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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?
  • a)
    Rs. 50,000 credited to all the partners in old ratio.
  • b)
    Rs. 2,50,000 credited to all the partners in old ratio.
  • c)
    Rs. 2,00,000 credited to all the partners in old ratio.
  • d)
    No treatment is required.
Correct answer is option 'D'. Can you explain this answer?
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A, B and C takes a Joint Life Policy, after five years, B retires from...

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.
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A, B and C takes a Joint Life Policy, after five years, B retires from...
Understanding Joint Life Policy Treatment
In this scenario, the treatment of the Joint Life Policy (JLP) in the partners' capital accounts after B's retirement is crucial to understand.
Key Facts:
- Joint Life Policy amount: Rs. 2,50,000
- Surrender value after five years: Rs. 50,000
- Old profit-sharing ratio: 2:2:1 (A:B:C)
- New profit-sharing ratio after B's retirement: A and C share profits equally (1:1)
Why Option D is Correct:
- Nature of the JLP: The JLP is maintained at its surrender value of Rs. 50,000. This means that the policy is not encashed in full but only at its current surrender value.
- Distribution of Surrender Value: Since the policy is maintained at the surrender value, and given that it is not being realized for its full amount (Rs. 2,50,000), the partners do not receive the full benefit of the policy.
- No Immediate Treatment Required: With the JLP being kept at its surrender value, there is no need for any immediate treatment in the capital accounts of the partners. The surrender value reflects the amount that would be available, but it does not warrant actual distribution since the policy remains active.
- Future Considerations: The potential amounts related to the policy can be considered in future profit-sharing agreements or if the policy is eventually surrendered or matured.
In conclusion, since the Joint Life Policy is retained at its surrender value, there is no immediate adjustment or treatment required in the partners' capital accounts. Thus, the correct answer is option 'D': No treatment is required.
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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 partners capital account on receiving the JLP amount if joint life policy is maintained at the surrender value?a)Rs. 50,000 credited to all the partners in old ratio.b)Rs. 2,50,000 credited to all the partners in old ratio.c)Rs. 2,00,000 credited to all the partners in old ratio.d)No treatment is required.Correct answer is option 'D'. Can you explain this answer?
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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 partners capital account on receiving the JLP amount if joint life policy is maintained at the surrender value?a)Rs. 50,000 credited to all the partners in old ratio.b)Rs. 2,50,000 credited to all the partners in old ratio.c)Rs. 2,00,000 credited to all the partners in old ratio.d)No treatment is required.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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 partners capital account on receiving the JLP amount if joint life policy is maintained at the surrender value?a)Rs. 50,000 credited to all the partners in old ratio.b)Rs. 2,50,000 credited to all the partners in old ratio.c)Rs. 2,00,000 credited to all the partners in old ratio.d)No treatment is required.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 partners capital account on receiving the JLP amount if joint life policy is maintained at the surrender value?a)Rs. 50,000 credited to all the partners in old ratio.b)Rs. 2,50,000 credited to all the partners in old ratio.c)Rs. 2,00,000 credited to all the partners in old ratio.d)No treatment is required.Correct answer is option 'D'. Can you explain this answer?.
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