At the time of dissolution, a creditor whose claim was ₹18,000 agreed to settle the account for ₹17,500. What gain will arise from this transaction?

Correct answer: ₹500

The amount payable to the creditor was ₹18,000, but only ₹17,500 was paid. Therefore, the saving of ₹18,000 − ₹17,500 = ₹500 is a gain recorded in the Realisation Account on dissolution. ₹18,000 represents the total liability, not the gain. Exam tip: When a creditor is settled for less than the amount due, gain = amount due − amount paid.