Dissolution of Partnership Test

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Dissolution of Partnership Test - 16

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SHARING IS CARING

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Weekly Quiz Competition

Question 1
1 / -0

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

A
Debts are shared equally

B
Debts should not be cleared by other partners

C
Partnership profit/loss sharing ratio

D
In the ratio of their last agreed capital balance

Solution

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.
Question 2
1 / -0

A partner gave a loan of Rs.20,000 to the firm. At the time of dissolution of the firm the net losses of the firm were 30,000. How much money will the partner get on dissolution?

A
Nil

B
20,000

C
20,000 + 6% interest

D
None of the above

Solution

In case of loss, two situations arise:
1. If partner's capital has a credit balance then his loan amount will be repaid. Following entry will be passed:
Partner's loan A/c Dr.
To Bank/Cash A/c
2. If a partner's capital has debit balance then loan amount will not be paid. loan amount is transferred to capital account of partner. Following entry will be passed:
Partner's loan A/c Dr.
To Partner's Capital A/c
Question 3
1 / -0

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

A
Original value

B
Revalued figure

C
At current cost

D
As realizable value

Solution

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.
Question 4
1 / -0

At the time of dissolution of the firm, loan from partners relative is _________ .

A
Transferred to Realisation Account

B
Not transferred to Realisation Account

C
Transferred to the Partner's Capital Account

D
None of these above

Solution

At the time of dissolution of the firm, loan from partners relative is transferred to the credit side of the Realisation account. Loan from partners relative is part of the external liability of the firm and needs to paid off first. It is not a part of the private debt of the partner and any deficiency needs to be covered up by the partner.
Question 5
1 / -0

Claim of the retiring partner is payable in the following form.

A
Fully in cash.

B
Fully transferred to loan account to be paid later with some interest on it.

C
Partly in cash and partly as loan repayable later with agreed interest.

D
Any of the above method.

Solution

When a partner retires from a firm, other partners continue to run the business of the firm. Readjustments takes place in case of retirement of a partner. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange the amount to be paid to discharge the claims of the retiring partners.
Amount due to retiring partners may be discharged in the following form:
1. Fully in cash.
2. Fully transferred to loan accpunt to be paid later with some interest on it.
3. Partly in cash and partly as a loan repayble later with agreed interest.
Question 6
1 / -0

A, B & C takes a joint life policy, after 5 years B retire from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decided to share profits equally. They had taken a joint life policy of 2,50,000 with the surrender value 50,000 What will be the treatment in the partner's capital account on receiving the JLP amount if joint life policy is maintained at the surrender value along with the reserve?

A
50,000 credited to all the partners in old ratio.

B
2,50,000 credited to all the partners in old ratio

C
2,00,000 credited to all the partners in old ratio.

D
Distribute JLP Reserve A/c in old profit sharing ratio.
Question 7
1 / -0

Dissolution of partnership means :

A
Dissolution of firm

B
Business of the firm is continued

C
Partnership amongst all the partners comes to an end

D
None of the above

Solution

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.
Question 8
1 / -0

When two firms amalgamate, general reserve is transferred to:

A
New firm's account

B
Revaluation account

C
Partner's account

D
Equal Ratio

Solution

When two or more partnership firms are amalgamated, the books of old firm are closed and books of new firm are opened.
While closing the books of the old firm :
1. Each firm should prepare a revaluation account relating to its own assets and liabilities and transfer the balance to the partner's capital account in the profit sharing ratio.
2. Entries of raising goodwill should be passed.
3. Transferring reserve to old partners capital account in old ratio.
4. Assets and liabilities not taken over by the new firm should be transferred to the capital accounts of partners in the ratio of their capitals.
5. The new firm should be debited with the difference between the value of assets and liabilities taken over by it; the assets should be credited and the liabilities debited.
6. Partner's capital account should be transferred to the new firm's account.
Question 9
1 / -0

A firm is compulsorily dissolved if -.

(1) All partners are adjudicated insolvent
(2) The firm has been continuously suffering losses
(3) Partnership has various adventures & one such adventure becomes illegal.
(4) All of the partners except one, are adjudicated insolvent
(5) If the business of the firm becomes illegal because of some subsequent events, such as change in law

A
(4), (1) & (5)

B
(3), (2) & (4)

C
(5), (2), (4) & (1)

D
(1), (3), (4) & (5)
Question 10
1 / -0

If at the time of admission, partner pays premium, then on dissolution, he is entitled to demand the return of a proportion of the premium if the partnership was for a fixed term and was dissolved before the expiry of that term, unless dissolution was caused by___.

A
Agreement

B
Misconduct of the party seeking return of the premium

C
Death of a partner

D
All of the above

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Dissolution of Partnership Test - 16

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Dissolution of Partnership Test - 16

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SHARING IS CARING

Question 1

Debts are shared equally

Debts should not be cleared by other partners

Partnership profit/loss sharing ratio

In the ratio of their last agreed capital balance

Solution

Question 2

Nil

20,000

20,000 + 6% interest

None of the above

Solution

Question 3

Original value

Revalued figure

At current cost

As realizable value

Solution

Question 4

Transferred to Realisation Account

Not transferred to Realisation Account

Transferred to the Partner's Capital Account

None of these above

Solution

Question 5

Fully in cash.

Fully transferred to loan account to be paid later with some interest on it.

Partly in cash and partly as loan repayable later with agreed interest.

Any of the above method.

Solution

Question 6

50,000 credited to all the partners in old ratio.

2,50,000 credited to all the partners in old ratio

2,00,000 credited to all the partners in old ratio.

Distribute JLP Reserve A/c in old profit sharing ratio.

Question 7

Dissolution of firm

Business of the firm is continued

Partnership amongst all the partners comes to an end

None of the above

Solution

Question 8

New firm's account

Revaluation account

Partner's account

Equal Ratio

Solution

Question 9

(4), (1) & (5)

(3), (2) & (4)

(5), (2), (4) & (1)

(1), (3), (4) & (5)

Question 10

Agreement

Misconduct of the party seeking return of the premium

Death of a partner

All of the above

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