Partnership Accounting Overview
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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?

  • ₹ 7,45,000
  • ₹ 7,44,500
  • ₹ 7,44,000 (correct)
  • ₹ 7,38,000
  • How is the goodwill of the firm calculated upon the death of a partner?

  • Discounted value of total assets
  • Total capital of partners
  • One year's purchase of the average net profits after charging interest on capital for the last four years (correct)
  • Average of last year's profits
  • What is the total interest on capitals that would be calculated for all partners until Kiya's death?

  • ₹ 25,800
  • ₹ 28,800 (correct)
  • ₹ 33,600
  • ₹ 30,000
  • After Kiya's death, what is the revalued amount of the inventory?

    <p>₹ 80,000</p> Signup and view all the answers

    What is the effect of the appreciation of Land & Building on the partnership balance sheet after Kiya's death?

    <p>Increases assets by ₹ 50,000</p> Signup and view all the answers

    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.

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