Class 12 Accountancy - CBSE
Dissolution of Partnership Firm
The chapter 'Dissolution of Partnership Firm' in Class 12 CBSE Accountancy covers the complete closure of a business and the winding up of its affairs. Unlike the admission or retirement of a partner which only alters the constitution of the firm, dissolution ends the business relationship entirely. Students learn how to systematically close books of accounts by preparing the Realization Account, Partners' Capital Accounts, and Bank or Cash Account. This chapter is crucial for board exams as it consistently features a compulsory 6-mark or 8-mark long-answer question involving comprehensive ledger accounts and journal entries.
Start Learning FreeKey Concepts
Dissolution of Firm vs Partnership
Dissolution of partnership involves only a change in the existing agreement among partners, whereas dissolution of the firm means the complete closure of the business and sale of all its assets.
Realization Account
A nominal account opened at the time of dissolution to ascertain the profit or loss on the sale of assets and payment of liabilities.
Treatment of Unrecorded Assets and Liabilities
Assets not appearing in the balance sheet realized for cash are credited to the Realization Account, while unrecorded liabilities paid off are debited to it.
Partner's Loan Account
A loan advanced by a partner to the firm is settled only after outside creditors are paid in full, and it is paid through a separate account rather than the Realization Account.
Settlement of Accounts
Assets are realized first, followed by payment of outside liabilities, repayment of partners' loans, return of partners' capital, and finally distributing any remaining surplus among partners in their profit-sharing ratio.
Important Formulas
Board Exam Info
In the CBSE Class 12 Accountancy board exam, this chapter typically carries around 6 to 8 marks. Questions usually include one compulsory long-answer question (6 marks) requiring the preparation of a Realization Account, Partner's Capital Accounts, and Bank/Cash Account, along with 1 or 2 objective-type questions or journal entry-based questions.
Frequently Asked Questions
Is Realization Account a nominal account?
Yes, the Realization Account is a nominal account prepared to find out the profit or loss on the realization of assets and settlement of liabilities.
How is a partner's loan treated during dissolution?
A partner's loan is paid directly in cash and is NOT transferred to the Realization Account because it is an internal liability owed to a partner, though it is paid after outside liabilities.
What happens if an asset is taken over by a partner?
The partner's Capital Account is debited, and the Realization Account is credited with the agreed value at which the asset is taken over.
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