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Accounting for Partnership: Basic Concepts Test 59

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Accounting for Partnership: Basic Concepts Test 59
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  • Question 1
    1 / -0
    A, B, and C are partners sharing profits in the ratio of $$ 5:3:2.$$ They decide to share the future profits in the ratio of 2:3:5 with effect from $$1st$$ April, 2018. What will be accounting treatment of Workmen Compensation Reserve appearing in the Balance Sheet on that date when no information is available for the same?

    Solution
    One of the popular form of business now a days is partnership firms. Its defined as the"relation between two or more person who have agreed to share the profits of a business carried on by them."  Here the question is about the treatment of workmen compensation reserve appearing in the balance sheet. 

    As there is a change in the constitution of partnership, the workmen compensation reserve that is appearing in the balance sheet should be distributed among the partners in their old profit sharing ratio. As no more information is available regarding the reserve and there is a change in the constitution of the firm by way of change in profit sharing ratio, so the reserve which relates to balance sheet before change in profit ratio should be distributed in the old ratio among the partners.

    Whenever the question is silent on the treatment of workmen compensation reserve and no further information is available it is advisable to distribute it in old profit sharing ratio among the partners. So, the whole amount appearing in the balance sheet should be distributed
  • Question 2
    1 / -0
    X, Y and Z are partners sharing profits in the ratio of $$ 5:3:2.$$ They decide to share future profits in the ratio of $$2:3:5$$ with effect from $$1^{st}$$ April, $$2018$$ . They also decide to record the effect of following revaluation without affecting the book values of assets and liabilities, by passing single adjusting entry :
    Book Value (Rs.)Revised Value (Rs.)
    Land and Building 3,00,0004,50,000
    Plant and Machinery4,50,0004,20,000
    Trade Creditors1,50,0001,35,000
    Outstanding Rent 1,35,0001,80,000
    The necessary single adjustment entry will be:
    Solution
    To get the adjustment entry done, first need to find out the profit /loss on revaluation. Since books of account are not to be affected due to revaluation, hence an adjustment entry need to be passed:

    Revaluation difference can be calculated as: 

    Particulars                          Book Value         Revised Value        Gain/Loss

    Land & Building                 300000                450000                  150000
    Plant & Machinery             450000                420000                  - 30000
    Trade Creditors                  150000                 135000                     15000
    Outstanding Rent               135000                 180000                   -45000
                                                                                                           ------------------
       Net Gain on Revaluation                                                              90000
                                                                                                           -------------------

    Share on revaluation:                   X                       Y                        Z
    As per old Ratio                      45000                27000               18000
    As per New Ratio                    18000                27000               45000
                                                   --------------           --------------           --------------
    Sacrifice/Gain                         27000                 NIL                   -27000
                                                    -------------           ---------------         ---------------
    Hence below adjustment entry will be passed:

    Z's A/c                                      Dr. 27000
            To X's A/c                                                  27000
  • Question 3
    1 / -0
    Amit and Vijay started a partnership business on 1st April 2017. Their capital contributions were Rs. 2,00,000 and Rs. 1,50,000 respectively. The Partnership Deed provided that:
    (a) Interest on capital be allowed @ 10% p.a.
    (b) Amit to get a salary of 2,000 per month and Vijay 3,000 per month.
    (c) Profits are to be shared in the ratio of 3 : 2.
    Profit for the year ended 31st March 2018 before above appropriations was Rs. 2,16,000. Interest on drawings amounted to Rs. 2,200 for Amit and Rs. 2,500 for Vijay. Which account is prepared to give effect to the above transaction ?
    Solution
    In the given question, both the profit and Loss Appropriation Account and partners capital account needs to be prepared. The adjustments like interest, salary are appropriation of profits, so they need to be reflected through Profit and Loss appropriation account.
    For deriving the partner's capital balances for the year 31st March 2018,partner's capital account needs to be prepared incorporating the adjustments.
  • Question 4
    1 / -0
    Indian Partnership Act was passed in the year _________.
  • Question 5
    1 / -0
    Cost of abnormal wastage is _________________.
  • Question 6
    1 / -0
    Partnership may come into existence by ________________.
  • Question 7
    1 / -0
    The interest on partner's capital accounts is to be credited to_________. 
  • Question 8
    1 / -0
    Furniture of the book value of Rs.1,500 was sold for Rs.600 and new fixture of Rs.1,000 was purchased and cartage of Rs.25 paid.What is the amount of capital expenditure?
    Solution
    Capital expenditure - An amount spent to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) in order to increase the capacity or efficiency of a company for more than one accounting period. Also called capital spending. for e.g., purchase of furiture and fixture, building/ plant and machinery etc. Cartage is also included in capital expenditure.
    Cartage - Charge for transporting goods for short distances, such as within a commercial area or town. Also called drayage or haulage.
    The amount of capital expenditure in the given question is -
    Purchase of new fixture                            Rs. 1000
    Add : Cartage paid                                    Rs. 25
                                                                      _________
            Total                                                     Rs. 1025

  • Question 9
    1 / -0
    If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall be entitled to get an interest on the amount at the rate of _____ percent per annum.
    Solution
    Partnership comes into existence as a result of agreement among the partners. The partnership act does not require that the agreement must be in writing. There are various provisions affecting partnership accounts. Interest on Advances is one of the provisions affecting partnership accounts. If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall be entitled to get an interest on the amount at the rate of 6 % per annum.
  • Question 10
    1 / -0
    The capital in a business on Jan. 1 and Jan 31 is Rs. 17,000 and Rs. 17,200 respectively. Investment by owner and withdrawal by owner during Jan. Amount to Rs. 1000 and Rs. 700 respectively. What is the net income for January?
    Solution
    When accounting is not on full system of accounting i,e. double entry system, profit/loss can be identified by comparing the opening capital and closing capital. This can be represented as:

    Opening Capital+Investment by owner+profits of the year-drawings=closing capital.
    By putting the given information:

    Rs.17000+Rs.1000+Profit-Rs.700=Rs.17200
    Rs.18000-Rs.700+Profit=Rs.17200
    Rs.17300+Profit=Rs.17200
    Profit/Loss=Rs.17200-Rs.17300
    Loss of Rs.100
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