profits to the date of dissolution, all drawings to the date of dissolution, all interest on capitals and on drawings to the date of dissolution but before adjusting profit or loss on Realisation Account. If some partner is having a debit balance in his Capital Account and is not insolvent then he cannot be called upon to bear loss on account of the insolvency of other partner. Insolvency all all Partners : When the liabilities of the firm cannot be paid in full out of the firm's assets as well as personal assets of the partners, then all the partners of the firm are said to be insolvent. Under such circumstances it is better not to transfer the amount of creditors to Realisation Account Creditors may be paid the amount available including the amount contributed by the partners. The unsatisfied portion of creditor account is transferred to Capital Accounts of the partners in the profit sharing ratio. Then Capital Accounts are closed. In doing so first close the Partners' Capital Account which is having the worst position. The last account will be automatically closed. Q1 illustration 1 P, Q and R were partners sharing profits and losses in the ratio of 3: 2:1, no partnership salary or interest on capital being allowed. Their balance sheet on 30th June, 2006 is as follows: Liabilities Rs. Assets Rs. Fixed Capital Fixed assets : 20,000 Goodwill 40,000 Q 20,000 Freehold Property 8,000 R 10.000 50,000 Plant and Equipment 12,800 Current Accounts: Motor Vehicle 700 P 500 Current Assets Q 9,000 9,500 Stock 3,900 Loan P 8,000 Trade Debtors 2,000 Trade Creditors 12,400 Less : Provision 100 1,900 Cash at Bank 200 Misc. losses and Accounts R's Current Account 400 Profit and Loss Account 12.000 79.900 79.900 On 1st July, 2006 the partnership was dissolved. Motor Vehicle was taken over by Q at a value of Rs. 500 but no cash passed specifically in respect of this transaction. Sale of other assets realised the following amounts: Rs. Goodwill nil Freehold Property 7,000 Plant and Equipment 5,000 Stock 3,000 Trade Debtors 1,600 Trade Creditors were paid Rs. 11,700 in fully settlement of their debts. The costs of dissolution amounted to Rs. 1,500. The loan from P was repaid, P and were both fully solvent and able to bring in any cash required but R was forced into bankruptcy and was only able to pay his creditors 1/3 of the amount due. You are required to show: (a) Cash and Bank Account, (b) Realisation Account, (c) Partners Fixed and Current Accounts