Partner's Loan Account

Correct answer: A. ₹159000

The direct answer is A: ₹159,000. The original amount due is ₹240,000. After an immediate payment of ₹90,000, the outstanding principal is ₹240,000 − ₹90,000 = ₹150,000. Interest is calculated on this balance for nine months. Interest = ₹150,000 × 8/100 × 9/12 = ₹9,000. The total payable before the next payment is ₹150,000 + ₹9,000 = ₹159,000. Option A is correct. Option B, ₹150,000, is only the principal and leaves out interest. Option C, ₹162,000, uses an incorrect interest calculation. Option D, ₹168,000, does not follow the stated rate and nine-month period and overstates the total. The key rule is that an amount already paid cannot continue to earn interest for the remaining period. First reduce the loan, then apply rate and time to the balance.

Correct answer: B. ₹80000

After deducting immediate payment, ₹80000 remains unpaid. Exam tip: do not treat full final capital balance as loan.

Correct answer: C. ₹6200

Interest is on ₹110000 for four months and on ₹80000 for eight months. Exam tip: use the new base after payment.

Correct answer: B. Expense classification will be wrong

Direct answer: Option B, the expense has been classified incorrectly. Interest on a retiring partner’s loan is interest on a liability of the firm. It is a business expense and is charged to the Profit and Loss Account before profit is appropriated. Interest on capital is different: it is an appropriation of profit and is usually recorded through the Profit and Loss Appropriation Account, subject to the partnership agreement and applicable rules. Therefore, putting loan interest into the Appropriation Account treats an expense as if it were a distribution of profit. Option B is correct. Option A is wrong because an accounting classification error does not remove the loan liability. Option C is wrong because the posting itself does not increase bank balance; bank balance changes only when cash is received or paid. Option D is wrong because revaluation profit comes from changes in asset and liability values, not from misclassifying loan interest. Memory cue: loan interest is a charge against profit; capital interest is an appropriation of profit.

Correct answer: B. ₹14400

After immediate payment, outstanding amount is ₹240000 and six percent of it is ₹14400. Exam tip: add interest before deducting instalment.

Correct answer: A. ₹60700

Total payable was ₹100700 and after ₹40000 payment, ₹60700 remains. Exam tip: add interest in executor loan also.

Correct answer: A. When the partner retires and becomes like a creditor of the firm

After retirement, unpaid amount is a payable loan, not capital. Exam tip: change account classification when the partner's status changes.

Correct answer: B. ₹150000

To cancel the wrong credit and create the correct debit, ₹150000 must be debited. Exam tip: reversed entries need double correction.

Correct answer: A. ₹6000

Correct interest is ₹18000 and recorded interest is ₹12000, so the difference is ₹6000. Exam tip: apply agreement rate before general rate.

Correct answer: C. ₹8400

₹140000 remained outstanding for the whole year, so interest is ₹8400. Exam tip: apply full-year interest before year-end payment.

Correct answer: A. ₹120000

Total immediate settlement is ₹100000, so remaining loan is ₹120000. Exam tip: deduct settlement through assets also.

Correct answer: B. Expense increases and loan liability increases

Interest due is an expense and also increases amount payable to the partner. Exam tip: do not treat accrued interest as payment.

Correct answer: A. ₹110000

The direct answer is A: the closing credit balance is ₹110,000. The account has total credit items of ₹175,000 and total debit payments of ₹65,000. To find a credit balance, subtract total debits from total credits: ₹175,000 − ₹65,000 = ₹110,000. The fact that ₹10,000 of the credits is interest does not change this arithmetic, because it is already included in the stated total credit items. Option A is correct. Option B, ₹100,000, wrongly subtracts the interest again from the total credit. Option C, ₹120,000, does not use the complete debit amount correctly. Option D, ₹240,000, effectively combines amounts instead of finding the balance. Remember: when totals are already given, do not recalculate or remove a component that is included; simply compare total credit and total debit.

Correct answer: B. Interest is an expense, while principal repayment reduces liability

The governing concept is the different accounting nature of interest and principal repayment. Interest on a partner’s loan is a finance cost or expense of the firm, normally charged to the Profit and Loss Account according to the applicable agreement and accounting treatment. Principal repayment is not an expense; it reduces the outstanding loan liability and the bank balance. Hence option B correctly distinguishes them. Option A wrongly treats both as profit appropriations, while C reverses their nature and D incorrectly sends both items to the Revaluation Account, which is used for revaluation gains or losses rather than routine loan settlement.

Correct answer: A. ₹7840

Interest for first three months is ₹2240 and for next nine months is ₹5760. Exam tip: split periods when rate changes.

Correct answer: A. Expenses and loan liability may be overstated

Principal repayment is not an expense and the loan account should have been debited. Exam tip: do not post repayment to Profit and Loss.

Correct answer: A. ₹15000 overpayment or error

The direct answer is A: ₹15,000 overpayment or an error. A credit balance of ₹60,000 means the firm owes the retiring partner ₹60,000. Since there is no interest, the amount paid through bank should equal ₹60,000. The actual payment is ₹75,000, so ₹75,000 − ₹60,000 = ₹15,000. Thus, ₹15,000 has been paid in excess, or an accounting mistake needs investigation. Option A is correct because it exactly explains the difference. Option B is wrong because the question clearly says there was no interest. Option C is wrong because the recorded liability is only ₹60,000, not ₹75,000. Option D is wrong because a partner’s loan balance is a liability, not income. Check the balance before recording final payment; a payment above the balance is a warning sign.

Correct answer: B. No interest will accrue after the final payment date

The governing concept is that interest accrues only while an amount remains outstanding and only for the period authorised by the agreement. If the full loan is finally paid on a particular date, the liability ceases on that date; therefore, no further interest is charged after that date. Option B correctly expresses the practical effect. Option A contradicts the contractual limit, option C is too broad because interest may accrue before settlement, and option D confuses the nature of loan interest with a capital-account adjustment. Any interest up to the final payment date must still be recorded and settled as agreed.

Correct answer: A. ₹11200

Interest is ₹7200 on ₹180000 for first six months and ₹4000 on ₹100000 for next six months. Exam tip: change balance after payment.

Correct answer: A. When there is no immediate payment or settlement through assets

The governing concept is the transfer of an unpaid amount due to a retiring partner from the partner’s capital account to a loan account. If the final capital balance is fully payable but no part is immediately paid in cash and no asset or goods are transferred in settlement, the entire amount remains outstanding and is transferred to the loan account. Therefore, option A is correct. If half is paid, only the unpaid portion becomes a loan, so B is not generally equal to the full capital balance. Adding interest changes the loan balance, and a debit balance represents an amount recoverable from the partner rather than a liability.

Correct answer: A. ₹3000

Expense is recorded ₹3000 short, so profit is overstated by ₹3000. Exam tip: keep equal amount in double effect.

Correct answer: B. Because payment reduces liability and interest increases liability

Loan account is a liability account, so decrease is debited and increase is credited. Exam tip: identify account nature first.

Correct answer: B. ₹3600

From 1 October to 31 March is six months, so interest is ₹3600. Exam tip: use the actual outstanding period.

Correct answer: C. Zero

When full principal and interest are paid, no liability remains. Exam tip: after final payment, balance should be zero.

Correct answer: B. ₹276250

After first year it becomes ₹262500 and after second year ₹276250. Exam tip: in compound interest, charge interest on updated balance.