Accountancy Test

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Accountancy Test - 4

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Weekly Quiz Competition

Question 1
5 / -1

The modes by which a firm may be dissolved are

A
By Notice

B
By Mutual agreement

C
Compulsory Dissolution

D
Any of the options
Solution
The correct answer is Any of the options
Key Points
Dissolution of partnership firm:
- According to Section 39 of the Indian Partnership Act 1932, the dissolution of a partnership firm among all the partners is the Dissolution of the Partnership Firm.
- The organisation ceases to exist when a partnership firm dissolves.
- After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners.
Important Points Modes of Dissolution of Partnership Firm:
1. Dissolution by Agreement: A firm is dissolved
- with the consent of all the partners or
- in accordance with a contract between the partners.
2. Compulsory Dissolution: A firm is dissolved compulsorily in the following cases:
- when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract
- when the business of the firm becomes illegal; or
- when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.
3. Dissolution by Notice: In case of partnership at will, the firm may be dissolved if any one of the partners gives a notice in writing to the other partners, signifying his intention of seeking dissolution of the firm.
4. Dissolution by Court: At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following grounds:
- when a partner becomes insane;
- when a partner becomes permanently incapable of performing his duties as a partner;
- when a partner is guilty of misconduct which is likely to adversely affect the business of the firm;
- when a partner persistently commits breach of partnership agreement;
- when a partner has transferred the whole of his interest in the firm to a third party;
- when the business of the firm cannot be carried on except at a loss; or
- when, on any ground, the court regards dissolution to be just and equitable
5. On the happening of certain contingencies: Subject to contract between the partners, a firm is dissolved :
- if constituted for a fixed term, by the expiry of that term
- if constituted to carry out one or more ventures, by the completion thereof;
- by the death of a partner;
- by the adjudication of a partner as an insolvent
Question 2
5 / -1

Why is realization account prepared?

A
For Closing the Partnership accounts

B
For Opening the partnership accounts

C
For profit sharing

D
None of the above
Solution
The correct answer is For Closing the Partnership accounts
Key Points Realisation account:
- Realisation Account is prepared at the time of dissolution of a partnership firm.
- This account acts as a record of sale of assets and liabilities and to calculate the profit or loss on sale.
- All the assets except cash and bank a/c are transferred to the debit side of realisation account and liabilities (not capital accounts) are transferred to the credit side of realisation account
- Preparation of realisation account is the first step in the process of Closing of partnership accounts.
Important Points Format of Realisation account:
Question 3
5 / -1

Rohan, Mohan and Sohan were partners, sharing profits equally. At the time of the dissolution of the partnership firm, Rohan’s loan to the firm will be

A
Debited to Rohan’s Capital Account

B
Debited to Realisation Account

C
Credited to Realisation Account

D
Credited to Bank Account
Solution
The Correct answer is Credited to Bank Account
Key Points Dissolution of partnership firm:
- According to Section 39 of the Indian Partnership Act 1932, the dissolution of a partnership firm among all the partners is the Dissolution of the Partnership Firm.
- The organisation ceases to exist when a partnership firm dissolves.
- After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners.
Important Points When a partner gives a loan to the firm, at the time of dissolution of the firm, the amount of loan is settled by paying through the bank account.
Therefore, At the time of dissolution of the partnership firm, Rohan’s loan to the firm will be credited to the bank account.
Question 4
5 / -1

The amount realised from an unrecorded asset is credited to ___________ on the dissolution of a firm

A
Partner's Capital

B
Bank A/c

C
Realisation Account

D
Revaluation account
Solution
The Correct answer is Realisation account
Key Points
Realisation account:
- Realisation Account is prepared at the time of dissolution of a partnership firm.
- This account acts as a record of sale of assets and liabilities and to calculate the profit or loss on sale.
- All the assets except cash and bank a/c are transferred to the debit side of realisation account and liabilities (not capital accounts) are transferred to the credit side of realisation account
- Preparation of realisation account is the first step in the process of Closing of partnership accounts.
Important PointsTreatment of Unrecorded assets
- Unrecorded assets are assets that have been written off fully yet remain physically present in the business.
- When the firm is dissolved, these assets are directly credited to the Realisation account.
Journal Entry for Treatment of Unrecorded Assets
If an Unrecorded Asset is sold for cash:
Particulars Amount Dr. Amount Cr
Cash A/c Dr. xxxxx
To Realisation A/c xxxxx

If taken over by any partner:
Particulars Amount Dr. Amount Cr
Partner's Capital A/c Dr. xxxxx
To Realisation A/c xxxxx
Question 5
5 / -1

How will the accumulated profit/losses be treated at the time of the dissolution of the firm?

A
Transferred to Cash/Bank account

B
Transferred to Revaluation account

C
Transferred to Partner's Capital Account

D
Transferred to Balance sheet
Solution
The correct answer is Transferred to Partner's Capital Account
Key Points
Dissolution of partnership firm:
- According to Section 39 of the Indian Partnership Act 1932, the dissolution of a partnership firm among all the partners is the Dissolution of the Partnership Firm.
- The organisation ceases to exist when a partnership firm dissolves.
- After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners.
Important Points Treatment of accumulated profit/losses at the time of dissolution of the firm:
- Undistributed profits/losses are transferred to capital accounts in their profit-sharing ratio
Journal Entry:
In case of undistributed Profit
Particulars Amount Dr. Amount Cr
Profit and Loss A/c Dr. xxxxx
To Partner's Capital A/c xxxxx

In case of undistributed Loss
Particulars Amount Dr. Amount Cr
Partner's Capital A/c Dr. xxxxx
To Profit and Loss A/c xxxxx

Question 6

5 / -1

Which one of the following is the correct difference between Realisation and Revaluation Account?

1. Realisation account is prepared at the time of change in profit sharing ratio, while Revaluation account is prepared on admission of partner.

2. Revaluation account may be prepared multiple times, while realisation account is prepared only once in the lifetime of business.

3. Revaluation is prepared for adjustment of Assets and Liabilities, while realisation is prepared for calculating profit or loss on realisation of them.

Only 2

Both 1 & 2

Both 2 & 3

Both 1 & 3

Solution

The correct answer is Both B & C

Important Points Difference between Revaluation Account and Realisation Account

Basis	Revaluation Account	Realisation Account
Meaning	Revaluation account records the reassessment of the assets and liabilities	Realisation account records the effect of the realisation of assets and settlement of liabilities
Purpose	Revaluation account is prepared for adjustment in the value of assets and liabilities from time to time. Hence, Statement 2 is correct	Realisation is prepared for ascertainment of profit and loss that arises from realisation of assets and liabilities. Hence, Statement 2 is correct
Time	It is prepared at the time of admission, retirement, or death of a partner and, change in profit sharing ratio. Hence, Statement 1 is incorrect	It is prepared only at the time of dissolution of the partnership firm. *Hence, Statement 1 is incorrect*
Contents	Includes only those Assets and Liabilities which are revalued.	Includes all the Assets (except fictitious assets, cash/bank and loan to partners) and outsiders liabilities of the firm.
Effect on assets & liabilities	All the assets & liabilities accounts recorded in the Revaluation A/C are just revalued and not closed.	All the assets & liabilities accounts recorded in Realisation A/C are closed.
Frequency	This account can be prepared multiple times during the life of a business. Hence, Statement 3 is correct	This account is prepared only once, during the dissolution of the firm. Hence, Statement 3 is correct

Question 7
5 / -1

If at the time of dissolution, nothing is stated regarding the settlement of any outside liability then

A
It is transferred to partner's capital

B
It is not paid

C
It is paid in full

D
None of the above
Solution
The correct answer is It is paid in full
Key Points
Dissolution of partnership firm:
- According to Section 39 of the Indian Partnership Act 1932, the dissolution of a partnership firm among all the partners is the Dissolution of the Partnership Firm.
- The organisation ceases to exist when a partnership firm dissolves.
- After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners.
Important Points If nothing is stated regarding the settlement of any outside liability, then it should be assumed that the amount equal to book value is paid.
Hence, it is shown as a payment in realisation account and also transferred to Bank Account.
Additional Information
Realisation account:
- Realisation Account is prepared at the time of dissolution of a partnership firm.
- This account acts as a record of sale of assets and liabilities and to calculate the profit or loss on sale.
- All the assets except cash and bank a/c are transferred to the debit side of realisation account and liabilities (not capital accounts) are transferred to the credit side of realisation account
- Preparation of realisation account is the first step in the process of Closing of partnership accounts.
Format of Realisation account:
Question 8
5 / -1

When realization expenses are paid by the firm on behalf of a partner, such expenses are debited to:

A
Realisation Account

B
Partner’s Capital Account

C
Partner’s Loan Account

D
None of the above.

Solution

The correct answer is Partner’s Capital Account
Key Points Realisation expenses:
Those costs incurred throughout the process of realisation and have been incurred as a result of the dissolution of a partnership firm are called realisation expenses.
Important PointsTreatment of Realisation expenses paid by the firm on behalf of a partner.
When realisation expenses are paid by the firm on behalf of a partner, such
expenses are debited to Partner’s Capital Account.
Journal Entry:
Particulars Amount Dr. Amount Cr
Partner's Capital A/c Dr. xxxxx
To Cash/Bank A/c xxxxx
Question 9
5 / -1

On firm’s dissolution, which one of the following account should be prepared at the last?

A
Cash/Bank Account

B
Partner’s Loan Account

C
Partner’s Capital Accounts

D
Realisation Account
Solution
The correct answer is Cash/Bank Account
Key Points
Dissolution of partnership firm:
- According to Section 39 of the Indian Partnership Act 1932, the dissolution of a partnership firm among all the partners is the Dissolution of the Partnership Firm.
- The organisation ceases to exist when a partnership firm dissolves.
- After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners.
Important Points The accounts are prepared in the following order at the time of dissolution of partnership
1. Realisation Account: This account acts as a record of sale of assets and liabilities and to calculate the profit or loss on sale.
2. Partner’s Loan Account: This account is prepared only when a loan is given by the partner to the firm.
3. Partners’ Capital Accounts: This account is prepared to settle the dues of the partners.
4. Bank or Cash Account: This account is prepared to record all cash inflows and cash outflows during dissolution of partnership firm.
Additional Information Format of Realisation Account:
Format of Partners’ Capital Accounts:
Format of Partners’ Bank/Cash Accounts:
Question 10
5 / -1

How is Goodwill treated at the time of dissolution of a partnership firm?

A
Not recorded anywhere

B
Recorded in realisation account like any other asset

C
Distributed among partners in old ratio

D
Partly paid and partly written off
Solution
The correct answer is Recorded in realisation and sold like any other asset
Key Points Dissolution of partnership firm:
- According to Section 39 of the Indian Partnership Act 1932, the dissolution of a partnership firm among all the partners is the Dissolution of the Partnership Firm.
- The organisation ceases to exist when a partnership firm dissolves.
- After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners.
Important Points Treatment of goodwill at the time of dissolution of partnership:
- Goodwill appearing in the balance sheet is treated as any other asset.
- In case, there is no information regarding the realisation of goodwill, it is assumed the goodwill does not have any value and no amount is realised for it.

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Particulars	Amount Dr.	Amount Cr
Cash A/c Dr.	xxxxx
To Realisation A/c		xxxxx

Particulars	Amount Dr.	Amount Cr
Partner's Capital A/c Dr.	xxxxx
To Realisation A/c		xxxxx

Accountancy Test - 4

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Accountancy Test - 4

Score

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Rank

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SHARING IS CARING

Question 1

By Notice

By Mutual agreement

Compulsory Dissolution

Any of the options

Solution

Question 2

For Closing the Partnership accounts

For Opening the partnership accounts

For profit sharing

None of the above

Solution

Question 3

Debited to Rohan’s Capital Account

Debited to Realisation Account

Credited to Realisation Account

Credited to Bank Account

Solution

Question 4

Partner's Capital

Bank A/c

Realisation Account

Revaluation account

Solution

Question 5

Transferred to Cash/Bank account

Transferred to Revaluation account

Transferred to Partner's Capital Account

Transferred to Balance sheet

Solution

Question 6

Only 2

Both 1 & 2

Both 2 & 3

Both 1 & 3

Solution

Question 7

It is transferred to partner's capital

It is not paid

It is paid in full

None of the above

Solution

Question 8

Realisation Account

Partner’s Capital Account

Partner’s Loan Account

None of the above.

Solution

Question 9

Cash/Bank Account

Partner’s Loan Account

Partner’s Capital Accounts

Realisation Account

Solution

Question 10

Not recorded anywhere

Recorded in realisation account like any other asset

Distributed among partners in old ratio

Partly paid and partly written off

Solution

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