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CBSE Class 12 Accountancy Chapter 5 Dissolution of Partnership Firm — 20 MCQs with Answers

Chapter 5 Dissolution of Partnership Firm is a scoring yet calculation-intensive chapter in CBSE Class 12 Accountancy, typically carrying 6 to 8 marks in the board exam. It deals with the Realisation Account, treatment of assets and liabilities on dissolution, and final settlement among partners. MCQs on this chapter test your understanding of when and how to debit or credit the Realisation Account, profit/loss distribution, and the order of settlement. The 20 MCQs below mirror the CBSE 2025 blueprint — simple recall, numerical application, and assertion-reason formats — complete with answers and explanations.

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Key takeaways

  • ✓Dissolution of Partnership Firm means closing all books, selling assets, paying liabilities and settling partners' accounts — distinct from reconstitution.
  • ✓Realisation Account is debited with book values of all assets (except cash/bank) and credited with liabilities assumed; no capital or current accounts appear here.
  • ✓Profit or loss on realisation is transferred to partners' capital accounts in the profit-sharing ratio at the time of dissolution.
  • ✓Cash received from debtors or sale of assets is credited to Realisation Account, while payment to creditors or expenses is debited to it.
  • ✓Final settlement is done through partners' capital accounts; any deficiency is met by partners in their capital ratio or as per partnership deed.
  • ✓Assertion-Reason and case-based MCQs now appear regularly in CBSE board papers, requiring conceptual clarity beyond rote learning.
  • ✓Practising 15-20 MCQs per chapter ensures familiarity with CBSE question patterns and boosts speed and accuracy in the actual exam.

Understanding Dissolution of Partnership Firm — Concept-based MCQs

Dissolution of a partnership firm is fundamentally different from dissolution of partnership. When the firm dissolves, the entire business is wound up: assets are sold, liabilities are paid, and partners receive their final dues. The Realisation Account is opened to record these transactions. It captures all non-cash assets on the debit side (at book value) and all liabilities on the credit side. Any gain or loss arising from the realisation is shared by partners in their profit-sharing ratio. These concept-based MCQs check whether you can distinguish dissolution events, identify what goes into the Realisation Account, and recall NCERT definitions accurately.
  • Q1. Dissolution of partnership firm means: (A) Retirement of a partner (B) Admission of a new partner (C) Complete closure of business and settlement of accounts (D) Change in profit-sharing ratio | Answer: (C) | Reason: Dissolution of the firm ends the business entirely, unlike reconstitution events.
  • Q2. Which account is prepared to close the books of a dissolved firm? (A) Profit & Loss Account (B) Revaluation Account (C) Realisation Account (D) Partners' Capital Account | Answer: (C) | Reason: Realisation Account records sale of assets and payment of liabilities on dissolution.
  • Q3. On dissolution, unrecorded assets are: (A) Ignored (B) Credited to Realisation Account (C) Debited to Partners' Capital Accounts (D) Debited to Realisation Account | Answer: (B) | Reason: Unrecorded assets are brought in by crediting Realisation Account at realisable value.
  • Q4. Cash and Bank balances are: (A) Transferred to Realisation Account (B) Not transferred to Realisation Account (C) Debited to Realisation Account (D) Shown in Revaluation Account | Answer: (B) | Reason: Cash/Bank are already liquid and remain in Cash/Bank Account till final settlement.

Realisation Account Entries — Application MCQs

The Realisation Account is the heart of dissolution accounting. All assets except cash/bank are transferred to its debit side at book value. Liabilities and provisions are transferred to its credit side. When assets are sold, cash received is credited to Realisation Account. Payments to creditors and dissolution expenses are debited. The balancing figure represents profit (credit balance) or loss (debit balance) on realisation, which is then transferred to partners' capital accounts in the profit-sharing ratio. These application-based MCQs involve calculating realisation profit/loss, identifying correct journal entries, and understanding the treatment of specific items like goodwill, investments, and partner's loan.
  • Q5. Firm's machinery (book value ₹1,00,000) is sold for ₹1,20,000. The entry in Realisation Account is: (A) Debit ₹1,20,000 (B) Credit ₹1,20,000 (C) Debit ₹1,00,000, Credit ₹1,20,000 (D) Credit ₹1,00,000 | Answer: (C) | Reason: Book value debited initially; cash realised credited on sale, yielding ₹20,000 profit.
  • Q6. Creditors ₹40,000 are paid ₹38,000 in full settlement. Realisation Account is: (A) Debited ₹40,000, Credited ₹38,000 (B) Debited ₹38,000 (C) Credited ₹40,000, Debited ₹38,000 (D) Debited ₹2,000 | Answer: (C) | Reason: Liability credited at book value ₹40,000; payment debited ₹38,000; ₹2,000 is gain.
  • Q7. Realisation expenses ₹5,000 paid by partner A (to be borne by the firm) are recorded as: (A) Debit Realisation A/c ₹5,000; Credit A's Capital ₹5,000 (B) Debit A's Capital ₹5,000; Credit Cash ₹5,000 (C) Debit Realisation A/c; Credit Cash ₹5,000 (D) No entry | Answer: (A) | Reason: Realisation A/c debited; A's Capital credited because A paid on behalf of the firm.
  • Q8. A partner takes over firm's car (book value ₹2,00,000) at ₹1,80,000. Realisation Account is: (A) Debited ₹2,00,000; Partner's Capital debited ₹1,80,000 (B) Credited ₹1,80,000 (C) Debited ₹2,00,000; Credited ₹1,80,000 (D) No entry in Realisation A/c | Answer: (C) | Reason: Asset transferred at book value on debit; partner charged at agreed value ₹1,80,000 on credit.

Treatment of Liabilities and Unrecorded Items — Numerical MCQs

On dissolution, all recorded liabilities (creditors, bills payable, bank loan) are transferred to the credit of Realisation Account. If they are settled at a discount, the difference is a gain; if at a premium or additional claim, it is a loss. Unrecorded liabilities are directly debited to Realisation Account when paid. Unrecorded assets are credited to Realisation Account when discovered or sold. Partner's loan, however, is not transferred to Realisation Account — it is paid directly from the Cash/Bank Account after realisation profit/loss is distributed. These MCQs test whether you can correctly classify and record various items during dissolution.
  • Q9. Partner's Loan Account on dissolution is: (A) Transferred to Realisation Account debit (B) Transferred to Realisation Account credit (C) Paid from Cash/Bank after realisation (D) Adjusted against partner's capital | Answer: (C) | Reason: Partner's loan is an external liability paid separately, not through Realisation Account.
  • Q10. An unrecorded liability of ₹10,000 is discovered and paid. The entry is: (A) Debit Realisation A/c ₹10,000; Credit Cash ₹10,000 (B) Debit Creditors ₹10,000; Credit Cash (C) Debit Cash; Credit Realisation (D) No entry | Answer: (A) | Reason: Unrecorded liability is debited to Realisation A/c when paid.
  • Q11. Provision for doubtful debts ₹5,000 appears in the balance sheet. On dissolution it is: (A) Ignored (B) Credited to Realisation Account (C) Debited to Realisation Account (D) Transferred to Partners' Capital | Answer: (B) | Reason: Provision is a liability/reserve, credited to Realisation Account along with other liabilities.
  • Q12. Investment costing ₹50,000 is taken over by a partner at ₹55,000. Realisation Account is: (A) Debited ₹50,000; Credited ₹55,000 (B) Debited ₹55,000 (C) Credited ₹50,000 (D) Not affected | Answer: (A) | Reason: Book value debited; agreed takeover value credited, yielding ₹5,000 gain.

Distribution of Realisation Profit or Loss — Calculation MCQs

After all assets are realised and liabilities settled, the Realisation Account shows a balancing figure. A credit balance means profit on realisation; a debit balance means loss. This profit or loss is shared by all partners in their agreed profit-sharing ratio at the time of dissolution (which may differ from the old ratio if the deed was amended). The entry is: debit Realisation Account and credit each partner's capital account with their share of profit, or vice versa for loss. These MCQs require you to compute the profit/loss and determine each partner's share accurately.
  • Q13. Realisation Account shows a credit balance of ₹60,000. Partners A, B, C share profits 3:2:1. A's share of profit is: (A) ₹20,000 (B) ₹30,000 (C) ₹10,000 (D) ₹60,000 | Answer: (B) | Reason: A's share = 60,000 × 3/6 = ₹30,000.
  • Q14. If Realisation Account has a debit balance of ₹24,000 and partners share losses equally, each partner's capital is: (A) Credited ₹8,000 (B) Debited ₹8,000 (C) Credited ₹12,000 (D) Debited ₹24,000 | Answer: (B) | Reason: Debit balance is loss; each partner's capital debited ₹24,000/3 = ₹8,000.
  • Q15. Realisation expenses were ₹12,000, borne by partner X. If realisation profit is ₹36,000 (before expenses), net profit distributed is: (A) ₹36,000 (B) ₹24,000 (C) ₹48,000 (D) ₹12,000 | Answer: (B) | Reason: Net profit = 36,000 − 12,000 = ₹24,000 shared among all partners.

Settlement of Partners' Accounts — Final Payment MCQs

After realisation profit/loss is transferred, each partner's capital account is settled. If a partner's capital account shows a credit balance, the firm pays that amount in cash. If it shows a debit balance (deficiency), the partner must bring in cash. The order of payment is: first external liabilities (including partner's loan if any), then partners' capital. Any amount due to a partner cannot be adjusted against their loan unless specified in the partnership deed. These MCQs test your grasp of the sequence and legal priority of payments on dissolution, a favourite area for CBSE examiners.
  • Q16. On dissolution, the order of payment from available cash is: (A) Partners' Capital, then Creditors (B) Partner's Loan, then Partners' Capital (C) Creditors, Partner's Loan, then Partners' Capital (D) Partners' Capital, Creditors, Partner's Loan | Answer: (C) | Reason: External liabilities (creditors) are paid first, then partner's loan, finally capital.
  • Q17. Partner A's capital shows a debit balance of ₹20,000 after realisation loss. A must: (A) Receive ₹20,000 from the firm (B) Pay ₹20,000 to the firm (C) Adjust it against firm's assets (D) Ignore it | Answer: (B) | Reason: Debit balance means partner owes the firm; A brings in cash.
  • Q18. Partner's Loan ₹50,000 and Partner's Capital (credit) ₹30,000. Total cash available ₹60,000. Partner will receive: (A) ₹80,000 (B) ₹60,000 (C) ₹50,000 first, ₹10,000 later (D) ₹30,000 only | Answer: (C) | Reason: Loan ₹50,000 paid in full first; remaining ₹10,000 toward capital ₹30,000; shortfall of ₹20,000.
  • Q19. If cash available is less than total dues to partners, the deficiency is borne by partners in: (A) Profit-sharing ratio (B) Capital ratio (C) Equal ratio (D) As per deed or capital ratio if silent | Answer: (D) | Reason: Garner vs. Murray rule applies in England; Indian Partnership Act allows deed or capital ratio.

Assertion-Reason and HOTS MCQs

CBSE now includes assertion-reason MCQs in every chapter. You are given two statements: Assertion (A) and Reason (R). You must decide if both are true and whether R correctly explains A. These questions demand conceptual clarity, not just formula recall. HOTS (Higher Order Thinking Skills) MCQs ask you to apply knowledge in new scenarios, such as identifying errors in journal entries, choosing between alternative treatments, or analysing a mini case. Practising such MCQs builds exam confidence and ensures you do not lose marks on tricky, high-value questions in the CBSE paper.
  • Q20. Assertion (A): Cash and Bank balances are not transferred to Realisation Account. Reason (R): They are already in liquid form. (A) Both A and R true; R explains A (B) Both true; R does not explain A (C) A true, R false (D) A false, R true | Answer: (A) | Reason: Cash/Bank are liquid, hence not realised again; R correctly explains A.
  • Q21. Assertion (A): Unrecorded liability is debited to Realisation Account when paid. Reason (R): It was not in books, so it increases realisation loss. (A) Both true; R explains A (B) Both true; R does not explain A (C) A true, R false (D) A false | Answer: (A) | Reason: Unrecorded liability payment is an additional outflow recorded in Realisation A/c, reducing profit or increasing loss.
  • Q22. Assertion (A): Partner's loan is paid before partners' capital. Reason (R): Loan is an external liability to the firm. (A) Both true; R explains A (B) Both true; R does not explain A (C) A true, R false (D) A false | Answer: (A) | Reason: Legally, a partner's loan ranks with external creditors and is paid before distributing surplus to capital accounts.
  • Q23. A firm's goodwill appears at ₹50,000 in books. On dissolution, no buyer is found. The correct treatment is: (A) Debit Realisation ₹50,000 (B) Credit Realisation ₹50,000 (C) Write off to Partners' Capital directly (D) Ignore | Answer: (A) | Reason: Goodwill is an intangible asset debited to Realisation A/c; if not sold, it becomes a loss.

Common Mistakes Students Make in Dissolution MCQs

Many students confuse dissolution of partnership with dissolution of the firm, mixing up reconstitution entries (Revaluation Account) with realisation entries. Another frequent error is transferring cash/bank to Realisation Account or forgetting to credit unrecorded assets. Students often debit partners' capital directly for liabilities instead of routing them through Realisation Account. In assertion-reason questions, choosing option (B) — both true but R does not explain A — is tricky; read both statements twice. Lastly, profit-sharing ratio and capital ratio are different; always use profit-sharing ratio for realisation gain/loss unless the question specifies otherwise. Avoiding these pitfalls can save 2-3 marks per paper.
  • Never transfer Cash or Bank Account balance to Realisation Account — they remain separate till final settlement.
  • Unrecorded assets are credited to Realisation Account, not debited; unrecorded liabilities are debited when paid.
  • Partner's loan is not a realisation item; it appears separately and is paid after liabilities but before capital.
  • Read assertion-reason options carefully: (A) both true and R explains A, (B) both true but R does not explain A, (C) A true R false, (D) A false R true.
  • Always use the profit-sharing ratio at the time of dissolution for distributing realisation profit/loss, not the old or new ratio unless specified.

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How to Attempt MCQs in the CBSE Accountancy Paper — Strategy Tips

The CBSE Class 12 Accountancy paper typically includes 20 MCQs of 1 mark each in Section A. These cover all chapters, so expect 2-3 MCQs from Dissolution of Partnership Firm. Read every option before marking your answer; often options (C) and (D) are designed to confuse. In assertion-reason questions, evaluate the assertion first: if it is false, the answer is (D) regardless of the reason. For numerical MCQs, do not spend more than 60-90 seconds per question; if stuck, mark a sensible guess and move on — there is no negative marking. Eliminate clearly wrong options to improve your odds. Finally, if time permits, revisit flagged questions at the end; often a second read reveals the correct answer. Consistent practice of 15-20 MCQs per chapter in the last two months before boards can boost your Section A score by 4-5 marks.
  • Allocate 20-25 minutes maximum for all 20 MCQs; aim for 60-90 seconds per question.
  • Read the question stem carefully — words like 'not,' 'except,' or 'always' change the meaning entirely.
  • In assertion-reason MCQs, first check if the assertion is true; if false, answer is (D) — saves time.
  • For calculation-based MCQs, quickly jot key figures in the margin; mental math can lead to errors under exam pressure.
  • Eliminate two obviously wrong options first, then choose between the remaining two — improves accuracy to ~75% even on tough questions.
  • Do not change your first answer unless you are certain; statistically, first instincts are correct more often.
  • If unsure, mark a guess and flag the question number; revisit only if time remains after completing the full paper.

Frequently asked questions

How many MCQs on Dissolution of Partnership Firm appear in the CBSE Class 12 Accountancy board exam?+
Typically 2-3 MCQs out of the 20 one-mark questions in Section A cover this chapter, based on recent CBSE papers. Focus on Realisation Account entries, treatment of unrecorded items, and profit/loss distribution.
Is there negative marking for wrong MCQ answers in CBSE Class 12 Accountancy?+
No, CBSE does not deduct marks for incorrect MCQ answers in Class 12 Accountancy. So if you are unsure, make an educated guess rather than leaving it blank.
What is the difference between dissolution of partnership and dissolution of the firm?+
Dissolution of partnership means change in the existing relationship (retirement, admission, death) but the firm continues. Dissolution of the firm means complete closure — all assets sold, liabilities paid, and business wound up permanently.
Do we transfer Cash and Bank balances to the Realisation Account?+
No. Cash and Bank are already liquid assets and remain in their respective accounts. Only non-cash assets (furniture, stock, debtors, investments) are transferred to Realisation Account at book value.
How is profit or loss on realisation distributed among partners?+
The balancing figure in the Realisation Account (credit = profit, debit = loss) is transferred to partners' capital accounts in their profit-sharing ratio at the time of dissolution, as per the partnership deed.
What is the treatment of unrecorded assets and liabilities on dissolution?+
Unrecorded assets, when realised, are credited to Realisation Account. Unrecorded liabilities, when paid, are debited to Realisation Account. Both affect the realisation profit or loss directly.
Is partner's loan treated the same as creditors on dissolution?+
Partner's loan is legally an external liability and is paid before partners' capital. However, it is not transferred to Realisation Account — it is paid directly from Cash/Bank after creditors are settled.
Can a partner take over an asset at a value different from book value?+
Yes. The asset is debited to Realisation Account at book value. The agreed takeover value is credited to Realisation Account and debited to that partner's capital account. The difference contributes to realisation profit or loss.
What happens if a partner's capital account shows a debit balance after realisation?+
A debit balance means the partner owes money to the firm. That partner must bring in cash to clear the deficiency. If unable, the deficiency is borne by other solvent partners as per Garner vs. Murray or the deed.
How should I prepare for assertion-reason MCQs in this chapter?+
Understand the 'why' behind every entry. For example, know why cash is not transferred to Realisation Account (already liquid) and why partner's loan is paid before capital (external liability). Read both statements independently, then check if R explains A.
Are realisation expenses always borne by the firm?+
Usually yes, unless the partnership deed states otherwise. If a partner pays realisation expenses on behalf of the firm, debit Realisation Account and credit that partner's capital. If the partner is to bear it personally, debit their capital directly.
Which mobile app or platform is best for practising Class 12 Accountancy MCQs at home?+
CBSETUTOR.ai is highly rated by students and parents. It offers unlimited MCQ practice, instant photo-based doubt solving, and chapter-wise mock tests for ₹999/month across classes 6-12, with a 3-day free trial to explore all features.

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