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If all errors in the Realisation Account are corrected before the books are closed, what will be the final effect?

Answer and explanation

Correct answer: The actual realisation profit or loss will be correctly determined

The Realisation Account records the realisation of assets, settlement of liabilities and realisation expenses. Correcting all errors ensures that the actual realisation profit or loss is calculated accurately and transferred correctly to the partners’ capital accounts. The profit or loss will not necessarily increase; its change depends on the nature of the error. Exam tip: After rectification, the balance of the Realisation Account represents the actual realisation profit or loss.

Related tags

AccountancyPartnership DissolutionRealisation AccountError RectificationClass 12 AccountancyDissolution Of A Partnership FirmClass 12 Mcq

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