AccountsISC Class 12 · Dissolution of a Partnership Firm

Partners' Capital and Bank Account on Dissolution: ISC Class 12 Accounts

Updated 15 October 2026 · Fact-checked

On dissolution, each partner's capital account collects his reserves, realisation result, accumulated losses, assets taken, expenses paid and loans given to him; its balance is settled in cash. The Bank Account records the opening balance or overdraft, realisation receipts, payments to creditors and partners' loans, cash brought in and final payments, and closes at nil.

Understand Partners' Capital and Bank Account on Dissolution

Capital account on dissolution. After the Realisation Account, everything left in the books that belongs to partners is posted to their capital accounts.

Credit side: opening capital (or 'Balance b/d'); credit balance of current account (if capitals are fixed); General Reserve and other unrelated reserves; P&L credit balance; realisation profit; liabilities paid by the partner and expenses paid by him for the firm (via Realisation); remuneration for realisation work; cash brought in to clear a debit.

Debit side: debit balance of current account; P&L debit balance, Advertisement Suspense and Deferred Revenue Expenditure (accumulated losses and fictitious assets) in the profit ratio; realisation loss; assets taken over by him; a loan given by the firm to him; expenses borne by him but paid by the firm; final payment.

CISCE rules.

With fixed capitals, transfer current account balances to capital accounts first; pass no adjustments through current accounts. ISC examiners in 2024 noted candidates doing the reverse.
A loan given to a partner is debited to his capital account.
A loan from a partner is repaid through the Bank A/c even if his capital has a debit balance.
Name the account in every entry: 'To Realisation A/c', not 'To Loss on Realisation' or 'To Stock A/c'.

Bank Account. Debit: opening balance, realisation receipts, cash brought in by partners. Credit: opening overdraft ('By Balance b/d'), liabilities and expenses paid by the firm, partners' loans, final payments. In ISC answers the Bank A/c must close at nil; a missing figure (often the opening balance) is the balancing amount.

Short questions. When the realisation loss is given, ISC examiners in 2025 advised preparing only the capital accounts, then the Bank A/c if asked.

Partners' Capital and Bank Account on Dissolution: key facts

Final payment to a partner: Capital + Current A/c (Cr) + Reserves + Realisation profit + Liabilities or expenses paid for the firm − Current A/c (Dr) − Accumulated losses − Realisation loss − Assets taken − Loan to him; A negative result is cash he brings in.
Bank Account must close at nil: Opening balance + Receipts + Cash brought in = Payments + Final payments (+ opening overdraft); Use it to find a missing figure.
Fixed capital on dissolution: Current A/c balance → Capital A/c (before any other adjustment); CISCE rule.
Loans and partners: Loan to partner: Capital Dr | Loan from partner: paid by Bank
Asset taken at a percentage: Amount debited = Book value of the part taken × Agreed percentage; Find the part first, then apply the percentage.

How to answer Partners' Capital and Bank Account on Dissolution questions

ISC 6-mark dissolution questions often ask for the capital accounts and the Bank Account only, with the realisation result given or easy to find.

1Open capital accounts with balances b/d; post current account balances if capitals are fixed.
2Post reserves (credit) and accumulated losses and fictitious assets (debit) in the profit ratio.
3Post the realisation profit or loss, assets taken, expenses and liabilities handled by partners.
4Debit any loan given to a partner to his capital account.
5Balance each capital: a credit balance is paid ('To Bank'); a debit balance is brought in ('By Bank').
6Prepare the Bank A/c in Section 48 order and check that it closes at nil.

Partners' Capital and Bank Account on Dissolution in real life

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

Settling a partner partly in kind

Suppose two cousins close their photography studio. One cousin has a capital of ₹40,000, his share of the realisation profit is ₹3,000 and his share of an old accumulated loss is ₹2,500. He keeps the studio camera at an agreed ₹22,000.

How much cash should the firm pay him?

Try it first, then show the solutionSolution

Credits: 40,000 + 3,000 = ₹43,000.
Debits: 2,500 + 22,000 = ₹24,500.
Cash due = 43,000 − 24,500 = ₹18,500.

Answer: He receives ₹18,500 in cash besides the camera.

Memory hook: What you take in kind, you take less in cash.

Tricks to remember Partners' Capital and Bank Account on Dissolution

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

Reserves right, losses left
Reserves and profits go on the credit (right) side; accumulated losses, fictitious assets and assets taken go on the debit (left) side.
Use it when: Posting the capital account.
Current first, capital later
With fixed capitals, empty the current account into the capital account before anything else.
Use it when: Fixed capital questions.
Bank ends at zero
If your Bank A/c does not close at nil, an item is missing or on the wrong side.
Use it when: Checking the last step.

Partners' Capital and Bank Account on Dissolution: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Loan given to a partner · 1 mark · MCQBoard level

On dissolution, a loan of ₹12,000 given by the firm to partner Sana is, as per the CISCE syllabus:
(a) transferred to the Realisation Account
(b) debited to Sana's Capital Account
(c) credited to Sana's Capital Account
(d) collected in cash before any other payment

Try it first, then show the solutionSolution

The syllabus says a loan given to a partner is transferred (debited) to his capital account.
It reduces what the firm owes her.

Answer: (b) debited to Sana's Capital Account

Example 2: Fixed capitals with current accounts · 3 marks · Short answerBoard level

Amit and Bina share equally with fixed capitals of ₹60,000 and ₹40,000. Amit's current account has a credit balance of ₹7,000 and Bina's a debit balance of ₹3,000. The realisation profit is ₹10,000. Calculate the final payment to each partner. (3 marks)

Try it first, then show the solutionSolution

Transfer current balances: Amit +7,000; Bina −3,000.
Realisation profit ₹5,000 each.
Amit = 60,000 + 7,000 + 5,000 = ₹72,000; Bina = 40,000 − 3,000 + 5,000 = ₹42,000.

Answer: Amit ₹72,000; Bina ₹42,000.

Example 3: Finding the opening bank balance · 3 marks · Short answerHarder board level

On dissolution, realisation receipts were ₹1,25,000 and a partner brought in ₹4,000. Payments: creditors ₹38,000, expenses ₹1,500, a partner's loan ₹10,000 and final payments to partners ₹1,02,000. The Bank A/c closed at nil. Find the opening bank balance. (3 marks)

Try it first, then show the solutionSolution

Payments = 38,000 + 1,500 + 10,000 + 1,02,000 = ₹1,51,500.
Receipts other than the opening balance = 1,25,000 + 4,000 = ₹1,29,000.
Opening balance = 1,51,500 − 1,29,000 = ₹22,500.

Answer: Opening bank balance = ₹22,500.

Example 4: Capital accounts with fictitious assets and a loan to a partner · 6 marks · Long answerHarder board level

Chirag and Divya share profits 3:2. On dissolution: capitals Chirag ₹75,000, Divya ₹35,000; General Reserve ₹15,000; Profit and Loss debit balance ₹10,000; Deferred Revenue Expenditure ₹5,000; a loan of ₹12,000 given to Divya. Chirag took a car at ₹28,000; Divya paid realisation expenses of ₹2,000 for the firm; the realisation loss (after these items) is ₹20,000. Calculate the amount paid to each partner. (6 marks)

Try it first, then show the solutionSolution

Shares 3:2: reserve 9,000 / 6,000; P&L 6,000 / 4,000; DRE 3,000 / 2,000; realisation loss 12,000 / 8,000.
Chirag: Cr 75,000 + 9,000 = 84,000; Dr 6,000 + 3,000 + 28,000 + 12,000 = 49,000; paid ₹35,000.
Divya: Cr 35,000 + 6,000 + 2,000 = 43,000; Dr 4,000 + 2,000 + 12,000 (loan) + 8,000 = 26,000; paid ₹17,000.

Answer: Chirag is paid ₹35,000 and Divya ₹17,000.

Example 5: Bank Account with an overdraft and a debit capital · 6 marks · Long answerHOTS / competency

On dissolution the firm has a bank overdraft of ₹16,000. Realisation receipts are ₹2,45,000. The firm pays creditors ₹68,000, a bank loan ₹45,000, expenses ₹3,500 and partner Esha's loan ₹22,000. After all adjustments, Esha's capital has a debit balance of ₹7,500 and Farid's a credit balance of ₹98,000. Show that the Bank A/c closes at nil and state the order of entries. (6 marks)

Try it first, then show the solutionSolution

Credit side starts with 'By Balance b/d (overdraft)' 16,000; the overdraft is cleared through the Bank A/c, not Realisation.
Debit: realisation 2,45,000; Esha's Capital (cash brought in) 7,500; total ₹2,52,500.
Credit: overdraft 16,000; creditors 68,000; bank loan 45,000; expenses 3,500; Esha's loan 22,000; Farid 98,000; total ₹2,52,500.
Esha's loan is paid although her capital is in debit (CISCE rule).

Answer: Both sides total ₹2,52,500, so the Bank A/c closes at nil; Esha brings ₹7,500 and Farid is paid ₹98,000.

Example 6: Asset taken in parts at a percentage · 3 marks · Short answerHOTS / competency

Furniture of ₹30,000 is in the books on dissolution. Gina takes 40% of it at book value, and Hari takes the rest at 85% of its book value. Pass the entry and find the loss on furniture. (3 marks)

Try it first, then show the solutionSolution

Gina: 40% of 30,000 = ₹12,000.
Remaining book value = ₹18,000; Hari: 85% × 18,000 = ₹15,300.
Gina's Capital Dr 12,000; Hari's Capital Dr 15,300; To Realisation A/c 27,300. Loss = 30,000 − 27,300 = ₹2,700.

Answer: Gina ₹12,000 and Hari ₹15,300 debited; loss on furniture ₹2,700.

Where students lose marks in Partners' Capital and Bank Account on Dissolution

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

Mistake: Crediting an accumulated loss
Treating every balance as a reserve.
Wrong working
By P&L A/c (Dr balance) 6,000
Right working
To P&L A/c 6,000
Do this: Losses reduce capital; ISC examiners in 2024 noted this error.
Usually costs: 1 mark.
Mistake: Debit capital shown on the credit side
Writing every opening balance as 'By Balance b/d'.
Wrong working
By Balance b/d 20,000 (debit capital)
Right working
To Balance b/d 20,000
Do this: A debit balance opens on the debit side; ISC examiners in 2025 noted this.
Usually costs: 1 mark.
Mistake: Forgetting the loan to a partner
Leaving it as an asset.
Wrong working
Divya paid 29,000
Right working
Divya paid 17,000 after 'To Loan to Divya 12,000'
Do this: Debit the loan to her capital; 2024 examiners noted it was omitted.
Usually costs: 1 mark.
Mistake: Applying the percentage to the whole asset
Skipping the 'remaining' part.
Wrong working
Hari: 85% × 30,000 = 25,500
Right working
Hari: 85% × 18,000 = 15,300
Do this: Find the part taken first; 2024 examiners noted errors with 80% of remaining book value.
Usually costs: 1 mark.

Exam tips

Write 'To Realisation A/c' or 'By Realisation A/c' for every realisation item in a capital account.
Show both partners' capital accounts in columnar form to save time.
In the Bank A/c, pay partners' loans before final capital payments.
If only capital accounts are asked and the realisation result is given, do not prepare Realisation.

Practice questions on Partners' Capital and Bank Account on Dissolution

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
The entry to pay a partner the credit balance of his capital account on dissolution is:
(a) Bank A/c Dr; To Partner's Capital A/c
(b) Partner's Capital A/c Dr; To Bank A/c
(c) Realisation A/c Dr; To Bank A/c
(d) Partner's Capital A/c Dr; To Realisation A/c
Hint
The firm pays.
Answer
(b) Partner's Capital A/c Dr; To Bank A/c
Q2 · 1 mark · MCQBoard level
When capitals are fixed, on dissolution partners' current account balances are:
(a) transferred to the Realisation Account
(b) transferred to their capital accounts
(c) paid separately in cash
(d) ignored
Hint
CISCE rule.
Answer
(b) transferred to their capital accounts
Q3 · 3 marks · Short answerBoard level
A partner's capital is ₹50,000. His share of realisation profit is ₹6,000 and of General Reserve ₹8,000. He took an asset at ₹15,000 and paid realisation expenses of ₹1,200 for the firm. Calculate his final payment. (3 marks)
Hint
The asset is a debit.
Answer
50,000 + 6,000 + 8,000 + 1,200 − 15,000 = ₹50,200.
Q4 · 3 marks · Short answerHarder board level
A partner's fixed capital is ₹20,000 and his current account has a debit balance of ₹5,000. His share of realisation loss is ₹22,000. What must he do? (3 marks)
Hint
Transfer the current account first.
Answer
20,000 − 5,000 − 22,000 = ₹7,000 debit: he brings in ₹7,000 (Bank Dr; To his Capital).
Q5 · 3 marks · Short answerHarder board level
On dissolution, partner Jatin pays a creditor of ₹9,000 privately and takes stock worth ₹6,500. Give the entries and the net effect on his capital. (3 marks)
Hint
Both go through Realisation.
Answer
Realisation Dr 9,000; To Jatin's Capital 9,000. Jatin's Capital Dr 6,500; To Realisation 6,500. Net credit ₹2,500.
Q6 · 1 mark · Assertion-reasonHarder board level
Assertion (A): On dissolution, a loan given by the firm to a partner is debited to his capital account.
Reason (R): The firm's claim on the partner is settled against what it owes him.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Set-off.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q7 · 6 marks · Long answerHarder board level
Bank on dissolution: opening balance ₹12,000; realisation receipts ₹1,48,000; creditors paid ₹52,000; bills payable ₹18,000; expenses ₹2,500; Kavya's loan ₹20,000; final payment to Kavya ₹41,000. How much is paid to Lalit, the other partner? (6 marks)
Hint
Bank closes at nil.
Answer
1,60,000 − 52,000 − 18,000 − 2,500 − 20,000 − 41,000 = ₹26,500 to Lalit.
Q8 · 3 marks · Short answerHarder board level
A student writes 'To Loss on Realisation 8,000' and 'To Stock A/c 5,000' (stock taken) in a partner's capital account. Correct both. (3 marks)
Hint
Name the account, not the event or item.
Answer
Both should read 'To Realisation A/c': 8,000 (share of loss) and 5,000 (stock taken over).
Q9 · 6 marks · Long answerHOTS / competency
Mohit and Nisha share 3:1 with fixed capitals ₹84,000 and ₹32,000. Current accounts: Mohit ₹5,000 Cr, Nisha ₹3,000 Dr. A loan of ₹9,000 was given to Nisha. Advertisement Suspense ₹8,000 appears. The realisation loss is ₹28,000 and Mohit took a machine at ₹20,000. Calculate each partner's final payment. (6 marks)
Hint
Advertisement Suspense 6,000 / 2,000; loss 21,000 / 7,000.
Answer
Mohit: 84,000 + 5,000 − 6,000 − 21,000 − 20,000 = ₹42,000. Nisha: 32,000 − 3,000 − 9,000 − 2,000 − 7,000 = ₹11,000.
Q10 · 3 marks · Short answerHOTS / competency
On dissolution the opening bank balance is ₹14,000. Payments: creditors ₹41,000, a partner's loan ₹12,000, and ₹70,000 to one partner; the other partner brings in ₹5,000. The Bank A/c closes at nil. Find the realisation receipts. (3 marks)
Hint
Payments − other receipts.
Answer
41,000 + 12,000 + 70,000 − 14,000 − 5,000 = ₹1,04,000.

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.Opening overdraft: which side of the Bank A/c?Show answer
Credit ('By Balance b/d').
2.Deferred Revenue Expenditure on dissolution goes to?Show answer
Partners' capital accounts (debit), in the profit ratio.
3.Partner's capital shows a debit after all items: what follows?Show answer
He brings in cash: Bank Dr; To his Capital.
4.Should adjustments pass through current accounts on dissolution?Show answer
No; transfer current balances to capitals first.
5.Final balance of the Bank A/c?Show answer
Nil.

Partners' Capital and Bank Account on Dissolution: frequently asked questions

Is a Partners' Loan Account prepared separately on dissolution?

Yes, if asked. It is closed by payment through the Bank A/c (loan from a partner) or by transfer to capital (loan to a partner).

What if both partners' capitals are in debit?

Both bring in cash for their debits; the Bank A/c still closes at nil after outside debts are paid.

Where are expenses borne by a partner but paid by the firm shown?

Debited to that partner's capital account and credited to Bank; not in Realisation.

Do I need the Realisation Account if the loss is given?

No. Post the given result to the capital accounts; ISC examiners in 2025 advised this.