SUBJECT: ACCOUNTANCY
CLASS-XII
DISSOLUTION OF PARTNERSHIP(JOURNAL ENTRIES)
A) For closing the assets account:
Realistion A/c Dr.
To Various Assets A/c
Note: Cash and Bank Accounts are not transferred to Realisation Account as payments
are received against sale of assets and is paid to meet the liabilities.
B) For closing the Liabilities account:
Liabilities A/c Dr.
To Realisation A/c
Only Liabilities to outside parties are transferred to Realisation Account
C) Provision or Reserve Against an Asset: When an asset is transferred to the Realisation
Account, its corresponding provision or reserve existing in the liabilities side of the
Balance Sheet, is also transferred to Realisation Account.
For example: Investments exist in the assets side of the Balance Sheet and Investments
Fluctuation Reserve exists in the liabilities side of the Balance Sheet. Investments and
Investments Fluctuation Reserve both are transferred to Realisation Account. The entries
passed are:
(i) Realisation A/c Dr.
To Investments A/c
(ii) Investments Fluctuation Reserve A/c ...Dr.
To Realisation A/c
D) Fictitious Assets: Balance of fictitious assets such as accumulated losses, deferred
revenue expenditure (e.g., Advertisement Suspense A/c), etc., are not transferred to
Realisation Account. These accounts are transferred to the Capital Accounts of Partners
(being a loss) in their profit-sharing ratio by passing the entry:
Partner’s Capital A/c Dr.
To Deferred Revenue Expenditure A/c.
E) Workmen Compensation Reserve
(a) Liability against Workmen Compensation Reserve does not Exist or No Information
of liability for Workmen Compensation:
Workmen Compensation Reserve A/c Dr.
To Partners Capital A/cs
(b) Liability of Workmen Compensation is less than the Amount of Workmen
Compensation Reserve:
Workmen Compensation Reserve A/c
To Realisation A/c Dr. (With amount of Liability)
To Partners' Capital A/cs
(c) Liability of Workmen Compensation is equal to the Amount of Workmen
Compensation Reserve
Workmen Compensation Reserve A/c Dr. (Amount of Reserve)
To Realisation A/c
(d) Liability of Workmen Compensation is more than the Amount of Workmen
Compensation Reserve
Workmen Compensation Reserve A/c Dr. (Amount of Reserve)
To Realisation A/c.
(e)Payment of workmen compensation Claim:
Realisation A/c Dr.
To Bank A/c
F) Realisation of Assets:
i) If realised value of tangible assets is not given, the asset is accounted as realised
at its book value.
ii) If realised value of tangible asset is given, it is shown at the given realised value.
iii) In case, realised value of part of assets is given, balance tangible asset is realised
at its book value.
iv) If realised value of intangible asset is not given, the asset is not accounted as
realised.
Accounting entries of Realisation of Assets (whether Recorded or Unrecorded):
Mode of Realisation Accounting Entry
When the assets are sold Cash (or Bank) A/c Dr. (With the realised amount)
for cash/cheque. To Realisation A/c
When an asset is taken by a Concerned Partner's Capital A/c Dr. (With agreed value)
partner. To Realisation A/c
When an asset is given to No entry is passed.
creditor towards payment
of his dues or in settlement
of a liability.
When an asset is given to Realisation A/c Dr. ( Balance amount paid)
creditor towards part To Cash/Bank A/c
payment of his dues or in
settlement of a liability.
G) Accounting entries for Payment or Settlement of Liabilities (whether Recorded or
Unrecorded):
Mode of Settlement Accounting Entry
On payment of liabilities. Realisation A/c Dr. (With the realized amount)
To Cash/Bank A/c
If a partner agrees to settle Realisation A/c
a liability. To Concerned Partner's Capital A/c
H) Realisation Expenses
Mode of Payment Accounting Entry
When realisation expenses are borne Realisation A/c Dr.
and also paid by the firm. To Cash/Bank A/c
When realisation expenses were to Realisation A/c Dr.
be borne by the firm but are paid by To Concerned Partner's Capital A/c
a partner.
When realisation expenses are borne No Entry
and paid by the same partner.
When any of the partners agrees to Realisation A/c Dr.
carry out dissolution for an agreed To Concerned Partner's Capital A/c
remuneration, including realisation
expenses.
When realisation expenses are borne Concerned Partner's Capital A/c Dr.
by a partner and paid by the firm. To Cash/Bank A/c
For Realisation Expenses borne by Realisation A/c Dr.
the firm but partly paid by the firm To Cash/Bank A/c [Amount paid by the firm]
and balance by a partner: To Concerned Partner's Capital A/c[Amount
paid by the partner)
I) Closing Realisation A/c
i)Journal entry when there is Gain (Profit) on Realisation:
Realisation A/c Dr.
To Partners' Capital A/cs [In old profit-sharing ratio]
ii)Journal entry when there is Loss on Realisation:
Partners' Capital A/cs Dr.
To Realisation A/c [In old profit-sharing ratio]
J) Loan by Partner
It is not transferred to Realisation Account.
a) Payment of loan
Loan by Partner A/c Dr.
To Bank/Cash A/c
b) Accept lesser amount than the loan amount.
Loan by Partner A/c Dr.
To Bank/Cash A/c [Amount paid]
To Realisation A/c [Difference between the loan amount and amount paid]
c) Accept a recorded asset, in settlement of loan amount.
Loan by Partner A/c Dr
To Realisation A/c [Loan Amount]
d) Accept an unrecorded asset, in settlement of loan amount
Loan by Partner A/c Dr
To Realisation A/c [Loan Amount]
e) Accept an unrecorded or recorded asset, in part settlement of loan amount.
Loan by Partner A/c Dr.
To Bank/Cash A/c [Amount paid]
To Realisation A/c [Asset value]
K) Loan by firm to partner
a) When amount of Loan to a Partner is received:
Cash/Bank ...Dr.
To Loan to Partner A/c
b) When amount of Loan to a Partner is transferred to Capital Account:
Partner's Capital A/c ..Dr.
To Loan to Partner A/c
L) Transfer of Reserves, Undistributed Profits and Losses, Deferred Revenue
Expenditure:
a) General Reserve A/c
Profit & Loss A/c (Cr. Balance)
To Partners' Capital A/cs [In profit-sharing ratio]
b) Partners' Capital A/cs [In profit-sharing ratio]
To Profit & Loss A/c (Dr. Balance)
To Deferred Revenue Expenditure A/c (e.g., Advertisement Suspense A/c)
M) For Final Settlement with Partners
(i) When Partners bring amount (Cash) for Deficiency in Capital:
Bank/Cash A/c ...Dr.
To Partner's Capital A/c
(ii) When Payment is made to Partners or Closing the Partners' Capital Accounts: him
Partner's Capital A/c Dr.
To Bank/Cash A/c