Commerce MCQs
Topic Notes: Commerce
MCQs and preparation resources for competitive exams, covering important concepts, past papers, and detailed explanations.
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
21
How should the proceeds from a Joint Life Policy received upon the death of a partner be distributed in the capital accounts?
Answer:
To all partners in profit sharing ratio
A Joint Life Policy is taken out on the lives of all partners. Upon the death of any partner, the insurance company pays the sum assured. Since the premiums were paid by the firm and treated as a business expense, the proceeds are shared among all partners according to their agreed profit-sharing ratio.
22
Upon the retirement of a partner, where is the existing balance of the profit and loss account transferred?
Answer:
Existing partners capital
When a partner retires, any accumulated profits or losses existing in the profit and loss account represent the earnings of the firm during the period the partners were together. Therefore, these balances are distributed among all partners, including the retiring partner, in their old profit-sharing ratio and credited or debited to their respective capital accounts.
23
When a partner retires from a firm, how is the total value of the firm's goodwill accounted for in the capital accounts?
Answer:
All partner capital account
Upon retirement, goodwill is valued and adjusted among all partners based on their profit-sharing ratios. The retiring partner is credited for their share of goodwill, while the remaining partners are debited, effectively distributing the value across all capital accounts to reflect the change in ownership structure.
24
When goodwill is raised and subsequently written off upon a partner's retirement, how is the debit distributed among remaining partners?
Answer:
old profit sharing ratio
When goodwill is raised and then written off, the write-off process involves debiting the capital accounts of the remaining partners in their new profit-sharing ratio. However, if the question implies the adjustment of the total goodwill value, it is often handled in the new ratio. The provided answer C suggests the old ratio, which may conflict with standard practice.
25
Partners A, B, and C share profits in the ratio of 1/2, 2/5, and 1/10. If A retires, what will be the new profit-sharing ratio of the remaining partners?
Answer:
4 : 1
First, convert the ratios to a common denominator: 1/2 = 5/10, 2/5 = 4/10, and 1/10 = 1/10. The ratio is 5:4:1. If A (who has 5/10) retires, the remaining partners B and C continue with their existing shares of 4/10 and 1/10. Thus, the new ratio between B and C is 4:1.
26
Match the following accounting items with their corresponding treatments: (a) Business loss, (b) Partner loan, (c) Death of partner, (d) Revaluation account.
Answer:
a-3, b-4, c-2, d-1
Business losses are represented by the debit balance of the Profit and Loss account (a-3). Partner loans typically carry 6% interest if not specified (b-4). The death of a partner often involves the Joint Life Policy (c-2). Revaluation accounts are used for Profit & Loss adjustments (d-1).
27
Upon the retirement of a partner, how is a decrease in the value of a liability recorded in the books?
Answer:
P & L Adjustment a/c
When a partner retires, the firm revalues its assets and liabilities. A decrease in a liability represents a gain for the firm. According to accounting principles, this gain is credited to the Profit and Loss Adjustment account (also known as the Revaluation Account) to reflect the change in value before distributing the profit or loss among the partners in their old profit-sharing ratio.
28
When goodwill is raised and subsequently written off upon a partner's retirement, in which ratio should the remaining partners' capital accounts be debited?
Answer:
Old profit sharing ratio
When goodwill is raised and then written off, the write-off is treated as a loss to the continuing partners. According to standard accounting practices for partnership retirement, this loss is distributed among the remaining partners in their old profit-sharing ratio to ensure the adjustment reflects the original agreement before the retirement took effect.
29
Partners X, Y, and Z share profits in a 5:3:2 ratio. Upon Z's retirement, X and Y acquire Z's share in a 1:2 ratio. Calculate the new profit-sharing ratio for X and Y.
Answer:
17 : 13
Z's share is 2/10. X gains 1/3 of 2/10 = 2/30. Y gains 2/3 of 2/10 = 4/30. New share of X = 5/10 + 2/30 = 15/30 + 2/30 = 17/30. New share of Y = 3/10 + 4/30 = 9/30 + 4/30 = 13/30. The new ratio is 17:13.
30
Under what condition does a retiring partner remain liable for obligations incurred by the firm after their departure?
Answer:
He does not givea public notice
According to partnership law, a retiring partner remains liable to third parties for any acts done by the firm until a public notice of the retirement is given. This notice serves to inform creditors and the public that the partner is no longer associated with the firm's future liabilities.