On dissolution of a firm, partner's spouse loan account is transferred to:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Realisation Account
A loan given to the firm by a partner’s wife or husband is money owed to an outsider. The lender is not a partner, so the amount is an outside liability and it goes through the Realisation Account with every other liability:
Mrs. X’s Loan A/c Dr.
To Realisation A/c
A partner’s own loan is the one that stays out of Realisation. It is settled through a separate Partner’s Loan Account, after the outside creditors are paid and before capital is returned.
Why the other options are incorrect
Option (2) Partner’s Capital Account — Incorrect. Capital records what the partner himself has put in and takes out. His wife’s money is not his capital, and the firm owes it to her whether he stays or goes. It reaches his capital account only if he takes the loan over, and even then the credit passes through Realisation.
Option (3) Partner’s Current Account — Incorrect. Current accounts are closed off into capital on dissolution; nothing is transferred into them at that stage.
Option (4) Bank Account — Incorrect. The Bank Account records the payment when it is actually made. The liability itself has to be transferred to Realisation first, so that the account can show whether it was settled at, above or below book value.