Book-Keeping and Accountancy · Class 12 Commerce
Ch 6Dissolution of Partnership Firm — Class 12 Book-Keeping and Accountancy, concept-first.
A partnership does not always run forever. Partners may decide to close the business, the business may become impossible to continue, or the law itself may require the partnership to end.
Key concepts
Hover a concept to preview it and jump to its most relevant Q&A.
The Realisation Account
The Realisation Account is a nominal account opened on dissolution to record the whole winding-up process and isolate the profit or loss on realisation.
Most relevant Q&A
- Which account is opened in the books of a firm to close its accounts on dissolution? (a) Revaluation Account (b) Realisation Account (c) Par…Free
- What is a Realisation Account? Explain its need and the steps in its preparation.Preview
- Explain the accounting treatment, at the time of dissolution, of (a) an unrecorded asset and (b) an unrecorded liability discovered in the f…Preview
- What are realisation expenses? Explain their accounting treatment (a) when paid by the firm and (b) when paid by a partner, with or without…Preview
- Kiran and Meera were partners sharing profits and losses in the ratio 3:2. On dissolution of the firm, sundry assets of book value Rs 1,00,0…Preview
Chapter contents
The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.
Meaning of Dissolution of a Partnership Firm
A partnership does not always run forever. Partners may decide to close the business, the business may become impossible to continue, or the law itself may require the partnership to end.
Dissolution of Partnership vs. Dissolution of a Firm
These two terms sound alike but mean very different things, and the MSBSHSE HSC Accountancy examination frequently asks students to distinguish between them.
Modes of Dissolution of a Firm under the Indian Partnership Act, 1932
The Indian Partnership Act, 1932 lays down, in Sections 40 to 44, the different ways in which a firm may come to be dissolved.
Settlement of Accounts on Dissolution — Section 48
Once a firm is dissolved, its assets must be turned into cash and that cash must be applied in a strict, legally-fixed order to settle everyone the firm owes money to.
The Realisation Account — Meaning and Preparation
The Realisation Account is the central working account of this chapter — it is how the winding-up process required by Section 48 is actually carried out in the firm's books.
Accounting Treatment of Special Items in the Realisation Account
Beyond the routine transfer-sell-pay cycle, several special situations recur in almost every dissolution problem in the Balbharati Std XII textbook. Getting each one's entry right is essential.
Closing the Partners' Capital Accounts and Bank Account
After the Realisation Account has been prepared and its profit or loss transferred, two accounts remain to be closed to bring the dissolution to completion — the Partners' Capital Accounts and the Ban…
Realisation Account vs. Revaluation Account
Because both accounts deal with the 'value' of assets and liabilities and both can show a profit or loss shared among partners, students often confuse the Realisation Account (this chapter) with the R…
Exercises
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- Q1Which account is opened in the books of a firm to close its accounts on dissolution? (a) Revaluation Account (b) Realisation Account (c) Par…Free
- Q2As per Section 48 of the Indian Partnership Act, 1932, in applying the assets of a dissolved firm, which of the following is paid FIRST? (a)…Free
- Q3Distinguish between Dissolution of Partnership and Dissolution of a Firm.Free
- Q4State and briefly explain any four modes/circumstances under which a partnership firm may be dissolved under the Indian Partnership Act, 193…Preview
- Q5Explain the order of settlement of accounts of a dissolved firm as laid down in Section 48 of the Indian Partnership Act, 1932.Preview
- Q6What is a Realisation Account? Explain its need and the steps in its preparation.Preview
- Q7Distinguish between Realisation Account and Revaluation Account.Preview
- Q9Explain the accounting treatment, at the time of dissolution, of (a) an unrecorded asset and (b) an unrecorded liability discovered in the f…Preview
- Q10What are realisation expenses? Explain their accounting treatment (a) when paid by the firm and (b) when paid by a partner, with or without…Preview
- Q12Kiran and Meera were partners sharing profits and losses in the ratio 3:2. On dissolution of the firm, sundry assets of book value Rs 1,00,0…Preview
Sample & Board Papers
Sample papers and previous-year board questions for this subject.
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- Q1Write the word/phrase/term/ which can substitute the following statement. Expenses incurred on dissolution of firm.Preview
- Q2Answer in one sentence only. Who is called insolvent person?Preview
- Q3Asha, Usha and Nisha are partners in the firm sharing profits and losses in the ratio of 3 : 2 : 1 respectively. On 31st March, 2019 they de…Preview
- Q4Write the word/phrase/term/ which can substitute the following statement. Expenses incurred on dissolution of firm.Preview
- Q5State whether the following statement is True or False with reason. Dissolution takes place when the relation among the partners comes to an…Preview
- Q6If the asset is taken over by the partner ______ account is debited. (a) Revaluation (b) Capital (c) Asset (d) Balance SheetPreview
- Q7Hema, Manisha and Limsy were in partnership firm sharing profits and losses in the ratio of 5:3:2. They decided to dissolve their partnershi…Preview
- Q8Do you agree or disagree with the following statement: On dissolution, cash/bank account is closed automatically.Preview
- Q9In case of dissolution assets and liabilities are transferred to ______ A/c. (a) Bank A/c (b) Partner’s capital A/c (c) Realisation A/c (d)…Preview
- Q10If any asset is taken over by partner from the firm ______ account will be debited. (a) Capital (b) Revaluation (c) Asset (d) Profit and Los…Preview
- Q11Lal, Bal and Pal were partners sharing profits and losses in the ratio of 2 : 2 : 1. The following is the Balance Sheet as on 31st March, 20…Preview
- Q12Dissolution expenses are credited to ______. (a) Realisation account (b) Cash/Bank account (c) Partners’ capital account (d) Partners’ loan…Preview
- Q13If an asset is taken over by the partner, ______ account is debited.Preview
- Q14Sharmila, Urmila and Leela are partners in the firm ‘Jeevan Stores’ sharing profits and losses in the ratio of 2 : 2 : 1 respectively. On 31…Preview
- Q15Complete the table: | Creditors | Bills Payable | Third Party Liability | | --- | --- | --- | | 40,000 | 60,000 | .......... |Preview
- Q16Dissolution expenses are credited to ______ account.Preview
- Q17Rajeev, Sanjeev and Mahesh were partners in the firm Janki Traders sharing profit and losses in the ratio of 2 : 2 : 1. The following is the…Preview
- Q18Answer the following question in only 'one' sentence: What do you mean by dissolution of partnership firm?Preview
- Q19(B) Write a word / term / phrase as a substitute for the following statement: Expenses incurred on dissolution of a firm.Preview
- Q20Q. 5. Aadesh and Sandesh were partners sharing profits and losses in the ratio 3 : 2. Their Balance Sheet on 31st March, 2016 was as under:…Preview
More questions
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- Example 8Pass journal entries in the books of a firm for the following transactions arising on its dissolution: (i) Stock (book value Rs 20,000) was…Free
- Example 11Amar and Bhushan were partners sharing profits and losses equally. Their Balance Sheet as on 31st March 2024, the date on which they decided…Preview
- Example 13On dissolution of a firm, partner Ravi took over Sundry Debtors of book value Rs 20,000 at an agreed value of Rs 18,000. Ravi also agreed to…Preview