PARTNERSHIPPARTNERSHIPDISSOLUTIONDISSOLUTION

•66AA

•ERIC&ERIC&KIMKIM

The reasons of dissolution:

• 1)The changes in the partnership due to the retirement or death of the partner(s).

• 2)The bankruptcy of the business of the partnership.

• 3)The business of the partnership

• take over by limited company.

The procedures of dissolutionThe procedures of dissolution

• 1)1)Transfer all the assets,liabilities to theTransfer all the assets,liabilities to the realizatiorealization account(n account(dr. realization),anddr. realization),and realizationrealization expenses expenses alsoalso transfer to transfer to realization accountrealization account (dr. realization , (dr. realization ,cr.bank )cr.bank )

• realization bank• creditor x realization

• asset x expense x

• realization commission x

• expense x

• commission x

2)2)All assets will be sold to otherAll assets will be sold to other (cr. realization,dr.bank )(cr. realization,dr.bank ) or or taken over by partners in their taken over by partners in their agree price agree price ((cr.realization ,dr. partners’cr.realization ,dr. partners’ capital capital )),if give to partners for ,if give to partners for gift,not countgift,not count

realization bank

bank asset realization ::

sold x asset sold x

asset take over by partnersasset take over by partners realization capital

capital A A

asset take over realization

by partner x asset take over x

3)Settle the liabilities of creditor by partnership(dr. creditors,cr. bank ),if there are any discount received,then dr.creditors ,cr.realization.If the partnership pay the liabilities,then dr creditors,cr partners’ capital. Creditor bank bank x creditor x

Have discount received

realization creditor

creditor : realization: creditor : realization:

discount received discount received xx discount discount

received received xx

partnership pay the liabilities

creditor capital

capital A x A

creditor x

4)Collection of debts:Collection of debts:If there are any bad debt recoveredbad debt recovered or or debtsdebts collectedcollected ,cr.realization ,dr.bank,if partners undertake to collect the debts on behalf of the partnership, just cr realization ,dr.partners’ capital.

Bank realization

bad debt bad debt

recovered x recovered x

debt collected x debt collected x

partners undertake to collect the debts on behalf of the partnership

capital realization

A

Realization: capital A

debt collect x debt collect x

5) “Profit and loss on realization”“Profit and loss on realization” If the cr. Side of realization a is larger than the dr.side,that’s mean there are profit on it,so cr.the capital account otherwise,that’s mean loss on it, then dr.capital account. There are two methods to count the “profit or loss on realization” :use profit and loss ratio or ratio given in exam.

realization account

profit on realization x loss on realization x

capital account

loss on realization x gain on realization x

6)transfer the current balance to capital6)transfer the current balance to capital

capital account

current a/c x

current account

capital x

7)Capital deficiency(debit balance in capital a/c),

(solvency by partner)

capital account

A

balance b/f x bank x

bank account

A x

If partner is insolvency,partner can notcan not settle debit balance in his Capital account.The solvency partnerssolvency partners will share the deficiency in one of following ratios:

a)p&l share ratio or b) agree ratio given in exam

dr.capital(solvency partners), cr capital(insolvency partner)

it will be done as follow:

If A is insolvent,B will help A

capital account

A B A B

capital deficiency X capital deficiency X

Conclusion for the formatConclusion for the format realization account

asset x bank asset sold x

creditor x capital :asset take over x

realization expense x bad:debt collected x

commission x capital bad debt

capital :profit collected by partner x

on realization x bank :bad debt recovered x

creditor: discount received x

capital loss on realization x

Bank account

balance b/d x balance b/d x

realization account: creditors x

asset sold x realization expense x

capital account: partners loan x

c x capital account: a x

b x

Partner C is insolvencyPartner C is insolvency capital account

a b c a b c

asset take over balance b/f x x x

by partners x x creditor x

loss on realization x x x current account x x x

current account x x x bank x

share of c insolvency: share of c insolvency:

capital c x x capital a x

bank capital b x

(balance figure) x x

P.S. Bank A/c must be balancedP.S. Bank A/c must be balancedotherwise you are calculate wrongotherwise you are calculate wrong

EE

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