Dissolution of partnership firm by deepak madan

1. By:- Deepak Madan M.Com . B.ed Dissolution of Partnership firm

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 :- First out of profits. Next out of capital of partners, and Lastly, if necessary by the individually in their profit sharing ratio. Assets including sum contributed by partners for deficiency :- Debts of third party Loans and advances by partner except capital Capital payable to partners 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: - Payment made by firm Partner capital A/ c---- Dr. To Bank A/c 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.