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At the time of dissolution, a liability with a book value of ₹8,000 is settled for ₹8,000. What will be its effect on the Realisation Account?

Answer and explanation

Correct answer: No profit or loss

The liability is settled for exactly its book value of ₹8,000. Therefore, the difference between the book value and the amount paid is zero, so no profit or loss arises in the Realisation Account. Exam tip: For a liability settled on dissolution, compare its book value with the amount paid; equal amounts result in no gain or loss.

Related tags

Partnership DissolutionRealisation AccountSettlement Of LiabilitiesAccounting TreatmentDissolution Of A Partnership FirmAccountancyClass 12 Mcq

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