ACCOUNTING TREATMENT ON DISSOLUTION OF FIRM (ASSETS SIDE)

Assets as per the Assets not recorded Accumulated

Loan to Partner Intangible Assets Cash/ Bank A/c
Balance Sheet in Balance Sheet Losses, DRE

Transferred to Realisation A/c: Transferred to PC Goodwill

Realisation A/c ...Dr. Debited Credited
Cash Realised Given in Settlement
To Assets A/c
(Individually at Gross Value)
Partners’ Capital A/cs ...Dr.
To Profit and Loss A/c  Realisation Expenses
 Transfer Balance from Paid
(Accumulated Losses)
Cash /Bank A/c ...Dr. Balance Sheet  Amount Paid for
Sold and To Deferred Revenue Expenditure A/c
Taken by Taken by To Realisation A/c Liabilities
Amount (Advertisement Suspense)  Amount Realised from
Partner Creditors  Payment for Partner's
Realised Sale of Assets
Loan to the Firm
 Amount Brought by
 Amount Paid for the
Concerned PC A/c ...Dr. Cash/Bank A/c ...Dr. Partner (for final settlement) final Settlement to
To Realisation A/c Partners
To Realisation A/c
(at agreed value)

Loan to Partner is adjusted through Realisation A/c ...Dr. After Passing the entries, Bank Account
Cash or Bank A/c: To Goodwill A/c Should not have balance
Cash or Bank A/c ...Dr.
To Loan to Partner A/c

In Full Settlement In Part Settlement

Cash Realised Taken by Partner No Information

Asset or Assets given Amount

in settlement of Liability Paid/Received Realised value Agreed value No Amount Realised
Given to
Taken by
creditor in
Partner
No Entry If Paid If Received settlement
Cash/Bank A/c ...Dr. Concerned PC A/c ...Dr.
No Entry
To Realisation A/c To Realisation A/c

Realisation A/c ...Dr. Cash/Bank A/c ...Dr. No Entry Concerned PC A/c ...Dr.
To Cash/Bank A/c To Realisation A/c To Realisation A/c
(at agreed value)

Abbreviations Used:
PC—Partner’s Capital; DRE—Deferred Revenue Expenditure
 ACCOUNTING TREATMENT ON DISSOLUTION OF FIRM (LIABILITIES SIDE)

Accumulated Profits, Loan by Partner A/c

Recorded Liabilities Unrecorded Liabilities Partners’ Capital A/cs
Reserves

Transferred to Realisation A/c: Transferred to Partner’s Credited by:

Loan by Partner to the firm
Sundry Liabilities A/c ...Dr. Capital A/c  Opening Credit balance of
To Realisation A/c (Book Value) Capital A/c
 Opening Credit balance of
Profit and Loss A/c ...Dr. Current A/c
Reserve A/c ...Dr.  Share of Undistributed Profits
To Partner’s Capital A/c and Reserves
 Share of Realisation Gain (Profit)
In case Partner has credit balance in his  Liabilities Paid on behalf of firm
Capital A/c: Debited by:
Loan by Partner A/c ...Dr.
Settled by Giving Recorded  Opening Debit balance of
Taken/Discharged By Partner If Paid To Cash/Bank A/c
or Unrecorded Assets Current A/c
In case Partner has debit balance in his
Capital A/c:  Share of undistributed losses
Loan by Partner A/c ...Dr.  Loan given by the firm to the
Realisation A/c ...Dr. Partner
To Concerned Partner’s Realisation A/c ...Dr. To Partner’s Capital A/c
To Cash/Bank A/c  Share of Loss in Realisation A/c
Capital A/c To Cash/Bank A/c  Assets Taken Over
(at agreed value) No Entry
If the Partner takes an asset in
satisfaction of his loan: If Credit balance:
Loan by Partner A/c ...Dr. Partner’s Capital A/c ...Dr.
To Realisation A/c (Book value) To Cash/Bank A/c
To Realisation A/c (Gain, if any) If Debit balance:
Cash/Bank A/c ...Dr.
To Partner’s Capital A/c

After final settlement (Payment),

On Dissolution payment is made in the following sequence: there should be no balance in
1. Pay Outside Liabilities Capital Account

2. Pay Loan by Partner to the firm

3. Pay Partner’s Capital

Note: Bank Loan/Bank Overdraft/Cash Credit is transferred to Realisation Account.