DEPARTMENT OF TECNICAL EDUCATION

ANDHRA PRADESH
Name of the staff : J. Satyanarayana Rao
Designation : Senior Lecturer
Branch : Commercial & Computer
Practice
Institution : Govt. Polytechnic for
Women, Guntur
Year/Semester : IV Semester
Subject : Accountancy- III
Topic : Partnership.
Duration : 50 Minutes.
Sub-topic : Preparation of Realization
Accounts, Capital
Accounts and Bank Accounts on
Dissolution of
partnership where the Partners are
solvent.
Teaching Aids : PPT, Animation
CCP402.67``````` 11
Objectives

At the end of the class you will be able to

prepare
Journal Entries
Realization Accounts
Partners Capital Accounts
Bank Accounts

CCP402.67 22
Recap

Dissolution of Partnership firm or

partnership

 When a business is discontinued, and when all

the partners are solvent, the firm is said to be
dissolved at will or at agreement.
 As a result , all the accounts should be closed
down.
CCP402.67 33
 contd

 It is necessary to open Realization Account,

Cash or Bank Account and Partners ‘ Capital
Accounts.
 Realization Account is opened for all
transactions relating to realization of Assets and
Payment of Liabilities.

CCP402.67 44
 In Dissolution, it is essential to make sale of assets of
the firm, realize Cash and Paying off the liabilities.
 Realization of Assets and settlement of liabilities are
centered round the Realization Account.
 It is a Nominal Account.
 Once - Realization and Settlement – are over-
 The difference, being gain or loss will be transferred
to Capital Accounts.
 Cash/Bank Account is opened to record all cash
transactions.

CCP402.67 55
 When the purpose is over, the cash Account shows a
Balance , which is equal to the amounts due to
partners.
 CAPITAL ACCOUNTS:- These accounts are opened to
make all entries connected with the partners accounts.
 CURRENT ACCOUNTS:- If any, should be transferred to
capital Accounts.
 Finally the Capital accounts are closed by receiving or
paying cash.

CCP402.67 6
 Steps to close the books of Accounts on
Dissolution
1. Transfer all the Assets of Realization A/c Dr.
the firm at their book value To Individual Assets A / c
except cash, Bank and
Losses (Being transfer of various

Assets at their
book value to
Note:-
Realization A/c)
a) Cash Account or Bank
Accounts are not
transferred to Realisation
Account as they
are in liquid form.
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CCP402.67
b) Similarly sundry Debtors Account and Debts Accounts
are 2 separate Accounts . The sundry debtors amount
i.e., gross amount to be transferred.

e) Losses Debit balance of profit and loss account are not

transferred to Realization Account.

2. Transfer of losses or Partners’ Capital A/c

debit balance of profit & Current A/c Dr. Profit l&
Loss A/c Loss A/c

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3.Transfer of all out side Various Liabilities A/c / Dr.
liabilities To Realization A/ c
(Being transfer of various
liabilities such as creditors,
Bills payable, Bank
overdrafts, Outstanding

expenses etc., to
Realisation A/c

CCP402.67 9
4. Transfer of all outside
liabilities
Profit &loss Account
Dr .Reserve Fund A/ c Dr.
To Partner’s Capital /
Current A/ c
(Being transfer of past profits
and Reserve fund to
partners capital or Current
A/ c)

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5. When assets are sold or a) Cash A/C Dr To
may be taken over by any realization A/c
partner. (Being Assets sold for
cash)
b) Partners’ Capital A/c
Dr. To Realisation A/c

(Being Assets
taken over by partners)

CCP402.67 11
6.When outside Realisation A/c Dr. To
liabilities Cash / Bank A/c
are paid off.)
(Being payment of
liabilities to 3rd parties )

7. When outside
liabilities are
Realisation A/c Dr.
discharged by a
partner. To Partners’ Capital A/c
( Being liabilities taken
over at an agreed
valuation by the
partner).
CCP402.67 12
8. a) When expenses are
paid on Realisation by the
firm.
Realisation A/c Dr.To
Cash/Bank A/c
(Being expenses on
Realisation Paid).

b) When it is paid by a
partner. Realisation A/c Dr

To Partners’ capital A/c

CCP402.67 13
 9. When the purpose of
the Realisation A/c is
over, it is closed to find
out profit or loss on
Realisation of Assets and
Discharging the liabilities.

a) If it shows Realisation A/c Dr.

To Partners’ Capital A/c

(Being profit on
Realisation A/c is
transferred to capital A/c of 14

partners
CCP402.67 in profit sharing
b) If it shows loss Partners’ Capital A/c
Dr. To Realisation A/c
(Being loss incurred
on Realization is
transferred to Partner’s
Capital A/c in profit
sharing ratio)

CCP402.67 15
10) When partners’ loan Partners’ Loan A/c
is paid off. Dr To cash/Bank A/c
(Being partners’ loan
repaid).

11) Transfer current Partners’ Current A/c

A/cs. if any Dr To Partner’s Capital
A/c
a) If it is showing
(Being
credit balance
transfer of current
Accounts).
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a) If it shows a Debit Partners’ Capital A/c
balance. Dr To Partners Current
A/c
(Being
transfer of current A/cs)

Cash/Bank A/c Dr To
12. When Capital
Concerned
Account of
partners’ capital A/c
any partner shows a
(Being the deficiency in
debit balance (after
Capital A/c brought by
the adjustment.
the Partner).
of Realisation A/cs.)
then he must clear off
his debt. CCP402.67 17
If there are unrecorded Assets and Liabilities,
they may be dealt with as follows;

a ) When unrecorded Cash/Bank A/c Dr.

Assets are realized (If it is To Realisation A/c being
a gain) Realisation of
unrecorded Assets
b) When unrecorded Realisation A/c Dr.
liabilities are paid off. (It is being payment of record-
a loss)
ed liabilities)

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CCP402.67
 When closing Capital Accounts.

Partners’ Capital A/c Dr.

To Cash/Bank A/c

( Being final payment paid to partners’ what is due to

each partner)

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CCP402.67
SUMMARY

 When all the Assets are realised and the Liabilities are
paid off, the balance of Cash or Bank must be equal to
the amount due finally to the partners’ Capital Account.

 Sometimes, the Capital account shows a debit balance,

representing the amount due to the firm by the
concerned partner.

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CCP402.67
 The principle of unlimited liability is applied, that is the
partner, whose capital account shows a debit balance,
should bring the amount to clear off the debit balance in
his capital Account.

 Then the Cash in Hand plus the amount so received, is

applied in paying off all the partners whose accounts
show credit balances.

 Thus, all the accounts of Assets, Liabilities, Partners’

Capital, Cash are closed.
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CCP402.67
 The above method of preparation of Realisation of
Account is called TOTAL METHOD.

BALANCE METHOD.
Under this method , to prepare Realisation Account,
the Assets appearing in the Balance Sheet are not
transferred to Realisation A/c at their Book Value.

But only the difference between the Book value of Assets

and the amount realised by their sale is transferred to
Realisation Account.
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CCP402.67
 The liabilities too are not transferred to Realization
account, but only the difference between the book
value and payments paid is transferred to
Realization A/c.
-:0:-
 The sale proceeds are not taken through Realization
A/c.

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