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

When the profit-sharing ratio among partners changes, what happens to the economic relationship between them according to the text?

Answer Review

1 When the profit-sharing ratio among partners changes, what happens to the economic relationship between them according to the text?

A It completely ends and the business stops.

B It continues, though in a changed form.

C It requires all assets to be sold immediately.

D It is transferred to the court for validation.

💡 Short Explanation

Change in ratio means reconstitution of partnership. Business continues despite internal changes. Economic relationship changes but does not terminate.

✅ Correct Answer Explanation

A change in the profit-sharing ratio results in the dissolution of the old partnership agreement, but not the dissolution of the firm itself. The partners continue the business with a new agreement and revised sharing ratio. Therefore, the economic relationship among partners continues in a changed form. Option B correctly reflects this concept. The firm's operations remain active, and no compulsory closure occurs.

❓ Why Other Options Are Incorrect

Option A → Business does not stop merely because the ratio changes.
Option C → Sale of assets happens during dissolution of the firm, not simple reconstitution.
Option D → Court intervention is unnecessary in ratio changes.

🎯 Strategy

Used: Elimination

Application:

Options involving business closure or court action can be eliminated because change in ratio only alters internal partnership relations.

Final Logic:

Since the firm continues operating after ratio change, Option B is correct.

🧠 Memory Trick

"Ratio changes, business remains."

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

2 In the context of a firm's reconstitution, what is the specific effect of admitting a new partner?

A Complete termination of the firm's business.

B Compulsory dissolution of the firm.

C Dissolution of the existing partnership.

D Dissolution by notice.

💡 Short Explanation

Admission changes old agreement. Existing partnership ends. New partnership is formed.

✅ Correct Answer Explanation

When a new partner is admitted, the existing partnership agreement among old partners ends and a new agreement is formed including the new partner. This is known as dissolution of partnership, not dissolution of firm. Business continuity remains unaffected. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Business is not terminated.
Option B → Admission does not lead to compulsory dissolution.
Option D → Dissolution by notice applies only to partnership at will.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

The question specifically mentions "reconstitution," indicating continuation of business with modified relations.

Final Logic:

Admission changes the existing partnership structure, making Option C correct.

🧠 Memory Trick

"New partner = New partnership."

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

3 A partner retires and the remaining partners decide to continue the firm. During this dissolution of partnership, are the books of account terminated and closed?

A Yes, all assets are sold and liabilities paid off.

B Yes, the business is completely terminated.

C No, but the court must intervene.

D No, the books of account are not closed because the business is not terminated.

💡 Short Explanation

Retirement causes reconstitution only. Firm continues business. Books remain open.

✅ Correct Answer Explanation

Retirement of a partner results only in dissolution of partnership, not dissolution of the firm. Since the business continues with remaining partners, assets are not sold off and books of account are not closed. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Asset realization occurs in dissolution of firm.
Option B → Business continuation disproves this.
Option C → Court intervention is unnecessary in retirement cases.

🎯 Strategy

Used: Elimination

Application:

Any option involving business closure or court action can be rejected immediately.

Final Logic:

Since business continues after retirement, books are not closed.

🧠 Memory Trick

"Retirement ≠ Firm closure."

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

4 Partners X, Y, and Z did not have any specific contract regarding contingencies. Y dies suddenly. What happens to the firm according to the Partnership Act?

A The firm is dissolved due to the death of a partner.

B The firm becomes an illegal business.

C The firm is dissolved by notice.

D The court must automatically order dissolution.

💡 Short Explanation

Death changes partnership relationship. Absence of contract activates legal provision. Firm stands dissolved automatically.

✅ Correct Answer Explanation

Under the Indian Partnership Act, subject to contract between partners, death of a partner dissolves the firm. Since no contrary agreement exists, the firm automatically dissolves upon Y's death. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Death does not make business illegal.
Option C → No notice procedure applies here.
Option D → Court order is unnecessary.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests the legal rule regarding death of a partner.

Final Logic:

No agreement existed to continue the firm after death; hence dissolution occurs.

🧠 Memory Trick

"No contract + Death = Dissolution."

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

5 Assertion (A): The insolvency of a single partner in a five-partner firm changes the existing relationship among partners.
Reason (R): A firm is compulsorily dissolved when the business becomes illegal.

A Both A and R are true, and R explains A.

B Both A and R are true, but R does not explain A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Insolvency affects partnership relation. Illegal business causes compulsory dissolution. Statements are unrelated.

✅ Correct Answer Explanation

Assertion A is true because insolvency of a partner changes partnership relations and may result in reconstitution or dissolution depending on circumstances. Reason R is also true because illegality of business leads to compulsory dissolution. However, R does not explain A because the two concepts concern different situations. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reason does not explain assertion.
Option C → Reason is actually true.
Option D → Assertion is also true.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

Both statements are independently correct but conceptually unrelated.

Final Logic:

True statements without explanatory linkage lead to Option B.

🧠 Memory Trick

"Both true, no connection."

📚 The "Match the Following" question was already included as Question 6, but the formatting was converted into paragraph style instead of proper matching format. Here is the corrected version in the exact structured format.

6 Match the basis of distinction to the correct feature of "Dissolution of Firm".

List 1	List 2
1. Termination of Business	a. Business is closed
2. Settlement of Assets and Liabilities	b. Assets are sold and liabilities are paid off
3. Court's Intervention	c. Can be dissolved by court's order
4. Economic Relationship	d. Comes to an end completely

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

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

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

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

💡 Short Explanation

Dissolution closes the business. Assets are realized and liabilities settled. Court may order dissolution. Economic relationship fully ends.

✅ Correct Answer Explanation

In dissolution of a firm: Termination of business means the business is closed → 1-c Settlement of assets and liabilities means assets are sold and liabilities paid-off → 2-d Court's intervention means the firm can be dissolved by court order → 3-b Economic relationship means the relationship among all partners comes to an end completely → 4-a Thus, the correct matching is: 1-c, 2-d, 3-b, 4-a Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrectly matches termination of business with court intervention.
Option B → Economic relationship and settlement are wrongly matched.
Option D → Court intervention and economic relationship are mismatched.

🎯 Strategy

Used: Option Grouping

Application:

Matching related concepts like "business closure" and "termination" helps eliminate incorrect combinations.

Final Logic:

Only Option C correctly pairs all concepts and features.

🧠 Memory Trick

"Close → Settle → Court → End"

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

7 Which of the following statements are true about contingent dissolution due to completion of a venture?

A I and II only

B II and III only

C I and IV only

D III and IV only

💡 Short Explanation

Completion of venture dissolves firm. Subject to contract between partners. Court order not compulsory.

✅ Correct Answer Explanation

A firm formed for a specific venture dissolves on completion of that venture, subject to any contract between partners. Thus, statements III and IV are correct. Statements I and II are incorrect because contingent dissolution does not require court order or written notice.

❓ Why Other Options Are Incorrect

Option A → Both statements are incorrect.
Option B → Statement II is incorrect.
Option C → Statement I is incorrect.

🎯 Strategy

Used: Elimination

Application:

Reject options involving court order or written notice because contingent dissolution occurs automatically.

Final Logic:

Only III and IV correctly explain contingent dissolution.

🧠 Memory Trick

"Venture complete = Firm complete."

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

8 For a firm constituted for a fixed term, the dissolution upon the expiry of that term logically falls under which specific legal category?

A On the happening of certain contingencies

B Compulsory Dissolution

C Dissolution by Notice

D Dissolution by Court

💡 Short Explanation

Fixed-term expiry is a contingency. Dissolution occurs automatically. Court or notice unnecessary.

✅ Correct Answer Explanation

When a partnership is formed for a fixed duration, expiry of that duration dissolves the firm automatically. This is dissolution on the happening of certain contingencies under the Partnership Act. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → No compulsory legal condition exists.
Option C → Written notice is not required.
Option D → Court order is unnecessary.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly asks the legal classification of fixed-term expiry.

Final Logic:

Expiry of agreed term is a contingency-based dissolution.

🧠 Memory Trick

"Fixed term ends = Contingency."

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

9 Arrange the following activities in the correct sequence upon complete termination of the firm:
I. Final discharge of claims of the partners.
II. Breaking of relationship between all partners.
III. Paying the firm's liabilities.
IV. Selling the firm's assets.

A I, II, III, IV

B II, IV, III, I

C IV, III, II, I

D II, III, I, IV

💡 Short Explanation

Relationship ends first. Assets realized. Liabilities paid. Partners settled finally.

✅ Correct Answer Explanation

Upon dissolution: 1. Relationship between partners breaks. 2. Assets are sold. 3. Liabilities are paid. 4. Remaining claims of partners are settled. Thus, the correct sequence is II, IV, III, I. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Settlement cannot occur before realization.
Option C → Relationship break must occur first.
Option D → Assets must be sold before liabilities payment.

🎯 Strategy

Used: Sequential Logic

Application:

Following the accounting realization process helps identify the correct order.

Final Logic:

Business termination precedes realization and settlement.

🧠 Memory Trick

"Break → Sell → Pay → Settle."

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

10 The Partnership Act 1932 recognizes the legal difference between the breaking of relationship between some partners and which of the following?

A The admission of a new minor partner.

B The temporary closure of the business for maintenance.

C The breaking of relationship between all the partners.

D The change in the capital structure.

💡 Short Explanation

Dissolution of partnership differs from dissolution of firm. Some partners leaving is reconstitution. All partners separating means firm dissolution.

✅ Correct Answer Explanation

The Partnership Act distinguishes between dissolution of partnership and dissolution of firm. Dissolution of partnership means change in relation among some partners, while dissolution of firm means complete breakdown of relations among all partners. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Minor admission is unrelated.
Option B → Temporary closure is not dissolution.
Option D → Capital changes do not define dissolution.

🎯 Strategy

Used: Odd One Out

Application:

Only one option directly represents complete dissolution.

Final Logic:

Complete break among all partners defines dissolution of firm.

🧠 Memory Trick

"Some change = Partnership; All end = Firm."

📚 Questions 11–20

11 Can a firm be dissolved by mutual agreement even if the business is highly profitable and no partner has died or retired?

A No, dissolution requires court intervention if profitable.

B No, dissolution only happens on contingencies.

C Yes, but only if notice is given to the public.

D Yes, a firm may be dissolved with the consent of all the partners.

💡 Short Explanation

Mutual consent is sufficient. Profitability does not restrict dissolution. Partnership is based on agreement.

✅ Correct Answer Explanation

A partnership firm may be dissolved at any time if all partners mutually agree to dissolve it. The profitability of the business or absence of death/retirement does not prevent dissolution. Since partnership is created through agreement, it may also be terminated through agreement. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Court intervention is not compulsory for mutual dissolution.
Option B → Dissolution can occur through several methods, not only contingencies.
Option C → Public notice is not the primary legal requirement for dissolution by agreement.

🎯 Strategy

Used: Elimination

Application:

Options involving compulsory legal intervention can be removed because partnership is fundamentally contractual.

Final Logic:

Consent of all partners is enough for dissolution.

🧠 Memory Trick

"Agreement creates, agreement ends."

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

12 Partners A and B entered a partnership with a contract stating that if partner B moves to another country, the firm will dissolve. B moves to Canada. Under which category does this dissolution fall?

A Dissolution by Agreement (in accordance with a contract)

B Compulsory Dissolution

C Dissolution by Court

D Dissolution by Notice

💡 Short Explanation

Dissolution follows pre-decided contract. Agreed contingency activates dissolution. Court involvement unnecessary.

✅ Correct Answer Explanation

The partners had already agreed through contract that the firm would dissolve if B moved abroad. Since the event occurred, dissolution happens according to the agreement between partners. Therefore, this falls under dissolution by agreement in accordance with a contract. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → No compulsory legal condition exists.
Option C → Court order is not required.
Option D → Written notice is unrelated here.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

The phrase "contract stating" directly indicates dissolution through agreement.

Final Logic:

Pre-agreed contractual condition makes Option A correct.

🧠 Memory Trick

"Contract condition = Agreement dissolution."

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

13 Consider the following statements about compulsory dissolution due to insolvency:
I. It occurs when only one partner out of four becomes insolvent.
II. It occurs when all partners become insolvent.
III. It occurs when all but one partner become insolvent.

A I and II

B II and III

C I and III

D I, II, and III

💡 Short Explanation

Insolvency of all partners dissolves firm. Insolvency of all except one also dissolves firm. One insolvent partner alone does not compulsorily dissolve firm.

✅ Correct Answer Explanation

Compulsory dissolution occurs when all partners or all except one partner become insolvent because the firm can no longer legally continue. However, insolvency of only one partner does not automatically dissolve the firm. Thus, statements II and III are correct. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I is incorrect.
Option C → Statement I is still incorrect.
Option D → All statements are not correct.

🎯 Strategy

Used: Elimination

Application:

The key distinction is whether enough partners remain capable of continuing the business.

Final Logic:

Only statements II and III satisfy compulsory dissolution conditions.

🧠 Memory Trick

"All or almost all insolvent = Dissolution."

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

14 If a partner who is a citizen of a country becomes an alien enemy due to a declaration of war, making the partnership unlawful, this directly results in:

A Dissolution by Notice

B Dissolution by Agreement

C Compulsory Dissolution

D Contingent Dissolution

💡 Short Explanation

Illegal business cannot continue. War changes legal status. Firm dissolves compulsorily.

✅ Correct Answer Explanation

When business becomes unlawful due to legal or political reasons, such as a partner becoming an alien enemy during war, the partnership cannot legally continue. This leads to compulsory dissolution under the Partnership Act. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Notice is unrelated to illegality.
Option B → Mutual agreement is unnecessary here.
Option D → This is not a contingent event under partnership contract.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly tests compulsory dissolution due to illegality.

Final Logic:

Illegal business operations automatically result in compulsory dissolution.

🧠 Memory Trick

"Illegal business = Firm ends."

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

15 Assertion (A): A partnership firm constituted for a fixed term of 3 years cannot be dissolved before the 3 years expire under any circumstance.
Reason (R): Subject to contract, a firm constituted for a fixed term is dissolved by the expiry of that term.

A Both A and R are true, and R explains A.

B Both A and R are true, but R does not explain A.

C A is true, but R is false.

D A is false, and R is true.

💡 Short Explanation

Fixed-term firms may dissolve earlier. Expiry normally causes dissolution. Assertion is absolute and incorrect.

✅ Correct Answer Explanation

Assertion A is false because a fixed-term partnership may still dissolve earlier through agreement, insolvency, court order, or other legal grounds. Reason R is true because expiry of the agreed term normally dissolves the firm subject to contract. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion is incorrect.
Option B → Assertion is still false.
Option C → Reason is actually true.

🎯 Strategy

Used: Extreme Word Filter

Application:

The phrase "under any circumstance" makes the assertion excessively absolute.

Final Logic:

Extreme wording reveals Assertion A as false.

🧠 Memory Trick

"Absolute words are risky."

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

16 A firm was created strictly to build 3 specific bridges. It has successfully completed all 3 bridges. Subject to contract, what is the immediate legal status of the firm?

A It is dissolved by the completion of the ventures.

B It automatically becomes a partnership at will.

C It requires a court order to shut down.

D It undergoes a change in profit-sharing ratio.

💡 Short Explanation

Firm existed for a specific objective. Completion ends partnership purpose. Dissolution occurs automatically.

✅ Correct Answer Explanation

When a partnership is formed for a specific venture or objective, completion of that venture dissolves the firm subject to contract between partners. Since all three bridges have been completed, the purpose of the partnership is fulfilled. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Completion does not automatically convert it into partnership at will.
Option C → Court order is unnecessary.
Option D → Profit-sharing ratio change is irrelevant.

🎯 Strategy

Used: Direct Concept Recall

Application:

The question directly describes a particular partnership formed for a specific project.

Final Logic:

Completion of agreed objective causes dissolution.

🧠 Memory Trick

"Objective complete = Firm complete."

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

17 Which specific type of partnership allows for dissolution simply by one partner giving a written notice of intention?

A Fixed-term partnership

B Partnership at will

C Particular partnership

D Limited Liability Partnership

💡 Short Explanation

Partnership at will has flexible duration. Written notice is legally sufficient. Any partner may initiate dissolution.

✅ Correct Answer Explanation

Under the Partnership Act, a partnership at will may be dissolved by any partner giving written notice to all other partners expressing intention to dissolve the firm. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Fixed-term partnerships follow agreed duration.
Option C → Particular partnership ends after objective completion.
Option D → LLP follows different legal structure.

🎯 Strategy

Used: Direct Concept Recall

Application:

The phrase "written notice" directly points toward partnership at will.

Final Logic:

Only partnership at will permits unilateral notice-based dissolution.

🧠 Memory Trick

"At will = At notice."

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

18 For a partnership at will, is a verbal notice sufficient for a partner to dissolve the firm?

A Yes, verbal notice is legally binding.

B Yes, if all partners are present.

C No, the notice must be in writing.

D No, notice must be given through a court.

💡 Short Explanation

Written notice is legally required. Verbal communication is insufficient. Court intervention unnecessary.

✅ Correct Answer Explanation

The Partnership Act specifically requires written notice from a partner to dissolve a partnership at will. Verbal communication does not satisfy the legal requirement. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Verbal notice lacks legal validity.
Option B → Presence of partners does not replace written requirement.
Option D → Court process is not compulsory.

🎯 Strategy

Used: Elimination

Application:

The legal requirement explicitly mentions written notice.

Final Logic:

Only written notice legally dissolves partnership at will.

🧠 Memory Trick

"Will dissolves with written will."

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

📄 Passage

"At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following grounds... (e) when a partner has transferred the whole of his interest in the firm to a third party; (f) when the business of the firm cannot be carried on except at a loss; or (g) when, on any ground, the court regards dissolution to be just and equitable."

According to the passage, under what condition relating to the firm's profitability can the court logically order dissolution?

A When the firm is highly profitable.

B When the firm's profit drops by 10%.

C When the partners fail to withdraw profits.

D When the business cannot be carried on except at a loss.

💡 Short Explanation

Continuous losses justify dissolution. Court protects partners from unviable business. Passage directly states this ground.

✅ Correct Answer Explanation

The passage clearly states that the court may order dissolution when "the business of the firm cannot be carried on except at a loss." This means continuous unavoidable losses make continuation impractical. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Profitability is not a ground for dissolution.
Option B → Temporary reduction in profit is insufficient.
Option C → Withdrawal issues are unrelated.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

The exact phrase in the passage directly matches Option D.

Final Logic:

Loss-making continuation justifies court-ordered dissolution.

🧠 Memory Trick

"Only losses lead court to closure."

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

📄 Passage

Based on the passage, what action by a partner regarding their interest in the firm is a direct legal ground for court-ordered dissolution?

A Transferring the whole of their interest to a third party.

B Transferring a minor portion of their interest to their spouse.

C Withdrawing cash for personal use.

D Investing additional capital into the firm.

💡 Short Explanation

Complete transfer changes partnership structure. Passage explicitly identifies this ground. Court may dissolve the firm.

✅ Correct Answer Explanation

The passage specifically states that court-ordered dissolution may occur when a partner transfers the whole of their interest in the firm to a third party. This affects partnership trust and continuity. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Partial transfer is not mentioned as a legal ground.
Option C → Personal withdrawal is not a dissolution ground.
Option D → Additional investment supports continuity, not dissolution.

🎯 Strategy

Used: Contextual/Tonal Matching

Application:

The exact wording in the passage directly identifies the correct option.

Final Logic:

Whole-interest transfer is explicitly recognized as a court dissolution ground.

🧠 Memory Trick

"Whole transfer = Court transfer."

📚 Class XII – Accountancy Part I – Chapter: Dissolution of Partnership Firm – Topic: Legal Grounds for Court Dissolution – Page X

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

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