Q.The amount due to a deceased partner's executor after all adjustments is ₹1,20,000. The executor is paid ₹40,000 immediately in cash, and the balance is transferred to an Executor's Loan Account, to be repaid in four equal annual instalments of ₹20,000 each (principal), together with interest @6% p.a. on the outstanding balance, the partnership deed being silent on the rate of interest. Compute the total payment made to the executor in the first two years, and show the working.

Once a balance is carried forward as an Executor's Loan, interest must be added every year on whatever principal is still outstanding, so each year's total payment is the fixed principal instalment plus a shrinking interest amount. …

Step 1 — Balance transferred to the Executor's Loan Account. Total due = ₹1,20,000. Paid immediately = ₹40,000. Balance = 1,20,000 − 40,000 = ₹80,000.

Step 2 — Rate of interest. Since the deed is silent, Section 37 of the Indian Partnership Act, 1932 entitles the executor to interest @6% p.a. on the amount remaining unpaid (here computed on the interest basis, as instructed).

Step 3 — Year 1. Interest on the opening balance of ₹80,000 @6% p.a. = ₹4,800. Total paid at the end of Year 1 = principal instalment ₹20,000 + interest ₹4,800 = ₹24,800. Balance carried forward = 80,000 − 20,000 = ₹60,000.

Step 4 — Year 2. Interest on the remaining ₹60,000 @6% p.a. = ₹3,600. Total paid at the end of Year 2 = 20,000 + 3,600 = ₹23,600. Balance carried forward = 60,000 − 20,000 = ₹40,000 (to continue reducing in Years 3 and 4, not asked here). …

A common mistake is calculating interest on the ORIGINAL ₹80,000 balance in both years instead of reducing the principal after each instalment before computing the next year's interest — t …