Q. How is goodwill treated when a partner retires from a partnership?
A.
Goodwill is written off
B.
Goodwill is transferred to the remaining partners
C.
Goodwill is recorded as an asset
D.
Goodwill is ignored
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Solution
When a partner retires, the goodwill is usually revalued and the share of goodwill is transferred to the remaining partners' capital accounts.
Correct Answer:
B
— Goodwill is transferred to the remaining partners
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Q. In inventory valuation, which method is NOT acceptable under accounting standards?
A.
FIFO
B.
LIFO
C.
Weighted Average Cost
D.
Specific Identification
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Solution
LIFO (Last In, First Out) is not accepted under IFRS accounting standards, although it is allowed under US GAAP.
Correct Answer:
B
— LIFO
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Q. What is the effect of a partner's withdrawal on the partnership's capital?
A.
Increases total capital
B.
Decreases total capital
C.
No effect on total capital
D.
Depends on the profit-sharing ratio
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Solution
A partner's withdrawal reduces the total capital of the partnership as the amount withdrawn is deducted from the partner's capital account.
Correct Answer:
B
— Decreases total capital
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Q. What is the effect of depreciation on the final accounts of a partnership firm?
A.
Increases net profit
B.
Decreases net profit
C.
No effect on net profit
D.
Increases total assets
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Solution
Depreciation is an expense that reduces the net profit of the partnership firm in the final accounts.
Correct Answer:
B
— Decreases net profit
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Q. What is the journal entry to record the admission of a new partner in a partnership firm?
A.
Debit Cash, Credit Capital Account
B.
Debit Capital Account, Credit Cash
C.
Debit Goodwill, Credit Capital Account
D.
Debit Capital Account, Credit Goodwill
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Solution
When a new partner is admitted, the firm usually receives cash, which is debited to Cash, and the corresponding credit is made to the Capital Account of the new partner.
Correct Answer:
A
— Debit Cash, Credit Capital Account
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Q. What is the primary purpose of preparing a final account for a partnership firm?
A.
To determine the net profit or loss
B.
To calculate the capital of each partner
C.
To assess the firm's liquidity
D.
To prepare tax returns
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Solution
The primary purpose of preparing final accounts is to determine the net profit or loss of the partnership for the accounting period.
Correct Answer:
A
— To determine the net profit or loss
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Q. What method of depreciation is commonly used in partnership firms for fixed assets?
A.
Straight Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Sum of the Years' Digits Method
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Solution
The Straight Line Method is commonly used as it provides a consistent expense recognition over the asset's useful life.
Correct Answer:
A
— Straight Line Method
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Q. When a partner contributes an asset to the partnership, how is it recorded?
A.
Debit Asset Account, Credit Partner's Capital Account
B.
Debit Partner's Capital Account, Credit Asset Account
C.
Debit Cash Account, Credit Asset Account
D.
Debit Partner's Drawings, Credit Asset Account
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Solution
When a partner contributes an asset, the asset is debited to the Asset Account and the corresponding credit is made to the Partner's Capital Account.
Correct Answer:
A
— Debit Asset Account, Credit Partner's Capital Account
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Q. Which accounting standard governs the accounting treatment of partnerships?
A.
AS 1
B.
AS 2
C.
AS 3
D.
AS 4
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Solution
AS 1 (Disclosure of Accounting Policies) provides guidelines that are relevant to the accounting treatment of partnerships.
Correct Answer:
A
— AS 1
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Q. Which method of inventory valuation is commonly used in partnership firms?
A.
FIFO
B.
LIFO
C.
Weighted Average
D.
All of the above
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Solution
Partnership firms can use any of the inventory valuation methods, including FIFO, LIFO, and Weighted Average, depending on their accounting policies.
Correct Answer:
D
— All of the above
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Q. Which of the following is NOT included in the trial balance of a partnership firm?
A.
Capital Accounts of Partners
B.
Drawings of Partners
C.
Profit and Loss Appropriation Account
D.
Cash Account
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Solution
The Profit and Loss Appropriation Account is prepared after the trial balance and is not included in it.
Correct Answer:
C
— Profit and Loss Appropriation Account
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