In case of dissolution of firm creditors worth ₹80,000 were given stock of the value ₹75,000 in full settlement. The journal entry for the same is:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) - No journal entry passed.
Creditors worth ₹80,000 were given stock of the value ₹75,000 in full settlement. So, no journal entry is passed for this.
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