Partner Accounts

A debit current balance shows an amount receivable from the partner so it is debited to capital. Treat debit balance as reduction of capital.

A credit current balance is in favour of the partner so it is credited to capital. Add it to the amount payable to the partner.

A debit balance in B’s current account means that ₹4,500 is recoverable from B. To close the current account at dissolution, the current account is credited and B’s capital account is debited by the same amount. Therefore, the correct adjustment is a debit of ₹4,500. Exam tip: a debit current-account balance is transferred to the debit side of the partner’s capital account, while a credit balance is transferred to its credit side.

A partner's wife is treated as a separate person so her loan is an outside liability. Keep it separate from partner's loan.

Interest on partner's loan is a payable amount related to the loan. In exams add it with loan settlement, not capital.

A loan given to a partner is receivable by the firm. Treat it as an amount recoverable from the partner in exams.

Loan from partner is a liability of the firm and loan to partner is an asset of the firm. Focus on the words from and to.

Loan to partner is recovered through a separate loan account. In exams merge it with capital only if clearly instructed.

Accumulated profit belongs to partners so it is credited in the profit sharing ratio. Identify all reserves first in exams.

If there is no claim it is credited to partners like accumulated profit. If claim exists, distribute only the remaining amount.

The remaining ₹18000 after claim is distributed among partners like accumulated profit. Deduct claim from reserve in exams.

This reserve is created for fall in investment value. In exams deduct investment loss first and distribute the balance to partners.

An investment fluctuation reserve is available to absorb a loss on investments. The investment loss is first adjusted against the reserve. If the reserve is larger than the loss, the unused balance remains available for distribution among the partners according to their profit-sharing ratio.

Here the reserve is ₹10,000 and the investment loss is ₹6,000. The remaining amount is \(₹10,000-₹6,000=₹4,000\). Therefore ₹4,000 is distributable to the partners, subject to their agreed sharing ratio, and option A is correct. The full reserve cannot be distributed because ₹6,000 of it is needed to cover the loss.

Joint life policy reserve is like accumulated profit. Credit it to partners' capital accounts in the profit sharing ratio.

The total ratio is 4 + 2 + 1 = 7. The third partner is entitled to 1 part, so the amount credited is ₹21,000 × 1/7 = ₹3,000. ₹6,000 is the second partner’s share, while ₹21,000 represents the entire reserve. Exam tip: Distribute the reserve in the profit-sharing ratio and credit each partner’s account accordingly.

Advertisement suspense is a fictitious or deferred expenditure balance. It does not represent a real asset that can be realised for cash; instead, its unamortised balance is treated as a loss when the firm is dissolved. Such accumulated losses are transferred to the partners’ capital accounts in their profit-sharing ratio. Since a loss reduces each partner’s capital, the partners’ capital accounts are debited. Thus option B is correct. A credit entry would be appropriate for a gain or an amount increasing capital, not for this loss. The balance is not transferred directly to the bank account because no cash is received, and it does not become a partner’s loan merely because dissolution occurs.

The debit balance of the Advertisement Suspense Account is debited to the partners’ capital accounts in their profit-sharing ratio. The smaller partner has 1 share out of a total of 2 + 1 = 3 shares. Therefore, the amount debited is ₹18,000 × 1/3 = ₹6,000. ₹9,000 is incorrect because the smaller partner receives one-third, not one-half, of the amount. Exam tip: Always calculate the total ratio before allocating a debit or credit balance among partners.

Taking an asset benefits the partner so his capital account is debited. Record the agreed value of unrecorded asset in exams.

The partner taking over an unrecorded asset is debited. Do not omit it from settlement in exams.

Taking over a liability benefits the firm so the partner is credited. In exams credit capital for liability taken over.

B has taken over the firm's liability so his capital account is credited. Adjust unrecorded liabilities also in exams.

Realisation expenses paid by firm first go to realisation account. Capital accounts are affected through realisation profit or loss.

In a fixed amount agreement extra expense generally remains with the partner. The wording of the agreement is decisive in exams.

The governing concept is a fixed remuneration arrangement for realisation work. When the agreement states that A will receive a fixed ₹5,000 and A must bear the actual realisation expenses personally, the credit to A is the agreed remuneration only. Therefore, A’s capital account is credited with ₹5,000, so option A is correct. The actual expense of ₹6,500 is paid by A from personal funds and is not added to the amount credited by the firm. Option B incorrectly treats the actual expense as the credit, option C adds the two amounts, and option D represents only the excess expense of ₹1,500. The excess is A’s personal burden under the stated condition.

Commission is an amount payable to the partner so it is credited to capital. Treat it like remuneration in exams.