Question 1

## ……………….. is the process of dividing work into manageable activities and then grouping the activities which are similar in nature.

(A) Coordination
(B) Departmentalisation
(C) Organisation structure
(D) Delegation of authority
(B) Departmentalisation

Explanation:
Once work has been divided into small and manageable activities, then those activities which are similar in nature, are grouped together. This process is called departmentalization. Departments can be created on the basis of products, functions and territory. This brings specialization in operation.

Question 2.

## Which of the following importance of organising stimulates creativity amongst the managers?

(A) Development of personnel
(B) Optimum utilization of resources
(C) Expansion and growth
(D) None of the above
(A) Development of personnel

Explanation:
Organising stimulates creativity amongst the managers. Effective delegation allows the managers to reduce their workload by assigning routine jobs to their subordinates.

Question 3.

## Which of the following is not a benefit of organising?

(A) Clarity in working relationship
(B) Adaptation to change
(C) Expansion and growth
(D) Identification and obtaining competitive personnel O
(D) Identification and obtaining competitive personnel O

Explanation:
The significance of the organising function mainly arises from the fact that it helps in the survival and growth of an enterprise and equips it to meet various challenges.

Question 4.

## Which of the following importance of organising reduces the workload as well as enhances productivity?

(A) Clarity in working relationships
(B) Benefits of specialisation
(C) Adaptation to change
(B) Benefits of specialisation

Explanation:
Organising leads to a systematic allocation of jobs amongst the work force. This reduces the workload as well as enhances productivity because of the specific workers performing a specific job on a regular basis.

Question 5.

## Which of the following statements is true about the organizing function of management?

(A) Departmentalisation is the first step in the process of organising.
(B) Organising discourages creativity amongst the managers.
(C) Organising allows a business enterprise to accommodate changes in the business environment.
(D) All of the above
(C) Organising allows a business enterprise to accommodate changes in the business environment.

Explanation:
The process of organising allows a business enterprise to accommodate changes in the business environment. It allows the organisation structure to be suitably modified and the revision of inter-relationships amongst managerial levels to pave the way for a smooth transition.

Question 6.

## Which of the following is not related to ‘Organising as a Process’?

(A) Initiates implementation of plAnswer
(B) Provides framework for performing managerial and operating tasks.
(C) Clarifies jobs and working relationship.
(D) Effectively deploys resources.
(B) Provides framework for performing managerial and operating tasks.

Explanation:
Organising is a process that initiates implementation of plans by clarifying jobs and working relationships and effectively deploying resources for attainment of identified and desired results.

Question 7.

## In order to make the ‘Annual Day’ of the school a successful event, the Headmistress of the school segregated all the activities into task groups each one dealing with a specific area. For instance, decorations, refreshments, backstage support, etc. Each group was put under the charge of one teacher. Identify the function of management performed by the Headmistress by dividing the activities and assigning the duties?

(A) Planning
(B) Organising
(C) Staffing
(D) Directing
(B) Organising

Explanation:
Organising essentially implies a process which coordinates human efforts, assembles resources and integrates both into a unified whole to be utilised for achieving specified objectives.

Question 8.

## An IT company currently employing 5,000 people, plans to expand its business through diversification. It aims to become a global leader. To achieve this goal, it has started shifting to a decentralised management system from a centralized one. Thus, function of management is being performed by the company to become a decentralised company.

(A) Directing
(B) Staffing
(C) Organising
(D) Planning 0
(C) Organising

Explanation:
Organising facilitates growth and diversification of activities through clear division of work. It helps in developing a proper organisation structure and the extent and nature of decentralisation can be determined.

Question 9.

## Match the STEPS in the process of organising in Column I with the appropriate EXPLANATION in Column II.

 Column I Column I (a) Identification and division of work (i) Dividing work into manageable activities (b) Departmentalisation (ii) Establishing a hierarchical structure (c) Assignment of duties (iii) Grouping similar activities together (d) Establishing authority and reporting relationships (iv) Allocating jobs to the members of each department

(A) (ii),(iii),(iv),(i)
(B) (iii), (iv),(ii), (i)
(C) (i), (iii), (iv), (ii)
(D) (iv), (iii), (i), (ii) E
(C) (i), (iii), (iv), (ii)

Question 10

## ……………… ensures that the heads of separate business units in the organisation are responsible for profit or loss of their unit and have authority over it.

(A) Span of management
(B) Divisional structure
(C) Functional structure
(D) Hierarchy of authority
(B) Divisional structure

Explanation:
In a divisional structure, the organisation structure comprises of separate business units or divisions. Each unit has a divisional manager responsible for performance and who has authority over the unit.

Question 11.

## Which type of organisational structures is the most suitable when the size of the organisation is large and is producing one line of product?

(A) Functional
(B) Divisional
(C) Both (A) and (B)
(D) None of these
(A) Functional

Explanation:
A functional structure is most suitable when the size of the organisation is large, has a diversified activities and operations require a high degree of specialisation.

Question 12.

## Which of the following is a disadvantage of divisional structure?

(A) Conflict may arise among different divisions with reference to allocation of funds.
(B) More emphasis on departmental objectives.
(C) Leads to inter-departmental conflict.
(D) Leads to inflexibility.
(A) Conflict may arise among different divisions with reference to allocation of funds.

Explanation:
Conflict may arise among different divisions with reference to allocation of funds and further a particular division may seek to maximise its profits at the cost of other divisions.

Question 13.

## Which type of organisational structures is the most suitable for those business enterprises where a large variety of products are manufactured?

(A) Functional
(B) Divisional
(C) Both (A) and (B)
(D) None of the above
(B) Divisional
Question 14.

## Which of the following is an advantage of functional structure?

(A) Leads to occupational specialisation.
(B) Promotes control and coordination within a department.
(C) Helps in increasing managerial and operational efficiency.
(D) All of the above.
(D) All of the above.

Explanation:
A functional structure leads to occupational specialisation since emphasis is placed on specific functions. It promotes control and coordination within a department because of similarity in the tasks being performed. It helps in increasing managerial and operational efficiency and this results in increased profit.

Question 15.

## Which of the following gives shape to the organisation structure?

(A)Extent of delegation
(B) Employee strength
(C) Span of management
(D) None of the above
(C) Span of management
Explanation:
The span of management, to a large extent, gives shape to the organisational structure. Span of management refers to the number of subordinates that can be effectively managed by a superior. This determines the level of management in the structure.

Question 16.

## Which of the following is true regarding Organisational Structure?

(A) Grouping of jobs of similar nature under functional structure and organising these major functions as separate departments creates a divisional structure.
(B) Span of Management determines the levels of management in the organisation structure.
(C) Divisional structure makes training of employees easier as the focus is only on a limited range of skills.
(D) All of the above
(B) Span of Management determines the levels of management in the organisation structure.

Explanation:
Span of management refers to the number of subordinates that can be effectively managed by a superior. This determines the levels of management in the structure.

Question 17.

## Yummy Foods Ltd. has its registered office in Lucknow, manufacturing unit in Kanpur and marketing department in Chandigarh type of organisational structure should be adopted by the company to achieve its objectives.

(A) Functional
(B) Divisional
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(A) Functional

Explanation:
An organisation structure formed by grouping together all activities into functional departments and putting each department under one coordinating head is called functional structure.

Question 18.

## Match the STRUCTURE in an organisation in Column I with the appropriate EXPLANATION in Column II.

 Column I Column II (a) Organisation Structure (i) Grouping activities on the basis of products. (b) Functional Structure (ii) Framework within which managerial and operating tasks are performed. (c) Divisional Structure (iii) Grouping of simitar jobs and organizing them as separate departments.

(A) (ii), (iii), (i)
(B) (iii), (ii), (i)
(C) (ii), (i), (m)
(D) (iii), (i), (ii)
(A) (ii), (iii), (i)

Question 19.

## …………….. is the obligation of a subordinate to properly perform the assigned duty.

(A) Authority
(B) Responsibility
(C) Accountability
(D) None of these
(B) Responsibility

Explanation:
Responsibility is the obligation of a subordinate to properly perform the assigned duty. It arises from a superior-subordinate relationship because the subordinate is bound to perform the duty assigned to him by his superior.

Question 20.

## ………………….. implies being answerable for the final outcome.

(A) Authority
(B) Responsibility
(C) Accountability
(D) None of these
(C) Accountability

Explanation:
Accountability implies being answerable for the final outcome. Once authority has been delegated and responsibility accepted, one cannot deny accountability. It cannot be delegated and flows upwards, i.e., a subordinate will be accountable to a superior for satisfactory performance of work.

Question 21.

## Which of the following importance of delegation establishes superior-subordinate relationship?

(A) Employee development
(B) Facilitation of growth
(C) Motivation of employees
(D) Basis of management hierarchy 10
(D) Basis of management hierarchy 10

Explanation:
Delegation of authority establishes superior-subordinate relationships, which are the basis of hierarchy of management. It is the degree and flow of authority which determines who has to report to whom.

Question 22.

## organisation is ………………….. when decision making authority is retained by higher management levels.

(A) Centralised
(B) Decentralised
(C) Both (A) and (B)
(D) None of these
(A) Centralised

Explanation:
Centralization refers to that organizational structure where decision-making power is confined to the top management, and the subordinates need to follow the instructions of their seniors.

Question 23.

## Which of the following statements is incorrect?

(A) Superior-Subordinate relationship is the source of origin of ‘Responsibility’.
(B) Authority arises from the established ‘scalar chain’ which links various job positions and levels of an organisation.
(C) Centralisation leads to quick decision making.
(D) None of the above
Option (C) is correct.

Explanation:
In centralisation, the top management directs the day to day operations, and the subordinates have to report directly to the senior management. At times when there is no managerial staff, the subordinates are unable to take immediate decisions, thus, resulting in slowing down of business operations.

Question 24.

## Which of the following statements is not applicable to the concept of ‘Accountability’?

(A) It implies being answerable for the final outcome.
(B) It cannot be denied once authority has been delegated and responsibility has been accepted.
(C) It cannot be delegated.
(D) It flows downward.
(D) It flows downward.

Explanation:
Accountability element of delegation refers to the answerability of a subordinate to his superior for the job or task that is assigned. Accountability flows in an upward direction, which means the subordinate is accountable to the superior.

Question 25.

## “It refers to the right of an individual to command his subordinate and to take action within the scope of his position.” Which element of delegation is ‘ being referred to in the above statement?

(A) Accountability
(B) Responsibility
(C) Authority
(D) None of these
(C) Authority

Explanation:
Authority is the power to complete an assigned task. Without authority a subordinate is unable to execute the task perfectly. In order to complete the task as is expected by the manager, the manager has to provide authority of executing that task to the subordinate.

Question 26.

## Match the ELEMENTS of Delegation in Column I with the corresponding EXPLANATION in Column II. table-2

(A) (ii),(iii),(i)
(B) (iii),(ii),(i)
(C) (iii),(i), (ii)
(D) (ii), (i), (iii)
(A) (ii),(iii),(i)

Assertion and Reason Based MCQs

Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(C) (A) is true, but (R) is false.
(D) (A) is false, but (R) is true.

Question 1.

## Assertion (A): Identification and division of work is the first step in the process of organising. Reason (R): Organising involves identifying and dividing the work that has to be done in accordance with previously determined plAnswer

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
The organising function begins with the division of total work into smaller units. Each unit of total work is called a job.
The division of work into smaller jobs leads to specialization because jobs are assigned to individuals according to their qualifications and capabilities.

Question 2.

## Assertion (A): Organising provides a clear description of jobs and related duties. Reason (R): Organising stimulates creativity amongst the managers.

(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).

Explanation:
Organising provides a clear description of jobs and related duties. This helps to avoid confusion and duplication, Clarity in working relationships enables proper execution of work.

Question 3.

## Assertion (A): Organising leads to the proper usage of all material, financial and human resources. Reason (R): The proper assignment of jobs avoids overlapping of work and also makes possible the best use of resources.

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
Avoidance of duplication of work helps in preventing confusion and minimising the wastage of resources and efforts.

Question 4.

## Assertion (A): It is essential for effective performance that a proper match is made between the nature of a job and the ability of an individual. Reason (R): It is not necessary to define the work of different job positions and accordingly allocate work to variou employees.

(C) (A) is true, but (R) is false.

Explanation:
Once departments have been formed, each of them is placed under the charge of an individual. Jobs are then allocated to the members of each department in accordance to their skills and competencies.

Question 5.

## Assertion (A): A proper organisation structure is essential to ensure a smooth flow of communication and better control over the operations of a business enterprise. Reason (R): An organisation structure provides the framework which enables the enterprise to function as an integrated unit by regulating and coordinating the responsibilities of individuals and departments. 0

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
The organisation structure can be defined as the framework within which managerial and operating tasks are performed, It specifies the relationships between people, 1 work and resources.

Question 6.

## Assertion (A): Delegation of authority allows more time for managers to concentrate on the tasks that are of higher importance for the organisation. Reason (R): Delegation allows for changing of the routine work which brings a sense of freedom.

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
By empowering the employees, the managers are able to function more efficiently as they get more time to concentrate on important matters. Freedom from doing routine work provides them with opportunities to excel in new areas.

Question 7.

## Assertion (A): Authority refers to the official powers and position required to carry on any task. Reason (R): Accountability refers to the obligation on the part of the subordinates, to whom responsibility and authority are granted to see to it that the work is done.

(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).

Explanation:
When duties are assigned to subordinates then the required authority must also be conferred to him. The delegatee is fully answerable to his superior for performance of the task assigned to him. Thus, the superior ensures performance through accountability by his subordinate.

Question 8.

## Assertion (A): Responsibility arises from a superior- subordinate relationship. Reason (R): The subordinate is bound to perform the duty assigned to him by his superior.

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
Responsibility is the obligation of a subordinate to properly perform the assigned duty. It arises from a superior-subordinate _ relationship because the subordinate is bound to perform the duty assigned to him by his superior. Thus, responsibility flows upwards, i.e., a subordinate will always be responsible to his superior.

Question 9.

## Assertion (A): Delegation helps in developing the talents of the employees. Reason (R): Delegation does not facilitate the growth of the enterprise.

(C) (A) is true, but (R) is false.

Explanation:
Delegation helps in the expansion of an organisation by providing a ready workforce to take up leading positions in new ventures. Trained and experienced employees are able to play significant roles in the launch of new projects by replicating the work ethos they have absorbed from existing units, in the newly set up branches.

Question 10.

## Assertion (A): Functional structure makes training of employees easier as the focus is only on a limited range of skills. Reason (R): Divisional heads are accountable for profits.

(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).

Explanation:
Divisional heads are accountable for profits, as revenues and costs related to different departments can be easily identified and assigned to them. This provides a proper basis for performance measurement. It also helps in fixation of responsibility in cases of poor performance of the division and appropriate remedial action can be taken.

Case-Based MCQs

I. Read the following text and Answer:the questions given below:

‘Pappu Sweets Makers’ is a sweets making company which has turnover in crores. In order to manage the work in the organisation, the departments have been created on the basis of functions.
Examine the following situations of this organisation and give answers accordingly:

Situation 1: It is expected that employees who are performing similar tasks work under the same department. So the company now has HR, Marketing and Finance departments. The division is based on specific functions.
Situation 2: There are similarities in the tasks performed within the same department.
Situation 3: The profit is increasing month by month due to the success of this structure of the organisation.
Situation 4: There has been minimum duplication of efforts as the same department is taking care of single function.

Question 1.

## Which type of organisation structure is discussed in the above case?

(A) Functional
(B) Divisional
(C) Linear
(D) None of these
(A) Functional

Explanation:
A functional structure leads to occupational specialisation since emphasis is placed on specific functions. This promotes efficiency in utilisation of manpower as employees perform similar tasks within a department and are able to improve’ performance.

Question 2.

## What will be the outcome of Situation 2 ?

(A) Increase in control and coordination
(B) Quick decision-making
(C) More initiatives
(D) Flexibility
(A) Increase in control and coordination

Question 3.

## Why do you think the profit is increasing as given in Situation 3?

(A) Due to product specialisation
(B) Due to managerial and operational efficiency
(C) Due to flexibility
(D) Due to no repetition of tasks
(B) Due to managerial and operational efficiency

Question 4.

## What will be the result of Situation 4?

(A) Reduction in cost
(B) Increase in cost
(C) Stability to the organization
(D) None of the above
(A) Reduction in cost

II. Read the following text and Answer:the questions given below:

Bimal, the owner of ‘Reliable Constructions’ decided to begin a campaign in order to create awareness among the residents for creating a clean and safe environment. In an effort to develop clean surroundings in the area, he formed a team of 20 members to list the different ways that can be adopted for keeping the area clean.

Different people had different suggestions, someone suggested to take the help of local residents including young children, one suggestion was to involve unemployed youth. The idea to take the help of volunteers was also given. A combination of the most effective strategies after evaluating all options was selected for implementation. To achieve the desired goals and objectives, various activities were identified like:

(i) Purchase of essential items like dustbins, garbage bags, brooms, phenyl, etc.
(ii) Door-to-door collection of garbage.
(iii) Recycling of garbage.
(iv) Disposal of garbage, etc.

Thus, an organisational design was chosen which grouped similar activities together in order to minimize duplication of effort. After identification and grouping of these activities, the work was allocated among the different members.

Question 1.

“To achieve the desired goal various activities were identified like:….” Which step does this represent in the process of organizing?

(A) Identification and division of work
(B) Departmentalisation
(C) Assignment of duties
(D) Establishing reporting relationships
(A) Identification and division of work

Explanation:
The process of organising involves identifying and dividing the work that has to be done in accordance with previously determined plans The work is divided into manageable activities so that duplication can be avoided and the burden of work can be shared among the employees.

Question 2.

(A) Functional
(B) Divisional
(C) Formal
(D) Informal
(A) Functional

Question 3.

## “Thus, an organisational design was chosen which grouped similar activities together in order to minimize duplication of effort.” Which step under the process of organizing is being referred to in this line?

(A) Identification and division of work
(B) Departmentalisation
(C) Assignment of duties
(D) Establishing reporting relationships
(B) Departmentalisation

Explanation:
Once work has been divided into small and manageable activities then those activities which are similar in nature are grouped together. Such sets facilitate specialisation. This grouping process is called departmentalisation.

Question 4.

## “After identification of different activities the work was allocated to different members.” Which step does this represent in the process of organizing?

(A) Identification and division of work
(B) Departmentalisation
(C) Assignment of duties
(D) Establishing reporting relationships
(C) Assignment of duties

III. Read the following text and Answer:the questions given below:

Alpha Tonics is a progressive company which has achieved new records in the field of medicines. Recently the company decided to go for a major shift in policy decision by handing over the decision making authority to the lower most level of employees. For this the company went for a thorough planning. Within four months the positive results of this major policy decision was recognizable. The employees felt a lot of development in their skill of taking first step to manage things on their own. Some major newspapers also covered this development. The production of the company increased. The company’s top management could now focus on new areas of innovation as the employees turned more reliable.

One day it so happened that the company’s manufacturing branch in south could not fulfill even half of its production target and the operations manager was held answerable for the assigned target. He was called in the office. When he was questioned it was found that his right to command the workers was insufficient and it should have been more to create results. The management decided to listen to him and he was given more power. When he went to the shop floor he told the workers that the standard of behaviour of the workers should come from the official rules and procedures.

Question 1.

## Which concept of management has been related to in the first paragraph of the case?

(A) Delegation
(B) Decentralisation
(C) Both (A) and (B)
(D) None of the above
(B) Decentralisation

Explanation:
Decentralisation explains the manner in which decision making responsibilities are divided among hierarchical levels. Decentralisation refers to delegation of authority throughout all the levels of the organisation.

Question 2.

## Which of the following advantages of decentralization have been highlighted in the above case?

(A) It helps in development of initiative among subordinates.
(B) It helps in developing managerial talent for the future.
(C) Both (A) and (B)
(D) None of the above
(C) Both (A) and (B)
Question 3.

## Which elements of delegation have been highlighted in the second paragraph of the case? (A) Accountability

(A) Accountability
(B) Authority
(C) Both (A) and (B)
(D) None of the above
(C) Both (A) and (B)

Explanation:
Authority refers to the right of an individual to command his subordinates and to take action within the scope of his position. The concept of authority arises from the established scalar chain which links the various job positions and levels of an organisation. Accountability implies being answerable for the final outcome. Once authority has been delegated and responsibility accepted, one cannot deny accountability.

Question 4.

## Which feature of the informal organisation has been opposed by the operations manager in the above case?

(A) The standards of behaviour originate from the group norms.
(B) Independent channels of communication without specified direction of flow of information are developed by group members.
(C) It emerges spontaneously and is not deliberately created by the management.
(D) None of the above.
(A) The standards of behaviour originate from the group norms.

MCQ Questions for Class 12 Business Studies with Answers

Question 1.

## Which of the following does not result into reconstitution of a firm ?

(A) Dissolution of partnership firm
(B) Dissolution of partnership
(C) Change in profit sharing ratio of existing partners
(D) Death of partner
(A) Dissolution of partnership firm

Explanation:
In case of dissolution, the firm ceases to exist as in the dissolution, the relationship between the partners is terminated.

Question 2.

## Which of the following is/are required at the time of change in profit sharing ratio among partners?

(A) Accounting treatment of goodwill
(B) Revaluation of assets and reassessment of liabilities
(C) Accounting treatment of Accumulated Profit
(D) All of the above
(D) All of the above

Question 3.

## Change in profit sharing ratio among partners results in:

(A) Sacrifice of share in profit by one or more partners
(B) Gain of share in profit by one or more partners
(C) Both (A) and (B)
(D) None of the above
(C) Both (A) and (B)

Explanation:
This may result in the gain to a few partners and loss to others. The partners who are in profit due to this change should compensate the sacrificing partner/partners in the profit sharing ratio.

Question 4.

## Which of the following does not result in the change in the profit sharing ratio?

(A) When one or more partners acquire an interest in the business from another partner or partners
(B) When a partner is admitted in the firm.
(C) When a partner goes on a vacation.
(D) When a partner dies.

(C) When a partner goes on a vacation.

Explanation:
When a partner goes on a vacation, he is not retiring from the firm, so the profit sharing ratio will not change.

Question 5.

## At the time of change in profit sharing ratio, it is important to determine the …………. and …………… of partners.

(A) Sacrificing ratio, gaining ratio
(B) Profit, loss
(C) Goodwill, profit
(D) Capital, Profit
(A) Sacrificing ratio, gaining ratio

Explanation:
This may result in the gain to a few partners and loss to others. The partners who are in profit due to this change should compensate the sacrificing partner/partners in the profit sharing ratio.

Question 6.

## Which of the following is not required to be adjusted at the time of change in the profit sharing ratio?

(A) Determination of sacrificing ratio and gaining ratio
(B) Accounting treatment of Goodwill
(C) Revaluation of assets and reassessment of liabilities
(D) Determination of the capital of the partners
(D) Determination of the capital of the partners

Explanation:
At the time of change in the profit sharing ratio, the sacrificing ratio and gaining ratio is to be calculated, goodwill is to be adjusted and assets and liabilities are to be adjusted but there is no necessity of determining the capital of the partners.

Question 7.

## Which of the following statements is not true?

(A) When the partner is admitted it leads to reconstitution of the firm.
(B) When the partner dies it is considered as reconstitution of the firm.
(C) When the partners change their profit sharing ratio it is said to be as the reconstitution of the firm.
(D) When the partner buys an asset it is considered as the reconstruction of the firm.
(D) When the partner buys an asset it is considered as the reconstruction of the firm.

Explanation:
When the partner buys an asset it is considered as increase in the assets of the firm.

Question 8.

## Pick the odd one out:

(A) Admission of Partner
(B) Death of a Partner
(C) Retirement of a Partner
(D) Dissolution of the Partnership firm
(D) Dissolution of the Partnership firm

Explanation:
Dissolution of the Partnership firm is odd one as it leads to the closure of the firm altogether and rest result in the reconstitution of partnership.

Question 9.

## Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5 :1.

Balance Sheet (Extract)

If value of machinery in the balance sheet is undervalued by 20%, then at what value will machinery be shown in new balance sheet ?
(A) ₹ 44,000
(B) ₹ 48,000
(C) ₹ 32,000
(D) ₹ 50,000
(D) ₹ 50,000

Explanation:
x – 20% of x = ₹ 40,000
= x – $$\frac {1}{5}$$ x = ₹ 40,000
$$\frac {1}{5}$$ x = ₹ 40,000
x = ₹ 40,000 x $$\frac {5}{4}$$
x = ₹ 50,000
therefore, the value of machinery is 50,000

Question 10.

## Avya, Divya and Kavya were equal partners. They decided to change the profit sharing ratio to 4 : 3 : 2. For this purpose the goodwill of the firm was valued at ₹ 90,000. They journal entry for the treatment of goodwill on change in profit sharing ratio will be :

 S. No. Particulars L. F Amount Dr. (₹) Amount Cr. (₹) (A) Kavya’s Capital A/c 10,000 10,000 (B) To Avya’s Capital A/c 10,000 10,000 (C) Divya’s Capital A/c 90,000 90,000 (D) To Avya’s Capital A/c 10,000 10,000

Option (a) is correct.

Explanation:
AvyasGam
$$\frac {4}{9}$$ – $$\frac {1}{3}$$ – $$\frac {4}{9}$$ – $$\frac {3}{9}$$ – $$\frac {1}{9}$$
Kavya’s Sacrifice = $$\frac {1}{3}$$ – $$\frac {2}{9}$$ = $$\frac {3}{9}$$ – $$\frac {2}{9}$$ = $$\frac {1}{9}$$
Thus the sacrificing value of goodwill is $$\frac {1}{9}$$ x ₹ 90,000 = ₹ 10,000 which will be transferred from Avya (Gaining Partner) to Avya (Sacrificing Partner) The sacrificing value of goodwill is ₹ 10,000.

Question 11.

## Ram and Shyam are equal partners in a partnership. They decided to change their ratio as 2 : 1. On that date, general reserve appeared in the books as ₹ 30,000. What amount of reserve will be transferred to Shyam’s Capital Account ?

(A) ₹ 5,000
(B) ₹ 10,000
(C) ₹ 15,000
(D) ₹ 20,000
Ans.
(C) ₹ 15,000

Explanation:
As the general reserve is transferred as per the old profit sharing ratio, so the amount to be transferred to Shyam’s Capital Account is ₹ 15,000.

Question 12.

## Avi and Babi were partners in a firm sharing profit or loss equally. With effect from 1st April 2021 they agreed to share profits in the ratio of 3 : 4. Due to change in profit sharing ratio, Avi’s gain or sacrifice will be:

(A) Gain $$\frac {1}{14}$$
(B) Sacrifice $$\frac {1}{14}$$
(C) Gain $$\frac {4}{7}$$
(D) Sacrifice $$\frac {3}{7}$$
Ans.
(B) Sacrifice $$\frac {1}{14}$$

Explanation: = $$\frac {1}{2}$$ – $$\frac {3}{7}$$ = $$\frac {7}{14}$$ – $$\frac {6}{14}$$ = $$\frac {1}{14}$$ (Sacrifice)

Question 13.

## Anwar and Bashir were partners in a firm sharing profit or losses in the ratio 7:5. With effect from 1st April 2021 they agreed to share profits in the ratio of 5:4. Due to the change in profit sharing ratio what is Bashir’s gain or sacrifice?

(A) Gain $$\frac {1}{36}$$
(B) Sacrifice $$\frac {1}{36}$$
(C) Gain $$\frac {1}{12}$$
(D) Sacrifice $$\frac {1}{12}$$
Ans.
(B) Sacrifice $$\frac {1}{36}$$

Explanation: = $$\frac {1}{36}$$ = $$\frac {1}{36}$$ = $$\frac {1}{36}$$ = $$\frac {1}{36}$$ (Gain) I

Question 14.

## Identify the journal entry for the transfer of workman compensation fund to the Partner’s Capital Account at the time of change of profit sharing ratio.

(A) Profit & Loss AppropñatiOfl A/c Dr.
To Partners’ Capital/Current A/cs
(Being Workmen’s Compensation Fund to the Partners Capital A/c)
(B)IPrOflt&LOSSNC Dr.
To Workmen’s CompensationFund A/cs
(Being Workmen’s Compensation Fund to the Partners Capital A/c)
(C) Partners’ Capital/Current A/cs Dr.
To Workmen’s Compensation Fund A/c
(Being Workmen’s Compensation Fund to the Partners Capital A/c)
(D) Workmen’s Compensation Fund A/c Ðr
To All Partners’ Capital A/cs
(Being Workmen’s CompensationFund to the Partners Capital A/c)
Ans.
(D) Workmen’s Compensation Fund A/c Ðr
To All Partners’ Capital A/cs
(Being Workmen’s CompensationFund to the Partners Capital A/c)

Question 15.

## How is goodwill treated when there is a change in the profit sharing ratio?

(A) The gaining partners give the amount of goodwill to the sacrificing partner.
(B) The gaining partners give the proportionate amount of goodwill to the sacrificing partner.
(C) The sacrificing partner gives the amount of goodwill to the gaining partner.
(D) The sacrificing partner give the proportionate amount of goodwill to the gaining partner.
Ans.
(B) The gaining partners give the proportionate amount of goodwill to the sacrificing partner.

Question 16.

## Which account will be prepared to record the adjusting amount of assets and liabilities?

(A) Profit and Loss Appropriation Account
(B) Profit and Loss Adjustment Account
(C) Realisation Account
(D) Revaluation Account
Ans.
(D) Revaluation Account

Explanation:
At the time of change in profit sharing ratio, the value of assets and reassessment of liabilities are revalued and the difference between the existing value and revalued amount is transferred to Revaluation Account.

Assertion and Reason Based MCQs

Directions: In the following questions, a statement
of Assertion (A) is followed by a statement of
Reason (R). Mark the correct choice as:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.

Question 1.

## Assertion (A): When a new partner is admitted it results in the restructuring of the firm. Reason (R): When a new partner is added it leads to the change in profit sharing ratio.

Ans.
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Admission is called restructuring of the firm as it leads to not only change in profit sharing ratio but also the change in the partnership deed.

Question 2.

## Assertion (A): Restructuring of the firm leads to the change in the profit sharing ratio. Reason (R): A change in the profit sharing ratio among the existing partners results in a gain of additional share in the future profit for some partners while a loss of a part thereof for other partners.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Restructuring of the firm is when there is admission, retirement, death or even just change in the profit sharing ratio.

Question 3.

## Assertion (A): Dissolution of the partnership firm is also called restructuring of the partnership. Reason (R): Restructuring of the firm leads to the change in profit sharing ratio and adjustment of goodwill.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Dissolution of the partnership firm is also called end of the partnership.

Question 4.

## Assertion (A): At the time of change in profit sharing ratio, it is important to determine the sacrificing ratio and gaining ratio of partners. Reason (R): The gaining partners compensate the sacrificing partners by paying them appropriate amount of goodwill.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
At the time of change in profit sharing ratio, it is important to determine the sacrificing ratio and gaining ratio of partners, as the gaining partners need to compensate the sacrificing partners.

Question 5.

## Assertion (A): The gaining partner transfers the amount of goodwill to the sacrificing partners in proportion. Reason (R): The gaining ratio is the share of profit gained by a partner when there is a change in the profit sharing ratio.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
The gaining partner transfers the amount of goodwill to the sacrificing partners in proportion in order to compensate for the sacrificed goodwill as per the gaining ratio.

Question 6.

## Assertion (A): Ram and Rahim share profits in the ratio 2:3. They decide to change the profit sharing ratio and share the profits equally. Ram is the gaining partner. Reason (R): Ratio of Ram is $$\frac {1}{10}$$

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Ram is the gaining partner as his share of profit is increasing from to $$\frac {2}{5}$$ to $$\frac {1}{2}$$

Question 7.

## Assertion (A): Norsang and Nyomit share profit and loss in the ratio of 1:2. They decide to change the profit sharing ratio to 2:3. The goodwill of the firm stood at ?60,000. Norsang gave ₹ 2,000 to Nyomit as the share of goodwill. Reason (R): If the partners decide to change their profit sharing ratio, the gaining partner must compensate the sacrificing partner by way of payment to him as goodwill in the gaining ratio.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 8.

## Assertion (A): When the profit sharing ratio changes, all the reserves are transferred to the Profit and Loss Appropriation Account. Reason (R): The reserves are transferred in the old profit sharing ratio.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
When the profit sharing ratio changes all the reserves are transferred to the Profit and Loss Appropriation Account in the old profit sharing ratio, so that the accumulated profits can be distributed among the partners for the restructuring of the firm.

Case-Based MCQs

I. Analyse the case given below and answer the questions that follow:
Mishra, Tiwari and Singh are partners in a firm sharing profits and losses in the ratio of 1 : 2 : 3. Their capitals on 31st March, 2017 were ₹ 4,00,000, ₹ 3,00,000 and ₹ 2,00,000 respectively. From 1st April, 2017 they agreed to change their profit and loss sharing ratio as 3 : 2 : 1 respectively.

On the day of reconstitution of the firm, their balance sheet showed a debit balance of Profit and Loss Account ? 30,000 and general reserve of ₹ 60,000. The value of the firm was decided at ₹ 2,10,000. It was also decided that the value of an asset which was previously not recorded in the books will be recorded with ₹ 21,000.

Question 1.

## Sacrifice made by Tiwari on the reconstitution of the partnership will be:

(A) $$\frac {1}{2}$$
(B) $$\frac {1}{3}$$
(C) $$\frac {1}{4}$$
(D) Nil

(D) Nil

Explanation:
There is no change in the profit I sharing ratio of Tiwari.

Question 2.

## What will be the balance of Mishra’s capital on the reconstitution of the partnership after taking into account the above adjustments?

(A) ₹ 3,48,500
(B) ₹ 3,38,500
(C) ₹ 4,08,500
(D) ₹ 4,88,500
(B) ₹ 3,38,500

Explanation:
Sacrifice/gain of Mishra = Old share-Newshare = $$\frac {1}{6}$$ – $$\frac {3}{6}$$ = $$\frac {2}{6}$$(gain)
Goodwill to be compensated by him to the sacrificing partner:
₹ 2,10,000 x $$\frac {2}{6}$$ = ₹ 70,000
Capital of Mishra after all adjustments = Old Capital + General Reserve + Gain on Revaluation – Dr.
balance of Profit and Loss – Goodwill compensated by him = ₹ (4,00,000 + 10,000 + 3,500 – 5,000 – 70,000)
= ₹ 3,38,500

Question 3.

## The ratio in which the loss or gain on revaluation to be distributed among the partners will be …………….

(A) 1 : 3 : 2
(B) 2 : 3 :1
(C) 3: 2 :1
(D) 1 : 2 : 3
(D) 1 : 2 : 3

Explanation:
Loss or gain on revaluation is always distributed in old profit sharing ratio on reconstitution of partnership.

Question 4.

## What journal entry will be passed for the treatment of Profit and Loss balance?

 (A) Profit & Loss Appropriation A/c  Dr. To Mishra’s Capital A/c To Tiwari’s Capital A/c To Singh’s Capital A/c (Being the loss being shared by the partners) 30,000 5,000 10,000 15,000 (B) Mishra’s Capital A/c Dr. Tiwari’s Capital A/c Dr. Singh’s Capital A/c Dr. To Profit and Loss A/c (Being the loss being shared by the partners) 5,000 10,000 15,000 30,000 (C)       Profit & Loss Appropriation A/c To Mishra’s Capital A/c To Tiwari’s Capital A/c To Singh’s Capital A/c (Being the loss being shared by the partners) 60,000 10,000 20,000 30,000 (D)       Mishra’s Capital A/c Dr. Tiwari’s Capital A/c Dr. Singh’s Capital A/c Dr. To Profit and Loss A/c (Being the loss being shared by the partners) 10,000 20,000 30,000 60,000

Option (B) is correct.

II. Read the following information and answer the given questions:
Abha and Vibha are partners, who shared profits and losses in the ratio of 2 :1. From the 1st January 2021, the partners decided to change their profit – sharing ratio to 3 : 2 and agreed upon the following:
(i) Goodwill of the firm valued at ₹ 45,000.
(ii) Creditors of ₹ 8,000 is not likely to be claimed hence should be written off.
(iii) Land and Building is overvalued by 10%.
(iv) Provision for doubtful debts to be reduced to ₹ 3,000 The partners neither want to record the goodwill nor to distribute the general reserve.

Question 1.

## Abha’s gain or sacrifice in the profit sharing ratio is:

(A) Gain $$\frac {1}{3}$$
(B) Sacrifice $$\frac {1}{3}$$
(C) Gain $$\frac {1}{15}$$
(D) Sacrifice $$\frac {1}{15}$$
(D) Sacrifice $$\frac {1}{15}$$

Explanation:
Abha’s sacrifice = $$\frac {2}{3}$$ – $$\frac {3}{5}$$ = $$\frac {10}{15}$$ – $$\frac {9}{15}$$ = $$\frac {1}{15}$$

Question 2.

## Vibha s gain or sacnfice in the profit shanng raflo is:

(A) Gain $$\frac {1}{3}$$
(B) Sacrifice $$\frac {1}{3}$$
(C) Gain $$\frac {1}{15}$$
(D) Sacrifice $$\frac {1}{15}$$
(C) Gain $$\frac {1}{15}$$

Explanation:
Vibha’s gain = $$\frac {1}{3}$$ – $$\frac {2}{5}$$ = $$\frac {5}{15}$$ – $$\frac {6}{15}$$ = $$\frac {-1}{15}$$

Question 3.

## Who will give the amount of goodwill to whom in what amount?

(A) Abha will give ₹ 4,500 to Vibha.
(B) Vibha will give ₹ 4,500 to Abha.
(C) Abha will give ₹ 3,000 to Vibha.
(D) Vibha will give ₹ 3,000 to Abha.
(D) Vibha will give ₹ 3,000 to Abha.

Question 4.

## Which account will be opened to transfer the amount of creditors to be written off?

(A) Realisation Account
(B) Revaluation Account
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(B) Revaluation Account

Explanation:
Revaluation account is a nominal account, which is prepared for the distribution and transfer of profits and losses arising due to the increase and decrease of the book value of assets and liabilities during change in profit sharing ratio, admission of a partner, retirement of a partner and death of a partner.

III. Read the following hypothetical text and answer the given questions:
Rajiv, Poonam and Abhishek are partners sharing profits in ratio of 3 : 2 : 1 respectively. From 1st January, 2019 they decided to share profits in the ratio of 1 : 3 : 2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the three years’ purchase of the average of five years’ profits. The profits and losses of the preceding five years are :
2014 : ₹ 1,20,000
2015 : ₹ 3,00,000
2016 : ₹ 3,40,000
2017 : ₹ 3,80,000
2018 :11,40,000 (Loss)

Question 1.

## Which partner sacrifices the shares of profit?

(A) Rajiv
(B) Poonam
(C) Abhishek
(D) Can’t be determined
(A) Rajiv

Explanation:
Rajiv = $$\frac{3}{6}-\frac{1}{6}=\frac{2}{6}$$ (sacrifice)
Poonam = $$\frac{2}{6}-\frac{3}{6}=-\frac{1}{6}$$ (gain)
Abhishek = $$\frac{1}{6}-\frac{2}{6}=-\frac{1}{6}$$ – (gain)

Question 2.

## The gaining ratio of Poonam is:

(A) $$\frac{2}{6}$$
(B) $$\frac{3}{6}$$
(C) $$\frac{1}{6}$$
(D) $$\frac{2}{6}$$
(C) $$\frac{1}{6}$$

Question 3.

## What is the amount of goodwill is to be given by the gaining partners?

(A) ₹ 1,00,000 each
(B) ₹ 1,20,000 and ₹ 80,000
(C) ₹ 1,50,000 and ₹ 1,00,000
(D) ₹ 80,000 each
(A) ₹ 1,00,000 each

Explanation:
The gaining ratio is 1 : 1.

Question 4.

## The goodwill of the firm is ………….

(A) ₹ 9,00,000
(B) ₹ 6,00,000
(C) ₹ 7,00,000
(D) ₹ 6,60,000
(B) ₹ 6,00,000

Explanation:
Average Profit

= ₹ 2,00,000
Goodwill at 3 years’ purchases of Average Profits = ₹ 2,00,000 x 3 = ₹ 6,00,000

Question 1.

## The persons who have entered into partnership are individually known as:

(A) Partners
(B) Firm
(C) Associations
(D) None of these
(A) Partners

Explanation:
Partners are the persons who enter into partnership.

Question 2.

## The Agreement of Partnership may be :

(A) Oral
(B) Written
(C) Both (A) and (B)
(D) None of these
(C) Both (A) and (B)

Question 3.

(A) 50
(B) 100
(C) 200
(D) 400
(A) 50

Question 4.

(A) 10
(B) 2
(C) 5
(D) 20
(B) 2

Question 5.

## Which of the following is the characteristic of a partnership firm are?

(A) Two or more persons are carrying common business under an agreement.
(B) They are sharing profits and losses in the fixed ratio.
(C) Business is carried by all or any of them acting tor all as an agent.
(D) All of the above
(D) All of the above

Question 6.

## Following are essential elements of a partnership firm except:

(A) At least two persons.
(B) There is an agreement between all partners.
(C) Equal share of profits and losses.
(D) Partnership agreement is for some business.
(C) Equal share of profits and losses.

Explanation:
A partnership firm is an agreement between the two or more persons to carry on a business, but they not necessarily share equal profit or losses unless otherwise provided by the partnership deed or in the absence of one.

Question 7.

## According to the Partnership Act, the relation of partnership arises from ……………. and not from status.

(B) Statute
(C) Contract
(D) Consideration
(C) Contract

Explanation:
There is a contractual relation between the partners of the partnership firm under the consideration of earning profit and carrying out a business.

Question 8.

## In the absence of Partnership Deed, the profits of a firm are divided among the partners :

(A) In the ratio of Capital
(B) Equally
(C) In the ratio of time devoted for the firm’s business
(D) According to the managerial abilities of the partners
(B) Equally

Explanation:
If there is no partnership deed the partners share the profit and losses equally irrespective of the capital invested by them.

Question 9.

## In the absence of Partnership Deed, interest on loan of a partner is allowed :

(A) at 8% per annum
(B) at 6% per annum
(C) at 12% per annum
(D) no interest is allowed
(B) at 6% per annum

Explanation:
In the absence of partnership deed the interest on loan is charged at 6% p.a. as per the Partnership Act, 1932.

Question 10.

## The partner who provides capital and shares profit and loss in partnership business but does not take active part in the management is known as :

(A) Active Partner
(B) Sleeping Partner
(C) Secret Partner
(D) Limited Partner
(B) Sleeping Partner

Question 11.

## Pick the odd one out:

(A) Interest on capital
(B) Interest on drawings
(C) Interest on partner’s loan
(D) Salary to partner
(C) Interest on partner’s loan

Explanation:
Interest on partner’s loan is the only one allowed in the absence of a partnership deed.

Question 12.

## When there is no partnership deed, the partners are entitled to which of the following?

(A) Salary
(B) Profit share in capital ratio
(C) Interest on loan and advances
(D) Commission
(C) Interest on loan and advances

Explanation:
The salaries, profit sharing ratio, commission, etc. are in accordance with the partnership deed, but if there is no partnership deed the partner needs to pay the interest on loan taken by him 6%.

Question 13.

## Which of the following statements is not true?

(A) All partners share profit and losses equally in the absence of a partnership deed.
(B) A minor can be admitted as a partner, only into the benefits of the partnership.
(C) A sleeping partner is allowed to sleep during a meeting of the partners.
(D) None of the above
(C) A sleeping partner is allowed to sleep during a meeting of the partners.

Question 14.

## When only Partner’s Capital Account is maintained all the adjustments are made in :

(A) Partners’ Capital Accounts
(B) Partners’ Current Accounts
(C) Cash Account
(D) None of the above
(A) Partners’ Capital Accounts

Explanation:
When only Partner’s Capital Account is maintained all the adjustments are made in the Capital account itself and no separate account is to be opened for such thing.

Question 15.

## Partners’ Current Accounts are opened when their Capital Accounts are :

(A) Fixed
(B) Fixed and Fluctuating
(C) Fluctuating
(D) None of these 52
(A) Fixed

Explanation:
Partners’ Current Account are opened when their capital accounts are fixed, so that all the items and transactions such as interest on capital, drawings etc are adjusted through the Current Account and the capital remains fixed.

Question 16.

## Pick the odd one out:

(A) Interest on capital
(B) Salary to partner
(C) Commission to partner
(D) Interest on drawings
(D) Interest on drawings

Explanation:
Interest on drawings is the only item which comes on the debit side.

Question 17.

## Fluctuating capital account is credited with :

(A) Interest on capital
(B) Profit of the year
(C) Remuneration of partners
(D) All of the above
(D) All of the above

Explanation:
In case of fluctuating capital account, the capital account is credited with all the transactions related to the capital of the partners.

Question 18.

## Where would the interest on capital be recorded if the fixed capital account is followed in the partnership firm?

(A) Capital Account
(B) Current Account
(C) Profit and Loss Account
(D) None of the above
(B) Current Account

Explanation:
The interest on capital is recorded in the current account if the fixed capital account is followed as the capital amount do not change.

Question 19.

## Which of the following will not be recorded in the Current Account?

(A) Interest in capital
(B) Interest on drawings
(C) Partner’s Commission
(D) Additional capital brought by a partner
(D) Additional capital brought by a partner

Explanation:
Additional capital brought by a partner is recorded in the Capital Account of the partner even if Current Account is maintained.

Question 20.

## Where is the Interest on drawings recorded in the Current Account?

(A) Debit side
(B) Credit Side
(C) Not recorded
(D) Recorded as a foot note
(A) Debit side

Question 21.

## In Fluctuating Capital Method, the capital remains …………..

(A) Unchanged
(B) Fluctuates from time to time
(C) Fluctuates only at the start of the year but is fixed at the end
(D) Maintained
(B) Fluctuates from time to time

Explanation:
With every transaction relating to the capital of the partners, the capital keeps on fluctuating, in fluctuating capital account.

Question 22.

## Which of the following items is not dealt through Profit and Loss Appropriation Account ?

(A) Interest on partner’s loan
(B) Partner’s salary
(C) Interest on partner’s drawings
(D) Partner’s commission
(A) Interest on partner’s loan

Explanation:
Interest on partner’s loan directly comes in the Profit and Loss Account. The partner’s salary, interest on partner’s drawings and partner’s commission are dealt through the Profit and Loss Appropriation Account.

Question 23.

## Pick the odd one out:

(A) Rent to a partner
(B) Interest on partner’s loan
(C) Interest on apital
(D) Deprecudon
(C) Interest on apital

Explanation:
Interest on capital is the only item that comes in the Partner’s Capital or Current Account

Question 24.

## The Journal Entry to transfer interest on capital to Profit and Loss Appropriation Account would be :

(A) Interest on Capital A/c Dr.
To Profit & Louis Appropriation A/c
(B) Profit & Loss Appropriation A/c Dr.
To Interest on Capital A/c
(C) Profit & Loss A/c Dr.
Partner’s Current A/c Dr.
To Interest on Capital A/c
(D) None of the above
(B) Profit & Loss Appropriation A/c Dr.
To Interest on Capital A/c

Question 25.

## Identify the journal entry for transferring interest on drawings to the Profit and Loss Appropriation A/c.

(A) Partners’ Capital/Current A/cs Dr.
To Interest on drawings A/c (Being interest on drawings transferred to Profit & Loss Appropriation A/c)
(B) Interest on Drawings A/c Dr.
To Partners’ Capital/Current A/cs
(Being interest on drawings transferred to Profit & Loss Appropriation A/c)
(C) Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c
(Being interest on drawings transferred to Profit & Loss Appropriation A/c)
(D) Profit & Loss Appropriation A/c Dr.
To Interest on Drawings A/c
(Being interest on drawings transferred to Profit & Loss Appropriation A/c) ®
(C) Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c
(Being interest on drawings transferred to Profit & Loss Appropriation A/c)

Explanation:
When the interest on drawings is transferred to Profit and loss appropriation account, interest on drawings in debited and profit and loss appropriation account is credited.

Question 26.

## Identify the journal entry for transferring salaries paid to the Active Partner A to the Profit and loss Appropriation A/c.

(A) Profit and Loss Appropriation A/c Dr.
To Salary A/c
(Being Salary transferred to Profit and Loss Appropriation Account)
(B) Profit and Loss Appropriation A/c Dr.
To A’s Capital A/c
(Being Salary transferred to Profit and Loss Appropriation Account)
(C) A’s Capital A/c Dr.
To Profit and Loss Appropriation A/c
(Being interest on drawings transferred to Profit & Loss Appropriation A/c)
(D) Salary A/c Dr.
To A’s Capital A/c
(Being interest on drawings transferred to Profit & Loss Appropriation A/c)
(A) Profit and Loss Appropriation A/c Dr.
To Salary A/c
(Being Salary transferred to Profit and Loss Appropriation Account)

Explanation:
When the salary is transferred to profit and loss appropriation account, salary account is credited and profit and loss appropriation account is debited.

Question 27.

## When is the Profit and Loss Appropriation Account prepared?

(A) When there are certain adjustments related to partnership.
(B) When the firm is dissolved.
(C) When there is an audit to be done.
(D) It is never prepared.
(A) When there are certain adjustments related to partnership.

Explanation:
The profit and loss appropriation account is prepared when there are adjustments to be done with related to the partnership due to the changes that have occurred.

Question 28.

## Pick the odd one out:

(A) Rent to Partner
(B) Manager’s Commission
(C) Interest on Partner’s Loan
(D) Interest on Partner’s Capital
(D) Interest on Partner’s Capital

Explanation:
Interest on Partner’s Capital is the the only one that is written in the Capital or Current account.

Question 29.

## Mohit and Rohit were partners in a firm with capitals of ₹ 80,000 and ₹ 40,000 respectively. The firm earned a profit of ₹ 30,000 during the year. Mohit’s share in the profit will be :

(A) ₹ 20,000
(B) ₹ 10,000
(C) ₹ 15,000
(D) ₹ 18,000
(C) ₹ 15,000

Explanation:
As there is no partnership deed, the profit will be shared equally, that is ₹15,000 each.

Question 30.

## Rahul and Shubham are partners in a partnership. Rahul withdraw ? 4,000 during the year as drawings. Interest on drawings is charged @ 15% p.a. The amount of interest on drawings at the end of the year will be :

(A) ₹ 300
(B) ₹ 600
(C) ₹ 1,200
(D) ₹ 150 IS
(A) ₹ 300

Explanation:
₹ 4000 x 15% x $$\frac {1}{2}$$ = ₹ 300

Question 31.

## Ramesh and Suresh are partners in the ratio of 3 : 2. Before profit distribution, ‘Ramesh is entitled to 5% commission of the net profit (after charging such commission). Before charging commission, firm’s profit was ₹ 84,000. Suresh’s share in profit will be :

(A) ₹ 32,000
(B) ₹ 48,000
(C) ₹ 56,000
(D) ₹ 32,800 S
(A) ₹ 32,000

Explanation:
₹ 84000 x $$\frac {5}{105}$$ = ₹ 32,000

Question 32.

## Abin, Babin and Chavi are partners in the ratio of 5 : 3 : 2. Before Babin’s salary of ₹ 34,000 firm’s profit is ₹ 1,84,000. How much in total Babin will receive from the firm?

(A) ₹ 55,200
(B) ₹ 79,000
(C) ₹ 89,200
(D) ₹ 45,000
(B) ₹ 79,000

Explanation:
Profit = ₹ 1,84,000 – ₹ 34,000 = ₹ 1,50,000
Babin’s Share of Profit = x ₹ 1,50,000 = ₹ 45,000
Babin gets = ₹ 45,000 + ₹ 34,000
= ₹ 79,000

Question 33.

## What will be the interest on drawing 12.5% p.a. for Abhishek if he withdraws ₹ 5,000 once in month?

(A) 13,500
(B) ₹ 7,500
(C) ₹ 3,750
(D) ₹ 3,000
(C) ₹ 3,750

Explanation:
$$\frac {5,000 x 12 x 12,5 x 6}{100 x 12}$$ = ₹ 3,750

Question 34.

## What will be the interest on capital for C @6%p.a for A, B and C who have invested ₹ 15,000, ₹ 25,000 and ₹ 30,000 and share profits in the ratio 1 : 2 : 3?

(A) ₹ 900
(B) ₹ 11,500
(C) ₹ 1,800
(D) ₹ Nil K
(C) ₹ 1,800

Explanation:
6% of 30,000 = ₹ 1,800

Question 35.

## Rani and Sumi are partners in the ratio of 1 : 2. Before profit distribution, ‘Rani is entitled to 5% commission of the net profit (before charging such commission). Before charging commission, firm’s profit was ₹ 60,000. Sumi’s share in profit will be :

(A) ₹ 38,000
(B) ₹ 119,000
(C) ₹ 20,000
(D) ₹ 40,000
(A) ₹ 38,000

Explanation: ₹ 60,000 x $$\frac {5}{100}$$ = ₹ 3,000
Profit after commission = ₹ 60,000 – ₹ 3,000 = ₹ 57 000
ISumi’s Share of profit = ₹ 57,000 x ₹ $$\frac {2}{3}$$
= ₹ 38,000

Question 36.

## Journal Entry to be passed in case of loss on adjustment transferred to Partner’s Current Accounts is :

(A) Profit and Loss Appropriation A/c Dr.
To Partners’ Current A/cs
(B) Partners’ Current A/cs Dr.
To Profit and Loss Adjustment A/c
(C) Partner’s Current A/c Dr.
To Partner’s Capital A/c
(D) None of the above SI
(B) Partners’ Current A/cs Dr.
To Profit and Loss Adjustment A/c

Question 37.

## Which account is prepared when past adjustments are to be done?

(A) Profit and Loss Appropriation Account
(B) Profit and Loss Adjustment Account
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(B) Profit and Loss Adjustment Account

Explanation:
Profit and Loss Adjustment Account is prepared when the past adjustments are to be done. Profit and Loss Appropriation Account is made to make any transactions of the partners that affect the profit to be shared.

Question 38.

## If the interest on capital is omitted what will be the journal entry during the situation?

(A) Profit & Loss Adjustment A/c Dr.
To Partners’ Capital/Current A/cs
(Being adjustment made for interest on capital previously omitted, now carried out)
(B) Profit & Loss A/c Dr.
To Partners’ Capital/Current A/cs
(Being adjustment made for interest on capital previously omitted, now carried out)
(C) Partners’ Capital/Current A/cs Dr.
To Profit and Loss Appropriation A/c
(Being adjustment made for interest on capital previously omitted, now carried out)
(D) Profit and Loss Appropriations A/c Dr.
To Profit and Loss A/c
(Being adjustment made for interest on capital previously omitted, now carried out)
(A) Profit & Loss Adjustment A/c Dr.
To Partners’ Capital/Current A/cs
(Being adjustment made for interest on capital previously omitted, now carried out)

Question 39.

## If the interest on drawings is omitted to be recorded what will be the journal entry?

(A) Profit & Loss Adjustment A/c Dr.
To Partners’ Capital/Current A/cs (Being adjustment made for interest on
drawings previously omitted, now carried out)
(B) Profit & Loss A/c Dr.
To Partners’ Capital/Current A/cs (Being adjustment made for interest on
drawings previously omitted, now carried out)
(C) Partners’ Capital/Current A/cs Dr.
To Profit and Loss Adjustment A/c (Being adjustment made for interest on drawings previously omitted, now carried out)
(D) Profit and Loss Appropriations A/c Dr.
To Profit and Loss A/c
(Being adjustment made for interest on drawings previously omitted, now carried out)
(C) Partners’ Capital/Current A/cs Dr.
To Profit and Loss Adjustment A/c
(Being adjustment made for interest on drawings previously omitted, now carried out)

Question 40.

(B) Subtracted
(C) No Effect
(D) Not shown

Question 41.

## E, F and G are partners sharing profits in the ratio of 3 : 3 : 2. As per the partnership agreement, G is to get a minimum amount of ₹ 80,000 as his share of profits every year and any deficiency on this account is to be personally borne by E. The net profit for the year ended 31st March, 2020 amounted to ₹ 3,12,000. What will be the amount of deficiency to be borne by E ?

(A) ₹ 1,000
(B) ₹ 4,000
(C) ₹ 8,000
(D) ₹ 2,000
(D) ₹ 2,000

Explanation:
G’s Share = $$\frac {2}{8}$$ x ₹ 3,12,000 = ₹ 78000
Deficient to be borne by E = ₹ 80,000 – ₹ 78,000 = ₹ 12,000

Question 42.

## Guarantee of profit to a partner is given by:

(A) Only one partner of the firm
(B) Only two partners of the firm
(C) All the partners of the firm
(D) All of the above
(D) All of the above

Explanation:
Guarantee of profit to a partner is given by one or more partner to one or more partner or the firm. The guaranteed amount is even paid in case of loss.

Question 43.

## Ram, Shyam and Balweer are partners. They share profit and loss equally. Ram is guaranteed to get ₹ 30,000 profit. Any deficiency if arises, will be borne by Shyam. During the year, they earned a profit of ? 60,000. Which of the following statement/statements is/are correct as per the above information :

(A) Shyam will get ₹ 10,000 as profit.
(B) Balweer will get ₹ 20,000 as profit.
(C) Ram will get ₹ 30,000 as profit.
(D) All of the above 150
(D) All of the above 150

Explanation:
Ram’s Share = $$\frac {1}{3}$$ x ₹ 60,000
= ₹ 20,000
Deficient to be borne by Shyam
= ₹ 30,000 – ₹ 20,000 = ₹ 10,000
Ram’s Share = ₹ 30,000
Shyam’s Share = ₹ 30,000 – ₹ 10,000 = ₹ 20,000
Balweer’s Share = ₹ 20,000

Question 44.

## When the profits are guaranteed by the partners on the old profit sharing ratio, which of the following is not true?

(A) Amount guaranteed to a partner is transferred to Profit and Loss Appropriation A/c.
(B) Then the remaining profits are distributed among old partners / remaining partners in remaining ratio.
(C) Guaranteed amount is calculated according to his share.
(D) All of the above
(C) Guaranteed amount is calculated according to his share.

Question 45.

## A, B and C are partners sharing profits in the ratio of 2 : 3 : 1. As per the partnership agreement, C is to get a minimum amount of ₹ 1,00,000 as her share of profits every year and any deficiency on this account is to be personally borne by B. The net profit for the year ended 31st March, 2021 amounted to ₹ 3,00,000. What will be the amount of deficiency to be borne by B?

(A) ₹ 50,000
(B) ₹ 30,000
(C) ₹ 20,000
(D) Nil
(A) ₹ 50,000

Explanation:
C’s Share = ₹ 3, 00,000 x $$\frac {1}{6}$$ = ₹ 50,000
Deficient to be borne by B = ₹ 1,00,000 – ₹ 50,000 = ₹ 50,000

Question 46.

## Rehana, Shakina and Jasmine are partners. They share profit and loss in the ratio 1 : 2 : 3. Shakina is guaranteed to get ₹ 50,000 profit. Any deficiency if arises, will be borne by Rehana and Jasmine equally. During the year, they earned a profit of ₹ 6,00,000. How much money has to be given to her by Rehana and Jasmine?

(A) ₹ 2,000 by Rehana and Jasmine each
(B) ₹ 2,500 by Rehana and Jasmine each
(C) ₹ 3,000 by Rehana and Jasmine each
(D) Nil
(D) Nil

Explanation:
Shakina’s share = ₹ 6,00,000 x $$\frac {2}{6}$$
= ₹ 2,00,000, as she gets the share more than the guaranteed, she will not be reimbursed.

Question 47.

## Ram, Rahim and Robert entered into partnership in the profit sharing ratio of 2 : 3 : 5. Robert guaranteed Ram ₹ 90,000 of profit every year and if there is less he will be reimbursed the deficient amount by him and Rahim in the ratio of 2 : 3. The profit for the year ending March 2021 was ₹ 4,00,000. How much money does Rahim have to give to Ram?

(A) ₹ 4,000
(B) ₹ 6,000
(C) ₹ 2,000
(D) Nil
(B) ₹ 6,000

Explanation:
Robert’s Share = ₹ 4,00,000 x $$\frac {2}{10}$$ = ₹ 80,000
Deficient = ₹ 90,000 – ₹ 80,000 = ₹ 10,000
Rahim’s share = ₹ 10,000 x $$\frac {3}{5}$$ = ₹ 6,000

Question 48.

## Tangible Assets of the firm are ₹ 14,00,000 and outside liabilities are ₹ 4,00,000. Profit of the firm is ₹ 1,50,000 and normal rate of return is 10%. The amount of capital employed will be :

(A) ₹ 10,00,000
(B) ₹ 1,00,000
(C) ₹ 50,000
(D) ₹ 20,000
(A) ₹ 10,00,000

Explanation:
Capital Employed = Tangible Assets – Outside Liabilities = ₹ 14,00,000 – ₹ 4,00,000 = ₹ 10,00,000

Question 49.

## Goodwill is an ………….. asset.

(A) Tangible
(B) Intangible
(C) Not an asset
(D) None of the above 0
(B) Intangible

Explanation:
Goodwill is an intangible asset as we cannot touch it.

Question 50.

(A) AS – 16
(B) AS – 20
(C) AS – 26
(D) AS – 21
(C) AS – 26

Question 51.

## Identify the formula for calculating goodwill with the help of Average Profit Method.

(A) Goodwill = Average Profit x No. of Years’ Purchases
(B) Goodwill = Total Profit x No. of Years’ Purchases
(C) Goodwill = Total Profit x No. of Years the firm has been in operation
(D) Goodwill = Average Profit x 5 years 0
(A) Goodwill = Average Profit x No. of Years’ Purchases

Question 52.

## Identify the formula for calculating goodwill with the help of capitalised method of super profit.

(A) Goodwill = Super profit x No. of Years

(C) Goodwill = Normal Profit x No. of Years ÷ Super profit

Question 53.

## Average profits of a firm during the last few years are ₹ 50,000 and the normal rate of return in a similar business is 5%. If the goodwill of the firm is ₹ 1,00,000 at 5 years’ purchases of super profit, find the capital employed by the firm.

(A) ₹ 6,00,000
(B) ₹ 5,00,000
(C) ₹ 3,00,000
(D) ₹ 2,50,000
(A) ₹ 6,00,000

Explanation:
Super profit = $$\frac {1,00,000}{5}$$ = ₹ 20,000
Normal Profit = Average Profit – Super Profit = ₹ 50,000 – ₹ 20,000 = ₹ 30,000

= ₹ 6,00,000

Question 54.

## How is Goodwill of the firm created?

(A) Due to reputation of the firm
(B) Extra earning capacity of the firm
(C) Both (A) and (B)
(D) Neither (A) nor (B)
(C) Both (A) and (B)

Question 55.

## Which of the following factors do not affect the goodwill of the firm?

(A) Competent and capable management
(B) Favourable location
(C) Favourable contracts
(D) None of the above
(D) None of the above

Assertion And Reason Based MCQs

Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.

Question 1.

## Assertion (A): Partners shares profit and losses equally. Reason (R): Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Partners share profit and losses equally only if provided by the partnership deed or there is no partnership deed.

Question 2.

## Assertion (A): The development of business depends upon the active partners only. Reason (R): Active Partner is a person who provides his share in capital and also takes active part in the management of the business.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
As the active partner takes in the part of the management of the business, the development of the business depends on him but it is not completely true as all other partners are to be consulted for the same.

Question 3.

## Assertion (A): Secret Partner does not participate in .the affairs of the management. Reason (R): The secret partner is not liable to pay debts of the firm.

(C) Assertion (A) is true, but Reason (R) is false.

Explanation:
Even though the secret partner does not participate in the affairs of the management, he is liable to pay debts of the firm.

Question 4.

## Assertion (A): Nominal partners do not share the profits and losses of the firm. Reason (R): A firm only uses the name and reputation of the nominal partners.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Nominal partner do not share the profits and losses of the firm, as they are not actually the partners of the firm.

Question 5.

## Assertion (A): A minor may become a partner with the consent of all the partners. Reason (R): A minor partner can share profits and losses as per the agreement but is not liable to pay the debts of the partnership firm.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
A minor can become a partner of the firm with the consent of the partners so as to form a partnership agreement.

Question 6.

## Assertion (A): The fixed capital method is better as compared to the fluctuating capital method. Reason (R): The capital of the partners is fixed, and all the transactions is recorded in the current account.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
It cannot be determined which I method of maintaining capital is better, it I depends on the preference of the partners.

Question 7.

## Assertion (A): The interest on drawings is recorded in the debit side of Current Account when fixed capital method is followed. Reason (R): The capital of the partners is fixed, and all the transactions is recorded in the Current Account.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
The interest on drawings is recorded in the current account so as to maintain the capitals of the partners fixed.

Question 8.

## Assertion (A): The interest on capital is recorded in the debit side of the Current Account when fixed capital is maintained. Reason (R): The capital of the partners is fixed, and all the transactions is recorded in the current account.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
The interest on capital is recorded in the credit side of the current account.

Question 9.

## Assertion (A): When the partners put in additional capital, it is recorded in the credit side of the Current Account. Reason (R): Current Account records all the transactions relating to the interest on capital, drawings, commissions to partners, etc. when the capital is to remain fixed.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
When a partner puts in additional capital it is shown in the capital account even if fixed capital is to be followed.

Question 10.

## Assertion (A): Profit and Loss Appropriation Account shows the correct profit earned by the firm. Reason (R): The net profit is adjusted after taking into account the interest on capital, interest on drawings, salaries/commissions paid to the partner in the Profit and Loss Appropriation Account.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
The profit and loss appropriation account shows all the other items that needs to be taken into account to be distributed among the partners to find the correct profit of the firm.

Question 11.

## Assertion (A): The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. Reason (R): Profit and Loss Appropriation Account starts with the Net Profit as found in the Profit and Loss Account.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 12.

## Assertion (A): Profit and Loss Appropriation Account is only prepared when there are certain adjustments related to partnership. Reason (R): Profit and Loss Appropriation is prepared to ascertain the profit earned by the firm and distribution among the partners.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Whenever there is an adjustment relating to the partnership, Profit and Loss Appropriation Account is made to ascertain and divide the profit among the partners.

Question 13.

## Assertion (A): If percentage of interest on capital is not mentioned in partnership deed, partners will not receive any interest on capital. Reason (R): The interest on capital is charged on the capital invested by the partners.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
The interest on capital is charges in accordance with the partnership deed, and if not mentioned it will not be charged.

Question 14.

## Assertion (A): If percent of interest on drawings is not mentioned in partnership deed, firm would not charge any interest on drawings of partners. Reason (R): Interest on drawings is charged only when there is profit.

(C) Assertion (A) is true, but Reason (R) is false.

Explanation:
Interest on drawings is charged even when there is a loss.

Question 15.

## Assertion (A): Partner needs to pay the interest on loan at 6% even if not mentioned in the partnership deed. Reason (R): Interest on loan to partners is charged as per the Section 13 (d) of the Indian Partnership Act.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
As per the section 13(d) of the Partnership Act, the interest on the loan is to be charged at 6% even if it is not mentioned in the partnership deed.

Question 16.

## Assertion (A): When the items are omitted it is necessary to prepare Profit and Loss Adjustment Account only. Reason (R): For the purpose of correcting these omissions or mistakes, adjustment entries are passed through Profit and Loss Adjustment Account in which adjustments in respect of each and every omission are to be made.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
When the items are omitted, profit and Loss Adjustment Statement or necessary journal entries can be passes when Profit and Loss Adjustment Account is prepared.

Question 17.

## Assertion (A): Interest on capital amount to ?15,000 was shown on the credit side of the Profit and Loss Adjustment Account. Reason (R): Interest on Capital is to be credited to the Capital/Current Accounts of the Partner.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
Interest on capital is shown on the I debit side of the Profit and Loss Adjustment Account.

Question 18.

## Assertion (A): The interest on drawings omitted is shown on the credit side of the Profit and Loss Adjustment Account. Reason (R): Profit and Loss Adjustment Account is prepared when there is an omission of items.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
The interest on drawings omitted is either shown on the credit side of Profit and Loss Adjustment Account or statement or a necessary journal entry can be passed.

Question 19.

## Assertion (A): Sandhya and Manoj entered into a partnership in the profit sharing ratio 1:2. Manoj agreed to pay Sandhya if her share of profit fall short of ₹ 50,000. The profit earned was ₹ 1,77,000. Sandhya asked him to pay ₹ 27,000, but Manoj refused to pay anything. Reason (R): Profit is guaranteed only when the minimum amount of profit is not earned by the partner.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Explanation:
As the profit share of Sandhya is ₹ 77,000, which is more than the guaranteed amount, so Manoj did not have to pay her.

Question 20.

## Assertion (A): The profit is guaranteed only to a partner. Reason (R): The guaranteed profit is to be paid by the other partner in the specific ratio as agreed upon to the partner who has been agreed to be paid if the profit fall short.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
The profit is guaranteed to a partner, few partners or even to the firm.

Question 21.

## Assertion (A): Guaranteed amount is even paid when the firm suffers a loss. Reason (R): If a partner or partners guarantees a certain amount of profit, it needs to be paid at all costs.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 22.

## Assertion (A): Goodwill is an intangible asset. Reason (R): Goodwill cannot to touched and felt.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 23.

## Assertion (A): Goodwill of the firm is affected by the reputation of the firm. Reason (R): The goodwill of the firm is dependent on the management capacity of the firm.

(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

Explanation:
Goodwill of the firm is affected by the reputation of the firm as the firm will be able to earn more profit if its reputation is good.

Case-Based MCQs

I. On the basis of following information, answer the given questions: Asif and Ravi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. Their fixed capitals as on 1st April, 2016 were ₹ 6,00,000 and ₹ 4,00,000 respectively.
Their partnership deed provides for the following :

• Partners are to be allowed interest on their capital @ 10% per annum.
• They are to be charged interest on drawings @ 4% per annum.
• Asif is entitled to a salary of ₹ 2,000 per month.
• Ravi is entitled to a commission of 5% of the net profit of the firm before charging such commission.
• Asif is entitled to a rent of ₹ 3,000 per month for the use of his premises by the firm.

The net profit of the firm for the year ended 31st March, 2017, before providing for any of the above clauses was ? 4,00,000.
Both partners withdrew ₹ 5,000 at the beginning of every month for the entire year.

Question 1.

## The amount of Interest on Asif’s Capital, shown in the Profit and Loss Appropriation Account is:

(A) ₹ 60,000
(B) ₹ 40,000
(C) ₹ 20,000
(D) ₹ 30,000
(A) ₹ 60,000

Explanation:
₹ 6,00,000 X 10% = ₹ 60,000

Question 2.

## How much commission is to be given to Ravi?

(A) ₹ 19,047
(B) ₹ 18,200
(C) ₹ 19,200
(D) ₹ 18,047
(B) ₹ 18,200

Explanation:
Net Profit = ₹ 4,00,000 – ₹ 36,000 = ₹ 3,64,000
Commission = 5% of 3,64,000 = ₹ 18,200

Question 3.

## How much salary is Asif entitled to the full year?

(A) ₹ 24,000
(B) ₹ 20,000
(C) ₹ 18,000
(D) ₹ 21,000
(A) ₹ 24,000

Explanation:
Salary = ₹ 2000 x 12 = ₹ 24,000

Question 4.

## How will the rent to be paid to Asif treated?

(A) It will be in the debit side of Profit and Loss Appropriation Account.
(B) It will be subtracted from the Net Profit.
(C) It will be added to the Capital Account of Asif.
(D) It will be deducted from the Capital Account of Ravi.
(B) It will be subtracted from the Net Profit.

II. On the basis of following information, answer the given questions:
Anita, Asha and Bashir are partners sharing profits and losses in the ratio of 3 : 2 : 1 respectively. On 1st April, 2016, they decided to change their profit sharing ratio. Their partnership deed provides that in the event of any change in the profit sharing ratio, the goodwill of the firm should be valued at two years’ purchase of the average super profits for the past three years : 2015-16 Profit ₹ 40,000 2014-15 Profit ₹ 30,000 2013-14 loss 10,000 The average capital employed in the business was ₹ 1,10,000; the rate of interest expected from capital invested was 10%.

Question 1.

## The total profit earned in three years is …………….

(A) ₹ 80,000
(B) ₹ 70,000
(C) ₹ 60,000
(D) None of these
(C) ₹ 60,000

Explanation:
Total Profit = ₹ 40,000 + ₹ 30,000
₹ 10,000 = ₹ 60,000

Question 2.

## The Super Profit of the firm is …………..

(A) ₹ 1o,ooo
(B) ₹ 1o,ooo
(C) ₹ 9,000
(D) ₹ 18,000
(C) ₹ 9,000

Explanation:
Super Profit = Average Profit – Normal Profit
Normal Profit = (Capital Employed x Normal rate of return )/100
= (₹, 1o,ooo x 1o)/1oo = ₹11,ooo
Super Profit = ₹ 20,000 – ₹ 11,000
= ₹ 9,000

Question 3.

## What is the amount of goodwill as calculated?

(A) ₹ 18,000
(B) ₹ 1o,ooo
(C) ₹ 7,000
(D) None of these
(A) ₹ 18,000

Explanation:
Goodwill = ₹ 9,000 x 2 = ₹18,000

Question 4.

(A) ₹ 9,ooo
(B) ₹ 11,000
(C) ₹ 18,000
(D) ₹ 60,000
(B) ₹ 11,000

Question 1.

## Income and Expenditure Account records :

(A) Receipts and Payments of Revenue and Capital nature both
(B) Income and Expenditure of Revenue nature only
(C) Expenditure of Capital nature only
(D) Receipts of Revenue nature only
(B) Income and Expenditure of Revenue nature only

Explanation:
Income and Expenditure account records the income and expenditure of only revenue nature. Capital income and expenditure are recorded in the balance sheet.

Question 2.

## Which of the following is not a capital receipt ?

(A) Donations for tournament
(B) Donations for building fund
(C) Life membership fee
(D) Entrance fees
(D) Entrance fees

Explanation:
Entrance fees is a revenue receipt as it is paid by the members when they become the members.

Question 3.

## Jaipur Club has a prize fund of ₹ 6,00,000. It incurs expenses on prizes amounting to ₹ 5,20,000. The expenses should be :

(A) debited to income and expenditure account.
(B) presented on the assets side of the balance sheet.
(C) debited to income and expenditure account and presented on the assets side of the balance sheet.
(D) deducted from the prize fund on the liabilities side of the balance sheet.
(D) deducted from the prize fund on the liabilities side of the balance sheet.

Explanation:
The expenses incurred over the raised fund is deducted from that fund.

Question 4.

## The following information has been extracted from the financial statements of a not-for-profit organization for the year ended 31st March, 2019 : Which of the following statements is correct for the presentation of the above items in the financial statements of the not-for-profit organization ?

(A) Negative Balance of Match fund ? 1,000 will be shown on the liabilities side of the Balance Sheet as at 31st March, 2019.?
(B) Opening Balance of Match Fund ? 5,00,000 will be shown on the liabilities side of Balance Sheet as at 1.4.2018.
(C) Negative balance of match fund ? 1,000 will be shown on the expenditure side of the Income and Expenditure Account for the year ended 31.3.2019.
(D) Both (B) and (C).
(D) Both (B) and (C).

Question5.

## Sports Star Charitable Club has income of ₹ 16,000 and ‘deficit’ debited to capital fund of ₹ 4,300 for the year 2019-20, then expenditure for 2019-20 is :

(A) ₹ 11,700
(B) ₹ 4,300
(C) ₹ 20,300
(D) None of the above
(C) ₹ 20,300

Explanation:
The deficit of ₹ 4,300 will be added to the income of ₹ 16,000.

Question 6.

## Receipts and Payments Account is a summary of:

(A) Debit and Credit balance of Ledger Account
(B) Cash Receipts and Payments
(C) Incomes and Expenses
(D) Balances of assets and liabilities
(B) Cash Receipts and Payments

Explanation:
Receipts and Payments Account is a summary of Cash Receipts and Payments as it records all the cash transactions.

Question 7.

## The nature of Receipts and Payments Account is :

(A) Nominal Account
(B) Real Account
(C) Personal Account
(D) None of the above
(B) Real Account

Explanation:
It is an asset account since it is a summary of cash receipts and cash payments including bank balance.

Question 8.

## Subscription received in advance during the current year is :

(A) An income
(B) An asset
(C) A liability
(D) None of the above
(C) A liability

Explanation:
Any income received in advance is a liability for the firm during the current year. Subscription received in advance is considered as liability because services are yet to be rendered.

Question 9.

## Donation received for special purpose is a :

(A) Liability
(B) Revenue Receipt
(C) Capital Receipt
(D) None of these
(C) Capital Receipt

Explanation:
Donation received for specific purpose is a capital receipt as it can be used only for that specific purpose.

Question 10.

## Pick the odd one out:

(A) Entrance fees
(B) Subscription
(C) Government grant
(D) Life membership fees
(D) Life membership fees

Explanation:
Life Membership fees is the odd one as it is the only capital receipt.

Question 11.

## The following information below is related to an NPO :

If the firm closes its accounts on 31st March every year, what amount of accrued interest on , investments will be shown in the Balance Sheet of the firm on 31-03-19 ?
(A) ₹ 2,400
(B) ₹ 14,800
(C) ₹ 6,000
(D) None of these
(A) ₹ 2,400

Explanation:
Accrued Interest = $$\frac {60,000 x 6 x 8}{12 x 100}$$
= c 2,400

Question 12.

## Identity the type of fund stated below : ‘Himanshu Club has a fund which can only be used for the distribution of prizes.’

(A) Prize fund
(B) Endowment fund
(C) Non-approved fund
(D) Honorarium C
(A) Prize fund

Question 13.

## Pick the odd one out:

(A) Receipts and Payments A/c
(B) Income and Expenditure A/c
(C) Balance Sheet
(D) Profit and Loss A/c
(D) Profit and Loss A/c

Explanation:
Profit and Loss A/c is odd as it is made only for the Business Entities and rest are made for the Non-profit organization.

Assertion And Reason Based MCQs

Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false .
(D) Assertion (A) is false, but Reason (R) is true.

Question 1.

## Assertion (A): The Subscription received during the year is recorded in the Receipts and Payments Account. Reason (R): Receipts and Payments Account records all the cash transactions whether pertaining to the current year or previous year.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Question 2.

## Assertion (A): The Income and Expenditure Account is like the cash book. Reason (R): Income and Expenditure Account shows the surplus or deficit that is earned during the financial year by the non-profit organisation.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
The Income and Expenditure Account is like the Profit and loss Account of the Business or Profit Making Firms.

Question 3.

## Assertion (A): The amount of subscription of ₹ 15,000 was paid out of which ₹ 3,000 is pertaining to the next year. The amount of subscription to be recorded in the Income and Expenditure Account is ₹ 15,000. Reason (R): The Income and Expenditure Account records all the transactions that are relevant only for the current financial year.

(D) Assertion (A) is false, but Reason (R) is true.

Explanation:
The amount of subscription to be recorded in the Income and Expenditure Account is ? 12,000. As the amount of ? 3,000 is related to the next year, and is the subscription received in advance, it will be deducted from the total amount received and the balance amount comes in the Income and Expenditure account.

Question 4.

## Assertion (A): Endowment Fund is recorded only in the Balance Sheet. Reason (R): Endowment is treated as capital receipt hence shown on the liabilities side of Balance Sheet.

(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Case-Based Mcqs

I. Read the following information and answer the questions that follow:
Dr. Rajani Mehta a qualified M.B.B.S. doctor got voluntary retirement at the age of 50 years from a renowned hospital. She was residing in a flat of a wide apartment which is surrounded by a slum which is inhabited by economically weaker strata of the society. As the people in that area were not aware about importance of health care, a widespread ailment had been persistently prevailing.

Rajani met with some of the well-off people of apartment and decided to open a dispensary named as ‘LOCAL Clinic’ to provide them cost free medical assistance and make them aware about hygienic living, physical fitness, and economic balance diet. Many of the apartment members agreed to it. She approached health department of the town with her proposal which was accepted and an initial one time grant of ₹ 2,00,000 was sanctioned immediately for purchase of medical equipment and test kits for pathological tests. 10 members of the apartment contributed ₹ 20,000 each as lifetime subscription to the clinic. Rajni decided to charge ₹ 10 as one

time registration fee from patients. Apart from above Rajni made following transactions for first year:
Marble’s popularity began in ancient Rome and Greece, where white and off-white marble were used to construct a variety of structures, from hand?held sculptures to massive pillars and buildings.

 S. No. Particulars Amount ₹ 1. Purchased Equipment 1,20,000 2. Purchased Medicines 95,000 3. Purchased Furniture 10,000 4. Rent paid 12,000 5. Fee received for medical tests 45,000 6. Honorarium paid to Yoga teacher 35,000 7. Honorarium paid to physiotherapist and sports teacher 38,000

Question 1.

## Not for profit organization prepares:

(i) Income and Expenditure account
(ii) Trading and Profit loss account
(iii) Receipt and Payment account
(iv) None of the above
(A) Only (ii)
(B) Only (iii)
(C) Both (i) and (ii)
(D) Both (i) and (iii)
(C) Both (i) and (ii)

Explanation:
Final Accounts prepared by Not- for-Profit Organisation:

• Receipts and Payments Account
• Income and Expenditure Account
• Balance Sheet

Question 2.

## Honorarium paid to Physiotherapist and sports teacher will be posted to:

(A) Debit side of Income and Expenditure Account.
(B) Debit side of Receipt and Payment Account.
(C) Debit side of Profit and Loss Account.
(D) Credit side of Income and Expenditure account.
(A) Debit side of Income and Expenditure Account.

Explanation:
The honorarium is a voluntary payment given to a person for the services rendered by him to the organization. Any amount paid to someone as honorarium is treated as revenue expenditure and is debited to Income and Expenditure Account for the period concerned.

Question 3.

## “Donations received by Ms Rajani Mehta from health department should be capitalized.” Consider the statement and chose the correct options:

(A) The statement is true.
(B) The Statement is false
(C) The Statement is partially true.
(D) The statement is incomplete.
(A) The statement is true.

Explanation:
Donations for specific purposes should always be capitalized. In the above case, donation was given for purchase of medical equipment and test kits for pathological tests.

Question 4.

## Lifetime subscription paid by 10 members will be posted in:

(A) Expenditure side of Income and Expenditure Account
(B) Liability side of closing Balance Sheet
(C) Income side of Income and Expenditure Account
(D) Assets side of closing Balance Sheet
(B) Liability side of closing Balance Sheet

Explanation:
Life membership is the long?term or non-recurring income of Not-for-Profit organisation, so it will be shown as a liability side of Balance Sheet.

II. Read the following information and answer the questions that follow:
Talent sports Club is engaged in the activity of identifying and promoting sports talent from rural and tribal areas of the country. Identifying with this Noble cause Mr. Manohar, a renowned industrialist donated ₹ 50,00,000 on 1st July, 2020, for the construction of a new hostel and mess for upcoming sportsmen.

Besides this, Mr. Manohar offered the services of his personal chartered accountant, free of charge, to streamline the account of Total Sports Club. The chartered accountant visited the office of the NPO on 31st March, 2021 and found that till date ₹ 35,00,000 had been spent on construction of hostel and mess building. He also noted that the NPO had a capital fund of ₹ 1,20,00,000 in the beginning of the year. Other important points that he noted were that NPO had 2000 regular members each having an annual subscription of ₹ 2,000 per annum.

Since the accountant of NPO was not clear about how to deal with all the above information he drafted a set of questions for guidance. Considering that you are the Chartered Accountant of Mr. Manohar answer the following questions based on the information detailed above.

Question 1.

## The amount of ₹ 50,00,000 received from Mr. Manohar towards building and mess should be transferred to:

(A) Capital fund
(B) General fund
(C) Income and Expenditure account
(D) Building fund
(A) Capital fund

Explanation:
If an organisation has established a fund for a specific purpose or has received donation for specific purpose, it is credited to a separate Fund Account.

Question 2.

## The amount of ₹ 35,00,000 spent on construction of building should be:

(i) reflected on debit side of income and expenditure account as an expense.
(ii) reflected on asset side of balance sheet.
(iii) reflected as a deduction from Building fund and addition to capital fund.
(iv) not be recorded till the building is complete. On basis of given information choose which of the following stands true?
(A) Only (iv)
(B) Both (i) and (iv)
(C) Both (ii) and (iii)
(D) None of the above
(C) Both (ii) and (iii)

Explanation:
1. Expenses related to specific funds are first adjusted from available fund.
2. If any Investment or Capital expenditure is made out of this fund then such Investment is shown on the Assets side of Balance Sheet. On the other hand, as such investments increases the overall capital base of the organisation so these are added to the Capital Fund.

Question 3.

## The amount of subscription in arrears on 1st April, 2020 is:

(A) ₹ 3,60,000
(B) ₹ 3,00,000
(C) ₹ 2,000
(D) ₹ 1,80,000
(A) ₹ 3,60,000

Explanation:
Subscription in arrears
= 180 x ₹ 2,000
= ₹ 3,60,000

Question 4.

## The amount of subscription in arrears on 31st March, 2021 is:

(A) ₹ 2,20,000
(B) ₹ 3,60,000
(C) ₹ 3,20,000
(D) ₹ 1,80,000
(C) ₹ 3,20,000

Explanation:
Subscription in arrears
= 110 x ₹ 2000 + 50 x ₹ 2000
= ₹ 2,20,000 + ₹ 1,00,000
= ₹ 3,20,000

III. Read the following information and answer the questions that follow:
VIJAYA SHANKAR, an Ex-Indian cricketer decided to start a cricket academy to train the young enthusiastic players of down south. With the support and guidance of his family he started the Star cricket academy at Tirunelveli township area on 1st April, 2020. Land was donated by his grandfather worth ₹ 10,00,000 as per his will for cricket coaching. His father Shankar donated ₹ 5,00,000 for the construction and running the academy.

He spent ₹ 3,00,000 for construction of the pavilion. 200 players of Tirunelveli joined the academy and they paid yearly subscription of  ₹ 1200 each. 10 players paid in advance for the next year 2021-22. Vijaya shankar appointed well experienced coach for them, the coach fee amounted to ₹ 1,20,000 p.a. The maintenance expenses amounted to ₹ 75,000. Bats and balls purchased during the year amounted to ₹ 15,000. Closing stock of bats and ball amount to ₹ 1000.

Question 1.

## What is the Primary source of income for the academy?

(A) Subscription
(B) Fund
(C) Donation
(D) All of the above
(A) Subscription

Explanation:
Subscription is the amount paid by the members periodically so that their membership remains alive.

Question 2.

## The amount of subscription to be credited to income and expenditure account

(A) ₹ 2,00,000
(B) ₹ 1,40,000
(C) ₹ 2,40,000
(D) ₹ 3,00,000
(C) ₹ 2,40,000

Explanation:
Amount of subscription to be credited to Income and Expenditure Account = ₹ 200 x ₹ 1200 = ₹ 2,40,000

Question 3.

## How will you treat the land donated by his grandfather?

(A) To be treated as legacy and is to be capitalized.
(B) To be treated as donation and is debited to Income and Expenditure Account
(C) To be treated as legacy and shown in the assets side.
(D) To be treated as legacy and is credited to Income and Expenditure Account?
(A) To be treated as legacy and is to be capitalized.

Question 4.

## The liability towards advance subscription amounted to:

(A) ₹ 12,000
(B) ₹ 24,000
(C) ₹ 1,200
(D) ₹ 1,20,000
(A) ₹ 12,000

Explanation:
10 x ₹ 1200 = ₹ 12,000

Question 1.

## Which of the following statements is false with respect to Planning?

(A) It is one of the basic managerial functions.
(B) Planning is closely connected with creativity and innovation.
(C) It requires taking decisions.
(D) None of the above
(D) None of the above

Explanation:
Planning lays down the base for other functions of management. Planning involves setting targets and predicting future conditions, thus helping in taking rational decisions.

Question 2.

## Which of the following is a feature of Planning?

(A) Provides directions
(B) Reduces the risks of uncertainty
(C) Focuses on achieving objectives
(D) All of the above
(D) All of the above

Explanation:
Planning reduces uncertainty, risk and confusion in operation. Planning begins with the determination of objectives and is directed towards their achievement.

Question 3.

## ‘It is that function of management which is considered as the base of all other functions.’ Identify the function of management stated in the above lines.

(A) Planning
(B) Controlling
(C) Organising
(D) Staffing
(A) Planning

Explanation:
Planning precedes all other managerial functions and provides the very basis for organising, staffing, directing and controlling. Planning is deciding in advance what to do and how to do. It is one of the basic managerial functions. Before doing something, the manager must formulate an idea of how to work on a particular task. Thus, planning 5 is closely connected with creativity and innovation.

Question 4.

## ‘It involves application of high order thinking skills and intellectual faculties, involving vision and foresightedness to decide the things to be done in the future.’Which feature of Planning is stated in the above line?

(A) Planning is futuristic.
(B) Planning is pervasive.
(C) Planning is a mental exercise.
(D) None of the above
(C) Planning is a mental exercise.

Explanation:
Planning requires application of the mind involving foresight, intelligent imagination and sound judgement. It is basically an intellectual activity of thinking rather than doing, because planning determines the action to be taken.

Question 5.

## ‘Planning is required in all organisations, at all levels and in all departments. feature of Planning is stated in the above statement ?

(A) Planning is futuristic.
(B) Planning is pervasive.
(C) Planning is a mental exercise.
(D) None of the above
(B) Planning is pervasive.
Explanation:
Planning is required at all levels of management as well as in all departments of the organisation. It is not an exclusive function of top management nor of any particular department.

Question 6.

## Meena, a proof  reader  in Akash Publications, has been given a target of reading at least 40 pages per day. She has a habit of doing things differently. While doing her work, an idea struck her that a summary of a chapter in the form of a map where all the concepts related to that chapter would be interlinked, should be given in starting of each chapter. It will give students a gist of chapter as well as provide a competitive edge over other publishers. But instead of appreciating her idea, her immediate boss scolded her and asked her to complete the work as per prescribed format. Out of the following, identify the limitation of planning stated in above paragraph:

(A) Planning reduces creativity.
(B) Planning involves huge cost.
(C) Planning is a time-consuming process.
(D) Planning does not work in dynamic environment.
(A) Planning reduces creativity.

Explanation:
Planning reduces creativity: Planning is an activity which is done by the f top management. Usually the rest of the f members just implements these plAnswer: As a consequence, middle management and other decision makers are neither allowed to deviate from plans nor are they permitted to act on their own. Thus, much of the initiative or creativity inherent in them also gets lost or reduced.

Question 7.

## R-Ox Ltd. wants to increase their market share by 4.5% in next two years. It spent a lot of money to hire specialized people for framing their plans, collecting important facts about environment who took lot of time to frame plans for the company. The competition has started increasing, and it is not able to beat its competitors because it has already spent a huge amount. The plan failed and company suffered a huge loss. Identify the limitation of planning stated in the given case.

(A) Planning involves huge cost.
(B) Planning may not work in a dynamic environment.
(C) Planning is a time-consuming process.
(D) All of the above.
(D) All of the above.

Explanation:
Planning requires a lot of time to collect information, its analysis and interpretation. So it is a time consuming process. When plans are drawn up huge costs are involved in their formulation. The environment in which a business survives is dynamic as it keeps on changing. The dynamic environment may sometimes lead to failure of plans.

Question 8.

## Which of the following statements is true regarding planning?

(A) Once plans are made to decide the future course of action, the management may not be in a position to change them.
(B) Planning is a one-time process.
(C) Planning is required only at Top Level of Management as plans are made by Top Level of Management.
(D) Planning always leads to success.
(A) Once plans are made to decide the future course of action, the management may not be in a position to change them.

Explanation:
In an organisation, a well-defined plan is drawn up with specific goals to be achieved within a specific time frame. These plans then decide the future course of action and managers may not be in a position to change it. This kind of rigidity in plans may create difficulty
(A) (ii), (iii), (i)
(B) (iii), (ii), (i)
(C) (ii), (i), (iii)
(D) (iii), (i), (ii)
(C) (ii), (i), (iii)

Question 10.

## Planning is deciding in advance, what to do and how to do it. The first step of planning process is :

(A) Setting objectives
(C) Implementation of plan
(D) Developing premises
(A) Setting objectives

Explanation:
The first and foremost step is setting objectives. Every organisation must have certain objectives. Objectives may be set for the entire organisation and each department or unit within the organisation.

Question 11.

## Which of the following steps in the process of planning states that the manager is required to make certain assumptions about the future?

(A) Setting objectives
(B) Developing premises
(C) Evaluating alternative courses of action
(D) Implementation of plan
(B) Developing premises

Explanation:
Planning is concerned with the future which is uncertain and every planner is using conjecture about what might happen in future. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called premises.

Question 12

## …………. are the anticipated environments in which plans are expected to operate.

(A) Planning premises
(B) Forecasting
(C) Objectives
(D) None of these
(A) Planning premises

Explanation:
Premises include actual forecast data, policies and plans of the enterprise. Planning involves looking into the future which necessitates the enterprise to know how future conditions will affect its activities.

Question 13.

## To see whether plans are being implemented and activities are being performed according to the schedule, is a step of planning process. Identify the step.

(A) Selecting the best alternative
(B) Implementing the plan
(C) Follow up action
(D) valuating alternative courses of action
(C) Follow up action

Explanation:
To see whether plans are being implemented and activities are performed according to schedule is also part of the planning process. Monitoring the plans is equally important to ensure that objectives are achieved.

Question 14

## …………….. step in the process of planning is considered as the ‘real point of decision making’.

(A) Setting objectives
(B) Selecting an alternative
(C) Implementation of plan
(D) Developing premises
(B) Selecting an alternative

Explanation:
The best plan has to be adopted and implemented. The ideal plan, of course, would be the most feasible, profitable and with least negative consequences. Most plans may not always be subjected to a mathematical analysis.

Question 15.

## While ‘selecting an alternative’ under the planning process, which of the following are considered?

(A) Combination of plans may be selected instead of one best course.
(B) Subjectivity and manager’s experience or judgment plays a role.
(C) The most feasible, profitable plan with least negative consequences is chosen.
(D) AD of the above
(D) AD of the above

Explanation:
The best plan, which is the most profitable plan and with minimum negative effects, is adopted and implemented.
In such cases, the manager’s experience and judgement plays an important role in selecting the best alternative.

Question 16.

## Which of the foUowing is true with respect to the step ‘developing premises’ under the planning process?

(A) Base material for assumptions can be in the form of forecasts, existing plans or any past information about policies.
(B) Only a few managers are required to be familiar with and use the same assumptions.
(C) Assumptions need not necessarily be same for aD.
(D) All of the above
(A) Base material for assumptions can be in the form of forecasts, existing plans or any past information about policies.

Explanation:
Assumptions are the base material upon which plans are to be drawn. The base material may be in the form of forecasts, existing plans or any past information about policies. The premises or assumptions must be the same for all and there should be total on them. managers involved in planning should be famihar with and use the same assumptions.

Question 17.

## Match the STEPS of Planning process in Column I with the appropriate SEQUENCE in Column II

 Column I Column II (a) Setting Objectives (i) Fourth step (b) Implementing the plan (ii) First step (c) Evaluating alternative courses (iii) Sixth step

(A) (iii), (ii), (i)
(B) (ii), (i), (iii)
(C) (ii), (iii), (i)
(D) (iii), (i), (ii)
(C) (ii), (iii), (i)

Assertion and Reason Based MCQs

Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(C) (A) is true, but (R) is false.
(D) (A) is false, but (R) is true.

Question 1.

## Assertion (A): Planning is a primary function of management. Reason (R): Planning is required at all levels of management as well as in all departments of the organisation.

(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).

Explanation:
Planning lays down the base for other functions of management. All other managerial functions are performed within the framework of the plans drawn. Thus, planning precedes other functions.

Question 2.

## Assertion (A): Planning is a time-saving process. Reason (R): The success of an enterprise is possible only when plans are properly drawn up and implemented.

(D) (A) is false, but (R) is true.

Explanation:
Planning is a time-consuming process. Sometimes plans to be drawn up take so much of time that there is not much time left for their implementation.

Question 3.

## Assertion (A): Planning is futuristic. Reason (R): Planning is regarded as a forward looking function based on forecasting.

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
Planning essentially involves looking ahead and preparing for the future. The purpose of planning is to meet future events effectively to the best advantage of an organisation. It implies peeping into the future, analysing it and predicting it.

Question 4.

## Assertion (A): Planning is pervasive at all levels of management. Reason (R): Planning is required in all types of organisations and at all levels of management.

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
Planning is required at all levels of I the management. It is not a function restricted f to top level managers only but planning is done by managers at every level. Formation of major plan and framing of overall policies is the task of top level managers whereas departmental managers form plan for their respective departments. And lower level managers make plans to support the overall objectives and to carry on day to day activities.

Question 5.

## Assertion (A): Developing Planning Premises is the primary step. Reason (R): Objectives are end results which the management wants to achieve by its operations. O Answer: Option (D) is correct.

(D) (A) is false, but (R) is true.

Explanation:
Setting Objectives is the primary step in the process of planning which specifies the objective of an organisation, i.e. what an organisation wants to achieve.

Question 6.

## Assertion (A): Monitoring of plans is very important to ensure that the plans are being implemented according to the schedule. Reason (R): Regular checks and comparisons of the results with set standards are done to ensure that objectives are achieved.

(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A)

Explanation:
To see whether plans are being implemented and activities are performed according to schedule is also part of the planning process. Monitoring the plans is equally important to ensure that objectives are achieved.

Question 7.

## Assertion (A): Planning is concerned with the future which is uncertain. Reason (R): The manager is required to make certain assumptions about the future.

(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).

Explanation:
Planning is concerned with the future which is uncertain and every planner is using conjecture about what might happen in future. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called premises.

Case-Based MCQs

I. Read the following text and answer the following questions on the basis of the same:

Simplex Limited had been taken over by Mundhra Group immediately following India’s independence. Since then it enjoys a rich record of industry presence and experience. In 2005, with the aim to accelerate growth the company had gone through several rounds of meetingsand discussions before launching ERP system to attract large projects. The management had done effective forecast and critical thinking regarding allocation of resources to reduce wastage.

For this purpose, the company had laid down multiple courses of action to meet the challenge of adverse situations. In 2008, the company suffered loss in many projects due to the great recession despite taking many cost cutting measures. The management had taken utmost care regarding the possible outcome and timely review of the plans to achieve the set target during that hard time. In 2010 the system implemented successfully which subsequently helped the company to execute numerous projects with precision and timeliness.

Question 1.

## “In 2005, with the aim to accelerate growth the company had gone through several rounds of meetings and discussions.” What is the objective mentioned here according to the process stated here?

(A) Developing Premises
(B) Growth and development
(C) Launching IT enabled system
(D) Cost cutting
(B) Growth and development

Question 2.

(A) Planning
(B) Organising
(C) Controlling
(D) Directing
(A) Planning

Question 3.

## “In 2008, the company suffered loss in many projects due to the great recession despite taking many cost cutting measures.” Which limitation of the management process is indicated here?

(A) It fails to cope with sudden changes.
(B) It involves huge cost.
(C) It requires critical thinking.
(D) Need to construct multiple action plAnswer:
(A) It fails to cope with sudden changes.

Question 4.

## “The management had taken utmost care regarding the possible outcome and timely review of the plans to achieve the set target during that hard time.” Which is the last step of the process mentioned here?

(A) Implementation of plan
(B) Timely execution of projects
(C) Followup
(D) To prepare alternative course of action
(C) Followup

Explanation:
To see whether plans are being implemented and activities are performed according to schedule is also part of the planning process. Monitoring the plans is equally important to ensure that objectives are achieved.

II. Read the following text and answer the questions given below:

Sana inherited a 20 acre ancestral land from her grandparents. She decided to venture into agriculture. For this purpose she set out specific goals, objectives and activities. Everything was a challenge because she was not aware about farming. She learnt every activity and in the process thought of assisting other farmers as well. She eventually launched her own company Agricultural Solutions Ltd. She wanted to be sure that the activities effectively met the best interests of the company and the farmers. Hence, she prepared an annual plan for production, sales and marketing through sales forecasting.

She also realized that farmers were growing only one or two crops. On account of this; the land remained idle for the rest of the year. Thus, she identified and evaluated different alternatives through which the farms could be utilized throughout the year. She used her foresight and logical and systematic thinking based on analysis of all facts and examined and evaluated all the alternatives. She presented a plan to the farmers union, where after harvesting the primary crop, seasonal vegetables and fruits could be grown.

Question 1.

## “For this purpose she set out specific goals, objectives and activities.” Which feature of planning is depicted in the statement?

(A) Planning focuses on achieving objectives.
(B) Planning is a primary function of management.
(C) Planning is pervasive.
(D) Planning is continuous.
(A) Planning focuses on achieving objectives.

Explanation:
Specific goals are set out in the plans along with the activities to be undertaken to achieve the goals. Thus, planning is purposeful. Planning has no meaning unless it contributes to the achievement of predetermined organisational goals.

Question 2.

## “Hence, she prepared an annual plan for production, sales and marketing through sales forecasting.” Which feature of planning is depicted in the statement?

(A) Planning is continuous
(B) Planning is futuristic
(C) Planning involves decision making
(D) Planning is a mental exercise
(B) Planning is futuristic
Explanation:
Planning essentially involves looking ahead and preparing for the future. The purpose of planning is to meet future events effectively to the best advantage of an organisation. It implies peeping into the future, analysing it and predicting it.

Question 3.

## “Thus, she identified and evaluated different alternatives through which the farms could be utilized throughout the year.” Which feature of planning is depicted in the statement?

(A) Planning is pervasive.
(B) Planning is continuous.
(C) Planning is futuristic.
(D) Planning involves decision-making.
(D) Planning involves decision-making.

Explanation:
Planning essentially involves choice from among various alternatives and activities. Planning involves thorough examination and evaluation of each alternative and choosing the most appropriate one.

Question 4.

## “She used her foresight and logical and systematic thinking based on analysis of all facts and examined and evaluated all the alternatives.” Which feature of planning is depicted in the statement?

(A) Planning focuses on achieving objectives.
(B) Planning is a primary function of management.
(C) Planning involves decision making.
(D) Planning is a mental exercise.