Wednesday, November 27, 2024

Accountancy HS 2nd Year Chapter 3: Reconstitution of a Partnership Firm – Retirement/Death of a Partner

 

MCQs on "Reconstitution of a Partnership Firm - Retirement/Death of a Partner"

  1. What happens to the existing partnership deed upon the retirement or death of a partner?
    a) It is terminated.
    b) It is modified with additional clauses.
    c) It continues without changes.
    d) It is archived.
    Answer: a) It is terminated.

  2. Which of the following is NOT included in determining the sum due to a retiring/deceased partner?
    a) Share of goodwill.
    b) Share of accumulated profits.
    c) Share of partnership assets.
    d) Interest on capital until the retirement/death date.
    Answer: c) Share of partnership assets.

  3. The ratio in which continuing partners acquire the retiring/deceased partner’s share is called the:
    a) Profit Sharing Ratio.
    b) Loss Adjustment Ratio.
    c) Gaining Ratio.
    d) Sacrificing Ratio.
    Answer: c) Gaining Ratio.

  4. In the absence of specific information, the share of a retiring partner is assumed to be acquired by continuing partners in:
    a) Equal Ratio.
    b) Old Profit Sharing Ratio.
    c) New Profit Sharing Ratio.
    d) Agreed Ratio.
    Answer: b) Old Profit Sharing Ratio.

  5. How is goodwill adjusted when it does not appear in the books of a partnership firm?
    a) By writing it off completely.
    b) By debiting the retiring partner's capital account.
    c) By debiting goodwill to continuing partners' capital accounts in the gaining ratio.
    d) By opening a goodwill reserve account.
    Answer: c) By debiting goodwill to continuing partners' capital accounts in the gaining ratio.

  1. What is the formula for calculating the new share of a continuing partner after a partner retires?
    a) Old share - Acquired share from the retiring partner
    b) Old share + Acquired share from the retiring partner
    c) Old share × Acquired share from the retiring partner
    d) Old share ÷ Acquired share from the retiring partner
    Answer: b) Old share + Acquired share from the retiring partner

  2. What is the Gaining Ratio if Amit and Gagan share profits in the ratio 5:3, and Amit's new share becomes 3:2 after Gagan retires?
    a) 1:2
    b) 2:1
    c) 3:5
    d) 5:3
    Answer: b) 2:1

  3. If goodwill already appears in the books of the firm, how is it treated on the retirement of a partner?
    a) It is credited to all partners’ capital accounts in the gaining ratio.
    b) It is written off by debiting all partners’ capital accounts in the old profit-sharing ratio.
    c) It is retained as it is in the books.
    d) It is added to the revaluation account.
    Answer: b) It is written off by debiting all partners’ capital accounts in the old profit-sharing ratio.

  4. The purpose of a Revaluation Account is to:
    a) Reallocate goodwill.
    b) Revalue assets and liabilities and adjust unrecorded items.
    c) Record the retirement of a partner.
    d) Adjust the new profit-sharing ratio.
    Answer: b) Revalue assets and liabilities and adjust unrecorded items.

  5. Which entry records the increase in the value of an asset during revaluation?
    a) Revaluation A/c Dr.
    To Asset A/c
    b) Asset A/c Dr.
    To Revaluation A/c
    c) Profit and Loss A/c Dr.
    To Revaluation A/c
    d) Gaining Partners’ Capital A/c Dr.
    To Asset A/c
    Answer: b) Asset A/c Dr.
    To Revaluation A/c

  1. What happens to accumulated profits on the retirement of a partner?
    a) They are transferred to all partners’ capital accounts in the old profit-sharing ratio.
    b) They are credited only to the retiring partner’s capital account.
    c) They are retained in the reserves.
    d) They are written off in the new profit-sharing ratio.
    Answer: a) They are transferred to all partners’ capital accounts in the old profit-sharing ratio.

  2. When a retiring partner’s account is settled partly in cash and partly as a loan, the remaining amount is recorded as:
    a) Goodwill Adjustment Account
    b) Retiring Partner’s Loan Account
    c) Revaluation Account
    d) Suspense Account
    Answer: b) Retiring Partner’s Loan Account

  3. What is the correct entry for distributing profit on revaluation to partners?
    a) Revaluation A/c Dr.
    To Partners’ Capital A/cs
    b) Partners’ Capital A/cs Dr.
    To Revaluation A/c
    c) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c
    d) Profit and Loss Suspense A/c Dr.
    To Retiring Partner’s Capital A/c
    Answer: a) Revaluation A/c Dr.
    To Partners’ Capital A/cs

  4. A partner retiring in the middle of the year is entitled to:
    a) Full year’s profit.
    b) No share of profit.
    c) Share of profit for the period until retirement.
    d) Share of profit based on total sales.
    Answer: c) Share of profit for the period until retirement.

  5. Under Section 37 of the Indian Partnership Act, 1932, an outgoing partner is entitled to:
    a) 12% interest per annum on the outstanding amount.
    b) A fixed percentage of the firm’s revenue.
    c) 6% interest per annum or a share of profits earned with his/her money.
    d) No additional compensation unless specified in the partnership deed.
    Answer: c) 6% interest per annum or a share of profits earned with his/her money.

  1. If the retiring partner is compensated for goodwill by continuing partners, the gaining partners’ capital accounts are:
    a) Debited in the gaining ratio.
    b) Credited in the gaining ratio.
    c) Debited in the old profit-sharing ratio.
    d) Credited in the old profit-sharing ratio.
    Answer: a) Debited in the gaining ratio.

  2. Which account is used to adjust changes in the values of assets and liabilities?
    a) Goodwill Account
    b) Profit and Loss Account
    c) Revaluation Account
    d) Adjustment Account
    Answer: c) Revaluation Account

  3. When an unrecorded asset is brought into books, the entry passed is:
    a) Asset A/c Dr.
    To Revaluation A/c
    b) Revaluation A/c Dr.
    To Asset A/c
    c) Asset A/c Dr.
    To Capital A/c
    d) Profit and Loss A/c Dr.
    To Revaluation A/c
    Answer: a) Asset A/c Dr.
    To Revaluation A/c

  4. The retiring partner’s capital account is credited with his share of profits up to the date of retirement. This is done through:
    a) Revaluation Account
    b) Profit and Loss Suspense Account
    c) Accumulated Reserve Account
    d) General Reserve Account
    Answer: b) Profit and Loss Suspense Account

  5. In case of hidden goodwill, the retiring partner's share of goodwill is determined by:
    a) The goodwill appearing in the firm’s books.
    b) The excess amount paid to the retiring partner over their capital balance.
    c) The partners’ old profit-sharing ratio.
    d) A fixed percentage of the firm’s turnover.
    Answer: b) The excess amount paid to the retiring partner over their capital balance.

  1. When a partner retires and the firm has accumulated losses, they are:
    a) Credited to the retiring partner’s capital account.
    b) Debited to all partners’ capital accounts in the old profit-sharing ratio.
    c) Ignored during the adjustment process.
    d) Debited to the revaluation account.
    Answer: b) Debited to all partners’ capital accounts in the old profit-sharing ratio.

  2. If a retiring partner’s claim is settled in installments with interest, the unpaid balance is shown in the:
    a) Revaluation Account
    b) Partners’ Loan Account
    c) Current Account
    d) Suspense Account
    Answer: b) Partners’ Loan Account

  3. If the continuing partners bring additional capital after the retirement of a partner, this entry is passed:
    a) Bank A/c Dr.
    To Capital A/c
    b) Revaluation A/c Dr.
    To Capital A/c
    c) Profit and Loss A/c Dr.
    To Capital A/c
    d) Goodwill A/c Dr.
    To Bank A/c
    Answer: a) Bank A/c Dr.
    To Capital A/c

  4. How is the new profit-sharing ratio calculated when continuing partners acquire the retiring partner’s share in an agreed ratio?
    a) Based on the retiring partner’s drawings.
    b) By subtracting the share acquired from the continuing partners’ old share.
    c) By adding the share acquired to the continuing partners’ old share.
    d) Based on the firm’s goodwill value.
    Answer: c) By adding the share acquired to the continuing partners’ old share.

  5. A partner retires mid-year. If profits are to be calculated proportionately, which of the following is used?
    a) Average profit of past years.
    b) Annual profit multiplied by the proportion of the year elapsed.
    c) Annual profit multiplied by the new profit-sharing ratio.
    d) Annual profit minus the retiring partner’s drawings.
    Answer: b) Annual profit multiplied by the proportion of the year elapsed.

  1. What happens when a retiring partner’s entire balance is transferred to a loan account?
    a) The loan account is shown under current assets.
    b) The loan account is shown under liabilities.
    c) It is treated as a gain for the continuing partners.
    d) It is ignored until the next accounting period.
    Answer: b) The loan account is shown under liabilities.

  2. When goodwill does not appear in the books, but the retiring partner is compensated, the journal entry is:
    a) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c
    b) Retiring Partner’s Capital A/c Dr.
    To Goodwill A/c
    c) Goodwill A/c Dr.
    To Gaining Partners’ Capital A/c
    d) Bank A/c Dr.
    To Retiring Partner’s Capital A/c
    Answer: a) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c

  3. If no agreement is made, how much interest is paid to a retiring partner on the outstanding balance under the Indian Partnership Act, 1932?
    a) 12% per annum
    b) 6% per annum
    c) 8% per annum
    d) 10% per annum
    Answer: b) 6% per annum

  4. What is the treatment of unpaid liabilities when a partner retires?
    a) They are transferred to the Revaluation Account.
    b) They are ignored during adjustments.
    c) They are transferred to the retiring partner’s capital account.
    d) They remain in the books under liabilities.
    Answer: d) They remain in the books under liabilities.

  5. What is the most common method to calculate goodwill when settling with a retiring partner?
    a) Lump sum payment based on the agreement.
    b) Average of past three years' profits.
    c) Goodwill valuation by professional auditors.
    d) Future expected profits.
    Answer: b) Average of past three years' profits.

  1. When a retiring partner’s share of goodwill is not specifically mentioned, how is it treated?
    a) Ignored completely.
    b) Distributed among continuing partners in their gaining ratio.
    c) Distributed in the old profit-sharing ratio.
    d) Credited to the retiring partner’s loan account.
    Answer: b) Distributed among continuing partners in their gaining ratio.

  2. Which method is typically used to adjust the goodwill value when a partner retires?
    a) Written off completely.
    b) Adjusted against capital accounts in the gaining ratio.
    c) Transferred to reserves.
    d) Charged to the profit and loss account.
    Answer: b) Adjusted against capital accounts in the gaining ratio.

  3. What is the primary purpose of determining the new profit-sharing ratio?
    a) To calculate interest on the retiring partner’s capital.
    b) To allocate future profits among the remaining partners.
    c) To settle unrecorded liabilities.
    d) To adjust accumulated losses.
    Answer: b) To allocate future profits among the remaining partners.

  4. If the value of assets increases during revaluation, the entry passed is:
    a) Asset A/c Dr.
    To Revaluation A/c
    b) Revaluation A/c Dr.
    To Asset A/c
    c) Partners’ Capital A/c Dr.
    To Asset A/c
    d) Gaining Partners’ Capital A/c Dr.
    To Revaluation A/c
    Answer: a) Asset A/c Dr.
    To Revaluation A/c

  5. The ratio in which the remaining partners compensate the retiring partner is called:
    a) Sacrificing Ratio.
    b) Gaining Ratio.
    c) Old Profit-Sharing Ratio.
    d) Adjusted Ratio.
    Answer: b) Gaining Ratio.

  1. In which scenario is the gaining ratio equal to the old profit-sharing ratio?
    a) When all partners sacrifice equally.
    b) When no agreement exists about the acquisition of shares.
    c) When goodwill is ignored during reconstitution.
    d) When a new partner is admitted simultaneously.
    Answer: b) When no agreement exists about the acquisition of shares.

  2. Which entry adjusts accumulated profits on a retiring partner’s capital account?
    a) Reserves A/c Dr.
    To Retiring Partner’s Capital A/c
    b) Retiring Partner’s Capital A/c Dr.
    To Reserves A/c
    c) Reserves A/c Dr.
    To All Partners’ Capital A/cs
    d) All Partners’ Capital A/cs Dr.
    To Retiring Partner’s Loan A/c
    Answer: c) Reserves A/c Dr.
    To All Partners’ Capital A/cs

  3. What is the treatment of goodwill in the absence of any specific agreement?
    a) Goodwill is distributed equally among all partners.
    b) Goodwill is adjusted in the gaining ratio of the remaining partners.
    c) Goodwill is transferred to the revaluation account.
    d) Goodwill is ignored during retirement adjustments.
    Answer: b) Goodwill is adjusted in the gaining ratio of the remaining partners.

  4. When accumulated losses exist, the journal entry passed is:
    a) Profit and Loss A/c Dr.
    To Partners’ Capital A/c
    b) Partners’ Capital A/c Dr.
    To Profit and Loss A/c
    c) Retiring Partner’s Capital A/c Dr.
    To Partners’ Capital A/c
    d) Revaluation A/c Dr.
    To Profit and Loss A/c
    Answer: b) Partners’ Capital A/c Dr.
    To Profit and Loss A/c

  5. What happens to the retiring partner’s loan account in the balance sheet?
    a) It appears under current liabilities.
    b) It is shown under long-term liabilities.
    c) It is written off against goodwill.
    d) It is not shown on the balance sheet.
    Answer: a) It appears under current liabilities.

  1. Which of the following is adjusted in the Revaluation Account?
    a) Goodwill of the firm.
    b) Accumulated reserves.
    c) Unrecorded assets and liabilities.
    d) Retiring partner’s drawings.
    Answer: c) Unrecorded assets and liabilities.

  2. If the total amount due to a retiring partner is paid immediately, the entry passed is:
    a) Retiring Partner’s Capital A/c Dr.
    To Bank A/c
    b) Bank A/c Dr.
    To Retiring Partner’s Loan A/c
    c) Retiring Partner’s Loan A/c Dr.
    To Bank A/c
    d) Bank A/c Dr.
    To Retiring Partner’s Capital A/c
    Answer: a) Retiring Partner’s Capital A/c Dr.
    To Bank A/c

  3. A Revaluation Account is also known as:
    a) Capital Adjustment Account.
    b) Profit and Loss Adjustment Account.
    c) Partnership Equalization Account.
    d) Goodwill Adjustment Account.
    Answer: b) Profit and Loss Adjustment Account.

  4. When a retiring partner’s share of profit is calculated for an intervening period, the formula used is:
    a) Previous year’s profit × Proportionate period × Share of retiring partner.
    b) Average profit × Proportionate period × Share of retiring partner.
    c) Sales of the firm × Share of retiring partner.
    d) Both (a) and (b).
    Answer: d) Both (a) and (b).

  5. Which ratio is used to allocate adjustments for revaluation gains and losses?
    a) New profit-sharing ratio.
    b) Gaining ratio.
    c) Old profit-sharing ratio.
    d) Sacrificing ratio.
    Answer: c) Old profit-sharing ratio.

  1. How is a partner’s share of goodwill treated when hidden goodwill is identified?
    a) The hidden goodwill is transferred to the reserves.
    b) The hidden goodwill is distributed to the remaining partners in the gaining ratio.
    c) The hidden goodwill is credited to the retiring partner’s capital account.
    d) It is ignored.
    Answer: c) The hidden goodwill is credited to the retiring partner’s capital account.

  2. When the capital of the new firm is specified after a partner retires, how is the excess capital treated?
    a) Retained in the partner’s account.
    b) Credited to the goodwill account.
    c) Withdrawn by the partner in cash.
    d) Transferred to the reserves.
    Answer: c) Withdrawn by the partner in cash.

  3. If continuing partners adjust their capital in the new profit-sharing ratio, which entry is made for a partner bringing in additional capital?
    a) Bank A/c Dr.
    To Partners’ Capital A/c
    b) Partners’ Capital A/c Dr.
    To Bank A/c
    c) Bank A/c Dr.
    To Goodwill A/c
    d) Reserves A/c Dr.
    To Partners’ Capital A/c
    Answer: a) Bank A/c Dr.
    To Partners’ Capital A/c

  4. What is the effect on the remaining partners when a retiring partner is paid goodwill?
    a) It reduces their capital accounts.
    b) It increases their profit share.
    c) It remains neutral.
    d) It increases their liabilities.
    Answer: a) It reduces their capital accounts.

  5. If a partner retires and revaluation results in a loss, it is:
    a) Credited to the retiring partner only.
    b) Debited to all partners in the old profit-sharing ratio.
    c) Ignored in the capital adjustment.
    d) Debited to the remaining partners in the new profit-sharing ratio.
    Answer: b) Debited to all partners in the old profit-sharing ratio.

  1. In the case of a partner’s death, who is entitled to the deceased partner's share of profit up to the date of death?
    a) The deceased partner's legal heirs.
    b) The remaining partners.
    c) The deceased partner's executor.
    d) The firm itself.
    Answer: a) The deceased partner's legal heirs.

  2. Which of the following is adjusted when a partner retires or dies?
    a) Unrecorded liabilities and assets.
    b) Future profits.
    c) Interest on capital.
    d) Both a) and b).
    Answer: d) Both a) and b).

  3. What is the treatment of the profit or loss made after the date of a partner's death or retirement?
    a) The profit or loss is shared in the old profit-sharing ratio.
    b) The profit or loss is shared in the new profit-sharing ratio.
    c) The profit or loss is credited to the firm's general reserve.
    d) It is not allocated.
    Answer: a) The profit or loss is shared in the old profit-sharing ratio.

  4. How is the retiring partner’s share of goodwill treated if goodwill does not appear in the books of the firm?
    a) It is paid to the retiring partner directly.
    b) It is written off by the remaining partners in their gaining ratio.
    c) It is transferred to the Revaluation Account.
    d) It is credited to the Capital Accounts of the partners.
    Answer: b) It is written off by the remaining partners in their gaining ratio.

  5. What is the main purpose of adjusting accumulated profits or losses during the reconstitution of a partnership firm?
    a) To ensure a fair distribution among the remaining partners.
    b) To determine the amount due to the retiring partner.
    c) To calculate the new profit-sharing ratio.
    d) To settle the firm’s liabilities.
    Answer: a) To ensure a fair distribution among the remaining partners.

  1. Which of the following is a possible deduction from the retiring partner's share when settling their claim?
    a) Their share of accumulated profits.
    b) Their drawings up to the date of retirement/death.
    c) Their share of goodwill.
    d) Interest on their capital account.
    Answer: b) Their drawings up to the date of retirement/death.

  2. What happens when a partner’s capital account shows a deficit after all adjustments?
    a) The partner is required to bring in additional capital.
    b) The deficit is shared equally among all partners.
    c) The deficit is transferred to the revaluation account.
    d) The partner’s share of profits is reduced in the new ratio.
    Answer: a) The partner is required to bring in additional capital.

  3. When a partner retires and a revaluation of assets takes place, how is the resulting profit or loss treated?
    a) It is credited to the Revaluation Account.
    b) It is transferred to the capital accounts of all partners in the old profit-sharing ratio.
    c) It is credited to the Profit and Loss Account.
    d) It is paid to the retiring partner as compensation.
    Answer: b) It is transferred to the capital accounts of all partners in the old profit-sharing ratio.

  4. How is the amount due to the retiring partner handled if the firm is unable to pay it immediately?
    a) It is transferred to the retiring partner’s loan account.
    b) It is paid off in equal installments.
    c) It is ignored until the next accounting period.
    d) It is transferred to the capital account of the remaining partners.
    Answer: a) It is transferred to the retiring partner’s loan account.

  5. What entry is made when goodwill is to be written off after the retirement of a partner?
    a) Goodwill A/c Dr.
    To All Partners’ Capital A/cs (Old ratio)
    b) Partners’ Capital A/cs Dr.
    To Goodwill A/c
    c) Revaluation A/c Dr.
    To Goodwill A/c
    d) Goodwill A/c Dr.
    To Revaluation A/c
    Answer: a) Goodwill A/c Dr.
    To All Partners’ Capital A/cs (Old ratio)

  1. If the new profit-sharing ratio is not specified, how is the share of the retiring partner distributed among the remaining partners?
    a) Equally.
    b) In the old profit-sharing ratio.
    c) In the new ratio.
    d) Based on the agreed compensation.
    Answer: b) In the old profit-sharing ratio.

  2. What happens to the capital of the remaining partners when the total capital of the new firm is fixed after a partner retires?
    a) It remains the same as before.
    b) It is adjusted to reflect the new profit-sharing ratio.
    c) It is increased proportionally.
    d) It is reduced by the share of the retiring partner.
    Answer: b) It is adjusted to reflect the new profit-sharing ratio.

  3. Which of the following is NOT a reason for adjusting the capital accounts of remaining partners after a partner retires?
    a) To settle the retiring partner’s dues.
    b) To ensure capital reflects the new profit-sharing ratio.
    c) To adjust for goodwill and revaluation.
    d) To allocate future profits equally.
    Answer: d) To allocate future profits equally.

  4. What is the formula for calculating the Gaining Ratio between two partners when one retires?
    a) New share of profit - Old share of profit.
    b) Old share of profit - New share of profit.
    c) Total profit divided by number of partners.
    d) Share of goodwill divided by the new profit-sharing ratio.
    Answer: a) New share of profit - Old share of profit.

  5. Which account is credited when a revaluation of assets results in a loss?
    a) Revaluation A/c.
    b) Partners’ Capital A/c.
    c) Profit and Loss A/c.
    d) Assets A/c.
    Answer: b) Partners’ Capital A/c.

  1. If the firm decides to pay a retiring partner in installments, what happens when an installment is paid?
    a) The loan account of the retiring partner is debited.
    b) The capital account of the retiring partner is debited.
    c) The cash account is debited.
    d) The profit and loss account is debited.
    Answer: a) The loan account of the retiring partner is debited.

  2. What is the impact of a partner’s death on the partnership?
    a) The partnership continues with a new profit-sharing ratio.
    b) The partnership is dissolved immediately.
    c) The partnership deed is re-signed.
    d) The capital account of the deceased partner is adjusted.
    Answer: a) The partnership continues with a new profit-sharing ratio.

  3. When goodwill is already in the books of the firm, how is it written off after a partner retires?
    a) By adjusting in the retiring partner’s capital account.
    b) By debiting all partners’ capital accounts in the new profit-sharing ratio.
    c) By transferring it to reserves.
    d) By crediting the partner’s current account.
    Answer: b) By debiting all partners’ capital accounts in the new profit-sharing ratio.

  4. What is the entry for the distribution of profits or losses arising from the revaluation of assets and liabilities?
    a) Revaluation A/c Dr.
    To All Partners’ Capital A/c
    b) All Partners’ Capital A/c Dr.
    To Revaluation A/c
    c) Partners’ Capital A/c Dr.
    To Profit and Loss A/c
    d) Revaluation A/c Dr.
    To Profit and Loss A/c
    Answer: a) Revaluation A/c Dr.
    To All Partners’ Capital A/c

  5. When a retiring partner is paid their share in cash, which of the following happens?
    a) The retiring partner’s capital account is debited.
    b) The firm’s capital account is credited.
    c) The bank account is debited.
    d) The goodwill account is credited.
    Answer: a) The retiring partner’s capital account is debited.

  1. What happens when the firm has to settle the retiring partner’s dues in installments?
    a) The installments are debited to the general reserve.
    b) The installments are debited to the retiring partner’s capital account.
    c) The installments are debited to the profit and loss account.
    d) The installments are credited to the retiring partner’s capital account.
    Answer: b) The installments are debited to the retiring partner’s capital account.

  2. When a partner’s capital account shows a credit balance after adjustments, the partner is required to:
    a) Bring in additional capital.
    b) Receive a payment for their share.
    c) Transfer the amount to a loan account.
    d) Make no further contribution.
    Answer: a) Bring in additional capital.

  3. If a firm decides to distribute the goodwill of the retiring partner to the continuing partners, the journal entry is:
    a) Retiring Partner’s Capital A/c Dr.
    To Gaining Partners’ Capital A/c
    b) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c
    c) Goodwill A/c Dr.
    To All Partners’ Capital A/cs
    d) All Partners’ Capital A/c Dr.
    To Goodwill A/c
    Answer: b) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c

  4. The balance in the capital accounts of continuing partners is adjusted when the total capital of the firm is fixed after a partner retires. The adjustment is made by:
    a) Reducing the capital of the remaining partners in their old profit-sharing ratio.
    b) Increasing or decreasing the capital of the remaining partners to match the fixed capital.
    c) Transferring the difference to the revaluation account.
    d) Transferring the difference to the profit and loss account.
    Answer: b) Increasing or decreasing the capital of the remaining partners to match the fixed capital.

  5. Which of the following is true regarding the treatment of goodwill during the retirement of a partner?
    a) Goodwill is ignored and not adjusted.
    b) The retiring partner receives compensation for goodwill from the remaining partners.
    c) Goodwill is written off and debited to the partners' capital accounts in the old ratio.
    d) Goodwill is paid to the retiring partner only if specified in the deed.
    Answer: b) The retiring partner receives compensation for goodwill from the remaining partners.

  1. What is the treatment of the deceased partner’s share of profit until the date of death?
    a) It is paid to the legal heirs or executors of the deceased partner.
    b) It is distributed among the remaining partners in the new ratio.
    c) It is ignored.
    d) It is transferred to the general reserve.
    Answer: a) It is paid to the legal heirs or executors of the deceased partner.

  2. If a partner’s share of profit is calculated on the basis of average profits of previous years, the share is calculated based on:
    a) The profits of the last year.
    b) The total profits over multiple years divided by the number of years.
    c) The profit for the intervening period only.
    d) A fixed amount agreed upon by the partners.
    Answer: b) The total profits over multiple years divided by the number of years.

  3. What is the purpose of calculating the gaining ratio after a partner retires?
    a) To determine the amount payable to the retiring partner.
    b) To adjust the capital accounts of the remaining partners according to their new shares.
    c) To decide the profit-sharing ratio for the new firm.
    d) To calculate the new profit-sharing ratio.
    Answer: b) To adjust the capital accounts of the remaining partners according to their new shares.

  4. If a partner’s capital account shows a deficit after adjustments, the remaining partners will:
    a) Pay the retiring partner’s share of goodwill.
    b) Transfer the deficit to a loan account for payment over time.
    c) Ignore the deficit.
    d) Increase the deficit to match the capital of the new firm.
    Answer: b) Transfer the deficit to a loan account for payment over time.

  5. What happens when the continuing partners acquire the retiring partner’s share in goodwill?
    a) The capital account of the continuing partners is debited in their gaining ratio.
    b) The capital account of the retiring partner is credited.
    c) The goodwill is paid directly to the retiring partner.
    d) The goodwill is not recorded in the books.
    Answer: a) The capital account of the continuing partners is debited in their gaining ratio.

  1. Which of the following is adjusted in the capital accounts of continuing partners when a partner retires?
    a) The share of accumulated profits and reserves.
    b) The share of the new capital required by the firm.
    c) The share of accumulated losses.
    d) Both a) and c).
    Answer: d) Both a) and c).

  2. What is the entry when the retiring partner’s capital is settled in cash?
    a) Retiring Partner’s Capital A/c Dr.
    To Cash/Bank A/c
    b) Cash A/c Dr.
    To Retiring Partner’s Loan A/c
    c) Retiring Partner’s Capital A/c Dr.
    To Partners’ Capital A/c
    d) Partners’ Capital A/c Dr.
    To Cash A/c
    Answer: a) Retiring Partner’s Capital A/c Dr.
    To Cash/Bank A/c

  3. When goodwill is introduced into the firm during the retirement of a partner, the entry passed is:
    a) Goodwill A/c Dr.
    To All Partners’ Capital A/cs in old ratio.
    b) Partners’ Capital A/cs Dr.
    To Goodwill A/c.
    c) Goodwill A/c Dr.
    To Partners’ Capital A/cs in new ratio.
    d) All Partners’ Capital A/cs Dr.
    To Goodwill A/c.
    Answer: a) Goodwill A/c Dr.
    To All Partners’ Capital A/cs in old ratio.

  4. Which of the following is the correct journal entry for recording the gain or loss on revaluation of assets during a partner’s retirement?
    a) Revaluation A/c Dr.
    To All Partners’ Capital A/cs (Old ratio)
    b) All Partners’ Capital A/cs Dr.
    To Revaluation A/c
    c) Partners’ Capital A/c Dr.
    To Revaluation A/c
    d) Revaluation A/c Dr.
    To Partners’ Capital A/c
    Answer: a) Revaluation A/c Dr.
    To All Partners’ Capital A/cs (Old ratio)

  5. When a partner is compensated for their share of goodwill, the journal entry is:
    a) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c
    b) Retiring Partner’s Capital A/c Dr.
    To Gaining Partners’ Capital A/c
    c) Goodwill A/c Dr.
    To Retiring Partner’s Capital A/c
    d) Bank A/c Dr.
    To Retiring Partner’s Capital A/c
    Answer: b) Retiring Partner’s Capital A/c Dr.
    To Gaining Partners’ Capital A/c

  1. Which of the following is NOT a typical adjustment made when a partner retires or dies?
    a) Adjustments for goodwill.
    b) Adjustments for revaluation of assets and liabilities.
    c) Distribution of accumulated profits and reserves.
    d) Transfer of liabilities to the revaluation account.
    Answer: d) Transfer of liabilities to the revaluation account.

  2. What is the journal entry when a retiring partner’s share of goodwill is paid by the continuing partners?
    a) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c
    b) Retiring Partner’s Capital A/c Dr.
    To Gaining Partners’ Capital A/c
    c) Retiring Partner’s Capital A/c Dr.
    To Goodwill A/c
    d) Goodwill A/c Dr.
    To Retiring Partner’s Capital A/c
    Answer: a) Gaining Partners’ Capital A/c Dr.
    To Retiring Partner’s Capital A/c

  3. Which of the following is true regarding the payment of the retiring partner's loan account?
    a) The loan account is paid immediately in full.
    b) The loan account can be settled in installments.
    c) The loan account is transferred to the capital account.
    d) The loan account is credited to the capital account.
    Answer: b) The loan account can be settled in installments.

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