What does the final balance of a partner’s capital account indicate on the dissolution of a firm?

Correct answer: Amount payable to or recoverable from the partner

During dissolution, the partner’s capital account is adjusted for the realisation of assets, payment of liabilities, revaluation, accumulated profits or losses, drawings and other relevant items. The balance remaining after all these adjustments represents the final settlement with the partner. A credit balance is payable to the partner, while a debit balance is recoverable from the partner. Revaluation profit is only one adjustment made in the account, not the final settlement amount. Exam tip: final credit balance means payment to the partner; final debit balance means recovery from the partner.