Question

On dissolution of a firm, Partner's Loan Account is transferred to ________ Account.

Hint:

Remember the settlement order on dissolution: 1. Realisation expenses $\rightarrow$ 2. Outside liabilities $\rightarrow$ 3. Partner's Loan $\rightarrow$ 4. Partner's Capital.

Answer 1

Step 1: Understanding the Concept:
During the dissolution of a partnership firm, there is a specific order in which liabilities are settled. First, all external (outside) liabilities are paid off. After that, any loans advanced by the partners to the firm are repaid before returning their capital balances.

Step 2: Detailed Explanation:
A partner's loan is not considered an external liability, hence it is not transferred to the Realisation Account. Instead, a separate Partner's Loan Account is maintained. Once outside liabilities are settled, this loan is paid off directly. The journal entry for payment is:
Partner's Loan A/c \dots Dr.
\hspace*{1cm} To Cash/Bank A/c
Therefore, the balance of the Partner's Loan Account is settled through or transferred to the Cash or Bank Account.

Step 3: Final Answer:
Partner's Loan Account is transferred to Cash/Bank Account.