NCERT Class 12 Accountancy Accountancy-I: Chapter 4 — === page_7 (layout_surya) ===
This chapter, 'Dissolution of Partnership Firm,' from NCERT Class 12 Accountancy-I, explains the distinction between the dissolution of a partnership and the dissolution of a partnership firm. It details that while reconstitution involves dissolving the partnership, the firm might continue. However, the dissolution of a firm signifies the end of its existence, requiring the winding up of affairs, selling assets, and settling liabilities and partner claims. The chapter outlines various modes of dissolution, including by agreement, compulsory dissolution due to insolvency or illegality, dissolution by notice in a partnership at will, and dissolution by court order on grounds like insanity or permanent incapacity of a partner. Understanding these concepts is crucial for students to grasp the final stages of a partnership business under the CBSE curriculum.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 12 |
| Subject | Accountancy |
| Book | Accountancy-I |
| Chapter | Chapter 4 — === page_7 (layout_surya) === |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 4 minutes |
| Word count | 686 |
Learning outcomes
- State the meaning of dissolution of a partnership firm.
- Differentiate between dissolution of partnership and dissolution of a partnership firm.
- Describe the various modes of dissolution of a partnership firm.
- Explain the rules relating to the settlement of claims among partners.
- Prepare a Realisation Account.
Vocabulary
| Word | Meaning |
|---|---|
| Dissolution of Partnership | Changes the existing relationship between partners, but the firm may continue its business. |
| Dissolution of Firm | Brings an end to the existence of the firm, requiring winding up of its affairs. |
| Reconstitution of Partnership | Takes place on account of admission, retirement, or death of a partner. |
| Realisation Account | An account prepared to record the gains or losses on the sale of assets and payment of liabilities during dissolution. |
| Insolvency | The state of being unable to pay one's debts. |
| Partnership at Will | A partnership where there is no fixed term or specific venture, and it can be dissolved by notice. |
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Practice questions
- What is the difference between dissolution of partnership and dissolution of a firm? Answer: Dissolution of partnership refers to the change in the relationship between partners, while the firm may continue. Dissolution of a firm means the business is closed down.
- Under what circumstances can a firm be dissolved compulsorily? Answer: A firm can be compulsorily dissolved if all partners become insolvent, the business becomes illegal, or an event makes it unlawful to carry on the business.
- How can a partnership at will be dissolved? Answer: A partnership at will can be dissolved if any partner gives a written notice to the other partners signifying their intention to dissolve the firm.
- What does Section 39 of the Partnership Act 1932 state? Answer: Section 39 states that the dissolution of partnership between all the partners of a firm is called the dissolution of the firm.
Practice MCQs
Q1. Dissolution of a partnership firm necessarily brings an end to:
Explanation: Dissolution of a firm signifies the complete closure of the business and the end of the firm's legal existence.
Q2. Which of the following is NOT a mode of dissolution of a partnership firm?
Explanation: Retirement of a partner leads to reconstitution of the firm, not necessarily its dissolution, unless it's the last partner retiring.
Q3. If a partnership is formed for a fixed term, it is dissolved upon:
Explanation: When a partnership is constituted for a fixed term, it automatically dissolves upon the expiry of that term, subject to any contract to the contrary.
Q4. A firm is dissolved by the court if a partner becomes:
Explanation: The court may order dissolution if a partner becomes permanently incapable of performing their duties.
Q5. Which account is prepared to record gains or losses on sale of assets and payment of liabilities during dissolution?
Explanation: The Realisation Account is specifically prepared to close off all assets and liabilities and to ascertain the profit or loss on their disposal.
Frequently asked questions
What is the primary difference between dissolution of partnership and dissolution of a firm?
Dissolution of partnership means a change in the profit-sharing ratio or partners' relationships, while the firm continues. Dissolution of a firm means the business ceases to exist.
When does a firm face compulsory dissolution?
A firm is compulsorily dissolved if all partners become insolvent, the business becomes illegal, or an event makes it unlawful to continue.
Can a firm be dissolved by a partner's notice?
Yes, in a partnership at will, any partner can give a written notice to the others signifying their intention to dissolve the firm.
What are the grounds for dissolution of a firm by a court?
A court may order dissolution if a partner becomes insane, permanently incapable of performing duties, or guilty of misconduct.
What is the purpose of preparing a Realisation Account?
The Realisation Account is prepared to record the sale of assets and payment of liabilities to determine the profit or loss on winding up the firm's affairs.
Does the death of a partner always lead to the dissolution of the firm?
Not necessarily. While the death of a partner can lead to dissolution, the partnership agreement may provide for the continuation of the business.
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NCERT Class 12 Accountancy — Accountancy-I — Chapter 4 — === page_7 (layout_surya) ===. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.