Death of a Partner: Capital Account & Executor Settlement: 21 flashcards
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1. What is the final balancing figure in a deceased partner's capital account called?
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The amount payable to the Executor's Account.
2. In which ratio is the net revaluation gain or loss shared at the time of a partner's death?
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In the old profit-sharing ratio.
3. How is the deceased partner's share of goodwill treated in the capital account?
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It is credited to the deceased partner's capital account.
4. State the formula for profit up to the date of death.
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Base Profit × (Months up to death ÷ 12) × Deceased Partner's Profit Share.
5. What is the time fraction if a partner dies 3 months after the last balance sheet date?
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3/12, i.e., one quarter of the year.
6. How is interest on capital calculated for a deceased partner?
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Opening Capital × Rate × (Months up to death ÷ 12).
7. What happens to the deceased partner's salary due up to death?
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It is credited to his capital account.
8. How are drawings made by the deceased partner up to death treated?
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They are deducted from his capital account.
9. Which account is prepared to record revaluation adjustments at the time of death?
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Profit and Loss Adjustment Account.
10. What does 'three years' purchases' mean in goodwill valuation?
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Goodwill = 3 × Average Profit.
11. Is goodwill raised at the time of death shown as an asset in the new balance sheet?
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No, it is adjusted through the partners' capital accounts only.
12. In Q1, what is Narendra's share of goodwill if firm's goodwill is ₹90,000 and his share is 2/10?
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₹18,000.
13. In Q1, what is Narendra's share of profit up to death if last year's profit is ₹40,000 and he died after 3 months?
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₹2,000.
14. In Q2, what is Leena's share of goodwill if firm's goodwill is ₹90,000 and her share is 1/4?
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₹22,500.
15. In Q3, if average profit is ₹90,000 and death occurs after 3 months, what is the profit for that period?
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₹22,500.
16. What is the effect of a net revaluation loss on the deceased partner's capital account?
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It is debited in the old ratio.
17. What is the effect of a net revaluation gain on the deceased partner's capital account?
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It is credited in the old ratio.
18. Name two methods of valuing goodwill mentioned in the topic.
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Purchases of average profit and times of average profit.
19. What is the common error students make about the profit-sharing ratio at death?
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Using the new ratio instead of the old ratio.
20. What is the common error regarding drawings at the time of death?
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Deducting drawings for the full year instead of only up to the death date.
21. How is the executor's account shown in the new balance sheet?
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As a liability on the liabilities side.
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