Question Details

The entry for realisation expenses in above case study will be:

Options

A

Realisation A/c Dr.
To Cash A/c

B

Realisation A/c Dr.
To G’s Capital A/c

C

G’s Capital A/c Dr.
To Realisation A/c

D

Cash A/c Dr.
To Realisation A/c

Show Answer

Correct Answer :

Option B

Realisation A/c Dr.
To G’s Capital A/c

Solution :

The correct option/answer is:Realisation A/c Dr. To G’s Capital A/c.

Explanation:

In the dissolution of a partnership firm, realisation expenses are the costs incurred during the process of winding up the firm's affairs and realising its assets. The accounting treatment for realisation expenses depends on who is responsible for paying them and who actually pays them.

When realisation expenses are paid by a partner (in this case, partner G) on behalf of the firm, or when the firm agrees to reimburse the partner or credit their capital account for undertaking the realisation work/expenses, the firm's liability to that partner increases. Therefore:

1. Realisation Account is debited: Realisation Account is a nominal account. All expenses and losses incurred during dissolution are debited to the Realisation Account. Hence, Realisation A/c is debited.
2. Partner's Capital Account is credited: Since the partner (G) is paying the expenses or has been given the responsibility (meaning the firm owes this amount to G), G's Capital Account is credited to increase their capital balance.

Thus, the appropriate journal entry is:
Realisation A/c Dr.
To G’s Capital A/c

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