Question

Q17. On dissolution, Goodwill account is transferred to: (1)

(a) Revaluation Account (c) Realisation Account

(b)Partners’ Capital Account (d) Profit and Loss Account​

Answer 1

Answer:

All the assets of the firm which can be converted into cash are transferred to Realisation Account. If goodwill is already appearing in the Balance Sheet, it is treated like any other asset, and is transferred to the Realisation Account at the value given in the Balance sheet. Following entry is passed for it:

Realisation A/c Dr.

To Goodwill A/c

Explanation:

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Answer 2

Answer:

The correct option is (c) Realisation Account.

Explanation:

Realisation Account

• When a business dissolves, all the books of accounts are closed, all the assets are sold, and all the debts are settled.
• A fictitious account called the realisation account is formed in order to reflect the sale of assets and discharge of liabilities.
• To determine the profit or loss resulting from the realisation of assets and liabilities is the primary goal of opening a realisation account.
• If the credit side exceeds the debit side, the realisation profit or loss is transferred to the capital account of the partner according to their profit-sharing ratio.

The following are the major aims of creating a realisation account:

• To close all of the accounting books.
• To document transactions involving the sale of assets and satisfaction of debts.
• To calculate the gain or loss resulting from the realisation of assets and liabilities

Hence, we can conclude that in the event of a firm's dissolution, goodwill can be handled relatively easily. If goodwill is already included in the balance sheet, it is transferred to the realisation account at the balance sheet value and treated like any other asset.

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