Partner R had given a loan of Rs. 50,000 to the firm at 10% per annum, repayable after 9 months. At dissolution the loan and the accrued interest are written off. R’s capital balance before adjustment is Rs. 1,10,000. What is the balance in R’s capital account after settlement?
Answer
Rs. 56,250
The correct answer is Rs. 56,250 — Hence, the balance in R’s capital account after settlement is Rs. 56,250.
Step-by-step solution
- Calculate interest for 9 months: Interest = Principal × Rate × Time = 50,000 × 10% × 9/12 = Rs. 3,750.
- Total amount of loan and interest to be written off = 50,000 + 3,750 = Rs. 53,750.
- Writing off a partner’s loan reduces his capital account by the same amount.
- New capital balance = Original capital – Amount written off = 1,10,000 – 53,750 = Rs. 56,250.
- Hence, the balance in R’s capital account after settlement is Rs. 56,250.
Common mistake: Adding the loan amount to capital instead of subtracting it
Concept tested: Settlement of partner’s loan on dissolution
Published · How this solution was prepared and checked
← All Dissolution of Partnership Firm questions