At the time of dissolution, creditors appear at Rs 50,000. Half of the creditors agreed to take unrecorded furniture of Rs 18,000 and Rs 5,000 in full settlement and the remaining creditors were paid 90%. The amount paid to the creditors that will be shown in the Realisation A/c is:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 27,500
On dissolution, Realisation Account is debited only with the cash actually paid to creditors. When a creditor takes an asset in settlement, no entry is passed for the asset he takes; only any cash paid along with it is recorded.
Half the creditors = Rs. 50,000 × 1/2 = Rs. 25,000
They take the unrecorded furniture (Rs. 18,000, no entry) and Rs. 5,000 in cash, so cash paid = Rs. 5,000
Remaining creditors = Rs. 25,000, paid 90% = Rs. 22,500
Total cash paid to creditors = Rs. 5,000 + Rs. 22,500 = Rs. 27,500
The Rs. 18,000 furniture is not added, because an unrecorded asset taken over by a creditor needs no entry in Realisation Account.
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