MCQs ON PROFIT SHARING RATIOS

The profit-sharing ratio is the ratio in which partners of an organisation share the business’s profits or losses. The profit-sharing ratio will already be mentioned in the partnership agreement in the case of a partnership firm. It is usually calculated by the capital brought in, or invested in, by the partners. It is normally shown in the form of a percentage of the total profits shared.

Below is a list of multiple-choice questions and answers on Profit Sharing Ratios to help students understand the topic better.

1. The excess amount which the firm can get on selling its assets, over and above the saleable value of its assets, is called _____.

(A) Super profits

(B) Reserves

(C) Goodwill

(D) Surplus

Answer C: Goodwill

2. Under the capitalisation method, the formula for calculating the goodwill is _____.

(A) Average profits multiplied by the rate of return

(B) Super profits divided by the rate of return

(C) Average profits divided by the rate of return

(D) Super profits multiplied by the rate of return

Answer B: Super profits divided by the rate of return

3. Weighted average method of calculating goodwill is used when ________?

(A) Profits show a trend

(B) Profits are fluctuating

(C) None of the options are correct

(D) Profits are not equal

Answer A: Profits show a trend

4. Gaining ratio = _________.

1. New ratio – old ratio
2. Old ratio/new ratio
3. New ratio/old ratio
4. Old ratio – new ratio

Answer D: Old ratio – new ratio

5. The ratio of surrendering of profit sharing ratio is called _____.

1. Gaining ratio
2. Sacrificing ratio
3. Old ratio
4. New ratio

Answer B: Sacrificing ratio

6. The ratio of gain of profit sharing ratio is called _____.

1. Gaining ratio
2. Sacrificing ratio
3. Old ratio
4. New ratio

Answer A: Gaining ratio

7. An excess of actual average profit over normal profits is called _____.

1. Accumulated profits
2. Unearned profits
3. Super profits
4. Average profit

Answer C: Super profit

8. A Goodwill account is a _______.

1. Current account
2. Wasting account
3. Intangible account
4. Fictitious account.

Answer C: Intangible account.

9. Any change in the relationship of existing partners which results at an end of the existing agreement and enforces the making of a new agreement is called _______.

(A) Reconstitution of partnership.

(B) Realisation of partnership.

(C) None of the options are correct.

(D) Revaluation of partnership.

Answer A: Reconstitution of partnership.

10. The goodwill of the firm is not affected by _____.

1. The reputation of the firm
2. Better customer service
3. None of the options are correct
4. Location of the firm

Answer C: None of the options are correct.