Retirement or Death of a partner - Test Papers

 CBSE Test Paper 01

Retirement or Death of a partner

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1. 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
   1. 6000 equally between each partner
   2. 4000 equally between each partner
   3. 8000 equally between each partner
   4. 3000 equally between each partner
2. If any asset is taken over by a partner at the time of his retirement, how will you record it?
   1. Balance Sheet
   2. Revaluation Account
   3. Cr. Side of his capital account
   4. Dr. side of his capital account
3. New Ratio – Old Ratio = ?
   1. New ratio of continuing partners
   2. Both Sacrificing ratio and New ratio of continuing partners
   3. Sacrificing ratio
   4. Gain Ratio
4. Calculation of sharing of profit up to date of death will be calculated on the basis of
   1. Yearly basis
   2. Time basis
   3. Turnover basis
   4. Both Time basis and Turnover basis
5. There are some adjustments are to be done at the time of retiring partner
   1. New profit sharing ratio of continuing partners
   2. Accounting treatment of goodwill
   3. Preparation of Executor’s Account
   4. Adjustment of Reserves and Profits
      Which of the above adjustments are to be done
      1. b, c and d
      2. a, c , b
      3. a, b , c, d
      4. a , b and d

6. State any two items of deductions that may have to be made from the amount of payable to a retiring partner.

7. Neetu, Meetu and Teetu were parents in a firm. On 1st January 2018, Meetu retired. On Meetu's retirement, the goodwill of the firm was valued at Rs.4,20,000. Pass necessary journal entry for the treatment of goodwill on Meetu's retirement.

8. Give the Journal entry to distribute the ‘Workmen Compensation Reserve’ of Rs.60,000 at the time of retirement of Vinod, when there is no claim against it. The has three partners.

9. X, Y and Z were partners sharing profits in the ratio of 12,310 and 15$\frac{1}{2},\frac{3}{10}\text{ and }\frac{1}{5}$. X retired from the firm. Calculate the gaining ratio of the remaining partners.

10. Give the journal entry to distribute 'workmen compensation reserve’ of Rs 60,000 at the time of retirement of Sajjan, when there is no claim against it. The firm has three partners Rajat, Sajjan and Kavita.

11. P, Q, and R are partners sharing profits in the ratio of 4: 3: 1. P retires and his share is taken over by Q and R equally. Find the new profit sharing ratio of Q and R.

12. Meera, Sarthak and Rohit were partners sharing profits in the ratio of 2 : 2 : 1. On 31 March 2018, their Balance Sheet was as follows :

    Balance Sheet of Meera, Sarthak and Rohit as at 31 March 2018

    Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
    Creditors	3,00,000	Fixed Assets	7,00,000
    Contingency Reserve	1,00,000	Stock	2,00,000
    Capital :		Debtors	1,50,000
    Meera	4,00,000	Cash at bank	3,50,000
    Sarthak	4,00,000
    Rohit	2,50,000
    	14,00,000		14,00,000

    Sarthak died on 15th June, 2018. According to the partnership deed, his executors were entitled to : The firm’s profits for the last four years were : 2014 - 15 Rs.1,20,000, 2015 - 16 Rs.2,00,000, 2016 - 17 Rs.2,60,000 and 2017 - 18 Rs.2,20,000. Sarthak’s executors were paid the amount due immediately. Prepare Sarthak’s Capital Account to be presented to his executors.

    1. Balance in his Capital Account.
    2. His share of goodwill will be calculated on the basis of thrice the average of the past 4 years’ profits.
    3. His share in profits up to the date of death on the basis of average profits of the last two years. The time period for which he survived in the year of death will be calculated in months.
    4. Interest on capital @ 12% p.a. up to the date of his death.

13. X, Y, and Z are partners sharing profits and losses in the ratio of 4: 3: 2. Y retires and surrenders l/9th of his share in favour of X and the remaining in favour of Z. Calculate the new profit-sharing ratio and the gaining ratio.

14. Giriija, Yatin, and Zubin were partners sharing profits in the ratio 5 : 3 : 2. Zubin died on 1st August 2015. Amount due to Zubin’s executor after all adjustments was Rs.90,300. The executor was paid Rs.10,300 in cash immediately and the balance in two equal annual instalments with interest @ 6% p.a. starting from 31st March 2017. Accounts are closed on 31st March each year. Prepare Zubin’s Executors Account till he is finally paid.

15. Lalit, Madhur and Neena were partners sharing profits as 50%, 30% and 20% respectively. On 31st March, 2013 their balance sheet was as follows

    Balance Sheet
    as on 31st March, 2013

    Liabilities		Amount (Rs)	Assets		Amount (Rs)
    Creditors		28,000	Cash		34,000
    Provident Fund		10,000	Debtors	47,000
    Investment Fluctuation Fund		10,000	(-) Provision for Doubtful Debts	(3,000)	44,000
    Capital A/cs			Stock		15,000
    Lalit	50,000		Investments		40,000
    Madhur	40,000		Goodwill		20,000
    Neena	25,000	1,1.5,000	Profit and Loss A/c		10,000
    		1,63,000 =======			1,63,000 =======

    On this date, Madhur retired and Lalit and Neena agreed to continue on the following terms

    1. The goodwill of the firm was valued at Rs 51,000.
    2. There was a claim for workmen’s compensation to the extent of Rs 6,000
    3. Investments were brought down to Rs 15,000.
    4. Provision for bad debts was reduced by Rs 1,000.
    5. Madhur was paid Rs 10,300 in cash and the balance was transferred to his loan account payable in two equal installments together with interest @ 12% per annum.

    Prepare revaluation account, partners’ capital accounts and Madhur’s loan account till the loan is finally paid off.

CBSE Test Paper 01
Retirement or Death of a partner

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Answer

1. 2. 4000 equally between each partner, Explanation: 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.
2. 4. Dr. side of his capital account, Explanation: 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.
3. 4. Gain Ratio, Explanation: At the time of retirement or death of a partner, gain ratio of remaining partners is calculated as follows: New Ratio – Old Ratio = Gain Ratio
4. 4. Both Time basis and Turnover basis, Explanation: 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.
5. 4. a, b and d, Explanation: Following adjustments are done at the time of retirement of a partner:
      • New profit sharing ratio of continuing partners
      • Accounting treatment of goodwill
      • Adjustment of Reserves and Profits
        Note: Executor’s Account is prepared at the time of death of a partner.
6. 1. His share of loss on revaluation of assets and reassessment of liabilities.
   2. His share of existing goodwill written off or profit and loss dr balance given in balance sheet.

7. JOURNAL Entry

   Date	Particulars	LF	Amt (Dr)	Amt (Cr)
   	Neetu's Capital A/c.......Dr.		70,000
   	Neetu's Capital A/c.......Dr.		70,000
   	To Meetu's Capital A/c (4,20,000 ×13$\times \frac{1}{3}$)			1,40,000
   	(Being the adjustment made for goodwill on retirement.)

8. Particulars	LF	Debit Amount Rs.	Credit Amount Rs.
   Workmen Compensation Reserve A/c Dr.		60,000
   To Kunwar’s Capital A/c		...	20,000
   To Vinod’s Capital A/c		...	20,000
   To Himanshu’s Capital A/c		...	20,000
   (Being Workmen Compensation Reserve distributed to all the partners in their profit sharing ratio,e.g. 1:1:1, on the retirement of Vinod)

9. Old ratio of X : Y : Z =12,310 or 510,310,210$\frac{1}{2},\frac{3}{10}\text{ or }\frac{5}{10},\frac{3}{10},\frac{2}{10}$= 5: 3: 2
   X retired and there is no information regarding the new profit sharing ratio between y and z is given. So, after striking of the retiring partner's ratio, the remaining ratio will be new profit sharing ratio, i.e 3: 2
   Hence, New profit sharing ratio of Y: Z = 3: 2
   Gaining Ratio = New Profit Sharing Ratio - Old Profit Sharing Ratio
   Y's Gaining Ratio = 35−310=6−310=310$\frac{3}{5}-\frac{3}{10}=\frac{6-3}{10}=\frac{3}{10}$,
   Z's Gaining Raio = 25−210=4−210=210$\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}$
   Hence, New profit sharing ratio of Y and Z = 3: 2.

10. JOURNAL

    Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
    	Workmen Compensation Reserve A/c Dr.		60,000
    	To Rajat's Capital A/c			20,000
    	To Sajjan's Capital A/c			20,000
    	To Kavita's Capital A/c			20,000
    	(Being workmen compensation reserve distributed between old partners in their old profit sharing ratio, i.e. , 1 : 1 : 1 on the event of retirement of Sajjan.)

11. P’s share 48$\frac{4}{8}$ is being taken over by Q and R equally i.e., 28$\frac{2}{8}$ by Q and 28$\frac{2}{8}$ by R. as we know that gaining ratio = new ratio - old ratio so new ratio = old ratio so there gaining ratio = 2/8 taken by Q & 2/8 taken by R
    Now, Q’s share would be 38+28=58$\frac{3}{8}+\frac{2}{8}=\frac{5}{8}$
    R’s share would be 18+28=38$\frac{1}{8}+\frac{2}{8}=\frac{3}{8}$
    Thus, the new profit sharing ratio between Q and R would be 5 : 3.

12. Sarthak's Capital Account

    Particulars	Rs.	Particulars	Rs.
    To Sarthak's Executors A/c	6,58,750	By Balance b/d	3,50,000
    		By Interest on Capital A/c	8,750
    		By P & L Suspense A/c	20,000
    (Balancing figure)		By Meera's Capital A/c	1,60,000
    		By Rohit's Capital A/c	80,000
    		By Contingency Reserve A/c	40,000
    	6,58,750		6,58,750

    Working:,
    1. Sarthak's Share of Profit
       4,80,0002=2,40,000×2.512×25=20,000$\frac{4,80,000}{2}=2,40,000\times \frac{2.5}{12}\times \frac{2}{5}=20,000$
    2. Goodwill
       Average profit = 1,20,000+2,00,000+2,60,000+2,20,0004=8,00,0004=$\frac{1,20,000+2,00,000+2,60,000+2,20,000}{4}=\frac{8,00,000}{4}=$ 2,00,000
       Goodwill = 2,00,000 x 3 = 6,00,000
       Sarthak's Share of Goodwill = 6,00,000 x 25$\frac{2}{5}$ = 2,40,000
13. Calculation of New Profit Sharing Ratio:

    		X	Z
    (a)	Their existing shares	4/9	2/9
    (b)	Share surrendered by Y in favour of X: 1/9 ×$\times$ 1/3 =	1/27	--
    	Share surrendered by Y in favour of Z: 8/9 ×$\times$ 1/3 or *( y's share - his surrender share in favour of x i.e. 1/3 - 1/27 =8/27)	...	8/27
    (c)	New Share of X and Z(a + b):	13/27	14/27
    (d)	or New Share of X and Y	13	14

    Calculation of Gaining Ratio: as we know that Gaining ratio = new ratio - old ratio so X gain =13/27 - 4/9 =1/27 & y gain = 14/27 - 2/9 = 8/27 so 1:8 or
    Gaining Ratio = Share surrendered by Y: Share surrendered by Y in favour of X in favour of Z
    = 1/27: 8/27
    = 1: 8

14. Zubin's Executor's Loan A/c

    Date	Particular	(Rs.)	Date	Particulars	(Rs.)
    1.8.15	To Bank A/c	10,300	1.8.15	By Zubin's Capital A/c	90,300
    31.3.16	To Balanced c/d	83,200	31.3.16	By Interest	3,200
    		93,500			93,500
    31.3.17	To Bank A/c	48,000	1.4.16	By Balance b/d	83,200
    "	To Balance c/d	40,000	31.3.17	By Interest	4,800
    		88,000			88,000
    31.3.18	To Bank A/c	42,400	1.4.17	By Balance b/d	40,000
    			31.3.18	By Interest	2,400
    		42,400			42,400

15. Revaluation Account

    Particulars	Amount (Rs)	Particulars		Amount (Rs)
    To Workmen's Compensation Claim A/c	6,000	By Provision for Doubtful Debts		1,000
    To Investments A/c	15,000	By Loss Transferred to Partners' Capital A/c
    		Lalit	10,000
    		Madhur	6,000
    		Neena	4,000	20,000
    	21,000 =======			21,000 =======

    Partner's Capital Account

    Particulars	Lalit Amount (Rs)	Madhur Amount (Rs)	Neena Amount (Rs)	Particulars	Lalit Amount (Rs)	Madhur Amount (Rs)	Neena Amount (Rs)
    To Profit and Loss A/c (loss)	5,000	3,000	2,000	By Balance b/d	50,000	40,000	25,000
    To Goodwill A/c	10,000	6,000	4,000	By Lalit's Capital A/c (Goodwill)		10,929
    To Revaluation A/c (Loss)	10,000	6,000	4,000	By Neena's Capital A/c(Goodwill)		4,371
    To Madhur's Capital A/c (Goodwill)	10,929		4,371
    To Cash A/c		10,300
    To Madhur's Loan A/c		30,000
    To Balance c/d	14,071		10,629
    	50,000 ======	55,300 ======	25,000 ======		50,000 ======	55,300 =======	25,000 =======

    Madhur's Loan Account

    Date	Particulars	Amount (Rs)	Date	Particulars	Amount (Rs)
    Mar 31, 2014	To Bank A/c (15,000+ 3,600)	18,600	Apr 1, 2014	By Madhur's Capital A/c	30,000
    Mar 31	To Balance c/d	15,000	Mar 31	By Interest A/c	3,600
    		33,600 =======			33,600 =====
    Mar 31, 2015	To Bank A/c (15,000+1,800)	16,800	Apr 1, 2015	By Balance b/d	15,000
    			Mar 31	By Interest A/c	1,800
    		16,800 ======			16,800 ======

    Working Notes: Calculation of interest on loan: Interest for first year=30,000*12/100=3,600 Interest for second year=15000*12/100=1,80