Chapter 5: Dissolution of partnership firm

Important Questions

1. Write the difference between firm’s debts and private debts?

2. What journal entries would be passed in the books of A and B sharing profits and losses in the ratio of 5 : 2, for the following transactions on the dissolution of a firm, after various assets (other than cash) and third party liabilities would have been transferred to realization account:-

1. Realization expenses amounted to Rs. 200. B one of the partners has to bear these expenses.
2. B one of the partners agreed to take over the creditors of Rs. 3,000 for 2,000.
3. A, one of the partners has given loan to the firm of Rs. 1,000. It was paid back to him at the time of dissolution.
4. Profit and loss account balance of Rs. 5,600 appeared on the assets side of the balance sheet.
5. Deferred revenue advertising expenditure appeared at Rs. 2,800
6. An unrecorded investment of Rs. 700.

3. Write the difference between dissolution of firm and dissolution of partnership.

4. What can be the reasons for dissolution of partnership firm?

Sample Questions

1. X and Y were partners sharing profits in the ratio of 3 : 2. Give journal entries under the following:-

1. Workmen compensation reserve was Rs. 70,000 and liability for it was Rs. 40,000.
2. Workmen compensation reserve was Rs. 65,000 and liability was Rs. 70,000.
3. Workmen compensation reserve was 60,000 and liability was 60,000.
4. Workmen compensation reserve was zero and liability was Rs. 20,000.
5. Workmen compensation Reserve in the balance sheet was Rs. 75,000 and there is no liability towards workmen compensation.

2. Distinguish between firm’s debts and partner’s private debts

3. On what account realisation account differs from revaluation account.

4. Reproduce the format of Realisation Account.

5. There was an old computer which was written-off in the books of accounts in the pervious year. The same has been taken over by a partner Nitin for Rs.3,000. Journalise the transaction when the firm has been dissolved.

MCQ

1. In the absence of any information regarding the acquisition of share in profit of the retiring/deceased partner by the remaining partners, it is assumed that they will acquire his/her share:-

(a) Old Profit Sharing Ratio
(b) New Profit Sharing Ratio
(c) Equal Ratio
(d) None of these

2. Debit balance of capital account Rs. 14000. Share of his profit on realisation Rs. 43000. Firms asset taken over by him for Rs. 17000. On the basis of the above data the final payment to a partner on firm’s dissolution will be -

(a) Rs.30000

(b) Rs.12000

(c) Rs.14000

(d) Rs.20000

3. P, Q and R are partners in a firm. The firm had given a loan of Rs. 15000 to Q. They decided to dissolve the firm. The loan will be settled by -

(a) Dr. Side of Q’s Capital account

(b) Cr. Side of Q’s capital account

(c) Cr. Side of realisation account

(d) Dr. Side of realisation account

4. On a firm's dissolution, which of the following accounts should be prepared at last?

(a) Realisation account

(b) Partner’s capital account

(c) Cash Account

(d) Partner’s loan account

5. On the happening of certain contingencies: Subject to contract between the partners, a firm is dissolved :

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more ventures, by the completion thereof;

(c) by the death of a partner;

(d) by the adjudication of a partner as an insolvent.