Which of the following are true in respect of Dissolution of a Partne…

Which of the following are true in respect of Dissolution of a Partnership firm?

(A) The Assets of the firm, shall be applied, firstly for paying the debts of the firms to the third parties.
(B) When the partner becomes insane, the partnership firm can be dissolved.
(C) The nature of Realisation Account is nominal Account.
(D) There is no difference in the treatment of Partner's Loan and his/her spouse loan.
(E) Realisation Profit/Loss is distributed in the Capital Ratio when the deed is silent.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (B) and (C) only

On dissolution the firm’s assets are first used for outside debts; a court can dissolve a firm on certain grounds; and the result of realisation is shared in the profit sharing ratio.

(A) The Assets of the firm, shall be applied, firstly for paying the debts of the firms to the third parties — True.
(B) When the partner becomes insane, the partnership firm can be dissolved — True. Insanity of a partner is a ground for dissolution by the court.
(C) The nature of Realisation Account is nominal Account — True. It records gains and losses on realisation, and its balance (profit or loss) is closed to the capital accounts.
(D) There is no difference in the treatment of Partner’s Loan and his/her spouse loan — False. A spouse’s loan is an outside debt paid with the third parties; a partner’s own loan is paid only after them.
(E) Realisation Profit/Loss is distributed in the Capital Ratio when the deed is silent — False. It is transferred in the profit sharing ratio.

NCERT (2026-27 edition):
Application of Assets – “The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) In paying the debts of the firm to the third parties; (ii) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner’ loan); …”

NCERT (2026-27 edition):
Dissolution by Court – “At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following grounds: (a) when a partner becomes insane; …”

NCERT (2026-27 edition):
Accounting Treatment – “When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, a Realisation Account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio.”