In case of dissolution of firm, the bank overdraft is transferred to:

Realisation account

The correct answer is option 3- Realisation account.

In case of dissolution of firm, the bank overdraft is transferred to Realisation account.

The Realization Account is created to close the books of account and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. 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. Bank overdraft is a third party liability which is transferred to realisation account like other liability related to third party. The amount realized from assets along with contribution from partners, if required, shall be utilized first to pay off the outside liabilities of the firm such as creditors, loans, bank overdraft, bill payables, etc.