Partner's Loan Account

Correct answer: A. Debit Loan Account by ₹8000 and credit Profit and Loss Account by ₹8000

To remove wrong interest, both loan liability and expense are reduced. Exam tip: reverse the wrong interest entry.

Correct answer: A. It first goes to partners' capital accounts

Revaluation result is adjusted in capital accounts and then final amount due is found. Exam tip: remember the settlement sequence.

Correct answer: B. It is not firm's liability, amount may be recoverable from partner

Debit balance may mean the firm has to recover amount from the partner. Exam tip: only credit balance is treated as loan liability.

Correct answer: B. ₹4200

Interest is ₹840 for two months on ₹84000 and ₹3000 for ten months on ₹60000, total ₹3840. Exam tip: if no option matches, recheck question data.

Correct answer: A. Credit balance of loan account appears on liabilities side

Credit balance is an amount payable by the firm, so it appears on liabilities side. Exam tip: show loan and expense separately.

Correct answer: A. ₹109000

Amount due including interest was ₹159000 and after payment ₹109000 remains. Exam tip: new base is the balance after payment.

Correct answer: A. Because interest is paid out of the loan account and depends only on loan amount and time

Interest on a partner’s loan is an obligation related to the loan itself. It is calculated on the loan amount for the agreed period at the given rate. The profit-sharing ratio affects allocation of profits (and losses), not the contractual interest on a loan. Hence the new profit-sharing ratio is irrelevant for interest on the retiring partner’s loan.

Correct answer: B. Profit overstated and liability understated

Omitted interest makes expense lower and loan liability lower. Exam tip: omitted interest affects two accounts.

Correct answer: B. ₹20000 debit

Each instalment reduces liability, so it is debited to loan account. Exam tip: treat instalment as payment.

Correct answer: A. ₹8,400

The balance including interest consists of the original principal plus the added interest. Therefore, added interest = ₹2,18,400 − ₹2,10,000 = ₹8,400. Option B results from a place-value error, while option D incorrectly adds the principal instead of finding the excess over it. Exam tip: subtract the original principal from the total amount payable to calculate interest.

Correct answer: B. Principal will remain unchanged

The governing concept is allocation of a payment to the specific component named in the transaction. Once interest has been credited to the retiring partner’s loan account, the account contains both principal and accrued interest. If the bank payment is expressly for interest only, the interest liability is settled, but no amount is applied against the principal. Consequently, the principal loan balance remains unchanged, so option B is correct. Option A would require a payment against principal; option C is an extreme and unsupported conclusion; option D is impossible because repayment of principal does not create income for the firm.

Correct answer: A. ₹432

Simple interest for 2 years = ₹1,20,000 × 6/100 × 2 = ₹14,400. Compound interest = ₹1,20,000[(1.06)² − 1] = ₹14,832. Therefore, the difference is ₹14,832 − ₹14,400 = ₹432. ₹14,400 and ₹14,832 are the respective simple and compound interest amounts, not their difference. Exam tip: for 2 years of annual compounding, the difference equals the interest earned on the first year’s interest in the second year.

Correct answer: B. Loan balance will appear higher

Payment should be debited; crediting it wrongly increases the loan. Exam tip: check the side of payment.

Correct answer: A. Seven point five percent

Solving rate from ₹8000 on ₹160000 for eight months gives seven point five percent. Exam tip: convert time into years.

Correct answer: A. Whether all interest and payments are recorded

The account closes correctly only when all due interest and payments are recorded. Exam tip: check before making final balance zero.

Correct answer: B. ₹4400

First interest is ₹3150 and second period interest is ₹1250, total ₹4400. Exam tip: add separate period interests.

Correct answer: A. Deduct the goods settlement from the amount due

The governing concept is that any valid settlement of the amount due reduces the loan liability, regardless of whether settlement is made in cash, goods, or another asset. If goods are transferred to the retiring partner at an agreed value, that value represents part-payment of the amount payable. It must therefore be deducted from the loan balance, as stated in option A. The goods are not interest, so B is incorrect; they are not distributed among continuing partners, so C is irrelevant; and a non-cash transfer cannot be added to the bank balance, making D incorrect. Proper valuation and recording of the asset transfer are also necessary.

Correct answer: B. ₹14000

Wrong debit and missed credit together create ₹14000 effect. Exam tip: wrong-side errors often have double effect.

Correct answer: B. Interest on ₹100000 for six months and ₹60000 for six months

Direct answer: Option B. The interest must be calculated for six months on ₹100000 and for the next six months on ₹60000. At the beginning, the outstanding loan is ₹100000. A payment of ₹40000 is made halfway through the year, so the balance after that payment is ₹100000 − ₹40000 = ₹60000. The original balance applies for the first half-year, and the reduced balance applies for the second half-year. At 6% annually, the calculation is ₹100000 × 6% × 6/12 plus ₹60000 × 6% × 6/12. This equals ₹3000 + ₹1800 = ₹4800. Option A wrongly charges the full original amount for all twelve months and ignores the payment. Option C wrongly uses the reduced amount for the whole year, including the period before payment. Option D considers only the payment amount, not the actual outstanding loan. Exam cue: whenever a payment occurs during the year, divide the year at the payment date.

Correct answer: A. Total liabilities will be understated

Loan is a liability, so lower loan balance understates total liabilities. Exam tip: omitted interest can cause this error.

Correct answer: B. ₹235400

Outstanding loan is ₹220000 and seven percent interest is ₹15400. Exam tip: deduct immediate payment before charging interest.

Correct answer: A. Whether interest due was created and expense recorded

Interest due entry should be completed before interest payment. Exam tip: reconcile bank payment with expense entry.

Correct answer: A. Because it is firm's expense, not distribution of profit or loss

The direct answer is A: loan interest is a firm expense, not a distribution of profit or loss among partners. Interest payable on a retiring partner’s loan is charged to the firm’s Profit and Loss Account. It reduces the firm’s profit before that profit is shared among partners. Therefore, it should not be divided directly among the remaining partners’ capital accounts in the old ratio. Option A is correct because an expense is recorded first in the firm’s accounts; a ratio is used only when distributing an actual profit or loss, where the partnership agreement requires it. Option B is wrong because interest payable is not always an asset; it is normally an expense or liability. Option C is wrong because stock records goods, not loan interest. Option D is wrong because interest is not a cash sale. Remember: first identify whether an item is an expense, asset, liability, income, or appropriation.

Correct answer: A. Final capital balance, deduct immediate settlement, add interest, deduct payment

Loan account starts with unpaid amount and then considers interest and payments. Exam tip: do not reverse the sequence.

Correct answer: B. It is a liability account showing systematic settlement of unpaid capital, interest due and payments

The loan account shows complete liability of the firm toward the retiring partner. Exam tip: understand it as a final settlement liability account.