CBSE Class 12 Accountancy: NCERT Solutions for Dissolution of Partnership Firm

The statement is true. Dissolution of partnership refers to a change in the existing agreement between partners, which may or may not lead to the closure of the business. For example, a change in profit-sharing ratio dissolves the old partnership but the firm continues. Dissolution of a firm, however, means the business is closed down, and the partnership ceases to exist.

The statement is true. The death of a partner automatically dissolves the partnership because the original partnership agreement was based on the association of all existing partners. Upon the death of a partner, the firm may be reconstituted by the surviving partners, but the original partnership stands dissolved.

The statement is true. A partnership firm can be dissolved at any time with the mutual consent of all the partners. This is one of the primary ways a firm can be dissolved voluntarily.

The statement is false. The retirement of a partner does not necessarily lead to the compulsory dissolution of the firm. The remaining partners can agree to continue the business, forming a new partnership. Compulsory dissolution occurs under specific legal conditions, not simply due to a partner's retirement.

The statement is true. When a firm is dissolved, it means the business is closed, and the partnership ceases to exist. Therefore, the dissolution of the firm inherently includes the dissolution of the partnership that constituted the firm.

The statement is true. According to the Indian Partnership Act, 1932, a firm is compulsorily dissolved if all partners, or all partners except one, are declared insolvent by a court. This is because insolvency renders a partner incapable of fulfilling their contractual obligations.

The statement is true. A court may order the dissolution of a firm if a partner has become of unsound mind and is unable to perform their duties. This typically requires a suit to be filed by a partner or on behalf of a partner seeking dissolution on these grounds.

The statement is false. Dissolution of partnership can occur in several ways without court intervention, such as by mutual agreement of all partners, by the completion of the venture for which the partnership was formed, or upon the expiry of a fixed term.

On the dissolution of a firm, all external liabilities, including bank overdraft, are transferred to the debit side of the Realisation Account. This is done to settle all the firm's obligations before distributing any remaining assets to the partners.

A partner's loan account is not transferred to the Realisation Account. It is treated as a liability separate from the firm's business liabilities and is paid directly to the partner from the firm's assets or funds after all external liabilities are settled. It is settled through a separate loan account or directly via the bank.

In the absence of specific information about the payment of external liabilities like creditors and bills payable, it is assumed that they have been paid in full. Therefore, the amount paid is debited to the Realisation Account and credited to the Bank Account for the full amount appearing in the balance sheet.

When a partner takes over an unrecorded asset, it is credited to the Realisation Account. This is because the asset is being realized (converted into cash or settled) by the partner, and the credit entry reflects this realization. The partner's Capital Account is debited with the agreed value of the asset.

When an unrecorded liability is paid, it is debited to the Realisation Account. This is because the firm is incurring an expense to discharge this liability. The corresponding credit entry is made to the Bank Account, showing the outflow of cash.

Accumulated profits and reserves represent undistributed profits that belong to the partners. Therefore, on dissolution, they are transferred to the credit side of the respective partners' Capital Accounts in their profit-sharing ratio.

After all adjustments and the settlement of the Realisation Account, the final balances in the partners' Capital Accounts (whether debit or credit) are settled through the Bank Account. If a partner has a credit balance, they receive payment from the bank; if they have a debit balance, they pay into the bank.

On dissolution, all tangible and intangible assets of the firm, excluding cash and bank balances and fictitious assets (like preliminary expenses or debit balance of Profit and Loss Account), are transferred to the debit side of the Realisation Account at their book values.

External liabilities, such as creditors, bills payable, and loans from third parties, are transferred to the credit side of the Realisation Account at their book values. Partner's loans are an exception and are not transferred to the Realisation Account.

Accumulated losses, such as the debit balance of the Profit and Loss Account or the balance of the Advertisement Suspense Account, are treated as losses to be borne by the partners. They are debited to the respective partners' Capital Accounts in their profit-sharing ratio.

When a partner takes over a liability of the firm, their Capital Account is debited. This is because the partner is taking on a responsibility that would otherwise have been settled by the firm, effectively reducing their claim on the firm's assets or increasing their contribution.