Chapter 6: Dissolution of Partnership Firm, Objectives,

01 Dec 2020 11:04 am

Chapter 6, Dissolution of Partnership Firm,

Balbharati, solutions, for, Book-keeping, and, Accountancy, 12th, Standard, HSC, Maharashtra, State, Board,

Select the most appropriate answer from the alternative given below and rewrite the sentence.

In case of dissolution, assets and liabilities are transferred to ___________ Account.

Bank Account

Partner’s Capital Account

Realisation Account

Partner’s Current Account

Dissolution expenses are credited to___________ Account.

Realisaton Account

Cash / Bank Account

Partner’s Capital Account

Partner’s Loan Account

Deficiency of insolvent partner will be suffered by solvent partners in their_____________ratio.

Capital ratio

Profit-sharing ratio

Sale ratio

Liquidity ratio

If an asset is taken over by partner from firm his capital account will be ___________

Credited

Debited

Added

Divided

If any unrecorded liability is paid on the dissolution of the firm _______. account is debited.

Cash / Bank Account

Realisation Account

Partners’ capital Account

Loan Accoun

Partnership is completely dissolved when the partners of the firm become _________

Solvent

Insolvent

Creditor

Debtors

Assets and liabilities are transferred to Realisation account at their ____________ values.

Market

Purchases

Sale

Book

If the number of partners in a firm falls below two, the firm stands____________

Dissolved

Established

Realisation

Restructured

Realisation account is _____________ on realisation of assets.

Debited

Credited

Deducted

Closed

All activities of partnership firm cease on _________ of firm.

Dissolution

Admission

Retirement

Death

Give the word/term/phrase which can substitute the following statement.

Debit balance of Realisation account.- Realisation Loss

Winding up of partnership business.- Dissolution of partnership

An account opened to find out the Profit or Loss on realisation of Assets and settlement of Liabilities.- Realisation A/c

Debit balance of an Insolvent Partner’s Capital Account.- Capital Deficiency

Credit balance of realisation Account.- Realisation Profit

Conversion of asset into cash on dissolution of firm – Realisation

Liability likely to arise in future on the happening of certain events – Contingent Liabilities.

Assets which are not recorded in the books of account – Unrecorded Assets

The account which shows realisation of assets and discharge of liabilities.-Realisation A/c

Expenses incurred on dissolution of firm.- Dissolution/realisation ExpensesExpenses

State whether the following statement is True or False with reason.

The firm must be dissolved on the retirement of a partner. False

Reason.On the retirement of a partner, if partnership agreement allows, then the remaining partner can continue the business activities. It means firm is not to dissolve.

On dissolution Cash/Bank Account is closed automatically. True.

Reason.As firm is dissolved, there is no question of any business activities to be carried out further and so Cash/Bank Account is also not necessary. Therefore on dissolution Cash/Bank Account is closed automatically.

On dissolution, Bank Overdraft is transferred to Realisation Account.- True

Reason. As a sundry liability of the business, bank overdraft is a liability of a firm and hence, it is transferred to realisation Account at the time of dissolution and paid as third party Liability.

A solvent partner having debit balance to his Capital Account does not share the deficiency of insolvent partner Capital Account. False.

Reason. In the partnership, the partner’s liability is unlimited so, a solvent partner having the debit balance to his Capital Account should share the deficiency of insolvent partner capital account.

At the time of the dissolution of partnership, all assets should be transferred to Realisation Account. False.

Reason. At the time of the dissolution of the partnership, a cash account and Bank A/c are not transferred to realization A/c. Similarly, if an asset is taken over by a partner or by any creditor then that asset is transferred to the concerned person’s account and not to the realization Account.

The debit balance of insolvent partner’s Capital Account is known as a capital deficiency.- True.

Reason. Debit balance of Partners’ Capital Account means an excess of drawings than the capital credit balance. In the case of an insolvent partner, the debit balance of Capital Account means liabilities which he cannot pay. It means capital deficiency.

At the time of dissolution, a loan from the partner will be transferred to Realisation Account.-False

Reason. At the time of dissolution, a loan from a partner will be paid after the payment of liabilities of third parties to the firm. It is not transferred to a realisation Account. Partner’s Loan A/c is separately opened and paid accordingly.

Dissolution takes place when the relation among the partner’s comes to an end.- True.

Reason. As per definition, Dissolution means to wind up or to close down, and it is possible only when relations among the partners in a partnership firm comes to an end.

The insolvency loss at the time of dissolution of the firm is shared by the solvent partners in their profit sharing ratio.-True.

Reason: In the partnership, partners’ liability is unlimited and in case of insolvency loss, legally solvent partners are ultimately liable and are suppose to bear the loss of an insolvent partner in their profit sharing ratio.

Realisation Loss is not transferred to the insolvent partner’s capital account.-False.

Reason. All partners of the firm are responsible for Loss on realisation and hence loss on realisation is supposed to be transferred to all Partners’ Capital Account, without any discrimination of solvent or insolvent.

Calculate the Following.

EXERCISE – 6 [PAGE 242]

Vinod, Vijay, and Vishal are partners in a firm, sharing profit & Losses in the ratio 3:2:1. Vishal becomes insolvent and his capital deficiency is ₹ 6,000. Distribute the capital deficiency among the solvent partners.

SOLUTION

Here, capital deficiency of ₹ 6000 is to be distributed among continuing partners in their profit and loss sharing ratio. i.e. 3:2

Share of deficiency for Vinod = 6,000 x3/5 = ₹ 3,600

Share of deficiency for Vijay = 6,000 ×2/5 = ₹ 2,400

Vinod and Vijay will bear ₹ 3,600 and ₹ 2,400 of Vishal’s capital deficiency.

Exercise – 6 | Q 2 | Page 242

Calculate the following :

Creditors ₹ 30,000, Bills Payable ₹ 20,000 and Bank Loan ₹ 10,000. Available Bank Balance ₹ 40,000 what will be the amount that creditors will get in case of all partner’s insolvency.

SOLUTION

Ratio of creditors, Bills payable and Bank Loan = 30,000 : 10,000 : 10,000 i.e., 3 : 2 : 1

Amount received by creditors = 3/(3+2+1)×40000

= 3/6×40000

= ₹ 20,000.

Exercise – 6 | Q 3 | Page 242

Calculate the following :

Insolvent Partner Capital A/c debit side total is ₹ 10,000 and the credit side total is ₹ 6,000. Calculate deficiency.

SOLUTION

Deficiency of insolvent partner

= Debit side total – Credit side total

= 10,000 – 6,000

= ₹ 4,000.

Exercise – 6 | Q 4 | Page 242

Calculate the following :

Insolvent partners capital A/c Debit side is ₹ 15,000 & insolvent partner brought cash ₹ 6,000. Calculate the amount of Insolvency Loss to be distributed among the solvent partners.

SOLUTION

₹ 9,000 (15,000 – 6,000) is the amount of insolvency loss to be distributed among the solvent partners.

Exercise – 6 | Q 5 | Page 242

Calculate the following :

Realisation profit of a firm is ₹ 6,000, partners share Profit & Loss in the ratio of 3: 2: 1. Calculate the amount of Realisation Profit to be credited to Partners Capital A/c.

SOLUTION

Distribution of ₹ 6,000 in 3: 2: 1 ratio

6000 × 3/6 = ₹ 3,000

6000 × 2/6 = ₹ 2000

6000 × 1/6 = ₹ 1000

Amount of realisation profit ₹ 3,000, ₹ 2,000 and ₹ 1,000 is to be credited to Partner’s Capital A/c respectively.

Answer in one sentence only.

What is the dissolution of partnership firms?

Dissolution of the partnership firm means complete closure of business activities and stoppage of partnership relations among all the partners.

When is the Realisation Account opened?

Realization Account was opened at the time of the dissolution of the partnership firm.

Which accounts are not transferred to a Realisationaccount?

Cash/Bank balance, reserve funds, Profit and Loss A/c balance, Partners’ Loan accounts, etc. are not transferred to realisation Account.

Who is called an Insolvent person?

Whose capital A/c shows debit balance and who is not in a position to meet his capital deficiency even from his private property is called an insolvent person.

What is a capital deficiency?

The debit balance of an insolvent partner’s Capital Account which an insolvent partner cannot pay is called a capital deficiency.

In what proportion is the balance on Realisation Account transferred to Partners’ Capital / Current Accounts?

The balance on realisation Account is transferred to Partners’ Capital / Current Accounts in their profit sharing ratio.

Who should bear the capital deficiency of an insolvent partner?

The capital deficiency of insolvent partners should be borne by the solvent partners.

Which account is debited on repayment of Partner’s Loan?

Partner’s Loan Account is debited on repayment of partner’s loan.

Which account is debited on payment of dissolution expenses?

Realisation Account is debited on payment of dissolution expenses.