Partner Accounts

The governing concept is the meaning of a capital-account balance at dissolution. A credit balance represents the net amount due from the firm to that partner after considering capital, accumulated profits or losses, and other adjustments. In the closing process, this balance is settled by paying the partner, subject to any separate amount recoverable from him. Therefore, option A is correct. A debit balance would have the opposite meaning: the partner would owe money to the firm. A loss normally reduces the capital balance and does not itself mean that the partner is payable, while a loan is a separate liability or asset account and should not be confused with the capital account.

The governing concept is the interpretation of a debit balance in a partner's capital account at final settlement. A debit balance means that the credits available to the partner are insufficient to cover the debits, such as losses, drawings, or other charges. Consequently, the partner owes the resulting amount to the firm, and it is recovered during dissolution. Hence option A is correct. A credit balance would indicate an amount payable by the firm to the partner, so option B reverses the rule. Cash received by the firm is recorded in cash and relevant realisation entries; it does not define a debit capital balance. Likewise, profit generally creates a credit, not a debit, in the partner's capital account.

When goods are taken, the partner receives value from the firm, so capital account is debited. Use agreed value.

By taking a liability, the partner reduces the firm's burden, so his capital account is credited. Credit the partner who assumes the liability.

Accumulated profits increase capital, so they are recorded on credit side. Share them in profit sharing ratio.

Accumulated loss reduces capital, so it is recorded on debit side. It is shared in profit sharing ratio.

A general reserve is distributed among the partners’ Capital Accounts in their profit-sharing ratio. Since A and B share profits equally, A’s share is ₹14,000 × 1/2 = ₹7,000. ₹14,000 is the total reserve, not A’s individual share. Exam tip: Always distribute a reserve in the partners’ profit-sharing ratio.

The governing concept is distribution of realisation profit in the agreed profit-sharing ratio. The total ratio is 5 + 3 = 8 parts, and Kh is entitled to 3 of those 8 parts. Therefore, Kh's share is ₹32,000 × 3/8 = ₹12,000. The profit is credited to Kh's capital account because it increases the amount due to him on dissolution. Option A is correct. ₹20,000 is the share of K, who has five parts; ₹8,000 would represent only one-fourth of the profit and does not follow the ratio; and ₹32,000 is the total profit, not Kh's individual share. The calculation assumes no additional adjustment affects the stated distribution.

First partner's share is one-fourth, so loss is four thousand rupees. Debit loss to capital account.

Taking a machine gives the partner an asset, so capital account is debited. Record the agreed value of the asset.

The governing concept is the treatment of a liability taken over by a partner at dissolution. When the partner accepts responsibility for outstanding expenses of ₹6,000, the firm is relieved from paying that liability. The partner effectively gives consideration equal to ₹6,000 for the liability, so his capital account is credited by ₹6,000. Thus option A is correct. A debit would reduce the partner's claim and would be appropriate for assets taken over, not for a liability assumed by him. ₹12,000 has no basis because only ₹6,000 is involved, and option D is wrong because the assumption changes the partner's settlement and must be recorded. The liability itself is removed through the dissolution entries.

The governing concept is the net capital-account effect when a partner takes over an asset and pays part of the consideration in cash. Taking stock worth ₹8,000 is debited to the partner's capital account because the firm transfers an asset to him and reduces the amount payable to him. Cash of ₹2,000 paid by him is credited to his capital account because it increases the settlement received by the firm. The net debit is therefore ₹8,000 − ₹2,000 = ₹6,000, so option A is correct. ₹10,000 ignores the cash credit, ₹2,000 ignores the stock taken over, and a credit of ₹6,000 reverses the overall direction of the adjustment.

Taking liability credits eleven thousand and taking asset debits four thousand. Net effect is credit seven thousand.

When cash is received from a partner, his payable amount reduces and capital account is credited. It is useful for settling debit balance.

The direct answer is option A, the debit side. At dissolution, when the firm makes the final cash payment to a partner, the partner's claim against the firm is settled. A partner's capital account normally has a credit balance representing the amount payable by the firm. To close or reduce that credit balance, the account is debited. The cash account is credited because cash leaves the firm, but the question asks specifically about the partner's capital account. Option A is correct. Option B, the credit side, would increase the amount owed to the partner and is opposite to the effect of payment. Option C, Realisation Account, is wrong because the final payment is recorded through the partner's capital account and cash or bank account, not as a realisation expense. Option D, Trading Account, is irrelevant because trading account records gross profit or loss from normal trading, not dissolution settlement. Memory cue: payment to a partner reduces the firm's payable balance, so debit the partner's capital account and credit cash or bank.

A credit balance in the current account represents an amount payable by the firm to the partner. On dissolution, it is transferred by debiting the current account and crediting the capital account, so option A is correct. Option B applies to a debit balance of the current account, not a credit balance. Exam tip: A credit balance is credited to the partner’s capital account, whereas a debit balance is debited to it.

A debit balance in a partner’s current account means that the partner has withdrawn more than the amount credited to that account, or otherwise owes an amount to the firm. On dissolution, this debit balance is transferred to the partner’s capital account so that the partner’s total amount due is properly shown.

The transfer is recorded by debiting the partner’s capital account and crediting the current account. In other words, the debit balance reduces the amount standing to the partner’s credit in capital. It is not transferred to Realisation or Bank because it is an adjustment between the partner’s own accounts. Therefore option A is correct.

Partner's loan is treated as a liability separate from capital. It is generally not mixed with capital account.

The governing accounting concept is the separate treatment of a partner’s loan. Money lent by a partner to the firm is not part of the partner’s capital or drawings; it is a liability payable by the firm and is recorded in the Partner’s Loan Account. Therefore option A is correct. Drawings reduce capital, assets represent resources, and purchases record goods bought for business.

The firm has to receive the loan from the partner, so it is recoverable. It may be adjusted in final settlement.

The governing concept is adjustment of a partner's amount due against a separate loan receivable from that partner. The credit balance of ₹30,000 represents the amount payable to the partner. However, the partner owes the firm ₹5,000, which must be recovered or adjusted before final settlement. Therefore, net payment = ₹30,000 − ₹5,000 = ₹25,000. Option A is correct. Paying ₹30,000 would ignore the firm's claim, while ₹35,000 would add the amount owed instead of deducting it. ₹5,000 is only the loan amount and not the final payment. This answer assumes the loan is legally and practically adjustable against the capital settlement and that no other balance is involved.

Drawings are amounts withdrawn by the partner, so capital decreases. Record it on debit side of capital account.

Interest on drawings is an amount receivable by the firm from the partner. Therefore, the partner’s capital account is debited, while the interest account is credited as firm income. Crediting the capital account would be the opposite treatment because it would increase the partner’s claim instead of recording the amount due from the partner. Exam tip: When an amount is recoverable from a partner, debit the partner’s account.

Under the fluctuating capital method, interest on capital is credited to the partner’s account because it is an income or benefit of the partner. Therefore, the capital account is credited. Option D may apply under the fixed capital method, where the interest is recorded in the current account. Exam tip: First identify the capital method—interest goes to the capital account under the fluctuating method and to the current account under the fixed method.

Commission is receivable by the partner, so it is credited to capital account. Recognizing payable income is important.