Based on following answer the question.
Meena and Tina are partners in a firm and sharing profit as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows:
Balance Sheet Meena and Tina as on March 31, 2017
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital | Machinery | 70,000 | |
| Meena 90,000 | Investments | 50,000 | |
| Tina 80,000 | 1,70,000 | Stock | 22,000 |
| Sundry creditors | 60,000 | Sundry debtors | 1,03,000 |
| Bills payable | 20,000 | Cash at bank | 5,000 |
| 2,50,000 | 2,50,000 |
The assets and liabilities were disposed off as follows:
a. Machinery were given to creditors in full settlement of their account and stock were given to bills payable in full settlement
b. Investment were took over by Tina at book value. Sundry debtors of book value ₹50,000 took over by Meena at 10% less and remaining debtors realised ₹51,000.
c. Realisation expenses amount to ₹2,000.
The value of machinery given to creditor in full settlement of their claim will be :
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) - No entry is passed.
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