Dissolution Of Partnership Firm

Step 1: Recall dissolution rules (Realisation A/c).
On dissolution, all assets (except cash/bank, fictitious assets) and liabilities are transferred to the \emph{Realisation Account}.

Expenses of realisation are \emph{debited} to Realisation A/c when borne by the firm.
Cash received from sale/realisation of assets (including \emph{unrecorded} assets) is \emph{credited} to Realisation A/c via Bank.
If any asset is taken over by a partner, debit the partner’s Capital A/c and credit Realisation A/c at agreed value.
Payment of liabilities is debited to Realisation A/c (credit Bank).
Finally, the profit or loss on Realisation is transferred to partners’ capital accounts in their \emph{old profit-sharing ratio}.

Step 2: Apply the rules to each transaction.
(i) Dissolution expenses of Rs. 500 paid by the firm reduce the realisation profit: .
(ii) Unrecorded asset realised Rs. 2,500: receipt comes in Bank; credit Realisation because it increases the realisation proceeds.
(iii) Stock (already in Realisation) taken over by A: charge A’s capital and credit Realisation with Rs. 2,000.
(iv) Creditors settled for Rs. 3,000: debit Realisation (liability paid) and credit Bank.
(v) Given \emph{profit} on Realisation = Rs. 4,000; distribute in ratio → A = 3,000; B = 1,000. Entry: Realisation Dr 4,000 → A’s Capital 3,000; B’s Capital 1,000.
Step 3: Present the journal entries (with narrations).

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Step 1: Situation. Prepared only at dissolution.
Step 2: Purpose. - Records disposal of assets. - Records settlement of creditors, loans, and expenses. - Balancing figure shows profit/loss on realisation.
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Step 1: Settlement process at dissolution.
After assets are realised and liabilities are paid, the remaining balance (profit or loss) is transferred to partners’ capital accounts.
Step 2: Final closure of capital accounts.
- If partners are to be paid cash, settlement is done through Bank A/c.
- Bank A/c is credited when cash is paid to partners.
- Partners’ Capital A/c is debited when their dues are settled.
Step 3: Conclude.
Therefore, partners’ capital accounts are finally closed through Bank A/c.
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Step 1: Assumption in dissolution problems.
In accounting, if nothing specific is mentioned about a liability during dissolution, the standard assumption is that it has been properly settled.
Step 2: Nature of settlement.
The settlement means liabilities are fully discharged by the firm, either in cash or otherwise.
Step 3: Eliminate incorrect options.
- Option (A) Never paid: Wrong, firm cannot ignore liabilities.
- Option (C) Partly paid: Wrong, no such assumption is made.
- Option (D) None of these: Wrong, as correct rule exists.
Step 4: Conclude.
Thus, liabilities are assumed to be fully paid if no information is given.
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