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The basic difference between Dissolution of Firm and Dissolution of Partnership is the closing of the operation of business and business relationship among partners.
To know the difference between these two, we must clear the meaning of these terms and explained as follows: -
Dissolution of Firm refers to close the operation of the business and end the business or economic relationship among partners. The Dissolution of the firm can be performed by voluntarily by the partner and in some case, The court order the compulsory closure of the operations of the firm where business do illegal activities.
Dissolution of Partnership refers to making changes in the business relationship among the partners and continue the operation of the business. The Dissolution of the Partnership can only be performed voluntarily by the partner.
Basis of Difference |
Dissolution of Firm |
Dissolution of Partnership |
|---|---|---|
| Meaning | It refers to close the operation of the business and end the business or economic relationship among partners. | It refers to making changes in the business relationship among the partners and continues the operation of the business. |
| Business Relationship among Partners | Business Relationships among the partners will end when there is the dissolution of the firm. | Business Relationships among the partners will Changes when there is the dissolution of the partnership. |
| Close the business operation | The closure of a business operation is also known as the dissolution of the firm. | In this case, no need for closure of business operation. |
| Voluntarily or compulsorily | The operation can be voluntarily closed by the decision of the partners and compulsorily if ordered by the court. | The partners can only make voluntarily in the business relationship among partners. |
| Closure of Books | The books are closed because of the operations of business ends. | The books do not need to close because the operations of the business will continue. |
| Account Prepared | Realisation account prepared in the dissolution of the firm. | Revaluation account prepared in the dissolution of Partnership. |
| Assets and Liabilities | Realise the value of assets and payments made to settle liabilities. | Revaluate the value of assets and reassessed the value of liabilities. |
| Effects | Dissolution of the firm does include the dissolution of the Partnership. | Dissolution of the Partnership does not include the dissolution of Partnership. |
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Thus, both terms are different from each other on the basis of closing the operation of the firms. If operations are closed then it is known as dissolution of the firm. If operations are not closed only some changes in the deed then it is known as dissolution of Partnership.
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "Difference Between Dissolution of Firm and Dissolution of Partnership", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Differences in financial accounting class 12.
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