Arrange the following steps in order of occurrence in case of dissolu…

Arrange the following steps in order of occurrence in case of dissolution of partnership firm

(A) Entries of all the realised and taken over assets with all the payments and taken over liabilities in the realisation account.

(B) Transfer of all the assets and liabilities to the realisation account

(D) Settlement of partner's capital account.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (B), (A), (C), (D)

The Realisation Account is opened first, then used to record the sale of assets and payment of liabilities, and its balance is the profit or loss that the partners share. The partners' accounts can be settled only after that profit or loss has been added to them.

(B) Transfer of all the assets and liabilities to the realisation account — the first step: assets (other than cash, bank and fictitious assets) and outside liabilities are moved to the Realisation Account at book value.

(A) Entries of all the realised and taken over assets with all the payments and taken over liabilities in the realisation account. — next, each sale or takeover of an asset and each payment of a liability is recorded in it.

(C) Transfer of realisation account profits and losses to partner's capital account. — the balance left in the Realisation Account is the profit or loss on realisation, shared by the partners in their profit sharing ratio.

(D) Settlement of partner's capital account. — the last step: partners with a debit balance bring in cash and those with a credit balance are paid.

NCERT (2026-27 edition):
Accounting Treatment – “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 (see figure 4.1).”