Dissolution of a firm, Introduction ,Conditions, Modes of dissolution of a firm ,questions and solution of dissolution of a firm

1. Prepared By
Ms.Jissy.C
Assistant Professor
Prepared By Ms.Jissy.C, Assistant Profesor

2. MEANING:
Dissolution of partnership means discontinuance of
relationship between partners.
Prepared By Ms.Jissy.C, Assistant Profesor

3.  Dissolution of a firm means Closing down the
undertaking or suspending permanently the activities
of a partnership business.
 It refers to the complete breakdown of a partnership &
Partners do not continue the firm. The Dissolution of
partnership between all partners of the firm is called
the dissolution of firm. In such case ,the assets are
disposed off, liabilities are paid off and whatever
remains is paid to the partners in settlement of their
accounts
Prepared By Ms.Jissy.C, Assistant Profesor

4. Prepared By Ms.Jissy.C, Assistant Profesor

5. MODES OF DISSLOUTION
Dissolution by
Agreement
Compulsory
Agreement
Dissolution
on happening
of certain
events
Dissolution
By Notice
Dissolution
by Court
Prepared By Ms.Jissy.C, Assistant Profesor

6.  1.R S&M are partners sharing P/L as 2:2:1 .Their B/S as
at 30.6.91 was as follows
Liabilities Amount Assets Amount
Capital-R 10000 Bank 5000
S 4000 Debtors 4000
M 2000 Stock 5000
Creditors 4000 Fixtures 2000
Reserve fund 5000 Machinery 9000
25000 25000
Prepared By Ms.Jissy.C, Assistant Profesor

7. They decide to dissolve the business. The following are
the amounts realized. Machinery Rs 8500; Furniture
Rs1500; Stock Rs7000; Debtors Rs3700.Creditors
allowed a discount of 2% and R agreed to bear all
realization expenses .For the service, R is paid Rs
120.Actual expenses amounted to Rs 900 which was
withdrawn by him from the firm. There was unrecorded
assets of Rs500 which was taken over by S at
Rs400.Pass necessary journal entries, Realization
Partners capital &Bank a/c.
Prepared By Ms.Jissy.C, Assistant Profesor

8. Prepared By Ms.Jissy.C, Assistant Profesor
 Journal Entries
Particulars Amount Amount
Realization a/c
To Debtors
To Stock
To Fixtures
To Machinery
(Being all Assets Transferred)
20000
4000
5000
2000
9000
Realisation account Dr
To Bank
(Being creditors paid off)
3920
3920
Bank a/c Dr
To Realisation
(Being all assetd realised except cash)
20700
20700
Realisation acccount Dr
To R,s Capital
120
120
Creditors a/c
To Realization
(Being Creditor Transferred)
4000
4000

9. Prepared By Ms.Jissy.C, Assistant Profesor
R,s Capital account Dr
To Bank
(Being realisation expenses paid by R)
900
900
S’s Capital account Dr
To Realisation
(Being unrecorded assests taken over by S)
400
400
Reserve Fund account Dr
To R’s Capital a/c
To S’s Capital a/c
To M’s Capital a/c
(Being accmulated profits distributed among
all the partners)
5000
2000
2000
1000
Realisation account Dr
To R’s Capital a/c
To S’s Capital a/c
To M’s Capital a/c
(Being profit on disolution distributed)
1060
424
424
214

10.  Realisation account
Prepared By Ms.Jissy.C, Assistant Profesor
particulars amount Particulars amount
To Debtors 4000 By Creditors 4000
To Stock 5000
To Fixtures 2000
TO Machinery 9000
TO Bank (Crs) 3920
By S’s Capital 400
By Bank 20700
To Profit
R:424
S:424
M:212 1060
TO R’s Capital 120
25100 25100

11.  Partners Capital account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars R S M Particulars R S M
To Bank 900 - - By Bal b/d 10000 4000 2000
By Realis(R) 120
By Reserve 2000 2000 1000
By Realis
Profit
424 424 212
To Realis(S) 400
To Bank(b/f) 11644 6024 3212
12544 6424 3212 12544 6424 3212

12.  Bank Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount particulars Amount
By R’s Capital 11644
By R’s Capital 900
By S’s Capital 6024
By M’s Capital 3212
By Realisation 3920
To Realisation 20700
To Balance b/d 5000
25700 25700

13. ASSIGNMENT QUESTION :-
2.P ,Q &R share profits in proportion of ½,1/4,&1/4 On
the date of dissolution their B/S was as folows:
The assets realize Rs 35500 .Creditors were paid in
full.Realisation expenses amounted to Rs1500.Close the
books of the firm.
Liabilities Amount Assets Amount
Capital-P 10000 Assets 40000
Q 10000
R 6000
Creditors 14000
40000 40000
Prepared By Ms.Jissy.C, Assistant Profesor

14.  3.The following was the B/S of A&B on 31.12.83.
Prepared By Ms.Jissy.C, Assistant Profesor
Liabilities Amount Assets Amount
Sundry Creditors 38000 Cash @ bank 11500
Mr.A,s loan 10000 Stock in trade 6000
B,s Loan 15000 Debtors 20000
Less provision 1000 19000
Reserve Fund 5000 Fixture & Fitting 4000
A,s Capital 10000 Plant & Machinery 28000
B,s Capital 8000 Investments 10000
P&L a/c 7500
86000 86000

15. The firm was dissolved on 31.12.83 and the following was
the result:
i)A took over the investment at an agreed value of Rs
8000 & agreed to pay off the loan of Mrs A.
ii) The assets realized as follows:
Stock Rs5000; debtors Rs 18500; Fixture &Fittings
Rs4500; &P&M Rs25000
iii)The Expenses were Rs1100
iv)The sundry Creditors were paid off less 2 ½% discount
A &B Shared P&L in the ratio of 3:2. Prepare the
necessary accounts
Prepared By Ms.Jissy.C, Assistant Profesor

16.  Realisation Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount Particulars Amount
By Creditors 38000To Sundry Asset 68000
By provision fro d/d 1000
By A,s Capital 8000
By Bank(Asset Realised) 53000
To Bank(Crs Realised) 37050
To Bank(EXP) 1100
By Loss
A:6150 x3/5=3690
B:6150 x2/5=2460 6150
106150
106150

17.  Partners Capital Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars A B Particulars A B
By Balance B/d 10000 8000
By Reserve 3000 2000
By Mrs A’sLoan 10000
To
Realisation(LOSS)
3690 2460
To
Realisation(invst)
8000
To P& L 4500 3000
To Bank b/f 6810 4540
23000 10000 23000 10000

18.  Bank Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount Particulars Amount
By A,s Capital 6810
By B’s Capital 4540
By Realisation(crs) 37050
To Realisation 53000
To Balance B/d 11500
By B,s Loan 15000
By Realisation(exp) 1100
64500 64500

19.  4) X Y &Z sharing profits in the proportion of 3: 2:1
decided to dissolve partnership on 31.12.90. Their B/S
on that date was as under:
Prepared By Ms.Jissy.C, Assistant Profesor
Liabilities Amount Assets Amount
Sundry Creditors 16200 Cash @ bank 1500
Bank Loan 11500 Stock in trade 7550
Leasehold
redemption fund 6000
Debtors 5800
Less provision 500 5300
Life policy fund 12000 Leasehold premises 12500
Capital X 30000 Goodwill 20000
Y 10000 Machinery 30520
Z 10000 Investment 6330
Joint life policy 12000
95700 95700

20.  The joint life policy is surrendered for Rs10000.The
investment are taken over by for Rs8000.X agreed to
discharge the bank loan. The remaining assets are sold
Rs 86700.The expenses of realization amount to Rs850.
 Show the necessary ledger accounts including the
accounts of the partners
Prepared By Ms.Jissy.C, Assistant Profesor

21.  Realisation Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount Particulars Amount
By Liablities:
Bank Loan
Leasehold Redem
Life policy Fund
Sundry Creditors
11500
6000
12000
16200
To Asset:
Leasehold
Goodwill
Machinery
Stock
Investment
Joint life policy
Debtors
12500
20000
30520
7550
6330
12000
5800
By Bank:
Joint life Policy10000
Other asset 86700 96700
To Bank(Exp) 850
To X,s Capital(Bank
loan)
11500
By Y,s Capital
(invetment)
8000
To Profit:
X:21925
Y:14617
Z:7308
43850
150900
150900
Reserve for D/D 500

22.  Capital Accounts
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars X Y Z Particulars X Y Z
By Balance b/d 30000 10000 10000
By Realisation(P) 21925 14617 7308
To Realisation(P) - 8000 -
To Bank(b/f) 63425 16617 17308
By Realisation
(bank loan)
11500 - -
63425 24617 17308 63425 24617 17308

23.  Bank Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount Particulars Amount
To Balance b/d 1500 By Realisation 850
To Realisation 96700 By X’s Capital 63425
By Y’s Capital 16617
By Z’s Capital 17308
98200 98200

24.  5). A, B &C are Partners in a firm sharing P&L in the
proportion of 3:3:2.Their B/S on 31.12.97 was as
follows:
Prepared By Ms.Jissy.C, Assistant Profesor
Liabilities Amount Assets Amount
Sundry creditors 47500 Bank 55000
Partners capital A 75000 Stock 69000
B 75000 Investments 6000
C 100000 Debtors 70000
Partner Current A 15000 Land & Buildings 125000
B 25000 Goodwill 25000
C 12500
350000 350000

25.  They decided to dissolve the firm on 1.1.1998.”A
“reports the results of realization as follows:
 i) Land &Buildings Rs-90000 ii) Debtors Rs-60000 iii)
Investments Rs5500
iv)Stock Rs-75500 v)Goodwill-Nil
 The realization expenses amounted to Rs2000.Close the
accounts of the firm.
Prepared By Ms.Jissy.C, Assistant Profesor

26.  Solution: Realisation
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount Particulars Amount
By Sundry Crs 47500
By Bank (assets realisd) 231000
To Debtors 70000
To Land & Building 125000
To Investments 6000
To Stock 69000
By Loss
A:24750
B:24750
C:16500 66000
To Goodwill 25000
To Bank(exp) 2000
To Bank(crs) 47500
344500 344500

27.  Partners Current Accounts
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars A B C Particulars A B C
ByBalane b/d 15000 25000 12500To Reali (pr) 24750 24750 16500
By Capital b/f 9750 - 4000To Capital b/f - 250 -
24750 25000 1650024750 25000 16500

28.  Partners Capital account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars A B C Particulars A B C
By Balnce b/d 75000 75000 100000To Current a/c 9750 - 4000
By Current a/c - 250 -
To Bank (b/f) 65250 75250 96000
75000 75250 10000075000 75250 100000

29.  Bank Account
Prepared By Ms.Jissy.C, Assistant Profesor
Particulars Amount Particulars Amount
To Balance b/d 55000
To Realisation (ast reas) 231000
By Realisation(exp) 2000
By Realisation(exp) 47500
By A’s Capital 65250
By B’s Capital 75250
By C’s Capital 96000
286000 286000

30. Prepared By Ms.Jissy.C, Assistant Profesor