In partnership dissolution, an asset taken over by a partner is debited to

Answer Details

When a partnership is dissolved, all assets are transferred out of their individual accounts into the realisation account, which is used to record the disposal of every asset and the settlement of every liability during the winding-up process.

If a partner takes over an asset personally instead of it being sold to an outside buyer, that partner is, in effect, "buying" the asset from the partnership using part of what is owed to them. The value of the asset taken over is therefore treated as a reduction in what the firm still owes that partner, so it is debited to the partner's capital account (reducing the balance due to them) and credited to the realisation account (because the realisation account is being compensated as if the asset had been sold).

The reverse entries (crediting the capital account and debiting the realisation account) would incorrectly increase what is owed to the partner, which is the opposite of what taking over an asset should do. Debiting and crediting the asset account itself is also wrong here, because the asset has already been transferred out of its own account into the realisation account at the start of dissolution.

Examination reminder: in dissolution accounting, always route asset disposals, including assets taken over by partners, through the realisation account; only cash actually received from a third-party sale is debited to the bank account instead.