IGCSE Accounting Paper-2: Specimen Questions with Answers 70 - 71 of 103

Passage

Singer and Dancer are partners sharing profit in the ratio of 3: 2. Their balance sheet on 31st March 2014 was as follows:

Singer and Dancer are partners sharing profit in the ratio

Find out ratio of amount

Liabilities

Amount

Assets

Amount

Singer’s Capital

32500

Bank

40500

Dancer’s Capital

11500

Stock

7500

Creditors

48000

Debtors - 21500

Less: Provision for doubtful debts - 500

21000

Reserve fund

13500

Fixed Assets

36500

105500

105500

On 31st March 2014, they decided to dissolve the firm and the following information was provided by them: (i) Debtors were realized at a discount of 5%; (ii) Stock at £7000; (iii) Fixed assets at £42000; (iv) realization expenses were £1500; (v) All the creditors were fully paid.

Question number: 70 (2 of 5 Based on Passage) Show Passage

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Short Answer Question▾

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What is Realization Account?

Explanation

When the dissolution of a firm takes place, all assets are sold and all liabilities are paid off in full settlement. Any profit or loss arising has to be computed as the same has to be shared between the partners. For this purpose a separate account called as the realization account is opened. In this account the net profit or loss after realizing the assets and paying the liabilities is computed and the amount is transferred to the partner’s capital account in their sharing ratios.

Question number: 71 (3 of 5 Based on Passage) Show Passage

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Short Answer Question▾

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Will Singer and Dancer earn a profit or incur a loss, after the realization of their assets and paying their creditors in full?

Explanation

Realization Account in the books of Singer and Dancer as on 31st March 2014

calculate profit in given table

Particulars

Amount

Amount

Particulars

Amount

Amount

Assets transferred

Provision for doubtful debts

500

Stock

7500

Creditors

48000

Debtors

21500

Bank

Fixed assets

36500

Debtors

20425

Bank expenses

stock

7000

Creditors

48000

Fixed assets

42000

Realization expenses

1500

Profit transferred (Bal Fig)

Singer’s capital

1755

Dancer’s Capital

1170

2925

117425

117425

Profit = 2925

Singer = 2925 * 3/5 = 1755; Dancer = 2925 * 2/5

Debtors = 21500 – 5%= 21500 – 1075 = 20425