Tag: AQA

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.

Joe is buying a firm whose only assets are valued as follows:

• Buildings £50,000
• Vehicles £15,000
• Fixtures £5,000
• Stock £40,000

The firm does not have any liabilities. He is to pay £140,000 for the firm.

This means that?

Select ONE answer:

1. He is paying £40,000 for goodwill.
2. The buildings he is acquiring are costing him £30,000 more than they are worth.
3. He is paying £30,000 for goodwill.
4. He has made an arithmetical mistake.

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 – In the context of acquiring a business, goodwill is the difference between the price paid for the business as a whole and the sum of the values of the individual (net) assets. In this case, this is as follows: Price paid for the business £ 140,000 Values of the individual (net) assets (£50,000 + £15,000 + £5,000 + £40,000) £110,000. Therefore, Goodwill £30,000
4. Not correct

 

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

Tom and Joan formed a partnership.

In addition to investing £15,000, Tom transferred ownership of a building, which had cost him £45,000, to the partnership. At the time of the transfer, the market value of the building was £60,000. The mortgage of £35,000 on the building was taken over by the partnership.

The amount to be recorded in Tom’s capital account is?

Select ONE answer:

1. £25,000
2. £40,000
3. £60,000
4. £75,000

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 – Capital = Cash (£15,000) + Value of the building to the partnership (£60,000 market value – £35,000 mortgage) thus £40,000
3. Not correct
4. Not correct

 

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