Accountancy Part ADissolution of Partnership Firm

On dissolution of a firm of A and B, Mrs. A's loan will be transferre…

On dissolution of a firm of A and B, Mrs. A's loan will be transferred to:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Realisation A/c

Mrs. A is not a partner: her loan is an outside (external) liability of the firm. On dissolution all external liabilities are closed by transferring them to the credit of the Realisation Account, and their payment is then debited to it.

Option (1) Cash A/c — Incorrect. Cash Account records only the payment of the loan, after it has been transferred.

Option (2) Bank A/c — Incorrect. Like cash, the bank account is used to pay the liability, not to close it.

Option (4) A’s Capital A/c — Incorrect. Only a liability that A himself takes over is taken to his capital account; a loan from his wife is a debt to an outsider.

NCERT (2026-27 edition):
Accounting Treatment – “When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, a 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. Hence, all assets (other than cash in hand bank balance and fictitious assets, if any), and all external liabilities are transferred to this account.”