Explore topic-wise InterviewSolutions in Current Affairs.

These are the routine and recurring activities of a business, i.e. activities related to core operations of the business. They reflect the result of net cash flow (used or generated) of the company’s normal business operations. All the inflows, such as receipt from sale of goods/services etc and outflows, such as payment to suppliers, form part of operating activities, and the net result depicts whether the business is operating efficiently or not.

Fixed Assets = Rs 50000 (Given)

Total Assets = Rs. 150000 (Given)

Fixed Assets to Total Assets = Fixed Assets/Total Assets x 100

= 50000150000 × 100

= 33.33 %

It is a statement that reflects the items of the Balance Sheet as a percentage of some common bases (total assets or total liabilities). It helps in easy analysis of performance during various years (intra-firm comparison) or between different companies (inter-firm comparison).

While preparing common size statements net sales is taken as base for profit and loss ‘ statements and total of balance sheet is taken as base for balance sheet.

(d) Standard costing

i. Common Size Balance Sheet

ii. Investing Activity

iii. Gross Profit Ratio

iv. Net Profit Ratio

v. Operating Profit Ratio

vi. Return On Investment (ROI)

Common size balance sheet

Explanation: In a common-size balance sheet, the individual items (both assets and liabilities) are expressed as a percentage of some common aggregate.

False

Explanation: Change in profit sharing ratio among the existing partners, admission of a new partner, retirement or death of a partner, result in dissolution of partnership. In such instances, the existing partnership deed gets dissolved and it is replaced by a new partnership deed. However, the partnership firm continues to operate. On the other hand, in case of dissolution of a partnership firm, the whole firm is put to an end (along with the partnership deed).

Therefore, it is incorrect to say that a firm dissolves on the retirement of a partner.

The dividend is paid by different modes of payment like cash, cheque, or warrant or by electronic mode. It can also be paid by using the Dividend Mandate. If the shareholder wishes to get dividend credited directly in the Bank Account he is required to send a request in a prescribed form which is called ‘Dividend Mandate’. The dividend Mandate authorizes the company to pay dividends directly to shareholders’ bankers.

This statement is False.

On the retirement of a partner, if the partnership agreement allows, then the remaining partner can continue the business activities. It means the firm is not to dissolve.

This statement is True.

As the 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.

Profit is the financial gain from business activity minus expenses. Profit is the income remaining after deducting total costs from total revenue. It is also called financial gain. Profit is the difference between revenues and expenses for a given period. It is the tool for measuring the success of the business. Without profit, the company cannot survive in the market.

Correct option: (c) Dividend

(a) Intimate Stock Exchange of Board Meeting 

(b) Intimate Stock Exchange of declaration of dividend 

(c) Closure of Register of Members

a. Realisation Account

The expenses incurred by the firm to realise the assets and to liquidate the liabilities of the firm on its dissolution are called realisation or dissolution expenses.

Correct option: (b) Interest

(a) Transfer to Dividend Account 

(b) Transfer to Unpaid Dividend Account 

(c) Transfer to IEPF

(a) Authorization of Articles of Association 

(b) Board meeting deciding and declaring Interim Dividend 

(c) Payment of Interim Dividend

(a) Decision on Rate of Dividend 

(b) Payment of Dividend 

(c) Transfer to IEPF

Realisation Account is debited on payment of dissolution expenses.

(a) Checking sufficiency of profits 

(b) Board Meeting 

(c) Recommendation of Dividend

Correct option: (b) Interest

Correct option: (a) Central Government

1. The dividend is paid to shareholders.

2. Interest is paid to creditors.

3. Interim Dividend is paid between two AGM.

4. An ordinary resolution must be passed to declare the Final Dividend.

5. The dividend must be paid within 30 days of its declaration.

6. The Dividend to be paid should be transferred to Dividend A/c within 5 days of its declaration

7. Interest is an obligation to be paid by a company every year.

8. Equity shareholders are given the last priority in the payment of dividends.

9. Equity shareholders get dividends from residual profits.

10. Interest is payable every year irrespective of profits made by the company.

1. Dividendum

2. registered shareholders

3. Board of Directors

4. cash

5. Annual General Meeting

6. capital

7. Board of Directors

8. preference shareholder

9. 30 days

10. Articles of Association

11. Interest

Correct option: (a) Dividend

• The dividend is the portion of profits of the company paid to its shareholders.
• It is payable out of profits of the company.
• Dividend can be paid out of capital profits on fulfilling these conditions.
• Capital Profits are realized in cash.
• Articles of Association of the company permit such a distribution.
• It remains as profits after revaluation of all assets and liabilities.
• Thus, it is rightly justified that dividend is paid out of profits of the company.

No. The profit or loss on revaluation should be . transformed to old partners capital account in old profit sharing ratio.

Total capital of violet and Indigo = 45000 + 35000 = 80000

Total required capital = 80000 \(\times \frac{10}{8} = 1,00,000\)

Blue's capital = 100000 \(\times \frac{2}{10} = 20,000\)

Violet's new capital = 100000 \(\times \frac{5}{10}\) = 50,000

Indigo's new capital = 100000 \(\times \frac{3}{10} = 30,000\)

Violet has a shortage = 50000 - 45000 = 5000

indigo has a surplus = 35000 - 300000 = 5000

Capital contributed by violet

cash A/c   Dr.      5,000

     To violet's capital     5000

Surplus amount of capital withdrawn by indigo

indigo capital A/c   Dr.   5,000

      To cash a/c                5000

Correct option: (b) Preference

This statement is True.

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 come to an end.

i) General reserve a/c Dr 24,000 

P’s capital a/c Q’s capital a/c 

ii) P’s capital a/c Dr 3000 

Q’s capital a/c Dr 3000 To P/L a/c

True

Explanation: Dissolution takes place when the business relation among the existing partners comes to an end. This can be done either voluntarily or compulsorily, as per the order of the court of justice.

False

Explanation: The amount of bank overdraft is not transferred to Realisation Account; instead, it is shown on the credit side of Bank Account.

(c) Realisation account

False

Explanation: Partner’s loan is transferred to a separate account known as Partner’s Loan Account. This is because partner’s loan is not an external (outside) liability. Its payment can be made only after the settlement of external liabilities.

This statement is False.

Liability of the firm which is not yet recorded in the book of accounts is called unrecorded liability. At the time of dissolution unrecorded liability is supposed to be paid though it is not shown in the Balance Sheet.

The circumstances of compulsory dissolution are :

1. If all the partners or except one of all the partners are declared insolvent,
2. If the partner dies or becomes of unsound mind,
3. When a partner willfully and persistently breaches the partnership agreement.

When any partner file a suit for dissolution of a firm on any of the following circumstances and the court orders to dissolve the firm :

• When any partner become insolvent.
• When any partner becomes of unsound mind.
• When a partner willfully and persistently breaches the partnership agreement.
• When a partner undertakes misconduct against partnership firm or against business of firm.
• When a partner becomes permanently incapable of performing his duties as a partner.
• When a firm continuously incurs losses and is unable to run a business due to loss.
• When a partner transfers his whole interest in the partnership to a third party without the consent of other partners.
• When the court finds any other ground to be just and equitable for the dissolution of the firm.

1. True, 

2. False

According to Indian Partnership Act, the loss arised including capital deficit at the time of dissolution is executed in the following manner:

(a) First of all it will be written off from the profit of the firm.

(b) If profit is not sufficient, then it will be paid from the capital of the partners.

(c) If capital is not sufficient, then all partners would distribute this loss in their profit-loss sharing ratio and pay from their personal assets as per requirement.

This statement is True.

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 a third party Liability.

This statement is False.

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 Realisation Account. Partner’s Loan A/c is separately opened and paid accordingly.

During dissolution, first of all dissolution expense are paid, there after all third party liabilities are paid. If any amount remains after that, then partners loan is repaid. If there is more than one partners loan and the amount is not sufficient to repay all completely then they are repaid on the pro rate basis of their loan amount.

Following are the accounting treatments for goodwill of different circumstances when firm goes for dissolution :

(1) If the value of goodwill will be shown in the balance sheet then like other assets, goodwill will be shown as debit side of Realisation Account.

(2) Amount realised from the sale of goodwill will be shown on credit side of Realisation Account.

(3) If no information regarding realisation of goodwill is given then it is to be understood that nothing is realised.

(4) At the time of dissolution of firm, if goodwill is not shown in the books of account, hence amount realised • then it will be treated as profit and credited to Realisation Account.

(5) When any partner purchase whole business (including goodwill) then

(i) Capital account of business purchase partner is debited by amount of goodwill and

(ii) Realisation account is credited by amount of goodwill.

There are two method for dissolution of partnership firm :

(I) Normal Dissolution

(II) Dissolution by the court.

(I) Normal Dissolution/Dissolution without interference of Court :

It is as under :

(i) By agreement: When all partners agree to dissolve the firm, partnership firm can be dissolved at any point of time. It is voluntary dissolution.

(ii) Dissolution on happenings of certain contingencies :

(a) If arrangement for a fixed term, by the expiry of that term.
(b) If arrangement to carry out specific aim, by the completion thereof.

(iii) Dissolution by notice : Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

(iv) Dissolution as per act : In the following conditions compulsory dissolution is taken place by the act.

(a) When all the partners of the firm become insolvent, or except one, all partners become insolvent.

(b) When business of firm becomes illegal, this also brings dissolution of a partnership firm. E.g. If a firm doing business of Tobacco and government put restriction through law on this business, then this business automatically become illegal and dissolve.

(c) When any partner becomes mental weak or due to his death. Partnership is going to end and firm dissolve.

(v) Dissolution as per contract: Dissolution of a partnership firm can be done on the basis of predetermined contract between the partners.

If partners capital amount is not sufficient to cover up the losses during dissolution of firm, then the amount of loss has to be brought by partners from their personal assets in their profit-loss sharing ratio.

Correct option is (A) Sjimple Dissolution