AS-L20 — Partnership Changes & Dissolution
Understanding how partnership businesses deal with admission, retirement, and dissolution of partnerships.
Learning Objectives
By the end of this lesson students should be able to:
• understand partnership changes
• distinguish between retirement and dissolution
• prepare dissolution account entries
• calculate profit or loss on realisation
• answer examination-style questions
Concept Framework
Partnership Changes
Partnerships may change due to:
• admission of a new partner
• retirement of an existing partner
• death of a partner
• dissolution of the partnership
What is Dissolution?
Dissolution occurs when a partnership business closes permanently and its assets are sold and liabilities settled.
CORE RULES
| Item | Treatment in Dissolution |
|---|---|
| Assets Transferred | Debit Realisation Account |
| Liabilities Transferred | Credit Realisation Account |
| Assets Sold | Credit Realisation Account |
| Liabilities Paid | Debit Realisation Account |
| Profit on Realisation | Shared by partners |
| Loss on Realisation | Shared by partners |
TRANSACTION LOGIC
The realisation account is used to calculate the profit or loss arising from the disposal of partnership assets and settlement of liabilities.
Assets are transferred at book value.
Any profit or loss on dissolution is shared between partners according to the profit-sharing ratio.
Worked Examples
Example 1 — Transfer of Assets
Equipment £12,000 transferred to Realisation Account.
Debit Realisation £12,000
Credit Equipment £12,000
Example 2 — Sale of Assets
Assets sold for £15,000 cash.
Debit Bank £15,000
Credit Realisation £15,000
Example 3 — Profit on Realisation
Assets transferred = £20,000
Liabilities transferred = £5,000
Assets sold = £18,000
Liabilities paid = £4,000
Profit on Realisation:
Credits = £23,000
Debits = £24,000
Loss on Realisation:
£1,000
📌 Additional questions are available in the 🎯 Lesson wise resources, Module wise resources, Guess Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define dissolution
Define realisation account
Level 2 – Application Practice
Explain why a realisation account is prepared during partnership dissolution.
Level 3 – Examination Style Question
Assets transferred to Realisation Account = £30,000
Assets sold for = £34,000
Liabilities settled = £3,000
Calculate the profit or loss on realisation.
(4 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you distinguish partnership changes from dissolution?
2. Can you prepare realisation account entries correctly?
3. Can you calculate profit or loss on realisation accurately?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Credits:
Assets Sold = £34,000
Debits:
Assets Transferred = £30,000
Liabilities Settled = £3,000
Total Debits:
£33,000
Profit on Realisation:
£34,000 − £33,000
= £1,000 profit
How This Topic Appears in the Examination
This topic commonly appears as:
• dissolution account preparation
• realisation profit/loss calculations
• partnership restructuring questions
Examiners assess:
• correct entries
• understanding of dissolution procedures
• accurate calculations
Self-Assessment Checklist
I understand partnership dissolution
I understand the purpose of a realisation account
I can prepare dissolution entries correctly
I can calculate profit or loss on realisation
I can answer exam questions confidently
Continue Your Preparation
Go beyond the lesson with curated resources, examination practice and video learning.
PREMIUM RESOURCES
Master the topic with curated learning, revision and assessment resources
GUESS PAPERS
Prepare for the examination with complete Guess Paper packages and Mark Schemes.
VIDEO ON DEMAND
Watch, revise and strengthen your understanding with Shasha Academy videos.