This chapter provides an in-depth understanding of the dissolution of partnership firms, covering the essential accounting treatments and procedures involved. The focus is on how the assets and liabilities are settled, and the distribution of profits or losses among partners.
Introduction to CBSE Class 12 Accountancy Chapter "Reconstitution-of-a-Partnership-Firm-Dissolution-of-Partnership-Firm"
The chapter delves into the processes involved when a partnership firm is dissolved. It covers the difference between the dissolution of a partnership and a partnership firm. The key points discussed include the realization account, accounting treatment for unrecorded assets and liabilities, settlement of partners’ loans, and distribution of remaining funds among partners.
Key Concepts:
- Dissolution of Partnership vs. Partnership Firm: Understanding the differences in terms of continuation of business and economic relationships.
- Accounting Treatments: Handling unrecorded assets and liabilities, partner’s loans, and private debts.
- Realization Account: Recording the sale of assets and payment of liabilities to determine net profit or loss.
- Settlement of Accounts: Following the order of payment as per the Partnership Act, 1932.
Assignments for CBSE Class 12 Accountancy Chapter “Reconstitution-of-a-Partnership-Firm-Dissolution-of-Partnership-Firm”
- Case Study Analysis: Analyze a recent case of a partnership firm dissolution and discuss the accounting treatments applied.
- Research Project: Investigate the dissolution process of a real-life partnership firm, including the settlement of accounts and realization account preparation.
- Debate Preparation: Debate on the effectiveness of current laws governing the dissolution of partnership firms.
- Chart Creation: Create a flowchart detailing the dissolution process, including the order of payment of liabilities.
- Role Play: Conduct a mock dissolution of a partnership firm, where students take on the roles of partners and settle accounts accordingly.
Conclusion
The chapter equips students with the knowledge to handle the accounting processes involved in the dissolution of a partnership firm. It provides a clear understanding of how to settle accounts, manage unrecorded assets and liabilities, and distribute the remaining funds among partners.
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Questions and Answers for CBSE Class 12 Accountancy Chapter "Reconstitution-of-a-Partnership-Firm-Dissolution-of-Partnership-Firm"
Q1: What is the difference between dissolution of partnership and dissolution of a partnership firm?
- ANS: Dissolution of partnership refers to the change in the relationship among partners without discontinuing the business, while dissolution of a partnership firm refers to ceasing all business operations and settling all accounts.
Q2: How are unrecorded assets treated in the realization account?
- ANS: Unrecorded assets are either sold off for cash or taken over by a partner. If sold, the cash received is credited to the realization account; if taken over by a partner, the partner’s capital account is debited.
Q3: What is the order of settlement of accounts on dissolution as per the Partnership Act, 1932?
- ANS: The order is:
- Pay off all external expenses and liabilities.
- Clear loans and advances owed to partners.
- Pay off partners’ capital accounts.
- Distribute any remaining funds among partners according to their profit-sharing ratio.
Q4: How is the deficiency of creditors paid off in a dissolution?
- ANS: Deficiency of creditors is transferred to the partners’ capital accounts and settled according to their profit-sharing ratio. If partners’ private assets are used, they are also adjusted in the settlement.
Q5: Explain the process of preparing a realization account.
- ANS: A realization account is prepared to determine the profit or loss on the sale of assets and discharge of liabilities. It includes transferring all assets and liabilities to the account, recording the sale of assets, payment of liabilities, and finally distributing the profit or loss among partners.
Q6: What happens to a partner’s loan in the dissolution of a firm?
- ANS: If a partner’s loan is on the liabilities side of the balance sheet, it is paid after settling external liabilities. If it is on the assets side, it is transferred to the partner’s capital account.
Q7: What journal entries are made for realization expenses?
- ANS: Realization expenses are debited to the realization account and credited to the bank account. If paid by a partner, the partner’s capital account is credited.
Q8: How are profits and losses on realization distributed among partners?
- ANS: Profits and losses on realization are transferred to the partners’ capital accounts in their agreed profit-sharing ratio.
