Passage:

Case study

A and B were partners in the partnership firm. Due to ill health of B they decided to dissolve the firm. The position of assets and the liabilities on the date of dissolution was:

Balance Sheet

Q. 5054541. Due to the ill health of B, they decided to dissolve the firm. It comes under ______ form of dissolution.

(A) Dissolution by Notice

(B) On the happening of certain contingencies

(C) Dissolution by court

(D) Dissolution by Agreement

Answer: (D) Dissolution by Agreement

Explanation: Under the Indian Partnership Act, 1932, a firm may be dissolved with the consent of all the partners. Since the partners “decided” mutually to dissolve due to B’s ill health, it falls strictly under voluntary Dissolution by Agreement.

Q. 5054542. The amount recovered from the debtors is:

(A) ₹1,00,000

(B) ₹40,000

(C) ₹50,000

(D) ₹60,000

Answer: (B) ₹40,000

Explanation: The total value of Debtors was ₹50,000. Since one debtor C failed to pay ₹10,000 (bad debt), the total cash recovered from the remaining debtors is 50,000 – 10,000 = ₹40,000.

Q. 5054543. Following items appear on the Debit side of Realisation A/C except:

A. Transfer of Assets

B. Payment of liabilities

C. Provisions

D. Realisation expenses

E. Asset taken over by partner

Choose the correct answer from the options given below:

(A) A, C, E only

(B) C, D, E only

(C) D, E only

(D) C, E only

Answer: (D) C, E only

Explanation: When preparing a Realisation Account, Provisions against assets (C) and Assets taken over by a partner (E) are recorded on the Credit side. Transfer of assets, payment of liabilities, and realisation expenses are all recorded on the Debit side.

Q. 5054544. The treatment of Goodwill appearing in the balance sheet will be:

(A) Transferred to Debit of Realisation A/C

(B) Written off among partners in old ratio

(C) Transferred to credit of Realisation A/C

(D) Raised and written off

Answer: (A) Transferred to Debit of Realisation A/C

Explanation: At the time of dissolution of a firm, existing goodwill appearing in the balance sheet is treated like any other tangible asset and is transferred (closed) to the debit side of the Realisation Account.

Q. 5054545. The accumulated profits and reserve are transferred to:

(A) Revaluation A/C

(B) Realisation A/C

(C) Partner’s Capital A/C

(D) Cash/Bank A/C

Answer: (C) Partner’s Capital A/C

Explanation: During the dissolution or reconstitution of a firm, any accumulated profits and general reserves belong solely to the partners. Thus, they are transferred directly to the Partners’ Capital Accounts in their profit-sharing ratio.