Question

Balances of $R_1,R_2$ & $R_3$ sharing profits & losses in proportion to their capitals, stood as:
$R_1=Rs.3,00,000$
$R_2=Rs.2,00,000$
$R_3=Rs.1,00,000$
$R_1$ desired to retire from the firm and the remaining partners decided to carry on, joint life policy of the partners surrendered and cash obtained Rs. 60,000. What will be the treatment for Joint Life Policy A/c?

• A. $Rs.60,000$ credited to Revaluation A/c.
• B. $Rs.60,000$ credited to Joint Life Policy A/c.
• C. $Rs.30,000$ debited to Ram's Capital A/c.
• D. Either (A) or (B).

Answer 1

The correct option is B $Rs.60,000$ credited to Joint Life Policy A/c.

Readjustments takes place in case of retirement of a partner. Whenever the partner retires, the continuing partners makes gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of the retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation profit and reserve are transferred to capital or current accounts of partners. Lastly, final amount due to retiring partner is determined and discharged.

From the above provision, it can be concluded that At the the time of retirement of partner the surrender value of joint life policy is taken into account.

Therefore, in the given question Rs.60000 is credited to joint life policy A/c.