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Class 12 Dissolution of Partnership Firm: cheat sheet
CBSE Accountancy. Closing a firm: modes of dissolution, the Realisation Account, assets taken over and creditors settled, realisation expenses, the result of realisation and final payments.
Key ideas
- A firm is dissolved by agreement, compulsorily (insolvency, the business becoming illegal), on a contingency (end of term or venture), by notice (partnership at will) or by the court.
- All assets except cash and bank are debited to the Realisation Account at book value, and outside liabilities and provisions on assets are credited to it.
- Assets sold: Bank Dr. To Realisation; an asset a partner takes over: that partner’s Capital Dr. To Realisation, at the agreed value.
- Liabilities are entered at the cash actually paid: a discount, or an asset given in part payment, reduces it.
- Realisation expenses paid by the firm are debited to Realisation; a partner’s agreed remuneration for the work is debited to Realisation and credited to that partner.
- The profit or loss on realisation and any reserve are shared in the profit-sharing ratio, and partners are paid the final balances of their capitals.
Remember
| Profit on realisation | assets realised + liabilities transferred − assets transferred − liabilities paid − expenses |
| Creditors paid at d% discount | creditors × (100 − d) ÷ 100 |
| Creditors partly paid in an asset | cash paid = creditors − agreed value of the asset |
| Cash left for the partners | cash + assets realised − creditors paid − expenses |
| Final payment to a partner | capital + share of reserve + share of profit (− share of loss) |
| Check | total of the final payments = cash left |
Watch out
- Transferring the cash or bank balance to the Realisation Account.
- Crediting an asset taken over by a partner to that partner’s capital.
- Entering creditors at their book value when they accept a discount.
Worked example
Rahul and Ananya share profits 5 : 3 and dissolve their firm. Balance sheet: Capitals: Rahul ₹1,10,000, Ananya ₹60,000; General reserve ₹32,000; Creditors ₹80,000. Assets: Cash ₹3,000, Stock ₹30,000, Debtors ₹18,000, Machinery ₹2,31,000. Stock realised ₹29,000, debtors ₹15,000 and machinery ₹2,24,000. Creditors were paid in full. Realisation expenses were ₹1,000. Find the amount finally paid to (a) Rahul (b) Ananya, and check it against the cash available.
Working: realisation loss of ₹12,000; Rahul: ₹1,10,000 + ₹20,000 − ₹7,500; Ananya: ₹60,000 + ₹12,000 − ₹4,500; cash ₹3,000 + ₹2,68,000 − ₹80,000 − ₹1,000 = ₹1,90,000
Answer: (a) ₹1,22,500; (b) ₹67,500
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