TEST: 1

TOPIC : FUNDAMENTAL, GOODWILL, CHANGE IN PROFIT SHARING RATIO

Q1. Which one of the following is NOT an essential feature of a partnership?
(A) There must be an agreement
(B) There must be a business
(C) The business must be carried on for profits
(D) The business must be carried on by all the partners
2. In the absence of Partnership Deed, the interest is allowed on partner‘s capital:
(A) @ 6% p.a.
(B) @ 5% p.a.
(C) @ 12% p.a.
(D) No interest is allowed
Q3. In the absence of a partnership deed, the allowable rate of interest on
partner‘s loan account will be :
(A) 6% Simple Interest
(B) 6% p.a. Simple Interest
(C) 12% Simple Interest
(D) 12% Compounded Annually
Q4. A and B are partners in partnership firm without any agreement. A has given
a loan of 50,000 to the firm. At the end of year loss was incurred in the
business. Following interest may be paid to A by the firm:
(A) @5% Per Annum
(B) @ 6% Per Annum
(C) @ 6% Per Month
(D) As there is a loss in the business, interest can‘t be paid
Q5. A, B and C were Partners with capitals of 50,000; 40,000 and 30,000
respectively carrying on business in partnership. The firm‘s reported profit for the
year was 80,000. As per provision of the Indian Partnership Act, 1932, find out
the share of each partner in the above amount after taking into account that no
interest has been provided on an advance by A of 20,000 in addition to his
capital contribution.
(A) 26,267 for Partner B and C and 27,466 for Partner A.

(B) 26,667 each partner.

(C) 33,333 for A 26,667 for B and 20,000 for C.
(D) 30,000 each partner.
Q6. A, B, and C are partners in a firm. At the time of division of profit for the year,
there was dispute between the partners. .Profit before interest on partner‘s
capital was 6,000 and Y determined interest @ 24% p.a. on his loan of 80,000.
There was no agreement on this point. Calculate the amount payable to A, B, and
C respectively.
(A) 2,000 to each partner.
(B) Loss of 4,400 for A and C; Twill take 14,800.
(C) 400 for A, 5,200 for Land 400 for C.
(D) None of the above
Q7. On 1st June 2019, a partner introduced in the firm additional capital `
50,000. In the absence of partnership deed, on 31st March 2020 he will receive
interest:
(A) 3,000
(B) Zero
(C) 2,500
(D) 1,800
Q8. On 1st January 2020, a partner advanced a loan of 1,00,000 to the firm. In
the absence of agreement, interest on loan on 31st March 2021 will be:
(A) Nil
(B) 1,500
(C) 3,000
(D) 6,000
Q9. Anil and Bimal are partners. According to Profit and Loss Account, the net
profit for the year is 2,00,000. The total interest on partner‘s drawings is `
1,000. Anil salary is 40,000 per year and Bimal. salary is 3,000 per month.
The net profit as per Profit and Loss Appropriation Account will be:
(A) 1,23,000
(B) 1,25,000
(C) 1,56,000
(D) 1,58,000
Q10. According to Profit and Loss Account, the net profit for the year is
1,40,000. The total interest on partner‘s capital is 8,000 and a partner is to be
allowed commission of 5,000. The total interest on partner‘s drawings is
1,200. The net profit as per Profit and Loss Appropriation Account will be:
(A) 1,28,200
(B) 1,44,200
(C) 1,25,800
(D) 1,41,800
CASE STUDY 1
Read the following case study and answer the following
Feelgood enterprise is a partnership business with Gyan, Manya and Sania as
partners engaged in trading business of Readymade Garments. They sharing
profits and losses in the ratio of 3: 2:1. They Sania wants to change profit sharing
ratio rest of the partners agreed upon and the new profit sharing ratio will be
1:1:1. For this purpose, goodwill is to be valued at two year‘s purchase of the
average profit of last four years which were as follows:
Year ending on 31st March 2017 1,00,000 (Profit)
Year ending on 31st March 2018 2,40,000 (Profit)
Year ending on 31st March 2019 3,60,000 (Profit)
Year ending on 31st March 2020 1,60,000 (Loss)
On 1st October, 2018 a Motor bike costing 60,000 was purchased and debited
to travelling expenses on which depreciation is to be charged @ 20% p.a. as per
written down value method.
11. What will be the Gaining ratio of Sania?
a) 1/6
b) 1/3
c) 1/4
d) 1/12
12 What will be amount of Goodwill of firm?
a) 2,80,000
b) 2,66,667
c) 2,70,000
d) 3,25,000
13 Calculate the amount of motor car to be shown in Balance Sheet as on 31st
March 2020?
a) 36,000
b) 48,000
c) 44,200
d) 43,200
14 What will be correct adjustment entry for Goodwill? ( d)
a) Sania‘s Capital A/c Dr. 45,000
To Gyan‘s Capital A/c 45,000
b) Manya‘s capital A/c Dr. 60,000
To Gyan‘s Capital A/c 45,000
To Sania‘s Capital A/c 15,000
c) Manya‘s current A/c Dr. 60,000
To Gyan‘s Capital A/c 45,000
To Sania‘s Capital A/c 15,000
d) Premium for Goodwill A/c Dr. 60,000
To Gyan‘s Capital A/c 45,000
To Sania‘s Capital A/c 15,000
Assertion Reasoning Based Questions
15 Assertion: Weighted average profit method is considered better than the
simple average profit method.
Reasoning: Weighted average profit method assigns more weightage to the
profits of the latest year which is more likely to be earned in the future.
(a) Both (A) and (R) are true and (R) is the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(c) (A) is true, but (R) is false
(d) (A) is false, but (R) is true
Answer: (a) Both (A) and (R) are true and (R) is the correct explanation of (A).
16 Assertion: Reserves and accumulated profits are credited to the capital
accounts of all partners in their old profit-sharing ratio
Reasoning: It has been set apart out of the profits earned in the period before
change. If they are not adjusted at present, they will get adjusted later in their
new profit-sharing ratio which will result in loss to the sacrificing partner and
gain to the gaining partner.
a) Both (A) and (R) are true and (R) is the correct explanation of (A).
b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true
Answer: (a) Both (A) and (R) are true and (R) is the correct explanation of (A).
17. Assertion: The change in profit sharing ratio amongst existing partners,
should the assets and liabilities be revalued
Reasoning: the profit or loss on revaluation should be credited or debited to the
accounts of the partners in their old profit-sharing ratio.
a) Both (A) and (R) are true and (R) is the correct explanation of (A).
b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true
Answer: (a) Both (A) and (R) are true and (R) is the correct explanation of (A).
18. Assertion: Goodwill is a fictitious Asset.
Reasoning: Fictitious assets do not have a value.it cannot be purchased or sold
with any other asset.
a) Both (A) and (R) are true and (R) is the correct explanation of (A).
b) Both (A) and (R) are true and (R) is not the correct explanation of (A).
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true
19. Total Capital employed in the firm is 8,00,000, reasonable rate of return is
15% and Profit for the year is 12,00,000. The value of goodwill of the firm as
per capitalization method would be:
(A) 82,00,000
(B) 12,00,000
(C) 72,00,000
(D) 42,00,000
20. A firm earns 1,10,000. The normal rate of return is 10%. The assets of the
firm amounted to 11,00,000 and liabilities to 1,00,000. Value of goodwill by
capitalisation of Average Actual Profits will be:
(A) 2,00,000
(B) 10,000
(C) 5,000
(D) 1,00,000