Accountancy Part ADissolution of Partnership Firm

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

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:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (B), (A), (D), (C)

The Realisation Account is opened to find the net result of selling the assets and settling the liabilities, so it is written up in the order the work is done:

(B) Transfer assets and liabilities to realisation account — first, all assets (other than cash, bank and fictitious assets) and all outside liabilities are closed by transfer to it.
(A) Realisation of the assets — the cash received from selling the assets is credited to it.
(D) Payment of liabilities — the outside liabilities are paid off and the payment is debited to it (with realisation expenses).
(C) Ascertainment of profit or loss on realisation — only when every item is in can the balance be struck; it is then shared by the partners in their profit sharing ratio.

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.”