A-AS Level (CIE) Accounting Paper-3: Specimen Questions with Answers 8 - 8 of 50

Question 8

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Question

MCQ▾

The points below show how the creditors of a firm are settled when all the partners become insolvent.

Choose the wrong option.

Choices

Choice (4)
a.A Cash Account should be prepared and cash available with the firm together is paid to the Creditors
b.The unpaid balance is transferred to the Credit side of a newly opened account called Deficiency Account.
c.Creditors and other external liabilities should not be transferred to Realisation Account nor will payment to them be debited to this account Separate account is prepared for Creditors and other external liabilities.
d.The debit or the credit balance of partner’s capital is transferred to the suspense account.

Answer

d.

Explanation

  • Creditors and other external liabilities should not be transferred to Realisation Account nor will payment to them be debited to this account Separate account is prepared for Creditors and other external liabilities.
  • A Cash Account should be prepared and cash available with the firm together with the amount realized from the private estates of the partners is paid to the Credit to$ In other words, the balance of Cash Account is transferred to the debit of Creditors Account.
  • Thereafter, the unpaid balance in the Creditors & External Liabilities Account is transferred to the Credit side of a newly opened account called Deficiency Account.
  • Lastly, the debit or credit balance of partner’s capital account are also closed by transfer to the deficiency account. This will automatically close the deficiency account.

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