What journal entry will be passed for settlement of loan from a partner of Rs. 50,000 by paying Rs. 45,000 at the time of dissolution of a firm :-
What journal entry will be passed for settlement of loan from a partner of Rs. 50,000 by paying Rs. 45,000 at the time of dissolution of a firm :-
Solution
At the time of dissolution, when a loan from a partner is settled at a discount, the full liability must be written off, the actual payment made, and the gain (discount received) credited to Realisation Account.
Given Information:
- Loan from Partner = Rs. 50,000
- Amount Actually Paid = Rs. 45,000
- Discount Received = Rs. 5,000
The loan liability of Rs. 50,000 needs to be completely closed. Since only Rs. 45,000 is paid, the firm gains Rs. 5,000 (pays less than what was owed). This gain is credited to Realisation Account as it represents a profit on settlement during dissolution.
Journal Entry:
| Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|
| Loan from Partner A/c Dr. | 50,000 | ||
| To Bank A/c | 45,000 | ||
| To Realisation A/c | 5,000 | ||
| (Loan settled at a discount) |
Why Option 1 is correct:
The entry debits the full loan amount (Rs. 50,000) to close the liability completely. Bank A/c is credited with the actual cash paid (Rs. 45,000), and Realisation A/c is credited with the difference (Rs. 5,000) as it represents a gain to the firm during dissolution. All gains and losses on settlement of assets and liabilities are routed through Realisation Account.
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