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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessHard
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On dissolution of a firm, when is the remaining cash finally distributed among the partners?

Answer and explanation

Correct answer: After paying all external liabilities, realization expenses and partners’ loans

On dissolution, assets are first realized, and the cash generated is used to pay realization expenses, external liabilities and partners’ loans. Only the remaining cash is then distributed towards settlement of the partners’ capital accounts. Hence, A is correct. C is incorrect because partners’ loans must also be settled before returning capital. Exam tip: remember the order—external liabilities, partners’ loans, and then partners’ capital.

Related tags

Dissolution Of PartnershipClosing The BusinessRealization AccountPartners LoansCash DistributionDissolution 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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