Memorandum Balance Sheet in Dissolution: Find Missing Figures

A Memorandum Balance Sheet feels strange the first time you see it in a dissolution question.

You are already preparing Realisation Account, Partners’ Capital Accounts, and Bank Account. Then suddenly the question does not give a proper balance sheet, or one important figure is missing. Students often ask the right question at this point:

“How can I start dissolution when I do not even know all the opening figures?”

That is exactly where the Memorandum Balance Sheet helps.

It is not a new final account. It is not shown to owners. It is simply a working statement that helps you rebuild the balance sheet on the date of dissolution, using the figures given in the question.

Once the missing figure is found, the normal dissolution process begins.

If you treat it as a small reconstruction tool, it becomes one of the most reliable parts of dissolution.

What a Memorandum Balance Sheet Means

A Memorandum Balance Sheet is a rough balance sheet prepared from incomplete information.

In dissolution questions, it is usually prepared when:

• the full balance sheet is not given
• the total of assets is missing
• a liability is missing
• one partner’s capital is missing
• a question gives sale proceeds but not the book value of assets
• the Realisation Account cannot be prepared unless you first find the missing figure

The word “memorandum” simply means it is prepared for your own working.

It helps you answer one basic question:

“What should have been the book value of the missing item on the date of dissolution?”

Why It Is Needed in Dissolution

At the time of dissolution, the firm closes its books. Assets are realised, external liabilities are settled, and the final profit or loss is transferred to partners.

For this, you need book values.

For example, suppose a question says:

• A and B’s capitals are Rs. 80,000 and Rs. 60,000
• creditors are Rs. 40,000
• cash at bank is Rs. 10,000
• all assets except bank realised Rs. 1,20,000

The question has not given the book value of those assets.

But Realisation Account needs the assets to be transferred at book value. The amount realised, Rs. 1,20,000, is recorded later as sale proceeds. It is not the same as book value.

So you prepare a Memorandum Balance Sheet to find the missing book value of assets.

That missing figure is usually called Sundry Assets.

The Basic Rule

A balance sheet must balance:

Assets = Liabilities + Capital

In partnership accounts, the right side usually includes:

• external liabilities
• partners’ loans, if shown as payable
• partners’ capital accounts
• partners’ current accounts with credit balances
• reserves and accumulated profits

The asset side usually includes:

• fixed assets
• current assets
• bank balance
• cash balance
• partners’ current accounts with debit balances
• debit balance of Profit and Loss Account or other accumulated losses, if shown

In a Memorandum Balance Sheet, you place all known items on their correct sides. Then you total both sides. The side with the lower total gets the missing figure.

Format of Memorandum Balance Sheet

Use a simple two-sided format.

Memorandum Balance Sheet	Amount		Amount
Liabilities		Assets
Creditors		Cash or Bank
Bills Payable		Stock
Outstanding Expenses		Debtors
Partner’s Loan		Machinery
Partners’ Capital Accounts		Furniture
Partners’ Current Accounts, credit balance		Partners’ Current Accounts, debit balance
Reserve or Profit and Loss Account, credit balance		Profit and Loss Account, debit balance
Missing liability, capital, or reserve		Missing asset

This format is only for finding the missing figure. After that, you prepare the actual accounts required in the question.

The Five-Step Method

Use this method every time.

Step 1: Read What Is Missing

Do not start writing immediately.

First identify what the question wants you to find:

• missing assets
• missing liability
• missing partner capital
• missing bank balance
• missing reserve
• missing debit balance of Profit and Loss Account

Many students lose marks because they write “Sundry Assets” automatically. That is common, but not guaranteed.

Step 2: List All Known Items

Make two rough columns:

• assets
• liabilities and capital

Put every given balance sheet item in the correct column.

Use opening book values only.

If the question says an asset was sold for Rs. 45,000, do not put Rs. 45,000 in the Memorandum Balance Sheet unless that is clearly its book value.

Sale value belongs to Realisation Account.

Step 3: Add the Known Totals

Total both sides.

At this stage, the two sides usually will not match. That is normal.

Step 4: Put the Missing Figure on the Lower Side

If the asset side is lower, the missing figure is on the asset side.

If the liabilities and capital side is lower, the missing figure is on that side.

Then name the missing figure according to the question.

Step 5: Use the Figure in the Dissolution Accounts

This is the part students often forget.

The Memorandum Balance Sheet itself does not complete the answer. It only gives one number.

After finding the number:

• transfer missing assets to Realisation Account, unless they are cash or bank
• transfer missing external liabilities to Realisation Account
• take missing partner capital to that partner’s capital account
• treat partner’s loan separately from capital
• keep cash or bank outside Realisation Account

Example 1: Finding Missing Sundry Assets

Riya and Karan dissolve their firm. The following figures are available:

Item	Amount
Riya’s Capital	Rs. 1,20,000
Karan’s Capital	Rs. 80,000
Creditors	Rs. 45,000
Bills Payable	Rs. 15,000
Bank Balance	Rs. 20,000
Stock	Rs. 70,000
Debtors	Rs. 60,000

The balance sheet is not given. Find the missing assets.

Prepare the Memorandum Balance Sheet.

Liabilities	Amount	Assets	Amount
Creditors	Rs. 45,000	Bank Balance	Rs. 20,000
Bills Payable	Rs. 15,000	Stock	Rs. 70,000
Riya’s Capital	Rs. 1,20,000	Debtors	Rs. 60,000
Karan’s Capital	Rs. 80,000	Sundry Assets, balancing figure	Rs. 1,10,000
Total	Rs. 2,60,000	Total	Rs. 2,60,000

The missing Sundry Assets are Rs. 1,10,000.

Now, when you prepare Realisation Account, all assets except bank will be transferred. That means stock, debtors, and sundry assets will go to the debit side of Realisation Account at book value.

Bank balance will go directly to Bank Account.

Example 2: Finding a Missing Liability

Now take a different situation.

A firm dissolves with the following information:

Item	Amount
Building	Rs. 1,80,000
Stock	Rs. 60,000
Bank	Rs. 20,000
A’s Capital	Rs. 1,20,000
B’s Capital	Rs. 80,000
General Reserve	Rs. 20,000
Bills Payable	Rs. 15,000

Creditors are missing.

Prepare the Memorandum Balance Sheet.

Liabilities	Amount	Assets	Amount
Bills Payable	Rs. 15,000	Building	Rs. 1,80,000
A’s Capital	Rs. 1,20,000	Stock	Rs. 60,000
B’s Capital	Rs. 80,000	Bank	Rs. 20,000
General Reserve	Rs. 20,000
Creditors, balancing figure	Rs. 25,000
Total	Rs. 2,60,000	Total	Rs. 2,60,000

The missing Creditors are Rs. 25,000.

In the dissolution accounts, creditors and bills payable are external liabilities. They will be transferred to Realisation Account.

General Reserve will not be transferred to Realisation Account. It will be transferred directly to partners’ capital accounts in the profit-sharing ratio.

Example 3: Finding a Missing Partner’s Capital

Suppose the following information is given on dissolution:

Item	Amount
Machinery	Rs. 1,50,000
Stock	Rs. 70,000
Debtors	Rs. 50,000
Bank	Rs. 30,000
Creditors	Rs. 55,000
Loan from Partner A	Rs. 25,000
General Reserve	Rs. 30,000
A’s Capital	Rs. 90,000

B’s Capital is missing.

Prepare the Memorandum Balance Sheet.

Liabilities	Amount	Assets	Amount
Creditors	Rs. 55,000	Machinery	Rs. 1,50,000
A’s Loan	Rs. 25,000	Stock	Rs. 70,000
General Reserve	Rs. 30,000	Debtors	Rs. 50,000
A’s Capital	Rs. 90,000	Bank	Rs. 30,000
B’s Capital, balancing figure	Rs. 1,00,000
Total	Rs. 3,00,000	Total	Rs. 3,00,000

B’s Capital is Rs. 1,00,000.

Now use this as B’s opening capital balance in B’s Capital Account.

Do not transfer B’s capital to Realisation Account. Capital is settled through Partners’ Capital Accounts.

Also notice A’s loan. It is not the same as A’s capital. Partner’s loan is settled separately, usually after outside liabilities and before capital settlement.

Book Value vs Realised Value

This is the biggest trap in this topic.

A dissolution question may give two types of values:

Value	Meaning	Where it is used
Book value	Value in the books on the date of dissolution	Memorandum Balance Sheet and transfer to Realisation Account
Realised value	Amount received from sale of assets	Credit side of Realisation Account and debit side of Bank Account
Takeover value	Value at which a partner takes over an asset or liability	Realisation Account and partner’s capital account

If you mix these values, the whole answer goes wrong.

For example:

Sundry assets were found from the Memorandum Balance Sheet as Rs. 1,10,000.
They realised Rs. 95,000.

The transfer entry is:

Realisation A/c Dr.       1,10,000
    To Sundry Assets A/c          1,10,000

The sale entry is:

Bank A/c Dr.                95,000
    To Realisation A/c              95,000

The difference is not adjusted separately by force. It becomes part of the overall profit or loss on realisation.

What to Include and What to Exclude

The Memorandum Balance Sheet is a reconstructed balance sheet, so include balance sheet items.

But when you later prepare Realisation Account, the treatment changes.

Use this guide.

Item	In Memorandum Balance Sheet?	In Realisation Account later?
Machinery	Yes, asset side	Yes
Stock	Yes, asset side	Yes
Debtors	Yes, asset side	Yes
Cash	Yes, asset side if given	No
Bank balance	Yes, asset side if given	No
Bank overdraft	Yes, liability side	Yes
Creditors	Yes, liability side	Yes
Bills payable	Yes, liability side	Yes
Partner’s loan	Yes, liability side	No, settled separately
Partner’s capital	Yes, liability side	No, settled through capital account
General reserve	Yes, liability side	No, transferred to partners
Profit and Loss credit balance	Yes, liability side	No, transferred to partners
Profit and Loss debit balance	Yes, asset side	No, transferred to partners

This table helps because the same item may be used in one statement but not in another account.

Current Accounts Under Fixed Capital Method

If the question follows the fixed capital method, partners may have separate current accounts.

A current account can have either:

• credit balance
• debit balance

In the Memorandum Balance Sheet:

• credit balance of a partner’s current account goes to the liabilities side
• debit balance of a partner’s current account goes to the asset side

After that, current account balances are usually transferred to partners’ capital accounts before final settlement.

Do not ignore current accounts. They can easily become the reason your Memorandum Balance Sheet refuses to balance.

Reserves and Accumulated Profits

Reserves and accumulated profits belong to the partners.

In a normal balance sheet, they appear on the liabilities side because they represent accumulated claims of the owners.

So in the Memorandum Balance Sheet, place them on the liabilities side.

Later, they are transferred to partners’ capital accounts in the profit-sharing ratio.

Example:

General Reserve A/c Dr.
    To Partners' Capital A/cs

This is separate from Realisation Account.

Accumulated Losses and Debit Balance of Profit and Loss Account

Accumulated losses are the opposite of reserves.

If the balance sheet shows a debit balance of Profit and Loss Account, put it on the asset side in the Memorandum Balance Sheet.

Later, it is transferred to partners’ capital accounts in the profit-sharing ratio:

Partners' Capital A/cs Dr.
    To Profit and Loss A/c

It is not transferred to Realisation Account.

This is important because Realisation Account calculates profit or loss from sale and settlement of assets and liabilities. It does not distribute old accumulated profits or losses.

How to Decide the Name of the Balancing Figure

The side tells you where the missing figure belongs.

The wording tells you what to call it.

Situation	Balancing figure should be called
Question says total assets are missing	Sundry Assets
Question says a specific asset is missing	Name of that asset, such as Machinery
Question says creditors are missing	Creditors
Question says external liabilities are missing	Sundry Liabilities
Question says one partner’s capital is missing	That partner’s Capital Account
Question says bank is missing	Bank Balance or Bank Overdraft, depending on side
Question gives no clue and asset side is short	Sundry Assets

The safest habit is to write the balancing figure clearly. Do not leave it as only “Balance c/d” in your working.

A Complete Mini Flow

Let us connect the Memorandum Balance Sheet to the whole dissolution answer.

Suppose a question gives:

• A’s Capital: Rs. 1,00,000
• B’s Capital: Rs. 80,000
• Creditors: Rs. 40,000
• Bank: Rs. 15,000
• Sundry assets are not given
• Assets realised Rs. 1,70,000
• Creditors were paid Rs. 38,000
• Realisation expenses were Rs. 2,000
• A and B share profits and losses equally

First, prepare the Memorandum Balance Sheet.

Liabilities	Amount	Assets	Amount
Creditors	Rs. 40,000	Bank	Rs. 15,000
A’s Capital	Rs. 1,00,000	Sundry Assets, balancing figure	Rs. 2,05,000
B’s Capital	Rs. 80,000
Total	Rs. 2,20,000	Total	Rs. 2,20,000

Sundry Assets are Rs. 2,05,000.

Now use that in Realisation Account.

Realisation Account	Amount		Amount
To Sundry Assets	Rs. 2,05,000	By Creditors	Rs. 40,000
To Bank, creditors paid	Rs. 38,000	By Bank, assets realised	Rs. 1,70,000
To Bank, expenses	Rs. 2,000
		By Partners’ Capital, loss	Rs. 35,000
Total	Rs. 2,45,000	Total	Rs. 2,45,000

There is a realisation loss of Rs. 35,000.

A and B share it equally:

• A’s Capital debited by Rs. 17,500
• B’s Capital debited by Rs. 17,500

Notice how the answer would be impossible without first finding the book value of Sundry Assets.

Common Mistakes Students Make

Mistake 1: Using Sale Proceeds as Book Value

If assets realised Rs. 1,70,000, that does not mean the assets had a book value of Rs. 1,70,000.

The book value must be found from the Memorandum Balance Sheet if it is missing.

Mistake 2: Forgetting Bank in the Memorandum Balance Sheet

Cash and bank are not transferred to Realisation Account, but they are still balance sheet assets.

So include them in the Memorandum Balance Sheet if they are given.

Mistake 3: Putting Partner’s Loan Inside Capital

Partner’s loan and partner’s capital are different.

Partner’s loan is shown as a liability in the Memorandum Balance Sheet, but it is usually settled separately.

Mistake 4: Treating Reserve Like an Outside Liability

General Reserve is not payable to outsiders. It belongs to partners.

Show it on the liabilities side of the Memorandum Balance Sheet, then transfer it to partners’ capital accounts.

Mistake 5: Assuming Every Balancing Figure Is Sundry Assets

Many questions do ask for missing sundry assets. But some ask for missing creditors, missing capital, missing bank overdraft, or missing accumulated loss.

Read the wording before naming the balance.

Quick Checklist Before You Move Ahead

Before starting Realisation Account, ask yourself:

• Have I used book values in the Memorandum Balance Sheet?
• Have I included cash and bank if given?
• Have I placed reserves on the liabilities side?
• Have I placed accumulated losses on the asset side?
• Have I kept partner’s loan separate from partner’s capital?
• Have I named the balancing figure clearly?
• Have I used the missing figure correctly in the next account?

If all answers are yes, you are ready to solve the rest of the question.

A Simple Way to Remember It

Think of dissolution as closing a shop at the end of its life.

Before closing, you need one last map of what the shop owned and owed. If part of the map is torn, the Memorandum Balance Sheet helps rebuild it.

Once the missing part is restored, you can sell the assets, pay the liabilities, settle partners, and close the books properly.

That is the whole purpose.

FAQs

What is a Memorandum Balance Sheet in dissolution?

A Memorandum Balance Sheet is a working balance sheet prepared from incomplete information on the date of dissolution. It helps find a missing asset, liability, partner capital, or other balance sheet figure before preparing the dissolution accounts.

Is Memorandum Balance Sheet a final account?

No. It is only a working statement. It is prepared to find a missing figure. The actual dissolution answer is completed through Realisation Account, Partners’ Capital Accounts, Partner’s Loan Account if needed, and Bank or Cash Account.

When should I prepare a Memorandum Balance Sheet?

Prepare it when the question does not give a complete balance sheet and one opening figure is missing. It is especially useful when sundry assets are missing but the realised value of assets is given.

Should I use book value or realised value in the Memorandum Balance Sheet?

Use book value. Realised value is used later in Realisation Account when assets are sold. The Memorandum Balance Sheet reconstructs the position before realisation begins.

Are cash and bank included in the Memorandum Balance Sheet?

Yes, if they are given as balance sheet items. Cash and bank are included in the Memorandum Balance Sheet, but they are not transferred to Realisation Account.

Is partner’s loan transferred to Realisation Account?

No. Partner’s loan is shown in the Memorandum Balance Sheet as a liability, but it is settled separately. It should not be mixed with partner’s capital.

What if the asset side is short?

If the asset side is short, the missing figure is on the asset side. Usually it is called Sundry Assets, unless the question names a specific missing asset.

What if the liabilities and capital side is short?

Then the missing figure belongs on the liabilities and capital side. It may be a missing creditor, partner capital, reserve, bank overdraft, or another liability-side item depending on the wording of the question.

Is General Reserve included in the Memorandum Balance Sheet?

Yes. General Reserve appears on the liabilities side in the Memorandum Balance Sheet because it represents accumulated profit belonging to partners. Later, it is transferred to partners’ capital accounts.

Why do students get Memorandum Balance Sheet questions wrong?

The most common reason is mixing up book value and realised value. Another common mistake is forgetting that the Memorandum Balance Sheet is only a starting-point working, not the final dissolution account.