Notes and Questions on Dissolution of Partnership

1. 1prepared by Preksha Mehta

2. Difference between Dissolution of Partnership
and Dissolution of Partnership Firm
BASIS DISSOLUTION OF
PARTNERSHIP
DISSOLUTION OF
PARTNERSHIP FIRM
1. Meaning
2.Continuatio
n of business
3. Economic
Relationship
4. Closure of
Books
Change in existing agreement
among the partners.
The firm continues its business.
Economic Relationship among
the partners changes, but
continues.
Books of accounts need not be
closed.
Closure of the firm.
Business of the firm comes
to an end.
Economic Relationship
among the partners comes
to an end.
Books of accounts have to
be closed.
2prepared by Preksha Mehta

3. SETTLEMENT OF ACCOUNTS
Amount realised from sale of assets shall be
applied in the following order:
a. First of all, outside debts of firm will be paid.
b. Then, loans advanced by partners will be
paid.
c. Then, balance of partners capital accounts
will be returned.
d. Balance amount will be divided among the
partners in their profit sharing ratio.
3prepared by Preksha Mehta

4. ACCOUNTING PROCEDURE
To close the books of firm on dissolution, the
following accounts are to be opened:
a. Realisation A/c
b. Partner’s loan A/c
c. Partner’s Capital A/c
d. Cash/Bank A/c
4prepared by Preksha Mehta

5. Format of Realisation A/c
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Assets (except
cash/bank/accumula
ted losses/dr
balance of partners’
capital a/c)
To Cash/Bank A/c
(liabilities or
expenses paid)
To Partners’ Capital
A/c(liabilities or
expenses taken
over/paid by
partner)
To Partners’ Capital
A/c (profit on
realisation)
By liabilities A/c
(except reserves,
accumulated profits,
partners’ capital a/c,
partner’s loan)
By Cash/Bank A/c(sale of
asset)
By Partners’ Capital
A/c(Asset taken over by a
partner)
By Partners’ Capital A/c
(loss on realisation)
5prepared by Preksha Mehta

6. QUESTION
Liabilities Amount Assets Amount
Creditors
A’s Capital
B’s Capital
97500
85000
63000
Land
Vehicles
Stock
Debtors 113200
Less: Provision for bad
debts (2450)
Bank
30,000
18,300
72,800
1,10,550
13,650
245,500 245,500
6prepared by Preksha Mehta
Following is the balance sheet of A and B as at 31st
March 2018. Profit sharing ratio of the partners are
3:2.

7. Additional Information
The partners decided to dissolve the firm on and from
the date of the balance sheet. Vehicles and stock
were sold for cash at Rs 16950 and Rs 77600
respectively. All debtors were realised in full. Land
was sold for Rs 43,500. Creditors were paid off
subject to discount of Rs 1700. Realisation expenses
were Rs 1250.
Prepare realisation A/c, partners’ capital a/c and bank
a/c.
7prepared by Preksha Mehta

8. SOLUTION
Realisation A/c
Particulars Amount Particulars Amount
To Assets
[Land 30,000
Vehicles 18,300
Stock 72800
Debtors 113200]
To Bank
[ creditors 95,800
expenses 1250]
To profit on realisation
A 11910
B 7940
234300
97050
19850
By Provision for bad
debts
By Liabilities(creditors)
By Bank A/c
[ Vehicles 16950
Stock 77600
Debtors 113200
Land 43500]
2450
97500
251250
351200 351200
8prepared by Preksha Mehta

9. PARTNERS’ CAPITAL A/C
Particulars A B Particulars A B
To Bank A/c 96910 70940 By bal b/d
By realisation
85000
11910
63000
7940
96910 70940 96910 70940
Partners’ Capital A/c
9prepared by Preksha Mehta

10. SOLUTION
Bank A/c
Particulars Amount Particulars Amount
To Balance b/d
To Realisation A/c
13650
251250
By Realisation A/c
By A’s Capital A/c
By B’s Capital A/c
97050
96910
70940
264900 264900
10prepared by Preksha Mehta

11. QUESTION
Liabilities Amount Assets Amount
Creditors
Bills Payable
Loan from P
Reserve
P’s Capital
Q’s Capital
R’s Capital
80,000
10,000
20,000
8000
200,000
100,000
2,000
Investment
Furniture
Machine
Stock
Debtors 88,000
Less: Provision for bad
debts (8000)
Bank
40,000
30,000
90,000
150,000
80,000
30,000
420,000 420,000
11prepared by Preksha Mehta
Following is the balance sheet of P, Q and R as at
31st March 2018. Profit sharing ratio of the partners
are 2:1:1.

12. Additional Information
The partners decided to dissolve the firm on and from
the date of the balance sheet.
• Investments are taken over by P at book value.
• Furniture is taken over by Q for Rs 20,000.
• Creditors were paid off at a discount of 5%.
• Other assets realised: stock at 80%, debtors Rs 65000
and machinery at 30 % less.
• Realisation expenses were Rs 2000.
Prepare realisation A/c, partners’ capital a/c and bank
a/c.
12prepared by Preksha Mehta

13. SOLUTION
Realisation A/c
Particulars Amount Particulars Amount
To Assets
[Investment 40,000
Furniture 30,000
Machine 90,000
Stock 150,000
Debtors 88000]
To Bank
[ creditors 76000
Bills payable 10,000
expenses 2000]
398000
88000
By Provision for bad debts
By Liabilities
[creditors 80000
Bills Payable 10,000]
By Bank A/c
[ machine 63000
stock 120,000
debtors 65000]
By P’s Capital (Investment)
By Q’s Capital (furniture)
By loss on realisation:
P’s capital 40000
Q’s capital 20000
R’s capital 20000
8000
90,000
248,000
40,000
20,000
80,000
486000 486000
13prepared by Preksha Mehta

14. PARTNERS’ CAPITAL A/C
Particulars P Q R Particulars P Q R
To
Realisation
To
Realisation
To Bank
A/c
40000
40,000
124000
20000
20,000
62000
20000 By bal b/d
By reserve
By Bank A/c
200,000
4000
100,000
2000
2,000
2000
16000
204000 102000 20000 204000 102000 20000
Partners’ Capital A/c
14prepared by Preksha Mehta

15. SOLUTION
P’s Loan A/c
Particulars Amount Particulars Amount
To Bank A/c 20,000 By Balance b/d 20,000
20,000 20,000
15prepared by Preksha Mehta

16. SOLUTION
Bank A/c
Particulars Amount Particulars Amount
To Balance b/d
To Realisation A/c
To R’s Capital
30,000
248000
16000
By Realisation A/c
By Ps Capital A/c
By Q’s Capital A/c
By P’s Loan A/c
88000
124000
62000
20000
294000 294000
16prepared by Preksha Mehta

17. QUESTION
Liabilities Amount Assets Amount
Creditors
Bills Payable
A’s loan
Mrs A’s loan
Workmen Compensation
Reserve
A’s Capital
B’s Capital
C’s Capital
40,000
10,000
20,000
16000
20,000
40,000
20,000
20,000
Fixed Asset
Furniture
Stock
Debtors 30,000
Less: Provision for bad
debts (2000)
Bank
Goodwill
50,000
20,000
60,000
28000
10,000
18,000
186,000 186,000
17prepared by Preksha Mehta
Following is the balance sheet of A, B and C as at
31st March 2018. Profit sharing ratio of the partners
are 2:1:1.

18. Additional Information
The partners decided to dissolve the firm on and from the
date of the balance sheet.
• Furniture is taken over by A at 20% less than the book
value.
• Bad debts amounting to Rs 5000.
• Creditors were paid off at a discount of 5%.
• Fixed assets realised Rs 32000 and stock Rs 55000.
• Realisation expenses were Rs 3000.
• There was a claim of Rs 6400 for damages against the
firm. It had to be paid.
Prepare realisation A/c, partners’ capital a/c and bank a/c.
18prepared by Preksha Mehta

19. SOLUTION
Realisation A/c
Particulars Amount Particulars Amount
To Assets
[Fixed Asset50,000
Furniture 20,000
Stock 60,000
Debtors 30000
Goodwill 18000]
To Bank
[ creditors 38000
expenses 3000
claim for damages 6400
bills payable 10,000
Mrs A loan 16000 ]
178000
73,400
By Provision for bad debts
By Liabilities
[creditors 40000
Bills Payable 10,000
Mrs A loan 16000]
By Bank A/c
[ Fixed Asset 32000
stock 55,000
debtors 25000]
By A’s Capital (furniture)
By loss on realisation:
A’s capital 27700
B’s capital 13850
C’s capital 13850
2000
66,000
112000
16000
55400
251400 251400
19prepared by Preksha Mehta

20. PARTNERS’ CAPITAL A/C
Particulars A B C Particulars A B C
To
Realisation
To
Realisation
To Bank
A/c
27700
16,000
6300
13850
11,150
13850
11,150
By bal b/d
By wcr
40,000
10000
20,000
5000
20,000
5000
50,000 25000 25000 50,000 25,000 25000
Partners’ Capital A/c
20prepared by Preksha Mehta

21. SOLUTION
A’s Loan A/c
Particulars Amount Particulars Amount
To Bank A/c 20,000 By Balance b/d 20,000
20,000 20,000
21prepared by Preksha Mehta

22. SOLUTION
Bank A/c
Particulars Amount Particulars Amount
To Balance b/d
To Realisation A/c
10,000
112000
By Realisation A/c
By A’s Capital A/c
By B’s Capital A/c
By C’s Capital A/c
By A’s Loan A/c
73400
6300
11,150
11,150
20000
122000 122000
22prepared by Preksha Mehta

23. QUESTION
Liabilities Amount Assets Amount
Creditors
Bills Payable
G’s loan
Y’s loan
Workmen Compensation
Reserve
X’s Capital
Y’s Capital
30,000
10,000
18,000
20,000
33,000
75,000
85,000
Land and Building
Furniture
Stock
Debtors
Bank
Z’s Capital
109000
43,000
19,000
48000
32,000
20,000
271000 271000
23prepared by Preksha Mehta
Following is the balance sheet of X, Y and Z as at 31st
March 2018.

24. Additional Information
The partners decided to dissolve the firm on and from
the date of the balance sheet.
• Stock is taken over by X for Rs 17000 and furniture
was sold to K for Rs 20,000.
• Creditors and bills payable were paid off at a
discount of 10%. G’s loan was paid by cheque.
• Debtors realised Rs 29000. Land and Building was
sold for Rs 298000.
• Compensation to workmen paid by the firm
amounted to Rs 15,000.
Prepare necessary accounts.
24prepared by Preksha Mehta

25. SOLUTION
Realisation A/c
Particulars Amount Particulars Amount
To Assets
[Land & Building 109000
Furniture 43000
Stock 19000
Debtors 48000 ]
To Bank
[ creditors 27000
bills payable 9,000
G’s Loan 18000
Workmen compensation
15000 ]
To profit on realisation
X 49667
Y 49667
Z 49666
219000
69000
149000
By Liabilities
[creditors 30000
Bills Payable 10,000
G’s loan 18000]
By Workmen Comp Reserve
By Bank A/c
[furniture 20,000
Land & Building 298000
debtors 29000]
By X’s Capital (stock)
58,000
15,000
347000
17000
437000 437000
25prepared by Preksha Mehta

26. PARTNERS’ CAPITAL A/C
Particulars X Y Z Particulars X y Z
To Bal b/d
To
Realisation
To Bank
A/c
17000
113667 140667
20,000
35666
By bal b/d
By wcr
By
realisation
By Bank A/c
75,000
6000
49667
85,000
6000
49667
6000
49666
130667 140667 55666 130667 140667 55666
Partners’ Capital A/c
26prepared by Preksha Mehta

27. SOLUTION
Y’s Loan A/c
Particulars Amount Particulars Amount
To Bank A/c 20,000 By Balance b/d 20,000
20,000 20,000
27prepared by Preksha Mehta

28. SOLUTION
Bank A/c
Particulars Amount Particulars Amount
To Balance b/d
To Realisation A/c
32000
347000
By Realisation A/c
By X’s Capital A/c
By Y’s Capital A/c
By Z’s Capital A/c
By Y’s Loan A/c
69000
113667
140667
35666
20000
379000 379000
28prepared by Preksha Mehta

29. QUESTION
Liabilities Amount Assets Amount
Creditors
Mrs A’s loan
Outstanding salary
Investment fluctuation
fund
Reserve
A’s Capital
B’s Capital
C’s Capital
30,000
20,000
8,000
10,000
12,000
60,000
40,000
20,000
Bank
Bills receivable
Stock
Debtors 40,000
Less provision for doubtful
debts (4000)
Land and Building
Furniture
Typewriter
Investment
15,000
12,000
40,000
36,000
50,000
10,000
7,000
30,000
200000 200000
29prepared by Preksha Mehta
Following is the balance sheet of A, B and C as at
31st March 2018. Their profit sharing ratio is 3:2:1.

30. Additional Information
The partners decided to dissolve the firm on and from the date of the balance
sheet.
• Typewriter is taken over by A for Rs 5000
• Bills receivable were realised at a discount of 5%. Debtors were all good.
Stock realised Rs 32000. Land and building realised at 40% higher than the
book value.
• Furniture was sold for Rs 6000 by auction and auctioneer’s commission
amounted to Rs 300.
• Creditors agreed to accept 10% less.
• Investments were sold in the open market at a price of Rs 25000 for which
a commission of 2% was paid to the broker.
• Compensation to workmen paid by the firm amounted to Rs 25,000.
Prepare necessary accounts.
30prepared by Preksha Mehta

31. SOLUTION
Realisation A/c
Particulars Amount Particulars Amount
To Assets
[Bills receivable 12000
Stock 40000
Debtor 40000
Land & Building 50000
Furniture 10000
Typewriter 7000
Investment 30,000]
To Bank
[ creditors 27000
Mrs A’s loan 20,000
o/s salary 8000
Compensation to employees
25000]
189000
80,000
By provision for doubtful
debts
By Investment fluctuation
fund
By Liabilities
[creditors 30,000
Mrs A’s loan 20000
Outstanding salary 8000]
By Bank A/c
[B/R 11400
Debtor 40,000
Stock 32000
L/B 70,000
Furniture 5700
Investment 24500]
By A’s CapitalA/c(typewriter)
By loss on realisation
4000
10,000
58,000
183600
5000
8400
269000 269000
31prepared by Preksha Mehta

32. PARTNERS’ CAPITAL A/C
Particulars A B C Particulars A B C
To
realisation
To
Realisation
To Bank
A/c
4200
5,000
56800
2800
41200
1400
20,600
By bal b/d
By reserve
60,000
6000
40,000
4000
20,000
2000
66000 44000 22000 66000 44000 22000
Partners’ Capital A/c
32prepared by Preksha Mehta

33. SOLUTION
Bank A/c
Particulars Amount Particulars Amount
To Balance b/d
To Realisation A/c
15000
183600
By Realisation A/c
By A’s Capital A/c
By B’s Capital A/c
By C’s Capital A/c
80000
56800
41200
20600
198600 198600
33prepared by Preksha Mehta

34. QUESTION
Ques: X and Y are partners in a firm. Give journal entries in each
of the following alternative cases on the dissolution of a firm.
Various assets and liabilities have been transferred to
realisation account.
a. Realisation expenses paid by X on the behalf of the firm.
b. Advertisement suspense appearing in the books of accounts
Rs 20,000.
c. Debtors realised Rs 12,000. Y took over investment at Rs
10,000.
d. Sundry creditors amounted to Rs 15,000. These were paid at
a discount of 2%.
e. Profit on realisation was Rs 10,200.
34prepared by Preksha Mehta

35. ACCOUNTING TREATMENT OF REALISATION EXPENSES
35prepared by Preksha Mehta
CASES JOURNAL ENTRY
1. Borne and paid by the
firm
Realisation A/c Dr
To Bank A/c
2. Borne by firm but paid
by partner
Realisation A/c Dr
To Partner’s capital A/c
3. Borne by partner , paid
by firm
Partner’s Capital A/c Dr
To Bank A/c
4. Borne by partner and
paid by partner
No Entry
5. Firm pays remuneration
to partner for dissolution
work
Realisation A/c
To Partner’s Capital A/c

36. QUESTION (on realisation expenses)
Give journal entries in each of the following cases:
a. Realisation expenses amounted to Rs 2500.
b. Realisation expenses amounted to Rs 2500 paid by a partner
X.
c. Realisation expenses amounted to Rs 2500 borne and paid
by partner X.
d. Realisation expenses amounted to Rs 2500 paid by the firm
on behalf of partner X.
e. X, a partner, is allowed remuneration of Rs 10,000 for
dissolution work. Realisation expenses Rs 3500 were paid by
the firm.
f. X, a partner, is allowed remuneration of Rs 10,000 for
dissolution work. Realisation expenses Rs 3500 were paid by
him.
36prepared by Preksha Mehta

37. QUESTION
P and Q were partners in a firm. Give journal entries in each of the
following transactions on dissolution of firm after various assets
and liabilities have been transferred to Realisation A/c.
a. A creditor to whom Rs 10,000 were to be paid accepted an
unrecorded asset of Rs 15,000 in full settlement of his claim.
b. P’s loan was appearing on the liabilities side at Rs 50,000. He
accepted an unrecorded asset of Rs 40,000 at Rs 35,000 and the
balance was paid to him in cash.
c. Q’s loan of Rs 6000 was discharged at Rs 6200.
d. Creditors to whom the firm owed Rs 6000 accepted stock of Rs
5000 at a discount of 5% and balance in cash.
e. P was appointed to look after the dissolution work for a
remuneration of Rs 7000. He agreed to bear the dissolution
expenses. Actual dissolution expenses Rs 6500 were paid by Q on
the behalf of P.
37prepared by Preksha Mehta

38. QUESTION (Memorandum Balance Sheet)
A and B were in partnership sharing profits in 3:1. They
agreed to dissolve the firm. Assets (other than cash of Rs
2000) realised Rs 1,10,000. Particulars of the firm on
that date were as follows:
Creditors Rs 40,000
A’s capital Rs 100,000
B’s capital (Dr. Balance) Rs 10,000
Profit and loss A/c (Dr. Balance) Rs 8000
Creditors were settled in full settlement at Rs 38000.
Realisation expenses amounted to Rs 1000. Prepare
Realisation A/c, Partners’ Capital A/c and Cash A/c.
38prepared by Preksha Mehta

39. Solution: MEMORANDUM BALANCE SHEET
Liabilities Amount Assets Amount
Creditors
A’s Capital
40,000
100,000
B’s Capital
Profit & Loss A/c
Cash
Sundry Assets (Balancing
Figure)
10,000
8,000
2,000
120,000
140,000 140,000
39prepared by Preksha Mehta

40. SOLUTION
Realisation A/c
Particulars Amount Particulars Amount
To Sundry Assets
To Cash A/c
[ creditors 38000
expenses 1000]
120,000
39,000
By creditors
By Cash A/c
By Loss on Realisation
A- 6750
B- 2250
40,000
110,000
9000
159,000 159,000
40prepared by Preksha Mehta

41. PARTNERS’ CAPITAL A/C
Particulars A B Particulars A B
To balance b/d
To Realisation
To Profit &
Loss A/c
To Cash A/c
6750
6000
87,250
10,000
2250
2000
By bal b/d
By Cash A/c
100,000
14,250
100,000 14,250 100,000 14,250
Partners’ Capital A/c
41prepared by Preksha Mehta

42. SOLUTION
Cash A/c
Particulars Amount Particulars Amount
To Balance b/d
To Realisation
To B’s Capital A/c
2000
110,000
14,250
By Realisation A/c
By A’s Capital A/c
39,000
87,250
126250 126250
42prepared by Preksha Mehta

43. PRACTICE QUESTION
X, Y and Z were in partnership sharing profits in 7:5:8. They
agreed to dissolve the firm. Assets realised Rs 44,150.
Particulars of the firm on that date were as follows:
Creditors Rs 20,000, cash Rs 1000
X’s capital Rs 12,000, Y’s capital Rs 10,000 and Z’s capital Rs
18,000.
X had lent to the firm in addition to capital Rs 14,000.
A contingent liability of Rs 2650 not brought into the accounts
matured and to be met.
Prepare the necessary ledger accounts.
Solution: Realisation Loss Rs 31,500 and total of Cash A/c Rs
45,150.
43prepared by Preksha Mehta

44. THANK YOU
44prepared by Preksha Mehta