Retirement MCQs

Retirement or death of a partner will create a situation for the continuing partners, which is known as :

• Dissolution of Partnership

• Dissolution of partnership firm

• Winding up of business

• None of these

Answer explanation

Explanation: Admission, retirement or death of a partner leads to the dissolution of the partnership and a new partnership takes its place

In case of retirement, if full or part of the amount payable to the retiring partner still remains to be paid, and there is no agreement among the partners then retiring partner will get :

(i)Interest @ 6% p.a. on the balance amount.

(ii)Share of profit earned proportionate to his amount outstanding to total capital of the firm.

(iii)Interest @ 9% p.a. on the balance amount.

• (i)

• (ii)

• (iii)

• Have a choice to get either (i) or (ii)

Answer explanation

Explanation: In case of no agreement the retiring partner will either get @ 6% p.a. interest rate on the remaining amount or share of profit earned proportionate to the amount outstanding to the total capital of the firm.

At the time of retirement of a partner ‘Loss on Revaluation’ is debited :

• only to the capital account of the retiring partner

• to the capital accounts of all the partners in their old profit sharing ratio

• to the capital accounts of the remaining partners in their new profit sharing ratio

• to the capital accounts of remaining partners in their old profit sharing ratio

Answer explanation

Explanation: Loss on revaluation is a loss for the firm, i.e., there is an increase in the liabilities or a decrease in the assets.

On the retirement of Hari from the firm of 'Hari, Ram and Sharma' the Balance Sheet showed a debit balance ` 12,000 in the Profit and Loss Account. For calculating the amount payable to Hari this balance will be transferred :

• to the credit of the Capital Accounts of Hari, Ram and Sharma equally

• to the debit of the Capital Accounts of Hari, Ram and Sharma equally

• to the debit of the Capital Accounts of Ram and Sharma equally

• to the credit of the Capital Accounts of Ram and Sharma equally

Pick the odd one out :

• General Reserve

• Workman’s Compensation Reserve

• Debit balance of P&L

• Cr balance of P&L

Assertion (A): When goodwill is not appearing in the books, retiring or deceased partner ’s capital account is to be credited with his share of goodwill and gaining partners' capital accounts are to be debited in gaining ratio.

Reason (R): Goodwill needs to be compensated by the gaining partners in the gaining ratio.

• Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true, but Reason (R) is false.

• Assertion (A) is false, but Reason (R) is true.

Answer explanation

Explanation: The gaining partner transfers the amount of goodwill to the retiring or deceased partners in proportion in order to compensate for the sacrificed goodwill as per the gaining ratio.