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 debit balance of ₹26,000.
Answer & explanation
Correct answer: option 1
The correct answer is option 1-
A's loan A/c Dr. ₹25,000
Bank A/c Dr. ₹1,000
To A's Capital A/c ₹26,000
1,000 will be brought by partner in bank account of firm. His capital balance is debit and loan has a balance of 26,000 so the 25,000 is adjusted against loan and remaining balance (26,000 - 25,000) i.e. 1,000 is brought by partner to the firm to make his capital balance nil. So, the following journal entry is made for this-
A's loan A/c Dr. ₹25,000
Bank A/c Dr. ₹1,000
To A's Capital A/c ₹26,000