Question

On dissolution of a partnership firm, if realisation expenses are paid by the firm on behalf of a partner, then such expenses are debited to which of the following account:

• A. Realisation Account
• B. Partner’s Capital Account
• C. Partner’s Loan Account
• D. Bank Account

Hint:

If a partner agrees to bear realisation expenses but the firm pays them instead, the amount is debited to the partner’s capital account.

Answer 1

The Correct Option is B

1. Realisation expenses, when incurred by the firm, are typically settled from the Realisation Account.

2. When the firm disburses realisation expenses on behalf of a specific partner, these costs are charged to that partner's Capital Account, thereby decreasing their capital.

3. This accounting treatment assigns the responsibility for the expenses to the individual partner, preventing any impact on the firm's overall financial statements.

Consequently, the appropriate account for such expenses is the Partner’s Capital Account, making option (B) correct.