Welcome to Shri Krishna Education Centre Shri Krishna

Welcome to Shri Krishna Education Centre Shri Krishna Education 9810123857, 7011059938 1

Dissolution of Firm Shri Krishna Education 9810123857, 7011059938 2

Dissolution of Firm Points to Discuss 1. Modes of dissolution of a firm 2. Journal Entries at the time of Dissolution. 3. Preparation of Realization a/c. 4. Accounting treatment of I. F. F, J. L. P reserve a/c s 5. Preparation of Capital a/c. 6. Preparation of Cash / Bank a/c. Shri Krishna Education 9810123857, 7011059938 3

Modes of Dissolution By Mutual agreement By Compulsory Dissolution By Notice given by any partner ( In case of partnership at will) On happening of an event. (completion of the venture, on death of a partner, expiry of the term of partnership) Dissolution by the order of court Shri Krishna Education 9810123857, 7011059938 4

Journal Entries Realization a/c Dr. To Sundry Assets a/c (Being assets transfer to realization a/c accept cash, bank and Profit & Loss a/c) Sundry Liabilities a/c Dr To Realization a/c (Being amount of Outsider’s Liabilities transfer to Realization a/c) Note: Outsider Liabilities includes Creditors, Bills Payable, Bank Loans, Partner’s relative loan a/c, E. P. F, Shri Krishna Education 9810123857, 7011059938 5

Realization a/c To Cash/ Bank a/c (Being Liabilities / Expenses Paid off) Dr. Realization a/c Dr. To Partner’s Capital a/c (Being Liabilities / Expense Paid off by a partner) Cash / Bank a/c To Realization a/c (Being Assets Sold off) Dr Partner’s capital a/c To Realization a/c (Being Assets taken over by partner) Dr Shri Krishna Education 9810123857, 7011059938 6

If realization expenses paid by a partner Realization a/c To partner’s capital a/c (Being Liabilities / Expenses Paid off) Dr. If realization expenses borne by a partner No entry If realization expenses born by a partner but paid out of firm’s amount. i. e. paid by firm but on behalf of a partner Partner’s capital a/c Dr. To cash a/c (Being Expenses borne by a partner ) Shri Krishna Education 9810123857, 7011059938 7

3. Prepration of Realization a/c Dr. Particulars Amounts Particulars To S. Assets a/c By S. Liabilities a/c To Cash/ Bank a/c By Cash / Bank a/c To Partner’s capital a/c( Lia. Taken) To profit tr. to all partner’s capital a/c Cr. Amounts By Partner’s capital a/c( Assets Taken) By loss tr. to all partner’s capital a/c Note : All Liabilities must be paid off , whereas assets will not be sold off if no information regarding sale of asset is given in adjustment. Shri Krishna Education 9810123857, 7011059938 8

4. Accounting treatment of I. F. F, Reserve a/cs J. L. P Accounting treatment of Investment Fluctuation Fund (I. F. F): If Investments are given in Balance Sheet Transfer I. F. F a/c on the Cr. Side of Realization a/c (do not pay off) If Investments are not given in Balance Sheet Transfer I. F. F a/c on the Cr. Side of partners capital a/c in their profit sharing ratio. Shri Krishna Education 9810123857, 7011059938 9

Accounting treatment of Joint Life Policy Reserve (J. L. P. Reserve a/c) If J. L. P is given in Balance Sheet If J. L. P is not given in Balance Sheet Transfer J. L. P. reserve a/c on the Cr. Side of Realization a/c (do not pay off) Transfer J. L. P. Reserve a/c on the Cr. Side of partners capital a/c in their profit sharing ratio. Shri Krishna Education 9810123857, 7011059938 10

5. Preparation of Capital a/cs of Partners. Dr. Particulars To Bala b/d To Real. a/c (Loss) To Real. a/c (Assets taken) To Cash/Bank a/c (b/f) Cr. Capital a/c A B C Particulars A B C By Bala b/d By Real. A/c (Profit) By Real. A/c (Liab. taken) By cash/ bank a/c (b/f) Shri Krishna Education 9810123857, 7011059938 11

6. Prepration of Cash/Bank a/c Dr. Particulars Amounts Particulars To Bala b/d a/c By Partner’s loan a/c To Partner’s loan a/c By Realization a/c (Creditors & Expenses paid) To Partner’s capital a/c To Realization a/c (Assets Realized) Cr. Amounts By Partner’s capital a/c Note : Cash / Bank a/c must be equal. Shri Krishna Education 9810123857, 7011059938 12

Prepared By Ashwini Kumar for Shri Krishna Education 9810123857, 7011059938 13