On dissolution the firm closes its business: assets are sold, liabilities are paid and the balance is settled with the partners.
Realisation Account
- Transfer all assets (except cash, bank and fictitious assets) at book value to the debit side.
- Transfer all outside liabilities (not partners' loans or capitals) to the credit side.
- Record the sale of assets on the credit side and payment of liabilities on the debit side.
- Record realisation expenses on the debit side (or to the partner who pays them, if agreed).
- The balance is a profit or loss, shared in the profit-sharing ratio.
Order of payment (Section 48)
| Order | Paid out of the assets |
|---|---|
| 1 | Debts of the firm to third parties |
| 2 | Partners' loans and advances to the firm |
| 3 | Partners' capitals |
| 4 | The surplus, in the profit-sharing ratio |
Losses, including any deficiency of capital, are paid first out of profits, then out of capital, and lastly by partners individually in their profit-sharing ratio.
Common traps
- A liability taken over by a partner: credit that partner's Capital Account, not cash.
- An asset taken over by a partner: debit that partner's Capital Account.
- A partner's loan is paid directly from Cash/Bank, never through the Realisation Account.
Recorded lectures for this chapter
13 lectures (4 h 57 min) by Ronak Dugar in Class 12 Accountancy Book 1: Accounting for Partnership Firms. Enrolled students watch them in the student portal.
- Class 1 - Basics of Realisation A/c with a Question30 min
- Class 2 - Partner's Capital, Bank A/c, WCR & IFR Cases19 min
- Class 3 - Comprehensive Questions27 min
- Class 4 - Realisation Expenses Cases24 min
- Class 5 - Realisation expenses cases, Practical Question23 min
- Class 6 - Partner's Loan Cases17 min
- Class 7 - Comprehensive Question with Realisation Expenses & Partner Loan cases. Topic of Memorandum B/s23 min
- Class 8 - Questions of Journal Entries28 min
- Class 9 - 2 Full Fledged Comprehensive Questions28 min
- Class 10 - Comprehensive Question of Realisation A/c14 min
- Class 11 - Comprehensive Question of Realisation A/c14 min
- Class 12 - Memorandum Balance Sheet, Journal Entries Questions24 min
- Class 13 - Comprehensive Full Fledged Question with negative capital balance20 min
Learn this chapter with Ronak Sir
Classroom batches in Sector 9, Faridabad and recorded lectures online. Book a free demo class or call +91 83685 45620.