Commerce Accountancy · Quantitative Aptitude

Partnership Accounting

181 Questions

Partnership accounting involves calculating profit and loss sharing ratios among business partners. It covers topics like interest on capital, joint life policies, and capital balances. These questions are a staple in commerce exams and test core accountancy principles.

Profit sharing ratiosInterest on capitalJoint venture accountingCapital balance calculationsPartner retirement policies

Partnership Accounting Questions

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

A,B and C ate three partners in a partnership firm sharing profit and loss equally. C retires from the firm on 31st March.His share of profit is purchased by A and B in the ratio of 2:1,If  at the time of retirement of the value of the goodwill of the firm is valued at Rs.54,000, and the partners decides to pay goodwill to the retiring partner, what will be accounting treatment? 

  1. None of the above

  2. A A/c Dr by Rs.30,000, B A/c Dr by Rs.24,000,C's A/c credit by Rs.54,000

  3. A A/c Dr by Rs.9,000, B A/c Dr by Rs.9,000,C's A/c credit by Rs.18,000

  4. A A/c Dr by Rs.18,000, B A/c Dr by Rs.24,000,C's A/c credit by Rs.34,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

gaining ratio = new ratio-old ratio 

                       A =2/3 -1/3=1/3
                        B =1/3-1/3 =0
                   A partner is gaining partner 
goodwill of firm =54000
B's share of goodwill=54000*1/3=18000           

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

When the Joint Life Insurance Policy premium is treated as expenses,the amount reserved on death of the partner is transferred to _________. 

  1. partners capital A/c.

  2. cash A/c.

  3. profit and loss appropriation A/c.

  4. general reserve A/c.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When Joint Life Policy premium is treated as an expense, then it is closed every year by transferring it to profit and loss A/c and the amount reserved on the death of the partner is transferred to partner's capital A/c.

Following are the journal entries :
1. On Payment of premium
            Joint Life Policy A/c               Dr. 
                     To Bank A/c 
2. On charging to profit and loss A/c
            Profit and Loss A/c                Dr.      
                      To Joint life Policy insurance premium A/c 
3. On maturity/ Death of a policy
            Insurance company / Bank A/c   Dr.
                       To Partner's capital A/c (individually)

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

R, J & D are the partners sharing profits in the ratio $7 : 5 : 5$ D died on $30$th June $2015$. It was decided to value the good will on the basis of $3$ year's purchase of last $5$ years average profits. If the profits are $Rs.29,600$; $Rs.28,700$; $Rs.28,900$; $Rs.24,000$ & $Rs.26,800$. What will be D's share of good will?

  1. $Rs.20,700$.
  2. $Rs.27,600$.
  3. $Rs.82,800$.
  4. $Rs.27,000$.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Old ratio (R, J and D) = 7 : 5 : 4

Calculation of goodwill :
1. Average profit = (29600 + 28700 + 28900 + 24000 + 26800) /5
                            = 138000/5
                            = 27600
2. Goodwill = Average profit * No. of year's purchase
                    = 27600 * 3
                    = 82800
D's share of goodwill = Total goodwill * D's share
                                    = 82800 * (4/16) 
                                    = 20700

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

A, B & C takes a joint life policy, after 5 years, B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A & C decides to share profits equally. They had taken a joint life policy of Rs. 2,50,000 with the surrender value Rs. 50,000. What will be the treatment in the partners' capital account on receiving the JLP amount if joint life policy is maintained at the surrender value? 

  1. Rs. 50,000 credited to all the partners in old ratio.

  2. Rs. 2,50,000 credited to all the partners in old ratio.

  3. Rs. 2,00,000 credited to all the partners in old ratio.

  4. No treatment is required.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If the Joint Life Policy is maintained at surrender value, the policy is already recorded as an asset. Upon receiving the full maturity value, the difference between the maturity value and the surrender value is treated as a gain and distributed.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

A, B & C takes a joint life policy, after five years B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A & C decides to share profits equally. They had taken a joint life policy of Rs. 2,50,000 with the surrender value Rs. 50,000. What will be the treatment in the partner's capital account on receiving the JLP amount if joint life policy is maintained at surrender value along with the reserve?

  1. Rs. 50,000 credited to all the partners in old ratio.

  2. Rs. 2,50,000 credited to all the partners in old ratio.

  3. Rs. 2,00,000 credited to all the partners in old ratio.

  4. Distribute JLP Reserve A/c in old profit sharing ratio.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a JLP Reserve exists alongside the JLP asset, the reserve is typically closed by transferring it to the partners' capital accounts in their old profit-sharing ratio.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Balances of R,H & M sharing profits & losses in the ratio 2:3:2 stood as Rs. 10,00,000; H - Rs. 15,00,000; M - Rs. 10,00,000; Joint Life Policy Rs. 3,50,000. H desired to retire from the firm and the remaining partners decided to carry on with the future profit sharing ratio of 3:2. Joint life policy of the partners surrendered and cash obtained Rs. 3,50,000. What would be the treatment for JLP A/c?

  1. Rs. 3,50,000 credited to partner's capital account in new ratio.

  2. Rs. 3,50,000 credited to partner's capital account in old ratio.

  3. Rs. 3,50,000 credited to partner's capital account in capital ratio.

  4. Rs. 3,50,000 credited to JLP account.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a Joint Life Policy (JLP) is surrendered, the cash received is credited to the JLP account to close it. The balance remaining in the JLP account is then transferred to the partners' capital accounts in their old profit-sharing ratio.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

A, B & C were partners sharing profits and losses in the ratio of 3:2:1. A retired and firm received the joint life policy as Rs. 7,500 appearing in the balance sheet at Rs. 10,000. JLP is credited and cash debited with Rs. 7,500, what will be the treatment for the balance in Joint Life Policy?

  1. Credited to partner's current account in profit sharing ratio.

  2. Debited to revaluation account.

  3. Debited to partner's capital account in profit sharing ratio.

  4. Either (B) or (C).
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The JLP appears in the balance sheet at 10,000 but only 7,500 is received. The loss of 2,500 must be borne by the partners in their profit-sharing ratio, which can be debited to the Revaluation account or directly to the capital accounts.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Balances of $R _{1}, R _{2}$ & $R _{3}$ sharing profits & losses in proportion to their capitals, stood as:
$R _{1} = Rs. 3,00,000$
$R _{2} = Rs. 2,00,000$
$R _{3} = Rs. 1,00,000$
$R _{1}$ desired to retire from the firm and the remaining partners decided to carry on, joint life policy of the partners surrendered and cash obtained Rs. 60,000. What will be the treatment for Joint Life Policy A/c? 

  1. $Rs.60,000$ credited to Revaluation A/c.
  2. $Rs.60,000$ credited to Joint Life Policy A/c.
  3. $Rs.30,000$ debited to Ram's Capital A/c.

  4. Either (A) or (B).
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Readjustments takes place in case of retirement of a partner. Whenever the partner retires, the continuing partners makes gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of the retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation profit and reserve are transferred to capital or current accounts of partners. Lastly, final amount due to retiring partner is determined and discharged.

From the above provision, it can be concluded that At the the time of retirement of partner the surrender value of joint life policy is taken into account. 
Therefore, in the given question Rs.60000 is credited to joint life policy A/c.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

A, B & C Care the partners sharing profits and losses in the ratio $2:1:1$. Firm has a joint life policy of $Rs.1,20,000$ and in the balance sheet it is appearing at the surrender value i. e. $Rs.20,000$. On the the death of A, how this JLP will be shared among the partners? 

  1. $50,000 : 25,000 : 25,000$
  2. $60,000 :30,000 : 30,000$
  3. $40,000 :35,000 :25,000$
  4. Whole of $Rs.1,20,000$ will be paid to A
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If Joint Life Policy appears in the Balance Sheet at surrender value, then the firm will gain on the death of a partner and partners will get

 policy amount - Surrender value i.e., in their profit sharing ratio
Rs. 120000 - Rs. 20000 = Rs. 100000
Distribution of JLP among the partners is : 
A = 100000 * (2/4) = 50000
B = 100000 * (1/4) = 25000
C = 100000 * (1/4) = 25000

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

X & Y are partners sharing profit in the ratio of 3:2. Z was admitted on the following terms:New profit sharing ratio will be 5:3:2 Machinery would be depreciated by $8\%$ (book value Rs. 1,80,000)Building would be appreciated by $15\%$ (book value Rs. 1,50,000)To create provision for bad debts $5\%$ on Debtors of Rs.25,000 Unrecorded debtors of Rs.1,250 would be brought into books Creditors amounting to Rs.2,750 died and need not to pay anything. Find the distribution of profit/loss on revalution between X & Y.    

  1. Profit 3,210 & 2,140

  2. Profit 6,510 & 4,340

  3. Profit 1,710 & 1,140

  4. Profit 1,140 & 1,710
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Revaluation: Machinery (-14,400), Building (+22,500), Provision for Bad Debts (-1,250), Unrecorded Debtors (+1,250), Creditors (-2,750). Net profit = 22,500 - 14,400 - 1,250 + 1,250 + 2,750 = 10,850. Distributed in 3:2 ratio: X gets 6,510 and Y gets 4,340.

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

R, J & D are the partners sharing profits in the ratio $7:5:4$. D died on $30$th June, $2015$. It was decided to value the goodwill on the basis of $3$ year's purchase of last 5 years average profits. It the profits are $Rs.29,600$; $Rs.28,700$; $Rs.28,900$; $Rs.24,000$ & $Rs.26,800$. What will be D's share of goodwill?

  1. $Rs.20,700$
  2. $Rs.27,600$
  3. $Rs.82,800$
  4. $Rs.27,000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Old ratio (R, J and D) = 7 : 5 : 4

Calculation of goodwill :
1. Average profit = (29600 + 28700 + 28900 + 24000 + 26800) /5
                            = 138000/5
                            = 27600
2. Goodwill = Average profit * No. of year's purchase
                    = 27600 * 3
                    = 82800
D's share of goodwill = Total goodwill * D's share
                                    = 82800 * (4/16) 
                                    = 20700

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

If three partners A, B & C are sharing profits as $5:3:2$, then on the death of a partner A, how much B & C will pay to A's execute on account of goodwill if Goodwill is to be calculated from $2$ years purchase of the last three years average profits. Profits for three years are: $Rs.6,58,000$; $Rs. 6,92,000$ and $Rs.8,10,000$. 

  1. $Rs.4,32,000$ & $Rs.2,84,000$
  2. $Rs.4,88,000$ & $Rs.4,32,000$
  3. $Rs.7,20,000$ & $Rs.7,20,000$
  4. $Rs.4,32,000$ & $Rs.2,88,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Profit sharing ratio of A, B and C is 5 : 3 : 2

A's share of goodwill = (5/10) * 1440000 = 720000           (working note)
Contribution for A's share of goodwill by:-
B = 720000 * (3/15) = 432000                                             (Note)
C = 720000 * (2/5) = 288000                                              (Note)
Working note:-
Calculation of goodwill :-
1. Average profit =  (658000 + 692000 + 810000) / 3
                            = 2160000/3 
                            = 720000
2. Goodwill = Average profit * No. of year's purchase
                    =  720000 * 2
                    = 1440000
Note : In the absence of information gaining ratio and new ratio will be same as old ratio.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Balance of A,B & C sharing profits & losses in proportion to their capitals, stood as :
A = 2,00,000
B = 3,00,000
C = 2,00,000
Joint Life Policy Reserve A/c 80,000 and Joint Life Policy A/c is shown in the balance sheet 80,000 A desired to retire from the firm and the remaining, partners decided to carry on in equal ratio, joint life policy of the partners surrendered and cash obtained 80,000 What will be the treatment for  joint Life Policy Reserve A/c?

  1. Cash received credited to Revaluation A/c

  2. JLP Reserve balance credited to Partner's Capital A/c in old profit sharing ratio.

  3. JLP Reserve balance credited to Partner's Capital A/c in new profit sharing ratio.

  4. Cash received credited to Partners' Capital A/c in old profit sharing ratio.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A Joint Life Policy Reserve represents accumulated profits. Upon the retirement of a partner or surrender of the policy, this reserve is distributed among all partners in their old profit-sharing ratio.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Balances of A, B & C sharing profits & losses in proportion to their capitals, stood as:
A = $Rs.2,00,000$
B = $Rs.3,00,000$
C = $Rs.2,00,000$
Joint Life Policy Reserve A/c $Rs.80,000$ and Joint Life Policy A/c is shown in the balance sheet $Rs.80,000$. A desired to retire from the firm and the remaining partners decided to carry on in equal ratio, joint life policy of the partners surrendered and cash obtained $Rs.80,000$. What will be the treatment for Joint Life Policy Reserve A/c?

  1. Cash received credited to Revaluation A/c.

  2. JLP Reserve balance credited to Partner's Capital A/c in old profit sharing ratio.

  3. JLP Reserve balance credited to Partner's Capital A/c in new profit sharing ratio.

  4. Cash received credited to Partners' Capital A/c in old profit sharing ratio.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Creation of Joint Life Policy Reserve Account - Under this method, premium paid is debited to policy account and credited to bank A/c. At the end of the year, amount equal to premium is transferred from profit and loss appropriation A/c to policy reserve A/c. After this, policy A/c is brought down to its surrender value by debiting the life policy reserve A/c with amount which exceeds the surrender value of policy. Thus, in this method, policy account appears on the assets side and policy reserve account appears on the liabilities side of the balance sheet until it is realised. Both these accounts appear in the balance sheet at the surrender value of policy. 

On death or retirement of a partner Joint Life Policy Reserve Account is transferred to Joint Life Policy Account and then the balance is transferred to Partner's Capital Account in old profit sharing ratio.

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

B, C, D are partners sharing profits in the ratio $7:5:4$. D died on $30$th June $2006$ and profits for the years $2005-2006$ was $Rs.12,000$. How many shares in profits for the period $1$st April $2006$ to $30$th June $2006$ will be credited to D's accounts?

  1. $Rs.3,000$
  2. $Rs.750$
  3. $Rs.1570$
  4. $Rs 1,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

On death of partner,  representative of deceased partner is entitled to the partner's share of profit from the beginning of the year to the date of the death.

D's share of profit on 30th June, 2006 = Total profit till date * D's share
D's share of profit on 30th June, 2006 =  Rs. 12000 * (3/12) * (4/16)
D's share of profit on 30th June, 2006 = Rs. 750