AccountsISC Class 12 · Dissolution of a Partnership Firm

Realisation Account on Dissolution: ISC Class 12 Accounts

Updated 15 October 2026 · Fact-checked

The Realisation Account is prepared on dissolution to record the sale of assets and the payment of outside liabilities. Assets are debited and liabilities credited at book value; sale proceeds and assets taken by partners are credited; payments and expenses are debited. The balance, a profit or loss on realisation, is shared by partners in their profit ratio.

Assets go on the debit side and outside liabilities on the credit side at book value; the balance is shared in the profit ratio.

Illustration drawn for QuestionBuddy.

Understand Realisation Account

Purpose. On dissolution the firm ends, so every asset is sold or taken over and every outside liability is paid. The Realisation Account collects all of this in one place and shows the net profit or loss.

Debit side.

All assets at book value, except cash, bank, fictitious assets (P&L debit balance, Advertisement Suspense, Deferred Revenue Expenditure) and loans given to partners.
Liabilities paid in cash or settled by a partner; realisation expenses borne by the firm; unrecorded liabilities paid.

Credit side.

Outside liabilities at book value, including a bank loan.
Provisions and reserves related to an asset or liability taken to Realisation (provision for doubtful debts, Investment Fluctuation Reserve). This is a CISCE rule: the related reserve goes to Realisation, not to the capitals.
Cash from sale of assets, assets taken over by partners, unrecorded assets realised or taken.

CISCE rules when the question is silent.

Tangible assets and investments: realised at book value.
Intangible assets (goodwill, patents), accrued income and prepaid expenses: nil.
Liabilities: paid in full.
Bank overdraft is paid through the Bank A/c, not Realisation; a bank loan goes to Realisation.

Realisation expenses (five cases in the syllabus).

Paid by the firm: Realisation Dr; To Bank.
Paid by a partner for the firm: Realisation Dr; To Partner's Capital.
To be borne by a partner but paid by the firm: Partner's Capital Dr; To Bank (Realisation not touched).
Partner bears expenses for a remuneration: Realisation Dr; To Partner's Capital (remuneration); his actual payment needs no entry.
Borne and paid by a partner with no claim: no entry.

Discounts and rebates. A debtor paying before the due date, or a bill payable settled early, is reduced by interest for the unexpired months only. ISC examiners in 2024 noted candidates taking a full year instead of three months.

Not a Revaluation Account. Revaluation belongs to reconstitution; on dissolution of the firm, the Realisation Account is used.

Realisation Account: key facts

Realisation profit or loss: Credit total (liabilities, related reserves, proceeds, assets taken by partners) − Debit total (assets, payments, expenses); Shared in the profit-sharing ratio.
Rebate on bills payable / discount from debtor: Amount × Rate × Unexpired months ÷ 12; Amount paid or received = Amount − Rebate.
Silent values (CISCE): Tangible assets and investments: book value
Intangibles, accrued income, prepaid expenses: nil
Liabilities: paid in full
Kept out of Realisation: Cash and bank
Bank overdraft
Fictitious assets
Loans to and from partners
Accumulated profits and unrelated reserves; These go to Bank or to capital accounts.
Check (item-wise): Sum of (amount realised − net book value) for each item − expenses = Realisation result; Use it to verify a long account.

How to answer Realisation Account questions

The Realisation Account carries most of the marks in an ISC 6-mark dissolution question. Sort first, then post.

1Mark every Balance Sheet item: Realisation, Bank, or Capital.
2Debit Realisation with assets at book value; credit it with outside liabilities and related provisions or reserves.
3Credit proceeds and assets taken by partners; apply the silent-value rules where no figure is given.
4Debit liabilities paid (net of discount or rebate) and liabilities settled by a partner or by an asset.
5Post realisation expenses according to who pays and who bears them.
6Balance the account, share the result in the profit ratio, and verify it item by item.

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.

Profit or loss on winding up

Suppose two friends close their juice stall, which they ran on equal shares. The freezer is shown at ₹25,000 but sells for only ₹18,000. Their fruit supplier, owed ₹30,000, agrees to accept ₹28,500 if paid at once.

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

Try it first, then show the solutionSolution

Freezer: loss of 25,000 − 18,000 = ₹7,000.
Supplier: gain of 30,000 − 28,500 = ₹1,500.
Net loss = ₹5,500, shared equally.

Answer: Realisation loss ₹5,500: ₹2,750 for each friend.

Memory hook: Sell everything, pay everyone, share the gap.

Tricks to remember Realisation Account

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

Assets in on the left, liabilities in on the right
Book values enter on the opposite side to where the cash will later come: assets debited (cash will be credited), liabilities credited (payment will be debited).
Use it when: Opening the account.
Overdraft to Bank, loan to Realisation
O goes to the Bank; L goes to Realisation.
Use it when: Bank borrowings under the CISCE rule.
Tangible at book, intangible at nil
If silent: things you can touch fetch book value; things you cannot touch fetch nothing; debts are paid in full.
Use it when: Questions that leave values out.

Realisation Account: solved examples

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

Example 1: Bank overdraft on dissolution · 1 mark · MCQBoard level

Under the CISCE syllabus, a bank overdraft appearing in the Balance Sheet on dissolution is:
(a) transferred to the Realisation Account
(b) paid off through the Bank Account
(c) transferred to partners' capital accounts
(d) shown in the Memorandum Balance Sheet only

Try it first, then show the solutionSolution

The syllabus states that a bank overdraft is taken to the Bank/Cash A/c.
Only a bank loan is transferred to Realisation.

Answer: (b) paid off through the Bank Account

Example 2: Basic Realisation Account · 3 marks · Short answerBoard level

A firm with partners sharing 3:2 is dissolved. Assets (other than bank): stock ₹50,000; debtors ₹40,000 with a provision of ₹2,000; machinery ₹90,000. Liabilities: creditors ₹36,000; bills payable ₹14,000. Stock realised ₹46,000, debtors ₹37,500 and machinery ₹82,000; creditors were paid ₹35,000; nothing is said about bills payable; expenses of ₹2,500 were paid by the firm. Find the realisation result and its division. (3 marks)

Try it first, then show the solutionSolution

Debit: assets 1,80,000 + creditors 35,000 + bills payable (silent, paid in full) 14,000 + expenses 2,500 = ₹2,31,500.
Credit: provision 2,000 + creditors 36,000 + bills payable 14,000 + proceeds 1,65,500 = ₹2,17,500.
Loss = ₹14,000: ₹8,400 and ₹5,600.

Answer: Realisation loss ₹14,000, borne ₹8,400 and ₹5,600.

Example 3: Rebate on a bill payable and discount to a debtor · 3 marks · Short answerHarder board level

A firm is dissolved on 31 March. A bill payable of ₹45,000 due on 31 August is settled at once at a rebate of 8% p.a. A debtor owing ₹33,000, due on 31 May, pays at once at a discount of 6% p.a. Calculate the amounts paid and received, and give the Realisation entries. (3 marks)

Try it first, then show the solutionSolution

Rebate = 45,000 × 8% × 5/12 = ₹1,500; paid ₹43,500: Realisation A/c Dr 43,500; To Bank A/c 43,500.
Discount = 33,000 × 6% × 2/12 = ₹330; received ₹32,670: Bank A/c Dr 32,670; To Realisation A/c 32,670.

Answer: Bill payable settled for ₹43,500; debtor pays ₹32,670.

Example 4: Related reserve, asset taken over and creditor settled by stock · 6 marks · Long answerHarder board level

Kabir and Leena share profits 4:3. On dissolution: land ₹2,00,000; investments ₹60,000 with Investment Fluctuation Reserve ₹6,000; stock ₹45,000; debtors ₹55,000; creditors ₹70,000; bank loan ₹40,000. Land sold for ₹2,40,000; Kabir took the investments at ₹57,000; a creditor of ₹30,000 accepted all the stock in full settlement; the other creditors were paid at a 5% discount; debtors realised ₹52,000; an unrecorded computer was sold for ₹4,000; the bank loan was paid; expenses of ₹3,000 were paid. Calculate the realisation result. (6 marks)

Try it first, then show the solutionSolution

Debit: assets 3,60,000; creditors paid 40,000 × 95% = 38,000; bank loan 40,000; expenses 3,000; total ₹4,41,000. Stock given to the creditor needs no further entry.
Credit: IFR 6,000 (CISCE rule); creditors 70,000; bank loan 40,000; land 2,40,000; debtors 52,000; computer 4,000; Kabir (investments) 57,000; total ₹4,69,000.
Profit = ₹28,000: Kabir ₹16,000, Leena ₹12,000.
Item check: land +40,000; investments −3,000 + IFR 6,000; stock −15,000; debtors −3,000; creditors +2,000; computer +4,000; expenses −3,000 = +28,000.

Answer: Realisation profit ₹28,000: Kabir ₹16,000, Leena ₹12,000.

Example 5: Finding a missing realised value · 3 marks · Short answerHOTS / competency

A Realisation Account shows a loss of ₹6,000. Its debit side has assets ₹1,50,000, creditors paid ₹40,000 and expenses ₹2,000. Its credit side has creditors ₹42,000, an asset taken by a partner ₹30,000, and the cash realised from stock. Find the cash realised from stock. (3 marks)

Try it first, then show the solutionSolution

Debit total = 1,92,000.
Credits + loss = debits: 42,000 + 30,000 + X + 6,000 = 1,92,000.
X = ₹1,14,000.

Answer: Cash realised from stock = ₹1,14,000.

Example 6: Silent values, partner paying creditors and remuneration for expenses · 6 marks · Long answerHOTS / competency

Asha and Bilal share profits 5:3. Assets (other than bank): machinery ₹1,20,000; stock ₹64,000; debtors ₹48,000; patents ₹16,000. Liabilities: creditors ₹56,000; bills payable ₹24,000. Asha took the machinery at ₹1,10,000; stock was sold at 90% of book value; 6% of debtors proved bad; nothing is said about patents or bills payable. Bilal agreed to pay creditors of ₹20,000 himself; the remaining creditors accepted ₹34,000. Bilal was to bear all expenses for a remuneration of ₹4,000; he paid actual expenses of ₹3,500. Calculate the realisation result. (6 marks)

Try it first, then show the solutionSolution

Debit: assets 2,48,000; Bilal's Capital (creditors) 20,000; Bank (creditors) 34,000; Bank (bills payable in full) 24,000; Bilal's Capital (remuneration) 4,000; total ₹3,30,000. His actual ₹3,500 needs no entry.
Credit: creditors 56,000; bills payable 24,000; Asha 1,10,000; stock 57,600; debtors 45,120; patents nil; total ₹2,92,720.
Loss = ₹37,280: Asha ₹23,300, Bilal ₹13,980.

Answer: Realisation loss ₹37,280: Asha ₹23,300, Bilal ₹13,980.

Where students lose marks in Realisation Account

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

Mistake: Full-year discount on early payment
Ignoring the unexpired period.
Wrong working
45,000 × 8% = 3,600
Right working
45,000 × 8% × 5/12 = 1,500
Do this: Count months to the due date; ISC examiners in 2024 reported a full year being used.
Usually costs: 1 mark.
Mistake: Investment Fluctuation Reserve to capitals
Following a non-CISCE textbook rule.
Wrong working
IFR 6,000 credited to Kabir and Leena
Right working
By Investment Fluctuation Reserve 6,000 in Realisation
Do this: A reserve related to an asset taken to Realisation goes to Realisation under the ISC syllabus.
Usually costs: 1 mark.
Mistake: Writing 'To Stock A/c' for a payment
Naming the item instead of the account.
Wrong working
Bilal's Capital: To Stock A/c
Right working
Bilal's Capital: To Realisation A/c
Do this: Partners' accounts show 'Realisation A/c'; ISC examiners in 2025 noted this naming error.
Usually costs: 1 mark.
Mistake: Overdraft in Realisation
Treating all bank borrowing alike.
Wrong working
By Bank Overdraft 14,000 in Realisation
Right working
Bank A/c: By Balance b/d (overdraft) 14,000, cleared from the proceeds
Do this: Only a bank loan goes to Realisation.
Usually costs: 1 mark.

Exam tips

Write full account names; ISC examiners in 2024 asked students not to use short forms.
State the silent-value rule you apply in a bracket, for example '(patents: nil, as silent)'.
Show discount and rebate calculations with the number of months.
Verify the result item by item before transferring it to the capitals.

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
On dissolution, a debit balance in the Profit and Loss Account is:
(a) debited to the Realisation Account
(b) credited to the Realisation Account
(c) debited to partners' capital accounts in the profit ratio
(d) credited to partners' capital accounts
Hint
It is an accumulated loss.
Answer
(c) debited to partners' capital accounts in the profit ratio
Q2 · 1 mark · MCQBoard level
If the question is silent about prepaid expenses on dissolution, under the CISCE syllabus they are treated as realising:
(a) book value
(b) nil
(c) half the book value
(d) market value
Hint
Grouped with accrued income and intangibles.
Answer
(b) nil
Q3 · 3 marks · Short answerBoard level
Assets (other than bank) of ₹2,10,000 and liabilities of ₹70,000 are transferred to Realisation. Assets realise ₹1,86,000; liabilities are settled for ₹68,500; expenses are ₹1,500. Partners share equally. Find the result and each share. (3 marks)
Hint
Debits ₹2,80,000.
Answer
Loss = 2,80,000 − 2,56,000 = ₹24,000; ₹12,000 each.
Q4 · 3 marks · Short answerHarder board level
On dissolution on 31 March, a bill payable of ₹27,000 due on 31 July is settled at a rebate of ₹810. Calculate the rate of rebate per annum. (3 marks)
Hint
Four unexpired months.
Answer
Rate = 810 ÷ (27,000 × 4/12) × 100 = 9% p.a.
Q5 · 3 marks · Short answerHarder board level
Debtors ₹75,000 with provision ₹3,000; investments ₹40,000 with Investment Fluctuation Reserve ₹5,000. Debtors realise ₹71,000 and investments ₹37,000. Find the net effect of these items on the Realisation Account. (3 marks)
Hint
Provision and IFR go to Realisation.
Answer
Credits 3,000 + 5,000 + 71,000 + 37,000 = 1,16,000; debits 75,000 + 40,000 = 1,15,000; net profit ₹1,000.
Q6 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Under the ISC syllabus, a bank overdraft is not transferred to the Realisation Account.
Reason (R): The overdraft is paid off through the Bank Account.
(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
Where is it paid from?
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q7 · 6 marks · Long answerHarder board level
Partners share equally. Building ₹1,80,000, furniture ₹22,000, stock ₹38,000; creditors ₹50,000. Building sold for ₹2,05,000; Dev took the furniture at ₹18,000; a creditor of ₹30,000 accepted all the stock in full settlement; other creditors paid in full; expenses ₹2,400. Find the realisation result. (6 marks)
Hint
Stock worth ₹38,000 settles a ₹30,000 debt.
Answer
Debits 2,40,000 + 20,000 + 2,400 = 2,62,400; credits 50,000 + 2,05,000 + 18,000 = 2,73,000; profit ₹10,600, ₹5,300 each.
Q8 · 3 marks · Short answerHarder board level
On dissolution, an unrecorded typewriter worth ₹5,000 is taken by partner Arjun, and an unrecorded repair bill of ₹3,200 is paid by the firm. Pass the entries and find the net effect on Realisation. (3 marks)
Hint
One credit, one debit.
Answer
Arjun's Capital A/c Dr 5,000; To Realisation A/c 5,000. Realisation A/c Dr 3,200; To Bank A/c 3,200. Net gain ₹1,800.
Q9 · 3 marks · Short answerHOTS / competency
A firm being dissolved has a bank overdraft of ₹14,000, a bank loan of ₹35,000, a loan from partner Esha of ₹16,000 and a loan given to partner Faiz of ₹9,000. State where each goes under the CISCE syllabus. (3 marks)
Hint
Four different destinations.
Answer
Overdraft: paid through Bank A/c. Bank loan: Realisation A/c (then paid). Esha's loan: paid through Bank A/c, even if her capital is in debit. Loan to Faiz: debited to Faiz's Capital A/c.
Q10 · 6 marks · Long answerHOTS / competency
Gauri and Hiren share 2:3. Assets: stock ₹75,000; debtors ₹60,000 (provision ₹4,000); plant ₹1,40,000; goodwill ₹20,000. Liabilities: creditors ₹65,000; bank loan ₹50,000. Gauri took the stock at 10% below book value and agreed to pay creditors of ₹25,000; the other creditors were paid ₹39,000; debtors realised ₹57,000; plant ₹1,30,000; goodwill not mentioned; bank loan paid. Expenses of ₹3,500 were to be borne by Hiren but paid by the firm. Find the realisation result and each share. (6 marks)
Hint
Hiren's expenses do not touch Realisation; goodwill realises nil.
Answer
Debits 4,09,000; credits 3,73,500; loss ₹35,500: Gauri ₹14,200, Hiren ₹21,300. Expenses: Hiren's Capital Dr 3,500; To Bank 3,500.

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.Where does a provision for doubtful debts go on dissolution?Show answer
Credit of the Realisation Account.
2.Patents with no realised value stated: amount?Show answer
Nil.
3.Expenses paid by a partner on the firm's behalf: entry?Show answer
Realisation A/c Dr; To Partner's Capital A/c.
4.Is a Revaluation Account prepared on dissolution of the firm?Show answer
No; the Realisation Account is.
5.Bank loan or bank overdraft: which goes to Realisation?Show answer
The bank loan.

Realisation Account: frequently asked questions

Why is the Investment Fluctuation Reserve taken to Realisation in ISC?

The CISCE syllabus says a fund or reserve related to an asset or liability taken to Realisation goes there too, not to the capital accounts.

Is General Reserve taken to Realisation?

No. It is not related to a particular asset or liability, so it is credited to partners' capital accounts in the profit ratio.

What if a creditor takes an asset worth more than the debt?

No extra entry is needed; the loss is already reflected because the asset was debited at book value and the creditor credited at his claim.

Do partners' loans go through Realisation?

No. A loan from a partner is paid through the Bank A/c, and a loan to a partner is debited to his capital account.