Admission of a Partner Test

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Admission of a Partner Test - 13

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Weekly Quiz Competition

Question 1
1 / -0

If the incoming partner is to bring in premium for goodwill in cash and also balance exist, in the goodwill Account, then this Goodwill Account is written off among the old partners in _________ .

A
the new profit-sharing ratio

B
the old profit-sharing ratio

C
the sacrifice ratio

D
none of the above

Solution

If the incoming partner brings premium for goodwill in cash and goodwill already exists in the books of the firm, this goodwill that already exists in the books of the firm is distributed among the existing partners in their old profit sharing ratio. The new partner is not entitled to share in this goodwill since he was not a part of the firm when this goodwill was earned by the old partners. Since, the firm is reconstituted at the time of admission, the existing goodwill is written off.
Question 2
1 / -0

'Samta Limited invited applications for issuing $$6,750$$ equity shares of $$Rs 10$$ each. The amount was payable as follows : On application - $$Rs 3$$ per share
On allotment - $$Rs 5$$ per share
On first and final call - $$Rs 2$$ per share
The issue was fully subscribed. Subhash applied for $$250$$ shares and paid his entire share money with application. Moti applied for $$175$$ shares and paid allotment money also with application. The amount received with applications was :

A
$$Rs 16,750 $$

B
$$Rs 16,000$$

C
$$Rs 19,250$$

D
$$Rs 22,875$$

Solution

Calculation of amount received with the application
Application amount received on $$6,750$$ shares = $$20,250$$
Subhash paid in advance $$(250 @ Rs7)$$ = $$\,\,1,750$$
Moti paid in advance $$(175 @ Rs 5)$$ = $$\,\,\,\,875$$
___________________________________________________
$$22,875$$
Hence, the correct answer is an option (D).
Question 3
1 / -0

Partnership comes into existence through _______________.

A
Introduction

B
Promotion

C
Contract

D
Situation
Question 4
1 / -0

When the amount of goodwill is paid privately, the following entries are to be passed for this purpose:

A
Cash account To Goodwill account (amount of goodwill brought in by new partner)

B
Goodwill account To Old partners Capital account (shared in the sacrificing ratio)

C
Both (A) and (B)

D
No entry is required

Solution

Goodwill - Goodwill is a long-term (or non current) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

Sometimes, goodwill may be evaluated in case of admission of a partner, when incoming partner is unable to bring in cash any premium for goodwill. In that situation value of goodwill should not be raised in the books since it is inherent goodwill. Rather it is preferable that such value of goodwill should be adjusted through partner's capital accounts. It may also be noted that when the incoming partner pays any premium for goodwill privately to the existing partners, no entry is required in the books of the firm.
Question 5
1 / -0

Which method is useful when the actual profit is less than normal profit?

A
Super profit method

B
Capitalisation method

C
Average profit method

D
Premium method

Solution

Capitalization method is a method of determining the value of a firm by calculating the net present value of expected future profits or cash flows of the firm. It is used when the actual profits of the firm is less than the normal profits.
Question 6
1 / -0

The formula of super profit is ____________.

A
$$\dfrac {Total\ profits}{No. of\ years}$$

B
Capital employed $$\times$$ normal rate of return

C
Average profit $$-$$ normal Profit

D
Super profit $$\times$$ no. of years of purchase

Solution

Under super profit method, goodwill is calculated on the basis of super profits. Super profit is calculated by subtracting normal profit from average profit. Hence, the formula of super profit is average profit - normal profit.
Question 7
1 / -0

The excess of purchase consideration over net assets of the transferor company acquired by the transferee company should be recognized as ________ in purchase method.

A
capital reserve

B
general reserve

C
goodwill

D
P&L

Solution

Goodwill.
Goodwill is an intangible asset that arises when one company purchases another for a premium value. Any excess of the amount of purchase consideration over the value of net assets of the transferor company acquired by the transferee company should be recognised as goodwill in the financial statements of transferee company.
Question 8
1 / -0

Which of the following are true or false?
a) A retiring partner will be held liable for the debts incurred by the firm after his retirement.
b) He must give public notice to that effect

A
Both (A) and (B) are true

B
Both (A) and (B) are false

C
(A) is true, but (B) is false

D
(A) is false, but (B) is true

Solution

Section 32 of the Indian partnership act, 1932, states that a retiring partner will be held liable for the debts incurred by the firm before his retirement. He must also give public notice that he is retiring from the firm. Hence, A is false and B is true.
Question 9
1 / -0

Goodwill means ___________.

A
the attractive force which brings in customers

B
attachment of customer to a particular business

C
reputation of the firm

D
all of the above

Solution

Goodwill means name and fame of the company. It is also regarded as attractive force which brings in the customers. It is an intangible asset which enhances reputation of the firm. It helps the business to retain the loyal customers by building a good image in the industry.
Question 10
1 / -0

Liquidation expenses paid by the transferee company is debited to _________.

A
General reserve account

B
P/L account

C
Goodwill account

D
None of these

Solution

If the purchasing company is required to pay the expenses of liquidation of the vendor company, the amount should be debited to the goodwill or capital reserve account, as the case may be.
Journal entry for the liquidation expenses paid by the transferee company is :
Goodwill/Capital reserve A/c Dr.
To Cash A/c

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Re-Attempt Weekly Quiz Competition

Admission of a Partner Test - 13

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Admission of a Partner Test - 13

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SHARING IS CARING

Question 1

the new profit-sharing ratio

the old profit-sharing ratio

the sacrifice ratio

none of the above

Solution

Question 2

$$Rs 16,750 $$

$$Rs 16,000$$

$$Rs 19,250$$

$$Rs 22,875$$

Solution

Question 3

Introduction

Promotion

Contract

Situation

Question 4

Cash account To Goodwill account (amount of goodwill brought in by new partner)

Goodwill account To Old partners Capital account (shared in the sacrificing ratio)

Both (A) and (B)

No entry is required

Solution

Question 5

Super profit method

Capitalisation method

Average profit method

Premium method

Solution

Question 6

$$\dfrac {Total\ profits}{No. of\ years}$$

Capital employed $$\times$$ normal rate of return

Average profit $$-$$ normal Profit

Super profit $$\times$$ no. of years of purchase

Solution

Question 7

capital reserve

general reserve

goodwill

P&L

Solution

Question 8

Both (A) and (B) are true

Both (A) and (B) are false

(A) is true, but (B) is false

(A) is false, but (B) is true

Solution

Question 9

the attractive force which brings in customers

attachment of customer to a particular business

reputation of the firm

all of the above

Solution

Question 10

General reserve account

P/L account

Goodwill account

None of these

Solution

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