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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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At the time of dissolution of a partnership firm, a liability of ₹22,000 is settled for ₹21,500. What is the gain on this settlement?

Answer and explanation

Correct answer: ₹500

The liability recorded in the books was ₹22,000, but only ₹21,500 was paid. Therefore, gain = ₹22,000 − ₹21,500 = ₹500. When a liability is settled for less than its book value during dissolution, the gain is credited to the Realisation Account. Exam tip: Gain on settlement of a liability = book value of liability − amount actually paid.

Related tags

Partnership DissolutionLiability SettlementRealisation AccountAccounting GainClosing The BusinessDissolution Of A Partnership FirmAccountancyClass 12 Mcq
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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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