Answer the following questions in one sentence each.
1. What is partnership?
Ans. Partnership is a form of business organisation in which two or more persons enter into an agreement, contribute certain capital, undertake certain lawful business to earn profit and share the profits or losses in agreed proportion.
2. What is partnership deed?
Ans. A partnership deed is a written agreement duly stamped and signed document containing the terms and conditions of the partnership.
3. State the meaning of a Balance Sheet.
Ans. A balance sheet is a statement showing the financial position of the business in the form of its assets and liability on a particular date.
4. When are partners’ current accounts opened?
Ans. When partnership form adopts fixed capital method, it opens partners’ current accounts to record dealing of partners with partnership firm.
5. Write the meaning of bad debts?
Ans. The debt or its part which cannot be recovered from a debtor is called bad debts.
6. State the meaning of closing stock.
Ans. The unsold goods remained in the business at the end of the accounting year is known as closing stock.
2. How is closing stock valued?
Ans. Closing stock is valued at cost price or market price whichever is less.
3. What is Trial Balance?
Ans. Trial balance is a statement showing the list debit and credit balances of all the ledger accounts on a particular date.
4. What do you mean by Fluctuating Capital Method?
Ans. Fluctuating capital method is one in which capital balances of the partners go on changing every year due to entries for adjustments like drawings, interest on capital and drawings, salaries, commission, allowances, etc. Recorded in their capital accounts.
5. If the partnership deed is silent, what is the profit sharing of the partners?
Ans. If the partnership deed is silent, partners will share profits and losses in equal ratio.
6. Which account shows Net Profit or Net Loss of the business?
Ans. Profit and Loss account shows Net Profit or Net Loss of the business.
7. What do you mean by direct expenses?
Ans. The expenses which are directly related with production or purchase of goods or services are called direct expenses.
8. What do you mean by accrued income?
Ans. The income which is due but not yet received is called accrued income.
9. To which account is gross profit transferred?
Ans. Gross profit is transferred to Profit and Loss account.
10. A person who is engaged in day – to – day activities of the business.
Ans. Active or Working Partner.
11. What type of institutions / concerns prepares Income and Expenditure Account?
Ans. ‘Not for profit’ concerns such as Sports clubs, Charitable Hospitals, Schools, Colleges, Universities, Welfare Associations, Religious Concerns, Professional Institutions, etc. Prepare Income and Expenditure Account.
12. What do you mean by non – recurring expenses?
Ans. Non – recurring expenditure is any capital expenditure which is spent for acquisition of fixed assets like purchase of land or furniture, in order to run the concern and it gives benefits for a long period say more than 3 years.
13. What do you mean by recurring expenses?
Ans. Recurring expenditure is that expenditure of which benefit lasts for a maximum period of one year and is incurred on purchase of goods or services, in order to carry out the main activity of the concern.
14. Which ‘ Final Accounts’ do the ‘Not for Profit’ Concerns prepare?
Ans. The ‘Not for Profit’ concerns prepare Income and Expenditure Account and Balance sheet in their final accounts.
15. Which account is prepared by the ‘Not for Profit’ concerns for finding out surplus or deficit of the financial year?
Ans. Income and expenditure Account is prepared by the ‘Not for Profit’ concerns to find out surplus or deficit of the financial year.
16. Which account ‘Not for Profit’ concerns prepares instead of Cash account?
Ans. ‘Not for profit’ concerns prepare ‘Receipts and Payments’ Account instead of Cash account.
17. What do you mean by ‘Not for Profit’ concern?
Ans. A concern or an organisation which is formed and established to serve society or general public by undertaking various activities without any profit motive is called a ‘not for profit’ concerns.
18. State the meaning of Capital Receipts.
Ans. Capital Receipts are those receipts which are non – recurring in nature and not forming a part of regular flow of income of a concern. E.g. specific donation received for construction of a building.
19. Write the meaning of Revenue Receipts.
Ans. Revenue Receipts are those receipts which are recurring in nature and such receipts give a regular flow of income of a concern, e.g. subscriptions received from members.
20. State the meaning of Revenue expenditure.
Ans. An expenditure which is incurred for carrying day – to – day business activities and maintaining fixed assets in working condition is called revenuer expenditure.
21. What do you mean by Capital expenditure?
Ans. An expenditure which is non – recurring in nature and incurred to purchase new fixed assets to increase earning capacity, efficiency and working life of the existing fixed assets and to achieve economy of operation of an existing fixed assets is called capital expenditure.
22. What is Legacy?
Ans. Any asset, property or amount of cash which ‘Not for Profit’ concern receives as per the provisions made in the will of the donor after his death is called legacy.
23. What do you mean by capital fund?
Ans. Capital fund consists of contributions, entrance fees, surplus income, legacies and donations specifically received for capital fund.
24. State the meaning of Entrance Fees.
Ans. Specific amount received from the member only once usually at the time of his entry into ‘Not for profit’ concern is called entrance fees.
25. What do mean by ‘Special donation’?
Ans. Donations which are given for a specific purpose like donation for building fund are called as special donations and such donations are to be utilised for the same purpose for which they have been collected.
26. What is an ‘Endowment Fund’?
Ans. A fund created by ‘Not for profit’ concern from the gift or donation given by the donor, the income of which is used or devoted for specific purpose is called endowment fund.
27. What is ‘Life Membership Fee’?
Ans. The fee paid by a person who desired to become a member of the organisation for his whole life is called as ‘Life Membership Fee’.
28. What do you mean by Single Entry System?
Ans. A book – keeping system that only records one aspect of each business transaction. i.e. either debit or credit is called single entry system.
29. Which accounts are normally kept under the single entry system?
Ans. Generally, the personal accounts relating to debtors and creditors and cash – book are kept under the single entry system.
30. Which statement is prepared under the single entry system to ascertain the capital?
Ans. Statement of Affairs is prepared under the single entry system to ascertain the capital.
31. What is Statement of Affairs?
Ans. A statement which is prepared under the single entry system on the basis of estimated balances of various assets and liabilities is called ‘Statement of Affairs’.
32. Which statement is prepared under the single entry system to ascertain profit?
Ans. Statement of Profit or Loss is prepared under the single entry system to ascertain profit.
33. What is depreciation?
Ans. Continuous, gradual and permanent reduction in the value of fixed assets brought about by the factors like wear and tear, passage of time or similar other factors, etc is called depreciation.
34. What is fixed instalment method of depreciation?
Ans. The method of depreciation in which depreciation is charged at a fixed percentage on the original cost of a fixed asset every year and as a result the amount of depreciation charged every year remains constant is called Fixed Instalment Method.
35. What is Reducing Balance method?
Ans. The method of depreciation under which depreciation is charged at a fixed percentage on the written down value of the fixed asset at the beginning of each year, is called the Reducing Balance Method of Depreciation.
36. To which account an amount of depreciation is transferred?
Ans. At the end of every financial year, the amount of depreciation is transferred to Profit & Loss account.
37. What do you mean by scarp value?
Ans. The net amount which is expected to be realised on the final disposal of a fixed asset is called ‘scrap value’.
38. Which account is credited when depreciation is charged?
Ans. When depreciation is charged, relevant fixed asset account is credited.
39. What do you mean by qualified acceptance?
Ans. If the drawee of a bill of exchange accepts it on condition that the time or amount of the bill be changed or adds some other conditions to the bill, his acceptance is called a qualified acceptance.
40. What is the term of the bill of exchange?
Ans. The period for which the bill of exchange is drawn and accepted is called the term of the bill of exchange.
41. What is Joint venture?
Ans. A Joint venture is a temporary partnership for carrying out a specific business without the use of the firm name.
42. Who is called Co – venturer?
Ans. Members or partners in a joint venture are individually called coventurer.
43. What is Joint Venture Account?
Ans. An account operated by co – venturers to record joint venture transactions and to find out profit or loss made on joint venture is called joint venture account.
44. To which account discount of discounted bill transferred in joint venture business?
Ans. Discount of discounted bill is transferred to Joint venture A/c in joint venture business.
Set II
1. Write word/term/phrase which can substitute each of the followings:
1. Reputation of a firm expressed in terms of money. (Goodwill)
2. Payment of expenses before they have become due. (Prepaid expenses)
3. Payment of bill of exchange before its due date at rebate. (Retirement of bill of exchange)
4. The person on whom the bill of exchange is drawn. (Drawee)
5. The account that is credited when depreciation is charged. (Respective Asset A/c)
6. A bill before acceptance. (Draft)
7. Amount by which book value of fixed assets exceeds its selling price. (Loss on sale of asset)
8. Expenses due but not paid. (Outstanding Expenses)
9. Partners of joint venture business. (Co – venturers)
10. Normal Rate of Return x Capital employed. (Normal Profit)
11. Which types of expenses are debited to Trading Account? (Direct expenses related to production)
12. What are ‘Not for Profit’ Concerns? (A concern or an organisation which is formed and established to serve society or general public by undertaking various activities without any profit motive is called a ‘not for profit’ concern.)
13. A partnership for specific purpose and for temporary period. (Joint venture)
14. List of debit and credit balances of the ledger accounts. (Trial Balance)
15. A person who accepts the bill. (Acceptor)
16. Written agreement among the partners. (Partnership deed)
17. The balance which cannot be recovered from the debtors. (Bad debts)
18. The account that serves the purpose of P&L A/c for non trading organisation. (Income and expenditure account)
19. The system of book keeping under which only one aspect of the transactions is recorded. (Single entry accounting system)
20. The person on whom the bill of exchange is drawn. (Drawee)
21. The account that is credited when depreciation is charged. (Respective Asset A/c)
22. The present value of tangible trading assets less all the liabilities, which is required for valuation of goodwill. (Capital employed)
23. Goods returned to the supplier. (Purchase Return)
24. It is a stick or lever used to change the position of the cursor on a screen. (Joystick)
25. A bill in which the period of the bill is counted from the date of the bill accepted. (After acceptance bill)
26. The receipts that are an unusual nature not arising through named activities of the business. (Capital Receipts)
27. A fixed asset which is not essential for conduct of business. (Goodwill)
28. Debit balance of trading account. (Gross loss)
29. Written terms of agreement between the partners. (Partnership deed)
30. Summary of actual cash receipts and cash payments. (Receipts & Payment A/c)
31. A system in which accounts are prepared from incomplete records. (Single entry accounting system)
32. An account opened by covertures in the bank for recording cash transactions. (Joint Bank A/c)
33. A statement showing financial position of the business. (Balance sheet)
34. Making the payment of bill before its due date. (Retirement of Bill of exchange)
35. Summary of actual cash receipts and cash payments. (Receipts and Payment A/c)
36. The relationship between persons who have agreed to share profit or loss in Joint Venture Business. (Coventurers’)
37. A Partner who only lends his name to the firm. (Nominal Partner)
38. Concerns established for providing services. (Not for profit concern)
39. Profit earned over and above normal profit. (Super profit)
40. A temporary partnership without firm name. (Joint venture)
41. A person who endorses the bill. (Endorser)
42. The balance which cannot be recovered from the debtors. (Bad debts)
43. An accounting system where rules of debit and credit are not followed. (Single entry accounting system)
44. Money value of business reputation. (Goodwill)
45. A person entered into a joint venture. (Coventurers)
46. The Gifts received from legal representative as per the will of a deceased person. (Legacies)
2. Match the following:
Group A | Group B |
1. Opening Stock 2. Fixed instalment method 3. Software 4. Joint Bank Account 5. Subscription | a. Amount of depreciation remains constant. b. Trading account c. Revenue income d. Capital income e. Balance sheet f. Converting symbolic language g. Separate set of books h. Utility programme |
Group A | Group B |
1. Unpaid expenses 2. Single Entry System 3. Computer 4. Co – Venture 5. Maker of a bill | a. Electronic device b. Partnership firm c. Drawee d. Asset side e. Unscientific f. Liability side g. Drawer h. Joint venture |
Group A | Group B |
1. Not for profit concerns 2. Fixed capital method. 3. Unexpired expenses 4. Temporary Partnership 5. Pure Single Entry System | a. Capital A/c. of partner. b. Current A./c of Partner. c. Joint venture d. Asset e. Liability f. Only personal A/cs. g. Profit & Loss A/c. h. Income and Expenditure A/c. |
Group A | Group B |
1. Goodwill 2. Discount to customers 3. Statement of Affairs 4. Income and Expenditure account 5. Fixed Instalment Method. | a. Book Debts b. Sundry Creditors c. Tangible Asset d. Intangible Asset e. Single Entry System f. Double Entry System g. Original Cost h. Not for Profit concerns |
Group A | Group B |
1. Partner’s Salary 2. Subscription received in advance for the current year. 3. Dishonour of bill. 4. Cash in hand. 5. Unsold goods taken over by co – ventures | a. Balance sheet asset side. b. Current asset. c. Deducted from gross profit. d. Credited to joint venture account. e. Credited to covertures A/c f. Noting Charges. g. Closing balance sheet liability side. h. Fixed assets. |
Group A | Group B |
1. RAM 2. Co – Ventures 3. Goodwill 4. Receipts & Payment A/c 5. Single Entry System of Book – Keeping. | a. Intangible Asset b. Records all cash transactions c. Trading A/c can’t be prepared d. Current asset e. Temporary memory f. Uniformity maintaining accounts. g. Temporary partners h. Nominal A/c |
Group A | Group B |
1. Co - Venture 2. Rebate 3. Credit balance of Income & Expenditure Account 4. Dormant Partner 5. Trading Account | i. Limited liability ii. Surplus iii. Temporary partner iv. Retirement of a bill v. Deficit vi. Does not take active part in the business vii. Account showing the net profit / net loss viii. Power and Fuel / Gross profit. |
A Group | B Group |
| a. Capital account of partner b. Current account of partner c. Joint venture d. Asset e. Liability f. Only Personal account g. Profit and Loss account. h. Income and expenditure account. |
A | B | ||
1. 2. 3. 4. 5. | Interest on partners loan Excess of income over expenditure Legal due date Printing and Stationery Goods sold by consignee | 1. 2. 3. 4. 5. 6. 7. 8. | Deficit Before adding three grace days Not Exceeding 6% After adding three grace days. Surplus Trading Account Debited to Consignee’s Account. Profit / loss account. |
A | B | ||
1. 2. 3. 4. 5. | Depreciation Dishonour of bill Joint Venture Goodwill Co – Venturers | 1. 2. 3. 4. 5. 6. | Temporary Partners Intangible Asset Wear and tear Notary public Temporary partnership Tangible Asset |
SET III
3. Select the most appropriate alternative from those given below
1. Debit Balance in Profit and Loss Account shows _______________
a. Net profit
b. Gross profit
c. Net loss
d. Gross loss
2. A bill of exchange must be accepted by _______________
a. A drawer
b. A payee
c. An endorsee
d. A drawee
3. At the end of the financial year balance of Depreciation account is transferred to _______
a. Depreciation account
b. Asset account
c. Trading account
d. Profit and loss account.
4. In the absence of partnership deed the partners share the profit and loss of the firm ____
a. In the ratio of capital
b. Equally
c. As per rights in management
d. On the basis of experience.
5. ____________ has to ultimately bear the noting charges.
a. Drawer
b. Drawee
c. Endorser
d. Bank
6. The Indian Partnership Act came into force in ____________________.
a. 1942
b. 1932
c. 1953
d. 1956
7. Excess of assets over liabilities is termed as ___________________.
a. Endowment Fund
b. Capital Fund
c. Special Fund
d. None of these
8. Fixed Instalment method of depreciation is also called as _______________
a. Straight Line Method.
b. Reducing Balance Method.
c. Written down value method.
d. Depreciation Fund Method.
9. Drawing a fresh bill in cancellation of old bill is called as _________________.
a. Retirement of Bill.
b. Discounting of bill.
c. Endorsement of Bill.
d. Renewal of bill.
10. When the co – ventures incur the joint venture expenses from his pocket _________ A/c is credited.
a. Joint Venture A/c
b. Joint Bank A/c
c. Co – venture’s A/c
d. Consignees A/c
11. The Indian Partnership Act is in force since ____________
a. 1932 b. 1942 c. 1952 d. 2002
12. Normally, Receipts and payments account shows ____________ balance.
a. Debit b. Credit c. Nil d. Overdraft
13. Excess of opening capital over the closing capital is considered as
a. Income b. Profit c. Gain d. Loss
14. Making payment of the bill before the due date is known as ____________ of a bill.
a. Retirement b. Honouring c. Dishonouring d. Renewal
15. If two or more persons come together to carry on a business activity for a short period, it is known as ____________
a. Joint venture b. Consignment c. Partnership firm. d. Co – operative society.
16. The interest on capital of a partner is _______ to profit & loss account.
a. Credited
b. Added
c. Debited
d. Divided
17. If fixed capital method is adopted, Net profit is transferred to _______ account of the partner.
a. Current
b. Capital
c. Balance sheet
d. Trading
18. Not for profit organisation prepares _________ to find out its financial position.
a. Balance sheet
b. Receipts & payments accounts.
c. Trading account
d. Income & Expenditure account.
19. Wages paid for Installation of Machinery should be debited to the ____________ account.
a. Installation
b. Wages
c. Salaries
d. Machinery.
20. There are ___________Parties to a bill of exchange.
a. Four
b. Three
c. Two
d. One.
21. Persons entering into a joint venture are called _______________
a. Partners
b. Co – partners
c. Co – venturers
d. Consignees
22. The _________ has to ultimately bear the noting charges.
a. Drawer
b. Endorser
c. Bank
d. Drawee
23. The component of CPU that controls the various input output devices is ___________
a. Memory unit,
b. Control unit,
c. arithmetic logical unit
d. Key board
24. Loss on sale of asset is debited to _______________
a. Assets A/c
b. P&L A/c
c. Depreciation A/c
d. Trading A/c
25. In the absence of partnership deed the partners share profit & loss of the firm ___________
a. In the ratio of capital
b. Equally
c. As per rights in management
d. On the basis of experience
26. Partner’s drawings are transferred to his __________ a/c under fixed capital method.
a. Capital A/c
b. Current A/c
c. Trading A/c
d. Profit and loss A/c
27. Sale of old materials must be shown on credit side of ____________
a. Cash book
b. Income and expenditure account
c. Balance sheet
d. Receipt and Payments account
28. Cost of asset = _____________
a. Purchase price + scrap value
b. Purchase price + depreciation
c. Purchase price + incidental cost
d. None of the above
29. A person in whose favour the bill is endorsed is called ___________
a. Endorsee
b. Endorser
c. Drawer
d. None of the above
30. Expenses incurred by covertures is debited to ___________
a. None of the below
b. Consignee’s account
c. Co venturers account
d. Joint venture account.
31. Reserve for discount on ______________ has a debit balance.
a. Debtors
b. Creditors
c. Bills Receivable
d. Loan advanced.
32. Income and Expenditure Account is a _______________
a. Personal account
b. Real account
c. Nominal account
d. Asset account
33. Under ____________ single entry system, no records are kept separately for impersonal accounts.
a. Quasi
b. Pure
c. Simple
d. Modern
34. There are ___________ parties to a bill of exchange.
a. Two
b. Three
c. Four
d. Five
35. Persons who enter into Joint Venture are called ___________
a. Co – ventures
b. Partners
c. Shareholders
d. Loan holders
36. Income Statements and Balance Sheet are prepared in a systematic and scientific manner under ________________
a. Double Entry System.
b. Single Entry System
c. Partial Entry System.
d. Indian System.
37. Before accepting a bill, it is called a _________
a. Note
b. Draft
c. Hundi
d. Request.
38. Valuation of goodwill depends upon ________ capacity of business.
a. Normal
b. Repaying
c. Earning
d. Capital
39. If two or more persons come together to carry on a business activity for a short period, it is known as ___________
a. Joint venture
b. Consignment
c. Partnership
d. Stock exchange
40. Subscription received in advance during the accounting year is ____________
a. an income
b. an expense
c. an asset
d. a liability
41. Depreciation is charged only on the ____________
a. Current asset
b. Intangible assets
c. Immovable assets
d. Fixed assets
42. Brain of computer is _____________
a. Micro processor (march 2008)
b. RAM
c. DRAM
d. DOS
43. Unsold stock of Joint Venture taken over by Co – venture is credited to ___________
a. Co – ventures’ A/c
b. Joint Venture A/c
c. Joint Bank A/c
d. Stock A/c
44. A one month’s bill drawn on 31st January, 2007 will be matured on ___________
a. 3rd March, 2007
b. 28thFebruary, 2007
c. 29thFebruary, 2007
d. 2ndMarch, 2007
45. Interest on the capital of partner is debited to _______________
a. Trading account
b. Profit and loss account
c. Partner’s capital account
d. Partner’s current account
46. Computer is a / an ______________
a. Mechanical device
b. Automation device
c. Electronic device
d. Electric device
47. Joint venture is a ________________
a. Trading concern
b. Non – trading concern
c. Religious concern
d. Public concern
48. A donation received for a specific purpose is a _______________
a. Capital receipt
b. Revenue receipt
c. Liability
d. Asset
49. A bill drawn and accepted on 12th June 2007 for two months will be due for payment on ___________
a. 12th August, 2007
b. 15th August, 2007
c. 16thAugust, 2007
d. 14thAugust, 2007
1. There is no maximum limit to the number of partners in a firm.
This statement is False.
This is because there is a limit to the maximum number of partners. A partnership carrying on banking business cannot have more than ten members and a partnership carrying on other than banking business can not have more than twenty members.
2. Each partner has a right to take part in the conduct of the business.
This statement is True.
This is because as per the provision of the Indian partnership Act 1932 every partner has a right to take part in the conduct of business except minor partner.
3. Partnership is a non - trading concern.
This statement is False.
This is because partnership is a type of business organisation carried on by partners for earning profit, therefore it conducts trading activities such as manufacturing of gods or buying of goods with an aim to sell them at profit.
4. According to partnership Act, partners should get interest on capital.
This statement is false.
This is because as per the provisions of the Indian Partnership Act 1932, in the absence of agreement no partner is allowed interest on the capital invested by him.
5. Interest on Capital of partner is debited to Profit and Loss account.
This statement is True.
This is because interest on capital is debited to profit and loss account as an expense of partnership firm just like interest is paid to outsiders on the loans taken.
6. In the absence of agreement, partners share profit in capital ratio.
This statement is False.
This is because in the absence of Partnership deed the provision of Indian partnership Act, 1932 are applicable according to which the partners share profit equally and not in the proportion of capitals.
7. Under fixed capital method the amount of capital remains constant.
This statement is true.
This is because under fixed capital method two accounts are maintained namely capital accounts and current accounts. the capital account records capital introduced by partners and it remains fixed, on the other hand current account records all other transactions related to partner and its balanced goes on fluctuating.
8. Balance sheet is an account.
This statement is false.
This is because balance sheet is not an account but it is a statement of the financial position of business as on a particular day.
9. The capital accounts of partners always show credit balance.
This statement is false.
This is because the capital accounts of partners is personal account its balance fluctuate as per the entries recorded in it, hence it is not certain that it has debit balance or credit balance.
10. Not for profit concern never undertakes trading activities.
This statement is true
This is because not for profit concern is established to serve the society by providing various types of non - trading activities without making any profit. It never undertakes trading activities to earn profit.
11. Not for profit concern prepares Profit and Loss account.
This statement is False.
This is because not for profit concern being non - trading organisation. Prepare Income and expenditure account instead of profit and loss account. Income and expenditure account is prepared to know surplus or deficit.
12. Receipt and payment account is nominal account.
This statement is false.
This is because Receipt and payment account is not nominal account but it is real account. it is a real account because it records receipts of cash and payment of cash during the year.
13.. Income and Expenditure account is a real account.
This statement is false.
This is because Income and expenditure account is not real account but it is a nominal account. It is prepared to know the surplus or deficit by comparing the income and expenditure of not for profit concern.
14. Purchase of sports equipment is a revenue expenditure.
This statement is false.
This is because sports equipment is an asset of organisation and the amount paid for purchase of sports equipment is capital expenditure and not revenue expenditure.
15. Legacies are generally capitalized.
This statement is true.
This is because the gift given by the legal representative as per the will of deceased member is known as legacy and it is not recurring but received once, hence it is generally capitalized,.
16. Under single entry system both aspects of transaction are recorded in the books of accounts.
This statement is false.
This is because single entry system records only one aspect of transaction and ignores the other aspect of transaction. It is not scientific and hence only records that aspect of transaction, which is important to owner.
17. A joint venture is a non trading concern.
This statement is false.
This is because a joint venture is a temporary business undertaken for the productive or commercial activities with an aim of making profit. Thus it is a trading concern.
18. Goodwill has monetary value.
This statement is true.
This is because goodwill refers to the money value of its reputation which business is enjoying. It is calculated on the basis of its earning capacity and is paid in cash therefore it has monetary value.
1. If the partnership deed is silent, partners share profits and losses in their capital ratio.
Ans. This statement is False.
Reason:
i. The partners share profit and loss in their capital ratio, if such clause is included in the partnership deed.
ii. In the absence of agreement or when partnership deep remains silent, the partners have to share profit and loss in equal ratio. This is as per the provisions of Partnership Act 1932.
2. The balance of capital account remains constant under fixed capital method.
Ans. This statement is False.
Reason:
i. Under fixed capital method, along with partner’s capital account, a separate personal account, called current account is opened and operated for every partner.
ii. Since all the entries for the transactions between partners and partnership form are passed through the respective partner’s current account under the fixed capital method, the balances show by their respective capital accounts remains constant.
3. All indirect expenses are debited to Trading Account.
Ans. This statement is False.
Reason:
i. All the expenses relating to manufacturing and purchases are termed as direct expenses, e.g. cost of raw materials, cost of power and fuel consumed, cost of carriage, wages paid, etc. All direct expenses are debited to Trading account.
ii. All the expenses relating to administration, selling and distribution are termed as indirect expenses, e.g. Salaries, rent, interest paid, etc. All indirect expenses are debited to Profit and Loss Account.
4. The interest on capital is an income of the partnership firm.
Ans. This statement is False.
Reason:
i. Capital is contributed by the proprietor or partners. It constitutes liabilities of the business or partnership form. Naturally interest due or payable on capital becomes expense of partnership firm.
ii. Interest on capital is paid to partners out of business revenue. Hence, it is an expense to the partnership firm. If it remains unpaid, it becomes liability.
5. Interest on drawings is an income of the partnership firm.
Ans. This statement is true.
Reason:
a. Total amount in cash or kind withdrawn by a partner from the partnership firm for his / her personal use is called ‘drawings’. It is partner’s liability to repay the same or to pay interest at an agreed rate to the partnership firm.
ii. Interest on drawings is adjusted with partner’s capital account. Hence interest on drawings is an income of the partnership firm.
2. The Balance sheet is an account of business result. (March 09)
Ans. This statement is False.
Reason –
i. Summarised, systematic and classified records in relation to particular person, asset, or expenditure or income are called an account. Balance sheet is not an account.
ii. It is a statement showing the financial position of a firm, as on a given date in the form of assets and liabilities. On the left hand aide of the Balance Sheet closing balances of all types of liabilities are shown an on the right hand side, closing balances of all types of assets are shown.
3. Debit balance of Trading Account indicates Net loss. (Sept. 10)
Ans. This statement is False.
Reason
i. The debit balance of Trading account indicates gross loss suffered by the business concern, during the accounting year. Gross loss refer to excess of expenditures over incomes.
ii. When the total of debit side of an account is greater than the total of credit side the resulting balance shown debit balance. i.e. gross loss. However, debit balance of Profit and Loss account indicates net loss.
4. Non commercial concerns with ‘no profit’ base prepare income and expenditure account in place of profit and loss account. (March 09)
Ans. This statement is True.
Reason:
i. Non – commercial concerns with ‘no profit’ base are established to render services to society and not for earning profit. They have incomes and they incur expenses.
ii. As these organisations do not produce any tangible product, they are required to prepare Income and Expenditure Account instead of Trading and Profit and Loss Account to find out whether their incomes are sufficient to meet their expenses.
5. The expenditure incurred on installation of machinery is revenue expenditure. (Sept. 08)
Ans. This statement is False.
Reason:
i. Expenses incurred on erection and electrification of fixed asset are called installation charges.
ii. Installation charges are incurred or paid once and not every year. Hence they are non – recurring in nature. i.e. capital expenditure and therefore added to the value of machinery.
6. The Receipts and Payments Account is a Nominal Account. (March 08)
Ans. This statement is false.
Reason
i. An account prepared by a Not For Profit concern to record the summary of all types of cash receipts and cash payments is called the Receipts and Payments account.
ii. In this account only summary of cash received and paid during the accounting year is recorded. Hence the Receipts and Payments Account is a Real account.
7. The Receipts and Payment account records only cash transactions. (Sept. 09)
Ans. This statement is True
Reason.
i. Receipts and Payments account is similar to Cash – Book and contains summary of cash and bank transactions.
ii. It is prepared at the end of every financial year and includes only actual receipts and actual payments made during a particular period.
8. The main object of ‘Not for Profit’ organisation is to earn profit. (March 10) Or
Maximisation of profit is the motive of a ‘Not for Profit Concern’ (Sept 10)
Ans. This statement is False
Reason.
i. The main object of not for profit organisations is to provide services to the society without having objective of earning profit.
ii. However, trading organisations are established with the main motive of earning profit.
9. Drawee has no right to discount the bill with the bank. (March 08)
Ans. This statement is True.
Reason.
i. The person on whom the bill is drawn is called drawee of the bill.
ii. Since drawee is a debtor and liable to pay the amount of the bill to the drawer, he has no right to discount the bill with the bank.
10. Drawer and Payee of a bill of exchange may be one and the same person. (March 11)
Ans. This statement is True.
Reason.
i. Drawer is the person who drafts the bill and gives order to drawee to pay the amount either to the person (Payee) named therein or to himself. Payee is the person who receives the amount of the bill on the due date.
ii. If the bill is retained by the drawer with himself till the due date, then the amount of such bill is paid by the drawee to the drawer. In such a case drawer and payee may be one and same person.
11. If discounted bill is honoured, the drawer does not record this transaction. (Sept. 08)
Ans. This statement is True.
Reasons:
i. The bill is said to be honoured when drawee makes full payment on its due date.
ii. When discounted bill is honoured by the drawee, the transaction takes place between drawee and the bank. Hence, drawer does not record this transaction in his books.
12. Noting charges should be borne by the drawee
Ans. This statement is True
Reason
i. Fes charged by the Notary Public for establishing the facts of dishonour of a bill are called noting charges.
ii. Drawee or acceptor who is ultimately responsible for dishonour of the bill, has to bear noting charges.
13. While calculating the average profit, the losses are ignored. (March 2011)
Ans. This statement is False
Reason:
i. Total amount of profit earned by the business organisation over certain number of years is called total profit.
ii. Since losses are treated as negative profits, such losses are required to be adjusted with the profits earned in the other years while finding out the total profit of the given number of years.
OMTEX WISHING YOU ALL THE VERY SUCCESS IN YOUR FORTH COMING BOARD EXAMINATON BISMILLAH
Important points to remember
1. Bad debts = Trial balance amount (debit side)
2. Further bad debts = Adjustment Amount.
3. N.R.D.D. = Adjustment percentage
4. O.R.D.D. = Trial balance amount (credit side)
1. Interest on drawings is to be calculated for 6 months only.
2. If bills receivable is dishonoured then (-) from Bills receivable and (+) to debtors.
3. If bills payable is dishonoured then (-) from bills payable and (+) to creditors.
4. N.R.D.D. on debtors should be charged at second last.
5. Discount on debtors should be charged at last.