Dissolution of Partnership Test

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Dissolution of Partnership Test - 11

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Question 1
1 / -0

In Garner v. Murray, the deficiency of the insolvent partners is borne by other partners in the _________________.

A
Profit sharing ratio

B
Ratio of their capitals

C
Equal share by each

D
None of the above

Solution

When a partner’s capital account shows a debit balance on the dissolution of the firm, he has to pay the debit balance to the firm to settle his account. If the partner becomes insolvent, he is not able to pay back the amount owed to the firm by him. The amount not paid is a loss to the firm which under the Garner v/s Murray Rule is to be borne by the solvent partners.
According to Garner v/s Murray Rule:
The loss on account of insolvency of a partner is a capital loss which shall be borne by the solvent partners in the ratio of the balance standing in their capital accounts on the date of dissolution of the firm.
Question 2
1 / -0

On dissolution, all assets are transferred to realization account at ________.

A
Book value

B
Market value

C
Cost or market value, whatever is less

D
Replacement value

Solution

All assets are transferred at book value because the main purpose to open realization account is to ascertain the profit or loss due to realization of assets and liabilities. If assets are not recorded at book value actual profit or loss can not be ascertained
Question 3
1 / -0

On the dissolution of a firm, loan from the wife of a partner is treated as ____________.

A
Loan from the partner

B
Outside liability

C
Preferential liability

D
Liability payable after all other debts have been paid

Solution

Loan from a partners’ wife is to be treated as a normal creditor.
The basic aim of providing a loan in the name of partner’s wife is to by-pass the legal restrictions on the loan from a partner to the firm.
Question 4
1 / -0

In India, audit of Partnership firm is:

A
Compulsory

B
Optional

C
Statutory by law

D
None of these

Solution

In India, no compulsory audit is provided by Indian Partnership Act, 1932. As per the Income Tax Act , 1961, Tax audit of Partnership Firm is mandatory if the turnover exceeds One Crore Rupees in case of business and Rupees Twenty Five lakhs in case of Profession.
Question 5
1 / -0

On the insolvency of one or more partners of a firm, the loss is borne by:

A
the creditors

B
remaining solvent partners in their capital ratio

C
all partners in their profit-sharing ratio

D
all partners in their capital ratio

Solution

Insolvency of partnership implies insolvency of one or more partners of firm(since partnership and partners are same from the legal point of view). Loss arising out of the insolvency of one or more partners shall be borne by remaining solvent partners in their capital ratio.
Question 6
1 / -0

When a firm is dissolved, Goodwill a/c is closed by transferring to:

A
Capital account of the partners

B
Revaluation account

C
Realisation account

D
Profit & loss account

Solution

All the assets of the firm which can be converted into cash are transferred to Realisation Account. 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 the Balance sheet. Following entry is passed for it:
Realisation A/c Dr.
To Goodwill A/c
Question 7
1 / -0

Which of the following is not a correct statement?

A
The terms capitalisation factor and multiplier are not synonymous terms

B
Divisible profits do not includes profits on revaluation of assets

C
Managerial remuneration is to be calculated before providing for taxation

D
A company may purchase its own debentures
Question 8
1 / -0

What journal entry is passed for realising assets to provide cash for payment of liabilities?

A
Respective Asset A/c (Book value) Dr.
Profit and loss A/c (profit) Dr.
To Bank A/c (sale proceeds)
To Profit and loss A/c (Loss)

B
Profit and loss A/c (Loss) Dr.
To Respective Asset A/c (Book value)

C
Bank A/c (Sale proceeds) A/c
To Profit and loss (Loss) A/c

D
Realisation A/c Dr.
To Assets A/c

Cash/Bank A/c Dr.
To Realisation A/c

Solution

Following entry is made for transfer of assets to realisation account
Realisation A/c Dr.
To Assets A/c
(Being assets are sold)
Cash/Bank A/c Dr.
To Realisation A/c
(Being cash received on realisation of assets)
Question 9
1 / -0

Declaration by directors of the company at the time of solvency is called as __________.

A
Voluntary winding up

B
Declaration of insolvency

C
Declaration of solvency

D
None of the Above

Solution

Declaration of solvency is a document which is lodged with the registrar of the companies that lists the assets and liabilities of the company seeking voluntary liquidation to show that the company is capable of repaying debts within the period of 12 months. Hence, declaration by directors of the company at the time of solvency is called as declaration of solvency.
Question 10
1 / -0

Provision for bad and doubtful debts appearing in the books at the time of dissolution of firm is transferred to :

A
Capital accounts of the partners

B
Debtors account

C
Bad Debts account

D
Realisation account

Solution

Realisation account is prepared to find out the profit or loss on realisation of assets and payment of liabilities.To calculate the actual profit or loss it is necessary that all the assets should be transferred to realisation account at its gross figure. That's why provision is not shown as a deduction from debtors.It is transferred to credit side of realisation account like other liabilities.

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Re-Attempt Weekly Quiz Competition

Dissolution of Partnership Test - 11

Result

Dissolution of Partnership Test - 11

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Rank

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SHARING IS CARING

Question 1

Profit sharing ratio

Ratio of their capitals

Equal share by each

None of the above

Solution

Question 2

Book value

Market value

Cost or market value, whatever is less

Replacement value

Solution

Question 3

Loan from the partner

Outside liability

Preferential liability

Liability payable after all other debts have been paid

Solution

Question 4

Compulsory

Optional

Statutory by law

None of these

Solution

Question 5

the creditors

remaining solvent partners in their capital ratio

all partners in their profit-sharing ratio

all partners in their capital ratio

Solution

Question 6

Capital account of the partners

Revaluation account

Realisation account

Profit & loss account

Solution

Question 7

The terms capitalisation factor and multiplier are not synonymous terms

Divisible profits do not includes profits on revaluation of assets

Managerial remuneration is to be calculated before providing for taxation

A company may purchase its own debentures

Question 8

Respective Asset A/c (Book value) Dr.Profit and loss A/c (profit) Dr. To Bank A/c (sale proceeds) To Profit and loss A/c (Loss)

Profit and loss A/c (Loss) Dr. To Respective Asset A/c (Book value)

Bank A/c (Sale proceeds) A/c To Profit and loss (Loss) A/c

Realisation A/c Dr. To Assets A/c Cash/Bank A/c Dr. To Realisation A/c

Solution

Question 9

Voluntary winding up

Declaration of insolvency

Declaration of solvency

None of the Above

Solution

Question 10

Capital accounts of the partners

Debtors account

Bad Debts account

Realisation account

Solution

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Respective Asset A/c (Book value) Dr.
Profit and loss A/c (profit) Dr.
To Bank A/c (sale proceeds)
To Profit and loss A/c (Loss)

Profit and loss A/c (Loss) Dr.
To Respective Asset A/c (Book value)

Bank A/c (Sale proceeds) A/c
To Profit and loss (Loss) A/c

Realisation A/c Dr.
To Assets A/c

Cash/Bank A/c Dr.
To Realisation A/c