Class 12 Accountancy - HARYANA
Dissolution of Partnership Firm
The chapter 'Dissolution of Partnership Firm' in Class 12 Accountancy under the Haryana Board (BSEH) focuses on the complete closure of a partnership business. It covers the discontinuation of the relation among all partners, settling of accounts, realization of assets, and payment of liabilities. Students will learn the systematic preparation of important ledger accounts including the Realization Account, Partners' Capital Accounts, and Bank or Cash Account. Mastery of this chapter is crucial as it tests students' comprehensive understanding of accounting treatment during the termination of business operations, frequently appearing as high-weightage practical problems in board exams.
Start Learning FreeKey Concepts
Dissolution of Firm vs. Dissolution of Partnership
Dissolution of partnership involves a change in the existing business relationship among partners while the business continues, whereas dissolution of the firm means the complete closure and winding up of the business itself.
Realization Account
A nominal account opened upon the dissolution of a firm to ascertain the profit or loss on the realization of assets and the payment of liabilities.
Treatment of Unrecorded Assets and Liabilities
Unrecorded assets realized are credited to the Realization Account and debited to the Bank/Cash Account, while unrecorded liabilities paid are debited to the Realization Account and credited to the Bank/Cash Account.
Settlement of Accounts (Garner v. Murray Rule)
Assets are first used to pay outside debts, then partner loans, and finally capital balances. In case of partner insolvency, the loss due to capital deficiency is shared among solvent partners based on their capital ratio.
Important Formulas
Board Exam Info
In the Haryana Board (BSEH) Class 12 Accountancy examination, this chapter typically carries around 6 to 8 marks. Students can expect one long-answer practical question (6 marks) requiring the preparation of a Realization Account, Partners' Capital Accounts, and Bank Account, along with occasional 1-mark objective questions.
Frequently Asked Questions
What is the main difference between Revaluation Account and Realization Account?
A Revaluation Account is prepared during reconstitution (admission, retirement, death) to record the change in values of assets and liabilities while the firm continues. A Realization Account is prepared during dissolution to completely close the books of accounts by selling all assets and paying off all liabilities.
How are partner's loans treated upon dissolution?
A loan advanced by a partner to the firm is an outside liability for ranking purposes and must be paid off entirely after outside creditors are settled, but strictly before any capital balances are returned to the partners.
Are undistributed profits transferred to the Realization Account?
No, accumulated profits, general reserves, and accumulated losses are directly transferred to Partners' Capital Accounts in their old profit-sharing ratio and never go through the Realization Account.
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