KENDRIYA VIDYALAYA SANGATHAN
GURGAON REGION
STUDY MATERIAL – ACCOUNTANCY
FOR
CLASS – XII
(2014-15)
PATRON
MR. C. MANI
DEPUTY COMMISSIONER KVS RO, GURGAON
ADVISOR
MR. B.L. MORODIA (GR)
MR. C. S. AZAD (GR)
Mr. A.K. Sharma (GR)
COORDINATOR
MR. RAJENDRA SINGH
PRINCIPAL KV SEC-5
DWARKA NEW DELHI
Resource Persons:
1. MS. SHOBHA PGT COMM. K.V NO1 AIRFORCE STATION SEC 14,
GURGAON
2. MR. RAKESH PGT COMM. K.V. SEC 5, DWARKA
3. MR. ANGREJ SINGH PGT COOM. K.V. SEC 5 DWARKA
4. MRS. NAVNEET KAUR, PGT COMM. , KV BSF CAMP CHHAWLA
1
PREFACE
Dear Students,
Unprecedented popularity of study material of Accountancy has proved its utility. Clear and
easily understandable handy presentation of concepts and content and content has been found
immensely useful and teachers all like for preparation of CBSE Examination. KVS
authorities and all the persons associated with it deserve great appreciation.
Now, this year we have kept the nature of this material intact. It has been revised further for
its refinement and update.
Students will definitely find it greatly useful for their examination due to its unique features
like:
Simple and understandable way of presentation of terms and concepts.

Simplified illustration and diagrams to create picture-impact in the mind of learners.

Addition of more useful questions.

Sufficient practice material in a readymade style for all topics.
Thanks to all teachers for their invaluable efforts.
Dear students we believe that the study material will be highly beneficial and fruitful to
enrich you. And it will be a great help to score higher and better in the examination.
Best of Luck
2
Index
S.NO
1
PARTICULARS
PAGE
NO.
ACCOUNTING FOR PARTNERSHIP FIRM FUNDAMENTALS
9-15
2
16-17
GOODWILL: NATURE & VALUATION
3
CHANGE IN PROFIT SHARING RATIO ( AMONG THE
EXISTING PARTNER )
18-21
4
ADMISSION OF PARTNER
22-30
5
RETIREMENT AND DEATH OF A PARTNER
31-39
6
DISSOLUTION OF PARTNERSHIP FIRM
40-47
7
SHARE CAPITAL ACCOUNTING FOR SHARE
CAPITAL
48-60
8
61-66
COMPANY ACCOUNTS:-(ISSUE OF DEBENTURES)
9
67-74
COMPANY ACCOUNTS-REDEMPTION OF
DEBENTURES
PART II
1
FINANCIAL STATEMENTS OF A COMPANY
75-82
2
FINANCIAL STATEMENT ANALYSIS
83-84
3
TOOLS OF FINANCIAL STATEMENT ANALYSIS COMPARATIVE STATEMENT AND COMMON SIZE
STATEMENT
85-86
4
RATIO ANALYSIS
87-96
5
CASH FLOW STATEMENT
97-102
3
Accountancy(Code No.055)
Classs–XII
(2014-15)
One Paper
Theory: 80Marks
Units
Part A
Part B
Part C
Part B
Part C
3Hours
Accounting for Partnership Firms and Companies
Unit1. Accounting for Partnership Firms
Unit2. Accounting for Companies
Financial Statement Analysis
Unit3. Analysis of Financial Statements
Unit4. Cash Flow Statement
Project Work
Project work will include:
Project File: 4Marks
Written Test: 12 Marks(One Hour)
VivaVoce:4 Marks
OR
Computerized Accounting
Unit3. Computerized Accounting
Practical Work
Practical work will include:
File
Marks
Practical Examination
Hour)
Viva Voce 4 Marks
Marks
90
60
150
35
25
60
30
20
50
40
12
8
20
20
60
26
20
20
4
12 Marks(One
Part A: Accounting for Partnership Firms and Companies
Periods
Unit1:
Periods
60 Marks 150-
Accounting for Partnership Firms
Partnership: Features, Partnership deed.
Provisions of the Indian Partnership Act 1932in the absence of partnership deed.
Fixed v/s fluctuating capital accounts. Preparation of Profit & Loss Appropriation account –
division of profit among partners, guaranteed of profits.
4
Past adjustments (relating to interest on capital, interest on drawing, salary and profit sharing
ratio).
Goodwill : nature, factors affecting and methods of valuation- average profit, super profit and
capitalization.
Scope: Interest on partner’s loan is to be treated as a charge against profits
Accounting for Partnership firms – Reconstitution and Dissolution.
Change in the Profit Sharing Ratio among the existing partners-sacrificing ratio, gaining
ratio.
Accounting for revaluation of assets and re-assessment of liabilities and treatment of reserves
and accumulated profits.
Admission of a partner-effect of admission of a partner on change in the profit sharing ratio,
treatment of goodwill (asperAS26), treatment for revaluation of assets and re-assessment of
liabilities, treatment of reserves and accumulated profits, adjustment of capital accounts and
preparation of balance sheet.
Retirement and death of a partner: effect of retirement/death of a partner on change in profit
sharing ratio, treatment of goodwill(as per AS 26),treatment for revaluation of assets and reassessment of liabilities, adjustment of accumulated profits and reserves, adjustment of
capital accounts and preparation of balance sheet. Preparation of loan account of the retiring
partner.
Calculation of deceased partner's share of profit till the date of death. Preparation of deceased
partner's capital account, executor's account and preparation of balance sheet.
•
Dissolution of a partnership firm : types of dissolution of a firm. Settlement of
accounts-preparation of realization account, and other related accounts: Capital accounts of
partners and Cash/ Bank A/c (excluding piece meal distribution, sale to accompany and
insolvency of partner(s)).
Note:
(i) If value of asset is not given, its realised value should be taken as nil.
(ii) Incase, the realization expenses are borne by a partner ,clear indication should be given
regarding the payment there of.
(iii)Workmen Compensation Fund is to be discussed.
Unit-2
Accounting for Companies
Accounting for Share Capital
•
Share and share capital : nature and types.
5
•
Accounting for share capital: issue and allotment of equity shares, private placement
of shares, Public subscription of shares - oversubscription and undersubscription of shares;
Issue at par and at premium and at discount, calls in advance and arrears (excluding
interest),issue of shares for consideration other than cash.
•
Accounting treatment of forfeiture and re-issue of shares.
•
Disclosure of share capital in company's Balance Sheet.
Accounting for Debentures
•
Debentures: Issue of debentures at par, at a premium and at a discount. Issue of
debentures for consideration other than cash; Issue of debentures with terms of redemption;
debentures as collateral security-concept, interest on debentures.
•
Redemption of debentures: Lumpsum, draw of lots and purchase in the open market
(excluding ex- interest and cum - interest).Creation of Debenture Redemption Reserve.
Part B: (i)Financial Statement Analysis
Periods
Unit3:
20 Marks 50
Analysis of Financial Statements
•
Financial statements of a company: Statement of Profit and Loss and Balance Sheet in
the prescribed form with major headings and sub headings (as per Schedule VI to the
Companies Act, 1956).
Scope: Exceptional Items, Extra ordinary Items and Profit (loss) from Discontinued
Operations are excluded.
•
Financial Statement Analysis: Objectives and limitations.
•
Tools for Financial Statement Analysis: Comparative statements ,common size
statements, cashflow analysis, ratio analysis.
•
Accounting Ratios: Objectives, classification and computation.
Liquidity Ratios: Current ratio and Quick ratio.
Solvency Ratios :Debt to Equity Ratio, Total Asset to Debt Ratio ,Proprietary Ratio and
Interest Coverage
Ratio.
Activity Ratios: Inventory Turnover Ratio, Trade Receivables Turnover Ratio, Trade
Payables Turnover
Ratio and Working Capital Turnover Ratio.
Profitability Ratios: Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit
Ratio and Return on Investment.
6
Scope: As ratio analysis is a managerial tool, for the computation of profitability ratios,
relevant information should be specified whether it is a part of Statement of Profit and Loss
as per Schedule VI or not.
Unit4:
•
Cash Flow Statement
Meaning, objectives and preparation (as per AS3 (Revised)(Indirect Method only)
Scope:
(i) Adjustments relating to depreciation and amortisation, profit or loss on sale of assets
including investments, dividend (both final and interim)and tax.
(ii) Bank over draft and cash credit to be treated as short term borrowings.
(iii)Current Investments to be taken as Marketable securities unless otherwise specified.
PROJECT WORK
40 Periods
20 Marks
7
Suggested Question Paper Design Accountancy
(CodeNo.055) Class XII(2014-15)
March 2015 Examination
One Paper Theory: 80Marks
Duration:3hrs.
S.
No
.
1. Remembering (Knowledge based
Simple recall Questions to know
specific facts, terms concepts,
principles, or theories, identify, define,
or recite information
3
1
2
1
Lo
ng
Ans
wer
II
8
Mar
ks
-
2. Understanding (Comprehension - to
be familiar with meaning and to
understand conceptually interpret,
compare, contrast, explain, paraphase
information)
2
-
1
1
3. Application (Use abstract information
in concrete situation, to apply
Knowledge to new situation, Use given
content to interpret a situation. Provide
an example, or solve a problem)
-
2
1
4. High order Thinking Skills (Analysis
& Synthesis- Classify, compare,
contrast, or differiante between
different piece of information; organize
and /or integrate unique pieces of
information from a variety of sources)
2
-
1
1
Typology of Questions
5. Evaluation and Multi-Discipliary (Appraise, Judge, and /or ustify the
value or worth of a decision or
outcome, or to predict outcomes based
on values)
TOTAL
Very
Short
Answer
MCQ
1Mark
8x1=8
Sh
Short
ort
Ans
II
Ans
werI 4Marks
3Mar
ks
Lon
g
Answe
rI
6Mar
ks
Marks
%
20
25
1
20
25
1
-
16
20
1
1
1
16
20
1
-
-
08
10
4x3= 5x4=20
12
80(23
4x6=2 2x8= )
100
4
16
+20
Project
s
8
CHAPTER – 1
ACCOUNTING FOR PARTNERSHIP FIRM - FUNDAMENTALS
LEARNING OBJECTIVES
 Meaning of Partnership
 Essential features or characteristics of Partnership
 Rights of Partners
 Partnership Deed
 Importance of Partnership Deed
 Provision affecting Accounting Treatment in the Absence of Partnership Deed
 Distribution of Profits among Partners: Profit and Loss Appropriation Account
 Special Aspects of Partnership Accounts
i. Partner’s capital Accounts under Fixed and Fluctuating Methods
ii. Interest on Partners’ Drawings
iii. Salary or Commission to Partners
iv. Past Adjustments
v. Interest on Partners’ Capitals
vi. Interest on Partners’ Loan to the firm
vii. Guarantee of Profit
Meaning of Partnership:
According to sec. 14 of the Indian Partnership Act, 1932, the term 'Partnership' is "the
relation between two or more persons who have agreed to share the profits of a business
carried on by all or by any of them acting for all."
Essential features of Partnership:
The essential features of partnership are:
1. Association of Two or More Persons: Partnership is an association of two or
more persons who have agreed to do business and share profits or losses.
2. Agreement: Partnership comes into existence by an agreement, either written
or oral, and not by the status or process of law. The written agreement among
the partners is known as Partnership Deed.
3. Business: The firm must be engaged in a lawful business. Business includes
trade, vocation and profession.
4. Profit-sharing: The agreement between/among the partners must be to share
profits or losses. It is not essential that all the partners must share losses also.
5. Business can be carried on by All or Any of the Partners Acting for All:
Business of the partnership can be carried on by all the partners or by any of
them acting for all the partners. In other words, partners are agents as well as
the principals.
9
Rights of Partners:
1. Every partner has the right to participate in the management of the
business.
2. Every partner has the right to be consulted about the affairs of the
business.
3. Every partner has the right to inspect the books of accounts and have a
copy of it.
4. Every partner has the right to share profits or losses with others in the
agreed ratio.
5. A partner has the right not to allow the admission of a new partner.
Partnership Deed:
'Partnership Deed' is a written document which contains the terms and conditions of
partnership agreed upon by all the partners.
Importance of Partnership Deed:
i.
ii.
It is important to have Partnership Deed in writing to settle any possible
dispute with regard to the terms of partnership.
It serves as an evidence in the Courts of Law.
Provision affecting Accounting Treatment in the Absence of Partnership Deed:
i.
ii.
iii.
iv.
v.
Salary/Commission to a partner: No remuneration for taking part in the conduct of
business is to be allowed to any partner.
Sharing of Profits & Losses: Profits & Losses are to be shared equally.
Interest on Capital: No interest is to be allowed on capital. If the agreement
provides for interest on capital, such interest is payable only out of available profits.
Interest on Advances/Loan by a partner: Interest @ 6% p.a. is to be allowed on
Advances/Loans. Such interest is payable even if there are losses.
Interest on Drawings: No interest is to be charged on Drawings.
Distribution of Profits among Partners: Profit and Loss Appropriation Account
Meaning: P & L Appropriation Account shows the distribution of Net Profits as per P & L
A/c among the partners by way of Interest on Capital, Salary, Commission to partners,
Transfer to Reserves.
Purpose: P & L Appropriation is prepared to show the distribution of Net Profit among the
partners. The balance in Profit & Loss Appropriation account may be used:
i.
To provide for Interest on Capitals of Partners (if Partnership Deed so provides).
10
ii.
iii.
To provide for Salary or Commission to partners (if Partnership Deed so
provides).
To distribute the profits among the partners in their profit sharing ratio.
FORMAT OF PROFIT AND LOSS APPROPRIATION ACCOUNT
PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ending on……
Particulars
To interest on Capital:
X
xxx
Y
xxx
To Salary to partner
To Commission to partner
To Reserve
To Profit transferred to:
* X's Capital A/c
xxx
**(for X's Current A/c)
* Y's Capital A/c
xxx
** (or Y's Current A/c)
Cr.
Rs.
xxx
xxx
xxx
xxx
Particulars
Rs.
By Profit & Loss A/c
xxx
(Net Profit subject to
Appropriations)
By interest on Drawings:
X
xxx
Y
xxx
xxx
xxx
xxx
xxx
Special Aspects of Partnership Accounts:
i.
Partner’s capital Accounts under Fixed and Fluctuating Methods :
a. Fluctuating Capital Method:
a.1) Under Fluctuating Capital method, only one account (viz. Capital
Account) for each partner is maintained.
a.2) All the transactions relating to a partner are recorded in his
Capital Account.
b. Fixed Capital Method:
b.1) Under Fixed Capital method, two accounts (viz. Capital Account
and Current Account) for each partner are maintained.
b.2) The transactions relating to introduction or withdrawal of Capital
are recorded in Capital account.
b.3) Other transactions like interest on Capital, Drawings, Salary,
Commission, Share of Profit/Loss are recorded in Current Account.
ii.
Interest on Partners’ Drawings
11
a. Meaning of Drawings
Drawings mean the amount withdrawn in cash or in kind for personal
purposes. Drawings may be against profits or against capital.
b. Accounting Treatment of Interest on Drawings.
When to charge: Interest on Drawings is to be charged for partners
only when partnership agreement provides for the same.
How to calculate interest on drawings:
 Short Cut Method: When a fixed amounts is withdrawn at
fixed dates, the interest on drawings may be calculated with
the help of short cut formula as follows:
If Fixed Amount is Withdrawn… Interest on Drawings
In the beginning of each month
= Total Drawings x (Rate of interest)
100
x 6(1/2) *
12
At the end of each month
= Total Drawings x (Rate of interest)
100
x 5(1/2) **
12
During the middle of each month
= Total Drawings x (Rate of interest)
100
x
In the beginning of each quarter
= Total Drawings x (Rate of interest)
100
x 7(1/2) *
12
At the end of each quarter
= Total Drawings x (Rate of interest)
100
x 4(1/2) **
12
During the middle of each quarter
= Total Drawings x (Rate of interest)
100
x
6
12
6*
12
Note: The above formulae have been given on the assumption that Total Period of
Drwaings is 12 months. In case the Period of Drawings is less than 12 months, that above
formulae will change accordingly.
* (Total Period + Time interval)/2
** (Total Period – Time interval)/2
 Product Method
1. Calculate the period for which amount withdrawn has been used.
2. Calculate the Product as follows:
Product = Amount of Drawings x Period of Use
3. Calculate the Total Product
4. Calculate the interest on Drawings as follows:
If Period is expressed in a month = Total Product x (Rate of Interest/100) x
(1/12)
If Period is expressed in a day = Total Product x (Rate of Interest/100) x
(1/365)
12
iii.
Salary or Commission to Partners
 When to allow : Salary or Commission to a partner is to be
allowed if the partnership agreement provides for the same.
 How to calculate : Commission may be allowed as percentage
of Net Profit before charging such commission or after
charging such commission
I – Commission as % of Net Profit before charging such
commission
= Net Profit before Commission x (Rate of Commission/100)
II -- Commission as % of Net Profit after charging such
commission
= Net Profit before Commission x (Rate of Commission / 100
+ Rate of Commission)
iv.
Past Adjustments
 Meaning : Past Adjustments refer to those adjustments which
affect the distribution of past profits like omission or commission
in respect of interest on Capital/Drawings of a Partner,
Salary/Commission to a partner, Sharing of Profits.
 How to Carry Out: Past Adjustments should be carried out
directly through the Capital Accounts of the concerned Partners.
 How to Pass Single Adjusting Journal Entry : The passing of
the necessary Adjusting Journal Entry involves the following
steps:
1. Calculate the amount already recorded by way of share of
Profit, Interest on Capital, Salary, Commission etc.
v.
Interest on Partners’ Capitals
Calculation of Interest
Particulars
Rs
Interest on Opening Capital [Opening Capital x Rate/100 x 12/12
Add: Interest on Additional Capital [ Additional Capital x Rate/100
x Period from the date of introduction to the end of accounting period/12]
Less: Interest on Capital withdrawn = Capital Withdrawn x Rate/100 x
Period from the date of withdrawl to the end of accounting period/12]
Total interest on Capital [ A + B – C]
xxx
vi.
Interest on Partners’ Loan to the firm
Rate of
Case
interet
i.
If there is an agreement as to the
xxx
(xxx)
xxx
Rate of Interest
Partner is entitled to an
13
To be
allowed
ii.
vii.
rate of Interest on Loan.
interest on loan at an
agreed Rate of Interest
If there is no agreement as to rate
of Interest on Loan
Partner is entitled to
Interest on Loan @ 6%
p.a.
Guarantee of Profit
Meaning : It means assurance to give a minimum amount of Profit to a
partner.
If in any year, the actual Share of Profit of a Guaranteed Partner is less
than the Guaranteed Amount, then the deficiency (i.e, excess of
Guaranteed Amount over actual share of Profit) is borne by the
Guaranteeing Partners in their agreed ratio.
14
1 MARK Questions
1. Define Partnership
2. What do you understand by ‘Partner’, ‘firm’ and ‘firm’s name’?
Ans. The persons who have entered into a Partnership with one another are
individually called ‘Partners’ and collectively ‘a firm’ and the name under which the
business carried is called ‘the firm’s name’.
3. Write any four main features of partnership.
4. What is the minimum and maximum number of partners in all partnership?
5. What is the status of partnership from an accounting viewpoint?
Ans. From an accounting viewpoint, partnership is a separate business entity. From
the legal viewpoint, however, a Partnership , is not separate from the owners.
6. What is meant by partnership deed?
7. In the absence of Partnership deed , how are mutual relations of partners governed?
Ans. Through Partnership Act, 1932.
8. Give two circumstances in which the fixed capital of partners may change.
Ans. (i) When additional capital is introduced by the partners.
(ii) When a part of the capital is permanently withdrawn by the Partners.
9. List the items that may appear on the debit side and credit side of a Partners’
Fluctuating capital account.
Ans. On debit side: Drawing, interest on drawing, share of loss, closing credit balance
of capital.
On credit side: Opening credit balance of capital, additional capital introduced,
share of profit, interest on capital, salary to a Partner, commission to a Partner.
10. If the partners capital accounts are fixed, where will you record the following items:
(i)
Salary to partners
(ii)
Drawing by a partners
(iii)
Interest on capital and
(iv)
Share of profit earned by a partner?
11. Ramesh, a partner in the firm has advanced a loan of a Rs. 1,00,000 to the firm and
has demanded on interest @ 9% per annum to which other partners do not agree. The
partnership deed is silent on the matter how will you deal with it?
12. The partnership deed provides that Anjali, the partner will get Rs. 10,000 per month
as salary. But the remaining partners object to it. How will this matter be resolved?
13. Give one difference between Profit and Loss A/c and Profit and Loss Appropriation
Account.
14. A, B and C were partners in a firm having no partnership agreement. A, B and C
contributed Rs. 4,00,000, Rs. 6,00,000 and Rs. 2,00,000 respectively. A and B desire
that the profits should be divided in the ratio of capital contribution. C does not agree
to this. How will the dispute be settled?
15
QUESTIONS: 4 &6 Marks
1. A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs. 8,00,000
and Rs. 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. B is to be
allowed an annual salary of Rs. 60,000 which has not been withdrawn. During 201314, the profits of the year prior to calculation of interest on capital but after charging
B’s salary amounted to Rs. 2,40,000. A provision of 5% of the profits is to be made
in respect of Manager’s commission.
Prepare an account showing the appropriation of profit.
Solution:
P&L A/c
For the year ended 31st March 2014
Dr.
Particulars
To Manager’s Commission
(3,00,000 X5/100)
To Profit tr. To P&L App.
A/c
Amount
(Rs.)
15,000
Particulars
By Profit (Rs.
2,40,000+60,000)
Cr.
Amount
(Rs.)
3,00,000
2,85,000
3,00,000
3,00,000
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
To B’s Salary
To Interest on Capital
A
40,000
B
30,000
To Profit tr. To
A’s capital
93,000
B’s capital
62,000
Amount
(Rs.)
60,000
Particulars
By Net Profit transferred
from P & L A/c
Cr.
Amount
(Rs.)
2,85,000
70,000
1,55,000
2,85,000
2,85,000
2. A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs. 10,00,000
and Rs. 6,00,000 respectively. Interest on capital is agreed @ 6% p.a. B is to allowed
an annual salary of Rs. 50,000. During 2006, the profits of the year prior to
calculation of interest on capital but after charging B’s salary amounted to Rs.
2,50,000. A provision of 5% of the profits is to be made in respect of Manager’s
commission.
Prepare an account showing the appropriation of profit.
16
3. X and Y are Partners sharing Profit and Loss in the ratio of 2:3 with a capital of Rs.
20,000 and Rs. 10,000 respectively. Show distribution of Profit/losses for the year
ended 31st march 2014 by preparing relevant account in each of the alternative cases.
Case 1. If Partnership deed is silent as to the interest on capital and the profit for year
ended is Rs. 2,000.
Case 2. If Partnership deed provides for the interest on capital @ 6% p.a. and loss for
the year is Rs. 1,500.
Case 3. If Partnership deed provides for interest on capital @ 6% p.a. and trading
profit is Rs. 2,100.
Solution:
Case 1.
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
Amount
(Rs.)
To Profit transferred to
X’s capital
800
Y’s capital
1,200
Particulars
By Net Profit transferred
from P & L A/c
Cr.
Amount
(Rs.)
2,000
2,000
2,000
2,000
Case 2.
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
Amount
(Rs.)
To loss for the year (Trading 1,500
loss)
Particulars
By loss transferred to
X’s Capital
600
Y’s Capital
900
1,500
Cr.
Amount
(Rs.)
1,500
1,500
Case 3.
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
To Interest on Capital
X
1,200
Y
600
Amount
(Rs.)
Particulars
By Profit & Loss A/c
Cr.
Amount
(Rs.)
2,100
1,800
17
To Profit tr. To
X’s Capital
120
Y’s Capital
180
300
2,100
2,100
4. X and Y are partners in a firm. X is to get a commission of 10% of net profit before
charging any commission. Y is to get a commission of 10% on net profit after
charging all commission. Net profit for the year ended 31st March 2014 before
charging any commission was Rs. 1,10,000. Find the commission of X and Y. Also
show the distribution of profit.
ANS .P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
Amount
Particulars
(Rs.)
To X’s commission A/c
By Profit before any
(1,10,000 X 10/100)
11,000
commission
To Y’s Commission
(1,10,000 – 11,000) X10/110 9,000
To Net Profit tr. To Capital
A/c
X
45,000
90,000
Y
45,000
1,10,000
Cr.
Amount
(Rs.)
1,10,000
1,10,000
5. A, B and C are Partners in a firm sharing Profit and Losses in the ratio 2:3:5. Their
fixed capitals were 3,00,000; 6,00,000; and 1,20,000 respectively for the year 2014
interest on capital was credited to them @ 12% instead of 10%. Pass the necessary
adjustment entry.
Solution:
Table showing Adjustment
Particulars
Interest that should have been
credited @ 10%
Interest already credited @ 12%
By recovering the extra amount
paid the share will increase and it
will be credited in the ratio of
2:3:5
Net effect
A
30,000
B
60,000
C
12,000
Total
1,02,000
36,000
(6,000)
72,000
(12,000)
14,400
(2,400)
1,22,400
(20,400)
(4,080)
(6,120)
(10,200)
(1,920)
(5,880)
7,800
18
A’s Current A/c Dr.
B’s Current A/c
To C’s Current A/c
1,920
Dr.
5,880
7,800
6. X, Y and Z were partners in a firm sharing profit and losses in the ratio of 2:1:2.
Their capitals were fixed at Rs. 6,00,000; Rs. 2,00,000 and Rs. 4,00,000 for the year
2014. Interest on capital was credited to them @ 9% instead of 10%p.a. the profit for
the year before charging interest was Rs. 5,00,000.
Show your working note clearly and Pass necessary adjustment entry.
(Ans. Y’s current A/c Dr. 400, Z’s Current A/c Dr. 800, X ’s current A/c Cr. 1,200)
7. P, Q and R were partners in a firm sharing profit in the ratio of 1:2:2 after division of
the profit for the year ended 31st March 2014, their capitals were P Rs. 3,00,000; Q
Rs. 3,60,000; R Rs. 4,20,000. During the year, they withdrew Rs. 40,000 each. The
profit for the year was Rs. 1,20,000. The partnership deed provided that the interest
on capital will be allowed @ 10% while preparing the final accounts. Interest on
partners’ capital was not allowed.
(a) Pass adjustment entry.
(b) You are required to calculate the opening capital of P, Q and R.
8. (HOTS) A, B and C were partners. Their capitals were Rs. 60,000; Rs. 40,000 and
Rs. 20,000 respectively. According the partnership deed they were entitled to an
interest on capital @ 5%p.a. In addition B was also entitled to draw a salary of Rs.
1,000 per month. C was entitled to a commission of 5% on the profit after charging
the interest on capital, but before charging the salary payable to B. The Net Profit for
the year were Rs. 60,000 distributed in the ratio of their capitals without providing for
any of the above adjustment. The profit were to be shared in the ratio of 2:2:1.
Pass necessary adjustment entry showing the workings clearly.
(Hint: A’s current A/c Dr. 11,280; B’s current A/c Cr. 9,720; C’s current A/c 1,560)
9. (Value Based Question) Mira, Neera and Pooja are partners in a firm. They
contributed Rs. 1,00,000 each as capital three years ago. At that time Pooja agreed to
look after the business as Mira and Neera were busy. The profit for the past three
years were Rs. 30,000; Rs. 50,000; and Rs. 1,00,000 respectively. While going
through the book of accounts Mira noticed that the profit had been distributed in the
ratio of 1:1:2. When she enquired from Pooja about this, Pooja answered that since
she looked after the business she should get more profit. Mira disagreed and it was
decided to distributed profit equally retrospectively for the last three years.
(a) You are required to make necessary correction in the books of accounts of Mira,
Neera and Pooja by Passing and adjusting entry.
(b) Identify the value which was not practiced by Pooja while distributing profit.
(Ans. Dr. Pooja’s capital Rs. 30,000; Cr. Mira’s Capital Rs. 15,000; Cr. Neeraj’s
capital Rs. 15,000)
19
(Pooja did not practice the value of honesty and fairness besides ignoring low.)
10. (HOTS) The Partners of a firm distributed the profits for the year ended 31st March
2014. Rs. 1,80,000 in the ratio of 3:2:1 without providing for the following
adjustments:
(i)
A and C were entitled to a salary of Rs. 3,000 p.a.
(ii)
B was entitled to a commission of Rs. 9,000.
(iii)
B and C had guaranteed a minimum profit of Rs. 70,000 p.a. to A.
(iv)
Profit were to be shared in the ratio of 3:3:2.
Pass necessary journal entry for the above adjustments in the books of the
firm.
(HINT: Dr. A’s capital Rs. 17,000; Cr. B’s capital Rs. 6,000; Cr. C’s capital
Rs. 11,000)
11. A, B and C were Partners in a firm sharing profit in the ratio of 2:3:5. A was
guaranteed a minimum profit of Rs. 2,00,000. Any deficiency as this account was to
be borne by C. The net profit of the firm for the year ended 31st March 2014 was Rs.
9,00,000.
Prepare Profit and Loss Appropriation Account of A, B and C for the year ended 31st
March 2014.
(HINT: A = Rs. 2,00,000; B = Rs. 2,70,000; C = Rs. 4,30,000)
12. Akbar, Birbal and Chandar are partner in a firm as on 1st April 2014 their capital
accounts stood at Rs. 40,000; Rs. 30,000 and Rs. 20,000 respectively. They share
Profit and Losses in the proportion of 5:3:2. Partners are entitled to interest on capital
@ 10% p.a. and salary to Birbal and chander @ Rs. 200 per month and Rs. 300 per
quarter respectively as per the provision of the partnership deed Birbal’s share of
profit (excluding interest as capital but including salary) is guaranteed at a minimum
of Rs. 5,000 p.a. Any deficiency arising on that account shall be met by chander. The
profit of the firm for the year ended 31st March 2014 amounted to Rs. 20,000.
Prepare P&L Appropriation Account for the year ended on 31st March 2014.
(6)
(HINT: Deficiency is to be borne by ChanderRs. 380; Akbar Rs. 3,700; BirbalRs.
2,600; ChanderRs. 1,100)
13. Give the answer to the following:
(6)
st
(1) P and Q are partners sharing profits and losses in the ratio of 3:2. On 1 April
2013 their capital balances were Rs. 50,000 and Rs. 40,000 respectively. On 1st
July 2009 P brought Rs. 10,000 as his additional capital whereas Q brought Rs.
20,000 as additional capital on 1st October 2013. Interest on capital was provided
@ 5% p.a. Calculate the interest on capital of P and Q on 31st March 2014.
(2) A and B are partners sharing profits and losses in the ratio of 2:1. A withdraws
Rs. 1,500 at the beginning of each month and B withdrew Rs. 2,000 at the end of
each month for 12 months. Interest on drawings was charged @ 6% p.a. calculate
the interest on drawings of A and B for the year ended 31st December 2013.
14. (HOTS) A, B and C are partners with fixed capitals of Rs. 2,00,000; Rs. 1,50,000 and
Rs. 1,00,000 respectively. The balance of current accounts on 1st January, 2013 were
20
A Rs. 10,000(Cr.); B Rs. 4,000(Cr.) and C Rs. 3,000(Dr.). A gave a loan to the firm
of Rs. 25,000 on 1st July 2013. The Partnership deed provided for the following:
(i)
Interest on Capital @6%
(ii)
Interest on drawings @ 9%. Each partner withdrew Rs. 12,000 on 1st July
2013.
(iii)
Rs. 25,000 is to be transferred in a Reserve Account.
(iv)
Profit sharing ratio is 5:3:2 up to Rs. 80,000 and above Rs. 80,000 equally.Net
Profit of the firm before above adjustments was Rs. 1,98,360.
From the above information prepare Profit and Loss Appropriation Account,
Capital and Current Accounts of the partners.
(Profit tr. To current A/cs = Rs. 1,47,230; Balance of current A/cs A=Rs.
71,870; B= Rs. 46,870; C=Rs. 28,870
(6)
21
CHAPTER – 2
GOODWILL: NATURE & VALUATION
Learning Objectives
 Meaning
 Characteristics of Goodwill
 Nature of Goodwill
 Need for valuing Goodwill
 Factors affecting the Value of Goodwill
 Classification of Goodwill
 Methods of Valuation of Goodwill
Meaning:Goodwill is the value of benefit or advantage that a business has because of the
factors that help in increasing its profits say because of its location, favourable
contracts, access to supplies and customer loyalty etc.
Characteristics of Goodwill:
1. It is an intangible asset and not a fictitious asset.
2. It can't have an existence separate from that of an enterprise.
Nature of Goodwill:
Goodwill is an intangible asset. Intangible asset mean an asset not having physical
existence. But, it is not a fictitious asset. It can be sold, though a sale will be possible
only along with the sale of the business itself. Sometimes, goodwill has more value
than the tangible assets.
Que. What is the nature of Goodwill?
Need for valuing Goodwill:
The need for valuation of goodwill arises in the following circumstances:
i.
When there is a change in the profit-sharing ratio.
ii.
When a new partner is admitted.
iii.
When a person retires or dies,
iv.
When partnership firm is sold as a going concern.
Factors affecting the Value of Goodwill
i.
Efficient Management
ii.
Location
iii.
Favorable Contracts
iv.
Quality
v.
Market Situation
22
Classification of Goodwill
i.
ii.
Purchased Goodwill: It is the Goodwill that is acquired by making payment.
For example, when a business is purchased, the excess of purchase consideration
of its net assets (i.e., assets - liabilities) is the Purchased Goodwill.
Self-generated Goodwill : It is an internally generated goodwill which arises
from a number of factors that a running business possesses due to which it is able
to earn higher profit.
Methods of Valuation of Goodwill
Simple Average Profit Method
- It is calculated by taking the average profit for
a specified number of years and multiplying it with the years of purchase.
Goodwill = Average Profit X No. of Years’ Purchase
Weighted Average Profit Method – It is calculated by multiplying the profit for
each year with the weight assigned to it. The amounts so arrived at are totaled and
divided by the total of weights. The weighted average profit is multiplied by the years
of purchase.
Goodwill = Weighted Average Profit X No. of Years’ Purchase
Super Profit Method – Super Profit is the profit earned by the business that is in
excess of the normal profit. Goodwill is determined by multiplying the super profit
by the number of years ‘ purchase.
Goodwill = Super Profit X NO. of Years’ Purchase
Capitalisation Method
Under Capitalisation Method, capitalized value of the business is determined by
capitalizing the average profit by the normal rate return. Out of the value so determined,
value of net assets is deducted, the balance amount is the value of goodwill.
Goodwill = Capitalised Value – Net Assets
23
Capitalisation of Super Profit – Under this method, super profit is capitalized at the
normal rate of return.
Goodwill = Super Profit X 100 / Normal rate of return
.
1 MARK QUESTIONS
1. Define Goodwill.
2. State any four factors which influence the valuation of goodwill of a partnership firm.
3. Why is Goodwill considered as an Intangible Assets but not a fictitious Assets?
Ans. It is not a fictitious Assets because it has a realizable value. It is an intangible
assets because it cannot be seen and touched.
4. Apart from location and profitability, list any two other factors affecting Goodwill of
a firm.
5. State any four reasons for valuation of Goodwill in relation to a partnership firm.
(3 MARKS QUESTIONS)
6. A business has earned average profit of Rs. 4,00,000 during the last few years and the
normal rate of return in similar business is 10%. Find out the value of goodwill by
(i)
Capitalisation of Super Profit
(ii)
Super profit method if the goodwill is valued at 3years’ purchase of super
profits.
The assets of the business were Rs. 40,00,000 and its external liabilities Rs.
7,20,000.
(Ans. 2,16,000)
7. Capital of the firm Sharma and Verma is Rs. 4,00,000 and the market rate of interest
is 15%. Annual salary to partners is Rs. 2,400 each. The profit for the last three years
were Rs. 1,20,000, Rs. 1,44,000 and Rs. 1,68,000. Goodwill is tovalued at 2 years’
purchase of last 3 years average super profit. Calculate the Goowill of the firm.
(Hint Rs. 72,000)
8. On Ist Jan 2014 an existing firm has Asset of Rs. 1,50,000 including cash of Rs.
10,000. Its creditors amounted to Rs. 10,000 on that date. The firm had a Reserve of
Rs. 20,000 while Partner’s Capital Accounts showed a balance of Rs. 1,20,000. If
Normal Rate of Return is 20% and goodwill of the firm is valued at Rs. 4,8000 at four
years’ purchase of super profit, find the average profit per year of the existing firm.
(Ans Average profit – Rs. 40,000)
24
9. Calculate value of goodwill on the basis of three year purchase of average profit of
the preceding five years which were as follows:
Years ended
31.3.2014
Years ended
31.3.2013
Years ended
31.3.2012
Years ended
31.3.2011
Years ended
31.3.2010
Hint: (Goodwill = 1,5,00,000)
4,00,000
7,50,000
9,00,000
2,00,000 (loss)
6,50,000
25
Chapter – 3
Change in profit sharing ratio ( among the existing partner )
Learning objectives



Meaning
Mode of reconstitution of a partnership firm
Change in profit sharing ratios among the existing partners.
Adjustment required at the time of change in profit sharing ratio.
Meaning
Any change in existing agreements of partnership among to constitution of a firm. As a result
existing agreements comes to the end and a new agreement comes into existence and the firm
continues.
Modes of reconstitution of a partner firm:
i.
ii.
iii.
iv.
Change in the profit sharing ratio of existing partner.
Admission of a new partner .
Retirement of a existing partner
Death of a partner.
Change in the profit sharing ratio among the existing partners:
i.
ii.
iii.
When one or more partner acquires an interest in the business from another
partner(s), it said to be change in the profit sharing ratio in a partnership firm.
A change in the profit ratio among the existing partner means it is a
reconstitution of the firm without the admission , requirement or the death of a
new partner .
Therefore, the aggregate amount of gain by the one or more partner is equal to
the aggregate amount of sacrifice made by the other partner.
Adjustment required at the time of change in profit sharing ratio:
Determination of sacrificing the ratio and gaining ratio.
Sacrificing/(Gaining)share = old share – New share
Accounting treatment of goodwill.
Goodwill (if any) appearing in the books written off by debating it to all partner capital
accounts in their old profit-sharing ratio and by crediting the goodwill account.
26

Accounting treatment of accumulated profit and reserves.
 At the time of change in the profit sharing ratio , if any reserves or
accumulated profit/loss existing in the books of the firm, they are
transferred to patterns capital/current account in their old profit
sharing ratio.

Revaluation of asset and reassessment of liabilities.

At the time of change in the profit sharing ratio , the asset are revalued and the
liabilities are reassessed since the realisable or actual value of asset and the liabilities
may be different from those shown in balance sheet.
 Revaluation of asset and reassessment of liabilities belong to period prior to
change in their old profit sharing ratio. Hence, any gain or loss on revaluation
must be shared in their old profit sharing ratio by the partners.

Two alternatives are available for the purposes
1) When revised values are to be recorded in the books of accounts
An account titled revaluation account or the profit and the loss adjustment account
is opened for this purpose
2) When the values are not to be recorded in the books of account
(Adjustment of profits/loss on revaluation of asset and reassessment of liabilities
through the capital account only.)
If the partner decides to record the net effect of revaluation of asset and liabilities
without affecting the old amount of asset and liabilities, a single adjusting entry
involving the capital accounts of gaining partner and sacrificing partner is passed.
In this regard, we take the following steps
Step 1. Calculating of the net effect of revaluation
Increase in the values of asset
…
(+)Decrease in the amount of asset. …
(-)Decrease in values of asset.
(…)
(-)Increase in amount of liabilities
(…)
Net effect of revaluation
…
Step 2. To find share of gain/sacrifice by the partner
Their new share …
Their old share …
Difference
…
27
Step 3. Calculation of proportional amount of net effect of revaluation.
For gaining partner
Proportion amount of the net effect of revaluation = shared gained x net effect of
revaluation for sacrificing partner
Proportion amount of net effect of revaluation = shared sacrificed x net effect of
revaluation
Step 4. Pass the following journal entries
For profit on revaluation
Gaining partner(s) capital A/c
Dr
To sacrificing partner(s) capital A/c
For net loss on revaluation
Sacrificing partner(s) capital A/c
Dr
To gaining partner(s) capital A/c
Questions: 1 mark
Q1.) What is meant by change in profit sharing ratio?
(1)
Q2.) Why are reserved and surplus distributed at the time of reconstitution of the firm?
(1)
Practical Problems: (3 marks)
Q1.) Anita, Asha, Amrit are partners sharing profit in the ratio of 3:2:1 respectively. Form
1 January, 2014, they decide to share profit in the ratio 1:1:1. The partnership deed
provided that in the event of any change in profit sharing ratio, the goodwill should be
valued at three years purchase of the average of five years, profits. The profit and losses
of the preceding five years are
Profit
2009
Rs 1, 20,000
2010
RS 3, 00,000
2011
Rs 3, 40,000
2012
Rs 3, 80,000
Loss
2013
Rs 1,40,000
Give Single Journal Entry
Hint – Amrit capital A/c
To Anita’s capital A/c
Dr
1, 00,000
1, 00,000
28
Q2.)Akansha, Amit and Shalu are partner sharing profits in the ratio of 5:3:2. On 1 April
2014 they decided to share the profits in the ratio of 2:2:1. On that date, following balance
were appearing in the balance sheet.
Profit and loss (Cr)
General reserve
Deferred revenue expenditure
Rs 1, 5000
Rs 5, 000
Rs 1, 000
Pass single journal entry.
Q3.)Sanjeev, Mohan and Ashish are partner sharing profits and losses in the ratio 2:3:4. They
decided to share future profits and losses in the ratio of 4:3:2. They also decided to record the
effect of the following without affecting their books values.
General reserve
Rs 80, 000
Profit and loss account
Rs 40, 000
Advertisements suspense account Rs 30, 000
You are required to give the necessary single journal entry.
6 marks
Q4). X, Y & Z are partners sharing profit and losses in the ratio of 7:5:4. Their balance
sheet as at 31st March 2014 stood as:
Liabilities
Capital A/c
X
4,20,000
Y
3,00,000
Z 2,40,000
General Reserve
P & L A/C
Creditors
Rs.
9,60,000
1,30,000
50,000
2,60,000
14,00,000
Assets
Sundry Assets
Rs.
14,00,000
14,00,000
Partners decided that with effect from 1st April 2014 that will share profit and loss in the ratio
of 3:2:1 for this purpose goodwill of the firm was valued at Rs. 3,00,000. The partners
neither want to record the goodwill nor want to distribute the general reserve and profit.
Pass a Single Journal Entry to record the change and prepare the revised Balance Sheet.
Hint: Dr X by 30,000 Y 10,000 Cr. Z 40,000
29
CHAPTER-4
ADMISSION OF PARTNER
Learning Objectives
 Admission of Partner
 Effects of Admission of Partner
 Rights of a new Partner
 Meaning and Calculation of New Profit –Sharing Ratio
 Meaning and Calculation of Sacrificing Ratio
 Accounting Treatment of Goodwill as per Accounting Standard 26
 Revaluation of Assets and Reassessment of liabilities
 Accounting treatment of Reserves and Accumulated Profits/losses
 Adjustment of capital
Admission of Partner:
Meaning:According to the provisions of Partnership Act 1932 unless it is otherwise provided in the
partnership deed a new partner can be admitted only when the existing partners
unanimously agree for it.
Effects of Admission of Partner:
The effect of admission of a new partner on the firm is that there is a change in the
relations of the partners and reconstitution of the partnership firm.
Rights of a new Partner:
(i)
Right of sharing the assets of the firm.
(ii)
Right of sharing in the future profits of the firm.
Position of a new Partner:
Under Section 31 of Indian Partnership Act, position of a new partner will be as under: (i)
He is not liable to pay any debts of the firm incurred before the admission, (ii) He cannot
be held responsible for the acts of the old partners.
Meaning and Calculation of New Profit –Sharing Ratio
New Profit-Sharing ratio is the ratio in which all partners, including new or incoming
partner, share future profits and losses of the firm.
New or Incoming partner may acquire his share from old partners in any of the following
alternatives:
i.
In their old profit-sharing ratio.
ii.
In a particular ratio or surrendered ratio
iii.
In a particular fraction from some of the partners.
30
Meaning and Calculation of Sacrificing Ratio:
Sacrificing ratio is the ratio in which the old partners agree to sacrifice their shares of
profit in favor of the new partner.
Sacrificing Ratio = Old Ratio – New Ratio
Accounting Treatment of Goodwill as per Accounting Standard 26:
Goodwill should be recorded in the books only when consideration in money or money's
worth has been paid for it, i.e. goodwill is purchased.. Goodwill, should not be raised in
the books of the firm. If any partner brings any premium over and above his capital
contribution at the time of his admission, such premium should be distributed among the
existing partners in their sacrificing ratios.
Calculation of Hidden Goodwill:
When the value of the goodwill of the firm is not specifically given, the value of goodwill
has to be inferred on the basis of the Net Worth of the firm as follows:
Particulars
Net Worth (including goodwill) on the basis of capital brought in by Incoming
Partner (Incoming Partner's Capital x Reciprocal of Share Incoming Partner)
Less: Net Worth (excluding goodwill) of the reconstituted firm (including Incoming
Partner's Capital)
Value of Goodwill (A-B)
Rs.
xxx
xxx
xxx
Net Worth = Sundry Assets – Outsiders' liabilities
Or = Capitals of Partners + Net accumulated Profits & Reserves (if any)
Revaluation of Assets and Reassessment of liabilities
It is debited by decrease in the value of assets and increase in the amount of liabilities
and credited by the increase in the value of assets or decrease in the amount of liabilities.
Accounting treatment of Reserves and Accumulated Profits/losses:
Before the admission of a new partner, there is balance in Reserve and Accumulated
Profits/Losses in the Balance Sheet, they are transferred to Old Partner's Capital Accounts in
their old profit-sharing ratio.
QUESTIONS: 1 MARK
1. State any one of the rights that the newly admitted partner acquires in the firm.
2. How is a new partner admitted to a firm?
Ans: A new partner is admitted according to terms of the agreement between the new
partner and the old partners.
3. A and B are partners sharing profits in the ratio of 5:4. They admit C for 1/9th share
which he acquires from A. find the new profit sharing ratio.
4. State the meaning of sacrificing ratio.
5. How is sacrificing ratio calculated?
31
6. Why are assets revalued at the time of admission of a partner?
PRACTICAL PROBLEMS: (3 MARKS)
7. A, B and C were partners in a firm sharing profits in 3:2:1. They admitted D for 10%
profits. Calculate the new profit sharing ratio. ( Ans: 9:6:3:2).
8. X and Y are partners sharing profits in 5:3 ratio admitted Z for 1/10th share which he
acquired equally for X and Y. Calculate new profit sharing ratio.(Ans. 23:13:4).
9. Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted
Gopi as a new partner. Radha surrendered 1/3rd of her share in favour of Gopi and
Rukmani surrendered 1/4th of her share in favour of Gopi. Calculate new profit
sharing ratio.(Ans. 4:3:3)
10. X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z
for 1/8th share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his 1/8th share
of goodwill. Show necessary journal entries in the books of X, Y and Z.(Ans. 4:3)
11. Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3.
On 1st January, 2014 they admitted Om as a new partner. On the date of Om’s
admission, the Balance Sheet of Leela and Meeta showed a balance of Rs. 16,000 in
general reserve and Rs. 24,000 (Cr.) in Profit and Loss Account. Record necessary
Journal entries for the treatment of these items on Om’s admission. The new profit
sharing ratio between Leela, Meeta and Om was 5:3:2.
12. Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On
1.1.2014 they admitted Ranjan as a partner. On Ranjan’s admission, the Profit and
Loss Account of Amit and Vinay showed a debit balance of Rs. 40,000. Record
necessary Journal entry for the treatment of the same.
13. A and B are partners in a firm sharing profits in the ratio of 3:2. They admit C into
partnership for 1/5th share of profits in the firm. The goodwill of the firm is valued at
Rs. 1,00,000. He is unable to bring in his share of goodwill. What will be the journal
entries?
Solution: Goodwill of the firm = Rs 1,00,000
C’s share of goodwill = 1,00,000 X 1/5 = Rs. 20,000
JOURNAL
Date
Particulars
C’s Capital A/c
Dr.
To A’s Capital A/c
To B’s Capital A/c
L.F. Dr.(Rs.) Cr.(Rs.)
20,000
12,000
8,000
8 MARKS
14. (Value Based) Karan and Jitendra are Partners in a firm. They share Profit and losses
in the ratio of 2:1. Since both of them are specially abled, sometimes they find it
difficult to run the business are their own. Leena, a common friend decides to help
them. Therefore, they admitted her into partnership for a 1/3rd share. She brought her
32
share of goodwill in cash and proportionate capital. At the time of leena’s admission
the balance sheet of karan and Jitender was as under:
Liabilities
Capital
Karan
2,40,000
Jitender
1,60,000
General Reserve
Creditor
Employees Provident
fund
Amount (Rs.)
4,00,000
60,000
60,000
80,000
Assets
Machinery
Furniture
Stock
Sundry Debtors
Bank
Cash
6,00,000
Amount (Rs.)
2,40,000
1,60,000
1,00,000
60,000
20,000
20,000
6,00,000
It was decided to :
(i)
Reduce the value of stock by 10,000.
(ii)
Depreciate furniture by 10% and appreciated machinery by 5%.
(iii) Rs. 6,000 of Debtors proved bad. A provision of 5% was to be created on Sundry
debtors for Doubtful Debts.
(iv)
Goodwill of the firm was valued at Rs. 90,000.
Prepare Revaluation A/c, Partner’s capital A/c and Balance Sheet. Identify the value being
conveyed in the question. (Ans. Revaluation Loss 22,700; Capital: Leena = 2,33,650;
Balance Sheet Total=8,40,950).
15. A and B share profits of a business in the ratio of 5:3. They admit C into the firm for
a fourth share in the profits to be contributed equally by A and B. on the date of
admission, the Balance Sheet of A & B is as follows:
BALANCE SHEET AS AT MARCH 31 2014
Liabilities
Amount (Rs.)
Assets
Amount (Rs.)
A’s Capital
B’s Capital
Reserve Fund
Bank Loan
Creditors
60,000
40,000
8,000
24,000
4,000
1,36,000
Machinery
Furniture
Stock
Debtors
Cash
52,000
36,000
20,000
16,000
12,000
1,36,000
Terms of C’s admission were as follows:
(i)
C will bring Rs. 50,000 his capital.
(ii)
Goodwill of the firm is to be valued at 4 years’ purchase of the average
super profits of the last three years. Average profits of the last three years
are Rs. 40,000; while the normal profits that can be earned the capital
employed are Rs. 24,000.
(iii) Furniture is to be appreciated to 24,000 and the value of stock to be
reduced by 20%.
33
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance
Sheet of the firm after admission of N.
(Ans. Revaluation Profit = 8,000; Capital A/c A = Rs.7,800; B =
Rs.5,400; C = Rs. 3,400)
16. P and Q are partners in a firm sharing profits and losses in the ratio of 7:3. Their
Balance Sheet as at 31st March 2014 is as follows:
Liabilities
Amount(Rs)
Asset
Amount(Rs.)
Creditors
Reserve
Capital A/c
Rajat
50,000
Ravi
40,000
30,000
5,000
Cash in Hand
Cash at Bank
Debtors
Furniture
Stock
18,000
45,000
22,000
15,000
25,000
90,000
1,25,000
1,25,000
On 1st April,2014, they admit R on the following terms:
(i)
Goodwill is valued at Rs. 20,000 and R is to bring in the necessary
amount in cash as premium for goodwill and Rs. 30,000 as capital for 1/4th
share in profits.
(ii)
Stock is to be reduced by 40% and furniture is to be made by cash.
(iii) Capitals of the partners shall be proportionate to their Profit Sharing Ratio
taking R’s capital as base. Adjustments of capitals to be made by cash.
Prepare Revaluation Account, Partners’ Capital Accounts and Cash
Account and Balance Sheet. (Ans. Revaluation Loss = 19,000; Cash A/c =
62,000)
17. Abhay and Beena are partners in a firm. They admit Chetan as a partner with 1/4th
share in the profits of the firm. Chetan brings Rs.40,000 as his share of capital. The
value of the total assets of the firm is 1,08,000 and outside liabilities are valued at
20,000 on that date. Give necessary enty to record goodwill at the time of Chetan’s
admission. Also show your working notes. (Firms Goodwill = 32,000)
18. P and Q were partners sharing profits in the ratio of 3:2. Their balance sheet on
March 31st 2014 are as follows:
Liabilities
Amount (Rs.)
Assets
Amount (Rs.)
Creditors
Bills Payable
Bank overdraft
Reserve
P’s Capital
Q’s Capital
20,000
3,000
17,000
15,000
70,000
60,000
Cash
Debtors
20,500
Less: Provision for bad
debts
300
Stock
Plant
Buildings
Motor Vehicles
14,800
20,200
20,000
40,000
70,000
20,000
34
1,85,000
1,85,000
They agreed to admit Mishra for 1/4th share from 1.4.2014 subject to the following
terms:
(a) P to bring in capital equal to 1/4th of the total capital of P and Q after all
adjustments including premium for goodwill.
(b) Buildings to be appreciated by Rs. 14,000 and stock to be depreciated by Rs.
6,000.
(c) Provision for Bad debts on Debtors to be raised to Rs. 1,000.
(d) A provision be made for Rs. 1,800 for outstanding legal charges.
(e) P’s share of goodwill/premium was calculated at Rs. 10,000.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new
firm on R’s admission.
Solution:
Revaluation A/c
Dr.
Particulars
To Stock A/c
To provision for
Legal Charges A/c
To Provision for
Doubtful Debts A/c
ToProfittransferred to
Capitals:
P
3,300
Q
2,200
Cr.
Rs.
6,000
1,800
Particulars
By Buildings A/c
Rs.
14,000
700
5,500
14000
14,000
Partner’s Capital A/c
Dr.
Particulars
To balance c/d
Cr.
P
88,300
88,300
Q
72,200
72,200
R
40,125
40,125
Particulars
By Balance
b/d
By Cash
By Premium
for Goodwill
A/c
By
Revaluation
A/c
By Reserves
P
Q
R
70,000 60,000
40,125
6,000
3,300
9,000
4,000
2,200
6,000
88,300 72,200 40,125
35
Balance Sheet
As on April1, 2014
Dr.
Liabilities
Bills Payables
Creditors
Provision for Legal
Expenses
Bank Overdraft
Capital Accounts
P
88,300
Q
72,200
R
40,125
Cr.
Rs.
3,000
20,000
Particulars
Cash in Hand
Debtors
20,500
Less:ProvforDoubtful
debts
1,000
Stock
Motor Vehicles
Plant
Buildings
1,800
17,000
Rs.
64,925
19,500
14,000
20,000
40,000
84,000
2,00,625
242,425
242,425
Working Notes:
(i)
Calculation of Mishra’s Capital:
Sum of capitals of Jain and Gupta Rs. 88,300+Rs. 72,200=Rs. 1,60,500
Mishra’s capital = ¼(1,60,500) = Rs. 40,125
(ii)
Cash Account = Opening Balance + Goodwill + Mishra’s Capital
= 14,800+10,000+40,125=Rs. 64,925
19. On 31.3.14, the Balance sheet of W and R sho shared profits in 3:2 ratio was as
follows:
Liabilities
Amount
Assets
Amount
Creditors
Profit and loss A/c
Capital Accounts:
W
80,000
R
60,000
40,000
30,000
Cash
SundryDebtors 40,000
Less: Provision
14,00
Stock
Plant and Machinery
Patents
10,000
1,40,000
2,10,000
38,600
50,000
70,000
41,400
2,10,000
On this date, B was admitted as a partner on the following conditions:
(a) B will get 4/15th share of profits.
(b) B had to bring Rs. 60,000 as his capital to which amount other partners
capitals shall have to be adjusted.
(c) He would pay cash for his share fo goodwill which would be based on 2
1/2years purchase of average profits of past 4 years.
(d) The assets woul be revalued as under:
Sundry debtros at book value less 5% provision for bad debts. Stock at Rs.
40,000, plant and Machindery at Rs. 80,000.
36
(e) The profits of the firm for the years 2011, 2012, 2013 were Rs. 40,000, 28,000
and Rs. 34,000 respectively.
Prepare Revaluation A/c, Partner’s Capital A/c and the Balance Sheet of the
new firm.
Solution:
Revaluation A/c
Dr.
Particulars
To prov. For Bad
debts A/c
To Stock A/c
Amount
Particulars
600
By Plant and
Machinery A/c
BY Capitals A/c
W
360
R
240
10,000
Cr.
Amount
10,000
600
10,600
10,600
Partner’s Capital A/c
Dr.
Particula
rs
To Rev.
A/c
To Bal.
c/d
To Cash
To Bal.
c/d
W
R
B
Particulars
W
360
240
110840
8056
0
60000
111200
8080
0
1456
0
6600
0
60000
By Balance
b/d
80000
BY Cash
A/c
18000
By P&L
13200
A/c
By Prem for
G/w
111200
60000
By Balance
b/d
8056
0
60000
11840
99000
110840
R
Cr.
B
60000
60000
12000
8800
80800
60000
110840
80560
60000
110840
80560
60000
37
Balance Sheet
As on 31st March 2014
Liabilities
Amount
Assets
Amount
Creditors
Capitals
W
99,000
R
66,000
B
60,000
40,000
Cash
SundryDebtors40,000
Less: Prov.
2,000
Stock
Plant and Machinery
Patents
65,600
2,25,000
2,65,000
38,000
40,000
80,000
41,400
2,65,000
Working Notes:
(i)
Let total profit = 1
B’s share = 4/15
Remaining profit = 1 – 4/15 = 11/15
W’s share = 11/15X3/5 = 33/75
R’s share = 11/15X2/5 = 22/75
B’s share = 4/15=20/75
New profit sharing ratio of W, R and B
= 33/75: 22/75:20/75
= 33:22:20
(ii)
Year
2011
2012
2013
2014
(iii)
(iv)
Profit
40,000
28,000
34,000
30,000
_______
Total
1,32,000
_______
Average Profit = 1,32,000/4
= 33,000
Goodwill = Average Profit X Number of Years Purchase
= 33,000 X 5/2
= 82,500
B’s capital for 4/15th share = Rs. 60,000
Total capital of firm 60,000 X 15/4 = 2,25,000
2,25,000-60,000 = 1,65,000
38
W’s capital = 1,65,000 X 3/5 = 99,000
R’s capital = 1,65,000 x 2/5 = 33,000
OR
Distribute 2,25,000 in 33:22:20.
20. X and Y were partners in a firm sharing profits in 5:3 ratio. They admitted Z as a
new partner for 1/3rd share in the profits. Z was to contribute Rs. 20,000 as his
capital. The Balance Sheet of X and Y on 1.4.2014 the date of Z’s admission was as
follows:
Liabilities
Creditors
Capitals:
X
50,000
Y
35,000
General Reserve
Amount
27,000
85,000
16,000
1,28,000
Assets
Land and Building
Plant and
Machinery
Stocks
Debtors
20,000
Less:Prov.
1,500
Investments
Cash
Amount
25,000
30,000
15,000
18,500
20,000
19,500
1,28,000
Other terms agreed upon were:
(i)
Goodwill of the firm was valued at Rs. 12,000.
(ii)
Land and Building were to be valued at Rs. 35,000 and Plant and
Machinery at Rs. 25,000.
(iii) The provision for doubtful debts was found to be in excess by Rs. 400.
(iv)
A liability for Rs. 1,000 included in sundry creditors was not likely to
arise.
(v)
The capitals of the partners be adjusted on the basis of Z’s contribution of
capital in the firm.
(vi)
Excess or shortfall if any to be transferred to accounts. Prepare
Revaluation Account, Partners’ Capital Accounts and the Balance sheet of
the new firm.
39
CHAPTER-5
RETIREMENT AND DEATH OF A PARTNER
LEARNING OBJECTIVES
 Meaning of Retirement of a Partner
 New Profit sharing ratio after retirement/death
 Gaining ratio of remaining partners
 Adjustment of Goodwill
 Revaluation of Assets and Liabilities
 Adjustment of Accumulated Profits and Losses
 Computation of amount due to retiring partner
 Adjustment of Capital Accounts of the remaining partners in New Profit-sharing ratio
 Death of partner
 Preparation of Deceased Partner’s Capital Account and Executor’s Account
Meaning of Retirement of a Partner:
Retirement of a partner is one of the modes of reconstituting the firm under which an
old partnership comes to an end and a new one between the continuing partners '(I,e,
partners other than the outgoing partner) comes into existence. However, the firm
continues its business.
New Profit sharing ratio after retirement/death:
New profit sharing ratio is the ratio in which the remaining partner will share future
profits after the retirement or death of any partner.
New Share = Old share + Gaining share.
Gaining ratio of remaining partners:
Gaining ratio is the ratio in which the continuing partners have acquired the share
from the retiring deceased partner.
Gaining ratio = New ratio – Old Ratio
The basic rule is that gaining partner shard compensate the sacrificing partner to the
extent of their gain for the respective share of goodwill.
Adjustment of Goodwill:
If goodwill already appears in the books, it will be written off by debiting all partner’s
capital account in their old profit sharing ratio.
All Partners' Capital A/c
To outgoing Partner's Capital A/c
Give credit for outgoing partners' (i.e. retiring/deceased partner) share of goodwill to
outgoing partner. Following entry is passed.:
40
Continuing Partners' Capital Current A/c …. Dr.
ratio]
To Outgoing Partner's Capital/Current A/c
[In gaining
Revaluation of Assets and Liabilities:
Revaluation of Assets and Liabilities: At the time of retirement/death of a partner,
there may be some assets which may not have been shown at their current values.
Adjustment of Accumulated Profits and Losses
The reserves (Accumulated profits) or losses belong to all the partners and should be
transferred to capital account of all partners on retirement.
Computation of amount due to retiring partner
Retiring partner/deceased partner may be paid in one lump sum or installments with
interest.

Adjustment of Capital Accounts of the remaining partners in New Profit-sharing
ratio
Death of partner
At the time of retirement/death of a partner, the remaining partner may decide to keep
their capital contributions in their profit sharing ratio.
Preparation of Deceased Partner’s Capital Account and Executor’s Account
QUESTIONS: (1 MARK)
1.
2.
3.
4.
5.
6.
What is meant by retirement of a partner?
Define gaining ratio.
How is gaining ratio calculated?
When is Partner’s Executors Account prepared?
Why is gaining ratio calculated?
A, B and C are partners sharing profits in the ratio of 3:2:1. B retires and the new
profit sharing ratio between A and C is 3:1. State the gaining ratio.
7. State the need for treatment of Goodwill on retirement of a partner.
8. P, Q and R were partners in a firm sharing profits in the ratio of 5:4:3. Their capitals
were Rs. 40,000, Rs. 50,000 and Rs. 1,00,000 respectively. State the ratio in which
the goodwill of the firm amounting to Rs. 1,20,000 will be adjusted on the retirement
of R.
9. Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 4:3:2.
Mohan retired, his share was taken over equally by Ram and Sohan. In which ratio
41
will the profit or loss on revaluation of assets and liabilities on the retirement of
Mohan be transferred to the capital account of the partners?
10. State any two deductions that may have to be made from the amount payable to the
legal representatives of a deceased partner.
11. What are the different ways in which a partner can retire from the firm?
12. Distinguish between Sacrificing Ratio and Gaining ratio.
13. Write the various matters that need adjustments at the time of retirement of a partner.
PRACTICAL PROBLEMS (6 OR 8 MARKS)
1. R, S and M were carrying on business in partnership sharing profits in the ratio of
3:2:1, respectively. On March 31, 2009, Balance Sheet of the firm stood as follows:
Balance Sheet as on March 31, 2009
Liabilities
Creditors
Capitals:
R
40,000
S
15,000
M
25,000
Amount
32,000
80,000
1,12,000
Assets
Building
Debtors
Stock
Patents
Bank
Amount
46,000
14,000
24,000
16,000
12,000
1,12,000
S retired on the above mentioned date on the following terms:
(a) Buildings to be appreciated by Rs. 14,000
(b) Provision for doubtful debts to be made @ 5% on debtors, stock is valued at Rs.
20,700.
(c) Goodwill of the firm to be valued at Rs. 18,000.
(d) Rs. 10,000 to be paid to S immediately.
Prepare Revaluation A/c, Partner’s Capital A/c and Balance Sheet.
(Ans. Revaluation A/c = 10,000, R’s capital A/c = Rs.40,500, M’s Capital A/c = Rs.
15,167, S’s capital A/c = Rs.24.333)
2. Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha
retires and goodwill of the firm is valued at Rs. 1,80,000. Aparna and Sonia decided
to share future in the ratio of 3:2. Pass necessary Journal entries.
Journal
Aparna’s Capital A/c
Dr.
18,000
Sonia’s Capital A/c
Dr.
42,000
To Manisha’s Capital A/c
60,000
(Goodwill credited to Manisha’s capital and debited to continuing partners’ capitals in
the gaining ratio)
(3)
3. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of
3:2:1 on March 31, 2007, Naman retires
The various assets and liabilities of the firm on the date were as follows:
Cash Rs. 10,000, Building Rs. 1,00,000, Plant and Machinery Rs. 40,000, Stock Rs.
20,000, Debtors Rs. 20,000 and Investments Rs. 30,000.
42
The following was agreed upon between the partners on Naman’s retirement:
(i)
Building to be appreciated by 20%.
(ii)
Plant and Machinery to be depreciated by 10%.
(iii)
A provision of 5% on debtors to be created for bad and doubtful debts.
(iv)
Stock was to be valued at Rs.18,000 and Investment at Rs. 35,000.
Record the necessary Journal entries to the above effect and prepare the
revaluation account.
(Ans. Revaluation A/c = Rs. 18,000)
4. Radha, Sheela and Meena were in partnership sharing profits and losses in the
proportion of 3:2:1. On april 1, 2013, Sheela retires from the firm. On that date, their
Balance Sheet was as follows:
Liabilities
Creditors
Bills Payable
Expenses Owing
General Reserve
Capitals:
Radha
15,000
Sheela
15,000
Meena
15,000
Amount
3,000
4,500
4,500
13,500
Assets
Cash in Hand
Cash at Bank
Debtors
Stock
Factory Premises
Machinery
Loose Tools
Amount
1,500
7,500
15,000
12,000
22,500
8,000
4,000
45,000
70,500
70,500
The terms were:
(a) Goodwill of the firm was valued at Rs. 13,000.
(b) Expenses owing to be brought down to Rs. 3,750.
(c) Machinery and Loose Tools are to be valued at 10% less than their book value.
(d) Factory premises are to be revalued at Rs. 24,300.
Prepare :
1. Revaluation account.
2. Partner’s capital accounts and
3. Balance Sheet of the firm after retirement of Sheela.
5. Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3:2:1. Naresh
retired from the firm due to his illness. On that date the Balance sheet of the firm was
as follows:
Balance sheet as on March 31st 2013
Liabilities
General Reserve
Sundry Creditors
Bills Payable
Outstanding Salary
Amount
12,000
15,000
12,000
2,200
Assets
Bank
Debtors
6,000
Less: Provision for
D.debts
4,00
Amount
7,600
5,600
9,000
43
Provision for legal damages 6,000
Capitals
Pankaj
46,000
Naresh
30,000
Saurabh
20,000
96,000
1,43,200
Stock
Furniture
Premises
41,000
80,000
1,43,200
Additional Information:
(i)
Premises have appreciated by 20% ,Stock depreciated by 10% and provision for
doubtful debts was to be made 5% on debtors. Further, provision for legal
damages is to be made for Rs. 1,200 and furniture to be brought up to Rs. 45,000.
(ii)
Goodwill of the firm be valued at RS. 42,000.
(iii) Rs.26,000 from Naresh’s Capital Account be transferred to his loan account and
balance be paid through bank; if required, necessary loan may be obtained from
bank.
(iv)
New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.
Give the necessary ledger accounts and Balance Sheet of the firm after Naresh’s
retirement.
(Ans. Revaluation A/c – Rs. 18,000; Balance Sheet – 1,54,000)
6. Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion
of ½, 1/6 and 1/3 respectively. The Balance Sheet on april 1, 2013 was as follows:
Liabilities
Bills Payable
Sundry creditors
Reserves
Capital Accounts
Narang
30,000
Suri
30,000
Bajaj
28,000
Amount
12,000
18,000
12,000
88,000
1,30,000
Assets
Freehold Premises
Machinery
Furniture
Stock
Sundry Debtor20,000
Less:Provision
1,000
Cash
Amount
40,000
30,000
12,000
22,000
19,000
7,000
1,30,000
Bajaj retires from the business and the partners agree to the following:
(a) Freehold premises and stock are to be appreciated by 20% and 15%
respectively.
(b) Machinery and furniture are to be depreciated by 10% and 7% respectively.
(c) Bad debts reserve is to be increased to Rs. 1,500.
(d) Goodwill is valued at Rs. 21,000 on Bajaj’s retirement.
(e) The continuing partners have decided to adjust their capitals in their new profit
sharing ratio after retirement of Bajaj. Surplus/deficit, if any, in their capital
accounts will be adjusted through current accounts.
Prepare necessary ledger accounts and draw the Balance Sheet of the
reconstituted firm.
(Ans. Revaluation A/c – Rs. 6,960, B/s total – Rs. 1,51,960)
44
7. The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in
proportion to their capitals stood as on March 31, 2013
Liabilities
Bills Payable
Sundry Creditors
Reserve Fund
Capital Accounts:
Rajesh
20,000
Pramod
Nishant
15,000
Amount
6,250
10,000
2,750
15,000 50,000
Assets
Factory Building
Debtors
10,500
Less: Reserve
500
Bills Receivable
Stock
Plant and Machinery
Bank Balance
69,000
Amount
12,000
10,000
7,000
15,500
11,500
13,000
69,000
Pramod retires on the date of Balance Sheet and the following adjustments were
made:
(a) Stock was valued at 10% less than the book value.
(b) Factory buildings were appreciated by 12%.
(c) Reserve for doubtful debts be created up to 5%.
(d) Reserve for legal charges to be made at Rs. 265.
(e) The goodwill of the firm be fixed at Rs. 10,000.
(f) The capital of the new firm be fixed at Rs. 30,000. The continuing partners decide
to keep their capitals in the new profit sharing ratio of 3:2.
Pass Journal entries and prepare the Balance Sheet of the reconstituted firm after
transferring the balance in Pramod’s capital Account to his loan account. (Ans.
B/s Total = Rs. 65,220)
8. A, B and C are partners in a firm sharing profits and losses in the ratio of 3:2:1. Their
Balance Sheet as at 31st March, 2014 is
Liabilities
Creditors
Bills Payable
General Reserve
Capital A/cs
A
40,000
B
40,000
C
30,000
Amount
30,000
16,000
12,000
1,10,000
1,68,000
Assets
Cash in Hand
Debtors
25,000
Less: Provisio3,000
Stock
Furniture
Machinery
Goodwill
Amount
18,000
22,000
18,000
30,000
70,000
10,000
1,68,000
B retires on 1st April, 2014 on the following terms:
(a) Provision for Doubtful Debts be raised by Rs. 1,000.
(b) Stock to be depreciated by 10% and Furniture by 5%.
(c) There is an outstanding claim for damages of Rs. 1,100 and it is to be provided for.
(d) Creditors will be written back by Rs. 6,000.
(e) Goodwill of the firm is valued at Rs. 22,000.
45
(f) B is paid in full with the cash brought in by A and C in such a manner that their
capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at Rs.
10,000.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of A
and C.
(Profit on revaluation – Rs.600, Goodwill Dr. A – Rs. 5,500and C – Rs. 1,833; Cr. B
– 7,333, Balance Sheet Total- Rs. 1,45,700)
Death of a partner
 Competation of amount due to deceased partner
 Amount standing to the credit of the deceased partner’s capital account.
 His share of goodwill lf the firm.
 His share of prifit in revaluation of assets and reassessment of liabilities.
 His share of accumulated profit of reserve.
 Int. on capital upto date of his death, if allowed by the partnership deed.




Follow amounts are debited to his account
His share of loss on revaluation of the assets and reassessment of liabilities , if any
His share of accumulated losses
His drawings.
Int. on drawings.
Int. on drawings and his share of loss if any
Calculation of deceased partner’s share profit
According to profit basis
According to sales basis
1. A,B and C were partners in a firm. C died on 28th Feb 2014. His share of profit
from the closure of the last accounting year till the date of death was to be
calculated on the basis of the average profit of three complete years before death,
profit for 2011 2012 and 2013 were Rs. 1400 and Rs. 1600 and Rs. 1800
respectively.
Calculate C’s share of profit till his death.
Ans:- Average profit =
14,000 +16,000 +18,000
3
=48,000=16,000
3
2
Estimate profit till the date of death = 16,000 X 12 = 2666.66
C’s share of estimated profit = 2666.66 x
1
3
= 888.8
46
2. If profit till the date of death are to be ascertained
A B and sharing profit in the ratio of 2:2:1
B died on 31st March 2014,Accounting are closing on December sales for the
year 2013 amounted to Rs. 9,00,000 , sales of Rs. 3,00,000 amounted between the
period from 1 Jan 2014 to 31 March 2014. The profit for the year 2013 amounted
to Rs. 90,000.
Calculate deceased partner’s share in the Profit of the firm.
90,000
Solution:- % of profit to sale for the year 2013 = 9,00,000 X 100 = 10%
Profit up to death 10% of 3,00,000 i.e. 30,000
2
B’s share 30,000 X 5 = 12,000
Or
90,000
X 3,00,000 = 30,000
9,00,000
1 mark question
A B and C are partners sharing profit and losses in the ratio 2:2:1 . C died on 31st
March 2014 profit and sales for the calendar year 2013 were Rs. 3,00,000 and Rs.
30,00,000 respectively. Sales during Jan to March 2014 were 4,50,000. Calculate
share and profit of C up to date of death.
Hint:- C’s share 9,000.
4. D P and G were partner in a firm sharing profit and losses in the ratio of 5:3:2 . P
died on 31May 2013 his share of profit from the closure of the last accounting
year to the date of death , was to be calculated on the basis of the average of three
completed years of profit, before death, profit for the years ended 31stdec
2010,2011,2012 were Rs. 51,000 Rs. 45,000 and 39,000 respectively.
Calculate P’s share of profit.
Hint:- 5,625
3.
4 0r 3
5. P R and S are in partnership sharing profit 4:3:1, respectively. It provided in
the partnership deed that on the death of any partner his share of goodwill is
1
to be valued at 3 (one third) of the net profit credit to the account during the last
four completed years. R died on 1st Jan 2014.The firm profit for the four years
were as:2010 Rs. 2, 40,000 2014 Rs. 1, 60,000 2012 Rs. 80,000 2013 Rs. 1, 20,000.
(a) Determine the amount that should be Credited to R in respective of his share
of goodwill
(b) Pass Journal entry without goodwill A/C for its adjustment.
6. Ram and Shyam in partnership sharing profit and losses 3:2 .Shyam died three
months after the date of the last Balance Sheet. According to the partnership
deed, the legal personal representatives shyam are entitle to the following
payments.
(a) His Capital as per the last Balance sheet.
(b) Interest on above capital @ 10% till the date of death.
47
(c) His sharing of profit till the date of death. Calculate on the basis of last year’s
profits. His drawings are to bear Interest at an average rate of 6% on the
amount irrespective of the profit.
The Netr profit for the last three years after charging insurance premium were
Rs.60,000 , Rs. 75,000 and Rs. 90,000 respectively. Shyam’s Capital as per
Balance Sheet was Rs. 1,20,000 and his drawings till the date death were Rs.
15,000.
Draw Shyam’s Account to be rendered to his representatives.
(6)
7. K L and M are partners in firm sharing profits in the ratio of 1 : 1 ;3 respectively .
Their Capital Accounts showed for following balance on 31.3.2014 K Rs.
2,10,000 L Rs. 1,95,000 and M Rs. 6,30,000. From closes its accounts every year
on 31st March K died on 1 Aug 2014. In the event of death of any partner , the
partnership deed provides for the following:(a) Interest on capital will be calculated at the rate of 10% p.a.
(b) The deceased partner’s share in the goodwill of the firm will be calculated as
the basis of 2 years purchases of the average profit of last three years. The
profit of the firm for the last three years were Rs. 2,70,000Rs. 3,00,000 Rs.
3,30,000.
(c) His share in the reserve fund of the firm will be paid. The reserve fund of the
firm was Rs. 1,80,000 at the time of K’s death.
(d) His share of profit till the date of death will be calculated on the basis of sale.
It is also specified that the sales during the year 2013-14 were Rs. 60,00,000.
The sales from 1st April 2014 to 1st Aug 2014 were Rs. 1,20,000. The profit of
the firm for the year ending 31st March 2014 was Rs. 6,00,000 prepare K’s
Capital Account to be presented to this legal representatives.
(8) A B and C were partners in a firm sharing profit and losses equally,Their
Balance sheet on 31.12.2013.
Liabilities
Capital A 14,000
B 14,000
C 14,000
Rs.
Assets
Rs.
Plant and machinery
12,000
Stock
42,000
Debtors
6,000
19,000
6,000
Cash on Balance
8,000
4,000
Goodwill
7,000
52,000
52,000
B. Died on 14 March 2014. According to the partnership deed, executors of the deceased
partner are entitled to :(1) Balance of partner’s Capital account.
48
(2) Interest on Capital @5%p.a.
(3) share of goodwill calculated on the basis of twice the average of part three year’s profit
and
(4) share of profit from the c/o of the last accounting year till the date of death on the basisof
twice the average of three completed year’s profit before death. Profit for 2011,n 2012 and
2013 were Rs. 16,000 , Rs. 18,000, Rs. 20,000 respectively.
Pass the necessary Journal entries and prepare B’s capital Account to be rendered to his
executes.
49
CHAPTER-6
DISSOLUTION OF PARTNERSHIP FIRM
Learning Objectives
 Meaning of dissolution
 Dissolution of Partnership
 Dissolution of Firm
 Mode of dissolution of a firm.
 Settlement of Accounts in case of Dissolution of Firm
 Treatment of Firm’s Debts and Private Debts
 Accounting treatment on Dissolution
Meaning of dissolution:
The term 'Dissolution stands for discontinuation. Under The Indian PartnerShip Act. 1932,
the dissolution may be either of partnership or of a firm.
Dissolution of Partnership
Dissolution of Partnership means termination of the old partnership agreement and a
reconstitution of the firm due to admission, retirement or death of a partner.
Dissolution of Firm:
Dissolution of Partnership firm means that the firm close down its business activities assets
are sold out, liabilities are paid off, balance if any distributed among partners as cap.
Mode of dissolution of a firm.
(i)
Voluntary dissolution
(ii)
Compulsory dissolution
(iii) Dissolution by court
(iv)
Dissolution by notice.
Settlement of Accounts in case of Dissolution of Firm:
(i)
Realisation Account: The object of realization account is to close the books of
account of a dissolved firm and to compute the net effect of realization of various
assets and payments of various liabilities.
FORMAT OF REALISATION A/C
Dr.
Particulars
To Sundry Assets A/c ( excluding
cash, bank, fictitious assets,
accumulated losses, debit balance
of Partners’ capital/current a/c,
loans to partners)
To Provision on Any Liability A/c
To Bank/Cash A/c(amount paid
for discharging liabilities)
To Bank/Cash A/c (expenses on
Amount
_
_
_
_
Particulars
By Sundry liabilities A/c
(excluding partners’ capital,
loan from partners reserve,
accumulated profit etc.)
By Provision on Any Assets
A/c
By Bank/Cash A/c (amount
received on realization of
assets)
Cr.
Amount
_
_
_
_
_
50
realization)
To Partner’s Capital/Current
A/c(liability taken over by a
partner or
remuneration/commission paid to
him or any expenses beared by
him)
To Partners’ Capital/Current A/c
(profit on realization)
_
_
By Bank/Cash A/c (amount
received from unrecorded
_
assets)
BY Partner’s Capital A/c(assets
taken over by a partner
recorded or unrecorded)
By partner’s capital/Current
A/c (loss on realization)
TREATMENT OF REALISATION EXPENSES
(a) When Realisation expenses are paid by firm and borne by firm
Realisation A/c
Dr.
To Cash/Bank A/c
(Actual amount)
(b) When expenses are paid by any partner and borne by firm
Realisation A/c
Dr.
To Partners Capital A/c
(Actual amount)
(c) When expenses are paid by firm and borne by partner
Partners Capital A/c
Dr.
To Cash/Bank A/c
(Actual amount)
(d) When a partner is paid a fixed amount for the purpose of bearing realization expenses
and actual expenses are borne by partner
Realisation A/c
Dr.
To Partner’s Capital A/c
(amount fixed by firm)
(ii)
Partner Loan Account:
The loan advanced by a partner to the firm shall be paid off after all the outside
liabilities are paid in full.
Journal Entry
Partner’s Loan A/c
Dr.
To Bank A/c
(iii)
Partner’s Capital Accounts:
Balances of partners’ capital account and current account are recorded in this
account.
Any asset of firm, taken over by the partner is recorded on the debit side of their
capital account and any liability taken over is recorded on the credit side of their
capital account.
(iv)
CALCULATION OF MISSING FIGURES BY PREPARATION OF
MEMORANDUM BALANCE SHEET:
When Balance sheet is not given but some items of Balance sheet are given then students
should prepare Balance sheet with the help of given items and find out the missing figures as
Balancing amount.
51
For eg. If liabilities and Capital A/C s are given then the value of assets could be found out as
balancing figure.
TREATMENT OF CERTAIN OF SPECIFIC ITEMS
 Deferred Revenue Expenditure/P&L A/c loss/Advertisement
Expenditure – transferred to the Dr. side of Partner’s capital a/c in
profit sharing ratio.
 Partner’s current a/c – Transferred to Dr. side of Capital A/c if given in
the assets side. Transferred to Cr. Side of capital A/c if given in the
liabilities side.
 P&L A/c (profit), General Reserve – transferred to Cr. Side of Capital
A/c in profit sharing ratio.
 Joint Policy Reserve A/c, Investment Fluctuation Fund, Plant and
Machinery replacement reserve, Reserve for discount on Creditors – If
Joint policy, investment, plant and machinery,creditors appears in the
B/s then these items will be transferred to Realisation A/c otherwise
these items will be transferred to Cr. Side of capital A/cs in profit
sharing ratio.
 Provident fund – It is a liability towards the workers, so it will be
transferred to the Realisation Account and its payment will be made.
Treatment of Firm’s Debts and Private Debts:

Application of Firm's Property: Firm's property shall be applied first in payment
of firm's debts then the surplus, (if any), shall be applied in the payment of partner's
private debts to the extent to which the concerned partner is entitled to share in the
surplus.

Application of Partner's Pvt Property: Partner's private property shall be applied
first in payment of his private debts and the surplus, (if any), in payment of firm's
debts if the firm's liabilities exceed the form's assets.
QUESTIONS: (1 MARK)
1. What is meant by Dissolution of firm?
2. Give any one difference between Reconstitution of firm and dissolution of firm
3. What is Realisation A/c?
4. Difference between firm's debts and private debts?
52
5. Difference revaluation a/c and realization a/c?
6. A and B are partners in a firm sharing profit in the ratio 3:2. Mrs A has given a loan
of Rs. 10,000 to the firm and the firm also obtains a loan of Rs. 5,000 from B. the
firm was dissolved and its assets were realized for Rs. 12,500. State the order of
payment of Mrs. A loan and B’s loan with reason if there were no creditors of firm.
Ans. According to sec 48, of the Indian Partnership Act, 1932, MrsA loan of Rs.
10,000 will be paid first and after that B’s loan will be paid upto the available cash
Rs. 2,500.
7. In case of dissolution of firm which liabilities are to be paid first?
Ans. In case of dissolution of firm the debt of the firm to the third party (outsiders)
are to be paid first.
8. In case of dissolution of a firm which item on the liabilities side are to be paid last?
Ans. Payment of the capital a/cs of partners i.e. settlement of capital a/cs of the
partners which are left after transferring losses profit, reserve and effecting entry
relating to dissolution.
9. When an assets are taken over by partner, why is his capital a/c dr.?
Ans.Because the claim of capital a/c is reduced by the value of that assets.
10. When a liability is to be discharged by a partner, why is his capital a/c credited?
Ans. Because the claim of the partner against the firm is increased by the amount of
liability assumed.
(3 MARKS)
11. (FOR BRIGHT STUDENTS) The firm of Ram and Mohan was dissolved on 1st
March 2014. According to the agreement Ram had agreed to undertake the dissolution
work for an agreed remuneration of Rs. 4,000 and bear all realization expenses.
Dissolution expenses were Rs. 3,000 and the same were paid by the firm. Pass the
necessary journal entry for the payment of dissolution expenses.
Ans. (1) Realisation expenses a/c Dr.
To Ram’s Capital A/c
(2) Ram’s Capital A/c
To Cash A/c
4,000
4,000
Dr.
3,000
3,000
12. Give any four points of difference between Dissolution of Partnership and Dissolution
of firm.
PRACTICAL PROBLEMS:
53
13. (FOR BRIGHT STUDENTS) The amount of sundry assets transferred to Realisation
A/c was Rs. 80,000, 60% of them have been sold at a profit of Rs. 2,000. 20% of the
remaining were sold at a discount of 30% and remaining were taken over by Z ( a
partner) at book value. Journalise.
Ans.(HINT ; Bank A/c
Dr.
54,480
To Realisation A/c
54,480
Z’s Capital A/c
Dr.
25,600
To Realisation A/c
25,600)
14. Record the necessary Journal entry
(a) Creditors worth Rs. 85,000 accepted Rs. 40,000 as cash and investments worth
Rs. 43,000, in full settlement of their claim.
(b) Creditors were worth Rs. 16,000. They accepted machinery valued at Rs.
18,000 in settlement of their claim.
(c) Creditors were worth Rs. 90,000. They accepted buildings valued at Rs.
1,20,000 and paid cash to the firm Rs. 30,000.
Ans.
(a) Realisation A/c
To Cash A/c
(b) No entry
(c) Cash A/c
To Realisation A/c
JOURNAL
Dr.
40,000
40,000
Dr.
30,000
30,000
(6 MARKS)
15. Pass the journal entry for the following transactions of Aakash and Prakash after the
various assets other than cash and outside liabilities have been transferred to
Realisation A/c
(a) Bank loan Rs. 2,40,000 was paid.
(b) Stock worth Rs. 3,20,000 was taken over by Partner Prakash.
(c) Partner Aakash paid a creditor Rs. 80,000.
(d) An Asset not appearing in the books of accounts realized Rs. 2,40,000.
(e) Expenses of RealisationRs. 40,000 were paid by partner Prakash.
(f) Profit of realization Rs. 7,20,000 were distributed between partners in 5:4.
16. Pass the necessary journal entry for the following transaction on the dissolution of the
firm of Sheena and Meena after the various assets other then cash and outside
liabilities have been transferred to Realisation A/c
(a) Sheena agreed to pay off her husband’s loan Rs. 3,80,000.
(b) A debtor whose debt of Rs. 18,000 was written off in his books was paid Rs.
15,000 in full settlement.
(c) Meena took over all investment at Rs. 2,66,000.
(d) Sundry creditors Rs. 2,00,000 were paid at 9% discount.
(e) Realisation expenses Rs. 34,000 was paid by Sheena for which she was
allowed Rs. 30,000.
(f) Loss on realization Rs. 94,000 was divided between Sheena and Meena in 3:2.
54
(hint. (e) Realisation A/c
Dr.
To Sheena’s capital A/c
30,000
30,000)
17. (for bright students) Record the necessary journal entries for the following
unrecorded assets and liabilities of Paras and Priya.
(a) There was an old furniture in the firm which had been written off completely
in the books. This was sold for Rs. 30,000
(b) Ashok an old customer whose account for Rs. 10,000 was written off as bad in
the previous year paid 60% of the amount.
(c) Paras agreed to take over the firm’s goodwill (not recorded in the books) as a
valuation of Rs. 3,00,000.
(d) There was an old typewriter which had been written off completely from the
books. It was estimated to realize Rs. 40,000. It was taken away by Priya at an
estimated price less 25%.
(e) There was 1,000 shares of Rs. 10 each in Star Ltd. Acquired at a cost of Rs.
20,000 which had been written off completely from the books. These shares
are valued at Rs. 6 each and divided among the partners in their profit –
sharing ratio.
(f) Priya took over the stock cost Rs.80,000 at Rs. 60,000.
(8 MARKS)
18. A and B were partners in a firm sharing profit in the ratio of 3:5 on 31st March 2014
there balance sheet was as follows:
liabilities
Amount
Assets
Amount
Capital
A
6,00,000
B
10,00,000
Creditors
Employees Provident
Fund
16,00,000
3,58,000
Land & Building
Machinery
Debtors
Cash at Bank
8,00,000
6,00,00
4,44,000
1,56,000
42,000
20,00,000
20,00,000
The firm was dissolved on 1st April 2014 and the Assets and liabilities were
follows:
(a) Land and building realized Rs. 8,60,000.
(b) Debtors realized Rs. 4,50,000 ( with interest) and Rs. 2,000 were
recovered for bad debts written off last year.
(c) There was an unrecorded investment which was sold for Rs. 50,000.
(d) B took over machinery at Rs.. 5,60,000 for cash.
(e) 50% of the creditors were paid Rs. 8,000 less in full settlement and the
remaining creditors were paid full amount.
Prepare Realisation A/c, Capital A/cs and Balance Sheet.
(Hint.Realisation Profit – Rs. 43,000)
55
19. P, Q and R were partners in a firm sharing profits and losses in the ratio of 5:3:2.
They agreed to dissolve thir partnership firm on 31st March 2014. P was deputed to
realize the assets and pay the liabilities. He was paid Rs. 2,000 as commission for his
services. The financial position of the firm was as follows:
Balance Sheet
As on 31st March, 2014
liabilities
Amount
Assets
Amount
Creditors
Bills Payable
Investment Fluctuation
Fund
Capitals:
P
75,000
Q
30,000
20,000
7,400
9,000
1,05,000
Plant and Machinery
Stock
Investments
Accounts Receivable
14,200
Less:
9,00
Cash
R’s Capital
1,41,500
60,000
10,100
30,000
13,300
11,200
16,000
20,00,000
P took over investments for Rs. 25,000. Stock and debtors were realized Rs.
23,000. Plant and Machinery were sold to Q for Rs. 45,000 for cash. Unrecorded
assets realized for Rs. 3,000. Reaisation expenses paid Rs. 1,800.
Prepare necessary Ledger Accounts to close the books of the firm.
(Ans. Loss on Realisation – Rs. 13,100)
20. (for bright students) K,P and A decided to dissolve their partnership on 31st march
2014. Their profit sharing ratio was 3:2:1 and their balance sheet was as under
Balance Sheet
As at 31st March 2014
liabilities
Amount
Assets
Amount
Capital
Karan
80,000
Parkash
40,000
Bank Loan
Sundry Creditors
Provision for Doubtful
debts
General Reserve
1,20,000
20,000
37,000
1,200
12,000
1,90,200
Land and Building
Stock
Sundry Debtors
A’s capital
Cash
81,000
56,760
18,600
23,000
10,840
1,90,200
The stock of value of Rs. 41,600 are taken over by Karan for Rs. 35,000 and he
agreed to discharge bank loan. The remaining stock was sold at Rs. 14,000 and
debtors amounting to Rs. 10,000 realisedRs. 8,000. Land is sold for Rs. 1,10,000.
The remaining debtors realized 50% at their book value. Cost of realization
56
amounted to Rs. 1,200. There was a typewriter not recorded in the books worth
Rs. 6,000, which were taken over by one of the creditors at this value. Prepare
realization account, partner’s capital account and cash account.
(Hint: Profit on Realisation- Rs. 20,940, Total of Cash Account – Rs. 1,64,650)
21. Ram, Mohan and Sohan are partners sharing their profits and losses in the ratio of
5:3:2. On 31st March 2014, Ram’s capital and Mohan’s Capital were Rs. 1,80,000
and Rs. 1,20,000 respectively. But Sohan owed Rs. 30,000 owed Rs. 30,000 to the
firm. The Creditors were of Rs. 1,20,000. The assets realized Rs. 3,00,000.
Prepare Realisation Account, Partner’s Capital Accounts and Bank Account.
Solution:
Dr.
REALISATION ACCOUNT
PARTICULARS
Amount
PARTICULARS
To Sundry Assets A/c
(W/N)
To Bank A/c – Creditors
3,90,000
1,20,000
Cr.
Amount
By Creditors
By Bank A/c – Assets
Realised
BY Loss tr. To
Ram’s Capital A/c
45,000
Mohan’s Capital A/c
27,000
Sohan’s Capital A/c
18,000
1,20,000
3,00,000
90,000
5,10,000
Dr.
PARTI Ram
CULAR Rs.
S
To bal.
b/d
To real.
A/c
(loss)
To
Bank
A/c
(amount
paid)
5,10,000
PARTNER’S CAPITAL ACCOUNT
Moha Soha PARTIC
Ram
Moha
n
n
ULARS
RS
n
Rs.
Rs.
Rs.
----45,00
0
----27,00
0
13500
0
93000
18000
0
12000
0
3000
0
1800
0
-----
4800
0
By bal.
c/d
By Bank
A/c
(Amount
received)
Cr.
Soha
n
Rs.
18000
0
12000
0
----4800
0
18000
0
12000
0
48,00
0
57
BANK ACCOUNT
Dr.
PARTICULARS
To Realisation A/c –
Assets realized
To Sohan’s capital A/c –
amount received
Amount
PARTICULARS
3,00,000
By Realisation A/c –
Creditors
By Ram’s Capital A/c –
Amount paid
By Mohan’s Capital A/c –
Amount paid
48,000
3,48,000
1,20,000
3,00,000
4,20,000
1,20,000
1,35,000
93,000
3,48,000
WORKING NOTE:
Dr.
MEMORANDUM BALANCE SHEET
LIABILITIES
Amount
ASSETS
Creditors
Capital A/cs
Ram
1,80,000
Mohan
1,20,000
Cr.
Amount
Sohan’s Capital
Sundry Assets (B.f.)
Cr.
Amount
30,000
3,90,000
4,20,000
22. A and B were partners from 1st April 2014 with capitals of Rs. 600,000 and Rs.
400,000 respectively. They shared profits in the ratio of 3:2. They carried on business
for two years. In the first year ended 31st March, 2013,they earned a profit of Rs.
500,000 but in the second year ended 31st March 2014 a loss of Rs. 200,000 was
incurred . As the business was no longer profitable, they dissolved the firm on 31st
March, 2014, creditors on that date were Rs. 20,0000. The partners withdrew for
personal use Rs. 80,000 per partner per year. The assets realisedRs. 1,00,0000. The
expenses of realization were Rs. 30,000.
Prepare Realisation Account, Partner’s Capital Account and Cash Account.
(Ans. Realisation loss – Rs. 2,10,000, Sundry Assets – Rs. 1,18,000)
58
CHAPTER - 7
SHARE CAPITAL
ACCOUNTING FOR SHARE CAPITAL
LEARNING OBJECTIVES
 Meaning of a company
 Meaning of Share capital
 Classification of share capital
 Types of shares
 Issue of shares
 Private placement of shares.
 Understand the meaning of forfeiture of shares.
 forfeiture and reissue of shares.
 Differentiate between capital reserve and reserve capital
 Understand the disclosure of the share capital in the balance sheet.
Meaning of a company:
A Company is an organization formed by an association of persons through a process
of law for undertaking a business venture under companies Act 1956.
Meaning of Share capital:
Share Capital is the amount invested by owners(share holders) of the company in
small units.
Classification of share capital:
i.
ii.
iii.
iv.
v.
Authorised Share capital – maximum capital that a company can raise.
Issued share capital – issued by company for subscription.
Subscribed share capital – part of issued share capital that is subscribed by public.
Called up amount – amount of nominal value called up for payment.
Paid up amount – amount received by company.
Types of shares:
Share: A share is one of the units into which the capital of the company is divided.
Types:
i.
Preference Share:
ii.
Equity Share: An equity share is a share which is not a preference share.
Issue of shares:
At par: When they are issued at a price equal to the face value.
At premium: When they are issued at a price higher than the face value.
 Securities Premium Reserve – Can be utilized for the following purposes:
 Issuing fully paid bonus shares.
 Writing off preliminary expenses.
 Writing off expeses such as share issue expenses, commission, discount allowed etc.
59


Providing for premium payable on redemption of debentures or Preference shares.
In buying back its own shares.
At discount: When they are issued at a price lower than the face value.
 Shares cannot be issued at discount of more than 10% of the face value except with
the permission of the central government.
Issue of shares for consideration other than cash-When the company purchases some
assets or business, instead making the payment to the supplier in the form of cash, it issues its
fully paid shares, such issue of share is called as the issue of shares for consideration other
than cash. Such shares can be issued at par, premium or at discount.
Example: X ltd purchased machinery from Y ltd. Rs. 4,95,000 payable 20% in cash and the
balance by the issue of fully paid equity shares of 100 each at par.
Solution:
Machinery A/c
Dr.
To Y ltd.
(Being purchase of machinery from vendor)
4,95,000
Y ltd.
99,000
Dr.
4,95,000
To Cash A/c
(Being 20% paid in cash)
Y ltd
Dr.
To Equity share capital
(Being 3,600 shares issue to vendor at par)
99,000
3,96,000
3,96,000
Oversubscription of Shares – means shares applied for are more than shares offered for
subscription.
Pro-rata allotment – means allotment of shares in some fixed proportion.
Undersubscription of shares – means shares applied for are less than the shares offered for
subscription.
Call – instalment demanded by company out of nominal amount.
Calls-in-arrear - is the amount not yet received by the company against the calls or call
demand.
Calls-in-advance – is the amount received by the company from its allottee against the calls
not yet made.
Forfeiture of shares – means cancellation of shares and forfeiting the amount received
against the share.
Re – issue of forfeited shares – can be re-issued.
60
If the shares are reissued at a price lower than its face value the maximum discount that the
company may allow is
When shares were originally issued at par or premium – the amount credited to forfeited
shares account.
When shares were originally issued at a discount – the amount credited to Forfeited account +
amount of original discount.
Private placement of shares- refers to issue and allotment of shares to a selected group of
persons.
Differentiate between capital reserve and reserve capital - Reserve capital – a part of
subscribed share capital that a company resolves, by a special resolution, not to call, except in
the event and for the purpose of company being wound up.
Capital Reserve – it is a reserve created out of capital profits.
Understand the disclosure of the share capital in the balance sheet.
1. Kanha Ltd. Was registered with an authorized capital of Rs. 2,00,000 divided
into 2,00,000 Equity Shares of Rs. 100 each. The company offered for public
subscription 1,20,000 Equity Shares. Applications for 1,12,000 shares were
received and allotment was made to all the applicants. All the calls were made
and were duly received except the second and final call of Rs. 20 per share on
1,400 shares. Prepare Balance Sheet of the company showing all different
types of share capital.
Solution:
BALANCE SHEET OF KANHA LTD. As at
Particulars
I EQUITY AND LIABILITIES
Shareholders’ Funds
Share Capital
II ASSETS
Current assets
Cash and Cash Equivalents
Notes to Accounts
1. Share Capital
Authorised Share Capital
1,00,000 Equity Shares of Rs. 100 each
Issued Share Capital
60,000 Equity Shares of Rs. 100 each
Note Rs.
no.
1
11,172,000
2
11,172,000
2,00,000
120,00,000
61
Subscribed Share Capital
Subscribed and Fully Paid-up
55,300 Shares of Rs. 100 each
Subscribed but not fully paid-up
700 Shares of Rs. 100 each
Less: Calls-in Arrears
11,060,000
1,40,000
28,000
2. Cash and Cash Equivalents: Cash at Bank
1,12,000
55,86,000
11,172,000
QUESTIONS (1 MARK)
2. What are preference shares?
Ans. Shares which enjoy some preferential rights over equity shares like
receipt of dividend, payment at the time of winding up etc.
3. What is meant by Share capital?
4. What is meant by Reserve Capital?
5. What is meant by Private Placement of shares?
6. What is under-subscription?
7. What is over-subscription?
8. Vani ltd invited applications for issuing 1,00,000, 10% Preference Shares of
Rs. 100 each. Applications were received for 85,000 shares. What will be the
consequences?
Ans. The company will refund the application money as minimum
subscription is not received.
9. What is meant by pro-rata allotment of shares?
10. State any two conditions for the issue of shares at discount.
Ans. (a) if they are of class already issued.
(a) company should have commenced its business one year before.
11. What are calls- in- arrear?
12. What are calls- in- advance?
13. What is meant by forfeiture of shares?
14. What is meant by Capital Reserve?
15. What is meant by issue of shares for consideration other than cash?
Ans. When company issue shares not for cash but for assets or service
acquired, it is called issue of shares for consideration other than cash. Eg. For
purchase of machinery etc.
16. Distinguish between over-subscription and under-subscription.
17. State the purposes for which balance to the credit of securities premium can be
utilized.
PRACTICAL PROBLEMS: (4 MARKS)
18. The authorized capital of Vandana is Rs. 90,00,000 divided into 60,000 shares
of Rs.150 each. Out of these company issued Rs. 30,000 shares of Rs. 150
each at a premium of Rs. 10 per share. The amount was payable as follows:
62
Rs. 50 per share on application, Rs. 40 per share on allotment (including
premium), Rs. 30 per share on first call and balance on final call. Public
applied for 28,000 shares. All the money was duly received.
Prepare an extract of Balance Sheet of Vandan Ltd. As per revised Schedule
VI, Part – I of the Companies Act 1956 disclosing the above information.
Also prepare “Notes to Accounts” for the same.
3 Marks
19. Suri Ltd. Was registered with an authorized capital of Rs. 100,00,000 divided
into Equity Shares of Rs. 10 each. The company offered for public
subscription Rs. 50,00,000 shares. Public applied for Rs. 45,00,000 shares and
allotment was made to all the applicants. All the calls were made and were
duly received except the final call of Rs. 2 per share on 500 shares.
Prepare the Balance Sheet of the company showing the different types of
Share capital.
(3 MARKS)
20. Sharma ltd. Purchased assets of Rs. 12,60,000 from Veer Ltd. sharma ltd
issued equity shares of Rs. 100 each fully paid in consideration. What journal
entries will be made, if the shares are issued (i) at par (ii) at discount of 10%
and (iii) at premium of 20%.
21. Z ltd. Purchased furniture costing Rs. 44,000 from CD Ltd. The payment was
to be made by issuing of 9% preference share of Rs. 100 each at a premium of
Rs. 10 per share. Pass necessary journal entries in the books of Z Ltd.
22. Shyam Ltd. Purchased Machinery for Rs. 6,00,000 from Mohan Ltd. Of Rs.
2,00,000 were paid by drawing a promissory note in favour of Mohan ltd. The
balance was paid by issue of equity shares of Rs. 10 each at a premium of
25%.
23. Rashi ltd issued 5,000 shares of Rs. 10 each credited as fully paid to the
promoters for their services and issued 4,000 shares of Rs. 10 each credited as
fully paid to the underwriters for their services. Journalise these transactions.
24. A company issued 60,000 fully paid-up shares of Rs. 100 each for purchase of
the following assets and liabilities from Mehra& co.
Land and Building
24,00,000
Stock – in – trade
18,00,000
Machinery
14,00,000
Sundry creditors
4,00,000
You are required to pass necessary journal entries.
(Ans. Goodwill – 8,00,000)
25. A company purchased a running business form XYZ for a sum of Rs. 7,50,000
payable Rs. 6,00,000 in fully paid shares of Rs. 10 each and balance through
cheque.
The assets and liabilities consisted of the following:
63
Plant and Machinery Rs. 2,00,000 Stock Rs. 2,00,000 Building
Rs.
2,00,000
Cash
Rs. 1,50,000 Debtors Rs. 1,50,000 Creditors
Rs.
1,00,000
(Ans. Capital reserve – Rs. 50,000)
26. The Directors of a company forfeited 300 shares of Rs. 10 each issued at a
premium of Rs. 3 per share, for the non-payment of the first call money of Rs.
3 per share. The final call of Rs. 2 per share has not been made. Half the
forfeited shares were reissued at Rs. 1,500 fully paid. Record the Journal
entries for the forfeited shares and reissue of shares.
Solution:
JOURNAL
Particulars
L.F. Amt.(Dr.) Amt.(Dr.)
Share Capital a/c (600X8)Dr.
To Share Forfeiture A/c (600X5)
To Share First Call A/c (600X3)
(Being 600 shares forfeited for the nonpayment of allotment of Rs. 3 each)
2,400
Bank A/c (150X10)Dr..
To Share capital A/c
(Being reissue of 600 shares at Rs. 3,000 as
fully paid up)
1500
Share Forfeiture A/c
Dr.
To Capital Reserve A/c
(Being balance of forfeited share account
transferred to capital reserve)
750
1,500
9,00
1500
750
Amount of half forfeited shares = 1500 X 150/300 = 750
27. BS ltd forfeited 500 shares of Rs. 100 each for the non-payment of first call of
Rs. 30 per share. The final call of Rs. 10 per share was not yet made. The
forfeited shares were reissued for Rs. 65,000 fully paid up. Pass necessary
journal entries for the books of the company.
Solution:
JOURNAL
Particulars
L.F. Amt.(Dr.)
Amt.(Dr.)
Share Capital a/c (500X90) Dr.
To Share Forfeiture A/c (500X6)
To Share First Call A/c (500X30)
45,000
30,000
64
(Being 500 shares forfeited for the nonpayment of allotment of Rs. 30 each)
15,000
Bank A/c
Dr.
To Share capital A/c(500X100)
To Securities Premium A/c(B.f.)
(Being reissue of 500 shares at Rs. 65,000
as fully paid up)
65,000
Share Forfeiture A/c
Dr.
To Capital Reserve A/c
(Being balance of forfeited share account
transferred to capital reserve)
30,000
50,000
15,000
30,000
28. Poonam Ltd. Forfeited 200, 8% preference shares of Rs. 100 each issued at a
discount of 10%, for the non-payment of the first call money of Rs. 20 each.
The second and final call of Rs. 20 per share has not yet been made. The
forfeited shares were reissued at Rs. 22,000 fully paid-up. Pass necessary
journal entries for the forfeited shares and reissue of shares.
Solution:
JOURNAL
Particulars
L. Amt.(D Amt.(Dr
F. r.)
.)
8% Preference Share Capital A/c
To share forfeiture A/c
To Discount on Issue of Shares
A/c
To 8% Preference Share First
Call A/c
(Being 200 8% preference shares forfeited
shares)
Bank A/c
To 8% Preference Share Capital
A/c
To Securities Premium A/c
(Being reissue of 200 8% preference
shares at Rs. 22,000 as fully paid-up)
16,000
Share Forfeiture A/c
To Capital Reserve A/c
10,000
Dr.
10,000
2,000
4,000
22,000
20,000
2,000
65
(Being balance of forfeited share account
transferred to capital reserve)
10,000
29. Samta ltd. Forfeited 800 equity shares of Rs. 100 each for the non-payment of
first call Rs. 30 per share. The final call of Rs. 20 per share was not yet made.
Out of the forfeited shares 400 were reissued at the rate of Rs. 105 per share
fully paid-up
Pass necessary journal entries in the books of samtaltd for the above
transactions.
(Capital reserve = Rs. 20,000)
30. Veenu ltd. Company which had issued equity shares of Rs. 20 each at discount
of Rs. 4 per share. Forfeited 1,000 shares for non-payment of final call of Rs.
4 per share. 400 of the forfeited shares are reissued at Rs. 14 per share, out the
remaining shares 200 shares were reissued at Rs. 20 per share. Give journal
entries for the forfeiture and reissue of shares and show the amount transferred
to capital reserve and the balance in share forfeiture account.
(Ans. Capital reserve = 6,400)
31. Journalise the following transactions in the books of Sharma ltd.
(i)
400 shares of Rs. 100 each issued at a discount of Rs. 10 per share
were forfeited for the non-payment of allotment money of Rs. 50 per
share. The first and final call of Rs. 20 per share on these share were
not made. The forfeited share were reissued at Rs. 70 per share as
fully paid-up.
(ii)
300 shares of Rs.. 10 each issued at a premium of Rs. 4 per share
payable with allotment were forfeited for non-payment of allotment
money of Rs. 8 per share including premium. The first and final call of
Rs. 4 per share were not made. The forfeited share were reissued at Rs.
15 per share fully paid-up.
(iii) 200 share of Rs. 50 each issued at par were forfeited for non-payment
of final call of Rs. 10 per share. These shares were reissued at Rs. 45
per share fully paid-up.
Solution:
JOURNAL
Case (i)
Particulars
Share Capital a/c
Dr.
To Share Allotment A/c
To Share Forfeiture A/c
To Discount on Issue of Shares A/c
L.F.
Amt.(Dr.)
Amt.(Dr.)
32,000
20,000
8,000
66
(Being 200 shares forfeited for the nonpayment of allotment of Rs. 50 each)
Bank A/c (400X70)
Dr.Discount on Issue of Shares
A/C(400X10) Dr.
Share Forfeiture A/c (400x20)
To Share capital A/c
4,000
28,000
4,000
8,000
Dr.
40,000
(Being reissue of 400 shares at Rs.70 per
share as fully paid up)
Note : There will be no capital reserve in
case (i) as full amount transferred to
forfeiture account is adjusted on reissue.
Case (ii)
JOURNAL
Particulars
L. Amt.(D
F. r.)
Share Capital a/c (300 X 6)
Dr.
Securities Premium A/c (300 X 4) Dr.
To Share Forfeiture A/c (300 x2)
To
Share Allotment Call A/c(300x8) (Being
300 shares forfeited for the non-payment of
allotment of Rs. 8 each including premium
of Rs. 4)
1,800
1,200
BankA/c (300X15)Dr
To Share capital A/c
(Being reissue of 300 shares at Rs. 15 as
fully paid up)
4,500
Share Forfeiture A/c
Dr.
To Capital Reserve A/c
(Being balance of forfeited share account
transferred to capital reserve)
600
Amt.(
Dr.)
600
2400
4,500
600
67
Case (iii)
Particulars
JOURNAL
L.F.
Amt.(Dr.)
Share Capital A/c (200X50)Dr.
To Share Final Call A/c
To Share Forfeiture A/c
(Being 200 shares forfeited for the nonpayment of final call)
10,000
Bank A/c (200X45)
Dr.
Share forfeiture a/c (200X5)
To Share capital A/c (200X50)
(Being reissue of 400 shares at Rs. 45 as
fully paid up)
9,000
1,000
Share Forfeiture A/c
Dr.
To Capital Reserve A/c
(Being balance of forfeited share account
transferred to capital reserve)
7000
Amt.(Dr.)
2,000
8,000
10,000
7000
32. Nisha ltd issued 5,000 equity shares of Rs. 100 each at 10% discount. The net
amount payable as follows:
On application Rs. 20, on allotment Rs. 30 (40-10), on first call Rs. 30 and on
final call Rs. 10. A shareholder holding 100 shares did not pay final call. His
shares were forfeited.
Out of these 75 shares were reissued to Mr. Amit at Rs. 75 per share. Give
journal entries
in the books of the company.
(Ans. Capital Reserve = 4,875)
(8 marks)
33. (Bright) Mona Ltd. Invited applications for 2,000 equity shares of Rs. 100
each, payable as follows Rs. 25 on application, Rs. 40 on allotment, Rs. 35 on
first and final call.
Applications were received for 2,500 shares. It was decided to allot the shares
as under
W, who applied for 500 shares was allotted 300 shares.
X, who applied for 1,200 shares, was allotted 1,000 shares.
Y, who applied for 800 shares, was allotted 700 shares.
All money was received except from X who did not pay anything after
application. Journalise.
Solution:
JOURNAL
68
Particulars
L.F. Amt.(Dr.)
Bank A/c
Dr.
To Equity Share Application A/c
(Being money received on application for 2,500
shares at Rs. 25 per share)
Equity Share Application A/c
Dr.
To Equity Share Capital A/c
To Equity Share Allotment A/c
(Being application money adjusted)
Equity Share Allotment A/c Dr.
To Equity Share capital A/c
(Being allotment money due on 2,000 shares at
Rs. 40 per share)
Bank A/c (80,000 – 12,500 – 35,000)
Dr.
To Equity Share Allotment A/c
(Being money received on share allotment except
surplus application money and amount not
received by X)
Equity Share First and Final Call A/c
Dr.
To Equity Share Capital A/c
(Being amount due on first and final call on 2,000
shares at Rs. 35 per share)
Bank a/c
Dr.
To Equity Share First and Final Call
A/c
(Being money received on first and final call
except 1,000 shares of X)
Amt.(Dr.)
62,500
62,500
62,500
60,000
2,500
80,000
80,000
32,500
32,500
70,000
70,000
35,000
35,000
Shares to be issued - 2000 shares
Rs. 100 – Rs.25 - application
Rs. 40 – allotment
Rs. 35 – First and Final call
Applied
500
Allotted
300
1200
1000
69
800
700
2,500
2,000
Money not received from X
Excess application money received from X = (1200 -1000) X 25 = 5000
Money due on allotment = 1000 X 40 = 40,000
Money not received = 40,000 – 5,000 = 35,000
34. Alpha ltd. Issued 25,000 shares of Rs. 10 each at a premium of Rs. 2 per share
payable as Rs. 3 on application, Rs. 5 including premium on allotment and
balance in equal instalments over two calls. Applications were received for
46,000 shares and the allotment was done as under
(i)
(ii)
(iii)
Applications of 20,000 shares – allotted 15,000 shares
Applications of 20,000 shares – allotted 10,000 shares
Applications of 6,000 shares – Nil
Mukesh who had applied for 1,000 shares category (a) did not pay any money
other than application money. Chander who was allotted 400 shares in
category (b) paid the call money due along with allotment.
All other allottees paid their dues as per schedule.
Pass necessary journal entries in the books of alpha ltd. For the above
transactions.
Solution:
Solution:
Particulars
JOURNAL
L.F. Amt.(Dr.)
Bank A/c
Dr.
To Share Application A/c
(Being share application money received on
46,000)
Share Application A/c
Dr.
To Share Capital A/c
To Share Allotment A/c
To Bank A/c
(Being share application money transferred)
Share Allotment A/c
Dr.
To Share Capital A/c
Amt.(Dr.)
2,400
1,500
9,00
1,38,000
75,000
45,000
18,000
1,25,000
75,000
70
To securities Premium A/c
(Being allotment money due)
BankA/c(12,5000-4,5000=8,0000-3,000=
77,000 +16,00)Dr.
To Equity Share Allotment A/c
To Calls-in-advance a/c
(Being allotment money received and callsin-advance on 800 shares @ Rs. 4 per
share).
Share First call A/c
Dr.
To Share capital A/c
(Being first call money due)
Bank A/c
Dr.
Calls-in-advance A/c
To Share First Call A/c
(Being first call money received )
Share Final Call A/c
Dr.
To Share Capital A/c
(Being final call money due)
Bank A/c
Dr.
Calls-in-advance A/c
Dr.
To Share Final Call A/c
(Being final call money received)
50,000
78,600
77,000
1,600
50,000
50,000
47,700
800
48,500
50,0000
50,000
47,700
800
48,500
Shares issued
25,000
Nominal value – Rs. 10 + 2 – Rs. 3 on application
- Rs. 3 + 2 on allotment
- Rs. 2 on first call
- Rs. 2 on final call
Applied
(i)
(ii)
(iii)
20,000
20,000
6,000
46,000
Allotted
15,000
10,000
Nil
25,000
Money not received from Mukeshand advance received from Chander
Applied
Allotted
Mukesh
Chander
1000
800
750 (15,000/20,000)X1000
400(20,000/10,000X800)
71
Money not received from Mukesh
Excess application money (1000 X 3 – 750 X 3) = 750
Due on Allotment (750 X 5) = 3,750
Less : Excess
= 750
Money not received (Call-in-arrear) = 3,000
Calls – in – advance = 400 X 4 = 1,600
35. Max Ltd. Issued 1,00,000 shares of Rs. 10 each at a premium of Rs. 2 per
share payable as Rs. 3 on application, Rs. 5 including premium on allotment
and the balance in equal instalments over two calls, applications were
received for 92,000 shares and the allotment was done as under:
A. Applicants of 80,000 shares – Allotted 60,000 shares
B. Applicants of 80,000 shares – allotted 40,000 shares
c. Applicants of 24,000 shares – Nil
Suresh, who had applied for 4,000 shares (Category A) did not pay any money
other than application money.
Chander, who was allotted 1,600 shares (Category B) paid the call money due
alongwith allotment.
All other allottees paid their dues as per schedule.
Pass necessary journal entries in the books of Max Ltd to record the above.
36. Z ltd. Issued 1,00,000 shares of Rs. 10 each at a premium of Rs. 2 per share
payable as follows:
Rs. 3 on application;
Rs. 6 on allotment ( including premium) and
Rs. 3 on call.
Applications were received for 1,50,000 shares and a pro-rata allotment was
made as follows:
To the applicants of 80,000 shares, 60,000 shares were issued and for the rest
40,000 shares were issued. All money due was received except the allotment
and call money from Ram who had applied for 2,400 shares (out of the group
of 80,000 shares). All his shares were forfeited. The forfeited shares were
reissued for Rs. 7 per share fully paid-up.
Pass necessary Journal entries for the above transactions.
(Capital Reserve = Rs. 1,800)
37. P ltd. Invited applications for issuing 20,000 Equity Shares of Rs. 100 each at
a discount of 6%. The amount was payable as follows:
On application – Rs. 20 per share
On allotment – Rs. 44 per share and the balance on first and final call.
Applications for 26,000 shares were received. Applications for 1,000 shares
were rejected and pro rata allotment was made to the remaining applicants.
Over payments received on application were adjusted towards sums due on
allotment. All calls were made and were duly received except Kanwar who
had applied for 500 shares failed to pay allotment and call money. His shares
were forfeited. The forfeited shares were reissued at Rs. 44,000 fully paid-up.
Pass necessary Journal entries in the books of the company.
(Capital reserve = 10,000)
72
CHAPTER 8
COMPANY ACCOUNTS:-(ISSUE OF DEBENTURES)
Learning Objectives






Meaning of Debenture and Bonds
Issue of Debentures for cash
Issue of debentures at Par, Premium and at discount
Issue of debentures for consideration other than cash
Issue of debentures as collateral security
Accounting entries for interest on debentures
Meaning of Debenture and Bonds
Debenture is a written instrument acknowledging a debt under the common seal of the
company.
According to Section 2(12) of the Companies Act, 1956 Debenture includes Debenture Stock,
Bonds and any other securities of a company whether constituting a charge on the assets of
the company or not.
The return on debentures is called interest on Debentures.
The debentures are generally secured and carry a fixed or floating charge over the assets of
the company.
Bond is similar to debentures in terms of contents and texture. The only difference is with
respect of issue condition i.e. bonds can be issued without predetermined rate of interest as in
case of deep discount bonds.
Issue of Debentures
The debentures may be issued for
(i)
For cash
(ii)
Consideration other than cash – Debentures can be issued to vendors against the
purchase of assets or for purchase of business.
Question: Pass Journal entries for the following transactions:
Y ltd. Purchased plant and machinery for Rs. 4,00,000 payable as to Rs.100,000 in cash and
the balance by an issue of 6% Debentures of Rs. 100 each.
Solution:
Particulars
Lf
Dr.
Cr.
73
Plant and Machinery A/c
Dr.
To Vendor’s A/c
(Being the assets purchased from Vendor)
Vendor’s A/c
Dr.
To Cash A/c
To 6% Debentures A/c
(Being cash paid to vendor and balance issue of
debentures @ Rs.100 each)
4,00,000
4,00,000
4,00,000
1,00,000
3,00,000
Debentures whether issued for cash or otherwise may be issue
(i)
At par – nominal value
(ii)
At premium - When a debenture is issued at price higher than its nominal value
then it is known as Premium on issue of debentures.
(iii) At discount - When a debenture is issued at a price below its nominal value, it is
known as discount on issue of debentures.
Issue of debentures as collateral security
Any security in addition to primary security is called collateral security. Debentures are
normally issued as collateral security when the borrower is not able to mortgage an asset as
collateral security. The holder of debenture as a collateral security is not entitled to interest
on debentures. But if the company fails to repay loan, the lender may exercise its rights and
claim the rights of a debentureholder.
Question: Pass the necessary Journal entry when 5,000 debenture of Rs. 100 each are issued
as collateral security against a bank loan of Rs. 4,00,000.
Ans. Debenture Suspense A/c
Dr.
5,00,000
To Debentures A/c
5,00,000
(Being issue of 5,000 debentures of Rs. 100 each as collateral security against the
bank loan of Rs. 4,00,000)
QUESTIONS (1 MARKS)
1. What is meant by a debenture?
Ans: Debenture is a written instrument acknowledging a debt under the common
seal of the company.
2. Why would an investor prefer to invest in a company’s debenture than a share?
Ans. Because there is an assured annual return in Debentures.
3. Why would an investor prefer to invest in acompany’s share than a debenture?
Ans. Because of the benefit from higher dividend income.
4. What do you mean by an Irredeemable Debenture?
Ans. It Means a debenture whose date of redemption is not specified at the time of
issue of debenture.
74
5. State the meaning of secured debenture.
Ans: Secured Debenture are the debenture which are the issued by the security of
the assets of company for payment.
6. What is the nature of interest on Debenture?
Ans. A charge to P&L A/c – Nominal A/c.
3 MARKS
7. X ltd issued 15,000 9% debenture of Rs. 100 each on 1st April 2014 redeemable at
a premium of 8% after 10 years. According to the term of prospectus Rs. 40 is
payable on application and balance on allotment of debenture.
8.
Record necessary entries regarding issue of Debentures.
Bank A/c(1500x40)
To Debenture Application A/c
Dr.
6,00,000
6,00,000
Debenture Applications a/c Dr.
To 9% Debenture Application A/c
6,00,000
Debenture allotment a/c(15,000 X 60)
Loss on Issue of Debentures a/c (15,000 X 8)
To 9% Debentures a/c
To Premium on redemption of debenturesa/c
9,00,000
1,20,000
Bank A/c
9,00,000
Dr.
6,00,000
9,00,000
1,20,000
To Debenture Allotment a/c
9,00,000
9. Z ltd issue 5,000 9% Debenture of Rs. 100 each on 1st April 2014 redeemable at
par.
Ans.
Bank A/c
Dr.
5,00,000
To Debenture Application & Allot A/c
5,00,000
Debenture Application& Allot a/c Dr.
To 9% debentures a/c
5,00,000
5,00,000
10. P ltd. Issued 3,000; 8% Debentures of Rs. 50 each at a discount of 8% redeemable
at par after 4 years.
Record necessary entries in the books of P ltd.
Bank A/c (3000 x46)
Dr.
To Debenture Application& Allot A/c
1,38,000
Debenture Application a/c Dr.
Discount on issue of debentures a/c
1,38,000
12,000
1,38,000
75
To Debentures a/c
1,50,000
11. Green ltd issued 80,000 9% Debentures of Rs 100 each at a premium of 5%
redeemable at par. Give Journal entry.
Bank A/c
Dr.
8,40,000
To Debenture Application& Allot A/c
8,40,000
Debenture Application & Allot A/c Dr.
8,40,000
To 9% Debentures a/c
To Security Premium a/c
8,00,000
40,000
12. Yellow ltd. Issued 90,000 9% Debentures, of Rs. 100 each at par repayable at 10%
premium, Pass journal entry.
Bank A/c
Dr.
90,00,000
To Debenture Application& Allot A/c
90,00,000
Debenture Application a/c Dr.
loss on issue of Allot debentures a/c
To 9% Debentures a/c
To Premium on Redemption
90,00,000
9,00,000
90,00,000
9,00,000
13. JB Ltd issued 10,000 8% Debenture at 10% discount and repayable at 15%
premium after 5 years.
Give journal entry in the books of JB Ltd.
Bank A/c
Dr.
To Debenture Application A/c
9,00,000
Debenture Application & Allot a/c Dr.
Discount on issue of debentures a/c
Loss on Issue of Debentures
Dr.
To 8% Debentures a/c
To Premium on redemption of
debentures a/c
9,00,000
1,00,000
1,50,000
9,00,000
10,00,000
1,50,000
14. Q ltd. Issued 4,000 9% debentures of Rs. 100 each issue at 10% premium and
repayable at 20% premium. Give journal entries.
Bank A/c
Dr.
To Debenture Application A/c
4,40,000
Debenture Application & Allot a/c Dr.
loss on issue of debenture
Dr.
To 9% Debentures a/c
To securities premium a/c
To Premium on redemption a/c
4,00,000
80,000
4,40,000
4,00,000
40,000
76
80,000
15. X ltd. Secured a loan of Rs. 1,60,000 from Bank of Baroda issuing 2,000; 9%
Debentures of Rs. 100 each as collateral security. How will you show issue of
debentures in the Balance Sheet and give journal entry if any.
FIRST METHOD
Particulars
I EQUITY AND LIABILITIES
Non-Current Liabilities
Long-term Borrowings
Note
No.
Rs.
1
1,60,000
Note to Accounts
Particulars
Rs.
Long-term Borrowings
Loan from Bank of Baroda
(Secured by issue of 2000 debentures of Rs. 100 each as
collateral security)
1,60,000
SECOND METHOD
Particulars
Dr. (Rs.)
Debenture Suspense a/c
Dr.
To 9% Debentures a/c
(Being the issue of 1,000 9% debentures of Rs. 100
each as collateral security for a loan from a bank as
per Boards Resolution No. …….. dated ……..)
2,00,000
Particulars
Cr. (Rs.)
2,00,000
Note
No.
Rs.
I EQUITY AND LIABILITIES
Non-Current Liabilities
77
Long-term Borrowings
Notes to Accounts
Particulars
Long-term Borrowings
Loan from Bank of Baroda
(Secured by issue of 2000 debentures of Rs. 100 each as
collateral security)
2,00,000
Less: Debenture suspens
2,00,000
1
1,60,000
Rs.
1,60,000
…………..
16. P ltd. Issued 10,000; 9% Debentures of Rs. 100 each at par and also raised a loan
of Rs. 1,60,000 from bank, collaterally secured by Rs. 2,00,000; 9% debentures.
How will be the Debentures shown in the balance sheet of the company assuming
that the company has passed.Journal entry for issue of Debentures as collateral
security in the books?
17. A limited company bought a Building for Rs. 18,00,000 and the consideration was
paid by issuing debentures at a discount of 10%. Give journal entries. (face value
Rs. 20,00,000)
18. Reliance ltd. Purchased machinery costing Rs. 2,70,000. It was agreed that the
purchase consideration be paid by issuing 9% debentures of Rs. 100 each.
Assume debentures have been issued (i) at par and (ii) at a discount of 10%. Give
necessary journal entries. (no. of debentures issued (i) 2700 (ii) 3,000)
19. Shyama ltd. Purchased Computers of Rs. 1,10,000 from M/s Computers. 50% of
the amount was paid to M/s Computers by accepting a Bill of Exchange and for
the balance the company issued 9% Debentures of rs. 100 each at a premium of
10% in favour of M/s Computers. Pass Journal entries in the books of Shyama ltd.
(Dr. Computers A/c and Cr. M/s Computers A/c By Rs. 1,10,000.
Dr. M/s computers A/c – Rs. 1,10,000; Cr. Bills Payable A/c – Rs. 55,000; 10%
Debentures A/c – Rs. 50,000 and Securities Premium Reserve A/c – RS. 5,000)
20. Z ltd. Purchased assets of the book value of Rs. 2,00,000 and took over the
liabilities of Rs. 25,000 from Verma Bros. it was agreed that the purchase
consideration, settled at Rs. 1,90,000, be paid by issuing debentures of Rs. 100
each.
What Journal entries will be made in the following three cases if debentures are
issued (i) at par (ii) at a discount of 10% and (iii) at apremium of 10%? It was
agreed that any fraction of debentures be paid in cash. (Goodwill Rs. 15,000 case
(i) 1,900 debentures of Rs. 100 each; case (ii) 2,111 debentures of Rs. 100 each
and paid cash Rs. 10 Case (iii) 2,727 debentures of Rs. 100 each and paid cash Rs.
30)
21. XYZ ltd. Took a loan of Rs. 10,00,000 from a bank giving Rs. 16,00,000; 9%
debentures as collateral security. Pass journal entries regarding issue of
debentures, if any, and show this loan in the Balance Sheet of the company.
78
22. Y ltd. Obtained a loan of Rs. 6,00,000 from IDBI Bank. The company issued
8,000; 9% Debentures of Rs. 100 each as a Collateral security for the same. Show
how these items will be presented in the Balance Sheet of the company.
23. What Journal entries will be made in the following cases:
(i)
A Co. issued 40,000; 12% debentures of Rs. 100 each at a premium of 5%
redeemable at par?
(ii)
A co. issued 40,000; 12% debentures of Rs. 100 each at a discount of 10%
redeemable at par?
(iii) A Co. issued 40,000; 12% debentures of Rs. 100 each at par redeemable at
10% premium?
(iv)
A Co. issued 40,000; 12% debentures of Rs. 100 each at a discount of 5%
and redeemable at 5% premium?
24. Zee Ltd. Issued 1,000, 10% Debentures of Rs. 100 each on 1st April, 2005 at a
discount of 10% redeemable at a premium of 10% after 4 years. Give journal
entries for the period ended 31st March, 2012 assuming that the interest was
payable half yearly on 30th September and 31st March.
25. Pass Journal entries for the following transactions in the books of N ltd.
(a) Purchased machinery Rs.3,30,000. The vendor was paid by issuing 9%
Debentures of Rs. 100 each at a premium of 10%.
(b) Issued 9% Debentures of Rs. 3,00,000 as collateral security.
(c) Paid half yearly interest on Rs. 3,60,000’ 9% Debentures.
(d) Issued 2,000 9% Debentures of Rs. 100 each at a discount of 5%.
The debentures were repayable at a premium of 10%.
79
CHAPTER-9
COMPANY ACCOUNTSREDEMPTION OF DEBENTURES
LEARNING OBJECTIVES:
 Meaning of Redemption of Debentures
 Sources of redemption of debentures
 Debenture Redemption Reserve
 Methods of Redemption of Debentures
Meaning of Redemption of Debentures
Redemption of debentures means repayment of the amount of debentures.
Sources of redemption of debentures
Redemption of debentures can be done
(i)
Out of Capital
(ii)
Out of Profits
(iii) Redemption by converting them into shares or new debentures.
Debenture Redemption Reserve
80
Redemption of Debentures out Profits is done when adequate profits are transferred from
surplus i.e. Balance in Statement of Profit and Loss to Debenture Redemption Reserve before
redemption of debentures, such redemption is Redemption of Debentures out of profits.

MEANING – DRR is a reserve created out of profits for the purpose of redemption
of debentures.

CREATION – As per Sec 117(c) of The Companies Act, 1956, a company is
required to transfer adequate amounts of its profits every year to DRR until such
debentures are redeemed.

WHEN TO CREATE – Before the redemption starts.

DISCLOSURE – under the head “Shareholders’ funds” and Sub-head ‘Reserves &
Surplus” in the Balance Sheet.

NOT MANDATORY AS PER SEBI GUIDELINES – 1. For debentures with a
maturity period of 18 months or less.
For Infrastructure companies (i.e. companies engaged in the business of developing,
maintaining and operating infrastructure facilities).
Non-convertible debentures are the debentures the holders of which do not have the
right to convert their debentures into shares.
Specific coupon Rate Debenture means a debenture which carries a specific rate of
interest on them.
Discount on issue of debentures appears in the Balance sheet of a company under the
head “Miscellaneous Expenditure”.
Date of maturity means the date on which the debenture can be redeemed.
Guideline issued by SEBI regarding creation of DRR are:






A company is required to debenture redemption reserve of an amount at least equal to 50% of
the amount of debentures issued before redemption of debentures commences.
Methods of Redemption of Debentures
(i)
(ii)
(iii)
Redemption of Debentures in Lump sum means all the debentures are
redeemed at the date specified for redemption of debentures.
Redemption by Draw of Lots means redemption of debentures (selected by
lottery) at the specified date.
Redemption by Purchase from open Market when a company purchases its
own debentures from open market for the purpose of cancellation, such an act
of purchasing and cancelling the debentures is redemption by purchase from
open market.
81
QUESTIONS: (1 Marks)
1. What is meant by a debenture?
2. What does an irredeemable debenture mean?
3. Why would an investor prefer to invest partly in Shares and partly in Debentures
of a company?
4. What is the nature of Interest on Debentures?
5. List any three differences between a Share and a Debenture.
6. What is meant by Redemption of Debentures?
7. State the meaning of Redemption of Debentures Out of Profits.
PRACTICAL PROBLEMS: 4 MARKS
Q8: Y ltd. Issued 50,000; 10% Debentures of Rs. 10 each on 1st April, 2013
redeemable at par on 30th June, 2014. The company received applications for
55,000 debentures and the allotment was made to all the applicants on pro-rata
basis. The debentures were redeemed on due date. How much amount of
Debentures Redemption Reserve is to be created before the redemption is carried
out?
Pass necessary Journal entries regarding issue and redemption of debentures.
Assume that interest was payable on debentures on 31st March every year.
Solution:
In the books of Y ltd.
JOURNAL
Dt.
Part.
2013
April 1
April 1
2014
March
31
March
31
June 30
Bank A/c
Dr.
To Deb. Application A/c
(Being the receipt of app. Money)
Debenture Application A/c
Dr.
To 10% Debentures A/c
To Bank A/c
(Being the debenture app. Money
adjusted)
Int. on debentures A/c
Dr.
To Deb. Holders A/c
(Being the int. due)
Deb. Holders A/c
Dr.
To Bank A/c
(Being the payment of interest)
l.f. Dr.
Cr.
5,50,000
5,50,000
5,50,000
5,00,000
50,000
50,000
50,000
50,000
50,000
12,500
12,500
5,00,000
82
June 30
June 30
Interest on Debentures A/c
Dr.
To Deb. Holders A/c
(being the int. due for 3 mths)
10% Debentures A/c
Dr.
To Deb. Holders A/c
(Being the payment on red. Of
deb. Holders due to deb holders)
Debenture holders’ A/c
Dr.
To Bank A/c
(Being the payment due to deb.
Holders disch. Incl. interest)
5,00,000
5,12,500
5,12,500
Note: 1. According to SEBI Guidelines, DRR is not required to be created since maturity
period of debentures does not exceed 18 months. Hence, not amount is transferred to DRR.
2. Interest on Debentures Account will be shown in Statement of Profit and Loss
under the head ‘finance Costs’.
Q9 PQR ltd. Issued 20,000; 10% Debentures of Rs. 100 each at a premium of 8% on
30 th June 2013 redeemable at par on 31th June, 2014. The issue was fully
subscribed. Pass necessary entry for the issue and redemption of debentures. How
much amount of DRR is to be created before redemption of debentures?
Q10 Noida Toll Bridge Corporation Ltd. An infrastructure company, has outstanding
of 2 lakh; 10% Debentures of Rs. 10 each issued on 2004 due for redemption on 30th
June, 2014. How much amount of DRR should be created before the redemption of
debentures begins?
Pass Journal entries at the time of redemption of debentures.
Solution:
Dt.
Particulars
2013
June
30
10% Debenture A/c
Dr.
To deb. Holders A/c
(being the amt. due to deb
holders on redemption)
Debentureholders’ A/c
Dr.
To Bank A/c
(Being the amt. due to deb
holders paid)
l.f.
Dr.
Cr.
20,00,000
20,00,000
20,00,000
20,00,000
83
Q12 X ltd. Has 8,000; 9% Debentures of Rs. 100 each due for redemption on 31st
march, 2014. DRR has a balance of Rs. 2,80,000 on that date.
Pass Journal entries at the time of redemption of debentures.
Solution:
Dt.
Particulars
l.f. Dr.
Cr.
2014
Mar
31
P&L A/c
Dr.
To DRR
(Being the transfer of profit to
DRR as per SEBI Guide)
9% Debentures A/c
Dr.
To Deb. Holders
( Being the amt. due)
Deb. Holders A/c
Dr.
To Bank A/c
(Being the amt. paid)
DRR A/c
Dr.
To Gen. Reserve A/c
(Being DRR tr. To G. Reserve)
1,20,000
1,20,000
8,00,000
8,00,000
8,00,000
8,00,000
4,00,000
4,00,000
Q13 X ltd. Issued 2,00,000; 9% Debentures of Rs. 50 each at a premium of 2% on 30th June,
2013 redeemable on 30th June, 2014. The issue was fully subscribed. Pass journal entries for
issue and redemption of debentures. How much amount of DRR is to be created before
redemption of debentures?
Solution:
Dt.
Particulars
l.f. Dr.
Cr.
2013
June
30
June
30
2014
June
30
June
30
Bank A/c (200 000 X 51) Dr.
To Deb. App. A/c
(Being app money rec.)
Deb. App. A/c
Dr.
To 9% Debentures A/c
To Sec. Prem. Res. A/c
(Being app money tr. To 9%
deb. And sec. prem. Res. a/c)
9% Debentures a/c
Dr.
To Debentureholders
(Being the payment due)
Debentureholders a/c Dr.
To Bank A/c
(Being the payment made)
102,00,000
102,00,000
102,00,000
100,00,000
2,00,000
100,00,000
100,00,000
100,00,000
100,00,000
84
Note: DRR is not created because debentures issued are for a period of less than
18 months.
Q 14 N ltd. Issued 10,000 Debentures of Rs. 100 each at par with the condition
that they will be redeemed at a premium of 5% after the expiry of five year.
Pass Journal entries only for issue and redemption of these debentures after the
expiry of five years.
Solution:
In the books of N ltd.
Journal
Dt.
Particulars
l.f Dr.
Cr.
.
Year 1 On issue of debentures
Bank A/c
Dr.
10,00,000
To Debenture app.a/c
10,00,000
(Being the amt. rec.)
Deb. App. A/c
Dr.
10,00,000
Loss on issue of deb. A/cDr.
50,000
To Deb. A/c
10,00,000
To Prem. On red.of deb.
50,000
Year 5 (Being the allotment done)
On creation of DRR
P&L A/c
Dr.
5,00,000
To DRR
5,00,000
Year 5 (being transfer of profit to
DRR)
On redemption of debentures
Debentures A/c
Dr.
Prem. On red. Of deb. A/cDr.
10,00,000
To Deb. Holders
50,000
(being the amt payable on red.
10,50,000
Transf. to deb. a/c)
Deb. Holders a/c
Dr.
To Bank A/c
10,50,000
(being the amt paid)
10,50,000
DRR A/c
Dr.
To Gen reserve
5,00,000
(being the tr. To G. res.)
5,00,000
Q15 X ltd. Has a balance of Rs. 8,00,000 in the statement of P&L. the company
decided to forego the payment of dividend and instead utilize the profits to repay Rs.
7,00,000; 12% Debentures on 30th June, 2013 at a premium of 10%. Debentures
interest is payable annually on 31st December every year when the accounts are
closed. The company also has a balance of Rs. 4,00,000 in the Debenture
Redemption reserve.
85
Journalise the transactions.
Date
Particulars
2013
Jun 30
Interest on Debentures A/c Dr.
To Debentureholders A/c
(Being the interest due)
12% Debentures A/c
Dr.
Premium on Red. Of Deb. A/c
Dr.
To debentureholders A/c
(Being the amtpayableon red.
Including prem. On redemption)
P&L A/c
Dr.
To DRR A/c
(Being the app. Of profits to
redeem the deb. Fully out of
profits)
Debentureholders’ A/c
Dr.
To Bank A/c
(being the payment made to
debentureholders on redemption
with interest due)
DRR A/c
Dr.
To General Reserve
(being the transfer of DRR to
GenRes. On redemption of all
debentures)
LF
Dr.
Cr.
42,000
42,000
7,00,000
70,000
7,70,000
3,00,000
3,00,000
8,12,000
8,12,000
7,00,000
7,00,000
*Redemption of Debenture by purchase from open MarketRedemption of Debentures by purchase form open Market means purchase own
debentures by the company from the stock market for cancellation like share, Debenture are
also transferable form one person to another. Under this method, the company can discharge
the debenture liability in full or in part by purchasing its own debenture from the open market
provided it is authorized to do so by its Articles of Association.
Debentures may be purchased by the or keeping them as investment and cancel at 9 later
date.
*When Debenture are purchased from the open market for immediate cancellation:
(I) Own debenture A/c Dr.
{With purchase Cost}
To Bank A/c
(ii) % Debenture A/c Dr.
(With nominal Value)
86
To own Debenture
face value )
To Profit on Cancellation
(With purchase Price of own debenture excess of
(iii)Profit on cancellation A/c Dr.
To Capital Reserve A/c.
Q16 Z ltd. Purchased its own 400 debentures of the face value of Rs. 40,000 from the open
market for immediate cancellation at Rs. 92. Pass Journal entries.
Solution:
In the books of z ltd.
Journal
Dt.
Particulars
l.f. Dr.
Cr.
Own Debentures A/c
36,800
Dr.
36,800
To Bank A/c
(Being the purchase of 200 own
debentures @ Rs. 92 each.)
40,000
Debentures A/c
36,800
Dr.
3,200
To own Debentures A/c
To profit on cancellation
of own debentures A/c
(Being own debentures
purchased from open market and
3,200
cancelled)
3,200
Profit on Cancellation of Own
Debentures A/c
Dr.
To Capital Reserve A/c
(Being the transfer of profit on
redemption of debentures to
capital reserve)
st
Q17 On 1 April, 2013, a company issued 2,000, 9% Debentures of Rs. 100 each at
Rs. 110 per debenture. The terms of issue provided for the redemption of Rs. 40,000
debentures every year commencing from 31st March 2014 either by purchase from
Open Market or at par by drawings at the company’s option. The board of directors
decided to transfer the required amount of profits to Debenture Redemption Reserve
on 31st March 2014.
On 31st march, 2014, the company purchased for cancellation Debentures of the
face value of Rs. 16,000 at Rs. 95 per debenture and of Rs 24,000 at Rs. 90 per
debenture.
Journalise the above transactions and show how the profit on redemption would
be treated(ignore the payment of interest).
(Ans. Capital Reserve Rs. 3,200)
Q18 At the commencement of 2010, XYZ Ltd. Issued 1,000 10% Debentures of Rs.
100 each at par. The terms of issue provided for redemption of Rs. 10,000
87
annually,commencing from the end of 2012, either by drawings at par or by purchase
from the market at the company’s option. Interest is payable on 31st December every
year.
At the end of 2012, the company purchased for immediate cancellation Rs. 5,000 of its
debentures at Rs. 96 each, Rs. 3,000 at Rs. 98 each and Rs. 2,000 at Rs. 98.50 each. The
expenses of purchase amounted to Rs. 40. Pass journal entries regarding issue of debentures
and for the year 2012.
(capital reserve – Rs. 250)
PART II
CHAPTER 1
Financial Statements of a Company
Learning Objectives
The study of this chapter would enable you to understand:
 Financial Statements of a Company
 Statement of Profit and Loss
 Balance sheet
 Statement of Profit and Loss
 Major heads of statement of Profit and Loss
 Balance Sheet
 Major Heads of Balance Sheet
 Objectives of Financial Statements
 Limitations of Financial Statements
FINANCIAL STATEMENTS OF A COMPANY
STATEMENT OF PROFIT AND LOSS
 Revenue from Operations It is the revenue earned by the company from its
operating activities.

Other Income
sources other than
It is the revenue earned by the company from the
its operating activities.
Cost of Material Consumed It is the aggregate of cost of raw materials and other
materials used
in manufacture of goods.
 Purchase of Stock- In –Trade It means purchases of goods for resale.
 Change in Inventories of
It is the difference between the opening inventories and
of Finished
finished Goods ,WIP and
Goods, WIP and Stock –in-Trade .It is shown
separately in the Note to

88
Stock –in-Trade
Statement of Profit






Accounts and one single amount on the face of the
and Loss
Employees Benefit Expenses They are the expenses incurred on the employees, say
for wages,
salaries, bonus,etc.
Financial Costs
They are the expenses of the company incurred on the
borrowing,
i.e loans taken by it.
Depreciation and Amortisation It is the fall in the value of fixed assets due to its or
afflux of time or
obsolescence .Amortisation is writing off of
intangible assets.
Other Expenses
Expenses that do not fall in the above classifications
are shown as
Other Expenses
HINT
Expenses shown under Employees Benefit Expenses and Other Expenses may be
further shown as Directed and Indirect Expenses. Other Expenses may be shown
under different heads, say Administration Expenses, selling and Distribution
Expenses and General Expenses, etc.
BALANCESHEET
EQUITY AND LIABILITIES
Shareholders' Funds Shareholders Funds are the funds belonging to the
shareholders of
the company .They consist of ShareCapital; Reserves and
Surplus
and Money received against Share Warrants.
 Share Capital It is the amount received by the company as capital.
 Reserves and Surplus It is the amount appropriated out of Surplus
(profit)or Surplus ,i.e.,
Balance in Statement of Profit andloss or amount received
as securities in Premium Reserve.
 Money Received against It is the amount received against Share
Warrents .Share Warrents
Share Warrentsare the financial instruments whichgive the holder theright
to
acquire Equity Shares in the company.
Share Application MoneyIt is the amount received as share application and against
which the
89


Pending Allotment company will make allotment.
Non-current Liabilities Non-current Liabilities are defined in Schedule VI as those
liabilities
which are not current liabilities.
 Long –term Borrowings
Long Term borrowings which are repayable
after more than 12
months.
 Deferred Tax Liabilities
It is the amount of tax on the temporary
differences between the
accounting income and taxable income. It is
only a book entry and
not an actual liability. It arises when accounting income is more than
taxable income.
 Other Long-term Liabilities They are the Liabilities other than Long-term
Borrowings of the
company .
 Long-term Provisions
They are the provision for liabililities that will
be payable after 12
months from the date of Balance Sheet or after
the period of
Operating Cycle.
CurrentLiabilitiesCurrent Liabilities are those liabilities which are :
 expected to be settled in company's
normal Operating Cycle: or
 due to be settled within 12 months
after reporting date.

Operating CycleIt is the time between the acquisition of assets for processing and
their realization into cash and cash
equivalents. Where the
Operating Cycle cannot be identified, It is assumed to be of 12
months.
HINT
Current Liabillitiesare classified into Short –term Borrowings; Trade Payables: Other
Current Liabilities ; and Short-term Provisions.
ASSETS
 Non-current Assets
Non-current assets are those assets which are not current
assets.These are sub-classified into:Fixed Assets ;Non-current
Investments ;Deferred Tax Assets (Net);Long–termLoans
and Advances: and Other Non-current Assets.
 CurrentAssets
Current assets are those assets which are:
90




expected to be realized in or intended
for sale or consumption in normal
Operating Cycle of the company;or
held primarily for the purposes of
trading ; or
expected to be realised within 12
months from the reporting data or
closing date.
Cash and cash equivalent unless it is
restricted from being exchanged or
used to settle a liability for at least 12
months after the reporting date.
HINT
Current Assets are classified into : Current Investments; Inventories; Trade Receivables;
Cash and Cash Equivalents; Short-term Loans and Advances; and Other Current Assets
MEANING OF FINANCIAL STATEMENTS
Financial Statements are summarized statements of accounting data prepared at the end of an
accounting process, i.e., after preparing Trial Balance by an enterprise.It is a medium of
communicating accounting information to the internal and external users. Customarily, a set
of financial statements include:
 Balance Sheet
 Statement of Profit and Loss
 Notes to Accounts
Form of Statement of Profit and Loss
STATEMENT OF PROFIT AND LOSS
Particulars
I.
II.
III.
Revenue from Operations
Other Income
Total Revenue(I + II)
Note
No.
Figures for the
Current
Reporting
Period
…
…
Figures for
the Previous
Reporting
Period
…
…
…
…
91
IV.
Expenses
xpense
Cost of Materials Consumed
Purchases of Stock-in-Trade
…
…
Change in inventories of Finished Goods,
Work-in-Progress and Stock-in-Trade
…
Employees Benefit Expenses
…
…
…
…
...
...
Finance Costs
Depreciation and Amortisation Expenses
Other Expenses
Total Expenses
V.
VI.
VII.
Profit before Tax (III – IV)
…
…
Less: Tax
Profit or Loss for the Period (V – VI)
…
for the year ended….
Form of the Balance Sheet
The form of Balance Sheet as prescribed in Part I of Schedule VI of the Companies Act,
1956, is as follows:
Name of the Company…
BALANCE SHEET as at…
Particulars
Note
No.
Figures for
the Current
Reporting
Period
Figures for the
Previous
Reporting
Period
92
1) EQUITY AND LIABILITIES
a) Shareholders' Funds
i) Share Capital
ii) Reserves and Surplus
iii) Money Received against Share Warrants
b) Share Application Money Pending Allotment
c) Non-Current Liabilities
i) Long-Term Borrowing
ii) Deferred Tax Liabilities (Net)
iii) Other Long-Term Liabilities
iv) Long – Term Provisions
d) Current Liabilities
i) Short- term Borrowings
ii) Trade Payables
iii) Other Current Liabilities
iv) Short-term Provisions
Total
2) ASSETS
a) Non-Current Assets
i) Fixed Assets
 Tangible Assets
 Intangible Assets
 Capital Work-in-progress
 Intangible Assets under Development
ii) Non-Current Investments
iii) Deferred Tax Assets(Net)
iv) Long Term Loans and Advances
v) Other Non-current Assets
b) Current Assets
i) Current Investments
ii) Inventories
iii) Trade Receivables
iv) Cash and Cash Equivalents
v) Short Term Loans and Advances
vi) Other Current Assets
Total
Objective of financial statements
1. To provide financial data on economic resources and obligations of
an enterprise.
2. To present true and fair view of the business.
3. To provide sufficient and reliable information to various parties
interested in financial statements.
Limitations of financial statements
1. Historical records.
2. Effected by personal judgement.
93
3. Different accounting practice.
4. Qualitative elements are ignored
5. Price level changes are ignored.
Questions:
(1) Under which head and sub-head of Equity and Liabilities are following items shown
in a company’s Balance Sheet as per Schedule VI?
(i) Debentures
(ii) Public Deposits
(iii)Securities Premium reserve
(iv) Capital Reserve
(v) Forfeited Shares Account
(vi) Interest Accrued and due on Debentures
(2) Under which main heads and sub-heads of Equity and Liabilities re the
following itmes shown in the Balance Sheet of a company as per schedule VI:
(i) Unclaimed Dividend
(ii) Calls-in-arrear
(iii)Calls-in-advance
(iv) Interest Accrued but not due on debentures
(v) Arrears of fixed cumulative preference dividends
(vi) Sundry creditors
(3) Under which head following revenue items of a non-financial companies will
be shown:
(i) Interest Earned
(ii) Dividend
(iii)Profit on sale of Asset
(iv) Refund of Income Tax
Solution:
Revenue from Operations: Interest Earned and Dividend
Other Income: Profit on Sale of Asset and Refund of Income Tax.
(4) Under which head following revenue items of a non-financial companies will
be shown:
(i) Sales
(ii) Sale of Scrap
(iii) Interest Earned (iv)
Dividend
Solution:
Revenue from Operations: Sales and Sale of Scrap
Other Income: Interest Earned and Dividend
(5) Calculate Revenue from Operations, other Income and Total Revenue for a
non-financial company from the following information:
Sales Rs. 52,00,000; Sales Return Rs. 2,00,000; Sale of Scrap Rs. 25,000;
Interest on Fixed Deposits Rs. 30,000; Dividend Earned Rs. 10,000.
Solution:
Particulars
Rs.
Rs.
94
I Revenue from operations
Sales
Less: Sales Return
Sale of Scrap
52,00,000
2,00,000
50,00,000
25,000
50,25,000
II Other Income
Interest on Fixed Deposits
Dividend
30,000
10,000
40,000
Total Revenue (I+II)
50,65,000
(6) Under which main heads and sub-heads of Equity and Liabilities re the
following itmes shown in the Balance Sheet of a company as per schedule VI:
(i) Mortgage Loan
(ii) Investments
(iii)Bills receivable
(iv) Patents
(v) General reserve
(vi) 10% Debentures
(7) Under which main heads and sub-heads of Equity and Liabilities re the
following itmes shown in the Balance Sheet of a company as per schedule VI:
(i) Bills receivable
(ii) Long-term investments
(iii)Pre-paid insurance
(iv) Buildings
(v) Sundry debtors
(vi) Share of reliance ltd. Deposit with custom authorities.
(8) Under which main heads and sub-heads of balance sheet of a company.
I.
Calls in Arrears
II.
Debentures
III.
Commission receive in advance
IV.
Stores and spare parts
V.
Land and Building
VI.
Forfeited Share account
CHAPTER-2
FINANCIAL STATEMENT ANALYSIS
Learning objective
 Meaning of financial statement analysis
 Tools of Financial statement analysis
 Types of financial statement analysis
 Purpose/objectives of financial statement analysis
 Uses of financial Analysis
95


Parties Interested of financial analysis
Limitation of financial analysis
Meaning of financial statement analysis
Financial statement Analysis is largely a study of relationship among the various
financial factor in a business, as disclosed by the various financial of statements and a
study of trends of these factors as shown in a series of statement.
Financial statement Analysis is an important part of the overall financial analysis. It is
based on the financial statement i.e Balance sheet and statement ofP& L which are the
end products of accounting process.
Tools of Financial statement analysis
(i)
(ii)
(iii)
(iv)
Comparative statement
Common size statement
Ratio Analysis
Cash Flow Statement
Type of financial statement Analysis
(i)
External
(ii)
Internal
(iii) Vertical
(iv)
Horizontal
Uses of financial Analysis
(i)
(ii)
(iii)
(iv)
Security Analysis
Credit Analysis
Debit Analysis
Dividend Decision
Purpose/Objective of Financial Analysis
(i)
(ii)
(iii)
Assessing the earning Capacity
Managerial Efficiency
Short term and long term Solvency of the enterprise
Limitations of financial analysis
(i) Ignores Price level Changes
(ii) Qualitative Aspect Ignored
96
(iii)Historical analysis
Parties Interested of financial analysis
(i)Management
(ii)Employees
(iii)Shareholder
(iv)Suppliers
(v)Bankers
(vi) Researches
Questions 1 Mark
1. What is meant by Analysis of Financial Statement?
2. What is Horizontal Analysis?
3. What is Vertical Analysis?
4. Why are creditors interested in analyzing financial statement?
5. How is the financial statement analysis useful to finance manger?
6. State any one objective of financial statement analysis?
7. State any one limitation of financial statement analysis
8. Name two parties interested in Financial statement Analysis
CHAPTER -3
TOOLS OF FINANCIAL STATEMENT ANALYSIS COMPARATIVE STATEMENT AND COMMON SIZE STATEMENT
Learning Objectives
 Meaning of Comparative Financial Statement.
 Objectives of preparing comparative financial statements.
 Preparation of comparative Balance Sheet.
 Preparation of comparative Income Statement.
 Meaning of Common size Financial statement
 Objectives of preparing common size financial statement.
 Preparation of common-size Balance Sheet.
 Preparation of Common-size Income Statement.
Meaning of Comparative Statement
Comparative statement is the statement prepared to compare individual components
of the financial statement of two or more years of a company.
Objectives of preparing comparative financial statements:
1. Data presentation becomes simple and comparable.
2. Gives information about the changes affecting financial position
and performance of an enterprise.
3. Comparision of performance with other firms becomes easy.
97
PREPARTION OF COMPARATIVE FINANCIAL STATEMENTS
FORMAT OF COMPARATIVE BALANCE SHEET
COMPARATIVE BALANCE SHEET
As at……………
Particulars
Note Previous
No.
Year
A
Absolute
change
C=B-A
Current
Year
B
I EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital
(b) Reserves and Surplus
2. Non-Current Liabilities
i. Long-Term Borrowing
ii. Long – Term Provisions
3. Current Liabilities
i. Short- term Borrowings
ii. Trade Payables
iii. Other Current Liabilities
iv. Short-term Provisions
Total
II. ASSETS
2. Non-Current Assets
(a) Fixed Assets
(i)Tangible Assets
(ii)Intangible Assets
(b) Non-Current Investments
(c) Long Term Loans and Advances
3. Current Assets
i. Current Investments
ii. Inventories
iii. Trade Receivables
iv. Cash and Cash Equivalents
v. Short Term Loans and Advances
vi. Other Current Assets
Total
Question: from the following Balance Sheets of Y ltd. As at 31st March, 2014 and 2013
prepare a Comparative Balance Sheet:
98
%g
Cha
D=
x10
Particulars
Note
No.
I EQUITY AND LIABILITIES
1. Shareholders' Funds
(c) Share Capital
4. Non-Current Liabilities
i. Long-Term Borrowings
5. Current Liabilities
i. Trade Payables
Total
II. ASSETS
2. Non-Current Assets
(a) Fixed Assets
(i)Tangible Assets
3. Current Assets
i. Trade Receivables
ii. Cash and Cash Equivalents
Total
SOLUTION:
Exe ltd.
COMPARATIVE BALANCE SHEET
As at 31st march 2013 and 2014
Particulars
Note
No.
I EQUITY AND LIABILITIES
1. Shareholders’ funds
Share Capital:
Equity Share Capital
2. Non-current liabilities
Long-term borrowings
Secured loan- 8% debentures
3. Current Liabilities
Trade Payables
Total
II ASSETS
1. Non-Current Assets
Fixed Assets (Tangible)
Previous
Year
A
Current
Year
B
9,00,000
6,00,000
3,00,000
3,00,000
3,00,000
1,50,000
15,00,000
10,50,000
9,00,000
7,50,000
5,00,000
1,00,000
2,50,000
50,000
15,00,000
10,50,000
31st march
2013
(A)
31st march
2014
(B)
Absolute
Change
(C= B-A)
%ge
Change
(D =
C/AX100)
6,00,000
9,00,000
3,00,000
50%
3,00,000
3,00,000
-
-
1,50,000
3,00,000
1,50,000
100%
10,50,000
15,00,000
4,50,000
42,86%
7,50,000
9,00,000
1,50,000
20%
99
2. Current Assets
(a) Trade Receivables
(b) Cash and Cash Equivalents
Total
2,50,000
50,000
10,50,000
5,00,000
1,00,000
15,00,000
2,50,000
50,000
4,50,000
100%
100%
42.86%
FORMAT OF COMPARATIVE STATEMENT OF PROFIT AND LOSS
COMPARATIVE STATEMENT OF PROFIT AND LOSS
For the years ended 31st march, 2013 and 2014
Particulars
Note 31st
No.
March
2013
I.
Revenue from Operations
II.
Other Income
Total Expenses
III.
Total Revenue (I+II)
IV.
Expenses
(a) Cost of Materials
Consumed
(b) Purchase of Stock-in-trade
(c) Change in inventories of
finished goods, work-inprogress and stock-intrade
(d) Employees benefit
expenses
(e) Finance costs
(f) Depreciation and
amortization expenses
(g) Other expenses
V.
Profit before Tax (III-IV)
Less: income Tax
VI.
Profit after tax
31st
March
2014
Absolute
Change
%ge
Change
Question: Prepare Comparative Statement of Profit and loss from the following:
Particulars
31st March 2012
31st March 2011
Revenue from Operations
Expenses
Other Income
15,00,000
10,50,000
1,80,000
10,00,000
6,00,000
2,00,000
COMPARATIVE STATEMENT OF PROFIT AND LOSS
For the years ended 31st march, 2013 and 2014
100
Particulars
I.
II.
Revenue from
Operations
Other Income
Note 31st
No. March
2013
10,00,000
2,00,000
31st
March
2014
15,00,000
1,80,000
Absolute
Change
%ge
Change
5,00,000
(20,000)
50%
(10)
III.
Total Revenue
(I+II)
12,00,000 16,80,000 4,80,000
40%
IV.
Expenses
6,00,000
10,50,000 4,50,000
75%
V.
Profit before Tax
(III-IV)
6,00,000
6,30,000
5%
30,000
Meaning of Common size Financial statement
Common size financial statement are the statement in which amounts of individual items are
written and converted to percentages of common base (e.g. Sales/revenue from operations in
case of Profit and loss and total of Balance sheet in case of Statement of Balance sheet)
Objectives of preparing common size financial statement.
1. To analyse change in individual items of Income statement and
Balance sheet.
2. To study the trend in different items of Incomes and Expenses /
Liabilities and Assets.
3. To assess the efficiency and financial soundness.
PREPARATION OF COMMON SIZE STATEMENTS
FORMAT OF COMMON SIZE INCOME STATEMENTS
COMMON-SIZE STATEMENT OF PROFIT & LOSS
for the year ended 31st March 2013 and 2014
Particulars
I.
II.
Note
No.
Revenue from Operations (Net
Sales)
Other Income
31st
March
2013
31st
March
2014
2013
(%)
100
2014(%)
100
101
Total Expenses
III.
Total Revenue (I+II)
IV.
Expenses
(h) Cost of Materials
Consumed
(i) Purchase of Stock-in-trade
(j) Change in inventories of
finished goods, work-inprogress and stock-in-trade
(k) Employees benefit
expenses
(l) Finance costs
(m) Depreciation and
amortization expenses
(n) Other expenses
V.
Profit before Tax (III-IV)
Less: income Tax
VI.
Profit after tax
Question: from the following details of Star ltd. For the years ended 31st March 2012 and
2011, prepare a common-size statement of Profit and loss:
31st March2014
10,00,000
5,00,000
50,000
Particulars
Revenue from operations
Employees benefit expenses
Other expenses
31st March 2013
8,00,000
4,00,000
1,00,000
Solution:
Particulars
Note
No.
I.
Revenue from
Operation
Employees benefit
expenses
31st
March
2013
8,00,000
31st March 2013%
2014
2014%
10,00,000
100%
100%
4,00,000
5,00,000
50%
50%
1,00,000
50,000
12.5
5
5,00,000
5,50,000
62.5
55
Other expenses
Total Expenses
102
3,00,000
Profit before Tax
(III-IV)
4,50,000
37.5
45
FORMAT OF COMMON-SIZE BALANCE SHEET
COMMON SIZE BALACE SHEET as at 31st March 2013 and 2014
Particulars
Note
No.
31st
march
2013
(A)
31st
march
2014
(B)
2013 %
2014%
100
100
I EQUITY AND LIABILITIES
1. Shareholders’ funds
(a) Share Capital:
(i) Equity Share Capital
(ii) Preference Share Capital
(b) Reserves and Surplus
2. Non-current liabilities
(a) Long-term borrowings
(b) long-term provisions
3. Current Liabilities
(a) short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) short term provisions
Total
II ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
(ii) Intangible Assets
(b) Non-current Investments
103
(c) Long-term Loans and Advances
2. Current Assets
(a) Current Investments
(b) Inventories
© Trade Receivables
(d) Cash and Cash Equivalents
(e) Short term loans and advances
(f) other current assets
Total
100
100
uestion: from the following Balance Sheets of XYZ Ltd. As at 31st march, 2014 and 2013
prepare a
Common-size Balance Sheet.
BALANCE SHEETS
As at 31st march 2014 and 2013
Particulars
31st march
2013
(A)
31st march
2014
(B)
(a) Share Capital:
5,00,000
2,50,000
(b) Reserves and Surplus
1,00,000
1,50,000
4,00,000
2,50,000
(a) Trade payables
2,00,000
1,00,000
Total
12,00,000
7,50,000
Note
No.
I EQUITY AND LIABILITIES
1. Shareholders’ funds
2. Non-current liabilities
(a) Long-term borrowings
3. Current Liabilities
II ASSETS
1. Non-Current Assets
104
(a) Fixed Assets
(i) Tangible Assets
7,50,000
5,00,000
4,50,000
2,50,000
2. Current Assets
(a) Cash and Cash Equivalents
Particulars
Note
No.
I EQUITY AND LIABILITIES
1. Shareholders’ funds
(a) Share Capital:
(b) Reserves and Surplus
31st march
2013
(A)
31st march
2014
(B)
2013%
2014%
2,50,000
1,50,000
5,00,000
1,00,000
33.33%
20
41.67
8.33
2. Non-current liabilities
Total
12,00,000
7,50,000
105
(a) Long-term borrowings
3. Current Liabilities
(a) Trade payables
2,50,000
4,00,000
33.34
33.33
1,00,000
2,00,000
13.33
16.67
Total
II ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
2. Current Assets
(a) Cash and Cash Equivalents
12,00,000
7,50,000
100
100
5,00,000
7,50,000
66.67
62.5
2,50,000
4,50,000
33.33
37.5
Total
SOLUTION:
12,00,000
7,50,000
100
100
BALANCE SHEETS
As at 31st march 2014 and 2013
4 MARKS QUESTIONS
1. Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
Expenses
Other Income
Income tax
1,00,000
60,000
20,000
50%
1,50,000
1,05,000
18,000
50%
2. From the following statement of Profit and Loss Star Ltd. For the year 2013-14..
Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
Expenses
Other Income
Income tax
1,60,000
80,000
20,000
50%
2,00,000
1,00,000
10,000
50%
3. Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
10,00,000 12,50,000
Employee benefit expenses 5,00,000 6,50,000
Other Expenses
50,000
60,000
106
Interest on investment
Income tax
30,000
50%
30,000
50%
4. Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
30,00,000 20,00,000
Other Income(% of revenue from operations) 15%
20%
Expenses(% of revenue from operations)
60%
50%
5. From the following Balance sheet prepare Comparative Balance Sheet :
Particulars
2014
I EQUITY AND LIABILITIES
1. Shareholders’ funds
Share Capital
2. Non-current liabilities
Long-term borrowings
3. Current liabilities
Trade payables
Total
II ASSETS
1. Non-current Assets
Fixed Assets(Tangible)
2. Current Assets
Trade Receivables
Total
2013
7,00,000
6,00,000
2,00,000
4,00,000
3,00,000
12,00,000
2,00,000
12,00,000
8,00,000
6,00,000
4,00,000
12,00,000
6,00,000
12,00,000
6. From the following statement of Profit & Loss of Star Ltd. For the year ended 2014,
prepare a common-size Profit & Loss Statement.
Particulars
2014
Revenue from operations
10,00,000
Employee benefit expenses 5,00,000
Other Expenses
50,000
7. From the following balance sheet of Sun Ltd. As on 31st March, 2014, Prepare a
common size balance sheet. Sun Ltd.
Particulars
Note
No.
1. Equity & liabilities
 Share holder’s fund
a. Share Capital
b. Reserve & Surplus
2014
30,00,000
4,00,000
107
2. Non current liabilities
 Long term borrowing
3. Current liabilities
Trade payable
10,00,000
6,00,000
Total
50,00,000
2. Assets

a. Non Current Assets
Fixed Assets
i.
Tangible Assets
ii.
Intangible Assets
Current Assets
i.
Inventories
ii.
Cash and cash equivalents
30,00,000
6,00,000
10,00,00
4,00,000
Total
50,00,000
108
CHAPTER-4
RATIO ANALYSIS
LEARNING OBJECTIVES:
 Meaning of Accounting Ratio
 Meaning of Ratio analysis
 Objectives and limitations of ratio analysis
 Classification of Ratios and their calculation
Meaning of Accounting Ratio
Accounting ratio means the numerical relationship between two figures or two groups of
figures contained in Profit and Loss A/c and Balance Sheet.
Meaning of Ratio analysis
Ratio analysis is the process of establishing and interpreting the quantitative relationship
between two related items of Financial Statements to make a qualitative judgement about the:
1. Liquidity
2. long-term solvency
3. Operating efficiency
4. Profitability of the enterprise.
Objectives of ratio analysis
1. To determine Liquidity – i.e. ability of the enterprise to meet its short-term
obligation as and when they become due.
2. To determine Short-term solvency – i.e. ability of the enterprise to pay the
interest regularly.
3. To determine Operating efficiency – with which resources are utilized in
generating revenue.
4. To determine Profitability of the enterprise with respect to Revenue from
operations and investments.
limitations of ratio analysis
1. Ratio analysis ignores qualitative factors.
2. It ignores price-level changes.
3. It is a Historical analysis because financial statements on the basis of
which the ratios are established are historical in nature.
Classification of Ratios


Liquidity Ratios
Solvency ratios
109


Activity Ratios
Profitability Ratios
LIQUIDITY RATIOS
Meaning:
Liquidity ratios are the ratios which are calculated to assess company’s ability to repay
the short-term loans on their due dates.
Two important liquidity ratios are:
(a) Current ratio
(b) Quick ratio
CURRENT RATIO
Meaning:
It establishes a relationship between Current Assets and Current Liabilities.
Objective:
To measure the ability of the firm to meet its short-term obligations.
Current Assets
= Current Investments + Inventories + Trade Receivables + Cash and Cash Equivalents +
Short-term Loans and Advances + Other Current Assets
OR
= Current liabilities + Working Capital
OR
= Total Assets – Non-current Assets
Current Liabilities
= Short-term Borrowings + Trade Payables + Other Current Liabilities + Short term
Provisions
OR
= Current Assets – Working Capital
OR
= Total Debts –Debt
Current Ratio = Current Assets
Current Liabilities
Ideal Current Ratio is 2:1.
110
Question: Current Assets Rs. 2,00,000; Inventories Rs. 1,00,000; Working Capital Rs.
1,20,000; Calculate Current Ratio.
Solution : Current liabilities = Current Assets – Working Capital
= Rs. 2,00,000 – Rs. 1,20,000 = Rs. 80,000
Current Ratio = Current Assets/ Current liabilities
= Rs. 2,00,000/Rs. 80,000
= 2.5:1
QUICK RATIO/LIQUID RATIO/ACID TEST RATIO
Meaning:
It establishes a relation between quick assets and current liabilities.
Objective:
To measure the ability to meet current obligations without relying on the sale and collection
of inventories.
Quick Ratio = Quick Assets
Current liabilities
Quick Assets = Current Assets – Inventories – Prepaid Expenses
Ideal Quick Ratio is 1:1
Question 1: Liquid Assets Rs. 6,80,000, Inventories Rs. 1,90,000, Prepaid Expenses Rs.
10,000, Working Capital Rs. 2,00,000. Calculate the Current Ratio and Quick Ratio.
Question 2. The Quick Ratio of a company is 2:1. State giving reason, which of the following
would improve, reduce or not change the ratio:
(i)
(ii)
(iii)
(iv)
Purchase of Stock-in-trade(costing Rs.10,000) for Rs. 11,000.
Sale of an office furniture (Book value Rs. 10,000) for Rs. 9,000.
Payment of Dividend.
Issue of Equity shares.
SOLVENCY RATIOS
Meaning
111
Solvency ratios are the ratios which are calculated to assess company’s ability to repay
the interest regularly and to repay the principle on maturity or in pre-determined
installments on due dates.
Usually the following ratios are calculated to judge long-term financial solvency of the
enterprise:
1. Debt-Equity ratio
2. Total assets to Debt ratio
3. Proprietory ratio
4. Interest coverage ratio
Debt-Equity ratio :
Meaning
It establishes a relationship between Debt and Equity.
Objective:
To measure the long-term financial solvency.
Calculation:
Debt = Long-term Borrowings + Long-term Provisions
Debt = Total Debt – Current Liabilities
Debt = Capital Employed – Equity
Equity = Which means funds belonging to all the shareholders ( whether Equity or
Preference).
Debt-Equity Ratio = Debt / Equity
Question: From the following information. Calculate Debt-equity Ratio:
Equity Share Capital
Preference Share capital
Reserves and Surplus
Long-term Borrowings
Long-term Provisions
1,50,000
1,00,000
1,50,000
6,00,000
2,00,000
Solution:
Debt = Long-term Borrowings + Long-term Provisions
= Rs. 6,00,000 + Rs. 2,00,000 = Rs. 8,00,000
Equity = Equity Share Capital + Pref. Share Capital + Reserves & Surplus
= Rs. 1,50,000 + Rs. 1,00,000 + Rs. 1,50,000 = Rs. 4,00,000
Debt-Equity Ratio = Debt/Equity = Rs. 8,00,000/Rs. 4,00,000= 2:1
112
SOME IMPORTANT RELATIONSHIPS
1.
2.
3.
4.
5.
6.
Debt
=
Debt
=
Capital Employed =
Capital Employed =
Capital Employed =
Equity
=
Reserves & Surplus
7. Equity
=
8. Equity
9. Equity
=
=
Total Debt – Current Liabilities
Capital Employed – Equity
Total Assets – Current liabilities
Non-Current Assets + Working Capital
Equity + Debt
Equity Share Capital + Preference Share Capital +
Non-Current Assets + Working Capital – Noncurrent Liabilities
Capital Employed – Debt
Total Assets – Total Debt
Question: X ltd. Has a liquid ratio of 1.5:1. Its Net working Capital is Rs. 1,20,000
and its inventories are Rs 80,000. Total Assets Rs. 3,80,000. Total Debt Rs. 2,80,000.
Calculate Debt-Equity Ratio. (Ans. 2:1)
Total Assets to Debt Ratio
Meaning:
It establishes the relationship between total assets and debts.
Objective :
To measure the safety margin available to the suppliers of long-term debts.
Total Assets to Debt Ratio = Total Assets / Debt
Question: Equity shareholders funds Rs. 3,00,000, Reserves and Surplus Rs. 1,00,000,
Preference Share Capital Rs. 1,00,000. Total Debt Rs. 11,40,000, Current Liabilities Rs.
3,40,000. Calculate Total Assets to debt Ratio.
Solution: Total Assets to Debt Ratio = 15,40,000/8,00,000
= 77:40
Proprietary Ratio
Meaning:
It measures a relation between Proprietor’s Funds and Total assets.
113
Objective:
To measure the proportion of Total Assets financed by the Proprietors’ funds
Calculation:
.
Proprietary ratio = Proprietors’ Funds/Total Assets X 100
Proprietors’ funds means funds belonging to shareholders i.e. Share capital + Reserves &
Surplus.
Question: From the following information, calculate Proprietory Ratio:
Share Capital Rs. 2,50,000
Reserves & Surplus Rs. 1,50,000
Non-current Assets Rs. 11,00,000 Current Assets Rs. 5,00,000.
Solution : Rs. 4,00,000/Rs. 16,00,000 X 100 = 25%
INTEREST COVERAGE RATIO
Meaning:
It shows the relation between Profit before interest and tax and interest on long term
borrowings.
Objective:
The objective to calculate this ratio is to ascertain the amount of profit available to cover the
interest. A higher ratio is considered better for the lenders as it means higher safety margin.
Calculation:
Interest Coverage Ratio = Profit before interest and tax/Interest on long term debt
=…………. Times
Question : P ltd has a long term loan Rs. 10,00,000. Interest on the loan for the year is Rs.
1,25,000 and its profit before interest and tax is Rs. 5,00,000. Calculate Interest coverage
ratio.
Solution : Interest coverage ratio = 5,00,000/1,25,000
= 4 times.
TURNOVER OR ACTIVITY OR PERFORMANCE RATIOS
Meaning:
114
It measures the effectiveness with which a firm use its available resources.
Objective:
To measure how well the resources have been used by the enterprise. A higher ratio indicates
better use of capital which in turn shows better profitability of the firm.
Usually the following ratios are calculated:
1.
2.
3.
4.
Inventory turnover ratio
Trade receivables/Debtors turnover ratio
Trade payables/Creditors turnover ratio
Working capital turnover ratio
Inventory turnover ratio
Meaning:
It establishes the relationship between Cost of Revenue from Operations and Average
Inventory.
Objective:
To determine the efficiency with which the Inventory of finished goods is converted into
Revenue from operations.
Calculation:
Inventory turnover ratio
= Cost of Revenue from operations /Average Inventory
= …….times
Cost of Revenue from operations = Revenue from operations – Gross Profit
Or
= Opening Inventory+ Net Purchases +Direct Expenses – Closing Inventory
Average Inventory = Opening Inventory + Closing Inventory/2
Question: Calculate Inventory turnover ratio:
Cost of goods sold/Revenue from operations
Rs. 9,00,000
Inventories in the beginning
Rs. 2,00,000
Inventories at the end
Rs. 2,50,000
Solution: Inventory turnover ratio = 9,00,000/2,25,000
= 4 times
115
Trade receivables/Debtors turnover ratio
Meaning:
It shows the relations between Credit revenue from operations and average trade receivables.
Objective:
To determine the efficiency with which the trade receivables are managed and collected.
Calculation:
Debtors turnover ratio
= Credit Revenue from operations/Average trade receivables
=……. times
Average trade receivables = Receivables in the beginning + Receivables at the end/2
Receivables = Debtors + Bills Receivables
Average Collection Period = 12 months/ Debtors turnover ratio=…..months
Question: Calculate Trade receivable or Debtors turnover ratio and Average collection
period.
Credit revenue from operation for the year is Rs. 12,00,000, Debtors Rs. 1,00,000; Bills
receivable Rs. 1,00,000.
Solution: Debtors turnover ratio = 12,00,000/2,00,000
= 6 times
Average collection period = No. of days in a year/Trade receivable ratio
=365/6
= 61 days approx..
Trade payables/Creditors turnover ratio
116
Meaning:
It shows the relation between Net credit purchases and Accounts payable.
Objective:
To determine the efficiency with which creditors make payment. A higher ratio indicates the
shorter payment period.
Calculation:
Trade payable turnover ratio = Net Credit Purchases / Accounts Payable
Net Credit Purchases = Net Purchases – Cash Purchases
Average Trade Payables = Opening Trade Payables+Closing Trade Payables/2
Trade Payables = Trade Creditors + Bills Payables
Question: Closing Trade Payables Rs. 45,000, Net Purchases Rs. 3,60,000, Cash Purchases
Rs. 90,000, Reserve for Discount on Closing Trade Payables Rs. 5,000. Calculate the
Creditors Turnover Ratio.
Solution: Creditors Turnover Ratio = (Rs. 3,60,000 – Rs. 90,000)/Rs. 45,000
= 6 times
Average Payment Period = 12 months/Creditors turnover ratio = ……..months
Working capital turnover ratio
Meaning:
It establishes the relation between Revenue from operations and Working capital.
Objective:
It indicates the firm’s ability to generate Revenue from operations per rupee of working
capital. Higher ratio indicates more efficiency in utilization of working capital and vice
versa.
Calculation:
Working capital turnover ratio = Revenue from operations / Working Capital
Working capital = Current Assets – Current Liabilities
117
Revenue from operations = Revenue(cash + Credit) – Revenue from operations return
Questions: Calculate Working capital turnover ratio from the following:
Cost of revenue from operations
Rs. 3,00,000
Current Assets
Rs. 2,00,000
Current liabilities
Rs. 1,50,000
Solution: Working capital turnover ratio
= 3,00,000/50,000
= 6 times.
PROFITABILITY RATIOS
Meaning:
These ratios measure management’s overall effectiveness as shown by the returns generated
on Revenue from Operations and Investment.
Objective:
These ratios help in measuring profitability of the firm. Higher ratios indicate better
performance.
The various types of profitability ratios are as follows:
1. Profitability Ratio in relation to Revenue from operations:
(a) Gross Profit Ratio
(b) Operating Profit Ratio
(c) Operating ratio
(d) Net profit ratio
2. Profitability Ratio in relation to Investment:
(a) Return on Investment or Return on Capital Employed
Gross Profit Ratio
Meaning:
It measure the relation between gross profit and revenue from operations.
Objective:
It determines the efficiency with which production and/or purchase operations and selling
operations are carried on.
Calculation:
Gross Profit ratio = Gross Profit / Revenue from operation X 100
Gross Profit = Revenue from operations – Cost of revenue from operations
118
Question: Calculate Gross Profit Ratio:
Revenue from operations – Rs. 6,00,000
Gross profit 25% on cost.
Solution: Let the cost = Rs.100
Gross profit = Rs. 25
Revenue from operations = Rs..125
Cost of revenue from operations = 100/125 X 6,00,000
= 4,80,000
Gross Profit = 6,00,000 – 4,80,000
= 1,20,000
Gross Profit Ratio = 1,20,000 /6,00,000 X 100
= 20%
Operating Profit Ratio
Meaning:
It measures the relationship between Operating Profit and Revenue from operations.
Objective:
To determine the operational efficiency of the management.
Calculation:
Operating profit ratio = Operating Profit / Revenue from operation X 100
Question: Revenue from operations Rs. 6,00,000, Operating Cost Rs. 5,10,000. Cost of
Revenue form operations Rs. 4,00,000. Calculate Operating Profit Ratio.
Solution: Operating Profit = Rs. 6,00,000 – 5,10,000 = Rs. 90,000
Operating Profit Ratio = Rs. 90,000/Rs. 6,00,000 X 100
= 15%
Operating ratio
Meaning:
119
It measure the relationship between Operting Cost and Revenue from Operations.
Objectives:
To determine the operational efficiency with which production and/or Purchases and Selling
Operations are carried on.
Calculation:
Operating ratio =
(Cost of revenue from operations + Operating expenses)/Revenue from operation X 100
Note: Both Operating Profit Ratio and Operating Ratio are complementary to each
other and thus if one of such ratios is deducted from 100 another ratio may be obtained.
Question: From the following information calculate operating ratio
Cost of revenue from operation = Rs. 6,00,000
Operating expenses = Rs. 40,000
Revenue from operation = Rs. 8,20,000
Revenue return from operations = Rs. 20,000
Solution:
Operating ratio =( 6,00,000 + 40,000/8,00000)X100 = 80%
Net profit ratio
Meaning:
It measures the relationship between Net Profit and Revenue from Operations.
Objective:
To determine the overall profitability due to various factors such as operational efficiency,
trading on equity etc.
Calculation:
Net profit ratio = Net Profit// Revenue from operations X 100
Net Profit
= Revenue from operations – Cost of Revenue from Operations – Operating Expenses –
Non-operating Expenses + Non Operating Incomes
120
OR
= Revenue from Operations – Operating Cost – Non-operating Expenses + Non-operating
incomes
OR
= Operating Profit – Non-operating Expenses + Non-operating Incomes
Question: Revenue from Operations Rs. 10,00,000, Gross Profit Ratio 25%, Operating Ratio
90%, Operating Rs. 1,00,000, Non-operating Expenses Rs. 5,000, Non-operating income Rs
55,000. Calculate Net Profit Ratio.
Solution:
Operating Profit Ratio = 100 – Operating Ratio = 100 - 90% = 10%
Operating Profit = Rs. 10,00,000 X 10/100 = Rs. 1,00,000
Net Profit = Operating Profit + Non-operating Incomes – Non-Operating Expenses
= Rs. 1,00,000+Rs. 55,000 – Rs. 5,000 = Rs. 1,50,000
Net Profit Ratio = Rs. 1,50,000/Rs. 10,00,000 X 100 = 15%
Return on Investment or Return on Capital Employed
Meaning:
It measures a relationship between Net Profit before Interest and Tax and Capital Employed.
Objective:
To find out how efficiently the long-term funds supplied by the creditors and shareholders
have been used.
Calculation:
Return on investment (ROI) = Net profit before interest, tax and dividend/capital
employed X 100
Capital employed = Share Capital + undistributed profit + long term loans – (Fictitious
assets like underwriting commission, Preliminary expenses, Discount or loss on issue of
shares and debentures and non-operating assets like Investments).
Or
= Net fixed assets + Working Capital
121
Working Capital = Current Assets – Current Liabilities
Question: From the following information calculate Return on Investment
Net profit after interest and tax – Rs. 1,20,000
Tax – Rs 1,20,000
Net fixed Assets – Rs.. 5,00,000
Long term trade investment – Rs. 50,000
Current assets – Rs. 2,20,000
12% debentures – Rs. 4,00,000
Equity share capital – Rs. 50,000
10% preference share capital – Rs. 50,000
Reserve and surplus – Rs. 1,00,000
Current liability – Rs. 1,70,000
Solution : Return on Investment = 1,20,000+ 1,20,000 + 48,000
5,00,000 + 50,000 + 50,000 = 6,00,000
= 2,88,000 X 100
= 48%
QUESTIONS: 4 marks
1. From the following information calculate:
(i)
Gross Profit Ratio
(ii) Inventory Turnover Ratio (iii) Current Ratio (iv)
Liquid Ratio (v) net Profit ratio
(vi) Working Capital
Ratio
Revenue from operations
Rs. 25,20,000
Net Profit
Rs. 3,60,000
Cost of Revenue from operations Rs. 19,20,000
Long-term Debt
Rs, 9,00,000
Trade Payables
Rs. 2,00,000
Average Inventory
Rs. 8,00,000
Other Current Assets
Rs. 7,60,000
Fixed Assets
Rs. 14,40,000
Current liabilities
Rs. 6,00,000
Net Profit before interest and tax Rs. 8,00,000
2. From the following calculate :
(a) Net Profit Ratio
(b) Operating Profit Ratio
Revenue from operations
Gross Profit
Office Expenses
Selling Expenses
Interest on Debentures
Accidental Losses
Income from Rent
Commission received
Rs. 2,00,000
Rs. 75,000
Rs. 15,000
Rs. 26,000
Rs. 5,,000
Rs. 12,000
Rs. 2,500
Rs. 2,000
122
( Ans Net profit ratio = 10,75% and Operatin profit ratio = 18%
3. Find the value of current liabilities and current assets if Current Ratio is 2.5:1. Liquid
Ratio is 1.2:1 and the value of inventory of the firm is Rs. 78,000.
(Ans. Current Assets = Rs. 1,50,000; Current liabilities = Rs. 60,000)
4. Current Ratio is 3.5. Working Capital is RS. 90,000. Calculate the amount of Current
Assets and Current Liabilities.
Hint: Current Assets – 1,26,000
5. Shine Limited has current ratio 4.5:1 and quick ratio 3:1; if the inventory is Rs.
36,000, calculate current liabilities and current assets.
Hint: Current Assets – 1,08,000
6. Current liabilities of a company are Rs. 75,000. If current ratio is 4:1 and liquid ratio
is 1:1, calculate value of current assets, liquid assets and inventory.
Hint: Inventory – 2,25,000
7. Handa Ltd. has inventory of Rs. 20,000. Total liquid assets are Rs. 1,00,000 and quick
ratio is 2:1. Calculate current ratio.
Hint: Current Ratio: 2:4:1
8. Calculate Debt-Equity ratio from the following information:
Total Assets Rs. 625000
Total Debt Rs. 500000
Current Liabilities Rs. 250000
Hint: Debt Equity Ratio – 2:1
9. Calculate following ratios from the following information:
i.
Current Ratio
ii.
Acid – Test Ratio
iii.
Operating Ratio
iv.
Gross Profit Ratio
Current Assets
Rs. 35000
Current Liabilities
Rs. 17,500
Inventory
Rs. 15,000
Operating Expenses
Rs. 20,000
Revenue from Operaions
Rs. 60,000
Cost of revenue from Operations
Rs. 30,000
Hint: 2:1, 1.14:1, 83.3%, 50%
10. Akshara Ltd. has 8% Debentures of Rs. 5,00,000. Its profit before interest & tax is Rs.
2,00,000. Calculate Interest Coverage Ratio.
Hint: 5 times
11. Calculate working Capital Turnover ratio from the following:
Hint: 3 times
12. Find the value of current liabilities and cuurent assets if Current ratio is 2.5:1, Liquid
Ratio is 1.2:1 and the value of inventory of the firm is Rs. 78,000.
Hint: Current Liabilities = Rs. 60,000, CurrntAssets : 1,50,000
13. A company’s Inventory Turnover is 5 times. Inventory at the end is Rs. 20,000 more
than that at the beginning. Revenue from operations are Rs. 8,00,000. Rate of Gross
123
Profit on cost ¼; Current liabilities Rs. 2,40,000. Acid Test ratio 0.75. Calculate
Current Ratio
Hint: 1.325:1
14. From the following information, calculate any two of the following ratios:
i.
Gross Profit Ratio;
ii.
Working Capital Turnover Ratio
iii.
Proprietary Ratio
Information:
Paid – up Capital
Rs. 8,00,000
Current Assets
Rs 5,00,000
Credit Revenue from Operations
Rs. 3,00,000
Cash revenue from operations
Rs. 75% of Credit Revenue from
operations
9% Debentures
Rs. 3,40,000
Current Liabilities
Rs. 2,90,000
Cost of Revenue from OPeartions Rs. 6,80,000
Hint: Gross Profit Ratio, (-) 29.5%, Working Caoital Turnover Ratio, 2.5
times.
Proprietary Ratio : 0.55:1
15. From the following information, calculate any two of the following ratios:
i.
Net Profit Ratio
ii.
Debt – Equity ratio
iii.
Quick Ratio.
Information
Paid-up capital
20,00,000
Capital Reserve
2,00,000
9% Debenture
8,00,000
Revenue from operations
14,00,000
Gross Profit
8,00,000
Indirect expenses
2,00,000
Current Assets
4,00,000
Current Liabilities
3,00,000
Opening Inventory
50,000
Closing Inventory – 20% more than Opening Inventory.
Hint: Net Profit – 42.86%, Debt Equity - 2:7, Quick Ratio – 1.13:1
16. i. Net Profit after Interest but before tax Rs 1,40,000; 15% long term debt rs.
4,00,000, Share holders fund Rs. 2,40,000; Tax rate 50%. Calculate Return on capital
employed.
ii. opening inventory : Rs, 60,000; closing inventory rs 1,00,000; Inventory Turnover
ratio 8 times; Selling Price 25% above cost. Calculate the gross profit ratio.
Hint : (i) 31.25%, (ii) 20%
17. On the basis of following information calculate
i.
Debt-Equity Ratio
ii.
Working Capital Turnover Ratio.
Information
Rs.
Revenue from Operation
30,00,000
124
Cost of revenue from Operation
Other current assets
Current Liabilities
Paid up share capital
6% debentures
9% loan
Debenture redemption reserve
Closing inventory
Hint: 0.5:1, 7.5 times
22,50,000
5,50,000
2,00,000
3,00,000
1,50,000
50,000
1,00,000
50,000
18. The Current Ratio is a Company is 2:1 state giving reason which of the following
would improve reduce or not change.
(1) Repayment of current Liabilities
(2) Purchase of goods on credit
(3) Sale of office equipment for Rs 8,000 (book value Rs.4,000)
(4) Payment of Dividend.
19. Debt equity ratio of a company is 0.5:1 which of the following suggestions would
increase, decrease or not change it(i)Issue of equity share
(ii)Cash received from debtors
(iii)Redemption of debenture
(iv)Purchase of good on credit.
20. From the following information cal.Int.Coverage Ratio
20,000 equity share capital 10 each
Rs 2,00,000
8% Prefence Share Capital
Rs.1,40,000
10% Debenture
Rs. 100,000
Profit after tax
Rs.1,50,000
Tax
Rs. 18,000
21. Calculate return on investment and debt Equity ratio form the following information
Net profit after interest and tax
10%Debenture
Tax Rate
Capital Employed
Rs. 3,00,000
Rs.5,00,000
40%
Rs.40,00,000
125
Chapter 5
CASH FLOW STATEMENT
LEARNING OBJECTIVES
 Meaning of Cash flow Statement
 Objectives of Cash flow statement
 Importance or Uses
 Limitations
 Preparation of Cash flow statement
Meaning of Cash flow Statement
Cash flow statement is governed by Accounting Standard – 3(Revised).
It means the statement of changes in cash and cash equivalents during a particular
accounting period.
Objectives of Cash flow statement
The objective of preparing CFS is(i) to ascertain Net cash flows from Operating,
Investing and Financing Activities of an enterprise (ii) to ascertain the Net Change
in Cash & Cash Equivalents.
Importance or Uses
1. Short term planning – it gives information about sources and applications of cash
and cash equivalents for a specific period.
126
2. Efficient cash management – it gives information about surplus or deficit of cash
and decide about the short-term investment of the surplus and can arrange the shortterm credit in case of deficit.
Limitations
1. Non cash transactions are ignored.
2. No Cash flow statement is not a substitute of Income Statement as it does not tell
the Profit or loss and Balance sheet as it does not disclose the complete financial position.
3. Historical in nature.
Preparation of Cash flow statement
Two methods of calculating cash flows from operating activity
(i)
Direct Method
(ii)
Indirect Method.
Cash flow Statement should be prepared and presented for each period for which finance
statements are presented.
The preparation of CFS has been made mandatory w.e.f. 1st April 2001.
KEY TERMS
Cash – Cash in hand and demand deposits with banks
Cash Equivalents – Short term, highly liquid investments that are readily convertible into
known amounts of cash and which are subject to an insignificant risk of changes in value.
Eg . – Treasury Bills, Commercial Papers, Commercial Bills, Call Money, Certificate of
Deposit.
Transactions not regarded as Cash Flows
Eg. Cash deposited/withdrawn into Bank, Purchase/Sale of Short-term Marketable Securities
Operating activities – The principal revenue-producing activities of the enterprise and other
activities that are not investing or financing activities.
Investing activities – The acquisition and disposal of Long-term Assets and other investment
not included in cash equivalents.
Financing activities - the activities that result in change in the size and composition of the
owners capital and borrowing of the enterprise.
FORMAT OF CASH FLOW STATEMENT (INDIRECT METHOD)
As per Accounting Standard -3 Revised
Particulars
Rs.
I Cash flow from Operating Activities
Net Profit as per P&L A/c
+ Transfer to Reserves
Proposed Dividend for current year
Interim Dividend paid during the year
Provision for tax for the current year
+/- Extraordinary items
Net profit before Tax and Extraordinary items
127
Adjustments for Non-cash and Non-operating items
+ Depreciation
Interest on Borrowings and Debentures
Loss on Sale of Fixed Assets
- Interest Income
Dividend Income
Rent Income
Profit on sale of Fixed Assets
Operating profit before Working capital changes
+ Increase in Current Assets and decrease in Current liabilities
- Decrease in Current Assets and Increase in Current liabilities
Cash generated from operations
- Income tax paid
Cash flow from (or used in) Operating Activities (A)
II Cash flow from Investing Activities
+ Proceeds from Sale of Tangible/Intangible assets
Interest and Dividend received (for non-finance companies only)
Rent Income
- Purchase of Tangible/Intangible assets
+/- Extraordinary items
Cash flow from(or used in) Investing Activities (B)
III Cash flow from financing activities
+ Proceeds from issue of shares, Debentures and other long
Term borrowings
- Final/interim dividend paid
- Interest on debentures and loans
- Repayment of loans
- Redemption of Debentures/Preference Shares
- Share issue expenses
Cash flow from( or used in) financing activities (C)
Net Increase/Decrease in Cash and Cash Equivalents (A+B+C)
+ Cash and Cash equivalents in the beginning of year
Cash in hand
Cash at bank(less bank overdraft)
128
Short term deposits
Marketable securities
- Cash and Cash Equivalents at the end of the year
Cash in hand
Cash at bank(less bank overdraft)
Short term deposits
Marketable securities
VERY SHORT ANSWER QUESTIONS
1. What do you mean by Cash Flow statement?
2. What are the various activities classified as per AS-3(revised) related
to Cash flow statement?
3. State one objective of Cash flow Statement.
4. What do you mean by cash equivalents?
Ans. Short-term highly liquid investments which are readily
convertible into known amount of cash and which are subject to an
insignificant risk of change in the value.
5. State the category of the following items for a financial as well as nonfinancial company
(a) Dividend received
(b) Interest received (c) Interest paid
(d) Dividend paid
Ans.
(a)
(b)
(c)
(d)
6.
Financial company
Non-financial company
Dividend received
Operating activity
Investing activity
Interest received
Operating activity
Investing activity
Interest paid
Operating activity
financing activity
Dividend paid
Financing activity
financing activity
Calculate the net amount of cash flow if a fixed asset costing Rs.
32,000 (having a book value of Rs. 24,000) is sold at a loss of Rs.
8,000.
Solution: Cash Inflow from Investing activities = Rs. 16,000
(Book value-loss=Amount received from sale)
129
(Rs. 24,000-Rs.8,000=Rs. 16,000)
7. Calculate Cash Flow from Operating Activities from the following
information:
Particulars
Amount (Rs.)
Profit for the year 2013-2014
1,00,000
Transfer to General Reserve during the year 20,000
Depreciation provided during the year
40,000
Profit on sale of furniture
10,000
Loss on sale of Machine
20,000
Preliminary Expenses written off during the year20,000
Additional Information:
Particulars
March(2013)
Debtors
Bills Receivable
Stock
Prepaid Expenses
Creditors
Bills Payables
Outstanding Expenses
March(2014)
20,000
14,000
30,000
10,000
36,000
30,000
4,000
40,000
30,000
6,000
6,000
36,000
50,000
8,000
(Ans. 1,94,000)
8. Following balances appeared in the Machinery Account and
Accumulated Depreciation Account in the books of JB Ltd.
Particulars
March (2013)
March (2014)
Machinery A/c
17,78,985
26,55,450
Accumulated depreciation A/c3,40,795
4,75,690
Additional Information:
Machinery costing 2,65,000 on which accumulated depreciation was
Rs. 1,00,000 was sold for Rs. 75,000. You are required to
(i)
Compute the amount of Machinery purchased, depreciation
charged for the year and loss on sale of Machinery.
(ii)
How shall each of the items related to Machinery be shown in
Cash Flow Statement.
Hint: Purchase of Machinery= Rs. 11,41,465
Sale of Machinery = Rs. 75,000
Depreciation Provided = Rs. 2,34,895
Loss on sale of machinery = Rs. 90,000
9. From the following information, prepare a Cash Flow Statement:
Balance Sheet as at
130
Particulars
Equity and Liabilities
(1) Shareholders’ Funds
(a) Share capital
(b) Reserves and
Surplus
(2) Non-Current Liabilities
(3) Current Liabilities
Trade Payables
Total
II.
ASSETS
(1) Non-Current Assets
Tangible Fixed Assets
Intangible
Assets(Goodwill)
(2) Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Short-term Loans &
Advances (Adv. Tax)
Total
Not
e
no.
31.03.1
4
Rs.
31.03.1
3
Rs.
1
2
1,30,00
0
85,000
90,000
50,000
I.
22,000
2,37,00
0
17,400
1,57,40
0
93,400
1,000
21,000
39,000
6,000
5,000
2,37,00
0
Note 1. SHARE CAPITAL
Particulars
31.03.14
Equity shares of Rs. 10 each1,30,000
90,000
Note 2. RESERVES AND SURPLUS
General Reserve
55,000
Profit and loss A/c
30,000
30,000
20,000
22,000
36,000
5,000
1,57,40
0
31.03.13
Additional Information: During the year Depreciation charged on fixed
assets was Rs. 20,000 and Income Tax Rs. 5,000 was paid in advance.
(Ans. Purchase of fixed Asset = 92,600)
10. From the following information prepare Cash Flow statement:
Particulars
I.
31.03.14
31.03.13
EQUITY AND LIABILITIES
(1) Shareholders’ funds
Share capital
Reserves & Surplus (P&L A/c)
131
II.
(2) Non-Current Liabilities (6%
Debentures)
(3) Current Liabilities
Trade Payables
Other Current Liabilities
Total
ASSETS
(1) Non-Current Assets
Tangible Fixed Assets
Non-Current Investments
(2) Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Total
1,00,000
60,000
1,00,000
30,000
80,000
60,000
35,000
65,000
30,000
70,000
3,30,000
2,90,000
1,90,000
1,50,000
30,000
40,000
55,000
45,000
10,000
40,000
40,000
20,000
3,30,000
2,90,000
Andditional Information:
(i)
A piece of Machinery costing Rs. 5,000 on which depreciation
of Rs. 2,000 had been charged was sold for Rs. 1,000.
Depreciation charged during the year was Rs. 17,000.
(ii)
During the Current year New Debentures have been issued on
1st Aug.
(Ans. Operating Activities = 23,400, Investing Activities = (49,000),
Financing Activities = 15,600)
11. From the following information prepare a Cash flow Statement:
Particulars
I.
BALANCE SHEET as at
No
te
no.
EQUITY AND LIABILITIES
(1) Shareholders’ Funds
31.03.14
31.03.13
132
II.
(a) Share Capital
(b) Reserves and Surplus
(2) Current Liabilities
Trade Payables
Short-term Provisions(for
Taxation)
Total
ASSETS
(1) Non-current Assets
Tangible fixed Assets
Intangible Assets (goodwill)
Non-current Investments (10%
Investments)
(2) Current Assets
Inventories
Trade Receivables
Provision for Doubtful Debt
Cash & Cash Equivalents
Total
Note No. 1
Share Capital
Equity shares of Rs. 10 each
1,00,000
Note NO. 2
Reserves and Surplus
General Reserve
14,000
Profit & Loss A/c
16,000
1
2
1,00,000
31,000
1,00,000
30,000
6,200
18,000
9,200
16,000
1,55,200
1,55,200
72,000
12,000
11,000
77,000
12,000
10,000
23,400
22,200
(600)
15,200
30,000
20,000
(400)
6,600
1,55,200
1,55,200
1,00,000
18,000
13,000
Additional Information: Deprecition charges Rs. 8,000. Provision for
taxation of Rs. 19,000 made during the year.
(Ans. Operating activities = 11,600; Investing Activities = (3,000))
12. From the following information, prepare a Cash Flow Statement:
Balance Sheets as at
Particulars
Note 31.03.14 31.03.13
no.
I.
EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
1
50,000
45,000
133
(b) Reserves and Surplus
(2) Non-Current Liabilities (10% Loan on
Mortgage)
(3) Current Liabilities
Trade Payables
Other current liabilities
Total
(c) ASSETS
(3) Non-current Assets
Tangible fixed Assets
Accumulated Depreciation
Non-current Investments (10%
Sinking fund Investments)
(4) Current Assets
Inventories
Trade Receivables
Provision for Doubtful Debt
Cash & Cash Equivalents
Total
2
29,950
40,000
28,275
15,000
10,000
18,000
7,500
1,44,950 1,38,775
78,000
(15,200)
77,000
(11,400)
16,000
12,000
35,000
21,300
(1,350)
11,200
30,600
23,500
(1,425)
8,500
1,44,950 1,38,775
Note No. 1
Equity shares of Rs. 10 each
45,000
Note No. 2
Sinking fund
12,000
Retained Earnings
16,275
50,000
16,000
13,950
Additional Information:
Dividend amounting to Rs. 5,000 was paid during the year.
(Ans. Operating Activities = 10,500; Investing Activities = (3,800);
Financing Activities = (4,000))
134
SOLOVED SAMPLE PAPER -I
ACCOUNTANCY
CLASS-XII
Time Allowed-3 Hrs.
Marks-80
General Instructions:1. The question paper is divided into two parts.
2. All the questions are compulsory.
3. All parts of a question to be done together.
4. Prepare working notes wherever required.
5. The question paper contains 25 questions.
Max.
PART-A
(Partnership Firm And Company Accounts)
Q1. A and B are partners are partners in a firm without a partnership deed, A is an active
partner and claimsa salary of Rs.10,000 per month state with reasons whether the claim is
valid or not.
(1)
Q2. P and Q are partners in a firm sharing profit in the ratio of 7:5. They admit R as a partner
in the firm. The new profit ratio among P, Q and R is1:1:2. Calculate the sacrifice ratio.
(1)
Q3. State the two main rights that a newly admitted partner acquires in the firm.
(1)
Q4. Give two circumstances in which gaining ratio is applied.
(1)
Q 5. What is meant by debenture issued as collateral security?
(1)
Q6. What is under subscription?
(1)
Q7. State any two conditions for the issue of share at discount.
(1)
Q8. A, B and C are partners in a firm. They had omitted interest on capital @10% p.a. for
three years ended 31st December 2011. Their fixed capitals on which interest was to be
calculated throughout
Were: - Rs.2,00,000
Rs.1 60,000
Rs.1,50,000
Give the necessary adjusting journal entry with working notes.
(3)
Q9. Pass necessary journal entries for issue of debentures for the following:i.
Gupta ltd issued 1000 12% Debentures of Rs. 100 each at a discount of 10%
repayable at a premium of 5%.
ii.
Hriday ltd issued 8000 9%Debentures of Rs. 100 each at a premium of Rs. 20
per debenture repayable at a premium of Rs. 12 per Debenture.
(3)
Q10. On 1st January 2009 kalpana garments ltd issue 20008%Debentures of Rs.100 each at
par and redeemable at par after 4 years and offered the holders an option to convert their
holding into equity share of Rs. 10 each at a premium of Rs. 5 per share any time after the
expiry of one year on 1st Jan 2011 30% holder exercised their option.
Give the journal entry on Jan 1st 2011.
(3)
135
Q11. After doing their post graduation Mohan suggested to his class mate Sohan to form a
partnership to sell low cost school uniforms to the students belonging to low income group
who have been admitted to the private school of the city as per the provision of right to
education act 2009.sohan agreed to the proposal and requested to admit his friend Hema, a
visually handicapped unemployed person also to be a member of the proposed firm. All of
them agreed to form a partnership firm but they were not having enough capital to invest.
Mohan therefore persuaded a rich friend of his Rohan, who hailed from Mumbai to be a
partner and contribute the required capital. All of them formed a partnership on the following
terms:i.
Mohan will contribute Rs. 2, 00,000, Sohan Rs. 1, 00,000, Rohan Rs.8, 00,000
and Hema will be partner without capital.
ii.
Profit will be equally.
iii. Interest on capital will be allowed @10% p.a.
The profit of the firm for the year ended 31st march 2012 were
Rs.4, 00,000.
a) Identify any two value which according to you motivated them to form the
partnership firm.
b) Prepare P&L appropriation account of the firm for the year ending 31st march
2012.
(2+2 = 4)
Q12. A, B and C were partners sharing profits in the ratio of 3:2:1 their balance sheet as on
1st April 2012 was as following:Balance Sheet
Liabilities
Amount
Assets
Amount
Creditors
40,000
Cash
32,000
Employed provident fund
52,000
Debtors
32,000
Capital:Stock
1,60,000
A. 2,00,000
Furniture
68,000
B. 1,40,000
Building
2,40,000
C. 1,00,000
4,40,000
5,32,000
5,32,000
C retires on the above date and it was agreed that:i.
C’s share of goodwill was Rs.60, 000.
ii. 5%Provision for doubtful debts was to be made on debtors.
iii. Sundry creditors were valued Rs. 8,000 more than the book value.
Pass necessary journal entry for the above transaction on C’s retirement.
(4)
Q13. A company purchased a running business from M/s Ram brothers for a sum of Rs. 7
50,000 payable Rs.1,50,000 by cheque and for the balance issue equity share of Rs.10 each at
premium Rs.2 per share.the Assets and liabilities consisted of the following :
i. Plant & Machinery
Rs.2,00,000
ii. Land & Building
Rs.2,00,000
iii. Sundry Debtor
Rs.1,50,000
iv.
Stock
Rs.2,00,000
136
v.
vi.
Cash
Sundry creditors
Rs.1,50,000
Rs.1,00,000
You are required to pass the necessary journal entries in the company’s book.
(4)
Q.14.Gopal ltd.was registered with an authorized capital of rupees 1crore,divided into equity
shares of Rs.10 each.The company offered for public subscription all the shares,public
applied for 9,50,000 shares and allotment was made to all the applicants ,all the calls were
made and duly received except the final call of Rs. 2 per share on 1000 shares.Show how
the share capital a/c will be shown in the companies balance sheet also prepare note to the a/c
for the same.
(4)
Q15 .Kalu and Lalu are partners in a firm sharing profits in the ratio 3:2.The partnership
deed provided that kalu was to be paid salary of rs.10,000 per month and lallu was to get a
commission of rupees 1,00,000 per year.Interest of Capital was to be allowed @5%p.a and
interest on drawing was to be charged @6%p.a,Interest on kalu’s drawing was Rs.2500 and
on Lalu’s drawing Rs.900.Capital of the partners were Rs.5,00,000 and 3,00,000 respectively
and were fixed.The firm earned a profit of Rs.4,20,000 for the year ended 31st march
2012.Prepare the profit and loss appropriation A/c and partners capital A/C and the current
A/C.
Q16. A,B,C are partners sharing profits and losses in the ratio 3:2:1 and their balance sheet as
on 31st march 2012 stood as under:
Liabilities
Amt.
Assets
Amt.
A’s capital
1,50,000
Building
2,10,000
B’s capital
1,50,000
Machinery
75,000
C’s capital
1,50,000
Stock
96,000
Creditors
51,000
Debtors
45,000
Workmens’s compensation
Bank
1,05,000
reserve
30,000
5,31,000
5,31,000
A died on June 30th 2012 and following decisions were taken by surviving partners
According to the partnership deed his executor were entitled to :
a) The deceased partners capital as appearing in the last balance sheet and
interest thereon at @6%p.a upto the date of death.
b) His share of profit for the period he was alive should be based on the figure of
31st march 2012
c) Goodwill according to his share of profit to be calculated by taking twice the
amount of the average profit of the last 3 years,the profit of the previous years
were:
2010:30,000
2011:45,000
2012:33,000
d) Assets were to be revalued:
Building:2,40,000
137
Stock:90,000
Prov.for bad debts :@10%p.a
Prepare revaluation a/c and A’s capital a/c
(6)
Q17.A ltd invited applications for issuing 1,50,000 equity shares of rs.10 each at a discount
of 10%.The amount was payable as follows:
On application Rs.2 per share
On allotment Rs.2 per share
On first and final call balance.
Applications for rs.3,00,000 shares were received.
Applications for 50,000 shares were rejected and application money of these applicants was
refunded.Shares were allotted on prorata basis to the remaining applicants Excess money
received with these applicants was adjusted towards sum due on allotment.Neha who had
applied for 2,500 shares, failed to pay the allotment and first and final call money.Hemant
did not pay the first and final call money on his 2000 shares.All these shares were forfeited
and later on 2000 of these shares were reissued at Rs.17 per share fully paid up.The reissue
shares included all the shares of Neha
a) Which value has not been followed by A ltd. While allotting for shares.
b) Pass the necessary journal entries in the books of A ltd. For the above
transactions.
OR
Jk.ltd invited application for issuing 70,000 equity shares of Rs.10 each at a premium of
rs.2 per share the amount was payable as follows:
On application Rs.3 per share
On allotment Rs.4(including premium Rs.2)
On first and final call balance
Applications for 65,000 shares were received and allotment was made to all the applicants .A
shareholder Ram who was allotted 2000 shares failed to pay the allotment money. His shares
were forfeited immediately after the allotment.Afterwards the first and final call was made.
Soham who had 3,000 shares failed to pay the first and final call his shares were also
forfeited.Out of forfeited shares 4,000 were reissued at Rs.20 per share fully paid up.The
reissued share included all the shares of Ram.
a) Which value has been followed by the JK ltd. While alloting the shares.
b) Pass the necessary journal entries for the above transactions in the book of JK.ltd
(8)
Q18.A,B,C are partners in a firm sharing profits in the ratio 2:1:1.Their balance sheet as on
31st march 2012 was:
Liabilties
Amt
Assets
Amt
Creditor
50,000
Goodwill
30,000
B/P
6,000
Land and Building
86,000
Capital a/c’s
Plant and machinery
56,000
A-80,000
Motor car
54,000
B-80,000
Debtors
48,000
C-60,000
2,20,000
Cash
8,000
General reserve
10,000
Profit & Loss A/c
4,000
138
2,86,000
2,86,000
The firm was dissolved on the date the assets realized:
Goodwill:20,000 ,
Land and building:1,50,000,
Plant and machinery:50,000,
Motor car:25,000,
Debtors:50%of the book value,
The realisation expenses were Rs.2000.prepare realisation a/c partners capital A/C and cash
A/C.
OR
A and B are partners sharing profits in the ratio 3:2.They admitted C into the firm for 1/6th
share in the profit to be contributed equally by A and B.On the date of admission the Balance
sheet of A and B was as follows:Liabilities
Capital :
A. 3,00,000
B. 2,00,000
Reserve fund
Bank loan
Creditors
Amt.
5,00,000
40,000
1,20,000
20,000
6,80,000
Assets
Machinery
Furniture
Stock
Debtors
Cash
Amt.
2,60,000
1,80,000
1,00,000
80,000
60,000
6,80,000
Terms of C’s admission were as follows:i.
C will bring Rs. 250000 as his capital and necessary amount of goodwill in
cash
ii.
Furniture is to be revalued at Rs. 240000 and value of stock to be reduced by
20%
iii. Provision for doubtful debt is 10%
iv.
Goodwill of the firm is to be valued at four year purchase of the average super
profit of the last three years average profit of the last three years are , Rs.
200000, while the normal profit that can be earned on the capital employed are
Rs. 120000.
Prepare Revaluation Account , Partners Capital Account and Balance Sheet of
the firm after admission of C.
(8)
Part-B
(Financial Statement Analysis)
139
Q19. State how qualitative aspect are ignored in financial statement analysis.
(1)
Q20. Interest received by a finance company is classified under which kind of activity while
preparing a Cash Flow statement.
(1)
Q21.State weather cash deposit in bank will result in inflow , outflow or not flow of cash.
(1)
Q22. Give the major headings under which the following item will be Shown in a company’s
balance sheet as per revised schedule VI,Part I of Company Act 1956.
(i)Sundry Creditors
(ii)Preliminary Expenses
(iii)Interest accrued on investment
(iv)Provision for taxation
(v)Loose Tools
(vi)Goodwill
(3)
Q23. Prepare a comparative statement of profit and loss with help of following information.
Particular
2011
2012
Revenue from operations
10,00,000
15,00,000
Expenses
6,00,000
10,50,000
Other Income
2,00,000
1,80,000
Income Tax
50%
50%
(4)
Q24.Working capital of a company is Rs 60,000 . Its Current Ratio is 2.5:1 Calculate the
value of
(i)Current Liability
(ii)Current Assets
(iii)Acid Test Ratio assuming stock of Rs. 40,000
(4)
Q25. From the following summarized balance sheet of a company , Calculate Cash Flow
from Operating Activities.
Particular
31.3.11
31.3.12
I. Equity and Liabilities
Shareholders Fund
Equity Share Capital
2,00,000
2,00,000
Reserve and Surplus
60,000
1,20,000
Non-Current Liabilities
6% Debenture
1,20,000
1,60,000
Current Liabilities
Creditor
60,000
70,000
Bill Payable
60,000
20,000
Other Current Liabilities
80,000
90,000
II.Assets
Non-Current Assets
Fixed Assets
Non-Current Investments
Current Assets
Stock
Debtor
Cash
5,80,000
6,60000
3,00,000
80,000
3,80,000
60,000
80,000
80,000
40,000
1,10,000
90,000
20,000
140
5,80,000
6,60000
Additional Information.
(i)
A Piece of machinery costing Rs.10,000 on which depreciation of Rs. 4,000
has been charged was sold for Rs.4000 . Depreciation charged during the year
was Rs. 34000.
(ii)
New Debentures have been issued on 1st October 2011.
(6)
Accountancy
SAMPLE PAPER -I
MARKING SCHEME
1.As in the absence of partnership deed, no partner is entitled to get any salary. So A’s claim
is not valid.
(1 )
2.2:1.
(1/2+1/2=1)
3. Right of sharing in the assets of the firm.
Right of sharing in the future profit of the firm.
(1/2+1/2=1)
4. Retirement of a partner
Death of a partner
(1/2+1/2=1)
5.Debencture issued as collateral securities means an additional and secondary security for
securing loan.
(1)
6.When the number of shares applied for is less than the number of share offered for issue,it
is known as under subscription.
(1)
7.Class Already Issued: The shares to be issued at a reduced price must belong to a class of
shares that has already been issued.
At Least One Working Year: A company can issue shares at discount only if it has been
functioning for a minimum period of one year from the date it was entitled to begin business
transactions.
(1/2+1/2=1)
Or
141
Any other correct point
Particulars
B’s current a/c…….dr.
Amt.
2000
C,s current a/c ……dr.
8000
To A’s current a/c
Amt.
10000
(2 marks for entry and 1 mark for full working note)
9.
Particulars
(a)1.Bank a/c….dr
Amt.
100000
To debenture application and allotment a/c
Amt.
100000
Deb.appli.&allot a/c…..dr
Loss on issue
a/c……dr
To deb. a/c
100000
10000
To premium on redemtion a/c
100000
(b)Bank a/c….dr
10000
To deb. Application&allot a/c
960000
deb app &allot….dr
Loss on issue a/c…..dr
To debenture a/c
960000
960000
96000
To security premium a/c
800000
To premium on redemption a/c
160000
142
96000
(1/2+1+1/2+1=3)
10.
Particulars
Bank a/c dr.
Amt.
200000
To deb app&allot a/c
Amt.
200000
Deb app &allot a/c..dr
200000
To 8% deb a/c
200000
8% deb a/c..dr
60000
To debenture holder a/c
60000
Debenture holder a/c..dr
60000
To equity cap a/c
40000
To security premium a/c
20000
(1/2+1/2+1+1=3)11.
Following are the value which motivated mohan and sohan to form the partnership firm:
(i).Studentssensitivity towards belonging to low income group.
(ii). Supporting the implementation of right to education act 2009
(iii) . Providing entrepreneurial oppurtunity to people from different areas of the country.
(iv). any other correct point.
(any 2, 1+1=2)
Profit&loss Appropriation a/c
Particulars
Interest on capital a/c-
Amt.
Particulars
Profit
Amt.
400000
143
Mohan-20000
Sohan-10000
Rohan-80000
Profit
110000
Mohan-72500
Sohan-72500
Rohan-72500
Hema-72500
290000
400000
400000
1 mark correct interest on capital and 1 mark correct profit.
(1 + 1 = 2)
12.
Pariculars
Revaluation a/c
Dr.
Amt.
9600
To prov for bad debts
Amt.
1600
To sundry creditors
A’s capital
Dr.
B’s capital
Dr.
4800
C’s capital
Dr.
3200
8000
To revaluation
144
1600
A’s capital
9600
dr.
B’s capital dr.
6000
To C’s capital a/c
C’s capital Dr.
4000
10000
108400
108400
To C’ loan a/c
(1 mark for each correct entry) (1x4 = 4)
13
Pariculars
Plant and Machine
Dr.
Amt.
2,00,000
Land And Building Account Dr.
2,00,000
Debtors Account Dr.
1,50,000
Stock Account Dr.
2,00,000
Cash Account Dr.
1,50,000
Amt.
1,00,000
To Creditor
7,50,000
To Ram brothers
50,000
To Capital Reserve
1,50,000
Ram Brothers Account Dr.
1,50,000
To Bank Account
6,00,000
Ram Brothers Account Dr.
To Equity share capital
5,00,000
1,00,000
To Security Premium
145
(11/2 +1+11/2)
14.
Balance Sheet OfGopal Ltd
As at…………
Particular
Note No.
Current Year
Previous YearRs
Rs
Equity and Liability
Share holder’s fund
(a)Share Capital
1
94,98,000
Note to account
Note-1
Share capital
Authorised capital
1,00,00,000
10,00,000 share of Rs. 10 each
Issued capital
1,00,00,000
146
10,00,000 share of Rs. 10 each
Subscribed,called up and payed up capital
9,50,000 share of Rs. 10 each 95,00,000
-calls in arrear
2,000
94,98,000
(1+1/2+1/2+2=4)
15.
Profit and loss appropriation account
For the year ending 31 march 2012
To Kalu’s Sal.
1,20,000
By Profit
To Lalu’scomm.
1,00,000
Interest on Drawing
Int on capital
K. 25000
4,20,000
K. 2,500
40,000
L. 15000
L.
900
3,400
To profit
1,63,400
K. 98,040
L. 65,360
4,23,400
4,23,400
3 Mark
Partner’s Capital Account
147
Particular
To balance c/d
K
5,00,000
L
3,00,000
Particular
By balance b/d
K
5,00,000
L
3,00,000
1Mark
Partner’s Current Account
Particular
Int. on draw.
K
2500
L
900
Particular
By Salaries
Bal. c/d
2,40,540
1,79,460
By Commission
K
1,20,000
L
1,00,000
Int. on cap.
By profit
2,43,040
2 Mark
(3+1+2=6)
Ans-16Revaluation Account
To Stock
6,000
To Provision for b/d
4,500
To Profit
A. 9,750
B. 6,500
C. 3,250
19,500
1,80,360
By building
30,000
2A’S Cap. Account
To Execute AC
2,17,125
2,17,125
25000
15000
98,040
2,43,040
65,360
1,80,360
30,000
30,000
Bal b/d
Int. on cap.
P& L Suspense
Rev acc. (P)
W.C.R
B’S Cap.
C’S Cap.
1,50,000
2,250
4,125
9,750
15,000
24,000
12,000
2,17,125
4(2+4=6)
Ans. 17 (a) A limited has not followed the value of equality by rejecting the applications.
The better alternative may be to allot share proportionately to all the applicants
148
1(b)
Journal
Date Particular
Bank A/C
Dr.
To Share application A/C
Share application account
Dr.
To Share capital account
To Bank Account
To share allotment account
Share allotment
Dr.
Discount on issue of share account
Dr.
To share capital account
Bank A/C
Dr.
To Share allotment account
Share first & Final A/C
Dr.
To Share capital account
Bank A/C
Dr.
To Share First & Final Account
Share Capital A/C
Dr.
To Share Forfeited
To discount A/C
To Share allotment account
To Share First & Final Account
Bank A/C
Dr.
To Share capital account
To Security Premium
Share forfeited A/C
Dr.
To Capital Reserve A/C
L.F Rs.
6,00,000
Rs.
6,00,000
6,00,000
3,00,000
1,00,000
2,00,000
3,00,000
1,50,000
4,50,000
99,000
99,000
7,50,000
7,50,000
7,32,500
7,32,500
35,000
13,000
3,500
1000
17,500
34,000
20,000
14,000
7,000
7,000
OR
J.K limited has followed value of equality by allotting share to all the applicants’ i.e. by not
rejecting any applications.
Journal
149
Date
Particular
Bank A/C
Dr.
To Share application A/C
Share application account
Dr.
To Share capital account
Share allotment
Dr.
To share capital account
To Security Premium
Bank A/C
Dr.
To Share allotment account
Share capital account
Dr.
Security Premium
Dr.
To Share Forfeited
To Share allotment account
First & Final Call account Debit
To Share Capital account
Bank A/C
Dr.
To Share First & Final Account
Share Capital A/C
Dr.
To Share Forfeited
To Share First & Final Account
Bank A/C
Dr.
To Share capital account
To Security Premium
Share Forfeited account
Dr.
To Capital Reserve A/C
18.
Particulars
To Goodwill
To land and building
To plant&machinery
To Motor car
To debtors
To bank :-
L.F Rs.
Rs.
1,95,000
1,95,000
½
½
1,95,000
1,95,000
½
2,60,000
1,30,000
1,30,000
½
1
2,52,000
2,52,000
½
10,000
4,000
6,000
8,000
½
1
3,15,000
3,15,000
3,00,000
3,00,000
1
1
30,000
15,000
15,000
80,000
40,000
40,000
16,000
16,000
Realisation a/c
Amt.
30000
86000
56000
54000
48000
Particulars
By creditors
By B/P
By Cash :
G/W-20000
land&building-150000
Plant and machinery-
Amt.
50000
6000
150
realization expense-2000
creditors 50000
B/P-6000
58000
50000
motor car-25000
debtors-24000
By partners cap
A-3500
B-1750
C-1750
269000
7000
332000
332000
Partners capital a/c
Particulars
Profit/Loss
Realisation(L)
Cash
A
2000
3500
79500
85500
B
1000
1750
79750
82500
C
1000
1750
59750
62500
Particulars
Bal b/d
G/R
A
80000
5000
B
80000
2500
C
60000
2500
85000
82500
62500
(4 +3 + 1 = 7)
Cash A/C
Particulars
Bal B/D
Realisation
Amt.
8000
269000
Particulars
By partners cap.
A-79500
B-79750
C-59750
Realisation
277000
Revaluation a/c
Particulars
Stock
Bad debts
Partners capital
A-19200
B-12800
Partners Capital Account
Particular
A
B
Bal. c/d
3,63,000
2,48,800
Amt.
20000
8000
219000
58000
277000
Particulars
Furniture
Amt.
60000
32000
60000
C
2,50,000
Amt.
60000
Particular
Balance b/d
Cash
Premium
Reserve
Profit
A
3,00,000
B
2,00,000
20,000
24000
19200
20,000
16000
12800
C
2,50,000
151
3,63,000
2,48,800
Balance sheet as on 31st
Liabilities
Capital
A. 3,63,200
B. 2,48,800
C. 2,50,000
Bank
Creditor
2,50,000
Amount
8,62,000
1,20,000
20,000
10,02,000
363200
Assets
Machinery
Furniture
Stock
Debtor
Cash
248800
250000
Amount
2,60,000
2,40,000
80,000
72,000
3,50,000
10,02,000
(2 + 3 + 3 = 8)
Part-B
19. Since the financial statement are confined to the monetary matters only, the qualitative
elements like quality of product, quality of management public relation are ignored while
carry out the analysis of financial statement. (1)
20. interest received b6y finance company is classified as operating activity because interest
is the income from financial revenue producing activities. (1)
21. Cash deposit in bank will result in no flow of cash because cash includes bank also.
Item
Major Heading
Sundry Creditor
Current Liabilities
Preliminary Expenses
Deducted from security premium, reserve if
available or debit in statement in P&L.
Current Assets
Int accrued on investment provision for
Current Liabilities
taxation
Current Assets
loose tools
Non Current Assets
goodwill
(1/2X6=3)
Particular
2011
2012
Change(base year 2011)
Absolute fig
%
152
Revenue from operative
Add: other income
Total revenue
Less: expenses
Profit before tax
Less: tax paid
Profit after tax
10,00,000
2,00,000
12,00,000
6,00,000
6,00,000
3,00,000
3,00,000
15,00,000
1,80,000
16,80,000
10,50,000
6,30,000
3,15,000
3,15,000
5,00,000
(20,000)
4,80,000
4,50,000
30,000
15,000
15,000
50%
10%
40%
75%
5%
5%
5%
(1 x 4 = 4)
24. Working capital=Current Assets-current Liabilities
Current Ratio= 2.5:1
Let us assume current lia=x
Current Assets=2.5x
W.C (60,000)=current assets-current liabilities
60,000=2.5x-x=1.5x
Therefore,
i. Current lia (x)=60,000/1.5=40,000
ii. Current assets= 40,000 X 2.5=1,00,000
iii. A.T.R = quick assets /current lia
iv.
Quick assets = C.A-stock = 1,00,000-40,000= 60,000
v. A.T.R = 60,000/40,000= 1.5:1
25.
(1)
(1)
(1)
(1)
Cash flow statement
For the year ended 31st march 2012
Particular
A. Cash from op-activity
Net profit before extra ordinary item
Add: non operational expenses
DepInterestLoss on sale of machinery
Net profit before working capital change
Add : C.A & C.L
Creditor
Other current liabilities
Less : C.A & C.L
Stock
Debtor
B/P
Cash flow from operative activity
Amount
Amount
60,000
34,000
9,000
2,000
10,000
10,000
30,000
10,000
40,000
45,000
1,05,000
20,000
1,25,000
80,000
45,000
153
Accountancy
Set - I
MARKING SCHEME
1.As in the absence of partnership deed, no partner is entitled to get any salary. So A’s claim
is not valid.
(1 )
2.2:1.
(1/2+1/2=1)
3. Right of sharing in the assets of the firm.
Right of sharing in the future profit of the firm.
(1/2+1/2=1)
4. Retirement of a partner
Death of a partner
(1/2+1/2=1)
5.Debencture issued as collateral securities means an additional and secondary security for
securing loan.
(1)
6.When the number of shares applied for is less than the number of share offered for issue,it
is known as under subscription.
(1)
7.Class Already Issued: The shares to be issued at a reduced price must belong to a class of
shares that has already been issued.
At Least One Working Year: A company can issue shares at discount only if it has been
functioning for a minimum period of one year from the date it was entitled to begin business
transactions.
(1/2+1/2=1)
Or
Any other correct point
Particulars
B’s current a/c…….dr.
Amt.
2000
C,s current a/c ……dr.
8000
To A’s current a/c
Amt.
10000
(2 marks for entry and 1 mark for full working note)
9.
Particulars
(a)1.Bank a/c….dr
To debenture application and allotment a/c
Amt.
100000
Amt.
100000
154
Deb.appli.&allot a/c…..dr
Loss on issue
a/c……dr
To deb. a/c
100000
10000
To premium on redemtion a/c
100000
(b)Bank a/c….dr
10000
To deb. Application&allot a/c
960000
deb app &allot….dr
Loss on issue a/c…..dr
To debenture a/c
960000
960000
96000
To security premium a/c
800000
To premium on redemption a/c
160000
96000
(1/2+1+1/2
+1=3)
10.
Particulars
Bank a/c dr.
Amt.
200000
To deb app&allot a/c
Deb app &allot a/c..dr
200000
200000
To 8% deb a/c
8% deb a/c..dr
200000
60000
To debenture holder a/c
Debenture holder a/c..dr
Amt.
60000
60000
155
To equity cap a/c
40000
To security premium a/c
20000
11. Following are the value which motivated mohan and sohan to form the partnership firm:
(i).Studentssensitivity towards belonging to low income group.
(ii). Supporting the implementation of right to education act 2009
(iii) . Providing entrepreneurial oppurtunity to people from different areas of the country.
(iv). any other correct point.
(any 2, 1+1=2)
Profit&loss Appropriation a/c
Particulars
Interest on capital a/c-
Amt.
Particulars
Profit
Amt.
400000
Mohan-20000
Sohan-10000
Rohan-80000
Profit
110000
Mohan-72500
Sohan-72500
Rohan-72500
Hema-72500
290000
400000
400000
1 mark correct interest on capital and 1 mark correct profit.
(1 + 1 = 2)
12.
156
Pariculars
Revaluation a/c
Dr.
Amt.
9600
To prov for bad debts
1600
To sundry creditors
A’s capital
Dr.
B’s capital
Dr.
4800
C’s capital
Dr.
3200
To revaluation
8000
1600
A’s capital
Amt.
9600
dr.
B’s capital dr.
6000
To C’s capital a/c
C’s capital Dr.
4000
10000
108400
108400
To C’ loan a/c
(1 mark for each correct entry) (1x4 = 4)
13
Pariculars
Plant and Machine
Dr.
Amt.
2,00,000
Land And Building Account Dr.
2,00,000
Debtors Account Dr.
1,50,000
Stock Account Dr.
2,00,000
Cash Account Dr.
1,50,000
Amt.
1,00,000
To Creditor
7,50,000
To Ram brothers
50,000
To Capital Reserve
1,50,000
157
Ram Brothers Account Dr.
1,50,000
To Bank Account
6,00,000
5,00,000
Ram Brothers Account Dr.
1,00,000
To Equity share capital
To Security Premium
(11/2 +1+11/2)
14.
Balance Sheet OfGopal Ltd
As at…………
Particular
Note No.
Current Year
Previous YearRs
Rs
Equity and Liability
Share holder’s fund
(a)Share Capital
1
94,98,000
Note to account
Note-1
Share capital
Authorised capital
1,00,00,000
158
10,00,000 share of Rs. 10 each
Issued capital
1,00,00,000
10,00,000 share of Rs. 10 each
Subscribed,called up and payed up capital
9,50,000 share of Rs. 10 each 95,00,000
-calls in arrear
2,000
94,98,000
(1+1/2+1/2+2=4)
15. Profit and loss appropriation account
For the year ending 31 march 2012
To Kalu’s Sal.
1,20,000
By Profit
To Lalu’scomm.
1,00,000
Interest on Drawing
Int on capital
4,20,000
K. 2,500
K. 25000
40,000
L.
900
L. 15000
3,400
To profit
1,63,400
K. 98,040
L. 65,360
4,23,400
4,23,400
3 Mark
Partner’s Capital Account
Particular
K
L
Particular
K
L
159
To balance c/d
5,00,000
3,00,000
By balance b/d
5,00,000
3,00,000
1Mark
Partner’s Current Account
Particular
Int. on draw.
K
2500
L
900
Particular
By Salaries
Bal. c/d
2,40,540
1,79,460
By Commission
K
1,20,000
L
1,00,000
Int. on cap.
By profit
2,43,040
2 Mark
(3+1+2=6)
Ans-16Revaluation Account
To Stock
6,000
To Provision for b/d
4,500
To Profit
D. 9,750
E. 6,500
F. 3,250
19,500
1,80,360
By building
30,000
2
A’S Cap. Account
To Execute AC
2,17,125
2,17,125
25000
15000
98,040
2,43,040
65,360
1,80,360
30,000
30,000
Bal b/d
Int. on cap.
P& L Suspense
Rev acc. (P)
W.C.R
B’S Cap.
C’S Cap.
1,50,000
2,250
4,125
9,750
15,000
24,000
12,000
2,17,125
4
(2+4=6)
160
Ans. 17 (a) A limited has not followed the value of equality by rejecting the applications.
The better alternative may be to allot share proportionately to all the applicants
1(b)
Journal
Date Particular
Bank A/C
Dr.
To Share application A/C
Share application account
Dr.
To Share capital account
To Bank Account
To share allotment account
Share allotment
Dr.
Discount on issue of share account
Dr.
To share capital account
Bank A/C
Dr.
To Share allotment account
Share first & Final A/C
Dr.
To Share capital account
Bank A/C
Dr.
To Share First & Final Account
Share Capital A/C
Dr.
To Share Forfeited
To discount A/C
To Share allotment account
To Share First & Final Account
Bank A/C
Dr.
To Share capital account
To Security Premium
Share forfeited A/C
Dr.
To Capital Reserve A/C
L.F Rs.
Rs.
6,00,000
6,00,000
1/2
1
6,00,000
3,00,000
1,00,000
2,00,000
½
3,00,000
1,50,000
1
4,50,000
½
½
99,000
99,000
1
7,50,000
7,50,000
7,32,500
7,32,500
1
1
35,000
13,000
3,500
1000
17,500
34,000
20,000
14,000
7,000
7,000
OR
J.K limited has followed value of equality by allotting share to all the applicants’ i.e. by not
rejecting any applications.
Journal
Date Particular
L.F Rs.
Rs.
161
Bank A/C
Dr.
To Share application A/C
Share application account
Dr.
To Share capital account
Share allotment
Dr.
To share capital account
To Security Premium
Bank A/C
Dr.
To Share allotment account
Share capital account
Dr.
Security Premium
Dr.
To Share Forfeited
To Share allotment account
First & Final Call account Debit
To Share Capital account
Bank A/C
Dr.
To Share First & Final Account
Share Capital A/C
Dr.
To Share Forfeited
To Share First & Final Account
Bank A/C
Dr.
To Share capital account
To Security Premium
Share Forfeited account
Dr.
To Capital Reserve A/C
18.
Particulars
To Goodwill
To land and building
To plant&machinery
To Motor car
To debtors
To bank :realization expense-2000
creditors 50000
B/P-6000
Realisation a/c
Amt.
30000
86000
56000
54000
48000
58000
1,95,000
½
1,95,000
½
1,95,000
1,95,000
½
2,60,000
1,30,000
1,30,000
½
1
2,52,000
2,52,000
½
10,000
4,000
6,000
8,000
½
1
3,15,000
3,15,000
1
3,00,000
3,00,000
1
30,000
15,000
15,000
80,000
40,000
40,000
16,000
16,000
Particulars
By creditors
By B/P
By Cash :
G/W-20000
land&building-150000
Plant and machinery50000
motor car-25000
debtors-24000
By partners cap
Amt.
50000
6000
162
A-3500
B-1750
C-1750
269000
7000
332000
332000
Partners capital a/c
Particulars
Profit/Loss
Realisation(L)
Cash
A
2000
3500
79500
85500
B
1000
1750
79750
82500
C
1000
1750
59750
62500
Particulars
Bal b/d
G/R
A
80000
5000
B
80000
2500
C
60000
2500
85000
82500
62500
(4 +3 + 1 = 7)
Cash A/C
Particulars
Bal B/D
Realisation
Amt.
8000
269000
Particulars
By partners cap.
A-79500
B-79750
C-59750
Realisation
277000
Revaluation a/c
Particulars
Stock
Bad debts
Partners capital
A-19200
B-12800
Particular
Bal. c/d
Amt.
20000
8000
3,63,000
2,48,800
C
2,50,000
2,50,000
219000
58000
277000
Particulars
Furniture
Amt.
60000
32000
60000
Partners Capital Account
A
B
3,63,000
2,48,800
Amt.
60000
Particular
Balance b/d
Cash
Premium
Reserve
Profit
A
3,00,000
B
2,00,000
C
2,50,000
20,000
24000
19200
20,000
16000
12800
363200
248800
250000
Balance sheet as on 31st
163
Liabilities
Capital
D. 3,63,200
E. 2,48,800
F. 2,50,000
Bank
Creditor
Amount
8,62,000
1,20,000
20,000
10,02,000
Assets
Machinery
Furniture
Stock
Debtor
Cash
Amount
2,60,000
2,40,000
80,000
72,000
3,50,000
10,02,000
(2 + 3 + 3 = 8)
Part-B
19. Since the financial statement are confined to the monetary matters only, the qualitative
elements like quality of product, quality of management public relation are ignored while
carry out the analysis of financial statement. (1)
20. interest received b6y finance company is classified as operating activity because interest
is the income from financial revenue producing activities. (1)
21. Cash deposit in bank will result in no flow of cash because cash includes bank also.
Item
Major Heading
Sundry Creditor
Current Liabilities
Preliminary Expenses
Deducted from security premium, reserve if
available or debit in statement in P&L.
Current Assets
Int accrued on investment provision for
Current Liabilities
taxation
Current Assets
loose tools
Non Current Assets
goodwill
(1/2X6=3)
Particular
2011
2012
Change(base year 2011)
Absolute fig
%
164
Revenue from operative
Add: other income
Total revenue
Less: expenses
Profit before tax
Less: tax paid
Profit after tax
10,00,000
2,00,000
12,00,000
6,00,000
6,00,000
3,00,000
3,00,000
15,00,000
1,80,000
16,80,000
10,50,000
6,30,000
3,15,000
3,15,000
5,00,000
(20,000)
4,80,000
4,50,000
30,000
15,000
15,000
50%
10%
40%
75%
5%
5%
5%
(1 x 4 = 4)
24. Working capital=Current Assets-current Liabilities
Current Ratio= 2.5:1
Let us assume current lia=x
Current Assets=2.5x
W.C (60,000)=current assets-current liabilities
60,000=2.5x-x=1.5x
Therefore,
vi.
Current lia (x)=60,000/1.5=40,000
vii.
Current assets= 40,000 X 2.5=1,00,000
viii.
A.T.R = quick assets /current lia
ix. Quick assets = C.A-stock = 1,00,000-40,000= 60,000
x. A.T.R = 60,000/40,000= 1.5:1
25.
(1)
(1)
(1)
(1)
Cash flow statement
For the year ended 31st march 2012
Particular
B. Cash from op-activity
Net profit before extra ordinary item
Add: non operational expenses
DepInterestLoss on sale of machinery
Net profit before working capital change
Add : C.A & C.L
Creditor
Other current liabilities
Less : C.A & C.L
Stock
Debtor
B/P
Cash flow from operative activity
Amount
Amount
60,000
34,000
9,000
2,000
10,000
10,000
30,000
10,000
40,000
45,000
1,05,000
20,000
1,25,000
80,000
45,000
½ x12 = 6
165
SOLOVED SAMPLE PAPER-II
ACCOUNTANCY
CLASS-XII
Time Allowed-3 Hrs.
Max. Marks-80
General Instructions:6. The question paper is divided into two parts.
7. All the questions are compulsory.
8. All parts of a question to be done together.
9. Prepare working notes wherever required.
10. The question paper contains 25 questions.
PART-A
(Partnership Firm And Company Accounts)
1. Give the average period in months for charging interest on drawing for the same
amount withdrawn at the beginning of each quarter.
(1)
2. Give any one difference between Revaluation Account and Realisation Account. (1)
3. Gautam, Nanak and Subhash are partners sharing profit in the ratio of ½, 1/3 and 1/6.
Nanak retires. What will be new profit sharing ratio of Gautam and Subhash.
(1)
4. Name any two factors which affect the goodwill of a partnership firm.
(1)
5. You are director of Jalaj Auto Ltd has invited application for 50,000 equity share of
Rs. 100 each. Applications were received for 75,000 Share, Name the kind of
subscription. (1)
6. What do you mean by Private Placement of Share?
(1)
7. Why would an investor prefer to invest in the debentures of a Company rather than in
the shares?
(1)
8. A Company issues the following debentures:
(i) 10,000 12% debentures of Rs. 100 each at par but redeemable at premium of 5% after
5 years.
(ii) 5000 12% debentures of Rs. 1000 each at a premium 5 % but repayable at par after 5
years.
Pass Journal entries to record the issue of debenture
(3)
166
9. A, B &C are partners whose fixed capitals were
Rs.10,000/-,8,000/- and Rs. 6,000/- respectively. As per the partnership agreement, there
is a provision for allowing interest on Capital @ 10% p.a. but entries for the same have
not been made for last three years. The profit sharing Ratio during three years remained
as follows:
Years
A
B
C
2009
4
3
5
2010
3
2
1
2011
1
1
1
Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan 1, 2012.
(3)
10. Godrej Ltd has Rs. 40,00,000 8% Debenture of Rs. 100 each due for redemption on
30th June 2009 at a premium 5%. There is a balance of Rs. 13,50,000/- in Debenture
redemption reserve Account on the date of redemption. Record the necessary journal
entries at the time of redemption.
(3)
11. After completing MBBS, Nirmala suggested to her classmate Rajeev to form a
partnership to run hospital in the locality inhabited by low income group. After along
thought, he agreed to proposal. Since they did not have sufficient resources for
implementing the proposal they persuaded a rich friend Narayana, who contribute the
required capital. All of them formed a partnership on the following terms:
(i)Nirmala, Rajeev and Narayana will contribute Rs. 6,00,000, 10,00,000 and Rs.
20,00,000/-.
(ii Interest on capital @ 5% p.a. will be allowed
(iii) The p[rofit of the firm for the year ended 31st March 2012 were Rs. 9,00,000/(a)
Identify any two value which according to you motivate them to form the
partnership
(b)
Prepare profit and loss app. A/C.
(2+2 = 4)
12. Following is the balance Sheet of Prateek, Rockey and Kunal as on 31st March 2012.
Balance Sheet
As on 31st March 2012
Liabilities
Creditors
General Reserve
Capital:Preteek 30,000
Rockey 20,000
Kunal
20,000
Amount
(Rs.)
18,000
14,000
70,000
1,02,000
Assets
Bill Receivable
Furniture
Stock
Sundry Debtor
Cash at Bank
Goodwill
Amount
(Rs.)
16,000
22,600
20,400
22,000
14,000
7,000
1,02,000
167
Rockey died on June 30, 2012 under the term of the partnership deed the executor of a
deceased partner were entitle to:
(i)
Amount standing to the credit of the partner’s capital Account
(ii)
Interest on capital @ 10% p.a.
(iii)
Share of goodwill on the basis of twice the averge of the past three year’s
profit; and
(iv)
Share of profit from the closing date of the last financial year to the date of
death on the basis of last year’s profit. Profit for the year ending on March
31,2010, 2011, 2012 were 24,000, 32,000, 28,000 respectively
(v)
Profit were shared in the ratio of capital.
Pass the necessary Journal entries.
(4)
Q13. Kumar Ltd. Purchase assets of Rs. 12,60,000/- from Bhamu Oil Ltd. Kumar Ltd
issued equity share of Rs. 100 each fully paid in consideration. What Journal entiries will be
made, if the share are issue:
(a) At par
(b)
(c)
At discount 10%
At premium of 20%
(4)
Q 14.Surya Ltd was formed with a nominal share capital of Rs. 10,00,000/- divided into
10,000 share of Rs. 100 each. The company offers 6500 share to the public payable 30 per
share as application Rs. 30 each per share on allotment and the balance on First and Final
call. Applications were received for 6000 share. All money payable on allotment was duly
received except on 50 shares held by X. First and final call was not made by the Company.
How would you show the relevant items in the Balance sheet of Surya Ltd?
(4)
Q 15. Pass the necessary Journal entries for the following transactions as the dissolution of
the firm of Meena and Shubham after the various assets (other than cash) and outside
liabilities have been transferred to Realisation Account:
(i)
Meena agreed to pay off here husband’s loan Rs. 20,000
(ii)
A debtor whose debt Rs. 10000 was written of in the books paid Rs.8,500 in
full settlement.
(iii)
Shubham took over all investments at Rs. 15,000.
(iv)
Sundry creditors Rs. 15,000 were paid at 10% discount
(v)
Realisation expenses Rs. 5400 were paid by Meena for which she was allowed
5000.
(vi)
Loss on realization Rs. 15,000 was divided between Meena and Shubham in
3:2 ratio.
(6)
Q 16. Ramesh and Suresh were in a firm sharing profit in the ratio of their capitals
contributed on commencement of business which were Rs. 1,60,000 and Rs. 1,20,000
respectively. The firm started business on April 1, 2011. According to the partnership
agreement, interest on capital and drawing are 12% and 10% respectively. Ramesh and
Suresh are to get a monthly salary of Rs. 4000 and 6000 respectively and Commission to
Ramesh @ 2% on sales.
168
The profit for the year ended March 31, 2012 before making above appropriation
was Rs. 2,04,000. The drawing of Ramesh and Suresh wee Rs. 80,000 and Rs. 1,00,000
respectively. Interest on drawings amounted to Rs. 4000 for Ramesh and 5000 for
Suresh. Sale for the year ended 31st March 2012 was 2,40,000.
Prepare Profit and loss Appropriation Account and Partner’s capital accounts,
assuming that their capital are fluctuating.
(6)
Q 17. X limited invited application for 11000 share of Rs. 10 each issue at 20%
premium, payable as:
On application – Rs. 3 (including 1 premium)
On allotment - Rs. 4 (including 1 premium)
On 1st call
- Rs. 3
On 11nd and Final call - Rs. 2
Application received for 24,000 shares
Category-1 One fourth of the share applied for allotted 2000 shares.
Category – II three forth the share applied for allotted 9000 share.
Mr. Hriday holding 300 shares out of category 11 failed to pay allotment and two calls
and his share were forfeited. Later on 200 of his share were reissued Rs. 11 fully paid up.
(a)
Which value has been followed by X Ltd. While allotting the share.
(b)
Pass Journal entries in the books of X Ltd. For the above transactions.
OR
Raja ltd invited applications for issuing50,000 equity shares of Rs.500 each at a discount
of 10%.The amount payable as follows:
On application 100 per share
On allotment 150 per share
On first and final call the balance
Applications for 1,00,000 shares were received.applications for 25,000 shares were
rejected and application money was refunded.Prorata allotment was made to the
remaining applicants.Excess application money received from the applicants to whom
Pro-rata allotment was made,was adjusted towards sum due on allotment,All calls were
made and were duly received except the first and final call on 200 shares held by
Nath.His shares were forfeited.The forfeited shares were reissued to Atin for Rs.90,000
fully paid up.
a) Which value has not been followed by Raja ltd.while allotting the shares?
b) Pass the journal entries in the book of Raja ltd. the above transactions.
(8)
Q18.A,B and C are partners in a firm sharing profits in the ratio 3:2:1.their balance sheet as at
31st march 2012 is:
Liabilities
Amt.
Assets
Amt.
Creditors
60000
Cash in hand
36000
B/P
32000
Debtors-50,000
General reserve
24000
Less:provision for doubtful
Capital
debts:6000
44000
A-80000
Stock
36000
169
B-80000
C-60000
220000
Furniture
Machinery
Goodwill
336000
60000
142000
18000
336000
B retires on 1srt april 2012 on the following terms:
i. Provision for doubtful debts be raised by 2000.
ii. Stock to be depreciated by 10% and furniture by 5%.
iii. There is an outstanding claim of damages of 2200 and it is to be provided for.
iv.
Creditor will be written back by 12000
v. Goodwill of the firm is valued at 42,000
vi.
B is to be paid in full with the cash brought in by A and C in such a manner that their
capitals are in proportion to their profit sharing ratio and cash in hand remains at
Rs.16000.Prepare revaluation a/c,partners capital a/c and balance sheet of A and C.
OR
Ram and Shyam are partners sharing profits in the ratio 2:1.their balance sheet as at
31st march 2012 was:
Liabilities
Amt.
Assets
Amt.
Sundry creditors
75000
Cash
15000
Reserve fund
54000
Sundry debtors
45000
Stock
Investment
Typewriter
Fixed assets
30000
24000
15000
4,11,000
Capital
Ram-225000
Shyam-186000
411000
5,40,000
5,40,000
They admit Gopal into partnership on the same date on the following terms:
a) Gopal brings in Rs.1,20,000 as his capital and he is given 1/4th share in the
profits.
b) Gopal brings in rs.45000 for goodwill half of which is withdrawn by the old
partners.
c) Investments are valued at 30,000 and Ram is to take over investments at this
value.
d) Typewriter to be depreciated by 20% and fixed Assets by 10%.
e) An unrecorded stock of stationery on 31st march 2012 is rs.3000.
f) By bringing in or withdrawing cash the capital of ram and Shyam are to be
made proportionate to that of Gopal on their profit sharing basis. Prepare
revaluation A/C ,partners capital a/c and balance sheet of the firm.
(8)
170
PART-B
(Financial statement Analysis)
Q19.X ltd. has a debt equity ratio of 3:1.According to the magement it should be maintained
at 1:1.What are the two choices to do so.
(1)
Q20.Sale of marketable securities at par would result in inflow,outflow or no flow of cash
give reasons for your answer with reason.
(1)
Q21.Mutual fund companies received a dividend of rs.25,00,000 on its investment in other
companies share.Why is it a cash flow from operating activity for this company?
(1)
Q22..list the items which are shown under the heading current assets in the balance sheet of a
company as per provisions of schedule VI of the companies act 1956.
(3)
Q23 .A companies stock turnover ratio is 5 times.Stock at the end is Rs.20000 more than that
at the beginning. Sales are 8,00,000.Rate of gross profit on cost ¼,current liabilities Rs.
2,40,000.Acid test ratio 0.75.Calculate current ratio.
(4)
Q24.Prepare a comparative statement of ‘profit and loss’ with the help of following
information:
Particulars
2011
2012
Revenue from operations
20000
30000
Expenses
12000
21000
Other income
6000
8000
Income tax
50%
50%
(4)
Q25. The balance sheet ofSahil ltd. As at 31st march 2011 and 31stmarch 2012 were:
Particulars
31.3.2012
31.3.2011
Equity and liabilities:
Share capital
5,00,000
3,50,000
Profit and loss balance
1,25,000
75,000
Proposed dividend
25,000
20,000
Assets:
Plant and Machinery
Inventories(stock)
Cash
6,50,000
4,45,000
400000
50000
200000
250000
40000
155000
6,50,000
4,45,000
Additional information:
i. Rs.30000 depreciation has been charged to plant and machinery during the year 2012.
ii. A piece of machinery costing Rs.20,000(book value rs.10000)was sold at 60% profit
on book value.
ACCOUNTANCY
SAMPLE PAPER- II
MARKING SCHEME
1. 7.5 months.
2. 1 marks any correct difference.
3. New ratio = 3:1
1
1
1
171
4. Any two factor
[Efficient mgt, location, favourable contract, quality, market situation]
Or
Any correct point
½+½=1
5. Over subscription
1
6. It refers to issue and allotted of share to selected group of persons. In other words an
issue which is not a public issue but offered to a selected group of person is called
private placement of share.
1
7. The investor would prefer to invest in the debentures rather than shares because there
is an assured annual return.
1
8.
Date
Journal Entry
Particular
Bank A/c
D.r
To deb. App & allot A/c
Deb.app &allot A/c
D.r
Loss on issue of deb.
D.r
To 12% debenture A/c
To Pre. On Red. Of deb. A/c
Bank A/c
D.r
To 12% Deb. App. &allot. A/c
Deb. App & allot A/c
D.r
To 12% deb. A/c
To security premium A/c
L.F Amt. (D.r)
10,00,000
Amt. (C.r)
10,00,000
10,00,000
50,000
10,00,000
50,000
52,50,000
52,50,000
52,50,000
50,00,000
2,50,000
½+1+1/2+1=3
9.
Journal Entry
1+2=3
(1marks for journal entry & 2 marks for workings.)
10.
Journal Entry
Date
Particular
P&L App. A/c
D.r
To D.R.R A/c
Deb A/c
D.r
Pre. On red. Of deb.
D.r
To Debenture holder A/c
Debenture holder A/c
D.r
To bank A/c
D.R.R A/c
To general reserve A/c
L.F Amt. (D.r)
6,50,000
Amt. (C.r)
6,50,000
40,00,000
2,00,000
42,00,000
42,00,000
42,00,000
20,00,000
20,00,000
172
1+1+1/2+1/2=3
11. Sensitivity toward people belonging to low income group.
Working as a team for a good cause
Or
Anycorrect ans.
P&L App. A/c
Particular
To int. on cap.
Nirmala 30,000
Rajeev 50,000
Narayan 1,00,000
To profit
Nirmala 2,40,000
Rajeev 2,40,000
Narayan 2,40,000
Amt.(D.r)
Particular
By profit
1+1=2
Amt.(C.r)
9,00,000
1,80,000
7,20,000
9,00,000
9,00,000
(1 + 1 = 2)
12.
Journal Entry
Date
Particular
P
R
K
To goodwill
General reserve A/c
To P
To R
To K
Int. on cap.
To R’s cap. A/c
P’s cap. A/c
K’s cap. A/c
To R’s cap. A/c
P&L susp. A/c
To R’s cap. A/c
R‘s cap. A/c
To R’s executor A/c
L.F Amt. (D.r)
3,000
2,000
2,000
Amt. (C.r)
½
7,000
½
14,000
6,000
4,000
4,000
500
½
500
9,600
6,400
1
16,000
2,000
1
2,000
40,500
½
173
40,500
13.
Date
Journal Entries
Particular
Assets A/c
To Bhanu oil ltd.
Bhanu oil ltd.
To equity share capital
Bhanu oil ltd.
Dis. On issue of share A/c
To equity share cap A/c
Bhanu oil ltd.
To Eq. share cap. A/c
To sec. premium A/c
14.
Equity &Libilities
L.F Amt. (D.r)
12,60,000
Amt. (C.r)
Marks
12,60,000
1
12,60,000
1
14,00,000
1
10,50,000
2,10,000
1
12,60,000
12,60,000
1,40,000
12,60,000
Balance sheet as on ………
Note
Current
Previous
No.
Year
Year
Amount Amount
Share Holder’s Fund
Share Capital (a)
Note 1
Assets
Current Assests
Cash & Cash equivalents
Note to Account:1. Share Capita
Authorised Capita
Issued Capita :6500 Share of Rs. 100 each
Subscribes & fully Paid Capita
6000 Share of Rs. 100 each
Subscribes but not fully
paid capital
6000x100 each 60 per
358500
358500
10,00,000
6,50,000
6,00,000
174
Share called up
3,60,000
less Calls in arrear
50x30
1500
358500
2 Marks for Note 2 Account and 1 marks share capital & 1 marks current Assests.
15. Journal Entries
Date
Particular
Realisation A/c
To Meena’s cap. A/c
Cash A/c
To Realisation A/c
Meena’s cap. A/c
To Realisation A/c
Realisation A/c
To Cash A/c
Realisation A/c
Meena’s cap. A/c
To Cash A/c
Meena’s A/c
Shubham A/c
To Realisation A/c
D.r
L.F Amt. (D.r)
20,000
D.r
8,500
Amt. (C.r)
20,000
8,500
D.r
15,000
D.r
13,500
15,000
13,500
D.r
D.r
5,000
400
5,400
D.r
D.r
9,000
6,000
15,000
(1 Marks for each correct entery)
16.
P&L App. A/c
Particular
To int. on cap.
Ramesh
19,200
Suresh
14,400
To salaries A/c
Ramesh
48,000
Suresh
72,000
To commission
Ramesh
To Profit
Ramesh
31,200
Suresh
23,400
Amt.(D.r)
33,600
Particular
By Profit A/c
By int. on drawing
Ramesh
4,000
Suresh
5,000
Amt.(C.r)
2,04,000
9,000
1,20,000
4,800
54,600
2,13,000
2,13,000
1+1+1/2+1/2+1 = 4
Partner’s Capital A/c
175
Particular
To drawing
Int. on Drawing
Ramesh
80,000
4,000
Suresh
1,00,000
5,000
To balance c/d
1,79,200
1,24,800
2,63,200
2,29,800
Particular
By balance b/d
By int.
By Salary
By commission
By Profit
Ramesh
1,60,000
19,200
48,000
4,800
31,200
2,63,200
Suresh
1,20,000
14,400
72,000
23,400
2,29,800
1+1 = 2
(a) X limited has followed the value of equality by allotting share to all the
applicants in
(b) proportion i.e. by not rejecting any application or any other correct value. 1
Marks
(b)
Date
Particular
Bank A/C
Dr.
To Share application A/C
Share application account
Dr.
To Share capital account
To Security Premium Account
To share allotment account
Share allotment A/c
Dr.
To share capital account
To sec. premium A/c
Bank A/C
Dr.
To Share allotment account
Share first call A/C
Dr.
To Share capital account
Bank A/C
Dr.
To Share First Call Account
Share Final Call A/c
Dr.
To Share Capital
Bank A/C
Dr.
To Share Final Call Account
Share Capital A/C
PremiumDr.
To Share Forfeited
Dr.Security
To Share allotment account
To Share First Call
To Share Final Call
Bank A/C Dr.
To Share capital account
To Security Premium
L.F
Rs.
72,000
Rs.
72,000
1/2
22,000
11,000
39,000
1/2
33,000
11,000
½
4,700
1/2
72,000
44,000
4,700
33,000
33,000
1/2
32100
32100
1/2
22,000
1/2
21,400
1/2
22,000
21,400
3000
300
1
15,00
300
900
600
2,200
1
2000
176
200
Share forfeited A/C Dr.
To Capital Reserve A/C
1000
1000
1
OR
(a) Value of equality has been effected by rejecting the applications of the investors
The better alternative may be to allot the share Proportionately to all the applicants so
that such applicants may not be demotivated from investing in the capital of big
company in future or any other correct value. ( 1 Marks)
177
(b)
Date
Particular
Bank A/C
Dr.
To Share application A/C
Share application accountDr.
To Share capital account
To share allotment account
To Bank
Share allotment A/c Dr.
Discount A/C Dr.
To share capital account
Bank A/C Dr.
To Share allotment account
Share first & Final call A/C
Dr.
To Share capital account
Bank A/C
Dr.
To Share First& Final Call A/C
Share Capital A/C Dr.
To Forfitied A/C
To Discount
To Share First& Final Call
Bank A/C Dr.
Discount A/C
Dr.
To Share capital account
L.F
Rs.
1,00,00,000
Rs.
1,00,00,00
1/2
50,00,000
25,00,000
25,00,000
1/2
1,00,00,000
75,00,000
25,00,000
1,00,00,000
1/2
50,00,000
50,00,000
1,00,00,000
1
1,00,00,000
99,60,000
99,60,000
1/2
1,00,000
50,000
10,000
40,000
1
90,000
10,000
1
1,00,000
Share forfeited A/C Dr.
To Capital Reserve A/C
50,000
1
50,000
1
178
Ans. 18.
Revaluation A/c
Particulars
To Debtors
To stock
To Furniture
To O/S Libilities
To Profit
A 600
B 400
C 200
Amt.
2,000
3,600,
3,000
2,200
Particulars
By Creditors
1200
12,000
Amt.
12,000
12,000
Partners Capital Account
Particular
A
B
C
Particular
A
B
C
To Goodwill
To B
9000
10500
6000
3000
3500
80,000
12000
73100
92600
96400
102400
96400
57700
64200
5900
80,000
8000
10500
3500
400
102400
96400
60,000
4000
To Bal. C/d
By Bal. b/d
By Gr. Res.
By A’Cap.
By C Cap.
By Reve. Pr
To Bank
By Bal. B/d
600
92500
73100
200
64200
57700
179
To Balance
c/d
Cash
155400
82300
51800
155400
Cash A/c
Particular
To Balance b/d
To A’s Capital
Amount
36,000
82,300
Particular
By B’s Capital
By C’s Capital
By Bal. c/d
Amount
96,400
5,900
16,000
1,18,300
Assets
Cash
Debtors
Stock
Furniture
Machinery
Amount
16000
42000
32400
57000
1,42,000
1,18,300
Balance Sheet
Liabilities
Capital
A 155400
C 51800
Creditors
B/P
O/S Lib.
Amount
2,07,200
48000
32000
2200
2,89,400
(2+3+3=8)
Or.
Revaluation A/c
Particulars
To Typewriter
To Fixed Assets
R
To Cash
15,000
To Investment
To Rev. Loss 30,000
To Balan. C/d 23400
222600
2,91,000
To Cash
To Balance
240000
c/d
2,91,000
Amt.
3000
41100
Particulars
By Investment
To Stock
To loss
R 23400
S 11700
Amt.
6000
3000
35100
Cash A/c
Particular
To Balance b/d
To G’s Capital
44100
Partner’s Capital Account
S
G
Particular
7500
11700
1,99,800
1,99,800
79800
120000
1,99,800
Amount
15000
120,000
57700
2,89,400
44100
Particular
96400
By Bal. b/d
By Cash
By Premium
By G/R
1,20,000
1,20,000
120000
By Bal. B/d
Cash
1,20,000
Particular
By R’s Capital
By S’s Capital
R
S
G
2,25,000
1,86,000
30,000
36,000
15000
18,000
2,91,000
222600
17400
1,99,800
199800
1,20,000
120000
240000
199800
120000
1,20,000
Amount
15,000
7,500
180
To Premium
To R’s Cap.
Balance Sheet
Liabilities
Capital
R 240000
S 120000
G 120000
Creditors
45000
17400
1,97,400
By S’ Cap.
By Bal. C/d
79800
95100
197400
Amount
Assets
Cash
Debtors
Stock
Typewriter
Fixed Assets
Amount
95100
45000
33000
12,000
3,69,900
5,55,000
4,80,000
75000
5,55,000
(2+3+3=8)
Ans. 19 :- Following are two choices to maintain debt equity ratio from 3:1 to 1:1
(i)
To reduce debt
(ii)
To increase equity
1/2x2=1
Ans. 20 :- No flow of cash because marketable securities are cash equivalents into cash does
not result any flow. (1)
Ans. 21:- Because investment is the Principal revenue producing activity of a mutual fund
company.
(1)
Ans. 22
Balance Sheet of ……………………….
As at 31st March 2012
Particular
Note No.
Current Year
Previous Year
Ii Assets
C.A
C. Investment
Inventories
Trade receivable
Cash & cash
equitant.
Short term loan and
advance othe C.A
(1/2X6=3)
Sales 80,000
Rate of Gross Profit on cost = ¼
800000x1/5= 1,60,000
COGS = 8,00,000-1,60,000 = 6,40,000
STR = COGS/A. Stock
5/1 = 640000/A. stock = 128,000
Opening Stock = x
Closing Stock x+20000
Averge Stock x+x+20000/2
2x+20000/2 = 128000
X=128000-10000 = 118000
Opening Stock = 11800
Closing Stock = 118000+ 20000 = 1,38,000
Acid Test Ratio = Quick Assets/ Current Liabilities
Mark(½)
Mark(½)
Mark(½)
Mark(½)
Mark(½)
181
.75/1 = x/2,40,000
X = 1,80,000
C.A = Q. A + stock
C.A = 1,80,000 + 1,38,000 = 318000
C.R = C.A/C.L
C.R = 318000/240000
= 1.3:1
Ans. 24
Particular
31.3.2011
Revenue from operations
20,000
Add other income
6,000
26000
Less Exp.
12000
Net profit before Tax
Less Tax Paid
Net Profit after Tax
(1x4 = 4)
Mark(½)
Mark(1/2)
Mark(½)
14000
7000
7000
Ans. 25
Particular
A) Cash flow from operating activities
Net profit before tax & dividend
Add Non-operating Exp.
Dep.
Less Non operating Income
Profit on sale of Machinery
Net profit before changing in W.C
Add decrease c.A&inc. C.L
Less Inc. C.A & Dec. C.L
Stock
Cash Flow from Operating Activities
B) Cash from Investing Activities
Sale of Mach.
Purchase of Mach.
Cash use in investing Activities
C) Cash Flow from Financing activities
Issue of Share Cap.
Payment of Proposed Dividend
31.3.12
30,000
8,000
38000
21000
Absolute fig.
10,000
2,000
12000
9000
%
50
33.3
46
75
17000
8500
8500
3000
1500
2000
21.4
21.4
21.4
Amount
Amount
75000
30,000
30,000
105000
6000
6000
99000
-
-
10000
10000
89000
16000
(1,90,000)
(1,74,000)
1,50,000
(-20,000)
D) Increase/decrease in cash & cash equitant
Opening Cash &Equa.
1,55,000
130000
45,000
1,55,000
2,00,000
182
E) Closing Cash & Cash Equ.
Working Note:1. Net Profit before Tax & Dividend 50,000+25,000 = 75,000
2. Machinery A/C
Particular
Amount
Particular
Amount
By Bal. b/d
Profit
Cash ( Purch)
250000
6000
1,90,000
Dep.
Cash
Bal. c/d
30,000
16,000
4,00,000
446000
4,46,000
(½ Marks for correct items 1/2X12 = 6)
183
ACCOUNTANCY
SET- II
MARKING SCHEME
17. 7.5 months.
1
18. 1 marks any correct difference.
1
19. New ratio = 3:1
1
20. Any two factor
[Efficient mgt, location, favourable contract, quality, market situation]
Or
Any correct point
½+½=1
21. Over subscription
1
22. It refers to issue and allotted of share to selected group of persons. In other words an
issue which is not a public issue but offered to a selected group of person is called
private placement of share.
1
23. The investor would prefer to invest in the debentures rather than shares because there
is an assured annual return.
1
24.
Date
Journal Entry
Particular
Bank A/c
D.r
To deb. App & allot A/c
Deb.app &allot A/c
D.r
Loss on issue of deb.
D.r
To 12% debenture A/c
To Pre. On Red. Of deb. A/c
Bank A/c
D.r
To 12% Deb. App. &allot. A/c
Deb. App & allot A/c
D.r
To 12% deb. A/c
To security premium A/c
L.F Amt. (D.r)
10,00,000
Amt. (C.r)
10,00,000
10,00,000
50,000
10,00,000
50,000
52,50,000
52,50,000
52,50,000
50,00,000
2,50,000
½+1+1/2+1=3
25.
Journal Entry
1+2=3
(1marks for journal entry & 2 marks for workings.)
26.
Journal Entry
Date
Particular
L.F Amt. (D.r)
Amt. (C.r)
184
P&L App. A/c
D.r
To D.R.R A/c
Deb A/c
D.r
Pre. On red. Of deb.
D.r
To Debenture holder A/c
Debenture holder A/c
D.r
To bank A/c
D.R.R A/c
To general reserve A/c
6,50,000
6,50,000
40,00,000
2,00,000
42,00,000
42,00,000
42,00,000
20,00,000
20,00,000
1+1+1/2+1/2=3
27. Sensitivity toward people belonging to low income group.
Working as a team for a good cause
Or
Anycorrect ans.
P&L App. A/c
Particular
To int. on cap.
Nirmala 30,000
Rajeev 50,000
Narayan 1,00,000
To profit
Nirmala 2,40,000
Rajeev 2,40,000
Narayan 2,40,000
Amt.(D.r)
Particular
By profit
1+1=2
Amt.(C.r)
9,00,000
1,80,000
7,20,000
9,00,000
9,00,000
(1 + 1 = 2)
28.
Journal Entry
Date
Particular
P
R
K
To goodwill
General reserve A/c
To P
To R
L.F Amt. (D.r)
3,000
2,000
2,000
Amt. (C.r)
½
7,000
½
14,000
6,000
4,000
185
To K
Int. on cap.
To R’s cap. A/c
P’s cap. A/c
K’s cap. A/c
To R’s cap. A/c
P&L susp. A/c
To R’s cap. A/c
R‘s cap. A/c
To R’s executor A/c
29.
Date
4,000
500
500
½
16,000
1
9,600
6,400
2,000
1
2,000
40,500
½
40,500
Journal Entries
Particular
Assets A/c
To Bhanu oil ltd.
Bhanu oil ltd.
To equity share capital
Bhanu oil ltd.
Dis. On issue of share A/c
To equity share cap A/c
Bhanu oil ltd.
To Eq. share cap. A/c
To sec. premium A/c
30.
Equity &Libilities
Share Holder’s Fund
Share Capital (a)
Assets
Current Assests
Cash & Cash equivalents
Note to Account:2. Share Capita
Authorised Capita
L.F Amt. (D.r)
12,60,000
Amt. (C.r)
Marks
12,60,000
1
12,60,000
1
14,00,000
1
10,50,000
2,10,000
1
12,60,000
12,60,000
1,40,000
12,60,000
Balance sheet as on ………
Note
Current
Previous
No.
Year
Year
Amount Amount
Note 1
358500
358500
10,00,000
186
Issued Capita :6500 Share of Rs. 100 each
Subscribes & fully Paid Capita
6000 Share of Rs. 100 each
Subscribes but not fully
paid capital
6000x100 each 60 per
Share called up
3,60,000
less Calls in arrear
50x30
1500
6,50,000
6,00,000
358500
2 Marks for Note 2 Account and 1 marks share capital & 1 marks current Assests.
31. Journal Entries
Date
Particular
Realisation A/c
To Meena’s cap. A/c
Cash A/c
To Realisation A/c
Meena’s cap. A/c
To Realisation A/c
Realisation A/c
To Cash A/c
Realisation A/c
Meena’s cap. A/c
To Cash A/c
Meena’s A/c
Shubham A/c
To Realisation A/c
D.r
L.F Amt. (D.r)
20,000
Amt. (C.r)
20,000
D.r
8,500
8,500
D.r
15,000
D.r
13,500
15,000
13,500
D.r
D.r
5,000
400
5,400
D.r
D.r
9,000
6,000
15,000
(1 Marks for each correct entery)
32.
P&L App. A/c
Particular
To int. on cap.
Ramesh
19,200
Amt.(D.r)
Particular
By Profit A/c
By int. on drawing
Amt.(C.r)
2,04,000
187
Suresh
14,400
To salaries A/c
Ramesh
48,000
Suresh
72,000
To commission
Ramesh
To Profit
Ramesh
31,200
Suresh
23,400
33,600
Ramesh
Suresh
4,000
5,000
9,000
1,20,000
4,800
54,600
2,13,000
2,13,000
1+1+1/2+1/2+1 = 4
Partner’s Capital A/c
Particular
Ramesh
To drawing
80,000
Int. on Drawing
4,000
Suresh
1,00,000
5,000
To balance c/d
1,79,200
1,24,800
2,63,200
2,29,800
Particular
By balance b/d
By int.
By Salary
By commission
By Profit
Ramesh
1,60,000
19,200
48,000
4,800
31,200
2,63,200
Suresh
1,20,000
14,400
72,000
23,400
2,29,800
1+1 = 2
(a) X limited has followed the value of equality by allotting share to all the applicants
in proportion i.e. by not rejecting any application or any other correct value. 1 Marks
(b)
Date
Particular
Bank A/C
To Share application A/C
L.F
Dr.
Rs.
72,000
Rs.
1/2
72,000
188
Share application account
Dr.
To Share capital account
To Security Premium Account
To share allotment account
Share allotment A/c
Dr.
To share capital account
To sec. premium A/c
Bank A/C
Dr.
To Share allotment account
Share first call A/C
Dr.
To Share capital account
72,000
22,000
11,000
39,000
1/2
33,000
11,000
½
4,700
1/2
44,000
4,700
33,000
33,000
1/2
Bank A/C
Dr.
To Share First Call Account
Share Final Call A/c
Dr.
To Share Capital
Bank A/C
Dr.
To Share Final Call Account
Share Capital A/C
PremiumDr.
To Share Forfeited
Dr.Security
To Share allotment account
To Share First Call
To Share Final Call
Bank A/C Dr.
To Share capital account
To Security Premium
Share forfeited A/C Dr.
To Capital Reserve A/C
32100
32100
1/2
22,000
1/2
21,400
1/2
22,000
21,400
3000
300
1
15,00
300
900
600
2,200
1
2000
200
1000
1000
1
OR
(c) Value of equality has been effected by rejecting the applications of the investors
189
The better alternative may be to allot the share Proportionately to all the applicants so
that such applicants may not be demotivated from investing in the capital of big
company in future or any other correct value. ( 1 Marks)
(d)
Date
Particular
Bank A/C
Dr.
To Share application A/C
Share application accountDr.
To Share capital account
To share allotment account
To Bank
Share allotment A/c Dr.
Discount A/C Dr.
To share capital account
Bank A/C Dr.
To Share allotment account
Share first & Final call A/C
Dr.
To Share capital account
Bank A/C
Dr.
To Share First& Final Call A/C
Share Capital A/C Dr.
To Forfitied A/C
To Discount
To Share First& Final Call
Bank A/C Dr.
Discount A/C
Dr.
To Share capital account
L.F
Rs.
1,00,00,000
Rs.
1,00,00,00
1/2
50,00,000
25,00,000
25,00,000
1/2
1,00,00,000
75,00,000
25,00,000
1,00,00,000
1/2
50,00,000
50,00,000
1,00,00,000
1
1,00,00,000
99,60,000
99,60,000
1/2
1,00,000
50,000
10,000
40,000
1
90,000
10,000
1
1,00,000
Share forfeited A/C Dr.
To Capital Reserve A/C
50,000
1
50,000
1
190
Ans. 18.
Revaluation
A/c
Particulars
To Debtors
To stock
To Furniture
To O/S Libilities
To Profit
A 600
B 400
C 200
Amt.
2,000
3,600,
3,000
2,200
1200
12,000
Particulars
By Creditors
Amt.
12,000
12,000
191
Partners Capital Account
Particular
A
B
C
Particular
A
B
C
To Goodwill
To B
9000
10500
6000
3000
3500
80,000
12000
73100
92600
96400
102400
96400
57700
64200
5900
80,000
8000
10500
3500
400
102400
96400
60,000
4000
To Bal. C/d
By Bal. b/d
By Gr. Res.
By A’Cap.
By C Cap.
By Reve. Pr
96400
57700
To Bank
To Balance
c/d
155400
By Bal. B/d
Cash
600
92500
73100
82300
51800
155400
Cash A/c
Particular
To Balance b/d
To A’s Capital
Amount
36,000
82,300
Particular
By B’s Capital
By C’s Capital
By Bal. c/d
Amount
96,400
5,900
16,000
1,18,300
Assets
Cash
Debtors
Stock
Furniture
Machinery
Amount
16000
42000
32400
57000
1,42,000
1,18,300
Balance Sheet
Liabilities
Capital
A 155400
C 51800
Creditors
B/P
O/S Lib.
Amount
2,07,200
48000
32000
2200
2,89,400
(2+3+3=8)
Or.
Revaluation A/c
Particulars
To Typewriter
To Fixed Assets
2,89,400
Amt.
3000
41100
Particulars
By Investment
To Stock
To loss
R 23400
S 11700
44100
Particular
R
To Cash
15,000
To Investment
To Rev. Loss 30,000
To Balan. C/d 23400
222600
200
64200
57700
44100
Partner’s Capital Account
S
G
Particular
7500
11700
1,99,800
Amt.
6000
3000
35100
By Bal. b/d
By Cash
By Premium
By G/R
R
S
2,25,000
1,86,000
30,000
36,000
15000
18,000
G
1,20,000
1,20,000
192
2,91,000
To Cash
To Balance
c/d
1,20,000
240000
1,99,800
79800
120000
2,91,000
1,99,800
1,20,000
Cash A/c
Particular
To Balance b/d
To G’s Capital
To Premium
To R’s Cap.
Balance Sheet
Liabilities
Capital
R 240000
S 120000
G 120000
Creditors
120000
By Bal. B/d
Cash
2,91,000
222600
17400
1,99,800
199800
1,20,000
120000
240000
199800
120000
Amount
15000
120,000
45000
17400
1,97,400
Particular
By R’s Capital
By S’s Capital
By S’ Cap.
By Bal. C/d
Amount
15,000
7,500
79800
95100
197400
Amount
Assets
Cash
Debtors
Stock
Typewriter
Fixed Assets
Amount
95100
45000
33000
12,000
3,69,900
5,55,000
4,80,000
75000
5,55,000
(2+3+3=8)
Ans. 19 :- Following are two choices to maintain debt equity ratio from 3:1 to 1:1
(iii) To reduce debt
(iv)
To increase equity
1/2x2=1
Ans. 20 :- No flow of cash because marketable securities are cash equivalents into cash does
not result any flow. (1)
Ans. 21:- Because investment is the Principal revenue producing activity of a mutual fund
company.
(1)
Ans. 22
Balance Sheet of ……………………….
As at 31st March 2012
Particular
Note No.
Current Year
Previous Year
Ii Assets
C.A
C. Investment
Inventories
Trade receivable
Cash & cash
equitant.
Short term loan and
advance othe C.A
(1/2X6=3)
Sales 80,000
Rate of Gross Profit on cost = ¼
193
800000x1/5= 1,60,000
COGS = 8,00,000-1,60,000 = 6,40,000
STR = COGS/A. Stock
5/1 = 640000/A. stock = 128,000
Opening Stock = x
Closing Stock x+20000
Averge Stock x+x+20000/2
2x+20000/2 = 128000
X=128000-10000 = 118000
Opening Stock = 11800
Closing Stock = 118000+ 20000 = 1,38,000
Acid Test Ratio = Quick Assets/ Current Liabilities
.75/1 = x/2,40,000
X = 1,80,000
C.A = Q. A + stock
C.A = 1,80,000 + 1,38,000 = 318000
C.R = C.A/C.L
C.R = 318000/240000
= 1.3:1
Ans. 24
Particular
31.3.2011
Revenue from operations
20,000
Add other income
6,000
26000
Less Exp.
12000
Net profit before Tax
Less Tax Paid
Net Profit after Tax
(1x4 = 4)
Mark(½)
Mark(½)
Mark(½)
Mark(½)
Mark(½)
Mark(½)
Mark(1/2)
Mark(½)
14000
7000
7000
Ans. 25
Particular
F) Cash flow from operating activities
Net profit before tax & dividend
Add Non-operating Exp.
Dep.
Less Non operating Income
Profit on sale of Machinery
Net profit before changing in W.C
Add decrease c.A&inc. C.L
Less Inc. C.A & Dec. C.L
Stock
Cash Flow from Operating Activities
31.3.12
30,000
8,000
38000
21000
Absolute fig.
10,000
2,000
12000
9000
%
50
33.3
46
75
17000
8500
8500
3000
1500
2000
21.4
21.4
21.4
Amount
Amount
75000
30,000
30,000
105000
6000
6000
99000
-
-
10000
10000
89000
194
G) Cash from Investing Activities
Sale of Mach.
Purchase of Mach.
Cash use in investing Activities
H) Cash Flow from Financing activities
Issue of Share Cap.
Payment of Proposed Dividend
16000
(1,90,000)
(1,74,000)
1,50,000
(-20,000)
I) Increase/decrease in cash & cash equitant
Opening Cash &Equa.
1,55,000
130000
45,000
1,55,000
2,00,000
J) Closing Cash & Cash Equ.
Working Note:3. Net Profit before Tax & Dividend 50,000+25,000 = 75,000
4. Machinery A/C
Particular
Amount
Particular
Amount
By Bal. b/d
Profit
Cash ( Purch)
250000
6000
1,90,000
Dep.
Cash
Bal. c/d
30,000
16,000
4,00,000
446000
4,46,000
(½ Marks for correct items 1/2X12 = 6)
195
UNSOLVED SAMPLE PAPER-3
ACCOUNTANCY
CLASS XII
TIME ALLOWED – 3 HRS
MAXIMUM MARKS – 80
PART – A
(Accountancy for Partnership firm and Companies)
1. State the need for treatment of goodwill or admission of a partner.
(1)
2. What is meant by under-subscription?
(1)
3. Give the meaning of Bond.
(1)
4. State any one difference between fixed capital accounts and fluctuating capital of
partners. (1)
5. What is meant by Sacrificing ratio?
(1)
6. What is meant by Authorised capital of a company?
(1)
7. What is meant by Dissolution by Notice?
(1)
8. Hemant and Dinesh are partners sharing Profit & Losses in the ratio of 3:2
respectively. They admit Ansh as partner with 1/6th share in the profit of the firm.
Hemant personally guaranteed that Ansh’s share of profit would not be less than Rs.
60,000 in any year. The net profit of the firm for the year ending 31st March 2014
was Rs. 1,80,000. Prepare Profit & Loss Appropriation Account.
(3)
9. Kashish ltd issued Rs. 3,50,000, 12% debentures of Rs. 100 each at a premium of
10% repayable at premium of 20%. Pass necessary Journal entries at the time of issue
of debentures. (3)
10. P ltd. Redeemed 4,000 8% Debentures of Rs. 100 each which were issued at par by
converting them into equity shares of Rs. 100 each issued at a premium of 25%.
Pass necessary journal entries in the books of P ltd.
(3)
11. (a) P, Q and R are partners sharing profit in the ratio of 6:5:4 respectively. R retired
surrendering 1/4th of his share in favour of P and remaining in favour of Q. Calculate
the new profit sharing ratio of P and Q.
(b) X, Y and Z are partners sharing profit in the ratio of 4:3:3 respectively. Z retire
and his share was taken over by the remaining partners equally. Calculate gaining
ratio of X and Y.
12. S ltd. Was registered with an authorized capital of Rs. 10,00,000 divided into equity
share of Rs. 10 each. The company invited appllications for the issue of 50,000
shares. Applications for 48,000 share were received. All calls were made and were
dulyreceived except the final call of Rs. 2 per share as 1000 shares. All these shares
were forfeited and later on re-issued at Rs. 9,000 as fully paid.
(i)
Show how share capital will appear in the Balance Sheet of B ltd. As per
schedule VI Part I of the companies Act 1956.
(ii)
Also prepare Notes to Accounts for the same.
(4)
196
13. Sahaj Ltd. Purchased a running business from G ltd. For a sum of Rs. 9,00,000
payable by issue of equity shares of Rs. 100 each at a premium of Rs. 20 per share.
The assets and liabilities consisted of the following:
Plant
1,75,000
land 3,00,000
Stock 2,25,000
and creditors Rs. 50,000
Pass necessary Journal entries in the books of X Ltd. For the above transactions.
(4)
14. Gunjan and Akansha were partners in a firm sharing profit in the ratio of their capitals
Rs. 1,60,000 and Rs. 1,00,000 respectively. They admitted Seema in the firm on Jan
1, 2014 as a new partner for 1/4th share in the future profit. Seema brought Rs.
1,20,000 as her capital. Calculate the value of goodwill of the firm and record the
necessary journal entries on Seema’s admission.
(4)
15. Nikhil, Rishabh and Jagat were partners. They started a business in one of the remote
tribal areas of North-east India. They were interested in the development of the tribal
community by providing good education and health.
On 31st March 2014 Nikhil, Rishabh and Jagat had capital of Rs. 6,00,000; Rs.
4,00,000 and Rs. 2,00,000 respectively. The partnership deed provided that interest
on capital will be allowed @ 6% p.a. Drawing for the year were Nikhil Rs. 40,000;
RishabhRs. 30,000; and JagatRs. 10,000. It was found that the interest on capital for
the year ended 31st March 2013 was not allowed. The profit earned by the firm for
the year ended 31st March 2014 were Rs. 3,60,000. Showing your workings clearly,
pass necessary adjustment entry. Also identify any two values highlighted in the
above question.
(6)
16. A, B and C were partners sharing profit in 2:3:1 ratio respectively. The partnership
deed provided that in case of death of a partner the deceased partner’s share of capital
will be donated for the construction of a hospital in the tribal area.
Due to ill health C died on 30th September 2013. The Balance sheet of A,B and C on
31st March 2013 was as follows
Balance Sheet as on 31.3.2013
Particulars
Amount Particulars
Amount
Capital
A
50,000
B
1,00,000
C
1,50,000
Creditors
Workmen Compensation fund
Provision for doubtful debts
Goodwill
Cash
Stock
3,00,000 Debtors
1,80,000 Investment
10,000
Land
5,000
7,000
1,48,000
40,000
1,50,000
25,000
1,25,000
4,95,000
4,95,000
On that date of C’s death i.e. 30th September 2013, the following was agreed upon:
197
Goodwill is valued at two years’ purchase of average profits of last three completed
years i.e. 2010 – 11 = Rs. 22,500
2011 – 12 = Rs. 45,000
2012 – 13 = Rs. 67,500
C’s share of profit till the date of his death will be calculated on the basis of average
profits of last three years land was undervalued by Rs. 12,500 and stock overvalued
by Rs. 4,000. Provision for doubtful debts is to be made at 5% of debtors claim on
account of workmen compensation estimated at Rs. 2,500. Prepare C’s capital A/c to
be rendered to his executor.
Also identify the value that A,B and C wanted to communicate to the society.
(6)
17. B ltd. Invited application for issuing 1,00,000 equity shares of Rs. 10 each. The
amounts were payable as follows:
On Application
Rs. 3
On allotment Rs. 5
On First and final Call Rs. 2
Applications were received for 1,50,000 shares and pro-rata allotment was made to all
the applicants prorate allotment was made to all the applicants. Money overpaid on
applications was adjusted towards allotment money. B who was allotted 1,500 shares,
failed to pay the first and final call money. His shares were forfeited out of the
forfeited shares, 1250 share were reissued as fully paid up @ Rs. 8 per share.
Pass necessary journal entries to record the above transactions in the books of B ltd.
OR
(a) A company forfeited 400 share of Rs. 20 each, Rs. 15 per share called up on which
Rs. 10 per share had been paid. Directors reissued all the forfeited share to B as Rs.
15 per share paid up for a payment of Rs. 10 each. Give journal entries in the books
of the company for forfeiture and reissue of share.
(b) A ltd forfeited 200 equity shares of the face value of Rs. 10 each, for the non-payment
of first call of Rs. 2 per share. Rs. 6 per share had already been called and paid these
share were subsequently reissued as fully paid at the rate of Rs. 7 per share. Give
journal entries in the books of the company for forfeiture and reissue of share.
(8)
18. S and G were partners in a firm sharing profit in the ratio of 3:2 respectively. On 31st
March 2014 their Balance Sheet was as follows:
Balance Sheet of S and G as at 31st March 2014.
Particulars
Amount Particulars
Amount
Creditors
Investment fluctuation fund
Capital
S
G
Bank Loan
35,000
8,000
70,000
20,000
Cash
Debtor
Prov. For b. debts
Stock
Plant
Patents
Investment
Goodwill
5000
20,000
700
19,300
25,000
35,000
20,700
20,000
8,000
198
1,33,000
1,33,000
B was admitted as a new partner as the following conditions:
(a) B will get 4/15th share of profits.
(b) B had to bring Rs. 30,000 as his capital.
(c) B would pay cash for his share of goodwill based on 2 ½ years purchase of
average profit of last 4 years.
(d) The profits of the firm for the year ending on 31st March 2011, 2012, 2013 and
2014 were Rs. 20,000; Rs. 14,000; Rs. 17,000 and Rs. 15,000 respectively.
(e) Stock was valued at Rs. 20,000 and provision for doubtful debts was raised up to
Rs. 100.
(f) Plant was revalued at Rs. 40,000.
Prepare Revaluation Account, Partner’s capital A/c and the Balance Sheet of the
new firm.
OR
K, S and R were partners in a firm sharing profit in the ratio of 3:2:1 respectively.
They decided to dissolve the firm with effect from April 1, 2014. As that date the
Balance Sheet of the firm was as follows:
Liabilities
Capital
K
1,36,000
S
1,00,000
R
Creditors
54,000
Balance Sheet
As at 1.04.2014
Amount Particulars
Amount
Plant
Motor Van
Furniture
2,90,000 Stock
2,40,000 Debtors
Cash
1,60,000
50,000
90,000
60,000
1,40,000
30,000
5,30,000
5,30,000
The dissolution result in the following:
(i)
Plant of Rs. 80,000 was taken over by K at an agreed value of Rs. 90,000
and remaining Plant realisedRs. 1,00,000.
(ii)
Furniture realisedRs. 80,000.
(iii) Motor Van was taken over by S for Rs. 60,000.
(iv)
Debtor realisedRs. 2,000 less.
(v)
Creditor for Rs. 40,000 were untraceable and the remaining creditors were
paid in full.
(vi)
Realisation expenses amounted to Rs. 10,000.
Prepare the Realisation Account, capital accounts of partners and Bank
Account of the firm.
199
PART – B
(Financial Statement Analysis)
19. Name any two tools of analysis of financial statements.
(1)
20. Dividend paid by a financial company is classified under which type of activity, while
preparing cash flow statement?
21. State any one objective of preparing Cash Flow Statement.
(1)
22. State under which major heading the following items will be presented in the Balance
Sheet of a Company as per revised schedule VI Part I of the company Act 1956:
(i)
Trade Mark
(ii)
Capital Redemption Reserves
(iii)
Income received in advance
(iv)
Stores and spares
(v)
Office equipment
(vi)
Current investment
(3)
23. From the following calculate:
(a) Current Ratio
(b) Working Capital turnover Ratio
(I)
Revenue from operation
3,00,000
(II)
Total Assets
2,00,000
(III) Shareholder’s funds
1,20,000
(IV) Non current liabilities
40,000
(V)
Non current Assets
1,00,000
(2+2 = 4)
24. On the basis of the following information extracted from the statement of Profit
&Loss for the year ended 31st March 2013-14. Prepare a comparative statement of
profit and loss:
Particulars
Note
31-3-13
31-3-14
no.
Revenue from operations
30,000
20,000
Expenses
21,000
12,000
Other income
3,600
4,000
Tax rate
50%
50%
25. Prepare of cash flow statement from the following sheet:
Particulars
I EQUITY AND LIABILITIES
(1) Shareholder fund
(a) Share Capital
(b) Reserve and Surplus
(2) Current Liabilities
Trade Payables
Note
no.
1
31-3-13
31-3-14
3,00,000
2,00,000
2,50,000
1,00,000
1,40,000
90,000
200
Total
6,40,000
4,40,000
II ASSETS
(1) Non-Current Assets
(a) Fixed Assets
Plant & Machinery
(2) Current Assets
(a) Inventories
(b) Trade receivables
(c) Cash and Cash equivalents
2,50,000
1,50,000
50,000
3,00,000
40,000
75,000
2,00,000
15,000
6,40,000
4,40,000
31-3-13
31-3-14
2,00,000
1,00,000
Total
Notes to Accounts
Note – 1
Particulars
Reserve and Surplus
(Surplus balance in statement of Profit & Loss)
Note
no.
(1) An old machinery having book value of Rs. 25,000 was sold for Rs. 30,000.
(2) Depreciation provided on Machinery during the year was Rs. 15,000.
(6)
Answers:
15. Jagats capital a/c Dr. Rs. 13,000, Nikhils capital a/c Cr. Rs. 12,800, Rishabs
capital a/c cr. Rs. 200
19. His share of goodwill – Rs. 25,000
201
Unsolved Sample paper – 4
ACCOUNTANCY
T.A. 3 HRS.
1.
2.
3.
4.
5.
6.
7.
8.
9.
M.M. 80
Part – A
(Accounting for Partnership Firms and Companies)
The net profit of a partnership firm is Rs. 2,10,000 after all adjustments. Calculate the
commission to partner after charging such commission @ 5% p.a. (1)
P, Q and R are partners sharing profit in the ratio of ½, 2/5 and 1/10. Find the new
ratio of remaining partners if R retires.
(1)
What is meant by Private Placement of Shares?
(1)
At what rate interest on calls-in-arrears received by the company according to Table
A of Companies Act 1956?
(1)
Why are assets and liabilities revalued at the time of admission of a partner?(1)
P, Q and R were partners in a firm sharing profit in the ratio of 5:4:3 respectively.
Their capitals were Rs. 1,00,000; Rs. 80,000 and Rs. 60,000 respectively. State the
ratio in which the goodwill of the firm amounting to Rs. 12,00,000 will be adjusted in
the capital accounts of the remaining partners on the retirement. (3)
X, Y and Z are partners in a firm. They omitted interest on capital @ 10% p.a. for
three years ended 31st December, 2013. Their fixed capitals on which interest was to
be calculated throughout were:
X
Rs. 3,40,000
Y
Rs. 2,72,000
Z
Rs. 2,38,000
Pass the necessary adjusting journal entry with clear working notes.
(3)
W ltd. Had a balance of Rs. 66,00,000 in its profit and loss Statement. Instead of
declaring a dividend, it decided to redeem its Rs. 60,00,000, 9% debentures at a
premium of 10%. Pass necessary journal entries in the books of the company for the
redemption of debentures.
(3)
Mahendra ltd.issued 60,000 shares of Rs. 10 each at a premium of Rs. 2 per share
payable as Rs. 3 on Application; Rs. 5(including premium) on Allotment and the
balance on first and final call.
Applications were received for 82,000 shares. The Directors resolved to allot as
follows:
(a) Applicants of 30,000 shares
20,000 shares
(b) Applicants of 50,000 shares
40,000 shares
(c) Applicants of 2,000 shares
Nil
X who applied for 900 shares in category (a) and Y who was allotted 600 shares in
category (b) failed to pay the allotment money.
(a) Identify (i) two values ignored by the company (ii) value violated by X and Y.
(b) Calculate the number of shares allotted to X.
(4)
10. Kartik ltd. Purchased assets from Konark & Co. for Rs. 7,00,000. A sum of Rs.
1,50,000 was paid by means of a bank draft. For the balance due, Kartik ltd. Issued
202
equity shares of Rs. 10 each at a premium of 10%. Pass necessary journal entries in
the books of the company.
(4)
11. What journal entries should be made for issue of debentures in following cases:
(i)
X ltd. Issued Rs. 50,00,000, 12% debentures of Rs. 100 each at par but
redeemable at the end of six years at Rs. 105 each.
(ii)
Z ltd. Purchase its own debentures of the face value of Rs. 2,00,000 from the
open market for immediate cancellation at Rs. 92. Pass journal entries.
(2+2=4)
12. Anil and Bharat after doing their MBA decided to start a partnership firm to
manufacture ISI marked electronic goods for economically weaker section of the
society. Anil also expressed his willingness to admit Dolly as a partner without
capital who is specially abled but a very creative and intelligent friend of him. Bharat
agreed to this. They formed a partnership on 1st April 2014 on the following term:
(i)
Anil will contribute Rs. 8,00,000 and Bharat will contribute Rs. 4,00,000 as
capitals.
(ii)
Anil and Bharat and Dolly will share profit in the ratio of 2:2:1.
(iii)
Interest on capital will be allowed @ 6% p.a.
Due to shortage of capital Anil contributed Rs. 2,00,000 on 30th September
2013 and Bharat contributed Rs. 1,00,000 on January 1 2014 as additional
capitals. The profit of the firm for the year ended 31st March 2013 was Rs.
7,00,000.
(a) Identify two values which the firm want to communicate to the Society.
(b) Prepare P&L Appropriation A/c for the year ending 31st March 2014.
13. Journalise the following transactions on the dissolution of a firm:
(a) P, a partner, took over all investments at Rs. 15,800.
(b) Creditors worth Rs. 69,000 accepted machinery valued at Rs. 73,000 in settlement
of their claim.
(c) R, a partner, took over 60% of the stock at a discount of 25%(book value of stock
is Rs. 50,000)
(d) An asset, not appearing in the books of accounts, realised Rs. 13,900.
(e) Realisation expenses Rs. 9,600 were paid by P for which he was paid Rs. 8,000.
(f) Loss on realization Rs. 72,000 was to be distributed between P and R in the ratio
of 5:4.
(6)
14. L, M and N were partners in a firm sharing profits in the ratio of 5:6:9. On 31st March
2014, their Balance sheet was as follows:
Balance Sheet
As at 31st march, 2014
Liabilities
Rs.
Amount
Rs.
Bills Payable
Creditors
General Reserve
Capital A/cs
L
1,17,000
M
1,80,000
M
3,60,000
36,000
27,000
54,000
Bank
Debtors
Stock
Land
Building
Profit and Loss A/c
81,000
63,000
36,000
2,70,000
1,80,000
1,44,000
6,57,000
203
7,74,000
7,74,000
N died on 30th April, 2014. The partnership deed provide for the following on the
death of a partner:
(i)
N’s share of profit/loss till the date of death was to be calculated on the basis
of profit and loss for the year ending 31st March, 2014.
(ii)
Goodwill of the firm was to be valued at two years’ purchase of average of
last four years.
(iii)
The profit for the years ending 31st March 2009, 2010, 2011, 2012, 2013 were
Rs. 65,000, Rs. 90,000, Rs. 1,10,000, Rs. 70,000 and Rs. 60,000 respectively.
Calculate
(a) N’s share in the profit/loss till his death.
(b) N’s share of goodwill at the time of his death.
Prepare N’s Capital Account to be presented to his executor.
(6)
15. A and B are partners in a firm sharing profits and losses in the ratio of 7:3. Their
Balance Sheet as at 31st march, 2013 is as follows:
16. Balance Sheet
17. As at 31st march, 2014
Liabilities
Rs.
Amount
Rs.
Creditors
Reserve
Capital Accounts:
A
2,00,000
B
1,60,000
1,20,000
20,000
3,60,000
Goodwill
Cash at Bank
Debtors
Furniture
Stock
5,00,000
72,000
1,80,000
88,000
60,000
1,00,000
5,00,000
On 1st April, 2013, they admit Rohan on the following terms:
(a) Goodwill is valued at Rs. 80,000 and C is to bring in the necessary amount in cash
as premium for goodwill and Rs. 60,000 as capital for 1/4th share in profits.
(b) Stock is to be reduced by 40% and furniture is to be reduced to 40%.
(c) Capitals of the partners shall be proportionate to their profit sharing ratio takin C’s
capital as base. Adjustments of capitals to be made by cash.
Prepare Revaluation A/c, Partner’s capital a/c and Cash A/c.
OR
On 31st March, 2014 the Balance sheet of P, Q and R sharing profits and losses in
the ratio of 2:3:2 stood as follows:
Balance Sheet
As at 31st march, 2014
Liabilities
Rs.
Amount
Rs.
Capital A/c
P
1,00,000
Q
1,50,000
R
1,00,000
3,50,000
Land & Buildings
Machinery
Closing Stock
Sundry Debtors
1,00,000
1,70,000
50,000
60,000
204
Sundry Creditors
50,000
4,00,000
Cash Balance
Bank Balance
5,000
1,50,000
4,00,000
On 31st March, 2014 Q desired to retire from the firm and the remaining partners decided to
carry on. It was agreed to revalue the Assets and Liabilities on that date on the following
basis:
(a) Land and Buildings be appreciated by 30%.
(b) Machinery be depreciated by 20%.
(c) Closing Stock to be valued at Rs. 45,000.
(d) Provision for bad debts be made at 5%.
(e) Old credit balances of Sundry Creditors Rs.5,000 be written back.
(f) Unrecorded investment was sold for Rs. 35,000.
(g) Goodwill of the entire firm be valued at Rs . 63,000 and Q’s share of the Goodwill be
adjusted in the accounts of P and R who share the future profits and losses in the ratio
of 3:2.
(h) The total capital of the firm is to be the same as before retirement and individual
capital to be in their profit sharing ratio.
(i) Amount due to Q is to be settled on the following basis:
50% on retirement and the balance 50% within one year.
Prepare Revaluation Account, Capital Accounts of Partners, Bank Account and
Balance Sheet as on 1.4.2014 of P and R.
(8)
16. Vandana ltd. Invited applications for issuing 10,000 equity shares of Rs. 10 each.
The amount was payable as follows:
On Application Rs. 3 per share
On Allotment Rs. 2 per share
On first and final call Rs. 5 per share
Applications were received for 22,000 shares. Applications for 2,000 shares were
rejected and their application money was refunded. Shares were allotted to the
remaining applicants as follows:
(a) Allotted 50% shares to Himanshu who had applied for 4,000 shares.
(b) To allot in full to Robin who had applied for 2,000 shares.
(c) To allot balance of the shares on pro-rata basis to the other applicants.
Excess application money was utilized in payment of allotment and final call. All
calls were made and were duly received except the first and final call on 600 shares
allotted to an applicant in category (c). His shares were forfeited. The forfeited
shares were re-issued for Rs. 9 per share fully paid up.
Pass necessary journal entries in the books of Vandana Ltd. For the above
transactions.
OR
Avni Ltd. Invited applications for issuing 12,000 equity shares of Rs. 10 each at a
discount of 10% which was payable as Rs. 2 each on application and allotment and
the balance on first and final call. Applications for 24,000 shares were received. Out
205
of these, applications for 4,000 shares were rejected and their application money was
refunded. To the remaining applicants, shares were allotted on pro-rata basis.
Excess application money received with applications was adjusted towards sums due
on allotment.
K (applied 200 shares) failed to pay allotment and first and final call money. M did
not pay the first and final call money on his 160 shares. All these shares were
forfeited. Later on, 160 shares (including all the shares of K) were reissued at Rs. 17
per share fully paid up.
Pass necessary journal entries for the above transactions.
(8)
PART – B
(Financial Statement Analysis)
17. State any one limitation of Analysis of financial statement.
(1)
18. List any two financing activities that result into outflow of cash.
(1)
19. State the objective of preparing Cash Flow Statement.
(1)
20. Under which major sub-heading the following item will be placed in the Balance
Sheet of a company as per revised Schedule VI par –I of the companies Act 1956.
(i) Accrued Income
(ii) Loose tools
(iii) provision for employees benefits
(iv)
Unpaid divididend
(v)
Short –term loans
(vi)
Long-term loans
(3)
21. Working Capital of a company is Rs.30,00,000. Its current ratio is 2.5:1 what will be the
value of (a) Current Liabilities
(b) current Assets (c) Quick Assets and (d) Liquid
Ratio? Assume inventories of Rs. 20,00,000.
(4)
22. Prepare a Common-size Balance Sheet of Bajaj Ltd. From the following information:
Particulars
Note 2013-14 2012-13
No.
I EQUITY AND LIABILITIES
Share capital
5,00,000 2,50,000
Reserves and Surplus
50,000
50,000
Long-term Borrowings
1,00,000 1,50,000
Trade Payables
80,000
40,000
Short-term Provisions
20,000
10,000
II ASSETS
Fixed Assets
Non-current Investments
Inventories
Trade Receivables
Cash and Cash Equivalents
23. From the following information, prepare Cash Flow Statement:
Particulars
Note
No.
7,50,000
5,00,000
6,00,000
75,000
45,000
30,000
7,50,000
3,00,000
1,00,000
50,000
30,000
20,000
5,00,000
31.03.13
31.03.14
206
I EQUITY AND LIABILITIES
1. Shareholders’ funds:
(a) Share Capital
(b) Reserves and Surplus
2. Non-current Liabilities:
(a) Long-term borrowings (15% Debentures)
3. Current Liabilities:
(a) Short-term borrowings (Cash credit)
(b) Trade Payables
(c) Short-term Provisions
Total
II ASSETS
1. Non-current Assets:
(a) Fixed Assets – Tangible
Less: Accumulated Depreciation
2. Current Assets:
(a) Inventories
(b) Trade Receivables
(c) Cash and Cash Equivalents
(d) Other Current Assets (Prepaid Expense)
Total
Notes to Accounts:
Particulars
1. Share capital
Equity Share Capital
12% Preference Share Capital
Total
2. Reserves and Surplus
General Reserve
Balance in Profit & Loss Statement
Total
3. Short-term Provisions
Provision for Taxation
Proposed Divident
Total
1
2
3
Note
No.
2,00,000
12,800
1,60,000
12,000
28,000
24,000
27,200
44,000
40,000
3,52,000
50,000
48,000
32,000
3,26,000
1,60,000
(60,000)
1,64,000
(44,000)
1,40,000
96,000
14,000
2,000
3,52,000
1,20,000
80,000
4,800
1,200
3,26,000
2013-14
2012-13
1,60,000
40,000
1,10,000
50,000
2,00,000
1,60,000
8,000
4,800
8,000
4,000
12,800
12,000
16,800
23,200
12,000
20,000
40,000
32,000
Additional Information:
207
(a) Provision for tax made Rs. 18,800.
(b) Fixed assets sold for Rs. 20,000 their cost Rs. 40,000 and accumulated depreciation
till date of sale is Rs. 12,000.
(c) An interim dividend paid duing the year Rs. 18,000.
(6)
208
Unsolved Sample Paper - 5
ACCOUNTANCY
Class : XII
Time Allowed : 3 hours
Maximum Marks: 80
1. A and B are partners with capitals of Rs. 13,000 and 9000 respectively. They admit C
as partner with 1/5th share in the profit of the firm. C brings Rs. 8,000 at his capital.
Calculate C’s share of goodwill only
(1)
2. How would you calculate interest on drawings of equal amounts drawn in the middle
of every month?
(1)
3. Asha Bawana and chanda are partners in a firm, chanda retired from the firm. After
making adjustment for Reserve and Revaluation of Assets and Liabilities the balance
in the chanda’s capital account was Rs. 24,000. Asha and Bhawana paid360,000 in
full settlement to chanda. Identify the item for which Asha and Bhawana paid Rs.
120,000 more to chanda.
(1)
4. You are director of Julaj Auto ltd. Julaj Auto Ltd. Has invited applications for
100,000 equity share of Rs. 10 each. Application were received for 175,000 shares.
Name the kind of subscription.
(1)
5. State any two conditions for the issue of share at discount.
(1)
6. Ankit, Parnesh & Devender sharing profit and losses equally have capital of Rs.
60,000, Rs. 45,000 and Rs. 30,000. For the year 2014 interest was credited to them
9% instead of 10%p.a. Give adjusting Journal entry.
(3)
7. Pass the necessary Journal entries for issue of 7% Debentures of Rs. 100 each in the
following cases:
(3)
a. 200 debentures of Rs. 150 each issued at 10% Premium redeemable at Rs. 200
each.
b. 200 Debentures of Rs. 200 each issued at a discount of 10% redeemable at par.
c. 200 Debenture of Rs. 100 each issue at discount of 10% redeemable at premium
15%
8. Z ltd. Purchase its own 400 debentures of the face value of Rs. 40,000 from the open
market for immediate cancellation at 96 Pass journal Entries.
(3)
9. State any 4 factors which influence the valuation of goodwill of
a partnership firm.
(4)
10. A company issue Rs. 60,000 fully paidup share of Rs. 100 each for purchase of the
following Assets and Liabilities from Gupta & Co.
209
Plant
Land and Building
Stock in Trade
Sandry Creditors
Rs. 14,00,000
Rs. 24,00,000
Rs. 18,00,000
Rs. 4,00,000
(4)
11. A ltd. was registered with an authorized capital od Rs. 5,00,000 decided into equity
share of Rs. 10 each. The company invited applications for the issue of 25,000 shares.
Applications for 24,000 shares were received. All calls were made and were duly
received except the final call of Rs. 2 per share on 500 share. All these shares were
forfeited and later on re-issued at Rs. 4,500 as full paid.
i.
Show how ‘share capital’ will appear in the Balance Sheet of A ltd as per
schedule VI Part – I of the companies Act 1956.
ii.
Also prepares ‘Notes to Accounts’ for the same.
(4)
12. G and H were partners in a firm on Ist April 2014 their capital Rs. 250,000 and Rs.
2,00,000 respectively. They admitted R on Ist July with a capital of Rs. 3,00,000. As
per new partnership agreement.
i.
Profit will be divided in the ratio of 2:2:1
ii.
Interest on capital will be allowed @ 6%
iii.
G will get on annual commission of Rs. 25,000
iv.
H & R will get a monthly salary of Rs. 4000 and 3000 respectively.
The profit for the year was Rs. 210,000.
Prepare profit andloss appropriation account for the year.
(6)
13. Journalise the following transaction on the dissolution of a firm:
i.
P a partner, took over all investment at 31600.
ii.
Creditor were Rs. 1,38,000 accepted machinery valued at Rs. 1,46,000 in
settlement of their claim.
iii.
R a partner took over 60% of the stock at a discount of 25% (book value of
stock is Rs. 1,00,000)
iv.
An assets, not appearing in the books of accounts realised Rs. 27,800.
v.
Realization expenses Rs. 19,200 were paid by ‘P’ for which he was paid Rs.
16,000.
vi.
Bank loan Rs. 72,000 was paid.
vii.
R agreed to pay off his brother’s loan 20,000.
viii. Loss on realization Rs. 144,000 was to be distributed between Phenomena &
R in the ratio of 5:4.
(6)
14. A, B & C are partners in a firm sharing profit in the ratio of 5:3:2 respectively. Their
Balance Sheet as on 31st March 2014 was as follows.
Balance Sheet as on 31st March 2014
Liabilities
Amount Assets
Amount
210
Creditors
Reserves
Capitals:
24,000
20,000
A
60,000
B
40,000
Cash
Debtors
Stock
Machinery
Building
1,30,000 Patents
1,74,000
26,000
16,000
20,000
60,000
40,000
12,000
1,74,000
C
30,000
On 1st Sep 2014 due to illness B died. It was agreed between the firm and B’s
executors that the amount due to B will be used for construction of a community hall
in the village. As per the agreement.
i.
goodwill is to be valued at two years’ purchase of the average profit of
previous five years which were 2010- Rs. 20,000 2011- Rs. 26,000 2012- Rs
24,000 2013- Rs. 30,000 and 2014 Rs 40,000.
ii.
Patents were valued at Rs. 16,000, Machinery at Rs. 56,000 and Building at
Rs. 60,000.
iii.
B’s share of profit till the date of his death will be calculated on the basis of
profit of the year 2014.
iv.
Interest on capital will be provided at 10% p.a.
v.
Amount due to B’s executors will be transferred to charity account.
a. Prepare ‘B’ capital account to be presented to his executor and
b. Identify any one value being highlighted to the question.
(6)
15. R ltd. invited application for issuing 20,000 equity share of Rs. 100 each at a discount
of Rs. 4 per share. The amount was payable as follows.
On application – Rs. 20 per share
On allotment – Rs 30 per share
On First & Final Call – Rs 46 per share.
Application were received for Rs. 18,000 share and allotment was made to the all
applicants. All amounts due were received except the first and final call on 800
shares. These share were forfeited: out of the forfeited share, 600 shares were reissued
at a payment of Rs. 54,000 fully paid up.
Pass necessary journal entries in the books of the company.
OR
a. C ltd forfeited 2000 shares of Rs. 2100 each issued at a discount of Rs 8 per
shares, On these shares the first call of Rs. 30 per share was not received and final
call of Rs. 20 per share was not made. Subsequently these shares were reissued at
Rs. 70 per share Rs. 80 paidup.
Pass necessary Journal entries for the above transaction in the books of C ltd. .
b. L. ltd forfeited 940 equity share of Rs. 20 each issue at a premium of Rs. 3 per
share for the non payment of allotment money of rs 8 (including premium Rs 3)
and first call Rs. 5 per share. Final call of Rs. 5 per share were not made. Out of
these 470 shares were reissued at Rs. 38 each fully paid.
Pass necessary journal entries for the above transaction in the book of L ltd.
4 + 4 = (8)
211
16. R & L are partners in a firm sharing profit and losses in the ratio of 3:2. They admit D
into the firm when their balance sheet was as follows.
Balance sheet as on 31st March 2014.
Liabilities
Amount
Assets
Amount
Creditors
Bank Loan
Contingency
Reserve
40,000
80,000
60,000
Bank
Debitors
Stock
Investment
Furniture
Building
Profit and Loss
80,000
70,000
1,00,000
80,000
40,000
50,000
20,000
Capital A/C
R 1,60,000
L 1,00,000
2,60,000
4,40,000
4,40,000
Terms of D’s admission were as follows.
i.
D will bring Rs. 1,40,000 as his share of capital.
ii.
Goodwill is valued at Rs. 1,20,000 and bring hisshare of goodwill in cash.
iii.
Furniture and building is to be revaluated at Rs. 30,000 and 70,000
respectively.
iv.
Capital of old partners is to be readjusted on the basis of new partners’s capital
adjustment of capital is to be made through bank.
v.
New ratio of R. L & D is 3:2:1.
Prepare Rev. A/c Partner’s Capital A/c and Balance Sheet of the new firm.
Or
Sita, Geeta & Meeta were partners sharing Profit in the ratio of 2:2:1
respectively.
Following was their Balance sheet as on 31st March 2014
Liabilities
Capital:
Sita 2,40,000
Geeta 1,60,000
Meeta 2,00,000
Creditors
Bills Payable
P & L A/C
Balance Sheet as on 31st March 2014
Amount Assets
Amount
6,00,000
1,20,000
80,000
50,000
8,50,000
Goodwill
Cash
Debtors
Building
Plant
40,000
42,000
88,000
4,00,000
1,60,000
8,50,000
On the above date SIta returned and following were agreed:
i.
Stock was valued at RS. 1,00,000, Debtors Rs. 80,000 Building Rs.
4,40,000; Plant Rs. 1,40,000 and creditors Rs. 1,00,000
ii.
Amount due to Sita will be transferred to Sita’s loan account.
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iii.
Goodwill is valued at Rs. 60,000. Prepare Revaluation Account and
Sita’s Capital Account.
(8)
Part – B
(Financial Statement Analysis)
17. State why non-cash transaction are ignored while preparing a cash flow statement?
(1)
18. State with reason whether the issue of 9% debentures to a vendor for the purchase of
machinery of Rs. 1,00,000 will result in inflow, outflow or no flow of cash while
preparing cash flow statement.
(1)
19. State any one advantage of analysis of financial statements.
(1)
20. State under which major heading the following item will be presented in the balance
sheet of a company as per revised schedule VI part 1 of the Companies Act 1956.
i.
Long Term Borrowings
ii.
Trade Payables
iii.
Provision for Tax
iv.
Securities Premium Reserve
v.
Patents
vi.
Accrued Income
(3)
21. Calculate current Rates of a company from the following information:
Inventory Turnover Ratio 4 time.
Inventory in the end was Rs. 20,000 more than inventory in the beginning.
Revenue from operation Rs. 3,00,000
Gross Profit Ratio 25%
Current Liabilities Rs 40,000
Quick Ratio 0.75:1
(4)
22. From the following extract of the statement of Phenomena & L for the years ended
31st March 2013-14 of XYZ ltd. Prepare a comparative statement of Profit & Loss.
(4)
Particular
Revenue from operation
Employees Benefit Expenses
Other Expense
Tax Rate
31.3.2014
24,00,000
11,00,000
1,00,000
50%
31.3.13
15,00,000
9,00,000
2,00,000
50%
23. From the following Balance Sheet of Samta Ltd. as at 31st March 2013 and 2014 .
Prepare cash Flow Statement.
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Particular
1. Equity & liabilities
 Share holder’s fund
Share Capital
Reserve & Surplus
2013

2014
2014
Balance in statement of P & L 2,00,000
1,00,000
Miscellaneous Exp.
----(1,00,000)
2,00,000
--Current liabilities
Provision:
Proposed Dividend:
2. Assets
 Non Current Assets
Fixed Assets
 Current Assets
10,0,000
2,00,000
2013
7,50,000
NIL
2,00,000 50,000
1,00,000 9,50,000
15,00,000 9,50,000
9,00,000
6,00,000 6,00,000
15,00,000 3,50,000
9,50,000
Total
Additional Information:
i.
During Rs. 40,000 depreciation charged on fixed assets.
ii.
A price of machinery including in fixed assets costing Rs. 10,000 on which
depreciation charged was Rs. 4000 was sold Rs. 5000.
(6)
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