At the time of dissolution, ₹15,000 out of a liability of ₹20,000 was paid, but the payment was not recorded. If the liability had already been transferred to the Realisation Account, what would be the effect on the Realisation Account?

Correct answer: Profit will be overstated by ₹15,000

The correct entry for payment of the liability is: debit the Realisation Account by ₹15,000 and credit the Cash/Bank Account by ₹15,000. If this entry is omitted, the debit side of the Realisation Account is understated by ₹15,000, so the profit is overstated by the same amount. Since the liability has already been transferred to the Realisation Account, it will not increase by ₹15,000. Exam tip: Record settlement of a liability by debiting Realisation Account and crediting Cash/Bank Account.