Partnership

Dissolution

Easy

common

In case of dissolution of partnership firm, any liability assumed/paid by a partner is shown on ........?

Debit of Realisation Account

Debit of Bank Account

Credit of Realisation Account

Credit of Bank Account

✅ Correct Option: 1

When a partner assumes or pays a liability during dissolution of a partnership firm, it is recorded on the Debit side of Realisation Account.

Understanding the concept:

During dissolution, Realisation Account is prepared to record all assets and liabilities. The treatment of liabilities is:

Initial Entry: All external liabilities are transferred to Realisation Account

Realisation A/c ... Dr (with all assets except cash/bank)

To Creditors A/c

To Other Liabilities A/c

This shows liabilities on the credit side of Realisation Account.

When a partner assumes/pays the liability:

The liability is now discharged as far as the firm is concerned. The journal entry becomes:

Realisation A/c ... Dr

To Partner's Capital A/c

This entry:

Debits Realisation Account (removing the liability from firm's books)
Credits Partner's Capital Account (showing the partner's contribution by taking over/paying the liability)

The debit to Realisation Account represents that the firm is no longer responsible for that liability since the partner has either paid it from personal funds or assumed personal responsibility for it.

Correct Option: 1 - Debit of Realisation Account

2025: 30 May Shift 2

A partnership firm is dissolved compulsorily in the following cases:

(A) when all the partners or all but except one partner, become insolvent, rendering them incompetent to sign a contract:

(B) When the business of the firm becomes illegal

(D) When some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.

Choose the correct answer from the options given below:

2023: 29 May Shift 2

State Journal entry for realisation of investment.

2025: 27 May Shift 2

Match List-I with List-II

List-I	List-II
(Events)	(Result.)
(A) Termination of business.	(I) Not possible in the dissolution of partnership.
(b) Continuation of business	(II) Not possible in the dissolution of a firm.
(C) Intervention of court.	(III) Dissolution of firm
(D) Continuation of books of accounts.	(IV) Dissolution of partnership.

Choose the correct answer from the options given below:

2023: 28 May Shift 1

According to Indian Partnership Act, 1932, when the firm is dissolved, cash received on sale of assets are applied in following order :

(A) Paying to each partner proportionately what is due to him/her on account of capital

(B) In paying the secured debts of the firm to the third parties

(C) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital

(D) The residue, if any shall be divided among the partner's in their profit sharing ratio

(E) In paying unsecured debt of firm to third parties

Choose the correct answer from the options given below :

2026: 11 May Shift 1

On dissolution of a firm, partner's spouse loan account is transferred to:

2026: 29 May Shift 2

Match the LIST-I with LIST-II

LIST-I		LIST-II
A.	Realisation expenses are incurred and paid by the firm	I.	No Entry
B.	Realisation expenses are paid by a partner on behalf of the firm	II.	Realisation A/c Dr., To Bank A/c
C.	Partner himself pays the realisation expenses	III.	Partner's Capital A/c Dr., To Bank A/c
D.	Partner has agreed to bear the realisation expenses but expenses are incurred and paid by the firm	IV.	Realisation A/c Dr., To Partner's Capital A/c

Choose the correct answer from the options given below:

In case of dissolution of partnership firm, any liability assumed/paid by a partner is shown on ........?

Solution

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