Accounting Multiple Choice Question – 20 April 2020

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Albert, Ben and Catherine are in partnership sharing profits and losses in the ratio Albert 1/2; Ben 1/3rd; and Catherine 1/6th.

On 31 December, Albert retired from the partnership and Dymphna was admitted. The new profit sharing ratio being Ben 2/7ths; Catherine 4/7ths; and Dymphna 1/7th.

For the purposes of these changes, goodwill, which is not to be included in the accounts, is calculated at three times the current year’s net profit of £10,500.

The net adjustment on Ben’s capital account in respect of goodwill is?

Select ONE answer:

  1. a net credit of £1,500.
  2. a net debit of £7,500.
  3. a net debit of £12,750.
  4. no adjustment.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

  1. Correct – Goodwill = £10,500 x 3 = £31,500, so Ben’s original share = £31,500 x 1/3rd = £10,500. Ben’s new share is £31,500 x 2/7ths = £9,000. The adjustment required is £10,500 – £9,000 = £1,500 reduction. A credit entry is required in the capital account to compensate for this reduction in goodwill.
  2. Not correct
  3. Not correct
  4. Not correct

 

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