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MCQ - Admission of a Partner | Reconstitution of Partnership | Multiple Choice Questions and Answers | PAPER 5 FINANCIAL ACCOUNTING | CMA MCQ


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CMA INTERMEDIATE: PAPER 5 – FINANCIAL ACCOUNTING

RECONSTITUTION OF PARTNESHIP FIRM: ADMISSION OF A PARTNER (II) - MCQ

A. State whether each of the following statements is True or False:
1.       When a new partner is admitted, the old firm has to be dissolved.   False
2.       Sacrificing ratio and old ratio will always be the same.                             False
3.       Difference between old ratio and new ratio is called sacrificing ratio.               True
4.       Premium brought in by an incoming partner is shared by the old partners in their old profit sharing ratio. False
5.       On admission, when goodwill is written off, it is to be debited to the old partner’s capital accounts in their old profit sharing ratio. True
6.       When goodwill exists in the Balance Sheet at its full value, the incoming partner is to bring in proportionate amount of such goodwill as his share of premium for goodwill. False

7.       Profit or loss on revaluation of assets and liabilities is distributed among all the partners.       False
8.       Profit or loss on revaluation of assets is distributed among old partners in sacrificing ratio.    False
9.       Profit on revaluation is credited to old partner’s capital accounts in their old profit sharing ratio. True
10.   Increase in the value of an asset on revaluation is debited to the revaluation account.            False, Credited
11.   Unrecorded assets are credited and unrecorded liabilities are debited in revaluation account.            True
12.   Accumulated profit or loss is to be distributed among the old partners in sacrificing ratio.      False, Old ratio
13.   Provision made against debtors is credited to debtors account.          False
14.   When the altered values on revaluation are not being taken into accounts, a memorandum Revaluation Account is opened. True
15.   The purpose of revaluation account is to ascertain the profit or loss arising on account of revaluation of assets or reassessment of liabilities.                     True
16.   A contingent liability becoming a certain liability is debited to the Revaluation account and shown in balance sheet as liability at the time of admission of a partner.                    True
B. Fill in the blank with appropriate word or words:
1.       Share of goodwill brought in cash by the new partner is known as premium for goodwill.
2.       Premium for goodwill brought in by the incoming partner is a compensation for the loss suffered by the old partners in terms of share in profits.
3.       The value of goodwill varies on the basis of profits of the business.
4.       Revaluation account is a nominal account.
5.       Reduction in provision for bad debts will be credited to the Revaluation A/c.
6.       Old ratio itself is the sacrifice ratio unless there is a change of profit sharing ratio among the old partners.
7.       Calculation of sacrificing ratio is necessary when the new partner brings in his share of goodwill in cash.
8.       As per AS 26, only purchased goodwill will be recorded in the books of account.
9.       The ratio in which the old partners surrender their share profits in favour of the new partner is called sacrifice ratio.
10.   When the book values of the assets and liabilities are not to be revised, memorandum revaluation account is prepared.
11.   Staff provident fund is a liability.
12.   Profits or losses arise on the revaluation of assets and liabilities are shared by the old partner’s in old ratio.
13.   A revaluation account is to be opened when the values of assets and liabilities are required to be altered.
14.   Goodwill is an intangible asset.        
15.   Memorandum Revaluation Account is opened when after revaluation the values of assets and liabilities are kept unaltered.
16.   When goodwill appears in the Balance Sheet at its full value, premium brought in by the new partner is credited to Capital Account of the new partner.
17.   Premium brought in by an incoming partner should be proportionate to his gaining ratio.
18.   On admission, a new partner gets two rights viz-right to assets and right to share profits.
19.   Assessed value of reputation of a business is known as goodwill.
20.   Extra earning capacity of a firm is known as Goodwill.
21.   In a partnership firm, no new partner can be admitted without the consent of all the existing partners.
22.   The document containing terms and conditions is called the Partnership Deed.
23.   The registration of a partnership firm is voluntary.
24.   In case of admission of a partner, the incoming partner has to pay his share of premium to the old partner in his ratio of gain.
25.   Goodwill is written off in the Old ratio in case of partnership after the admission of new partner.
26.   If a partner takes over a liability of the firm, the partner’s capital account is Credited.
27.   If a partner takes over an asset of the firm, the partner’s capital account is debited.
C. Choose the correct alternative:
1.       On the admission of a new partner
a)      Old firm has to be dissolved.
b)      Old partnership has to be dissolved.
c)       Both the old firm and partnership have to be dissolved.
d)      Neither the firm nor the partnership has to be dissolved.
2.       When a new partner does not bring in his share of goodwill in cash, the amount of premium is debited to:
a)      Premium account.
b)      Cash account.
c)       Capital account of the new partner.
d)      Capital account of all the partners.
3.       Premium of goodwill brought in cash by a new partner on admission is shared by old partners in:
a)      Sacrificing ratio.
b)      Capital ratio.
c)       New profit sharing ratio.
d)      Old profit sharing ratio.
4.       Profit on revaluation of assets and liabilities is shared by old partners in:
a)      New ratio.
b)      Sacrificing ratio.
c)       Capital ratio.
d)      Old ratio.
5.       The sacrifice of the old partners is equal to
a)      Their new ratio.
b)      Their old ratio.
c)       New ratio-Old ratio.
d)      Old ratio-New ratio.
6.       Profit or loss on revaluation is transferred to partners’ capital accounts in:
a)      Old ratio.
b)      New ratio.
c)       Equal ratio.
d)      Capital ratio.
7.       Premium brought in cash by the new partner on admission is credited to
a)      Premium for goodwill account.
b)      Cash account.
c)       Capital account of all the partners.
d)      Capital account of the old partners.
8.       At the time of admission, general reserve is transferred to
a)      Revaluation A/c
b)      Old partners’ capital A/c
c)       New partners’ capital A/c
d)      All the partners’ capital A/c
9.       The balance of memorandum revaluation account (second part), is transferred to the capital accounts of the partners in:
a)      Capital ratio.
b)      Old profit sharing ratio.
c)       New profit sharing ratio.
d)      Sacrificing ratio.
10. When a new partner brings in premium, the same is credited to:
a)      Cash Account.
b)      Premium for Goodwill Account.
c)       Capital Account
11. In case of admission of a new partner.
a)      The firm is dissolved.
b)      The partnership is dissolved.
c)       Both the partnership and the firm are dissolved.
12. When a new partner is admitted, it requires the consent of
a)      All the partners.
b)      Majority of the partners.
c)       Any one of the partners.

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