In the case of dissolution of a partnership firm, the accumulated profits and reserves are transferred to : Option 1: Realization Account Option 2: Partners' Capital Accounts Option 3: Bank Account Option 4: Partner Loan Account

Answer: Partners' Capital Accounts. Solution: Accumulated profits and reserves represent the undistributed profits that belong to the partners. These are not physical assets that need to be realized, nor are they liabilities to be settled. During dissolution, accumulated profits and reserves are distributed among the partners in their profit-sharing ratio by transferring them to their respective Capital Accounts. Journal Entry:, Particulars, Debit (₹), Credit (₹), Accumulated Profits/Reserves A/c, Dr., xxx, To Partners' Capital A/cs, xxx, (Being accumulated profits transferred to partners in their profit-sharing ratio), Why not other options? Realization Account is used only for recording the sale of assets (except cash/bank) and settlement of external liabilities. Since accumulated profits are not assets to be sold, they don't go to Realization Account. Bank Account is merely a record of cash transactions and not a distribution account. Partner Loan Account is used for settling any loans given by partners to the firm, which is different from their share in profits/reserves. Since accumulated profits belong to the partners as per their profit-sharing ratio, they are directly credited to Partners' Capital Accounts.

Partnership

Dissolution

Easy

common

In the case of dissolution of a partnership firm, the accumulated profits and reserves are transferred to :

Realization Account

Partners' Capital Accounts

Bank Account

Partner Loan Account

✅ Correct Option: 2

Accumulated profits and reserves represent the undistributed profits that belong to the partners. These are not physical assets that need to be realized, nor are they liabilities to be settled.

During dissolution, accumulated profits and reserves are distributed among the partners in their profit-sharing ratio by transferring them to their respective Capital Accounts.

Journal Entry:

Particulars	Debit (₹)	Credit (₹)
Accumulated Profits/Reserves A/c	Dr.	xxx
To Partners' Capital A/cs		xxx
(Being accumulated profits transferred to partners in their profit-sharing ratio)

Why not other options?

Realization Account is used only for recording the sale of assets (except cash/bank) and settlement of external liabilities. Since accumulated profits are not assets to be sold, they don't go to Realization Account.

Bank Account is merely a record of cash transactions and not a distribution account.

Partner Loan Account is used for settling any loans given by partners to the firm, which is different from their share in profits/reserves.

Since accumulated profits belong to the partners as per their profit-sharing ratio, they are directly credited to Partners' Capital Accounts.

2025: 22 May Shift 1

In case of the dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. Losses, including deficiencies of capital, shall be paid in the following manner and order:

(A) Out of capital of partners.

(B) By the partners individually in their profit sharing ratio.

Choose the correct answer from the options given below:

2023: 28 May Shift 1

On Dissolution of partnership firm out of total debtors of Rs. 2,50,000, Rs. 10,000 became bad and the rest realised 70%. In the given case Bank A/c will be debited by :

2026: 21 May Shift 1

Match List-I with List-II

List-I	List-II
(A) At the time of dissolution, unrecorded assets when taken over by a partner are shown in	(I) Debit of Realisation Account
(B) At the time of dissolution, unrecorded liabilities when paid are shown in	(II) Credit of Partners' capital Account
(C) At the time of admission of a partner, General Reserve will be shown in	(III) Debit of Partners' capital Account
(D) At the time of admission of a partner, Debit balance of Profit & Loss A/c will be shown in	(IV) Credit of Realisation Account

Choose the correct answer from the options given below:

2025: 15 May Shift 1

According to which section of the partnership Act 1932, the dissolution of a partnership between all the partners of a firm is called the dissolution of the firm?

2026: 29 May Shift 1

When realisation expenses are paid by the firm on behalf of a partner, such expenses are debited to:

2023: 29 May Shift 2

Out of the following when will the need for valuation of goodwill does not arise:

In the case of dissolution of a partnership firm, the accumulated profits and reserves are transferred to :

Solution

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