Chapter 16, Problem 16.1Q

What are the major causes of a dissolution? What are the accounting implications of a dissolution?

To determine

Introduction: Disassociation is the legal description of a partner’s withdrawal including the following:

1. A partner’s death
2. A partner’s voluntary withdrawal i.e., a retirement
3. A judicial determination including (a) the partner engaged in illegal conduct that negatively affect the partnership; (b) the partner intentionally committed a material breach of the partnership agreement; (c) the partner became a debtor in bankruptcy; and (d) the partner cannot perform his or her duties under the partnership agreement.

The major causes of dissolution and the accounting implications of dissolution.

Explanation of Solution

Dissolution is the termination of a partnership. Events that cause its dissolution and accounting implications are presented in section 801 of the UPA of 1997 are as follows:

1. A partner can give notice of his or her intension to dissolve the partnership. An at-will partnership is one in which there is only an oral understanding among the partners and no definite term or specific task undertaking.
2. A dissolution of a partnership created for a specific term or definite undertaking takes place when (a) after a partner’s death or illegal dissociation, at-least half of the partners decide to wind-up the partnership business; (b) all partner’s agree to wind-up the partnership business; and (c) the term or definite undertaking has expired or been accomplished.
3. An event occurs that makes carrying on aimportant part of the partnership business unlawful.
4. A judicial determination that (a) the partnership economic purpose is not likely to be achieved; (b) the partner has engaged in conducting the partnership that makes continuing the business unfeasible; and (c) carrying on the partnership in consistency with the partnership agreement is not reasonably practicable.