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Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Commerce MCQ


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12 Questions MCQ Test - Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions

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Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 1

Read the following hypothetical text and answer the given questions:

Rajiv, Poonam and Abhishek are partners sharing profits in a ratio of 3 : 2 : 1 respectively. From 1st January, 2019 they decided to share profits in the ratio of 1 : 3 : 2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the three years' purchase of the average of five years’ profits. The profits and losses of the preceding five years are :

2014 : ₹ 1,20,000 2015 : ₹ 3,00,000

2016 : ₹ 3,40,000 2017 : ₹ 3,80,000

2018 : ₹ 1,40,000 (Loss)

The gaining ratio of Poonam is:

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 1
Gaining ratio = New profit sharing ratio – Old profit sharing ratio
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 2

Read the following information and answer the given questions:

Abha and Vibha are partners, who share profits and losses in the ratio of 2 : 1. From the 1st January 2021, the partners decided to change their profit - sharing ratio to 3 : 2 and agreed upon the following :

(i) Goodwill of the firm valued at ₹ 45,000.

(ii) Creditors of ` 8,000 are not likely to be claimed hence should be written off.

(iii) Land and Building is overvalued by 10%.

(iv) Provision for doubtful debts to be reduced to ₹ 3,000 The partners neither want to record the goodwill nor to distribute the general reserve.

Abha’s gain or sacrifice in the profit sharing ratio is:

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 2
Abha’s Sacrifice = 2/3 - 3/5 = 10/15 - 9/15 = 1/15
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 3

Read the following hypothetical text and answer the given questions:

Rajiv, Poonam and Abhishek are partners sharing profits in a ratio of 3 : 2 : 1 respectively. From 1st January, 2019 they decided to share profits in the ratio of 1 : 3 : 2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the three years' purchase of the average of five years’ profits. The profits and losses of the preceding five years are :

2014 : ₹ 1,20,000 2015 : ₹ 3,00,000

2016 : ₹ 3,40,000 2017 : ₹ 3,80,000

2018 : ₹ 1,40,000 (Loss)

Which partner sacrifices the shares of profit?

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 3
Rajiv = 3/6 - 1/6 = 2/6(sacrifice)

Poonam = 2/6 - 3/6 = -1/6(gain)

Abhishek = 1/6 - 2/6 = -1/6(gain)

Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 4

Analyse the case given below and answer the questions that follow:

Mishra, Tiwari and Singh are partners in a firm sharing profits and losses in the ratio of 1 : 2 : 3. Their capitals on 31st March, 2017 were ₹ 4,00,000, ` 3,00,000 and ₹ 2,00,000 respectively. From 1st April, 2017 they agreed to change their profit and loss sharing ratio as 3 : 2 : 1 respectively. On the day of reconstitution of the firm, their balance sheet showed a debit balance of Profit and Loss Account ₹ 30,000 and general reserve of ₹ 60,000. The value of the firm was decided at ₹ 2,10,000. It was also decided that the value of an asset which was previously not recorded in the books will be recorded with ₹ 21,000.

What will be the balance of Mishra’s capital on the reconstitution of the partnership after taking into account the above adjustments?

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 4
Sacrifice/ gain of Mishra = Old share – New share

= 1/6 - 3/6= -2/6(gain)

Goodwill to be compensated by him to the sacrificing partner:

₹ 2,10,000 × 2/6 = ₹ 70,000

Capital of Mishra after all adjustments = Old Capital + General Reserve + Gain on Revaluation – Dr. balance of Profit and Loss – Goodwill compensated by him

= ₹ (4,00,000 + 10,000 + 3,500 – 5,000 – 70,000)

= ₹ 3,38,500

Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 5

Read the following hypothetical text and answer the given questions:

Rajiv, Poonam and Abhishek are partners sharing profits in a ratio of 3 : 2 : 1 respectively. From 1st January, 2019 they decided to share profits in the ratio of 1 : 3 : 2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the three years' purchase of the average of five years’ profits. The profits and losses of the preceding five years are :

2014 : ₹ 1,20,000 2015 : ₹ 3,00,000

2016 : ₹ 3,40,000 2017 : ₹ 3,80,000

2018 : ₹ 1,40,000 (Loss)

The goodwill of the firm is __________.

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 5

Average Profit = ₹1,20,000 + ₹3,00,000 + ₹3,40,000 + ₹3,80,000 - ₹1,40,000 / 5

= ₹ 2,00,000

Goodwill at 3 years’ purchases of Average Profits = ₹ 2,00,000 × 3 = ₹ 6,00,000

Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 6

Read the following hypothetical text and answer the given questions:

Rajiv, Poonam and Abhishek are partners sharing profits in a ratio of 3 : 2 : 1 respectively. From 1st January, 2019 they decided to share profits in the ratio of 1 : 3 : 2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the three years' purchase of the average of five years’ profits. The profits and losses of the preceding five years are :

2014 : ₹ 1,20,000 2015 : ₹ 3,00,000

2016 : ₹ 3,40,000 2017 : ₹ 3,80,000

2018 : ₹ 1,40,000 (Loss)

What is the amount of goodwill to be given by the gaining partners?

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 6
The gaining ratio is 1:1.
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 7

Analyse the case given below and answer the questions that follow:

Mishra, Tiwari and Singh are partners in a firm sharing profits and losses in the ratio of 1 : 2 : 3. Their capitals on 31st March, 2017 were ₹ 4,00,000, ` 3,00,000 and ₹ 2,00,000 respectively. From 1st April, 2017 they agreed to change their profit and loss sharing ratio as 3 : 2 : 1 respectively. On the day of reconstitution of the firm, their balance sheet showed a debit balance of Profit and Loss Account ₹ 30,000 and general reserve of ₹ 60,000. The value of the firm was decided at ₹ 2,10,000. It was also decided that the value of an asset which was previously not recorded in the books will be recorded with ₹ 21,000.

Sacrifice made by Tiwari on the reconstitution of the partnership will be:

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 7
There is no change in the profit sharing ratio of Tiwari.
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 8

Read the following information and answer the given questions:

Abha and Vibha are partners, who share profits and losses in the ratio of 2 : 1. From the 1st January 2021, the partners decided to change their profit - sharing ratio to 3 : 2 and agreed upon the following :

(i) Goodwill of the firm valued at ₹ 45,000.

(ii) Creditors of ` 8,000 are not likely to be claimed hence should be written off.

(iii) Land and Building is overvalued by 10%.

(iv) Provision for doubtful debts to be reduced to ₹ 3,000 The partners neither want to record the goodwill nor to distribute the general reserve.

Which account will be opened to transfer the amount of creditors to be written off?

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 8
Revaluation account is a nominal account, which is prepared for the distribution and transfer of profits and losses arising due to the increase and decrease of the book value of assets and liabilities during change in profit sharing ratio, admission of a partner, retirement of a partner and death of a partner.
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 9

Analyse the case given below and answer the questions that follow:

Mishra, Tiwari and Singh are partners in a firm sharing profits and losses in the ratio of 1 : 2 : 3. Their capitals on 31st March, 2017 were ₹ 4,00,000, ` 3,00,000 and ₹ 2,00,000 respectively. From 1st April, 2017 they agreed to change their profit and loss sharing ratio as 3 : 2 : 1 respectively. On the day of reconstitution of the firm, their balance sheet showed a debit balance of Profit and Loss Account ₹ 30,000 and general reserve of ₹ 60,000. The value of the firm was decided at ₹ 2,10,000. It was also decided that the value of an asset which was previously not recorded in the books will be recorded with ₹ 21,000.

What journal entry will be passed for the treatment of Profit and Loss balance?

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 9
Treatment of profit and loss: Only the revenue or expenses related to the current year are debited or credited to profit and loss account. The profit and loss account starts with gross profit at the credit side and if there is a gross loss, it is shown on the debit side.
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 10

Read the following information and answer the given questions:

Abha and Vibha are partners, who share profits and losses in the ratio of 2 : 1. From the 1st January 2021, the partners decided to change their profit - sharing ratio to 3 : 2 and agreed upon the following :

(i) Goodwill of the firm valued at ₹ 45,000.

(ii) Creditors of ₹ 8,000 are not likely to be claimed hence should be written off.

(iii) Land and Building is overvalued by 10%.

(iv) Provision for doubtful debts to be reduced to ₹ 3,000 The partners neither want to record the goodwill nor to distribute the general reserve.

Who will give the amount of goodwill to whom in what amount?

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 10
  • Vibha will give ₹3,000 to Abha as a amount of goodwill.

  • The goodwill amounts to the excess of the "purchase consideration" (the money paid to purchase the asset or business) over the net value of the assets minus liabilities. It is classified as an intangible asset on the balance sheet, since it can neither be seen nor touched.

Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 11

Analyse the case given below and answer the questions that follow:

Mishra, Tiwari and Singh are partners in a firm sharing profits and losses in the ratio of 1 : 2 : 3. Their capitals on 31st March, 2017 were ₹ 4,00,000, ` 3,00,000 and ₹ 2,00,000 respectively. From 1st April, 2017 they agreed to change their profit and loss sharing ratio as 3 : 2 : 1 respectively. On the day of reconstitution of the firm, their balance sheet showed a debit balance of Profit and Loss Account ₹ 30,000 and general reserve of ₹ 60,000. The value of the firm was decided at ₹ 2,10,000. It was also decided that the value of an asset which was previously not recorded in the books will be recorded with ₹ 21,000.

The ratio in which the loss or gain on revaluation to be distributed among the partners will be ________.

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 11
Loss or gain on revaluation is always distributed in the old profit sharing ratio on reconstitution of partnership.
Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 12

Read the following information and answer the given questions:

Abha and Vibha are partners, who share profits and losses in the ratio of 2 : 1. From the 1st January 2021, the partners decided to change their profit - sharing ratio to 3 : 2 and agreed upon the following :

(i) Goodwill of the firm valued at ₹ 45,000.

(ii) Creditors of ` 8,000 are not likely to be claimed hence should be written off.

(iii) Land and Building is overvalued by 10%.

(iv) Provision for doubtful debts to be reduced to ₹ 3,000 The partners neither want to record the goodwill nor to distribute the general reserve.

Vibha’s gain or sacrifice in the profit sharing ratio is:

Detailed Solution for Test: New Profit Sharing and Sacrificing Ratio- Case Based Type Questions - Question 12
Vibha’s gain = 1/3 - 2/5 = 5/15 - 6/15 = -1/15
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