Partner's Loan Account

The governing concept is the double-entry treatment of an expense when it becomes due. Interest on a retiring partner’s loan is a charge against the firm because the firm has used the outstanding loan and must bear the related cost. Therefore, when interest becomes payable, the entry is: Interest on Loan Account Dr. and Retiring Partner’s Loan Account Cr. The expense account is debited because expenses increase on the debit side, while the partner’s loan account is credited because the amount owed to the partner increases. Bank is not debited or credited merely because interest becomes due; it is affected only on actual payment. General Reserve is unrelated because this is not a reserve distribution or adjustment. Hence, option A is correct.

The retiring partner’s total amount due is ₹275,000. Since ₹75,000 is paid immediately through the available payment channel, only the unpaid balance remains payable by the firm. That unpaid balance is transferred to the retiring partner’s Loan Account: ₹275,000 − ₹75,000 = ₹200,000. The immediate payment is not transferred to the loan account because it has already settled that portion of the liability. Option B represents only the amount paid, while option C ignores the immediate settlement. Option D incorrectly adds the two amounts instead of subtracting the payment. Therefore, ₹200,000 is credited to the partner’s Loan Account, making option A correct.

A combined payment containing interest and principal must be divided into its two components. The interest portion settles the interest expense or interest liability and does not reduce the original loan principal. Therefore, the amount applied to principal is the total payment less the interest included: ₹50,000 − ₹8,000 = ₹42,000. Option B wrongly treats the entire payment as principal repayment. Option C identifies only the interest component, which is excluded from principal reduction. Option D adds the components and therefore overstates the reduction. Hence, the loan principal decreases by ₹42,000, so option A is correct.

The executor’s Loan Account represents an amount payable by the firm, so credited interest increases the liability and payment decreases it. Begin with the opening balance of ₹140,000. Add the interest credited: ₹140,000 + ₹8,400 = ₹148,400. Then subtract the payment of ₹56,000: ₹148,400 − ₹56,000 = ₹92,400. Option B subtracts the payment but ignores interest. Option C adds interest but ignores the payment. Option D adds both figures and therefore cannot represent the closing liability after payment. The final credit balance of the executor’s Loan Account is therefore ₹92,400, making option A correct.

The governing concept is allocation of a combined loan payment between interest and principal. The total amount paid is ₹72,000, but ₹12,000 of that amount specifically settles interest. Only the remainder is repayment of the original loan principal. Therefore, principal reduction = Total payment − Interest component = ₹72,000 − ₹12,000 = ₹60,000. Option A is correct. Option B incorrectly treats the entire payment as principal repayment, even though the question expressly identifies an interest component. Option C gives only the interest amount and not the reduction in principal. Option D adds the interest to the total payment, which double-counts it. After this transaction, the loan liability is reduced by ₹60,000 for principal purposes, while ₹12,000 is recognised as settlement of interest.

Crediting interest to the Loan Account initially increases the amount payable to the partner, while paying that same interest through the bank immediately settles the added interest liability. These two entries affect only the interest component: the interest expense is recognised and the interest payable is cleared. Neither entry changes the original principal balance of the loan. Option B would be correct only if the interest remained unpaid and were added to the liability. Option C is wrong because payment of interest is not repayment of principal. Option D reverses the nature of the account; the partner’s Loan Account represents a liability. Therefore, the principal loan remains unchanged, so option A is correct.

Interest on a partner’s Loan Account is a charge against the firm’s profit, not an appropriation of profit. A charge is recorded before arriving at the final profit or loss, so it remains payable even when the firm reports a loss. The firm must recognise the interest expense and the corresponding liability according to the partnership agreement or applicable terms. Option B is incorrect because a loss does not cancel a contractual expense. Option C confuses loan interest with appropriations such as partner’s commission or interest on capital. Option D has no accounting connection with loan interest. Therefore, the interest remains a payable expense, making option A correct.

The governing concept is the separation of interest from principal when a payment includes both components. The total amount paid is ₹65,000, but ₹15,000 of this amount represents interest already credited to the Loan Account. Only the balance of the payment reduces the original principal. Therefore, principal reduction = total payment − interest component = ₹65,000 − ₹15,000 = ₹50,000. Option A is correct because it represents the amount actually applied against the loan principal. Option B incorrectly treats the entire payment as principal and ignores the interest portion. Option C gives only the interest amount, not the principal repayment. Option D incorrectly adds the interest to the total payment instead of deducting it. Thus the principal decreases by ₹50,000.

The governing concept is time-based interest on the outstanding loan balance. At the start of the year, the principal is ₹180,000. The payment of ₹60,000 occurs halfway through the year, so the balance remains ₹180,000 for the first six months. Immediately after the payment, the outstanding principal becomes ₹180,000 − ₹60,000 = ₹120,000, and this reduced balance applies for the remaining six months. Thus the correct interest basis is ₹180,000 for six months and ₹120,000 for six months. If calculated, interest = ₹180,000 × 6% × 6/12 + ₹120,000 × 6% × 6/12 = ₹5,400 + ₹3,600 = ₹9,000. Option A ignores repayment, C applies the reduction too early, and D confuses payment with the outstanding balance.

The governing concept is the distinction between a partner’s loan and the partner’s capital. A loan is a separate liability of the firm and is not merged with the partner’s Capital Account merely because the lender is also a partner. On dissolution, the outstanding partner’s loan is settled through the Partner’s Loan Account, usually after external liabilities have been paid according to the applicable order of settlement. Stock, Purchases and Sales Accounts record inventory or trading transactions; they do not record repayment of a loan. Option A therefore identifies the appropriate account. The question asks where the payment is recorded, not which account records the realisation of assets.