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

Loan from partner A ₹25,000 and his capital account shows a credit balance of ₹ 30,000.

A's loan A/c      ₹25,000
   To Bank A/c              ₹25,000

The correct answer is option 1-
A's loan A/c      ₹25,000
   To Bank A/c              ₹25,000

Partner's loan will be settled by paying it. Bank balance is decreased and firm's liability is also decreased so it is debited. So, the following journal entry is made for this- A's loan A/c Dr. ₹25,000 To Bank A/c  ₹25,000.