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Monday, November 25, 2013

MCQ - Dissolution of Partnership

I. Multiple Choice Questions: Choose the correct answer to the following:
1. Under Garner Vs Murray Rule, the insolvency loss should be borne by solvent partners according to
(a) Capital ratio (b) Profit sharing ratio (c) Final claims ratio (d) Maximum loss ratio.

2. A firm is unable to pay its debts when
(a) A partner is insolvent (b) A partner has debit balance (c) The firm is insolvent (d) None of the above.

3. Realisation A/c is a
(a) Nominal A/c (b) Real A/c (c) Personal A/c (d) None of the above.


4. When the realisation expenses are to be borne by a partner, it is credited to:
(a) Partner's capital A/c (b) Cash A/c (c) Realisation A/c (d) Profit & Loss A/c.

5. At the time of dissolution of a firm, assets taken over by a partner should be
(a) Credited to Realisation A/c (b) Debited to Realisation A/c (c) Realisation A/c should neither be debited nor credited (d) None of the above.

6. An unrecorded asset realised at the time of realisation is credited to:
(a) Realisation A/c (b) Revolution A/c (c) Capital Accounts.

7. Unrecorded liability when paid on dissolution of a firm is debited to
(a) Realisation A/c (b) Liability A/c (c) Partner's Capital A/c

8. Profit or loss on realisation should be divided among partners in the.
(a) Profit sharing ratio (b) Equally (c) Capital ratio

9. Provision for doubtful debts appearing at the time of dissolution of a firm transferred to:
(a) Debtors A/c (b) Realisation A/c (c) Cash A/c

10. General reserve appearing at the time of dissolution is transferred to
(a) Bank A/c (b) Realisation A/c (c) Capital A/c’s.

11. As per the dissolution of Garner Vs. Murray, the solvent partners are to bring cash equal to their share of loss:
(a) Personal debts (b) Bad debts (c) Realisation

12. Goodwill A/c is closed at the time of dissolution by transferring to:
(a) Realisation A/c (b) Liability A/c (c) Capital A/c

13. Proportionate Capital Method is otherwise called:
(a) Relative capital method (b) Maximum loss method (c) Balance method.

14. Joint life policy reserve appearing at the time of dissolution of a firm is transferred to
(a) Capital A/c’s (b) Realisation A/c (c) Neither two

15. Realisation made in parts is called
(a) Distribution of capital (b) Piece meal distribution (c) Equal share.

16. At the time of dissolution, all the assets of the firm are transferred to the realisation account at ________ values.
(a) Market (b) Book (c) Asset

17. On the insolvency of all the partners of a firm, the loss should be borne by
(a) All partners in their capital ratio (b) All partners in their profit sharing ratio (c) The creditors.

18. On the insolvency of a partner, the loss on account of the insolvent partner should be borne
(a) Equally (b) In profit sharing ratio (c) In the ratio of capitals after solvent partners bring cash equal to their share of loss on realisation.

19. The first step in the dissolution process is to:
(a) Prepare a balance sheet on the date of dissolution; (b) Distribute the available cash to the creditors;
(c) None of these.

20. A solvent partner will have to bear the deficiency of an insolvent partner when he has a
(a) Credit capital balance (b) Debit or nil capital balance (c) None of these

21. On Dissolution of a firm, Cash in hand is transferred to ________
(a) Realisation Account (b) Partners Capital Account (c) Cash Account (d) Creditors Account

22. On dissolution of a Partnership, the realisation account is debited with:
(a) All the liabilities of the firm (b) Cash received from the sale of the assets (c) All assets to be realised (d) Any assets taken over by one of the partners

23. On dissolution of a firm, creditors are paid out of:
(a) Profits on realisation (b) Contribution by partners, realised assets and profits (c) Realised assets , profits, contribution by partners (d) None of the above

II. Fill in the blanks with the appropriate word/words:
1. A partnership firm comes to an end when the activities of the firm become Unlawful.
2. When a firm decides to close its business, it is said to be Dissolved.
3. Dissolution of a Firm is different from dissolution of Partnership.
4. The firm is compulsorily Dissolved when all the partners or all excepting one partner die.
5. The firm is dissolved by Court when a partner becomes of unsound mind.
6. The firm is dissolved by Agreement when all the partners give their consent.
7. If a partner takes over any liability, which is not recorded the amount is to be credited to Realisation A/C.
8. The expenses of realisation are debited to realisation A/c.
9. Unrecorded liability paid at the time of dissolution is debited to Realisation Account and credited to cash account.
10. Unrecorded assets realised at the time of dissolution is debited to cash Account and credited to realisation account.
11. Goodwill account appearing in the books on the dissolution date is closed by transferring it to debit side of the realisation account.
12. Entry for the asset taken over by a creditor is not made but entry for the net payment to the creditor is made.
13. After making payment to third parties, the loan due to a partner is paid.
14. The practice before Garner Vs Murray, in the absence of any agreement to the contrary, the deficiency of the insolvent partner must be borne by other solvent partners in proportion to Profit and loss sharing ratio.
15. After Garner Vs Murray decision, in the absence of any agreement to the contrary, the deficiency of the insolvent partner must be borne by other solvent partners in proportion to Profit and loss sharing ratio.

III. Given below are certain statements. Some of these statements are true and some of these are false. Write T’ against true statement and ‘F’ against false statements.
a)         Realisation is a real account. F
b)         On the dissolution of a firm the firm is closed, whereas on dissolution of the partnership, the share of the outgoing partner is determined and the firm is not closed. B
c)          While determining the capital ratio of solvent partners in which deficiency of the insolvent partner is to be borne by the solvent partners, distinction should not be made between fixed and fluctuating capitals. F
d)         Before Garner vs. Murray decision, no distinction was made between trading and capital loss. T
e)         If some solvent partner is having a debit balance in his capital account on dissolution date, he will not have to bear the loss on account of the deficiency of the insolvent partner. T
f)          At the time of dissolution an account including cash and bank are transferred to realisation account. F
g)         On dissolution of a firm, business operations of the firm are closed down. T
h)         After the preparation of realisation account, Gain or loss of realisation account transferred to Partners capital account. T
i)           Amount realised from the sale of an unrecorded asset is recorded in Realisation Account. T
j)           Balance of general reserve is transferred to partners’ capital account. T
k)         Realisation expenses paid by the partners on behalf of the firm are recorded in realisation account and partners capital account. T
l)           When partnership is dissolved, a liability taken by partner is debited to his capital A/c. F
m)       As per the decision in Garner vs. Murray, a distinction should be made between trading losses and losses arising due to capital deficiency of insolvent partners. T
n)         If any partner has a debit balance in his capital A/c, then he is required to bring in Cash to clear it off. T
o)         Garner vs. Murray does not apply when the firm is having only two partners. T
p)         A secured creditor always stands in a stronger position than an unsecured creditor. T
q)         The joint estate of the partners as a firm and their separate estates as individuals are administered separately. T
r)          Partner’s capitals are transferred to the Realisation Account with other liabilities of the firm. F
s)          Partner's loan is transferred to the Realisation Account. F
t)          Advance to a partner is transferred to Realisation Account. F
u)         Loan from the wife of a partner is not transferred to Realisation Account. F
v)         Employee’s provident fund is transferred to the Capital accounts of the partners in their profit sharing ratio. F
w)       Investment Fluctuation Reserve is transferred to the Realisation Account. T
x)         Realisation account is prepared to find out the net effect of realisation of various assets and payment of various liabilities. T
y)         All fictitious assets are transferred to the partners' capital accounts in the ratio of their respective capitals. F
z)          Partner's private assets are first used for payment of partner's private debts. T
aa)      Firm's assets are first used for payment of firm's debts. T
bb)     The liability of the partners is joint and several. T