Tunde and Chidi decided to dissolve their partnership firm. At the date of dissolution, to… — JAMB UTME

Tunde and Chidi decided to dissolve their partnership firm. At the date of dissolution, total assets with a book value of $₦120,000$ were transferred to the Realization Account. These assets were realized for $₦135,000$ , and dissolution expenses amounting to $₦4,000$ were paid. What is the profit on realization in Naira ( $₦$ )?

Answer: 11000 ₦

Answer

The profit on realization is

₦11,000

The Realization Account is debited with the book value of assets (

₦120,000

) and dissolution expenses (

₦4,000

), giving a total debit balance of

₦124,000

. It is credited with the asset sale proceeds of

₦135,000

. The excess credit of

₦11,000

represents the net profit on realization.

Step-by-Step Solution

Determine total debit items in the Realization Account

₦120,000 \text{ (book value of assets)} + ₦4,000 \text{ (expenses)} = ₦124,000

When dissolving a partnership, assets transferred and expenses paid are debited to the Realization Account.

Determine total credit items in the Realization Account

₦135,000 \text{ (cash realized)}

Amounts received from the realization of assets are credited to the Realization Account.

Calculate net realization profit

₦135,000 - ₦124,000 = ₦11,000

An excess of total credits over total debits in the Realization Account represents a profit on realization.

Key Concept

Calculation of Net Profit on Realization upon Partnership Dissolution

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