DISSOLUTION OF PARTNERSHIP FIRM

PREPARED BY: SMT.SHAKUNTALA PUJAR,

PGT COMMERCE,
JNV KOPPAL
 DISSOLUTION OF
PARTNERSHIP FIRM

⚫ INTRODUCTION: Dissolution means breaking up i.e., discontinuance

of existing relationship among the partners. Under the Indian
partnership act 1932, the dissolution may be either of partnership
or of a firm.
⚫ DISSOLUTION OF PARTNERSHIP

The dissolution of partnership may take place in any of the following

ways.

1) Change in existing profit sharing ratio among partners.

2) Admission of a new partner
3) Retirement of a partner
4) Death of a partner etc.
 DISSOLUTION OF A FIRM
Dissolution of a firm takes place in any of the following ways.
1) Dissolution by agreement
a) With the consent of all the partners
b) In accordance with a contract between the partners
2) Compulsory Dissolution
a) When all the partners or all but one partner, become insolvent, rendering them
in competent to sign a contract
b) When the business of the firm becomes illegal.
3) On the happening of certain contingencies
a) If constituted for a fixed term, by the expiry of that term
b) By the death of a partner.
 4) Dissolution by notice: In case of partnership at will the firm may be
dissolved if any one of the partners gives a notice in writing to the other
partners, signifying his intension of seeking dissolution of the firm.
5) Dissolution by court:
a) When a partner becomes insane
b) When a partner becomes permanently in capable of performing his
duties as a partner.

DIFFERENCE BETWEEN DISSOLUTION OF PARTNERSHIP &

DISSOLUTION
Basis
OF FIRM
Dissolution of partnership Dissolution of Firm
1.Termination of The business is not terminated The business of the firm is
business closed

2.Settlement o assets Assets and liabilities are revalued Assets are sold and liabilities
and liabilities and new balance sheet is drawn.
3.Court's intervention Court does not intervene because
partnership is dissolved by mutual
agreement
4.Economic Economic relationship between the
relationship partners continues through in a
changed form
5.Closure of books Does not require because the
business is not terminated
are paid-off.
A firm can be dissolved by
the court's order
Economic relationship
between the partners comes
to an end
The books of account are
closed
 SETTLEMENT OF ACCOUNTS
Section 48 of the partnership act 1932 shall apply,

1) TREATMENT OF LOSSES
a) First out of profits

b) Next out of capital of partners and

c) Lastly, if necessary, by the partners individually in their profit sharing ratio

2) APPLICATION OF ASSETS

•In paying the debts of the firm to the third parties

•In paying each partner proportionately what is due to him/her from
the firm for advances as distinguished from capital i.e., partner
loan
•In paying to each partner proportionately what is due to him on
account of capital and
•The residue, if any, shall we divided among the partners in their
sharing ratio.
 PRIVATE DEBTS AND FIRMS
DEBTS
⚫ The property of the firm shall be applied first in
the payment of debts of the firm and then the
surplus, if any, shall we divided among the
partners as per their claims, which can be
utilized for the payment of their private
liabilities

⚫ The private property of any partner shall we

applied first in the payment of his private debts
and the surplus, if any, may be utilized for
payment of the firms debts, in case the firms
liabilities exceed the firm’s assets.

⚫ NOTE: It may be noted the private property of

the partner does not include the personal
 ACCOUNTING TREATMENT

Realisation Account Partners Capital Account

Bank Account
⚫ Problem 1: Ankit Bobby and Kartik were partners in
a firm sharing profits in the ratio of 4:3:3. The firm
was dissolved on 31st March, 2018. Pass the
necessary journal entries for the following
transactions after various assets and third party
liabilities had been transferred to realisation account
.
⚫ The firm had stock of Rs.80000. Ankit took over 50%
of the stock at a discount of 20% while the
remaining stock was sold of at a profit of 30% on
cost.
⚫ A liability under suit for damages in included in
creditors was settled at Rs.32000 as against only
Rs.13000 provided in the books. Total creditors of
the firm were 50000.
⚫ Bobby’s sister’s loan of Rs.20000 was paid of along
with interest of Rs.2000
⚫ Kartik’s loan of Rs.12000 was settled at Rs.12500
⚫ PROBLEM – 2 : Srijan, Raman and Manan
were partners in a firm sharing profits and
losses in the ratio of 2:2:1. On 31st March, 2017
ther Balance Sheet was as follows:
⚫ Balance Sheet of Srijan, Raman and Manan as
on 13.03.2017
⚫ On the above date they decided to dissolve the
firm:
Srijan was appointed to realise the assets and
discharge the liabilities. Srijan was to receive 5%
commission on sake of assets (except cash) and was
to bear all the expenses of realization.
Investments were realised as follows: (Rs.)
⚫ Plant 85,000
⚫ Stock 33,000
⚫ Debtors 47,000

⚫ Investments were realized at 95% of the book value.

⚫ The firm had to pay Rs.7500 for an outstanding
repair bill not provided for earlier.
⚫ A contingent liability in respect of bills receivable,
discounted with the bank had also materialized and
had to be discharged for Rs.15,000.
⚫ Expenses of realization amounting to Rs.3000 were
paid by Srijan.
 SOLUTION:
REALISATION ACCOUNT

IMPROTANT: There is no entry for realization expenses of Rs.3000

paid by Srijan, since he will bear all such expenses.
THANK
YOU