It is said that Realisation A/c is a nominal a/c because it is used to find out Profit/Loss at the time of Amalgamation or Dissolution of Partnership. But, the rule for nominal a/cs, i.e. Debit all expenses and losses and Credit all Incomes and Gains is not followed here! Infact, there's no nominal a/c which is either debited or credited to Realisation A/c. It contains all personal and real a/cs appearing in the B/S. Then, how can it be a nominal a/c. Is its nature something different? Please help.
14 Replies
Viren
(Chartered Accountant)
(137 Points)
Replied 10 May 2011
It is a nominal A/c. The reason is very simple.
For personal account there should be a person. Realisation A/c is not a person.
For real account, either it should be a asset or liability but it is neither a asset nor a liability. So it cannt be real account.
For nominal account it should be either a expense, income, loss or gain. In the realisation account we calculate profit or loss on sale of assets and payment of liabilities. So, here the output is either profit or loss. It means that it fulfills the requirement of nominal account. Hence it is a nominal account
Abhishak
(Student & Teacher)
(21 Points)
Replied 03 August 2013
BUT DEAR FRIENDS IT ALSO CONTAINS THE BALANCES OF ASSESTS AND LIABLITIES THAN HOW WE CAN THIS IS A NOMIANAL A/C
CA. Roopali Kadam
(Jobs on assignment basis.)
(1459 Points)
Replied 31 May 2014
| Originally posted by : Viren | ||
 |
It is a nominal A/c. The reason is very simple. For personal account there should be a person. Realisation A/c is not a person. For real account, either it should be a asset or liability but it is neither a asset nor a liability. So it cannt be real account. For nominal account it should be either a expense, income, loss or gain. In the realisation account we calculate profit or loss on sale of assets and payment of liabilities. So, here the output is either profit or loss. It means that it fulfills the requirement of nominal account. Hence it is a nominal account |
 |
Well explained.
Ankita Paul
(ACCOUNTANT)
(22 Points)
Replied 28 March 2018
CAN ANYONE EXPLAIN HOW TO CREATE REALISATION ACCOUNT IN TALLY???? AND UNDER WHICH ACCOUNTING HEAD IT IS TO BE CREATED???
Foster
(Student)
(26 Points)
Replied 31 July 2018
Dear Nishant as per my own understanding..Realisation A/c is prepared so as to close the books of account of the amalgamated companies.This is done by the payment of the liabilities that the amalgamted co. has prior to the amalgamation by its assets (in other words these items are taken to the new balance sheet at their book values).
The amount realised from the assets are used to pay off liabilities.
hence if Assets>Liabilities-Realisation profit(shown on the debit side of Realisation A/c) shared among the old shareholders
or if Assets<liabilities-Realisation Loss(which means the Co. did not have enough money to pay for the liabilities.also means the company is not getting anything from the reakoisation of assets,which is barely enough even to cover the liabilities amount)
furthermore im not totally convinced if the Realistion A/c is a nominal a/c ..because it contains items of Capital and Personal nature too..like Fixed Assets,Current Assets,Creditors etc.
I would rather say Realisation a/c is a mixture of Nominal,Personal,and Capital A/c
To conclude..Accounting is not an exact science,but its a mixture of art and science itself.Sometimes the rules are applicable,sometimes they are not.It is what you think it is..but sometimes its not what you think it is...
Foster
(Student)
(26 Points)
Replied 31 July 2018
As per my own understanding..Realisation A/c is prepared so as to close the books of account of the amalgamated companies.This is done by the payment of the liabilities that the amalgamted co. has prior to the amalgamation by its assets (in other words these items are taken to the new balance sheet at their book values).
The amount realised from the assets are used to pay off liabilities.
hence if Assets>Liabilities-Realisation profit(shown on the debit side of Realisation A/c) shared among the old shareholders
or if Assets<liabilities-Realisation Loss(which means the Co. did not have enough money to pay for the liabilities.also means the company is not getting anything from the reakoisation of assets,which is barely enough even to cover the liabilities amount)
furthermore im not totally convinced if the Realistion A/c is a nominal a/c ..because it contains items of Capital and Personal nature too..like Fixed Assets,Current Assets,Creditors etc.
I would rather say Realisation a/c is a mixture of Nominal,Personal,and Capital A/c
To conclude..Accounting is not an exact science,but its a mixture of art and science itself.Sometimes the rules are applicable,sometimes they are not.It is what you think it is..but sometimes its not what you think it is...
Maanas P
(2 Points)
Replied 13 June 2019
The question of classifying expenses into capital expenditure (assets) and revenue expenses arises only when an entity has going concern. So people who have a doubt as to why assets and liabilities occur in realisation a/c if it is a nominal account,plz understand that amount spent on assets and AMT received in the form of liabilities are cash outflows and inflows respectively. So all assets, liabilities, expenses and incomes can be grouped under the same head ( realisation a/c) at the time of dissolution as there is no going concern concept, matching concept etc.
shahyar husain
(1240 Points)
Replied 13 November 2020
Thank you so much sir. It was very well explained. Can you please tell me how to calculate a realisation a/c.
Treval Longley
(2 Points)
Replied 13 September 2023
I am still curious about realization account. Where is it classified? Balance Sheet or Profit and Loss?
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