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Q.Sushil and Sapna were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025, the firm was dissolved. On the date of dissolution there existed a balance of ₹ 1,20,000 in sundry creditors account. The sundry creditors were payable after three months. They were paid immediately at a discount of 12% p.a. The amount paid to sundry creditors was : (A) ₹ 1,20,000 (B) ₹ 1,23,600 (C) ₹ 1,16,400 (D) ₹ 1,34,400

CBSECBSE Class XII Board 2026MCQ· 1mImportance★★★★★
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The sundry creditors, originally ₹1,20,000, were paid immediately at a 12% p.a. discount for three months, resulting in a payment of ₹1,16,400.

When a partnership firm undergoes dissolution, the primary objective is to close down its operations by realising all assets and settling all liabilities. To achieve this, a special account called the Realisation Account is prepared. This account serves as a temporary ledger to record all transactions related to the sale of assets and payment of liabilities, ultimately determining the profit or loss arising from the dissolution process.

External liabilities, such as Sundry Creditors, are first transferred to the credit side of the Realisation Account. This closes their individual ledger accounts and brings them into the dissolution process. When these liabilities are subsequently paid, the Realisation Account is debited, and the Bank/Cash Account is credited. Debiting the Realisation Account signifies an expense or loss incurred during the dissolution, as funds are being used to settle the firm's obligations.

In this specific scenario, the Sundry Creditors were due after three months but were paid immediately. Paying a liability before its due date often results in a discount, as the creditor receives their money earlier than anticipated. This discount reduces the actual cash outflow from the firm. The discount is calculated on the original amount of the liability for the period by which the payment is advanced, at the agreed annual rate. The amount actually paid is the original liability less this discount.

The accounting treatment for the payment of creditors at a discount involves:

  1. Transfer of Creditors: (Though not explicitly asked for, conceptually, Sundry Creditors Account is debited to close it, and Realisation Account is credited).
  2. Payment of Creditors: Realisation Account is debited with the actual amount paid (original amount minus discount), and the Bank/Cash Account is credited with the same amount, reflecting the reduction in cash.

Working Notes

  1. Calculation of Discount on Sundry Creditors

    Original amount of Sundry Creditors = ₹1,20,000

    Discount rate = 12% p.a.

    Period for which discount is received = 3 months (since payment was made 3 months before the due date)

    Discount = Original Amount ×\times Rate ×\times Period

    Discount = ₹1,20,000 ×\times 12100\frac{12}{100} ×\times 312\frac{3}{12}

    Discount = ₹1,20,000 ×\times 0.12 ×\times 0.25

    Discount = ₹3,600

  2. Calculation of Amount Paid to Sundry Creditors …

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