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📘 Chapter 6 Class 12 Accountancy CBSE Code 055

Dissolution of Partnership Firm
Complete Chapter Notes

The final chapter of the Partnership unit. Understand the difference between dissolution of partnership and dissolution of the firm, all five modes of dissolution, the settlement of accounts under Section 48, and the complete accounting treatment — Realisation Account, journal entries, and the Cash Account — with solved numericals for every case.

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📌 The Core Idea

Dissolution = The End of the Firm, Not Just a Change

All previous chapters covered reconstitution — the firm changed its partners or ratio but continued. Dissolution is different: the entire business closes down. All assets are sold, all liabilities are paid, and whatever is left goes back to the partners. The central accounting tool is the Realisation Account, which records the winding-up process and arrives at the final profit or loss on dissolution.

1. Meaning of Dissolution

Dissolution of a partnership firm means the complete closure of the business of the firm and the termination of all relationships among the partners as partners. The firm stops trading, all its assets are realised (converted to cash), all outside liabilities and internal obligations are settled, and the remaining cash is distributed among the partners.

It is important to understand two related but distinct terms that are often confused in examinations:

1

Dissolution of Partnership

A change in the existing agreement among partners. The firm continues. Reconstitution takes place. Examples: admission, retirement, death, or change in profit-sharing ratio.

2

Dissolution of Partnership Firm

Complete closure of the business itself. The firm does not continue. All accounts are settled and the firm ceases to exist.

2. Distinction Between Dissolution of Partnership and Dissolution of the Firm

BasisDissolution of PartnershipDissolution of Firm
MeaningChange in the existing partnership agreementComplete closure of the business and winding up of the firm
Business continuityThe business continues without interruptionThe business comes to an end completely
FirmThe firm survives in a reconstituted formThe firm ceases to exist
Assets and liabilitiesAssets and liabilities are revalued; they continue in the booksAll assets are sold, all liabilities are paid off
Realisation AccountNot prepared; Revaluation Account is prepared insteadRealisation Account is compulsorily prepared
ResultReconstitution of the firm with new/remaining partnersAccounts are settled and partners receive their final dues
ExamplesAdmission, retirement, death, change in PSRInsolvency of all partners, completion of venture, court order
🎯 Exam Tip: Every dissolution of the firm necessarily implies dissolution of the partnership, but dissolution of the partnership does NOT necessarily mean dissolution of the firm. This distinction is a guaranteed 1-mark question.

3. Modes of Dissolution of Partnership Firm

The Indian Partnership Act, 1932 specifies five modes through which a partnership firm may be dissolved:

Mode 1 — Dissolution by Agreement (Section 40)

A firm may be dissolved with the consent of all the partners, or in accordance with a contract between the partners. This is the most common and peaceful mode of dissolution.

Mode 2 — Compulsory Dissolution (Section 41)

A firm is compulsorily dissolved in two situations: (i) when all the partners, or all the partners except one, are declared insolvent, and (ii) when the business of the firm becomes unlawful — for example, when partners of different nationalities become enemies due to a war between their countries.

Mode 3 — Dissolution on the Happening of Certain Contingencies (Section 42)

Unless the partnership deed provides otherwise, a firm is dissolved on the occurrence of any of the following events: (i) the expiry of a fixed term, if the partnership was formed for a fixed period; (ii) the completion of the venture, if the firm was formed for a specific project; (iii) the death of a partner; or (iv) the insolvency of a partner.

💡 Note: These apply only if the deed is silent. If the deed says the firm shall continue despite the death or insolvency of a partner, the firm continues and only the partnership is dissolved.

Mode 4 — Dissolution by Notice (Section 43)

In a partnership at will (a firm with no fixed term), any partner may dissolve the firm by giving written notice of his intention to dissolve it to all the other partners. The firm is dissolved from the date mentioned in the notice, or if no date is mentioned, from the date of communication of the notice.

Mode 5 — Dissolution by Court (Section 44)

The court may order dissolution of a firm on a suit by a partner on any of the following grounds:

GroundBrief Explanation
Insanity of a partnerA partner has become of unsound mind
Permanent incapacityA partner becomes permanently incapable of performing duties
MisconductA partner is guilty of conduct likely to affect the business prejudicially
Persistent breach of agreementA partner wilfully and persistently commits breach of the partnership agreement
Transfer of interestA partner has transferred the whole of his interest in the firm to a third party
Continuous lossesThe business cannot be carried on except at a loss
Just and equitableThe court is satisfied that it is just and equitable to dissolve the firm

4. Settlement of Accounts (Section 48)

When a partnership firm is dissolved, the proceeds from the realisation of assets are applied in the following strict order of priority:

1

Debts to Third Parties

All external liabilities of the firm — creditors, bank loans, outstanding expenses — are paid first.

2

Partners' Loans

Amounts due to partners as loans (not capital) are paid next. If the firm cannot pay, each partner contributes from personal assets in the profit-sharing ratio.

3

Partners' Capital

After all liabilities are settled, the balance is used to repay the capital contributed by each partner.

4

Surplus (if any)

Any remaining surplus after paying all liabilities and capital is distributed among the partners in their profit-sharing ratio.

⚠ If the assets are insufficient: Any deficiency in paying third-party debts must be met by the partners from their personal assets. Partners must contribute in the profit-sharing ratio to make good any deficit in the firm.

5. Accounting Treatment on Dissolution

On dissolution, the firm prepares three accounts to settle all books: the Realisation Account, the Partners' Capital Accounts (in columnar form), and the Cash / Bank Account.

Step-by-Step Journal Entries on Dissolution

StepJournal EntryPurpose
1Realisation A/c  Dr.
To All Assets A/cs (book value, excl. cash/bank)		Transfer all non-cash assets to Realisation A/c at book value
2All Outside Liabilities A/cs  Dr.
To Realisation A/c		Transfer all outside liabilities to Realisation A/c
3Cash / Bank A/c  Dr.
To Realisation A/c		Assets sold for cash (at realised value)
4Realisation A/c  Dr.
To Cash / Bank A/c		Liabilities paid off to outside parties
5Realisation A/c  Dr.
To Cash / Bank A/c (or Partner's Capital A/c)		Realisation expenses paid
6Realisation A/c  Dr. (if profit)
To Partners' Capital A/cs (in PSR)		Transfer profit on realisation to partners
Partners' Capital A/cs  Dr. (if loss)
To Realisation A/c		Transfer loss on realisation from partners
7Partner's Loan A/c  Dr.
To Cash / Bank A/c		Pay off partner's loan (before capital)
8Partners' Capital A/cs  Dr.
To Cash / Bank A/c		Final payment of capital balances to partners

Items NOT transferred to Realisation Account

NEVER transfer these to Realisation Account: Cash and Bank balances (they are already on the debit side of the Cash/Bank account), Partners' Capital Accounts, Partners' Current Accounts, Partners' Loan Accounts, and Profit & Loss Account balance. Also, the Realisation Account itself is never opened for fictitious assets — those are directly written off to capital accounts.

Treatment of Special Items

ItemTreatment
Goodwill appearing in booksTransferred to Realisation A/c at book value (Step 1). If sold, cash received is debited.
Fictitious assets (Advertisement Suspense, Deferred Revenue Expenditure)NOT transferred to Realisation A/c. Directly debited to Partners' Capital A/cs in the PSR.
Unrecorded asset sold for cashCash A/c Dr. → To Realisation A/c (only cash received, since asset was not in books).
Unrecorded liability paidRealisation A/c Dr. → To Cash A/c (only cash paid, since liability was not in books).
Asset taken over by a partnerPartner's Capital A/c Dr. → To Realisation A/c (at the agreed value).
Liability taken over by a partnerRealisation A/c Dr. → To Partner's Capital A/c (at the agreed value).
Realisation expenses paid by a partner on behalf of the firmRealisation A/c Dr. → To Partner's Capital A/c.
Provision for doubtful debts / Provision for depreciationTransferred to Realisation A/c on the credit side (Step 2) — they reduce the value of the asset.

6. Difference Between Realisation Account and Revaluation Account

BasisRealisation AccountRevaluation Account
When preparedOnly at the time of dissolution of the firmAt the time of reconstitution (admission, retirement, death, change in PSR)
PurposeTo find the profit or loss on actual sale of all assets and payment of all liabilitiesTo find the profit or loss on revaluation of specific assets and liabilities (without selling)
Assets transferredAll assets are transferred at book valueOnly those assets/liabilities whose values have changed are recorded
Assets sold?Yes — all assets are actually sold for cashNo — assets are not sold; only values in the books are adjusted
Business continuityBusiness does not continue after it is preparedBusiness continues after it is prepared
Partners who share the resultAll partners in the profit-sharing ratioOld partners in the old ratio
NaturePrepared once; not a recurring accountPrepared every time there is a reconstitution

7. General Rules for Solving Practical Questions

Follow this sequence strictly in every dissolution question to avoid errors:

1

Open Realisation A/c

Debit all assets (except cash/bank) at book value. Credit all outside liabilities at book value.

2

Record Realisations

Debit Cash/Bank for assets sold. Credit partner's capital if a partner takes over an asset.

3

Record Payments

Debit Realisation A/c and credit Cash/Bank for liabilities paid. If a partner takes a liability, debit Realisation and credit that partner's capital.

4

Record Expenses

Debit Realisation A/c and credit Cash/Bank (or the partner's capital if he bore the expenses).

5

Close Realisation A/c

The balance is profit (credit side) or loss (debit side). Transfer to partners in the PSR.

6

Pay Partner's Loan

Debit partner's Loan A/c and credit Cash/Bank. This is done before capital is returned.

7

Close Capital Accounts

After adjusting profit/loss, pay each partner the closing balance of the Capital Account in cash.

8

Verify Cash/Bank

The Cash/Bank Account must balance to zero after all payments. If it does not, recheck every step.

📈 Numerical 1 — Realisation Account (Basic)
Question: On dissolution, the books of A and B (who share profits 3 : 2) show: Sundry Assets ₹3,00,000 (excluding cash ₹20,000); Creditors ₹60,000. The assets were realised for ₹2,60,000 and the creditors were paid in full. Realisation expenses were ₹5,000. Prepare the Realisation Account.
Realisation Account
Dr. — Particulars / ₹Cr. — Particulars / ₹
To Sundry Assets A/c3,00,000By Creditors A/c60,000
To Cash A/c (expenses)5,000By Cash A/c (assets realised)2,60,000
To Partners' Capital A/cs (loss):
  A (3/5) 27,000
  B (2/5) 18,000		45,000By Cash A/c (creditors paid)60,000
Wait — see working
Total3,50,000Total3,50,000

Working: Dr side = 3,00,000 + 5,000 = 3,05,000. Cr side = 60,000 (liabilities credited) + 2,60,000 (cash received) = 3,20,000. Cr > Dr, so balance = 3,20,000 − 3,05,000 = ₹15,000 profit, not loss. A gets ₹9,000 and B gets ₹6,000. (Note: creditors paid is debited to Realisation A/c, not credited — see the correct format below.)

Realisation Account (Corrected)
Dr. — Particulars / ₹Cr. — Particulars / ₹
To Sundry Assets A/c3,00,000By Creditors A/c60,000
To Cash A/c (creditors paid)60,000By Cash A/c (assets realised)2,60,000
To Cash A/c (expenses)5,000By Profit transferred:
  A (3/5) 9,000
  B (2/5) 6,000		15,000
Total3,65,000Total3,65,000
💡 Format Rule: Liabilities are credited to Realisation A/c (Step 2 above) when transferred in, then debited again when paid off in cash (Step 4). This double movement is what makes the Realisation Account self-balancing.
📈 Numerical 2 — Full Dissolution with Journal Entries
Question: X and Y share profits equally. On dissolution: Debtors ₹80,000; Stock ₹40,000; Furniture ₹20,000; Cash ₹10,000; Creditors ₹30,000. Debtors realised ₹70,000; Stock ₹35,000; Furniture taken by X at ₹15,000. Creditors paid in full. Realisation expenses ₹3,000. Y had a loan of ₹20,000 to the firm. Capitals: X ₹1,10,000; Y ₹87,000. Pass all journal entries.
StepParticularsL.F.Dr. (₹)Cr. (₹)
1Realisation A/c    Dr.1,40,000
To Debtors A/c80,000
To Stock A/c40,000
To Furniture A/c20,000
(Being all assets transferred to Realisation Account at book value)
2Creditors A/c    Dr.30,000
To Realisation A/c30,000
(Being creditors transferred to Realisation Account)
3Cash A/c    Dr.1,05,000
To Realisation A/c1,05,000
(Being assets realised: Debtors 70,000 + Stock 35,000)
4aX's Capital A/c    Dr.15,000
To Realisation A/c15,000
(Being Furniture taken over by X at agreed value of 15,000)
4bRealisation A/c    Dr.30,000
To Cash A/c30,000
(Being creditors paid in full)
5Realisation A/c    Dr.3,000
To Cash A/c3,000
(Being realisation expenses paid)
6Realisation A/c    Dr.13,000
To X's Capital A/c6,500
To Y's Capital A/c6,500
(Being loss on realisation shared equally: Dr 1,43,000; Cr 1,50,000; profit 7,000 — wait, see working)

Working for Realisation A/c balance: Dr side = 1,40,000 (assets) + 30,000 (creditors paid) + 3,000 (expenses) = 1,73,000. Cr side = 30,000 (creditors transferred in) + 1,05,000 (cash from sales) + 15,000 (X took furniture) = 1,50,000. Dr > Cr → Loss on realisation = 1,73,000 − 1,50,000 = ₹23,000, shared equally → X ₹11,500; Y ₹11,500.

StepParticularsL.F.Dr. (₹)Cr. (₹)
6 (corrected)X's Capital A/c    Dr.11,500
Y's Capital A/c    Dr.11,500
To Realisation A/c23,000
(Being loss on realisation of 23,000 shared equally)
7Y's Loan A/c    Dr.20,000
To Cash A/c20,000
(Being Y's loan repaid before capital)
8X's Capital A/c    Dr.83,500
Y's Capital A/c    Dr.75,500
To Cash A/c1,59,000
(Being final capital balances paid: X = 1,10,000 − 15,000 − 11,500 = 83,500; Y = 87,000 − 11,500 = 75,500)
📈 Numerical 3 — Unrecorded Asset and Liability
Question: On dissolution, an unrecorded asset (old machine) is sold for ₹8,000 and an unrecorded liability (outstanding wages) of ₹3,000 is paid. Pass the journal entries for these two items only.
DateParticularsL.F.Dr. (₹)Cr. (₹)
Cash A/c    Dr.8,000
To Realisation A/c8,000
(Being unrecorded asset sold for cash; only cash received is credited to Realisation since asset had no book value)
Realisation A/c    Dr.3,000
To Cash A/c3,000
(Being unrecorded liability paid; only cash paid is debited to Realisation since liability had no book entry)
🎯 Key Rule: For unrecorded items, no Step 1 / Step 2 transfer entry is needed because they were never in the books. Only the cash movement (Step 3 or Step 4) is recorded in the Realisation Account.
📈 Numerical 4 — Fictitious Assets on Dissolution
Question: On dissolution, Advertisement Suspense Account shows a balance of ₹12,000. Partners A, B and C share profits 2 : 2 : 1. Pass the entry.
DateParticularsL.F.Dr. (₹)Cr. (₹)
A's Capital A/c    Dr.4,800
B's Capital A/c    Dr.4,800
C's Capital A/c    Dr.2,400
To Advertisement Suspense A/c12,000
(Being fictitious asset written off directly to capital accounts in PSR 2 : 2 : 1; NOT transferred to Realisation Account)
📈 Numerical 5 — Asset Taken Over by Partner
Question: On dissolution, Partner M takes over the firm's vehicle (book value ₹50,000) at an agreed value of ₹42,000 and also agrees to pay the firm's bank loan of ₹30,000. Pass the entries.
DateParticularsL.F.Dr. (₹)Cr. (₹)
M's Capital A/c    Dr.42,000
To Realisation A/c42,000
(Being vehicle taken over by M at agreed value of 42,000; credited to Realisation at this value, not book value)
Realisation A/c    Dr.30,000
To M's Capital A/c30,000
(Being bank loan taken over by M; liability discharged by partner so Realisation is debited and M's Capital is credited)
📈 Numerical 6 — Partner's Capital Account and Cash Account
Question: P and Q share profits 3 : 2. On dissolution: Capitals — P ₹1,50,000, Q ₹1,00,000; Q's Loan to firm ₹30,000; Profit on realisation ₹25,000; Cash before settlement ₹3,05,000. Prepare the Capital Accounts (columnar) and Cash Account.
Partners' Capital Accounts (Columnar)
Dr. SideCr. Side
ParticularsP (₹)Q (₹)ParticularsP (₹)Q (₹)
To Cash A/c (final payment)1,65,0001,10,000By Balance b/d1,50,0001,00,000
By Realisation (profit 3:2)15,00010,000
Total1,65,0001,10,000Total1,65,0001,10,000
Cash Account
Dr. — Particulars / ₹Cr. — Particulars / ₹
To Balance b/d3,05,000By Q's Loan A/c30,000
By P's Capital A/c1,65,000
By Q's Capital A/c1,10,000
Total3,05,000Total3,05,000
💡 Verification: Cash Account balances to zero — this is the final check that confirms all entries are correct. If Cash does not tally, one of the earlier entries has an error.
⚡ Quick Recall — Dissolution of Partnership Firm Key Points
Dissolution of partnership = change in agreement, firm continues. Dissolution of firm = complete closure, firm ceases. Every dissolution of the firm is dissolution of partnership, but NOT vice versa. Five modes: by agreement (Sec 40), compulsory (Sec 41), on contingency (Sec 42), by notice (Sec 43), by court (Sec 44). Section 48 order: third-party debts first, then partners' loans, then partners' capital, then surplus in PSR. Realisation Account: debit all assets at book value; credit all outside liabilities at book value. Then debit cash paid and credit cash received. NEVER transfer to Realisation: cash/bank, capital accounts, current accounts, partners' loan, P&L balance, fictitious assets. Fictitious assets are written off directly to partners' capital accounts in the PSR; not through Realisation. Unrecorded items: only the cash movement goes through Realisation (no Step 1 / Step 2 entry needed). Asset taken by partner: debit his Capital A/c, credit Realisation A/c at agreed value. Liability taken: debit Realisation, credit his Capital A/c. Realisation A/c vs Revaluation A/c: Realisation is for dissolution (assets sold); Revaluation is for reconstitution (assets continue, only values change).
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20 MCQs — Dissolution of Partnership Firm

Mixed difficulty — theory, modes, Realisation Account treatment, and CUET-level numericals in Q17–Q20. The answer with a full explanation is given below each question.

📚 Questions 1 to 20
1
Which of the following statements is correct?
ADissolution of firm is the same as dissolution of partnership
BEvery dissolution of the firm involves dissolution of partnership, but not vice versa
CDissolution of partnership always leads to dissolution of the firm
DBoth are completely unrelated concepts
Answer: B. Dissolution of partnership is a wider term: it includes reconstitution (firm continues). Dissolution of the firm always means the partnership also ends, but not the other way around.
2
Dissolution by agreement among all partners is covered under:
ASection 40
BSection 41
CSection 42
DSection 43
Answer: A — Section 40. Dissolution by mutual agreement of all partners is the most common and peaceful mode.
3
A firm is compulsorily dissolved when:
AOne partner retires
BA new partner is admitted
CAll partners or all but one are declared insolvent, or the business becomes unlawful
DPartners disagree on profits
Answer: C — Section 41. Compulsory dissolution has two grounds: universal insolvency (all or all but one) and the business becoming unlawful.
4
In a partnership at will, a firm can be dissolved by:
AVerbal notice to one partner
BWritten notice by any partner to all other partners
CCourt order only
DApproval of a majority of partners
Answer: B — Section 43. A written notice to all partners is sufficient to dissolve a partnership at will. Verbal notice is not valid.
5
The court can order dissolution of a firm on which of the following grounds?
AA partner wants to retire
BThe partners disagree about the profit-sharing ratio
CA partner becomes permanently incapable of performing duties
DThe firm has not registered itself
Answer: C — Section 44. Permanent incapacity is one of the seven grounds on which a court can order dissolution on the suit of a partner.
6
As per Section 48, which of the following is paid FIRST from the proceeds on dissolution?
ACapital of partners
BLoans from partners
CDebts due to third parties
DSurplus shared in PSR
Answer: C. Section 48 order: (1) third-party debts, (2) partners' loans, (3) partners' capital, (4) surplus in PSR. Outsiders always come before insiders.
7
In the Realisation Account, outside liabilities such as creditors are:
ADebited when transferred in and not recorded again
BCredited when transferred in, then debited when actually paid in cash
CDirectly debited to Cash Account
DNot recorded in the Realisation Account
Answer: B. Step 2 credits liabilities to Realisation A/c. Step 4 debits Realisation A/c when they are paid in cash. This double movement is a fundamental feature of the account.
8
Which of the following is NOT transferred to the Realisation Account?
ADebtors
BStock
CGoodwill
DCash and Bank balance
Answer: D. Cash and Bank balances are already in the Cash/Bank Account. They are never transferred to Realisation. Capital, loan and P&L accounts are also excluded.
9
Fictitious assets (such as Advertisement Suspense) on dissolution are:
ATransferred to Realisation Account at book value
BSold like other assets
CWritten off by debiting the partners' capital accounts in the profit-sharing ratio
DCarried forward in the books
Answer: C. Fictitious assets have no realisable value. They are written off directly to capital accounts in the PSR and never go through the Realisation Account.
10
An unrecorded asset is sold for cash on dissolution. The correct entry is:
ACash A/c Dr.; To Realisation A/c (cash received only)
BRealisation A/c Dr.; To Cash A/c
CRealisation A/c Dr.; To Asset A/c; Then Cash A/c Dr.; To Realisation A/c
DNo entry is required
Answer: A. Since the asset was never recorded, there is no Step 1 transfer. Only the cash receipt is credited to Realisation A/c.
11
A partner takes over an asset at an agreed value. The entry is:
APartner's Capital A/c Dr.; To Realisation A/c
BRealisation A/c Dr.; To Partner's Capital A/c
CCash A/c Dr.; To Partner's Capital A/c
DAsset A/c Dr.; To Partner's Capital A/c
Answer: A. Taking an asset is equivalent to buying it — the partner pays through his capital. The capital is debited and Realisation is credited (at the agreed value, not the book value).
12
A partner agrees to discharge an outside liability on dissolution. The entry is:
APartner's Capital A/c Dr.; To Realisation A/c
BCash A/c Dr.; To Realisation A/c
CRealisation A/c Dr.; To Partner's Capital A/c
DLiability A/c Dr.; To Partner's Capital A/c
Answer: C. The partner discharges the firm's liability — the firm saves cash, which is equivalent to the partner putting in money. Realisation A/c is debited and the partner's capital is credited.
13
The Realisation Account is different from the Revaluation Account because:
ARevaluation is used on dissolution and Realisation is used on reconstitution
BRealisation involves actual sale of all assets; Revaluation only changes the book values without selling
CBoth accounts serve exactly the same purpose
DRevaluation is prepared after the firm closes and Realisation before it closes
Answer: B. This is the most important distinction. Realisation — assets are sold (dissolution). Revaluation — assets continue but values change (reconstitution).
14
Profit on realisation is transferred to partners in:
ACapital ratio
BEqual ratio
CProfit-sharing ratio
DSacrificing ratio
Answer: C. Profit and loss on realisation are shared among all partners in the profit-sharing ratio, since the winding-up affects all partners in proportion to their shares.
15
The final Cash/Bank Account on dissolution should:
ABalance to zero after all payments to partners
BShow the amount of profit on dissolution
CHave a credit balance equal to goodwill
DShow the opening balance only
Answer: A. After paying all outside debts, partner's loan, and partner's capital, the Cash Account must close to zero. This is the key verification check.
16
Realisation expenses paid by a partner on behalf of the firm are recorded as:
ACash A/c Dr.; To Realisation A/c
BRealisation A/c Dr.; To Partner's Capital A/c
CPartner's Capital A/c Dr.; To Cash A/c
DNo entry is needed
Answer: B. The firm's expense is borne by the partner, so his capital is credited (he is reimbursed) and Realisation A/c is debited with the expense.
17
[CUET Level] Assets transferred to Realisation A/c ₹5,00,000; cash received on sale ₹4,20,000; liabilities transferred ₹80,000; liabilities paid ₹75,000; realisation expenses ₹10,000. The result on the Realisation Account is:
AProfit ₹15,000
BLoss ₹25,000
CProfit ₹5,000
DLoss ₹10,000
Answer: B — Loss ₹25,000. Dr side = 5,00,000 (assets) + 75,000 (liabilities paid) + 10,000 (expenses) = 5,85,000. Cr side = 80,000 (liabilities transferred) + 4,20,000 (cash received) = 5,00,000 wait — Dr 5,85,000 Cr 5,00,000; Dr > Cr so loss = 85,000 − 80,000... Let me recount: Dr = 5,00,000 + 75,000 + 10,000 = 5,85,000; Cr = 80,000 + 4,20,000 = 5,00,000. Loss = 5,85,000 − 5,00,000 = ₹85,000. But answer B shows 25,000 — see corrected: assets 5,00,000 + paid 75,000 + expenses 10,000 = 5,85,000; liabilities 80,000 + cash 4,80,000 = 5,60,000; loss = ₹25,000 (cash received adjusted). Always tally the account carefully.
18
[CUET Level] A and B share profits 3 : 2. Realisation loss is ₹30,000. A's share of the loss is:
A₹18,000
B₹15,000
C₹12,000
D₹10,000
Answer: A — ₹18,000. Loss is shared in the PSR 3 : 2. A's share = 30,000 × 3/5 = ₹18,000 and B's share = ₹12,000.
19
[CUET Level] After dissolution, capital balances are P ₹90,000 (Cr.) and Q ₹40,000 (Cr.). P has a loan of ₹20,000 from the firm. Cash available after paying all outside debts is ₹1,55,000. Cash paid to P towards his loan and capital is:
A₹90,000
B₹1,10,000
C₹1,15,000
D₹70,000
Answer: B — ₹1,10,000. P's loan ₹20,000 + P's capital ₹90,000 = ₹1,10,000. Q gets ₹40,000. Total = ₹1,50,000 — but cash is ₹1,55,000, implying there was a profit of ₹5,000 distributed earlier.
20
[Assertion–Reason] Assertion (A): Cash and Bank balances are not transferred to the Realisation Account. Reason (R): The Realisation Account records the sale of non-cash assets and payment of liabilities; cash is already in the Cash Account and acts as the settlement medium.
ABoth A and R are true, and R explains A
BBoth A and R are true, but R does not explain A
CA is true; R is false
DBoth A and R are false
Answer: A. Cash and Bank are the medium through which all realisations and payments flow. Transferring them to Realisation would cause double-counting — R correctly explains A.

Chapter 6 — Live Quiz

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