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Chapter 6: Dissolution of Partnership Firm Balbharati solutions for Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board. Latest Edition

Chapter 6: Dissolution of Partnership Firm

Balbharati solutions for Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board.

Select the most appropriate answer from the alternative given below and rewrite the sentence.

In case of dissolution, assets and liabilities are transferred to ___________ Account.

  • Bank Account
  • Partner’s Capital Account
  • Realisation Account
  • Partner’s Current Account

Dissolution expenses are credited to___________ Account.

  • Realisation Account
  • Cash / Bank Account
  • Partner’s Capital Account
  • Partner’s Loan Account

Deficiency of insolvent partner will be suffered by solvent partners in their_____________ratio.

  • Capital ratio
  • Profit-sharing ratio
  • Sale ratio
  • Liquidity ratio

If an asset is taken over by partner from firm his capital account will be ___________

  • Credited
  • Debited
  • Added
  • Divided

If any unrecorded liability is paid on the dissolution of the firm _______. account is debited.

  • Cash / Bank Account
  • Realisation Account
  • Partners’ capital Account
  • Loan Account

Partnership is completely dissolved when the partners of the firm become _________

  • Solvent
  • Insolvent
  • Creditor
  • Debtors

Assets and liabilities are transferred to Realisation account at their ____________ values.

  • Market
  • Purchases
  • Sale
  • Book

If the number of partners in a firm falls below two, the firm stands____________

  • Dissolved
  • Established
  • Realisation
  • Restructured

Realisation account is _____________ on realisation of assets.

  • Debited
  • Credited
  • Deducted
  • Closed

All activities of partnership firm cease on _________ of firm.

  • Dissolution
  • Admission
  • Retirement
  • Death

Give the word/term/phrase which can substitute the following statement.

  • Debit balance of Realisation account. - Realisation Loss
  • Winding up of partnership business. - Dissolution of partnership
  • An account opened to find out the Profit or Loss on realisation of Assets and settlement of Liabilities. - Realisation A/c
  • Debit balance of an Insolvent Partner’s Capital Account. - Capital Deficiency
  • Credit balance of realisation Account. - Realisation Profit
  • Conversion of asset into cash on dissolution of firm - Realisation
  • Liability likely to arise in future on the happening of certain events - Contingent Liabilities.
  • Assets which are not recorded in the books of account - Unrecorded Assets
  • The account which shows realisation of assets and discharge of liabilities. - Realisation A/c
  • Expenses incurred on dissolution of firm. - Dissolution/Realisation Expenses

State whether the following statement is True or False with reason.

  • The firm must be dissolved on the retirement of a partner. False

    Reason: On the retirement of a partner, if partnership agreement allows, then the remaining partner can continue the business activities. It means firm is not to dissolve.

  • On dissolution Cash/Bank Account is closed automatically. True.

    Reason: As firm is dissolved, there is no question of any business activities to be carried out further and so Cash/Bank Account is also not necessary. Therefore on dissolution Cash/Bank Account is closed automatically.

  • On dissolution, Bank Overdraft is transferred to Realisation Account. - True

    Reason: As a sundry liability of the business, bank overdraft is a liability of a firm and hence, it is transferred to Realisation Account at the time of dissolution and paid as third party Liability.

  • A solvent partner having debit balance to his Capital Account does not share the deficiency of insolvent partner Capital Account. False.

    Reason: In the partnership, the partner’s liability is unlimited so, a solvent partner having the debit balance to his Capital Account should share the deficiency of insolvent partner capital account.

  • At the time of the dissolution of partnership, all assets should be transferred to Realisation Account. False.

    Reason: At the time of the dissolution of the partnership, a cash account and Bank A/c are not transferred to Realisation A/c. Similarly, if an asset is taken over by a partner or by any creditor then that asset is transferred to the concerned person’s account and not to the Realisation Account.

  • The debit balance of insolvent partner’s Capital Account is known as a capital deficiency. - True.

    Reason: Debit balance of Partners’ Capital Account means an excess of drawings than the capital credit balance. In the case of an insolvent partner, the debit balance of Capital Account means liabilities which he cannot pay. It means capital deficiency.

  • At the time of dissolution, a loan from the partner will be transferred to Realisation Account. - False

    Reason: At the time of dissolution, a loan from a partner will be paid after the payment of liabilities of third parties to the firm. It is not transferred to a Realisation Account. Partner’s Loan A/c is separately opened and paid accordingly.

  • Dissolution takes place when the relation among the partners comes to an end. - True.

    Reason: As per definition, Dissolution means to wind up or to close down, and it is possible only when relations among the partners in a partnership firm comes to an end.

  • The insolvency loss at the time of dissolution of the firm is shared by the solvent partners in their profit sharing ratio. - True.

    Reason: In the partnership, partners' liability is unlimited and in case of insolvency loss, legally solvent partners are ultimately liable and are supposed to bear the loss of an insolvent partner in their profit sharing ratio.

  • Realisation Loss is not transferred to the insolvent partner’s capital account. - False.

    Reason: All partners of the firm are responsible for Loss on realisation and hence loss on realisation is supposed to be transferred to all Partners’ Capital Account, without any discrimination of solvent or insolvent.

Calculate the Following.

EXERCISE - 6 [PAGE 242]

Balbharati solutions for Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board Chapter 6 Dissolution of Partnership Firm Exercise - 6 [Page 242]

Exercise - 6 | Q 1 | Page 242

Vinod, Vijay, and Vishal are partners in a firm, sharing profit & Losses in the ratio 3:2:1. Vishal becomes insolvent and his capital deficiency is ₹ 6,000. Distribute the capital deficiency among the solvent partners.

SOLUTION

Here, capital deficiency of ₹ 6000 is to be distributed among continuing partners in their profit and loss sharing ratio. i.e. 3:2

Share of deficiency for Vinod = 6,000 x 3/5 = ₹ 3,600

Share of deficiency for Vijay = 6,000 × 2/5 = ₹ 2,400

Vinod and Vijay will bear ₹ 3,600 and ₹ 2,400 of Vishal’s capital deficiency.

Exercise - 6 | Q 2 | Page 242

Creditors ₹ 30,000, Bills Payable ₹ 20,000 and Bank Loan ₹ 10,000. Available Bank Balance ₹ 40,000 what will be the amount that creditors will get in case of all partner's insolvency.

SOLUTION

Ratio of creditors, Bills payable and Bank Loan = 30,000 : 20,000 : 10,000 i.e., 3 : 2 : 1

Amount received by creditors = 3/(3+2+1) × 40000

= 3/6 × 40000

= ₹ 20,000.

Exercise - 6 | Q 3 | Page 242

Insolvent Partner Capital A/c debit side total is ₹ 10,000 and the credit side total is ₹ 6,000. Calculate deficiency.

SOLUTION

Deficiency of insolvent partner

= Debit side total – Credit side total

= 10,000 – 6,000

= ₹ 4,000.

Exercise - 6 | Q 4 | Page 242

Insolvent partners capital A/c Debit side is ₹ 15,000 & insolvent partner brought cash ₹ 6,000. Calculate the amount of Insolvency Loss to be distributed among the solvent partners.

SOLUTION

₹ 9,000 (15,000 – 6,000) is the amount of insolvency loss to be distributed among the solvent partners.

Exercise - 6 | Q 5 | Page 242

Realisation profit of a firm is ₹ 6,000, partners share Profit & Loss in the ratio of 3: 2: 1. Calculate the amount of Realisation Profit to be credited to Partners Capital A/c.

SOLUTION

Distribution of ₹ 6,000 in 3: 2: 1 ratio

6000 × 3/6 = ₹ 3,000

6000 × 2/6 = ₹ 2000

6000 × 1/6 = ₹ 1000

Amount of realisation profit ₹ 3,000, ₹ 2,000 and ₹ 1,000 is to be credited to Partner’s Capital A/c respectively.

Answer in one sentence only.

  • What is the dissolution of partnership firms?

    Dissolution of the partnership firm means complete closure of business activities and stoppage of partnership relations among all the partners.

  • When is the Realisation Account opened?

    Realisation Account is opened at the time of the dissolution of the partnership firm.

  • Which accounts are not transferred to a Realisation account?

    Cash/Bank balance, reserve funds, Profit and Loss A/c balance, Partners’ Loan accounts, etc. are not transferred to Realisation Account.

  • Who is called an Insolvent person?

    Whose capital A/c shows debit balance and who is not in a position to meet his capital deficiency even from his private property is called an insolvent person.

  • What is a capital deficiency?

    The debit balance of an insolvent partner’s Capital Account which an insolvent partner cannot pay is called a capital deficiency.

  • In what proportion is the balance on Realisation Account transferred to Partners’ Capital / Current Accounts?

    The balance on Realisation Account is transferred to Partners’ Capital / Current Accounts in their profit sharing ratio.

  • Who should bear the capital deficiency of an insolvent partner?

    The capital deficiency of insolvent partners should be borne by the solvent partners.

  • Which account is debited on repayment of Partner’s Loan?

    Partner’s Loan Account is debited on repayment of partner’s loan.

  • Which account is debited on payment of dissolution expenses?

    Realisation Account is debited on payment of dissolution expenses.

EXERCISE - 6 [PAGE 243]

Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board Chapter 6 Dissolution of Partnership Firm Exercise - 6 [Page 243]

Exercise - 6 | Q 1 | Page 243

Complete the table.

1) Debit side total of Realisation A/c Credit side total of Realisation A/c Loss on Realisations
₹ 20,000 ___________? ₹ 4,000
2) Creditors Bills Payable Third-Party Liabilities
₹ 16,000 ₹ 12,000 ___________?
3) Credit side total of Realisation A/c Debit side total of Realisation A/c Profit of realisation
₹ 21,000 ₹ 16,000 ___________?
4) Debit side total of Capital A/c Credit side total of Capital A/c Cash brought by partner
₹ 51,000 __________? ₹ 17,000
5) capital deficiency Cash brought by Insolvent Partner Insolvent loss
________? ₹ 7,000 ₹ 21,000

SOLUTION:

1) Debit side total of Realisation A/c Credit side total of Realisation A/c Loss on Realisations
₹ 20,000 ₹ 16,000 ₹ 4,000
2) Creditors Bills Payable Third-Party Liabilities
₹ 16,000 ₹ 12,000 ₹ 28,000
3) Credit side total of Realisation A/c Debit side total of Realisation A/c Profit of realisation
₹ 21,000 ₹ 16,000 ₹ 5,000
4) Debit side total of Capital A/c Credit side total of Capital A/c Cash brought by partner
₹ 51,000 ₹ 34,000 ₹ 17,000
5) capital deficiency Cash brought by Insolvent Partner Insolvent loss
₹ 28,000 ₹ 7,000 ₹ 21,000

PRACTICAL PROBLEM [PAGES 244 - 250]

Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board Chapter 6 Dissolution of Partnership Firm Practical problem [Pages 244 - 250]

  • Practical problem | Q 1 | Page 244

    Ganesh and Kartik are partners sharing Profits and Losses equally. They decided to dissolve the firm on 31st March 2018. Their Balance Sheets was as under. VIEW SOLUTION

  • Practical problem | Q 2 | Page 244

    Leela, Manda, and Kunda are partners in the firm ‘Janki Stores’ sharing Profits and Losses in the ratio of 3:2:1 respectively. On 31st March 2018, they decided to dissolve the firm when their Balance Sheet was as under. VIEW SOLUTION

  • Practical problem | Q 3 | Page 245

    Shailesh and Shashank were partners sharing Profits and Losses in the ratio of 3:2. Their Balance Sheet as on 31st March 2019 was as follows. VIEW SOLUTION

  • Practical problem | Q 4 | Page 245

    Asha, Usha, and Nisha were partners sharing Profits and Losses in the ratio of 2:2:1. The following is the Balance Sheet as on 31st March 2019. VIEW SOLUTION

  • Practical problem | Q 5 | Page 246

    Seeta and Geeta are partners in the firm sharing Profits and Losses in the ratio of 4:1. They decided to dissolve the partnership on 31st March 2020 on which date their Balance Sheet stood as follows. VIEW SOLUTION

  • Practical problem | Q 6 | Page 246

    Sangeeta, Anita, and Smita were in partnership sharing Profits and Losses in the ratio 2:2:1. Their Balance Sheet as on 31st March 2019 was as under. VIEW SOLUTION

  • Practical problem | Q 7 | Page 247

    Saiesh, Sumit, and Hemant were in partnership sharing Profits and Losses in the ratio 2:2:1. They decided to dissolve their partnership firm on 31st March 2019 and their Balance Sheet on that date stood as. VIEW SOLUTION

  • Practical problem | Q 8 | Page 248

    Sitaram, Gangaram, and Rajaram are partners sharing Profits and Losses in the ratio of 4:2:3. On. 1st April 2019 they agreed to dissolve the partnership, their Balance Sheet was as follows. VIEW SOLUTION

  • Practical problem | Q 9 | Page 248

    Following is the Balance Sheet of Vaibhav, Sanjay, and Santosh. VIEW SOLUTION

  • Practical problem | Q 10 | Page 249

    Shweta, Nupur, and Sanika are partners sharing Profits and Losses in the ratio of 3:2:1. Their Balance Sheet as on 31st March 2019 was as follows. VIEW SOLUTION

  • Practical problem | Q 11 | Page 249

    Following is the Balance Sheet as on 31st March 2019 of a firm having Three equal partners Priti, Priya, and Prachi. VIEW SOLUTION

  • Practical problem | Q 12 | Page 250

    Shashwat and Shiv are equal partners. Their Balance Sheet stood as under. VIEW SOLUTION

Book-keeping and Accountancy 12th Standard HSC Maharashtra State Board. Latest Syllabus.

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Difficult Words & Meanings

  • Dissolution: The act of officially ending a partnership or company; closing down the business.
  • Partnership Firm: A business owned and managed by two or more individuals (partners) who share profits or losses.
  • Assets: Things of value owned by the business (e.g., cash, buildings, machinery).
  • Liabilities: Debts or financial obligations of the business to others (e.g., loans, amounts owed to suppliers).
  • Realisation Account: A special account opened when a partnership firm is dissolved, to record the selling of assets and payment of liabilities.
  • Solvent: Able to pay all debts; having more assets than liabilities.
  • Insolvent: Unable to pay debts; having more liabilities than assets. A partner is insolvent if they cannot pay their share of the firm's losses or their personal debts.
  • Deficiency: A shortage or lack of something. In accounting, it often refers to a situation where liabilities exceed assets, or a partner's capital account has a debit balance they cannot cover.
  • Credited (in accounting): An entry on the right-hand side of an account, usually representing an increase in liability, equity, or income, or a decrease in an asset or expense.
  • Debited (in accounting): An entry on the left-hand side of an account, usually representing an increase in an asset or expense, or a decrease in liability, equity, or income.
  • Unrecorded Liability: A debt or obligation that was not previously listed in the company's books of account.
  • Book Value: The value of an asset or liability as recorded in the company's accounting records (balance sheet).
  • Winding up: The process of closing down a business, selling its assets, paying its debts, and distributing any remaining amount to the owners.
  • Contingent Liabilities: Potential liabilities that may arise in the future depending on the outcome of an uncertain event (e.g., a pending lawsuit).
  • Discharge (of liabilities): The act of paying off or settling debts.
  • Bank Overdraft: A facility allowing a bank account holder to withdraw more money than is actually in the account, up to an agreed limit. It's a short-term loan.
  • Sundry Liability: Various small liabilities that are grouped together; miscellaneous debts.
  • Third-Party Liability: Debts owed by the firm to outsiders (i.e., not to the partners themselves).
  • Capital Deficiency: When a partner's share of losses exceeds their capital contribution, resulting in a debit balance in their capital account that they are unable to pay.
  • Discrimination: Treating different people or groups unfairly. In this context, it means all partners (solvent or insolvent) are initially assigned their share of realisation loss.
  • Proportion: A part, share, or number considered in comparative relation to a whole; a ratio.
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