What are the circumstances under which a partnership may be dissolved?

A partnership may be dissolved due to expiry of term, completion of venture, death of a partner, or insolvency of a partner.

Fill in the blank: The first step in closing the books of accounts during a partnership dissolution involves transferring all assets to the ___ account.

Realization

Explain the consequences of a partner's insolvency in a partnership.

Insolvency affects partnership finances.

• Partners absorb capital deficits.

• Solvent partners bear losses.

• Impact on partnership stability.

True or False: A partnership firm is automatically dissolved when one partner becomes insolvent.

False. The firm continues unless there is an agreement stating otherwise.

What is the order of payment when liquidating the assets of a partnership?

Order of payment in liquidation

• Debts to third parties first.

• Then, advances to partners.

• Finally, distribute remaining surplus.

Riddle: I am a term that describes the end of a partnership agreement; I can happen due to mutual consent or legal order. What am I?

Dissolution of partnership

What is the significance of the Garner vs. Murray rule in partnership insolvency cases?

Garner vs. Murray impacts insolvency rules.

• Defines loss sharing among partners.

• Uses capital ratio, not profit-sharing.

• Ensures fair burden distribution.

Fill in the blank: If goodwill is recorded on the balance sheet at the time of dissolution, it is treated as a ___ asset.

Purchased

How should liabilities be treated when a partnership firm is dissolved?

Liabilities should be settled from the proceeds of asset realization, with any remaining amounts affecting the capital accounts of the partners.

Short Answer: What happens to the capital accounts of partners after the realization of assets?

Capital accounts adjust after realization.

• Reflect profits and losses.

• Distributed by profit-sharing ratio.

• Affects partner equity balances.

Multiple Choice: In what case can a court order the dissolution of a partnership? A) If partners mutually agree B) If one partner is declared of unsound mind C) If the firm is making profits D) If a new partner is admitted

B) If one partner is declared of unsound mind

What should be done if a new partner paid a premium but the partnership is dissolved before the agreed period?

The new partner may be entitled to a refund of the premium, unless the dissolution was due to their misconduct or an agreement states otherwise.

Fill in the blank: During the dissolution process, creditors are paid off at a ___ before the capital is distributed.

Discount

Riddle: I am a financial deficit that occurs when a partner cannot fulfill their debts. I must be covered by others in the group. What am I?

Capital account deficit due to insolvency

What are the key accounting steps required to close the books of accounts upon the dissolution of a partnership?

Key steps for closing accounts.

• Open Realization Account for assets.

• Record liabilities payment accurately.

• Distribute profit or loss to partners.