Chapter MCQ Test 2 — Reconstitution: Change in Profit-Sharing Ratio
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
A, B and C share 4:3:2 and decide to share equally. C's change is:
Gain 1/9
Sacrifice 1/9
No change
Gain 2/9
Explanation: C: new 1/3 − old 2/9 = 3/9 − 2/9 = 1/9 gain.
Question 2 of 10
Goodwill is Rs 90,000. A sacrifices 1/6 and B gains 1/6. The adjustment entry is:
B's Capital Dr 15,000; To A's Capital 15,000
A's Capital Dr 15,000; To B's Capital 15,000
Goodwill Dr 90,000
No entry
Explanation: 90,000 × 1/6 = 15,000; the gainer B is debited and the sacrificer A credited.
Question 3 of 10
Why are accumulated reserves distributed BEFORE applying the new ratio?
They were earned under the old arrangement and belong to the old ratio
The new ratio is illegal
Reserves are liabilities
To increase goodwill
Explanation: Past reserves belong to the partners in their old ratio; only future profits use the new ratio.
Question 4 of 10
Building up Rs 60,000, plant down Rs 20,000, an unrecorded creditor Rs 5,000. The net revaluation result is a:
Profit of Rs 35,000
Loss of Rs 35,000
Profit of Rs 85,000
Loss of Rs 25,000
Explanation: Gain 60,000 − loss 20,000 − loss 5,000 = +35,000 profit (old ratio).
Question 5 of 10
If only the GAINING partner is to bear the goodwill and the partners agree NOT to revalue, the workmen compensation reserve (no claim) is still:
Distributed to all old partners in the old ratio
Given to the gainer only
Ignored
Carried forward
Explanation: A free reserve with no liability belongs to all old partners in the old ratio, regardless of the goodwill treatment.
Question 6 of 10
A and B (3:2) change to 2:3. Goodwill Rs 1,00,000. The single adjustment entry is:
B's Capital Dr 20,000; To A's Capital 20,000
A's Capital Dr 20,000; To B's Capital 20,000
B's Capital Dr 40,000; To A 40,000
No entry
Explanation: A sacrifices 1/5 (3/5→2/5), B gains 1/5; 1,00,000 × 1/5 = 20,000, gainer B debited.
Question 7 of 10
When assets and liabilities are NOT to be shown at revalued figures, the alternative used is:
A single adjustment entry through capitals (memorandum revaluation)
No adjustment ever
Closing the firm
Raising goodwill permanently
Explanation: A memorandum/adjustment approach records only the net effect through capital accounts, leaving book values unchanged.
Question 8 of 10
Total sacrifice in any change of ratio must always equal the total:
Gain
Capital
Goodwill
Reserve
Explanation: What some partners give up, others take — total sacrifice = total gain.
Question 9 of 10
A debit balance of Profit & Loss Account (accumulated loss) of Rs 25,000 on a change in ratio (old 3:2) is:
Debited to A 15,000 and B 10,000
Credited to A and B
Ignored
Borne by the gainer only
Explanation: An accumulated loss is debited to old partners in the old ratio 3:2 → 15,000 and 10,000.
Question 10 of 10
The Revaluation Account is also known as the:
Profit & Loss Adjustment Account
Realisation Account
Appropriation Account
Executor's Account
Explanation: It is the Profit & Loss Adjustment Account (distinct from the Realisation Account used on dissolution).