A-AS Level (CIE) Accounting Paper-3: Specimen Questions with Answers 26 - 27 of 50

Question 26

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Question

MCQ▾

A and B are partners sharing profits & losses as 2: 1. C and D are admitted, and profit-sharing ratio becomes 4: 2: 3: 1. Goodwill is valued at $20,000. D brings required goodwill and $5,000 cash for Capital. C brings in $5,000 cash and $4,000 worth stock as his capital in addition to the required amount of goodwill in cash. What will be D’s and C’s share of goodwill?

Choices

Choice (4)
a.4000 and 6000
b.2000 and 6000
c.6000 and 2000
d.3000 and 6000

Answer

b.

Explanation

Calculation of goodwill of D’s share and C’s share: Value of the total goodwill of the firm $20,000

Therefore, D’s share of goodwill = $20,000 x 1/10= $2,000

C’s share of goodwill $20,000 x 3/10 = $6,000

Calculation of Sacrificing Ratio: Sacrifice Ratio = Old Ratio - New Ratio

Thus, Sacrifice Ratio

Question 27

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Question

MCQ▾

Choose the wrong statement in the case of Garner Vs Murray

Choices

Choice (4)
a.Capital ratio will be determined based on their Capitals appearing in the Balance Sheet of the firm just prior to dissolution.
b.The loss on realisation will be borne by all the partners including the insolvent partner.
c.If any of the solvent partner’s Capital Account shows a credit balance on the date of dissolution, he will not share any deficit of the insolvent partner
d.The deficiency (i. e. , the debit balance) shown by the insolvent partner’s Capital Account must be shared by the solvent partners in their capital ratio.

Answer

c.

Explanation

In the case of Garner Vs Murray Mr. Justice Joyce decided as follows:

  • The loss on realisation will be borne by all the partners including the insolvent partner in their profit-sharing ratio. The solvent partners should then bring in Cash equal to their shares of loss on realisation.
  • The deficiency (i. e. , the debit balance) shown by the insolvent partner’s Capital Account must be shared by the solvent partners in their capital ratio.
  • Capital ratio will be determined based on their Capitals appearing in the Balance Sheet of the firm just prior to dissolution.
  • If any of the solvent partner’s Capital Account shows a debit balance on the date of dissolution, he will not share any deficit of the insolvent partner.

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