Question 4

How deficiency of crditors is paid off at the time of dissolution of firm.

Answer

For settlement with the creditor through transfer of assets when a creditor
accepts an asset in full and final settlement of his account, 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.

Realisation A/c Dr.

To Bank A/c

However, when a creditor accepts an asset whose value is more than the amount due to him, he/she will pay cash to the frim for the difference for which the entry will be:

Bank A/c Dr
To Realisation A/c
(For payment of realisation expenses )

(a) When some expenses are incurred and paid by the firm in the process of
realisation of assets and payment of liabilities: 12

Realisation A/c. Dr.

To Bank A/c

How deficiency of crditors is paid off at the time of dissolution of firm.

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