A, B, C and D had been carrying on business in partnership sharing profits & losses in the ratio of 4:3:2:1. They decided to dissolve the…

Realisation Account Particulars Amount (₹) Particulars Amount (₹) To Land and building 7,38,000 By Sundry creditors 1,08,000 To Furniture and fixtures 1,95,000 By Mortgage loan 3,30,000 To Stock 3,00,000 By Cash account - To Debtors 2,17,500 Land and building 6,90,000 To Cash A/c (expenses on dissolution) 23,400 Furniture & fixtures 1,26,000 To Cash A/c (creditors - 1,08,000 +54,000) 1,62,000 Stock 2,16,000 To Cash A/c (Mortgage loan) 3,30,000 Debtors 1,95,000 By Partners’ capital accounts (Loss4:3:2:1) A = 1,20,360 B = 90,270 C = 60,180 D = 30,090 3,00,900 19,65,900 19,65,900 Partners’ Capital Accounts Particulars A B C D Particulars A B C D ₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹ To Balance b/d - - 3,000 18,000 By Balance b/d 6,48,000 4,32,000 - - To Realization A/c (Loss) 1,20,360 90,270 60,180 30,090 By Cash A/c (realization loss) 1,20,360 90,270 - 30,090 To B’s Capital A/c (Deficiency) 37,908 25,272 - - By A’s Capital A/c - - 37,908 - By B’s Capital A/c - - 25,272 - To Cash A/c 6,10,092 4,06,728 - - By Cash A/c - - - 18,000 7,68,360 5,22,270 63,180 48,090 7,68,360 5,22,270 63,180 48,090 Note: A, B and D brought cash to make good, their share of the loss on realization. However, in actual practice they will not be bringing any cash, only a notional entry will be made. Cash Account Particulars Amount (₹) Particulars Amount (₹) To Balance b/d 46,500 By Realization A/c: To Realization A/c: Expenses on dissolution 23,400 Land and building 6,90,000 Creditors (₹ 1,08,000 +54,000) 1,62,000 Furniture & fixtures 1,26,000 Mortgage loan 3,30,000 Stock 2,16,000 By A’s capital A/c 6,10,092 Debtors 1,95,000 By B’s capital A/c 4,06,728 To A, B, D’s capital A/c’s (Realisation Loss) (₹ 1,20,360 +90,270 +30,090) 2,40,720 To D’s capital A/c 18,000 15,32,220 15,32,220 Working Note: As per Garner Vs. Murray rule, solvent partners have to bear the loss due to insolvency of a partner in their capital ratio. Calculation of Capital Ratio of Solvent Partners Though D is a solvent partner yet he cannot be called upon to bear loss on account of insolvency of C because his capital account has a debit balance. Therefore, capital ratio of A & B = 216 :144 = 3 :2 Deficiency of C will be shared by A & B in the capital ratio of3 :2 i.e. A = 63,180 X 3/5 = 37,908 B = 63,180 X 2/5 = 25,272