Dissolution of Partnership Firm

CBSE Class 12 Accountancy | 2026–27

1. Meaning

Dissolution of the firm ends the business. Assets are realised, liabilities are settled and partners’ accounts are closed. This is different from a change in constitution where the business continues.

2. Realisation Account

Realisation Account measures profit or loss arising from disposing of assets and settling liabilities. Assets transferred are debited; liabilities transferred are credited. Sale proceeds are credited and payments of liabilities/realisation expenses are debited.

3. Worked Numerical

Assets transferred ₹2,00,000; liabilities transferred ₹80,000; assets realised ₹1,70,000; liabilities settled ₹76,000; realisation expenses ₹4,000. Realisation loss = ₹2,00,000 + ₹76,000 + ₹4,000 − ₹80,000 − ₹1,70,000 = ₹30,000. This loss is transferred to partners in their profit-sharing ratio.

4. Partner Takes Over an Asset

If a partner takes over an asset at an agreed value, the partner’s Capital Account is debited and Realisation is credited at that value. If a partner takes over a liability, the treatment is reversed appropriately.

5. Unrecorded Assets and Liabilities

An unrecorded asset realised for cash is credited to Realisation. An unrecorded liability paid is debited to Realisation. These items must not be inserted into the books as ordinary opening assets/liabilities before the dissolution entries unless the question specifically requires another treatment.

6. Final Settlement

After external liabilities and dissolution expenses are settled, partners’ capital accounts are closed through the Bank/Cash Account according to their final balances.

🖼️ Dissolution Sequence

Exam Practice

1. Prepare a complete Realisation Account from a full balance sheet.
2. Record an asset taken over by a partner.
3. Record an unrecorded asset and unrecorded liability.
4. Prepare partners’ Capital Accounts and Bank Account.

MCQs

1. Realisation Account determines realisation profit/loss. True.
2. Asset sale proceeds are credited to Realisation. True.
3. Liabilities transferred to Realisation are credited. True.
4. Realisation loss is transferred to partners in their profit-sharing ratio. True.
5. Unrecorded asset sale proceeds are credited to Realisation. True.

CBSE scope: prepare Realisation Account, partners’ Capital Accounts and Cash/Bank Account; do not add excluded topics merely to increase page length.