Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Topics in this chapter

• Retirement and Death Accounting
• Goodwill Adjustment
• Revaluation of Assets and Liabilities
• Reserves and Accumulated Balances
• Old, New, and Gaining Ratios
• Retiring Partner Settlement
• Deceased Partner Profit and Executor Account

Cheat sheet

Practice questions

1. Question 1Q-00C3A1

   P, Q and R share profits in the ratio 5:3:2. Q retires, and P and R agree to share future profits in the ratio 3:2. What is the gaining ratio of P and R?

   1. A.1:1
   2. B.1:2
   3. C.2:1
   4. D.3:2
   See the answer and solution
2. Question 2Q-854922

   A, B and C are equal partners. B retires, and A and C agree to share future profits in the ratio 3:2. The firm's goodwill is valued at ₹1,50,000. Which journal entry correctly records the adjustment for B's share of goodwill without opening a Goodwill Account?

   1. A.A's Capital A/c Dr. ₹40,000 and C's Capital A/c Dr. ₹10,000; To B's Capital A/c ₹50,000
   2. B.B's Capital A/c Dr. ₹50,000; To A's Capital A/c ₹40,000 and C's Capital A/c ₹10,000
   3. C.A's Capital A/c Dr. ₹30,000 and C's Capital A/c Dr. ₹20,000; To B's Capital A/c ₹50,000
   4. D.Goodwill A/c Dr. ₹1,50,000; To A's Capital A/c ₹90,000 and C's Capital A/c ₹60,000
   See the answer and solution
3. Question 3Q-7606DC

   A, B and C share profits equally. C dies on 30 June. The profit for the preceding year was ₹1,20,000, and the partnership agreement provides that C's share of profit up to the date of death will be calculated on the basis of time. What amount will be credited to C's Capital Account through the Profit and Loss Suspense Account?

   1. A.₹10,000
   2. B.₹20,000
   3. C.₹40,000
   4. D.₹60,000
   See the answer and solution
4. Question 4Q-082743

   State the principal accounting adjustments required when a partner retires from a partnership firm.

   See the answer and solution
5. Question 5Q-328308

   On the retirement of a partner, the firm's goodwill is valued at ₹90,000. The retiring partner's share is 1/4, and the continuing partners gain in the ratio 2:1. If goodwill is not raised in the books, what amount will be debited to the partner gaining the larger share?

   1. A.₹7,500
   2. B.₹15,000
   3. C.₹22,500
   4. D.₹30,000
   See the answer and solution