ACT 201: FINANCIAL ACCOUNTING I

PETER SAPPOR
peter.sappor@uds.edu.gh
0549169497

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DISSOLUTION OF A PARTNERSHIP
FIRM
UNIVERSITY FOR DEVELOPMENT STUDIES
SCHOOL OF BUSINESS
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 INTRODUCTION

A partnership firm is dissolved when the firm ceases to carry on

business or ceases to be in existence. By the provisions of the
Incorporate Private Partnership Act 1962 (Act 152) a firm may be
dissolved on the occurrence of any of the following:
• Death of a partner • Insolvency or bankruptcy
• Retirement of a partner • Court order
• Disagreement among partners • Voluntary liquidation
• Insanity on the part of a partner
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 PROCEDURE FOR LIQUIDATION
▪ On dissolution of the firm, the firm may be sold as a going concern to
another firm or it may be sold as a going concern either by disposing
off the assets in block or piecemeal.
▪ The dissolution usually involves the sale of assets and settlements of
liabilities. Any profit or loss on realization (sale) of assets is
transferred to partners’ capital accounts.
▪ The remaining cash after paying Trade Payables is paid to partners to
close all books of accounts. The realization account is used to record
assets sold and liabilities settled.

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 PROCEDURE FOR LIQUIDATION
Accounts to be settled on realization include the following
• Monies owed to employees
• Expenses incurred on realization
• Settlement between partners

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 PROCEDURE FOR LIQUIDATION

• The assets may be REALIZED IN BLOCK OR

PIECEMEAL.

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 BLOCK REALISATION OF ASSETS
• This occurs where the assets are disposed off on the same day and
all liabilities are settled immediately.

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 ACCOUNTING TREATMENTS
• Open realization account and transfer all assets balances except cash
and bank to the realization account.
DEBIT REALISATION ACCOUNT
CREDIT ASSETS ACCOUNT

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 ACCOUNTING TREATMENTS
• Transfer all reserves and provisions to the realization account

DEBIT PROVISION OR RESERVE ACCOUNT

CREDIT REALISATION ACCOUNT

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 ACCOUNTING TREATMENTS
• Where there are expenses on realization
DEBIT REALISATION ACCOUNT
CREDIT CASH / BANK ACCOUNT

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 ACCOUNTING TREATMENTS
• On disposal of asset
DEBIT CASH / BANK ACCOUNT
CREDIT REALISATION ACCOUNT

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 ACCOUNTING TREATMENTS
• When asset is taken over by a partner
DEBIT PARTNERS’ CAPITAL ACCOUNT
CREDIT REALISATION ACCOUNT

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 ACCOUNTING TREATMENTS
• Discharge all external liabilities
DEBIT LIABILITIES ACCOUNT
CREDIT CASH / BANK ACCOUNT

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 ACCOUNTING TREATMENTS
• When discount is given by trade payables
DEBIT TRADE PAYABLES
CREDIT REALIZATION ACCOUNT (DISCOUNT RECEIVED
ACCOUNT)

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 ACCOUNTING TREATMENTS
• If a profit is made, it must be shared in the profit or loss sharing ratio
DEBIT REALISATION ACCOUNT
CREDIT CAPITAL ACCOUNT

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 ACCOUNTING TREATMENTS
• Transfer the balances on the partners current account to their capital
account

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 ACCOUNTING TREATMENTS
• Transfer the balances on the partners capital account after the above
adjustments to the cash account to close the books of the firm.

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END OF LECTURE

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