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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, which action should be completed before distributing cash to the partners?

Answer and explanation

Correct answer: Realisation of the firm’s assets into cash

In dissolution, the firm’s assets are first realised, meaning they are converted into cash. This cash is then used to settle external liabilities and the partners’ claims; therefore, asset realisation must precede cash distribution to the partners. New capital, dividend declaration and production planning are not steps in the dissolution process. Exam tip: remember the sequence—realise assets, pay liabilities, and then distribute the remaining cash to the partners.

Related tags

Partnership DissolutionRealisation Of AssetsCash DistributionDissolution ProcessAccountancy 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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