Question

Ajeet, Mahesh and Sujeet are partners. Mahesh retires from the firm. On that date, Rs. 6,00,000 are payable to him. The amount due to Mahesh will be paid in four yearly instalments with interest @ 12% p.a. on the unpaid balance. Prepare Mahesh's Loan Account.

Hint:

Interest on a retiring partner's loan is always calculated on the outstanding balance at the beginning of the year.

Answer 1

Mahesh is owed Rs. 6,00,000 on the date of retirement. This amount is to be paid in four equal annual instalments. Instalment per year = 6,00,000 ÷ 4 = 1,50,000. Interest is charged at 12% p.a. on the balance outstanding at the beginning of each year. Interest is added to the balance, and then the instalment is deducted. The loan account below shows interest each year, the amount paid, and the remaining balance. 
Mahesh's Loan Account