Question

There was a contingent liability for B/R received from Ashok for ₹ 20,000 and discounted with the bank. Ashok became insolvent and 75 paise in a rupee were received from his estate. How much amount will be debited/credited to realisation account?

Answer 1

Bill received from Ashok = ₹ 20,000

Ashok became insolvent → only 75 paise in a rupee was recovered.

Recovery = ₹ `20,000 × 75/100`

= ₹ 15,000

Since the bill was discounted and Ashok became insolvent, the firm must pay the full amount to the bank = ₹ 20,000.

Firm pays Bank = ₹ 20,000 (credited to Cash/Bank)

Firm receives from Ashok = ₹ 15,000 (debited to Cash/Bank)

So, net loss = 20,000 – 15,000 = ₹ 5,000

The loss of ₹ 5,000 will be debited to the realisation account.