Dissolution of Partnership Firm
Class 12 · Accountancy
3 ideas in Class 12 Accountancy, explained in plain words, with games and quizzes to practise.
Dissolution of Partnership versus Dissolution of Firm
Part of: Closing down
Dissolution of partnership only reshuffles the partners, while dissolution of the firm shuts the whole business and sells everything. A firm can end by agreement, by notice, on a set event, or by court order, and some events force it shut at once. For example, when every partner but one leaves, the firm must dissolve.
Why it matters. Each later step, from paying lenders to sharing leftovers, follows only when the firm itself ends. Mixing the two kinds would sell assets that should stay in business.
Key words
- Dissolution of partnership
- : Change among partners while business goes on.
- Dissolution of firm
- : Closure of the whole business.
- Compulsory dissolution
- : Closure forced by law or events.
- Realisation
- : Selling assets and paying liabilities.
Try it in two minutes
- Sort 4 cards: partner leaves, firm shuts, assets sold, business goes on.
- Pair each card with partnership change or firm closure. Ask: which pile sells assets?
- Match 3 end-events: agreement, notice, court order. Ask: which one needs no consent?
Try at home. Write two columns, partnership change and firm closure, and place five events: admission, retirement, expiry of term, court order, partner notice.
Settlement of Accounts on Dissolution
Part of: Closing down
When a firm dissolves, the cash from sold assets plus any top-up from partners is used in a fixed order: first outside debts, then partners' loans, then partners' capitals, and lastly any surplus in the profit ratio. Firm debts come out of firm assets first, and only a shortfall touches private property. For example, 120000 realised pays 60000 of outside debts, then a 20000 partner loan, leaving 40000 against capitals of 50000.
Why it matters. Paying in the wrong order can starve an outsider who trusted the firm, or rob a partner of her loan. The order protects lenders first and partners next, exactly as the law demands.
Formulas
- Firm assets first pay firm debts
- Partner loans = After outsiders, before capitals
- Deficiency shared in profit ratio
Key words
- Outside liabilities
- : Debts the firm owes to strangers.
- Partner loan
- : Money a partner lent to the firm.
- Deficiency
- : Shortfall shared when cash runs out.
- Private estate
- : A partner's own non-firm property.
Try it in two minutes
- Stack 12 coins as realised cash and label bills: outsiders 6, partner loan 2, capitals 5.
- Pay the piles strictly in order and watch the last pile fall short by 1.
- Share that shortfall equally as the deficiency. Ask: who bears it and why?
Try at home. Realised cash 100000, outside debts 50000, partner loan 10000, capitals 25000 each shared equally. Find what each partner finally receives.
Realisation Account
Part of: Sharing the final result
The realisation account is opened at dissolution to sell off assets, settle liabilities and find the final gain or loss. Assets move to its debit and outside liabilities to its credit at book values, while cash, bank and past losses stay out. Sale money and taken-over assets are credited, payments and expenses debited, and the balance goes to partners in their profit ratio. For example, debits of 265000 against credits of 240000 give a loss of 25000 shared 12500 each.
Why it matters. Without one closing record, sale money, unpaid bills and taken-over assets would scatter across old books. The account gathers every closing move in one place so the final split is exact.
Formulas
- Closing result = Credits total - Debits total
- Loss shared in profit ratio
- Unrecorded asset sale = Credit to realisation
Key words
- Realisation account
- : Closing record of sales, payments and the final result.
- Book value transfer
- : Moving assets and dues at recorded values.
- Taken over
- : Asset kept by a partner for personal use.
- Closing loss
- : Final shortfall shared by partners.
Try it in two minutes
- Move toy furniture and stock slips to a tray labelled realisation, leaving cash slips behind.
- Add sale cash of 18 to the credit side and bills paid of 6 plus costs of 5 to the debit side.
- Find the shortfall of 2.5 and share it equally. Ask: who bears a closing loss?
Try at home. Assets of 100000 and liabilities of 30000 are transferred. Assets realise 90000, liabilities are paid 30000, and costs are 4000. Find the result and share it 1 to 1.
What your child will practise
- Dissolution of Partnership versus Dissolution of Firm: Ocean Quick Fire (Quick Fire)
- Dissolution of Partnership versus Dissolution of Firm: Ocean Puzzle (Clue Puzzle)
- Realisation Account: Jungle Puzzle (Clue Puzzle)
- Realisation Account: Jungle Quick Fire (Quick Fire)
- Settlement of Accounts on Dissolution: Candy Quick Fire (Quick Fire)
- Quiz: Dissolution of Partnership versus Dissolution of Firm (8 questions)
- Quiz: Realisation Account (8 questions)
- Quiz: Settlement of Accounts on Dissolution (8 questions)