The order to be followed in preparation of realization account is.

(A) Realization of the assets.

(B) Transfer assets and liabilities to realization account.

(C) Ascertainment of profit or loss on realization.

(D) Payment of liabilities.

Choose the correct answer from the options given below:

(B), (A), (D), (C)

The correct answer is option 3- (B), (A), (D), (C).

The order to be followed in preparation of realization account is as follows- 

(B) Transfer assets and liabilities to realization account- All tangible and intangible assets (except cash or bank and fictitious assets like debit balance of P&L) are debited to the realization account. All external liabilities (except partners' capital or loan accounts) are credited to the realization account. The following Journal Entries is passed for this-
For assets- Realization A/c Dr. To Assets A/c.
For liabilities- Liabilities A/c Dr. To Realization A/c

(A) Realization of the assets- The firm now sells the assets or they are taken over by a partner. The amount realized is recorded in the realization account.
 Journal Entry (if assets are sold for cash): Bank A/c Dr. To Realization A/c.
If a partner takes over an asset: Partner’s Capital A/c Dr. To Realization A/c

(D) Payment of liabilities- After collecting cash from asset sales, the firm now pays off its external liabilities (e.g., creditors, loans). Journal Entry: Realization A/c Dr. To Bank A/c

(C) Ascertainment of profit or loss on realization-  After all realizations and payments, the balance in the Realization Account will be either Profit (credit balance) or Loss (debit balance). This profit or loss is transferred to the partners’ capital accounts in the profit-sharing ratio. 
Journal Entry (for profit): Realization A/c Dr. To Partners’ Capital A/cs
Journal entry (for loss): Partners’ Capital A/cs Dr.To Realization A/c

** When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, a Realisation Account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio. Hence, all assets (other than cash in hand bank balance and fictitious assets, if any), and all external liabilities are transferred to this account. It also records the sale of assets, and payment of liabilities and realisation expenses. The balance in this account is termed as profit or loss on realisation which is transferred to partners’ capital accounts in the profit sharing ratio.