why all assets and liabilities are transffered to realisation account at the time of dissolution of a firm.

why all assets and liabilities are transffered to realisation account at the time of dissolution of a firm.

asked Aug 4, 2014 in Partnership-Dissolution of a Partnership Firm by deepz (143 points) 7,286 views

1 Answer

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All assets except cash and bank balance and those assets which are taken over by partners are transferred to the Debit side of Realisation A/c. Similarly all liabilities except which are taken over by partners (excluding free reserves) are transferred to the credit side of Realisation A/c. Actually Realisation A/c is a Nominal A/c. This account is prepared to calculate the profit/loss made on realisation of assets and settlement of liabilities.

If this account was not prepared then on selling every asset you would have made entry in every asset account and transferred the profit/loss on that transaction to some separate account kept for calculating profit/loss on realisation of assets and settlement of liabilities. Similarly while settling every liability you would have made entry in each liability and transferred profit/loss to the same account meant for calculating profit/loss on realisation of assets and settlement of liabilities.

From what has been stated above you would realise that it would mean a lot of work which reduces significantly by preparing Realisation A/c and you get to know profit/loss made during the process of realisation of assets and settlement of liabilities at one place.

I am giving below a link of the question on preparation of Realisation A/c for your ready reference:
http://www.jbsclasses.com/q2a_link/index.php?qa=2149&qa_1=dissolution-of-partnership&show=2149#q2149

answered Aug 5, 2014 by jbsclasses (3,971 points)
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