Accounts Relating to Dissolution of Firm

Accounts Relating to Dissolution of Firm include mainly Realization Account, Partners' Capital Accounts and Bank Account. In case of loan by partner to the firm Partner's Loan Account is also prepared separately.

 

Realization Account - Meaning: 

Realization Account is a nominal account prepared at the time of Dissolution of Partnership Firm, for the purpose of realization of assets and repayment/settlement of liabilities and sharing the profit/loss on realization among the partners.

                                                                               Realization Account 

Debit AmountsCredit Amounts
To Asset A/c (at book value) individually

To Bank A/c (actual payment of liability)

To Partner’s Capital A/c (liability taken over at agreed value)

To Bank A/c (unrecorded liability paid)

To Bank A/c (realization expenses paid)

To Partner’s Capital A/c (Agreed Remuneration)

To Partners’ Capital A/c (profit on realization distributed in profit sharing ratio)***

By External liability A/c (at book value) individually

By Bank A/c (asset actually realized)

By Partner’s Capital A/c (asset taken over at agreed value)

By Bank A/c (unrecorded asset realized)

By Investment Fluctuation Reserve A/c (book value) *

By Workmen Compensation Reserve A/c (book value) *

By Employees Provident Fund A/c (book value) **

 

                                                                             Capital Accounts of the Partners

Debit AmountsCredit Amounts
To Current A/c (debit)

To Accumulated Losses

To Realization A/c (asset taken over)

To Realization A/c (loss on realization)

To Bank A/c (Balancing figure-payment)

 

By Balance B/d (opening balance)

By Current A/c (credit)

By Accumulated Profits/Reserves

By Realization A/c (liability taken over)

By Realization A/c (remuneration for realization)

By Realization A/c (profit on realization)

By Bank(Balancing figure-receipt)

 

 

                                                                                      Bank Account

Debit AmountsCredit Amounts
To Balance B/d (opening balance)

To Cash (b/d)

To Realization A/c (Assets sold)

To Partner's Capital A/c (brought)

By Realization A/c (Liabilities paid)

By Partner’s Loan A/c (Repayment)

By Realization A/c (realization expenses paid)

By Partners’ Capital A/c (repayment)

 

 

                                                                        Partner’s Loan account

Debit AmountsCredit Amounts
To Bank (if paid)

To Partner’s Capital A/c (if transferred to Capital)

By Balance B/d (opening balance)

 

Realisation Expenses on Dissolution of Firm

 

Class 12 Accountancy MCQs Dissolution of Partnership Firm

Self-Learning Activities in Accountancy Class 12