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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessHard
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At the time of dissolution of a partnership firm, liabilities of ₹50,000 are settled for ₹48,000. What effect will this have on the Realisation Account?

Answer and explanation

Correct answer: Profit of ₹2,000

The liability has a book value of ₹50,000 but is settled for only ₹48,000. In the Realisation Account, the liability is credited with ₹50,000 and the amount paid is debited as ₹48,000. Therefore, the net gain is ₹2,000, which is recorded as a profit in the Realisation Account. Exam tip: settling a liability below its book value creates a gain; settling it above book value creates a loss.

Related tags

Partnership DissolutionRealisation AccountSettlement Of LiabilitiesClosing 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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