AHSEC Class 12 Accountancy Chapter 3 : Accounting for Partnership : Basic Concepts Question Answer can be very Valuable & useful for the Preparation of Assam Higher Secondary Education HS 2nd Year Examination . Assam Board AHSEC HS 2nd Year ACCOUNTANCY NOTES gives you the best information of Accounting for Partnership : Basic Concepts . You can find solutions to their questions at both basic and advanced levels
Very Short Answer type Questions (Carrying 2 marks each) :
1.How is accumulated profit or loss treated in a accounts on the admission of a partner?
Ans. Accounting Entires;
(i) For transfer of accumulated profits;
Profit & Loss A/c....Dr.
General Reserve A/c....Dr.
Reserve Fund A/c ...Dr.
Contingency Reserve A/c ....Dr
To old partners capital A/c...
(Being accumulated profits transferred to old partners capital accounts in old ratio)
(ii) For transfer of accumulated Losses;
Old partner's capital A/c ...........Dr.
To Profit & Loss A/c................
[To deferred Expenses A/c ...........]
(Being loss transferred to old partners capital account in old ratio).
2. What is Revaluation Account?
Ans. Revaluation account is a nominal account which shows profit or loss arising because use of revaluation of assets and liablilities.
3. Why is revaluation of assets and liabilities needed on the admission of a partner?
Ans. On admission, the new partner would like that all the assets and liabilities of the firm are shown in the balance sheet at their genuine value. So there is a need to revalue the assets and liabilities.
4.State two rights that are acquired by a newly admited partner.
Ans. (a) Right to share the profits of the firm.
(b) Right to share in the assets of the firm.
5. What is sacrificing ratio?
Ans. The ratio in which the existing partner or partners surrender their share of profit in favour of other existing partner or partners is called sacrificing ratio. To calculate sacrificing ratio the following equation is applied:
Sacrificing Ratio=Old Ratio - New Ratio.
6. What are the occasions when the calculation of sacrificing ratio become necessary?
Ans. (a) When change in profit sharing ratio.
(b) When a new partner is admitted.
7. Distinguish between Revaluation Account and Memorandum Revaluation Account.
Ans:
8. State the need for treatment of goodwill on the admission of a new partner.
Ans. When a new partner joins the firms, the old partners sacrifice a part of their share of profits in favour of new partner. Since new partners becomes entitled to get benefit of the reputation (goodwill) of the business. So. he compensates the old partners for the reputation built up by them in past.
9.Mention two objectives of Revaluation Account.
Ans. (a) For record the revised / altered value of assets and liabilities.
(b) For divide the profit or loss on revaluation of assets and liabilities among the old partners.
Short Answer Type Questions (Carrying 3 marks each)
A. Theory Part :
1.What are situations when adjustment for goodwill becomes necessary?
Ans. (a) When a new partner is admitted.
(b) Retirement of a partner.
(c) Death of a partner.
(d) When there is a change in profit - sharing ratio among partners,
(e) When a partnership firm is sold to a Company
2.What are the matters that need adjustment at the time of admission of a partner?
Ans. (a) Calculation of new profit sharing ratio and sacrificing ratio.
(b) Goodwill and its treatment in accounts.
(c) Revaluation of assets and liabilities of the firm.
(d) Adjustment regarding accumulated reserve, profit or loss.
(e) Adjustment of capital accounts of the old partners.
3. How is premium brought in by a new partner treated in account when goodwill already exists in the balance sheet?
Ans. Treatment of goodwill (Premium):
(a) When the new partner brings cash for his share of goodwill, the entry will be:
Cash/Bank A/c.............. Dr.
To Premium A/c ..........
(Being premium brought in cash by new partner)
(b) When premium is transferred to old partners in sacrifice ratio, the entry will be
Premium A/c........Dr.
To old partners capital A/c ..........
(Being premium credited to old partners in sacrifice ratio.)
(c) Goodwill already exist in the balance sheet, the entry will be:
Old partners capital A/c.........Dr.
To Goodwill A/c..........
(Being goodwill written off in old ratio.)
4. How is goodwill treated in account when the new partner brings a of premium in cash?
Ans. Treatment of goodwill (Premium):
(a) When the new partner brings a part of premium in cash, the entry will be
(i) Cash/Bank A/c Dr.
To Premium A/c (Being cash brought in as premium for goodwill)
(ii) Premium A/c .......Dr.
New partner capital A/c
To old partners capitals A/c
(Being the goodwill credited to old partners capital account in sacrificing ratio.)
Long Answer Type Questions (Carrying 5 marks)
A. Theory Part:
1. Why revaluation of assets and liabilities is necessary at the time of admission of a partner?
Ans. On the admission of a partner, the new partner may not agree with the value of assets and liabilities which are shown in the balance sheet. In otherwords the value at which the assets and liabilities are shown may be more or less than their actual value. Sometimes, some assets or liabilities have not been recorded in the books On admission, the new partner would like that all the assets and liabilities of the firm are shown in the balance sheet at their genuine value.
2.State the situations when their is need for revaluation of assets and liabilities?
Ans. The revaluation becomes necessary in respect of assets & liabilities of the firm specially at the time of admission of a partner, admission, retirement, death of a partner or change in the agreement or deed of the firm. At the time of admission of a partner, the new partner may not agree with the value of assets and liabilities which are shown in the balance sheet. Sometimes, some assets or liabilities have not been recorded in the books of accounts. The new partner would like that all the assets and liabilities are shown in the balance sheet at their agreed value.
The Balance sheet prepared by the partners before retirement or death of a partner may not show the assets and liabilities at true value. It is quite possible. that some assets and liabilities which though exist in the firm but some how do not appear in the books of accounts. On retirement or death the partner would like that all the assets and liabilities of their genuine value.
So there is a need to revalue the assets and liabilities. It is mutually done by all partners.
3.What do you understand by unreorded assets and liablities? Why and how are such items are recorded on admission of a partner?
Ans:-A Unrecorded assets and liabilities means those assets and liabilities which belong to the firm or which were incurred by the firm but for some reason or ether it has not been recorded in the books of account.
At the time of admission, in order to arrive at the correct value of assets or correct amount of liabilities held by the firm, these required to be brought into books of account.
Unrecorded assets are credited to Revaluation Account by treating them as increase in assets Similarly, unrecorded liabilities are debited to Revaluation Account by treating them as increase in liabilities:
4. What do you mean by accumulated profits and losses? Why and how are they treated on the admission of a partner?
Ans. The profits or losses which have accumulated or undistributed over the years and have been distributed to partner's capital/current accounts are called accumulated or undistributed profits or losses.
The profits, which are retained the business, may be kept in profit & loss Account (credit) and such past profits belong to old partners only. The new partner has no claim to share these accumulated profits Similarly, the losses, which are incurred by the firm, may be kept in profit & loss Account (Debit) The new partner is not liable to bear accumulated losses. Such losses must be written off among old partners in old ratio.
Accounting Entries:
(i) For transfer of Accumulated profits: Profit & loss Account Dr.
To old partner's capital A/c ... Dr.
(Being accumulated profits transferred to old partners in old ratio)
(ii) For transfer of Accumulated losses:
Old partners capital A/c ........... Dr.
To profit & loss A/c
(Being loss transferred to old partners in old ratio.)
5. Explain briefly the procedure for calculation of hidden goodwill.
Ans. Hidden goodwill is calculated in the following manner:
Step 1: Find out the total capital of new firm on the basis of new partner's share and his capital.
Step II : Find out the difference between the capital calculated as per - Step -I and the total capital of old partners and new partner. This difference is the amount of goodwill.
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