CUET UG Accountancy Booster Test 3 Modes of Dissolution of Partnership Firm -

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

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QUESTION 1 OF 20

Why must a Realisation Account be prepared during the settlement of accounts on dissolution?

Answer Review

1 Why must a Realisation Account be prepared during the settlement of accounts on dissolution?

A To admit new partners

B To distribute unrecorded assets to creditors only

C To ascertain the net profit or loss on realization of assets and payment of liabilities

D To calculate the Garner vs. Murray ratio

💡 Short Explanation

Realisation Account records asset realization. Liabilities settlement is tracked. Net profit or loss is determined.

✅ Correct Answer Explanation

A Realisation Account is prepared during dissolution to record: Sale of assets Settlement of liabilities Realisation expenses Profit or loss on realization Its main purpose is to determine the net gain or loss arising from realization and settlement activities. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Admission of partners relates to reconstitution.
Option B → Realisation Account includes all realization activities, not only unrecorded assets.
Option D → Garner vs. Murray concerns insolvency treatment.

🎯 Strategy

Used

Elimination

Application:

�� Remove options unrelated to dissolution accounting purpose.

Final Logic:

�� Realisation Account measures final realization result.

🧠 Memory Trick

"Realisation reveals profit/loss."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Realisation Account – Page X

2 Sequence the payment order out of realized assets under Section 48 strictly:
1. Residue distribution
2. Debts to third parties
3. Proportionate capital payout
4. Partner loan advances

A 1, 2, 3, 4

B 4, 3, 2, 1

C 2, 3, 4, 1

D 2, 4, 3, 1

💡 Short Explanation

Outside liabilities are settled first. Partner loans follow. Capitals repaid afterward. Residue distributed last.

✅ Correct Answer Explanation

Section 48 prescribes the following order: 1. Debts to third parties 2. Partner loans/advances 3. Partner capitals 4. Residual profit distribution Thus, correct sequence: 2 → 4 → 3 → 1 Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Residue cannot come first.
Option B → Outside liabilities must be paid first.
Option C → Capital payout occurs after partner loans.

🎯 Strategy

Used

Sequential Logic

Application:

�� Apply statutory payment order under Section 48.

Final Logic:

�� External claims always receive highest priority.

🧠 Memory Trick

"Outside → Loans → Capital → Residue."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Section 48 – Page X

3 Assertion (A): Deficiencies of capital are treated as losses during dissolution.
Reason (R): Such losses are first paid out of the capital of partners.

A A is true, but R is false

B Both A and R are true

C A is false, but R is true

D Both A and R are false

💡 Short Explanation

Capital deficiency represents loss. Losses are first adjusted against profits. Capital is not the first source.

✅ Correct Answer Explanation

A deficiency in capital during dissolution is considered a loss to the firm because the partner cannot fully meet obligations. However, the Reason is incorrect because losses are first adjusted against accumulated profits or reserves before affecting capital contributions. Therefore: Assertion is true. Reason is false. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason is incorrect.
Option C → Assertion is true.
Option D → Assertion is not false.

🎯 Strategy

Used

Conceptual Linking

Application:

�� Separate treatment of deficiencies from payment sequence.

Final Logic:

�� Deficiency is a loss, but not first paid from capital.

🧠 Memory Trick

"Deficiency = loss, not first capital charge."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Capital Deficiency – Page X

4 Consider the treatment of losses:
I. Paid next out of capital of partners.
II. Lastly by partners individually in their capital ratio.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither is correct

💡 Short Explanation

Losses may reduce partner capital. Individual contribution occurs in profit ratio. Capital ratio is incorrect.

✅ Correct Answer Explanation

Losses during dissolution are adjusted against partners' capital accounts after reserves and profits are exhausted. Statement II is incorrect because partners contribute individually in their profit-sharing ratio, not capital ratio. Thus, only Statement I is correct. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is incorrect.
Option C → Statement I is correct.
Option D → Statement I is not false.

🎯 Strategy

Used

Elimination

Application:

�� Remove incorrect use of capital ratio.

Final Logic:

�� Individual liability follows profit-sharing ratio.

🧠 Memory Trick

"Loss follows profit ratio."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Treatment of Losses – Page X

5 Firm X realizes Rs. 80,000 from assets but owes Rs. 1,00,000 to third parties and Rs. 20,000 to partner loans. There are no profits and partner capitals are zero. What must the partners do?

A Pay Rs. 20,000 from private assets

B Walk away as liability is limited

C Only pay partner loans

D Contribute Rs. 40,000 from private assets in profit sharing ratio

💡 Short Explanation

Total liabilities exceed realized assets. Partners have unlimited liability. Deficiency must be contributed privately.

✅ Correct Answer Explanation

Total liabilities: Third parties = Rs. 1,00,000 Partner loans = Rs. 20,000 Total = Rs. 1,20,000 Assets realized = Rs. 80,000 Deficiency: [1,20,000 - 80,000 = 40,000] Partners must contribute this deficiency from private assets according to their profit-sharing ratio. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Total deficiency is Rs. 40,000.
Option B → Partnership liability is unlimited.
Option C → Third-party debts must also be paid.

🎯 Strategy

Used

Substitution

Application:

�� Compare total liabilities with realized assets.

Final Logic:

�� Deficiency must be privately contributed.

🧠 Memory Trick

"Unlimited liability fills deficiency."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Partner Contribution – Page X

6 Partners X and Y share profits in 3:2. Realization loss is Rs. 10,000. How is this loss transferred to their capital accounts?

A Debit X: Rs. 6,000; Debit Y: Rs. 4,000

B Credit X: Rs. 6,000; Credit Y: Rs. 4,000

C Debit X: Rs. 5,000; Debit Y: Rs. 5,000

D Debit X: Rs. 4,000; Debit Y: Rs. 6,000

💡 Short Explanation

Loss distributed in profit ratio. X gets 3/5 share. Y gets 2/5 share.

✅ Correct Answer Explanation

Profit-sharing ratio = 3:2 Realization loss = Rs. 10,000 X's share: 10,000 × (3/5) = 6,000 Y's share: 10,000 × (2/5) = 4,000 Loss decreases capital accounts, so they are debited. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Loss requires debit, not credit.
Option C → Equal division incorrect.
Option D → Ratio reversed.

🎯 Strategy

Used

Substitution

Application:

�� Apply profit-sharing ratio to loss.

Final Logic:

�� Loss allocation follows agreed ratio.

🧠 Memory Trick

"Loss follows sharing ratio."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Realisation Loss – Page X

7 When paying debts to third parties from realized assets, what is the status of secured versus unsecured loans?

A They are paid proportionately

B Unsecured loans are paid first

C Secured loans have precedence

D Secured loans are paid out of private assets only

💡 Short Explanation

Secured creditors have legal claim over assets. They receive payment priority. Unsecured creditors are paid afterward.

✅ Correct Answer Explanation

Secured loans are backed by specific assets and therefore enjoy priority over unsecured liabilities during settlement of debts. Hence, secured creditors are paid first from realized assets. Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Priority system exists.
Option B → Unsecured creditors are subordinate.
Option D → Secured debts are paid from firm assets first.

🎯 Strategy

Used

Odd One Out

Application:

�� Identify legally preferred liability.

Final Logic:

�� Security creates payment priority.

🧠 Memory Trick

"Security means priority."

📚 Class XII – Accountancy Part 1 – Chapter: Settlement of Liabilities – Topic: Secured Creditors – Page X

8 After paying all outside debts, a firm has Rs. 12,000 left. Partner A has advanced a loan of Rs. 10,000 and Partner B has advanced Rs. 20,000. How will the Rs. 12,000 be distributed?

A A gets Rs. 10,000; B gets Rs. 2,000

B A gets Rs. 4,000; B gets Rs. 8,000

C A gets Rs. 6,000; B gets Rs. 6,000

D B gets Rs. 12,000

💡 Short Explanation

Partner loans paid proportionately. Loan ratio = 10,000 : 20,000. Distribution follows 1:2 ratio.

✅ Correct Answer Explanation

Total partner loans: 10,000 + 20,000 = 30,000 Available cash = Rs. 12,000 Distribution ratio = 1 : 2 A receives: 12,000 × (1/3) = 4,000 B receives: 12,000 × (2/3) = 8,000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Full payment impossible.
Option C → Ratio ignored.
Option D → Both partners must share proportionately.

🎯 Strategy

Used

Substitution

Application:

�� Apply proportional loan distribution.

Final Logic:

�� Insufficient cash requires proportional settlement.

🧠 Memory Trick

"Loans share proportionately."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Partner Loans – Page X

9 Match the distribution order (List 1) with the entity receiving payment (List 2) during asset application:

List 1	List 2
1. First Priority	a. Outside third-party debts
2. Second Priority	b. Partner loan advances
3. Third Priority	c. Partner capital dues
4. Fourth Priority	d. Residue in profit ratio

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

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

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

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

💡 Short Explanation

Outside debts settled first. Partner loans next. Capitals afterward. Residue distributed last.

✅ Correct Answer Explanation

Payment order: 1. Outside liabilities 2. Partner loans 3. Partner capitals 4. Residual distribution Thus: 1-b, 2-d, 3-c, 4-a Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect order.
Option B → Residue cannot be second.
Option D → Residue never comes first.

🎯 Strategy

Used

Option Grouping

Application:

�� Match Section 48 payment order.

Final Logic:

�� External claims precede internal claims.

🧠 Memory Trick

"Outside → Loans → Capital → Residue."

📚 Class XII – Accountancy Part 1 – Chapter: Section 48 – Topic: Order of Settlement – Page X

10 The ultimate residue after settling all claims and capital is distributed among partners in:

A Capital ratio

B Profit sharing ratio

C Sacrifice ratio

D Gaining ratio

💡 Short Explanation

Final surplus belongs to partners. Distribution follows agreed profit ratio. Capital ratio is not used.

✅ Correct Answer Explanation

After all liabilities and capitals are settled, any remaining balance belongs to partners and is distributed according to the profit-sharing ratio. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Capital ratio applies in Garner vs Murray.
Option C → Sacrifice ratio applies during admission.
Option D → Gaining ratio applies during retirement.

🎯 Strategy

Used

Elimination

Application:

�� Identify correct distribution basis after settlement.

Final Logic:

�� Residual profit follows profit-sharing agreement.

🧠 Memory Trick

"Residue follows profits."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Residual Distribution – Page X

11 Why do secured loans take precedence over unsecured loans in the payment of firm's debts?

A Because partners guarantee them

B Because they are from the government

C Because Section 49 mandates it

D Because they are explicitly given precedence as a standard practice among outside liabilities

💡 Short Explanation

Secured loans are backed by assets. They receive payment priority. Outside liabilities follow legal preference.

✅ Correct Answer Explanation

Secured loans are protected by a charge over specific assets of the firm. Therefore, during dissolution, secured creditors receive priority over unsecured creditors in settlement of debts. This precedence is a standard principle followed in settlement of outside liabilities. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Partner guarantee is not the main reason.
Option B → Government source is irrelevant.
Option C → Section 49 mainly concerns firm vs private property application.

🎯 Strategy

Used

Elimination

Application:

�� Remove options unrelated to legal security over assets.

Final Logic:

�� Security creates legal payment priority.

🧠 Memory Trick

"Security gets priority."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Priority of Debts – Page X

12 Assertion (A): Unsecured loans are paid off before partners' loans.
Reason (R): Partners' loans are considered outside liabilities.

A A is true, but R is false

B Both A and R are true

C A is false, but R is true

D Both A and R are false

💡 Short Explanation

Outside liabilities get priority. Partner loans are internal liabilities. They are not outside liabilities.

✅ Correct Answer Explanation

Unsecured loans taken from outsiders are external liabilities and therefore are paid before partner loans during dissolution. However, partner loans are not treated as outside liabilities; they are internal obligations of the firm. Thus: Assertion is true. Reason is false. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason is incorrect.
Option C → Assertion is true.
Option D → Assertion is not false.

🎯 Strategy

Used

Conceptual Linking

Application:

�� Differentiate outside liabilities from partner claims.

Final Logic:

�� External creditors always precede partners.

🧠 Memory Trick

"Outsiders before insiders."

📚 Class XII – Accountancy Part 1 – Chapter: Settlement of Accounts – Topic: Outside Liabilities vs Partner Loans – Page X

13 Regarding Section 49:
I. Firm property is applied first to firm debts.
II. Surplus of firm property is divided among partners for their private liabilities.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither is correct

💡 Short Explanation

Firm property pays firm debts first. Remaining surplus goes to partners. Partners may use surplus for private liabilities.

✅ Correct Answer Explanation

Section 49 states: Firm assets must first be used to settle firm liabilities. Any surplus remaining after settlement is distributed among partners. Partners may then apply such surplus toward private liabilities. Thus, both statements are correct. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

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

🎯 Strategy

Used

Elimination

Application:

�� Verify both rules under Section 49.

Final Logic:

�� Firm debts have first claim over firm assets.

🧠 Memory Trick

"Firm property first serves firm debts."

📚 Class XII – Accountancy Part 1 – Chapter: Dissolution of Partnership Firm – Topic: Section 49 – Page X

14 Does the private property of a partner under Section 49 include properties of their spouse and children?

A Yes, all family property is included

B Only the spouse's property is included

C No, it does not include personal properties of wife and children

D It includes children's property but not wife's

💡 Short Explanation

Private property means partner's own assets. Family assets remain separate. Spouse and children's property excluded.

✅ Correct Answer Explanation

Under Section 49, private property refers only to the personal assets owned by the partner. It does not extend to independent assets owned by spouse or children. Therefore, family members' personal properties are excluded. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Family property is not automatically liable.
Option B → Spouse's property is separate.
Option D → Children's property is also excluded.

🎯 Strategy

Used

Odd One Out

Application:

�� Identify legally separate ownership.

Final Logic:

�� Only partner-owned assets qualify as private property.

🧠 Memory Trick

"Private means partner only."

📚 Class XII – Accountancy Part 1 – Chapter: Private vs Firm Debts – Topic: Private Property – Page X

15 The amount a partner must contribute to the firm if assets are inadequate is limited to:

A Gross private assets

B Net private assets (Private assets minus private liabilities)

C Total private liabilities

D Their profit share percentage of total assets

💡 Short Explanation

Contribution depends on solvency. Private liabilities are deducted first. Net assets determine contribution capacity.

✅ Correct Answer Explanation

A partner can contribute toward firm deficiency only to the extent of net private assets available after settling private liabilities. Formula: Net Private Assets = Private Assets − Private Liabilities Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Private liabilities must be deducted.
Option C → Liabilities alone do not determine contribution.
Option D → Contribution is not based on total assets percentage.

🎯 Strategy

Used

Formula-Based Elimination

Application:

�� Apply solvency principle for contribution.

Final Logic:

�� Only net available assets can be contributed.

🧠 Memory Trick

"Net assets determine liability."

📚 Class XII – Accountancy Part 1 – Chapter: Deficiency Handling – Topic: Net Private Assets – Page X

16 Partner P has private assets of Rs. 1,00,000, private debts of Rs. 1,10,000. Firm has a deficiency of Rs. 30,000. What is P's contribution to the firm?

A Rs. 30,000

B Rs. 10,000

C Rs. 1,00,000

D Nil, as net private assets are negative

💡 Short Explanation

Private liabilities exceed private assets. Net private assets are negative. Partner cannot contribute.

✅ Correct Answer Explanation

Calculation: Private assets = Rs. 1,00,000 Private liabilities = Rs. 1,10,000 Net private assets: [1,00,000 - 1,10,000 = -10,000] Since net private assets are negative, the partner cannot contribute toward firm deficiency. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Partner lacks sufficient net assets.
Option B → Negative net worth prevents contribution.
Option C → Entire assets unavailable due to private debts.

🎯 Strategy

Used

Substitution

Application:

�� Calculate net private assets.

Final Logic:

�� Negative net assets mean no contribution possible.

🧠 Memory Trick

"Negative net worth = no contribution."

📚 Class XII – Accountancy Part 1 – Chapter: Deficiency Handling – Topic: Insolvent Partner – Page X

📄 Passage

"In the context of settlement of accounts among the partners there is still another important aspect to be noted, i.e., when a partner is unable to contribute towards the deficiency of his capital account (the account finally showing a debit balance), he/she is said to be insolvent, and the sum not recoverable is treated as capital loss for the firm. In the absence of any agreement, to the contrary, such a capital loss is to be borne by the remaining solvent partners in accordance with the principle laid down in Garner vs. Murray case, which states that the solvent partners have to bear such loss in the ratio of their capitals as on the date of dissolution."

What specifically signifies that a partner is insolvent according to the passage?

A Inability to contribute towards a final debit balance in their capital account

B Refusing to sell their private property

C Having private liabilities exceed firm liabilities

D Being declared insane by a court

💡 Short Explanation

Insolvency means inability to pay deficiency. Capital account shows debit balance. Contribution becomes impossible.

✅ Correct Answer Explanation

The passage explicitly states that a partner is considered insolvent when they are unable to contribute toward the deficiency in their capital account that shows a final debit balance. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Refusal alone does not define insolvency.
Option C → Comparison with firm liabilities irrelevant.
Option D → Insanity differs from insolvency.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Identify exact definition from passage wording.

Final Logic:

�� Insolvency means inability to meet capital deficiency.

🧠 Memory Trick

"Cannot pay deficiency = insolvent."

📚 Class XII – Accountancy Part 1 – Chapter: Garner vs Murray – Topic: Insolvent Partner – Page X

📄 Passage

The unrecoverable sum from the insolvent partner is treated by the firm as a:

A Normal operating loss

B Capital loss

C Realisation loss

D Revaluation loss

💡 Short Explanation

Insolvent partner deficiency is unrecoverable. Firm treats it as capital loss. Garner vs Murray applies.

✅ Correct Answer Explanation

The passage directly states: "the sum not recoverable is treated as capital loss for the firm." Therefore, unrecoverable deficiency from insolvent partner becomes capital loss. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Not operational loss.
Option C → Different from realization loss.
Option D → Unrelated to revaluation.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Extract exact accounting treatment from passage.

Final Logic:

�� Insolvent deficiency creates capital loss.

🧠 Memory Trick

"Unrecoverable deficiency = capital loss."

📚 Class XII – Accountancy Part 1 – Chapter: Garner vs Murray – Topic: Capital Loss – Page X

19 Under Garner vs. Murray, the capital ratio used to distribute the capital loss is calculated as of which date?

A The beginning of the accounting year

B The date of admission of the partner

C The end of the previous year

D The date of dissolution

💡 Short Explanation

Garner vs Murray uses final capitals. Capitals considered on dissolution date. Solvent partners bear deficiency accordingly.

✅ Correct Answer Explanation

According to Garner vs. Murray, solvent partners share the insolvent partner's deficiency in the ratio of their capitals as existing on the date of dissolution. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Beginning balances are irrelevant.
Option B → Admission date unrelated.
Option C → Previous year-end not applicable.

🎯 Strategy

Used

Elimination

Application:

�� Identify exact date used for capital ratio.

Final Logic:

�� Dissolution-date capitals determine sharing.

🧠 Memory Trick

"Garner uses dissolution capitals."

📚 Class XII – Accountancy Part 1 – Chapter: Garner vs Murray – Topic: Capital Ratio – Page X

20 Partner X is insolvent with a Rs. 10,000 deficiency. Solvent partners Y and Z have capitals of Rs. 60,000 and Rs. 40,000 on dissolution. Calculate Y's share of the capital loss.

A Rs. 5,000

B Rs. 4,000

C Rs. 6,000

D Rs. 10,000

💡 Short Explanation

Loss shared in capital ratio. Capital ratio = 60,000 : 40,000. Y bears 60%.

✅ Correct Answer Explanation

Capital ratio of Y and Z: 60,000: 40,000 = 3: 2 Total deficiency = Rs. 10,000 Y's share: 10,000 × (3/5) = 6,000 Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Equal division incorrect.
Option B → Wrong ratio application.
Option D → Entire loss not borne by Y alone.

🎯 Strategy

Used

Substitution

Application:

�� Apply capital ratio under Garner vs Murray.

Final Logic:

�� Y bears deficiency according to capital proportion.

🧠 Memory Trick

"Garner loss follows capital ratio."

📚 Class XII – Accountancy Part 1 – Chapter: Garner vs Murray – Topic: Distribution of Deficiency – Page X

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

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