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Question
When there is loss on realisation, ________ A/c is debited.
When there is loss on realisation, ________ A/c is debited.
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Solution
The correct option is B Partner's capital (individually)
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 of realisation of assets and payment of liabilities which may be transferred to partner's capital accounts in their profit sharing ratio. Hence, all assets and all external liabilities are transferred to this account. It also records the sale of assets, and payment of liabilities and realisation expenses. The balance in this account is termed as profit and loss on realisation which is transferred to partner's capital account .
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 of realisation of assets and payment of liabilities which may be transferred to partner's capital accounts in their profit sharing ratio. Hence, all assets and all external liabilities are transferred to this account. It also records the sale of assets, and payment of liabilities and realisation expenses. The balance in this account is termed as profit and loss on realisation which is transferred to partner's capital account .
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