Admission of a Partner Test

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Admission of a Partner Test - 64

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Weekly Quiz Competition

Question 1
1 / -0

Decrease in assets at the time of retirement of partner is _________.

A
debited to Goodwill A/c

B
debited to Profit & Loss A/c

C
debited to Revaluation A/c

D
credited to Revaluation A/c

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 2
1 / -0

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

A
debited to Goodwill A/c

B
debited to Profit & Loss A/c

C
debited to Revaluation A/c

D
credited to Revaluation A/c

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 3
1 / -0

Decrease in liability at the time of retirement of partner is ________.

A
debited to Goodwill A/c

B
debited to Profit & Loss A/c

C
debited to Revaluation A/c

D
credited to Revaluation A/c

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 4
1 / -0

If three partners A, B & C are sharing profits as $$5 : 3 : 2$$, then on the death of a partner A, how much B & C will pay to A's executor on account of good will. Good will is to be calculated on the basis of $$2$$ years purchase of last $$3$$ years average profits. Profits for last three years are : $$Rs.3,29,000$$; $$Rs.3,46,000$$ and $$Rs.4,05,000$$.

A
$$Rs.2,16,000$$ & $$Rs.1,42,000$$

B
$$Rs.2,44,000$$ & $$Rs.2,16,000$$

C
$$Rs.3,60,000$$ & $$Rs.3,60,000$$

D
$$Rs.2,16,000$$ & $$Rs.1,44,000$$

Solution

Profit sharing ratio of A, B and C = 5 : 3 : 2
A's share = 5/10
A's share of goodwill = Total goodwill * A's share
= 720000 * (5/10)
= 360000 (W.N 1 & 2)
B and C will contribute to A's share of goodwill in their new profit sharing ratio i.e., 3 : 2
B's ccontributio = 360000 * (3/5) = 216000
C's contribution = 360000 * (2/5) = 144000

WORKING NOTES:
1. Clculation of average profit
= (329000 + 346000 + 405000 ) / 3
= 1080000 / 3 = 360000
2. Calculation of goodwill = Average profit * No. of year's purchase
= 360000 * 2
= 720000
Question 5
1 / -0

When required amount for premium for goodwill is not brought in by new partner, goodwill account is raised in the books of the firm by debiting goodwill account and crediting partners capital account in old profit sharing ratio and written off in ______ if it agreed not show goodwill in the books of the firm OR ALTERNATIVELY premium for goodwill should be adjusted through partners capital account by debiting new partners share of goodwill to his account and crediting old partners capital accounts in _________.

A
new profit sharing ratio, sacrificing ratio

B
old profit sharing ratio, sacarificing ratio

C
sacrificing ratio, new profit sharing ratio

D
capital ratio, new profit sharing ratio

Solution

Accounting treatment of goodwill in case of a admission of a new partner:
If the incoming partner brings any premium over and above his capital contribution at the time of his admission, such premium should be distributed to other existing partners. when a new partner is admitted to a firm, the old partners generally sacrifice in favour of the new partner in terms of lower profit sharing ratio in the future. Therefore, the premium for goodwill brought in by the new partner shall be given to the existing partners.

There can be two ways for the treatment of goodwill:
1. Goodwill account is raised in the books of the firm by debiting goodwill account or crediting partners capital A/c in old ratio and written off in new profit sharing ratio.
2. Premium for goodwill should be adjusted through partners capital account by debiting new partners share of goodwill to his account and crediting old partners capital account in sacrificing ratio.
Question 6
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 $$10,000$$ & 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.$$4,25,000$$
Question 7
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

Goodwill using capitalization method:
Step 1: Capitalized value of profits: Profits/Reasonable Rate of Return=$$Rs.12,00,000$$/$$0.15$$=$$Rs.80,00,000$$
Step 2: Capital employed=$$Rs.8,00,000$$ (given)
Step 3: Value of Goodwill=Step 1 - Step 2= $$Rs.80,00,000$$-$$Rs.8,00,000$$= $$Rs.72,00,000$$
Question 8
1 / -0

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

A
Goodwill $$=$$ Super profit * No. of years purchases.

B
Goodwill $$=$$ Super profit * annuity factor.

C
Goodwill $$=$$ $$\dfrac{Super profit}{Capitalisation rate} X 100$$.

D
All of the above.

Solution

Following are various method of valuation of goodwill under super profit basis:
1. Super profit basis = Super profit * No. of years purchase
2. Annuity basis = Super profit * Annuity factor
3. Capitalisation basis = (Super profit/ Capitalisation rate) * 100
Question 9
1 / -0

A, B & C are equal partners. C wanted to retire for which value of goodwill is considered as $$Rs.90,000$$.
The necessary journal entry will be:

A
A Capital A/c Dr. 15,000

B Capital A/c Dr. 15,000

To C A/c 30,000

B
C Capital A/c Dr. 30,000

To A Capital A/c 15,000

To B Capital A/c 15,000

C
C Capital A/c Dr. 30,000

To A Capital A/c 10,000

To B Capital A/c 20,000

D
Premium for Goodwill A/c Dr. 30,000

To A Capital A/c 10,000

To B Capital A/c 20,000

Solution

Profit sharing ratio of A, B and C is equal i.e. 1 : 1 : 1
C's share of goodwill = Total goodwill * C's share
= Rs. 90000 * (1/3) = Rs. 30000
C's share of goodwill will be given to him by gaining partners in gaining ratio at the time of C's retirement. Journal entry for the same will be:
A's capital A/c Dr. 15000
B's capital A/c Dr. 15000
To C's capital A/c 30000
Question 10
1 / -0

Balances of A, B & C sharing profits & losses in proportionate to their capitals, stood as:
A = $$Rs.2,00,000$$
B = $$Rs.3,00,000$$
C = $$Rs.2,00,000$$
A desired to retire from the firm, B and C share the future profits equally, Goodwill of the entire firm be valued at $$Rs.1,40,000$$ and no Goodwill account being raised. What entry will be passed for payment of Goodwill?

A
Credit Partner's Capital A/c with old profit sharing ratio for $$Rs.1,40,000$$.

B
Credit Partner's Capital A/c with new profit sharing ratio for $$Rs.1,40,000$$.

C
Credit A's Capital A/c with $$Rs.40,000$$ and debit B's Capital A/c with $$Rs.10,000$$ & C's Capital A/c with $$Rs.30,000$$.

D
Credit Partner's Capital A/c with gaining ratio for $$Rs.1,40,000$$.

Solution

Old ratio (A, B and C) = 2 : 3 : 2
New ratio (B and C) = 1 : 1
Gaining ratio = New ratio - Old ratio
B's gain = (1/2) - (3/7) = 1/14
C's gain = (1/2) - (2/7) =3/14
A's share of goodwill = Total goodwill * A's share
= 140000 * (2/7)
= 40000
In case if no goodwill account is raised adjustment for payment of goodwill to retiring partner will be as follows:
B's capital A/c Dr. 10000
C's capital A/c Dr. 30000
To A's capital A/c 40000

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Admission of a Partner Test - 64

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Admission of a Partner Test - 64

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SHARING IS CARING

Question 1

debited to Goodwill A/c

debited to Profit & Loss A/c

debited to Revaluation A/c

credited to Revaluation A/c

Solution

Question 2

debited to Goodwill A/c

debited to Profit & Loss A/c

debited to Revaluation A/c

credited to Revaluation A/c

Solution

Question 3

debited to Goodwill A/c

debited to Profit & Loss A/c

debited to Revaluation A/c

credited to Revaluation A/c

Solution

Question 4

$$Rs.2,16,000$$ & $$Rs.1,42,000$$

$$Rs.2,44,000$$ & $$Rs.2,16,000$$

$$Rs.3,60,000$$ & $$Rs.3,60,000$$

$$Rs.2,16,000$$ & $$Rs.1,44,000$$

Solution

Question 5

new profit sharing ratio, sacrificing ratio

old profit sharing ratio, sacarificing ratio

sacrificing ratio, new profit sharing ratio

capital ratio, new profit sharing ratio

Solution

Question 6

Rs.$$3,25,000$$

Rs.$$2,25,000$$

Rs.$$5,25,000$$

Rs.$$4,25,000$$

Question 7

Rs.$$82,00,000$$

Rs.$$12,00,000$$

Rs.$$72,00,000$$

Rs.$$42,00,000$$

Solution

Question 8

Goodwill $$=$$ Super profit * No. of years purchases.

Goodwill $$=$$ Super profit * annuity factor.

Goodwill $$=$$ $$\dfrac{Super profit}{Capitalisation rate} X 100$$.

All of the above.

Solution

Question 9

A Capital A/c Dr. 15,000B Capital A/c Dr. 15,000To C A/c 30,000

C Capital A/c Dr. 30,000To A Capital A/c 15,000To B Capital A/c 15,000

C Capital A/c Dr. 30,000To A Capital A/c 10,000To B Capital A/c 20,000

Premium for Goodwill A/c Dr. 30,000To A Capital A/c 10,000To B Capital A/c 20,000

Solution

Question 10

Credit Partner's Capital A/c with old profit sharing ratio for $$Rs.1,40,000$$.

Credit Partner's Capital A/c with new profit sharing ratio for $$Rs.1,40,000$$.

Credit A's Capital A/c with $$Rs.40,000$$ and debit B's Capital A/c with $$Rs.10,000$$ & C's Capital A/c with $$Rs.30,000$$.

Credit Partner's Capital A/c with gaining ratio for $$Rs.1,40,000$$.

Solution

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A Capital A/c Dr. 15,000

B Capital A/c Dr. 15,000

To C A/c 30,000

C Capital A/c Dr. 30,000

To A Capital A/c 15,000

To B Capital A/c 15,000

C Capital A/c Dr. 30,000

To A Capital A/c 10,000

To B Capital A/c 20,000

Premium for Goodwill A/c Dr. 30,000

To A Capital A/c 10,000

To B Capital A/c 20,000