During the dissolution of a partnership firm, an expense of ₹3,000 is recorded in the Realisation Account. What will be its effect?

Correct answer: Loss will increase

At the time of dissolution, realisation expenses are debited to the Realisation Account. This increases the debit balance of the account and consequently increases the loss on realisation by ₹3,000. Therefore, the option stating that profit increases is incorrect. Exam tip: Realisation expense is debited to the Realisation Account and increases the realisation loss.