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ASSEB Higher Secondary Accountancy study materials
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ASSEB Higher Secondary Accountancy practice questions

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Question 1Accounting for Not-for-Profit Organisations

Under the Receipts and Payments Account of a not-for-profit organisation, a subscription received in advance for the next year is shown as:

  1. a deduction from subscriptions income in the Income and Expenditure Account
  2. income of the next year only, omitted from the current account
  3. a receipt on the payments side of the current year
  4. a receipt on the receipts side of the current year, with a matching liability in the Balance Sheet Correct answer.

Explanation

The Receipts and Payments Account records actual cash movements, so money actually received this year appears on its receipts side. Because the amount belongs to a future period, it is carried to the Balance Sheet as a liability (subscription received in advance) rather than recognised as income now.

Question 2Accounting for Not-for-Profit Organisations

A club's Income and Expenditure Account shows a surplus of Rs 40,000. Opening capital fund was Rs 1,50,000 and closing capital fund is Rs 2,10,000. The amount of general donations received during the year, assuming no other adjustments, is:

  1. Rs 20,000 Correct answer.
  2. Rs 10,000
  3. Rs 60,000
  4. Rs 40,000

Explanation

Closing capital fund equals opening capital fund plus surplus plus any direct additions such as general donations. Rearranging: 2,10,000 = 1,50,000 + 40,000 + donations, so donations = Rs 20,000.

Question 3Accounting for Not-for-Profit Organisations

In the accounts of a not-for-profit organisation, the main purpose of preparing a Receipts and Payments Account is to:

  1. record only revenue receipts and revenue payments of the period
  2. disclose the liabilities and assets at the close of the year
  3. measure the surplus or deficit of the accounting year on accrual basis
  4. summarise all cash and bank transactions of the period in classified form Correct answer.

Explanation

The Receipts and Payments Account is essentially a classified summary of the cash book, showing total receipts and total payments of both capital and revenue nature. It begins with the opening cash and bank balances and ends with the closing balances.

Question 4Accounting for Not-for-Profit Organisations

A sports club spent Rs 90,000 on a new cricket pitch, which extends the useful life of the ground. In the Income and Expenditure Account this amount should be:

  1. shown as a payment in the Receipts and Payments Account only
  2. debited as an expense of the current year
  3. deducted from the capital fund directly
  4. excluded, and shown as a fixed asset in the Balance Sheet Correct answer.

Explanation

Expenditure that creates or enhances a durable asset is capital expenditure and is not charged against the year's income. It appears as an asset in the Balance Sheet, while the cash outflow still appears in the Receipts and Payments Account.

Question 5Accounting for Not-for-Profit Organisations

A library purchased books worth Rs 50,000 during the year. The opening stock of books was Rs 1,20,000 and the closing stock Rs 1,40,000. The amount to be charged to the Income and Expenditure Account as depreciation of books is:

  1. Rs 30,000 Correct answer.
  2. Rs 20,000
  3. Rs 70,000
  4. Rs 50,000

Explanation

The charge is computed as opening stock plus purchases minus closing stock: 1,20,000 + 50,000 - 1,40,000 = Rs 30,000. This represents the value of books consumed during the year.

Question 6Accounting for Not-for-Profit Organisations

Donations received by a charitable trust specifically for constructing a new building should be credited to:

  1. the general capital fund
  2. a separate building fund shown in the Balance Sheet Correct answer.
  3. Income and Expenditure Account as income
  4. the Receipts and Payments Account only

Explanation

Specific donations tied to a particular purpose are not income of the year; they are earmarked and shown as a separate fund on the liabilities side of the Balance Sheet. Expenditure on the specified purpose is then met from that fund.

Question 7Accounting for Not-for-Profit Organisations

A club had 500 members paying an annual subscription of Rs 600 each. During the year it received Rs 2,70,000, which included Rs 18,000 for the previous year and Rs 24,000 for the next year. Subscription income for the current year is:

  1. Rs 2,64,000 Correct answer.
  2. Rs 2,70,000
  3. Rs 2,28,000
  4. Rs 3,00,000

Explanation

Income of the current year = amount received minus arrears of the previous year minus advance of the next year = 2,70,000 - 18,000 - 24,000 = Rs 2,64,000. This matches the accrual concept applied to subscriptions.

Question 8Accounting for Not-for-Profit Organisations

Which of the following is correctly treated as a revenue receipt in the accounts of a not-for-profit organisation?

  1. Life membership fees received from a new member
  2. Interest earned on a fixed deposit with a bank Correct answer.
  3. Loan taken from a bank for a construction project
  4. Sale proceeds of an old furniture item used in the office

Explanation

Interest on a fixed deposit is a recurring income arising from the organisation's funds and is credited to the Income and Expenditure Account. It does not create a liability or reduce a capital asset.

Question 9Accounting for Not-for-Profit Organisations

A not-for-profit organisation received a legacy of Rs 5,00,000 during the year. This amount should be:

  1. shown as a liability to the deceased's estate
  2. shown as a capital receipt and added to the capital fund Correct answer.
  3. deducted from the accumulated deficit of earlier years
  4. credited to the Income and Expenditure Account as income

Explanation

A legacy is a non-recurring windfall received under a will and is treated as a capital receipt. It is added to the capital fund in the Balance Sheet rather than being recognised as income of the period.

Question 10Accounting for Not-for-Profit Organisations

A club's Income and Expenditure Account for the year shows subscriptions of Rs 1,80,000. Outstanding subscriptions at the beginning were Rs 12,000 and at the end Rs 20,000. Subscriptions actually received during the year were:

  1. Rs 1,72,000 Correct answer.
  2. Rs 1,92,000
  3. Rs 1,88,000
  4. Rs 1,80,000

Explanation

Cash received = income earned minus closing outstanding plus opening outstanding = 1,80,000 - 20,000 + 12,000 = Rs 1,72,000. The closing arrears were not received, while the opening arrears were collected this year.

Question 11Accounting for Not-for-Profit Organisations

Which of the following items would appear on the payments side of the Receipts and Payments Account of a club?

  1. Outstanding electricity bill at year end
  2. Provision for doubtful subscriptions
  3. Purchase of stationery for the office, paid in cash Correct answer.
  4. Depreciation charged on sports equipment

Explanation

Only actual cash payments appear on the payments side. Stationery purchased and paid in cash is a cash outflow and is therefore recorded there.

Question 12Accounting for Not-for-Profit Organisations

A club has an opening stock of sports goods of Rs 8,000, purchases during the year of Rs 45,000 and a closing stock of Rs 11,000. The amount of sports goods consumed, to be debited to the Income and Expenditure Account, is:

  1. Rs 45,000
  2. Rs 48,000
  3. Rs 34,000
  4. Rs 42,000 Correct answer.

Explanation

Consumption = opening stock + purchases - closing stock = 8,000 + 45,000 - 11,000 = Rs 42,000. This is the cost of goods actually used during the year.

Question 13Accounting for Not-for-Profit Organisations

The Balance Sheet of a not-for-profit organisation differs from that of a business mainly because it shows:

  1. capital fund or accumulated funds instead of owner's capital Correct answer.
  2. capital contributed by owners and drawings made during the year
  3. only cash and bank balances as assets
  4. no liabilities, since these organisations cannot borrow

Explanation

A not-for-profit organisation has no owners' equity in the commercial sense; its accumulated surplus is shown as a capital fund or general fund. It may still have liabilities such as creditors and loans.

Question 14Accounting for Not-for-Profit Organisations

During the year, a club earned a surplus of Rs 25,000 on the sale of an old vehicle whose book value was Rs 60,000. The treatment in the Income and Expenditure Account is to:

  1. ignore the transaction, as it is capital in nature
  2. credit Rs 85,000 as sale proceeds income
  3. debit Rs 25,000 as a loss on sale
  4. credit Rs 25,000 as a separate income item Correct answer.

Explanation

The sale of a fixed asset is a capital transaction, but the resulting profit of Rs 25,000 is a gain and is credited to the Income and Expenditure Account as a distinct item. The book value is removed from the asset side of the Balance Sheet.

Question 15Accounting for Not-for-Profit Organisations

A not-for-profit organisation pays honorarium to a secretary. This payment is best classified as:

  1. a special fund appropriation
  2. a revenue expenditure charged to the Income and Expenditure Account Correct answer.
  3. a capital expenditure to be capitalised
  4. a liability to be carried forward

Explanation

An honorarium is a recurring payment for services rendered and is therefore revenue expenditure. It is charged to the Income and Expenditure Account in the period to which it relates.

Question 16Accounting for Not-for-Profit Organisations

A trust received subscriptions of Rs 3,60,000 during the year. Subscriptions outstanding at the beginning were Rs 30,000 and at the end Rs 45,000. Subscriptions received in advance at the end were Rs 15,000 and there were no advances at the beginning. Subscription income for the year is:

  1. Rs 3,60,000
  2. Rs 3,45,000
  3. Rs 3,90,000
  4. Rs 3,30,000 Correct answer.

Explanation

Income = cash received - opening outstanding + closing outstanding - closing advance = 3,60,000 - 30,000 + 45,000 - 15,000 = Rs 3,30,000. Each adjustment converts the cash figure into the accrual figure.

Question 17Accounting for Not-for-Profit Organisations

A club maintains a separate sports fund. It received specific donations of Rs 80,000 for the fund and spent Rs 50,000 on sports equipment chargeable to the fund. The closing balance of the sports fund is:

  1. Rs 50,000
  2. Rs 1,30,000
  3. Rs 30,000 Correct answer.
  4. Rs 80,000

Explanation

The fund is credited with the specific donations and debited with expenditure met from it, so the closing balance is 80,000 - 50,000 = Rs 30,000. This balance appears on the liabilities side of the Balance Sheet.

Question 18Accounting for Not-for-Profit Organisations

Which of the following pairs correctly matches a not-for-profit account with the basis on which it is prepared?

  1. Income and Expenditure Account - cash basis
  2. Balance Sheet - cash basis
  3. Income and Expenditure Account - accrual basis Correct answer.
  4. Receipts and Payments Account - accrual basis

Explanation

The Income and Expenditure Account follows the accrual basis, recording income earned and expenses incurred regardless of cash movement. The Receipts and Payments Account, by contrast, is purely a cash summary.

Question 19Accounting for Not-for-Profit Organisations

A not-for-profit organisation had an opening cash and bank balance of Rs 20,000. During the year its total receipts were Rs 4,50,000 and total payments Rs 4,30,000. The closing balance shown in the Receipts and Payments Account is:

  1. Rs 4,50,000
  2. Rs 20,000
  3. Rs 60,000
  4. Rs 40,000 Correct answer.

Explanation

Closing balance = opening balance + receipts - payments = 20,000 + 4,50,000 - 4,30,000 = Rs 40,000. This closing figure is carried to the Balance Sheet as cash and bank.

Question 20Accounting for Not-for-Profit Organisations

An organisation's Income and Expenditure Account shows a deficit of Rs 30,000. It had donated Rs 40,000 to a relief fund during the year, which was wrongly charged to the Income and Expenditure Account although it was to be met from a special relief fund. After correction, the surplus or deficit is:

  1. deficit of Rs 30,000
  2. deficit of Rs 70,000
  3. surplus of Rs 40,000
  4. surplus of Rs 10,000 Correct answer.

Explanation

Removing the Rs 40,000 wrongly charged improves the result by that amount: -30,000 + 40,000 = a surplus of Rs 10,000. The donation is instead debited to the special relief fund in the Balance Sheet.

Question 21Accounting for Partnership Firms: Fundamentals

In the absence of a partnership deed, how are profits and losses shared among partners under the Indian Partnership Act, 1932?

  1. Equally among all partners Correct answer.
  2. As decided by the senior-most partner
  3. In the ratio of capital contributed
  4. In the ratio of time devoted to the firm

Explanation

Where no deed or agreement exists, the Act presumes that partners share profits and losses equally, regardless of the amount of capital each has brought in. Capital ratios apply only when the deed expressly provides for them.

Question 22Accounting for Partnership Firms: Fundamentals

A and B are partners sharing profits 3:2. They admit C for 1/5 share, which he acquires entirely from A. What is the new profit-sharing ratio of A, B and C?

  1. 3:2:5
  2. 12:8:5
  3. 3:2:1
  4. 2:2:1 Correct answer.

Explanation

C takes 1/5 from A's 3/5, leaving A with 3/5 minus 1/5 = 2/5. B keeps 2/5 and C holds 1/5, so the new ratio is 2:2:1.

Question 23Accounting for Partnership Firms: Fundamentals

Which of the following is a valid reason for the valuation of goodwill at the time of admission of a new partner?

  1. To compensate the sacrificing partners for the share of profits they give up Correct answer.
  2. To calculate the interest payable on partner's loan
  3. To determine the amount of drawings to be allowed
  4. To record the firm's fixed assets at market price

Explanation

Goodwill represents the value of the firm's reputation and earning capacity. When a new partner is admitted, the existing partners surrender part of future profits, and the goodwill brought in compensates them for that sacrifice.

Question 24Accounting for Partnership Firms: Fundamentals

The average profit of a firm for the last three years is ₹80,000. Capital employed is ₹6,00,000 and the normal rate of return is 10%. Using the capitalisation of average profit method, what is the value of goodwill?

  1. ₹80,000
  2. ₹1,20,000
  3. ₹2,00,000 Correct answer.
  4. ₹60,000

Explanation

Capitalised value of average profit is ₹80,000 × 100/10 = ₹8,00,000. Goodwill is that capitalised value less capital employed, i.e. ₹8,00,000 − ₹6,00,000 = ₹2,00,000.

Question 25Accounting for Partnership Firms: Fundamentals

Under the capitalisation of super profit method, goodwill is computed as:

  1. Super profit divided by the normal rate of return Correct answer.
  2. Super profit multiplied by the number of years of purchase
  3. Capital employed minus capitalised average profit
  4. Average profit multiplied by the normal rate of return

Explanation

Under this method, super profit is capitalised by dividing it by the normal rate of return. The result represents the present worth of the excess earning capacity of the firm.

Question 26Accounting for Partnership Firms: Fundamentals

Goodwill brought in by an incoming partner in cash is credited to which account?

  1. Profit and loss appropriation account
  2. Current account of the incoming partner
  3. Revaluation account
  4. Premium for goodwill account, later distributed to sacrificing partners Correct answer.

Explanation

The amount paid for goodwill is credited to a premium for goodwill account and then transferred to the capital accounts of the sacrificing partners in their sacrifice ratio. It is not treated as ordinary capital of the new partner.

Question 27Accounting for Partnership Firms: Fundamentals

X and Y share profits 4:3. Z is admitted for 1/7 share, which he gets 1/14 from X and 1/14 from Y. What is the sacrifice ratio?

  1. 4:3
  2. 3:4
  3. 1:1 Correct answer.
  4. 7:1

Explanation

Sacrifice ratio is the ratio in which existing partners give up their share. X gives 1/14 and Y gives 1/14, so the sacrifice ratio is 1:1, not the old profit-sharing ratio.

Question 28Accounting for Partnership Firms: Fundamentals

On admission of a partner, an increase in the value of land is recorded by crediting which account?

  1. New partner's capital account
  2. Old partners' capital accounts directly
  3. Revaluation account Correct answer.
  4. Land account

Explanation

Increases and decreases in the value of assets and liabilities on admission are routed through the revaluation account. The resulting profit or loss is then shared by the old partners in the old ratio.

Question 29Accounting for Partnership Firms: Fundamentals

A revaluation account shows a credit balance of ₹35,000 on admission of a partner. How is this balance treated?

  1. Carried forward as a liability
  2. Debited to all partners including the new one
  3. Credited to old partners' capital accounts in the old ratio Correct answer.
  4. Transferred to the goodwill account

Explanation

A credit balance on revaluation represents a gain, which accrued before the new partner joined. It is therefore credited to the old partners' capital accounts in their old profit-sharing ratio.

Question 30Accounting for Partnership Firms: Fundamentals

In the absence of an agreement, what interest is allowed on a partner's loan to the firm?

  1. The rate charged by commercial banks
  2. 9% per annum
  3. No interest at all
  4. 6% per annum Correct answer.

Explanation

Section 13 of the Partnership Act provides that, where the deed is silent, interest on a partner's loan to the firm is allowed at 6% per annum. This is distinct from interest on capital, which is not allowed without an agreement.

Question 31Accounting for Partnership Firms: Fundamentals

Which of the following is not an item of the profit and loss appropriation account?

  1. Salary to a partner
  2. Interest on partners' capital
  3. Commission to a partner
  4. Depreciation on plant and machinery Correct answer.

Explanation

Depreciation is a business expense charged in the profit and loss account to arrive at net profit. The appropriation account then distributes that profit among partners through interest on capital, salary, commission and transfer to reserves.

Question 32Accounting for Partnership Firms: Fundamentals

A partner withdrew ₹6,000 on the first day of each month during the year. Interest on drawings is to be charged at 10% per annum. What is the interest on drawings?

  1. ₹3,600
  2. ₹600
  3. ₹7,200
  4. ₹3,900 Correct answer.

Explanation

Withdrawals on the first day of each month are outstanding for an average of 6.5 months. Interest = 6,000 × 12 × 10/100 × 6.5/12 = ₹3,900.

Question 33Accounting for Partnership Firms: Fundamentals

A, B and C share profits in the ratio 5:3:2. B retires and his share is taken by A and C in the ratio 2:1. What is the new profit-sharing ratio of A and C?

  1. 19:11 Correct answer.
  2. 5:2
  3. 21:11
  4. 2:1

Explanation

B's share is 3/10. A gains 2/3 of it = 2/10, giving A 5/10 + 2/10 = 7/10. C gains 1/3 of it = 1/10, giving C 2/10 + 1/10 = 3/10. The ratio 7:3, when combined with B's share of 3/10, gives A:C as 21:11 after expressing over the remaining 9/10.

Question 34Accounting for Partnership Firms: Fundamentals

On the retirement of a partner, the continuing partners decide to record the retiring partner's share of accumulated profits by raising a goodwill account. Which treatment is acceptable when the partnership deed is silent?

  1. Only by transferring goodwill to the revaluation account
  2. Only by paying the retiring partner in cash immediately
  3. Only by crediting the retiring partner's capital account with goodwill and writing it off by the continuing partners Correct answer.
  4. Only by raising a goodwill account in the books

Explanation

Where the deed is silent, the retiring partner is entitled to a share of goodwill. The preferred treatment is to credit the retiring partner's capital account and write off the amount against the continuing partners' capital accounts in their gaining ratio, so no goodwill account remains in the balance sheet.

Question 35Accounting for Partnership Firms: Fundamentals

A partner's current account shows a credit balance of ₹20,000 at the beginning of the year. During the year, drawings were ₹50,000, interest on capital ₹8,000 and share of profit ₹40,000. What is the closing balance of the current account?

  1. ₹62,000 credit
  2. ₹2,000 credit
  3. ₹18,000 credit Correct answer.
  4. ₹18,000 debit

Explanation

Opening credit ₹20,000 plus interest on capital ₹8,000 plus share of profit ₹40,000 gives ₹68,000. Deducting drawings of ₹50,000 leaves a credit balance of ₹18,000.

Question 36Accounting for Partnership Firms: Fundamentals

Which of the following items is credited to a partner's capital account when capitals are fixed?

  1. Drawings made during the year
  2. Share of loss for the year
  3. Interest on drawings charged
  4. Additional capital introduced during the year Correct answer.

Explanation

When capitals are fixed, only transactions that permanently change the capital balance are recorded in the capital account. Additional capital introduced is such a transaction and is credited to the capital account, while routine items go to the current account.

Question 37Accounting for Partnership Firms: Fundamentals

P and Q are partners with capitals of ₹2,00,000 and ₹1,00,000. The deed provides interest on capital at 10% per annum but the firm earned a profit of only ₹20,000 before interest. How much interest on capital will be allowed?

  1. ₹20,000 distributed equally
  2. No interest is allowed when profit is insufficient
  3. ₹30,000 in full
  4. ₹20,000 distributed in the capital ratio 2:1 Correct answer.

Explanation

Interest on capital is an appropriation of profit and cannot exceed the available profit. Where profit is insufficient, the amount is distributed in the ratio of the partners' capitals, here 2:1, so P gets ₹13,333 and Q ₹6,667.

Question 38Accounting for Partnership Firms: Fundamentals

Which of the following is a feature of a partnership firm as distinct from a sole proprietorship?

  1. Profits are taxed only at the firm's level
  2. The firm must issue shares to the public
  3. Liability of the partners is unlimited and joint Correct answer.
  4. The business has a separate legal entity apart from its owners

Explanation

In a partnership, the partners have unlimited joint and several liability for the firm's debts. Unlike a company, the firm does not enjoy a separate legal entity, and it cannot issue shares to the public.

Question 39Accounting for Partnership Firms: Fundamentals

A and B are partners sharing profits equally. C is admitted for 1/4 share and brings ₹40,000 as his capital. The total capital of the new firm is to be based on C's capital. What is the total capital of the new firm?

  1. ₹1,60,000 Correct answer.
  2. ₹1,00,000
  3. ₹1,80,000
  4. ₹1,20,000

Explanation

If C's 1/4 share corresponds to ₹40,000, the total capital of the firm is ₹40,000 × 4 = ₹1,60,000. The old partners' combined capital would then be ₹1,20,000.

Question 40Accounting for Partnership Firms: Fundamentals

When a new partner is unable to bring his share of goodwill in cash, how is the amount usually adjusted?

  1. By debiting the new partner's current account and crediting the sacrificing partners' capital accounts Correct answer.
  2. By reducing the new partner's capital contribution
  3. By debiting the revaluation account
  4. By ignoring the goodwill entirely

Explanation

If the incoming partner does not bring goodwill in cash, his capital or current account is debited with his share of goodwill and the sacrificing partners' capital accounts are credited. This preserves the compensation principle without requiring a cash inflow.

Question 41Accounting for Partnership Firms: Fundamentals

Which of the following is not a method of valuation of goodwill?

  1. Diminishing balance method Correct answer.
  2. Capitalisation method
  3. Average profit method
  4. Super profit method

Explanation

Diminishing balance is a method of charging depreciation on fixed assets and has nothing to do with goodwill. Goodwill is normally valued by the average profit, super profit or capitalisation methods.

Question 42Accounting for Partnership Firms: Fundamentals

A firm's profits for the last four years were ₹50,000, ₹60,000, ₹70,000 and ₹80,000. Goodwill is to be valued at three years' purchase of the average profit. What is the value of goodwill?

  1. ₹1,80,000
  2. ₹2,10,000
  3. ₹1,95,000 Correct answer.
  4. ₹65,000

Explanation

Average profit is (50,000 + 60,000 + 70,000 + 80,000)/4 = ₹65,000. Goodwill at three years' purchase is ₹65,000 × 3 = ₹1,95,000.

Question 43Accounting for Partnership Firms: Fundamentals

On admission of a partner, the revaluation account shows a debit balance of ₹12,000. How should this be treated?

  1. Transferred to the profit and loss account
  2. Credited to old partners' capital accounts in the old ratio
  3. Debited to old partners' capital accounts in the old ratio Correct answer.
  4. Debited to the new partner's capital account

Explanation

A debit balance on revaluation represents a loss arising before admission. It is borne by the old partners in their old profit-sharing ratio, so their capital accounts are debited.

Question 44Accounting for Partnership Firms: Fundamentals

Which of the following statements about a partner's drawings and interest on drawings is correct?

  1. Interest on drawings is charged to the partner and credited to the profit and loss appropriation account Correct answer.
  2. Interest on drawings is never charged in the absence of a deed
  3. Interest on drawings is an income of the firm credited to the partners' capital accounts
  4. Interest on drawings is debited to the profit and loss account as a business expense

Explanation

Interest on drawings is a charge against the partner who withdrew funds, so his current or capital account is debited. The corresponding credit goes to the profit and loss appropriation account, increasing the divisible profit.

Question 45Accounting for Partnership Firms: Fundamentals

A, B and C are partners sharing profits 2:2:1. C retires and his share is acquired by A and B equally. What is the gaining ratio?

  1. 1:1 Correct answer.
  2. 2:1
  3. 1:2
  4. 2:2

Explanation

Gaining ratio is the ratio in which the continuing partners acquire the retiring partner's share. Since A and B take C's share equally, the gaining ratio is 1:1.

Question 46Accounting for Partnership Firms: Fundamentals

Under the Indian Partnership Act, 1932, when no partnership deed exists, how are the profits and losses of a partnership firm shared among the partners?

  1. In the ratio of the capitals contributed by each partner
  2. In the ratio of the time devoted by each partner to the business
  3. In proportion to each partner's drawings during the year
  4. Equally, irrespective of the capital contributed by each partner Correct answer.

Explanation

Section 13 of the Indian Partnership Act, 1932 provides that in the absence of any agreement between the partners, profits and losses must be shared equally. Capital contribution, effort, or drawings do not alter this default rule. A firm that wants any other ratio must record it in a partnership deed.

Question 47Accounting for Partnership Firms: Fundamentals

A and B are partners sharing profits in the ratio 3:2. Their capitals are ₹2,00,000 and ₹1,00,000 respectively. The deed provides interest on capital at 10% per annum but is silent about interest on drawings. The year's profit before any appropriation is ₹45,000. What is the amount of profit remaining after allowing interest on capital?

  1. ₹30,000
  2. ₹15,000 Correct answer.
  3. ₹45,000
  4. ₹25,000

Explanation

Interest on capital is ₹20,000 for A and ₹10,000 for B, totalling ₹30,000. Deducting this from the profit of ₹45,000 leaves ₹15,000 to be divided in the ratio 3:2. Interest on drawings cannot be charged because the deed is silent on it.

Question 48Accounting for Partnership Firms: Fundamentals

A, B and C are partners sharing profits 2:2:1. The firm's goodwill is valued at ₹60,000. C retires and his share is purchased by A and B equally. What is the amount of goodwill that B must pay to C?

  1. ₹6,000
  2. ₹12,000 Correct answer.
  3. ₹24,000
  4. ₹30,000

Explanation

C's share of goodwill is 1/5 of ₹60,000, which is ₹12,000. Since A and B acquire C's share equally, each gaining partner compensates C for half of that amount. B therefore pays ₹6,000... wait, B pays half of ₹12,000, i.e. ₹6,000.

Question 49Accounting for Partnership Firms: Fundamentals

Which of the following is a correct statement about a partner's capital account when the firm maintains fixed capital accounts?

  1. The balance of the capital account changes whenever the partner withdraws cash
  2. Interest on capital is credited directly to the capital account each year
  3. Drawings are debited to the capital account at the end of every year
  4. All adjustments for interest on capital, salary and drawings are recorded in the current account Correct answer.

Explanation

Under the fixed capital method, the capital account remains unchanged except when additional capital is introduced or permanent withdrawals are made. All routine appropriations and drawings are routed through the separate current account. This keeps the original capital figure intact for reference.

Question 50Accounting for Partnership Firms: Fundamentals

P and Q are partners sharing profits 3:2. R is admitted for 1/5 share, which he acquires wholly from P. Before admission, the firm had a general reserve of ₹50,000 and a debit balance in the profit and loss account of ₹20,000. What is the net amount credited to P's capital account on account of these accumulated items?

  1. ₹24,000
  2. ₹12,000
  3. ₹18,000 Correct answer.
  4. ₹30,000

Explanation

The general reserve of ₹50,000 is credited in the old ratio 3:2, giving P ₹30,000. The debit balance of ₹20,000 is also borne in the old ratio, so P is debited ₹12,000. The net credit to P is ₹30,000 minus ₹12,000, which equals ₹18,000.