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On dissolution of the firm, what effect does a loss in the Realisation Account have on the partners’ capital accounts?

Answer and explanation

Correct answer: Partners’ capital decreases

A loss on the Realisation Account is debited to the partners’ capital accounts in their profit-sharing ratio. Therefore, each partner’s capital decreases. The opposite treatment applies when there is a realisation profit. Exam tip: Realisation loss means debit to partners’ capital accounts.

Related tags

Partnership DissolutionRealisation AccountPartners CapitalAccounting TreatmentProfit Sharing RatioDissolution Of A Partnership FirmAccountancyClass 12 Mcq

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