IGCSE Accounting Paper-2: Specimen Questions with Answers 69 - 70 of 189

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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
LiabilitiesAmountAssetsAmount
Singer՚s Capital32500Bank40500
Dancer՚s Capital11500Stock7500
Creditors48000Debtors - 21500

Less: Provision for doubtful debts - 500

21000
Reserve fund13500Fixed Assets36500
105500105500

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 69 (1 of 5 Based on Passage)

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Short Answer▾

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 70 (2 of 5 Based on Passage)

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Short Answer▾

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.

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