Realisation Account

On dissolution, the Realisation Account records the disposal of the firm’s assets and the settlement of its liabilities. It also helps determine the profit or loss on realisation, which is transferred to the partners’ capital accounts. Therefore, option A states its main purpose.

Assets are transferred to the debit side of the Realisation Account at their book value, whereas the cash proceeds received from their sale are credited to the Realisation Account. Therefore, option A is correct. Option B relates to the transfer of assets, not to the sale proceeds. Exam tip: Remember the rule—asset sale proceeds are credited, while the book value of assets is debited to the Realisation Account.

Creditors, bills payable and other external liabilities are transferred to the Realisation Account so that the profit or loss arising from their settlement can be determined. Partners’ capital accounts, current accounts and loans from partners are not transferred to this account; they are settled separately. Exam tip: Transfer liabilities owed to outsiders to the Realisation Account, but deal with partners’ accounts separately.

The Realisation Account records the profit or loss arising from the sale or transfer of assets and the settlement of liabilities during dissolution. Therefore, its balance represents the profit or loss on realisation, which is transferred to the partners’ capital accounts in their profit-sharing ratio. Option B is incorrect because the account does not show the firm’s ordinary operating profit; it shows only the result of dissolution-related realisation. Exam tip: A credit balance indicates profit, while a debit balance indicates loss.

On dissolution, non-cash assets are transferred to the Realisation Account at their book values by debiting the account. When an asset is subsequently sold, the actual sale proceeds are credited to the Realisation Account. If a partner takes over the asset, it is recorded at the agreed value in the partner’s Capital Account, which is different from the initial transfer at book value. Exam tip: Remember, ‘transfer of assets to the Realisation Account = book value.’

Normally, dissolution expenses are borne by the firm and are debited to the Realisation Account. Therefore, the correct answer is the firm. A bank may merely make the payment from the firm’s account; it is not the party bearing the expense. Exam tip: If a partner specifically undertakes to bear the expenses, the accounting treatment changes; such an exception is usually stated in the question.

Payment to creditors is not recorded in the Realisation Account. The entry for payment is: Creditors Account Dr. To Bank Account. Creditors are transferred to the credit side of the Realisation Account, but their actual payment is recorded separately. Exam tip: Distinguish between transferring creditors to the Realisation Account and paying them through the Bank Account.

Profit arising from the Realisation Account is transferred to the partners’ capital or current accounts in their pre-agreed profit-sharing ratio, unless the partnership agreement provides otherwise. The capital ratio is not used merely because partners may have unequal capitals. Exam tip: Transfer realisation profit or loss in the profit-sharing ratio unless a specific agreement states a different basis.

A Realisation Account loss represents the overall loss arising from the realisation of assets and settlement of liabilities. It is transferred from the Realisation Account to the partners’ Capital Accounts, or to their Current Accounts under the fixed-capital method, in their profit-sharing ratio. The loss is not transferred to creditors or the Government, and the Bank Account records only actual cash receipts and payments. Exam tip: Always distribute realisation profit or loss among partners in their profit-sharing ratio.

During dissolution, assets and liabilities are first dealt with through the Realisation Account, and the resulting realisation profit or loss is transferred to the partners’ capital accounts. The capital accounts are then closed when their final balances are paid or adjusted. Therefore, option A is correct. Option D is incorrect because capital accounts are closed even when realisation results in a loss. Exam tip: The Realisation Account does not directly close capital accounts; it transfers the realisation profit or loss to them.

Unpaid expenses represent amounts still payable by the firm to outside parties, so they are liabilities. During dissolution, these liabilities are dealt with through the Realisation process; they are not assets, profits or partners’ capital. Exam tip: classify outstanding expenses as liabilities, whereas realisation expenses paid by the firm are debited to the Realisation Account.

Selling the assets for cash brings the sale proceeds into the firm, so the cash or bank balance increases. The entry is: Bank Account Dr. To Realisation Account. Option D is incorrect because the sale creates a cash inflow; any reduction in partners’ capital may occur later due to a net realisation loss, not as the direct effect of the sale. Exam tip: Debit the Cash/Bank Account with the proceeds received from asset realisation.

Nominal accounts relate to incomes, expenses, profits and losses. Before dissolution, their balances are transferred to the Profit and Loss Account and the accounts are closed; therefore, they are not transferred to the Realisation Account. The Realisation Account generally records non-cash assets, external liabilities, and items connected with their realisation or settlement. Options B and C are incorrect because nominal accounts are neither assets nor external liabilities. Exam tip: close nominal accounts through the Profit and Loss Account before preparing the Realisation Account.

At dissolution, all recorded assets, including stock, are transferred to the Realisation Account at their book values. Therefore, option A is correct. Option B applies when a partner takes over the stock, in which case the agreed takeover value is recorded. Exam tip: distinguish the transfer of an asset to the Realisation Account at book value from its subsequent sale or takeover at the amount realised or agreed.

The balance of the Profit and Loss Account is not transferred to the Realisation Account; it is distributed among the partners through their Capital Accounts. Generally, assets except cash and bank balance, along with external liabilities, are transferred to the Realisation Account, so options B, C and D represent accounts that are transferred. Exam tip: Remember that the Realisation Account records the realisation of assets and settlement of external liabilities, not the Profit and Loss Account balance.

Cash received from the sale of assets is credited to the Realisation Account because it represents a realisation receipt. In contrast, assets transferred to the Realisation Account are recorded on its debit side. Exam tip: remember the rule—assets transferred are debited, while receipts from their sale are credited to the Realisation Account.

When an asset is sold for less than its book value, the resulting loss produces a debit balance in the Realisation Account. This loss is then transferred to the partners’ Capital Accounts in their profit-sharing ratio by debiting those accounts. The credit side generally records the proceeds from the sale of assets, so option B is incorrect. Exam tip: A debit balance in the Realisation Account indicates a loss, while a credit balance indicates a profit.

On dissolution, assets are generally transferred to the debit side of the Realisation Account at their book values. The actual proceeds from selling those assets are then credited to the Realisation Account, so the sale value may differ from the book value. Cash, bank balance and fictitious assets are generally not transferred to this account. Exam tip: remember book value for transfer and actual proceeds for sale.

When the amount needed to settle the liabilities fully is greater than the amount realised from the assets, a deficiency arises. This deficiency is recorded as a loss in the Realisation Account and is ultimately transferred to the partners’ capital accounts. Therefore, the profit option is incorrect. Exam tip: Determine the result by comparing the proceeds from assets with the amount paid for settling liabilities.

At the beginning of dissolution, all assets except cash and bank balance are transferred to the debit side of the Realisation Account. Outside liabilities, excluding a partner’s loan, are transferred to its credit side. Cash or bank balance and a partner’s loan are settled through their respective accounts, so option A is correct. Exam tip: remember the basic rule—assets are transferred on the debit side and liabilities on the credit side of the Realisation Account.

At dissolution, the Realisation Account records the proceeds from assets, settlement of liabilities, and realisation expenses to determine the resulting profit or loss. The final capital balances of partners are worked out through the partners’ capital accounts, so option B is not the primary purpose. Exam tip: Realisation profit or loss is transferred to the partners’ capital accounts in their profit-sharing ratio.

When an asset is sold for more than its book value, the difference between the sale value and book value is a realisation profit, which is credited to the Realisation Account. A realisation loss arises only when the asset is sold below its book value. Exam tip: Sale value > Book value = realisation profit; Sale value < Book value = realisation loss.

When creditors are paid on dissolution, the Realisation Account is debited and the Cash or Bank Account is credited. Therefore, the correct answer is Realisation Account. Although the actual money is paid from cash or bank, the expense or settlement is recorded through the Realisation Account. Exam tip: For payment of an external liability, remember the entry: Realisation A/c Dr. To Cash/Bank A/c.

At dissolution, external liabilities are generally paid out of the firm’s cash, and the payment is recorded in the Realisation Account. Merely revaluing assets or earning a realisation profit does not discharge a liability. Exam tip: the usual entry for payment is to debit the concerned liability account and credit Cash/Bank.

A loss on the Realisation Account is transferred to the partners’ capital accounts in their profit-sharing ratio by debiting them. Consequently, each partner’s capital balance decreases. Option B is incorrect because capital increases when there is a realisation profit. Exam tip: Realisation loss means debit partners’ capital accounts, while realisation profit means credit them.