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 ?

Mukund Loan A/c Dr 50,000
Realisation A/c Dr 5,000
           To Cash A/c 55,000

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

To settle the loan (The loan amount is less than the settlement amount)

• Debit (Decrease) the Loan Account (to record the loan repayment).
• Debit (Decrease) the Realisation Account
• Credit (Increase) Cash or Bank Account( to show the payment made).