On dissolution, how will you deal with partner’s loan if it appears on the (a) assets side of the balance sheet, (b) liabilities side of balance sheet.
If the partner's loan appears on the assets side, it is treated as an asset of the firm. It is transferred to the Realisation Account because the Realisation Account records transactions relating to the sale and realisation of assets. The amount is then realised from the partner.
If the partner's loan appears on the liabilities side, it represents a loan from the partner. It is not transferred to the Realisation Account. The amount available after paying outside liabilities is utilised to repay loans made by the partners to the firm. The entry recorded is: Partner’s Loan A/c Dr. to Bank A/c.
Explanation
The textbook context distinguishes between assets and liabilities regarding the Realisation Account. Assets (like a loan to a partner) are transferred to the Realisation Account for realisation (Chunk 2 and 5). However, liabilities like a partner's loan (loan from partner) are not transferred to the Realisation Account; they are paid separately after outside liabilities but before capital accounts are settled (Chunk 5). Chunk 3 provides the specific journal entry for paying the partner's loan (Dr. Partner's Loan A/c, To Bank A/c).