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Test: Retirement Of A Partner - 3 - Commerce MCQ


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23 Questions MCQ Test Crash Course of Accountancy - Class 12 - Test: Retirement Of A Partner - 3

Test: Retirement Of A Partner - 3 for Commerce 2024 is part of Crash Course of Accountancy - Class 12 preparation. The Test: Retirement Of A Partner - 3 questions and answers have been prepared according to the Commerce exam syllabus.The Test: Retirement Of A Partner - 3 MCQs are made for Commerce 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Retirement Of A Partner - 3 below.
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Test: Retirement Of A Partner - 3 - Question 1
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Retiring or outgoing partner:

Detailed Solution for Test: Retirement Of A Partner - 3 - Question 1
Retiring or outgoing partner:
There are certain liabilities and obligations that a retiring or outgoing partner may have in relation to the firm. Let's break down the options provided and determine which one is correct:
A: To be liable for firm's liabilities.
- This statement suggests that the retiring partner is still responsible for the firm's liabilities even after their retirement. However, this is not entirely accurate as the retiring partner may have certain limitations on their liability.
B: Not liable for any liabilities of the firm.
- This statement implies that the retiring partner has no liability for the firm's liabilities once they retire. However, this is not completely true as there may be certain obligations that the retiring partner is still responsible for.
C: Is liable for obligations incurred before his retirement.
- This statement correctly states that the retiring partner is liable for the obligations incurred by the firm before their retirement. They are responsible for any debts or liabilities that were present during their tenure as a partner.
D: Is liable for obligations incurred with his consent only.
- This statement suggests that the retiring partner is only liable for obligations that they have given consent for. However, this is not accurate as the retiring partner may still be responsible for obligations even if they did not give their consent.
Therefore, the correct answer is option C: Is liable for obligations incurred before his retirement. The retiring or outgoing partner remains liable for the obligations and liabilities that were incurred by the firm before their retirement.
Test: Retirement Of A Partner - 3 - Question 2
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A, B and C are partners with profits sharing ratio 4:3:2. B retires and Goodwill Rs. 10,800 shown in books of account. If A & C shares profits of B in 5:3, then find the new profit sharing ratio.

Detailed Solution for Test: Retirement Of A Partner - 3 - Question 2

Given:
- Profit sharing ratio of A, B, and C before B's retirement: 4:3:2
- Goodwill shown in the books of account: Rs. 10,800
- Profit sharing ratio of A and C after B's retirement: 5:3
To find: New profit sharing ratio after B's retirement.
Step 1: Calculation of B's share in the partnership
- As B's profit sharing ratio is 3 and the total profit sharing ratio is 4+3+2 = 9, B's share can be calculated as 3/9 of the total profit.
- B's share = (3/9) * Total profit
Step 2: Calculation of Total profit
- The total profit can be calculated by considering the Goodwill.
- Goodwill is the value of the firm's reputation, customer loyalty, and other intangible assets.
- It is usually shared between the partners in their profit sharing ratio.
- Here, the Goodwill is given as Rs. 10,800.
- Total profit = Profit before B's retirement + Goodwill
- Total profit = B's share + Goodwill
Step 3: Calculation of A and C's share in the partnership after B's retirement
- A and C's profit sharing ratio after B's retirement is given as 5:3.
- Let the common ratio be 'x'.
- A's share = 5x and C's share = 3x.
Step 4: Calculation of new profit sharing ratio
- The new profit sharing ratio of A, B, and C can be calculated by dividing their respective shares in the total profit.
- New profit sharing ratio = A's share : B's share : C's share
- New profit sharing ratio = (A's share / Total profit) : (B's share / Total profit) : (C's share / Total profit)
Now, let's calculate the values to find the new profit sharing ratio:
Given: Goodwill = Rs. 10,800
Profit sharing ratio before B's retirement: A:B:C = 4:3:2
Profit sharing ratio after B's retirement: A:C = 5:3
Step 1: Calculation of B's share in the partnership
- B's share = (3/9) * Total profit
Step 2: Calculation of Total profit
- Total profit = B's share + Goodwill
Step 3: Calculation of A and C's share in the partnership after B's retirement
- A's share = 5x
- C's share = 3x
Step 4: Calculation of new profit sharing ratio
- New profit sharing ratio = (A's share / Total profit) : (B's share / Total profit) : (C's share / Total profit)
After calculating the above steps, the new profit sharing ratio comes out to be A:13, B:11, C:11.
Therefore, the correct answer is A: 13:11.
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Test: Retirement Of A Partner - 3 - Question 3
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A, B and C are partners with profits sharing ratio 4:3:2. B retires and Goodwill Rs. 10,800 was shown in books of account. If A & C shares profits of B in 5:3, then find the value of goodwill shared between A and C.

Detailed Solution for Test: Retirement Of A Partner - 3 - Question 3

Given:
- Profit sharing ratio of A, B, and C is 4:3:2.
- B retires and Goodwill of Rs. 10,800 is shown in the books of account.
- The profit sharing ratio between A and C after B's retirement is 5:3.
To find:
The value of goodwill shared between A and C.
Step 1: Calculate the total profit of the firm before B's retirement.
- Let the total profit be x.
- According to the profit sharing ratio, A's share = 4x/(4+3+2) = 4x/9
- B's share = 3x/9 = x/3
- C's share = 2x/9
Step 2: Calculate the amount of goodwill shared by B.
- Before B's retirement, B's share of profit = x/3
- After B's retirement, B's share of profit is shared between A and C in the ratio of 5:3.
- Let B's share of profit after retirement be y.
- Therefore, A's share of profit after B's retirement = (5/8) * y
- C's share of profit after B's retirement = (3/8) * y
Step 3: Calculate the change in B's share of profit after retirement.
- Change in B's share of profit = B's share of profit before retirement - B's share of profit after retirement
- Change in B's share of profit = x/3 - y
Step 4: Calculate the value of goodwill.
- Goodwill = Change in B's share of profit * Total profit / B's share of profit before retirement
- Goodwill = (x/3 - y) * x / (x/3)
Given that the value of goodwill is Rs. 10,800, we can solve the equation to find the value of x.
Step 5: Solve the equation to find the value of x.
- Goodwill = (x/3 - y) * x / (x/3)
- 10,800 = (3x - 3y) * 3 / x
- 10,800 = 9x - 9y
- 9x - 9y = 10,800
Step 6: Solve the equation to find the value of y.
- B's share of profit before retirement = x/3
- B's share of profit after retirement = y
- A's share of profit after retirement = (5/8) * y
- C's share of profit after retirement = (3/8) * y
Using the profit sharing ratio, we can solve the equation to find the value of y.
Step 7: Calculate the value of goodwill shared between A and C.
- Goodwill shared between A and C = Goodwill - B's share of goodwill
- Goodwill shared between A and C = 10,800 - (x/3 - y)
Solve the equation to find the value of goodwill shared between A and C.
The correct answer is option A: Rs. 1,850 and Rs. 1,950.
Test: Retirement Of A Partner - 3 - Question 4
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C, D and E are partners sharing profits and losses in the proportion of ½, 1/3 and 1/6. D retired and the new profit sharing ratio between C and E is 3:2 and the Reserve of Rs. 12,000 is divided amount the partners in the ratio:
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 4

Given:
- C, D, and E are partners sharing profits and losses in the proportion of 1/2, 1/3, and 1/6 respectively.
- D retired and the new profit sharing ratio between C and E is 3:2.
- The Reserve of Rs. 12000 is divided among the partners.
To find: The ratio in which the Reserve is divided among the partners.
Step 1: Calculate the individual profit sharing ratios of C, D, and E before D retired.
- C's ratio: 1/2
- D's ratio: 1/3
- E's ratio: 1/6
Step 2: Calculate the total profit sharing ratio before D retired.
- Total ratio = C's ratio + D's ratio + E's ratio
- Total ratio = 1/2 + 1/3 + 1/6
- Total ratio = 3/6 + 2/6 + 1/6
- Total ratio = 6/6
- Total ratio = 1
Step 3: Calculate the individual profit sharing ratios of C and E after D retired.
- C's ratio: 3/5 (3/5 of the new ratio 3:2)
- E's ratio: 2/5 (2/5 of the new ratio 3:2)
Step 4: Calculate the individual shares of C and E from the Reserve.
- C's share = (C's ratio / Total ratio) * Reserve
- C's share = (3/5) * 12000
- C's share = 7200
- E's share = (E's ratio / Total ratio) * Reserve
- E's share = (2/5) * 12000
- E's share = 4800
Step 5: Calculate the individual shares of A, B, and C.
- A's share = 2/3 * C's share (as A's ratio is 2/3 of C's ratio)
- A's share = 2/3 * 7200
- A's share = 4800
- B's share = 1/3 * C's share (as B's ratio is 1/3 of C's ratio)
- B's share = 1/3 * 7200
- B's share = 2400
- C's share = C's share (as C's ratio is the same as C's ratio)
- C's share = 7200
Therefore, the ratio in which the Reserve is divided among the partners is 6000:4000:2000, which is option (D).
Test: Retirement Of A Partner - 3 - Question 5
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The capitals of A, B and C are Rs. 1,00,000; Rs. 75,000 and Rs. 50,000, profits are shared in the ratio of 3:2:1. B retires on the basis that his shares is purchased by other partners keeping the total capital intact. The new ratio between A and C is 3:1. Find the capital of A and C after purchasing B’s share..
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 5

Given:
Capital of A = Rs. 1,00,000
Capital of B = Rs. 75,000
Capital of C = Rs. 50,000
Profit sharing ratio = 3:2:1
Step 1: Calculate the total capital:
Total capital = Capital of A + Capital of B + Capital of C
Total capital = Rs. 1,00,000 + Rs. 75,000 + Rs. 50,000
Total capital = Rs. 2,25,000
Step 2: Calculate the share of profit after B's retirement:
As per the profit sharing ratio, A's share = (3/6) * Total profit
B's share = (2/6) * Total profit
C's share = (1/6) * Total profit
Since B retires and his share is purchased by other partners, the new ratio between A and C is 3:1.
Step 3: Calculate the new capital of A and C:
Let the new capital of A be x and the new capital of C be y.
According to the new ratio, x/y = 3/1
We can write x as 3y.
Since the total capital remains intact, the new total capital is:
x + Capital of B + y = Total capital
3y + Rs. 75,000 + y = Rs. 2,25,000
4y + Rs. 75,000 = Rs. 2,25,000
4y = Rs. 1,50,000
y = Rs. 37,500
Therefore, the new capital of A is:
x = 3y = 3 * Rs. 37,500 = Rs. 1,12,500
Step 4: Final Answer:
The new capital of A after purchasing B's share is Rs. 1,12,500 and the new capital of C is Rs. 37,500.
Therefore, the correct option is C: Rs. 1,12,500 and Rs. 37,500.
Test: Retirement Of A Partner - 3 - Question 6
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Outgoing partner is compensated for parting with firm’s future profits in favour of remaining partners. In what ratio do the remaining partners contribute to such compensation amount?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 6
Explanation:
When an outgoing partner is compensated for parting with the firm's future profits in favor of the remaining partners, the remaining partners contribute to this compensation amount in the gaining ratio. The gaining ratio is the ratio in which the remaining partners will share the future profits of the business.
Here's a breakdown of the options and why the correct answer is "Gaining Ratio":
A: Gaining Ratio. This is the correct answer because the remaining partners contribute to the compensation amount in the gaining ratio. The gaining ratio determines how much each partner will gain from the future profits of the business.
B: Capital Ratio. This is incorrect because the capital ratio determines how the capital is contributed by each partner, not how the compensation amount is shared among the remaining partners.
C: Sacrificing Ratio. This is incorrect because the sacrificing ratio is used to determine the adjustment of capital when a partner retires or new partners are admitted. It is not used to determine the compensation amount for an outgoing partner.
D: Profit Sharing Ratio. This is incorrect because the profit sharing ratio determines how the current year's profits are shared among the partners. It does not determine the compensation amount for an outgoing partner.
In summary, when an outgoing partner is compensated for parting with the firm's future profits, the remaining partners contribute to this amount in the gaining ratio.
Test: Retirement Of A Partner - 3 - Question 7
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Joint Life Policy is taken by the firm on the life(s) of ………
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 7
Joint Life Policy:
A joint life policy is a type of life insurance policy that covers the lives of multiple individuals under a single policy. In this case, the policy is taken by the firm on the life(s) of the partners and/or employees. Let's explore the options given:
A: All the partners jointly:
- This option suggests that the joint life policy covers all the partners of the firm.
- The policy would provide coverage for the lives of all the partners named in the policy document.
B: All the partners severely:
- It seems like there might be a typo in this option as "severely" doesn't make sense in the context of a joint life policy.
- It is more likely that the intended word is "severally," which means individually or separately.
- If this is the case, then the policy would cover each partner's life separately, rather than jointly.
C: On the life of all the partners and employees of the firm:
- This option suggests that the joint life policy covers both the partners and employees of the firm.
- The policy would provide coverage for the lives of all the named partners and employees.
D: 'a' and 'b':
- This option states that both option 'a' (all the partners jointly) and option 'b' (all the partners severely) are correct.
- However, since option 'b' seems to have a typo, it is unclear what it means exactly.
Conclusion:
Based on the given options, it can be concluded that the Joint Life Policy is taken by the firm on the life(s) of all the partners and possibly the employees of the firm.
Test: Retirement Of A Partner - 3 - Question 8
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At the time of retirement of a partner, firm gets ……… from the insurance company against the Joint Life Policy taken jointly for all the partners.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 8
Retirement of a Partner and Insurance Policy:
Introduction:
When a partner retires from a partnership firm, the firm may receive certain benefits from an insurance company if the partners had taken a Joint Life Policy. This policy is taken jointly for all the partners and is meant to provide financial protection in the event of the death, retirement, or disability of a partner.
Benefits received from the insurance company:
The benefits received from the insurance company at the time of retirement of a partner depend on the terms and conditions of the Joint Life Policy. In this scenario, the firm receives:
Surrender Value:
- The Surrender Value is the amount payable by the insurance company to the policyholders if they decide to terminate the policy before its maturity.
- It is the cash value of the policy at the time of surrender and is calculated based on the premiums paid, policy duration, and other factors.
- When a partner retires, the firm can surrender the Joint Life Policy and receive the Surrender Value from the insurance company.
Therefore, the correct answer is Option B: Surrender Value.
Importance of Surrender Value:
- The Surrender Value provides immediate liquidity to the firm, which can be used for various purposes like paying off debts, compensating the retiring partner, or reinvesting in the business.
- It helps in managing the financial impact of the retirement and ensures a smooth transition for the remaining partners.
Other Considerations:
- It is important for the firm to carefully review the terms and conditions of the Joint Life Policy before deciding to surrender it.
- The Surrender Value may vary depending on the duration of the policy, the age and health of the partners, and other factors.
- The firm should also consider the long-term implications of surrendering the policy, as it may result in the loss of future protection and financial benefits.
Conclusion:
At the time of retirement of a partner, the firm receives the Surrender Value from the insurance company against the Joint Life Policy taken jointly for all the partners. This amount provides immediate liquidity to the firm and helps in managing the financial impact of the retirement. It is important for the firm to carefully consider the terms and conditions of the policy before deciding to surrender it.
Test: Retirement Of A Partner - 3 - Question 9
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At the time of retirement of a partner, firm gets ……… from the insurance company against the Joint Life Policy taken severely for each partner.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 9
Explanation:
When a partner retires from a firm, the firm may have taken a Joint Life Policy for each partner. This policy is typically an insurance policy that covers the lives of multiple partners in the firm. Upon retirement of a partner, the firm receives a certain amount from the insurance company.
The correct answer is option D: Surrender Value for all the partners.
Here is a detailed explanation:
Policy Amount:
- The policy amount refers to the total sum assured by the insurance company in case of the death of any of the insured partners.
- It is not applicable in the context of retirement of a partner.
Surrender Value:
- Surrender value is the amount that the insurance company pays to the policyholder if they decide to terminate the policy before its maturity date.
- It is not directly related to the retirement of a partner.
Policy Value for the retiring partner and Surrender Value for the rest:
- This option suggests that the retiring partner receives the policy value, while the remaining partners receive the surrender value.
- However, in reality, the firm receives a single payout from the insurance company, which is the surrender value for all the partners collectively.
Surrender Value for all the partners:
- When a partner retires, the firm receives the surrender value from the insurance company.
- This surrender value is calculated based on the premiums paid and the policy terms.
- The surrender value is then distributed among all the partners, including the retiring partner, according to the partnership agreement.
In conclusion, when a partner retires, the firm receives the surrender value from the insurance company, which is then distributed among all the partners, including the retiring partner. Option D is the correct answer.
Test: Retirement Of A Partner - 3 - Question 10
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A, B and C takes a Joint Life Policy, after five years B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decides to share profits equally. They had taken a Joint Life Policy of Rs. 2,50,000 with the surrender value Rs. 50,000. What will be the treatment in the partner’s capital account on receiving the JLP amount if joint life premium is fully charged to revenue as and when paid?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 10

The treatment in the partner's capital account on receiving the Joint Life Policy (JLP) amount can be explained as follows:
1. Initial investment:
- A, B, and C take a Joint Life Policy with a sum assured of Rs. 2,50,000 and a surrender value of Rs. 50,000.
- The premium for the policy is charged fully to the revenue as and when paid.
2. Retirement of partner B:
- After five years, partner B retires from the firm.
- The old profit sharing ratio was 2:2:1 among A, B, and C.
3. New profit sharing ratio:
- After B's retirement, A and C decide to share the profits equally.
4. Treatment in partner's capital account:
- The JLP amount received will be credited to all the partners' capital accounts in the old profit sharing ratio.
Therefore, the correct treatment in the partner's capital account on receiving the JLP amount is:
- Rs. 50,000 credited to all the partners (A, B, and C) in the old profit sharing ratio (2:2:1).
Test: Retirement Of A Partner - 3 - Question 11
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A, B and C takes a Joint Life Policy, after five years, B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decides to share profits equally. They had taken a Joint Life Policy of Rs. 2,50,000 with the surrender value Rs. 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?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 11

The treatment in the partner's capital account on receiving the Joint Life Policy (JLP) amount if the joint life policy is maintained at the surrender value can be explained as follows:
1. When B retires from the firm:
- The old profit sharing ratio was 2:2:1 among partners A, B, and C.
- After B's retirement, A and C decide to share profits equally.
2. Regarding the Joint Life Policy:
- The partners took a Joint Life Policy of Rs. 2,50,000.
- The surrender value of the policy is Rs. 50,000.
3. Treatment in the partner's capital account:
- No treatment is required in the partner's capital account on receiving the JLP amount.
- This is because the JLP amount is received as a result of the surrender value of the policy, which is considered a return of the investment made.
- The return of investment does not affect the partner's capital account and is not recorded as a capital contribution or distribution.
Therefore, the correct answer is option D: No treatment is required.
Test: Retirement Of A Partner - 3 - Question 12
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A, B and C takes a Joint Life Policy, after five years B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decides to share profits equally. They had taken a Joint Life Policy of Rs. 2,50,000 with the surrender value Rs. 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 surrender along with the reserve?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 12

The treatment in the partner's capital account on receiving the JLP amount if the joint life policy is maintained at surrender along with the reserve will be as follows:
1. Calculate the surrender value per partner:
- Surrender value = Rs. 50,000
- Number of partners = 3
- Surrender value per partner = Surrender value / Number of partners = Rs. 50,000 / 3 = Rs. 16,666.67
2. Distribute the surrender value to the partners in the old profit sharing ratio:
- A's share = 2/5 * Surrender value per partner = 2/5 * Rs. 16,666.67 = Rs. 6,666.67
- B's share = 2/5 * Surrender value per partner = 2/5 * Rs. 16,666.67 = Rs. 6,666.67
- C's share = 1/5 * Surrender value per partner = 1/5 * Rs. 16,666.67 = Rs. 3,333.33
3. Update the partner's capital accounts:
- A's capital account will be credited with Rs. 6,666.67
- B's capital account will be credited with Rs. 6,666.67
- C's capital account will be credited with Rs. 3,333.33
4. Distribute the JLP reserve account in the old profit sharing ratio:
- A's share = 2/5 * JLP reserve account balance
- B's share = 2/5 * JLP reserve account balance
- C's share = 1/5 * JLP reserve account balance
Therefore, the correct answer is option D: Distribute JLP Reserve Account in old profit sharing ratio.
Test: Retirement Of A Partner - 3 - Question 13
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A, B and C are partners sharing profits in the ratio 2:2:1. On retirement of B, goodwill was valued as Rs. 30,000. Find the contribution of A and C to compensate B.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 13

Given:
- The partners A, B, and C share profits in the ratio 2:2:1.
- B retires and the goodwill is valued at Rs. 30,000.
To find:
The contribution of A and C to compensate B.
Step 1: Calculate the total profit and the individual shares:
- Let the total profit be x.
- The share of A = 2/5 * x
- The share of B = 2/5 * x
- The share of C = 1/5 * x
Step 2: Calculate the share of A and C after B's retirement:
- After B's retirement, the profit sharing ratio between A and C will be 2:1.
- Let the new shares be y and z for A and C respectively.
- Therefore, y/z = 2/1
- Also, y + z = (2/5 * x) + (1/5 * x)
- Simplifying the above equation, we get:
- y + z = (3/5 * x)
- y = (3/5 * x) - z
Step 3: Calculate the value of goodwill:
- The goodwill is valued at Rs. 30,000.
- According to the new profit sharing ratio, the difference in the shares of A and C is (2/5 * x) - (3/5 * x) = (1/5 * x)
- This difference is equal to the value of goodwill, i.e., (1/5 * x) = Rs. 30,000
Step 4: Calculate the values of y and z:
- Substitute the value of x from Step 3 into the above equation:
- (1/5 * x) = Rs. 30,000
- x = 5 * Rs. 30,000 = Rs. 150,000
- Substitute the value of x into the equation from Step 2:
- y = (3/5 * Rs. 150,000) - z
- y = Rs. 90,000 - z
Step 5: Determine the contribution of A and C:
- The contribution of A to compensate B is y.
- The contribution of C to compensate B is z.
Therefore, the contribution of A and C to compensate B is:
- A: Rs. 90,000
- C: z (where z is any value that satisfies the equation y + z = (3/5 * Rs. 150,000))
Answer:
The contribution of A and C to compensate B is Rs. 90,000 and z respectively.
Test: Retirement Of A Partner - 3 - Question 14
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Claim of the retiring partner is payable in the following form.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 14
Claim of the retiring partner is payable in the following form:
There are several options for the payment of the retiring partner's claim:
A: Fully in cash
- The retiring partner's claim is paid in full with cash.
- This option provides immediate liquidity to the retiring partner.
B: Fully transferred to loan account to be paid later with some interest on it
- The retiring partner's claim is transferred to a loan account.
- The payment is deferred and the retiring partner will receive the amount with interest at a later date.
- This option allows for flexibility in managing the cash flow of the partnership.
C: Partly in cash and partly as loan repayable later with agreed interest
- The retiring partner's claim is divided into two parts.
- A portion is paid in cash immediately, while the remaining amount is transferred to a loan account to be repaid later with interest.
- This option provides both immediate liquidity and the opportunity to earn interest on the remaining amount.
D: Any of the above methods
- The retiring partner's claim can be paid using any combination of the above methods.
- The specific payment method can be determined through negotiation and agreement between the retiring partner and the remaining partners.
In conclusion, the retiring partner's claim can be paid in various forms, including full cash payment, transfer to a loan account, or a combination of cash and loan repayment. The choice of payment method depends on factors such as liquidity needs, cash flow management, and agreement between the partners.
Test: Retirement Of A Partner - 3 - Question 15
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A, B and C were partners in a firm sharing profits and losses in the ratio of 2:2:1 respectively with the capital balance of Rs. 50,000 for A and B, for C Rs. 25,000. B declared to retire from the firm and balance in reserve on the date was Rs. 15,000. If goodwill of the firm was valued as Rs. 30,000 and profit on revaluation was Rs. 7,050 then what amount will be transferred to the loan account of B.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 15

Given:
- A, B, and C are partners in a firm.
- They share profits and losses in the ratio of 2:2:1 respectively.
- Capital balance: Rs. 50,000 for A and B, Rs. 25,000 for C.
- B declares retirement.
- Balance in reserve: Rs. 15,000.
- Goodwill value: Rs. 30,000.
- Profit on revaluation: Rs. 7,050.
To find: Amount transferred to the loan account of B.
Step 1: Calculate the total capital of the firm:
Total capital = Capital of A + Capital of B + Capital of C
Total capital = Rs. 50,000 + Rs. 50,000 + Rs. 25,000
Total capital = Rs. 1,25,000
Step 2: Calculate the new profit sharing ratio:
Since B is retiring, the new profit sharing ratio will be:
A: C = 2:1
Step 3: Calculate the share of A and C in the reserve:
Share of A = (Capital of A / Total capital) * Reserve
Share of A = (Rs. 50,000 / Rs. 1,25,000) * Rs. 15,000
Share of A = Rs. 6,000
Share of C = (Capital of C / Total capital) * Reserve
Share of C = (Rs. 25,000 / Rs. 1,25,000) * Rs. 15,000
Share of C = Rs. 3,000
Step 4: Calculate the total amount to be transferred to the loan account of B:
Total amount = Share of A + Share of C + Goodwill - Profit on revaluation
Total amount = Rs. 6,000 + Rs. 3,000 + Rs. 30,000 - Rs. 7,050
Total amount = Rs. 31,950
Therefore, the amount transferred to the loan account of B is Rs. 31,950.
Final Answer: The correct option is A: Rs. 70,820.
Test: Retirement Of A Partner - 3 - Question 16
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A, B and C are partners sharing profits and losses in the ratio of 3:2:1. C retires on a decided date and Goodwill of the firm is to be valued at Rs. 60,000. Find the amount payable to retiring partner on account of goodwill.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 16

Given:
- A, B, and C are partners sharing profits and losses in the ratio of 3:2:1.
- C retires on a decided date.
- Goodwill of the firm is to be valued at Rs. 60,000.
We need to find the amount payable to the retiring partner on account of goodwill.
To calculate the amount payable to the retiring partner on account of goodwill, we can use the following formula:
Amount Payable = (Total Goodwill * Retiring Partner's Share) / Total Partners' Share
Let's calculate the amount payable to the retiring partner:
1. Calculate the total share of A, B, and C:
- Total share = 3 + 2 + 1 = 6
2. Calculate the retiring partner's share (C's share):
- C's share = 1/6 * Total Goodwill
- C's share = 1/6 * Rs. 60,000 = Rs. 10,000
Therefore, the amount payable to the retiring partner on account of goodwill is Rs. 10,000.
Hence, the correct answer is option C: Rs. 10,000.
Test: Retirement Of A Partner - 3 - Question 17
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A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000 and Goodwill Account is to be raise which is not appearing in the balance sheet. What will be the treatment for goodwill?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 17
Treatment for Goodwill:
The treatment for goodwill in this scenario would be as follows:
1. Credited to partners' capital accounts:
- Goodwill is an intangible asset that represents the reputation, customer base, and other non-physical assets of a business.
- Since A is retiring, the goodwill of the firm needs to be valued and accounted for.
- The goodwill amount of Rs. 24,000 should be credited to the remaining partners' capital accounts (B and C) in their profit-sharing ratio.
- This means that B and C will share the goodwill equally, as per their profit-sharing ratio of 2:1.
2. Credited to Revaluation Account:
- In addition to the above treatment, the goodwill amount can also be credited to the Revaluation Account.
- The Revaluation Account is used to adjust the balances of various assets, liabilities, and capital accounts when there are changes in the partnership.
- By crediting the goodwill amount to the Revaluation Account, it will be reflected in the final distribution of profits or losses among the partners.
3. Credited only to A's capital account:
- This treatment is not appropriate in this scenario because the goodwill is a joint asset of the partnership and should be shared among the remaining partners.
- Crediting only A's capital account with the full amount of Rs. 24,000 would not reflect the true nature of the partnership.
Therefore, the correct treatment for goodwill in this scenario would be option B: Credited to partners' capital accounts Rs. 24,000 in the profit-sharing ratio.
Test: Retirement Of A Partner - 3 - Question 18
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A, B and C were partners sharing profits and losses in the ratio of 3:2:1. A retired and firm received the joint life policy as Rs. 7,500 appearing in the balance sheet at Rs. 10,000. JLP is credited and cash debited with Rs. 7,500, what will be the treatment for the balance in Joint Life Policy?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 18

The treatment for the balance in the Joint Life Policy can be done in the following ways:
Credited to partner's current account in profit sharing ratio:
- The balance in the Joint Life Policy can be credited to the partners' current accounts in the profit sharing ratio of A, B, and C (3:2:1).
- This implies that the amount will be distributed among the partners based on their profit sharing ratio.
Debited to revaluation account:
- The balance in the Joint Life Policy can be debited to the revaluation account.
- This is done when there is a need to adjust the value of assets or liabilities in the balance sheet.
- The revaluation account is used to record the changes in the value of assets and liabilities.
Debited to partner's capital account in profit sharing ratio:
- The balance in the Joint Life Policy can also be debited to the partners' capital accounts in the profit sharing ratio.
- This implies that the amount will be deducted from the partners' capital accounts based on their profit sharing ratio.
Either 'b' or 'c':
- The balance in the Joint Life Policy can be treated either by debiting it to the revaluation account or by debiting it to the partners' capital accounts in the profit sharing ratio.
- The choice between 'b' and 'c' depends on the specific circumstances of the partnership and the accounting policies followed by the firm.
In conclusion, the treatment for the balance in the Joint Life Policy can be either credited to partner's current account in profit sharing ratio, debited to revaluation account, debited to partner's capital account in profit sharing ratio, or a combination of debiting it to the revaluation account and partner's capital accounts.
Test: Retirement Of A Partner - 3 - Question 19
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Balances of M/s. Ram, Rahul and Rohit sharing profits and losses in proportionate to their capitals, stood as follows: Capital Accounts: Ram Rs. 3,00,000; Rahul Rs. 2,00,000 and Rohit Rs. 1,00,000. Ram desired to retire form the firm and the remaining partners decided to carry on, Joint life policy of the partners surrendered and cash obtained Rs. 60,000. What will be the treatment for JLP?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 19
Treatment for JLP:
The treatment for the Joint Life Policy (JLP) in this scenario would be as follows:
1. The Joint Life Policy (JLP) is surrendered and cash is obtained. The amount received from surrendering the JLP is Rs. 60,000.
2. The Rs. 60,000 cash received from surrendering the JLP needs to be accounted for in the books of the partnership.
3. Since the JLP is a partnership asset, it should be credited to the Joint Life Policy Account.
Therefore, the correct treatment for the JLP in this case would be:
Rs. 60,000 credited to Joint Life Policy Account.
Test: Retirement Of A Partner - 3 - Question 20
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Balances of A, B and C sharing profits and losses in proportionate to their capitals, stood as follows: Capital Accounts: A Rs. 2,00,000; B Rs. 3,00,000 and C Rs. 2,00,000; JLP Reserve Rs. 80,000 and JLP Rs. 80,000. A desired to retire form the firm and the remaining partners decided to carry on in equal ratio, Joint life policy of the partners surrendered and cash obtained Rs. 80,000. What will be the treatment for JLP?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 20

The treatment for JLP (Joint Life Policy) in this scenario would be as follows:
A. Cash received credited to Revaluation Account:
- This option is incorrect because the cash received from surrendering the JLP should not be credited to the Revaluation Account. Revaluation Account is used to record any changes in the value of assets and liabilities, and it is not relevant to the JLP transaction.
B. JLP Reserve balance credited to Partner's Capital Account in old profit sharing ratio:
- This option is correct.
- Since A is retiring and the remaining partners decided to carry on in equal ratio, the JLP Reserve balance should be distributed to the remaining partners in their old profit sharing ratio.
- The JLP Reserve balance of Rs. 80,000 will be credited to the Capital Accounts of A, B, and C in proportion to their capitals (2:3:2).
- A will receive Rs. 16,000 (80,000 * 2/7), B will receive Rs. 24,000 (80,000 * 3/7), and C will receive Rs. 16,000 (80,000 * 2/7).
C. JSP Reserve balance credited to Partner's Capital Account in new profit sharing ratio:
- This option is incorrect because there is no mention of a JSP (Joint Survival Policy) Reserve in the given information. Therefore, it cannot be credited to the Partner's Capital Account.
D. Cash received credited to Partner's Capital Account in old profit sharing ratio:
- This option is incorrect because the cash received from surrendering the JLP should not be directly credited to the Partner's Capital Account in the old profit sharing ratio. It should be credited to the JLP Reserve and then distributed to the partners.
Therefore, the correct treatment for JLP is option B: JLP Reserve balance credited to Partner's Capital Account in the old profit sharing ratio.
Test: Retirement Of A Partner - 3 - Question 21
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Balances of A, B and C sharing profits and losses in proportionate to their capitals, stood as follows: Capital Accounts: A Rs. 2,00,000; B Rs. 3,00,000 and C Rs. 2,00,000. A desired to retire form the firm, B and C share the future profits equally, Goodwill of the entire firm be valued at Rs. 1,40,000 and no Goodwill account being raised.
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 21
Calculation of A's share in goodwill:
- A's capital = Rs. 2,00,000
- Total capital = Rs. 2,00,000 + Rs. 3,00,000 + Rs. 2,00,000 = Rs. 7,00,000
- A's share in goodwill = (A's capital / Total capital) * Goodwill
= (2,00,000 / 7,00,000) * 1,40,000
= Rs. 40,000
Calculation of B and C's new profit sharing ratio:
- Total capital after A's retirement = Rs. 3,00,000 + Rs. 2,00,000 = Rs. 5,00,000
- B's new capital = Rs. 3,00,000 + Rs. 40,000 = Rs. 3,40,000
- C's new capital = Rs. 2,00,000 + Rs. 40,000 = Rs. 2,40,000
- B and C's new profit sharing ratio = B's new capital : C's new capital
= 3,40,000 : 2,40,000
= 17 : 12
Adjustment entries:
- Credit Partner's Capital Account with old profit sharing ratio for Rs. 1,40,000.
- Credit Partner's Capital Account with new profit sharing ratio for Rs. 1,40,000.
- Credit A's Account with Rs. 40,000.
- Debit B's Capital Account with Rs. 10,000.
- Debit C's Capital Account with Rs. 30,000.
Explanation of adjustment entries:
- The first entry credits Partner's Capital Account with old profit sharing ratio for Rs. 1,40,000. This is to transfer A's share in goodwill to the remaining partners, B and C, in their old profit sharing ratio.
- The second entry credits Partner's Capital Account with new profit sharing ratio for Rs. 1,40,000. This is to adjust the change in profit sharing ratio between B and C after A's retirement.
- The third entry credits A's Account with Rs. 40,000. This is to pay A his share in the goodwill.
- The fourth entry debits B's Capital Account with Rs. 10,000. This is to adjust B's capital as per the new profit sharing ratio.
- The fifth entry debits C's Capital Account with Rs. 30,000. This is to adjust C's capital as per the new profit sharing ratio.
Hence, option C is the correct answer.
Test: Retirement Of A Partner - 3 - Question 22
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Balances of A, B and C sharing profits and losses in proportionate to their capitals, stood as follows: Capital Accounts: A Rs. 2,00,000; B Rs. 3,00,000 and C Rs. 2,00,000. JLP Reserve and JLP at Rs. 80,000. A desired to retire form the firm, B and C share the future profits equally. Joint life policy of the partners surrendered and cash obtained Rs. 80,000. Goodwill of the entire firm be valued at Rs. 1,40,000 and no Goodwill account being raised.
Revaluation Loss was Rs. 10,000. Amount due to A is to be settled on the following basis: 50% on retirement and the balance 50% within one year. The total capital of the firm is to be the same as before retirement. Individual capitals in their Profit sharing ratio. Find the balances of Partner’s Capital Account
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 22

Given information:
- Capital Accounts: A Rs. 2,00,000; B Rs. 3,00,000 and C Rs. 2,00,000.
- JLP Reserve and JLP at Rs. 80,000.
- A desires to retire from the firm.
- B and C share the future profits equally.
- Joint life policy of the partners surrendered and cash obtained Rs. 80,000.
- Goodwill of the entire firm be valued at Rs. 1,40,000 and no Goodwill account being raised.
- Revaluation Loss was Rs. 10,000.
- Amount due to A is to be settled on the following basis: 50% on retirement and the balance 50% within one year.
- The total capital of the firm is to be the same as before retirement.
- Individual capitals in their Profit sharing ratio.
To find:
The balances of Partner's Capital Account.
Step 1: Calculate the total capital of the firm before retirement.
Total capital before retirement = Capital of A + Capital of B + Capital of C
Total capital before retirement = Rs. 2,00,000 + Rs. 3,00,000 + Rs. 2,00,000 = Rs. 7,00,000
Step 2: Calculate the new profit sharing ratio after A's retirement.
Since A is retiring and B and C will share future profits equally, the new profit sharing ratio will be:
B's share = (B's capital + A's capital) / Total capital before retirement
B's share = (Rs. 3,00,000 + Rs. 2,00,000) / Rs. 7,00,000
B's share = Rs. 5,00,000 / Rs. 7,00,000
B's share = 5/7
C's share = (C's capital + A's capital) / Total capital before retirement
C's share = (Rs. 2,00,000 + Rs. 2,00,000) / Rs. 7,00,000
C's share = Rs. 4,00,000 / Rs. 7,00,000
C's share = 4/7
New profit sharing ratio: B = 5/7, C = 4/7
Step 3: Calculate the amount due to A on retirement.
Amount due to A on retirement = A's capital before retirement - JLP Reserve + Revaluation Loss - Cash obtained from the surrender of Joint Life Policy
Amount due to A on retirement = Rs. 2,00,000 - Rs. 80,000 - Rs. 10,000 - Rs. 80,000
Amount due to A on retirement = Rs. 30,000
Step 4: Calculate the settlement amount to be paid to A.
Settlement amount = Amount due to A on retirement * 50%
Settlement amount = Rs. 30,000 * 50% = Rs. 15,000
Step 5: Calculate the new capital of B and C after paying the settlement amount to A.
New capital of B = B's capital before retirement + Settlement amount
New capital of B = Rs. 3
Test: Retirement Of A Partner - 3 - Question 23
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Balances of Ram, Hari & Mohan sharing profits and losses in the ratio 2:3:2 stood as follows: Capital Accounts: Ram Rs. 10,00,000; Hari Rs. 15,00,000; Mohan Rs. 10,00,000; Joint Life Policy Rs. 3,50,000. Hari desired to retire from the firm and the remaining partners decided to carry on with the future profit sharing ratio of 3:2. Joint Life Policy of the partners surrendered and cash obtained Rs. 3,50,000. What would be the treatment for JLP?
Detailed Solution for Test: Retirement Of A Partner - 3 - Question 23
Treatment for JLP:
- The joint life policy (JLP) is an asset of the partnership and needs to be accounted for when there are changes in the partnership.
- In this case, Hari is retiring from the firm and the remaining partners (Ram and Mohan) have decided to continue with a new profit-sharing ratio of 3:2.
- The JLP needs to be surrendered and the cash obtained from it needs to be distributed among the partners.
- The treatment for JLP in this case would be to credit the amount of Rs. 3,50,000 to the JLP account.
- This means that the JLP account will be reduced by Rs. 3,50,000.
- The JLP account will then be closed and the amount credited to the partners' capital accounts in the old ratio of 2:3:2.
- The partners' capital accounts will be increased by their respective shares in the JLP amount.
- The new capital balances will be: Ram - Rs. 10,00,000 + (2/7 * 3,50,000), Hari - Rs. 15,00,000 + (3/7 * 3,50,000), Mohan - Rs. 10,00,000 + (2/7 * 3,50,000).
- The new capital balances will reflect the change in the profit-sharing ratio and the distribution of the JLP amount among the partners.
- The JLP account will no longer exist in the partnership's books after this treatment.
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