Sonia, Rohit and Udit are partners sharing profits in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2017 was as follows: **Balance Sheet of Sonia, Rohit and Udit as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Creditors | 30,000 | Buildings | 2,00,000 | | Bills payable | 30,000 | Machinery | 40,000 | | Bank loan | 1,20,000 | Stock | 1,60,000 | | Sonia's husband's loan | 1,30,000 | Bills receivable | 1,20,000 | | General reserve | 80,000 | Furniture | 80,000 | | Capitals: | | Cash at bank | 60,000 | | Sonia | 70,000 | | | | Rohit | 90,000 | | | | Udit | 1,10,000 | | | | **Total** | **6,60,000** | **Total** | **6,60,000** | The firm was dissolved on that date. Close the books of the firm with the following information: 1. Buildings realised for ₹1,90,000; Bills receivable realised for ₹1,10,000; Stock realised ₹1,50,000; Machinery sold for ₹48,000 and Furniture for ₹75,000. 2. Bank loan was settled for ₹1,30,000. Creditors and Bills payable were settled at a 10% discount. 3. Rohit paid the realisation expenses of ₹10,000, for which he was allowed ₹12,000 for completing the dissolution process. Prepare necessary ledger accounts.

> [!TLDR] > Rohit's ₹12,000 remuneration is recorded; his actual ₹10,000 spend is not. Realisation loss ₹43,000 (5:3:2). Final payments: Sonia ₹88,500, Rohit ₹1,13,100, Udit ₹1,17,400; Bank total ₹6,33,000. ### Concept — remuneration in place of expenses When a partner is *allowed a fixed remuneration* for completing the dissolution and bears the actual expenses himself, only the remuneration is a cost to the firm (Realisation A/c Dr., Partner's Capital A/c Cr.). The actual expense he paid is irrelevant to the firm's books — he keeps any saving or absorbs any excess. ### Working Notes Creditors + Bills payable = ₹60,000, settled at 10% discount = **₹54,000**. Cash realised from assets = 1,90,000 + 1,10,000 + 1,50,000 + 48,000 + 75,000 = **₹5,73,000**. General reserve ₹80,000 shared 5:3:2 = ₹40,000 / ₹24,000 / ₹16,000. ### Realisation Account | Particulars | Amount (₹) | Particulars | Amount (₹) | |---|---:|---|---:| | To Buildings A/c | 2,00,000 | By Creditors A/c | 30,000 | | To Machinery A/c | 40,000 | By Bills payable A/c | 30,000 | | To Stock A/c | 1,60,000 | By Bank loan A/c | 1,20,000 | | To Bills receivable A/c | 1,20,000 | By Sonia's husband's loan A/c | 1,30,000 | | To Furniture A/c | 80,000 | By Bank A/c (assets realised) | 5,73,000 | | To Bank A/c (bank loan) | 1,30,000 | By Loss — Sonia 21,500, Rohit 12,900, Udit 8,600 | 43,000 | | To Bank A/c (creditors and bills payable) | 54,000 | | | | To Bank A/c (Sonia's husband's loan) | 1,30,000 | | | | To Rohit's Capital A/c (remuneration) | 12,000 | | | | **Total** | **9,26,000** | **Total** | **9,26,000** | ### Partners' Capital Accounts | Particulars | Sonia (₹) | Rohit (₹) | Udit (₹) | Particulars | Sonia (₹) | Rohit (₹) | Udit (₹) | |---|---:|---:|---:|---|---:|---:|---:| | To Realisation A/c (loss) | 21,500 | 12,900 | 8,600 | By Balance b/d | 70,000 | 90,000 | 1,10,000 | | To Bank A/c | 88,500 | 1,13,100 | 1,17,400 | By General Reserve | 40,000 | 24,000 | 16,000 | | | | | | By Realisation A/c (remu

Sonia, Rohit and Udit are partners sharing profits in the ratio of 5:3:2. Their Balance Sheet as on March 31,

Illustrations · Illustration 6

Sonia, Rohit and Udit are partners sharing profits in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2017 was as follows:

Balance Sheet of Sonia, Rohit and Udit as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	30,000	Buildings	2,00,000
Bills payable	30,000	Machinery	40,000
Bank loan	1,20,000	Stock	1,60,000
Sonia's husband's loan	1,30,000	Bills receivable	1,20,000
General reserve	80,000	Furniture	80,000
Capitals:		Cash at bank	60,000
Sonia	70,000
Rohit	90,000
Udit	1,10,000
Total	6,60,000	Total	6,60,000

The firm was dissolved on that date. Close the books of the firm with the following information:

Buildings realised for ₹1,90,000; Bills receivable realised for ₹1,10,000; Stock realised ₹1,50,000; Machinery sold for ₹48,000 and Furniture for ₹75,000.
Bank loan was settled for ₹1,30,000. Creditors and Bills payable were settled at a 10% discount.
Rohit paid the realisation expenses of ₹10,000, for which he was allowed ₹12,000 for completing the dissolution process.

Prepare 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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Rohit is allowed ₹12,000 for completing the dissolution, so only that remuneration is recorded — the ₹10,000 he actually spent is his own affair and gets no separate entry. Creditors and bills payable (₹60,000 together) are paid at 10% less (₹54,000); Sonia's husband's loan is an outside liability paid in full. The Realisation Account closes with a loss of ₹43,000 (5:3:2 → Sonia ₹21,500, Rohit ₹12,900, Udit ₹8,600).

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Buildings A/c	2,00,000	By Creditors A/c	30,000
To Machinery A/c	40,000	By Bills payable A/c	30,000
To Stock A/c	1,60,000	By Bank loan A/c	1,20,000
To Bills receivable A/c	1,20,000	By Sonia's husband's loan A/c	1,30,000
To Furniture A/c	80,000	By Bank A/c (Buildings 1,90,000 + Bills receivable 1,10,000 + Stock 1,50,000 + Machinery 48,000 + Furniture 75,000)	5,73,000

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Rohit's ₹12,000 remuneration is recorded; his actual ₹10,000 spend is not. Realisation loss ₹43,000 (5:3:2). Final payments: Sonia ₹88,500, Rohit ₹1,13,100, Udit ₹1,17,400; Bank total ₹6,33,000.

Concept — remuneration in place of expenses

When a partner is allowed a fixed remuneration for completing the dissolution and bears the actual expenses himself, only the remuneration is a cost to the firm (Realisation A/c Dr., Partner's Capital A/c Cr.). The actual expense he paid is irrelevant to the firm's books — he keeps any saving or absorbs any excess.

Working Notes

Creditors + Bills payable = ₹60,000, settled at 10% discount = ₹54,000. Cash realised from assets = 1,90,000 + 1,10,000 + 1,50,000 + 48,000 + 75,000 = ₹5,73,000. General reserve ₹80,000 shared 5:3:2 = ₹40,000 / ₹24,000 / ₹16,000.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Buildings A/c	2,00,000	By Creditors A/c	30,000
To Machinery A/c	40,000	By Bills payable A/c	30,000
To Stock A/c	1,60,000	By Bank loan A/c	1,20,000
To Bills receivable A/c	1,20,000	By Sonia's husband's loan A/c	1,30,000
To Furniture A/c	80,000	By Bank A/c (assets realised)	5,73,000
To Bank A/c (bank loan)	1,30,000	By Loss — Sonia 21,500, Rohit 12,900, Udit 8,600	43,000
To Bank A/c (creditors and bills payable)	54,000
To Bank A/c (Sonia's husband's loan)	1,30,000
To Rohit's Capital A/c (remuneration)	12,000
Total	9,26,000	Total	9,26,000

Partners' Capital Accounts

Particulars	Sonia (₹)	Rohit (₹)	Udit (₹)	Particulars	Sonia (₹)	Rohit (₹)	Udit (₹)
To Realisation A/c (loss)	21,500	12,900	8,600	By Balance b/d	70,000	90,000	1,10,000
To Bank A/c	88,500	1,13,100	1,17,400	By General Reserve	40,000	24,000	16,000
				By Realisation A/c (remuneration)	—	12,000	—

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Concept — remuneration in place of expenses

Working Notes

Realisation Account

Partners' Capital Accounts

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