Partner's Loan Account

When final amount due is not paid immediately it becomes a loan. Therefore it is shown in a separate loan account.

After all capital adjustments if the amount remains unpaid it is transferred to loan account. It becomes a liability of the firm.

The governing concept is classification according to the firm’s obligation. When the retiring partner’s amount is transferred from the capital account to a loan account, the partner is no longer treated as a continuing capital contributor for that amount; instead, the firm owes it as a loan. An amount owed by the business is a liability and is presented on the liabilities side of the balance sheet, together with any applicable accrued interest. Option A is correct. It is not an asset because the firm does not own a recoverable resource; it is not income because no earning has occurred; and it is not an expense merely because it is payable. Payment later reduces the liability.

The governing rule is the dual effect of converting one form of liability into another. The retiring partner’s capital account contains the amount previously credited to the partner. When that amount is transferred to a loan account, the capital balance must be removed, so the retiring partner’s Capital Account is debited. At the same time, the firm recognises the amount payable as a loan, so the Retiring Partner’s Loan Account is credited. Hence option A is correct: Capital A/c Dr. to Retiring Partner’s Loan A/c. Option B records repayment through bank, option C reverses the transfer, and option D incorrectly involves goodwill.

Interest is an expense for the firm and increases amount payable to the partner. Hence interest account is debited and loan account is credited.

The governing rule is that a payment extinguishes or reduces the liability being settled and reduces the bank balance. When the firm pays the retiring partner’s loan through bank, the loan account is debited because its credit balance, representing the amount payable, decreases. Bank is credited because money leaves the firm’s bank account. Therefore option A is correct: Retiring Partner’s Loan A/c Dr. to Bank A/c. Option B would show the opposite movement and increase the loan. Option C records interest payment only if interest is separately due, while option D incorrectly uses a reserve account for a direct loan repayment.

The governing concept is separation of the amount settled immediately from the amount that remains payable. The total amount due to the retiring partner is ₹1,50,000. Since ₹60,000 is paid immediately, the unpaid balance is calculated as ₹1,50,000 − ₹60,000 = ₹90,000. This remaining amount is transferred to the retiring partner’s loan account, unless the question specifies another adjustment such as interest. Option A is correct. Option B is only the cash payment, option C ignores that payment, and option D adds the payment instead of deducting it. The loan account represents the deferred balance, not the original total obligation.

Interest is (75000 \times \frac{8}{100}=6000). For one year no separate time fraction is needed.

Three months is ( \frac{3}{12} ) year. Interest is (96000 \times \frac{5}{100} \times \frac{3}{12}=1200).

Nine months is ( \frac{9}{12} ) year. Interest is (120000 \times \frac{6}{100} \times \frac{9}{12}=5400).

The deceased partner amount is payable to his executor. If not paid immediately it is kept in executor loan account.

The amount payable through the executor’s loan account was ₹1,80,000. Since the payment of ₹45,000 reduces the liability, the remaining liability is ₹1,80,000 − ₹45,000 = ₹1,35,000. ₹1,80,000 is the original liability, while ₹2,25,000 results from incorrectly adding the payment. Exam tip: Subtract payments from the amount payable to find the outstanding liability.

A partnership agreement is the primary source for deciding the rate of interest on a retiring partner’s loan. If the agreement clearly states a rate, that contractual rate must be applied to the outstanding loan for the relevant period. The firm should not replace it with a general or assumed rate. This follows the principle that partners’ agreed terms govern their mutual accounting arrangements.

The rates of 6% or 10% are not automatically applicable merely because they are common figures in some questions. No-interest treatment would also contradict an agreement that expressly provides interest. Therefore option A, the rate given in the agreement, is correct. A general statutory or textbook rate is relevant only when the agreement is silent and the applicable rule requires it.

The general rule for partner loan is 6 percent per annum. In exams use this when no rate is given.

Interest on loan is an expense of the firm. It is treated as a charge against profit and not as profit appropriation.

The governing concept is settlement of a liability. A retiring partner’s loan account remains open while any principal amount or accrued interest is still owed by the firm. It is considered closed only after the firm has paid the complete principal and all interest due up to the settlement date, or after an agreed final adjustment removes the remaining balance. Thus option A is correct. Merely preparing a new profit-sharing ratio does not settle the loan. Calculating goodwill may help determine the partner’s entitlement but does not itself pay the loan. Sales are ordinary business transactions and have no automatic effect on whether the loan account has a balance.

The direct answer is A. In a retiring partner’s loan account, principal means the original amount of loan or the unpaid amount transferred to the loan account. Repaying principal reduces the outstanding liability, so the loan balance becomes smaller. Interest is the charge for using the money for a period; it is an expense of the firm. If interest is due but unpaid, it increases the amount owed, while payment of interest settles that expense-related liability. Option A is correct because it distinguishes expense from reduction of loan liability. Option B is wrong because neither interest nor principal repayment is a sale; no goods are sold. Option C is wrong because drawings are amounts withdrawn by a partner for personal use, not loan interest or repayment. Option D is wrong because goodwill is a business value used in reconstitution, not the nature of every loan transaction. The step-by-step distinction is: identify interest as time-based finance cost; identify principal as the amount borrowed; interest affects expense, principal payment reduces the loan balance. Memory cue: interest is the cost of borrowing; principal is the amount borrowed.

The direct answer is A, the credit side. When a partner retires, the amount finally due to that partner becomes a liability of the firm. In a liability account, an amount owed is recorded on the credit side. Therefore the initial amount due is credited to the retiring partner’s loan account. Later, when the firm pays the amount, the loan account is debited because the liability is reduced or settled. Option A is correct. B is wrong because the debit side is used for payment or reduction of the liability, not for first recording the amount due. C is wrong because the initial amount is recorded once, not on both sides. D is wrong because it must be recorded to show the firm’s obligation. Memory cue: liability created is credited; liability paid is debited.

A retiring partner’s loan account records the firm’s liability to that partner. When the firm pays an installment, the liability becomes smaller. In a liability account, a decrease is recorded on the debit side. The payment is also credited in the bank or cash account, but the question asks specifically about the retiring partner’s loan account.

Therefore, the installment is written on the debit side of that loan account, making option A correct. A credit entry would normally increase the amount owed, such as when the loan is first transferred to the account or when interest is added. “Both sides equally” is not a rule for recording one payment, and the payment cannot be omitted because it changes the outstanding balance. The side must be identified with reference to the loan account itself.

Interest on a retiring partner’s loan is an expense incurred by the firm because the firm keeps using money that is payable to the former partner. The interest is credited to the partner’s loan account, increasing the amount owed. The corresponding debit represents the firm’s expense and is ultimately transferred to the Profit and Loss Account.

It should not be transferred to goodwill, because goodwill records the value or adjustment of business reputation. It is not drawings, which record a partner’s personal withdrawals, and it is not sales revenue. Therefore option A, Profit and Loss Account, is the appropriate final account. The supplied answer and explanation agree with this treatment.

After retirement the unpaid amount due to partner becomes like liability to a lender. Hence it is treated like an outside loan.

After retirement he does not share profits and losses. The unpaid amount remains as loan liability of the firm.

A partner’s loan balance increases when interest is added because the firm now owes both the original principal and the interest. It decreases when a payment is made. Therefore, the calculation must follow the order of adding interest and then subtracting the amount paid. The original loan is ₹85,000 and the interest added is ₹5,100.

First, the amount due becomes ₹85,000 + ₹5,100 = ₹90,100. The firm then pays ₹25,000, so the remaining balance is ₹90,100 − ₹25,000 = ₹65,100. This is still payable to the lender, so it remains a credit balance in the loan account. Hence option A, ₹65,100, is correct; ₹90,100 would be the balance before the payment.

When no interest is payable, the installment paid is simply deducted from the loan balance: ₹2,10,000 − ₹70,000 = ₹1,40,000. Therefore, option A is correct. ₹70,000 is the installment paid, not the remaining loan. Exam tip: Without interest, remaining loan = opening loan balance − amount paid.

The governing concept is the reduction of a liability through settlement. A retiring partner’s loan represents an amount payable by the firm. When the firm pays part or all of that loan, the outstanding obligation becomes smaller by the amount paid. In ledger terms, the loan account is debited to reduce its credit balance, while cash or bank is credited because funds leave the business. Therefore option A is correct. Payment does not increase the loan; an increase would arise from a new credit such as accrued interest. It also does not automatically increase goodwill or sales, because those are separate accounting matters. The effect is specifically a decrease in loan payable.