Dissolution Of Partnership - 2 - Free MCQ Practice Test with solutions,

A partnership deed typically includes the following key details:

• Name of the firm and the partners involved.
• Nature of the business and the duration of the partnership.
• Details on capital contribution, profit/loss sharing ratio, and other agreed terms.

Any asset taken by a partner will be shown in the credit side of realization account and in partner’s capital account.

Unrecorded liabilities are those liabilities that are not shown in the Balance Sheet but they still exist in the business. Although these liabilities are not shown in the books, they still need to the discharged off at the time of dissolution and hence are debited to the Realisation account. 

Any asset taken over by the creditor at the time of dissolution of partnership firm, will not be shown separately or no separate entry will be recorded for the same.

Money realized from the sale of an unrecorded asset at the time of dissolution of partnership firm, should be shown in the credit side of realization account and debit side of cash account.

At the time of dissolution of a partnership firm, all assets available in the business will be realized (sold) and all liabilities will be paid off.

Contingency Reserves is a free reserve which is not transferred to the Realisation account at the time of dissolution of a partnership firm. Other reserves or funds (given in the above question) will be transferred to the Realisation account.

• In case of dissolution or reconstitution (like in partnership accounts), if the realized value of an asset is not given, we assume that the asset has neither been sold nor disposed of.

• Therefore, it continues to be shown at its Book Value.

So, the right choice is Book Value.

All liabilities will be paid at the time of dissolution of a partnership firm. Whether some information is given or not about the payment of the same. In this case nothing is mentioned about the payment of creditors but it is mandatory to pay the full amount ?20,000 to the creditors.

Calculation of the amount payable to the creditors:
Total amount payable to the creditors ?30,000
Asset taken over by creditors at market price ?8,000.
Now amount due to the creditors is ?22,000 (30,000 – 8,000)
Final payment to creditors in cash = 22,000 – 2,200 (discount) = 19,800

At the time of dissolution, investment fluctuation reserve should be transferred to the credit side of revaluation account. It should not be distributed as free reserve.

Profit and Loss (Dr. balance) given in the balance sheet will be transferred to the debit side of partners capital account in their respective profit sharing ratio. It should not be transferred to the realization account.

Unrecorded asset (if any) given in the additional information, which is realized (sold) at the time of dissolution, should be shown in the credit side of Realisation Account because realized value of all the assets is recorded in the credit side of Realisation Account.

All external liabilities are transferred to the credit side of realization account at the time of dissolution and same will be paid off in the debit side of realization account.

At the time of dissolution all accumulated profits and losses should be transferred to the partners capital account in their profit sharing ratio.

If a partner is agreed to pay off any liability at the time of dissolution of a partnership firm, in such a case following entry should be recorded in the books: Journal Entry: Realisation A/c Dr.
To Partner’s Capital A/c

Amount received from debtors:
Total amount due ?17,000
Bad debts ?2,000
Final amount received = 17,000 – 2,000 = 15,000 – 10% = 13,500

When a partner agreed to pay any unrecorded liability, in such a case, realization account should be debited and concerned partner’s capital account should be credited. No effect on cash account.

Realisation Account is prepared only once in the life time of the firm i.e. at the time of dissolution. Revaluation account is prepared at the time of reconstitution of partnership firm i.e. change in existing profit sharing ratio, admission of a partner, retirement of a partner, death of a partner etc.

At the time of dissolution of a partnership firm, if any realized value of goodwill is given in the question, it shows that goodwill is sold with other assets of the firm.