Identify the correct sequence for preparation of realisation account.…

Identify the correct sequence for preparation of realisation account.

(A) Determination of Realisation Gain/ Loss
(B) Transfer of outsider's Liabilities to Realisation A/c
(C) Realisation of Assets
(D) Transfer of Assets to Realisation A/c
(E) Payment of Liabilities and Realisation Expenses

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (D), (B), (C), (E), (A)

The Realisation Account is built up in the order in which the firm’s assets and liabilities are closed and settled:

(D) Transfer of Assets to Realisation A/c – all assets except cash, bank and fictitious assets go to its debit.
(B) Transfer of outsider’s Liabilities to Realisation A/c – all external liabilities go to its credit.
(C) Realisation of Assets – cash received on sale of assets is credited.
(E) Payment of Liabilities and Realisation Expenses – amounts paid are debited.
(A) Determination of Realisation Gain/ Loss – the balance left is the profit or loss, transferred to the partners’ capital accounts.

NCERT (2026-27 edition):
Accounting Treatment – “… 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).”