Dissolution of Firm means:
A. Assets are revalued and liabilities are reassessed. New balance sheet is drawn
B. Economic relationships between partners come to an end
C. The business of the firm is closed/terminated
D. The business is not closed/terminated
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → B and C only
Dissolution of the firm ends the business altogether. Dissolution of partnership only ends the old agreement among the partners, while the business carries on under a new one.
A. Assets are revalued and liabilities are reassessed. New balance sheet is drawn Incorrect. This happens on dissolution of partnership, when the business continues. On dissolution of the firm the assets are sold and the liabilities paid off.
B. Economic relationships between partners come to an end Correct. Once the firm is closed, nothing remains to tie the partners together in business.
C. The business of the firm is closed/terminated Correct. This is the very meaning of dissolution of the firm: the business stops.
D. The business is not closed/terminated Incorrect. A business that goes on describes dissolution of partnership, not of the firm.
NCERT (2026-27 edition):
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