Ram, a partner, has been assigned the responsibility for realization of assets and settlement of liability for which he will be given remuneration of ₹ 10,000. He has to bear all the realization expenses. Actual realization expenses are 12,000. Journal Entry will be
Ram, a partner, has been assigned the responsibility for realization of assets and settlement of liability for which he will be given remuneration of ₹ 10,000. He has to bear all the realization expenses. Actual realization expenses are 12,000. Journal Entry will be
Solution
Ram is assigned the task of realization with a fixed remuneration of ₹10,000, and he must bear all realization expenses himself.
Since Ram has agreed to bear the expenses, the firm is only concerned with the agreed remuneration of ₹10,000, not the actual expenses incurred.
The actual expenses of ₹12,000 will be paid by Ram from his own resources. The difference of ₹2,000 (12,000 - 10,000) is Ram's personal loss, which he absorbs as per the agreement.
Journal Entry:
Realisation A/c ... Dr. 10,000
To Ram's Capital A/c ... 10,000
(Being remuneration paid to Ram for handling realization)
The Realisation Account is debited as remuneration is an expense of realization. Ram's Capital Account is credited as he is receiving the remuneration amount.
Bank Account is not involved because Ram himself will handle the cash transactions for realization expenses. The firm simply credits his capital account with the agreed remuneration.
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