Accountancy: CUET Mock Test - 1 - CUET MCQ

The correct answer is capital receipt.

Key Points

• Donations are the amounts received by not–for–profit organizations as a gift. It may be general donation or specific donation.
• General donation: If the donation is received without any specific condition, then it is a general donation. It is a revenue receipt.
• Specific donation: If the donation is received with a specific condition for a particular purpose like donations for sports fund, prize fund, etc., it is known as specific donation. It is a capital receipt.

Additional Information

• Capital expenditure is an expenditure incurred during an accounting period, the benefits of which will be available for more than one accounting period.
• Revenue expenditure is the expenditure incurred for the day-to-day running of the business or for maintaining the earning capacity of the business.
• Revenue receipts are incomes derived from the normal activities of the business.
• Capital receipts are derived from transactions that are not the usual activities of the business.

The correct answer is Subscription.

Key PointsFeatures of not–for–profit organisations

• Not–for–profit organisations are the organisations which function without any profit motive.
• Their main aim is to provide services to a specific group or the public at large.
• Generally, they do not undertake business or trading activities.
• Their main sources of income include subscriptions from members, donations, grant-in-aid and legacies.

Additional Information

• Not–for–profit organisations usually collect subscriptions periodically from their members.
• These may be collected monthly, quarterly, half-yearly or yearly.
• In addition, some special subscriptions, for example, subscription for tennis, billiards, etc., are collected from the concerned members playing tennis or billiards as the case may be.
• All these subscriptions are revenue receipts.

The correct answer is Credit side of Income and Expenditure Account

Key Points

Non-profit-organisation:

• Not-for-profit organisations are those that are established for the benefit of society or to promote art and culture in society.
• These are usually established as a philanthropic organisation with a service mission.
• These organisations are managed by trustees. The trustees are chosen by the members of the organisation.
• Non-profit organisations raise donations from their members as well as the wider public to achieve their goals.
• These organisations' primary goal is to give service.
• These organisations do not typically create, purchase, sell, or provide services.
• As a result, they are relieved of the necessity to compile trading and profit and loss accounts. They deposit the money in the Capital Fund or the General Fund A/c.

Not-for-profit organisations must also prepare final accounts or financial statements according to accounting rules at the conclusion of the accounting year. These financial statements consist of :

1. Receipt and Payment A/c : The account statement is a summary of all cash and bank transactions. It aids in the preparation of the income and expense account as well as the balance sheet. We must also file it with the Registrar of Societies, along with the Income and Expenditure Account and the Balance Sheet.
2. Income & Expenditure A/c : It is comparable to the Profit and Loss A/c in that it determines if there is a surplus or deficit.
3. Balance Sheet : We prepare it in the same way that profit-oriented enterprises construct their balance sheets.

Important PointsThe profit amount received for sale of old sports materials by a Non-profit organisation is income for the firm, which is shown on credit side of Income & Expenditure Account.

Key PointsThe Final Accounts of non-trading concerns consists of:

• Receipts and Payments Account
• Income and Expenditure Account, and
• Balance Sheet.

Important Points

Statement I: The subscription amount collected for 'Bhagwati Jagran' is considered the income of the social club.

This statement is correct because the subscription amounts are treated as revenue receipts. Subscription received from members is credited to Income and Expenditure Account on accrual basis i.e., total amount receivable from all the members as subscription should be considered as income for the year.

Statement II: Receipts and payments of a revenue nature only are recorded in the Receipts and Payments Account.

This statement is false because Receipts and Payments may be of Capi­tal or Revenue nature; they may relate to the current or previous year or subsequent year; so long as they are actually received or paid, they must appear in this account.

Statement III: The Receipts and Payments Account is a summary of all capital receipts and payments.

This statement is false because Receipts and payments is a summary of total cash receipts and cash payments.

Statement IV: The total income and expenditure account is lined up in the Receipts and Payments Account.

This statement is false because Income & Expenditure Account shows the total expenditure/income of the year, whereas Receipt & Payment Account gives details regarding actual receipt of income and payments of expenditures.

Hence, it can be concluded that only statement I is correct.

Key PointsDissolution of Partnership Firm:

• Dissolution of partnership refers to the process by which the partners' relationship is terminated and all assets, shares, accounts, and liabilities are disposed of and settled . Section 39 of the Indian Partnership Act of 1932 defines the firm's dissolution.
• When a Partnership firm dissolves, the assets are distributed, the liabilities are disposed of in the proper order, with payment to third-party debt coming first, followed by amounts owed to partners, and finally the residual amount is divided among the partners in their profit sharing ratio.

Important PointsAfter Third Party loan amount: This option is Correct because When a Partnership firm dissolves, the assets are distributed, the liabilities are disposed of in the proper order, with payment to third-party debt coming first, followed by amounts owed to partners, and finally the residual amount is divided among the partners in their profit sharing ratio.

Before Third Party loan amount: This option is Incorrect because When a Partnership firm dissolves, the assets are distributed, the liabilities are disposed of in the proper order, with payment to third-party debt coming first, followed by amounts owed to partners, and finally the residual amount is divided among the partners in their profit sharing ratio.

After payment to Partners Capital Account: This option is Incorrect because When a Partnership firm dissolves, the assets are distributed, the liabilities are disposed of in the proper order, with payment to third-party debt coming first, followed by amounts owed to partners, and finally the residual amount is divided among the partners in their profit sharing ratio.

None of the Above: This option is incorrect because one of the options is Correct.

The correct answer is (D), (B), (C), (A), (E)

Key Points

• Calculation of Average profit
  • This is the first step in the process and is correctly placed at the beginning in option 2.
  • Average profit is essential to understand the profitability of the business over a period, which lays the foundation for further calculations in goodwill assessment.
• Calculation of Capital Employed
  • This is correctly identified as the second step in option 2.
  • Knowing the capital employed is crucial as it helps in determining the normal rate of return on the investments made in the business.
• Calculation of Normal profit
  • This step is correctly placed as the third step in option 2.
  • Normal profit is calculated to establish a benchmark for what the business would typically expect to earn as a return on its capital employed.
• Calculation of Super profit
  • This is the fourth step, as correctly shown in option 2.
  • Super profit is the excess of actual average profit over the normal profit. This figure is pivotal in calculating goodwill.
• Calculation of Goodwill
  • This is the final step in the sequence, accurately placed at the end in option 2.
  • Goodwill is calculated by valuing the super profit, usually by multiplying it with a certain number of years' purchase. This represents the intangible value of the business above its tangible assets and liabilities.

Therefore, the sequence (D) Calculation of Average profit, (B) Calculation of Capital Employed, (C) Calculation of Normal profit, (A) Calculation of Super profit, and (E) Calculation of Goodwill, as provided in option 2, is the correct sequence for calculating Goodwill under the super profit method.

The correct answer is (C), (E), (D), (B), (A).

Key Points

• Calculation Gaining/Sacrificing Ratio (C) is the first step.
  • This is correct because when a partner retires, it's necessary to calculate the new profit-sharing ratio among the remaining partners, which involves determining the gaining and sacrificing ratio.
• Preparation of Revaluation Account (E) follows.
  • This is correct as it involves revaluing the assets and liabilities to determine any profit or loss that should be credited or debited to the partners' capital accounts according to their old profit-sharing ratio.
• Adjusting the Partners' Capital Account (D) is the next step.
  • Correct, because after revaluation, the partners' capital accounts are adjusted to reflect their new balances, including any profits or losses from the revaluation account and the remaining capital after the retiring partner's share is settled.
• Transferring balance to Retiring partner's Loan Account (B) comes thereafter.
  • This is correct as the retiring partner's capital and current account balances are transferred to their loan account if not settled immediately in cash.
• Preparation of New Balance Sheet after Retirement (A) is the final step.
  • This is correct because it reflects the financial position of the firm after all adjustments have been made, including the retirement of the partner.

Hence, the correct sequence for the retirement of a partner is: Calculation of Gaining/Sacrificing Ratio (C), Preparation of Revaluation Account (E), Adjustment of Partners' Capital Account (D), Transferring balance to Retiring partner's Loan Account (B), and finally, Preparation of New Balance Sheet after Retirement (A).

The correct answer is 'Remaining partners (who have sacrificed) as well as retiring partner.'

Key Points

• Compensation to retiring or deceased partner and remaining partners who have sacrificed:
  • Upon the retirement or death of a partner, adjustments are made in the profit sharing ratios among the remaining partners.
  • Partners who gain an increased share in the profits due to these adjustments are required to compensate both the retiring or deceased partner (or their estate) and any remaining partners who have sacrificed their share of the profits.
  • This compensation is necessary to ensure fairness and maintain the balance of interests within the partnership, recognizing the value contributed by the retiring or deceased partner and the sacrifice made by others.

Additional Information

• Incorrect Options Explained:
  • No partner: This option is incorrect because the change in profit sharing ratio due to retirement or death of a partner does affect the financial interests of the remaining partners, necessitating compensation.
  • Retiring partner only: While the retiring partner (or the estate of a deceased partner) should receive compensation, this option ignores the need to compensate any remaining partners who have sacrificed their profit share.
  • Remaining partners only (Who have sacrificed.): This option incorrectly suggests that only the partners who have sacrificed should be compensated, disregarding the rights of the retiring or deceased partner.

The correct answer is Vertical analysis.

Key Points

• Vertical analysis:
  • Vertical analysis is a method used in financial statement analysis where each line item in a financial statement is listed as a percentage of another item.
  • This approach is most commonly applied to the income statement, where each line item is expressed as a percentage of sales, and to the balance sheet, where each item is expressed as a percentage of total assets or liabilities.
  • This method allows for easier comparison across companies and time periods by standardizing financial statements.

Additional Information

• Dynamic analysis:
  • Dynamic analysis refers to the evaluation of a company's financial information over a period of time to understand its performance trend.
  • This is not directly related to common size statements which focus on the structure rather than time-based performance.
• Horizontal analysis:
  • Horizontal analysis, also known as trend analysis, compares financial data over multiple periods.
  • This analysis method shows the changes in the financial figures over time, highlighting increases or decreases.
  • It differs from vertical analysis, which looks at financial statements at a single point in time.
• External analysis:
  • External analysis examines factors outside the company that can impact its performance, such as market trends and economic conditions.
  • This analysis is important for strategic planning but is unrelated to the structure of financial statements.

The correct answer is '₹11,40,000'.

Key Points

• First, to find the Revenue from operations, we use the given information that Other income (₹5,00,000) is 25% of the Revenue from operations. This implies that the Revenue from operations is ₹20,00,000 (₹5,00,000 / 25% = ₹20,00,000).
• Employee benefit expenses, which are 30% of the Revenue from operations, amount to ₹6,00,000 (30% of ₹20,00,000).
• Total income (Revenue from operations + Other income) is ₹25,00,000 (₹20,00,000 + ₹5,00,000).
• After deducting Employee benefit expenses (₹6,00,000) from the total income (₹25,00,000), the profit before tax is ₹19,00,000 (₹25,00,000 - ₹6,00,000).
• Applying the tax rate of 40%, the tax amount is ₹7,60,000 (40% of ₹19,00,000).
• The Net profit after tax is calculated by subtracting the tax amount from the profit before tax, which results in ₹11,40,000 (₹19,00,000 - ₹7,60,000).

Additional Information

• Understanding the relationship between different financial metrics such as revenue from operations, other income, expenses, and taxes is crucial for financial analysis and planning.
• Profit before tax (PBT) and net profit after tax are important indicators of a company's financial health and operational efficiency.

Profits are shared equally.

Correct answer is C. Written agreement between all partners

Suppose if the first drawing is made on 31st march( 1st quarter Jan-march) then 9 months will be left and in the last quarter October to December last drawing will be made on 31st December and 0 months will be left.

Since, the drawings are made evenly at the middle of every month, therefore interest on drawings is calculated for a period of six months.

Rent is provided even in case of loss or insufficient profits and is charged to profit and loss account.

Duty is to act within authority.

Current account can have credit balance in case of profits and other items of appropriation of profits. However, it can also have debit balance in case of over withdrawn amount or too many debit items being charged to it.

Guaranteed Share of Raghu is = ₹ 10,000
Share in given Profit  40,000 x 2/10 = ₹ 8,000
∴ Deficiency in Rasrhu’s Share of Profit = 10,000 - 8,000 = ₹ 2,000

Time Period = Time left after first drawings + Time left after last drawings / 2
= 9 + 0 / 2
= 4.5 months

Profits will be divided equally i.e. ₹ 30,000 each.

Goodwill = 25 x Average Profits
10,00,000 = 2.5 x Average Profits
Average Profits = ₹ 4,00,000
Also, Average Profits
= 7,00,000 + X + 3,00,000 / 3
Now, comparing (i) and (ii)
7,00,000 + X + 3,00,000 / 3 = 4,00,000
10,00,000 + X = 12,00,000
X = ₹ 2,00,000

Goodwill is purchased when it is acquired by business for consideration in cash or in kind. Goodwill is self-generated when it is emerged as a result of better quality of products and services of a firm over a continuous period of time.

If management is capable, firm will get higher profits and then higher goodwill.