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Business Dissolution Journal Entries Guide

Dissolution refers to the closure of a firm and the end of business relationships among partners, which can occur with or without a court order. The document outlines various journal entries for the transfer of assets and liabilities during dissolution, including specific treatments for reserves, provisions, and realization expenses. Additionally, it details the distribution of cash and bank among partners and the handling of partners' capital and loans.

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7 views3 pages

Business Dissolution Journal Entries Guide

Dissolution refers to the closure of a firm and the end of business relationships among partners, which can occur with or without a court order. The document outlines various journal entries for the transfer of assets and liabilities during dissolution, including specific treatments for reserves, provisions, and realization expenses. Additionally, it details the distribution of cash and bank among partners and the handling of partners' capital and loans.

Uploaded by

rexgomes2008
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Dissolution

Dissolution means closure of the firm and discontinuance of the Business. In other words business
relationships among all partners come to an end.

The modes of dissolution are:-

1) Dissolution without the court Order

2) Dissolution with Court Order.

Journal Entries

A) For Transfer of assets

Realization A/C …………………………………………………..Dr

To Land & Building

To Plant & Machinery

To Stock/Debtors/ Goodwill/ Furniture

Notes

1) Assets against which reserve or Fund exists (like investment Fluctuation Reserve) should be
transferred to Realization Account.

2) Assets against which provision exists (provision for Doubtful Debts, Provision for Depreciation) are
transferred to Realization account at Gross Value (and not net value). Provision is also transferred to
realization account. Separate entries are as follows:-

Realization Account ………………………Dr

To Sundry Debtors

Provision for Doubtful Debt ……………………..Dr

To Realization Account

3) Balance in P/L, Deferred Revenue expenditure, is transferred to Partners Capital Account & Not to
Realization account.

Partners’ Capital A/C…………….Dr

To Profit & Loss account

To Deferred Revenue Expenditure


4) Bank A/C…………………………….Dr

To Realization A/C

(For sale of unrecorded assets)

5) Partner’s Capital A/c ……………………………….Dr

To Partners Current A/C

(For transfer of Debit Balance of Current A/C. In case of Credit balance the entry will be reversed)

6) Partners Capital A/c…………………………….Dr

To Partners Loan A/C

(For transfer of Loan to Partner by Firm)

In case of Loan by a Partner to firm, a separate account has to be maintained and it is to be repaid
before payment of capital to partner.

7) Cash and Bank is not transferred but is distributed among partners

B) For Transfer of Liabilities

1) Sundry Creditors A/C……………………………………………………………………………………………..Dr

Bills Payable A/C/ Outsider Loan/ Bank Loan /Outstanding Loan A/C ……………………..Dr

To Realization account

2) Workmen Compensation Reserve A/C…………………………………………….Dr

To Realization A/C (To the extent of liability against WC)

To Partners Capital A/C (Balance of WC transferred to Capital A/c)

3) Bank loan A/C…………………………………Dr

To Realization A/C

(Being transfer of Bank Loan. However Bank Overdraft is not transferred to Realization A/c, it is to be
paid from Bank/Cash Balance)

4) Realization A/C ………………………………………..Dr

To bank

(For payment of unrecorded Liability)


5) For transfer of Profit on Realization-

Realization A/C …………………………Dr

To Partner’s Capital Account

6) a) Treatment of Realization Expenses

Realization expenses A/ C …………………Dr

To Bank

(Expenses paid by Firm)

b) Realization A/C ………………………………Dr

To Partners Capital A/C

(Remuneration payable to Partner as realization expenses)

c) Partners Capital A/c …………………….. Dr

To Cash

(Realization expenses paid by Firm on account of Partner)

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