Question by CA (Dr.) G.S.GREWAL, Series – 5

Admission of a Partner

True/False

  1. The claim of Workmen Compensation is less than Workmen Compensation Reserve at the time of admission of a partner. The difference is Workmen Compensation Reserve and claim will be transferred to Capital Accounts of the old partners in their old profit sharing ratio.

Fill in the Blank

  1. If book value and the market value of investment is same, Investment Fluctuation Reserve at the time of Admission of a Partner, is distributed among _______________ in their _____________________.

Multiple Choice Question

  1. A, B and C are partners sharing profits and losses in the ratio 6 : 3 : 3, they agreed to take D, as new partner with 1/8th Share of profits. The new profit sharing ratio will be:

(a)    14 : 7 : 7 : 4

(b)    1 : 1 : 1 : 1

(c)    12 : 27 : 36 : 42

(d)    12 : 36 : 27 : 42.

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 5

Fill in the Blanks: –

  1. Partner’s Capital, Old Profit Sharing

True / False: –

  1. True

Reason: If claim is more than reserve then for the deficit Revaluation Account is debited.

Multiple Choice Questions: –

  1. (a)

Reason: – As D is admitted for a share of 1/8th, therefore the remaining share of 7/8th will be shared by the old partner’s, in the ratio 6 : 3 : 3, and the new ratio will be 14 : 7 : 7 : 4.

Question by CA (Dr.) G.S.GREWAL, Series – 8

Admission of a Partner

True/False

  1. Gaining partner always compensates Sacrificing Partner.

Fill in the Blank

  1. At the time of admission of partner, A new partner brings capital and goodwill to get share in future _______ in the firm.

Multiple Choice Question

  1. A and B are sharing profits and losses in the ratio 5 : 3. They admitted C as a partner and gave him 1/5th share of the profits. He acquired his share equally from A and B. New profit sharing ratio will be:

(a)    5 : 6 : 3

(b)    2 : 4 : 6

(c)    21 : 11 : 8

(d)    18 : 24 : 38.

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 8

True/False

  1. False

Reason: Partnership is governed by the agreement among the partners. Partners may agree not to receive compensation for sacrificing their shares in profits.

In the event Sacrificing Partners decide not to take compensation for the sacrificed share, Gaining Partner or Partners will not compensate the Sacrificing Partner or Partners. Thus, it not always that Gaining Partner or Partners compensate the Sacrificing Partners.

Fill in the Blank

  1. Profits

Multiple Choice Question

  1. (c)

Reason: As C is admitted for a share of 1/5th (or 2/10th), which he takes 1/10th from A and 1/10th from B. Therefore remaining shares of A and B will be 21/40 (5/8 – 1/10) and 11/40 (3/8 – 1/10) respectively. The new ratio will be 21 : 11 : 8.

Question by CA (Dr.) G.S.GREWAL, Series – 10

Admission of a Partner

True / False

  1. All partners consent is required to admit a new partner.

Fill in the Blank

  1. Reserve appearing in the Balance Sheet will be divided among partners during admission in  ________________ ratio.

Multiple Choice Question

  1. A and B are sharing profits and losses in the ratio 3 : 2. They admitted C as a new partner to give him 2/10th share in the profit. The new profit sharing ratio will be:

(a)    12 : 8 : 5

(b)    3 : 2 : 2

(c)    3 : 2 : 5

(d)    2 : 1 : 2.

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 10

True / False

  1. True

Reason: A partner can be admitted into partnership if the Partnership Deed exists and it has a clause for admission of a partner. In other case, The Partnership Act, 1932 prescribes that a partner can be admitted into Partnership with the consent of all the partners.

Fill in the Blank

  1. Old Profit Sharing

Multiple Choice Question

  1. (a)

Reason: As C is admitted for a share of 2/10th, therefore the remaining share of 4/5th will be shared by the old partner’s, in their Old Profit-Sharing ratio i.e., 3 : 2,Thus,  the new ratio will be 12 :8 : 5.

Question by CA (Dr.) G.S.GREWAL, Series – 18

Admission of a Partner

True / False

  1. Admission of a Partner means Reconstitution of a firm as existing agreement comes to an end and a new agreement comes into effect because of the Admission of a Partner.

Fill in the Blank

  1. When existing goodwill is written off at the time of admission of new partner, it is transferred among old partners in _______________________.

Multiple Choice Question

  1. If Capitals are maintained on Fixed Capitals Basis, Undistributed profits, Profit and Loss Account, General Reserve etc. are transferred to:

(a)    Partner’s Fixed Capital A/c

(b)    Partner’s Current A/c

(c)    Revaluation A/c

(d)    Profit and Loss Adjustment A/c

Answer – Question by CA (Dr.) G.S.GREWAL Series – 18

True/False

  1. True

Reason: Reconstitution of firm takes place when there is a change in Profit-Sharing Ratio, Admission, Retirement or Death of a Partner because new terms are agreed among partners and fresh Partnership Deed is entered. As a result, old Partnership comes to an end and new agreement comes into effect.

Fill in the Blank

  1. Old Profit Sharing Ratio

Reason:- Existing Goodwill is written off among old partners in their old profit-sharing ratio because it is an intangible asset coming into existence before the admission of the partner and new partner compensates the sacrificing partner by paying Goodwill.

Multiple Choice Question

  1. (b)

Reason: – Where the capital accounts of partners are maintained following Fixed Capital Accounts method, two accounts are maintained for each partner i.e. Capital account and Current account. Capital account is credited or debited with the permanent increase or decrease in capitals of the partners. All other credits and debits are shown in the Current accounts. Thus, the undistributed profits, General Reserve etc. will be transferred to Partners’ Current Accounts.

Question by CA (Dr.) G.S.GREWAL, Series – 24

Admission of a Partner                                                                                                       

True / False

  1. Unrecorded Assets or Liabilities are transferred to Partner’s Capital Accounts.

Fill in the Blank

  1. Goodwill brought by the incoming partner is distributed among the old partners in their________________.

Multiple Choice Question

  1. A and B are sharing profits and losses in the ratio of 3 : 2. They admitted C as a partner for 1/3rd share in the profits of the firm. The new profit sharing ratio will be:

(a) 6 : 4 : 5

(b) 3 : 2 : 2

(c) 3 : 2 : 5

(d) 5 : 2 : 3

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 24

True/False

  1. False

Reason: Unrecorded assets and liabilities are credited and debited respectively in Revaluation Account and resulting gain (profit) or loss is credited / debited to Partners Capital Accounts.

Correct Statement: Unrecorded asset is credited in Revaluation Account and unrecorded liability is debited. Resulting gain (profit) or loss is transferred to Partners Capital Accounts.

Fill in the Blank

  1. Sacrificing Ratio

Reason: Old partners sacrifice their share of profit in favour of incoming partner. Therefore, Incoming Partner compensates the sacrificing partners in their sacrificing ratio.

Multiple Choice Question

  1. (a)

Reason: When the sacrificing ratio is not given, it is presumed that the partners have sacrificed in their profit sharing ratio. In this case the sacrificing ratio will be 3 : 2. Sacrificing ratio will be deducted from the Old profit – sharing ratio to arrive at the new profit – sharing ratio. New profit – sharing ratio is calculated as follows:

A B C

Old Profit – Sharing Ratio 3/5 2/5 –

Less: Sacrificing Ratio 3/5th of 1/3rd 2/5th of 1/3rd                –

Or 1/5th or 3/15th 2/15th

New Profit – Sharing Ratio 2/5 (3/5 – 1/5) 4/15 (2/5 – 2 /15) 1/3

Or 6/15 4/15 5/15

6 :4 :5

Question by CA (Dr.) G.S.GREWAL, Series – 25

Admission of a Partner

True / False

  1. Old profit sharing ratio plus new profit sharing ratio is sacrificing ratio.

Fill in the Blank

  1. Raj is admitted in a firm for 1/4th share in the profits for which he brings ₹30,000 as goodwill. It will be credited to the Old Partners Capital Accounts in their ________________.

Multiple Choice Question

  1. A and B are sharing profits and losses in the ratio of 3 : 2. They admit C as partner for 1/3rd share in the profits. He takes this share 3/5th from A and 2/5th from B. New profit sharing ratio will be:

(a) 5 : 6 : 3

(b) 2 : 4 : 6

(c) 6 : 4 : 5

(d) 18 : 24 : 38

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 25

True/False

  1. False

Reason: Sacrificing Ratio is the ratio which is given by the old partners to the new partner. Thus, new profit – sharing ratio is lesser that the old profit – sharing ratio. Thus, Sacrificing Ratio will be Old Profit – sharing Ratio less New Profit – Sharing Ratio.

Fill in the Blank

  1. Sacrificing Ratio

Multiple Choice Question

  1. (c)

Reason: C takes 3/5th and 2/5th share from A and B respectively. Thus, sacrifice by A and B is 3/5th of 1/3rd and 2/5th of 1/3rd respectively. Sacrificing ratio will be deducted from the Old profit share to arrive at the new profit – sharing ratio. New profit – sharing ratio is calculated as follows:

A B C

Old Profit – Sharing Ratio 3/5 2/5 –

Less: Sacrificing Ratio 3/5th of 1/3rd 2/5th of 1/3rd                 –

Or 1/5th or 3/15th 2/15th

New Profit – Sharing Ratio 2/5 (3/5 – 1/5) 4/15 (2/5 – 2 /15) 1/3

Or 6/15 4/15 5/15

6 :4 :5

Question by CA (Dr.) G.S.GREWAL, Series – 33

Admission of a Partner

True/False

  1. Decrease in liabilities at the time of admission of a partner is credited to Revaluation Account.

Fill in the Blank

  1. At the time of admission of a partner the balance of Profit and Loss Account is transferred to the capital account of _______________ in their _____________ ratio.

Multiple Choice Question

  1. X is admitted into the partnership for 1/4th share. Total capital of the firm is ₹ 4,50,000, the amount that X will bring in

(a) ₹ 1,50,000

(b) ₹ 1,20,000

(c) ₹ 1,12,500

(d) ₹ 1,00,000

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 33

True/False

  1.  True

Reason: Decrease in liabilities is a gain (profit) for the firm. Following the rule ‘Credit all Incomes and Gains’, Revaluation Account is credited.

Fill in the Blank

  1. Old Partners, Old Profit-Sharing Ratio

Multiple Choice Question

  1. (b)

Reason: Existing capital of the firm is ₹ 4,50,000, being 3/4th in the new firm. Therefore, total capital of the new firm will be ₹ 6,00,000 (₹ 4,50,000 x 4/3). X’s share in the new firm is 1/4th, thus capital of X will ₹ 1,50,000.

Question by CA (Dr.) G.S.GREWAL, Series – 37

Admission of a Partner

True/False

  1. Raj is admitted in a firm for 1/4th share in the profits for which he brings ₹ 30,000 as goodwill. It will be taken by the old partners in gaining ratio.

 Fill in the Blank

  1. A and B are partners sharing profits in the ratio of 7 : 3. C is admitted for 3/7th share in profits. If the new profit sharing ratio is 14 : 6 : 5, sacrificing ratio will be _____________.

Multiple Choice Question

  1. X and Y are partners sharing profits and losses in the ratio 3 : 2, Z was admitted for the 1/5th share he brings ₹ 150,000, as his capital. If capitals are to be proportionate to profit – sharing ratio, the respective capitals of the partners will be:

(a) ₹ 3,00,000 : 3,00,000 : 1,50,000

(b) ₹ 3,60,000 : 2,40,000 : 1,50,000

(c) ₹ 1,50,000 : 1,50,000 : 1,50,000

(d) ₹ 1,50,000 : 2,00,000 : 4,00,000

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 37

True/False

  1.  False

Reason:- It is a principle that Gaining Partner or Partners compensate the Sacrificing Partner or Partners. Therefore, Gaining Partner or Partners will compensate the Sacrificing Partner or Partners.

Correct Statement: Raj is admitted in a firm for 1/4th share in the profits for which he brings ₹ 30,000 as Goodwill. It will be taken by the old partners in their Sacrificing Partners.

Fill in the Blank

  1. 7 : 3

Multiple Choice Question

  1.  (b)

Reason: Z has brought in ₹ 150,000 as capital for his 1/5th share in profits. Thus, total capital of the firm will be ₹ 750,000 (₹ 150,000 x 5 / 1). New profit – sharing ratio is 12 : 8 : 5 calculated as follows:

New profit – sharing ratio X = 4/5 x 3/5 = 12/ 25

Y = 4/5 x 2/5 = 8/25

Z = 1/5 or 5/25 (Given)

Therefore, capitals of X and Y will be ₹ 360,000 and ₹ 240,000 respectively (₹ 750,000 x 12 / 25 for X and ₹ 750,000 x 8 / 25 for Y).

Question by CA (Dr.) G.S.GREWAL, Series – 38

Admission

True/False

  1. Capital Account of the partners will be credited for Writing off goodwill.

Fill in the Blank

  1. The amount brought by an incoming partner besides the capital at the time of his admission is __________________________.

Multiple Choice Question

  1. Current Accounts of the partners are opened:-

(a) When capital are fluctuating

(b) When capital are fixed

(c) When fresh capital is introduced

(d) Whether Capitals are fluctuating or fixed

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 38

True/False

  1.  False

Reason:- Goodwill has a debit balance and so does the loss in case of debit balance in the Profit and Loss Account. Goodwill when written off or loss when distributed, Capital Account of the partners will be debited. Profit on revaluation of assets or reassessment of liabilities will have credit balance, which will be credited to the Capital Accounts.

Correct Statement:- Capital Account of the partners will be credited for Writing off goodwill.

Fill in the Blank

  1. Premium for goodwill

Multiple Choice Question

  1. (b)

Reason: Capital accounts of partners can be maintained following either Fixed Capital Accounts Method or Fluctuating Accounts Capital Method. If Fixed Capital Accounts Method is followed, two accounts are opened for each partner i.e. Capital Account and Current Account. Entries relating to additional capital being introduced and capital withdrawn are posted into the Fixed Capital a/c, while other entries such as salary, interest, profit or loss distribution etc. are posted to Current Account.

Question by CA (Dr.) G.S.GREWAL, Series – 44

Admission of a Partner

True/False

  1. Revaluation Account is debited to transfer gain(profit) on Revaluation to old Partners’ Capital Accounts in their old profit sharing ratio.

Fill in the Blank

  1. The amount earlier written off as bad debt now received is Revaluation Account is credited to __________________________.

Multiple Choice Question

  1. X is admitted into the partnership for 1/4th share. Total capital of the firm is ₹ 4,50,000, the amount that X will bring in

(a)     ₹ 1,50,000

(b)     ₹ 1,20,000

(c)     ₹ 1,12,500

(d)     ₹ 1,00,000

Comparative and Common Size Financial Statements

Answer – Question by CA (Dr.) G.S.GREWAL, Series – 44

True/False

  1. True

Reason: Revaluation Account is closed by transferring the balance in the account to the Capital Accounts of the partners. Excess of total of credit side over the total of debit side is gain (profit) to the firm. Therefore, Revaluation Account is debited by the amount of gain (profit). Since, the gain (profit) is due to the old partners, old partners’ Capital Accounts are credited in their old profit sharing ratio.

Fill in the Blank

  1. Revaluation Account

Multiple Choice Question

  1. (a)

Reason: Existing capital of the firm is ₹ 4,50,000, being 3/4th in the new firm. Therefore, total capital of the new firm will be ₹ 6,00,000 (₹ 4,50,000 x 4/3). X’s share in the new firm is 1/4th, thus capital of X will ₹ 1,50,000.

 

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