Sita, Rita and Meeta are partners sharing profits and losses equally. On 31st March, 2022, they decided to dissolve the business. On that date, the Capital Account Balance were Sita-₹1,00,000; Rita-₹80,000 and Meeta-₹60,000. Creditors for ₹30,000 and Reserve Fund for ₹30,000 were also lying in the books of the firm while on Assets side, Sundry Assets were existing at ₹2,70,000. Sundry assets included patents for ₹20,000. The tangible assets were realised at 90% of the book value while creditors were settled at 110%. Realisation expenses were ₹10,000 paid by Sita. There was an unrecorded assets of ₹5,000 which was taken over by Meeta.

Answer question on the basis of above information.

Identify the nature of Realisation A/c.

Nominal A/c

The correct answer is option 2- Nominal.

Realisation account is a nominal account.

Realisation account is a nominal account as nominal account debit all expenses and losses and credit all income and gains. 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.