Dissolution of the firm means discontinuance of economic relations between the partners and the business is closed down. Here are the dissolution of partnership firm class 12 notes.
Topics Discussed
Difference between Dissolution of a Firm & Dissolution of a Partnership
| Basis | Dissolution of Firm | Dissolution of Partnership |
| Meaning | It means the closure of the firm and the end of the business relationship among all the partners. | It means a change in the business relationship among the partners. The firm continues its business. |
| Court’s Intervention | It can be either voluntary by the partners or compulsory by order of the court. | It is always voluntary. |
| Business Continuation | The business of the firm comes to an end. | The business of the firm continues. |
| Books of Account | Books of accounts of the firm are closed. | Books of accounts of the firm need not be closed. |
| Settlement of Accounts | Assets of the firm are realized and liabilities are settled. The balance amount, if any, is distributed among all the partners. | Assets of the firm are revalued & liabilities are reassessed. The gain or loss due to it is distributed among all the partners in their old profit-sharing ratio. |
| Economic Relationship | The economic relationship between the partners comes to an end. | The economic relationship between the partners changes. |
| Effect | Dissolution of the firm also means the dissolution of a partnership. | Dissolution of partnership may or may not involve dissolution of the firm. |
Modes of Dissolution of a Firm
The modes by which a firm may be dissolved are:
- By Mutual Agreement
- Compulsory Dissolution
- By Notice
- On Happening of an Event
- Dissolution by Court
Format of Realisation A/c
| Particulars | Rs. | Particulars | Rs. |
| Bal. b/d | x | Bal. b/d | x |
| Plant and Machinery | x | Creditors | x |
| Land & Building | x | Bills Payable | x |
| Other Assets | x | Loan | x |
| Bank(amt. paid for liability) | x | Bank A/c(amt. received on sale of assets) | x |
| Partner’s Capital/Current A/c(liability has been paid by partner) | x | Partner’s Capital(if the asset has been taken by the partner) | x |
| Bank A/c(realisation expenses) | x | Loss transferred to A: x B: x C: x | x |
| Profit transferred to A: x B: x C: x | x | ||
| TOTAL | xx | xx |
Realisation Expenses
- Realisation expenses borne and paid by the firm:
Realisation A/c Dr.
To Bank A/c - Realisation expenses borne by the firm but paid by the partner:
Realisation A/c Dr.
To Partner’s Capital A/c - Realisation expenses borne by the partner but paid by the firm:
Partner’s Capital A/c Dr.
To Bank A/c - Realisation expenses borne and paid by the partner: No entry.
Treatment of Workmen Compensation Reserve
- If there is no information/claim
Workmen compensation reserve A/c Dr.
To Partner’s Capital A/c - If there is a claim of Rs. 15,000 and the reserve is Rs. 20,000
WCR A/c Dr. 15,000
To Realisation A/c 15,000
Realisation A/c Dr. 15,000
To Bank A/c 5,000
WCR A/c Dr.
To Partner’s Capital A/c 5,000 - If there is a claim of Rs. 20,000 and the reserve is also Rs. 20,000
WCR A/c Dr. 20,000
To Realisation A/c 20,000
Realisation A/c Dr. 20,000
To Bank A/c 20,000 - There is a claim of Rs. 30,000
WCR A/c Dr. 20,000
To Realisation A/c 20,000
Realisation A/c Dr. 30,000
To Bank A/c 30,000
Death of a Partner Class 12 Notes
Important Notes
- Provident fund is a liability of the firm and therefore it is transferred to realisation A/c.
- Partner’s loan A/c is not transferred to realisation A/c. It is paid off separately after payment of outside liabilities but before payment of the capital.
- If the question is silent about the payment of outside liability, then it is paid in full.
- If the question is silent about the realisation value of any asset, then its value is to be taken as NIL.
- Both unrecorded assets & liabilities are not transferred to realisation A/c because they have no account in the books.