We will prepare the three accounts step-by-step. The key is to record all assets (except cash) and all external liabilities (excluding partners’ capital and reserves) in the Realisation Account, then bring in the actual amounts realised and paid.

Step 1 – Realisation Account

Transfer all assets (except Cash at Bank) at book value to the debit side. Transfer all external liabilities (Sundry Creditors, Loan) to the credit side. General Reserve is not transferred – it is distributed directly to partners’ capital accounts. Record realised amounts on the credit side and expenses/payments on the debit side.

Step 2 – Bank Account

Start with the opening balance of Cash at Bank (₹11,000). Add all realisation receipts. Deduct payments to creditors, realisation expenses, and final payments to partners.

Concept and Accounting Treatment

When a partnership firm is dissolved, the Realisation Account is the central tool. It acts as a temporary account that collects all assets (except cash/bank) at their book values on the debit side, and all liabilities (except partner's capital and loan from partners) on the credit side. The actual sale proceeds of assets are credited to this account, and actual payments to liabilities are debited. The difference — profit or loss on realisation — is transferred to the partners' capital accounts in their profit-sharing ratio.

Why this treatment? Because dissolution means the firm ceases to exist as a going concern. The Realisation Account replaces the normal trading and profit & loss accounts. It captures the gain or loss from converting non-cash assets into cash and settling external liabilities. Partners' capital accounts then absorb this result, along with any reserves, loans from partners, and drawings, to determine the final amount payable to each partner.

The Bank Account (or Cash Account) records all actual inflows (from asset sales, partner contributions if any) and outflows (payment of liabilities, realisation expenses, and final payments to partners). Its closing balance should be zero after all settlements.

Key rule: Only external liabilities (creditors, loans from outsiders) are transferred to the credit of Realisation Account. Partners' loans (if any) are treated separately — paid directly from the bank account and debited to the partner's loan account, not through Realisation. Here, the loan of ₹40,000 is from an outsider (no mention of it being from a partner), so it goes to Realisation credit side.

Solution

Realisation Account

Bank Account

Partners' Capital Accounts

Working Notes

Working Note 1: Realisation Profit Calculation

Step 1: Total assets realised (credited to Realisation A/c)

• Leasehold Land: ₹72,000
• Furniture: ₹22,500
• Stock: ₹40,500
• Plant: ₹48,000
• Sundry Debtors: ₹10,500
• Total realised: ₹1,93,500

Step 2: Total liabilities paid (debited to Realisation A/c)

• Creditors paid: ₹25,500 (settled for less than book value of ₹27,000 — this is a gain)
• Loan paid: ₹40,000 (paid in full — no gain/loss)
• Total liabilities paid: ₹65,500

Step 3: Realisation expenses paid (debited to Realisation A/c)

• ₹2,500

Step 4: Book value of assets transferred to debit side

• Sundry Debtors: ₹12,000
• Plant: ₹47,000
• Stock: ₹42,000
• Leasehold Land: ₹60,000
• Furniture: ₹25,000
• Total book value: ₹1,86,000

Step 5: Compute profit

The cleanest way to compute the realisation profit is to work out the gain or loss on each item separately (the loan was transferred to the Realisation Account at book value and then repaid at the same amount, so it nets to zero and doesn't affect profit either way):

• Gain on assets: Realised ₹1,93,500 minus book value ₹1,86,000 = ₹7,500
• Gain on creditors: Settled for ₹25,500 against a book value of ₹27,000 = ₹1,500 …