Realisation Account

The debit side of the Realisation Account records the assets transferred from the books of the firm, excluding cash and bank balances, along with realisation expenses. Transferred liabilities and proceeds from the sale of assets are generally recorded on the credit side, so option B is incorrect. Exam tip: In a Realisation Account, assets and expenses go on the debit side, while liabilities and receipts go on the credit side.

The amount received from the sale of assets is credited to the Realisation Account because it represents the actual realisation from those assets. Transfer of assets, realisation expenses and payment of liabilities are recorded on the debit side. Exam tip: Remember the distinction—assets transferred are debited, but the proceeds from their sale are credited.

When an unrecorded liability is paid, Realisation Account is debited because the payment is a dissolution-related loss or expense, and Cash/Bank Account is credited because cash is paid out. Option B reverses the treatment, while option D is incorrect because the payment must be recorded. Exam tip: For an unrecorded liability paid by the firm, remember Realisation Dr. and Cash/Bank Cr.

At dissolution, the realisation profit or loss, accumulated profits or losses, and other adjustments are transferred to the partners’ Capital Accounts. The final balance therefore represents the amount payable to the partner when it is a credit balance, or the amount recoverable from the partner when it is a debit balance. Option C refers only to the realisation profit or loss, not to the final settlement amount. Exam tip: A credit capital balance is paid to the partner, while a debit balance is recovered from the partner.

When the cash proceeds from an asset are lower than its book value, the asset is transferred to the debit side of the Realisation Account at book value, while the cash received is credited. The debit side then exceeds the credit side, resulting in a loss on realisation, which is transferred to the partners’ capital accounts. A profit would arise only when the proceeds exceed the book value. Exam tip: Proceeds < Book Value = Loss on Realisation.

At dissolution, the Realisation Account records the transfer and sale of assets and the settlement or transfer of liabilities. The resulting balance shows the profit or loss on realisation, which is then transferred to the partners’ capital or current accounts. Determining a new profit-sharing ratio is not the purpose of this account. Exam tip: Cash and bank balances are generally not transferred to the Realisation Account.

The Realisation Account determines the profit or loss arising from the sale of assets and settlement of liabilities. If it shows a profit, that profit is transferred to the partners’ Capital Accounts in their profit-sharing ratio. The Bank Account records the cash received, not the distribution of realisation profit, so option B is incorrect. Exam tip: Realisation profit or loss is transferred to the partners’ Capital or Current Accounts in the agreed profit-sharing ratio.

After recording the transfer and realisation of assets, settlement of external liabilities, and realisation expenses, the profit or loss on realisation is determined. This profit or loss is finally transferred to the partners’ capital accounts in their profit-sharing ratio, making option A correct. Options B and C are initial steps, while option D is generally completed before the account is closed. Exam tip: The final balance of the Realisation Account is transferred to the partners’ capital accounts.

In the Realisation Account, the book value of assets is debited and the book value of external liabilities is credited. When both amounts are equal and there are no realisation or dissolution expenses, the account balances to zero; therefore, there is neither a realisation profit nor a realisation loss. A loss would arise if assets were realised below book value or if expenses were incurred. Exam tip: Determine realisation profit or loss from the difference between the credit and debit sides of the Realisation Account.

Salary that is due to employees but has not yet been paid is an external liability of the firm. On dissolution, such a liability is transferred to the Realisation Account, and the Realisation Account is debited when it is paid. It is neither an asset, profit nor capital. Exam tip: unpaid salary is a liability, whereas salary paid in advance is treated as an asset.

The Realisation Account records the amounts received from the disposal of assets and the payments made to settle liabilities at the time of dissolution. It is used to determine the profit or loss arising from this realisation and settlement. The matching principle relates to general profit measurement, while historical-cost valuation and recognition of sales revenue alone are not the primary purposes of this account. Exam tip: Associate the Realisation Account with asset realisation, liability settlement, and the resulting profit or loss.

When a partner takes over an asset below its book value, the Realisation Account records a loss. The resulting balance of the Realisation Account is transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, the correct answer is partners’ capital accounts. The Realisation Account determines the loss but does not retain it as the final recipient. Exam tip: On dissolution, realisation profit or loss is transferred to the partners’ capital accounts in the profit-sharing ratio.

The Realisation Account records the profit or loss arising from the sale of assets and settlement of liabilities. Its resulting profit or loss is transferred to the partners’ capital accounts in their agreed profit-sharing ratio. Therefore, option A is correct; an equal ratio applies only when the partners share profits equally. Exam tip: On dissolution, transfer the Realisation Account profit or loss in the profit-sharing ratio.

When a partner takes over an unrecorded asset, the partner is treated as paying the firm for its agreed value. Therefore, the partner’s Capital Account is debited and the Realisation Account is credited. Option B would apply if the unrecorded asset were sold for cash. Exam tip: For an unrecorded asset taken over by a partner, remember Partner’s Capital Account Dr. to Realisation Account.

In the Realisation Account, the book value of assets transferred is debited and the value of liabilities transferred is credited. Sale proceeds received from assets are also credited to the Realisation Account. Realisation expenses, however, are debited, so option A is correct. Exam tip: remember the rule—assets and expenses go on the debit side, while liabilities and proceeds from asset realisation go on the credit side.

A credit balance in the Realisation Account indicates a profit from the realisation of assets and settlement of liabilities. This profit is transferred to the partners’ capital accounts in their profit-sharing ratio. In contrast, a debit balance represents a realisation loss. Exam tip: credit balance in the Realisation Account means profit, while debit balance means loss.

On dissolution, all assets except cash or bank balance are transferred to the debit side of the Realisation Account, while external liabilities are transferred to its credit side. Partners’ capital, drawings and partners’ loans are not transferred to the Realisation Account as initial items. Exam tip: debit assets and credit liabilities—the transfer entries form the starting point of the Realisation Account.

The Realisation Account records the transfer or sale of non-cash assets, settlement of liabilities, and related realisation expenses at the time of dissolution. Its balance determines the profit or loss on realisation, which is transferred to the partners’ capital accounts in their profit-sharing ratio. Option B concerns opening balances of capital accounts, while option D relates to the admission of a new partner. Exam tip: a credit balance in the Realisation Account indicates profit, whereas a debit balance indicates loss.

In the Realisation Account, items such as assets transferred and realisation expenses are generally debited, while proceeds from the sale of assets and amounts related to liabilities taken over are credited. If the total credit exceeds the total debit, the difference is realisation profit; if the debit total is higher, it is a loss. Therefore, the cash received from sales alone is not the profit. Exam tip: Add both sides of the Realisation Account and compare their totals to determine profit or loss.

Unrealised sale consideration is an amount receivable from the buyer and is therefore treated as a receivable asset, not a liability. When an asset is sold on credit, the debtor is debited and the Realisation Account is credited; the debtor balance remains until the amount is collected. Exam tip: an amount receivable by the firm is an asset, whereas an amount payable by the firm is a liability.

When a partner pays the firm’s liability out of personal funds, the firm becomes liable to reimburse that partner. Therefore, the entry is: Realisation Account Dr. To Partner’s Capital Account, so the partner’s Capital Account is credited. A debit to the partner’s Capital Account applies when the partner takes over a liability, not when the partner pays it on behalf of the firm. Exam tip: For ‘liability paid by partner’, remember that the partner’s Capital Account is credited.

Realisation expenses borne by the firm are debited to the Realisation Account because they are costs incurred in the process of winding up the firm. The credit side generally records the transfer and realisation of assets, so the credit side is incorrect. Exam tip: remember that expenses and the transfer of assets are recorded on the debit side of the Realisation Account; however, treatment may differ when a partner personally undertakes to bear the expenses.

When a creditor takes over an asset in settlement of the firm’s liability, the amount payable to the creditor decreases. Therefore, the Creditor’s Account is debited with the agreed value and the Realisation Account is credited. Cash Account is not involved because no cash is received or paid. Exam tip: remember the entry—Creditor A/c Dr. To Realisation A/c.

A bad debt yields no recovery, so the book value of the concerned asset is treated as a loss and debited to the Realisation Account. Therefore, option A is correct. Option C is incorrect because non-recovery of an asset causes an actual loss to the firm. Exam tip: When an asset is realised for less than its book value, or not realised at all, the difference is a Realisation loss.

When an unrecorded asset is taken over by a partner, the partner is charged with the agreed value of the asset, so the partner’s capital account is debited. The corresponding credit is given to the Realisation Account because the asset has been realised through takeover. Therefore, the correct entry is Partner’s Capital A/c Dr. To Realisation A/c. The Bank A/c is used only when the asset is sold for cash. Exam tip: For an asset taken over by a partner, debit the partner’s capital account and credit the Realisation Account.