Accounting procedure for Conversion of a partnership into Limited Company

These days , partnership firms are converting into limited companies for getting the benefit of limited liabilities . At this time firms book is closed just like dissolution of firms .
In the books of firms , the following journal entries are passed :

1) For closing the accounts of assets

Realisation account Debit
Assets Account Credit ( At book value )

2) For sale of assets and amount received

Cash /Bank Account Debit
Assets Account Credit
Realisation Account Credit

3) For closing the account of liabilities

Liabilities Account Debit
Realisation Account Credit

4) For Payment of liabilities

Realisation Account Debit ( Loss of payment )
Liabilities Account Debit
Cash / Bank account credit

5 ) For Assets and liabilities are taken over by new company

New Company Account Debit ( Purchase price = Agreed value of assets - agreed value of liabilities )
Realisation account Credit

6) For Payment of expenses of realisation

a) If pay by partner
Realisation Account Debit
Cash / Bank Account Credit
b) If pay by new company
New company Account Debit
Cash /Bank account Credit

7) Closing of Realisation account

If profit
Realisation account Debit
partner's capital Account Credit

8 ) Receipt of purchase price

Cash / Bank /Shares / Debentures Account Debit
Purchasing company Account Credit

9 ) On distribution of shares / debenture and cash from purchasing company

Partner's capital account Debit ( dividing in adjusted capital ratio )
Cash/Bank/ Shares /Debenture Account
After journal entry , you can transfer into ledger for making realisation account , company account , partner's capital account

See Also

Accounting treatment at the time of Dissolution of Firm

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Accounting Education: Accounting procedure for Conversion of a partnership into Limited Company
Accounting procedure for Conversion of a partnership into Limited Company
Accounting Education
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