If a loan from a partner appears on the liabilities side of the Balance Sheet of the firm and the Capital Account of such partner shows a debit balance, how is loan dealt with?

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Solution

A partner's loan is not a part of the partner's capital. It is treated like any other loan from a third party, irrespective of the balance in the partner's capital. Hence, it is to be discharged off by the amount realised from the sale of assets.

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