Question

P, a partner, is to bear all expenses of realisation for which he is to be paid ₹ 2,000. P had to pay realisation expenses of ₹ 2,500. How much amount will be debited to Realisation Account?

Options

• ₹ 500

• ₹ 2,500

• ₹ 4,500

• ₹ 2,000

Answer 1

₹ 2,000

Explanation:

Partner P is responsible for all realisation expenses.

He is to be paid a fixed amount of ₹ 2,000 for this.

Actual expenses paid by P = ₹ 2,500.

When a partner agrees to bear all realisation expenses for a fixed amount, the Realisation Account is debited only with the agreed (fixed) amount, irrespective of the actual expenses incurred.

Agreed amount to P = ₹ 2,000 → Debited to Realisation A/c.

Extra amount actually spent by P (₹ 500 more) is his personal loss and does not affect the firm’s accounts.

∴ Only ₹ 2,000 will be debited to the Realisation Account.