Book-Keeping and Accountancy · Ch 6 — Dissolution of Partnership Firm
Realisation Account vs. Revaluation Account
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Realisation Account vs. Revaluation Account
Because both accounts deal with the 'value' of assets and liabilities and both can show a profit or loss shared among partners, students often confuse the Realisation Account (this chapter) with the Revaluation Account (studied earlier, under Reconstitution of Partnership). They serve very different purposes.
| Basis of distinction | Realisation Account | Revaluation Account |
|---|---|---|
| When opened | At the dissolution of the firm | At the reconstitution of the firm (admission/retirement/death) |
| What it records | Transfer of all assets and outside liabilities, and their actual sale/payment | Only the change (appreciation/depreciation) in the value of specific assets/liabilities |
| Effect on the business | Firm's business comes to an end; books closed permanently | Firm's business continues; books remain open |
| Nature of figures used | Actual amounts realised and actually paid | Notional/estimated revised values, business does not actually sell these assets |
| Assets/liabilities after the account | Cease to exist in the firm's books (all disposed of) | Continue to appear in the books, at their revised (new) values |
| Sharing of profit/loss | Shared among all partners existing at dissolution, in their profit-sharing ratio | Shared among the old partners only, in the old profit-sharing ratio, even though new partners may join |
Definition 1Revaluation Account
An account opened when a firm is reconstituted (not dissolved) to record only the appreciation/depreciation in specific assets and liabilities; the firm's business continues and the re …
Definition 2Notional revaluation
A book adjustment of asset/liability values that does not involve any actual sale or payment — the hallmark of the Revaluation Account, as opposed to the Realisation Account's a …