If a liability is assumed (to be paid) by a partner such partner capital account is ___a)No effect on capital accountb)Debitedc)Creditedd)Both Credited and DebitedCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

If a partner is agreed to pay off any liability at the time of dissolution of a partnership firm, in such a case following entry should be recorded in the books: Journal Entry: Realisation A/c Dr.
To Partner’s Capital A/c

Answer

Because in accountancy  we consider business and owner  as two separate  entity so business  is liable to pay  that amount.

Answer

Liability assumed by a partner and its effect on partner's capital account

When a liability is assumed by a partner, it means that the partner agrees to take responsibility for the payment of that liability. This assumption of liability can have an impact on the partner's capital account.

Effect on the partner's capital account:

Assuming a liability by a partner brings changes to the partner's capital account. Let's understand the effect on the partner's capital account in detail:

1. Credited:
When a partner assumes a liability, their capital account is credited. This means that the amount of the liability is added to the partner's capital account. The assumption of the liability increases the partner's share of the partnership's obligations.

2. Debited:
It is important to note that assuming a liability does not directly decrease the partner's capital account. However, if the partner makes a payment to settle the assumed liability, then the partner's capital account will be debited. This is because the partner is using their personal resources to pay off the liability, which reduces the partner's stake in the partnership.

Example:
Let's say Partner A assumes a liability of $10,000 on behalf of the partnership. Initially, Partner A's capital account is $50,000. The effect on Partner A's capital account would be as follows:

- Credited: Partner A's capital account would be credited with $10,000, increasing it to $60,000. This reflects the assumption of the liability by Partner A.

- Debited: If Partner A subsequently makes a payment of $5,000 to settle the assumed liability, their capital account would be debited by $5,000, reducing it to $55,000. This reflects the decrease in Partner A's personal resources due to the payment made to settle the liability.

Conclusion:
When a partner assumes a liability, their capital account is credited to reflect the increase in their share of the partnership's obligations. However, if the partner makes a payment to settle the assumed liability, their capital account is debited to reflect the decrease in their personal resources. Therefore, the correct answer is option 'C' - Credited.

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