At the time of dissolution of a partnership firm, what is the primary purpose of preparing the Realisation Account?

Correct answer: To determine the profit or loss arising from the realisation of assets and settlement of liabilities

The Realisation Account determines the profit or loss arising from the sale or transfer of the firm’s assets and the payment or settlement of its liabilities at dissolution. This profit or loss is subsequently transferred to the partners’ capital accounts in their profit-sharing ratio. Option A concerns the final adjustment of capital accounts, while options C and D are not the primary purposes of this account. Exam tip: The net result of disposing of assets and settling liabilities is called realisation profit or loss.