Author: stuart001uk2014

One disadvantage of a limited company, relative to other forms of business organisation is . . .?

Select ONE answer:

1. greater regulation.
2. the fact that the company’s liability is limited.
3. the fact that the company is a legal entity separate and distinct from its owner(s).
4. None of the above.

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
2. Not correct – The liability of a limited company (to pay debts) is not limited – it is the liability of shareholders in such a company which is limited (to any amount unpaid on their shares).
3. Not correct – The fact that the company is a legal entity separate and distinct from its owner(s) is considered to be an advantage of a limited company, relative to other forms of business organisation because it is this feature which allows shareholders’ liability to be limited.
4. Not correct

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If a partnership revalues its assets upon the retirement of one of the partners, any resulting loss should be . . . . . .?

Select ONE answer:

1. credited to the old partners’ capital accounts in the old profit sharing ratios.
2. credited to the new partners” capital accounts in the new profit sharing ratios.
3. debited to the old partners’ capital accounts in the old profit sharing ratios.
4. debited to the new partners’ capital accounts in the new profit sharing ratios.

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 3

1. Not correct
2. Not correct
3. Correct – Losses are always debited to the partners’s capital / current accounts whereas profits are always credited to them. The retiring partner bears a share of the loss because it arose while he / she was still a partner.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Frequently, when there is a change of partners in a partnership, assets are revalued because . . .?

Select ONE answer:

1. this is a requirement of the Partnership Act, 1890.
2. it helps prevent financial injustice to some partners.
3. inflation affects all values.
4. None of the above.

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 2

1. Not correct
2. Correct – If assets were not revalued, a partner leaving the firm may not receive his / her full entitlements or a partner joining the firm may not be asked to bring in enough to pay for his / her share.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

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

This work is licensed under a Creative Commons Attribution 4.0 International License.

John earns an annual net income of £19,500 from a photography business which he runs.

He has capital of £35,000 invested in this business. If he ceased running his own business and worked as an employee in another photographic business he would earn a salary of £11,000 per annum.

If he could invest his capital elsewhere in a project with the same degree of risk as his own business he could expect a return of 6.5% per annum.

If goodwill in this type of firm is valued at five years’ purchase of super-profits, the goodwill of John’s business is?

Select ONE answer:

1. £31,125
2. £37,500
3. £40,225
4. £42,500

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 – Current annual earnings £19,500, however alternative annual earnings = Salary £11,00 + Interest (£35,000 * 6.5%) £2,275 = Total £13,275. If Annual super-profit is £6,225, therefore, 5 years purchase = £31,125.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.