Tag: retirement/ death of a partner

Quizzes (7) Questions (22)

Questions Related to retirement/ death of a partner

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

What is the journal entry for excess capital withdrawn by the partner?

  1. Cash/Bank A/c Dr.

    To Partners' Capital A/c

  2. Partners' Capital A/c Dr.

    To Cash/Bank A/c

  3. Partners' Capital A/c Dr.

    T\o Partners' Current A/c

  4. Partners' Current A/c Dr.

    To Partners' Capital A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
  • When a partner enter into partnership he/she is required to bring his share of capital in the firm. 

  • Capital account of each partner represents his equity in the partnership.

    Capital account of a partner is increased in the following situations:

    • The owner made additional investments during the year.
    • The owner made guaranteed payments to the firm.
    • Partnership earned profits, and a share of profits was allocated to the partner.

    The increase in the capital will record in credit side of the capital account.

    Salary and interest allowances are guaranteed payments, discussed later.

    Capital account of a partner is decreased when the owner makes withdrawals of cash or property

  • Journal entry for excess capital withdrawn by the partner is

  •      Partner's Capital A/c                Dr. 

      To Cash/Bank A/c

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

$A, B$ and $C$ are partners sharing profits in the ratio of $2 : 2 : 1$. $C$ retired. The new profit-sharing ratio between $A$ and $B$ will be :

  1. $2:1$

  2. $1:1$

  3. $3:1$

  4. <span>$8:1$</span>
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

C’s share of profit = 1/5, to be taken by A and B equally.

A gains = 1/5 X 1/2 = 1/10

B gains = 1/5 X 1/2 = 1/10

New share of A = 2/5 + 1/10 = 4/10 + 1/10 = 5/10 = 1/2

New share of B = 2/5 + 1/10 = 4/10 + 1/10 = 5/10 = 1/2

New profit sharing ratio of A and B = 1:1