DISSOLUTION OF PARTNERSHIP FIRM

MEANING OF DISSOLUTION OF PARTNERSHIP

It means termination of old agreement and reconstruction of the firm due to admission, retirement or death of a partner.
Cases:
1. In case of change in profit sharing ratio among existing partner.
2. Admission of new partner
3. Retirement of a partner
4. Death of a partner
5. insolvency of a partner
6. Expulsion of a partner
7. Expiry of period of partnership

MEANING OF DISSOLUTION OF PARTNERSHIP FIRM

IT means firm close down its business and comes to an end. All assets of the firm are sold and liabilities are paid off and out
of the remaining amount, the account of the partners are settled.
Modes:
1. By Mutual Agreement (Section 40) All Agree
2. Compulsory Dissolution (Section 41) Business unlawful, all insolvent
3. On Happening of an event (Section 42) Expiry of time period, fulfillment of object, Insolvency
of a partner
4. By Notice (Section 43) Any partner giving notice to others (Duration is not fixed)
5. By Order of court (Section 44) When a partner, other than the partner filing a suit
# Incapable to perform his duties.
# guilty of misconduct that may harm the partnership
# willfully commits the breach of partnership agreement.
#transferred the whole if his interest to third party.
# if court satisfied due to some other reason.
DIFFERENCE BETWEEN DISSOLUTION OF PARTNERSHIP AND DISSOLUTION OF PARTNERSHIP FIRM:
1.Meaning 2.Continuation of Business 3.Books of Accounts 4.Effect(Relationship between these
two terms) 5. Nature (Voluntary/ Compulsory) 6. Court intervention 7. Economic Relationship

SETTLEMENT OF ACCOUNTS ON DISSOLUTION; (SECTION 48)

1. First of all, the amount of loss, including deficiency of capital
(A) paid out of profit (B) Next out of capital (C) If necessary, realised from partners in
their profit sharing ratio
2. Amount realized from sale of assets of the firm(including sums contributed by the partners) Shall be applied:
(A) `First of all, outside debt(Liabilities)of the firm will be paid.
(B) Out of the reaming amount, the loans and advances by partners will be paid.
(C) Balance of partners capital accounts will be returned.
(D) If some amount remains, it will be divided among partners in their profit sharing ratio.

PAYMENT OF FIRM’S DEBT AND PRIVATE DEBT (SECTION 49)

Debts which the firm owes to outsider are called Firm’s Debt.
Debts which a partner owes in his personal capacity are called private Debts.
Difference between Firms Debt and Private Debt
(1) Meaning (2) Who is liable(All partners jointly and severally/ concerned partner personally)
(3) Application of Firm’s property (4) Application of private Property
Difference Between Revaluation(Profit and Loss Adjustment A/c) a/c and Realisation A/c
(1) Meaning (2) When prepared (3) Objective (4) Results
(5) Value of assets and liability recorded
Accounting treatment at the time of dissolution of partnership firm:
1. When assets accounts are closed by transferring to Realisation Account at book values(Balance Sheet Value)
All realizable assets
Realisation A/c Dr.
To Sundry Assets A/c( Individually) (Book Value)
(Being realizable assets transferred to realisation account at book value)
NOTE :
1. Assets are always transferred to Realisation Account at Book Value/Balance sheet value.
2. Only realizable assets, which can be converted into cash will be transferred.
3. Dr. balance of partner’s capital account will be transferred to partners capital account as To Balance B/d.
4. Accumulated Losses and Fictitious Assets(can not be realized in cash)will be transferred to partners capital
account.
Partner’s Capital A/c Dr. (Profit sharing ratio)
To Profit and loss A/c(Dr.)
To Advertisement Suspense A/c
To Deferred Revenue Expenditures A/c
(Being Accumulated losses and Fictitious assets transferred to partners capital account
In their profits sharing ratio)
5. Any provision is given against any assets , Gross value will be transferred to Debit side of realisation account and
provision will be transferred to Credit side of Realisation Account.
Provision for Doubtful Debts A/c Dr.
Provision of Depreciation A/c(Acc. Dep.) Dr.
Machinery Replacement Reserve A/c Dr.
Repairs Renewal Reserve A/c Dr.
Joint Life Policy Reserve A/c Dr.
Investment fluctuation Reserve A/c Dr.
Life Policy Fund A/c Dr.
To Realisation A/c
(Being provisions transferred to Realisation Account)
6. Loan to partners by the firm (given in assets side)- Amount will be received from partner
Separate loan account can be prepared and cash will be received from the partner.
7. Cash and bank balance will be transferred to cash Or bank account.

2. When liabilities accounts are closed by transferring to Realisation Account at book values(Balance Sheet
Value); All outside liabillities
Sundry Liabilities A/c (Individually) Dr. (Book Value)
To Realisation A/c
(Being outside liabilities transferred to realisation account at book value)
NOTE :
1. Only third parties liabilities (Outside Liabilities) will be transferred.
(Creditors, B/P, Bank Loan, Outstanding Expenses, Outsider Loans, Employee PF, Employee saving fund, bank
overdraft)
2. Partner’s loan (Loan from partner) will be transferred to Separate Partner’s loan account and paid off separately.
Reason : partner’s loan will be paid after payment of outside liabilities.
3. Capital balance of partners will be transferred to partners capital account.
4. Accumulated profits will be transferred to partners capital account in their profit sharing ratio.
General Reserve A/c Dr.
Reserve Fund A/c Dr.
Contingency Reserve A/c Dr.
Profit and loss A/c Dr.
Profit and loss Appropriation A/c Dr.
Workmen Compensation Reserve A/c Dr.
To Partner’s Capital A/c (profit sharing ratio)
(Being Accumulated profits transferred to partners capital accounts)
5. Treatment of Bank Overdraft:
Method 1 Credit side of bank account
OR Method 2 Credit side of Realisation account as outside liability and after that paid off.(more appropriate)
6. Treatment of Workmen Compensation Reserve;
Step 1: Workmen Compensation Reserve Given in Balance Sheet
Case 1 Case 2 Case 3 Case 4 Case 5
10,000 10,000 10,000 10,000 NIL
Step 2: Actual amount of liability given at the time of dissolution of firm
NIL 10,000 14,000 6,000 10,000
(NO) (Equal) (More) (Less) (Liability arise)

Case 1: Partner’s Capital –Cr. 10,000 No Entry

Case 2: Realisation –Cr. 10,000 Realisation- Dr. 10,000(payment)
Case 3: Realisation –Cr. 10,000 Realisation- Dr. 14,000(payment)
Case 4: Realisation –Cr. 6,000
Partner’s Capital – Cr. 4,000 Realisation – Dr. 6,000(payment)
Case 5: No entry Realisation- Dr. 10,000(payment)
7. Treatment of Joint Life Policy Reserve and investment Fluctuation Reserve:
1. When in assets side Joint Life Policy and Investment are also given
Joint Life Policy and Investment will be transferred to Dr. side of Realisation Account
Joint Life Policy Reserve and Investment fluctuation reserve will be transferred to Cr. side of Realisation Account
2. When in assets side Joint Life Policy and Investment are not given
Joint Life Policy Reserve and Investment fluctuation reserve will be transferred to Cr. side of Partner’s Capital
Account
3. Realisation of Assets(Whether recorded or not in the balance sheet)
(A) When assets sold
Bank A/c Or Cash A/c Dr.
To Realisation A/c (Net Realised Value)
(Being assets sold for cash)
 (B) When Assets taken over by any partner
Partner’s Capital A/c Dr.
To Realisation A/c (Agreed Value)
(Being assets taken over by partner)
Note: 1. When Realisation value of any assets is not given in question - Assumed Not realised
2. When any of the assets is taken over by partners with any liabilities
Both will be separately recorded.
3. When any of the assets is taken over by partners with any liabilities in full settlement
NO ENTRY
4. When Realised value of any assets is not given in question:
(A) Tangible assets At Book value
(B) Intangible assets Not realised
4. Payments of Outside Liabilities(Whether recorded or not in the balance sheet)
(A) When liabilities are paid
Realisation A/c Dr. (Paid value)
To Bank A/c Or Cash A/c
(Being liabilities paid in cash)
(B) When liability taken over by any partner
Realisation A/c Dr. (Agreed Value)
To Partner’s Capital A/c
(Being Liability taken over by partner)

Note: 1. When question is silent about payment of liability: Paid at book value
2. The following liabilities will never paid. These are not actual liabilities.
Provision for Doubtful Debts A/c
Provision of Depreciation A/c(Acc. Dep.)
Machinery Replacement Reserve A/c
Repairs Renewal Reserve A/c
Joint Life Policy Reserve A/c
Investment fluctuation Reserve A/c
Life Policy Fund A/c
3. When any of the assets is given to creditors in full settlement NO ENTRY
4. When any of the assets is given to creditors in part payments of his dues
# The agreed amount of assets is deducted from the claim of the creditors and balance amount paid
to the creditors
Realisation A/c Dr. (Balance amount)
To Bank A/c Or Cash A/c
5. When any of the assets is given to creditors at excess price then their claims;
# the claim of the creditors will be deducted from the agreed amount of assets and balance will be
returned by the creditors to the firm
Bank A/c Or Cash A/c Dr.
To Realisation A/c (Net amount returned by creditors)
5. Payment of Realisation Expenses(Dissolution Expenses or Cost of winding up)
(A) When Realisation Expenses are paid by firm
Realisation A/c Dr.
To Bank A/c or Cash A/c
(Being realization expenses are paid in cash)
(B) When Realisation expenses are paid by the partner on behalf of the firm
Realisation A/c Dr.
To Partner’s Capital A/c
(Being realization expenses are paid by partner on behalf of firm)

6. When any of the commission or fixed amount is given to partner to bear realization expenses or on realization
of assets
Realisation A/c Dr.
To Partner’s Capital A/c
(Being remuneration or commission allowed to partner)

7. Closing of Realisation Account

(A) When Realisation Account disclose profit ( Cr. Side> Dr. Side)
Realisation A/c Dr.
To Partner’s Capital A/c (profit sharing ratio)
(Being realization profit transfer to partners’ capital account)
(B) When Realisation Account disclose loss ( Dr. Side> Cr. Side)
Partner’s Capital A/c Dr. (profit sharing ratio)
To Realisation A/c
(Being realization losst transfer to partners’ capital account)

8. Amount received from partners for partner’s loan(Loan given in assets side)
Bank A/c Dr.
To Partner’s Loan A/c
` (Being amount of partner loan received)

Bank A/c Dr.

To Partner’s Loan A/c
To Realisation A/c (Interest received/Income)
` (Being amount of partner loan received)

Bank A/c Dr.

Realiation A/c Dr. (LOSS) If less amount received
To Partner’s Loan A/c
` (Being amount of partner loan received)

9. Payments of partner’s loan(Given in Liabilities side)

Partner’s Loan A/c Dr.
To Bank A/c
` (Being Payments of partner’s loan)
 Partner’s Loan A/c Dr.
Realisation A/c Dr. (With Interest/ Expenses)
To Bank A/c
` (Being Payments of partner’s loan)

Partner’s Loan A/c Dr.

To Bank A/c
To Realisation A/c (If less amount paid)
` (Being Payments of partner’s loan)
Note: If any assets is given against partner loan
Partner’s Loan A/c Dr.
To Realisation A/c
` (Being Payments of partner’s loan by giving assets)

10. Final Settlement of partner’s capital account

(A) When a partner is required to bring cash ( If Dr. side > Cr. Side)
Bank A/c Or Cash A/c Dr. (Amount Brought)
To Partner’s Capital A/c
(Being amount brought by partner)
(B) When amount paid to partner ( If Cr. side > Dr. Side)
Partner’s Capital A/c Dr. (Amount paid)
To Bank A/c Or Cash A/c
(Being amount paid to parner)

10. Bank Account of Cash Account

At last both sides of Bank account will be equal.
Note : when balance of cash and bank both are given in balance sheet only one account will be prepared.
Cash A/c ( passed entry for withdrawing the amount from bank)
Bank A/c ( Passed entry for deposited the cash into bank)
LEDGER ACCOUNTS

REALISATION ACCOUNT
PARTICULARS AMOUNT PARTICULARS AMOUN T
To Land & Building A/c ---- By Provision for Doubtful Debts A/c ---
To Plant & Machinery A/c --- By Provision For Depreciation A/c ---
To Furniture and Fixtures A/c --- By Creditors A/c/Suppliers ---
To Investment A/c --- By B/P A/c/ A/c Payables ---
To Office Equipments A/c --- By Bank Loan A/c ---
To Loans & Advances to Others --- By Outsider’s Loan A/c --
To closing Stock A/c/ Inventory --- By Outstanding Expenses A/c ---
To Debtors A/c/ Customers ---- By Income Received in Advance A/c ---
To B/R A/c / A/c Receivables --- By Employee Provident Fund A/c ---
To Prepaid Expenses A/c --- By Employee Saving fund A/c ---
To Accrued Incomes A/c --- By Machinery Replacement Reserve A/c ---
To Goodwill A/c --- By Repairs Renewal Reserve A/c ---
To Trade mark A/c --- By Joint Life Policy Fund A/c --
To Other Assets(realizable) --- By investment Fluctuation Fund A/c --
BY Workmen compensation Reserve A/c—
( Up to actual liability)

To Bank / Cash A/c By Bank/ Cash A/c

( Amount paid for discharging liabilities) --- (Net amount received on realization of ----
Recorded/Unrecorded Assets) Recorded/Unrecorded

To Partner’s Capital A/c By Partner’s Capital A/c

(Liability taken over by partner) ---- ( Assets taken over by partner) ---
Recorded/Unrecorded Recorded/Unrecorded

To Bank/Cash A/c ---

( Realisation Expenses)

To Partner’s Capital A/c

( Remuneration/commission to partner) --- By Partner’s Capital A/c ---
(Realisation loss transferred to capital a/c)

To Partner’s Capital A/c

(Realisation profit transferred to capital a/c) ---

PARTNER’S LOAN ACCOUNT (Loan given by firm to partner given in assets side)
Loan to Partner’s A/c
PARTICULARS X Y PARTICULARS X Y
To Balance b/d -- -- By Bank A/c(Amount received) -- ---
 PARTNER’S LOAN ACCOUNT (Loan given by partner to firm given in liabilities sides)
Loan From Partner’s A/c
PARTICULARS X Y PARTICULARS X Y
To Bank A/c (payments of loan) -- -- By Balance B/d -- ---

PARTNER’S CAPITAL ACCOUNT

PARTICULARS X Y PARTICULARS X Y
To Balance B/d (if any) -- -- By Balance B/d --- --
To Accumulated Losses A/c --- -- By Accumulated Profits A/c -- --
To Profit and loss A/c(Loss) --- -- By Profit and loss A/c(Profit) --- --
To Advertisement Suspense A/c --- --- By General Reserve A/c --- --
To Deferred Revenue Expenditure A/c --- -- BY Wo0rkemen Comp. Reserve -- --
To Partner’s Loan A/c(Loan to partners) -- -- By Reserve For Contingencies A/c -- --
To Realisation A/c( Realisation Loss) -- -- BY Realisation A/c ( Realisation profit) -- --
To Realisation A/c( Assets Taken) -- -- By Realisation A/c (Liability taken) -- -
To Bank A/c( Payments on behalf By Realisation A/c ( Dissolution Exps.) -- --
Of partner) By Realisation A/c (Remuration/comm.) -- --

To Bank A/c ( final Payments) -- --- By Bank A/c ( amount brought) --- ---

BANK ACCOUNT OR CASH ACCOUNT

PARTICULARS AMOUNT PARTICULARS AMOUN T
To Balance B/d --- By Balance B/d( Bank overdraft, if) ---
To Cash A/c( amount deposited) --- By Realisation A/c ( Payments of liabilities) --
To Realisation A/c ( Sale of assets) --- By Realisation A/c ( Dissolution Expenses) ---
To Partner’s Loan A/c ( Amount received) --- By Partner’s Capital A/c(Amount paid on behalf) –
To Partner’s Capital A/c (Amount brought) BY Partner’s Loan A/c ( Payment of loan) ---
By Partner’s Capital A/c ( Final Payment) ---

IMPORTANT POINTS:
1. Treatment of outsiders loans( Bank Loan, Partner’s wife loan, other loan except partners)
Balance Sheet
Liabilities amount Assets amount
(1) Bank Loan, Partner’s wife Loan
Loan from Ram (2) Loan to Mohan

Accounting Treatment:
(1) Transferred to Credit side of Realisation Account and after that paid off.
(2) Transferred to Debit side of Realisation account and after that amount received.
2. Treatment of partner’s loans (X and Y are two partners)
Balance Sheet
Liabilities amount Assets amount
(1) X’s loan (Loan from X) (2) Y’s Loan(Loan to Y)
Accounting Treatment:
(1) Separate Loan account of X will be prepared after realization account and then paid off.
(2) Separate Loan account of Y will be prepared after realization account and then cash received.
Examples:
(A) Rs. 9,000 paid of partner X in full settlement of his loan of Rs. 12,000.
X’s Loan A/c Dr. 12,000
To Bank A/c 9,000
To Realisation A/c 3,000 (profit)
(Being Rs. 9,000 paid of partner X in full settlement of his loan of Rs. 12,000)
(B) Rs.13,000 paid of partner Y in l settlement of his loan of Rs. 8,000.
Y’s Loan A/c Dr. 8,000
Realisation A/c Dr. 5,000 (Loss)
To Bank A/c 13,000
(Being Rs. 13,000 paid of partner Y in settlement of his loan of Rs. 8,000)
(C ) Pass Journal entry at the time of dissolution of firm:
Y’ Loan (Cr.) 12,000 Y’s Capital (Dr.) 7,000
Y’s Loan A/c Dr. 12,000
To Y’s Capital A/c 7,000
To Bank A/c 5,000
(Being Debit balance of partner Y adjusted through his Loan and remaining paid off)
3. When Partner’s Current accounts are given in the question it means that the capital are fixed.
(A) Prepared Partner’s Current Account and transferred Accumulated profit /losses, realisation profit losses,
assets /liabilities taken over by partner, commission of partner, realization expense by partner to
partner’s current account.
(B) Final Balance of partner’s current account will be transferred to partners capital account.
( C) Final settlement will be made in partner’s capital account
4. When Balance Sheet is not given at the time of dissolution of firm.
(A) Prepared Memorandum Balance Sheet ( some missing figure will be there)
(B) The following items will be not be recorded in Memorandum Balance Sheet .
(i) Unrecorded Assets (ii) Unrecorded Liabilities (iii) Dissolution Expenses
(iv) Contingent Liabilities (v) Assets realized or Taken over by partner
(vi) Liability taken over by partner or payment of liability.
(C ) (i) When assets and liabilities are given then balancing figure will be Profit and Loss.dum
On liability side ` Profit and Loss(Profit)
On Assets side ` Profit and Loss(Loss)
(ii) When it is clearly given following are the assets and liabilities except cash, then balancing figure
will be cash.
(iii) When only liability side is given then balancing figure will be Sundry Assets.
5. When accounts are not closed and firm dissolved.
Before preparing Memorandum Balance Sheet, first complete the accounts by preparing Profit and Loss
Appropriation Account and Partner’s Capital accounts.
ASSIGNMENT:

1. When Balance sheet is given on the date of dissolution

A, B and C are partners in a firm sharing profits and losses in the ratio of 5: 3:2 On 31-03-2015 their Balance Sheet was as
follows. They decided to dissolve the firm.
Liabilities Amount Assets Amount
Capital A 9,00,000 Building 6,50,000
B 7,00,000 16,00,000 Plant &Machinery 3,80,000
Furniture 2,30,000
General Reserve 20,000 Computer 40,000
Investment fluctuation Reserve 30,000 Leasehold Property 4,60,000
Workmen Compensation Reserve 40,000 Stock 1,20,000
Reserve for contingencies 60,000 Debtors 90,000
Bank Loan 3,00,000 (--) Provision 10,000 80,000
B’s Wife Loan 2,00,000 B/R 60,000
B’s Loan 50,000 Prepaid Expenses 30,000
Sundry Creditors 70,000 Bank Balance 10,000
Outstanding Expenses 20,000 Investment( 5,000 shares) 2,00,000
Employee Provident Fund 30,000 Goodwill 40,000
Bank overdraft 80,000 Patent Right 60,000
B/P 1,00,000 C’s Capital 1,00,000
A’s Loan 40,000
Advertisement Suspense 20,000
( Deferred Revenue Expenditure)
Profit and Loss 80,000
26,00,000 26,00,000
On the following terms firm dissolved:
(i) A’s took over 50% of stock at 10% less than its book value and remaining stock sold at a 20% above book value.
(ii) An unrecorded assets taken over by B at agreed value of Rs. 30,000.
(iii) B agree to discharge his wife loan and commission to B for doing dissolution work Rs. 10,000.
(iv) A contingent liabilities of Rs. 50,000 is now settled for Rs. 40,000 and paid.
(v) One of the creditors taken over the computer at agreed value of Rs. 20,000 and remaining creditors were discharge
at a discount of 20%.
(vi) Bank loan was discharge along with interest of 10,000.
(vii) B/P were Payable after 3 months .they were paid immediately at 12% p.a. discount.
(viii) C took some part of Plant and machinery at Rs. 1,80,000 ( Being 10% less than book value). Remaining plant and
machinery sold at 20% above book value.
(ix) Bad Debts amounting to Rs. 20,000. (x) Dissolution expenses Rs. 30,000.
(xi) Building sold by an auction for Rs. 8,00,000 and expenses on auction Rs. 10,000.
(xii) A agree to discharge outstanding expenses in full settlement of furniture.
(xiii) Amount realized from lease hold property Rs. 5,00,000, from B/R Rs. 50,000.and prepaid expenses realized full.
(xiv) Market price of share are Rs. 60. Half the shares are sold in the market and brokerage 2%. Remaining half taken by all
the partners in their profit sharing ratio at market price.
(xv) Goodwill of the firm is taken by B at agreed value of Rs. 50,000.
(xvI) Patent Right sold for Rs. 1,00,000. (xvii) Bank overdraft discharge along with interest of Rs. 2,000.
Prepare necessary ledger accounts at the time of dissolution of firm.
2. When Balance of Current accounts are given in question
. Sohan and Suresh were partners in a firm sharing profits in the ratio of 3:2. On 31-03-2015 their Balance Sheetwas as
follows:
Liabilities Amount Assets Amount
Creditors 45.000
Machinery Replacement Reserve 10,000 Stock 40,000
Bank Overdraft 30,000 Investment 50,000
Capital Debtors 55,000
Sohan 2,00,000 Building 1,00,000
Suresh 1,00,000 Machinery 1,30,000
Workmen Compensation Reserve 20,000 Goodwill 75,000
Current Account Current Account
Suresh 75,000 Sohan 30,000
Total 4,80,000 Total 4,80,000
On the above date the firm dissolved on the following terms:
(i) Creditors accepted the debtors in full settlement of their claims.
(ii) Bank overdraft discharge along with interest of Rs.1,000. Claims paid to worker Rs. 15,000.
(iii) Sohantook over the 50% of the stock are 20% less than book value and remaining stock realized at
110% of book value.
(iv) Investment sold by an auction for Rs. 40,000 and broker commission Rs. 2,000.
(v) Building and machinery taken over by Suresh at agreed value of Rs. 7,00,000.
Prepare Realisation Account, Partner’s Current account,Partners Capital accounts and Cash account.
3. Amit and Harish are partners in a firm. They decided to dissolve their firm. Pass necessary journal entry
for the following after various assets( other than cash) and the third party liabilities have been transferred to
Realisation account.
(i)Realisation expense amounting to Rs. 7,000 paid by Amit.
(ii)Harish was paid Rs. 4,000 only in full settlement of his loan to the firm which amounted to Rs.5,000.
` (iii)A computer which was completely written of from the books, now taken over by Amit for Rs. 8,700.
(iv)Realisation expenses amounted to Rs. 5,000.
(v)Harish a partner bear the realization expenses of Rs. 5,000 for that remuneration of Harish Rs. 6,000.
(vi)Stock worth Rs. 10,000 was taken by Amit at Rs. 9,500.
(vii)Creditors of Rs, 50,000 but paid Rs. 45,000 in full settlement.
(viii)Profit and Loss (Dr. balance) Appeared in balance sheet Rs. 40,000.
(ix)Realisation profit Rs. 20,000. (x)Amit loan of Rs. 3,000 appeared in Assets side.
(xi) Goodwill of the firm is taken by Harish for Rs. 12,000.(xii)Bank loan of Rs. 10,000 discharge along with interest of
Rs. 200. (xiii) Amit agree to pay off his wife loan of Rs. 80,000.
(xiv) A contingent liability of Rs. 5,00,000 not recordedin books now settled for Rs. 2,00,000.
(xv)Creditors of Rs. 40,000 agree to take furniture of Rs. 25,000 at 10,000. And remaining creditors accepted 80%
amount for their claim.
(xvi)Harish agree to accept computer of Rs. 20,000 in full settlement of liability of outstanding expenses of Rs. 15,000.
(xvii)Investment sold through a broker for Rs. 40,000 and brokerage 2%.
(xviii)Debtors 50,000(gross), provision for doubtful debts 5,000, At the time of dissolution actual bad debts Rs.12,000.
(xix)Final payment to harishRs. 12,000.((xx)Amount brought by Amit Rs. 18,000 in final settlement.
(xxi) Creditors of Rs. 50,000 accepted the furniture book value of Rs. 70,000 in full settlement of his claim.
(xxii)) Creditors of Rs. 60,000 accepted the building book value of Rs. 90,000 and return the balance money to firm.
Journal entry at the time of dissolution of firm when Balance sheet is given
4. Sanjay and Sameer were partners in a firm sharing profit and losses in the ratio of 7:3. Their Balance
Sheet as on 31-03-2014 was as follows:
Liabilities Amounts Assets Amounts
Capital Account Building 3,00,000
Sanjay 1,50,000 Stock 1,00,000
Sameer 2,70,000 Debtors 1,60,000
Workmen compensation Reserve 80,000 (--)Provision 10,000 1,50,000
Bank 1,00,000
Profit and Loss 50,000
Creditors ` 1,40,000
Bank Loan 60,000
Total 7,00,000 Total 7,00,000

The firm dissolved on the following terms:

(i) Sanjay agreed to take over the building at Rs. 4,00,000.
(ii) Stock realized for Rs. 90,000.
(iii) Creditors accepted debtors in full settlement of their claims.
(iv) Bank loan discharge along with interest of Rs. 3,000.
(v) Realization expenses Rs. 2,000. (vi) Claim paid to worker Rs. 65,000.
Pass all the Journal Entry at the time of dissolution of firm.
5. X, Y and Z were partners sharing profit in the ratio of 3:1:1. Inspite of repeated reminders by
the authorities, the partners kept dumping hazardous material into nearby river. Finally the court ordered
for the dissolution. Their balance sheet as at 31-03-2010 was as follows:
Liabilities Amount Assets Amount
Capital Bank 3,200
X 27,500 Debtors 24,200
Y 10,000 (-) Provision 1,200 23,000
Z 7,000 Stock 7,800
Bank Loan 1,500 B/R 1,000
Creditors 6,000 Fixed Assets 17,000
------------- ------------
52,000 52,000
The firm dissolve on the following conditions:
(i) X agree to take over B/R at Rs. 800. Debtors amounting to Rs. 20,000 at Rs. 17,200
And the creditors of Rs. 6,000 were to be paid by him at this figure.
(ii) Y agree to take over all stock for Rs. 7,000 and some fixed assets at Rs. 7,200(being
Less than 10% of book value)
(iii) Z agree to take over remaining fixed assets at 90% of the book value and discharge
The bank loan with Rs. 300 interest.
(iv) Realisation expenses Rs. 270 and only 50% amount realized from remaining debtors.
Prepare Realisation Account, Capital accounts of partners and Bank Account.
Also identify the value which is violated here.
6. Record the necessary Journal Entries at the time of Dissolution of firm in the following cases:
 (Assuming that all realisable assets and third party liabilities have been already transferred to
Realisation Account)
(i) Creditors were paid Rs. 18,000 in full settlement of their claims of Rs. 20,000.
(ii) Creditors worth Rs. 86,000 accepted Rs. 40,000 as cash and investment worth Rs. 42,000In full settlement of
their claims.
(iii) Creditors were Rs. 18,000. They accepted machinery worth Rs. 15,000 in full settlement of their claim.
(iv) Creditors were Rs. 90,000. They accepted building valued Rs. 1,50,000 and paid remaining Cash to the firm.
(v) Investment sold through a broker for Rs. 40,000 and brokerage 2%.
(vi) Debtors 50,000(gross), provision for doubtful debts 5,000, At the time of dissolution actual bad debts
Rs.12,000
7.
Anil and Naresh are partners in a firm sharing profits and losses in the ratio of 3:2 On 31-03-2019 their
Balance Sheet was as follows. They decided to dissolve the firm.
Liabilities Amount Assets Amount
Capital Anil 5,00,000 Building 7,50,000
Naresh2 ,00,000 7,00,000 Furniture 24,000
Investment fluctuation Reserve 10,000
Workmen Compensation Reserve 40,000 Stock 1,40,000
Debtors 90,000
(--) Provision 10,000 80,000
Bank Loan 2,00,000 Investment 2,50,000
Anil’ s Loan 48,000
Sundry Creditors 2,70,000 Bank Balance 10,000
Employee Provident Fund 32,000 Goodwill 26,000
B/P 20,000
Naresh’s Loan 40,000

13,20,000 13,20,000

On the following terms firm dissolved:

(i) Some of the stock is taken over by Anil at Rs. 81,000 ( 10% less than book value)
and remaining stock sold at a 20% above book value.
(ii) A computer which was completely written from the books now valued at Rs. 6,000 and taken over
by Naresh at this value. and also furniture at Rs. 3,000.
(iii One of the creditors taken over the investment at agreed value of Rs. 2,20,000 and remaining
creditors were discharge at a discount of 20%.
(ivi) Bank loan was discharge along with interest of 4,000.
(v) B/P were Payable after 2 months .they were paid immediately at 12% p.a. discount.
(vi) Bad Debts amounting to Rs. 20,000. Claims paid to worker Rs, 28,000.
(vii) Building sold by an auction for Rs. 8,00,000 and expenses on auction Rs. 10,000.
(viii) Anil was appointed to look after the dissolution work, for that he is allowed remuneration of Rs.
16,000 with the condition that he will bear realization expenses. Actual realization expenses Rs.
14,000 which were paid by firm.
Prepare Realisation Account, Anil’s Loan Account, Partner’s Capital Account and Bank Account.
8
8. Sohan and Suresh were partners in a firm sharing profits in the ratio of 3:2. On 31-03-2016
They decided to dissolve the firm. Pass the necessary journal entry in the following cases:
(i) Realisation Expenses amounted to Rs. 10,000 paid by Suresh.
(ii) Realisation Expenses Rs. 12,000.
(iii) Sohan is to bear all realization expenses, for which he is allowed a commission of
Rs.12,000. Actual realization expenses were Rs. 15,000, which is paid by Sohan himself.
(iv) Sohan is to bear all realization expenses, for which he is allowed a commission of
Rs.16,000. Actual realization expenses were Rs. 12,000, which is paid by firm on
behalf of Sohan ..
(v) Realization Expenses Rs. 8,000 were paid by firm on behalf of Suresh.
(vi) Out of the total realization expenses of Rs. 15,000 only Rs. 6,800 were to be borne by
Sohan, But all the realization expenses paid by Sohan.
(vii) Out of the total realization expenses of Rs. 18,000 only Rs.9,500 were to be borne by
Sohan, But all the realization expenses paid by Firm..
(viii) Commission to Sohan 5% on Final amount paid to Suresh. After all adjustment but
before charging commission balance of Suresh account 42,000.
(ix) Dissolution expense Rs. 6,000 is to be borne by Sohan but paid by Suresh on behalf of
Sohan.
(x) A debtor Ravinder for Rs. 20,000 agreed to pay dissolution expenses Rs. 16,000in full
settlement of his debt.
(xi) Sohan agreed to look after the work of dissolution for a commission of Rs. 16,000.
So he took the furniture of Rs. 30,000 for his commission in full settlement.
(xii) Sohan agreed to look after the work of dissolution for a commission of Rs. 10,000.
Dissolution expenses Rs. 7,000 paid by firm.

9. Amit and Sumit were partners in a firm sharing profits in the ratio of 7:3. On 31-03-2016
They decided to dissolve the firm. Pass all journal entry in the following cases
(i) Workmen Compensation Reserve appeared in Balance Sheet Rs. 12,000 and actual claim
paid to worker at the time of dissolution of firm Rs. 16,000.
(ii) Workmen Compensation Reserve appeared in Balance Sheet Rs. 15,000 and actual claim
paid to worker at the time of dissolution of firm Rs. 11,000.
(iii) Workmen Compensation Reserve appeared in Balance Sheet Rs. 14,000 and actual claim
paid to worker at the time of dissolution of firm Rs. 14,000.
(iv) Workmen Compensation Reserve appeared in Balance Sheet Rs. 18,000 and no claim arise at
the time of dissolution of firm .
(v) Claim paid to worker at the time of dissolution of firm Rs. 16,000.

10. Mr. Lal and Mrs. Pal were partners in a firm sharing profits in the ratio of 7:3. On 31-03-2016
They decided to dissolve the firm. Pass all journal entry in the following cases
Balance Sheet as at 31-03-2016
Liabilities Amount Assets Amount
Loan from Mr. Lal 12,000 Loan to Mrs. Pal 6,000
Bank loan 10,000 Loan to Mrs. Lal 5,000
 Loan from Mr. Pal 15,000
(i) Bank loan discharged along with interest of Rs. 300
(ii) Mr. Pal loan discharged by Mrs. Pal.
(iii) Amount realised from Mrs. Lal Rs. 4,800.

11. X, Y, Z and A were partners in a firm sharing profits in the ratio of2:2:1. On 31-03-2016
They decided to dissolve the firm. Pass all journal entry in the following cases for final settlement
of partners:
(i) X’ s Loan 15,000 X’s Capital 18,000
(ii) Y’ s Loan(Dr.) 12,000 Y’s Capital 23,000
(iii) Z’ s Loan 14,000 Z’s Capital (Dr.) 11,000
(i) A’ s Loan(Dr.) 17,000 A’s Capital(Dr) 19,000

12. Record the necessary Journal Entries at the time of Dissolution of firm in the following cases:
(Assuming that all realisable assets and third party liabilities have been already transferred to
Realisation Account) ( A and B are two partners)
(i)There was a stock of Rs. 60,000. A took over 40% of stock at a discount of 10% and
remaining sold at a profit of 20%
(ii)A B/R of Rs. 10,000 discounted from bank was dishonored and only 70% amount
recovered from acceptor.
(iii)Debtors of Rs. 54,000 and a provision of Rs. 4,000.Actual bad debts Rs. 8,000 and rest
were realized full.
(iv)Furniture of Rs. 17,000 has been transferred to realisation account.
Some of the furniture is taken by B at 8,100 (10% less than book value) and remaining
furniture sold at book value.
13. Mr. Lal and Mrs. Pal were partners in a firm sharing profits in the ratio of 4:1. On 31-03-2016
They decided to dissolve the firm. Pass all journal entry in the following case:
Balance Sheet as at 31-03-2016
Liabilities Amount Assets Amount
Investment Fluctuation Reserve 15,000 Investment 5,98,000
(Government Securities
Face value 6,00,000)
(i) Investment realized at 80%