Q.In the Balance Sheet of a reconstituted firm prepared after a partner's death, on which side does the Executor's Loan Account appear, and how does its nature differ from the continuing partners' Capital Accounts shown on the same side?

Both items appear on the same side of the Balance Sheet because both are amounts the firm owes, but they represent fundamentally different kinds of claim on the business.

Where it appears. The Executor's Loan Account is shown on the Liabilities side of the firm's Balance Sheet, exactly like the continuing partners' Capital Accounts, since both represent amounts the firm currently owes.

How it differs in nature from the Capital Accounts.

• Capital Accounts represent the continuing partners' own ownership stake in the firm. The balance fluctuates with profits, losses, drawings, and further capital introduced; it does not carry a fixed contractual obligation to pay interest at a set rate (unless the deed specifically provides for interest on capital), and it is not scheduled for repayment on any fixed date — a partner's capital normally stays invested in the business for as long as they remain a partner.
• The Executor's Loan Account, by contrast, is a genuine outside liability — the deceased partner's estate is no longer a partner in the firm, and has no ownership stake or say in the business going forward. This balance is a fixed, interest-bearing debt (at the rate the deed provides, or the statutory 6% p.a. under Section 37 where the deed is silent) that MUST be repaid according to the agreed schedule — usually in equal annual instalments — irrespective of whether the firm makes a profit or a loss in the years it remains outstanding. …

Students sometimes describe the Executor's Loan Account as though it were still a form of "partner's capital" simply because it originated from a partner's capital balance — once the amount is transferred to a Loan Account, it is legally and accountingly a DEBT owed to an outside party (the executor), not a …