Realisation Account

On dissolution, non-cash assets are debited to the Realisation Account at their book values, with the respective asset accounts being credited. Any profit or loss arising from their actual sale is then recorded in the Realisation Account. Therefore, market value or estimated realisable value is not the basis for the initial transfer. Exam tip: Cash and bank balances are not transferred to the Realisation Account.

When a partner takes over an unsold asset at an agreed value, the amount payable by the partner is debited to the partner’s Capital Account. Since the asset is removed through the Realisation Account, the Realisation Account is credited. Option B reverses the entry and is therefore incorrect. Exam tip: For an asset taken over by a partner, remember: Partner’s Capital/Current A/c Dr. To Realisation A/c.

The Realisation Account is a nominal account because it is prepared to record the realised value of assets, settlement of liabilities and realisation expenses, and thereby determine the profit or loss arising from dissolution. Its balance is transferred to the partners’ capital accounts as realisation profit or loss. It is therefore not a real account, even though it includes items related to assets and liabilities. Exam tip: Realisation profit or loss is transferred to the partners’ capital accounts in their profit-sharing ratio.

When the sale proceeds of an asset exceed its book value, the difference is called profit on realisation. In accounting, the asset’s book value is debited to the Realisation Account and the sale proceeds are credited; therefore, the excess appears as a profit in that account and is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. A realisation loss arises only when the asset is sold below its book value. Exam tip: For an asset, sale value > book value means profit on realisation.

When an asset is sold below its book value, the difference between the book value and the sale proceeds is a loss on realisation. This loss is debited to 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 proceeds below book value indicate a realisation loss, while proceeds above book value indicate a realisation profit.

The Realisation Account records the profit or loss arising from selling or recovering non-cash assets and settling liabilities. Its final balance is therefore realisation profit or realisation loss, which is transferred to the partners’ capital accounts in their profit-sharing ratio. Hence, option A is correct. Option C refers only to payment of liabilities, while option D refers to cash distribution among partners; neither represents the final balance of the Realisation Account. Exam tip: the balance of the Realisation Account is always transferred to the partners’ capital accounts as profit or loss.

The profit or loss arising from the Realisation Account is transferred to the partners’ capital accounts in the old profit-sharing ratio because this is the agreed basis for sharing partnership profits and losses. The capital ratio is not used merely because the amounts of capital are different, unless a specific agreement requires it. Exam tip: On dissolution, distribute realisation profit or loss in the old profit-sharing ratio.

When a partner takes over stock, the agreed value is treated as the amount recoverable from that partner. Therefore, the partner’s Capital Account is debited and the Realisation Account is credited. Option C would apply when the stock is sold for cash to an outside party. Exam tip: For an asset taken over by a partner, debit the partner’s Capital Account and credit the Realisation Account.

A bank overdraft is a short-term borrowing from the bank, so it is an external liability of the firm. On dissolution, it is generally transferred to the Realisation Account as a liability; it is neither an asset nor the partners’ capital. Exam tip: money borrowed from the bank is a liability, whereas a positive bank balance is an asset.

Accumulated depreciation is a contra-asset account that is deducted from the original cost of the related asset. Therefore, it reduces the asset’s book or carrying value. It does not create a liability or increase the asset’s value. Exam tip: Book value = Original cost of the asset − Accumulated depreciation.

When a partner takes over a firm’s asset, the amount due from the partner is recorded by debiting the partner’s Capital Account. The corresponding entry is generally a credit to the Realisation Account. The Bank Account is affected only if cash is paid separately, so option C is not correct. Exam tip: remember the entry as Partner’s Capital Account Dr. To Realisation Account.

When a partner takes over a firm’s liability, the Liability Account is debited and that partner’s Capital Account is credited: Liability A/c Dr. To Partner’s Capital A/c. Therefore, option A is correct. Bank is credited only when the firm pays the liability, whereas no bank entry is made when the partner assumes it. Exam tip: whenever a partner takes over a liability, credit the partner’s Capital Account.

At dissolution, the Realisation Account records the transfer or sale of assets and the settlement or transfer of liabilities. Its balance shows the profit or loss on realisation, which is then transferred to the partners’ capital accounts. Therefore, option A is correct. Adjusting capital accounts is a consequence of the realisation result, not the primary purpose of this account. Exam tip: Remember Realisation Account as assets disposed of, liabilities settled, and profit or loss determined.

A credit balance in the Realisation Account arises when the realisation proceeds and credits relating to liabilities exceed the amounts debited to the account. It represents a realisation profit, which is transferred to the partners’ Capital Accounts in their profit-sharing ratio. Merely having cash receipts greater than cash payments does not by itself establish a profit; the book value of assets and the treatment of liabilities must also be considered. Exam tip: a credit balance means realisation profit, while a debit balance means realisation loss.

When the debit total of the Realisation Account exceeds its credit total, the firm has incurred more payments than the amounts realised from assets and other credit items. The difference is treated as a loss on realisation and is transferred to the partners’ capital accounts in their profit-sharing ratio. If receipts exceeded payments, it would result in a profit. Exam tip: Debit side greater means loss; credit side greater means profit.

When a partner takes over the machinery at an agreed value, the partner’s Capital Account is debited with that value and the Realisation Account is credited. This records the transfer of the firm’s asset to the partner. The Revaluation Account is generally used during reconstitution, not for recording this dissolution transaction, and an asset cannot be removed without an accounting entry. Exam tip: For an asset taken over by a partner, remember—partner’s Capital Account is debited and Realisation Account is credited.

When the amount realized from assets is less than the total liabilities and realization expenses, the debit balance of the Realisation Account represents a realisation loss. This loss is transferred to the partners’ capital or current accounts in their profit-sharing ratio. Therefore, the profit option is incorrect. Exam tip: a shortfall between realization proceeds and the amounts payable indicates a realisation loss; the reverse indicates a realisation profit.

When an asset is sold for more than its book value, the excess represents a profit on realisation. This profit is credited to the Realisation Account and ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. A loss arises only when the asset is sold below its book value. Exam tip: Compare the sale value with the book value—higher sale value means profit, while lower sale value means loss.

If an asset with a book value of ₹1,00,000 is sold for ₹80,000, the firm incurs a loss of ₹20,000. This loss is recorded on the debit side of the Realisation Account and is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. Option B is incorrect because a profit arises only when the sale proceeds exceed the book value. Exam tip: Compare sale proceeds with book value—lower proceeds mean a loss, while higher proceeds mean a profit.

When the cash realised from assets is insufficient to settle external liabilities, the partners bring in the required cash. This cash is used to pay the liabilities and is adjusted through the concerned partner’s Capital or Current Account. The deficiency cannot be ignored, and a fictitious profit cannot be recorded in the Realisation Account. Exam tip: At dissolution, external liabilities are settled before any final payment is made to the partners.

Once the firm's external liabilities are paid during dissolution, no amount remains payable against them, so they are treated as extinguished. The payment itself does not automatically increase realisation profit; profit or loss depends on the comparison between the book values, sale proceeds of assets, and settlement of liabilities. Exam tip: payment of a liability reduces the firm's obligation; it does not increase an asset.

The Realisation Account records and offsets all gains and losses arising from the realisation of assets. Selling one asset above book value creates a gain, while selling another below book value creates a loss; their combined effect determines the net profit or net loss on realisation. Therefore, it is not necessarily only a profit or only a loss. In an exam, identify the final balance of the Realisation Account to determine the net result.

When a partner takes over an unrecorded asset on dissolution, the correct entry is: Partner’s Capital Account Dr. To Realisation Account. Crediting the Capital Account instead means that the entry has been made on the wrong side of the account, so it is an error of commission. It is not an error of principle because no capital-versus-revenue classification principle has been violated. Exam tip: An incorrect posting to an account or to the wrong side of an account is generally classified as an error of commission.

When a partner takes over an asset, the agreed value is debited to the partner’s capital account and credited to the Realisation Account. Therefore, recording an incorrect value changes both the partner’s capital account balance and the profit or loss on realisation. The cash account is not necessarily affected because the transaction need not involve cash. Exam tip: For an asset taken over by a partner, remember the entry: Partner’s Capital Account Dr. to Realisation Account.

After external liabilities, partners’ loans and realisation expenses are settled, the remaining cash is used to settle the final amounts due to partners in their capital accounts. It is not automatically distributed in the profit-sharing ratio because partners may have different capital balances. Exam tip: Remember the settlement order in dissolution—external liabilities, partners’ loans and then partners’ capital.