Question by CA (Dr.) G.S.GREWAL, Series – 30

True / False

  1. When the business of the firm is unlawful then it is compulsory dissolved.

Fill in the Blank

  1. Liability of a partner is unlimited _____________ and _______________.

Multiple Choice Question

  1. Nature of Realisation Account is:-

a) Nominal Account

b) Real Account

c) Personal Account

d) Asset Account

Answer Series – 30

  1. True

Reason: No one is allowed to disobey the law of the country hence if any firm is engaged in unlawful business then it must be compulsory dissolved.

  1. Joint, Several
  1. (a)

Reason: The nature of Realisation Account is Nominal as it records expenses and gains.

Question Series – 31

  1. Debtors of ₹ 50,000 are realized at a loss of 2% the amount thus realised is ₹ 49,000.
  1. Partner’s Loan Account is not transferred to Realisation on _______________.
  1. Partners Loan Account is:-

a) Personal Account

b) Real Account

c) Nominal Account

d) Expense Account

Answer Series – 31

  1. True

Reason:- Debtors = ₹ 50,000 less (2% of ₹ 50,000)

Amount Realised = ₹ 49,000

  1. dissolution
  1. (a)

Reason: Partner’s Loan Account is Personal Account since it is related to a person.

Question – Series 46

  1. Dissolution of Partnership is different from Dissolution of partnership Firm.
  1. On liability being paid by a partner on dissolution of the firm, , his ___________ will be credited and ______________will be debited.
  1. On Dissolution Goodwill Account is transferred to:-

(a)     Credit side of Bank Account.

(b)     Debit side of Partners’ Capital Account

(c)     Debit side of Realisation Account

(d)     Credit side of Realisation Account

Answer – Series 46

  1. True

Reason:- Dissolution of Partnership means old partnership deed has come to an end and new partnership deed has come into effect.

On the other hand, Dissolution of Partnership Firm means the business of the firm has come to an end. As a result, Partnership Agreement has also come to an end.

  1. Capital Account, Realisation Account
  2. (c)

Reason: On Dissolution Goodwill Account is transferred to Debit side of Realisation Account since all asset on dissolution are transferred to Realisation Account.

Question – Series 50

  1. The court can order the Dissolution of a Partnership Firm, if any of the partners becomes a person of unsound mind.
  1. Accumulated Profits/losses are distributed amongst the partners in their ________________ ratio at the time of Dissolution of Partnership Firm.
  1. Section 48 of the Indian Partnership Act, 1932 deals with :-

(a)     Payment of firms debts and private debts

(b)     Settlement of account when the firm is dissolved

(c)     Dissolution of the firm

(d)     Admission of a partner

Answer – Series 50

  1. True

Reason: The Partnership Act, 1932 prescribes for dissolution of the firm, if a partner becomes a person of unsound mind.

  1. Profit sharing
  2. (b)

Reason: Section 48 of the Indian Partnership Act, 1932 deals with the manner in which assets of the firm shall be used on it being dissolved. It provides that assets be used in following order

  1. Payment of outside liabilities.
  2. Payment of Partner’s loan.
  3. Repayment of capitals.

Question – Series 53

  1. If creditors are ₹ 20,000, loan (credit) is ₹ 10,000, capital is of ₹ 1,50,000 and cash balance is ₹ 30,000, remaining assets will be ₹ 1,80,000.
  1. When amount is realised from sale of unrecorded asset, it is __________ to Cash/Bank Account and _____________ to Realisation Account.
  1. If a partner pays liability of a firm on dissolution Journal entry passed will be:

(a)     Realisation A/c   Dr., To Bank/Cash A/c

(b)     Realisation A/c   Dr., To Partners Capital A/c

(c)     Bank/Cash Dr., To Partners Capital A/c

(d)     Partners’ Capital A/c Dr., To Bank A/c

Answer – Series 53

  1. False

Reason: Assets are always equal to liabilities + Capital. Hence,

 ₹ 20,000 (creditors) + ₹ 10,000 (loan) + ₹ 1,50,000 (capital) = ₹ 30,000 (cash) + Balance Assets

= ₹ 1,80,000 = ₹ 30,000 + Balance Assets

Balance Assets = ₹ 1,80,000 – ₹ 30,000 = ₹ 1,50,000.

Correct Statement: If creditors are ₹ 20,000, Loan (credit) is ₹ 10,00 capital is 1,50,000 and cash balance is ₹ 30,000, remaining assets will be ₹ 1,50,000.

  1. debited, credited
  2. (b)

Reason: If a partner to pays the liability of a firm on dissolution it will be recorded as:

    Realisation A/c                   …Dr.

           To Partners Capital A/c

Partners’ Capital A/c will be credited if partner pays the liability of the firm.

Question – Series 63

  1. The court can order the Dissolution of a Partnership Firm, if any of the partners becomes a person of unsound mind.
  2. A firm is compulsory dissolved when all the partners or all the partners except one become ____________.
  3. Court may pass order of the dissolution of the firm: –

(a)     Expiry of the term for which the firm was constituted

(b)     When the business of the firm can’t be carried on except at a loss

(c)     On completion of the venture

(d)     When the business incur profit

Answer – Series 63

  1. True

Reason: The Partnership Act, 1932 prescribes for dissolution of the firm, if a partner becomes a person of unsound mind.

  1. insolvent.
  2. (b)

Reason: Court may pass order of the dissolution of the firm when the business of the firm can’t be carried on except at a loss because contribution of business at a loss will result in erosion of capital.

Question – Series 70

  1. When the business of the firm becomes unlawful, business of the firm has to be discontinued.
  2. Bharat, a partner was appointed to look after the dissolution for a remuneration of ₹ 50,000. Bharat agreed to bear the dissolution expenses. Actual dissolution expenses ₹ 30,000 which were paid by Bharat. Realisation Account will be debited by _____________.
  3. Liabilities to third parties in case of dissolution of partnership firm include: –

(a)     Reserves

(b)     Credit Balance of Profit and Loss Account

(c)     Partners loan

(d)     Loan by Relative.

Answer – Series 70

  1. True

Reason: A firm can carry on business that is lawful. If a business becomes unlawful, has to be discontinued i.e., dissolved.

  1. ₹ 50,000
  2. (d)

Reason: Liabilities to third parties means liability of the firm to persons other than liability towards Partners Capitals or loans, if any. The first two i.e., Reserves and Credit Balance of Profit and Loss are transferred to Partners’ Capital Accounts in their profit-sharing ratio. Partners loan is paid to Partner before repayment of capital.

Relative is not a partner hence, is a outside liabilities i.e., third party liabilities.

Question – Series 73

  1. Partners are liable for firm’s debt jointly and severally.
  2. Loss of Realisation Account is debited to Partners’ Capital Accounts in their __________.
  3. When Realisation expenses are borne and also paid by the same partner: –

(a)     No entry will be passed for expenses

(b)     Realisation Account will be debited, Cash Account will be credited

(c)     Realisation Account will be credited, Cash Account will be debited

(d)     Realisation Account is debited, Partners’ Capital Account will be credited

Answer – Series 73

  1. True

Reason The Partnership Act, 1932 prescribes that liability of partners is unlimited, joint and several.

  1. Profit Sharing Ratio
  2. (a)

Reason: Amount payable to the partner as be remuneration and expense is credited to his Capital Account. The transaction of payment of expense by the partner is not a transaction that of the firm. Hence, entry is not passed for it.

Question – Series 82

  1. Change in business relationship among the Partners is Dissolution of Partnership.
  2. Creditors of ₹ 30,000 and Bills Payable of ₹ 8,000 were due one month after 31st March, 2019 but they were paid on 31st March, 2019 at a discount of 6% p.a., the amount debited to Realisation Account will be ____________.
  3. Liabilities to third parties in case of dissolution of partnership firm include: –

(a)     Reserves

(b)     Credit Balance of Profit and Loss Account

(c)     Partners loan

(d)     Loan by Relative.

Answer – Series 82

  1. True

Reason: Dissolution of partnership firm is different from Dissolution of Partnership. In the event of dissolution of partnership, firm continues. As a result of the change in relationship old Partnership Agreement comes to an end and new Partnership Agreement comes into existence. Thus, change in business relationship among partners is Dissolution of Partnership.

  1. ₹ 37,810
  2. (d)

Reason: Liabilities to third parties means liability of the firm to persons other than liability towards Partners Capitals or loans, if any. The first two i.e., Reserves and Credit Balance of Profit and Loss are transferred to Partners’ Capital Accounts in their profit-sharing ratio. Partners loan is paid to Partner before repayment of capital.

Relative is not a partner hence, is a outside liabilities i.e., third party liabilities.

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