A/c
A’s Capital Account 11262.50
B’s Capital Account 6262.50
To cash Account

17,525

Payment to partners of what is due to them

 

 

Realization Account

To sundry assets To cash (Expenses)

39,000

1,000

By Sundry Liabilities By loss to

16,000

A’s Capital       3,737.50
B’s Capital       3,737.50

7,475

To cash (liabilities)

15,475

By Cash (Assets realized)

32,000

55,475

55,475

 

 

A’s Capital Account

To Realization Account    3,737.50    To Balance b/d    15000.00
To cash    11262.50
15000.00        15000.00

B’s Ca ital Account

To Realization Account 3737.50

To Balance b/d

10000.00

To cash 6262.50
10000.00

10000.00

 

 

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