Accountancy
Retirement/death of a partner
Class 12th
Q.1) why a partner may retire from a business?
Ans:- if partner mein retired from the firm:-
i) in case there is an agreement to that effect;
ii) in case all the partners consent to his retirement ; and
iii)in case the partnership is at will, by giving notice in writing to all the other partners of his intention to do so.
Q.2)why it is necessary to revalue the assets and liabilities in case of retirement of a partner?
Ans:- assets and liabilities are revalued in case of a retirement of a partner because the profit or loss due to their revaluation is divided between all the partners (including the retiring partner) in their profit sharing ratio.
Q.3) what is the methods of paying of the dues of a retiring partner?
Ans:- as a rule, the amount due to the retiring partner is made according to the terms of partnership agreement or as agreed by the partners which might provide one of the following alternatives:
a)repayment may be made in installment over a period of time and the interest at an agreed rate is paid on outstanding balance which will be treated as a loan of the outgoing partner,
b)The amount due may be treated as loan to the firm and in return the firm will either pay interest at a fixed rate or share of the property of the firm.
Q.4)whether a retired partner or executor of a deceased partner claim a share in the subsequent profits of the firm?
Ans:- if amount due to retiring partner or legal representatives of a deceased partner is not paid in full they have the choice to get either of the following:
a) interest @6% per annum on the balance amount.
b)share in subsequent profit of the firm in proportion to the balance amount
Q.5) what is mean by 'gaining ratio' on retirement of a partner?
Ans:- Gaining ratio :-. gaining ratio is the ratio in which the continuing partners gain in their profit sharing ratio when a partner retires or dies.gain is calculated by deducting the old share from the new share of a partner.the ratio of gains in share constitutes the gaining ratio.
Q.6)what treatment is made of accumulated profits and losses on the retirement of a partner?
Ans:- accumulated profits and credited to the capital accounts of old partners in their old ratio and accumulated losses are debited to their capital account in old ratio.
Q.7) state the need for treatment of goodwill on the retirement of a partner.
Ans:- the retiring or deceased partner is entitled to his share of goodwill at the time of retirement or death because the Goodwill earned by the firm is result of the efforts of all the existing partners in the past. since a part of the future profit will be accruing because of the present goodwill and the retiring or deceased will not be sharing future profits, it will be fair to compensate the retiring or deceased partner for the same.so there is a need of treatment of goodwill on retirement or death of a partner on the basis of agreement among the partners.
Q.8) what do you mean by joint life policy?
Ans:- when a partner dies,the firm becomes liable to the executor of the deceased partner in respect of his capital,Goodwill,profit etc. in order to provide fund for that purpose; partners take out a life policy on the lives of all the partners. such a life policy is known as joint life policy.if a partner dies,on his death the firm gets the full sum assured from the insurance company.
Q.9) when does joint life policy becomes due?
Ans:- the amount of joint life policy becomes due either on the death of any partner or on its maturity, whichever is earlier. the policy may also be surrendered to the insurance company before maturity
Q.10) what is surrender value?
Ans:- surrender value is the value of the policy which is paid by the insurance company if the policy is surrender to the insurance company before the date of its maturity.
Q.11)give three points of distinction between sacrificing ratio and gaining ratio.
Ans:-
Q.12)how would you calculate the amount payable to the executor of deceased partner?
Ans:- the executor of a deceased partner is entitled to the following:-
a)the amount standing to the credit of the deceased partners capital account,
b) his share in the Goodwill of the firm,
c) his share of undistributed profit or reserves,
d)his share of profit earned from the beginning of the year up to the date of death,
e) his share of profit on revaluation of assets and liabilities.
Q.13)what is the treatment of goodwill at the time of retirement of a partner?
Ans:-. in case of retirement of a partner the remaining partners who gain because of the retirement of a partner are required to the compensate the retiring partner.this is done in the form of goodwill.as per As (accounting standard) 10,after ascertaining the value of goodwill,necessary entry is passed for giving benefit to the retiring partner as follows:
A)where goodwill A/C appears in the books:
Step 1:- write off goodwill A/C
All partners capital/current A/C dr To goodwill A/C
( Being:- goodwill appearing in the books written off in the old ratio)
Step 2:- Give credit to the retiring partner for his share of Goodwill:
Remaining partners capital A/C Dr( in the ratio of gain) To retiring partners capital A/C(share of Goodwill).
(Being:- share of goodwill credited to the retiring partners capital A/c and debited to the remaining partners capital A/c in the Gaining ratio)
B) where Goodwill A/c does not appear in the books.
Remaining partners capital A/c Dr( in. the radio of gain) To remaining partners capital A/C (share of Goodwill)
(Being:- share of goodwill credited to retiring partners capital A/c and debited to remaining partners capital A/c in the Gaining ratio)
