Tag: book keeping and accountancy

Questions Related to book keeping and accountancy

Interest on capital will be paid to the partners if provided for in the agreement but only from following _______________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. Profits

  2. Reserves

  3. Accumulated Profits

  4. Goodwill

Show answer
Correct Option: A
Explanation:

Interest on Capital: If the partnership deed is silent on interest on partner's capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of the firm. However, interest on capital is given only out of the profits, if mutually agreed by all the partners.

Interest on partners capital is___________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. An Expenditure

  2. An appropriation

  3. A Gain

  4. None of these

Show answer
Correct Option: B
Explanation:

Interest on capital account is an appropriation. Appropriation means it is paid only and only if there is profit. It is not a charge and hence, will not be provided if there is loss or if there are profits will be provided only till the extent of profits. 

If there is no partnership deed then interest on capital will be changed at p.a.______.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. 6%

  2. 8%

  3. 9%

  4. NIL

Show answer
Correct Option: D
Explanation:

When there is no partnership deed then interest on capital will not be charged. There will be no interest provided on the capital. 

Nature of Revaluation Account is ___________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. Real

  2. Personal

  3. Nominal

  4. None

Show answer
Correct Option: C
Explanation:
The term revaluation is simply means "to determine the value of assets and liabilities again". Revaluation account is prepared either at the time of retirement of a partner or admitting a partner. All the assets and liabilities are revalued and the differential amount is to be debited or credited in Revaluation Account.
Revaluation Account is Nominal In nature. If the liabilities increases and assets are decreasing, the difference amount to be debited to revaluation account as it is a loss for the firm.
If there is an Increase in Assets and Decrease in the value of Liabilities, the differential amount to be credited to revaluation account as it is a Profit for the firm.

A, a partner in a firm, is driving Rs.500 regularly on the 16th of every month. He will have to pay interest at the given rate in a year on Rs.6000 for the total period of __________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. 5 months

  2. 6 months

  3. 7 months

  4. 12 months

Show answer
Correct Option: B
Explanation:

When a partner withdraws cash from the firm for domestic use, the withdrawal of cash is termed as drawings. If the partnership deed has a provision of charging interest on drawings, the firm may charge interest on drawings from partners. Interest on drawing is a gain for the firm. It is calculated at the agreed rate. The amount of interest on drawings will be credited to Profit and Loss Appropriation Account and will be debited to partner’s capital account/current account (Individually). 

When money is withdrawn at the middle of month:

Date Amount Period
15,Jan 2016 1000 11.5
15,Feb 2016 1000 10.5
15,march 2016 1000 9.5
15,April 2016 1000 8.5
15,May 2016 1000 7.5
15,June ,2016 1000 6.5
15, July, 2017 1000 5.5
15,august,2016 1000 4.5
15,sep ,2016 1000 3.5
15, Oct ,2016 1000 2.5
15, Nov ,2016 1000 1.5 
15,Dec ,2016 1000 .5
12000 72

When money is withdrawn in the middle of the month, the average period is calculated as under:

Average Period = Total of months/12

= 72 months/12

= 6 months

OR,
Max. Period of Drawing + Min. Period of Drawing
Average Period = 2

= 11.5 + 0.5 = 12 = 6 months

A, B and C are partners in a firm. Though there is no provision in the partnership deed for interest on capital, this has been provided in the account @ 10% p.a. for the two years ended on 31 Dec., 2013. Their fixed capitals on which interest was calculated were throughout A Rs. 15,000, B Rs. 12,000 and C Rs. 9,000. Their profit sharing ratios were 2007 - 5:3:2 and 2008 - 2: 2: 1. The necessary adjustment entry will be made as:

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. C's current a/c Dr. 360

    To A's current a/c 240

    To B's current a/c 120

  2. A's current a/c Dr. 240

    B's current a/c Dr. 120

    To C's current a/c 360

  3. A's current a/c Dr. 120

    B's current a/c Dr. 240

    To C's current a/c 360

  4. C's current a/c Dr. 360

    To A's current a/c  120

    To B's current a/c 240

Show answer
Correct Option: A

Which of the following transactions is of capital nature?

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. Purchase of a truck by a company

  2. Replacement of old types and tubes

  3. Yearly premium to insure the truck

  4. Cost of repair of the truck

Show answer
Correct Option: A
Explanation:

Capital expenditure is a money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

Hence, Purchase of a truck by a company is a capital expenditure.

 Amount realization from the sale of private estate of partners is used first to pay off ___________________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. Debts of the firm

  2. Private debts of the partner

  3. Wife's loan

  4. Bank loan of the firm

Show answer
Correct Option: A
Explanation:

  • Assets of the firm and the capital contributed by the partners to set-off losses of the firm will be applied in the following order–
  1. Third party debts will be paid first
  2. Next, loan amount taken by firm from any partner will be repaid to that partner
  3. Capital contributed by each partner will be repaid to him in the capital contribution ratio
  4. Balance amount will be shared among the partners in their profit sharing ratios.

In the Realisation Account prepared on the dissolution of a firm, debit side is more than the credit side. It indicates ____________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. there is a profit

  2. there is a loss

  3. liabilities are more then assets

  4. assets are more than liabilities

Show answer
Correct Option: B
Explanation:

The main purpose to open Realisation Account is to ascertain the profit or loss due to the realisation of assets and liabilities at the time of dissolution of firm. Realisation profit (if credit side > debit side) or realisation loss (if debit side > credit side) are transferred to the Partner's Capital Accountin their profit sharing ratio.

In case of insolvency of a partner, any balance in reserve fund or profit and loss accounts is distributed to all the partners ______________.

book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

  1. Equally

  2. In the profit sharing ratio

  3. In the ratio of capitals

  4. In sacrificing ratio

Show answer
Correct Option: B
Explanation:

In general, unless otherwise agreed upon, the partnership is dissolved upon the insolvency of a partner. In some cases, partnership agreements are made to ensure that if a partner becomes insolvent, there are clear guidelines on how the partnership continues.

The following rules shall be observed subject to agreement by the partners:

  • All the losses of the company including deficiencies of capital shall be paid out of profits first, then out of the capital and lastly if necessary by the partners individually in proportions to which they are entitled to share profits.
  • All the assets of the company including all the sums contributed by the partners shall be applied in the following manner:
  • In paying all the debts of the firm to the third parties
  • in paying each partner rateable what is due to him from the firm for advances as distinguished from capital
  • in paying to each partner rateable what is due to him on account of capital
  • The residue shall be divided among the partners in the proportions in which they were entitled to share profits.