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
Given:
- Machine costing Rs 20,000 + Cash Rs 5,000 given to creditors
- Creditors' claim = Rs 30,000
- Settlement is in full and final
In the Realisation Account, assets are transferred first at their book values:
Machine A/c to Realisation A/c = Rs 20,000 (already recorded when assets are transferred)
When payment is made to creditors, the journal entry is:
Creditors A/c Dr 30,000
To Realisation A/c 25,000
To Gain on Settlement 5,000
Then, for the actual discharge:
Realisation A/c Dr 25,000
To Machine A/c 20,000
To Cash A/c 5,000
Since the Machine has already been debited to Realisation A/c when assets were initially transferred (at Rs 20,000), only the Cash portion of Rs 5,000 will now debit the Realisation A/c for the payment transaction.
The Machine amount is not debited again as it was already accounted for during the transfer of assets to Realisation Account.
Answer: Rs 5,000 (Option 4)
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