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

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

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Question 1

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Define dissolution of a partnership firm as per Section 39 of the Partnership Act 1932.

According to Section 39 of the Partnership Act 1932, the dissolution of partnership between all the partners of a firm is called the dissolution of the firm.
It brings an end to the existence of the firm and no new business is transacted after dissolution.
Only activities related to winding up are carried out — selling assets, paying liabilities, and settling claims of partners.

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Question 2

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Distinguish between dissolution of partnership and dissolution of a partnership firm on the basis of business continuity and closure of books.

In dissolution of partnership the business is not terminated and the firm continues its operations; in dissolution of the firm the business is closed completely.
Dissolution of partnership does not require closure of books because the business continues; dissolution of the firm requires all books of accounts to be closed.
Dissolution of the firm necessarily involves dissolution of partnership, but dissolution of partnership does not necessarily involve dissolution of the firm.

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Question 3

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State any three modes of dissolution of partnership (not dissolution of the firm).

Dissolution of partnership takes place on admission of a new partner, which changes the existing relationship among partners.
It also occurs on retirement of a partner, where the retiring partner's relationship with the firm ends but the firm continues.
Death or insolvency of a partner also dissolves the partnership, after which the surviving partners may reconstitute the firm.

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Question 4

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When is a firm compulsorily dissolved? State any two grounds.

A firm is compulsorily dissolved when all partners or all but one partner become insolvent, making them legally incompetent to enter into a contract.
It is also compulsorily dissolved when the business of the firm becomes illegal after its formation.
A third ground is when some event makes it unlawful for the partners to carry on business in partnership, such as a partner becoming an alien enemy due to declaration of war.

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Question 5

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What is meant by dissolution of a firm by notice? In which type of partnership is this applicable?

Dissolution by notice means that a firm is dissolved when any one partner gives a written notice to all other partners expressing his intention to dissolve the firm.
This mode of dissolution applies specifically to a partnership at will — a partnership that has no fixed duration or specific venture.
No consent of other partners is required; the written notice from one partner is sufficient to initiate the dissolution process.

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Question 6

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State any three grounds on which a court may order dissolution of a partnership firm.

A court may order dissolution when a partner becomes permanently insane or mentally incapable of performing his duties as a partner.
The court may also dissolve the firm if a partner is guilty of misconduct likely to adversely affect the business, or if a partner persistently breaches the partnership agreement.
Additional grounds include a partner transferring his entire interest to a third party, the business being unable to be carried on except at a loss, or any ground the court considers just and equitable.

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Question 7

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Explain the order of application of firm's assets at the time of dissolution as per Section 48 of the Partnership Act 1932.

The assets of the firm are first applied to pay the debts of the firm to third parties such as creditors, bank loans, and bills payable.
After paying third-party debts, the remaining balance is used to repay each partner proportionately for any advances (loans) made to the firm, distinguished from capital.
The amount left thereafter is applied to pay each partner's capital contribution, and any final surplus is distributed among partners in their profit-sharing ratio.

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Question 8

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How are losses treated at the time of dissolution of a firm as per Section 48?

Losses, including capital deficiencies, are first paid out of profits of the firm if any are available.
If profits are insufficient, the losses are met out of the capital contributions of the partners.
If both profits and capital are insufficient, the partners individually contribute the remaining amount in their profit-sharing ratio.

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Question 9

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What is a Realisation Account? State the purpose for which it is prepared.

A Realisation Account is a nominal account prepared when a firm is dissolved to record all transactions related to the disposal of assets and settlement of liabilities.
Its purpose is to ascertain the net profit or loss arising from the realisation of assets and the payment of external liabilities.
The resulting profit or loss on realisation is transferred to the partners' capital accounts in their profit-sharing ratio.

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Question 10

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Which assets are NOT transferred to the Realisation Account at the time of dissolution? Give reason.

Cash in hand and bank balance are not transferred to the Realisation Account because they are already in liquid form and are directly used for payments.
Fictitious assets such as preliminary expenses or deferred revenue expenditure are also not transferred to the Realisation Account.
Fictitious assets are directly transferred to partners' capital accounts in the profit-sharing ratio because they represent accumulated losses with no realisable value.

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Question 11

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State the accounting treatment for unrecorded assets at the time of dissolution of a firm.

When an unrecorded asset is sold for cash, the entry is: Bank A/c Dr. To Realisation A/c — crediting the full sale proceeds to the Realisation Account.
When an unrecorded asset is taken over by a partner, the entry is: Partner's Capital A/c Dr. To Realisation A/c — at the agreed value.
In both cases the Realisation Account is credited, which increases the profit on realisation (or reduces the loss), benefiting all partners in their profit-sharing ratio.

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Question 12

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State the accounting treatment for unrecorded liabilities at the time of dissolution.

When an unrecorded liability is paid in cash during dissolution, the entry is: Realisation A/c Dr. To Bank A/c — debiting the Realisation Account with the amount paid.
This debit increases the loss on realisation (or reduces the profit), which is ultimately borne by all partners in their profit-sharing ratio.
The treatment ensures that all liabilities — whether recorded in the books or not — are discharged before distributing the surplus to partners.

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Question 13

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Give the journal entry when a partner takes over an asset of the firm during dissolution.

The journal entry is: Partner's Capital A/c Dr. To Realisation A/c — at the agreed value at which the partner takes over the asset.
The partner's capital account is debited because the asset's value is being adjusted against the amount ultimately payable to the partner.
The Realisation Account is credited, reflecting the disposal of the asset, which contributes to computing the profit or loss on realisation.

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

Define dissolution of a partnership firm as per Section 39 of the Partnership Act 1932.

Distinguish between dissolution of partnership and dissolution of a partnership firm on the basis of business continuity and closure of books.

State any three modes of dissolution of partnership (not dissolution of the firm).

When is a firm compulsorily dissolved? State any two grounds.

What is meant by dissolution of a firm by notice? In which type of partnership is this applicable?

State any three grounds on which a court may order dissolution of a partnership firm.

Explain the order of application of firm's assets at the time of dissolution as per Section 48 of the Partnership Act 1932.

How are losses treated at the time of dissolution of a firm as per Section 48?

What is a Realisation Account? State the purpose for which it is prepared.

Which assets are NOT transferred to the Realisation Account at the time of dissolution? Give reason.

State the accounting treatment for unrecorded assets at the time of dissolution of a firm.

State the accounting treatment for unrecorded liabilities at the time of dissolution.

Give the journal entry when a partner takes over an asset of the firm during dissolution.

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