AHSEC - CLASS 12 : Reconstitution of a Partnership Firm –Retirement/Death of a Partner Important Notes for 2023 Exam | HS 2nd Year Accountancy Notes

AHSEC Class 12 Accountancy Chapter 3 : Accounting for Partnership : Basic Concepts Question Answer can be very Valuable & useful for the Preparation
AHSEC Class 12 Accountancy Chapter 3 : Accounting for Partnership : Basic Concepts  Question Answer  can be very Valuable & useful for the Preparation of Assam Higher Secondary Education HS 2nd Year Examination . Assam Board AHSEC HS 2nd Year ACCOUNTANCY NOTES gives you the best information of Accounting for Partnership : Basic Concepts . You can find solutions to their questions at both basic and advanced levels

 
AHSEC - CLASS 12 : Reconstitution of a Partnership Firm –Retirement/Death of a Partner Important Notes for 2023 Exam | HS 2nd Year Accountancy Notes


Very Short Answer Type Questions (Carrying 2 marks each) :

A. Theory Part:


1.What is meant by retirement of a partner?

Ans: Retirement of a partner means when one of the partners leaves the firm by giving suitable notice to other partners.

2.Mention two modes of retirement of a partner. 

Ans: Following are the two modes of retirement of a partner
(i) with the consent of the other partners.
(ii) if the partnership is at will, by giving a notice in writing to all other partners of his/ her intention to retire. 

3.What is the effect of retirement of a partner?

Ans: On the retirement of a partner, the old partnership comes to an end but the firm continues and a new partnership comes into existence. 

4.Is a retiring partner liable for firm's acts before his retirement?

Ans: Section 32 (2) the Indian partnership Act 1932, a retiring partner continues to be liable for the acts of the firm done before his retirement.
 

5. Is a retiring partner liable for firm's acts after his retirement?

Ans: A retirment partner shall remain liable to the third parties like continuing partners if the public notice regarding retirement is not given. 

6. How is the new profit sharing ratio calculated at the time of retirement of a partner?

Ans. The following equation is applied to calculate the new profit sharing ratio of a
retiring partner:
New share= Old share + Acquired share.

7.Define gaining ratio?

 Ans:The ratio in which the existeing partners acquire share of retiring partner is called gaining ratio.

8. State the ratio in which accumulated profit/ reserve / loss is shared among the partners at the time of retirement of a partner.

Ans: Accumulated profit/ reserve/ loss is shared among all the partners in their old ratio.

9. Why is the value of goodwill needed to be determined at the time of retirement or death of a partner?

Ans: When a partner retires or dies he leaves behind the reputation of the busines which was earned by his efforts also. After the retirement or death, the benifit t the goodwill is enjoyed by the continuing partners. Therefore, it becomes the legitimate right of the outgoing partner to receive compensation from the firm on his retiremen or death.

10. How is the share of goodwill of a retiring partner recorded in accounts? 

Ans. The share of goodwill of the retiring partner is credited to his capital account and continuing partner's capital accounts will be debited with share of goodwill of the retiring partner in gaining ratio.

11. Why is it necessary to revalue the assets and liabilities of the firm on retirement of a partner?

Ans. Because the retiring partner gets his fair share of the firm's assets. 

AHSEC HS 2nd Year Accountancy Chapter 3 : Reconstitution of a Partnership Firm –Retirement/Death of a Partner Important Questions Answers

12. What are the modes of paying off the dues of a retiring partner?

Ans. (a) Payment in full at the time of retirement.
(b) Purchase by continuing partner's.
(e) Converting retiring partner's capital into loan.

13. What do you mean by joint life policy? 

Ans. Joint life policy means a policy taken by the firm jointly on the life of all the partners.

14. Mention two circumtances in which gaining ratio may be used?

Ans. (a) When a partner retires from a firm.
(b) When a partner dies.

15. Give two adjustments that are to be made at the time of retirement of a partner. 

Ans. The following two adjustments that are made at the time of retirement of a partner: 
(a) Accumulated profit/ Reserve/ Loss.
(b) Share of goodwill. 

16. What is surrender value?

Ans. When a joint life policy is discontiued the amount which is paid by the insurance company to the firm is called surrendered value.

Short Answer type Questions (carrying 3 marks each) :


A. Theory Part:


1. What is gaining ratio? Give two distinctions between gaining ratio and sacrificing ratio. 

Ans: Gaining ratio is the ratio in which the continuing partners acquire the retired or deceased partner's share.
Gaining ratio=New Ratio-Old Ratio,

Difference between gaining ratio and sacrificing ratio.

2.How would you calculate the amount payable to the executor of a deceased partner?

Ans: The following amounts which are credited to the Capital Account Current Account of the deceased partner:
(a) The amount standing to the credit of his capital and current account.
(b) Share of goodwill.
(c) Interest on capital.
(d) Share of profit on the revaluation of assets and liabilities. 
(e) Share of the accumulated profits or reserves.
(f) Share of profit from the date of last closing upto the date of his death
(g) Salary, Commission etc.

Following amounts will be debited to the account of the deceased partner for ascertaining the amount due to his executors:
(a) Drawings and interest on drawing.
(b) Share of loss on the revaluation of assets and liabilities. 
(c) Share of accumulated losses.
(d) Share of loss from the date of last closing upto the date of his death.
(e) Debit balance of his capital and current account. After making the above mentioned adjustments in the deceased partner's capital account, the balance of his capital account is transferred to his Executor's Account.

AHSEC HS 2nd Year Accountancy Chapter 3 : Reconstitution of a Partnership Firm –Retirement/Death of a Partner Important Questions Answers

3. Discuss the method of treatment of goodwill at the time of retirement of a partner.

Ans: (a) When goodwill does not appear in the books of accounts:
The share of goodwill of the retiring partner is credited to his capital account and existing partner's capital accounts will be debited with share of goodwill of the retiring partner in gaining ratio.

(b) When goodwill exists in the books of accounts:
When goodwill account already appears in books, write off the existing goodwill by debiting all the partner's capital accounts (in case of fluctuating capitals) or current accounts (in case of fixed capitals) in their old profit sharing ratio and crediting the goodwill account.
Later, credit the retiring partner's capital or current account with his share of goodwill and debit the continuing partners capital or current accounts in gaining ratio.

4. Why are assets and liabilities revalued on retirement of a partner?

Ans: The Balance sheet prepared by the partners before the retirement of a partner may not show the assets and liabilities at the value. In other words the value at which the assets and liabilities are shown may be more or less than their actual value. If is quite possible that some assets and liabilities which though exist in the business but some how do not appear in the books. On retirement, the partner would like that all the assets and liabilities of the firm are shown in the balance sheet at their genuine value. So there is a need to revalue the assets and liabilities.

5. What are the different modes of sattlement of executors account on the death of a partner?

Ans: The different modes of settlement of executors account on the death of a partner are: 
(a) When the amount due is paid off immediately in full or partially and the balance to be kept in his loan account.
(b) When the amount due is paid off in installments.
(i) When amount finally due is transferred to decreased partner's loan account.
(ii) When interest becomes due.
(iii)When installment is paid.

6.How is the share of profits ascertained for the period after death for the executor of a deceased partner? 

Ans: I. On the basis of time - The profit will be assumed to have uniformity over the year. Profit may be estimated by any one of the following two methods:
(a) On the basis of last year's profit.
(b) On the basis of average profit.
2. On the basis of sales- If profit till the date of death are to be calculated on the basis of sales, on such arrangement last year's profit and sales are given together with the sale of the current year upto the date of death of the partner. The profit is ascertained proportionately and the share of profit of deceased partner is calculated.

Long Answer Type Questions (carrying 5 marks)


A. Theory Part:


1. What are the adjustments required at the time of retirement of a partner?

Ans: Following are the various matters that require adjustment at the time of retirement:
(i)Determination of new profit sharing ratio.
(ii) Determination of gaining rartio.
(iii) Treatment of goodwill.
(iv) Revaluation of assets and liabilities.
(v) Adjustments of accumulated profits/losses reserves.
(vi) Adjustment of capitals.
(vii) Determination of the account payable to the retiring partner. 

2. State how goodwill is treated in the books of account at the time of retirement or death of a partner. 

Ans: When a partner retires, the existing partners gain his share of profit. They thus have to compensate the retiring partner for his share in the goodwill in the gaining ratio. Similarly, when there is death of a partner, the continuing partners should bear the share of the goodwill due to the heirs of the deceased partner.
(a) When goodwill does not appear in the books of accounts:
The share of goodwill of the retiring partner is credited to his capital account and continuing partner's capital accounts will be debited with share of goodwill of the retiring partner in gaining ratio.
(b)When goodwill exists in the books of accounts:
When goodwill account already appears in books, write off the existing goodwill by debiting all the partner's capital accounts (in case of fluctuating capitals) or current accounts (in case of fixed capitals) in their old profit sharing ratio and crediting the goodwill account.
Later, credit outgoing partner's capital/current account with his share of goodwill and debit the gaining partners capital/current account in gaining ratio.

3.How would you compute the amount due to a retiring partner?

Ans:The amount due to the retiring partner includes:
(i)Share of capital.
(ii)Balance standing to the current account (credit)
(iii) Share of goodwill.
(iv) Interest on capital.
(v) Salary, commission etc.
(vi) Share of profit on revaluation of assets and liabilities.
(vii) Share of reserve, accumulated profit.

The retiring partner is liable to the following amounts, which are debited to his capital account: 
(i) Balance standing to current account (Debit)
(ii) Share of goodwill written off.
(iii) Share of loss on revaluation of assets and liablities.
(iv) Drawings and interest on drawings.
(v) Share of loss.
After incorporating the above adjustments, the sum due is paid to the retiring partner and the balance, its transferred to his loan account.

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Also Read : Accountancy Chapter wise Complete Solution and Important Questions Answers


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