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CMA Intermediate · Financial Accounting · Conversion of Partnership Firm into a Company and Sale of Partnership Firm to a Company

When a partnership firm is sold to a company, which account is opened in the books of the firm to record the transaction and to close the assets and liabilities taken over?

A Realisation Account is opened in the firm's books. Assets and liabilities taken over by the company are transferred to it, the purchase consideration is credited, and the resulting profit or loss is shared among partners in their profit-sharing ratio. Revaluation Account applies only where the firm continues.

  1. ARealisation AccountCorrect
  2. BRevaluation Account
  3. CCapital Reserve Account
  4. DPurchase Consideration Account

Explanation

The firm is being wound up in respect of its business, so assets and liabilities taken over are transferred to the Realisation Account. The sale consideration is credited there, and the profit or loss on realisation is shared by the partners in their profit-sharing ratio. Revaluation Account is used only when the firm continues, as in admission or retirement.

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