On dissolution of firm, loss calculated in realisation account is debited/credited to which account?

Partner's Capital Accounts

The correct answer is option 1- Partner's Capital Accounts

On dissolution of firm, loss calculated in realisation account is debited to Partner's Capital account as it is a loss which reduces the capital balance of partners.

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 (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio. Hence, all assets (other than cash in hand bank balance and fictitious assets, if any), 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 or loss on realisation which is transferred to partners’ capital accounts in the profit sharing ratio

For transfer of profit and loss on realisation-

• (a) In case of profit on realisation (Cr. Balance) 
  Realisation A/c Dr.
         To Partners’ Capital A/c (individually) A/c

• (b) In case of loss on realisation (Dr. Balance) 
  Partners’ Capital A/c (individually) Dr.
         To Realisation A/c