Accounting for Partnership: Basic Concepts Test 6

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Accounting for Partnership: Basic Concepts Test 6

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SHARING IS CARING

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Weekly Quiz Competition

Question 1
1 / -0

When capitals are fixed, the loss arising out of insolvency of a partner will be borne by other solvent partners in the ____________________.

A
Ratio of their fixed capital

B
Ratio of fixed capital plus current accounts

C
Profit sharing ratio

D
Ratio of their capital after making necessary adjustments

Solution

If, at the time of dissolution, a partner owes a sum of money to the firm, he has to pay it to the firm. But if he is insolvent, he will not be able to do so, at least lot fully. The sum which is irrecoverable from an insolvent partner is, therefore, a loss. The question arises whether this loss is an ordinary loss to be shared by the solvent partners in the profit sharing ratio or whether it is an extraordinary loss. Before the decision in Garner vs. Murray was made, such a loss was treated as an ordinary loss.
Question 2
1 / -0

Which of the following is correct statement ?

A
A firm may not acquire a joint life policy on the life of the partners

B
Retirement of a partner results in reconstitution of the firm

C
For past profit or reserves, the amount is not credited to all the partners in the old profit sharing ratio

D
The amount of general reserve is transferred to partners capital accounts in capital ratio

Solution

The retiring partner is paid his share of capital, goodwill and revaluation profit or loss.
This is a reconstitution of the firm where the number of partners and their profit sharing ratio both have changed.
Question 3
1 / -0

Profit on revaluation of assets and liabilities at the time of retirement of a partner will be credited to __________________.

A
Remaining partners in the profit sharing ratio

B
All the partners in their old ratio

C
Remaining partners in their gaining ratio

D
Capital Ratio

Solution

A Revaluation Account is prepared in order to ascertain net gain or loss on revaluation of assets and liabilities and bringing unrecorded items into books. The Revaluation profit or loss is transferred to the capital account of all partners including retiring or deceased partners in their old profit sharing ratio.
Question 4
1 / -0

A and B shared profits in the ratio of 7 : 3. C was admitted as a partner. A surrendered 1 /7th of his share and B 1/3rd of his share in favour of C. The ratio of A, B and C will be ___________.

A
6 : 2 : 1

B
6 : 2 : 2

C
12:2:2

D
14:6: 13

Solution

A and B are partners in a firm sharing profit/losses in the ratio 7 : 3.
A will surrender 1/7th of his share for C = 7/10 *3/21
= 21/210
B will surrender 1/3rd of his share for C = 3/10 * 7/21
= 21/210
Now , the new profit sharing ratio of A,B and C will be :
A= 7/10 - 21/210 = 126/210
B= 3/10 - 21/210 = 42/210
C= 21/210 + 21/210 = 42/210
Hence , 146 : 42 : 42 can be written as 6 : 2 : 2.
Question 5
1 / -0

The loss of a firm when all the partners are insolvent is to be borne by ______________.

A
Creditors

B
Government

C
Partners

D
Debtors

Solution

According to Garner vs Murray Rule: The loss on account of insolvency of a partner is a CAPITAL loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.
Question 6
1 / -0

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

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

B
Are entitled 6% interest on their capitals, whether there is profit or not

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

D
Are not entitled for any interest on their capitals

Solution

As per the Partnership Act, 1932, the rule that is applicable concerning interest on capital of the partners, in the absence of an agreement among them, is that 'no Interest on capital shall be allowed irrespective of the profit or loss.'
Question 7
1 / -0

K and L sharing profits in the ratio of 7 : 3 admit M on 3/7 share in the new firm which he takes 2/7 from K and 1/7 from L. The new ratio of K , L and M will be ____________.

A
7:3:3

B
4 : 2 : 3

C
14 : 6 : 15

D
29 : 11 : 30

Solution

Let as assume profit of the firm is 1.
M's share in the firm is 3/7 , of which he takes 2/7 from K and 1/7 from L.
Now,
1 - 3/7 = 4/7
K = 7/10 - 2/7 = 49- 20/70 = 29/70
L = 3/10 - 1/7 = 21-10/70 = 11/70
M = 3/7* 10/10 = 30/70

New Profit sharing Ratio is 29 : 11 : 30.
Question 8
1 / -0

In the absence of an agreement to the contrary, ___________________.

A
An active partner is entitled for salary and a sleeping partner for interest on capital @ 6% p.a.

B
An active partner is entitled for salary and each partner for interest on capital @ 6% p.a.

C
All partners are entitled for salary and interest on capital @ 6%

D
No partner is entitled for salary or interest on capital

Solution

As per the Partnership Act, 1932, the rule which is applicable concerning interest on capital of the partners, in the absence of an agreement among them, is that 'no salary or interest on capital shall be allowed to any partner.'
Question 9
1 / -0

Which of the following transactions is of capital nature?

A
Purchase of a truck by a company

B
Replacement of old types and tubes

C
Yearly premium to insure the truck

D
Cost of repair of the truck

Solution

Capital expenditure is a money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Hence, Purchase of a truck by a company is a capital expenditure.
Question 10
1 / -0

A, B and C are partners in a firm. Though there is no provision in the partnership deed for interest on capital, this has been provided in the account @ 10% p.a. for the two years ended on 31 Dec., 2013. Their fixed capitals on which interest was calculated were throughout A Rs. 15,000, B Rs. 12,000 and C Rs. 9,000. Their profit sharing ratios were 2007 - 5:3:2 and 2008 - 2: 2: 1. The necessary adjustment entry will be made as:

A
C's current a/c Dr. 360

To A's current a/c 240

To B's current a/c 120

B
A's current a/c Dr. 240

B's current a/c Dr. 120

To C's current a/c 360

C
A's current a/c Dr. 120

B's current a/c Dr. 240

To C's current a/c 360

D
C's current a/c Dr. 360

To A's current a/c 120

To B's current a/c 240

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Re-Attempt Weekly Quiz Competition

Accounting for Partnership: Basic Concepts Test 6

Result

Accounting for Partnership: Basic Concepts Test 6

Score

-

Rank

-

SHARING IS CARING

Question 1

Ratio of their fixed capital

Ratio of fixed capital plus current accounts

Profit sharing ratio

Ratio of their capital after making necessary adjustments

Solution

Question 2

A firm may not acquire a joint life policy on the life of the partners

Retirement of a partner results in reconstitution of the firm

For past profit or reserves, the amount is not credited to all the partners in the old profit sharing ratio

The amount of general reserve is transferred to partners capital accounts in capital ratio

Solution

Question 3

Remaining partners in the profit sharing ratio

All the partners in their old ratio

Remaining partners in their gaining ratio

Capital Ratio

Solution

Question 4

6 : 2 : 1

6 : 2 : 2

12:2:2

14:6: 13

Solution

Question 5

Creditors

Government

Partners

Debtors

Solution

Question 6

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

Are entitled 6% interest on their capitals, whether there is profit or not

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

Are not entitled for any interest on their capitals

Solution

Question 7

7:3:3

4 : 2 : 3

14 : 6 : 15

29 : 11 : 30

Solution

Question 8

An active partner is entitled for salary and a sleeping partner for interest on capital @ 6% p.a.

An active partner is entitled for salary and each partner for interest on capital @ 6% p.a.

All partners are entitled for salary and interest on capital @ 6%

No partner is entitled for salary or interest on capital

Solution

Question 9

Purchase of a truck by a company

Replacement of old types and tubes

Yearly premium to insure the truck

Cost of repair of the truck

Solution

Question 10

C's current a/c Dr. 360To A's current a/c 240To B's current a/c 120

A's current a/c Dr. 240B's current a/c Dr. 120To C's current a/c 360

A's current a/c Dr. 120B's current a/c Dr. 240To C's current a/c 360

C's current a/c Dr. 360To A's current a/c 120To B's current a/c 240

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C's current a/c Dr. 360

To A's current a/c 240

To B's current a/c 120

A's current a/c Dr. 240

B's current a/c Dr. 120

To C's current a/c 360

A's current a/c Dr. 120

B's current a/c Dr. 240

To C's current a/c 360

C's current a/c Dr. 360

To A's current a/c 120

To B's current a/c 240