Tag: procedure of settlement of accounts

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

Non-registration of firm does not effect :

  1. Right to sue for dissolution

  2. Right to sue any partner

  3. Right to claim for set-off

  4. All the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Registration of partnership is not compulsory under law. If partnership firm is not registered, it can not enforce its claims against a third party in the court of law. Partner of non - registered firm can not file a suit against other partner. But if there exist a just and equitable cause for dissolution, partners can file a suit for dissolution in court.

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

A and B were partners in a joint venture sharing profits and losses in the proportion of 4/5th and 1/5th respectively. A supplies goods to the value of  50,000 and incurs expenses amounting to 5,400. B supplies goods to the value of 14,000 and his expenses amount to 800, B sells goods at 87,400. B settles his account by bank draft. What will be the profit on venture?

  1. 17,200

  2. 17,000

  3. 18,000

  4. 18,200
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

                                       Joint Venture Account

 Particulars  Amount  Particulars  Amount
 To A's A/cGoods: 50000Expenses: 5400  55400  By B's A/c (sales)  87400
 To B's A/cGoods: 14000Expenses: 800  14800    
 To Profit A- 13760B- 3440  17200    
 Total  87400 Total   87400

                                                

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

It is uncommon to find for realization account :

  1. Prepared at the time of dissolution of firm.

  2. Contains generally all assets and liabilities.

  3. Records the sale of various assets and payment of liabilities.

  4. None of the above.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Dissolution of partnership firm means that the firm closes down its business and comes to an end. A realization account is opened. In this all the assets and liabilities are transferred. It records the sale of assets and payment of liabilities because the main object of this account is to calculate the profit or loss on sale of such assets and payment of liabilities.  

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

Dissolution of partnership means :

  1. Dissolution of firm

  2. Business of the firm is continued

  3. Partnership amongst all the partners comes to an end

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Dissolution of partnership is different from dissolution of partnership firm. In dissolution of partnership firm business comes to an end. But Dissolution of partnership means end of old partnership agreement and reconstruction of partnership due to admission, retirement and death of partner. In this business of the firm does not comes to an end. 

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

If a partner cannot clear his debts on dissolution, the other partners must clear these debts in the following manner:

  1. Debts are shared equally

  2. Debts should not be cleared by other partners

  3. Partnership profit/loss sharing ratio

  4. In the ratio of their last agreed capital balance
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If a partner can not clear his debts on dissolution, the amount not paid is a loss to the firm which under the Garner vs Murray rule is to be borne by the solvent partner. The loss is a capital loss which should be borne by the solvent partners in the ratio of the capital in the balance sheet on the date of dissolution.

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

Garner Vs Murray requires _________.

  1. that all partners should bring in cash equal to their respective shares of the loss on realization

  2. that all partners should bring in cash equal to their respective shares of the loss on realization and deficiency of insolvent partner should be borne by solvent partners in their profit sharing ratio

  3. that all partners including insolvent partner should bring in cash equal to their respective shares of the loss on realization and deficiency of insolvent partner should be borne by solvent partners in their last agreed capital ratio

  4. that the solvent partners capital loss should be borne in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Garner Vs Murray rule the loss on the account on the insolvency of a partner is a capital loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.

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

When balance sheet prepared after the new partnership assets and liabilities are recorded at :

  1. Original value

  2. Revalued figure

  3. At current cost

  4. As realizable value
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

New partnership means reconstruction of the firm due to admission, retirement and death. When partnership is reconstructed, new balance sheet at revalued figure is prepared. Because old balance sheet is related to old partners and profit or loss on revaluation is distributed among old partners. A new balance sheet with new figures is prepared for new partners. 

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

Where the continuing partners carry on the business of the firm, the dead partner whose claim is not settles, his executor -
X. is entitled to share of profits since date of cessation as partner.
Y. is not entitled to claim anything other than unsettled amount.
Z. is entitled to $6\%$ interest p.a on the unsettled amount.
Select the correct answer from the options given below.

  1. Y is correct.

  2. Only X is correct.

  3. Only Z is correct.

  4. Either X or Z at his option.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Indian Partnership Act, if a partner dies and the settlement is delayed, the executor is entitled to either the share of profits earned using their capital or interest at 6% per annum on the amount due, at their option.

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

In which of the following case Garner v Murray rule is NOT applicable? 
1. Only one partner is solvent.
2. All partners are insolvent.
3. When partnership deed provides a specific method to be followed in case of insolvency of a partner

Select the correct answer from the options given below-

  1. 1 only

  2. 1 & 2 only

  3. 3 only

  4. 1, 2 & 3
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to Garner vs. Murray rule, if the partner becomes insolvent, he is unable to pay back the amount due to him. The amount not paid is a capital loss which should be borne by the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. This rule is applicable when one partner is insolvent then other partner can bring the cash. But if only one partner is solvent or all partners are insolvent then there is no one to bring the cash. so this rule can not be applied. And if Partnership  deed provides a method to follow then that method will be followed only. 

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

The amount due to the retiring partner can be made by ________.

  1. lump sum payment method

  2. installment payment method

  3. annuity method

  4. both (A) or (B)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Business of a partnership firm may not come to an end due to the death of a partner. Other partners may shall continue to run the business of the firm. Readjustments takes place in case of death of a partner likewise the case of retirement of a partner. Whenever, a partner dies the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to b paid to discharge the claim of deceased partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation of profit and reserves are transferred to capital or current accounts of partners. Lastly, final amount due to the retiring partner is determined and discharged. 


There are two ways in which amount due to deceased partner is discharged:

1. Lump sum payment method - In this, if the firm has sufficient cash to pay off the amount due to the deceased partner, it pay the amount immediately, this is known as lump sum payment method.
2. Installment payment method - In this, if the firm  does not have sufficient cash to pay off the amount due to deceased partner, it pay the amount in installments, this is known as installment payment method.