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Questions and Answers
What was the total amount of profits from the previous four years used to ascertain profits before Kiya's death?
How is the goodwill of the firm calculated upon the death of a partner?
What is the total interest on capitals that would be calculated for all partners until Kiya's death?
After Kiya's death, what is the revalued amount of the inventory?
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What is the effect of the appreciation of Land & Building on the partnership balance sheet after Kiya's death?
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Study Notes
Partnership Overview
- Partners: Diya, Riya, and Kiya of M/s DRK Fabrics.
- Profit and loss sharing ratio: 2:1:2.
Balance Sheet (as of 31st March 2022)
- Total liabilities: ₹6,00,000.
- Total assets: ₹6,00,000.
- Key liabilities include capital contributions and general reserve.
- Individual capitals:
- Diya: ₹1,50,000
- Riya: ₹1,80,000
- Kiya: ₹70,000
- Major assets:
- Land & Building: ₹1,65,000
- Furniture: ₹75,000
- Joint Life Policy: ₹60,000
- Inventory: ₹88,740
- Trade Receivable: ₹96,750
- Bank: ₹1,14,510
- Trade payables: ₹60,000.
Death of Partner
- Kiya passed away on 30th September 2022.
- Provisions in partnership deed regarding Kiya's affairs:
- Interest on capitals at 12% p.a. is applicable.
- No interest charged on partner's drawings.
- Goodwill valued at one year’s purchase of average net profits (after interest on capitals) from the four years preceding death.
Profit Calculation
- Annual profits before charging interest on capitals for the past four years:
- 2018-19: ₹1,62,000
- 2019-20: ₹1,99,000
- 2020-21: ₹1,87,000
- 2021-22: ₹1,96,000
- Average capital over the four years: ₹3,00,000.
- Kiya entitled to her share of profits and interest on capitals till death based on average profits.
Insurance and Asset Revaluation
- Insurance proceeds received post-Kiya's death: ₹2,00,000 from the Joint Life Policy.
- Asset revaluation:
- Land & Building: Appreciated by 20%.
- Furniture: Depreciated by 10%.
- Inventory revalued at ₹80,000.
- Bad debts recorded amounted to ₹1,760.
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Description
This quiz covers key aspects of partnership accounting, particularly focusing on profit and loss sharing ratios, balance sheet components, and the implications of a partner's death on financial calculations. It examines the contributions of each partner, asset valuations, and the calculation of goodwill. Test your knowledge on these critical elements of partnership management.
