NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5
Accounting is a highly specialised subject that encompasses more than mere numbers. It examines the daily inflow and outflow of funds in a firm, keeping an eye on the balance and averting any future problems related to business finances. The chapter Dissolution of Partnership Firm discusses how a firm’s existence ends, and no activity is conducted after it is dissolved. It broadly covers all actions linked to terminating the firm’s affairs, which are to be wound up by selling its assets, paying its obligations, and discharging the partners’ claims.
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Key Topics Covered In NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5
The table below consists of major topics that are covered in our NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5 – Dissolution of Partnership Firm:
| Dissolution of Partnership Firm |
| Dissolution of Partnership |
| What are the differences between Dissolution of Partnership and Dissolution of Firm? |
| Settlement of Accounts |
| Accounting Treatment |
In this article, we have covered a summary section for each of these above topics. Students should refer to our NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5 to get in-depth answers of the NCERT textbook questions
Dissolution of Partnership Firm
The distinction between breaking the association between all of the partners of an enterprise and between a few partners is known as the dissolution of a partnership firm. The breaking or adjournment of the association between the partners is known as the dissolution of the partnership firm. This ends an enterprise’s existence, and no commercial activity takes place once it is dissolved.
If the existing partnership dissolves, the business may continue under the same name if the partners agree. To put it another way, it results in the breakup of a partnership but not of the business. The dissolution of a partnership amongst all the partners of a company is known as the dissolution of the firm, as per Section 39 of the Partnership Act of 1932.
The brief meaning of Dissolution of Partnership Firm is discussed above. To understand it better, register today with the Extramarks website to access NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5, along with several other study tools.
Dissolution of Partnership
A partnership is a type of business in which two or more persons sign a legal agreement to be co-owners, allocate duties for operating an organisation, and share the profits and losses generated by the enterprise.
The Indian Partnership Act 1932 governs all elements and functions of partnerships in India. According to this legislation, a partnership is an association of two or more persons or parties who have agreed to share the profits created by the business under the supervision of all members or on behalf of other members.
However, according to the Partnership Act of 1932, this partnership can only be dissolved if certain stated conditions are met, such as:
- Conditional Dissolution.
- Dissolution by the Court.
- Dissolution by Agreement.
- Compulsory Dissolution.
- Dissolution by Notice.
There are many small nuances to be considered while dissolving a partnership. The above conditions are discussed at a greater length in our NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5 Dissolution of Partnership.
When one of the partners involved with the firm ceases to be a part of the business in the future, the partnership is said to dissolve. It’s not the same as ending a business partnership. Dissolution can be defined as the process that leads to the dissolution of a relationship. The remaining partners continue the partnership after it dissolves, but it is an entirely new and separate partnership.
Reasons for Dissolution of Partnership
There are various grounds for a partnership’s dissolution as per Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5, which are listed below:
- A partner has deceased.
- A new partner has been admitted.
- Existing partner’s bankruptcy.
- A partner takes early retirement.
- Due to the end of a partnership period agreed upon by all partners after a set time.
How is a Partnership Dissolved?
A partnership usually ends or dissolves when one of the partners stops engaging in the business. Dissolution can occur in a variety of ways, some of which are discussed below
- By an Act of a Partner: When one of the partners agrees to end the partnership at a specific time. It is occasionally suggested that the partner may be suspended under certain circumstances. For example, If one of the partners breaches a rule, the partnership may be dissolved.
- By operation of Law: A partnership is formed through a legally binding agreement. As a result, any impediment to the contract or illegal commercial operations might cancel the partnership arrangement. For example, you cannot form a formal partnership to sell illicit goods.
- By court’s decree: A partner can seek the dissolution of the partnership, and the law will allow it only in the following circumstances: a partner’s inability to work; a partner’s breach of the agreement; a partner’s mental instability; and a partner’s misbehaviour that influences the partnership.
- Statement of Dissolution: This is accomplished by submitting the statement to the secretary of state. The form is available on the Secretary of State’s website. The partnership name, date, and cause for dissolution, all must be included in the form.
- Personal notification: It can also be done by giving personal notification to the partnership’s creditors. Apart from that , one has to notify everybody who is connected to the collaboration by placing a notice in the media.
What are the differences between Dissolution of Partnership and Dissolution of Firm?
Here are a few distinctions between a partnership dissolution and a firm dissolution that are covered in Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5.
|
Dissolution of Partnership |
Dissolution of Firm |
| Definition |
Dissolution of a partnership refers to ending a business partnership between a partner and the other partners. |
The dissolution of a business happens when all of an organisation’s current partnerships are dissolved. |
| Continuation of Business |
When a partnership dissolves, business continues as usual, but the partnership is reformed. |
When a company dissolves, the business ceases. |
| Intervention of Court |
No court involvement is required. |
Court intervention can be taken to dissolve businesses. |
| Closure of Book of Accounts |
Not necessary. |
Must be closed for the Firm |
| After winding up the entity |
Following the dissolution of an existing partnership, the assets and liabilities are revalued. |
When a company is wound up, its assets and obligations are resolved. |
| Scope |
It does not cause the company to dissolve |
The firm’s partners dissolve the partnership. |
Settlement of Accounts
In Balance of Payments (BOP) accounting, a settlement account is used to maintain track of central banks’ reserve asset exchanges with one another. The official settlement account tracks foreign exchange reserves, bank deposits, special drawing rights (SDRs), and gold transactions.
It does so by selling away all of its assets in order to pay off all of the claims against it. It should be emphasised that, unless the partners agree otherwise, the following regulations from Section 48 of the Partnership Act 1932 will apply:
1.Treatment of Losses: Losses resulting from a lack of capital will be paid out of profits first.
- Next out of the capital of partners.
- Finally, if necessary, by the partners individually from their profit-sharing ratio (PSR).
2. Application of Assets: The assets of the business, including any money donated by the partners to cover a capital shortfall, shall be utilised in the following order:
- In the payment of the company’s debts to third parties.
- In paying each partner proportionately what is owed to him or her from the business for advances as opposed to capital (i.e. partner’s loan).
- In paying each partner proportionally what he owes on a capital account.
- Any remaining funds will be distributed to the partners according to their profit sharing ratio (PSR).
The amount received from assets, along with contributions from partners, should be used to pay the enterprise’s outside liabilities, such as loans, bank overdrafts, creditors, bill payables, and so on (it should be noted that secured loans take precedence over unsecured loans); the balance should be used to repay advances and loans made by the partners to the enterprise.
The Settlement of Accounts is a bit advanced topic and can be difficult for few students to understand. We advise students to go through our NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5 for comprehensive answers that cover all the crucial concepts of this topic.
Accounting Treatment
An asset that has been fully depreciated and is still being used in the business will be reported on the balance sheet (B/S) at cost plus accumulated depreciation. There will be no depreciation charge after the asset has been entirely depreciated. No entry is required until the item is sold, salvaged, retired, or otherwise disposed of.
When the Firm is dissolved, the following things take place as covered in our NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5:
- Its books of account must be closed, and the profit or loss (P/L) resulting from the realisation of assets and discharge of obligations must be determined.
- A Realisation account is created for this purpose to assess the net effect (profit/loss) of realising assets and paying liabilities that may be moved to the partner’s capital account in their profit sharing ratio (PSR).
- As a result, all assets and external obligations are moved to this account.
- It keeps track of asset sales, liability payments, and realisation expenses.
- Profit/loss on realisation is the amount in this account, distributed to partners’ capital accounts in their profit sharing ratio (PSR).
NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5 – Exercise and Solutions
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Click on the below links to view question and answer covered in NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5:
Class 12 Accounting Chapter 5: Very Short Answer Type Questions
Class 12 Accounting Chapter 5: Short Answer Type Questions
Class 12 Accounting Chapter 5: Long Answer Type Questions
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Key Features of NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 5
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