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 are usually paid out of the Realisation Account when borne by the firm. 

2. However, if a partner is responsible for the realisation expenses and the firm pays on their behalf, then these expenses are debited to the Partner’s Capital Account, reducing their capital balance. 

3. This ensures that the burden of expenses remains with the designated partner instead of affecting the firm’s accounts. 

Thus, the correct answer is (B) Partner’s Capital Account.