Himanshi is running a business in sole-proprietorship. Due to
loss in business she decided to wind up her business. On the
day of winding up the assets are worth Rs. 5 lakhs and liabilities
(all creditors) are worth Rs. 10 lakhs. Himanshi has her personal
property of Rs. 600000. How much do you think the creditiors
will get at the time of winding up of business?
(a) Rs. 5 Lakhs (b) Rs. 10 lakhs
(c) Rs. 7 lakhs (d) Rs. 11 lakhs
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After winding up the company, the total assets remaining with the company are worth Rs. Five lakhs. However, the total liability of Himanshi, including all the creditors in Rs. 10 lakhs. Her personal property accounts for Rs. 6 lakhs. After winding of the business, the creditors will receive the entire amount of Rs. 10 lakhs.
The reason for the above is, in a sole proprietorship business, the liability of the business owner is unlimited. Unlimited liability means, in case of loss the personal property along with the business assets, will be used to pay the creditors of the business.
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