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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessExpert
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On dissolution of the firm, a liability recorded at ₹12,000 was settled for ₹12,000 less than its book value. What is the effect of this transaction on the Realisation Account?

Answer and explanation

Correct answer: ₹12,000 का लाभ

When a liability is settled for less than its book value, the amount saved is a gain for the firm. Therefore, ₹12,000 is credited as profit to the Realisation Account and is later transferred to the partners’ Capital Accounts in their profit-sharing ratio. A loss would arise only if the liability were settled for more than its book value. Exam tip: settlement of a liability below book value creates a realisation gain.

Related tags

Partnership DissolutionRealisation AccountLiability SettlementAccounting For DissolutionClosing 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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