When unrecorded liabilities are paid it should be shown in :

Debit of Realisation Account

The correct answer is Option (1) - Debit of Realisation Account.

When unrecorded liabilities are paid it should be shown on the debit side of Realisation Account.

Unrecorded liabilities are those liabilities which are not recorded in the books of account. The accounting treatment for unrecorded liability is:
When the unrecorded liability is paid off: Realisation A/c Dr. To Bank A/c

* When it is paid by the partner then Partner's Capital account is credited instead of bank account.