Class 12 Accountancy - PUNJAB
Dissolution of Partnership Firm
The chapter 'Dissolution of Partnership Firm' in Class 12 Accountancy under the Punjab School Education Board (PSEB) deals with the complete closure of a business partnership. It covers the legal and financial winding up of the firm, settling all liabilities, realizing assets, and distributing the final surplus or deficit among partners. For board exams, this chapter is crucial as it heavily tests practical accounting skills through comprehensive 6-mark or 8-mark numerical problems involving the Realization Account, Partners' Capital Accounts, and Cash/Bank Account preparation.
Start Learning FreeKey Concepts
Dissolution of Firm vs. Dissolution of Partnership
Dissolution of a firm means the complete closure of the business and termination of the partnership relationship among all partners, whereas dissolution of partnership only involves a change in the existing business relationship, like admission or retirement, while the firm continues.
Realization Account
A nominal account opened at the time of dissolution to ascertain the profit or loss on the realization of assets and payment of liabilities.
Treatment of Unrecorded Assets and Liabilities
Unrecorded assets realized are credited to the Realization Account and debited to Bank/Cash, while unrecorded liabilities paid are debited to Realization and credited to Bank/Cash.
Settlement of Accounts (Garner v. Murray Rule)
Assets are applied first to pay third-party debts, then partners' loan advances, capital balances, and finally any remaining surplus is distributed among partners in their profit-sharing ratio.
Partner's Loan to the Firm
A loan advanced by a partner to the firm is paid off after settling outside liabilities but before making any payments towards partners' capitals.
Important Formulas
Board Exam Info
In the Punjab (PSEB) Class 12 Accountancy board exam, this chapter typically carries around 6 to 8 marks. Questions usually include one major 6-mark or 8-mark comprehensive numerical problem requiring the preparation of Realization Account, Partner's Capital Accounts, and Bank Account, along with 1-mark objective or short answer questions.
Frequently Asked Questions
What is the main difference between Revaluation Account and Realization Account?
A Revaluation Account is prepared during reconstitution (admission, retirement) when the firm continues, while a Realization Account is prepared only at the time of dissolution to close down the firm permanently by selling all assets and paying off all liabilities.
How are realization expenses treated if borne by a partner?
If a partner agrees to bear realization expenses, the Realization Account is debited and the respective Partner's Capital Account is credited with the agreed amount. If the partner pays it out of their pocket, no separate cash entry is passed.
What is the sequence of payment of liabilities on dissolution?
First, outside liabilities (creditors, bills payable, bank overdraft) are paid, followed by partners' loans, then partners' capital balances, and any surplus is shared among partners in their profit-sharing ratio.
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