Question

Anwar, Asif and Aslam are partners in a firm. Asif retires from the firm. On his date of retirement, OMR 50,000 becomes due to him. Anwar and Aslam promise to pay him in instalments every year at the end of the year. Prepare Asif s loan account in the following cases.

1. When payment is made four yearly instalments plus interest at 10% per annum on the balance due.                                                                                                         (5 marks)
2. When they agree to pay three yearly instalments of OMR 10,000 each including interest at 10% on the outstanding balance during the first three years and the balance including interest in the fourth year.                                                                                   (5 marks)

Answer 1

a. The equal yearly payments are to be paid along with the interest every year in the first case. Hence the amount of principal part in the installment paid will be =OMR 50,000/4 years = OMR 12,500 per year. Along with this 10% interest on opening balance will also be paid every year. Loan account will be as follows:

b. OMR 10,000 is to be paid every year in this case which will include interest amount. Hence the amount of installment will be paid each year and the accumulated balance at the end will be paid in the last year. Loan account will be as follows: