HOTS

ACCOUNTANCY
CLASS – XII

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 ACCOUNTING FOR PARTNERSHIP FIRMS: BASIC CONCEPTS
Q.1 State the conditions under which capital balances may change under the system of a Fixed Capital Account.

Q.2 A is partner in a firm. His capital as on Jan 01, 2007 was Rs. 60,000. He introduced additional capital of Rs.
20000 on Oct 01 2007. Calculate interest on A’s capital @ 9% p.a.

Q.3 Alka, Barkha and Charu are partners in a firm having no partnership agreement. Alka, Barkha and Charu
contributed Rs. 20,000, Rs. 30,000 and Rs. 1,00,000 respectively. Alka and Barkha desire that the profit should
be divided in the ratio of capital contribution. Charu does not agree to this. How will you settle the dispute.

Q.4 A and B are partners in a firm without a partnership deed. A is an active partner and claims a salary of Rs.
18,000 per month. State with reason whether the claim is valid or not.

Q.5 Chandar and Suman are partners in a firm without a partnership deed. Chandar’s capital is Rs. 10,000 and
Suman’s capital is Rs. 14,000. Chander has advanced a loan of Rs. 5000 and claim interest @ 12% p.a. State
whether his claim is valid or not.

Q.6 R, S, and T entered into a partnership of manufacturing and distributing educational CD’s on April 01,
2006. R looked after the business development, S content development and T financed the project. At the end of
the year (31-03-2007) T wanted an interest of 12% on the capital employed by him. The other partners were not
inclined to this. How would you resolve this within the ambit of the Indian Partnership Act, 1932?
Q.7 A, B and C are partners in a firm. A withdrew Rs. 1000 in the beginning of each month of the year.
Calculate interest on A’s drawing @ 6% p.a.
Q.8 A, B and C are partners in a firm, B withdrew Rs. 800 at the end of each month of the year. Calculate
interest on B’s drawings @ 6% p.a.
Q.9 A, B and C are partners in a firm. They have omitted interest on capital @ 10 % p.a. for three years ended
31st march 2007. Their fixed capitals on which interest was to be calculated through –out were
A Rs. 1,00,000
B Rs. 80,000
C Rs. 70,000

Give the necessary Journal entry with working notes.

Q.10 X, Y, and Z are partners sharing profits and losses in the ratio of 3:2:1. After the final accounts have been
prepared it was discovered that interest on drawings @ 5 % had not been taken into consideration. The drawings
of the partner were X Rs. 15000, Y Rs. 12,600, Z Rs. 12,000. Give the necessary adjusting Journal entry.

Q.11 A, B and C are partners sharing profits and losses in the ratio of 3:2:1. Their fixed capitals are Rs.
1,50,000, Rs. 1,00,000 and Rs. 80,000 respectively. Profit for the year after providing interest on capital was Rs.
60,000, which was wrongly transferred to partners equally. After distribution of profit it was found that interest
on capital provided to them @ 10% instead of 12% . Pass necessary adjustment entry.
Show your working clearly.

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Q.12 Ravi and Mohan were partner in a firm sharing profits in the ratio of 7:5. Their respective fixed capitals
were Ravi Rs. 10,00,000 and Mohan Rs. 7,00,000. The partnership deed provided for the following:-
(i) Interest on capital @ 12% p.a.
(ii) Ravi’s salary Rs. 6000 per month and Mohan’s salary Rs. 60000 per year.
The profit for the year ended 31-03-2007 was Rs. 5,04,000 which was distributed equally
without providing for the above. Pass an adjustment Entry.

Q.13 Distinguish between fixed capital method and fluctuating capital method.

Q.14 A, B and C were partners in a firm having capitals of Rs. 60,000, Rs. 60,000 and Rs. 80,000 respectively.
Their current account balances were A- Rs. 10,000, B- Rs. 5000 and C- Rs. 2000 (Dr.). According to the
partnership deed the partners were entitled to an interest on capital @ 5% p.a. C being the working partner was
also entitled to a salary of Rs. 6,000 p. a. The profits were to be divided as follows:
(i) The first Rs. 20,000 in proportion to their capitals.
(ii) Next Rs. 30,000 in the ratio of 5:3:2.
(iii) Remaining profits to be shared equally.
During the year the firm made a profit of Rs. 1,56,000 before charging any of the above items.
Prepare the profit and loss appropriate on A/C.

Q.15 A and B are partners sharing profits in proportion of 3:2 with capitals of Rs. 40,000 and Rs. 30,000
respectively. Interest on capital is agreed at 5 % p.a. B is to be allowed an annual salary of Rs. 3000 which has
not been withdrawn. During 2001 the profits for the year prior to calculation of interest on capital but after
charging B’s salary amounted to Rs. 12,000. A provision of 5% of this amount is to be made in respect of
commission to the manager.

Prepare profit and loss appropriation account showing the allocation of profits.

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 RECONSTITUTION OF PARTNERSHIP
ADMISSION OF A PARTNER
Q.1 On what occasions does the need for valuation of goodwill arise?

Q.2 Why is it necessary to revalue assets and reassess liabilities at the time of admission of new partner?

Q.3 What is meant by sacrificing ratio?

Q.4 State two occasions when sacrificing ratio may be applied.

Q.5 A business has earned average profit of Rs. 60,000 during the last few years. The assets of the business are
Rs. 5,40,000 and its external liabilities are Rs. 80,000. The normal rate of return is 10%. Calculate the value of
goodwill on the basis of capitalisation of super profits.

Q.6 The capital of a firm of Arpit and Prajwal is Rs. 10,00,000. The market rate of return is 15% and the
goodwill of the firm has been valued Rs. 1,80,000 at two years purchase of super profits. Find the average
profits of the firm.

Q.7 The average profits for last 5 years of a firm are Rs. 20,000 and goodwill has been worked out Rs. 24,000
calculated at 3 years purchase of super profits. Calculate the amount of capital employed assuming the normal
rate of interest is 8 %.

Q.8 Rahul and Sahil are partners sharing profits together in the ratio of 4:3. They admit Kamal as a new partner.
Rahul surrenders 1/4th of his share and Sahil surrenders 1/3rd of his share in favour of Kamal. Calculate the new
profit sharing ratio.

Q.9 Ajay and Naveen are partners sharing profits in the ratio of 5:3. Surinder is admitted in to the firm for 1/4th
share in the profit which he acquires from Ajay and Naveen in the ratio of 2:1. Calculate the new profit sharing
ratio.

Q.10 A and B were partners sharing profits in the ratio of 3:2. A surrenders 1/6th of his share and B surrenders
1/4th of his share in favour of C, a new partner. What is the new ratio and the sacrificing ratio.

Q.11 Aarti and Bharti are partners sharing profits in the ratio of 5:3. They admit Shital for 1/4th share and agree
to share between them in the ratio of 2:1 in future. Calculate new and sacrificing ratio.

Q.12 X and Y divide profits and losses in the ratio of 3:2. Z is admitted in the firm as a new partner with 1/6th
share, which he acquires from X and Y in the ratio of 1:1. Calculate the new profit sharing ratio of all partners.

Q.13 Rakhi and Parul are partners sharing profits in the ratio of 3:1. Neha is admitted as a partner. The new
profit sharing ratio among Rakhi, Parul and Neha is 2:3:2. Find out the sacrificing ratio.

Q.14 X and Y are partners sharing profits in the ratio of 5:4. They admit Z in the firm for 1/3rd profit, which he
takes 2/9th from X and 1/9th from Y and brings Rs. 1500 as premium. Pass the necessary Journal entries on Z’s
admission.

Q.15 Ranzeet and Priya are two partners sharing profits in the ratio of 3:2. They admit Nilu as a partner, who
pays Rs. 60,000 as capital. The new ratio is fixed as 3:1:1. The value of goodwill of the firm was determined at
Rs. 50,000. Show journal entries if Nilu brings goodwill for her share in cash.

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Q.16 A and B are partners sharing profits equally. They admit C into partnership, C paying only Rs. 1000 for
premium out of his share of premium of Rs. 1800 for 1/4th share of profit. Goodwill account appears in the
books at Rs. 6000. All the partners have decided that goodwill should not appear in the new firms books.

Q.17 A and B are partners sharing profits in the ratio of 3:2. Their books showed goodwill at Rs. 2000. C is
admitted with 1/4th share of profits and brings Rs. 10,000 as his capital but is not able to bring in cash goodwill
Rs. 3000. Give necessary Journal entries.

Q.18 Piyush and Deepika are partners sharing in the ratio of 7:3. they admit Seema as a new partner. The new
ratio being 5:3:2. Pass journal entries.

Q.19 A and B are partners with capital of Rs. 26,000 and Rs. 22,000 respectively. They admit C as partner with
1/4th share in the profits of the firm. C brings Rs. 26,000 as his share of capital. Give journal entry to record
goodwill on C’s admission.

Q.20 A and B are partners sharing profits in the ratio of 3:2. They admit C into partnership for 1/4th share. C is
unable to bring his share of goodwill in cash. The goodwill of the firm is valued at Rs. 21,000. give journal
entry for the treatment of goodwill on C’s admission.

Q.21 A and B are partners with capitals of Rs. 13,000 and Rs. 9000 respectively. They admit C as a partner with
1/5th share in the profits of the firm. C brings Rs. 8000 as his capital. Give journal entries to record goodwill.

Q.22 A, B and C were partners in the ratio of 5:4:1. On 31st Dec. 2006 their balance sheet showed a reserve fund
of Rs. 65,000, P&L A/C (Loss) of Rs. 45,000. On 1st January, 2007, the partners decided to change their profit
sharing ratio to 9:6:5. For this purpose goodwill was valued at Rs. 1,50,000.
The partners do not want to distribute reserves and losses and also do not want to record goodwill.
You are required to pass single journal entry for the above.

Q.23 A and B were partners in the ratio of 3:2. They admit C for 3/13th share. New profit ratio after C’s
admission will be 5:5:3. C brought some assets in the form of his capital and for the share of his goodwill.
Following were the assets:

Assets Rs.
Stock 2,44,000
Building 2,40,000
Plant and Machinery 1,40,000

At the time of admission of C goodwill of the firm was valued at Rs. 12,48,000.
Pass necessary journal entries.

Q.24 X, Y and Z are sharing profits and losses in the ratio of 5:3:2. They decide to share future profits and
losses in the ratio of 2:3:5 with effect from 1st April, 2002. They also decide to record the effect of the reserves
without affecting their book figures, by passing a single adjusting entry.

Book Figure
General Reserve Rs. 40,000
Profit 2 loss A/C (Cr) Rs. 10,000
Advertisement Suspense A/C(Dr) Rs. 20,000

Pass the necessary single adjusting entry.

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 RECONSTITUTION OF APARTNERSHIP FIRM
RETIREMENT /DEATH OF A PARTNER
Q.1 Distinguish between Sacrificing Ratio and Gaining Ratio.

Q.2 Kamal, Kishore and Kunal are partners in a firm sharing profits equally. Kishore retires from the firm.
Kamal and Kunal decide to share the profits in future in the ratio 4:3. Calculate the Gaining Ratio.

Q.3 P, Q and R are partners sharing profits in the ratio of 7:2:1. P retires and the new profit sharing ratio
between Q and R is 2:1. State the Gaining Ratio.

Q.4 A, B and C are partners in a firm sharing profits in the ration of 2:2:1. B retires and his share is acquired
by A and C equally. Calculate new profit sharing ratio of A and C.

Q.5 X, Y and Z are partners sharing profits in the ratio of 4/9, 1/3 and 2/9. X retires and surrenders 2/3rd of his
share in favour of Y and remaining in favour of Z. Calculate new profit sharing ratio and gaining ratio.
Q.6 X, Y and Z have been sharing profits and losses in the ratio of 3:2:1. Z retires. His share is taken over by
X and Y in the ratio of 2:1. Calculate the new profit sharing ratio.

Q.7 P, Q and R were partners in a firm sharing profits in 4:5:6 ratio. On 28-02-2008 Q retired and his share of
profits was taken over by P and R in 1:2 ratio. Calculate the new profit sharing ratio of P and R.

Q.8 Mayank, Harshit and Rohit were partners in a firm sharing profits in the ratio of 5:3:2. Harshit retired and
goodwill is valued at Rs 60000. Mayank and Rohit decided to share future profits in the ratio 2:3. Pass
necessary journal entry for treatment of goodwill.

Q.9 Ramesh, Naresh and Suresh were partners in a firm sharing profits in the ratio of 5:3:2. Naresh retired and
the new profit sharing ratio between Ramesh and Suresh was 2:3. On Naresh retirement the goodwill of the firm
was valued at Rs. 120000. Pass necessary journal entry for the treat.

Q.10 L, M and O were partners in a firm sharing profits in the ratio of 1:3:2. L retired and the new profit
sharing ratio between M and O was 1:2. On L’s retirement the goodwill of the firm was valued Rs. 120000. Pass
necessary journal entry for the treatment of goodwill.

Q.11 State the journal entry for treatment of deceased partners share of profit for his life period in the year of
death.

Q.12 X, Y and Z were partners in a firm sharing profits and losses in the ratio of 3:2:1. The profit of the firm
for the year ended 31st March, 2007 was Rs. 3,00000. Y dies on 1st July 2007. Calculate Y’s share of profit up to
date of death assuming that profits in the year 2007- 2008 have been accured on the same scale as in the year
2006-07 and pass necessary journal entry.

Q.13 A, B and C were partners in a firm sharing profits in 3:2:1 ratio. The firm closes its books on 31st March
every year. B died on 12-06-2007. On B’s death the goodwill of the firm was valued at Rs. 60000. On B’s death
his share in the profit of the firm till the time of his death was to be calculated on the basis of previous years
which was Rs.150000. Calculate B’s share in the profit of the firm. Pass necessary journal entries for the
treatment of goodwill and B’s share of profit at the time of his death.

Q.14 A, B and C were partners in a firm sharing profits in the ratio of 2:2:1. C dies on 31st July, 2007. Sales
during the previous year upto 31st march, 2007 were Rs. 6,00,000 and profits were Rs. 150000. Sales for the
current year upto 31st July were Rs. 250000. Calculate C’s share of profits upto the date of his death and pass
necessary journal entry.
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 DISSOLUTION OF PARTNERSHIP FIRM
Q.1 Distinguish between dissolution of partnership and dissolution of partnership firm on the basis of
continuation of business.

Q.2 Why is Realisation Account prepared on dissolution of partnership firm?

Q.3 State any one point of difference between Realisation Account and Revaluation Account.

Q.4 All partners wish to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00000 must be paid off
before the payment of capitals to the partners. But, Amart, another partner wants that the capital must be paid
before the payment of Yastin’s loan. You are required to settle the conflict giving reasons.

Q.5 On a firms dissolution debtors as shown in the Balance sheet were Rs. 17000 out of these Rs. 2000 became
bad. One debtor of Rs. 6000 became insolvent and 40% could be recovered from him. Full recovery was made
from the balance debtors. Calculate the amount received from debtors and pass necessary journal entry.

Q.6 On dissolution of a firm, Kamal’s capital account shows a debit balance of Rs. 16000. His share of profit on
realization is Rs. 11000. He has taken over firms creditors at Rs. 9000. Calculate the final payment due to /from
him and pass journal entry.

Q.7 A and B were partners in a firm sharing profits and losses equally. Their firm was dissolved on 15th March,
2004, which resulted in a loss of Rs. 30,000. On that date the capital A/C of A showed a credit balance of Rs.
20,000 and that of B a credit balance of Rs. 30000. The cash account has a balance of Rs. 20000. You are
required to pass the necessary journal entries for the (i) Transfer of loss to the capital accounts and (ii) making
final payment to the partners.

Q.8 What journal entries would be passed in the books of A and B who are partners in a firm, sharing profits in
the ratio of 5:2, for the following transactions on the dissolution of the firm after various assets (other than cash)
and third party liabilities have been transferred to Realisation Account?

Bank loan Rs. 12,000 is paid.

Stock worth Rs. 6000 is taken over by B.
Loss on Realisation Rs. 14,000.
Realisation expenses amounted to Rs. 2,000, B has to bear these expenses.
Deferred Revenue Advertising Expenditure appeared at Rs. 28,000.
A typewriter completely written off in the books of the firm was sold for Rs. 200.

E7
 ACCOUNTING FOR SHARE CAPITAL & DEBENTURE

THEORETICAL QUESTIONS

Q.1 Gupta Ltd has incurred a loss of Rs. 8,00,000 before payment of interest on debentures. The directors of the
company are of the opinion that interest on debentures is payable only when company earn profit. Do you
agree?

Q.2 As per latest guidelines governing the servicing of debentures a company is required to create on special
account. Name that account.

Q.3 Name the method of redemption of debentures in which there is no requirement of creating Debenture
Redemption Reserve.

Q.4 What is the nature of receipt of premium on issue of shares?

Q.5 Can a company issue shares at a premium in the absence of any express authority in its articles?

Q.6 What is the maximum rate of interest which the board of directors of a company can normally pay on calls-
in-advance if the articles are silent on the matter of such interest?

Q.7 State with reason whether a company can issue its shares at a discount in its Initial Public Offer (IPO).

Q.8 Why securities premium money can not be used for payment of cash dividend among shareholders?

Q.9 Krishna Ltd. With paid-up share capital of Rs. 60,00,000 has a balance of Rs. 15,00,000 in securities
premium account. The company management does not want to carry over this balance. You are required to
suggest the method for utilizing this premium money that would achieve the objectives of the management and
maximize the return to shareholders.

Q.10 Distinguish between a share and a Debenture.

Q.11 Can share premium be utilised for the purchase of fixed assets?

Q.12 State in brief, the SEBI guidelines regarding Debenture Redemption Reserve(DRR).

Q.13 Which companies are exempted from the obligation of creating DRR by SEBI?

Q.14 What is the restriction on reissue of forfeited shares at discount?

PRACTICAL QUESTIONS

Q.1 X Ltd. issued 20,000 shares of Rs. 10 each at a premium of 10% payable as follows:-

On application Rs. 2 ( 1st Jan 2001), on allotment Rs. 4 (including premium) (1st April 2001), On first call Rs. 3
(1st June 2001), on second call & final call Rs. 2 (1st Aug. 2001).
Application were received for 18,000 shares and the directors made allotment in full. One shareholder to whom
40 shares were allotted paid the entire balance on his share holdings with allotment money and another
shareholder did not pay allotment and 1st call money on his 60 shares but which he paid with final call.

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Calculate the amount of interest paid and received on calls-in-advance and calls-in-arrears respectively on 1st
Aug. 2001.

Q.2 X Ltd took over the assets of Rs. 6,60,000 and liabilities of Rs. 80,000, Y Ltd for Rs. 600,000. Show the
necessary journal entries in the book of X Ltd. assuming that

Case-I : The consideration was payable 10% in cash and the balance in 54000 equity shares of Rs. 10 each.
Case-II : The consideration was payable 10% in cash and the balance in 45000 equity shares of Rs. 10 each.
Case-III : The consideration was payable 10% in cash and the balance in 60,000 equity shares of Rs. 10 each.

Q.3 X ltd. was formed with a capital of Rs. 500,000 divided into shares of Rs. 10 each out of these 2000 shares
were issued to the vendors as fully paid as purchase consideration for a building acquired, 1000 shares were
issued to signatories to the memorandum of association as fully paid. The directors offered 6500 shares to the
public and called up Rs. 6 per and received the entry called up amount on share allotted. Show these transaction
in the Balance sheet of a company.

Q.4 X Ltd. invited applications for 11,000 shares of Rs. 10 each issued at 10% premium payable as:
On application Rs. 3 (including Rs. 1 premium)
On allotment Rs. 4 (including Rs. 1 premium)
On 1st Call Rs. 3
On 2nd & final call Rs. 2
Application were received for 24000 shares.
Category I : One fourth of the shares applied for allotted 2000 shares.
Category II: Three fourth the shares applied for allotted 9000 shares.

Remaining applicants were rejected. Mr. Mohan holding 300 shares out of category II failed to pay allotment
and two calls and his shares were re issued @ Rs. 11 fully paid-up. Pass necessary journal entries.

Q.5 A company forfeited 240 shares of Rs. 10 each issued to raj at a a premium of 20%. Raman had applied for
300 shares and had not paid anything after paying Rs 6 per share including premium on application. 180 shares
were reissued at Rs. 11 per share fully paid up. Pass journal entries relating to forfeiture and reissue of shares.

Q.6 On 1st July 2007. A Ltd gave notice of their intention to redeem their outstanding Rs. 400,000 8%
Debentures on 1st January, 2008 @ rs. 102 each and offered the holders the following options-
(a) To subscibe for (i) 6% cumulative preference shares of Rs. 20 each at Rs. 22.50 per share, accepted by
debenture holders of Rs. 1,71,000 or (ii) 12% debentures were issued @96% accepted by the holders of Rs.
1,44,000 Debentures.
(b) Remaining debentures to be redeemed for cash if neither of the option under (a) was accepted. Pass
necessary journal entries.

Q. 7 Sonu Ltd. company issued 15,000 shares of Rs. 10 each. Payment on there shares is to be made as follows:
On application Rs. 4 ( 1st Feb, 2003)
On allotment Rs. 3 (1st April, 2003)
On final call Rs. 3 (1st May, 2003)
Rakesh to whom 1000 shares were allotted paid the full amount on application and mohan to whom 200 shares
were allotted paid the final call money on allotment. Interest @ 6% was paid on 1st May, 2003. Pass necessary
journal entries.

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Q.8 TPT Ltd. invited applications for issuing 1,00,000 equity shares of Rs. 10 each at a premium of Rs. 3 per
share. The whole amount was payable on application. The issue was over subscribed by 30,000 shares and
allotment was made on pro-rata basis. Pass necessary journal entries in the books of the company.

Q.9 Virani Industries Ltd. issued 1,00,000, 10% Debentures of Rs. 10 each at a discount of 9% on April 1st,
2001 redeemable as follows:

31st March 2003 - 20,000 Debentures

31st March 2004 - 30,000 Debentures
st
31 March 2005 - 20,000 Debentures
31st March 2006 - Remaining Debentures
Calculate the amount of discount to be written off each year and prepare discount on issue of debentures
account.

Q.10 The following balance appeared in the books of Z Ltd. on January 1, 2004.
12% Debentures A/C Rs. 1,50,000
Debenture Redemption Fund Rs. 1,25,000
Debenture Redemption Fund Investment Rs. 1,25,000
(Represented by Rs. 1,47,500, 3% Govt. Securities)

The annual installment added to the fund is Rs. 20,575. On December 31, 2004, the bank balance after the
receipt of interest on investment was Rs. 39,100. On that date all the investment were sold at 83% and the
debentures were duly redeemed. Show the necessary ledger accounts for the year 2004.

Q.11 On 01-04-1999, A Ltd., issued 2000, 7% debentures of Rs. 100 each at a discount of 10% redeemable at
par after 4 years by converting them into equity shares of Rs. 100 each issued at a premium of 25%.
Pass journal entries in the following cases:
If debentures are redeemed on maturity.
If debentures are redeemed before maturity.

Q.12 Pass journal entries for the following at the time of issue of debentures:
(a) B Ltd. issues 30,000, 12% Debentures of Rs. 100 each at a discount of 5 % to be repaid at par at the end of 5
years.
(b) E Ltd. issues Rs. 60,000, 12% Debentures of Rs. 100 each at a discount of 5 % repayable at a premium of
10% at the end of 5 years.
(c) F Ltd. issues Rs. 70,000, 12% Debentures of Rs. 100 each at a premium of 5 % redeemable at 110%.

Q.13 500 shares of Rs. 100 each issued at a discount of 10% were forfeited for the non-payment of allotment
money of Rs. 50 per share. The first and final call of Rs.10 per share on these shares were not made. The
forfeited shares were reissued at Rs. 80 per share fully paid-up.

Q.14 200 shares of Rs. 100 each issued at a discount of 10% were forfeited for the non payment of allotment
money of Rs. 50 per share. The first and final call of Rs. 10 per share on these shares were not made. The
forfeited share were reissued at Rs. 14 per share fully paid up.

Q.15 800 Shares of Rs. 10 each issued at per were forfeited for the non-payment of final call of Rs. 2 per share.
These shares were reissued at Rs. 8 per share fully paid-up.

E 10
 ANALYSIS OF FINANCIAL STATEMENTS

Qus:1 How will you show the following items in the Balance sheet of a company.
(i) Calls in Arrears (ii) Calls in Advance.
Qus:2 Under what heads the following items on the Liabilities side of the Balance sheet Of a company will
be presented
Proposed Dividend.
Unclaimed Dividend.
Qus:3 State any two items which are shown under the head ‘Investment’ in a company balance sheet.
Qus:4 Give the format of the Balance sheet of a company(main headings only) as per the requirement of
Schedule VI of the companies Act.1956.
Qus:5 Give the heading under which the following items will be shown in a company’s Balance sheet:
Goodwill.
Preliminary Expenses
Loose Tools
Capital Redemption Resave.
Live Stock.
Qus:6 The following balance have been from the book of Sahara Ltd. Share capital Rs.10,00,000, securities
Premium Rs. 1,00,000, 9% Debentures Rs. 500,000, Creditors Rs. 200,000., Proposed Dividend
Rs. 50,000. , Freehold property RS. 9,00,000, share of Reliance Industries Rs. 4,00,000, Work-in-
Progress Rs. 4,00,000, Discount on Issue of Debentures Rs. 1,00,000.
Prepare the balance sheet of the company as per schedule VI part 1 of the companies Act.1956.
Qus:7 List any three items that can be shown as contingent Liabilities in a company’s Balance sheet.
Qus:8 Give two example each of Non-Current Assets and Non- Current Liabilities.
Qus:9 What is Horizontal Analysis?
Qus:10 Give the example of Horizontal Analysis.
Qus:11. What is Vertical Analysis?
Qus:12. Give the example of Vertical Analysis?
Qus:13. How is a Company’s balance sheet different from that of a Partnership firm? Give Two point only.
Qus:14. List any two information required to be given in the balance sheet of a company or by way of foot
Notes.
Qus:15. State whether the Balance sheet of a Company is prepared ’ as on a particular date ‘ or ‘ as at a
Particular date ‘ ?
Qus:16. Which part of Schedule VI to the Companies Act.1956 prescribes the forms of the balance sheet ?
Qus:17. How is analysis of Financial statements suffered from the limitation of window dressing ?
Qus:18. What is the interest of Shareholders in the analysis of Financial statements?
Qus:19. Name two tools of Financial Analysis ?
Qus:20: Which item is assumed to be 100 in the case of common size Income statement .

Qus:21 Prepare Comparative income statement from the following information for the years ended march
31,2003 and 2004.

Particulars 2003(Rs.) 2004(Rs.)

1.Net Sales 8,00,000 10,00,000
2.Cost of Goods Sold 60% of sales 60% of sales
3.Indirect Expenses 10% of Gross profit 10% of Gross Profit
4.Income Tax rate 50% 60%

E 11
 RATIO ANALYSIS

Qus:1 How will you asses the liquidity or short term financial position of a business ?

Qus:2 Current ratio of Reliance Textiles Ltd. Is 1.5 at present. In future it want to improve this ratio to 2.
Suggest any two accounting transaction for improving the current ratio.

Qus:3 State one transaction which results in an increase in ‘ liquid ratio ‘and nochange in ‘current ratio’.

Qus:4 Why stock is excluded from liquid assets ?

Qus:5 Quick ratio of a company is 1.5 :1 . state giving reason whether the ratio will improve , decline or
Not change on payment of dividend by the company.

Qus:6 State one transaction which result in a decrease in ‘ debt-equity ratio ‘ and no change in ‘ current
Ratio ‘.

Qus:7 How does ratio analysis becomes less effective when the price level changes?

Qus:8. Indicate which ratio a shareholders would use who is examining his portfolio and wants to decide
Whether he should hold or sell his shareholdings?

Qus:9 Indicate which ratio would be used by a Long-Term creditor who is interested in determining
whether his claim is adequately secured ?

Qus:10 What will be the Operating profit, If operating Ratio is 78% ?

Qus:11 The Debaters turnover Ratio of a company is 6 times. State with reasons whether the ratio will
Improve , decrease, or not change due to increases in the value of closing stock by Rs. 50,000?

Qus:12 What will be the impact of ‘ Issue of shares against the purchase of fixed assets ‘ on a debt
Equity ratio of 1:1 ?

Qus:13 State one transaction involving a decrease in Liquid ratio and no change in current ratio.

Qus:14 Assuming that the Debt Equity Ratio is 2:1. State giving reason , whether the ratio will improve
, decline or will have no change in case bonus shares allotted to equity shareholders by
Capitalizing profits.

Qus:15 The ratio of current Assets (Rs. 9,00,000) to current liabilities is 1.5:1. The accountant of this
Firm is interested in maintaining a current ratio of 2:1 by paying some part of current liabilities
You are required to suggest him the amount of current liabilities which must be paid for the
Purpose.

Qus:16 A company has a loan of Rs.15,00,000 as part of its capital employed. The interest payable on
Loan is 15% and the ROI of the company is 25%. The rate of income tax is 60%.what is the
Gain to shareholders due to the loan raised by the company ?

Qus:17 Rs.2,00,000 is the cost of goods sold, inventory turnover 8 times, stock at the beginning is 1.5
E 12
 Times more than the stock at the end. Calculate the value of opening & closing stock .

Qus:18 From the given information, calculate the stock turnover ratio: sales Rs.5,00,000, Gross Profit
25% on cost , opening stock was 1/3rd of the value of closing stock. Closing stock was 30%
Of sales.

Qus:19 Calculate cost of goods sold from the following information: Sales Rs.12,00,000, Sales
Returns Rs.80,000, operating expenses Rs.1,82,000, operating ratio 92%.

Qus:20 Calculate the amount of opening stock and closing stock from the following figures:
Average Debt collection period 4 month stock turnover ratio 3 times. Average Debtors
Rs.1,00,000 Cash sales being 25% of total sales Gross profit ratio 25% stock at the end was 3
Times that in the beginning.

Qus:21 (a) Calculate return on Investment from the following information :

Net profit after Tax Rs.6,50,000.

12.5% convertible debentures Rs 8,00000.
Income Tax 50%.
Fixed Assets at cost Rs.24,60,000.
Depreciation reserve Rs.4,60,000.
Current Assets Rs. 15,00,000.
Current Liabilities Rs. 7,00,000.

(b) Profit before interest and tax(PBIT) Rs.2,00,000, 10% preference shares of Rs.100 each.
Rs.2,00,000, 2,0000 equity shares of Rs. 10 each, Rate of tax @ 50% calculate earning pen
Share(EPS).

E 13
 CASH FLOW STATEMENT
Qus:1 Why is the cash flow statement not a suitable judge of profitability ?

Qus:2 Under which accounting standard , cash flow statement is prepared ?

Qus:3 Why do we add back depreciation to net profit while calculating cash flow from operating activities.

Qus:4 How will you classify loans given by Birla Finance Ltd.? While preparing cash flow statement.

Qus:5 How will you classify deposits by customers in HDFC Bank while preparing cash flow statement.

Qus:6 Where will you show purchase of computer in cash flow statement ?

Qus:7 Give two examples of ‘ Significant non cash transactions ‘.

Qus:8 How will you classify loans given by Tata Manufacturing Company.

Qus:9 A company receives a dividend of Rs. 2 Lakhs on its investment in other company’s share will it be
Cash inflow from operating or investing activities in case of a.

Finance Company.
Non-Finance Company.

Qus:10 How are various activities classified as per AS-3 (Revised) ?

Qus:11 Cash flow from operating Activities + Cash flow from Investing Activities + Cash flow from Financing
Activities =……………………………………

Qus:12 What are the two methods which can be employed to calculate net cash flow from operating activities ?

Qus:13 Escorts Ltd. Engaged in the business of manufacturing tractors invested Rs.40,00,000 in the shares of a
Car manufacturing Company. state with reason whether the dividend received on this investment will
Be cash flow from operating activities or Investing activities.

Qus:14 Modern Toys Ltd. Purchased a machinery of Rs.20,00,000 for manufacturing toys. State giving reason
Whether the cash flow due to the purchase of machinery will be cash flow from operating activities,
Investing activities or Financing activities ?

E 14
Qus:15 From the following profit or loss account find out the flow of cash from operating activities of
Mohan Ltd.

Dr. PROFIT AND LOSS ACCOUNT Cr.

Particulars Amount Particulars Amount

(Rs) (Rs)
To Rent Paid 14,000 By Gross Profit 1,82,000
Less: Prepaid 2,000 12,000 By Profit on Sale of Machine 12,000
To Salaries 25,000 By Tax Refund 3,800
To Depreciation 15,000 By Rent received 4,000
To Loss on sale of Furniture 10,000 Add: Rent accrued 1,000 5,000
To Goodwill written Off 8,000
To Bad Debts 3,000
To Office Expenses 18,000
To Discount allowed 7,000
To Proposed Dividend 30,000
To Provision for Tax 22,000
To Net Profit 52,800 2,02,800
2,02,800

Note: There was increase in Closing stock by Rs. 25,000.

Qus:16 Prepare Cash flow Statement from the following information of Box Ltd. For the year ended March
31,2004.

BALANCE SHEETS OF LION LTD. AS ON MARCH 31,2004

Liabilities 2003 2004 Assets 2003 2004

(Rs) (Rs) (Rs) (Rs)

Share capital 3,00,000 4,00,000 Goodwill 70,000 30,000

Profit & Loss Account 1,20,000 2,60,000 Machinery 3,00,000 3,20,000
General Reserve 60,000 95,000 12% Investments 1,50,000 3,00,000
Tax Provision 70,000 80,000 Stock 35,000 1,85,000
Creditors 50,000 90,000 Debtors 50,000 70,000
Bill Payables 30,000 10,000 Cash at Bank 30,000 40,000
Depreciation Provision 25,000 40,000 Short term Investment 20,000 30,000

6,55,000 9,75,000 6,55,000 9,75,000

Additional Information :

1.Investment costing Rs.50,000 were sold for Rs. 48,000 during the year.
2.Tax paid during the year Rs.70,000.
3.Interest received on Investment Rs. 12,000.

E 15
 SUGGESTED
ANSWERS ON
HOTS
Subject: Accountancy
CLASS – XII

E 16
 ACCOUNTING FOR PARTNERSHIP FIRMS: BASIC CONCEPTS
Ans. 1 (i) When additional capital is introduced.
(ii) When capital is withdrawn.

Ans. 2 60000 X 9/100 = 5400

20000 X 9/100 X 3/12 = 450

Total Interest 5850

Ans. 3 Charu is correct as in the absence of partnership agreement, profits and losses are divided equally among
partners.

Ans. 4 A’s claim is not valid as in the absence of partnership deed, no salary is allowed to partners.

Ans. 5 Chander’s claim is not valid as in the absence of partnership deed interest on partners loan is provided @
6% p.a.

Ans. 6 As per provision of Indian Partnership act 1932, when there is no partnership, no partner is entitled for
interest on his capital contribution.

Ans. 7 Interest on drawing = 12000 X 6/100 X 6.5/12 = 390

Ans. 8 Interest on drawing = 9600 X 6/100 X 5.5/12 = 264

Ans. 9 ANALYSIS TABLE

A B C
Interest on Capital (3 years) Cr. 30000 24000 21000
Adjustment of profit Dr. 25000 25000 25000
(Cr) 5000 (Dr) 1000 (Dr) 4000)
Journal Entry :-
B’s current A/C Dr. 1000
C’s Current A/C Dr. 4000
To A’s current A/C 5000
(Adjustment entry for omission of interest on capital @ 10% p.a.)

Ans. 10 ANALYSIS TABLE

X Y Z Total
Interest on drawings (Dr) 750 630 600 1980
Adjustment of profit (Cr) 990 660 330 1980
(Cr) 240 (Cr) 30 (Dr)270 -

Z’s Capital A/C Dr. 270

To X’s Current A/C 240
To Y’s current A/C 30
(Adjustment entry for omission of interest on drawings @ 5 % p.a.)

E 17
Ans. 11 ANALYSIS TABLE
A B C Total
Wrong profit Dr. 20000 20000 20000 60000
Interest on Capital @ 2% Cr. 3000 2000 1600 6600
Correct profit Cr. 26700 17800 8900 53400
(Cr) 9700 (Dr) 200 (Dr) 9500 -

B’s Current A/C Dr. 200

C’s Current A/C Dr. 9500
To A’s current A/C 9700
(Adjustment entry for interest on capital and distribution in wrong ratio.)

Ans. 12
ANALYSIS TABLE
Ravi Mohan Total
Wrong Profit Distributed Dr. 252000 252000 504000
Interest on capital omitted Cr. 120000 84000 204000
Salary to be provided Cr. 72000 60000 132000
Current Profit Cr. 98000 70000 168000
Net adjustment Cr. 38000 Dr. 38000

Mohan’s current A/C Dr. 38000

To Ravi’s Current A/C 38000
(Adjustment entry for omission of certain provisions of partnership deed.)

Ans. 13 Distinction between Fixed and Fluctuating Capital method:-

Basis of differences Fixed capital method Fluctuating Capital Method

(i) Number of Accounts Two accounts are maintained in fixed Only one account is maintained.
capital method.
(ii) Change in capital A/C Remain unchanged Balance fluctuate frequently.
balances
(iii) Recording of Adjustment regarding interest on capital, All these adjustments are recorded in
transactions interest on drawings partners salary and partners capital accounts.
profits etc are recorded in partners current
account.

Ans. 14 Profit transferred to A’s current A/C Rs. 51,000

B’s current A/C Rs. 45,000
C’s current A/C Rs. 44,000

Ans. 15 Net profit transferred to A’s Capital A/C Rs. 4,650

B’s Capital A/C Rs. 3,100

E 18
 RECONSTITUTION OF PARTNERSHIP

ADMISSION OF A PARTNER
Ans. 1 Need of valuation of goodwill arises on the following occasions:-
Change in profit sharing ratio of existing partners.
Admission of a partner.
Retirement of a partner.
Death of a partner.

Ans. 2 It is necessary to revalue assets and reassess liabilities at the time of admission of new partners as if
assets and liabilities are overstated or understated in the books then its benefits or loss should not affect the near
partner.

Ans. 3 Sacrificing ratio is the ratio in which old partners have agreed to sacrifice their share of profit in favour
of the new partner. This ratio is calculated by deducting the new ratio from the old ratio.
Sacrificing Ratio = Old Ratio - New Ratio

Ans. 4 (i) On admission of a new partner.

(ii) On change on profit sharing ratio of existing partner.

Ans. 5 (i)Capital employed = Assets – Liabilities

= 540000 – 80000
= Rs. 460000

(ii) Normal Profit = Capital employed X Normal rate of return/100

= Rs. 460000 X 10/100 = 46000

(iii) Super Profit = Firm’s Average profit – Normal Profit

= 60000 – 46000
= 14000

(iv) Goodwill = Super profit X 100/ Normal rate of return

= 14000 X 100/ 10
= 140000

Ans. 6 (i) Super profit = Value of goodwill /Number of years purchase

= 180000/2
= 90000
(ii) Normal Profit = Capital employed X Normal rate of return /100
= 1000000 X 15/ 100
= 150000
Average Profit = Normal Profit + Super profit
= 150000 + 90000
= 240000
Ans. 7 (i) Super profit = value of goodwill/ number of years purchase
= 240000/3
= 80000
(ii) Normal Profit = Average profit – Super profit
= 20000 – 8000
= Rs. 12000

E 19
 (iii) Capital Employee = Normal Profit X 100/ Normal rate of return
= 12000 X 100/8
= 150000

Ans. 8 Rahul’s sacrificing share = 4/7 X 1/4 = 1/7

Sahil’s sacrificing share = 3/7 X 1/3 = 1/7
Rahul’s new share = 4/7 – 1/7 = 3/7
Sahil’s New share = 3/7 – 1/7 = 2/7
Kamal’s share = 1/7+1/7 = 2/7
New profit sharing ratio = 3:2:2

Ans. 9 Ajay’s sacrifies = 1/4 X 2/3 = 2/12

Naveen’s sacrifies =1/4 X 1/3 = 1/12
Ajay’s new share = 5/8 – 2/12 = 11/24
Naveen’s New share = 3/8 – 1/12 = 7/24
Surender’s share = 1/4 or 6/24
New ratio = 11:7:6

Ans. 10
Old ratio = A: B = 3:2
A surrender = 3/5 X 1/6 = 3/30 =1/10
B surrender = 2/5 X 1/4 = 1/10
A’s new share = 3/5 – 1/10 = 5/10
B’s new share = 2/5 – 1/10 = 3/10
C’s new share = 1/10 +1/10 = 2/10
New ratio = 5/10, 3/10, 2/10 OR 5:3:2

Sacrificing Ration = Old ratio – New ratio

A = 3/5 – 5/10 = 1/10
B = 2/5 – 3/10 = 1/10
Sacrificing ratio = 1:1

Ans. 11
Old ratio = 5:3
Shital = 1/4th Share

Let the profit be Rs. 1

Remaining profit = 1-1/4 =3/4
Arti : Babita = 2:1
Arti’s share = 3/4 X 2/3 = 1/2
Babita’s Share = 3/4 X 1/3 = 1/4
New Ratio = 1/2, 1/4, 1/4 Or 2:1:1

Sacrificing ratio = Old ratio – New ratio

Arti’s sacrifies = 5/8 – 2/4 = 1/8
Babita’s Sacrifies = 3/8 – 1/4 = 1/8
Sacrificing Ratio = 1:1

Ans. 12 Old ratio = X:Y = 1:1

Z is admitted for 1/6th share which he acquire from X,Y in the ratio of 1:1

E 20
 Since 1/6 X 1/2 = 1/12 from X and Y
X’s new ratio = 3/5 – 1/12 = 31/60
Y’s New ratio = 2/5 – 1/12 = 19/60
Z’s share = 1/6
New ratio = 31/60, 19/60,1/6 or 31:19:10

Ans. 13
Old ratio = Rakhi : Parul = 3:1
New ratio = Rakhi: Parul: Neha = 2:3:2
Rakhi’s sacrifice = 3/4 – 2/7 = 13/28
Parul’s sacrifice = 1/4 -3/7 = 5/28 (Gain)

So, Rakhi’s sacrifice 13/28th share and Parul is gaining to the extent of 5/28th share.

Ans. 14
Cash A/C Dr. 1500
To premium A/C 1500
(cash brought in by Z for his share of goodwill)

Premium A/C Dr. 1500

To X’s capital A/C 1000
To Y’s Capital A/C 500
(Goodwill distributed among sacrificing partners in the ratio of 2:1.)

Ans. 15
Cash A/C Dr. 70000
To Nilu’s capital A/C 60000
To premium A/C 10000
(Cash brought in by new partner)

Premium A/C Dr. 10000

To Priya’s capital A/C 10000
(Amount of goodwill distributed among sacrificing partner in their sacrificing ratio.)

Ans. 16
Cash A/C Dr. 1000
To premium A/C 1000
(Amount of goodwill brought in by C)

Premium A/C Dr. 1000

C’s capital A/C Dr. 800
To A’s capital A/C 900
To B’s capital A/C 900
(Rs. 1800 distributed among sacrificing partners in sacrificing ratio.)

A’s capital A/C Dr. 3000

B’s capital A/C Dr. 3000
To goodwill A/C 6000
(Old goodwill written off among old partners in old ratio.)

Q. 17

E 21
 Cash A/C Dr. 10000
To C’s capital A/C 10000
(Cash brought in by C for his share of capital)

A’s capital A/C Dr. 1200

B’s Capital A/C Dr. 800
To goodwill A/C 2000
(Old goodwill written off among old partners in old ratio.)

C’s capital A/C Dr. 3000

To A’s capital A/C 1800
To B’s capital A/C 1200
(Adjustment of goodwill on admission of C)

Ans. 18
Cash A/C Dr. 4000
To premium A/C 4000
(Amount of goodwill brought in by new partner)

Premium A/C Dr. 4000

To Piyush’s capital A/C 4000
(Goodwill distributed among sacrificing partners in their sacrificing ratio.)

Ans. 19
Cash A/C Dr. 26000
To C’s capital A/C 26000
(Amount of capital brought in by new partner.)

C’s capital A/C Dr. 7500

To A’s capital A/C 3750
To B’s capital A/C 3750
(C’s share of goodwill distributed among A and B)

Calculation of Hidden goodwill:-

Capital of A and B = 26000 + 22000
= 48000
C brings = 26000 for 1/4th share
Total capital of the firm = 26000 X 4/1
= 104000
Existing capital of the firm = 48000 + 26000
= 74000

Goodwill = 104000 – 74000

= 30000

C’s share of goodwill = 30000 X 1/4 = 7500

Ans. 20
C’s capital A/C Dr. 5250
To A’s capital A/C 3150
To B’s capital A/C 2100
(C’s share of goodwill distributed among old partners in sacrificing ratio i.e. 3:2)

E 22
Ans. 21
Cash A/C Dr. 8000
To C’s capital A/C 8000
(Amount of capital brought in by new partner)

C’s capital A/C Dr. 2000

To A’s capital A/C 1000
To B’s capital A/C 1000
(Share of goodwill distributed among A and B in sacrificing ratio i.e. 1:1)

Calculation of Hidden Goodwill.

C brings 8000 for 1/5 share

Since total capital of the firm = 8000 X 5/1

= 40000

Existing capital of the firm = 13000 + 9000 + 8000

= 30000
Goodwill = 40000 – 30000
= 10000
C’s share of goodwill = 10000 X 1/5
= 2000

Ans. 22
C’s Capita; A/C Dr. Rs. 25, 500
To A’s Capital A/C Rs. 8,500
To B’s Capital A/C Rs. 17,000

Ans. 23

Rs Rs
(i) Stock A/C Dr. 2,44,000
Building A/C Dr 2,40,000
Plant & Machinery A/C Dr. 1,40,000
To C’s capital A/C 3,36,000
To premium A/C 2,88,000
(ii) Premium A/C Dr. 2,88,000
To A’s Capital A/C 2,68,800
To B’s Capital A/C 19,200

Ans. 24

Z’s Capital A/C Dr. Rs. 9000

To X’s Capital A/C Rs. 9000

E 23
 RETIREMENT AND DEATH OF A PARTNER
Ans. 1
Basis Sacrificing Ratio Gaining Ratio
(i) Meaning Proportion in which old partners sacrifice their Proportion in which continuing partner
share in favour of new partner. gain the share of outgoing partner on his
retirement.
(ii) Occasion Sacrificing ratio is calculated at the time of Gaining ratio is calculated at the time of
admission of new partner. retirement or death of a partner.
(iii) Formula Sacrificing ratio = Old ratio – New ratio Gaining ratio – Old ratio

Ans. 2 Gaining Ratio = New ratio – Old ratio

Kamal’s Gain = 4/7 – 1/3 = 5/21
Kunal’s Gain = 3/7 – 1/3 = 2/21
Gaining Ratio = 5:2

Ans. 3 Old ratio = P Q R

7: 2: 1
New ratio =Q R
2:1
Gaining Ratio = New ratio – Old ratio
Q’s gain = 2/3 – 2/10 = 14/30
R’s gain = 1/3 – 1/10 = 7/30
Gaining Ratio = 14:7 or 2:1

Ans. 4 A’s gaining share = 2/5 X ½ = 1/5

A’s new share = 2/5 + 1/5 = 3/5
C’s gaining share = 2/5 X ½ = 1/5
C’s New share = 1/5 + 1/5 = 2/5
New ratio of A and C = 3:2

Ans. 5
Y’s gaining share = 4/9 X 2/3 = 8/27
Z’s gaining share = 4/9 – 8/27 = 4/27
Y’s new share = Old share + gain
= 1/3 + 8/27 = 17/27
Z’s new share = 2/9 + 4/27 = 10/27

New Ratio = 17:10

Gaining ratio = 8/27 : 4/27 or 2:1

Ans. 6
Old Ratio = 3:2:1
Z Retire
X’s Gaining = 1/6 X 2/3 = 2/18
X’s New share = 3/6 + 2/18 = 11/18
Y’s Gaining = 1/6 X 1/3 = 1/18
Y’s new share = 2/6 + 1/18 = 7/18
New Ratio = 11/18, 7/18 Or 11:7

Ans. 7 Old ratio =PQR

E 24
 = 4:5:6
Q retired
P’s gaining = 1/3 X 5/15 = 1/9
P’s new share = 4/15 + 1/9 = 17/45
R’s Gaining share = 2/3 X 5/15 = 2/9
R’s new share = 6/15 + 2/9 = 28/45
New Ratio = 17:28

Ans. 8 Rohit’s capital A/C Dr. 24000

To Mayank’s capital A/C 6000
To harshit’s Capital A/C 18000
(Adjustment Entry for treatment of goodwill in gaining ratio.)

Ans. 9 Suresh capital A/C Dr. 48000

To Ramesh’s capital A/C 12000
To Naresh capital A/C 36000
(Goodwill adjusted among the gaining partner in gaining ratio.)

Ans. 10 O’s capital A/C Dr. 40000

To C’s capital A/C 20000
To M’s capital A/C 20000
(Adjustment of goodwill in gaining partners in their gaining ratio.)

Ans. 11 Profit and loss suspense A/C Dr

To deceased partner’s capital A/C

Ans. 12 Total profit for the year ended 31st March 2007 = Rs 300000
Y’s share of profit up to date of death = 300000 X 2/6 X 3/12
= 25000
Profit and Loss suspense A/C Dr. 25000
To Y’s capital A/C 25000
( Y’s share of profit transferred to Y’s capital A/C)

Ans. 13 Profit and Loss suspense A/C Dr. 10000

To B’s capital A/C 10000
(B’s share of profit transferred to B’s capital A/C)

A’s capital A/C Dr. 15000

C’s capital A/C Dr. 5000
To B’s capital A/C 20000
(B’s share of goodwill transferred to B’s capital A/C and debited to remaining
partners capital A/C in their gaining ratio.)

B’s share of profit = Number of days from 1 April to 12th June 2007
= 73 Days
B’s share of profit = 150000 X 1/3 X 73/365
= Rs. 10000
Ans. 15 Profit & Loss suspense A/C Dr. Rs. 12,500
To C’s capital A/C Rs. 12,500

E 25
 DISSOLUTION OF PARTNERSHIP FIRM
Ans. 1 In case of dissolution of partnership, the firm may continue its business operation but in case of
dissolution of partnership firm, the business operations are discontinued.

Ans. 2 Realisation account is prepared to ascertain profit or loss on sale of assets and payment of liabilities.

Ans. 3 Realisation Account is prepared on dissolution of partnership firm and Revaluation account is prepared
on reconstitution of partnership firm.

Ans. 4 Yustin’s claim is valid as according to section 48 (b) of partnership Act, partners loan are to be paid
before any amount is paid to partners on account of their capitals.

Ans. 5 Cash A/C Dr. 11400

To Realisation A/C 11400
(For debtors realized on dissolution of firm)

Ans. 6 Kamal’s capital A/C Dr. 4000

To cash A/C 4000
(for final payment to Kamal)

Ans. 7 (i) A’s capital A/C Dr. 15000

B’s capital A/C Dr. 15000
To realization A/C 30000
(For transfer of loss on dissolution)
(ii) A’s capital A/C Dr. 5000
B’s capital A/C Dr. 15000
To cash A/C 20000
(For final payment to partners)

Ans. 8

JOURNAL
Dr. (Rs) Cr. (Rs.)
(a) Realisation A/C Dr. 12000
To Bank A/C 12000
(b) B’s capital A/C Dr. 6,000
To realisation A/C 6,000
(c) A’s capital A/C Dr. 10,000
B’s capital A/C Dr. 4,000
To Realisation A/C 14000
(d) B’s capital A/C Dr. 2,000
To bank A/C 2,000
(e) A’s capital A/C Dr. 20,000
B’s capital A/C Dr. 8,000
To deferred revenue advertising expenditure A/C 28,000
(f) Bank A/C Dr. 200
To realisation A/C 200

E 26
 ACCOUNTING FOR SHARE CAPITAL & DEBENTURE

THEORETICAL QUESTIONS

Ans.1 No’ because Interest on debentures is a charge against profit and not an appropriation of profit.

Ans. 2 Debenture Redemption Reserve Account.

Ans. 3 Redemption of debentures by conversion.

Ans. 4 Capital Nature.

Ans. 5 Yes. [ Hint See section 78]

Ans. 6 According to table ‘A’ not exceeding 6 % p.a.

Ans. 7 Section 79 Companies Act- the shares must be of a class already issued. So a company cannot issue
shares at a discount in its Initial Public Offer.

Ans. 8 It is restricted under section 78 of Indian Companies Act.

Ans. 9 Mention the provisions of section 78.

Ans. 10 Basis of difference :

Ownership
Return
Voting Right
Convertibility

Ans. 11 No.

Ans. 12 As per SEBI guidelines, an amount equal to 50% of the debenture issue, must be transferred to DRR
before the redemption begins.

Ans. 13 The following companies are exempted from the obligation of creating DRR –
A company which has issued debentures with a maturity of 18 months or less.
Infrastructure companies, which are wholly engaged in the business of developing, maintaining and operating
infrastructure facilities.

Ans. 14 A Company can reissue forfeited shares at a discount not more than amount forfeited on these shares.

PRACTICAL QUESTIONS

Ans. 1 Interest on Calls in advance Rs. 2.80

Interest on Calls in arrears Rs. 5.50

Ans. 2
Solution:-

E 27
(i) Sundry Assets A/C 660,000
Dr. 20,000
Goodwill A/C 80000
Dr. 600000
To Sundry Liabilities
To Y Ltd.
(ii) Y Ltd. 60,000
Dr. 60000
To Bank A/C
Case I Y Ltd 540,000
Dr. 540, 000
To Equity share capital A/C
Case II Y Ltd 540,000
Dr. 450,000
To Equity share capital A/C 90,000
To securities premium A/C
Case III Y’ Ltd 540,000
Dr. 60000
Discount on issue share A/C 600,000
Dr.
To Equity share capital A/C

Ans. 3 Issued Capital Rs. 95000.

Ans. 4 Hint-
Amount received on allotment Rs. 26,100.
Amount transferred to share forfeited A/C Rs. 900
Amount transferred to Capital Reserve Rs. 600.

Ans. 5 Capital Reserve Rs. 990.

Ans. 6
Hints-
(1) Case a (i) – No. of preference shares issued 7752.
(2) Case a (ii)- No. of debentures issued 1530.
(3) Remaining 85000 debentures paid in cash.

Ans. 7 Interest on Calls in advance = 15 + 3 = Rs. 18

Ans. 8
Dr. Bank A/C Rs. 16,90,000, Cr.Eq.share Application A/C Rs. 16,90,000.
Dr.Eq.Share Application A/C Rs. 16,90,000, Cr.Eq. share Capital A/C Rs.10,00,000, Cr. Security premium A/C
Rs. 300,000, Cr. Bank A/C Rs. 3,90,000.

Ans. 9 Amount of discount = Rs. 90,000

Discount to be written off:
2001-02 - Rs. 25,000
2002-03 - Rs. 25,000
2003-04 - Rs. 20,000
2004-05 - Rs. 12,500
2005-06 - Rs. 7,500

E 28
Ans. 10
Hint : (i) Loss on sale of investment Rs. 2575.
(ii) Amount transferred to General Reserve Rs. 1,47,425.

Ans. 11 Case (i) – No. of Equity shares to be issued 1,600.

Case (ii) – No. of Equity shares to be issued 1,440.

Ans. 12
Journal of B Ltd.
(a)
(i) Bank A/C Dr. 28,50,000

To. Deb. Application & Allotment A/C 28,50,000

(ii) Deb. Application & allotment A/C Dr. 28,50,000

Discount on issue of Debentures Dr. 1,50,000

Journal of E Ltd.
To 12 % debentures A/C 30,00,000
(b)
(i) Bank A/C Dr. 57,000

To. Deb. Application & Allotment A/C 57,000

(ii) Deb. Application & allotment A/C Dr. 57,000

Loss on issue of Debentures A/C Dr. 9,000

Journal of F Ltd.
(c) To 12 % debentures A/C 60,000

(i) Bank To
A/CDebenture Redemption Premium A/CDr. 73,500 6000

To. Deb. Application & Allotment A/C 73,500

(ii) Deb. Application & allotment A/C Dr. 73,500

Loss on issue of Debentures A/C Dr. 7,000

To 12 % debentures A/C 70,000

Ans. 13 Capital Reserve Rs. 10,000
To Securities premium A/C 3,500
Ans. 14 Capital Reserve Rs. 600
To Debenture Redemption Premium A/C 7,000
Ans. 15 Capital Reserve Rs. 4,800.

E 29
 ANALYSIS OF FINANCIAL STATEMENTS
Ans:1 (i) Calls in Arrears: It is deducted from the subscribed capital.
Calls in Advance: It is shown separately under the subscribed capital.

Ans:2 Items Heading Sub-Heading

Proposed dividend Current Liabilities Provision

& Provision
Unclaimed dividend Current Liabilities Current Liabilities
& Provision
Ans:3 (i) Government Securities.
(ii) Sinking Fund Investment.

Ans:4 Balance sheet as on______

Liabilities Rs. Assets Rs.

Share capital Fixed Assets

Reserve & surplus Investment
Secured Loans Current Assets,
Unsecured Loans Loan and Advances
(a) Current Assets
(b) Loans & Advance
Current Liabilities & Provision Miscellaneous Expenditures
Current Liabilities Profit & Loss amount (Dr.Balance)
Provision

Ans:5 (i) Fixed Assets.

(ii) Miscellaneous Expenditures
(iii)Current Assets Loans & Advance under Current Assets.
(iv)Reserve and Surplus.
(v)Fixed Assets.

Ans:6 Total of Balance Sheet Rs.18,50,000.

Ans:7 (i) Claims against the Company not acknowledged as debts .

(ii) Uncalled Liability on partly paid shares.
(iii)Arrears of Dividend on Cumulative preference shares.

Ans:8 Non-Current Assets – Building, Machinery.

Non-Current Liabilities – Share Capital , Debentures.

Ans:9 The analysis which is made to review and compare the financial statements of two or more then two
Years is called Horizontal Analysis.

Ans:10 Comparative Financial Statement.

Ans:11 The Analysis which is made to review the financial statements of one particular year only is called
Vertical Analysis.

E 30
Ans:12 Ratio Analysis.

Ans:13 (i) For company’s Balance Sheet there are two standard forms prescribed under the companies Act.1956
Whereas there is no standard form prescribed under the Indian partnership Act,1932 for a partnership
Firms balance sheet.
(ii) In case of a company’s Balance sheet previous years figures are required to be given whereas it is
not so in the case of a partnership firms balance sheet.

Ans:14 (i) Uncalled Liability on share partly paid up .

(ii) Arrears of fixed Cumulative Dividend.

Ans:15 Balance of a Company is prepared ‘ as at a particular date ‘ .

Ans:16 Part I of Schedule VI to the Companies Act.1956.

Ans:17 Analysis of financial statements is affected from the limitation of window dressing as companies hide
Some vital information or show items at incorrect value to portray better profitability and financial
Position of the business, for example the company may overvalue closing stock to show higher profits.

Ans:18 (i) They want to judge the present and future earning capacity of the business.
(ii) They want to judge the safety of their investment.

Ans:19 (i) Comparative Financial Statements.

(ii) Ratio Analysis etc.

Ans:20 Sales.

Ans:21 Percentage Change –

Net sale 25%
Cost of Goods sold 25%
Gross profit 25%
Indirect Expenses 87.50%
Net profit before Tax 18.05%
Income Tax 41.67%
Net Profit after Tax 5.56%

E 31
 ACCOUNTING RATIOS

Ans:1 Short term financial position of the business is assessed by calculating current ratio and liquid ratio.

Ans:2 (i) Payment of current liabilities.

(ii) Issue of share capital etc.

Ans:3 Sale of stock at cost price.

Ans:4 (i) because there is uncertainty whether it will be sold or not.

(ii) It will take time before it is converted into debtors’ and cash.

Ans:5 Quick ratio will improve as both the liquid assets and current liabilities will decrease by the same
Amount.
Ans:6 Conversion of debentures into shares.

Ans:7 Accounting ratios are calculated from financial statements, which are down on the basis of historical
Cost as recorded in the book of accounts .
Ans:8 Total Assets to Debt Ratio.
Ans:9 Debt-Equity-Ratio.
Ans:10 100-78=22%
Ans:11 No change because it will neither affect net credit sales nor average receivable.
Ans:12 Debt-equity ratio will decrease because the Long-term loans remain unchanged where as the
Shareholders funds are increased by the amount f share capital issued .
Ans:13 Purchase of goods for cash .

Ans:14 Debt equity ratio will not change as the total amount of shareholders funds will remain same.

Ans:15 Payment of current Liabilities Rs.3,00,000.

Ans:16 Net gain to shareholders Rs.60,000.

Ans:17 Closing stock = Rs.14,285.

Opening stock = Rs.35,715.
Ans:18 Stock turnover Ratio = 4 times .
Ans:19 Cost of goods sold =Rs.8,48,400.
Ans:20 Opening stock Rs. 50,000.
Closing stock Rs. 1,50,000.
Ans:21 (a) Net profit before interest Rs.14,00,000
capital employed Rs. 28,00,000
Return on investment 50%.
(b)Earning per share Rs. 4.

E 32
 CASH FLOW STATEMENT
Ans:1 Cash Flow statement is prepared on cash basis of accounting but profit is calculated on accrual basis.
So cash flow statement is not a judge of profitability.

Ans:2 Under accounting standard-3(Revised).

Ans:3 Depreciation reduces the net profit without reducing the cash balance as it is a non-cash item.

Ans:4 As Operating Activities.

Ans:5 Operating Activities.

Ans:6 As Outflow under Investing Activities.

Ans:7 Give any two examples-

Acquisition of fixed asset by issue of debentures or shares.
Conversion of debentures into shares.

Ans:8 Classified as Financing Activities.

Ans:9 It will be operating activities in case of a finance company and investing activities in case of
Non-Financing Company.

Ans:10 (i) Operating Activities.

(ii)Investing Activities.
(iii)Financing Activities.

Ans:11 …= Net Increase /Decrease in cash and Cash Equivalents.

Ans:12 Direct Method and Indirect Method.

Ans:13 Investing Activities Because …………….

Ans:14 Investing Activities Because …………….

Ans:15 Cash from Operating Activities Rs.1,03,800.

Ans:16 (i) Cash Inflow From Operating Activities Rs.80,000.

(ii)Cash Outflow on Investing Activities Rs.1,60,000,
(iii)Cash Inflow From Financing Activities Rs. 1,00,000.

E 33