Tag: profit-loss appropriation account

Questions Related to profit-loss appropriation account

Interest on advance money provided by the Partner can be paid from ____________.

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

  1. profits

  2. out of capital

  3. both (a) and (b)

  4. from the money provided by Central Government

Show answer
Correct Option: C

Which of the following statements is not true?

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

  1. It is not true that all partners can have limited liability in a limited partnership

  2. Capital contributions do not have to be equal from each partner

  3. A minor has a right to access and inspect books of accounts of partnership firm in which he is partner

  4. Interest on capital is a reward for the different amounts of work partners may perform

Show answer
Correct Option: D
Explanation:

Interest will be allowed to each partner on the capital contributed by him . Interest on capital of the partners is calculated for the relevant period for which the amount of capital has been used in the business. Capital introduced or withdrawn by a partner during the accounting year has to be taken for the purpose of calculation and definitely is not a reward for the partners.

In the absence of a Partnership deed or agreement, a partner is entitled to interest on loans or advances__________. 

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

  1. @ $6$% p.a.

  2. @ $9$% p.a.

  3. at the bank rate

  4. @ $12$% p.a.

Show answer
Correct Option: A

Is rent paid to a partner an appropriation of profits?

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

  1. Yes.

  2. No. 

  3. If partner's contribution as capital is maximum. 

  4. If partner is a working partner. 

Show answer
Correct Option: B
Explanation:

Partner's rent unless provided in the deed has to be treated as a charge against profit and so it is transferred to profit and loss a/c. Rent paid by a firm is such an expenditure which is incurred irrespective of any partner the rent paid is debited to P/L account instead of Appropriation account.'

At the time of dissolution which payment will be made in priority ?

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

  1. Capital to partners

  2. Loan provided by partner

  3. Fluctuating capital account

  4. None of the above

Show answer
Correct Option: B
Explanation:

Payment of partner's loan is made before payment of capital because capitals are paid off only if any balance is left after payment of all the liabilities. loan provided by partner is a liability for the firm. A separate Partner's loan account is prepared for payment. Following entry is passed on payment :
Partner's loan A/c Dr.
   To Bank/Cash A/c 

One of the partner contributed Rs.30,000 in the firm-How much interest he will get on the capital contributed ________.

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

  1. Nill

  2. 6% of 30,000

  3. 5% of 30,000

  4. Income of the above

Show answer
Correct Option: A
Explanation:

Partners usually introduce some amount time to time as the capital in firm and the only reaosn behind it is to expand the business.

Since the partner has introduced Rs30,000 as additonal capital and firms does not pays interest on such amounts. The only situation when interest has to be paid is the time when a loan has been taken by the firm from any of its partner.
 

A partner claim interest on capital _____________.

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

  1. even if there is loss

  2. if there is profit

  3. if there is profit and there is an agreement to pay it

  4. even if there loss and there is an agreement to pay it

Show answer
Correct Option: C
Explanation:

Interest on capital is the amount received by partners for their invested capitals and it not a charge against profit. It means that interest is depended upon the profit situation.

A partner can thus claim interest on capital only when it is mentioned in the agreement and firm ahs enough profits to provide the interest. If the intereest in not mentioned in agreement or there is no agreement, partner cannot claim for interest on capital.

Where a partner is entitled to interest on capital subscribed by him, such interest will be payable ___________. 

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

  1. only out of profit

  2. only out of capital

  3. out of profits or out of capital

  4. none of these

Show answer
Correct Option: A
Explanation:

Where a partner is entitled to interest on capital subscribed by him, such interest will be payable only out of profit. Interest on capital is an appropriation and hence will be provided only out of profits. 

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

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 will be paid to the partners if provided for in the agreement but only from profits. Interest on capital is an appropriation and not a charge against profit hence, is provided only to the extent of profits. 

When the Interest on drawings is charged to partners, Interest on Drawing Account is credited, and Partner's Capital Account is debited. It is called __________. 

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

  1. an opening entry

  2. a closing entry

  3. an adjusting entry

  4. an transfer entry

Show answer
Correct Option: C
Explanation:

When the Interest on drawings is charged to partners, Interest on Drawing Account is credited, and Partner's Capital Account is debited. It is called as an adjusting entry. Adjusting entries are usually done at the end of the year for incomes and expenses.