AccountancyCBSE Class 12 · Chapter 4

Dissolution of Partnership Firm Class 12: Realisation Account and Settlement

Updated 14 October 2026 · Fact-checked

Dissolution of Partnership Firm is Chapter 4 of CBSE Class 12 Accountancy Part A. It covers dissolution of a partnership versus dissolution of a firm, the modes of dissolution, settlement of accounts under Section 48, and the Realisation Account, partners' capital accounts and bank account. Piecemeal distribution, sale to a company and insolvency are excluded.

What Dissolution of Partnership Firm is about

Dissolution of the firm means the business itself closes: assets are sold, liabilities are paid and partners take away whatever is left. (Dissolution of a partnership is different: only the agreement changes, as on admission or retirement, and the business goes on.)

Accounting for the closure uses a Realisation Account. All assets (except cash and bank, and fictitious assets) are transferred to its debit, and all outside liabilities to its credit, at book values. Then every sale of an asset, every payment of a liability, every asset taken over by a partner and every realisation expense is recorded through it. The balance is profit or loss on realisation, shared in the profit sharing ratio. Reserves and accumulated profits or losses are closed to capital accounts, partners' loans are repaid, and finally the bank account pays out each partner's capital balance (or collects cash from a partner with a debit balance), so that every account closes.

The 2026-27 syllabus gives three rules for questions: a tangible asset whose realised value is not given is taken as realised at book value; an intangible asset whose value is not given is realised at nil; and when a partner bears realisation expenses, the question must say how they are paid. Piecemeal distribution, sale of the firm to a company and insolvency of a partner are not in the syllabus.

Weightage: This chapter is part of Part A: Accounting for Partnership Firms, which carries 36 of the 80 theory marks together with Accounting for Partnership: Basic Concepts, Reconstitution of a Partnership Firm – Admission of a Partner and Reconstitution of a Partnership Firm – Retirement/Death of a Partner.Source: CBSE Accountancy (055) syllabus 2026-27, Part A: Accounting for Partnership Firms

In real board papers: asked in 2 of the 2 board papers we hold (2026 to 2026), on average 7 marks per paper. See the questions

Key concepts

Dissolution of partnership versus dissolution of firm

NCERT section 4.1, 4.2

Dissolution of partnership: the relationship among partners changes (admission, retirement, death, change in ratio, insolvency of a partner) but the firm may continue under a new agreement. Books are not closed; assets and liabilities are revalued.

Dissolution of firm: the business is closed down. Assets are realised, liabilities paid and books closed. Dissolution of a firm always involves dissolution of partnership, but not the other way round.

Other differences: the court has no role in dissolving a partnership, but a firm can be dissolved by court order; on dissolution of a firm, the Realisation Account is prepared instead of the Revaluation Account.

Worked example

Suppose a partner of a three-person firm retires and the other two carry on the business. Is this dissolution of the firm? [1 mark]

Try it first, then show the solutionSolution

The old agreement ends and a new one begins between two partners.
The business continues and books are not closed.

Answer: No. It is dissolution of the partnership only; the firm continues.

Modes of dissolution of a firm

NCERT section 4.2

By agreement: with the consent of all partners, or as per a contract among them.
Compulsory: when all partners, or all but one, become insolvent, or when the business becomes illegal.
On certain contingencies (subject to contract): expiry of a fixed term, completion of the venture, death of a partner, or a partner adjudged insolvent.
By notice: in a partnership at will, any partner can give written notice of his intention to dissolve.
By the court, on a partner's suit: a partner becomes of unsound mind or permanently incapable, is guilty of misconduct, persistently breaches the agreement, transfers his whole interest to a third party, the business can only be carried on at a loss, or the court finds it just and equitable.

Worked example

Suppose a firm was formed to build a single housing project, and the project is completed and all flats are sold. On what ground is the firm dissolved? [1 mark]

Try it first, then show the solutionSolution

The firm was formed for one venture.
Completion of the venture is one of the contingencies on which a firm is dissolved.

Answer: Dissolution on the happening of a contingency: completion of the venture.

Settlement of accounts under Section 48

NCERT section 4.3

Subject to agreement among partners, Section 48 of the Partnership Act sets the order:

Losses, including deficiencies of capital, are paid first out of profits, then out of capital, and lastly by partners individually in their profit sharing ratio.
Assets of the firm (including sums contributed by partners to make good deficiencies) are applied in this order: (i) debts of the firm to third parties; (ii) loans and advances by partners (as distinct from capital); (iii) each partner's capital; (iv) any surplus shared in the profit sharing ratio.

So outside creditors are always paid before a partner's loan, and a partner's loan before capital.

Worked example

Suppose after selling all assets a firm has ₹2,00,000. It owes creditors ₹1,20,000 and a partner's loan of ₹50,000; capitals total ₹60,000. In what order and how much is paid? [3 marks]

Try it first, then show the solutionSolution

Creditors first: ₹1,20,000 (₹80,000 left).
Partner's loan next: ₹50,000 (₹30,000 left).
Capitals of ₹60,000 cannot be repaid in full: the ₹30,000 shortfall is a loss to be borne by partners in their profit sharing ratio before final payment.

Answer: Creditors ₹1,20,000, partner's loan ₹50,000, then ₹30,000 towards capitals after the capital loss is shared in the profit ratio.

Realisation Account: transfer entries

NCERT section 4.4, 4.4.1

Assets transferred: Realisation A/c Dr, To each asset (at book value). Do not transfer cash, bank, or fictitious assets such as a debit balance of Profit and Loss Account. If a provision (such as for doubtful debts or depreciation) exists, transfer the asset at gross value and the provision to the credit side.
Liabilities transferred: each outside liability Dr, To Realisation A/c. Do not transfer partners' capitals, partners' loans, reserves or accumulated profits; they are settled separately.
Reserves and accumulated profits: Reserve A/c Dr, To partners' capital accounts (profit ratio). Accumulated losses the other way round.

Worked example

Suppose a firm has debtors of ₹50,000 with a provision for doubtful debts of ₹3,000, a general reserve of ₹20,000 and creditors of ₹40,000. Pass the transfer entries on dissolution (partners A and B share equally). [3 marks]

Try it first, then show the solutionSolution

Particulars	Dr (₹)	Cr (₹)
Realisation A/c ... Dr	50,000
To Debtors A/c		50,000
(Being debtors transferred at gross value)
Provision for Doubtful Debts A/c ... Dr	3,000
Creditors A/c ... Dr	40,000
To Realisation A/c		43,000
(Being provision and creditors transferred)
General Reserve A/c ... Dr	20,000
To A's Capital A/c		10,000
To B's Capital A/c		10,000
(Being general reserve distributed)

Answer: Debtors to the debit of Realisation (₹50,000); provision and creditors to its credit (₹43,000); reserve to capitals.

Realisation Account: transactions during dissolution

NCERT section 4.4.1

Asset sold: Bank A/c Dr, To Realisation A/c.
A partner keeps an asset: debit that partner's capital account and credit Realisation A/c with the agreed value.
Liability paid: Realisation A/c Dr, To Bank A/c.
Liability taken over by a partner: Realisation A/c Dr, To Partner's Capital A/c.
Creditor accepts an asset in full settlement: no entry. If he also gets some cash: Realisation A/c Dr, To Bank (cash part only).
Unrecorded asset sold: Bank Dr, To Realisation; taken by a partner: Partner's Capital Dr, To Realisation. Unrecorded liability paid: Realisation Dr, To Bank.
Realisation expenses paid by the firm: Realisation Dr, To Bank. Paid by a partner on the firm's behalf: Realisation Dr, To Partner's Capital. A partner who has agreed to bear them for a fixed remuneration: Realisation Dr, To Partner's Capital (remuneration only); if the firm pays expenses that the partner was to bear: Partner's Capital Dr, To Bank.
Profit or loss on realisation goes to capitals in the profit sharing ratio.

Worked example

Suppose on dissolution: (i) a creditor of ₹30,000 accepts machinery (book value ₹25,000) and ₹5,000 in cash in full settlement; (ii) Pia agrees to bear all realisation expenses for a remuneration of ₹5,000, and actual expenses of ₹4,000 are paid by Pia. Pass the journal entries. [2 marks]

Try it first, then show the solutionSolution

(i) Machinery is already in the Realisation Account; only the cash paid needs an entry.
(ii) Pia bears the expenses herself, so only her remuneration is recorded.

Particulars	Dr (₹)	Cr (₹)
Realisation A/c ... Dr	5,000
To Bank A/c		5,000
(Being cash paid to creditor along with machinery)
Realisation A/c ... Dr	5,000
To Pia's Capital A/c		5,000
(Being Pia's remuneration for carrying out dissolution)

Answer: (i) Realisation A/c Dr ₹5,000 To Bank ₹5,000. (ii) Realisation A/c Dr ₹5,000 To Pia's Capital A/c ₹5,000; no entry for the ₹4,000 she pays.

Values not given, partners' loans and final settlement

NCERT section 4.4.1

Syllabus rules for questions: if the realised value of a tangible asset is not given, take it as realised at book value; if the value of an intangible asset (such as goodwill or patents) is not given, take it as nil.

After realisation: partner's loan to the firm is repaid (Partner's Loan A/c Dr, To Bank), after outside creditors. If the firm had lent to a partner, it is recovered from his capital (Partner's Capital A/c Dr, To Partner's Loan/Advance A/c).

Finally, each capital account is closed through the bank account: a credit balance is paid (Capital A/c Dr, To Bank); a debit balance is brought in by the partner (Bank Dr, To Capital A/c). The bank account must close at zero, which is the best check of the whole answer.

Worked example

Suppose after realisation Raj and Sara (sharing 3 : 2) have capitals of ₹1,00,000 and ₹15,000 and a realisation loss of ₹60,000. How is the account settled? [3 marks]

Try it first, then show the solutionSolution

Loss ₹60,000 in 3 : 2: Raj ₹36,000, Sara ₹24,000.
Sara's capital becomes 15,000 − 24,000 = ₹9,000 debit, so she brings ₹9,000 in cash.

Partners' Capital Accounts (₹)

Dr: Particulars	Raj	Sara	Cr: Particulars	Raj	Sara
To Realisation A/c (loss)	36,000	24,000	By Balance b/d	1,00,000	15,000
To Bank A/c (final payment)	64,000		By Bank A/c (cash brought in)		9,000
Total	1,00,000	24,000	Total	1,00,000	24,000

Answer: Sara brings in ₹9,000; Raj is paid ₹64,000.

Dissolution of Partnership Firm in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Asset taken over by a partner

Suppose two partners close a photo studio and one of them wants to keep the camera, which is in the books at ₹60,000, for ₹50,000.

How is this recorded and who gains?

Try it first, then show the solutionSolution

Partner's Capital A/c Dr 50,000 To Realisation A/c 50,000.
Realisation shows a ₹10,000 loss on the camera, shared by both partners in their ratio.

Answer: Her capital is reduced by ₹50,000; the ₹10,000 shortfall is a realisation loss shared by both.

Memory hook: Taking an asset is like being paid in kind: debit your capital.

Section 48 order

Suppose a closing restaurant owes its vegetable supplier ₹40,000 and one partner, who lent it ₹30,000, but has only ₹55,000 after selling everything.

Who is paid first, and what happens to the partner's loan?

Try it first, then show the solutionSolution

The supplier, an outside creditor, is paid ₹40,000 first.
The partner's loan gets the remaining ₹15,000; the ₹15,000 shortfall becomes a loss borne by partners in their ratio.

Answer: Outside creditors first, then partners' loans.

Memory hook: Strangers first, partners later.

Debit balance on dissolution

Suppose a partner with a small capital in a food truck business finds that her share of the loss on closing exceeds her capital.

What must she do?

Try it first, then show the solutionSolution

Her capital account shows a debit balance after the loss.
She brings in cash equal to that balance, which is used to pay the other partner.

Answer: She pays in the debit balance so that accounts close.

Memory hook: Unlimited liability: losses do not stop at your capital.

Topics in this chapter

Dissolution of Partnership Firm: key facts

Profit or loss on realisation: (Liabilities transferred + amounts realised and assets taken over) − (assets transferred + liabilities paid or taken over + expenses)
Value not given: Tangible asset: realised at book value; intangible asset: nil; CBSE 2026-27 syllabus note.
Order of payment (Section 48): 1.Outside creditors
2.partners' loans
3.partners' capitals
4.surplus in profit sharing ratio
Creditor takes an asset in part settlement: Cash paid = liability − value of asset accepted (only the cash is recorded)
Final payment to a partner: Opening capital + reserves + realisation profit + liabilities taken over − assets taken over − realisation loss − accumulated losses
Bank account check: Opening bank + realisations + cash brought in = payments to creditors, expenses, partners' loans and capitals

How the board asks Dissolution of Partnership Firm

The question patterns to expect, and the method that works for each.

Question type	How it is asked	Method
Theory: dissolution and modes	1-mark MCQs and assertion-reason on partnership versus firm dissolution and modes; 3-mark explanations.	Name the mode and give the trigger; for differences use matching bases.
Journal entries on dissolution	3- or 4-mark set of four to six situations: assets taken over, creditors settled with assets, unrecorded items, realisation expenses.	Ask: which account was the item already in? Cash paid or received is the only new thing to record.
Realisation Account and capital accounts	6-mark question from a balance sheet: Realisation Account, partners' capital accounts and bank account.	Transfer at book values first; then record each realisation; tally the bank account to zero.
Section 48 order	1-mark MCQ or 3-mark question on the order of payments or the treatment of capital deficiency.	Third parties, partners' loans, capitals, surplus.

Tricks to remember Dissolution of Partnership Firm

Short memory aids. Say each one aloud once, then use it on a question the same day.

Already in? No entry
If both sides of a settlement are already in the Realisation Account, no entry. Record only fresh cash.
Use it when: Creditors taking assets.
Tangible book, intangible nil
Value missing? Things you can touch go at book value; things you cannot touch go at nil.
Use it when: Questions that omit a realised value.
Section 48 ladder
Outsiders → partner loans → capitals → surplus.
Use it when: Order of payment.
Bank says zero
A correct dissolution answer always closes the bank account at zero.
Use it when: Final check.

Dissolution of Partnership Firm: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Example 1: Intangible asset with no value given · 1 mark · MCQBoard level

On dissolution, the books show goodwill of ₹40,000. The question does not say what it realised. It will be taken as realised at:
(a) ₹40,000
(b) nil
(c) 50% of book value
(d) market value

Try it first, then show the solutionSolution

Syllabus rule: an intangible asset whose realised value is not given is taken as nil.

Answer: (b) nil

Example 2: Creditors versus partner's loan · 1 mark · Assertion-reasonBoard level

Assertion (A): On dissolution, a partner's loan is paid before the partners' capitals.
Reason (R): Under Section 48, outside creditors are paid after partners' loans.
(a) Both true and R explains A (b) Both true, R does not explain A (c) A true, R false (d) A false, R true

Try it first, then show the solutionSolution

A is correct. R reverses the order: outside creditors come first, then partners' loans.

Answer: (c)

Example 3: Journal entries for tricky dissolution items · 4 marks · Short answerHarder board level

Suppose on dissolution of a firm of A and B (equal partners): (i) creditors of ₹45,000 accept stock of book value ₹38,000 in full settlement; (ii) a creditor of ₹20,000 takes furniture (book value ₹12,000) and ₹6,000 in cash in full settlement; (iii) A takes over a bills payable of ₹8,000; (iv) realisation expenses of ₹3,000 are paid by B on behalf of the firm. Pass the journal entries.

Try it first, then show the solutionSolution

(i) Both stock and creditors are already in the Realisation Account: no entry.

Particulars	Dr (₹)	Cr (₹)
Realisation A/c ... Dr	6,000
To Bank A/c		6,000
((ii) Being cash paid to a creditor besides furniture)
Realisation A/c ... Dr	8,000
To A's Capital A/c		8,000
((iii) Being bills payable taken over by A)
Realisation A/c ... Dr	3,000
To B's Capital A/c		3,000
((iv) Being expenses paid by B on behalf of the firm)

Answer: (i) No entry. (ii) Realisation Dr ₹6,000 To Bank. (iii) Realisation Dr ₹8,000 To A's Capital. (iv) Realisation Dr ₹3,000 To B's Capital.

Example 4: Section 48: payments when cash is short · 3 marks · Short answerHarder board level

Suppose after realisation a firm has ₹2,00,000 in the bank. Creditors are ₹1,20,000, a partner's loan is ₹50,000 and capitals are X ₹40,000 and Y ₹20,000 (sharing 1 : 1). Show the order of payment and the amounts.

Try it first, then show the solutionSolution

Creditors ₹1,20,000 → ₹80,000 left.
Partner's loan ₹50,000 → ₹30,000 left.
Capitals total ₹60,000 but only ₹30,000 remains: capital loss ₹30,000 shared 1 : 1 (₹15,000 each). X: 40,000 − 15,000 = ₹25,000; Y: 20,000 − 15,000 = ₹5,000. Total ₹30,000.

Answer: Creditors ₹1,20,000, loan ₹50,000, X ₹25,000, Y ₹5,000.

Example 5: Full dissolution: Realisation, capital and bank accounts · 6 marks · Long answerHarder board level

Suppose Neha, Om and Pia share profits 2 : 2 : 1. Their balance sheet is:

Balance Sheet of Neha, Om and Pia as at 31st March 2026

Liabilities	₹	Assets	₹
Creditors	80,000	Bank	35,000
Bills Payable	20,000	Debtors	70,000
Neha's Loan	30,000	Stock	90,000
General Reserve	25,000	Investments	40,000
Neha's Capital	1,50,000	Machinery	1,60,000
Om's Capital	1,00,000	Furniture	60,000
Pia's Capital	50,000
Total	4,55,000	Total	4,55,000

The firm is dissolved. Debtors realise ₹66,000; Om takes over the stock at ₹85,000; investments realise ₹44,000 and machinery ₹1,50,000; nothing is said about furniture. Creditors are paid ₹78,000 in full settlement and bills payable in full. An unrecorded computer is sold for ₹6,000. Realisation expenses of ₹4,000 are paid by the firm. Prepare the Realisation Account, partners' capital accounts and the Bank Account.

Try it first, then show the solutionSolution

Furniture: tangible, realised value not given → realised at book value ₹60,000.

Realisation Account

Dr: Particulars	₹	Cr: Particulars	₹
To Debtors A/c	70,000	By Creditors A/c	80,000
To Stock A/c	90,000	By Bills Payable A/c	20,000
To Investments A/c	40,000	By Bank A/c (debtors)	66,000
To Machinery A/c	1,60,000	By Om's Capital A/c (stock taken over)	85,000
To Furniture A/c	60,000	By Bank A/c (investments)	44,000
To Bank A/c (creditors paid)	78,000	By Bank A/c (machinery)	1,50,000
To Bank A/c (bills payable paid)	20,000	By Bank A/c (furniture, at book value)	60,000
To Bank A/c (realisation expenses)	4,000	By Bank A/c (unrecorded computer)	6,000
		By Loss: Neha's Capital A/c (2/5)	4,400
		By Loss: Om's Capital A/c (2/5)	4,400
		By Loss: Pia's Capital A/c (1/5)	2,200
Total	5,22,000	Total	5,22,000

Neha's loan of ₹30,000 is repaid after creditors. General reserve ₹25,000 is credited 2 : 2 : 1.

Partners' Capital Accounts (₹)

Dr: Particulars	Neha	Om	Pia	Cr: Particulars	Neha	Om	Pia
To Realisation A/c (stock)		85,000		By Balance b/d	1,50,000	1,00,000	50,000
To Realisation A/c (loss)	4,400	4,400	2,200	By General Reserve A/c	10,000	10,000	5,000
To Bank A/c (final payment)	1,55,600	20,600	52,800
Total	1,60,000	1,10,000	55,000	Total	1,60,000	1,10,000	55,000

Bank Account

Dr: Particulars	₹	Cr: Particulars	₹
To Balance b/d	35,000	By Realisation A/c (creditors)	78,000
To Realisation A/c (debtors)	66,000	By Realisation A/c (bills payable)	20,000
To Realisation A/c (investments)	44,000	By Realisation A/c (expenses)	4,000
To Realisation A/c (machinery)	1,50,000	By Neha's Loan A/c	30,000
To Realisation A/c (furniture)	60,000	By Neha's Capital A/c	1,55,600
To Realisation A/c (computer)	6,000	By Om's Capital A/c	20,600
		By Pia's Capital A/c	52,800
Total	3,61,000	Total	3,61,000

Answer: Realisation loss ₹11,000; final payments: Neha ₹1,55,600, Om ₹20,600, Pia ₹52,800; bank closes at zero (₹3,61,000 each side).

Example 6: Partner with a debit balance · 3 marks · Short answerHOTS / competency

Suppose Raj and Sara share profits 3 : 2 with capitals of ₹1,00,000 and ₹15,000 after transferring reserves. The realisation loss is ₹60,000. Prepare the capital accounts and explain why Sara must bring in cash.

Try it first, then show the solutionSolution

Loss: Raj ₹36,000, Sara ₹24,000.

Partners' Capital Accounts (₹)

Dr: Particulars	Raj	Sara	Cr: Particulars	Raj	Sara
To Realisation A/c (loss)	36,000	24,000	By Balance b/d	1,00,000	15,000
To Bank A/c (final payment)	64,000		By Bank A/c (cash brought in)		9,000
Total	1,00,000	24,000	Total	1,00,000	24,000

Sara's share of loss exceeds her capital; under Section 48 losses beyond capital are borne by partners individually, so she pays the shortfall.

Answer: Sara brings in ₹9,000; Raj receives ₹64,000.

Example 7: Partner bearing expenses for a fixed fee, but the firm pays · 3 marks · Short answerHOTS / competency

Suppose Kiran was to look after the dissolution and bear all realisation expenses for a remuneration of ₹10,000. Actual expenses of ₹7,000 were paid by the firm. Pass the journal entries and explain the effect on the realisation result.

Try it first, then show the solutionSolution

Particulars	Dr (₹)	Cr (₹)
Realisation A/c ... Dr	10,000
To Kiran's Capital A/c		10,000
(Being Kiran's remuneration)
Kiran's Capital A/c ... Dr	7,000
To Bank A/c		7,000
(Being expenses to be borne by Kiran paid by the firm)

Only the ₹10,000 remuneration is a cost to the firm; the ₹7,000 is Kiran's own cost, so it goes to his capital, not to Realisation.

Answer: Realisation is debited ₹10,000; Kiran's capital is debited ₹7,000 for expenses paid on his behalf.

Example 8: Realisation profit in a single step · 1 mark · MCQHarder board level

Assets (other than bank) of ₹3,00,000 realise ₹2,80,000; creditors of ₹60,000 are paid ₹58,000; expenses are ₹3,000. The loss on realisation is:
(a) ₹20,000
(b) ₹21,000
(c) ₹23,000
(d) ₹25,000

Try it first, then show the solutionSolution

Loss on assets 20,000 − gain on creditors 2,000 + expenses 3,000 = 21,000.

Answer: (b) ₹21,000

Case-study practice (Section E style)

Read the situation, then answer every part. In the board paper this is a 4-mark question split into 1 + 1 + 2 marks.

Closing a cycle-repair partnership

Suppose Asif and Bindu, equal partners, close their cycle-repair shop. Their books show tools ₹48,000, stock of spares ₹22,000, a goodwill account ₹10,000, creditors ₹26,000 and a loan from Asif of ₹15,000. Tools are sold for ₹40,000, Bindu takes over the spares at ₹20,000, a creditor of ₹6,000 agrees to take a damaged cycle frame (not recorded in the books) in full settlement, and the remaining creditors are paid in full.

(i) · 1 mark
At what value will goodwill be realised?
Answer
Answer: Nil.
Intangible asset with no realised value given.
(ii) · 1 mark
What entry is passed for the creditor who takes the unrecorded frame?
Answer
Answer: No entry.
The creditor is already credited in Realisation and the frame was never recorded, so nothing further is recorded.

(iii) · 2 marks

Calculate the profit or loss on realisation.

Answer

Answer: Loss ₹14,000: ₹7,000 each.

Debits: tools 48,000 + spares 22,000 + goodwill 10,000 + cash to remaining creditors 20,000 = 1,00,000. Credits: creditors 26,000 + tools 40,000 + spares 20,000 = 86,000. Loss = 14,000. Goodwill realises nothing, so no credit is shown for it. Asif's loan of ₹15,000 is paid separately after creditors.

Realisation Account

Dr: Particulars	₹	Cr: Particulars	₹
To Tools A/c	48,000	By Creditors A/c	26,000
To Stock of Spares A/c	22,000	By Bank A/c (tools)	40,000
To Goodwill A/c	10,000	By Bindu's Capital A/c (spares)	20,000
To Bank A/c (creditors 26,000 − 6,000)	20,000	By Loss: Asif's Capital A/c	7,000
		By Loss: Bindu's Capital A/c	7,000
Total	1,00,000	Total	1,00,000

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Order of payment under Section 48 when cash is short. (3 marks)

Step	Marks
Creditors paid first	1
Partner's loan paid next	1
Capital loss shared and final payments to partners	1

Journal entries for four dissolution situations (creditors with assets, liability taken over, expenses paid by a partner). (4 marks)

Step	Marks
Recognising the no-entry case with reason	1
Cash paid to creditor besides an asset	1
Liability taken over by a partner	1
Expenses paid by a partner on behalf of the firm	1

Realisation Account, partners' capital accounts and Bank Account (Neha, Om, Pia). (6 marks)

Step	Marks
Realisation Account with transfers, realisations and furniture at book value	2.5
Loss shared 2 : 2 : 1	0.5
Capital accounts with reserve, stock taken over and loss	1.5
Bank Account including loan repayment, closing at zero	1.5

Where students lose marks in Dissolution of Partnership Firm

The slips examiners see most often, and what to write instead.

Mistake: Transferring a partner's loan or capital to the Realisation Account
Treating all credit balances as liabilities.
Do this: Only outside liabilities go to Realisation; partners' loans and capitals are settled separately.
Usually costs: 1-2 marks and a wrong realisation result.
Mistake: Recording an asset taken by a creditor as a separate sale
Forgetting both items are already in Realisation.
Wrong working
Creditors A/c Dr 45,000 To Stock A/c 38,000 ...
Right working
No entry (or only the cash paid in addition)
Do this: Ask what is new: only cash moving in or out.
Usually costs: 1 mark per entry.
Mistake: Taking an unmentioned tangible asset as nil
Mixing up the two syllabus rules.
Do this: Tangible, value not given → book value. Intangible → nil.
Usually costs: 1-2 marks.
Mistake: Debiting realisation expenses to Realisation when a partner was to bear them
Not reading who bears the cost.
Do this: Record only the agreed remuneration in Realisation; expenses paid by the firm on that partner's behalf go to his capital.
Usually costs: 1 mark.
Mistake: Not closing the bank account
Stopping after capital accounts.
Do this: Prepare the Bank Account; it must close exactly. If not, look for a missing receipt or payment.
Usually costs: 1-2 marks.

NCERT exercise guide: Dissolution of Partnership Firm

What each exercise in the NCERT chapter tests, how to approach it, and a question of the same kind solved step by step. Questions here are written in our own words.

Short and long answer questions

What it tests: Meaning of dissolution, partnership versus firm, modes of dissolution, Section 48 settlement, Realisation versus Revaluation Account.

How to approach it: Use headings with a line each; for differences give at least three bases.

Same kind as NCERT theory questions

Distinguish between the Realisation Account and the Revaluation Account.

Show the solutionSolution

Purpose: realisation closes the firm; revaluation adjusts values on reconstitution.
Items: realisation takes all assets and outside liabilities; revaluation takes only items whose values change.
Timing: dissolution versus admission, retirement or death; books are closed only after realisation.

Answer: Realisation records the winding up of all assets and liabilities; revaluation records changes in values when the firm continues.

Journal entries on dissolution

What it tests: Assets sold or taken over, liabilities paid or taken over, creditors accepting assets, unrecorded items, expenses.

How to approach it: For each item ask what has already been recorded through the transfer entries.

Same kind as NCERT journal-entry questions

Suppose an unrecorded typewriter worth ₹2,000 is taken over by a partner, and an unrecorded bill of ₹1,500 is paid. Pass entries.

Show the solutionSolution

Partner's Capital A/c Dr 2,000 To Realisation A/c 2,000.
Realisation A/c Dr 1,500 To Bank A/c 1,500.

Answer: Two entries as above.

Comprehensive dissolution numericals

What it tests: Realisation Account, partners' capital accounts, loan account and bank account from a balance sheet.

How to approach it: Transfer, realise, distribute, settle; check that bank closes.

Same kind as NCERT comprehensive numericals

Suppose assets of ₹3,00,000 realise ₹2,80,000, creditors of ₹60,000 are paid ₹58,000, and expenses are ₹3,000. Find the realisation result.

Show the solutionSolution

Realisation Account

Dr: Particulars	₹	Cr: Particulars	₹
To Sundry Assets A/c	3,00,000	By Creditors A/c	60,000
To Bank A/c (creditors)	58,000	By Bank A/c (assets)	2,80,000
To Bank A/c (expenses)	3,000	By Loss: partners in 1 : 1	21,000
Total	3,61,000	Total	3,61,000

Answer: Loss ₹21,000.

Dissolution of Partnership Firm: previous year questions

Asked in 2 of the 2 board papers we hold (2026 to 2026), on average 7 marks per paper; 4 questions in all, counting OR alternatives. In 4 of 4 sample papers.

Counted from the real papers on our previous year papers page, not estimated. Average marks are over every board paper we hold, with an OR pair counted once. Chapter tags are ours.

Solved board questions from Dissolution of Partnership Firm

Real questions from recent papers. Try each one first, then open our step-by-step solution with marks per step.

2026, set 67/1/1, Q14 · 1 mark · MCQ

Sidhi, Gyan and Gayatri were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 2. On 31st March, 2025 their firm was dissolved. At the time of dissolution a debtor amounting to ₹ 25,000 whose debt had been previously written off as bad debt paid 40% of the amount. The accounting treatment for the above transaction will be :

(A)₹ 10,000 will be credited to bad debts recovered account.
(B)₹ 10,000 will be credited to the debtor's personal account.
(C)₹ 10,000 will be credited to realisation account.
(D)₹ 10,000 will be credited to bad debts account.

Try it first, then show our solutionSolution

On dissolution all receipts from assets, including bad debts recovered, go through the Realisation Account.
Cash received = 40% of 25,000 = ₹ 10,000, credited to Realisation Account. Option (C).
1 mark

Answer: (C) ₹ 10,000 credited to realisation account

Where the marks are

Realisation A/c credited ₹ 10,000 (1 mark)

See it in the full 2026 board paper, set 67/1/1

2026, set 67/1/1, Q23 · 6 marks · Long answer

Ravneet and Manmeet were partners in a firm sharing profits and losses in the ratio of 7 : 3. On 31st March, 2025, their Balance Sheet was as follows :

Balance Sheet of Ravneet and Manmeet as on 31st March, 2025

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	4,50,000	Cash at Bank	2,50,000
Capitals :		Stock	2,50,000
Ravneet 5,00,000		Debtors	2,00,000
Manmeet 3,00,000	8,00,000	Plant & Machinery	5,50,000
	12,50,000		12,50,000

On the above date, the firm was dissolved. The plant and machinery was sold at ₹ 4,87,000 and stock at 20% less than the book value. Debtors realised ₹ 1,40,000.

Ravneet agreed to bear all realisation expenses for which he was allowed a commission of ₹ 9,000. Actual realisation expenses amounted to ₹ 7,500.

Prepare Realisation Account and Partners' Capital Accounts.

Try it first, then show our solutionSolution

Workings. Stock realises 80% of 2,50,000 = ₹ 2,00,000. Ravneet bears the expenses himself, so the firm pays none; his commission of ₹ 9,000 is a realisation expense credited to his capital.
½ mark

Realisation Account

Particulars	₹	Particulars	₹
To Stock	2,50,000	By Creditors	4,50,000
To Debtors	2,00,000	By Bank A/c (plant and machinery)	4,87,000
To Plant and Machinery	5,50,000	By Bank A/c (stock)	2,00,000
To Bank A/c (creditors)	4,50,000	By Bank A/c (debtors)	1,40,000
To Ravneet's Capital A/c (commission)	9,000	By Loss: Ravneet's Capital A/c	1,27,400
		By Loss: Manmeet's Capital A/c	54,600
	14,59,000		14,59,000

3½ marks

Partners' Capital Accounts

Particulars	Ravneet (₹)	Manmeet (₹)	Particulars	Ravneet (₹)	Manmeet (₹)
To Realisation A/c (loss)	1,27,400	54,600	By Balance b/d	5,00,000	3,00,000
To Bank A/c	3,81,600	2,45,400	By Realisation A/c (commission)	9,000
	5,09,000	3,00,000		5,09,000	3,00,000

2 marks

Answer: Realisation loss ₹ 1,82,000 (Ravneet ₹ 1,27,400, Manmeet ₹ 54,600); final payments Ravneet ₹ 3,81,600, Manmeet ₹ 2,45,400

Where the marks are

Workings for stock and commission (½ mark)
Realisation Account (3½ marks)
Capital accounts closed by payment (2 marks)

See it in the full 2026 board paper, set 67/1/1

Every Dissolution of Partnership Firm question, by year

For 2027

Sample paper 2026-27: Q14 (1 mark, solved), Q16 (1 mark, solved), Q17(A) (3 marks), Q17(B) (3 marks, solved)

2026

Set 67/1/1: Q14 (1 mark, solved), Q23 (6 marks, solved)

Set 67/5/1: Q15 (1 mark, solved), Q26(b) (6 marks, solved)

Sample paper 2025-26: Q9 (1 mark, solved), Q15 (1 mark, solved), Q18 (3 marks, solved), Q25(a) (6 marks, solved)

For 2025

Sample paper 2024-25: Q8(a) (1 mark, solved), Q8(b) (1 mark, solved), Q10 (1 mark, solved), Q17 (3 marks, solved), Q25 (6 marks)

For 2024

Sample paper 2023-24: Q16 (1 mark, solved), Q22 (4 marks, solved)

Practice questions on Dissolution of Partnership Firm

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
If the realised value of a tangible asset is not given on dissolution, it is taken as realised at:
(a) nil
(b) book value
(c) market value
(d) 90% of book value
Hint
Syllabus note.
Answer
(b) book value
Q2 · 1 mark · MCQBoard level
Which of the following is not transferred to the Realisation Account?
(a) Stock
(b) Creditors
(c) Partner's loan
(d) Bills payable
Hint
Settled separately.
Answer
(c) Partner's loan
Q3 · 3 marks · Short answerBoard level
Distinguish between dissolution of partnership and dissolution of firm (any three points).
Hint
Business continues? Books closed? Court role?
Answer
Partnership: business continues, books not closed, revaluation; firm: business closes, assets realised and books closed, realisation. Court can order dissolution of a firm, not of a partnership. Dissolution of the firm includes dissolution of partnership, not vice versa.
Q4 · 3 marks · Short answerBoard level
State any three grounds on which the court may order dissolution of a firm.
Hint
Partner's condition or conduct; business losses.
Answer
Any three: a partner becomes of unsound mind; permanent incapacity; misconduct affecting the business; persistent breach of the agreement; transfer of a partner's whole interest to a third party; business can only be carried on at a loss; just and equitable grounds.
Q5 · 4 marks · Short answerHarder board level
Pass journal entries: (i) X, a partner, takes over furniture of book value ₹15,000 at ₹12,000; (ii) an unrecorded investment is sold for ₹9,000; (iii) a contingent liability for a damages claim of ₹4,000 is paid; (iv) realisation expenses of ₹2,500 are paid by the firm.
Hint
Furniture is already in Realisation at book value.
Answer
(i) X's Capital A/c Dr 12,000 To Realisation 12,000. (ii) Bank Dr 9,000 To Realisation 9,000. (iii) Realisation Dr 4,000 To Bank 4,000. (iv) Realisation Dr 2,500 To Bank 2,500.
Q6 · 1 mark · Very short answerHarder board level
Suppose a creditor of ₹50,000 accepts a machine of book value ₹40,000 at a valuation of ₹45,000 and the balance in cash. Pass the entry.
Hint
Only the cash is new.
Answer
Realisation A/c Dr 5,000 To Bank A/c 5,000.
Q7 · 3 marks · Short answerHarder board level
Suppose assets of ₹4,00,000 (excluding bank) realise 90%, creditors of ₹80,000 are settled at a discount of 5%, and a partner takes over a ₹10,000 outstanding salary liability. Calculate the loss on realisation.
Hint
A liability taken over by a partner at book value neither adds to nor reduces the loss.
Answer
Loss on assets ₹40,000; gain on creditors ₹4,000 (paid ₹76,000). The ₹10,000 outstanding salary is credited to Realisation on transfer and debited back when the partner takes it over, so it has no net effect. Loss = ₹36,000.
Q8 · 1 mark · Assertion-reasonHOTS / competency
Assertion (A): No entry is passed when a creditor accepts an asset already transferred to the Realisation Account in full settlement of his claim.
Reason (R): Both the asset and the creditor are already in the Realisation Account at book values.
(a) Both true and R explains A (b) Both true, R does not explain A (c) A true, R false (d) A false, R true
Hint
What would the entry even be?
Answer
(a)
Q9 · 4 marks · Short answerHOTS / competency
Suppose P and Q (3 : 1) have capitals of ₹60,000 and ₹10,000. After realisation, the bank has ₹22,000, and the realisation loss is ₹48,000. Prepare the capital accounts and show that the bank closes.
Hint
Q will have a debit balance.
Answer
Loss: P ₹36,000, Q ₹12,000. P: 60,000 − 36,000 = ₹24,000 credit; Q: 10,000 − 12,000 = ₹2,000 debit. Q brings ₹2,000; bank = 22,000 + 2,000 = 24,000, paid to P.
Q10 · 3 marks · Short answerHarder board level
Suppose a firm's Realisation Account shows: assets transferred ₹5,20,000, liabilities transferred ₹1,40,000, assets realised ₹4,60,000, liabilities paid ₹1,35,000, expenses ₹5,000. Partners A, B and C share 2 : 2 : 1. Calculate the realisation result and each partner's share.
Hint
Credits − debits.
Answer
Credits 6,00,000; debits 6,60,000; loss ₹60,000: A ₹24,000, B ₹24,000, C ₹12,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Name two assets not transferred to the Realisation Account.Show answer
Cash/bank and fictitious assets (such as a debit balance of Profit and Loss Account).
2.What is the entry when a partner takes over an asset?Show answer
Partner's Capital A/c Dr, To Realisation A/c.
3.What is the entry when a partner takes over a liability?Show answer
Realisation A/c Dr, To Partner's Capital A/c.
4.How is an unrecorded liability paid recorded?Show answer
Realisation A/c Dr, To Bank A/c.
5.In what order are assets applied under Section 48?Show answer
Third-party debts, partners' loans, partners' capitals, surplus in profit sharing ratio.
6.When can the court dissolve a firm on the ground of losses?Show answer
When the business can only be carried on at a loss.
7.What is excluded from the 2026-27 syllabus in this chapter?Show answer
Piecemeal distribution, sale to a company and insolvency of a partner.
8.How is a provision for doubtful debts treated on dissolution?Show answer
Debtors are transferred at gross value and the provision is credited to Realisation.

Best order to study it

Learn the difference between dissolution of partnership and dissolution of firm, and the five modes.
Learn the Section 48 order of settlement.
Practise transfer entries and the entries for each dissolution situation.
Prepare full Realisation, capital and bank accounts from a balance sheet.
Finish with partners who have debit balances and partners who bear expenses for a fee.

Quick revision checklist

The night before the exam: can you do each of these without looking?

Can you explain why dissolution of a firm always involves dissolution of partnership?
Can you list the five modes of dissolution with an example each?
Can you apply Section 48 to an order-of-payment question?
Can you transfer assets at gross value with provisions credited?
Can you record assets and liabilities taken over by partners?
Can you handle creditors who accept assets in full or part settlement?
Can you record unrecorded assets and liabilities?
Can you treat realisation expenses in all three situations?
Can you apply the book-value and nil rules for missing values?
Can you close the bank account at zero?

Dissolution of Partnership Firm: frequently asked questions

Is insolvency of a partner (Garner v. Murray) in the 2026-27 syllabus?

No. Insolvency of a partner, piecemeal distribution and sale of the firm to a company are excluded.

What if a question does not give the realised value of furniture?

Furniture is a tangible asset, so take it as realised at book value (the syllabus states this rule).

Are reserves transferred to the Realisation Account?

No. Reserves and accumulated profits belong to partners and are credited to their capital accounts in the profit sharing ratio.

Why is the Realisation Account called a nominal account?

It records gains and losses arising from closing the business, and its balance (profit or loss) is transferred to partners' capital accounts.

Do I need to prepare the Bank Account?

Usually yes in a 6-mark question; it shows the final payments and proves that everything has been settled.

Based on: CBSE Accountancy (055) syllabus 2026-27; NCERT Accountancy Part I (Partnership Accounts), Textbook for Class XII (Reprint 2026-27)