If interest is added to the loan and the full amount is paid immediately, what will be the presentation of that loan account in the next balance sheet?

Correct answer: Nil because no liability remains

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.