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.