At the time of dissolution of a partnership firm, in which ratio is the profit or loss arising from the Realisation Account transferred to the partners’ capital accounts?

Correct answer: Profit-sharing ratio

The profit or loss arising from the Realisation Account is transferred to the partners’ capital accounts in the old profit-sharing ratio because this is the agreed basis for sharing partnership profits and losses. The capital ratio is not used merely because the amounts of capital are different, unless a specific agreement requires it. Exam tip: On dissolution, distribute realisation profit or loss in the old profit-sharing ratio.