Accounting for Partnership: Basic Concepts Test 5

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Accounting for Partnership: Basic Concepts Test 5

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SHARING IS CARING

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Weekly Quiz Competition

Question 1
1 / -0

Partners current accounts are opened when their capital accounts are ___________ .

A
Fixed

B
Fluctuating

C
Semi permanent

D
None of these

Solution

There are two types of methods to account for partners' capitals in case of partnership, viz, Fixed Capital and Fluctuating Capital.
In case of fixed capital method, current accounts are opened to record for all adjustments like salary, commission, interest on capital, loans and drawings etc.
Partners' capital account shows a fixed balance year after year. In cases of the introduction of further capital and withdrawal of capital, the fixed capital accounts are altered.
Question 2
1 / -0

_____________________ undergoes Revaluation and Reassessment during Reconstruction of Firm.

A
Assets and Liabilities

B
Capital of partners

C
Expenses and Losses

D
None of above

Solution

During reconstruction assets and liabilities are reconsidered for reassessment and revaluation to make all accounts to present costs, resulting over or undervaluation of Assets and liabilities. The resulting profit or loss on revaluation is settled between old partners in old ratio.
Question 3
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Consider the following statements :
1.Sharing profits is a conclusive evidence of a partnership.
2.A partner of a partnership firm is treated as an agent of the other partners.
3.A third party cannot file a suit against as unregistered firm or its partners.
Which of the above statement/s is/are true?

A
Only 1

B
Only 3

C
1,2 and 3

D
2 and 3

Solution

1.The sharing of profit is a prima facie and a strong evidence of partnership, but it is not a conclusive proof. Therefore, if a person shares profits with another, it does not necessarily mean that he is a partner.

2.A partnership is a relationship between partners who agree to share the profits of the business. The business can be carried on by all of them or any of them acting for all. This definition suggests that a partner can be an agent of the others.

3.An unregistered firm cannot sue any third party for the enforcement of any right arising from contract.
Question 4
1 / -0

a) From legal point of view, a joint stock company is recognised as separate legal entity from the shareholders.
b) Partnership firms and sole trading businesses do not have legal entity, but they have business entity for accounting purposes.
Of these

A
Both (a) and (b) are true

B
Both (a) is true, (b) is false

C
(a) is false, but (b) is true

D
Both (a) and (b) are false

Solution

A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that individuals possess: they can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. Some refer to it as a "legal person."
A Partnership firm has no separate legal existence of its own i.e., the Partnership firm and the partners are one and the same in the eyes of law.
The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity.
Question 5
1 / -0

Interest on drawings is _________.

A
Expenditure for the business

B
Expense for the business

C
Gain for the business

D
Loss for the business

Solution

Business entity concept defines that firm and its owners are having separate legal entity.
Hence, capital is shown as liability and interest charged on capital is considered as expenses.
Opposite to this, interest charged on drawing is to be debited to capital account and its a gain for the business.
Question 6
1 / -0

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

A
Are entitled for 6% interest on loans to the firm, only when there is profit

B
Are entitled for 6% interest on loans to the firm, whether there is profit or not

C
Are not entitled for any interest on loans to the firm

D
Are entitled for 9% interest on loans, only when there are profits

Solution

As per the Partnership Act, 1932, the rule which is applicable with respect to interest on loan by partner, in the absence of an agreement, is that 'if a partner has given a loan to the firm besides his share of capital, he will be allowed 6% interest on such loan.'
Question 7
1 / -0

Nature of Revaluation Account is ___________.

A
Real

B
Personal

C
Nominal

D
None

Solution

The term revaluation is simply means "to determine the value of assets and liabilities again". Revaluation account is prepared either at the time of retirement of a partner or admitting a partner. All the assets and liabilities are revalued and the differential amount is to be debited or credited in Revaluation Account.
Revaluation Account is Nominal In nature. If the liabilities increases and assets are decreasing, the difference amount to be debited to revaluation account as it is a loss for the firm.
If there is an Increase in Assets and Decrease in the value of Liabilities, the differential amount to be credited to revaluation account as it is a Profit for the firm.
Question 8
1 / -0

A partner can be added to share ___________.

A
Only Profits

B
Only Losses

C
Both

D
None

Solution

As per Indian Partnership Act 1932, a new partner, when admitted, enjoys the following rights:
1) right to share profit and losses
2) right to share assets, for which he brings agreed amount of capital.
However, a 'partner for profits only' can be added by a firm but he/she does not have the right to participate in the management of the firm.
Question 9
1 / -0

The balance of joint life policy account of partners represents ____________________.

A
Total premium paid up to the date or balance

B
Annual instalment of premium payable each year

C
Surrender value of the policy

D
Amount receivable on the maturity of the policy

Solution

Joint Life Policy (JLP) is a policy which is decided by the partners of the firm on the joint lives of other partners. The purpose of the joint life policy is to reduce the financial burden on the firm at the time of payment of a large sum to the legal representative of the deceased partner. The insurer receives the payout when after the death of his insure partner.
Question 10
1 / -0

The amount received from the insurance company on joint life policy of partners in excess of its surrender value should be credited to partners ________________.

A
Equally

B
In the profit sharing ratio

C
In the ratio of capitals

D
None of the above

Solution

When the amount received in excess of the surrender value, it results in gain and is transferred to Capital accounts of the partners in their profit sharing ratio and the policy reserve is credited to partners' capital A/c.

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Re-Attempt Weekly Quiz Competition

Accounting for Partnership: Basic Concepts Test 5

Result

Accounting for Partnership: Basic Concepts Test 5

Score

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Rank

-

SHARING IS CARING

Question 1

Fixed

Fluctuating

Semi permanent

None of these

Solution

Question 2

Assets and Liabilities

Capital of partners

Expenses and Losses

None of above

Solution

Question 3

Only 1

Only 3

1,2 and 3

2 and 3

Solution

Question 4

Both (a) and (b) are true

Both (a) is true, (b) is false

(a) is false, but (b) is true

Both (a) and (b) are false

Solution

Question 5

Expenditure for the business

Expense for the business

Gain for the business

Loss for the business

Solution

Question 6

Are entitled for 6% interest on loans to the firm, only when there is profit

Are entitled for 6% interest on loans to the firm, whether there is profit or not

Are not entitled for any interest on loans to the firm

Are entitled for 9% interest on loans, only when there are profits

Solution

Question 7

Real

Personal

Nominal

None

Solution

Question 8

Only Profits

Only Losses

Both

None

Solution

Question 9

Total premium paid up to the date or balance

Annual instalment of premium payable each year

Surrender value of the policy

Amount receivable on the maturity of the policy

Solution

Question 10

Equally

In the profit sharing ratio

In the ratio of capitals

None of the above

Solution

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