NCERT Solutions for Class 12 Accountancy Chapter 4: Free download in PDF

NCERT Solutions for Class 12 Accountancy Chapter 4: Find PDF download link for NCERT solutions of Class 12 Accountancy Chapter 4: Dissolution of a firm. This article presents easy, complete and appropriate exercise questions for Chapter 4 of Class 12 Accountancy Textbook. Consistent practise of these questions can help students score high marks in upcoming CBSE Board Examination 2024 and prepare well for other related competitive exams.

This chapter discusses methods of dissolution of a firm, difference between dissolution of partnership and dissolution of firm, how are accounts settled and journal entries passed in case of dissolution of a firm, what is realisation account, difference between realisation and revaluation account and much more. Find solutions related to these mentioned topics, in this article. You can click on the link below to download all the related solutions for free in PDF format.

Some Accounting Tips for students:

1. Practise consistently. Make a habit of solving problems daily or consecutively.
2. Try to understand the patterns of the solutions.
3. Solve every problem present in your textbook. Some similar looking problem might require use of different formula, pattern or journal entry.
4. Try to understand why a certain pattern has been used in a particular type of problem.
5. Be disciplined about practising accounting.                                                                                                                              

Related:

CBSE Class 12 Accountancy Syllabus 2023-24 (PDF)

CBSE Class 12 Accountancy Sample Paper 2023-24 (PDF)

NCERT Solutions for Class 12 Accountancy Chapter 4 are present below:

Short Answer Questions

 1.State the difference between dissolution of partnership and dissolution of partnership firm.

Answer. The difference between dissolution of partnership and dissolution of partnership firm are:

2.State the accounting treatment at the time of dissolution of a firm for:

i. Unrecorded assets         ii. Unrecorded liabilities

Answer. The accounting treatment at the time of dissolution of a firm for unrecorded assets and unrecorded liabilities are:

i. Unrecorded assets– An asset whose value is written off from books of accounts, but it is in usable form.

               a.      If sold by cash –       

                         Cash A/c

                        To Realisation A/c

              b.    If taken over by any partner –  

                       Partner’s Capital A/c      Dr

                       To Realisation A/c

ii. Unrecorded liabilities– Liabilities that are not recorded in the books of firm are called unrecorded liabilities.

              a. When unrecorded liabilities are paid off –

                      Realisation A/c       Dr

                      To Cash A/c

              b.  When undertaken by a partner –    

                     Realisation A/c         Dr

                    To Partner’s Capital A/c        

3.On dissolution, how will you deal with partner’s loan if it appears on the

(a) assets side of the balance sheet, (b) liabilities side of balance sheet.

Answer. Following entries would be made in the books of the firm in the below cases:

a. Assets side of the balance sheet– If partner’s loan is mentioned on the asset side of the balance sheet, it means that partner has taken some loan from the firm and has to pay it back. Then, the loan amount gets transferred to partner’s capital account. Entry in this case would be as:

          Partner’s Capital A/c          Dr

          To Partner’s Loan A/c

b. Liabilities side of the balance sheet– If partner’s loan is mentioned in the liabilities side of the balance sheet, it means that partner has provided loan to the firm and firm has to pay it back to the partner. Then, loan is paid in cash after completing payment of external liabilities. Entry in this case would be as:

            Partner’s Loan A/c          Dr

           To Cash/Bank A/c

4.Distinguish between firm’s debts and partner’s private debts.

Answer. Differences between firm’s debts and partner’s debts are as follows:

5.State the order of settlement of accounts on dissolution.

Answer. According to Section 48 of the Partnership Act 1932, following order of settlement of accounts is to be followed on dissolution:

   a.  Treatment of Losses

      i. Losses and deficiencies of capital has to be paid of out of profits.

     ii. Then, Loss or deficiency of capital is paid off by capital of partners.

     iii. Then, Loss or deficiency of capital is paid off, only if required, by partners in their profit sharing ratio.

    b. Application of Assets

The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:

(i) In paying the debts of the firm to the third parties;

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

(iii) In paying to each partner proportionately what is due to him on account of capital; and

(iv) the residue, if any, shall be divided among the partners in their profit sharing ratio.

6.On what account realisation account differs from revaluation account.

Answer. Realisation account differs from revaluation account on following mentioned accounts:

Long Answer Questions

1.Explain the process dissolution of partnership firm?

Answer. Breaking or discontinuance of relationship between all the partners is termed as the dissolution of partnership firm. Section 39 of the Partnership Act, 1932 deals with dissolution of partnership firm. This brings an end to the existence of firm, and no business is transacted after dissolution except the activities related to closing of the firm as the affairs of the firm are to be wound up by selling firm’s assets and paying its liabilities and discharging the claims of the partners. Dissolution of the firm necessarily brings in dissolution of the partnership. Dissolution of a partnership firm may take place in the following ways:

a. Dissolution by agreement– Dissolution on agreement takes place either by consent of all the partners or according to the contract between the partners.

b. Compulsory dissolution– Compulsory dissolution takes place when the business of the firm becomes illegal, when all partners or one partner becomes insolvent rendering them incompetent to sign a contract, 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.

c. On certain contingencies– Dissolution of firm can take place or contract between them can end if a partner has died, if a partner has become insolvent, when one or two ventures of the firm are completed or if the term’s expiry has come.

d. Dissolution by notice– If partnership is at will, the dissolution of firm can take place if any one of the partners gives a notice in writing to the other partners, signifying his intention of seeking dissolution of the firm.

e. Dissolution by court-Court can intervene if required or asked by the partners to do so. The court may order a partnership firm to be dissolved when a partner becomes insane, when a partner becomes permanently incapable of performing his duties as a partner, when a partner is guilty of misconduct which is likely to adversely affect the business of the firm, when a partner persistently commits breach of partnership agreement, when a partner has transferred the whole of his interest in the firm to a third party, when the business of the firm cannot be carried on except at a loss and when, on any ground, the court regards dissolution to be just and equitable.

Following dissolution of the firm, accounts have to be settled to wind up firm’s business. Settling of accounts takes place by treating losses/deficiencies, settling assets and discharging liabilities. Losses are treated by paying off by profits, capital of partner’s and if necessary by partners in their profit sharing ratio. Similarly assets are used in paying debts of the firm to the third parties, paying partner’s loan, paying proportionately to every partner what is due on him/her on account of capital and if there’s anything left then it is divided among the partner’s in their profit sharing ratio.

The books of the firm has to be closed in case of dissolution of the firm, for this, a realisation account is prepared which mentions all the assets and liabilities of the firm and calculates net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio.

2. What is a Realisation Account?

Answer. Realisation account is an account of the firm that is prepared on dissolution of the firm. When a partnership firm is dissolved, the books of the firm has to be closed. To close the books of the firm, a realisation account is prepared. A realisation account, thus, calulates the net effect (profit or loss) of realisation of assets and payment of liabilities which may be transferred to partner’s capital accounts in their profit sharing ratio. All assets and external liabilities are transferred to this account. It also records the sale of assets, and payment of liabilities and realisation expenses. It is also known as profit or loss on realisation, which is then transferred to partner’s capital account in their profit sharing ratio.

3. Reproduce the format of Realisation Account.

Answer. 

4. How deficiency of creditors is paid off at the time of dissolution of firm?

Answer.  At the time of dissolution of firm, business’s creditors have to be paid off. First firm’s assets are sold out to utilize the money to pay the creditors. If sales receipt falls short, then partner’s private assets are utilized. After this, if there are dues then deficiency of creditors arises. By following two ways, deficiency of creditors is paid off.

  a. Transferring deficiency to the deficiency account–  During this process, a separate account is prepared for creditors. For determining the cash obtained from sale of firm’s and partner’s assets, a cash account is prepared. After determining the cash of the firm. External liabilities and creditors are paid off partially. The unpaid amount are then transferred to the deficiency account.

  b. Transferring deficiency to Partner’s Capital Account– In this process, creditors are paid by cash of the firm in which partner’s individual contribution exists. The deficiency is taken care of by transferring it to Partner’s Capital Account where partners pay it off in their profit sharing ratio. In case a partner becomes solvent, it is considered as capital loss for the firm. If partnership deed has no mention of such a situation, then the capital loss needs to be borne by partners who are insolvent states and as per their capital ratio in the firm, as per Garner vs Murray case.

To find complete NCERT Solutions for Class 12 Accountancy Chapter 3, click on the link below.

Also find:

CBSE Class 12 Syllabus 2023-24 (All Subjects)

CBSE Class 12 Sample Papers 2023-24 (All Subjects)

NCERT Books for Class 12 (All Subjects)

NCERT Solutions for Class 12 (All Subjects)