Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board.
Chapter 1 - Introduction to Partnership and Partnership Final Accounts [Latest edition]
State whether the following statement is True or False with reasons.
Partnership firm is a Non-Trading Concern. - False
Explanation:
The main aim of the partnership firm is to earn maximum profit. The partnership is a trading concern. It undertakes either manufacturing or distributive activities with the sole aim of earning profit and distributing that profit among the partners in a specific ratio. It is never formed for charitable purposes.
Profit and Loss Account is a Real Account. - False
Explanation:
Account of expenses, losses, gains, and incomes is called the Nominal account. Profit and Loss Account contains all indirect expenses and indirect incomes of the firm. Therefore, Profit and Loss Account is a Nominal Account and not a real account.
Carriage inward is a carriage on purchase. - True
Explanation:
Total transport expenses incurred on bringing the goods from the market to the place of business is called the carriage. When goods are purchased, the carriage is supposed to be borne by the firm. It is known as carriage inward. It means carriage paid on purchase.
Adjustments are recorded in Partner's Current Account in Fixed Capital Method. - True
Explanation:
In the Fixed Capital Method, as the name suggests capital balances (opening and closing) generally remain fixed. Under this method, adjustments are not to be recorded in the Capital Account. All adjustments are recorded in a separate account called Partners’ Current Accounts.
Prepaid expenses are treated as liabilities. - False
Explanation:
Prepaid expenses are expenses which are paid before they are due. Therefore, they are considered an asset of the business organisation.
If the partnership deed is silent, partners share profits and losses in proportion to their capital. - False
Explanation:
As per the provisions made under Indian Partnership Act 1932, when partnership deed is silent about profit and loss sharing ratio, partners are supposed to share profits and losses in equal proportion, and not in their capital ratio.
Balance Sheet is an Account. - False
Explanation:
Financial statement showing all assets and liabilities is called the Balance sheet. It is not an account. It is a position statement which shows various assets owned by the firm and various liabilities owned by it. On the left-hand side, all liabilities are listed and on the right-hand side all assets are recorded.
Wages paid for the installation of Machinery is a Revenue expenditure. - False
Explanation:
Wages paid for the installation of machinery is a capital expenditure and therefore it is added to the cost of machinery. It is, generally, paid once in the life of an asset. It is long-term and capital expenditure.
Income received in advance is a liability. - True
Explanation:
When income in respect to next year, it is received in the current year, it is known as income received in advance. So, in next year the firm will not be able to receive that amount and therefore it is considered as a liability for the current year.
R.D.D. is created on Creditors. - False
Explanation:
R.D.D. stands for Reserve for Doubtful Debts. It is created on the value of debtors. Such provision is made against profit and loss account. In the future if the loss is incurred on account of bad debts, such amount is used to run the business.
Depreciation is not calculated on Current Assets. - True
Explanation:
Current Assets mean liquid assets having no fixed tenure therefore depreciation cannot be calculated on it. Depreciation is calculated and charged on fixed assets for their use, wear and tear, etc.
Goodwill is an intangible asset. - True
Explanation:
Goodwill is a reputation of a business computed in terms of money. Reputation can be experienced but can’t be seen or felt. Therefore, Goodwill is an intangible asset.
Indirect expenses are debited to the Trading Account. - False
Explanation:
Indirect expenses mean expenses that are not directly related to the production of goods and services. Therefore, indirect expenses cannot be debited to the Trading Account. All indirect expenses are debited to the Profit and Loss Account.
Bank loan is a current liability. - False
Explanation:
The loan usually taken for the period more than 1 year say 5 years from the bank is called Bank Loan. It is a long term loan. It is not repaid within 1 year but paid in installments over a number of years. It might be paid in lumpsum at the expiry of the term.
Net profit is a debit balance of Profit and Loss Account. - False
Explanation:
In a Profit and Loss Account, when the credit side total i.e. a total of incomes is more than the debit side total, i.e. expenses it is known as a credit balance. When incomes exceed expenses there is profit. Therefore the credit balance of Profit and Loss Account indicates net profit.
Difficult Words & Meanings
- Partnership Firm: A business owned and managed by two or more individuals (partners) who share profits or losses.
- Non-Trading Concern: An organization that does not primarily aim to make a profit from buying and selling goods (e.g., charitable institutions).
- Trading Concern: A business primarily engaged in buying and selling goods or services to make a profit.
- Distributive Activities: Activities related to the distribution or selling of goods.
- Charitable Purposes: Activities intended to help those in need or for public benefit, not for making profit.
- Profit and Loss Account: A financial statement summarizing revenues, costs, and expenses incurred during a specific period, to show net profit or loss.
- Real Account: Accounts related to assets or properties (e.g., cash, buildings, machinery).
- Nominal Account: Accounts related to incomes, expenses, gains, and losses (e.g., salaries, rent, sales).
- Indirect Expenses: Expenses not directly tied to the production of goods or services (e.g., office rent, salaries of administrative staff).
- Carriage Inward: Transportation costs incurred to bring purchased goods into the business premises.
- Borne: To bear or carry a cost or responsibility.
- Adjustments (in accounting): Changes made to accounts at the end of an accounting period to accurately reflect income and expenses.
- Fixed Capital Method: A method of partnership accounting where partners' capital contributions remain unchanged unless additional capital is introduced or withdrawn permanently. Current accounts are used for other transactions like profit sharing, drawings, interest.
- Capital Balances: The amount of capital (money or assets) each partner has in the business.
- Prepaid Expenses: Expenses paid in advance for benefits yet to be received; treated as an asset.
- Liabilities: Obligations or debts owed by a business to others.
- Asset: Anything of value owned by a business.
- Partnership Deed: A written agreement among partners outlining terms and conditions of the partnership (e.g., profit-sharing ratios, roles).
- Silent (Partnership Deed): When the partnership agreement does not specify a particular term or condition.
- Provisions (of an Act): Specific rules or clauses within a law.
- Proportion: A part, share, or number considered in comparative relation to a whole.
- Balance Sheet: A financial statement showing a company's assets, liabilities, and equity at a specific point in time.
- Position Statement: A statement that shows the financial standing or position of a business.
- Wages: Payments made to employees for labor, typically on an hourly or daily basis.
- Installation of Machinery: The process of setting up machinery to make it ready for use.
- Revenue Expenditure: Short-term expenses incurred in the normal course of business, benefits of which are consumed within one accounting year.
- Capital Expenditure: Long-term expenses incurred to acquire or improve fixed assets, benefits of which extend beyond one accounting year.
- Income Received in Advance: Income received before it is earned; treated as a liability until the service or goods are provided.
- R.D.D. (Reserve for Doubtful Debts): A provision made for potential losses from customers (debtors) who may not pay their dues.
- Creditors: Individuals or businesses to whom money is owed.
- Debtors: Individuals or businesses who owe money.
- Bad Debts: Debts that are unlikely to be recovered from debtors.
- Depreciation: The systematic reduction in the value of a fixed asset over its useful life due to wear and tear, obsolescence, etc.
- Current Assets: Assets expected to be converted into cash or consumed within one year (e.g., cash, debtors, stock).
- Liquid Assets: Assets that can be quickly converted into cash with little or no loss in value.
- Tenure: The period for which something is held or is expected to last.
- Fixed Assets: Long-term assets used in the business for more than one year (e.g., machinery, buildings).
- Goodwill: An intangible asset representing the reputation and established customer base of a business.
- Intangible Asset: An asset that is not physical in nature but has value (e.g., patents, trademarks, goodwill).
- Computed: Calculated or determined.
- Debited: An entry on the left side of an account, typically representing an increase in assets or expenses, or a decrease in liabilities or income.
- Trading Account: An account prepared to find out the gross profit or gross loss of a business during an accounting period.
- Bank Loan: Money borrowed from a bank, typically to be repaid with interest over a set period.
- Current Liability: Obligations that are due to be paid within one year.
- Installments: A series of payments made over time to pay off a debt.
- Lumpsum: A single payment made at one particular time, as opposed to a series of smaller payments.
- Expiry: The end of a period for which something is valid.
- Net Profit: The profit remaining after all expenses have been deducted from revenues.
- Debit Balance: When the total of debits in an account exceeds the total of credits.
- Credit Balance: When the total of credits in an account exceeds the total of debits.
- Exceed: To be greater in number or size than something else.