In case of dissolution of partnership firm, any liability assumed/paid by a partner is shown on ........?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Debit of Realisation Account
In the case of the dissolution of a partnership firm, all assets and external liabilities are first transferred to the Realisation Account. When a partner assumes or pays an external liability, the following happens:
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The liability is settled, which is considered a loss or a reduction in the firm's obligations in the dissolution process. This reduction is recorded on the Debit side of the Realisation Account (which records expenses and losses on the realization process).
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Since the payment is made by the partner (or the partner has agreed to assume it), the partner's capital account must be credited to reimburse them later.
Realisation A/c Dr.
To Partner’s Capital A/c Cr.