Partner's Loan Account

The direct answer is B: ₹167200. Begin with the retirement amount of ₹270000. Ravi receives ₹110000 immediately, so the unpaid balance is ₹270000 − ₹110000 = ₹160000. Interest is charged only on this outstanding balance, not on the amount already paid. The annual rate is 9%, but the period is six months, which is one-half of a year. Thus interest is ₹160000 × 9/100 × 6/12 = ₹7200. The amount payable before the final payment is the outstanding principal plus this interest: ₹160000 + ₹7200 = ₹167200. Option A, ₹160000, is only the unpaid principal and leaves out interest. Option B, ₹167200, correctly includes both principal and six-month interest. Option C, ₹174300, does not follow the stated calculation and overstates the amount. Option D, ₹380000, incorrectly adds or treats the figures as though the full original amount and another amount were payable. The key rule is to calculate interest on the unpaid loan for the stated time. Memory cue: first subtract immediate payment, then calculate time-based interest, then add it to the balance.

Total immediate settlement is ₹100000, so the unpaid loan will be ₹85000. Exam tip: deduct both cash and asset settlement.

Interest is charged on ₹125000 for three months and on ₹80000 for nine months. Exam tip: change the base after payment.

Interest on loan is a firm expense, not a revaluation adjustment. Exam tip: connect loan interest with Profit and Loss Account.

After immediate payment, ₹270000 is outstanding and seven percent of it is ₹18900. Exam tip: add interest before deducting instalment.

Interest is charged on ₹148000 for six months and on ₹100000 for the next six months. Exam tip: apply the same rule to executor's loan account.

A retiring partner may be entitled to an amount representing capital, accumulated profit, goodwill, or other adjustments. If the firm does not pay that amount immediately, the amount is transferred to the retiring partner’s loan account. The loan account therefore records a sum that the firm has borrowed or owes to that former partner. It is treated like a liability because payment is required in the future.

The correct choice is B: the firm has to pay an amount to the retiring partner. Option A reverses the direction of the obligation; it would describe an amount recoverable by the firm, which would be an asset. The other choices do not explain the nature of a loan account. In accounting, the key test is whether the business must pay or receive the amount. Here, the firm must pay, so the account has a liability nature.

To cancel the wrong credit and create the correct debit, a double effect of ₹130000 is needed. Exam tip: reversed entries need double correction.

Correct interest is ₹19800 and recorded interest is ₹10800, so the difference is ₹9000. Exam tip: use the agreement rate before the general rate.

Six percent interest on ₹150000 for seven months is ₹5250. Exam tip: use the actual period instead of full year.

Total immediate settlement is ₹130000, so unpaid loan is ₹150000. Exam tip: deduct non-cash settlement also.

Interest due is an expense and also increases loan liability. Exam tip: keep interest due entry separate from payment entry.

Closing balance is total credit ₹230000 minus debit ₹95000. Exam tip: do not add interest again if it is already included in credit.

The direct answer is A: interest reduces profit, while principal repayment does not directly reduce profit. Interest is the cost of using money, so it is an expense in the Profit and Loss Account. An expense lowers accounting profit. Principal is the original amount borrowed or payable. Paying it back reduces the loan liability and bank balance, but it does not represent a new expense and therefore does not directly reduce current profit. Option A is correct. Option B is wrong because principal repayment is not normally an expense. Option C is wrong because neither item increases profit merely because it is recorded; interest actually reduces it. Option D reverses both treatments, so it is wrong. For example, paying ₹10,000 principal changes liability and cash, whereas ₹1,000 interest lowers profit by ₹1,000. Exam cue: expense affects profit; repayment of principal affects balance-sheet accounts.

Interest for first five months is ₹5333.33 and for next seven months is ₹5600. Exam tip: split time when rates change.

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

The direct answer is A: there is an overpayment of ₹18000 or an error. A credit balance of ₹72000 means the firm owes the retiring partner ₹72000. The question explicitly says that there is no interest, so no extra amount can be added for interest. The bank payment was ₹90000. Comparing the payment with the liability gives ₹90000 − ₹72000 = ₹18000. Therefore the payment exceeds the recorded amount due by ₹18000. Option A is correct because the difference must be investigated as an overpayment, posting mistake, or some omitted adjustment. Option B is wrong because the question says there was no interest, and no other fact creates interest of ₹18000. Option C is wrong because the stated credit balance, not the payment made, represents the recorded liability; a payment does not automatically prove that ₹90000 was due. Option D is wrong because ₹72000 is a liability owed to the partner, not income earned by the firm. The correct accounting response is to check the loan account, payment voucher, and any omitted interest or adjustment before accepting the figure. Memory cue: compare amount paid with closing liability; payment greater than liability means check the difference.

The loan ends on final payment, so no interest is charged after that. Exam tip: treat payment date as the end of period.

Interest is ₹4900 on ₹210000 for four months and ₹7000 on ₹150000 for eight months. Exam tip: add interest for separate periods.

Loan account is generally created from final unpaid amount due. Exam tip: add extra payable only when specifically stated.

The correct interest is ₹12,500, but only ₹9,500 has been recorded. The understatement is ₹12,500 − ₹9,500 = ₹3,000. Because interest is an expense, recording ₹3,000 too little causes total expenses to be understated and reported profit to be overstated by ₹3,000. The corresponding credit to the partner’s Loan Account is also ₹3,000 too low, so the liability is understated by ₹3,000. The bank balance is not automatically affected because the question concerns a recording error, not an actual payment. Thus, option A correctly states both effects.

In a liability account, increase is credited and decrease is debited. Exam tip: identify the nature of account first.

Six percent interest on ₹96000 for seven and a half months is ₹3600. Exam tip: convert the given period into correct fraction of year.

The direct answer is A: the loan account will be shown as nil because no liability remains. First, interest is added to the partner’s loan account, so the total amount payable becomes principal plus interest. The question then says that this full amount is paid immediately. Payment completely settles the account. After settlement, the loan account has no credit balance and the firm has no remaining liability to that retired partner. Therefore nothing is shown for this loan in the next balance sheet. Option A is correct because a fully paid liability has a zero closing balance. Option B is wrong because the principal has already been paid and cannot remain as a liability. Option C is wrong because the interest has also been paid as part of the full amount, so it cannot remain separately payable. Option D is wrong because the bank account is an asset account, while the question asks about presentation of the loan account; payment reduces bank money but does not turn this loan into a bank asset. The important distinction is between an account during payment and its closing balance after payment. Memory cue: full settlement means zero balance and no balance-sheet presentation for that liability.

After first year it becomes ₹187200 and after second year ₹194688. Exam tip: in compound interest, charge interest on updated balance.