This document discusses dissolution of a partnership firm. It defines dissolution as ending the relationship between partners. There are various modes of dissolution like agreement, court order, or contingencies. Upon dissolution, assets are used to pay off liabilities, then capital accounts. Any profit/loss is distributed to partners' capital accounts according to profit sharing ratios. Journal entries are made to record the transfer of assets/liabilities to a realization account, sale of assets, settlement of capital accounts, and payment of remaining amounts.

1. By:- Deepak Madan
M.Com. B.ed

2. Objectives
 To state meaning of topic
 To differentiate b/w dissolution of partnership and
partnership
 To know the modes of dissolution
 To know different rules of settlement of claims
 To make Realization A/c
 To Record journal entries and ledgers to close books of
firms

3. Introduction
 It is the breaking or discontinuous of relationship
among all partners. It brings an end to the existence of
firm, After which no business is transacted except the
activities related to closing of books of accounts.

4. Difference b/w Partnership and Partnership
firm( dissolution)
 In dissolution of partnership existing partnership may
dissolve but business may continue.
 But in case of dissolution of partnership firm there are no
more activities except closing of business firm

5. Modes of Dissolution
 By Agreement.
 Compulsory dissolution.
 On happening of certain contingencies.
 Dissolution by Notice.
 Dissolution By court.

6. Settlement of Accounts
Treatment of losses Application of Assets
Losses, including deficiencies of
capital shall be paid as :-
i) First out of profits.
ii) Next out of capital of partners,
and
iii) Lastly, if necessary by the
individually in their profit sharing
ratio.
Assets including sum contributed by
partners for deficiency :-
i) Debts of third party
ii) Loans and advances by partner
except capital
iii) Capital payable to partners
iv) Residue divided in profit sharing
ratio

7. Points to be Remembered For Private Debts and Firm's
Debts
 Firm’s property will be used for payment of firm’s
liability first, surplus will be divided in their profit sharing
ratio.
 Private property will be used for payment of private
debt first.
 Personal property does not includes property of wife
and children.

8. Realization Account
Particulars Amount Particulars Amount
To Assets
(land building, debtors,
Plant & machinery etc.
To Cash/Bank (payment of
liabilities and unrecorded
liability)
To Partner’s capital(
liability assumed by
partner)
To Profit trr. to partners
capital in profit sharing
ratio.
By All Liabilities( bills
payable, creditors etc.
By provisions (all)
By Cash/Bank ( sale of
assets& unrecorded
Assets
By Partners capital( assets
taken by partner)
By Loss trr To capital a/c

9. Journal Entries
 For Transfer of Assets:-
Realization a/c_____Dr.
To Assets A/c
For Transfer of Liabilities:-
liabilities a/c_____Dr.
To Realization A/c
For sale of Assets:-
Bank a/c_____Dr.
To Realization A/c

10. Journal Entries
 For Assets taken over by partner:-
Partner capital a/c_____Dr.
To Realization A/c
For Payment ofLiabilities:-
Realization a/c_____Dr.
To Bank A/c
For a Liability which a partner takes responsibility to discharge:-
Realization a/c_____Dr.
To Partner capital A/c

11. Journal Entries for Realization exp
 For Payment of realization exp:-
Realization a/c_____Dr.
To Bank A/c
For Exp. Paid by partner on behalf of partner.
Realization a/c_____Dr.
To Partner’s capital A/c
For Expenses which a partner takes responsibility to discharge on agreed remuneration:-
a) Payment made by firm
Partner capital A/c---- Dr.
To Bank A/c
b) When amount is paid by partner then no entry will be passed
c) For agreed remuneration to such partner
Realization a/c_____Dr.
To Partner’s capital A/c

12. Points to Remember
 For realization and settlement of assets and liabilities all
entries will passed as recorded assets and liabilities.
 All accumulated profits and losses with reserves are to be
transferred to capital accounts.
 Loan of partner will be paid separately before settlement of
capital account.
 Any profit or loss arising from realization account will be
transferred to capital account in their ratio.
 At the end partners will be paid through bank to settle their
account.
 Journal entries will be passed for above mentioned
points.