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Providing Interest on Capital

The amount re...

Question

The amount received by a partnership firm from the insurance company on the maturity of a Joint Life Policy taken by the firm will be distributed amongst the partner ___________.

A

equally

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B

in the profit sharing ratio

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C

in the ratio of capital balances at the beginning of the year

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D

in the ration of capital balances at the end of the accounting year.

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Solution

The correct option is B in the profit sharing ratio
Option B is the correct answer.

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Q. The amount received from insurance company on the maturity of joint life policy is distributed amongst the partners ___________.

Q. At the time of retirement of a partner, firm gets _________ from the insurance company against the Joint Life Policy taken by the firm.

Q. Select the most appropriate answer from the alternatives given below :

An amount received from the Insurance Company against the joint life policy is __________.
a) debited to deceased partner
b) credited to deceased partner
c) credited to continuing partners capital A/c
d) credited to all partners capital A/c in their profit sharing ratio.

Q. A, B and C were partners sharing profit and losses in the ratio of 3 :2 :1. A retired and firm received the joint life policy Rs. 12,000. The Joint Life Policy Account appearing in the balance sheet at Rs. 20,000. What will be the treatment for the balance in Joint Life Policy i.e., Rs.8,000.

Q. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They decide to admit C as a new partner w.e.f. 1st April, 2019. In future, profits will be shared equally. The Balance Sheet of A and B as at 1st April, 2019 and the terms of admission are:


BALANCE SHEET OF A AND B
Liabilities		Amount (₹)	Assets		Amount (₹)
Sundry Creditors		60,000	Cash in Bank		40,000
Outstanding Expenses		15,000	Sundry Debtors		36,000
Capital A/cs:			Stock		84,000
A	3,00,000		Furniture and Fittings		65,000
B	3,00,000	6,00,000	Plant and Machinery		4,50,000
		6,75,000			6,75,000

(a) Capital of the firm is fixed at ₹ 6,00,000 to be contributed by partners in the profit-sharing ratio. The difference will be adjusted in cash.
(b) C to bring in his share of capital and goodwill in cash. Goodwill of the firm is to be valued on the basis of two years' purchases of super profit. The average net profits expected in the future by the firm ₹ 90,000 per year. The normal rate of return on capital in similar business is 10%.
(c) The partners agreed to help maintain the plants and keep the area clean.
Calculate goodwill and prepare Partners' Capital Accounts and Bank Account.

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