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  • 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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