When a firm is dissolved, the profit or loss shared on the realization by the partners is

The correct answer is: B. In the ratio of their capital balances.

When a firm is dissolved, the partners share the profit or loss on the realization in the ratio of their capital balances. This is because the capital balances represent the partners’ investment in the firm, and it is fair that they should share the proceeds of the sale of the firm’s assets in proportion to their investment.

Option A is incorrect because the partners do not necessarily share the profit or loss equally. The profit or loss is shared in the ratio of their capital balances.

Option C is incorrect because the profit or loss is