Partner Accounts

On dissolution capital accounts show the final settlement with partners. Remember them as the accounts for final payment or recovery.

Realisation profit increases partners' capital so it is credited. In exams treat profit as an increase in capital.

Realisation loss reduces partners' capital so it is debited. In exams treat loss as a decrease in capital.

A's share is 3/5 of ₹50000 which is ₹30000. In exams divide realisation profit in the profit sharing ratio.

B's share is 3/8 of ₹48000 which is ₹18000. Realisation loss is also shared in the profit sharing ratio.

Final settlement is made through capital accounts so current account balances are transferred there. Do not forget this step in fixed capital method.

A credit balance in a partner’s loan account means that the firm owes that amount to the partner, so it is a liability of the firm. The loan account is treated separately from the partner’s capital account and is generally settled after outside liabilities but before the return of capital. In contrast, a debit balance means that the partner owes money to the firm. Exam tip: remember that a credit balance represents an amount payable by the firm, while a debit balance represents an amount recoverable from the partner.

The governing concept is that a realisation loss is transferred to partners’ Capital Accounts in their profit-sharing ratio and reduces the amount payable to each partner. A’s credit balance before the loss is ₹60,000. A’s share of the realisation loss is ₹15,000, so it must be debited to A’s Capital Account. The final payable amount is therefore ₹60,000 − ₹15,000 = ₹45,000. Option A adds the loss instead of deducting it. Option C states only the loss amount, not the settlement balance, while option D ignores the loss completely. Hence, the correct final amount payable to A is ₹45,000, represented by option B.

A debit balance means the amount is recoverable from the partner. In exams treat debit capital balance as receivable from partner.

This rule relates to adjustment of an insolvent partner's capital deficiency. Keep it separate from normal loss distribution in exams.

Under Garner vs Murray solvent partners bear the deficiency in the ratio of their final capitals. Focus on the words final capitals in exams.

Under the Garner v. Murray rule, the deficiency of an insolvent partner is borne by the solvent partners in the ratio of their final capitals. The capital ratio of A and B is ₹40,000 : ₹60,000 = 2 : 3. Therefore, A bears \(\frac{2}{2+3}\) of the total deficiency, or \(₹20,000 \times \frac{2}{5} = ₹8,000\). ₹10,000 would result from an equal division, which ignores the capital ratio. Exam tip: simplify the solvent partners’ final-capital ratio first, then apportion the deficiency accordingly.

An asset taken by a partner is like withdrawal from capital so it is debited. In exams treat it like a payment to the partner.

The governing rule is that when a partner takes over a firm asset on dissolution, the agreed value of that asset is debited to the partner’s Capital Account. A receives machinery worth ₹18,000, so A’s Capital Account is debited by the full ₹18,000. This debit reduces the amount of cash or other settlement still payable to A because the machinery itself forms part of A’s settlement. Option B is incorrect because the partner receiving the asset does not receive a credit for it in the Capital Account. Option C records only half the value without any stated basis, and option D ignores the transaction. Therefore, option A is correct.

Taking over a liability benefits the firm so the partner's capital account is credited. Remember the difference between taking assets and taking liabilities.

When a partner takes a creditor the partner's capital is credited by the agreed liability amount. Do not treat it as outside payment in exams.

When the partner pays firm expenses the firm owes him so his capital is credited. In exams credit the partner who pays.

C paid the firm's expense so C's capital account is credited by ₹4000. It is a reimbursable amount in exams.

Realisation remuneration is income for the partner so it is credited to capital account. Distinguish expense and remuneration in exams.

Remuneration is payable to the partner so the capital account is credited. Record the full agreed remuneration in exams.

When expenses are included in remuneration there is no separate reimbursement. Read the agreement wording carefully in exams.

Expenses are included in remuneration so only ₹10000 is credited. Avoid double counting in exams.

Private assets and liabilities do not belong to the firm. In exams record only firm-related items.

The direct answer is option A, Partners' loans. The order of payment on dissolution follows a priority rule. First, outside liabilities, such as creditors and bills payable, are paid. Next, loans given by partners to the firm are repaid. Only after those loans are settled are partners' capital balances returned. Therefore Partners' loans is the correct answer. Option B, Partners' drawings, are withdrawals made earlier and are not a separate payment priority after outside liabilities. Option C, Realisation loss, is an accounting result, not an amount paid to someone. It is transferred to partners' capital accounts. Option D, General reserve, is a reserve balance; it is distributed or adjusted through partners' capital accounts, not paid as a liability before capital. The important distinction is between a partner's loan and the partner's capital: a loan is treated as a liability payable before capital. Memory cue: outside liabilities first, partners' loans next, partners' capital last.

General reserve is accumulated profit so it is credited to partners' capital accounts. Share it in the profit sharing ratio in exams.