Admission of a Partner Test

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Admission of a Partner Test - 62

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Weekly Quiz Competition

Question 1
1 / -0

Under super profit basis, goodwill is calculated by:

A
No. of years purchased multiplied with average profits

B
No. of years purchased multiplied with super profits

C
Summation of the discounted value of expected future benefits

D
Super profit divided with expected rate of return

Solution

Goodwill is desirable to valued on the basis of the excess profits and not the actual profits. The excess of actual profits over the normal profits is termed as super profits.
Normal Profit = Capital Employed X Normal Rate of Return/100
Question 2
1 / -0

___________ method is followed when the new partner does not bring in his share of goodwill in cash.

A
Premium

B
Revaluation

C
Reconstruction

D
Both a and b

Solution

When the new partner does not bring in his share of goodwill in cash, revaluation method is followed. In such a situation, the goodwill account is raised in the books of accounts by crediting the old partners in the old profit sharing ratio. The following are the two possibilities, when goodwill account is to be raised in the books of account:
a. No goodwill appears in the books at the time of admission
b. Goodwill already exists in books at the time of admission
Question 3
1 / -0

Under average profit basis, goodwill is calculated by:

A
No. of years purchased multiplied with past average profits

B
No. of years purchased multiplied with past super profits

C
Summation of the discounted value of expected future benefits

D
Super profit divided with expected rate of return

Solution

Under average profits method, the goodwill is valued at agreed number of 'years' purchase of the average profits of the past few years. It is based on the assumption that a new business will not be able to earn any profits during the first few years of business. Hence, goodwill is calculated by multiplying the past profits by the number of years during which the anticipated profits are expected to accrue
Question 4
1 / -0

The following is not a mode of reconstitution of a partnership firm.

A
New profit sharing ratio

B
Admission of a new partner

C
Changes in the profit sharing ratio among the existing partners

D
Death of a partner

Solution

Partnership is an agreement between two or more persons (called partners) for sharing the profits of a business carried on by all or any of them acting for all. The partners often resort to reconstitution of the firm in various ways such as admission of a new partner, change in profit sharing ratio, retirement of a partner, death or insolvency of a partner.
Question 5
1 / -0

Excess of actual profit over normal profit is called

A
Normal profit

B
Super profit

C
Capitalized profit

D
All of the above

Solution

Super profit is the excess of average profits over normal profits. It is a way of determining the extra profits that are earned by the business. It is also used in the calculation of goodwill.
Question 6
1 / -0

Consequent upon admission of a new partner in a firm the value of the goodwill is valued at Rs.60,000. But there exists a goodwill account in the balance sheet which stood at Rs.48,000 what would be treatment of goodwill at the time of admission of a new partner if the firm follows revaluation method of goodwill?

A
Debit goodwill A/c by Rs.12,000

B
Debit goodwill A/c by Rs.48,000

C
Debit goodwill A/c by Rs.60,000

D
Credit goodwill A/c by Rs.12,000

Solution

incoming partner raised goodwill= 60000
existing goodwill =48000
goodwill will debited=60000-48000
=12000
then journal entries is=goodwill a/c....Dr
to partners capital a/c
Question 7
1 / -0

When the purchasing company decides to compensate the selling company on the basis of the agreed value of assets and liabilities, the method of calculating purchase consideration is _______________.

A
Net payment method

B
Net assets method

C
Lump sum method

D
Intrinsic value method

Solution

Under this method, purchase consideration is calculated on the basis of adding the value of all assets and deducting the value of liabilities to find out the net assets of the business.
Below is the example:

Land & Building Rs.5,00,000
Plant & Machinery Rs.2,00,000
Furniture & Fixtures Rs.60,000
Debtors Rs.40,000
Stock Rs.30,000
-------------------
Total Assets Rs.8,30,000
Less: Liabilities Rs. 2,30,000
-------------------
Purchase Consideration Rs.6,00,000
--------------------
Question 8
1 / -0

A and B were equal partners in a firm. On $$1-1-2001$$, they admitted C on the following conditions: C should bring $$Rs. 20,000$$ as capital, and $$Rs. 10,000$$ as goodwill. In future A, B and C would share profits and losses in the ratio of $$2 : 1 : 2$$. A and B will share the goodwill in the ratio of _________.

A
$$1 : 1$$

B
$$3 : 1$$

C
$$1 : 3$$

D
$$2 : 1$$

Solution

At the time of admission of a new partner, goodwill brought in by new partner is distributed among old partners who are sacrificing their share of profit in favour of new partner. Goodwill will be distributed in their sacrificing ratio.
In the given question -
Old ratio (A and B) = 1 : 1
New ratio (A, B and C) = 2 : 1 : 2
gaining/ (Sacrificing) ratio = New ratio - Old ratio
A's gain/ (sacrifice) = (2/5) - (1/2) = (-1/10)
B's gain/ (sacrifice) = (1/5) - (1/2) = (-3/10)
Therefore, A and B will share the goodwill in the ratio of 1 : 3
Question 9
1 / -0

Admission of new partner necessitates ___________.

A
Valuation of goodwill

B
Distribution of existing profit/reserve amongst old partners

C
Re-determination of profit sharing ratio

D
All the above

Solution

Admission of a new partner necessitates the following:
1. Valuation of Goodwill A/c
2. Re-determination of Profit Sharing ratio
3. Adjustment on Capital of partners
4. Revaluation of Assets/ Liabilities
5. Distribution of reserves or accumulated profit.
Question 10
1 / -0

X & Associates is a partnership firm, it intends to revalue its goodwill, average profit for the past five years is Rs. 11,000 per annum and goodwill is being valued 3 years purchase of average profit. What would be the value of the goodwill of the firm?

A
Rs.33,000

B
Rs.11,000

C
Rs.35,000

D
Rs.25,000

Solution

Under the average profit method the goodwill valuation/calculation of certain number of purchase of average profit of the firm
=11000*3=33000

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Admission of a Partner Test - 62

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Admission of a Partner Test - 62

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Question 1

No. of years purchased multiplied with average profits

No. of years purchased multiplied with super profits

Summation of the discounted value of expected future benefits

Super profit divided with expected rate of return

Solution

Question 2

Premium

Revaluation

Reconstruction

Both a and b

Solution

Question 3

No. of years purchased multiplied with past average profits

No. of years purchased multiplied with past super profits

Summation of the discounted value of expected future benefits

Super profit divided with expected rate of return

Solution

Question 4

New profit sharing ratio

Admission of a new partner

Changes in the profit sharing ratio among the existing partners

Death of a partner

Solution

Question 5

Normal profit

Super profit

Capitalized profit

All of the above

Solution

Question 6

Debit goodwill A/c by Rs.12,000

Debit goodwill A/c by Rs.48,000

Debit goodwill A/c by Rs.60,000

Credit goodwill A/c by Rs.12,000

Solution

Question 7

Net payment method

Net assets method

Lump sum method

Intrinsic value method

Solution

Question 8

$$1 : 1$$

$$3 : 1$$

$$1 : 3$$

$$2 : 1$$

Solution

Question 9

Valuation of goodwill

Distribution of existing profit/reserve amongst old partners

Re-determination of profit sharing ratio

All the above

Solution

Question 10

Rs.33,000

Rs.11,000

Rs.35,000

Rs.25,000

Solution

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