Question 33 of 53intermediate🔧 ApplyShort Answer2 marks

Give the journal entry(ies) to be recorded for the following, in case of the dissolution of a partnership firm: For payment of partner’s loan.

Correct Answer

Journal Entry for Payment of Partner's Loan:

Partner's Loan A/c Dr. To Bank A/c

This entry is recorded when the firm pays off the loan amount due to a partner. The Partner's Loan Account is debited to close the liability, and the Bank Account is credited as payment is made from the firm's funds.

It is important to note that Partner's Loan is not transferred to Realisation Account. It is settled separately after paying off all outside liabilities (like creditors, bank overdraft, etc.) but before the settlement of partners' capital accounts. If the available balance is insufficient to pay the full loan amount, the loans are paid proportionately among partners.

Exercise: Do it Yourself | Q: 7 | (Page 19)
For More Understanding

Explanation

The textbook clearly provides the journal entry at point 16: Partner's Loan A/c Dr. to Bank A/c. The context also clarifies the order of payment - outside liabilities first, then partner's loans, followed by capital accounts. Additionally, the fill-in-the-blank exercise (point 9) confirms that partner's loan is NOT transferred to Realisation Account.

Solution Steps

  1. Step 1: Identify that Partner's Loan is a separate liability, not transferred to Realisation Account

  2. Step 2: Pass the journal entry: Partner's Loan A/c Dr. to Bank A/c

  3. Step 3: Ensure payment is made after outside liabilities but before capital settlement

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