Treatment of Realization Loss in Partnership Dissolution

Steps:

• Transfer assets and liabilities to Realization Account at book values.
• Record actual realization proceeds by debiting cash and crediting Realization Account.
• Calculate net loss as the debit balance in Realization Account after settling liabilities.
• Allocate the loss to partners' capital accounts in their profit-sharing ratio by debiting capitals.

Why C is correct:

• Partnership losses, including realization losses, are borne by partners in their profit-sharing ratio per the Partnership Act, reducing their capital via debit entries.

Why the others are wrong:

• A: Losses are shared in profit-sharing ratio, not equally, unless specified otherwise.
• B: Crediting capitals would increase them, which applies to gains, not losses.
• D: Crediting capitals records gains or profits, not losses.

Final answer: C