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Questions and Answers
What is the definition of a partnership?
What is the definition of a partnership?
- A business structure where all partners have unlimited liability.
- A relationship between two or more individuals who have agreed to share profits from a business. (correct)
- A business owned by one person.
- A legal entity separate from its owners.
If a partnership deed is silent regarding the rate of interest on capital, the interest is paid at a rate of 6% per annum.
If a partnership deed is silent regarding the rate of interest on capital, the interest is paid at a rate of 6% per annum.
True (A)
What is the document called that outlines the agreement between partners in a partnership firm?
What is the document called that outlines the agreement between partners in a partnership firm?
Partnership Deed
In the absence of a partnership deed, partners are not entitled to receive a _________ from the firm.
In the absence of a partnership deed, partners are not entitled to receive a _________ from the firm.
Match the following terms related to partnership firms with their corresponding descriptions:
Match the following terms related to partnership firms with their corresponding descriptions:
What is the total amount of salary paid to A?
What is the total amount of salary paid to A?
The interest on drawings is calculated at 5% per annum.
The interest on drawings is calculated at 5% per annum.
What is the meaning of goodwill in the context of a business?
What is the meaning of goodwill in the context of a business?
Goodwill results in an increase in both ______ and ______ of the enterprise.
Goodwill results in an increase in both ______ and ______ of the enterprise.
What is the profit-sharing ratio of X and Y before Z's admission?
What is the profit-sharing ratio of X and Y before Z's admission?
Z's admission will result in a new profit-sharing ratio of 5:3:4.
Z's admission will result in a new profit-sharing ratio of 5:3:4.
What is the total capital brought in by Z for his share in the firm?
What is the total capital brought in by Z for his share in the firm?
The goodwill of the firm is valued at ______ years’ purchase of the average super profits.
The goodwill of the firm is valued at ______ years’ purchase of the average super profits.
Match the following items with their respective amounts after adjustments related to Z's admission:
Match the following items with their respective amounts after adjustments related to Z's admission:
Based on the given information, how is Z's share of goodwill calculated?
Based on the given information, how is Z's share of goodwill calculated?
The average profits of the last four years are ₹12,000.
The average profits of the last four years are ₹12,000.
The average profit of the firm in the content example is ₹______.
The average profit of the firm in the content example is ₹______.
What is the amount of the average super profits used to calculate the goodwill of the firm?
What is the amount of the average super profits used to calculate the goodwill of the firm?
What is the goodwill of the firm based on the given information?
What is the goodwill of the firm based on the given information?
In the second example, the average profit for calculating goodwill is determined using the last 5 years' profits.
In the second example, the average profit for calculating goodwill is determined using the last 5 years' profits.
What is the average profit for the second example, where X and Y are partners and are taking Z into partnership?
What is the average profit for the second example, where X and Y are partners and are taking Z into partnership?
The goodwill of the firm in the second example is calculated as ______ times the average profit.
The goodwill of the firm in the second example is calculated as ______ times the average profit.
In the second example, what is the amount of depreciation to be charged on the motorbike purchased on April 1, 2023?
In the second example, what is the amount of depreciation to be charged on the motorbike purchased on April 1, 2023?
Match the following terms with their respective definitions:
Match the following terms with their respective definitions:
The motorbike purchased on April 1, 2023, is a relevant factor in calculating goodwill in the second example.
The motorbike purchased on April 1, 2023, is a relevant factor in calculating goodwill in the second example.
What was the total amount of liabilities for the firm on March 31st, 2023?
What was the total amount of liabilities for the firm on March 31st, 2023?
The creditors received the entire amount due to them in cash.
The creditors received the entire amount due to them in cash.
What was the total amount realized from the sale of investments?
What was the total amount realized from the sale of investments?
The total amount realized from the debtors was ______ less than the amount due from them.
The total amount realized from the debtors was ______ less than the amount due from them.
Match the following assets with their respective realization amounts:
Match the following assets with their respective realization amounts:
Which of the following is NOT a characteristic of a company?
Which of the following is NOT a characteristic of a company?
A company can issue shares at a discount.
A company can issue shares at a discount.
What are the two primary types of shares issued under the Companies Act 2013?
What are the two primary types of shares issued under the Companies Act 2013?
The premium received on the issue of shares is shown on the ______ side of the balance sheet.
The premium received on the issue of shares is shown on the ______ side of the balance sheet.
Match the following terms with their descriptions:
Match the following terms with their descriptions:
A private company can have an unlimited number of members.
A private company can have an unlimited number of members.
What is the key benefit for shareholders in a company with limited liability?
What is the key benefit for shareholders in a company with limited liability?
Which of these is NOT a typical source of funds for a company?
Which of these is NOT a typical source of funds for a company?
What type of goodwill is created over a period of time due to the attributes of a running business?
What type of goodwill is created over a period of time due to the attributes of a running business?
Goodwill is considered a physical asset of a business.
Goodwill is considered a physical asset of a business.
What is the profit for the year mentioned in the accounting particulars?
What is the profit for the year mentioned in the accounting particulars?
According to Lord Eldon, goodwill is the probability that the old customers will resort to the ______ place.
According to Lord Eldon, goodwill is the probability that the old customers will resort to the ______ place.
How much interest on capital is considered in the given particulars for A?
How much interest on capital is considered in the given particulars for A?
Match the following terms related to goodwill with their descriptions:
Match the following terms related to goodwill with their descriptions:
Self generated goodwill can be recorded in the books of accounts.
Self generated goodwill can be recorded in the books of accounts.
What is the total amount transferred to A's current account as profit in the accounting particulars?
What is the total amount transferred to A's current account as profit in the accounting particulars?
Flashcards
Partnership
Partnership
A relation between persons sharing profits of a business run by all or any of them.
Partnership Deed
Partnership Deed
A written agreement among partners for managing a partnership firm.
Interest on Capital
Interest on Capital
Rate not allowed if partnership deed is silent; 6% if specified in deed.
Interest on Drawings
Interest on Drawings
No interest is charged on drawings made by partners.
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Salary to Partners
Salary to Partners
No partner is entitled to salary from the firm unless stated otherwise.
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Interest on Loan
Interest on Loan
Partner lending money to the firm gets 6% interest unless otherwise agreed.
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Profit-sharing Ratio
Profit-sharing Ratio
Profits and losses shared equally among partners unless stated otherwise.
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Capital Accounts
Capital Accounts
Separate accounts for each partner reflecting their capital balance.
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Goodwill
Goodwill
An intangible asset representing business reputation and customer connections.
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Self Generated Goodwill
Self Generated Goodwill
Goodwill created internally through business reputation over time.
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Purchased Goodwill
Purchased Goodwill
Goodwill acquired by buying another business or firm.
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Valuation of Goodwill
Valuation of Goodwill
Determining the monetary value of goodwill, often subjective.
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AS-26
AS-26
Accounting Standard that governs the treatment of intangible assets including goodwill.
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Intangible Assets
Intangible Assets
Non-physical assets that add value to a business, like goodwill.
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Customer Connections
Customer Connections
Relationship and loyalty between a business and its customers that enhance goodwill.
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Profit beyond Normal Profit
Profit beyond Normal Profit
Extra profit earned due to the positive effects of goodwill.
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Realisation Account
Realisation Account
An account used to record the realization of assets and settlement of liabilities during a firm’s dissolution.
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Sundry Creditors
Sundry Creditors
Liabilities due to suppliers or creditors for goods and services received.
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Provision for Doubtful Debts
Provision for Doubtful Debts
An estimate of receivables that may not be collectible; a risk fund.
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Realisation Expenses
Realisation Expenses
Costs incurred to sell off assets, often deducted from proceeds.
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Debtors
Debtors
Entities that owe money to the firm for goods or services provided on credit.
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Average Profit Calculation
Average Profit Calculation
Total profits over a period divided by the number of years.
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Years of Purchase
Years of Purchase
The number of years for which average profits are multiplied to determine goodwill.
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Abnormal Loss
Abnormal Loss
Losses that are unusual and not expected in normal operations.
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Abnormal Gain
Abnormal Gain
Unexpected profit due to unusual circumstances.
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Z’s Share of Goodwill
Z’s Share of Goodwill
Z’s entitlement to goodwill when entering partnership.
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Valuing Goodwill
Valuing Goodwill
Determining the monetary value of a partnership’s goodwill based on average profits.
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Depreciation of Motorbike
Depreciation of Motorbike
Reduction in the value of the motorbike over time, calculated as a percentage.
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Goodwill Valuation
Goodwill Valuation
The worth of a business's reputation, calculated by profits over normal expectations.
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Super Profits
Super Profits
Profits exceeding normal expectations or standard rates of return.
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Undervaluation
Undervaluation
The situation where an asset is recorded at a lower value than its true worth.
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Liabilities
Liabilities
Financial obligations or debts owed by a business.
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Assets
Assets
Resources owned by a business that have economic value.
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Adjustment Entries
Adjustment Entries
Entries made to update the financial records before drawing conclusions.
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Admission of a New Partner
Admission of a New Partner
The process of adding a new partner into a business, impacting profit sharing and capital.
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Company
Company
An artificial person created by law with a separate entity and perpetual succession.
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Shares
Shares
Units into which the capital of a company is divided.
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Types of Shares
Types of Shares
Equity shares and preference shares as defined by Companies Act 2013.
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Preference Shares
Preference Shares
Shares that have preferential rights for dividends and return of capital.
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Equity Share
Equity Share
A type of share that represents ownership in a company.
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Limited Liability
Limited Liability
The liability of shareholders is limited to the amount unpaid on shares they hold.
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Maximum Members in Private Company
Maximum Members in Private Company
A private company can have a maximum of 200 members.
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Partnership Firms
- Partnership is a relationship between persons who agree to share profits of a business carried on by all or any of them acting for all.
- Partnership deed is a written agreement among partners for managing business affairs.
- If a partnership deed is absent or silent regarding interest on capital: No interest is allowed on capital. If the deed allows interest but does not specify the rate, 6% per annum is charged. Interest is paid only from profits and not from losses during that period.
- No interest is charged on partners' drawings.
- Partners are not entitled to salaries.
- If a partner lends money to the firm, interest at 6% per annum is allowed.
- Partners share profits and losses equally, unless otherwise stated in a partnership deed.
- Separate capital accounts are maintained for each partner.
Profit & Loss Appropriation Account
- Used to show how profit or loss is distributed among the partners.
Salary/Commission to Partners
- Salary or commission is allowed if the partnership deed permits.
- Commission can be a percentage of net profit before/after commission.
Multiple Choice Questions
- In the absence of an agreement, partners are entitled to interest on loans and advances, but not salary or commission.
- A partnership firm can have a maximum of 100 partners.
- Partnership deed is also known as "Articles of Partnership".
- Essential elements of a partnership firm include at least two persons, agreement among all partners, and agreement for a business.
Goodwill
- Goodwill is the reputation and connections of a business, leading to increased sales and profits.
- Goodwill can be self-generated or purchased.
- Self-generated goodwill is due to business attributes, while purchased goodwill is acquired by paying a price for it.
- Factors affecting goodwill include business location, type, and management efficiency.
- Goodwill is a subjective asset, and valuation can differ between estimators.
Methods of Valuation of Goodwill
- Average Profit Method: Goodwill = Average Profit x Number of Years' Purchase.
- Super Profit Method: Goodwill = Super Profit x Number of Years' Purchase.
- Capitalisation Method: Goodwill = Average Profit / Normal Rate of Return x Number of Years' Purchase.
Partnership Deed
- It details the terms and conditions agreed upon by the partners.
- Acts as evidence in case of future disputes.
Interest on Drawings
- Interest is calculated on the period from the date of drawings to the date of closing of accounts.
- Interest is charged at a predetermined rate for each and every withdrawal.
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