Admission of a new partner
Retirement of a partner
Dissolution of the firm
Closing of every accounting year
Answer is Right!
Answer is Wrong!
The correct answer is C. Dissolution of the firm.
A realisation account is a statement that shows the assets and liabilities of a partnership firm at the time of its dissolution. It is prepared to calculate the amount due to each partner after the assets have been sold and the liabilities have been paid.
A realisation account is not prepared at the time of admission or retirement of a partner, as these events do not result in the dissolution of the firm. A realisation account is also not prepared at the end of every accounting year, as this is simply a reporting period and does not result in the dissolution of the firm.
Here is a brief explanation of each option:
- Option A: Admission of a new partner. When a new partner is admitted to a partnership firm, the existing partners’ capital accounts are adjusted to reflect the new partner’s share of the firm’s capital. This is done by creating a new capital account for the new partner and transferring an amount from the existing partners’ capital accounts to the new partner’s capital account. A realisation account is not prepared at this time, as the firm does not dissolve.
- Option B: Retirement of a partner. When a partner retires from a partnership firm, the remaining partners’ capital accounts are adjusted to reflect the retiring partner’s share of the firm’s capital. This is done by creating a new capital account for the retiring partner and transferring an amount from the remaining partners’ capital accounts to the retiring partner’s capital account. A realisation account is not prepared at this time, as the firm does not dissolve.
- Option C: Dissolution of the firm. When a partnership firm dissolves, the assets are sold and the liabilities are paid. The remaining amount is then distributed to the partners according to their profit-sharing ratio. A realisation account is prepared to calculate the amount due to each partner.
- Option D: Closing of every accounting year. At the end of every accounting year, a partnership firm prepares a profit and loss account and a balance sheet. These statements do not result in the dissolution of the firm, and therefore a realisation account is not prepared.