Romesh and Bhawan were in partnership sharing profits and losses as 3:2. Their Balance Sheet as on March 31, 2017 was as follows: **Balance Sheet of Romesh and Bhawan as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Bank loan | 60,000 | Cash at bank | 30,000 | | Creditors | 80,000 | Debtors | 70,000 | | Bills payables | 40,000 | Stock | 2,00,000 | | Bhawan's loan | 20,000 | Investments | 1,40,000 | | Capitals: | | Buildings | 60,000 | | Romesh | 1,00,000 | | | | Bhawan | 2,00,000 | | | | **Total** | **5,00,000** | **Total** | **5,00,000** | They decided to dissolve the firm. The following information is available: 1. Debtors were recovered 5% less. Stock was realised at book value and building was sold for ₹51,000. 2. It was found that investments not recorded in the books amounted to ₹10,000. The same were accepted by one creditor for this amount, and other creditors were paid at a discount of 10%. Bills payable were paid in full. 3. Romesh took over some of the investments at ₹8,100 (book value less 10%). The remaining investments were taken over by Bhawan at 90% of the book value less ₹900 discount. 4. Bhawan paid the bank loan along with one year's interest at 6% p.a. 5. An unrecorded liability of ₹5,000 was paid. Close the books of the firm by preparing necessary ledger accounts.

Romesh and Bhawan were in partnership sharing profits and losses as 3:2. Their Balance Sheet as on March 31, 2

Illustrations · Illustration 7

Romesh and Bhawan were in partnership sharing profits and losses as 3:2. Their Balance Sheet as on March 31, 2017 was as follows:

Balance Sheet of Romesh and Bhawan as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Bank loan	60,000	Cash at bank	30,000
Creditors	80,000	Debtors	70,000
Bills payables	40,000	Stock	2,00,000
Bhawan's loan	20,000	Investments	1,40,000
Capitals:		Buildings	60,000
Romesh	1,00,000
Bhawan	2,00,000
Total	5,00,000	Total	5,00,000

They decided to dissolve the firm. The following information is available:

Debtors were recovered 5% less. Stock was realised at book value and building was sold for ₹51,000.
It was found that investments not recorded in the books amounted to ₹10,000. The same were accepted by one creditor for this amount, and other creditors were paid at a discount of 10%. Bills payable were paid in full.
Romesh took over some of the investments at ₹8,100 (book value less 10%). The remaining investments were taken over by Bhawan at 90% of the book value less ₹900 discount.
Bhawan paid the bank loan along with one year's interest at 6% p.a.
An unrecorded liability of ₹5,000 was paid.

Close the books of the firm by preparing necessary ledger accounts.

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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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The investments (₹1,40,000) are split between the partners: Romesh takes a portion at ₹8,100 (its book value ₹9,000 less 10%), Bhawan takes the rest (book value ₹1,31,000) at 90% less ₹900 = ₹1,17,000. Bhawan pays the bank loan with 6% interest (₹60,000 + ₹3,600 = ₹63,600, credited to his capital). The Realisation Account closes with a loss of ₹19,000 (3:2 → Romesh ₹11,400, Bhawan ₹7,600).

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Debtors A/c	70,000	By Bank loan A/c	60,000
To Stock A/c	2,00,000	By Creditors A/c	80,000
To Investments A/c	1,40,000	By Bills payable A/c	40,000
To Buildings A/c	60,000	By Romesh's Capital A/c (investment)	8,100
To Bank A/c (bills payable)	40,000	By Bhawan's Capital A/c (investment)	1,17,000

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Investments are split between the partners; Bhawan pays the bank loan with interest (₹63,600, credited to his capital). One creditor accepts an unrecorded investment (no entry). Realisation loss ₹19,000 (3:2). Final payments: Romesh ₹80,500, Bhawan ₹1,39,000; Bank total ₹3,47,500.

Concept — a partner discharging a loan with interest

Bhawan paying the bank loan plus a year's interest at 6% relieves the firm of ₹63,600 (₹60,000 + ₹3,600), which is credited to his capital (Realisation A/c Dr.). Separately, Bhawan's loan (₹20,000, a partner's loan appearing on the liabilities side) is repaid in cash directly, never routed through Realisation.

Working Notes

Debtors 5% less = ₹66,500. Investments: Romesh's portion book value ₹9,000 taken at ₹8,100; remaining ₹1,31,000 taken by Bhawan at 90% less ₹900 = ₹1,17,000. Creditors: one took the ₹10,000 unrecorded investment (no entry); the rest (₹70,000) paid at 10% discount = ₹63,000. Interest on bank loan = ₹60,000 × 6% = ₹3,600.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Debtors A/c	70,000	By Bank loan A/c	60,000
To Stock A/c	2,00,000	By Creditors A/c	80,000
To Investments A/c	1,40,000	By Bills payable A/c	40,000
To Buildings A/c	60,000	By Romesh's Capital A/c (investment)	8,100
To Bank A/c (bills payable)	40,000	By Bhawan's Capital A/c (investment)	1,17,000
To Bank A/c (creditors)	63,000	By Bank A/c (assets realised)	3,17,500
To Bhawan's Capital A/c (bank loan with interest)	63,600	By Loss — Romesh 11,400, Bhawan 7,600	19,000
To Bank A/c (unrecorded liability)	5,000
Total	6,41,600	Total	6,41,600

Partners' Capital Accounts

Particulars	Romesh (₹)	Bhawan (₹)	Particulars	Romesh (₹)	Bhawan (₹)
To Realisation A/c (investment)	8,100	1,17,000	By Balance b/d	1,00,000	2,00,000
To Realisation A/c (loss)	11,400	7,600	By Realisation A/c (bank loan with interest)	—	63,600

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Concept — a partner discharging a loan with interest

Working Notes

Realisation Account

Partners' Capital Accounts

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