10 Questions
Dissolution of a partnership refers to the change in the relation of the partners caused by any partner ceasing to be associated in the carrying out of the business.
True
The admission of a new partner into an existing partnership automatically dissolves the partnership.
False
Adjustments in the partnership books are not necessary when a new partner is admitted into the existing partnership.
False
Revaluation of assets and recognition of liabilities are part of the adjustments made in the partnership books when a new partner is admitted.
True
Dissolution by change in ownership structure covers events like the retirement or withdrawal of a partner.
True
Incorporation of a partnership is an event that triggers dissolution with liquidation.
False
Death, bankruptcy, or incapacity of a partner are events that fall under dissolution by change in ownership structure.
True
When a new partner is admitted, the previous articles of co-partnership executed by the existing partners are automatically voided.
True
Liquidation process in a partnership involves distributing assets to partners and settling liabilities.
True
Withdrawal of a partner from a partnership does not impact the dissolution process.
False
Study Notes
Partnership Dissolution and Liquidation
- A partner's withdrawal or retirement can be done in three ways:
- Selling interest to a new partner (Case 1)
- Selling interest equally to remaining partners (Case 2)
- Selling interest to the partnership at book value (Case 3)
Effects on Partners' Capital Accounts
- Before and after withdrawal/admission, the total contributed capital of the partnership remains the same
- Partners' capital accounts are adjusted accordingly based on their interest in the partnership
Death, Bankruptcy, or Incapacity of a Partner
- If a partner dies, becomes bankrupt, or becomes incapacitated within a year, all nominal accounts are closed on the date of the event
- The balance in the Income and Expense Summary account is closed to the drawing account of the affected partner
- The drawing account is then closed to the capital account
Partnership Dissolution
- Refers to the change in the relation of partners caused by a partner ceasing to be associated with the business
- Automatic dissolution of the existing partnership occurs when a new partner is admitted, requiring a new contract among all partners
Types of Partnership Dissolution
- Dissolution by change in ownership structure:
- Admission of a new partner
- Retirement or withdrawal of a partner
- Death, bankruptcy, or incapacity of a partner
- Incorporation of a partnership
- Dissolution with liquidation
Test your knowledge on partnership capital changes, including scenarios like admission and retirement of partners. Understand the impact of these transactions on the total contributed capital of a partnership.
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