Accounting Logical Reasoning ICAI Module Partnership (Unit 1)

-: 1 :- Accounting Logical Reasoning ICAI Module Partnership (Unit 1) As per Sec 4 of the Indian Partnership Act, 1932; Partnership is the relationship between persons who have agreed to share the profits of the business carried on by all or by any of them acting for all. Thus the share of profits may or may not be equal. Hence the correct option: c Registration of the Partnership agreement is not mandatory. If the agreement is registered, it is called Partnership deed. Hence the correct option: c Partners contribution towards the business of the firm is called as capital. When such capitals of partners are not allowed to change, except in extraordinary circumstances, contributions by the partners are called fixed capitals. In such a case, adjustments regarding interest on capitals, salary to partners, drawings, profits or losses are done through partners current accounts. In this case two Capital Accounts are maintained i.e. Fixed Capital and Current Capital. Hence the correct option: d As per Sec 13(d) of the Indian Partnership Act, 1932; in absence of an agreement to the contrary, the partners shall be entitled for 6% interest on loans / advances to the firm over and above the agreed capital contribution whether there are profits or not. Hence the correct option: d

-: 2 :- A partner is an agent acting on behalf of the firm / other partners. Though partners may be entitled to salary, they are not the employees of the firm for outsiders. Hence the correct option: a The profit of Rs. 7,800 will be shared by Bill and Monica in the ratio 3:2. Thus their share will be 7,800 X 3/5 and 7,800 X 2/5 i.e. 4,680 & 3,120. (All other information is irrelevant MBKL) Hence the correct option: a If partnership deed provides for the interest on capital, partners are entitled for interest on capital only in case of profits. Thus in this case the amount of interest cannot exceed Rs. 2,400, which will be shared by them in the proportion of their capital i.e. 25,000:15,000 or 5:3. Thus the interest on capital will be 1,500 and 900. Hence the correct option: b Meeta s salary = 4,000 X 12 = Rs. 48,000 Profit after salary but before commission = 6,78,000 48,000 = 6,30,000 Let the commission be X. Thus profit after commission = 6,30,000 X Commission = 5% of (6,30,000 X). Thus X = 5% of (6,30,000 X). Thus X = 30,000 Meeta s remuneration = 48,000 + 30,000 = 78,000 Hence the correct option: a As per Sec 4 of the Indian Partnership Act, 1932; Partnership is the relationship between persons who have agreed to share the profits of the business carried on by all or by any of them acting for all. Hence the correct option: a

-: 3 :- As per Sec 4 of the Indian Partnership Act, 1932; Partnership is the relationship between persons who have agreed to share the profits of the business carried on by all or by any of them acting for all. Hence the correct option: d While calculating the profit for the purpose of valuation of Goodwill, all exceptional profits or losses are ignored. However for the calculating the book profit these need to be considered. Hence the correct option: b As per Sec 13(d) of the Indian Partnership Act, 1932; in absence of an agreement to the contrary, the partners shall be entitled for 6% interest on loans / advances to the firm over and above the agreed capital contribution whether there are profits or not. Partners are entitled to Salary, commission and share in Profit only if the agreement so provides. Hence the correct option: c If partnership deed provides for the interest on capital, partners are entitled for interest on capital only in case of profits. Hence the correct option: a Partners are required to pay the interest on drawings if it is agreed by partners and is provided in the agreement or partnership deed. Thus both a & c are correct. Hence the correct option: d

-: 4 :- Guarantee by one partner to another is the transaction between the two partners and not an obligation of the firm or other partners. Hence the correct option: c As the partners B & C has given the guarantee, A has the right to draw to the extent of minimum guaranteed amount from the firm. Hence the correct option: c As per Indian Partnership Act, 1932; in absence of any agreement to the contrary all the partners will share the profits equally. Hence the correct option: b As per Sec 13(d) of the Indian Partnership Act, 1932; in absence of an agreement to the contrary, the partners shall be entitled for 6% interest on loans / advances to the firm over and above the agreed capital contribution whether there are profits or not. Hence the correct option: d Profit & Loss Appropriation A/c shows the way in which the profits are to be allotted. In case of proprietorship firm the entire profit is at the discretion of the proprietor and thus the appropriation account is not prepared. However it may be prepared in case of partnership firm. Hence the correct option: b

-: 5 :- Time frame involved: 1 month of contribution + 12 months of withdrawal = 13 months. Thus average time to be considered = Hence the correct option: d = 6.5 months Interest on drawings is an income of the firm and hence it is to be credited to P&L A/c of the firm. Hence the correct option: c Partner s Fixed Capital A/c will have Credit Balance. If salary, commission, interest on capital, share of profit etc. etc are more than the drawings, interest on drawings then the current A/c will show credit balance and vice versa. Partner s Current A/c may have either of the balances. Hence the correct option: c Rent paid is an expense of the firm and thus is a charge against profit and not appropriation of the profit. Hence the correct option: b Drawings are the amounts withdrawn by the partners from the firm. The entry for drawings is: Partner s Capital A/c Dr (If Fixed & Current A/cs are not maintained) Partner s Current A/c Dr (If Fixed & Current A/cs are maintained) To Drawings A/c Hence the correct option: a

-: 6 :- As per Sec 13(d) of the Indian Partnership Act, 1932; in absence of an agreement to the contrary, the partners shall be entitled for 6% interest on loans / advances to the firm over and above the agreed capital contribution whether there are profits or not. Thus the interest payable to A: 20,000 X 6% = Rs. 1,200 is to be provided for. Profit after providing for the interest = Rs. 80,000 1,200 = Rs. 78,800. As per the Indian Partnership Act, 1932; in absence of an agreement to the contrary, the partners shall share profits and losses equally. Thus the share of each of the partners = 78,800 / 3 = Rs. 26,267 and A will additionally get Rs. 1,200 as interest. Hence the correct option: a If partnership deed provides for the interest on capital, partners are entitled for interest on capital only in case of profits. In this case as the profits are inadequate, interest on capital will not be allowed and the profit will be shared by X, Y & Z equally i.e. Rs. 2,000 each. Hence the correct option: a In absence of any agreement, partners are entitled to interest on Loans @ 6% and not entitled interest on capital. Thus interest payable to Y: 80,000 X 6% = Rs. 4,800. Balance profit = 6,000 4,800 = 1,200 will be shared by all the partners equally i.e. Rs. 400 each. Thus X & Z would get Rs. 400 each and Y will get Rs. 400 + 4,800= Rs. 5,200 Hence the correct option: c

-: 7 :- If partnership deed provides for the interest on capital, partners are entitled for interest on capital only in case of profits. In this case as the profits are inadequate, interest on capital will not be allowed and the profit will be shared by X, Y & Z equally i.e. Rs. 2,000 each. Hence the correct option: d Partners contribution towards the business of the firm is called as capital. When such capitals of partners are not allowed to change, except in extraordinary circumstances, contributions by the partners are called fixed capitals. In such a case, adjustments regarding interest on capitals, salary to partners, drawings, profits or losses are done through partners current accounts. In this case two Capital Accounts are maintained i.e. Fixed Capital and Current Capital. Hence the correct option: a The points a, b & c are true about Partnership & Joint Venture. However, it is not mandatory to have MOU for Joint venture. Hence the correct option: d Every partner is bound to attend diligently to his DUTIES in the conduct of the business. Hence the correct option: c

-: 8 :- Accounting Logical Reasoning ICAI Module Partnership (Unit 2) Ans. (b) Rs. 255000 Value of Goodwill = Ans. (b) Rs. 84000 Value of Goodwill = Ans. (d) None of the above While raising the Goodwill, Goodwill A/c is debited and Partners Capital A/c is Credited Ans. (c) Rs. 7200000 Value of Business = Value of Goodwill = Value of Business Capital Employed = Rs. 8000000 Rs. 800000 i.e. Rs. 7200000

-: 9 :- Ans. (c) 52500 and 31500 As the goodwill is valued on 02.04.06 the same will be distributed in new PSR. However this is not in compliance with AS 26. Ans. (b) D will pay to B Rs. 10000 Particulars B D OLD PSR ¾ ¼ NEW PSR 5/8 3/8 Gaining/(Sacrificing Ratio) (1/8) 1/8 Adjustment in Capital A/c 10000 (cr) 10000 (dr) Ans. (b) Rs. 40000 Share of D in Profits ¼ Total Value of his share of goodwill 10000 (Rs. 5000 x 2) Total value of goodwill of firm 40000 (Rs. 10000 x 4) And. (b) Rs. 17700 Value of Goodwill = The stock of Rs. 2200 is not adjusted as the same is considered in the opening stock of 2000-01 Ans. (a) Rs. 6000 Total Capital of the firm on the basis of C s contribution 48000 (12000 X 4) Less: Capital of A (10000)

-: 10 :- Less: Capital of B (20000) Less: Contribution of C (12000) Hidden Goodwill of the firm 6000 Ans. (c) Rs. 27000 Amount of goodwill brought by Z as his share 4500 PSR of Z in firm 1/6 Goodwill of Firm (4500 X 6) 27000 Ans. (a) No. of years purchased multiplied with average profits. Ans. (b) No. of years purchased multiplied with super profits Ans. (c) Summation of discounted value of expected future benefits

-: 11 :- Ans. (d) Super profit divided with expected rate of return Ans. (b) Rs. 150000 Value of Goodwill = Ans. (b) Rs. 8750 Average Annual Profit = Super Profit = Average Annual Profit Salary of Partner (Normal Profit) = Rs. 40375 12000 (200000 X 12%) = Rs. 4375/- Value of Goodwill = Rs. 4375 x 2 i.e. Rs. 8750 Ans. Given Question is not correct as the liabilities and assets given are not equal.

-: 12 :- Ans. (d) Rs. 13868 Super Profit as calculated in 17 above Rs. 4375 Annuity Factor @ discounting factor 10% for 4 year 3.1699 Goodwill as per Annuity method Rs. 13868 Ans. Same as above.

Ans. (a) -: 13 :- Particulars A B C OLD PSR 3/6 2/6 1/6 NEW PSR 2/5 2/5 1/5 Gaining/(Sacrificing Ratio) (3/30) 2/30 1/30 Raising of Goodwill in Old PSR (Rs) 15000 10000 5000 Write off of Goodwill as per NEW PSR 12000 12000 6000 Adjustment in Capital A/c 3000 (cr) 2000 (dr) 1000(dr) A direct entry can be passed in gaining sacrificing ration, sacrificing partner being credited and gaining partners to be debited Ans. (c) Sacrificing Ratio As whenever a new partner is admitted the old partners have to sacrifice their share in profit and hence the goodwill brought by new partner can be withdrawn in Sacrificing ratio. Ans. (a) 3:1 Particulars A B OLD PSR 5/8 3/8 NEW PSR 7/16 5/16 Sacrificing Ratio i.e. 3/16 1/16 Ans. (c) Sacrificing Ratio As whenever a new partner is admitted the old partners have to sacrifice their share in profit and hence the goodwill brought by new partner can be withdrawn in Sacrificing ratio

-: 14 :- Ans. (b) Rs. 35000 As the goodwill is been revalued the profit on revaluation will be credited to old partners in OLD PSR and the balance in the goodwill account will be the revalued amount i.e. Rs. 35000 However this is not in compliance with AS 26 which requires the Self generated goodwill to be written off. Ans. (d) Location of the customers Since the location of the customer is an external factor the same cannot affect the goodwill of the firm. Ans. (d) Either b or c Weighted average method can be followed only when the profits are in a trend, otherwise weighted average method will not give the correct value of goodwill. Ans. (b) Equally As per the provisions of partnership act. Ans. (a) Distributed to the partners in old PSR The fund was created out of the profits before the admission of new partner.

-: 15 :- Accounting Logical Reasoning ICAI Module Partnership (Unit 3) Ans. (b) 35:21:24 The new profit sharing ratio can be found as follows: So, the new sharing ratio = 35 : 21 : 24 Ans.: (d) 17:11:12 So the new PSR = 17:11:12 Ans. (b) Rs. 27000 and Rs. 18000 for A and B respectively If C s capital for 1/4 th Share is 15000, the total capital of firm will be= Rs. 15000 x 4 i.e. Rs. 60000 So, A and B s Combined Capital = Rs. 60000 Rs. 15000 = Rs. 45000 A s Share = Rs. 45000 x 3/5 = Rs. 27000 B s Share = Rs. 45000 x 2/5 = Rs. 18000 Ans. (b) 14:7:7:4 So, New PSR = 14:7:7:4

-: 16 :- Ans. (c) 300000;180000 and 120000 If Z s capital for 1/5 th Share is 120000, the total capital of firm will be= Rs. 120000 x 5 i.e. Rs. 600000 So, A and B s Combined Capital = Rs. 600000 Rs. 120000 = Rs. 480000 A s Share = Rs. 480000 x 5/8 = Rs. 300000 B s Share = Rs. 480000 x 3/8 = Rs. 180000 Ans. (d) Rs. 11250 If C shares 1/5 th share, A & B s combined capital is for 4/5 th Share So the Capital to be brought by C = A & B s Combined Capital X 5/4 X 1/5 = Rs. 45000 X 5/4 X 1/5 i.e. Rs. 11250 Ans. (a) 8000:2000 Goodwill brought by new partner is shared amongst in there sacrifice ratio: Sacrifice Ratio = Old Ratio New Ratio So goodwill brought by C of Rs. 10000 will be shared in ratio of 4 : 1 Or, 8000:2000 Ans. (c) Both Share of goodwill of Mr. C is Rs. 10000

-: 17 :- Goodwill brought in by him would be adjusted in capital A/c in gaining/losing ratio. Balance share of goodwill is Rs. 5000 for 1/3 rd Share of Mr. C. So, total goodwill of the firm will be Rs. 15000 (i.e. 5000 x 3) This will be raised in OLD PSR by passing following entry: Goodwill A/c Dr. 15000 To A A/c 9000 To B A/c 6000 Note: Self generated goodwill is not to be raised; it should be written off in new PSR. However option is not given in the question. Ans. (b) Goodwill will be raised to Rs. 30000 in old PSR Note: Self generated goodwill is not to be raised; it should be written off in new PSR. However option is not given in the question. Ans. (a) Cash brought in by C will only be credited to his capital account As far as goodwill is concerned the settlement of the same is done outside the books, hence no entry for the same will be passed. Ans. (a) Old Profit Sharing The profit or loss on revaluation account, is pertaining to the period prior to the admission of new partner, and hence the same is distributed amongst the old partners in their old sharing ratio.

-: 18 :- Ans. (a) Loss 17500:10000:0 Loss on Revaluation = Decrease in Building (Increase in Machinery + Drs. + Write back of Crs.) = (200000 X 20%) (80000 x 10%) 1250 2750 = Rs. 28000 The loss on revaluation will be shared in old partners in OLD PSR i.e. 17500 : 10500 Ans. (c) Rs. 20000 Particulars Amount Total Capital of firm on the basis of C s Contri. (25000 X 6) 150000 120000 Less: Capital of A (50000) Capital of B (30000) Reserves (15000) Contri. of C (25000) Hidden Goodwill of Firm 30000 Share of C in G/W (30000/6) 5000 Capital of C (Contribution Goodwill) 25000 5000 = 20000 Ans. (a) 260000 : 206000 : 205000 Partners Capital A/c Particulars Amit Anil Atul Particulars Amit Anil Atul By Balance b/d 250000 200000 By Cash/Bank 66000 To Amit & Anil 16000 By Atul A/c 10000 6000 (goodwill) (Goodwill 5:3) To Balance c/d 260000 206000 50000 260000 206000 66000 260000 206000 66000

-: 19 :- Ans. (b) 6500:6500:0 The profit/loss on revaluation is shared amongst old partners in their old PSR In the given case Revaluation Profit = Rs. 8000 + Rs. 5000 i.e. Rs. 13000 The same will be shared by A & B as 6500 : 6500 Ans. (a) A & B s account credited with Rs. 500 each Entry when the goodwill is raised: Goodwill A/c Dr. 30000 To A s Capital 15000 To B s Capital 15000 Entry to write off the goodwill: A s Capital A/c Dr. 10000 B s Capital A/c Dr. 10000 C s Capital A/c Dr. 10000 To Goodwill A/c 30000 The combined net effect of above two entries is to credit A & B s A/c by Rs. 5000 Ans. (a) 31500:31500:20000 If C brings the capital of Rs. 20000 for his 1/3 rd Share the capital balances of A & B will be Rs. 20000 each Partners Capital A/c Particulars A B C Particulars A B C By Balance b/d 20000 20000 By Cash/Bank 30000 To Goodwill A/c 10000 10000 10000 By Goodwill A/c 15000 15000 by Revaluation A/c 6500 6500 To Balance c/d 31500 31500 20000 41500 41500 30000 41500 41500 30000

-: 20 :- Ans. (b) Revalued Figure When a new partnership agreement is entered into, the changes effected due to the same are recorded in the books of account, hence the assets and liabilities are recorded at revalued figures. Ans. (a) 3000:1500 Goodwill brought by C Rs. 9000 Half of which i.e. Rs. 4500 withdrawn by old partners in OLD PSR Ans. (a) 47000:33500:20000 Partners Capital A/c Particulars P Q R Particulars P Q R By Balance b/d 40000 30000 By Cash/Bank 20000 To Cash/Bank A/c 3000 1500 By Goodwill A/c 6000 3000 By Revaluation A/c 4000 2000 To Balance c/d 47000 33500 20000 50000 35000 20000 50000 35000 20000

-: 21 :- Ans. (c) Both When the goodwill is not to be carried in the books the same will be shared amongst the old partners in OLD PSR The amount brought in by new partner for goodwill will be shared by old partners in Sacrificing Ratio. Ans. (d) Goodwill As the value of goodwill is determined on the basis of various factors, so when a new partner is admitted the Goodwill of the firm has to be revalued and the same is accounted for and shared amongst the old partners in OLD PSR. Ans. (b) X only As at the time of admission of new partner Z X is the only partner sacrificing his profit, hence the amount of goodwill brought by new partner will be credited only to X. ******

-: 22 :- Accounting Logical Reasoning ICAI Module Partnership (Unit 4) Ans. (c) Is liable for obligations incurred before his retirement As per the provisions of partnership act, rights and duties of partners. Ans. The options given are wrong, as per new material correct option is (a) 47:25 This can be calculated as follows: A s new Share = C s new Share = So, the new ratio will be 47:25 The Given question is not correct, and deleted from the new material. Ans. (d) 6000:4000:2000 The reserves standing on the balance sheet will be shared between old partners in OLD PSR.

-: 23 :- Ans. (c) Rs. 156250 and Rs.68750 Particulars A s Capital C s Capital Old Capital Add: B s Capital shared in the ratio of 3:1 100000 56250 50000 18750 New Capital 156250 68750 Ans. (a) Gaining Ratio As on retirement of a partner the remaining partners gain on their PSR and hence the compensation amount is shared amongst remaining partners in gaining ratio. Ans. (d) a and b Joint life policy is taken to provide funds to pay to the legal representatives of deceased partner, without upsetting the working capital of firm, it is usual to take out a joint life policy on the lives of partners. JLP may be taken jointly on the life of all partners or severally. Ans. (b) Surrender Value As the JLP is taken jointly for all partners, at the time of retirement the partnership firm receives the surrender value of the said policy. Ans. (d) Surrender Value for all the partners When the Joint Life Policy is taken severally for all partners, at the time of retirement the firm receives the surrender value of all the partners.

-: 24 :- Ans. (a) Rs. 50000 credited to all partners in old ratio When a partner retires from the partnership firm, the firm receives the surrender value of Joint life policy, and as the premium is charged to the revenue of the firm, the surrender value is distributed amongst all the partners in their OLD PSR. Ans. (d) No treatment is required As the JLP is maintained at surrender value, no effect for the adjustment of surrender value of JLP will be made in the books of partnership firm. However the Continuing partners accounts will be debited in Gaining Ratio and the retiring partners account will be credited with his share in JLP. (the option is not given hence none of the above) Ans. (d) Distribute JLP reserve account in old PSR When this method of recording the JLP is followed, premium paid is debited to the policy account. At the end of the year amount equal to premium is charged to P/L A/c and credited to JLP Reserve A/c. On retirement of the partner the amount received is credited to Joint life Policy A/c and the amount standing to the credit of JLP reserve is transferred to all partners in OLD PSR.

-: 25 :- Ans. (b) Rs. 8000 and Rs. 4000 Share of Goodwill of B 30000 x2/5 12000 Will be contributed by A & C in their old ratio 2:1 A s Share 12000 X 2/3 8000 C s Share 12000 X 1/3 4000 Ans. (d) Any of the above method Claim payable to the retiring partner is settled with the mutual consent of the continuing and retiring partner. So if they decide the claim can be paid fully or partly in Cash, and the remaining amount, if any is treated as loan to firm. Ans. (a) Rs. 70820 B s Capital 50000 Share of reserves (15000 X 2/5) 6000 Share of Goodwill (30000 X 2/5) 12000 Share of Rev. Prof.(7050 X 2/5) 2820 Total Amount Payable on Retirement 70820 Ans. (c) Rs. 10000 Goodwill of the firm will be shared amongst all the partners in their OLD PSR Hence, C s Share = Rs. 60000 X 1/6 = Rs. 10000

-: 26 :- Ans. (b) Credited to partners capital account Rs. 24000 in profits sharing ratio When the goodwill is raised all partners are credited with the goodwill in their OLD PSR. Ans. (d) Either b or c When the surrender value received is less than the amount appearing in JLP account, it is loss to the firm. This can be treated in both the ways, either debit to revaluation account the balance of which is transferred to capital accounts or directly debiting the partners capital account in the profit sharing ratio. Ans. (b) Rs. 60000 credited to joint life policy account. As the premium paid on JLP is debited to JLP A/c the amount received against the same is credited to the same account.

-: 27 :- Ans. (b) JLP Reserve balance credited to Partner s Capital Account in old PSR The amount received against JLP is credited to Joint Life Policy A/c and the balance on JLP reserve will be transferred to Partners in old profit sharing ratio. Ans. (c) credit A s Account with Rs. 40000 and debit B s Capital with Rs. 10000 and C s Capital Account with Rs. 30000 When the goodwill is not to be raised the share of goodwill of Retiring partner is credited to his account and the continuing partners are debited with the same amount in their gaining ratio. A s Share of Goodwill ( Rs. 140000 X 2/7) 40000 B s Gaining Ratio (1/2 3/7) 1/6 C s Gaining Ratio (1/2 2/7) 3/6 So the Share of Goodwill of A will be shared in ratio of 1:3-10000:30000 Ans. (a) Rs. 350000 each Firm s Capital Before Retirement of A 700000 New PSR 1:1 Share of Capital of B & C in NEW PSR 350000:350000

-: 28 :- Ans. (d) Rs. 350000 credited to JLP account When the Joint Life Policy account is appearing in the balance sheet, any amount received against the same is credited to JLP account only.

-: 29 :- Accounting Logical Reasoning ICAI Module Partnership (Unit 5) Ans. (c) suspense As the death of the partner may take place at any time during the year the, the profit till that point is not the profit for the year, hence the share of profit of deceased partner is shown in P/L suspense account. Ans. (d) All of the above As in all the cases the constitution of the partnership firm changes. Due to the constitutional change the incoming or outgoing partner should not get benefit or suffer from any change in the valuation of assets and liabilities prior to admission/retirement or death of the partner. Ans. (d) Capital, profits till date, goodwill, joint life policy, share in revalued assets and liabilities In absence of a Partnership Agreement the provisions Partnership Act will apply, and hence all the above will be payable to the executor of deceased partner. Ans. (c) 6% As per Sec. 37 of the Partnership Act.

-: 30 :- Ans. (a) 50000:25000:25000 On death of the partner, amount of the policy will be received and shared amongst the partners in their PSR, however as Rs. 20000 is already appearing in the balance sheet, Joint life Policy A/c will be credited by Rs. 20000 and balance Rs. 100000 will be shared amongst the partners in the ratio of 2:1:1 Ans. (a) Rs. 20700 Value of Goodwill = = Rs. 82800 Share of D = Rs. 82800 X 4/16 i.e. Rs. 20700 Ans. Ans. (d) Rs. 216000 & Rs. 144000 Value of Goodwill of Firm = = Rs. 720000 A s Share in Goodwill = 720000 x 5/10 i.e. Rs. 360000 This will be paid by B & C in their PSR i.e. 3:2 So the amount paid will be Rs. 216000 and Rs. 144000