Tag: procedure of settlement of accounts

Questions Related to procedure of settlement of accounts

A partner gave a loan of Rs.20,000 to the firm. At the time of dissolution of the firm the net losses of the firm were 30,000. How much money will the partner get on dissolution?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Nil

  2. 20,000

  3. 20,000 + 6% interest

  4. None of the above

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Correct Option: A
Explanation:

In case of loss, two situations arise:
1. If partner's capital has a credit balance then his loan amount will be repaid. Following entry will be passed: 
Partner's loan A/c Dr.
   To Bank/Cash A/c
2. If a partner's capital has debit balance then loan amount will not be paid. loan amount is transferred to capital account of partner. Following entry will be passed:
Partner's loan A/c Dr. 
   To Partner's Capital A/c

X, Y, Z are partners sharing profits and losses equally. They took a joint life policy of Rs 5,00,000 with a surrender value of Rs 3,00,000. The firm treats the insurance premium as an expense. Y retired and X and Z decided to share profits and losses in 2:1. The amount of Joint life policy will be transferred as:

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Credited to X, Y and Z's Capital accounts with Rs 1,00,000 each.

  2. Credited to X, Y and Z's capital accounts with Rs 166,667 each

  3. Credited to X, and Z capital accounts with Rs 2,50,000 each

  4. Credited to Ys capital account with Rs 3,00,000 each

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Correct Option: A

Claim of the retiring partner is payable in the following form.

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  1. Fully in cash.

  2. Fully transferred to loan account to be paid later with some interest on it.

  3. Partly in cash and partly as loan repayable later with agreed interest.

  4. Any of the above method.

Show answer
Correct Option: D
Explanation:

When a partner retires from a firm, other partners continue to run the business of the firm. Readjustments takes place in case of retirement of a partner. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange the amount to be paid to discharge the claims of the retiring partners. 

Amount due to retiring partners may be discharged in the following form:
1. Fully in cash. 
2. Fully transferred to loan accpunt to be paid later with some interest on it.
3. Partly in cash and partly as a loan repayble later with agreed interest.

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 7,500 appearing in the balance sheet at 10,000 JLP is credited and cash debited 7,500 what will be the treatment for the balance in Joint Life Policy?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

  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)

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Correct Option: D

A, B & C takes a joint life policy, after 5 years B retire from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decided to share profits equally. They had taken a joint life policy of 2,50,000 with the surrender value 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 the surrender value along with the reserve?

book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

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

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

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

  4. Distribute JLP Reserve A/c in old profit sharing ratio.

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Correct Option: D