Partnership

Dissolution

Easy

common

In case of the dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. Losses, including deficiencies of capital, shall be paid in the following manner and order:

(A) Out of capital of partners.

(B) By the partners individually in their profit sharing ratio.

(C) Profits.

Choose the correct answer from the options given below:

(B), (A), (C)

(C), (A), (B)

(B), (C), (A)

(C), (B), (A)

✅ Correct Option: 2

According to Section 48 of the Indian Partnership Act, 1932, during dissolution of a firm, losses (including deficiencies of capital) must be settled in a specific order of priority.

The correct sequence for settling losses is:

First → Out of Profits (C)

If profits are insufficient or there are no profits, then:

Second → Out of Capital of partners (A)

If capital is also insufficient, then:

Third → By the partners individually in their profit-sharing ratio (B)

This means partners must first utilize any available profits to cover losses. Only when profits are exhausted should capital be used. As a last resort, partners contribute from their personal assets in their profit-sharing ratio.

The sequence is: (C), (A), (B)

Correct Answer: Option 2

2023: 11 June Shift 3

Select the entry that is to be made when a creditor accepts an asset in full and final settlement of his account.

2026: 11 May Shift 2

At the time of dissolution of firm, the following information is provided

	Rs.
Sundry debtors	21,500
Less: Provision for doubtful debts	500
	21,000

Debtors realised at a discount of 5%,

Journal entry for realisation of debtors would be :

2025: 15 May Shift 1

Match List-I with List-II

List-I	List-II
(A) Payment of loans due to partners	(I) Realisation A/c Dr To Bank A/c
(B) For settlement of partners' accounts, in case their capital account shows a debit balance	(II) Bank A/c Dr. A/c To loan to partners
(C) For settlement of loan by a firm to a partner	(III) Bank A/c Dr. To Partner's Capital A/c
(D) For settlement of any unrecorded liability	(IV) Partner's Loan A/c Dr. To Bank A/c

Choose the correct answer from the options given below:

2026: 29 May Shift 1

Arrange the following in the correct sequence, in which the assets of the firm shall be applied, including any sum contributed by the partners to make up deficiencies in the case of dissolution of a partnership firm.

(A) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner's loan).

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

(D) In paying to each partner proportionately what is due to him on account of capital.

Choose the correct answer from the options given below:

2023: 28 May Shift 1

On Dissolution of partnership firm out of total debtors of Rs. 2,50,000, Rs. 10,000 became bad and the rest realised 70%. In the given case Bank A/c will be debited by :

2026: 21 May Shift 2

Dissolution of Firm means:

A. Assets are revalued and liabilities are reassessed. New balance sheet is drawn

B. Economic relationships between partners come to an end

C. The business of the firm is closed/terminated

D. The business is not closed/terminated

Choose the correct answer from the options given below:

Solution

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