Admission of a Partner Test

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Admission of a Partner Test - 51

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Weekly Quiz Competition

Question 1
1 / -0

Which of the following formula is/are used for valuation of goodwill under super profit basis?

A
Goodwill = Super profit x No. of years purchase.

B
Goodwill = Super profit x Annuity factor.

C
$$Goodwill = \frac{Super \ profit}{Capitalization \ rate} \times 100$$

D
Any of the above.
Question 2
1 / -0

On the admission of a new partner, it is believed that the assets have changed in value. To record a decrease in the value of an asset the double entry should be:

A
Asset A/c Dr
To Revaluation A/c

B
Profit and loss A/c Dr
To Asset A/c

C
Revaluation A/c Dr
To Profit and loss A/c

D
Revaluation A/c Dr
To Asset A/c
Question 3
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 (Old Ratio)

Credit - Capital A/c (New ratio)

C
Debit - Current A/c (New Ratio)

Credit - Current A/c (Old ratio)

D
Debit - Capital A/c (New Ratio)

Credit - Capital A/c (Old ratio)
Question 4
1 / -0

The profits of last three years are $$Rs.42,000$$; $$Rs.39,000$$ and $$Rs.45,000$$. Find the goodwill of $$2$$ years purchase.

A
$$Rs.42,000$$

B
$$Rs.84,000$$

C
$$Rs.1,26,000$$

D
$$Rs.36,000$$

Solution

Calculation of goodwill :
1. Average profit = Total profit/ No. of years
Average profit = Rs. (42000 + 39000 + 45000)/ 3
Average profit = Rs. 126000/3
Average profit = Rs. 42000
2. Goodwill = Average profit * No. of years purchase
Goodwill = Rs. 42000 * 2
Goodwill = Rs. 84000
Question 5
1 / -0

Find the goodwill of the firm using capitalization method from the following information:
Capital employed $$Rs.4,80,000$$;
Rate of normal return - $$15\%$$;
Profits for the year $$Rs.90,000$$.

A
$$Rs.4,20,000$$

B
$$Rs.3,11,000$$

C
$$Rs.1,20,000$$

D
$$Rs.2,20,000$$

Solution

Calculation of goodwill under capitalization basis-
Capital employed = Rs. 480000
Normal value of business = Average profit/capitalization rate
Normal value of business = Rs. 90000/ 15%
Normal value of business = Rs. 600000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. 600000 - Rs. 480000
Goodwill = Rs. 120000
Question 6
1 / -0

When required amount of premium for goodwill is not brought in by new partner, goodwill account is created in the books of the firm by debiting goodwill account and crediting partners capital account in ______.

A
New profit sharing ratio.

B
Old profit sharing ratio.

C
Sacrificing ratio.

D
Capital ratio.

Question 7

1 / -0

Sometime the value of goodwill has to be inferred from the agreement of capitals and profit sharing ratio among the partners, it known as ___________.

Adjusted goodwill

Premium for capital

Premium for goodwill

Hidden goodwill

Solution

When the value of goodwill of the firm is not specifically given, the value of goodwill has to be inferred. It is inferred as follows :

Particulars	Rs
Incoming partner's capital * Reciprocal of share of incoming partner Less : Total capital after taking into consideration the capital brought in by incoming partner Value of goodwill	XXX XXX XXX

Question 8
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

Solution

Premium of goodwill is the amount brought in by the new partner to compensate the old partner for sacrificing the share in the profits in the firm. It is calculated by multiplying the incoming partner’s share of profit to the value of goodwill of the firm. Hence, option C is correct.
Question 9
1 / -0

Average profit of a firm is $$Rs.1,20,000$$. The rate of capitalization is $$12%$$. Assets and liabilities of the firm are $$Rs.10,00,000$$ & $$Rs.4,25,000$$ respectively. The value of goodwill of the firm is _____________.

A
$$Rs.3,25,000$$

B
$$Rs.2,25,000$$

C
$$Rs.5,25,000$$

D
$$Rs.4,25,000$$

Solution

Calculation of goodwill under capitalization basis-
Capital employed = Assets - Liabilities
Capital emplyed = Rs. (1000000 - 425000)
Capital emplyed = Rs 575000
Normal value of business = Average profit/capitalization rate
Normal value of business = Rs. 120000/ 12%
Normal value of business = Rs. 1000000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. 1000000 - Rs. 575000
Goodwill = Rs. 425000
Question 10
1 / -0

Find the goodwill of the firm using capitalization method from the following information:
Total Capital Employed $$Rs.8,00,000$$;
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 capitalization basis-
Capital employed = Rs. 800000
Normal value of business = Average profit/capitalization rate
Normal value of business = Rs. 120000/ 15%
Normal value of business = Rs. 8000000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. 8000000 - Rs. 800000
Goodwill = Rs. 7200000

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Admission of a Partner Test - 51

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Admission of a Partner Test - 51

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SHARING IS CARING

Question 1

Goodwill = Super profit x No. of years purchase.

Goodwill = Super profit x Annuity factor.

$$Goodwill = \frac{Super \ profit}{Capitalization \ rate} \times 100$$

Any of the above.

Question 2

Asset A/c Dr To Revaluation A/c

Profit and loss A/c Dr To Asset A/c

Revaluation A/c Dr To Profit and loss A/c

Revaluation A/c Dr To Asset A/c

Question 3

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

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

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

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

Question 4

$$Rs.42,000$$

$$Rs.84,000$$

$$Rs.1,26,000$$

$$Rs.36,000$$

Solution

Question 5

$$Rs.4,20,000$$

$$Rs.3,11,000$$

$$Rs.1,20,000$$

$$Rs.2,20,000$$

Solution

Question 6

New profit sharing ratio.

Old profit sharing ratio.

Sacrificing ratio.

Capital ratio.

Question 7

Adjusted goodwill

Premium for capital

Premium for goodwill

Hidden goodwill

Solution

Question 8

adjusted goodwill

premium for capital

premium for goodwill

hidden goodwill

Solution

Question 9

$$Rs.3,25,000$$

$$Rs.2,25,000$$

$$Rs.5,25,000$$

$$Rs.4,25,000$$

Solution

Question 10

$$Rs.82,00,000$$

$$Rs.12,00,000$$

$$Rs.72,00,000$$

$$Rs.42,00,000$$

Solution

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Asset A/c Dr
To Revaluation A/c

Profit and loss A/c Dr
To Asset A/c

Revaluation A/c Dr
To Profit and loss A/c

Revaluation A/c Dr
To Asset A/c

Debit - Capital A/c (Old Ratio)

Credit - Current A/c (New ratio)

Debit - Capital A/c (Old Ratio)

Credit - Capital A/c (New ratio)

Debit - Current A/c (New Ratio)

Credit - Current A/c (Old ratio)

Debit - Capital A/c (New Ratio)

Credit - Capital A/c (Old ratio)