Question

On firm’s dissolution, when a partner voluntarily gives his personal asset to firm’s creditor as payment, the account credited will be:

Options

• Realisation A/c

• Partner’s Capital A/c

• Cash A/c

• None of the A/c

Answer 1

Partner’s Capital A/c.

Explanation:

When a partner voluntarily uses his personal asset to pay the firm’s creditor during dissolution, the partner’s capital account is credited. This is because the partner is effectively contributing to settle the firm’s liability, which reduces his capital in the firm. The corresponding debit entry is made to the realisation account to reflect the payment of the liability.