Admission of a Partner Test

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Admission of a Partner Test - 63

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Weekly Quiz Competition

Question 1
1 / -0

At the time of admission when goodwill account is not being opened in the books of account, credit is given to the old partner in what ratio?

A
Old profit sharing ratio

B
New profit sharing ratio

C
Sacrificing ratio

D
Equally

Solution

Due to admission of the partner change in the profit and loss of the old partner and the ratio which old partner are share profit to incoming partner is called sacrifice ratio.
Question 2
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A and B are partners with capitals of Rs.20,000 and Rs.40,000 respectively and sharing profits equally. They admitted C as their third partner for one-fourth share for all-purpose on payment of Rs.24,000. The amount of hidden goodwill is ________.

A
$$Rs.12,000$$

B
$$Rs.2,000$$

C
Rs.16,000

D
None of these

Solution

Hidden goodwill - Hidden goodwill is the excess of desired total capital of the firm over the actual combined capital of all partner. Sometime the value of goodwill is not given at the time of admission of a new partner. In such a situation it has to be inferred from the arrangement of the capital and profit sharing ratio.

Actual capital of the firm after C's admission = Capital of (A + B + C) = Rs. (20000 + 40000 + 24000)

= Rs. 84000

Capitalized value of the firm on the basis of C's share = (24000 * 4) / 1

= 96000

Goodwill = Capitalized value of the firm - Actual capital of the firm

= Rs. (96000 - 84000 )

= Rs. 12000
Question 3
1 / -0

ABC Associates has decided to value the goodwill of the firm using capitalisation method. Find the goodwill of the firm if capital employed of the firm is $$Rs.24,00,000$$. Reasonable return on capital is $$12.5$$% and current years profit is $$Rs.8,00,000$$.

A
$$Rs.64,00,000$$

B
$$Rs.40,00,000$$

C
$$Rs.24,00,000$$

D
$$Rs.56,00,000$$

Solution

Goodwill of the firm using Capitalisation Method:
Step I: Capitalised value of Profits= Profit/Normal Rate of Return=$$Rs.8,00,000/0.125$$=$$Rs.64,00,000$$
Step II:Capital Employed= $$Rs.24,00,000$$ (given)
Step III:Goodwill= Step I - Step II= $$Rs.40,00,000$$
Question 4
1 / -0

X and Y are two partners in firm having share capital of Rs.10,000 and Rs.15,000 respectively. Z is admitted for 1/3 share of profit for which he is to bring Rs.15,000 for his share of capital. What is the goodwill of the firm?

A
$$Rs.10,000$$

B
$$Rs.9,000$$

C
$$Rs.5,000$$

D
$$Rs.11,000$$

Solution

When the value of the goodwill of the firm is not specifically given, the value of goodwill has to be inferred as follows:
Goodwill = (Incoming partner's capital * Reciprocal of share of incoming partner) - Total capital after taking into consideration the capital brought in by incoming partner.
Goodwill = [Rs. 15000 * (3/1)] - Rs. (10000 + 15000 + 15000)
Goodwill = Rs. 45000 - Rs. 40000
Goodwill = Rs. 5000
Question 5
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A, B & C are partners sharing profits in the ratio 2:2:1. On retirement of B, goodwill was valued as $$Rs.60,000$$. Find the contribution of A and C to compensate B.

A
$$Rs.24,000$$ and $$Rs.20,000$$.

B
$$Rs.16,000$$ and $$Rs.8,000$$.

C
They will not contribute anything.

D
Information is insufficient for any comment.

Solution

Old ratio (A, B and C) = 2 : 2 : 1
B's share = 2/5
B's sahre of goodwill = Rs. 60000 * (2/5) = 24000
Contribution to compensate B by:
A = 24000 * (2/3) = 16000
B = 24000 * (1/3) = 8000
Question 6
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R, J & D are the partners sharing profits in the ratio $$7 : 5 : 4$$. D died on $$30$$th June $$2015$$. It was decided to value the good will on the basis of $$3$$ year's purchase of last $$5$$ years average profits. If the profits are $$Rs.29,600$$; $$Rs.28,700$$; $$Rs.28,900$$; $$Rs.24,000$$ & $$Rs.26,800$$. What will be D's share of good will?

A
$$Rs.20,700$$.

B
$$Rs.27,600$$.

C
$$Rs.82,800$$.

D
$$Rs.27,000$$.

Solution

Old ratio (R, J and D) = 7 : 5 : 4
Calculation of goodwill :
1. Average profit = (29600 + 28700 + 28900 + 24000 + 26800) /5
= 138000/5
= 27600
2. Goodwill = Average profit * No. of year's purchase
= 27600 * 3
= 82800
D's share of goodwill = Total goodwill * D's share
= 82800 * (4/16)
= 20700
Question 7
1 / -0

In which of the following case the need for the valuation of goodwill in a firm may arise?
(I) Admission of new partner
(II) While changing profit sharing ratio
(III) Retirement of partner
(IV) Death of partner
Select the correct answer from the options given below-

A
(I) & (III) only

B
(I), (III) & (IV)

C
(I), (II) & (III) only

D
All (I) to (IV)

Solution

In all these cases one partner sacrifice and the other partner gain. Gaining partner must compensate the sacrificing partner by paying the proportionate amount of goodwill. Gaining partner should pay the sacrificing partner that share of goodwill which is equal to the share gained by him. Valuation is done to calculate that share.
Question 8
1 / -0

Increase in liability at the time of retirement of partner is _______.

A
debited to goodwill account

B
debited to profit & loss account

C
debited to revaluation account

D
credited to revaluation account

Solution

Revaluation account is an account prepared for revaluation of assets and reassessment of liabilities. It may be prepared at the admission, retirement or dissolution of a partnership firm.
In this account decrease in assets and increase in liability is debited and increase in asset and decrease in liability is credited. Difference between the two sides show profit and loss. Profit and loss on revaluation is distributed among existing partners.
Question 9
1 / -0

R, J & D are the partners sharing profits in the ratio $$7 : 5 : 4$$. D died on $$30$$th June $$2015$$. Profit for the accounting year $$2014-2015$$ was $$Rs.24,000$$. How much share in profits for the period $$1st$$ April, $$2015$$ to $$30$$th June, $$2015$$ will be credited to D's A/c?

A
$$Rs.6,000$$

B
$$Rs.1,500$$

C
$$Rs.4,500$$

D
$$Rs.2,000$$

Solution

Profit of the accounting year 2014 - 2015 = Rs. 24000
Profit till 30th june = Rs.24000 * (3/12) = 6000
Distribution of profit among partners on the date of the death of D
R = 6000 * (7/16) = 2625
J = 6000 * (5/16) = 1875
D = 6000 * (4/16) = 1500
Question 10
1 / -0

A, B & C sharing profits & losses in the ratio of 3:2:1. A retired and Goodwill of the firm is to be valued at Rs. 24,000. What will be the treatment for goodwill?

A
Credited to Revaluation A/c at Rs. 24,000.

B
Adjusted through Partners Capital A/c's in gaining/sacrificing ratio.

C
Only A's Capital A/c credited with Rs. 12,000.

D
Only A's capital account credited with Rs. 24,000.

Solution

At the the time of retirement of partner from partnership firm, If partners do not want to open goodwill A/c then retiring partner's share in goodwill will be adjusted through partner's capital A/c in their gaining and sacrificing ratio. Gaining partner's capital will be debited and sacrificing partner's capital will be credited.

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Admission of a Partner Test - 63

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Admission of a Partner Test - 63

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SHARING IS CARING

Question 1

Old profit sharing ratio

New profit sharing ratio

Sacrificing ratio

Equally

Solution

Question 2

$$Rs.12,000$$

$$Rs.2,000$$

Rs.16,000

None of these

Solution

Question 3

$$Rs.64,00,000$$

$$Rs.40,00,000$$

$$Rs.24,00,000$$

$$Rs.56,00,000$$

Solution

Question 4

$$Rs.10,000$$

$$Rs.9,000$$

$$Rs.5,000$$

$$Rs.11,000$$

Solution

Question 5

$$Rs.24,000$$ and $$Rs.20,000$$.

$$Rs.16,000$$ and $$Rs.8,000$$.

They will not contribute anything.

Information is insufficient for any comment.

Solution

Question 6

$$Rs.20,700$$.

$$Rs.27,600$$.

$$Rs.82,800$$.

$$Rs.27,000$$.

Solution

Question 7

(I) & (III) only

(I), (III) & (IV)

(I), (II) & (III) only

All (I) to (IV)

Solution

Question 8

debited to goodwill account

debited to profit & loss account

debited to revaluation account

credited to revaluation account

Solution

Question 9

$$Rs.6,000$$

$$Rs.1,500$$

$$Rs.4,500$$

$$Rs.2,000$$

Solution

Question 10

Credited to Revaluation A/c at Rs. 24,000.

Adjusted through Partners Capital A/c's in gaining/sacrificing ratio.

Only A's Capital A/c credited with Rs. 12,000.

Only A's capital account credited with Rs. 24,000.

Solution

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