Question

On dissolution, how you deal with partner’s loan if it appears on the Liabilities side of the Balance Sheet

Answer 1

 If partner's loan appears on the liabilities side of the Balance Sheet then it implies that the partner has forwarded loan to the firm and the firm is liable to pay back the amount to the partner. In such case, partner's loan is paid off after paying all the external liabilities. The partner's loan is not transferred to the Realisation Account, in fact, it is paid in cash. The following accounting entry is passed.-

Partner’s Loan A/c                                                                 Dr.
         To Cash/Bank A/c
(Partner’s loan paid in cash)