Tag: final accounts of partnership firms

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

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

  1. Entitled to $6\%$ interest on their capitals only when there are profits

  2. Entitled to $9\%$ interest on their capitals only when there are no profits

  3. Entitled to interest on capital at the bank rate only when there are profits

  4. Not entitled to any interest on their capitals
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on capital is a mode of appropriation of profits to partners. Interest on capital is an income on the capital contributed by the partners. Interest on capital is calculated on time basis having regard to the introduction of fresh capital and withdrawal of capital.

Interest on capital can only be provided if there is a provision to that effect in the partnership deed. If the partnership deed is silent, then interest on capital is not allowed.

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

The Advance Ruling Authority shall comprise of

  1. One member from amongst the officers of Central tax.

  2. One member from amongst the officers of State tax or Union Territory tax as the case may be.

  3. (a) & (b)

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Advance Ruling Authority under GST law consists of one member from the Central tax officers and one from the State/UT tax officers.

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

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

  1. Profits

  2. Reserves

  3. Accumulated Profits

  4. Goodwill
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Interest on Capital: If the partnership deed is silent on interest on partner's capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of the firm. However, interest on capital is given only out of the profits, if mutually agreed by all the partners.

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

Interest on partners capital is___________.

  1. An Expenditure

  2. An appropriation

  3. A Gain

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest on capital account is an appropriation. Appropriation means it is paid only and only if there is profit. It is not a charge and hence, will not be provided if there is loss or if there are profits will be provided only till the extent of profits. 

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

Nature of Revaluation Account is ___________.

  1. Real

  2. Personal

  3. Nominal

  4. None
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
The term revaluation is simply means "to determine the value of assets and liabilities again". Revaluation account is prepared either at the time of retirement of a partner or admitting a partner. All the assets and liabilities are revalued and the differential amount is to be debited or credited in Revaluation Account.
Revaluation Account is Nominal In nature. If the liabilities increases and assets are decreasing, the difference amount to be debited to revaluation account as it is a loss for the firm.
If there is an Increase in Assets and Decrease in the value of Liabilities, the differential amount to be credited to revaluation account as it is a Profit for the firm.

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

A, a partner in a firm, is driving Rs.500 regularly on the 16th of every month. He will have to pay interest at the given rate in a year on Rs.6000 for the total period of __________.

  1. 5 months

  2. 6 months

  3. 7 months

  4. 12 months
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a partner withdraws cash from the firm for domestic use, the withdrawal of cash is termed as drawings. If the partnership deed has a provision of charging interest on drawings, the firm may charge interest on drawings from partners. Interest on drawing is a gain for the firm. It is calculated at the agreed rate. The amount of interest on drawings will be credited to Profit and Loss Appropriation Account and will be debited to partner’s capital account/current account (Individually). 

When money is withdrawn at the middle of month:

Date Amount Period
15,Jan 2016 1000 11.5
15,Feb 2016 1000 10.5
15,march 2016 1000 9.5
15,April 2016 1000 8.5
15,May 2016 1000 7.5
15,June ,2016 1000 6.5
15, July, 2017 1000 5.5
15,august,2016 1000 4.5
15,sep ,2016 1000 3.5
15, Oct ,2016 1000 2.5
15, Nov ,2016 1000 1.5 
15,Dec ,2016 1000 .5
12000 72

When money is withdrawn in the middle of the month, the average period is calculated as under:

Average Period = Total of months/12

= 72 months/12

= 6 months

OR,
Max. Period of Drawing + Min. Period of Drawing
Average Period = 2

= 11.5 + 0.5 = 12 = 6 months

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

A, B and C are partners in a firm. Though there is no provision in the partnership deed for interest on capital, this has been provided in the account @ 10% p.a. for the two years ended on 31 Dec., 2013. Their fixed capitals on which interest was calculated were throughout A Rs. 15,000, B Rs. 12,000 and C Rs. 9,000. Their profit sharing ratios were 2007 - 5:3:2 and 2008 - 2: 2: 1. The necessary adjustment entry will be made as:

  1. C's current a/c Dr. 360

    To A's current a/c 240

    To B's current a/c 120

  2. A's current a/c Dr. 240

    B's current a/c Dr. 120

    To C's current a/c 360

  3. A's current a/c Dr. 120

    B's current a/c Dr. 240

    To C's current a/c 360

  4. C's current a/c Dr. 360

    To A's current a/c  120

    To B's current a/c 240
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Interest on capital (10%) for 2 years: A=3000, B=2400, C=1800. Total=7200. Profit sharing 2007 (5:3:2) and 2008 (2:2:1). Calculating the net effect of wrongly credited interest versus the profit adjustment shows C should be debited 360, while A and B are credited.

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

Which of the following transactions is of capital nature?

  1. Purchase of a truck by a company

  2. Replacement of old types and tubes

  3. Yearly premium to insure the truck

  4. Cost of repair of the truck
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Capital expenditure is a money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

Hence, Purchase of a truck by a company is a capital expenditure.

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

 Amount realization from the sale of private estate of partners is used first to pay off ___________________.

  1. Debts of the firm

  2. Private debts of the partner

  3. Wife's loan

  4. Bank loan of the firm
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

  • Assets of the firm and the capital contributed by the partners to set-off losses of the firm will be applied in the following order–
  1. Third party debts will be paid first
  2. Next, loan amount taken by firm from any partner will be repaid to that partner
  3. Capital contributed by each partner will be repaid to him in the capital contribution ratio
  4. Balance amount will be shared among the partners in their profit sharing ratios.