Chapter 6: Dissolution of Partnership Firm
Balbharati solutions for Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board.
Select the most appropriate answer from the alternative given below and rewrite the sentence.
In case of dissolution, assets and liabilities are transferred to ___________ Account.
Bank Account
Partner’s Capital Account
Realisation Account
Partner’s Current Account
Dissolution expenses are credited to___________ Account.
Realisaton Account
Cash / Bank Account
Partner’s Capital Account
Partner’s Loan Account
Deficiency of insolvent partner will be suffered by solvent partners in their_____________ratio.
Capital ratio
Profit-sharing ratio
Sale ratio
Liquidity ratio
If an asset is taken over by partner from firm his capital account will be ___________
Credited
Debited
Added
Divided
If any unrecorded liability is paid on the dissolution of the firm _______. account is debited.
Cash / Bank Account
Realisation Account
Partners’ capital Account
Loan Accoun
Partnership is completely dissolved when the partners of the firm become _________
Solvent
Insolvent
Creditor
Debtors
Assets and liabilities are transferred to Realisation account at their ____________ values.
Market
Purchases
Sale
Book
If the number of partners in a firm falls below two, the firm stands____________
Dissolved
Established
Realisation
Restructured
Realisation account is _____________ on realisation of assets.
Debited
Credited
Deducted
Closed
All activities of partnership firm cease on _________ of firm.
Dissolution
Admission
Retirement
Death
Give the word/term/phrase which can substitute the following statement.
Debit balance of Realisation account.- Realisation Loss
Winding up of partnership business.- Dissolution of partnership
An account opened to find out the Profit or Loss on realisation of Assets and settlement of Liabilities.- Realisation A/c
Debit balance of an Insolvent Partner’s Capital Account.- Capital Deficiency
Credit balance of realisation Account.- Realisation Profit
Conversion of asset into cash on dissolution of firm - Realisation
Liability likely to arise in future on the happening of certain events - Contingent Liabilities.
Assets which are not recorded in the books of account - Unrecorded Assets
The account which shows realisation of assets and discharge of liabilities.-Realisation A/c
Expenses incurred on dissolution of firm.- Dissolution/realisation Expenses
State whether the following statement is True or False with reason.
The firm must be dissolved on the retirement of a partner. False
Reason. On the retirement of a partner, if partnership agreement allows, then the remaining partner can continue the business activities. It means firm is not to dissolve.
On dissolution Cash/Bank Account is closed automatically. True.
Reason. As firm is dissolved, there is no question of any business activities to be carried out further and so Cash/Bank Account is also not necessary. Therefore on dissolution Cash/Bank Account is closed automatically.
On dissolution, Bank Overdraft is transferred to Realisation Account.- True
Reason. As a sundry liability of the business, bank overdraft is a liability of a firm and hence, it is transferred to realisation Account at the time of dissolution and paid as third party Liability.
A solvent partner having debit balance to his Capital Account does not share the deficiency of insolvent partner Capital Account. False.
Reason. In the partnership, the partner’s liability is unlimited so, a solvent partner having the debit balance to his Capital Account should share the deficiency of insolvent partner capital account.
At the time of the dissolution of partnership, all assets should be transferred to Realisation Account. False.
Reason. At the time of the dissolution of the partnership, a cash account and Bank A/c are not transferred to realization A/c. Similarly, if an asset is taken over by a partner or by any creditor then that asset is transferred to the concerned person’s account and not to the realization Account.
The debit balance of insolvent partner’s Capital Account is known as a capital deficiency.- True.
Reason. Debit balance of Partners’ Capital Account means an excess of drawings than the capital credit balance. In the case of an insolvent partner, the debit balance of Capital Account means liabilities which he cannot pay. It means capital deficiency.
At the time of dissolution, a loan from the partner will be transferred to Realisation Account.-False
Reason. At the time of dissolution, a loan from a partner will be paid after the payment of liabilities of third parties to the firm. It is not transferred to a realisation Account. Partner’s Loan A/c is separately opened and paid accordingly.
Dissolution takes place when the relation among the partner’s comes to an end.- True.
Reason. As per definition, Dissolution means to wind up or to close down, and it is possible only when relations among the partners in a partnership firm comes to an end.
The insolvency loss at the time of dissolution of the firm is shared by the solvent partners in their profit sharing ratio.-True.
Reason: In the partnership, partners' liability is unlimited and in case of insolvency loss, legally solvent partners are ultimately liable and are suppose to bear the loss of an insolvent partner in their profit sharing ratio.
Realisation Loss is not transferred to the insolvent partner’s capital account.-False.
Reason. All partners of the firm are responsible for Loss on realisation and hence loss on realisation is supposed to be transferred to all Partners’ Capital Account, without any discrimination of solvent or insolvent.
Calculate the Following.
EXERCISE - 6 [PAGE 242]
Balbharati solutions for Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board Chapter 6 Dissolution of Partnership Firm Exercise - 6 [Page 242]
Exercise - 6 | Q 1 | Page 242
Calculate the following :
Vinod, 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 ₹ 6,000. Distribute the capital deficiency among the solvent partners.
SOLUTION
Here, capital deficiency of ₹ 6000 is to be distributed among continuing partners in their profit and loss sharing ratio. i.e. 3:2
Share of deficiency for Vinod = 6,000 x3/5 = ₹ 3,600
Share of deficiency for Vijay = 6,000 ×2/5 = ₹ 2,400
Vinod and Vijay will bear ₹ 3,600 and ₹ 2,400 of Vishal’s capital deficiency.
Exercise - 6 | Q 2 | Page 242
Calculate the following :
Creditors ₹ 30,000, Bills Payable ₹ 20,000 and Bank Loan ₹ 10,000. Available Bank Balance ₹ 40,000 what will be the amount that creditors will get in case of all partner's insolvency.
SOLUTION
Ratio of creditors, Bills payable and Bank Loan = 30,000 : 10,000 : 10,000 i.e., 3 : 2 : 1
Amount received by creditors = 3/(3+2+1)×40000
= 3/6×40000
= ₹ 20,000.
Exercise - 6 | Q 3 | Page 242
Calculate the following :
Insolvent Partner Capital A/c debit side total is ₹ 10,000 and the credit side total is ₹ 6,000. Calculate deficiency.
SOLUTION
Deficiency of insolvent partner
= Debit side total – Credit side total
= 10,000 – 6,000
= ₹ 4,000.
Exercise - 6 | Q 4 | Page 242
Calculate the following :
Insolvent partners capital A/c Debit side is ₹ 15,000 & insolvent partner brought cash ₹ 6,000. Calculate the amount of Insolvency Loss to be distributed among the solvent partners.
SOLUTION
₹ 9,000 (15,000 – 6,000) is the amount of insolvency loss to be distributed among the solvent partners.
Exercise - 6 | Q 5 | Page 242
Calculate the following :
Realisation profit of a firm is ₹ 6,000, partners share Profit & Loss in the ratio of 3: 2: 1. Calculate the amount of Realisation Profit to be credited to Partners Capital A/c.
SOLUTION
Distribution of ₹ 6,000 in 3: 2: 1 ratio
6000 × 3/6 = ₹ 3,000
6000 × 2/6 = ₹ 2000
6000 × 1/6 = ₹ 1000
Amount of realisation profit ₹ 3,000, ₹ 2,000 and ₹ 1,000 is to be credited to Partner’s Capital A/c respectively.
Answer in one sentence only.
What is the dissolution of partnership firms?
Dissolution of the partnership firm means complete closure of business activities and stoppage of partnership relations among all the partners.
When is the Realisation Account opened?
Realization Account was opened at the time of the dissolution of the partnership firm.
Which accounts are not transferred to a Realisation account?
Cash/Bank balance, reserve funds, Profit and Loss A/c balance, Partners’ Loan accounts, etc. are not transferred to realisation Account.
Who is called an Insolvent person?
Whose capital A/c shows debit balance and who is not in a position to meet his capital deficiency even from his private property is called an insolvent person.
What is a capital deficiency?
The debit balance of an insolvent partner’s Capital Account which an insolvent partner cannot pay is called a capital deficiency.
In what proportion is the balance on Realisation Account transferred to Partners’ Capital / Current Accounts?
The balance on realisation Account is transferred to Partners’ Capital / Current Accounts in their profit sharing ratio.
Who should bear the capital deficiency of an insolvent partner?
The capital deficiency of insolvent partners should be borne by the solvent partners.
Which account is debited on repayment of Partner’s Loan?
Partner’s Loan Account is debited on repayment of partner’s loan.
Which account is debited on payment of dissolution expenses?
Realisation Account is debited on payment of dissolution expenses.
EXERCISE - 6 [PAGE 243]
Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board Chapter 6 Dissolution of Partnership Firm Exercise - 6 [Page 243]
Exercise - 6 | Q 1 | Page 243
Complete the table.
1) | Debit side total of Realisaton A/c | Credit side total of Realisation A/c | Loss on Realisations |
₹ 20,000 | ___________? | ₹ 4,000 | |
2) | Creditors | Bills Payable | Third-Party Liabilities |
₹ 16,000 | ₹ 12,000 | ___________? | |
3) | Credit side total Profit ion of Realisaton A/c | Debit side total of Realisation A/c | Profit of realisation |
₹ 21,000 | ₹ 16,000 | ___________? | |
4) | Debit side total of Capital A/c | Credit side total of Capital A/c | Cash brought by partner |
₹ 51,000 | __________? | ₹ 17,000 | |
5) | capital deficiency | Cash brought by Insolvent Partner | Insolvent loss |
________? | ₹ 7,000 | ₹ 21,000 |
SOLUTION:
1) | Debit side total of Realisaton A/c | Credit side total of Realisation A/c | Loss on Realisations |
₹ 20,000 | ₹ 16,000 | ₹ 4,000 | |
2) | Creditors | Bills Payable | Third-Party Liabilities |
₹ 16,000 | ₹ 12,000 | ₹ 28,000 | |
3) | Credit side total Profit ion of Realisaton A/c | Debit side total of Realisation A/c | Profit of realisation |
₹ 21,000 | ₹ 16,000 | ₹ 5,000 | |
4) | Debit side total of Capital A/c | Credit side total of Capital A/c | Cash brought by partner |
₹ 51,000 | ₹ 34,000 | ₹ 17,000 | |
5) | capital deficiency | Cash brought by Insolvent Partner | Insolvent loss |
₹ 28,000 | ₹ 7,000 | ₹ 21,000 |
PRACTICAL PROBLEM [PAGES 244 - 250]
Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board Chapter 6 Dissolution of Partnership Firm Practical problem [Pages 244 - 250]
Practical problem | Q 1 | Page 244
Ganesh and Kartik are partners sharing Profits and Losses equally. They decided to dissolve the firm on 31st March 2018. Their Balance Sheets was as under. VIEW SOLUTION
Practical problem | Q 2 | Page 244
Leela, Manda, and Kunda are partners in the firm ‘Janki Stores’ sharing Profits and Losses in the ratio of 3:2:1 respectively. On 31st March 2018, they decided to dissolve the firm when their Balance Sheet was as under. VIEW SOLUTION
Practical problem | Q 3 | Page 245
Shailesh and Shashank were partners sharing Profits and Losses in the ratio of 3:2. Their Balance Sheet as on 31st March 2019 was as follows. VIEW SOLUTION
Practical problem | Q 4 | Page 245
Asha, Usha, and Nisha were partners sharing Profits and Losses in the ratio of 2:2:1. The following is the Balance Sheet as on 31st March 2019. VIEW SOLUTION
Practical problem | Q 5 | Page 246
Seeta and Geeta are partners in the firm sharing Profits and Losses in the ratio of 4:1. They decided to dissolve the partnership on 31st March 2020 on which date their Balance Sheet stood as follows. VIEW SOLUTION
Practical problem | Q 6 | Page 246
Sangeeta, Anita, and Smita were in partnership sharing Profits and Losses in the ratio 2:2:1. Their Balance Sheet as on 31st March 2019 was as under. VIEW SOLUTION
Practical problem | Q 7 | Page 247
Saiesh, Sumit, and Hemant were in partnership sharing Profits and Losses in the ratio 2:2:1. They decided to dissolve their partnership firm on 31st March 2019 and their Balance Sheet on that date stood as. VIEW SOLUTION
Practical problem | Q 8 | Page 248
Sitaram, Gangaram, and Rajaram are partners sharing Profits and Losses in the ratio of 4:2:3. On. 1st April 2019 they agreed to dissolve the partnership, their Balance Sheet was as follows. VIEW SOLUTION
Practical problem | Q 9 | Page 248
Following is the Balance Sheet of Vaibhav, Sanjay, and Santosh. VIEW SOLUTION
Practical problem | Q 10 | Page 249
Shweta, Nupur, and Sanika are partners sharing Profits and Losses in the ratio of 3:2:1. Their Balance Sheet as on 31st March 2019 was as follows. VIEW SOLUTION
Practical problem | Q 11 | Page 249
Following is the Balance Sheet as on 31st March 2019 of a firm having Three equal partners Priti, Priya, and Prachi. VIEW SOLUTION
Practical problem | Q 12 | Page 250
Shashwat and Shiv are equal partners. Their Balance Sheet stood as under. VIEW SOLUTION
