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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessEasy
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When are the external liabilities paid during the dissolution process of a firm?

Answer and explanation

Correct answer: During dissolution, before making payments to partners

During dissolution, the amount realised from the firm’s assets is first used to pay external liabilities. Payments to partners’ loans and then to partners’ capital are made afterward. Therefore, formation, earning a profit, or the normal year-end is not the correct time. Exam tip: Remember the order—external liabilities, partners’ loans, and partners’ capital.

Related tags

DissolutionExternal LiabilitiesRealisation AccountClosing BusinessPartnership AccountingClosing The BusinessDissolution Of A Partnership FirmAccountancy
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10 more MCQs
  1. 1What is the process of permanently closing a partnership firm and ending its existence called?
  2. 2Which account is prepared at the time of dissolution of a firm to determine the profit or loss arising from the settlement of its assets and external liabilities?
  3. 3What is generally done with the assets of a partnership firm at the time of its dissolution?
  4. 4On dissolution of a partnership firm, from what are the external liabilities generally paid?
  5. 5To which account is the realisation profit transferred?
  6. 6To which account is the realisation loss transferred?
  7. 7What happens to the existence of the firm after dissolution?
  8. 8Dissolution expenses are generally debited to which account?
  9. 9At the time of dissolution, if an asset is sold for ₹10,000, what amount will be credited to the Realisation Account?
  10. 10On dissolution of a firm, to whom is the final cash balance paid after settling outside liabilities and other amounts due?
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