Class 12 Accountancy - KERALA
Dissolution of Partnership Firm
The chapter 'Dissolution of Partnership Firm' in Class 12 Accountancy (Kerala SCERT syllabus) focuses on the formal closure of business operations and the winding up of a partnership firm. Unlike the retirement or death of a partner, dissolution involves the complete termination of the partnership relationship among all partners, settling all liabilities, and distributing leftover assets. For board exams, mastering the preparation of key ledger accounts—Realization Account, Partner's Capital Accounts, and Bank or Cash Account—is crucial. Questions from this chapter frequently test your ability to treat unrecorded assets, realize liabilities, and handle partner's loans correctly.
Start Learning FreeKey Concepts
Dissolution of Firm vs Dissolution of Partnership
Dissolution of a partnership only changes the relationship among partners (like admission or retirement), whereas dissolution of a firm means the complete closure and winding up of the business itself.
Realization Account
A nominal account opened upon dissolution to transfer all assets (except cash/bank and accumulated losses) and external liabilities to ascertain the profit or loss on the realization of assets and settlement of liabilities.
Settlement of Accounts
As per the Indian Partnership Act, losses (including deficiencies of capital) are paid first out of profits, then out of capital, and lastly by partners individually in their profit-sharing ratio.
Treatment of Partner's Loan
A loan advanced by a partner to the firm is an external liability and must be fully paid off before making any payments towards partner's capital accounts.
Important Formulas
Board Exam Info
In the Kerala (SCERT) Class 12 Accountancy board exam, this chapter typically carries around 6 to 10 marks. Questions usually include a comprehensive 8-mark numerical problem requiring the preparation of a Realization Account, Partner's Capital Accounts, and Bank Account, alongside 1-2 mark theoretical or journal entry questions regarding specific asset realizations.
Frequently Asked Questions
Is Cash/Bank balance transferred to the Realization Account?
No, cash and bank balances are not transferred to the Realization Account because a separate Cash or Bank Account is maintained to record all final cash receipts and payments during dissolution.
How do we treat unrecorded assets realized during dissolution?
When an unrecorded asset is sold, cash/bank is debited and Realization Account is credited. If a partner takes it over, the Partner's Capital Account is debited and Realization Account is credited.
What is the order of payment of liabilities on dissolution?
First, outside liabilities (creditors, bills payable, bank overdraft), second, partner's loans, third, partner's capital contributions, and finally, any remaining surplus is distributed among partners in their profit-sharing ratio.
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