On dissolution of a partnership firm, the bills payable is transferred to :

Realisation account

The correct answer is option 2- Realisation account.

On dissolution of a partnership firm, the bills payable is transferred to Realisation account as bills payable is an outsider liability.

On dissolution of a partnership firm, all assets (except cash/bank) and liabilities (including Bills Payable) are transferred to the Realisation Account. This is done to calculate profit or loss on realization of assets and settlement of liabilities. Later, liabilities like Bills Payable are paid off through Cash/Bank Account, but initially, they are recorded in the Realisation Account.