Accountancy · Class 12 Commerce
Ch 4Dissolution of Partnership Firm — Class 12 Accountancy, concept-first.
The earlier chapters covered reconstitution of a firm — admission, retirement, and death of a partner — where the old partnership ends but the firm itself continues under a new agreement. This chapter deals with a more final event: the dissolution of the firm.
Key concepts
Hover a concept to preview it and jump to its most relevant Q&A.
Partnership Liability Distinction
Think of a partnership like a group of friends starting a food stall together. Each friend brings some money, some bring a stove, some bring their time.
Most relevant Q&A
- State whether the following statement is True or False, giving reasons: Dissolution of a partnership is different from dissolution of a firm…Free
- State whether the following statement is True or False, giving reasons: A partnership is dissolved when there is a death of a partner.Free
- State whether the following statement is True or False, giving reasons: A firm is dissolved when all partners give consent to it.Free
- State whether the following statement is True or False, giving reasons: A firm is compulsorily dissolved when a partner decides to retire.Preview
- State whether the following statement is True or False, giving reasons: Dissolution of a firm necessarily involves dissolution of partnershi…Preview
Chapter contents
The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.
Introduction
The earlier chapters covered reconstitution of a firm — admission, retirement, and death of a partner — where the old partnership ends but the firm itself continues under a new agreement.
Dissolution of Partnership
The first critical distinction to grasp is that dissolution of partnership is not the same as dissolution of the firm.
Dissolution of a Firm
The first and most important idea to grasp is the difference between dissolving a partnership and dissolving the firm. These are not the same thing.
+−Test Your Understandingi8 questions
- Q1State whether the following statement is True or False, giving reasons: Dissolution of a partnership is different from dissolution of a firm…Free
- Q2State whether the following statement is True or False, giving reasons: A partnership is dissolved when there is a death of a partner.Free
- Q3State whether the following statement is True or False, giving reasons: A firm is dissolved when all partners give consent to it.Free
- Q4State whether the following statement is True or False, giving reasons: A firm is compulsorily dissolved when a partner decides to retire.Preview
- Q5State whether the following statement is True or False, giving reasons: Dissolution of a firm necessarily involves dissolution of partnershi…Preview
- Q6State whether the following statement is True or False, giving reasons: A firm is compulsorily dissolved when all partners, or all except on…Preview
- Q7State whether the following statement is True or False, giving reasons: Court can order a firm to be dissolved when a partner becomes insane…Preview
- Q8State whether the following statement is True or False, giving reasons: Dissolution of partnership cannot take place without intervention of…Preview
Settlement of Accounts
When a partnership firm is dissolved, it stops doing business and must settle all its accounts. This means selling off all assets to pay off all claims against the firm.
Accounting Treatment
9 QWhen a partnership firm is dissolved, the business stops, and the books must be closed. The goal is to sell all assets, pay all liabilities, and return the remaining cash to the partners.
+−Illustrationsi1 question
+−Test Your Understandingi8 questions
- Q1On dissolution of a firm, bank overdraft is transferred to: (a) Cash Account (b) Bank Account (c) Realisation Account (d) Partner's Capital…Free
- Q2On dissolution of a firm, partner's loan account is transferred to: (a) Realisation Account (b) Partner's Capital Account (c) Partner's Curr…Free
- Q3After transferring liabilities like creditors and bills payables in the Realisation Account, in the absence of any information regarding the…Free
- Q4When realisation expenses are paid by the firm on behalf of a partner, such expenses are debited to: (a) Realisation Account (b) Partner's C…Preview
- Q5Unrecorded assets when taken over by a partner are shown in: (a) Debit of Realisation Account (b) Debit of Bank Account (c) Credit of Realis…Preview
- Q6Unrecorded liabilities when paid are shown in: (a) Debit of Realisation Account (b) Debit of Bank Account (c) Credit of Realisation Account…Preview
- Q7The accumulated profits and reserves are transferred to: (a) Realisation Account (b) Partners' Capital Accounts (c) Bank Account (d) None of…Preview
- Q8On dissolution of the firm, partner's capital accounts are closed through: (a) Realisation Account (b) Drawings Account (c) Bank Account (d)…Preview
Journal Entries
21 QWhen a partnership firm is dissolved, the entire process of closing the books revolves around one central account: the Realisation Account.
+−Illustrationsi10 questions
- Illustration 2Sita, Rita and Meeta are partners sharing profit and losses in the ratio of 2:2:1. Their balance sheet as on March 31, 2017 is as follows: *…Free
- Illustration 3Record journal entries at the time of dissolution of a partnership firm of Vibha, Shobha and Anubha in the following cases: (a) Dissolution…Free
- Illustration 4Nayana and Arushi were partners sharing profits equally. Their Balance Sheet as on March 31, 2020 was as follows: **Balance Sheet of Nayana…Free
- Illustration 5Following is the Balance Sheet of Ashwani and Bharat on March 31, 2017. They shared profits equally. **Balance Sheet of Ashwani and Bharat a…Preview
- Illustration 6Sonia, Rohit and Udit are partners sharing profits in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2017 was as follows: **Balance…Preview
- Illustration 7Romesh and Bhawan were in partnership sharing profits and losses as 3:2. Their Balance Sheet as on March 31, 2017 was as follows: **Balance…Preview
- Illustration 8Sonu and Ashu are sharing profits as 3:1 and they agree upon dissolution. The Balance Sheet as on March 31, 2017 is as under: **Balance Shee…Preview
- Illustration 9Anju, Manju and Sanju, sharing profit in the ratio of 3:1:1, decided to dissolve their firm. On March 31, 2017 their position was as follows…Preview
- Illustration 10Sumit, Amit and Vinit are partners sharing profit in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2017 was as follows: **Balance…Preview
- Illustration 11Meena and Tina are partners in a firm sharing profit as 3:2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet…Preview
+−Do It Yourselfi1 question
+−Test Your Understandingi10 questions
- Q1All assets (except cash/bank and fictitious assets) are transferred to the ______ (Debit/Credit) side of ______ Account (Realisation/Capital…Free
- Q2All ______ (internal/external) liabilities are transferred to the ______ (Debit/Credit) side of ______ Account (Bank/Realisation).Free
- Q3Accumulated losses are transferred to ______ (Realisation/Capital Accounts) in ______ (equal ratio/profit sharing ratio).Free
- Q4If a liability is assumed by a partner, such Partner's Capital Account is ______ (debited/credited).Preview
- Q5If a partner takes over an asset, such Partner's Capital Account is ______ (debited/credited).Preview
- Q6No entry is required when a ______ (partner/creditor) accepts a fixed asset in payment of his dues.Preview
- Q7When a creditor accepts an asset whose value is much more than the amount due to him, he will ______ (pay/not pay) the excess amount, which…Preview
- Q8When the firm has agreed to pay a partner a fixed amount for realisation work irrespective of the actual amount spent, such fixed amount is…Preview
- Q9Partner's loan is ______ (transferred/not transferred) in the Realisation Account.Preview
- Q10Partner's current accounts are transferred to the respective Partners' ______ (Loan/Capital) Accounts.Preview
Terms Introduced in the Chapter
The key terms introduced in this chapter, with a short meaning for each.
Summary
- Dissolution of Partnership vs. Dissolution of Firm: Dissolution of partnership is a change in the existing agreement (e.g., retirement, admission) — the firm continues.
Questions for Practice
30 Q+−Short Answer Questions6 questions
- Q1State the difference between dissolution of partnership and dissolution of partnership firm.Free
- Q2State the accounting treatment at the time of dissolution of a firm for: (i) Unrecorded assets (ii) Unrecorded liabilities.Free
- Q3On dissolution, how will you deal with partner's loan if it appears on the (a) assets side of the balance sheet, (b) liabilities side of bal…Preview
- Q4Distinguish between firm's debts and partner's private debts.Preview
- Q5State the order of settlement of accounts on dissolution.Preview
- Q6On what account realisation account differs from revaluation account.Preview
+−Long Answer Questions4 questions
+−Numerical Questions20 questions
- Q1Journalise the following transactions regarding realisation expenses: (a) Realisation expenses amounted to Rs. 2,500. (b) Realisation expens…Free
- Q2Record necessary journal entries in the following cases: (a) Creditors worth Rs. 85,000 accepted Rs. 40,000 as cash and Investment worth Rs.…Free
- Q3There was an old computer which was written-off in the books of accounts in the previous year. The same has been taken over by a partner Nit…Free
- Q4What journal entries will be recorded for the following transactions on the dissolution of a firm: (a) Payment of unrecorded liabilities of…Preview
- Q5Give journal entries for the following transactions: (1) To record the realisation of various assets and liabilities. (2) A firm has a Stock…Preview
- Q6How will you deal with the realisation expenses of the firm of Rashim and Bindiya in the following cases: (1) Realisation expenses amount to…Preview
- Q7The book value of assets (other than cash and bank) transferred to Realisation Account is Rs. 1,00,000. 50% of the assets are taken over by…Preview
- Q8Record necessary journal entries to realise the following unrecorded assets and liabilities in the books of Paras and Priya: (1) There was a…Preview
- Q9All partners wish to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00,000 must be paid off before the payment of capital…Preview
- Q10What journal entries would be recorded for the following transactions on the dissolution of a firm of Arti and Karim after various assets (o…Preview
- Q11Rose and Lily shared profits in the ratio of 2:3. Their Balance Sheet on March 31, 2017 was as follows: **Balance Sheet of Rose and Lily as…Preview
- Q12Shilpa, Meena and Nanda decided to dissolve their partnership on March 31, 2017. Their profit sharing ratio was 3:2:1 and their Balance Shee…Preview
- Q13Surjit and Rahi were sharing profits (losses) in the ratio of 3:2. Their Balance Sheet as on March 31, 2017 is as follows: **Balance Sheet o…Preview
- Q14Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as fo…Preview
- Q15Anup and Sumit are equal partners in a firm. They decided to dissolve the partnership on March 31, 2017 when the balance sheet is as under:…Preview
- Q16Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on March 31, 2017. Their balance sheet on t…Preview
- Q17Sanjay, Tarun and Vineet shared profit in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as follows: **Balance Sheet of Sanja…Preview
- Q18The following is the Balance Sheet of Gupta and Sharma as on March 31, 2017: **Balance Sheet of Gupta and Sharma as on March 31, 2017** | Li…Preview
- Q19Ashok, Babu and Chetan are in partnership sharing profit in the proportion of 1/2, 1/3, 1/6 respectively. They dissolve the partnership on D…Preview
- Q20The following is the Balance Sheet of Tanu and Manu, who share profit and losses in the ratio of 5:3, on March 31, 2017: **Balance Sheet of…Preview
Sample & Board Papers
Sample papers and previous-year board questions for this subject.