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Home Questions JT2YP3JAA5
Target Exam

CUET

Subject

Accountancy

Chapter

Reconstitution of Partnership Firm: Retirement and Death

Question:

Match the following lists for the time of retirement or death of a partner.

LIST 1 LIST 2
A) Withdrawal of excess money  I) Liability A/c Dr.
        To Revaluation A/c
B) Brought additional money  II) Partners’ Capital A/c Dr.
             To Bank A/c 
C) Unrecorded liability  III) Revaluation A/c Dr.
          To Liability A/c
D) Liability decrease  IV) Bank A/c Dr.
            To Partners’ Capital A/c

 Choose the correct answer from the options given below.

Options:

A- II, B-IV, C- I, D-III

A- II, B-IV, C- III, D-I

A- IV, B-II, C- III, D-I

A- IV, B-II, C- I, D-III

Correct Answer:

A- II, B-IV, C- III, D-I

Explanation:

The correct answer is option 2- A- II, B-IV, C- III, D-I.

LIST 1 LIST 2
A) Withdrawal of excess money  II) Partners’ Capital A/c Dr.
             To Bank A/c
B) Brought additional money  IV) Bank A/c Dr.
            To Partners’ Capital A/c
C) Unrecorded liability  III) Revaluation A/c Dr.
          To Liability A/c
D) Liability decrease  I) Liability A/c Dr.
        To Revaluation A/c

* Withdrawal of excess money and Brought additional money- When there is a change in the capital contributions of the remaining partners at the time of retirement or death of a partner, the following journal entries are recorded to adjust the excess or deficiency of capital in the individual capital accounts:

(i) For excess capital withdrawn by the partner:
Partners’ Capital A/c Dr. (For the excess capital to be withdrawn)
             To Cash/Bank A/c (To record the cash or bank withdrawal)

(ii) For the amount of capital to be brought in by the partner:
Cash/Bank A/c Dr. (For the amount of capital to be contributed)
            To Partners’ Capital A/c (To record the increase in the partner's capital)

By making these adjustments, the individual capital accounts of the remaining partners are aligned with the new profit sharing ratio, ensuring a balanced and equitable distribution of capital among the partners in the reconstituted firm.

*Unrecorded liability- Revaluation account serves as a record of changes in the value of assets and liabilities. When there is an increase in the value of each asset or a decrease in liabilities, it is considered a gain and is credited to the revaluation account. Conversely, when there is a decrease in the value of assets or an increase in liabilities, it is considered a loss and is debited to the revaluation account. Additionally, any unrecorded assets are credited to the revaluation account, and unrecorded liabilities are debited to the revaluation account to ensure proper accounting. So, journal entry for this-
Revaluation A/c  Dr. 
        To Liability A/c

*Liability decrease - Revaluation account serves as a record of changes in the value of assets and liabilities. When there is an increase in the value of each asset or a decrease in liabilities, it is considered a gain and is credited to the revaluation account. Conversely, when there is a decrease in the value of assets or an increase in liabilities, it is considered a loss and is debited to the revaluation account. So, journal entry for this-
Liability A/c Dr. 
        To Revaluation A/c

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