Q.X retires from a firm on 1st April 2023. The amount due to him after all adjustments, ₹1,20,000, is left with the firm and is to be paid in three equal yearly instalments of ₹40,000 each, together with interest at 6% p.a. (as fixed by Section 37 of the Indian Partnership Act, 1932, since no rate is agreed) on the balance outstanding during the year. Prepare X's Loan Account for the three years ending 31st March 2024, 2025 and 2026.

Each year, X is paid ₹40,000 of the principal plus interest on whatever balance was outstanding during that year, so the interest amount falls year by year as the loan is paid down.

Interest is calculated each year at 6% p.a. on the balance of the loan OUTSTANDING DURING that year (i.e. the balance at the start of the year, before that year's instalment is paid).

Year 1 (1.4.2023 to 31.3.2024): Opening balance = ₹1,20,000. Interest = 6% × ₹1,20,000 = ₹7,200. Amount paid at year-end = instalment ₹40,000 + interest ₹7,200 = ₹47,200. Balance carried forward = ₹1,20,000 − ₹40,000 = ₹80,000.

Year 2 (1.4.2024 to 31.3.2025): Opening balance = ₹80,000. Interest = 6% × ₹80,000 = ₹4,800. Amount paid at year-end = ₹40,000 + ₹4,800 = ₹44,800. Balance carried forward = ₹80,000 − ₹40,000 = ₹40,000.

Year 3 (1.4.2025 to 31.3.2026): Opening balance = ₹40,000. Interest = 6% × ₹40,000 = ₹2,400. Amount paid at year-end = ₹40,000 + ₹2,400 = ₹42,400. Balance carried forward = ₹40,000 − ₹40,000 = Nil.

X's Loan Account

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