At the time of dissolution of a partnership firm, what will be the result in the Realisation Account if the amount realised from assets is less than the amount paid to settle liabilities?

Correct answer: Realisation loss

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.