Lesson eLearning

Which statement correctly describes a buy‑out at market value in a partnership?

medium MCQ 1 mark Class 12 · Accountancy · Retirement or Death of a Partner
  1. The retiring partner receives the amount based on the current fair value of his capital, which may differ from the book value.
  2. The retiring partner is paid only his original capital contribution irrespective of profits or goodwill.
  3. The retiring partner’s share is calculated by adding a fixed premium of 10% to his book capital.
  4. The retiring partner gets the average of his book capital and the firm's total assets.
Answer
The retiring partner receives the amount based on the current fair value of his capital, which may differ from the book value.

Step-by-step solution

  1. Identify the definition of market value: it is the fair or current value of the partner’s interest, not the recorded book amount.
  2. Recognise that a market‑value buy‑out pays the retiring partner this fair value, which can be higher or lower than book value.
  3. Select the option that matches this definition.
Common mistake: Confusing market value with book value and assuming they are always the same.

Concept tested: Buy‑out at market value

Published · How this solution was prepared and checked

← All Retirement or Death of a Partner questions