nd rew rit e th

be low a e
the alt ern ati ve s given
answer from
(A) Select most appropriate
sentences. firm bec om e - - - -
rsh ip is com ple tely dis sol ved wh en the par tne rs of the
1. Partne
b. Ins olv ent
a. Solvent d. De bto rs
C. Cre dito r
firm stands __ __ . {T)
num ber of par tne rs in a firm falls bel ow two , the
2. If the Established
b.
a. Dissolved
d. Re stru ctu red
c. Realisation
firm . {T)
firm ceases on __ __ of
3. All.activities of par tne rsh ip Admis n sio
b.
a. Dissolution
d. Death
c. Re tire me nt
ed to __ __ Ac cou nt.
{T)
e of dis sol utio n, ass ets and liabilities are tra nsf err nt
4. In cas Pa rtn er's Capital Ac cou
b.
Bank Acc oun t
a.
d. Pa rtn er's Cu rre nt Ac cou nt
c. Realisation Acc oun t
t at the ir _ _ __
and liab iliti es are tra nsf err ed to Realisation acc oun
5. Assets
b. Purchase
a. Ma rke t Book
d.
C. Sale
dite d to Ac cou nt. {T)
6. Dissolution expenses are cre b. Ca sh/ Bank Ac cou nt
Realisation Acc oun t
a. d. Pa rtn er's Loan Ac cou nt
C. Partner's Capital Acc oun t
tne rs in the ir _ _ __
y,o f ins olv ent par tne r wil l be suf fer ed by sol ven t par
7. Deficienc
ratio. {T) Pro fit sha ring rat io
b.
a. Capital rat io
d. Liq uid ity rat io
C. Sale rat io
t will be - - - - (T)
et is tak en ove r by par tne r fro m firm, his capital acc oun
8. If any ass De bite d
b.
a. Credited
d. Div ide d
c. Ad ded
the firm acc oun t
any unr eco rde d liab ility is paid on dis sol utio n of , - - -
9. If
deb ited . (T)
b. Realisation Ac cou nt
a. Ca sh/ Bank Ac cou nt
d. Loan Ac cou nt
C. Pa rtn er's capital Ac cou nt
et. (T)
__ on rea lisa tion of ass
10. Realisation acc oun t is __ Cre dite d
b.
a. De bite d
d. Closed
c. De duc ted
dis sol utio n of firm .
to Realisation Ac cou nt on
11. __ __ i~ no t tra nsf err ed Ma chi ne ry
b.
a. Fu rni tur e
d. Stock
C. Cash

- - - - - - - - - - - - - -= :: :: ::
r- - - -- - - -
 . .,,"fl:11 . 1" - ,r?f
•. ,>-~

·s~d, ,XII:.
.,= .;.;._-•_ ·_ ,' -----~
B~~~ -K:~~pmg,a
' • . " . • •
.
• • .

12. _ _ _ is not transferred to Realisation Account on dissolution of firm.

a. Sundry creditors b. General reserve
C. Bills payable d. Outstanding expenses

13. If commission is given to any partner for realising assets, _ _ _ account is

credited.
a. Partners' Capital b. Realisation
C. Commission d. Deficiency

(B) · Write the Word/ Term / Phrase which can substitute each of the following statements.
1. Winding up of partnership business. (T)

2. Relationship between partners.

3. Nature of dissoluti;n in which all partners are solvent and they decide to dissolve the
firm .

4. The Accounts which show realisation of Assets and discharge of Liabilit ies. (T)

5. Stage in which all the assets are disposed and liabilities paid off.

6. Assets which are not recorded in the books of account. (T)

7. Conversion of asset into cash on dissolution of firm. (T)

8. Debit balance of Realisation account. (T)

9. Credit balance of Realisation Account. (T)

10. . An account opened to find out the Profit or Loss on realisation of Assets and
settlement of Liabilities. (T)

11. Expenses incurred on dissolution of firm . (T)

12. Liability likely to arise in future on happening of certain event. (T)

13. Debit balance of an Insolvent Partner's Capital Account. (T)

(CJ State whether the following statements are True or False with reasons.
1. Dissolution takes place when the relation among the partners comes to an end. (T)
Ans: True
Reason: Dissolution means winding up or to close down. Thus, when relatiqns among the partners co m e t o
an end, it is known as dissolution.
2. The firm must be dissolved on the retirement of a partner. (T)
Ans: False
Reason: A business can continue even in case of retirement of a partner if the rest of the partners agree.
Retirement of a partner results into dissolution of partnership only and not dissolution of fi rm.
3. Dissolution of partnership and dissolution of firm is one and the same thing.
Ans: False
Reason: When business relations among partners come to an end, it is. called as dissolution of part h'
. . h t . ners 1p
d d b
However, if the business relations come to an en an . usiness 1s s u , 1t 1s called as d isso lution of firm . ·

4. Dissolution is the process of converting cash into assets.

Ans: False .
Reason: Realisation is the process of converting assets into cash.

----------·- --------
 -. ,,.._ lf;1 11·,~ ~~
i l'Mri~< ,r ., I, H ~e; :'t

-
5. '-'-"'-~=c.!.-~ Cha~!t~-~::~ !~~lutlo
~
L-
• · >fa ,

On dissolution Cash / k
Ans: True , 8 an Account is closed automatically
. (T)
Reason: All the assets and
Thus, cash / bank account .liab1'l'r
1 .
,eds are pai~ off and the balance amount .
is paid to/ received from partners
is c1ose automatically.
6.
At th e time of dissolution of ·
Ans: False •
partnership
firm, all assets should be transferred ·
to Realisation account. (T)
Reason: Cash / bank debit balance
Realisation Account Th f ··
II , 1ct1t1ous asse debit balance of rese
· us, a assets are not transferts, rves
red to Realisation Account. etc are not transferred to
7. ·
On dissolution, Bank Overdraft is
Ans: False transferred to Realisation Account
(T) I

· I
Reason: Cash / Bank Accou t
for r d' II h n not trans ferred to realisat
. . \
ecor mg a t e cash / banskare
related transactions. ion account. Aseparate account is to be
opened
8
· At the time of dissolution, Loan from
Ans: False partner will be transferred to Realisa
tion account. (T)
Reason:
A separate account has to be opeRed
for loan from partner. The repayment I
of loan is als~ to be recorded in
9.
tha t account only. Hence, it is not tran

A separate goodwill account is ope

sferred to Realisation Account. i\
ned for realising goodwill on dissolu i
Ans: False tion.
·
Reason: Goodwill is transferred to
Realisation Account and no separate acc
ount is to be opened.
10. Realisation Loss is not transfe
rred to insolvent partner's capital
Ans: False account. (T)
Reason: Realisation loss is to be bor
ne by all the partners in their profit sha
to solvent as well as insolvent partne ring ratios. Thus, it is transferred
rs' capital account.
11. Debit balance of insolvent partne
r's
capital account is known as capital
Ans: True deficiency. (T)
Reason: Capital deficiency means
tha t one or more partner has a deb it balance in his capital account at the
point of final cash distribution.
12. A solvent ·partner having debit
balance in his capital account doe
partners' capital account. (T) s not share the deficiency of inso
lvent
Ans: False
Reason: Deficiency of insolvent
partners is to be shared by all the
solvent partners in their profit sharing
ratio.

13. The insolvency loss at the time

of dissolution of the firm is shared
by the solvent partners in their pro
sharing ratio. (T) fit
Ans: True
Reason: In case of insolvency of
partners, the solvent partners have
deficiency or insolvency loss is thus to make up for the deficiency. This
bor ne by the m in their profit sharing rati
os.
(D) find the odd one.
1. cash balance, Partners' loan, For
mation expenses, Furniture
Ans: Fur nitu re_ All others are not transferred to Realisation Account on dissolu
tion.
sundry creditors, Bills Payable,
2. Outstanding Expenses, General Res
Gen eral reserve - All oth ers are transfe e~e .
Ans: rred to Realisation Account on d1ssolut
1on .
•Contingency reserve, Joint life pol
3 icy reserve, Investment fluctuation
Ans: General reserve - All others are ~und, ~eneral reserve
transferred to Realisation Account on
d1ssolut1on . __ _
 (E) Complete the sentences.
1. _ _ _ _ means to windup or to close down.

2. _ _ _ _ _ is the pro"cess of converting assets into ,cash.

3. Partners current account is opened when _ _ _ _ method is given.

4. If nothing is mentioned about payment of any liability, then it is assumed to be paid

at
---
5. _ _ _ _ _ means a partner whose liabilities are more than his assets and he is
unable to cover the shortfall of his liabilities.

(F) Answer in one sentence only.

1. What is dissolution of partnership firm? (T)
.
Ans: When one or more partner/ partne_rs take decision to close the partnership firm, it is known as
Dissolution
of Partnership Firm.

2. When is Realisation Account opened? (T)

Ans: Realisation account is opened on dissolution of firm .
3. Which accounts are not transferred to Realisation Account? (T)
Ans: On asset side, Cash / Bank debit bal1rnce, fictitious assets like formation expenses, Profit and Loss
A/c debit .
balance, Advertising Suspense A/c etc. are not transferred to Realisation Account. Similarly on
liabilities side,
partners' capital account, partners' ·loan account, any undistributed profit etc. are not transferre
d to
Realisation Account.

4. Which account is debited if any asset is taken over by a partner?

Ans: Partners' Capital/ Current Account is to 'be debited if any asset is taken over by a partner.
5. Which account is debited on payment of dissolution expenses? (T)
Ans: Realisation account is debited on payment of dissolution expenses .
6. Which account is debited on repayment of Partner's Loan? (T)
Ans: Partners' Loan Account is debited on repayment of Partners' Loan.
7. In what proportion is the balance on Realisation A/c transferred to Partners' Capital/ Current Account?
(T)
Ans: The balance of Realisation Account is transferred to Partners' Capital/ Current Account in profit sharing
ratio.
8. Who is called Insolvent person? (T)
Ans: Insolvent person is a person whose liabilities exceed assets. It is a situation where an individua
l is unable to
raise enough cash to meet its obligations, or to pay debts as they become due for payment.

9. What is capital deficiency? (T)

Ans: Capital deficienc y is a situation where one or more partner has a debit balance in his/ her capital
account at
the point of final cash distributio n.

10. Who should bear the capital deficiency of insolvent partner? (T)
Ans: In case a partner becomes insolvent and is unable to pay the dues to firm, the deficienc y is borne
by solvent
partners in their profit sharing ratio.

11. In case of Insolvency of all the partners, the liabilities are transferred to which account?
Ans: In case of insolvency of all the partners, the liabilities are not transferre d to realisatio n account A s
. • epa rate
account for each liability is opened and respective balances are brought down.

12. · In which account are ·the final balances of capital accounts _transferred in case of insolven
cy of all the
partners?
Ans: In case of insolvency of all the partners, the final balances of capital accounts are transferr
ed t D t· .
Account. o e 1c1ency

---··-·- - ···------- ·--··--·- -

·---
 I

(G) Calculate the following. I

I
1. ~inod, Vijay and Vishal are partners In a firm, sharing profit & losses in the ratio 3:2:1. Vishal becomes '
insolvent and his capital deficiency Is t 6,000. Distribute the capital deficiency among the solvent
partners. (T)
Ans: Capital deficiency of Vishal - ~ 6,000
Profit Sharing Ratio of Vi nod and Vijay - 3 : 2

5 == ~ 3, 600
Capital deficiency borne by Vinod == 6,000 x ~

. I 5 == ~ 2 400
Capital deficiency borne by ViJ'ay == 6 000 ~ ~ I

What
2. Creditors t 30,000, Bills Payable t 20,000 and Bank Loan t 10,000. Available Bank Balance f 40,000.
will be the amount that creditors will get in case of all partners insolvency? (T)
Ans: Available bank balance==~ 40,000
Creditors == ~ 30,000
Bills payable == ~ 20,000
Bank loan = ~ 10,000

Total liability = , 60,000

3
Amount that creditors will get = o,ooo x 40 000 = , 20 000
60,000 I I

I
3. Insolvent Partners Capital A/c debit side total Is f 10,000 & Credit side total is f 6,000.- Calculate !
deficiency. (T)
Ans: Insolvent partners' Capital Account Debit side total =,
10,000
\
i
Insolvent partners' Capital Account Credit side total ==, 6,000 Ii
Deficienc y= f 10,000 - f 6,000 = f 4,000
i
Insolvent partners capital A/c Debit side is, 15,000 & insolvent partner brought cash t 6,000. Calculate
I
4. I
the amount of Insolvency Loss to be distributed among the solvent partners. (T)
Ans: Insolvent p·artners' capital Account Debit side = , 15,000
I
Insolvent partner brought cash =,
6,000
Insolvency loss= f 15,000 - t 6,000 9,000=, \\
I
the
5. Realisation profit of a firm is f 6,000, partners share Profit & Loss in the ratio of 3:2:1. Calculate
amount of Realisation Profit to be credited to Partners Capital A/c. (T) \
Ans: Realisation profit of a firm = f 6,000
Profit sharing ratio = 3 : 2: 1
Let us assume A, Band Care partners with 3 : 2 : 1 Profit sharing rat io

A's share of profit = 6,000 x

.

B's share of profit = 6,000 x

~
6
=,
~=,
3,000

2,000
I
6

C's share of profit= 6,000 x .!.6 = t. 1,000

6. Ajay, Sanjay, Vijay and Dhananjay are partners in a firm sharing profit and losses In the ratio
1: 2 : 3 : 4.
among the
Dhananjay becomes insolvent and his capital deficiency is f 30,000. Distribute the deficiency
solvent partners.
Ans: Capital deficiency of Dhananjay = t 30,000 ·.
Profit sharing ratio of Ajay, Sanjay and Vijay = 1 : 2: 3
. . . 1
Capit al deficiency borne by AJay = 30,000 x
6 = t 5,000
Capit al deficiency borne by Sanj ay = 30,000 x ~ ·= t 10,000
6

Capital deficiency borne by Vijay = 30,000 x ~ = t 15,000

6
 ':- ·Std. Xii: Book - K~
l t ;"!? b b

k f 30 000. Wha
'° sale of st0 c '
7. loan 20,000 (secured by stock), creditors " 20,000. Amount recovered by
wlll be the amount that creditors wlll get In case of all partners Insolvency?
Ans: Amount recovered by sale of stock = f 30,000
loan outstanding amount = ~ 20,000 ,
Balance amount that creditors will get= 30,000 - 20:000
= f 10,000

(H) Complete the table.

1. Debit side total of Credit side total of loss on
Realisation A/c Realisation A/c Realisation (T)
~ 20,000 ~ - -?_. --~I IL - - ,0-'-
~.:._4:.!..: 00_ _ _/

2. Creditors Bills Payable Third Party Liabilities (T)

_ 1_6_,0_00_ _~/
~ -- ~ I~__~_12-'-,o_o_o _ __, ?

3. Credit side total of Debit side total of Profit on

Realisation A/c Realisation A/c Realisation (T)
[ ~ 21,000 ~ 16,000 ?

4. Debit side total Credit side total Cash brought

of Capital A/c of Capital A/c by partner (T)

L ~51,000 ? ~ 17,000 I
5. Capital Cash brought Insolvent
by Insolvent Partner loss . (T)
Deficiency
? ~ 7,000 ~ 21,000

6. Debit side total of Credit side total of Profit on

Realisation Account Realisation Account Realisation
? ~ 20,000 t 5,000

7. Cash brought by Capital deficiency Insolvent loss

Insolvent partner
t 20,000 i 25,000 ?

8. Debit'sil:le of Credit side of Cash brough by

capital capital partner
? i 75,000 f 15,000

9. Creditors Partners ' capital Third party liability

account
f 1,000 I ~_ _f _S,0_0_0 _ _. J ?

10. Furniture Profit and Loss A/c Transfer red to

(Debit Balance) realisation Account
I
L. . . . ... ... . . . f 1s,ooo 1 I f 1s,ooo ? J
-.........