If all assets are correctly recorded in the Realisation Account, but a major external liability is omitted from it and is paid later, what will be the effect on the final realisation profit?

Correct answer: Profit will be understated

When a liability is omitted from the Realisation Account, the credit for its book value is not recorded. If the liability is later paid, the payment is debited to the Realisation Account without the corresponding credit, thereby understating profit or increasing the loss. Hence, option B is correct. Exam tip: omission of a liability followed by its payment reduces realisation profit.