Realisation Account

The Realisation Account records the disposal of assets, settlement or transfer of liabilities, and related realisation expenses at dissolution. The resulting balance shows the profit or loss on realisation, so option A is correct. Declaring dividends is associated with companies and is not the purpose of this account. Exam tip: associate the Realisation Account with dissolution, settlement of assets and liabilities, and realisation profit or loss.

At the time of dissolution, assets are debited to the Realisation Account at their book values, i.e., the values recorded in the books. The actual sale proceeds are credited separately to the Realisation Account; therefore, realised or market value is not used for transferring the assets. Exam tip: cash/bank balances and fictitious assets are generally not transferred to the Realisation Account.

External liabilities of the firm, such as creditors, are transferred at their book value to the credit side of the Realisation Account. When a liability is paid, the payment is recorded on the debit side of that account. A partner’s loan is not an external liability and is therefore not transferred to Realisation Account. Exam tip: liabilities are credited and assets are debited in the Realisation Account.

Fictitious assets, such as preliminary expenses and discount on issue of debentures, are not realisable assets and do not generate sale proceeds. On dissolution, they are debited to the Realisation Account and the respective fictitious asset account is credited, thereby writing off their balance. Hence, option B is correct. For exams, distinguish them from real assets: real assets are transferred to the Realisation Account for disposal, whereas fictitious assets are simply written off through it.

Profit or loss arising from the realisation of assets and settlement of liabilities is initially recorded in the Realisation Account. The resulting profit or loss is then transferred to the partners’ capital accounts in their profit-sharing ratio. Thus, the Capital Account receives the final transfer but is not the account where the realisation result is first recorded. Exam tip: In dissolution questions, link the sale of assets and settlement of liabilities with the Realisation Account.

When an asset is sold for less than its book value, the difference represents a loss on realisation. This loss is recorded in the Realisation Account and is ultimately transferred to the partners’ capital accounts in their profit-sharing ratio. Therefore, option B is correct; a sale below book value cannot create a realisation profit. Exam tip: sale value < book value means realisation loss, while sale value > book value means realisation profit.

When the firm bears the realisation expenses, they are debited to the Realisation Account and Cash or Bank Account is credited. This reduces the realisation profit or increases the realisation loss. Option A is incorrect because crediting an expense to the Realisation Account would increase income. Exam tip: remember the basic entry as ‘Realisation Account Dr. to Cash/Bank’.

On dissolution, a partner’s loan is repaid after all external liabilities have been settled but before the partners’ capital is returned. The partner’s loan is not transferred to the Realisation Account; it is paid separately out of the available cash. Therefore, option B is correct. Exam tip: Remember the order—external liabilities, partner’s loan, and then partners’ capital.

An unrecorded liability is a liability that was not entered in the books before dissolution. When it is paid during dissolution, the payment is recorded on the debit side of the Realisation Account; therefore, Realisation Account is correct. It is not recorded in the Revaluation Account, which deals with changes in the values of recorded assets and liabilities. Exam tip: During dissolution, realisation of assets and settlement of liabilities are recorded through the Realisation Account.

When a partner takes over an asset of the firm, the value of that asset is debited to the partner’s capital account because it is adjusted against the partner’s capital claim. The related journal entry is Partner’s Capital Account Dr. and Realisation Account Cr. Therefore, crediting the capital account is incorrect. Exam tip: For an asset taken over by a partner, remember Partner’s Capital A/c Dr. and Realisation A/c Cr.

A profit arises when a liability is settled for an amount lower than its book value; the difference becomes a gain in the Realisation Account. For example, settling a liability of ₹10,000 for ₹8,000 gives a profit of ₹2,000. Paying more than the book value causes a loss, while paying exactly the book value causes neither profit nor loss. Exam tip: for liabilities, payment less than book value means profit.

For cash received from the sale of an asset, the entry is: Bank Account Dr. To Realisation Account. Therefore, the amount is credited to the Realisation Account. Salaries, dividend and capital accounts are not used for recording this realisation transaction. Exam tip: Asset realisation proceeds are credited to the Realisation Account.

At dissolution, when a partner takes over the unsold stock at an agreed value, the partner’s Capital Account is debited and the Realisation Account is credited with that value. Therefore, option B is correct; the stock does not automatically become profit or get deposited in the bank. Exam tip: When a partner takes over an asset, credit the Realisation Account.

At dissolution, all non-cash assets appearing in the books, including goodwill, are transferred to the Realisation Account at their book value by debiting that account. If goodwill is sold, the proceeds are credited to the Realisation Account. Therefore, it is not transferred directly to the partners’ capital accounts. Exam tip: transfer the asset to the Realisation Account first, and record any sale proceeds there as well.

The Realisation Account is based on the realisation principle because it records the proceeds from the sale of assets and the settlement of liabilities to determine the profit or loss on dissolution. The cost principle relates to the historical cost of assets and is therefore not applicable here. Exam tip: Remember that the Realisation Account measures the result of converting assets into cash and settling liabilities during dissolution.

When the Realisation Account shows a loss, its debit balance is transferred to the partners’ capital accounts in their profit-sharing ratio. It is not transferred to current or loan accounts because the loss reduces the partners’ capital. Exam tip: Always transfer the profit or loss on realisation to the partners’ capital accounts in the profit-sharing ratio.

An unrecorded asset does not appear in the books before dissolution. When it is sold, the proceeds are credited to the Realisation Account because they arise from the disposal of an asset. The Cash Account is debited to record the receipt, but it is not credited with the disposal income. Exam tip: For an unrecorded asset sold for cash, debit Cash Account and credit Realisation Account.

When the amount realised from assets is less than the amount paid to settle liabilities, the debit side of the Realisation Account exceeds its credit side. The difference is called realisation loss and is transferred to the partners’ capital accounts in their profit-sharing ratio. Exam tip: lower realisation proceeds or higher settlement payments generally result in a realisation loss.

The Realisation Account records the amounts realised from assets and the payments or settlements relating to liabilities. Its balance represents the profit or loss on realisation, which is transferred to the partners’ capital accounts. It does not represent the firm’s cash balance or the total liabilities. Exam tip: Realisation profit is credited, while realisation loss is debited to the partners’ capital accounts.

When the selling price of an asset is equal to its book value, there is no difference arising from its realisation. Therefore, neither a realisation profit nor a realisation loss is recorded. A profit arises when the selling price exceeds book value, while a loss arises when it is lower. Exam tip: Compare selling price with book value; their difference determines the profit or loss.

When a partner takes over an asset of the firm, the partner’s capital account is debited with the agreed value of the asset, and the Realisation Account is credited. Therefore, the Partner’s Capital Account is correct. Exam tip: remember the entry—Partner’s Capital Account Dr. To Realisation Account.

Cash received from the sale of assets is recorded on the credit side of the Realisation Account because it represents proceeds from realising the firm’s assets. In contrast, assets transferred to the Realisation Account are recorded on the debit side, while a new loan and a partner’s new investment are not items of this account. Exam tip: Record sale proceeds on the credit side and the book value of assets transferred on the debit side.

The Realisation Account determines the profit or loss arising from the sale of assets and settlement of liabilities. In the final step, this profit or loss is transferred to the partners’ capital accounts, and the Realisation Account is closed. Therefore, option B is correct. Distributing dividends, paying partners’ salaries, or starting a new business is not the function of this account. Exam tip: The balance of the Realisation Account is always transferred to the partners’ capital accounts as realisation profit or loss.

At dissolution, an asset is transferred to the Realisation Account at its book value, but when it is sold, the actual amount received is recorded through the Cash/Bank Account in the Realisation Account. Therefore, the correct answer is the actual sale proceeds. Market value is relevant only if it is also the actual selling price; an estimated market value is not recorded merely on that basis. Exam tip: distinguish the book value used for transfer from the actual proceeds received on sale.

The sale of assets, payment of liabilities and dissolution expenses are recorded in the Realisation Account because they help determine the profit or loss on realisation. A partner’s new capital investment is not recorded in this account; it is generally recorded in the partner’s Capital Account and the Bank Account. Exam tip: The Realisation Account records settlement-related transactions, not fresh capital introduced by a partner.