Class 9 Accountancy Chapter 5: Dissolution of Partnership Firm – Complete Important Questions & Solutions
The Dissolution of Partnership Firm marks a critical turning point in accountancy studies—the final chapter where a partnership legally ends. Class 9 students learn how to journalise the closing of accounts, settle partner capital, distribute assets, and handle final accounting entries. This guide covers all important questions, real NCERT examples, and solutions to help you master partnership dissolution with confidence. Whether you're preparing for board exams or strengthening fundamentals, understanding the mechanics of firm winding-up is essential for commerce students.
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What is Dissolution of Partnership Firm?
Dissolution means the legal ending of a partnership agreement. When a partnership firm dissolves, it ceases to exist as a business entity. This occurs when partners decide to part ways, a partner dies, becomes insolvent, or circumstances no longer allow continued partnership. Dissolution involves settling all liabilities, distributing assets fairly, and closing all accounts. NCERT Class 9 Accountancy explains dissolution as a formal process requiring proper journal entries and final accounting statements to wind up the partnership completely.
Types of Partnership Dissolution – Key Differences
NCERT identifies two main types: (1) Dissolution by Agreement—where all partners voluntarily agree to end the firm, and (2) Dissolution by Law—when legal circumstances force closure (partner death, lunacy, or insolvency). Within dissolution by agreement, partners may cash out all assets or sell the firm as a going concern. Understanding these distinctions matters because each type requires different journal entries and asset valuation approaches, directly impacting how final accounts are prepared and partner settlements calculated.
Step-by-Step Journal Entries for Dissolution
The dissolution process requires precise journal entries: (1) Close nominal accounts to Profit & Loss Account, (2) Transfer net profit/loss to partner capital accounts, (3) Revalue assets and liabilities, (4) Transfer revalued assets to Realisation Account, (5) Record sale of assets and settlement of liabilities, (6) Close Realisation Account and distribute gain/loss to partners, (7) Settle partner capital accounts and distribute remaining cash. NCERT examples show how each entry flows logically from one to the next, ensuring no balance remains outstanding after final closure.
Realisation Account – The Core of Dissolution
The Realisation Account is a temporary account opened during dissolution to record the sale of assets and settlement of external liabilities. It shows the actual cash realised from selling partnership assets versus their book values. Any profit on realisation (assets sold for more than book value) is credited; any loss is debited. This account is then closed by transferring the net gain or loss to partner capital accounts in their profit-sharing ratio. NCERT emphasises that the Realisation Account provides transparency in how much each partner actually receives after all assets are sold and debts paid.
Partner Capital Accounts During Dissolution
During dissolution, each partner's capital account shows opening balance, share of profit/loss, withdrawals, and final settlement amount. NCERT Class 9 illustrates how partners' capital accounts are adjusted for: revaluation gains/losses, share of Realisation Account profit/loss, and cash distributions. The final balance in each partner's capital account represents what they are entitled to receive. If a partner's capital account shows a debit balance after all adjustments, that partner must contribute cash to settle the firm's remaining liabilities—a critical concept tested in board exams.
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Asset Revaluation and Its Impact on Final Settlement
Before dissolution, partnership assets (inventory, fixed assets, receivables) must often be revalued to reflect current market value. NCERT explains that if assets appreciate, the gain is credited to all partners' capital accounts in their profit-sharing ratio; if assets depreciate, the loss is debited. Revaluation ensures fairness—no partner receives or loses undeserved value due to outdated book prices. For example, if stock worth ₹10,000 on books sells for ₹12,000, the ₹2,000 gain goes to partner capitals. This transparent approach is foundational to dissolution accounting.
Settlement of Liabilities – Creditors and Bank Loans
During dissolution, external liabilities (creditors, bank loans, outstanding expenses) must be settled before partners receive anything. NCERT requires that all liabilities be recorded in the Realisation Account as they are paid off. If liabilities are settled for less than book value, the difference is a gain; if for more, it's a loss. Interest on bank loans accrued till dissolution date must also be accounted for. Only after all external debts are cleared can remaining cash be distributed to partners based on their final capital account balances—this prioritisation protects creditors' rights.
Handling Partner Loans and Advances During Dissolution
Partners sometimes advance personal funds to the firm or the firm owes them money beyond their capital contribution. NCERT Class 9 Accountancy treats partner loans separately from capital accounts. A partner loan is a liability that must be repaid before distributing capital; partner advances are claims ranked similarly to creditors. During dissolution, these amounts are settled from firm assets alongside other liabilities. If a partner's capital account shows insufficient balance, their loan cannot be fully repaid unless other partners contribute—a scenario that requires careful journalising and explanation in exam answers.
Common Exam Questions – Patterns and Solutions
CBSE board exams typically ask: (1) Prepare Realisation Account and Partner Capital Accounts given opening balances and asset sale details, (2) Calculate each partner's final cash due, (3) Journalise asset sales and liability settlements, (4) Handle cases where a partner's capital goes into debit. NCERT worked examples demonstrate that solving these questions requires logical sequencing: revalue assets → close P&L → record asset sales → settle liabilities → calculate partner shares → distribute cash. Practising 8–10 complete dissolution problems from NCERT and CBSE past papers builds confidence and accuracy needed for high marks.
Frequently asked questions
What happens if a partner's capital account shows a debit balance after dissolution adjustments?+
A debit balance means the partner owes the firm money. That partner must contribute cash equal to the debit balance to settle the firm's remaining liabilities. Only after this contribution can other partners' capital be distributed. NCERT clarifies this as a legal obligation under partnership law.
Why is the Realisation Account called a temporary account?+
The Realisation Account exists only during the dissolution process. It records the sale of assets and settlement of liabilities, then is closed by transferring its net balance (gain or loss) to partner capital accounts. Once dissolution ends, the account ceases to exist—hence 'temporary'. It's not part of normal trading accounts.
Is CBSETUTOR.ai available for Hindi-medium students? What's the trial cost?+
Yes, CBSETUTOR.ai fully supports Hindi-medium CBSE students with explanations, solutions, and practice in Hindi. We offer a free trial so you can explore all features—no credit card required. Upgrade anytime to unlock unlimited personalised guidance for your entire Class 9 Accountancy journey.
How is profit/loss from Realisation Account distributed among partners?+
The net gain or loss in the Realisation Account is distributed to partner capital accounts in their profit-sharing ratio. If two partners share profits 3:2, and Realisation shows a ₹5,000 gain, Partner A receives ₹3,000 and Partner B receives ₹2,000 in their capital accounts, increasing their final cash entitlement.
Can a partnership be dissolved without selling all assets?+
Yes, NCERT explains that if partners agree, the firm can be taken over by one or more partners or sold as a going concern without asset-by-asset sale. However, proper valuations and settlements must still occur. The journal entries differ but the principle—fair distribution of net worth—remains.
What's the difference between a partner loan and a capital account during dissolution?+
A partner loan is money the partner lent to the firm—ranked as a liability, settled before capital distribution. A capital account is the partner's ownership stake. During dissolution, loans are paid first; remaining assets go to capital accounts. This distinction affects the order and amount each partner receives.
How does revaluation of assets affect partner settlement amounts?+
Revaluation gains/losses are shared among partners in their profit-sharing ratio, increasing or decreasing each partner's capital account balance. If assets are revalued upward by ₹10,000 and partners share equally, each partner's capital rises by ₹5,000—directly increasing their final cash payout.
Does CBSETUTOR.ai provide step-by-step solutions for Class 9 Accountancy dissolution problems?+
Absolutely. CBSETUTOR.ai offers NCERT-aligned, step-by-step video solutions for all Dissolution of Partnership Firm questions. Our AI tutor breaks down journal entries, Realisation Accounts, and capital settlements with visual aids. Access 24x7 on any device—perfect for clearing doubts before exams.
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