Dissolution of Partnership Test

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Dissolution of Partnership Test - 12

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Question 1
1 / -0

Which of the following will result in dissolution of the firm?

A
Retirement

B
Death

C
Expulsion

D
Dissolution

Solution

Retirement, Death, Expulsion does not result in dissolution of firm. It only results in dissolution of partnership. Remaining partners can still agree to continue the business of the partnership firm. But dissolution of the firm resulted in a complete closure of business. All the assets are sold and liabilities are paid and business ceases to exist.
Question 2
1 / -0

Which of these is not a method of accounting treatment of premium on joint life policy?

A
Treatment as an expense.

B
Treatments as an asset.

C
Deferred revenue expense.

D
None of these.

Solution

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy.
There are two method of accounting treatment of joint life policy:
1. Treatment as an expense - When premium is treated as an expense then it is closed every year by transferring to profit and loss account.
2. Treatment as an asset - In this case insurance premium paid is first debited to life policy and credited to bank account. At the end of the year the amount in excess of surrender value is treated as a loss and is transferred to profit and loss account.
Premium paid on joint life policy cannot be treated as deferred revenue expense.
Question 3
1 / -0

_________ is the main objective of joint life policy.

A
To avert death /retirement of a partner

B
To meet expense on treatment of ailing partner

C
To provide fund for payment to the executor of deceased partner

D
To pay the amount due to the retiring partner
Question 4
1 / -0

In dissolution of partnership, _________ account is created, whereas _________ account is prepared in dissolution of firm.

A
Revaluation, Realization

B
Realization, Revaluation

C
Revaluation, Memorandum

D
Memorandum, Realization

Solution

If a partner is retiring or any new partner is admitted, its called dissolution of partnership. In such situation all the assets and liabilities are revalued for which a revaluation account is opened. The differences of the original value and revalued amount are transferred to Revaluation Account. Surplus or deficit on revaluation is transferred to the partners capital account.
If the firm is dissolving, all the assets and liabilities accounts are transferred to Realization Account. Amount received or paid against the assets and liabilities are debited/credited to the realization account.
Question 5
1 / -0

The journal entry for transfer of assets is ______________________.

A
Realisation A/c Dr.

To Assets (Individually) A/c

B
Assets (Individually) A/c Dr.

To Realisation A/c

C
Bank A/c Dr.

To Realisation A/c

D
Realisation A/c Dr.

To Revaluation A/c

Solution

All asset accounts excluding cash, bank, and fictitious assets, if any, are closed by transfer to the debit of Realisation account at their book values. It may be noted that sundry debtors are transferred at gross value and the provision for doubtful accounts is transferred to the credit side of the Realisation account along with liabilities. The same is applied for fixed assets if the provision for depreciation account is maintained. The general entry recorded for the transfer is:
Realization Account Dr.
To Assets (Individually) Account
Question 6
1 / -0

Application to court for dissolution of a firm can be made :

A
Where the partnership is at will

B
Where the partnership is not at will

C
Where the partnership is for a fixed duration

D
In all cases

Solution

When the partnership is not at will, dissolution can be made by application to court. Any partner can file a suit in the court for dissolution. Where the partnership is at will, a partner in a partnership can dissolve the firm by giving notice of dissolution to other parties. Where the partnership is for a fixed period, the partnership comes to an end on a date specified in the partnership deed.
Question 7
1 / -0

Select the most appropriate alternative from those given below:
Drawing account is closed by transferring the balance to the ______ account.

A
Drawing

B
Liabilities

C
Assets

D
Capital

Solution

Drawings mean the goods or money withdrawn from business concern for the personal use of the owner. It has two aspects: 1. It reduces the assets of the business. 2. It reduces the capital of the owner. So, it is closed by deducting the balance from the capital account.
Question 8
1 / -0

In dissolution of partnership, business ________ whereas in dissolution of firm, the business is ________.

A
Closes, Continued

B
Partly closes, Continued

C
Continues, Closed

D
Continues, Partly closed

Solution

Dissolution of a Firm - It refers to the cessation of business operations and an end to the economic relationship among all the partners.
Dissolution of a Partnership - It refers to making changes in the business relationship among the partners and continuing the operations of the business.
Question 9
1 / -0

According to the Partnership Act, which of this statement about the dissolution of the partnership is true.

A
Dissolution of partnership is called dissolution of the firm

B
Dissolution between the two partners is called the dissolution of the firm

C
On the completion of the venture of the firm is called the dissolution of the firm

D
Dissolution between all the partners of a firm is called dissolution of the firm

Solution

Dissolution of partnership is different from dissolution of firm. Dissolution between partners does not lead to dissolution of the firm. But if dissolution is between all the partners of a firm then it leads to dissolution of firm because if there are no partners to work then firm will automatically get dissolved. No firm can work without partners. For partnership, minimum two persons are required. If there are no partners then there is no partnership firm.
Question 10
1 / -0

Under the Partnership Act, on which of these grounds a partner of a firm may sue for dissolution of the firm :

A
Insanity of a partner

B
Misconduct of a partner

C
In both the cases

D
Marriage of any partner

Solution

Dissolution of the firm by the court can be done in both the cases when there is insanity of a partner or if a partner misconduct according to Section 44 of the Indian Partnership Act. Section 44 provides the various grounds for dissolution of firm by court.

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Dissolution of Partnership Test - 12

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Dissolution of Partnership Test - 12

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Question 1

Retirement

Death

Expulsion

Dissolution

Solution

Question 2

Treatment as an expense.

Treatments as an asset.

Deferred revenue expense.

None of these.

Solution

Question 3

To avert death /retirement of a partner

To meet expense on treatment of ailing partner

To provide fund for payment to the executor of deceased partner

To pay the amount due to the retiring partner

Question 4

Revaluation, Realization

Realization, Revaluation

Revaluation, Memorandum

Memorandum, Realization

Solution

Question 5

Realisation A/c Dr. To Assets (Individually) A/c

Assets (Individually) A/c Dr. To Realisation A/c

Bank A/c Dr. To Realisation A/c

Realisation A/c Dr. To Revaluation A/c

Solution

Question 6

Where the partnership is at will

Where the partnership is not at will

Where the partnership is for a fixed duration

In all cases

Solution

Question 7

Drawing

Liabilities

Assets

Capital

Solution

Question 8

Closes, Continued

Partly closes, Continued

Continues, Closed

Continues, Partly closed

Solution

Question 9

Dissolution of partnership is called dissolution of the firm

Dissolution between the two partners is called the dissolution of the firm

On the completion of the venture of the firm is called the dissolution of the firm

Dissolution between all the partners of a firm is called dissolution of the firm

Solution

Question 10

Insanity of a partner

Misconduct of a partner

In both the cases

Marriage of any partner

Solution

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Realisation A/c Dr.

To Assets (Individually) A/c

Assets (Individually) A/c Dr.

To Realisation A/c

Bank A/c Dr.

To Realisation A/c

Realisation A/c Dr.

To Revaluation A/c