Test: Death Of A Partner - 3 - CA Foundation MCQ

Explanation:
The correct answer is option C: Suspense.
- On the death of a partner, his executor is entitled to receive the share of profits of the dying partner for the relevant period.
- This payment is recorded in the Profit & Loss Account under a specific head called "Suspense".
- The purpose of recording it under the suspense head is to temporarily hold the amount until it is distributed among the legal heirs of the deceased partner.
- The executor of the deceased partner will receive the share of profits, and then it will be distributed according to the provisions of the partnership agreement or as per the legal requirements.
- Once the distribution is completed, the amount recorded under suspense will be adjusted and transferred to the respective partners' capital accounts.
In summary, when a partner dies, the share of profits for the relevant period is paid to the executor of the deceased partner and recorded under the suspense head in the Profit & Loss Account until the distribution is completed.

Revaluation Account
The revaluation account is a financial statement that is prepared at the time of certain events in a partnership. It is used to record the changes in the value of assets and liabilities of the partnership due to these events.
Events for which Revaluation Account is Prepared:
The revaluation account is prepared in the following situations:
1. Admission of a Partner: When a new partner is admitted into the partnership, the value of the assets and liabilities of the firm may change. The revaluation account is prepared to adjust these changes and to allocate the revaluation gain or loss among the existing partners.
2. Retirement of a Partner: When a partner retires from the partnership, the value of the assets and liabilities of the firm may need to be adjusted. The revaluation account is prepared to record any changes in the value of the assets and liabilities and to allocate the revaluation gain or loss among the remaining partners.
3. Death of a Partner: In the event of the death of a partner, the value of the assets and liabilities of the firm may change. The revaluation account is prepared to adjust these changes and to allocate the revaluation gain or loss among the remaining partners.
Importance of Revaluation Account:
The revaluation account serves several important purposes:
1. It helps in determining the new profit sharing ratio among the partners after the admission, retirement, or death of a partner.
2. It ensures that the changes in the value of assets and liabilities are properly accounted for and allocated among the partners.
3. It helps in maintaining the accuracy of the partnership's financial statements by reflecting the changes in the value of assets and liabilities.
In conclusion, the revaluation account is prepared at the time of the admission, retirement, or death of a partner in a partnership. It is a crucial financial statement that helps in adjusting and allocating the changes in the value of assets and liabilities among the partners.

Explanation:
The representative of the deceased partner is entitled to the deceased partner's share in the following items:

A: Profits till date, goodwill, joint life policy, interest on capital, share in revalued assets and liabilities.

B: Capital, goodwill, joint life policy, interest on capital, share in revalued assets and liabilities.

C: Capital, profits till date, goodwill, interest on capital, share in revalued assets and liabilities.

D: Capital, profits till date, goodwill, joint life policy, share in revalued assets and liabilities.
The correct answer is D because it includes all the entitlements that the representative of the deceased partner is entitled to.
Here is a breakdown of each option:

A:
- Profits till date: The representative is entitled to receive the deceased partner's share of profits earned until the date of death.
- Goodwill: The representative is entitled to the deceased partner's share of goodwill, which is the value of the firm's reputation and customer base.
- Joint life policy: The representative is entitled to the deceased partner's share of any joint life insurance policy taken by the partnership.
- Interest on capital: The representative is entitled to the deceased partner's share of interest earned on their capital investment in the partnership.
- Share in revalued assets and liabilities: The representative is entitled to the deceased partner's share in any revaluation of the partnership's assets and liabilities.

B:
- Capital: The representative is entitled to the deceased partner's share of the capital invested in the partnership.
- Goodwill: Same as option A.
- Joint life policy: Same as option A.
- Interest on capital: Same as option A.
- Share in revalued assets and liabilities: Same as option A.

C:
- Capital: Same as option B.
- Profits till date: Same as option A.
- Goodwill: Same as option A.
- Interest on capital: Same as option A.
- Share in revalued assets and liabilities: Same as option A.

D:
- Capital: Same as option B.
- Profits till date: Same as option A.
- Goodwill: Same as option A.
- Joint life policy: Same as option A.
- Share in revalued assets and liabilities: Same as option A.
Therefore, option D is the correct answer as it includes all the entitlements that the representative of the deceased partner is entitled to.

The question asks us to determine the percentage per annum for calculating the interest on the final amount due to the dead partner, as per Section 37 of the Indian Partnership Act, 1932.

Given:

Section 37 of the Indian Partnership Act, 1932.

To find:

The percentage per annum for calculating the interest on the final amount due to the dead partner.

Explanation:

Section 37 of the Indian Partnership Act, 1932 states that the executors will be entitled to the interest calculated from the date of death till the date of payment on the final amount due to the dead partner.

According to the Act, the interest rate is 6% per annum.

Answer: C. 6%

The joint life policy (JLP) of Rs. 1,20,000 is shared among the partners in the ratio of their profit sharing ratio, which is 2:1:1 for A, B, and C respectively.
To calculate the share of each partner after the death of A, we need to divide the JLP amount in the ratio of their profit sharing ratio.
Calculation:
1. Calculate the share of A:
- A's share = (JLP amount * A's profit sharing ratio) / Total profit sharing ratio
- A's share = (1,20,000 * 2) / (2+1+1)
- A's share = 2,40,000 / 4
- A's share = Rs. 60,000
2. Calculate the share of B:
- B's share = (JLP amount * B's profit sharing ratio) / Total profit sharing ratio
- B's share = (1,20,000 * 1) / (2+1+1)
- B's share = 1,20,000 / 4
- B's share = Rs. 30,000
3. Calculate the share of C:
- C's share = (JLP amount * C's profit sharing ratio) / Total profit sharing ratio
- C's share = (1,20,000 * 1) / (2+1+1)
- C's share = 1,20,000 / 4
- C's share = Rs. 30,000
Therefore, after the death of A, the JLP amount of Rs. 1,20,000 will be shared among the partners as follows:
- A: Rs. 60,000
- B: Rs. 30,000
- C: Rs. 30,000
Hence, the correct answer is option A: 50,000:25,000:25,000.

To calculate D's share of goodwill, we need to follow these steps:
1. Calculate the average profit for the last five years:
- Add up the profits: 29,600 + 28,700 + 28,900 + 24,000 + 26,800 = 138,000
- Divide the total by 5: 138,000 / 5 = 27,600
2. Calculate the value of goodwill based on three year's purchase of the average profit:
- Multiply the average profit by 3: 27,600 * 3 = 82,800
3. Calculate D's share of the goodwill based on the profit-sharing ratio:
- The total ratio of profits is 7 + 5 + 4 = 16
- D's share of the goodwill will be (4/16) * 82,800 = 20,700
Therefore, D's share of the goodwill is Rs. 20,700. (Option A)

Given:
- Partners: R, J, and D
- Profit sharing ratio: 7:5:4
- D died on 30th June 2006
- Profits for the accounting year 2005-2006: Rs. 24,000
To find:
- D's share in profits for the period 1st April 2006 to 30th June 2006
Approach:
1. Calculate the total profit for the accounting year 2005-2006.
2. Determine the period for which D's share needs to be calculated.
3. Calculate D's share in the profits for the given period.
Calculation:
1. Total profit for the accounting year 2005-2006:
- Given profit: Rs. 24,000

2. Period for D's share calculation:
- 1st April 2006 to 30th June 2006: 3 months
3. Calculation of D's share:
- D's share in the profit ratio: 4/16 (as the total ratio is 7+5+4=16)
- D's share in the profit for the given period:
= Total profit * D's share in the ratio * Period
= Rs. 24,000 * (4/16) * (3/12)
= Rs. 1,500
Therefore, D's share in profits for the period 1st April 2006 to 30th June 2006 will be credited with Rs. 1,500.
Answer: B - Rs. 1,500.

To calculate the amount B and C will pay to A's executor on account of goodwill, we need to follow these steps:
1. Calculate the average profit for the last three years:
- Average profit = (Profit Year 1 + Profit Year 2 + Profit Year 3) / 3
- Average profit = (3,29,000 + 3,46,000 + 4,05,000) / 3
- Average profit = 3,60,000
2. Calculate the value of goodwill:
- Goodwill = 2 years purchase of the average profit
- Goodwill = 2 * 3,60,000
- Goodwill = 7,20,000
3. Calculate the ratio of B and C's share in the total profit:
- Total ratio = 5 + 3 + 2 = 10
- B's ratio = 3 / 10
- C's ratio = 2 / 10
4. Calculate the amount B and C will pay to A's executor:
- Amount B will pay = B's ratio * Goodwill
- Amount B will pay = (3/10) * 7,20,000
- Amount B will pay = 2,16,000
- Amount C will pay = C's ratio * Goodwill
- Amount C will pay = (2/10) * 7,20,000
- Amount C will pay = 1,44,000
Therefore, B will pay Rs. 2,16,000 and C will pay Rs. 1,44,000 to A's executor on account of goodwill.
So, the correct answer is option D: Rs. 2,16,000 & Rs. 1,44,000.