Accounting for Partnership: Basic Concepts Test 43

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Accounting for Partnership: Basic Concepts Test 43

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Weekly Quiz Competition

Question 1
1 / -0

Joint life policy amount received from insurance company in excess of its surrender value is credited to the capital account of the partners.

A
In profit-sharing ratio

B
Equally

C
In capital ratio

D
All of these

Solution

The firm pays the premium on the Joint Life Policy. The Insurance Company pays the amount of the Joint Life Policy on the maturity of the policy or the death of a partner, whichever is earlier. The surrender value at the time of the death of a partner is distributed among the remaining partners and the legal representative of the deceased partner.
Question 2
1 / -0

In the absence of a Partnership deed or agreement, a partner is entitled to interest on loans or advances__________.

A
@ $$6$$% p.a.

B
@ $$9$$% p.a.

C
at the bank rate

D
@ $$12$$% p.a.
Question 3
1 / -0

Where a partner is entitled to interest on capital contributed by him, such interest will be payable:

A
Only out of profits

B
Only out of capital

C
Either (a) or (b)

D
None of these
Question 4
1 / -0

In the absence of an agreement to the contrary, the partners are_________.

A
entitled to $$6$$% interest on their capitals, only when there are profits

B
entitled to $$9$$% interest on their capitals, only when there are profits

C
entitled to interest on capital at the bank rate, only when there are profits

D
not entitled to any interest on their capitals

Solution

Capital is contributed by the partner when starting the business based on which the profit sharing ratio may be decided.
However, in absence of any agreement, partners are not entitled to interest on capital.
And if the agreement allows, there is a limit on the interest on capital as per the Act.
Question 5
1 / -0

If a firm prefers Partners Capital A/c be shown at the amount introduced by the partners capital in firm then entries for salary, interest, drawings, interest on capital and drawings and profits are made in ____________.

A
Trading A/c

B
Profit & Loss A/c

C
Balance Sheet

D
Partners Current A/c

Solution

If partner's capitals are fixed, then all entries relating to salary, interest on drawings, interest on capital and drawings and profits are to be recorded in partner's current account.
Question 6
1 / -0

Interest on drawing is ________ for the business.

A
expenses

B
gain

C
neither expenses nor gain

D
expense or gain depending on the situation

Solution

When a partner withdraws cash from the firm for domestic use, the withdrawal of cash is termed as drawings. If the partnership deed has a provision of charging interest on drawings, the firm may charge interest on drawings from partners. Interest on drawing is a gain for the firm. It is calculated at the agreed rate. The amount of interest on drawings will be credited to Profit and Loss Appropriation Account and will be debited to partner’s capital account/current account (individually).
Question 7
1 / -0

Retiring or outgoing partner _________.

A
is liable for firm's liabilities

B
not liable for any liabilities of the firm

C
is liable for obligations incurred before his retirement

D
is liable for obligations incurred before and after his retirement

Solution

A retired partner continues to be liable to the third party for acts of the firm till such time that he or other members of the firm give a public notice of his retirement. If the third party deals with the firm without knowing that he was a partner in the firm, then he will not be liable to the third party.
The retired partner, however, continues to be liable for acts of the firm done before such retirement of a partner. This liability holds good unless there is an agreement between him, the concerned third party, and partners of the reconstituted firm. Such an agreement can also be implied by the course of dealings between the third party and the reconstituted firm post announcement of the retirement of a partner.
Question 8
1 / -0

Persons who have entered into partnership with one another are collectively a called as ___________.

A
Firm

B
Firm name

C
Partnership

D
Partner

Solution

Partnership of one and two persons collectively is called as firm.
Question 9
1 / -0

Before a partner retires, reserves created out of profits or balances in profit and loss account must be transferred to the capital accounts of all the partners in ________.

A
new profit sharing ratio

B
old profit sharing ratio

C
sacrificing ratio

D
gain ratio

Solution

Any reserves or undistributed profits appearing on the liability side of the balance sheet, at the time of retirement, are past profits, which are created to financial position of the firm the retiring partner has a right over such profits.
Therefore, it is necessary to divide the accumulated reserve or undistributed profit among all the partners in their old profit or loss sharing ratio. When the distribution is over, they do not appear in the balance sheet.
Question 10
1 / -0

Joint Life Policy is taken by the firm on the life(s) of ________.

A
All the partners jointly

B
All the partners severely

C
On the life of all the partners and employees of the firm

D
Both (A) and (B)

Solution

A Joint Life Policy is an insurance policy which is taken out by the partnership firm on the joint lives of all the partners. The amount of policy is payable by the insurance company either on the death or on maturity of policy, whichever is earlier as all the partner severely.

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Accounting for Partnership: Basic Concepts Test 43

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Accounting for Partnership: Basic Concepts Test 43

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SHARING IS CARING

Question 1

In profit-sharing ratio

Equally

In capital ratio

All of these

Solution

Question 2

@ $$6$$% p.a.

@ $$9$$% p.a.

at the bank rate

@ $$12$$% p.a.

Question 3

Only out of profits

Only out of capital

Either (a) or (b)

None of these

Question 4

entitled to $$6$$% interest on their capitals, only when there are profits

entitled to $$9$$% interest on their capitals, only when there are profits

entitled to interest on capital at the bank rate, only when there are profits

not entitled to any interest on their capitals

Solution

Question 5

Trading A/c

Profit & Loss A/c

Balance Sheet

Partners Current A/c

Solution

Question 6

expenses

gain

neither expenses nor gain

expense or gain depending on the situation

Solution

Question 7

is liable for firm's liabilities

not liable for any liabilities of the firm

is liable for obligations incurred before his retirement

is liable for obligations incurred before and after his retirement

Solution

Question 8

Firm

Firm name

Partnership

Partner

Solution

Question 9

new profit sharing ratio

old profit sharing ratio

sacrificing ratio

gain ratio

Solution

Question 10

All the partners jointly

All the partners severely

On the life of all the partners and employees of the firm

Both (A) and (B)

Solution

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