Give the journal entry(ies) to be recorded for the following, in case of the dissolution of a partnership firm: For settlement of a creditor by transfer of fixed assets to him.
When a creditor accepts a fixed asset in full and final settlement of his account, no journal entry needs to be recorded. This is because the asset has already been transferred to the debit side of the Realisation Account and the creditor's liability has already been transferred to the credit side of the Realisation Account. Thus, the settlement is automatically accounted for in the Realisation Account.
However, if the creditor accepts an asset only as part payment of his dues, the entry will be made only for the cash payment made to the creditor. The entry will be: Realisation A/c Dr. To Bank A/c (Being cash paid to creditor for balance amount)
Explanation
The textbook clearly states under point 7 that when a creditor accepts an asset in full and final settlement, no journal entry is required. This is a common point of confusion for students who often try to record an entry. The logic is that both the asset and liability have already been transferred to the Realisation Account, so the settlement happens automatically within that account. Only when there's a cash component involved (part payment or excess payment) does an entry need to be recorded for the cash portion.