Read the following information carefully and answer the next five questions.
G, K and B were partners running a partnership for last 10 years, sharing profit and loss in the ratio of 5:3:2. Post Covid, their firm was affected badly and started incurring losses. On 31st March,2023 they all decided to dissolve the firm due to continuous losses. Their capital balances were ₹4,00,000, ₹3,00,000 and ₹2,00,000 respectively. Firm had liabilities ₹80,000, cash balance ₹40,000, other sundry assets ₹8,50,000 and P&L A/c constituted the rest. Assets realised at 80% and liabilities were paid in full. There was unrecorded liability of ₹50,000 which was settled at ₹40,000. Realisation expenses amounted to ₹30,000 being paid by G on behalf of the firm.
Determine Gain/Loss on Realisation.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Loss ₹2,40,000
The Realisation Account is debited with the assets transferred and the payments made, and credited with the liabilities transferred and the cash realised.
Debit side:
Sundry assets = ₹8,50,000
Liabilities paid in full = ₹80,000
Unrecorded liability settled = ₹40,000
Realisation expenses (paid by G) = ₹30,000
Total = ₹10,00,000
Credit side:
Liabilities transferred = ₹80,000
Assets realised = ₹8,50,000 × 80% = ₹6,80,000
Total = ₹7,60,000
Loss on realisation = ₹10,00,000 − ₹7,60,000 = ₹2,40,000
Cash (₹40,000) is not taken to the Realisation Account, and the unrecorded liability is recorded at the ₹40,000 actually paid, not at ₹50,000.