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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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At the time of dissolution, an unrecorded liability of ₹5,000 is paid. What will be its effect?

Answer and explanation

Correct answer: Realisation profit will decrease

Payment of an unrecorded liability is debited to the Realisation Account and credited to the Bank or Cash Account. This increases the realisation expense, thereby decreasing the realisation profit or increasing the loss. Exam tip: payment of an unrecorded liability is recorded on the debit side of the Realisation Account.

Related tags

Partnership DissolutionRealisation AccountUnrecorded LiabilityAccounting EntriesRealisation ProfitClosing 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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