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CMA Intermediate · Financial Accounting · Dissolution of Partnership Firms including Piecemeal Distribution

X and Y share profits 3:2. At dissolution, assets with book value of ₹4,00,000 realise ₹3,40,000 and creditors of ₹1,00,000 are paid in full. Y has agreed to realise the assets for a commission of 5% of the amount realised and to bear all realisation expenses himself. What is the net effect of the Realisation Account on Y's capital account?

Y's capital is net debited by ₹13,800. The realisation loss is ₹77,000 (asset loss ₹60,000 plus commission ₹17,000), of which Y bears two-fifths, ₹30,800. His commission credit of ₹17,000 is set against this. Expenses he bears himself are not entered in the firm's books.

  1. ANet debit of ₹13,800Correct
  2. BNet debit of ₹30,800
  3. CNet debit of ₹47,800
  4. DNet credit of ₹13,800

Explanation

Commission = 5% of 3,40,000 = ₹17,000, debited to Realisation and credited to Y. Loss on assets is 60,000, so total realisation loss = 77,000. Y's share is 2/5 = 30,800 debit. Net = 30,800 − 17,000 = ₹13,800 debit. The expenses borne by Y are not recorded in the firm's books. Option ₹30,800 ignores the commission credit.

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