Practice Test 39
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Expenses incurred by the consignor on sending the goods to the consignee is Rs.1,000 for insurance, Rs. 1,500 on freight and Rs.500 on packing the goods. While expenses incurred
by the consignee on behalf of the consignment are Rs. 800 on octroi, Rs. 600 as godown charges and Rs. 1,200 as selling expenses. The amount to be excluded while calculating
consignment inventory will be:

  • Solution

    Cost price means original cost of the unsold inventory plus proportionate amount of the expenses which are necessary to put the goods. In their present value place and condition such as freight, octroi duty, insurance, forwarding charges, carriage up to consignee’s godown etc. Generally all expenses incurred till the goods reach consignee’s godown etc. Generally all expenses incurred till the goods reach consignee’s godown etc are treated as part of the cost whether incurred by the consignee or consignor. Expenses incurred in storage and selling the goods after the goods reach consignee’s godown are not to be considered
    in the cost of the unsold stock (closing stock).
    So in the present case the expenses which are to be excluded will be
    Godown charges = Rs. 600
    Selling expenses = Rs. 1,200
    Total = Rs. 1,800

Ram in a joint venture with Shyam purchased goods costing Rs. 20,000 and sends to Shyam for sale incurring Rs.1,000 on freight. Shyam took the delivery and paid Rs. 500 as carriage. He sold the goods costing Rs. 18,000 for Rs. 25,000 and kept the remaining goods at cost price. Sharing equal profits of the venture, amount to be paid by Shyam to Ram will be:

  • Solution

Gaurav has to pay Rs. 10,000 to Saurabh on account of Bill accepted by him for credit purchases. Due to financial crisis, Gaurav was unable to pay the bill and was declared
insolvent and his estate realized only 30 paisa in a rupee. The amount to be debited to bad debts account of Saurabh will be

  • Solution

    When a person or party is declared by court as insolvent or bankrupt he is considered to be unable to pay his liabilities. It means, the bills accepted by him will be naturally dishonored. Therefore, when it is known that a person has become insolvent, entry for the dishonor of the bill of exchange should be passed both in the books of the drawer and acceptor.
    Later on something may be received from his estate. When the amount has been received cash account will be debited and the personal account of the person will be credited.
    Here 30 p per rupee has been recovered . Thus amount recovered will be 30% of 10,000 = Rs. 3,000 And the amount of bad debt will be = 10,000 – 3,000 = Rs. 7,000

On 1st January 2010 Nisha draws a bill for Rs. 5,000 on Disha for 3 months for mutual accommodation. On the same day, Disha draws a bill for Rs. 6,000 on Nisha for 4 months.
Both the bills were discounted with the bank for Rs. 4,850 and Rs. 5,700 respectively. 50% of the receipt was sent to the other party. First bill was met on its due date. On the maturity date of Nisha’s acceptance, Disha will send

  • Solution

    On maturity date, Disha will send Rs. 3,000 (Rs. 6,000/2).

A trader has credited certain items of sales on approval aggregating Rs. 60,000 to Sales Account. Of these, goods of the value of Rs.16,000 have been returned and taken into
inventory at cost Rs. 8,000 though the record of return was omitted in the accounts. In respect of another parcel of Rs.12,000 (cost being Rs. 6,000) the period of approval did
not expire on the closing date. Cost of goods lying with customers should be:

  • Solution

    When goods are sent on approval basis then at the end of the financial year the goods lying with customers will be valued at cost or market price whichever is less. On the closing date the cost of goods lying with customers is Rs. 6,000 which is less than the market value which is Rs. 12,000, so the cost of goods lying with customers will be Rs. 6,000.

Find the goodwill of the firm using capitalization method from the following information:
Total capital employed in the firm Rs. 80,00,000
Reasonable rate of return 15%
Profits for the year Rs. 12,00,000

  • Solution

    Under this method we calculate the average profits and then assess the capital needed for earning such average profits on the basis of normal rate of return, such capital is called capitalized value of average profits. After arriving at the capitalized average profit, Capital employed (assets-liabilities) of the firm is then subtracted from the capitalized value of average profits to arrive at the Goodwill. To calculate goodwill using average profit, the average net profit for a given number of past years are multiplied by an agreed number of years.
    Mathematically, Capitalized Value of Average Profits = Average Profits × (100/Normal Rate of Return)
    Goodwill = Capitalized Value of Average Profits – Capital Employed.
    Here profit for the year = 12,00,000
    Reasonable rate of return = 15%
    Thus capitalized value of profit = 12,00,000 × 100/15 = 80,00,000
    Capital employed = 80,00,000
    Thus Goodwill = 80,00,000-80,00,000 = NIL

Rachna and Sapna are partners sharing profits equally. They admitted Ashna for 1/3 share in the firm. The new profit sharing ratio will be:

  • Solution

Amit, Rohit and Sumit are partners sharing profits and losses in the ratio of 5:4:3. Sumit retires and if Amit and Rohit shares profits of Sumit in 4:3, then new profit sharing ratio will be:

  • Solution

Vijay, Vineet and Vivek are partners in a firm sharing profits or losses in 3:2:1. Vijay retires and goodwill of the firm was revalued at Rs.18,000. If new profit sharing ratio is 2:1, then Vijay’s share of goodwill debited respectively to Vineet and Vivek’s capital account will be:

  • Solution

He, She and Me are partners in a firm sharing profits and losses in the ratio of 5:3:2. Firm took Separate Life Policy of Rs. 50,000, Rs.1,00,000 and Rs.1,50,000 for He, She and Me respectively. The share of Me in the policy will be:

  • Solution

    Life policy is the Insurance taken by a partnership. Most often, this insurance is purchased to aid the business in continuing to operate in case of the death or dismemberment of one partner.
    the total amount of the policies taken by the firm is = 50,000 + 1,00,000 + 1,50,000 = Rs. 3,00,000
    the share of the partners in the total policy will be in their profit sharing ratio
    thus share of Me in the policy will be = 3,00,000 × 2/10 = Rs. 60,000

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