Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 28

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Weekly Quiz Competition

Question 1
1 / -0

In the case of downward revaluation of an asset, which is for the first time revalued, ___________ account is debited.

A
Fixed Asset

B
Revaluation Reserve

C
Profit & Loss account

D
General Reserve
Question 2
1 / -0

A, B and C are the partners sharing profits and losses in the ratio of $$5:3:2$$, took a joint life policy of Rs. $$30,000$$. On the death of B what amount will be payable to each partner will be ____________.

A
A- Rs. $$22,000$$ and B- Rs. $$8,000$$

B
A- Rs. $$14,000$$ and B- Rs. $$16,000$$

C
A- Rs. $$15,000$$, B- Rs. $$9,000$$ and C- Rs. $$6,000$$

D
A- Rs. $$10,000$$, B- Rs. $$8,000$$ and C- Rs. $$10,000$$

Solution

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all the partners. The amount of policy is payable by the Insurance Company either on the death or on maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy. Joint Life Policy will be an asset of the firm and deceased partner has a right to share any profit or loss on such policy. So, any claim which is received by the firm on the death of a partner is divided among the partners and credited to their capital accounts in their profit sharing ratio.
In the given question, accounting treatment of joint life policy on the death of B are as follows:
1. Policy value received from the insurance company on B's death
Bank A/c Dr. 30000
To joint life policy A/c 30000
2. Distribution of policy amount received in partners' profit sharing ratio
Joint life policy A/c Dr. 30000
To A's capital 15000
To B's capital 9000
To C's capital 6000
Question 3
1 / -0

A and B are partners sharing profits in the ratio 5 : 3. They admitted C giving him 3/10 share of profit. If C acquires 1/5th share from A and 1/10th from B, the new profit sharing ratio will be _________.

A
$$5:6:3$$

B
$$2:4:6$$

C
$$18:24:38$$

D
$$17:11:12$$

Solution

Old ratio (A : B) = 5 : 3
C admits for 3/10 share
A sacrifices in favour of C = 1/5
B sacrifices in favour of C = 1/10
New ratio = Old ratio - sacrificing ratio
A's new share = (5/8) - (1/5) = 17/40
B's new share = (3/8) - (1/10) = 22/80 or 11/40
C's share = 3/10 or 12/40
Therefore, new share of A, b and C is 17 : 11 : 12
Question 4
1 / -0

Goodwill brought in by incoming partner in cash is taken away by the old partners in ___________.

A
Old Profit Sharing Ratio

B
New Profit Sharing Ratio

C
Sacrificing Ratio

D
Capital Ratio

Solution

In case of admission of a partner, goodwill cannot be raised in the books of the firm because ni consideration in money or money;s worth is paid for it. If incoming partner brings any premium over and above his capital contribution at the time of his admission, such premium should be distributed to other existing partners. When a new partner is admitted to a firm, the old partner generally sacrifice in favour of the new partner in terms of lower profit sharing ratio in the future. Therefore, the premium for goodwill brought in by the new partner shall be given to the existing partners on the basis of profit sacrificing ratio.
Question 5
1 / -0

All of the following except one is the method of recording joint life policy ______________.

A
premium paid charged to revenue

B
JLP Account maintained at the surrender value

C
JLP Account maintained at the surrender value along with the Reserve

D
Surrender value distributed among the partners in the profit sharing ratio

Solution

The surrender value at the time of the death of a partner is distributed among the remaining partners and the legal representative of the deceased partner.
Question 6
1 / -0

On the death of a partner, the amount of Join Life Policy is credited to the Capital Account of _____________.

A
Only the deceased partner

B
All partners including the deceased partner

C
Remaining partners, in the new profit sharing ratio

D
Remaining partners, in the old profit sharing ratio
Question 7
1 / -0

Under annuity basis goodwill is calculated by using ___________.

A
Average profits * years of purchase

B
Super profits * years of purchase

C
Total of the discounted value of expected future benefits

D
Super profit divided with expected rate of retwun

Solution

Under annuity method, goodwill is calculated by super profits only. The only point of difference between these two method is that under annuity method discounted value of total super profit is considered and the same is ignored under super profit method.
Formula of calculating goodwill under annuity method is -
Goodwill = Super profit * Annuity factor i.e., total of the discounted value of expected future benefits.
Question 8
1 / -0

The profits of last three years are Rs.52,000, Rs.49,000 and Rs.55,000. Find out the goodwill of two years purchase.

A
$$Rs.62,000$$

B
$$Rs.1,04,000$$

C
$$Rs.1,46,000$$

D
$$Rs.56,000$$

Solution

Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.
Calculation of goodwill :
1. Average profit = Rs. ( 52000 + 49000 + 55000 ) / 3
= Rs. 156000 / 3
= Rs. 52000
2. Goodwill = Average profir * No. of year's purchase
= Rs. 52000 * 2
= Rs. 104000

Question 9

1 / -0

The profits and losses for the last years are : 2001-02 Losses Rs.8,000; 2002-03 Losses Rs.4,500; 2003-04 Profits Rs.1,00,000 & 2004-05 Profits Rs.74,000.The average capital employed in the business is Rs.2,40,000. The rate of return expected from capital invested as 10%. The remuneration of partners is estimated to be Rs.1,000 per month. Calculate the value of goodwill on the basis of two years' purchase of super profits base on the average of four years.

$$Rs.9,000$$

$$Rs.8.750$$

$$Rs.8,500$$

$$Rs.8,250$$

Solution

Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

Year	Profit before partner’s remuneration	Partner’s remuneration Per annum	Profit after partner’s remuneration
2001-02	(8000)	12000	20000
2002-03	(4500)	12000	16500
2003-04	100000	12000	88000
2004-05	74000	12000	62000

Average profit = (88000 + 62000 - 20000 - 16500)/ 4

= 113500/4

= 28375

Normal profit =( capital employed * normal rate )/ 100

=( 240000 * 10)/100

= 24000

Super profit = Average profit - normal profit

= 28375 - 24000

= 4375

Goodwill = Super profit * No. of year's purchase

= 4375 * 2

= 8750

Question 10
1 / -0

The following trading results are available in respect of the business carried on by a firm:
2001 Loss Rs.10,000
2002 Loss Rs.5,000
2003 Profit Rs.80,000
2004 Profit Rs.55,000
The value of goodwill on the basis of 5 years' purchase of average profit of the business will be ___________.

A
$$Rs.1,25,000$$

B
$$Rs.1,50,000$$

C
$$Rs.1,00,000$$

D
$$Rs.1,20,000$$

Solution

Calculation of goodwill :
1. Average profit = Total profit/ No. of years
Average profit = Rs. (-10000 + [-5000] + 80000 + 55000 ) / 4 years
Average profit = Rs. 120000 / 4 years
Average profit = Rs. 30000
2. Goodwill = Average profit * No. of year's purchase
Goodwill = Rs. 30000 * 5 years
Goodwill = Rs. 150000

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Retirement or Death of a partner Test - 28

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Retirement or Death of a partner Test - 28

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SHARING IS CARING

Question 1

Fixed Asset

Revaluation Reserve

Profit & Loss account

General Reserve

Question 2

A- Rs. $$22,000$$ and B- Rs. $$8,000$$

A- Rs. $$14,000$$ and B- Rs. $$16,000$$

A- Rs. $$15,000$$, B- Rs. $$9,000$$ and C- Rs. $$6,000$$

A- Rs. $$10,000$$, B- Rs. $$8,000$$ and C- Rs. $$10,000$$

Solution

Question 3

$$5:6:3$$

$$2:4:6$$

$$18:24:38$$

$$17:11:12$$

Solution

Question 4

Old Profit Sharing Ratio

New Profit Sharing Ratio

Sacrificing Ratio

Capital Ratio

Solution

Question 5

premium paid charged to revenue

JLP Account maintained at the surrender value

JLP Account maintained at the surrender value along with the Reserve

Surrender value distributed among the partners in the profit sharing ratio

Solution

Question 6

Only the deceased partner

All partners including the deceased partner

Remaining partners, in the new profit sharing ratio

Remaining partners, in the old profit sharing ratio

Question 7

Average profits * years of purchase

Super profits * years of purchase

Total of the discounted value of expected future benefits

Super profit divided with expected rate of retwun

Solution

Question 8

$$Rs.62,000$$

$$Rs.1,04,000$$

$$Rs.1,46,000$$

$$Rs.56,000$$

Solution

Question 9

$$Rs.9,000$$

$$Rs.8.750$$

$$Rs.8,500$$

$$Rs.8,250$$

Solution

Question 10

$$Rs.1,25,000$$

$$Rs.1,50,000$$

$$Rs.1,00,000$$

$$Rs.1,20,000$$

Solution

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