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?

No Entry will be passed

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