Question

Assertion (A): Loan from a partner is not transferred to Realisation Account.

Reason (R): Loan from a partner is not an outside liability but is paid before repayment of capital.

In the context of the above two statements, which option is correct?

Options

• Assertion (A) and Reason (R) are correct, but the Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Only Assertion (A) is correct.

• Assertion (A) is not correct, but the Reason (R) is correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

Explanation:

A loan from a partner is an internal liability, not an external debt, so it is never transferred to the Realisation Account and is instead settled through a separate account. Under Section 48 of the Indian Partnership Act, 1932, this internal loan holds a unique priority where it must be paid back right after outside debts are cleared but strictly before any partner’s capital is repaid, making the reason the correct explanation for the assertion.