At the time of dissolution, if an asset’s book value is higher than its actual realisable value, what will be the effect on the Realisation Account?

Correct answer: Profit will decrease and loss will increase

When an asset’s book value exceeds the amount actually realised from its sale, the difference is recorded as a loss in the Realisation Account. Consequently, the loss increases and the profit available to the partners decreases. Option A is incorrect because an inflated book value does not automatically create a profit. In the examination, always compare the book value with the actual sale proceeds.