DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : J.SATYANARAYANA RAO
Designation : Senior Lecturer
Branch : Commercial & computer Practice
Institution : Govt.Polytechnic for women,Guntur.
Year/Semester : VI Semester
Subject : ACCOUNTANCY III
Subject Code : CCP-403
Topic : Partnership- Insolvency- All Partners
Duration : 50 Minutes
Sub Topic : Accounting treatment-Dissolution of
partnership When all partners are insolvent.
DEFICIENCY A/c
Teaching Aids : PPT - Animation

CCP402.75 1
Objective

on completion of this period you would be able to

PREPARE ACCOUNTS ON DISSOLUTION

PARTNERSHIP- WHEN ALL PARTNERS

INSOLVENT.

CCP402.75 2
Recap
ACCOUNTING TREATMENT – WHEN ALL
PARTNERS ARE INSOLVENT.

 When all partners are insolvent and are not able to

bring the amount due from them, then the creditors of
the firm cannot be Paid in full.

 In such a case, the creditors of the firm may not be

transferred to the realisation but their separate
account may be prepared.

CCP402.75 3
3.If this is done, unpaid amount of creditors is
transferred to the deficiency Account to which
account are also transferred the balances of
Partner’s Capital Accounts. The Deficiency Account
shall be automatically closed and the books will
thus be closed.

CCP402.75 4
CCP402.75 5
Eg…..1. X,Y & Z were partners. Their Balance Sheet
stood as under on the date when the firm was dissolved.

S. Creditors 60,000 S.Assets 55,000

X’s capital A/c 22,000 P&L A/c 12,000
Z’s Capital A/c 10,000 Y’s Capital A/c 25,000
-------------- -----------
92,000 92,000
-------------- -----------
The assets realised Rs.40,000. The expenses on realisation
amounted
To Rs.1,000.
The position of the partners was as follows;

CCP402.75 6
 Private Private
Estate Liabilities
Rs. Rs.
X….. 18,0000 20,000
Y……… 12,000 21,000
Z…….. 12,000 10,000

Prepare the necessary ledger accounts to close the books of the

firm.

CCP402.75 7
 Solution to Eg………1
REASLISATION ACCOUNT
-------------------------------------------------------------------------------------
-
To S.Assets 55,000 By Bank [Assets 40,000
Realised]
Bank [Expenses] 1,000 “ Loss on realisation
transferred to capital
Accounts; Rs.
X…. 5,333
Y….. 5,333
Z….. 5,334
------------------- 16,000

---------------------------------------------------------------------------------
----
56,000CCP402.75 56,000` 8
 Bank Account

To Realisation a/c 40,000 By Realisation a/c

To Z’s Capital a/c (Expenses) 1,000
(Surplus from Z’s private By Creditors a/c 41,000
Estate) 2,000

42,000 42,000

Creditors Account

To Bank a/c 41,000 By Balance b/d 60,000

To Deficiency or Unpaid a/c 19,000

60,000 60,000
CCP402.75 9
 Capital Accounts
X Y Z X Y Z

To Balance b/d 25,000 By Balance b/d 22,000 10,000

To Profit &loss a/c 4,000 4,000 4,000 By Bank a/c 2,000
To Realisation a/c 5,333 5,333 5,334 By Deficiency a/c 34,333
To Deficiency a/c 12,667 2,666

22,000 34,333 12,000 22,000 34,333 12,000

Deficiency or Unpaid Account

To Y’s Capital a/c 34,333 By Creditors a/c 19,000

By X’s Capital a/c 12,667
By Z’s Capital a/c 2,666

34,333 34,333

CCP402.75 10
Summary

We have solved a typical problem of dissolution

involving of all the partners by opening a
deficiency a/c

CCP402.75 11
Questions
1) What do you mean by dissolution of a firm and
partnership
2) State the circumstances leading to dissolution of
the firm
3) State the circumstances leading to the order of
closure by constnt
4) What is Realisation a/c

CCP402.75 12
1) What do you know about insolvency
2) What do you know about garver vs Murray’s
case
3) What is a Deficiency a/c or how should
accounts be closed when all partners are
insolvent

CCP402.75 13