MCQ on Retirement and Death of a Partner | Partnership Accounts MCQs | Multiple Choice Questions and Answers | PAPER 5 FINANCIAL ACCOUNTING | CMA MCQ

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INSTITUTE OF COST ACCOUNTANTS OF INDIA
CMA INTERMEDIATE: PAPER 5 – FINANCIAL ACCOUNTING

RECONSTITUTION OF PARTNESHIP FIRM
RETIREMENT/DEATH OF A PARTNER (MCQ)

A. State whether each of the following statements is True or False:

1.       The new ratio and the gaining ratio between the continuing partners after retirement of partner are always the same.            False

2.       Gaining ratio calculated at the time of retirement and death of a partner.     True

3.       The amount due to the retiring partner is generally transferred to his loan account.                 True

4.       Profit or loss on revaluation of assets and liabilities on retirement of a partner is transferred to the remaining partners’ capital accounts only.                                 False, Old partners

5.       Revaluation profit at the time of retirement of a partner is a capital profit.    True

6.       Revaluation loss at the time of retirement of a partner is a revenue loss.       False

7.       There is no treatment of goodwill on the death of a partner.               False

8.       In the event of death of a partner, the amount realised on joint life policy is credited only to the deceased partner’s executor’s account.    False, Distributed between or amongst the partners

9.       The retiring partner may claim a share in the profits of the firm even after his retirement if his account is not settled.        True, Instead he can claim interest on the amount outstanding @ 6% p.a.

10.   The retiring partner’s share of goodwill is debited to the remaining partners capital accounts in the gaining ratio. True

11.   A dormant partner is to give a public notice of his retirement. False

12.   In case of admission, retirement or death of a partner, unrecorded assets brought into account is credited to revaluation account.       True

13.   Increase in the value of assets at the time of retirement of a partner is credited to revaluation account. True

14.   In case of admission, retirement or death of a partner, unrecorded liabilities brought into account is debited to revaluation account.                       True

15.   The amount due to the retiring partner is transferred to his loan account if it is not settled immediately. True     

16.   The object of a Joint Life Policy is to provide funds for the payment of decreased partner’s balance of capital account.       True

17.   If the firm is not dissolved, the retiring partner has no right to share in the goodwill of the firm.   False

18.   The firm is under obligation to pay an agreed rate of interest for the unpaid balance to the retiring partner.  True

19.   In the event of retirement, undistributed profits or losses and reserves are distributed among the existing partners in their old profit sharing ratio.                True

20.   In the event of death of a partner, the claim on his life policy is credited to his capital account when the premium on his life policy is paid by the firm.      False

21.   On the death of a partner, the amount due to him will be credited to his executor’s loan account if it is not paid immediately.                     True

22.   The deceased partner is entitled to a share of profit for the period up to his death and credited in the name of profit and loss suspense account.                                             True

23.   Profit and loss suspense account is shown in new balance sheet on assets side.                         True

24.   Profit and loss suspense account is closed by transferring its balance to profit and loss appropriation account.

B. Fill in the blank with appropriate word or words:

1.       In the event of death, the profit or loss on revaluation of asset and liabilities is transferred to all the partner’s capital account in old ratio.

2.       Gaining ratio = New ratio – old ratio.

3.       The ratio in which the remaining partners acquire the share of the retiring partner is called gaining ratio.

4.       Retiring partners’ share of goodwill is adjusted through the remaining partners’ capital accounts in gaining ratio.

5.       On the death of a partner, the amount due to him will be credited to his executor’s loan account if it is not paid immediately.

6.       Decrease in liabilities at the time of retirement of a partner is debited to revaluation account.

7.       At the time of retirement of a partner, profit on revaluation will be credited to the capital account of all partners.

8.       In case of death of a partner, profit and loss suspense account is shown in new balance sheet on assets side.

9.       On retirement of a partner goodwill be credited to the capital account of retiring partner.

C. Choose the correct alternative:

1.       On retirement of a partner, his capital account will be credited with

a.       His/her share of goodwill.

b.      His share in reserves and surplus.

c.       His share of profit in revaluation

d.      All of the above

2.       At the time of retirement of a partner if goodwill appears in the balance sheet, it must be written off and the capital accounts of all the partners are to be debited in:

a.       Old profit sharing ratio.

b.      The new profit sharing ratio.

c.       Capital ratio.

d.      None of the above ratio.

3.       In the event of death of a partner, the amount of general reserve is transferred to the partners’ capital accounts in:

a.       New profit sharing ratio.

b.      Old profit sharing ratio.

c.       Capital ratio.

d.      None of the above.

4.       On the death of a partner, the amount of joint life policy should be credited to the capital accounts of:

a.       All the partners including the deceased partner in their profit sharing ratio.

b.      The remaining partners in the new profit sharing ratio.

c.       Only the deceased partner’s capital account.

d.      Neither the deceased partner nor the remaining partners’ capital account.

5.       A B and C are partners sharing profit in the ratio 2:2:1. C retired. The new profit sharing ratio between A and B will be

a.       2:1

b.      1:1

c.       3:1

d.      None of the above.

6.       According to the partnership Act, (Sec. 37) the interest payable to the deceased partner on the amount left by him will be:

a.       6% p.a.

b.      10% p.a.

c.       The Bank rate.

d.      None of the above.

7.       On retirement of a partner, the remaining partner’s who have gained due to change in profit sharing ratio should compensate the:

a.       Retiring partners only.

b.      Remaining partners (who have/sacrificed) as well as the retiring partners.

c.       Remaining partners only (who have sacrifice.

d.      None of the above.

8.       In case of death of a partner, if his claim is not settled by the continuing partners, his executor is entitled to:

a.       Interest at 6% p.a. on the amount due to his executor.

b.      A share of profits proportionate to the amount due to him/his executor.

c.       Either of the above two at his option.

d.      None of the above.

9.       On retirement/death of a partner, retiring or deceased partner’s share of goodwill is credited to

a.       All the partners.

b.      Remaining partners.

c.       Retiring/deceased partner only.

d.      None of the above.

10.   A, B and C share profit equally. A retires. Goodwill is appearing in the balance sheet at Rs. 12,000 but it is revalued at Rs. 18,000. A will be credited with

a.       Rs. 6,000

b.      Rs. 4,000

c.       Rs. 2,000

d.      None of the above.

11.   On retirement, the value of goodwill is credited to:

a.       All partners.

b.      Continuing partners.

c.       Retiring partner.

d.      None of the above.

12.   Joint life policy amount received by a firm is distributed in _____.

a.       Opening capital ratio.

b.      Closing capital ratio.

c.       Old profit sharing ratio of partners.

d.      New profit sharing ratio of partners.

13.   In the event of a death of a partner, accumulated profits and Losses are shared by partners:

a.       In old profit sharing ratio.

b.      In new profit sharing ratio.

c.       In the gaining ratio.

14.   When a partner retires and his claim is not settled by the remaining partners. He is entitled to: -

a.       Interest at 6% p.a. on the amount due to him.

b.      A share of profit proportionate to the amount due to him.

c.       Either of the above two at his option.

15.   On retirement, profit on revaluation of assets and liabilities is credited to:-

a.       All the partners in old profit sharing ratio.

b.      Remaining partners in new profit sharing ratio.

c.       The capital account of the retiring partners only.

16.   On retirement, retiring partner’s share of goodwill is credited to:

a.       All partners.

b.      Remaining partners.

c.       Retiring partner only.

17.   On retirement of partner, when the remaining partners continue the business:

a.       The partnership is dissolved.

b.      The Firm is dissolved.

c.       None of the above two.

18.   On retirement of a partner, unrecorded assets are:

a)      Credited to Revaluation account

b)      Shown in balance sheet of new firm

c)       All of the above (a & b)

d)      None of the above

19.   At the time of retirement of a partner, profit on revaluation will be credited to:

a)      Capital Account of retiring partner

b)      Capital Account of remaining partners

c)       Capital Account of all partners

20.   Which of the following is true about profit and loss suspense account?

a)      Profit and loss suspense account is shown in new balance sheet on assets side.

b)      Profit and loss suspense account is closed by transferring its balance to profit and loss appropriation account.

c)       In partnership account, Profit and loss suspense account is opened only in case of death of a partner.

d)      All of the above

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