Chapter # 4 . PARTNERSHIP

Chapter # 4		PARTNERSHIP
Q.1:	What is partnership capital?
Ans:	Any amount or assets invested by the partners in partnership business is called partnership capital.
Q.2:	What do you mean by Fixed Capital?
Ans:	If partners are not allowed to change their capital during the business life except in extra ordinary cases, is called fixed capital.
Q.3:	What do you mean by Fluctuating Capital?
Ans:	If partners are allowed to change their capital during the business life with every transaction is called fluctuating capital.
Q.4:	Name any two essential elements of the partnership account?
Ans:	i)                   The agreement must be to share profits and losses.ii)                The partnership must be the result of an agreement.
Q.5:	What do you mean by profit and loss appropriation account?
Ans:	In partnership business, for distributing profit and loss and for payment of any rumination to partners, (like interest on capital, commission salary, interest on partners’ loan) an additional account is opened which is called profit and loss appropriation account.
Q.6:	Write down the rules, which are applicable in the absence or partnership agreement?
Ans:	i)                   Salary is not allowed to any partners.ii)                Commission is not allwed to any partner. iii)              Interest on capital and interest on drawings is not charged. iv)               6% interest is allowed on the loan provided by any partner.
Q.7:	How much salary will be paid to safdar if he works 12 hours alone daily. If there is no provision about salary in partnership deed?
Ans:	No salary will be provided to safdar, if there is no provision about salary in partnership agreement.
Q.8:	How much commission will be paid to Akmal, if he sells 1500 items of some goods, if there is no agreement about commission?
Ans:	No commission will be paid to Akmal in the absence of agreement.
Q.9:	Define admission of partner?
Ans:	If a new partner is admitted in the firm with the consent of all existing partners is called admission.
Q.10:	Define incoming partner?
Ans:	New partner who is admitted in the firm is called incoming partner.
Q.11:	What is profit and loss ratio?
Ans:	A ratio in which profit and loss is distributed among partners is called profit and loss ratio.
Q.12:	What do you mean by old ratio?
Ans:	A ratio between existing partners which they were enjoying at the time of new partner’s admission in called old ratio.
Q.13:	What do you mean by new ratio?
Ans:	A ratio in which new partner will share profit and loss of business after admission of new partner is called new ratio.
Q.14:	What do you mean by sacrificing ratio?
Ans:	A ratio in which old partners give their part of existing shares to new partner is called sacrificing ratio.
Q.15:	Tahir and Mudassar were partners sharing profit in the ratio of 3:2 and admit Ansar to one sixth share in the future profit. Calculate the new profit sharing ratio among Tahir, Mudassar and also Sacrificing ratio?
Ans:	Old Ratio New Ratio Sacrificing Ratio Tahir 3 Mudassar 2 Ansar - Suppose total share of firm              =          1 Ansar’s Share                                                 = Remaining share for Tahir & Mudassar      = =
Q.16:	Yousaf and Shabbir who were partners in the ratio of 4:2. They admit Ijaz to one sixth share in future profit. New ratio of yousaf and Shabbir will be 3:2. Find sacrificing ratio?
Ans:	Old Ratio New Ratio Sacrificing Ratio Yousaf 4 Shabbir 2
Q.17:	L and M are partners sharing profit in the ratio of 3:2 they adit N with 1/5 share in profit, which he takes equally form L and M, calculate new profit sharing ratio between partners?
Ans:	Old Ratio New Ratio L 3 M 2 N -
Q.18:	Akmal and Akram sharing profit in the ratio of 7:3. They admit Ahsan on 3/7th share in the new firm which he takes 2/7th from Akmal and 1/7th from Akram. Calculate new ratio of partnes?
Ans:	Old Ratio New Ratio Akmal 7 Akram 3 Ahsan -
Q.19:	Define goodwill?
Ans:	The aggregate of those intangible attributes of a business which contribute to the higher earning capacity over a normal rate of return on investment is called goodwill.
Q.20:	Name any four element of goodwill?
Ans:	i)                   Customers list.ii)                Organization costs. iii)              Trademarks and brands iv)               Secret processes and formula.
Q.21:	Name any three factors which contribute to goodwill of a firm?
Ans:	i)                   The name of the business.ii)                The site of the business. iii)              Possession of any secret formula, trademark etc.
Q.22:	What are the types of goodwill?
Ans:	i)                   Purchased G/Wii)                Inherited G/W
Q.23:	Define purchased goodwill?
Ans:	When the payment for net tangible assets received in paid more than their actual existence at the time of purchase of any business, so such excess payment of considered as G/W. That is why, it is called purchase goodwill.
Q.24:	Define inherited goodwill?
Ans:	It is self generated goodwill by the business over number of years of its operation.
Q.25:	Name any three methods of valuation of goodwill?
Ans:	i)                   Average profit methods.ii)                Super profit method iii)              Annuity method.
Q.26:	How we can calculate the value of G/W under average profit methods?
Ans:	Average profit x number of purchase year.
Q.27:	Give journal entry, when goodwill is paid by the new partner privately?
Ans:	No entry will be passed, when goodwill is paid privately.
Q.28:	What are the necessary adjustments at the admission of new partner?
Ans:	i)                   Adjustment of ratiosii)                Adjustment of G/W iii)              Adjustment of Revaluation iv)               Adjustment of reserves v)                  Adjustment of capital if required.
Q.29:	Define revaluation?
Ans:	A process of recording of an asset or a liability at its current value is called revaluation.
Q.30:	What will be the situation, when memorandum revaluation account is prepared?
Ans:	When partner want to show their assets and liabilities at their original amounts after revaluation.
Q.31:	Write different bases for adjustment of capital?
Ans:	i)                   New partner’s capitalii)                Old partner’s capital
Q.32:	A & B were sharing profit and loss in the ratio of 3:4. They admit C in the business of 1/8 share of capital. C introduced 20,000 as capital. What will be total capital of firm if C share is taken as base for adjustment of capital.
Ans:	C’s ratio = 1/8Capital brought by C – 20000
RETIREMENT OF PARTNER
Q.1:	Define gaining ratio?
Ans:	A ratio in which share of retiring or deceased partner is taken by remaining partners is called gaining ratio.
Q.2:	How we can calculate gaining ratio?
Ans:	New ratio – Old ratio = Gaining ratio
Q.3:	Define surrender value?
Ans:	An amount which the insurance company is ready to pay immediately in cash after suspension of further payment of premium is called surrender value.
Q.4:	Define dissolution of partnership?
Ans:	End of partnership business due to any reason is called dissolution of partnership.
Q.5:	What is the procedure of the settlement of accounts at the time of dissolution?
Ans:	i)                   At first, creditors accounts are settled.ii)                Partners loan is paid. iii)              Partners capital accounts are settled. iv)               If any surplus, distributed between partners.
Q.6:	Define realization account?
Ans:	An account which is prepared at the time of dissolution of partnership firm to ascertain the net gain or loss on realization of assets or settlement of liabilities is called realization account.
Q.7:	Write different insolvency situations at the time of dissolution of firm?
Ans:	i)                   When all the partners are solventii)                When some are solvent and others are insolvent. iii)              When all the partners are insovlent.
Q.8:	What do you know about Garner Vs Murray case?
Ans:	Ganer, Murray and Wilkins were equal partners with unequal capital. At the time of dissolution, there was a deficiency of ¦ 635 after settlement of all liabilities. The capital account of wilkins showing a debit balance of ¦ 263. Nothing could be recovered wilkins due to insolvency.
Q.9:	What was the decision in Garner vs Murraycase?
Ans:	The case was decided by Mr. Joyee in 1904 as:“The solvent partners are only liable to make good their share deficiency and that the remaining assets should be divided among them in proportion to their capital last agreed capital”.
Q.10:	Where Garner vs Murray rule is applied?
Ans:	When there is no agreement between the partners for sharing deficiency in capital of insolvent partner.
Q.11:	What are the implications of the Garner vs Murray decision.
Ans:	i)                   Solvent partners will bring cash equal to their respective of loss or Realization.ii)                Deficiency of the insolvent partners to be shared by solvent partners in the ratio of their capitals just before dissolution.
Q.12:	Give any two characteristics of Garner vs Murray?
Ans:	i)                   A solvent partner having debit balance in his capital account will not share any loss due to insolvency of a partner.ii)                Realization loss should be divided in the profit sharing ratio in the usual manner.
Q.13:	Explain the application of Garner vs Murray decision, when capitals are fixed?
Ans:	In fixed capital method, only partners capital accounts balances will be considered.(Current account balances should not be considered.)
Q.14:	Explain the application for Garner vs Murray decision in the light of fluctuating capital method?
Ans:	In the light of fluctuation capital method, all share of adjustments likes reserves, underawn profits, drawings etc. should be considered in the calculation of last agreed capital except realization share of loss.
Q.15:	Give any two limitations of Garner vs Murray case?
Ans:	i)                   It dies not apply when there are only two partners in the firm.ii)                It ignores the private estate of solvent partners.
Q.16:	What will be the journal entry according to Garner vs Murray rule, when loss of insolvent partner is burned by solvent partners.
Ans:	Solvent partner’s capital A/csTo Insolvent partners capital A/c
Q.17:	Pass the journal entry for transferring the outsider liabilities into realization A/c when all partners’ are insolvent?
Ans:	No entry will be passed, because when all partners are insolvent outsider liabilities are not transferred to realization A/c rather, these are paid directly.

Click here for Multiple choice questions Ch #4 . PARTNERSHIP