Partner's Loan Account

The firm is not paying immediately so it becomes a loan payable later. Exam tip: treat unpaid amount due as a liability.

Unpaid capital is a liability of the firm so it is credited to the loan account. Exam tip: credit a liability when it is created.

A retiring partner’s loan is a liability because it records the amount still payable by the firm. When the firm makes a payment, part or all of that obligation is settled. Consequently, the credit balance of the loan account decreases; in ledger terms, the payment is entered on the debit side of the loan account, with Bank or Cash credited. Therefore, option B is correct. Option A states the opposite effect and would be wrong because payment cannot increase the amount owed. Option C concerns revenue from business operations and has no connection with settlement of a liability. Option D is also incorrect because payment of the loan does not increase the former partner’s capital; it reduces the firm’s bank balance and the loan liability. The exact decrease equals the principal portion paid, excluding any separately identified interest.

The governing idea is that only the unpaid amount due to the retiring partner is transferred to the partner’s loan account when part of the amount is settled immediately. The total amount payable is ₹76,000. Immediate payment is ₹26,000, so the balance remaining unpaid is calculated as ₹76,000 − ₹26,000 = ₹50,000. Therefore, option B is correct. Option A is the amount paid at once, not the amount transferred to the loan account. Option C ignores the immediate settlement and incorrectly transfers the full liability. Option D adds the immediate payment to the total due, which double-counts the amount and cannot represent the remaining obligation. The loan account will consequently show ₹50,000 as the outstanding liability, subject to any later interest or installment adjustments.

Interest on loan is a cost paid by the firm. Exam tip: treat it as a debit to Profit and Loss Account.

Interest = Principal × Rate × Time ÷ 100 = 30,000 × 6 × 1 ÷ 100 = ₹1,800. Therefore, option B is correct. ₹3,000 represents 10% of the principal, not 6%. Exam tip: when the time is one year, apply the annual interest rate directly to the principal.

Interest is an expense of the firm so Profit and Loss Account will be debited. Exam tip: remember that expenses are debited.

Interest is payable to the retiring partner so the loan account is credited. Exam tip: link payable amount with credit.

A clear agreement term is followed before the general rule. Exam tip: read the agreement first and then apply the general rate.

In the absence of agreement, six percent per annum is generally applied. Exam tip: remember it as the general rule.

The governing classification principle is that a retiring partner’s loan represents an amount payable by the firm after the partner’s capital or settlement amount has been converted into a loan. Since the firm owes this balance, it is a liability rather than an asset. Accordingly, the outstanding balance appears on the liabilities side of the balance sheet, so option B is correct. Option A is incorrect because an asset is a resource controlled by the firm, whereas this loan is an obligation. Option C is unsuitable because the balance itself is not an income or expense; only related interest may affect the income statement. Option D is also wrong because every outstanding liability must be presented in the appropriate financial statement. Payments reduce the liability, while unpaid balance continues to be shown until settlement.

Three months is one-fourth of a year so interest is one and a half percent of ₹84000. Exam tip: convert the period into part of a year.

Payment reduces the loan liability and also reduces bank. Exam tip: debit loan and credit bank on payment.

Interest is added to the amount payable so the loan balance increases. Exam tip: do not treat interest as a reducing item.

Interest due increases the loan so it appears on the credit side. Exam tip: keep the sides of interest and payment separate.

Payment through bank reduces the loan so it appears on the debit side. Exam tip: do not record payment on the credit side.

A retiring partner’s loan account represents an actual liability because the firm has a definite obligation to pay the stated amount to the former partner. The amount is not imaginary or merely an accounting provision; it arises from the settlement of the partner’s claim and remains payable until installments or final payment are made. Therefore, option B is correct. Option A is wrong because a fictitious item does not represent a real resource or obligation. Option C describes a gain, not an amount owed, and it is unrelated to the loan account. Option D refers to an undisclosed reserve, which is different from a clearly recorded liability. The loan balance is normally shown on the liabilities side of the balance sheet, and payments reduce it. Any interest payable on the loan is treated separately according to the applicable agreement.

Direct answer: option B, ₹55,000. The total amount due is ₹95,000, but ₹40,000 is paid immediately. The unpaid amount becomes the retiring partner’s loan: ₹95,000 − ₹40,000 = ₹55,000. Option A, ₹1,35,000, incorrectly adds the payment to the amount due. Option B is correct because only the unpaid balance is transferred to the loan account. Option C, ₹95,000, ignores the immediate payment. Option D, ₹40,000, gives only the amount paid and not the remaining liability. The supplied answer is consistent. A useful check is that the paid amount plus the remaining loan must equal the original due amount: ₹40,000 + ₹55,000 = ₹95,000. Memory cue: loan = total due − amount paid immediately.

If the full amount is paid immediately, no loan liability remains. Exam tip: a loan account is prepared only for unpaid amount.

A zero balance means the amount payable has been fully settled. Exam tip: a closed account should have zero balance.

The unpaid amount of a deceased partner is payable to the executor. Exam tip: treat Executor's Loan Account as a liability.

The loan is payable to the executor so interest is also payable to the executor. Exam tip: keep the recipient of principal and interest the same.

Six months is half a year so interest is three percent of ₹64000. Exam tip: take half of annual interest for six months.

In a partner’s loan account, a credit balance represents an amount owed by the firm. The partner or lender is treated as a creditor, so the firm has a liability until the entire loan and any related interest are paid. A payment reduces this balance, but it does not necessarily remove it completely. If some credit balance remains after payment, the obligation is still outstanding.

Thus, the correct interpretation is that the firm still has to pay the remaining amount. It is not money receivable by the firm, and it does not indicate higher sales or that capital has ended. In accounting presentation, this remaining credit balance is shown among liabilities. Therefore option A is correct, because it states the exact meaning of the remaining credit balance.

The final amount due to the retiring partner is first found in the capital account. Exam tip: complete the capital account before the loan account.