Question

On dissolution, how you deal with partner’s loan if it appears on the (a) Assets side of the Balance Sheet (b) Liabilities side of the Balance Sheet

Answer 1

Answer:

(a) When loan amount is shown in the assets side of the balance sheet, it indicate that the loan has been granted by the firm to the partner. In that case, at the time of dissolution the amount of loan will be transferred to the concerned partner’s capital account. The following Journal Entry will be passed (b) When the amount of loan appears in the liabilities side of the balance sheet, it indicate that the respective partner or partners have given loan to the firm. In this case, partner’s loan will be paid off after paying all the external liabilities first. Here, it is worth mentioning that the partner’s loan will not be transferred to the realisation account, in fact, it will be paid in cash. The following accounting entry will be passed in this regard .