CBSE Class 12 Accountancy Dissolution Of A Partnership Firm Notes

CBSE Class 12 Dissolution Of A Partnership Firm. Learning the important concepts is very important for every student to get better marks in examinations. The concepts should be clear which will help in faster learning. The attached concepts made as per NCERT and CBSE pattern will help the student to understand the chapter and score better marks in the examinations.

CHAPTER 6

DISSOLUTION OF A PARTNERSHIP FIRM

Dissolution of a firm: As per Indian Partnership Act, 1932: “Dissolution of firm means termination of partnership among all the partners of the firm”. When a firm is dissolved, the business of the firm terminates. All the assets of the firm are disposed off and all outsiders’ liabilities and partners’ loan and partners capitals are paid.

Dissolution of Partnership: Dissolution of Partnership refers to termination of old partnership agreement (i.e., Partnership Deed) and a reconstruction of the firm. It may take place on 

-  Change in profit sharing ratio among the existing partner;

– Admission of a partner; and

– Retirement or Death of a partner. 

It may or may not result into closing down of the business as the remaining partners may decide to carry on the business under a new agreement. Types of dissolution of firms : A partnership firm can be dissolved in any of the

following ways :

(A) Without the intervention of the court :

(1) When all partners agree to dissolve the firm (Sec. 40);

(2) Compulsory Dissolution (Sec. 41)

(i) When all or all but one partner of the firm become insolvent.

(ii) when business of the firm become unlawful.

(3) On the happening of any of the following events : (Sec. 42)

(i) On the insolvency of a partner.

(ii) On the fulfilment of the objective of the firm for which the firm was formed.

(iii) On the expiry of the term (period) for which the firm was formed.

(4) By Notice (Sec. 43) : When the duration of the partnership firm is not fixed and it is at will of the partners. Any partner by giving notice to other partners can dissolve the firm.

(B) Dissolution by order of the court (Sec 44) : A court on application by a partner may order the dissolution of the firm under the following circumstances :

(1) When a partner has become of unsound mind.

(2) When a partner has become permanently incapable of performing his duties as a partner.

(3) When a partner is found guilty of misconduct that may harm the partnership.

(4) When a partner consistently and deliberately commits breach of partnership agreement.

(5) When a partner transfer whole of his interest in the business firm to a third party, without the consent of existing partners.

(6) When the court is satisfied that the partnership firm cannot be carried on except at a loss.

(7) When the court find is that the dissolution of firm is justified and equitable.

ACCOUNTING TREATMENT ON DISSOLUTION

On dissolution of a firm, the following accounts are opened to close the books of the firm:

– Realisation Account;

– Partner’s Loan Account;

– Partners’ Capital Accounts; and

– Cash or Bank Account.

Realisation Account: It is nominal account opened on the dissolution of a firm to ascertain the profit or loss on realisation of assets and payments of outsiders’ liabilities. This account is closed by transferring the balance (i.e., profit or loss on realisation) to partner’s capital accounts.

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