In case of dissolution Machine costing Rs 20,000, alongwith cash of Rs 5,000 were given to creditors of Rs 30,000 in full settlement of their claim.
In this case Realisation A/c will be Debited with ___________.
In case of dissolution Machine costing Rs 20,000, alongwith cash of Rs 5,000 were given to creditors of Rs 30,000 in full settlement of their claim.
In this case Realisation A/c will be Debited with ___________.
Solution
In dissolution, when creditors are paid using both an asset and cash, the Realisation Account treatment is as follows:
Understanding the transactions:
Machine (Rs 20,000) + Cash (Rs 5,000) = Rs 25,000 is given to creditors of Rs 30,000 in full settlement.
Treatment in books:
When Machine is transferred to Realisation Account at the time of dissolution:
Realisation A/c Dr. 20,000
To Machine A/c 20,000
When Creditors' liability is transferred to Realisation Account:
Creditors A/c Dr. 30,000
To Realisation A/c 30,000
When payment is made to Creditors using Machine and Cash:
Realisation A/c Dr. 5,000
To Cash A/c 5,000
Key Point: The Machine has already been debited to Realisation Account when it was transferred during dissolution. Therefore, when making payment to creditors, only the cash amount of Rs 5,000 is debited to Realisation Account.
If we debit both Machine and Cash again, it would result in double counting of the Machine value.
Answer: Rs 5,000 (Option 4)
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