BAC 301: Advanced Financial Accounting I Notes


The main purpose of this topic is to inculcate an in-depth understanding of the adjustments and
reorganizations that may be undertaken in the process of running a business as a partnership.


By the end of this lecture, you should be able to:

 Identify the reasons as to why a partnership may be dissolved
 Account for the dissolution of a partnership
 Identify the reasons as to why a partnership may be converted into a limited liability company
 Account for the conversion process
 Account for the process of amalgamating two or more partnerships


Section 36 to 39 of the partnership Act underlines the various circumstances under which a
partnership may be dissolved. These include:

i. Dissolution by agreement- This is where all the partners duly agree to terminate the
ii. Dissolution by illegality- This is where the happening of an event makes it unlawful
for the business of a partnership to be carried on.
iii. Dissolution on happening of some events- A partnership is dissolved in any of the
following ways unless there is a contract between the partners to the contrary;

 By the expiry of a specific period
 By the bankruptcy of a partner
 By the death of a partner
 By the completion of the adventure or undertaking
 By any partner giving notice to the other partners to dissolve the partnership

iv. Dissolution by the court- A court may order dissolution of partnership on the
application of a partner in any of the following;

 When a partner becomes of unsound mind
 When the business can only be carried on at a loss
 When a partner is guilty of misconduct affecting the business of the firm
 When a partner suffers from permanent incapacitation and cannot perform his/her duties as a
 When a partner commits willful or persistent breaches of agreement

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