At the time of dissolution, if an asset of the firm has a book value higher than its actual realisable value, what will be the effect on the Realisation Account, other things remaining the same?

Correct answer: Realisation loss will be overstated

In the Realisation Account, the book value of an asset is debited and the amount realised from it is credited. When the book value exceeds the actual realisable value, the debit is greater than the corresponding credit, resulting in a higher realisation loss. Option A is incorrect because overvaluation of an asset does not increase the profit; it increases the loss or reduces the profit. Exam tip: an overvalued asset generally leads to a higher realisation loss or a lower realisation profit.