Class 12 Accountancy NCERT Solutions Chapter 4 - Dissolution of Partnership Firm
FAQs on NCERT Solutions for Class 12 Accountancy I Chapter 4 Dissolution of Partnership Firm
1. What is the key difference between the dissolution of a partnership and the dissolution of a partnership firm for solving NCERT problems?
In the dissolution of a partnership, only the existing agreement between partners changes (due to admission, retirement, etc.), but the firm continues its business. For accounting, a Revaluation Account is prepared to reassess assets and liabilities. In the dissolution of a partnership firm, the entire business is shut down. To solve these problems, a Realisation Account is prepared to record the sale of assets and payment of liabilities, and the firm ceases to exist.
2. What is the step-by-step process for preparing a Realisation Account for NCERT Class 12 Accountancy Chapter 4 problems?
To solve problems involving the dissolution of a firm, follow these steps to prepare the Realisation Account:
- Step 1: Transfer all assets (except cash, bank, and fictitious assets) to the debit side of the Realisation Account at their book values.
- Step 2: Transfer all external liabilities (like creditors, bills payable) to the credit side at their book values.
- Step 3: Record the amount received from the sale of assets on the credit side (as 'By Bank/Cash A/c').
- Step 4: Record the amount paid to settle liabilities on the debit side (as 'To Bank/Cash A/c').
- Step 5: Account for any unrecorded assets realised (credit side) or unrecorded liabilities paid (debit side).
- Step 6: Record dissolution expenses paid by the firm on the debit side.
- Step 7: Balance the account to find the profit or loss on realisation and transfer it to the partners' capital accounts in their profit-sharing ratio.
3. According to the NCERT solutions, what is the correct order for the settlement of accounts upon the dissolution of a firm?
As per Section 48 of the Indian Partnership Act, 1932, the proceeds from the sale of firm assets are applied in the following order:
- First, to pay the firm's debts to third parties (external liabilities).
- Second, to pay any loans or advances made by partners to the firm.
- Third, to repay the capital contributed by each partner.
- Finally, if any surplus remains, it is distributed among the partners in their profit-sharing ratio.
4. How is goodwill treated in the accounts when a partnership firm is dissolved?
When a firm is dissolved, goodwill is treated like any other asset. If goodwill appears in the balance sheet, it is transferred to the debit side of the Realisation Account along with other assets. If any amount is received for goodwill upon the firm's closure, it is credited to the Realisation Account as 'By Bank/Cash A/c'. If nothing is mentioned about its realisation, it is assumed that no value was realised from it.
5. What is the correct journal entry in the NCERT solutions if a partner takes over an asset of the firm during dissolution?
When a partner takes over an asset during dissolution, the value of that asset is debited to their capital account, as it reduces the amount the firm owes them. The correct journal entry is: Partner's Capital A/c Dr. To Realisation A/c. The Realisation Account is credited because the takeover is treated as a form of asset realisation.
6. How should unrecorded assets and liabilities be treated in the books when solving dissolution problems?
Unrecorded assets and liabilities are not on the balance sheet, so they are not transferred to the Realisation Account initially. Their treatment is as follows:
- Unrecorded Assets: If an unrecorded asset is sold, the amount received is directly credited to the Realisation Account (Bank/Cash A/c Dr. To Realisation A/c).
- Unrecorded Liabilities: If an unrecorded liability is paid, the amount is directly debited to the Realisation Account (Realisation A/c Dr. To Bank/Cash A/c).
7. Why are assets and liabilities transferred to the Realisation Account at their book values and not their market values?
Assets and liabilities are transferred to the Realisation Account at their book values because the primary goal of this step is to close their respective ledger accounts in the firm's books. The Realisation Account acts as a consolidated account for all assets and liabilities. The actual cash received or paid (market/agreed value) is then recorded separately in the same account to calculate the final profit or loss on dissolution accurately.
8. How are partners' loans to the firm settled during dissolution, and why aren't they transferred to the Realisation Account?
A partner's loan to the firm is an internal liability, not an external one. Therefore, it is not transferred to the Realisation Account. It is settled separately after all external liabilities have been paid but before the partners' capital is repaid. The payment is recorded directly through the bank or cash account with the entry: Partner's Loan A/c Dr. To Bank/Cash A/c.
