Question

When business of partnership is sold to a new firm, the liabilities not taken over by the new firm should be:

• A. Debited to the capital accounts of the partner's.
• B. Credited to the capital accounts of the partner's.
• C. Debited to realisation account.
• D. Valued at Nil value.

Answer 1

Answer: (B)

Credited to the capital accounts of the partner's.

When liabilities are not taken over by the new firm, two situations are:

1. If liabilities are paid, debited to realisation account. Following entry will be passed:
Realisation A/c Dr.
To Bank A/c
2. If liabilities are taken over by partner then realisation account debited and partner's capital account is credited. Following entry will be passed:
Realisation A/c Dr.
To Partner's Capital A/c