Question

Assertion (A): On dissolution, there will be no entry if creditors for ₹ 50,000 are given stock worth ₹ 60,000 in full settlement of their debt.

Reason (R): On dissolution, there will be no entry if Partner’s Loan to the firm amounting to ₹ 50,000 is settled by giving him stock worth ₹ 60,000.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is true, but (R) is false.

Answer 1

(A) is true, but (R) is false.

Explanation:

Assertion (A) is true because creditors given stock higher than their debt in full settlement require no journal entry, as their liability is extinguished. Reason (R) is false because partner’s loan settlement by stock above the loan value requires adjustment entries, not no entry.