Admission of a Partner Test

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Admission of a Partner Test - 60

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Question 1
1 / -0

When a new partner brings cash for goodwill, the amount is credited to the __________ .

A
Premium for Goodwill Account

B
Capital Account of the new partner

C
Cash Account

D
None of the above

Solution

Premium for goodwill is the additional amount brought in by the incoming partner to compensate for the loss in share of the super profits of the old partners. This extra amount is credited to the premium for goodwill account and is distributed among the old partners in their sacrificing ratio.
The accounting entry is:
1. Cash a/c.... Dr.
To Premium for Goodwill a/c
(Being premium for goodwill brought in by the new partner)
Question 2
1 / -0

According to Section $$37$$ of the Indian Partnership Act, 1932, the interest payable to the representative of deceased partner on the amount left by him will be ______________ .

A
$$6\%p.a$$

B
$$10\%p.a$$

C
The Bank Rate

D
None of these

Solution

Generally, partners are not entitled to get any interest on the capital that they invest .but when they agree to give interest, then such interest would be paid from the capital. They are also entitled to 6%interest on the advances made towards the business of the firm.
Deceased partner's or his Legal representative's share in subsequent profits of the firm is the amount that is attributable to the use of his share of the property of the firm. Alternatively, he may also opt to receive interest at the rate of 6 percent per annum.
Question 3
1 / -0

Verma and Sharma are partners in a firm sharing profits and losses in the ratio of $$5:3$$. They admitted Ghosh as a new partner for $$1/5^{th}$$ share of profits. Ghosh is to bring in $$Rs. 20,000$$ as capital and $$Rs. 4,000$$ as his share of goodwill premium. Give the necessary Journal entries, when goodwill is paid privately.

A
Cash A/c Dr. 4000
To Goodwill A/c 4000

B
Goodwill A/c Dr. 4000
To Cash A/c 4000

C
Goodwill A/c Dr. 4000
To Verma's Caital A/c 2500
To Sharma's Capital A/c 1500

D
No entry is required.

Solution

When the goodwill brought in by the new partner is paid to the old partners privately, no entry is made in the books of accounts. This is because the money has not been brought into the business and hence no records can be shown.
Question 4
1 / -0

The optimum point is an ________ size of a firm.

A
Ideal

B
Average

C
Over

D
Extra

Solution
Question 5
1 / -0

Project which is started by firm for increasing sales is classified as _______________.

A
new expansion project

B
old expanded project

C
firm borrowing project

D
product line selection
Question 6
1 / -0

Goodwill means ____________.

A
good name or reputation of the business

B
it is an intangible real asset

C
the capacity of a business to earn profits in future

D
All the Above

Solution

Goodwill means name and fame of the business. It is an important asset for the company as it decides the capacity of a company to earn profits in the future. It is basically an intangible asset which cannot be seen but only felt. Likewise, it means good name of the business.
Question 7
1 / -0

An example of an intangible asset is:

A
Goodwill

B
Debit balance of Profit and Loss Account

C
Preliminary expenses

D
Deferred revenue expenditure

Solution

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.
Goodwill is considered as intangible asset because it is not a physical asset like building or equipment.
Question 8
1 / -0

The formula of capitalisation method is ___________.

A
$$\dfrac {Profit (adjusted)}{100}$$

B
$$\dfrac {\text {Total Profit}}{\text {Adjusted Profit}}$$

C
$$\dfrac {\text {Adjusted Profit}}{\text {Total Profit}}\times 100$$

D
$$\dfrac {Profit (Adjusted)}{\text {Normal rate of Return}}\times 100$$

Solution

Capitalisation 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. It is calculated by dividing the adjusted profit by normal rate of return.
Question 9
1 / -0

According to the value of goodwill, the type of customers may be divided into ________________.

A
Cats, dogs and mice

B
Cats and mice

C
Dogs and mice

D
Dogs and horses

Solution

Dog-Goodwill - Dog represent a loyal and faithful customer base who are more attached to the person conducting the business rather than the place of business. These types of customers follow the person if he has not gone too far. These types of customers are more of a brand loyal type.
Cat-Goodwill - Cats are normally attached to the home irrespective of the owner of the house. Even if he leaves the house and somebody else comes to occupy it, they keep on visiting the same home. Cats represents those customer who go to the same shop or place of business whoever is the owner of the shop.
Mice-Goodwill - The other variety of customer has attachment neither to the person nor to the place, which, in other words, is known as fugitive goodwill. Mice are not attached to the person or place and are casual in their behaviour.
Question 10
1 / -0

Under the memorandum revaluation method ___________.

A
the new partner does not bring cash for his share of goodwill

B
the new partner brings cash for his share of goodwill

C
goodwill is raised in the books, and then is immediately written off

D
None of the Above

Solution

Memorandum revaluation account is prepared when at the time of admission/retirement of partner, the partnership firm does not want to change the value of assets and liabilities in the balance sheet but want to give effect of it through partner's capital account. Hence, under this method, goodwill is raised in the books and then immediately written off.

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Admission of a Partner Test - 60

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Admission of a Partner Test - 60

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SHARING IS CARING

Question 1

Premium for Goodwill Account

Capital Account of the new partner

Cash Account

None of the above

Solution

Question 2

$$6\%p.a$$

$$10\%p.a$$

The Bank Rate

None of these

Solution

Question 3

Cash A/c Dr. 4000 To Goodwill A/c 4000

Goodwill A/c Dr. 4000 To Cash A/c 4000

Goodwill A/c Dr. 4000 To Verma's Caital A/c 2500 To Sharma's Capital A/c 1500

No entry is required.

Solution

Question 4

Ideal

Average

Over

Extra

Solution

Question 5

new expansion project

old expanded project

firm borrowing project

product line selection

Question 6

good name or reputation of the business

it is an intangible real asset

the capacity of a business to earn profits in future

All the Above

Solution

Question 7

Goodwill

Debit balance of Profit and Loss Account

Preliminary expenses

Deferred revenue expenditure

Solution

Question 8

$$\dfrac {Profit (adjusted)}{100}$$

$$\dfrac {\text {Total Profit}}{\text {Adjusted Profit}}$$

$$\dfrac {\text {Adjusted Profit}}{\text {Total Profit}}\times 100$$

$$\dfrac {Profit (Adjusted)}{\text {Normal rate of Return}}\times 100$$

Solution

Question 9

Cats, dogs and mice

Cats and mice

Dogs and mice

Dogs and horses

Solution

Question 10

the new partner does not bring cash for his share of goodwill

the new partner brings cash for his share of goodwill

goodwill is raised in the books, and then is immediately written off

None of the Above

Solution

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Cash A/c Dr. 4000
To Goodwill A/c 4000

Goodwill A/c Dr. 4000
To Cash A/c 4000

Goodwill A/c Dr. 4000
To Verma's Caital A/c 2500
To Sharma's Capital A/c 1500