Partnership accounts: admission, retirement, death, dissolution, insolvency - Question Bank

1. If the deed is silent, profit or loss on revaluation at the time of admission of a partner is shared among:
A) All partners in the new profit-sharing ratio.
B) Old partners in the old profit-sharing ratio.
C) All partners equally.
D) Only the old partners in their gaining ratio.
2. Which account is debited when a partner withdraws goods for personal use during their admission, retirement, or death?
A) Goods Account
B) Partners' Capital Account
C) Drawings Account
D) Realization Account
3. When a partnership is dissolved, the partners' loans are paid:
A) Before external liabilities.
B) After external liabilities but before partners' capital.
C) After partners' capital.
D) At the same time as external liabilities.
4. What is the treatment of 'Joint Life Policy' when a partner retires and the policy is surrendered?
A) The surrender value is distributed among partners in the old profit-sharing ratio.
B) The surrender value is distributed among continuing partners in the new profit-sharing ratio.
C) The policy is transferred to the retiring partner's capital account.
D) The surrender value is ignored.
5. In case of insolvency of a partner, the partner who is solvent has to bear the deficiency of the insolvent partner in their:
A) Old Profit-Sharing Ratio
B) New Profit-Sharing Ratio
C) Gaining Ratio
D) Sacrificing Ratio
6. The balance of the Realization Account at the end of dissolution represents:
A) Profit or loss on sale of assets.
B) Profit or loss on realization of all assets and liabilities.
C) Outstanding liabilities.
D) Partners' capital.
7. If a retiring partner is paid their dues through a loan, interest on this loan is charged:
A) At a rate specified in the partnership deed.
B) At 6% per annum as per Indian Partnership Act, 1932, if deed is silent.
C) At the rate of the bank's lending rate.
D) No interest is charged.
8. When a new partner is admitted, and goodwill is not brought in cash, the adjustment is made through:
A) Revaluation Account
B) Partners' Capital Accounts in the gaining ratio
C) Partners' Capital Accounts in the sacrificing ratio
D) General Reserve Account
9. Which of the following is a characteristic of partnership dissolution?
A) The firm continues to exist.
B) The business operations cease.
C) The assets and liabilities are not settled.
D) Partners continue to share profits.
10. In case of death of a partner, if the profit is to be calculated on the basis of time, it is usually calculated on:
A) The profit of the last accounting period.
B) The profit of the last three years.
C) The profit of the current year up to the date of death.
D) The average profit of the last two years.
11. The 'Gaining Ratio' is calculated as:
A) Old Ratio - New Ratio
B) New Ratio - Old Ratio
C) Old Ratio + New Ratio
D) New Ratio / Old Ratio
12. When a partner is insolvent and their private estate is insufficient to pay their private debts, the deficiency is called:
A) Loss on realization
B) Capital deficiency
C) Insolvency loss
D) Bad debt
13. What is the accounting treatment for an unrecorded liability discovered during dissolution?
A) Debited to Partners' Capital Accounts.
B) Credited to Realization Account.
C) Debited to Realization Account.
D) Credited to Profit and Loss Account.
14. If a partner retires and their share is taken by one of the remaining partners, the capital accounts of the remaining partners are adjusted based on:
A) Sacrificing Ratio
B) Gaining Ratio
C) Old Profit-Sharing Ratio
D) New Profit-Sharing Ratio
15. Which of the following is a liability of the firm during dissolution?
A) Cash in hand.
B) Outstanding expenses.
C) Furniture.
D) Investments.
16. The concept of 'Gudden's Rule' is related to:
A) Admission of a partner.
B) Retirement of a partner.
C) Death of a partner.
D) Dissolution of the firm.
17. When a partnership firm is dissolved, the final payment is made to:
A) External creditors.
B) Partners' loans.
C) Partners' capital accounts.
D) Partners' private creditors.
18. Upon the death of a partner, if the partnership deed is silent on the valuation of goodwill, then:
A) Goodwill is not considered.
B) Goodwill is valued as per the average profit method.
C) Goodwill is valued as per the mutual agreement of the surviving partners.
D) Goodwill is valued as per the super profit method.
19. What is the primary reason for calculating the gaining ratio?
A) To compensate the retiring partner.
B) To determine how the outgoing partner's share is distributed among the remaining partners.
C) To revalue the firm's goodwill.
D) To adjust accumulated profits.
20. When a new partner is admitted, the revaluation profit or loss is shared by:
A) All partners in the new profit-sharing ratio.
B) Old partners in the old profit-sharing ratio.
C) All partners in the gaining ratio.
D) Old partners in the sacrificing ratio.
21. In the context of dissolution, 'Piecemeal distribution' refers to:
A) Distributing assets one by one as they are realized.
B) Distributing all cash at once after all assets are realized.
C) Distributing profits of the firm.
D) Paying off liabilities in installments.
22. Which ratio is used to distribute the profit or loss on realization during dissolution?
A) Old Profit-Sharing Ratio
B) New Profit-Sharing Ratio
C) Gaining Ratio
D) There is no specific ratio; it depends on the agreement.
23. When a partner's death occurs, and the firm has a 'Workmen's Compensation Fund' which is more than the claim, the excess is:
A) Distributed among all partners in the old profit-sharing ratio.
B) Distributed among the continuing partners in the new profit-sharing ratio.
C) Transferred to the deceased partner's capital account.
D) Retained as a reserve.
24. The concept of 'Gaining Ratio' is primarily applied when:
A) A new partner is admitted.
B) A partner retires or dies.
C) The partnership is dissolved.
D) The firm is reconstituted for any reason.
25. If a partner's capital account shows a debit balance at the time of dissolution, they must:
A) Receive payment from the firm.
B) Pay the amount to the firm.
C) Have their loan account adjusted.
D) Be declared bankrupt.
26. What is the accounting treatment for unrecorded investments sold during dissolution?
A) Credited to Partners' Capital Account.
B) Debited to Realization Account.
C) Credited to Realization Account.
D) Debited to Bank Account.
27. The 'Realization Account' is a:
A) Personal Account
B) Nominal Account
C) Real Account
D) Representative Personal Account
28. When a partner retires, and their dues are settled in installments with interest, the principal amount is transferred to:
A) Retiring Partner's Capital Account.
B) Retiring Partner's Loan Account.
C) Continuing Partners' Capital Accounts.
D) Bank Account.
29. Which of the following is NOT a method for adjusting goodwill on admission of a new partner?
A) Goodwill brought in by the new partner privately.
B) Goodwill brought in by the new partner through the bank.
C) Goodwill raised and written off.
D) Goodwill adjusted through Revaluation Account.
30. If a partner's private assets are insufficient to pay their share of the firm's debts (in case of insolvency), the remaining solvent partners have to bear the deficiency in their:
A) Old profit-sharing ratio.
B) New profit-sharing ratio.
C) Gaining ratio.
D) Sacrificing ratio.
31. What is the primary purpose of the 'Revaluation Account' during admission or retirement?
A) To record the profit or loss on sale of assets.
B) To record the change in the value of assets and liabilities.
C) To distribute accumulated profits.
D) To adjust partners' capital accounts for goodwill.
32. Under the doctrine of 'implied authority', partners can bind the firm for:
A) Any act, even if unrelated to business.
B) Acts necessary for carrying on the business of the kind carried on by the firm.
C) Acts only approved by all partners.
D) Personal debts of other partners.
33. When a partner dies, and their share of profit is to be calculated up to the date of death, it is usually based on:
A) The profit of the previous year.
B) The profit of the last three years averaged.
C) The profit of the current year on a time or sales basis.
D) The profit of the year of death.
34. What is the role of the 'Gaining Ratio' in partnership accounting?
A) It determines the share of profit sacrificed by old partners.
B) It determines the share of profit gained by continuing partners when a partner retires or dies.
C) It is used for distributing accumulated profits.
D) It is relevant only during the dissolution of the firm.
35. In case of dissolution, if a partner has taken over a specific asset at an agreed value, this asset is debited to:
A) Partners' Capital Account.
B) Realization Account.
C) Bank Account.
D) Profit and Loss Appropriation Account.
36. What is 'Gan's Law' relevant to in partnership accounts?
A) Admission of a new partner.
B) Retirement of a partner.
C) Death of a partner.
D) Dissolution of the firm.
37. When a partner retires and the firm continues, any balance in the 'General Reserve' is distributed among:
A) All partners in the new profit-sharing ratio.
B) The continuing partners in the new profit-sharing ratio.
C) The retiring partner and continuing partners in the old profit-sharing ratio.
D) The continuing partners in the old profit-sharing ratio.
38. Upon the death of a partner, any unrecorded asset discovered or liability not provided for is adjusted through:
A) Partners' Capital Accounts directly.
B) Realization Account.
C) Revaluation Account.
D) Profit and Loss Adjustment Account.
39. If the profit-sharing ratio of existing partners is 3:2, and a new partner is admitted for 1/4th share, what is the sacrificing ratio if the new ratio is 2:1:1?
A) 3:2
B) 2:1
C) 1:1
D) Cannot be determined without more information
40. What is the main objective of revaluing assets and liabilities on the admission of a new partner?
A) To reduce the new partner's capital contribution.
B) To ascertain the true financial position for determining the share of incoming partner and adjusting old partners' rights.
C) To increase the goodwill of the firm.
D) To simplify the accounting process.
41. When a partner retires, and their share is taken up by the remaining partners in a specific ratio, the remaining partners' capital accounts are:
A) Debited by their sacrifice.
B) Credited by their gain.
C) Debited by their gain.
D) Credited by their sacrifice.
42. Which account is opened to record the transactions related to the sale of assets and payment of liabilities during dissolution?
A) Capital Account
B) Profit and Loss Account
C) Realization Account
D) Partners' Loan Account
43. In case of insolvency of a partner, if the firm's assets are insufficient to pay off external liabilities, the loss is borne by:
A) Only the solvent partners.
B) All partners, including the insolvent partner, in their profit-sharing ratio.
C) Only the insolvent partner.
D) The remaining solvent partners in their gaining ratio.
44. The difference between the realizable value of assets and the payment of liabilities during dissolution is termed:
A) Profit on realization
B) Loss on realization
C) Capital profit
D) Revenue loss
45. When a partnership is dissolved, what is the order of settlement of accounts?
A) Partners' loans, partners' capital, external liabilities, assets.
B) External liabilities, partners' loans, partners' capital, assets.
C) Assets realized, external liabilities, partners' loans, partners' capital.
D) Partners' capital, partners' loans, external liabilities, assets.
46. In the event of a partner's death, the legal representative is entitled to:
A) Only the deceased partner's capital balance.
B) The deceased partner's share of profit up to the date of death and the value of goodwill.
C) The entire profit of the firm for the current year.
D) A claim for damages against the firm.
47. What happens to the accumulated profits and reserves upon the admission of a new partner?
A) They are distributed among the old partners in their old profit-sharing ratio.
B) They are carried forward to the new profit-sharing ratio.
C) They are written off against the new partner's capital contribution.
D) They are transferred to a suspense account.
48. If a retiring partner's share of profit is taken by the remaining partners in a specific ratio, this is known as the:
A) Sacrificing Ratio
B) Gaining Ratio
C) Distribution Ratio
D) Liquidation Ratio
49. When a new partner is admitted, and the new partner brings in goodwill in cash, which account is credited?
A) New Partner's Capital Account
B) Old Partners' Capital Accounts
C) Goodwill Account
D) Bank Account
50. What is the primary accounting implication when a new partner is admitted into an existing partnership?
A) Existing partners' capital accounts are debited.
B) The goodwill of the firm is revalued and adjusted.
C) The firm is immediately dissolved.
D) Liabilities of the firm are written off.
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