Realisation Account

The Realisation Account records the sale of assets, settlement of liabilities and related realisation expenses. Omitting any such transaction changes the account balance, so the profit or loss on realisation is calculated incorrectly. It cannot be concluded that only profit or only loss will always increase. Exam tip: check the effect of every omitted asset, liability or realisation expense before determining the final balance.

When a partner takes over a firm’s liability, the firm is relieved from paying that liability. Therefore, the partner’s Capital Account is credited with the amount of the liability, while the Realisation Account is debited. The entry is: Realisation Account Dr. To Partner’s Capital Account. Hence, option A is correct. No cash or bank transaction takes place at this stage. Exam tip: For a liability taken over by a partner, remember—credit the partner’s Capital Account and debit the Realisation Account.

When non-cash assets are sold during dissolution, the actual amount received is credited to the Realisation Account. This records the disposal proceeds and helps determine the profit or loss on realisation by comparing them with the book value of the assets. Option B is incorrect because the book value of an asset does not increase merely because it is sold. Exam tip: Transfer the book value of assets to the debit side of the Realisation Account and record the sale proceeds on its credit side.

An unrecorded asset has no book value, so it is not transferred to the Realisation Account at any value. The sale proceeds are credited to the Realisation Account, while Cash or Bank Account is debited. Therefore, option A is correct. Exam tip: For an unrecorded asset, record only the amount realised, not any book value.

The Realisation Account records the relevant realisation proceeds and payments made during dissolution, including payments to settle liabilities. When its total credit-side receipts equal its total debit-side payments, the account balances with a zero balance; therefore, there is neither a realisation profit nor a realisation loss. This equality does not automatically increase the partners’ capital. Exam tip: a credit-side excess indicates realisation profit, while a debit-side excess indicates realisation loss.

When a partner brings cash into the firm, Cash Account is debited and the partner’s Capital Account is credited. Therefore, the amount is shown on the credit side of the partner’s Capital Account, not in the Realisation Account. The Realisation Account records the transfer and disposal of assets and the settlement of liabilities. Exam tip: remember the entry—Cash A/c Dr. To Partner’s Capital A/c.

When only part of a liability is paid and the creditor has not waived the unpaid amount, the balance continues to be payable by the firm or the partners. It does not automatically become a profit; a gain arises only when the creditor agrees to waive or settle the remaining amount. Exam tip: Treat partial payment as incomplete discharge and recognise a gain only for the amount actually waived.

When a liability is settled for less than its book value, the amount saved is a gain for the firm. The liability is debited at its book value and Bank is credited with the actual amount paid; the difference is recorded as a profit in the Realisation Account. Do not confuse this with a loss on the sale of an asset—settling a liability at a discount creates a gain. Exam tip: liability settled below book value = difference credited as profit to the Realisation Account.

The credit side of the Realisation Account records the total consideration realised from an asset. Therefore, the cash received plus the agreed value of the non-cash consideration must be recorded. Recording only the cash or only the non-cash portion would understate the realisation, while profit or loss is determined from the final balance of the account. Exam tip: For an asset sale, include the entire consideration, whether received in cash or in kind.

The loss on realisation is distributed among the partners in their profit-sharing ratio and debited to their capital accounts. Therefore, the partner bearing the larger share of the loss will have a larger debit adjustment in the capital account. The bank account records actual cash receipts and payments, while the Realisation Account is closed after transferring the resulting profit or loss. Exam tip: Transfer realisation profit or loss in the profit-sharing ratio, not the capital ratio.

When a partner takes over a firm’s asset, the asset is recorded in the Realisation Account at the value agreed upon by the firm and the partner. This agreed takeover value may differ from the book value, so recording it automatically at book value is incorrect. Exam tip: partner’s takeover of an asset is recorded at the agreed takeover value, not necessarily at market or book value.

An incorrect entry in the Realisation Account changes the amount of realisation profit or loss. That profit or loss is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio; therefore, the final effect is on the closing balances of those capital accounts. The effect is not confined to the Cash Account. Exam tip: Realisation profit or loss is ultimately transferred to the partners’ capital or current accounts.

When a liability is settled for more than its book value, the excess payment is recorded as a loss in the Realisation Account. Therefore, the realisation loss increases. Conversely, settling a liability for less than its book value results in a profit. Exam tip: payment > book value means loss, while payment < book value means profit.

The Realisation Account determines the profit or loss arising from the sale of assets and settlement of external liabilities. Recognising possible losses, such as an asset being sold below its book value, while not anticipating unrealised gains reflects the prudence or conservatism principle. The going-concern principle is not the primary basis because dissolution involves winding up the firm rather than continuing its operations. Exam tip: The realisation profit or loss is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio.

In the Realisation Account, the book value of an asset is debited and the amount realised from it is credited. When the book value exceeds the actual realisable value, the debit is greater than the corresponding credit, resulting in a higher realisation loss. Option A is incorrect because overvaluation of an asset does not increase the profit; it increases the loss or reduces the profit. Exam tip: an overvalued asset generally leads to a higher realisation loss or a lower realisation profit.

The Realisation Account records the realisation of assets and the settlement of liabilities. When its credit side exceeds its debit side, the result is a realisation profit; when the debit side exceeds the credit side, it is a realisation loss. This profit or loss is transferred to the partners’ capital accounts in their profit-sharing ratio. Hence, option A is correct. Option C is incorrect because the firm’s cash balance is shown in the Cash or Bank Account, not as the closing balance of the Realisation Account. Exam tip: Transfer realisation profit or loss to the partners’ capital accounts in the profit-sharing ratio.

In the Realisation Account, the asset is debited at its book value, while the value at which the partner takes it over is credited to the partner’s capital account. If the takeover value is lower than the book value, the debit exceeds the credit, thereby increasing the loss in the Realisation Account. Hence, option B is correct. Option A is incorrect because a lower takeover value causes a loss rather than a profit. Exam tip: compare the book value with the agreed takeover value; if the book value is higher, the difference represents a loss.

The Realisation Account records the transfer and realisation of assets, the transfer and settlement of liabilities, and realisation expenses. The difference between its debit and credit totals shows the profit or loss on realisation, which is transferred to the partners’ capital accounts. Thus, the final balance may be either a profit or a loss. Exam tip: if the credit total exceeds the debit total, there is a profit; if the debit total exceeds the credit total, there is a loss.

On transferring a liability, the Realisation Account is credited; on paying that liability, the Realisation Account is debited. Here, the credit for the transfer is omitted, but the debit for payment is recorded. Thus, the debit side of the Realisation Account is overstated without the corresponding credit, causing the loss on realisation to be overstated. Exam tip: For every liability, verify both its transfer entry and its settlement entry.

All entries relating to the realisation of assets, settlement of liabilities and realisation expenses are recorded first. The resulting balance of the Realisation Account is then transferred as profit or loss to the partners’ capital accounts in their profit-sharing ratio. Hence, option A correctly identifies the final stage. Transferring assets at book value is only an initial step, not the final adjustment. Exam tip: The balance of the Realisation Account is transferred to the partners’ capital accounts in the profit-sharing ratio.

Non-cash assets are first transferred to the debit side of the Realisation Account at their book values. When they are sold, the entry is: Cash/Bank Account Dr. and Realisation Account Cr. Therefore, the sale proceeds are credited to the Realisation Account. The difference between the sale proceeds and the book value determines the realisation profit or loss. Exam tip: On selling an asset, remember Cash/Bank Dr. and Realisation Cr.

If a liability is settled for more than its book value, the difference is treated as a loss on realisation. If it is settled for less than its book value, the difference is treated as a gain on realisation. Hence, the difference is recorded as profit or loss in the Realisation Account. The cash balance is also affected, but the relevant effect in the Realisation Account is the gain or loss. Exam tip: Compare the settlement amount with the liability’s book value to determine whether it is a gain or a loss.

The Realisation Account determines the profit or loss arising from the realisation of assets and settlement of liabilities. If its debit and credit totals are equal, there is no balancing figure; therefore, neither profit nor loss arises on realisation. Remember the exam rule: an excess of the credit side indicates profit, while an excess of the debit side indicates loss.

An error discovered after the Realisation Account has been closed is not corrected by reopening that account. Instead, the required adjustment is made in the partners’ Capital Accounts, generally in their profit-sharing ratio, because the realisation profit or loss has already been transferred there. The Bank Account records actual cash or bank transactions, so it is not the appropriate account for this rectification. Exam tip: After closure of the Realisation Account, rectify an error through the partners’ Capital Accounts in the profit-sharing ratio.

The Realisation Account is prepared on dissolution to record the sale or transfer of assets and the settlement of liabilities, and to determine the resulting profit or loss. This profit or loss is transferred to the partners’ capital accounts in their profit-sharing ratio. Partners’ salaries and interest on capital are generally dealt with through the Profit and Loss Appropriation Account, so options B and C are incorrect. Exam tip: link the Realisation Account specifically with the profit or loss arising from the realisation of assets and settlement of liabilities.