Stock at the time of dissolution was appearing in books at Rs. 50,000. Half of the stock was sold at a discount of 20% and the remaining was taken over by one of the partners at a 10% discount. What amount was received in cash at the time of realization of stock.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 20,000
Only the half of the stock that is sold brings in cash. The half taken over by a partner is not paid in cash; it is debited to that partner’s capital account.
Stock sold = 1/2 of Rs. 50,000 = Rs. 25,000
Discount on sale = 20% of Rs. 25,000 = Rs. 5,000
Cash received = Rs. 25,000 − Rs. 5,000 = Rs. 20,000
The other half (Rs. 25,000 less 10% = Rs. 22,500) goes to the partner’s capital account, so adding it to the cash figure would be wrong.