At the time of dissolution, an asset with a book value of ₹40,000 was sold for ₹30,000, but it was mistakenly recorded at zero value in the Realisation Account. What will be the effect?

Correct answer: Realisation profit will be overstated

In the Realisation Account, the asset should have been debited at its book value of ₹40,000, while the sale proceeds of ₹30,000 should be credited. Recording the asset at zero omits the ₹40,000 debit, so the credit balance—and hence the realisation profit—is overstated by ₹40,000. Exam tip: debit assets transferred at book value and credit the actual sale proceeds.