Tag: elements of accounts

Questions Related to elements of accounts

The deceased partner's capital account is debited with his share of the following amounts:

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Drawings

  2. Interest on drawings from the beginning of the year to the date of death

  3. Loss on revaluation of assets and liabilities

  4. All of these

Show answer
Correct Option: D
Explanation:

The partner's capital account is an equity account in the accounting records of a partnership. It contains the following type of transactions:

1. Initial and subsequent contributions by the partners to the partnership, in the form of either cash or the market value of other types of assets.

2. Profits and losses earned by the business, and allocate to partners based on the provisions of the partnership agreement.

3. Distributions to partners.

Following are the things which are debited to deceased partner's capital account with his share:

1. Drawings

2. Interest in drawings from the beginning of the year to the date of his death.  

3. Loss on revaluation of assets and liabilities.

At the time of final payment to retiring partner, which of the following adjustment/s is/are necessary in the capital accounts ?

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Transfer of goodwill

  2. Transfer of profit or loss on revaluation

  3. Transfer of reserve

  4. All of the above

Show answer
Correct Option: D
Explanation:

The following adjustments are necessary at the time of final payment to retiring partner:

1. Transfer of reserves

2. Transfer of goodwill

3. Transfer of profit and loss on revaluation
After the adjustment of the above mentioned items, the capital account balance standing to the credit of the retiring partner represents amount to be paid to him.

The continuing partners may discharge the whole claim at the time of retirement. Then the journal entry will be as follows:

Retiring Partner's capital A/c                Dr.

             To Bank A/c

Sometimes the retiring partner agrees to retain some portion of his claim in the partnership as loan. The journal entry will be as follows:

 Retiring Partner's Capital A/c              Dr.

               To Retiring Partner's Loan A/c

               To Bank A/c

On the date of retirement of a partner Furniture Sundry debtors and provisions bad debtors stand in the books of A/c at Rs.50,000,Rs 45000, and Rs 4500 respectively. The  partner decided to revalue assets as under furniture to be  reduced to 85 % ,provision for bad debts to be brought to 20% of sundry debtors. The entry for revaluation of furniture in trade will be _______________.

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. revaluation A/c Dr. Rs.4250,to furniture by Rs.4250

  2. profit and loss A/c Dr. Rs.5000, stock in trade credit by Rs.5000

  3. partners Capital A/c Dr. Rs 7500 to revaluations A/c 7500

  4. revaluation A/c Dr. Rs.7500, furniture Cr .Rs.7500

Show answer
Correct Option: D
Explanation:

Revaluation account is an account prepare at the time of retirement or death of a partner. In this account, increase in value of assets or decrease in liabilities is recorded at credit side and decrease in value of asset and increase in liabilities recorded at debit side. Difference between both sides is calculated and transfer to partner's capital account.

In the given question, revaluation of furniture will be journalise as follows:
        Revaluation A/c                   Dr.                       7500
                 To Furniture   A/c                                          7500
(being value of furniture decreased by 15%)

In the absence of an agreement, partners are entitled to ___________.

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Salary

  2. Commission

  3. Interest on Loans and Advances

  4. Profit share in capital ratio

Show answer
Correct Option: C
Explanation:

A partnership deed is a written legal document to avoid unnecessary misunderstanding, harassment and unpleasantness among the partners in the event of any dispute.

Partners can make or insert clauses in their partnership deed.

In case if partner does not make agreement or deed, then partners are entitled for interest on loans and advances and their profit sharing ratio will be equal. They are not entitled for salary and commission.

On retirement or death of a partner the existing profit and loss a/c and Reserve a/c is transferred to ____________.

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. debt side of all partners capital a/c

  2. credit side of all partners capital a/c

  3. debit side of remaining partners capital a/c

  4. credit side of remaining partnership capital a/c

Show answer
Correct Option: B
Explanation:
At the time of retirement of a partner, if there exist any reserve or accumulated profit in the books of the firm, they should be transferred to the old partner's capital/current accounts in the old profit sharing ratio, because these items belongs to the old partners.
In the same manner, old partner's capital/current accounts should be debited in the old ratio if any accumulated loss appears in the asset side of the balance sheet.

At the death of a partner following entries can be made:

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Transfer all balance from capital account of partner to loan account.

  2. Pay cash immediately from his capital account.

  3. Transfer all balance from capital account of partner to partner's executions account.

  4. Both B & C

Show answer
Correct Option: C
Explanation:

At the time of the death of a partner, firm gets reconstituted. In reconstitution assets and liabilities are revalued, and the resultant  profit and loss has to be transferred to the capital accounts of all partners after including the deceased partner. Value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. After ascertaining the amount due to the deceased partner, it should be transfer to his capital account and from there transfer to his executor's account.

What balance does a Partners Current Account has?

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Debit balance.

  2. Credit balance.

  3. Either (a) or (b).

  4. None of these.

Show answer
Correct Option: C
Explanation:

The partnership capital account is an equity account in the accounting records of a partnership. It

contains the following types of transactions:

1.  Initial and subsequent contributions by partners to the partnership, in the form of either cash or the market value of other types of assets.

2. Profits and losses earned by the business, and allocated to the partners based on the provisions of the partnership agreement.

3. Distributions to the partners.

The ending balance in the account is the undistributed balance to the partners as of the current date.   

Partner's capital account can either have a credit balance or debit balance.

A capital account having a credit balance means business owes partners that much amount, while if a capital account has a debit balance it means partners owe business that much amount or we can also say that partners have overdrawn their capital account.

X, Y and Z are partners in a firm. At the time of division of profit for the year there was dispute among the partners. Profits before interest on partners capital and loan was Rs. 6,000 and.Y determined interest @ 24% p.a. on his loan of Rs. 80,000. There was no agreement on this point. Calculate the amount payable to X, Y and Z respectively.

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Rs. 2,000 to each partner.

  2. Loss of Rs. 4,400 for X and Z and Y will take home Rs. 14,800.

  3. Rs. 400 for X, Rs. 5,200 for Y and Rs. 400 for Z.

  4. Rs. 2;400 to each partner.

Show answer
Correct Option: C
Explanation:

In the absence of partnership deed, no interest on capital is provided. Interest on loan is calculated at 6%. Interest On loan at 6% will be 4800 Rs. Remaining 1200 Rs. will be distributed equally among partners 400 Rs. to each partner. Share of X and Z will be 400 Rs. and share of Y will be 400+ 4800(interest on loan) = 5200 Rs.

Relationship of consignor and consignee is that of partners.

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. True

  2. False

Show answer
Correct Option: B
Explanation:

Consignee acts as agent who undertakes to sell the goods of consignor. Consignment occurs when goods are sent by the consignor to consignee. consignor continues  to own the goods until they are sold. 

In normal trading circumstances, which of the following would not be found in a partner's capital accounts? 

adjustment of partners capital and death of a partner retirement/ death of a partner elements of accounts

  1. Profits on revaluation.

  2. Losses on dissolution.

  3. Goodwill

  4. Drawings.

Show answer
Correct Option: D