Partnership :Dissolution

  • Dissolution of a partnership means discontinuance or cessation of partnership between all the partners of the firm. It means that firm closes down its business and comes to an end.
  • In dissolution of partnership, assets and liabilities are revalued and revaluation account is prepared.
  • Dissolution of partnership can be because of reconstitution of partnership and by mutual agreement where as dissolution of firm can be by the order of the court.
  • Effects of dissolution are that business of the firm closes down, relation of partners with the firm comes to an end, all assets of the firm are sold, liabilities of the firm are paid out of the amount realised from sale of assets and after settling outside claims, partners’ claims are settled.
  • There is difference between revaluation account and realisation account. For dissolution, realisation account is prepared to ascertain profit or loss on sale of assets and liabilities, partner’s capital account, loan account and cash/bank account is prepared.
  • Ifa public notice of dissolution of firm has not been given. Partners shall continue to be liable as such to third parties for any act done by any of them, which would have been an act of the firm, if done before the dissolution.
  • There is difference between firm’s debt and private debt. Partner’s capital account is prepared to record balance of capital.
  • In dissolution of a firm, assets (except Cash/ Bank account) and liabilities are closed by transferring them at their book value to the realisation account.
  • Sundry debtors are transferred at their gross value. Profit & Loss, general reserve and miscellaneous expenditure account is transferred to partner's capital account.
  • Realisation account is closed by transferring balance to partner’s capital.
  • In case question is silent is about realisation of any assets, it is assumed that asset has not realised anything whereas in case of liabilities, it is assumed that amount equal to book value is paid.
  • Investment Fluctuation Reserve, Workmen Compensation Reserve and Provident Fund have specific accounting treatment.
  • If a partner has given any loan to the firm, his loan will not be transferred to the Realisation Account.
  • If the Balance Sheet on the date of dissolution is not given in the question, then Memorandum Balance Sheet has to be prepared in the proper form to find out the missing figure.

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  • Q1

    The assets of ABC firm are realised for ₹ 2,67,000. Pass the necessary journal entry for the same.

    Marks:1
    Answer:

    Books of ABC (Journal)

    Particulars

    ₹(Dr)

    ₹(Cr)

    Bank A/c

    Dr.

    2,67,000

    To Realisation A/c

    2,67,000

    (Being assets realised)

    View Answer
  • Q2

    What will be the journal entry for transfer of sundry assets to realisation account?

    Marks:1
    Answer:

    Journal Entry

    Particulars

    (Dr)

    (Cr)

    Realisation A/c

    Dr.

    To Sundry Assets A/c

    (Transfer of sundry assets to realisation a/c)

    View Answer
  • Q3

    What is Realisation Account?

    Marks:1
    Answer:

    It is an account prepared at the time of dissolution of partnership firm to find profit or loss on the sale of assets and repayment of liabilities.

    View Answer
  • Q4

    Ram,Shyam,andMohanarepartnerssharingprofit intheratio2:21.onJanuary1,2016theirBalance sheetwasasfollows:

    Liabilities

    Assets

    Sundry Creditors

    12,000

    Cash In Bank

    12,200

    General Reserve

    5,000

    Debtors 8,000

    Capital Accounts:

    Less: provision 200

    7,800

    Ram 15,000

    Stock

    6,000

    Shyam 12,000

    Furniture

    2,000

    Mohan 6,000

    33,000

    Building

    22,000

    50,000

    50,000

    Thefirmwasdissolvedonthedate.Theassets realizedasunder: Debtors;7,000 Stock;5,000 Furniture;1,000 Building;25,000 Thecreditorsweresettledfor11,000.Itwas foundhoweverthattherewasaliabilityfor3,000 fordamages,whichhastobepaid. Theexpensesondissolutionamountedto₹,1,000. PrepareRealizationAccount,CapitalAccountsof thepartners&BankAccount. MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLnhiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=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@1687@

    Marks:8
    Answer:

    Dr. Realisation Account Cr.

    Particulars

    Particulars

    To Debtors

    8,000

    By Provision of Bad Debts

    200

    To Stock

    6,000

    By Sundry Creditors

    12,000

    To Furniture

    2,000

    By Bank (Assets realised)

    38,000

    To Buildings

    22,000

    By Loss Transferred to Capitals

    To Bank (Creditors)

    11,000

    Ram 1,120

    To Bank (Damages)

    3,000

    Shyam 1,120

    To Bank (Expenses)

    1,000

    Mohan 560

    2,800

    53,000

    53,000

    Dr. Capital Accounts Cr.

    Particulars

    Ram

    Shyam

    Mohan

    Particulars

    Ram

    Shyam

    Mohan

    To

    Realisation

    A/c

    To Bank

    By Balance

    b/d

    By General

    Reserve

    1,120

    1,120

    560

    15,000

    12,000

    6,000

    15,880

    12,880

    6,440

    2,000

    2,000

    1,000

    17,000

    14,000

    7,000

    17,000

    14,000

    7,000

    Dr. Bank Account Cr.

    Particulars

    Particulars

    To Balance b/d

    12,200

    By Realisation (Creditors)

    11,000

    To Realisation A/c

    38,000

    By Realisation (Damages)

    3,000

    By Realisation (Expenses)

    1,000

    By Ram’s Capital A/c

    15,880

    By Mohan’s Capital A/c

    6,440

    By Ram’s Capital A/c 12,880

    50,200

    50,200

    View Answer
  • Q5

    ThefolowingistheBalanceSheetofAnu&Manu sharingprofits3:2asonDecember31,2015: MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLnhiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=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@93FA@

    Liabilities

    Assets

    Creditors

    40,000

    Cash

    14,000

    Anu’s Wife’s Loan

    10,000

    Stock

    8,000

    Manu’s Loan

    15,000

    Debtors: 18,000

    General Reserve

    5,000

    Less: Provision 1,000

    17,000

    Capital:

    Furniture

    4,000

    Anu 10,000

    Plant

    30,000

    Manu 8,000

    18,000

    Investments

    10,000

    Profit & loss

    5,000

    88,000

    88,000

    ThefirmwasdissolvedonDecember31,2015and thefollowingwasagreed: AnutookoverinvestmentsatRS8,000andagreedto payoffloanofhiswife.Theassetswererealizedas StockRS2,000;DebtorsRS20,500;FurnitureRS1,000 moreandplantRS20,000less. ExpensesofrealisationwereRS1,200andthe creditorswerepaidoffless3%discount. showledgeraccountstoclosethebooksofthe firm. MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLnhiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaacaGaaiaabeqaamaabaabaaGceaqabeaacaqGubGaaeiAaiaabwgacaaMc8UaaeOzaiaabMgacaqGYbGaaeyBaiaaykW7caqG3bGaaeyyaiaabohacaaMc8UaaeizaiaabMgacaqGZbGaae4Caiaab+gacaqGSbGaaeODaiaabwgacaqGKbGaaGPaVlaab+gacaqGUbGaaGPaVlaabseacaqGLbGaae4yaiaabwgacaqGTbGaaeOyaiaabwgacaqGYbGaaGPaVlaabodacaqGXaGaaeilaiaaykW7caaMc8UaaeOmaiaabcdacaqGXaGaaeynaiaaykW7caaMc8Uaaeyyaiaab6gacaqGKbGaaGPaVdqaaiaabshacaqGObGaaeyzaiaaykW7caqGMbGaae4BaiaabYgacaqGSbGaae4BaiaabEhacaqGPbGaaeOBaiaabEgacaaMc8Uaae4DaiaabggacaqGZbGaaGPaVlaabggacaqGNbGaaeOCaiaabwgacaqGLbGaaeizaiaabQdaaeaacaqGbbGaaeOBaiaabwhacaaMc8UaaeiDaiaab+gacaqGVbGaae4AaiaaykW7caqGVbGaaeODaiaabwgacaqGYbGaaGPaVlaabMgacaqGUbGaaeODaiaabwgacaqGZbGaaeiDaiaab2gacaqGLbGaaeOBaiaabshacaqGZbGaaGPaVlaabggacaqG0bGaaGPaVlaabkfacaqGtbGaaGPaVlaabIdacaqGSaGaaeimaiaabcdacaqGWaGaaGPaVlaabggacaqGUbGaaeizaiaaykW7caqGHbGaae4zaiaabkhacaqGLbGaaeyzaiaabsgacaaMc8UaaeiDaiaab+gaaeaacaqGWbGaaeyyaiaabMhacaaMc8Uaae4BaiaabAgacaqGMbGaaGPaVlaabYgacaqGVbGaaeyyaiaab6gacaaMc8Uaae4BaiaabAgacaaMc8UaaeiAaiaabMgacaqGZbGaaGPaVlaabEhacaqGPbGaaeOzaiaabwgacaqGUaGaaGPaVlaabsfacaqGObGaaeyzaiaaykW7caqGHbGaae4CaiaabohacaqGLbGaaeiDaiaabohacaaMc8Uaae4DaiaabwgacaqGYbGaaeyzaiaaykW7caqGYbGaaeyzaiaabggacaqGSbGaaeyAaiaabQhacaqGLbGaaeizaiaaykW7caqGHbGaae4CaaqaaiaabofacaqG0bGaae4BaiaabogacaqGRbGaaGPaVlaabkfacaqGtbGaaGPaVlaabkdacaqGSaGaaGPaVlaabcdacaqGWaGaaeimaiaabUdacaaMc8UaaeiraiaabwgacaqGIbGaaeiDaiaab+gacaqGYbGaae4CaiaaykW7caqGsbGaae4uaiaaykW7caqGYaGaaeimaiaabYcacaqG1aGaaeimaiaabcdacaqG7aGaaGPaVlaabAeacaqG1bGaaeOCaiaab6gacaqGPbGaaeiDaiaabwhacaqGYbGaaeyzaiaaykW7caqGsbGaae4uaiaaykW7caqGXaGaaeilaiaabcdacaqGWaGaaeimaaqaaiaab2gacaqGVbGaaeOCaiaabwgacaaMc8Uaaeyyaiaab6gacaqGKbGaaGPaVlaabchacaqGSbGaaeyyaiaab6gacaqG0bGaaGPaVlaabkfacaqGtbGaaGPaVlaabkdacaqGWaGaaeilaiaaykW7caqGWaGaaeimaiaabcdacaaMc8UaaeiBaiaabwgacaqGZbGaae4Caiaab6caaeaacaqGfbGaaeiEaiaabchacaqGLbGaaeOBaiaabohacaqGLbGaae4CaiaaykW7caqGVbGaaeOzaiaaykW7caqGYbGaaeyzaiaabggacaqGSbGaaeyAaiaabohacaqGHbGaaeiDaiaabMgacaqGVbGaaeOBaiaaykW7caqG3bGaaeyzaiaabkhacaqGLbGaaGPaVlaabkfacaqGtbGaaGPaVlaabgdacaqGSaGaaGPaVlaabkdacaqGWaGaaeimaiaaykW7caqGHbGaaeOBaiaabsgacaaMc8UaaeiDaiaabIgacaqGLbaabaGaae4yaiaabkhacaqGLbGaaeizaiaabMgacaqG0bGaae4BaiaabkhacaqGZbGaaGPaVlaabEhacaqGLbGaaeOCaiaabwgacaaMc8UaaeiCaiaabggacaqGPbGaaeizaiaaykW7caqGVbGaaeOzaiaabAgacaaMc8UaaeiBaiaabwgacaqGZbGaae4CaiaaykW7caqGZaGaaeyjaiaaykW7caqGKbGaaeyAaiaabohacaqGJbGaae4BaiaabwhacaqGUbGaaeiDaiaab6caaeaacaqGZbGaaeiAaiaab+gacaqG3bGaaGPaVlaabYgacaqGLbGaaeizaiaabEgacaqGLbGaaeOCaiaaykW7caqGHbGaae4yaiaabogacaqGVbGaaeyDaiaab6gacaqG0bGaae4CaiaaykW7caqG0bGaae4BaiaaykW7caqGJbGaaeiBaiaab+gacaqGZbGaaeyzaiaaykW7caqG0bGaaeiAaiaabwgacaaMc8UaaeOyaiaab+gacaqGVbGaae4AaiaabohacaaMc8Uaae4BaiaabAgacaaMc8UaaeiDaiaabIgacaqGLbaabaGaaeOzaiaabMgacaqGYbGaaeyBaiaab6caaaaa@CA3D@

    Marks:8
    Answer:

    Dr. Realisation Account Cr.

    Particulars

    Particulars

    To Stock

    8,000

    By Provision for

    To Debtors

    18,000

    Doubtful Debts

    1,000

    To Furniture

    4,000

    By creditors

    40,000

    To Plant

    30,000

    By Anu’s Wife’s Loan

    10,000

    To Investments

    10,000

    By Anu’s Capital (Investment)

    8,000

    To Anu’s Capital A/c

    By Cash:

    (Wife’s loan)

    10,000

    Stock 2,000

    To Cash A/C (Creditors)

    38,800

    Debtors 20,500

    To Cash A/C (Expenses)

    1,200

    Furniture 5,000

    Plant 10,000

    37,500

    By Loss transferred to:

    Anu’s Capital 14,100

    Manu’s Capital 9,400

    23,500

    1,20,000

    1,20,000

    Dr. Partner’s Capital A/C Cr.

    Particulars

    Anu

    Manu

    Particulars

    Anu

    Manu

    To Profit & Loss A/c

    3,000

    2,000

    By Balance b/d

    10,000

    8,000

    To Realisation A/c

    8,000

    By General

    Reserve

    3,000

    2,000

    To Realisation A/c

    14,100

    9,400

    By Realisation A/c

    10,000

    By Cash A/c

    2,100

    1,400

    25,100

    11,400

    25,100

    11,400

    Dr. Manu’s Loan A/c Cr.

    Particulars

    Particulars

    To Cash

    15,000

    By Balance b/d

    15,000

    15,000

    15,000

    Dr. Cash Account Cr.

    Particulars

    Particulars

    To Balance b/d

    14,000

    By Manu’s Loan

    15,000

    To Realisation A/c

    By Realisation on A/c

    38,800

    (Assets Realized)

    37,500

    By Realisation on A/c

    1,200

    To Anu’s capital

    2,100

    To Manu’s Capital

    1,400

    55,000

    55,000

    View Answer