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15.5 Discuss and Record Entries Related to the Dissolution of a Partnership

Partnership Dissolution​

Dissolution Occurs When:

  • Partnership agreement expires
  • Partners decide to dissolve
  • Partner withdraws (if no continuation)
  • Other events per agreement

Liquidation Process​

Steps:

  1. Sell all assets
  2. Pay all liabilities
  3. Distribute remaining cash to partners
  4. Close capital accounts

Example:

  • Assets sold: €200,000
  • Liabilities paid: €50,000
  • Cash available: €150,000
  • Partner A (60%): €90,000
  • Partner B (40%): €60,000

Journal Entries:

510000 Cash                       €200,000
[Asset Accounts]                               €[amounts]
350000 Gain on Liquidation                     €[gain]
To record asset sale

[Liability Accounts]              €50,000
510000 Cash                                   €50,000
To pay liabilities

301000 Partner A, Capital         €90,000
302000 Partner B, Capital         60,000
510000 Cash                                  €150,000
To distribute cash to partners

Luxembourg Compliance Note​

Dissolution in Luxembourg:

  • Must follow partnership law
  • Must file with RCS
  • Must settle all accounts
  • Must comply with procedures

Think It Through​

What steps are involved in partnership dissolution? Why is proper accounting important?