Dissolution Of Partnership Firm

Final Answer

The correct answer is Option 4: A, C & D only.

In partnership accounting, when a partner retires, the continuing or gaining partners acquire the retiring partner's share in the firm. This results in a gain in profit-sharing ratio for the continuing partners.

According to the principle of gain vs. sacrifice, the gaining partners should compensate the retiring partner for their share of goodwill and other assets. This ensures a fair and ethical distribution of the partnership’s intangible value.

So, the retiring partner, who is giving up his/her share in the firm, must be compensated by the gaining partners—not by the remaining or sacrificing partners.

Journal Entry (for goodwill):

Gaining Partner’s Capital A/C Dr.
To Retiring Partner’s Capital A/C
(Being compensation for goodwill transferred by gaining partners to retiring partner)

Hence, the correct answer is: (2) Retiring Partners only

In the context of relational databases, when we create a relationship between tables, the common fields used are known as Key fields. Key fields, especially primary keys and foreign keys, play a crucial role in ensuring data integrity and establishing connections between two or more tables.

Here's a brief explanation:

• Primary Key: A unique identifier for each record in a table. It ensures that no two rows have the same key, maintaining uniqueness.
• Foreign Key: A field (or fields) in one table that uniquely identifies a row of another table or the same table. It creates a link between the two tables.

Effective use of key fields is essential for creating a robust database structure, as they help maintain referential integrity by ensuring that relationships between tables remain consistent.

At the time of the dissolution of a partnership firm, fictitious assets (such as preliminary expenses, advertising expenses, and deferred revenue expenditures) are not real assets and have no market value. These assets must be written off during the dissolution process.

• Fictitious assets are transferred to the Realisation Account on the debit side. This is because they are being written off, and the Realisation Account is used to record all the assets and liabilities being realized or settled during dissolution.

Therefore, the correct answer is: (B) Debit of Realisation A/c.

When plant and machinery are handed over to a creditor at an agreed valuation of 10% less than the book value, the following steps occur:

• Book Value of Plant and Machinery = ₹60,000
• Agreed Valuation = 10% less than the book value

Agreed Valuation = ₹60,000 × (1 - 10/100) = ₹60,000 × 0.9 = ₹54,000

At the time of dissolution, the asset (Plant and Machinery) is transferred at the agreed valuation of ₹54,000. This will be recorded as a transfer to Realisation Account for ₹54,000, and the Machinery account will be credited with its book value of ₹60,000. The difference of ₹6,000 (₹60,000 - ₹54,000) will be recorded as a loss on realisation.

Therefore, the correct journal entry would be:

Realisation A/c ...... Dr. 54,000 To Machinery A/c 54,000

This reflects the agreed valuation of the asset handed over to the creditor.

Thus, the correct answer is: (1) Realisation A/c ...... Dr. 54,000
To Machinery A/c 54,000

In the case of dissolution of a partnership firm, if bad debts that were previously written off are recovered, the recovery is treated as a gain. This gain is credited to the Realisation Account because the Realisation Account is used to record all gains and losses during the dissolution process.

Correct Answer: (D) Credited to Realisation Account

Step 1: Understanding the Transaction.
When a partnership firm undergoes dissolution, certain expenses are incurred to realize the assets and settle the liabilities. If a partner makes a payment for these expenses from their personal funds on behalf of the firm, it signifies that the firm owes this amount to the partner.

Step 2: Identifying the Accounts and Their Treatment.
The two primary accounts affected are:

• Realisation Account: This account is used to record all transactions related to the disposal of assets and settlement of liabilities during the dissolution process. Realisation expenses are a cost incurred for this process, and therefore, the Realisation Account is debited.
• Partner's Capital Account: When the partner pays the expenses, it effectively increases the amount the firm owes to that partner. This is reflected by crediting the Partner's Capital Account.

Step 3: Formulating the Journal Entry.
Based on the principles of debit and credit, the journal entry would be:



Step 4: Conclusion.
Therefore, the correct journal entry when realisation expenses are paid by a partner on behalf of the firm is to debit the Realisation Account and credit the Partner's Capital Account. This corresponds to option (a).

(A) Payment of loans due to partners → Entry: Partner's Loan A/c Dr To Bank A/c → Correct match = (IV).
(B) Settlement of partners' accounts (debit balance) → Entry: Bank A/c Dr To Partner's Capital A/c → Correct match = (III).
(C) Settlement of loan by firm to a partner → Entry: Bank A/c Dr To Loan to Partners A/c → Correct match = (II).
(D) Settlement of unrecorded liability → Entry: Realisation A/c Dr To Bank A/c → Correct match = (I).

Conclusion: Correct mapping = (A)-(IV), (B)-(III), (C)-(II), (D)-(I).

Final Answer: