Tag: book keeping and accountancy

Questions Related to book keeping and accountancy

Dissolution of partnership means :

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Dissolution of firm

  2. Business of the firm is continued

  3. Partnership amongst all the partners comes to an end

  4. None of the above

Show answer
Correct Option: B
Explanation:

Dissolution of partnership is different from dissolution of partnership firm. In dissolution of partnership firm business comes to an end. But Dissolution of partnership means end of old partnership agreement and reconstruction of partnership due to admission, retirement and death of partner. In this business of the firm does not comes to an end. 

If a partner cannot clear his debts on dissolution, the other partners must clear these debts in the following manner:

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Debts are shared equally

  2. Debts should not be cleared by other partners

  3. Partnership profit/loss sharing ratio

  4. In the ratio of their last agreed capital balance

Show answer
Correct Option: D
Explanation:

If a partner can not clear his debts on dissolution, the amount not paid is a loss to the firm which under the Garner vs Murray rule is to be borne by the solvent partner. The loss is a capital loss which should be borne by the solvent partners in the ratio of the capital in the balance sheet on the date of dissolution.

Garner Vs Murray requires _________.

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. that all partners should bring in cash equal to their respective shares of the loss on realization

  2. that all partners should bring in cash equal to their respective shares of the loss on realization and deficiency of insolvent partner should be borne by solvent partners in their profit sharing ratio

  3. that all partners including insolvent partner should bring in cash equal to their respective shares of the loss on realization and deficiency of insolvent partner should be borne by solvent partners in their last agreed capital ratio

  4. that the solvent partners capital loss should be borne in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm

Show answer
Correct Option: D
Explanation:

According to the Garner Vs Murray rule the loss on the account on the insolvency of a partner is a capital loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.

When balance sheet prepared after the new partnership assets and liabilities are recorded at :

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Original value

  2. Revalued figure

  3. At current cost

  4. As realizable value

Show answer
Correct Option: B
Explanation:

New partnership means reconstruction of the firm due to admission, retirement and death. When partnership is reconstructed, new balance sheet at revalued figure is prepared. Because old balance sheet is related to old partners and profit or loss on revaluation is distributed among old partners. A new balance sheet with new figures is prepared for new partners. 

Where the continuing partners carry on the business of the firm, the dead partner whose claim is not settles, his executor -
X. is entitled to share of profits since date of cessation as partner.
Y. is not entitled to claim anything other than unsettled amount.
Z. is entitled to $6\%$ interest p.a on the unsettled amount.
Select the correct answer from the options given below.

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Y is correct.

  2. Only X is correct.

  3. Only Z is correct.

  4. Either X or Z at his option.

Show answer
Correct Option: D

In which of the following case Garner v Murray rule is NOT applicable? 
1. Only one partner is solvent.
2. All partners are insolvent.
3. When partnership deed provides a specific method to be followed in case of insolvency of a partner

Select the correct answer from the options given below-

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. 1 only

  2. 1 & 2 only

  3. 3 only

  4. 1, 2 & 3

Show answer
Correct Option: D
Explanation:

According to Garner vs. Murray rule, if the partner becomes insolvent, he is unable to pay back the amount due to him. The amount not paid is a capital loss which should be borne by the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. This rule is applicable when one partner is insolvent then other partner can bring the cash. But if only one partner is solvent or all partners are insolvent then there is no one to bring the cash. so this rule can not be applied. And if Partnership  deed provides a method to follow then that method will be followed only. 

The amount due to the retiring partner can be made by ________.

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. lump sum payment method

  2. installment payment method

  3. annuity method

  4. both (A) or (B)

Show answer
Correct Option: D
Explanation:

Business of a partnership firm may not come to an end due to the death of a partner. Other partners may shall continue to run the business of the firm. Readjustments takes place in case of death of a partner likewise the case of retirement of a partner. Whenever, a partner dies the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to b paid to discharge the claim of deceased partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation of profit and reserves are transferred to capital or current accounts of partners. Lastly, final amount due to the retiring partner is determined and discharged. 


There are two ways in which amount due to deceased partner is discharged:

1. Lump sum payment method - In this, if the firm has sufficient cash to pay off the amount due to the deceased partner, it pay the amount immediately, this is known as lump sum payment method.
2. Installment payment method - In this, if the firm  does not have sufficient cash to pay off the amount due to deceased partner, it pay the amount in installments, this is known as installment payment method.

A partner gave a loan of Rs.20,000 to the firm. At the time of dissolution of the firm the net losses of the firm were 30,000. How much money will the partner get on dissolution?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Nil

  2. 20,000

  3. 20,000 + 6% interest

  4. None of the above

Show answer
Correct Option: A
Explanation:

In case of loss, two situations arise:
1. If partner's capital has a credit balance then his loan amount will be repaid. Following entry will be passed: 
Partner's loan A/c Dr.
   To Bank/Cash A/c
2. If a partner's capital has debit balance then loan amount will not be paid. loan amount is transferred to capital account of partner. Following entry will be passed:
Partner's loan A/c Dr. 
   To Partner's Capital A/c

X, Y, Z are partners sharing profits and losses equally. They took a joint life policy of Rs 5,00,000 with a surrender value of Rs 3,00,000. The firm treats the insurance premium as an expense. Y retired and X and Z decided to share profits and losses in 2:1. The amount of Joint life policy will be transferred as:

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Credited to X, Y and Z's Capital accounts with Rs 1,00,000 each.

  2. Credited to X, Y and Z's capital accounts with Rs 166,667 each

  3. Credited to X, and Z capital accounts with Rs 2,50,000 each

  4. Credited to Ys capital account with Rs 3,00,000 each

Show answer
Correct Option: A

Claim of the retiring partner is payable in the following form.

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Fully in cash.

  2. Fully transferred to loan account to be paid later with some interest on it.

  3. Partly in cash and partly as loan repayable later with agreed interest.

  4. Any of the above method.

Show answer
Correct Option: D
Explanation:

When a partner retires from a firm, other partners continue to run the business of the firm. Readjustments takes place in case of retirement of a partner. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange the amount to be paid to discharge the claims of the retiring partners. 

Amount due to retiring partners may be discharged in the following form:
1. Fully in cash. 
2. Fully transferred to loan accpunt to be paid later with some interest on it.
3. Partly in cash and partly as a loan repayble later with agreed interest.