{"id":9496,"date":"2018-02-12T13:20:01","date_gmt":"2018-02-12T07:50:01","guid":{"rendered":"http:\/\/mycbseguide.com\/blog\/?p=9496"},"modified":"2019-03-11T11:39:16","modified_gmt":"2019-03-11T06:09:16","slug":"dissolution-partnership-firm-class-12-notes-accountancy","status":"publish","type":"post","link":"https:\/\/mycbseguide.com\/blog\/dissolution-partnership-firm-class-12-notes-accountancy\/","title":{"rendered":"Dissolution Of a Partnership Firm Class 12 Notes Accountancy"},"content":{"rendered":"

CBSE Class 12 Dissolution Of a Partnership Firm Class 12 Notes Accountancy<\/strong> in PDF are available for free download in myCBSEguide mobile app. The best app for CBSE students now provides accounting for partnership firm\u2019s fundamentals class 12 Notes latest chapter wise notes for quick preparation of CBSE board exams and school-based annual examinations. Class 12 Accountancy notes on chapter 6 accounting for partnership firm\u2019s fundamentals are also available for download in CBSE Guide website.<\/p>\n

Class 12 Accountancy notes Chapter 6 Dissolution Of a Partnership Firm\u00a0<\/strong><\/h2>\n

Download CBSE class 12th revision notes for chapter 6 Dissolution Of a Partnership Firm\u00a0in PDF format for free. Download revision notes for Dissolution Of a Partnership Firm\u00a0class 12 Notes and score high in exams. These are the Dissolution Of a Partnership Firm\u00a0class 12 Notes prepared by team of expert teachers. The revision notes help you revise the whole chapter 6 in minutes. Revision notes in exam days is one of the best tips recommended by teachers during exam days.<\/p>\n

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Dissolution Of a Partnership Firm Class 12 Notes Accountancy<\/h2>\n

Dissolution of a firm: <\/strong>As per Indian Partnership Act, 1932: \u201cDissolution firm means termination of partnership among all the partners of the firm\u201d <\/strong><\/p>\n

When a firm is dissolved, the business of the firm terminates. All the assets the firm are disposed off and all outsiders\u2019 liabilities and partners\u2019 loan and partner capital are paid.<\/p>\n

Dissolution of Partnership: Dissolution of Partnership refers to terminal of old partnership agreement (i.e., Partnership Deep) and a reconstruction the firm.<\/strong><\/p>\n

It may take place on<\/p>\n

\u00b7<\/strong> Change in profit sharing ratio among the existing partner:<\/p>\n

\u00b7<\/strong> Admission of a partner; and<\/p>\n

\u00b7<\/strong> Retirement of Death of partner.<\/p>\n

It may or may not result into closing down of the business as the remount partners may decide to carry on the business under a new agreement.<\/p>\n

Types of dissolution of firms: <\/strong>A Partnership firm can be dissolved in any the following ways:<\/p>\n

(A)Without the intervention of the court:<\/strong><\/p>\n

(1)<\/strong> When all partners agree to dissolve the firm (Sec. 40);<\/p>\n

(2)<\/strong> Compulsory Dissolution (Sec. 41)<\/p>\n

(i)<\/strong> When all or except but one partner of the firm become insolvent<\/p>\n

(ii)<\/strong> When business of the firm become unlawful.<\/p>\n

(3)<\/strong> On the happening of any of the following events: (Sec. 42)<\/p>\n

(i)<\/strong> On the insolvency of a partner.<\/p>\n

(ii)<\/strong> On the fulfillment of the objective of the firm for which the for was formed.<\/p>\n

(iii)<\/strong> On the expiry of the (period) for which the firm was formed.<\/p>\n

(4)<\/strong> By Notice (Sec. 43): <\/strong>When the duration of the partnership firm is a fixed and it is at will of the partners. Any partner by giving notice other partners can dissolve the firm.<\/p>\n

(B) Dissolution by order of the court (Sec. 44): <\/strong>A court on application by a partner may order the dissolution of the firm under the following circumstances:<\/p>\n

(1)<\/strong> When a partner has become of unsound mind.<\/p>\n

(2)<\/strong> When a partner has become permanently incapable of performing his duties as a partner.<\/p>\n

(3)<\/strong> When a partner is found quality of misconduct that may harm the partnership.<\/p>\n

(4)<\/strong> When a partner consistently and deliberately commits breach of partnership agreement.<\/p>\n

(5)<\/strong> When a partner transfer whole of is interest in the business firm to a third party, without the consent of existing partners.<\/p>\n

(6)<\/strong> When the court is satisfied that the partnership firm cannot be carried on except at a loss.<\/p>\n

(7)<\/strong> When the court finds that the dissolution of firm is justified and equitable.<\/p>\n

ACCOUNTING TREATMENT OF DISSOLUTION<\/strong><\/p>\n

On dissolution of a firm, the following accounts are opened to close the books of the firm.<\/p>\n

\u00b7 Realisation Account;<\/p>\n

\u00b7 Partner\u2019s Loan Account;<\/p>\n

\u00b7 Partner\u2019s Capital Accounts; and<\/p>\n

\u00b7 Cash or Bank Account.<\/p>\n

Realisation Account: <\/strong>It is nominal account opened on the dissolution of a firm to ascertain the profit or loss on realization of assets and payment of outsiders liabilities. <\/strong>This account is closed by transferring the balance (i.e., profit or loss on realization) to partner\u2019s capital accounts.<\/p>\n

PREPARATION OF REALISATION ACCOUNT<\/strong><\/p>\n

The following Journal Entries are passed :<\/p>\n

A. For Closing Assets Accounts:<\/strong><\/p>\n

Realisation A\/cDr.<\/p>\n

To sundry Assets A\/c<\/p>\n

(Being assets transferred to Realisation A\/c)<\/p>\n

Note : <\/strong><\/p>\n

1.<\/strong> Cash and Bank balance are not transferred to Realisation Account.<\/p>\n

2.<\/strong> Assets (tangible and intangible) are transferred to Realisation Account to their Gross Value<\/p>\n

3.<\/strong> Fictitious Asset such as Debit balance of Profit and Loss Account of Advertisement Suspense\u2019s Account etc. are not transferred to Realisation Account. These are directly debited to partners\u2019 capital accounts in their profit sharing ratio by passing the following entry.<\/p>\n

Partner\u2019s capital A\/cDr.<\/strong><\/p>\n

To Profit and Loss A\/c<\/strong><\/p>\n

To Advertisement Suspense A\/c<\/strong><\/p>\n

(Being Balance of losses transferred to capital accounts)<\/p>\n

4.<\/strong> Provision <\/strong>against assets such as Provision for Depreciation of Provision for Bad & Doubtful debts etc. are transferred to Realisation Account by passing a Separate entry:<\/p>\n

Provision\u2019s for Bad Debts A\/cDr.<\/p>\n

Provision\u2019s for Depreciation A\/cDr.<\/p>\n

Investment Fluctuation Fund A\/cDr.<\/p>\n

Machinery Replacement Reserve A\/cDr.<\/p>\n

To Realisation A\/c<\/p>\n

(Being Provision & Reserves Against Assets transferred to Realisation Account)<\/p>\n

B. For Closing Liabilities Accounts:<\/strong><\/p>\n

Sundry Liabilities A\/cDr.<\/p>\n

To Realisation A\/c<\/p>\n

(Being sundry liabilities transferred to Realisation A\/c)<\/p>\n

Note :<\/strong><\/p>\n

1.<\/strong> Only third parties liabilities\/outsiders \u2018liabilities are transferred to Realisation A\/c<\/p>\n

2.<\/strong> Balance of Partner\u2019s Loan Accounts are not transferred to Realisation Account Separate accounts are opened to settle such liabilities.<\/p>\n

3.<\/strong> Undistributed profits and reserves are also not transferred to Realisation A\/c. These are directly credited to partners\u2019 capital accounts in their profit sharing ratio by passing the following entry.<\/p>\n

Profit and Loss A\/cDr.<\/strong><\/p>\n

General Reserves A\/cDr.<\/strong><\/p>\n

Reserve fund A\/cDr.<\/strong><\/p>\n

Contingency Reserve A\/cDr.<\/strong><\/p>\n

To Partner\u2019s Capital A\/cs<\/strong><\/p>\n

(Being balance of undistributed profits transferred to capital accounts)<\/p>\n

4.<\/strong> Provident Fund <\/strong>is a liability on the firm towards employees and hence it is transferred to Realisation A\/c.<\/p>\n

*5.<\/strong> If any liability is expected to arise against any found or reserve e.g., Workmen\u2019s Compensation Fund, then an amount equal to such liability is transferred to Realisation A\/c balance, if any, distributed among the partners in their profit-sharing ratio by passing the following entry.<\/p>\n

Workmen\u2019s Compensation Fund A\/CDr.<\/strong><\/p>\n

To Realisation A\/c(Liability)<\/strong><\/p>\n

To Partners\u2019 Capital A\/cs(Balance, if any)<\/strong><\/p>\n

(Being liability against workmen\u2019s compensation fund transferred to Realisation A\/c and balance Distributed among partners.<\/p>\n

C. For Realisation of Assets (Whether recorded or unrecorded)<\/strong><\/p>\n

a.<\/strong> When assets are sold for cash<\/p>\n

Cash\/Bank A\/cDr.<\/p>\n

To Realisation A\/c<\/p>\n

(Being assets sold for cash)<\/p>\n

b.<\/strong> When assets are taken over by any partner.<\/p>\n

Partner\u2019s Capital A\/cDr.<\/p>\n

To Realisation A\/c<\/p>\n

(Being assets taken over by any partner)<\/p>\n

c.<\/strong> When assets are taken over by any creditor in part of full payment his dues :<\/p>\n

I. In case of Full Settlement:<\/strong><\/p>\n

i.<\/strong> NO ENTRY is passed for the transfer of assets to the creditor.<\/p>\n

ii.<\/strong> NO ENTRY is passed for the payment to creditor.<\/p>\n

II. In case of Part Settlement:<\/strong><\/p>\n

i.<\/strong> NO ENTRY is passed for the transfer of assets to the creditor.<\/p>\n

ii.<\/strong> The agreed amount of asset is deducted from the claims of it creditors and the balance is paid to him.<\/p>\n

Note :<\/strong><\/p>\n

1.<\/strong> The realized value of each asset must be given at the time of dissolution.<\/p>\n

D. For Payment of Liabilities<\/strong><\/p>\n

a.<\/strong> When liabilities are paid in cash<\/p>\n

Realisation A\/cDr.<\/p>\n

To Cash\/Bank A\/c<\/p>\n

(Being liabilities paid in cash)<\/p>\n

b.<\/strong> When liabilities are taken over by any partner<\/p>\n

Realisation A\/cDr.<\/p>\n

To Partner\u2019s Capital A\/c<\/p>\n

(Being liabilities taken over by a partner)<\/p>\n

Note : If nothing is stated regarding the settlement of any outside liability, then it should be assumen that the amount equal to book value is paid.<\/strong><\/p>\n

E. For Realisation Expenses<\/strong><\/p>\n

a.<\/strong> When expenses are paid by firm and borne by firm:<\/p>\n

Realisation A\/cDr.<\/p>\n

To Cash\/Bank A\/c<\/p>\n

(Being realization expenses paid in cash).<\/p>\n

b.<\/strong> When expenses are paid by any partner and borne by firm :<\/p>\n

Realisation A\/cDr.<\/p>\n

To Partner\u2019s Capital A\/c<\/p>\n

(Being realization expenses paid by a partner).<\/p>\n

c.<\/strong> When expenses are paid by firm (on behalf of any partner) and born by an partner.<\/p>\n

Partner\u2019s Capital A\/cDr.<\/p>\n

To Cash\/Bank A\/c<\/p>\n

(Being realization expenses paid on behalf of partner).<\/p>\n

e.<\/strong> When a partner is paid a fixed amount for bearing realization expenses then: Actual expenses are not be considered;<\/p>\n

ii.<\/strong> Realization A\/cDr. (With Fixed Amount)<\/p>\n

To Partner\u2019s Capital A\/c<\/p>\n

(Being realization expenses paid by a partner)<\/p>\n

f.<\/strong> When expenses are paid by one partner and borne by another partner;<\/p>\n

Partner\u2019s Capital A\/cDr. (Who borne the expenses)<\/p>\n

To Partner\u2019s Capital A\/c (Who pays the expenses)<\/p>\n

(Being realization expenses paid by one partner and borne by another partner).<\/p>\n

In case the realization expenses are borne by a partner, clear indication should be given regarding the payment there of.<\/p>\n

F. For Closing Realisation Account<\/strong><\/p>\n

a.<\/strong> When Realization A\/c Discloses profit (in case total of credit side is more than the total of debit side)<\/p>\n

Realisation A\/cDr.<\/p>\n

To Partner\u2019s Capital A\/cs<\/p>\n

(Being profit on realization transferred to partners\u2019 capital A\/cs)<\/p>\n

b.<\/strong> When Realisation A\/c discloses loss (in case total of debit side is more than the total of credit side)<\/p>\n

Partners\u2019 Capital A\/cDr.<\/p>\n

To Realisation A\/c<\/p>\n

(Being loss on realization transferred to partners capital A\/cs)<\/p>\n

FORMAT OF REALISATION ACCOUNT<\/strong><\/p>\n

Realization A ccount<\/strong><\/p>\n\n\n\n\n
Particulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\nParticulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\n<\/tr>\n
To sundry Assets A\/c<\/strong><\/p>\n

(Excluding cash or bank balance. Fictitious assets. Dr. balance of P & Lac, Dr. balance of partner\u2019s Capital\/current A\/cs, Loans to partners)<\/p>\n

To Cash\/Bank A\/c<\/strong><\/p>\n

(Amount paid for discharging Liabilities-recorded and unrecorded)<\/p>\n

To Cash Bank A\/c<\/strong><\/p>\n

(Expenses on Realisation)<\/p>\n

To Partner\u2019s Capital A\/cs<\/strong><\/p>\n

(Liabilities taken over by a Partner commission payable to him or any expenses payable to him)<\/p>\n

To Partner\u2019 Capital A\/cs<\/strong><\/p>\n

(For transferring profit on Realisation)<\/td>\n

<\/td>\nBy Sundry Liabilities A\/c<\/strong><\/p>\n

(Excluding Cr. Balance of P & L A\/c, Reserves, Partners\u2019 Capital\/Current A\/cs, Loan from partner and Bank Overdraft)<\/p>\n

By provision on any Assets A\/c<\/strong><\/p>\n

(Such as provision for Depreciation, Provision for Doubtful Debts, Joint Life Policy Reserve etc.)<\/p>\n

By Cash\/Bank A\/c<\/strong><\/p>\n

(<\/strong>Amount received on realization of assets-recorded and unrecorded)<\/p>\n

By Partners\u2019 Capital A\/c<\/strong><\/p>\n

(Assets taken over by a partner recorded or unrecorded)<\/p>\n

By partners\u2019 Capital A\/cs<\/strong><\/p>\n

(For transferring loss on Realisation)<\/td>\n

<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

PREPARATION OF PARTNERS\u2019 LOAN ACCOUNT<\/strong><\/p>\n

If a partner has given any loan to firm, his loan will be paid<\/p>\n

\u00b7 After payment of all the outside liabilities : but<\/p>\n

\u00b7 Before making any payment to partners on account of capital<\/p>\n

Partner\u2019s Loan A\/cDr.<\/strong><\/p>\n

To Cash\/Bank A\/c<\/strong><\/p>\n

(Being loan of a partner paid)<\/p>\n

Partner\u2019s Loan A\/c<\/strong><\/p>\n\n\n\n\n
Particulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\nParticulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\n<\/tr>\n
To Cash\/Bank A\/c<\/td>\n<\/td>\nBy Balance b\/d<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

If the firm has given a loan to any partner then such loan account will show a debti balance and will appear on the asset side of Balance Sheet of the firm. Such loan accounts are settled through partner\u2019s capital account by passing the following entry:<\/strong><\/p>\n

Partner\u2019s Capital A\/c Dr.<\/strong><\/p>\n

To Partner\u2019s Loan A\/c<\/strong><\/p>\n

(Being loan to partner transferred to his Capital A\/c)<\/p>\n

Preparation of partner capital Accounts <\/strong><\/p>\n

After the Transfer of <\/strong><\/p>\n

\u00b7 Undistributed profits and reserves<\/p>\n

\u00b7 Profit on Realisation<\/p>\n

\u00b7 Any liability taken over by any partner<\/p>\n

And<\/strong><\/p>\n

\u00b7 Undistributed losses and fictitious assets<\/p>\n

\u00b7 Loss on realization<\/p>\n

\u00b7 Any assets taken over by any partner<\/p>\n

The balance of partners\u2019 capital A\/cs are closed in the following manner<\/p>\n

a.<\/strong> For making final payment to a partner (if total of credit side is more than the total of debit side)<\/p>\n

Partner\u2019s Capital A\/c Dr.<\/strong><\/p>\n

To Cash\/Bank A\/c<\/strong><\/p>\n

(Being excess paid to partner in cash)<\/strong><\/p>\n

b.<\/strong> For any amount received form a partner against debit balance in his capital account.<\/p>\n

Cash\/Bank A\/c Dr.<\/strong><\/p>\n

To Partner\u2019s Capital<\/strong><\/p>\n

(Being cash brought in by any partner)<\/p>\n

Partner\u2019s Capital A\/c<\/strong><\/p>\n\n\n\n\n
Particulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\nParticulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\n<\/tr>\n
\n

To Balance A\/c<\/strong><\/p>\n

(Dr. Balance)<\/p>\n

To Profit and Loss A\/c<\/strong><\/p>\n

To Advertisement Suspense A\/c<\/strong><\/p>\n

To Realisation A\/c<\/strong><\/p>\n

(Assets taken)<\/p>\n

To Realisation A\/c<\/strong><\/p>\n

(Loss on Realisation )<\/p>\n

To Cash\/Bank A\/c<\/strong><\/p>\n

(Excess cash paid)<\/p>\n<\/td>\n

<\/td>\n\n

By balance bid<\/strong><\/p>\n

(Cr. Balance)<\/p>\n

By General Reserve A\/c<\/p>\n

By Profit and Loss A\/c<\/p>\n

By workmen\u2019s<\/p>\n

Compensation Fund<\/p>\n

By Realisation A\/c<\/p>\n

(Liabilities taken)<\/p>\n

By Realisation A\/c<\/strong><\/p>\n

(Profit on Realisation)<\/p>\n

By Cash\/Bank A\/c Cash brought in<\/p>\n<\/td>\n

<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Preparation of Cash or Bank Account<\/strong><\/p>\n

This account is prepared at the end closed last of all. This account helps to verification of the arithmetically accuracy of accounts as both sides of this account must be equal.<\/p>\n

Note: <\/strong>If cash and bank balance both are given in the Balance Sheet, one A\/c to prepared, either a Cash A\/c or a Bank A\/c If Cash A\/c is opened, an entry of with drawing the bank balance is made:<\/p>\n

Cash A\/c Dr.<\/strong><\/p>\n

To Bank A\/c<\/strong><\/p>\n

(Being cash withdrawn from Bank)<\/p>\n

If Bank A\/c is opened, an entry for depositing the cash into bank is passed.<\/p>\n

Bank A\/c Dr.<\/strong><\/p>\n

To Cash A\/c<\/strong><\/p>\n

(Being cash deposited into Bank)<\/p>\n

Cash\/Bank A\/c<\/strong><\/p>\n\n\n\n\n
Particulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\nParticulars<\/strong><\/td>\n(Rs.)<\/strong><\/td>\n<\/tr>\n
To Balance A\/c<\/p>\n

(Cash in Hand or Cash at Bank)<\/p>\n

To Realisation A\/c<\/p>\n

(Assets Realisation)<\/p>\n

To Partner\u2019 Capital A\/cs<\/p>\n

(Cash brought in by partner)<\/td>\n

<\/td>\nBy balance bid<\/p>\n

(Bank overdraft)<\/p>\n

By Realisation A\/c<\/p>\n

(Liabilities Paid)<\/p>\n

By Realisation A\/c<\/p>\n

(Realisation Expenses Paid)<\/p>\n

By Partner\u2019s Loan A\/c<\/p>\n

(Partner\u2019s Loan Paid)<\/p>\n

By Partner\u2019s Capital A\/cs<\/p>\n

(Excess cash paid to partner)<\/td>\n

<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Distinction between Revaluation Account Realisation Account<\/strong><\/p>\n\n\n\n\n\n\n\n\n
Basic of Difference<\/strong><\/td>\nRevaluation Account<\/strong><\/td>\nRealisation Account<\/strong><\/td>\n<\/tr>\n
Purpose<\/strong><\/td>\nIt is prepared to show assets and liabilities in the books at their revised values<\/td>\nIt is prepared to ascertain profit or loss on sale of assets and repayment of liabilities<\/td>\n<\/tr>\n
When to be prepared<\/strong><\/td>\nIt is prepared at the time of change in profit sharing ratio among the existing partner, admission, retirement and death of a partner<\/td>\nIt is prepared at the time of dissolution of a firm<\/td>\n<\/tr>\n
Preparation of Account<\/strong><\/td>\nThis account may be prepared at a number of times during the life of a firm<\/td>\nThis account is prepared once during the life of a firm<\/td>\n<\/tr>\n
Content <\/strong><\/td>\nThis account records only those assets and liabilities whose book values have been changed<\/td>\nThis account records all assets (except cash, fic-tious assets etc.) and all outside liabilities<\/td>\n<\/tr>\n
Result <\/strong><\/td>\nA Firm continues its business even after the preparation of revaluation account.<\/td>\nA firm comes to an end after preparation of realization account<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

PREPARATION OF MEMORANDUM BALANCE SHEET<\/strong><\/p>\n

If a balance sheet on the date of dissolution is not given in the question, there is always advisable to prepare Memorandum Balance Sheet on the date of dissolution to ascertain the amount of balancing figure.<\/p>\n

Note<\/strong><\/p>\n

\u00b7 In the absence of any other information \u201cSundry Assets\u201d should be treatment as balancing figure on the assets side of Balance Sheet.<\/strong><\/p>\n

\u00b7 If the balance of Partners\u2019 Capital A\/cs are not given as on the date on dissolution, first we will find the balance of partners\u2019 capital accounts as on the date of dissolution by recasting the capital accounts.<\/strong><\/p>\n

\u00b7 When \u201cSundry Assets\u201d are given in the question and nothing is specified about the difference on the asset side of Balance Sheet, the different should be treated as Dr. balance of Profit and Loss A\/c.<\/strong><\/p>\n

Some common mistakes committed by students<\/p>\n

\u00b7 Entries for assets or liabilities taken by partners<\/p>\n

\u00b7 Dissolution Expenses<\/p>\n

\u00b7 Realisation of unrecorded assets<\/p>\n

\u00b7 Payment of Unrecorded Liabilities<\/p>\n

\u00b7 Treatment of Fictitious Assets<\/p>\n

Due care should be taken while showing the effect of above mentioned items.\u00a0 \u00a0 \u00a0\u00a0<\/strong><\/p>\n

CBSE Class 12 Revision Notes and Key Points<\/strong><\/h2>\n

Dissolution Of a Partnership Firm class 12 Notes Accountancy. CBSE quick revision note for class-12 Chemistry Physics Math\u2019s, and other subject are very helpful to revise the whole syllabus during exam days. The revision notes covers all important formulas and concepts given in the chapter. Even if you wish to have an overview of a chapter, quick revision notes are here to do if for you. These notes will certainly save your time during stressful exam days.<\/p>\n