2. Balance-sheet as on 31st December, 2018
A, B and C were in partnership sharing profits and losses in the ratio of: ½, ¼,
¼ They decided to dissolve the partnership firm on 31st December, 2018 on
which date their Balance Sheet was as follows.
Liabilities Amount Assets Amount
Capitals:
A
B
C
Reserve Fund
IncomeTax
Creditors
Bills Of Exchange(cr.)
1,00,000
55,000
25,000
20,000
5,000
1,17,000
78,000
4,00,000 4,00,000
Goodwill
Plant and Machinery
Land and Building
Bills of Exchange (Dr.)
Debtors
Stock
Cash
10,000
65,000
1,00,000
55,000
90,000
75,000
5,000
3. The assets were realised on piecemeal basis as follows:
It was agreed that cash should be distributed as and when realised. It was decided to keep
aside 5,000 for expenses of realisation, which actually amounted to 3,000 paid in April.
You are required to draw up a detailed statement showing the distribution of each
instalment as per Highest Relative Capital Method.
4. Solution:
Particulars Capitals
A B C
Capital Balance 100,000 55,000 25,000
Add: Reserve Fund(2:1:1) (+) 10,000 5,000 5000
Adjusted capitals 110,000 60,000 30,000
Profit sharing ratio 2 1 1
Unit values 55,000 60,000 30,000
Less: Proportionate Capital (Base-C) (-) 60,000 30,000 30,000
SurplusCapital 50,000 30,000 -
Profit sharing ratio 2 1
Unit values 25,000 30,000
Less: Proportionate Capital (Base-A) (-) 50,000 25,000
Absolute Surplus - 5,000
5. Statement showing Distribution of Cash as per Highest Relative Capital Method
Date
2019
Particular Cash IncomeTax Creditor Bill of exchange Capitals
A2 B1 C1
1st Jan Balance As per balance sheet 5,000 5,000 117,000 78,000 100,000 55,000 25,000
Add Reserve Fund(2:1:1)(+) 10,000 5,000 5,000
Balance due 5,000 5,000 117,000 78,000 110,000 60,000 30,000
Less provision for expense of
realization (-)
5,000
Balance Due - 5,000 117,000 78,000 110,000 60,000 30,000
10th
Jan
First Gross Realization 15000
Less income tax paid (-) 5,000 5,000
Balance Due 1000
0
- 117,000 78,000 110,000 60,000 30,000
Less paid to creditors and bill
payable on pro-rata
basis(3:2) (-)
10,00
0
6,000 4,000
Balance Due - - 111,000 74,000 110,000 60,000 30,000
6. Date
2019
Particulars Cash IncomeTax Creditor Bill of exchange Capital
15th Feb Second gross realization 211,000 A2 B1 C1
Less paid to creditors
and bill payable on pro-
rata basis(3:2) (-)
185,000 111,000 74,000
Balance Due 26,000 - - - 110,000 60,000 30,000
Less paid to B (-) 5,000 - 5,000 -
Balance Due 21,000 110,000 55,000 30,000
Less paid to a and B(2:1) 21,000 14,000 7,000 -
Balance Due 96,000 48,000 30,000
24th
march
Third gross realization 82,000
Less paid to A and B
(Balance of surplus
capital) (-)
54,000 36,000 18,000
Balance Due 28,000 - - - 60,000 30,000 30,000
Less paid to A, B and C
(2:1:1)(-)
28,000 - - - 14,000 7,000 7,000
7. Date
2019
Particulars Cash Income
Tax
Credit
or
Bill of
exchange
Capit
al
A1 B2 C2
Balance Due - - - - 46,0
00
2300
0
230
00
58,0
00
30th
April
Final gross realization 58,0
00
Add unutilized provision for expense of realization
(+)
Provision –Actual expense= unutilized
provision(5000-3000=2000)
2,00
0
Balance Due 60,0
00
46,0
00
2300
0
230
00
Less paid to A, B and C(2:1:1) (-) 60,0
00
30,0
00
15,00
0
15,0
00
Realisation loss 16,0
00
8,00
0
8,00
0
8. Working Notes:
i) Provision for Expenses of Realisation.
ii) Third Party Liabilities
a) Preferential Liabilities i.e. IncomeTax
b) Unsecured liabilities i.e. creditors and bills payable (i.e. bills of
exchange-cr.)
iii) Partner's Capital i.e. as per Surplus Capital Statement.
A) Order of payment:
