A-AS Level (CIE) Accounting Paper-2: Specimen Questions with Answers 25 - 26 of 53

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Question 25

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Short Answer▾

Explain the accounting treatment of goodwill when goodwill account appears in the books of the firm and the new partner brings his share of goodwill in cash.

Explanation

When a goodwill account already appears in the books of the firm, it must be written off by debiting the old Partner՚s Capital Accounts in their old profit-sharing ratio and Crediting the Goodwill Account. Thereafter, first Cash Account will be debited and Premium Account will be credited and then Premium Account will be debited and Old Partner՚s Capital Accounts will be credited in sacrificing ratio. In case the whole or any portion of the premium is withdrawn by the old partners, their Capital Accounts are debited and the Cash Account is credited.

Question 26

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Explain income and expenditure account.

Explanation

Income and expenditure account are like the Profit and loss A/c which is also prepared exactly on same accounting principles. Only revenue items are recorded herein. In income and expenditure account all the incomes are recorded on the credit and the expenses on the debit side. Both incomes and expenses must be taken based on accrual concept. This account reflects only list of items that are related to current period. Previous and following year items are to be excluded. This account shows either a surplus or deficit. The excess of income over expenditure is called surplus whereas, the excess of expenditure over income is called as deficit.

Features of Income and Expenditure Account are:

  • It follows Nominal account.
  • All expenses of revenue nature for the period are debited to this Account on accrual basis
  • Similarly, all revenue incomes related to the period are credited to this account on accrual basis.

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