COMPLETE CHEAT SHEET
ACCOUNTANCY
 Fundamentals of Partnership
Matters
Sharing of profits/losses
Interest on capital
Interest on drawings
Interest on Loan by Partner
Remuneration to partner
Admission of partner
Provision of Partnership Act
Shared Equally
Not Allowed
Not Charged
Paid at 6% p.a. and it is a charge against profit.
Not paid
New Partner cannot be admitted unless all the partners
agree.
Other Provisions



Minor may only be admitted for benefits of partnership only if all partners
agree. (Sec 30)
Registration of Partnership is optional and not compulsory. (Sec 69)
Firm gets dissolved on death of partner unless otherwise agreed. (Sec 35)
Interest on Capital
Case
Provision
When No partnership deed or it is silent about
Interest on capital
When Partnership Deed provides for Interest on
Capital but does not mention whether it is charge or
appropriation (it is assumed to be appropriation)
Not Allowed
When Partnership deed provides for interest on
capital and also mentions that it is charge.
ACCOUNTING ENTRY
Interest on Partner’s Capital A/c
Dr
To Partners Capital/ Current A/c
P/L Appropriation A/c
To Interest of Partner’s Capital
Dr
Interest is allowed as per following:
a) Allowed up to full amount only if there are
enough profits
b) Not allowed in case of loss
c) Allowed in appropriation ratio with other
appropriations (if there) if profit is less than
appropriation.
Interest on capital is allowed to full even if there is
loss, less profit or more profits.
Calculation of opening Capital
Interest on capital is calculated on allowed on opening capital. If no additional capital or withdrawing
against capital is there, then Last year’s closing will be same as opening capital of current year.
If Opening capital is not given, then it is calculated by adding things which were subtracted in
opening capital account and subtracting thing which were added in opening capital.
(A) When Capital is fixed
Opening Capital = Closing Capital + Drawings against capital – Additional capital
(B) When Capital is fluctuating
Opening Capital = Closing capital + Drawings (both against capital and profits) + Interest on drawings
+ Share of loss – Additional Capital – Salary/commission – Interest on capital – Share of profit
Interest on drawings
Partner’s capital/current A/c
Dr
To Interest on drawings
Interest on drawings A/c
Dr
To Profit and Loss Appropriation A/c
Methods for calculating Interest on Drawings
1. Product Method- when partner withdraws amount irregularly, then interest is
calculated either through simple or product method. In simple method, interest is
calculated for each drawings according to date of drawings.
In Product Method, interest is calculated by multiplying the amount of drawings with
period of drawings (period from date of drawings till last date of accounting period).
Then formula is applied to calculate interest.
Interest on drawings = Total of product x
𝒓𝒂𝒕𝒆 𝒐𝒇 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕
𝟏𝟎𝟎
x
𝟏
𝟏𝟐
2. Average Period Method- It is applied when two following conditions are satisfied:
o When amount of drawings is uniform
o When time interval between two consecutive drawings is same.
Interest on drawings = Total Drawings x
𝒓𝒂𝒕𝒆 𝒐𝒇 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕
𝟏𝟎𝟎
x
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑷𝒆𝒓𝒊𝒐𝒅
𝟏𝟐
Average Period =
𝑴𝒐𝒏𝒕𝒉𝒔 𝑨𝒇𝒕𝒆𝒓 𝑭𝒊𝒓𝒔𝒕 𝑫𝒓𝒂𝒘𝒊𝒏𝒈𝒔+𝑴𝒐𝒏𝒕𝒉𝒔 𝒂𝒇𝒕𝒆𝒓 𝒍𝒂𝒔𝒕 𝒅𝒓𝒂𝒘𝒊𝒏𝒈𝒔
𝟐
Note: If date of drawings is not given, then interest is calculated for 6 months but if
period is less than 6 months, then it is calculated for half of accounting year. (Eg:
accounting period is 5 months, then interest is calculated for 2.5 months.)
When word “p.a.” is missing, then interest on drawings is calculated without taking
period into consideration.
Profit/Loss Appropriation A/c
Partner’s Capital A/c
Fixed method
Fluctuating Method
Commission to partner
There are two ways to calculate Commission payable to partner:
(a) Percentage of Net Profit before charging such commission- Net Profit x
(b) Percentage of Net Profit after charging such commission- Net Profit x
𝑟𝑎𝑡𝑒 𝑜𝑓 𝑐𝑜𝑚𝑚𝑖𝑠𝑠𝑖𝑜𝑛
100
𝑟𝑎𝑡𝑒 𝑜𝑓 𝑐𝑜𝑚𝑚𝑖𝑠𝑠𝑖𝑜𝑛
100+𝑟𝑎𝑡𝑒
Goodwill
Methods of valuation of Goodwill
I.
Average Profit Method- In this method, goodwill is calculated on basis of average
profits of past few years.
Steps
A) Calculate Normal Profits of business of past few years
by adding abnormal losses (like loss by fire, loss by theft, overvaluation of opening
stock, under valuation of understock, etc.)
And
Subtracting abnormal profits (like overvaluation of closing stock, undervaluation of
opening stock).
B) Calculate average profit of past few years (Total profits/number of years)
C) Calculate Goodwill by applying formula (Average profit x Number of years
purchased)
II.
Super Profit method- In this method, Goodwill is calculated on basis of super profits
(extra profits) earned by firm.
Steps:
A) Calculate Average Profits- same as calculated in average profit method.
B) Calculate Capital EmployedUnder liabilities approach,
Capital + reserves – fictitious assets – Goodwill (in books) – Non-trade investments
Or
All Assets (excluding goodwill, Non-trade investments and fictitious assets) – outside
liabilities
C) Calculate Normal Profits (Normal Rate of return x Capital Employed)
D) Calculate Super profits (Average Profits – Normal Profits)
E) Calculate Goodwill (Super Profits x number of years purchased)
Note: Trade investments are made in another enterprise for furtherance of own
business while Non-trade investments are made to earn revenue other than main
operations.
III.
Capitalisation of Average Profits- In this method, goodwill is calculated on the basis of
capital employed and capitalised value of business.
Steps:
A) Calculate Average profits of past years after adjusting abnormal items.
B) Calculate capitalised value of business with the help of NRR
(Average Profit x 100)/NRR
C) Calculate Net Assets (same formula as of capital employed above)
D) Calculate Goodwill (Capitalised value business – Net Assets)
IV.
Capitalisation of Super Profits- In this method, goodwill is calculated on the basis
of capitalisation of super profit.
Steps:
A) Calculate Average Profit after adjusting abnormal itmes
B) Calculate Net Assets or capital employed
C) Calculate Normal Profit (Capital employed x NRR)
D) Calculate Super profit (Average Profit – Normal Profit)
E) Calculate Goodwill [Super Profit x 100)/NRR]
Reconstitution of Partnership
Sacrificed Share = Old Profit Share – New Profit Share
Gaining Share = New Profit Share – Old Profit Share
Purchased Goodwill
Whatever the reason for reconstitution is like change in PSR, Admission, Retirement or
death, the accounting treatment for purchased goodwill remains same.
Goodwill is written off through capital accounts
Partner’s Capital/current A/c *
Dr
(Old Partners in Old ratio)
To Goodwill A/c
*Capital A/c in case of fluctuating method and current A/c in case of Fixed method.
Self-generated Goodwill
The Accounting Treatment for self-generated goodwill is adjusted through two methods:
Method 1- Goodwill is adjusted through Partner’s Capital
Gaining Partner’s Capital/Current A/c
Dr (Gaining Share)
To Sacrificing Partner’s Capital/Current A/c
(Sacrificing share)
Method 2- Goodwill is raised or written off
(a) Goodwill is raised first
Goodwill A/c
dr
To Partner’s Capital/current A/c
(Old ratio)
(b) Goodwill is written off
Partner’s Capital/current A/c
dr
(New ratio)
To Goodwill A/c
Transfer of Reserves to Partners’ Capital/current accounts
(a) For transfer of reserves and accumulated Profits
Reserve A/c
dr
P/L A/c
dr
To Partners’ capital/current A/c
(Being reserves distributed)
Note: P/L A/c was appearing on liability side or was having a credit balance.
(b) For Transfer of Accumulated Losses
Partners’ Capital/current A/c
dr
To P/L A/c
To Advertisement suspense A/c
Note: P/L A/c was appearing in Asset side or was having dr balance.
Also, the entries are to be done in old ratio and among old partners.
(b) For Adjustment of reserves when specifically told not to distribute the reserves or
accumulated profits and losses or they are to appear in balance sheet as it is.
 In case of profits and reserves
Gaining Partners’ Capital/current A/c
dr
To Sacrificing Partner’s capital/current A/c
Note: The above entry is to be done in gaining and sacrificing share of total amount.
 In case of Losses and fictitious assets
Sacrificing Partner’s capital/current A/c dr
To Gaining Partner’s capital/current A/c
Workmen Compensation Reserve
The following cases are possible under workmen compensation reserve
Case 1: When No claim exist or no information is given- Reserve is distributed among
partners in old ratio.
Workmen Compensation Reserve A/c
Dr
(Old Ratio)
To Partners’ Capital/current A/c
Case 2: When claim is less than reserve amount- amount of reserve is used for
creating liability and balance reserve is distributed among partners.
Workmen Compensation Reserve A/c
To Workmen compensation claim
To Partners’ capital/current A/c
Dr
(Old Ratio)
Case 3: When claim is equal to reserve amount- full amount of reserve is used for
creating liability.
Workmen Compensation Reserve A/c
Dr
(Old Ratio)
To Workmen compensation claim
Case 4: When Claim is more than reserve amount- Full amount of reserve is used
along with the balance of liability amount is created through revaluation.
Workmen Compensation Reserve A/c
Dr
Revaluation A/c
Dr
(Old Ratio)
To Workmen compensation claim
(Distributing the loss of revaluation)
Partners’ Capital/current A/c
Dr
To Revaluation A/c
Investment Fluctuation Reserve
Following cases may appear under this reserve.
Case 1: When the book value and market value of the investment are the same or no
information regarding market value is given
Investment Fluctuation Fund A/c
Dr
(old ratio)
To Partners’ Capital/current a/c
Case 2: When Market value is less than book value but loss in investment is less than
reserve amount.
Investment Fluctuation Fund A/c
Dr
(old Ratio)
To Investments A/c
To Partners’ Capital/current A/c
Case 3: When Market value is less than book value but loss in investment is equal to
reserve amount.
Investment Fluctuation Fund A/c
To Investments A/c
Dr
(old Ratio)
Case 4: When Market value is less than book value but loss in investment is more than
reserve amount.
Investment Fluctuation Fund A/c
Dr
Revaluation A/c
Dr
(old Ratio)
To Investments A/c
Partners’ Capital/current A/c
Dr
To Revaluation A/c
Case 5: When Market Value of Investment is more than book value
Investment Fluctuation Fund A/c
Dr
(old ratio)
Dr
(Market value – book value)
To Partners’ Capital/current a/c
Investment A/s
To Revaluation A/c
Revaluation A/c
Dr
To Partners’ capital/current A/c
Revaluation of Assets and Liabilities

The Partners may decide the show the revised values in balance sheet
When Revaluation of Assets and liabilities are recorded in an account named
“Revaluation or Profit/Loss Adjustment Account”.

Not to show revised values in Balance Sheet.
In this method, gain or loss on revaluation is adjusted by passing through
capitals account.
The net effect of revaluation account is calculated and following entry is
passed:
 When the net amount is profit
Gaining Partners’ Capital A/c
Dr
To Sacrificing Partners Capital A/c
 When Net Amount is Loss
Sacrificing Partners’ capital A/c
Dr
To Gaining Partners’ Capital A/c
Expenses on reconstitution of firm.
Expenses for reconstitution of firm may be incurred by firm or partner and it
may be paid by partner or firm.
Case 1: When expenses are incurred by firm and paid by firm
Revaluation A/c
Dr
To Bank A/c
Note: When no information regarding payment or incurring of expenses is given, it is
assumed to be paid and incurred by firm.
Case 2: When expenses are incurred by firm but paid by partner
Revaluation A/c
Dr
To Partners’ Capital A/c
Case 3: When Expenses are incurred and paid by partner
NO ENTRY
Note: When it is given that expenses are incurred by partner but no information
regarding payment is given, then it is assumed that payment is made by partner.
Case 4: When Expenses are incurred but paid by firm.
Partners’ Capital A/c
To bank A/c
Remuneration to partner
Dr
This remuneration is paid to partner for services rendered by him for
reconstitution. The remuneration can be inclusive or exclusive of expenses.
Revaluation A/c
Dr
To Partners’ capital A/c
The above entry is mandatory along with anyone of the following entry.
A. If the remuneration is exclusive of expenses, then Case 1 or 2 will be
followed.
B. If the remuneration is inclusive of expenses, then Case 3 or 4 will be
followed.
Capital Adjustment
Partners may decide to adjust their capitals in their PSR. Following steps be followed for it.
Step 1: Calculated adjusted capitals of partners
Step 2: Find total capital of firm by adding adjusted capitals of partners.
Step 3: Divide the total capital into new PSR to get new capitals of partners.
Step 4: compare new capital with adjusted capital to find surplus or deficit.
Step 5: Do the necessary adjustment.
Surplus = Adjusted Capital > New Capital ( excess amount will be withdrawn partner or be
adjusted through current account)
Deficit = New Capital > Adjusted Capital (Deficit amount be deposited by partner or be adjusted
by current account)
Change in Profit sharing Ratio
Case 1: When no information related to sacrifice or new ratio is given.
In this case, it is assumed that the old ratio of partners is the sacrificing ratio. In
this case, either remaining share method is used or sacrificing share method is
used.
 Remaining share method- only used when new ratio of among old
partners is given and share of admitted partner is given.
Remaining share = 1 – admitted partner share
New share of old partners’ = remaining share x new profit share
 Sacrificing share method- In this case, the old ratio of partners is
assumed to be sacrificing ratio.
Sacrificing share = admitted share x sacrificing ratio
New share = old share – sacrificing share
Case 2: When share of new partner is given and new ratio among old partners
is given.
 Remaining share method can be used as above.
Case 3: When admitted partner acquires his share equally from old partners.
 Sacrificing share method is used.
Sacrificing share = admitted share x ½
New Partner = old share – sacrificing share
Case 4: When admitted partner acquires his share in specific ratio from old
partners
 Sacrificing share method is used. The specific ratio given is sacrificing
ratio among old partners.
Sacrificing share = admitted share x sacrificing ratio
New Partner = old share – sacrificing share
Case 5: When admitted partner acquires profit share of a particular fraction of
profit shares sacrificed by old partners.
a) When “From” is given in question- The fraction given is sacrificing share
and directly new share can be calculated.
b) When “of” is given in question- Then sacrificing share is calculated by:
Sacrificing share = Old partners profit share x sacrificing fraction
New Share = old share – sacrificing share
Admitted partner share = sum of sacrificing share of partners.
Hidden Goodwill in case of admission
1. capitalised value of business = Admitted partner’s capital x reciprocal of his share
2. Net worth of business = Adjusted Capital of old partners + new partner’s Capital
3. Goodwill = Capitalised Value of business – Net worth of business
Hidden Goodwill in case of retirement
1. Adjusted Capital Balance of Retiring partner
2. Amount agreed to be paid to partner
3. Goodwill = (Amount agreed – Adjusted capital) x Reciprocal share of partner
Capital Adjustment
Case: when the total capital of the new firm is given
1. Calculate New Profit sharing ratio
2. Calculate the adjusted old capitals of continuing partners
3. Calculate New capitals of continuing partners
New Capital = Total Capital x new share
4. Calculate surplus/deficit and adjust by paying or bringing the necessary
either through cash or current a/c.
Case: When Total Capital of the new firm is not given.
1. Calculate the adjusted old capitals of continuing partners
2. Calculate total capital of new firm
Total capital = Aggregate of adjusted old capitals of continuing partners
only
3. Calculate New capitals of continuing partners
New Capital = Total Capital x new share
4. Calculate surplus/deficit and adjust by paying or bringing the necessary
either through cash or current a/c.
Case: When Outgoing partner is to be paid through cash brought in by the
continuing partners in such way as to make their capitals proportionate to their
new PSR.
1. Calculate the adjusted old capitals of continuing partners
2. Calculate New Capital of Firm
Total capital = Aggregate adjusted capitals of continuing partners +
adjusted capital of retiring partner
3. Calculate New capitals of continuing partners
New Capital = Total Capital x new share
4. Calculate surplus/deficit and adjust by paying or bringing the necessary
either through cash or current a/c.
Case: When Outgoing partner is to be partially paid through cash brought in
by the continuing partners in such way as to make their capitals proportionate
to their new PSR. (firm is short of cash)
1. Calculate the adjusted old capitals of continuing partners
2. Calculate New Capital of Firm
Total capital = Aggregate adjusted capitals of continuing partners +
shortage cash to be brought by partners to be paid to retiring partner
3. Calculate New capitals of continuing partners
New Capital = Total Capital x new share
4. Calculate surplus/deficit and adjust by paying or bringing the necessary
either through cash or current a/c.
Death of partner
Share of profit of deceased partner
Method 1: On Average profit/last year’s profit
1. Calculate Average profit
2. Calculate Share of profit of deceased partner’s profit
Profit share = Average Profit x Share acc. To PSR x Period /12
Period means number of months from first date of accounting period till
date of death.
If period is calculated in days, then division is done by 365.
Method 2: on the basis of profit-sales percentage.
1. Ascertain last year’s profit.
2. Ascertain last year’s sales.
3. Calculate profit sales percentage
Profit-sales percentage = Last Year’s profit/Last year’s sales x 100
4. Calculate expected profit of Current year till date of death = profit-sales % x sales upto
date of death
5. Calculate share of profit of deceased partner = profit of Current year x Share acc to
PSR.
Journal Entry

If there is no change in PSR

P/L Suspense A/c
Dr
To Deceased Partner’s capital A/c
If there is change in PSR
Gaining Partner’s capital A/c
Dr
To Deceased Partner’s capital A/c
Dissolution
A. For Closing Assets Accounts:
Realisation A/c
Dr.
To sundry Assets A/c
(Being assets transferred to Realisation A/c)
Note :
1. Cash and Bank balance are not transferred to Realisation Account.
2. Assets (tangible and intangible) are transferred to Realisation Account to their
Gross Value
3. Fictitious Asset such as Debit balance of Profit and Loss Account of Advertisement
Suspense’s Account etc. are not transferred to Realisation Account. These are directly
debited to partners’ capital accounts in their profit sharing ratio by passing the
following entry.
Partner’s capital A/c Dr.
To Profit and Loss A/c
To Advertisement Suspense A/c
4. Provision against assets such as Provision for Depreciation of Provision for Bad &
Doubtful debts etc. are transferred to Realisation Account by passing a Separate
entry:
Provision’s for Bad Debts A/c
Dr.
Provision’s for Depreciation A/c
Dr.
Investment Fluctuation Fund A/c Dr.
To Realisation A/c
B. For Closing Liabilities Accounts:
Sundry Liabilities A/c
Dr.
To Realisation A/c
(Being sundry liabilities transferred to Realisation A/c)
Note :
1. Only third parties liabilities/outsiders ‘liabilities are transferred to Realisation A/c
2. Balance of Partner’s Loan Accounts are not transferred to Realisation Account
Separate accounts are opened to settle such liabilities.
3. Undistributed profits and reserves are also not transferred to Realisation A/c.
These are directly credited to partners’ capital accounts in their profit sharing ratio by
passing the following entry.
Profit and Loss A/c
Dr.
General Reserves A/c
Dr.
Reserve fund A/c
Dr.
Contingency Reserve A/c Dr.
To Partner’s Capital A/cs
(Being balance of undistributed profits transferred to capital accounts)
4. Provident Fund is a liability on the firm towards employees and hence it is
transferred to Realisation A/c.
*5. If any liability is expected to arise against any found or reserve e.g., Workmen’s
Compensation Fund, then an amount equal to such liability is transferred to
Realisation A/c balance, if any, distributed among the partners in their profit-sharing
ratio by passing the following entry.
Workmen’s Compensation Fund A/C Dr.
To Realisation A/c(Liability)
To Partners’ Capital A/cs(Balance, if any)
C. For Realisation of Assets (Whether recorded or unrecorded)
a. When assets are sold for cash
Cash/Bank A/c
Dr.
To Realisation A/c
(Being assets sold for cash)
b. When assets are taken over by any partner.
Partner’s Capital A/c
Dr.
To Realisation A/c
(Being assets taken over by any partner)
c. When assets are taken over by any creditor in part of full payment his dues :
I. In case of Full Settlement:
i. NO ENTRY is passed for the transfer of assets to the creditor.
ii. NO ENTRY is passed for the payment to creditor.
II. In case of Part Settlement:
i. NO ENTRY is passed for the transfer of assets to the creditor.
ii. The agreed amount of asset is deducted from the claims of it creditors and the
balance is paid to him.
Note :
1. If realized value of Tangible Assets is not given, it is assumed to realised at book
value.
D. For Payment of Liabilities
a. When liabilities are paid in cash
Realisation A/c
Dr.
To Cash/Bank A/c
(Being liabilities paid in cash)
b. When liabilities are taken over by any partner
Realisation A/c
Dr.
To Partner’s Capital A/c
(Being liabilities taken over by a partner)
Note : If nothing is stated regarding the settlement of any outside liability, then
it should be assumed that the amount equal to book value is paid.
E. For Realisation Expenses
a. When expenses are paid by firm and borne by firm:
Realisation A/c
Dr.
To Cash/Bank A/c
(Being realization expenses paid in cash).
b. When expenses are paid by any partner and borne by firm :
Realisation A/c
Dr.
To Partner’s Capital A/c
(Being realization expenses paid by a partner).
c. When expenses are paid by firm (on behalf of any partner) and born by an partner.
Partner’s Capital A/c
Dr.
To Cash/Bank A/c
(Being realization expenses paid on behalf of partner).
e. When a partner is paid a fixed amount for bearing realization expenses then:
Actual expenses are not be considered;
ii. Realization A/c Dr. (With Fixed Amount)
To Partner’s Capital A/c
(Being realization expenses paid by a partner)
f. When expenses are paid by one partner and borne by another partner;
Partner’s Capital A/c
Dr. (Who borne the expenses)
To Partner’s Capital A/c (Who pays the expenses)
(Being realization expenses paid by one partner and borne by another partner).
In case the realization expenses are borne by a partner, clear indication should be
given regarding the payment there of.
F. For Closing Realisation Account
a. When Realization A/c Discloses profit (in case total of credit side is more than the
total of debit side)
Realisation A/c
Dr.
To Partner’s Capital A/cs
(Being profit on realization transferred to partners’ capital A/cs)
b. When Realisation A/c discloses loss (in case total of debit side is more than the
total of credit side)
Partners’ Capital A/c
Dr.
To Realisation A/c
(Being loss on realization transferred to partners capital A/cs)
Realisation A/c
Partner’s capital A/c
Accounting for Companies
Issue for shares for consideration other than cash
To Securities Premium Reserve
 Issue of shares for consideration other than cash
No. of shares issued =
𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆 𝒄𝒐𝒏𝒔𝒊𝒅𝒆𝒓𝒂𝒕𝒊𝒐𝒏
𝑰𝒔𝒔𝒖𝒆 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆 (𝒘𝒉𝒆𝒕𝒉𝒆𝒓 𝒑𝒂𝒓 𝒐𝒓 𝒑𝒓𝒆𝒎𝒊𝒖𝒎)
If purchase consideration is more than NET ASSETS (Assets – Current Liabilities), then
difference is Goodwill.
If Purchase consideration is less than Net Assets, then difference is Capital reserve.
 Calculation of Number of shares applied=
𝑻𝒐𝒕𝒂𝒍 𝒏𝒐. 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒂𝒑𝒑𝒍𝒊𝒆𝒅 𝒊𝒏 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒚 × 𝑵𝒐. 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒂𝒍𝒍𝒐𝒕𝒆𝒅
𝑻𝒐𝒕𝒂𝒍 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒂𝒍𝒍𝒐𝒕𝒆𝒅 𝒊𝒏 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒚
 Calculation of Number of shares allotted =
𝑻𝒐𝒕𝒂𝒍 𝒏𝒐. 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒂𝒍𝒍𝒐𝒕𝒆𝒅 𝒊𝒏 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒚 × 𝑵𝒐. 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒂𝒑𝒑𝒍𝒊𝒆𝒅
𝑻𝒐𝒕𝒂𝒍 𝒏𝒐. 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒂𝒑𝒑𝒍𝒊𝒆𝒅 𝒊𝒏 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒚
 Calculation of Amount not received on Allotment in case of Pro rata
Amount due on Allotment (shares allotted × allotment per share)
Less: Excess received on Application from shareholder
(shares applied-shares allotted) × Application money (including premium)
Calls-in-arrears
XX
xx
yy
 Amount to be received to share Allotment in case of oversubscription and some calls-inarrears on share allotment
Total amount due from all shareholders on Share Allotment
XX
Less: Excess to be adjusted on allotment (received during application)
xx
Less: Calls-in-arrears calculated above
yy
Result obtained is the amount received at the time of Allotment
YY
Accounting Entries for Reissue
For treatment of excess in share forfeiture
Forfeited Shares A/c
…Dr.
To Capital Reserve A/c
(Being the gain on reissue transferred to Capital Reserve)
 Calculation of amount to be transferred to capital reserve
 CASE 1: When all the forfeited shares are reissued
AMOUNT IN SHARES FORFEITURE – LOSS ON REISSUE (SHARES FORFEITURE IN
REISSUE)
 Case 2: When all the forfeited shares are not reissued
[
𝑨𝒎𝒐𝒖𝒏𝒕 𝒊𝒏 𝒔𝒉𝒂𝒓𝒆𝒔 𝒇𝒐𝒓𝒇𝒆𝒊𝒕𝒖𝒓𝒆
𝑵𝒐.𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒇𝒐𝒓𝒇𝒆𝒊𝒕𝒆𝒅
𝑻𝒐𝒕𝒂𝒍 𝒍𝒐𝒔𝒔 𝒐𝒏 𝒓𝒆𝒊𝒔𝒔𝒖𝒆
]
- 𝑵𝒐.𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒓𝒆𝒊𝒔𝒔𝒖𝒆𝒅 *No. of shares reissued
Note: When shares of more than 1 person are reissued, then capital reserve of both is
calculated separately with the help of above cases but a single entry of capital reserve is
passed.
Accounting for Debentures
Writing off loss on issue of debentures
Accounting Ratios
LIQUIDITY RATIOS (short-term solvency)
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
Current Ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Deduct value of spare parts and loose tools and stores from INVENTORY if included.
Deduct provision for doubtful debts from trade receivables (debtors and bill
receivables)
Liquid ratio =
𝑳𝒊𝒒𝒖𝒊𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 𝒐𝒓 𝑸𝒖𝒊𝒄𝒌 𝑨𝒔𝒔𝒆𝒕𝒔
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Quick Assets = Current Assets – Inventories – Prepaid expenses
SOLVENCY RATIOS (Long-term solvency)
𝑫𝒆𝒃𝒕
Debt to Equity ratio = 𝑬𝒒𝒖𝒊𝒕𝒚
Debt = Long-term borrowings + Long-term Provisions
Or
Debt = Total Debt- Current liabilities
(Total debt means debt + current liability)
Please note that debt word is used for only long term borrowings and total debt is
used for all borrowings which is long-term + short-term (current).
Equity is shareholder’s fund whether equity shares or preference shares.
Equity = Share Capital + Reserves and surplus
Or
Equity = Total Assets – Total debt
Or Equity = Non-current Assets + Working Capital – debt
Working capital= Current assets – current liabilities
Please note that if surplus is given on Asset side or Dr is written against it, then we
DEDUCT SURPLUS FROM EQUITY.
Liabilities
EQUITY
Amount
(Capital Employed)
Assets
Amount
Non-current Assets
NON-CURRENT LIABILITY (DEBT)
CURRENT LIABILITY
Total
Debt
Current Assets
Total
Total
Total Assets to debt ratio =
Proprietary ratio=
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
𝑫𝒆𝒃𝒕
𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔 𝒇𝒖𝒏𝒅
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
Interest coverage ratio=
𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒂𝒏𝒅 𝒕𝒂𝒙
𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒐𝒏 𝒍𝒐𝒏𝒈−𝒕𝒆𝒓𝒎 𝒅𝒆𝒃𝒕
Calculation of PBIT from PAT (Profit after tax)
 PBT (Profit before tax but after interest) = PAT + Tax
Usually tax is given in rate which is to be applied on PBT. So students have to assume PBT as x
and then take tax as 10% of x (if tax rate is 10%) and then solve the equation.
 Then, PBIT= PBT + Interest payable on long-term borrowings
Usually interest is also given in rate on borrowings, just calculate the given percentage of the
borrowings for getting interest.
OR, (single formula for getting PBIT directly from PAT)
𝟏𝟎𝟎
 PBIT=( PAT× 𝟏𝟎𝟎−𝑹𝒂𝒕𝒆 )+ interest
ACTIVITY RATIOS
Inventory Turnover Ratio =
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒐𝒇 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔 (𝒄𝒐𝒔𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅)
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
Cost of goods sold = Revenue from oper Sometimes, Change in inventories (opening stock
– closing stock) is given in question, then it is to be added (if opening is more than closing)
or deducted (if closing is more than opening).
If Cost of goods sold is not calculated or can’t be calculated in any way, then revenue from
operations is used for this ratio.
In absence of any information, gross profit is always considered to be a percentage of
sales.
If Closing Inventory is 2 times of opening stock, then opening stock will be x and closing
stock will be 2x.
If closing stock is 2 times more than opening stock, then opening stock will be x and
closing stock will be x+2x.
ations (Net sales) – Gross profit or + gross loss
OR,
Cost of goods sold = Opening Stock + Net purchases + direct expenses (wages, carriage
inwards, fuel etc.) – Closing stock
Average Inventory =
𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝒔𝒕𝒐𝒄𝒌+𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝒔𝒕𝒐𝒄𝒌
𝟐
Trade receivables turnover ratio =
𝑪𝒓𝒆𝒅𝒊𝒕 𝒔𝒂𝒍𝒆𝒔 𝒐𝒓 𝒄𝒓𝒆𝒅𝒊𝒕 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔
𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒕𝒓𝒂𝒅𝒆 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒏𝒃𝒍𝒆𝒔
𝟑𝟔𝟓
Debt collection Period =𝑻𝒓𝒂𝒅𝒆 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 𝒊𝒏 𝒅𝒂𝒚𝒔 OR
𝟏𝟐
𝑻𝒓𝒂𝒅𝒆 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐
in months
Average trade Receivables =
𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝒕𝒓𝒂𝒅𝒆 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 (𝒅𝒆𝒃𝒕𝒐𝒓+𝒃𝒊𝒍𝒍𝒔 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆)+𝒄𝒍𝒐𝒔𝒊𝒏𝒈 𝒕𝒓𝒂𝒅𝒆 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔
𝟐
𝑵𝒆𝒕 𝒄𝒓𝒆𝒅𝒊𝒕 𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔
Trade Payable turnover ratio = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒕𝒓𝒂𝒅𝒆 𝒑𝒂𝒚𝒂𝒃𝒍𝒆
𝟑𝟔𝟓
𝟏𝟐
Average Payment period = 𝑻𝒓𝒂𝒅𝒆 𝒑𝒂𝒚𝒂𝒃𝒍𝒆 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 or 𝑻𝒓𝒂𝒅𝒆 𝑷𝒂𝒚𝒂𝒃𝒍𝒆 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐
Average Trade Payable=
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐓𝐫𝐚𝐝𝐞 𝐏𝐚𝐲𝐚𝐛𝐥𝐞 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐓𝐫𝐚𝐝𝐞 𝐏𝐚𝐲𝐚𝐛𝐥𝐞
𝟐
Note: If only opening or closing balance or single amount is given of trade receivable or
payable, we take it as average And Do Not Divide It By 2
Working Capital Turnover ratio =
𝑹𝒆𝒗𝒆𝒏𝒖𝒓 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔 𝒐𝒓 𝒄𝒐𝒔𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅
𝒘𝒐𝒓𝒌𝒊𝒏𝒈 𝒄𝒂𝒑𝒊𝒕𝒂𝒍
First preference is to use Revenue from operations and if not provided or no info is given,
then only use Cost of revenue from operations.
Working Capital = Current Assets – Current Liabilities.
PROFITABILITY RATIO (shows performance of business) expressed
in %.
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 ×𝟏𝟎𝟎
Gross Profit Ratio = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔 𝒐𝒓 𝒏𝒆𝒕 𝒔𝒂𝒍𝒆𝒔
Gross Profit = Revenue from operations – cost of revenue from operations
𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 ×𝟏𝟎𝟎
Operating ratio = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔
Operating cost = Cost of revenue from operations + operating expenses.
Operating expenses = Employee Benefit expenses (salary, wages, etc.) + Depreciation and
amortisation expenses + other expenses (except non-operating expenses) + Office
expenses + Administrative expenses + Selling and Distribution expenses
Operating Profit Ratio =
𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑷𝒓𝒐𝒇𝒊𝒕 ×𝟏𝟎𝟎
𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
Operating Profit = Net Sales – Operating cost
OR
Operating Profit = Net sales – COGS – operating expenses
OR
Operating Profit = Gross Profit – Operating expenses
OR
Operating Profit = Net Profit + Non-operating Expenses – non- operating Income
Note: Operating Profit ratio and Operating Ratio are complementary.
So, Operating Profit ratio + Operating ratio = 100%
Net Profit Ratio =
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 ×100
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Net Profit = Operating Profit + Non-operating Income – non-operating expenses
OR
Net Profit = Gross Profit – operating expenses + non-operating income – non-operating
expenses
OR
Net profit = Net sales – COGS – Operating Expenses + non-operating Income – Nonoperating expenses
OR
Net Profit = Net Sales – Direct Expenses + Indirect Income – Indirect expenses
ROI =
𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕,𝒕𝒂𝒙 𝒂𝒏𝒅 𝒅𝒊𝒗𝒊𝒅𝒆𝒏𝒅 ×𝟏𝟎𝟎
𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅
PBIT formula is provided above.
Capital employed = Shareholders’ fund + debt
Capital Employed under Liabilities approach
Shareholders’ funds (share cap. + Reserve and surplus) + Non-current liabilities
Note: if surplus has debit balance or shown on asset side, then it has to be deducted from
share capital
Capital Employed under Assets side approach
Non- current Assets (Fixed Assets + Non-current Trade Investments + Long-term loans and
advances) + Working Capital (Current Assets – Current liabilities)
Note: All non-current investments are assumes to be trade investments unless specified
non-trade and we do not include non-trade investment.
Similarly, we do not take into account income on non-trade investment while calculating
PBIT.
Cash Flow Statement