X and Y sharing Profits and Losses in the ratio equally, their Balance Sheet as at 31st March, 2023 was as under:

Liabilities — Creditors 1,20,000; Y's loan 30,000; General Reserve 30,000; Investment Fluctuation Fund 4,000; X's Capital 60,000, Y's Capital 20,000 = 80,000; Total

Question

X and Y sharing Profits and Losses in the ratio equally, their Balance Sheet as at 31st March, 2023 was as under:

Liabilities — Creditors 1,20,000; Y's loan 30,000; General Reserve 30,000; Investment Fluctuation Fund 4,000; X's Capital 60,000, Y's Capital 20,000 = 80,000; Total 2,64,000.
Assets — Cash 50,000; Debtors 84,000 Less: Provision 12,000 = 72,000; Stock 24,000; Investment 36,000; Plant and Machinery 78,000; X's Loan 4,000; Total 2,64,000.

The Firm was dissolved on 1st April, 2023:
(a) The creditors were paid off by giving them the Plant and Machinery at a Discount of 10% and the Balance as cash.
(b) Debtors realised 10% Less of the amount due from them.
(c) Stock was taken over by 'Y' at ₹ 14,000.
(d) Investments realised 80% of their book value.
(e) Y's loan was paid with Interest of ₹ 1,000.
(f) Realisation Expenses ₹ 1,200 were paid by 'X'.
Prepare Realisation Account.

Accepted Answer

>

> [!TLDR]
> Realisation Account totals Rs 2,74,000 on each side and gives a loss on realisation of Rs 23,600, borne equally by X and Y (Rs 11,800 each).
>
> Step 1 - Transfer assets (book value) to the DEBIT of Realisation A/c: Sundry Debtors 84,000 (gross), Stock 24,000, Investment 36,000, Plant & Machinery 78,000. (Cash in hand is the bank balance and X's Loan is a loan given to a partner, settled through X's account - neither is transferred here.)
>
> Step 2 - Transfer the outside liability and the provision to the CREDIT of Realisation A/c: Sundry Creditors 1,20,000 and Provision for Doubtful Debts 12,000. (Y's Loan is a partner's loan, paid through a separate Y's Loan A/c; General Reserve and Investment Fluctuation Fund are accumulated reserves credited directly to the partners' capital accounts in the 1:1 ratio, so they do not enter this account.)
>
> Step 3 - Record the realisations/payments:
> (a) Creditors 1,20,000 were settled by giving Plant & Machinery at a 10% discount = 78,000 x 90% = 70,200, and the balance 1,20,000 - 70,200 = 49,800 paid in cash. So only Rs 49,800 cash is paid (the P&M simply leaves the books against the creditors).
> (b) Debtors realised 10% less than book value = 84,000 x 90% = 75,600 (Bank).
> (c) Stock taken over by Y at 14,000 (debited to Y's Capital A/c).
> (d) Investments realised 80% of book value = 36,000 x 80% = 28,800 (Bank).
> (e) Interest of Rs 1,000 on Y's loan is paid (an extra cost, debited to Realisation A/c); the loan principal of 30,000 is settled through Y's Loan A/c.
> (f) Realisation expenses 1,200 were paid by X, so they are credited to X's Capital A/c.
>
> Realisation Account …

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

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

Item	Amount	Side of Realisation A/c
Debtors (gross)	24,500	Debit
Bad debt reserve (provision)	2,500	Credit
…

Concept understanding — Realisation Account

The Realisation Account: Winding Up the Business Books

What the Realisation Account Actually Is

Why It Matters (The "Why")

Accounting Treatment: The Debit and Credit Rules

The Proforma (Format) of the Realisation Account

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