Retirement or Death of a partner Test

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Retirement or Death of a partner Test - 36

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Question 1
1 / -0

Choose the correct answers from the alternatives given.
The heir of the deceased partner _______.

A
has a right to become a partner in the firm of the deceased partner

B
does not have a right to become a partner in the firm of the deceased partner

C
can become a partner in the firm of the deceased partner only if the surviving partners give their consent in this regard

D
both (b) & (C)
Question 2
1 / -0

Under average 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

Average Profit Method: Under this method the value of Goodwill is calculated by multiplying the Average Future profit by a certain number of year's purchase.
Question 3
1 / -0

Which of the following asset is compulsory to revalue, at the time of admission of a new partner?

A
Stock.

B
Fixed Assets.

C
Investment.

D
Goodwill.
Question 4
1 / -0

Weighted average method of calculating goodwill should be followed when -

A
Profits are uneven.

B
Profits have increasing trend.

C
Profits have decreasing trend.

D
Either (B) or (C).
Question 5
1 / -0

Choose the correct answers from the alternatives given.
In case of death of a partner ________.

A
the firm is dissolved unless otherwise agreed

B
the estate of deceased partner is liable for any act of the firm after the date of his death if no public notice is given

C
both (A) & (B)

D
none of these

Solution

A partnership firm can be dissolved on happening of certain contingencies. Such contingencies are made clear in section 42, which laid down that subject to contract between the partners, a firm is dissolved
1. if constituted for a fixed term, by the expiry of that term;
2. if constituted to carry out one or more adventures or undertakings, by the completion thereof;
3. by the death of a partner; and
4. by the adjudication of a partner as an insolvent.
However, it can be provided in the partnership agreement that the firm will not be dissolved in any of the circumstances mentioned above and if such provision is made in the agreement that is considered valid.
Question 6
1 / -0

On the admission of a new partner, it is believed that the assets have changed in value. To record a decrease in the value of an asset the double entry should be:

A
Asset A/c Dr
To Revaluation A/c

B
Profit and loss A/c Dr
To Asset A/c

C
Revaluation A/c Dr
To Profit and loss A/c

D
Revaluation A/c Dr
To Asset A/c
Question 7
1 / -0

A, B & C are partners sharing profits and loss in the ratio 3:2:1. They decide to change their profit sharing ratio to 2:2:1. To give effect to this new profit sharing ratio, they decide to value the goodwill at Rs 30,000. Pass the necessary journal entry if Goodwill is not appearing in the old balance sheet and should not appear in the new balance sheet.

A

B

C

D

Solution
Question 8
1 / -0

If goodwill is to be created and then immediately written off, the correct method of entering this in the accounts would be -

A
Debit - Capital A/c (Old Ratio)

Credit - Current A/c (New ratio)

B
Debit - Capital A/c (Old Ratio)

Credit - Capital A/c (New ratio)

C
Debit - Current A/c (New Ratio)

Credit - Current A/c (Old ratio)

D
Debit - Capital A/c (New Ratio)

Credit - Capital A/c (Old ratio)
Question 9
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 $$Rs.10,00,000$$ & $$Rs.4,25,000$$ 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
$$Rs.4,25,000$$

Solution

Calculation of goodwill under capitalization basis-
Capital employed = Assets - Liabilities
Capital emplyed = Rs. (1000000 - 425000)
Capital emplyed = Rs 575000
Normal value of business = Average profit/capitalization rate
Normal value of business = Rs. 120000/ 12%
Normal value of business = Rs. 1000000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. 1000000 - Rs. 575000
Goodwill = Rs. 425000
Question 10
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

Calculation of goodwill under capitalization basis-
Capital employed = Rs. 800000
Normal value of business = Average profit/capitalization rate
Normal value of business = Rs. 120000/ 15%
Normal value of business = Rs. 8000000
Goodwill = Normal value of business - capital employed
Goodwill = Rs. 8000000 - Rs. 800000
Goodwill = Rs. 7200000