Question

Mita and Rita decided to dissolve their partnership firm. Their books showed Goodwill of ₹ 5,000.

How will the Goodwill Account be closed on the dissolution of the firm?

Options

• By transferring ₹ 5,000 to the debit side of the Partner’s Capital Accounts

• By transferring ₹ 5,000 to the credit side of the Partner’s Capital Accounts

• By transferring ₹ 5,000 to the debit side of the Realisation Account

• By transferring ₹ 5,000 to the credit side of the Realisation Account

Answer 1

By transferring ₹ 5,000 to the debit side of the Realisation Account

Explanation:

When a partnership is dissolved, Goodwill is written off. If the goodwill is already shown in the books, it should be debited to the Realisation Account to eliminate the goodwill from the firm's books. This is because, in the dissolution process, the firm no longer retains its goodwill, and any balance needs to be adjusted through the Realisation Account, where assets and liabilities are transferred for settlement.