CIE Accounting Paper-2: Specimen Questions with Answers 70 - 72 of 103

Passage

Singer and Dancer are partners sharing profit in the ratio of 3: 2. Their balance sheet on 31st March 2014 was as follows:

Singer and Dancer are partners sharing profit in the ratio

Find out ratio of amount

Liabilities

Amount

Assets

Amount

Singer’s Capital

32500

Bank

40500

Dancer’s Capital

11500

Stock

7500

Creditors

48000

Debtors - 21500

Less: Provision for doubtful debts - 500

21000

Reserve fund

13500

Fixed Assets

36500

105500

105500

On 31st March 2014, they decided to dissolve the firm and the following information was provided by them: (i) Debtors were realized at a discount of 5%; (ii) Stock at £7000; (iii) Fixed assets at £42000; (iv) realization expenses were £1500; (v) All the creditors were fully paid.

Question number: 70 (2 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

What are the reasons for dissolution of a firm?

Explanation

Dissolution of the firm may be due to any of the following reasons:

(i) Dissolution by agreement – mutually agreement between the partners

(ii) Compulsory dissolution – When one or all partners become insolvent.

(iii) On the event of contingencies

(iv) Dissolution by notice

(v) Dissolution by court

Question number: 71 (3 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

What is Realization Account?

Explanation

When the dissolution of a firm takes place, all assets are sold and all liabilities are paid off in full settlement. Any profit or loss arising has to be computed as the same has to be shared between the partners. For this purpose a separate account called as the realization account is opened. In this account the net profit or loss after realizing the assets and paying the liabilities is computed and the amount is transferred to the partner’s capital account in their sharing ratios.

Question number: 72 (4 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

Does Dissolution of firm mean the same as dissolution of partnership?

Explanation

No, Dissolution of firm is not the same as dissolution of partnership. Two of the basic differences between the two term’s are as follows:

(i) In dissolution of partnership, the business is not terminated, but in dissolution of a firm; the business is terminated.

(ii) In dissolution of partnership; the assets and liabilities are revalued and a new balance sheet is drawn, where as in the dissolution of a firm, the assets are sold and the liabilities are paid off in full settlement.