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At the time of dissolution, if an unrecorded asset is treated as having zero value and ignored despite having an actual value, what will be the effect?

Answer and explanation

Correct answer: The profit in the Realisation Account will be understated

The proceeds from an unrecorded asset are credited to the Realisation Account. If the asset is ignored and treated as having zero value, this credit is omitted, so the profit is understated or the loss is overstated. Option B is incorrect because recognising the asset’s realisation increases the realisation profit rather than reducing it. Exam tip: Credit the Realisation Account with proceeds from an unrecorded asset and debit it for payment of an unrecorded liability.

Related tags

Realisation AccountDissolution Of PartnershipUnrecorded AssetsAccounting AdjustmentsClass 12 AccountancyDissolution Of A Partnership FirmAccountancyClass 12 Mcq

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