Accounts-1998-Set II

Q 1 Mention any two factors which give rise to goodwill of a firm. (Marks 2)
Ans 1 Factors that give rise to goodwill :
(i) Location of the business :
The business which is centrally located in a prominent locality will attract more customers and hence have heavy sale resulting in higher value of goodwill.
(ii) Skill of the management :
If the management of a firm is efficient, the firm will enjoy high productivity and have an effective cost management. Thus will lead to earning huge profits and thus the value of goodwill will be high.

Q 2 R and S are partners sharing profits in the ratio of 5 : 3. T joins the firm, R gives 1/4 of his share and S gives 1/5 of his share to the new partner. Find the new ratio. (Marks 3)
Ans 2 R’s share = 5/8
S’s share = 3/8
R’s sacrifice = 1/4 x 5/8 = 5/32
S’s sacrifice = 1/5 x 3/8 = 3/40
Thus, R’s new share = 5/8 – 5/32 = 15/32
S’s new share = 3/8 – 3/40 = 12/40
T’s share = 5/32 + 3/40 = 37/160
Thus, new ratio = R : S : T
= 15/32 : 12/40 : 37/160
= 75 : 48 : 37

Q 3 Write any three points of difference between equity share and a debenture. (Marks 3)
Ans 3
Basis of Distinction Equity Share Debenture
(i) Part of Capital Structure Equity is a part of share capital of a company. It is a part of borrowed funds of a company.
(ii) Return The equity shares get dividend as a returns. The interest is paid on the debentures.
(iii) Fluctuations in returns The rate of dividend varies from year to year depending on the profit. The interest is fixed irrespective of the profits earned.

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