Realisation Account

A credit balance in the Realisation Account represents a profit because the realisation proceeds and other credit items exceed the payments for liabilities and other debit items. The profit of ₹3,000 is transferred to the partners’ capital accounts in their profit-sharing ratio. In contrast, a debit balance represents a loss. Exam tip: Remember—credit balance in the Realisation Account means profit, while debit balance means loss.

Realisation profit or loss = Sale proceeds − Book value = ₹12,000 − ₹10,000 = ₹2,000. Therefore, the Realisation Account records a profit of ₹2,000, which is transferred to the partners’ capital accounts in their profit-sharing ratio. A loss would arise only if the sale proceeds were lower than the book value. Exam tip: Subtract the book value from the sale proceeds to determine the profit or loss.

The asset is sold for ₹15,000 against its book value of ₹18,000. Therefore, the loss is ₹18,000 − ₹15,000 = ₹3,000, which is recorded on the debit side of the Realisation Account. ₹15,000 is the sale proceeds, not the gain. Exam tip: a sale price below book value creates a loss, while a higher sale price creates a gain.

Stock is an asset. At the time of dissolution, all assets are transferred at their book values to the debit side of the Realisation Account. Therefore, the debit side is correct. Remember that external liabilities are transferred to the credit side of the Realisation Account.

The amount realised from debtors is ₹12,000, which is ₹2,000 more than their book value of ₹10,000. Therefore, the realisation results in a profit of ₹2,000, which is recorded through the Realisation Account and ultimately transferred to the partners’ capital accounts. A loss of ₹2,000 would arise only if the amount realised were lower than the book value. Exam tip: Amount realised − Book value = profit or loss.

When liabilities are paid, the entry is: Realisation Account debited and Cash/Bank Account credited. Therefore, the payment is recorded on the debit side of the Realisation Account. Do not confuse this with the transfer of liabilities to the Realisation Account, which is recorded on its credit side. Exam tip: distinguish between transferring a liability and settling it.

The liability is settled for ₹1,000 less than its book value: ₹6,000 − ₹5,000 = ₹1,000. This saving is recorded as a gain in the Realisation Account. Therefore, option A is correct; option B reverses the nature of the result. Exam tip: When a liability is settled below its book value, the difference is a gain.

The Realisation Account records the transfer of non-cash assets and external liabilities on the debit and credit sides, respectively. It also determines the profit or loss arising from the sale of assets, settlement of liabilities and realisation expenses. Partners’ capital is not directly recorded in this account; it is adjusted in the partners’ Capital Accounts after the realisation profit or loss is transferred. Exam tip: distinguish the Realisation Account from the partners’ Capital Accounts.

When total receipts in the Realisation Account exceed total payments, the difference is called profit on realisation. This profit is transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, option B is correct; if payments exceeded receipts, it would result in a realisation loss. Exam tip: In the Realisation Account, receipts minus payments indicate profit or loss on realisation.

Goodwill appearing in the books is an asset. On dissolution, all recorded assets are transferred to the Realisation Account at their book values, so goodwill is debited. If goodwill is subsequently sold, the cash received is credited to the Realisation Account; this is different from the initial transfer. Exam tip: Transfer of a recorded asset to the Realisation Account is debited.

When assets are sold for an amount equal to their book values, there is no difference between the sale value and the book value. Therefore, the sale of assets results in neither profit nor loss in the Realisation Account. Remember that realisation expenses or the settlement of liabilities may create a separate effect.

Net cash result = cash realised − amount paid to settle liabilities = ₹20,000 − ₹15,000 = ₹5,000 surplus. Therefore, option A is correct. Option B reverses the subtraction and gives a deficit. Remember that actual realisation profit cannot be determined from these two figures alone; the book value of assets and other items are also required.

Expenses incurred in dissolving the firm, such as realisation or legal expenses, are debited to the Realisation Account. The Cash or Bank Account records the payment, but the expense itself is recorded on the debit side of the Realisation Account. Exam tip: remember that assets and expenses are generally debited, while liabilities and receipts are credited in this account.

The machine’s book value is ₹9,000, but it is sold for only ₹7,000. Therefore, the loss on realisation is ₹9,000 − ₹7,000 = ₹2,000, which is debited to the Realisation Account. A profit of ₹2,000 would arise only if the machine were sold for ₹11,000. Exam tip: compare the sale proceeds with the book value—lower proceeds indicate a loss and higher proceeds indicate a profit.

On dissolution, book assets are transferred to the Realisation Account at their book values. Therefore, the Realisation Account is debited and the respective asset accounts are credited. Option B reverses this entry. For transferred liabilities, the usual entry is Liabilities A/c Dr. To Realisation A/c. Exam tip: remember the asset-transfer rule—Realisation A/c Dr. To Assets A/c.

When creditors are settled for ₹3,000 less than their book value, the firm saves ₹3,000 on its liability. This saving is recorded as a profit in the Realisation Account. Therefore, the correct answer is a profit of ₹3,000. Exam tip: settling creditors for less than their book value gives a profit, while settling them for more gives a loss.

The closing balance of the Realisation Account represents the profit or loss arising from the realisation of assets and settlement of liabilities. A credit balance indicates profit, while a debit balance indicates loss; this balance is transferred to the partners’ capital accounts. Therefore, it is not limited to profit, loss, or cash received alone. Exam tip: remember—credit balance means profit and debit balance means loss.

Payment of external liabilities is recorded by debiting the Realisation Account and crediting the Bank Account. Therefore, the payment appears on the debit side. Remember that liabilities are credited when transferred to the Realisation Account, but the actual payment is debited.

The firm's existing cash or bank balance is not transferred to the Realisation Account, so it is not recorded there. Generally, non-cash assets and external liabilities are transferred to this account. Exam tip: proceeds received from selling assets are credited to the Realisation Account, but the opening bank balance itself is not.

In a Realisation Account, assets transferred and realisation expenses are recorded on the debit side, while liabilities transferred and proceeds from realised assets are recorded on the credit side. If the debit-side total exceeds the credit-side total, the difference represents a loss, which is transferred to the partners’ capital or current accounts in their profit-sharing ratio. A greater credit-side total indicates a profit. Exam tip: Excess of debit over credit means loss; excess of credit over debit means profit.

On dissolution, stock and other assets are generally transferred to the Realisation Account at their book values. The actual sale proceeds of the stock are credited to the Realisation Account separately. Therefore, market value or net realisable value is not the basis for this transfer. Exam tip: Remember that assets are transferred to the Realisation Account at book value.

When debtors are realised for ₹4,000 more than their book value, the excess realisation represents a profit. The Realisation Account is credited with this excess, resulting in a profit of ₹4,000, which is transferred to the partners’ capital accounts in their profit-sharing ratio. A loss would arise only if the debtors were realised for less than their book value. Exam tip: realisation value greater than book value means a realisation profit.

The Realisation Account records the sale of the firm’s assets and the settlement of external liabilities, along with the resulting profit or loss. Partners’ capital is not an item to be realised; it is settled separately through the partners’ capital accounts. Therefore, option B is correct. Exam tip: Do not transfer partners’ capital accounts to the Realisation Account; partner loans are also treated separately from external liabilities.

Realisation expenses are recorded on the debit side of the Realisation Account, while the proceeds from realised assets are recorded on the credit side. When expenses exceed the amount realised, the account has a debit balance, which represents a realisation loss. Therefore, the correct answer is realisation loss. Exam tip: A credit balance in the Realisation Account indicates profit, while a debit balance indicates loss.

Non-cash assets are debited to the Realisation Account at their book values because they have to be sold or otherwise realised. External liabilities are credited, while cash or bank balances and partners’ capital accounts are generally not transferred to this account. Exam tip: remember the basic rule—assets are debited and liabilities are credited to the Realisation Account.