Difference between Realisation Account and Revaluation Account?

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Revaluation A/c :- purpose of preparing revaluation A/c is to ascertain profit or loss on revaluation of assets and liabilities.Realisation A/c :- To ascertain profit or loss on disposal of assets and payment of liabilities.

Answer

Revaluation Account is prepared only when there is any change in the value of asset and liabilities of the partnership firm, at the time of admission, retirement, and death of a partner. On the other hand, Realisation Account is opened when the firm goes into liquidation, so as to close the books of accounts and also to compute the net effect (profit or loss) arising due to the realisation of assets and settlement of liabilities...Hope u've understood....

Answer

Difference between Realisation Account and Revaluation Account

Realisation Account and Revaluation Account are both important accounts used in accounting during the dissolution of a partnership firm. However, they serve different purposes and have distinct characteristics. Let's explore the differences between these two accounts:

Realisation Account:
Realisation Account is prepared when a partnership firm is dissolved or when a partner decides to retire from the partnership. It is used to record the realization and distribution of assets and liabilities among the partners. Here are the key points about Realisation Account:

1. Purpose: Realisation Account is created to determine the profit or loss arising from the realization of assets and settlement of liabilities during the dissolution or retirement of a partner.

2. Recording of Assets: The book value of all the assets of the firm is transferred to the Realisation Account. These assets may include cash, bank balance, investments, inventory, machinery, etc.

3. Recording of Liabilities: Similarly, the book value of all the liabilities is also transferred to the Realisation Account. Liabilities such as outstanding expenses, loans, accounts payable, etc., are recorded.

4. Treatment of Gains or Losses: Any profit or loss arising from the realization of assets and settlement of liabilities is credited or debited to the Realisation Account.

5. Distribution of Realization: The balance in the Realisation Account is distributed among the partners according to their profit-sharing ratio or any other agreed-upon ratio.

Revaluation Account:
Revaluation Account is prepared to adjust the values of assets and liabilities in the books of accounts when there is a change in the profit-sharing ratio or when a partner joins or retires from the partnership. Let's look at the key characteristics of Revaluation Account:

1. Purpose: Revaluation Account is created to adjust the values of assets and liabilities in the books of accounts after a change in the profit-sharing ratio or the admission/retirement of a partner.

2. Revaluation of Assets and Liabilities: All assets and liabilities are revalued to their current market value or fair value. This revaluation accounts for any appreciation or depreciation in the value of assets and liabilities.

3. Treatment of Revaluation Gains or Losses: Any increase in the value of assets or decrease in the value of liabilities is credited to the Revaluation Account. Conversely, any decrease in the value of assets or increase in the value of liabilities is debited to the Revaluation Account.

4. Adjustment of Capital Accounts: The balance in the Revaluation Account is transferred to the capital accounts of the partners in their profit-sharing ratio or as per the agreement.

5. Impact on Profit or Loss: The adjustments made in the Revaluation Account do not directly affect the profit or loss of the firm. The changes in the values of assets and liabilities are reflected in the capital accounts of the partners.

Summary:
In summary, Realisation Account is used to record the realization and distribution of assets and liabilities during the dissolution or retirement of a partner, while Revaluation Account is used to adjust the values of assets and liabilities after a change in profit-sharing ratio or the admission/retirement of a partner. Realisation Account determines the profit or loss from the realization of assets and settlement of liabilities, whereas Revaluation Account adjusts the values of assets and liabilities to their current market value.

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