Admission of a Partner Test

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Admission of a Partner Test - 44

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Question 1
1 / -0

Share of goodwill brought in cash by the new partner is shared by the old partners _________.

A
equally

B
in the sacrificing ratio

C
in the new ratio

D
in the gaining ratio

Solution

At the time of admission of new partner, old partners sacrifices some of their profit share. To compensate old partners, new partner is liable to bring in some goodwill either in cash or kind which is distributed among old partners in their sacrificing ratio.
The necessary journal entry will be:
1. Bank/Cash A/c Dr.
To Goodwill A/c
2. Goodwill A/c Dr.
To Old partner's capital A/c (Individually in their sacrificing ratio)
Question 2
1 / -0

R admitted as a new partner for one-fourth share of future profits, fails to bring in cash of $$Rs. 20,000$$ towards goodwill, but the existing (old) partners S and T, sharing profits in the ratio of $$3 : 2$$, raised the goodwill account at its full value. Therefore, the partners will be credited for goodwill as _________.

A
$$S (Rs.) = 12,000, T(Rs.) = 8,000, R(Rs.) = Nil$$

B
$$S (Rs.) = 36,000, T(Rs.) = 24,000, R(Rs.) = 20,000$$

C
$$S (Rs.) = 48,000, T(Rs.) = 32,000, R(Rs.) = Nil$$

D
$$S (Rs.) = 9,000, T(Rs.) = 6,000, R(Rs.) = 5,000$$
Question 3
1 / -0

Super profit is __________.

A
the average profit earned by the firm

B
the normal profit

C
the difference between average profit and normal profit

D
all of the above

Solution

Super profit means, excess profit that can be earned by a firm over and above
the normal profit usually earned by similar firms under similar circumstances. In other words it is the excess of average profit over normal profit.
Super profit is calculated as follows:
Super profit = Average profit - Normal profit
Question 4
1 / -0

Goodwill arises because __________.

A
the firm is able to earn more than the normal return on the capital invested

B
the firm is quite odd in the industry

C
the firm is the market leader in terms of turnover

D
the investment made by the firm is quite large

Solution

Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the normal rate of profits. The implication of the term over and above is that there is always a certain normal rate of profits earned by similar firms in the same locality. The excess profit earned by a firm due to its location advantage, better customer service, possession of a unique patent right, personal reputation of the partner or for similar other reasons.

Question 5

1 / -0

A, B, C and D are partners in a firm, sharing profits in the ratio of $$2 : 1 : 2 : 1$$. On the retirement of C the Goodwill was valued at $$Rs, 72,000$$. A, B and D decided to share future profits equally. The necessary journal entry without opening goodwill account will be:

A's cap. A/c Dr. $$Rs. 8,000$$

B's cap. A/c Dr. $$Rs. 8,000$$

D's cap. A/c Dr. $$Rs. 8,000$$

To C's cap. A/c $$Rs. 24,000$$

A's cap. A/c Dr. $$12,000$$

B's cap. A/c Dr. $$Rs. 12,000$$

To C's cap. A/c $$Rs. 12,000$$

To D's cap. A/c $$Rs. 12,000$$

B's cap. A/c Dr. $$12,000$$

D's cap. A/c Dr. $$12,000$$

To C's cap. A/c $$24,000$$

B's cap. A/c Dr. $$24,000$$

To C's cap. A/c $$24,000$$

Solution

Old profit sharing ratio ( A : B : C : D) = 2 : 1 : 2 : 1

New profit sharing ratio (A : B : D) = 1 : 1 : 1

C's share of goodwill = 72000 * (2/6) = 24000

Adjusting entry for goodwill

Partner	Old share	New share	Gain	Sacrifice
A	2/6	1/3	-	-
B	1/6	1/3	1/6	-
C	2/6	-	-	2/6
D	1/6	1/3	1/6	-

Adjusting entry:

B's Capital A/c Dr. 12000

D's Capital A/c Dr. 12000

To C's capital A/c 24000

Question 6
1 / -0

When a new partner does not being goodwill in cash and goodwill A/c is raised in the book at fun value, it is distributed amongest old partners in the ___________.

A
Equal ratio

B
Sacrificing ratio

C
Old profit sharing ratio

D
New profit sharing ratio
Question 7
1 / -0

A and B are equal partners in a firm. They admitted C as one-sixth partner who brought in Rs.1,20,000 is to be paid to the old partners as per profit sacrificing ratio, B will receive __________.

A
$$Rs. 60,000$$

B
$$Rs. 1,20,000$$

C
$$Rs. 90,000$$

D
Nil

Solution

Goodwill brought in by new partner is distributed among old sacrifing partner in their sacrificing ratio.
In the given question-
Old ratio (A and B) = 1 : 1
New ratio (A, B and C) = 3 : 2 : 1
Gaining/ (Sacrificing) ratio = New ratio - Old ratio
A's gain/ (sacrifice) = (3/6) - (1/2) = 0
B's gain/ (sacrifice) = (2/6) - (1/2) = (-1/6)
B will receive Rs. 120000 bring by C as his share of goodwill as only B is sacrificing on the admission of C.
Question 8
1 / -0

Goodwill of a firm of partners A and B is valued at $$Rs, 50,000$$. A and B share profits in the ratio of $$3 : 1$$ and C is admitted for $$1/5^{th}$$ share. If C does not bring goodwill in cash and also goodwill account is not to be raised, what adjustment entry should be passed?

A
A's capital A/c Dr. $$37,500$$
B's Capital A/c Dr. $$12,500$$
To C's capital A/c $$50,000$$

B
C's Capital A/c Dr. $$10,000$$
To A's capital A/c $$7,500$$
To B's capital A/c $$2,500$$

C
C's Capital A/c Dr. $$50,000$$
To A's capital A/c $$37,500$$
To B's capital A/c $$12,500$$

D
A's Capital A/c Dr. $$7,500$$
B's capital A/c Dr. $$2,500$$
To C's capital A/c $$10,000$$

Solution

When a new partner does not bring his share of goodwill in cash, then his capital account is debited by the such amount of goodwill and is credited to the old partners' capital account in sacrificing ratio. Here, the adjustment entry will be:
=> C's Capital A/c Dr. 10,000      (1/5 x 50,000)

To A's capital A/c   7,500 (3/4 x 10,000)

   To B's capital A/c   2,500 (1/4 x 10,000)
Question 9
1 / -0

Which of the following factor generally contribute to the value of goodwill of a firm?

A
Efficiency of business.

B
Risk involved in the business.

C
Location of the business.

D
All of above.

Solution

Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the normal rate of profits. The implication of the term over and above is that there is always a certain normal rate of profits earned by similar firms in the same locality. The excess profit earned by a firm due to its location advantage, Efficiency of business, Risk involved in business, better customer service, possession of a unique patent right, personal reputation of the partner or for similar other reasons.
Question 10
1 / -0

Find the goodwill of the firm using capitalisation, method from the following information:
Total Capital Employed in the firm Rs.8,00,000;
Reasonable Rate of Return 15%;
Profits for the year Rs. 12,00,000.

A
$$Rs.82,00,000$$

B
$$Rs.12,00,000$$

C
$$Rs.72,00,000$$

D
$$Rs.42,00,000$$

Solution

Calculation of goodwill under capitalisation basis:
Capital employed = Rs. 800000
Rate of return = 15%
Average profit = Rs. 1200000
Normal value of business = (Average profit/ Rate of return) * 100
Normal value of business = Rs. (1200000/15) * 100
Normal value of business = Rs. 8000000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. (8000000 - 800000)
Goodwill = Rs. 7200000

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Admission of a Partner Test - 44

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Admission of a Partner Test - 44

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SHARING IS CARING

Question 1

equally

in the sacrificing ratio

in the new ratio

in the gaining ratio

Solution

Question 2

$$S (Rs.) = 12,000, T(Rs.) = 8,000, R(Rs.) = Nil$$

$$S (Rs.) = 36,000, T(Rs.) = 24,000, R(Rs.) = 20,000$$

$$S (Rs.) = 48,000, T(Rs.) = 32,000, R(Rs.) = Nil$$

$$S (Rs.) = 9,000, T(Rs.) = 6,000, R(Rs.) = 5,000$$

Question 3

the average profit earned by the firm

the normal profit

the difference between average profit and normal profit

all of the above

Solution

Question 4

the firm is able to earn more than the normal return on the capital invested

the firm is quite odd in the industry

the firm is the market leader in terms of turnover

the investment made by the firm is quite large

Solution

Question 5

A's cap. A/c Dr. $$Rs. 8,000$$B's cap. A/c Dr. $$Rs. 8,000$$D's cap. A/c Dr. $$Rs. 8,000$$To C's cap. A/c $$Rs. 24,000$$

A's cap. A/c Dr. $$12,000$$B's cap. A/c Dr. $$Rs. 12,000$$To C's cap. A/c $$Rs. 12,000$$To D's cap. A/c $$Rs. 12,000$$

B's cap. A/c Dr. $$12,000$$D's cap. A/c Dr. $$12,000$$To C's cap. A/c $$24,000$$

B's cap. A/c Dr. $$24,000$$To C's cap. A/c $$24,000$$

Solution

Question 6

Equal ratio

Sacrificing ratio

Old profit sharing ratio

New profit sharing ratio

Question 7

$$Rs. 60,000$$

$$Rs. 1,20,000$$

$$Rs. 90,000$$

Nil

Solution

Question 8

A's capital A/c Dr. $$37,500$$B's Capital A/c Dr. $$12,500$$ To C's capital A/c $$50,000$$

C's Capital A/c Dr. $$10,000$$ To A's capital A/c $$7,500$$ To B's capital A/c $$2,500$$

C's Capital A/c Dr. $$50,000$$ To A's capital A/c $$37,500$$ To B's capital A/c $$12,500$$

A's Capital A/c Dr. $$7,500$$B's capital A/c Dr. $$2,500$$ To C's capital A/c $$10,000$$

Solution

Question 9

Efficiency of business.

Risk involved in the business.

Location of the business.

All of above.

Solution

Question 10

$$Rs.82,00,000$$

$$Rs.12,00,000$$

$$Rs.72,00,000$$

$$Rs.42,00,000$$

Solution

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A's cap. A/c Dr. $$Rs. 8,000$$

B's cap. A/c Dr. $$Rs. 8,000$$

D's cap. A/c Dr. $$Rs. 8,000$$

To C's cap. A/c $$Rs. 24,000$$

A's cap. A/c Dr. $$12,000$$

B's cap. A/c Dr. $$Rs. 12,000$$

To C's cap. A/c $$Rs. 12,000$$

To D's cap. A/c $$Rs. 12,000$$

B's cap. A/c Dr. $$12,000$$

D's cap. A/c Dr. $$12,000$$

To C's cap. A/c $$24,000$$

B's cap. A/c Dr. $$24,000$$

To C's cap. A/c $$24,000$$

A's capital A/c Dr. $$37,500$$
B's Capital A/c Dr. $$12,500$$
To C's capital A/c $$50,000$$

C's Capital A/c Dr. $$10,000$$
To A's capital A/c $$7,500$$
To B's capital A/c $$2,500$$

C's Capital A/c Dr. $$50,000$$
To A's capital A/c $$37,500$$
To B's capital A/c $$12,500$$

A's Capital A/c Dr. $$7,500$$
B's capital A/c Dr. $$2,500$$
To C's capital A/c $$10,000$$