if firm has paid Anand 's loan 5000 in full settlement 5500 what entry passed in realisation account??

Question

Answer

The point to be noted is to see whether anand is the parnter of the firm or not. If he is a partner then it is not to taken anywhere in the realisation account. If he not the partner then it is treated as the external liability and the treatment is done as I mentioned previously. If he is a partner then it is recordedin bank account on the credit side

Answer

First we have to take it on the credit side of the realisation account as By Anand 's loan a/c and the amount 5000 and while the adjustment we have to take on the debit side as To bank a/c Anand 's loan and the amount as 5500.

Answer

Realisation Account Entry for Full Settlement of Anand's Loan:

When a firm pays off a loan on behalf of an individual or entity, it needs to record the transaction in its books of accounts. In this case, the firm has paid Anand's loan of 5000 in full settlement, even though the agreed settlement amount was 5500. Let's analyze the entry that would be passed in the Realisation Account in detail.

1. Realisation Account:
Realisation Account is a nominal account that is opened to record all the assets and liabilities of the firm at the time of dissolution or retirement of a partner. It helps in determining the profit or loss arising from the realization of assets and settlement of liabilities. The Realisation Account is credited with all the assets realized and expenses paid, while it is debited with all the liabilities settled and losses incurred.

2. Entry for Full Settlement of Anand's Loan:
In this case, the firm has paid Anand's loan of 5000 in full settlement, even though the agreed settlement amount was 5500. The entry to be passed in the Realisation Account is as follows:

Realisation Account
- Debit: Anand's Loan (5000)
- Debit: Loss on Settlement of Anand's Loan (500)
- Credit: Cash (5500)

Explanation:
- The Realisation Account is debited with the amount of Anand's Loan (5000) to reduce the liability from the books of accounts.
- Additionally, a Loss on Settlement of Anand's Loan (500) is also debited to record the loss incurred by the firm due to the settlement being lower than the agreed amount.
- The Cash account is credited with the actual amount paid in full settlement, i.e., 5500, to reflect the decrease in the firm's cash balance.

Conclusion:
The Realisation Account entry for the full settlement of Anand's loan of 5000, even though the agreed settlement amount was 5500, would be a debit of 5000 to Anand's Loan, a debit of 500 to Loss on Settlement of Anand's Loan, and a credit of 5500 to Cash. This entry helps in correctly recording the settlement of the loan and the resulting loss in the Realisation Account.

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