A partnership firm M, N and O is dissolved on the death of partner O. The book values are: Cash Rs. 1,00,000; Debtors Rs. 80,000; Stock Rs. 60,000; Fixed assets Rs. 2,40,000; Creditors Rs. 1,20,000; Bank loan Rs. 80,000. The stock has a revaluation surplus of Rs. 30,000 (fair value exceeds book value). Capital balances: M – Rs. 1,50,000; N – Rs. 90,000; O – Rs. 1,20,000. Profit‑sharing ratio is M:N:O = 2:1:1. O is entitled to a bonus of 10% on his capital. No goodwill is due. Prepare a Statement of Affairs showing net assets available for distribution and compute the cash each partner will receive on dissolution after adjusting for the revaluation surplus and O’s bonus.

Step-by-step solution

1. List total assets: Cash 1,00,000 + Debtors 80,000 + Stock 60,000 + Fixed assets 2,40,000 = Rs. 4,80,000.
2. List total liabilities: Creditors 1,20,000 + Bank loan 80,000 = Rs. 2,00,000.
3. Compute net assets before revaluation: 4,80,000 – 2,00,000 = Rs. 2,80,000.
4. Add revaluation surplus of Rs. 30,000 to net assets: 2,80,000 + 30,000 = Rs. 3,10,000.
5. Calculate O’s bonus: 10% of O’s capital = 0.10 × 1,20,000 = Rs. 12,000.
6. Deduct O’s bonus from net assets: 3,10,000 – 12,000 = Rs. 2,98,000 (net assets available for capital settlement).
7. Determine total capital of the three partners: 1,50,000 + 90,000 + 1,20,000 = Rs. 3,60,000.
8. Find each partner’s share in the settlement using their capital ratios (M = 1,50,000/3,60,000 = 5/12, N = 90,000/3,60,000 = 1/4, O = 1,20,000/3,60,000 = 1/3).
9. Allocate the remaining Rs. 2,98,000:
10. M’s share = (5/12) × 2,98,000 = Rs. 1,24,166.67 ≈ Rs. 124,167.
11. N’s share = (1/4) × 2,98,000 = Rs. 74,500.
12. O’s share = (1/3) × 2,98,000 = Rs. 99,333.33 ≈ Rs. 99,333.
13. Add O’s bonus to O’s share: 99,333 + 12,000 = Rs. 1,11,333.
14. Thus cash received on dissolution: M – Rs. 124,167; N – Rs. 74,500; O – Rs. 111,333.

Concept tested: Statement of affairs and final settlement on dissolution

Published 24 September 2026 · How this solution was prepared and checked