Tag: final accounts of partnership firms

Questions Related to final accounts of partnership firms

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

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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.

The interest on partners capital accounts is to be credited to _______________.

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

  1. Interest Account

  2. Profit and Loss Account

  3. Drawing Account

  4. Partner's Capital Account

Show answer
Correct Option: D
Explanation:

Interest on partner's capital is an amount at an agreed rate of interest which is credited to a partner based on the amount of capital contributed by him/her.

Interest on partner's capital is an expense to the firm and hence debited to profit and loss appropriation A/c. On the other hand it is an income for partners and hence credited to partner's capital A/c.

Partnership created for a particular adventure or a particular undertaking is called __________.

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

  1. Particular partnership

  2. Limited partnership

  3. Partnership at will

  4. Fixed partnership

Show answer
Correct Option: A
Explanation:

A partnership can be formed for carrying on continuous business, or it can be formed for one particular venture or undertaking. If the partnership is formed only to carry out one business venture or to complete one undertaking such a partnership is known as a particular partnership.

The transferee of a share of a partner's interest in a firm is called ____________.

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

  1. senior partner

  2. active partner

  3. sub partner

  4. dormant partner

Show answer
Correct Option: C
Explanation:

A Sub-partner is a partner in a partnership firm who agrees to share his profits in a partnership firm with an outsider to the firm. A sub-partner does not hold any right against the firm nor is liable to any debts caused by the firm.

X and Y are two partners sharing profit and loss in the ratio 2:1. They decided to share profit and loss in future in the ratio of 3:2 If the goodwill of the firm is valued Rs. 60,000, how the adjustment in profit sharing ratio will be affected?

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

  1. Y pay X Rs. 4,000

  2. X pay Y Rs. 4,000

  3. X pay Y Rs. 6,000

  4. Y pay X Rs. 6,000

Show answer
Correct Option: A
Explanation:

Earlier goodwill was distributed in ratio 2:1 between X and Y

i.e. 60000  as  40000 - X & 20000 - Y.
Now , X = 60000 * 3/5 = 36000 ; Y = 60000 * 2/5 = 24000.
hence, X will pay 4000 to Y.

X, a partner of X and Y Associates draw Rs, 4000 every month at the mid of the month for six months. Calculate interest on drawing at 5%.

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

  1. Rs. 300

  2. Rs. 295

  3. Rs. 285

  4. Rs. 310

Show answer
Correct Option: A
Explanation:

So here,

4000 per month x 6 month = 24,000
then,
24,000 x 6% = 1,200 for year
then, 1,200 x 6/12 = 600 for 6 month
so, at the mid of month the interest on drawing is Rs.300.

Rent paid to a partner is charged to ______.

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

  1. profit and loss adjustment A/c

  2. revaluation A/c

  3. profit and loss appropriation A/c

  4. profit and loss A/c

Show answer
Correct Option: D
Explanation:

 Rent paid by a firm is such an expenditure which is incurred irrespective of any partner. It is not directly related to the partner. As rent is an expenditure the same is debited to profit and loss account. 

Profit and losses of the firm are to be shared equally ____________________.

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

  1. When the partnership deed is silent about it

  2. As per Partnership Act in the absence of anything in the partnership deed to the contrary

  3. Both the circumstances

  4. None of the situations

Show answer
Correct Option: C
Explanation:

b'P&L of the firm are to be shared equally as per the partnership act and also in the absence of anything in the partnership deed to the contrary.'

Partnership firm is not liable for the acts of the firm done ____________________.

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

  1. in individual/personal capacity by a partner

  2. without concurrence of all the partners

  3. without concurrence of majority partners

  4. not mentioned in partnership deed

Show answer
Correct Option: A