ACCOUNTANCY
A
UNIT -5
RECONSTITUTION OF PARTNERSHIP FIRM
DISSOLUTION OF
PARTNERSHIP FIRM
1. Define dissolution of a partnership firm?
Ans: Dissolution of partnership: Dissolution of
partnership means a change in the existing relationship of partners through
reconstitution of the firm without effecting the entity of the firm. The
dissolution of partnership does not involve the complete breakdown of
relationship among the partners but it merely means a change in the economic
relationship.
Dissolution of a partnership firm:
According to Section 39 of the Indian
Partnership Act, 1932, "The dissolution of partnership between all the partners
of a firm is called the dissolution of the firm".
2. What are the different modes of dissolution of partnership firm?
Ans: As per section 40, 41, 42, 43, 44 of the Indian Partnership Act,
1932 which states that there are five modes of dissolution of partnership firm.
They are as follows:
a. Dissolution by agreement (Section 40)
b. Compulsory dissolution (Section 41)
c. Dissolution on the happening of certain contingencies (Section 42)
d. Dissolution by notice of partnership at will (Section 43)
e. Dissolution by the court (Section 44)
A. Dissolution By Agreement: A firm may be dissolved with the consent of
all the partners or in accordance with a contract between the partners.
B. Compulsory Dissolution:
A firm is compulsory dissolved in the following cases:
(i) When all the partners,
except one become insolvent.
(ii) When all the partners
become insolvent
(iii) When the business becomes
illegal, and
(iv) When the number of partners
exceed twenty in case of an ordinary business or ten in case of a banking
business.
C. Dissolution on the
Happening of Certain Contingencies:
A firm may be dissolved on the happening of any one the following
contingencies
(i) By the expiry of the term or duration of the firm.
(ii) By the completion of the venture for which firm was constituted.
(iii) By the death of a partner, and
(iv) By the adjudication of a partner as insolvent.
D. Dissolution by Notice of
Partnership at Will: When
the partnership is at will, the firm may be dissolved by any partner giving
notice in writing to all the other partners of his intention to dissolve the
firm.
E. Dissolution by the Court:
The court may dissolve a firm on any one of the following grounds:-
(i) When a partner become of unsound mind.
(ii) Where a partner becomes permanently incapable of performing his
duties.
(iii) Where a partner is guilty of misconduct in carrying on the
business.
(iv) Where a partner willfully or persistently commits breach of
agreement.
(v) Where a partner transferred whole of his interest in the firm to a
third party.
(vi) Where the court finds that the business cannot be carried on except
for a loss.
3. What are the differences between
Dissolution of partnership and Dissolution of firm?
Ans: Following are the differences between
Dissolution of partnership and Dissolution of firm:
4. State the procedure to be
followed in settlement of accounts under Section 48?
Or
State the procedure of dissolution
of partnership firm?
Ans: - Following are the procedure is followed in
settlement of accounts, when a firm is dissolved:-
(i) Realization of assets: All tangible and intangible assets are realized, some assets are sold for cash and some assets may be taken over by
partners at agreed values.
(ii) Payments of realization expenses: Expenses incurred on disposal of assets are to
be met out of firm’s cash. Sometimes such expenses are born by a partner when
he undertakes to do the work of dissolution for some commission.
(iii) Payment of liabilities to third parties: After the realization of assets and payments
of realization expenses, liabilities to third parties are to be paid out of
remaining cash
(iv) Payment of partners loans: After the payment of liabilities to third
parties, payment of partners loans will be paid off.
(v) Distribution of balance cash or other assets
among partners: Balance
cash or assets will be distributed among the partners in their final capital
ratio. If any partner’s capital account shows a debit balance, the partner has
to refund the balance to the firm, so that the partners having credit balance
may be paid in full.
5. What is Realisation Account?
Ans: Realisation account is a nominal account. It
is prepared at the time of dissolution of partnership firm. It is prepared to
find out profit or loss on realisation of assets and payment of liabilities
when a firm is dissolved. The closing balance of this account transferred to
partner’s capital account in their profit sharing ratio.
6. What are the objectives of
preparing Realisation Account?
Ans: Following are the objectives of preparing
Realisation Account:
a. It is prepared to close the books of account at the time of
dissolution of firm.
b. It is prepared to record sale of assets and payment of liabilities
and expenses.
c. It is prepared to find out profit or loss on realisation of assets
and liabilities.
7. What are the differences
between Revaluation A/c and Realisation A/c?
Ans: - Following are the differences between Revaluation
A/c and Realisation A/c:
****
