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Retirement or Death of a partner Test - 16

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Retirement or Death of a partner Test - 16
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  • Question 1
    1 / -0
    A, B and C are partners sharing profits in the ratio of 3 : 2 : 3, their capitals on 30th June, 2014 are A Rs. 10,000, B Rs. 5,000 and C Rs. 6,000 (Dr.). C becomes insolvent and loss due to his insolvency will be shared by A and B in _____________
    Solution

    Insolvency of partnership implies insolvency of one or more partners of firm (since partnership and partners are same from legal point of view). Loss arising out of insolvency of one or more partners shall be borne by remaining solvent partners in their capital ratio. Therefore, A & B will share the loss due to insolvency of C in the ratio 10,000:5,000 or 2:1.

  • Question 2
    1 / -0
    A and B are sharing profits and losses in the ratio of 4 :1. C is admitted as a new partner for 1/3rd share of profits for which he pays Rs. 30,000 as goodwill. If A and B agree to share future profits equally, then the amount of goodwill to be credited to A would be :
    Solution
    Total value of goodwill as per C's share = Rs.30000 * (3/1) = Rs.90000
    Old ratio (A and B) = 4 : 1
    New ratio (A, B and C) = 1 : 1 : 1
    (Gaining) / Sacrificing ratio = Old ratio - New ratio
    A's sacrifice = (4/5) - (1/3) = 7/15
    B's sacrifice = (1/5) - (1/3) = -2/15 (Gain)
    Therefore, amount of goodwill credited to A's account in sacrificing ratio
     = Rs. 90000 * (7/15) = Rs. 42000
  • Question 3
    1 / -0
    X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit Z as a partner with 1/4th share of profit. Z acquires his share from X and Y in the ratio of 2 : 1. Z's share of goodwill is calculated at Rs. 6000. Z is not in position to bring any amount for goodwill. What additional entry will be required if after Z's admission, it is decided that the goodwill account should not appear in the Balance Sheet of new firm ?
    Solution

  • Question 4
    1 / -0
    The _______ of actual profits over the normal profits is termed as super profits.
    Solution
    Under super profits method, goodwill is calculated by multiplying no. of years purchased with super profits. It is desirable to value, goodwill on the basis of excess profits and not the actual profits. The excess of actual profits over the normal profits is termed as super profits.
  • Question 5
    1 / -0
    Accumulated profits are transferred to capital account in ______ratio. 
    Solution
    When a new partner is being admited into the firm, then before his admission all the existing reserves or accumulated profits in the books of the firm should be transferred to Old Partners in capital/current accounts in the old profit sharing ratio, because these items belong to the old partners and not to the new partner.
  • Question 6
    1 / -0
    Accumulated profits are distributed among the partners by transferring it to their _________account.
    Solution
    When a new partner is being admited into the firm, then before his admission all the existing reserves or accumulated profits in the books of the firm should be transferred to Old Partners in capital/current accounts in the old profit sharing ratio, because these items belong to the old partners and not to the new partner.
  • Question 7
    1 / -0
    Who is entitled to have share in accumulated profits?
    Solution
    When a new partner is being admited into the firm, then before his admission all the existing reserves or accumulated profits in the books of the firm should be transferred to Old Partners in capital/current accounts in the old profit sharing ratio, because these items belong to the old partners and not to the new partner.
  • Question 8
    1 / -0
    Under average profits method, goodwill is valued at agreed number of ________ purchase of the average profits of the past few years.
    Solution
    Average profits method is based on the assumption that a new business does not earn any profits during the first few years of its operations. Under this method, the goodwill is valued at agreed number of years purchase of the average profits of past few years.
  • Question 9
    1 / -0
    Accumulated Profits are transferred to ________________.
    Solution
    Accumulated profits are the balance of profits earned by the company since its inception ,after paying out dividends and making transfers to reserves.It is also called as retained earnings. Free reserves, on the other hand , include Securities Premium reserve , General Reserve , contingency reserves etc.
  • Question 10
    1 / -0
    The capitalised value attached to the differential profit capacity of a business is called _________.
    Solution
    Goodwill is an intangible asset. Goodwill is "the capitalised value attached to the differential profit capacity of a business". It exists only when the firm earns super profits. Any firm that earns normal profits or is incurring losses has no goodwill.
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