At the time of dissolution of a firm, the balance sheet shows creditors - Rs. 50,000; firm's capital - Rs. 1,40,000; cash balance is Rs. 10,000. Other assets realised Rs. 1,50,000. Gain/Loss in the realisation account will be:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 30,000 (Loss)
The Realisation Account takes over every asset except cash, bank and fictitious assets at its book value and every outside liability at its book value. Its gain or loss is what the assets fetch against what they stood at, after the liabilities are settled.
Balance sheet total = capital Rs. 1,40,000 + creditors Rs. 50,000 = Rs. 1,90,000
Assets other than cash = Rs. 1,90,000 − cash Rs. 10,000 = Rs. 1,80,000
Assets realised = Rs. 1,50,000
Shortfall on assets = Rs. 1,80,000 − Rs. 1,50,000 = Rs. 30,000
Creditors paid Rs. 50,000, the same as their book value, so no gain or loss on them
Loss on realisation = Rs. 30,000
The question gives no settlement figure for the creditors, so they are taken as paid in full at their book value, the usual treatment when no payment information is given.
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