Partnership One marker (1)

Partnership Accounts – Fundamentals
Fill in the blank with appropriate words:

1. In case of a partnership firm, maximum number of partners are………………………
2. Maximum number of partners in a partnership firm has been explained in ………………
3. Interest on Partner’s Loan is allowed at…………………in the absence of Partnership deed.
4. In the absence of Partnership deed, Profit sharing ratio among partners be…………………
5. Interest on Partner’s Loan is a ……………………Profit.
6. Interest on Partner’s capital is an…………………………..of profit.
7. ………………………..accounts are opened when partners have fixed capital.
8. ………………………..accounts are opened when partners’ capital is fluctuating.
9. Interest in Partner’s Loan is credited to………………………………of Partners.
10. When capital of Partners is fixed, Interest on drawings will be…………………to their current
accounts.
11. Interest on Partners’ drawings is credited to……………………………..,
12. A sleeping partner is……………………….to acts of other partners of the firm.
13. Interest on Partner’s drawings will be calculated for……………………………months if equal
amount of drawings is made for 6 months ending on 1st day of every months.
14. A Partner has withdrawn Rs 9,000 at the end of each quarter throughout the year, Interest
at 10% p.a. will be computed for…………………….months.
15. During the year endings 31st March, Ram Withdrew Rs 60,000. Interest on drawings @ 9%
p.a. will be Rs…………
16. Anu withdrew a fixed amount in the beginning of each quarter . Interest on whole amount
will be charged for……………………..months.
17. If fixed amount is withdraws for 6 months at the end of each months, interest on whole
amount will be charged for…………………………….months.
18. Ram withdrew a fixed amount at the beginning of each quarter. If interest on his drawings
during 2018-19 @ 10% p.a. amounts to Rs 6,000, his quarterly drawings would be
………………..
19. Commission paid to a partner is an……………………..of Profit.
20. Rent paid to a partner by the firm is a ……………………………..
State whether the following statements are True or False.

1. Maximum number of partners in a partnership firm are 50.
2. In the absence of Partnership deed, Partners are entitled to either salary or commission.
3. In the absence of partnership deed, Interest on Partner’s loan is allowed at 6%.
4. In the absence of Partnership deed, interest on capital of Partners is allowed at 5% p.a.
5. Partners will share profits in their capital ratio in the absence of partnership deed.
6. Partner Current A/c’s are opened when their capital is fluctuating.
7. Partners’ Current A/c’s may have debit or credit balance.
8. In case of fixed capital of partners, salary payable to partners is recorded on the Cr. Side
of Partners’ Current A/c’s.
9. Interest on drawings of Partners is debited to their Capital A/cs.
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10. If fix amount is withdrawn for 6 months in the beginning of each months, interest on
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whole amount is charged for 3 months.
EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Select the correct alternative to the following questions:
1. The basic elements of partnership are:
(a) Association of two or more persons based on agreement
(b) Business is carried on by all or any of them acting for all.
(c) Sharing of profits and losses among partners in the agreed ratio.
(d) All above elements.
2. Following are essential elements of a partnership firm except :
(a) At least two persons
(b) There is an agreement between all partners
(c) Equal share of profits and losses
(d) Partnership agreement is for some business.
3. In case of partnership the act of any partner is :
(a) Binding on all partners
(b) Binding on that partner only
(c) Binding on all partners except that particular partner
(d) None of the above
4. Which of the following statement is true?
a. a minor cannot be admitted as a partner
b. a minor can be admitted as a partner, only into the benefits of the partnership
c. a minor can be admitted as a partner but his rights and liabilities are same of adult partner
d. none of the above
5 Oustensible partners are those who
a. do not contribute any capital but get some share of profit for lending their name to the business
b. contribute very less capital but get equal profit
c. do not contribute any capital and without having any interest in the business, lend their name to the business
d. contribute maximum capital of the business
6. Sleeping partners are those who
a. take active part in the conduct of the business but provide no capital. However, salary is paid to them.
b. do not take any part in the conduct of the business but provide capital and share profits and losses in the
agreed ratio
c. take active part in the conduct of the business but provide no capital. However, share profits and losses in
the agreed ratio.
d. do not take any part in the conduct of the business and contribute no capital. However, share profits and
losses in the agreed ratio.
7 The relation of partner with the firm is that of:
(a). An Owner (b). An Agent (c.) An Owner and an Agent (d) Manager
8. 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
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9. If any partner has advanced loan to the firm besides his capital, he has a right to receive interest on loan:
(a) At the agreed rate.
(b)At 6% p.a. in the absence of written agreement.
(c) At the agreed rate or at 6% p.a. in the absence of Partnership deed.
(d)At the market rate.
10. A sleeping partner is one who:
(a) Does not provide capital but takes active part in the firm.
(b) Provides capital but does not take active part in the firm.
(c) Provides capital, takes active part but does not share profits and losses of the firm.
(d) Provides capital, share profits and losses of the firm but does not take active part in the firm.
11. In case of partnership firm, maximum number of partners are:
(a) 7 (b) 100 (c) 20 (d) 50
12. In the absence of partnership deed, interest on partners’ capital is allowed at:
(a) 5% (b) 6% p.a. (c) at market rate (d) No interest is allowed
13. In the absence of partnership deed, interest on Partner’s loan is allowed at:
(a) 10% p.a. (b) 6% p.a. (c) No interest is allowed (d) Interest as per market rate
14. In the absence of partnership deed, partners are entitled to get;
(a) Salary (b) Commission (c). Equal share in Profit (d) Profit share in their capital ratio
15. Interest on capital to partners at the agreed rate will be paid out of:
(a) Profit of the current year (b)Accumulated profits(c)Reserves (d) Average profit of 3 years
16. Which one of the following items will not come in Profit and Loss Appropriation Account?
(a) Interest on Partners’ Capital (b) salary paid to Partner
(c) Interest on Partner’s Loan (d) Commission paid to partner
17. Partners share the profits and Losses of the firm in:
(a) Their capital ratio (b) agreed ratio (c) equal ratio (d) ratio time devoted
18. In the absence of Partnership deed, Partners share Profits and losses:
(a) in their capital ratio (b) in ratio of time devoted by them
(c)equally (d) Equally after providing interest on their capital @ 6% p.a.
19. In the absence of partnership deed, interest on Partners’ Capital and drawing will be charged at:
(a) 6% p.a. (b) Market rate (c) 1% p.m. (d) will not be charged.
20. Following account are opened when partners have fixed capital:
(a) Capital A /cs (b) Current A/cs
(c) Both Capital A/cs and Current Accounts (d) Either Capital A/cs or Current A/cs
21. Which account are opened when Partners’ Capital is fluctuating ?
(a) Capital A/cs (b) Current A/cs
(c) Both Capital A/cs and Current A/cs (d) Either Capital A/cs or Current A/cs
22. The balance of Partners’ current account are:
(a) Debit (b) Credit (c) Can never be debit (d) Either debit or credit
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23. Which of the following item is not recorded on the credit side of current account of partners ?
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(a) Interest on Capital (b) Salary of Partner (c) Interest on Partner’s Loan (d) Profit share of Partner

24. In case of fixed capital of partners, salary / Commission payable to partner will be recorded on the:
(a)Dr. side of Partner’s capital A/c (b) Cr. Side of Partner’s capital A/c
(c) Dr. side of Partner’s current A/c (d) Cr. Side of Partner’s Current A/c
25. On which side interest on Partners’ drawing will be recorded when their capital are fixed?
(a) Dr. side of capital A/c (b) Cr. Side of Capital A/c
(c)Dr. side of current A/c (d) Cr. Side of current A/c
26. When partners’ have fluctuating capital, interest on capital is:
(a) Debited to their Current A/cs (b) Debited to their Capital A/cs
(c) Credited to their Current A/cs (d) Credited to their capital A/cs
27. In case of fixed capital interest on Partner’s Loan is credited to his.
(a) Capital A/c (b) Current A/c(c)Either Capital A/c or Current A/c (d) None of these.
28. In case of fluctuating capital of partners, which of the following item will not be credited to their capital
accounts?
(a) Interest on Capital (b) salary (c) Commission (d) Interest on their loan
29. Interest on drawing of Partner is debited to:
(a) Profit & Loss A/c (b) Profit & Loss Appropriation A/c
(c) Partner’s Capital A/c (d) Interest on Drawings A/c
30. Interest on Capital of Partners is credited to:
(c) Partners Current A/c (d) Interest A/c
31. Interest on drawings of Partner is credited to:
(c) Partner’s Capital A/c (d) Partner’s Current A/c
32. On 1st January 2018 Capital of A and B was 2,00,000 and 1,00,000.On 1st July 2018; they decided that
capital should be 1,50,000 each. Interest on capital of Partners @ 10% p.a. for the year 2018 will be:
(a) 20,000; 10,000 (b) 15,000 each (c) 17,500; 12,500 (d) None of these
33. P and Q are partners with capital of 3,00,000 and 2,00,000 respectively. If firm earned a Profit of
25,000 for the year ended 31 st March, 2019 , the interest on Capitals @ 10% p.a. would be:
(a) 30,000; 20,000 (b) 15,000; 10,000(c) 12,500 each (d) None of these.
34. A, B and C share profits in a partnership firm in the ratio of 5:3:2 with fixed capital of 80,000; 60,000
and 20,000 respectively partners are entitled to interest on their capital @ 10% p.a. During the year, firm
earned profit of 11,200. The amount of interest on Capital payable to A ,B and C respectively would be:
(a) 4,000; 3,000; 2,000 (b) 5,600; 4,200; 1,400(c) 8,000; 6,000; 2,000 (d) 1,400; 4,200; 5,600
35. A and B are equal partners with a capital of 2,00,000 and 1,00,000 respectively. They agreed to allow
interest on capital at 10% p.a. Firm incurred loss of 20,000 during the year 2018 Interest on capital will be:
(a) 20,000; 10,000 (b) 10,000; 5,000(c). No interest (d) None of these
36. A and B are partners in a firm sharing profits in the ratio of their Capital contribution which was 2,00,000
and 1,00,000 respectively. Firm earned a profit of 21,000 during 2018 Interest on capital is allowed at
10% p.a. If interest on capital is charge against profit interest on capital will be:
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(a) 20,000; 10,000 (b) 14,000; 7,000(c) 10,000; 5,000 (d) None of these
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37. Gopi withdrew Rs 10,000 in the beginning of the each quarter during 2018 Interest on his drawings @ 10%
will be:
(a) 2,000 (b) 2,500 (c) 1,500 (d) 4,000
38. Amit withdrew Rs 10,000 at the end of each quarter during 2018. Interest on his drawings @ 10% will be.
(a) 2,000 (b) 2,500 (c) 1,500 (d) 4,000
39. Sumit withdrew Rs 10,000 at the beginning of each months for 6 months Interest on his drawings @ 10% .
will be.
(a) 1,750 (b) 1,250 (c) 1,500 (d) 6,000
40. Ram withdrew Rs 10,000 at the end of each months for 6 months. Interest on his drawings Rs 10% will be.
(a) 1,750 (b) 1,250 (c) 1,5000 (d) 6,000
41. A and B are partners with a fixed capital of 3 lac and 2 lac respectively. After closing the accounts for
the year ending 2018 they found that interest on capital @ 10% P.a. was omitted to be provided. The
adjustment entry will be:
(a) Cr. A’s Current A/c 30,000 and B’s Current A/c 20,000
(b) Cr. A/s Current A/c and B;’s Current A/c 25,000 each
(c) Dr. A’s Current A/c and Cr. B’s Current A/c by 5,000
(d) Dr. B’s Current A/c and Cr. A’s Current A/c By 5,000
42. X, Y and Z are partners in a firm having fixed capitals 3,00,000; 2,00,000 and 1,00,000 respectively.
Interest on Capital payable @ 10% p.a. was omitted while distributing profits. Identify the correct option to
rectify the above omission:
(a) Dr. Z Current A/ c by 10,000 and Cr. X’s Current A/c by 10,000
(b) Dr. Z Capital A/c by 10,000 and Cr.X’s Capital A/c by 10,000
(c) Dr. X Current A/c by 10,000 and Cr. Z’s Current A/c by 10,000
(d) Dr, X Capital A/c by 10,000 and Cr. Z’s Capital A/c by 10,000
43. X and Y are equal partners with fixed capital of 3,00,000 and 2,00,000 respectively After closing the
accounts for the year 2018, they found that interest on capital was provided at 10% p.a. instead of 6% p.a.
Now the adjustment entry will be:
(a) Dr. X’s Current A /c and Cr. Y’s Current A/c by 2,000
(b) Dr. Y’s Current A/c and Cr. X’s Current A/c by 2,000
(c) Dr. X’s Current A/c 12,000 and Y’s Current A/c 8,000
(d) Cr. X’s Current A/c and Y’s Current A/c by 10,000 each
44. Minimum guaranteed profit given to Partner, X by partners, Y and Z means:
(a) X will not contribute to loss of firm
(b) X will get minimum guaranteed profit in case of loss
(c) X will get minimum guaranteed profit in case of insufficient profit
(d) X will get minimum guaranteed profit in case of either loss or insufficient profit to the firm.
45. A,B and C are partners in a firm sharing profits in the ratio 2:2:1. C is given a guaranteed minimum profit of
20,000 every year. If Profit of the firm during 2018-19 is 80,000 Partners will get:
(a) 32,000; 32,000; 16,000 (b) 30,000; 30,000; 20,000(c) 35,000; 25,000; 20,000 (d) None of these
46. P,Q and R are partners sharing profits in ratio 3:2:1 . P has given guarantee to R that his share of Profit will
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not be less than Rs 15,000. If firm earned Rs 60,000 during 2018-19 , P ‘s share of Profit will be:
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(a) Rs 30,000 (b) Rs 27,000 (c) Rs 25,000 (d) Rs 20,000

VERY SHORT ANSWER QUESTIONS
Q. 1. Does partnership firm has a separate legal entity? Give reason in support of your answer.
Ans. From legal viewpoint, Partnership firm has no separte legal entity because it is not a body
corporate. Its entity is affected by the retirement, death or insolvency of its partners.
Q. 2. Six friends started a partnership business by investing Rs.2,00,000 each. They decided to
share profit equally. Name the terms by which they will be called individually and collectively.
Ans. Partners are individually called ‘Partners’.
Partners are collectively called ‘Finn’.
Q. 3. What is meant by “Unlimited Liability of a Partner”?
Ans. The personal assets of the partner can be utilized for paying firm’s debts.
Q. 4. What can be the minimum number of partners in a firm?
Ans. Two.
Q. 5. Gupta and Sharma were partners in a firm. They wanted to admit two more members in
the firm. List the categories of individual other than minors who cannot be admitted by them
Ans. (i) Persons of unsound mind;
(ii) Persons who have been declared insolvent.
Q. 6. A group of 40 people wants to form a partnership firm. They want your advice regarding
the maximum number of persons that can be there in a partnership firm and the name of the
Act under whose provisions it is given.
Ans. As per Companies Act, 2013 read along with companies rules 2014, the maximum number
of partners in a partnership firm can be 50.
Q. 7. A partnership firm has 50 members. All the partners have agreed to admit Ram and
Mohan as new partners. Can Ram and Mohan be admitted? Give reason in support of your
answer.
Ans. Ram and Mohan can’t be admitted as partners because as per Companies Act, 2013 read
along with companies rules 2014 maximum number of partners in a firm can be 50.
Q. 8. What is partnership deed?
Ans. Partnership deed is a written agreement containing the terms and conditions agreed by the
partners.
Q. 9. How are mutual relations of partners governed in the absence of Partnership Deed?
Ans. In the absence of a ‘Partnership Deed’, mutual relations of partners are governed according
to Partnership Act, 1932.
Q. 10. State the provisions of Indian Partnership Act regarding the payment of remuneration to
a partner for the services rendered.
Ans. As per the Indian Partnership Act, in the absence of partnership deed, no remuneration is
allowed to any partner for the services rendered.
Q. 11. Is a sleeping partner liable to the acts of other partners?
Ans. Yes, sleeping partner is liable to the acts of other partners.
Q. 12. In the absence of partnership deed, what is the ratio in which the profits of a firm are
divided among the partners?
Ans. Equally.
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Q. 13. In the absence of partnership deed, at which rate interest is allowed on a partner’s loan?
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Ans. 6% p.a.

Q. 14. Kavita and Laxmi run a charitable dispensary. Kavita wants to have a partnership deed.
What is your opinion?
Ans. They need not have a partnership deed because the activity they are carrying is charitable
in nature. There is no business and sharing of profits.
Q. 15. What is meant by fixed capital of partners?
Ans. Partner’s capital is said to be fixed when the capital of partners remain unaltered, unless
additional capital is introduced or a part of the capital is withdrawn permanently as per
agreement among the partners.
Q. 16. What is meant by fluctuating capital of partners?
Ans. Partner’s Capital is said to be fluctuating when the capital remains changing with every
transaction in the Capital Account such as drawings, interest on capital etc.
Q. 17. What Accounts are maintained, (a) when the capitals are fixed? (b) when the capitals are
fluctuating?
Ans. (a) Capital A/cs and Current A/cs; (b) Only Capital A/cs.
Q. 18. What is partner’s Current Account?
Ans. Under fixed capital method a current account is maintained for each partner and all items
relating to partners such as drawings, interest on capital, share of profit or loss etc. are
recorded in this account.
Q. 19. Name the method of calculating interest on Drawings of the Partners if the different
amounts are withdrawn on different dates.
Ans. Product Method.
Q. 20. Is it necessary to have a partnership agreement in writing?
Ans. No. It is not necessary to have a partnership agreement in written form. An oral agreement
is equally valid. However, in order to avoid disputes, it is preferred to have a written agreement.
Q. 21. Why is it important to have a partnership deed in writing?
Ans. It is important to have a partnership deed in writing because it contains terms and
conditions agreed upon by all the partners and is helpful in avoiding all misunderstandings and
disputes.
Q. 22, What share of profits would a ‘sleeping partner’ who has contributed 75% of the Total
Capital get in the absence of a deed?
Ans. Equal share of profits.
Q. 23. Why is it necessary to have a partnership deed?
Ans. It is necessary to have a partnership deed for following reasons :
(i) It regulates the rights, duties and liabilities of each partner. Each partner becomes aware of
his partnership terms.
(ii) It enables the partners to avoid future disputes.
Q. 24 Give the adjusting entry and the closing entity for recording commission allowed to a
partner, when the firm follows the fixed capital method
Ans. (i) Commision due entry :
Partner’s Commission A/c Dr.
To Partner’s Current A/c
(ii) Closing Entry :
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Profit and Loss Appropriation A/c Dr.

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To Partner’s Commission A/c

Q. 25. Can a partner be exempted from sharing the losses in a firm? If yes, under what
circumstances?
Ans. Yes, if all partners agree that one or more of them shall not bear the losses.
Q. 26. Why is it that the Capital Account of a partner does not show a “Debit Balance” inspite of
regular and consistent losses year after year?
Ans. When the Capital Accounts of partners are fixed, they always show a Credit Balance. All
transactions relating to loss or profit, drawings, salaries etc. are shown in their Current
Accounts.
Q. 27. What is the purpose of allowing interest on partners capital?
Ans. When profit sharing ratio differs from capital ratio, the partners who contribute capital in
excess of what is required as per profit sharing ratio need to be compensated. Interest on capital
compensates those partners who have contributed relatively more amount of capital.
Q. 28. Give one reason why partners are charged interest on drawings.
Ans. Interest on drawings is charged to compensate the partners with less drawings because
interest credited to Profit and Loss Appropriation Account will be distributed in profit sharing
ratio.
Q. 29. State the provisions of the Indian Partnership Act., 1932, regarding charging of interest
on drawings from a partner when :
(a) The firm has a partnership deed.
(b) The firm does not have a partnership deed.
Ans. (a) When the firm has a partnership deed, interest on drawings will be charged only if it is
provided in the partnership deed.
(b) When the firm does not have a partnership deed, interest on drawings will not be charged.
Q. 30. A partnership deed provides for the payment of interest on capital but there was a loss
instead of profits during the year 2018-2019. At what rate will the interest on capital be
allowed?
Ans. In case of loss, no interest on capital will be allowed.
Q. 31. Give one point of difference between Profit and Loss Account and Profit and Loss
Appropriation Account.
Ans. Profit and Loss Account is prepared to ascertain net profit or net loss for an accounting
period whereas Profit and Loss Appropriation Account is prepared to appropriate or distribute
the profit among the partners.
Q. 32. Do all forms of business organisations prepare a Profit and Loss Appropriation Account?
Ans. No, there is no need to prepare Profit & Loss Appropriation A/c in case of sole
proprietorship concerns. It is prepared in case of partnership firms.
Q. 33. Why is Profit and Loss Appropriation Account prepared by a Partnership Firm?
Ans. After ascertaining the Net Profit of the firm as per Profit and Loss Account, usually the
Profit and Loss Appropriation Account is prepared to show how the Net Profit is to be distributed
among the partners.
Q. 34. Mention a case where Profit & Loss Appropriation Account will be prepared even if Profit
& Loss Account discloses net loss.
Ans. In case of Interest on Drawings.
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Q. 35. A and B jointly purchased a plot of land. Will they be called partners?
Ans. No. They become the joint owners of the property and not the partners. However, if they are
in the business of purchase and sale of land in order to make profit, they will be called partners.
Q. 36. A, B, C and D are partners. A, B and C desire that D should not participate in the
conduct of the business of the firm. Can they prevent D?
Ans. No. Every partner is entitled to participate in the conduct of the affairs of the firm.
Q. 37, X and Y are partners. Y wants to admit his son K into business. Can K become the
partner of the firm? Give reason.
Ans. K cannot become the partner of the firm.
Reason : According to Indian Partnership Act, 1932, a person can be admitted as a new partner
only with the consent of all the existing partners unless otherwise agreed upon.
Q. 38. A, B and C are partners decided that no interest on drawings is to be charged to any
partner. But after one year ‘C’ wants that interest on drawings should be charged to every
partner. State how ‘C’ can do this.
Ans. He can only do this if it is consented by all partners (i.e. by altering partnership deed).
Q. 39. Would a ‘charitable dispensary’ run by 8 members be deemed a partnership firm? Give
reason in support of your answer.
Ans. It cannot be deemed a partnership because :
(i) for partnership, there must be a business; and
(II) there must be sharing of profits from such business among the partners.
In case of charitable dispensary there is neither business nor sharing of profits.
Q. 40. In what way would you deal with rent paid to a partner for the use of his premises by the
firm in which he is a partner and why?
Ans. Rent paid to a partner is a usual business expense incurred towards use of property. It is a
charge on profits. Hence, it is debited to Profit & Loss Account.
Q. 41. State the closing entries for :
(a) rent paid to a partner;
(b) interest on loan allowed to partners.
Ans. (a) Profit & Loss A/c Dr.
To Rent A/c
(Closing of rent paid to the partner)
(b) Profit & Loss A/c Dr.

To Interest on Partner’s Loan A/c
(Closing of interest on partner’s loan A/c)]
Q. 42. Ritesh and Hitesh are childhood friends. Ritesh is a consultant whereas Hitesh is an
architect. They contributed equal amounts and purchased a building for Rs.2 crores. After a
year, they sold it for Rs.3 crores and shared the profits equally. Are they doing the business
in partnership? Give reason in support of your answer.
Ans. They are not doing business in partnership. It will be called ‘Joint Venture’.
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Partnership Accounts – Goodwill & PSR Change
1. Any change in the relationship of existing partners which result in end of existing
agreement and enforces making of new agreement is called………………..
2. Sacrificing ratio of a partner is computed as……………………………….
3. Gaining ratio of a partner is computed as………………………………
4. Goodwill is a …………………..asset.
5. Goodwill is an intangible assets but not a ………………………assets.
6. Goodwill of a firm may be defined as excess amount paid over its ………………………
7. The Profit or loss arising from revaluation belongs to………………………. Partners in
their……………………………..profits sharing ratio.
8. If average capital employed in a business is Rs 5,00,000and average net profit earned is
Rs 65,000. If rate of return on capital employed is 10%, its Super Profit will be…………..
9. A firm has assets worth Rs 7,00,000 and liabilities is Rs 2,00,000 and it has earned Rs
62,000 during 2018-19 If rate of return on Capital employed is 10%, the goodwill of firm
based on capitalization of Super Profit will be……………………………
10. A, B and C are partners sharing Profits in ratio of 3 : 2 : 1. They decided to share
profits equally in future. Workmen Compensation Reserve appeared in Balance Sheet. It
will be distributed among the partners in their………………………….ratio.
11. Excess of actual profit over normal Profit is called…………………………………..,
12. The partner whose share of Profit has reduced due to charge in the profit sharing
ratio, is called……………………….
13. When the value of Goodwill of the firm is not given but has to be inferred on the basis
of net worth of the firm, it is called……………………………,
14. Super Profit is the excess amount of Profit earned over and above its…………………..
15. If super profit of a firm is Rs 10,000, its value of Goodwill will be Rs ……………………if
rate of return is 8%
16. When the new partner brings cash for his share of Goodwill, the amount is credited
to……………………………..account.
(B) State whether the following statement are True or False.
1. Goodwill is a fictitious assets
2. Goodwill of the firm is not valued during dissolution of Partnership firm
3. Sacrificing ratio = New ratio – Old ratio
4. A Partnership is reconstituted due to change in Profit sharing ratio of partners.
5. A, B and C are sharing Profits is ratio 3 : 2 : 1. They decided to share equally in
future. B ‘s has neither sacrificed nor gained
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Multiple Choice Question (MCQs)
1. A Partnership is reconstituted due to:
(a) Change in Profit sharing ratio among existing partners (b) Admission of a Partner
(c) Retirement / Death of a Partner (d) All above
2. Any change in the relationship of existing partners which result in an end of the existing agreement and
enforces making of a new agreement is called
(a) Revaluation of Partnership (b) Reconstitution of Partnership
(c) Realization of Partnership (d) None of the above
3. Sacrificing ratio of a partner is computed as:
(a) Old Ratio- New Ratio (b) New Ratio- Old Ratio (c) Old Ratio- Gaining Ratio (d) None of these
4. Gaining ratio of a partner is computed as:
(a) Old Ratio- New Ratio (b) New Ratio- Old Ratio (c) New Ratio- Sacrificing Ratio (d) None of these
5. A and B are partners in a firm sharing profits and losses equally. They decided to share profits in the ratio of
3:2 in future. A’s sacrifice /gain will be:
(a) Sacrifice 1/10 (b) Gain 1/10(c) Sacrifice 3/5 (d) Gain 3/5
6. A, B and C are partners in a firm sharing profits in the ratio 3:2:1. They decided to share profits equally in
future. B’s Sacrifice /gain will be.
(a) Sacrifice 1/6 (b) gain 1/6 (c) No Change (d) None of these.
7. X, Y and Z are partners sharing profits in the ratio of 3:2:1. They decided to share future profits in the ratio
2:1:1. Thus, C’s sacrifice /gain will be:
(a) 3/12 gain (b) 4/12 gain(c) 1/12 gain (d) sacrifice 1/12
8. Goodwill is ………………………..assets.
(a) Wasting (b) Intangible (c) Fictitious (d) Tangible
9. Goodwill may be defined as excess amount paid for a business over and above its……………….,
(a) Tangible assets (b) Current assets (c) Total assets (d) Net worth.
10. Goodwill is an firm intangible assets but not a ……………………… assets.
(a) Fixed (b) Current (c) Fictitious (d) Saleable
11. Goodwill of a firm is affected by its:
(a) Location (b) nature of business (c) degree of competition (d) all above
12. Goodwill of the firm is not valued during……………………………………..
(a) Admission of a Partner (b) Retirement / death of a Partner
(c) Amalgamation of two Firms (d) Dissolution of Partnership Firm.
13. The average Capital employed in a business is 5,00,000 and average net Profit earned is 65,000 If
normal rate of return on capital employed is 10% its Super Profit will be:
(a) 50,000 (b) 6,500 (c) 15,000 (d) 56,500
14. The average capital employed in a business is 3,00,000 and average net Profit earned is 42,000. The
normal rate of return on capital employed is 10% The goodwill of the firm based on 3 years’ Purchase of
11
Super Profit will be:

(a) 36,000 (b) 30,000 (c) 4,200 (d) 12,000
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15. A firm has assets worth Rs 7,00,000 and liabilities 2,00,000. It has earned Profit amounting to 62,000
during 2018-19 If rate of return is 10% the goodwill of the firm based on capitalization method will be:
(a) 50,000 (b) 6,200 (c) 1,20,000 (d) 70,000
16. On 1stApril 2018 an existing firm had assets of 1,50,000 (including cash 10,000). Its creditors were
10,000 on that date. The firm had a reserve fund of 20,000 on that date while partners’ capital account
showed a balance of 1,20,000 If the usual rate of earning is 20% and goodwill is valued at 48,000 at four
years’ purchase of super profits. What will be the average Profits of the firm?
(a) 30,000 (b) 35,000 (c) 40,000 (d) 45,000
17. Capital employed of a firm is 3,00,000. The annual Profit earned by the firm during 2019 is 48,000.
The money could be invested in a bank for 5 years at 10% p.a. Considering 2% as fair compensation for the
risk involved in the business the goodwill of the firm on the basis of capitalization will be:
(a) 1,00,000 (b) 1,80,000 (c) 1,20,000 (d) None of these
18. A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. They decided to share profits equally in
future. Workmen Compensation Reserve appeared in the balance sheet. It will be distributed among partners
in the:
(a) Sacrificing Ratio (b) Gaining Ratio (c) Old Ratio (d) New Ratio
19. A and B are partners sharing Profits and losses in the ratio of 3:2 From 1 st April 2013 They decide to
share future Profits and Loss equally. On that date there was a debit balance of 30,000 in Profit and Loss
A/c. What entry will be passed if the firm decided not to alter value of book?
(a) Dr. B’s Capital A/c 3,000 and Cr. A’s Capital A/c 3,000
(b) Dr. A’s Capital A/c 3,000 and Cr. B ‘s Capital A/c 3,000
(c) Dr. Profit and Loss A/c 30,000 and Cr. A by 18,000 and B by 12,000.
(d) Dr. A by Rs 18,000, B by 12,000 and Cr, Profit and Loss A/c by 30,000.
20. Amit and Sumit are partners in a firm sharing Profits and Loss in 3:2 decided to share profits equally in
future. Their Balance Sheet on that date showed 25,000 in General Reserve and a debit balance of 5,000
in Profit and Loss A/c. The adjustment entry will be if they do not want to alter the amount of General
Reserve and P & LA/c.
(a) Dr. Amit & Cr. Sumit 2,000 (b) Dr. Sumit & Cr. Amit 2,000
(c) Rs Cr. Amit &Sumit 10,000 each (d) Dr. Amit 12,000 & Cr. Sumit 8,000
21 Weighted average method of calculating goodwill is used when :

(A) Profits are not equal (B) Profits show a trend
(C) Profits are fluctuating (D) None of the above
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Q. 1. What is meant by reconstitution of partnership firm?
Ans. Partnership is the result of agreement and any change in existing agreement brings to
an end the existing agreement and a new agreement comes into force. It amounts to
reconstitution of the firm.
Q. 2. State any three circumstances other than (i) admission of a new partner; (ii) retirement
of a partner and (iii) death of a partner, when need for valuation of goodwill of a firm may
arise.
Ans. In addition to admission, retirement and death of a partner, the need for valuation of
goodwill may arise in the following circumstances :
(i) Change in the profit sharing ratio amongst the existing partners.
(ii) Dissolution of a firm involving sale of business as a going concern.
(iii) Amalgamation of partnership firms.
Q. 3. What is meant by change in profit-sharing ratio?
Ans. A change in profit sharing ratio implies purchase of share of profit by one or more
partners from other partner or partners.
Q. 4. What is Sacrificing Ratio?
Ans. The ratio in which one or more of the existing partners surrender some of their old
share in favour of one or more of other partners is called sacrificing ratio. Sacrificing ratio is
computed by deducting the new ratio from the old ratio.
Q. 5. What is the formula for calculating sacrificing ratio?
Ans. Sacrificing Ratio = Old Ratio - New Ratio.
Q. 6. What is meant by Sacrificing Partners?
Ans. The partners whose shares have decreased as a result of change in profit sharing ratio
are called ‘Sacrificing Partners’.
Q. 7. Give two circumstances in which sacrificing ratio may be applied.
Ans. (i) At the time of admission of a new partner.
(ii) At the time of change in profit sharing ratio of existing partners,
Q. 8. Define Gaining Ratio.
Ans. The ratio in which one or more partners gain some portion of other partners share of
profit is called gaining ratio. It is calculated by deducting old ratio from the new ratio.
Q. 9. Give the formula for calculating Gaining Ratio of a partner in a partnership firm.
Ans. Gaining Ratio = New Ratio - Old Ratio.
Q. 10. What is meant by Gaining Partners?
Ans. The partners whose shares have increased as a result of change in profit sharing ratio
are called ‘Gaining Partners’.
Q. 11. Give two circumstances in which gaining ratio may be applied,
Ans. (i) At the time of retirement of a partner.
(ii) At the time of change in profit sharing ratio of existing partners.
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Q. 12. Define Goodwill.
Ans. Goodwill is the value of the reputation of a firm in respect of the profits expected in
future over and above the normal profits earned by other similar firms belonging to the
same type of industry.
Q. 13. Give two characteristics of Goodwill.
Ans. (i) It is an intangible asset not a fictitious asset. It is a valuable asset.
(ii) It is helpful in earning excess profits.
Q. 14. Name any two factors affecting goodwill of a partnership firm.
Ans. (i) Favourable Location of the Business.
(ii) Efficiency of Management.
Q. 15. How the goodwill is valued under the average profits method?
Ans. Under this method normal past profits of the business for a number of years are
totalled and average is calculated. Goodwill is then calculated by multiplying the average
profits by agreed number of years purchase (such as two or three).
Q. 16. What is meant by Super Profits?
Ans. Super Profit is the excess of actual average profits over normal profits.
Q. 17. How the goodwill is valued under the super profits method?
Ans. Under this method, first, super profits are calculated by deducting normal profit from
the average profit and then goodwill is calculated by multiplying the super profits by the
given number of year’s purchase.
Q. 18. How the goodwill is valued under the Capitalisation of Average Profits method?
Ans. First of all, Capitalised value of Average Profits is calculated as per the following
formula:
Average Profits ×100
Capitalised value of Average Profits = AverageProfits × Normal Rate of Return
Thereafter, Goodwill is calculated as follows :
Goodwill = Capitalised Value of Average Profits - Capital Employed
Q. 19. Enumerate two main steps involved in valuing the goodwill according to super profit
method.
Ans. (i) Ascertain super profits by subtracting normal profits from average profits. (ii)
Calculate goodwill by multiplying super profits with number of years’ purchase.
Q. 20. How the goodwill is valued under the Capitalisation of Super Profit method?
Super Profit ×100
Goodwill = = Normal Rate of Return
Q. 21. State the ratio in which the partners share profits or losses on revaluation of assets
and liabilities, when there is a change in profit sharing ratio amongst existing partners?
Ans. In Old Profit Sharing Ratio.
Q. 22. How are the accumulated profits and losses distributed when there is change in
profit sharing ratio amongst existing partners?
14
Ans. Accumulated profits are credited to the Capital Accounts of all the partners in their old
profit sharing ratio and accumulated losses are debited to their Capital Accounts in old
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profit sharing ratio.

Q. 23, Why is ‘Goodwill’ considered an ‘Intangible Asset’ but not a ‘Fictitious Asset’?
Ans. Goodwill cannot be seen or touched, it can only be felt. Hence, it is treated as an
intangible asset. But it is not a fictitious asset because fictitious assets do not have a value
whereas goodwill has a value and it can be purchased or sold with any other asset.
Q. 24. How does the factor ‘Location’ affect the goodwill of a firm?
Ans, Better location will attract more customers resulting in increase in sales and profits
which in turn will result in increase in the value of goodwill.
Q. 25. How does the factor ‘Efficiency of Management’ affect the goodwill of a firm?
Ans. If the manager is capable and competent, the firm will earn high profits which will
increase the value of goodwill.
Q. 26. How does the factor ‘quality of product’ affect the goodwill of a firm?
Ans. Better quality of product will increase the sales and profits which will increase the
value of goodwill.
Q. 27. How does the market situation affect the value of goodwill of a firm?
Ans. The monopoly condition or limited competition enables the concern to earn high profits
which leads to higher value of goodwill.
Q. 28. How does the nature of business affect the value of goodwill of a firm?
Ans. A firm which produces goods having a stable demand will be able to earn more profits
and hence will have more goodwill.
Q. 29. Distinguish between average profits and super profits.
Ans. Average profit is the average of the profits of past few years whereas super profit is the
excess of average profits over normal profits.
Q. 30. When there is change in the profit sharing ratio amongst existing partners, does it
require adjustment for goodwill?
Ans. Yes. Because the gaining partner will be acquiring a part of future profits which
otherwise would belong to the sacrificing partner. Hence, the gaining partner must
compensate the sacrificing partner by paying the proportionate amount of goodwill.
Q. 31. What is the nature of ‘Revaluation Account’?
Ans. Revaluation Account is a nominal account in nature.
Q. 32Why are ‘ ‘Reserves & Surplus’ ’ distributed at the time of reconstitution of the firm?
Ans. These belong to old partners. As such, these should be distributed among them.
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Partnership Accounts – Admission
1. A new partner can be admitted in a Partnership firm with the consent of ………………..,
2. A and B share profits in the ratio of 3:2. C is admitted as a partner for 1/5 share of profit ratio sharing of A,
B and C will be……………...,
3. A and B are partners sharing profits in the ratio 4 :3. They admit C for 1/4th share in Profit. A and B decided
to share equally in future . The new profit sharing ratio of Partners will be………………,
4. X and Y are partners in a firm sharing profits in the ratio of 7 : 3. Z is admitted as a partners for 3/7th share
which he taken from Z and Y in ratio 2 : 1. The new ratio of Partners will be……………………,
5. A and B are partners sharing profits in ratio 3 : 2 . C is admitted as a partner A, B and C share profits ratio 4
: 3 : 2. The sacrificing ratio of Partners will be……………..,
6. L and M are partners sharing Profits in ratio 2 : 1. N is admitted as a partner for 1/4 th share. The sacrificing
ratio of L and M will be………………….,
7. P and Q are partners sharing profits in the ratio of 3 : 2. R is admitted as a partner for 1/4th share. P and Q
decided to share profits equally in future The sacrificing ratio of P and Q will be………………………,
8. The goodwill share brought by a new partner is divided among the old partners in their…………………,
9. A and B are partners sharing profits in the ratio 3 : 2. C is admitted as a partner and new profit sharing ratio
is 4 : 3 : 2. Goodwill appeared in the book Rs 30,000, it will be debited to old partners in
their………………….,
10. Revaluation A/c is a …………………A/c.
11. If revaluation account reveals loss on admission of a Partner, it will be debited to partners in
the………………..,
12. While preparing Balance Sheet of new firm after admission of a partner assets are shown at
their…………………,
13. A and B are partner in a firm sharing profits in the ratio 4 : 3. Z is admitted as a new partner for 1/5 th share.
He brought Rs 1,00,000 as goodwill share which is credited to A and B as Rs 60,000 and Rs 40,000. The
new profit sharing ratio of A, B and C would be…………………,
State whether the following statements are true of False.

1. A new partners can be admitted in a partnership firm with the consent of majority of Partners.
2. As per Indian Partnership Act, 1932 maximum number of partners in a firm can be 50.
3. X and Y are partners sharing profits in ratio 2:1. Z is admitted as a partners for 1/4th share. Their sacrificing
ratio will be 2:1.
4. Goodwill brought by a new partner is divided among old partners in their sacrificing ratio.
5. A and B are partners sharing profits in ratio 3:2. C is admitted as a new partner and new profit sharing ratio
of A, B and C is 4 : 3 :2. If goodwill appeared in books is Rs 30,000. It will be debited to old partners in
their sacrificing ratio.
6. Loss on Revaluation A/c at the time of admission of a partner is their sacrificing ratio.
7. Revaluation A/c is a Nominal A/c.
8. X and Y are partners sharing profits in ratio 4:3. Z is admitted as new partner for 1/4 th share which X and Y
shared equally. If Z brought Rs 20,000 as premium for goodwill, it will be credited to X and Y in ratio 4 : 3.
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Select the correct alternative to the following question:
1. A new partner is admitted in a partnership firm due to:
(a) Requirement of more capital (b) Requirement management skill
(c) Enhancement in goodwill (d) All above
2. A new partner can be admitted in a partnership firm with the consent of:
(a) All partners (b) majority of partners(c) ¾ partners (d) only one partners
3. A and B share profits in the ratio 8:7. C is admitted as a partner in the firm for 1/5th share. They new profit
sharing ratio will be:
(a) 32:28:15 (b) 35:30:10 (c) 8:7:5 (d) None of above.
4. A and B are partners sharing profits in the ratio of 5:4 They admit C for 1/3 rd share, which he acquires in
equal proportion from both. The new profit sharing ratio will be:
(a) 7:6:5 (b) 7:5:6 (c) 5:4:3 (d) None of these.
5. A and B are partners sharing profits in the ratio of 3:2. They admit C for 1/4th share in Profit A and B decided
to share equally in future. The new Profit sharing ratio will be:
(a) 4:4:2 (b) 3:3:2 (c) 5:5:2 (d) 2:2:1
6. L and M are partners in a firm sharing profits in the ratio of 7:3. N is admitted as partner for 3/7th share which
he taken from L and M in ratio 2:1. The new profit sharing ratio will be:
(a)27:13:30 (b) 7:3:3 (c) 29:11:30 (d) None of these.
7. A and B were partners sharing profits in ratio of 3:2. X and Y are admitted as new partners. A surrender 1/3rd
of his share in favour of X and B surrenders 1/4th of his share in favour of Y. The new profit sharing ratio will
be:
(a) 3:3:3:1 (b) 3:4:2:1 (c) 1:2:3:4 (d) 4:3:2:1
8. A and B are partners in a firm sharing profits in ratio 3:2. C is admitted as a partner. New ratio of A,B and C is
4:3:2. The sacrificing ratio of Partners will be:
(a) 7:3 (b) 4:3 (c) 3:2 (d) 3:7
9. X and Y are partners sharing profits in ratio 2:1. Z is admitted as Partners for 1/4 th share. The sacrificing ratio
will be:
(a) 3:2 (b) 1:2 (c) 2:1 (d) None of these
10. In which ratio the premium for goodwill brought by a new partner is divided among the old partners.
(a) Old ratio (b) new ratio (c) gaining ratio (d) sacrificing ratio
11. A and B are partners sharing profits in the ratio of 2:1. C is admitted for 1/4 th share which he acquired
equally from A and B. If C bring 30,000 as goodwill, it will be credited to old partners as:
(a) 15,000 each (b) 20,000: 10,000 (c) 10,000: 20,000 (d) None of these.
12. Heena and Sudha share Profits and losses equally. Their capital were 1,20,000 and 80,000 respectively.
There was also a balance of 60,000 in General Reserve and revaluation gain amounted to 15,000. They
admit their friend, Teena with 1/5share. Teena brings 90,000 as capital. Calculate the amount of goodwill of
the firm.
(a) 85,000 (b) 1,00,000(c) 20,000 (d) None of these
13. X and Y are partners in a firm sharing profits in ratio 4:3. Z is admitted for 1/4 th share. X and Y decided to
share equally in future. If Z brought 14,000 as premium, it will be credited to X and Y as:
(a) 7,000: 7,000 (b) 11,000: 3,000(c) 8,000: 6,000 (d) None of these.
14. A and B are partners sharing profit in ratio 3:2. C is admitted as Partners and pays 5,000 as Premium. If
future profit sharing ratio of A, B and C is 3:3:2, goodwill credited to A and B will be:
17
(a) 3,000; 2,000 (b) 2,500 each (c) 4,500 ; 500 (d) None of these.
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15. A and B are partners sharing profits in ratio 3:2. C is admitted as partner and new profit sharing ratio of A, B
and C is 4:3:2. If goodwill appeared in the books is Rs 30,000: it will be debited to old partner in their:
(a) Old ratio (b) sacrificing ratio(c) gaining ratio (d) New profits ratio
16. When a new partner is admitted in a firm, his share of goodwill will be credited to old partners in the ratio:
(a) Equally (b) Ratio of their Capital (c) Old ratio (d) None of these.
17. If revaluation account reveals profits at the time of admission of a partner, it is credited to partner in:
(a) Old ratio (b) sacrificing ratio(c) gaining ratio (d) new ratio
18. For which of the following, old profit sharing ratio is used at the time of new partners’ admission?
(a) When new partner doesn’t brings his goodwill share
(b) When new partners brings his goodwill share
(c) When new partner brings a part of his goodwill share
(d) When goodwill already appears in the old books at the time of admission.
19. Revaluation Account is a
(a) Real A/c (b) Nominal A/c (c) Personal A/c (d) Special A/c
20. If revaluation account reveals loss on admission of a partners, it will be debited to partners in the:
(a) Old ratio (b) New ratio (c) Sacrificing ratio (d) Gaining ratio
21. If Balance Sheet of new firm is prepared after admission of a partner, assets are shows in it at their:
(a) Historical cost (b) Market value(c) Realisable value (d) Revalued value
22. A and B are partners in a firm sharing profit in the ratio 4:3. Z is admitted as partner in the firm for 1/5th
share. He brought 1,00,000 as his of goodwill which is credited to A and B as 60,000 and 40,000. The
new profit sharing ratio of A, B and C would be:
(a) 4:3:2 (b) 5:4:3 (c) 79:61:35 (d) None of these
Choose the Best Alternate :

Q. 1. In case of admission of a partner, the entry for unrecorded investments will be:
(A) Debit Partners Capital A/cs and Credit Investments A/c
(B) Debit Revaluation A/c and Credit Investment A/c
(C) Debit Investment A/c and Credit Revaluation A/c
(D) None of the above
Q. 2. Goodwill of a firm of A and B is valued at Rs.30,000. It is appearing in the books at Rs.
12,000. C is admitted for 1/4 share. What amount he is supposed to bring for goodwill?
(A)Rs.3,000 (B) Rs.4,500
(C) Rs.7,500 (D) Rs. 10,500
Q. 3. Ramesh and Suresh are partners sharing profits in the ratio of 2 : 1 respectively.
Ramesh Capital is Rs. 1,02,000 and Suresh Capital is Rs.73,000. They admit Mahesh
and agree to give him 1/5th share in future profit. Mahesh brings Rs. 14,000 as his
share of goodwill. He agrees to contribute capital in the new profit sharing ratio. How
much capital will be brought by Mahesh?
18
(A) Rs.43,750 (B) Rs.45,000

(C) Rs.47,250 (D) Rs.48,000
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Q. 4. A and B are in partnership sharing profits in the ratio of 3 : 2. They take C as a new
partner. Goodwill of the firm is valued at Rs.3,00,000 and C brings Rs.30,000 as his
share of goodwill in cash which is entirely credited to the Capital Account of A. New profit
sharing ratio will be :
(A) 3 : 2 : 1 (B) 6 : 3 : 1
(C) 5.: 4 : 1 (D) 4:5:1
Q. 5. Xand Yare partners sharing profits in the ratio of 4 : 3. Z is admitted for 1/5th share
and he brings in Rs. 1,40,000 as his share of goodwill in cash of which Rs. 1,20,000 is
credited to X and remaining amount to Y. New profit sharing ratio will be :
(A) 4 : 3 : 5 (B) 2 : 2 : 1
(C) 1:2:2 (D) 2 : 1 : 2
Q. 6. A and B are partners sharing profits in the ratio of 2 : 3. Their Balance Sheet shows
Machinery at Rs.2,00,000; Stock at Rs.80,000 and Debtors at Rs. 1,60,000. C is
admitted and new profit sharing ratio is agreed at 6 : 9 : 5. Machinery is revalued at Rs.
1,40,000 and a provision is made for doubtful debts @5%. A’s share in loss on
revaluation amount to Rs.20,000. Revalued value of Stock will be :
(A) Rs.62,000 (B) Rs. 1,00,000
(C) Rs.60,000 (D) Rs. 98,000
Q. 7. A, B and C are partners sharing profits in ratio of 3 : 2 : 1. They agree to admit D into
the firm. A, B and C agreed to give 1/3rd, 1/6th, 1/9th share of their profit. The share of
profit of D will be :
1 11
(A) (B)
10 54
11 13
(C) (D)
54 54
Q.8. Xand Y are partners sharing profits in the ratio 2:3. They admitted Z for 1/5thshare of
profits, for which he paid Rs. 1,20,000 against capital and Rs.60,000 as goodwill. Find
the capital balances for each partner taking Z’s capital as base capital.
(A) Rs.3,00,000, Rs 1,20,000 and Rs. 1,20,000
(B) Rs.3,00,000, Rs. 1,20,000 and Rs.1,80,000
(C) Rs. 1,92,000, Rs.2,88,000 and Rs. 1,20,000
(D) Rs.3,00,000, Rs.1,80,000 and Rs.1,80,000
Q. 9. A, B, C and D are partners. A and B share 2/3rd of profits equally and C and D share
remaining profits in the ratio of 3 : 2. Find the profit sharing ratio of A, B, C and D.
(A) 5 : 5 : 3 : 2 (B) 7 : 7 : 6 : 4
(C) 2.5 : 2.5 : 8 : 6 (D) 3 : 9 : 8 : 3
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Q. 10. Sacrificing ratio is used to distribute in case of admisstion of apartner:
(A) Reserves (B) Goodwill
(C) Revaluation Profit (D) Balance in Profit and Loss Account
Q. 11. X and Y are partners in a firm with capital of Rs. 1,80,000 and Rs.2,00,000. Z was
admitted for 1/3rd share in profits and brings Rs.3,40,000 as capital, calculate the
amount of goodwill:
(A) Rs.2,40,000 (B) Rs. 1,00,000
(C) Rs. 1,50,000 (D) Rs. 3,00,000
Q. 12. A and B are partners sharing profits and losses in the ratio of 5 : 3. On admission, C
brings Rs.70,000 as cash and Rs.43,000 against Goodwill. New profit ratio between A, B
and C is 7 : 5 : 4, The sacrificing ratio of A and B is:
(A) 3:1 (B) 1 : 3
(C) 4 : 5 (D) 5 :9

Q. 1. How can a new partner be admitted?
Ans. According to Section 31 of Indian Partnership Act, 1932, a person can be admitted as a
new partner only with the consent of all the existing partners.
Q. 2. Give the two main rights acquired by the new partner.
Ans. (i) Right to share future profits of the firm, and
(ii) Right to share the assets of the firm.
Q. 3. State any one purpose for admitting a new partner in a firm.
Ans. When a firm requires more capital to expand its business, it may admit a new partner.
Q. 4. State the ratio in which the old partners share the amount of cash brought in by the
new partner as premium for goodwill.
Ans. The old partners share the amount of premium for goodwill in the sacrificing ratio. The
formula is : Sacrificing Ratio = Old Ratio - New Ratio.
Q. 5 Why is sacrifice ratio calculated?
Ans. Sacrifice ratio is calculated because the premium for goodwill brought in by the
incoming partner is divided among old partners in their sacrificing ratio.
Q. 6. Unless given otherwise, what will be the ratio of sacrifice of the old partners in the case
of admission of a new partner?
Ans Unless given otherwise, the ratio of sacrifice of old partners in the case of admission of
20
a new partner will always be equal to their old ratio.

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Q. 7. What treatment is made of accumulated profits and losses on the admission of a new
partner?
Ans Accumulated profits and losses are distributed amongst the old partners in their old
profit sharing ratio. The new partner should not share such profits or losses because
these arose before his admission.
Q. 8. What is a Revaluation Account?
Ans. It is prepared to find out the profit or loss on revaluation of assets and liabilities at the
time of reconstitution of the firm (i.e. change in profit sharingratio, admission, retirement
or death of a partner). Profit or loss shown by revaluation account is divided between the
old partners in old profit sharing ratio.
Q. 9. State any two reasons for the preparation of ‘Revaluation Account’ on the admission of
a partner.
Ans. (i) To record the effect of revaluation of assets and liabilities.
(ii) So that the profit or loss on revaluation of assets and liabilities may be divided amongst
the old partners.
Q. 10. State the ratio in which the partners share the gain or loss on revaluation of assets
and liabilities.
Ans. The partners share the gain or loss on revaluation of assets and liabilities in their “old
profit sharing ratio”.
Q. 11. What are accumulated profits?
Ans. The profits which have accumulated over the years and have not been credited to
partner’s capital accounts are called accumulated or undistributed profits such as
General Reserve, Cr. balance of Profit & Loss Account etc.
Q. 12. What are accumulated losses?
Ans. The losses which have not been debited to partner’s capital accounts are called
accumulated or undistributed losses such as Debit balance of Profit & Loss Account
appearing on the assets side of the Balance Sheet.
Q. 13. Give the journal entry to distribute General Reserve and Profit and Loss Account
balance appearing on the liabilities side of Balance Sheet.
Ans. General Reserve A/c Dr.
Profit and Loss A/c Dr.
To Old Partner’s Capital A/cs (In old Ratio)
Q. 14. State the need for treatment of Goodwill on admission of a partner.
Ans. To compensate the old partners for their sacrifice.
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Q. 15. Under what circumstances premium for goodwill paid by the incoming partner would
never be recorded in the books of account?
Ans. When the incoming partner pays the amount of premium for goodwill in cash to the old
partners privately outside the business, no entries are passed for it.
Q. 16. What is meant by “Hidden Goodwill”?
Ans. When the value of goodwill of the firm is not given but has to be inferred on the basis of
net worth of the firm, it is called hidden goodwill.
Q. 17. Why should a new partner contribute towards goodwill on his admission?
Ans. Since a new partner gets his share of profits from old partners, he must compensate
the old partners for the share sacrificed by them. The amount of compensation given by
the new partner is known as premium of goodwill.
Q. 18. Why are assets and liabilities revalued on the admission of a new partner?
Ans. Assets and liabilities are revalued because the entire profit or loss due to their
revaluation is divided amongst the old partners in their old profit sharing ratio. The new
partner should not share such profit or loss because it belongs to the period prior to his
admission.
Q. 19. State with reason whether at the time of admission of a partner, partnership is
dissolved or partnership firm is dissolved.
Ans. Partnership is dissolved and not the firm because it is reconstitution of the firm under
which the existing agreement comes to an end and a new one comes into existence.
Q. 20. At the time of admission of a partner, who decides what will be the share of profit of
the new partner out of the firm’s profit?
Ans. The old partners decide the share of profit of the new partner since it is they who
decide to sacrifice their profit share in favour of new partner.
Q. 21. Karan, Nakul and Asha were partners in a firm sharing profits and losses in the ratio
3 : 2 : 1. At the time of admission of a partner, the goodwill of the firm was valued at
Rs.2,00,000. The accountant of the firm passed the entry in the books of accounts and
thereafter showed goodwill Rs.2,00,000 as an asset in the Balance Sheet. Is he correct in
doing so? Why?
Ans. Accountant is not correct. As per AS-26, only purchased goodwill can be shown in
the books. In this case, goodwill cannot be recorded because it is non-purchased goodwill
and no consideration in money or money’s worth has been paid for it.
Q. 22. List any two items that need adjustments in books of accounts of a firm at the time of
admission of a partner.
Ans. (i) Adjustment for Goodwill.
(ii) Adjustment of Accumulated Profits, Reserves and Losses.
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Q. 23. Geeta, Sunita and Anita were partners in a firm sharing profits in the ratio of5: 3 :2.
1
On 1-1-2015 they admitted Yogita as a new partner for th share inthe profits. On
10
Yogita’s admission, the Profit and Loss Account of the firm was showing a debit balance
of Rs.20,000 which was credited by the accountant of the firm to the capital accounts of
Geeta, Sunita and Anita in their profit sharing ratio. Did the accountant give correct
treatment? Give reason in support of your answer.
Ans. No, the accountant did not give correct treatment as capital accounts of the partners
should be debited.
Q24. A, B and C are the partners sharing profits and losses in the ratio of 5 : 3 : 2. C retired
and his capital balance after adjustments regarding Reserves, Accumulated
profits/losses and gain/loss on revaluation was Rs.2,50,000. Cwas paid Rs.3,00,000 in
1
full settlement. Afterwards D was admitted for 4thshare. Calculate the amount of goodwill
premium brought by D.
Ans. C’s share of Goodwill = Rs.3,00,000 - Rs.2,50,000 = Rs.50,000
10
Firm’s Goodwill = 50,000 × = Rs.2,50,000
2
1
D’s share in Goodwill = Rs.2,50,000 × = Rs.62,500
4
Q. 25. Vinay and Naman are partners sharing profits in the ratio of 4 : 1. Their capitals were
Rs.80,000 and Rs.60,000 respectively. Reserve appeared in the books at Rs.20,000. They
admitted Prateek for 1/3 share in the profits. Prateek brought Rs. 1,00,000 as his
capital. Calculate the value of firm’s goodwill.
Ans. Value of the goodwill of the firm Rs.40,000
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Partnership Accounts – Retirement & Death
(a)Fill in the blank with appropriate words:
1. Gaining ratio is computed at time of………………….of a partner.
2. Gaining ratio=…………………………..
3. Accumulated profits are credited to all the partners in their ………………………………ratio
at the time retirement or death of a partner.
4. The retiring/deceased partner must be compensated in the form of premium (goodwill)
for the share of Profits by ……………………
5. Existing goodwill appearing in Balance Sheet at the time of retirement/ death of a
partner must be written off and debited to……………………………….
6. A, B and C are partners sharing profits in ratio 3:2:1.B retired and his share is taken
over by A and B equally. The profit of revaluation of assets and liabilities will be
transferred to A, B and C in ratio……………………..,
7. X, Y and Z are equal partners Y retires and X and Z decided to share profits in the 5:4.
The gaining ratio will be…………………………………,
8. A, B and C are partners sharing Profits in the ratio 4:3:2. C retires and he surrenders his
shares to A and B in ratio 2:1. The new profit sharing ratio of A and B will
be………………….,
9. P, Q and R are equal partners. On R’s retirement, P and Q agreed to share profits in the
ratio of 3:2. If goodwill of the firm is Rs 36,000, goodwill share of P and Q gained will
be……………………….,
10. A, B and C are partners sharing profits in the ratio 4:3:2. B retires, selling his share of
profit to A and C for 7,200 ( 4,000 paid by A and 3,200 paid by C). The new profit
sharing ratio of A and C will be ………..
11. X, Y and Z partners in a firm sharing profits in the ratio 3:2:1. Firm closes its accounts
on 31st March. Y died on June 12. His share of Profit till death was computed on the
bases of last year profit which was 1,50,000. Y’s share of profit will
be………………………….,
12. A, B and C were partners in a firm sharing profits in the ratio of 4:3:2. A dies on April
10. Sales and profit of previous year were 3,00,000 and 45,000 respectively. If sales
from 1st January to April 10 was Rs 1,20,000, X’s share of Profit would
be……………………,
13. Profit on Revaluation A/c at the time of retirement /Death of a partner is a
……………..Profit.
State whether the following statement are True or False

1. Accumulated profits are distributed among all partners in their old profit ratio during
retirement of a partner
2. Gaining ratio = Old ratio – New ratio
3. In case of retirement/death of a partner, existing goodwill in the Balance Sheet is written
off among remaining partners in their gaining ratio.
24
4. A, B and C were partners sharing profits in ratio 5:3:2. B retired so A and C agreed to
Page
share future profits in ratio 3:2. Their gaining ratio would be 2:1.

5. In case of death of partners, General Reserve is transferred to partners in their old profit
ratio.
6. If executors’ of deceased partners are paid in instilments, his legal heirs are entitled to
interest @ 6% p.a.
Select the correct alternative to the following questions:

1. Gaining ratio is computed at the time of ………………………….of a partners.
(a) Admission (b) Retirement or death(c) Retirement (d) Death
2. Gaining ratio =
(a) Old ratio – New ratio (b) old ratio – Sacrificing Ratio
(c) New ratio – Old ratio (d) New ratio – Sacrificing ratio
3. The retiring/deceased partner must be compensated in the form of premium (goodwill) for the share of
Profit…………………..in favour of continued partners.
(a) Sacrificed (b) gained (c) obtained (d) None of these.
4. At the time of retirement or death of a partner, accumulated profits are credited to all the partners in their
…………………..ratio.
(a) Old ratio (b) New ratio (c) Gaining ratio (d) Sacrificing ratio
5. Profit on revaluation of assets and liabilities at the time of retirement/ death of a partner is credited to:
(a) All Partners in old profit sharing ratio (b) Retiring / deceased partner
(c) Remaining partners in gaining ratio (d) Remaining partners in new ratio
6. In case of retirement /death of a partner, existing goodwill in the balance sheet is written off and debited to:
(a) All partners in their old ratio (b) Retiring/deceased partner
(c) Remaining partner in new ratio (d) Remaining partners in their gaining ratio
7. The Profit or loss on revaluation of assets and liabilities at the time of retirement of a partner is shared by.
(a) All partners in their old ratio (b) Remaining partners in new ratio
(c) Remaining partners in gaining ratio (d) Retired partner only
8. A, B and C are partners sharing profits in ratio 4:3:2. B retired and his share is taken over by A & C equally.
The profit or loss on revaluation of assets and liabilities will be transferred to:
(a) A and C equally (b) A and C in gaining ratio(c) A, B & C in ratio 4:3:2 (d) None of these
9. The reserve and accumulated profits at the time of retirement of a partner are transferred to:
(a) Retired partner (b) All partners
(c) Remaining partners in new ratio (d) Remaining partners in gaining ratio
10. If the executors’ of the deceased partner are to be paid in installments, his legal hairs are entitled to interest
at:
(a) Market rate (b) 6% p.a. (c) 6% (d) None of these.
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Q. 1. What is meant by retirement of a partner?
Ans. Retirement of a partner is one of the modes of reconstituting the firm under which the
existing partnership deed comes to an end and in its place a new one among the remaining
partners comes into existence.
Q. 2. What is meant by ‘Gaining Ratio’ on retirement of a partner?
Ans. ‘Gaining Ratio’ is the ratio in which the retiring partner’s share is acquired by
continuing partners. It is computed by deducting old ratio from the new ratio.
Q. 3. What treatment is made of accumulated profits and losses on the retirement of a
partner?
Ans. Accumulated profits are credited to the Capital Accounts of old partners in their old
ratio and accumulated losses are debited to their Capital Accounts in old ratio.
Q. 4. For which share of goodwill a partner is entitled at the time of his retirement?
Ans. Retiring partner is entitled to goodwill according to his share of profit in the firm.
Q. 5. Name the account which is opened to credit the share of profit of the deceased partner,
till the time of his death to his Capital Account. (C.B.S.E. 2013)
Ans. Profit and Loss Suspense Account.
Q. 6. At what rate interest is payable on the amount remaining unpaid to the executor of
deceased partner?
Ans. 6% p.a.
Q. 7. State any two items of deduction that may have to be made from the amount payable
to a retiring partner.
Ans. The following deductions are entered on the debit side of retiring Partner’s Capital
Account:
(i) His share of loss on revaluation of assets and reassessment of liabilities.
(ii) His share of existing goodwill written off.
Q. 8. What is the basis of calculation of deceased partner’s share of profit from the date of
last balance sheet to the date of his death?
Ans. (i) On the basis of Time: i.e. On the basis of last year’s profit or average profit of past
few years, or
(ii) On the basis of Sales.
Q. 9. Name two items which are credited to the Capital Account of a partner upon his death.
Ans. (i) His share of life policy, (ii) His share of undistributed profits or reserves.
Q. 10. What journal entry will be recorded for deceased partner’s share in profit from the
closure of last balance sheet till the date of his death?
Ans. Profit and Loss Suspense Account Dr.
To Deceased Partner’s Capital Account
Q. 11. What journal entry will be recorded for writing off the goodwill already existing in
Balance Sheet at the time of retirement of a partner?
Ans. All Partner’s Capital A/cs (including retiring) Dr. (in old ratio)
To Goodwill A/c
Q. 12. Why is Gaining Ratio calculated?
26
Ans. Gaining ratio is required because the continuing partners will pay the amount of
goodwill to the retiring partner in their gaining ratio.
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Q. 13. Give any one distinction between sacrificing ratio and gaining ratio.
Ans.
Basis of Difference Sacrificing Ratio Gaining Ratio
1. Meaning It is the ratio in which the old It is the ratio in which the
partners surrender a part of remaining partners acquire the
their share in favour of new outgoing (retired or deceased)
partner. partner’s share.
Q. 14. Why are assets and liabilities revalued at the time of retirement of a partner?
Ans. Assets and Liabilities are revalued because the profit or loss due to their revaluation is
divided between all partners (including the retiring partner) in their old profit sharing ratio.
Q. 15. Why a retiring or heirs of a deceased partner are entitled to a share of goodwill of the
firm?
Ans. Since the retiring or deceased partner will not be sharing future profits, goodwill is
given to compensate him for the same.
Q. 16. Can a retiring partner or Legal Representatives of a Deceased Partner claim a share
in the subsequent profits of the firm.
Or
What will happen if retired or deceased partner’s dues are not settled immediately?
Ans. If amount due to a retiring partner or legal representatives of a deceased partner is not
paid in full, they have the choice to get either of the following :
(i) Interest @ 6% per annum on the balance amount,
Or
(ii) Share in subsequent profit of the firm in proportion to the balance amount.
Q. 17. On the retirement of a partner how is the profit sharing ratio of remaining partners
decided?
Ans. Profit sharing ratio of remaining partners is decided according to the mutual agreement
among the remaining partners.
Q. 18. At the time of retirement of a partner, state the condition when there is no need to
compute the gaining ratio.
Ans. There is no need to compute the gaining ratio when the continuing partners decide to
share profits in the same ratio that existed among them prior to retirement.
Q. 19. Ramesh wants to retire from the firm. The profit on revaluation on that date was Rs.
12,000. Mohan and Rahul want to share this in their new profit sharing ratio 3 : 2. Ramesh
wants this shared equally. How is this profit to be shared?
Ans. Profit on Revaluation will be shared by the three partners in their old profit sharing
ratio. 27
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Partnership Accounts – Dissolution
Fill in the blanks with appropriate words:
(i) On dissolution of partnership firm,…………………………..are paid first out of the
proceeds from sale of assets.
(ii) On dissolution of partnership firm, unrecorded assets realized are credited to …….A/c.
(iii) During the course of dissolution of Partnership firm, partnership firm, partner’s wife
loan is transferred to ………………………… A/c
(iv) During the course of dissolution of partnership firm, partner’s loan paid after the
payment of…………………………….,
(v) …………………………………..account is closed at the last during the course of
dissolution of partnership firm.
(vi) Debit balance of Profit and Loss A/c is transferred to …………………………….during the
course of dissolution of partnership firm.
(vii) Change in Profit sharing ratio among the existing partners amounts to dissolution
of………….…,
(viii) During the course of dissolution of partnership firm, deferred revenue expenditure is
not transferred to ………………………………………A/c
(ix) If creditors amounted to Rs 5,000 accepted the furniture the book value Rs 6,000 in
full settlement of their claim during the course of dissolution of partnership
firm,……………………………….entry will be passed.
(x) If creditors amounting Rs 8,000 took over furniture of Rs 7,000 during dissolution of
firm, entry passed will be………………………….,
(xi) If creditors amounting to Rs 10,000 accepted furniture of book value Rs 11,000 during
the dissolution of firm, entry passed will be………………………………,
(xii) During the course of dissolution of firm, Debtors and Bill Receivables amounting to Rs
40,000 were falling due for payment after 2 Months but they were realized immediately
at a discount of 12% p.a. the entry passed will be………………………….,
(xiii) All the assets except…………………………………..A/cs are transferred to Realisation A/c
during dissolution of firm.
(xiv) During dissolution of Partnership firm, assets were Rs 2,00,000 and outside liabilities
were Rs 50,000. If assets realized 85% and expenses of dissolution paid were Rs 500,
Profit/loss on realisation will be…………………………………,
(xv) During the course of dissolution of partnership firm, debtors appears at Rs 60,000 and
provision for doubtful debts at Rs 2,500.If Rs 10,000 debtors are proved bad and
remaining debtors realised at 90% ,………………………………….,will be credited to
Realisation A/c.
(xvi) During course of dissolution of partnership firm, Partner’s loan has a priority as the
repayment over………………………………..,
(xvii) A and B are partners. On the date of dissolution of firm, A’s Loan was Rs 10,000 and
Mrs. B’s Loan Rs 20,000.Payment will be made first to ……………………………….
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State whether the following statements are True or False.
1. On dissolution of Partnership firm, unrecorded assets are realized and credited to
Revaluation A/c.
2. During dissolution of Partnership firm, Partner’s Loan is credited to realisation A/c.
3. Partners’ Capital A/cs are closed in the last during dissolution of partnership firm.
4. During dissolution of Partnership firm\, partner’s loan is paid after the payment of
outside liabilities.
5. Realisation A/c is a Real A/c.
6. Change in Profit sharing ratio among existing partners amount to dissolution of
partnership firm..
7. Deferred Revenue Expenditure is transferred to Realisation A/c during dissolution of
Partnership firm.
8. During dissolution of Partnership firm, fixed assets are transferred to realisation A/c at
their Book Value.
9. If creditors amounting to 4,000 took over furniture of 3,000 during dissolution of
firm, no entry be passed.
Select the correct alternative to the following question:

1. Partnership is dissolved by:
(a) Changes in the Profit sharing ratio of existing partners (b) Admission of a Partner
(c) Retirement / death of a Partner (d) All these.
2. A Partnership firm is dissolved when:
(a) All partners give their consent (b) Business of firm becomes unlawful
(c) All partners or all partners’ save one become insolvent (d) All these.
3. On dissolution of Partnership firm, realization account is debited with:
(a) All the assets (b) All assets except Cash / Bank
(c) All the liabilities (d) All liabilities except Partner’s Loan A/c
4. Out of the proceeds received from sale of assets on dissolution of Partnership
firm…………….will be paid first.
(a) Partner’s Loan (b) Partners’ Capital A/c (c) Outside Creditors (d)Partners’ Current A/c
5. At the time of dissolution of Partnership firm, assets except Cash and Bank and outside
liabilities are transferred to :
(a) Revaluation A/c (b) Realisation A/c (c) Partners’ Capital A/cs (d)
Partners’ Current A/c
6. On dissolution of Partnership firm, unrecorded assets when realized are credited to:
(a) Revaluation A/c (b) Realisation A/c (c) Partners’ Capital A/cs (d)
Partners’ Current A/cs
7. Unrecorded liabilities when paid in dissolution of Partnership firm are debited to:
(a) Realisation A/c (b) Revaluation (c) Partners’ Capital A/c (d)
None of these.
8. During the course of dissolution of Partnership firm, Partnership’s wife loan is transferred
to:
(a) Her husband’s Capital A/c (b) Realisation A/c (c) Revaluation A/c
29
(d) Mrs. Loan A/c

Page
9. During the course of dissolution of Partnership firm, Partner’s Loan is shown In:

(a) Realisation A/c (b) Revaluation A/c (c) Partner’s Capital A/c
(d) Partner’s Loan A/c
10. During the course of dissolution of firm, Partner’s loan is paid after the payment of:
(a) Partner’s wife loan (b) Outside liabilities (c) Partners’ Capital (d) None of
these.
11. Which account is closed at the last during the course of dissolution of partnership
firm.
(a) Realisation A/c (b) Partners Capital A/cs (c) Partner’s Loan A/c (d)
Cash /Bank A/c
12. Profit or loss depicted by Realisation Account is distributed among partners:
(a) Equally (b) in their capital ratio (c) in Profit sharing ratio
(d) None of these.
13. Basically Realisation A/c is a:
(a) Personal A/c (b) Nominal A/c (c) Real A/c (d) None of these.
14. Anu, Bina and Charan are partners. The firm had given a loan of 20,000 to Bina.
They decided to dissolve the firm. In the event of dissolution, the loan will be settled by:
(a) Transferring it to debit side of Realisation A/c.
(b) Transferring it to credit side of Realisation A/c.
(c) Transferring it to debit side of Bina’s Capital A/c.
(d) Bina paying Anu and Charan Privately.
15. Debit balance of Profit & loss A/c is transferred to……………………………..during the
course of dissolution of Partnership firm.
(a) Realisation A/c (b) Partners’ Capital A/c (c) Revaluation A/c (d)
None of these.
16. On Dissolution of Partnership firm, Dr. Balance of Profit & Loss A/c is:
(a) Debited to Realisation A/c (b) Credited to Realisation A/c
(c) Debited to Partners’ Capital A/c (d) Credited to Partners ‘ capital A/c
17. Which of the following item is not transferred to Realisation Account:
(a) Plant A/c (b) Bills Payable A/c (c) Deferred Revenue Expenditure
(d) Debtors A/c
18. Which of the following item is not transferred to Realisation A/c:
(a) Partner ‘s Loan A/c (b) General Reserve A/c (c) Deferred Revenue
Expenditure (d) All these.
19. During the course of dissolution of partnership firm, fixed assets are debited to
Realisation Account at their:
(a) Historical Cost (b) Market Value (c ) Book Value (d) Cost or Market
Price whichever is less
20. If creditors amounting to 4,000 accepted the Furniture of book value 5,000 in Full
settlement of their claim during the course of dissolution, the entry passed will be:
(a) Dr. Realisation A/c & Cr. Cash A/c 4,000 (b) Dr. Cash & Cr. Realisation A/c
(c) No entry needed (d) None of these.
30
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21. If creditors amounting to 4,000 accepted Furniture of Book value 5,000 during
dissolution of firm, entry passed will be:
(a) No entry needed (b) Dr. Cash A/c & Cr. Realisation A/c Rs 1,000
(c) Dr, Realisation A/c & Cr. Cash A/c Rs 1,000 (d) None of these
22. If creditors amounting to 4,000 took over Furniture of 3,000 during dissolution of
firm, entry passed will be:
(a) No entry needed (b) Dr. Realisation A/c & Cr. Cash A/c 1,000
(c) Dr. Cash A/c & Cr. Realisation A/c 1,000 (d) None of these.
24. Creditor amounting to 60,000 were due on an average basis 2 months after 31st
December, 2018 during dissolution of firm but they were paid immediately in December
31@ 12% discount p.a. the entry passed will be
(a) Dr. Realisation & Cr. Cash A/c 60,000
(b) Dr. Cash & Cr. Realisation A/c 58,800
(c) Dr. Cash A/c & Cr. Realisation A/c
(d) Dr. Realisation A/c & Cr. Cash A/c 58,800
25. Debtors and B/R amounting to 40,000 were falling due for payment after 2 months
during dissolution of firm but they were realized immediately at a discount of 12% p.a.,
the entry passed will be.
(a) Dr. Bank A/c & Cr. Realisation A/c 39,200
(b) Dr. Bank A/c & Cr. Realisation A/c 40,000
(c) Dr. Realisation A/c & Cr. Bank A/c 40,000
(d) Dr. Realisation A/c & Cr. Bank A/c 39,200
26. Expenses paid during dissolution of firm will be debited to……………………,
(a) Expenses A/c (b) Profit & Loss A/c (c) Realisation A/c (d) None of these
27. All the assets except ……………………..accounts are transferred to realization accounts
during dissolution of firm.
(a) Cash /Bank A/c (b) Cash/ Bank/P & L A/c
(c) Cash / Bank / Deferred Revenue Expenditure /P & L (Dr.)
28. An assets not appearing in the Balance Sheet realised Rs 2,000 during course of
dissolution. The entry passed will be:
(a) Dr. Cash A/c & Cr. Assets A/c (b) Dr. Cash A/c & Cr. Asset A/c
(c) Dr. Realisation A/c & Cr. Cash A/c (d) None of these
29. The entry passed for an unrecorded liability paid by partner, Ram during course of
dissolution will be:
(a) Dr. Ram & Cr. Cash A/c (b) Dr. Realisation A/c & Cr. Cash A/c
(c) Dr. Realisation A/c & Cr. Ram (d) Dr. Ram & Cr. Realisation A/c
30. On the date of dissolution of firm, Partners’ Capital was 1,00,000; outside liabilities
25,000, Dr. balance of Profit & Loss A/c Rs 8,000 and cash and Bank was 5,000. If
Profit on Realisation A/c was 6,000, the assets were realised at…………………..,
(a) Rs 1,18,000 (b) Rs 1,06,000 (c) Rs 1,23,000 (d) Rs 1,11,000
31
Page

VERYSHORT ANSWER QUESTIONS
Q. 1. What is meant by dissolution of partnership firm?
Ans. As per Indian Partnership Act, “Dissolution of firm means termination of partnership
among all the partners of the firm”. Thus, the business of the firm terminates and there is
an end to the life of the firm
Q. 2. Give two circumstances under which a partnership firm is dissolved.
Ans. (i) When all or all but one partner of the firm become insolvent.
(ii) When business of the firm becomes unlawful.
Q. 3. What is meant by dissolution of partnership?
Ans. Dissolution of partnership refers to the change in the existing relations of the partners.
The firm continues its business.
Q. 4. Give two circumstances under which a partnership is dissolved.
Ans. (i) When there is a change in profit sharing ratio of an existing partner.
(ii) On admission/retirement or death of a partner.
Q. 5 On dissolution of a firm, out of the proceeds received from the sale of assets who will be
paid first of all.
Ans. First of all, outside (Third-party) debts of the firm will be paid.
Q. 6 On dissolution of a firm, out of the proceeds received from the sale of assets who will be
paid last of all?
Ans. Partner’s Capital.
Q. 7 Why is Realisation Account prepared?
Ans. A ‘Realisation Account’ is opened on dissolution of a partnership firm to find out the
profit or loss on realisation of assets and payment of liabilities.
Q. 8 On dissolution of a firm, where are assets shown in the balance sheet transferred?
Ans. On the Debit side of Realisation Account.
Q. 9, On dissolution of a firm, where is cash in hand transferred?
Ans. On the Debit side of Cash Account.
Q. 10. In case of dissolution, where are general reserves and accumulated profits and losses
transferred?
Ans. In the Partner’s Capital Accounts in their profit sharing ratio.
Q. 11. In the event of dissolution of a partnership firm, where is the provision for doubtful
debts transferred?
Ans. On the Credit side of Realisation Account.
Q. 12. On dissolution of a partnership firm, where is profit or loss on realisation
transferred?
Ans. In the Partner’s Capital Accounts in their profit sharing ratio.
Q. 13. On dissolution, what entry is passed if a partner undertakes to make payment of a
liability of the firm?
Ans. Realisation A/c Dr.
To Partner’s Capital A/c
Q. 14. On dissolution of firm, what entry is passed for payment of an unrecorded liability?
To Cash/Bank A/c
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Q. 15. On dissolution of firm, what payment is made first from the personal assets of a
partner?
Ans. Private debts of that partner.
Q. 16. On dissolution of a firm, what entry is passed on making payment of realisation
expenses by a partner?
Q. 17. How will the Realisation Account closed, if it discloses a loss?
Ans. It is closed by transferring to the debit side of partner’s capital accounts in their profit
sharing ratio.
Q. 18. On firm’s dissolution, which account should be prepared at the last?
Ans. Cash/Bank Account.
Q. 19. On firm’s dissolution, what entry will be made on realisation of goodwill which was
shown in Balance Sheet?
Ans. Cash/Bank A/c Dr.
To Realisation A/c
Q. 20. On firm’s dissolution, what entry will be passed when a partner voluntarily gives his
personal asset to firm’s creditor as payment?
Q. 21. On dissolution, patents appearing in Balance Sheet are transferred to which
account?
Ans. Realisation Account.
Q. 22. Give the journal entiy for the treatment of partner’s loan appearing on the assets side
of the Balance Sheet, on dissolution of a partnership firm.
JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Partner’s Capital A/c Dr.
To Partner’s Loan A/c
(Partner’s Asset side loan transferred to his Capital
Account)
Q. 23. How is dissolution of partnership different from dissolution of partnership firm?

Ans. In case of dissolution of partnership, the firm continues to do business but with a
changed agreement. In case of dissolution of partnership firm, the firm ceases to exist, the
assets of the firm are realised and its liabilities are discharged.
Q. 24. Distinguish between ’Dissolution of Partnership’ and ‘Dissolution of Partnership Firm’
on the basis of closure of books.
Ans.
Basis Dissolution of Partnership Dissolution of Partnership Firm
Closure of Books It does not require closure of books It requires closure of all books of
since the business is not accounts since the business is
33
terminated. terminated.
Page

Q. 25. Distinguish between ‘Dissolution of Partnership’ and ‘Dissolution of Partnership Firm’
on the basis of Court’s intervention,
Ans.
Court’s intervention There is no intervention by court A firm can be dissolved either
since the partnership is dissolved without the intervention of court
by mutual agreement. or by CouA’s Order.
Q. 26. Distinguish between ‘Dissolution of Partnership’ and ‘Dissolution of Partnership Firm’
on the basis of‘Economic Relationship’.
Ans. Difference between Dissolution of Partnership and Dissolution of Partnership Firm :
Economic Economic relationship between the
relationship partners continues though in a Economic relationship between the
changed form. partners comes to an end.
Q. 27. Differentiate between dissolution of partnership and dissolution of a partnership firm
on the basis of ‘Continuity of business’.
Ans.
Commutation of the In this case, the firm continues its In this case, the firm does not
business business. continue its business.
Q. 28. Distinguish between ‘Dissolution of Partnership’ and ‘Dissolution of
Partnership Firm’ on the basis of settlement of Assets and Liabilities.
Ans.
Dissolution of Partnership Dissolution of Partnership Firm
Settlement of Assets are revalued and liabilities Assets are realised and liabilities
Assets and are reassessed and gain or loss on are paid off and balance, if any, is
Liabilities revaluation is distributed among distributed among all the partners.
the partners in their old profit
sharing ratio.
Q. 29. Does the change in profit sharing ratio result into dissolution of the partnership firm?
Give reason in support of your answer.
Ans. No, Change in profit sharing ratio does not result into dissolution of partnership firm
as it results in a change in the existing agreement leading to the reconstitution of the firm.
Q. 30. Change in Profit Sharing Ratio amounts to dissolution of partnership or partnership
firm? Give reason in support of your answer.
Ans. Change in Profit Sharing Ratio amounts to Dissolution of partnership and not
dissolution of firm as the existing agreement comes to an end and the firm continues under
the new agreement.
Q. 31. Give one distinction between reconstitution of a firm and dissolution of a firm.
Ans. In case of dissolution of a partnership (i.e., reconstitution of a firm) the firm continues,
while in case of dissolution of a firm, its business is discontinued.
34
Page

Q. 32. Write one distinction between Revaluation Account and Realisation Account.
Ans.
Basis of Distinction Revaluation Account Realisation Account
This account is prepared on the This account is prepared on the
When prepared admission, retirement or death of a dissolution of a partnership firm.
partner.
Q. 33. On dissolution, what entry is passed if a partner takes over an asset of the firm
valued Rs. 10,000 at Rs.6,000?
Ans. Partner’s Capital A/c Dr. 6,000
To Realisation A/c 6,000
Q. 34. When an asset is taken over by a partner, why is his Capital Account debited?
Ans. When an asset is taken over by a partner, his Capital Account is debited because the
claim of Capital Account is reduced by the value of the asset taken over.
Q. 35. When a liability is to be discharged by a partner, why is his Capital Account credited?
Ans. When a liability is to be discharged by a partner, his Capital Account is credited
because the claim of the partner against the firm is increased by the amount of liability
assumed.
Q. 36. Do you think that the loan by a partner is transferred to Realisation Account at the
time of dissolution of a firm? Why?
Ans. No, it is not transferred to Realisation Account because its payment is made after the
payment of all outside liabilities.
Q. 37. Do you think that the loan by a partner’s relative is transferred to Realisation
Account at the time of dissolution of a firm? Why?
Ans. Yes, it is transferred to Realisation Account because it is an outside liability.
Q. 38. At which value the assets against which provisions exist are transferred to
Realisation Account?
Ans. Assets against which provisions exist are transferred to Realisation Account at gross
value.
Q. 39. What is the treatment of provisions against assets on dissolution of a firm?
Ans. Provisions against assets are credited to Realisation A/c.
Q. 40. What entry is passed when an asset is given to a Creditor in full settlement of his
dues?
Ans. No Entry.
Q. 41. State the reason why a partner’s wife loan is transferred to Realisation A/c?
Ans. Wife Loan is an outside liability.
Q. 42. Why partner’s loan is not transferred to Realisation A/c?
Ans. Partners’ Loan is not an outside liability.
Q. 43. When a Creditor takes over an asset whose value is less than the amount due to him
in full settlement of his claim, what entry shall be passed?
Ans. No entry.
35
Page

Q. 44. How is Workmen Compensation Reserve shown in the Balance Sheet of a partnership
firm, treated at the time of its dissolution?
Ans. Workmen Compensation Reserve to the extent of liability is Credited to Realisation A/c
and the remaining amount of Workmen Compensation Reserve is Credited to the Partner’s
Capital A/cs in their profit sharing ratio. If there is no liability on account of Workmen
Compensation, the entire amount is Credited to Partner’s Capital A/cs.
Q. 45. How would you treat Employees Provident Fund shown on the liability side of balance
sheet, at the time of dissolution of partnership firm and why?
Ans. Employee’s Provident Fund is a liability to the employees. Hence, it will be transferred
to the credit side of Realisation Account and will be paid off.
Q. 46. On dissolution of the firm, partner A demands that his loan of Rs. 1,00,000 should
be paid before payment of Capitals of the partners, whereas partners B and C demand that
Capitals should be paid before the payment of A’s loan. State the order of payment.
Ans. As per Section 48 of the Indian Partnership Act, 1932, partner’s loan is paid before
the payment of partner’s Capitals.
Q. 47. There was a contingent liability for B/R received from Ashok for Rs.20,000 and
discounted with the bank. Ashok became insolvent and 75 paise in a rupee were received
from his estate. How much amount will be debited/credited to Realisation Account?
Ans. Debit Rs.20,000 and Credit Rs. 15,000.
Q. 48. P, a partner, is to bear all expenses of realisation for which he is to be paid Rs.2,000.
P had to pay realisation expenses of Rs.2,500. How much amount will be debited to
Realisation Account?
Ans. Rs.2,000
Q. 49Total creditors amounted to Rs.5,00,000. Investments valued Rs.2,00,000 were not
shown in the books. One of the creditors took over these investments in full satisfaction of
his debt of Rs.2,20,000. Remaining creditors were paid at 5% discount. Pass entry for
payment.
Ans. Realisation A/c Dr. 2,66,000
To Cash/Bank A/c 2,66,000
Q. 50. If creditors are Rs.25,000, capital is Rs. 1,50,000 and cash balance is Rs. 10,000,
what will be the amount of sundry assets?
Ans. Rs. 1,65,000
Q. 51. At the time of dissolution of a firm, Creditors are Rs.70,000; Partner’s capital is Rs.
1,20,000; Cash Balance is Rs. 10,000. Other assets realised Rs. 1,50,000. What will be the
Profit/Loss in the realisation account?
Ans. Loss Rs.30,000.
Q. 52. On dissolution of a firm, debtors Rs. 17,000 were shown in the Balance Sheet. Out of
this Rs.2,000 became bad. One debtor became insolvent 70% were recovered from him out
of Rs.5,000. Full amount was recovered from the balance debtors. On account of this item,
what will be the loss in realisation account?
Ans. Rs.3,500
Q. 53. On dissolution of a firm, a partner’s capital account has a credit balance of
Rs.42,000. His share of profit in realisation account is Rs.9,000. He has paid firm’s
36
realisation expenses Rs.3,000. How much amount he will finally get?

Page
Ans. Rs.54,000.

Q. 54. If opening capitals of partners are A Rs.2,00,000, B Rs.3,00,000 and C Rs. 4,00,000
and their drawings during the year are A Rs.3,000 per month, B Rs.4,000 per month and C
Rs.5,000 per month and creditors are Rs.80,000, what will be the amount of assets of the
firm?
Ans. Rs.8,36,000
Q. 55. On dissolution of a firm, its Balance Sheet revealed capital Rs.5,00,000; General
Reserve Rs.2,00,000, Creditors Rs. 1,00,000 and cash balance Rs.20,000. Assets were
realised at 60%. What will be loss on realisation?
Ans. Rs.3,12,000
Q. 56. X, Y and Z are partners in a firm in the ratio of 4 : 3 ; 2. On firm’s dissolution, firm’s
total assets are Rs.70,000, creditors are Rs. 15,000. Realisation expenses are Rs.2,100.
Assets realised 15% more than the book-value. Creditors were paid 2% more. For profit/loss
on realisation, Y’s capital account will be debited/credited with how much amount?
Ans. Y’s Account will be credited with Rs.2,700.
Q. 57. The firm of Ravi and Mohan was dissolved on 31.3.2013. According to the agreement,
Ravi had agreed to undertake the dissolution work for an agreed remuneration of Rs.2,000
and bear all realisation expenses. Dissolution expenses were Rs. 1,500 and the same were
paid by the firm.Pass necessary Journal Entry for the payment of dissolution expenses.
(i) Realisation A/c Dr. 2,000
To Ravi’s Capital A/c 2,000
(Remuneration due to Ravi)
(ii) Ravi’s Capital A/c Dr. 1,500
To Bank A/c 1,500
(Realisation expenses paid on behalf of Ravi)
Q. 58. Mohan and Kanwar are partners in a firm. Their firm was dissolved on 1.1.2013.
Mohan was assigned the work of dissolution. For this work Mohan was to be paid Rs.500.
Mohan paid dissolution expenses of Rs.400 from his own pocket. Will any Journal Entry be
passed for Rs.400 paid by Mohan? If yes, pass the entry'. If no, give reason.
Ans.
Realisation A/c 400
To Mohan’s Capita! A/c 400
(Dissolution expenses paid by Mohan on firm’s behalf)
Q.59. C’s Capital Account has a credit balance of Rs.2,000; C’s Loan Account is showing a
debit balance of Rs.400. Bank Balance is Rs.3000. Show the treatment of C’s Loan A/c.
Ans. C’s Capital A/c Dr. 400
To C’s Loan A/c 400
(C’s Loan transferred to C’s Capital A/c)
Q. 60. Provision for Depreciation Rs.65,000; Provision for Doubtful Debts Rs.30,000; and
37
Provident Fund Rs. 1,50,000 has been transferred to the Credit side of Realisation Account.
For which item payment is to be made by the firm?
Page
Ans. Provident Fund.

Q. 61. Sundry Creditors Rs.2,50,000 and Bills Payable Rs.35,000 have been transferred to
the Credit side of Realisation Account. Sundry Creditors were paid at a discount of 10%.
What would be the further treatment if nothing else is mentioned?
Ans. Realisation A/c Dr. 35,000
To Bank A/c 35,000
(Bills Payable paid off)
Q. 62. Dissolution expenses amounting to Rs.6,000 were to be borne by partner A and the
balance by the firm. Dissolution expenses amounted to Rs. 15,000 and the entire amount
was paid by firm. Pass journal entry.
Ans.Realisation A/c Dr. 9,000
A’s Capital A/c Dr. 6,000
To Bank A/c 15,000
(Dissolution expenses paid by the firm and A’s share debited to his A/c.)
Q. 63. Dissolution expenses amounting to Rs. 15,000 were to be borne by partner Y and the
balance by the firm. Dissolution expenses amounted to Rs.25,000 and the entire amount
was paid by Y. Pass journal entry.
Ans. Realisation A/c Dr. 10,000
To Y’s Capital A/c 10,000
(Dissolution expenses paid by Y)
Q. 64. In settlement of Tarun’s (a Partner) loan of Rs.25,000 to the firm, a computer not
appearing in the books is taken over by him at an agreed value of Rs.30,000. Pass necessary
journal entry.
Ans.Tarun’s Loan A/c Dr. 25,000
Tarun’s Capital A/c Dr. 5,000
(Tarun’s Loan of Rs.25,000 settled by giving him unrecorded computer at an agreed value of
Rs.30,000)
Q. 65. On dissolution, the amount of Sundry Assets transferred to Realisation Account is
Rs. 1,00,000. 40% of the assets realised 120% of their book value; 25% of the remaining
were sold at a discount of 20% and remaining were taken over by Vikas (a partner) at book
value. Pass entries.
Ans. Bank A/c Dr. 60,000
(Assets of book value of Rs.40,000 sold at Rs.48,000 and assets having book value of Rs.
15,000 sold for Rs. 12,000)
Vikas’s Capital A/c Dr. 45,000
(Assets taken over by Vikas at par)
Q, 66. Fixed Assets appear in the Balance Sheet of a firm at Rs.52,000. They realised at a
loss of 4% on net collection. State the amount collected from such assets.
Ans. Rs.50,000
Q.67. Name the asset that is not transferred to the debit side of Realisation Account, but
brings certain amount of cash against its disposal at the time of dissolution of the firm.
38
Ans. Unrecorded Asset.

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Partnership Accounts – Fundamentals

Fill in the blank with appropriate words:

State whether the following statements are True or False.

whole amount is charged for 3 months.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

(a) Rs 30,000 (b) Rs 27,000 (c) Rs 25,000 (d) Rs 20,000

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Profit and Loss Appropriation A/c Dr.

To Partner’s Commission A/c

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

(b) Profit & Loss A/c Dr.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Super Profit will be:

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

21 Weighted average method of calculating goodwill is used when :

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

profit sharing ratio.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

State whether the following statements are true of False.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Choose the Best Alternate :

(A) Rs.43,750 (B) Rs.45,000

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

VERY SHORT ANSWER QUESTIONS

a new partner will always be equal to their old ratio.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

State whether the following statement are True or False

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Select the correct alternative to the following questions:

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Select the correct alternative to the following question:

(d) Mrs. Loan A/c

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Q. 23. How is dissolution of partnership different from dissolution of partnership firm?

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

realisation expenses Rs.3,000. How much amount he will finally get?

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Ans. Provident Fund.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

Ans. Unrecorded Asset.

EDUCOMMERCE ACADEMY 59 FF, POCKET 13, SECTOR 24, ROHINI 9891580252

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