CUET UG Accountancy Booster Test 2 Settlement & Loan Account -

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CUET UG Accountancy Booster Test 1 Settlement & Loan Account

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Settlement & Loan Account

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QUESTION 1 OF 20

Mohan's capital balance after adjustments is Rs. 75,000. He is to be paid a lump sum. The journal entry requires debiting Mohan's Capital A/c by Rs. 75,000 and crediting Bank A/c by:

Answer Review

1 Mohan's capital balance after adjustments is Rs. 75,000. He is to be paid a lump sum. The journal entry requires debiting Mohan's Capital A/c by Rs. 75,000 and crediting Bank A/c by:

A Rs. 50,000

B Rs. 75,000

C Rs. 0 (transferred to loan)

D Rs. 1,50,000

💡 Short Explanation

Lump sum means full immediate payment. Entire amount paid through bank. No balance remains unpaid.

✅ Correct Answer Explanation

Since Mohan receives the full amount immediately, Bank A/c is credited with Rs. 75,000. Bank Credit = 75000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Partial payment only.
Option C → No loan transfer in lump sum.
Option D → Double amount incorrect.

🎯 Strategy

Used

Immediate Settlement Logic

Application:

�� Full due equals bank payment.

Final Logic:

�� Lump sum means total cash settlement.

🧠 Memory Trick

"Lump Sum = Full Payment"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Settlement Methods – Page reference may vary by edition.

2 Arrange the typical sequence of recording an instalment payment at the end of a year:
1. Calculate interest on outstanding balance.
2. Debit Retiring Partner's Loan A/c and Credit Cash/Bank for the instalment.
3. Credit Retiring Partner's Loan A/c with interest.

A 1, 2, 3

B 2, 1, 3

C 1, 3, 2

D 3, 1, 2

💡 Short Explanation

Interest calculated first. Interest credited next. Instalment paid finally.

✅ Correct Answer Explanation

Correct sequence: Compute interest Record interest entry Record instalment payment Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Interest entry missing order.
Option B → Payment before interest incorrect.
Option D → Calculation must precede entry.

🎯 Strategy

Used

Sequential Accounting Logic

Application:

�� Arrange instalment process correctly.

Final Logic:

�� Interest recognized before payment.

🧠 Memory Trick

"Calculate → Credit → Pay"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Instalment Settlement – Page reference may vary by edition.

3 Under Section 37, if no specific interest rate is mentioned in the agreement for settling the retiring partner's dues in instalments, the firm must provide:

A The prime lending rate of the bank

B 10% p.a.

C No interest

D 6% p.a.

💡 Short Explanation

Section 37 provides default rate. Applies when agreement silent. Legal rate is 6%.

✅ Correct Answer Explanation

In absence of agreement, Section 37 mandates 6% interest per annum. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → No such provision.
Option B → Incorrect rate.
Option C → Interest mandatory under law.

🎯 Strategy

Used

Legal Provision Recall

Application:

�� Apply Section 37 rule.

Final Logic:

�� Default statutory rate is 6%.

🧠 Memory Trick

"Section 37 = 6%"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Section 37 – Page reference may vary by edition.

4 The profit share option given to an outgoing partner under Section 37 applies when:

A The partner's money is retained and used by the firm to earn profits

B The partner demands a lump sum payment

C The partner takes over a specific asset

D The new profit sharing ratio is specified

💡 Short Explanation

Firm continues using retained amount. Outgoing partner deserves compensation. Profit share option becomes applicable.

✅ Correct Answer Explanation

Section 37 applies where retained dues are used for business profits. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Lump sum settles dues immediately.
Option C → Asset takeover unrelated.
Option D → Profit ratio not relevant.

🎯 Strategy

Used

Legal Concept Understanding

Application:

�� Identify condition for Section 37.

Final Logic:

�� Use of retained funds triggers right.

🧠 Memory Trick

"Retained Money = Profit Share Right"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Profit Share Option – Page reference may vary by edition.

5 Which of the following statements is true for an immediate cash settlement?
1. It clears the firm's liability to the outgoing partner instantly.
2. It requires creating a loan account.
3. It reduces the firm's cash/bank balance.

A 1 and 2

B 1 and 3

C 2 and 3

D 3 only

💡 Short Explanation

Immediate payment clears liability. Cash balance decreases. Loan account unnecessary.

✅ Correct Answer Explanation

Immediate settlement removes liability instantly and reduces bank/cash balance. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Loan account not needed.
Option C → Statement 2 incorrect.
Option D → Statement 1 also correct.

🎯 Strategy

Used

Statement Verification

Application:

�� Identify true effects of immediate payment.

Final Logic:

�� Cash settlement closes liability directly.

🧠 Memory Trick

"Immediate Payment = No Loan"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Immediate Settlement – Page reference may vary by edition.

6 Match the transaction to the corresponding account credited:

List 1	List 2
1. Partner paid in full via cheque	a. Bank A/c
2. Unpaid balance transferred	b. Retiring Partner's Loan A/c (for principal)
3. Interest charged on loan	c. Retiring Partner's Loan A/c (for interest)
4. Cash paid as partial settlement	d. Cash A/c

A 1-b, 2-c, 3-a, 4-d

B 1-a, 2-d, 3-b, 4-c

C 1-c, 2-a, 3-d, 4-b

D 1-d, 2-b, 3-c, 4-a

💡 Short Explanation

Cheque payment credits bank. Unpaid amount transferred to loan. Interest increases loan balance.

✅ Correct Answer Explanation

Correct matching: Cheque payment → Bank Balance transfer → Loan Principal Interest → Loan Interest Cash payment → Cash A/c Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect payment mapping.
Option B → Loan and cash mismatched.
Option D → Multiple wrong pairings.

🎯 Strategy

Used

Matching Logic

Application:

�� Match transaction with credited account.

Final Logic:

�� Option C fully correct.

🧠 Memory Trick

"Cheque-Bank, Balance-Loan"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Settlement Entries – Page reference may vary by edition.

7 Assertion (A): The amount due to the retiring partner is transferred to his Loan Account if not paid immediately.
Reason (R): The existing partnership deed continues without any change upon retirement.

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

B Both A and R are true, but R is not the correct explanation of A.

C A is true, and R is also true but unrelated.

D A is true, but R is false.

💡 Short Explanation

Unpaid dues become loan liability. Partnership deed changes after retirement. Reason statement incorrect.

✅ Correct Answer Explanation

The retiring partner's unpaid amount becomes loan, but reconstitution changes partnership terms. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Reason false.
Option B → Both not true.
Option C → Reason incorrect.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Check retirement effects carefully.

Final Logic:

�� Loan transfer true, deed continuation false.

🧠 Memory Trick

"Retirement Changes Partnership"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Loan Transfer – Page reference may vary by edition.

8 A retiring partner's loan is treated as a liability because:

A It represents an external debt owed by the reconstituted firm

B It is a part of the partners' ongoing capital

C It earns profit shares exclusively

D It is an asset for the continuing partners

💡 Short Explanation

Retired partner no longer owner. Firm owes payment externally. Loan becomes liability.

✅ Correct Answer Explanation

After retirement, dues payable are treated as external liabilities. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Not continuing capital.
Option C → Profit share not guaranteed.
Option D → Liability, not asset.

🎯 Strategy

Used

Liability Recognition

Application:

�� Determine nature of loan account.

Final Logic:

�� Retired partner becomes creditor.

🧠 Memory Trick

"Retired Partner = External Creditor"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Loan Account Nature – Page reference may vary by edition.

9 Total due is Rs. 1,20,000. 25% is paid in cash and the rest transferred to a loan account. What is the loan amount?

A Rs. 30,000

B Rs. 60,000

C Rs. 90,000

D Rs. 1,20,000

💡 Short Explanation

25% paid immediately. Remaining 75% unpaid. Unpaid amount becomes loan.

✅ Correct Answer Explanation

Cash Payment: 120000 × 25% = 30000 Loan Amount: 120000 − 30000 = 90000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Cash portion only.
Option B → Incorrect balance.
Option D → Entire amount not loan.

🎯 Strategy

Used

Partial Settlement Calculation

Application:

�� Total Due − Cash Paid.

Final Logic:

�� Remaining balance transferred to loan.

🧠 Memory Trick

"Remaining Balance = Loan"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Partial Payment – Page reference may vary by edition.

10 When a retiring partner is partly paid in cash, the journal entry includes debiting Retiring Partner's Capital A/c with the total due and crediting:

A Only Cash/Bank A/c

B Both Cash/Bank A/c and Retiring Partner's Loan A/c

C Only Retiring Partner's Loan A/c

D Revaluation A/c

💡 Short Explanation

Part payment made immediately. Remaining amount treated as loan. Two accounts credited.

✅ Correct Answer Explanation

Entry: Cash/Bank credited for immediate payment. Loan Account credited for unpaid balance. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Loan balance ignored.
Option C → Cash payment ignored.
Option D → Revaluation unrelated.

🎯 Strategy

Used

Journal Entry Understanding

Application:

�� Split payment into cash and loan.

Final Logic:

�� Partial settlement requires two credits.

🧠 Memory Trick

"Part Cash, Part Loan"

11 What is the formula/entry logic for recording interest due on the retiring partner's loan?

A Debit Interest A/c, Credit Retiring Partner's Loan A/c

B Debit Retiring Partner's Loan A/c, Credit Interest A/c

C Debit Cash A/c, Credit Interest A/c

D Debit Interest A/c, Credit Cash A/c

💡 Short Explanation

Interest is an expense to firm. Loan liability increases. Loan account credited.

✅ Correct Answer Explanation

Correct entry: Interest A/c Dr. To Retiring Partner's Loan A/c Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reverse entry incorrect.
Option C → Cash not received.
Option D → Cash payment not immediate.

🎯 Strategy

Used

Journal Entry Recall

Application:

�� Interest expense increases liability.

Final Logic:

�� Expense debit, liability credit.

🧠 Memory Trick

"Interest Expense → Loan Increase"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Interest on Loan – Page reference may vary by edition.

12 Which of the following increases the principal owed in the loan account before an instalment is paid?

A Drawing of cash

B Revaluation loss

C Goodwill written off

D Interest credited to the loan account

💡 Short Explanation

Interest added to loan balance. Liability becomes larger. Principal outstanding increases.

✅ Correct Answer Explanation

Interest credited to Loan A/c increases total amount payable. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Cash drawings unrelated.
Option B → Revaluation affects capital.
Option C → Goodwill write-off unrelated.

🎯 Strategy

Used

Loan Balance Analysis

Application:

�� Identify items increasing liability.

Final Logic:

�� Interest accumulation raises loan balance.

🧠 Memory Trick

"Interest Adds to Loan"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Loan Increase – Page reference may vary by edition.

13 A loan is to be repaid in 4 equal yearly instalments of principal plus interest. If the initial loan is Rs. 60,000, what is the principal repayment portion in each instalment?

A Rs. 10,000

B Rs. 12,000

C Rs. 15,000

D Rs. 20,000

💡 Short Explanation

Loan divided equally. Four instalments considered. Principal portion calculated.

✅ Correct Answer Explanation

Calculation: 60000 ÷ 4 = 15000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Too low.
Option B → Incorrect division.
Option D → Applicable for 3 instalments.

🎯 Strategy

Used

Instalment Calculation

Application:

�� Principal ÷ Number of Instalments.

Final Logic:

�� Equal principal repayment each year.

🧠 Memory Trick

"Loan ÷ Instalments"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Instalment Repayment – Page reference may vary by edition.

14 Sequence the calculation for the first instalment payment of a Rs. 60,000 loan with 10% interest, repayable in 3 equal principal instalments:
1. Calculate Interest = Rs. 6,000.
2. Determine principal portion = Rs. 20,000.
3. Total instalment paid = Rs. 26,000.

A 2, 1, 3

B 1, 3, 2

C 3, 2, 1

D 2, 3, 1

💡 Short Explanation

Principal repayment determined first. Interest calculated next. Total instalment found finally.

✅ Correct Answer Explanation

Principal Portion: 60000 ÷ 3 = 20000 Interest: 60000 × 10% = 6000 Total Instalment: 20000 + 6000 = 26000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Total before principal incorrect.
Option C → Reverse order.
Option D → Interest must precede total.

🎯 Strategy

Used

Sequential Instalment Logic

Application:

�� Principal → Interest → Total.

Final Logic:

�� Instalment equals principal plus interest.

🧠 Memory Trick

"Principal + Interest = Instalment"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Instalment Calculation – Page reference may vary by edition.

15 In the Loan Account ledger, the entry 'To Bank A/c' signifies:

A Interest becoming due

B Payment of the instalment

C Opening balance of the loan

D Transfer from the capital account

💡 Short Explanation

Bank payment reduces liability. Instalment paid to partner. Loan account debited.

✅ Correct Answer Explanation

"To Bank A/c" indicates payment made from bank toward the loan. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Interest shown separately.
Option C → Opening balance different entry.
Option D → Capital transfer entry अलग.

🎯 Strategy

Used

Ledger Interpretation

Application:

�� Identify meaning of ledger narration.

Final Logic:

�� Bank entry indicates repayment.

🧠 Memory Trick

"To Bank = Paid"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Loan Account Format – Page reference may vary by edition.

16 Consider statements about the credit side of the Loan A/c:
1. It contains the initial capital transfer.
2. It contains the annual interest.
3. It contains the final cash payout.
Which are correct?

A 1 and 3

B 2 and 3

C 3 only

D 1 and 2

💡 Short Explanation

Loan begins with capital transfer. Interest increases liability. Cash payout appears debit side.

✅ Correct Answer Explanation

Credit side records: Initial transfer Interest additions Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Final payout not credit side.
Option B → Statement 3 incorrect.
Option C → Statement 1 and 2 ignored.

🎯 Strategy

Used

Ledger Side Analysis

Application:

�� Identify credit-side items.

Final Logic:

�� Credit side records increases in liability.

🧠 Memory Trick

"Credit Side = Loan Increase"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Loan Ledger – Page reference may vary by edition.

17 Assertion (A): The balance of the retiring partner's loan account is shown on the liabilities side of the Balance Sheet.
Reason (R): It is an amount payable by the firm to an external party (the retired partner).

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

B Both A and R are true, but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Retired partner becomes creditor. Firm owes outstanding amount. Liability shown in Balance Sheet.

✅ Correct Answer Explanation

The retired partner is treated as an external creditor after retirement. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains.
Option C → Reason true.
Option D → Assertion also true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Connect liability treatment with creditor status.

Final Logic:

�� Outstanding loan is payable externally.

🧠 Memory Trick

"Retired Partner = Liability"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Balance Sheet Treatment – Page reference may vary by edition.

18 At the end of Year 1, Loan = Rs. 40,000, Interest = Rs. 4,000, Paid = Rs. 14,000. The outstanding balance to be carried forward to Year 2 is:

A Rs. 26,000

B Rs. 40,000

C Rs. 30,000

D Rs. 44,000

💡 Short Explanation

Interest added first. Payment deducted afterward. Remaining balance carried forward.

✅ Correct Answer Explanation

Outstanding Balance: [40000+4000-14000=30000] 40000+4000-14000=30000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Interest omitted.
Option B → Payment ignored.
Option D → Payment not deducted.

🎯 Strategy

Used

Loan Balance Calculation

Application:

�� Opening Loan + Interest − Payment.

Final Logic:

�� Remaining balance carried forward.

🧠 Memory Trick

"Add Interest, Less Payment"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Outstanding Loan Balance – Page reference may vary by edition.

📄 Passage

When a retiring partner's loan account is settled by paying in instalments, it includes principal and interest. The journal entries are: (a) For interest on loan: Interest A/c Dr. To Retiring Partner's Loan A/c. (b) For payment of instalment: Retiring Partner's Loan A/c Dr. To Cash/Bank A/c. These entries will be repeated till the loan is paid off, at which point the final closure of the account occurs.

According to the passage, the journal entry for the payment of the instalment debits which account?

A Cash/Bank A/c

B Retiring Partner's Loan A/c

C Interest A/c

D Retiring Partner's Capital A/c

💡 Short Explanation

Instalment reduces liability. Loan account therefore debited. Cash/Bank credited.

✅ Correct Answer Explanation

Entry: Retiring Partner's Loan A/c Dr. To Cash/Bank A/c Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Cash account credited.
Option C → Interest entry separate.
Option D → Capital already transferred.

🎯 Strategy

Used

Passage-Based Entry Analysis

Application:

�� Identify debited account.

Final Logic:

�� Loan repayment reduces liability.

🧠 Memory Trick

"Loan Paid = Loan Debit"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Loan Settlement Entry – Page reference may vary by edition.

📄 Passage

As per the passage, what happens when the final closure occurs?

A The interest entry is reversed

B The loan balance is transferred back to Capital

C The firm must revalue its assets

D The entries for payment and interest are no longer repeated

💡 Short Explanation

Loan fully settled finally. No outstanding liability remains. Further entries unnecessary.

✅ Correct Answer Explanation

Once the loan is fully repaid, instalment and interest entries stop. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → No reversal required.
Option B → Loan not transferred back.
Option C → Revaluation unrelated.

🎯 Strategy

Used

Passage Interpretation

Application:

�� Understand meaning of closure.

Final Logic:

�� Fully settled accounts need no repetition.

🧠 Memory Trick

"Loan Closed = Entries Stop"

📚 Class XII – Accountancy Part 1 – Chapter: Retirement/Death of a Partner – Topic: Final Loan Closure – Page reference may vary by edition.

CUET UG Accountancy Booster Test 1 Settlement & Loan Account

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