Following are the sequence of steps in case of a dissolution of a par…

Following are the sequence of steps in case of a dissolution of a partnership firm. Arrange the following steps in order:

A. Assets taken over by a partner, and payment of liabilities.
B. Transfer of profit and loss on realisation
C. All assets and all external liabilities are transferred to realisation account.
D. Settlement of partners' accounts

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

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

On dissolution, the books are closed through a Realisation Account. It is opened first, it records the realisation, its balance is then passed to the partners, and only after that can the partners be paid off.

C. All assets and all external liabilities are transferred to realisation account. — this opens the Realisation Account, so it must come first.

A. Assets taken over by a partner, and payment of liabilities. — the assets are then realised (sold or taken over by partners) and the liabilities paid, all through the Realisation Account.

B. Transfer of profit and loss on realisation — the balance left in the Realisation Account is the profit or loss on realisation, which is transferred to the partners’ capital accounts in their profit sharing ratio.

D. Settlement of partners’ accounts — comes last, because a partner’s final balance is known only after his share of the realisation profit or loss has been posted.

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).”

NCERT (2026-27 edition):
Summary – “… 3. Realisation Account : The Realisation Account is prepared to record the transactions relating to sale and realisation of assets and settlement of creditors. Any profit or loss arising act of this process is shared by partners’ in their profit sharing ratio. Partners’ accounts are also settled and the Cash or Bank account is closed.”