DISSOLUTION OF PARTNERSHIP

SECOND TERM SCHEME OF WORK FOR SS 2 FINANCIAL ACCOUNTING LESSON NOTE

SCHEME OF WORK WITH WEEKLY LESSON NOTES FOR SS 2 SECOND TERM FINANCIAL ACCOUNTING

SUBJECT : FINANCIAL ACCOUNTING

CLASS : SS 2

TOPIC : DISSOLUTION OF PARTNERSHIP

WEEK  : WEEK 3

PREVIOUS LESSON : PARTNERSHIP ACCOUNT

Objectives:

• To introduce students to the concept of partnership account
• To discuss the types of partnership
• To explain the necessary double entry journal records of books of accounts for partnership
• To describe the reasons for partnership dissolution
• To teach students how to prepare the necessary double entry journal records of books of accounts for dissolution of partnership

CONTENT

DISSOLUTION OF PARTNERSHIP

Dissolution of partnership occurs when one or more partners in a business decide to end their association with the business. This can happen for a variety of reasons, such as retirement, death, disagreement, or the expiration of the partnership agreement. It is important to note that dissolution is different from termination, which refers to the complete ending of the partnership.

When a partnership is dissolved, there are a number of steps that need to be taken to ensure that the process is carried out smoothly and fairly. First, the partners must come to an agreement on how the assets and liabilities of the business will be distributed. This involves identifying all of the business’s assets and liabilities, determining their value, and deciding how they will be divided among the partners.

Once the distribution of assets and liabilities has been agreed upon, the partners must then settle any outstanding debts or obligations that the business may have. This includes paying off any loans or creditors, and ensuring that all taxes and other expenses are paid in full.

Finally, the partners must file the necessary paperwork to dissolve the partnership with the relevant government authorities. This may involve filing articles of dissolution with the state or local government, as well as notifying any clients or customers that the business will no longer be operating.

Example: Let’s say that a partnership has been formed between three individuals who own and operate a clothing store. One of the partners, who owns 40% of the business, decides to retire and leave the partnership. This would trigger the process of dissolution, as the remaining partners would need to agree on how the partner’s share of the business would be distributed. They would need to identify the assets and liabilities of the business, determine their value, and decide how to divide them among the partners. Once this process is complete, the remaining partners would settle any outstanding debts or obligations, and file the necessary paperwork to dissolve the partnership

Reasons for Dissolution of Partnership

1. Resignation: When a partner resigns from the partnership, it can lead to the dissolution of the partnership. This can happen for a variety of reasons, such as a change in personal circumstances or a desire to pursue other opportunities. For example, if a partner in a law firm resigns to take a job at another firm, it may trigger the dissolution of the partnership.
2. Withdrawal: When a partner withdraws from the partnership, it can also lead to dissolution. This can happen if a partner decides to sell their share of the business or if they become unable to participate in the business for some reason. For example, if a partner in a restaurant partnership decides to move to another country, it may trigger the dissolution of the partnership.
3. Retirement: When a partner reaches retirement age and decides to retire, it can also lead to dissolution. This can happen if the remaining partners do not wish to continue the business without the retired partner, or if they cannot agree on a new partnership arrangement. For example, if a partner in an accounting firm retires and the remaining partners cannot agree on how to replace them, it may trigger the dissolution of the partnership.
4. Death: When a partner dies, it can also lead to dissolution. This can happen if the partnership agreement does not provide for the continuation of the partnership after the death of a partner, or if the remaining partners cannot agree on how to continue the business without the deceased partner. For example, if a partner in a real estate partnership dies and the remaining partners cannot agree on how to manage the properties, it may trigger the dissolution of the partnership.
5. Expulsion: When one partner drives out, or expels, another partner from the partnership, it can also lead to dissolution. This can happen if there is a disagreement between partners that cannot be resolved, or if one partner is found to be engaging in unethical or illegal behavior. For example, if a partner in a consulting partnership is found to be embezzling funds, it may trigger the expulsion of that partner and the dissolution of the partnership.
6. Bankruptcy: When the partnership business declares bankruptcy, it can also lead to dissolution. This can happen if the business is no longer able to meet its financial obligations, or if it has been mismanaged to the point where it is no longer profitable. For example, if a construction partnership is unable to pay its creditors and files for bankruptcy, it may trigger the dissolution of the partnership.
7. Agreement: When the partners have an agreement to dissolve the partnership, it can be a voluntary and mutually agreed-upon decision. This can happen if the partners no longer wish to continue the business or if they wish to pursue other opportunities. For example, if a software development partnership has achieved its goals and the partners wish to pursue other projects, they may agree to dissolve the partnership.
8. Illegal Business: When the partnership business is illegal, it can also lead to dissolution. This can happen if the business is engaged in illegal activities, such as money laundering or drug trafficking. For example, if a partnership is discovered to be running an illegal gambling operation, it may trigger the dissolution of the partnership

Evaluation

1. What is dissolution of partnership? A) The complete ending of a partnership B) The process that leads to the termination of partnership C) The process of dividing assets and liabilities among partners D) The process of filing articles of dissolution with the government
2. What is the difference between dissolution and termination of partnership? A) There is no difference B) Dissolution is the process that leads to termination C) Termination is the process that leads to dissolution D) Dissolution refers to the withdrawal of one or more partners, while termination refers to the complete ending of the partnership
3. What can trigger the dissolution of a partnership? A) Retirement of a partner B) Death of a partner C) Expulsion of a partner D) All of the above
4. When a partner resigns from the partnership, it can lead to dissolution. What is resignation? A) The process of dividing assets and liabilities among partners B) The process of withdrawing from the partnership C) The process of retiring from the partnership D) The process of expelling another partner from the partnership
5. When a partner withdraws from the partnership, it can lead to dissolution. What is withdrawal? A) The process of resigning from the partnership B) The process of retiring from the partnership C) The process of selling their share of the business D) The process of expelling another partner from the partnership
6. When a partner dies, it can lead to dissolution. What can trigger dissolution in this case? A) The partnership agreement does not provide for the continuation of the partnership B) The remaining partners cannot agree on how to continue the business without the deceased partner C) Both A and B D) None of the above
7. When one partner drives out another partner from the partnership, it can lead to dissolution. What is this called? A) Withdrawal B) Resignation C) Expulsion D) Termination
8. When the partnership business declares bankruptcy, it can lead to dissolution. Why? A) The business is no longer able to meet its financial obligations B) It has been mismanaged to the point where it is no longer profitable C) Both A and B D) None of the above
9. When the partners have an agreement to dissolve the partnership, it can be a voluntary and mutually agreed-upon decision. What can trigger this decision? A) The partners no longer wish to continue the business B) They wish to pursue other opportunities C) Both A and B D) None of the above
10. When the partnership business is engaged in illegal activities, it can lead to dissolution. What is an example of an illegal business activity? A) Money laundering B) Drug trafficking C) Both A and B D) Selling legal products

The necessary double entry journal records of books of accounts for dissolution of partnership,

1. Closing of the partnership books:

Debit: Dina’s Capital Account Debit: Disu’s Capital Account Debit: Daniel’s Capital Account Debit: David’s Capital Account Credit: Partnership Account

2. Distribution of assets to partners:

Debit: Asset Account Credit: Dina’s Capital Account Credit: Disu’s Capital Account Credit: Daniel’s Capital Account Credit: David’s Capital Account

3. Distribution of liabilities to partners:

Debit: Dina’s Capital Account Debit: Disu’s Capital Account Debit: Daniel’s Capital Account Debit: David’s Capital Account Credit: Liability Account

4. Payment of any remaining debts or obligations:

Debit: Liability Account Credit: Cash Account

5. Distribution of any remaining profits or losses:

Debit: Dina’s Capital Account (or Credit, if there is a loss) Debit: Disu’s Capital Account (or Credit, if there is a loss) Debit: Daniel’s Capital Account (or Credit, if there is a loss) Debit: David’s Capital Account (or Credit, if there is a loss) Credit: Profit and Loss Account

Note: These journal entries are just examples and may vary depending on the specific circumstances of the partnership dissolution.

Evaluation

1. What is the first step in the necessary double entry journal records of books of accounts for dissolution of partnership? A) Distribution of assets to partners B) Payment of remaining debts or obligations C) Closing of the partnership books D) Distribution of liabilities to partners
2. Which accounts are debited in the closing of the partnership books? A) Dina’s Capital Account, Disu’s Capital Account, Daniel’s Capital Account, David’s Capital Account B) Asset Account C) Liability Account D) Profit and Loss Account
3. What is the purpose of the closing of the partnership books? A) To distribute assets to partners B) To distribute liabilities to partners C) To close the partnership’s books and record the final balances in the capital accounts of each partner D) To pay off remaining debts or obligations
4. Which accounts are credited in the closing of the partnership books? A) Dina’s Capital Account, Disu’s Capital Account, Daniel’s Capital Account, David’s Capital Account B) Asset Account C) Liability Account D) Profit and Loss Account
5. What is the purpose of the distribution of assets to partners? A) To pay off remaining debts or obligations B) To distribute the partnership’s assets among the partners C) To record the final balances in the capital accounts of each partner D) To distribute the partnership’s liabilities among the partners
6. What is the purpose of the distribution of liabilities to partners? A) To distribute the partnership’s assets among the partners B) To record the final balances in the capital accounts of each partner C) To distribute the partnership’s liabilities among the partners D) To pay off remaining debts or obligations
7. What is the purpose of paying off remaining debts or obligations? A) To distribute the partnership’s assets among the partners B) To distribute the partnership’s liabilities among the partners C) To close the partnership’s books and record the final balances in the capital accounts of each partner D) To pay off all debts and obligations of the partnership
8. Which accounts are debited in the payment of remaining debts or obligations? A) Dina’s Capital Account, Disu’s Capital Account, Daniel’s Capital Account, David’s Capital Account B) Asset Account C) Liability Account D) Cash Account
9. What is the purpose of the distribution of any remaining profits or losses? A) To pay off remaining debts or obligations B) To distribute the partnership’s assets among the partners C) To record the final balances in the capital accounts of each partner D) To distribute any remaining profits or losses among the partners
10. Which accounts are credited in the distribution of any remaining profits or losses? A) Dina’s Capital Account, Disu’s Capital Account, Daniel’s Capital Account, David’s Capital Account B) Asset Account C) Liability Account D) Profit and Loss Account

Lesson Presentation

Introduction: Begin the lesson by defining partnership account and its importance in accounting. Explain that a partnership is a business owned and operated by two or more individuals, and that partnership accounting involves keeping track of the financial transactions of the partnership.

Body:

1. Types of Partnership

• Explain the different types of partnership (general partnership, limited partnership, and limited liability partnership) and their characteristics.
• Provide examples of each type of partnership.

2. Double Entry Journal Records of Books of Accounts for Partnership

• Define double entry bookkeeping and explain its importance in partnership accounting.
• Explain the necessary double entry journal records of books of accounts for partnership (capital accounts, current accounts, and profit and loss accounts).
• Provide examples of transactions and their corresponding journal entries.

3. Reasons for Partnership Dissolution

• Define dissolution of partnership and its difference from termination of partnership.
• Discuss the reasons for partnership dissolution (resignation, withdrawal, retirement, death, expulsion, bankruptcy, agreement, and illegal business).
• Provide examples of each reason.

4. Necessary Double Entry Journal Records of Books of Accounts for Dissolution of Partnership

• Explain the necessary journal entries for dissolution of partnership (closing of the partnership books, distribution of assets to partners, distribution of liabilities to partners, payment of remaining debts or obligations, and distribution of any remaining profits or losses).
• Provide examples of transactions and their corresponding journal entries.

Conclusion: Summarize the key points discussed in the lesson and encourage students to practice and apply their knowledge in real-world situations. Provide them with additional resources and exercises to further enhance their understanding of partnership accounting.

Assessment: Conduct a quiz or examination that tests the students’ understanding of the different topics discussed in the lesson, such as multiple-choice questions, fill-in-the-blank questions, or problem-solving exercises

Weekly Assessment /Test

1. What is partnership account?
2. What are the different types of partnership?
3. What is double entry bookkeeping?
4. What are the necessary double entry journal records of books of accounts for partnership?
5. What is dissolution of partnership?
6. What are the reasons for partnership dissolution?
7. What are the necessary double entry journal records of books of accounts for dissolution of partnership?
8. What is a capital account in partnership accounting?
9. What is a current account in partnership accounting?
10. What is a profit and loss account in partnership accounting?