Prepare revaluation and realisation accounts on dissolution
Record asset and liability revaluation, realise assets, settle obligations and distribute the remaining balance on dissolution.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These original lessons map all five Topic 3.1 objectives: financial-statement purpose; partnership changes; clubs and societies; manufacturing accounts; and limited-company financial statements and notes. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 adjustment and statement skills: apply accruals, distinguish capital from revenue, reconcile balances, and keep each entity's owners' funds separate from income and cash.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
An asset has book value $8,000 and sells for $7,200. What is the disposal effect before other realisation items?
What you will learn
- Prepare a revaluation account before dissolution when required
- Transfer assets and liabilities to realisation
- Allocate realisation profit or loss and settle partners' balances
Revaluation records changes before disposal
A revaluation account records agreed increases or decreases in asset/liability values before dissolution or a change in ownership. Allocate the resulting gain or loss to the partners entitled under the agreement, commonly the old profit-sharing ratio. It is distinct from the later cash proceeds on sale.
On dissolution, transfer the book values of assets and liabilities to the realisation account as required by the accounting method. Record cash received from asset sales, payments to settle liabilities and realisation expenses. A partner who takes an asset is normally credited/debited at the agreed value under the stated method.
Close the account and distribute cash
The balance on realisation is a profit or loss. Allocate it to the partners in the sharing ratio in force for dissolution, subject to the partnership agreement. Then settle partners' loan accounts and capital/current balances in the required order and record final cash paid or received.
Check that cash after sales, creditor payments and expenses equals the amounts distributed. If a partner cannot pay a debit balance, follow the question's instruction and do not invent a statutory or insolvency rule beyond the syllabus scope.
Pause and explain
A revaluation gain arises before the partnership dissolves. What is it distinct from?
Worked example
Partners A and B share 2:1. Assets with book value $30,000 are sold for $36,000; liabilities of $6,000 are settled for $5,900 and realisation expenses are $1,000. Calculate the realisation result and each partner's share.
Show the worked solution
- Asset gain = proceeds $36,000 − book value $30,000 = $6,000.
- Liability settlement gain = $6,000 − $5,900 = $100; deduct expenses $1,000. Net realisation profit = $5,100.
- Allocate $5,100 in 2:1: A $3,400 and B $1,700.
Answer Realisation profit is $5,100; A receives $3,400 and B $1,700 in the final account allocation.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A liability of $9,000 is settled for $8,700, and sale proceeds exceed asset book values by $2,400. Realisation expenses are $600. Calculate net realisation profit.
Give me a hint
A liability settled below its carrying amount creates a gain; include expenses as a loss.
Compare my reasoning
- Asset sale gain = $2,400.
- Liability settlement gain = $9,000 − $8,700 = $300.
- Net realisation profit = $2,400 + $300 − $600 = $2,100.
Net realisation profit is $2,100 before allocating it among partners.
Look for these in your work
- Asset gain included
- Liability settlement gain included
- Expenses deducted
A and B share 3:2. Net realisation loss is $12,500. A has a capital credit of $40,000 and B $25,000 before allocation. Calculate the loss shares and balances before cash settlement.
Give me a hint
Allocate the loss in the dissolution ratio, then reduce each capital balance.
Compare my reasoning
- A's loss share = $12,500 × 3/5 = $7,500.
- B's loss share = $12,500 × 2/5 = $5,000.
- Balances after loss: A $32,500; B $20,000.
A's balance is $32,500 and B's is $20,000 before final settlement, assuming no other partner loans/current balances or payments.
Look for these in your work
- Loss ratio applied
- Balances reduced
- Settlement not assumed
During dissolution, one partner takes a vehicle at an agreed value instead of selling it. How should the accountant keep the realisation result and cash distribution understandable?
Give me a hint
Record the asset taken as a disposal at the agreed value and show the partner's account effect separately from cash sales.
Compare my reasoning
- Use the agreed vehicle value in the realisation account as consideration for the asset transferred to the partner.
- Record the corresponding debit/credit in that partner's capital/current account under the stated method.
- Do not show the agreed value as cash received; calculate the remaining cash available after other sales and settlements.
Record the transfer at its agreed value in realisation and the partner account, but do not include it in cash proceeds. Only actual cash receipts fund cash settlements.
Look for these in your work
- Agreed value recorded
- Partner balance adjusted
- Noncash transfer distinguished
Common mistakes
- Allocating pre-dissolution revaluation using the wrong ratio
- Treating book values as cash proceeds
What can you explain now?
What does the realisation account's final balance represent?
Compare with the explanation
Profit or loss from disposing of assets and settling liabilities
It compares transferred balances with actual disposal and settlement amounts, including costs.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
What is the difference between a revaluation gain and a realisation gain?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.