In the dissolution of a partnership firm, in which account is the profit arising from the sale of an asset determined?

Correct answer: Realisation Account

Profit or loss arising from the sale of assets and settlement of liabilities is determined in the Realisation Account. When there is a profit, the Realisation Account is debited and the profit is transferred to the partners’ Capital or Current Accounts. Thus, the partners’ capital accounts receive the final transfer, but the profit is determined in the Realisation Account. Exam tip: remember that the Realisation Account determines the profit or loss on dissolution, which is then distributed among the partners.