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Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessMedium
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On what basis is profit on realisation determined?

Answer and explanation

Correct answer: Difference between the totals of the credit and debit sides of the Realisation Account

The credit side of the Realisation Account records proceeds from the sale of assets and the value of liabilities taken over by creditors, while the debit side records the book value of assets transferred, liabilities settled and realisation expenses. If the credit total exceeds the debit total, the difference is realisation profit. Therefore, considering only cash received from asset sales is incomplete. Exam tip: Realisation profit is transferred to the partners’ capital accounts in their profit-sharing ratio.

Related tags

Partnership-DissolutionRealisation-AccountRealisation-ProfitClass-12-AccountancyClosing The BusinessDissolution Of A Partnership FirmAccountancyClass 12 Mcq
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10 more MCQs
  1. 1What is the process of permanently closing a partnership firm and ending its existence called?
  2. 2Which account is prepared at the time of dissolution of a firm to determine the profit or loss arising from the settlement of its assets and external liabilities?
  3. 3What is generally done with the assets of a partnership firm at the time of its dissolution?
  4. 4On dissolution of a partnership firm, from what are the external liabilities generally paid?
  5. 5To which account is the realisation profit transferred?
  6. 6To which account is the realisation loss transferred?
  7. 7What happens to the existence of the firm after dissolution?
  8. 8Dissolution expenses are generally debited to which account?
  9. 9At the time of dissolution, if an asset is sold for ₹10,000, what amount will be credited to the Realisation Account?
  10. 10On dissolution of a firm, to whom is the final cash balance paid after settling outside liabilities and other amounts due?
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