MCQs BASED ON “Reconstitution of A Partnership Firm-Change in Profit-Sharing Ratio among the Existing Partners“
1. Increase in the value of assets on reconstitution of the partnership firm results into—
(a) Gain to the existing partners
(b) Loss to the existing partners
(c) Neither a gain nor a loss to the existing Partners
2. Recording of an unrecorded asset on the reconstitution of a partnership firm will be—
(a) A gain to the existing partners
(b) A loss to the existing partners
(c) Neither a gain nor a loss to the existing partners
3. Recording of an unrecorded liability on the reconstitution of a partnership firm will be—
(a) A gain to the existing partners
(b) A loss to the existing partners
(c) Neither a gain nor a loss to the existing partners
4. Revaluation Account or Profit and Loss Adjustment Account is a—
(a) Personal Account
(b) Real Account
(c) Nominal Account
5. The balance of Revaluation Account is transferred to old Partners’ Capital Account in their —
(a) Old Profit Sharing Ratio
(b) New Profit Sharing Ratio
(c) Equal Ratio
6. In the absence of agreement profits are divided by partners in the ratio of—
(a) Capital
(b) Equal
(c) Time devoted
(d) None of these
7. Interest on partner’s loan is always paid at the rate of—
(a) 4%
(b) 6%
(c) 5%
(d) 10%
8. In the absence of agreement, partners are not entitled to receive—
(a) Salaries
(b) Commission
(c) Interest on Capital
(d) All the above
9. Partner’s Current Accounts are opened, when the capitals are—
(a) Fixed
(b) Fluctuating
(c) Fixed or Fluctuating
(d) All the above
10. When dates of withdrawal are not mentioned, interest on drawings is charged for—
(a) 6 ½ months
(b) 6 months
(c) 5 ½ months (d) 12 months
11. Interest on capital as calculated on the—
(a) Opening Capital
(b) Closing Capital
(c) Average Capital
(d) Closing Capital less drawings
12. The current account of a partner will always have—
(a) Credit balance (b) Debit balance
(c) No balance
(d) May have debit or credit balance
13. When a partner is entitled to interest on capital, it is payable—
(a) Out of Profits
(b) Out of Capital
(c) May be out of profits or capital
(d) None of these
14. Goodwill of the firm on the basis of 3 year’s purchase of average profit of the lost three years is ₹.50,000. Find average profit.—
(a) ₹.1,00,000
(b) ₹.50,000
(c) ₹.20,000
(d) ₹.25,000
15. Calculate the value of goodwill when capital employed ₹5,00,000 average profits ₹60,000 and normal rate of return is 10%—
(a) ₹6,000
(b) ₹50,000
(c) ₹60,000 (d) ₹1,00,000
16. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They decided to share future profits equally. Calculate A’s gain or sacrifice—
(a) 1/10 sacrifice (b) 5/10 gain
(c) 2/10 gain (d) 1/10 gain
17. X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. The partners decide to share future profit and losses in the ratio 3 : 2 : 1. Calculate Y’s sacrifice or gain due to change in the ratio. —
(a) 2/30 gain (b) 1/30 gain
(c) 1/30 sacrifice (d) 2/30 sacrifice
18. The total profit of a firm for the last 5, years are ₹30,000. Calculate the value of goodwill of the firm if it is based on 3 years purchase of the average profits—
(a) ₹12,000 (b) ₹20,000
(c)₹18,000 (d)₹10,000
19. The total net profits of a firm during the last three years were ₹63000. The capital invested in the firm is ₹80,000. A fair return in the capital having regard to the risk involved is 10%. The value of the goodwill on the basis of 3 years purchase of the super profits will be—
(a) ₹39,000
(b) ₹48,000
(c) ₹63,000
(d) ₹40,000
20. If a firm earns a profit of ₹20,000 annually and the firm normally earn 10% , the total value of the goodwill of the firm will be : —
(a) ₹1,00,000
(b) ₹2,00,000
(c) ₹20,00,000
(d) ₹20,000
21. X and Y are partners in a firm sharing profits in the ratio of 2 : 1 with effect from 1st April, 2018 they agreed the share profits equally. What will be the gain or sacrifice if Y —
(a) 1/6 gain
(b) 2/6 sacrifice
(c) 1/6 sacrifice
(d) 2/6 gain
22. A, B and C are partners sharing profits equally. They decided that in future C will get 1/5 share in profits. What will be the C’s sacrifice?
(a) 1/15
(b) 3/15
(c) 4/15
(d) 2/15
23. The Capital invested in the firm is ₹5,00,000. Normal rate of return is 10%. Average profits of the firm are ₹64,000 (after an abnormal of ₹4,000). What will be the value of goodwill of the firm at 4years purchase of the super profits—
(a) ₹64,000
(b) ₹72,000
(c) ₹70,000
(d) ₹50,000
24. Instruction : In the following questions there is a paragraph followed by five questions. You have to mark correct alternative from the option given in those questions :
On April 1, 2019 an existing firm had assets of ₹37,500 including cash of ₹2,500. The Partners’ Capital Accounts showed a balance of ₹30,000 and reserves constituted the rest. The normal rate of return is 10% and the goodwill of the firm is valued at ₹12,000 at 4 years’ purchase of super profit.
You have to calculate-
(1). Following is the amount of average profit :
(a) ₹7,500
(b) ₹6,000
(c) ₹6,750
(d) ₹5,000
(2). Amount of super profit in the firm will be :
(a) ₹6,000
(b) ₹24,000
(c) ₹3,000
(d) ₹6,000
(3). Average profit is equal to :
(a) Total Profit
(b) Total Profit
No. of Purchasing Years
(c) Super Profit
(d) None of these.
(4). By Capital Employed x Normal Rate of Profit, calculate the following
(a) Super Profit
(b) Normal Profit
(c) Average Profit
(d) None of these.
(5). By Super Profit X No. of Purchasing year calculate the following
(a) Goodwill
(b) Super Profit
(c) Average Profit
(d) None of these.
25. Change in relationship among the existing partners amounts to ________ of the Partnership firm.
(a) reconstitution
(b) dissolution
(c) admission
(d) retirement
26. Change in profit sharing ratio of the existing partners’ results in _______ to some Partner (S) and sacrifice of others.
(a) loss
(b) gain
(c) addition
(d) retirement
27. Gain or loss arising from revaluation of assets and liabilities is shared by existing partners in ________ ratio.
(a) new
(b) sacrifice
(c) gain
(d) old
28. General Reserve account shows ________ balance.
(a) debit
(b) credit
(c) none of the above
29. Change in profit-sharing of the existing partners will result in gain to some partners and ___________to some others.
(a) addition
(b) loss
(c) gain
(d) no effect
30. Revaluation of assets on the reconstitution of partnership firm becomes necessary because their present values may be __________ from their book value.
(a) same
(b) different
(c) decreased
(d) increased
Answers to Change in Profit Sharing Ratio
1. A
2. A
3. B
4. C
5. A
6. B
7. B
8. D
9. A
10. B
11. A
12. A
13. A
14. B
15. D
16. A
17. B
18. C
19. A
20. B
21. C
22. D
23. B
24. (1) c
(2) c
(3) a
(4) b
(5) a
25. A
26. B
27. D
28. B
29. B
30. B