CUET UG Accountancy Booster Test 2 Modes of Dissolution of Partnership Firm
π Answers are locked once submitted β results and explanations appear at the end.
QUESTION 1 OF 20
Evaluate the following statements regarding a change in the existing profit-sharing ratio:
I. It brings an end to the existence of the firm.
II. The firm may continue its business as before.
III. It results in the dissolution of partnership.
QUESTION 2 OF 20
Assertion (A): The admission of a new partner inevitably involves the dissolution of the firm.
Reason (R): Admission changes the existing relationship between the partners resulting in the dissolution of partnership.
QUESTION 3 OF 20
Match the reconstitution/dissolution events with their respective consequences:
| List 1 | List 2 |
|---|---|
| 1. Retirement of a Partner | a. Dissolution of Partnership |
| 2. Firm's liabilities exceed assets and all partners are insolvent | b. Compulsory Dissolution |
| 3. Court finds a partner permanently incapable | c. Dissolution by Court |
| 4. Expiry of fixed period | d. Contingent Dissolution |
QUESTION 4 OF 20
If a partner dies, but the partnership deed contains a specific clause that the firm will continue with the remaining partners, what is the legal standing of the firm?
QUESTION 5 OF 20
A firm consists of partners A, B, and C. A and B are declared insolvent by the court, rendering them incompetent to sign a contract, leaving only C. What is the immediate consequence for the firm?
QUESTION 6 OF 20
In the context of the economic relationship between partners, what is the fundamental difference between the dissolution of a partnership and the dissolution of a firm?
QUESTION 7 OF 20
The dissolution rule regarding the "completion of the venture" is explicitly subject to which overarching condition?
QUESTION 8 OF 20
Arrange the sequence of logic for a contingent dissolution due to expiry of time:
I. Expiry of the 5-year term.
II. Firm is dissolved automatically.
III. Partners create a firm constituted for a fixed term of 5 years.
IV. No contract to the contrary exists between partners regarding extension.
QUESTION 9 OF 20
Upon complete termination, a firm realizes Rs. 100,000 from assets. Outside liabilities are Rs. 60,000, and partners' advances (loans) are Rs. 50,000. How are the outside liabilities and partners' loans treated during settlement?
QUESTION 10 OF 20
Which of the following statements accurately reflect the legal closure of a firm under the Partnership Act 1932?
I. It requires the breaking of the relationship between all partners.
II. The business can still be transacted indefinitely.
III. It necessarily brings in dissolution of the partnership.
QUESTION 11 OF 20
Assertion (A): A highly successful and completely solvent firm can be legally dissolved if all partners consent.
Reason (R): A firm may be dissolved with the consent of all the partners under Dissolution by Agreement.
QUESTION 12 OF 20
If partners have a contract stating the firm will dissolve if their prime supplier goes bankrupt, and the supplier does go bankrupt, the dissolution does not require a court order. Is this correct?
QUESTION 13 OF 20
In a firm of four partners, three are adjudicated insolvent. The fourth partner wishes to continue the firm by admitting new partners immediately to avoid closing. Can the firm continue without dissolution?
QUESTION 14 OF 20
Which of the following directly triggers the compulsory dissolution of a partnership firm?
QUESTION 15 OF 20
"Subject to contract between the partners, a firm is dissolved if constituted for a fixed term, by the expiry of that term." This rule is an exact example of:
QUESTION 16 OF 20
Match the scenario with the accurate dissolution category:
| List 1 | List 2 |
|---|---|
| 1. Completion of a Specific Venture | a. Contingent Dissolution |
| 2. Business becomes illegal | b. Compulsory Dissolution |
| 3. All partners give consent | c. Dissolution by Agreement |
| 4. Written notice in Partnership at Will | d. Dissolution by Notice |
QUESTION 17 OF 20
In a partnership at will with 5 partners, how many partners must strictly give written notice to signify the intention of seeking dissolution of the firm?
QUESTION 18 OF 20
True or False: In a fixed-term partnership, a single partner can dissolve the firm at any time before the term expires simply by giving a written notice to the other partners.
QUESTION 19 OF 20
QUESTION 20 OF 20
Test Complete!
Answer Review
1 Evaluate the following statements regarding a change in the existing profit-sharing ratio:
I. It brings an end to the existence of the firm.
II. The firm may continue its business as before.
III. It results in the dissolution of partnership.
Change in ratio causes reconstitution. Firm continues business. Partnership relation changes.
When the profit-sharing ratio changes, the relationship among partners changes, leading to dissolution of the old partnership agreement. However, the firm itself may continue its operations without interruption. Therefore: Statement II is correct because business continues. Statement III is correct because partnership is reconstituted. Statement I is incorrect because the firm itself does not end. Hence, Option C is correct.
- Option A β Statement III is also correct.
- Option B β Statement I is incorrect.
- Option D β The firm does not cease to exist.
Used
- Elimination
Application:
- οΏ½οΏ½ Eliminate statements confusing dissolution of partnership with dissolution of firm.
Final Logic:
- οΏ½οΏ½ Partnership changes, but the firm continues.
- "Ratio changes relation, not business."
2 Assertion (A): The admission of a new partner inevitably involves the dissolution of the firm.
Reason (R): Admission changes the existing relationship between the partners resulting in the dissolution of partnership.
Admission changes partnership relation. Firm itself may continue. Only partnership dissolves.
Admission of a new partner changes the existing agreement among partners and therefore causes dissolution of partnership (reconstitution), not dissolution of the firm itself. Thus: Assertion is false because the firm does not inevitably dissolve. Reason is true because admission changes the economic relationship among partners. Hence, Option D is correct.
- Option A β Assertion is false.
- Option B β Assertion itself is incorrect.
- Option C β Reason is true.
Used
- Contextual/Tonal Matching
Application:
- οΏ½οΏ½ Distinguish partnership dissolution from firm dissolution.
Final Logic:
- οΏ½οΏ½ Admission changes relationship, not existence of firm.
- "New partner, same firm."
3 Match the reconstitution/dissolution events with their respective consequences:
| List 1 | List 2 |
|---|---|
| 1. Retirement of a Partner | a. Dissolution of Partnership |
| 2. Firm's liabilities exceed assets and all partners are insolvent | b. Compulsory Dissolution |
| 3. Court finds a partner permanently incapable | c. Dissolution by Court |
| 4. Expiry of fixed period | d. Contingent Dissolution |
Retirement causes reconstitution. Insolvency may cause compulsory dissolution. Court incapacity leads to court dissolution.
Correct matching: 1. Retirement of partner β Dissolution of partnership 2. Insolvency of all partners β Compulsory dissolution 3. Permanent incapacity β Dissolution by Court 4. Expiry of fixed period β Contingent dissolution Thus, Option A is correct.
- Option B β Incorrect pairing of retirement and compulsory dissolution.
- Option C β Incorrect linkage of expiry and dissolution.
- Option D β Multiple mismatches.
Used
- Option Grouping
Application:
- οΏ½οΏ½ Match each legal situation with its category.
Final Logic:
- οΏ½οΏ½ Only Option A correctly aligns all events.
- "RetireβReconstitute, InsolventβCompulsory."
4 If a partner dies, but the partnership deed contains a specific clause that the firm will continue with the remaining partners, what is the legal standing of the firm?
Death dissolves old partnership relation. Firm may continue if deed permits. Business does not automatically end.
Death of a partner ordinarily dissolves the partnership agreement. However, if the partnership deed contains a clause allowing continuation, the remaining partners may continue the business. Thus, only the old partnership relationship ends while the firm continues. Hence, Option B is correct.
- Option A β Deed provisions are legally valid.
- Option C β Court intervention is unnecessary.
- Option D β Death does not make business illegal.
Used
- Elimination
Application:
- οΏ½οΏ½ Remove options involving unnecessary court or illegality.
Final Logic:
- οΏ½οΏ½ Deed provisions permit continuation.
- "Death ends relation, not always business."
5 A firm consists of partners A, B, and C. A and B are declared insolvent by the court, rendering them incompetent to sign a contract, leaving only C. What is the immediate consequence for the firm?
Insolvent partners cannot contract. Partnership requires at least two competent persons. Firm dissolves compulsorily.
When all partners except one become insolvent, the partnership cannot legally continue because at least two competent persons are required for a partnership. Therefore, the firm undergoes compulsory dissolution. Hence, Option C is correct.
- Option A β No mutual agreement involved.
- Option B β Not a notice-based dissolution.
- Option D β Insolvency is not a contingency event.
Used
- Elimination
Application:
- οΏ½οΏ½ Identify legal impossibility of continuation.
Final Logic:
- οΏ½οΏ½ One competent partner alone cannot constitute a partnership.
- "One partner alone = no partnership."
6 In the context of the economic relationship between partners, what is the fundamental difference between the dissolution of a partnership and the dissolution of a firm?
Reconstitution changes relationship. Firm dissolution ends business completely. Partnership dissolution may continue business.
Dissolution of partnership means a change in relationship among partners while the business may continue. Dissolution of firm means complete termination of business and closure of accounts. Therefore, Option D is correct.
- Option A β Concepts are reversed.
- Option B β Relationship changes in both cases.
- Option C β Partnership dissolution may not end business.
Used
- Odd One Out
Application:
- οΏ½οΏ½ Distinguish continuation from termination.
Final Logic:
- οΏ½οΏ½ Firm dissolution ends the entity permanently.
- "Partnership changes; firm finishes."
7 The dissolution rule regarding the "completion of the venture" is explicitly subject to which overarching condition?
Partnership agreement governs contingencies. Contract may alter dissolution rules. Completion of venture is contingent dissolution.
Under contingent dissolution, completion of a specific venture dissolves the firm unless partners agree otherwise through a contract. Thus, dissolution is subject to agreement among partners. Hence, Option A is correct.
- Option B β Registrar approval unnecessary.
- Option C β Public notice is not determining factor.
- Option D β Court intervention not required.
Used
- Contextual/Tonal Matching
Application:
- οΏ½οΏ½ Relate dissolution rules to partnership agreement.
Final Logic:
- οΏ½οΏ½ Contract overrides default dissolution rule.
- "Contract controls contingency."
8 Arrange the sequence of logic for a contingent dissolution due to expiry of time:
I. Expiry of the 5-year term.
II. Firm is dissolved automatically.
III. Partners create a firm constituted for a fixed term of 5 years.
IV. No contract to the contrary exists between partners regarding extension.
Firm formed for fixed term. No contrary agreement exists. Expiry causes automatic dissolution.
Correct sequence: 1. Partners form a firm for fixed term. 2. No extension agreement exists. 3. Fixed period expires. 4. Firm dissolves automatically. Thus: III β IV β I β II Hence, Option B is correct.
- Option A β Formation must occur first.
- Option C β No agreement comes after formation.
- Option D β Expiry occurs after contract condition.
Used
- Sequential Logic
Application:
- οΏ½οΏ½ Follow legal chronology of contingent dissolution.
Final Logic:
- οΏ½οΏ½ Expiry after fixed term leads to dissolution.
- "Create β No extension β Expire β Dissolve."
9 Upon complete termination, a firm realizes Rs. 100,000 from assets. Outside liabilities are Rs. 60,000, and partners' advances (loans) are Rs. 50,000. How are the outside liabilities and partners' loans treated during settlement?
External liabilities get priority. Partner loans are paid afterward. Remaining cash distributed proportionately.
According to Section 48: 1. Outside liabilities are settled first. 2. Then partners' loans are paid. 3. Capital accounts are settled last. Calculation: Assets realized = Rs. 100,000 Outside liabilities = Rs. 60,000 Remaining = Rs. 40,000 This Rs. 40,000 is used toward partner loans. Hence, Option C is correct.
- Option A β Outside liabilities always get priority.
- Option B β Payments are not proportional initially.
- Option D β External claims must be settled first.
Used
- Substitution
Application:
- οΏ½οΏ½ Apply Section 48 settlement order.
Final Logic:
- οΏ½οΏ½ Outside liabilities are cleared before partner loans.
- "Outsiders first, insiders later."
10 Which of the following statements accurately reflect the legal closure of a firm under the Partnership Act 1932?
I. It requires the breaking of the relationship between all partners.
II. The business can still be transacted indefinitely.
III. It necessarily brings in dissolution of the partnership.
Dissolution breaks all relationships. Partnership dissolves completely. Business cannot continue indefinitely.
Dissolution of firm means complete legal closure of the business and termination of relationship among all partners. Thus: Statement I is correct. Statement III is correct. Statement II is incorrect because business operations end. Hence, Option D is correct.
- Option A β Statement II is false.
- Option B β Statement II incorrect.
- Option C β Statement III also correct.
Used
- Elimination
Application:
- οΏ½οΏ½ Remove statements inconsistent with complete closure.
Final Logic:
- οΏ½οΏ½ Firm dissolution terminates business entirely.
- "Firm dissolved = business closed."
11 Assertion (A): A highly successful and completely solvent firm can be legally dissolved if all partners consent.
Reason (R): A firm may be dissolved with the consent of all the partners under Dissolution by Agreement.
Mutual consent can dissolve any firm. Profitability does not prevent dissolution. Dissolution by agreement is legally valid.
A partnership firm may be dissolved at any time if all partners mutually agree, regardless of whether the firm is profitable or solvent. This is called Dissolution by Agreement under the Partnership Act. Therefore: Assertion is true. Reason is true. Reason correctly explains the Assertion. Hence, Option A is correct.
- Option B β Reason directly explains Assertion.
- Option C β Reason is true.
- Option D β Assertion is also true.
Used
- Contextual/Tonal Matching
Application:
- οΏ½οΏ½ Relate dissolution rules to mutual consent principles.
Final Logic:
- οΏ½οΏ½ Consent of all partners is sufficient for dissolution.
- "Mutual consent ends partnership."
12 If partners have a contract stating the firm will dissolve if their prime supplier goes bankrupt, and the supplier does go bankrupt, the dissolution does not require a court order. Is this correct?
Contract terms may determine dissolution. Court order is unnecessary. This is contingent dissolution.
If partners agree in advance that the firm will dissolve on occurrence of a specific event, dissolution automatically occurs when that event happens. This is dissolution according to contract terms between partners. Therefore, court intervention is not required. Hence, Option B is correct.
- Option A β Many dissolutions occur without court order.
- Option C β Supplier bankruptcy does not create compulsory dissolution.
- Option D β Applies beyond partnership at will.
Used
- Elimination
Application:
- οΏ½οΏ½ Remove options incorrectly requiring court intervention.
Final Logic:
- οΏ½οΏ½ Contractual contingencies legally dissolve the firm.
- "Contract controls dissolution."
13 In a firm of four partners, three are adjudicated insolvent. The fourth partner wishes to continue the firm by admitting new partners immediately to avoid closing. Can the firm continue without dissolution?
Partnership requires minimum two competent persons. Insolvent persons cannot contract. Firm dissolves compulsorily.
When all partners except one become insolvent, the partnership legally ceases because only one competent partner remains. A valid partnership requires at least two competent persons. Therefore, compulsory dissolution occurs immediately. Hence, Option C is correct.
- Option A β One partner alone cannot continue old firm.
- Option B β Insolvent partners are legally incompetent.
- Option D β Main issue is legal impossibility, not consent.
Used
- Elimination
Application:
- οΏ½οΏ½ Apply legal requirement of minimum competent partners.
Final Logic:
- οΏ½οΏ½ One competent partner cannot sustain partnership.
- "One alone cannot partner."
14 Which of the following directly triggers the compulsory dissolution of a partnership firm?
Illegal business cannot continue legally. Law forces dissolution. This creates compulsory dissolution.
When the business of the firm becomes unlawful due to legal or government changes, the firm must compulsorily dissolve because illegal activities cannot continue under law. Hence, Option D is correct.
- Option A β Retirement causes reconstitution.
- Option B β Losses alone do not automatically dissolve firm.
- Option C β Transfer may become court ground, not compulsory dissolution.
Used
- Odd One Out
Application:
- οΏ½οΏ½ Identify the legally prohibited circumstance.
Final Logic:
- οΏ½οΏ½ Illegality immediately ends partnership operations.
- "Illegal business = compulsory closure."
15 "Subject to contract between the partners, a firm is dissolved if constituted for a fixed term, by the expiry of that term." This rule is an exact example of:
Expiry of fixed term is a contingency. Dissolution occurs automatically. Subject to partner agreement.
A partnership formed for a fixed period dissolves automatically on expiry of that period unless partners agree otherwise. This is dissolution on happening of contingencies. Hence, Option A is correct.
- Option B β No legal prohibition exists.
- Option C β Court intervention unnecessary.
- Option D β No written notice involved.
Used
- Contextual/Tonal Matching
Application:
- οΏ½οΏ½ Match legal wording with dissolution category.
Final Logic:
- οΏ½οΏ½ Expiry of fixed term is contingent dissolution.
- "Fixed term finishes automatically."
16 Match the scenario with the accurate dissolution category:
| List 1 | List 2 |
|---|---|
| 1. Completion of a Specific Venture | a. Contingent Dissolution |
| 2. Business becomes illegal | b. Compulsory Dissolution |
| 3. All partners give consent | c. Dissolution by Agreement |
| 4. Written notice in Partnership at Will | d. Dissolution by Notice |
Venture completion is contingent. Illegal business causes compulsory dissolution. Mutual consent creates agreement dissolution.
Correct matching: 1. Completion of venture β Contingent dissolution 2. Business illegal β Compulsory dissolution 3. All partners consent β Dissolution by Agreement 4. Written notice β Dissolution by Notice Thus, Option B is correct.
- Option A β Multiple incorrect matches.
- Option C β Venture completion wrongly classified.
- Option D β Illegality mismatch.
Used
- Option Grouping
Application:
- οΏ½οΏ½ Match dissolution circumstances with categories.
Final Logic:
- οΏ½οΏ½ Only Option B correctly aligns all categories.
- "VentureβContingent, IllegalβCompulsory."
17 In a partnership at will with 5 partners, how many partners must strictly give written notice to signify the intention of seeking dissolution of the firm?
Partnership at will allows notice dissolution. One partner's written notice is sufficient. Majority approval unnecessary.
Under dissolution by notice, any one partner in a partnership at will can dissolve the firm by giving written notice to the other partners. Therefore, Option C is correct.
- Option A β Unanimous notice unnecessary.
- Option B β Majority rule does not apply.
- Option D β Exact number requirement absent.
Used
- Elimination
Application:
- οΏ½οΏ½ Remove options requiring unnecessary consensus.
Final Logic:
- οΏ½οΏ½ Single written notice legally dissolves the firm.
- "One notice ends partnership at will."
18 True or False: In a fixed-term partnership, a single partner can dissolve the firm at any time before the term expires simply by giving a written notice to the other partners.
Written notice applies only to partnership at will. Fixed-term firms cannot dissolve this way. Contract duration must be respected.
Dissolution by notice is available only in partnership at will. In fixed-term partnerships, partners cannot unilaterally dissolve the firm before expiry merely through written notice. Hence, Option D is correct.
- Option A β Not applicable to fixed-term firms.
- Option B β Capital majority irrelevant.
- Option C β Notice must be written, not verbal.
Used
- Contextual/Tonal Matching
Application:
- οΏ½οΏ½ Connect notice dissolution with partnership at will.
Final Logic:
- οΏ½οΏ½ Fixed-term agreements restrict unilateral dissolution.
- "Notice works only at will."
19
Court acts upon partner's suit. Misconduct must be legally challenged. External persons cannot directly initiate.
The passage clearly states: "At the suit of a partnerβ¦" This means a partner must approach the court seeking dissolution. The court does not automatically intervene. Hence, Option A is correct.
- Option B β Creditors cannot initiate dissolution on these grounds.
- Option C β Court does not act independently.
- Option D β Auditor report alone insufficient.
Used
- Contextual/Tonal Matching
Application:
- οΏ½οΏ½ Focus on explicit legal wording in passage.
Final Logic:
- οΏ½οΏ½ Partner initiates the legal process.
- "Partner sues for court dissolution."
20
Persistent breach destroys trust. Court intervention requires serious misconduct. Minor accidental breaches insufficient.
The passage explicitly mentions: "Persistently commits breach of partnership agreement." This means repeated or continuous violation of the agreement justifies court dissolution. Therefore, Option B is correct.
- Option A β One-time accidental breach insufficient.
- Option C β Minor breaches may not justify dissolution.
- Option D β Serious effect on partnership required.
Used
- Elimination
Application:
- οΏ½οΏ½ Identify the legally significant degree of breach.
Final Logic:
- οΏ½οΏ½ Persistent violation justifies court dissolution.
- "Repeated breach breaks partnership."
