A and B are partners in a partnership firm sharing profits in the ratio of 3:2. They decided to dissolve the partnership firm. All assets other than cash and liabilities have been transferred to Realisation Account. Following information is available:
Book value of stock = ₹4,00,000
Debtors= ₹2,64,000
Provision of doubtful debts= ₹24,000
Book debts proved bad= ₹48,000
Building= ₹5,00,000
Machinery= ₹6,00,000
Investments= ₹40,000
What is the journal entry of realisation of the building if it is sold for ₹8,00,000 through a broker who charged a 2% commission?
Answer & explanation
Correct answer: option 2
The correct answer is option 2-
Bank A/c Dr. ₹7,84,000
To Realisation A/c ₹7,84,000
(Building sold)
Book value= ₹5,00,000
Sold,= ₹8,00,000
Commission,= 8,00,000 x 2/100
= ₹16,000
Realised value = 8,00,000-16,000
= ₹7,84,000
Journal entry will be:
Bank A/c Dr. ₹7,84,000
To Realisation A/c ₹7,84,000
(Building sold)
Bank account is debited with the increase in cash balance of the firm and realisation account is credited as building has been already transferred to realisation account.