DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : J.Satyanarayana Rao

Designation : Senior Lecturer
Branch : Commercial & Computer Practice
Institute : Govt.Polytechnic for Women, Guntur.
Year/Semester : IV Semester
Subject : ACCOUNTANCY-III
Subject Code : CCP-402
Topic : Partnership
Duration : 100 Mins
Sub Topic : Insolvency of one partner-Application
of the ruling Garner Vs Murray
Teaching Aids : PPT- ANIMATION
CCP403.74 1
Objective

At the end of the period you will be able to

PREPARE ACCOUNTS BY APPLYING

THE GARNER Vs MURRAY.

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 Case 1:
X,Y,and Z sharing profits sharing profits in ½,1/3 &
1/6thRespectively decided to dissolve the firm from 1-1-2006 when their
Balance sheet was as follows:

Balance sheet
Liabilities Rs Assets Rs

Creditors 40,000 Land and Buildings 57,000

Bills payable 7,000 Stock 50,000
X’s Loan 10,000 Sundry Debtors 50,000
X’s Capital 90,000 Bank 3,000
Y’s Capital 10,000 Y’s Current a/c 2,000
Z’s Capital 10,000 Z’s Current a/c 5,000
X’s Current a/c 1,500 Profit & Loss a/c 1,500

1,68,500 1,68,500

Land and buildings were sold for Rs. 40,000 and stock and debtors realised Rs.30,000 &
Rs.42,000 respectively. Goodwill was sold for Rs. 600. The expenses on realization came to
Rs.1,200. Z is insolvent and a dividend of 50 paise in the rupee is received fromHis estate.
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Prepare necessary accounts to close the books of the firm applying the ruling in Garner Vs Murray.
Solution to Eg. ….1
REALISATION ACCOUNT

particulars Amount Particulars Amount

To land& buildings 57,000 By creditors 40,000

Stock 50,000 By bills payable 7,000

s. Debtors 50,000 By Bank 1,12,000

Bank 47.000 By Bank(good will) 600

Bank 1,200 By X’s Current 22,000

Ys Current A/c 15,200

Z’s Current A/ c 7,600
Total 2,05,200 2,05,200 Total 2,05,200

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 BANK ACCOUNT
----------------------------------------------------------------------------------------
-
TO Balance b/d 3000 By realisation A/c 1,200
realization a/c (good will) 600
Realisation A/c 1,12,000 Realisation A/c 47,000
X’s capital A/c 22,800 X’s loan A/c 10,000
Y’s capital A/c 15,200 Y’s Capital A/c 89,467.50
Z’s capital A/c 1,425 Z’s Capital A/c 7,357.50
----------- -----------
Total 1,55,025 Total 1,55,025.00
----------------------------------------------------------------------------------------
---

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 CURRENT ACCOUNTS
-------------------------------------------------------------------------------------------------------------
X Y Z X Y Z
To Balance b/d ---- 2,000 5,000 By Balance b/d 1,500 --- --- “
Realisation A/c 22,800 15,200 7,600 “ Capital A/c
of X,Y,Z 21,300 17,200 12,600
---------------------------- ------------------------------
Total 22,800 17,200 12,600 Total 22,800 17,200 12,600
------------------------------------------------------------------------------------------------------------

CCP403.74 6
 CAPITAL ACCOUNTS
---------------------------------------------------------------------------------------------------------------------
X Y Z X Y Z
---------------------------------------------------------------------------------------------------------------------
To current A/cs
of X,Y,Z 21,300 17,200 12,600 By Balance b/d 90,000 10,000 10,000
Z’s capital A/ 1,170 ------ ------
Bank 67,530 130 ----
Bank 1,300
X’s Capital A/c 1,170
Y’s Capital A/c 130
Bank a/c 7330
------------------------------------ -----------------------------
90,000 17,330 12,600 90,000 17,330 12,600
---------------------------------------------------------------------------------------------------------------------

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 deficiency has been debited to X’s capital A/c and
Y’s capital in their fixed capital ratio I.e.,
Rs.90,000.10,000
--------------------------------------------------------------------------

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hen all the partners become insolvent, deficiency
account is to be prepared
PREPARATION OF “DEFICIENCY ACCOUNT”
1. Deficiency Account is meant to explain how various
losses and domestic expenses come to the
proprietor’s capital and the profits earned and leave a
deficit tobe borne by creditors.
2. In such a case, the creditors of the firm may not be
transferred to the realization a/c

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3. The unpaid amount of creditors is transferred to a
deficiency a/c
4. The balances in the capital accounts of the partners
are also transferred to deficiency a/c
5. Then, the deficiency a/c shall be automatically
closed

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Summary
 we have discussed so for about the preparation
accounts of dissolution applying garner vs. murray’s case
 It has become a practice in India to follow the
decision in the GARNER Vs MURRAY case in the
absense of any Specific agreement between the partners
with regard to shring the deficiency of an insolvent partner.

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