Death of a partner

1 Mark Questions

1. A, T and R were partners in a firm sharing profits in the ratio of 5:6:7

respectively. Their capitals were Rs. 5,00,000; Rs. 6,00,000 and Rs. 7,00,000 respectively. State the ratio in which the goodwill of the firm amounting to Rs. 16,00,000 will be adjusted in the capital accounts of A and T in case of R's death. (Compartment 2014)

Ans. Goodwill of the firm, at the time of R's death, will be adjusted among A and T in gaining ratio.

1. At what rate is interest payable on the amount remaining unpaid to the executor of deceased partner? (All India 2013; hots)

Ans. Interest is payable @ 6% per annum on the amount remaining unpaid to the executor of deceased partner.

1. Name the account which is opened to credit the share of profit of the

deceased partner, till the time of his death to his capital account. (Delhi 2013; HOTS)

Ans. 'Profit and loss suspense account' is opened, to credit the share of profit of the deceased partner.

1. State any two deductions that may have to be made from the amount payable

to the legal representative of a deceased partner. (All India 2009)

Ans. (i) Deceased partner's share of loss on revaluation of assets and liabilities.

1. Drawings made by deceased partner till the date of death.

3 Marks Question

1. A, B and C are partners in a firm whose books are closed on 31st March each

year. B died on 30th June, 2009 and according to the agreement, the share of profit of a deceased partner up to the date of the death is to be calculated on the basis of the average profits for the last five years. The net profits for the last 5 years have been 2005 : Rs. 14,000; 2006 : Rs. 18,000; 2007 : Rs. 16,000; 2008 : Rs. 10,000 (loss) and 2009: Rs. 16,000. Calculate B's share of profits upto the date of death and pass necessary journal entry. (All India 2010)

Ans. Calculation of B's Share of Profit

Last 5 years' total profit = <math>14,000 + 18,000 + 16,000 - 10,000 + 16,000 = Rs. 54,000</math>

Average profit = <math>54,000 / 5 = Rs. 10,800</math>

B's share of profit = <math>10,800 \times 1/3 \times 3/12 = \text{Rs.} 900</math>

JOURNAL

Date Particulars LF Amt (₹) Amt (₹)

Profit and Loss Suspense A/c Dr 900

To B's Capital A/c 900

(Being share of profit transferred to deceased partner's capital account)

4 Marks Questions

1. Monika, Sonika and Manisha were partners in a firm sharing profits in the ratio

of 2:2:1 On 31st March, 2013 their balance sheet was as under

Balance Sheet

as at 31st March, 2013

Liabilities Amt (₹) Assets Amt (₹)

Capital A/cs Fixed Assets 3,60,000

Monika 1,80,000 Stock 60,000

Sonika 1,50,000 Debtors 1,20,000

Mansha 90,000 Cash 4,20,000 2,70,000

Reserve Fund 1,50,000 Creditors 2,40,000 8,10,000

Sonika died on 30th June, 2013. It was agreed between her executors and the remaining partners that

1. Goodwill of the firm be valued at 3 years' purchase of average profits for the last four years. The average profits were Rs. 2,00,000.
2. Interest on capital be provided at 12% per annum.
3. Her share in the profits upto the date of death will be calculated on the basis of average profits for the last 4 years.

Prepare Sonika's capital as on 30th June, 2013. 2014)

(All India