CBSE

Test Paper 03
Ch-2 Fundamentals of partnership and Goodwill

1. Goodwill is an __________ asset.

a. Both Intangible asset and Tangible asset
b. None of these
c. Intangible asset.
d. Tangible asset
2. Calculate interest on drawings, if owner withdrew the following amounts as follows
Jan.31 Rs. 6000, Mar.31 Rs.4000, July 1 Rs.8000, Sep.30 Rs.3000, 1 Nov, Rs.5000.
Accounts are closed on 31st December every year and rate of interest on drawings is
10% p.a.
a. ₹1418.33
b. Rs.1408.33
c. ₹1418.93
d. ₹1408.93
3. For calculation of capital in the beginning what should be added in the capital at the
end of the year
a. Drawing
b. Additional capital
c. Salary
d. Profit
4. Registration of partnership firm is _________-
a. Optional
b. Under Companies Act 2013
c. Not Allowed
d. Compulsory
5. Profit and Loss appropriation account is differ from Profit and Loss account as it is
prepared by
a. Only partnership firm
b. Only sole proprietorship
c. Only company
d. All business firms

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 6. Give the formula of goodwill by Capitalisation of Average Profits?

7. A and B are partners in a firm without a Partnership Deed. A is Active partner and
claims a salary of Rs.18,000 per month. State with reasons whether this claim is valid
or not.

8. Why should a firm have a partnership deed?

9. What is the status of partnership from an accounting view point?

10. State any two reasons for the preparation of Revaluation Account at the time of
admission of a new partner.

11. Menon and Thomas are partners in a firm. They share profits equally. Their monthly
drawings are Rs 2,000 each. Interest on drawings is to be charged @ 10% p.a.
Calculate interest on Menon’s drawings for the year 2006, assuming that money is
withdrawn:

i. In the beginning of every month,

ii. in the middle of every month, and
iii. at the end of every month.

12. M and N are partners in a firm and agrees that an interest @ 12% per annum should
be charged on drawings. M draws Rs 20,000 per month. Compute the amount of
interest to be charged from M.

13. A firm earns a profit of Rs 30,000 per year. In the same business, a 10% return is
generally expected. The total assets of the firm are Rs 2,50,000. The value of outsiders’
liabilities is Rs 40,000. Find the value of Goodwill.

14. Jay, Vijay, and Karan were partners of an architect firm sharing profits in the ratio of
2 : 2 : 1. Their partnership deed provided the following :

i. A monthly salary of Rs.15,000 each to Jay and Vijay.

ii. Karan was guaranteed a profit of Rs.5,00,000 and Jay guaranteed that he will earn
an annual fee of Rs.2,00,000. Any deficiency arising because of guarantee to Karan
will be borne by Jay and Vijay in the ratio of 3 : 2. During the year ended 31st
March 2018, Jay earned fee of Rs.1,75,000 and the profits of the firm amounted to

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 Rs.15,00,000.
Showing your workings clearly prepare Profit and Loss Appropriation Account
and the Capital Account of Jay, Vijay and Karan for the year ended 31st March
2018.

15. A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. The
following was the Balance Sheet of the firm as on 31-3-2010 :

Liabilities (Rs) Assets (Rs)

Capitals: A 60,000 Sundry Assets 80,000

B 20,000

80,000 80,000

The profits Rs 30,000 for the year ended 31-3-2010 were divided between the partners
without allowing interest on capital @ 12% p.a. and salary to A @ Rs 1,000 per month.
During the year, A withdrew Rs 10,000 and B Rs 20,000.
Pass the necessary adjustment journal entry and show your working clearly.

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 CBSE Test Paper 03
Ch-2 Fundamentals of partnership and Goodwill

Answer

1. c. Intangible asset. Explanation: Goodwill is an intangible asset, which cannot be

seen or touched but it plays important role in earning more and more profits. If
a business firm is having good reputation in the market, it will enjoy more
profits and goodwill in future.

2. b. Rs.1408.33, Explanation: When amounts are different for each drawings and
dates of drawings are also different, in such a case Product method should be
used to calculate the interest on drawings:

Amount Months Products

6,000 11 66,000

4,000 09 36,000

8,000 06 48,000

3,000 03 9,000

5,000 02 10,000

Interest on drawings = Total products Rs.1,69,000 × 10/100 × 1/12 = 1,408.33

3. a. Drawing, Explanation: To calculate the interest on capital, we must find out the
opening capital first. Sometimes opening capital is not given in the question but
closing capital is given. In such a case following formula should be used to find
out the opening capital:

Opening Capital = Closing Capital + Drawings - profit

4. a. Optional, Explanation: Registration of a partnership firm is optional. It means

there is no need for the registration of a partnership firm. As per the
Partnership Act, 1932, it is an option for a partnership firm to get registered or
not. But it is always advisable to get registered.

5. a. Only partnership firm, Explanation: 1.Profit and loss appropriation account is

prepared only in case of partnership business. The main purpose of preparing

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 this account to distribute the profits amongst the partners in the form of
appropriations and profits.
2.Other firms i.e. companies and sole proprietorship firms are not required to
prepare profit and loss appropriation account. These firms are required to
prepare only profit and loss account.
6. Goodwill = Capitalised Value of Average Profits - Net Assets
Capitalised Value = When a similar type of
business earns profit at a certain percentage of the capital employed, it is called
normal rate of return.
7. This claim of A is not valid because in the absence of any partnership deed no salary,
commission, interest on capital etc. is to be paid to any partner.
8. A firm should have a partnership deed because
i. It regulates the rights, duties and liabilities of the partners.
ii. It avoids disputes in future by acting as a proof.
iii. It serves as an evidence in the court of law.
iv. In the absence of partnership deed partners can not sue over the firm and vice
versa. And the firm can not sue even the third parties
9. From an accounting viewpoint, partnership is a separate business entity from its
partners or owners. It means the books of account are prepared from firm's
viewpoint not from the partners. From a legal viewpoint, however, a Partnership, like
a sole proprietorship, is not separate from the owners.
10. The revaluation account should be prepared at the time of reconstitution of
partnership due to following reasons: 1. To show the assets and liabilities at their
current values. 2. To protect the right of partners that no partner can take advantage
due to change in the value of assets/liabilities.
11. Statement showing calculation of Interest on Drawings for the year 2006:

Beginning of Every Middle of Every

Particulars End of Every Month
Month Month

=
Menon
= Rs. 1,300 = Rs. 1200 Rs. 1,100

= =
Thomas

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 = Rs. 1,300 Rs. 1200 Rs. 1,100

12. Here the total amount of M’s drawings is Rs 2,40,000. Interest to be calculated can
be studied under three cases.
i. If amount is drawn in the beginning of each month;

Interest = = Rs 15,600
ii. If amount is drawn in the middle of each month;
Interest = Rs 14,400
iii. If amount is drawn at the end of each month;

Interest = = Rs 13,200
13. Under this method, goodwill is calculated by taking average super profit as the value
of an annuity over a certain number of years. The present value of this annuity is
computed by discounting at the given rate of interest (normal rate of return). This
discounted present value of the annuity is the value ofgoodwill. Calculation of
Goodwill
Total Capitalised value of the firm
=

= = Rs 3,00,000
Net Tangible Assets of the firm = Total Tangible Assets - Outsider’s Liabilities’
= Rs 2,50,000 - Rs 40,000
= Rs 2, 10,000
Goodwill = Total Capitalised Value - Net Assets
= Rs 3,00,000 - Rs 2,10,000
= Rs 90,000

14. Profit and Loss Appropriation Account

Particulars (Rs.) Particulars (Rs.)

To Salary: By Net Profit 15,00,000

Jay 1,80,000 By Jay's Capital A/c 25,000

Vijay 1,80,000 3,60,000 (2,00,000-1,75,000)

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 To Profit transferred: (Deficiency in fees)

Jay 4,66,000

Less: guarantee(3/5) 1,60,200 3,05,800

Vijay 4,66,000

Less: guarantee(2/5) 1,06,800 3,59,200

Karan 2,33,000

Add: guarantee 2,67,000 5,00,000

15,25,000 15,25,000

Partner's Capital Accounts

Particulars Jay Vijay Karan Particulars Jay Vijay Karan

To P/L
25,000 - - By Salary 1,80,000 1,80,000 -
Appropriation

By P/L
To Balance c/d 4,60,800 5,39,200 5,00,000 3,05,800 3,59,200 5,00,000
Appropriation

4,85,800 5,39,200 5,00,000 4,85,800 5,39,200 5,00,000

15. Adjusting entries are journal entries made at the end of an accounting cycle to update
certain revenue and expense accounts and to make sure you comply with the
matching principle. The matching principle states that expenses have to be matched
to the accounting period in which the revenue paying for them is earned that are
done as follows:-

Journal

Date Particulars L.F Dr(Rs) Cr(Rs)

2010
B's Capital A/c Dr. 5,280
Mar. 31

To A's Capital A/c

(Being interest on capitals and salary to A not
5,280

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 charged, not adjusted)

Working notes:
Calculation of Opening Capital

Particulars A(Rs) B(Rs)

Closing Capital 60,000 20,000

Less: Profit(3 : 2) 18,000 12,000

42,000 8,000

Add: Drawings made during the year 10,000 20,000

Capital in the beginning of the year 52,000 28,000

Adjustment Table

A's Capital B's Capital

Particulars Firm
Account Account

Dr.
Dr.(Rs) Cr.(Rs) Dr.(Rs) Cr.(Rs) Cr.(Rs)
(Rs)

Interest on Capital -- 6,240 --- 3,360 9,600 --

Salary to A -- 12,000 --- -- 12,000 --

Loss to be debited(3 :
12,960 -- 8,640 --- --- 21,600
2)

Total 12,960 18,240 8,640 3,360 21,600 21,600

Net Effect -- 5,280(Cr.) 5,280(Dr.) -- -- --

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