Practice Questions: Unit III - Partnership Accounts (Financial Accounting, B.Com Hons)

Here are questions based on the provided notes for Unit III: *Partnership Account* in Financial Accounting (B.Com Hons). 

Topic : Concept of Partnership and Partnership Deed

Easy Level Questions

  1. A and B are partners in a firm sharing profits in the ratio of 3:2. The total profit for the year is ₹1,00,000. What will be the profit allocated to each partner?

  2. Partners A and B contribute ₹1,50,000 and ₹1,00,000 as capital. The firm has a total capital of ₹2,50,000. What is the capital ratio between A and B?

  3. A and B are partners sharing profits in the ratio of 4:3. The partnership deed allows interest on capital at 5%. A’s capital is ₹2,00,000, and B’s capital is ₹1,50,000. Calculate the interest on capital for both partners.

  4. A and B are partners with capital accounts of ₹2,00,000 and ₹1,50,000, respectively. The drawings during the year are ₹30,000 for A and ₹20,000 for B. How will the drawings be accounted for in the capital accounts at the end of the year?

  5. A and B are partners, and the partnership deed specifies that they will maintain fixed capital accounts. A’s fixed capital is ₹1,00,000, and B’s fixed capital is ₹80,000. At the end of the year, a profit of ₹40,000 is available. How should the profit be distributed between A and B?

Moderate Level Questions:

  1. A and B share profits in the ratio of 3:2. C is admitted into the partnership with a 25% share of profits. Calculate the new profit-sharing ratio between A, B, and C.

  2. A and B are partners, and the partnership deed allows for revaluation of assets and liabilities. On 31st December 2024, the revaluation of assets results in a gain of ₹40,000. A’s share of profit is 60%, and B’s share is 40%. Record the journal entries for the revaluation.

  3. A and B share profits in the ratio of 3:2. C is admitted into the partnership with a 25% share in the profits. The goodwill of the firm is valued at ₹60,000. How will the goodwill be adjusted in the capital accounts of A and B?

  4. A and B are partners. A gives a loan of ₹50,000 to the firm at an interest rate of 6%. What will be the interest on A’s loan for the year? If the interest is not paid during the year, how will it be recorded?

  5. A, B, and C are partners in a firm with a deed that specifies the following:

    • Profit-sharing ratio: A (2), B (2), and C (1).
    • Interest on capital at 10%.
    • Salaries of ₹50,000 to A and ₹40,000 to B.
    • The remaining profit is shared equally.

    Calculate the total profit of the firm if the net profit for the year is ₹3,00,000.

Hard Level Questions:

  1. A and B share profits in the ratio of 5:3. C is admitted with a 20% share of profits. Calculate the amount C needs to contribute to the capital account if the total capital of the firm after C's admission should be ₹6,00,000.

  2. A, B, and C are partners in a firm with a profit-sharing ratio of 3:2:1. C decides to retire. The revaluation of assets results in a gain of ₹30,000. The capital accounts of A and B are adjusted according to the new profit-sharing ratio. How will the journal entries be passed?

  3. A and B are partners with capital accounts of ₹2,00,000 and ₹1,50,000, respectively. They decide to dissolve the partnership. The liabilities of the firm are ₹50,000, and the assets are sold for ₹3,00,000. Prepare the realization account and show the distribution of proceeds among the partners.

  4. A, B, and C are partners sharing profits in the ratio of 4:3:2. C decides to retire, and the goodwill of the firm is valued at ₹60,000. How should the goodwill be adjusted in the capital accounts of A and B?

  5. A and B are partners with capital accounts of ₹2,00,000 and ₹1,50,000, respectively. A has loaned ₹1,00,000 to the firm at 6% interest. The firm made a profit of ₹2,00,000 during the year. How will the interest on loan be calculated and recorded in the profit and loss appropriation account?

  6. A, B, and C are partners, and the partnership deed specifies interest on drawings at 5%. The drawings for the year are:

    • A: ₹20,000
    • B: ₹30,000
    • C: ₹40,000

    Calculate the interest on drawings for each partner.

  7. Discuss the legal implications of the following clauses in a partnership deed:

    • Sharing of profits and losses.
    • Interest on capital.
    • Salaries to partners.
    • Treatment of goodwill.
    • Partners' liability towards creditors.

  8. A and B are partners in a firm. They decide to convert their partnership into a private limited company. Discuss the accounting treatment for the following:

    • Transfer of assets and liabilities to the new company.
    • Issue of shares to the partners in lieu of their capital.
    • Treatment of goodwill.

  9. A, B, and C are partners with a profit-sharing ratio of 5:3:2. Due to the partnership deed, C receives an additional 5% of the total profit as a bonus. Calculate the revised profit-sharing ratio between A, B, and C after considering the bonus.

  10. A and B are partners in a partnership firm. They decide to convert their partnership into an LLP. What accounting entries are required to reflect the conversion, and how will it affect the liability and capital accounts of the partners?

Topic : Fixed and Fluctuating Capital Accounts

Easier Questions

  1. A partnership firm maintains fixed capital accounts. The partners, A and B, have capital accounts of ₹2,00,000 and ₹3,00,000 respectively. During the year, the firm made a profit of ₹60,000. How should the profit be divided between the partners?

  2. Under the fluctuating capital system, the capital of a partner changes as a result of profits and withdrawals. If partner A has a capital balance of ₹1,00,000 and withdraws ₹20,000 during the year, and the firm’s net profit is ₹50,000, calculate the closing balance of A's capital.

  3. In a partnership with fixed capital accounts, if the firm provides interest on capital at 10% per annum, and the fixed capital of partner A is ₹2,00,000, calculate the interest on capital.

  4. Partner A’s capital at the start of the year is ₹1,50,000. During the year, A withdraws ₹40,000. The net profit for the year is ₹80,000. Calculate the closing balance of A's fluctuating capital account.

  5. In a partnership with fixed capital accounts, partners A and B share profits in a 3:2 ratio. The firm’s net profit is ₹90,000. How much profit will each partner receive?

Moderate Questions

  1. In a fixed capital system, the partnership agreement allows for an interest of 12% per annum on capital. If Partner A has ₹4,00,000 and Partner B has ₹6,00,000 as their fixed capital, calculate the total interest to be distributed to both partners.

  2. Partner C has a capital balance of ₹1,20,000 at the beginning of the year. During the year, C withdrew ₹25,000, and the firm made a profit of ₹30,000. Calculate the closing balance of C’s capital account.

  3. In a fixed capital system, Partner A withdraws ₹20,000 during the year. If the profit of the firm is ₹50,000, how would the balance in Partner A’s fixed capital account be adjusted?

  4. If Partner B starts with ₹1,00,000 capital, withdraws ₹10,000, and the firm’s profit is ₹25,000, calculate the closing balance of Partner B’s fluctuating capital account.

  5. Partner A has fixed capital of ₹2,50,000 and Partner B has ₹3,50,000. The firm earns a profit of ₹1,00,000. Calculate the amount of profit to be distributed under the fixed capital system and the fluctuating capital system.

Challenging Questions

  1. In a fixed capital system, Partner X and Partner Y share profits in a 4:1 ratio. Partner X’s fixed capital is ₹5,00,000, and Partner Y’s fixed capital is ₹3,00,000. During the year, Partner X withdrew ₹1,00,000, and Partner Y withdrew ₹50,000. The profit of the firm is ₹1,60,000. Calculate the adjusted balance in each partner’s fixed capital account after profit sharing.

  2. Partner Z has a fluctuating capital balance of ₹2,00,000 at the beginning of the year. During the year, Z withdrew ₹40,000 on the 1st of April and ₹30,000 on the 1st of October. The firm’s net profit is ₹1,00,000. Calculate the interest on Z’s drawings at the rate of 8% per annum.

  3. In a fixed capital system, Partner A has a fixed capital of ₹3,00,000 and Partner B has a fixed capital of ₹4,00,000. The firm earned a profit of ₹1,50,000. Calculate how much each partner will receive as a share of the profit, assuming the agreed profit-sharing ratio is 2:3.

  4. In a fluctuating capital system, Partner X has an opening balance of ₹1,00,000. X withdraws ₹20,000 during the year, and the firm makes a profit of ₹60,000. Calculate the interest on X’s capital at the rate of 10%, and the closing balance in X’s capital account.

  5. In a partnership with fixed capital accounts, Partner A has ₹5,00,000 as fixed capital, and Partner B has ₹7,00,000. In the middle of the year, Partner A introduces an additional capital of ₹1,00,000, and the firm earns a profit of ₹2,00,000. Calculate the share of profit for each partner, considering a 3:2 profit-sharing ratio.

Very Challenging Questions

  1. In a partnership with fluctuating capital accounts, Partner A starts with ₹2,50,000 and withdraws ₹20,000 on 1st April, ₹30,000 on 1st July, and ₹10,000 on 1st October. The firm’s profit for the year is ₹1,20,000. Calculate the closing balance in Partner A’s capital account and the profit share for each partner.

  2. In a partnership with fixed capital accounts, Partner A has ₹2,00,000, and Partner B has ₹3,00,000 as fixed capital. The firm revalues its assets, and the new value is ₹4,00,000. The firm earns a profit of ₹80,000. How would you treat the revaluation profit and how will it affect the fixed capital accounts of the partners?

  3. In a fluctuating capital system, Partner C has an opening capital of ₹1,00,000. C withdraws ₹15,000 on 1st April and ₹25,000 on 1st October. The firm’s net profit is ₹2,00,000, and the interest on capital is 12%. Calculate the closing balance of C’s capital account, and the amount of profit C will receive.

  4. In a partnership, the fixed capital of Partner A is ₹5,00,000 and Partner B is ₹6,00,000. Partner A also lends ₹2,00,000 to the firm, and Partner B lends ₹3,00,000. The firm earns a profit of ₹1,20,000. How would you distribute the profit between interest on capital and interest on loans, and how would the capital accounts be affected?

  5. Partner D has a fluctuating capital balance of ₹4,00,000 at the beginning of the year. D withdraws ₹50,000 on 1st April, ₹30,000 on 1st July, and ₹40,000 on 1st November. The firm’s profit is ₹2,50,000, and the interest on capital is 10%. Calculate the closing balance of Partner D’s capital account.

Topic : Valuation of Goodwill

Easy Level

  1. A business has the following profits for the last five years:

    • 2019: ₹50,000
    • 2020: ₹60,000
    • 2021: ₹55,000
    • 2022: ₹70,000
    • 2023: ₹65,000

    Calculate the average profit and determine the goodwill if the capitalization of profits method is used, assuming the rate of capitalization is 10%.

  2. A company has the following details:

    • Average profit: ₹1,50,000
    • Normal profit (calculated at 15% on capital employed of ₹10,00,000)

    Calculate the goodwill if the super profit is capitalized at 5 times.

  3. A company has a super profit of ₹30,000 and the annuity factor for the company’s business life of 10 years is 6.

    Calculate the value of goodwill.

  4. A partnership firm has assets valued at ₹2,00,000 and liabilities of ₹50,000. The firm’s net profit for the last three years has been ₹25,000. If the firm was sold at a price of ₹2,00,000, how would you determine the goodwill?

  5. The capital employed in a business is ₹5,00,000. The normal rate of return in this business is 10%. The actual average profit is ₹60,000.

    Calculate the value of goodwill using the capital employed method.

  6. In a partnership firm, two partners A and B share profits equally. A decides to retire, and the firm’s goodwill is valued at ₹1,00,000. How should the goodwill be adjusted among the partners?

Moderate Level

  1. The following are the profits of a business over the past four years:

    • 2020: ₹50,000
    • 2021: ₹60,000
    • 2022: ₹55,000
    • 2023: ₹70,000

    The weights for the respective years are 1, 2, 3, and 4.

    Calculate the weighted average profit and determine the value of goodwill using a capitalization rate of 15%.

  2. Two partners A and B share profits in a ratio of 3:2. The firm is valued at ₹1,50,000, and goodwill is calculated based on the super profit method with a multiplier of 4. Calculate the share of goodwill for each partner.

  3. A partnership firm has a goodwill valued at ₹80,000. Partner C is introduced into the firm with a 25% share in profits. How should the goodwill be adjusted among the existing partners?

  4. A firm’s profits for the last five years are as follows:

    • 2019: ₹60,000
    • 2020: ₹70,000
    • 2021: ₹50,000
    • 2022: ₹40,000
    • 2023: ₹80,000

    The firm has a consistent annual abnormal profit of ₹20,000.

    Determine the value of goodwill using the average profit method.

  5. In a partnership, partners A and B share profits in the ratio of 3:2. Partner C is admitted with a 25% share. The goodwill of the firm is valued at ₹40,000. How should the goodwill be divided among the partners?

  6. A business earns an average annual profit of ₹80,000. The normal rate of return is 12% and the capital employed is ₹6,00,000.

    Calculate the goodwill using the capitalization of super profit method.

Difficult Level

  1. Goodwill Valuation in Case of Diminishing Returns A company has been generating profits as follows for the last three years:

    • 2021: ₹90,000
    • 2022: ₹80,000
    • 2023: ₹70,000

    The business expects the profits to decrease by ₹10,000 each year for the next 5 years. Calculate the value of goodwill using the annuity method.

  2. Partners A, B, and C share profits in a ratio of 4:3:2. The firm’s total capital is ₹12,00,000. The goodwill is valued at ₹1,20,000 using the super profit method. How should the goodwill be adjusted when C is retiring from the partnership?

  3. The capital employed in a firm is ₹5,00,000. The average profit of the firm is ₹1,00,000, and the normal rate of return is 12%.

    Calculate the goodwill using the revaluation method if partner B retires, and the goodwill is to be revalued at 2 times the super profit.

  4. X retires, and their share in the goodwill is valued at ₹60,000. The firm’s total goodwill is calculated to be ₹1,20,000. How should the goodwill be adjusted when Partner Y purchases X’s share?

  5. A company has an average profit of ₹2,00,000, and the normal rate of return is 15%. The firm’s capital employed is ₹10,00,000. The partners agree to value the goodwill at 5 times the average profit.

    Calculate the goodwill.

  6. In a partnership, no fixed rate of return is agreed upon. The capital employed is ₹5,00,000, and the actual average profit is ₹60,000.

    Using the capital employed method, calculate the value of goodwill.

  7. A firm has been established for 10 years. However, a significant change in the business environment has caused a fall in profits. The profits for the last two years are ₹50,000 and ₹60,000. The firm’s capital employed is ₹8,00,000.

    Determine the goodwill using the average profit method.

  8. A company decides to sell its business and calculates the goodwill using the average of profits of the last 5 years. The profits are as follows:

    • 2019: ₹1,00,000
    • 2020: ₹1,20,000
    • 2021: ₹1,50,000
    • 2022: ₹1,80,000
    • 2023: ₹2,00,000

    Calculate the value of goodwill and explain how the goodwill would be treated if the business is sold

Topic : Profit Sharing Ratio

  1. A and B are partners in a firm. They decided to share profits and losses in a 3:2 ratio. If the total profit of the firm for the year is ₹1,00,000, how much profit will A and B receive individually?'

 

  1. A and B are partners sharing profits and losses in the ratio of 4:3. They decide to change the ratio to 2:1. The firm's profit for the year is ₹90,000. How should the profit be distributed after the change in the ratio?


  1. X and Y are partners who share profits equally. If the net profit of the firm is ₹50,000, how much will each partner receive?

  2. A, B, and C are partners sharing profits and losses in the ratio of 3:2:1. C’s share is increased to 2/5 after D joins as a new partner. What is the new profit-sharing ratio after D's admission?

  3. X and Y have agreed to share profits in the ratio of 3:5. After six months, Y decides to withdraw from the partnership. How should the profit for the year be divided?

  4. A and B are partners sharing profits in a 5:3 ratio. A admits C into the partnership, and they agree on a new profit-sharing ratio of 3:2:1. If the total profit for the year is ₹120,000, how will it be divided?

  5. A and B share profits in the ratio of 5:3. C is admitted with a 1/4th share. How should the goodwill be calculated, and how will it affect the profit-sharing ratio?

  6. A and B share profits in the ratio of 4:1. They revalue the assets of the firm, and the goodwill is calculated at ₹50,000. How should the new profit-sharing ratio be adjusted after revaluation?

  7. A and B share profits in the ratio of 2:1. They admit C with a 1/4th share of the profit. Calculate the new profit-sharing ratio after including goodwill and adjusting capitals, assuming C brings in ₹50,000 capital.

  8. A and B share profits in the ratio of 3:2. After a year, A's capital is ₹40,000, and B's capital is ₹30,000. They decide to change the ratio to 5:3. How should the capital accounts be adjusted?

  9. A and B share profits in the ratio of 3:2. C is admitted with a 1/5th share. C’s contribution for goodwill is ₹20,000. Calculate the new profit-sharing ratio and adjust the capital accounts accordingly.

  10. A, B, and C are partners sharing profits in a ratio of 5:3:2. C retires, and the remaining partners A and B agree to share profits equally. How should the profits for the year be distributed?

  11. A and B share profits in a 3:2 ratio. C is admitted with 1/3rd share. A and B’s capital accounts are adjusted after revaluation of assets and liabilities, and goodwill is calculated at ₹30,000. How should the new profit-sharing ratio be adjusted?

  12. X, Y, and Z share profits in the ratio of 2:2:1. Z retires, and A is admitted with a 2/5th share of the profits. Calculate the new profit-sharing ratio and adjust the capital accounts considering Z’s share of goodwill.

  13. A, B, and C share profits in the ratio of 5:3:2. D is admitted with a 1/4th share, and C’s share is reduced proportionately. How should the goodwill be adjusted, and what is the new profit-sharing ratio?

  14. X, Y, and Z share profits in the ratio of 3:2:1. Z retires and withdraws all capital. If Z dies after retirement, how should the remaining partners adjust for profit-sharing, and how would the profit-sharing ratio change?

  15. X and Y share profits in the ratio of 3:2. Z joins as a partner with a 25% share, and the existing ratio is altered to 2:2:1. How should the capital accounts be adjusted, and what will be the new ratio?

  16. A, B, and C share profits in the ratio of 3:2:1. C is admitted with a 1/4th share, and they agree to adjust for any accumulated losses of ₹20,000. Calculate the new profit-sharing ratio after adjusting for the losses.

  17. A and B share profits in the ratio of 3:1. C is admitted with 1/5th share, but A’s and B’s shares are reduced in the ratio of 2:3. Calculate the new profit-sharing ratio, and explain the necessary adjustments.

  18. X, Y, and Z share profits in the ratio of 2:2:1. Z increases their capital contribution to ₹50,000, and the firm’s profits increase as a result. How should the profit-sharing ratio be adjusted, and what is the impact on each partner’s share of profit?

Topic : Admission of Partners

  1. X and Y are partners sharing profits in a 3:2 ratio. They admit Z into the partnership for a 1/6 share. Z brings ₹60,000 as capital. Pass the journal entry for Z’s capital contribution.

  2. Before admitting Z, the firm revalued its assets and liabilities:

    • Stock increased by ₹5,000.
    • Furniture decreased by ₹3,000.
      Pass the journal entries for revaluation.

  3. A and B are partners sharing profits equally. They admit C for a 1/4 share in profits. The goodwill of the firm is valued at ₹40,000. C brings ₹10,000 for his share of goodwill. Pass the journal entry.

  4. A and B have capitals of ₹50,000 and ₹40,000. They admit C for 1/5 share, and he brings ₹25,000 as capital. Calculate and pass journal entries for the new capital structure.

  5. X and Y share profits in a 5:3 ratio. They admit Z for a 1/4 share, and the new ratio is agreed to be 3:2:1. Calculate the sacrificing ratio.

Moderate Questions

  1. P and Q share profits in a 2:1 ratio. They admit R, who brings ₹1,20,000 as capital for a 1/4 share. The total capital of the firm is ₹4,80,000 after R’s admission. Determine the goodwill of the firm and pass the necessary journal entries.

  2. A and B admit C into the partnership with the following changes:

    • Building is revalued upwards by ₹10,000.
    • Creditors are overvalued by ₹5,000.
      Pass journal entries and adjust capital accounts of all partners.

  3. A and B share profits in a 3:2 ratio. They admit C, who brings furniture worth ₹20,000 as his goodwill contribution. Record the necessary journal entries.

  4. X and Y admit Z into the partnership. The firm has a General Reserve of ₹50,000. Distribute the reserve among the old partners in their profit-sharing ratio.

  5. P and Q admit R for a 1/5 share. Their capitals are ₹80,000 and ₹60,000, respectively, and the total capital of the new firm is fixed at ₹2,00,000. Calculate R’s capital and adjust the old partners’ capitals accordingly.

Challenging Questions

  1. M and N share profits in the ratio of 4:3. O is admitted for a 1/5 share, and the goodwill of the firm is valued at ₹70,000. O agrees to bring his share of goodwill in cash. Calculate the amount O needs to bring and the sacrificing ratio.

  2. A and B admit C under the following terms:

  • Goodwill of the firm is valued at ₹50,000, and C’s share is 1/5.
  • Revaluation of assets: Stock increased by ₹10,000, and machinery decreased by ₹8,000.
  • C brings ₹20,000 as capital. Prepare the journal entries.
  1. X and Y admit Z into partnership. The firm revalued its assets and liabilities:
  • Plant increased by ₹15,000.
  • Debtors decreased by ₹4,000.
  • An unrecorded liability of ₹6,000 is found.
    Prepare the Revaluation Account.

  1. A and B admit C, who is unable to bring cash for his share of goodwill. The goodwill of the firm is valued at ₹40,000. Adjust goodwill in the partners’ capital accounts.

  2. After admission of a new partner, the following balances are given:

  • Capitals: X ₹1,00,000, Y ₹80,000, Z ₹50,000.
  • Goodwill (adjusted): ₹40,000.
  • Revaluation surplus: ₹10,000.
    Prepare the Balance Sheet.

Very Hard Questions

  1. P and Q admit R with the following terms:
  • Revaluation of assets: Machinery increases by ₹30,000, and creditors decrease by ₹5,000.
  • Goodwill of the firm is valued at ₹1,00,000. R brings only 50% of his share of goodwill in cash.
  • The profit-sharing ratio is 5:3:2.
    Pass journal entries.
  1. A and B admit C for a 1/6 share in the firm. The following adjustments are required:
  • Revaluation surplus of ₹20,000.
  • Goodwill of ₹60,000 is not brought in cash but adjusted through capital accounts.
  • New capitals: ₹1,50,000 for A, ₹1,20,000 for B, and ₹90,000 for C.
    Prepare the Capital Accounts and Balance Sheet.

  1. X and Y admit Z into partnership. Z’s capital is ₹1,00,000 for a 1/4 share. The total capital of the firm is ₹4,00,000. Reserves worth ₹40,000 exist but are unadjusted. Calculate goodwill and pass journal entries for Z’s admission.

  2. A and B admit C. Before admission, a Workmen Compensation Reserve of ₹50,000 exists, but the liability is estimated at ₹30,000. Adjust the reserve in the partners’ capital accounts.

  3. P and Q admit R with the following conditions:

  • Revaluation surplus: ₹15,000.
  • R’s goodwill: ₹25,000 (1/5 share).
  • Reserves: ₹30,000, to be distributed.
  • Adjust all partners’ capitals to R’s capital, which is ₹80,000.
    Prepare the Revaluation Account, Capital Accounts, and Balance Sheet.

Topic : Retirement and Death of a Partner

Easy Questions

  1. A, B, and C are partners sharing profits in the ratio of 3:2:1. A retires, and B and C decide to share profits equally.
    : Calculate the new profit-sharing ratio.

  2. X, Y, and Z share profits in the ratio of 4:3:2. X retires, and Y and Z agree to share profits in the ratio of 5:3.
    : Calculate the gaining ratio.

  3. Partners P, Q, and R share profits in the ratio of 5:3:2. P retires, and the goodwill of the firm is valued at ₹60,000.
     : Pass the journal entry for goodwill adjustment.

  4. On the retirement of D, the firm’s machinery is revalued from ₹80,000 to ₹1,00,000.
    : Pass the necessary journal entry.

  5. A, B, and C are partners. A retires, and his capital after adjustments is ₹1,20,000. The remaining partners decide to pay him in two installments of ₹60,000 each.
    : Record the journal entry.

Moderate Questions

  1. A, B, and C are partners. A retires, and his capital balance after adjustments is ₹2,50,000. He agrees to leave ₹1,00,000 as a loan to the firm and withdraw the rest.
     : Prepare the journal entries.

  2. Mr. X, a partner, dies on 30th June 2024. The firm closes its books on 31st March each year. His share of profit is ₹50,000 for the year.
     : Calculate the profit to be credited to his capital account and pass the journal entry.

  3. A, B, and C share profits in the ratio of 4:3:2. On A’s retirement, the General Reserve stands at ₹90,000.
     : Show how the reserve will be adjusted among the partners.

  4. On D’s retirement, the following changes are made:

    • Building is reduced by ₹20,000.
    • Machinery is increased by ₹10,000.
    • Stock is reduced by ₹5,000.
      : Prepare the Revaluation Account.

  5. After adjustments, a retiring partner’s capital account shows ₹3,00,000. The firm pays ₹2,00,000 immediately and the rest after two months.
     Prepare the journal entries.

Hard Questions

  1. Partners X, Y, and Z share profits in the ratio of 5:3:2. X retires, and goodwill is valued at ₹1,20,000. Y and Z decide to share profits equally.
     Calculate the gaining ratio, adjust goodwill, and pass journal entries.

  2. A partner, B, dies on 31st December 2024. The firm closes its books on 31st March. B’s share of profits based on last year’s profit of ₹1,80,000 is to be calculated for the current year.
    : Calculate B’s share of profit for 9 months and pass the journal entry.

  3. On Mr. P’s retirement, the following balances exist:

    • General Reserve: ₹50,000
    • Machinery (revalued): ₹80,000 (original value ₹60,000)
    • Stock (revalued): ₹40,000 (original value ₹50,000)
       Pass necessary journal entries for revaluation and reserve adjustment.

  4. Partner Q retires, and his balance after adjustment is ₹5,00,000. The firm pays ₹1,50,000 immediately, and the rest in 3 equal annual installments with 10% interest.
     : Calculate the installment amount and prepare the first-year journal entry.

  5. X, Y, and Z are partners sharing profits in the ratio 3:2:1. On Y’s retirement, the firm incurs a loss of ₹30,000 on revaluation of assets.
    : Show how the loss will be borne by the partners.

Very Hard Questions

  1. A new partner, D, is admitted into the firm with a 1/5th share. Immediately after D’s admission, partner C retires.
     :Calculate the new profit-sharing ratio and adjust goodwill.

  2. A, B, and C are partners sharing profits equally. The firm has a JLP worth ₹3,00,000. C dies, and the policy is realized at ₹3,50,000.
    : Pass journal entries for the JLP and settlement of C’s account.

  3. On X’s retirement, the firm has a Workmen Compensation Reserve of ₹50,000. A claim of ₹20,000 is made during X’s tenure.
     :Adjust the reserve among partners.

  4. A and B are partners sharing profits in the ratio of 2:1. A retires, and B decides to admit C with a 2/5th share. C brings in capital worth ₹1,00,000.
     :Calculate B’s new capital contribution to maintain proportionate capital and adjust A’s settlement.

  5. X retires, leaving a balance of ₹8,00,000 in his capital account. The firm agrees to pay ₹3,00,000 immediately, convert ₹2,00,000 into a loan, and settle the balance in 4 equal annual installments with 8% interest.
     : Prepare a complete settlement table, including interest calculations, and pass journal entries for the first installment.

Topic : Insolvency of Partners

Easy Questions

  1. Basic Definition

    • What is the rule of Garner v/s Murray, and how is it applied in the case of a partner's insolvency?

  2. Calculation of Deficiency

    • A partner's capital account shows a debit balance of ₹10,000 after all adjustments. If his private assets are ₹6,000 and private liabilities are ₹2,000, calculate the deficiency.

  3. Cash Brought in by Solvent Partners

    • In a partnership, three partners (A, B, and C) share profits in the ratio of 3:2:1. Partner C becomes insolvent with a debit balance of ₹12,000. How much cash must A and B bring in to cover the deficiency?

  4. Understanding Capital Deficiency

    • A, B, and C are partners. A's capital account has a debit balance of ₹20,000. His private assets total ₹5,000, and his private liabilities are ₹7,000. What is the capital deficiency and how should it be shared?

  5. Journal Entry for Insolvency

    • Draft the journal entry to transfer the deficiency of an insolvent partner to solvent partners' capital accounts.

Moderate Questions

  1. Distribution of Losses

    • X, Y, and Z are partners sharing profits and losses in the ratio of 5:3:2. Z becomes insolvent with a debit balance of ₹30,000. If the total capital available is ₹20,000, how will the deficiency be distributed among X and Y?

  2. Preparation of Insolvency Account

    • Draft an Insolvency Account for a partner with the following details:
      • Debit Balance: ₹25,000
      • Private Assets: ₹8,000
      • Private Liabilities: ₹12,000

  3. Application of Garner v/s Murray

    • Explain the principle of Garner v/s Murray and solve the following:
      • A, B, and C are partners sharing profits and losses in the ratio of 4:3:2. C’s private liabilities exceed his private assets by ₹15,000. Distribute the deficiency among A and B.

  4. Impact of Capital Account Balances

    • If partners have fixed capital accounts, how would the insolvency of one partner be handled? Provide journal entries for such a case.

  5. Use of Reserves

  • In a partnership, there is a general reserve of ₹50,000. One partner becomes insolvent with a capital deficiency of ₹10,000. Can the general reserve be used to offset the deficiency? Justify your answer.

Hard Questions

  1. Adjustment of Loan Accounts

    • A partner who has become insolvent owes the partnership ₹15,000 in a loan account and ₹20,000 in his capital account. How will these be settled?

  2. Profit Sharing Change Before Insolvency

    • Before insolvency, the profit-sharing ratio among partners A, B, and C was changed from 2:2:1 to 3:2:1. How does this impact the treatment of insolvency deficiency?

  3. Fluctuating Capital Accounts

    • Explain and solve a problem where partners have fluctuating capital accounts and one partner becomes insolvent with a capital deficiency of ₹35,000.

  4. Exclusion of Garner v/s Murray

    • In certain cases, the rule in Garner v/s Murray may not be applied. Provide an example and discuss how the deficiency is handled.

  5. Settlement Using External Loans

    • In a partnership, the solvent partners take an external loan to pay off the insolvent partner's deficiency. How will this transaction be recorded?

Very Hard Questions

  1. Simultaneous Insolvency of Two Partners

    • If two partners (A and B) out of three become insolvent, how is the deficiency distributed among the remaining partner and the firm?

  2. Impact of Insolvency on Revaluation Account

    • When one partner becomes insolvent, and there is a balance in the revaluation account, how should it be distributed? Solve a practical example.

  3. Pre-Insolvency Adjustments

    • Partner A becomes insolvent. Before this, he has withdrawn ₹50,000, and the partnership has incurred losses of ₹30,000. How will these adjustments impact the distribution of the deficiency?

  4. Excess Private Liabilities

    • A partner's private liabilities exceed his private assets by ₹50,000. The partnership has sufficient profits to cover this deficiency. Discuss how the Garner v/s Murray rule will apply in such a case.

  5. Insolvency with Fixed and Fluctuating Capitals

    • In a partnership, two partners have fixed capitals, while one partner has a fluctuating capital. The partner with fluctuating capital becomes insolvent. Draft journal entries to reflect this scenario and adjust the deficiency among solvent partners.

Theoretical Questions

Theoretical questions on Partnership Accounts topics relevant to B.Com Hons.:

Concept of Partnership and Partnership Deed

  1. Define a partnership and explain its key features as per the Indian Partnership Act, 1932.
  2. What is a Partnership Deed? List the essential contents of a partnership deed.
  3. Differentiate between partnership and a joint-stock company.
  4. What are the legal consequences if there is no written partnership deed?
  5. Explain the concept of mutual agency in partnership and its significance.

Fixed and Fluctuating Capital Accounts

  1. Differentiate between fixed and fluctuating capital accounts with examples.
  2. How are drawings, interest on capital, and interest on drawings treated in fixed and fluctuating capital methods?
  3. What are the advantages of maintaining fixed capital accounts over fluctuating capital accounts?

Valuation of Goodwill

  1. What is goodwill, and why is its valuation important in partnership accounts?
  2. Explain the different methods of valuing goodwill:
    • Average Profit Method
    • Super Profit Method
    • Capitalization Method
  3. How is goodwill treated during the admission, retirement, and death of a partner?
  4. Discuss the factors that affect the valuation of goodwill.

Profit Sharing Ratio

  1. What is a profit-sharing ratio, and how is it determined in a partnership?
  2. Explain the treatment of changes in profit-sharing ratios among partners.
  3. Discuss the impact of sacrificing and gaining ratios during the admission or retirement of a partner.

Admission of a Partner

  1. What adjustments are required in the capital accounts of partners upon the admission of a new partner?
  2. Explain the procedure for revaluing assets and liabilities during the admission of a partner.
  3. How is the goodwill adjusted when a new partner is admitted into the firm?
  4. What is a Profit and Loss Adjustment Account, and why is it prepared during admission?

Revaluation of Assets and Liabilities

  1. Why is it necessary to revalue assets and liabilities during changes in the partnership structure?
  2. Explain the accounting treatment for revaluation of assets and liabilities when a new partner is admitted.
  3. How are revaluation profits or losses shared among partners?

Preparation of Profit and Loss Adjustment Account

  1. What is the purpose of the Profit and Loss Adjustment Account in partnership accounts?
  2. How are unrecorded assets and liabilities treated in the Profit and Loss Adjustment Account?
  3. Explain the steps involved in preparing a Profit and Loss Adjustment Account.

Retirement and Death of a Partner

  1. Explain the accounting adjustments required during the retirement of a partner.
  2. How is the retiring partner’s share of goodwill treated in partnership accounts?
  3. What is the procedure for settling the accounts of a deceased partner’s estate?
  4. Discuss the method of calculating the deceased partner’s share of profit up to the date of death.

Insolvency of Partners

  1. Explain the principle of Garner v/s Murray and its application in partnership accounts.
  2. What is the treatment of a partner’s deficiency when they become insolvent?
  3. How is the insolvency of multiple partners handled in a partnership?
  4. Discuss the impact of insolvency on the revaluation account and the distribution of assets.

The above questions comprehensively cover all critical aspects of Partnership Accounts, including foundational concepts, practical adjustments, and complex scenarios like admission, retirement, death, and insolvency of partners. These questions aim to enhance your understanding and prepare you for both theoretical discussions and practical applications in your B.Com Hons studies.

By mastering these topics, you will be well-equipped to handle real-world partnership accounting challenges effectively. Happy learning! 😊