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

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

Long Answer

Medium difficulty • Structured explanation

Medium

Question 1

Long Form

Explain the five modes of dissolution of a partnership firm, distinguishing between modes that require court intervention and those that do not.

Dissolution by Agreement occurs without court intervention, either with the consent of all partners or in accordance with a contract between them — the simplest and most amicable mode.
Compulsory Dissolution also requires no court order; it occurs automatically when all or all but one partners become insolvent, or when the business becomes illegal or unlawful.
Dissolution on the happening of certain contingencies includes expiry of a fixed term, completion of a specific venture, death of a partner, or adjudication of insolvency — these are event-driven and require no court intervention.
Dissolution by Notice applies only to partnership at will; any one partner may give written notice of intent to dissolve, and no court order is necessary.
Dissolution by Court is the only mode requiring judicial intervention; a court may order dissolution at the suit of a partner on grounds such as insanity, permanent incapacity, misconduct, persistent breach, transfer of interest, continuous losses, or just and equitable grounds.

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Long Answer

Medium difficulty • Structured explanation

Medium

Question 2

Long Form

Compare dissolution of partnership with dissolution of a partnership firm across five dimensions, and explain why dissolution of the firm necessarily involves dissolution of partnership but not vice versa.

On business continuity: dissolution of partnership does not close the business — the firm continues under a reconstituted agreement; dissolution of the firm closes the business permanently.
On settlement of assets and liabilities: under partnership dissolution, assets and liabilities are revalued and a new balance sheet is drawn; under firm dissolution, all assets are sold and all liabilities are paid off.
On court intervention: partnership dissolution occurs by mutual agreement without court involvement; firm dissolution can be ordered by a court at a partner's suit on specified grounds.
On economic relationship: under partnership dissolution the economic bond between partners continues in a changed form; under firm dissolution the economic relationship among all partners ends completely.
Dissolution of the firm necessarily involves dissolution of partnership because ending the firm ends all partner relationships; however, dissolving the partnership (e.g., by admitting a new partner) only alters relationships and allows the firm to continue, so it does not dissolve the firm.

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Long Answer

Medium difficulty • Structured explanation

Medium

Question 3

Long Form

Describe the rules governing the settlement of accounts on dissolution of a firm under Section 48 of the Partnership Act 1932, including treatment of losses and order of application of assets.

Treatment of losses: losses including capital deficiencies are met first out of profits of the firm; if profits are insufficient, they are met out of the partners' capital contributions; if both are insufficient, partners contribute individually in their profit-sharing ratio.
First application of assets: the realised assets (plus any partner contributions) are used first to pay the firm's debts to third parties such as creditors, banks, and bill holders; secured creditors have precedence over unsecured ones.
Second application: after paying third-party debts, the balance is used to repay each partner proportionately for advances (loans) they have made to the firm — these are treated differently from capital contributions.
Third application: the amount remaining after repaying partners' loans is used to repay partners' capital contributions proportionately.
Final application: any surplus remaining after settling all the above claims is distributed among the partners in their profit-sharing ratio as the final dividend on dissolution.

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Long Answer

Medium difficulty • Structured explanation

Medium

Question 4

Long Form

Explain how the Realisation Account is prepared at the time of dissolution of a firm, stating clearly what items appear on each side and how the balance is disposed of.

Debit side — assets transferred: all assets except cash, bank, and fictitious assets are debited to the Realisation Account at their book values, including sundry debtors at gross value.
Credit side — liabilities transferred: all external liabilities including creditors, bills payable, bank overdraft, provisions, and outstanding expenses are credited to the Realisation Account.
Debit side — cash payments: when liabilities are actually paid in cash (at settled amounts), Realisation A/c is further debited; similarly, realisation expenses paid by the firm are debited.
Credit side — asset proceeds: the actual cash received from selling assets is credited to the Realisation Account; assets taken by partners at agreed values are credited through their capital accounts.
Balance disposal: if the credit side exceeds the debit side, there is a profit on realisation which is transferred to partners' capital accounts in the profit-sharing ratio; if the debit side is greater, there is a loss, which is debited to partners' capital accounts in the profit-sharing ratio.

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Long Answer

Hard difficulty • Structured explanation

Hard

Question 5

Long Form

Analyse the various journal entries related to realisation expenses at the time of dissolution of a firm, covering all possible scenarios.

When the firm pays realisation expenses: Realisation A/c Dr. To Bank A/c — the expenses are a cost of dissolution borne collectively by all partners through the Realisation Account.
When a partner pays expenses on behalf of the firm: Realisation A/c Dr. To Partner's Capital A/c — the Realisation Account is debited and the partner is credited for reimbursement.
When a partner agrees to bear expenses and the firm pays: Partner's Capital A/c Dr. To Bank A/c — no entry in Realisation Account as the expense is personally borne by that partner.
When a partner agrees to bear expenses and pays them himself: no entry at all is required in the firm's books since neither firm's cash nor Realisation Account is affected.
Key note: in the absence of information about who is paying, it is assumed expenses are paid by the partner who agreed to bear them; when a partner receives remuneration for dissolution work, the entry is Realisation A/c Dr. To Partner's Capital A/c regardless of expense arrangements.

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Long Answer

Hard difficulty • Structured explanation

Hard

Question 6

Long Form

Explain the rules under Section 49 governing firm's debts and partner's private debts at the time of dissolution, and discuss their practical significance.

The firm's property is first applied to pay the firm's debts to third parties; only the surplus remaining after paying all firm debts is divided among the partners and can be used for their private liabilities.
A partner's private property is first used to pay his own private debts; only if a surplus remains after clearing all private debts can it be used toward the firm's outstanding liabilities.
The private property of a partner explicitly excludes the personal properties of his wife and children — they cannot be appropriated for either the partner's private debts or the firm's debts.
Practical significance: when firm assets are insufficient to pay firm debts, partners must contribute from their net private assets (private assets minus private liabilities), ensuring creditors are protected.
This separation prevents cross-contamination of firm and personal estates — firm creditors cannot directly claim a partner's private assets before his private creditors, and vice versa, maintaining an equitable order of priority.

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Long Answer

Hard difficulty • Structured explanation

Hard

Question 7

Long Form

Trace the complete sequence of journal entries passed to close the books of a firm at dissolution, from opening the Realisation Account to final settlement of partners' accounts.

Step 1 — Transfer assets: Realisation A/c Dr. To Assets A/cs (individually) at book value; and transfer liabilities: Liabilities A/cs Dr. To Realisation A/c; also transfer provisions like provision for doubtful debts to credit of Realisation A/c.
Step 2 — Transfer reserves and fictitious assets: General Reserve A/c Dr. To Partners' Capital A/cs (in PSR); Accumulated Losses/Fictitious Assets: Partners' Capital A/cs Dr. To Fictitious Asset A/c.
Step 3 — Record asset disposals and liability payments: Bank A/c Dr. To Realisation A/c (sale proceeds); Partner's Capital A/c Dr. To Realisation A/c (asset taken by partner); Realisation A/c Dr. To Bank A/c (liabilities paid); Realisation A/c Dr. To Partner's Capital A/c (liability assumed by partner).
Step 4 — Record expenses and remuneration: Realisation A/c Dr. To Bank A/c or To Partner's Capital A/c; unrecorded assets and liabilities are also settled via Realisation Account.
Step 5 — Close Realisation Account: profit — Realisation A/c Dr. To Partners' Capital A/cs; loss — Partners' Capital A/cs Dr. To Realisation A/c; repay partner's loan: Partner's Loan A/c Dr. To Bank A/c; final capital settlement: Partners' Capital A/cs Dr. To Bank A/c.

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Long Answer

Medium difficulty • Structured explanation

Medium

Question 8

Long Form

Differentiate between Realisation Account and Revaluation Account across multiple dimensions.

Purpose: Revaluation Account is prepared when the firm is reconstituted (e.g., admission, retirement) to record changes in the values of assets and liabilities; Realisation Account is prepared only when the firm is dissolved to record actual sale proceeds and payments.
Scope: Revaluation Account covers only changes in asset and liability values — it does not record actual cash transactions; Realisation Account records actual cash received from asset sales and cash paid to discharge liabilities.
Treatment of assets and liabilities: in Revaluation Account, assets and liabilities continue in the books at revalued figures; in Realisation Account, all assets and liabilities are closed out of the books permanently.
Balance disposal: profit/loss on Revaluation Account is transferred to old partners' capital accounts in the old profit-sharing ratio; profit/loss on Realisation Account is transferred to all partners' capital accounts in the existing profit-sharing ratio.
Closure of books: Revaluation Account does not lead to closure of books — the firm continues; Realisation Account is the final step before closing all accounts and winding up the firm permanently.

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Long Answer

Hard difficulty • Structured explanation

Hard

Question 9

Long Form

Analyse the accounting treatment when a creditor accepts an asset in settlement of his dues during dissolution, covering three possible scenarios.

Scenario 1 — Creditor accepts asset at exactly the amount owed: No journal entry is needed in the firm's books. Both the asset and the liability have already been transferred to the Realisation Account via standard entries and thus cancel each other out internally.
Scenario 2 — Creditor accepts asset for less than the amount owed (part payment): The asset has already been transferred to Realisation A/c. The firm pays the remaining balance in cash: Realisation A/c Dr. To Bank A/c — only for the cash portion paid.
Scenario 3 — Creditor accepts an asset whose value exceeds the amount owed: The creditor pays cash to the firm for the excess; entry: Bank A/c Dr. To Realisation A/c — for the excess cash received from the creditor.
In all three scenarios, the asset is already on the debit side and the liability on the credit side of the Realisation Account. Only the cash difference, if any, requires an additional entry.
Practical implication: these entries affect the profit or loss on realisation — no entry means no change; a cash payment increases the loss; a cash receipt from the creditor increases the profit shared by all partners.

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Long Answer

Hard difficulty • Structured explanation

Hard

Question 10

Long Form

Explain with journal entries the accounting treatment when a partner is given remuneration for dissolution work and also agrees to bear dissolution expenses, covering cases where the partner pays expenses and where the firm pays them.

Step 1 — Record remuneration: Realisation A/c Dr. To Partner's Capital A/c — for the agreed fixed remuneration; this is a cost of dissolution borne by all partners through the Realisation Account.
Step 2 — If partner pays expenses himself: no entry is required in the firm's books, since neither the firm's bank nor Realisation Account is involved; the partner's personal payment is considered settled within the remuneration.
Step 3 — If the firm pays the expenses but partner agreed to bear: Partner's Capital A/c Dr. To Bank A/c — for the actual expense amount paid by the firm; no debit to Realisation Account.
Step 4 — If partner agreed to bear expenses up to a limit but actual expenses exceed that limit, with excess paid by the partner himself: only the excess portion paid by the partner is credited to his capital via the Realisation Account.
Key principle: remuneration always passes through Realisation A/c increasing the dissolution cost for all; but expenses personally borne by the partner are set off only against his own capital, ensuring other partners do not benefit or suffer from his personal expense commitment.

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

Explain the five modes of dissolution of a partnership firm, distinguishing between modes that require court intervention and those that do not.

Compare dissolution of partnership with dissolution of a partnership firm across five dimensions, and explain why dissolution of the firm necessarily involves dissolution of partnership but not vice versa.

Describe the rules governing the settlement of accounts on dissolution of a firm under Section 48 of the Partnership Act 1932, including treatment of losses and order of application of assets.

Explain how the Realisation Account is prepared at the time of dissolution of a firm, stating clearly what items appear on each side and how the balance is disposed of.

Analyse the various journal entries related to realisation expenses at the time of dissolution of a firm, covering all possible scenarios.

Explain the rules under Section 49 governing firm's debts and partner's private debts at the time of dissolution, and discuss their practical significance.

Trace the complete sequence of journal entries passed to close the books of a firm at dissolution, from opening the Realisation Account to final settlement of partners' accounts.

Differentiate between Realisation Account and Revaluation Account across multiple dimensions.

Analyse the accounting treatment when a creditor accepts an asset in settlement of his dues during dissolution, covering three possible scenarios.

Explain with journal entries the accounting treatment when a partner is given remuneration for dissolution work and also agrees to bear dissolution expenses, covering cases where the partner pays expenses and where the firm pays them.

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