Loan Settlement with Retiring Partner

Q.

Sukesh and Vanita were partners in a firm. Their partnership agreement provides that

(i) Profits would be shared by Sukesh and Vanita in the ratio of 3 : 2;

(ii) 5% interest is to be allowed on capital ;

(iii) Vanita should be paid a monthly salary of Rs 600.

The following balances are extracted from the books of the firm, on December 31, 2006.

$\begin{array}{ccc}\text{Items}& \text{Sukesh (Rs)}& \text{Vanita (Rs)}\\ \text{Capital Accounts}& 40,000& 40,000\\ \text{Current Accounts}& \text{(Cr)7, 200}& \text{(Cr)2, 800}\\ \text{Drawings}& 10,850& 8,150\end{array}$

Net Profit for the year, before charging interest on capital and after charging partner's salary was Rs 9, 500. Prepare the profit and loss appropriation account and the partner's current accounts.

Q.

Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of Rs 10, 000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2006 and 2007 are Rs 40, 000 and 60, 000 respectively. Prepare profit and loss appropriation account.

Q. Interest paid on the partner's loan is a/an for the business of partnership firm.

1. income
2. expense
3. assets
4. loss

Q.

A and B share the profits of a business in the ratio of 5:3. They admit C, a differently abled person, who is an MBA from Delhi University into the firm for 1/4th share in the profits to be contributed equally by A and B. On the date of admission of C, the Balance Sheet of the firm was as follows:

$\begin{array}{cccc}\text{Caapital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{A's Capital}& 40,000& \text{Machinery}& 30,000\\ \text{B's Capital}& 30,000& \text{Furniture}& 20,000\\ \text{Workmen's Compensation Reserve}& 4,000& \text{Stock}& 15,000\\ \text{Creditors}& 2,000& \text{Debtors}& 15,000\\ \text{Provident Fund}& 10,000& \text{Bank}& 6,000\\ & \underset{–}{\overline{86,000}}& & \underset{–}{\overline{86,000}}\end{array}$

Terms of C's admission were as follows:

(i) C will bring Rs 30, 000 for his share of capital and goodwill.

(ii) Goodwill of the firm has been valued at 3 year's purchase of the average super profits of last four years. Average profts of the last four years are Rs 20, 000 while the normal profits that can be earned with the capital employed are Rs 12, 000.

(iii) Furniture is undervalued by Rs 12, 000 and the value of stock is reduced to Rs 13, 000. Provident Fund be raised by Rs 1, 000. Unrecorded creditors found worth Rs. 6, 000.

Prepare Revaluation Account, Partner's Capital Accounts and the new Balance Sheet of A, B and C. Also, identify the values involved in the question.

Q.

The Receipts and Payments Account for the year ending 31st March, 2016 of the Netaji Subhash Club is as follows :

$\begin{array}{ccccc}\text{Receipts}& & \text{Rs}& \text{Payments}& \text{Rs}\\ \text{Cash Balance}& & 50,000& \text{Salaries}& 20,000\\ \text{Membership Subscriptions :}& & & \text{Rent}& 15,000\\ \text{2014-15}& 10,000& & \text{Printing and Stationery}& 8,000\\ \text{2015-16}& 1,00,000& & \text{Water and Power}& 15,000\\ \text{2016-17}& \underset{–}{5,000}& 1,15,000& \text{Newspapers and Periodicals}& 18,000\\ \text{Income from Entertainments}& & 2,000& \text{Furniture}& 50,000\\ \text{Interest}& & 1,500& \text{Repairs to Furniture}& 2,000\\ & & & \text{Refreshments}& 10,000\\ & & & \text{Closing Balance}& 30,500\\ & & \underset{–}{\overline{1,68,500}}& & \underset{–}{\overline{1,68,500}}\end{array}$

(a) The number of members of the club was 500 and the membership subscription was Rs 20 per month.

(b) The rent of the Club House was Rs 1, 500 per month.

(c) At and end of the year prepaid salary was Rs 2, 000.

(d) In 2014-15, Rs 50, 000 were deposited in Fixed Deposit Account for 3 years in a bank, carrying $6\%$ interest p.a.

(e) The other assets on 1st April, 2015 were as follows : Furniture Rs 80, 000 and Sports equipments Rs 40, 000.

(f) Depreciation is to be provided @ $10\%$ p.a. on Furniture and Sports equipments. Prepare Income and Expenditure Account for the year ending 31st March, 2016 and Balance Sheet as at that date.

Q.

Dogra Ltd. had an authorised capital of 1, 00, 00, 000 divided into equity shares of Rs 100 each. The company offered 84, 000 shares to the public at premium. The amount was payable as follows:

On Application Rs 30 per shares.

On Allotment Rs 40 per share (including premium).

On First and Final Call Rs 50 per share.

Applications were received for 80, 000 shares. All sums were duly received except the following : Lakhan, a holder of 200 shares did not pay allotment and call money. Paras, a holder of 400 shares did not pay call money.

The company forfeited the shares of Lakhan and Paras. Subsequently, the forfeited shares were re-issued for Rs 80 per share fully paid up. Show the entries for the transaction in the Cash Book and Journal of the company.

OR

Kaya Fab. Ltd. issued 1, 00, 000 equity shares of Rs 10 each payable as Rs 2 on application, Rs 4 on allotment and Rs 2 each on first and final call. Applications were received for 1, 50, 000 shares. Applicants of 50, 000 shares were sent letters of regret and application money was refunded.

Madhur, a holder of 3, 000 shares failed to pay allotment money which he paid along with the first call. Rohan, a shareholder holds 700 shares paid both the calls along with allotment. Sohan, a holder of 1, 000 shares did not pay the first call and the final call. His shares were forfeited. The forfeited shares were re-issued at Rs 11 per shares as fully paid up.

Pass necessary Journal entries for the above transactions in the Books of the Company.

Q.

What are some examples of long-term debt?

Q.

Explain the modes of payment to a retiring partner.

Q.

Om, Jai and Jagdish are partners sharing profit in the ratio of 3 : 2 : 1. Jai retires & total amount due to him is Rs 1, 00, 000. Assuming that he is paid 40% of the amount due immediately and the balance in three equal yearly installments. The interest payable is 12% p.a. What shall be the value of 1st installment?

1. Rs 27, 200

2. Rs 67, 200

3. Rs 72, 000

4. Rs. 7, 200

Q. Interest due on loan amount is credited to retiring partner'saccount.

1. capital
2. interest
3. loan
4. current

Q.

Ashwathi Ltd. issued 40, 00, 000, $10\%$ Debentures of Rs 50 each at a discount of $8\%$ on April 1, 2010, redeemable in four equal annual instalments starting with March 31, 2013. Securities premium account shows a balance of Rs 70, 00, 000. Compute the amount of discount/loss to be written off and also record the journal entries in the books of Ashwathi Ltd.

Q. When remaining partners can’t pay the entire amount immediately to outgoing partner, money in his capital account is transferred to his account.

1. assets
2. expenses
3. loan
4. capital

Q. If the Partnership Deed does not specify the rate of interest payable on loan by a partner, at what rate will the interest be paid? If not, why?

Q.

When some amount is paid in cash & balance is agreed to be paid in installments, then the balance is transferred to ………….

1. Retiring partner`s account

2. Retiring partner`s loan account

3. Cash/ bank account

4. None of these

Q. From the following particulars Bharat Gas Limited, calculate cash flows from investing activities. Also show the workings clearly preparing the ledger accounts.

Balance Sheet of Bharat Gas Limited.
as on…………….
$\begin{array}{cccccc}\text{Capital and Liabilities}& 2010\text{(Rs.)}& 2011\text{(Rs.)}& \text{Assets}& 2010\text{(Rs.)}& 2011\text{(Rs.)}\\ & & & \text{Goodwill}& 1,00,000& 3,00,000\\ & & & \text{Patents}& 2,80,000& 1,60,000\\ & & & \text{Machinery}& 10,20,000& 12,40,000\\ & & & \text{10}\%\text{Long Term Investment}& 60,000& 1,60,000\\ & & & \text{Investment in Land}& 1,00,000& 1,00,000\\ & & & \text{Shares of Amartax Ltd.}& 1,00,000& 1,00,000\end{array}$

Additional Information:
(a) Patents were written-off to the extent of Rs. 40, 000 and some patents were sold at a profit of Rs. 20, 000.
(b) A machine costing Rs. 1, 40, 000 (depreciation provided thereon Rs. 60, 000) was sold for Rs. 50, 000. Depreciations charged during the year was Rs 1, 40, 000.
(c) On March 31, 2007, $10\%$ investments were purchased for Rs. 1, 80, 000 and some investments were sold at a profit of Rs. 20, 000. Interest on investment was received on March 31, 2011.
(d) Amartax Ltd paid dividend @ $10\%$ on its shares.
(e) A plot of land had been purchased for investment purposes and let out for commercial use and rent received Rs. 30, 000.

Q. When a firm is not in position to pay sufficient amount to the executor of the deceased partner, it can pay the amount in/ by __________.

1. Lump sum
2. Installment
3. Annuity
4. None of the above

Q.

Interest due on loan amount is credited to ___

1. None of the above

2. Cash/ bank account

3. Retiring partner`s loan account

4. Retiring partner`s account

Q. Interest on drawing is ________ for the business.

1. expenses
2. gain
3. neither expenses nor gain
4. expense or gain depending on the situation

Q. In case of retirement of a partner, the partner's loan account would be shown ________.

1. in his wife's loan account
2. in his capital account
3. in his loan account
4. in the total amount due to him

Q. 'Interest earned but not received' should be classified as _____________.

1. Accrued asset
2. Accrued liability
3. Prepaid expense
4. Unearned revenue

Q. If the Partnership Deed does not specify the rate of interest payable on capital, is the interest still payable? If yes, at what rate? If not, why?

Q.

Q. If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall be entitled to get an interest on the amount at the rate of _____ percent per annum.

1. 5
2. 3
3. 4
4. 6

Q. When the interest on loan/advance is allowed to partners _________.

1. capital account is credited
2. current account is credited
3. loan account is credited
4. loan account is debited

Q. Interest on capital will be paid to the partners if provided for in the agreement but only from following _______________.

1. Profits
2. Reserves
3. Goodwill
4. Accumulated Profits

Q. In the absence of any agreement interest on advances by a partner is __________.

1. allowed at 6 per cent p.a.
2. not allowed at all
3. allowed at time market rate of interest
4. allowed at 7 per cent p.a.
5. allowed at Bank Rate

Q. If the firm has sufficient cash to pay off the amount due to the deceased partner, it can pay the amount immediately, this is known as ___________.

1. Lump sum payment method
2. Instalment payment method
3. None of these
4. Annuity method

Q. Write True or False

Renewal is a request by drawee to extend the credit period of the bill.

Q. Objective Questions :
Answer in one Sentence :

How much amount due to the deceased partner is calculated?