Question Bank

UNIT – 3

RETIREMENT AND DEATH OF PARTNER

TRUE / FALSE :

1. The amount paid to the retiring partners is excess of his capital after adjusting accumulated
profits/losses revaluation profits/losses, share of goodwill etc is taken as his share of hidden
goodwill of the firm. [ T ]
2. Death of a partner is like a compulsory retirement. [ T ]
3. On the death of a partner, Cr. Balance of P&L A/c appearing in the Balance sheet should be
credited to the capital A/c of the remaining partners in their new profit sharing ratio. [ F ]
4. The share of goodwill of the retiring partner is debited to remaining partner in their gaining
ratio. [ T ]
5. Retiring partner’s share of goodwill is debited to his/Her capital account at the time of
retirement. (F)

FILL IN THE BLANKS :

1 Interest on drawings due from deceased partner till the date of the death is _______ to his capital
account. [ Debit ]

2 The balance in the capital account of the deceased partner is transferred to his _________ account.
[Executor ]

3 At the time of retirement of partner the amount of goodwill of retiring partner will be paid by the
continuing partners in ________ ratio. [Gaining ]

4 New ratio – old ratio = ________ ratio. [ Gaining ]

5 As per section 37 of the Indian partnership act 1932, in the absence of partnership deed, the retiring
partner is entitled to interest @______ till the time amount due to him is not paid. [ 6% ]

MULTIPLE CHOICE QUESTION

1 Gain of Revaluation at the time of retirement is transferred to:

(a) All Partners

(b) Outgoing partner

(c) Remaining Partner

(d) Retiring Partner [ a ]

2 If the retiring partner is not paid full amount due to him immediately on retirement, his balance is
transferred to his :

(a) Loan A/c

(b) Capital A/c

(c) Bank A/c

(d) Suspense A/c [ a ]

3 If three partners A, B, C are sharing profit as 5:3:2,then on the death of a partner A, how much B and C
will pay to A executor on account of goodwill. Goodwill is to be calculated on the basic of 2 years
purchase of last 3 years average profit, profits for the last 3 years are Rs. 3,28,000 Rs. 3,46,000 and Rs.
4,00,000.

(a) Rs. 3,16,000 and Rs. 1,42,000

(b) Rs. 2,44,000 and Rs. 2,16,000

(c) Rs. 4,29,600 and Rs. 2,86,400

(d) Rs. 2,16,000and Rs. 1,44,000 [ c ]

4 A, B and C are partners in a firm sharing profit and losses in 3:4:2 B retire from the firm. The profit on
revaluation on that date was Rs. 72,000, New ratio between A and C is 5:3 Profit on revaluation will be
distributed as:

(a) A Rs. 32,000 B Rs. 24,000 C Rs. 16,000

(b) ARs. 24,000 B Rs. 32,000 C Rs. 16,000

(c) A Rs. 45,000 C Rs. 27,000

(d) ARs. 47,250 C Rs. 24,750 [ b ]

5 A, B and C are partner with Profit and Losses in the ratio of 4:3:2. B retires if A and C share profit of b
in 5:3 then find the new profit sharing ratio

(a) 47:25

(b) 17:11

(c) 31:11

(d) 14:21 [ a ]
Q1. X, Y and Z are partners in a firm sharing profits n supset:3: 2 ratio. X retired from the firm and
surrendered 2/5th of his share in favour of Y and remaining share in favour of Z. Calculate new profit
sharing ratio and gaining share of the reconstituted firm.

Q2 R, S and T are partners in a firm sharing profits in 3 : 2 : 1 ratio. T retired from the firm and goodwill
was valued at 60,000. R and S decided that their future profit sharing ratio would be 5 : 4 ratio. Amount
of goodwill is to be adjusted without opening Goodwill Account. Pass journal entry to adjust amount of
goodwill on T’s retirement.

Q3 (a) Good, Right and Nice are partners in a firm sharing profits and losses in 4:3 : 2 ratio. On April 1,
2013, Right retired. After making all adjustments, balance of Capital Account of Right was 2,00,000.
Partners agreed that Right should be paid 2,30,000. Pass necessary journal entry to adjust 30,000.

(b) Amar, Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio 2/2 / 2 : 1. On 31st
January, 2017 Sohan retired. On Sohan's retirement the goodwill of the firm was valued at 70,000. The
new profit sharing ratio between Amar, Ram and Mohan was agreed as 5 : 1 : 1.

Showing your working notes clearly, pass necessary Journal Entry for the treatment of goodwill in the
books of the firm on Sohan's retirement.

Q4 Manav, Nath and Narayan were partners in a firm sharing profits in the ratio of 1 : 2 : 1. The firm
closes its books on 31st March every year. On 30th September, 2015 Nath died. On that date his capital
account showed a debit balance of 5,000. There was a debit balance of 30,000 in the profit and loss
account. The goodwill of the firm was valued at 3,80,000. Nath's share of profit in the year of his death
was to be calculated on the basis of average profit of last 5 years, which was 90,000.

Pass necessary journal entries in the book of the firm on Nath's death.

Q5: Gunjan, Shekhar and Kishore are partners sharing profits in ratio 2:2:1. As per the partnership deed,
in case of death of a partner, the share of profit will be calculated on the basis of the average of three
completed years of profit before death. Kishore died on July 1, 2013. Profit for 2010-2011 20,000; 2011-
12 30,000; 2012-13 40,000. Calculate Kishore's share of profit till the date of death and pass the
necessary journal

Q6 Ashok, Gautam and Satish are partners sharing profit in the ratio of 4:3: 3. Satish dies on 27th June,
2013. The sales and profit for the year ending 31st March 2013 1,80,000 and ₹ 40,000. The sale from 1st
April, 2013 to 27th June, 2013 amounted to ₹45,000.

Calculate Satish's share of profit till the date of death and also pass journal entry.

Q7 X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. Their capital contributions are₹
1,00,000, ₹80,000 and 50,000 respectively. According to partnership deed, the partners are entitled to:

(i) X and Y to salary of ₹2,000 and 1,500 per month respectively. (ii) Z to commission of 4,000 per
quarter.
(iii) In the event of death of a partner, goodwill is to be valued at 3 years' purchase of average profit of
the last three years.

(iv) Profit up to the death based on the profits of the previous year.

(v) Partners are to be allowed interest on capital @ 10% per annum and to be charged interest on
drawings @ 12% per annum.

Z died on June 30, 2013. His drawings till death were ₹ 5,000, amount drawn on April 1, 2013. Profits of
the firm for the last 3 years ending on March 31, 2011, 2012 and 2013 were 30,000, ₹ 35,000 and
₹40,000 respectively.

Prepare Z's Capital Account to calculate the amount payable to his executor.

Q8 The following is the Balance Sheet of Ram, Mohan and Sohan as on 31st March 2016 :

Liabilities Rs. Assets Rs.

Ram’s Capital 40,000 Bank 17,000
Mohan's Capital 20,000 Debtors 24,000
Sohan's Capital 17,000 Stock 32,000
General Reserve 15,000 Machinery 6,000
Sundry Creditors 23,000 Furniture 36,000
1,15,000 1,15,000
Ram, Mohan and Sohan shared profits and losses in the ratio of 2:2:1. Sohan died on 31st March 2016.
Under the partnership agreement the executor of Sohan was entitled to:

(i) Amount standing to the credit of his capital account.

(ii)Interest on capital which amounted to Rs.300.

(iii) His share of goodwill Rs.10,000.

(iv) His share of profit from the closing of last financial year to the date of death which amounted to
Rs.1,500. Sohan's executor was paid Rs.7,800 on 31st March 2016 and balance in four equal yearly
installments starting from 31-03-17 with interest @6% p.a.

Prepare Sohan's Executor's Account till it is finally paid.

Q9 . Bhim, Arjun and Nakul are partners in a firm sharing profits in 5:3:2 ratio. Their balance Sheet as on
March 31, 2013 was follows:

Liabilities Rs. Assets Rs.

Capital: Patents 20,000
Bhim1,80,000
Arjun1,00,000 Land and Building 1,30,000
Nakul80,000 3,60,000
Machinery 90,000
 Creditors 60,000
Furniture 10,000
Bills Payable 10,000
Investments 60,000
Outstanding Expenses 15,000
Debtors 65,000

Stock 38,000

Cash 32,000
4, 45000 4, 45000
Bhim decided to retire from the firm on April 1, 2013. On this date, the partners decided as follows:

(i) Bhim to be paid 40,000 as his share of goodwill.

(ii) Patents to be written off by 25%

(iii) Land and building to be valued at 10% higher.

(iv) 40% Investments to be taken over by Arjun and Nakul at book value and remaining to be valued at
5% lower.

(v) Provision for doubtful debts to be made at 5% of debtors.

(vi) Stock undervalued by 5%.

(vii) A liability to the extent of ₹ 3,000 to be created on account of a claim for damages against the firm.

Pass necessary journal entries and prepare Revaluation Account.

Q10 Following is the Balance Sheet of Sita, Geeta and Radha as at 31st March, 2013.

Liabilities Rs. Assets Rs.

Accounts Payable 50,000 Bank 7,000

Expenses Outstanding 3,000 Bills Receivable 34,000

Profit and Loss A / C 84,000 Sundary Debtors 40,000

Workmen Compensation Fund 18,000 Stock 81,000

Provident Fund 10,000 Investment 10,000

Bank Loan 44,000 Furniture 44,000

Capital Accounts: Plant and Machinery 1,20,000

Sita 1,34,000 Freehold Premises 2,00,000

 Radha 1,34,000 Goodwill 60,000

Geeta 1,34,000 4,02,000

Advertisement Expenditure 15,000

6,11,000 6,11,000

Geeta retires on 1st April, 2013 on the following terms:

(i) An amount due from a coustomer ₹ 5,000 was doubtful, so a provision was required.

(ii) Goodwill of the firm was valued at 60,000 and new profit sharing ratio was agreed as 2: 1.

(iii) Freehold premises be appreciated by 5% and furniture by 5,000

(iv) Radha took over investment at 8,000.

(v) A creditor for 2,500 is not likely to claimer, but there is an unforeseen liability for 1,800.

(vi) The remaining partners decided to bring in sufficient cash in the business to pay off Geeta and to
maintain a bank balance of 12,000. They also decided to read just their capitals as per their new profit-
sharing ratio.

Prepare necessary Ledger Accounts and the Balance Sheet.