Partner's Loan Account

Correct answer: A. ₹5000

For the first 5 months full ₹200000 was outstanding. Interest is (200000 \times \frac{6}{100} \times \frac{5}{12}=5000).

Correct answer: A. ₹1,50,000

The governing concept is that interest for a later period is calculated on the principal outstanding during that later period, not automatically on the original loan. The original principal is ₹2,00,000. After ₹50,000 of principal is repaid at the end of five months, the outstanding principal becomes ₹2,00,000 − ₹50,000 = ₹1,50,000. Therefore, interest for the next seven months is charged on ₹1,50,000, making option A correct. Option B was the balance before repayment. Option C is only the amount repaid, not the remaining loan. Option D incorrectly adds the repayment to the original principal. The timing of the repayment matters because it changes the base for subsequent interest.

Correct answer: A. It will be credited to loan account

Due interest is a liability of the firm even if unpaid. It is credited to loan account to increase amount payable.

Correct answer: A. Personal account

The retiring partner’s loan account records the amount payable to a specific partner. Since it relates to an identifiable person, it is treated as a personal account. It is not a real account because it does not represent an asset, nor is it a nominal account because it does not record income or expense. Exam tip: Accounts showing amounts due to or receivable from a person are generally classified as personal accounts.

Correct answer: A. When the amount payable by the firm increases

The governing concept is the personal account rule: credit the giver and debit the receiver. In the partner’s loan account, an amount credited to the account represents an increase in the firm’s liability toward that partner, because the firm now owes more. Thus, when the amount payable to the retiring partner increases, the loan account is credited, so option A is correct. When the firm makes a payment, the liability decreases and the loan account is generally debited, making option B unsuitable. A decrease in bank balance is a cash transaction, not the rule determining this account’s credit. Purchasing goods affects purchases or creditors, not the retiring partner’s loan account.

Correct answer: A. After finding the final amount due in the capital account

The governing procedure is that the retiring partner’s capital account must first be adjusted for every relevant item, such as goodwill, revaluation profit or loss, reserves, accumulated profits or losses, and the partner’s share of current profit where applicable. After these adjustments, the final amount payable is determined. If the firm does not pay that entire amount immediately, the unpaid balance is transferred to the retiring partner’s loan account. Therefore, option A correctly identifies the required stage. The other options describe isolated or irrelevant actions and do not establish the final liability. A loan account cannot be prepared accurately before all capital-account adjustments are complete.

Correct answer: A. Capital account is closed

Transferring the due balance to loan account clears the capital account balance. Therefore capital account is closed.

Correct answer: A. ₹50400

The bank payment contains two different components: repayment of loan principal and payment of interest. The installment is ₹45,000 and the separately paid interest is ₹5,400. Since both amounts leave the bank through the same payment process, the total bank outflow is found by adding them. Thus, ₹45,000 + ₹5,400 = ₹50,400.

Option A is correct. Option B gives only the principal installment and ignores the interest, while option C gives only the interest. Option D subtracts interest from the installment, but the question says that both are paid, so subtraction would understate the bank payment. In accounting, the principal repayment reduces the loan liability, whereas interest is an expense or finance charge; their accounting treatment differs, but their combined cash payment is their sum.

Correct answer: A. ₹30,000

The governing concept is that a combined payment must be separated into its interest and principal components. The total payment is ₹36,500, of which ₹6,500 represents interest. The amount applied toward principal is therefore calculated as: ₹36,500 − ₹6,500 = ₹30,000. Hence, option A is correct, and the loan principal is reduced by ₹30,000. Option B is the complete payment and includes both components, so it cannot represent only principal repayment. Option C is the interest portion and does not reduce principal. Option D incorrectly adds interest to the total payment. This separation is necessary because interest is an expense, whereas principal repayment reduces the outstanding loan liability.

Correct answer: A. Amount already paid

Interest on a loan is compensation for the use of money that remains unpaid. Therefore it is calculated only on the outstanding loan balance for the relevant period. Once an amount has been paid, that portion is no longer owed and cannot earn further interest. Thus the amount already paid is the amount on which interest should not be charged, so choice A is correct.

If the original loan is ₹50,000 and ₹20,000 is repaid, future interest is calculated on the remaining ₹30,000, unless the agreement provides a different rule. Interest is not automatically based on the original agreed amount throughout the entire period. Payments, payment dates, and the resulting outstanding balance must be considered so that interest is charged only while the firm uses the unpaid money.

Correct answer: A. ₹3150

For the first 7 months full ₹90000 was outstanding. Interest is (90000 \times \frac{6}{100} \times \frac{7}{12}=3150).

Correct answer: A. ₹70,000

The governing concept is that interest is based on the principal outstanding during the particular period. The opening loan liability is ₹90,000. At the end of seven months, the firm repays ₹20,000 towards principal. Since a principal repayment reduces the amount owed, the revised balance is ₹90,000 − ₹20,000 = ₹70,000. Interest for the following five months must therefore be calculated on ₹70,000 at the rate stated in the agreement. Option A is correct. Option B ignores the repayment and uses the old balance. Option C confuses the amount repaid with the amount still payable. Option D adds the repayment to the original liability, which reverses the effect of a principal payment. The seven-month period matters for any earlier interest calculation, but it does not change the next-period base after the repayment.

Correct answer: A. Principal loan will not change

The direct answer is A: the principal loan remains unchanged. Interest of ₹4,800 is first credited to the loan account, so the total amount payable increases by ₹4,800. However, the same ₹4,800 is paid through the bank on that day. This payment settles the interest only; it does not repay any part of the original principal. Therefore, the net effect on principal is zero. Option A is correct. Option B is wrong because the principal increases only if interest is left unpaid and added to the loan balance, not when it is paid immediately. Option C is wrong because no principal repayment has been made. Option D is wrong because the loan is still an amount owed by the firm, so it remains a liability, not an asset. A useful check is to separate principal and interest: paying interest changes interest payable, but it does not automatically change principal.

Correct answer: A. The entire amount due to the partner has been paid

After retirement, the amount payable to the partner is recorded as a liability in the partner’s loan account. Payments reduce this balance, and it becomes zero when the entire amount has been settled. Therefore, option A is correct. Goodwill, admission of a new partner, and closure of the bank account do not determine this balance. Exam tip: A zero balance in a partner’s loan account generally indicates complete settlement of the amount payable.

Correct answer: A. Firm has paid more than the amount due

Direct answer: Option A, the firm has paid more than the amount due. A loan account of a retiring partner normally has a credit balance because the firm owes money to that partner. When the firm makes payments, the loan account is debited. If debits become greater than the original amount due, the account may show a debit balance. This generally indicates that payment has exceeded the amount payable, or that some related adjustment has been recorded. Option A is therefore the best general meaning. Option B is wrong because an increase in the firm’s liability normally produces a credit balance, not a debit balance. Option C is wrong because a debit balance does not prove that interest has always increased; interest must be calculated from the agreement and time period. Option D is unrelated: goodwill is an adjustment connected with the firm’s reputation and partners’ rights, not the basic meaning of a debit loan balance. Exam cue: credit balance means payable; excessive debit usually suggests overpayment.

Correct answer: A. ₹191000

Interest is (275000 \times \frac{4}{100}=11000) so amount due becomes ₹286000. After payment of ₹95000 the balance is ₹191000.

Correct answer: A. ₹2,57,000

The governing accounting rule is that a principal repayment reduces a loan liability, while interest credited to the lender’s account increases the amount payable. Begin with the opening credit balance of ₹3,20,000. Deduct the principal payment: ₹3,20,000 − ₹75,000 = ₹2,45,000. Then add the year-end interest credited: ₹2,45,000 + ₹12,000 = ₹2,57,000. Thus, option A is correct. Option B is only the balance after the principal payment and omits the interest. Option C adds the interest but ignores the payment. Option D incorrectly adds both the payment and interest to the opening balance, even though the payment reduces the liability. The final credit balance is therefore ₹2,57,000.

Correct answer: A. ₹13500

Ten months is ( \frac{10}{12} ) year. Interest is (180000 \times \frac{9}{100} \times \frac{10}{12}=13500).

Correct answer: A. Liability will wrongly increase

Payment should be on debit side of loan account because it reduces liability. Recording it on credit side will overstate liability.

Correct answer: A. The loan balance will be understated

Interest payable on a partner’s loan increases the total amount due to the lending partner and is credited to the Partner’s Loan Account. If this entry is omitted, the final loan balance will be lower than the actual amount payable, so it will be understated. Option B is incorrect because recording interest increases, rather than decreases, the liability. Exam tip: Interest due on a partner’s loan is added to the loan balance.

Correct answer: A. ₹11700

Interest for first 6 months is ₹7200 and for next 6 months on ₹150000 is ₹4500. Total interest is ₹11700.

Correct answer: A. ₹42000

An installment may include both repayment of principal and payment of interest. Only the principal portion reduces the outstanding loan balance. Here the total installment is ₹50,000 and the interest included in it is ₹8,000. Therefore, the amount applied against principal is found by subtracting interest from the total installment: ₹50,000 − ₹8,000 = ₹42,000.

Thus, option A is correct. The full ₹50,000 cannot be treated as principal reduction because ₹8,000 of it pays the cost of borrowing. Option C is only the interest portion, not the reduction in loan principal. Option D incorrectly adds interest to the installment. Separating these components is important because the remaining loan balance changes only by the principal repayment, while interest is recorded separately as a charge.

Correct answer: A. ₹88000 on liabilities side

Direct answer: option A, ₹88,000 on the liabilities side. A credit balance in the retiring partner’s loan account means the firm owes that amount to the partner. Therefore ₹88,000 is shown as a liability in the balance sheet. Option A is correct. Option B, assets side, is wrong because the firm does not own this amount; it must pay it. Option C, profit and loss account, is wrong because the balance is not current income or expense. Option D, goodwill, is wrong because goodwill is an intangible business value, whereas this amount is a payable loan. The word “credit balance” is important: it indicates a claim against the firm. The supplied answer is consistent. Memory cue: credit balance payable to a partner appears under liabilities.

Correct answer: A. ₹30400

The direct answer is A: the net decrease in total liability is ₹30,400. Interest credited to the retiring partner’s loan account increases the firm’s liability by ₹9,600. Payment of principal reduces the liability by ₹40,000. Therefore, net decrease = principal reduction − interest increase = ₹40,000 − ₹9,600 = ₹30,400. Option A is correct. Option B, ₹40,000, ignores the increase caused by credited interest. Option C, ₹49,600, incorrectly adds the two amounts, although they have opposite effects. Option D, ₹9,600, considers only the interest and ignores the principal payment. The important idea is to attach signs: payment is a decrease, while crediting interest is an increase in what the firm owes. Memory cue: net fall equals reduction minus any new liability added.

Correct answer: A. Interest due

Interest due increases loan liability so it is added. Payments reduce liability so they are deducted.