Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 44

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Question 1
1 / -0

According to Section $$37$$ of the Indian Partnership Act, 1932, the interest payable to the representative of deceased partner on the amount left by him will be ______________ .

A
$$6\%p.a$$

B
$$10\%p.a$$

C
The Bank Rate

D
None of these

Solution

Generally, partners are not entitled to get any interest on the capital that they invest .but when they agree to give interest, then such interest would be paid from the capital. They are also entitled to 6%interest on the advances made towards the business of the firm.
Deceased partner's or his Legal representative's share in subsequent profits of the firm is the amount that is attributable to the use of his share of the property of the firm. Alternatively, he may also opt to receive interest at the rate of 6 percent per annum.
Question 2
1 / -0

In the event of death of partner, the amount of General Reserve is transferred to partner's capital Accounts in ______________ .

A
The new profit-sharing ratio.

B
The old profit-sharing ratio.

C
The capital ratio.

D
None of these

Solution

The amount of general reserve is transferred to the capital accounts of all the partners in their old profit sharing ratio. This is done to give the deceased partner's nominee the required amount of share in profits of the firm. So, All Partners' Capital Accounts are credited with their respective shares.
Question 3
1 / -0

Verma and Sharma are partners in a firm sharing profits and losses in the ratio of $$5:3$$. They admitted Ghosh as a new partner for $$1/5^{th}$$ share of profits. Ghosh is to bring in $$Rs. 20,000$$ as capital and $$Rs. 4,000$$ as his share of goodwill premium. Give the necessary Journal entries, when goodwill is paid privately.

A
Cash A/c Dr. 4000
To Goodwill A/c 4000

B
Goodwill A/c Dr. 4000
To Cash A/c 4000

C
Goodwill A/c Dr. 4000
To Verma's Caital A/c 2500
To Sharma's Capital A/c 1500

D
No entry is required.

Solution

When the goodwill brought in by the new partner is paid to the old partners privately, no entry is made in the books of accounts. This is because the money has not been brought into the business and hence no records can be shown.
Question 4
1 / -0

Deepak, Farukh and Lilly were partners in a firm sharing profits in the ratio of $$3 : 2 : 1$$. On $$28.2.2015$$ Farukh retired from the firm. On Farukh's retirement there was a balance of $$Rs 12,000$$ in Workmen's Compensation Reserve which was no more required. On Farukh's retirement this amount will be:

A
Debited to the capital accounts of the partners in their profit sharing ratio.

B
Credited to the capital accounts of the partners in their profit sharing ratio.

C
Credited to the capital accounts of Deepak and Lilly in their profit sharing ratio.

D
Credited to the capital account of Farukh.

Solution

On Farukh's retirement, the amount of Workmen's Compensation Reserve will be credited to the Capital Accounts of all the partners in their profit sharing ratio. This is because the reserve has been build up using the surplus earned by the firm in the past, which includes the efforts made by all the partners.
Hence, the correct answer is option (b).
Question 5
1 / -0

The formula of capitalisation method is ___________.

A
$$\dfrac {Profit (adjusted)}{100}$$

B
$$\dfrac {\text {Total Profit}}{\text {Adjusted Profit}}$$

C
$$\dfrac {\text {Adjusted Profit}}{\text {Total Profit}}\times 100$$

D
$$\dfrac {Profit (Adjusted)}{\text {Normal rate of Return}}\times 100$$

Solution

Capitalisation method is a method of determining the value of a firm by calculating the net present value of expected future profits or cash flows of the firm. It is used when the actual profits of the firm is less than the normal profits. It is calculated by dividing the adjusted profit by normal rate of return.
Question 6
1 / -0

A admitted as a new partner for 1/ 4 share of future profits, fails to bring in cash of Rs. 5,000 towards goodwill but the existing (old) partners B and C sharing profits in the ratio of 3 : 2 raise goodwill account at its full value. Therefore, partners will be credited for goodwill as:

A
B = Rs. 3,000, C = Rs. 2,000, A = Nil

B
B = Rs. 9,000, C = Rs. 6,000, A = Rs. 5,000

C
B = Rs. 12,000, C = Rs. 8,000, A = Nil

D
B = Rs. 2,250, C = Rs. 1,500, A = Rs. 1,250

Solution

Old ratio (B and C) = 3 : 2
A is admitted for 1/4 share of profit for which he was supposed to bring goodwill of Rs. 5000
According to A's share total goodwill of the firm is A's share to goodwill multiply by reciprocal of A's share of profit
Therefore, total goodwill = Rs. 5000 * (4/1) = Rs. 20000
Goodwill credited to old partner in old ratio is-
B = Rs. 20000 * (3/5) = Rs. 12000
C = Rs. 20000 * (2/5) = Rs. 8000
Question 7
1 / -0

According to the value of goodwill, the type of customers may be divided into ________________.

A
Cats, dogs and mice

B
Cats and mice

C
Dogs and mice

D
Dogs and horses

Solution

Dog-Goodwill - Dog represent a loyal and faithful customer base who are more attached to the person conducting the business rather than the place of business. These types of customers follow the person if he has not gone too far. These types of customers are more of a brand loyal type.
Cat-Goodwill - Cats are normally attached to the home irrespective of the owner of the house. Even if he leaves the house and somebody else comes to occupy it, they keep on visiting the same home. Cats represents those customer who go to the same shop or place of business whoever is the owner of the shop.
Mice-Goodwill - The other variety of customer has attachment neither to the person nor to the place, which, in other words, is known as fugitive goodwill. Mice are not attached to the person or place and are casual in their behaviour.
Question 8
1 / -0

Under the memorandum revaluation method ___________.

A
the new partner does not bring cash for his share of goodwill

B
the new partner brings cash for his share of goodwill

C
goodwill is raised in the books, and then is immediately written off

D
None of the Above

Solution

Memorandum revaluation account is prepared when at the time of admission/retirement of partner, the partnership firm does not want to change the value of assets and liabilities in the balance sheet but want to give effect of it through partner's capital account. Hence, under this method, goodwill is raised in the books and then immediately written off.
Question 9
1 / -0

A and B are partners sharing profits in the ratio of 7:3. C is admitted for 3/7 share in the profits, the new profit sharing ratio among the partners will be ____________________.

A
A : B : C :: 14 : 6 : 15

B
A : B : C :: 7 : 6 : 7

C
A : B : C :: 7 : 3 : 3

D
A : B : C :: 5 : 3 : 3

Solution

Calculation of the new profit sharing ratio :-
Let as assume Total Profit as "1"
Given, C's share = 3/7
So, remaining profit = 1 - 3/7 = 4/7
A = 4/7 x 7/10 = 28/70 (Remaining profit x old ratio)
B = 4/7 x 3/10 = 12/70 (Remaining profit x old ratio)
C = 3/7 x 10/10 = 30/70
Hence , 28: 12: 30 can be written as 14: 6: 15.
Question 10
1 / -0

Ram and Shyam are partners in a firm with capital of Rs 4,80,000 and Rs 3,10,000, respectively. They admitted Ganesh as a partner with l/4th share of profit. Ganesh brings Rs 3,00,000 as his capital. Ganesh's share of goodwill will be __________.

A
$$Rs.1,10,000$$

B
$$Rs.27,500$$

C
$$Rs.17,500$$

D
$$Rs.70,000$$

Solution

When in the question goodwill is not specifically given, then it is case of hidden goodwill.
Calculation of hidden goodwill:
Hidden goodwill = (Incoming partner's capital * Reciprocal of share of incoming partner) - Total capital after taking into consideration the capital brought in by new partner
Hidden goodwill = [Rs. 300000 * (4/1)] - Rs. (480000 + 310000 + 300000)
Hidden goodwill = Rs. 1200000 - Rs. 1090000
Hidden goodwill = Rs. 110000
Ganesh's share of goodwill for 1/4th share = Total goodwill/4
Ganesh's share of goodwill for 1/4th share = Rs. 110000/4
Ganesh's share of goodwill for 1/4th share = Rs. 27500

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Retirement or Death of a partner Test - 44

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Retirement or Death of a partner Test - 44

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SHARING IS CARING

Question 1

$$6\%p.a$$

$$10\%p.a$$

The Bank Rate

None of these

Solution

Question 2

The new profit-sharing ratio.

The old profit-sharing ratio.

The capital ratio.

None of these

Solution

Question 3

Cash A/c Dr. 4000 To Goodwill A/c 4000

Goodwill A/c Dr. 4000 To Cash A/c 4000

Goodwill A/c Dr. 4000 To Verma's Caital A/c 2500 To Sharma's Capital A/c 1500

No entry is required.

Solution

Question 4

Debited to the capital accounts of the partners in their profit sharing ratio.

Credited to the capital accounts of the partners in their profit sharing ratio.

Credited to the capital accounts of Deepak and Lilly in their profit sharing ratio.

Credited to the capital account of Farukh.

Solution

Question 5

$$\dfrac {Profit (adjusted)}{100}$$

$$\dfrac {\text {Total Profit}}{\text {Adjusted Profit}}$$

$$\dfrac {\text {Adjusted Profit}}{\text {Total Profit}}\times 100$$

$$\dfrac {Profit (Adjusted)}{\text {Normal rate of Return}}\times 100$$

Solution

Question 6

B = Rs. 3,000, C = Rs. 2,000, A = Nil

B = Rs. 9,000, C = Rs. 6,000, A = Rs. 5,000

B = Rs. 12,000, C = Rs. 8,000, A = Nil

B = Rs. 2,250, C = Rs. 1,500, A = Rs. 1,250

Solution

Question 7

Cats, dogs and mice

Cats and mice

Dogs and mice

Dogs and horses

Solution

Question 8

the new partner does not bring cash for his share of goodwill

the new partner brings cash for his share of goodwill

goodwill is raised in the books, and then is immediately written off

None of the Above

Solution

Question 9

A : B : C :: 14 : 6 : 15

A : B : C :: 7 : 6 : 7

A : B : C :: 7 : 3 : 3

A : B : C :: 5 : 3 : 3

Solution

Question 10

$$Rs.1,10,000$$

$$Rs.27,500$$

$$Rs.17,500$$

$$Rs.70,000$$

Solution

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Cash A/c Dr. 4000
To Goodwill A/c 4000

Goodwill A/c Dr. 4000
To Cash A/c 4000

Goodwill A/c Dr. 4000
To Verma's Caital A/c 2500
To Sharma's Capital A/c 1500