This chapter discusses the dissolution of partnership firms, outlining the processes and key considerations involved in terminating partnerships.
Dissolution of Partnership Firm – Formula & Equation Sheet
Essential formulas and equations from Accountancy Part - I, tailored for Class 12 in Accountancy.
This one-pager compiles key formulas and equations from the Dissolution of Partnership Firm chapter of Accountancy Part - I. Ideal for exam prep, quick reference, and solving time-bound numerical problems accurately.
Key concepts & formulas
Essential formulas, key terms, and important concepts for quick reference and revision.
Formulas
Realisation Account = Total Assets - Total Liabilities
The Realisation Account is prepared to calculate the net assets to be realised, where total assets include all the assets of the firm and total liabilities include all external debts.
Net Profit / Loss on Realisation = Realised Assets - Liabilities Settled
This formula calculates net profit or loss from the realisation of assets after settling liabilities, indicating how much has been gained or lost.
Partner's Capital Account Adjustment = (Profit or Loss on Realisation) / Total Profit Sharing Ratio
Profit or loss on realisation is shared among partners based on their profit-sharing ratio. This adjustment shows how to allocate the realised amounts.
Treatment of Losses: Losses = (Profits + Capital) / Ratio
This specifies how losses are treated among partners, starting from profits and moving to capital if profits are insufficient.
Settlement Order: 1) Pay external debts, 2) Partner Loans, 3) Capital
The order of settlement outlines the sequence for using realised assets to pay off debts, ensuring external creditors are prioritized before partners.
Assets Realisation = Cash from Cash Sales + Cash from Partner Contributions - Realisation Expenses
This calculates total cash realised during dissolution after accounting for expenses and contributions from partners during the realisation process.
Amount Apportioned = (Total Amount Available × Partner’s Share) / Total Shares
Used to determine the amount each partner receives or contributes based on their respective shares, important during the final settlement.
Payment to Creditors = Creditor's Claim × (1 - Discount Rate)
This formula calculates how much will be paid to creditors after applying any discounts agreed upon during the settlement.
Loss Distribution = Loss on Realisation × (Partner’s Ratio)
Used for appropriately distributing any loss incurred during the realisation of assets among partners based on their sharing ratio.
Sum Contributed by Partners = Total Loss to be Covered by Partners' Capital Contribution
Indicates how much should be paid by partners if total capital isn't enough to cover losses, guiding the partners' contributions in bankruptcy scenarios.
Equations
Realisation Account Dr. = (Assets Transferred + Cash from Sales)
This means debiting the Realisation Account for total assets transferred to it, including cash realised from sales.
Liabilities A/c Cr. = Total Liabilities Settled
Credits in the Realisation Account represent all liabilities that have been settled during the dissolution process.
Bank A/c Dr. = Cash Received from Realisations
Reflects all cash that has been received and should be debited to the bank account to show funds available.
Creditors A/c = Amount Owing × (1 - Discount Rate)
Determines how much is paid to creditors after any discounts are applied, crucial during liquidations.
Final Settlement = Capital A/c Dr. to Bank A/c
Indicates the final transfer from partners' capital accounts to the bank account when settling their dues post-realisation.
Realisation Expenses Dr. = Total Expenses Charged to Realisation Account
Represents total expenses charged against the Realisation Account, showing how much was utilized in the dissolution process.
Profit on Realisation = Total Assets Realised - Total Liabilities
Displays whether a profit was made on realisation of assets by comparing realised assets to settled liabilities.
Unrecorded Asset Realisation = Book Value × (1 - Discount)
Indicates how unrecorded assets are valued when accepted by partners during dissolution after any discount applied.
Realisation Loss = Total Value Taken - Net Realisable Value
Calculates any loss incurred if the total value booked is greater than what assets realise during dissolution.
Final Amount Payable = Total Cash Available - Total Realisation Expenses
Shows how much cash remains after realisation expenses are deducted, essential for determining what can be paid out to partners.
This chapter introduces the fundamental concepts of accounting for partnership firms, emphasizing its significance in understanding partnership operations.
Start chapterThis chapter discusses the reconstitution of a partnership firm when a new partner is admitted, which is a significant event in partnership accounting.
Start chapterThis chapter discusses the processes involved in reconstituting a partnership firm following the retirement or death of a partner, highlighting the necessary accounting treatments.
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