Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 43

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Weekly Quiz Competition

Question 1
1 / -0

If the firm gets dissolved due to the retirement of one the partners then what amount of JLP will be credited in partner's capital A/c?

A
Maturity Value.

B
Surrender Value.

C
Policy Value.

D
None of these.

Solution

At the time of retirement of a partner, readjustments takes place. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy is taken into account. Revaluation of profit and reserves are transferred to capital or current accounts of partners. Lastly, final amount due to the retiring partner is determined and discharged.
Question 2
1 / -0

X, Y, Z are equal partners in a firm. Z retires from the firm. The new profit sharing ratio between X and Y is $$1:2$$. Find the gaining ratio.

A
$$3:2$$

B
$$2:1$$

C
$$4:1$$

D
Only Y gains by $$1/3$$

Solution

Old ratio (X, Y, and Z) = 1 : 1 : 1
New ratio (X and Z) = 1 : 2
Gaining ratio = New ratio - Old ratio
X's gain = (1/3) - (1/3) = Nil
Y's gain = (2/3) - (1/3) = 1/3
Therefore, only Y gains by 1/3
Question 3
1 / -0

The balance of joint life policy account as shown in the balance sheet represent ___________.

A
the surrender value of a policy

B
annual premium of JLP

C
total premium paid by the firm

D
amount receivable on the maturity of the policy

Solution

This is the case when Joint Life Policy Reserve account is maintained. In this case insurance premium paid is debited to joint life policy account and credited to bank account. At the end of the year, the amount in excess of surrender value is treated as loss and is transferred to profit and loss account and the surrender value is shown in the balance sheet every year.
Question 4
1 / -0

Hari, Roy and Prasad are partners in the ratio of 3:5:1 respectively. Roy wants to retire. His share is being purchased by Prasad. What would be the new ratio of Hari and Prasad respectively?

A
1:2

B
2:1

C
3:5

D
Equal

Solution

Old ratio (Hari, Roy, and Prasad) = 3 : 5 : 1
Roy's profit share = 5/9
Prasad decided to take his share
New profit share = Old profit share + Share taken from Roy
Hari's new share = (3/9) +0 = 3/9
Prasad's new share = (1/9) + (5/9) = 6/9 or 2/3
New profit sharing ratio (Hari and Prasad) = (3/9) and (6/9)
= 3 : 6
= 1 : 2
Question 5
1 / -0

If vendors are issued fully paid shares of Rs 1,00,000 in consideration of net assets of Rs 80,000, the balance of Rs 20,000, will be debited to

A
Profit and Loss A/c

B
Goodwill A/c

C
Capital Reserve A/c

D
Capital A/c
Question 6
1 / -0

Tick the correct answer.
______ is an intangible asset.

A
Goodwill

B
Stock

C
Building

D
Cash

Solution

Goodwill is an intangible Asset. An Intangible asset is an asset that cannot be seen or felt. It is hard to evaluate and it has no physical substance.
Question 7
1 / -0

$$X$$ and $$Y$$ shared profits and losses in the ratio of $$3:2$$ with effect from $$1^{st}$$April,2018 they agreed to share profits equally. The goodwill of the firm was valued at $$Rs. 60,000$$. The necessary single adjustment entry will be :

A
Dr. $$Y$$ and Cr. $$X$$ with $$Rs. 6,000$$.

B
Dr. $$X$$ and Cr. $$Y$$ with $$Rs. 6,000$$.

C
Dr. $$X$$ and Cr. with $$Rs. 600$$.

D
Dr. $$Y$$ and Cr. $$X$$ with $$Rs. 600$$.

Solution

Old ratio (X and Y) = 3 : 2
New ratio (X and Y) = 1 : 1
Gaining ratio = New ratio - Old ratio
X's gain = (1/2) - (3/5) = -1/10 (sacrifice)
Y's gain = (1/2) - (2/5) = 1/10
Total goodwill of the firm = Rs. 60000
Amount of goodwill will be compensated by gaining partner to sacrificing partner in their gaining and sacrificing ratio. Therefore, necessary single adjustment entry will be:
Y's capital A/c Dr. 6000
To X's capital A/c 6000
Question 8
1 / -0

When a new partner brings cash for goodwill, the amount is credited to the __________ .

A
Premium for Goodwill Account

B
Capital Account of the new partner

C
Cash Account

D
None of the above

Solution

Premium for goodwill is the additional amount brought in by the incoming partner to compensate for the loss in share of the super profits of the old partners. This extra amount is credited to the premium for goodwill account and is distributed among the old partners in their sacrificing ratio.
The accounting entry is:
1. Cash a/c.... Dr.
To Premium for Goodwill a/c
(Being premium for goodwill brought in by the new partner)
Question 9
1 / -0

When $$A$$ and $$B$$, sharing profits and losses in the ratio of $$3:2$$, admit $$C$$ as a partner giving him $$1/5^{th}$$ share of profits. This will given by $$A$$ and $$B$$ __________ .

A
Equally

B
In the ratio of their profits.

C
In the ratio of their capitals.

D
None of these

Solution

At the time of admission of a partner, the old partners sacrifice a part of their share of profits to provide for the share of the incoming partner. When the new profit sharing ratio is not provided, the sacrificing ratio is their old profit sharing ratio. Thus, A and B will provide C with the 1/5th share of profits in the ratio of their profits.
Question 10
1 / -0

$$A$$ and $$B$$ sharing profits and losses in the ratio of $$2/3^{rd}$$ and $$1/3^{rd}, admit $$ C as a partner giving him $$1/4^{th}$$ share. The new profit-sharing ratio will be :

A
$$A -\,1/2$$, $$B- \,1/4$$, $$C- \,1/4$$

B
$$A- \,1/3$$, $$B- \,1/3$$, $$C- \,1/4$$

C
$$A- \,3/8$$, $$B- \,3/8$$, $$C- \,2/8$$

D
None of these

Solution

A's old share= 2/3
B's old share= 1/3

C's share= 1/4
Hence, remaining share= 1-[1/4]
= 3/4

Therefore, New profit sharing ratio:
A's new share= 2/3 * 3/4
= 1/2
B's new share= 1/3 * 3/4
= 1/4
C's share= 1/4

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Retirement or Death of a partner Test - 43

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Retirement or Death of a partner Test - 43

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Question 1

Maturity Value.

Surrender Value.

Policy Value.

None of these.

Solution

Question 2

$$3:2$$

$$2:1$$

$$4:1$$

Only Y gains by $$1/3$$

Solution

Question 3

the surrender value of a policy

annual premium of JLP

total premium paid by the firm

amount receivable on the maturity of the policy

Solution

Question 4

1:2

2:1

3:5

Equal

Solution

Question 5

Profit and Loss A/c

Goodwill A/c

Capital Reserve A/c

Capital A/c

Question 6

Goodwill

Stock

Building

Cash

Solution

Question 7

Dr. $$Y$$ and Cr. $$X$$ with $$Rs. 6,000$$.

Dr. $$X$$ and Cr. $$Y$$ with $$Rs. 6,000$$.

Dr. $$X$$ and Cr. with $$Rs. 600$$.

Dr. $$Y$$ and Cr. $$X$$ with $$Rs. 600$$.

Solution

Question 8

Premium for Goodwill Account

Capital Account of the new partner

Cash Account

None of the above

Solution

Question 9

Equally

In the ratio of their profits.

In the ratio of their capitals.

None of these

Solution

Question 10

$$A -\,1/2$$, $$B- \,1/4$$, $$C- \,1/4$$

$$A- \,1/3$$, $$B- \,1/3$$, $$C- \,1/4$$

$$A- \,3/8$$, $$B- \,3/8$$, $$C- \,2/8$$

None of these

Solution

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