Reconstitution of a partnership Firm:Retirement/Death of a partner Important Questions for CBSE Class 12 Accountancy Death of a partner

1. Death of A Partner The partnership comes to an end immediately, whenever a partner dies although the firm may continue with the remaining partners.

The deceased partner is entitled to get his share in the firm as per the provision of a partnership agreement. His share in the firm is calculated in the same manner as in the case of a retiring partner.

2. Accounting Treatment of Deceased Partners’ Share in Profits If a partner dies on any date after the date of the balance sheet, then his share of profit is calculated from the beginning of the year to the date of death on the basis of time or sales. When share of profit is calculated on the basis of time, it may be on the basis of previous years’ profit or average profit of past years.

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3. Ascertainment of the Amount Due to the Deceased Partner The deceased partner’s share is also calculated in the same manner as in the case of retiring partner. Amount due to a deceased partner shown by his capital account is transferred to his executors’ account by passing the following journal entry

Deceased Partner’s Capital A/c                               Dr

To Deceased Partner’s Executors A/c

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Previous Years Examination Questions

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.

2. 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.

3. 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.

4. 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.

(ii) Drawings made by deceased partner till the date of death.

3 Marks Question

5. 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 = 14,000 +18,000 +16,000 -10,000 +16,000 =Rs. 54,000

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

B’s share of profit = 10,800 x 1/3 x 3/12 = Rs. 900

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4 Marks Questions

6. 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

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

(i) 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.

(ii) Interest on capital be provided at 12% per annum.

(iii) 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.                                         (All India 2014)

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7. A, B and C were partners in a firm sharing profits in 3 : 2 :1 ratio. The firm closes its books on 31st March every year. B died on 12th June, 2007. On B’s death the goodwill of the firm was valued at Rs. 60,000. On B’s death his share in the profits of the firm till the time of his death was to be calculated on the basis of previous year’s profit which was Rs. 1,50,000, Calculate B’s share in the profit of the firm. Pass necessary journal entries for the treatment of goodwill and B’s share of profit at the time of his death.      (Delhi 2008)

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8. P, Q and R were partners in a firm sharing profits in 2 : 2 : 1 ratio. The firm closes its book on 31st March every year. P died three months after the last accounts were prepared. On that date, the goodwill of the firm was valued at Rs. 90,000. On the death of a partner his share of profits in the year of death was to be calculated on the basis of the average profits of the last four years.

The profit of last four years were

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9. Hari, Mohan and Sohan were partners in a firm sharing profits in 2 : 2 : 1 ratio. The firm closes its books on 31st March every year. Mohan died on 24th August, 2007. On Mohan’s death, the goodwill of the firm was valued at Rs.  75,000, The partnership deed provided that on the death of a partner his share in the profit of the firm in the year of his death will be calculated on the basis of last years profit. The profit of the firm for the year ended 31st March, 2007 was Rs.  2,00,000. Calculate Mohan’s share of profit till the time of his death and pass the necessary journal entries for the treatment of goodwill and his share of profit. (All India 2008)

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6 Marks Questions

10. Ram, Rahim and Robert were partners sharing profits in 2 : 3 : 1 ratio respectively. The partnership deed provided that in case of death of a partner the deceased partner’s share of capital will be donated for the construction of a hospital in the tribal area.

Due to ill health Robert died on 30th September, 2013. The balance sheet of Ram, Rahim and Robert on 31st March, 2013 was as follows.

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On the date of Robert’s death i.e. 30th September, 2013, the following was agreed upon

(i) Goodwill is to be valued at two years’ purchase of average profits of last three completed years i.e., 2010-2011 – Rs. 45,000; 2011-2012 – Rs. 90,000 and 2012-2013 -Rs. 1,35,000.

(ii) Robert’s share of profits till the date of his death will be calculated the basis of average profits of last three years.

(iii) Land was undervalued by Rs. 25,000 and stock overvalued by Rs. 8,000.

(iv) Provision for doubtful debts is to be made at 5% of Debtors.

(v) Claim of workmen compensation estimated at Rs.  5,000.

Prepare Robert’ capital account to be presented to his executors. Also, identify a value that Ram, Rahim and Robert wanted to communicate to the society.(Compartment 2014)

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11. A, B and C are partners in a firm sharing profits in the ratio of 5 : 3 : 2 respectively. Their balance sheet as on 31st December, 2012 was as follows 

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A died on 1st October, 2013, due to illness. It was agreed between the firm and A’s

executors that the amount due to A will be used for construction of a Charitable

hospital in a village. As per the agreement.

(i) Goodwill was valued at 2 years’ purchase of average profits of last 4 years, which were : 2009-Rs. 1,00,000; 20101,60,000; 2011 -Rs. 1,80,000 and 2012-Rs. 2,00,000.

(ii) Patents were revalued at Rs. 90,000; Machinery at Rs. 2,80,000 and Building at Rs. 2,50,000.

(iii) A’s share of profit till the date of his death will be calculated on the basis of the profit of the year 2012.

(iv) Interest on capital will be provided at 10% per annum.

(v) Amount due to A’s executors will be transferred to charity account.

(a) Prepare A’s capital account to be presented to his executor.

(b) Identify any one value being highlighted in the question. (Compartment 2014)

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12. The balance sheet of Radha, Sohan and Madan, who were sharing profits in the ratio of 4 : 3 : 1 respectively, as on 31st March, 2012 was as follows

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Madan died on 1st September, 2012. The partnership deed provided for the following on the death of a partner

(i) Goodwill of the firm to be valued at two years’ purchase of average profits for the last three years which were Rs.64,000.

(ii) Madan’s share of profit till the date of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2012 amounted to Rs. 1,50,000 and that from 1st April to 1st September, 2012 Rs. 90,000. The profit for the year ended 31st March, 2012 was Rs.  50,000.

(iii) Interest on capital was to be provided @10% per annum.

(iv) According to Madan’s will, the executors should donate his share to ‘Matri Chhaya, an orphanage for girls’.

Prepare Madan’s capital account to be rendered to his executor. Also identify the value being highlighted in the question.  (All India 2013; VBQ)

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13. The balance sheet of Sadhna, Mohit and Rohit who were sharing profits in the ratio of 1 : 2 : 3 as on 31st March, 2012 was as follows

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Rohit died on 1st September, 2012. The partnership deed provided for the following on the death of a partner

(i) Goodwill of the firm to be valued at two years’ purchase of average profits for the last three years.

(ii) Rohit’s share of profit or loss till the date of death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2012 amounted to Rs. 6,00,000 and that from 1st April to 1st September, 2012 to Rs. 3,50,000. The profit for the year ended 31st March, 2012 was calculated as Rs. 1,50,000.

(iii) Interest on capital was to be provided @ 8% per annum.

(iv) The average profits of the last three years were Rs. 72,000.

(v) According to Rohit’s will, the executors should donate his share to ‘Matri Chhaya an orphanage for girls’.

Prepare Rohit’s capital account to be rendered to his executor. Also identify the value being highlighted in the question.  (Delhi 2013;VBQ)

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NOTE The balance in Rohit’s capital account is transferred to Rohit’s executions account. Donation to Matri Chhaya will be given through the executor’s account.

Values being highlighted in the question are (Any one)

(i) Social responsibility Rohit showed responsibility and care towards underprivileged sections of the society.

(ii) Women empowerment Donation to Matri Chhaya is an endeavour towards women empowerment.

(iii) Doing your best Rohit did his best by donating his property for the betterment of the society and upliftment of poor. He has set a great example for the society to follow.

14. A, B and C are partners in a trading firm. The firm has a fixed total capital of Rs. 60,000 held equally by all the partners. Under the partnership deed the partners were entitled to

(i) A and B to a salary of Rs. 1,800 and Rs. 1,600 per month respectively.

(ii) In the event of the death of a partner, goodwill was to be valued at 2 years’ purchase of the average profit of the last 3 years.

(iii) Profit upto the date of death based on the profits of the previous year.

(iv) Partners were to be charged interest on drawings @ 5% per annum and allowed interest on capital @ 6% per annum.

A died on 1st January, 2011. His drawings to the date of death were Rs. 2,000 and the interest thereon was Rs. 60. The profits for the three years ending 31st March, 2008, 2009 and 2010 were Rs. 21,200, Rs. 3,200 (Dr) and Rs. 9,000 respectively.

Prepare As capital account to calculate the amount to be paid to his executors. (All India 2011)

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15. Shiv, Ashok and Vinod were partners in a firm sharing profits in the ratio of 2:2:1. On 31st December, 2008 their balance sheet was as follows

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Ashok died on 31st March, 2009. The partnership deed provided for the following on death of a partner.

(i) Goodwill of the firm was to be valued at 2 years’ purchase of the average profits of the firm for the last 5 years. The total profits of file firm for the last 5 years were Rs. 3,60,000.

(ii) Ashok’s share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ending 31st December, 2008.

You are required to calculate the following

(i) Goodwill of the firm and Ashok’s share of goodwill at the time of his death.

(ii) Ashok’s share in the profit and loss of the firm till date of his death.

Prepare Ashok’s capital account at the time of his death to be presented to his executors.           (Delhi 2010C)

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16. B, C and D were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st December, 2008 their balance sheet was as follows

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B died on 31st March, 2009. The partnership deed provided for the following on the death of a partner.

(i) Goodwill of the firm was to be valued at 3 years purchase of the average profits of last 5 years. The total profits for the years ending 31st December, 2007, 31st December, 2006 31st December, 2005 and 31st December, 2004 were Rs. 70,000; Rs. 60,000; Rs. 50,000 and Rs. 40,000 respectively.

(ii) B’s share of profit or loss till the date of his death was to be calculated on the basis of the profits or loss for the year ending 31st December, 2008.

You are required to calculate the following

(i) Goodwill of the firm and B’s share of goodwill at the time of his death.

(ii) B’s share in the profit and loss of the firm till the date of his death.

(iii) Prepare B’s capital account at the time of his death to be presented to his executor. (All India 2010)

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17. P, Q and R were partners in a firm sharing profits in the ratio of 5 : 4 : 1. Their capitals were P Rs. 4,00,000, Q Rs. 3,00,000 and R Rs. 50,000. The firm closes its books on 31st March every year. On 31st March, 2006, Q died. According to the partnership deed, the executor of a deceased partner was entitled to

(i) Interest on capital from the first day on the accounting year till the date of his death @ 10% per annum.

(ii) His share of goodwill — The goodwill of the firm on Q’s death was valued at Rs. 6,00,000.

(iii) His share of profit — The profit of the firm for the year ended 31st March, 2006 was Rs. 3,00,000.

Q’s executor was paid the sum due in two annual instalments with interest @ 10% per annum.

Prepare Q’s capital account at the time of his death on 31st March, 2006 to be presented to his executor and his executor’s loan account for the year ended 31st March, 2007 and 2008.        (Delhi 2009C)

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18. Ramesh, Suresh and Dinesh were partners in a firm sharing profits in the ratio of 3:3:4. Their capitals were Rs. 5,00,000; Rs. 4,00,000 and Rs. 5,00,000 respectively. The firm closes its books on 31st March every year. On 31st March, 2006, Ramesh died. The executor of the deceased partners according to the agreement was entitled for the following

(i) Interest on capital from the first day of the accounting year till the date of his death @ 9% per annum.

(ii) His share of qoodwill — The qoodwill of the firm on Ramesh’s death was valued at Rs. 1,80,000.

(iii) His share of profits — The profit of the firm for the year ended 31 st March, 2006 was Rs. 1,20,000.

Ramesh’s executor was paid the sum due in two annual instalments with interest @ 10% per annum.

Prepare Ramesh’s capital account as on 31st March, 2006 to be presented to his executor (All  India 2009)

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19.X, Y and Z were partners sharing profits in the ratio 3:2:1. On 31st March, 2008, their balance sheet stood as under

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X died on 31st May, 2008. It was agreed that

(i) Goodwill was valued at 3 years’ purchase of the average profit of the last five years, which were, 2003 Rs. 40,000; 2004 Rs. 40,000; 2005 Rs. 30,000; 2006 : Rs. 40,000 and 2007 Rs. 50,000.

(ii) Machinery was valued at Rs. 70,000, patents at Rs. 20,000 and buildings at Rs. 66,000.

(iii) For the purpose of calculating X’s share of profits till the date of death, it was agreed that the same be calculated based on the average profits for the last 2 years.

(iv) The executor of the deceased partner is to be paid the entire amount due by means of a cheque.

Prepare X’s capital account to be rendered to the executor and also a journal

entry for the settlement of the amount due to the executor.     (All India 2009)

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20. Babul and Vinay were partners. The partnership deed provided for

(i) Profits to be divided as Babul 1/2, Vinay 1/3 and l/6th to be transferred to reserves.

(ii) The accounts are closed on 31st March each year.

(iii) In the event of the death of a partner, the executors will be entitled to the following

(a) Capital to be credited on the date of the death.

(b) Interest on capital at 12% per annum.

(c) Proportion of profits to the date of death based on the average profits credited for the last 3 years.

(d) Share of goodwill based on three years’ purchase of the average profits of the preceding 3 years.

The following information is provided to you

Babul’s capital Rs. 90,000; Vinay’s capital Rs. 60,000; reserves Rs. 30,000; cash Rs. 1,10,000; investment Rs.  70,000.

Prepare Vinay’s account to be presented to his executor, as he died on 30th April, 2007. The profits for the three preceding years were Rs. 48,000, Rs. 42,000 and Rs. 45,000.     (All India 2008)

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8 Marks Questions

21. G, E and F were partners in a firm sharing profits in the ratio of 7 :2 : 1. The balance sheet of the firm as on 31st March, 2011 was as follows

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E died on 24th August, 2011. Partnership deed provides for the settlement of claims on the death of a partner in addition to his capital as under.

(i) The share of profit of deceased partner to be computed upto the date of death’on the basis of average profits of the past three years which was ? 80,000.

(ii) His share in profit/loss on revaluation of assets and re-assessment of liabilities which were as follows

Land and building were revalued atRs. 94,000. Machinery at Rs. 38,000 and stock at Rs. 5,000. A provision of 2.5% was to be created on debtors for doubtful debts.

(iii) The net amount payable to E’s executors was transferred to his loan account, to be paid later on.

Prepare revaluation account, partners’ capital account, E’s executor account and balance sheet of ‘G’ and ‘F’ who decided to continue the business keeping their capital balances in their new profit sharing ratio. Any surplus or deficit to be transferred to current account of the partners.           (Delhi 2012)

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22. Khanna, Seth and Mehta were partners in a firm sharing profits in the ratio of 3 : 2 : 5. On 31st December, 2010 the balance sheet of Khanna, Seth and Mehta was as follows

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On 14th March 2011, Seth died. The partnership deed provided that on the death of a partner the executor of the deceased partner is entitled to

(i) Balance in capital account.

(ii) Share in profits upto the date of death on the basis of last year’s profit.

(iii) His share in profit/loss on revaluation of assets and re-assessment of liabilities which were as follows

(a) Land and building was to be appreciated by Rs. 1,20,000.

(b) Machinery was to be depreciated to Rs. 1,35,000 and stock toRs. 25,000.

(c) A provision of 2.5% for bad and doubtful debts was to be created on debtors.

(d) The net amount payable to Seth’s executors was transferred to his loan account which was to be paid later.

Prepare revaluation account, partners’ capital account, Seth’s executor’s account and balance sheet of Khanna and Mehta who decided to continue the business keeping their capital balances in their new profit sharing ratio. Any surplus or deficit to be transferred to current accounts of the partners.      (All India 2012)
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23. M, N and O were partners in a firm sharing profits and losses equally. Their balance sheet on 31st December, 2009 was as follows

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N died on 14th March, 2010. According to the partnership deed, executors of the deceased partner are entitled to

(i) Balance of partner’s capital account.

(ii) Interest on capital @ 5% per annum.

(iii) Share of goodwill calculated on.the basis of twice the average of past three years’ profit.

(iv) Share of profits from the closure of the last accounting year till the date of death on the basis of twice the average of three completed years’ profits before death.

Profits of 2007, 2008 and 2009 were Rs. 80,000, Rs. 90,000 and Rs. 1,00,000 respectively. Show the working for deceased partner’s share of goodwill and profits till the date of his death. Pass the necessary journal entries and prepare N’s capital account to be rendered to his executor.     (Delhi 2011)

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24. X,Y and Z were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2 on 31st March, 2010 their balance sheet was as follows

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Z died on 31July, 2010, It was agreed that

(i) Goodwill be valued at 2.5 years’ purchase of the average profit of the last four years, which were as follows

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(ii) Machinery to be valued at Rs. 70,000, patents at Rs.  20,000 and building at Rs. 62,500.

(iii) For the purpose of calculating Z’s share of profit in the year of his death the profits in 2010-2011 should be taken to have been accured on the same scale as in 2009-2010.

(iii) A sum of Rs. 17,500 was paid immediately to the executors of Z and the balance was paid in four half yearly instalments together with interest at 12% per annum starting from 31st January, 2011.

Given necessary journal entries to record the above transactions and Z’s executor’s account till the payment due on 31st January, 2011.   (All India 2011)
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