Deck 27: Changes in Partnerships

Question 1

Which of the following best describes 'negative goodwill'?

A) Where the market value of a business is less than the value of the underlying net assets of the business
B) Where the market value of a business equals the value of the underlying net assets of the business
C) Where the market value of a business is more than the value of the underlying net assets of the business
D) Where the asset is not a going concern and the assets are written down to their realisable value

Answer 1

Where the market value of a business is less than the value of the underlying net assets of the business

Question 2

The partnership is having some cash difficulties and Anna agrees to leave the balance of what she is owed on loan to the partnership for 2 years. What is the double entry that is required to close off Anna's accounts in the partnership?
Thomas, Anna and Barry are in partnership together sharing profits and losses equally. Anna decides to leave on the 31 December 20X0. The balances on the partnership capital accounts, current accounts
And loan accounts with the partners at this date are as follows:

A)
B)

C)
D)

Answer 2

Question 3

A partner is leaving and a new partner is joining the firm. The double entry to record the revaluation of a premises from £276,000 to £300,000 in the partnership books before the old partner leaves is as
Follows:

A)
B)
C)
D)

Answer 3

Question 4

Partner X is leaving and a new partner is joining the firm. The revaluation account after all the
Assets and liabilities were adjusted to their fair value has a credit balance carried down of £100,000.
Assuming there are two partners X and Y, sharing the profits and losses equally.
What is the double entry to clear the revaluation account?

A)
B)
C)
D)

Question 5

Which of the following will not enhance the value of the goodwill of a partnership?

A) The possession of patents
B) An excellent well trained workforce
C) A court case against the partnership for negligence
D) A strong brand name

Question 6

A partnership's sales for the past five years were as follows £180,000, £190,000, £180,000, £200,000 and £210,000. It has a building which has been valued at £250,000, is owed £25,000 from customers, owes suppliers £10,000 and has a mortgage on the building of £80,000. If the partnership agreement states that the valuation of the partnership should be based on 40% of the previous 5 years sales, what will the goodwill figure be?

A) £384,000
B) £199,000
C) £185,000
D) £109,000

Question 7

There are two partners (X and Y) in a partnership and they share profits and losses equally. At the end of the year Y decides to retire and a new partner Z joins. X and Z agree to share profits and losses in the ratio 75%:25%. Goodwill is valued at £50,000. What will the net adjustment for goodwill be to the
Partners' capital accounts?

A)
B)
C)
D)

Question 8

A partnership's revenues for the past three years were as follows £420,000, £380,000 and £300,000. It has a building which is in the statement of financial position at £150,000, though this has been valued at £210,000, fixtures worth £20,000, two motor vehicles worth £10,000 each, is owed £75,000 from customers, owes suppliers £30,000, has two hire purchase agreements with a combined outstanding balance of £5,000 and has a mortgage on the building of £100,000. If the partnership agreement states that the valuation of the partnership should be based on the average of the previous 3 years sales, what will the goodwill figure be?

A) £400,000
B) £280,000
C) £225,000
D) £220,000

Question 9

Partner X is leaving and a new partner is joining the firm. The revaluation account after all the assets
And liabilities were adjusted to their fair value has a debit balance carried down of £80,000. Assuming
There are two partners X and Y, sharing the profits and losses equally.
What is the double entry to clear the revaluation account?

A)
B)
C)
D)

Question 10

A partner has an opening balance on his current account of £2,000 (credit). He introduces £15,000 worth of capital, withdraws £28,000, is awarded £500 interest on his capital and is allocated profits for the period of £30,000. What is the closing balance on his current account?

A) £19,500
B) £5,000
C) £4,500
D) £4,000

Question 11

A partner has an opening balance on his current account of £3,000 (debit). He introduces £10,000 worth of capital, withdraws £28,000, obtained a partnership salary of £2,000, was awarded £500 interest on his capital and has a closing balance on the current account of £6,500. What was his profit allocation in the period after all appropriations were made?

A) £35,000
B) £29,000
C) £25,000
D) £19,000

Question 12

As Z's account will be moving from zero to £50,000, the £60,000 will be divided £50,000 to Z,
With the remained being shared to X and Y in their profit sharing ratios, which have not changed, i.e.
£6,000 to X and £4,000 to Y.
X and Y cannot agree on a goodwill figure. However they agree to allow Z to join, if he gives £60,000
To the partnership. At present the net assets of the partnership are worth £40,000. They have agreed
That Z will be entitled to 50% of the business, X 30% and Y 20% after Z joins. X and Z shared profits
To this point in the ratio 3:2. What will the double entry be to record the introduction of the £60,000.

A) Dr. Bank account £60,000 Cr. Capital account X £6,000
Cr) Capital account Y £4,000
Cr) Capital account Z £50,000
B) Dr. Bank account £60,000 Cr. Current account X £6,000
Cr) Current account Y £4,000
Cr) Current account Z £50,000
C) Dr. Bank account £60,000 Cr. Capital account X £18,000
Cr) Capital account Y £12,000
Cr) Capital account Z £30,000
D) Dr. Bank account £60,000 Cr. Current account X £18,000
Cr) Current account Y £12,000
Cr) Current account Z £30,000

Question 13

As Z's account will be moving from zero to £80,000, the £60,000 will be divided £50,000 to Z, with
The remained being shared to X and Y in their profit sharing ratios, which have not changed, i.e.
£6,000 to X and £4,000 to Y.
A and B cannot agree on a goodwill figure. However they agree to allow C to join, if he gives
£140,000 to the partnership. At present the net assets of the partnership are worth £60,000. They
Have agreed that C will be entitled to 40% of the business, A 40% and B 20% after C joins. A and B
Shared profits to this point in the ratio 1:1 before C joined. What will the double entry be to record the
Introduction of the £140,000.

A) Dr. Bank account £140,000 Cr. Capital account A £56,000
Cr) Capital account B £28,000
Cr) Capital account C £56,000
B) Dr. Bank account £140,000 Cr. Current account A £56,000
Cr) Current account B £28,000
Cr) Current account C £56,000
C) Dr. Bank account £140,000 Cr. Capital account A £50,000
Cr) Capital account B £10,000
Cr) Capital account C £80,000
D) Dr. Bank account £140,000 Cr. Current account A £50,000
Cr) Current account B £10,000
Cr) Current account C £80,000

Question 14

Which of the following will not impact on an asset revaluation account?

A) Provision for doubtful debts
B) New bad debts noted
C) Loan for car written adjusted to repayment value
D) Partner's salaries

Question 15

What is abnormal profit?

A) Unusual surges in profit over a period of time
B) Profits over the budgeted figures
C) Profit shown in the financial statements less a notional charge for interest on capital employed
D) Profit shown in the financial statements less partner salaries and a notional charge for interest on capital employed in the partnership.

Question 16

A partnership has reported profit for the year of £458,000 per the income statement. The partners had expected to make £350,000 so are delighted with performance. The partnership has three partners (Frank, Kitty and Sharon). It is estimated that these partners would have earned the following amounts (Frank £70,000, Kitty £60,000, Sharon £45,000) had they been working elsewhere. The balance on Frank's capital account is £500,000, Kitty's balance is £200,000 and Sharon's' is £200,000. The current rate of interest being earned on government gilts is 10%.
Given this information, what is the partnership abnormal profit/ (loss) for the year?

A) £108,000
B) £283,000
C) £193,000
D) £368,000