Question

On 1st April, 2024, the Balance Sheet of Radha and Mohan showed a loan of ₹10,000 given by Mohan to the firm. The firm was dissolved on this date. Mohan’s loan will be discharged by crediting which of the following account?

• A. Realisation Account
• B. Mohan’s Capital Account
• C. Mohan’s Current Account
• D. Bank Account

Hint:

Partner's loan is a liability, not part of capital. It is repaid from cash or bank before capital settlement.

Answer 1

The Correct Option is D

When a partnership firm is dissolved, it settles its liabilities and obligations before final distribution of assets among the partners.

Loans from partners are not treated as capital contributions; rather, they are classified as external liabilities.

These loans must be settled in priority over capital repayment during the dissolution process.

Here, the loan of ₹10,000 was provided by Mohan to the firm and is shown as a liability in the firm’s Balance Sheet.

This amount must be repaid by the firm using available cash or bank balance, and hence the Bank Account is used for payment.

Therefore, the correct journal entry during dissolution would be:

Mohan’s Loan A/c Dr. ₹10,000 
            To Bank A/c ₹10,000

This means the loan is discharged by debiting the liability and crediting the Bank Account.

Other options are incorrect:

• Realisation Account is used to record disposal of assets and payment of external liabilities, not for a partner’s loan.
• Capital Account and Current Account reflect ownership equity, not external loans.

Thus, (D) is the correct answer.