Following is the Balance Sheet of Ashwani and Bharat on March 31, 2017. They shared profits equally. **Balance Sheet of Ashwani and Bharat as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Creditors | 76,000 | Cash at bank | 17,000 | | Mrs. Ashwani's loan | 10,000 | Stock | 10,000 | | Mrs. Bharat's loan | 20,000 | Investments | 20,000 | | Investment fluctuation reserve | 2,000 | Debtors 40,000 | | | General Reserve | 20,000 | Less: Provision for doubtful debts 4,000 | 36,000 | | Capitals: | | Buildings | 70,000 | | Ashwani | 20,000 | Goodwill | 15,000 | | Bharat | 20,000 | | | | **Total** | **1,68,000** | **Total** | **1,68,000** | The firm was dissolved on that date and the following transactions took place: (i) Ashwani promised to pay Mrs. Ashwani's loan and took away stock for ₹8,000. (ii) Bharat took away half of the investments at 10% less. Debtors realised for ₹38,000. Creditors were paid at ₹380 less. Buildings realised for ₹1,30,000, Goodwill ₹12,000, and the remaining investments were sold at ₹9,000. An old typewriter, not recorded in the books, was taken over by Bharat for ₹600. Realisation expenses amounted to ₹2,000. Prepare Realisation Account, Partners' Capital Accounts and Bank Account.

> [!TLDR] > Mrs. Ashwani's loan is taken over by Ashwani (credited to his capital); Mrs. Bharat's loan is paid in cash. Realisation profit ₹55,980 (₹27,990 each). Final payments: Ashwani ₹59,990, Bharat ₹48,390; Bank total ₹2,06,000. ### Concept — a partner taking over a liability When a partner agrees to *pay* one of the firm's liabilities (here Mrs. Ashwani's loan), the firm is relieved of it: Realisation A/c is debited and the partner's capital account credited, exactly as if the partner had settled it out of their own pocket. A liability the firm itself pays is a normal Bank payment. ### Working Notes Half the investments (₹10,000) taken by Bharat at 10% less = ₹9,000; remaining half sold at ₹9,000. Creditors paid = ₹76,000 − ₹380 = **₹75,620**. Cash realised = Investment 9,000 + Debtors 38,000 + Buildings 1,30,000 + Goodwill 12,000 = **₹1,89,000**. ### Realisation Account | Particulars | Amount (₹) | Particulars | Amount (₹) | |---|---:|---|---:| | To Investments A/c | 20,000 | By Provision for Doubtful Debts A/c | 4,000 | | To Debtors A/c | 40,000 | By Creditors A/c | 76,000 | | To Buildings A/c | 70,000 | By Mrs. Ashwani's Loan A/c | 10,000 | | To Stock A/c | 10,000 | By Mrs. Bharat's Loan A/c | 20,000 | | To Goodwill A/c | 15,000 | By Investment Fluctuation Reserve A/c | 2,000 | | To Ashwani's Capital A/c (Mrs. Ashwani's loan) | 10,000 | By Ashwani's Capital A/c (stock) | 8,000 | | To Bank A/c (Mrs. Bharat's loan) | 20,000 | By Bharat's Capital A/c (typewriter) | 600 | | To Bank A/c (creditors) | 75,620 | By Bharat's Capital A/c (investment) | 9,000 | | To Bank A/c (realisation expenses) | 2,000 | By Bank A/c (assets realised) | 1,89,000 | | To Profit — Ashwani 27,990, Bharat 27,990 | 55,980 | | | | **Total** | **3,18,600** | **Total** | **3,18,600** | ### Partners' Capital Accounts | Particulars | Ashwani (₹) | Bharat (₹) | Particulars | Ashwani (₹) | Bharat (₹) | |---|---:|---:|---|---:|---:| | To Realisation A/c (stock) | 8,000 | — | By Balance b/

Following is the Balance Sheet of Ashwani and Bharat on March 31, 2017. They shared profits equally. **Balance

Illustrations · Illustration 5

Following is the Balance Sheet of Ashwani and Bharat on March 31, 2017. They shared profits equally.

Balance Sheet of Ashwani and Bharat as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	76,000	Cash at bank	17,000
Mrs. Ashwani's loan	10,000	Stock	10,000
Mrs. Bharat's loan	20,000	Investments	20,000
Investment fluctuation reserve	2,000	Debtors 40,000
General Reserve	20,000	Less: Provision for doubtful debts 4,000	36,000
Capitals:		Buildings	70,000
Ashwani	20,000	Goodwill	15,000
Bharat	20,000
Total	1,68,000	Total	1,68,000

The firm was dissolved on that date and the following transactions took place:

Ashwani promised to pay Mrs. Ashwani's loan and took away stock for ₹8,000.
Bharat took away half of the investments at 10% less. Debtors realised for ₹38,000. Creditors were paid at ₹380 less. Buildings realised for ₹1,30,000, Goodwill ₹12,000, and the remaining investments were sold at ₹9,000. An old typewriter, not recorded in the books, was taken over by Bharat for ₹600. Realisation expenses amounted to ₹2,000. Prepare Realisation Account, Partners' Capital Accounts and Bank Account.

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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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Watch the loans: Mrs. Ashwani's loan is taken over by Ashwani (credited to his capital), while Mrs. Bharat's loan is paid by the firm in cash. Half the investments (₹10,000) go to Bharat at 10% less (₹9,000); the other half sells at ₹9,000. Creditors are paid ₹76,000 − ₹380 = ₹75,620. The Realisation Account closes with a profit of ₹55,980 (equal → ₹27,990 each).

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Investments A/c	20,000	By Provision for Doubtful Debts A/c	4,000
To Debtors A/c	40,000	By Creditors A/c	76,000
To Buildings A/c	70,000	By Mrs. Ashwani's Loan A/c	10,000
To Stock A/c	10,000	By Mrs. Bharat's Loan A/c	20,000
To Goodwill A/c	15,000	By Investment Fluctuation Reserve A/c	2,000
To Ashwani's Capital A/c (Mrs. Ashwani's loan)	10,000	By Ashwani's Capital A/c (stock)	8,000
To Bank A/c (Mrs. Bharat's loan)	20,000	By Bharat's Capital A/c (typewriter)	600

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Mrs. Ashwani's loan is taken over by Ashwani (credited to his capital); Mrs. Bharat's loan is paid in cash. Realisation profit ₹55,980 (₹27,990 each). Final payments: Ashwani ₹59,990, Bharat ₹48,390; Bank total ₹2,06,000.

Concept — a partner taking over a liability

When a partner agrees to pay one of the firm's liabilities (here Mrs. Ashwani's loan), the firm is relieved of it: Realisation A/c is debited and the partner's capital account credited, exactly as if the partner had settled it out of their own pocket. A liability the firm itself pays is a normal Bank payment.

Working Notes

Half the investments (₹10,000) taken by Bharat at 10% less = ₹9,000; remaining half sold at ₹9,000. Creditors paid = ₹76,000 − ₹380 = ₹75,620. Cash realised = Investment 9,000 + Debtors 38,000 + Buildings 1,30,000 + Goodwill 12,000 = ₹1,89,000.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Investments A/c	20,000	By Provision for Doubtful Debts A/c	4,000
To Debtors A/c	40,000	By Creditors A/c	76,000
To Buildings A/c	70,000	By Mrs. Ashwani's Loan A/c	10,000
To Stock A/c	10,000	By Mrs. Bharat's Loan A/c	20,000
To Goodwill A/c	15,000	By Investment Fluctuation Reserve A/c	2,000
To Ashwani's Capital A/c (Mrs. Ashwani's loan)	10,000	By Ashwani's Capital A/c (stock)	8,000
To Bank A/c (Mrs. Bharat's loan)	20,000	By Bharat's Capital A/c (typewriter)	600
To Bank A/c (creditors)	75,620	By Bharat's Capital A/c (investment)	9,000
To Bank A/c (realisation expenses)	2,000	By Bank A/c (assets realised)	1,89,000
To Profit — Ashwani 27,990, Bharat 27,990	55,980
Total	3,18,600	Total	3,18,600

Partners' Capital Accounts

Particulars	Ashwani (₹)	Bharat (₹)	Particulars	Ashwani (₹)	Bharat (₹)
To Realisation A/c (stock)	8,000	—	By Balance b/d	20,000	20,000

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Concept — a partner taking over a liability

Working Notes

Realisation Account

Partners' Capital Accounts

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