Partner S had given the firm a loan of Rs. 60,000 at 15% per annum, repayable after 1 year. At the time of dissolution the loan and the accrued interest are written off. Partner S’s capital balance before adjustment is Rs. 1,50,000. What is the balance in S’s capital account after settlement?
Answer
Rs. 81,000
The correct answer is Rs. 81,000 — So partner S’s capital balance after settlement is Rs. 81,000.
Step-by-step solution
- Calculate interest on the loan: 60,000 × 15% × (1/1) = 9,000.
- The firm writes off the loan principal 60,000 and interest 9,000. The total amount written off is 60,000 + 9,000 = 69,000.
- Write‑off reduces the partner’s capital account by the same amount. Therefore new capital = 1,50,000 – 69,000.
- Subtract: 1,50,000 – 69,000 = 81,000.
- So partner S’s capital balance after settlement is Rs. 81,000.
Common mistake: Forgetting to include the interest amount in the write‑off, or adding it to the capital instead of deducting.
Concept tested: Write‑off of loan and interest on dissolution
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