Assertion & Reason Type Questions: Dissolution of a Partnership Firm

Q1: Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Realisation account is prepared in the dissolution of the firm.

Reason (R): Dissolution of partnership involves the partners selling the assets and settling the liabilities. Thus, various amounts are recovered or paid to partners.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion (A) is true, but Reason (R) is false .

(d) Assertion (A) is false, but Reason (R) is true.

Ans: a

Sol: In dissolution of the partnership firm, a realisation account is prepared as the liabilities are to be settled as against the assets of the firm and to find the surplus that the partners get or the deficit they need to bring in order for the process of dissolution.

Q2: Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Partner 's loan account is prepared before partners' capital accounts.

Reason (R): At the time of dissolution, capitals are paid off, only if any balance is left after payment of the partner 's loan.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion (A) is true, but Reason (R) is false .

(d) Assertion (A) is false, but Reason (R) is true.

Ans: a

Sol: Capital is the investment done by the partner's themselves and thus at the time of dissolution of the partner the firm pays off the capital to the partners only after the settlement of the other liabilities including the loan given by any partner in proportion to their capital.

Q3: Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Dissolution of partnership is different from the dissolution of the Partnership firm.

Reason (R): Dissolution of partnership doesn't dissolve the firm but the firm is dissolved in the partnership firm.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion (A) is true, but Reason (R) is false .

(d) Assertion (A) is false, but Reason (R) is true.

Ans: a

Sol: Dissolution of partnership means reconstitution of the firm due to change in the profit sharing ratio among existing partners, admission of a new partner, retirement of a partner, death of a partner, insolvency of a partner and the firm continues as before. However, the dissolution of partnership does not lead to the dissolution of the firm.

Q4: Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Rajiv and Vinod, who share the profit and losses in the ratio 2:3, are dissolving the firm. There is a general reserve in the balance of Rs.60,000 in the balance sheet. The accountant transferred Rs.24,000 in Rajiv's Capital and Rs.36,000 in Vinod's Capital Accounts.

Reason (R): The undistributed profits and losses and reserves are always transferred to partners' capital accounts in their profit sharing ratio and not to the realisation account.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion (A) is true, but Reason (R) is false .

(d) Assertion (A) is false, but Reason (R) is true.

Ans: a

Sol: These undistributed profits belong to old partners. Therefore, these undistributed profits are transferred to the old partners' account in their old profit sharing ratio before the admission of a new partner. After these adjustments, the general reserve or undistributed losses do not appear in the Balance Sheet.