Admission of a Partner Test

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Admission of a Partner Test - 45

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Weekly Quiz Competition

Question 1
1 / -0

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

A
Quality of goods sold by the firm.

B
Reputation of the owners.

C
Risk involved in the business.

D
All of the 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 2
1 / -0

A, B & C are partners sharing profits and losses in the ratio of 3:2:1. C retires on a decided date and Goodwill of the firm is to be valued at Rs. 60,000. Find the amount payable to retiring partner on account of goodwill.

A
Rs. 30,000

B
Rs. 20,000

C
Rs. 10,000

D
Rs. 60,000

Solution

At the time of retirement of partner goodwill is raised among old partners in old profit sharing ratio.
In the given question :
Profit sharing ratio of A, B and C = 3 : 2 : 1
Therefore, C's share of goodwill = Rs. 60000 * (1/6) = Rs. 10000
Question 3
1 / -0

An increase in the value of fixed asset is referred to as _________.

A
depreciation

B
appreciation

C
market capitalization

D
reverse depreciation

Solution

Appreciation is an increase in the recorded value of an asset. In other words, appreciation is the opposite of depreciation.
Appreciation can occur with both tangible and intangible assets. For example, it is common for trademarks to increase in value due to a rise in brand recognition.
Question 4
1 / -0

It is supposed that on $$31-12-2015$$, the sundry debtors are amounted to Rs. $$40,000$$. On the basis of past experience, it is estimated that $$5\%$$ of the sundry debtors are doubtful. Also suppose that during the year $$2014$$ actual bad debts were Rs. $$1,600$$. What entry will be passed to create provision for doubtful debts?

A
Profit & Loss a/c Rs. $$2,000$$(Dr.) & Provision for doubtful debts A/c Rs. $$2,000$$(Cr.)

B
Provision for doubtful debts A/c Rs. $$2,000$$(Dr.) & Profit & Loss A/c Rs. $$2,000$$(Cr.)

C
Provision for doubtful debts A/c Rs. $$1,600$$ (Dr.) & Profit & Loss A/c Rs. $$1,600$$(Cr.)

D
Profit & Loss A/c Rs. $$1,600$$(Dr.) & Provision for doubtful debts A/c Rs. $$1,600$$(Cr.)
Question 5
1 / -0

On the admission of a partner, goodwill is raised for $$Rs. 45,000$$. This amount is debited to __________.

A
capital accounts of partners

B
goodwill account

C
cash account

D
none of these

Solution

At the time of admission of a new partner, existing goodwill in the books of firm is raised among old partner in their old profit sharing ratio.
Journal entry of goodwill raised is -
Goodwill A/c Dr.
To old partners' capital A/c (individually)
Question 6
1 / -0

The executors of the deceased partner are entitled to a share of profit earned by the firm from the date of last balance sheet and to the date of death. Which of the entry will be passed for this purpose? (Name of the deceased partner was Mr.X)

A
Profit & Loss Suspense A/c Dr
To X A/c

B
X A/c Dr
To Profit & Loss A/c

C
X A/c Dr
To Memorandum Revaluation A/c

D
X A/c Dr
To Profit & Loss Suspense A/c

Solution

Payment on deceased partner's death:
On the death of a partner, the executor of the deceased partner is entitled to share of profit upto the date of death.
Journal entry for this is :
Profit & Loss Suspense A/c * Dr
To X A/c
* At the end of the year, the profit and loss suspense A/c will be transferred to profit and loss A/c.
Question 7
1 / -0

Which of the following assets is compulsory to revalue at the time of admission of a new partner?

A
Stock.

B
Fixed Assets.

C
Investment.

D
Goodwill.

Solution

At the time of admission of a partner, the assets and liabilities may or may not be revalued depending upon whether there is any increase or decrease in their balances. However, it is necessary to value goodwill of the firm at the time of admission of a partner.
Question 8
1 / -0

Weighted average method of calculating goodwill should be followed when ___________.

A
Profits are uneven

B
Profits has increasing trend

C
Profits has decreasing trend

D
Either (B) or (C)

Solution

In case of the average method of calculating goodwill, profits of the 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 depending upon the circumstances. If there exists clear increasing or decreasing trend of profits, it is better to give more weight to the profits of the recent years than those of earlier years. But, if there is no clear trend of profit, it is better to go by simple average.
Question 9
1 / -0

If goodwill is to be created and then immediately written off, the correct method of entering this in the accounts would be _________________.

A
Debit-Capital A/c (Old Ratio), Credit-Current A/c (New Ratio)

B
Debit-Capital A/c (Gaining Ratio), Credit-Capital A/c (Sacrificing Ratio)

C
Debit-Capital A/c (Sacrificing Ratio), Credit-Capital A/c (Gaining Ratio)

D
Debit-Capital A/c (New Ratio), Credit-Capital A/c (Old Ratio)

Solution

When there is any change in the profit-sharing ratio of partners, Goodwill is valued. One partner may gain a share of profit and others may sacrifice. So, we adjust Goodwill through capital accounts of partners. Debit the Gaining partner's capital account and credit the sacrificing partner's capital account.
Question 10
1 / -0

The amount that the incoming partner pays for goodwill is known as ________________.

A
Adjusted goodwill

B
Premium for capital

C
Premium for goodwill

D
Hidden goodwill

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Admission of a Partner Test - 45

Result

Admission of a Partner Test - 45

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SHARING IS CARING

Question 1

Quality of goods sold by the firm.

Reputation of the owners.

Risk involved in the business.

All of the above.

Solution

Question 2

Rs. 30,000

Rs. 20,000

Rs. 10,000

Rs. 60,000

Solution

Question 3

depreciation

appreciation

market capitalization

reverse depreciation

Solution

Question 4

Profit & Loss a/c Rs. $$2,000$$(Dr.) & Provision for doubtful debts A/c Rs. $$2,000$$(Cr.)

Provision for doubtful debts A/c Rs. $$2,000$$(Dr.) & Profit & Loss A/c Rs. $$2,000$$(Cr.)

Provision for doubtful debts A/c Rs. $$1,600$$ (Dr.) & Profit & Loss A/c Rs. $$1,600$$(Cr.)

Profit & Loss A/c Rs. $$1,600$$(Dr.) & Provision for doubtful debts A/c Rs. $$1,600$$(Cr.)

Question 5

capital accounts of partners

goodwill account

cash account

none of these

Solution

Question 6

Profit & Loss Suspense A/c Dr To X A/c

X A/c DrTo Profit & Loss A/c

X A/c DrTo Memorandum Revaluation A/c

X A/c DrTo Profit & Loss Suspense A/c

Solution

Question 7

Stock.

Fixed Assets.

Investment.

Goodwill.

Solution

Question 8

Profits are uneven

Profits has increasing trend

Profits has decreasing trend

Either (B) or (C)

Solution

Question 9

Debit-Capital A/c (Old Ratio), Credit-Current A/c (New Ratio)

Debit-Capital A/c (Gaining Ratio), Credit-Capital A/c (Sacrificing Ratio)

Debit-Capital A/c (Sacrificing Ratio), Credit-Capital A/c (Gaining Ratio)

Debit-Capital A/c (New Ratio), Credit-Capital A/c (Old Ratio)

Solution

Question 10

Adjusted goodwill

Premium for capital

Premium for goodwill

Hidden goodwill

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Profit & Loss Suspense A/c Dr
To X A/c

X A/c Dr
To Profit & Loss A/c

X A/c Dr
To Memorandum Revaluation A/c

X A/c Dr
To Profit & Loss Suspense A/c