A partnership firm of two partners, Raj and Sita, is dissolved. The firm’s assets consist of cash Rs. 1,20,000, inventory Rs. 80,000 and furniture Rs. 50,000. Liabilities include a bank overdraft of Rs. 70,000 and creditors Rs. 30,000, all settled at book values. The capital balances are Raj Rs. 90,000 and Sita Rs. 60,000. No goodwill is payable. How much cash will be paid to Sita on dissolution?

Step-by-step solution

1. Add all asset values: 1,20,000 + 80,000 + 50,000 = Rs. 2,50,000.
2. Add all liability values: 70,000 + 30,000 = Rs. 1,00,000.
3. Subtract liabilities from assets to obtain net cash available: 2,50,000 – 1,00,000 = Rs. 1,50,000.
4. The net cash is distributed to partners in the proportion of their capital balances.
5. Sita’s capital balance is Rs. 60,000, which equals the amount she will receive in cash.
6. Therefore, cash paid to Sita = Rs. 60,000.

Concept tested: Settlement of assets and liabilities

Published 25 September 2026 · How this solution was prepared and checked