SSC
DEEPAKGUPTA
9213975057
DISSOLUTION

Meaning : Dissolution of partnership means ending the existing partnership. Dissolution
of firm means the business is discontinued and the firm is wound up (dissolved) when the
partnership firm is dissolved, the assets and liabilities of the firm are disposed off and the
capital accounts of partner’s elased by making payment to them or receiving payment from
them as the as may be.

Problem Arise At The Time Of Dissolution
1. Settlement of Accounts
2. Payment of firm’s Debts and Private Debts.

To complete the process of dissolution , following accounts are opened in the firm’s
books:
1. Realisation A/C :- Realisation account is a nominal account. The object of such
account to determine the profit or loss on the realization of assets and payment of
liabilities
2. Partner’s loan Account :- It is a personal Account. A loan to firm by a partner is
credited in this account.
3. Partner’s capital Account :- It is also a Personal Account. Balance of partner’s capital
account and current accounts are recorded in this account.
4. Bank or cash Account :- It is a Real A/C. all the cash transactions are recorded in
this account.

Accounting Treatment :
1. FOR CLOSING THE Assets Accounts:
Realisation A/C
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To all Assets A/C ( except cash or Bank A/C)
2. For closing liabilities Accounts:
All liabilities A/C
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To Realisation A/C
( except Partner’s capital A/C partner’loan A/C
or Accumulated profits and Reserve.)
3. When the assets sold for cash whether recorded or unrecorded.
Cash / Bank A/C
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(with realized amt)
To Realisation A/C
4. When the assets taken over by any partner.
Partner’s capital A/C
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(with agreed price)
To Realisation A/C
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DEEPAKGUPTA
9213975057
For payment of liabilities whether recorded or unrecorded
Realization A/C
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To cash / Bank A/C
For liabilities taken over by any partner.
Realization A/C
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To Partner’s capital A/C
For Realisation expense :
 Case I :paid by firm borne by firm
Realization A/C
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To cash /Bank A/C
 Case II : paid by partner born by firm
Realization A/C
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To partner’s capital A/C
 Case III : Paid by firm borne by partner
Partner’s capital A/C
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To Cash / Bank A/C
For Profit
Realization A/C
To partner’s capital A/C
Or
To Partner’s current A/C
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For Loss
Partner’s capital A/C
Or
Partner’s current A/C
To Realisation A/C
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8. For transfer of Undistributed (Accumulated) Profits and Reserve :
Profit and loss Account
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Reserve fund Account
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To partner’s capital Account
9. In case of accumulated losses:
Partner’s capital A/C
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To profit and loss A/C
To Advertisement Suspense A/C
10. For final settlement with partner’s:
On Bringing cash by partner for
On payment to partners
deficiency:
Cash | Bank A/C
Dr Partner’s capital A/C
To partner’s capital A/C
To cash | Bank A/C
SUCCESS STUDY CIRCLE (REGD.)
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Dr.
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SSC
DEEPAKGUPTA
9213975057
Dr
Realisation Accounts
Particulars
Amount Particulars
To sundry Assets
By sundry liabilities
(all assets except cash or Bank
(all liabilities except
A/C)
*partners capital Account
To cash | Bank A/C
*partner’s loan Account
(liabilities paid)
*Accumulated profit and Reserve)
To partner’s capital A/C
By cash | bank A/C
(liabilities taken over)
(Assets Realised)
To cash | Bank A/C
By cash |Bank A/C
(unrecorded liab)
(unrecorded Assets)
(realization expenses)
By partner’s capital A/C
To profit transferred to :
(Assets taken over by any partner)
(old partner’s capital A/C)
*By loss transferred to
(old partner’s cap. A/C)
Cr
Amount
 Some Important Notes: Note 1 : when an assets is transferred to the Realisation Account, its corresponding
provisions and reserves appearing on the liability side of the Balance sheet is also
transferred to credit side of Realisation Account for example
Joint life policy reserve A/C
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Investment fluctuation fund A/C
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Provision for Doubtful debts A/C
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Provision for Depreciation A/C
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To Realisation Account
 Note 2: Transfer of assets to settle liability :- if any liability is settle (paid out)
with the assets of firm. In such case entry is not passed to record the settlement of
liability.
 Note 3 : Partner’s loan :- Partner’s loan is always paid through cash| bank A/C. it is
never transferred to Realisation account or partner’s capital account in normal
situation.
On the contrary, if any partner’s capital account (after all adjustment) had shown a
debit balance, then his loan Account would have been transferred to his capital
Account to the extent of debit balance of capital A/C and the balance, if any, in his
loan account would have been paid.
 Note 4 : Realisation of tangible assets :- (if the question is silent) = It is assumed
that realized amount is equal to its book value.
 Note 5: Realisation of Intangible Assets :- (If the question is silent) = It is assumed
that such assets have not realized any value.
 Note 6 : Settlement of any liability :- (If the question is silent) = It is assumed that
amount equal to book value is paid.
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14A, 40 Ft. ROAD, JAIN NAGAR, DELHI – 110081, PH.: 8800929191, 011-64506028
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