Accountancy Part ADissolution of Partnership Firm

In case of dissolution, Machine costing ₹20,000, along with cash of ₹…

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) → Rs. 5,000

On dissolution the creditors (Rs. 30,000) have already been transferred to the credit of Realisation Account, and the machine to its debit. When a creditor accepts an asset in settlement, no entry is made for the asset taken over; only the cash actually paid is recorded.

Creditors settled by: machine + cash Rs. 5,000
Entry: Realisation A/c Dr. Rs. 5,000, To Cash/Bank A/c Rs. 5,000
Realisation Account is debited with Rs. 5,000

The machine’s cost of Rs. 20,000 is not debited again: it is already on the debit side of Realisation Account, and handing it over to the creditor needs no further entry.

NCERT (2026-27 edition):
Journal Entries – “… 7. For settlement with the creditor through transfer of assets when a creditor accepts an asset in full and final settlement of his account, no journal entry needs to be recorded. But, if the creditor accepts an asset only as part payment of his/her dues, the entry will be made for cash payment only. For example, a creditor to whom Rs. 10,000 was due accepts office equipment worth Rs. 8,000 and is paid Rs. 2,000 in cash, the following entry shall be made for the payment of Rs. 2,000 only.”