Realisation Account

The governing accounting concept is dissolution of a partnership firm. At dissolution, the firm’s assets are sold or otherwise realised and its liabilities are settled. The Realisation Account records the book values of assets transferred to it, liabilities settled, realisation expenses, and the amounts received or paid during this process. The resulting balance represents profit or loss on realisation, which is transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, option A is correct. Admitting a new partner belongs to reconstitution, bank reconciliation belongs to banking records, and stock valuation alone is only one possible transaction, not the account’s main purpose.

At dissolution, non-cash assets are transferred to the Realisation Account, while the settlement of external liabilities and realisation expenses is recorded in it. The difference between its debit and credit sides gives the profit or loss on realisation. Showing cash and bank balances is the function of the Cash Account, so option C is incorrect. Exam tip: Remember that the Realisation Account measures the result of settling assets and liabilities at dissolution.

At dissolution, real (non-cash) assets and external liabilities are transferred to the Realisation Account at their book values. Cash or bank balances are generally not transferred to this account, while partners’ capital and loan accounts are settled separately. Exam tip: The main purpose of the Realisation Account is to determine the profit or loss arising from the disposal of assets and settlement of liabilities.

At the time of dissolution, real assets are transferred to the Realisation Account at their book values and recorded on its debit side. The actual amount received on sale is recorded separately when the assets are realised; therefore, market value and estimated selling price are not the correct answers. Exam tip: remember—transfer is at book value, while sale proceeds are recorded at the actual realisation amount.

A profit arises when the total of the credit side of the Realisation Account exceeds the total of its debit side. To balance the account, the profit is recorded on the debit side as transferred to the partners’ capital accounts in their profit-sharing ratio. The credit side is the closest distractor because a loss is shown there. Exam tip: Profit—debit; loss—credit.

The Realisation Account records items related to the realisation of assets and settlement of liabilities. When the debit side exceeds the credit side, the difference represents a loss, so it is shown on the debit side. This loss is then debited to the partners’ Capital or Current Accounts in their profit-sharing ratio. Exam tip: An excess of the debit side indicates a loss, while an excess of the credit side indicates a profit.

The proceeds received from selling assets are credited to the Realisation Account because they represent cash or bank receipts from the disposal of assets. In contrast, the book value of the assets transferred to Realisation Account is recorded on its debit side. Exam tip: Remember that asset realisation proceeds are credited to the Realisation Account.

In the Realisation Account, liabilities paid are recorded on the debit side because payment creates an expense or charge against the firm during dissolution. The credit side generally records the realisation of assets and liabilities transferred to the account. Exam tip: Remember that assets transferred are debited, liabilities transferred are credited, and liabilities actually paid are debited in the Realisation Account.

A Realisation Account is a nominal account. On dissolution, it records the transfer of assets and external liabilities and the profit or loss arising from realisation. Its balance is transferred to the partners’ capital accounts, so the account is closed and is not carried forward as a permanent account. Exam tip: an account used to determine profit or loss and then closed is generally a nominal account.

At dissolution, goodwill appearing in the books is a non-cash asset, so its book value is transferred to the debit side of the Realisation Account. If it is sold, the sale proceeds are recorded on the credit side of the Realisation Account. Therefore, crediting goodwill itself is not the correct treatment. Exam tip: Assets transferred to the Realisation Account are debited, whereas liabilities transferred to it are credited.

Cash received from the sale of an asset is debited to the Cash/Bank Account and credited to the Realisation Account. Therefore, the sale proceeds appear on the credit side of the Realisation Account. They are not directly recorded in a partner’s Capital Account. Exam tip: For an asset sold during dissolution, remember: Cash/Bank A/c Dr. and Realisation A/c Cr.

The payment of an unrecorded liability is debited to the Realisation Account because it represents a loss or expense incurred in settling the firm’s liability during dissolution. The Cash or Bank Account is credited for the actual payment. Therefore, the debit side of the Realisation Account is correct. Exam tip: payments relating to realisation are generally recorded on the debit side of the Realisation Account.

A Realisation Account is prepared to determine the profit or loss arising from the sale of assets and the settlement of liabilities during dissolution. The resulting profit or loss is transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, option A is correct; the Capital Account and Cash Account serve different purposes. Exam tip: Include only dissolution-related realisation transactions when calculating this profit or loss.

At dissolution, liabilities are transferred to the Realisation Account at their book value. If the amount actually paid to settle a liability differs from its book value, the difference is recorded as a realisation profit or loss. Therefore, market value is not the appropriate basis. Exam tip: assets are generally debited and liabilities are credited to the Realisation Account at their book values.

At dissolution, the amount realised from selling an asset or its value when taken over by a partner is compared with its book value. The difference determines the profit or loss on realisation, which is recorded in the Realisation Account. “Only the cash received” is incomplete because the cash must be compared with the asset’s book value. Exam tip: Profit or loss arising from realising assets and settling liabilities is transferred to the Realisation Account.

Realisation expenses are debited to the Realisation Account. Therefore, an increase in these expenses reduces any realisation profit or increases the realisation loss; hence, the correct option is that the loss will increase. Profit cannot increase because higher expenses reduce the net result. Exam tip: Items debited to the Realisation Account generally reduce profit or increase loss.

Cash received from selling assets is credited to the Realisation Account because it represents the amount realised from those assets. In contrast, assets transferred to the Realisation Account and realisation expenses are debited. Exam tip: asset sale proceeds are credited, while assets transferred are debited.

The difference between the credit and debit sides of the Realisation Account is its balancing figure. A credit balance indicates profit on realisation, while a debit balance indicates loss. Therefore, the balancing figure may be either profit or loss. Exam tip: Realisation profit or loss is transferred to the partners’ Capital Accounts in their profit-sharing ratio.

When an asset is sold for less than its book value, the difference between the book value and the sale proceeds is a loss. This loss is recorded in the Realisation Account and is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, option B is correct. Exam tip: Sale above book value gives a profit, while sale below book value gives a loss.

When creditors are paid, the entry is: Realisation Account Dr. To Bank/Cash Account. Therefore, the payment is recorded on the debit side of the Realisation Account. The credit side generally records the transfer and realisation of assets. Exam tip: for a payment during dissolution, debit the Realisation Account and credit the Cash/Bank Account.

In the Realisation Account, items such as the transfer of assets and realisation expenses are generally recorded on the debit side, while amounts realised from assets and liabilities taken over are recorded on the credit side. If the credit-side total exceeds the debit-side total, the difference is a profit on realisation and is transferred to the partners’ capital accounts. Exam tip: Credit excess means profit; debit excess means loss.

At dissolution, assets are transferred to the Realisation Account at their book values. The actual amount received on their subsequent sale is recorded separately; therefore, market value or estimated realisable value is not the correct basis for this transfer. Exam tip: remember that transfer is at book value, while sale proceeds are recorded at the actual realisation value.

Partners’ Capital Accounts are not recorded in the Realisation Account; they are settled through the partners’ capital accounts themselves. Non-cash assets and external liabilities are transferred to the Realisation Account, while realisation expenses are debited to it. Exam tip: remember that the Realisation Account records the settlement of assets and external liabilities, not partners’ capital accounts.

An unrecorded asset is an asset that does not appear in the firm's books but is discovered or realised at the time of dissolution. It may be sold for cash or taken over by a partner, and the amount realised is generally credited to the Realisation Account. Option A describes a recorded asset, so it is incorrect. Exam tip: Remember the key phrase—an unrecorded asset is not shown in the books.

When the credit side of the Realisation Account exceeds its debit side, the difference represents a profit. This profit is transferred to the partners’ capital accounts in their profit-sharing ratio. If the debit side were higher, it would indicate a loss. Exam tip: Credit excess means realisation profit; debit excess means realisation loss.