Tag: retirement/ death of a partner

Questions Related to retirement/ death of a partner

On the death of a partner, credit balance of Profit and Loss Account appearing in, the Balance sheet, should be credited to the Capital Accounts of ______________ .

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

  1. all partners including the deceased partner in their profit-sharing ratio

  2. the remaining partners in the new profit-sharing ratio

  3. neither the deceased partner nor the remaining partners.

  4. None of these

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Correct Option: A

At the time of retirement or death of a partner, the remaining partners decide to adjust their capital contributions in their _________.

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

  1. old profit sharing ratio

  2. profit sharing ratio

  3. new profit sharing ratio

  4. both a and c

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Correct Option: B

X and Y have capitals of Rs. 20,000 and Rs. 10,000 respectively and share profits and losses equally. On dissolution of firm all creditors are paid off and a balance of cash left is Rs. 5,000. It will be distributed as follows :

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

  1. Rs. 5,000 to X

  2. Rs. 5,000 to Y

  3. Rs. 2,500 each to X and Y

  4. Rs. 3,333 to A and Rs. 1,667 to B

Show answer
Correct Option: A
Explanation:

According to piecemeal distribution of cash, partners whose capitals are more than proportionate to other partner's capital should first be refunded to bring down their capitals to proportionate levels. After that amount left unpaid be shared in profit sharing ratio. In this, X and Y share profits and losses equally. So their capitals should also be equal. To make capital equal X will be paid first. So Rs. 5000 will be paid to X. 

 New profit sharing ratio is calculated at the time of _________ .

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

  1. Admission of a partner

  2. Retirement of a partner

  3. Death of a partner

  4. All of the above

Show answer
Correct Option: D
Explanation:

Partnership - The relation between persons who have agrred to share the profit of a business carried on by all or any of them acting for all is known as partnership. 

Partnership can be reconstituted at any time during the accounting year in any of the following ways :-
1. Admission of a partner
2. Retirement of a partner
3. Death of a partner
In any of the above instances new profit sharing ration must be calculated to allocate the income and expenditure to partners in a reconstituted firm.

In partnership, a minor _______________ .

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

  1. Cannot be a partner

  2. Can be a partner

  3. Can be admitted only to the benefits of a partnership

  4. None of the above

Show answer
Correct Option: C
Explanation:

A partnership is a contract between the partners. Hence a minor cannot be a partner in a partnership firm. However, according to the Partnership Act, a minor may be admitted to the benefits of a partnership. So while the minor will not be a partner he will enjoy all the benefits of a partnership.

On the dissolution of a firm, an amount realized from the unrecorded asset is credited to:

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

  1. Revaluation account

  2. Realisation account

  3. Cash account

  4. Capital Account.

Show answer
Correct Option: B
Explanation:

At the time of dissolution, all the assets are transferred to realisation account. Journal entry is:
Realisation A/c Dr. 
    To assets A/c 
When assets are sold, entry is:   
Bank A/c Dr. 
    To Realisation A/c
Because bank balance increased.

When is a claim of retiring partner transferred to Loan account which accounts it is credited to?

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

  1. Retiring Partner Loan A/c

  2. Cash A/c

  3. Bank Loan A/c

  4. None of the above

Show answer
Correct Option: A
Explanation:

Journal Entry for settlement to Retiring Partner against Loan:

Retiring Partner Capital A/c Dr         To Retiring Partner Loan A/c


Cash paid on settlement of retiring partners claim is credited to _____.

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

  1. Cash A/c

  2. Partners Capital A/c

  3. Retiring Partner Capital A/c

  4. None of the above

Show answer
Correct Option: A
Explanation:

Cash is a real account. Rule for the real account is as under:

Debit what comes in 
Credit what goes out

Cash paid to partner at the time of retirement. Accordingly journal entry will be passed as:
Partner's Capital A/c                 Dr.
          To Cash A/c

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