Question by CA (Dr.) G.S.GREWAL, Series – 21

True/False

1. P, Q and R are partners sharing profits in the ratio of 5 : 4 : 3. Q retires and P and R decide to share future profits equally. Gaining Raito will be 1 : 3.

Fill in the Blank

1. On the death of partner, the amount due to him will be credited to ______________.

Multiple Choice Question

1. Raja, Mohan, Roy are partners in a firm sharing profits and losses in the ratio of 4 : 3 :1. As per the terms of Partnership Deed on the death of any partner, Goodwill was to be valued at 50% of the net profits credited to that Partner’s Capital Account during the last three completed years before her death. Raja died on 28th February, 2019. The profits for the last five years were 2014 – ₹ 60,000; 2015 – ₹ 97,000; 2016 – ₹ 1,05,000; 2017 – ₹ 30,000 and 2018 – ₹ 84,000. On the date of Raja’s death. Calculate the amount of Raja’s share of Goodwill in the firm The new profit-sharing ratio between Mohan and Roy will be equal.

(a) ₹ 1,09,500

(b) ₹ 27,375

(c) ₹ 54,750

(d) ₹ 73,000

1. True

Reason: Old profit sharing Ratio among P,Q and R is 5:4:3

Q retires and P and R decides to share profit equally

Gaining Ratio = 1/2-5/12

P’s share = (6 – 5)/12=1/12

R’s share = 1/2-3/12

= (6 – 3)/12=3/12

Gaining Ratio = 1:3.

1. His Executor’s Account.

Reason: The death of partner, the amount due to him will be credited to His Executor’s Account on his legal heir.

1. (b)

Reason: Sum of Profit of last three completed years = ₹ 1,05,000+₹ 30,000+₹ 84,000 = ₹ 2,19,000

Raja’s Share is 4/8 i.e., ½ of ₹ 2,19,000 = ₹ 1,09,500

50% of ₹ 1,09,500 = ₹ 54,750

Raja’s share is 50% of net profit = ₹ 27,375.

Question Series – 22

1. Anurag, Sanjeev and Sumit are partners sharing profit or loss in the ratio of 2 : 3 : 4. Anurag retires and after Anurag’s retirements Sanjeev and Sumit agreed to share profit or loss in the ratio of 3 : 4 in future. Their gaining ratio will be 4 : 3.
1. Retiring partner is compensated for foregoing his share in future profits in favour of remaining partners or continuing partners. The compensation so paid is _______________.
1. P, Q and R have been sharing profits in the ratio of 8 : 5 : 3.P retires. Q takes 3/16th share from P and R takes 5/16th share from P. New profit sharing ratio will be :
2. 1 : 1
3. 10 : 6
4. 9 : 7
5. 5 : 3

1. False

Reason: Old Profit sharing ratio among Anurag, Sanjeev and Sumit = 2:3:4

Anurag retires from the firm.

New profit sharing ratio between Sanjeev and Sumit = 3:4

Gaining Ratio = New Ratio – Old Ratio

Sanjeev’s Gain = 3/7-3/9

= (27-21)/63=6/63

Sumit’s Gain = 4/7-4/9

= (36-28)/63=8/63

Gaining Ratio = 6:8.

= 3:4.

1. Gaining Ratio

Reason: The remaining partner compensate the retiring partner in gaining ratio i.e., New ratio – Old Ratio.

1. (a)

Reason: Old profit sharing ratio among P,Q and R is 8:5:3

Q retires from the firm and his share is taken by P and R.

P’s share = 8/16

Q’s new share = 5/16+3/16=8/16

R’s new share = 3/16+5/16=8/16

New Profit sharing Ratio = 8:8

Between Q and R = 1:1.

Question Series – 32

1. Profit or Loss of Revaluation Account is transferred to Partners Capital Accounts of all partners (including retired or deceased partner) in their profit – sharing ratio at the time of retirement or death of a partner.
1. Decrease in assets at the time of retirement of a partner is _____________ to Revaluation Account.
1. A, B and C were partners sharing profits in the ratio of 4 : 5 : 3, C retired and continuing partners decided to share future profits in the ratio of 7:8. Gaining ratio will be:

(a) 8 : 7

(b) 4 : 5

(c) 1 : 1

(d) 2 : 1

1. True

Reason: Profit or loss that arises before the retirement or death of a partner is shared by all the partners in their profit – sharing ratio because it had arisen before the partner retired or died.

1. debited
1. (a)

Reason: Gaining Ratio = New profit – sharing ratio – Old profit – sharing ratio. Gaining Ratio is 8 : 7 calculated as follows:

A        B

(i) New Profit – sharing Ratio    7/15     8/15

(ii) Old Profit – sharing Ratio  4/12       5/12

Gaining Ratio (i) – (ii)         8/60            7/60

Question Series – 42

1. Increase in the value of assets and unrecorded assets being recorded at the time of retirement or death of a partner is debited to Revaluation Account.
1. Goodwill may be recorded in the books of account only when consideration is paid in _________ or ___________.
1. B and C were partners sharing profits in the ratio 2 : 2 : 1, having capital accounts as ₹ 50,000, ₹ 50,000 and ₹ 25,000, respectively. B retired. On that date, balance in General Reserve was ₹ 15,000. If firm’s Goodwill is valued at ₹ 30,000 and Gain (profit) on Revaluation is ₹ 7,050, amount payable to B will be:

(a)     ₹ 50,820

(b)     ₹ 70,820

(c)     ₹   8,820

(d)     ₹   9,000

1. False

Reason: Increase in the value of asset or unrecorded asset being recorded is credited to Revaluation Account because increase in asset means Asset Account shall be debited and Revaluation Account shall be credited. It is a gain (profit) for the firm. Journal entry for increasing assets is:

Asset A/c                                  …Dr.

To Revaluation A/c

Correct Statement: Increase in the value of assets and unrecorded assets being recorded at the time of retirement or death of a partner is credited to Revaluation Account.

1. money, money’s worth
1. (b)

Reason: Amount payable to B will be ₹ 70,820 calculated as follows:

Balance in Capital Account                                         ₹ 50,000

Share of General Reserve                                                          ₹   6,000

Share of Revaluation Gain (Profit)                                       ₹   2,820

Share of Goodwill                                                                  ₹ 12,000

Total                                                                                   ₹ 70,820

Question Series – 47

1. Decrease in the value of assets at the time of retirement of a partner is credited to Revaluation Account.
1. In the event of death of a partner, the amount of General Reserve is transferred to Partners’ Capital Account, including deceased partner, in their _________ because it was set aside out of profits when __________________ was also a partner.
1. A, B and C were partners sharing profits in the ratio 3 : 2 : 1. C retired, if A and B take share of retiring partner equally, New profit – sharing ratio will be:

(a)     7 : 5

(b)     3 : 2

(c)     1 : 1

(d)     2 : 1

1. False

Reason: Decrease in the value is debited to Realisation Account because decrease means loss to the firm. Asset will be reduced by the amount of decrease in value of that asset. Journal entry for increasing liability is:

Revaluation A/c                                   …Dr.

To Asset A/c

Correct Statement: Decrease in value of assets at the time of retirement of a partner is debited to Revaluation Account.

1. Old profit – sharing ratio, deceased partner
2. (a)

Reason: New profit – sharing  ratio will be 7 : 5 calculated as follows:

A                          B

(i)      Old Profit – sharing Ratio                            3/6                        2/6

(ii)      Share of C acquired                                   ½ of 1                            ½ of 1

i.e.,                                                    1/12                      1/12

New Profit – sharing Ratio                          7/12                      5/12

or                                                            7           :         5

Question – Series 51

1. The amount due to deceased partner is paid to his executor.
1. A , B and C were partners, B retired from the firm. On the date of his retirement Stock, Sundry Debtors and Provisions for Doubtful Debts were ₹50,000, ₹45,000 and ₹4,500 respectively. The partners decided to reduce the value of stock to 90%. The journal entry passed will be

…………..                         Dr.                      ₹ 5,000

To …………….                                                          ₹5,000

1. A, B, C and D were partners sharing profits and losses in the ratio 18 : 15 : 18 : 3, D retired and his share of profits is taken by the remaining partners A, B and C as 1/54, 1/54 and 1/54. The gaining ratio will be:

(a) 1 : 1 : 1

(b) 6 : 9 : 1

(c) 2 : 1 : 1

(d) 2 : 2 : 1

1. True

Reason: As a result of death of a partner, payment of amount due to him cannot be made not being a living person. His legal heirs become entitled to his estate. Therefore, the payment is made to legal heirs of the deceased partners.

1. Revaluation A/c, Stock A/c
2. (a)

Reason: Gaining Ratio = New Profit – sharing Ratio – Old Profit – sharing Ratio. However, in the present question Gaining Ratio is already given to be 1:1:1.

Question – Series 54

1. A, B and C are three partners B retires from the firm, on the date of retirement Stock ₹ 50,000. The partners decided to reduce of stock to 90%. The entry passed will be :

Stock A/c    …Dr.      ₹  5,000

To Revaluation A/c                    ₹  5,000.

1. Retiring partner is compensated for foregoing his share in future profit in favour of continuing partners. The continuing partners compensate the retiring partner in their ________________.
2. Deo, Narain and Zaidi were partners sharing profits in the ratio of 2 : 2 : 1, Narain died on 31st March, 2019. Profit earned by the firm for the year was ₹ 72,000. Amount of profit that will be credited to Narain’s Capital A/c will be:

(a)     ₹  14,400

(b)     ₹  28,800

(c)     ₹  43,200

(d)     ₹  7,200

1. False

Reason: Decrease in the value of asset is credited to the Asset Account and debited to Revaluation Account. Hence, the entry will be

Revaluation A/c           Dr.         ₹     5,000

To Stock A/c                                             ₹  5,000

1. gaining ratio
2. (b)

Reason: The firm earned profit of ₹72,000 for the year ended 31st March, 2019 and Narain died on 31st March, 2019. Thus, Narain’s share in profit will be ₹28,800 calculated as follows:

Profit for the year ₹  72,000.

Narain’s share of profit will be ₹  28,800 (2/5 of ₹  72,000)

Question – Series 58

1. At the time of retirement of a partner, gain (profit) on revaluation is credited to capital Account of all partners in the old profit – sharing ratio.
2. A, B and C were partners sharing profits in the ratio of 2 : 2 : 1 respectively having Capital Accounts as ₹ 50,000, ₹ 50,000 and ₹ 25,000 respectively. B retired from the firm and balance in General Reserve on that date was ₹ 15,000. If the goodwill of the firm was valued at ₹ 30,000, Profit on Revaluation was ₹ 7,050. The amount payable to B will be____________.
3. State the true statement out of the following:

(a)     Goodwill at the time of retirement of a partner is credited to continuing Partners’ Capital Accounts in their sacrificing ratio.

(b)     Goodwill at the time of retirement of a partner is credited to continuing Partners’ Capital Accounts in their gaining ratio.

(c)     Goodwill at the time of retirement of a partner is debited to continuing Partners’ Capital Accounts in their sacrificing ratio.

(d)     Goodwill at the time of retirement of a partner to the extent of retiring partner’s share is debited to continuing Partners’ Capital Accounts in their gaining ratio.

1. True

Reason: It is the gain (profit) of the firm when the retiring partner was also a partner in the firm. Since the gain (profit) arose when retiring partner was also a partner, he is also entitled to his share in that gain (profit). Hence, gain (profit) on revaluation is credited to Capital Accounts of all the partners in their old profit – sharing ratio.

1. ₹ 70,820
2. (d)

Reason: Goodwill is the amount paid by the gaining partner or partners to the sacrificing partner or partners.  The retiring partner sacrifices his share in favour of all or some of the partners who compensate him by paying goodwill. The share of Goodwill of the retiring partner share is debited to Gaining Partners in their gaining ratio and crediting Retiring Partner’s Capital Account.

Question – Series 61

1. Increase in the value of assets and unrecorded assets being recorded at the time of retirement or death of a partner is debited to Revaluation Account.
2. A, B and C were partners sharing profits and losses in the ratio 3 : 2 : 1. C retired and the new profit sharing ratio between the continuing partners is 3 : 2. Gaining ratio will be ___________.
3. Decrease in liability at the time of retirement of a partner is

(a)     Credited to Revaluation Account.

(b)     Debited to Revaluation Account.

(c)     Debited to Profit and Loss Account.

(d)     Transfer to Partner’s Capital Account.

1. False

Reason: Increase in the value of asset or unrecorded asset being recorded is credited to Realisation Account because increase in asset means Asset Account shall be debited and Revaluation Account shall be credited. It is a gain (profit) for the firm. Journal entry for increasing assets is:

Asset A/c                                   …Dr.

To Revaluation A/c

Correct Statement: Increase in the value of assets and unrecorded assets being recorded at the time of retirement or death of a partner is credited to Revaluation Account.

1. 3 : 2
2. (a)

Reason: Decrease in liability at the time of retirement of a partner is a gain (profit). Since, liability account has a credit balance, therefore, liability account is debited. It being a gain (profit) is credited to Revaluation Account, it being a nominal account. Net result of Revaluation Account (Gain (profit) or Loss) is transferred to the Partners’ Capital / Current Accounts, including retiring Partner’s Capital Account, in their profit – sharing ratio.

Question – Series 75

1. A, B and C are the partners sharing profits in the ratio 3 : 2 : 1. C retires, if A and B take the share of retiring partner equally .The new profit sharing ratio will be 5:7.
2. On the death of a partner his legal heirs are entitled to his share of profit from the beginning of the financial year up to the date of __________________.
3. If Capital Accounts are maintained following Fixed capital Accounts Method, balance of Revaluation Account is transferred to:

(a)     Partner’s Fixed Capital Account.

(b)     Partner’s Current Account.

(c)     Profit & Loss Account.

(d)     Balance Sheet.

1. False

Reason: Gaining ratio is given as 1 : 1. It means A has gained ½ of 1/6 and B has gained ½ of 1/6. The formula for determining New profit share is Old Profit Share + Share gained.

Therefore, A’s new profit share is 3/6 + 1/3 = 5/6, and

B’s new profit share is 2/6 + 1/3 = 5/6.

Hence, the Gaining Ratio is 1 : 1.

Correct Statement:  A, B and C are the partners sharing profits in the ratio 3 : 2 : 1. C retires, if A and B take the share of retiring partner equally .The new profit sharing ratio will be 1 : 1.

1. Death
2. (b)

Reason: Balance in Revaluation Account is either gain (profit) or loss belonging to the old partners of the firm because it has arisen during the period of their partnership. It is not transferred to Partner’s Fixed Capital Account as the account is credited or debited with permanent increase or decrease in capital. All other entries are recorded in the Partner’s Current Account.

Question – Series 80

1. A, B and C are the partners sharing profits in the ratio of 4 : 5 : 3. C retired and remaining partners shared profits in the ratio of 7 : 8. The gaining ratio will be 8 :7. .
2. A , B and C were partners, B retired from the firm. On the date of his retirement Stock, Sundry Debtors and Provisions for Doubtful Debts were ₹50,000, ₹45,000 and ₹4,500 respectively. The partners decided to reduce the value of stock to 90%. The journal entry passed will be

………….. A/c                        Dr.                      ₹ 5,000

To ……………. A/c                                                   ₹5,000

1. A, B and C were partners sharing profits in the ratio 2 : 2 : 1, having capital accounts as ₹ 50,000, ₹ 50,000 and ₹ 25,000, respectively. B retired. On that date, balance in General Reserve was ₹ 15,000. If firm’s Goodwill is valued at ₹ 30,000 and Gain (profit) on Revaluation is ₹ 7,050, amount payable to B will be:

(a)     ₹ 50,820

(b)     ₹ 70,820

(c)     ₹   8,820

(d)     ₹   9,000

1. False

Reason:  New profit sharing ratio is given as 7 : 8. The formula for determining Gaining Ratio is New profit share – Old profit share.

Therefore, A’s Gain in profit share is 7/8 – 4/12 = 13/24, and

B’s Gain in profit share is 1 – 5/12 = 7/12 or 14/24.

Hence, the Gaining Ratio is 13 : 14

Correct Statement:  A, B and C are the partners sharing profits in the ratio of 4 : 5 : 3. C retired and remaining partners shared profits in the ratio of 7 : 8. The gaining ratio will be 13 : 14.

1. Revaluation, Stock
2. (b)

Reason: Amount payable to B will be ₹ 70,820 calculated as follows:

Balance in Capital Account                                         ₹ 50,000

Share of General Reserves                                        ₹   6,000

Share of Revaluation Gain (Profit)                            ₹   2,820

Share of Goodwill                                                       ₹ 12,000

Total                                                                     ₹ 70,820