What is Realisation account - Specimen and Illustration

Steps involved in the preparation of the Realisation account: -

In the accounting Treatment on Dissolution of the Firm when we are preparing a Realisation account. we can be prepared in the six steps shown as following: - 

1. First of all, we have to transfer all assets (except fictitious assets, loan to partners, and cash or a bank account) with the full amount in the debit side of the realisation account. 
2. and then we have to transfer all liabilities(including provisions but except Partners' Loan and capital account) with the full amount in the Credit side of the realisation account. 
3. The transfer of the amount realized on the sale of assets on the credit side of the realisation account.
4. The transfer of the amount paid to settle the amount of all liabilities on the Debit side of the realisation account.
5. Any expense incurred on the dissolution of the partnership Firm. 
6. In last now we have to calculate the balance of the realisation account. So if left credit balance then it means there is the gain on the dissolution of the firm and if left debit balance it means there is a loss on the dissolution of the firm.

Accounting Journal Entries for Closing of books of account: -

We have already discussed all journal entries in the following article so please check this out. 

https://tutorstips.com/accounting-treatment-on-dissolution-of-firm/

Specimen of Realisation Account: -

The Specimen of Realisation Account is shown as follows: - 

Dr.	Realisation Account		Cr.
Particulars	Amount	Particulars	Amount
To Vehicle A/c	***	By Creditors A/c	***
To Plant and Machinery A/c	***	By Bank Loan's A/c	***
To Computer A/c	***	By Bills Payable A/c	***
To Furniture A/c	***	By Prov. for D/debts A/c	***
To Building A/c	***	By Investment Fluctuation Reserve A/c	***
To Land A/c	***	By Bank A/c (Assets Realized value)	***
To Investment A/c	***	- Vehicle A/c
To Goodwill	***	- Plant and Machinery A/c
To Bank A/c (payment of Liabilities )		- Computer A/c
- Creditors A/c		- Furniture A/c
- Bank Loan's A/c		- Building A/c
- Bills Payable A/c		- Land A/c
To Partner's Capital A/c (if any Liability taken by him)	***	- Investment A/c
To Cash/Bank a/c (expenses of realisation)	***	By Partner's Capital A/c (if any assets taken by him)	***
To Partner's Capital A/c (if expenses paid by him)	***	By Partner's Capital A/c (if the loss on realisation)	***
To Partner's Capital A/c (if the profit on realisation)	***	- 1st Partner
- 1st Partner		- 2nd Partner
- 2nd Partner		- 3rd Partner
- 3rd Partner
	****		****

Illustration of Realisation Account: -

A and B were partners in the AB ltd. sharing profit in ratio 1:1. On the 31st of March 2020, their balance sheet is shown as follows: - 

Balance Sheet

Particulars	Amount	Particulars	Amount
Creditors A/c	2,000	Vehicle A/c	10,000
Bank Loan's A/c	7,000	Plant and Machinery A/c	25,000
Capital	1,41,000	Computer A/c	15,000
A = 70,500		Furniture A/c	5,000
B = 70,500		Building A/c	40,000
		Land A/c	50,000
		Cash A/c	5,000
	1,50,000		1,50,000

All assets realized as following -

- Vehicle A/c	12,000
- Plant and Machinery A/c	22,500
- Computer A/c	10,000
- Furniture A/c	6,000
- Building A/c	60,000
- Land A/c	90,000

All Liabilities are settled as following -

- Creditors A/c 1,800 
- Bank Loan's A/c 6,500

Expenses for dissolution paid for Rs. 200

Prepared the realisation account. 

Solution: -

Dr.	Realisation Account		Cr.
Particulars	Amount	Particulars	Amount
To Vehicle A/c	10,000	By Creditors A/c	2,000
To Plant and Machinery A/c	25,000	By Bank Loan's A/c	7,000
To Computer A/c	15,000
To Furniture A/c	5,000	By Bank A/c (Assets Realized value)
To Building A/c	40,000	- Vehicle A/c	12,000
To Land A/c	50,000	- Plant and Machinery A/c	22,500
		- Computer A/c	10,000
To Bank A/c (payment of Liabilities )		- Furniture A/c	6,000
- Creditors A/c	1,800	- Building A/c	60,000
- Bank Loan's A/c	6,500	- Land A/c	90,000
To Cash/Bank a/c (expenses of realisation)	200
To Partner's Capital A/c (if the profit on realisation)	56,000
- A Capital A/c         28,000
- B Capital A/c         28,000
	2,09,500		2,09,500

This is all about this article, we will prepare a capital account. which we will discuss in the next article. 

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