Dissolution of a Partnership Firm — Part 2: Realisation, Expenses, Capitals and the Bank Account: visual lesson, ISC Class 12 Accounts

Lesson

Realisation, expenses, capitals and the Bank Account

Part 2 — the events of winding up, realisation expenses, and closing the capital, loan and Bank/Cash accounts.

In this lesson you will

Record the sale of assets, payment of liabilities, takeovers by partners and settlements with creditors
Treat unrecorded assets and liabilities
Record realisation expenses in each of the cases in the syllabus
Close partners' capital, loan and Bank/Cash accounts, applying the ISC rules for overdrafts and partners' loans

Part 2 at a glance

Concept

Table of entries for realising assets and paying liabilities: cash from an asset is debited to bank and credited to realisation; liabilities and a bank loan paid are debited to realisation; an asset that realises nothing needs no entry; a discounted settlement is entered at the cash paid
Event	Journal entry
Asset sold for cash	Bank/Cash A/c Dr. To Realisation A/c
Outside liability paid in cash	Realisation A/c Dr. To Bank/Cash A/c
Bank loan repaid	Realisation A/c Dr. To Bank/Cash A/c
Asset realises nothing	No entry (its book value stays on the debit side)
Liability settled at a discount	Realisation A/c Dr. To Bank/Cash A/c (amount actually paid)

Concept

Only cash that actually moves is entered when a creditor accepts an asset.

Table of entries when partners or creditors take assets: a partner taking an asset is debited at the agreed value; a partner paying a liability is credited; a creditor accepting an asset in full settlement needs no entry; if he also gets cash, only the cash is entered
Event	Journal entry
Partner takes over an asset	Partner's Capital A/c Dr. To Realisation A/c (agreed value)
Partner agrees to pay a liability	Realisation A/c Dr. To Partner's Capital A/c
Creditor accepts an asset in full settlement	No entry
Creditor accepts an asset and cash for the rest	Realisation A/c Dr. To Bank/Cash A/c (cash part only)