Realisation Account

Realisation account is prepared when a partnership firm is dissolved. It is a nominal account that is prepared to record the transactions related to the sale of assets and payment of liabilities during the dissolution of the firm. The main objective of preparing a realisation account is to ascertain the profit or loss on the sale of assets and payment of liabilities during the dissolution of the firm.

When is Realisation Account Prepared?

Realisation account is prepared in the following situations:

- When a partnership firm is dissolved.
- When a partner retires or dies and the remaining partners decide to continue the business.
- When a partnership firm is converted into a company.

Steps to Prepare Realisation Account

- Determine the value of all the assets and liabilities of the firm as on the date of dissolution.
- Prepare a list of all the assets and liabilities of the firm and record their values.
- Record the sale of assets and payment of liabilities in the realisation account.
- Calculate the profit or loss on the sale of assets and payment of liabilities.
- Transfer the balance in the realisation account to the partners' capital accounts in their profit sharing ratio.

Conclusion

Realisation account is a nominal account that is prepared to record the transactions related to the sale of assets and payment of liabilities during the dissolution of the firm. It is prepared to ascertain the profit or loss on the sale of assets and payment of liabilities. Realisation account is prepared when a partnership firm is dissolved, when a partner retires or dies and the remaining partners decide to continue the business, and when a partnership firm is converted into a company. The balance in the realisation account is transferred to the partners' capital accounts in their profit sharing ratio.