Give necessary journal entries for settlement of partner's loan at the time of dissolution of partnership firm under the following cases:

Loan from A ₹25,000, his capital account shows debit balance of ₹16,000.

A's loan A/c    Dr     ₹25,000
    To Bank A/c                     ₹9,000
    To A's Capital A/c             ₹16,000

The correct answer is option 3-
A's loan A/c    Dr     ₹25,000
    To Bank A/c                     ₹9,000
    To A's Capital A/c            ₹16,000

Capital account has the debit balance of 16,000 which will be adjusted against loan. The (25,000 - 16,000) 9000 remaining in loan account of partner will be paid by firm to partner. So, the following journal entry is made for this-
A's loan A/c    Dr     ₹25,000
    To Bank A/c                   ₹9,000
    To A's Capital A/c          ₹16,000