In case of dissolution, bad debts recovered should be:

Credited to Realisation Account

The correct answer is Option (4) → Credited to Realisation Account.

The bad debts recovered should be Credited to Realisation Account.

In the case of a dissolution of a partnership firm, if bad debts are recovered, the recovery is treated as a gain. The amount recovered would be credited to the Realisation Account. This is because the Realisation Account reflects all the assets and liabilities during the process of dissolution, and any recovery of previously written-off debts represents an inflow, which is a gain for the firm. Thus, the correct treatment is Credited to Realisation Account.