CUET UG Accountancy Booster Test 2 Modes of Dissolution of Partnership Firm -

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CUET UG Accountancy Booster Test 1 Modes of Dissolution of Partnership Firm

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Modes of Dissolution of Partnership Firm

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QUESTION 1 OF 20

During dissolution, after ceasing business and disposing of all assets, what is the primary purpose of the realized amount?

Answer Review

1 During dissolution, after ceasing business and disposing of all assets, what is the primary purpose of the realized amount?

A Reinvesting in new ventures

B Satisfying all claims against the firm

C Distributing equally among partners immediately

D Transferring to the government accounts

💡 Short Explanation

Assets are realized into cash. Liabilities and claims must be settled first. Distribution to partners occurs afterward.

✅ Correct Answer Explanation

The primary purpose of the amount realized from sale of assets during dissolution is to satisfy all claims against the firm, including outside liabilities, partner loans, and partner capitals. Only after settling these claims can any residue be distributed among partners. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Realized cash is not meant for reinvestment.
Option C → Equal distribution is not immediate or mandatory.
Option D → No transfer to government occurs.

🎯 Strategy

Used: Elimination

Application:

The purpose of realization is settlement, not reinvestment or arbitrary distribution.

Final Logic:

Claims against the firm must be settled before anything else.

🧠 Memory Trick

"Realize to settle."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Settlement of Accounts – Page X

2 Arrange the correct sequence of utilizing assets as per Section 48 rules:
1. Pay partner capital dues
2. Pay partner loan advances
3. Distribute residue
4. Pay third-party debts

A 4, 2, 1, 3

B 4, 1, 2, 3

C 2, 4, 1, 3

D 1, 2, 3, 4

💡 Short Explanation

External liabilities are paid first. Partner loans come next. Capitals are settled afterward. Residue distributed finally.

✅ Correct Answer Explanation

Under Section 48: 1. Third-party debts are paid first. 2. Partner loans and advances are repaid. 3. Partner capitals are settled. 4. Remaining residue is distributed among partners. Thus, the correct order is: 4 → 2 → 1 → 3 Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Capital dues cannot precede partner loans.
Option C → Third-party debts always get priority.
Option D → Sequence is legally incorrect.

🎯 Strategy

Used: Sequential Logic

Application:

Following the legal order of settlement identifies the correct sequence.

Final Logic:

External liabilities always have first claim.

🧠 Memory Trick

"Outside → Loans → Capital → Residue."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Section 48 Rules – Page X

3 Which is the very first source to be exhausted when paying off losses and deficiencies of a partnership firm?

A Partners' private estates

B Advances made by partners

C Capital of the partners

D Profits of the firm

💡 Short Explanation

Existing profits absorb losses first. Capitals are used later. Private estates are last resort.

✅ Correct Answer Explanation

According to dissolution rules, losses are first adjusted against available profits. If profits are insufficient, partner capitals are used. Only after exhaustion of capital are partners personally liable. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Private estates are used last.
Option B → Partner advances are liabilities, not first loss source.
Option C → Capitals are used after profits.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests the order of loss absorption.

Final Logic:

Profits are the first buffer against losses.

🧠 Memory Trick

"Profit absorbs first."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Loss Treatment – Page X

4 Assertion (A): Partners' capital is used to pay losses immediately after profits are exhausted.
Reason (R): Partners are individually liable before their capital is touched.

A Both A and R are true

B Both A and R are false

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Capitals are used after profits. Personal liability comes later. Reason reverses the correct order.

✅ Correct Answer Explanation

Assertion A is true because losses are adjusted against partner capitals once profits are exhausted. Reason R is false because partners become personally liable only after their capitals are exhausted. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Reason is false.
Option B → Assertion is true.
Option D → Assertion is not false.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

The reason incorrectly reverses the actual legal sequence.

Final Logic:

Capital is used before personal liability arises.

🧠 Memory Trick

"Capital before private."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Loss Treatment – Page X

5 If the firm's losses exceed both profits and the entire capital of the partners, how is the remaining deficiency met?

A Forgiven by creditors

B By partners individually in their profit-sharing ratio

C By the partner with the highest capital

D From the firm's reserve fund only

💡 Short Explanation

Partners have unlimited liability. Remaining deficiency becomes personal obligation. Sharing follows profit-sharing ratio.

✅ Correct Answer Explanation

If firm losses exceed available profits and capitals, partners must contribute individually from their private estates according to their profit-sharing ratio. This reflects the principle of unlimited liability in partnership firms. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Creditors are not required to forgive debts.
Option C → Losses are not imposed on one partner alone.
Option D → Reserve funds may already be exhausted.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests unlimited liability of partners.

Final Logic:

Partners share deficiency according to agreed ratio.

🧠 Memory Trick

"Unlimited means personal."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Partner Contribution – Page X

6 Realisation loss is Rs. 43,000. Sonia, Rohit, and Udit share profits in 5:3:2. What is Udit's exact share of the loss?

A Rs. 21,500

B Rs. 12,900

C Rs. 8,600

D Rs. 10,000

💡 Short Explanation

Total ratio = 10. Udit's share = 2/10. Apply ratio to loss.

✅ Correct Answer Explanation

Profit-sharing ratio: 5 + 3 + 2 = 10 Udit's share = (2/10) × 43,000 = 8,600 Udit's share = Rs. 8,600 Therefore, Udit bears Rs. 8,600 loss.

❓ Why Other Options Are Incorrect

Option A → Incorrect ratio application.
Option B → Represents 3/10 share.
Option D → Approximation, not exact value.

🎯 Strategy

Used: Substitution

Application:

Substituting the ratio directly into the loss calculation gives the answer.

Final Logic:

Losses are shared according to profit-sharing ratio.

🧠 Memory Trick

"2 out of 10 → 8,600."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Realisation Loss – Page X

7 Consider these statements on third-party payments:
I. Secured loans have precedence over unsecured loans.
II. Outside liabilities include creditors and bank overdrafts.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither is correct

💡 Short Explanation

Secured creditors get priority. Creditors and overdraft are outside liabilities. Both statements are legally correct.

✅ Correct Answer Explanation

Secured loans have legal precedence because they are backed by security. Outside liabilities include creditors, bills payable, and bank overdrafts. Thus, both statements are correct, making Option A correct.

❓ Why Other Options Are Incorrect

Option B → Statement II is also correct.
Option C → Statement I is also correct.
Option D → Both statements are true.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests external liability rules.

Final Logic:

Both legal statements accurately describe dissolution rules.

🧠 Memory Trick

"Secured first, outsiders included."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Asset Application – Page X

8 If the balance amount left after paying outside liabilities is inadequate to pay off all partners' loans and advances fully, how are they paid?

A Paid to the senior partner first

B Converted into capital balances

C Ignored completely

D Paid proportionately

💡 Short Explanation

Insufficient funds require proportional distribution. No preferential treatment among partners. Fairness principle applies.

✅ Correct Answer Explanation

If the available amount is insufficient to repay all partner loans fully, payment is made proportionately according to amounts due. No partner gets priority merely due to seniority. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Seniority does not matter.
Option B → Loans remain liabilities.
Option C → Liabilities cannot be ignored.

🎯 Strategy

Used: Elimination

Application:

Partnership law emphasizes equitable treatment among partners.

Final Logic:

Insufficient funds are shared proportionately.

🧠 Memory Trick

"Less cash → proportionate pay."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Partner Loans – Page X

9 When paying off dues upon dissolution, what happens immediately after all partners' loans are fully repaid?

A Unsecured loans are paid

B Partners are paid proportionately what is due on account of capital

C Outside creditors are paid

D Profits are distributed

💡 Short Explanation

Capital repayment follows partner loans. Outside liabilities are already settled earlier. Residue comes afterward.

✅ Correct Answer Explanation

After payment of outside liabilities and partner loans, the next step under Section 48 is repayment of partner capitals. If funds are inadequate, capitals are repaid proportionately. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Outside liabilities are settled earlier.
Option C → Creditors are already paid first.
Option D → Profits/residue come last.

🎯 Strategy

Used: Sequential Logic

Application:

Applying the legal settlement sequence identifies the next step.

Final Logic:

Capital repayment follows settlement of partner loans.

🧠 Memory Trick

"Loans before capital."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Capital Settlement – Page X

10 The final residue of assets after paying debts, loans, and capital is distributed using which specific metric?

A Equal ratio

B Capital ratio

C Inverse of capital ratio

D Profit sharing ratio

💡 Short Explanation

Residual profits/losses belong to partners. Sharing follows agreed ratio. Capital ratio is irrelevant here.

✅ Correct Answer Explanation

The final residue remaining after all settlements belongs to partners and is distributed according to their profit-sharing ratio unless otherwise agreed. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Equal distribution is not automatic.
Option B → Capitals do not determine final residue.
Option C → Inverse ratio has no relevance.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly asks the basis of final distribution.

Final Logic:

Profit-sharing ratio governs residual distribution.

🧠 Memory Trick

"Residue follows ratio."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Residual Distribution – Page X

11 While paying outside liabilities, which specific group is explicitly given legal precedence?

A Secured loans over unsecured loans

B Creditors over bank overdrafts

C Bills payable over creditors

D Partner advances over secured loans

💡 Short Explanation

Secured creditors possess legal security. Their claims are satisfied first. Unsecured creditors come afterward.

✅ Correct Answer Explanation

Secured loans are backed by specific assets of the firm. Therefore, during dissolution, secured creditors are paid before unsecured creditors. This legal precedence protects the secured lender's interest. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Creditors and bank overdrafts are both outside liabilities without such specific hierarchy.
Option C → Bills payable do not automatically get priority over creditors.
Option D → Partner advances are settled only after external liabilities.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests legal priority rules in dissolution.

Final Logic:

Security-backed debts receive first preference.

🧠 Memory Trick

"Security gets priority."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Debt Priority – Page X

12 A firm has Rs. 10,000 remaining from asset realization. It owes Rs. 10,000 as a secured loan and Rs. 5,000 as an unsecured loan. How will the Rs. 10,000 be applied?

A Rs. 5,000 to each

B Proportionately based on amount

C Rs. 10,000 to the secured loan

D Rs. 10,000 to the unsecured loan

💡 Short Explanation

Secured debts are paid first. Available funds are insufficient. Entire amount goes to secured lender.

✅ Correct Answer Explanation

Since secured loans have legal priority over unsecured loans, the entire Rs. 10,000 available from realization will first be used to settle the secured loan fully. 10{,}000 - 10{,}000 = 0 No amount remains for unsecured creditors. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Equal distribution is not legally allowed here.
Option B → Proportionate payment ignores secured priority.
Option D → Unsecured loans do not get precedence.

🎯 Strategy

Used: Elimination

Application:

Any option ignoring secured creditor priority can be rejected immediately.

Final Logic:

Secured liabilities consume the available realization first.

🧠 Memory Trick

"Secured first, others later."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Secured Loans – Page X

13 Match List 1 with List 2:

List 1	List 2
1. Firm's Property	a. Private Property
2. Partner's Private Property	b. Firm's Property
3. Priority for Firm's Debts	c. Applied first to firm debts
4. Priority for Private Debts	d. Applied first to private debts

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-c, 3-d, 4-a

C 1-d, 2-a, 3-c, 4-b

D 1-c, 2-d, 3-b, 4-a

💡 Short Explanation

Firm property settles firm debts first. Private property settles private debts first. Priorities differ legally.

✅ Correct Answer Explanation

Correct matching: 1 → c (Firm's Property → Applied first to firm debts) 2 → d (Partner's Private Property → Applied first to private debts) 3 → b (Priority for Firm's Debts → Firm's Property) 4 → a (Priority for Private Debts → Private Property) Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Firm and private property are reversed.
Option B → Debt priorities mismatched.
Option C → Incorrect application of properties.

🎯 Strategy

Used: Option Grouping

Application:

Associating each property with its corresponding debt priority simplifies matching.

Final Logic:

Firm debts use firm property; private debts use private property.

🧠 Memory Trick

"Firm for firm, private for private."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Private vs Firm Debts – Page X

14 Which is true regarding a partner's private property under Section 49?
I. It includes personal properties of their wife and children.
II. It is applied first to their private debts.

A Both are true

B Only II is true

C Only I is true

D Neither is true

💡 Short Explanation

Private property excludes family property. Personal debts get first claim. Section 49 defines this clearly.

✅ Correct Answer Explanation

Under Section 49, a partner's private property is first applied toward settlement of their private debts. However, the personal properties of the partner's wife and children are not included in the partner's private property. Therefore, only statement II is true.

❓ Why Other Options Are Incorrect

Option A → Statement I is false.
Option C → Statement II is also true.
Option D → Statement II is correct.

🎯 Strategy

Used: Elimination

Application:

The exception regarding wife's and children's property helps eliminate incorrect options.

Final Logic:

Private property excludes family-owned personal assets.

🧠 Memory Trick

"Family property stays separate."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Section 49 – Page X

15 If the firm's assets are Rs. 1,00,000 and the firm's liabilities are Rs. 1,20,000, what is the immediate action required regarding the Rs. 20,000 deficiency?

A Partners must contribute out of their net private assets

B The debt is written off as bad

C Creditors take over partner's residential houses immediately

D Paid out of future profits

💡 Short Explanation

Liabilities exceed assets. Deficiency must be covered. Partners have unlimited liability.

✅ Correct Answer Explanation

The firm has a deficiency of: 1{,}20{,}000 - 1{,}00{,}000 = 20{,}000 Because partnership firms have unlimited liability, partners must contribute from their net private assets to meet the shortfall. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Liabilities cannot simply be written off.
Option C → Creditors cannot directly seize property automatically.
Option D → Dissolution ends future profit expectation.

🎯 Strategy

Used: Substitution

Application:

Subtracting assets from liabilities reveals the deficiency requiring contribution.

Final Logic:

Unlimited liability obligates partners to cover deficits.

🧠 Memory Trick

"Deficiency means personal liability."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Deficiency Handling – Page X

16 Net private assets of a partner are defined as:

A Private assets + Firm's assets

B Firm's assets - Private liabilities

C Private assets - Private liabilities

D Firm's liabilities - Private assets

💡 Short Explanation

Net assets mean remaining value. Personal liabilities are deducted. Only private items are considered.

✅ Correct Answer Explanation

Net private assets represent the surplus available from a partner's private estate after deducting private liabilities. Net Private Assets = Private Assets − Private Liabilities Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Firm assets are unrelated.
Option B → Incorrect formula structure.
Option D → Firm liabilities are irrelevant here.

🎯 Strategy

Used: Formula Recall

Application:

Applying the standard accounting definition identifies the correct formula.

Final Logic:

Net means balance after deducting liabilities.

🧠 Memory Trick

"Private minus private."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Net Private Assets – Page X

📄 Passage

"Private Debts and Firm's Debts: Where both the debts of the firm and private debts of a partner co-exist, the following rules, as stated in Section 49 of the Act, shall apply. (a) The property of the firm shall be applied first in the payment of debts of the firm and then the surplus, if any, shall be divided among the partners as per their claims, which can be utilised for payment of their private liabilities. (b) The private property of any partner shall be applied first in payment of his private debts and the surplus, if any, may be utilised for payment of the firm's debts, in case the firm's liabilities exceed the firm's assets. It may be noted that the private property of the partner does not include the personal properties of his wife and children."

Based on the text, when is a partner specifically termed "insolvent" during dissolution settlement?

A When their private debts exceed private assets

B When they refuse to pay creditors

C When the firm's liabilities exceed firm's assets

D When they are unable to contribute towards their capital account deficiency

💡 Short Explanation

Insolvency means inability to pay. Capital deficiency remains unpaid. Private estate becomes insufficient.

✅ Correct Answer Explanation

A partner is termed insolvent during dissolution when they cannot contribute the amount required to cover their capital deficiency. This inability creates unrecoverable deficiency for the firm. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Insolvency here relates specifically to firm contribution deficiency.
Option B → Refusal is different from inability.
Option C → Firm deficiency does not automatically mean partner insolvency.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

The passage emphasizes contribution toward firm deficiencies.

Final Logic:

Failure to contribute required deficiency defines insolvency.

🧠 Memory Trick

"Cannot contribute = Insolvent."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Insolvent Partner – Page X

📄 Passage

"Private Debts and Firm's Debts: Where both the debts of the firm and private debts of a partner co-exist, the following rules, as stated in Section 49 of the Act, shall apply..."

The unrecoverable sum from an insolvent partner is treated as what type of loss for the firm?

A Revenue loss

B Deferred revenue expenditure

C Capital loss

D Extraordinary loss

💡 Short Explanation

Insolvency deficiency affects capital. It arises during dissolution settlement. Therefore, treated as a capital loss.

✅ Correct Answer Explanation

The deficiency arising from an insolvent partner cannot be recovered and directly affects partner capital during dissolution. Hence, it is treated as a capital loss and shared according to applicable rules such as Garner vs Murray.

❓ Why Other Options Are Incorrect

Option A → It is not an operational revenue loss.
Option B → No deferred benefit exists.
Option D → Though unusual, accounting treatment classifies it as capital loss.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests accounting classification of insolvency deficiency.

Final Logic:

Capital deficiency creates capital loss.

🧠 Memory Trick

"Insolvency hurts capital."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Insolvency Loss – Page X

19 The Garner vs. Murray rule requires solvent partners to share an insolvent partner's deficiency in what ratio?

A Ratio of capitals on the date of dissolution

B Original profit-sharing ratio

C Equal ratio

D Gaining ratio

💡 Short Explanation

Garner vs Murray follows capital ratio. Profit-sharing ratio is not used. Capitals considered at dissolution date.

✅ Correct Answer Explanation

According to Garner vs Murray, the deficiency of an insolvent partner is borne by solvent partners in the ratio of their last agreed capitals at the date of dissolution. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Profit-sharing ratio is not applied here.
Option C → Equal sharing is incorrect.
Option D → Gaining ratio is unrelated.

🎯 Strategy

Used: Direct Concept Recall

Application:

The rule specifically prescribes capital ratio sharing.

Final Logic:

Garner vs Murray uses capital ratio, not profit ratio.

🧠 Memory Trick

"Garner = Capital ratio."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Garner vs Murray – Page X

20 A, B, and C are partners. C is insolvent with a capital deficiency of Rs. 15,000. A's capital is Rs. 1,00,000 and B's is Rs. 50,000. Under Garner vs. Murray, how much of C's deficiency does B bear?

A Rs. 10,000

B Rs. 5,000

C Rs. 7,500

D Rs. 15,000

💡 Short Explanation

Capital ratio of A:B = 2:1. Total deficiency = Rs. 15,000. B bears 1/3 share.

✅ Correct Answer Explanation

Capitals of solvent partners: A = Rs. 1,00,000 B = Rs. 50,000 Capital ratio = 100,000: 50,000 = 2: 1 Total deficiency = Rs. 15,000 B's share = (1/3) × 15,000 = 5,000 Therefore, B bears Rs. 5,000.

❓ Why Other Options Are Incorrect

Option A → Represents A's share.
Option C → Incorrect proportional calculation.
Option D → Entire deficiency cannot be borne by B alone.

🎯 Strategy

Used: Substitution

Application:

Applying capital ratio to the deficiency gives each solvent partner's share.

Final Logic:

Garner vs Murray distributes deficiency using capital ratio.

🧠 Memory Trick

"2:1 means 10k and 5k."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Garner vs Murray Rule – Page X

CUET UG Accountancy Booster Test 1 Modes of Dissolution of Partnership Firm

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