Record necessary journal entries in the following cases: [a] Creditors worth Rs.85,000 accepted Rs.40,000 as cash and Investment worth Rs.43,000, in full settlement of their claim. [b] Creditors were Rs.16,000. They accepted Machinery valued at Rs.18,000 in settlement of their claim. [c] Creditors were Rs.90,000. They accepted Buildings valued Rs.1,20,000 and paid cash to the firm Rs.30,000.
Journal Entries:
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Realisation A/c Dr. 85,000 To Creditors A/c 85,000 (Being creditors transferred to Realisation Account)
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Realisation A/c Dr. 40,000 To Bank A/c 40,000 (Being cash paid to creditors; investment worth Rs. 43,000 accepted in full settlement)
Journal Entries:
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Realisation A/c Dr. 16,000 To Creditors A/c 16,000 (Being creditors transferred to Realisation Account)
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Bank A/c Dr. 2,000 To Realisation A/c 2,000 (Being cash received from creditors for excess value of machinery taken over by them; Rs. 18,000 - Rs. 16,000 = Rs. 2,000)
Journal Entries:
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Realisation A/c Dr. 90,000 To Creditors A/c 90,000 (Being creditors transferred to Realisation Account)
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Bank A/c Dr. 30,000 To Realisation A/c 30,000 (Being cash received from creditors for excess value of building taken over by them; Rs. 1,20,000 - Rs. 90,000 = Rs. 30,000)
Explanation
As per the textbook context, when a creditor accepts an asset in full and final settlement, no journal entry is recorded for the asset transfer. However, when cash is involved (either paid to or received from creditors), entries are required. In case (a), cash is paid along with investment, so only cash payment is recorded. In cases (b) and (c), the asset value exceeds the creditor's claim, so creditors pay the difference to the firm, recorded as Bank A/c Dr. to Realisation A/c.