CHAPTER-WISE COMPARISON WITH STUDY MATERIAL
Name of Chapter
Study Material Chapter
1 Acc o unti ng f or ES OP Chapt er 3
2 Buy Bac k & Eq ui t y Shar es w i t h D i ff er e nti al R i g ht s Chapt er 4
3 A mal ga mati on Chapt er 5
4 I nt er nal Rec onst r ucti on Chapt er 6
5 Li q ui dati on Chapt er 7
6 Ba nki ng Chapt er 8
7 NBF C Chapt er 9
8 Cons oli dat e d Fi na nci al St at e me nt s Chapt er 10
9 Acc o unti ng St a ndar ds Chapt er 1
AS- 4
AS- 5
AS- 7
AS- 9
AS- 14
AS- 17
AS- 18
AS- 19
AS- 20
AS- 22
AS- 24
AS- 26
AS 29
Part ners hi p Chapt er 2
10
I-11
Contents PA GE l Chapter-wise Marks Distribution I-5 l Previous Exams Trend Analysis I-7 l Chapter-wise comparison with study material I-11 Chapter 1 u Acc o unti ng f or ES OP 1.1 Chapter 2 u Buy bac k & e q ui t y s har es w i t h di ff er e nti al ri g ht s 2.1 Chapter 3 u A mal ga mati o n 3.1 Chapter 4 u I nt er nal r ec o nst r ucti o n 4.1 Chapter 5 u Li q ui dati o n 5.1 Chapter 6 u Ba nki ng 6.1 Chapter 7 u NBF C 7.1 Chapter 8 u Co ns oli dat e d fi na nci al st at e me nt s 8.1 Chapter 9 u Acc o unti ng St a ndar ds 9.1 I-13
PA GE Chapter 10 u Part ners hi ps 10.1 Solved Paper - May 2019 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.1 Solved Paper - Nov. 2019 ( Ne w Syll a b us) ( Gui deli ne Ans wers) Solved Paper - Nov. 2020 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.27 P.41 Solved Paper - J a n 2021 ( Ne w Syll a b us) ( Gui deli ne Ans wers) Solved Paper - J ul y 2021 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.56 P.80 Solved Paper - Dece mber 2021 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.94 Solved Paper - May 2022 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.105 Solved Paper - Nov. 2022 ( Gui deli ne Ans wers) P.118 Solved Paper - May 2023 ( Gui deli ne Ans wers) P.134 I-14 C ONTE NTS
THEORY QUESTIONS
Q.1. What is Piecemeal payments method under Partnership Dissolution? Briefly explain the two methods followed for determining the order in which the payments are made? (2 marks) (May 2010)
Ans. : Ge ner all y, t he ass et s s ol d upo n di ss ol uti o n of part ners hi p ar e r e ali z e d o nl y i n s mall i nst al me nt s over a peri o d of ti me. I n s uc h ci r c u mst a nces t he c hoi ce i s ei t her t o di st ri b ut e what e ver i s c oll ect e d or t o wai t till whol e a mo unt i s c oll ect e d. Us uall y, t he first c o urs e i s a dopt e d. I n or der t o e ns ur e t hat t he di st ri b ut e d c as h a mo ngst t he part ners i s i n pr oporti o n t o t hei r i nt er est i n t he part ners hi p c oncer n ei t her of t he t wo met hods des cri be d bel o w may be f oll o we d f or det er m i ni ng t he or der i n whi c h t he pay me nt s ho ul d be ma de
(i) Maximum Loss Method: Eac h i nst al me nt r e ali z e d i s c o nsi der e d t o be t he final pay me nt i e o ut st a ndi ng ass et s a nd cl ai ms ar e c o nsi der e d wort hl ess a nd part ners ’ acc o unt s ar e a dj ust e d o n t hat basi s e ac h ti me whe n a de posi t i s ma de f oll o w i ng ei t her Gar ner Vs Murr ay r ul e or t he pr o fit- s hari ng r ati o r ul e.
(ii) Highest Relative Capital Method: Acc or di ng t o t hi s met ho d, t he part ner who has t he hi g her r el ati ve c a pi t al, t hat i s, whos e c a pi t al i s gr e at er i n pr oporti o n t o hi s pr o fit- s hari ng r ati o i s first pai d off. Thi s met ho d i s al s o c all e d as pr oporti o nat e c a pi t al met ho d.
Q.2. Explain Garner V/S Murray rule applicable in the case of partnership firms. State, when is this rule not applicable? (4 marks) (May 2013)
Ans. : Garner vs. Murray rule- Applicability
Whe n a part ner i s una bl e t o pay hi s de bt d ue t o t he fir m , he i s s ai d t o be i ns ol ve nt a nd t he s har e of l oss i s t o be bor ne by ot her s ol ve nt part ners i n acc or da nce w i t h t he deci si o n hel d i n t he Engli s h c as e of Gar ner vs. Murr ay. Acc or di ng t o t hi s deci si o n, nor mal l oss o n r e ali s ati o n of ass et s i s t o be br o ug ht i n c as h by all part ners (i ncl udi ng i ns ol ve nt part ner) i n t he pr o fit- s hari ng r ati o b ut a l oss d ue t o i ns ol ve nc y of a part ner has t o be bor ne by t he s ol ve nt part ners i n t hei r c a pi t al r ati o I n or der t o c al c ul at e t he c a pi t al r ati o, no a dj ust me nt will be ma de
10.1
PARTNERSHIPS CHAPTER 10
10.2
i n c as e of fixe d c a pi t al s. Ho we ver, i n c as e of fl uct uati ng c a pi t al s, r ati o s ho ul d be c al c ul at e d o n t he basi s of a dj ust e d c a pi t al bef or e c o nsi deri ng pr o fit or l oss o n r e ali z ati o n at t he ti me of di ss ol uti o n.
Non-Applicability of Garner vs Murray rule:
1. Whe n t he s ol ve nt part ner has a de bi t bal a nce i n t he c a pi t al acc o unt. Onl y s ol ve nt part ners will be ar t he l oss of c a pi t al de fici e nc y of i ns ol ve nt part ner i n t hei r c a pi t al r ati o. I f i nci de nt all y a s ol ve nt part ner has a de bi t bal a nce i n hi s c a pi t al acc o unt, he will es c a pe t he li a bili t y t o be ar t he l oss d ue t o i ns ol ve nc y of a not her part ner.
2 Whe n t he fir m has o nl y t wo part ners
3. Whe n t her e i s a n agr ee me nt bet wee n t he part ners t o s har e t he de fici e nc y i n c a pi t al acc o unt of i ns ol ve nt part ner
4. Whe n all t he part ners of t he fir m ar e i ns ol ve nt.
LIMITED LIABILITY PARTNERSHIP (LLP)
Q.3. Explain the Limitations of Liability of Limited Liability Partnership (LLP) and its partners.
Ans. : Under s ecti o n 27( 3) of t he LLP Act, 2008 a n o bli gati o n of a n LLP ari si ng o ut of a c o nt r act or ot her w i s e, s hall be s ol el y t he o bli gati o n of t he LLP ;
u The Li a bili ti es of a n LLP s hall be met o ut of t he pr operti es of t he LLP ;
u Under s ecti on 28( 1) a part ner i s not pers onall yli a bl e, di r ectl y or i ndi r ectl y, f or a n o bli gati o n r ef err e d t o i n Secti o n 27( 3) a bove, s ol el y by r e as o n of bei ng a part ner i n t he LLP ;
u Secti o n 27( 1) st at es t hat a n LLP i s not bo und by a nyt hi ng do ne by a part ner i n de ali ng w i t h a pers o n, i f:
n
n
The part ner does not have t he a ut hori t y t o act o n be hal f of t he LLP i n doi ng a parti c ul ar act; a nd
The ot her pers o n k no ws t hat t he part ner has no a ut hori t y or does not k no w or beli e ve hi mt o be a part ner i n t he LLP
u
Under s ecti o n 30( 1) t he li a bili t y of t he LLP a nd t he part ners per pet r ati ng f r a ud ul e nt de ali ngs s hall be unli m i t e d f or all or a ny of t he de bt s or ot her li a bili ti es of t he LLP .
Q.4. Under what circumstances, an LLP can be wound up by the Tribunal.
(4 marks) (May 2015)
Ans. : Under f oll o w i ng ci r c u mst a nces, a n LLP c a n be wo und up by t he Tri b unal:
(i ) I f t he LLP deci des t hat i t s ho ul d be wo und up by t he Tri b unal;
(ii ) I f f or a peri o d of mor e t ha n si x mo nt hs, t he n u mber of part ners of t he LLP i s r e d uce d bel o w t wo;
(iii ) I f t he LLP i s una bl e t o pay i t s de bt s;
PA RT NE RS HI PS
(iv ) I f t he LLP has act e d agai nst t he i nt er est s of t he i nt e gri t y a nd s over ei g nt y of I ndi a, t he s ec uri t y of t he st at e or p ubli c or der;
( v ) I f t he LLP has def a ul t e d i n t he fili ng of t he St at e me nt of Acc o unt a nd Sol ve nc y w i t h t he Re gi st r ar f or five c o ns ec uti ve fina nci al ye ars;
(vi ) I f t he Tri b unal i s of t he opi ni o n t hat i t i s j ust a nd e q ui t a bl e t hat t he LLP be wo und up
Q.5. What is the distinction between an Ordinary Partnership Firm and a Limited Liability Partnership (LLP)?
(4 marks) (May 2016)
Ans. : Distinction between Partnership (LLP) an ordinary partnership firm and a Limited Liability
Key Elements Partnerships
LLPs
1 Appli ca bl e La w I ndi a n Part ners hi p Act, 1932 Li m i t e d Li a bili t y Part ners hi ps Act, 2008
2 Regi st r ati o n Opti o nal Co mp ul s or y w i t h ROC
3 Cr eati o n Cr eat e d by a n Agr ee me nt Cr eat e d by La w
4 Bo dy Cor por at e Not a bo dy c or por at e Yes, aft er r egi st r ati o n w i t h ROC , i t bec o mes a bo dy c or por at e
5 Se par at e Legal I de nti t y It has no s e par at e l egal i de nti t y
6 Per pet ual Successi o n Part ners hi ps do not have per pet ual s uccessi o n
7 Nu mber of Part ners M i ni mu m 2 a nd Maxi mu m 20 ( s ubj ect t o 10 f or ba nks)
8 O wners hi p of Ass et s Fi r m ca nnot o wn a ny ass et s. The part ners o wn t he ass et s of t he fir m
9 Li a bili t y of Part ners / Me mbers
10 Pri nci pal Age nt Rel ati o ns hi p
Li a bili t y of t he part ners i s unli m i t e d. Part ners ar e s ever all y a nd j oi ntl y li a bl e f or acti o ns of ot her part ners a nd t he fir m a nd t hei r li a bili t y ext e nds t o pers o nal ass et s
Part ners ar e t he age nt s of t he fir m a nd of eac h ot her
Yes, all bo dy c or por at e i s s ai d t o have a s e par at e l egal i de nti t y.
It has per pet ual s uccessi o n a nd i ndi vi dual part ners may c o me a nd g o
M i ni mu m 2 but no maxi mu mli m i t
The LLP as a n i nde pe nde nt e nti t y ca n o wn ass et s
Li a bili t y of t he part ners i s li m i t e d t o t he ext e nt of t hei r c o nt ri buti o n t o war ds LLP exce pt i n cas e of i nt e nti o nal f r a ud or wr o ngf ul act of o m i ssi o n or c o mm i ssi o n by a part ner
Part ners ar e age nt s of t he fir m o nl y a nd not of ot her part ners
PA RT NE RS HI PS 10.3
Q.6. Write short notes on Designated Partner in a Limited Liability Partnership and what are their liabilities.
(4 marks) (Nov 2016)
Ans. : “ Desi g nat e d part ner” me a ns a ny part ner desi g nat e d as s uc h p urs ua nt t o s ecti o n 7 of t he Li m i t e d Li a bili t y Part ners hi ps ( LLPs) Act, 2008.
As per s ecti o n 7 of t he LLP Act, e ver y li m i t e d Li a bili t y Part ners hi p s hall have at l e ast 2 desi g nat e d Part ners who ar e i ndi vi d ual s a nd at l e ast o ne of t he m s hall be a r esi de nt i n I ndi a:
Provided
t hat i n c as e of Li m i t e d Li a bili t y Part ners hi p i n whi c h all t he part ners ar e bo di es c or por at e or i n whi c h o ne or mor e part ners ar e I ndi vi d ual s a nd bo di es c or por at e, at l e ast 2 i ndi vi d ual s who ar e part ners of s uc hli m i t e dli a bili t y Part ners hi p or No m i nees of s uc h Bo di es c or por at e s hall act as desi g nat e d part ners.
“Liabilities of designated partners”
As per Secti o n 8 of LLP Act, unl ess e x pr essl y pr ovi de d ot her w i s e i n t hi s Act, a desi g nat e d part ner s hall be-
( a ) r es po nsi bl e f or t he doi ng of all act s, matt ers a nd t hi ngs as ar e r e q ui r e d t o be do ne by t he li m i t e d li a bili t y part ners hi p i n r es pect of c o mpli a nce of t he pr ovi si o ns of t hi s Act i ncl udi ng fili ng of a ny doc u me nt, r et ur n, st at e me nt a nd t he li ke r e port p urs ua nt t o t he pr ovi si o ns of t hi s Act a nd as may be s peci fie d i n t he li m i t e d li a bili t y part ners hi p agr ee me nt; a nd
(b ) li a bl e t o all pe nal ti es i mpos e d o n t he li m i t e d li a bili t y part ners hi p f or a ny c o nt r ave nti o n of t hos e pr ovi si o ns.
Q.7. State the circumstances when LLP can be wound up by the Tribunal.
(4 marks) (May 2017)
Ans. : Under s ecti o n 64 of t he LLP Act, 2008, a n LLP may be wo und up by t he Tri b unal:
I f t he LLP deci des t hat i t s ho ul d be wo und up by t he Tri b unal; u
u
I f f or a peri o d of mor e t ha n si x mo nt hs, t he n u mber of part ners of t he LLP i s r e d uce d bel o w t wo; u
I f t he LLP i s una bl e t o pay i t s de bt s; u
I f t he LLP has act e d agai nst t he i nt er est s of t he i nt e gri t y a nd s over ei g nt y of I ndi a, t he s ec uri t y of t he st at e or p ubli c or der;
I f t he LLP has def a ul t e d i n t he fili ng of t he St at e me nt of Acc o unt a nd Sol ve nc y w i t h t he Re gi st r ar f or five c o ns ec uti ve fina nci al ye ars; u
I f t he Tri b unal i s of t he opi ni o n t hat i t i s j ust a nd e q ui t a bl e t hat t he LLP be wo und up.
10.4 PA RT NE RS HI PS
u
Q.8. Explain the nature of Limited Liability Partnership. Who can be a designated partner in a Limited Liability Partnership?
(4 marks) (Nov 2017)
Ans. : Nature of Limited Liability Partnership: A li m i t e d li a bili t y part ners hi p i s a bo dy c or por at e f or me d a nd i nc or por at e d under t he LLP Act, 2008 a nd i s a l e gal e nti t y s e par at e f r o mt hat of i t s part ners. A li m i t e d li a bili t y part ners hi p s hall have per pet ual s uccessi o n a nd a ny c ha nge i n t he part ners of a li m i t e d li a bili t y part ners hi p s hall not aff ect t he e xi st e nce, ri g ht s or li a bili ti es of t he li m i t e d li a bili t y part ners hi p
Designated partners: Ever y li m i t e d li a bili t y part ners hi p s hall have at l e ast t wo desi g nat e d part ners who ar e i ndi vi d ual s a nd at l e ast o ne of t he m s hall be a r esi de nt i n I ndi a.
I n c as e of a li m i t e d li a bili t y part ners hi p i n whi c h all t he part ners ar e bo di es c or por at e or i n whi c h one or mor e part ners ar ei ndi vi dual s a nd bodi es c or por at e, at l e ast t wo i ndi vi d ual s who ar e part ners of s uc h li m i t e d li a bili t y part ners hi p or no m i nees of s uc h bo di es c or por at e s hall act as desi g nat e d part ners.
Q.9. Differentiate on ordinary partnership firm with an LLP (Limited Liability Partnership) in respect of the following:
(1) Applicable Law
(2) Number of Partners
(3) Ownership of Assets
(4) Liability of Partners/Members
(4 Marks) (May 2018)
Ans. : Distinction between an ordinary partnership firm and an LLP
Key Elements Partnerships
LLPs
Appli ca bl e La w I ndi a n Part ners hi p Act, 1932 The Li m i t e d Li a bili t y Part ners hi ps Act, 2008
Nu mber of Part ners
M i ni mu m 2 a nd Maxi mu m 20 ( s ubj ect t o 10 f or ba nks)
O wners hi p of Ass et s Fi r m ca nnot o wn a ny ass et s. The part ners o wn t he ass et s of t he fir m
Li a bili t y of Part ners / Me mbers
Unli m i t e d: Part ners ar e s ever all y a nd j oi ntl y li a bl e f or acti o ns of ot her part ners a nd t he fir m a nd t hei r li a bili t y ext e nds t o pers o nal ass et s.
M i ni mu m 2 but no maxi mu m li m i t
The LLP as a n i nde pe nde nt e nti t y ca n o wn ass et s
Li m i t e d t o t he ext e nt of t hei r c o nt ri buti o n t o war ds LLP
exce pt i n cas e of i nt e nti o nal f r a ud or wr o ngf ul act of o m i ssi o n or c o mm i ssi o n by a part ner.
PA RT NE RS HI PS 10.5
Q.10. Write short notes on extent of liability of LLP and its Partners.
(
5 Marks) (May 2018)
Ans. : Ever y part ner of a n LLP f or t he p ur pos e of i t s b usi ness i s a n age nt of t he LLP b ut i s not a n age nt of ot her part ners. Obli gati o ns of LLP ar e s ol el y i t s o bli gati o ns a nd li a bili ti es of LLP ar e t o be met o ut of pr operti es of LLP .
The part ners of a n LLP i n t he nor mal c o urs e of b usi ness ar e not li a bl e f or t he de bt s of t he LLP . The LLP i s li a bl e i f a part ner of LLP i s li a bl e t o a ny pers o n as a r es ul t of wr o ngf ul or o m i ssi o n o n hi s part i n t he c o urs e of b usi ness of t he LLP or w i t h hi s a ut hori t y. Ho we ver, a part ner will be li a bl e f or hi s o wn wr o ngf ul act s or c o mm i ssi o ns, b ut will not be li a bl e f or t he wr o ngf ul act s or c o mm i ssi o ns of ot her part ners of t he LLP . Th us, a part ner may be c all e d t o pay t he li a bili t y of a n LLP under e xce pti o nal ci r c u mst a nces.
I f a n LLP or a ny of i t s part ners act w i t h t he i nt e nt t o def r a ud cr e di t ors of t he LLP or a ny ot her pers o n or f or a ny f r a ud ul e nt p ur pos e, t he n t he li a bili t y of t he LLP a nd t he c o ncer ne d part ners i s unli m i t e d Ho we ver, wher e t he f r a ud ul e nt act i s c arri e d o ut by a part ner, t he LLP i s not li a bl e i f i t i s est a bli s he d by t he LLP t hat t he act was w i t ho ut t he k no w l e dge or a ut hori t y of t he LLP Wher e t he b usi ness i s c arri e d o ut w i t h f r a ud ul e nt i nt e nt or f or f r a ud ul e nt p ur pos e, e ver y pers o n who was k no w i ngl y a part y i s p uni s ha bl e w i t h i mpri s o n me nt a nd fine.
Q.11. Can a partner be called upon to pay the liability of the LLP? If yes, under what circumstances?
Ans. : Under s ecti o n 27( 3) of t he LLP Act, 2008, a ny o bli gati o n of t he LLP ari si ng o ut of a c o nt r act or ot her w i s e will be t he s ol e o bli gati o n of t he LLP .
The part ners of a n LLP i n t he nor mal c o urs e of b usi ness ar e not li a bl e f or t he de bt s of t he LLP . Ho we ver, under s ecti o n 28( 2) of t he LLP Act, 2008, a part ner will be li a bl e f or hi s o wn wr o ngf ul act s or c o mm i ssi o ns, b ut will not be li a bl e f or t he wr o ngf ul act s or c o mm i ssi o ns of ot her part ners of t he LLP .
Th us, a part ner may be c all e d t o pay t he li a bili t y of a n LLP under e xce pti o nal ci r c u mst a nces.
SIMPLE DISSOLUTION
Q.12. L, M and N were in partnership sharing profits and losses in the ratio of 3:2:1 respectively. They decided to dissolve the partnership firm on 31.3.2016, when the Balance Sheet of the firm appeared as under: Balance Sheet of the firm as on 31.3.2016
10.6 PA RT NE RS HI PS
Liabilities ` Assets ` Sundry Creditors 4,25,250 Plant and Machinery 7,97,850 Bank Overdraft 4,54,837 Furniture 48,487
The following details are relevant for dissolution:
(
i) The joint life policy was surrendered for ` 1,74,375.
(ii) L took over plant and machinery for ` 6,75,000.
(iii) L also agreed to discharge bank overdraft and loan from Mrs. L.
(iv) Furniture and stocks were divided equally between L and M at an agreed valuation of ` 2,70,000.
(v) Sundry debtors were assigned to firm’s creditors in full satisfaction of their claims.
(vi) Commission receivable was received in time.
(vii) A bill discounted was subsequently returned dishonoured and proved valueless ` 23,062 (including ` 375 noting charges).
(viii) L paid the expenses of dissolution amounting to ` 13,500. You are required to prepare:
(i) Realisation Account
(ii) Partners’ Capital Accounts and
(iii) Cash Account.
PA RT NE RS HI PS 10.7 Liabilities ` Assets ` Joint Life Policy Reserve 1,99,125 Stock 1,77,525 Loan from Mrs. L 1,12,500 Sundry Debtors 4,00,500 Capital Accounts: Joint Life Policy 1,99,125 Commission L 3,15,000 Receivable 1,05,413 M 1,68,750 Cash in Hand 36,562 N 90,000 5,73,750 17,65,462 17,65,462
(RTP) Ans. : Realisation A/c ` ` ` ` To Ass et s: By li a bili ti es Pl a nt & Mac hi ner y A/c 7, 97, 850 Sundr y Cr e di t ors A/c 4, 25, 250 J oi nt Li f e Poli cy Fur ni t ur e A/c 48, 487 Res er ve A/c 1, 99, 125 St oc k A/c 1, 77, 525 Cas h A/c: Sundr y De bt ors A/c 4, 00, 500 J oi nt Li f e Poli cy 1, 74, 375 J oi nt Li f e Poli cy A/c Co mm i ssi on 1, 99, 125 Co mm i ssi on Recei va bl e 1, 05, 413 Recei va bl e 1, 05, 413 By L ’ s Capi t al A/c: To L ’ s Capi t al A/c: Pl a nt a nd
Partners’ Capital A/c’s
Cash A/c
10.8 PA RT NE RS HI PS ` ` ` ` Di ss ol uti on Expe ns es 13, 500 Mac hi ner y 6, 75, 000 To Cas h A/c: Fur ni t ur e, St oc ks 1, 35, 000 8, 10, 000 Bill di s hono ur e d 23, 062 By M‘ s Capi t al A/c: To Part ner ’ s Capi t al Acc o unt s: Fur ni t ur e a nd st oc ks 1, 35, 000 ( Pr ofit on r eali s ati on) L 41, 851 M 27, 900 N 13, 950 83, 701 18, 49, 163 18, 49, 163
L M N L M N ` ` ` ` ` ` To Reali s ati on A/c: By Bal a nce b/ d 3, 15, 000 1, 68, 750 90, 000 Pl a nt a nd Mac hi ner y 6, 75, 000 - - By Ba nk Over dr aft A/c 4, 54, 837Fur ni t ur e, St oc ks 1, 35, 000 1, 35, 000 By Loa n f r o m Mrs. L A/c 1, 12, 500To Cas h A/c 1, 27, 688 61, 650 1, 03, 950 By Reali s ati on A/c: ( Bal a nci ng fig ur e) Di ss ol uti on Expe ns es 13, 500 Pr ofit on r eali s ati on 41, 851 27, 900 13, 950 9, 37, 688 1, 96, 650 1, 03, 950 9, 37, 688 1, 96, 650 1, 03, 950
To Bal a nce b/ d 36, 562 By Reali s ati o n A/c: To Reali s ati o n A/c: Bill di s ho no ur e d 23, 062 J o i n t Li f e P o l i c y Co mm i ssi o n 1, 74, 375 By Part ners ’ Capi t al Acc o unt s: Recei va bl e A/c 1, 05, 413 L 1, 27, 688 M 61, 650 N 1, 03, 950 3, 16, 350 3, 16, 350 Note: Ther e will be no e nt r y f or assi g n me nt of s undr y de bt ors t o s undr y cr e di t ors i n f ull s ati sf acti o n of t hei r cl ai ms.
Q.13. P, Q and R are partners sharing profits and losses in the ratio of 2: 2: 1. Their Balance Sheet as on 31st March, 2009 is as follows:
They decided to dissolve the firm. The following are the amounts realized from the assets:
Creditors allowed a discount of 5% and realization expenses amounted to ` 1,500. A bill for ` 4,200 due for sales tax was received during the course of realization and this was also paid. You are required to prepare:
(a) Realization account
(b) Partners’ capital accounts
(c) Cash account.
PA RT NE RS HI PS 10.9
Liabilities ` Assets ` Capital Accounts: Plant & Machinery 1,08,000 P 1,20,000 Fixtures 24,000 Q 48,000 Stock 60,000 R 24,000 1,92,000 Sundry debtors 48,000 Reserve fund 60,000 Cash 60,000 Creditors 48,000 3,00,000 3,00,000
` Plant and Machinery 1,02,000 Fixtures 18,000 Stock 84,000 Sundry debtors 44,400
(6 Marks) (Nov 2009) Ans.
Realisation A/c Particulars Amount Amount To De bt ors A/c 48, 000 By Cr e di t ors A/c 48, 000 To St oc k A/c 60, 000 By Cas h A/c ( ass et s r eali z e d): To Fi xt ur es A/c 24, 000 Pl a nt & Mac hi ner y 1, 02, 000 To Pl a nt a nd mac hi ner y A/c 1, 08, 000 Fi xt ur es 18, 000 To Cas h A/c ( Cr e di t ors) 45, 600 St oc k 84, 000 To Cas h A/c ( Sal es Tax) 4, 200 De bt ors 44, 400 2, 48, 400 To Cas h A/c ( r eali s ati o n ex pe ns es) 1, 500
:
Partners’ Capital A/c
Cash A/c
INSOLVENCY OF ONE OR MORE PARTNERS
Q.14. A, V, R and S are partners in a firm sharing profits and losses in the ratio of 4: 1: 2: 3. The following is their Balance Sheet as at 31st March, 2014:
10.10 PA RT NE RS HI PS Particulars Amount Amount To Pr o fit o n r eali s ati o n P 2, 040 Q 2, 040 R 1, 020 5, 100 2, 96, 400 2, 96, 400
Particulars P Q R Particulars P Q R To Cas h A/c ( Bal fig ) 1, 46, 040 74, 040 37, 020 By Bal a nce b/ d 1, 20, 000 48, 000 24, 000 By Res er ve f und 24, 000 24, 000 12, 000 By Re al i s at i o n A/c ( Pr ofit) 2, 040 2, 040 1, 020 1, 46, 040 74, 040 37, 020 1, 46, 040 74, 040 37, 020
Particulars Amount (` ) Particulars Amount (` ) To Bal a nce b/ d 60, 000 By Reali s ati on A/c ( Cr e di t ors) 45, 600 To Re al i s ati o n A/ c ( as s et s r eali z e d) 2, 48, 400 By Reali s ati on A/c ( Expe ns es) 1, 500 By Reali s ati o n A/c ( Sal es t ax) 4, 200 By Part ners ’ Ca pi t al Acc o unt s P 1, 46, 040 Q 74, 040 R 37, 020 3, 08, 400 3, 08, 400
Liabilities ` ` Assets ` Sundry Creditors 6,00,000 Sundry Debtors 7,00,000 Capital A/cs: Less: Doubtful Debts (1,00,000) A 14,00,000 6,00,000 S 6,00,000 20,00,000 Cash in hand 2,80,000 Stocks 4,00,000 Other Assets 6,20,000 Capital A/cs: V 4,00,000 R 3,00,000 26,00,000 26,00,000
On 31st March, 2014, the firm is dissolved and the following points are agreed upon:
(a) A is to takeover sundry debtors at 80% of book value.
(b) S is to take over the stocks at 95% of the value.
(
c) R is to discharge sundry creditors.
(
d) Other assets realise ` 6,00,000 and the expenses of realisation come to ` 60,000.
(e) V is found insolvent and ` 43,800 is realized from his estate. You are required to prepare Realisation Account and Capital Accounts of the partners. Show also the Cash A/c. The loss arising out of capital deficiency may be distributed following the decision in Garner vs Murray.
Realisation A/c
Partners’ Capital A/c’s
PA RT NE RS HI PS 10.11
(
Ans. :
RTP)
` ` To Sundr y De bt ors 7, 00, 000 By Sundr y Cr e di t ors 6, 00, 000 To St oc k 4, 00, 000 By Pr ovi si on f or Do ubtf ul De bt s 1, 00, 000 To Ot her ass et s 6, 20, 000 By A ’ s Ca pi t al A/c ( De bt ors) 5, 60, 000 To R ’ s Capi t al A/c ( Cr e di t ors) 6, 00, 000 By S ’ s Ca pi t al A/c ( st oc k) 3, 80, 000 To Cas h By Cas h ( Ot her ass et s) 6, 00, 000 Ex pe ns es o n r eali z ati o n 60, 000 By A ’ s Ca pi t al A/c 56, 000 By V ’ s Ca pi t al A/c 14, 000 By R ’ s Ca pi t al A/c 28, 000 By S ’ s Ca pi t al A/c 42, 000 1, 40, 000 ( Loss o n r eali s ati o n) 23, 80, 000 23, 80, 000
A V R S A V R S ` ` ` ` ` ` ` ` To Bal a nce b/f 4, 00, 000 3, 00, 000 By Bal a nce b/f 14, 00, 000 6, 00, 000 To Reali s ati on 5, 60, 000 By Reali s ati on 6, 00, 000 ( De bt ors) 3, 80, 000 ( Cr e di t ors) 4, 14, 000 To Reali s ati on By Bal a nce c/ d ( St oc k) To Reali s ati on 56, 000 14, 000 28, 000 42, 000 (l oss) To Bal a nce c/ d 7, 84, 000 2, 72, 000 1, 78, 000 14, 00, 000 4, 14, 000 6, 00, 000 6, 00, 000 14, 00, 000 4, 14, 000 6, 00, 000 6, 00, 000 To Bal a nce b/ d 4, 14, 000 By Bal a nce b/ d 7, 84, 000 2, 72, 000 1, 78, 000
Cash A/c
he l oss si nce at t he ti me of di ss ol uti o n he ha d a de bi t bal a nce i n hi s c a pi t al acc o unt.
Q.15. A, B, C and D are sharing profits and losses in the ratio 5: 5: 4: 2. Frauds committed by C during the year were found out and it was decided to dissolve the partnership on 31st March, 2010 when their Balance Sheet was as under:
Following information is given to you:
(i) A cheque for ` 4,300 received from debtor was not recorded in the books and was misappropriated by C.
(ii) Investments costing ` 5,400 were sold by C at ` 7,900 and the funds transferred to his personal account. This sale was omitted from the firm’s books.
(iii) A creditor agreed to take over investments of the book value of ` 5,400 at ` 8,400. The rest of the creditors were paid off at a discount of 2%.
10.12 PA RT NE RS HI PS A V R S A V R S ` ` ` ` ` ` ` ` To V ’ s A/c 2, 59, 140 1, 11, 060 By Cas h 43, 800 To Cas h 5, 24, 860 2, 72, 000 66, 940 By A 2, 59, 140 By S 1, 11, 060 7, 84, 000 4, 14, 000 2, 72, 000 1, 78, 000 7, 84, 000 4, 14, 000 2, 72, 000 1, 78, 000
` ` ` To Bal a nce b/ d 2, 80, 000 By Reali s ati o n A/c ( ex pe ns es) 60, 000 To Reali s ati o n A/c 6, 00, 000 By Ca pi t al A/c To V ’ s Ca pi t al A/c 43, 800 A 5, 24, 860 R 2, 72, 000 S 66, 940 8, 63, 800 9, 23, 800 9, 23, 800
V ’ s de fici e nc y will be bor ne by A a nd Si n t he r ati o of 7: 3 i. e. o n ope ni ng c a pi t al s of ` 14, 00, 000 a nd ` 6, 00, 000. R will not be ar a ny porti o n of t
Note:
Liabilities Amount (` ) Assets Amount (` ) Capital Building 1,20,000 A 90,000 Stock 85,500 B 90,000 Investments 29,000 C - Debtors 42,000 D 35,000 Cash 14,500 General reserve 24,000 C 15,000 Trade creditors 47,000 Bills payable 20,000 3,06,000 3,06,000
(iv) The other assets realized as follows:
Building 105% of book value
Stock ` 78,000
Investments The rest of investments were sold at a profit of ` 4,800
Debtors The rest of the debtors were realized at a discount of 12%
(
v) The bills payable was settled at a discount of ` 400.
(vi) The expenses of dissolution amounted to ` 4,900
(vii) It was found out that realization from C’s private assets would only be ` 4,000.
Prepare the necessary Ledger Accounts.
Realisation A/c
PA RT NE RS HI PS 10.13
(16 Marks
Nov 2010) Ans. :
) (
Particulars ` Particulars ` To Buil di ng 1, 20, 000 By Tr a de cr e di t ors 47, 000 To St oc k 85, 500 By Bill s paya bl e 20, 000 To I nvest me nt 29, 000 By Cas h To De bt ors 42, 000 Buil di ng 1, 26, 000 To Cas h- cr e di t ors pai d ( W . N . 1) 37, 828 St oc k 78, 000 To Cas h- ex pe ns es 4, 900 I nvest me nt s ( W . N . 2) 23, 000 To Cas h- bill s paya bl e ( 20, 000400) 19, 600 De bt ors ( WN 3) 33, 176 2, 60, 176 To Part ners ’ Ca pi t al A/cs By De bt orsunr ec or de d 4, 300 A 171 By I nvest me nt sunr ec or de d 7, 900 B 171 C 137 D 69 548 3, 39, 376 3, 39, 376
Particulars ` Particulars ` To Bal a nce b/ d 14, 500 By Reali s ati o n- cr e di t ors pai d 37, 828 To Reali s ati o n - ass et s r eali z e d By Reali s ati o n- bill s paya bl e 19, 600 Buil di ng 1, 26, 000 By Reali s ati o n- ex pe ns es 4, 900 St oc k 78, 000 By Ca pi t al acc o unt
Cash A/c
Working Notes:
Partners’ Capital A/c’s
10.14 PA RT NE RS HI PS Particulars ` Particulars ` I nvest me nt s 23, 000 A 90, 528 De bt ors 33, 176 2, 60, 176 B 90, 528 To C ’ s ca pi t al A/c. 4, 000 D 35, 292 2, 78, 676 2, 78, 676
Particulars A B C D Particulars A B C D ` ` ` ` ` ` ` ` To Bal a nce b/ d 15, 000 By Bal a nce b/ d 90, 000 90, 000 - 35, 000 To De bt ors- m i sappr opri ati on 4, 300 By Ge ner al r es er ve 7, 500 7, 500 6, 000 3, 000 To I nvest me ntm i s appr opri ati on 7, 900 By Reali s ati on pr ofit 171 171 137 69 To C ’ s capi t al A/c ( WN 4) 7, 143 7, 143 By Cas h A/c 4, 000 By A ’ s capi t al A/c 7, 143 By B ’ s capi t al A/c 7, 143 To Cas h A/c 90, 528 90, 528 35, 292 By D ’ s capi t al A/c 2, 777 97, 671 97, 671 27, 200 38, 069 97, 671 97, 671 27, 200 38, 069
1. Amount paid to creditors ` ` Book val ue 47, 000 Less: Cr e di t ors t a ki ng over i nvest me nt s ( 8, 400) 38, 600 Less: Di s c o unt @ 2 % ( 772) 37, 828 2. Amount received from sale of investments ` Book val ue 29, 000 Less: M i s a ppr opri at e d by C ( 5, 400) 23, 600 Less: Ta ke n over by a cr e di t or ( 5, 400) 18, 200 Add: Pr o fit o n s al e of i nvest me nt s 4, 800 23, 000 3. Amount collected from debtors ` Book val ue 42, 000 Less: Unr ec or de d r ecei pt ( 4, 300) 37, 700 Less: Di s c o unt @ 12 % ( 4, 524) 33, 176
Q.16. P, Q, R and S had been carrying on business in partnership sharing profits & losses in the ratio of 4:3:2:1. They decided to dissolve the partnership on the basis of following Balance Sheet as on 30th April, 2011:
(i) The assets were realized as under:
(ii) Expenses of dissolution amounted to ` 7,800.
(iii) Further creditors of ` 18,000 had to be met.
(iv) R became insolvent and nothing was realized from his private estate. Applying the principles laid down in Garner Vs. Murray, prepare the Realisation Account, Partners’ Capital Accounts and Cash Account.
(16 Marks) (Nov 2011)
PA RT NE RS HI PS 10.15 4. Deficiency of C ` Bal a nce of ca pi t al as o n 31st Mar c h, 2010 15, 000 De bt ors- m i s a ppr opri ati o n 4, 300 I nvest me nt- m i s a ppr opri ati o n 7, 900 27, 200 Less: Reali s ati o n Pr o fit ( 137) Ge ner al r es er ve ( 6, 000) Co nt ri buti o n f r o m pri vat e ass et s ( 4, 000) Net de fici e ncy of ca pi t al 17, 063 Thi s de fici e ncy of ` 17, 063 i n C ’ s ca pi t al acc o unt will be s har e d by ot her part ners A , B a nd D i n t hei r ca pi t al r ati o of 90: 90: 35 Thus, A ’ s s har e of de fici e ncy = [ 17, 063 x ( 90/215)] = ` 7, 143 B ’ s s har e of de fici e ncy = [ 17, 063 x ( 90/215)] = ` 7, 143 D ’ s s har e of de fici e ncy = [ 17, 063 x ( 35/215)] = ` 2, 777
Liabilities Amount (` ) Assets Amount (` ) Capital Accounts Land & building 2,46,000 P 1,68,000 Furniture & fixtures 65,000 Q 1,08,000 2,76,000 Stock 1,00,000 General reserve 95,000 Debtors 72,500 Capital reserve 25,000 Cash in hand 15,500 Sundry creditors 36,000 Capital overdrawn: Mortgage loan 1,10,000 R 25,000 S 18,000 43,000 5,42,000 5,42,000
Land & building 2,30,000 Furniture & fixtures 42,000 Stock 72,000 Debtors 65,000
`
Realisation A/c
Partners’ Capital A/c
10.16 PA RT NE RS HI PS Ans. :
Particulars Amount (` ) Particulars Amount (` ) To La nd a nd buil di ng 2, 46, 000 By Sundr y cr e di t ors 36, 000 To Fur ni t ur e a nd fixt ur es 65, 000 By Mort gage l oa n 1, 10, 000 To St oc k 1, 00, 000 By Cas h acc o untTo De bt ors 72, 500 La nd a nd buil di ng 2, 30, 000 To Cas h A/c ( ex pe ns es o n Fur ni t ur e & fixt ur es 42, 000 di ss ol uti o n) 7, 800 St oc k 72, 000 To Cas h A/c ( cr e di t ors ` 36, 000 + ` 18, 000) 54, 000 De bt ors 65, 000 To Cas h A/c ( Mort gage l oa n) 1, 10, 000 By Part ners ’ ca pi t al acc o unt s ( Loss 4: 3: 2: 1) 1, 00, 300 P = 40, 120 Q = 30, 090 R = 20, 060 S = 10, 030 6, 55, 300 6, 55, 300
Particulars P Q R S Particulars P Q R S ` ` ` ` ` ` ` ` To Bal a nce b/ d - - 25, 000 18, 000 By Bal a nce b/ d 1, 68, 000 1, 08, 000 To Reali z ati on A/c By Ge ner al ( Loss) 40, 120 30, 090 20, 060 10, 030 Res er ve 38, 000 28, 500 19, 000 9, 500 To R ’ s Capi t al A/c ( De fici e ncy) 12, 636 8, 424 - - By Capi t al Res er ve 10, 000 7, 500 5, 000 2, 500 To Cas h A/c 2, 03, 364 1, 35, 576 By Cas h A/c ( r eali z ati on l oss)noti onal e nt r y 40, 120 30, 090 - 10, 030 By P ’ s Capi t al A/c 12, 636 By Q ’ s Capi t al A/c 8, 424 By Cas h A/c 6, 000 2, 56, 120 1, 74, 090 45, 060 28, 030 2, 56, 120 1, 74, 090 45, 060 28, 030
Cash A/c
Working Note:
As per Gar ner Vs. Murr ay r ul e, s ol ve nt part ners have t o bear l oss of i ns ol ve nt part ner i n t hei r ca pi t al r ati o
Computation of Capital Ratio (of Solvent Partners)
ve nt part ner yet he ca nnot be call e d upo n t o bear l oss o n acc o unt of i
beca us e hi s ca pi t al acc o unt has a de bi t bal a nce.
INSOLVENCY OF ALL PARTNERS
Q.17. A and B are in equal partnership. Their Balance Sheet stood as under on 31st March, 20X1 when the firm was dissolved:
PA RT NE RS HI PS 10.17
Particulars Amount Particulars Amount (` ) (` ) To Bal a nce b/ d 15, 500 By Reali z ati o n A/c: To Reali z ati o n A/c: Ex pe ns es o n di ss ol uti o n 7, 800 La nd a nd buil di ng 2, 30, 000 Cr e di t ors ( 36, 000 +18, 000) 54, 000 Fur ni t ur e & fixt ur es 42, 000 Mort gage l oa n 1, 10, 000 St oc k 72, 000 By P ’ s ca pi t al A/c 2, 03, 364 De bt ors 65, 000 By Q ’ s ca pi t al A/c 1, 35, 576 To P , Q , S ’ s ca pi t al A/cs ( 40, 120 +30, 090 +10, 030) 80, 240 To S ’ s ca pi t al A/c 6, 000 5, 10, 740 5, 10, 740
P Q S (` ) (` ) (` ) Ope ni ng ca pi t al 1, 68, 000 1, 08, 000 ( 18, 000) Add: Ge ner al r es er ve 38, 000 28, 500 9, 500 Ca pi t al r es er ve 10, 000 7, 500 2, 500 2, 16, 000 1, 44, 000 ( 6, 000)
ug h S i s a s ol
ncy of R
Ther ef or e, ca pi t al r ati o of P & Q = 216: 144 = 3: 2 De fici e ncy of R = ` {( 25, 000 + 20, 060) - ( 19, 000 + 5, 000) } = ` 45, 060` 24, 000 = ` 21, 060 De fici e ncy of R will be s har e d by P & Q i n t he ca pi t al r ati o of 3: 2 i. e. P = ` 21, 060 X 3/5 = ` 12, 636 Q = ` 21, 060 X 2/5 =
8, 424
Tho
ns ol ve
`
Particular ` Particulars ` Creditors A/c 4,800 Plant & Machinery 2,500 A’s Capital A/c 750 Furniture 500 Debtors 1,000
The expenses of realisation amounted to ` 775. A’s private estate is not sufficient even to pay his private debts, whereas B’s private estate has a surplus of ` 200 only. Show necessary ledger accounts to close the books of the firm.
10.18 PA RT NE RS HI PS Particular ` Particulars ` Stock 800 Cash 200 B’s drawings 550 5,550 5,550 The assets realized as under: ` Plant & Machinery 1,250 Furniture 150 Debtors 400 Stock 500
Ans. : Realisation A/c Particular ` Particulars ` ` To Sundr y Ass et s: By Cas h A/c: Pl a nt & Mac hi ner y 2, 500 Pl a nt & Mac hi ner y 1, 250 Fur ni t ur e 500 Fur ni t ur e 150 De bt ors 1, 000 De bt ors 400 St oc k 800 St oc k 500 2, 300 Cas h A/c- expe ns es 175 By Part ners ’ Capi t al A/c & Loss on r eali s ati on ( Bal. fig. ) 1, 337 A B 1, 338 2, 675 4, 975 4, 975 Cash A/c ` ` Mar c h 31, 20 X1 Mar c h 31, 20 X1 To Bal a nce b/ d 200 By Reali s ati o n A/c- ex pe ns es 175 To Reali s ati o n A/c - Sal e of s undr y ass et s 2, 300 By Sundr y Cr e di t ors A/c ( Bal. fig ) 2, 525 To B ’ s Ca pi t al A/c 200 2, 700 2, 700
Partners’ Capital A/c’s
PIECEMEAL DISTRIBUTION
Q.18. A partnership firm was dissolved on 30th June, 2016. Its Balance Sheet on the date of dissolution was as follows:
The assets were realized in instalments and the payments were made on the proportionate capital basis. Creditors were paid ` 29,000 in full settlement of their account. Expenses of realization were estimated to be ` 5,400 but actual amount spent was ` 4,000. This amount was paid on 15th September. Draw up a statement showing distribution of cash, which was realized as follows:
PA RT NE RS HI PS 10.19 Sundry Creditors
` ` To Cas h A/c 2, 525 By Bal a nce b/ d 4, 800 To Defi ci e nc y A/ c- t r a nsf er ( bal. fig. ) 2, 275 4, 800 4, 800
A B A B ` ` ` ` To Bal a nce b/f 550 By Bal a nce b/f 750 To Reali s ati on A/c By Cas h A/c 200 - l oss 1, 337 1, 338 By De fici e ncy A/c - t r a nsf er ( bal fig ) 587 1, 688 1, 337 1, 888 1, 337 1, 888
` ` To Part ners ’ Ca pi t al A/c By Sundr y Cr e di t ors A/c 2, 275 A 587 B 1, 688 2, 275 2, 275
A/c
Deficiency Account
Liabilities ` ` Assets ` Capitals: Cash 10,800 A 76,000 Sundry Assets 1,89,200 B 48,000 C 36,000 1,60,000 Loan A/c - B 10,000 Sundry Creditors 30,000 2,00,000 2,00,000
