Question

Objective Question:
A) Answer in One Sentence:

1. What is gain ratio or benefit ratio?

2. How is gain ratio calculated?

3. When is gain ratio required to be calculated?

4. How would you treat general reserve on death of a partner?

5. How much amount due to deceased partner is calculated?
How is amount due to deceased partner settled?

7. How is the share of deceased partner in accrued profit calculated?

8.How is a debit balance of profit & loss account dealt with on death of a partner?
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Answer 1

1. Ratio by which remaining partners are benefited on retirement of any partner is known as Gain ratio or benefit ratio.
2. Gaining ratio is calculated at the time of retirement or death of a partner. It is the ratio in which the remaining partners acquire the outgoing partner's share of profit. When the partner retires, the profit sharing ratio of the continuing partners gets changed.
3. Gain ratio is required to be calculated in case of retirement of partner, when goodwill is raised equal to share of retiring partner and written off.
4. The amount of general reserve is transferred to the capital accounts of all the partners in their profit sharing ratio. This is done to give the deceased partner's nominee the required amount of share in profits of the firm. So, All Partners' Capital Accounts are credited with their respective shares.
5. The heir of the deceased partner is entitled to receive the amount standing to the credit of Deceased Partner's Capital Account, his share in goodwill, share in profits, revaluation of assets and liabilities, interest on capital etc.
6. The deceased partner's share in profit up to the date of his death will be credited to his capital account, as the amount is required to be paid to him. Thereafter, this amount is transferred to his Executors' Loan Account.
7. Share of Deceased Partner's Profit = Previous Year's Profit Previous Year's Sales Previous Year's Profit Previous Year's Sales x Sales from the beginning of the current year up to the date of death x Share of deceased partner.
8. Debit balance of Profit & Loss Account represents accumulated losses. So, it is transferred to the debit side of All Partners' Capital Accounts in their old profit sharing ratio.

Answer 2

(i). Reserves or Undistributed profits

(ii). Goodwill

(iii). Profit on Revaluation of assets and liabilities.

(iv). Any loan is given by the partner

(v). The share of Joint Life Policy

(v). Share in subsequent Profits

(vi). Interest on Capital

However, we need to debit the following amounts:

(i). Drawings by the deceased partner

(ii). Interest on Drawings

(iii). Loss of Revaluation of assets and liabilities.

(iv). Share in subsequent Losses.



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