Question -
Answer -
When a firm is dissolved, it results in closing of all accounts, assets are sold off and liabilities are paid off. To maintain a record of all such activities, a nominal account is prepared which is called as Realisation Account. Its main purpose is to determine profit or loss that happens due to settling off assets and liabilities. If this exercise results in profit or loss, it gets transferred to the PartnersтАЩ Capital Account with their original profit sharing ratio.
The main objectives of preparing a realisation account is:
1. To ensure all accounts are closed
2. To record all transactions that is related to sale of assets and paying off liabilities
3. Determining whether profit or loss is happening due to sale of assets and paying off liabilities.
The format of realisation account is as follows:
| Format of Realisation Account | | |
| Dr.┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а┬а | Cr. | | |
| Particulars | Amount тВ╣ | Particulars | Amount тВ╣ | | |
| 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) PartnerтАЩs 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) | тАУ тАУ тАУ тАУ | Various Liabilities (Excluding Partner Capital account, reserves, P and L A/c, Current A/c, Loan to Partner) Provision on assets (like,┬аProvision for doubtful debts; Provision for depreciation) Cash/Bank (Amount received from realisation of assets and unrecorded assets) Partner тАШs 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) | тАУ тАУ тАУ тАУ | | |
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| тАУ | | тАУ | | |
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