CBSE Class 12 Accountancy Dissolution Of Partnership Firm MCQs Set 03

Question. At the time of dissolution of the firm , if goodwill appears in the balance sheet , it is transferred to
(a) Capital A/c
(b) Revaluation A/c
(c) Realisation A/c
(d) Current Account

Answer : C

Question. Section __ of the Indian Partnership Act provides that a new partner shall not be inducted into a firm without the consent of all existing partners
(a) 40
(b) 35
(c) 31
(d) 45

Answer : C

Question. At the time of dissolution of firm, at which stage the balance of partner’s capital accounts is paid?
(a) After making the payment to third party’s loans
(b) Before making the payment of partners in respect of their loans
(c) After making the payment to third party for their loans as well as partners loans
(d) None of the above.

Answer : C

Question. Revaluation Account is also known as ________
(a) Profit and Loss Adjustment Account
(b) Asset Account
(c) Profit and Loss Account
(d) None of the options

Answer : A

Question. At the time of increase in the value of assets which account should be debited while preparing Revaluation Account?
(a) Asset A/c
(b) Partners Capital A/c
(c) Revaluation Account
(d) None of the options

Answer : A

Question. Why is realisation account prepared
(a) Closing the accounts
(b) Opening the account
(c) For profit sharing
(d) None of the optionsa

Answer : A

Question. How will goodwill account appearing in the balance sheet be treated in case of dissolution of the firm
(a) By transferring to realisation A/c (Dr. Side)
(b) By transferring to realisation A/c (Cr. Side)
(c) Both Side
(d) None of the options

Answer : A

Question. How will you treat accumulated profit/losses at the time of dissolution of the firm
(a) Transferred to partners Capital A/C
(b) Transferred to partners Salary A/C
(c) Transferred to partners Capital A/C
(d) None of the options

Answer : C

Question. Revaluation account is not prepared at the time of _________________
(a) Dissolution
(b) Admission
(c) Retirement
(d) All of the options

Answer : A

Question. Why new profit ratio is determined even for old partners?
(a) Change in the agreement among all partners
(b) No change in agreement
(c) Due to change in external environment
(d) All of the options

Answer : A

Question. Sacrificing ratio is calculated for
(a) old partners
(b) new partners
(c) all partners (including new)
(d) None of the options

Answer : A

Question. Gaining Ratio is Applicable for:
(a) Retiring partners share of goodwill only
(b) For the distribution of Reserves and profits
(c) For the Calculation of profit
(d) For Revaluation

Answer : A

Question. Why there is need to calculate New profit share ratio
(a) After retirement of a partner, there will be change in the continuing partners ratio.
(b) After retirement of a partner, there is no change in the continuing partners ratio.
(c) To settle the loan amount due to outgoing partner
(d) All of the options

Answer : A

Question. Why is Profit and Loss Adjustment Account prepared
(a) To record those transaction and errors which were left while preparing the final accounts
(b) To record those transaction which were left while preparing the revaluation A/c
(c) To record those transaction which were left while preparing the Capital A/c
(d) None of the options

Answer : A

Question. If total assets are Rs.2,00,000; total liabilities are Rs.40,000; amount realised on sale of assets is Rs. 1,75,000 and realisation expenses are Rs.3,000, the profit or loss on realisation will be :
(a) Profit Rs. 12,000
(b) Loss Rs.68,000
(c) Loss Rs.28,000
(d) Loss Rs.25,000

Answer : C

Question. Profit and loss appropriation A/c is prepared to
(a) Find out divisible profit
(b) Create reverse fund
(c) Find out net profit
(d) None of the options

Answer : A

Question. On firm’s dissolution which of the following account is prepared at the last?
(a) Realisation account
(b) partners capital account
(c) cash account partners
(d) loan account

Answer : C

Question. On dissolution of a firm fictitious assets are transferred to:
(a) credit side of partners capital account
(b) debit side of realisation account
(c) debit side of partners capital account
(d) credit side of realisation account

Answer : C

Question. On dissolution, Goodwill Account is transferred to
(a) In the Capital Accounts of Partners.
(b) On the Credit of Cash Account.
(c) On the Debit of Realisation Account
(d) On the Credit of Realisation Account.

Answer : C

Question. Reason for preparing Profit and Loss suspense Account is to
(a) Adjust the profit of deceased partner
(b) Adjust the Revaluation profit
(c) Adjust the capital of deceased partner
(d) Adjust the Revaluation loss

Answer : C

Question. At the time of dissolution partner gives his personal asset to firm’s creditor in settlement, the account credited will be
(a) Realisation A/c.
(b) Partner’s Capital A/c.
(c) Cash A/c.
(d) Creditor’s A/c.

Answer : B

Question. W, X, Y and Z are equal partners, W, X and Z died together in plane crash, this accidents results in
(a) None of the options
(b) Dissolution of partnership
(c) Dissolution of firm
(d) Dissolution of partnership as well as firm

Answer : D

Question. On dissolution of a firm, a partner’s capital account has a credit balance of Rs.42,000. His share of profit in realisation account is Rs. 9,000. He has paid firm’s realisation expenses Rs.3,000. He will finally get a payment of:
(a) Rs.39,000
(b) Rs.42,000
(c) Rs.54,000
(d) Rs.48,000

Answer : C

Question. Is admission of a new partner a reconstitution of partnership firm:
(a) It is dissolution of firm
(b) Yes
(c) It is called merger
(d) None of the options

Answer : B

Question. The incoming partner cannot acquire his share of profits :
(a) From the old partners in their old profit sharing ratio
(b From one or more partners (not from all partners)
(c) From the old partners in some agreed ratio
(d) From the old partners in their new profit sharing ratio

Answer : D

Question. At the time of admission of a new partner, the new partner acquires his share from the old partners in the:
(a) Sacrificing ratio
(b) New Ratio
(c) New Ratio
(d) Old ratio

Answer : A

Question. Revaluation Account is also known as ________
(a) Profit and Loss Adjustment Account
(b) Asset Account
(c) Profit and Loss Account
(d) None of the options

Answer : A

Question. Gaining ratio is the ratio in which continuing partners have ______ the share from the outgoing partner
(a) Sacrificed
(b) Both Acquired and Sacrificed
(c) None of the options
(d) Acquired

Answer : D

Question.At the time of dissolution of partnership an unrecorded asset taken by X a partner is debited to:
(a) X capital account
(b) realisation account
(c) cash account
(d) none of the above

Answer : A

Question. Realisation account is a :
(a) personal account
(b) real account
(c) nominal account
(d) none of the above.

Answer : C

Question. On dissolution of a firm in which ratio profit and loss on realisation is distributed among the partners:
(a) capital ratio
(b) profit sharing ratio
(c) equally
(d) in the ratio of amount due to each partner.

Answer : B

Question. On dissolution the balance of partners capital account appearing on the credit side of the balance sheet is transferred to :
(a) debit side of realisation account
(b) credit side of realisation account
(c) debit side of partners capital account
(d) credit side of partners capital account.

Answer : D

Question. AB and C are partners. The firm had given a loan of Rs20,000 to (b) They decided to dissolve the firm. In the event of dissolution the loan will be settled by transferring it to the:
(a) debit side of realisation account
(b) transferring it to the credit side of realisation account
(c) transfer it to the debit side of B’s capital account
(d) B paying A and C privately.

Answer : C

Question. Sundry creditors amounted to ₹ 8,000. They were paid at a discount of 5 %. Realisation A/c will be debited by :
(a) ₹ 8,000
(b) ₹ 7,600
(c) ₹ 400
(d) ₹ 8,400

Answer : B

Question. Why is realisation account prepared
(a) Closing the accounts
(b) Opening the account
(c) For profit sharing
(d) None of the options

Answer : A

Question. At the time of dissolution of the firm , the assets and liabilities appearing in the balance sheet are transferred to
(a) Realisation A/c
(b) Real Account
(c) Capital A/c
(d) None of the options

Answer : A

Question. Why a new partner is admitted in the firm?
(a) For Increase the Capital of the firm.
(b) For Increase the Number of partners
(c) For Increase the Profit sharing Ratio
(d) None of the options

Answer : A

Question. When the New ratio is deducted with Old Ratio we get:
(a) Sacrifice only
(b) Profit Sharing ratio
(c) None of the options
(d) Gaining Ratio

Answer : D

Question. New Ratio Old Ratio is called
(a) Gaining Ratio
(b) Profit Sharing ratio
(c) Sacrificing ratio
(d) None of the options

Answer : A

Question. How sacrificing ratio is differ from gaining ratio on the basis of mode of calculation
(a) calculated by taking difference between old and new ratio
(b) calculated by taking difference between new and old ratio
(c) calculated by taking difference between old and gaining ratio
(d) None of the options

Answer : A

Question. Gaining Ratio is Applicable for:
(a) Retiring partners share of goodwill only
(b) For the distribution of Reserves and profits
(c) For the Calculation of profit
(d) For Revaluation

Answer : A

Question. At the time of dissolution of firm, at which stage the balance of partner’s capital accounts is paid?
(a) After making the payment to third party’s loans
(b) Before making the payment of partners in respect of their loans
(c) After making the payment to third party for their loans as well as partners loans
(d) None of the above.

Answer : C

Question. If creditors are Rs.25,000, capital is X 1,50,000 and cash balance is X 10,000, what will be the amount of sundry assets?
(a) Rs. 1,75,000
(b) X 1,85,000
(c) X 1,65,000
(d) X 1,40,000

Answer : C

Question. Amount received from sale of unrecorded asset at the time of dissolution ofthe firm is credited to
(a) Partners’ Capital Accounts.
(b) Profit and Loss Account.
(c) Realisation Account.
(d) Cash Account.

Answer : C

Question. At the time of dissolution of the firm , if goodwill appears in the balance sheet , it is transferred to
(a) Realisation A/c
(b) Revaluation A/c
(c) Capital A/c
(d) Current Account

Answer : A

Question.On dissolution of the firm amount received from sale of unrecorded asset is credited to :
(a) partner’s capital account:
(b) profit and loss account
(c) cash account
(d) realisation account

Answer : D

Question.New ratio is not to be calculated on:
(a) Admission of a partner
(b) retirement of a partner
(c) death of a partner
(d) dissolution of a partnership

Answer : D

Question. At the time of firm’s dissolution credit balance of profit and loss account is credited to :
(a) realisation account
(b) partners capital account
(c) cash account
(d) profit and loss account.

Answer : B

Question. The modes by which a firm may be dissolved are
(a) All of the options
(b) By Mutual agreement
(c) Compulsory Dissolution
(d) By Notice

Answer : A

Question 1. Realisation Account is a:
(a) Personal Account
(b) Real Account
(c) Nominal Account
(d) None of these
Answer: (b) Real Account
In simple words: A Realisation Account tracks the sale of assets during the dissolution process. It is a real account because it deals with tangible items and their movement, not fictitious or personal items.

Exam Tip: Remember that real accounts are those which record assets and liabilities - they continue to exist even after the transaction is complete. Realisation Account follows this principle.

Question 2. At the time of dissolution, all assets are transferred to Realisation Account at their:
(a) Realised value
(b) Market value
(c) Book value
(d) Cost or market price whichever is less.
Answer: (c) Book value
In simple words: When assets move to the Realisation Account, they are recorded at the value shown in the books (book value), not at what they might be worth in the market or what was paid for them originally.

Exam Tip: Assets are always transferred at book value because this reflects what the partnership had recorded in its accounts before dissolution began.

Question 3. When an unrecorded asset is sold on dissolution, it is credited:
(a) Revaluation Account
(b) Realisation Account
(c) Asset Account
(d) All Partners' capital Accounts
Answer: (b) Realisation Account
In simple words: Unrecorded assets (those not shown in the books) are still part of dissolution. When sold, the money received is credited to Realisation Account because that account handles all asset sales during the wind-up process.

Exam Tip: Any asset - whether recorded in the books or not - gets credited to Realisation Account when it is sold. This centralizes all asset realization activity in one place.

Question 4. Provision for doubtful debts appearing in the books at the time of dissolution of firm is transferred to:
(a) Debtors Account
(b) Bad Debts Account
(c) Realisation Account
(d) Partner's Capital Accounts
Answer: (c) Realisation Account
In simple words: A provision for doubtful debts is a reserve set aside for debts that may not be recovered. During dissolution, this provision moves to Realisation Account because that account handles all the adjustments related to asset realization.

Exam Tip: All provisions and reserves related to assets are transferred to Realisation Account on dissolution - they must be reversed so that the actual outcome can be shown clearly.

Question 5. Accumulated losses at the time of dissolution are transferred to:
(a) Realisation Account
(b) Partners' Capital Account
(c) Cash Account
(d) None of the above
Answer: (b) Partners' Capital Account
In simple words: Accumulated losses that built up over the years are now shared among the partners based on their profit-sharing ratio. These losses are moved to their capital accounts so they reduce the final amount each partner receives.

Exam Tip: Past losses belong to the partners in their agreed profit ratio - they must be transferred to capital accounts before the final settlement is made.

Question 6. On dissolution, a partner's loan is:
(a) transferred to Realisation Account
(b) transferred to Partner's Capital Account
(c) not transferred to Realisation Account
(d) transferred to Profit and Loss Account
Answer: (c) not transferred to Realisation Account
In simple words: A partner's loan is money the partner lent to the firm, separate from their capital. It is not part of asset realization, so it stays out of Realisation Account and is paid back directly to the partner.

Exam Tip: Partner's loans have priority in payment - they are treated as liabilities of the firm, not as part of the asset realization process.

Question 7. On dissolution, Goodwill Account is transferred to:
(a) Revaluation Account
(b) Realisation Account
(c) Partners' Capital Accounts
(d) Profit and Loss Account
Answer: (b) Realisation Account
In simple words: Goodwill is the extra value of the business over its tangible assets. When the firm dissolves, goodwill is transferred to Realisation Account because it needs to be written off or sold as part of winding up the business.

Exam Tip: Goodwill is typically written off in full during dissolution unless specifically sold - it transfers to Realisation Account where it is cleared.

Question 8. Profit or loss on realisation is shared by partners in:
(a) Capital ratio
(b) Equal ratio
(c) Ratio laid down in Garner vs Murray
(d) Profit-sharing ratio.
Answer: (d) Profit-sharing ratio.
In simple words: Any gain or loss that occurs when assets are sold during dissolution is split among partners using the same profit-sharing ratio they had agreed to in the partnership. This keeps the arrangement fair and consistent.

Exam Tip: Realisation profit or loss follows the profit-sharing ratio unless the partnership deed states otherwise - this is the default rule for distributing dissolution gains or losses.

Question 9. The balances of Current Accounts, on Dissolution of a firm are transferred to:
(a) Cash Account
(b) Capital Accounts
(c) Profit and Loss Account
(d) Realisation Account
Answer: (b) Capital Accounts
In simple words: Current Accounts show running balances of transactions with each partner during the firm's life. When dissolution happens, these balances are moved to Capital Accounts so all monies owed to or from each partner can be settled together.

Exam Tip: Current Account balances are merged with Capital Accounts on dissolution - this consolidates all amounts due to or from each partner in one account.

Question 10. When realisation expenses are borne and paid by the firm, then such payment is debited to:
(a) Partner's Capital Account
(b) Realisation Account
(c) All Partners' Capital Accounts
(d) None of the above
Answer: (b) Realisation Account
In simple words: Realisation expenses are the costs of selling assets and winding up the business. If the firm pays these costs directly, they are recorded as debits to Realisation Account because that account tracks all expenses tied to the dissolution process.

Exam Tip: All costs of dissolution - like auction fees, legal charges, or advertising for asset sales - go to Realisation Account as debits. They reduce the final profit available to distribute.

Question 11. Which of the following is not debited to Realisation Account?
(a) Liabilities paid
(b) Unrecorded liabilities when paid
(c) Realisation Expenses
(d) Assets when realised
Answer: (d) Assets when realised
In simple words: When assets are sold or realised, the cash or credit received is credited to Realisation Account, not debited. Assets themselves are debited when first transferred, but the proceeds from their sale are credited. All other items listed are debited to Realisation Account.

Exam Tip: Remember the pattern: debits include opening balances of assets and expenses; credits include sale proceeds and liability payments. Assets being realised means their sale proceeds go in as credits.

Question 12. Generally, which of the following accounts are merged at the time of dissolution?
(a) Cash and Bank Accounts
(b) Partners' Capital Accounts and Goodwill Account
(c) Bank and Expenses Accounts
(d) Unrecorded assets and Unrecorded liabilities accounts
Answer: (a) Cash and Bank Accounts
In simple words: During dissolution, the firm may have both a Cash Account and a Bank Account. These are combined into one because they both represent money the firm holds, just in different places. Merging them simplifies tracking the firm's total liquid resources during wind-up.

Exam Tip: Cash and Bank Accounts are combined for simplicity because they serve the same purpose - holding the firm's money. All other accounts are kept separate until the final distribution.

Question 13. Accumulated profits and losses are transferred to which account at the time of dissolution?
(a) Partners' Capital Accounts
(b) Realisation Account
(c) Bank Account
(d) All of the above
Answer: (a) Partners' Capital Accounts
In simple words: Profits and losses built up by the firm over its life belong to the partners. On dissolution, these are moved to the partners' Capital Accounts where they increase or decrease each partner's final share, using the profit-sharing ratio.

Exam Tip: Accumulated profits increase capital balances; accumulated losses reduce them. Both are transferred based on the profit-sharing ratio to determine final payouts.

Question 14. Which of the following has a priority in case of payment at the time of dissolution?
(a) Partner with greater share of profit
(b) Partner who bear realisation expenses
(c) Partner's loan
(d) Partner with lower share of profit
Answer: (c) Partner's loan
In simple words: A partner's loan is money the partner lent to the firm, different from capital. These loans are treated as debts of the firm and get paid first before distributing any remaining cash to partners as returns on their capital.

Exam Tip: Priority order in dissolution is: outside creditors first, then partner's loans, then capital repayment. Partner's loans rank higher than capital distribution.

Question 15. At the end of the process of dissolution, no balance should remain in:
(a) Cash and Bank Account
(b) Partners' Capital Accounts
(c) Realisation Account
(d) Revaluation Account
Answer: (c) Realisation Account
In simple words: The Realisation Account is a temporary account used only during dissolution. By the end of the process, all its balance (profit or loss) has been transferred to the partners' capital accounts. This means Realisation Account should show zero balance at the end.

Exam Tip: Realisation Account must have a zero balance once dissolution is complete - all its profit or loss has been distributed. This is how you verify that dissolution has been properly closed out.

Question 16. Realisation expenses of Rs.15,000 were paid by firm on behalf of Vikas, a partner. Which of the following journal entry will be passed?
(a) Realisation A/c Dr. Rs.15,000
To Cash/Bank A/c Rs.15,000
(b) Realisation A/c Dr. Rs.15,000
To Vikas's Capital A/c Rs.15,000
(c) Vikas's Capital A/c Dr. Rs.15,000
To Cash/Bank A/c Rs.15,000
(d) None of these
Answer: (b) Realisation A/c Dr. Rs.15,000 To Vikas's Capital A/c Rs.15,000
In simple words: When the firm pays realisation expenses on behalf of a partner, the Realisation Account is debited (recording the expense) and the partner's Capital Account is credited (reducing their final claim). The expense reduces what the partner will get back.

Exam Tip: Remember that expenses paid on behalf of a partner are charged to that partner's capital, not directly to cash — this reduces their final settlement amount.

Question 17. Investments of Rs.2,00,000 were not shown in the books. At the time of dissolution, one of the creditors took these investments in full settlement of his debt of Rs.2,20,000. How much amount will be payable to that creditor?
(a) Rs.20,000
(b) Rs.2,20,000
(c) Rs.4,20,000
(d) Nil
Answer: (d) Nil
In simple words: The creditor's debt was Rs.2,20,000. He took investments worth Rs.2,00,000 in full settlement, meaning the settlement is now complete and finished. The firm owes him nothing more — he settled for less than the full debt by accepting the investments, so the payable amount is nothing.

Exam Tip: "Full settlement" means the creditor has accepted the investment in complete satisfaction of his claim — no additional payment is needed, so the answer is Nil.

Question 18. The firm paid realisation expenses of Rs.20,000 on behalf of Rahul, a partner with whom it was agreed Rs.50,000. Realisation expenses came to Rs.70,000. Realisation Account will be debited by:
(a) Rs.20,000
(b) Rs.70,000
(c) Rs.50,000
(d) 1,40,000
Answer: (b) Rs.70,000
In simple words: The Realisation Account records all expenses incurred during the dissolution process. Total realisation expenses paid were Rs.70,000 (Rs.20,000 on behalf of Rahul plus others). The Realisation Account must be debited for the full Rs.70,000, which represents the complete cost of winding up the firm.

Exam Tip: Realisation Account is debited for ALL realisation expenses incurred, regardless of who paid them or on whose behalf they were paid. Total all actual costs and debit that amount.

Question 19. If the firm is dissolved, the partner's personal assets are first used for payment of:
(a) Firm's liability
(b) Personal liabilities
(c) Any of (a) or (b)
(d) None of these
Answer: (b) Personal liabilities
In simple words: A partner's personal assets belong to the partner personally, not to the firm. Under law, a partner's personal assets must first be used to clear their own personal debts and liabilities. Only after personal debts are paid can any remaining assets be used for firm obligations.

Exam Tip: This follows the legal principle of liability separation — personal assets cover personal liabilities first. Firm liabilities are settled using only firm assets.

Question 20. What final payment to a partner on firm's dissolution will be made on the basis of following information. Debit balance of his capital account Rs.7,000, Share of profit on realisation Rs.21,500, Firm's asset taken by him for Rs.8,500.
(a) Rs.15,500
(b) Rs.14,500
(c) Rs.6,000
(d) Rs.30,000
Answer: (c) Rs.6,000
In simple words: Start with the capital account balance of Rs.7,000 (debit means the partner owes the firm). Add the profit share of Rs.21,500 (this increases what he gets). Deduct the asset value taken by him of Rs.8,500 (this reduces what is owed to him). Calculation: -7,000 + 21,500 - 8,500 = Rs.6,000. This is the net amount the firm owes him.

Exam Tip: Clearly calculate the final settlement: start with the opening capital balance, add profit share, subtract withdrawals or assets taken — the result is the final payment due.