Read the following case study carefully and answer the question:G, K, and B were partners running a partnership for the last 10 years, sharing profit and loss in the ratio of . Post-Covid, their firm was affected badly and started incurring losses. On 31st March 2023, they all decided to dissolve the firm due to continuous losses. Their capital balances were , , and respectively. The firm had liabilities of , Cash balance , other Sundry Assets , and P&L A/c constituted the rest. Assets were realised at , and liabilities were paid in full. There was an unrecorded liability of , which was settled at . Realisation expenses amounted to , being paid by G on behalf of the firm. The journal entry for realization expenses in the above case study will be:
- ARealisation A/c Dr. To Cash A/c
- BRealisation A/c Dr. To G’s Capital A/c
- CG’s Capital A/c Dr. To Realisation A/c
- DCash A/c Dr. To Realisation A/c
Solution & Step-by-step Explanation
When realization expenses are the responsibility of the firm but are paid by a partner (G) on behalf of the firm, the firm records a liability toward that partner. The Realisation Account is debited because it is an expense of liquidation, and the paying partner's capital account is credited.