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Kerala Plus Two Accountancy with AFS (DHSE) study materials
Kerala Plus Two Accountancy with AFS (DHSE) study resources

Kerala Plus Two Accountancy with AFS (DHSE) practice questions

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Question 1Accounting for Not-for-Profit Organisations

Which of the following best describes the Receipts and Payments Account prepared by a not-for-profit organisation?

  1. A nominal account showing surplus or deficit
  2. A summary of cash and bank transactions Correct answer.
  3. A statement of assets and liabilities
  4. A statement of accrued income and expenses

Explanation

A Receipts and Payments Account is a summarised real account of cash and bank transactions. It opens with the opening cash and bank balance and closes with the closing balance, and it records both revenue and capital items.

Question 2Accounting for Not-for-Profit Organisations

Which of the following is credited to the Income and Expenditure Account of a not-for-profit organisation?

  1. Sale of old newspapers Correct answer.
  2. Life membership fee received
  3. Sale of old furniture at book value
  4. Donation received for a building fund

Explanation

Sale of old newspapers is a recurring miscellaneous receipt of a revenue nature and is therefore credited to the Income and Expenditure Account. Capital receipts such as sale of furniture, life membership fees and specific donations are not credited to this account.

Question 3Accounting for Not-for-Profit Organisations

Outstanding subscription at the end of the accounting year is shown in the Balance Sheet of a not-for-profit organisation as:

  1. An asset Correct answer.
  2. A deduction from subscription income
  3. A liability
  4. A direct addition to capital fund

Explanation

Subscription relating to the current year but not yet received is an amount receivable at the year end. It is therefore shown as a current asset in the Balance Sheet and added to subscription received while computing subscription income.

Question 4Accounting for Not-for-Profit Organisations

During 2023-24, a club received subscription ₹3,60,000. Outstanding subscription on 1 April 2023 was ₹30,000 and on 31 March 2024 ₹45,000. Subscription received in advance on 1 April 2023 was ₹15,000 and on 31 March 2024 ₹20,000. Subscription income for 2023-24 is:

  1. ₹3,55,000
  2. ₹3,75,000
  3. ₹3,70,000 Correct answer.
  4. ₹3,85,000

Explanation

Subscription income = subscription received − opening outstanding + closing outstanding + opening advance − closing advance. Thus ₹3,60,000 − ₹30,000 + ₹45,000 + ₹15,000 − ₹20,000 = ₹3,70,000.

Question 5Accounting for Not-for-Profit Organisations

A not-for-profit organisation received ₹5,00,000 as donation with a specific direction that it be used only for constructing a new hall. How should this donation be treated?

  1. Deducted from the cost of the hall in the year of receipt
  2. Credited to the Income and Expenditure Account as income
  3. Credited to a separate building fund Correct answer.
  4. Shown as an asset in the Balance Sheet

Explanation

A donation received with a specific purpose is a capital receipt and must not be treated as general income. It is credited to a separate fund such as a building fund, and the amount spent is transferred from the fund to the asset concerned.

Question 6Accounting for Not-for-Profit Organisations

In the absence of a specific policy to spread it over the membership period, life membership fee received by a club is usually:

  1. Deducted from the subscription income of the year
  2. Shown as a refundable liability in the Balance Sheet
  3. Capitalised and added to capital fund Correct answer.
  4. Credited to the Income and Expenditure Account in the year of receipt

Explanation

Life membership fee is received once for the entire membership period, so it is not income of a single year. It is generally treated as a capital receipt and added to the capital fund, unless the organisation's policy is to spread it over the expected membership period.

Question 7Accounting for Not-for-Profit Organisations

An NPO sold old furniture for ₹20,000. The furniture had cost ₹40,000 and accumulated depreciation of ₹15,000 had been provided on it. What is the result of the sale?

  1. Loss of ₹20,000
  2. Profit of ₹5,000
  3. Loss of ₹5,000 Correct answer.
  4. Profit of ₹15,000

Explanation

The written-down value is cost minus accumulated depreciation, i.e. ₹40,000 − ₹15,000 = ₹25,000. Sale proceeds are ₹20,000, so the loss is ₹25,000 − ₹20,000 = ₹5,000. This loss is debited to the Income and Expenditure Account.

Question 8Accounting for Not-for-Profit Organisations

A club paid ₹3,000 to a guest speaker for delivering a lecture at its annual function. This payment is recorded as:

  1. Honorarium Correct answer.
  2. Salary
  3. Grant
  4. Subscription

Explanation

A payment made to a person for a specific service or occasion, without creating a regular employment relationship, is called an honorarium. It is an expense debited to the Income and Expenditure Account.

Question 9Accounting for Not-for-Profit Organisations

From the following information, compute the surplus for 2023-24: subscription received ₹2,00,000; salaries paid ₹60,000; rent paid ₹24,000; furniture purchased on 1 April 2023 ₹40,000. Outstanding salary on 31 March 2024 was ₹5,000, prepaid rent on 31 March 2024 was ₹4,000, and subscription outstanding on 31 March 2024 was ₹10,000. Depreciation on furniture is 10% per annum.

  1. ₹1,25,000
  2. ₹1,21,000 Correct answer.
  3. ₹1,11,000
  4. ₹1,17,000

Explanation

Subscription income is ₹2,00,000 + ₹10,000 = ₹2,10,000. Expenses are salaries ₹60,000 + ₹5,000 = ₹65,000, rent ₹24,000 − ₹4,000 = ₹20,000, and depreciation ₹4,000, totalling ₹89,000. Surplus = ₹2,10,000 − ₹89,000 = ₹1,21,000; furniture purchase is capital expenditure.

Question 10Accounting for Not-for-Profit Organisations

Opening capital fund of a club on 1 April 2023 was ₹6,00,000. It earned a surplus of ₹75,000 during the year. It received life membership fee ₹25,000 and a donation of ₹50,000 specifically for a building fund. What is the closing capital fund on 31 March 2024?

  1. ₹7,50,000
  2. ₹6,25,000
  3. ₹7,00,000 Correct answer.
  4. ₹6,75,000

Explanation

Closing capital fund = opening capital fund + surplus + life membership fee = ₹6,00,000 + ₹75,000 + ₹25,000 = ₹7,00,000. The specific building fund donation is a separate fund and is not added to the capital fund.

Question 11Accounting for Not-for-Profit Organisations

In the Balance Sheet of a not-for-profit organisation, the excess of total assets over total liabilities is presented as which of the following?

  1. Capital fund Correct answer.
  2. Subscription income
  3. Gross profit
  4. Cash reserve

Explanation

A not-for-profit organisation does not have share capital; its accumulated surplus, donations and specific funds are grouped as capital fund. The balance sheet balances when this fund is shown on the liabilities side as the excess of assets over liabilities.

Question 12Accounting for Not-for-Profit Organisations

The Income and Expenditure Account of a club is prepared by following which accounting basis?

  1. Liquidation basis
  2. Cash basis
  3. Single-entry basis
  4. Accrual basis Correct answer.

Explanation

The Income and Expenditure Account matches revenue for the year with expenditure incurred for that year, so outstanding and prepaid items are adjusted. This is the accrual basis, which is also why it resembles a Profit and Loss Account.

Question 13Accounting for Not-for-Profit Organisations

A youth club regularly sells old newspapers and waste paper. In its final accounts, the amount realised is shown as which of the following?

  1. A capital receipt to be credited directly to the capital fund
  2. An amount that is added only to the closing cash balance
  3. A deduction made from the cost of newspapers purchased during the year
  4. A revenue income credited to the Income and Expenditure Account Correct answer.

Explanation

Sale of old newspapers and waste paper is a recurring revenue receipt of the club. It is credited to the Income and Expenditure Account for the year in which it is realised.

Question 14Accounting for Not-for-Profit Organisations

A club received subscriptions of ₹2,40,000 during 2023-24. Subscriptions in advance were ₹15,000 on 1 April 2023 and ₹22,000 on 31 March 2024. Subscription income for 2023-24 is:

  1. ₹2,62,000
  2. ₹2,18,000
  3. ₹2,47,000
  4. ₹2,33,000 Correct answer.

Explanation

Subscription income = subscriptions received + opening advance − closing advance. Hence ₹2,40,000 + ₹15,000 − ₹22,000 = ₹2,33,000. The opening advance becomes income this year, while the closing advance belongs to the next year.

Question 15Accounting for Not-for-Profit Organisations

A charitable society paid ₹36,000 on 1 October 2023 as insurance premium for the year ending 30 September 2024. For the year ended 31 March 2024, how much should be charged to the Income and Expenditure Account and how much is prepaid?

  1. ₹18,000 charged; ₹18,000 prepaid Correct answer.
  2. ₹9,000 charged; ₹27,000 prepaid
  3. ₹27,000 charged; ₹9,000 prepaid
  4. ₹36,000 charged; nil prepaid

Explanation

The premium covers 12 months from 1 October 2023 to 30 September 2024. Only six months fall in the year ended 31 March 2024, so half of ₹36,000, i.e. ₹18,000, is charged and the remaining ₹18,000 is prepaid.

Question 16Accounting for Not-for-Profit Organisations

A sports club admitted 40 new members during the year and collected entrance fee of ₹500 from each. In the absence of any special instruction, how should the total entrance fee be treated?

  1. Deducted from the subscription receivable from members
  2. Shown as a current liability until members resign
  3. Credited to the Income and Expenditure Account as income
  4. Added to the capital fund Correct answer.

Explanation

Entrance or admission fee is normally treated as a capital receipt because it is received once from a new member and strengthens the organisation's fund. In the absence of a contrary instruction, it is added to the capital fund rather than credited to income.

Question 17Accounting for Not-for-Profit Organisations

A club had a tournament fund of ₹1,00,000 on 1 April 2023. During the year it received tournament donations of ₹20,000 and incurred tournament expenses of ₹35,000. The closing tournament fund is:

  1. ₹65,000
  2. ₹1,20,000
  3. ₹1,15,000
  4. ₹85,000 Correct answer.

Explanation

A specific fund is increased by receipts meant for that purpose and reduced by related expenses. Closing tournament fund = ₹1,00,000 + ₹20,000 − ₹35,000 = ₹85,000.

Question 18Accounting for Not-for-Profit Organisations

A trust received ₹2,00,000 from a donor with the condition that the amount must be retained intact and only its income may be used for awarding prizes. In the Balance Sheet, this amount is shown as:

  1. Current liability
  2. General donation
  3. Surplus in the Income and Expenditure Account
  4. Endowment fund Correct answer.

Explanation

A donation whose principal must be preserved and whose income alone may be spent creates an endowment fund. It is shown on the liabilities side of the Balance Sheet as a specific fund, not as ordinary income.

Question 19Accounting for Not-for-Profit Organisations

A club runs a canteen for members. Opening stock was ₹12,000; purchases ₹85,000; closing stock ₹15,000; canteen sales ₹1,20,000; and canteen wages ₹8,000. What is the canteen profit to be credited to the Income and Expenditure Account?

  1. ₹45,000
  2. ₹38,000
  3. ₹30,000 Correct answer.
  4. ₹23,000

Explanation

Cost of goods sold = opening stock + purchases − closing stock = ₹12,000 + ₹85,000 − ₹15,000 = ₹82,000. Canteen profit = sales − cost of goods sold − wages = ₹1,20,000 − ₹82,000 − ₹8,000 = ₹30,000.

Question 20Accounting for Not-for-Profit Organisations

A not-for-profit organisation's Receipts and Payments Account shows rent paid ₹48,000. Rent outstanding was ₹6,000 on 1 April 2023 and ₹9,000 on 31 March 2024. Rent to be charged to the Income and Expenditure Account for 2023-24 is:

  1. ₹45,000
  2. ₹51,000 Correct answer.
  3. ₹63,000
  4. ₹39,000

Explanation

Rent expense on accrual basis = rent paid + closing outstanding − opening outstanding. Thus ₹48,000 + ₹9,000 − ₹6,000 = ₹51,000. The closing outstanding relates to this year, while the opening outstanding was already charged in the previous year.

Question 21Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

In the absence of a written partnership deed, how should the profits of a partnership firm be shared among the partners under the Indian Partnership Act, 1932?

  1. In the ratio of their capitals
  2. In the ratio of their drawings
  3. According to the seniority of partners
  4. Equally among all partners Correct answer.

Explanation

When the partnership deed is silent, the Indian Partnership Act, 1932 provides that profits and losses are shared equally among the partners. The Act does not sanction capital-based sharing, drawing-based sharing or seniority-based sharing in the absence of an agreement.

Question 22Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B share profits in the ratio 3:2. C is admitted for 1/5 share of future profits. What is the new profit-sharing ratio of A, B and C?

  1. 3:2:5
  2. 12:8:5 Correct answer.
  3. 3:2:1
  4. 9:6:5

Explanation

C takes 1/5, leaving 4/5 for A and B. A gets 3/5 of 4/5 = 12/25, B gets 2/5 of 4/5 = 8/25, and C gets 1/5 = 5/25. The new ratio is therefore 12:8:5.

Question 23Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

Which account is prepared to distribute the net profit of a partnership firm after charging partner's salary, interest on capital and interest on drawings?

  1. Realisation Account
  2. Revaluation Account
  3. Profit and Loss Appropriation Account Correct answer.
  4. Trading Account

Explanation

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. It records appropriations such as partner's salary, interest on capital, interest on drawings, transfer to reserve and distribution of divisible profit among partners.

Question 24Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

When partners maintain fixed capital accounts, in which account is a partner's share of profit recorded?

  1. Share of profit Correct answer.
  2. Permanent reduction of capital
  3. Withdrawal of capital
  4. Additional capital introduced

Explanation

Under the fixed capital method, the Capital Account records only the introduction and permanent withdrawal of capital. A partner's share of profit, interest on capital, salary and drawings are recorded in the partner's Current Account.

Question 25Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

The profits of a firm for the last three years were ₹40,000, ₹50,000 and ₹60,000. Goodwill is valued at two years' purchase of the average profit. What is the value of goodwill?

  1. ₹1,10,000
  2. ₹1,00,000 Correct answer.
  3. ₹1,50,000
  4. ₹90,000

Explanation

Average profit is (₹40,000 + ₹50,000 + ₹60,000) ÷ 3 = ₹50,000. Goodwill at two years' purchase is ₹50,000 × 2 = ₹1,00,000.

Question 26Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A partner withdrew ₹6,000 at the beginning of each quarter during the year. Interest on drawings is charged at 12% p.a. What is the interest on drawings for the year?

  1. ₹1,800 Correct answer.
  2. ₹1,440
  3. ₹720
  4. ₹2,160

Explanation

Total drawings are ₹6,000 × 4 = ₹24,000. For drawings at the beginning of each quarter, the average period is 7.5 months, so interest is ₹24,000 × 12% × 7.5/12 = ₹1,800.

Question 27Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A, B and C share profits in the ratio 3:2:1. C is guaranteed a minimum profit of ₹30,000 by A and B, and any deficiency is borne by A and B in their profit-sharing ratio. If the firm's profit for the year is ₹1,20,000, how much deficiency is borne by A?

  1. ₹4,000
  2. ₹5,000
  3. ₹6,000 Correct answer.
  4. ₹10,000

Explanation

C's normal share is 1/6 of ₹1,20,000 = ₹20,000, so the deficiency is ₹10,000. A and B bear it in the ratio 3:2, so A bears 3/5 × ₹10,000 = ₹6,000.

Question 28Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B have capitals of ₹2,00,000 and ₹1,20,000. C is admitted for 1/4 share and brings ₹1,20,000 as capital. If goodwill is valued on the basis of C's capital, what is the amount of hidden goodwill?

  1. ₹20,000
  2. ₹60,000
  3. ₹40,000 Correct answer.
  4. ₹30,000

Explanation

C's capital of ₹1,20,000 represents a 1/4 share, so the total capital of the firm is ₹1,20,000 × 4 = ₹4,80,000. The total capital actually contributed is ₹2,00,000 + ₹1,20,000 + ₹1,20,000 = ₹4,40,000, leaving hidden goodwill of ₹40,000.

Question 29Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

X and Y have capitals of ₹5,00,000 and ₹3,00,000. The deed allows interest on capital at 10% p.a. and a salary of ₹5,000 per month to Y. Profit for the year before interest on capital and salary is ₹2,00,000, and interest on drawings is ₹10,000. What is the divisible profit?

  1. ₹70,000 Correct answer.
  2. ₹80,000
  3. ₹60,000
  4. ₹50,000

Explanation

Interest on capital is ₹50,000 for X and ₹30,000 for Y, totaling ₹80,000, and Y's salary is ₹60,000. Divisible profit is ₹2,00,000 + ₹10,000 − ₹80,000 − ₹60,000 = ₹70,000.

Question 30Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

Which of the following is a recognised method of valuing goodwill of a partnership firm?

  1. Fixed instalment method
  2. Average profit method Correct answer.
  3. Straight-line method
  4. Reducing balance method

Explanation

The average profit method values goodwill as an agreed number of years' purchase of the average profits of a specified number of past years. The straight-line, reducing balance and fixed instalment methods are depreciation methods, not goodwill valuation methods.

Question 31Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

In the absence of a written partnership deed, a partner who has advanced a loan to the firm is entitled to interest on that loan at which rate per annum under the Indian Partnership Act, 1932?

  1. No interest is allowed
  2. 12%
  3. 6% Correct answer.
  4. 9%

Explanation

Section 13 of the Indian Partnership Act, 1932 provides that in the absence of a deed, interest on a partner's loan to the firm is allowed at 6% per annum. This interest is a charge against profits and is paid even if the firm makes a loss. Interest on capital, by contrast, is not allowed without a deed.

Question 32Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A partnership firm maintains fluctuating capital accounts. Which of the following is debited to a partner's capital account?

  1. Drawings made by the partner Correct answer.
  2. Interest on capital allowed to the partner
  3. Salary payable to the partner
  4. Share of profit credited to the partner

Explanation

Under the fluctuating capital method, all adjustments relating to a partner are recorded in the capital account itself. Drawings reduce the partner's claim on the firm, so the capital account is debited. Interest on capital, salary and share of profit are credits because they increase the partner's balance.

Question 33Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

Which of the following is credited to the Profit and Loss Appropriation Account of a partnership firm?

  1. Salary to a partner
  2. Interest on drawings Correct answer.
  3. Share of profit transferred to partners' accounts
  4. Interest on capital

Explanation

Interest on drawings is income earned by the firm from partners and is therefore credited to the Profit and Loss Appropriation Account. Salary to a partner, interest on capital and transfer of profit to partners are appropriations of profit and appear on the debit side. The account shows how net profit is distributed among the partners.

Question 34Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A partner withdrew ₹5,000 at the end of each month during the year. Interest on drawings is charged at 12% per annum. What is the interest on drawings for the year?

  1. ₹3,300 Correct answer.
  2. ₹6,600
  3. ₹3,000
  4. ₹3,600

Explanation

Total drawings are ₹5,000 × 12 = ₹60,000. When withdrawals are made at the end of each month, the average period is 5.5 months. Interest is ₹60,000 × 12% × 5.5/12 = ₹3,300.

Question 35Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

The average profit of a firm is ₹80,000, capital employed is ₹5,00,000 and the normal rate of return is 10%. Goodwill is to be valued at two years' purchase of super profit. What is the value of goodwill?

  1. ₹90,000
  2. ₹60,000 Correct answer.
  3. ₹30,000
  4. ₹1,50,000

Explanation

Normal profit is 10% of ₹5,00,000, i.e. ₹50,000. Super profit is average profit minus normal profit, ₹80,000 − ₹50,000 = ₹30,000. Goodwill at two years' purchase is ₹30,000 × 2 = ₹60,000.

Question 36Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

Average profit of a firm is ₹1,20,000 and the normal rate of return is 10%. Capital employed is ₹9,00,000. Using the capitalisation of average profit method, what is the value of goodwill?

  1. ₹9,00,000
  2. ₹1,20,000
  3. ₹3,00,000 Correct answer.
  4. ₹30,000

Explanation

Capitalised value of average profit is ₹1,20,000 ÷ 10% = ₹12,00,000. Goodwill is capitalised value minus capital employed, ₹12,00,000 − ₹9,00,000 = ₹3,00,000. This method compares what the firm is worth on its earnings with the capital actually employed.

Question 37Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B share profits in the ratio 3:2. Interest on capital at 10% was omitted. Their capitals are ₹2,00,000 and ₹1,00,000 respectively. What adjustment entry is required?

  1. A's Capital A/c Dr ₹2,000; To B's Capital A/c ₹2,000
  2. B's Capital A/c Dr ₹2,000; To A's Capital A/c ₹2,000 Correct answer.
  3. A's Capital A/c Dr ₹18,000; To B's Capital A/c ₹18,000
  4. B's Capital A/c Dr ₹12,000; To A's Capital A/c ₹12,000

Explanation

Interest on capital is ₹20,000 for A and ₹10,000 for B, a total of ₹30,000. Had it been allowed, A would have received 3/5 × ₹30,000 = ₹18,000 and B 2/5 × ₹30,000 = ₹12,000. A actually received ₹20,000, an excess of ₹2,000, so A's capital is debited and B's capital credited.

Question 38Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B have capitals of ₹4,00,000 and ₹2,00,000. The partnership deed allows interest on capital at 8% per annum. Profit before interest on capital is ₹90,000. What amount of profit remains for distribution between the partners after allowing interest on capital?

  1. ₹38,000
  2. ₹42,000 Correct answer.
  3. ₹48,000
  4. ₹90,000

Explanation

Interest on capital is 8% of ₹4,00,000 = ₹32,000 for A and 8% of ₹2,00,000 = ₹16,000 for B, totalling ₹48,000. This is an appropriation of profit, so the balance is ₹90,000 − ₹48,000 = ₹42,000. The remaining profit is then shared in the agreed profit-sharing ratio.

Question 39Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B share profits in the ratio 7:3 and have capitals of ₹5,00,000 and ₹3,00,000. They admit C for 1/4 share, and C brings ₹4,00,000 as capital. The capitals of A and B are to be adjusted on the basis of C's capital and the new profit-sharing ratio. How much fresh capital must A bring in?

  1. ₹60,000
  2. ₹3,40,000 Correct answer.
  3. ₹2,00,000
  4. ₹8,40,000

Explanation

C's ₹4,00,000 represents 1/4 share, so total capital is ₹16,00,000. A's new share is 7/10 × 3/4 = 21/40, so A's required capital is 21/40 × ₹16,00,000 = ₹8,40,000. Since A already has ₹5,00,000, the fresh capital required is ₹3,40,000.

Question 40Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A partner's closing capital was ₹5,00,000 after charging drawings of ₹60,000, allowing additional capital of ₹40,000 and crediting share of profit of ₹80,000. What was the opening capital?

  1. ₹4,60,000
  2. ₹4,20,000
  3. ₹5,00,000
  4. ₹4,40,000 Correct answer.

Explanation

Closing capital is opening capital plus additional capital plus share of profit minus drawings. Rearranging, opening capital = ₹5,00,000 + ₹60,000 − ₹40,000 − ₹80,000 = ₹4,40,000. Drawings are added back because they reduced capital, while additional capital and profit are deducted because they increased it.

Question 41Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A partner's total drawings for the year ended 31 March 2024 were ₹24,000. Interest on drawings is charged at 10% per annum for an average period of six months. The interest on drawings is:

  1. ₹1,200 Correct answer.
  2. ₹600
  3. ₹2,400
  4. ₹1,000

Explanation

Interest on drawings is calculated as total drawings × rate × average period/12. Here ₹24,000 × 10% × 6/12 = ₹1,200. The average period of six months is given, so no further assumption about the timing of withdrawals is needed.

Question 42Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B are partners with capitals of ₹1,00,000 and ₹80,000. The partnership deed allows interest on capital at 10% per annum. The total interest on capital allowed to the partners for the year is:

  1. ₹10,000
  2. ₹8,000
  3. ₹18,000 Correct answer.
  4. ₹9,000

Explanation

Interest on capital is allowed to each partner on the capital balance at the agreed rate. A gets ₹1,00,000 × 10% = ₹10,000 and B gets ₹80,000 × 10% = ₹8,000. The total allowed is therefore ₹18,000.

Question 43Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

Which of the following is treated as a charge against profits and debited to the Profit and Loss Account?

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

Explanation

Interest on a partner's loan is a charge against the firm's profits and is debited to the Profit and Loss Account. Interest on capital, partner's salary and interest on drawings are appropriations of profit, dealt with in the Profit and Loss Appropriation Account.

Question 44Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

X and Y share profits in the ratio 3:1. They admit Z for 1/8 share, which Z acquires entirely from X. The sacrificing ratio of X and Y is:

  1. 1:1
  2. 1:0 Correct answer.
  3. 3:1
  4. 3:8

Explanation

The sacrificing ratio is the old ratio minus the new ratio, or the share surrendered by each old partner. Z's 1/8 share comes entirely from X, so X sacrifices 1/8 while Y sacrifices nothing. The sacrificing ratio is therefore 1:0.

Question 45Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

The profits of a firm for the last three years were ₹30,000, ₹45,000 and ₹60,000. The weights assigned are 1, 2 and 3 respectively. The weighted average profit is:

  1. ₹40,000
  2. ₹45,000
  3. ₹60,000
  4. ₹50,000 Correct answer.

Explanation

Under the weighted average profit method, each year's profit is multiplied by its weight and the total is divided by the total weights. Here (30,000×1 + 45,000×2 + 60,000×3) ÷ 6 = 3,00,000 ÷ 6 = ₹50,000.

Question 46Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

The profits of a firm for the last three years were ₹60,000, ₹50,000 and ₹40,000. The first year's profit included an abnormal gain of ₹15,000 on the sale of a fixed asset. The average profit for goodwill valuation is:

  1. ₹45,000 Correct answer.
  2. ₹40,000
  3. ₹55,000
  4. ₹50,000

Explanation

Abnormal gains are deducted from the year's profit before averaging because they are not expected to recur. The adjusted first-year profit is ₹45,000, so the average is (45,000 + 50,000 + 40,000) ÷ 3 = ₹45,000.

Question 47Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B share profits in the ratio of their capitals, which are ₹2,00,000 and ₹1,00,000. Interest on capital is allowed at 10% per annum. The profit for the year before interest on capital is ₹18,000. The interest on capital actually allowed to A and B is:

  1. A ₹12,000; B ₹6,000 Correct answer.
  2. A ₹9,000; B ₹9,000
  3. A ₹20,000; B ₹10,000
  4. A ₹18,000; B ₹0

Explanation

Total interest on capital would be ₹20,000 + ₹10,000 = ₹30,000, but the available profit is only ₹18,000. When profits are insufficient, interest on capital is allowed only to the extent of available profit and is shared in the profit-sharing ratio, which is 2:1. A therefore gets ₹12,000 and B gets ₹6,000.

Question 48Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B are partners sharing profits in the ratio 3:2. C is admitted for 1/4 share. C brings ₹80,000 as his capital. The capitals of A and B after admission are ₹1,00,000 and ₹80,000. The value of hidden goodwill of the firm is:

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

Explanation

Hidden goodwill is inferred from the total capital implied by the new partner's capital contribution. C's ₹80,000 for a 1/4 share implies total capital of ₹3,20,000. The combined capital of all partners is ₹2,60,000, so hidden goodwill is ₹3,20,000 − ₹2,60,000 = ₹60,000.

Question 49Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

X and Y share profits in the ratio 3:2. Z is admitted for 1/4 share. The goodwill of the firm is valued at ₹1,00,000, but Z does not bring his share of goodwill in cash. The necessary journal entry for goodwill will be:

  1. X's Capital A/c Dr ₹15,000; Y's Capital A/c Dr ₹10,000; To Z's Capital A/c ₹25,000
  2. Z's Capital A/c Dr ₹25,000; To X's Capital A/c ₹15,000; To Y's Capital A/c ₹10,000 Correct answer.
  3. Goodwill A/c Dr ₹1,00,000; To X's Capital A/c ₹60,000; To Y's Capital A/c ₹40,000
  4. Z's Capital A/c Dr ₹20,000; To X's Capital A/c ₹12,000; To Y's Capital A/c ₹8,000

Explanation

When the new partner cannot bring goodwill in cash, his share of goodwill is debited to his capital account and credited to the sacrificing partners in their sacrificing ratio. Z's share is 1/4 × ₹1,00,000 = ₹25,000, credited to X and Y in 3:2, i.e. ₹15,000 and ₹10,000. The entry is Z's Capital A/c Dr ₹25,000; To X's Capital A/c ₹15,000; To Y's Capital A/c ₹10,000.

Question 50Accounting for Partnership Firms - Fundamentals (profit sharing, capital and current accounts, P&L Appropriation Account, goodwill)

A and B share profits in the ratio 2:1. C is admitted for 1/4 share and brings ₹1,20,000 as his capital, while A and B continue to share the remaining profits in their old ratio. After admission, the capitals of A and B are ₹2,60,000 and ₹1,10,000. The partners decide to adjust their capitals on the basis of C's capital. Which adjustment is required?

  1. No adjustment is required
  2. A withdraws ₹10,000 and B brings ₹20,000
  3. A brings ₹20,000 and B withdraws ₹10,000
  4. A withdraws ₹20,000 and B brings ₹10,000 Correct answer.

Explanation

C's 1/4 share for ₹1,20,000 implies total capital of ₹4,80,000. In the new ratio 2:1:1, A should have ₹2,40,000 and B ₹1,20,000. A's capital of ₹2,60,000 is excess by ₹20,000, while B's ₹1,10,000 is short by ₹10,000, so A withdraws ₹20,000 and B brings ₹10,000.