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Accountancy Test - 25

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Accountancy Test - 25
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  • Question 1
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows

    ‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

    • Assets ₹ 8,000

    • Creditors ₹ 1,000

    • Normal rate of return 10%

    • Good will of the firm ₹1,000

    ...view full instructions

    What is the super profit of business?

    Solution

    Good will = Super Profit x Number of Years’

    Purchase 1,000 = Super Profit x 4

    Super Profit = ₹250 

  • Question 2
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows

    ‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

    • Assets ₹ 8,000

    • Creditors ₹ 1,000

    • Normal rate of return 10%

    • Good will of the firm ₹1,000

    ...view full instructions

    What is the normal profit of business?

    Solution

    Normal Profit = Capital Employed x Normal Rate of Return / 100

    = 8,000−1,000 = 7,000

    Normal Profit = 7,000 × 10/100 ​= 700

  • Question 3
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows

    ‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

    • Assets ₹ 8,000

    • Creditors ₹ 1,000

    • Normal rate of return 10%

    • Good will of the firm ₹1,000

    ...view full instructions

    How is good will calculated in the given case?

    Solution

    4 years' purchase of super profit

    Given in the case study: "Goodwill will be valued at 4 years’ purchase of super profits."

  • Question 4
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows

    ‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction

    • Assets ₹ 8,000

    • Creditors ₹ 1,000

    • Normal rate of return 10%

    • Good will of the firm ₹1,000

    ...view full instructions

    If the firm was valued using simple average profits instead of super profits, which factor would no longer be considered?

    Solution

    The simple average method does not involve calculating super profit, which is based on excess earnings over normal profit.

  • Question 5
    5 / -1

    Munit and Seema came together to provide free food to poor covid patients during the pandemic. They can call this as partnership.

    Solution

    Profit making is mandatory purpose for business partnership.

  • Question 6
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Sam and Tom decided to set up a partnership to sell low-sodium, plant-based vegan snacks. Since both had families, they decided to withdraw a salary of ₹12,000 per quarter. Sam also withdrew ₹1,00,000 on 31st December 2020 to get her wife treated for COVID-19. The partnership deed provided for 10% p.a. interest on drawings. Tom introduced ₹50,000 as additional capital on 31st January 2021 to increase the inventory. The net distributable profit was ₹2,00,000, which was divided between Sam and Tom after providing 25% to the general reserve.

    ...view full instructions

    Total amount of salary credited to the partner’s account is

    Solution

    Each partner (Sam and Tom) receives a salary of ₹12,000 per quarter.

    There are 2 partners, and there are 4 quarters in a year.

    Total salary per partner per year = ₹12,000 × 4 = ₹48,000.

    Total salary for both partners = ₹48,000 × 2 = ₹96,000.

  • Question 7
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Sam and Tom decided to set up a partnership to sell low-sodium, plant-based vegan snacks. Since both had families, they decided to withdraw a salary of ₹12,000 per quarter. Sam also withdrew ₹1,00,000 on 31st December 2020 to get her wife treated for Covid-19. The partnership deed provided for 10% p.a. interest on drawings. Tom introduced ₹50,000 as additional capital on 31st January 2021 to increase the inventory. The net distributable profit was ₹2,00,000, which was divided between Sam and Tom after providing 25% to the general reserve

    ...view full instructions

    Interest on Tom’s capital will be

    Solution

    Interest on Tom’s capital is calculated as follows:

    • The deed governing the capital is silent on interest provisions.
    • As a result, the interest amount is nil.
  • Question 8
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Sam and Tom decided to set up a partnership to sell low-sodium, plant-based vegan snacks. Since both had families, they decided to withdraw a salary of ₹12,000 per quarter. Sam also withdrew ₹1,00,000 on 31st December 2020 to get her wife treated for Covid-19. The partnership deed provided for 10% p.a. interest on drawings. Tom introduced ₹50,000 as additional capital on 31st January 2021 to increase the inventory. The net distributable profit was ₹2,00,000, which was divided between Sam and Tom after providing 25% to the general reserve.

    ...view full instructions

    What was the interest charged on Sam’s withdrawal of ₹1,00,000?

    Solution

    Interest on Drawings = Drawings × Rate × Time​/12

    = 1,00,000 × 10%× 3/12

    = 1,00,000 × 0.10 × 0.25 = 2,500

    (Time is 3 months because withdrawal happened on December 31st, so interest applies for Jan–March.)

  • Question 9
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Sam and Tom decided to set up a partnership to sell low-sodium, plant-based vegan snacks. Since both had families, they decided to withdraw a salary of ₹12,000 per quarter. Sam also withdrew ₹1,00,000 on 31st December 2020 to get her wife treated for Covid-19. The partnership deed provided for 10% p.a. interest on drawings. Tom introduced ₹50,000 as additional capital on 31st January 2021 to increase the inventory. The net distributable profit was ₹2,00,000, which was divided between Sam and Tom after providing 25% to the general reserve.

    ...view full instructions

    What was the profit credited in both partner’s accounts?

    Solution

    Profit credited to both partners' accounts:

    The total profit credited is calculated as follows:

    • Total profit: ₹ 2,00,000
    • Percentage deducted: 25%
    • Profit after deduction: ₹ 1,50,000

    Thus, the profit credited to both partners is ₹ 1,50,000.

  • Question 10
    5 / -1

    Directions For Questions

    Directions: Read the following case study and answer questions on the basis of the same.

    Sam and Tom decided to set up a partnership to sell low-sodium, plant-based vegan snacks. Since both had families, they decided to withdraw a salary of ₹12,000 per quarter. Sam also withdrew ₹1,00,000 on 31st December 2020 to get her wife treated for Covid-19. The partnership deed provided for 10% p.a. interest on drawings. Tom introduced ₹50,000 as additional capital on 31st January 2021 to increase the inventory. The net distributable profit was ₹2,00,000, which was divided between Sam and Tom after providing 25% to the general reserve.

    ...view full instructions

    How much total amount did Tom invest in the business, including the additional capital?

    Solution

    The total amount Tom invested in the business, including the additional capital, is calculated as follows:

    • Tom introduced ₹50,000 as additional capital on 31st January 2021.

    • Since the case does not provide information about Tom’s initial capital investment, we consider only the additional capital introduced.

    Thus, the total amount Tom invested in the business cannot be determined

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