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Dissolution of Partnership Firm

NCERT Class 12 · Accountancy Based on NCERT Class 12 Accountancy textbook · Free CBSE study kit

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Chapter Notes

Overview
This chapter explains the process of closing a partnership firm, which is distinct from the dissolution of a partnership (e.g., due to admission, retirement, or death of a partner). The key idea is that dissolution of a firm ends the business entirely, requiring the sale of assets, payment of liabilities, and settlement of partners' claims. Students must master the preparation of the Realisation Account and understand the legal order of settlement under Section 48 of the Indian Partnership Act, 1932.
Key Concepts (14)
Dissolution of Partnership
The change in the existing relationship between partners, such as admission, retirement, death, or change in profit-sharing ratio, where the firm may continue its business.
e.g. When a new partner is admitted, the old partnership is dissolved but the firm continues with a new agreement.
Dissolution of Partnership Firm
The complete discontinuance of the business of the firm, where all assets are sold, liabilities are paid, and the firm ceases to exist.
e.g. When partners decide to close their restaurant business, sell all equipment, pay off suppliers, and divide the remaining cash among themselves.
Realisation Account
A nominal account prepared at the time of dissolution to ascertain the profit or loss on the sale of assets and payment of liabilities.
e.g. If assets are sold for Rs. 1,00,000 and liabilities of Rs. 60,000 are paid, the Realisation Account shows a profit of Rs. 40,000.
Section 48 of the Partnership Act, 1932
The legal rule that specifies the order of settlement of accounts upon dissolution: losses from profits, then capital, then by partners individually; assets are applied to pay third-party debts, then partner loans, then capital, and surplus is divided in profit-sharing ratio.
e.g. If the firm has a loss of Rs. 10,000, it is first set off against profits, then partners' capital, and if still deficient, partners contribute in their profit-sharing ratio.
Garner vs. Murray Rule
A legal principle stating that if a partner is insolvent and cannot contribute to a capital deficiency, the remaining solvent partners bear the loss in the ratio of their capitals as on the date of dissolution.
e.g. If Partner A (capital Rs. 50,000) and Partner B (capital Rs. 30,000) are solvent, and Partner C is insolvent with a deficiency of Rs. 8,000, A and B bear the loss in the ratio 50,000:30,000 (5:3).
Compulsory Dissolution
Dissolution that occurs by law when all partners or all but one become insolvent, the business becomes illegal, or an event makes it unlawful to carry on the business.
e.g. If a partner becomes an alien enemy due to war between his country and India, the firm is compulsorily dissolved.
Dissolution by Agreement
Dissolution of a firm with the consent of all partners or in accordance with a contract between them.
e.g. All five partners of a trading firm sign a deed agreeing to dissolve the firm on a specific date.
Dissolution by Notice
In a partnership at will, any partner can dissolve the firm by giving a written notice to the other partners of his intention to dissolve.
e.g. A partner in a partnership at will sends a registered letter to the other partners stating he wants to dissolve the firm.
Dissolution by Court
A court may order dissolution on grounds such as a partner becoming insane, permanently incapable, guilty of misconduct, or when the business can only be carried on at a loss.
e.g. A partner is declared insane by a medical board, and the other partners file a suit for dissolution, which the court grants.
Realisation Expenses
Expenses incurred in the process of selling assets and paying liabilities during dissolution, which are debited to the Realisation Account.
e.g. A firm pays Rs. 2,000 to an auctioneer for selling its machinery; this is a realisation expense.
Unrecorded Assets
Assets that are not recorded in the books of the firm but are discovered at the time of dissolution, such as goodwill or an old computer.
e.g. An old typewriter not recorded in the books is taken over by a partner for Rs. 600.
Unrecorded Liabilities
Liabilities that are not recorded in the books but are discovered and paid at the time of dissolution.
e.g. An outstanding bill for repairs of Rs. 2,000 is paid during dissolution.
Partner's Loan
A loan given by a partner to the firm, which is repaid after outside liabilities but before capital, as per Section 48.
e.g. Bhawan's loan of Rs. 20,000 in the balance sheet is paid after creditors but before capital.
Private Debts vs. Firm's Debts
Under Section 49, firm property is first used to pay firm debts, and a partner's private property is first used to pay their private debts; surplus from private property can be used for firm debts if firm assets are insufficient.
e.g. If a partner has a personal loan of Rs. 10,000 and the firm owes Rs. 5,000 to a supplier, the partner's personal assets are first used to pay his personal loan.
Formulas & Equations (4)
Losses (including deficiencies of capital) shall be paid first out of profits, next out of capital, and lastly by partners individually in their profit sharing ratio.
Reads as: Losses are paid first from profits, then from capital, then by partners in their profit-sharing ratio.
Variables: Profits = accumulated profits; Capital = partners' capital accounts; Profit sharing ratio = the ratio in which partners share profits and losses.
Use when: When calculating how to distribute losses on dissolution of a firm.
⚠ Students often apply the profit-sharing ratio to capital deficiencies before exhausting profits and capital balances.
Assets of the firm shall be applied in the following order: (i) paying debts of the firm to third parties, (ii) paying each partner proportionately what is due for advances (partner's loan), (iii) paying each partner proportionately what is due on capital, (iv) residue divided among partners in profit sharing ratio.
Reads as: Assets are applied first to third-party debts, then partner loans, then capital, and surplus is divided in profit-sharing ratio.
Variables: Third-party debts = creditors, bills payable, bank overdraft; Partner's loan = advances by partners; Capital = partners' capital account balances; Residue = remaining cash after all payments.
Use when: When preparing the final distribution of cash after realisation of assets.
⚠ Students often pay partner loans after capital, but the correct order is loans before capital.
Realisation Profit/Loss = Total Credits (assets realised, liabilities transferred, etc.) - Total Debits (assets transferred, liabilities paid, expenses, etc.)
Reads as: Realisation profit or loss equals total credits minus total debits in the Realisation Account.
Variables: Total Credits = sum of all credit entries (e.g., sale of assets, liabilities taken over); Total Debits = sum of all debit entries (e.g., book value of assets, payment of liabilities, realisation expenses).
Use when: When preparing the Realisation Account to find the net gain or loss on dissolution.
⚠ Students forget to transfer accumulated profits (like General Reserve) to partners' capital accounts separately, instead including them in the Realisation Account.
Garner vs. Murray Rule: Insolvent partner's deficiency is borne by solvent partners in the ratio of their capitals as on the date of dissolution.
Reads as: If a partner cannot pay their capital deficiency, the other partners share that loss in proportion to their capital balances.
Variables: Deficiency = debit balance in insolvent partner's capital account; Solvent partners' capitals = their capital account balances on the dissolution date.
Use when: When one partner is insolvent and cannot contribute to a capital deficiency.
⚠ Students incorrectly use the profit-sharing ratio instead of the capital ratio for bearing the insolvent partner's loss.
How It Works
Settlement of Accounts under Section 48
  1. Step 1: Losses (including capital deficiencies) are paid first out of profits, then out of partners' capital, and lastly by partners individually in their profit-sharing ratio.
  2. Step 2: Assets are applied in order: (i) pay third-party debts, (ii) pay partner loans proportionately, (iii) pay partner capital proportionately, (iv) divide any residue among partners in profit-sharing ratio.
💡 The order of payment is crucial: outside liabilities first, then partner loans, then capital. Students often mix up partner loans and capital.
Preparation of Realisation Account
  1. Step 1: Transfer all assets (except cash, bank, and fictitious assets) to the debit side of Realisation Account at book value.
  2. Step 2: Transfer all external liabilities (including provisions) to the credit side of Realisation Account.
  3. Step 3: Record the sale of assets on the credit side (Bank A/c Dr. to Realisation A/c).
  4. Step 4: Record the payment of liabilities on the debit side (Realisation A/c Dr. to Bank A/c).
  5. Step 5: Record realisation expenses on the debit side.
  6. Step 6: Record any asset taken over by a partner on the debit side (Partner's Capital A/c Dr. to Realisation A/c).
  7. Step 7: Record any liability assumed by a partner on the credit side (Realisation A/c Dr. to Partner's Capital A/c).
  8. Step 8: Transfer the balance (profit or loss) to partners' capital accounts in their profit-sharing ratio.
💡 Do not transfer cash, bank, or fictitious assets to the Realisation Account. Also, accumulated profits like General Reserve are transferred directly to partners' capital accounts, not through Realisation Account.
Treatment of Unrecorded Assets and Liabilities
  1. Step 1: For unrecorded assets: if sold, debit Bank and credit Realisation Account; if taken over by a partner, debit Partner's Capital and credit Realisation Account.
  2. Step 2: For unrecorded liabilities: if paid, debit Realisation Account and credit Bank.
💡 Unrecorded assets are credited to Realisation Account (they increase profit), and unrecorded liabilities are debited (they decrease profit).
Treatment of Partner's Loan
  1. Step 1: If partner's loan appears on the liabilities side, it is not transferred to Realisation Account. Instead, it is paid directly: Partner's Loan A/c Dr. to Bank A/c.
  2. Step 2: If partner's loan appears on the assets side (loan to partner), it is realised: Bank A/c Dr. to Loan to Partner A/c.
💡 Partner's loan is not transferred to Realisation Account; it is settled separately.
Treatment of Realisation Expenses
  1. Step 1: If paid by the firm: Realisation A/c Dr. to Bank A/c.
  2. Step 2: If paid by a partner on behalf of the firm: Realisation A/c Dr. to Partner's Capital A/c.
  3. Step 3: If a partner agrees to bear expenses and pays them: no entry is required if the partner pays directly; if the firm pays, debit Partner's Capital and credit Bank.
💡 When a partner bears the expenses, the amount is not debited to Realisation Account; it is adjusted in the partner's capital account.
Settlement of Partners' Capital Accounts
  1. Step 1: Transfer accumulated profits (e.g., General Reserve) and accumulated losses to partners' capital accounts in profit-sharing ratio.
  2. Step 2: Transfer the balance of Realisation Account (profit or loss) to partners' capital accounts.
  3. Step 3: Transfer partner's current account balance to their capital account.
  4. Step 4: If a partner's capital account shows a debit balance, the partner brings in cash: Bank A/c Dr. to Partner's Capital A/c.
  5. Step 5: If a partner's capital account shows a credit balance, pay the amount: Partner's Capital A/c Dr. to Bank A/c.
💡 The final amount payable to partners must equal the cash available after all payments.
Exam Traps — Don't Make These Mistakes
⚠ Confusing Dissolution of Partnership with Dissolution of Firm
✗ Students often write that dissolution of partnership and dissolution of firm are the same thing.
→ Dissolution of partnership (e.g., admission, retirement) does not end the business; the firm continues. Dissolution of firm ends the business entirely.
✓ Dissolution of partnership changes the relationship between partners but the firm may continue; dissolution of firm closes the business and settles all accounts.
⚠ Transferring Partner's Loan to Realisation Account
✗ Students often debit or credit partner's loan in the Realisation Account.
→ Partner's loan is not an external liability; it is settled directly through the Bank Account, not through Realisation Account.
✓ Partner's loan is paid directly: Partner's Loan A/c Dr. to Bank A/c. It is not transferred to Realisation Account.
⚠ Including Cash and Bank in Realisation Account
✗ Students often transfer cash and bank balances to the debit of Realisation Account.
→ Cash and bank are not realised; they are already in liquid form and are used for payments. Only non-cash assets are transferred.
✓ Only assets other than cash, bank, and fictitious assets are transferred to Realisation Account. Cash and bank are shown in the Bank Account.
⚠ Wrong Order of Payment of Liabilities
✗ Students often pay partner's capital before partner's loan.
→ Section 48 specifies that partner's loan (advances) must be paid before capital.
✓ The correct order is: (i) third-party debts, (ii) partner's loans, (iii) partner's capital, (iv) surplus divided in profit-sharing ratio.
⚠ Using Profit-Sharing Ratio for Garner vs. Murray Deficiency
✗ Students often divide the insolvent partner's deficiency in the profit-sharing ratio.
→ Garner vs. Murray rule states that solvent partners bear the loss in the ratio of their capitals, not profit-sharing ratio.
✓ The deficiency is borne by solvent partners in the ratio of their capitals as on the date of dissolution.
Compare & Contrast
Effect on business
Dissolution of Partnership
Dissolution of Firm
Dissolution of partnership does not terminate the business; the firm continues. Dissolution of firm closes the business entirely.
Purpose and timing
Realisation Account
Revaluation Account
Realisation Account is prepared at the time of dissolution to record sale of assets and payment of liabilities. Revaluation Account is prepared at the time of admission, retirement, or change in profit-sharing ratio to record changes in asset/liability values without closing the business.
Exam Focus
Marks pattern: 1-2 MCQs (1 mark each), 1 short answer question (3 marks), 1 long answer/numerical question (5-6 marks) on Realisation Account and capital accounts.
Most asked: Preparation of Realisation Account · Settlement of partners' capital accounts · Treatment of unrecorded assets and liabilities · Order of payment under Section 48 · Garner vs. Murray rule (insolvency of a partner)
Don't skip: Numerical problem on preparation of Realisation Account, Partners' Capital Accounts, and Bank Account; Question on the order of settlement of accounts under Section 48
One-Line Revision (read aloud before the exam)
  1. Dissolution of partnership changes the relationship between partners; dissolution of firm ends the business.
  2. Realisation Account is prepared to find profit or loss on sale of assets and payment of liabilities.
  3. All assets except cash, bank, and fictitious assets are transferred to the debit of Realisation Account.
  4. All external liabilities are transferred to the credit of Realisation Account.
  5. Partner's loan is not transferred to Realisation Account; it is paid directly.
  6. Under Section 48, losses are paid first from profits, then capital, then by partners individually.
  7. Assets are applied in order: third-party debts, partner loans, partner capital, then surplus divided in profit-sharing ratio.
  8. Garner vs. Murray rule: solvent partners bear an insolvent partner's deficiency in the ratio of their capitals.
  9. Unrecorded assets when sold are credited to Realisation Account.
  10. Unrecorded liabilities when paid are debited to Realisation Account.
  11. Accumulated profits like General Reserve are transferred to partners' capital accounts in profit-sharing ratio.
  12. Realisation expenses are debited to Realisation Account if paid by the firm.
  13. If a partner bears realisation expenses, no entry is needed if the partner pays directly.
  14. Dissolution by court can be ordered if a partner becomes insane or the business is run at a loss.
  15. Private property of a partner is first used to pay private debts, then firm debts if needed.

MCQs — 10 Questions with Answers

Q1. Which of the following statements about dissolution of partnership is TRUE?

  • A. Dissolution of partnership always means dissolution of the firm
  • B. Dissolution of partnership means the relationship between partners breaks but the firm may continue ✓
  • C. Dissolution of partnership requires court intervention in all cases
  • D. Dissolution of partnership means the firm can no longer conduct any business

Answer: B — Dissolution of partnership terminates the relationship between partners but does not necessarily end the firm's existence; the firm may continue under remaining partners.

Q2. According to Section 39 of the Partnership Act 1932, dissolution of a firm is defined as:

  • A. When one partner retires from the partnership
  • B. When a new partner is admitted to the firm
  • C. Dissolution of partnership between ALL partners of a firm ✓
  • D. When the profit-sharing ratio changes among existing partners

Answer: C — Section 39 specifically defines firm dissolution as the dissolution of partnership between ALL partners; this is the complete breaking of relationships among all members.

Q3. Which of the following is NOT a mode of compulsory dissolution of a firm?

  • A. When all partners become insolvent
  • B. When the business becomes illegal
  • C. When one partner gives notice in a partnership at will ✓
  • D. When an event makes it unlawful to carry on partnership

Answer: C — Dissolution by notice is a separate mode (not compulsory); it is a voluntary act in partnership at will. Compulsory dissolution includes insolvency and illegality.

Q4. A firm constituted for a specific term of 5 years automatically dissolves on:

  • A. Death of any partner before 5 years
  • B. Expiry of the 5-year period by contingency dissolution ✓
  • C. Voluntary agreement of all partners before 5 years
  • D. Court order if business becomes unprofitable

Answer: B — A firm dissolves on contingency when the fixed term expires; this is automatic dissolution by operation of law without requiring agreement or court intervention.

Q5. During dissolution of a firm, according to Section 48, in what order are firm assets applied?

  • A. Capital accounts → partner loans → external debts → profit surplus
  • B. External debts → partner loans → capital accounts → profit surplus ✓
  • C. Partner loans → external debts → capital accounts → profit surplus
  • D. Profit surplus → capital accounts → external debts → partner loans

Answer: B — Section 48 specifies the legal order: external creditors are paid first, then partner loans/advances, then capital accounts, and finally surplus is divided in profit ratio.

Q6. If during dissolution losses exceed profits, how are the remaining losses settled among partners?

  • A. Equally among all partners regardless of capital
  • B. In proportion to their capital contributions
  • C. In their profit-sharing ratio from individual partners ✓
  • D. Only the outgoing partner bears the loss

Answer: C — Section 48 stipulates that losses not covered by profits are paid by partners individually in their profit-sharing ratio, not in capital ratio.

Q7. A partner becomes temporarily insane. Under which mode will the firm be dissolved?

  • A. Dissolution by agreement
  • B. Dissolution by contingency
  • C. Dissolution by court order on grounds of insanity ✓
  • D. Compulsory dissolution by law

Answer: C — When a partner becomes insane (even temporarily), Section 44 allows the court to order dissolution on the ground of insanity at the suit of a partner.

Q8. In a partnership at will with three partners A, B, and C, partner A wants to dissolve the firm. Which statement is correct?

  • A. A must get B and C's consent to dissolve the firm
  • B. A can dissolve the firm unilaterally by giving written notice to B and C ✓
  • C. A can only dissolve through court petition
  • D. A must follow the Realisation Account procedure before notice

Answer: B — In partnership at will, any partner has the right to dissolve by giving written notice; no consent of other partners is required under the Partnership Act.

Q9. Realisation Account shows a loss of ₹10,000 during dissolution of a firm. If partners' profit-sharing ratio is 2:3, how much loss falls on the second partner?

  • A. ₹4,000
  • B. ₹6,000 ✓
  • C. ₹5,000
  • D. ₹10,000

Answer: B — Second partner's share in profit ratio = 3/5; loss borne = (3/5) × ₹10,000 = ₹6,000; loss is distributed in profit-sharing ratio, not equally.

Q10. [ASSERTION-STYLE] Statement I: Dissolution of partnership between some partners means dissolution of the firm. Statement II: When one partner retires, the firm dissolves but may continue under new partners. Which is correct?

  • A. Both statements are true
  • B. Statement I is true; Statement II is false
  • C. Statement I is false; Statement II is true ✓
  • D. Both statements are false

Answer: C — Statement I is false — dissolution of partnership among some partners does NOT dissolve the firm; only dissolution among ALL partners dissolves the firm. Statement II is true.

Flashcards

What is the difference between dissolution of partnership and dissolution of a firm?

Dissolution of partnership breaks the relationship between partners but the firm may continue; dissolution of firm ends the business entirely and closes all accounts.

Name three ways a firm can be dissolved by agreement.

Dissolution by agreement occurs when all partners consent, or in accordance with a contract between partners, or by mutual deed of dissolution.

When is a firm dissolved compulsorily?

A firm is compulsorily dissolved when all partners or all but one become insolvent, the business becomes illegal, or an event makes partnership unlawful.

What happens to the firm when a partner dies?

The partnership is dissolved automatically upon a partner's death, but the firm continues if remaining partners agree, making this a contingency dissolution.

According to Section 48, what is the first application of firm assets?

The first application of firm assets is to pay debts of the firm to third parties (creditors, loans, bills payable).

In what order are losses settled when a firm dissolves?

Losses are settled first from profits, then from partners' capital, and lastly by partners individually in their profit-sharing ratio.

What is a Realisation Account?

A Realisation Account is prepared during firm dissolution to show the sale of assets, payment of liabilities, and any resulting profit or loss.

Can a firm be dissolved by court order?

Yes, a court can order dissolution if a partner becomes insane, is permanently incapable, commits misconduct, breaches agreement persistently, or business cannot continue.

When a partner takes a loan from the firm, how is it treated during dissolution?

Partner loans are repaid after external creditors but before settlement of capital accounts, in proportion to the balances outstanding.

In a partnership at will, how is dissolution initiated?

In a partnership at will, any single partner can give written notice to other partners signifying intention to dissolve the firm.

Important Board Questions

Define dissolution of a partnership firm. State whether dissolution of partnership necessarily means dissolution of a firm, giving one example. [2 marks]

Define firm dissolution as breaking all partner relationships and complete business closure. Explain that dissolution of partnership (e.g., one partner's retirement) does NOT always dissolve the firm if remaining partners continue—the firm survives but partnership is dissolved.

ABC are partners sharing profits in ratio 2:2:1. On dissolution, the firm's assets realised ₹80,000. External liabilities were ₹50,000 and a partner loan from A was ₹12,000. Show how the remaining amount will be distributed among partners. (Assume no capital account balances are maintained.) [5 marks]

Apply Section 48 rules: (1) Pay external creditors first: ₹80,000 − ₹50,000 = ₹30,000 left. (2) Pay partner loan to A: ₹30,000 − ₹12,000 = ₹18,000 remaining. (3) Distribute surplus in profit ratio 2:2:1 = ₹8,000 (A), ₹8,000 (B), ₹2,000 (C). Show all adjustments in statement format.

Explain the five different modes by which a partnership firm can be dissolved. For each mode, state whether court intervention is necessary and give one example relevant to Indian business law. [6 marks]

Cover: (1) Dissolution by agreement (mutual consent, no court); (2) Compulsory dissolution (insolvency/illegality, automatic); (3) By contingency (death/expiry, automatic); (4) By notice (partnership at will, unilateral); (5) By court order (grounds: insanity, misconduct, just/equitable). For each, state if court is involved and provide an Indian legal example (e.g., goods become illegal after law change, partner declared insolvent under Insolvency Act 2016).

Assertion-Reason Questions for Dissolution of Partnership Firm

Q1. Assertion (A):

Dissolution of partnership necessarily results in dissolution of firm.

Reason (R):

When a partner retires, the partnership between the retiring and continuing partners is dissolved, but the firm may continue its business.

Answer: D — A is false but R is true — Both statements are false. The assertion reverses the relationship: dissolution of FIRM necessarily causes dissolution of partnership, NOT the other way. Dissolution of partnership (by retirement, admission, etc.) does NOT necessarily end the firm. The reason contradicts the assertion, so D is correct.

Q2. Assertion (A):

A firm is dissolved by notice only in partnerships at will.

Reason (R):

In a fixed-term partnership, any partner can give notice to dissolve the firm at any time without penalty.

Answer: C — A is true but R is false — The assertion is TRUE: only at-will partnerships can be dissolved by unilateral notice. The reason is FALSE: in fixed-term partnerships, a partner cannot unilaterally dissolve by notice without breach of agreement. This tests whether students understand the distinction between at-will and fixed-term partnerships.

Q3. Assertion (A):

According to Section 48(b), outside liabilities of a firm must be paid before settling partner capital accounts.

Reason (R):

Third-party creditors' claims have priority over internal partner capital claims under partnership law.

Answer: A — Both A and R are true, and R is the correct explanation of A — Both are true and the reason explains the assertion correctly. Section 48(b) mandates payment order: (i) outside debts, (ii) partner loans, (iii) capital. Creditors must be satisfied first because they are external stakeholders with priority rights.

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Case-Based Questions (CBQ) for Dissolution of Partnership Firm

Case Study:

Mohan, Rohan, and Sohan are partners in 'City Constructions' sharing profits in the ratio of 3:2:1. Rohan retired on 1st April 2025. The firm had a General Reserve of ₹1,80,000 and a Debit balance of Profit & Loss Account of ₹60,000 on that date. The partners decided to adjust the reserves and accumulated losses by passing a single journal entry without affecting the cash/bank balance.

Q1. What is the net amount of reserves and accumulated losses to be distributed among partners on Rohan's retirement?

  • A. ₹1,80,000 credit balance
  • B. ₹60,000 debit balance
  • C. ₹1,20,000 credit balance ✓
  • D. ₹2,40,000 credit balance

Answer: C

Q2. What is Rohan's share of the net reserve after adjustment of accumulated losses?

  • A. ₹30,000
  • B. ₹40,000 ✓
  • C. ₹20,000
  • D. ₹60,000

Answer: B

Q3. The journal entry to adjust the General Reserve and Profit & Loss (Debit) balance on Rohan's retirement will credit Rohan's Capital Account by:

  • A. ₹40,000 ✓
  • B. ₹60,000
  • C. ₹30,000
  • D. ₹20,000

Answer: A

Q4. If instead of adjusting through partners' capital accounts, the firm decided to distribute the entire General Reserve in cash, how much cash would Rohan receive?

  • A. ₹60,000 ✓
  • B. ₹30,000
  • C. ₹40,000
  • D. ₹20,000

Answer: A

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Previous Year Questions (PYQ) for Dissolution of Partnership Firm

Real CBSE board exam questions from past papers — free to attempt.

CBSE 2026 · Set 67/3/1 · 1 mark

On 31st March, 2025, the partnership between Hari and Om was dissolved. Hari was appointed to look after dissolution work for which he was allowed a commission of ₹9,700. He agreed to bear the dissolution expenses. The actual expenses of dissolution amounted to ₹8,900. The credit side of Realisation Account will be:

  • ₹9,700
  • ₹8,900
  • ₹10,000
  • Nil

CBSE 2026 · Set 67/3/1 · 6 marks

Sophia and Lalit were partners in a firm sharing profits and losses equally. Their firm was dissolved on 31st March, 2025. After transferring sundry assets (other than cash in hand and cash at bank) and the third party liabilities to the Realisation Account, the following transactions took place: (i) The firm had stock of the book value of ₹80,000. 50% of the stock was taken over by Sophia at 10% less than its book value and the remaining stock was sold at a gain of 15%. (ii) There was an unrecorded investment which was sold for ₹25,000. (iii) There were debtors of ₹1,20,000. Debtors realised 90% only and ₹5,000 were recovered for bad debts written off last year. (iv) Sophia had given a loan to the firm of ₹52,000. She was paid ₹41,000 in full settlement of her claim. (v) Creditors of ₹60,000 were paid at a discount of 5%. (vi) Expenses of realisation amounting to ₹7,000 were paid by Lalit. Pass necessary journal entries for the above transactions in the books of the firm.

CBSE 2026 · Set 67/3/2 · 1 mark

On 31st March, 2025, the partnership between Hari and Om was dissolved. Hari was appointed to look after dissolution work for which he was allowed a commission of 9,700. He agreed to bear the dissolution expenses. The actual expenses of dissolution amounted to 8,900 which would be transferred to Realisation Account will be:

  • 9,700
  • 8,900
  • 10,000
  • Nil

CBSE 2026 · Set 67/3/2 · 6 marks

Sophia and Lalit were partners in a firm sharing profits and losses equally. Their firm was dissolved on 31st March, 2025. After transferring sundry assets (other than cash in hand and cash at bank) and the third party liabilities to the Realisation Account, the following transactions took place: (i) The firm had stock of the book value of 80,000. 50% of the stock was taken over by Sophia at 10% less than its book value and the remaining stock was sold at a gain of 15%. (ii) There was an unrecorded investment which was sold for 25,000. (iii) There were debtors of 1,20,000. Debtors realised 90% only and 5,000 were recovered for bad debts written off last year. (iv) Sophia had given a loan to the firm of 52,000. She was paid 41,000 in full settlement of her claim. (v) Creditors of 60,000 were paid at a discount of 5%. (vi) Expenses of realisation amounting to 7,000 were paid by Lalit. Pass necessary journal entries for the above transactions in the books of the firm.

CBSE 2026 · Set 67/4/1 · 1 mark

Dinesh, Siddharth and Naina were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March, 2025, they decided to dissolve the firm. On this date, the firm had debtors amounting to ₹2,10,000 and provision for doubtful debts of ₹20,000. On dissolution, debtors of ₹10,000 proved bad and the remaining debtors realised 90%. Amount realised from debtors will be:

  • ₹1,71,000
  • ₹2,00,000
  • ₹1,80,000
  • ₹1,89,000

CBSE 2026 · Set 67/4/1 · 6 marks

Arhan and Kanak were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2025 was as follows: Capitals: Arhan ₹6,00,000; Kanak ₹8,00,000; Bank Loan ₹7,00,000; Creditors ₹13,00,000; Machinery ₹12,00,000; Investments ₹7,00,000; Debtors ₹10,00,000; Stock ₹4,00,000; Cash ₹1,00,000. The firm was dissolved on the above date and the following transactions took place: (i) 50% of the creditors were given stock in full settlement of their dues. Remaining creditors were settled at 20% discount. (ii) Investments were taken over by Kanak at ₹8,40,000. (iii) Debtors realized ₹8,50,000 and machinery was sold at 70% of book value. (iv) Realisation expenses amounted to ₹1,20,000 which were paid by Arhan. Prepare Realisation Account and Partners' Capital Accounts.

CBSE 2026 · Set 67/4/2 · 6 marks

Saket and Suveni were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2025 was as follows: Balance Sheet of Saket and Suveni as at 31st March, 2025 Liabilities Amount (₹) Assets Amount (₹) Capitals: Machinery 15,00,000 Saket 12,00,000 Investments 8,00,000 Suveni 8,00,000 20,00,000 Debtors 10,00,000 Stock 4,00,000 Bank Overdraft 8,00,000 Cash in hand 3,00,000 Creditors 12,00,000 40,00,000 40,00,000 The firm was dissolved on the above date and the following transactions took place: (i) 40% of the creditors were given stock in full settlement of their dues. Remaining creditors were settled at 20% discount. (ii) Investments were taken over by Suveni at ₹12,00,000. (iii) Debtors realised ₹8,00,000. (iv) Machinery was realised at 10% discount. (v) Suveni agreed to bear the realisation expenses for a remuneration of ₹20,000. Prepare Realisation Account.

CBSE 2026 · Set 67/4/3 · 6 marks

Jhalak and Arsh were partners in a firm sharing profits and losses equally. Their Balance Sheet as at 31st March, 2025 was as follows: Balance Sheet of Jhalak and Arsh as at 31st March, 2025 Liabilities Amount () Assets Amount () Capitals: Machinery 12,00,000 Jhalak 8,00,000 Investments 8,00,000 Arsh 12,00,000 20,00,000 Debtors 15,00,000 s Loan 5,00,000 Stock 5,00,000 Creditors 13,00,000 Cash at bank 5,00,000 7,00,000 45,00,000 45,00,000 The firm was dissolved on the above date and the following transactions took place: (i) Debtors were taken over by Creditors in full settlement of their account. (ii) (iii) Investments were taken over by Arsh at 90% of book value. (iv) Machinery was realised at 20% discount. (v) 50% of the stock was sold at a profit of 20% and the balance was taken over by Jhalak at 10% discount. (vi) Realisation expenses were ₹20,000 which were paid by Jhalak. Prepare Realisation Account.

CBSE 2026 · Set 67/5/1 · 1 mark

Sushil and Sapna were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025, the firm was dissolved. On the date of dissolution there existed a balance of ₹1,20,000 in sundry creditors account. The sundry creditors were payable after three months. They were paid immediately at a discount of 12% p.a. The amount paid to sundry creditors was:

  • ₹1,20,000
  • ₹1,23,600
  • ₹1,16,400
  • ₹1,34,400

CBSE 2026 · Set 67/5/3 · 6 marks

Mr. Rinku and Mrs. Pinky were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025, their balance sheet was as follows: (Details provided in original). On the above date the firm was dissolved and the following transactions took place: (i) Stock realised ₹16,000. (ii) Mrs. Pinky took half of the investments at 10% less. Debtors realised ₹44,000, Building realised ₹4,00,000, Creditors were paid ₹5,000 less and the remaining investments were sold for ₹19,000. An old furniture not recorded in the books of the firm was taken over by Mrs. Pinky for ₹18,000. Realisation expenses amounted to ₹6,000. Prepare Realisation Account.

CBSE 2026 · Set 67/3/3 · 1 mark

On 31st March, 2025, the partnership between Hari and Om was dissolved. Hari was appointed to look after dissolution work for which he was allowed a commission of ₹9,700. He agreed to bear the dissolution expenses. The actual expenses of dissolution amounted to ₹8,900 which Realisation Account will be:

  • ₹9,700
  • ₹8,900
  • ₹10,000
  • Nil

CBSE 2026 · Set 67/5/2 · 1 mark

Sushil and Sapna were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025, the firm was dissolved. On the date of dissolution there existed a balance of 1,20,000 in sundry creditors account. The sundry creditors were payable after three months. They were paid immediately at a discount of 12% p.a. The amount paid to sundry creditors was:

  • 1,20,000
  • 1,23,600
  • 1,16,400
  • 1,34,400

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