Chapter dissolution-of-partnership-firm: Dissolution of Partnership Firm Application Questions | accountancy Class 12 CBSE

Chapter dissolution-of-partnership-firm: Dissolution of Partnership Firm Application Questions | accountancy Class 12 CBSE | ByteNotes.in

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 1

Applied Concept

Aarav and Bhavna are partners sharing profits in the ratio 3:2. On dissolution, their firm's sundry debtors stand at Rs. 50,000 with a provision for doubtful debts of Rs. 3,000. Actual collection is Rs. 44,000. Show the journal entries and explain the net impact on the Realisation Account.

Step 1 — Transfer: Realisation A/c Dr. 50,000; To Sundry Debtors A/c 50,000. Simultaneously: Provision for Doubtful Debts A/c Dr. 3,000; To Realisation A/c 3,000. Net debit in Realisation Account for debtors = Rs. 50,000 – Rs. 3,000 = Rs. 47,000.
Step 2 — Collection: Bank A/c Dr. 44,000; To Realisation A/c 44,000. The cash recovered is Rs. 44,000 against a net book value of Rs. 47,000, resulting in a net loss of Rs. 3,000 on debtors.
Impact: The Rs. 3,000 net loss on debtors forms part of the overall profit or loss on realisation and is shared by Aarav and Bhavna in 3:2 ratio (Rs. 1,800 and Rs. 1,200 respectively), reducing their final capital payouts.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 2

Applied Concept

At the time of dissolution of a firm, Creditors of Rs. 80,000 accept machinery worth Rs. 75,000 as part payment and receive the remaining Rs. 5,000 in cash. Record the necessary journal entries.

Machinery (Rs. 75,000) and Creditors (Rs. 80,000) have already been transferred to the Realisation Account via the standard opening entries — no separate entry is needed for the machinery portion accepted by creditors.
For the cash payment of the balance: Realisation A/c Dr. 5,000; To Bank A/c 5,000 — only this additional cash payment is recorded separately.
Net effect on Realisation Account: the machinery (Rs. 75,000 debit) is partially offset by the creditors credit (Rs. 80,000), and the Rs. 5,000 cash debit brings the net effect for this transaction to zero — there is neither profit nor loss from this settlement.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 3

Applied Concept

Sona, a partner, agreed to look after the dissolution process of her firm and was to receive Rs. 15,000 as remuneration. She also agreed to bear all dissolution expenses. Actual expenses were Rs. 12,000 which she paid herself. Record the journal entries.

For remuneration: Realisation A/c Dr. 15,000; To Sona's Capital A/c 15,000 — the agreed remuneration is debited to Realisation Account and credited to Sona's capital as it is a cost of dissolution.
For dissolution expenses paid by Sona personally: since Sona herself (not the firm) has paid the expenses and she agreed to bear them, no entry is required in the firm's books.
Net outcome: Sona's capital account is credited with Rs. 15,000 (remuneration) and her personal outlay of Rs. 12,000 is absorbed by her without any firm-level entry — she effectively nets a gain of Rs. 3,000 on this arrangement.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 4

Applied Concept

On dissolution of a firm of Pawan and Qureshi (sharing profits 3:2), General Reserve stands at Rs. 25,000 and there is a Profit and Loss (Dr.) balance of Rs. 10,000. Record the journal entries and state the net impact on partners' capital accounts.

Transfer General Reserve to partners' capital accounts: General Reserve A/c Dr. 25,000; To Pawan's Capital A/c 15,000; To Qureshi's Capital A/c 10,000 — in the profit-sharing ratio of 3:2.
Transfer accumulated loss (P&L Dr. balance): Pawan's Capital A/c Dr. 6,000; Qureshi's Capital A/c Dr. 4,000; To Profit and Loss A/c 10,000 — debited to capital accounts in 3:2 ratio.
Net impact: Pawan's capital increases by Rs. 15,000 and decreases by Rs. 6,000 — net gain Rs. 9,000; Qureshi's capital increases by Rs. 10,000 and decreases by Rs. 4,000 — net gain Rs. 6,000. Total net increase to capital accounts = Rs. 15,000 (net reserve distributed).

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 5

Applied Concept

Ritu and Sonal are partners. On dissolution, a partner's loan of Rs. 30,000 (Ritu as lender) appears on the liabilities side. Also, a loan given by the firm to Sonal of Rs. 12,000 appears on the assets side. Explain how these are treated.

Partner's loan on liabilities side (Ritu's loan): this is NOT transferred to the Realisation Account. It is repaid separately by debiting Ritu's Loan A/c and crediting Bank A/c: Ritu's Loan A/c Dr. 30,000; To Bank A/c 30,000 — paid after third-party creditors.
Loan given to a partner on assets side (Loan to Sonal): this is also NOT transferred to Realisation Account. The amount is collected from Sonal: Bank A/c Dr. 12,000; To Loan to Sonal A/c 12,000.
Key principle: partner's loans are not assets or liabilities of the business in the same sense as third-party claims — they are settled outside the Realisation Account in the prescribed order: third-party debts first, then partner loans, then capital.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 6

Applied Concept

During dissolution, a firm discovers an old typewriter, fully written off in the books, now valued at Rs. 4,000. One of the partners, Amit, takes it over at Rs. 3,500. Record the journal entry and explain the impact on profit/loss on realisation.

Since the typewriter was fully written off, it is an unrecorded asset. When Amit takes it over at Rs. 3,500, the entry is: Amit's Capital A/c Dr. 3,500; To Realisation A/c 3,500 — crediting the Realisation Account with the agreed value.
There is no debit to Realisation Account for this asset (as it was not in the books); the Rs. 3,500 credit is entirely new income for the Realisation Account.
This increases the profit on realisation (or reduces the loss) by Rs. 3,500, which is shared by all partners in their profit-sharing ratio — benefiting all partners, not just Amit.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 7

Applied Concept

A firm is being dissolved. Reena, a partner (PSR 2:3 with Meena), agrees to pay off Mrs. Reena's loan of Rs. 20,000 (shown as a liability in the firm's books). Record the journal entry and state the impact on Reena's capital account.

Mrs. Reena's loan is first transferred from the books to the credit of the Realisation Account along with other liabilities: Mrs. Reena's Loan A/c Dr. 20,000; To Realisation A/c 20,000.
Since Reena (not the firm) is paying off this liability, the entry is: Realisation A/c Dr. 20,000; To Reena's Capital A/c 20,000 — the Realisation Account is debited and Reena's capital is credited.
The net effect on the Realisation Account is zero for this transaction (credit on transfer, debit on Reena assuming liability). Reena's capital account is credited by Rs. 20,000, increasing the amount ultimately payable to her.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 8

Applied Concept

On dissolution, creditors of Rs. 1,00,000 accept an investment (book value Rs. 1,10,000) and pay the firm Rs. 10,000 cash for the excess. Record the journal entry and explain.

Both the investment (Rs. 1,10,000) and the creditors (Rs. 1,00,000) have been transferred to the Realisation Account via standard entries. Since the investment's value exceeds the creditor's claim, the creditor pays Rs. 10,000 to the firm.
Journal entry for cash received: Bank A/c Dr. 10,000; To Realisation A/c 10,000 — only the cash excess received is recorded.
This Rs. 10,000 credit increases the profit on realisation, benefiting all partners. The Rs. 1,10,000 investment on the debit side of Realisation Account is effectively offset by the Rs. 1,00,000 creditor credit plus the Rs. 10,000 bank receipt — a net loss of Rs. 0 on this specific transaction.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 9

Applied Concept

With reference to the rules of dissolution, explain what happens when a partnership firm's assets are insufficient to pay all firm debts and the partners must contribute from private assets.

When firm assets fall short of firm liabilities, the deficit must be contributed by the partners in their profit-sharing ratio as per Section 48 of the Partnership Act 1932 — this is the ultimate personal liability of partners.
However, as per Section 49, a partner can only contribute from his net private assets — defined as private assets minus private liabilities. The private property of a partner's wife and children is explicitly excluded.
In practice, if a partner's private net assets are also insufficient (i.e., he is personally insolvent), the remaining solvent partners must absorb the insolvent partner's share of the firm's deficit in the ratio of their last agreed capitals, per the Garner vs. Murray principle.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 10

Applied Concept

Nayana took over 50% of the firm's stock worth Rs. 35,000 at 10% less. The remaining stock was sold at a gain of 15%. Record journal entries and compute the net impact on Realisation Account from stock transactions.

Nayana takes over 50% of stock = Rs. 17,500 at 10% less = Rs. 15,750. Entry: Nayana's Capital A/c Dr. 15,750; To Realisation A/c 15,750.
Remaining stock = Rs. 17,500, sold at 15% gain = Rs. 17,500 × 1.15 = Rs. 20,125. Entry: Bank A/c Dr. 20,125; To Realisation A/c 20,125.
Total stock was already debited to Realisation Account at Rs. 35,000. Total credits from stock = Rs. 15,750 + Rs. 20,125 = Rs. 35,875. Net profit from stock transactions = Rs. 35,875 – Rs. 35,000 = Rs. 875.

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Chapter dissolution-of-partnership-firm: Dissolution of Partnership Firm | Application Questions

Aarav and Bhavna are partners sharing profits in the ratio 3:2. On dissolution, their firm's sundry debtors stand at Rs. 50,000 with a provision for doubtful debts of Rs. 3,000. Actual collection is Rs. 44,000. Show the journal entries and explain the net impact on the Realisation Account.

At the time of dissolution of a firm, Creditors of Rs. 80,000 accept machinery worth Rs. 75,000 as part payment and receive the remaining Rs. 5,000 in cash. Record the necessary journal entries.

Sona, a partner, agreed to look after the dissolution process of her firm and was to receive Rs. 15,000 as remuneration. She also agreed to bear all dissolution expenses. Actual expenses were Rs. 12,000 which she paid herself. Record the journal entries.

On dissolution of a firm of Pawan and Qureshi (sharing profits 3:2), General Reserve stands at Rs. 25,000 and there is a Profit and Loss (Dr.) balance of Rs. 10,000. Record the journal entries and state the net impact on partners' capital accounts.

Ritu and Sonal are partners. On dissolution, a partner's loan of Rs. 30,000 (Ritu as lender) appears on the liabilities side. Also, a loan given by the firm to Sonal of Rs. 12,000 appears on the assets side. Explain how these are treated.

During dissolution, a firm discovers an old typewriter, fully written off in the books, now valued at Rs. 4,000. One of the partners, Amit, takes it over at Rs. 3,500. Record the journal entry and explain the impact on profit/loss on realisation.

A firm is being dissolved. Reena, a partner (PSR 2:3 with Meena), agrees to pay off Mrs. Reena's loan of Rs. 20,000 (shown as a liability in the firm's books). Record the journal entry and state the impact on Reena's capital account.

On dissolution, creditors of Rs. 1,00,000 accept an investment (book value Rs. 1,10,000) and pay the firm Rs. 10,000 cash for the excess. Record the journal entry and explain.

With reference to the rules of dissolution, explain what happens when a partnership firm's assets are insufficient to pay all firm debts and the partners must contribute from private assets.

Nayana took over 50% of the firm's stock worth Rs. 35,000 at 10% less. The remaining stock was sold at a gain of 15%. Record journal entries and compute the net impact on Realisation Account from stock transactions.

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