Question

On dissolution of partnership, goodwill account will transferred to:

• A. The debit side of Realisation Account
• B. The credit side of Realisation Account
• C. The credit side of Partner’s Capital/Current Account
• D. The debit side of Partner’s Capital/Current Account

Hint:

All assets (except cash and bank balances) are transferred to the debit side of Realisation Account at book value upon dissolution of partnership

Answer 1

The Correct Option is A

Understanding Realization Account and Goodwill's Treatment
During the dissolution of a partnership, all assets (including intangible assets like goodwill) and liabilities are transferred to the Realisation Account for conversion into cash and subsequent settlement.
The Process: 1.
Closure of Goodwill Account: Goodwill is an asset, and on dissolution, it needs to be "realised"—meaning its book value must be accounted for in the process of winding down the business.
2.
Transfer to Realisation Account: The journal entry for transferring goodwill is: Realisation A/c Dr. To Goodwill A/c This closes the Goodwill Account and transfers its debit balance to the Realisation Account.
3.
Debit Side Significance: By debiting the Realisation Account, it indicates that goodwill is an asset being disposed of.
4.
Subsequent Action: The next step would typically involve selling the goodwill (if possible) and recording the cash received on the credit side of the Realisation Account.

Why Other Options Are Incorrect Crediting the Realisation Account would imply goodwill is a liability, which is not the case.
Transferring to partners’ capital accounts would circumvent the realization process, which isn’t appropriate at the dissolution stage.