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Admission of a Partner Test - 41

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Admission of a Partner Test - 41
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  • Question 1
    1 / -0
    Under annuity basis goodwill is calculated by using ___________.
    Solution
    Under annuity method, goodwill is calculated by super profits only. The only point of difference between these two method is that under annuity method discounted value of total super profit is considered and the same is ignored under super profit method.
    Formula of calculating goodwill under annuity method is - 
    Goodwill = Super profit * Annuity factor i.e., total of the discounted value of expected future benefits.
  • Question 2
    1 / -0
    A and B are partners with capitals of Rs. $$10,000$$ and Rs. $$20,000$$ respectively and sharing profits equally. They admitted C as their third partner with one-fourth profits of the firm on the payment of Rs. $$12,000$$. The amount of hidden goodwill is __________.
    Solution
    When the value of the goodwill of the firm is not specifically given, the value of goodwill has to be inferred as follows:
    Goodwill = (Incoming partner's capital * Reciprocal of share of incoming partner) - Total capital after taking into consideration the capital brought in by incoming partner.
    Goodwill = Rs. 12000 * (4/1) - Rs. (10000 + 20000 + 12000)
    Goodwill = Rs. 48000 - Rs 42000
    Goodwill = Rs. 6000
  • Question 3
    1 / -0
    A, B and C are equal partners. D is admitted to the firm for one-fourth share. D brings Rs. $$20,000$$ as capital and Rs. $$5,000$$ being half of the premium for goodwill. The value of goodwill of the firm is _____________.
    Solution
    Calculation of goodwill:
    D's contribution of Rs. 5000 consists of only half of 1/4 of goodwill 
    Therefore, total goodwill of firm should be Rs. 5000 * (4/1) * 2 = Rs.40000
  • Question 4
    1 / -0
    Under average profit basis goodwill is calculated using following formula:
    Solution
    In this method of calculating goodwill, profit of past few years are averaged and adjusted for any expected change in future. For averaging the past profit, either simple average or weighted average may be employed by depending upon the circumstances. 
    Formula of calculating goodwill under this method is -
    Goodwill = Average Profit * No. of years purchase
  • Question 5
    1 / -0
    What balance does a Partner's Current Account has?
    Solution
    Normally Partner's Current Account has a Credit Balance but, if a partner has withdrawn more than his or her share of profits, then it will have a Debit Balance. The credit balances of Partner's Current Account are shown on the Liabilities Side of Balance Sheet, as much of amount due to them. Debit balances are shown on the Asset side of balance sheet.
  • Question 6
    1 / -0
    P and Q are partners sharing profits in the ratio of $$2:1$$. R is admitted to the partnership with effect from $$1^{st}$$ April on the term that he will bring Rs. $$20,000$$ as his capital for $$1/4^{th}$$ share and pays Rs. $$9,000$$ for goodwill, half of which is to be withdrawn by P and Q. How much cash can P & Q withdraw from the firm (if any)?
    Solution
    Calculation of amount withdrawn by P and Q:
    Goodwill brought in by R for 1/4th share = Rs. 9000
    Half of goodwill amount is to be withdrawn by P and Q in their old ratio
    i.e., Rs. 4500
    Amount credited to P's and Q's account = Rs.4500 * Respective shares of P&Q
    Credit to P's account = Rs. 4500 * (2/3) = Rs. 3000
    Credit to Q's account = Rs. 4500 * (1/3) = Rs. 1500
  • Question 7
    1 / -0
    Under capitalization basis goodwill is calculated by using __________.
    Solution
    Under capitalisation basis, value of whole business is determined applying normal rate of return. If such value (arrived at by applying normal rate of return) is higher than the capital employed in the business, then the difference is gooodwill.
    Formula for calculating goodwill under capitalisation basis is -
    Goodwill = Super profit divided with expected rate of return.
  • Question 8
    1 / -0
    In the case of downward revaluation of an asset, which is for the first time revalued, ___________ account is debited.
  • Question 9
    1 / -0
    A and B are partners with the capital Rs.50,000 and Rs.40,000 respectively.They share profits and losses equally. C is admitted on bringing Rs.50,000 as capital only and nothing was brought against goodwill. Goodwill in Balance sheet of Rs.10,000 is revalued as 30,000.What will be value of goodwill in the books after the admission of C?
    Solution
    When a new partner is admitted into the partnership, assets are revalued and liabilities are reassessed. A revaluation account is opened for the purpose. This account is debited with all reduction in the value of assets and increase in liabilities and credited with increase in the value of assets and decrease in the value of liabilities.
    Revalued figure of assets and liabilities are then shown in the balance sheet after admission of new partner.
  • Question 10
    1 / -0
    A, B and C were partners sharing profits and losses in the ratio of 3 :2 :1. A retired and Goodwill of the firm is to be valued at Rs. 48,000 and Goodwill Account is to be raised which is not appearing in the balance sheet. What will be the treatment for Goodwill?
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