Question 31 of 53intermediate🔧 ApplyShort Answer2 marks

For expenses of realisation when actual expenses are paid by the partner on behalf of the firm.

Correct Answer

When realisation expenses are paid by a partner on behalf of the firm, the following journal entry is passed:

Realisation A/c Dr. To Partner's Capital A/c

In this case, the Realisation Account is debited because the expense is incurred for the dissolution process of the firm. The Partner's Capital Account is credited because the partner has paid the expenses from his/her own personal funds on behalf of the firm. This entry effectively treats the payment as a contribution by the partner, thereby increasing his/her capital balance in the firm.

Exercise: Do it Yourself | Q: 5 | (Page 19)
For More Understanding

Explanation

The textbook clearly states under point 8(b) that when realisation expenses are paid by a partner on behalf of the firm, the journal entry is: Realisation A/c Dr. to Partner's Capital A/c. This is different from when the firm itself pays the expenses (where Bank A/c is credited) or when a partner has agreed to bear the expenses personally (where no entry is required if the partner pays directly).

Solution Steps

  1. Step 1: Identify that expenses are paid by partner on behalf of firm

  2. Step 2: Debit Realisation Account (expense of dissolution)

  3. Step 3: Credit Partner's Capital Account (partner's contribution)

PreviousNext