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Reconstitution of partnership (retirement of partner) - class-XII

Description: reconstitution of partnership (retirement of partner)
Number of Questions: 32
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Tags: retirement / death of a partner partnership accounts: retirement and death of a partner retirement and death of a partner elements of accounts book keeping and accountancy reconstitution of partnership (retirement of partner) retirement of a partner accounting for retirement and death of partner reconstitution of a partnership firm - retirement/death of a partner reconstitution of partnership accountancy retirement/ death of a partner
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In the event of death of partner, the amount of General Reserve is transferred to partner's capital Accounts in ______________ .

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. The new profit-sharing ratio.

  2. The old profit-sharing ratio.

  3. The capital ratio.

  4. None of these

Show answer
Correct Option: B
Explanation:

The amount of general reserve is transferred to the capital accounts of all the partners in their old profit sharing ratio. This is done to give the deceased partner's nominee the required amount of share in profits of the firm. So, All Partners' Capital Accounts are credited with their respective shares.

On retirement of a partner which account is not prepared:

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Realisation Account

  2. Distribution Account

  3. Revaluation Account

  4. Adjustment Account

Show answer
Correct Option: A
Explanation:

On retirement of a partner following accounts are prepared:

1. Revaluation Account
2. Adjustment Account
3. Partners' Capital Account
Realisation account is prepared at the time of dissolution of partnership.
Distribution account is prepared in the company form of organisation to set out who gets what at the time of liquidation of a company.

In which of the following events public notice is not required?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Death of a partner.

  2. Insolvency of a partner.

  3. Retirement of a sleeping partner.

  4. All the the above.

Show answer
Correct Option: D
Explanation:
Public notice is required to be given at the time of retirement of a partner otherwise retiring partner may not be discharged from his liability towards third party.
There are some cases when public notice is not required:
1. On death of a partner - the estate of a deceased partner or the legal representatives of a deceased partner cannot be held liable for any act of the firm, performed or done after his death, even if partnership business is carried on by the surviving partners in the old name of the firm. death of any partner itself is a notice.
2. Insolvency of a partner - When a partner is declared as insolvent, his liability is terminated after his insolvency. When a person ceases to be a partner, from the date of in solvency, he and his estate is no longer held to be liable for any act of the partnership firm done after his insolvency whether the notice of his insolvency has been given or not.
3. Dormant or sleeping partner - As dormant partner does not take any part in the conduct or management of the firm and his existence as a partner is not reflected by the name of the firm, he is not known to the person concerned retires from a firm, no public notice is necessary to terminate his liability.

Death of a partner has the effect of _________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. dissolution of the firm

  2. continuance of the business of the firm

  3. his legal heir joining the firm

  4. shutting down the business for $15$ days

Show answer
Correct Option: B
Explanation:

Retirement or death of a partner also leads to reconstitution of a partnership firm. On the retirement or death of a partner, the existing partnership deed comes to an end and in its place, a new partnership deed needs to be framed whereby, the remaining partners continue to do their business on changed terms and conditions.

Business of a partnership firm may not come to an end due to the death of a partner. Other partners shall continue to run the business of the firm. For the purpose to run the business on partner's death the old deed will dissolve and the new deed will come into existence with new profit sharing ratio and other terms and conditions.

All of the following except one is the method of recording joint life policy ______________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. premium paid charged to revenue

  2. JLP Account maintained at the surrender value

  3. JLP Account maintained at the surrender value along with the Reserve

  4. Surrender value distributed among the partners in the profit sharing ratio

Show answer
Correct Option: D
Explanation:

The surrender value at the time of the death of a partner is distributed among the remaining partners and the legal representative of the deceased partner.

On the death of a partner, the amount of Join Life Policy is credited to the Capital Account of _____________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Only the deceased partner

  2. All partners including the deceased partner

  3. Remaining partners, in the new profit sharing ratio

  4. Remaining partners, in the old profit sharing ratio

Show answer
Correct Option: B

In the absence of proper agreement, representative of the deceased partner is entitled to the dead partner's share in ____________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Profits till date, good will, joint life policy, share in revalued assets and liabilities.

  2. Capital, good will, joint life policy, interest on capital, share in revalued assets and liabilities.

  3. Capital, profits till date, good will, interest on capital, share in revalued assets and liabilities.

  4. Capital, profits till date, good will, joint life policy, share in revalued assets and liabilities.

Show answer
Correct Option: B

A partner retires but the business is still being carried on 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Profit sharing between the remaining partners will remain same

  2. Share proportion remains same

  3. Share proportion changes

  4. Both a & c

Show answer
Correct Option: D

Choose the correct answers from the alternatives given.
Public notice of retirement must be given ________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. only by the retiring partner only

  2. only by any partner other than retiring partner

  3. by retiring partner or any of the other partners

  4. none of these

Show answer
Correct Option: C
Explanation:

If a partner retires, without giving public notice, he  continues to be liable as a partner by holding out. If a Dormant partner retires without giving any public notice, he cannot be held liable as a partner by holding out. If no notice of retirement of a partner is given to the third parties and, if they continue to supply goods or funds to the reconstituted firm, they can either hold th old firm or the new firm liable.

Public notice regarding the retirement of the partner may be given by the retired partner or by other partner of the reconstituted firm as per section 32 (4)  of the Indian Partnership Act, 1932.

Choose the correct answers from the alternatives given.
A partner may retire from an existing firm ________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. with consent of all partners

  2. as per express agreement

  3. by written notice in partnership at will

  4. all of the above

Show answer
Correct Option: D

Choose the correct answers from the alternatives given.
In case of death of a partner ________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. the firm is dissolved unless otherwise agreed

  2. the estate of deceased partner is liable for any act of the firm after the date of his death if no public notice is given

  3. both (A) & (B)

  4. none of these

Show answer
Correct Option: A
Explanation:
A partnership firm can be dissolved on happening of certain contingencies. Such contingencies are made clear in section 42, which laid down that subject to contract between the partners, a firm is dissolved
1. if constituted for a fixed term, by the expiry of that term;
2. if constituted to carry out one or more adventures or undertakings, by the completion thereof;
3. by the death of a partner; and
4. by the adjudication of a partner as an insolvent.
However, it can be provided in the partnership agreement that the firm will not be dissolved in any of the circumstances mentioned above and if such provision is made in the agreement that is considered valid.

Choose the correct answers from the alternatives given.
A partner can retire on __________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. reaching the age of superannuation

  2. on the balance in the capital account reaching a certain amount

  3. in accordance with the Partnership Deed

  4. on the condition of his nominee becoming a partner

Show answer
Correct Option: C
Explanation:

In accordance with the Partnership Deed, a partner is said to retire when other partners continue to carry on the partnership business and that partner who retires ceases to be a partner. There are three modes of retirement of a partner, which are as follows:

1. Any partner may retire at any time with the consent of all partners.
2. When the partnership deed expressly provides for the retirement of a partner; a partner may retire according to the terms of agreement between the partners.
3. When the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

Choose the correct answers from the alternatives given.
In case of a partnership at will, a partner may retire by giving ________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. an oral notice to that effect to any of the working partners

  2. an oral notice to that effect to all other partners

  3. a written notice to that effect to all other partners

  4. a written notice to that effect to any of the working partners

  5. a written notice to that effect to the registrar of firms

Show answer
Correct Option: C
Explanation:

In a partnership, a partner may retire: With the consent of all the partners, In accordance with an express agreement by the partners, or. The partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

Choose the correct answers from the alternatives given.
The heir of the deceased partner _______. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. has a right to become a partner in the firm of the deceased partner

  2. does not have a right to become a partner in the firm of the deceased partner

  3. can become a partner in the firm of the deceased partner only if the surviving partners give their consent in this regard

  4. both (b) & (C)

Show answer
Correct Option: D

A,B and C ate three partners in a partnership firm sharing profit and loss equally. C retires from the firm on 31st March.His share of profit is purchased by A and B in the ratio of 2:1,If  at the time of retirement of the value of the goodwill of the firm is valued at Rs.54,000, and the partners decides to pay goodwill to the retiring partner, what will be accounting treatment? 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. None of the above

  2. A A/c Dr by Rs.30,000, B A/c Dr by Rs.24,000,C's A/c credit by Rs.54,000

  3. A A/c Dr by Rs.9,000, B A/c Dr by Rs.9,000,C's A/c credit by Rs.18,000

  4. A A/c Dr by Rs.18,000, B A/c Dr by Rs.24,000,C's A/c credit by Rs.34,000

Show answer
Correct Option: A
Explanation:

gaining ratio = new ratio-old ratio 

                       A =2/3 -1/3=1/3
                        B =1/3-1/3 =0
                   A partner is gaining partner 
goodwill of firm =54000
B's share of goodwill=54000*1/3=18000           

When the Joint Life Insurance Policy premium is treated as expenses,the amount reserved on death of the partner is transferred to _________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. partners capital A/c.

  2. cash A/c.

  3. profit and loss appropriation A/c.

  4. general reserve A/c.

Show answer
Correct Option: A
Explanation:

When Joint Life Policy premium is treated as an expense, then it is closed every year by transferring it to profit and loss A/c and the amount reserved on the death of the partner is transferred to partner's capital A/c.

Following are the journal entries :
1. On Payment of premium
            Joint Life Policy A/c               Dr. 
                     To Bank A/c 
2. On charging to profit and loss A/c
            Profit and Loss A/c                Dr.      
                      To Joint life Policy insurance premium A/c 
3. On maturity/ Death of a policy
            Insurance company / Bank A/c   Dr.
                       To Partner's capital A/c (individually)

Which of these statements is true?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Joint life policy is taken by the partners in order to provide funds at the time of retirement /death of any partner.

  2. Joint life policy reserve account is created to bring down the policy account to surrender value.

  3. Indian Partnership Act prohibits payment of any share of profit to a retiring partner if account are not settled.

  4. Retiring partner pays for his share of goodwill to the remaining partner.

Show answer
Correct Option: A
Explanation:

Joint life policy is taken by the partners in order to provide funds at the time of retirement /death of any partner - True

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy. Joint Life Policy is taken by the partners so that to avoid the financial hardship they may face at time of payment to retiring or deceased partner.

On the death of a partner, his executor is paid the share of profits of the died partner for the relevant period. This payment is recorded in Profit & Loss _______ A/c

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Adjustment

  2. Appropriation

  3. Suspense

  4. Reserve

Show answer
Correct Option: C
Explanation:
A P&L suspense account is used to record some fictitious profits for the purpose of settlement of share of profits to a deceased partner. Later, such errors are identified and rectified and accordingly adjusted in the books of accounts so that the balance of the P&L suspense a/c is zero.
In case of a death of a partner, share of deceased partner in the profit or losses of the firm (till the death of his/her death) is paid through profit and loss suspense account. At the time of the death of the partner, profit and loss account will not be debit or credit because, it is not possible for the firm to alter the books during the year, thus on the date of a death of a partner profit and loss account is debited or credited.

A, B & C takes a joint life policy, after 5 years, B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A & C decides to share profits equally. They had taken a joint life policy of Rs. 2,50,000 with the surrender value Rs. 50,000. What will be the treatment in the partners' capital account on receiving the JLP amount if joint life policy is maintained at the surrender value? 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Rs. 50,000 credited to all the partners in old ratio.

  2. Rs. 2,50,000 credited to all the partners in old ratio.

  3. Rs. 2,00,000 credited to all the partners in old ratio.

  4. No treatment is required.

Show answer
Correct Option: D

A, B & C takes a joint life policy, after five years B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A & C decides to share profits equally. They had taken a joint life policy of Rs. 2,50,000 with the surrender value Rs. 50,000. What will be the treatment in the partner's capital account on receiving the JLP amount if joint life policy is maintained at surrender value along with the reserve?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Rs. 50,000 credited to all the partners in old ratio.

  2. Rs. 2,50,000 credited to all the partners in old ratio.

  3. Rs. 2,00,000 credited to all the partners in old ratio.

  4. Distribute JLP Reserve A/c in old profit sharing ratio.

Show answer
Correct Option: D

Balances of R,H & M sharing profits & losses in the ratio 2:3:2 stood as Rs. 10,00,000; H - Rs. 15,00,000; M - Rs. 10,00,000; Joint Life Policy Rs. 3,50,000. H desired to retire from the firm and the remaining partners decided to carry on with the future profit sharing ratio of 3:2. Joint life policy of the partners surrendered and cash obtained Rs. 3,50,000. What would be the treatment for JLP A/c?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Rs. 3,50,000 credited to partner's capital account in new ratio.

  2. Rs. 3,50,000 credited to partner's capital account in old ratio.

  3. Rs. 3,50,000 credited to partner's capital account in capital ratio.

  4. Rs. 3,50,000 credited to JLP account.

Show answer
Correct Option: D

A, B & C were partners sharing profits and losses in the ratio of 3:2:1. A retired and firm received the joint life policy as Rs. 7,500 appearing in the balance sheet at Rs. 10,000. JLP is credited and cash debited with Rs. 7,500, what will be the treatment for the balance in Joint Life Policy?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Credited to partner's current account in profit sharing ratio.

  2. Debited to revaluation account.

  3. Debited to partner's capital account in profit sharing ratio.

  4. Either (B) or (C).

Show answer
Correct Option: D

Balances of $R _{1}, R _{2}$ & $R _{3}$ sharing profits & losses in proportion to their capitals, stood as:
$R _{1} = Rs. 3,00,000$
$R _{2} = Rs. 2,00,000$
$R _{3} = Rs. 1,00,000$
$R _{1}$ desired to retire from the firm and the remaining partners decided to carry on, joint life policy of the partners surrendered and cash obtained Rs. 60,000. What will be the treatment for Joint Life Policy A/c? 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. $Rs.60,000$ credited to Revaluation A/c.

  2. $Rs.60,000$ credited to Joint Life Policy A/c.

  3. $Rs.30,000$ debited to Ram's Capital A/c.

  4. Either (A) or (B).

Show answer
Correct Option: B
Explanation:

Readjustments takes place in case of retirement of a partner. Whenever the partner retires, the continuing partners makes gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of the retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation profit and reserve are transferred to capital or current accounts of partners. Lastly, final amount due to retiring partner is determined and discharged.

From the above provision, it can be concluded that At the the time of retirement of partner the surrender value of joint life policy is taken into account. 
Therefore, in the given question Rs.60000 is credited to joint life policy A/c.

If one of the partner of a partnership firm comprising 2 partners dies, then _________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. firm will dissolve

  2. partnership profits will change, no effect on firm

  3. both (A) & (B)

  4. none of these

Show answer
Correct Option: A
Explanation:
When a partnership firm ceases to exist, the partnership firm is said to be dissolved. "The dissolution of partnership between all partners of a firm is called the dissolution of the firm." There is a difference between dissolution of partnership and dissolution of firm. dissolution of partnership involves a change in a relationship of partners. When one or more partners cease to be the partners of the firm because of one or the other reason and other partner continue the partnership business, it is nothing but the dissolution of partnership and not of the firm. But if there are only two partners in a partnership and one of the partner dies, firm will dissolve as the subject matter of partnership i.e., basic requirement of partnership of having at least 2 members does not exist.

Choose the correct answers from the alternatives given.
For firms acts after retirement, a retiring partner ________. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. is not liable to third party even if no public notice is given of his retirement

  2. is not liable to third party who deals with the firm without knowing. that he was a partner even if no public notice is given of his retirement

  3. continues to be liable to every third party (whether or not having knowledge that he was a partner) if no public notice in give

  4. none of these

Show answer
Correct Option: B
Explanation:

Liability of a retired partner - A retired partner is held liable to the debts of his firm and for all the acts of the firm done before and upto the date of his retirement. However, a retiring partner may be discharged from his liabilty to any third party for the acts of his firm done before his retirement by entering into agreement with such third party and partners of the reconstituted firm. Such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of retirement. Thus a third party should recognise the reconstituted firm as its debtor in order to free the retiring partner from his liability.

If a partner retires without giving necessary public notice, he continues to be liable as a partner by holding out. Of course, if a dormant partner retires without giving any public notice, he cannot be held liable as a partner by holding out. A retired partner is not liable to third party who deals with the firm without knowing that he was a partner even if no public notice is given of his retrement.

Choose the correct answers from the alternatives given.
Unless otherwise agreed, a retiring partner can _______. 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. carry on competing business

  2. use the firms name

  3. represent himself as carrying on firms business

  4. solicit the old customers

Show answer
Correct Option: A
Explanation:
Rights of an outgoing partner to carry on competing business - An outgoing partner may carry on a business competing with that of the firm and he may advertise such business. But subject to contract to the contrary may not
1. Use the firm name,
2. Represents himself as carrying on the business of the firm,
3 Solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

A, B & C Care the partners sharing profits and losses in the ratio $2:1:1$. Firm has a joint life policy of $Rs.1,20,000$ and in the balance sheet it is appearing at the surrender value i. e. $Rs.20,000$. On the the death of A, how this JLP will be shared among the partners? 

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. $50,000 : 25,000 : 25,000$

  2. $60,000 :30,000 : 30,000$

  3. $40,000 :35,000 :25,000$

  4. Whole of $Rs.1,20,000$ will be paid to A

Show answer
Correct Option: A
Explanation:

If Joint Life Policy appears in the Balance Sheet at surrender value, then the firm will gain on the death of a partner and partners will get

 policy amount - Surrender value i.e., in their profit sharing ratio
Rs. 120000 - Rs. 20000 = Rs. 100000
Distribution of JLP among the partners is : 
A = 100000 * (2/4) = 50000
B = 100000 * (1/4) = 25000
C = 100000 * (1/4) = 25000

Balance of A,B & C sharing profits & losses in proportion to their capitals, stood as :
A = 2,00,000
B = 3,00,000
C = 2,00,000
Joint Life Policy Reserve A/c 80,000 and Joint Life Policy A/c is shown in the balance sheet 80,000 A desired to retire from the firm and the remaining, partners decided to carry on in equal ratio, joint life policy of the partners surrendered and cash obtained 80,000 What will be the treatment for  joint Life Policy Reserve A/c?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Cash received credited to Revaluation A/c

  2. JLP Reserve balance credited to Partner's Capital A/c in old profit sharing ratio.

  3. JLP Reserve balance credited to Partner's Capital A/c in new profit sharing ratio.

  4. Cash received credited to Partners' Capital A/c in old profit sharing ratio.

Show answer
Correct Option: B

If a partner dies, then JLP will be reckoned at ________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. surrender value

  2. maturity value

  3. policy value

  4. none of these

Show answer
Correct Option: B
Explanation:
On the death of a partner, assets and liabilities are revalued and the resultant profit and loss has  to be transferred to the capital accounts of the partners including the deceased partner, value of goodwill is raised and the maturity value of joint life policy is taken into account. Revaluation profit and reserves are transferred to capital or current accounts of partners. After ascertaining the amount due to the deceased partner, it should be credited to his executor's account.

Balances of A, B & C sharing profits & losses in proportion to their capitals, stood as:
A = $Rs.2,00,000$
B = $Rs.3,00,000$
C = $Rs.2,00,000$
Joint Life Policy Reserve A/c $Rs.80,000$ and Joint Life Policy A/c is shown in the balance sheet $Rs.80,000$. A desired to retire from the firm and the remaining partners decided to carry on in equal ratio, joint life policy of the partners surrendered and cash obtained $Rs.80,000$. What will be the treatment for Joint Life Policy Reserve A/c?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Cash received credited to Revaluation A/c.

  2. JLP Reserve balance credited to Partner's Capital A/c in old profit sharing ratio.

  3. JLP Reserve balance credited to Partner's Capital A/c in new profit sharing ratio.

  4. Cash received credited to Partners' Capital A/c in old profit sharing ratio.

Show answer
Correct Option: B
Explanation:

Creation of Joint Life Policy Reserve Account - Under this method, premium paid is debited to policy account and credited to bank A/c. At the end of the year, amount equal to premium is transferred from profit and loss appropriation A/c to policy reserve A/c. After this, policy A/c is brought down to its surrender value by debiting the life policy reserve A/c with amount which exceeds the surrender value of policy. Thus, in this method, policy account appears on the assets side and policy reserve account appears on the liabilities side of the balance sheet until it is realised. Both these accounts appear in the balance sheet at the surrender value of policy. 

On death or retirement of a partner Joint Life Policy Reserve Account is transferred to Joint Life Policy Account and then the balance is transferred to Partner's Capital Account in old profit sharing ratio.

The balance of joint life policy account as shown in the balance sheet represent ___________.

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. the surrender value of a policy

  2. annual premium of JLP

  3. total premium paid by the firm

  4. amount receivable on the maturity of the policy

Show answer
Correct Option: A
Explanation:
This is the case when Joint Life Policy Reserve account is maintained. In this case insurance premium paid is debited to joint life policy account and credited to bank account. At the end of the year, the amount in excess of surrender value is treated as loss and is transferred to profit and loss account and the surrender value is shown in the balance sheet every year.

 If the firm gets dissolved due to the retirement of one the partners then what amount of JLP will be credited in partner's capital A/c?

book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

  1. Maturity Value.

  2. Surrender Value.

  3. Policy Value.

  4. None of these.

Show answer
Correct Option: B
Explanation:
At the time of retirement of a partner, readjustments takes place. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy is taken into account. Revaluation of profit and reserves are transferred to capital or current accounts of partners. Lastly, final amount due to the retiring partner is determined and discharged.
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