Question

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

Reason (R): Loan from a partner is not an outside liability. It is repaid prior to repayment of Capitals of partners.

In the context of the above two statements, which of the following is correct:

Options

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

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation:

Loan from a partner is not transferred to the Realisation Account because it is not an outside liability of the firm. It is repaid after all outside liabilities are settled but before the partners’ capital accounts are settled. Hence, loan from a partner is treated differently and settled separately, confirming both statements are true and the reason correctly explains the assertion.