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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessHard
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At the time of dissolution, a book liability of ₹12,000 was settled for ₹11,000. What effect will this have on the Realisation Account?

Answer and explanation

Correct answer: Profit of ₹1,000

The liability stood at ₹12,000 in the books, but only ₹11,000 was paid to settle it. The saving of ₹1,000 is a gain for the firm and is recorded as a profit in the Realisation Account. Therefore, option A is correct. Exam tip: settling a liability for less than its book value gives a gain, while settling it for more gives a loss.

Related tags

DissolutionRealisation AccountLiabilitiesClosing 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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