NCERT Solutions for Class 12 Accountancy Part 1 Chapter 4 Dissolution of Partnership Firm

Court can order a firm to be dissolved when a partner becomes insane.

Dissolution of partnership can not take place without intervention of the court.

 A partnership is dissolved when there is a death of a partner.

A firm is dissolved when all partners give consent to it.

A firm is compulsorily dissolved when a partner decide to retire.

Dissolution of a firm necessarily involves dissolution of partnership.

A firm is compulsorily dissolved when all partners or when all except one partner become involved.

 Dissolution of a partnership is different from dissolution of a firm.

 On dissolution of a firm, bank overdraft is transferred to
(a) cash account (b) bank account
(c) realization account (d) partner’s capital account

 On dissolution of a firm, partner’s loan account is transferred to
(a) realisation account (b) partner’s capital account (c) partner’s current account (d) None of these

After transferring liabilities like creditors and bills payables in the realisation account, in the absence of any information regarding then payment, such liabilities are treated as
(a) never paid (b) fully paid (c) partly paid (d) None of these

 Unrecorded assets when taken over by a partner are shown in
(a) debit of realisation account
(b) debit of bank account
(c) credit of realisation account
(d) dredit of bank account

 Unrecorded liabilities when paid are shown in
(a) debit of realisation account
(b) debit of bank account
(c) credit of realisation account
(d) credit of bank account

The accumulated profits reserves are transferred to
(a) realisation account (b) partners’ capital account
(c) bank account (d) None of these

On dissolution of the firm, partner’s capital accounts are closed through
(a) realisation account (b) drawings account
(c) bank account (d) loan account

 Fill in the correct word(s)

1. All assets (except cash/bank and fictitious assets) are transferred to the ————— (Debit/Credit) side of ——————— Account (Realisation/Capital).

2. All ————— (internal/external) liabilities are transferred to the ————— (Debit/Credit) side of ——————acccount (Bank/Realisation).

3. Accumulated losses are transferred to ————— (Current/Capital Accounts) in —————— (equal ratio/profit sharing ratio).

4. If a liability is assumed by a partner, such a Partner's Capital Account is ––––––– ——— (debited/credited)..

5. If a partner takes over an asset, such (Partner’s Capital Account) is ———————— (debited/credited).

6. No entry is required when a ——————— (partner/creditor) accepts a fixed asset in payment of his dues.

7. When creditor accepts an asset whose value is more than the amount due to him, he will ———————— (pay/not pay) the excess amount which will be credited ———————— Account.

8. When the firm has agreed to pay the partner a fixed amount for realisation work irrespective of the actual amount spent, such fixed amount is debited to (Realisation/Capital) Account and Credited to (Capital/Bank) Account.

9. Partner’s loan is  —————— (recorded/not recorded) in the (Realisation Account).

10. Partner’s current accounts are transferred to respective ———————— Partners’ (Loan/Capital) Accounts.

 1. For closure of assets accounts.

 2. For closure of liabilities accounts.

 3. For sale of assets.

 4. For settlement of a creditor by transfer of fixed assets to him.

 5. For expenses of realisation when actual expenses are paid by the partner on behalf of the firm.

6. When a partner discharges the liability of the firm.

7. For payment of partner’s loan.

 8. For settlement of capital accounts.

Distinguish between Firm’s Debts and Partner’s Private Debts.

 State the difference between dissolution of Partnership and Dissolution of Partnership firm.

State the accounting treatment for
(i) Unrecorded assets (ii) Unrecorded liabilities.

On dissolution, how will you deal with partner’s loan if it appears on the
(a) assets side of the balance sheet,
(b) liabilities side of the balance sheet.

 State the order of settlement of accounts on dissolution.

On what account Realisation Account differs from Revaluation Account?

 Explain the process of dissolution of partnership firm.

What is a Realisation Account?

 Reproduce the format of Realisation Account.

 How deficiency of creditors is paid off?

Journalise the following transactions regarding realisation expenses :
[a] Realisation expenses amounted to Rs.2,500.
[b] Realisation expenses amounting to Rs.3,000 were paid by Ashok, one of the partners.
[c] Realisation expenses Rs.2,300 borne by Tarun, personally.
[d] Amit, a partner was appointed to realise the assets, at a cost of Rs.4,000. The actual amount of realisation amounted to Rs.3,000.

Record necessary journal entries in the following cases:
[a] Creditors worth Rs.85,000 accepted Rs.40,000 as cash and Investment worth Rs.43,000, in full settlement of their claim.
[b] Creditors were Rs.16,000. They accepted Machinery valued at Rs.18,000 in settlement of their claim.
[c] Creditors were Rs.90,000. They accepted Buildings valued Rs.1,20,000 and paid cash to the firm Rs.30,000.

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, supposing. That the firm has been dissolved.

What journal entries will be recorded for the following transactions on the dissolution of a firm:
[a] Payment of unrecorded liabilities of Rs.3,200.
[b] Stock worth Rs.7,500 is taken by a partner Rohit.
[c] Profit on Realisation amounting to Rs.18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5:7.

[d] An unrecorded asset realised Rs.5,500.

Give journal entries for the following transactions :
1. To record the realisation of various assets and liabilities,
2. A Firm has a Stock of Rs. 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%,
3. Remaining Stock was sold at a profit of 30% on cost,
4. Land and Buildging (book value Rs. 1,60,000) sold for Rs. 3,00,000 through a broker who charged 2%, commission on the deal,
5. Plant and Machinery (book value Rs. 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value,

6. Investment whose face value was Rs. 4,000 was realised at 50%

 How will you deal with the realisation expenses of the firm of Rashim and Bindiya in the following cases:
1. Realisation expenses amounts to Rs. 1,00,000,
2. Realisation expenses amounting to Rs. 30,000 are paid by Rashim, a partner.
3. Realisation expenses are to be borne by Rashim for which he will be paid Rs. 70,000 as remuneration for completing the dissolution process. The
actual expenses incurred by Rashim were Rs. 1,20,000.

The book value of assets (other than cash and bank) transferred to Realisation Account is Rs. 1,00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets
are handed over to a Creditor, in full settlement of his claim. You are required to record the journal entries for realisation of assets.

Record necessary journal entries to record the following unrecorded assets and liabilities in the books of Paras and Priya:
1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for Rs. 3,000,
2. Ashish, an old customer whose account for Rs. 1,000 was written-off as bad in the previous year, paid 60%, of the amount,
3. Paras agreed to takeover the firm’s goodwill (not recorded in the books of the firm), at a valuation of Rs. 30,000,
4. There was an old typewriter which had been written-off completely from the books. It was estimated to realize Rs. 400. It was taken away by Priya at an estimated price less 25%,
5. There were 100 shares of Rs. 10 each in Star Limited acquired at a cost of Rs. 2,000 which had been written-off completely from the books. These shares are valued @ Rs. 6 each and divided among the partners in their profit sharing ratio.

All partners wishes to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that the capitals must be paid before the payment of Yastin’s loan. You are required to settle the conflict giving reasons.

What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Reliasation account.
1. Arti took over the Stock worth Rs. 80,000 at Rs. 68,000.
2. There was unrecorded Bike of Rs. 40,000 which was taken over By Mr. Karim.
3. The firm paid Rs. 40,000 as compensation to employees.
4. Sundry creditors amounting to Rs. 36,000 were settled at a discount of 15%.
5. Loss on realisation Rs. 42,000 was to be distributed between Arti and Karim in the ratio of 3:4.

Rose and Lily shared profits in the ratio of 2:3. Their Balance Sheet on March 31, 2006 was as follows:

Rose and Lily decided to dissolve the firm on the above date. Assets (except bills receivables) realised Rs. 4,84,000. Bills receivable were taken over by Rose at X 30,000. Creditors agreed to take Rs 38,000. Cost of realisation was Rs 2400. There was a Motor Cycle in the firm which was brought out of the firm’s money, was not shown in the books of the firm. It was now sold for Rs 10,000. There was a continigent liability in respect of outstanding electric bill of Rs 5,000. Bill receivable taken over by Rose at Rs 33,000.
Show realisation account, partners’ capital account, loan account and cash account.

Shilpa, Meena and Nanda decided to dissolve their partnership on March 31,2006. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under:

The stock of value of Rs. 41,660 are taken over by Shilpa for Rs. 35,000 and she agreed to discharge bank loan. The remaining stock was sold at Rs. 14,000 and debtors amounting to Rs. 10,000 realised Rs. 8,000. land is sold for Rs. 1,10,000. The
remaining debtors realised 50% at their book value. Cost of realisation amounted to Rs. 1,200. There was a typewriter not recorded in the books worth Rs. 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account

 Surjit and Rahi were sharing profits (losses) in the ratio of 3:2, their Balance Sheet as on March 31, 2004 is as follows:

The firm was dissolved on March 31, 2006 on the following terms:
1. Surjit agreed to take the investments at Rs. 8,000 and to pay Mrs. Surojit’s loan.
2. Other assets were realised as follows:
Stock                             Rs.5,000
Debtors                        Rs. 18,500
Furniture                    Rs. 4,500
Plant                             Rs. 25,000
3. Expenses on realisation amounted to Rs. 1,600.
4. Creditors agreed to accept Rs. 37,000 as a final settlement. You are required to prepare Realisation account, Partner’s Capital account and Bank account

.Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2006 their balance sheet was as follows:

On the date of above mentioned date the firm was dissolved:
1. Rita was appointed to realise the assets. Rita was to receive 5% commission
on the rate of assets (except cash) and was to bear all expenses of realisation,
2. Assets were realised as follows:
                                    Rs.
Debtors                 30,000
Stock                      26,000
Plant                       42,750
3. Investments were realised at 85% of the book value,
4. Expenses of realisation amounted to Rs. 4,100,
5. Firm had to pay Rs. 7,200 for outstanding salary not provided for earlier,
6. Contingent liability in respect of bills discounted with the bank was also materialised and paid off Rs. 9,800, Prepare Realisation account, Capital Accounts of Partner’s and Cash Account.

Anup and Sumit are equal partners in a firm. They decided to dissolve the parntership on December 31, 2006. When the balance sheet is as under :

The Assets were realised as follows :
Rs.
Leasehold land             72,000
Furniture                        22,500
Stock                                 40,500
Plant                                48,000
Sundry Debtors 10,5000
The Creditors were paid Rs. 25,500 in full settlement. Expenses of realisation amount to Rs. 2,500. Prepare Realization Account, Bank Account, Partners Capital Accounts to close the books of the firm.

Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on December 31, 2006. Their balance sheet on the above date was:

Ashu is to take over the building at Rs. 95,000 and Machinery and Furniture is take over by Harish at value of Rs. 80,000. Ashu agreed to pay Creditor and Harish agreed to meet the Bank overdraft. Stock and Investments are taken by both partner in profit sharing ratio. Debtors realized for Rs. 46,000, expenses
of realisation amounted to Rs. 3,000. Prepare necessary ledger account.