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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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At the time of dissolution, a liability had a book value of ₹14,000 and was settled for ₹14,600. What loss did the firm incur?

Answer and explanation

Correct answer: ₹600

The firm paid more than the book value of the liability. Loss = settlement amount − book value = ₹14,600 − ₹14,000 = ₹600. Therefore, ₹600 is correct. ₹14,000 is the original liability amount, not the loss. Exam tip: settling a liability for more than its book value results in a loss; settling it for less results in a gain.

Related tags

Partnership DissolutionRealisation AccountLiability SettlementLoss CalculationAccountancy 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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