CBSE Class 12 Accountancy Retirement or Death of a Partner Important Questions Set 02

Very Short Answer Questions (1 Mark)

Teacher's Note:
1. With no ratio given, partners share equally; with no claim, the whole reserve is distributed.

Teacher's Note:
1. Only the deceased partner’s capital account is credited; the other partners are not involved when the ratio does not change.

Question 3. At what rate, interest is payable on the amount remaining unpaid to the executor of deceased partner? [CBSE (AI) 2013]
Answer:
6% p.a.

Teacher's Note:
1. This is under Section 37 of the Indian Partnership Act, 1932, when no rate is agreed.

Question 4. Differentiate between ‘Profit and Loss Appropriation Account’ and ‘Profit and Loss Suspense Account’. [CBSE Delhi 2015(C)]
Answer:
Profit and Loss Appropriation Account is prepared to show the distribution of net profit (calculated after making adjustments regarding partners’ remuneration, interest on Capital, interest on drawings etc.) among the partners while Profit and Loss Suspense Account is prepared to adjust the deceased partner’s share of profit upto the date of his death.

Teacher's Note:
1. The suspense account is closed at year end by transfer to Profit and Loss Appropriation Account.

Teacher's Note:
1. No ratio is given, so partners share equally and the gaining ratio is 1 : 1.

Question 6. Is the retirement of a partner means reconstitution of a firm?
Answer:
Yes, on the retirement of a partner, the old partnership comes to an end but the firm continues and a new partnership comes into existence. So a retirement means reconstitution of firm.

Teacher's Note:
1. Reconstitution changes the agreement among partners; dissolution of the firm is different.

Teacher's Note:
1. Balance to loan = 2,50,000 − (25,000 + 18,000 + 45,000) = 1,62,000.

Teacher's Note:
1. Y withdraws ₹ 5,000 and Z brings in ₹ 7,000; the total capital becomes exactly 2,10,000.

Teacher's Note:
1. Subtract the loss year while averaging, and take only 3 months (April to June) of the average profit; equal shares are assumed as no ratio is given.

Teacher's Note:
1. Hidden goodwill = amount paid − adjusted capital balance; it is the retiring partner’s share, not the firm’s total goodwill.

Question 11. State the basis of calculating the amount of profit payable to the legal representative of a deceased partner in the year of death. [CBSE 2019 (67/4/1)]
Answer:
Profit may be estimated:
(a) On the basis of Last year’s profit/Average profits of last given number of years
(b) On the basis of Turnover/Sales.

Teacher's Note:
1. Under the turnover basis, profit = sales up to date of death × last year’s profit/last year’s sales.

Question 12. Jayant, Kartik and Leena were partners in a firm sharing profits and losses in the ratio of 5:2:3. Kartik died and Jayant and Leena decided to continue the business. Their gaining ratio was 2: 3. Calculate the new profit sharing ratio of Jayant and Leena. [CBSE 2018]
Answer:
Old Profit Sharing Ratio = 5:2:3
Jayant’s share = 5/10, Kartik’s share = 2/10, Leena’s share = 3/10
Kartik dies; then gaining ratio of Jayant and Leena = 2:3; Kartik’s Sacrifice = 2/10
Jayant’s Gain = \( \frac{2}{10} \) × \( \frac{2}{5} \) = \( \frac{4}{50} \)
Jayant’s New Share = Old share + Gaining share = \( \frac{5}{10} \) + \( \frac{4}{50} \) = \( \frac{29}{50} \)
Leena’s gain = \( \frac{2}{10} \) × \( \frac{3}{5} \) = \( \frac{6}{50} \)
Leena’s New share = Old share + Gaining share = \( \frac{3}{10} \) + \( \frac{6}{50} \) = \( \frac{21}{50} \)
New Ratio of Jayant and Leena after Kartik’s death = \( \frac{29}{50} \) : \( \frac{21}{50} \) or 29:21

Teacher's Note:
1. Check: the new shares must add to 1 (29/50 + 21/50 = 1).

Question 13. P, Q and R are partners sharing profits in the ratio of 2 : 2 : 1. P retires and his share is entirely taken by R. Find out new profit-sharing ratio of Q and R.
Answer:
New ratio = Old ratio + Gaining ratio
Calculation of gaining share:
Q’s new share = \( \frac{2}{5} \) + 0 = \( \frac{2}{5} \),   R’s new share = \( \frac{1}{5} \) + \( \frac{2}{5} \) = \( \frac{3}{5} \)
Thus, new ratio of Q and R will be 2 : 3.

Teacher's Note:
1. Q gains nothing, so his share stays 2/5; only R’s share increases.

Question 14. A, B and C have been sharing profits in the ratio of 8 : 5 : 3. A retires. B takes 3/16th share from A and C takes 5/16th share from A. Calculate gaining ratio.
Answer:
When gain made by the remaining partners are expressly given in the question, there is no need to compute it, merely mention the gaining ratio as given in the question itself.
Share taken by B out of A’s share = \( \frac{3}{16} \), Share taken by C out of A’s share = \( \frac{5}{16} \)
Gaining Ratio = B’s Gain : C’s Gain = \( \frac{3}{16} \) : \( \frac{5}{16} \) or 3 : 5.

Teacher's Note:
1. Check: 3/16 + 5/16 = 8/16, which is exactly A’s share.

Question 15. A, B, C and D are partners sharing profits in the ratio of 3 : 2 : 1 : 4. A retires and his share is acquired by B and C in the ratio of 3 : 2. Calculate new ratio and gaining ratio.
Answer:
(a) Calculation of new ratio:
(i) Calculation of gaining share of remaining partners:
B’s gain = \( \frac{3}{5} \) of \( \frac{3}{10} \) = \( \frac{9}{50} \), C’s gain = \( \frac{2}{5} \) of \( \frac{3}{10} \) = \( \frac{6}{50} \), D’s gain = 0
Thus, gaining ratio = 9:6 or 3:2.
(ii) Calculation of new profit-sharing ratio of remaining partners:
New Ratio = Old Ratio + Gaining Ratio
B’s new share = \( \frac{2}{10} \) + \( \frac{9}{50} \) = \( \frac{10 + 9}{50} \) = \( \frac{19}{50} \)
C’s new share = \( \frac{1}{10} \) + \( \frac{6}{50} \) = \( \frac{5 + 6}{50} \) = \( \frac{11}{50} \)
D’s new share = \( \frac{4}{10} \) + 0 = \( \frac{4}{10} \)
Thus, new ratio of B, C and D is \( \frac{19}{50} \) : \( \frac{11}{50} \) : \( \frac{4}{10} \) = \( \frac{19 : 11 : 20}{50} \) = 19 : 11 : 20.

Teacher's Note:
1. D does not share in A’s profit, so D’s share (4/10 = 20/50) stays the same.

Teacher's Note:
1. Only the surplus (70,000 − 25,000 = 45,000) is distributed; the claim becomes a provision (liability).

Question 17. A, B and C were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. B retired and his share was taken over by A and C equally. Calculate the gaining ratio. [CBSE 2019 (67/3/1)]
Answer:
Gaining Ratio of A and C is 1:1 as they have taken over B’s share equally.

Teacher's Note:
1. Their new ratio would be 11 : 7 (4/9 + 3/18 : 2/9 + 3/18), but the question asks only for the gaining ratio.

Question 18. A, B and C are equal partners. C retires. He surrenders 3/5th of his share in favour of A and 2/5th in favour of B. Calculate new ratio and gaining ratio.
Answer:
(a) Calculation of new profit-sharing ratio:
A’s gain = \( \frac{1}{3} \) × \( \frac{3}{5} \) = \( \frac{3}{15} \)
A’s new Share = Old Share + Gained Share = \( \frac{1}{3} \) + \( \frac{3}{15} \) = \( \frac{5 + 3}{15} \) = \( \frac{8}{15} \)
B’s gain = \( \frac{1}{3} \) × \( \frac{2}{5} \) = \( \frac{2}{15} \)
B’s new Share = Old Share + Gained Share = \( \frac{1}{3} \) + \( \frac{2}{15} \) = \( \frac{5 + 2}{15} \) = \( \frac{7}{15} \)
New Profit-Sharing Ratio = \( \frac{8}{15} \) : \( \frac{7}{15} \) = 8 : 7
(b) Calculation of gaining ratio:
Gaining ratio = A’s gain : B’s gain = \( \frac{3}{15} \) : \( \frac{2}{15} \) = 3 : 2.

Teacher's Note:
1. The gaining ratio equals the ratio in which C surrenders his share (3/5 : 2/5).

Question 19. X, Y and Z were partners sharing profits in the ratio of \( \frac{1}{2} \), \( \frac{3}{10} \) and \( \frac{1}{5} \). X retired from the firm. Calculate the gaining ratio of the remaining partners. [CBSE (AI) 2014]
Answer:
When no new ratio is given, the remaining partners continue in their old ratio, so gaining ratio = old ratio of Y and Z = \( \frac{3}{10} \) : \( \frac{1}{5} \) = 3 : 2.
Y : Z = 3 : 2

Teacher's Note:
1. If the new ratio is not stated, the gaining ratio equals the old ratio of the continuing partners.

Question 20. Dinkar, Navita and Vani were partners sharing profits and losses in the ratio of 3 : 2 : 1. Navita died on 30th June, 2017. Her share of profit for the intervening period was based on the sales during that period, which were ₹6,00,000. The rate of profit during the past four years had been 10% on sales. The firm closes its books on 31st March every year. Calculate Navita's share of profit. [CBSE 2019 (67/2/1)]
Answer:
Profit for the period = 6,00,000 × 10% = ₹60,000; Navita's share = 60,000 × \( \frac{2}{6} \) = ₹20,000
Navita's share ₹20,000

Teacher's Note:
1. When profit is based on sales, apply the rate only to the sales up to the date of death; no time fraction is needed again.

Short Answer Questions (2 Marks)

Teacher's Note:
1. When a continuing partner also sacrifices, the gaining partner compensates both the retiring and the sacrificing partners.

Teacher's Note:
1. The capitals given are not needed for goodwill adjustment; use only the old and new ratios.

Teacher's Note:
1. Subtract the loss year while averaging: 54,000 ÷ 5, not 74,000 ÷ 5.

Short Answer Questions (3 Marks)

Teacher's Note:
1. Equal instalments of principal (80,000 ÷ 4 = 20,000) plus interest on the opening balance; so each year’s payment falls by 2,000.

Teacher's Note:
1. The deceased partner's share of goodwill is credited to his capital and debited to the remaining partners in their gaining ratio, which is their old ratio 5 : 3 when nothing else is agreed.
2. The balance of the capital account is the amount transferred to the executor's account.

Question 26. A, B, C and D are partners sharing profits in the ratio of 3 : 3 : 2 : 2 respectively. D retires and A, B and C decide to share the future profits in the ratio of 3 : 2 : 1. Goodwill of the firm is valued at ₹6,00,000. Goodwill already appears in the books at ₹4,50,000. The profits for the first year after D's retirement amount to ₹12,00,000. Give the necessary Journal entries to record Goodwill and to distribute the profits. Show your calculations clearly. [CBSE (AI) 2012]
Answer:
(i) Existing goodwill ₹4,50,000 written off in old ratio 3 : 3 : 2 : 2: Dr. A's Capital A/c ₹1,35,000, B's Capital A/c ₹1,35,000, C's Capital A/c ₹90,000, D's Capital A/c ₹90,000; Cr. Goodwill A/c ₹4,50,000.
(ii) Gain/(Sacrifice): A = \( \frac{3}{6} \) − \( \frac{3}{10} \) = \( \frac{1}{5} \) (gain); B = \( \frac{2}{6} \) − \( \frac{3}{10} \) = \( \frac{1}{30} \) (gain); C = \( \frac{1}{6} \) − \( \frac{2}{10} \) = −\( \frac{1}{30} \) (sacrifice)
Adjustment of goodwill through partners' capital accounts: Dr. A's Capital A/c ₹1,20,000, B's Capital A/c ₹20,000; Cr. C's Capital A/c ₹20,000, D's Capital A/c ₹1,20,000.
(iii) Profit of ₹12,00,000 distributed in 3 : 2 : 1: Dr. Profit and Loss Appropriation A/c ₹12,00,000; Cr. A's Capital A/c ₹6,00,000, B's Capital A/c ₹4,00,000, C's Capital A/c ₹2,00,000.

Teacher's Note:
1. Goodwill already shown in the Balance Sheet is written off first in the old ratio, then the retiring partner's share of the new valuation is adjusted.

Teacher's Note:
1. The cash brought in must equal the amount paid to the retiring partner, so new total capital = existing capitals + amount payable.

Teacher's Note:
1. A workmen's compensation claim smaller than the fund is charged to the fund; only the excess fund is shared by partners.

Question 29. Manav, Nath and Narayan were partners in a firm sharing profits in the ratio of 1 : 2 : 1. The firm closes its books on 31st March every year. On 30th September, 2015 Nath died. On that date, his Capital account showed a debit balance of ₹5,000. There was a debit balance of ₹30,000 in the Profit and Loss Account. The goodwill of the firm was valued at ₹3,80,000. Nath's share of profit in the year of his death was to be calculated on the basis of average profit of last 5 years, which was ₹90,000. Pass necessary journal entries in the books of the firm on Nath's death. [CBSE (AI) 2016]
Answer:
Nath's share: goodwill 3,80,000 × \( \frac{2}{4} \) = ₹1,90,000; profit 90,000 × \( \frac{6}{12} \) × \( \frac{2}{4} \) = ₹22,500; P&L debit balance 30,000 × \( \frac{2}{4} \) = ₹15,000
Amount due = −5,000 − 15,000 + 1,90,000 + 22,500 = ₹1,92,500
Amount transferred to Nath's Executor's A/c ₹1,92,500

Teacher's Note:
1. A debit balance in the capital account and a share of accumulated loss both reduce the amount due to the executor.

Teacher's Note:
1. Profit-sharing in capital ratio means 15,000 : 7,500 : 7,500 = 2 : 1 : 1.

Long Answer Questions (5 Marks)

Teacher's Note:
1. Work backwards from the totals: Amar's total ₹97,000 less his share of goodwill and revaluation gives his opening capital.
2. Equal revaluation profit shares (₹3,000 each) show the partners shared profits equally, so goodwill written off is also equal.

Teacher's Note:
1. The Revaluation Account total (₹10,000) and the appreciation of Land and Building (₹1,00,000 + ₹10,000) give the missing credit side at once.
2. The Balance Sheet total ₹2,55,500 lets you find the last missing liability and asset as balancing figures.

Teacher's Note:
1. The undistributed profit of ₹9,000 is shared by all three partners in 2 : 2 : 1 before settling S's account.

Teacher's Note:
1. An asset written off earlier and now sold is a revaluation gain, recorded by debiting Cash/Bank.

Teacher's Note:
1. Only the excess of the Workmen's Compensation Fund over the liability (3,60,000 − 1,60,000) goes to partners; the liability stays in the Balance Sheet.

Teacher's Note:
1. Here the year closes on 31st December, so the period up to death runs from 1st January (73 days).

Teacher's Note:
1. The goodwill shown in the Balance Sheet is written off to all partners in the old ratio before settling the deceased partner.

Teacher's Note:
1. Prepaid insurance wrongly charged to P&L is a new asset, so it is a gain in the Revaluation Account.