Unit No 2: Piecemeal Distribution of Cash

 Financial Accounting – I Course Code 112 (Semester – I)

 Unit No 2

Piecemeal Distribution of Cash

MCQ (Multiple Choice Question)

 

1. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, to find Unit Capital the balance of capital of each partner’s account is divided by _________

·      Sacrifice ratio

·      Gain ratio

·      Capital ratio

·      Profit sharing ratio

 

2. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, employee’s dues are considered as _________

·      External liability

·      Secured liability

·      Preferential liability

·      Contingent liability

 

3. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, general reserves should be _____________

·      Added to partners’ capital account in PSR

·      Deducted to partners’ capital account in PSR

·      Added to partners’ capital account in Capital ratio

·      Deducted to partners’ capital account in Capital ratio

 

4. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, the amount remaining unpaid on Partner’s Capital account after last realization is called ____________

·      Profit on realization

·      Loss on realization

·      Unit Capital

·      Proportionate capital

 

5. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, the Balance sheet shows: -

Capital account of Mr. A – ₹. 60,000

Capital account of Mr. B – ₹. 40,000

Capital account of Mr. C – ₹. 45,000

Creditors (Unsecured) – ₹. 90,000

Bank Overdraft (Unsecured) – ₹. 30,000

If the available Cash balance is ₹. 75,000 who should be paid?

·      Creditors ₹. 75,000

·      Bank Overdraft ₹. 18,750 and Creditors ₹. 56250

·      Equally to Partners

·      Bank Overdraft ₹. 30,000 and Capital account of Mr. C ₹. 45,000

 

6. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, the Balance sheet shows: -

Capital account of Mr. X – ₹. 15,000

Capital account of Mr. Y – ₹. 12,000

Capital account of Mr. Z – ₹. 4,000

Creditors – ₹. 8,000

If the available Cash balance is ₹. 7,000 who should be paid?

·      Creditors ₹. 7,000

·      Capital account of Mr. X ₹. 3,000 and Creditors ₹. 4,000

·      Equally to Partners

·      Capital account of Mr. Z – ₹. 4,000 and Capital account of Mr. Y ₹. 3,000

 

7. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm, A, B and C are partners having PSR 2:2:1 respectively. The amount of General reserve in the Balance sheet on the date of dissolution is ₹. 35,000. How much general reserve will be added to B’s capital account?

·      ₹. 70,000

·      ₹. 7,000

·      ₹. 14,000

·      ₹. 21,000

8. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm having three partners P, Q and R with a PSR of 5:3:2 the Balance sheet shows: -

Capital account of Mr. P – ₹. 94,000

Capital account of Mr. Q – ₹. 66,000

Capital account of Mr. R– ₹. 60,000

Creditors – ₹. 1,00,000

If the available Cash balance is ₹. 97,000 who should be paid?

·      Creditors ₹. 97,000

·      Capital account of Mr. P ₹. 30,000 and Creditors ₹. 47,000

·      Partners in their PSR

·      Creditors ₹. 7,000 Capital account of Mr. P – ₹. 40,000 and Capital account of Mr. Q – ₹. 30,000 and Capital account of Mr. R– ₹. 20,000

 

9. In Piecemeal Distribution of Cash during the dissolution of a Partnership firm having three partners P, Q and R with a PSR of 2:2:1 the Balance sheet shows: -

Capital account of Mr. P – ₹. 15,000

Capital account of Mr. Q – ₹. 12,000

Capital account of Mr. R– ₹. 4,000

Who’s has a Unit Capital of ₹. 6,000?

   ·      Mr. P

·      Mr. Q

·      Mr. R

·      Mr. W

 

10. What is dissolution?

·      Merger of firm

·      Discontinuation of firm

·      Sell of firm

·      Purchase of new firm

 

11. Piecemeal distribution of cash means -- ---

·      After realized assets, liabilities paid off in pieces.

·      Paid off liabilities by Net Assets Method.

·      Paid off liabilities by Net payment Method

·      Paid off only capital after realizations of assets.

 

12. Which is not external Liability?

·      Loan from partners

·      Govt. Dues

·      Realization Expenses

·      Secured Assets

13. In Piecemeal Distribution of Cash which liability paid off preferentially?

·      Realization exp.

·      Govt. Dues

·      Loan from partner

·      Capital

 

14. Surplus capital method is also known as ----

·      Quotient Method

·      Maximum Loss Method

·      National Loss Method

·      None of all these

 

15. Maximum Loss method is also known as ----

·      Surplus Capital Method

·      High Relative Capital Method

·      National Loss Method

·      Excess Capital Method

 

16. Solvent partner is--------

·      Able to cover his financial liability.

·      Doing not able to cover his financial liability.

·      A proprietor.

·      None of the above

 

17. Capital Deficiency is-------

·      Debit balance to the capital balance of an insolvent partner.

·      Credit balance to the capital balance of an insolvent partner.

·      Debit balance to the capital balance of a solvent partner

·      Credit balance to the capital balance of a solvent partner.

 

18. When is Garner V/s Murray Rulings is applicable?

·      When insolvent partner did not able to pay off his capital deficiency.

·      When insolvent partner able to pay off his capital deficiency

·      When solvent partner did not able pay off his capital deficiency.

·      When solvent partner pay off his capital deficiency.

 

19. Maximum Loss = Total of capital A/c. Balance less __________

·      Cash available

·      Cash paid

·      Profit

·      None of these

 

20. When a firm is dissolved, the piecemeal distribution of cash should be done in such a manner that final unpaid amount are in the:

·      Capital ratio

·      Profit sharing ratio

·      Sacrificing ratio

·      Equal ratio

 

21. Match the Column

Group ‘A’	Group ‘B’
A.  Income tax payable by a firm as on the date of dissolution	1.    Secured Creditor
B.  Balance of partly secured creditors not met out of the secured asset	2.    Preferential Creditor
C.  Bank loan obtained by hypothecation of Machinery	3.    Unsecured Creditor

 

·      A-2 , B-3 , C-1

·      A-1 , B-2 , C-3

·      A-3 , B-2 , C-1

 22. Income tax payable by a firm as on the date of dissolution is treated ________ 

·      As preferential creditors

·      As secured creditors

·      As unsecured creditors

·      As non-recoverable

 

23. Salaries and wages payable by a firm as on the date of dissolution is treated _______  

·      As preferential creditors

·      As secured creditors

·      As unsecured creditors

·      As non-recoverable

 

24. Unsecured Creditors are paid in the following order- 

·      All creditors pro data (proportionately) 

·      Due to Government, Due to Employees, Other Creditors

·      Due to Employees, Due to Government, Other Creditors

·      None of the above

 

 25. If cash is insufficient to pay off all partners’ loan, payment is made ________

·      In the profit sharing ratio

·      In the profit sharing ratio

·      In the ratio of capitals       

·      None of the above. In the ratio of outstanding loan balances

 

26. If there are four liabilities e.g. creditor’s ₹10,000 Bills Payable ₹5,000, outstanding expenses ₹10,000, other loan ₹5,000 and cash available is ₹15,000.

·      First pay ₹10,000 to creditors and ₹. 5,000 to Bills Payable.

·      First pay ₹10,000 to outstanding expenses and ₹5,000 to other loan.

·      Pay ₹5,000, ₹2,500, ₹5,000, ₹2,500 in Due Ratio 2 : 1 : 2 : 1

 

27. For finding unit value capital is divided by

·      Profit Sharing Ratio.

·      Capital Ratio.

·      None of above.

  

28. After finding the unit value of three partners A, B and C we select the unit value

·      Which is lowest.

·      Which is highest.

·      Average.

·      None of these

 

29. Unit value we multiply with each one's

·      Profit Sharing Ratio.

·      Capital Ratio.

·      Average

·      None of these

 

30. Bank Overdraft ₹10,000, Partners’ Loan X Loan ₹10,000, Partners’ Loan Y Loan ₹10,000.

Cash available is ₹15,000. How would you distribute?

·      Pay Bank overdraft ₹10,000, Balance ₹2,500 each to X loan and Y loan.

·      Pay all three ₹5,000 each.

·      Pay ₹10,000 Bank overdraft and ₹. 5,000 to X loan.

·      None of these

31. Bank loan is ₹30,000 secured against stock and stock sold for ₹25,000, Balance ₹5,000 is_________

·      Secured.

·      Unsecured.

·      Preferential

·      None of above

 

32. If Bank loan ₹50,000; Bank overdraft is ₹25,000, Bills Payable ₹15,000; Creditors ₹10,000; Bank loan is secured against Land & Building. Bank overdraft is against stock.

Assets Realized ∴Bills Receivable ₹50,000.

·      Pay Bank loan ₹50,000.

·      Pay Bank overdraft ₹25,000; Bills Payable ₹15,000; ₹10,000 to creditors.

·      Pay in due ratio 10: 5: 3: 2.

·      None of above

 

33. If X loan ₹12,000 and Y loan is ₹8,000. Both are partners. Profit Sharing Ratio is 5: 4. Cash available ₹9,000. How would you pay?

·      ₹5,400 to X loan, ₹3,600 to Y loan.

·      ₹5,000 to X loan, ₹4,000 to Y loan.

·      ₹9,000 to X loan

·      ₹4,000 to Y loan, ₹5,000 to X loan.

34. Bank loan is ₹50,000 secured against Land & Building sold for ₹,000, ₹.40,000 is__________

·      Secured.

·      Unsecured.

·      Preferential

·      None of above

 

35. Contingency Reserve is ₹20,000 and contingent liability is ₹18,000.  How would you deal with the remaining contingency Reserve?

·      ₹2,000 should be distributed among the partners in their profit sharing ratio.

·      ₹20,000 should be distributed among the partners in capital ratio.

·      ₹18,000 should be distributed among the partners equally

·      None of above

 

36. Government dues payable by the firm on the date of dissolution is treated as

·      Secured creditors

·      Unsecured creditors

·      Preferential creditors

·      None of the above

 

37. The  firm  has  taken  loan  from  Dena  bank ₹3,00,000  which  is  partly  secured  by  stock  of ₹1,50,000 which realized ₹2,50,000

·      ₹50,000 is treated as unsecured creditors

·      ₹50,000 is treated as secured creditors

·      ₹1,50,000 is treated as preferential creditors

·      None of the above

 

38. Excess capital method is also known as

·      Surplus capital method

·      Maximum loss method

·      Notional loss method

·      None of the above

 

39. Notional loss method is also known as

·      Maximum loss method

·      Highest relative capital method

·      Surplus capital method

·      None of the above

  

40. Any reserve in the Balance sheet on the date of dissolution should be distributed among the partners in

·      Equal ratio

·      Capital ratio

·      Loan ratio

·      None of the above

 

41. After payment of partners loan payment should be made to

·      The partner having surplus capital

·      The partner having deficiency

·      Govt. Loan

·      Secured Loan

 

 

State with reasons whether the following statements are true or false (True or False)

 

1. The basic presumption of Surplus Capital Method is that a partner who has contributed more capital than his proportionate share of capital, should be paid first to the extent of his excess capital over and above the proportionate capital.

(True)

 

 

2. Under Surplus Capital Method, those partners should be paid first whose capitals are comparatively in excess of their profit sharing ratio.

(True)

 

 

3. Under piecemeal distribution of cash, municipal taxes will be paid last, while making the payment of outside liabilities.

(False) (Will be paid first)

 

4. The periodic distribution of cash to partners is made in such a way that the unpaid balance of capital of each partner is retained in profit sharing ratio.

(True)

5. In the process of dissolution, shares of the company are to be issued in fraction.

(False) (Are not to be issued in fraction)

 

6. On gradual realization of assets, first preferences for distribution of cash, will be for payments of realization expenses.

(True)

 

7. Under piecemeal distribution of cash, after all realizations have been made, the final unpaid capital balances must be in capital ratio.

(False) (In profit sharing ratio)

 

8. In case, an unrealized asset of the firm is taken over by a partner during the course of realization, the market value of such asset are to be added to the gross realization of that month.

(False) (The agreed value)

9. Any Profit and Loss Account, credit balance, shown on the liability side, in the Balance Sheet of the firm as on the date of dissolution, will be adjusted to the capital balances of all the partners in their capital ratio.

(False) (In their profit sharing ratio)