Important Questions for CBSE Class 12 Accountancy Dissolution of Partnership

Important Questions for CBSE Class 12 Accountancy Dissolution of Partnership

1.Dissolution Dissolution means discontinuance of existing relationship among the partners. According to Indian Partnership Act, 1932, dissolution may be either of partnership or of a firm.

2.Dissolution of Partnership It changes the existing relationship between partners but the firm may continue its business as before.

3.Dissolution of Partnership Firm Dissolution of firm means dissolution of partnership among all the partners in the firm. In this case, business of the firm also comes to an end.

4.Modes of Dissolution of Partnership Firm
(i) Dissolution by mutual agreement                       (ii) Compulsory dissolution
(iii) Dissolution on the happening of an event         (iv) Dissolution by notice
(v) Dissolution by court

5.Settlement of Accounts in Case of Dissolution of Firm
(i)Treatment of Losses
Losses shall be paid, first out of profits, then out of partners’ capital and lastly, by the partners individually in their profit sharing ratio, if necessary.
(ii)Application of Assets
(a)Payment to outsiders/creditors
(b)Loans and advances of partners
(c)Payment of capital of partners
(d)The balance shall be divided among the partners in their profit sharing ratio

6.Treatment of Firms Debt and Private Debts
Where both the debts of the firm and private debts of a partner co-exist.
The following rules, as stated in Section 49 of the Act, shall apply
(i)Firm’s property is applied first in payment of firm’s debts and if there is any surplus, then the share of each partner is applied in the payment of his private debts or paid to him.
(ii)Partner’s private property is applied first in payment of his private debts and the surplus (if any) in payment of firm’s debts if the firms liabilities exceed the firm’s assets.

7.Accounting Treatment on Dissolution of Firm
On dissolution, the books of the firm are closed. The process is completed by opening the following accounts:
(i) Realisation account                              (ii) Partners’ capital account
(iii) Partners’ loan account                         (iv) Cash/bank account
(i) Realisation Account
It is a nominal account prepared at the time of dissolution of partnership firm to show profit or loss on realisation of assets and payment of liabilities.

NOTE (i) Goodwill appearing in the balance sheet is treated as any other asset. In case, question is silent about the realisation of goodwill, it is assumed the goodwill does not have any value and no amount is realised for it.
(ii) When an asset is transferred to realisation account, its corresponding reserve or provision appearing on the liabilities side of balance sheet is also transferred to realisation account.
(iii) In the absence of any information regarding realisation of assets (tangible or intangible) and settlement of any outside liabilities, it should be assumed that no amount has been realised from such assets and an amount equal to the book value of such liability has been paid off.

Format of Realisation Account

NOTE All provisions created against any asset or liabilities/provision for doubtful debts, provision for depreciation should be transferred to realisation account on credit or debit side as the case may be and it should be noted that those assets or liabilities should appear in realisation account at gross value.
(ii) Partners’ Capital Account
Balance of partners’ capital and current account are recorded in this account. Any asset of the firm taken over by the partner is recorded on the debit side and liability taken over is recorded on the credit side. Undistributed profits and reserves are recorded on the credit side and undistributed losses or fictitious assets are recorded on the debit side. When capital accounts are maintained following fixed capital account method, partners have current accounts also. These current accounts may have credit or debit balance. Current accounts are closed by transferring them to concerned partners’ fixed capital accounts.
The entries are as follows
(a)In case of debit balance in a current accounts of a partner
Concerned Partners’ Capital A/c                     Dr
To Concerned Partners’ Current A/c
(b)In case of credit balance in a current account of a partner
Concerned Partners’ Current A/c                    Dr
To Concerned Partners’ Capital A/c
The balance of partners’ capital account are closed in the following manner
(a)For making final payment to a partner (In case of credit balance)
Partner’s Capital A/c                        Dr
To Cash/Bank A/c
(b)When a partner is requried to bring in cash (In case of a debit balance)
Cash/Bank A/c                                       Dr
To Partner’s Capital A/c

Format of Partner’s Capital Account

(iii) Partner’s Loan Account
Partner’s loan will be paid after all outside liabilities are paid
Partner’s Loan A/c            Dr
To Cash/Bank A/c
(iv)Bank or Cash Account
It is a real account. On debit side, opening balance, amount realised through sale of assets and any amount paid in by the partners are shown. On the credit side, all the payments for liabilities, realisation expenses and final settlement made to partners are shown. In case both cash and bank balances appear in balance sheet, it is always better to open a single account. It is a self-balancing account.

Format of Cash/Rank Account

8.Preparation of Memorandum Balance Sheet for Ascertaining Sundry Assets
Memorandum balance sheet is prepared for calculating the missing figures of sundry assets. Sometimes, the total value of sundry assets is not given. However, the value realised from the assets is given, also the partners’ capitals and other liabilities are also given. In that case sundry assets have to be ascertained by preparing the old balance sheet. The amount of capitals and other liabilities are added. The sum total is the total amount of assets.

Previous Years’Examination Questions

1 Mark Questions

1.Distinguish between ‘dissolution of partnership’ and ‘dissolution of partnership firm’ on the basis of Court’s intervention.   (All India 2014)
Ans.

2.Distinguish between ‘dissolution of partnership’ and ‘dissolution of partnership firm’ on the basis of closure of books.  (Delhi 2014)
Ans.

3.Identify a situation, under which court may order for dissolution of a partnership firm.  (Compartment 2014)
Ans. A court may order for dissolution of a partnership firm on insanity of a partner.

4.Identify a situation for compulsory dissolution of a partnership firm.(Compartment 2014)
Ans. A firm is compulsorily dissolved on the insolvency of all the partners.

5.Name the asset that is not transferred to the debit side of realisation account, but brings certain amount of cash against its disposal at the time of dissolution of the firm. (Compartment  2014)
Ans. Unrecorded asset.

6.Name the liability which is not shown in the balance sheet, but paid at the time of dissolution of    the firm.    (Compartment 2014)
Ans. Unrecorded liability.

7.When an asset is taken over by a partner, why is his capital account debited? (Delhi 2012)
Ans. When an asset is taken over by a partner, his capital account is debited because the value of the asset is charged from his capital thus, his capital account is reduced.

8.When a liability is to be discharged by a partner, why is his capital account credited? (All india 2011)
Ans. When a liability is to be discharged by a partner, his capital account is credited because the partner’s claim is increased over the firm by the amount of liability discharged by him, thus his capital account is increased.

9.In case of dissolution of a firm, which liabilities are to be paid first? (Delhi 2011c)
Ans. The debts of the firm to the third parties are to be paid first.

10.In case of dissolution of a firm, which item on the liabilities side are to be paid last? (Delhi 2011 C)
Ans. In case of dissolution of firm, partner’s capital are paid at last after all external liabilities are paid and all profit and losses are adjusted in capital account.

11.A and B are partners in a firm sharing profits in the ratio of 3 : 2. Mrs A has given a loan of Rs 20,000 to the firm and the firm also obtained a loan of Rs 10,000 from B. The firm was dissolved and its assets were realised for Rs 25,000. State the order of payment of Mrs A’s loan and B’s loan with reason, if there were no creditor of the firm. (Delhi 2010 c)
Ans. According to Section 48 of The Indian Partnership Act, 1932, first of all the payment of Rs 20,000 will be made for Mrs A’s loan as she is an outsider, then remaining Rs 5,000 will be paid to B against his loan of Rs 10,000.

6 Marks Questions

12.Hanif and Jubed were partners in a firm sharing profits in the ratio of their capitals. On 31st March, 2013 their balance sheet was as follows

On the above date the firm was dissolved
(i)Debtors were realised at a discount of 5%, 50% of the stock was taken over by Hanif at 10% less than the book value. Remaining stock was sold for Rs 65,000.
(ii)Furniture was taken over by Jubed for Rs 1,35,000. Machinery was sold as scrap for Rs 74,000.
(iii)Creditors were paid in full.
(iv)Expenses on realisation Rs 8,000 were paid by Hanif. Prepare realisation account. (All India 2014)
Ans.

13.Shanti and Satya were partners in a firm sharing profits in the ratio of 4:1. On 31st March, 2013 their balance sheet was as follows:

On the above date the firm was dissolved
(i)Shanti took over 40% of the stock at 10% less than its book value and the remaining stock was sold for Rs 40,000. Furniture realised Rs 80,000.
(ii)All unrecorded investment was sold for Rs 20,000. Machinery was sold at a loss of Rs 60,000.
(iii) Debtors realised Rs 55,000.
(iv) There was an outstanding bill for repairs for which Rs 19,000 were paid. Prepare realisation account.    (Delhi 2014)
Ans.

14.Verma and Sharma were partners sharing profits in the ratio of 3 : 1. On 31st March, 2011, their balance sheet was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Creditors of Rs 50,000 took over land and building in full settlement of their claim.
(ii)Remaining creditors were paid in cash.
(iii)Machinery was sold at a depreciation of 30%.
(iv)Debtors were collected at a cost of Rs 500.
(v)Expenses on realisation were Rs 1,700. Pass necessary journal entries for dissolution of the firm.  (Delhi 2012)
Ans.

15.A and B were partners in a firm sharing profits in the ratio of 3 : 2. On 31st March, 2011, the balance sheet of the firm was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Building was taken over by creditors as their full and final payment.
(ii)Furniture was taken over by B for cash payment at 5% less than the book value.
(iii)Debtors were collected by a debt collection agency at a cost of Rs 5,000.
(iv)Stock realised Rs 70,500.
(v)B agreed to bear all realisation expenses. For this service, B is paid Rs 500. Actual expense on realisation amounted to Rs 1,000.Pass necessary journal entries for dissolution of the firm.(Delhi 2012)
Ans.

16.Sanjay and Sameer were partners in a firm sharing profits in the ratio of 2 : On 31st March, 2011 the balance sheet of the firm was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Sanjay agrees to take over land and building at Rs 3,50,000 by paying cash.
(ii)Stock was sold for Rs 90,000.
(iii)Creditors accepted debtors in full settlement of their claim. Pass necessary journal entries for dissolution of the firm.(All India 2012)
Ans.

17.Sudha and Joshi were partners in a firm sharing profits in the ratio of 3 : 7. On 31st March, 2011 the balance sheet of the firm was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Creditors accepted stock and debtors in full and final settlement of their claim.
(ii)Land and building was sold for Rs 7,00,000 and machinery was taken over by Joshi by paying cash less than 30% of its book value.Pass necessary journal entries for dissolution of the firm.  (All India 2012)
Ans.

18.Achal and Vichal were partners in a firm sharing profits in the ratio of 3 : 5. On 31st March, 2011 their balance sheet was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows
(i)Land and building realised Rs 4,30,000. ,
(ii)Debtors realised Rs 2,25,000 (with interest) and Rs 1,000 were recovered for bad debts written-off last year.
(iii)There was an unrecorded investment which was sold for Rs 25,000.
(iv)Vichal took over machinery at Rs 2,80,000 for cash.
(v)50% of the creditors were paid Rs 4,000 less in full settlement and the remaining creditors were paid full amount.
Ans.

19.Pass the necessary journal entries for the following transactions on the dissolution of the firm of P and Q after the various assets (other than cash) and outside liabilities have been transferred to realisation account.
(i)Bank loan Rs 12,000 was paid.
(ii)Stock worth Rs 16,000 was taken over by a partner Q.
(iii) Partner P paid a creditor Rs 4,000.
(iv)An asset not appearing in the books of accounts realised Rs 1,200.
(v)Expenses of realisation Rs 2,000 were paid by partner Q.
(vi)Profit on realisation Rs 36,000 was distributed between P and Q in 5 : 4 ratio.(Delhi 2011)
Ans.

20.Pass necessary journal entries for the following transactions on the aissoof the firm of T and P after the various assets (other than cash) and outside iiaouiues have been transferred to realisation account.
(i)Bank loan Rs 34,000 was paid.
(ii)Furniture worth Rs 70,000 was taken over by partner T at Rs 43,000.
(iii)Partner P agreed to pay a creditor Rs 7,500.
(iv)A computer previously written-off fully, realised Rs 3,900.
(v)Expenses on realisation Rs 3,200 were paid by partner T.
(vi)Profit on realisation Rs 4,800 was distributed between T and P in 5 : 3 ratio.
Ans.

21.Pass the necessary journal entries for the following transactions on the dissolution of the firm of K and L after the various assets (other than cash) and outside liabilities have been transferred to realisation account.
(i)Bank loan Rs 15,000 was paid.
(ii)Stock worth Rs 20,000 was taken over by a partner L.
(iii)K paid Rs 9,000 to a creditor.
(iv)A liability not appearing in the books of accounts settled Rs 3,700.
(v)Expenses on realisation Rs 900 were paid by L.
(vi)Profit on realisation Rs 7,100 was distributed between K and L in 7 : 3 ratio.
Ans.

22.Pass the necessary journal entries for the following transactions on the dissolution of the firm of James and Haider who were sharing profits and losses in the ratio of 2:1. The various assets (other than cash) and outside liabilities have been transferred to realisation account.
(i)James agreed to pay off his brother’s loan Rs 10,000.
(ii)Debtors realised Rs 12,000.
(iii)Haider took over all investment at Rs 12,000.
(iv)Sundry creditors Rs 20,000 were paid at 5% discount.
(v)Realisation expenses amounted to Rs 2,000.Loss on realisation was Rs 10,200. (All India 2011)
Ans.

8 Marks Questions

23.Kumar, Shyam and Ratan were partners in a firm sharing profits in the ratio of 5:3:2 They decided to dissolve the firm with effect from 1st April, 2013. On that date the balance sheet of the firm was as follows:
The dissolution resulted in the following:

(i)Plant of Rs 40,000 was taken over by Kumar at an agreed value of Rs 45,000 and remaining plant realised Rs 50,000.
(ii)Furniture realised Rs 40,000.
(iii) Motor van was taken over by Shyam for Rs 30,000.
(iv)Debtors realised Rs 1,000 less.
(v)Creditors for Rs 20,000 were untraceable and the remaining creditors were paid in fuH.
(vi)Realisation expenses amounted to Rs 5,000.
Prepare the realisation account, capital accounts of partners and bank account of the firm.(Compartment 2014)
Ans.

24.Ram and Shyam were partners in a firm sharing profits in the ratio of 2 : 3 respectively. They become old and no one was there to look after their business. Therefore, they decided to dissolve the business and donate the amount available to an NGO who are providing service for growing trees in urban areas to control pollution. On 31st January, 2014 their balance sheet was as follows:

Ram paid the creditors at a discount of 15% and Shyam paid bills payable in full. Assets realised as follows: Land at20%less; machinery at Rs 35,000; stock at 25% less and debtors at Rs 12,500. Expenses on realisation Rs 1,750 were paid by Shyam. Prepare realisation account, partner’s capital accounts and bank account. Also, identify any one value which the partners communicated to the society.(Compartment 2014)
Ans.

25.Prachi, Ritika and Ishita were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Inspite of repeated reminders by the authorities, they kept dumping hazardous material into a nearby river. The court ordered for the dissolution of their partnership firm on 31st March, 2012. Prachi was deputed to realise the assets and pay the liabilities. She was paid ? 1,000 as commission for her services. The financial position of the firm was as follows:

Following was agreed upon:  
Prachi took over investments for Rs 12,500. Stock and fprniture realised Rs 41,500. There was old furniture which has been written-off .completely from the books. Ritika agreed to take a\yay the same at the price of Rs 3,000. Compensation paid to the employees amounted to Rs 8,000. This liability ws- not provided in the above balance sheet. Realisation expenses amounted to Rs 1,000. Prepare realisation account, partners’ capital accounts and cash account to close the books of the firm. Also, identify the value being conveyed in the question.    (Delhi 2013;VBQ)
Ans.


Values being conveyed are (Any one):
(i) Social responsibility By ordering dissolution of business, which was dumping hazardous material into the river, the court has shown social responsibility towards society.
(ii) Environment protection The court has taken measures towards environment protection by ordering dissolution of business, which was causing water pollution.
(iii) Law enforcement The court has worked towards law enforcement by ordering the closure of business which is harmful for society and the environment.

26.Prashant and Rajesh were partners in a firm sharing profits in the ratio of 3 : 2. Inspite of repeated reminders by the authorities, they kept dumping hazardous material into a nearby river. The court ordered for the dissolution of their partnership firm on 31st March, 2012. Prashant was deputed to realise the assets and to pay the liabilities. He was paid Rs 1,000 as commission for his services. The financial position of the firm on 31st March, 2012 was as follows:

Following was agreed upon:
(i)Prashant agreed to pay off his wife’s loan.
(ii)Debtors realised Rs 24,000.
(iii)Rajesh took away all investments at Rs 27,000
(iv)Building realised Rs 1,52,000.
(v)Creditors were payable after 2 months. They were paid immediately at 10% discount.
(vi)Bills receivable were settled at a loss of Rs 1,400.
(vii)Realisation expenses amounted to Rs 2,500.
Prepare realisation account, partners’ capital accounts and cash account to close the cooks of the firm. Identify the value being conveyed in the question.(All India 2013; VBQ)
Ans.


Values being conveyed are (Any one):
(i) Social responsibility By ordering dissolution of business, which was dumping hazardous material into the river, the court has shown social responsibility towards society.
(ii) Environment protection The court has taken measures towards environment protection by ordering dissolution of business, which was causing water pollution.
(iii) Law enforcement The court has worked towards law enforcement by ordering the closure of business which is harmful for society and the environment.

27.X, Y and Z were partners sharing profits in the ratio of 2 : 2 : 1. Their balance sheet on 31st March, 2010, when they dissolved the firm was as follows:

It was agreed that
(i)X to take over furniture at Rs 8,000 and debtors amounting to Rs 1,20,000 at Rs 1,17,200 and the creditors of Rs 16,000 were to be paid by him at this figure.
(ii)Y is to take over all stock for Rs 17,000 and some sundry assets at Rs 72,000 (being 10% less than the book value).
(iii)Z to take over remaining sundry assets at 80% of the book value and assume the responsibility of discharge of loan together with accrued interest of Rs 2,300.
(iv)The expenses on realisation were Rs 2,700. The remaining debtors were sold to a debt collecting agency at 50% of the value.Prepare necessary accounts to close the books of the firm.  (Delhi 2011 c)
Ans.

28.A, B and C were partners sharing profits in the ratio of 3 : 1:1. The balance sheet on 31st March, 2009, the date on which they dissolve their firm, was as follows

It was agreed that:
(i) A to take over bills receivable at Rs 800, debtors amounting to Rs 20,000 at Rs 17,200 and the creditors of Rs 6,000 were to be paid by him at this figure.
(ii) B is to take over all stock for Rs 7,000 and some other assets at Rs 7,200 (being 10% less than the book value).
(iii)C to take over remaining sundry assets at 90% of the book value and assume the responsibility of discharge of loan together with accrued interest of Rs 300.
(iv)The expenses of realisation were Rs 270. The remaining debtors were sold to a debt collecting agency at 50% of the book value. Prepare realisation account, partners’ capital account and cash account.(Delhi 2010; All India 2010)
Ans.

29.Ram, Rahim and Rehman were partners in a firm sharing profits in the ratio 4:1:5. On 28th February, 2010 the firm was dissolved. On the date of dissolution, the balance sheet of the firm was as follows:
Assets realised as follows:

Debtors Rs 2,70,000 stock at 15% less, furniture was taken over by Ram for Rs 79,000, building was sold for Rs 29,00,000, Rehman took over 50% of the machinery at 5% less than the book value.
Bank loan was paid with interest Rs 9,500, creditors allowed a discount of 5%, expenses on dissolution Rs 7,000 were paid by Rehman, remaining machinery was sold at 50% profit.
Prepare realisation account, partners’ capital account and bank account.(All India 2010)
Ans.



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