Dissolution Of Partnership Firm - Class 12 Commerce Accountancy - Extra Questions

Distinguish between 'Dissolution of partnership' and 'Dissolution firm' on the basis of court's intervention.

There is no intervention by the court. Dissolution of partnership firm may be done with the consent of the court.


What Journal entry is passed when an asset is given to any of the firm's creditors towards partial  payment of dues?

Realisation A/C..............        Dr.            
             To Bank A/C                                                                       
(Being the asset given to creditor towards partial payment of dues)

Note: For partial payment of dues, the amount that will be shown in the realisation account will be the amount remaining after taking over the asset, i.e, (amount due-value of the asset).


Distinguish between 'Dissolution of partnership' and 'Dissolution of partnership firm' on the basis of settlement of assets and liabilities.

 Basis Dissolution of Partnership Dissolution of Firm
Termination of business  The business is not terminated The business of the firm is closed
 Closure of books Does not require because  business is  terminated The books of account are not closed.



What is meant by Dissolution? 

Dissolution is an act or process of terminating an organisation or legal agreement officially.


In case of dissolution of firm which liabilities are to be paid first?

The proceeds from the sale of assets along with the contribution of the partners at the time of dissolution of the firm are first used up to pay off the external liabilities, i.e., the creditors, bank loans, bank overdrafts, bills payable etc. 


Distinguish between 'Dissolution of Partnership' and 'Dissolution of Partnership Firm' on the basis of closure of books.

Dissolution of Partnership does not involve closure of books since only the relationship between the partners changes. The assets and liabilities are revalued since the business still continues to exist but in a changed form.
Whereas, Dissolution of Partnership Firm terminates the ongoing business of the firm. This involves selling off the assets and discharging off the liabilities and closing all the books of accounts.  


Explain dissolution of a firm by (i) Agreement and (ii) Notice

(i) Dissolution by Agreement:-
It means that the firm is dissolved due to a mutual agreement between the partners. A firm may be dissolved if all the partners agree on it or if there is a clause for the dissolution in the partnership agreement drafted by the partners.
(ii) Dissolution by Notice:-
A partnership at will can be dissolved when a partner gives notice, in writing, to all the other partners about his/her intentions about the dissolution of the firm.


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,They accepted Machinery valued at Rs. 18,000 in settlement of their claim.
(c) Creditors were Rs. 90,They accepted building valued at Rs. 1,20,000 and paid cash to the firm Rs. 30,000.

(a)  Realisation A/C.....           Dr.            40000
                 To Cash A/C                                     40000
(Being cash paid on partial settlement of creditors)
 
(b) No entry is passed since full settlement of creditors is made by taking over Machinery. 

(c)  Cash A/C......                   Dr.             30000
                 To Realisation A/C                          30000
(Being cash received on partial settlement of creditors) 


If a loan from a partner appears on the liabilities side of the Balance Sheet of the firm and the Capital Account of such partner shows a debit balance after all adjustment, how is loan dealt with?

If a partner from whom a loan has been taken by the firm shows a debit balance after all adjustments, his loan account will be transferred to the credit of his capital account to the extent of the debit balance of capital account and the balance shall be treated as liability and shall be paid as liability is paid.


Differentiate between 'Dissolution of Partnership' and 'Dissolution of Partnership Firm' on the basis of 'Continuity of Business'.

Dissolution of the partnership does not involve the termination of the continuity of the business. It only dissolves the current agreement between the partners and a new agreement is drafted. 
Whereas, Dissolution of the partnership firm is an official termination of the firm which means that the continuing operations of the firm have ceased to exist. 


A and B are partners in a firm sharing profits in the ration $$3:2$$. 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,State the order of payment of Mrs. A's loan and B's loan with reason, if there were no creditors of the firm. 

According to Section 48 of the Indian Partnership Act, 1932:-
The following order has to be followed for the discharge of liabilities: 
1. Payment to loans provided by third parties;
2. Payment to loans and advances provided by the partners;
3. Payment of capitals of partners;
4. The residue will be divided among the partners in the profit-sharing ratio. 

According to the above rules, Mrs. A, a third party, has to be paid off before B. 
Hence, the amount paid to Mrs. A= Rs. 20000
amount paid to B= Rs. 5000.


Given any one difference between reconstitution of a firm and dissolution of firm.

Reconstitution of a firm refers to the change in the composition of the firm. It merely means changing the number or status of the partners and not the rights and duties of the partners. 
Whereas, Dissolution of the firm means termination of the business of the firm. The rights and duties of the partners towards the firm cease to exist. 


Distinguish between 'Dissolution of Partnership' and 'Dissolution of Partnership Firm' on the basis of Court's intervention. 

The difference between the Dissolution of Partnership and Dissolution of Partnership Firm is as follows:

Basis of Difference

Dissolution of Partnership

Dissolution of Partnership Firm

Meaning

It means change in the partnership deed (or the agreement) among the partners.

It means that the business is wound up and the firm is dissolved.

Discontinuation of business

 

It does not affect the continuation of business.

 

It affects the business. Firm is closed in this case.

Assets and Liabilities

Assets and liabilities are revalued. New balance sheet is prepared.

Assets are sold and realized. Liabilities are paid off.

Intervention by court

There is no intervention by the court.

Court has inherent power to intervene. By its order, a firm can be dissolved.

Economic relationship

Economic relationship among partners may remain or change.

Economic relationship among partners comes to an end.

Closure of books of accounts

No need to close account boos, as the business continues to operate.

All books of account are closed.




Give any two objects of the partners share gain (profit) or loss on realisation of various assets and payment of various liabilities.

Following are the two objects of the partners share gain (profit) or loss on realisation of various assets and payment of various liabilities :
1. To know the actual amount payable to or received from any partner.
2. To avoid any disputes regarding distribution of cash available with the business.


$$X,Y$$ and $$Z$$ were partners sharing profits and losses in the ratio of $$2:2:1$$ respectively. Their Balance Sheet as on 31-03-2016 was as under. 
                                  Balance Sheet as on 31-3-2016
LiabilitiesRs.AssetsRs.
Creditors25,000Cash at Bank10,000
Bills Payable10,000Bills receivable 10,000
Reserves fund
20,000
Debtors        40,000
Less: PBD      2,000

38,000
Profit and loss A/c  3,000
Capitals:
X               50,000
Y               30,000
Z               20,000


1,00,000		Stock20,000
Machinery
20,000
Furniture
10,000
Building
50,000

1,58,000
1,58,000
$$Z$$ retired on 1-4-2016 from the business. The following adjustment are to be made:
a) Stock to be increased by $$20\%$$
b) Maintain P.B.D. at $$10\%$$ on debtors.
c) Depreciate machinery and furniture by $$10\%$$ each,
d) Building to be revalued at Rs. 60,000 
e) Goodwill of the firm is created Rs. 25,000 and written off immediately.

Prepare:
i) Revaluation A/c
ii) Partners capital A/c
iii) Balance Sheet as on 1-4-2016


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A and B dissolve their partnership. Their position as at 31st March, 2018 was:
ParticularsRs.
A's Capital25,000
B's Capital15,000
Sundry Creditors20,000
Cash in Hand and at Bank     750
The balance of A's Loan Account to the firm stood at Rs. 10,The realisation expenses amounted to Rs.Stock realised Rs. 20,000 and Debtors Rs. 25,B took a machine at the agreed valuation of Rs. 7,Other fixed assets realised Rs. 20,
You are required to close the books of the firm.

                                                                             Realisation Account
 Particulars Amount Particulars Amount
To Sundry Assets
(working notes)		 69250By Sundry Creditors 20000
To Bank A/c
Creditors- 20000
Expenses- 350		20350 By Bank A/c
Stock- 20000
Debtors- 25000
Other Assets- 20000		 65000
To Profit 
(transferred to partner's 
capital a/c)
A- 1450
B- 1450		 2900By B's Capital A/c  7500
 Total 92500 Total 92500
                                                                                  A's Loan Account
 Particulars Amount ParticularsAmount 
 To Bank A/c 10000By Balance b/d  10000
 Total10000  Total 10000
                                                              Partner's Capital Accounts
 Particulars AB  ParticularsA  B
 To Realisation A/c (machinery) 7500  By Balance b/d25000  15000
 To Bank A/c26450  8950 By Realisation A/c
(profits)		 1450 1450
 Total 2645016450  Total 2645016450 
                                                                        Bank Account
 Particulars Amount Particulars Amount
 To Balance b/d 750 By Realisation A/c20350 
 To Realisation A/c 65000 By A's Loan A/c  10000
   By A's Capital A/c 26450
   By B's Capital A/c 8950
 Total 65750 Total 65750
Working Notes: 1                                          Memorandum Balance Sheet
 Liabilities Amount AssetsAmount 
 Capital
A- 25000
B- 15000		 40000 Cash in Hand 
 and at Bank		 750
 Sundry Creditors 20000 Sundry Assets
(balancing figure)		 69250
 A's Loan 10000  
 Total 70000 Total 70000


Give the formula for calculation of new profit sharing ratio on retirement of a partner.

Gaining ratio = new ratio - existing ratio
For Example :-
Calculate the new profit sharing ratio of A and C. Gaining Ratio = New Ratio – Existing, Ratio Gain of A = 4/6 – 3/6 = 1/6 Gain of C = 2/6 – 1/6 = 1/6 1/6 : 1/6 1 : 1 i.e, equal. 
The retiring partner's share is taken up by one of the remaining partners.


A firm Manufacturing Spices adultrate spices and sell at low price to various restaurants, hotels and shops. What values are being violated?

A firm Manufacturing Spices adulterate spices and sell at low price to various restaurants, hotels and shops. The values being violated are :-

1. Harming the health of people who consume dishes made with those spices.The health of the people might be affected adversely by the intake of adulterated spices.An adulterant is a chemical substance which should not be contained within other substances (e.g. food, beverages, and fuels) for legal or other reasons. 

2. Violation of anti-adulteration law-The Government of India, therefore, enacted a Central Legislation called the Prevention of Food adulteration Act (PFA) in the year 1954 which came into effect from 15 June, 1955. The Act repealed all laws, existing at that time in States concerning food adulteration. In this Act unless the context otherwise requires -
“adulterant” means any material which is or could be employed for the purpose of adulteration;

“adulterated”—an article of food shall be deemed to be adulterated.

It has several criteria to be fulfilled for different food items including spices and those criteria have been violated.

3. Providing false information to buyer- The buyer is unaware about the nature, substance or quality of the product. The information on the packaging is not correct and this a punishable offence.


What is Realisation account ? 

Realization Account is prepared at the time of dissolution of a partnership firm.  This account is prepared to know the profit made or loss incurred at the time of dissolution of a firm.  All the assets except cash and bank a/c are transferred to the debit side of realization account and liabilities (not capital accounts) are transferred to the credit side of realization account.  When assets are sold cash/bank A/c is debited and Realization A/c credited.  On settling the liabilities Realization A/c is debited and Cash/Bank A/c is credited.   In last if total of credit side exceeds debit side, it means there is profit and that is transferred to partner's capital accounts.  In case of loss, the partners' capital accounts are debited and Realization A/c credited.



State any two differences between dissolution of partnership and dissolution of partnership firm.


Dissolution of PartnershipDissolution of Firm

Dissolution of a partnership – to the adjournment of the association between a partner and the rest of the partners of an enterpriseDissolution of firm – that entire enterprise discontinues to exist, which includes the association among all the partners

VoluntaryCompulsory or Voluntary


The partnership between A and B was dissolved on 31st March,On that date the respective credits to the capitals were A - Rs. 1,70,000 and B - Rs. 30,Rs. 20,000 were owed by B to the firm; $$ Rs. $$ 1,00,000 were owed by the firm to A and Rs. 2,00,000 were due to the Trade Creditors. Profits and losses were shared in the proportions of 2/3 to A, 1/3 to B.
The assets represented by the above stated net liabilities realised Rs. 4,50,000 exclusive of Rs. 20,000 owed by B. The liabilities were settled at book figures. Prepare Realisation Account, Partners' Capital Accounts and Cash Account showing the distribution to the partners.

                                           Realisation Account
 Particulars Amount Particulars Amount
 To Sundry Assets A/c
(Working Notes)		 480000 By Trade Creditors 200000
 To B's Loan  20000 By Cash A/c
(assets realised)		450000 
 To Cash A/c 
(creditors paid)		 200000 By B's Capital A/c
(B's Loan)		 20000
  By loss
(transferred to partner's
capital a/c
A- 20000
B- 10000		 30000
 Total700000  Total 700000
                                                          Capital A/c
 Particulars A B Particulars A B
 To Realisation  A/c
(loan)		  20000By Balance b/d 170000 30000 
 To Realisation A/c
(loss)		 20000 10000   
 To Cash A/c 150000    
 Total 170000 30000 Total 170000 30000
                                                   Cash Account
 Particulars Amount Particulars Amount
To Realization A/c
(Assets)		450000  By Realization A/c
(Creditors)		 200000
   By A's Capital A/c 150000
   By A's loan A/c  100000
 Total 450000 Total 450000
Working  Notes: 1                                       Memorandum Balance Sheet
 Liabilities  Amount Assets Amount
 Capital
A- 170000
B- 30000		 200000 B's Loan 20000
 A's Loan 100000 Sundry Assets
(balancing figure)		 480000
 Trade Creditors 200000  
 Total 500000 Total 500000


Distinguish between 'Dissolution of partnership ' and Dissolution of partnership Firm' on the basis of closure of books.

Given below is the different between dissolution of partnership and dissolution of a partnership firm on the basic of closure of books.
Basis of Difference Dissolution of Partnership Dissolution of Partnership Firm 
Closure of BooksBooks of accounts are not closed forever,as there is only change in the existing agreement between the partners.Books of account are closed ,as they business is discontinued.


Pass the Journal entries, for the following transactions on the dissolution of the firm of P and Q after various assets (other than cash) and outside liabilities have been transferred to Realisation Account
(a) Stock Rs. 2,00,'P' took over 50% of stock at a discount of 10%. Remaining stock was sold at a profit of 25% on cost.
(b) Debtors Rs. 2,25,Provision for Doubtful Debts Rs. 25,Rs. 20,000 of the book debts proved bad.
(c) Land and Building (Book value Rs. 12,50,000) sold for Rs. 15,00,000 through a broker who charged 2% commission.
(d) Machinery (Book value Rs. 6,00,000) was handed over to a creditor at a discount  of 10%
(e) Investment (Book value Rs. 60,000) ranted at 125%.
(f) Goodwill of Rs. 75,000 and prepaid fire insurance of 10,000.
(g) There was an old furniture in the firm which had been written off completely in the books. This was sold for Rs. 10,000.
(h) 'Z' an old customer whose account for Rs. 20,000 was written off as bad in the previous year, paid 60%.
(i) 'P' undertook to pay Mrs. P's loan of Rs. 50,000.
(j) Trade creditors Rs. 1,60,Half of the trade cretlitors accepted Plant and Machlnery at an agreed valuation of Rs. 54,000 and cash in full settlement of their claims after allowing a discount of Rs. 16,000.
Remaining trade creditors were paid 90% in final settlement

(a) P's Capital A/C.....                         Dr.              90000
     Bank A/C....                                   Dr.               125000
                 To Realisation A/C                                           215000
(Being stock taken over by P and rest sold off)

(b)(i) Bank A/C.....                               Dr.              205000
                To Realisation A/C                                             205000
(Being debtors realised)

(c) Bank A/C.....                                 Dr.               1470000
                 To Realisation A/C                                            1470000
(Being land and building sold after charging 2% commission on sale)

(d) No entry will be passed as no bank or cash is involved. 

(e) Bank A/C.....                                  Dr.               75000
                 To Realisation A/C                                          75000
(Being investments realised at 125%)

(f) No entry will be passed for goodwill as well as prepaid fire insurance as it has not realised any amount. 

(g) Bank A/C.....                                   Dr.              10000
                 To Realisation A/C                                          10000
(Being unrecorded asset realised)

(h) Bank A/C....                                  Dr.               12000
                To Realisation A/C                                          12000
(Being bad debt recovered @ 60%)

(i) Realisation A/C....                              Dr.             50000
                To P's Capital A/C                                             50000
(Being Mrs. P's loan discharged by Mr. P)

(j) (1) Realisation A/C....                         Dr.              10000
                 To Bank A/C                                                     10000
(Being creditors paid in cash after discount of Rs. 16000)
    (2) Realisation A/C.....                        Dr.              72000
                 To Bank A/C                                                      72000
(Being creditors paid 90%)


Pass neceisaly Journal. entries on the dissolution of a firm in the fondling cases:
(a) Dharam, a partner, was appointed to Iook after the process of dissolution at a remuneration of Rs. 12,000 and he had to bear the dissolution expenses. Dissolution expenses Rs. 11,000 were paid by Dharam.
(b) Jay, a partner, was appointed to look after the process of dissolution and was allowed a remuneration of Rs. 15,Jay agreed to bear dissolution expenses Rs. 16,000 were paid by Vijay another partner on behalf of Jay.
(c) Deepa, a partner, was to look after the process of dissolution and for this work she was allowed a remuneration of Rs. 7,deepa agreed to bear dissolution expenses. Actual dissolution expenses Rs. 6,000 were paid from the firm's bank account.
(d)  Dev, a partner, agreed to do the work of dissolution for Rs. 7,He took away stock of the same amount as his commission. The stock had already been transferred to realisation Account.
(e) Jeev, a partner, agreed to do the work of dissolution for which he was allowed a commission of Rs. 10,He agreed to dissolution expenses. Actual dissolution expenses paid by Jeev were Rs. 12,These expenses were paid by Jeev by drawing cash from the firm.
(f) A debtor of Rs. 8,000 already transferred to Realisation Account agreed to pay the realisation expenses of Rs. 7,800 in full Settlement of his account.

(a) Realisation A/C.....              Dr.                12000
              To Dharam's Capital A/C                         12000
(Being dissolution expenses borne by Dharam)

(b) (i) Realisation A/C.....          Dr.               15000
              To Jay's Capital A/C                               15000
(Being remuneration allowed to Jay)
     (ii) Jay's Capital A/C.....       Dr.              16000
              To Vijay's Capital A/C                            16000
(Being Vijay paid on behalf of Jay)

(c) (i) Realisation A/C.....            Dr.             7000
               To Deepa's capital A/C                                    7000
(Being remuneration allowed to Deepa)
     (ii) Deepa's Capital A/C....    Dr.            6000
                To Bank A/C                                        6000
(Being dissolution expenses paid by the firm on behalf of Deepa)

(d) (i) Realisation A/C.....            Dr.          7500
               To Dev's Capital A/C                         7500
(Being commission provided to Dev for dissolution)

(e) (i) Realisation A/C.....            Dr.           10000
                To Jeev's Capital A/C                         10000
(Being commission allowed to Jeev for dissolution)
     (ii) Jeev's Capital A/C.....      Dr.           12000
                 To Bank A/C                                      12000
(Being dissolution expenses paid by firm on behalf of Jeev)

(f) No Entry is to be passed since debtor pays in full settlement of his account. 


Rekha and Chetana sharing profits as $$3:1$$ and they agree upon dissolution. The balance sheet as on 31 March, 2018 is as under :
    Balance sheet of Rekha and Chetana as on $$31 \ March , \ 2018$$
Liabilities
Rs.AssetsRs.
Loan
Creditors
Capital :
   Rekha
   Chetana


$$22,000$$
$$13,600$$		$$2,400$$
$$3,600$$


$$35,600$$		Cash at Bank
Stock
Furniture
Debtors
Plant and Machinery		$$5,000$$
$$9,000$$
$$3,200$$
$$14,000$$
$$10,400$$
$$41,600$$$$41,600$$
Additional information :
a) Rekha took over plant and Machinery at an agreed value of $$Rs.12,000$$
b) Stock and furniture were sold for $$Rs.8,400$$ and $$Rs.2,780$$ respectively
c) Debtors were took over by Chetana at $$Rs.13,000$$
d) Liabilities were paid in full by the firm
e) Realisation expenses were $$Rs.320$$.
Prepare :
1) Realisation account
2) Partners capital accounts and 
3) Bank account.


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Raju and Ravi are partners sharing profits and losses in the ratio of $$3:2$$. Their Balance Sheet as on 31-3-2016 was as follows:
                                  Balance Sheet as on 31-3-2016
LiabilitiesRs.AssetsRs.
Creditors20,000Cash at hand  5,000
Bills Payable10,000Bills receivable 15,000
Bank loan A/c15,000Debtors20,000
Raju's loan A/c  5,000Motor car10,000
General Reserves 10,000Machinery30,000
Capitals:
Raju          50,000
Ravi          40,000

90,000		Furniture15,000
Buildings
50,000
Profit and loss A/c
  5,000

1,50,000
1,50,000
On the above date the firm was dissolved. The assets realised as follows:
a) Buildings Rs. 60,000, Machinery Rs. 28,000, Bills Recivable Rs. 14,Debtors Rs. 19,000 and unrecorded assets realised Rs. 20,000.
b) Motor car is taken over by Raju at book value.
c) Furniture is taken over by Ravi for Rs. 13,000.
d) Creditors and Bills payable were paid off at a discount of $$5\%$$ and Bank loan paid in full.
e) Dissolution expenses Rs. 2,000.

Prepare:
i) Realisation A/c
ii) Partners capital A/c
iii) Cash A/c


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Ashwin, Bhavin and Pravin carried on business. They share profits and losses in the ratio of $$5:3:2$$ respectively. Their Balance Sheet as on $$31^{st}$$ March, $$2016$$ was as under:
Balance Sheet as on $$31^{st}$$ March, $$2016$$
LiabilitiesAmount (Rs.)AssetsAmount(Rs.)
Sundry creditors$$42,000$$Plant and machinery$$40,000$$
Bhavin's loan$$10,000$$Investment$$16,000$$
Reserve fund$$40,000$$Stock$$60,000$$
Capital accounts:
Debtors $$36,000$$
Ashwin$$40,000$$Less: R.D.D. $$2,000$$$$34,000$$
Bhavin$$20,000$$Bank$$10,000$$
Pravin$$8,000$$
$$1,60,000$$$$1,60,000$$
Of the given data, the firm was dissolved, and the assets realised were as under:
$$(1)$$ Investment Rs. $$10,000$$, Stock Rs. $$48,000$$, and Debtors Rs. $$30,000$$
$$(2)$$ Plant and machinery were taken over by Ashwin at book value.
$$(3)$$ Sundry creditors and Bhavin's loan were paid in full.
$$(4)$$ Realisation expenses incurred Rs. $$2,000$$.
Prepare:
$$(1)$$ Realisation Account
$$(2)$$ Partner's Capital Account
$$(3)$$ Bank Account


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Class 12 Commerce Accountancy Extra Questions