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Top 25 Problems on
Dissolution of a Partnership
Firm
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In this article we will discuss

about the top twenty five
accounting problems on
Dissolution of a Partnership
Firm with their relevant
solutions.

Accounting
Problems on the
Dissolution of a
Partnership Firm
Dissolution of a
Partnership Firm:
Problem and Solution
# 1.
A, B and C carry on business in
partnership sharing profits and
losses in the proportions of 1/2, 3/8
and 1/8 respectively. On 31st
March, 2012, they agreed to sell
their business to a limited
company.

Their position on that date was

as follows:

Dissolution of a
Partnership Firm:
Problem and Solution
# 2.
Mr. B and Mr. E are partners
sharing profit and losses in the ratio
of 3 : 2 respectively. On 30th
September, 2010 they admit Mr. C
as a partner, and the new profit
sharing ratio is 2 : 2 : 1. C brought
in fixtures Rs 3,000 and cash Rs
10,000, the goodwill being (i) B and
E Rs 20,000 and (ii) C Rs 10,000,
but neither figure is to be brought
into the books.

On 31st March, 2011, the

partnership is dissolved, B retiring
and the other two partners forming
a company called EC (Pvt.) Ltd.
with equal capitals, taking over all
remaining assets and liabilities,
goodwill being agreed at Rs 40,000
and brought into books of the
company. B agrees to take over the
Scooter at Rs 3,700. A machine of
book value of Rs 4,000 was sold for
Rs 3,000, being in excess of
requirements.

The profit of the two preceding

years were Rs 17,200 and Rs 19,000
respectively and it was agreed that
for the half year ended 30th
September, 2010 the net profit was
to be taken as equal to the average
of the two preceding years and the
current year.

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No entries had been made when C

entered, except for cash received.
No new book being opened by EC
(Pvt.,) Company Ltd., B agreed to
have Rs 50,000 as loan to the
company, secured by 10%
Debentures.

The following is the trial

balance as on 31st March.
2011:

Alternatively, realisation account

may be opened to which profit on
take-over of scooter and loss on sale
of machine will be transferred.
Realisation account will show no
profit or loss and hence there will
be no transfer to capital accounts.

Dissolution of a
Partnership Firm:
Problem and Solution
# 3.
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W, S and T carried on business in

partnership, sharing profits and
losses in the ratio of 3 : 2 : 1
respectively. They decided to form a
private company, T & Co., Ltd., with
an authorised share capital of Rs
6,00.000 divided into 45,000
equity shares of Rs 10 each and
15,000, 10 per cent cumulative
preference shares of Rs 10 each.

The company was

incorporated and took over
business, goodwill and certain
of the assets of the partnership
on March 31, 2012 on which
date firm’s balance sheet was
as follows:

T owned the freehold premises

which he had let to the partnership
and which he agreed to sell to the
company for Rs 1,00,000, the
consideration being the issue to
him at par of 10,000, 10%
cumulative preference shares of Rs
10 each.

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W, who retired, was presented by

his partners with one of the
scooters, valued in the books at Rs
6,000; the remaining scooter was
taken over by the company for Rs
10,000. W also received certain
furniture for which he was charged
Rs 1,500. The debtors, which were
all considered good, were taken
over by W who agreed to pay off the
creditors.

The company took over the

remainder of the furniture and
fittings at a price of Rs 3,000, the
machinery at its book value, the
stock at an agreed value of Rs
1,66,000 and the bank balance. The
value of the goodwill of the
partnership was agreed at Rs
40,000 for take-over purposes.

The company agreed to discharge

W’s Loan by the issue to him at par
of 3,000, 10% cumulative
preference shares of Rs 10 each and
a cash payment of Rs 10,000.

The balance of the consideration

was to be discharged by the
company by the issue at par to the
partners of 30,000 equity shares of
Rs 10 each in proportion to the final
balances on their combined capital
and current accounts, any balance
being paid to them in cash.
Compute the consideration and
show how it will be discharged.
Prepare necessary accounts to close
the books of the firm.

Dissolution of a
Partnership Firm:
Problem and Solution
# 4.
A and M who are equal
partners sheet on 31st March,
2011 was as follows:

The business is carried on until

September 30, 2011, by which time
a net profit of Rs 12,300 has been
made for the half year, after
depreciation @ 10 per cent per
annum has been written off
Leasehold Property. Meanwhile,
Sundry Creditors have been
reduced by Rs 12,000, Bills Payable
by Rs 2,925 and Bank Overdraft by
Rs 3,000. Partners’ drawings for six
months amounted to Rs 3,000
each. Stock-in-trade stood at Rs
45,300 and Book Debts at Rs
46,200 on 30th September, other
assets subject to any necessary
adjustment, stood at the figures as
on March 31, 2011.

In December, the firm agrees to sell

the business to G Ltd. on the basis
that the stock shall be taken over at
a discount of 5 per cent and book
debts at a discount of 2½% as on
September 30. The company pays
Rs 7,500 for profits in the interval
up to December 31 subject to
drawings of Rs 2,000 by A and Rs
1,000 by M during the three
months to December 31; the
company does not take over the
Joint Life Policy. The company
takes over all other assets and
liabilities, paying Rs 37,500 for
goodwill. The consideration is
discharged by payment of Rs
60,000 in cash and the balance in
preference shares of Rs 10 each.
Prepare accounts closing the books
of the firm.

Solution:

Before accounts can be given, it

would be better to prepare the
firm’s balance sheet as of
September, 30, 2011.

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The balance sheet is as

follows:

Note:

Loss up to March 31, 2011 was Rs

16,500; after that there has been a
net profit of Rs 12,300, reducing
the loss to Rs 4,200. This has been
deducted from the partners’ capital
accounts in the profit-sharing ratio,
i.e., equally.

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G Ltd. will pay Rs 94,380,

calculated as follows:

Dissolution of a
Partnership Firm:
Problem and Solution
# 5.
Exe and Wye formed a partnership
some years ago, sharing profits and
losses in the ratio of 3 : 2
respectively. On 1st April, 2010,
their capitals were Rs 6,00,000 and
5,00,000 respectively. On 1st
October, 2010, they agreed to share
profits and losses equally with
effect from that date, goodwill of
the firm being valued at Rs
6,00.000. On 31st March, 2010,
they found that the combined
capital was Rs 12,50,000 and
during the year their drawings were
A : Rs 1,50,500 and B Rs 1,19,500.

On 1st April, 2011, Zed was

admitted as a partner with 1/4th
share in the profits; he paid Rs
1,50,000 as goodwill and Rs
4,00,000 as capital. On the 30th
September, 2011, the partnership
was converted into a company. The
company paid Rs 25,00,000 for the
net assets as on that date; of this
amount Rs 5,00,000 was to be
treated as for goodwill. The
consideration was to be discharged
in a manner so as to preserve the
present mutual rights of the
partners.

Partnership agreements throughout

provided for interest on capitals at
10% per annum as in the beginning
of the year. Prepare the partners’
capital accounts.

Dissolution of a
Partnership Firm:
Problem and Solution
# 6.
The following is the balance
sheet of A, B and C. on March
31, 2012:

C is insolvent but his estate pays Rs

2,000. It is decided to wind up the
partnership. The assets realised as
follows sundry debtors, Rs 7,500;
stock, Rs 16,000 furniture, Rs
7,000; and machinery, Rs 14,000.
The cost of winding up came to Rs
2,500.

Give accounts to close the books of

the firm (1) if the capitals are fixed,
and (2) if the capitals are
fluctuating.