Question

Explain with the support of an illustration the process of termination and liquidation of a partnership? (With supportive example)

Answer 1

Meaning of liquidation or dissolution of partnership firm

Liquidation means winding up the business of the firm in this we sell all the assets and pay all the liabilities.

Process of liquidation

Firstly All the assests including goodwill are realised in realisation account

All the liabilities are transfered to realisation account

All the reserve, surplus and losses are transfered to capital account

In the realisation account we sell all the assests and pay all the liabilities

The profit and loss arises from realisation account will be transfered to the capital accounts in the profit sharing ratio

The capital account will be setteled by using cash or any other things according to agreement.

At the end after all above transactions the cash account will be matched.

The Above procedure can be explained or supported by given illustration

Illustration.

A & B are the partners in a firm the PSR is 2:3 respectively on 1 Aprl 2018 they decide to liquidate the firm. The balance sheet on that day are following

LIABILITIES	AMT.	ASSETS	AMT.
Capital A	2000	Furniture	2000
B	3000	Debtors	10000
Reserves	5000	Cash	3000
Creditors	5000
	15000		15000

Furniture relised at 2500 and book debt 10000

Solution

Realisation Account

Particular	Amt	Particular	Amt.
To Furniture	2000	by creditor	5000
To Debtor	10000
To Cash Creditor 5000	5000	By Cash furniture 2500 debtor 10000	12500
To realisatin gain	500
A 200
B 300
	17500		17500

Capital Account

Particular	A	B	Particular	A	B
			By Capital	2000	3000
			by reserve	2000	3000
To cash	4200	6300	by realisation gain	200	300
	4200	6300		4200	6300

Cash Account

Particulars	Amt	Particulars	Amt
To bal. b/d	3000	By realisation account	5000
To Realisatin A/C	12500	By A	4200
		By B	6300
	15500		15500