CUET UG Accountancy Booster Test 3 Settlement & Loan Account -

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CUET UG Accountancy Booster Test 2 Settlement & Loan Account

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Settlement & Loan Account

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QUESTION 1 OF 20

A retiring partner is owed Rs. 50,000 Capital, Rs. 10,000 Revaluation Profit, and Rs. 15,000 Goodwill. If a lump sum payment is made to fully settle the account, how much cash is paid?

Answer Review

1 A retiring partner is owed Rs. 50,000 Capital, Rs. 10,000 Revaluation Profit, and Rs. 15,000 Goodwill. If a lump sum payment is made to fully settle the account, how much cash is paid?

A Rs. 50,000

B Rs. 60,000

C Rs. 75,000

D Rs. 65,000

💡 Short Explanation

All dues added together. Lump sum means full immediate payment. Entire claim settled at once.

✅ Correct Answer Explanation

Calculation: [50000+10000+15000=75000] 50000+10000+15000=75000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Only capital considered.
Option B → Goodwill omitted.
Option D → Revaluation ignored partially.

🎯 Strategy

Used

Total Claim Calculation

Application:

�� Add all components payable.

Final Logic:

�� Full settlement equals total dues.

🧠 Memory Trick

"Capital + Profit + Goodwill"

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

2 Match the concepts relating to instalment payments:

List 1	List 2
1. Equal yearly instalments including interest	a. Requires annuity table for calculation
2. Equal yearly principal instalments plus interest	b. Interest decreases but principal paid is constant
3. Half-yearly instalments	c. Interest is calculated for 6 months
4. Unpaid balance	d. Decreases with every payment

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

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

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

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

💡 Short Explanation

Equal instalments need annuity tables. Constant principal reduces interest gradually. Unpaid balance keeps reducing.

✅ Correct Answer Explanation

Correct matching: Equal Instalments → Annuity Table Equal Principal → Constant Principal Half-Yearly → 6 Months Interest Unpaid Balance → Reduces after payment Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Annuity incorrectly matched.
Option B → Unpaid balance mismatch.
Option C → Multiple incorrect pairings.

🎯 Strategy

Used

Matching Logic

Application:

�� Match instalment concepts carefully.

Final Logic:

�� Option D fully correct.

🧠 Memory Trick

"Annuity = Equal Instalment"

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

3 Assertion (A): The outgoing partner can claim interest at 6% p.a. on the unpaid balance under Section 37.
Reason (R): The remaining partners are using the outgoing partner's capital to run the reconstituted firm.

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

Unpaid amount remains with firm. Firm continues using funds. Law allows 6% interest.

✅ Correct Answer Explanation

Section 37 protects the outgoing partner whose retained balance continues to finance business operations. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

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

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Connect retained capital with compensation.

Final Logic:

�� Continued use of funds justifies interest.

🧠 Memory Trick

"Retained Funds Earn Interest"

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

4 If an outgoing partner opts for a profit share instead of 6% interest on a retained balance of Rs. 50,000, and the total firm capital including his balance is Rs. 2,00,000 with a profit of Rs. 40,000, what is his proportionate profit share?

A Rs. 5,000

B Rs. 10,000

C Rs. 15,000

D Rs. 8,000

💡 Short Explanation

Profit share proportional to retained capital. Compare retained balance with total capital. Apply ratio to profit.

✅ Correct Answer Explanation

Calculation: (50000 / 200000) × 40000 = 10000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Half calculation.
Option C → Excess share.
Option D → Incorrect proportion.

🎯 Strategy

Used

Profit Share Ratio Calculation

Application:

�� Retained Capital ÷ Total Capital × Profit.

Final Logic:

�� Share in profit = Rs. 10,000.

🧠 Memory Trick

"Capital Ratio × Profit"

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

5 When a retiring partner is paid off entirely in cash, which account completely closes without creating any new liability?

A Suspense Account

B Cash Account

C Retiring Partner's Capital Account

D General Reserve Account

💡 Short Explanation

Full payment settles all dues. No loan account created. Capital account closes fully.

✅ Correct Answer Explanation

Immediate cash settlement closes the retiring partner's capital account completely. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Suspense unrelated.
Option B → Cash reduces but not closed.
Option D → Reserve unrelated.

🎯 Strategy

Used

Account Closure Logic

Application:

�� Identify account fully settled.

Final Logic:

�� No outstanding liability remains.

🧠 Memory Trick

"Full Cash = Capital Closed"

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

6 If the firm takes a bank overdraft to settle a retiring partner's claim of Rs. 80,000 immediately, the accounting equation effect is:

A Assets increase, Capital decreases

B Assets decrease, Liabilities decrease

C Liabilities increase, Capital increases

D Liabilities increase, Capital decreases

💡 Short Explanation

Bank overdraft creates liability. Retiring partner's capital removed. Capital decreases accordingly.

✅ Correct Answer Explanation

Settlement through overdraft: Liability increases due to overdraft. Partner's capital liability settled. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assets do not increase.
Option B → Liability actually increases.
Option C → Capital decreases, not increases.

🎯 Strategy

Used

Accounting Equation Analysis

Application:

�� Observe impact on liabilities and capital.

Final Logic:

�� Overdraft raises liabilities.

🧠 Memory Trick

"Overdraft = Liability Increase"

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

7 The transfer of a retiring partner's final dues to a loan account signifies:

A The conversion of an owner's equity into an external liability

B The creation of a hidden goodwill

C The dissolution of the partnership firm

D The revaluation of current assets

💡 Short Explanation

Retired partner no longer owner. Firm now owes debt externally. Equity becomes liability.

✅ Correct Answer Explanation

After retirement, the unpaid amount is treated as a creditor's loan. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Hidden goodwill unrelated.
Option C → Retirement ≠ dissolution.
Option D → Revaluation unrelated.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify nature of loan conversion.

Final Logic:

�� Ownership converts into debt.

🧠 Memory Trick

"Retired Partner = Creditor"

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

8 Identify the correct statements concerning liability recognition:
1. The retiring partner becomes a creditor.
2. The loan is an internal reserve.
3. The loan appears on the asset side.
4. It earns a mandatory return or interest.

A 1 and 2

B 1 and 4

C 2 and 3

D 3 and 4

💡 Short Explanation

Retiring partner treated as creditor. Loan earns interest. Loan shown as liability.

✅ Correct Answer Explanation

The unpaid amount becomes an external liability carrying interest. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Loan not reserve.
Option C → Asset side incorrect.
Option D → Statement 3 false.

🎯 Strategy

Used

Statement Verification

Application:

�� Check liability characteristics.

Final Logic:

�� Only statements 1 and 4 correct.

🧠 Memory Trick

"Loan = Liability + Interest"

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

9 Arrange the sequence for a partial payment settlement:
1. Transfer remaining balance to Retiring Partner's Loan A/c.
2. Ascertain total amount due in Capital A/c.
3. Pay agreed cash/bank amount.

A 1, 2, 3

B 3, 1, 2

C 2, 1, 3

D 2, 3, 1

💡 Short Explanation

Total dues identified first. Cash payment made next. Remaining balance becomes loan.

✅ Correct Answer Explanation

Correct order: Determine total dues Pay cash amount Transfer unpaid balance to loan Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Loan transfer too early.
Option B → Amount due must first be known.
Option C → Cash payment should precede loan transfer.

🎯 Strategy

Used

Sequential Settlement Logic

Application:

�� Arrange settlement process correctly.

Final Logic:

�� Cash payment before loan conversion.

🧠 Memory Trick

"Find → Pay → Transfer"

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

10 If a partner retires mid-year, the balance transferred to the loan account will include:

A Only the opening capital balance

B Capital balance plus previous year's drawings

C Capital balance adjusted for reserves, revaluation, and intervening profit

D Only the revaluation profit

💡 Short Explanation

Final settlement requires all adjustments. Revaluation and reserves included. Interim profit also added.

✅ Correct Answer Explanation

The loan balance reflects the final adjusted amount due to the retiring partner. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Adjustments ignored.
Option B → Incomplete treatment.
Option D → Only one component considered.

🎯 Strategy

Used

Final Claim Determination

Application:

�� Include all retirement adjustments.

Final Logic:

�� Loan reflects complete settlement value.

🧠 Memory Trick

"Adjusted Capital Becomes Loan"

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

11 The journal entry 'Interest A/c Dr. to Retiring Partner's Loan A/c' is based on the accounting principle that:

A Interest is an asset for the firm

B Interest is an expense for the firm and increases the liability

C Interest reduces the retiring partner's claim

D Interest is paid immediately in cash

💡 Short Explanation

Interest is business expense. Liability toward retiring partner increases. Loan account credited accordingly.

✅ Correct Answer Explanation

Entry: Interest A/c Dr. To Retiring Partner's Loan A/c Interest expense increases the amount payable. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Interest not an asset.
Option C → Claim actually increases.
Option D → Cash payment not immediate.

🎯 Strategy

Used

Journal Entry Logic

Application:

�� Expense debit and liability credit.

Final Logic:

�� Interest increases firm obligation.

🧠 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 An initial loan of Rs. 60,000 is settled in 3 equal yearly instalments of Rs. 20,000 plus 12% interest on the outstanding balance. What is the total loan balance immediately after the first year's interest is added (before the payment)?

A Rs. 67,200

B Rs. 60,000

C Rs. 47,200

D Rs. 52,800

💡 Short Explanation

Interest calculated on opening loan. Interest added before payment. Outstanding temporarily increases.

✅ Correct Answer Explanation

Interest: 60000 × 12% = 7200 Balance before payment: 60000 + 7200 = 67200 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Interest ignored.
Option C → Payment already deducted.
Option D → Incorrect interest computation.

🎯 Strategy

Used

Loan Balance Calculation

Application:

�� Opening Loan + Interest.

Final Logic:

�� Balance before instalment = Rs. 67,200.

🧠 Memory Trick

"Add Interest Before Payment"

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

13 Assertion (A): When calculating equal yearly instalments including interest (annuity method), the principal repayment portion increases each year.
Reason (R): As the outstanding balance decreases, the interest component drops, leaving a larger portion of the fixed instalment for principal repayment.

A A is true, but R is false.

B A is false, but R is true.

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

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

💡 Short Explanation

Fixed instalment remains same. Interest portion gradually falls. Principal portion therefore rises.

✅ Correct Answer Explanation

Under annuity method: Outstanding balance decreases yearly. Interest declines accordingly. Remaining instalment amount repays more principal. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

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

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Analyze annuity repayment structure.

Final Logic:

�� Lower interest means higher principal repayment.

🧠 Memory Trick

"Interest Falls, Principal Rises"

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

14 Consider the calculation of interest on a retiring partner's loan. Which statements are valid?
1. Interest is calculated on the original loan amount every year.
2. Interest is calculated on the unpaid balance at the beginning of the year.
3. Paid interest decreases the firm's net profit.

A 1 and 2

B 2 and 3

C 1 and 3

D 1, 2, and 3

💡 Short Explanation

Interest based on unpaid balance. Interest is business expense. Net profit decreases.

✅ Correct Answer Explanation

Interest is computed on the outstanding balance, not always on original loan. Hence, statements 2 and 3 are correct.

❓ Why Other Options Are Incorrect

Option A → Statement 1 incorrect.
Option C → Interest not on original amount always.
Option D → Statement 1 false.

🎯 Strategy

Used

Statement Verification

Application:

�� Analyze loan interest principles.

Final Logic:

�� Outstanding balance basis used.

🧠 Memory Trick

"Interest on Balance, Not Original"

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

15 In a retiring partner's loan ledger, the debit side reflects:

A The firm's increasing obligation to the partner

B The addition of yearly interest

C The discharge or settlement of the obligation

D The transfer of accumulated profits

💡 Short Explanation

Debit side records payments. Liability reduces through settlement. Obligation gradually discharged.

✅ Correct Answer Explanation

Payments made toward the loan are entered on the debit side. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Liability increase shown credit side.
Option B → Interest credited.
Option D → Profits unrelated.

🎯 Strategy

Used

Ledger Interpretation

Application:

�� Identify meaning of debit side.

Final Logic:

�� Debit side reduces liability.

🧠 Memory Trick

"Debit Side = Payments"

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

16 Match the Ledger Posting in the Retiring Partner's Loan A/c.

List 1	List 2
1. By Retiring Partner's Capital A/c	a. Original principal transferred
2. By Interest A/c	b. Yearly interest added
3. To Cash/Bank A/c	c. Instalment paid
4. To Balance c/d	d. Closing outstanding balance

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

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

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

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

💡 Short Explanation

Capital transfer creates loan. Interest increases balance. Cash payment reduces liability.

✅ Correct Answer Explanation

Correct matching: Capital A/c → Original Principal Interest A/c → Interest Added Cash/Bank → Instalment Paid Balance c/d → Outstanding Balance Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Principal incorrectly matched.
Option C → Multiple mismatches.
Option D → Interest incorrectly paired.

🎯 Strategy

Used

Matching Logic

Application:

�� Match ledger entries with meanings.

Final Logic:

�� Option A fully correct.

🧠 Memory Trick

"Capital Creates Loan"

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

17 Until the final closure of the loan account, the outstanding balance on the liability side of the Balance Sheet signifies:

A The current capital of the retired partner

B A long-term or short-term external debt of the reconstituted firm

C A fictitious asset

D An unrecorded liability

💡 Short Explanation

Retired partner becomes creditor. Outstanding amount remains payable. Treated as external liability.

✅ Correct Answer Explanation

The unpaid balance is shown as a liability until fully repaid. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Not continuing capital.
Option C → Liability not fictitious.
Option D → Liability already recorded.

🎯 Strategy

Used

Balance Sheet Interpretation

Application:

�� Identify nature of outstanding balance.

Final Logic:

�� Loan balance represents debt.

🧠 Memory Trick

"Outstanding Loan = Liability"

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

18 Sequence the steps to find the closing outstanding balance of the loan account for the year:
1. Deduct the instalment paid.
2. Note the opening balance.
3. Add the calculated interest.

A 1, 2, 3

B 3, 1, 2

C 2, 1, 3

D 2, 3, 1

💡 Short Explanation

Opening balance considered first. Interest added next. Payment deducted finally.

✅ Correct Answer Explanation

Correct sequence: Opening Balance Add Interest Less Instalment Paid Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Payment cannot come first.
Option B → Opening balance omitted initially.
Option C → Interest must precede payment deduction.

🎯 Strategy

Used

Sequential Loan Logic

Application:

�� Arrange closing balance steps.

Final Logic:

�� Interest added before repayment deduction.

🧠 Memory Trick

"Open → Add → Deduct"

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

📄 Passage

For example, Amrinder, Mahinder and Joginder are partners. Mahinder retires. Rs. 60,000 becomes due to him. Amrinder and Joginder promised to pay him in instalments every year. If payment is made in four equal yearly instalments including interest @ 12% p.a., the annual instalment is calculated using annuity tables (Rs. 19,754). The balance of the retiring partner's loan account is shown on the liabilities side until the final closure in Year 4, where the account balances exactly to zero.

Based on the passage, the use of an annuity table implies that the firm is paying:

A Only the principal amount

B Decreasing instalment amounts every year

C Fixed, equal yearly instalments that include both principal and interest

D A lump sum at the end of four years

💡 Short Explanation

Annuity method uses equal instalments. Instalments include interest and principal. Payment amount remains fixed.

✅ Correct Answer Explanation

Annuity tables calculate equal yearly payments covering both loan principal and interest. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Interest included also.
Option B → Instalments remain fixed.
Option D → Not lump sum method.

🎯 Strategy

Used

Passage Interpretation

Application:

�� Understand annuity method meaning.

Final Logic:

�� Equal instalments throughout period.

🧠 Memory Trick

"Annuity = Equal Instalments"

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

📄 Passage

What guarantees the final closure of Mahinder's loan account by the end of Year 4?

A The final instalment perfectly offsets the remaining principal plus the 4th year's interest

B The firm waives the interest for the final year

C Mahinder writes off the remaining debt

D The capital account is reopened

💡 Short Explanation

Final payment clears balance fully. Interest also included. Loan account becomes zero.

✅ Correct Answer Explanation

The last instalment settles both outstanding principal and final year's interest. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Interest not waived.
Option C → No write-off mentioned.
Option D → Capital account not reopened.

🎯 Strategy

Used

Passage-Based Analysis

Application:

�� Identify reason for account closure.

Final Logic:

�� Final instalment balances account completely.

🧠 Memory Trick

"Final Instalment Closes Loan"

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

CUET UG Accountancy Booster Test 2 Settlement & Loan Account

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