Page 1
ACCOUNTANCY – XII
Distinction between Dissolution of Partnership and Dissolution of Firm
Basis Dissolution of Partnership Dissolution of Firm
1. Termination of The business is not terminated. The business of the firm is
business
2. Settlement of Assets and liabilities are Assets are sold and
assets and revalued and new balance liabilities are paid-off.
liabilities sheet is drawn.
3. Court’s Court does not intervene A firm can be dissolved by
intervention because partnership is the court’s order.
dissolved by mutual
agreement.
4. Economic Economic relationship Economic relationship
relationship between the partners between the partners
continues though in comes to an end.
a changed form.
5. Closure of books Does not require because The books of account are
the business is not closed.
terminated.
6. Other dissolution It may or may not involve It necessarily involves
dissolution of the firm.
dissolution of partnership.
Accounts to be prepared at the time of dissolution
? Realisation a/c
? Partners capital a/c
? Cash a/c or bank a/c
? Partners loan a/c
Step for dissolution (BAPP)
1. balance sheet khali karu (clear the balance sheet- X me )
2. assets and liabilities to be sold off (bank or by PCA- X me )
3. Profit and loss for realisation( transferred to PCA - X me)
4. Partners capital is paid off ( transferred to bank a/c - X me)
FORMAT OF REALISATION A/C
? NOMINAL A/C (SO FOLLOW THE RULE OF NOMINAL A/C)
Format of partner’s capital a/c
Particulars A B Particulars A B
To balance b/d (dr. balance –assets) Xxx Xxx By balance b/d (cr. Side – liabilities ) Xxx Xxx
Page 2
ACCOUNTANCY – XII
Distinction between Dissolution of Partnership and Dissolution of Firm
Basis Dissolution of Partnership Dissolution of Firm
1. Termination of The business is not terminated. The business of the firm is
business
2. Settlement of Assets and liabilities are Assets are sold and
assets and revalued and new balance liabilities are paid-off.
liabilities sheet is drawn.
3. Court’s Court does not intervene A firm can be dissolved by
intervention because partnership is the court’s order.
dissolved by mutual
agreement.
4. Economic Economic relationship Economic relationship
relationship between the partners between the partners
continues though in comes to an end.
a changed form.
5. Closure of books Does not require because The books of account are
the business is not closed.
terminated.
6. Other dissolution It may or may not involve It necessarily involves
dissolution of the firm.
dissolution of partnership.
Accounts to be prepared at the time of dissolution
? Realisation a/c
? Partners capital a/c
? Cash a/c or bank a/c
? Partners loan a/c
Step for dissolution (BAPP)
1. balance sheet khali karu (clear the balance sheet- X me )
2. assets and liabilities to be sold off (bank or by PCA- X me )
3. Profit and loss for realisation( transferred to PCA - X me)
4. Partners capital is paid off ( transferred to bank a/c - X me)
FORMAT OF REALISATION A/C
? NOMINAL A/C (SO FOLLOW THE RULE OF NOMINAL A/C)
Format of partner’s capital a/c
Particulars A B Particulars A B
To balance b/d (dr. balance –assets) Xxx Xxx By balance b/d (cr. Side – liabilities ) Xxx Xxx
ACCOUNTANCY – XII
To realisation (assets are taken by
partner)
Xxx Xxx By realisation (liabilities are taken by
partner)
Xxx Xxx
To P & L / losses (old ratio - assets) Xxx Xxx By reserves (old ratio- liabilities) Xxx Xxx
To realisation losses (old ratio –
realisation a/c)
Xxx Xxx By realisation profits (old ratio –
realisation a/c)
Xxx Xxx
TOTAL TOTAL
Format of bank a/c
Particulars Rs. Particulars Rs.
To balance b/d(FROM BALANCE SHEET) XXX By balance b/d( for bank overdraft) XXX
To realisation (assets realised)
Recorded or not recorded
XXX By realisation ( liabilities paid off)
Recorded or not recorded
XXX
To partners capital a/c
(PARTNERS PAYS BACK TO THE FIRM)
XXX By partners capital a/c
(PARTNER IS PAID OFF)
XXX
By partners loan a/c XXX
TOTAL TOTAL
Format of Partners loan a/c
Particulars Rs. Particulars Rs.
TO BANK A/C (loan paid off ) XXX By balance b/d( from balance
sheet)
XXX
TOTAL TOTAL
Journal entries
Transactions Entry
Step 1 balance sheet khali karu (clear the balance sheet- X me )
For transfer of assets
? All asset accounts excluding cash, bank and the fictitious assets, if any are closed by
transfer to the debit of Realisation Account at their book values
? sundry debtors are transferred at gross value and the provision for doubtful debts is
transferred to the credit side of Realisation Account along with liabilities
The same thing will apply to fixed assets if provision for depreciation
account is maintained
Realisation A/c
To Assets A/c
For transfer of liabilities
? All external liability accounts including provisions, if any, are closed by transferring
them to the credit of Realisation account.
Liabilities
To Realisation A/c
Step 2 assets and liabilities to be sold off (bank or by PCA- X me )
For sale of assets
Bank a/c
To Realisation a/c
For an asset taken over by a partner Partner’s Capital A/c
To Realisation A/c
For payment of liabilities Realisation A/c
To Bank A/c
For a liability which a partner takes responsibility to discharge Realisation A/c
To Partner’s Capital
A/c
For unrecorded sale of assets Bank a/c
To Realisation a/c
For an unrecorded asset taken over by a partner Partner’s Capital A/c
To Realisation A/c
For any unrecorded payment of liabilities Realisation A/c
To Bank A/c
For any unrecorded liability which a partner takes responsibility to discharge Realisation A/c
To Partner’s Capital
A/c
Page 3
ACCOUNTANCY – XII
Distinction between Dissolution of Partnership and Dissolution of Firm
Basis Dissolution of Partnership Dissolution of Firm
1. Termination of The business is not terminated. The business of the firm is
business
2. Settlement of Assets and liabilities are Assets are sold and
assets and revalued and new balance liabilities are paid-off.
liabilities sheet is drawn.
3. Court’s Court does not intervene A firm can be dissolved by
intervention because partnership is the court’s order.
dissolved by mutual
agreement.
4. Economic Economic relationship Economic relationship
relationship between the partners between the partners
continues though in comes to an end.
a changed form.
5. Closure of books Does not require because The books of account are
the business is not closed.
terminated.
6. Other dissolution It may or may not involve It necessarily involves
dissolution of the firm.
dissolution of partnership.
Accounts to be prepared at the time of dissolution
? Realisation a/c
? Partners capital a/c
? Cash a/c or bank a/c
? Partners loan a/c
Step for dissolution (BAPP)
1. balance sheet khali karu (clear the balance sheet- X me )
2. assets and liabilities to be sold off (bank or by PCA- X me )
3. Profit and loss for realisation( transferred to PCA - X me)
4. Partners capital is paid off ( transferred to bank a/c - X me)
FORMAT OF REALISATION A/C
? NOMINAL A/C (SO FOLLOW THE RULE OF NOMINAL A/C)
Format of partner’s capital a/c
Particulars A B Particulars A B
To balance b/d (dr. balance –assets) Xxx Xxx By balance b/d (cr. Side – liabilities ) Xxx Xxx
ACCOUNTANCY – XII
To realisation (assets are taken by
partner)
Xxx Xxx By realisation (liabilities are taken by
partner)
Xxx Xxx
To P & L / losses (old ratio - assets) Xxx Xxx By reserves (old ratio- liabilities) Xxx Xxx
To realisation losses (old ratio –
realisation a/c)
Xxx Xxx By realisation profits (old ratio –
realisation a/c)
Xxx Xxx
TOTAL TOTAL
Format of bank a/c
Particulars Rs. Particulars Rs.
To balance b/d(FROM BALANCE SHEET) XXX By balance b/d( for bank overdraft) XXX
To realisation (assets realised)
Recorded or not recorded
XXX By realisation ( liabilities paid off)
Recorded or not recorded
XXX
To partners capital a/c
(PARTNERS PAYS BACK TO THE FIRM)
XXX By partners capital a/c
(PARTNER IS PAID OFF)
XXX
By partners loan a/c XXX
TOTAL TOTAL
Format of Partners loan a/c
Particulars Rs. Particulars Rs.
TO BANK A/C (loan paid off ) XXX By balance b/d( from balance
sheet)
XXX
TOTAL TOTAL
Journal entries
Transactions Entry
Step 1 balance sheet khali karu (clear the balance sheet- X me )
For transfer of assets
? All asset accounts excluding cash, bank and the fictitious assets, if any are closed by
transfer to the debit of Realisation Account at their book values
? sundry debtors are transferred at gross value and the provision for doubtful debts is
transferred to the credit side of Realisation Account along with liabilities
The same thing will apply to fixed assets if provision for depreciation
account is maintained
Realisation A/c
To Assets A/c
For transfer of liabilities
? All external liability accounts including provisions, if any, are closed by transferring
them to the credit of Realisation account.
Liabilities
To Realisation A/c
Step 2 assets and liabilities to be sold off (bank or by PCA- X me )
For sale of assets
Bank a/c
To Realisation a/c
For an asset taken over by a partner Partner’s Capital A/c
To Realisation A/c
For payment of liabilities Realisation A/c
To Bank A/c
For a liability which a partner takes responsibility to discharge Realisation A/c
To Partner’s Capital
A/c
For unrecorded sale of assets Bank a/c
To Realisation a/c
For an unrecorded asset taken over by a partner Partner’s Capital A/c
To Realisation A/c
For any unrecorded payment of liabilities Realisation A/c
To Bank A/c
For any unrecorded liability which a partner takes responsibility to discharge Realisation A/c
To Partner’s Capital
A/c
ACCOUNTANCY – XII
For payment of realisation expenses
? Other cases are given below
Realisation A/c
To Bank A/c
For payment of partners loan Partners loan a/c
To bank a/c
Step 3 Profit and loss for realisation( transferred to PCA - X me)
? For profit at the time of realisation
Realisation A/c
To Partner’s Capital
A/c
(in old ratio)
? for losses at the time of dissolution Partner’s Capital A/c
To Realisation A/c
(in old ratio)
Step 4 Partners capital is paid off ( transferred to bank a/c - X me)
? payment of partners capital a/c
excess cash paid to the partner
Partner’s Capital A/c
To bank a/c
? payment received from partners
required cash brought by the partner
Bank a/c
To Partner’s Capital
A/c
IMPORTANT POINTS OF THIS CHAPTER TO KEPT IN MIND ALWAYS----
? NO NEW RATIO
? NO SPECIAL TREATMENT OF GOODWILL
? ALL EXTERNAL LIABILITIES ARE PAID OFF (main bhut imandaar admi hu apni sabhi liabilities ki payment
krni hai)
Expect - 1. Provision for doubtful debts
2. Provision for depreciation
3. IFF
4. Repairs and renewal reserve
? All others reserves are to be distributed as in the admission and retirement of partners
Two types are debts (liabilities) are there
? firm debt - the responsibility of this debt is of the firm hence its to be paid by the firms fund and is to be
shown in the realisation a/c
? private debt- the responsibility is of this debt is of the partners debt hence it should be paid by partners
from his private funds due to which its not shown in the realisation a/c
When a firm debts becomes a private debt
? when any commission is paid to the partner to bear the expenses its becomes a private debt
Entry for commission
Realisation a/c
To partners capital a/c
Liability / debt Paid by firm Paid by partners
Firm debt Realisation a/c
To bank a/c
Realisation a/c
To partners capital a/c
Private debt Partners capital a/c
To bank a/c
No entry
Cases
Whose
liability
Case
Who
discharges
Entry
Firm (i) Realisation expenses amounted to Rs. 8,000. Firm Realisation A/c 8,000
To Bank A/c 8,000
Firm (ii) Realisation expenses amounted to Rs. 8,000 were
paid by partner X
private Realisation A/c 8,000
To X’s capital A/c 8,000
private (iii) Realisation expenses amounted to Rs. 10,000 were
paid by the firm on behalf of a partner X.
Firm X’s capital A/c 10,000
To bank a/c 10,000
private (iv) Realisation expenses amounted to Rs.15,000. Mr. X,
one of the partners, has to bear these expenses.
Firm X’s capital A/c 15,000
To bank a/c 15,000
Page 4
ACCOUNTANCY – XII
Distinction between Dissolution of Partnership and Dissolution of Firm
Basis Dissolution of Partnership Dissolution of Firm
1. Termination of The business is not terminated. The business of the firm is
business
2. Settlement of Assets and liabilities are Assets are sold and
assets and revalued and new balance liabilities are paid-off.
liabilities sheet is drawn.
3. Court’s Court does not intervene A firm can be dissolved by
intervention because partnership is the court’s order.
dissolved by mutual
agreement.
4. Economic Economic relationship Economic relationship
relationship between the partners between the partners
continues though in comes to an end.
a changed form.
5. Closure of books Does not require because The books of account are
the business is not closed.
terminated.
6. Other dissolution It may or may not involve It necessarily involves
dissolution of the firm.
dissolution of partnership.
Accounts to be prepared at the time of dissolution
? Realisation a/c
? Partners capital a/c
? Cash a/c or bank a/c
? Partners loan a/c
Step for dissolution (BAPP)
1. balance sheet khali karu (clear the balance sheet- X me )
2. assets and liabilities to be sold off (bank or by PCA- X me )
3. Profit and loss for realisation( transferred to PCA - X me)
4. Partners capital is paid off ( transferred to bank a/c - X me)
FORMAT OF REALISATION A/C
? NOMINAL A/C (SO FOLLOW THE RULE OF NOMINAL A/C)
Format of partner’s capital a/c
Particulars A B Particulars A B
To balance b/d (dr. balance –assets) Xxx Xxx By balance b/d (cr. Side – liabilities ) Xxx Xxx
ACCOUNTANCY – XII
To realisation (assets are taken by
partner)
Xxx Xxx By realisation (liabilities are taken by
partner)
Xxx Xxx
To P & L / losses (old ratio - assets) Xxx Xxx By reserves (old ratio- liabilities) Xxx Xxx
To realisation losses (old ratio –
realisation a/c)
Xxx Xxx By realisation profits (old ratio –
realisation a/c)
Xxx Xxx
TOTAL TOTAL
Format of bank a/c
Particulars Rs. Particulars Rs.
To balance b/d(FROM BALANCE SHEET) XXX By balance b/d( for bank overdraft) XXX
To realisation (assets realised)
Recorded or not recorded
XXX By realisation ( liabilities paid off)
Recorded or not recorded
XXX
To partners capital a/c
(PARTNERS PAYS BACK TO THE FIRM)
XXX By partners capital a/c
(PARTNER IS PAID OFF)
XXX
By partners loan a/c XXX
TOTAL TOTAL
Format of Partners loan a/c
Particulars Rs. Particulars Rs.
TO BANK A/C (loan paid off ) XXX By balance b/d( from balance
sheet)
XXX
TOTAL TOTAL
Journal entries
Transactions Entry
Step 1 balance sheet khali karu (clear the balance sheet- X me )
For transfer of assets
? All asset accounts excluding cash, bank and the fictitious assets, if any are closed by
transfer to the debit of Realisation Account at their book values
? sundry debtors are transferred at gross value and the provision for doubtful debts is
transferred to the credit side of Realisation Account along with liabilities
The same thing will apply to fixed assets if provision for depreciation
account is maintained
Realisation A/c
To Assets A/c
For transfer of liabilities
? All external liability accounts including provisions, if any, are closed by transferring
them to the credit of Realisation account.
Liabilities
To Realisation A/c
Step 2 assets and liabilities to be sold off (bank or by PCA- X me )
For sale of assets
Bank a/c
To Realisation a/c
For an asset taken over by a partner Partner’s Capital A/c
To Realisation A/c
For payment of liabilities Realisation A/c
To Bank A/c
For a liability which a partner takes responsibility to discharge Realisation A/c
To Partner’s Capital
A/c
For unrecorded sale of assets Bank a/c
To Realisation a/c
For an unrecorded asset taken over by a partner Partner’s Capital A/c
To Realisation A/c
For any unrecorded payment of liabilities Realisation A/c
To Bank A/c
For any unrecorded liability which a partner takes responsibility to discharge Realisation A/c
To Partner’s Capital
A/c
ACCOUNTANCY – XII
For payment of realisation expenses
? Other cases are given below
Realisation A/c
To Bank A/c
For payment of partners loan Partners loan a/c
To bank a/c
Step 3 Profit and loss for realisation( transferred to PCA - X me)
? For profit at the time of realisation
Realisation A/c
To Partner’s Capital
A/c
(in old ratio)
? for losses at the time of dissolution Partner’s Capital A/c
To Realisation A/c
(in old ratio)
Step 4 Partners capital is paid off ( transferred to bank a/c - X me)
? payment of partners capital a/c
excess cash paid to the partner
Partner’s Capital A/c
To bank a/c
? payment received from partners
required cash brought by the partner
Bank a/c
To Partner’s Capital
A/c
IMPORTANT POINTS OF THIS CHAPTER TO KEPT IN MIND ALWAYS----
? NO NEW RATIO
? NO SPECIAL TREATMENT OF GOODWILL
? ALL EXTERNAL LIABILITIES ARE PAID OFF (main bhut imandaar admi hu apni sabhi liabilities ki payment
krni hai)
Expect - 1. Provision for doubtful debts
2. Provision for depreciation
3. IFF
4. Repairs and renewal reserve
? All others reserves are to be distributed as in the admission and retirement of partners
Two types are debts (liabilities) are there
? firm debt - the responsibility of this debt is of the firm hence its to be paid by the firms fund and is to be
shown in the realisation a/c
? private debt- the responsibility is of this debt is of the partners debt hence it should be paid by partners
from his private funds due to which its not shown in the realisation a/c
When a firm debts becomes a private debt
? when any commission is paid to the partner to bear the expenses its becomes a private debt
Entry for commission
Realisation a/c
To partners capital a/c
Liability / debt Paid by firm Paid by partners
Firm debt Realisation a/c
To bank a/c
Realisation a/c
To partners capital a/c
Private debt Partners capital a/c
To bank a/c
No entry
Cases
Whose
liability
Case
Who
discharges
Entry
Firm (i) Realisation expenses amounted to Rs. 8,000. Firm Realisation A/c 8,000
To Bank A/c 8,000
Firm (ii) Realisation expenses amounted to Rs. 8,000 were
paid by partner X
private Realisation A/c 8,000
To X’s capital A/c 8,000
private (iii) Realisation expenses amounted to Rs. 10,000 were
paid by the firm on behalf of a partner X.
Firm X’s capital A/c 10,000
To bank a/c 10,000
private (iv) Realisation expenses amounted to Rs.15,000. Mr. X,
one of the partners, has to bear these expenses.
Firm X’s capital A/c 15,000
To bank a/c 15,000
ACCOUNTANCY – XII
Firm- upto
(Rs.8000)
Private- rest
(v) Realisation expenses amounted to Rs.20,000.
Rs.8,000 were to be borne by the firm and the balance
by X, a partner.
Firm Realisation A/c 8,000
X’s capital A/c 12,000
To Bank A/c 20,000
Firm- upto
(Rs.8000)
Private- rest
(vi) Dissolution expenses amounted to Rs. 20,000.
Rs.8,000 were to be borne by the firm and the balance
by X, a partner. The expenses were paid by X.
private Realisation A/c 8,000
To X’s capital A/c 8,000
private (vii) S, a partner, was allowed a remuneration of
Rs.10,000 to carry out dissolution. Actual expenses
amounted to Rs.16,000.
Expenses will not be shown only the entry for
commission is passed
private Realisation A/c 10,000
To S’s capital A/c 10,000
private (viii) V, a partner, paid realisation expenses of Rs.10,000
and these were to be borne by him.
private No entry
Special points
LOAN TAKEN FROM A PARTNER IS PAID THROUGH THE BANK OR CASH A/C
LOAN GIVEN TO A PARTNER WILL BE TRASNFERRED(DEBITED) TO HIS CAPITAL A/C
IFF IS ALWAS TRANSFFERED TO REALISATION A/C only if investments are appearing in the assets side
and
Otherwise will be distributed among the partners.
Bank overdraft is not transferred to realisation a/c . it is shown as by balance b/d in bank(credit side) a/c
Bank loan must be transferred to realisation a/c
If any liability took over any assets in full settlement of their claim - no entry is passed
? balance is to be paid if required
Case 1 creditors of Rs.50,000 took over building of Rs63,000 in full settlement of their claim - no entry
Case 2 creditors on the date was Rs.50,000 out of which creditors of Rs.40,000 took over building of Rs63,000 in
full settlement
of their claim - realisation a/c 10,000
to bank a/c 10,000
Settlement of Partners loan a/c (appearing in the balance sheet liability side)
Case Transaction Entry
1. A’s Loan of Rs.10,000 No info Partners loan a/c 10,000
To bank a/c 10,000
2. A’s Loan of Rs.10,000 is settled by paying Rs.8,000 Partners loan a/c 10,000
To bank a/c 8,000
To realisation a/c 2,000
3. A’s Loan of Rs.10,000 is settled by paying Rs.12,000 Partners loan a/c 10,000
Realisation a/c 2,000
To bank a/c 12,000
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