Retiring Partners’ Capital A/c Dr.
         To Retiring Partners’ Loan A/c

What does the above journal entry highlight?

When retiring partners’ whole amount is treated as loan

The correct answer is option 2- When retiring partners’ whole amount is treated as loan.

The given journal entry highlights that the retiring partners’ whole amount is treated as loan.

The journal entries passed in different situation is as follows-

1) When retiring partners’ whole amount is treated as loan.
Retiring Partners’ Capital A/c Dr.
       To Retiring Partners’ Loan A/c.

2) When retiring partner is paid cash in full.
Retiring Partners’ Capital A/c Dr.
       To Cash/Bank A/c.

3) When retiring partner is partly paid in cash and the remaining amount treated as loan.
Retiring Partners’ Capital A/c Dr. (Total Amount due)
      To Cash/Bank A/c
      To Retiring Partners’ Loan A/c

4) When Loan account is settled by paying in instalment includes principal and interest.
a) For interest on loan-
Interest A/c Dr.
         To Retiring Partner’s Loan A/c

b) For payment of instalment
Retiring Partner’s Loan A/c
    To Cash/Bank A/c