What is the need for treatement of goodwill on the death of a partner ?

1

(a)

Since the deceased partner will not be sharing profits, therefore, goodwill is given to compensate him for the same.

State any two deductions that may have to be made from the amount payable to the legal representative of a deceased partner.

1

(a)

(i) Share of accumulated losses
(ii) Drawings upto death etc.

Name the account which is opened to credit the share of profit of the deceased partner, till the time of his death to his Capital account.

1

(a)

Profit and Loss Suspense Account.

At what rate is interest payable on the amount remaining unpaid to the executor of deceased partner ?

1

(a)

In the absence of an agreement regarding interest on loan the executor of deceased partner is at liberty to receive either interest @ 6% p.a. on amount unpaid till the date of payment or a share of the profit which has been earned by using the amount due to him (section 37 of partnership Act,1932).

Why heirs of a retiring/deceased partner are entitled to a share of goodwill of the firm ?

1

(a)

The retiring partner/heirs of deceased partner are entitled to his share of goodwill because the goodwill earned by the firm is result of efforts of all the existing partners in the past. As they will not be sharing future profits, it will be fair to compensate them for the same.

Why does a firm revaluate its assets and reassess its liabilities on retirement or death of a partner ?

1

(a)

Assets and liabilities are revalued at the time of retirement/death of a partner so that the retiring/deceased partner is not at an advantage/disadvantage because of change in the value of assets and liabilities.

A,T and R were partners in a firm sharing profits in the ratio of 5:6:7 respectively. State the ratio in which the goodwill of the firm amounting to Rs.16,00,000 will be adjusted in the capital accounts of A and T in case of R's death.

1

(a)

R's share of goodwill will adjusted to A and T in their gain ratio 5:6.

Kumar,Verma and Naresh were partners in a firm sharing profit and loss in the ratio of 3:2:2. On 23rd January, 2015, Verma died. Verma's share of profit till the date of his death was calculated Rs.2,350.

Pass necessary journal entry for the same in the books of the firm.

1

(a)

Dr. Profit and Loss suspense A/c, Cr. Verma's capital A/c by RS.2,350.