SS 3 Financial Accounting (1st, 2nd & 3rd Term) Financial Accounting



To dissolve a partnership means to bring an existing partnership business to an end. This entails selling the assets of the business, paying its creditors and other liabilities and sharing the balance of cash left between or among the partners in the agreed ratio.

Reasons for Dissolution

Any of the following reasons can lead to the dissolution of a partnership.

  • Retirement of partner i.e a partner gives notice of his intention to retire from the partnership
  • Admission of a new partner
  • A partner giving notice to other partners of his opinion that the business be dissolved.
  • Insanity of a partner i.e a partner’s problem of unsound mind.
  • Bankruptcy or inability of a partner to pay his debt.
  • Death of a partner
  • A joint decision by the partners to dissolve the partnership
  • If any time agreed upon expires
  • The business can no longer make profit
  • If it becomes illegal to continue to trade on the main object the business was established.



  • Cash/Bank A/c: To record the receipt of cash/cheque for assets disposed of, payments to creditors, expenses of dissolution and fund disbursements to the partners.
  • Realization: To record book value and sales proceeds of assets sold, dissolution expenses, assets taken over by partner and the share of profit or loss on dissolution.
  • Partner’s Capital A/C: To record share of profit or loss, goodwill, assets taken over, amount paid to partners or amount paid by a partner as a result of deficit, etc.



  1. Book value of assets to be realized (excluding bank and cash)

Dr. realization A/c

Cr. Assets A/c.

  1. Assets sold

Dr. Cash or bank A/c

Cr. Realization  A/c with cash proceeds

  1. Assets taken over by a partner

Dr. The capital A/c of partner

Cr. Realization A/c with the value of such an asset(s).

  1. Settlement of liabilities

Dr. liability A/c

Cr. Cash or bank A/c with amount involved

  1. Dissolution expenses

Dr. Realization A/c

Cr. Cash or Bank A/c

  1. Discount received from creditors

Dr. Creditor(s) A/c

Cr. Realization A/c

  1. Settlement of a creditor

Dr. Creditor A/c

Cr. Cash or Bank A/c

  1. Paying off a partner’s loan A/c

Dr. loan A/c

Cr. Cash or Bank A/c

  1. Profit on realization

Dr. Realization a/c

Cr. Partners A/c

  1. Loss on Realization

Dr. Partners’ capital A/c

Cr. Realization A/c

  1. Cash or Cheque paid in by a partner who has a debit balance

Dr. cash or Bank A/c

Cr. The capital a/c of partner concerned

  1. Final settlement of cash to partners

Cr. Cash or Bank A/c

Dr. each partner’s capital A/c


The double entry in item (L) above marks the end of the dissolution process, and the cash or bank balance must be the same as the amount required to be paid to each partner.



Realization A/c

N                          N

Book Value of Assets                        Amount from Sales

Business premises                       x        Business premises      x

Motor vehicle                                       x        Motor vehicle            x

Furniture and fittings                  x        Furniture and fittings x

Plant & machinery                      x        Plant & machinery     x

Debtors                                     x        Debtors                    x

Stock                                        x        Stock                       x

Dissolution expenses                   x        Discount received      x


Share of profit 

A                                              x

B                                              x

C                                            _x_

Xxx                                   xxx


Dr                                             Cash Book                               Cr

N                                              N

Balance b/f                                x        Dissolution cost                x

Realization account                              Creditors                         x

Plant and machinery                   x        Settlement of loan            x

Debtors                                     x        Capital:

Motor Vehicle                             x                  K        x

Stock                                        x                  O       x

Equipment                                x                  P      _x_      x_

XX                                    XX



Dr                Partners Capital Accounts      Cr

Cash book X X X Balance b/f X X X
Share pf profit X X X
xx xx xx xx xx xx


Ledger Entries                                                                                                      


Dr.                        Plant and machinery account                    Cr.

N                                                                 N

Balance b/f             x        Realization account                              x


Dr.                        Motor vehicle account                                Cr.

N                                                                 N

Balance b/f             x        Realization account                              x



Dr.                        Furniture account                                       Cr.

N                                                                 N

Balance b/f             x        Realization account                              x


Dr.                        Stock account                                             Cr.

N                                                                 N

Balance b/f             x        Realization account                              x


Dr.                        Creditors account                                       Cr.

N                                                                 N

Bank                      X        Balance b/f                                          x


Evaluation question

  1. What is the dissolution of partnership?
  2. Give five reasons why a partnership may be dissolved.


Example:Ronke and Yetunde are in partnership, sharing profits and losses 3:2 respectively. The balance sheet as at 31st December 2000 when it was dissolved appeared as follows:

                   Balance Sheet Assets


Ronke          5,500           Fixture and fittings            1,050

Yetunde        3,500           Plant and machinery             650

Creditors      1,650           Equipment                       1,000

Debtors                              900

Bank                                7,050

10,650                                              10,650

  1. The following assets were realized:


Furniture and fittings                                               1, 500

Plant and machinery                                                    700

Equipment                                                              1, 900

Debtors                                                                      850

  1. Dissolution expenses     250
  2. The creditors were settled with 1, 500


Required: Prepare the necessary accounts on dissolution


Dr                                   Realization account                                   Cr.

N                                                                 N

Book value of assets                   Amount realized from sales

Furniture and fittings         1,050 Furniture and fitting                             1,500

Plant and machinery             650 Plant and machinery                                700

Equipment                       1,000 Equipment                                           1,900

Debtors                              900 Debtors                                                 850

Dissolution expenses            250 Disc Rec.                                                150

Share of profit

Ronke (3/5 x 1,250)             750

Yetunde (2/5 x 1,250) 500 1,250

5,100                                                           5, 100


Discount on creditor =      N1, 650 – N1, 500 = N150


Dr.                        Capital account                       Cr.

Ronke Yetunde Ronke Yetunde
Cash 6, 250 4, 000 Balance b/f 5, 500 3, 500
Share of profit    750     500
6, 250 4, 000 6, 250 4, 000

Dr.                                  Creditor account                                        Cr.

N                                                                 N

Cash                                1,500 Balance b/f                                          1, 650

Discount                             150

1,650                                                           1, 650


Dr.                                  Cash book                                                  Cr.

N                                                                 N

Balance b/f                       7,050 Creditors                                             1,500

Furniture and fittings         1,500 Cost of dissolution                                  250

Equipment                       1,900 Capital:

Debtors                              850 Ronke 6,250

Plant and machinery             700 Yetunde        4,000                              10,250

12,000                                                           12,000


Dr.                                  Furniture and fittings account                             Cr.

N                                                                 N

Balance b/f                       1,050 Realization                                          1,050


Dr.                                  Plant and machinery account                    Cr.

N                                                                 N

Balance b/f                       650    Realization                                          650


Dr.                                  Equipment account                                    Cr.

N                                                                 N

Balance b/f                       1,000 Realization                                          1,000


Dr.                                  Debtor account                                          Cr.

N                                                                 N

Balance b/f                       900    Realization                                          900



  1. What is goodwill?
  2. Explain the terms revaluation and realization in partnership accounts



  • The double entry for discount received from creditors on dissolution is (a) Cr. creditor A/c Dr. Cash A/c (b) Cr. Creditors A/c, Dr. Cash (c) Cr. realization A/c; Dr. Creditors  (d) Dr. Bank, Cr. Capital A/c
  • Loss on an asset realized is debited to realization A/c and credited to ________ A/c (a) Cash (b) Asset  (c) Realization  (d) Revaluation
  • Assets taken over by partners on dissolution are credited to realization A/c and debited to __________ (a) asset A/c (b) cash A/c  (c) Capital A/c  (d) all of the above
  • Discount allowed is debited to ____ A/c (a) capital  (b) realization  (c) current (d) P & L
  • For goodwill on dissolution debit _________ A/c and credit _________ A/c respectively (a) cash and capital (b) goodwill and realization  (c) realization and goodwill  (d) capitasl and cash



  1. Explain how the proceeds of assets realized is applied in partnership dissolution.
  2. Provide the double entries for the following on dissolution of the partnership of XYZ.

(a)      Discount allowed to debtors N500

(b)     Cars taken over by Z N50, 000

(c)      Share of loss by X N1000

(d)     Y brings cash to meet his deficit N5000

(e)      Discount received N2000



  • State five differences between cash discount and trade discount
  • Identify any seven prime books of account and highlight the uses of each of

them where necessary

  • List five advantages of using the imprest system to record petty cash transactions
  • Explain the following types of errors (a) omission (b) principle (c) commission

(d) original entry (e) complete reversal of entry (f) compensating error

  • Explain how the following items are treated in Profit and Loss Account and Balance

Sheet (a) provision for doubtful debts (b) depreciation on fixed assets (c) accrued

income (d) accrued expenses (e) prepaid expenses


See also






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