The document discusses dissolution of a partnership firm. It defines dissolution of a firm as the complete breakdown of the partnership relation between all partners. Dissolution can occur by order of the court or without court intervention. Common circumstances leading to dissolution include expiration of a fixed term, completion of a venture, death of a partner, retirement of a partner, or insolvency of a partner. Upon dissolution, assets and liabilities are transferred to a realization account. Journal entries are made to record the realization process and distribution of assets and settlement of liabilities. Finally, cash/bank, capital and realization accounts are prepared to finalize the dissolution process.

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2. Section 39 of Indian Partnership Act,
1932 provides that The dissolution of a
partnership between all the partners of a firm is
called “dissolution of a firm”. It implies the
complete break down of the relation of
partnership between all the partners.
When the relation
between all the
partners of the firm
comes to an end, this
is called Dissolution of
a firm.
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3. Modes of Dissolution
By order
of the
Court
Without
intervention
of the Court
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6. The Dissolution of
Partnership takes
place under following
circumstances
1)When a firm was constituted for a fixed term,
on the expiry of the term.
2)On the completion of a particular venture, if
constituted for a purpose.
3)On the death of a partner
4)On the retirement of a partner
5)On the insolvency of a partner. 6

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8. Dissolution of Firm
Points to Discuss
1.Journal Entries at the time of Dissolution.
2.Prepration of Realization a/c.
3. Preparation of Capital a/c.
4. Preparation of Cash / Bank a/c.
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9. Journal Entries
When Assets are transferred to the Realisation A/c:
Realisation A/c Dr.
To Sundry Assets A/c
When liabilities are transferred to the Realisation
A/c:
Sundries Liabilities A/c Dr.
To Realisation A/c
When Sale of Asset:
Cash/bank A/c Dr.
To Realisation A/c
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10. When Liabilities are paid :
Realisation A/c Dr.
To Cash/Bank A/c
When Asset is taken over by the partner :
Partners Capital A/c Dr.
To Realisation A/c
When Liability taken over by the partner :
Realisation A/c Dr.
To Partners capital A/c
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11. When unrecorded Assets are realized :
Cash/bank A/c Dr.
To Realisation A/c
When unrecorded liabilities are realized :
Realisation A/c Dr.
To Cash /Bank A/c
When bank overdraft is paid :
Bank overdraft A/c Dr.
To Cash/Bank A/c
When Realisation expense are paid :
Realisation A/c Dr.
To Cash/bank A/c
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12. When Realisation expenses are paid by the
partner :
Realisation A/c Dr.
To Partners capital A/c
When Provisions of related assets are
transferred to realisation A/c :
Provision for doubtful debts A/c Dr.
Provision for Depreciation A/c Dr.
To Realisation A/c 12

13. When realization profit is transferred
to the partners :
Realisation A/c Dr.
To Partners Capital A/c
If there is loss on realization Account
following entry should be recorded :
Partners Capital A/c Dr.
To Realisation A/c
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15. Note :
All Liabilities must be paid off ,
whereas assets will not be sold
off if no information regarding
sale of asset is given in
adjustment.
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17. Prepration of Cash/Bank a/c.
Cash/Bank a/cDr.
To Bal b/d a/c By Partner’s loan a/c
To Partner’s loan a/c By Realization a/c
(Creditors & Expenses
paid)
Particulars Amounts
Cr.
Particulars Amounts
To Partner’s capital a/c
By Partner’s capital a/c
Note : Cash / Bank a/c must be equal .
To Realization a/c
(Assets Realized)
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18. Differences between Revaluation and Realization A/c
Basis Revaluation Account Realisation Account
Meaning Revaluation accounts is related with the
revaluation of assets and
re-assessment of liabilities
Realisation Account is prepared to
realize the assets and to pay the
liabilities.
Objective Main purpose is to record the fluctuating
values of assets and liabilities and to
calculate the profit or loss on revaluation.
Main purpose is to calculate the
profit/loss after realizing the assets
and payment of liabilities.
Need Revaluation account is needed at the
time of admission and retirement or
death of a partner.
Realisation Account is needed
when dissolution takes place.
Result Profit or loss calculated in Revaluation
account is distributed among the old
partners only.
Profit or loss calculated in
Realisation Account is distributed
among the all the Partners
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