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CMA Intermediate · Financial Accounting · Conversion of Partnership Firm into a Company and Sale of Partnership Firm to a Company

A firm sells its business to Surya Ltd. Book value of assets taken over is Rs 9,00,000 (excluding cash) and liabilities taken over are Rs 2,00,000. The purchase consideration is Rs 8,50,000. Realisation expenses of Rs 10,000 are paid by the firm. What is the profit or loss on realisation, ignoring everything else?

The profit on realisation is Rs 1,40,000. Credits are consideration 8,50,000 plus liabilities transferred 2,00,000, while debits are assets 9,00,000 plus expenses 10,000. The net excess of credits over debits is the profit.

  1. AProfit Rs 1,50,000
  2. BProfit Rs 1,40,000Correct
  3. CLoss Rs 60,000
  4. DProfit Rs 50,000

Explanation

Realisation credits: purchase consideration 8,50,000. Realisation debits: assets 9,00,000 plus expenses 10,000 = 9,10,000. Liabilities taken over, 2,00,000, are credited, so total credits = 10,50,000. Profit = 10,50,000 - 9,10,000 = 1,40,000. Rs 1,50,000 ignores the expenses.

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