Accountancy Part ADissolution of Partnership Firm

At the time of dissolution of a Firm, the Loan from a Partner Account…

At the time of dissolution of a Firm, the Loan from a Partner Account should be

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Paid out separately

A partner's loan is not an outside liability, so it is not transferred to the Realisation Account, nor to his capital or current account. It is paid separately through the bank, after the outside creditors and before any capital is returned. That is why the book's answer to this item is “none of the above”.

NCERT (2026-27 edition):
Test your Understanding – II

Extract from the NCERT textbook

NCERT (2026-27 edition):
Settlement of Accounts – “… (b) Application of Assets The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) In paying the debts of the firm to the third parties; (ii) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner’ loan); (iii) In paying to each partner proportionately what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in their profit sharing ratio.”