How to Prepare Realisation Account

Realisation account is made at the time of dissolution of partnership.This account is prepared for finding the profit or loss on getting amount from selling of all assets and paying amount of liabilities.

1. Assets Transfer at Book Value 

When partnership dissolve, we close all the accounts of assets by sending them to the debit side of  realisation account. Cash and bank account are not transferred to realisation account but if it is bought by buying company, then these accounts will also transfer to realisation account. We transfer all the assets to realisation account on its book value.

2. Provisions  Transfer 

We transfer all the reserves, provisions in its credit side. For example, we transfer provision for doubtful debt account, provision for depreciation account, investment fluctuation fund account and joint life policy reserve account in its credit side.

3. Capital Transfer 

In the balance sheet, debit balance of profit and loss which is shown in the asset side, will not transfer to realisation account but we will transfer it to capital account's debit side. After this, capital accounts will be transferred to the credit side of realisation account. Like this, if balance sheet is showing credit balance of profit and loss account and reserve and surplus in its liabilities side, we will not transfer it to realisation account. We will transfer it to capital accounts of partners and then these capital account will be credited to realisation account.

4. Cash Received from Sale of Assets 

All the cash which we receive from sale of assets will be transferred to the credit side of realisation account.

5. Cash Payments of Liabilities 

All the cash which we pay for liabilities will be transferred to the debit side of realisation account.

6. Expenses of Realisation 

All the expenses of realisation will be shown in the debit side of realisation account.

7. Take Over Liabilities or Assets by Partner 

If any partner has taken over any liability, then, that partner's capital account will be debited in realisation account.

If any partner has taken over any asset, then, that partner's capital account will be credited in realisation account.

8. Closing the Realisation Account 

We will compare the debit balance of realisation account with the credit balance of realisation account. Difference between debit balance and credit balance will go to partner's capital account.. This will be profit or loss on realisation and it will be divided into profit and loss sharing ratio.

Related : Accounting Treatment at the Time of Dissolution of Partnership