Question

Any balance in the profit and loss account of the purchasing firm will be transferred to a) New firms account
b) Capital account of partners
c) Profit and loss adjustment account d) None of the above

Answer 1

Answer:

Capital account of partners

Explanation:

Answer 2

Answer:

Any balance in the purchasing firm's profit and loss account will be moved to the partners' capital account.

Explanation:

b)A partnership capital account is a separate account that indicates the equity that is owned by specific partners in a partnership. This account is often represented as a line item in a company's financial and accounting records rather than a bank account, though this might vary depending on business standards.

Explanation for incorrect answers:

a)Opening entries are made in the records of the new firm to record the assets and liabilities transferred from the former firm. The old firm's partners will become partners in the new firm. The new firm may have a set amount of capital that the new partners can contribute in the stipulated ratio.

c)To record omitted items and correct errors if any- If any errors or omissions are discovered after the preparation of the Profit and Loss Account and Balance Sheet, these errors or omissions are corrected by opening a Profit and Loss Adjustment Account in the next accounting period without affecting the old Profit and Loss Account.

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