Tag: dissolution of firm

Questions Related to dissolution of firm

A partner gave a loan of Rs.20,000 to the firm. At the time of dissolution of the firm the net losses of the firm were 30,000. How much money will the partner get on dissolution?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Nil

  2. 20,000

  3. 20,000 + 6% interest

  4. None of the above

Show answer
Correct Option: A
Explanation:

In case of loss, two situations arise:
1. If partner's capital has a credit balance then his loan amount will be repaid. Following entry will be passed: 
Partner's loan A/c Dr.
   To Bank/Cash A/c
2. If a partner's capital has debit balance then loan amount will not be paid. loan amount is transferred to capital account of partner. Following entry will be passed:
Partner's loan A/c Dr. 
   To Partner's Capital A/c

X, Y, Z are partners sharing profits and losses equally. They took a joint life policy of Rs 5,00,000 with a surrender value of Rs 3,00,000. The firm treats the insurance premium as an expense. Y retired and X and Z decided to share profits and losses in 2:1. The amount of Joint life policy will be transferred as:

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Credited to X, Y and Z's Capital accounts with Rs 1,00,000 each.

  2. Credited to X, Y and Z's capital accounts with Rs 166,667 each

  3. Credited to X, and Z capital accounts with Rs 2,50,000 each

  4. Credited to Ys capital account with Rs 3,00,000 each

Show answer
Correct Option: A

Claim of the retiring partner is payable in the following form.

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Fully in cash.

  2. Fully transferred to loan account to be paid later with some interest on it.

  3. Partly in cash and partly as loan repayable later with agreed interest.

  4. Any of the above method.

Show answer
Correct Option: D
Explanation:

When a partner retires from a firm, other partners continue to run the business of the firm. Readjustments takes place in case of retirement of a partner. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange the amount to be paid to discharge the claims of the retiring partners. 

Amount due to retiring partners may be discharged in the following form:
1. Fully in cash. 
2. Fully transferred to loan accpunt to be paid later with some interest on it.
3. Partly in cash and partly as a loan repayble later with agreed interest.

A, B, & C were partners sharing profits and losses in the ratio of 3:2:1 A Retired and firm received the joint life policy as 7,500 appearing in the balance sheet at 10,000 JLP is credited and cash debited 7,500 what will be the treatment for the balance in Joint Life Policy?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Credited to partner's current account in profit sharing ratio.

  2. Debited to revaluation account.

  3. Debited to partner's capital account in profit sharing ratio.

  4. Either (B) or (C)

Show answer
Correct Option: D

A, B & C takes a joint life policy, after 5 years B retire from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decided to share profits equally. They had taken a joint life policy of 2,50,000 with the surrender value 50,000 What will be the treatment in the partner's capital account on receiving the JLP amount if joint life policy is maintained at the surrender value along with the reserve?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. 50,000 credited to all the partners in old ratio.

  2. 2,50,000 credited to all the partners in old ratio

  3. 2,00,000 credited to all the partners in old ratio.

  4. Distribute JLP Reserve A/c in old profit sharing ratio.

Show answer
Correct Option: D

Where it is agreed that a partner will be paid a lump sum amount for dissolution of the payment is made by the firm, the payment is debited to ____________ .

business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

  1. Realisation Account

  2. Concerned Partner's Capital Account

  3. All Partners' Capital Accounts

  4. None of these

Show answer
Correct Option: A
Explanation:

The lump sum amount paid by the partner is an expense for the firm since it has to be returned to the partner later on. All expenses need to be debited to the realisation account at the time of dissolution, hence, the payment is debited to the Realisation account at the time of dissolution of the firm.

At the time of dissolution of the firm; if goodwill appears in the Balance Sheet, it is transferred to ______________ .

business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

  1. Realisation Account.

  2. Partners' Capital Accounts

  3. Revaluation Account

  4. None of these

Show answer
Correct Option: A
Explanation:

Treatment of goodwill is very easy in case of dissolution of a firm. In case, if goodwill is already appearing in the balance sheet, it is treated like any other asset, and is transferred to the realisation account at the value given in balance sheet. Following entry is passed for it.

         Realisation A/c       Dr.
                  To Goodwill A/c

At the time of dissolution of the firm, loan from partner is _________ .

business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

  1. Transferred to Realisation Account

  2. Not transferred to Realisation Account

  3. Transferred to the Partner's Capital Account

  4. None of these

Show answer
Correct Option: B
Explanation:

not transferred to Realisation Account.

Realisation account is opened on the dissolution of a firm. It is prepared by -
1. Transferring all assets except cash or bank account to the debit side of the account.
2. Transferring all liabilities except partner's loan account and partner's capital account to the credit side of the account.
3. Amount realised on sale of assets is credited to the account.
4. Liabilities paid are debited to the account.
5. Expenses incurred on the firm on dissolution are debited.

Unrecorded liabilities when paid are debited to _________ .

business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

  1. Realistaion Accounts

  2. Partner's Capital Accounts

  3. None of the above

  4. Only option (A)

Show answer
Correct Option: A
Explanation:

Unrecorded liabilities are those liabilities that are not shown in the Balance Sheet but they still exist in the business. Although these liabilities are not shown in the books, they still need to the discharged off at the time of dissolution and hence are debited to the Realisation account. 

Unrecorded asset when realised is credited to  ____________ .

business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

  1. Realisation Account

  2. partners' Capital Accounts

  3. None of the above

  4. Only option (A)

Show answer
Correct Option: A
Explanation:

Unrecorded assets are those assets that have been completely written off but are still physically present in the business. There is no requirement to show these assets in the books before they are sold off. Hence, these assets are directly credited to the Realisation account at the time of dissolution of the firm.