At the time of dissolution, if a creditor allows a discount on the amount due, what will be the effect on the Realisation Account?

Correct answer: There will be a gain

When a creditor accepts less than the amount due, the firm settles its liability for an amount lower than its book value. The difference between the book value of the liability and the amount actually paid is recorded as a gain in the Realisation Account. Therefore, option A is correct. Option B is incorrect because paying less than the liability creates a gain, not a loss. Exam tip: A discount allowed by a creditor is treated as a gain on realisation.