Introduction: Dissolution of a Partnership Firm Video Lecture - Commerce

[Music]
hello friends friends in this lecture
will be again moving to partnership
right after the cash flow statement now
again we are moving to partnership and
we'll start with dissolution of
partnership form right this is the last
chapter in partnership we have done
goodwill change in profit sharing ratio
basics admission retirement debt so this
is now the last chapter
this is dissolution of partnership from
cliff this is an easy chapter nothing to
worry right all the chapters are easy if
you know the concept so I am focusing
more on the concept clarity right now
dissolution of partnership the first
thing is what is dissolution what do you
mean by dissolution if I say in very
simple terms it means that I am closing
down closing down my partnership
business right
clear dissolution of partnership free
partnership firm means that we are
closing down the partnership business we
are ending the partnership business
clear clear friends in a very simple
term I will say dissolution of
partnership firm means closing down the
partnership business now there can be
many reasons for this it can be the
mutual agreement between the partners
partners mutually agree that the
business is no more profitable let's
close it down let's end our partnership
right or they have some conflicts among
them so they mutually decide that let's
end this partnership and dissolve the
partnership from clear or it can be
compulsory dissolution by law compulsory
dissolution right by law how can they
spend this can be the compulsory
dissolution by law if the law finds out
that you are involved in some unlawful
activity illegal activity then the law
can tell you who to close down your
partnership business in that case also
we say it is the dissolution of the
partnership firm clear then it can be
death of a partner how if you are two
partners in a partnership firm one of
the partner dies so will it be a
partnership it will no more be a
partnership firm there were only two
partners one partner died and you know
what is the basic of the very basic
meaning of partnership two or
more persons it involves two or more
persons so where there are only two
persons in a partnership and one of them
dies then what is the meaning of
partnership right so it dissolve it
means the dissolution of partnership
form so likewise there can be many
reasons in which there can be
dissolution of the partnership firm that
means we are closing down our
partnership business this is the very in
a very layman language I have told you
what is dissolution of partnership firm
closing down the partnership business
clear now how to do the accounting
treatment in case of dissolution this is
what we have to study right what will be
accounting treatment
for dissolution right this is different
from what we have done in the previous
chapters if you remember the last three
chapters change in profit sharing ratio
admission and retirement the topics we
have done in those three chapters were
quite similar to each other isn't it
the topics for the three chapters were
quite similar to each other but this
dissolution is something different
clear now to understand this to have a
crux knowledge of what we are going to
do in dissolution of firm listen to a
story very very very carefully okay
I'll tell you why we'll explain this to
you through a story right to a real life
situation some of you might have faced
that situation right now what is the
story you stay in a rented accommodation
you stay in a rented accommodation right
live now from this rented accommodation
you are shifting to your own home
right you have bought your own home so
you know need to stay in a rented
accommodation this is a fully furnished
one what do you mean by this
the fully furnished home means you have
everything in your new home you have bed
you have refrigerators you have TV you
have microwaves everything you have you
have as mirrors everything this is a
fully furnished home that you have
bought right currently you are staying
in a rented accommodation now you have
to shift from a rented accommodation to
your own home this own home is fully
furnished that is in that home you
already have everything from bed
refrigerator microwaves
Amira's everything you have now the
first thing that will come to your mind
is in this rented accommodation also we
have various assets what are the assets
we have bed we have TV we have their
frigerators isn't it you have all these
things in your rented accommodation also
right but in your own home you already
have these facilities so you why you
will carry these assets with you with
you to your own home when you already
have these in your new home isn't it a
logic you already have beds in your new
home why will you carry the old beds to
your new home you already have isn't it
your new home is fully furnished then
why will you carry the old beds TV
refrigerators of a rented accommodation
you won't carry the old beds old TV old
refrigerators that was there in your
rented accommodation because your new
accommodation your new home is fully
furnished so what will
you do with his assets the next question
is what will you do with these assets
obviously the first thing that will come
to your mind is you will sell these
assets isn't it
you will sell these assets and you will
realize money by selling assets clear
friends so whatever the assets you have
in your rented accommodation you will
not take it to your new home because
your new home is already fully furnished
with these facilities so what will you
do with this old asset you will
obviously sell these assets the first
thing that will come into your mind is
we have invested on these assets now we
can't let them go in free we will sell
out the beds TVs refrigerators we will
sell out in the market yes
and from that sale we will realize some
money clear clear friends this much is
clear now if you are living in a rented
accommodation right you are leaving the
rented accommodation now you are leaving
the when you are leaving the rented
accommodation you have to clear out the
bills also you have to clear your
pending bills also related to your
rented accommodation like rent right
second
they meant to your maid who was working
at your rented accommodation then
payment to milkman right then payment
for newspaper now when you are shifting
from the rented accommodation to your
own home you have to clear the pending
bills first of all what you will do is
you will CL your assets right then
whatever money you have realized from
selling the assets you will obviously
use that money in clearing these pending
bills you will use this money in
clearing your pending bills like you
will pay the rent you will pay to your
maid you will pay to the milkman you
will have to make payment for the
newspaper and there can be a number of
payments and in the process you have to
decide whom to make the payment first
like you decide first you will make the
rent payment second you will make
payment to maid then you will make
payment to the milkman then whatever is
you will make to the newspaper then
whatever is left you will keep it with
yourself clear friends now again I am
repeating you are staying at a rented
accommodation now you are shifting to
your own house that is fully furnished
with all the facilities all the assets
so what you will do with the old assets
you will sail out those old assets and
realize some money clear now from that
realized money you have to clear the
bills of the rented accommodation like
the rent of the accommodation payment to
make payment to milkman payment for
newspapers you have to make n number of
payments you will decide whom you
pay first then second then third then
fourth cliff you will use this realized
money in clearing the pending bills like
rent payment to make them into milkman
and newspaper right
this story is clear to you now moving
back to dissolution if we talk of
dissolution what we are doing in
resolution is we are closing our
business in the process of closing
business you will be having the assets
in the balance sheet and you will be
having the liabilities capital in the
balance sheet isn't it on the date when
you decide to dissolve the partnership
form on the date when you decide to move
from the rented accommodation to the new
house you must be having the assets and
the liabilities appearing in the balance
sheet right dissolution of partnership
means you are moving from a rented
accommodation to your own home
dear friends so on the date of
dissolution on the date you decide to
move out of the rented accommodation to
your own house you must be having your
own assets isn't it and you must be
having some liabilities appearing in
this balance sheet you must be having
assets and liabilities assets and
liabilities appearing in the balance
sheet so when you are closing down the
business when you are shifting from a
rented accommodation to your own house
what you will do is you will sale all
assets
right and pay all liabilities clear
friends so dissolution says that on
closing at the partnership business we
will sell all our assets that are
appearing in the balance sheet and we
will have to pay all the liabilities
right like while moving from a rented
accommodation to your own home you have
to sell all the assets and use that
realized money in clearing the pending
bills isn't it so similarly in case of
dissolution you will sail all the assets
and pay all the liabilities clear
I hope this much is clear to you now
friends in case of dissolution we have
one section 48 we have section 48
settlement of accounts right this
section is of Indian partnership 8
Indian Partnership Act 1932 now what
this section 38 says this sorry 48 the
section 48 relates to the payments to be
made right the order of payments to be
made from the realized money of assets
it says you have sold the assets you
have realized the money that realized
money you have to use in a particular
order to clear your liabilities clear
the section 48 says 1 is application of
as its application of acid means you
have sold acids and you have realized
money right so how to use this money how
to use this money in pink liabilities
right this basically relates to order of
payment this is given in this section 48
application of assets that we have sold
the assets we have realized the money
then how to use that realized money in
the payment of liabilities we have to
decide the order of payment that is like
here I told you that we decide that the
first we will pay rent then we will pay
to the maid den to milkman this is how
this is what we are going to decide here
that whatever money we have realized
from the SS to whom that money will be
paid first second third fourth like that
clear
so this section says that whatever you
have realized first pay to outsiders
that is our creditors section 48 says
whatever money you have realized from
the assets your first responsibility is
paid to the outside people from whom you
have taken the money or for whom you
have to make the payment outside
liabilities are to be settled at
priority right so we have to pay
outside people first then after paying
outside we have to look at the inside
people who are the inside people
partners right among the partners
he says at second you have to pay
partners loan if any partner has given
loan to the partnership firm then
section 48 says that after paying to the
outsiders you have to pay that partners
loan first clear whatever money you have
realized from the assets you have to
first pay to the Outsiders then you have
to pay to the partners known right then
at third you have to pay partners
capital cliff first you have to pay to
the Outsiders after paying to the
Outsiders you have to come back to the
insiders for the insiders partners out
of the partners they say first pay the
partners loan right then pay the
partners capital clear friends first pay
partners loan and then pay partners
capitals then after that they say if
anything is left residue if anything is
left from this amount will be shared
will be shared by all partners in there
profit sharing ratio clear so similar to
the concept here I told you that
whatever money you have realized from
the sale of assets you have to decide
that you have to pay rent first then you
have to make them into the maid then you
have to make payment to the milkman then
you have to make payment for newspaper
then whatever is left you will keep it
in your pocket similarly in this case
section 48 says that after selling out
the assets whatever money you realize
whatever money you get on the sale of
assets first of all out of that money
you will pay to the outsiders first of
all you will pay the outsiders
liabilities then secondly you will pay
the partners loan then third you will
pay the partners capital then if there
is if there is anything left after that
that will be shared by the partners in
their profit sharing ratio is that much
gear friends one more thing section 48
says related to treatment of losses if
you have any losses appearing in your
books on the date of dissolution that
losses might be pertaining to the
previous years if you have any losses
that are appearing in the books on the
date of dissolution how to write off
those losses right section 48 gives how
to
how to pay off these losses right he
says first out of profits if you have
any profits first right of the losses
out of the profits right then if the
profits are not sufficient to right of
the losses then use partners capitals
right the first is try to meet the
losses out of the profits if the profits
are not sufficient then you can use the
partners capital accounts capitals you
can use even after that if the losses
are not sufficient amount is not
sufficient to cover the losses then
partners individually will contribute
clear
personally right what he says is you
have the losses appearing in the books
that might be pertaining to the previous
years now you have to cover up those
losses clear so those losses can be
covered first out of the profits if you
have right even if you have profits till
the date of dissolution those profit
amounts will be used to write off the
losses then if the amount is not written
off then you will use the partners
capitals even then if you have some
amount of losses left that will be paid
by the partners in their individual
capacities right that will be paid
personally by the partners clear friends
so this is about section 48 which deals
with settlement of accounts I hope with
the story you have understood the
concept what we are going to do in
dissolution of firm we are going to sale
of the assets we are going to pay off
the liabilities the order in which the
liabilities have to be paid is given by
section 48 settlement of accounts it
says pay to the Outsiders first then pay
to the partners loan then pay the
partners capitals then if anything is
left with the partners they will
distribute among themselves in their
profit sharing ratio right personally
then the treatment of losses if you have
any losses appearing in the books then
how to write off those losses firstly
out of profits then out of the partners
capitals even then if you have some
losses those losses will be met by the
partners in the individual capacities
those will be met by the partners
personally in their profit sharing ratio
right
so this contribution will be in
profit-sharing ratio of partners that is
if one partner is getting more share in
the profit that partner will contribute
more in writing of losses and the
partner which is getting less he will
contribute accordingly clear friends I
hope this much is clear to you this was
the very basic of dissolution you know
this was very important for you to
understand this basic of dissolution
that how we are going to apply the
assets how we are going to treat the
losses you must understand this thing
right now let's see a small practical
problems on this these are very small
practical problems in section 48 they
say the firm of XY and Z was dissolved
on 31st of March 2016
via demands that his loan of 25,000
should be paid before the payment of
capitals of the partners but eccentric
demand that capital should be paid
before the payment of wise loan who is
correct can you tell me who is correct I
have given you this order of payment pay
to the Outsiders pay to the partners
loan then pay the capitals in this case
who is right why is saying pay me my
loan of 25,000 first but X and Z says
pay the capitals first looking at this
order
don't you think Y is correct because you
have to pay the partners loan first
clear so we can say that the demand of Y
is correct because as per Section 48 we
have to pay the partners loan before we
make payment to partners for their
capitals clear friends next all the
partners decide to dissolve the firm on
31st of March 2016 why a partner demands
that is known of 80000 should be paid
before payment off mrs. X loan of 20,000
but X
another partner demands that mrs. X loan
should be paid before the payment of Y
alone who is correct can you tell me
what is the provision of section 48 in
this regard he says section 48 says that
we have to pay to the outsiders first
now tell me mrs. X is an outsider or an
insider can you identify that y is a
partner he is an Insider he is demanding
that his loan should be paid before the
mrs. X loan now can you tell me whether
mrs. X is an outsider or insider mrs. X
is obviously an outsider the partners
are x and y mrs. x is some third person
she is an outsider so as per Section 48
the outsiders have to be at the first
priority while making the payment while
setting the liabilities so the demand of
X is correct that mrs. X loan should be
paid before the payment of Y alone clear
this is a small problem these are just
to clarify your doubts right so next is
a and B are partners in a form shearing
profits in the ratio of 3 is to 2 cliff
misses a has given a loan of rupees
20,000 to the firm misses a but the
partners are mr. a and mr. B yes mrs. a
has given a loan of 20,000 to the firm
and the form has also taken a loan of
10,000 for me
B is partner missus am outside the firm
was dissolved and he set self Sh were
realized for rupees 25000 state the
order of payment of mrs. s loan and B
Sloan with reason if there were no other
creditors of the firm so
mrs. air is an outsider we have taken a
loan from an outsider B is an insider
because he is a partner we have taken a
loan from the partner also now tell me
as per Section 48 who will be paid first
whether mrs. air will be paid first or B
will be paid first
C the provision where to the outsiders
first then pay to the partners loan who
is the outsider mrs. a we will pay
20,000 to mrs. a our assets have
realized 25,000 out of 25,000 we will
first make a payment of 20,000 to a now
what is the amount left with us we are
left with only 5,000 so we will pay the
beasts loan to the extent of 5,000
because b is an insider the partner the
partner has given a loan and as for
section 48 first outside liabilities are
to be settled then partners loan is to
be settled then partners capital is to
be settled so in this case mrs. a is an
outsider we have settled the liability
of an outsider first then whatever the
amount is left that is 5000 we have
settled the loan of the insider that is
a partner be clear friend
I hope this much is clear to you the
basics of dissolution is clear right
remember the story of moving from a
rented accommodation to your own house
clear I hope you have understood this
basic of dissolution what we are going
to do in dissolution we are going to
sell the assets we are going to settle
the liabilities we will prepare some
accounts in the process that we will do
in the next lecture right I tell you one
thing that in case of dissolution we
have to basically prepare four accounts
if we talk of dissolution in dissolution
we have to prepare for accounts number
one a
Realization account as the name suggests
you have sold the assets and you have
realized the money that will be taken to
realization account right then you have
to prepare partners Lowell account to
settle the partners loans then you have
to take partners capital accounts and
then lastly we will prepare the bank or
cash account these are basically the
four accounts that we will prepare in
case of dissolution of partnership from
rest we will do the journal entries
right sobs I really hope that you are
clear with the basics of dissolution
what we are going to do in the
dissolution how we are selling the SS
how we are realizing the money and how
we are paying off the debts the section
48 is important to understand right so
if you have any queries send me an
e-mail at ksj teaching at the rate of
gmail.com clear friends so in the next
lecture we'll start with accounting
treatment right accounting treatment of
dissolution of form in the next lecture
we'll start with accounting treatment
clear friends so that's all for this
lecture friends thank you so much