Question

Plant and Machinery (book value 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value. What journal entry will be passed in the books of the firm at the time of dissolution of the firm?

• A. Realisation A/c ...... Dr. 54,000
  To Machinery A/c 54,000
• B. No Entry will be passed
• C. Creditors A/c ...... Dr. 54,000
  To Machinery A/c 54,000
• D. Realisation A/c ...... Dr. 54,000
  To Cash A/c 54,000

Answer 1

Answer: (A)

Realisation A/c ...... Dr. 54,000
To Machinery A/c 54,000

Answer 2

The plant and machinery is being transferred to the creditor at an agreed valuation that is 10% less than its book value. 1. Book Value of Plant and Machinery: 60,000 2. Valuation Agreed with Creditor: $\text{Valuation} = \text{Book Value} - (10\% \text{ of Book Value}) = 60,000 - 6,000 = 54,000$ At the time of dissolution, the entry to record the transfer of assets to creditors involves debiting the Realisation Account (to recognize the asset disposal) and crediting the Machinery Account (to remove the asset from the books). Therefore, the journal entry will be: $\text{Realisation A/c} \quad \text{Dr.} \quad 54,000 \quad \text{To Machinery A/c} \quad 54,000$ Thus, the correct journal entry reflects the agreed valuation.