State whether the following statement is True or False with reason.
1) The firm must be dissolved on the retirement of a partner.
On the retirement of a partner, if partnership agreement allows, then the remaining partner can continue the business activities. It means firm is not to dissolve.
2) On dissolution Cash/Bank Account is closed automatically.
Ans: – True.
As firm is dissolved, there is no question of any business activities to be carried out further and so Cash/Bank Account is also not necessary. Therefore on dissolution Cash/Bank Account is closed automatically.
3) On dissolution, Bank Overdraft is transferred to Realisation Account.
As a sundry liability of the business, bank overdraft is a liability of a firm and hence, it is transferred to realisation Account at the time of dissolution and paid as third party Liability.
4) A solvent partner having debit balance to his Capital Account does not share the deficiency of insolvent partner Capital Account.
In the partnership, the partner’s liability is unlimited so, a solvent partner having the debit balance to his Capital Account should share the deficiency of insolvent partner capital account.
5) At the time of the dissolution of partnership, all assets should be transferred to Realisation Account.
At the time of the dissolution of the partnership, a cash account and Bank A/c are not transferred to realization A/c. Similarly, if an asset is taken over by a partner or by any creditor then that asset is transferred to the concerned person’s account and not to the realization Account.
6) The debit balance of insolvent partner’s Capital Account is known as a capital deficiency.
Debit balance of Partners’ Capital Account means an excess of drawings than the capital credit balance. In the case of an insolvent partner, the debit balance of Capital Account means liabilities which he cannot pay. It means capital deficiency.
7) At the time of dissolution, a loan from the partner will be transferred to Realisation Account.
At the time of dissolution, a loan from a partner will be paid after the payment of liabilities of third parties to the firm. It is not transferred to a realisation Account. Partner’s Loan A/c is separately opened and paid accordingly.
8) Dissolution takes place when the relation among the partner’s comes to an end.
As per definition, Dissolution means to wind up or to close down, and it is possible only when relations among the partners in a partnership firm comes to an end.
9) The insolvency loss at the time of dissolution of the firm is shared by the solvent partners in their profit sharing ratio.
Reason: In the partnership, partners’ liability is unlimited and in case of insolvency loss, legally solvent partners are ultimately liable and are suppose to bear the loss of an insolvent partner in their profit sharing ratio.
10) Realisation Loss is not transferred to the insolvent partner’s capital account.
All partners of the firm are responsible for Loss on realisation and hence loss on realisation is supposed to be transferred to all Partners’ Capital Account, without any discrimination of solvent or insolvent.