Explanation:

- Accounting Context:

- Investments worth Rs2,00,000 were not recorded in the books.

- A creditor agreed to settle their debt of Rs2,20,000 by taking over these investments.

- Correct Deduction Logic:

- The creditor's total debt was Rs2,20,000.

- This entire debt is cleared and should be deducted from the creditor's account in the books.

- Options Explanation:

- Option 1: Rs20,000 - Incorrect, this represents only the differential amount.

- Option 2: Rs2,20,000 - Correct , entire creditor's debt was satisfied completely by the investments.

- Option 3: Rs4,20,000 - Incorrect, this sum is unrelated.

- Option 4: Rs2,00,000 - Incorrect, this only covers the investment's original value, not the debt settled.