Anju, Manju and Sanju, sharing profit in the ratio of 3:1:1, decided to dissolve their firm. On March 31, 2017 their position was as follows: **Balance Sheet of Anju, Manju and Sanju as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Creditors | 60,000 | Cash at bank | 55,000 | | Loan | 15,000 | Stock | 83,000 | | Capitals: | | Furniture | 12,000 | | Anju | 2,75,000 | Debtors 2,42,000 | | | Manju | 1,10,000 | Less: Provision for doubtful debts 12,000 | 2,30,000 | | Sanju | 1,00,000 | Buildings | 2,00,000 | | Manju's loan | 20,000 | | | | **Total** | **5,80,000** | **Total** | **5,80,000** | It is agreed that: 1. Anju takes over the Furniture at ₹10,000 and Debtors amounting to ₹2,00,000 at ₹1,85,000. Anju also agrees to pay the creditors. 2. Manju is to take over Stock at book value and Buildings at book value less 10%. 3. Sanju is to take over the remaining Debtors at 80% of book value and responsibility for the discharge of the loan. 4. The expenses of dissolution amounted to ₹2,200. Prepare Realisation Account, Bank Account and Capital Accounts of the partners.

> [!TLDR] > Assets and two liabilities are taken over by partners. Realisation loss ₹35,600 (3:1:1). Manju's capital ends in a large debit balance, against which her ₹20,000 loan is set off, so she brings in ₹1,40,120; Anju receives ₹1,18,640 and Sanju ₹74,280; Bank total ₹1,95,120. ### Concept — settling a partner's loan against a debit capital balance Manju's loan (₹20,000, owed by the firm to her) can be set off against the amount she owes the firm on her capital account instead of being paid separately in cash — she simply brings in the net figure. This keeps the settlement clean when a partner both lent money to the firm and ends up owing it on capital. ### Working Notes Remaining debtors = ₹2,42,000 − ₹2,00,000 = ₹42,000; Sanju takes them at 80% = **₹33,600**. Buildings taken by Manju at book value less 10% = ₹2,00,000 × 90% = **₹1,80,000**. ### Realisation Account | Particulars | Amount (₹) | Particulars | Amount (₹) | |---|---:|---|---:| | To Stock A/c | 83,000 | By Provision for Doubtful Debts A/c | 12,000 | | To Furniture A/c | 12,000 | By Creditors A/c | 60,000 | | To Debtors A/c | 2,42,000 | By Loan A/c | 15,000 | | To Buildings A/c | 2,00,000 | By Anju's Capital A/c (Furniture + Debtors) | 1,95,000 | | To Anju's Capital A/c (creditors) | 60,000 | By Manju's Capital A/c (Stock + Buildings) | 2,63,000 | | To Sanju's Capital A/c (loan) | 15,000 | By Sanju's Capital A/c (remaining debtors) | 33,600 | | To Bank A/c (realisation expenses) | 2,200 | By Loss — Anju 21,360, Manju 7,120, Sanju 7,120 | 35,600 | | **Total** | **6,14,200** | **Total** | **6,14,200** | ### Partners' Capital Accounts | Particulars | Anju (₹) | Manju (₹) | Sanju (₹) | Particulars | Anju (₹) | Manju (₹) | Sanju (₹) | |---|---:|---:|---:|---|---:|---:|---:| | To Realisation A/c (assets) | 1,95,000 | 2,63,000 | 33,600 | By Balance b/d | 2,75,000 | 1,10,000 | 1,00,000 | | To Realisation A/c (loss) | 21,360 | 7,120 | 7,120 | By Realisation A/c (creditors) | 60,000 | — | — | …

Anju, Manju and Sanju, sharing profit in the ratio of 3:1:1, decided to dissolve their firm. On March 31, 2017

Illustrations · Illustration 9

Anju, Manju and Sanju, sharing profit in the ratio of 3:1:1, decided to dissolve their firm. On March 31, 2017 their position was as follows:

Balance Sheet of Anju, Manju and Sanju as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	60,000	Cash at bank	55,000
Loan	15,000	Stock	83,000
Capitals:		Furniture	12,000
Anju	2,75,000	Debtors 2,42,000
Manju	1,10,000	Less: Provision for doubtful debts 12,000	2,30,000
Sanju	1,00,000	Buildings	2,00,000
Manju's loan	20,000
Total	5,80,000	Total	5,80,000

It is agreed that:

Anju takes over the Furniture at ₹10,000 and Debtors amounting to ₹2,00,000 at ₹1,85,000. Anju also agrees to pay the creditors.
Manju is to take over Stock at book value and Buildings at book value less 10%.
Sanju is to take over the remaining Debtors at 80% of book value and responsibility for the discharge of the loan.
The expenses of dissolution amounted to ₹2,200.

Prepare Realisation Account, Bank Account and Capital Accounts of the partners.

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Concept understanding — Realisation Account

The Realisation Account: Winding Up the Business Books

Think of a business as a box of ingredients you bought to make and sell biryani. Normally, you use the rice, spices, and chicken, sell the biryani, and keep buying fresh stock. But what if you decide to close the shop for good? You don't just throw away the leftover ingredients — you sell them off. The stove, the pots, the delivery scooter — everything goes. You collect whatever cash you can from selling these items, pay off any outstanding bills (like the vegetable vendor you still owe), and then see what's left. That leftover amount is what you, the owner, finally take home.

That entire process of selling off everything and settling all dues is what the Realisation Account captures in accounting. It's the final scorecard of a partnership firm that is being dissolved.

What the Realisation Account Actually Is

The Realisation Account is a nominal account (like a Profit & Loss account) that is opened only when a partnership firm is dissolved. Its single purpose is to calculate the profit or loss on realisation — that is, the net gain or loss from converting all non-cash assets into cash and paying off all liabilities.

Important

The Realisation Account is not the same as the Revaluation Account. Revaluation is done when a firm is continuing (e.g., on admission of a partner). Realisation is done when the firm is closing down.

Why It Matters (The "Why")

Without the Realisation Account, you cannot fairly divide the final cash among the partners. Here's why:

Assets are sold at market price, not book value. A machine bought for ₹1,00,000 might sell for only ₹60,000. That ₹40,000 loss must be recorded.
Liabilities are settled for actual amounts. A creditor of ₹50,000 might agree to accept ₹48,000 in full settlement. That ₹2,000 gain must be recorded.
There are dissolution expenses. Legal fees, brokerage, auctioneer's commission — these costs eat into the cash available.

The Realisation Account collects all these gains and losses in one place. The net result (profit or loss) is then transferred to the Partners' Capital Accounts in their profit-sharing ratio. Only after that can you determine exactly how much cash each partner is entitled to.

Accounting Treatment: The Debit and Credit Rules

The logic is straightforward. Think of the Realisation Account as a temporary "melting pot" where:

Debit side: Everything that reduces the cash available to partners (assets being taken out, expenses being paid).
Credit side: Everything that increases the cash available to partners (liabilities being settled cheaply, assets being sold for more than book value).

Here is the precise treatment as per NCERT:

Transaction	Debit	Credit
Transfer of all assets (except cash/bank)	Realisation A/c	Respective Asset A/c
Transfer of all external liabilities	Respective Liability A/c	Realisation A/c
Sale of an asset	Bank A/c (cash received)	Realisation A/c
Payment of a liability	Realisation A/c	Bank A/c (cash paid)
Payment of dissolution expenses	Realisation A/c	Bank A/c
When a partner takes over an asset	Partner's Capital A/c	Realisation A/c
When a partner takes over a liability	Realisation A/c	Partner's Capital A/c
Profit on realisation (transferred)	Realisation A/c	Partners' Capital A/c (in PSR)
Loss on realisation (transferred)	Partners' Capital A/c (in PSR)	Realisation A/c

Note

Cash and bank balances are not transferred to the Realisation Account. They remain as they are and are finally distributed to the partners.

The Proforma (Format) of the Realisation Account

This is the standard format you will use in your exam. Notice that the total of both sides must match before you can find the profit or loss.

Dr.	Realisation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Sundry Assets (all transferred)	xxx	By Sundry Liabilities (all transferred)	xxx
To Bank (liabilities paid)	xxx	By Bank (assets sold)	xxx
To Bank (dissolution expenses)	xxx	By Partner's Capital A/c (asset taken over)	xxx

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Almost every asset is taken over by a partner, and two liabilities are taken over too (Anju pays the creditors ₹60,000; Sanju discharges the loan ₹15,000). Remaining debtors = ₹2,42,000 − ₹2,00,000 = ₹42,000, taken by Sanju at 80% = ₹33,600; Buildings at 10% less = ₹1,80,000. The Realisation Account closes with a loss of ₹35,600 (3:1:1 → Anju ₹21,360, Manju ₹7,120, Sanju ₹7,120).

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Stock A/c	83,000	By Provision for Doubtful Debts A/c	12,000
To Furniture A/c	12,000	By Creditors A/c	60,000
To Debtors A/c	2,42,000	By Loan A/c	15,000
To Buildings A/c	2,00,000	By Anju's Capital A/c (Furniture 10,000 + Debtors 1,85,000)	1,95,000
To Anju's Capital A/c (creditors)	60,000	By Manju's Capital A/c (Stock 83,000 + Buildings 1,80,000)	2,63,000

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Assets and two liabilities are taken over by partners. Realisation loss ₹35,600 (3:1:1). Manju's capital ends in a large debit balance, against which her ₹20,000 loan is set off, so she brings in ₹1,40,120; Anju receives ₹1,18,640 and Sanju ₹74,280; Bank total ₹1,95,120.

Concept — settling a partner's loan against a debit capital balance

Manju's loan (₹20,000, owed by the firm to her) can be set off against the amount she owes the firm on her capital account instead of being paid separately in cash — she simply brings in the net figure. This keeps the settlement clean when a partner both lent money to the firm and ends up owing it on capital.

Working Notes

Remaining debtors = ₹2,42,000 − ₹2,00,000 = ₹42,000; Sanju takes them at 80% = ₹33,600. Buildings taken by Manju at book value less 10% = ₹2,00,000 × 90% = ₹1,80,000.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Stock A/c	83,000	By Provision for Doubtful Debts A/c	12,000
To Furniture A/c	12,000	By Creditors A/c	60,000
To Debtors A/c	2,42,000	By Loan A/c	15,000
To Buildings A/c	2,00,000	By Anju's Capital A/c (Furniture + Debtors)	1,95,000
To Anju's Capital A/c (creditors)	60,000	By Manju's Capital A/c (Stock + Buildings)	2,63,000
To Sanju's Capital A/c (loan)	15,000	By Sanju's Capital A/c (remaining debtors)	33,600
To Bank A/c (realisation expenses)	2,200	By Loss — Anju 21,360, Manju 7,120, Sanju 7,120	35,600
Total	6,14,200	Total	6,14,200

Partners' Capital Accounts

Particulars	Anju (₹)	Manju (₹)	Sanju (₹)	Particulars	Anju (₹)	Manju (₹)	Sanju (₹)
To Realisation A/c (assets)	1,95,000	2,63,000	33,600	By Balance b/d	2,75,000	1,10,000	1,00,000
To Realisation A/c (loss)	21,360	7,120	7,120	By Realisation A/c (creditors)	60,000	—	—

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Concept — settling a partner's loan against a debit capital balance

Working Notes

Realisation Account

Partners' Capital Accounts

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