Partner's Loan Account

The unpaid amount due to the deceased partner may be kept in the executor's loan account. Exam tip: identify the executor's account separately.

The firm has to pay this amount to the executor, so it is a liability. Exam tip: apply the same principle in case of death.

When full payment is made, no liability remains and the account is closed. Exam tip: after final payment, the balance should be zero.

A zero balance means the loan has been fully paid. Exam tip: treat zero balance as settlement of liability.

Interest is a cost payable by the firm, so it is an expense. Exam tip: show it in Profit and Loss Account.

The governing concept is that a retiring partner’s unpaid balance becomes a loan payable by the continuing firm. If the agreement or applicable rule provides interest, that interest must be calculated for the period during which the loan remains outstanding and added to the loan account. For example, on ₹50,000 at 6% per annum for six months, interest is ₹50,000 × 6/100 × 6/12 = ₹1,500. Thus, adding interest for the due period is correct. Deleting the account ignores the liability, treating principal as sales confuses a financing obligation with revenue, and treating the amount as profit has no accounting basis.

The governing concept is settlement of a partner’s unpaid amount through a loan account. Once the amount due is transferred to the retiring partner’s loan account, that account represents the liability still payable by the firm. Every instalment paid reduces this liability, so the loan account is debited by the amount of the instalment and Bank is credited. For example, if the loan is ₹60,000 and ₹15,000 is paid, the remaining balance is ₹45,000. Goods, Sales and Advertisement Accounts record trading or operating items; they do not record repayment of a partner’s loan. Therefore, option A is the only appropriate account.

Three months is one-fourth of a year, so interest is one-fourth of six percent of ₹30000, that is ₹450. Exam tip: convert months into a fraction of a year.

The governing concept is that only the unpaid portion of the retiring partner’s amount is transferred to the loan account. The total amount due is ₹80,000, while ₹50,000 is settled immediately through Bank. Therefore, the balance remaining unpaid is calculated as ₹80,000 − ₹50,000 = ₹30,000. This ₹30,000 is credited to the retiring partner’s loan account because it becomes a liability payable later. ₹80,000 would be wrong because it ignores the immediate settlement, and ₹50,000 is the amount already paid rather than the balance transferred. ₹1,30,000 has no logical accounting or mathematical basis.

Payment may include both the principal loan and the added interest. Exam tip: add interest before final settlement.

The direct answer is A, ₹21200. A credit balance of ₹20000 in the loan account means that ₹20000 is payable to the retiring partner. Interest of ₹1200 is then added to the amount owed. Calculate step by step: principal or existing credit balance ₹20000 + interest ₹1200 = ₹21200. Therefore the total amount payable before payment is ₹21200. Option A is correct. B, ₹20000, ignores the newly added interest. C, ₹18800, subtracts interest even though it must be added. D, ₹1200, is only the interest amount and not the complete liability. The word “before payment” is important: no amount has yet been deducted. Memory cue: final loan payable = existing balance + interest.

The clear agreement must be followed, so no interest will be charged. Exam tip: check the agreement first.

The governing principle is that the partnership agreement controls the rights and obligations of the partners, including interest payable on a retiring partner’s loan. Therefore, when the agreement expressly states an interest rate, that stated rate must be applied to the outstanding loan for the relevant period. For instance, if the agreement specifies 8% and the loan remains unpaid for one year, interest is calculated at 8%, not at an arbitrary rate. A fixed 6% rate is not universally applicable, zero interest would disregard the agreement, and the bank savings rate is irrelevant unless the agreement specifically adopts it. Hence, option A is correct.

Interest is an expense of the firm and payable to the partner. Exam tip: keep interest entry and payment entry separate.

The governing rule of double-entry is that payment of a liability decreases the liability and decreases the asset used for payment. At final settlement, the retiring partner’s loan account has a credit balance representing the amount owed. Debiting that account cancels the liability, while crediting Bank records the cash outflow. The entry is therefore: Retiring Partner’s Loan Account Dr. To Bank Account. Debiting Bank would incorrectly show money received, Profit and Loss Account is not used for repayment of principal, and Sales Account has no connection with the settlement. Thus, option A is correct.

The remaining credit balance after payment is still payable. Exam tip: treat the remaining balance as a liability in the balance sheet.

A debit balance may mean an amount recoverable from the partner. Exam tip: create a loan account only when the firm owes an amount.

The loan account is created when the amount due is not fully paid immediately. Exam tip: understand it as deferred payment.

Interest is calculated using the basic relationship: Interest = Principal × Rate × Time. Therefore, the balance of the loan account, the applicable interest rate, and the period for which interest is charged are all necessary. Partners’ names, the business address, or the quantity of goods do not determine this interest. Exam tip: identify the amount, rate, and time before calculating.

The governing concept is completeness of liability recognition. Interest on an unpaid retiring partner’s loan is an additional obligation of the firm for the relevant period. If that interest is omitted, the loan account contains only the principal and fails to show the full amount owed. Consequently, total liabilities and the amount payable to the retiring partner are understated. For example, a ₹60,000 loan carrying 6% annual interest should include ₹3,600 interest for one year; omitting it makes the liability appear ₹3,600 lower. The amount cannot become higher through an omission, no effect is incorrect, and profit does not automatically become zero.

This account is prepared to settle the unpaid amount after retirement. Exam tip: link it with the final payment part of reconstitution.

Interest for one year at 6% on ₹45000 is \(\frac{6}{100}\times 45000=2700\). Total payable is \(45000+2700=47700\). So the total amount is ₹47700.

The governing concept is the movement of a liability account. The retiring partner’s loan account normally has a credit balance because it represents an amount payable by the firm. When the firm makes a payment through Bank, the liability is reduced; therefore, the loan account is debited and Bank is credited. If ₹40,000 is outstanding and ₹10,000 is paid, the balance falls to ₹30,000. Interest on the loan increases the liability, and adding a new loan or payable amount also increases the credit balance. Thus, payment by bank is the only item among the options that reduces the loan account balance.

The governing concept is that accrued interest is an addition to the amount owed, not a repayment. A retiring partner’s loan account records the unpaid obligation of the continuing firm. When interest becomes due, it is added to the principal or existing balance, generally through a credit to the loan account. For example, if the opening loan is ₹50,000 and ₹2,500 interest becomes due, the amount payable rises to ₹52,500 before any payment. Bank payment and an instalment reduce the liability through a debit to the loan account, while closing the account settles the balance rather than increasing it. Therefore, interest due is the correct answer.

This account records the unpaid amount, interest, and payments. Exam tip: remember its purpose as a settlement record.