At the time of dissolution, a creditor’s amount payable was ₹22,000, but ₹22,500 was paid to the creditor. What effect will this excess payment have on the firm?

Correct answer: Loss of ₹500

The amount payable to the creditor was ₹22,000, but the firm paid ₹22,500. Therefore, the excess payment of ₹500 is a loss to the firm and is recorded as a loss in the Realisation Account. It cannot be treated as a profit because the firm paid the additional amount instead of receiving it. Exam tip: When a creditor is paid more than the amount recorded in the books, the difference is treated as a loss.