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Retirement or Death of a Partner Test - 5

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Retirement or Death of a Partner Test - 5
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  • Question 1
    1 / -0

    M, N and H are partners without partnership deed. M wants to get retired. The profit on revaluation on the date was ` 12000.and other partners N and H want to share this in the new ratio 3:2. M wants this to be shared equally How this profit should be shared

    Solution

    In the absence of partnership deed profit sharing ratio will be equal. In this case, M is right; profit should be shared equally among the partners i.e. 4,000 equally among all the partners.

  • Question 2
    1 / -0

    Calculation of sharing of profit up to date of death will be calculated on the basis of

    Solution

    Deceased partner’s share will be calculated on the basis of:

    •Time

    •Turnover

    Note : Read the question carefully while calculating the share of profit of deceased partner.

  • Question 3
    1 / -0

    If any asset is taken over by a partner at the time of his retirement, how will you record it?

    Solution

    Any asset taken by the partner will be shown in the debit side of his capital account. It means his capital account will be reduced by the same.

    Journal Entry:

    Partners Capital A/c. Dr.(Debit the Receiver)
                 To Assets A/c (Credit what goes out)

  • Question 4
    1 / -0

    Goodwill given in adjustments (after the balance sheet) will be ____________

    Solution

    Goodwill given in outside the balance sheet (in adjustment) is used to calculate the share of outgoing partner only. This goodwill is self generated and should not be distributed or not to be shown in the books of accounts.

  • Question 5
    1 / -0

    Unrecorded Legal charges will be:

    Solution

    Unrecorded legal charges are the liability of the firm, so it should be recorded in the debit side of revaluation account and same should be shown in the liabilities side of the balance sheet.

  • Question 6
    1 / -0

    If the retiring partner not be paid fully immediately on retirement how should his capital account be shown in subsequent Balance Sheet

    Solution

    If the retiring partner not be paid fully immediately on retirement, in such a case his remaining amount will be shown in the balance sheet liabilities side by his loan account.

  • Question 7
    1 / -0

    A, B and C are partners sharing profit in the ratio of .Calculate the new profit sharing ratio between A and C ,If B retires

    Solution

    New Ratio of A and C will be 5:2

    Old Ratio = 1/2, 3/10 and 1/5 i.e. 5:3:2

    Share of B = 3/10

    Remaining = 5:2

  • Question 8
    1 / -0

    A, B and C are partners sharing profit in the ratio of . Calculate Gaining ratio if A retires

    Solution

    Gaining Ratio of B and C will be 3:2.

    Proof : Gain Ratio = New Share – old share

    B’s gain = 3/5 – 3/10 = 3/10

    C’s gain = 2/5 -2/10 = 2/10

  • Question 9
    1 / -0

    Deceased partner’s share of profit is to be transferred to his account by:

    Solution

    At the time of death of a partner, a temporary account is opened, which is known as Profit and loss suspense account. The main purpose of this account is to calculate and transfer the share of deceased partner to his account (up to the date of his death). and at the year end it is closed by transfering the balance to profit and loss account.

  • Question 10
    1 / -0

    Deceased partner’s share of profit is shown in:

    Solution

    The amount payable to deceased partner’s executor as profit (up to the date of death) will be transferred to the credit side of deceased partner’s capital account and same will be shown in the assets side of the balance sheet. as P/L Suspense A/c.

  • Question 11
    1 / -0

    Where will you record the loss (upto date of death) due to deceased partner?

    Solution

    The amount of loss due to the deceased partner (up to the date of his death) will be debited to his capital account and same will be shown in balance sheet also.

  • Question 12
    1 / -0

    When outgoing partner’s share is not settled and business is continued , we follow:

    Solution

    If a partnership firm continues its business without adjusting the account of outgoing partner, in such a case Section 37 of the Indian Partnership Act will be applicable. According to that outgoing partner is entitled for interest or profit.

    Sec.37

    Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property 

    of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the 

    outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as 

    may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm : 

    Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, 

    and that option is duly exercised, the estate of the deceased partner, or the outgoing partner of his estate, as the case may be, is not entitled to any further or other 

    share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under 

    the foregoing provisions of this section. 

  • Question 13
    1 / -0

    How deceased partners executors account settled:

    Solution

    Deceased partner’s account can be settled by paying off to his executor:

    •Full amount immediately

    •In installment with interest

  • Question 14
    1 / -0

    When Retiring partners balance is treated as loan , in the absence of any information, he will get:

    Solution

    In the absence of any information regarding interest on loan to the partner, it should be paid @ 6% per annum.

  • Question 15
    1 / -0

    __________ method in which the profits up to the date of death for the current year are calculated on the basis of current year's sales up to the date of death by using the formula

    Solution

    The method in which the profits up to the date of death for the current year are calculated on the basis of current year's sales up to the date of death by using the formula is called sale basis method or profit on turnover.

    The Formula to calculate profit from starting or year to date of death will be:-    Last year profit/Last year sale * Current year sale till date of death

    or Current year sale * % of profit margin over last year

    or as provided by the question.

  • Question 16
    1 / -0

    L, M and N are partners sharing profit and losses in the ratio of 25:15:9 . M retires. It is decided that the profit sharing ratio between remaining partner will be the same as existing between M and N after the retirement of L. Calculate Gaining ratio

    Solution

    Old Share 25 : 15 : 9

    L’s share = 25/29

    Gain Ratio = 45: 75

  • Question 17
    1 / -0

    Which of the following item is not shown in the credit side of deceased partner’s capital account?

    Solution

    Share of loss is not shown in the credit side it is shown in the debit side of deceased partner’s capital account. Following items are shown in the credit side of his account:

    •Share of profit

    •Revaluation profit

    •Share of reserve

  • Question 18
    1 / -0

    Amount due to a deceased partner shown by his Capital Account is transferred to ____ account

    Solution

    Amount due to deceased partner i.e. his capital balance, share of reserve, share of profit, revaluation profit or loss etc. will be adjusted in deceased partner’s capital account, and same will be handed over to the executor of deceased partner.

  • Question 19
    1 / -0

    How will you transfer the due amount to the loan account of retiring partner?

    Solution

    Following journal entry will recorded for the amount transferred to retiring partner’s loan account:

    Retiring Partner’s capital A/c Dr.
    To Retiring partner’s loan A/c

  • Question 20
    1 / -0

    Partner’s Capital Account will be debited in case of ____________

    Solution

    Partner’s capital account will be debited in case of loss on revaluation and in other cases his account will be credited i.e.

    •Profit on Revaluation

    •General Reserve

  • Question 21
    1 / -0

    Treatment of General Reserve at the time of retirement is:

    Solution

    At the time of retirement of a partner, general reserve given in the balance sheet should be credited to all the partners (including outgoing partner) in their old profit sharing ratio. As it is similar to profit which is earned by the business with the help of all partner. so shared with all partners including old partner.

  • Question 22
    1 / -0

    When amount due to retiring partner is paid with interest, it will be paid through which account?

    Solution

    Sometimes amount due to the retiring partner is paid in installment with interest. For this purpose his loan account should be prepared separately and the amount due to him should be transferred to that account for the settlement.

  • Question 23
    1 / -0

    Which of the following is not prepared at the time of retirement of a partner?

    Solution

    Following accounts are prepared at the time of retirement of a partner except profit and loss suspense account:

    •Revaluation Account

    •Partner’s capital account

    •Balance Sheet

  • Question 24
    1 / -0

    What journal entry will be recorded when cash paid to retiring partner (for his due amount) at the time of retirement?

    Solution

    Following journal entry will be recorded at the time of payment to retiring partner:

    Retiring Partner’s capital A/c Dr.

    To Cash A/c

    (Being cash paid to the retiring partner)

  • Question 25
    1 / -0

    Bad debts recovered will be recorded in:

    Solution

    Bad debts recovered will be shown in the credit side of revaluation account and same will be added to cash in the balance sheet.

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