AccountancyCBSE Class 12 · Dissolution of Partnership Firm

Realisation Account Class 12: Format, Rules and Solved Dissolution Questions

Updated 15 October 2026 · Fact-checked

A Realisation Account is opened on dissolution to sell the firm's assets and pay its outside liabilities. It is debited with assets at book value and with payments of liabilities and expenses, and credited with liabilities at book value and with amounts realised. Its balance, a profit or loss on realisation, is shared by partners in their profit sharing ratio.

Assets go on the debit side and outside liabilities on the credit side; the balance is profit or loss, shared in the profit sharing ratio.

Illustration drawn for QuestionBuddy.

Understand Realisation Account

Purpose. When a firm is dissolved, its assets are sold (realised) and its outside liabilities paid. The Realisation Account (a nominal account) collects all these transactions and shows the profit or loss on realisation.

Transfer at book values (closing the old books).

Debit side: all assets except cash, bank and fictitious assets (debit balance of P&L, deferred revenue expenditure such as Advertisement Suspense). Transfer assets at gross book value.
Credit side: all outside liabilities (creditors, bills payable, bank loan, loan from a partner's relative), and provisions against assets (provision for doubtful debts, provision for depreciation, investment fluctuation reserve to the extent of investments).
Not transferred: partners' capitals and current accounts, partners' loans, reserves and accumulated profits (these go to capital accounts), cash and bank.

Recording realisation.

Assets sold: Bank A/c Dr; To Realisation A/c.
Asset taken over by a partner: Partner's Capital A/c Dr; To Realisation A/c.
Liabilities paid: Realisation A/c Dr; To Bank A/c.
Liability taken over by a partner: Realisation A/c Dr; To Partner's Capital A/c.
Realisation expenses paid by the firm: Realisation A/c Dr; To Bank A/c.
Unrecorded asset sold: Bank Dr; To Realisation. Unrecorded liability paid: Realisation Dr; To Bank.
A creditor accepting an asset in settlement: no entry if fully settled by the asset; if a balance is paid in cash, only the cash payment is recorded.

CBSE value rules (2026-27 syllabus). If the realised value of a tangible asset is not given, take it as realised at book value. If the realised value of an intangible asset (goodwill, patents) is not given, take it as nil.

Balance. Credit balance = profit on realisation; debit balance = loss. Transfer to partners' capital accounts in the profit sharing ratio.

Realisation Account: key facts

Realisation result: (Liabilities at book value + amounts realised) − (assets at book value + liabilities paid + expenses); Positive: profit; negative: loss.
Item-wise check: Σ(realised − net book value of assets) + Σ(book value − amount paid for liabilities) − expenses; Gives the same result.
Value rules: Tangible asset, value not given: book value; intangible asset, value not given: nil; CBSE 2026-27 syllabus note.
Final tally: Bank balance after realisation = Σ final capital balances; When partners' loans are already paid.

How to answer Realisation Account questions

Dissolution questions are long but mechanical. Prepare the Realisation Account first; partners' capital and bank accounts follow from it.

1Debit every asset except cash, bank and fictitious assets at book value.
2Credit every outside liability and every provision against an asset at book value.
3Credit cash realised and assets taken over by partners; debit cash paid for liabilities and expenses.
4Apply the value rules: tangible at book value, intangible at nil, if not given.
5Balance the account and share the result in the profit sharing ratio.
6Check with the item-wise method, then prepare capital and bank accounts; they must close together.

Realisation Account in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Loss on realisation

Suppose two friends, sharing equally, close their food truck business. The truck stands in the books at ₹4,00,000 and kitchen equipment at ₹60,000. A buyer pays ₹3,20,000 for the truck and ₹50,000 for the equipment. A supplier is owed ₹30,000, which is paid in full, and closing-down expenses come to ₹5,000.

What is the result of realisation, and how much does each friend bear?

Try it first, then show the solutionSolution

Truck: 3,20,000 − 4,00,000 = −80,000.
Equipment: 50,000 − 60,000 = −10,000.
Supplier paid at book value: no gain or loss; expenses −5,000.
Loss = ₹95,000, shared equally.

Answer: Loss on realisation is ₹95,000; each friend bears ₹47,500, debited to his capital account.

Memory hook: Realisation compares what the books said with what the market paid.

Tricks to remember Realisation Account

Short memory aids. Say each one aloud once, then use it on a question the same day.

Not in: Cash, Capitals, Partners' loans, Reserves, Fictitious
'C-C-P-R-F stay out' of the Realisation Account.
Use it when: Transfer MCQs.
Book in, cash out (and the reverse)
Assets go in on the debit side at book value and come out on the credit side at realised value; liabilities do the opposite.
Use it when: Writing the account.
Tangible = Book, Intangible = Nil
TB-IN: when no value is given.
Use it when: CBSE value rules.

Realisation Account: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: What stays out · 1 mark · MCQBoard level

Which of the following is not transferred to the Realisation Account on dissolution?
(a) Bills payable
(b) Loan from a partner
(c) Provision for doubtful debts
(d) Loan from a partner's wife

Try it first, then show the solutionSolution

Partners' loans are settled through the bank account after outside liabilities; they do not pass through realisation.
A loan from a partner's wife is an outside liability and is transferred.

Answer: (b) Loan from a partner

Example 2: Realisation result · 3 marks · Short answerBoard level

On dissolution, assets (other than bank) with a book value of ₹3,00,000 realised ₹2,70,000. Creditors of ₹80,000 were paid ₹76,000 in full settlement. Realisation expenses were ₹3,000. Calculate the profit or loss on realisation. (3 marks)

Try it first, then show the solutionSolution

Dr side: assets 3,00,000 + creditors paid 76,000 + expenses 3,000 = 3,79,000.
Cr side: creditors 80,000 + cash from assets 2,70,000 = 3,50,000.
Loss = ₹29,000 (check: −30,000 + 4,000 − 3,000).

Answer: Loss on realisation = ₹29,000.

Example 3: Provision and an asset taken by a partner · 4 marks · Short answerHarder board level

On dissolution: debtors ₹50,000 (provision ₹2,000) realised ₹46,000; stock ₹40,000 was taken by partner A at ₹36,000; machinery ₹1,00,000 sold for ₹1,10,000; creditors ₹60,000 and a bank loan ₹30,000 were paid in full. Calculate the realisation result and pass the entry for the stock. (4 marks)

Try it first, then show the solutionSolution

Dr: 50,000 + 40,000 + 1,00,000 + 90,000 = 2,80,000.
Cr: provision 2,000 + creditors 60,000 + loan 30,000 + bank 1,56,000 + A's capital 36,000 = 2,84,000.
Profit = ₹4,000 (check: debtors −2,000, stock −4,000, machinery +10,000).
Stock entry: A's Capital A/c Dr 36,000 To Realisation A/c 36,000.

Answer: Profit on realisation ₹4,000; A's Capital A/c Dr 36,000 To Realisation A/c 36,000.

Example 4: Applying the CBSE value rules · 3 marks · Short answerHarder board level

On dissolution, the balance sheet shows goodwill ₹20,000 and building ₹2,00,000; no realised values are given for them. An unrecorded computer was sold for ₹8,000, and an unrecorded repair bill of ₹2,000 was paid. Calculate the effect of these items on the realisation result. (3 marks)

Try it first, then show the solutionSolution

Goodwill (intangible, value not given): realised nil, loss 20,000.
Building (tangible, value not given): realised at book value, no gain or loss.
Computer +8,000; repair bill −2,000. Net = −14,000.

Answer: Net effect: a loss of ₹14,000 on these items.

Example 5: Full realisation with a creditor taking an asset · 6 marks · Long answerHOTS / competency

A and B of Rivera Prints share profits 3 : 2. Their balance sheet: Debtors 60,000; Stock 50,000; Machinery 1,50,000; Furniture 20,000; Bank 25,000 | Creditors 70,000; Bills Payable 15,000; Mrs A's Loan 25,000; Capitals A 1,20,000, B 75,000. On dissolution: debtors realised ₹57,000; B took the stock at ₹45,000; machinery realised ₹1,40,000; creditors accepted the furniture at ₹18,000 and were paid the balance less 5% discount; bills payable and Mrs A's loan were paid in full; expenses ₹4,000. Find the realisation result and show that the bank balance equals the final capital balances. (6 marks)

Try it first, then show the solutionSolution

Creditors: balance after furniture = 52,000; paid 52,000 × 95% = ₹49,400.
Dr: assets 2,80,000 + creditors 49,400 + B/P 15,000 + Mrs A's loan 25,000 + expenses 4,000 = 3,73,400.
Cr: creditors 70,000 + B/P 15,000 + loan 25,000 + bank (57,000 + 1,40,000) 1,97,000 + B (stock) 45,000 = 3,52,000.
Loss = ₹21,400: A 12,840, B 8,560.
Bank = 25,000 + 1,97,000 − 49,400 − 15,000 − 25,000 − 4,000 = ₹1,28,600.
Capitals: A 1,20,000 − 12,840 = 1,07,160; B 75,000 − 8,560 − 45,000 = 21,440; total 1,28,600 = bank.

Answer: Loss on realisation ₹21,400 (A ₹12,840; B ₹8,560). Final payments: A ₹1,07,160, B ₹21,440, exactly using the bank balance of ₹1,28,600.

Example 6: Creditor takes an asset in full settlement · 1 mark · MCQHOTS / competency

On dissolution, a creditor of ₹30,000 accepts machinery (book value ₹28,000, already transferred to the Realisation Account) in full settlement. The entry required for this settlement is:
(a) Realisation A/c Dr 30,000 To Machinery A/c 30,000
(b) Creditors A/c Dr 30,000 To Realisation A/c 30,000
(c) No entry
(d) Realisation A/c Dr 28,000 To Bank A/c 28,000

Try it first, then show the solutionSolution

Both the machinery (debit) and the creditor (credit) are already in the Realisation Account at book value.
No cash moves, so nothing more is recorded; the ₹2,000 gain shows up automatically in the balance.

Answer: (c) No entry

Where students lose marks in Realisation Account

The slips examiners see most often, and what to write instead.

Mistake: Transferring a partner's loan to the Realisation Account
Treating every loan as a liability to realise.
Wrong working
Realisation A/c credited with A's Loan 20,000.
Right working
Pay A's Loan through Bank after outside liabilities.
Do this: Only outside liabilities go to realisation.
Usually costs: 1-2 marks.
Mistake: Transferring assets net of provisions
Shortcut that loses the provision line.
Wrong working
Debtors transferred at 48,000 (net).
Right working
Debtors at 50,000 Dr; Provision 2,000 Cr.
Do this: Gross asset debit, provision credit.
Usually costs: 1 mark.
Mistake: Recording an entry when a creditor takes an asset
Thinking every settlement needs an entry.
Wrong working
Creditors A/c Dr 30,000 To Machinery A/c 28,000 ...
Right working
No entry if fully settled by the asset; record only any cash paid.
Do this: Both are already in the Realisation Account.
Usually costs: 1 mark.
Mistake: Crediting general reserve to the Realisation Account
Confusing reserves with liabilities.
Wrong working
General Reserve A/c Dr To Realisation A/c
Right working
General Reserve A/c Dr To Partners' Capital A/cs (PSR)
Do this: Reserves belong to partners.
Usually costs: 1 mark.

Exam tips

Write the Realisation Account in T-form with 'By' and 'To' and a short working beside discounts.
Show assets taken over by partners as 'By A's Capital A/c (stock taken over)'.
Always close with the tally: bank balance = total of final capital balances.
Realisation Account is a 6-mark question in most years; journal entries on dissolution are 1- and 3-mark items.

Practice questions on Realisation Account

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Realisation Account is a:
(a) real account
(b) personal account
(c) nominal account
(d) representative personal account
Hint
It shows a profit or loss.
Answer
(c) nominal account
Q2 · 1 mark · MCQBoard level
As per the CBSE syllabus, if the realised value of a tangible asset is not given on dissolution, it is taken as realised at:
(a) nil
(b) market value
(c) book value
(d) 50% of book value
Hint
TB-IN.
Answer
(c) book value
Q3 · 3 marks · Short answerBoard level
P and Q share profits 2 : 1. On dissolution, assets of ₹2,00,000 realised ₹1,85,000; liabilities of ₹50,000 were settled for ₹48,000; expenses were ₹2,000. Calculate the realisation result and its distribution. (3 marks)
Hint
−15,000 + 2,000 − 2,000.
Answer
Loss = 15,000 − 2,000 + 2,000 = ₹15,000; P bears ₹10,000, Q ₹5,000.
Q4 · 3 marks · Short answerHarder board level
X took over the firm's car (book value ₹75,000) at ₹68,000 on dissolution. Pass the journal entry and state its effect on the realisation result. (3 marks)
Hint
Car is already debited at 75,000.
Answer
X's Capital A/c Dr 68,000 To Realisation A/c 68,000. The car was debited at 75,000 and credited at 68,000, so it adds ₹7,000 to the loss on realisation.
Q5 · 3 marks · Short answerHarder board level
Debtors ₹80,000 (provision ₹5,000) realised ₹72,000; machinery ₹2,00,000 (provision for depreciation ₹40,000) realised ₹1,50,000. Calculate the effect on the realisation result. (3 marks)
Hint
Compare with net book values.
Answer
Debtors: 72,000 − 75,000 = −3,000. Machinery: 1,50,000 − 1,60,000 = −10,000. Total loss ₹13,000.
Q6 · 3 marks · Short answerHarder board level
Creditors of ₹40,000 accepted stock (book value ₹30,000) and ₹12,000 in cash in full settlement. Pass the journal entry and state the effect on the realisation result. (3 marks)
Hint
Only the cash is recorded.
Answer
Realisation A/c Dr 12,000 To Bank A/c 12,000. Effect: creditors credited 40,000, stock debited 30,000, cash debited 12,000: a loss of ₹2,000.
Q7 · 1 mark · Very short answerHarder board level
An unrecorded investment of ₹10,000 was taken over by partner Q at ₹8,000. Pass the journal entry. (1 mark)
Hint
Unrecorded, so only the credit appears.
Answer
Q's Capital A/c Dr 8,000 To Realisation A/c 8,000.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): A partner's loan to the firm is transferred to the credit of the Realisation Account.
Reason (R): A partner's loan is paid after outside liabilities but before partners' capitals.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Section 48 order.
Answer
(d) A is false, but R is true.
Q9 · 4 marks · Short answerHOTS / competency
P and Q share equally. Their balance sheet: Bank 10,000; other assets 1,50,000 | Creditors 40,000; Capitals P 70,000, Q 50,000. On dissolution, assets realised ₹1,30,000, creditors were paid ₹39,000 and expenses were ₹3,000. Calculate the realisation result and the final payment to each partner, and show that the bank account closes. (4 marks)
Hint
Loss −20,000 + 1,000 − 3,000.
Answer
Loss = ₹22,000, ₹11,000 each. Bank = 10,000 + 1,30,000 − 39,000 − 3,000 = ₹98,000. Payments: P 59,000, Q 39,000; total 98,000, so the bank account closes.
Q10 · 3 marks · Short answerHOTS / competency
A firm's assets (book value ₹1,20,000) were realised and liabilities were paid at book value. Expenses of ₹3,000 were paid and the loss on realisation was ₹18,000. How much did the assets realise? (3 marks)
Hint
Loss = asset shortfall + expenses.
Answer
Asset shortfall = 18,000 − 3,000 = 15,000; assets realised 1,20,000 − 15,000 = ₹1,05,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Name two items never transferred to the Realisation Account.Show answer
Any two of: cash/bank, partners' capitals, partners' loans, reserves, fictitious assets.
2.Entry for an asset taken over by a partner?Show answer
Partner's Capital A/c Dr To Realisation A/c.
3.Intangible asset, realised value not given: taken as?Show answer
Nil.
4.In which ratio is realisation profit shared?Show answer
Profit sharing ratio.
5.Is loan from a partner's wife transferred to realisation?Show answer
Yes; it is an outside liability.

Realisation Account: frequently asked questions

What is a Realisation Account in Class 12?

A nominal account opened on dissolution to record the sale of assets and payment of outside liabilities; its balance is the profit or loss on realisation shared by partners.

Why are partners' loans not transferred to the Realisation Account?

Because they are not outside liabilities; under Section 48 they are paid after outside liabilities and before capitals, directly through the bank account.

What if the realised value of an asset is not given?

Under the CBSE syllabus, tangible assets are taken at book value and intangible assets at nil.

How do I check my Realisation Account?

Add item-wise gains and losses (realised minus net book value; liability book value minus payment) and subtract expenses; the total must equal your balance.