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CA Foundation · Accounting · Partnership and LLP Accounts

At the time of dissolution of the firm of Arun and Bala (profit ratio 3:2), a loss on realisation of ₹50,000 is recorded. Which entry correctly transfers this loss to the partners?

The loss of ₹50,000 is shared 3:2, so Arun's capital is debited ₹30,000 and Bala's ₹20,000, with Realisation Account credited ₹50,000. A realisation loss reduces partners' capital in the profit-sharing ratio.

  1. AArun's Capital A/c Dr. 30,000; Bala's Capital A/c Dr. 20,000; To Realisation A/c 50,000Correct
  2. BArun's Capital A/c Dr. 25,000; Bala's Capital A/c Dr. 25,000; To Realisation A/c 50,000
  3. CRealisation A/c Dr. 50,000; To Arun's Capital A/c 30,000; To Bala's Capital A/c 20,000
  4. DArun's Capital A/c Dr. 20,000; Bala's Capital A/c Dr. 30,000; To Realisation A/c 50,000

Explanation

A realisation loss is debited to partners' capital accounts in the profit-sharing ratio 3:2, giving Arun 30,000 and Bala 20,000, and credited to Realisation A/c to close it. Option 4 reverses the ratio, and option 3 treats the loss as a gain.

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