Question

How are the realisation expenses dealt with when a partnership firm is dissolved?

Answer 1

When a partnership firm is dissolved, the realisation expenses are dealt with in the following ways:

1. If realisation expenses are incurred and paid by the firm, the realisation account is debited and the bank account is credited.
2. If the realisation expenses are paid by a partner on behalf of the firm, the realisation account is debited and the partner’s capital account is credited.
3. If, as per agreement, a partner is supposed to bear the realisation expenses personally:
   • If the partner pays such expenses, no entry is passed in the firm’s books.
   • If the expenses are paid out of the firm’s bank account, the partner’s capital account is debited and the bank account is credited.

Thus, the accounting treatment varies depending on who pays the realisation expenses and any agreement among partners regarding the bearing of these expenses.