Realisation Account

At dissolution, external liabilities are transferred at their book value to the credit side of the Realisation Account because their settlement is part of the realisation process. The debit side records assets transferred and expenses or liabilities paid, so option B is incorrect. Exam tip: do not transfer a partner’s loan to the Realisation Account; it is settled through the partner’s loan account.

If an asset remains unsold at dissolution, a partner may take it over at an agreed value. The partner’s Capital Account is debited and the Realisation Account is credited. Therefore, option A is correct. The asset cannot simply be written off or credited to Cash Account because no cash is received in a takeover. Exam tip: For an asset taken over by a partner, record: Partner’s Capital A/c Dr. To Realisation A/c.

The Realisation Account is a nominal account because it is used to determine the profit or loss arising from the transfer and settlement of assets and liabilities during dissolution. Its balance is ultimately transferred to the partners’ capital accounts. It is not a real account, as it does not represent an asset or liability itself. Exam tip: In dissolution questions, the account used to ascertain realisation profit or loss is classified as a nominal account.

Profit on realisation belongs to the partners, so it is transferred to the partners’ capital accounts in their profit-sharing ratio. It is not transferred to the current accounts, while the bank account records cash receipts and payments only. Exam tip: both profit and loss on realisation are ultimately transferred to the partners’ capital accounts.

A loss arising from the Realisation Account is transferred to the partners’ capital accounts in their profit-sharing ratio. It is not recorded in the Bank Account, which records actual cash receipts and payments. Exam tip: Realisation profit or loss is transferred to the partners’ capital accounts in the profit-sharing ratio.

Expenses incurred during dissolution are debited to the Realisation Account because this account determines the profit or loss arising from the realisation of assets and settlement of liabilities. They are not normally recorded in the Profit and Loss Account. Exam tip: realisation of assets, settlement of liabilities and dissolution expenses are the main items recorded in the Realisation Account.

On dissolution, the partner’s loan is paid through the bank account after settling outside liabilities but before returning the partners’ capital. It is not transferred to the Realisation Account. Exam tip: Remember the payment order—outside liabilities, partner’s loan, and then partners’ capital.

Realisation expenses are debited to the Realisation Account. They increase the total cost of realisation, thereby reducing any realisation profit or increasing the realisation loss. Hence, option A is correct. Exam tip: Expenses and assets transferred are generally recorded on the debit side of the Realisation Account, while sale proceeds of assets and liabilities settled are recorded on its credit side.

When a partner takes over stock at an agreed value, the partner’s Capital Account is debited and the Realisation Account is credited with the agreed value. Therefore, option A is correct. Option D is incorrect because the entry is recorded at the agreed takeover value, not at the book value of the stock. Exam tip: An asset taken over by a partner credits the Realisation Account, whereas an asset sold to an outsider debits it.

A bank overdraft is an amount payable by the firm to the bank, so it is an external liability rather than an asset, expense, or partner’s capital. On dissolution, it is generally transferred to the Realisation Account and settled. Exam tip: an amount owed to a bank is normally classified as a liability.

Accumulated depreciation is adjusted against the related asset. Thus, the net book value of the asset is calculated and that net amount is transferred to the Realisation Account. It is not transferred separately to the Bank Account or partners’ capital accounts. Exam tip: deduct accumulated depreciation from the asset’s gross book value before transferring the balance to Realisation Account.

The Realisation Account is a nominal account prepared at dissolution to determine the profit or loss arising from the realisation of assets and settlement of liabilities. It is not merely a record of cash transactions, so option C is incorrect. Exam tip: assets are transferred to the debit side at book value, while liabilities are transferred to the credit side.

External liabilities must be settled during dissolution. If the firm does not have enough cash, the partners generally bring in the required amount so that these liabilities can be paid. Ignoring the creditors or increasing the realisation profit does not settle the firm’s obligation. Exam tip: remember that external liabilities are paid before any surplus is distributed among the partners.

When a partner takes over a firm’s asset, the amount of the asset becomes payable by the partner to the firm. Therefore, the partner’s Capital Account is debited and the Realisation Account is credited. Crediting the Capital Account would show the opposite effect. Exam tip: for an asset taken over by a partner, debit the partner’s Capital Account and credit the Realisation Account.

When a partner takes over a firm's liability, the liability of the firm is extinguished, so the liability account is debited. Since the partner assumes the obligation, the partner's capital account is credited. The entry is: Liability Account Dr. To Partner's Capital Account. Do not confuse this with a liability transferred to an outside party, where the Realisation Account is generally credited instead of the partner's capital account.

When assets are sold for an amount equal to their book values, there is no difference between the sale proceeds and the book values. Therefore, no realisation profit or loss arises from the assets in the Realisation Account. Option B would apply if the sale proceeds were higher than the book value, while option C would apply if they were lower. Exam tip: Sale proceeds − book value is the basis for determining realisation profit or loss.

The Realisation Account records transactions arising during dissolution, such as cash received from selling assets, cash paid to settle liabilities, and realisation expenses. It does not record all cash transactions of the firm, partners’ capital transactions, or routine operating transactions before dissolution. Exam tip: proceeds from asset realisation are credited to the account, while liability payments and realisation expenses are debited.

After recording the transfer and realisation of assets, settlement of liabilities and dissolution expenses, the profit or loss on realisation is determined. As the final entry, this profit or loss is transferred to the partners’ capital accounts in their profit-sharing ratio. Receipt from assets and payment to creditors are recorded earlier, while fresh investment is not a normal step in dissolution. Exam tip: Realisation profit is credited and realisation loss is debited to the partners’ capital accounts in the profit-sharing ratio.

The profit in the Realisation Account arises from realising assets and settling liabilities during dissolution. It is transferred to the partners’ capital accounts in their profit-sharing ratio. The Bank Account records cash receipts and payments; it does not receive the realisation profit as an appropriation. Exam tip: Transfer realisation profit or loss to the partners’ capital accounts in the profit-sharing ratio.

Unrecorded assets are assets that do not appear in the firm’s books before dissolution. When such an asset is sold or realised during dissolution, the amount received is credited to the Realisation Account. Therefore, option A is correct. Exam tip: unrecorded liabilities are also dealt with through the Realisation Account, but their payment is recorded on its debit side.

When a liability is settled for less than its book value, the difference is a gain to the firm and is recorded as a profit in the Realisation Account. For example, settling a liability of ₹10,000 for ₹8,000 results in a gain of ₹2,000. Exam tip: Settlement below book value gives a gain; settlement above book value gives a loss.

The Realisation Account is prepared at the dissolution of a firm to determine the profit or loss arising from the realisation of assets and settlement of liabilities. Therefore, it is based on the realisation principle. The cash principle focuses only on cash receipts and payments, whereas the Realisation Account records the outcome of disposing of assets and settling liabilities. Exam tip: At dissolution, use the Realisation Account to find the profit or loss on realisation of assets and settlement of liabilities.

A loan advanced by a partner is a separate liability of the firm towards that partner, not an external liability. Therefore, it is not transferred to the Realisation Account; after payment of outside liabilities, it is paid directly through the Cash/Bank Account. Exam tip: Do not transfer a partner’s loan to the Realisation Account.

The Realisation Account is a nominal account because it records the transfer and sale of assets and the settlement of liabilities to determine the profit or loss on dissolution. Its resulting balance is transferred to the partners’ capital accounts as profit or loss. Therefore, it is not a real or personal account. Exam tip: Remember that the primary purpose of the Realisation Account is to ascertain the profit or loss on dissolution.

During dissolution, the Realisation Account records the realisation of assets and payment of liabilities, and its net balance shows either a profit or a loss. A profit is credited to the partners’ capital accounts in their profit-sharing ratio, while a loss is debited in the same ratio. Therefore, the result cannot be profit only, loss only, or no result. Exam tip: The balance of the Realisation Account is transferred to the partners’ capital accounts.