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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessEasy
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During the dissolution of a partnership firm, what is the next major step after cash is realised from the sale of all assets?

Answer and explanation

Correct answer: Paying external liabilities

At dissolution, the cash realised from selling assets is first used to pay external liabilities, such as creditors and bills payable. The partners’ loans and capital accounts are settled afterwards. Therefore, option A is correct; the other options involve continuing or expanding the business, which is contrary to dissolution. Exam tip: remember the usual sequence—realise assets, pay external liabilities, and then settle the partners’ accounts.

Related tags

Partnership DissolutionRealisation AccountExternal LiabilitiesClosing BusinessAccountancy Class 12Closing 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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