Important MCQs on Partnership Accounting with Explanations and PDF
Accounting for partnership is a key topic for students in Class 11, Class 12, and for those preparing for commerce and competitive exams. It covers how businesses managed by two or more people handle their accounts, capital, profits, and changes like admission or retirement of partners. This knowledge helps in solving practical business challenges and performing well in accountancy exams.
| Concept | Description | Example/Usage |
|---|---|---|
| Fixed Capital Account | Capital balance remains unchanged unless further capital is contributed or withdrawn. | Salary and interest on capital recorded in a separate Current Account. |
| Fluctuating Capital Account | Capital changes as profits, losses, drawings, salary, and interest are adjusted directly. | All partner-related items are shown in the same account. |
| Profit Sharing Ratio | Ratio in which profits and losses are distributed among partners. | If deed is silent, shared equally. |
| Goodwill | Intangible value paid for reputation during admission, retirement, etc. | Adjusted among partners when a new partner is admitted. |
| Revaluation Account | Records changes in assets and liabilities during reconstitution. | Profit/loss transferred to old partners. |
Accounting for Partnership: Fundamentals
Accounting for partnership involves recording and reporting all financial transactions of a business run jointly by partners. Core concepts include partner’s capital accounts, drawing, interest calculations, profit distribution, goodwill adjustments, and reconstitution (admission, retirement, death, and dissolution). Understanding these topics is essential for mastering partnership questions in accountancy exams. At Vedantu, we simplify Commerce topics for better student learning.
Types of Capital Accounts in Partnership Accounting
Partnership firms maintain partners’ capital either under a fixed or fluctuating capital system. In the fixed system, only capital changes are recorded. In the fluctuating system, all partner-related entries—profits, losses, drawings, interest, salary—are adjusted in the capital account itself. For exam questions about capital accounts, remember these differences and their treatment.
Difference Between Fixed and Fluctuating Capital Accounts
| Feature | Fixed Capital | Fluctuating Capital |
|---|---|---|
| Adjustments | Only capital introduced/withdrawn | All profits, losses, drawings, interest |
| Separate Current A/c | Maintained | Not maintained |
| Exam Focus | CBSE/ISC MCQs test both types | Tricks involve interest and salary items |
Profit Sharing Ratio and Its Application
Profit sharing ratio is critical in accounting for partnership. If the partnership deed is silent, profits and losses are shared equally. Exam MCQs often ask about exceptions, like varying capital contributions or deed silence. Calculations change during admission or retirement of partners. See Profit Sharing Ratio for detailed steps.
Key Points for Profit Sharing Ratio in Partnership MCQs
- If deed is silent, share profits equally.
- Changes when a new partner is admitted—calculate new, sacrificing, and gaining ratios.
- Carefully read if salary, interest on capital, or other provisions are absent in the deed.
Goodwill Treatment and Adjustments
Goodwill is the monetary value assigned to a firm's reputation. In accounting for partnership, goodwill is adjusted during the admission, retirement, or death of a partner to ensure fair distribution. This is a common area in multiple-choice questions (MCQs) and includes calculation, adjustment entries, and treatment as per the partnership agreement. For full concepts, visit Goodwill.
MCQs on Accounting for Partnership (with Answers)
- Which account is credited when a partner brings cash as capital?
a) Partner's Capital
b) Goodwill
c) Profit and Loss
d) Revaluation
Answer: a) Partner's Capital - If partnership deed is silent, profits are shared:
a) In capital ratio
b) Equally
c) In ratio of age
d) In ratio of investment
Answer: b) Equally - On admission of a partner, which ratio is calculated?
a) Past ratio
b) Equal ratio
c) New profit sharing ratio
d) Current ratio
Answer: c) New profit sharing ratio - If interest on capital is not mentioned in a deed, partners get:
a) 6% interest
b) No interest
c) 12% interest
d) 10% interest
Answer: b) No interest - Revaluation account deals with:
a) Adjusting partner’s capital
b) Admission entries only
c) Change in value of assets and liabilities
d) Sharing profits
Answer: c) Change in value of assets and liabilities
Concept Explanations for Common Partnership MCQs
Understanding the logic behind MCQ answers reduces exam errors. For example, fluctuating capital is preferred by many firms because all additions and deductions adjust in one account. If interest or salary is not mentioned in the deed, it is not allowed. Goodwill ensures old partners are compensated for sharing future profits with the new partner. Refer to Accounting for Partnership Firm for in-depth theory.
Key Related Concepts in Partnership Accounting
- Sacrificing Ratio
- New Profit Sharing Ratio
- Reconstitution of Partnership Firm
- Partners’ Capital Account during Dissolution
Downloadable Resources for Partnership MCQs
Students frequently need offline access for revision. Download a complete PDF of “Accounting for Partnership MCQs with Answers” for Class 12 from Vedantu for mobile or group study. Download MCQ PDF
Summary
Accounting for partnership covers how two or more individuals manage financial records, capital, profit sharing, and changes within a business. Understanding fixed vs. fluctuating capital accounts, profit-sharing ratios, goodwill adjustments, and revaluation is key for CBSE, ISC, and competitive exams. Practice MCQs, review concepts, and use trusted Vedantu resources for strong exam success.
FAQs on Accounting for Partnership: MCQs with Answers for Class 12
1. What is the accounting equation for a partnership firm?
The accounting equation for a partnership firm is Assets = Liabilities + Capital. This fundamental equation applies to all business entities, including partnerships. It demonstrates that a partnership's total assets always equal the sum of its liabilities (what it owes) and its partners' capital (their investments and accumulated profits).
2. How are profits shared if there is no partnership deed?
If a partnership deed is absent, profits are shared equally among partners. This is a crucial aspect of partnership accounting. The absence of a formal agreement means the law defaults to equal profit sharing, irrespective of individual capital contributions.
3. What is the difference between fixed and fluctuating capital accounts?
In partnership accounting, the key difference lies in how partner capital is maintained. A fixed capital account remains unchanged unless formally altered. A fluctuating capital account reflects all profit, loss, and drawing transactions directly, changing the capital balance. Understanding this distinction is important for many MCQs on accounting for partnership.
4. Which account is opened on admission of a new partner?
Upon a new partner's admission, several accounts may be opened, but the most critical is the revaluation account. This account records adjustments to assets and liabilities' values. Other accounts, such as partners' capital accounts and a goodwill account, might also be affected by the admission, altering their balance in partnership accounting.
5. Is interest on capital always allowed to partners?
Interest on capital is not automatically allowed to partners. Its allowance depends entirely on the terms outlined in the partnership deed. If the deed is silent on this matter, interest is typically not paid. This is a frequent topic in MCQs on partnership accounts. Understanding the rules around interest on capital is critical in accounting for partnership firms.
6. How is goodwill distributed among partners during admission or retirement?
Goodwill distribution on partner admission or retirement depends on the sacrificing ratio or gaining ratio. The existing partners may share the goodwill's value proportionate to their sacrifice or gain, as mentioned in the partnership deed. This is a key area in partnership accounting MCQs.
7. What is the profit sharing ratio if the deed is silent?
If the partnership deed doesn't specify a profit-sharing ratio, the law dictates equal sharing among partners. Each partner receives an identical portion of the profits or losses. This concept is very relevant for class 12 partnership MCQs and is tested frequently in CBSE and competitive exams.
8. What is sacrificing and gaining ratio?
The sacrificing ratio and gaining ratio are essential concepts in partnership accounting, particularly when a partner is admitted or retires. The sacrificing ratio shows how existing partners reduce their share to accommodate a new partner. The gaining ratio illustrates how remaining partners increase their share after a partner's departure. These ratios are key for accurately accounting for goodwill adjustments.
9. How is goodwill adjusted at the admission of a partner?
Goodwill adjustments upon partner admission involve the new partner contributing their share of the existing goodwill's value. The existing partners share this contribution, usually based on their sacrificing ratio, if specified in the partnership deed. Failure to consider this can lead to inaccurate accounting for partnership firms. This frequently appears in MCQs on accounting for partnership.
10. What are the different types of capital accounts in a partnership?
Partnerships commonly use two types of capital accounts: fixed capital accounts and fluctuating capital accounts. A fixed capital account maintains a constant balance unless the partners formally agree to a change. A fluctuating capital account records all transactions affecting the partner's equity, directly altering the balance. This is a key distinction often highlighted in MCQs on partnership accounts.
