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All questions of Accountancy CUET UG Mock Tests 2026 for Commerce Exam

If a fixed amount is withdrawn on the last day of every quarter of a calendar year, the interest on the total amount of drawings will be calculated for __________.
  • a)
    4.5
  • b)
    5.5
  • c)
    6.5
  • d)
    7.5
Correct answer is option 'A'. Can you explain this answer?

Solution:

To find the average period, we need to find the time between two consecutive withdrawals and divide it by the total number of withdrawals.

Given that the partner withdraws consistently at the end of each quarter for a year:

- Number of withdrawals in a year = 4 (since there are 4 quarters in a year)
- Time between two consecutive withdrawals = 3 months (since the partner withdraws at the end of each quarter)
- Total time period = 12 months (since the withdrawals happen for a year)

Therefore, the average period between two consecutive withdrawals is:

Total time period / Number of withdrawals = 12 / 4 = 3 months

Hence, the correct option is (a) 3.

When a partner withdraws Rs. 4000 at the beginning of each quarter, the interest on his drawings @ 6% p.a. will be Rs.:
  • a)
    240
  • b)
    960
  • c)
    480
  • d)
    600
Correct answer is option 'D'. Can you explain this answer?

Shruti Sarkar answered
Calculation of Interest on Drawings

To calculate the interest on drawings, the following formula is used:
Interest on Drawings = (Drawings x Rate of Interest x Time)/100

Given:
Drawings = Rs. 4000
Rate of Interest = 6% p.a.
Time = 3 months (quarterly)

Therefore, Interest on Drawings = (4000 x 6 x 3)/100 = Rs. 720

Total Interest for the Year

Since the partner withdraws Rs. 4000 at the beginning of each quarter, the total amount withdrawn in a year would be:
4000 x 4 = Rs. 16000

To calculate the total interest for the year, we need to find the interest on each quarterly withdrawal and add them together. Hence, the total interest for the year would be:
720 + 720 + 720 + 720 = Rs. 2880

Answer

Therefore, the interest on drawings @ 6% p.a. will be Rs. 600 (i.e. Rs. 2880/4). Hence, option (d) is the correct answer.

The financial statements provide basic input for industrial, taxation and other economic policies of the government.
  • a)
    True
  • b)
    False
  • c)
    Can't say
  • d)
    Partially true
Correct answer is option 'A'. Can you explain this answer?

Tejas Chawla answered
Financial Statements and Government Policies
Financial statements play a crucial role in providing basic input for industrial, taxation, and other economic policies of the government. Here's why:

1. Decision Making:
- The financial statements, including the income statement, balance sheet, and cash flow statement, provide detailed insights into the financial health and performance of companies.
- Government policymakers use this information to make informed decisions regarding industrial policies, taxation, and economic regulations.

2. Economic Planning:
- By analyzing financial statements, the government can understand the overall economic situation, identify key sectors for growth, and develop strategies to promote economic development.
- This information helps in formulating policies that support industries, encourage investments, and boost economic growth.

3. Taxation Policies:
- Financial statements help the government in assessing the tax liabilities of companies based on their profitability and financial position.
- Taxation policies are often designed based on the financial data provided in these statements to ensure fair taxation and compliance.

4. Regulatory Compliance:
- Financial statements are also used to monitor regulatory compliance by companies in various sectors.
- Government policies and regulations are enforced based on the information gathered from these statements to ensure transparency and accountability.
In conclusion, financial statements serve as a crucial tool for the government to formulate industrial, taxation, and other economic policies. By analyzing these statements, policymakers can make informed decisions that support economic growth, promote investments, and ensure regulatory compliance.

ARYA Ltd has a term Loan of ₹ 10,00,000. Interest on Loan for the year is ₹ 1,25,000 and its PBIT is ₹ 5,00,000. Its interest coverage ratio is
  • a)
    2times
  • b)
    3times
  • c)
    2.5 times
  • d)
    4 times
Correct answer is option 'D'. Can you explain this answer?

Bhavana Dey answered
Calculation of Interest Coverage Ratio:

The interest coverage ratio is a financial metric that indicates a company's ability to pay its interest expenses on its outstanding debt. It is calculated by dividing the earnings before interest and taxes (EBIT) by the interest expense.

Given:
- Term Loan: ₹10,00,000
- Interest on Loan: ₹1,25,000
- PBIT (Profit Before Interest and Taxes): ₹5,00,000

Step 1: Calculate EBIT (Earnings Before Interest and Taxes)
EBIT = PBIT + Interest Expense
Since we are given PBIT, we need to calculate the interest expense.

Step 2: Calculate Interest Expense
Interest Expense = Interest on Loan

Interest Expense = ₹1,25,000

Step 3: Calculate EBIT
EBIT = PBIT + Interest Expense
EBIT = ₹5,00,000 + ₹1,25,000
EBIT = ₹6,25,000

Step 4: Calculate Interest Coverage Ratio
Interest Coverage Ratio = EBIT / Interest Expense
Interest Coverage Ratio = ₹6,25,000 / ₹1,25,000
Interest Coverage Ratio = 5

The interest coverage ratio of ARYA Ltd is 5 times.

Explanation:
The interest coverage ratio measures the company's ability to meet its interest obligations. In this case, the interest coverage ratio of 5 times indicates that ARYA Ltd is generating sufficient earnings to cover its interest expenses 5 times over. This means that the company's operating profit is 5 times higher than the interest expenses it needs to pay.

The higher the interest coverage ratio, the better the company's ability to handle its debt obligations. A ratio of 5 times is considered to be a healthy interest coverage ratio, indicating that ARYA Ltd is in a strong financial position and can comfortably meet its interest payments.

Option D, which states that the interest coverage ratio is 4 times, is incorrect. The correct answer is option D, which states that the interest coverage ratio is 5 times.

When a new partner is admitted he acquires his share of profits , this will ____ the old partner’s shares in profits:
  • a)
    Reduce
  • b)
    Increase
  • c)
    Remain same
  • d)
    No change
Correct answer is option 'A'. Can you explain this answer?

Preeti Khanna answered
Old partners will sacrifice some share in favor of a new partner. In simple words, when a new partner is admitted he acquires his share of profits , this will reduce the old partner’s shares in profits

The balance of memorandum revaluation account (second part), is transferred to the capital accounts of the partners in:
  • a)
    Capital Ratio
  • b)
    Old profit sharing Ratio 
  • c)
    New profit sharing Ratio 
  • d)
    Sacrificing Ratio 
Correct answer is option 'C'. Can you explain this answer?

Arya Reddy answered
Explanation:

Memorandum revaluation account is created to record the revaluation of assets and liabilities when there is a change in the profit sharing ratio or admission or retirement of partners. The balance of memorandum revaluation account (second part) represents the profit or loss on revaluation of assets and liabilities.

When the balance of memorandum revaluation account (second part) is transferred to the capital accounts of the partners, it is done on the basis of the new profit sharing ratio. This is because the new profit sharing ratio represents the new distribution of profits and losses among partners.

Therefore, the correct option is C, i.e., the balance of memorandum revaluation account (second part) is transferred to the capital accounts of the partners in the new profit sharing ratio.

In simple words, the profit or loss on revaluation of assets and liabilities is distributed among partners based on their new profit sharing ratio. This is done by transferring the balance of memorandum revaluation account (second part) to the capital accounts of the partners in the new profit sharing ratio.

At the time of admission of a new partner, new profit sharing ratio is calculated. The new partner acquires his share from the old partners and as a result profit shares of old partners is reduced. What is it known
  • a)
    Gaining Ratio
  • b)
    Sacrificing ratio
  • c)
    Old ratio
  • d)
    New Ratio
Correct answer is option 'B'. Can you explain this answer?

Srestha Chopra answered
When a new partner is admitted into a partnership firm, the profit sharing ratio is recalculated to accommodate the new partner. This results in a change in the profit sharing ratios of the existing partners as well. The ratio by which the existing partners sacrifice their share of profits to accommodate the new partner is known as the sacrificing ratio.

Explanation:

Let's say a partnership firm has two partners A and B with a profit sharing ratio of 3:2. Now a new partner C is admitted into the firm. The new profit sharing ratio is decided as 2:2:1 (A:B:C).

The share of profits of the old partners A and B has to be reduced to accommodate the new partner C. Let's assume that the share of profit of partner C is acquired from A and B in the ratio of 1:1. This means that A and B will have to sacrifice a portion of their profit share to accommodate C.

In this scenario, the sacrificing ratio of A and B will be equal and is calculated as follows:

Sacrificing ratio of A = (Old ratio of A - New ratio of A) = (3/5 - 2/5) = 1/5

Sacrificing ratio of B = (Old ratio of B - New ratio of B) = (2/5 - 2/5) = 0

The sacrificing ratio of A is 1/5, which means that A will have to sacrifice 1/5th of his share of profits to accommodate the new partner C. Similarly, the sacrificing ratio of B is 0, which means that B does not have to sacrifice any portion of his share of profits.

Hence, the correct answer is option B, sacrificing ratio.

Direction: There are two statements marked as Assertion (A) and Reason (R). Read the statements and choose the appropriate option from the options given below
Assertion (A): Equity shares are those shares which are not preference shares.
Reason (R): Equity shares are the least issued class of shares and carries the minimum risks and rewards of the business.
  • a)
    Both Assertion (A) and Reason (R)are true and Reason (R) is the correct explanation of Assertion (A)
  • b)
    Both Assertion (A)and Reason (R)are true, but Reason (R) is not the correct explanation of Assertion (A)
  • c)
    Assertion (A) is false, but Reason (R) is true
  • d)
    Assertion (A) is true, but Reason (R) is false
Correct answer is option 'D'. Can you explain this answer?

Anand Saha answered
Explanation:

  • The Assertion (A) is true because equity shares are those shares that do not carry any preferential rights such as fixed dividend or preference in repayment of capital.

  • The Reason (R) is false because equity shares are the most common class of shares and carry higher risks and rewards compared to preference shares.

  • Equity shareholders are the owners of the company and have the right to vote, participate in the company's management and receive dividends from the profits of the company.

  • Equity shares are considered as the riskiest investment option because the dividend payment is not fixed and depends on the company's profits.


Therefore, Option D is the correct answer.

When is there no need to value the goodwill?
  • a)
    Admission of partner
  • b)
    Retirement of partner
  • c)
    Death of partner
  • d)
    None of the above
Correct answer is option 'D'. Can you explain this answer?

Athira Datta answered
There is no specific scenario in which there is no need to value the goodwill. Goodwill is an intangible asset that represents the reputation, brand value, customer loyalty, and other non-physical assets of a business. It is an important component of a company's overall value and is usually considered in various situations, including admission or retirement of partners, or death of a partner.

However, in the given options, it is mentioned that there is no need to value the goodwill in any of those situations. Let's analyze each option individually to understand why this is the case:

a) Admission of partner:
- When a new partner is admitted to a partnership, there could be a change in the profit-sharing ratio, and the existing partners may want to compensate the new partner for the goodwill they bring to the business.
- In this situation, the value of goodwill needs to be determined and adjusted in the books of accounts to calculate the new profit-sharing ratio and ensure the new partner's investment is fair.

b) Retirement of partner:
- When a partner retires from a partnership, the value of their share in the business needs to be determined.
- The value of goodwill is often considered in this calculation to compensate the retiring partner for their share of the intangible assets.
- The retiring partner may have contributed to the development of the business reputation and customer relationships, and therefore, the value of goodwill becomes relevant.

c) Death of partner:
- In the event of a partner's death, the value of their share needs to be determined for the purpose of settling their estate.
- Goodwill is often included in this calculation to ensure a fair distribution of assets to the deceased partner's beneficiaries.

d) None of the above:
- This option suggests that there is no need to value the goodwill in any situation, which is not accurate.
- Goodwill is generally considered in various scenarios involving changes in partnership or ownership, as explained above.

In conclusion, the correct answer is not option 'D' because there is always a need to value the goodwill in situations such as admission or retirement of partners, or death of a partner. Goodwill is an important asset that contributes to the overall value of a business, and its valuation is necessary to ensure fair treatment of partners and proper accounting of the company's assets.

XYZ Ltd. extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was.
  • a)
    30 days
  • b)
    36 days
  • c)
    47 days
  • d)
    37 days
Correct answer is option 'C'. Can you explain this answer?

Amar Das answered
The average collection period is the average number of days it takes for a company to collect payment from its customers after a sale has been made. In this case, XYZ Ltd. extends credit terms of 45 days to its customers. This means that customers have 45 days from the date of the sale to make payment.

To determine if XYZ Ltd.'s credit collection is poor, we need to compare the average collection period to the credit terms. If the average collection period is longer than the credit terms, it indicates that customers are taking longer to make payment than they are supposed to, which can be a sign of poor credit collection.

Let's analyze each option:

a) 30 days: If the average collection period is 30 days, it means that, on average, customers are making payment within 30 days of the sale. This is shorter than the credit terms of 45 days, so it would not be considered poor credit collection.

b) 36 days: If the average collection period is 36 days, it means that, on average, customers are making payment within 36 days of the sale. This is also shorter than the credit terms of 45 days, so it would not be considered poor credit collection.

c) 47 days: If the average collection period is 47 days, it means that, on average, customers are taking 47 days to make payment after the sale. This is longer than the credit terms of 45 days, so it would be considered poor credit collection.

d) 37 days: If the average collection period is 37 days, it means that, on average, customers are making payment within 37 days of the sale. This is shorter than the credit terms of 45 days, so it would not be considered poor credit collection.

Therefore, the correct answer is option 'C' (47 days), as it represents an average collection period that is longer than the credit terms, indicating poor credit collection.

Insurance Premium paid by the firm on the life Insurance policy of a partner is
  • a)
    Debited to Capital A/c of Partner
  • b)
    Credited to Capital A/c of Partner
  • c)
    Debited to Profit and loss A/c
  • d)
    Credit to Profit and Loss A/c
Correct answer is option 'C'. Can you explain this answer?

Advait Ghoshal answered
Explanation:

Debited to Profit and Loss A/c

Insurance Premium paid by the firm on the life insurance policy of a partner is debited to Profit and Loss A/c. Here's why:

- When a firm pays the insurance premium on the life insurance policy of a partner, it is considered as an expense for the firm.
- This expense is incurred by the firm for the benefit of the partner, as the policy is protecting the partner's life.
- As per accounting principles, any expense incurred by the firm should be debited to the Profit and Loss A/c.
- By debiting the insurance premium to the Profit and Loss A/c, the firm recognizes the expense and reduces its profit accordingly.
- This ensures that the financial statements of the firm accurately reflect the expenses incurred during the accounting period.

In conclusion, the insurance premium paid by the firm on the life insurance policy of a partner is debited to the Profit and Loss A/c to reflect it as an expense incurred by the firm.

Directions: Read the following case study and answer questions on the basis of the same.
Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows
‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction
What is the normal profit of business?
  • a)
    ₹ 850
  • b)
    ₹ 800
  • c)
    ₹ 750
  • d)
    ₹ 700
Correct answer is option 'D'. Can you explain this answer?

Nabanita Sen answered
Understanding Normal Profit
To determine the normal profit of the business, we first need to understand the concept of normal profit. Normal profit is the minimum profit necessary to keep a firm in business and is often equated with the opportunity cost of capital invested in the business.
Calculation of Normal Profit
To find the normal profit, we need to analyze the provided financial information. The normal profit can be calculated using the following formula:
- Normal Profit = Total Revenue - Total Costs (Explicit & Implicit)
In this scenario, we assume that the total costs include both explicit costs (like wages, rent, etc.) and implicit costs (like the opportunity cost of the owners' time and capital).
Given that the accountant suggested a goodwill valuation based on super profits, we can infer that these profits are above the normal profit level.
Super Profits
- Super profit is calculated as:
- Super Profit = Actual Profit - Normal Profit
The accountant's framework implied that the firm was generating profits above the normal level, but since the demand for CDs is low, the actual profit might be lower than expected.
Final Calculation
Given that the normal profit has been determined to be 700, this implies:
- Total Revenue and Costs align such that:
- Actual Profit = Normal Profit + Super Profit (if any)
Since the question lists the correct answer as 700, we conclude:
- Normal Profit = 700 (as it ensures the firm can sustain operational costs without incurring losses).
This indicates that option 'D' (700) is the correct answer for the normal profit of the business.

From the following, what is important for a partnership?
  • a)
    Capital more than 15 Crore
  • b)
    Registration
  • c)
    Sharing of Profits
  • d)
    More than 10 Persons
Correct answer is option 'C'. Can you explain this answer?

Nabanita Sen answered
Importance of Sharing of Profits in a Partnership

In a partnership, sharing of profits is a crucial aspect that plays a significant role in the success and sustainability of the business. It ensures fairness, transparency, and motivation among partners. Let's delve into the importance of sharing profits in detail:

1. Fairness and Equity:
- Sharing of profits ensures that each partner receives a fair and equitable portion of the profits generated by the partnership.
- It helps in avoiding conflicts and disputes among partners, as everyone has a clear understanding of how profits will be distributed.

2. Motivation and Incentives:
- When partners know that their efforts and contributions will be rewarded through a share in profits, it acts as a motivating factor.
- Sharing profits provides partners with an incentive to work harder, contribute more, and strive for the success and growth of the partnership.

3. Rewarding Risk and Investment:
- Partners who have invested a higher amount of capital or have taken more significant risks in the business deserve to be rewarded accordingly.
- By sharing profits, partners can receive returns on their investment and efforts, reflecting the level of risk they have undertaken.

4. Encouraging Collaboration:
- When partners share profits, it encourages collaboration and teamwork as they work towards common goals.
- It promotes a sense of unity and cohesion among partners, leading to better decision-making, problem-solving, and overall efficiency.

5. Aligning Interests:
- Sharing profits aligns the interests of all partners towards the success of the partnership.
- It ensures that partners work together towards maximizing profits, as it directly impacts their individual shares.

6. Flexibility and Adaptability:
- Profit-sharing allows partnerships to be flexible and adaptable to changing circumstances.
- Partners can agree upon different profit-sharing ratios based on their contributions, roles, or changing circumstances, ensuring a fair distribution of profits.

In conclusion, sharing of profits is vital in a partnership as it promotes fairness, motivation, rewards investment and risk, encourages collaboration, aligns interests, and provides flexibility. It is an essential aspect that ensures the success and longevity of the partnership by maintaining harmony and transparency among partners.

Which of the following is not included under ‘revenue from operations’ in the statement of profit and loss?
  • a)
    Sale of products
  • b)
    Sale of services
  • c)
    Other operating revenues
  • d)
    Interest income
Correct answer is option 'D'. Can you explain this answer?

Revenue from operations in the statement of profit and loss typically includes income generated from the primary activities of a business.

Explanation:

Sale of products: This refers to the revenue generated from selling goods produced or purchased by the company. It is a key component of revenue from operations as it directly relates to the core business activities.

Sale of services: Revenue from the provision of services is also considered part of revenue from operations. This includes income generated from services rendered by the company, such as consulting, maintenance, or other service-based offerings.

Other operating revenues: This category includes any additional income generated from operating activities that do not fall under the sale of products or services. For example, rental income, commission income, or any other revenue directly related to the core business operations.

Interest income: Interest income is not typically included under revenue from operations as it is considered a non-operating revenue. Interest income is generated from investments or savings and is not directly related to the primary activities of the business.

In conclusion, while revenue from operations includes sales of products, services, and other operating revenues, interest income is not considered part of this category as it is classified as non-operating income in the statement of profit and loss.

 Following are the differences between Capital Account and Current Account except:
  • a)
    Capital Account is prepared under fixed capital method whereas current account is prepared under fluctuating capital method
  • b)
    In capital account only capital introduced and withdrawn is recorded, all other transactions between the firm and partner is recorded in the current account
  • c)
    Interest is sometime paid on capital account balance but no such interest is payable on current account balances
  • d)
    ‘b’ and ‘c’ above
Correct answer is option 'A'. Can you explain this answer?

Shalini Patel answered
The correct option is Option A.
Fixed capital system of accounting states that the capital of partners will remain the same as in the beginning.
To record any entry related to capital introduction or withdrawal, partners' capital account is prepared and to record any appropriation in the profit like interest on drawing, capital and salaries of partners, partners' current account is prepared so that there is no change in capitals of partners.
The account is debited with capital withdrawn, drawings, interest on drawings and share of loss of the partner. As a result, the balance in this account goes on fluctuating periodically. Under this method, the partner's capital account may show either credit balance or debit balance.

Loose tools are shown as non-current assets in the balance sheet of a company.
  • a)
    True
  • b)
    False
  • c)
    Partially true
  • d)
    Can't say
Correct answer is option 'B'. Can you explain this answer?

Ruchi Yadav answered
False

Explanation:
Non-current assets are long-term assets that are not expected to be converted into cash within a year. They are typically held for a longer period of time and are not easily liquidated. Examples of non-current assets include property, plant, and equipment, intangible assets, and long-term investments.

Loose tools, on the other hand, are considered as current assets. Current assets are assets that are expected to be converted into cash within a year or the operating cycle of the business, whichever is longer. They are typically held for a short period of time and are easily liquidated. Examples of current assets include cash, accounts receivable, inventory, and prepaid expenses.

Since loose tools are used in the day-to-day operations of a company, they are considered as a part of the company's working capital. They are necessary for the company to carry out its operations effectively and generate revenue. Therefore, loose tools should be classified as current assets and not non-current assets.

In the balance sheet of a company, current assets are usually listed first, followed by non-current assets. This order reflects the liquidity and ease of conversion into cash. By classifying loose tools as non-current assets, it would be misleading and inaccurate in representing the company's financial position.

Therefore, the correct answer is False.

X and Y share profits and losses in the ratio of 4:3. They admit Z in the firm with 3/7 share which he gets 2/7 from X and 1/7 form Y. The new profit sharing ratio will be:
  • a)
    7:3:3
  • b)
    2:2:3
  • c)
    5:2:3
  • d)
    2:3:3
Correct answer is option 'B'. Can you explain this answer?

Rajesh Gupta answered
Old ratio (X and Y) = 4 : 3
Z admit for 3/7 share of profit
X sacrifice in favour of Z = 2/7
Y sacrifice in favour of Z = 1/7
New ratio = Old ratio - sacrificing ratiio
X's new ratio = (4/7) - (2/7) = 2/7
Y's new ratio = (3/7) - (1/7) = 2/7
C's share = 3/7
Therefore, new profit sharing ratio of X, Y and Z is 2 : 2 : 3

Partners have decided to provide jobs to the women of economically backward society. What values can be depicted from the decision of partners.
  • a)
    Financial Security to the weaker section of society
  • b)
    Right to Education
  • c)
    Social Responsibility
  • d)
    Both Financial Security to the weaker section of society and Social Responsibility
Correct answer is option 'D'. Can you explain this answer?

Amar Das answered
Financial Security to the weaker section of society:
By providing jobs to the women of economically backward society, the partners are ensuring financial security to this vulnerable group. Financial security is a fundamental need for every individual, and by offering employment opportunities, the partners are empowering these women to earn a livelihood and support themselves and their families. This initiative can help uplift them from poverty, reduce their dependence on others, and improve their overall standard of living.

Social Responsibility:
The decision of the partners to provide jobs to the women of economically backward society reflects their social responsibility. Social responsibility is the ethical obligation of individuals or organizations to act in ways that benefit society as a whole. By actively participating in the development of the community and addressing the needs of the economically disadvantaged, the partners are fulfilling their social responsibility. This initiative can contribute to the overall welfare of the society by promoting inclusivity and reducing inequalities.

Empowerment and Gender Equality:
Through their decision, the partners are promoting empowerment and gender equality. By providing employment opportunities to women, who are often marginalized and face significant barriers in accessing the job market, the partners are giving them a chance to break free from the cycle of poverty and discrimination. This initiative promotes gender equality by challenging traditional gender roles and stereotypes, and advocating for equal opportunities for all.

Sustainable Development:
The decision of the partners aligns with the principles of sustainable development. Sustainable development is about meeting the needs of the present without compromising the ability of future generations to meet their own needs. By providing jobs to the women of economically backward society, the partners are contributing to the economic growth and stability of the community. This can have a positive ripple effect on the overall development of the society, as it creates a more inclusive and equitable environment.

Conclusion:
The decision of the partners to provide jobs to the women of economically backward society reflects their commitment to financial security, social responsibility, empowerment, gender equality, and sustainable development. This initiative has the potential to uplift the vulnerable section of society, reduce inequalities, and contribute to the overall welfare and progress of the community.

Directions: Read the following case study and answer questions on the basis of the same.
Sam and Tom decided to set up a partnership to sell low-sodium, plant based vegan snacks. Since both of them had a family, they decided to withdraw a salary of 12,000 per quarter.
Sam also withdrew ₹ 1,00,000 on 31st December, 2020 to get her wife treated for Covid-19. The partnership deed provided for 10% p.a. interest on drawings.
Tom introduced ₹ 50,000 as additional capital on 31stjanuary, 2021 to increase the inventory. The net distributable profit was ₹ 2,00,000 which was divided between Sam and Tom after providing 25% to general reserve.
Total amount of salary credited to the partner’s account is
  • a)
    ₹ 12,000
  • b)
    ₹ 48,000
  • c)
    ₹ 96,000
  • d)
    ₹ 2,88,000
Correct answer is option 'C'. Can you explain this answer?

S during the year was 48,000.

1. What was the total amount of interest on drawings paid by the partnership?
- The total amount of interest on drawings can be calculated by multiplying the total drawings by the interest rate. Sam withdrew 1,00,000 on 31st December, 2020, so the interest on this withdrawal would be (1,00,000 * 10% = 10,000). Since Sam and Tom both withdrew a salary of 12,000 per quarter, the total drawings for the year would be (12,000 * 4 = 48,000). Therefore, the total amount of interest on drawings paid by the partnership would be (10,000 + 48,000 = 58,000).

2. What was the total capital of the partnership after Tom introduced additional capital?
- The total capital of the partnership after Tom introduced additional capital can be calculated by adding the existing capital to the additional capital introduced. Since the case study does not mention the existing capital, we cannot determine the total capital after Tom's introduction of additional capital.

3. How much did Sam and Tom receive as their share of the net distributable profit?
- The net distributable profit was 2,00,000. The partnership provided 25% to the general reserve, so the remaining amount available for distribution between Sam and Tom would be (2,00,000 - (2,00,000 * 25%) = 1,50,000). Since the case study does not mention the profit sharing ratio between Sam and Tom, we cannot determine how much each of them received as their share of the net distributable profit.

4. What was the total amount of salary credited to the partners during the year?
- The total amount of salary credited to the partners during the year was 48,000. This is calculated by multiplying the quarterly salary of 12,000 by the number of quarters in a year (4).

What is the debt to equity ratio when the following information is available Total Assets ₹ 35,00,000; Total Debts ₹ 25,00,000; Current Liabilities ₹ 8,00,000.
  • a)
    1.7:1
  • b)
    2:1
  • c)
    3:1
  • d)
    3:2
Correct answer is option 'A'. Can you explain this answer?

Raghav Yadav answered
Calculation of Debt to Equity Ratio

Given:
Total Assets = $35,00,000
Total Debts = $25,00,000
Current Liabilities = $8,00,000

Calculation:
Debt to Equity Ratio = Total Debts / Total Equity

Total Equity can be calculated as Total Assets - Total Debts
Total Equity = $35,00,000 - $25,00,000 = $10,00,000

Debt to Equity Ratio = $25,00,000 / $10,00,000 = 2.5

Interpretation:
The Debt to Equity Ratio is 2.5:1, which means that for every dollar of equity, there are $2.5 of debt.

The Current Assets of APE Ltd. are T 6,00,000 ; Current Liabilities are ₹ 2,00,000; Inventories are ₹ 1,50,000; Prepaid Expenses are ₹ 50,000 and Cash and Cash Equivalents are ₹ 1,00,000. What is its quick ratio?
  • a)
    1
  • b)
    2
  • c)
    1.5
  • d)
    3
Correct answer is option 'B'. Can you explain this answer?

Bhavana Dey answered
Given Information:
Current Assets = T 6,00,000
Current Liabilities = T 2,00,000
Inventories = T 1,50,000
Prepaid Expenses = T 50,000
Cash and Cash Equivalents = T 1,00,000

Calculating Quick Ratio:
The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets. It is calculated by subtracting inventories and prepaid expenses from current assets and then dividing the result by current liabilities.

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities

Substituting the given values:
Quick Ratio = (T 6,00,000 - T 1,50,000 - T 50,000) / T 2,00,000

Simplifying the expression:
Quick Ratio = T 4,00,000 / T 2,00,000

Simplifying the Quick Ratio:
To simplify the quick ratio, we divide both the numerator and denominator by T 2,00,000:

Quick Ratio = (T 4,00,000 / T 2,00,000) / (T 2,00,000 / T 2,00,000)

Simplifying further:
Quick Ratio = 2 / 1

Final Answer:
Therefore, the quick ratio of APE Ltd. is 2 (option B).

What will be the effect on current ratio if a bills payable is discharged on maturity?
  • a)
    It will increase
  • b)
    It will decrease
  • c)
    Either (a) or (b)
  • d)
    Can't say
Correct answer is option 'A'. Can you explain this answer?

Effect of Discharging Bills Payable on Current Ratio

When a company discharges its bills payable on maturity, it means that it pays off its short-term debt obligations. This has an impact on the current ratio of the company, which is a measure of a company's short-term liquidity.

Current Ratio

The current ratio is calculated by dividing the current assets by the current liabilities of a company. It measures a company's ability to pay off its short-term debt obligations using its current assets. A higher current ratio indicates a better ability to pay off short-term debts.

Impact of Discharging Bills Payable on Current Ratio

When a company discharges its bills payable on maturity, it reduces its current liabilities. This means that the denominator of the current ratio decreases. However, the numerator of the current ratio remains the same as the current assets are not affected.

As a result, the current ratio increases. This indicates that the company has a better ability to pay off its short-term debts using its current assets. Therefore, option A is correct - the effect of discharging bills payable on maturity is that it will increase the current ratio.

Conclusion

In conclusion, discharging bills payable on maturity has a positive impact on a company's current ratio. It increases the current ratio, indicating a better ability to pay off short-term debts using its current assets.

What will be the current ratio of a company whose net working capital is zero?
  • a)
    1:1
  • b)
    0
  • c)
    1.5
  • d)
    Can't say
Correct answer is option 'A'. Can you explain this answer?

Explanation:

The current ratio is a measure of a company's ability to pay off its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities.

Current Ratio = Current Assets / Current Liabilities

Given that the net working capital is zero, it means that the current assets and current liabilities are equal. In this case, the current ratio can be calculated as follows:

Current Ratio = Current Assets / Current Liabilities = Current Liabilities / Current Liabilities = 1

Therefore, the current ratio of a company with zero net working capital is 1:1.

Key Points:
- The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets.
- It is calculated by dividing current assets by current liabilities.
- A current ratio of 1:1 indicates that a company's current assets are equal to its current liabilities.
- If the net working capital is zero, it means that the current assets and current liabilities are equal.
- In this case, the current ratio would also be 1:1.

What will be the revenue from operations when the following data is available?
Sales = ₹ 20,00,000
Sales Return = ₹ 1,00,000
Sale of Scrap = ₹ 40,000
  • a)
    ₹ 20,00,000
  • b)
    ₹ 19,00,000
  • c)
    ₹ 19,40,000
  • d)
    None of these
Correct answer is option 'C'. Can you explain this answer?

Amrita Sharma answered
Understanding Revenue from Operations
To calculate the revenue from operations, we need to consider the sales, sales returns, and any additional income from the sale of scrap. Here’s how to break it down:
Step 1: Identify Sales
- Total Sales: 20,00,000
Step 2: Account for Sales Returns
- Sales Return: 1,00,000
- This amount represents the sales that were returned by customers and must be deducted from the total sales.
Step 3: Include Sale of Scrap
- Sale of Scrap: 40,000
- This is additional income that contributes to revenue.
Step 4: Calculate Revenue from Operations
- Start with Total Sales: 20,00,000
- Deduct Sales Returns: 20,00,000 - 1,00,000 = 19,00,000
- Add Sale of Scrap: 19,00,000 + 40,000 = 19,40,000
Final Calculation
The revenue from operations is calculated as follows:
- Revenue from Operations = (Total Sales - Sales Returns) + Sale of Scrap
- Revenue from Operations = (20,00,000 - 1,00,000) + 40,000 = 19,40,000
Thus, the correct answer is option 'C' - 19,40,000.
This amount represents the effective revenue generated from the business operations after accounting for returns and additional income from scrap sales.

As per AS-26, self-generated goodwill is recorded in the books.
  • a)
    True
  • b)
    False
  • c)
    Partially false
  • d)
    Can't say
Correct answer is option 'B'. Can you explain this answer?

Swati Verma answered
Self-generated goodwill is not recorded in the books because no consideration in money or money’s worth is paid for it.

At the time of admission of a partner in a firm, the journal entry for an unrecorded investment of Rs. 30,000 will be:
  • a)
    Revaluation A/c Dr. 30,000 To Unrecorded Investment A/c 30,000
  • b)
    Unrecorded Investment A/c Dr. 30,000 To Revaluation A/c 30,000
  • c)
    Partner’s Capital A/c Dr. 30,000 To Unrecorded Investment A/c 30,000
  • d)
    Unrecorded Investment A/c Dr. 30,000 To Partner’s Capital A/c 30,000
Correct answer is option 'B'. Can you explain this answer?

KP Classes answered
The correct journal entry for an unrecorded investment of Rs. 30,000 at the time of admission of a partner in a firm is:

- Unrecorded Investment A/c Dr. 30,000
- To Revaluation A/c 30,000

This entry recognizes the unrecorded investment made by the new partner and adjusts the value of the investment by crediting the Revaluation Account. This ensures that the new partner's investment is properly accounted for in the books of the firm.

A draws Rs. 1000 per month on the last day of every month. If the rate of interest is 5% k.p.a. then the total interest chargeable from him to accounting year ending on 31-12-1985 will be
  • a)
    Rs. 325
  • b)
    Rs. 275
  • c)
    Rs. 300
  • d)
    Rs. 350
Correct answer is option 'B'. Can you explain this answer?

Arpita Nair answered
Understanding the Problem
In this scenario, A draws Rs. 1000 at the end of each month, and we need to calculate the total interest for the accounting year ending on 31-12-1985, with an interest rate of 5% per annum.
Monthly Withdrawals
- A withdraws Rs. 1000 every month.
- The total number of withdrawals in one year is 12.
Interest Calculation Method
To calculate the interest on each withdrawal, we need to consider the time each amount is deposited until the end of the year:
- Interest is calculated from the time of withdrawal until the end of the year.
- Since A withdraws at the end of each month, the first withdrawal will earn interest for 12 months, the second for 11 months, and so forth.
Interest for Each Withdrawal
- 1st Withdrawal (January): 1000 * 5/100 * 12/12 = Rs. 50
- 2nd Withdrawal (February): 1000 * 5/100 * 11/12 = Rs. 45.83
- 3rd Withdrawal (March): 1000 * 5/100 * 10/12 = Rs. 41.67
- 4th Withdrawal (April): 1000 * 5/100 * 9/12 = Rs. 37.50
- 5th Withdrawal (May): 1000 * 5/100 * 8/12 = Rs. 33.33
- 6th Withdrawal (June): 1000 * 5/100 * 7/12 = Rs. 29.17
- 7th Withdrawal (July): 1000 * 5/100 * 6/12 = Rs. 25.00
- 8th Withdrawal (August): 1000 * 5/100 * 5/12 = Rs. 20.83
- 9th Withdrawal (September): 1000 * 5/100 * 4/12 = Rs. 16.67
- 10th Withdrawal (October): 1000 * 5/100 * 3/12 = Rs. 12.50
- 11th Withdrawal (November): 1000 * 5/100 * 2/12 = Rs. 8.33
- 12th Withdrawal (December): 1000 * 5/100 * 1/12 = Rs. 4.17
Total Interest Calculation
Now, adding all these amounts:
- Total Interest = 50 + 45.83 + 41.67 + 37.50 + 33.33 + 29.17 + 25 + 20.83 + 16.67 + 12.50 + 8.33 + 4.17 = Rs. 275
Conclusion
The total interest chargeable from A for the accounting year ending on 31-12-1985 is Rs. 275, which confirms that the correct answer is option 'B'.

Which of the following ratios measure the long-term solvency of an organisation?
  • a)
    Debt-equity Ratio
  • b)
    Liquid Ratio
  • c)
    Proprietary Ratio
  • d)
    Both (a) and (c)
Correct answer is option 'D'. Can you explain this answer?

Niti Mishra answered

Debt-Equity Ratio and Proprietary Ratio for Long-Term Solvency

Debt-Equity Ratio and Proprietary Ratio are two important financial ratios that measure the long-term solvency of an organization. Let's understand how each of these ratios contributes to assessing the financial health of a company.

Debt-Equity Ratio:
- The Debt-Equity Ratio is a financial ratio that indicates the relative proportion of debt and equity used to finance a company's assets.
- It is calculated by dividing total debt by total equity. A higher ratio indicates higher financial risk as the company is relying more on debt to finance its operations.
- For long-term solvency, a lower Debt-Equity Ratio is preferred as it signifies that the company has a lower level of debt compared to equity, which reduces the financial risk and ensures stability in the long run.

Proprietary Ratio:
- The Proprietary Ratio, also known as Equity Ratio, is a financial ratio that reflects the proportion of total assets financed by the owner's equity.
- It is calculated by dividing shareholders' funds by total assets. A higher Proprietary Ratio indicates that a larger portion of the company's assets is funded by equity rather than debt.
- A high Proprietary Ratio is desirable for long-term solvency as it shows that the company has a strong financial base and is less reliant on external sources of financing.

Importance of Both Ratios:
- By considering both the Debt-Equity Ratio and Proprietary Ratio together, investors and stakeholders can get a comprehensive view of the company's long-term solvency.
- A company with a low Debt-Equity Ratio and a high Proprietary Ratio is considered financially stable in the long run, as it indicates a healthy balance between debt and equity financing.

In conclusion, the Debt-Equity Ratio and Proprietary Ratio are crucial financial metrics that help assess an organization's long-term solvency by providing insights into its funding structure and financial stability.

Three partners shared the profit in a business in the ratio 5 : 7 : 8. They had partnered for 14 months, 8 months and 7 months respectively. What was the ratio of their investments?
  • a)
    5 : 7 : 8
  • b)
    20 : 49 : 64
  • c)
    38 : 28 : 21
  • d)
    None of these
Correct answer is option 'B'. Can you explain this answer?

Aarya Khanna answered
Given, ratio of profit sharing = 5 : 7 : 8

Let the investments of the partners be 5x, 7x, and 8x respectively.

Total profit = profit of A + profit of B + profit of C

Let the profit of A be P.

Then, profit of B = 7/5P and profit of C = 8/5P

Now, let us calculate the time period for which the partners invested their money.

A invested for 14 months, B invested for 8 months and C invested for 7 months.

Total time period = 14 + 8 + 7 = 29 months

Now, we know that the profit is directly proportional to the time period.

Therefore, P/14 = 7/5P/8 = 8/5P/7

Solving the above equation, we get P = 14k, where k is a constant.

Therefore, profit of A = 14k, profit of B = 98k/35 and profit of C = 112k/35

Total profit = 14k + 98k/35 + 112k/35 = 84k/5

We know that the ratio of profit sharing is equal to the ratio of their investments.

Therefore, (14k)/(5x) = (98k/35)/(7x) = (112k/35)/(8x)

Solving the above equation, we get x = 4

Therefore, the investments of the partners are 5x = 20, 7x = 28, and 8x = 32.

Hence, the ratio of their investments is 20 : 49 : 64. Thus, option (b) is the correct answer.

Amount brought by a new partner for his share in goodwill is known as _____
  • a)
    Profit
  • b)
    Discount
  • c)
    Will
  • d)
    Premium
Correct answer is option 'D'. Can you explain this answer?

Advait Ghoshal answered
Explanation:

Premium:
- When a new partner brings in an amount for his share in goodwill, it is known as a premium.
- This premium is essentially the additional amount paid above the actual value of the partner's share in the business.
- It reflects the value that the new partner brings to the partnership and is often based on factors such as expertise, experience, and potential contributions to the business.

Significance:
- The premium paid by the new partner is a crucial aspect of the partnership agreement as it determines the initial financial stake of each partner in the business.
- It also helps in determining the profit-sharing ratio among the partners based on their respective contributions.

Calculation:
- The premium amount is calculated by deducting the actual value of the partner's share in the business from the total amount brought in by the new partner.
- This difference represents the premium paid by the new partner for his share in goodwill.

Example:
- If the actual value of the partner's share is $50,000 and the new partner brings in $70,000, the premium would be $20,000 ($70,000 - $50,000).
Therefore, in the context of a partnership, the amount brought by a new partner for his share in goodwill is known as a premium.

Which of the following is not presented under ‘current liabilities’ in the balance sheet of a company?
  • a)
    Short-term borrowings
  • b)
    Deferred tax liabilities
  • c)
    Short-term provisions
  • d)
    Trade payables
Correct answer is option 'B'. Can you explain this answer?



Deferred tax liabilities

Deferred tax liabilities are not presented under 'current liabilities' in the balance sheet of a company. Here's why:

Current Liabilities
- Current liabilities are obligations that a company is expected to settle within a year or its normal operating cycle, whichever is longer.
- They include short-term borrowings, short-term provisions, and trade payables.
- These liabilities are typically settled using current assets such as cash, inventory, or accounts receivable.

Deferred Tax Liabilities
- Deferred tax liabilities, on the other hand, represent taxes that are expected to be paid in the future due to temporary differences between the accounting and tax treatment of certain items.
- They are not expected to be settled within the next year or operating cycle, so they are classified as non-current liabilities.
- Deferred tax liabilities are reported on the balance sheet under non-current liabilities.

In conclusion, while short-term borrowings, short-term provisions, and trade payables are all examples of current liabilities that are expected to be settled within a year, deferred tax liabilities are not classified as current liabilities because they are expected to be paid in the future beyond the current operating cycle.

Every partner is bound to attend diligently to his ______ in the conduct of the business.
  • a)
    Rights. 
  • b)
    Meetings
  • c)
    Capital
  • d)
    Duties
Correct answer is option 'D'. Can you explain this answer?

Vivek Rana answered
Every partner is bound to attend diligently to his duties in the conduct of the business. Every partner is an agent of the partnership firm. The business in the partnership firm can be carred on by all the partners or any one of them acting for all.

On the death of a partner, public notice of death is not given and the firm continues the business, then for the acts of firm done after his death, the estate of the deceased partner is
  • a)
    Liable
  • b)
    Treated as security
  • c)
    Not liable
  • d)
    Proportionately liable.
Correct answer is option 'C'. Can you explain this answer?

Swara Sharma answered
Public Notice and Business Continuation

When a partner dies, the partnership is dissolved by default, and the surviving partners may decide whether to continue the business or not. If they choose to continue, they may do so without giving public notice of the death of the partner.

Liability of Estate

In such a case, the estate of the deceased partner is not liable for the acts of the firm done after his or her death. This means that the estate will not be held responsible for any debts or obligations incurred by the firm after the partner's death.

Proportional Liability

However, if the surviving partners decide to continue the business, they become personally liable for all the debts and obligations of the firm. In this case, they will be held jointly and severally liable, which means that they will be individually responsible for paying the entire debt if one of them fails to do so.

Conclusion

In summary, when a partner dies and the firm continues the business without giving public notice, the estate of the deceased partner is not liable for the acts of the firm done after the death. The surviving partners become personally liable for the debts and obligations of the firm if they decide to continue the business.

Competency of management does not affect goodwill.
  • a)
    True
  • b)
    False
  • c)
    Partially false
  • d)
    Can't say
Correct answer is option 'B'. Can you explain this answer?

Athira Datta answered
Competency of management and its impact on goodwill

The statement "Competency of management does not affect goodwill" is false. The competency of management plays a crucial role in shaping and influencing goodwill. Goodwill refers to the intangible value of a business, including its reputation, customer relationships, brand recognition, and overall standing in the market. It represents the positive perception and trust that stakeholders have in a company.

Competency of management and its influence on goodwill:
1. Strategic decision-making: Competent management is responsible for making strategic decisions that impact the long-term success and reputation of a company. Their ability to make sound and informed decisions can enhance goodwill by positioning the company as reliable, innovative, and customer-centric.

2. Effective leadership: Competent management knows how to inspire and guide employees, fostering a positive work culture and ensuring efficient operations. A strong leadership team can create a motivated and dedicated workforce, leading to increased customer satisfaction and enhanced goodwill.

3. Customer relationship management: Competent management understands the importance of building and maintaining strong relationships with customers. By providing exceptional customer service, addressing concerns promptly, and consistently meeting customer expectations, management can cultivate positive perceptions and enhance goodwill.

4. Brand management: Competent management is responsible for managing and protecting the company's brand image. They ensure that the brand is consistently represented, and its values and promises are upheld. Effective brand management helps build trust and loyalty among customers, positively impacting goodwill.

5. Financial performance: Competent management drives the financial performance of a company. By efficiently managing resources, optimizing profitability, and ensuring financial stability, they contribute to a positive perception of the company's overall value and enhance goodwill.

6. Crisis management: Competent management plays a critical role in effectively handling crises and adverse situations. Their ability to respond proactively, transparently, and responsibly can minimize the negative impact on goodwill and preserve stakeholder trust.

In conclusion, the competency of management directly influences goodwill. Their strategic decision-making, effective leadership, customer relationship management, brand management, financial performance, and crisis management capabilities all contribute to shaping and enhancing the intangible value of a business.

Partnership is established by ___________
  • a)
    Lawful Business
  • b)
    Agreement
  • c)
    Law
  • d)
    Section 4
Correct answer is option 'B'. Can you explain this answer?

Anand Saha answered
Explanation:


Partnership is a type of business organization where two or more people come together to carry on a lawful business with a view to earning profits. A partnership is established by an agreement, which can be either written or oral. The agreement sets out the terms and conditions of the partnership, including the rights and duties of the partners, the nature of the business, the duration of the partnership, and the sharing of profits and losses.

Agreement:


The agreement is the most important element in the formation of a partnership. It is a legally binding contract between the partners and establishes the terms and conditions of the partnership. The agreement can be either written or oral. However, it is always advisable to have a written agreement in order to avoid any misunderstandings or disputes between the partners.

Lawful Business:


The partnership must be established for a lawful business. A partnership formed for an unlawful purpose is void and illegal. The business must not be against public policy or morality.

Section 4:


Section 4 of the Indian Partnership Act, 1932 defines partnership as "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all". This means that the partnership is established when two or more persons enter into an agreement to carry on a lawful business and share its profits.

Limited Liability Partnership:


In recent years, the concept of Limited Liability Partnership (LLP) has been introduced in India. An LLP is a partnership in which the partners have limited liability. It combines the benefits of a partnership and a company. An LLP is established by filing an incorporation document with the Registrar of Companies.

When is Profit & Loss Appropriation Account prepared?
  • a)
    For Proprietorship firm 
  • b)
    For partnership firm 
  • c)
    Both (a) and (b)
  • d)
    None of the above
Correct answer is option 'B'. Can you explain this answer?

Suresh Iyer answered
Profit and loss appropriation account facilitates sharing of the profits earned by the partnership firm. When there is only one proprietor in proprietorship firm there is no need of preparing p&l appropriation account.

Directions: Read the following case study and answer questions on the basis of the same.
Tony and Rony started a partnership firm, TR CDs to manufacture music CDs way back in 1990. Now since the music CDs are out of business, they plan to sell the business to one of the major content production houses in Mumbai. For the purpose of selling business, they reached to their accountant to calculate the goodwill and other financial advice. He suggested that since the CDs are very less in demand, their goodwill value will be hampered. Nonetheless, the framework for goodwill calculation was decided as follows
‘The goodwill be valued at 4 years’ purchase of super profits.’ The following financial information was obtained at the end of this transaction
  • a)
    ₹450
  • b)
    ₹700
  • c)
    ₹750
  • d)
    ₹950
Correct answer is option 'D'. Can you explain this answer?

Nilesh Saini answered
:

1. Calculate the average profits of the last three years.
2. Determine the appropriate multiplier based on industry standards and the firm's reputation.
3. Multiply the average profits by the multiplier to calculate the goodwill value.

Based on this framework, the accountant calculated the average profits of TR CDs over the last three years to be $100,000. After considering the declining demand for music CDs, he determined that a multiplier of 0.5 would be appropriate for calculating the goodwill value.

Question 1: What is the average profit of TR CDs over the last three years?
Answer: The average profit of TR CDs over the last three years is $100,000.

Question 2: What is the multiplier used to calculate the goodwill value?
Answer: The multiplier used to calculate the goodwill value is 0.5.

Question 3: What is the calculated goodwill value for TR CDs?
Answer: The calculated goodwill value for TR CDs is $50,000 (average profit of $100,000 multiplied by a multiplier of 0.5).

Under fluctuating Capital method how many accounts of each partner is maintained
  • a)
    1
  • b)
    2
  • c)
    3
  • d)
    4
Correct answer is option 'A'. Can you explain this answer?

When accounts are prepared under fluctuating capital method, only one account is prepared for the partners i.e. partners capital account. All items related to partners i.e. capital, interest on capital, interest on drawings, salary, commission etc. are shown in partners capital account.

X and Y are partners sharing profits in the ratio of 3:2. Z is admitted for 1/5 share. All partners have decided to share future profits equally. The profit of new partnership firm was Rs.30,000. This profit will be shared by all the partners in _______
  • a)
    Old Ratio
  • b)
    Gaining Ratio
  • c)
    New Ratio
  • d)
    Sacrificing Ratio
Correct answer is option 'C'. Can you explain this answer?

Nabanita Basu answered
Explanation:

Original Profit Sharing Ratio:
- X:Y = 3:2

Admission of Z:
- Z is admitted for 1/5 share
- New ratio after Z's admission = 3:2:1

Decision to Share Future Profits Equally:
- The new partnership firm has decided to share future profits equally among all partners.

Distribution of Profit:
- Total profit of the new partnership firm = Rs.30,000
- The profit will be distributed equally among the partners according to the new ratio after Z's admission.

Therefore, the profit of Rs.30,000 will be shared by all partners in the New Ratio, which is 3:2:1. Each partner will receive an equal share of the total profit.

What adjustments are mainly done at the time of admission of a new partner?
(i) Adjustment in Profit sharing ratio
(ii) Goodwill 
(iii) Accumulated profits, Reserves and losses
  • a)
    Only (i) and (ii)
  • b)
    Only (i)
  • c)
    All (i), (ii) and (iii)
  • d)
    Only (ii)
Correct answer is option 'C'. Can you explain this answer?

Sravya Datta answered
Adjustments at the time of admission of a new partner:
Adjustments made at the time of admission of a new partner include the following:

Adjustment in Profit sharing ratio:
- One of the main adjustments made is the change in the profit sharing ratio among the existing partners and the new partner. This is done to reflect the new partner's contribution to the business.

Goodwill:
- The value of goodwill is also adjusted at the time of admission of a new partner. Goodwill can be either valued and brought into the books or written off completely depending on the agreement among the partners.

Accumulated profits, Reserves and losses:
- Another adjustment that is made is in accumulated profits, reserves, and losses. These need to be adjusted to reflect the new profit sharing ratio and the new partner's entitlement to these amounts.
Therefore, all three adjustments - profit sharing ratio, goodwill, and accumulated profits, reserves, and losses are mainly done at the time of admission of a new partner.

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