Test: Introduction To Partnership Accounts - 1


30 Questions MCQ Test Principles and Practice of Accounting | Test: Introduction To Partnership Accounts - 1


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QUESTION: 1

A partner acts as ……………for a firm. 

Solution:

A Partner is an Agent of the Firm (Section 18)
A partnership is a relationship between partners who agree to share the profits of the business. The business can be carried on by all of them or any of them acting for all. This definition suggests that a partner can be an agent of the others.

QUESTION: 2

Ram and Shyam are partners with the capital of Rs. 25,000 and Rs.15,000 respectively. Interest payable on capital is 10% p.a. Find the interest on capital for both the partners when the profits earned by the firm is Rs. 2,400.

Solution:

As per the question, interest on Capital should be 2500 & 1500, So the interest will be distributed in their capital ratio i. e 5:3 so you will get 1500 & 900.

QUESTION: 3

Interest on Drawings is: 

Solution:

Interest on drawing is being received by the business on the drawn amount , so it is an income for the business and thus will be credited to P&L A/C

QUESTION: 4

Fluctuating Capital account is credited with: 

Solution:

Fluctuating Capital Method

Under this method as is apparent from the name, capital of each partner goes on changing from time to time. Each partner will have his separate capital account, which will be credited by his initial investment and any additional capital introduced during the year will also be credited to his capital account.

All the adjustments, which result decrease in capital will be debited to partner’s capital, such as drawing made by each partner, interest on drawings and share of loss. On the other hand, adjustments resulting increase in capital will be credited to partner’s capital, like interest on capital, partners salary if any, partner’s share of profit etc.

Balance of each partner’s capital account will be shown in the balance sheet. Debit balance of partner’s capital account is shown on the asset side and credit balance is shown on the liability side.

Explanatory Note: It should be noted that where nothing is specifically mentioned the capital method to be adopted will be the fluctuating capital method.

QUESTION: 5

Firm has earned exceptionally high profits from a contract which will not be renewed. In such a cash the profit from this contract will not be included in …

Solution:

 

Because it is not related to the admission or retirement of the partners .At the time of admission or retirement goodwill will be calculated

QUESTION: 6

In the absence of an agreement, partners are entitled to:

Solution:

As per the partnership act, if the partnership deed is silent about the things mentioned above so in that case the partners are not entitled for any salary or interest on capital , but as per the provision even if the partnership deed is silent the partner is entitled for an interest @6% on loan or any advance given by him to the firm

QUESTION: 7

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

Solution:

There is a formula for calculating interest on drawings at the end of every month.

amount*12*rate*11/24

1000*12*(5/100)*(11/24)

= Rs. 275

QUESTION: 8

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

Solution:

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. 

QUESTION: 9

As per Section 37 of the Indian Partnership Act, 1932, the executors would be entitled at their choice to the interest calculated from the date of death till the date of payment on the final amount due to the deceased partner at ______% p.a.:

Solution:

As per section 37 of the Indian Partnership Act 1932, the executors would be entitled at their choice to the interest calculated from the date of death till the date of payment on the final amount due to the deceased partner at 6% p.a. The loan of the deceased partner is treated as a third party loan. 

QUESTION: 10

If a firm prefers Partners Capital Accounts to be shown at the amount introduced by the partners as capital in firm then, the entries for salary, drawings, interest on capital or drawings and profits are made in

Solution:

In case of partnership type of ownership in a business, partner current account is prepared when capital is fixed. Transactions such as drawings, salary, and interest on capital and drawings are recorded. The balance of this account fluctuates every year. The balance can be both credit or debit

QUESTION: 11

If there is no partnership deed then interest on capital will be charged at ______________p.a.

Solution:

According to partnership act 1932, No interest on capital will be allowed in the absence of partnership deed.

QUESTION: 12

Following are the essential elements of a partnership firm except:

Solution:

Partnership firm can be called a partnership between person only when there are at least two person. A single person runnig a business would not be a partnership. An agreement must be there between partners to prevent future riots.

Moreover, the partnership must be for business purpose. A group formed to make city green would not be a partnership firm.

Equal profit and loss ratio is not must for any partnership firm, it is mutual decision of partners to decide the ratio.

QUESTION: 13

A and B are partners A’s capital is Rs. 10,000 and B’s Capital is Rs. 6,000. Interest is payable @ 6% p.a. B is entitled to a salary of Rs. 300 per month. Profit to the year before interest and salary to B is R.s 8,000. Profits between A and B will be divided as:

Solution:
QUESTION: 14

The relationship between persons who have agreed to share the profit of a business carried on by all or any of them acting for all is known as …………..

Solution:

It is a definition given by Partnership act 1932 in sec 4
It contains 3 three parameters
1) Agreement
2) sharing of profit and losses
3) carried on by all any of them acting for all means mutual agency
above three things required to form a partnership

QUESTION: 15

A and B are partners having capital of Rs. 50,000 and Rs. 60,000 respectively. Interest on capital is given @ 5% p.a. Profits for the year before appropriation is Rs. 4,600 provide interest on capital out of profits. Increase allocated to partners is :

Solution:

Interest on capital =2500 And 3000
but profit = 4600
so 50000/ 60000= 5:6
amount is divided into 5: 6
A= 4600÷11×5=2091
B=4600÷11×6=2509

QUESTION: 16

Every partner is bound to attend diligently to his……….. in the conduct of the business.

Solution:

Every partner is bound to attend diligently to his duties in the conduct of business. 

QUESTION: 17

 A, B and C had capitals of Rs. 50,000; Rs. 40,000 and Rs. 30,000 respectively for carrying on business in partnership. The firm’s reported profit for the year was Rs. 80,000. As per provisions of the Indian Partnership Act, 1932, find out the share of each partner in the above amount after taking into account that no interest has been provided on an advance by A of Rs. 20,000, in addition to his capital contribution. 

Solution:

Profit after charging interest = Profit before charging interest - Interest on loan

= RS 79,200 - 1,200

= RS-78,000.

Profit distribution among partners = RS-78,000/3

= RS-26,000.

Profit for B and C = RS-26,000

Profit for A = RS-26,000 + RS-1,200

                   = RS-27,200. 

 

 

Note:-. 

1) When there is no mention about the profit sharing ratio among partners its assumed to be equal.

2) If there is no agreement or no provision regarding interest on loan in the agreement then the interest will be charged @ 6% p.a. 

QUESTION: 18

‘Salary Rs. 5,000 paid to partner’ The above item will appear in _________.

Solution:

Profit and loss appropriation account is an account where we record all transactions related to the partners like for example their salary,interest on capital,intrest on darawing etc.so salary to partner will also appear on debit side of p&l appropriation account

QUESTION: 19

 When is Profit & Loss Appropriation Account prepared?

Solution:

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.

QUESTION: 20

 Interest on drawings is treated as:

Solution:

Interest on drawing is treated as revenue for the firm because interest is paid by the proprietor for withdrawal from the business and it will became revenue for the firm.

QUESTION: 21

 When a partner is given Guarantee by the other partner, loss on such guarantee will be borne by 

Solution:
QUESTION: 22

Three partners A , B , C start a business . B's Capital is four times C's capital and twice A's capital is equal to thrice B's capital . If the total profit is Rs 16500 at the end of a year ,Find out B's share in it.

Solution:

Suppose C's capital = x then
B's capital = 4x (Since B's Capital is four times C's capital)
A's capital = 6x ( Since twice A's capital is equal to thrice B's capital)
A:B:C =6 x : 4x : x
= 6 : 4 : 1
B's share = 16500 * (4/11) = 1500*4 = 6000.

QUESTION: 23

 In the presence of an agreement, interest on capital is to be provided from _______?

Solution:
QUESTION: 24

What would be the profit sharing ratio if the partnership act is complied with?

Solution:
QUESTION: 25

If opening capital of a partner in the firm is Rs. 1,00,000 and closing capital is Rs. 2,00,000. Interest on capital allowed during the year Rs. 10,000 and interest on drawings charged during the year Rs. 2,000. If total drawings were Rs. 20,000, the amount of profit transferred to his capital account by the firm would be:

Solution:

Profit = closing capital -opening capital +drawings -interest on capital + interst on drawings
= 200000 - 100000 + 20000 -10000 + 2000 = 112000 Ans.

QUESTION: 26

 Is rent paid to a partner is appropriation of profits?

Solution:

The amount of rent would be seen as this partner's capital contribution instead of needing it paid from the venture.

QUESTION: 27

Where will you record interest on drawings?

Solution:
QUESTION: 28

Insurance Premium paid by the firm on the life Insurance policy of a partner is

Solution:
QUESTION: 29

In the absence of any deed of partnership---

Solution:

In the absence of any agreement interest on advances by a partner is allowed at 6 percent p.a. and is allowed whether there is profit or no. Interest on loan is a charge and will be provided regardless of profits earned. 

QUESTION: 30

 Following are the differences between Capital Account and Current Account except:

Solution:

 

In fixed capital method both capital and current accounts are maintained whereas in fluctuating capital method only capital account is maintained. Under Fixed capital method adjustments were made in current account whereas in fluctuating capital method adjustments are made in capital accounts only.