Question

On dissolution, how will you deal with partner's loan if appears on the

(a) assets side of the balance sheet,

(b) liabilities side of balance sheet.

Answer 1

(a) When loan amount is shown in the assets side of the balance sheet, it indicate that the loan has been granted by the firm to the partner. In that case, at the time of dissolution the amount of loan will be transferred to the concerned partner's capital account. The following Journal Entry will be passed:

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F.}& \text{Amt. (Dr.)}& \text{Amt. (Cr.)}\\ & \text{Partner's Capital A/c}Dr.& & & \\ & \text{To Partner's Loan A/c}& & & \\ & \text{(Partner's loan amount is transferred to}& & & \\ & \text{partner's capital account)}& & & \end{array}$

(b) When the amount of loan appears in the liabilities side of the balance sheet, it indicate that the respective partner or partners have given loan to the firm. In this case, partner's loan will be paid off after paying all the external liabilities first. The following accounting entry will be passed in this regard

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F.}& \text{Amt. (Dr.)}& \text{Amt. (Cr.)}\\ & \text{Partner's Loan A/c}Dr.& & & \\ & \text{To Cash or Bank A/c}& & & \\ & \text{(Loan taken by partner is paid in cash)}& & & \end{array}$