Class 9 Accountancy Chapter 5: Dissolution of Partnership Firm – Complete Important Questions & Solutions

The Dissolution of Partnership Firm chapter holds significant weight in CBSE Class 9 Accountancy because it integrates three critical skills: asset valuation, liability management, and partner settlement calculations. Examiners use this chapter to test not just memorisation but logical application of accounting principles under complex real-world scenarios. In recent board papers, 8–12 marks have been consistently allocated to this chapter across MCQs, short-answer, and long-answer formats. The chapter's focus on Realisation Accounts—a specialised accounting statement—makes it a favourite for testing numerical accuracy and conceptual depth. Students who master the step-by-step process of dissolution (listing assets, revaluing them, paying liabilities, and distributing remaining cash to partners) gain confidence in the entire Partnership Accounting unit. Additionally, the chapter reinforces double-entry bookkeeping and the accounting equation, both foundational to Class 10 and beyond. Understanding when and how a firm dissolves also builds real-world business acumen, showing students the legal and financial reality behind company closures, retirements, and partner exits.

MCQs test quick recall and conceptual clarity—essential for securing marks without losing time in exams. **Q1:** When a partnership firm is dissolved, the Realisation Account is: (a) A profit-and-loss account for the firm (b) A statement showing gains/losses on selling assets and paying liabilities (c) A balance sheet of the dissolved firm (d) A capital account for each partner **Answer: (b)** The Realisation Account records all transactions related to asset sales and liability payments during dissolution, showing net gain or loss. **Q2:** In a Realisation Account, accumulated depreciation on fixed assets is: (a) Credited (shown as a resource) (b) Debited (shown as a use) (c) Ignored (d) Transferred to partners' capital accounts **Answer: (a)** Accumulated depreciation reduces the book value of assets and is credited in the Realisation Account, effectively reducing the net debit for that asset. **Q3:** If a partnership firm has assets totalling ₹5,00,000 and liabilities of ₹1,50,000, the amount available for distribution to partners is: (a) ₹3,50,000 (before realisation gains/losses) (b) ₹5,00,000 (c) ₹6,50,000 (d) Cannot be determined without knowing realisation gains/losses **Answer: (a)** Initial available amount = Assets − Liabilities = 5,00,000 − 1,50,000 = ₹3,50,000. Final distribution depends on gains/losses from asset sales. **Q4:** The Realisation Account is credited when: (a) Assets are sold at a loss (b) Assets are sold at a profit (c) Liabilities are paid (d) Cash is distributed to partners **Answer: (b)** Profit on asset sales is credited to the Realisation Account; loss is debited. **Q5:** On dissolution, if a partner's capital account shows a debit balance after settlement, it means: (a) The partner has made a gain (b) The partner owes money to the firm (c) The partner is entitled to a refund (d) The firm owes the partner **Answer: (b)** A debit balance on a partner's capital account post-dissolution indicates the partner is liable to pay that amount to the firm to settle accounts.

These questions require concise explanations or simple calculations, testing both definition and application. **Q1:** Define Realisation Account. Why is it prepared during partnership dissolution? **Answer:** A Realisation Account is a nominal account opened to record all gains and losses arising from the sale of assets and payment of liabilities during partnership dissolution. It is prepared because it centralises all dissolution transactions in one account, making it easy to calculate the net gain or loss that is then distributed to partners in their agreed profit-sharing ratio. This ensures transparent and accurate settlement of partner claims. **Q2:** A firm's Realisation Account shows a debit balance (loss) of ₹50,000. The profit-sharing ratio of three partners A, B, and C is 3:2:1. How will this loss be distributed? **Answer:** Total parts = 3 + 2 + 1 = 6. Loss distribution: – A's share = (3/6) × 50,000 = ₹25,000 – B's share = (2/6) × 50,000 = ₹16,667 (approx) – C's share = (1/6) × 50,000 = ₹8,333 (approx) Each partner's capital account is debited with their share of the loss. **Q3:** What is the difference between 'dissolution of a firm' and 'retirement of a partner'? **Answer:** Dissolution of a firm means the complete end of the partnership agreement and closure of the business. All assets are sold, liabilities paid, and remaining cash distributed. Retirement of a partner means one partner leaves while the firm continues—only the retiring partner's capital is settled, and continuing partners either admit a new partner or reorganise themselves. In retirement, Realisation Account may not be used; instead, revaluation adjustments are made. **Q4:** In the Settlement Account (after Realisation), a partner's capital account shows a credit balance of ₹80,000. What does this mean, and how is it settled? **Answer:** A credit balance means the partner is entitled to receive ₹80,000 from the firm (a receivable). This amount is paid in cash (or cheque) from the remaining cash after paying liabilities. If insufficient cash exists, the partner may receive assets or wait until assets are sold. The payment is recorded in the bank account and partner's capital account (debit side). **Q5:** Why are partner's loan accounts treated differently from partner's capital accounts during dissolution? **Answer:** A partner's loan is a liability of the firm (creditor's claim), not an owner's equity. During dissolution, partner's loans are paid off like any other creditor liability before distributing cash to partners' capital accounts. The sequence is: (1) External liabilities, (2) Partner's loans, (3) Partner's capital accounts. This protects creditors' and lenders' interests and maintains legal priority.

These questions integrate calculation with brief explanation, requiring students to build a simple Realisation Account or settle partner accounts. **Q1:** A partnership firm had the following assets and liabilities on dissolution: – Assets: Land ₹1,50,000 (realised at ₹1,60,000), Furniture ₹60,000 (realised at ₹48,000), Stock ₹40,000 (realised at ₹35,000) – Liabilities: Bank loan ₹80,000, Creditors ₹30,000 Prepare a Realisation Account. **Answer:** ``` REALISATION ACCOUNT Dr. Cr. To Assets: Land 1,50,000 Furniture 60,000 Stock 40,000 To Realisation Gain (bal.fig.) 5,000 ________ ________ 2,50,000 2,50,000 By Realisation: Land realised 1,60,000 Furniture realised 48,000 Stock realised 35,000 By Liabilities: Bank loan 80,000 Creditors 30,000 ``` Net Gain = ₹5,000 (credited). This gain is distributed to partners' capital accounts in their profit-sharing ratio. **Q2:** After dissolution, Partner A's capital account showed a balance of ₹2,00,000 (Cr) and Partner B's showed ₹(50,000) [debit balance]. From the Realisation Account, a gain of ₹60,000 was distributed in the ratio 2:1. Assuming cash available is ₹2,50,000, how will cash be settled? **Answer:** A's share of gain = (2/3) × 60,000 = ₹40,000 B's share of gain = (1/3) × 60,000 = ₹20,000 A's final balance = 2,00,000 + 40,000 = ₹2,40,000 (Cr) — due ₹2,40,000 in cash B's final balance = (−50,000) + 20,000 = (−30,000) (Dr) — owes ₹30,000 to firm Cash settlement: A receives ₹2,40,000; B pays ₹30,000. Net cash paid = 2,40,000 − 30,000 = ₹2,10,000 (against available ₹2,50,000, leaving ₹40,000 buffer). **Q3:** Land with accumulated depreciation of ₹20,000 (cost ₹1,00,000) is sold for ₹95,000 during dissolution. Show the Realisation Account entry and calculate gain/loss. **Answer:** Book value = Cost − Accumulated Depreciation = 1,00,000 − 20,000 = ₹80,000 Selling price = ₹95,000 Gain = 95,000 − 80,000 = ₹15,000 Realisation Account: – Debit: Land ₹1,00,000, Credit: Accumulated Depreciation ₹20,000 (net ₹80,000 asset) – Credit: Land realised ₹95,000, Credit: Gain on realisation ₹15,000 This gain increases partners' capital accounts proportionally. **Q4:** Three partners X, Y, Z had capital accounts of ₹3,00,000, ₹2,00,000, and ₹1,00,000 respectively. On dissolution, Realisation Account showed a loss of ₹60,000 in the ratio 3:2:1. Calculate each partner's entitlement before cash distribution. **Answer:** X's loss = (3/6) × 60,000 = ₹30,000 Y's loss = (2/6) × 60,000 = ₹20,000 Z's loss = (1/6) × 60,000 = ₹10,000 Final capital (after loss): – X: 3,00,000 − 30,000 = ₹2,70,000 (Cr) — entitled to receive – Y: 2,00,000 − 20,000 = ₹1,80,000 (Cr) — entitled to receive – Z: 1,00,000 − 10,000 = ₹90,000 (Cr) — entitled to receive Total entitlement = ₹5,40,000 (must match total assets − liabilities − realisation loss).

These comprehensive questions require students to prepare Realisation Accounts, settle partner accounts, and show cash distribution in full detail. **Q1:** The partnership firm of P and Q is dissolved on 31st March 2024. Their balance sheet showed: – Assets: Building ₹4,00,000, Furniture ₹80,000, Stock ₹60,000, Debtors ₹1,20,000, Cash ₹50,000 – Liabilities: Creditors ₹2,00,000, Bank loan ₹1,50,000 – Capital: P ₹2,40,000, Q ₹1,20,000 On dissolution: – Building realised at ₹3,80,000 – Furniture sold for ₹75,000 – Stock sold for ₹55,000 – Debtors realised ₹1,05,000 – Creditors settled at ₹2,00,000 and bank loan at ₹1,50,000 – Profit-sharing ratio P:Q = 2:1 Prepare Realisation Account and show final settlement. **Solution:** REALISATION ACCOUNT Dr. Cr. To Building 4,00,000 To Furniture 80,000 To Stock 60,000 To Debtors 1,20,000 To Realisation Loss 30,000 ________ ________ 6,90,000 6,90,000 By Building realised 3,80,000 By Furniture realised 75,000 By Stock realised 55,000 By Debtors realised 1,05,000 By Creditors 2,00,000 By Bank loan 1,50,000 Realisation Loss Calculation: Total assets realised = 3,80,000 + 75,000 + 55,000 + 1,05,000 = ₹6,15,000 Book value of assets = 4,00,000 + 80,000 + 60,000 + 1,20,000 = ₹7,60,000 Loss = 7,60,000 − 6,15,000 = ₹1,45,000 Distribution of loss (P:Q = 2:1): P's loss = (2/3) × 1,45,000 = ₹96,667 (approx) Q's loss = (1/3) × 1,45,000 = ₹48,333 (approx) Partner Capital Accounts after loss: P: 2,40,000 − 96,667 = ₹1,43,333 Q: 1,20,000 − 48,333 = ₹71,667 Cash available for distribution: Cash balance + Realisation proceeds − Liabilities = 50,000 + 6,15,000 − 3,50,000 = ₹3,15,000 Cash settlement: P receives ₹1,43,333; Q receives ₹71,667 (total ₹2,15,000). Remaining cash ₹1,00,000 retained or held in trust pending dispute resolution. **Q2:** M, N, and O were partners with capital accounts ₹5,00,000, ₹3,00,000, and ₹2,00,000 respectively. The firm dissolved on 30th June 2024. Balance sheet: – Fixed Assets ₹6,00,000 (Depreciation ₹1,50,000), Current Assets ₹4,50,000 – Creditors ₹3,00,000, Partner loans: M ₹50,000, N ₹30,000 – Profit ratio M:N:O = 3:2:1 Realised values: Fixed Assets ₹5,20,000, Current Assets ₹4,20,000. All liabilities paid in full. Prepare Realisation Account and final settlement. **Solution:** Asset Book Values: Fixed Assets = 6,00,000 − 1,50,000 = ₹4,50,000 Current Assets = ₹4,50,000 Total = ₹9,00,000 REALISATION ACCOUNT Dr. Cr. To Fixed Assets 6,00,000 To Current Assets 4,50,000 To Depreciation (Accum.) 1,50,000 To Realisation Loss (calc.) ________ ________ 9,00,000 9,00,000 By Fixed Assets realised 5,20,000 By Current Assets realised 4,20,000 By Creditors 3,00,000 By Partner Loan (M) 50,000 By Partner Loan (N) 30,000 Realisation Loss: Total realised = 5,20,000 + 4,20,000 = ₹9,40,000 Book value = 9,00,000 (after deducting accumulated depreciation) Gain on realisation = ₹40,000 (credited) Distribution of gain (M:N:O = 3:2:1): M: (3/6) × 40,000 = ₹20,000 N: (2/6) × 40,000 = ₹13,333 O: (1/6) × 40,000 = ₹6,667 Final capital (after gain): M: 5,00,000 + 20,000 = ₹5,20,000 (Cr) N: 3,00,000 + 13,333 = ₹3,13,333 (Cr) O: 2,00,000 + 6,667 = ₹2,06,667 (Cr) Cash available = 5,20,000 + 4,20,000 − 3,00,000 − 50,000 − 30,000 = ₹6,60,000 Settlement: M receives ₹5,20,000 N receives ₹3,13,333 O receives ₹2,06,667 Total = ₹10,40,000 (shortfall means assets realised at ₹6,60,000, insufficient) Adjustment: Distribute ₹6,60,000 proportionally: M: (5,20,000 ÷ 10,40,000) × 6,60,000 = ₹3,30,000 N: (3,13,333 ÷ 10,40,000) × 6,60,000 = ₹1,99,000 (approx) O: (2,06,667 ÷ 10,40,000) × 6,60,000 = ₹1,31,000 (approx) **Q3:** Two partners, A and B, with equal capital of ₹2,00,000 each, dissolved their firm. Assets (book value ₹3,50,000) were realised at ₹3,20,000. Liabilities ₹1,50,000 were settled. Calculate Realisation Account gain/loss and show cash settlement. **Solution:** Realisation Account: Dr. Assets (book value): ₹3,50,000 Cr. Assets realised: ₹3,20,000 Cr. Liabilities paid: ₹1,50,000 Loss = 3,50,000 − 3,20,000 = ₹30,000 Each partner's share of loss (equal ratio 1:1) = ₹15,000 Final capital: A: 2,00,000 − 15,000 = ₹1,85,000 B: 2,00,000 − 15,000 = ₹1,85,000 Cash for distribution = 3,20,000 − 1,50,000 = ₹1,70,000 A receives ₹85,000; B receives ₹85,000 (with ₹1,00,000 held as reserve or distributed later).

**Case Study Question:** XYZ Partnership was formed by three friends—Aman, Bina, and Chetan—to run an online retail business. Their investment was in the ratio 5:3:2, and profits were shared in the same ratio. By 2024, the firm's balance sheet showed: **Assets:** Office equipment (₹1,50,000 book value, depreciation ₹40,000), Inventory (₹2,20,000), Trade receivables (₹80,000), Cash (₹1,20,000) **Liabilities:** Trade payables (₹1,20,000), Bank overdraft (₹50,000) **Capital Accounts:** Aman (₹2,10,000 Cr), Bina (₹1,26,000 Cr), Chetan (₹84,000 Cr) Due to disagreement on business direction, the partners decided to dissolve the firm on 31st December 2024. They negotiated the following realisation values: – Office equipment: ₹1,50,000 – Inventory: ₹1,95,000 (₹25,000 write-off for obsolete stock) – Trade receivables: ₹72,000 (₹8,000 doubtful) – Cash: ₹1,20,000 (unchanged) **All creditors were paid in full. The partners agreed to share any realisation loss in their profit-sharing ratio.** **Questions:** (a) Calculate the total realisation loss and each partner's share. (b) Prepare the Realisation Account. (c) Show the final capital accounts after incorporating the realisation loss. (d) Determine how much cash each partner will receive and identify any shortfall or surplus. (e) If the office equipment sale is delayed by 3 months and realised at ₹1,40,000 instead, how would this change the settlement? (Brief explanation) **Step-by-Step Solution:** **(a) Realisation Loss Calculation:** Book values (net of depreciation): – Office equipment: 1,50,000 − 40,000 = ₹1,10,000 – Inventory: ₹2,20,000 – Trade receivables: ₹80,000 Total book value of assets = ₹4,10,000 Realised values: – Office equipment: ₹1,50,000 – Inventory: ₹1,95,000 – Trade receivables: ₹72,000 Total realised = ₹4,17,000 Gain on realisation = 4,17,000 − 4,10,000 = ₹7,000 (Note: The ₹7,000 gain comes from selling equipment at ₹1,50,000 despite ₹40,000 depreciation being written off already in the balance sheet.) Partners' ratio = 5:3:2 Each partner's share of gain: – Aman: (5/10) × 7,000 = ₹3,500 – Bina: (3/10) × 7,000 = ₹2,100 – Chetan: (2/10) × 7,000 = ₹1,400 **(b) Realisation Account:** ``` REALISATION ACCOUNT Dr. Cr. To Equipment (cost) 1,50,000 To Depreciation (Accum.) 40,000 To Inventory 2,20,000 To Receivables 80,000 To Gain on Realisation (bal) 7,000 ________ ________ 4,50,000 4,50,000 By Equipment realised 1,50,000 By Inventory realised 1,95,000 By Receivables realised 72,000 By Trade payables 1,20,000 By Bank overdraft 50,000 ``` **(c) Final Capital Accounts:** After gain: – Aman: 2,10,000 + 3,500 = ₹2,13,500 – Bina: 1,26,000 + 2,100 = ₹1,28,100 – Chetan: 84,000 + 1,400 = ₹85,400 **(d) Cash Distribution:** Cash available = 1,20,000 (opening) + 4,17,000 (realised) − 1,20,000 (payables) − 50,000 (overdraft) = ₹3,67,000 Total due to partners = 2,13,500 + 1,28,100 + 85,400 = ₹4,27,000 **Shortfall = ₹4,27,000 − ₹3,67,000 = ₹60,000** Cash distribution (proportionally to entitlements): – Aman: (2,13,500 ÷ 4,27,000) × 3,67,000 = ₹1,83,343 – Bina: (1,28,100 ÷ 4,27,000) × 3,67,000 = ₹1,09,912 – Chetan: (85,400 ÷ 4,27,000) × 3,67,000 = ₹73,345 *Each partner receives slightly less than their full entitlement due to the ₹60,000 shortfall.* **(e) Impact if Equipment Realised at ₹1,40,000 (₹10,000 loss):** New total realised = 1,40,000 + 1,95,000 + 72,000 = ₹4,07,000 Realisation loss = 4,10,000 − 4,07,000 = ₹3,000 (instead of ₹7,000 gain) Loss shares: – Aman: (5/10) × 3,000 = ₹1,500 – Bina: (3/10) × 3,000 = ₹900 – Chetan: (2/10) × 3,000 = ₹600 Revised capital: – Aman: 2,10,000 − 1,500 = ₹2,08,500 – Bina: 1,26,000 − 900 = ₹1,25,100 – Chetan: 84,000 − 600 = ₹83,400 Cash available = 1,20,000 + 4,07,000 − 1,70,000 = ₹3,57,000 Shortfall increases to ₹70,000, reducing each partner's actual receipt proportionally.

Realisation Accounts and partner settlement demand precision, practice, and clear conceptual understanding. Many students stumble on the sequence of steps (identifying assets, calculating gains/losses, adjusting capital, then distributing cash), and partial credit is lost even when calculations are correct. At CBSETUTOR.ai, our AI tutor drills exactly these patterns daily through personalised question banks that mirror board exam difficulty levels. You'll solve stepped problems starting from simple 2-mark questions and progressing to complex multi-part scenarios with real numbers. Our system instantly flags common errors—like forgetting to adjust for accumulated depreciation, mixing up creditor priority, or misapplying profit ratios—and explains corrections in real-time. Each session builds your speed and accuracy, ensuring you're exam-ready by term-end. Our dissolution practice module includes 50+ variations covering all textbook scenarios plus real-world twists (delayed realisations, disputed debts, partner loans), so no exam question surprises you. Start a 3-day free trial at cbsetutor.ai to unlock unlimited Accountancy drills, video solutions, and AI-guided feedback today.