If realisation expenses increase, what effect will this have on the profit or loss arising from the dissolution of the firm?

Correct answer: Loss will increase

Realisation expenses are debited to the Realisation Account. Therefore, an increase in these expenses reduces any realisation profit or increases the realisation loss; hence, the correct option is that the loss will increase. Profit cannot increase because higher expenses reduce the net result. Exam tip: Items debited to the Realisation Account generally reduce profit or increase loss.