Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 12

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Question 1
1 / -0

$$Z$$ is admitted to a firm for $$1/4^{th}$$ share in the profit, for which he brings in Rs.$$10,000$$ towards premium for goodwill. It will be taken by the old partners in ____________ .

A
The old profit-sharing ratio

B
The new profit-sharing ratio

C
The sacrificing ratio

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. It is distributed among the old partners in the ratio in which they forego their shares in favour of the new partner which is called the sacrificing ratio.
Question 2
1 / -0

If the incoming partner is to bring in premium for goodwill in cash and also balance exist, in the goodwill Account, then this Goodwill Account is written off among the old partners in _________ .

A
the new profit-sharing ratio

B
the old profit-sharing ratio

C
the sacrifice ratio

D
none of the above

Solution

If the incoming partner brings premium for goodwill in cash and goodwill already exists in the books of the firm, this goodwill that already exists in the books of the firm is distributed among the existing partners in their old profit sharing ratio. The new partner is not entitled to share in this goodwill since he was not a part of the firm when this goodwill was earned by the old partners. Since, the firm is reconstituted at the time of admission, the existing goodwill is written off.
Question 3
1 / -0

'Samta Limited invited applications for issuing $$6,750$$ equity shares of $$Rs 10$$ each. The amount was payable as follows : On application - $$Rs 3$$ per share
On allotment - $$Rs 5$$ per share
On first and final call - $$Rs 2$$ per share
The issue was fully subscribed. Subhash applied for $$250$$ shares and paid his entire share money with application. Moti applied for $$175$$ shares and paid allotment money also with application. The amount received with applications was :

A
$$Rs 16,750 $$

B
$$Rs 16,000$$

C
$$Rs 19,250$$

D
$$Rs 22,875$$

Solution

Calculation of amount received with the application
Application amount received on $$6,750$$ shares = $$20,250$$
Subhash paid in advance $$(250 @ Rs7)$$ = $$\,\,1,750$$
Moti paid in advance $$(175 @ Rs 5)$$ = $$\,\,\,\,875$$
___________________________________________________
$$22,875$$
Hence, the correct answer is an option (D).
Question 4
1 / -0

X,Y and Z are partner sharing profits in the ratio of $$5:3:2$$. If $$Y$$ retires then the new ratio will be______.

A
$$5:2$$

B
$$5:3$$

C
$$3:2$$

D
$$2:5$$

Solution

There are no conditions for new ratio mentioned in the question.
So the new ratio will be deemed to be 5:2.
Question 5
1 / -0

_________ is calculated when a partner retires from the firm.

A
Sacrificing ratio

B
Gaining ratio

C
Profit sharing ratio

D
Either (A) or (C)

Solution

Gaining ratio is the ratio which is calculated after the retirement or death of the partners. It is opposite to the sacrificing ratio. It is calculated by subtracting the old ratio from the new ratio.
Question 6
1 / -0

Which method is useful when the actual profit is less than normal profit?

A
Super profit method

B
Capitalisation method

C
Average profit method

D
Premium method

Solution

Capitalization 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.
Question 7
1 / -0

The formula of super profit is ____________.

A
$$\dfrac {Total\ profits}{No. of\ years}$$

B
Capital employed $$\times$$ normal rate of return

C
Average profit $$-$$ normal Profit

D
Super profit $$\times$$ no. of years of purchase

Solution

Under super profit method, goodwill is calculated on the basis of super profits. Super profit is calculated by subtracting normal profit from average profit. Hence, the formula of super profit is average profit - normal profit.
Question 8
1 / -0

Which of the following are true or false?
a) A retiring partner will be held liable for the debts incurred by the firm after his retirement.
b) He must give public notice to that effect

A
Both (A) and (B) are true

B
Both (A) and (B) are false

C
(A) is true, but (B) is false

D
(A) is false, but (B) is true

Solution

Section 32 of the Indian partnership act, 1932, states that a retiring partner will be held liable for the debts incurred by the firm before his retirement. He must also give public notice that he is retiring from the firm. Hence, A is false and B is true.
Question 9
1 / -0

The formula of average profit method is __________.

A
$$\dfrac {Total\ Profits}{No. of \ years}$$

B
Super Profit $$-$$ Normal Profit

C
Super Profit $$\times$$ No. of years

D
$$\dfrac {Super\ profit}{Normal\ profit}$$

Solution

Average profit method is the simplest and the most commonly used method of the valuation of goodwill. Under this method, goodwill is calculated on the basis of calculating of average of profits of the firm in past years.
Question 10
1 / -0

'Dogs' is applicable in case of professional services like ______________.

A
Lawyers

B
Doctors

C
Traders

D
Both (A) and (B)

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Re-Attempt Weekly Quiz Competition

Retirement or Death of a partner Test - 12

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Retirement or Death of a partner Test - 12

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SHARING IS CARING

Question 1

The old profit-sharing ratio

The new profit-sharing ratio

The sacrificing ratio

None of the above

Solution

Question 2

the new profit-sharing ratio

the old profit-sharing ratio

the sacrifice ratio

none of the above

Solution

Question 3

$$Rs 16,750 $$

$$Rs 16,000$$

$$Rs 19,250$$

$$Rs 22,875$$

Solution

Question 4

$$5:2$$

$$5:3$$

$$3:2$$

$$2:5$$

Solution

Question 5

Sacrificing ratio

Gaining ratio

Profit sharing ratio

Either (A) or (C)

Solution

Question 6

Super profit method

Capitalisation method

Average profit method

Premium method

Solution

Question 7

$$\dfrac {Total\ profits}{No. of\ years}$$

Capital employed $$\times$$ normal rate of return

Average profit $$-$$ normal Profit

Super profit $$\times$$ no. of years of purchase

Solution

Question 8

Both (A) and (B) are true

Both (A) and (B) are false

(A) is true, but (B) is false

(A) is false, but (B) is true

Solution

Question 9

$$\dfrac {Total\ Profits}{No. of \ years}$$

Super Profit $$-$$ Normal Profit

Super Profit $$\times$$ No. of years

$$\dfrac {Super\ profit}{Normal\ profit}$$

Solution

Question 10

Lawyers

Doctors

Traders

Both (A) and (B)

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