Plant and Machinery (book value ₹60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value.
What journal entry will be passed in the books of the firm at the time of dissolution of the firm?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → No Entry will be passed.
No Entry will be passed as creditors taken over the asset.
There can be 3 situations-
* If the creditor accepts an asset as full and final settlement, no journal entry is required.
* If the creditor accepts an asset as a partial payment, the entry is recorded for the cash payment portion only.
* If a creditor accepts an asset worth more than their outstanding debt, they will make a cash payment to the company for the remaining balance. In this case, the journal entry would be:
Debit: Bank or Cash A/c
Credit: Realisation A/c