In the case of a dissolution of a firm, accumulated losses are transferred to:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Capital Accounts in Profit Sharing Ratio
Accumulated losses (a debit balance of profit and loss account, for example) are losses the partners have already suffered. They are not assets to be sold, so they do not go to the realisation account; they are written off to the partners’ capital accounts in their profit sharing ratio, the ratio in which the partners share every loss.
Why the other options are incorrect
Option (1) Realisation Account in Equal Ratio — Incorrect. Wrong account and wrong ratio: the realisation account takes assets and outside liabilities only.
Option (2) Realisation Account in Profit Sharing Ratio — Incorrect. The ratio is right but the account is not; a loss already suffered is not realised again.
Option (3) Capital Accounts in Equal Ratio — Incorrect. The account is right, but losses are shared equally only when there is no agreed ratio.
NCERT (2026-27 edition):
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