CMA – INTERMEDIATE
PAPER 5: FINANCIAL ACCOUNTING
MULTIPLE CHOICE QUESTIONS AND ANSWERS: Dissolution of Partnership
Q. Multiple Choice Questions: Choose the correct answer to the following:
1. Realisation A/c is a
(a) Nominal A/c
(b) Real A/c
(c) Personal A/c
(d) None of the above.
2. When the realisation expenses are to be borne by a partner, it is credited to:
(a) Partner's capital A/c
(b) Cash A/c
(c) Realisation A/c
(d) Profit & Loss A/c.
3. At the time of dissolution of a firm, assets taken over by a partner should be
(a) Credited to Realisation A/c
(b) Debited to Realisation A/c
(c) Realisation A/c should neither be debited nor credited.
4. An unrecorded asset realised at the time of realisation is credited to:

(a) Realisation A/c
(b) Revolution A/c
(c) Capital Accounts.
5. Unrecorded liability when paid on dissolution of a firm is debited to:
(a) Realisation A/c
(b) Liability A/c
(c) Partner's Capital A/c
6. Profit or loss on realisation should be divided among partners in the:
(a) Profit sharing ratio
(b) Equally
(c) Capital ratio
7. Provision for doubtful debts appearing at the time of dissolution of a firm transferred to:
(a) Debtors A/c
(b) Realisation A/c
(c) Cash A/c
8. General reserve appearing at the time of dissolution is transferred to:
(a) Bank A/c
(b) Realisation A/c
(c) Capital A/c’s.
9. Goodwill A/c is closed at the time of dissolution by transferring to:
(a) Realisation A/c
(b) Liability A/c
(c) Capital A/c
10. Joint life policy reserve appearing at the time of dissolution of a firm is transferred to:
(a) Capital A/c’s
(b) Realisation A/c
(c) Neither two
11. At the time of dissolution, all the assets of the firm are transferred to the realisation account at ________ values.
(a) Market
(b) Book
(c) Asset
12. The first step in the dissolution process is to:
(a) Prepare a balance sheet on the date of dissolution;
(b) Distribute the available cash to the creditors;
(c) None of these.
13. If the business is sold as a going concern, cash balance is also transferred to:
a) Realisation account
b) Revaluation account
14. At the time of dissolution of the firm, if goodwill appears in the Balance Sheet, it is transferred to –
a)      Realisation accounts.
b)      Revaluation account.
c)      Partner’s capital account.
d)      None of the above.
15. When a partner is granted commission for dissolution work and agrees to bear dissolution expenses, realisation expenses paid by the firm is debited to
a)      Realisation account.
b)     Partner’s capital account.
c)      Cash account.
d)      None of the above.
16. At the time of dissolution of the firm, loan from partner’s relative is:
a)      Transferred to realisation account.
b)      Transferred to partner’s capital account.
c)      Transferred to revaluation account.
d)      Not transferred to any account.
17. At the time of dissolution of a firm, loan from a partners is
a)      Transferred to realisation A/c.
b)     Not transferred to realisation A/c.
c)      Transferred to partner’s capital A/c.
d)      Transferred to revaluation A/c.
18. On dissolution of a firm, profit or loss on dissolution is shared by partners in
a)      Equal ratio.
b)     Profit sharing ratio.
c)      Capital ratio.
d)      None of the above.
19. On dissolution, assets are transferred to Realisation A/c at their.
a)      Book value.
b)      Market value.
c)      Realisable value.
d)      Cost or market values whichever is lower.
20. Amar, who was to look after the dissolution agreed to accept Rs. 900 towards realisation expenses. He actually incurred Rs. 1,200 as realisation expenses. Realisation expenses should be debited with _____ for expenses.
a)      Rs. 300
b)     Rs. 900
c)      Rs. 1,200.
d)      Rs. 2,100.
Q. Given below are certain statements. Some of these statements are true and some of these are false. Write T’ against true statement and ‘F’ against false statements.
1.      Dissolution of firms and dissolution of partnership are two distinct legal concepts.      TRUE
2.      Dissolution of firm and dissolution partnership are synonymous.           FALSE
3.      The property of the firm shall be applied in the first instance in payment of the debts of the firm. TRUE
4.      The Indian Partnership Act. 1932 is silent regarding the modes of dissolution of a partnership firm.  FALSE
5.      At the time of dissolution an account including cash and bank are transferred to realisation account.                   FALSE
6.      On dissolution of a firm, business operations of the firm are closed down. TRUE
7.      In dissolution of a firm all assets including cash are transferred to Realisation A/c.   FALSE
8.      There is no difference between Realisation Account and Revaluation Account.            FALSE
9.      On dissolution the relationship between all the partners is completely broke off.        TRUE
10.  After the preparation of realisation account, Gain or loss of realisation account transferred to Partners capital account. TRUE
11.  On dissolution private assets are first applied on payment of firm’s debt.                     FALSE
12.  On dissolution when an unrecorded creditor takes over an unrecorded asset, no journal entry is passed.                   TRUE
13.  On dissolution, partner’s loan and Bank loan have same priority.          FALSE
14.  Amount realised from the sale of an unrecorded asset is recorded in Realisation Account. TRUE
15.  When the firm is solvent, partner’s private assets cannot be used for firm’s debt.                   TRUE
16.  Partner’s loan and Partner’s wife’s loan are treated equally in dissolution.       FALSE
17.  Partner’s loan is paid in priority of capital.                      TRUE
18.  No entry is passed for realisation expenses if any partner agrees to bear it personally.   FALSE
19.  Balance of general reserve is transferred to partners’ capital account.  TRUE
20.  Realisation expenses paid by the partners on behalf of the firm are recorded in realisation account and partners capital account.        TRUE
21.  When partnership is dissolved, a liability taken by partner is debited to his capital A/c.           FALSE
22.  If any partner has a debit balance in his capital A/c, then he is required to bring in Cash to clear it off.                   TRUE
23.  A secured creditor always stands in a stronger position than an unsecured creditor.   TRUE
24.  Partner’s capitals are transferred to the Realisation Account with other liabilities of the firm. FALSE
25.  Partner's loan is transferred to the Realisation Account.            FALSE
26.  Advance to a partner is transferred to Realisation Account.       FALSE
27.  Loan from the wife of a partner is not transferred to Realisation Account.       FALSE
28.  Employee’s provident fund is transferred to the Capital accounts of the partners in their profit sharing ratio.               FALSE
29.  Investment Fluctuation Reserve is transferred to the Realisation Account.        TRUE
30.  Realisation account is prepared to find out the net effect of realisation of various assets and payment of various liabilities.                    TRUE
31.  All fictitious assets are transferred to the partners' capital accounts in the ratio of their respective capitals.     FALSE
32.  The liability of the partners is joint and several.                         TRUE
33.  Private properties of the partner are first used to meet firm’s liabilities before it being used to pay private debt.               FALSE
34.  Goodwill will be sold like any other assets when the firm is dissolved.              TRUE
35.  The dissolution of firm necessarily means the dissolution of partnership.         TRUE
Q. Fill in the blank with appropriate word or words:
1.      Unrecorded assets when realised are credited to REALISATION Account.
2.      Partner’s loan account is not transferred to PARTNER’S CAPITAL Account.
3.      Partner’s loan is paid before the payment of CAPITAL OF PARTNERS.
4.      Assets having provision are transferred to realisation account at GROSS amount.
5.      Private property of the partner is used first to pay PRIVATE debt.
6.      Liabilities not recorded but paid are debited to REALISATION account.
7.      Loan by the relative of a partner is paid before the payment of partner’s LOAN
8.      Realisation account is prepared on the dissolution of FIRM.
9.      If an unrecorded asset is realised, it is credited to REALISATION account.
10.  No entry is required when a CREDITORS accepts an asset in payment of his debt.
11.  On dissolution, fictitious assets are transferred to PARTNER’S CAPITAL accounts.
12.  If a partner takes over a liability of the firm, the partner’s capital account is CREDITED.

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