In case of dissolution, Machine costing ₹20,000, along with cash of ₹5,000 were given to creditors of ₹30,000 in full settlement of their claim.
In this case Realisation A/c will be Debited with........
Answer & explanation
Correct answer: option 4
The correct answer is option 4- ₹5,000
Realisation A/c will be Debited with ₹5,000.
Journal entry is made FOR CASH PAYMENT-
Realisation A/c Dr. 5,000
To Bank A/c 5,000
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