Accountancy Part ADissolution of Partnership Firm

Identify the nature of Realisation Account.

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Nominal account

Realisation Account is opened only to work out the profit or loss on realisation of assets and settlement of liabilities, and its balance is transferred to the partners’ capital accounts. An account that shows a profit or loss and is closed by transfer is a nominal account.

Option (1) Personal account — Incorrect. A personal account is the account of a person (e.g. a partner’s capital account or a creditor); Realisation Account belongs to no person.

Option (2) Real account — Incorrect. A real account records assets that remain with the business; Realisation Account is closed once the profit or loss is found.

Option (4) Personal account and Nominal account both — Incorrect. It has the nature of only one class of account, nominal; it is not partly personal.

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.”