Class 12 Reconstitution of a Partnership Firm - Retirement/Death of a Partner Mock Test (CBSE)

Topics in Reconstitution of a Partnership Firm - Retirement/Death of a Partner

• Ascertaining the amount due to retiring or deceased partner
• New profit sharing ratio
• Gaining ratio
• Treatment of goodwill
• Adjustment for revaluation of assets and liabilities
• Adjustment of accumulated profits and losses
• Disposal of amount due to retiring partner
• Adjustment of partners' capitals
• Death of a partner
• Deceased partner's share of profit till date of death

Reconstitution of a Partnership Firm - Retirement/Death of a Partner practice questions with answers

1. Q1Multiple choice·1 mark
   If the total amount due to a retiring partner is not paid immediately in cash, the unpaid amount is transferred to:

   1. (a)Revaluation Account
   2. (b)Realisation Account
   3. (c)Profit and Loss Suspense Account
   4. (d)Retiring Partner's Loan Account
   Show answer and step marks

   1. Correct option: (d) Retiring Partner's Loan Account+1

   Answer: (d)
2. Q2Multiple choice·1 mark
   At the time of retirement of a partner, accumulated profits appearing in the Balance Sheet are transferred to the capital accounts of:

   1. (a)Remaining partners in their new profit sharing ratio
   2. (b)The retiring partner only
   3. (c)Remaining partners in their gaining ratio
   4. (d)All partners in their old profit sharing ratio
   Show answer and step marks

   1. Correct option: (d) All partners in their old profit sharing ratio+1

   Answer: (d)
3. Q3Multiple choice·1 mark
   P, Q and R are partners sharing profits in the ratio $3:2:1$. Q retires, and his share of profit is taken up by P and R in equal proportions. What is the new profit sharing ratio of P and R?

   1. (a)$3:1$
   2. (b)$1:1$
   3. (c)$2:1$
   4. (d)$5:1$
   Show answer and step marks

   1. Correct option: (c) $2:1$+1

   Answer: (c)
4. Q4Short answer·2 marks
   A, B and C were partners. C retires, and the new profit sharing ratio between A and B is decided as 2 : 1. After all adjustments, the adjusted capital of A is $₹1,20,000$ and of B is $₹90,000$. The total capital of the new firm is fixed at $₹2,10,000$, to be contributed by A and B in their new profit sharing ratio. Calculate the amount of cash to be brought in or withdrawn by partner A.
   Show answer and step marks

   1. A's required capital in the new firm = Total capital $\times$ A's new share = $₹2,10,000 \times \frac{2}{3} = ₹1,40,000$.+1
   2. Cash to be brought in by A = Required capital ($₹1,40,000$) - Adjusted existing capital ($₹1,20,000$) = $₹20,000$.+1

   Answer: A will bring in $₹20,000$
5. Q5Short answer·2 marks
   At the time of retirement of a partner, the machinery of the firm is revalued from ₹2,40,000 to ₹2,70,000, and a bills payable is revalued from ₹60,000 to ₹48,000. Distinguish how each of these two revaluations is recorded in the Revaluation Account, and state the net effect of the revaluation on the partners' capital accounts.
   Show answer and step marks

   1. Increase in value of machinery ₹30,000 (₹2,70,000 − ₹2,40,000) is credited to the Revaluation Account, as an asset increase is a gain.+0.5
   2. Decrease in bills payable ₹12,000 (₹60,000 − ₹48,000) is credited to the Revaluation Account, as a reduction in a liability is a gain.+0.5
   3. Net profit on revaluation ₹42,000 (₹30,000 + ₹12,000) is credited to the old partners' capital accounts in their old profit sharing ratio.+1

   Answer: Both the machinery increase (₹30,000) and the bills payable decrease (₹12,000) are credited to the Revaluation Account, giving a net gain of ₹42,000, which is credited to the old partners' capital accounts in the old profit sharing ratio.
6. Q6Short answer·3 marks
   A, B and C were partners sharing profits in the ratio 3 : 2 : 1. B died on 31st July, 2023. B's capital account showed a credit balance of $₹1,50,000$ as on 1st April, 2023. During the period up to his death, he made drawings of $₹20,000$, and interest on drawings was charged at $₹1,000$. Goodwill of the firm was valued at $₹90,000$. B's share of goodwill is to be adjusted through the continuing partners A and C, who share future profits in the ratio of 3 : 1. Calculate the amount payable to B's executors and pass the necessary journal entry for the adjustment of goodwill.
   Show answer and step marks

   1. B's share of goodwill $= ₹90,000 \times \frac{2}{6} = ₹30,000$.+0.5
   2. A's gain $= \frac{3}{4} - \frac{3}{6} = \frac{3}{12}$.+0.5
   3. C's gain $= \frac{1}{4} - \frac{1}{6} = \frac{1}{12}$, so the gaining ratio is $3:1$.+0.5
   4. Journal entry: A's Capital A/c Dr. $₹22,500$; C's Capital A/c Dr. $₹7,500$; To B's Capital A/c $₹30,000$ (B's share of goodwill adjusted).+0.5
   5. Amount payable to B's executors $= ₹1,50,000 + ₹30,000 - ₹20,000 - ₹1,000 = ₹1,59,000$.+1

   Answer: Amount payable to B's executors: ₹1,59,000. Journal entry: A's Capital A/c Dr. ₹22,500; C's Capital A/c Dr. ₹7,500; To B's Capital A/c ₹30,000.

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