Reconstitution of a Partnership Firm: Retirement/Death of a Partner MCQ

Question 1

In the absence of information, the continuing partners take the share of retiring partner in the ___

A.None of these

B.Profit sharing ratio

C.Gaining Ratio

D.Sacrificing ratio

SOLUTION

Solution : B

In the absence of information, the continuing partners take the share of retiring partner in the profit sharing ratio.

Question 2

A, B & C are partners sharing profits & losses in the ratio 3:2:1. What will be the new ratio if A retires?

A.3:1

B.3:2

C.2:1

D.3:1

SOLUTION

Solution : C

A retires. Since the gaining ratio is not mentioned, we can assume it to be the same as the profit sharing ratio. In this case, the new ratio shall be 2:1.

Question 3

To transfer the accumulated losses, all the capital accounts of partners are _________ with their share of losses.

A.Debited

B.Either Debited or Credited

C.Credited

D.None of these

SOLUTION

Solution : A

To transfer the accumulated losses, all the capital accounts of partners are debited with their share of losses.

Question 4

Do the remaining partners need to compensate retiring partner for the goodwill contribution made by him?

A.Yes

B.No

SOLUTION

Solution : A

Yes. The remaining partners need to compensate the retiring partner for the goodwill contribution made by him.

Question 5

Profit/Loss on Revaluation of Assets & Liabilities on the retirement of a partner is shared by the partners in their:

A.Gaining Ratio

B.Old Profit Sharing Ratio

C.New Profit Sharing Ratio

D.Capital Ratio

SOLUTION

Solution : B

Profit/Loss on Revaluation of Assets & Liabilities on the retirement of a partner is shared by the partners in their Old Profit Sharing Ratio.

Question 6

In what ratio does the outgoing partner be compensated by remaining partners for the goodwill contributed by him?

A.Profit Sharing ratio of remaining partners

B.Sacrificing Ratio of remaining partners

C.Capital ratio of remaining partners

D.Gaining Ratio of remaining partners

SOLUTION

Solution : D

The outgoing partner be compensated by remaining partners for the goodwill contributed by him in the gaining ratio of remaining partners.

Question 7

In case the revaluation account is prepared, the assets & liabilities appear in the books of the reconstituted firm at their :

A.Realizable Value

B.Revalued figure

C.Market Value

D.Old Book Values

SOLUTION

Solution : B

In case the revaluation account is prepared, the assets & liabilities appear in the books of the reconstituted firm at their revalued figures.

Question 8

Deepak, Nakul and Rajesh are partners sharing profits in the ratio of 5:3:2. Nakul Retires. Goodwill is valued at Rs. 8,00,000. New profit sharing ratio is 1:1. The amount of goodwill to be compensated to Nakul is –

A.Rs. 2,10,000

B.Rs 2,40,000

C.Rs 1,40,000

D.Rs 1,80,000

SOLUTION

Solution : B

Amount of goodwill to be compensated to Nakul
$= \frac{3}{10} \times 8, 00, 000 = R s 2, 40, 000$

Question 9

A, B and C share profits in the ratio 14:5:6. The goodwill of the firm is valued at 2 years’ purchase of average profits of last 3 years. The profits of last 3 years are : Rs. 50,000; Rs. 55,000; Rs. 60,000. Calculate the value of goodwill.

A. Rs. 1,40,000

B.Rs. 1,10,000

C.Rs. 1,20,000

D.Rs. 30,000

SOLUTION

Solution : B

Average Profits = (50,000 + 55,000 + 60,000) / 3 = Rs 55,000
Goodwill = 2 $\times$ Rs 55,000 =Rs 1,10,000

Question 10

Ram, Manohar & Joshi were partners in a firm. Joshi died on 28th February. His share in profits from the closure of the last accounting year ended 31st December till the date of death was to be calculated on the basis of avg. of 3 completed years of profits before death. Profits of the last 3 years were 7000, 8000 & 9000 respectively. Calculate Joshi`s share of profits.

A.Rs 500

B.Rs 333.33

C.Rs 444.44

D.Rs 222.22

SOLUTION

Solution : C

Avg. Profits = (7,000+8,000+9,000)/3= Rs 8,000.

Profit is calculated till death.

So, 2 months profits = 8,000 $\times$ 2/12= Rs 1,333.33

Joshi`s share = 1333.33 X 1/3= Rs 444.44