Mukund's Loan of ₹50,000 to the firm, was settled at ₹55,000 at the time of firm's dissolution, where Mukund was one of the partner. What entry will be passed?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Mukund Loan A/c Dr. ₹50,000, Realisation A/c Dr. ₹5,000, To Cash A/c ₹55,000
A partner’s loan is paid off directly, not through the Realisation Account. Only the extra amount paid over the book value of the loan is a loss on dissolution, and every such loss is debited to the Realisation Account.
Book value of Mukund’s loan = ₹50,000
Amount paid in settlement = ₹55,000
Extra paid = ₹55,000 − ₹50,000 = ₹5,000 (loss, debited to Realisation A/c)
Mukund Loan A/c Dr. ₹50,000
Realisation A/c Dr. ₹5,000
To Cash A/c ₹55,000