Dissolution of Firm

 

Dissolution of Firm

  When a partnership firm comes to an end due to any of the reason is called dissolution of partnership.

  In case of dissolution we hare to prepare:-

1.Realisation A/c

2.Partner’s Capital / Current A/c

3.Cash/Bank A/c

4.Partner’s Loan A/c (if any)   

             Important Journal Entries

Step No.1 

  Transfer all the assets to the Realisation A/c Dr side (except cash/bank A/c, Partner’s capital/current A/c, Profit & Loss A/c, Deferred revenue expenditure A/c)

  Realisation A/c Dr

          To Sundry Assets A/c 

Note:1  

    Cash/Bank A/c and Partner’s capital/Current which is given in the assets side should be transferred to there respective A/c as a opening Balance on the Dr side “To Balance b/d”. There will be no journal entry for the same.

  

Note:2

    Profit & Loss A/c and Deferred revenue expenditure given on the assets side should be distributed among the partners in there profit sharing ratio.

  Partner’s Capital/Current A/c Dr

       To profit & Loss A/c

       To Deferred revenue exp A/c

Step No.2

  Transfer all the liabilities to the Realisation A/c Cr side (Except partner’s Capital/Current A/c, Partner’s Loan A/c, Profit & Loss A/c, General Reserve A/c)

    Sundry Liabilities A/c Dr

            To Realisation A/c

Note:1

    Partner’s capital/current A/c and partner’s loan A/c should be transfer to the respective A/c on the Cr side as a opening Balance “ By Balance b/d”. There will be no journal entries for the same.

Note:2

  General Reserve and Profit & Loss A/c should be distributed among the partners in there profit sharing ratio.

 

    General Reserve A/c Dr

    Profit & Loss A/c Dr

           To Partner’s Capital A/c

 

Step No.3  

 For Assets Sold

    Cash/Bank A/c Dr

          To Realisation A/c

 

Step No. 4 

 Assets taken over by partner

    Partner’s Capital/Current A/c Dr

           To Realisation A/c

 

Step No.5   

For Liabilities paid by the firm

    Realisation A/c Dr

         To Cash/Bank A/c

 

Step No.6   

For Liabilities paid by the Partner

    Realisation A/c Dr

          To Partner’s Capital A/c

 

Step No.7  

 For payment of Realisation Expenses/   Dissolution expenses/ Winding up Expenses

    Realisation A/c Dr

          To Cash/Bank A/c

 

Step No.8

For Partner’s Loan paid

    Partner’s Loan A/c Dr

         To Cash/Bank A/c