What is a Realisation
Account?
What is a Realisation Account?
On dissolution of a firm, all the books of account are
closed, all assets are sold and all liabilities are paid off. In order to
record the sale of assets and discharge of liabilities, a nominal account is
opened named Realisation Account. The main purpose to open Realisation Account
is to ascertain the profit or loss due to the realisation of assets and
liabilities. Realisation profit (if credit side > debit side) or realisation
loss (if debit side > credit side) are transferred to the Partner's Capital
Account in their profit sharing ratio.
Concisely, following are the important objectives of
preparing Realisation Account.
1) To close all the books of account.
2) To record transactions relating to the sale of assets and
discharge of liabilities.
3) To determine profit or loss due to the realisation of
assets and liabilities.
Accounting treatment of items related to Realisation
Account
1) For transfer of assets
Realisation A/c
Dr.
To Sundry Assets A/c
(Individually)
(All Assets transferred to
realisation account, except
Cash/Bank, P and L debit
balance, Loan to a Partner)
2) For transfer of liabilities
Sundry Liabilities A/c
(Individually)
Dr.
To Realisation A/c
(All Liabilities transferred
to Realisation account except
Partner's Capitals, P and L
credit balance, Loan from Partner)
3) For sale of assets
Bank A/c (Amount received)
Dr.
To Realisation A/c
(Assets sold for cash)
4) For payment of liabilities
Realisation A/c
Dr.
To Bank A/c
(Liabilities paid in cash)
5) For payment of realisation expenses
Realisation A/c
Dr.
To Bank A/c
(Expenses paid)
6) For transfer of profit on realisation
Realisation A/c
Dr.
To Partner's Capital A/c
(Profit on realisation
transferred to partner 's capital account)
7) For transfer of loss on realisation
Partner's Capital A/c
Dr.
To Realisation A/c
(Loss transferred to
partner's capital account)
Format of
Realisation Account
Dr.
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Various Assets
(Excluding Cash/Bank, fictitious assets, Debit balance of
P and L A/c, partner Capital A/c, Current A/c, Loan to Partner)
Cash/Bank
(Payment for realisation
expenses)
Cash/Bank
(Payment to outside and
unrecorded liabilities)
Partner's Capital A/c
(If any liability taken on expenses paid by him or
remuneration payable to him)
Partner Capital A/c
(Profit on realisation distributed in the profit sharing
ratio among all the partners)
–
–
–
–
Various Liabilities
(Excluding Partner Capital account, reserves, P and L A/c,
Current A/c, Loan to Partner)
Provision on assets
(like, Provision for doubtful debts; Provision for
depreciation)
Cash/Bank
(Amount received from
realisation of assets and unrecorded assets)
Partner 's Capital A/c
(If any asset taken over by any partner)
Partner Capital A/c
(Loss on realisation borne by all the partners in their
profit sharing ratio)
–
–
–
–
–
–
On dissolution of a firm, all the books of account are closed, all assets are sold and all liabilities are paid off. In order to record the sale of assets and discharge of liabilities, a nominal account is opened named Realisation Account. The main purpose to open Realisation Account is to ascertain the profit or loss due to the realisation of assets and liabilities. Realisation profit (if credit side > debit side) or realisation loss (if debit side > credit side) are transferred to the Partner's Capital Account in their profit sharing ratio.
Concisely, following are the important objectives of preparing Realisation Account.
1) To close all the books of account.
2) To record transactions relating to the sale of assets and discharge of liabilities.
3) To determine profit or loss due to the realisation of assets and liabilities.
Accounting treatment of items related to Realisation Account
1) For transfer of assets
|
Realisation A/c |
Dr. |
|
|
|
To Sundry Assets A/c (Individually) |
|
|
(All Assets transferred to realisation account, except Cash/Bank, P and L debit balance, Loan to a Partner) |
|
|
2) For transfer of liabilities
|
Sundry Liabilities A/c (Individually) |
Dr. |
|
|
|
To Realisation A/c |
|
|
(All Liabilities transferred to Realisation account except Partner's Capitals, P and L credit balance, Loan from Partner) |
|
|
3) For sale of assets
|
Bank A/c (Amount received) |
Dr. |
|
|
|
To Realisation A/c |
|
|
(Assets sold for cash) |
|
|
4) For payment of liabilities
|
Realisation A/c |
Dr. |
|
|
|
To Bank A/c |
|
|
(Liabilities paid in cash) |
|
|
5) For payment of realisation expenses
|
Realisation A/c |
Dr. |
|
|
|
To Bank A/c |
|
|
(Expenses paid) |
|
|
6) For transfer of profit on realisation
|
Realisation A/c |
Dr. |
|
|
|
To Partner's Capital A/c |
|
|
(Profit on realisation transferred to partner 's capital account) |
|
|
7) For transfer of loss on realisation
|
Partner's Capital A/c |
Dr. |
|
|
|
To Realisation A/c |
|
|
(Loss transferred to partner's capital account) |
|
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|
Format of Realisation Account |
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Dr. |
Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
|
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Various Assets (Excluding Cash/Bank, fictitious assets, Debit balance of P and L A/c, partner Capital A/c, Current A/c, Loan to Partner)
Cash/Bank (Payment for realisation expenses)
Cash/Bank (Payment to outside and unrecorded liabilities)
Partner's Capital A/c (If any liability taken on expenses paid by him or remuneration payable to him)
Partner Capital A/c (Profit on realisation distributed in the profit sharing ratio among all the partners) |
–
–
–
– |
Various Liabilities (Excluding Partner Capital account, reserves, P and L A/c, Current A/c, Loan to Partner)
Provision on assets (like, Provision for doubtful debts; Provision for depreciation)
Cash/Bank (Amount received from realisation of assets and unrecorded assets)
Partner 's Capital A/c (If any asset taken over by any partner)
Partner Capital A/c (Loss on realisation borne by all the partners in their profit sharing ratio) |
–
–
–
– |
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