17.Give the meaning of Endowment Fund.

Ans: Endowment fund is a fund arising from a bequest or gift, the income of which is devoted
for a specific purpose.
18.How do you treat tournament expenses, when separate tournament fund not
maintained?
Ans:When separate tournament fund is not maintained, then tournament expenses are debited
to income and expenditure A/c.
19. How do you treat prizes awarded, when Prize Fund is maintained?
Ans: When prize fund is maintained, prizes awarded are deducted from the fund on liabilities
side.
20.Give the meaning of incidental trading activity.
Ans: Incidental trading activity means, commercial (trading) activity taken place in a not-for-
profit organization to provide certain facilities to members or public in general.

11
CHAPTER-2--ACCOUNTING FOR PARTNERSHIP: BASIC CONCEPTS
1 Section A: One Mark Questions
I. Fill in the blank questions (ANSWER IN BOLD LETTERS)
1. Section 4 of Indian Partnership Act, 1932 defines Partnership,
2. A partnership has no separate Legal entity.
3. In order to form a partnership, there should be at least 2(Two) persons.
4. Partnership is the result of Agreement between two or more persons to carry on business
and share its profits and losses.
5. It is preferred that the partners have a written agreement.
6. The agreement should be to carry on some Lawful business.
7. Each partner carrying on the business is the principal as well as Agent the
for all other partners.
8. The liability of a partner for his acts is Unlimited.
9. In the absence of Partnership Deed Interest of advance from Partner will
be charged @ 6% p.a.
10. Under Fixed Capital Method, the capitals of the partners shall remain
fixed.
11. Under Fluctuating Capital Method, the partners’ capital account balances
Fluctuate from time to time.
12. Profit and Loss Appropriation Account is merely an extension of Profit
& Loss A/c of firm.
13. Profit and Loss Appropriation Account Dr
To Interest on Partners’ Capital accounts
(Transferring int.on capital to P/L Appropriation a/c).
14. Profit and Loss Appropriation Account Dr
To Salary to Partners account
(Transferring partners salary to P/L Appropriation a/c)
15. P/L Appropriation A/c Dr
To Partners Capital/Current a/cs.
(Being Profit transferred to Partners)
16. When fixed amounts are withdrawn at the end of every month, interest on
the total amount for the year ending is calculated for 5& 12 months.
17. Under fluctuating capital method, all the transactions relating to partners
are directly recorded in the Partners Capital accounts.
4
 18. Under fixed capital method, the amount of capital remains Fixed.
19. Under fixed capital method, all the transactions relating to a partner are
recorded in a separate account called Partners Current Account.
20. There is not much difference in the final accounts of a sole proprietary
concern and that of a Partnership Firm.

II.Multiple Choice Questions.(ANSWERS IN BOLD LETTERS)

1.The agreement between the partner should be in:
a) Oral b) Written c) Oral or Written d) None of the above
2. Partnership deeds contain:
a) Name of firm b) Name and address of the partners
c) Profit and Loss sharing ratio d) All of the above
3. If any partner has advanced some money to the firm beyond the amount of
his capital, he shall be entitled to get interest on the amount at the rate of:
a) 5% p.a b) 6% p.a c) 8% p.a d) None of the above.
4. Interest on capital is generally provided for in that situations when:
a) The partners contribute unequal amounts of capital but share profits
equally.
b) The capital contribution is same but profit sharing is unequal
c) Both the situations above.
d) None of the above
5. When fixed amount is withdrawn on the first day of every month, interest
on total amount of the year ending will be calculated for:
a) 2 & ½ months b) 4 & ½ months
c) 6 & ½ months d) None of the above
6. When varying amounts are withdrawn at different intervals, the interest is
calculated using.
a) Simple Method b) Average Method
c) Product Method d) None of the above
7. Adjustment for correction of omission and commission can be made:
a) Profit and Loss adjustment account.
b) Directly in the Capital Accounts of concerned partners
c) Both the situations above
d) None of the above
8. In order to form a Partnership there should be at least:
a) One person b) Two persons c) Seven persons d) None of the above
9. The business of a partnership concern may be carried on by:
a) All the partners b) Any of them acting for all
c) All partners or any of them acting for all d) None of the above
10. The agreement between Partners must be to share:
a) Profits b) Losses
c) Profits and Losses d) None of the above
11. The liability of a Partner for acts of the firm is:
a) Limited b) Unlimited
c) Both the above d) None of the above.
12. The partnership Deed should be properly drafted and prepared as per the
provisions of the
a) Partnership Act b) Stamp Act
c) Companies Act d) None of the above
5
13. The clauses of Partnership Deed can be altered with the consent of:
a) Two Partners b) Ten Partners
c) Twenty Partners d) All the Partners

III. True or False Questions

1.The agreement between partners must be in writing= False
2.The clauses of partnership deed can be altered with the consent of all the Partners.=True
3.If the partnership deed is silent about the profit sharing ratio, the profit and loss of the firm is
to be shared equally.=True
4.A partner is entitled to claim interest at the rate of 10% p.a on the amount of capital
contributed by him. If there is no agreement in the firm.=False
5.In the absence of Partnership Deed, no partner is entitled to get salary.=True
6.Under fixed capital method the Partner’s Capital Accounts will always show a credit balance. =
True.
7.Under Fixed Capital Method the Partners Capital Accounts will always show a debit
balance.=False
8.P & L Appropriation A/c shows how the profits are appropriated among the partners.=True
9.When fixed amount is withdrawn during the middle of every month, interest on total amount is
calculated for 6 months.=True
10.If there is loss, no interest on capital is to be paid to partners, even if there is a provision in
Partnership Deed.=True
11.Accounting treatment for Partnership is similar to that of a sole Proprietorship
Business.=True
12.There are two methods by which the capital accounts of partners can be maintained=True
13.Profit and Loss appropriation account is merely an extension of the Profit and Loss Account
of a firm.=True
14.Interest on partners capital is debited to Partner’s Capital Accounts.=False
15.In case of Guarantee of profit to a partner, assurance may be given by only one
partner=True.
IV.Very short answer questions:
1.Who is a Partner?
Ans: Persons who have entered into partnership with one another are individually called
‘partners’
2.What do you mean by Partnership Firm?
Ans: Section 4 of the Indian Partnership Act 1932 defines partnership as the ‘relation
between persons who have agreed to share the profits of a business carried on by all or
any of them acting for all’.
3.State any one feature of Partnership.
Ans: There must be two or more persons to constitute partnership
4.What is the minimum number of partners in a firm?
Ans: TWO.
5.Name any one content of Partnership Deed.
Ans: Names and Addresses of all partners.
6.Name any one method of maintaining capital accounts of partners.
Ans: Fixed Capital Method
7.Name any one final account of partnership firm
Ans: Profit and Loss A/c

6
8.How do you distribute profit or loss among the partners in the absence partnership deed?
Ans: Equally
9.Why the Profit and Loss Appropriation account is prepared?
Ans: Profit and Loss Appropriation A/c is prepared to show how the profits distributed among
the partners, after making necessary adjustments.
10.At what rate Interest on advances by Partners is to be paid as per Partnership Act?
Ans: 6% p.a
11.When interest is charged on partners drawings?
Ans: Interest is charged on partners’ drawings when there is a provision in agreement among
the partners about it.
12. When Partners Current Accounts are prepared in partnership firms?
Ans: Partners current A/cs are prepared in partnership firms when partners capital accounts
are maintained under fixed capital method.
13.State any one special aspect of partnership accounts.
Ans: Maintenance of Partners’ Capital A/cs
14.When the Current Accounts of Partners are opened?
Ans: Current A/cs of Partners are opened in Fixed Capital Method.
15.Under fluctuating capital method, how many accounts are maintained for each partner?
Ans: One
16.State any one feature of fluctuating capital method.
Ans: Capital balance of each partner changes year after year.
17.State any one situation in which provision of payment of interest on partner’s capital is
made.
Ans: If firm had earned profit and agreement had the provision of interest on capital.
18.Find out interest at 8% p.a. on capital of Rs.50,000 for 9 months.
Ans: Rs.3, 000
19.Which is the suitable method of calculation of Interest on drawings, when fixed amount is
withdrawn every month?
Ans: Average period method.
20.Give one example for past adjustment?
Ans: Omission of interest on capital.
Section B: Two marks questions:
1.What is Partnership?
Ans: Partnership is a relation between two or more persons who join hands to set up a business
and share its profits and losses.
2.Define Partnership?
Ans: According to Sec 4 of the Indian Partnership Act-“Partnership is the relation between
persons who have agreed to share the profits of a business carried on by all or any of them
acting for all”
3.State any two features of Partnership.
Ans: a- Two or More person’s b- Agreement between persons.
4. What is Partnership Deed?
Ans: Partnership Deed is the written agreement on stamp paper containing terms of
partnership duly signed by all partners.
5.What are the methods of maintaining capital accounts of partners?
Ans: a- Fixed Capital Method b- Fluctuating Capital Method

7
6. What is fixed capital method?
Ans: Fixed Capital Method is a method of maintaining partners capital Accounts in which the
capital balances of the partners shall remain fixed. All adjustments relating to partners are
recorded in a separate account called partner’s current account.
7. What is fluctuating capital method?
Ans: Fluctuating Capital Method is a method of maintaining partners’ capital Accounts in
which all adjustments relating to partners are recorded in their Capital A/cs.
8. State any two differences between fixed and fluctuating capital methods
Ans: Differences between
Fixed Capital Method Fluctuating Capital Method
i. Adjustments are made in partners current i. Adjustments are made in Partners Capital
a/cs A/cs
ii. Capital balance remains unchanged ii. Capital balance fluctuates year by year.
9. What do you mean by Profit and Loss Appropriation Account?
Ans: Profit and Loss Appropriation A/c is the extension of P&L A/c which shows how the profits
are appropriated among the partners.
10. What is guarantee of profit to a partner?
Ans: Guarantee of profit to a partner means giving assurance of certain minimum amount by
way of his share of profits of the firm.
11. What do you mean by past adjustments?
Ans: Past Adjustments refer to making necessary rectifications for omissions or commissions
noticed after preparation of final accounts.
12. State any two final accounts of a Partnership firm.
Ans: a- Profit and Loss A/c b- Balance Sheet
13. In the absence of partnership deed, specify the rules relating to the followings;
a) Sharing of profit and losses b) Interest on partners capital
Ans: a) Equally b) Not to be allowed

14. State the rules relating to the followings in the absence of Partnership Deed:
a) Interest on drawings b) Interest on advances from Partners.
Ans: a) Not to be charged b) Allowed @ 6% p.a
15. Name any two methods for calculation of Interest of drawings.
Ans: a) Product Method b) Average Period Method
16. When the interest on drawings is generally provided to partners?
Ans: Interest on drawings is generally charged on partners when it is expressed in agreement.
17. How do you close Profit and Loss Appropriation account in Partnership?
Ans: Profit and Loss Appropriation A/c in partnership is closed by transferring its balance to
Partners Capital or Current A/cs.
18. State any two special aspects of Partnership Accounts.
Ans: i. Maintenance of Partners capital A/cs
ii.Distribution of P&L among Partners
19. Name any two contents of Partnership Deed.
Ans: i. Name and address of the firm ii. Capital Contribution by Partners.

8
 CHAPTER-3--ADMISSION OF A PARTNER.
Section A: One mark questions:
I. Fill in the blanks:
1. Old ratio is used to distribute accumulated profits and losses at the time of
admission of a new partner.
2. Profit or loss on revaluation is shared among the old partners in Old ratio.
3. Old ratio-New Ratio= Sacrificing Ratio.
4. Accumulated losses are transferred to the capital accounts of the old partners
at the time of admission in their Old ratio.
5. General reserve is to be transferred to Capital accounts at the time of
admission of a new partner.
6.Goodwill brought in by new partner in cash is to be distributed among old
partners in Sacrificing ratio.
7. If the amount brought by new partner is more than his share in capital, the
excess is known as Hidden goodwill
8. Asset Account is debited for the increase in the value of an asset.
9. Unrecorded asset is to be credited to Revaluation account.
10. A and B are partners sharing profits & losses equally with capitals of Rs.45,000 each. C is
admitted for 1/3rd share and he brings in Rs.60, 000 as his capital. Hidden Goodwill
is Rs.30, 000.
11.Due to change in profit sharing ratio, some partners will gain in future profits while others
will Loose.
12. Goodwill is an Intangible asset.
13. Goodwill account is credited for cash brought in by new partners for his share of
goodwill.
14. New Profit Sharing ratio is required for sharing future profits and also for adjustment of
capitals.
II. Multiple Choice Questions (ANSWER IN BOLD LETTERS)
1.At the time of admission of a new partner, general reserve appearing in the old balance sheet
in transferred to:
a) All partners Capital Account b) New Partner’s Capital Account
c) Old Partners Capital Account d) None of the above
2. A, B and C are partners in a firm. If D is admitted as a new partner
a) Old firm if dissolved
b) Old firm and old partnership are dissolved
c) Old partnership is reconstituted
d) None of the above
3. On the admission of a new partner, increase in the value of asset is
credited to
a) Profit and Loss Adjustment (Revaluation) Account
b) Asset Account
c) Old partners Capital Account
d) None of the above
4. At the time of admission of a partner, undistributed profits appeared in the
balance sheet of the old firm is transferred to the capital accounts of
a) Old partners in old profit sharing ratio.
b) Old partners in new profit sharing ratio.
c) All the partners in new profit sharing ratio
d) None of the above.
9
5. If new Partner brings cash for his share of goodwill, goodwill is
transferred to Old Partners’ Capital Account in:
a) Sacrificing ratio b) Old Profit sharing ratio.
c) New Profit sharing ratio d) None of the above.
6. Which of the following are treated as reconstitution of a Partnership Firm?
a) Admission of a partner b) Change in profit sharing ratio
c) Retirement of a partner d) All the above
7. Profit or loss on revaluation is shared among the partners in the
a) Old profit sharing ratio b) New profit sharing ratio
c) Capital ratio d) Equal ratio
8. Assets and Liabilities are recorded in Balance Sheet after the admission of
a partner at:
a) Original Value b) Revalued Value
c) Realizable value d) None of the above
9. On the admission of a new partner, the increase in the value of an asset is
credited to
a) Revaluation Account b) Asset Account
c) Old Partners Capital Account d) None of the above
10. Old Profit Sharing Ratio-New Profit Sharing Ratio is=
a) Sacrificing ratio b) Gaining ratio
c) Both the above d) None of the above.
11.In the absence of an agreement to the contrary, it is implied that old
partners will contribute to new partner’s share of profit in the ratio of
a) Capital b) Old profit sharing ratio
c) Sacrificing ratio d) Equally
12. The balance of reserves and other accumulated profits at the time of
admission of a new partner are transferred to;
a) All partners in the new ratio
b) Old partners in the new ratio
c) Old partners in the old ratio
d) Old partners in the sacrificing ratio
13. Goodwill raised in books at the time of admission of partners will be
written off in:
a) Old profit sharing ratio b) New profit sharing ratio
c) Sacrificing ratio d) None of the above
14. Revaluation Account is debited for the
a) Increase in provision for doubtful debts
b) Increase in the value of building
c) Decrease in the amount of creditors
d) Transfer of loss on revaluation
15. A and B are partners sharing profits in the ratio of 3:1. C is admitted into
partnership for 1/4th share. The sacrificing ratio of A and B will be:
a) Equal b) 3:1 c) 2:1 d) 3:2
III. True or False type questions
1.Goodwill brought in cash by new partner is distributed among old partners in their Sacrificing
ratio.= True
2.In case of admission of a partner, profit or loss on revaluation is transferred to Old Partners’
Capital Accounts.=True

10
3.Accumulated profit is transferred to all partner’s capital accounts including new
partner.=False
4.The debit balance of Profit and Loss Account shown in the assets side of the Balance Sheet will
be debited to Old Partners Capital Accounts.=True
5.Increase in the value of an asset is credited to Revaluation Account=True
6.The traditional name of ‘Revolution A/c’ is ‘Profit and Loss Adjustment A/c’= True
7.Goodwill is an intangible asset.=True
8.Decrease in the value of liability is debited to Revaluation Account.=False
9.Sacrificing ratio is required to distribute the cash brought by new partner among old partners
for his share of goodwill.= True
10.Share sacrificed=Old share-New share.= True
IV. Very Short answer type questions:
1.What is partnership?
Ans: Partnership is the relation between two or more persons who join hands to set up a
business and share its Profits or Losses.
2.What do you mean by reconstitution of a Partnership Firm?
Ans: Reconstitution of a Partnership Firm means change in the existing agreement, relations
and composition of members.
3.State any one reason for admission of a new partner.
Ans: To increase the Capital
4.State any one right acquired by a newly admitted partner
Ans: Right to share the assets or profits of the partnership firm
5.Why the NPSR is required at the time of admission of a partner?
Ans: NPSR is required to share the future profits or losses.
6.What is Goodwill?
Ans: Goodwill is the monetary value of goodname, reputation and wide business connections.
7.State any one factor affecting the value of goodwill.
Ans: Nature of business
8.What is normal profit?
Ans: Normal profit means normal return on capital employed.
9.State any one method of valuation of goodwill.
Ans: Average profit method
10.Give the formula for sacrificing ratio
Ans: Sacrificing Ratio = Old Ratio - New Ratio
11.Which account is to be debited to record the increase in the value of assets?
Ans: Asset A/c.
12.What is Revaluation Account?
Ans: Revaluation A/c is an a/c prepared in connection with recording of increase or decrease
in value of assets and liabilities and to find out the P/L on revaluation.
13.Which account will be credited when there is a loss on revaluation?
Ans: Revaluation A/c
14.Which account will be debited when the cash is brought by a new partner for his share
of goodwill?
Ans: Cash/Bank A/c
15.What is hidden goodwill?
Ans: Hidden goodwill refers to the difference between total required capital and actual capital of
all partners.

11
 Section B: Two Marks Questions
1.When the goodwill is distributed among old partners in the sacrificing ratio?
Ans: When goodwill is brought in cash by new partner, it is distributed in sacrificing ratio
2.State any two methods of valuation of goodwill.
Ans: (i) Average profit method
(ii) Super Profit method
3. State any two rights acquired by a new partner.
Ans: a - Right to share the assets of the firm
b - Right to share profits of the firm
4. What do you mean by hidden goodwill?
Ans: Hidden goodwill refers to goodwill which value is not given at the time of admission but
has to be inferred from arrangement of capitals and profit sharing ratio
5.Pass the journal entry to write off the goodwill raised to the extent of full value.
Ans: All Partners’ Capital A/cs Dr xx—
To Goodwill A/c ---xx
( Being writing off of full value of goodwill)
6.State any two matters which need adjustments in the books of the firm at the time of
admission of a new partner.
Ans: (i) Revaluation of assets and liabilities
(ii) Valuation and adjustment of goodwill
7. What is sacrificing ratio?
Ans: Sacrificing ratio refers to the ratio in which the old partners agree to sacrifice their
share of profit in favour of the new partner.
8.Why the sacrifice ratio is calculated?
Ans: Sacrificing ratio is calculated in order to distribute the goodwill brought in cash by new
partner.
9.What is the need for the revaluation of assets and liabilities on the admission of a
partner?
Ans: The need for the revaluation of assets and liabilities is to ascertain true financial position
of the business.
10.State any two reasons for admitting a new partner.
Ans: (i) To increase the capital (ii) To improve the managerial ability
11. How do you close revaluation account when there is a profit?
Ans: If there is profit, revaluation a/c is closed by debiting revaluation a/c and crediting old
partners capital a/cs
12.State any two factors which determine the goodwill of the firm.
Ans: (i) Nature of the business (ii) Location of the business
13. What is average profit method of valuation of goodwill?
Ans: Average profit method is a method of valuating goodwill, where average profit is
multiplied with the agreed number of years purchase to ascertain goodwill.
14. Goodwill of the firm valued at two years purchase of the average profit of last four
years. The total profits for last four years are Rs.40, 000. Calculate the goodwill of the firm.
Ans: a- Average Profit - Total Profit /No of years
= 40,000/ 4
= Rs.10, 000
b- Goodwill = Average Profit x No of years purchase
= 10,000 x 2
= Rs.20,000

12
15. Pass the journal entry for increase in the value of building on the admission of a partner.
Ans: Building A/c Dr
To Revaluation A/c
(Being increase in the value of building)

16.Pass the journal entry for the decrease in the value of a liability.
Ans: Liability A/c Dr
To Revaluation A/c
(Being decrease in the value of liability)

CHAPTER-4--RETIREMENT/DEATH OF A PARTNER
(A) RETIREMENT OF A PARTNER
Section A: One Mark Questions
I. Fill in the blanks:
1.Old ratio is used to distribute accumulated profits and losses at the time of retirement of a
partner.
2.Profit or loss on revaluation is shared among the partners in Old ratio on retirement of a
partner.
3.New ratio –Old ratio= Gaining Ratio
4.Accumulated losses are transferred to the Capital Accounts of the partners at the time of
retirement in their Old ratio.
5.General reserve is to be transferred to All Partners’ Capital Accounts at the time of
retirement of a partner.
6.Goodwill raised to the extent of retiring partner’s share only is to be debited to continuing
partners capital accounts in Gaining ratio.
7.In the absence of any instruction, Retiring Partner’s Capital A/c is closed by transferring its
balance to Retiring Partner’s Loan A/c.
8.New ratio is used for adjustment of continuing partners’ capitals.
9.X, Y and Z are the partners sharing profits and losses in the ratio of 3:2:1. If Y retires, the
new ratio X and Z will be 3:1.
10.Share gained is calculated by deducting Old share from the New Share.
11.The ratio in which the remaining partners will share future profits after retirement is
called New ratio.
12.The balance in the retiring partner’s loan A/c is shown on the Liabilities side of the B/S
till the last installment is paid.
13.The amount paid to the Retiring Partner in excess of what is due to him is called Hidden
goodwill.
14.In the absence of any agreement as the disposal of amount due to Retiring Partner, Sec 37
of the Indian Partnership Act.1932 is applicable.
15.If goodwill already appears in the books, it will be written off by debiting All Partners’
Capital A/cs in their OPSR.
II.Multiple Choice Questions:(ANSWER IN BOLD LETTERS)
1.Abhishek,Rajat and Vivek are partners sharing profits in the ratio of 5:3:2. If Vivek
retires,the New Profit Sharing Ratio between Abhishek and Rajat will be
a) 3:2 b) 5:3 c) 5:2 d) None of the above
2. The old profit sharing ratio among Rajendra,Satish and Tejpal were 2:2:1.
The New Profit Sharing Ratio after Satish’s retierement is 3:2. The
gaining ratio is
a) 3:2 b) 2:1 c) 1:1 d) 2:2

13
 3. Anand, Bahadur and Chander are partners sharing profit equally. On
Chander’s retirement, his share is acquired by Anand and Bahadur in the
ratio of 3:2. The New Profit Sharing Ratio between Anand and Bahadur
will be:
a) 8:7 b) 4:5 c) 3:2 d) 2:3
4.In the absence of any information regarding the acquisition of share in the
profit of the retiring/decreased partner by the remaining partners, it is
assumed that they will acquire his/her share in
a) Old Profit Sharing Ratio b) New Profit Sharing Ratio
c) Equal Ratio d) None of the above
5. On retirement/death of a partner, the Retiring/Deceased Partner’s Capital
Account will be credited with
a) his/her share of goodwill. b) goodwill of the firm.
c) shares of goodwill of remaining partners d) none of the above.
6. Govind, Hari and Pratap are partners, On retirement of Govind,the
goodwill already appears in the Balance Sheet at Rs.24,000. The goodwill
will be written off by debiting
a) All Parnters’ Capital Accounts in their old profit sharing ratio.
b) Remaining Partners’ Capital Accounts in their new profit sharing ratio.
c) Retiring Partner’s Capital Accounts from his share of goodwill.
d) None of the above.
7. Chaman,Raman and Suman are partners sharing profits in the ratio of
5:3:2.Raman retires, the new profit sharing ratio between Chaman and
Suman will be 1:1. The goodwill of the firm is valued at Rs.1,00,000.
Raman’s share of goodwill will be adjusted by:
a) debiting Chaman’s Capital Account with Rs.15,000 each.
b) debiting Chaman’s Capital Account and Suman’s Capital Account
with Rs.21,429 and 8,571 respectively.
c) debiting only Suman’s Capital Account with Rs.30,000.
d) debiting Raman’s Capital Account with Rs.30,000.
8. On retirement/death of a partner, the remaining partner(s) who have
gained due to change in profit sharing ratio should compensate the:
a) retiring partners only.
b) remaining partners (who have sacrificed) as well as retiring partner.
c) remaining partners only (who have sacrificed).
d) none of the above.
III.True or False Type Questions:
1.Profit or loss on revaluation is transferred to All Parnters’ Capital Accounts in case of
retirement of partner. = True
2.Accumulated profit is transferred to Continuing Partners’ Capital Accounts. = False
3.Adjustment of partners’ capitals of the remaining partners is to be made in the New Ratio.=
True
4.New Share= Old share + share sacrificed.= False
5.Share gained is computed by deducting Old share from the New Share. = True
6.Increase in the value of asset is debited to Revaluation Account.= False
7.Gain ratio is used to adjust the goodwill raised to the extent of retiring partner share only.=
True
8.Full value of goodwill raised on retirement is credited to All Partners’ Capital Accounts
including retiring partner in their old ratio. = True

14
9.Sec 37 of the Indian Partnership Act, 1932 states that the outgoing partner has an option to
receive either interest @ 6% p.a till the date of payment or such share of profits which has been
earned with his money.= True
IV. Very Short Answer Questions:
1.What do you mean by retirement of a partner?
Ans: A partner is said to be retired from the firm, when his relation with the firm as a partner
comes to an end.
2.Give the formula for calculating Gain Ratio.
Ans: Gaining Ratio=New Ratio-Old Ratio.
3.Why the Gain Ratio is required on retirement of a partner?
Ans: Gaining Ratio is required to write off goodwill created only to the extent of retiring
partner’s share.
4.Why the New Ratio is required on retirement of a partner?
Ans: New Ratio is required to share future profits/losses between remaining partners.
5.Give the formula for calculation of new profit sharing ratio on retirement of a partner.
Ans: New Profit Sharing Ratio = Old share + Acquired share
6.What do you mean by Hidden Goodwill?
Ans: Hidden goodwill refers to the amount paid to retiring partner in excess of actual amount
due to him.
7.Portion gained=New Share.______
Ans: Portion gained =New Share-Old Share.
(B) DEATH OF A PARTNER
Section A: One Mark Questions
I.Fill in the blanks
1. Executors account is generally prepared at the time of Death of a partner.
2. Accounting treatment at the time of retirement and death is Similar.
3. The period from date of the last Balance sheet and the date of the partner’s death is called
Intervening period.
4. Profit & Loss Suspense A/c account is debited for the transfer of share of accrued profit of
a deceased partner.
5. Accrued profit is calculated on the bases of Previous Year’s profit/Average Profit/Sales.
6. Amount payable to the Executors of the deceased partner is transferred to Executors Loan A/c
II. Multiple Choice Questions(ANSWER IN BOLD LETTERS)
1.Accrued profit is ascertained on the following ways:
a ) Average Profit b) Previous year’s profit c) On sales d) All of the above.
2. Amount due to deceased partner is settled in the following manner
a) Immediate full payment b) Transferred to Loan Account
c) Partly paid in cash and the balance transferred to Loan A/c
d) All of the above.
3. Deceased partner’s share of profit in the accrued profit may be calculated
on the basis of:
a) Last years profit b) average profits of past few years
c) Sales d) All the above
4. Amount payable to the Executors of the deceased partner is transferred to:
a) Executors Loan Account b) Executors Account
c) Remaining Partners’ Capital A/cs d) None of the above.
5. Items to be considered while calculating the amount payable to the
deceased partner is
a) His share of capital b) His share in reserve
c) His share in accrued profit d) All the above.

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III. True or False type questions:
1.Deceased partner’s claim is transferred to his Executor’s Account.= True
2.Deceased partner’s share of profit for the intervening period may be calculated on the basis of
last year’s profit/average profit of past few years or on the basis of sales.= True
3.Deceased partner may be paid in one lump sum of installments with interest.=True
4.Retirement normally takes place at the end of an accounting period,where as death of a
partner may occur any time.= True
5.Amount payable to the Executors of the deceased partner is transferred to Executors Loan
Account.= True.
IV.Very short Answer Questions:
1. Who is an ‘Executor’?
Ans: Executor is the legal representative of a deceased partner in a partnership firm.
2. When do you prepare Executors Account?
Ans: Executors A/c is prepared at the time of death of a partner.
3.Which account is credited for the share of accrued profit of a deceased partner?
Ans: Deceased Partner’s Capital/Executors A/c.
4.What is intervening period?
Ans: The period from last balance sheet and the date of the partner’s death is the intervening
period.
5.How do you close the Executors Account?
Ans: Executors A/c is closed by transferring its balance to Executors Loan A/c.
BOOK-1---CHAPTER-5--DISSOLUTION OF PARTNERSHIP FIRM
Section B- Question for two marks:
1.What is Dissolution of Partnership?
Ans: Dissolution of Partnership means some of the partners terminate their connections with
the firm and remaining partners will continue the business of the firm.
2.Give the meaning of Dissolution of a Partnership Firm.
Ans: Dissolution of a Partnership Firm means dissolution of partnership between all the
partners of a firm. All the partners cut off their connections with the firm and the business of
the firm is closed down.
3.State any two circumstances under which a Partnership Firm is dissolved.
Ans: a- Consent of all partners b- Contract between partners
c- Expiry of fixed period d- Completion of venture (any two)
4. State any two differences between Dissolution of Partnership and Dissolution of Partnership
Firm
Ans: Differences between
Dissolution of Partnership Dissolution of Partnership Firm
a- Business is not closed a- Business is closed
b- Assets and Liabilities revalued b- Assets are sold and liabilities are paid off
5. What is Realization Account?
Ans: Realization A/c is an a/c which is prepared at the time of dissolution of a partnership
firm to ascertain the profit or loss on realization of assets and payment of liabilities.
6. Why is Realization Account prepared?
Ans: Realization A/c is prepared to close all the ledger a/cs and to make settlement of a/cs.
7. What is the accounting treatment for unrecorded Asset Realized on Dissolution of a Firm?
Ans: Unrecorded asset realized is debited to cash (bank) a/c and credited to realization a/c
8. What is the accounting treatment for unrecorded Liability paid on Dissolution of a Firm?
Ans: Unrecorded liability paid is debited to realization a/c and credited to cash(bank)a/cs.
9. How do you treat PBD on Dissolution of a firm?
Ans: P.B.D is closed by transferring it to credit side of realization a/c
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