Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 29

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Weekly Quiz Competition

Question 1
1 / -0

At the time of retirement of a partner, firm gets _________ from the insurance company against the Joint Life Policy taken by the firm.

A
Policy Amount

B
Surrender Value of the Retiring partner

C
Policy Value for the retiring partner and Surrender Value for the rest

D
Surrender Value for all the partners

Solution

A partnership firm may decide to take a joint life insurance policy on the lives of all the partners. The firm pays the premium and the amount of policy is payable to the firm on the death or maturity of the policy, whichever is earlier in case of retirement. The objective is to minimize financial hardships during the payment of a large sum of capital on the retirement of a partner.
In case of a retirement, the firm receives surrender value of policy for all partners.
Question 2
1 / -0

Under capitalization basis goodwill is calculated by using __________.

A
Average profits * no. of years of purchase

B
Super profits * years of purchase

C
Total of the discounted vale of expected benefits

D
Super profit divided with expected rate of return

Solution

Under capitalisation basis, value of whole business is determined applying normal rate of return. If such value (arrived at by applying normal rate of return) is higher than the capital employed in the business, then the difference is gooodwill.
Formula for calculating goodwill under capitalisation basis is -
Goodwill = Super profit divided with expected rate of return.
Question 3
1 / -0

X and Y share profits and losses in the ratio of 2: 1. They take Z as a partner and the new profit sharing ratio becomes 3 : 2: 1. Z brings Rs. 9,000 as a premium for goodwill.The full value of goodwill will be ________.

A
$$Rs.9,000$$

B
$$Rs.36,000$$

C
$$Rs.54,000$$

D
$$Rs.48,000$$

Solution

Z is dmitted for 1/6th share of goodwill
Z brings Rs. 9000 as a premium of Goodwill is only 1/6th share of total goodwill
Therefore, total goodwill of the firm is-
Goodwill = Goodwill brought in by Z * Reciprocal of Z's share of profit
Goodwill = Rs. 9000 * (6/1) = Rs. 54000
Question 4
1 / -0

Goodwill of a firm of A and B is valued at 30,000. It is appearing in the books at 12,000. C is admitted for 1/4th share. The amount of goodwill, which he is supposed to bring, will be:

A
4,500

B
3,000

C
7,500

D
10,500

Solution

Goodwill of the firm is valued at = Rs. 30,000
Existing Goodwill = Rs. 12,000
Goodwill to be brought in by C = Rs. (30,000 - 12,000) x 1/4 = Rs. 4500
Question 5
1 / -0

The capital of B and D are! 90,000 and! 30,000 respectively with the profit sharing ratio 3 : 1. They decide to change the ratio to 5 : 3. On the date of change Goodwill is valued at! 84,000. B and Ds capital will be credited by _________.

A
$$63,000$$ and $$21,000$$

B
$$50,000$$ and $$34,000$$

C
$$52,500$$ and $$31,500$$

D
$$60,000$$ and $$24,000$$

Solution

In case of a change in profit sharing ratio, the value of goodwill should be determined and preferably adjusted through capital accounts of the partners.
For the adjustment of goodwill, it is first raised in old ratio of partners and then write-off in new ratio.
Therefore, on the date of change in profit sharing ratio, goodwill alued at Rs. 84000 credited to B and D's capital account is -
B's capital account = Rs. 84000 * (3/4) = Rs. 63000
D's capital account = Rs. 84000 * (1/4) = Rs. 21000
Question 6
1 / -0

A and B are partners with the capital Rs.50,000 and Rs.40,000 respectively.They share profits and losses equally. C is admitted on bringing Rs.50,000 as capital only and nothing was brought against goodwill. Goodwill in Balance sheet of Rs.10,000 is revalued as 30,000.What will be value of goodwill in the books after the admission of C?

A
$$Rs.60,000$$

B
$$Rs.30,000$$

C
$$Rs.20,000$$

D
$$Rs.15,000$$

Solution

When a new partner is admitted into the partnership, assets are revalued and liabilities are reassessed. A revaluation account is opened for the purpose. This account is debited with all reduction in the value of assets and increase in liabilities and credited with increase in the value of assets and decrease in the value of liabilities.
Revalued figure of assets and liabilities are then shown in the balance sheet after admission of new partner.
Question 7
1 / -0

A, B and C were partners sharing profit and losses in the ratio of 3 :2 :1. A retired and firm received the joint life policy Rs. 12,000. The Joint Life Policy Account appearing in the balance sheet at Rs. 20,000. What will be the treatment for the balance in Joint Life Policy i.e., Rs.8,000.

A
Rs. 8,000 credited to partner's current account in profit sharing ratio.

B
Rs. 8,000 debited to revaluation account

C
Rs. 8,000 debited to partner's capital account in profit sharing ratio.

D
Either (b) or (c)

Solution

The profit on the joint life policy i.e., RS-8,000 will either be debited to revaluation account or distributed to partners capital account in profit sharing ratio.
Either way through revaluation or through transferring in partners capital account its distributed to the partners in their profit sharing ratio.
Question 8
1 / -0

A and B are partners sharing the profit in the ratio of 3 : 2 they take C as the new partner, who brings in 25,000 against capital and 10,000 against goodwill. New profit sharing ratio is 1 : 1 : 1. In what ratio will this amount be shared among the old partners A and B?

A
$$8,000 : 2,000$$

B
$$5,000 : 5,000$$

C
Old partners will not get any share in the goodwill bought in by C.

D
$$6,000 : 4,000$$

Solution

At the time of admission of a new partner, When capital goodwill is bring by the new partner it is divided among the partners in their gaining and sacrificing ratio. It means gaining partner's capital A/c is credited and sacrificing partner's capital A/c is debited.
Calculation of sacrificing ratio:
Sacrificing Ratio = Old Ratio - New Ratio
A's sacrificing ratio = (3/5) - (1/3) = 4/15
B's sacrificing ratio = (2/5) - (1/3) = 1/15
Therefore, sacrificing ratio of A and B is 4 : 1 or 8 : 2 or 8000 : 2000
Therefore, amount brought in by the new partner is divided among Sacrificing partner in sacrificing ratio i.e., 8000 : 2000 or 8 : 2 or 4 : 1
Question 9
1 / -0

A, B and C take a Joint Life Policy. After five years, B retires from the firm. Old profit sharing ratio is 2 :2 :1. After retirement A and C decide to share profits equally. They had taken a Joint Life Policy of Rs. 2,00,000 with the surrender value Rs. 30,000 What will be the treatment in the partners capital account on receiving the JLP amount if joint life policy A/C is maintained at the surrender value?

A
Rs. 30,000 credited to all the partners in old ratio

B
Rs. 2,00,00 credited to all the partners in old ratio

C
Rs. 1,70,000 credited to all the partners in old ratio

D
No treatment is required

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. At the time of retirement of a partner, the firm receives the surrender value of the policy from the Insurance company. Since, in this case, JLP is already appearing in the books of the firm at the surrender value, no treatment will be required in partners’ capital account.
Question 10
1 / -0

Which of the following statements is true?

A
In case of separate sets of books method of Joint Venture, co-venturers contribution of goods is debited in Joint Bank Account

B
Co-venturers contribution in cash is debited in Venturers personal account

C
Discount on discounting of BIR is debited to Venturers personal account

D
Contract money received is credited to Joint Venture account.

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Retirement or Death of a partner Test - 29

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Retirement or Death of a partner Test - 29

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SHARING IS CARING

Question 1

Policy Amount

Surrender Value of the Retiring partner

Policy Value for the retiring partner and Surrender Value for the rest

Surrender Value for all the partners

Solution

Question 2

Average profits * no. of years of purchase

Super profits * years of purchase

Total of the discounted vale of expected benefits

Super profit divided with expected rate of return

Solution

Question 3

$$Rs.9,000$$

$$Rs.36,000$$

$$Rs.54,000$$

$$Rs.48,000$$

Solution

Question 4

4,500

3,000

7,500

10,500

Solution

Question 5

$$63,000$$ and $$21,000$$

$$50,000$$ and $$34,000$$

$$52,500$$ and $$31,500$$

$$60,000$$ and $$24,000$$

Solution

Question 6

$$Rs.60,000$$

$$Rs.30,000$$

$$Rs.20,000$$

$$Rs.15,000$$

Solution

Question 7

Rs. 8,000 credited to partner's current account in profit sharing ratio.

Rs. 8,000 debited to revaluation account

Rs. 8,000 debited to partner's capital account in profit sharing ratio.

Either (b) or (c)

Solution

Question 8

$$8,000 : 2,000$$

$$5,000 : 5,000$$

Old partners will not get any share in the goodwill bought in by C.

$$6,000 : 4,000$$

Solution

Question 9

Rs. 30,000 credited to all the partners in old ratio

Rs. 2,00,00 credited to all the partners in old ratio

Rs. 1,70,000 credited to all the partners in old ratio

No treatment is required

Solution

Question 10

In case of separate sets of books method of Joint Venture, co-venturers contribution of goods is debited in Joint Bank Account

Co-venturers contribution in cash is debited in Venturers personal account

Discount on discounting of BIR is debited to Venturers personal account

Contract money received is credited to Joint Venture account.

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