For ISC and CBSE students

1. DISSOLUTION of PARTNERSHIP
FIRM
 Difference between dissolution of
partnership and dissolution of partnership
‘firm’
Presenter : J.K.Saini 1

2. Modes of dissolution of
partnership firm…
 A firm may be dissolved
 By agreement
 By notice
 Contingency
 By Court etc.
Presenter : J.K.Saini 2

3. Order of settlement of accounts
on dissolution of firm.
 Expenses of Dissolution
 Outsider liabilities
 Partners loan if any and
 Capital and Current account balances of
partners
Presenter : J.K.Saini 3

4. ACCOUNTING PROCEDURE
In order to close the books of the firm, the
following accounts are prepared :-
1. Realisation Account
2. Partner’s Loan a/c
3. Partner’s Capital accounts
4. Cash or Bank account
Presenter : J.K.Saini 4

5. Realisation Account
To Assets ( at their book
values)
By Outsiders liabilities
(B/P, creditors, bank
loan, expenses o/s,
provident fund, wife’s
Loan etc.
By Provisions ( as already
appearing in B/S
(e.g. Provisions for doubtful
debts, provisions for
depreciation,
Investment fluctuation
fund, J.L.P.Reserve etc.
Presenter : J.K.Saini 5

6. To Bank
( payment of liability
.. net amount)
To Partner’s capital a/c
( if paid by a partner)
To Bank
(Expenses of realisation)
To Capitals
A
B (Profit )
By Bank
(sale of assets) at S.P
By Partner’s capital a/c
(asset taken over)
By Capitals
A
B (loss)
Presenter : J.K.Saini 6

7. Journal Entries
For closing assets ( as already appearing in the balance
sheet)
Realisation a/c …Dr
To Assets ( at the respective book values)
Note:- The following items from the asset side are not closed
1. Cash and Bank balances
2. Profit and loss balance (loss)
3. Capital a/c / Current a/c balance
Presenter : J.K.Saini 7

8. 2. For closing outsider liabilities
 Respective liability a/c …Dr
To Realisation a/c
( outsider liabilities are B/P, creditors, bank
loan, expenses o/s, employees provident
fund, wife’s loan, Employee saving account)
Presenter : J.K.Saini 8

9. For closing the provisions
Provisions for doubtful debts a/c …Dr
Provisions for depreciation, a/c …Dr
Investment fluctuation fund, a/c …Dr
J.L.P. Reserve a/c …Dr
To Realisation a/c
Presenter : J.K.Saini 9

10. For Realisation of assets.
 Sold for cash
Bank a/c …Dr
To Realisation a/c
 Taken over by a partner
Partner’s Capital a/c …Dr
To Realisation a/c
 Taken over by a creditor in settlement of his
debt
No journal entry is required to the
extent of amount settled.
Presenter : J.K.Saini 10

11. For disposal of liabilities
 Paid in cash
Realisation a/c …Dr
To Bank a/c (net amount)
 Paid by a partner
Realisation a/c …Dr
To partner’s Capital a/c
Note:- all outsiders liabilities must be paid
including contingent and unrecorded liablities.
Presenter : J.K.Saini 11

12. For expenses of dissolution
Realisation a/c …Dr
To Bank a/c
Presenter : J.K.Saini 12

13. For commission /remuneration
allowed to a partner
Realisation a/c …Dr
To Partner’s Capital a/c
Presenter : J.K.Saini 13

14. For Profit on Realisation a/c
Realisation a/c …Dr
To Capitals a/c
A
B ( In profit ratio)
Presenter : J.K.Saini 14

15. In case of loss
Capitals a/c …Dr
A
B ( In profit ratio)
To Realisation a/c
Presenter : J.K.Saini 15

16. Treatment of Partner’s loan ( as
already appearing in the balance
sheet
It should be directly paid
Partner’s loan a/c …Dr
To Bank a/c
Note:- Interest on loan paid is an expense..
Realisation a/c …Dr
To Bank a/c
Presenter : J.K.Saini 16

17. For Cr. Balance in Capital Account- It is to
be paid
Partner’s Capital a/c … Dr.
To Bank
In Case of Dr. Balance :
Bank a/c …Dr
To Partner’s Capital a/c
Presenter : J.K.Saini 17