Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 47

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Weekly Quiz Competition

Question 1
1 / -0

A,B and C are sharing profit and loss in the ratio of 4:3:2,B retires and remaining partner agree to share profit in the ratio of 5:3 and decides not to raise goodwill a/c. Goodwill of the firm is valued at Rs.72,000. What would be the adjustment entry________.

A
A' A/c Dr Rs.24,000,B's A/c Dr 24,000,C's A/c Credit by Rs.48,000.

B
A's A/c Dr 13,000,C's A/c Dr 11,000,B's A/c credit Rs.24000

C
A's A/c Rs 11,000,C's A/c Dr 13,000, B's A/c Cr. Rs.24,000

D
Goodwill a/c 72,000 Dr, A's Capital, B's capital and C's Capital credit Rs.24,000 each

Solution

1) goodwill =72000*ratio of B 3/9=24000
then find gaining ratio
gain ratio =new ratio -old ratio
A=5/8-4/9
=13/72
C=3/8-2/9
=11/72
so gain ratio is 13:11
2)written off:A=24000*13/24=13000
B=24000*11/24=11000
Question 2
1 / -0

The reputation of a business expressed in terms of money.

A
Capital

B
Income

C
Goodwill

D
Copy rights

Solution

Goodwill is one of the special aspects of partnership accounts which requires adjustment (also valuation is not specified) at the time of reconstitution of a firm. Over a period of time, a well-established business develops an advantage of good name, reputation and wide business connections. This helps the business to earn more profits as compared to a newly set up business. In accounting, monetary value of such advantage is known as "goodwill". It is regarded as an intangible asset. In other words, goodwill is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits.
Question 3
1 / -0

Consequent upon admission of a new partner in a firm the value of the goodwill is valued at Rs.60,000. But there exists a goodwill account in the balance sheet which stood at Rs.48,000 what would be treatment of goodwill at the time of admission of a new partner if the firm follows revaluation method of goodwill?

A
Debit goodwill A/c by Rs.12,000

B
Debit goodwill A/c by Rs.48,000

C
Debit goodwill A/c by Rs.60,000

D
Credit goodwill A/c by Rs.12,000

Solution

incoming partner raised goodwill= 60000
existing goodwill =48000
goodwill will debited=60000-48000
=12000
then journal entries is=goodwill a/c....Dr
to partners capital a/c
Question 4
1 / -0

PQR are three partners in a firm, they decided to admit S a fourth partner in the firm with 1/4th share of profit and loss in the firm. Firm decides to revalue the goodwill of the firm on the basis of 3 years purchase of past 4 years average profits. What would be the value of the goodwill of the firm if the firm decides to revalue the goodwill based on 5 years super profit and an average profit of the industry during the year is 14,000 p.a? Actual past profit of the firm are as follows:
2010 Rs. 22,000
2011 Rs. 17,000
2012 Rs. 22,000
2013 Rs. 19,000

A
Rs, 30,000

B
Rs, 35,000

C
Rs. 25,000

D
Rs. 28,000
Question 5
1 / -0

Which of these statements is true?

A
Joint life policy is taken by the partners in order to provide funds at the time of retirement / death of any partner.

B
Joint life policy reserve account is created to bring down the policy account to surrender value.

C
Indian Partnership Act prohibits payment of any share of profit to a retiring partner if account are not settled.

D
The retiring partner pays for his share of goodwill to the remaining partner.

Solution

Joint life policy is taken by the partners in order to provide funds at the time of retirement /death of any partner - True
A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy. Joint Life Policy is taken by the partners so that to avoid the financial hardship they may face at time of payment to retiring or deceased partner.
Question 6
1 / -0

X & Associates is a partnership firm, it intends to revalue its goodwill, average profit for the past five years is Rs. 11,000 per annum and goodwill is being valued 3 years purchase of average profit. What would be the value of the goodwill of the firm?

A
Rs.33,000

B
Rs.11,000

C
Rs.35,000

D
Rs.25,000

Solution

Under the average profit method the goodwill valuation/calculation of certain number of purchase of average profit of the firm
=11000*3=33000
Question 7
1 / -0

A,B and C are three partner sharing profit and loss equally. C dies on 30th June 2010.If the total profit for the year ending 31st March 2011 amounted to Rs.30,000.What would be the share of profit to be credited to C's A/c?

A
10,000

B
5,000

C
8,000

D
2,500

Solution

Total profit is given 30000
partner share profit ratio =1:1:1
profit for till the date of death(1/4/2010 to 3/6/2010)
=30000*3/12=7500
C's share profit=7500*1/3=2500
Question 8
1 / -0

As per provisions of the Partnership Act, executor is entitled to interest at ____% on the final amount due to the deceased partner.

A
4

B
6

C
8

D
7.5

Solution

As per partnership Act 1932 , retire / death of the partner entitle to 6% interest p.a on the amount due from the death of partner from date of payment or proportionate of profit earn by firm
Question 9
1 / -0

ABC Associates has decided to value the goodwill of the firm using capitalisation method. Find the goodwill of the firm if capital employed of the firm is $$Rs.24,00,000$$. Reasonable return on capital is $$12.5$$% and current years profit is $$Rs.8,00,000$$.

A
$$Rs.64,00,000$$

B
$$Rs.40,00,000$$

C
$$Rs.24,00,000$$

D
$$Rs.56,00,000$$

Solution

Goodwill of the firm using Capitalisation Method:
Step I: Capitalised value of Profits= Profit/Normal Rate of Return=$$Rs.8,00,000/0.125$$=$$Rs.64,00,000$$
Step II:Capital Employed= $$Rs.24,00,000$$ (given)
Step III:Goodwill= Step I - Step II= $$Rs.40,00,000$$
Question 10
1 / -0

ABC are three partners in a firm, they decided to admit D a fourth partner in the firm with 1/4th share of profit and loss in the firm. Firm decides to revalue the goodwill by capitalizing super profit @10%. What is the goodwill of the firm average profit and normal profit were Rs. 20,000 and 13,000 respectively?

A
Rs. 70,000

B
Rs, 75,000

C
Rs. 7,000

D
Rs. 13,000

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Retirement or Death of a partner Test - 47

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Retirement or Death of a partner Test - 47

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SHARING IS CARING

Question 1

A' A/c Dr Rs.24,000,B's A/c Dr 24,000,C's A/c Credit by Rs.48,000.

A's A/c Dr 13,000,C's A/c Dr 11,000,B's A/c credit Rs.24000

A's A/c Rs 11,000,C's A/c Dr 13,000, B's A/c Cr. Rs.24,000

Goodwill a/c 72,000 Dr, A's Capital, B's capital and C's Capital credit Rs.24,000 each

Solution

Question 2

Capital

Income

Goodwill

Copy rights

Solution

Question 3

Debit goodwill A/c by Rs.12,000

Debit goodwill A/c by Rs.48,000

Debit goodwill A/c by Rs.60,000

Credit goodwill A/c by Rs.12,000

Solution

Question 4

Rs, 30,000

Rs, 35,000

Rs. 25,000

Rs. 28,000

Question 5

Joint life policy is taken by the partners in order to provide funds at the time of retirement / death of any partner.

Joint life policy reserve account is created to bring down the policy account to surrender value.

Indian Partnership Act prohibits payment of any share of profit to a retiring partner if account are not settled.

The retiring partner pays for his share of goodwill to the remaining partner.

Solution

Question 6

Rs.33,000

Rs.11,000

Rs.35,000

Rs.25,000

Solution

Question 7

10,000

5,000

8,000

2,500

Solution

Question 8

4

6

8

7.5

Solution

Question 9

$$Rs.64,00,000$$

$$Rs.40,00,000$$

$$Rs.24,00,000$$

$$Rs.56,00,000$$

Solution

Question 10

Rs. 70,000

Rs, 75,000

Rs. 7,000

Rs. 13,000

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