CHAPTER 6

DISSOLUTION OF FIRM

DISSOLUTION OF PARTNERSHIP FIRM

1. On dissolution, Realisation Account is debited with

a) all recorded assets to be realised, except Loan to Partner.
(b) all outside liabilities of the firm.
(c) cash realised on sale of asset.
(d) Payment of Loan by Partner.
2. On dissolution of a firm, a liability taken over by a partner is credited to
(a) Realisation Account.
(b) Profit & Loss Account.
(c) Partner's Capital Account.
(d) Liabilities Account.
3. At the time of firm's dissolution, if no liability is payable towards Workmen
Compensation, then total amount of Workmen Compensation Reserve is transferred to
(a) Debit side of Realisation Account.
(b) Debit side of Partners' Capital Accounts.
(c) Credit side of Realisation Account.
(d) Credit side of Partners' Capital Accounts.
4. On the basis of following data, what will be the final payment to a partner on firm's
dissolution:
Debit balance of Capital Account ₹14,000. Share of his profit on realisation ₹ 43,000; Firm's
asset taken by him for ₹17,000.
(a) 31,000 (b) 29,000 (c) 7 12,000 (d) 60,000
5. In the Balance Sheet, Debtors exist at ₹ 50,000 and Provision for Doubtful Debts at
₹1,500. How much amount will be realised from Debtors, if bad debts are 10,000 and
remaining debtors are realised at a discount of 5%?
(a) 38,000 (b) 36,500 (c) 36,500 (d) 39,500
6.Investments of ₹ 2,00,000 were not shown in the books. One of the creditors took these
investment in settlement of his debt of 2,20,000. How much amount will be payable to that
creditor?
(a) 20,000 (b) 2,20,000 (c) 4,20,000 (d) Nil
7. Distinguish between Revaluation Account & Realisation Account based on:

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DISSOLUTION OF FIRM
a) meaning b) purpose
8. Balance Sheet of a firm disclosed as a footnote a contingent lability for ₹ 5,000 in respect
of a bill discounted. The bill was received from Z. Later on, it was learnt that Z has become
insolvent and a dividend of 60% was received from his estate. Give Journal entry to record
the above event when the firm was dissolved.
9. Susan, Geeta and Rashi were partners in a firm sharing profits and losses in the ratio of 2:
2: 1. At the time of dissolution, firm's total assets were of 2,00,000, external liabilities were
60,000. Realisation expenses amounted to 8,000. The assets realised 20% more than the book
value and external liabilities were paid 5% more. Determine the gain (profit) or loss on
realisation and the amount by which Geeta's Capital Account will be debited or credited.
10. Pass the necessary Journal entries for the following transactions on dissolution of the firm
of Vikas and Vivek after various assets (Other than cash) and outside liabilities were
transferred to Realisation Account:
1) Vikas paid creditors 17,000 in settlement of their claim of 20,000.
2) Vivek agreed to pay his wife's loan of 70,000.
3) Firm had unrecorded investments (Book Value 2,00,000), 70% of the investments were
sold at a loss of 20% and balance investments were taken by Vikas (partner) at 90%.
(4) Expenses of realisation of 7 4,900 were paid by the partner Vivek.
5) Loss on Dissolution of 7 9,000 was divided between Vikas and Vivek in the ratio of 3: 1.
11. Raina and Meena were partners in a firm sharing profits and losses equally. They
dissolved their firm 31st March, 2021:
On this date, the Balance Sheet of the firm, apart from realisable assets and outside liabilities
showed following balances:
Raina's Capital 40,000 (Cr.)
Meena's Capital 20,000 (Dr.)
Profit & Loss Account 10,000 (Dr.)
Raina's Loan to the Firm 15,000
General Reserve 7,000

On the date of dissolution of the firm:

(a) Raina's loan was repaid by the firm along with interest of 500.
(b) The dissolution expenses of 1,000 were paid by the firm on behalf of Raina who had to
bear these expenses
© An unrecorded asset of 2,000 was taken by Meena while Raina discharged an unrecorded
liability of 3,000.

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DISSOLUTION OF FIRM
d) The dissolution resulted in a loss of60,000 from the realisation of assets and settlement of
liability You are required to prepare: 1) Partners' Capital Accounts. 2) Raina's Loan
Account.

12.Sun and Kiran are partners sharing profits and losses equally. They decided to dissolve
their firm. Assets and Liabilities have been transferred to Realisation Account. Pass necessary
Journal entries for the following:

1. a) All partners are agreed that the process of realisation at the time dissolution will be
accomplished by Sun for which he will be paid ₹10,000 along with the amount of
expense which amounted to 2% of total value realised from the Assets on dissolution.
Some assets were sold for Cash at a cumulative Value of ₹12,00,000 and the
remaining were taken over by creditors at a valuation of ₹3,00,000.

2. b) Deferred Advertisement Expenditure A/c appeared in the books at ₹28,000.

3. c) Out of the Stock of ₹1,20,000; Kiran (a partner) took over 1/3 of the stock at a
discount of 25%

and 50% of remaining stock was took over by a Creditor of ₹30,000 in full settlement
of his

claim. Balance amount of stock realized at ₹25,000.

4. d) An outstanding bill for repairs and renewal of₹3,000 was settled through an
unrecorded asset

which was valued at ₹10,000. Balance being settled in Cash.

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