During dissolution, partner P had given a loan of Rs. 40,000 to the firm at 12% per annum, payable within 6 months. The loan is written off at settlement and the partner’s capital account is adjusted. If P’s capital balance before adjustment is Rs. 80,000, what is the new balance in P’s capital account after settlement?

Step-by-step solution

1. Calculate interest for 6 months: Interest = Principal × Rate × Time = 40,000 × 12% × (6/12) = 40,000 × 0.12 × 0.5 = Rs. 2,400.
2. Add interest to the loan amount to get total due from the firm: 40,000 + 2,400 = Rs. 42,400.
3. Since the loan is written off, the amount is transferred to P’s capital account, increasing it: 80,000 + 42,400 = Rs. 1,22,400.
4. Thus the adjusted capital balance of P is Rs. 1,22,400.

Concept tested: Adjustment of partner’s loan on dissolution

Published 24 September 2026 · How this solution was prepared and checked