A-AS Level (CIE) Accounting Paper-3: Specimen Questions with Answers 28 - 29 of 50

Question 28

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Question

MCQ▾

Compulsory dissolution of partnership happens when

Choices

Choice (4)
a.Insolvency of partner
b.Firm’s business is declared illegal.
c.Transfer of share from one person to other without the consent of all the partners
d.On death of a partner

Answer

b.

Explanation

A firm is dissolved –

  • By the adjudication of all the partners, or all the partners but one as, insolvent. Or where all partners of the firm have been adjudicated insolvents, the partnership inevitably ends. Or only one partner remains solvent and all others have been adjudicated insolvent.
  • By the happening of any event which makes it unlawful for the business of the firm to be carried on, or for the partners to carry it on in partnership.

Question 29

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Question

MCQ▾

Choose the correct statement from below

Choices

Choice (4)
a.Decrease in debtors indicate that collections from debtors are more than the amount of credit sales.
b.Increase in creditors indicate that payment to creditors are more than the amount of credit purchase.
c.Decrease in creditors indicate that payment to creditors are less than the amount of credit purchase.
d.Increase in debtors indicate that collections from debtors are more than the amount of credit sales.

Answer

a.

Explanation

  • Current assets and liabilities go on changing frequently. Although these changes do not affect the amount of net profit, they affect the amount of cash generated from operating activities. Hence to arrive at a figure of cash from operating activities, there is need for adjustment in respect of these changes.
  • Decrease in debtor indicates that collections from debtors are more than the amount of credit sales during the year. The decrease in current assets should be added to the figure of operating profit.

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