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Dissolution of The Firm

This document outlines the process of dissolution of a firm, detailing the realization account and the treatment of various assets and liabilities during the dissolution. It includes specific cases for workmen compensation reserves and investment fluctuation reserves, along with examples of how realization expenses are recorded. The document serves as a guide for accounting entries related to the dissolution of partnerships.

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27 views4 pages

Dissolution of The Firm

This document outlines the process of dissolution of a firm, detailing the realization account and the treatment of various assets and liabilities during the dissolution. It includes specific cases for workmen compensation reserves and investment fluctuation reserves, along with examples of how realization expenses are recorded. The document serves as a guide for accounting entries related to the dissolution of partnerships.

Uploaded by

pochi.hamsika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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This study material is created by Ms.

Leena Khatri +971508630043

Dissolution of the firm


Realisation account

Particulars Amt Amt Particulars Amt Amt


To SUNDRY ASSETS ( All assets BY SUNDRY LIABILITIES (All
that need to be sold) liabilities that needs to be paid)
To Intangible assets x By Prov/Reserve for depreciation x
To Debtors(gross value) x By reserve for doubtful debts x
To Prepaid expense x By Employee provident Fund x
To Accrual income x xx By Bank overdraft, bank loan, x xx
Cash credit
(All assets except cash/bank, ( All other reserves is credited to
partners loan, profit & loss, partners capital account)
deffered revenue expenditure)
To Bank By Bank
Liabilities paid x Assets realized /sold x
Dissolution expense paid x Bad debts recovered
outstanding expense x
Bank loan,overdraft,cash credit xx
To Partners capital By Partners Capital
Liabilities paid by partner x Asset taken over by partner x xx
Commission paid to partner x xx
To Profit on realization By Loss on realization transferred
transferred to partner’s capital to partner’s capital in PSR
in PSR ( balancing fig) ( balancing fig )

Notes:

1) Any Assets settled against outside liability , no entry is passed


2) Loan by partner( internal liability) is not transferred to realization account but if settled in cash
or asset then difference amount will appear in realization account
3) Partners wife loan is transferred to realization account
4) If realizable value of tangible assets is not given they are realized at book value
5) If realizable value of intangible assets is not given then its realizable value is always zero
6) Any difference while settlement of outside liability will not affect realization account
7) Unrecorded asset sold is debited to bank account and credit to realization account
8) Unrecorded asset taken by partner is debited to concerned partner’s capital account and
credited to realization account
9) Unrecorded liability is paid realization account is debited and cash/bank account is credited
with the amount paid , being loss
10) Unrecorded liability realization account is debited and partners capital account is credited
11) Entry is not passed , if unrecorded asset is given against recorded or unrecorded liability
This study material is created by Ms. Leena Khatri +971508630043

WORKMEN COMPENSATION RESERVES

A and B are partners in equal ratio WCR = 90000

Case 1: Claim = 0
1) Workmen compensation reserve A/c. dr 90000
To A’s Capital Account 45000
To B’s Capital Account 45000

Case 2: Claim = 30000 (Claim less than WCR)


1) Workmen compensation reserve A/c. dr 30000
To realisation Account 30000
2) Realisation Account dr 30000
To Bank 30000
3) Workmen compensation reserve A/c. dr 60000
To A’s Capital Account 30000
To B’s Capital Account 30000

Case 3: Claim = 90000 (Claim = WCR)


1) Workmen compensation reserve A/c. dr 90000
To realization Account 90000
2) Realisation Account dr 90000
To Bank 90000

Case 4: Claim = 120000 (Claim is more than WCR)


1) Workmen compensation reserve A/c. dr 90000
To realisation Account 90000
2) Realisation Account dr 120000
To Bank 120000

Case 5: Claim = 50000 (WCR = 0 )


1) Realisation Account dr 50000
To Bank 50000

INVESTMENT FLUCTUATION RESERVE

Case 1: Investment given in the balance sheet (Transfer both investment and investment fluctuation
reserves in realization Account
1) Investment Fluctuation reserve A/c dr X
To Realization A/c. X

Case 2: Investment is not given in the balance sheet


1) Investment Fluctuation reserve A/c. dr X
To A’s Capital Account X
To B’s Capital Account X
This study material is created by Ms. Leena Khatri +971508630043

Realization Expenses

Examples
1) Realisation expense were Rs2000
Realisation A/c. dr 2000
To Bank 2000

2) Realisation expenses Rs 2000 were paid by A , a partner


Realisation A/c. dr 2000
To A’s Capital A/c 2000

3) Realisation expenses of Rs.2000 were paid by the firm on behalf of the partner A
A’s capital A/c. dr 2000
To Cash/Bank 2000

4) Realisation expense of Rs.2000 were to be borne and paid by partner A


NO Entry

5) A , a partner was paid remuneration of Rs2000 to carry out dissolution .Actual expenses were Rs1000.
Expenses incurred were paid by A
Realisation A/c. dr 2000
To A’s Capital A/c. 2000

6) Dissolution Expense of Rs5000. Out of the said Rs3000 were to be borne by the firm and balance
by A, a partner. Rs 5000 were paid by the firm
Realization A/c. dr 3000
This study material is created by Ms. Leena Khatri +971508630043

A’s Capital A/c. dr 2000


To Cash/Bank 5000

7) A , a partner is paid remuneration of Rs.5000 for dissolution of a firm . Realisation expenses paid
by the firm is Rs2000
Realization A/c. dr 5000
To A’s capital 5000
A’s capital A/c. dr 2000
To Cash/bank 2000

8) Realization expense of Rs.5000 were to be borne by a partner A. However it was paid by partner
B, another partner .It was recorded in the books
A’s Capital A/c. dr 5000
To B’s Capital A/c. 5000

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