When realisation expenses are paid by the Partner on behalf of a Firm, which account will be credited:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Partner's Capital Account.
When realisation expenses are paid by the Partner on behalf of a Firm, Partner's Capital Account will be credited.
For payment of realisation expenses-
(a) When some expenses are incurred and paid by the firm in the process of realisation of assets and payment of liabilities:
Realisation A/c Dr. To Bank A/c
(b) When realisation expenses are paid by a partner on behalf of the firm:
Realisation A/c Dr. To Partner’s Capital A/c
(c) When a partner has agreed to bear the realisation expenses:
(i) if payment of realisation expenses is made by the firm Partner’s Capital A/c Dr. To Bank A/c
(ii) if the partner himself pays the realisation expenses, no entry is required.