State whether the following statement is True or False with reasons.

 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.

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