CBSE Class 12 Accountancy Admission Of A Partner MCQs Set 06

Answer: (b) Reconstitution of partnership

Explanation:
1. When the existing agreement ends and a new agreement is made but the firm continues, it is called reconstitution of the partnership firm.

Teacher's Note:
1. Reconstitution changes the partners’ relationship; the firm itself is not dissolved.

Answer: (b) Sacrificing Ratio

Explanation:
1. The ratio in which a partner gives up (surrenders) his share of profit is the sacrificing ratio = Old Ratio − New Ratio.

Teacher's Note:
1. Sacrificing ratio is Old minus New; gaining ratio is New minus Old.

Answer: (d) Gaining Ratio

Explanation:
1. Gaining ratio = New Ratio − Old Ratio; it shows the increase in a partner’s share.

Teacher's Note:
1. The gaining partner compensates the sacrificing partner in the gaining ratio.

Answer: (a) Old profit-sharing ratio

Explanation:
1. Reserves and accumulated profits were earned before the change, so they belong to the partners in their old profit-sharing ratio.

Teacher's Note:
1. Anything that relates to the period before the change (reserves, revaluation profit or loss) is shared in the old ratio.

Answer: (b) Revaluation Account

Explanation:
1. Changes in the values of assets and liabilities at the time of reconstitution are recorded in the Revaluation Account.

Teacher's Note:
1. The balance of the Revaluation Account (profit or loss) is transferred to the old partners in the old ratio.

Answer: (b) Decrease in value of asset

Explanation:
1. A decrease in the value of an asset is a loss, so the Revaluation Account is debited.

Teacher's Note:
1. Losses (fall in assets, rise in liabilities) go on the debit side; gains go on the credit side of the Revaluation Account.

Answer: (d) All of the above

Explanation:
1. Profit on revaluation, general reserve and accumulated profits all belong to the partners, so each is credited to their capital accounts.

Teacher's Note:
1. Losses such as a debit balance of P&L or loss on revaluation are debited to capital accounts instead.

Answer: (b) Old ratio and new ratio

Explanation:
1. Sacrificing Ratio = Old Ratio − New Ratio.

Teacher's Note:
1. Order matters: Old − New gives sacrifice; New − Old gives gain.

Answer: (b) intangible asset

Explanation:
1. Goodwill cannot be seen or touched, but it has value and can be bought and sold, so it is an intangible asset, not a fictitious asset.

Teacher's Note:
1. Fictitious assets (like preliminary expenses) have no realisable value; goodwill does.

Answer: (d) ₹12,500

Explanation:
1. Goodwill = Average Profit × Number of years’ purchase
2. Average Profit = 25,000 ÷ 2 = ₹12,500

Teacher's Note:
1. The number of years used for averaging (3) is not the same as the number of years’ purchase (2) – do not mix them up.

Answer: (d) ₹15,000

Explanation:
1. Normal Profit = 2,50,000 × 10% = ₹25,000
2. Super Profit = 30,000 − 25,000 = ₹5,000
3. Goodwill = 5,000 × 3 = ₹15,000

Teacher's Note:
1. Under the super profit method, multiply only the super profit (not the average profit) by the years’ purchase.

Answer: (d) \( \frac{1}{10} \) (sacrifice)

Explanation:
1. A’s old share = \( \frac{3}{5} \) = \( \frac{6}{10} \); new share = \( \frac{1}{2} \) = \( \frac{5}{10} \)
2. A’s sacrifice = \( \frac{6}{10} \) − \( \frac{5}{10} \) = \( \frac{1}{10} \) (sacrifice)

Teacher's Note:
1. Convert both ratios to the same denominator before subtracting.

Answer: (c) Goodwill

Explanation:
1. The gaining partner compensates the sacrificing partner by paying his share of goodwill.

Teacher's Note:
1. Under AS 26 this compensation is recorded through the partners’ capital accounts without raising a Goodwill Account.

Answer: (b) old ratio

Explanation:
1. Accumulated profits were earned before the change, so they are distributed in the old ratio.

Teacher's Note:
1. Using the new ratio for past profits is a very common mistake.

Answer: (a) Dr. R and Cr. T by ₹10,000

Explanation:
1. Net amount to be adjusted = 40,000 + 30,000 − 10,000 = ₹60,000
2. Old ratio = \( \frac{1}{6} \), \( \frac{2}{6} \), \( \frac{3}{6} \); new ratio = \( \frac{2}{6} \), \( \frac{2}{6} \), \( \frac{2}{6} \)
3. R gains \( \frac{1}{6} \), S no change, T sacrifices \( \frac{1}{6} \)
4. 60,000 × \( \frac{1}{6} \) = ₹10,000: Debit R (gaining) and Credit T (sacrificing).

Teacher's Note:
1. In a single adjustment entry, the gaining partner is always debited and the sacrificing partner credited.

Answer: (b) Dr. U and Cr. W by ₹10,500

Explanation:
1. Net gain on revaluation = 50,000 − 50,000 + 40,000 − 5,000 = ₹35,000
2. U gains \( \frac{5}{10} \) − \( \frac{2}{10} \) = \( \frac{3}{10} \); V no change; W sacrifices \( \frac{5}{10} \) − \( \frac{2}{10} \) = \( \frac{3}{10} \)
3. 35,000 × \( \frac{3}{10} \) = ₹10,500: Debit U and Credit W.

Teacher's Note:
1. A fall in a liability is a gain and a rise in a liability is a loss – check the signs before netting.

Answer: (a) Gain to the existing partners

Explanation:
1. A decrease in liabilities means the firm has to pay less, so it is a gain to the existing partners.

Teacher's Note:
1. Such a gain is credited to the Revaluation Account.

Answer: (a) Gain to the existing partners

Explanation:
1. An unrecorded asset brought into the accounts increases the firm’s assets, so it is a gain credited to the Revaluation Account.

Teacher's Note:
1. An unrecorded liability, on the other hand, is a loss.

Answer: (d) ₹50,000

Explanation:
1. Capitalised value of average profit = 55,000 × \( \frac{100}{10} \) = ₹5,50,000
2. Net assets = 5,50,000 − 50,000 = ₹5,00,000
3. Goodwill = 5,50,000 − 5,00,000 = ₹50,000

Teacher's Note:
1. Net assets means assets minus outside liabilities, not total assets.

Answer: (b) Old partnership has to be dissolved

Explanation:
1. On admission the old agreement ends and a new one is made, so only the old partnership is dissolved; the firm continues.

Teacher's Note:
1. Remember: reconstitution dissolves the partnership, not the firm. The firm is dissolved only when its business is closed.

Answer: (b) Cash A/c

Explanation:
1. Cash is received, so Cash A/c is debited and Premium for Goodwill A/c is credited.

Teacher's Note:
1. The entry is Cash/Bank A/c Dr. To Premium for Goodwill A/c; the premium is then credited to sacrificing partners.

Answer: (c) Current A/c of new partner

Explanation:
1. The new partner's Capital/Current A/c is debited and the sacrificing partners' Capital A/cs are credited in the sacrificing ratio.

Teacher's Note:
1. As per AS 26 no goodwill account is raised; the adjustment is made through the partners' capital or current accounts.

Answer: (a) Debited to Revaluation A/c

Explanation:
1. An unrecorded liability is a loss for the old partners, so Revaluation A/c is debited.

Teacher's Note:
1. Increase in liabilities and unrecorded liabilities go on the debit side of Revaluation A/c; unrecorded assets go on the credit side.

Answer: (b) ₹1,30,000

Explanation:
1. Total capital of new firm = 70,000 × 5 = ₹3,50,000.
2. Combined capital = 90,000 + 60,000 + 70,000 = ₹2,20,000.
3. Hidden goodwill = 3,50,000 − 2,20,000 = ₹1,30,000.

Teacher's Note:
1. Include the new partner's own capital in the combined capital before subtracting; leaving it out is the most common mistake.

Answer: (d) Sacrificing ratio

Explanation:
1. The old partners are compensated for the share they give up, so goodwill is shared in the sacrificing ratio.

Teacher's Note:
1. Sacrificing ratio = Old share − New share. It equals the old ratio only when partners sacrifice in their old ratio.

Answer: (b) Old profit-sharing ratio

Explanation:
1. Changes in values relate to the period before admission, so they belong to the old partners in their old ratio.

Teacher's Note:
1. The new partner never shares revaluation profit or loss; it is closed to old partners' capital accounts in the old ratio.

Answer: (c) Nominal Account

Explanation:
1. Revaluation A/c records gains and losses on revaluation, so it is a nominal account.

Teacher's Note:
1. Accounts that record gains and losses are nominal accounts; that is why Revaluation A/c is closed to capital accounts.

Answer: (d) 10 : 5 : 3

Explanation:
1. Remaining share = 1 − 1/6 = 5/6.
2. X = 5/6 × 2/3 = 10/18; Y = 5/6 × 1/3 = 5/18; Z = 1/6 = 3/18.
3. New ratio = 10 : 5 : 3.

Teacher's Note:
1. When the sacrifice ratio is not given, the old partners share the remaining profit in their old ratio.

Answer: (b) 3 : 1

Explanation:
1. Sacrificing ratio = 3/20 : 1/20 = 3 : 1.

Teacher's Note:
1. The sacrificing ratio is simply the ratio of the shares given up, not the old ratio, when the sacrifices are given.

Answer: (a) Old Partner's Capital Accounts

Explanation:
1. The surplus reserve belongs to the old partners and is credited to their capital accounts in the old ratio.

Teacher's Note:
1. Only the excess of the reserve over the claim goes to old partners; the claim amount is transferred to Provision for Workmen Compensation Claim.

Answer: (b) Premium for Goodwill Account

Explanation:
1. Entry: Cash A/c Dr. To Premium for Goodwill A/c.

Teacher's Note:
1. Premium for Goodwill A/c is then closed by crediting the sacrificing partners' capital accounts.

Answer: (c) Old Partners' Capital Accounts

Explanation:
1. Accumulated losses belong to the old partners, so they are debited to their capital accounts in the old ratio.

Teacher's Note:
1. A debit balance of P&L A/c is an accumulated loss: debit old partners' capitals, never the new partner's.

Answer: (a) 4 : 3 : 2

Explanation:
1. When nothing is said about the new ratio, old partners sacrifice in their old ratio, so the sacrificing ratio is 4 : 3 : 2.

Teacher's Note:
1. If no new ratio or sacrifice is given, the sacrificing ratio is the same as the old ratio.

Answer: (d) ₹ 20,000 and ₹ 10,000 respectively

Explanation:
1. Total capital = 10,000 × 4 = ₹40,000; share of Shyam and Ram = 40,000 − 10,000 = ₹30,000.
2. Shyam = 30,000 × 2/3 = ₹20,000; Ram = 30,000 × 1/3 = ₹10,000.

Teacher's Note:
1. Find the total capital from the new partner's capital first, then divide the old partners' part in the new ratio.

Answer: (a) ₹20,000

Explanation:
1. Combined capital of A and B = 80,000 for 4/5 share.
2. Total capital = 80,000 × 5/4 = ₹1,00,000; C's capital = 1,00,000 × 1/5 = ₹20,000.

Teacher's Note:
1. Old partners' capitals represent the remaining share (4/5), not the whole firm.

Answer: (d) ₹3,00,000

Explanation:
1. Total capital = 3,40,000 × 3 = ₹10,20,000.
2. Combined capital = 1,80,000 + 2,00,000 + 3,40,000 = ₹7,20,000.
3. Goodwill = 10,20,000 − 7,20,000 = ₹3,00,000.

Teacher's Note:
1. This is the hidden goodwill method; C's share of it would be 1/3 × 3,00,000 = ₹1,00,000, which is option (b) - do not confuse the two.

Answer: (b) In old profit sharing ratio

Explanation:
1. Existing goodwill was created by the old partners, so it is written off in their old ratio.

Teacher's Note:
1. Write off existing goodwill in the old ratio; distribute the new partner's premium in the sacrificing ratio.

Answer: (b) Revalued value

Explanation:
1. After revaluation, the new Balance Sheet shows assets and liabilities at their revalued figures.

Teacher's Note:
1. Unless a Memorandum Revaluation A/c is used, always carry the revalued figures into the new Balance Sheet.

Answer: (a) Revaluation Account

Explanation:
1. The excess claim is a loss, so it is debited to Revaluation A/c.

Teacher's Note:
1. Entry: WCR A/c Dr. and Revaluation A/c Dr. (shortfall) To Provision for Workmen Compensation Claim A/c.