Dear Teachers,
These slides have been prepared based on the NCERT syllabus to support you in teaching Plus One and Plus Two Accountancy and Computerised Accounting.
Please review and verify the content before using it in your classrooms. If you find any errors or have feedback, please let me know.
Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.
✉️ mujeebchemmala@gmail.com
9995983075 �
Chapter - 4
Dissolution of Partnership Firm
Dissolution of Partnership
Dissolution of partnership changes the existing relationship between partners but the firm may continue its business as before.
It may take place in any of the following ways:
(1) Change in existing profit sharing ratio among partners;
(2) Admission of a new partner;
(3) Retirement of a partner;
(4) Death of a partner;
(5) Insolvency of a partner;
(6) Completion of the venture;
(7) Expiry of the period of partnership;
Dissolution of Firm
It means that the firm closes down its business and comes to an end. On dissolution of firm, the assets of the firm are sold and liabilities are paid off and out of the remaining amount, the accounts of partners are settled.
Modes of Dissolution of Partnership Firm
1. Dissolution by Agreement
2. Compulsory Dissolution
3. On the happening of certain contingencies
4. Dissolution by Notice
5. Dissolution by Court
1. Dissolution by Agreement:
(a) with the consent of all the partners
(b) in accordance with a contract between the partners
2. Compulsory Dissolution:
(a) when all the partners or all but one partner, become insolvent
(b) when the business of the firm becomes illegal
(c) when some event has taken place which makes it unlawful for the
partners to carry on the business of the firm in partnership
3. On the happening of certain contingencies:
(Subject to contract between the partners)
(a) if constituted for a fixed term, by the expiry of that term
(b) if constituted to carry out some ventures, by its completion
(c) by the death of a partner
(d) by the adjudication of a partner as an insolvent
4. Dissolution by Notice: (In case of partnership at will)
If any one of the partners gives a notice in writing to the other
partners, signifying his intention of seeking dissolution of the firm
5. Dissolution by Court: (At the suit of a partner)
(a) when a partner becomes insane
(b) when a partner becomes permanently incapable of performing his
duties as a partner
(c) when a partner commits breach of partnership agreement
(d) when a partner has transferred the whole of his interest in the
firm to a third party
(e) when the court regards dissolution to be just and equitable
Distinction between Dissolution of Partnership and Dissolution of Firm
Dissolution of Partnership
Dissolution of Firm
1. The business is not terminated
2. Assets and liabilities are revalued
3. No court intervention
4. Economic relationship continues
1. The business is closed
2. Assets are sold and liabilities are
paid-off
3. A firm can be dissolved by the
court’s order
4. Economic relationship comes to an end
5. Books are closed
5. Does not require closure of books
Settlement of Accounts
The following rules as provided in Section 48 of the Partnership Act 1932
Treatment of Losses
(i) first out of profits,
(ii) next out of capital of partners, and
(iii) lastly, if necessary, by the partners individually in their profit
sharing ratio
Application of Assets
The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following order
(i) paying the debts to the third parties;
(ii) paying partner’s loan
(iii) paying partner’s capital
(iv) the balance, if any, shall be divided among the partners in their profit sharing ratio.
Private Debts and Firm’s Debts
Where both the debts of the firm and private debts of a partner co-exist, the following rules shall apply.
(a) The property of the firm shall be applied first in the payment of debts of the firm and then the surplus, if any, can be utilised for payment of their private liabilities.
(b) The private property of any partner shall be applied first in payment of his private debts and the surplus, if any, may be utilised for payment of the firm’s debts.
Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.