Realisation Account

In the Realisation Account, receipts are ₹12000 and payments are ₹10000. Since receipts exceed payments by ₹2000, the account shows a profit of ₹2000, which is transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, option B is correct. Exam tip: Excess of receipts over payments indicates profit, while excess of payments over receipts indicates loss in the Realisation Account.

In the Realisation Account, the book value of assets is debited and the sale proceeds are credited. Here, the sale proceeds exceed the book value by ₹25,000 − ₹20,000 = ₹5,000, so there is a profit of ₹5,000. This profit is transferred to the partners’ Capital Accounts in their profit-sharing ratio. Exam tip: a sale price above book value gives a profit, while a lower sale price gives a loss.

The amount realised is ₹500 more than the book value: ₹9,500 − ₹9,000 = ₹500. This excess realisation is recorded as a ₹500 profit in the Realisation Account. A ₹500 loss would arise only if the amount realised were lower than the book value. Exam tip: Subtract the book value from the amount realised to determine the profit or loss.

The liability stood at ₹4,500 in the books but was settled by paying only ₹4,000. The firm therefore saved ₹500, resulting in a ₹500 profit recorded through the Realisation Account. ₹4,000 is the settlement amount, not the amount of profit or loss. Exam tip: settling a liability below its book value gives a profit; settling it above book value gives a loss.

In the Realisation Account, expenses related to realising assets, such as the ₹3,000 realisation expense, are recorded on the debit side. They increase the debit total and thereby reduce realisation profit or increase realisation loss. The credit side records amounts realised from assets and liabilities transferred. Exam tip: Record realisation expenses on the debit side and asset realisations on the credit side.

A gain or loss on settling a liability arises only from the difference between its book value and the amount paid for settlement. Here, both amounts are ₹12,000, so there is no difference and no profit or loss is recorded in the Realisation Account. Treating ₹12,000 itself as a gain or loss is incorrect because it is merely the settlement amount. Exam tip: Compare the settlement amount with the book value; a zero difference means no gain or loss.

The machinery is realised for ₹6,000 against its book value of ₹8,000. Therefore, the loss on realisation is ₹8,000 − ₹6,000 = ₹2,000. This loss is transferred to the partners’ capital accounts in their profit-sharing ratio. Exam tip: compare the sale proceeds with the book value; a lower sale price results in a loss.

Cash received from the sale of assets is credited to the Realisation Account because it represents the amount realised from those assets. Realisation expenses, in contrast, are recorded on the debit side. Exam tip: Remember that assets transferred are debited, while the proceeds received from their realisation are credited.

Goodwill appearing in the books is an asset. On dissolution, assets are transferred to the Realisation Account at their book value; therefore, the debit side of the Realisation Account is recorded and the Goodwill Account is credited. The credit side generally contains liabilities transferred to Realisation. Exam tip: Remember: assets go to the debit side and liabilities to the credit side of the Realisation Account.

The asset’s realisation value and book value are both ₹10,000. Therefore, this transaction results in neither a profit nor a loss in the Realisation Account. A profit arises when the realisation value is higher, and a loss when it is lower than the book value. Exam tip: Realisation profit or loss = Realisation value − Book value.

At dissolution, assets are generally transferred to the Realisation Account at their book values recorded in the firm’s books. Market value represents the amount realised on sale, while cost price may be the original purchase cost and need not equal the carrying value. Exam tip: Assets are recorded on the debit side and liabilities on the credit side of the Realisation Account at their book values.

When debtors realise ₹2,000 less than their book value, the asset is realised below its recorded amount. This shortfall is recorded as a loss of ₹2,000 in the Realisation Account. Therefore, option B is correct; a profit would arise only if the amount realised exceeded the book value. Exam tip: Realisation below book value means a loss, while realisation above book value means a profit.

Payment of a liability is recorded on the debit side of the Realisation Account because the payment represents the settlement of that liability. The liability itself is transferred to the credit side when it is taken over by the Realisation Account, which makes the credit-side option a common distractor. Exam tip: remember—transfer of liability is credited, but payment of liability is debited.

At the time of dissolution, realisation expenses are debited to the Realisation Account. Therefore, an increase in these expenses raises the debit total and increases the loss in the Realisation Account, or reduces its profit. It cannot increase the realisation profit. Exam tip: Expenses in the Realisation Account are debited, so higher expenses mean a higher loss.

When the sale proceeds of an asset exceed its book value, the excess represents a profit in the Realisation Account. This profit is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, ‘no effect’ is incorrect. In the exam, always compare the sale proceeds with the book value.

When the amount realised from assets is greater than their book value, the difference is treated as a profit on realisation and is transferred to the partners’ capital accounts. If the amount realised is lower than the book value, it results in a realisation loss. Exam tip: Realisation value > book value = realisation profit.

When assets are realised exactly at their book values and liabilities are settled at their book values, the debit and credit effects in the Realisation Account are equal. Therefore, the account shows neither a profit nor a loss. Exam tip: realisation at book value, settlement at book value, and no realisation expenses result in a zero outcome.

The liability was recorded at ₹50,000 but was settled for only ₹45,000. The saving of ₹5,000 is a gain for the firm and is credited to the Realisation Account. Therefore, the effect is a profit of ₹5,000. Exam tip: settling a liability below its book value results in a gain, while settling it above book value results in a loss.

When the amount recovered from debtors exceeds their book value, the excess represents a profit on the realisation of the asset. This profit is credited to the Realisation Account and ultimately transferred to the partners’ Capital Accounts. Therefore, ‘Profit will arise’ is correct. Exam tip: recovery higher than book value means profit, while recovery lower than book value means loss.

Assets other than cash and bank balance are transferred to the debit side of the Realisation Account at their book value. This removes their book value from the books during dissolution. The credit-side treatment applies to liabilities transferred, while cash received from selling an asset is credited to the Realisation Account. Exam tip: remember—assets transferred are debited, and liabilities transferred are credited to the Realisation Account.

External liabilities, such as creditors, are transferred to the credit side of the Realisation Account. The transfer entry is: Liability Account Dr. and Realisation Account Cr. Therefore, the debit side is not correct because assets are transferred there. Exam tip: In the Realisation Account, assets are recorded on the debit side and liabilities on the credit side.

When a partner takes over an asset, it is credited to the Realisation Account at the value agreed upon with that partner, and the partner’s Capital Account is debited by the same amount. Therefore, the book value is not necessarily used. Exam tip: an asset taken over by a partner is recorded at the agreed value.

A loss on the Realisation Account is debited to the partners’ capital accounts in their profit-sharing ratio. Therefore, each partner’s capital decreases. The opposite treatment applies when there is a realisation profit. Exam tip: Realisation loss means debit to partners’ capital accounts.

When a liability is settled for an amount higher than its book value, the excess payment is a loss to the firm. In the Realisation Account, the liability is credited at its book value and the actual payment is debited; therefore, the excess creates a loss. Exam tip: payment of a liability above its book value results in a loss on realisation.

When the sale value of an asset equals its book value, the amount realised is exactly equal to the amount recorded in the books. Therefore, the transaction produces neither a profit nor a loss in the Realisation Account. A sale value higher than book value gives a profit, while a lower sale value gives a loss. Exam tip: always compare the sale proceeds with the asset’s book value.