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Goodwill

Explanation: An intangible asset is an asset with no physical existence. It cannot be seen, touched or felt. Goodwill is an intangible asset that has a certain value.

The sacrifice ratio is useful for making adjustment for goodwill among the old partners.

Explanation: Sacrificing ratio is useful for making adjustment of goodwill among the old partners because the amount of goodwill brought in by the new partner is distributed amongst the old partners in their sacrificing ratio. This ratio represents the amount of profits which is foregone by them in favour of the new partner.

Cash/Bank A/c

Explanation: Cash/Bank A/c is debited when the new partner brings cash for his/her share of goodwill, following the rule "Debit what comes in". This amount of goodwill (premium) is transferred to the capital accounts of sacrificing partners in the sacrificing ratio of the old partners.

If any asset is taken over by partner from the firm capital account will be debited.

Explanation: If any asset is taken over by a partner from the firm, then his/her Capital Account is debited. The capital account of a partner has credit balance, which, on taking over of an asset, gets reduced to the extent of the value of the asset so taken over.

In the case of fluctuating capital, where will you record drawings, interest on drawing Dr. Side of Capital A/c.

(c) Interest on loan – Debited to capital account

Correct Answer is:(c) Housing cooperative 

(i) Partnership at will

(ii) KARTA

(iii) democratic principles

(iv) one member one vote

Payment of Amount Due to Retiring Partner: The amount payable is paid to the retiring partner as per procedure mentioned in the partnership deed. Normally one of the following methods can be used to pay the amount payable.

1. Lump-Sum Payment System : After making all adjustments, the balance in the capital accounts of retiring partner shows the amount payable to retiring partner or in case of death of partner to his legal heir. If the financial condition of the firm is strong, the payment can be made in lump sum cash or through bank. The following entry is passed for amount payable at the time of payment under this method.
Retiring Partner’s Capital A/c Dr.
To Cash /Bank A/c
(Being amount due to retiring partner paid)

2. Payment Partly in Cash and Partly by Transferring into Loan Account : At the time of payment under this method, the following entry is passed
Retiring Partner’s Capital A/c Dr.
To Cash A/c
To Retiring Partner’s Loan A/c
(Being retiring partner paid partly in cash and balance transfer to his loan account)

3. Payment by Installment: To make lump-sum payment, firm must have sufficient cash or bank balance. Generally, it is not considered prudent to withdraw large sums, therefore, installment payment system is considered more practical way of payment. Under this method, the balance in the capital account of the retiring or deceased partner is transferred to a loan account in his name and this amount is paid in predetermined installments. Interest is also paid on the balance amount as per mutual agreement. 

At the time of payment under this method, following journal entries are passed:
(i) On Transferring Amount Payable to Loan Account
Retiring Partner’s Capital A/c Dr.
To Retiring Partner’s Loan A/c
(Being retiring Partner’s Capital Account balance transfer to his loan account)

(ii) On Interest Falling Due
Interest A/c Dr.
To Retiring Partner’s Loan A/c
(Being for interest to his loan account).

(iii) On Payment of Installment
Retiring Partner’s Loan A/c Dr.
To Cash/Bank A/c
(Being installment Paid)

4. Payment by Annuity: Under this method, the partner retired is given an annuity (annual payment) of certain amount (to be ascertained from annuity tables) till he is alive or to the executor of a deceased partner till his life. This stipulated amount payable is called an Annuity. According to this method, the balance of capital account of a partner retired or deceased is transferred to annuity suspense account. This account is credited with a certain amount of interest at a specified rate. If the partner or the executor or deceased partner dies leaving a balance in this account, it is distributed among the remaining partner in their profit sharing ratio.

This account is credited every year beginning balance at a specified rate of interest. In case, the rate of interest is not given, in the question interest is applied at 6% per annul. The payment from this account is made till the death of retired partner. In case no balance is left in this account, the necessary amount is transferred to annuity account from profit and loss account.
Journal Entries
(i) On Transferring the Amount Payable to Annuity Account.
Retiring Partner’s Capital A/c Dr.
To Annuity Suspense A/c
(Being balance of retiring partner’s capital account transferred to annuity suspense account)

(ii) On Interest Falling Due Every Year on Annuity Account
Interest A/c Dr.
To Annuity Suspense A/c
(Being interest due)

(iii) On Yearly Payment of Annuity
Annuity Suspense A/c Dr.
To Bank/Cash A/c
(Being amount of annuity paid)

(iv) On Death of Retired Partner while there is Balance in Annuity Account
Annuity Suspense A/c Dr.
To Remaining Partner’s Capital A/c
(Being balance of annuity suspense account transferred to remaining partner’s capital account)

(v) If the retired partner survives beyond the balance in annuity account he will continue to receive annuity from firm till his survival. In this case following entry will be passed at the end of year apart from the entry at for accounting of annuity.
PL A/c Dr.
To Annuity Suspense A/c

(a) surrender value of a policy

(c) by executors of deceased partner

Calculation of Average Profit:

4,000 + 18,000 + 22,000 – 10,000 + 16,000

 \(= \frac { 60,000 }{ 5 } = 12,000\)

Profit of 3 months = 12,000 x\(\frac{3}{12}\)  = 3,000
Share of A = 1000
Profit and Loss Suspense A/c Dr. 1,000
To A’s Capital A/c 1,000
(Share of profit transferred to his capital account.)

Correct answer is (b) Rs 750

(d) debited, profit & loss account

B gets A’s complete share, means B will get more \(\frac{2}{5}\) share.

B s new profit share = \(= \frac { 1 }{ 5 } +\frac { 2 }{ 5 } =\frac { 1+2 }{ 5 } =\frac { 3 }{ 5 } \)

C’s old share was= \(\frac{2}{5}\)

So, profit and loss ratio of both

= \( \frac { 3 }{ 5 } :\frac { 2 }{ 5 } = 3:2\).

alculation of profit on the basis of sales

Percentage of profit on the last year sales 

= \( \frac { 20,000 }{ 2,00,000 } \times 100 = 10%\)

Profit upto death in 2017 = 1,20,000 x \(\frac{10}{100}\)= Rs 12,000
As share in this profit = 12,000 x \(\frac{3}{6}\) = Rs 6,000
So, As profit will be Rs 6,000.

(d) All of these

Examples for tangible for tangible assets.

The different types of assets are : Fixed assets and current assets. 

Examples for intangible assets are : goodwill, patents, copyrights.

Fixed Assets are assets held on a longterm basis. Such as land Building Machinery etc. These assets are used for the normal operations of the business.

Gain refers to a revenue which not generated through regulate business activities.

Sales, interest received, rent received are for examples.

These are the amount of the business earned by selling its product (or) services to customer called revenue. 

Amount invested by the owner to the business is known as capital. 

Balance sheet / Equation = Capital = Assets – Liabilities.

(a) Fixed Assets: Fixed Assets are assets held on a longterm basis. Such as land Building Machinery etc. These assets are used for the normal operations of the business. 

(b) Revenue: These are the amount of the business earned by selling its product (or) services to customer called revenue. Example Sales, Commission received, Rent received etc. 

(c) Expenses:- costs incurred by a business in the process of earning revenue are called as . Expenses. 

Example:- Depreciation, Rent, Wages, Salaries etc. 

(d) Short term liability:- Short term liability are obligations that are payable within a period of one year. 

Examples:- Creditors, Bills payable, etc. 

(e) Capital:- Amount invested by the owner to the business is known as capital. 

Balance sheet / Equation = Capital = Assets – Liabilities. 

Example:- if, on a given date, the total Assets of a business are ?6,000 & the total liabilities of business are ?20,000 the excess of the total assets over total liabilities of the business (60,000 -20,000) ?40,000 will be owners capital.

Entity means an area of economic interest of a particular industry or group of industries. Seperate books of accounts are kept for each entity. 

Liabilities are debts owed by the business entity to outsiders. 

Example : Creditors, Bills payable, bank over draft, etc. 

Creditor is a person to whom any sum of money is owed by business, other words the person who give benefits to business and amount payable, such person called creditors. 

Carried forward: It is the process of taking the closing amount at the foot of the page of joumal/ledger etc. The short form is c/f. 

Brought forward: It is the process of bringing forward the amount of previous page at the top of next page. The short term form is b/f. 

Brought Forward (B/f) is used for brought forward in case we put opening balance in ledger posting we use an abbreviation of b/f.

Carry Forward (C/f) abbreviation used for carry forward when we close ledger the remaining credit or debit balance known as carry forward balance.

Expenditure means a payment of cash or incurring a liability for acquiring assets, goods or service.

Expenditure means a payment of cash or incurring a liability for acquiring assets, goods or service.

Debtor is a person who owes any amount to business. In other words, who purchase goods from business on credit basis is called debtors

The term goods includes all commodities, articles or products which are purchased for the purpose of re-sale.

Revenue is the amount that adds to the capital. It represents cash generated by sale of goods or service offered.

Assets are the properties or resources which are owned by the business entity. 

Ex : Machinery, stock, goodwell, etc.

Revenue is the amount that adds to the capital. It represents cash generated by sale of goods or service offered. 

The goods purchased for sale, remain unsold called goods. It is a asset for the business.

Discount: Reducing the value of sales called discounting. Discounts are 2 types, Trade Discount and Cash Discount.

The accounts of a year are kept in a single set of books which contains 12 months, called accounting year. Generally it starts from 1st April and ends in 31st march of every year.

The amount of cash or any asset withdrawn by the owner of the business for his personal use or domestic use we called as drawings.

The factors that necessitated systematic accounting are given below: 

a. Only financial transactions are recorded: Those events that are financial in nature are only recorded in the books of accounts. For example, salary of an employee is recorded in the books but not recorded educational qualification. 

b. Transactions are recorded in monetary terms: Only those transactions which can be expressed in monetaiy terms are recorded in the books. For example, if a business has two buildings and four machines, then their monetary values is recorded in the books, i. e. two buildings costing ? 20,000, four machines costing ? 8,00,000. Thus the total value of assets is ? 8,20,000.

c. Art of recording: Transactions are recorded in the order of their occurrence (Date, wire).

d. Classification of Transaction: Business transactions of similar nature are classified and posted under their respective accounts. For example, all the transactions relating to machinery will be posted in the Machinery Account.

e. Summarising of data: All business transactions are summarized in the form of Trial Balance, Trading Account, Profit and Loss Account and Balance Sheet that provides necessary information to various users.

f. Analysing and interpreting data: Systematic accounting records enable users to analyse and interpret the accounting data in a proper and appropriate manner. These accounting data and information are presented in the form of graphs, statements, charts, that leads to easy communication and understand ability by various users. Moreover, this facilitates in decision making and future predictions.

It refers to the flow of accounting data, in the course of accounting during the period of accounting.

The objectives or advantages of accounting are: 

• To maintain the record of financial transactions of a business accurately. 

• To ascertain the profit or loss made by business.

• To present the true and fair view of financial position. 

• To know the amount due to creditors individually. 

• To know the amount due from debtors to the business. 

• To compute the tax liability of the concern. 

• To supply the required financial information to the mangement it helps for decision making.

• To maintain the record of financial transactions of a business accurately. 
•  To ascertain the profit or loss made by business. 
•  To present the true and fair view of financial position. 
• To know the amount due to creditors individually. 

Liabilities are debts owed by the business entity to outsiders. 

Example : Creditors, Bills payable, bank over draft, etc. 

Any business transaction which involves postpone of payment or receipt to a future date called credit transactions.

Business transactions means, any activity, dealing or event which has value measurable in terms of money related to business.

Any business transaction which involves immediate payment or receipt of cash called cash transactions.