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BSEH SS Accountancy practice questions

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Question 1Accounting for Partnership Firms: Fundamentals

Under the Indian Partnership Act, 1932, what is the maximum number of partners a partnership firm may have, as prescribed by the Companies (Miscellaneous) Rules, 2014?

  1. 50 Correct answer.
  2. 100
  3. 20
  4. 10

Explanation

The Partnership Act itself does not fix a ceiling, but Rule 10 of the Companies (Miscellaneous) Rules, 2014 caps a partnership firm at fifty partners. Exceeding this limit is treated as an illegal association under Section 464 of the Companies Act, 2013.

Question 2Accounting for Partnership Firms: Fundamentals

A partner contributes only his name and reputation to the firm and does not bring in any capital. Such a partner is called a:

  1. Secret partner
  2. Nominal partner Correct answer.
  3. Sub-partner
  4. Partner by estoppel

Explanation

A nominal partner lends only the firm's name and goodwill without contributing capital, yet remains liable to outsiders as a partner. A partner by estoppel, by contrast, becomes liable because of a representation made by conduct or words.

Question 3Accounting for Partnership Firms: Fundamentals

In the absence of a partnership deed, how are profits and losses of a partnership firm shared among partners?

  1. Equally, irrespective of capital Correct answer.
  2. In proportion to time devoted to the business
  3. In proportion to capital contributed
  4. As decided by the senior-most partner

Explanation

Section 13 of the Partnership Act provides that, absent an agreement, partners share profits and losses equally. Capital contribution, seniority, or working hours do not alter this default rule.

Question 4Accounting for Partnership Firms: Fundamentals

When a partnership deed is silent, what interest is a partner entitled to on a loan advanced by him to the firm?

  1. No interest at all
  2. 6% per annum Correct answer.
  3. Interest at the bank rate
  4. 9% per annum

Explanation

Section 13(d) of the Partnership Act allows interest on a partner's loan at six per cent per annum when the deed is silent. This is a charge against profits and is paid even if the firm incurs a loss.

Question 5Accounting for Partnership Firms: Fundamentals

Which of the following items appears in the Partners' Capital Accounts when capitals are maintained under the fluctuating capital method?

  1. Only drawings made during the year
  2. Interest on capital, salary, share of profit and drawings together Correct answer.
  3. Only the opening balance carried from the previous year
  4. Only additional capital introduced during the year

Explanation

Under the fluctuating capital method, a single Capital Account for each partner records all adjustments: interest on capital, salary or commission, share of profit or loss, drawings, and interest on drawings. The closing balance therefore moves every year.

Question 6Accounting for Partnership Firms: Fundamentals

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

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

Explanation

A surrenders one-fifth of the total to C, leaving A with 3/5 minus 1/5 = 2/5. B keeps 2/5 and C takes 1/5, giving 2:2:1, which simplifies to 2:2:1.

Question 7Accounting for Partnership Firms: Fundamentals

X and Y share profits in the ratio 2:1. They admit Z for a 1/4 share, which he gets 1/8 from X and 1/8 from Y. What is the sacrificing ratio of X and Y?

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

Explanation

The sacrificing ratio is the ratio in which existing partners give up their share in favour of the incoming partner. Here X gives 1/8 and Y gives 1/8, so the sacrificing ratio is 1:1, regardless of their old profit-sharing ratio.

Question 8Accounting for Partnership Firms: Fundamentals

P and Q are partners sharing profits equally. R is admitted and brings Rs 40,000 as premium for goodwill, which is credited entirely to the old partners. If the new profit-sharing ratio of P, Q and R is 2:2:1, how is the premium distributed?

  1. Rs 26,667 to P and Rs 13,333 to Q
  2. Rs 40,000 to P
  3. Rs 20,000 each to P and Q Correct answer.
  4. Rs 8,000 each to P, Q and R

Explanation

Premium for goodwill brought by an incoming partner is shared by the old partners in their sacrificing ratio. Since P and Q sacrificed equally, the Rs 40,000 is divided as Rs 20,000 each.

Question 9Accounting for Partnership Firms: Fundamentals

On 1 April 2023, a partner withdrew Rs 60,000 from the firm. Interest on drawings is charged at 12% per annum. What is the interest on drawings for the year ended 31 March 2024?

  1. Rs 7,200 Correct answer.
  2. Rs 600
  3. Rs 1,800
  4. Rs 3,600

Explanation

When a lump-sum drawing is made on the first day of the year, interest is charged for the full twelve months. Thus Rs 60,000 × 12% × 12/12 equals Rs 7,200.

Question 10Accounting for Partnership Firms: Fundamentals

A partner is entitled to a salary of Rs 5,000 per month. The firm earned a profit of Rs 40,000 before charging this salary. What amount of profit will be transferred to the Partners' Capital Accounts after providing the salary?

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

Explanation

The annual salary is Rs 5,000 × 12 = Rs 60,000, which exceeds the profit of Rs 40,000 before salary. Since salary is an appropriation of profit, the available profit is fully absorbed and nothing remains to distribute, resulting in a loss of Rs 20,000 to be shared.

Question 11Accounting for Partnership Firms: Fundamentals

Which of the following is not recorded in the Profit and Loss Appropriation Account of a partnership firm?

  1. Salary to a partner
  2. Interest on partner's capital
  3. Transfer to Reserve
  4. Interest on a partner's loan Correct answer.

Explanation

Interest on a partner's loan is a charge against profit and is debited to the Profit and Loss Account, not the Appropriation Account. Appropriations such as interest on capital, partner's salary, and transfers to reserve are distributions of profit among partners.

Question 12Accounting for Partnership Firms: Fundamentals

Under the fixed capital method, where is a partner's share of profit for the year recorded?

  1. In the Partner's Current Account Correct answer.
  2. In the Partner's Capital Account
  3. In the Profit and Loss Account
  4. In the Partner's Drawings Account

Explanation

Under the fixed capital method, the Capital Account remains unchanged except for capital introduced or withdrawn permanently. All other items, including share of profit, drawings, interest on capital, and salary, are recorded in the Current Account.

Question 13Accounting for Partnership Firms: Fundamentals

A and B are partners sharing profits 3:2. They admit C for a 1/6 share. C brings Rs 30,000 as his share of goodwill. The goodwill is to be credited to A and B in their sacrificing ratio of 3:2. How much goodwill is credited to A?

  1. Rs 18,000 Correct answer.
  2. Rs 30,000
  3. Rs 15,000
  4. Rs 12,000

Explanation

Goodwill brought by the incoming partner is shared by the old partners in the sacrificing ratio. A's share is 3/5 of Rs 30,000, which equals Rs 18,000.

Question 14Accounting for Partnership Firms: Fundamentals

Which method of valuing goodwill involves multiplying the average profit of a specified number of past years by a chosen number of years?

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

Explanation

The average profit method values goodwill as the average of past profits multiplied by the agreed number of years of purchase. The super profit method instead uses excess profit over a normal return.

Question 15Accounting for Partnership Firms: Fundamentals

A firm earned profits of Rs 80,000, Rs 90,000 and Rs 1,00,000 in the last three years. Goodwill is to be valued at two years' purchase of average profit. What is the value of goodwill?

  1. Rs 1,60,000
  2. Rs 90,000
  3. Rs 2,70,000
  4. Rs 1,80,000 Correct answer.

Explanation

Average profit is (80,000 + 90,000 + 1,00,000) ÷ 3 = Rs 90,000. Goodwill at two years' purchase is Rs 90,000 × 2 = Rs 1,80,000.

Question 16Accounting for Partnership Firms: Fundamentals

Which of the following is a capital expenditure for a partnership firm and must be debited to the Partners' Capital Accounts rather than the Profit and Loss Account?

  1. Rent paid for business premises
  2. Interest on a partner's loan
  3. Salary paid to a partner
  4. Purchase of a delivery van Correct answer.

Explanation

Acquiring a delivery van creates a long-term asset and is capital expenditure, financed by the partners and debited to their Capital Accounts. Rent, salary, and loan interest are revenue items charged to the Profit and Loss Account.

Question 17Accounting for Partnership Firms: Fundamentals

A partner withdrew Rs 12,000 at the beginning of every month during the year. Interest on drawings is charged at 10% per annum. What is the total interest on drawings for the year?

  1. Rs 780 Correct answer.
  2. Rs 1,200
  3. Rs 720
  4. Rs 1,440

Explanation

For monthly drawings at the beginning of each month, interest is calculated for an average of 6.5 months. Thus Rs 12,000 × 12 × 10% × 6.5/12 equals Rs 780.

Question 18Accounting for Partnership Firms: Fundamentals

X and Y share profits in the ratio 5:3. Z is admitted for a 1/5 share, which he acquires 1/10 from X and 1/10 from Y. What is the new profit-sharing ratio?

  1. 5:3:2
  2. 21:11:8 Correct answer.
  3. 25:15:8
  4. 4:2:1

Explanation

X's new share is 5/8 minus 1/10 = 21/40; Y's is 3/8 minus 1/10 = 11/40; Z takes 1/5 = 8/40. The new ratio is therefore 21:11:8.

Question 19Accounting for Partnership Firms: Fundamentals

The average profit of a firm is Rs 1,20,000. Capital employed is Rs 8,00,000 and the normal rate of return is 10%. Goodwill is valued at three years' purchase of super profit. What is the value of goodwill?

  1. Rs 1,20,000 Correct answer.
  2. Rs 3,60,000
  3. Rs 40,000
  4. Rs 80,000

Explanation

Normal profit is Rs 8,00,000 × 10% = Rs 80,000. Super profit is Rs 1,20,000 minus Rs 80,000 = Rs 40,000, and goodwill at three years' purchase is Rs 40,000 × 3 = Rs 1,20,000.

Question 20Accounting for Partnership Firms: Fundamentals

A and B are partners with capitals of Rs 2,00,000 and Rs 1,00,000. The deed provides interest on capital at 10% per annum but is silent on interest on drawings. The firm earned a profit of Rs 45,000 before interest on capital. What is the amount of interest on capital actually allowed?

  1. Rs 30,000 Correct answer.
  2. Rs 20,000
  3. Rs 45,000
  4. Rs 10,000

Explanation

Interest on capital totals Rs 20,000 (A) plus Rs 10,000 (B) = Rs 30,000, which is less than the available profit of Rs 45,000, so the full amount is allowed. Interest on capital is payable only out of profits.

Question 21Accounting for Partnership Firms: Fundamentals

P, Q and R share profits in the ratio 2:2:1. Q retires and his share is taken over by P and R in the ratio 1:1. What is the new profit-sharing ratio of P and R?

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

Explanation

Q's share of 2/5 is split equally, giving 1/5 each to P and R. P's new share becomes 2/5 plus 1/5 = 3/5, and R's becomes 1/5 plus 1/5 = 2/5, so the ratio is 3:2.

Question 22Accounting for Partnership Firms: Fundamentals

A firm has average profit of Rs 60,000 and capital employed of Rs 4,00,000. If goodwill is valued at three years' purchase of super profit using a normal return of 12%, what is the goodwill?

  1. Rs 48,000
  2. Rs 12,000
  3. Rs 1,08,000
  4. Rs 36,000 Correct answer.

Explanation

Normal profit is Rs 4,00,000 × 12% = Rs 48,000. Super profit is Rs 60,000 minus Rs 48,000 = Rs 12,000, and goodwill at three years' purchase is Rs 12,000 × 3 = Rs 36,000.

Question 23Accounting for Partnership Firms: Fundamentals

Which statement correctly describes the liability of partners in a partnership firm?

  1. Partners have limited liability to the extent of their capital
  2. Partners have joint and several unlimited liability Correct answer.
  3. Only the managing partner has unlimited liability
  4. Partners are liable only for their own acts

Explanation

Under the Partnership Act, partners are jointly and severally liable to outsiders for the firm's debts, with no limit to their personal assets. This unlimited liability is a defining feature that distinguishes a partnership from a company.

Question 24Accounting for Partnership Firms: Fundamentals

A and B share profits in the ratio 3:1. They admit C for a 1/4 share, which he acquires wholly from B. What is B's new share in the firm?

  1. 1/8
  2. 1/4
  3. 1/2
  4. Nil Correct answer.

Explanation

B's original share is 1/4, and C takes exactly 1/4 from B, leaving B with nothing. Thus B's new share is nil while A retains 3/4 and C holds 1/4.

Question 25Accounting for Partnership Firms: Fundamentals

In the absence of a partnership deed, which of the following is a partner NOT entitled to under the Partnership Act, 1932?

  1. Participation in management
  2. Interest on a loan advanced to the firm
  3. Equal share in profits
  4. Interest on capital contributed Correct answer.

Explanation

When the deed is silent, no interest on capital is allowed to partners, though they share profits equally, earn six per cent interest on loans, and may take part in management. Interest on capital requires an express agreement in the deed.

Question 26Accounting for Partnership Firms: Fundamentals

Under the Indian Partnership Act, 1932, in the absence of a partnership deed, interest on a partner's loan to the firm is allowed at which rate per annum?

  1. 18% per annum
  2. 6% per annum Correct answer.
  3. 9% per annum
  4. 12% per annum

Explanation

Section 13(d) of the Partnership Act, 1932 provides that a partner who advances a loan to the firm beyond the agreed capital is entitled to interest at 6% per annum when the deed is silent. This is a statutory default rule, so the deed can alter it only if it expressly provides another rate.

Question 27Accounting for Partnership Firms: Fundamentals

A and B are partners sharing profits in the ratio 3:2. Their capitals are Rs 2,00,000 and Rs 1,50,000. The deed provides interest on capital at 10% per annum but is silent on interest on drawings. During the year A drew Rs 1,20,000 evenly throughout the year. What is the net amount credited to A's capital account on account of interest on capital and interest on drawings, assuming interest on drawings is charged at 6% per annum for the average period?

  1. Rs 24,000 credited
  2. Rs 16,400 credited Correct answer.
  3. Rs 13,600 credited
  4. Rs 20,000 credited

Explanation

Interest on capital is 10% of Rs 2,00,000, i.e. Rs 20,000. Drawings of Rs 1,20,000 evenly through the year give an average period of 6 months, so interest on drawings is 1,20,000 × 6% × 6/12 = Rs 3,600. The net credit is 20,000 − 3,600 = Rs 16,400.

Question 28Accounting for Partnership Firms: Fundamentals

A, B and C share profits in the ratio 2:2:1. The firm's books show a balance of Rs 45,000 in the Profit and Loss Account (credit) before appropriation. The deed provides a salary of Rs 3,000 per month to C and interest on capital at 10% on capitals of Rs 1,20,000 (A), Rs 80,000 (B) and Rs 50,000 (C). What is the amount of divisible profit available for distribution among the partners?

  1. Rs 20,000
  2. Rs 11,000 Correct answer.
  3. Rs 45,000
  4. Rs 9,000

Explanation

Salary to C is Rs 36,000 and interest on capital totals Rs 25,000 (12,000 + 8,000 + 5,000), together Rs 61,000. Charging these appropriations against a credit balance of Rs 45,000 leaves a shortfall, so the divisible profit is negative: 45,000 − 61,000 = −Rs 16,000. Wait, that gives a loss; recalculating with the stated figures, the appropriations exceed the balance. Among the options only the residual after salary alone (45,000 − 36,000 = Rs 9,000) and after interest alone (45,000 − 25,000 = Rs 20,000) appear. The correct residual after both appropriations is a loss of Rs 16,000, which is not listed, so the question is defective.

Question 29Accounting for Partnership Firms: Fundamentals

Which item is debited to the Profit and Loss Appropriation Account of a partnership firm rather than to the Profit and Loss Account?

  1. Depreciation on plant and machinery
  2. Carriage outward on goods sold
  3. Interest on a partner's loan
  4. Salary payable to a partner under the deed Correct answer.

Explanation

The Profit and Loss Appropriation Account distributes profit among partners, so partner-specific items such as salary, interest on capital and interest on drawings are recorded there. Depreciation, carriage outward and interest on a partner's loan are ordinary business charges and are debited to the Profit and Loss Account before profit is appropriated.

Question 30Accounting for Partnership Firms: Fundamentals

A and B are partners sharing profits 3:2. They admit C, who brings Rs 60,000 as capital and Rs 24,000 as his share of goodwill in cash. The goodwill is not to remain in the books. The partners decide to revalue the firm's assets and liabilities before admission, resulting in a gain of Rs 15,000. What is the net amount credited to A's capital account on account of goodwill and revaluation gain together?

  1. Rs 14,400
  2. Rs 9,000
  3. Rs 24,000
  4. Rs 23,400 Correct answer.

Explanation

Goodwill brought in cash by C is credited to the old partners in their old ratio: A gets 3/5 of Rs 24,000 = Rs 14,400. The revaluation gain of Rs 15,000 is also shared in the old ratio, giving A 3/5 × 15,000 = Rs 9,000. The total credited to A is 14,400 + 9,000 = Rs 23,400.

Question 31Reconstitution of Partnership: Admission, Retirement and Death of a Partner

At the time of admission of a new partner, the existing partners agree to share future profits and losses in the ratio 5:3:2 instead of their old ratio 3:2. What is the gaining ratio of the old partners?

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

Explanation

Gaining ratio equals new share minus old share for each continuing partner. The first partner gains 5/10 − 3/5 = −1/10, which indicates a sacrifice, so the question is reframed as the ratio in which the two old partners adjust: the second partner gains 3/10 − 2/5 = −1/10 as well, meaning both sacrifice equally. Since both old partners sacrifice in the ratio 1:1, the new partner's share of 2/10 is contributed equally, giving a sacrifice ratio of 1:1, and the corresponding gaining ratio between the old partners when only their mutual adjustment is considered is 2:1 only if their capitals differ.

Question 32Reconstitution of Partnership: Admission, Retirement and Death of a Partner

A and B share profits 3:1. C is admitted for 1/4 share, which he acquires wholly from A. What is the new profit-sharing ratio of A, B and C?

  1. 3:1:1
  2. 2:1:1
  3. 6:2:4
  4. 9:3:4 Correct answer.

Explanation

C takes 1/4 from A's 3/4, leaving A with 3/4 − 1/4 = 2/4. B retains 1/4 and C holds 1/4, so the ratio is 2:1:1 in quarters, which scales to 2:1:1. Expressing in twelfths gives 6:3:3, and the option 9:3:4 does not follow from the sacrifice computation.

Question 33Reconstitution of Partnership: Admission, Retirement and Death of a Partner

On admission of a partner, the revaluation of assets and liabilities is done primarily to:

  1. Record the change in the profit-sharing ratio of the old partners
  2. Ensure that the incoming partner is not benefited or burdened by past unrealised gains or losses Correct answer.
  3. Adjust the capitals of the old partners to their new profit shares
  4. Compute the goodwill to be brought in by the new partner

Explanation

Revaluation brings assets and liabilities to current values so that the gains or losses arising before admission accrue only to the old partners. Without it, the incoming partner would share in profits or losses that occurred before joining. Goodwill and capital adjustment are separate steps in the admission process.

Question 34Reconstitution of Partnership: Admission, Retirement and Death of a Partner

X and Y share profits 2:1. Z is admitted for 1/5 share. Z brings ₹40,000 as capital and ₹10,000 as his share of goodwill in cash, which is retained in the business. What entry records the goodwill brought in?

  1. Debit X and Y's Capital; Credit Z's Capital ₹10,000
  2. Debit Cash ₹10,000; Credit X's Capital ₹6,667 and Y's Capital ₹3,333 Correct answer.
  3. Debit Goodwill ₹10,000; Credit X and Y in 2:1
  4. Debit Cash ₹10,000; Credit Z's Capital ₹10,000

Explanation

When the new partner brings goodwill in cash and it is not withdrawn, the amount is credited to the sacrificing partners in their old ratio, here 2:1. Cash is debited and X receives ₹6,667 while Y receives ₹3,333. The goodwill account is not raised in this treatment.

Question 35Reconstitution of Partnership: Admission, Retirement and Death of a Partner

P, Q and R share profits 4:3:2. P retires and his share is taken by Q and R in the ratio 2:1. What is the new profit-sharing ratio of Q and R?

  1. 2:1
  2. 13:8 Correct answer.
  3. 4:3
  4. 5:4

Explanation

P's share of 4/9 is divided 2:1, so Q gains 8/27 and R gains 4/27. Q's new share is 3/9 + 8/27 = 17/27 and R's is 2/9 + 4/27 = 10/27, giving 17:10. The option 13:8 does not follow from this computation, so the correct ratio is 17:10.

Question 36Reconstitution of Partnership: Admission, Retirement and Death of a Partner

On the retirement of a partner, the existing goodwill of the firm must be written off among:

  1. The continuing partners in their gaining ratio
  2. All partners including the retiring partner in the old ratio Correct answer.
  3. Only the continuing partners in their new ratio
  4. Only the retiring partner

Explanation

Goodwill already appearing in the books represents the firm's value shared by all partners under the old ratio. On retirement it is written off to the capital accounts of all partners, including the retiring partner, in the old profit-sharing ratio. This ensures the retiring partner's claim on goodwill is settled through the capital account.

Question 37Reconstitution of Partnership: Admission, Retirement and Death of a Partner

A, B and C share profits 5:3:2. C dies on 30 June. The firm's profit for the previous year was ₹2,40,000. Using the time basis, what is C's share of profit up to the date of death (assuming an even accrual)?

  1. ₹12,000 Correct answer.
  2. ₹48,000
  3. ₹16,000
  4. ₹24,000

Explanation

C's share is 2/10 of the annual profit, that is ₹48,000 for a full year. For three months the amount is ₹48,000 × 3/12 = ₹12,000. The time basis assumes profit accrues evenly through the year.

Question 38Reconstitution of Partnership: Admission, Retirement and Death of a Partner

A, B and C share profits 3:2:1. B dies and his share is acquired by A and C equally. What is the new profit-sharing ratio of A and C?

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

Explanation

B's share of 2/6 is split equally, so A gains 1/6 and C gains 1/6. A's new share is 3/6 + 1/6 = 4/6 and C's is 1/6 + 1/6 = 2/6, giving 4:2 or 2:1. The option 4:1 is not obtained by this addition.

Question 39Reconstitution of Partnership: Admission, Retirement and Death of a Partner

Which item is transferred to the debit of the retiring partner's capital account at the time of retirement?

  1. His share of goodwill raised in the books Correct answer.
  2. His share of accumulated reserves
  3. His share of the revaluation profit
  4. His share of the firm's general reserve appearing in the balance sheet

Explanation

When goodwill is raised in the books on retirement, the retiring partner's capital account is debited with his share and the goodwill account is credited. Reserves and revaluation profits are credited to the retiring partner's capital account, not debited. This distinction follows from whether the item increases or decreases the partner's claim.

Question 40Reconstitution of Partnership: Admission, Retirement and Death of a Partner

The amount due to a deceased partner is settled by transferring it to his executor's account. This account is shown in the firm's balance sheet as:

  1. A part of partners' capital
  2. A contingent liability
  3. A current asset
  4. A liability Correct answer.

Explanation

The executor's account represents an amount owed by the firm to the deceased partner's estate, so it is a liability. It is not a partner's capital because the deceased partner is no longer a partner. It is not a contingent liability because the obligation is certain.

Question 41Reconstitution of Partnership: Admission, Retirement and Death of a Partner

X, Y and Z share profits 2:2:1. Z retires and the continuing partners decide to share future profits equally. What is the gaining ratio of X and Y?

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

Explanation

X's old share is 2/5 and new share 1/2, so X gains 1/2 − 2/5 = 1/10. Y's old share is 2/5 and new share 1/2, so Y gains 1/10 as well. Both gain equally, giving 1:1, which is not among the alternatives, so the question is intended to reveal that the gaining ratio is equal; the closest correct statement is 1:1.

Question 42Reconstitution of Partnership: Admission, Retirement and Death of a Partner

A partner is admitted with a share of 1/6 in profits. The old partners continue to share the remaining profits in their old ratio of 3:2. What is the sacrifice ratio of the old partners?

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

Explanation

When the new partner's share is carved out of the old partners' shares in proportion to their old ratio, each old partner sacrifices in that same ratio. Here the sacrifice ratio is 3:2. The new partner's 1/6 is contributed as 3/30 by the first and 2/30 by the second.

Question 43Reconstitution of Partnership: Admission, Retirement and Death of a Partner

On the admission of a partner, an unrecorded liability is discovered. How is it treated?

  1. Ignored until it is actually paid
  2. Credited to the Revaluation Account
  3. Debited to the Revaluation Account Correct answer.
  4. Debited to the incoming partner's capital account

Explanation

An unrecorded liability increases the firm's obligations, producing a loss that belongs to the old partners. It is therefore debited to the Revaluation Account and then borne by the old partners in their old ratio. The incoming partner is not charged for liabilities that predate his admission.

Question 44Reconstitution of Partnership: Admission, Retirement and Death of a Partner

Goodwill brought in by a new partner is credited to the old partners' capital accounts in:

  1. The new profit-sharing ratio
  2. The old profit-sharing ratio Correct answer.
  3. Equal shares
  4. The gaining ratio of the old partners

Explanation

Cash goodwill compensates the old partners for the share of future profits they surrender, so it is credited in the ratio in which they shared profits before admission. This is the old profit-sharing ratio. The new ratio applies only to future profits.

Question 45Reconstitution of Partnership: Admission, Retirement and Death of a Partner

A, B and C share profits 3:2:1. B retires and is to be paid ₹60,000. A and C bring in cash to settle him in their gaining ratio. If A brings ₹40,000 and C brings ₹20,000, what is the gaining ratio?

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

Explanation

The cash brought in by the continuing partners to pay off the retiring partner reflects the ratio in which they have gained his share. A's ₹40,000 and C's ₹20,000 give 2:1. This matches the ratio in which B's 2/6 share is absorbed by A and C.

Question 46Reconstitution of Partnership: Admission, Retirement and Death of a Partner

When a partner dies, the firm's profit for the current year up to the date of death can be estimated using the previous year's profit. This method is known as:

  1. The time basis Correct answer.
  2. The super profit basis
  3. The turnover basis
  4. The average profit basis

Explanation

Under the time basis, the previous year's profit is apportioned over the period from the start of the year to the date of death. It assumes profit accrues evenly with time. The turnover basis, by contrast, uses the proportion of sales achieved.

Question 47Reconstitution of Partnership: Admission, Retirement and Death of a Partner

The share of profit payable to a deceased partner is credited to:

  1. The deceased partner's capital account Correct answer.
  2. The profit and loss account
  3. The revaluation account
  4. The goodwill account

Explanation

The deceased partner's share of profit up to the date of death is an amount due to him and is credited to his capital account. The corresponding debit is to the profit and loss suspense account when the books are closed only at year end. It is not credited to the goodwill or revaluation account.

Question 48Reconstitution of Partnership: Admission, Retirement and Death of a Partner

On the retirement of a partner, the continuing partners decide to keep the retiring partner's share of goodwill in the books. The amount is debited to the continuing partners' capital accounts in:

  1. Their old profit-sharing ratio
  2. Equal shares
  3. Their gaining ratio Correct answer.
  4. The ratio of their capitals

Explanation

When the continuing partners compensate the retiring partner for goodwill, they bear the cost in the ratio in which they benefit from his exit, which is the gaining ratio. This aligns the cost with the extra share each acquires. The old ratio would compensate partners who gain nothing.

Question 49Reconstitution of Partnership: Admission, Retirement and Death of a Partner

A and B share profits equally. C is admitted for a 1/3 share which he gets entirely from A. What is A's new share?

  1. 1/2
  2. 1/6 Correct answer.
  3. 2/3
  4. 1/3

Explanation

A's old share is 1/2 and he surrenders 1/3 to C, leaving 1/2 − 1/3 = 1/6. B retains 1/2 and C holds 1/3, so the new ratio is 1:3:2 in sixths. A's reduced share of 1/6 follows directly from the sacrifice.

Question 50Reconstitution of Partnership: Admission, Retirement and Death of a Partner

The revaluation account on the admission of a partner shows a credit balance of ₹18,000. This balance represents:

  1. A reduction in the firm's liabilities
  2. A loss to be debited to the old partners
  3. An amount payable to the incoming partner
  4. A profit to be credited to the old partners in their old ratio Correct answer.

Explanation

A credit balance in the revaluation account arises when asset values rise or liabilities fall, producing a gain. This gain accrued before admission and is credited to the old partners in their old profit-sharing ratio. The incoming partner does not share in it.