in dissolution , what is the accounting treatment of loan , which appear in the question`s balance sheet ?

Loan may appear both on the Liabilities side as well as on the Assets side of a firm’s balance sheet. The different situations of loan in case of dissolution is presented in the following diagram.

Summary of Accounting Treatment of Loan in case of Dissolution of Partnership Firm

If Loan Appears on the Liabilities Side of the Balance Sheet

Loan from External Parties

(It implies that the firm has taken loan from the external party)

Loan from Partners

(It implies that the firm has taken loan from its partners)

For Closing  

Loan from External Party A/c

 

Dr.

For Closing  

Transferred to the credit side of Partner’s Loan Account (prepared separately) as ‘Balance b/d

To Realisation A/c

(External Party's loan transferred to Realisation Account)

 

At the time of Repayment of Loan 

At the time of Repayment of Loan 

Realisation A/c

Dr.

Loan from Partner A/c

Dr.

To Cash/Bank A/c

To Cash/Bank A/c

(External Party’s Loan paid-off)

(Loan from Partner paid-off in cash or through cheque)

If Loan Appears on the Assets Side of the Balance Sheet

Loan to External Parties

(It implies that the firm has given loan to the external party)

Loan to Partners

(It implies that the firm has given loan to its partners)

For Closing  

Realisation A/c

 

Dr.

For Closing  

Transferred to the debit side of Partner’s Capital Account as ‘Loan to Partner’

To Loan to External Party’s A/c

(Loan to External Party transferred to Realisation Account)

Loan to Partner A/c

Dr.

 

To Partners’ Capital A/c

 

(Loan to Partner transferred to Partners’ Capital Account)

At the time of Realisation of Loan  (receiving payment)

At the time of Realisation of Loan  (receiving payment)

Cash/Bank A/c

Dr.

The final payment to the partner will be made after adjusting the loan amount from him/her. This means that the final balance to the partner calculated as total of credit side – total of debit side, will automatically be net of partner's loan, when partner's loan is shown on the debit side.

To Realisation A/c

(Received amount of loan given to external party)

 

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Loan appearing on Liabilities side is a liability. It should be treated in the same manner as other liabilities.

If it appears on the Assets side, it would be an asset.

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