Question 28 of 53intermediate🔧 ApplyShort Answer2 marks

Give the journal entry(ies) to be recorded for the following, in case of the dissolution of a partnership firm: For closure of liabilities accounts.

Correct Answer

For the closure of liabilities accounts during the dissolution of a firm, all external liability accounts are closed by transferring them to the credit of the Realisation Account. This process ensures that the individual ledger accounts for liabilities show a zero balance.

The necessary journal entry recorded is: Liabilities (Individually) A/c Dr. To Realisation A/c

This entry applies to all external liabilities, including accounts like Sundry Creditors and Bills Payable, as well as any provisions such as Provision for Doubtful Debts. Transferring these amounts to the credit side of the Realisation Account consolidates all obligations for final settlement.

Exercise: Do it Yourself | Q: 2 | (Page 19)
For More Understanding

Explanation

The textbook context under section 4.4.1 explicitly outlines the procedure for the 'transfer of liabilities'. It states that all external liability accounts, including provisions, are closed by transferring them to the credit of the Realisation Account. The provided solution examples, such as the books of Nayana and Arushi, demonstrate this by debiting Creditors and Bank Overdraft accounts and crediting the Realisation Account.

Solution Steps

  1. Step 1: Identify all external liability accounts (e.g., Creditors, Bills Payable) and provisions (e.g., Provision for Doubtful Debts) that need to be closed.

  2. Step 2: Pass the journal entry debiting each Liability Account individually and crediting the Realisation Account to transfer the balances.

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