Advanced Accounting - I

B.COM.
(Professional Accounting)
SEMESTER – IV
ADVANCED ACCOUNTING –I
UNIT - I
Depreciation – Methods - Reserves and provisions.
UNIT - II
Branch accounts excluding foreign branches. Hire purchase and installment system
including hire purchase trading accounts.
UNIT - III
Single Entry System - Meaning and Features - Statement of Affairs Method and
Conversion Method.
UNIT - IV
Partnership Accounts - Division of Profits - Fixed and Fluctuating Capital - Past
Adjustments - Guarantee of Profits - Admission - Retirement - Death
UNIT -V
Dissolution of Partnership - Insolvency of Partners - Rule in Garner Vs. Murray -
Piecemeal Distribution - Sale to a company.
Note: 20% Marks for theory and 80 % marks for problem.
BOOKS FOR REFERENCE : 

 Jain and Narang : Advanced Accounting 
 T.S. Grewal : Advanced Accounting 
 M.C Shukla : Advanced Accounting 
 T.S.Reddy & A.Murthy : Financial Accounting 
 Gupta.R.L& Radhasamy.M : Advanced Accounting
UNIT-I
DEPRECIATION
Introduction:
Depreciation is the process of spreading the cost of fixed assets over the different accounting
periods which derive the benefit from their use. The cost of fixed assets apportioned to a given period
forms part of the overall cost to be matched with revenues generated in that period. So, deprecation is
of great significance in the concept of income measurement. It measures the service potential of the
fixed assets.
Meaning
Depreciation is a permanent decline in the value of an asset. The gradual decrease, both in the
value and usefulness, of an asset due to its nature and usage is termed as depreciation.
It is common experience that whenever an asset is used it reduces in value. The net result of
depreciation is that sooner or later, the asset becomes useless. So, it can be stated that depreciation is
that portion of the cost of an asset which is reduced from revenues for the services of the asset in the
operation of a business.
Definition of Depreciation
According to Spicer and Pegler “Depreciation is the measure of the exhaustion of the effective
life of an asset from any cause during a given period”.
According to International Accounting Standards Committee “Depreciation is the allocation of

the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting
period is charged to income either directly or indirectly.
Characteristics of Depreciation
The important characteristics of depreciation are noted below:
(i) Depreciation is a reduction in the book value of a fixed asset except land.
(ii) It is a charge against profit for a particular accounting period i.e., the true profit cannot be
ascertained without charging depreciation.
(iii) It reduces the book value of the asset but not its market value.
(iv) It is a process of allocation of expired cost and not of valuation of fixed assets.
(v) It is always computed in a systematic and rational manner since it is not a sudden loss.
(vi) It may be physical and functional.
(vii) It takes place gradually unless there is a quick physical deterioration or obsolescence due
to technological developments.
(viii) It is a continuing process. The book value is reduced either with the use of the asset or due
to passage of time. Depreciation once charged will have to be charged in the subsequent
periods also till the asset is totally exhausted or discarded.
(ix) The reduction in the book value of an asset is permanent. When the book value of an asset
is reduced, it is not possible to restore it to its original cost.
(x) The exact amount of depreciation cannot calculated, whatever method of charging
depreciation is followed. It can simply be estimated.
Causes of Depreciation
The following are the main causes of Depreciation:
(i) Use: Wear and tear is an important cause of depreciation in the case of tangible fixed
asset. It is due to use of the asset.
(ii) Lapse of time: Assets such as, lease, copyright, patent etc. Have a fixed number of years
of legal life, after the expiry of which, they are rendered useless. As such, their cost is
written off over their legal life and the amount charged against revenue every year is
known as depreciation. This is true of acquired goodwill also. In these Cases, depreciation
is known as “amortisation”.
(iii) Obsolescence: Loss of usefulness occasioned by improved production methods is known
as obsolescence. For example, an old machine which is still workable may be more
efficient and economical.
(iv) Accidental: A machine remaining continuously idle becomes potentially less and less
useful with the passage of time. In fact, certain machines like farm implements and
machinery used in farming kept in the open, may depreciate more rapidly from disuse than
from use.
(v) Inadequacy: It refers to the termination of the use of an asset because of growth and
changes in the size of the firm.
(vi) Depletion: An asset may get exhausted through working as in the case of mines, quarries,
oil field and forests etc. The natural resources such as minerals, granite, oil and timber get
exhausted because of extraction and exploitation, and the asset becomes useless. As such,
these asset are known as wasting assets. The tern ‘depletion’ is correctly used to refer to
the expired utility of wasting asset.
Objectives of and Necessity for providing Depreciation
The primary objects of and necessity for providing depreciation on fixed assets are given
below;
1. Ascertainment of true profits: When a particular asset is used for earning income of the
business, the reduction in the value of asset should be provided from the income in order to
calculate the correct and real income or the business. Depreciation is an invisible expense. So,
it must be charged to the profit& loss account.
2. Presentation of true financial position: If depreciation is not provided for, the balance sheet
will not disclose a true and fair view of the firms, state of affairs, since the assets will be
shown at figures which are in excess of their true value.
3. Replacement: The amounts debited in the profit &loss Account isretained in the business.
These are available for replacement of the asset when its life is over. So, by making an annual
charge for depreciation, a concern would be accumulating enough resources to enable it to
replace an asset necessary.
4. No distortion of divisible profit: If depreciation is not charged to profit, trading results are
visited and divisible profits are distorted. Hence, the joint stock companies must have to
provide for depreciation before declaring dividends according to the Companies Act 1956.
Methods of recording depreciation
Depreciation can be recorded in the books of accounts by two different methods:
(i) When a provision for Depreciation Account is not maintained:
Under this method, the amount of depreciation is debited to the depreciation account and
credited to the asset account. Depreciation account is closed by transfer to profit and loss
account, and is shown as a deduction from the value of the asset on the assets side of the
balance sheet. The following journal entries are passed in case depreciation is provided
according to this method:
(a) For providing Depreciation:

Depreciation A/c Dr.
To Asset A/c .
(b) For transferring depreciation to the P & L A/c:
Profit & Loss A/c Dr.
To Depreciation A/c .
In Case the asset is sold, the sale proceeds are credited to the Asset A/c. Any profit or loss
on sale of the asset is transferred to the profit and loss A/c. The entries will be:
( c ) When the asset is sold :
Bank A/c Dr
To Asset A/c
( d ) For the depreciation ( on the sold asset ) of the current period.
To Asset A/c
( e) For loss on sale of Asset.
Profit and loss A/c Dr.
To Asset A/C
Reverse entry will be passed when there is a profit on sale of an asset.
( ii) When provision for depreciation account is maintained.

The following Journal entries are passed under this method.
( a ) For Providing Depreciation :

To Provision for Depreciation A/c
( b ) For transferring depreciation to profit and loss A/c
Profit and loss A/c Dr.
To Depreciation A/c
( c ) When Asset is sold
( i) For transferring accumulated depreciation
Provision for Depreciation A/c Dr.
UNIT-II
BRANCH ACCOUNTS
In order to augment the sales, business houses are required to market their
products over a large territory and may generally split their business into certain
divisions or parts.
If the various parts or divisions are located in different parts of same city
or in different cities of the same country or in different countries, these are
known as branches. Head office controls the activities of its branches located in
different place.
Meaning of Branch
The literal meaning of the word ‘Branch’ is any subordinate division of a
business, subsidiary shop, office, etc.
According to section 29 of the companies act 1956 “ A branch is any

establishment carrying on either the same or substantially the same activity as
that carried on by head office of the company”.
Enumerate/List out the objectives of Branch accounting

The prominent object of keep branch accounts is dependent on the nature of the
business and specific need of a particular branch. The objectives of keeping the
branch accounts acceptable to all business are:
a) To know the profit or loss of each branch separately.

b) To ascertain the financial position of each branch on a particular date
c) To know the cash and goods requirements of the various branches
d) To evaluate the progress and performance of each branch
e) To evaluate commission for payment to the managers, if based on profits of branch
f) To know the profitability of each branch and type of business for
expansion of the business
g) To give concrete suggestions for the improvement in the working of the various
branches
h) To meet the requirements of specific enactments as all branches of a
company must keep the accounts for audit purpose.
Different types of branches/ dependent branches in detail

According to the accounting point of view, the following are the main type of branches:
a) Dependent Branch (or) Branch not keeping full system of accounting
b) Independent Branch (or) Branch keeping full system of accounting; and c) Foreign
Branch
Dependent Branch or Branch not keeping full system of accounting
Dependent branch is a branch which does not maintain its own set of books. Under this type of
branch, Head office maintains all accounting records of its branches (dependent) available in
different places.
If the business policies and administration of a branch are wholly controlled by the Head office,
its accounts are also maintained by it.
Features/characteristics/nature of dependent Branches

The following are the main features of such branches
a) Such branches sell only those goods that are received from Head office and are not
usually allowed to make purchases in the open market except with the express permission
of the head office.
b) Goods are supplied by the head office to such branches either at cost price or at invoice
price.
c) All expenses of the branch such as rent, salary of staff, advertisement, etc. are paid by the
head office.
d) Petty expenses such as carriage, entertainments, freights etc. are paid by the branch
manager out of petty cash book balance. Such book is maintained at the branch either as
simple petty cash or in imprest system.
e) The amount received from cash sales or cash received from debtors is either remitted to
the Head office daily or deposited in the account of head office in some local bank.
f) The branch manager is normally expected to sell the goods for cash only he may be
authorized to sell goods on credit in certain cases.
Accounting systems in respect of dependent branches
In case of a dependent branch, the Head office may keep accounts of the branch accounting to
any one of the following systems:
a) Debtors system b) Stock and debtors system c) Wholesale branch system
e) Final account system
The debtors system used by Head office for keeping accounts under dependent branches
DEBTORS SYSTEM (SYNTHETIC METHOD)

This accounting system is used generally in these branches which are fairly small in size. Under
this system, the Head office opens a separate account for each branch in order to record all
transactions relating to the branch. This account is a nominal account in nature and is prepared to
calculate profit and loss for each branch. The goods supplied by the Head office to the branch
may be either at cost price or at cost plus profit price.
The following are the journal entries passed in the books of head office to record branch
transactions:
1) When goods sent to branch office:
Branch A/c Dr
To Goods sent to Branch A/c
2) When Goods are returned to Head Office:

Goods sent to branch A/c Dr
To Branch A/c
3) When cheque or draft is sent for branch expenses:

Branch A/c Dr
To Bank A/c
4) For closing balance of assets:

Branch assets A/c Dr
To Branch A/c
5) For opening balance of assets, pass reverse entry given (4) above.
6) For closing balance of liabilities
Branch A/c Dr
To Branch liabilities A/c
7) For opening balance of liabilities, pass reverse entry given (6) above.
8) For transferring the balance of goods sent to branch a/c

To Trading A/c (If Mfg concern)
To Purchase A/c (If trading concern)
9) For branch profit:

Branch A/c Dr
To General P& L A/c
10) For branch loss, pass reverse entry given (9) above.
It should be carefully noted that credit sales, discounts, bad debts, expenses paid by
branch and return from debtors to the branch are not direct transactions between the branch and
the head office and, therefore, they are not taken care of while preparing the branch account in
the books of head office according to this system.
Moreover, losses due to pilferage, wastage and other losses of stock due to normal or
abnormal reasons are also completely ignored under this method.
The main defect of this system is that is does not provide full information for analysis of
branch profit or loss. To overcome this problem, a separate Branch trading and P & L a/c has to
be prepared, which is, of course, a memorandum account not forming part of the full system of
accounting.
A) When Goods Are Invoiced At Cost Price
Particulars Amt Particulars Amt
To Balance b/d: By Balance b/d: (Opening balance of
Cash in hand xxxx liability if any)
Stock xxxx Creditors xxxx
Debtors xxxx O/s Expenses xxxx
Petty cash xxxx
Furniture xxxx By Bank:
Prepaid expenses xxxx Cash sales xxxx
Cash collected from Debtors xxxx
To Goods sent to Branch a/c xxxx By Goods sent to branch a/c xxxx
To Bank (Expenses paid by H.O) xxxx By Balance c/d (Clg. Balance of assets)
To Balance c/d (Closing. balance of Stock xxxx
liability): xxxx Debtors xxxx
Creditors xxxx Petty cash xxxx
O/s Expenses Furniture (at depreciated value) xxxx
xxxx By General P & L a/c (b/f) (Loss) xxxx
To General P & L a/c (b/f) (Profit)
Total xxxxx Total xxxxx

B) When goods are invoiced at cost plus profit/selling price/invoice price:
If the goods are received by the branch office from head office at invoice price, i.e. cost plus
some percentage of profit, the branch manager is required to sell the goods at invoice price only.
Goods are marked on invoice price to achieve the following objectives:
(a) In order to keep secret from the branch manager the cost price of the goods and profit
made, so that the branch manager may not start a rival and competitive business with the
concern; and
(b) In order to have effective control on stock i.e., stock at any time must be equal to opening
stock plus goods received from head office minus sales made at the branch.
Accounting adjustments required in head office books

The branch accounts are not in any way affected due to invoicing of goods at cost plus profit.
But, in order to calculate the profit or loss made by the branch, some accounting adjustments are
required to be passed in the books of the Head Office for eliminating the profit element included
in (1) Branch opening stock (2) Goods sent to branch less returns made by the branch to Head
Office and (3) Branch closing stock.
(a) For adjustment of excess price of the opening stock at branch
Stock reserve A/c Dr
To Branch A/c
(b) For adjustment of excess price of goods sent to branch less returns to head office
To Branch A/c
(c) For Adjustment of excess price of the closing stock at branch
Branch A/c Dr
To Stock reserve A/c
Closing stock should always be valued at cost or market price whichever is lower. This is
based on the principle of conservatism, i.e., no profit should be anticipated and all losses should
be provided. Moreover, the unsold stock lying in the branch will not earn profit unless sold.
Therefore it is necessary to make provision for the profit element included in the unsold stock.
Calculation of make up or Load

For calculating excess price, the following procedure is adopted:
Suppose the goods are invoiced at cost plus 25%. If the cost is Rs 100, Profit is Rs 25, the selling
price, therefore, is Rs 125. The ratio of profit to selling price is 25/125 or 1/5. The adjustments
for the difference or excess price and the cost price, therefore, will be made on the basis of 1/5 of
the invoice price. If the percentage is given on sale price is Rs 100, profit will be Rs 25.
Therefore, cost will be Rs 75. So, the percentage on cost will be 331/3% or (1/3 of cost).
Stock and debtors system under dependent branch
It is an elaborate method of keeping branch accounts and is considered very useful where
the branch turnover is sufficiently large and where a greater degree of control is sought to be
exercised by the Head Office over the branch. According to this system, in lieu of opening one
branch a/c, as is done in case of debtors system, separate accounts are opened for various
transactions at branch.
According to this system, a separate ledger for each branch will have to be maintained at
Head office for keeping accounts such as Branch stock, Branch Debtors, Goods sent to branch,
Branch expenses and Branch asset etc. Branch cash or petty cash account may sometimes be
required to be maintained if the branch is permitted to use the available cash for making certain
payments.
Preparation of Branch stock A/c will vary from branch to branch depending upon the
method of charging out the goods sent to branch.
a) Goods charged to branch at cost price
Under this case, the following accounts are prepared in the books of the Head Office:
i) Branch stock account: This account is similar to that of the branch trading account. This
account is debited with opening stock at branch, goods sent to branch and goods returned to the
branch by customers and credited with cash sales and credit sales made by the branch, the goods
returned by the branch and closing stock at branch. The balance of this account represents gross
profit or gross loss and the same is transferred to Branch profit and loss account.
ii) Goods sent to branch account: This account, maintained in the books of the head office, is
credited with goods sent to branch and is debited with goods returned by branch. At the end of
the accounting period, the balance of this account is transferred to purchase account (trading
concern) and to the Trading account (Manufacturing concern).
iii) Branch debtors account: When branch sells goods on credit, this account is prepared. In
order to know the missing figures in debtors account at branch, it is necessary for recording all
transactions concerning branch debtors.
iv) Branch petty cash account: This account is maintained where the branch makes some petty
cash payments. This account is debited with the opening balance of petty cash and cash sent to
branch by the head office and is credited with all petty cash expenses incurred by the branch. The
balance available at the end represents petty cash available in hand.
v) Branch P & L account: In order to ascertain profit or loss made by the branch during the
year, this account is prepared. The gross profit or loss at the branch, as determined from the
branch stock account, is transferred to this account. This account debits all expenses and credit
all income and gains during the year. The balance of this account represents not profit or loss for
the year.
vi) Branch cash account: This account is maintained for recording all cash transactions relating
to the branch. This account is quite essential where the branch is permitted to purchase goods
locally and to incur expenses at branch out of cash available with the branch.
JOURNAL ENTRIES
TRANSACTIONS DEBIT CREDIT
Goods sent to branch Branch stock a/c Goods sent to branch a/c
Goods returned by branch Goods sent to branch a/c Branch stock a/c
Cash sales at branch remitted to Head Branch cash a/c Branch stock a/c
office
Credit sales at branch Branch debtors a/c Branch stock a/c
Returns from customers Branch stock a/c Branch debtors a/c
Bad debts and discount etc allowed Branch expenses Branch debtors
Cash received from branch debtors Branch cash a/c Branch debtors
remitted to Head office
Shortage of goods in branch stock Branch P & L a/c Branch stock a/c
Surplus of goods in branch stock Branch stock a/c Branch profit and loss a/c
Expenses paid by Head office Branch expenses Cash a/c
Transfer of branch expenses to branch Branch P & L a/c Branch expenses a/c
profit and loss account
Goods in transit Goods in transit a/c Branch stock a/c
b) Goods charged to branch at selling price:

The stock and debtors system is particularly considered very useful and appropriate
where goods are invoiced to the branch at selling price. This method of accounting helps the
head office to exercise a better control over the branch.
Final account system under dependent branch system

According to this system, the profit or loss made by the branch is determined by
preparing Branch Trading and profit and loss account at cost price. It should be clearly noted that
all expenses whether paid by the head office or by the branch are debited to the trading and profit
and loss account prepared for the branch.
The profit or loss made by this account is exactly same as that of the Branch a/c prepared
under debtors/synthetic system.
It should be further noted that the branch trading and profit and loss account is only a
memorandum account not forming part of the full accounting system.
If the branch account is also prepared, in addition to the branch trading and profit and
loss account, then such a branch account will be treated as a personal account and not considered
in the nature of a nominal account under the debtors system. Then branch account under such
circumstances, will show a debit balance which will be equal to net worth or net assets available
at branch at the end of the accounting period.
Wholesale branch system under dependent branch.
Sometimes Head office also sells goods at retail or list price besides sending the goods to
branches at wholesale prices. The difference between the retail price and wholesale price will be
the profit made by the branch. Suppose it an article costs to Head office Rs 100 and it is supplied
to the branches at Rs 160 at wholesale price but both Head office and branches sell goods at
Rs200 then, the profit made by the branch will be Rs 40 (i.e., Rs 200 – Rs 160) and not Rs100
(Rs 200 – Rs 100).
The goods are sent by the Head office to the branches at wholesale prices and if all the
goods are sold there is no problem bit if some goods remain unsold at the end of the accounting
year, these unsold goods at the branches must be reduced to cost price by making stock reserve
for unrealized profit for the difference between the wholesale and cost price and will be debited
to the head office profit and loss account, as previously the head office must have earned profit
while sending goods to the branches.
INDEPENDENT BRANCHES:
Independent branches maintain their entire accounts separately as well as independently

like head office. They could purchase the goods from outside and at the same time if they want
can purchase from head office also. They also can supply goods to head office. It can also
determine its price on its own. In other words, the branch carries on business as independent
units, records all the transactions in its own books, extract its own trial balance and prepared its
own trading and profit & loss a/c. a copy of the trial balance so prepared will be forwarded to the
head office and the head office will incorporated the same in its books of accounts so that a
consolidated P&L a/c and balance sheet can be prepared for the business as a whole.
I. Goods in Transit
1. Goods dispatched by the head office and not received by the branch. These goods may be
in transit or lost in transit.
2. Goods returned by the branch to head office but not received by the head office. These
goods may be in transit or lost in transit. For goods in transit, the Balance in the Head
office account in the books of the branch will not tally with that of branch account in the
books of head office. For reconciling these Balances the following adjustment entry may
be passed with books head office.
Goods in Transit Account Dr
To Branch Account
There will be no entry in the books of branch. ‘goods in transit’ is an asset and will appear
in the Balance sheet.
II. Cash in Transit:
Sum remitted by head office to branch or vice-versa remaining in transit on the closing
date. Just like goods in transit, an adjustment entry is required for ‘cash in transit’.
Cash in Transit Account Dr
To Branch Account
There will be no entry in the branch books. The ‘cash in transit’ is an asset and will be
shown in the Balance Sheet.
Incorporation of Branch Trial Balance in the Head Office Books
An independent branch prepares its own Trial Balance and Final Accounts and sends a copy of
these statements to the head office to be incorporated in the books of the head office so that a
profit and loss account for the branch and a consolidates Balance sheet can be prepared for the
business as a whole.
The incorporation of Branch Trial Balance can be divided into parts:
(a) Incorporation of Branch Profit and Loss; and
(b) Incorporation of Branch Assets and Liabilities.
Incorporation of Branch Profit and Loss
There are two ways in which it can be done:
(1) Detailed Incorporation
(2) Abridged Incorporation
Detailed Incorporation
Under this method, all the figures found in the branch trial Balance are incorporated in
the books of Head Office. It is done with a view to prepare Branch Trading and Profit and Loss
Account in the books of the Head Office. Head Office opens a separate Branch Trading and
Profit and Loss Account to incorporate all revenue transactions of the branch. This account is
temporary in nature and is prepared to ascertain the real profit or loss of the branch after making
all adjustments.
One must, keep in mind that head office maintains only the ‘Branch Account’ and the statements
received from the branch do not form a part of the double entry system. Hence, all the journal
entries should be pressed through the Branch Account maintained in the head office books.
The required journal entries are as follows:
 To incorporate all items on the debit side to the branch trading account:
Branch Trading Account Dr.
To Branch Account
(The above entry is passed for the total amount of items like opening stock, purchases, carriage
inwards, wages, goods received from the head office, sales returns etc.)
 To incorporate all items on the credit side of the branch trading account
Branch Account Dr.
To Branch Trading Account
(The above entry is passed for the total amount of items like sales, goods sent to head office,
closing stock, purchases returns, abnormal loss of stock etc.)
 The Gross Profit/Loss can be now ascertained and to transfer such gross profit/loss
to Profit and Loss Account
Branch Trading Account Dr.
To Branch Profit and Loss
Account (For gross profit transferred)
For Gross Loss
Branch Profit & Loss Account Dr
To Branch Trading Account
 To incorporate all the items on the debit side of the Branch Profit & Loss Account
Branch Profit and Loss Account Dr
To Branch Account
(The above entry is passed for the total amount of items like salaries, rent, depreciation, bad
debts, repairs, discount allowed, etc.)
 To incorporate the items on the credit side of the Branch Profit and Loss Account
Branch Account Dr
To Branch Profit & Loss Account
(The above entry is passed for the total amount of items like discount received miscellaneous
income etc.)
 Branch Profit and Loss Account would now show the net profit or loss. To transfer
the profit or loss:
Branch Account Dr
To General Profit & Loss
Account (Net profit transferred)
In case of Loss, the entry will be reversed.
The above six entries will complete the branch Trading and Profit & Loss Account
 To incorporate the branch assets:
Individual Branch Asset Account Dr
To Branch Account
(Assets incorporated)
 To incorporate branch Liabilities:
Branch Account Dr
To Individual Branch Liability
Account (Liabilities incorporated)
The last two entries enable the head office to prepare a Balance sheet for the branch by the head
office. The effect of all above incorporating entries is to close the branch account in the books of
the head office, since all items have been transferred to the head office books. Sometimes, the
head office does not prepare the Balance sheet of the branch, hence the entries no. 7 & 8 are
required to be passed.
Abridged Incorporation
Under this method, a Memorandum Trading and Profit and Loss Account is prepared for
ascertaining branch profit or loss. Entry is passed only for incorporating the net profit or loss at
the branch, which is given as under:
If it is net profit
Branch Account Dr
To General P&L
Account (Net profit incorporated)]
If it is net loss
General P&L A/C Dr
To Branch
Account (Net loss
incorporated)
In addition to above entry, branch assets and branch liabilities will be incorporated as shown
already.
UNIT – III
SINGLE ENTRY SYSTEM
MEANING:
There is no system of accounts called ‘single entry system’. The term single entry is
refers to any method of maintaining accounts which does not confirm to strict principles
of double entry. Business people without systematic accounting knowledge like small traders,
medical practitioners and other professionals follow this method.
Definition
According to KOHLER in his ‘ DICTIONARY OF ACCOUNTANTS ‘ defines single
entry system as “ a system of book keeping In which as a rule only records of cash and personal
accounts are maintained. It is always incomplete double entry, varying with the circumstances”.
Characteristics (Or) Features of Single Entry
1.Absence Of Uniformity
It is not a specific system governed by definite rules of operation. It is highly flexible

according to the capabilities of individuals maintained the records.
2. Records maintained
Usually personal accounts are fully written and cash book is also maintained. Normal
accounts and most of the real accounts are completely omitted.
3. Mixing of transaction
Business dealing as well as personal transaction are mixed while writing the cash book.
4. Suitability
Sole traders, partnership firms and professional who cannot afford a paid book keeper
usually follow this method to write their own accounts. Joint stock companies have to follow
double entry system under the provisions of the company’s act 1956.
5. Dependence on original vouchers.
No entries are made for a large number of transactions, for example, credit purchases and
sales have to be ascertained from the copies of invoices.
6. Finalization of accounts
Regular final accounts cannot be prepared. Profit and loss can be computed in a crude
way which is not reliable.
Dis-Advantages (Or) Limitations of Single System.

The following are the defects and limitation of single entry methods.
1.Insufficient records
Except personal account and cash account, all other impersonal accounts are left out. So
the accounts serve very little purpose.
2.Absence of trial balance
Trial balance cannot prepare for any period. Hence arithmetical accuracy of the account
cannot be verified.
3.Difficulty in ascertaining profit.
Absence of record for expenses and incomes makes it impossible to ascertain profit in a
reliable way.
4.Difficulty in ascertaining financial position.
In the absence of real account, balance sheet cannot prepared to assess the financial
position of the business
5.lack of statistical data
Statistical data relating to increase or decrease in sales,purchases,different items of
expenses, profit etc cannot be obtained.
6.Encouragement to fraud.
Fraud embezzlement etc by employee cannot be detected.
7.Rectification of errors is difficulty
There is no cross verification system like trial balance to detect mistakes. So rectification
of errors is rare
8.value of business cannot be ascertained
It is difficult for the owners to assess the value of goodwill of the business in the absence
of proper records.
9.planning and decision making are difficult
The owner cannot plan for future operation and growth etc, of the business in the absence
of reliable information
10.Difficulty in getting loans.
Commercial banks do not accept incomplete records as basis for granting loan
11.Filing tax returns, preparing claims etc.
Tax authority may charge tax himself in the absence of reliable records. Filing claims for
loss of stock becomes difficult.
Difference between Double Entry And Single Entry System.
Sl No Basis of Double Entry System Single Entry System

Difference
1 Recording Both aspects of all transaction In some cases both aspects in

transactions are recorded some others a single aspect or no
aspect is recorded.
2 Preparation of Trial balance cab be prepared Trial balance cab not be prepared
trial balance
3 Ascertaining Accurate profit and loss can be Profit or loss cannot be found
profit or loss found, through p & l account normally in the absence of trading
and profit and loss account
Revealing Reliable financial position can Balance sheet cannot be prepared.

4 financial be found through balance sheet So financial position is difficult to
position ascertain.
5 Acceptability Acceptable for income tax and Not acceptable for taxation,
other tax purposes for raising of claims, rising of loans.
bank loans etc
6 Acceptable In case of disputes accounting Not acceptable for taxation,
evidence records can be produced in claims, raising of loans
courts of law
7 Utility Suitable for any type of It can be followed by small

business of any size business men.
8 Internal check Internal check is possible Internal check is not possible
Ascertainment of Profit
When business records are incomplete, profit or loss can be found through any one of the
following two methods.
(i) Net worth method or statement of affairs method
(ii) Conversion method
1. Net worth Method /Statement of Affairs
This method is also called statement of affairs method because net worth is ascertained
with the help of statement of affairs. The following five steps are followed for ascertaining profit
or loss under net worth method.
 Calculating opening capital
 Ascertainment of drawings during the year
 Ascertaining capital introduced during the year.
 Calculating of closing capital
 Preparing statement of profit
Preparing Statement of Affairs
Under this method, statements of assets and liabilities as at the beginning and at the end of
the relevant accounting period are prepared to ascertain the amount of change in the capital
during the period. Such a statement is known as statement of affairs, shows assets on one side
and the liabilities on the other just as in case of a balance sheet. The difference between the totals
of the two sides (balancing figure) is the capital (refer figure 11.1). Though statement of affairs
resembles balance sheet, it is not called a balance sheet because the data is not wholly based on
ledger balances. The amounts of items like fixed assets, outstanding expenses, bank balances,
etc. are ascertained from the relevant documents and physical count.
Preparing statement of affairs:
STATEMENT OF PROFIT OR LOSS FOR THE YEAR
Capital at the end XXX
ADD: Drawings XXX
XXX
LESS: Addl. Capital introduce XXX
During the year
XXX
LESS: Opening capital XXX
Profit or loss during the year XXX
Differentiate Statement of affairs from Balance sheet.

S.No Balance sheet Statement affairs
1 Balance sheet prepares on the basis of It prepares from balances, valuations,
trial balance with/without adjustments information from enquiry, etc.,
2 It is prepared on the basis of standard It is prepared on the basis of accounts
accounting rules from incomplete records
3 Trail balance is prepared in first then It has no foundation like trail balance
balance sheet prepared.
4 Errors, fraud, omission, etc are detected These are not detected here
5 It reveals the financial position of the It reveals the estimated financial
business accurately position of the business.
6 Capital is shown in the balance sheet Capital in the statement of affairs is
from the capital account in the only a balancing figure in the
ledger statement itself.
CONVERSION INTO DOUBLE ENTRY:
If the books are maintained on Single Entry basis, they can be converted into
double entry basis but with good deal of effort. Assuming that accounts of cash,
bank, customers and suppliers have been maintained, the following steps will be
necessary:
1. Take the statement of affairs at the end of previous year. Open all accounts
(except those already opened) with proper balances.
2. Go through the cash book (or cash and bank accounts). Excepting transaction,
with customers and suppliers (this transaction must have been posted already) others
should be posted to proper accounts.
3. Analyse all personal accounts (a) Analysis of accounts of customers will
reveal the following:— Entry Now
Credit Sales Credit Sales A/c
Bills Dishonored Credit B/R A/c
Charges debited to them Credit Charges A/c
Cash received Debit Cash A/c
Discount allowed to them Debit Discount A/c
Sales Returns Debit Sales Return A/c
Bad Debts written off Debit Bad Debts A/c
Bills Receivable received Debit Bills Receivable A/c
(b) Analysis of accounts of suppliers will reveal the following:

Entry Now
Credit Purchases Debit Purchases A/c
Bills Payable Dishonored Debit Bills Receivable A/c
Cash Paid Credit Cash A/c
Purchase Returns Credit Returns Outwards A/c
Discount Received Credit Discount A/c
Bills Payable Issued Credit Bills Payable A/c
4. Go through the waste book and see if any transaction still remains to be
recorded. For instance, interest may be due on loan. The entry to be passed
is:
Interest A/c ... .... Dr.
To Loan Creditor
Preparation of Trading and Profit and Loss A/c From Single Entry Records.
If Single Entry books have been converted into Double Entry books, a trial balance can
then be taken out. From the trial balance, final accounts can be easily prepared. However, a
short cut is also possible. This short cut will be available only of the summary of cash
transaction is prepared. Students will remember that for preparing the Trading Account the
following information is necessary:
Opening Stock (available from previous statement of affairs.)
Purchases (always ascertained by making an

inventory.) Wages, etc.
Sales
Closing Stock.
UNIT IV
PARTNERSHIP- FUNDAMENTALS, ADMISSION, RETIREMENT AND DEATH
Meaning of Partnership
Occasionally, in order to meet the needs of a growing business, two or more persons
become joint owners thereof, each bringing in a certain amount of capital and sharing the profits
in agreed proportions. Such a relationship is called partnership.
Define of partnership
According to section 4 of the Indian Partnership Act 1932, Partnership is defined as “ the
relationship between persons who have agreed to share the profits of a business carried on by all
or any of them acting for all”.
The persons who have entered into partnership are individually known as “Partners” and
collectively as “firm”. The name in which the business is carried on is called the “firm name”.
Essentials of partnership firm
The following are the essentials of partnership firm:
1. An agreement between two or more persons
2. To carry on a business by all or any of them acting for all
3. Sharing the profits of the business
4. It is formed to carry on a lawful business
5. It is an association of two or more persons i.e., the number of persons must not exceed
ten, in case of a banking business and twenty in other business.
PARTNERSHIP DEED
Partnership is formed out of an agreement between the partners. The agreement may be
oral or in writing. The document or the instrument, containing the agreement between the
partners, is known as partnership deed. It is also called as Article of partnership. It contains the
rules and regulations governing the firm.
Enumerate the contents of partnership deed
A properly drawn up deed should contain the following particulars.
1) Name of the firm 2) Names of the address of the all the partners
3) Nature of the business 4) Date of commencement of partnership
5) The principal place of the business 6) Duration of partnership, if any
7) Capital contribution by each partner 8) Amount permitted to be withdrawn by each
partner
9) The profit sharing ratio
10) Amount of salary or commission, if any, payable to partners
11) Rate of interest, if any, pm capital and borrowings
12) Rate of interest, if any, on loans and advances by the partners
13) Allocation of work among partners 14) Rights, duties and liabilities of partners
15) Provision regarding admission of new partners
16) Settlement of accounts on dissolution of the firm
17) Settlement of accounts in the event of retirement or death of partners
18) Method of computation and treatment of goodwill under different circumstances
19) In case of disputes between partners, the method of settling it
20) Rules regarding operation of bank accounts
21) Provision relating to the maintenance and audit of books of accounts
22) Provision regarding the borrowings of the firm
The rules applicable in the absence of partnership deed
S.No Items How to be dealt with
1 Interest on Not to be allowed
2 capital Interest Not to be allowed
3 on drawings
Salary or any other remunerations in the form Not to be allowed
4. of bonus, commission etc Interest on loan @6% p.a. shall be allowed
5. Loan given by any partner to the Profits or losses shall be shared equally by the
firm Share of profit or losses partners
The necessary adjustments in accounts
1. Interest on capital: It is allowed to partners only when such payment is provided in the
partnership deed.
Interest on capital is allowed at a certain percentage on the opening balance for the whole year. If
further capital is introduced by any partner or partners but the date of introduction is not given in
the problem, interest for six months on such additional capital will be allowed.
The following journal entries are passed to adjust the interest on capital:
a) Interest on capital a/c Dr
To Partner’s capital or current a/c
b) Profit and loss appropriation a/c
Dr To Interest on capital a/c
2. Interest on drawings: It is always to be calculated with reference to time. If the partners draw
frequently then interest on drawings can be calculated with the help of product method.
If a partner is allowed to withdraw money from the business, the following entry is to be
passed:
a) Partner’s capital / current a/c Dr
To Interest on drawings
a/c
b) Interest on drawings a/c Dr
To Profit and loss appropriation a/c
3. Partner’s salary or commission
It may be agreed between the partners that a percentage or profit is payable to a partner as
commission. It is usually paid for any special service rendered by that partner to the firm. Such a
commission may be calculated on either:
a) On net profit before charging such commission or
b) On net profit After charging such commission
i) If the commission is a certain percentage of the net profit before charging
such commission, it is to be calculated using the following formula
Commission = Net profit * % commission /100
ii) If the commission is a certain percentage of the net profit after charging
such commission, it is to be computed using the following formula
Commission = Net profit * % of commission/ 100 + % of commission
The following entry will be passed for salary payable to the partners.
Profit and loss appropriation a/c Dr
To Partner’s capital / current a/c
1. Interest on partner’s loan: Partners may sometimes advance amounts to the firm in
addition to their capital contribution. The amounts advanced by the partners over and above
their capital contributions are called partner’s loans. Unless otherwise provided, such loans
will be allowed an interest of 6% per annum. The interest is a charge against the profit of the
firm, The journal entry for this is:
Interest on partner’s loan a/c
Dr To Partners’ loan a/c
Profit and loss appropriation account
It, in partnership, is an extension of the profit and loss account and is prepared to show how net
profit has been distributed among partners.
Particular Rs Particular Rs
To Profit and loss a/c – Net loss By Profit and loss a/c – Net profit
(transfer) transfer
To Interest on capital By Interest on drawings
To Partner’s salaries By Net loss (Partners’ capital/current
To Partner’s commission a/c)
To Interest on loan
To Net profit(Partner’s capital/current
a/c)
Methods of maintaining capital account

There are two methods of maintaining capital accounts of the partners. They are-
1) Fixed capital method 2) Fluctuating capital method
1) Fixed capital method: If capital is fixed, all the adjustment entries are to be passed through
partner’s current account. The balance of each partner’s current account is shown in the balance
sheet separately. If the current account presents a debit balance, it will be shown on the asset side
of the balance sheet while the credit balance of partner’s current account shall be shown on the
liability side of the balance sheet.
The idea of having fixed capital is not to disturb the minimum capital of the business lest it
suffers from paucity of capital.
Capital accounts
Particulars X Y Z Particulars X Y Z
Rs Rs Rs Rs Rs Rs
To Balance b/d By Balance c/d
Current accounts
Rs Rs Rs Rs Rs Rs
To Drawings By Balance b/d

To Interest on drawings By Interest on capital By
To Balance c/d salary
By Commission
By Share of profit
2) Fluctuating capital method:
If the partners do not agree to keep their capitals fixed, such capitals are called fluctuating since
the opening balance differs from the closing balance. In such a case all adjustments regarding (i)
Interest on capital; (ii) Interest on drawings; (iii) Salary of any other remuneration payable to
partners as per partnership agreement are all passed through capital accounts of partners.
Partners’ Capital Accounts
Rs Rs Rs Rs Rs Rs
To Drawings By Balance b/d

To Interest on By Interest on
drawings capital
To Balance c/d By salary
By Commission
By Share of profit
Enumerate the difference between fixed capital and fluctuating capital methods
S.No Factors Fixed capital method Fluctuating capital method
1. No. of accounts in the There will be two accounts in the There will be only one account in
name of each partner name of each partner, viz., the the name of each partner, viz., the
capital account and the current a/c capital account
2. Nature of the capital The capital a/c of a partner The capital a/c of a partner
a/c remains almost unaltered fluctuates from year to year
throughout the life of the firm
3. Yearly adjustments Yearly adjustments (such as Yearly adjustments are made in
interest on capital, drawings, etc) the capital a/c itself.
are made in the current a/c
4. Position in the B/S Both capital and current a/c in the Only capital account in the name
name of each partner will appear of each partner will appear in the
in the balance sheet balance sheet
5. Specific provision Specific provision in the No specific provision in the
partnership deed is required for partnership deed is required for
maintaining capital accounts maintaining capital accounts
according to fixed capital method according to fluctuating capital
method
PARTNERSHIP – ADMISSION
When additional capital or managerial hand or both required in the course of expansion of a
business, it becomes usual to admit a new person into the business as a partner. If the existing
business is owned by a sole trade, it is converted into a partnership concern on the admission of
the new partner. A new partner in an already existing partnership can be admitted with the
consent of all the partners. The most important adjustments necessitated by the admission of a
partner into partnership are:
1. Calculation of new profit sharing ratio and sacrificing ratio
2. Revaluation of assets and liabilities of the firm
3. Goodwill and its treatment in accounts
4. Adjustments regarding reserves and accumulated loss
5. Adjustment of the capital account of the old partners
Important adjustment needed while admitting a new partner into the partnership firm
1. Calculation Of New Profit Sharing Ratio And Sacrificing Ratio: The profit sharing ratio is
mutually decided by partners. On admission, the incoming partner acquires his share of profit
from the old partners. The new profit sharing ratio of partners depends on how the new partner
acquires his share of profit from the old partners. He may acquire his share from the old partners
either in their old profit sharing ratio or in any other agreed ratio.
Sacrificing ratio: On admission of a new partner, the old partners have to give up a certain
portion of their profits in favour of the new partner. In other words, the old partners lose or
sacrifice their profit is called the sacrificing ratio. Sacrifice is the excess of old share over the
new share of the old partners.
 The old partners usually given their shares in the old profit sharing ratio
 In this case the relative between the old partners does not change. Hence, the old
ratio itself forms the sacrificing ratio.
2. Revaluation Of Assets And Liabilities Of The Firm
When a new partner is admitted into the partnership concern, he acquires the ownership rights of
the assets and also makes himself responsible for the liabilities of the firm. It is therefore,
desirable both from the point of view of the incoming partner as well as the existing partners
that the assets and the liabilities as appearing in the Balance Sheet on the date of admission of
the new partner should be properly valued.
Partners may agree as to whether the revised values of assets and liabilities should be
shown in the books of the firm or not.
a) When the revised values are to be recorded in the books
For the purpose of giving effect to the revaluation of assets and liabilities a revaluation
account or profit or loss adjustment account is opened in the books and following entries are
passed.
i) For an increase in the value of assets ii) for a decrease in the value of
assets Asset a/c Dr Revaluation a/c Dr
To Revaluation a/c To Asset a/c
iii) For an increase in the value of liabilities iv) For a decrease in the value of
liabilities Revaluation a/c Dr Liabilities
a/c Dr
To Liabilities To Revaluation a/c
v) If there is any revaluation profit vi) If there is any revaluation loss
Revaluation a/c Dr Old partners capital a/c Dr
To Old partners capital a/c To Revaluation a/c
b) When the revised values are not to be recorded in the books
If all the partners may mutually agree to keep the old values of assets and liabilities unaltered in
the books of the new firm, to record these a memorandum revaluation account is opened and
increase in the value of assts and/or decrease in the value of liabilities are to be credited to this
account while any decrease in the value of assets and/or increase in the value of liabilities are
debited to such account, no record for such alternations is passed through the respective ledger
accounts.
The resultant profit or loss on revaluation is closed by transfer to the capital accounts of
the old partners in their old profit sharing ratio. In order to complete the double entry, entries
made in the memorandum revaluation account are reversed and the balance is transferred to the
capital accounts of all the partners including new partner in their new profit sharing ratio.
3. Goodwill and Its Treatment In Accounts
Goodwill may be defined as the benefit and the advantage of the good name or reputation of
a business. It enables a concern to earn more profits on the capital employed by attracting
more customers than in comparable organizations.
2. According to the Institute of chartered Accountants of India, Goodwill is “an
intangible asset arising from business connections or trade name or reputation of an
enterprise.”
(A) METHODS OF VALUATION OF GOODWILL

The following are the usual methods of valuation of goodwill:
1) Simple profit method 2) Super profit method 3) Capitalization
method
1) Simple profit method: According to this method, Goodwill is valued on the basis of agreed
number of year’s purchase of the annual profits, calculated by reference to recent years and
having regard to the probable maintenance of such profits in future years. So, goodwill is the
product of average profit multiplied by the number of years.
Goodwill = Average Profit X Number of years’ Purchase
2. Super Profit Method

This method is very popular for valuation of goodwill in case of Joint stock companies.
Company’s average profit is contrasted with the normal profit on the capital employed in the
company. Excess of average profit over normal profit is known as super profits.
Super Profit = Expected Average Profit - Normal Profit
Expected Average Profit = Average of the no. of previous year’s profits after adjusting
abnormal losses and gains and also future expected changes in expenses and incomes
Normal Profit = Average Capital Employed X Normal Rate of Return
3. Capitalisation of Expected future net profits or Capitalisation Method

According to this method, the total value of the business is ascertained by capitalizing the
expected average profits on the basis of normal rate of return on.
The value of goodwill is the difference between the capitalized value of the business so
ascertained and the actual capital employed [(i.e.) net tangible assets] in the business.
Expected Average Net Profit

Total value of the business = --------------------------------------------- X 100
Normal Rate of Return
(A) TREATMENT OF GOODWILL
The different methods for the treatment of goodwill in this case are:
I) PREMIUM METHOD:
a) The amount of goodwill is paid privately by the incoming partner to the old partners
b) The value of goodwill attributable to incoming partner’s share of profit is brought
in cash and the amount is retained in the business.
c) The value of goodwill attributable to incoming partner’s share of profit is brought
in cash and the amount is withdrawn by the old partners.
Journal entries
When goodwill is received in cash and retained in the business
Cash a/c Dr Goodwill a/c Dr
To Goodwill a/c To Old partners capital a/c
(Amount of goodwill brought in by new partner) (Goodwill shared in the sacrificing ratio)
When goodwill is received in cash and withdrawn by old partners in part or full
Cash a/c Dr Goodwill a/c Dr
To Goodwill a/c To Old partners capital a/c
(Amount of goodwill brought in by new partner) (Goodwill shared in the sacrificing ratio)
Old partners capital a/c Dr

To Cash a/c
(Goodwill to the extent of withdrawal)
When the amount of goodwill is paid privately - No entry is required
II) REVALUATION METHOD
When the incoming partner is not in a position to bring in the amount of goodwill in cash, then a
goodwill account is raised in the books of the firm at full value, and credit is given to the capital
accounts of the old partners in their old profit sharing ratio. The Journal entry necessary in this
case would be:
Goodwill a/c Dr
To Old partners capital a/c
(Goodwill at its full value)
Since the goodwill indicates a debit balance it will be shown on the asset side of the
balance sheet of the new firm. If the goodwill appears in the balance sheet of the old partners, it
has to be treated in the following manner.
Journal entries
1) When goodwill is understated in the
books Goodwill a/c Dr

(New value – old value)
ii) When goodwill is overstated in the books
Old partners capital a/c Dr
To Goodwill a/c
(Old value – new value)
III) MEMORANDUM REVALUATION METHOD
When the incoming partner is not a position to bring in the amount on goodwill in cash, then a
goodwill account is raised in the books of concern at full value and is credited to the capital
accounts of the old partners in their old profit sharing ratio.
The goodwill so raised is immediately written off to the capital accounts of all the partners
(including the incoming partner) in the new profit sharing ratio. Goodwill account in the case
will not appear in the balance sheet of the new firm.
JOURNAL ENTRIES
1) Goodwill a/c Dr
(Goodwill at full value)
2) All partners capital a/c Dr
To Goodwill a/c
(Amount of goodwill written off including new partner)
3) Adjustments Regarding Reserves And Accumulated Losses
The balances appearing in the form of reserves or profit and loss a/c balance should be
transferred to the capital accounts of old partners in their old profit sharing ratio. For this the
following journal entries are passed:
1. For reserve and undistributed profits: 2. For accumulated losses
Reserves a/c Dr Old partners’ capital a/c Dr
Profit and loss a/c Dr To Profit and loss a/c
To Old partners’ capital a/c
4) Adjustments Of The Capital Accounts Of The Old Partners
If the capital of the new partner is given the total capital of the firm can be found out on
the basis of capital of the incoming partner. Then the capital required by the other partners can
be found out.
RETIREMENT AND DEATH OF A PARTNER
INTRODUCTION
According to section 32 (1) of the Indian partnership act 1932, a partner may retire from
the firm in the following cases:
 with the assent of the existing partners of the partnership firm
 When the partnership is at will by giving notice in writing to all partners of his
intention to retire.
 In accordance with an express agreement by the partners
The only difference between admission and retirement of a partner is that in case of the former,
the new partner joins the firm where as in case of retirement, he leaves the firm because of
certain reasons as old age, ill health etc.
Require attention at the time of retirement of a partner
The accounting problems arising out of retirement of a partner are more or less similar to
those of admission of a partner. The main points which require attention in case of retirement of
a partner are:
 Adjustment regarding Goodwill
 Revaluation of assets and liabilities
 Computation of gaining ratio
 Treatment of accumulated past profits or losses and reserves
 Adjustment of capitals of the continuing partners.
 Disposal of the total amount due to the retiring partner.
1) ADJUSTMENT REGARDING GOODWILL:

Goodwill is valued according to any of the methods and as per provisions of the
partnership deed. The following cases may be adopted:
WHERE GOODWILL ACCOUNT DOES NOT APPEAR IN THE BOOKS

a) Goodwill is raised in the books of the firm at full values debiting the goodwill account
and crediting the capital accounts of all the partners in the old profit sharing ratio. In this
case, goodwill account will appear in the books of the continuing partners at the full
value.
(b) When the goodwill is raised in the books but is then written off: In this case, two
entries are necessary. Firstly, goodwill account is debited at its full value and all partners’
capital accounts credited in the old profit sharing ratio. Secondly, remaining partners are
debited in their new profit sharing ratio and goodwill account is credited and closed and the
remaining partners’ capital accounts are diminished accordingly. The required journal entries
are:
(c) Goodwill is raised in the books with the share of the retiring partner and is then written
off in the gaining ratio:
In this case, goodwill account is debited and retiring partners’ capital account is
credited with his share of goodwill. Secondly, capital; accounts of the remaining partners are
debited in the ratio of their gain and goodwill account from appearing in the books i.e., the
capital account of the remaining partners are debited in the ratio of their gain and the capital
account of the retiring partner is credited with his share of goodwill. The journal entries to be
passed are:
(a) When the goodwill is raised:
Goodwill a/c Dr
To retiring partners’ capital a/c
(b) When goodwill is written off:
Remaining partners’ capital a/c Dr (in gaining ratio)
To goodwill a/c
WHERE GOODWILL ACCOUNT ALREADY APPEAR IN THE BOOKS

Where the goodwill account already exists in the books of the firm any of the
following alternatives may be adopted:
1) Where goodwill account appears in the books of the firm at the correct value, no
adjustment is necessary.
2) Where goodwill account appears in the books at less than the full value, difference
between the full value and book value of goodwill is debited to the goodwill account and
credited to the capital of accounts of all the partners in the old profit sharing ratio.
3) If book value of goodwill is more than the full value, difference between the book and
full value is credited to the goodwill account and debited to the capital accounts of all the
partners in the old profit sharing ratio.
2) REVALUATION OF ASSETS AND LIABILITIES:
The aim of revaluation of assets and liabilities of a firm is to find out the appropriate share of the
retiring partner in the firm. The only difference is that profit or loss on revaluation is to be
divided among all the partners (including the retiring partner) in the profit sharing ratio in case of
retirement of a partner. Assets and liabilities will then appear in the balance sheet at changed
values.
Memorandum revaluation account is prepared, assets (except cash) and liabilities appear
to the new balance sheet of continuing partners at old values.
3) COMPUTATION OF GAINING RATIO:

This ratio is calculated when a partner retires from a firm. if new ratio of the continuing
partners is not given in the question, it is presumed that the remaining partners will continue to
share in the old ratio. If the new ratios of the partners are given in the question, the gaining ratio
can be calculated by deducting the old ratios firm the new ones. This ratio is very important as it
helps to determine the amount of compensation to be paid by each of the remaining partners in
the firm to the retiring partner.
Gaining ratio = New ratio – Old ratio
4) TREATMENT OF UNDISTRIBUTED PROFITS OR LOSSES:

General reserve or credit balance of profit and loss account will be distributed by
crediting to all the partners capital accounts in their profit sharing ratio and will not be shown on
the liabilities side of the balance sheet after distribution. Alternately, only retiring partners’ share
of these items may be credited to his account and residual amount of such accounts may be
shown on the liabilities side of the balance sheet. Reverse treatment will be given if there is debit
balance of profit and loss account on the assets side of the balance sheet.
i) All accumulated profits & losses are distributed among all partners in the old ratio:
i. For distribution of accumulated profits:
General reserve or reserve fund or P & L a/c
Dr To partners capital a/c
ii. for writing off accumulated losses:
All partners capital a/c (including retiring partner) Dr
To Profit & loss a/c
ii) Only retiring partners’ share of accumulated profit or loss transferred:
Sometimes, only outgoing partners’ share of accumulated profits should be transferred to
his capital account or current account.
i. for transferring retiring partners’ share of accumulated profit only:
General reserve or reserve fund or P & L a/c
Dr To retiring partners’ capital a/c
ii. For transferring retiring partner share of accumulated losses only:
Retiring partners’ capital a/c Dr
5) COMPUTATION OF TOTAL AMOUNT DUE TO RETIRING PARTNER
In order to arrive at the total amount due to the retiring partner, his capital is prepared.
The account is started with the balance in it on the date of the last balance sheet and credited
with:
1. His share of goodwill
2. His share of revaluation profit
3. His share of undistributed profits and reserves
4. His share of profit up to the date of retirement
5. Interest or salary or commission due to him, if
any. The capital account should be debited with:
(i) Share of undistributed losses to the date of retirement,
(ii) His drawings during the period
(iii) Interest on his drawings
(iv) His share in the loss to the date of retirement
Having passed the above entries, if the retiring partners’ capital account shows credit balance, it
represents the total amount payable to him. On the other hand, if his capital account showed
debit balance, it shows the amount payable by him to the firm.
6) DISPOSAL OF THE AMOUNT DUE TO THE RETIRING PARTNER

The amount due to the retiring partner is normally settled according to the provisions in
the partnership agreement. It may be paid immediately in cash as final settlement. In such a case,
the entry is:
Partners’ capital A/c Dr
To Cash or Bank A/c
(Amount of retiring partner)
If the firm is not in a position to pay it immediately, the amount due is transferred to the
retiring partner’s loan account
Retiring partners’ capital a/c Dr
To Retiring partners’ loan a/c
DEATH OF A PARTNER
The accounting treatment is similar to that of retirement with following exceptions:
Since a partner cannot die on an agreed date, the question of profit to the date of death
arises. So calculation of deceased partner’s share of profit becomes a focal point.
Profit is generally calculated as the average profit of last few years. The proportionate
profit shall have to be considered. For example, If a partner dies on 31.3.1997 and the financial
year closes on 31st December, then the ¼ of average profit shall be considered as the profit up to
the date of death.
The deceased partners’ capital account credited with the balance of capital at the
beginning of the year
Interest on capital (if allowed),
Share of undistributed profits,
Share of profit to the date of death
His share of goodwill and Salary due
Share of the proceeds of the joint life policy
The amount which received from the life insurance corporation of India.
And debited with

Drawings to the date of death,
Interest on drawings (if charged) and the balance is transferred to the executor account of the
deceased partner.
Loss on revaluation of assets and liabilities
Loss in the business from the beginning of the accounting year till the date of death.
Calculation of Deceased partners’ share of profit:

The deceased partners’ share of profit is to be determined either on the basis of time or
turnover.
A. On the basis of time:
In this case, it is assumed that the profit during the year provided previous year is taken
as the base for calculation of profit. Sometimes average profits of the past three or four years are
taken as base rather than the previous year. Whatever base may be taken it is to be multiplied by
the period for which the deceased partner remained in the firm and also by his profit sharing
ratio at the time of his death.
No. of days or months from

Average profit
Profit from the date the date of last balance sheet of given
of last balance sheet = to the date of death to the date of death
number of past
to the date of death 365 days or 12 months years
B. ON THE BASIS OF TURNOVER

In this method, average past profit id divided in to two portions, i.e. before the death
and after the death on the basis of ratio of turnover to the date of death to average turnover and
then deceased partners’ share is calculated and credited to his capital account.
Sales from the date of the last balance previous sheet to the date of death years profit
Profit from the date previous year sales or average sales
or average of last balance sheet = of a given number of past years profit of to the date of
death a given number of past years
MODE OF PAYMENT:
The amount due to the executors of the deceased partner may be repaid in any of the
following ways:
I. LUMP SUM PAYMENT METHOD:

If the firm has sufficient amount to pay off the amount due to the deceased partner, it can
pay the amount immediately, this is known as lump sum payment method.
i. For transferring the balance in deceased partners capital a/c:

Deceased partners’ capital a/c Dr
To Executor a/c
ii. For payment made to executor:
Executors’ loan
a/c To Bank
a/c
II. INSTALMENT PAYMENT METHOD:

When a firm is not in possession of sufficient amount for making payment to the
executor of the deceased partner, it can pay the amount in installment .In such a case, the total
claim is first to be transferred to the executors’ loan account and all payment by installment are
recorded in this account. Payments may be made as per terms after charging interest on the
amount due.
III. ANNUITY METHOD:

Payment may also be made by annuity. If it is so, accounting record will be the same as
in the case of payment by annuity in retirement.
JOINT LIFE POLICY

The aim of taking life policy on the lives of partners is to insure against the risk of disturbance in
the business due to the death of any one of the partners.
I When premium paid is treated as an expenses
Under this method premium paid is treated as a business expense and is debited to profit and loss
account. As profit is treated as a business expenses, it does not appear in the balance sheet.
i) On payment of premium Joint policy premium A/c Dr
To Bank a/c
ii) On transfer of premium to the p & l a/c Profit and loss a/c Dr
To Joint life policy premium a/c
Iii) On receipt of the policy amount Bank a/c Dr
To Joint life policy a/c
Iv)On distribution of the policy amount Joint life policy a/c Dr
To Partner’s capital a/c
II when joint life policy account is maintained as an investment
i) On payment of premium Joint policy A/c Dr
To Bank a/c
ii) For bringing down the joint life policy amount to its surrender value
Profit and loss a/c Dr
iii) On maturity of this policy Insurance claim receivable a/c Dr
iv) For closing this policy account Joint life policy a/c Dr
To Partner’s capital a/c
v) On actual receipt of the policy amount: Bank a/c Dr
To Insurance claim receivable
a/c
UNIT-IV
1. What do you understand by admission of a new partner?

2. What is sacrificing ratio?
3. What is memorandum revaluation a/c?
4. Briefly explain methods of valuation of goodwill of admission.
5. What is revaluation method of dealing with goodwill on admission?
6. What is profit and loss appropriation account?
7. What is fluctuating capital method?
8. What is fixed capital method?
PROBLEM FOR REFERENCES:
Illustratio Exercise No Page No Name of author Name of the Book

n No
7 - 21.11 T.S REDDY FINANCIAL
MURTHY ACCOUNTING
8 - 21.12 T.S FINANCIAL
REDDY ACCOUNTIN
MURTHY G
- 1 21.25 T.S REDDY FINANCIAL
MURTHY ACCOUNTING
- 10 21.27 T.S FINANCIAL
REDDY ACCOUNTIN
MURTHY G
MURTHY ACCOUNTING
REDDY ACCOUNTIN
MURTHY G
MURTHY ACCOUNTING
REDDY ACCOUNTIN
MURTHY G
MURTHY ACCOUNTING
REDDY ACCOUNTIN
MURTHY G
MURTHY ACCOUNTING
REDDY ACCOUNTIN
MURTHY G
MURTHY ACCOUNTING
UNIT - V
DISSOLUTION OF A FIRM
MEANING OF DISSOLUTION OF FIRM

Dissolution of firm means closing down the undertaking or suspending permanently the activities
of partnership business. In other words, it refers to the complete breakdown of partnership and
partners do not continue the firm.
According to sec 39 of the Indian partnership act 1932, “the dissolution of partnership
between all partners of a firm is called the dissolution of the firm.” Thus, the dissolution of a
firm is the complete breakdown of a partnership and partners do not continue the firm. On the
other hand, dissolution of the partnership means a reconstitution of the firm due to the retirement
of a partner or the insolvency of a partner or the death of a partner and the remaining partners
provide for the continuance of the firm in pursuance of an express or implied agreement to that
effect.
THE VARIOUS MODES OF DISSOLUTION OF FIRM.

Section 40 to 44 of the Indian partnership ac 1932 deal with the various ways in which a
firm may be dissolved. A firm may be dissolved in any of the following ways:
Dissolution by agreement:
A firm is dissolved when all the partners agree that it should be dissolved. A partnership
firm is the creation of an agreement; similarly a firm can be dissolved by an agreement.
Dissolution on the happening of contingencies:
A firm is dissolved in any of the following ways unless there is a contract between the
partners to the contrary:
i) By the expiry of the term of duration of the firm
ii) By the completion of the adventure for which the firm was constituted.
iii) By the death of a partner iv) By the adjustment of a partner as insolvent
Dissolution by notice of partnership at will:
When the partnership is at will, the firm may y dissolved at any time by any parent giving
notice in writing to al other partners of his intention to dissolve the firm.
Dissolution by the court:
At the suit of a partner, a court may order the dissolution of the firm in any of the
following ways:
i. When a partner becomes of unsound mind
ii. When a partner suffers from permanent incapacity and becomes incapable of
performing his duties as a partner
iii. When a partner is guilty of misconduct affecting the business of the firm
iv. When a partner commits willful or persistent breaches of agreement
v. When a partner has transferred the whole of his interest in the firm to a third
party or when his share has been attached under a decree or sold under process of
law.
vi. When the business of the firm cannot be carried on except at a loss
vii. When the court is satisfied as to grounds which render it just and equitable to
dissolve the firm.
Compulsory dissolution or dissolution by the operation of law:
A firm is compulsorily dissolved in any of the following ways:
i. when all the partners except one become insolvent.
ii. When all the partners become insolvent
iii. When the business becomes illegal
iv. Where the number of partners exceed twenty in case of
ordinary business or ten in
case of banking business.
THE ACCOUNTING TREATMENT ON DISSOLUTION OF FIRM

A firm is closed on the dissolution, so books of account should also be closed. Books of
account can be closed only if all the assets are realized in cash or otherwise disposed of and all
outside liabilities are paid off as also the partners, loans and capitals. The balance sheet of the
firm is prepared on the date, the dissolution of the firm on that date. The following steps are
taken to close the books of account:
1. for closing assets account:
A realization account is opened and all the assets at their book values (except cash and
bank balances and debit balance of profit and loss account) are transferred to the debit side of the
realization account. The entry is:
Realization a/c Dr
To Stock a/c
To Debtors a/c
To Investment a/c (transferred at book
value) To joint life policy a/c
To Furniture a/c
To Plant a/c
To Land & Building a/c
To Goodwill a/c
[All assets should be transferred except cash, bank, debit balance of capital accounts, profit &
loss a/c (debit balance)]
Asset which is again having the provision or reserve has been created should be
transferred to realization account at gross figure i.e. with out deducting a provision or reserve.
Provision for doubtful debts a/c Dr
Provision for discounts a/c Dr
Provision for depreciation a/c Dr
Joint life policy reserve a/c Dr
Contingency reserve a/c Dr
Investment fluctuation fund a/c Dr
To Realization a/c
2. for closing liabilities account (all liabilities to third parties)

Creditors a/c Dr
Bills payable a/c Dr
Loan from partners’ wife a/c Dr
Bank overdraft a/c Dr
Outstanding expenses a/c Dr
To Realization a/c
3. For realizing assets: (i) When sold for
cash: Bank/Cash a/c Dr
To Realization a/c
(ii) When asset is taken away by one by one of the
partners: Partners’ capital or current a/c Dr
To Realization a/c
(iii) When asset is given away to a creditor in payment of dues:
The value of asset taken away by creditor should be deducted from the claim of creditor
and rest of the payment is made to him. The entry is made for the net payment.
4. for discharging liabilities:
(i) When paid in cash:
Realization a/c Dr
To Bank/cash a/c
(ii) When one of the partners discharges the liabilities:
Realization a/c Dr
To Partners capital or current a/c
5. for expenses on dissolution: (i) When expenses are paid in cash:
Realization a/c Dr
To Bank/cash a/c
(ii) When expenses are paid by any
partner: Realization a/c Dr
To partners’ capital a/c
(iii) But if a partner is to bear the expenses of realization personally as per agreement, there
will be no entry in the books when he pays such expenses.
Partners’ capital a/c Dr
To Bank/cash a/c
6. For treatment of free
reserves: Reserve a/c Dr
Profit & loss a/c (credit balance) Dr
To Partners capital a/c
7. For closing realization account:
(i) For profit on realization:
Realization a/c Dr
(ii) For loss on realization:
To Realization a/c
8. For payment of partners’ loan:
Partners’ loan a/c Dr
9. For closing accumulated losses (debit balance of p & l
a/c) Partner’s capital or current a/c Dr
To profit & loss a/c
10. For closing of current accounts:
(i) if current account shows debit balance:
To Partners current a/c
(ii) if current show credit balance:

Partners current a/c Dr
To Partners’ capital
a/c
11. for closing capital accounts:
(i) if capital account shows a debit balance:
Bank/cash a/c Dr
(ii) if capital account shows a credit balance:
To Bank/cash a/c
Treatment of goodwill on dissolution of firm: No special treatment is given to goodwill; it is
treated like other assets. If it appears in the books on the dissolution date, it is closed by
transferring it to the debit side of the realization account. If does not appear in the books on
the dissolution date and some amount is realised for goodwill, the entry is:
Cash/Bank a/c Dr
To Realization a/c
(Being amount realized for
goodwill) Treatment of undisclosed assets and
liabilities:
It is quite possible that on the dissolution date there may be some assets and liabilities
which any not be appeared in the books. Such assets and liabilities have not been recorded in the
books, so question of their transfer to realization account does not arise. But entries are recorded
when such assets or liabilities are realized or paid.
(i) When an unrecorded asset is realized, the entry is: Cash/Bank a/c Dr
To realization a/c
(ii) When an unrecorded liability is realized, the entry is: Realization a/c Dr
To Bank/Cash a/c
(iii) When unrecorded asset are taken away by a partner: Partners’ capital a/c Dr
To Realization a/c
(iv) When unrecorded liability is taken over by a partner: Realization a/c Dr
To Partners’ capital a/c
GARNER Vs MURRAY
According to sec 42 (d) of the Indian partnership act 1932, if a partner’s capital account
shows a debit balance on the dissolution of the firm, he is to pay the debit balance to the firm to
settle this account. But if such partner is insolvent i.e. unable to satisfy his debt to the firm, then
his deficiency which he is not able to bring will be borne by the other solvent partners in
accordance with the decision in Garner Vs Murray. In this case it was ruled that, in the absence
of any agreement to the contrary, the deficiency of the insolvent partners’ capital account must
be borne by other solvent partners in proportion to their capital which stood before the
dissolution of the firm.
The following are the two effects of this rule on the accounts of the firm:
i. All the solvent partners should bring cash equal to their share of the loss on realization
ii. The deficiency of the insolvent partner must be borne by the solvent partners in the
ratio of their capitals then standing (i.e. after the solvent partners have brought in cash equal to
their share of the loss on realization)
The capital ratio will depend on whether the capital accounts are maintained under fixed
or fluctuating method.
CALCULATION OF CAPITAL RATIO
A) FIXED CAPITAL
While determining the capital ratio of the solvent partners, distinction should be observed
between fixed and fluctuating capital.
 When the capitals of the have been agreed to be fixed then no adjustment is required
for accumulated profits or losses, interest on capitals, drawings etc.
 Any loss at the time of realization pertaining to each partner is transferred to his
current account.
 The solvent partner should bring in cash for his respective share of loss on
realization which is debited to cash/bank and credited to his current account.
 The solvent partners’ current accounts should now be closed by transfer top their
respective capital accounts.
 The deficiency of the insolvent partner should be transferred to the current accounts
of the solvent partners in proportion to their agreed fixed capitals. The entry is:
Solvent partners’ current a/c Dr
To Insolvent partners’ capital a/c
B) FLUCTUATING CAPITAL
If the capital accounts are maintained on fluctuating basis, then capital accounts should
be adjusted for reserves, profits or losses, interest on capitals, drawings and unrecorded assets
and liabilities on the date of the balance sheet just before the dissolution of the firm.
The capitals thus arrived should be the basis of ratio according to which the deficiency of the
insolvent partner is to be borne by the solvent partners.
It may be remembered that the loss on realization is not be taken in to consideration while
ascertaining the capital ratio of the solvent partners because deficiency of the insolvent partner is
to be met by the solvent partners in proportion to their capitals which stood before the
dissolution of the firm.
The entry for meeting the deficiency is:
Solvent partners’ capital a/c Dr
To Insolvent partners’ capital a/c
Arguments against Garner Vs Murray rule:
The criticism of the decision in Garner Vs Murray is that it violates the principles of
natural justice and equity. If some solvent partner is having a debit balance in his capital account
on dissolution date, he will not have to bear the loss on account of the deficiency of the insolvent
partner because capital ratios of the solvent partners based on their respective credit balances.
Thus, solvent partner having a debit balance in his capital account is not to meet any share of the
deficiency even though he may be financially sounder as compared to other solvent partners.
Another criticism of this case is that it puts more burden on partners who have helped the
firm by contributing more capital than other partners who have contributed less capital because
loss on account of deficiency of a partner is to be divided among solvent partners in proportion
to their capitals which stood before the dissolution date and not in proportion to their profit
sharing ratio.
ACCOUNTING TREATMENT TO BE FOLLOWED AT THE TIME OF INSOLVENCY

OF ALL PARTNERS
When all partners are insolvent and are not able to bring the amount due from them, then
the creditors of the firm cannot be paid in full. In such a case, the creditors of the firm any not
are transferred to the realization account but their separate account any be prepared. If this is
done, unpaid amount of creditors is transferred to the deficiency account to which account are
also transferred the balances of partners’ capital accounts. The deficiency account shall be
automatically closed and the books will thus be closed.
PIECE MEAL DISTRIBUTION METHOD

This method is also called as gradual realization of assets method. When there is a
gradual realization of assets, it is necessary to avoid the unpleasant consequences of a partners’
account being overdrawn distributing cash of various realization of assets in such a way that the
final unpaid balance of the capitals of each partner is left in his profit sharing ratio.
On a gradual realization of assets, the cash realised is distributed in the following order to
avoid the excess payment to any partner:
A) The debts of the firm to third parties must be paid out in full prior to any partner being
paid any amount in respect of his loan and capital; secured creditors should get reference over
unsecured creditors.
B) After the creditors have been paid off, the amount due to a partner as loan should be
paid. When the loans are due to more than one partner, the cash available should be paid ratably.
C) After the payment of outside liabilities and loans due to the partners, the capitals of
the partners are paid.
THE METHODS OF DISTRIBUTION OF CASH IN PIECE MEAL DISTRIBUTION
Proportionate capital method or Surplus capital or Highest relative capital method: Under
this method, a) the amount payable to partners whose capitals are relatively in excess of their
profit sharing ratio is calculated. This should be done by dividing each partner’s capital by the
respective profit sharing ratio. The lowest capital after this division constitutes the ‘basic
capital’ from which the remaining hypothetical capitals are calculated.
b) If the capitals of the partners are not in the profit sharing ratio, then the first cash available
(after making the payment of outside liabilities and loans due to the partners) for distribution
amongst the partners should be paid to those partners whose capitals are more than their profit
sharing levels.
c) After this the cash available is distributed amongst all the partners according to the profit
sharing ratio.
d) The unpaid balances of capital accounts will represent loss on realization and this loss will be
exactly in the profit and loss sharing ratio of the partners.
The cash available for distribution amongst the partners cannot be distributed according
to the profit and loss sharing ratio unless the capitals of the partners are in profit and loss sharing
ratio of the partners.
Maximum loss method/ Maximum possible loss method:

Another method of piecemeal distribution of cash amongst partners is to calculate the
maximum possible loss on every realization after the outside liabilities and the partners’ loans
have been paid. The amount available for distribution amongst partners is compared with the
total amount of capitals payable to partners and the maximum possible loss is ascertained on the
assumption that in future assets will not realize any amount. The maximum possible loss so
ascertained is deducted from the capitals of the partners in the profit and loss sharing ratio and
the balance left in the capitals of the amount. The amount standing to the credit of the partners
after debiting share of maximum loss and share of the insolvent partners’ deficiency will be
equal to the cash available for distribution amongst the partners.
UNIT – V
1. What is dissolution of partnership?

2. What is a realization account?
3. What are unrecorded assets and liabilities?
4. Explain the different methods of dissolution of partnership firm?
5. Who is an insolent?
6. What is deficiency?
7. What is piecemeal distribution?
8. What is piecemeal distribution? Explain in detail the methods of making such distribution
9. Explain Garner Vs Murray case.
10. How do you prepare and close realization a/c when all partners are insolvent
QUESTION BANK
UNIT – I
PART - B
1. What do you mean by statutory reserve?
2. What is mean by cash transit?
3. What is mean by goods transit?
4. What are the objectives of branch a/c?
PART -C
1. What are the features of Dependent Branch?
2. Explain the stock and Debtor system.
UNIT – II
PART -B
1. What is Inter Departmental transfer?
2. What are the needs for departmental account?
PART -C
1. Different between department and branches.
2. Explain the advantages of departmental a/c?
3. Explain the dis – advantages of departmental a/c?
UNIT – III
PART -B
1. What are the characteristics of single entry system?
2. Explain the limitation of single entry system.
PART -C
1. Difference between single entry system and double entry system.
2. What is statement of affairs? How does it differ from balance sheet?
UNIT – IV
PART -B
1. What is surrender value?
2. What is memorandum revaluation a/c?
3. How do you ascertain Hidden Goodwill?
PART -C
1. What is goodwill? How is it treated at the time of admission of a new partner?
2. What is revaluation a/c? How is it preparation and closed?
UNIT – V
PART -B
1. What are unrecorded assets and liabilities?
2. Explain the different methods of dissolution of partnership firm?
3. What is piecemeal distribution?
4. Explain Garner Vs Murray case.
PART -C
1. What is piecemeal distribution? Explain in detail the methods of making such
distribution
2. How do you prepare and close realization a/c when all partners are insolvent?
ADVANCED ACCCOUNTING ONE MARKS QUESTIONS

1. Out Of The following, Direct Expense Is
A) Salaries b) carriage outward c) rent of office building d) carriage inward
2. Goodwill is a
a) Fixed asset b) current asset c) intangible asset d) fictitious asset
3. Income received in advance is
a) An income b) a liability c) an asset d) a loss
4. Sales are equal to
a) Cost of goods sold plus profit b) cost of goods sold minus gross profit
c) gross profit minus cost of goods sold d) none of these
5. Interest on drawings is
a) An expenditure for the business b) an expense for the business
c) a gain for the business d) a loss for the business
6. Which of the following is not a fixed asset
a) Motor cycles b) furniture c) inventory d) free hold property
7. Which of the following is a current liability
a) A five year bank loan b) workmen compensation fund
c) bank overdraft d) dividend equalization
8. Which of the following is not an intangible asset
a) Stock b) goodwill c) trade mark d) patents.
9. In the case of net worth method of single entry system, the net profit is ascertained by
a) Preparing trading and profit and loss account b) comparing opening and closing
capital
c) preparing d) none of these
10.Capital at the beginning of the year is ascertained by preparing
a) Cash account b) opening statement of affairs
c) total creditors account d) total debtors account.
11.The amount of opening stock can be ascertained by preparing
a) Memorandum trading account b) total creditors account
c) total debtors account d) opening statement of affairs.
Page 1
12.The closing balance in the creditors account can be ascertained from the
a) Cash account b) total creditors account
c) closing statement of affairs d)none of these.
13.If the rate of G/P is 25% of sales and cost of goods sold is Rs. 150000, the amount of
G/P will be a) 30000 b) 25000 c) 40000 d) 50000
14.the depreciation charged on an asset is debited to
a) asset account b) depreciation account c) cash account d) none of these
15.in case of straight line method, the amount of deprecation
a) fluctuate every year, b) decreases every year c)
increases every year d) remains same every year
16.amortization is related to
a) Tangible fixed asset b) intangible assets c) any fixed asset d) none of these.
17.Depletion method is more suitable for
a) Service industry b) mining industry c) intangible assets d) all of these
18.Depletion is a process of
a) Valuation b) allocation c) both valuation and allocation d) none of these.
Page 2
19.The main objective of providing depreciation is
a) To calculate true profit b) to show the true financial position
c) to reduce tax burden d) to provide fund for replacement of assets.
20.Under diminishing balance method, depreciation is calculated on
a) Original cost b) written down value c) scrap value d) market value
21.Loss on sale of machinery should be written off against
a) Security premium b) sales account c) depreciation fund account d) none of these
22.Loss on sale of asset is
a) Debited to asset account b) debited to cash account
c) credited to asset account d) debited to profit and loss account.
23.Depreciation arises because of
a) Fall in market value of asset b) wear and tear c) recession d) none of these.
24.When provision for depreciation account is maintained, the amount of depreciation is
debited to
a) Asset account b) depreciation account c) provision for depreciation account d)
none of these.
25.If original cost of an asset is rs. 60000 and its scrap value is Rs. 10000, its depreciable
cost is a) 70000 b) 50000 c) 60000 d) none of these.
26.Under diminishing balance method,
A) The rate of depreciation falls every year b) the amount on which
deprecation is calculated falls every year c) the rate as well as amount of
depreciation falls every year. D) the rate as well as amount of depreciation
remains constant.
27.The term ‘depletion’ applies to decrease in value of
a) Tangible asset b) intangible asset c) wasting asset d) current asset.
28.The term amortization applies to decrease in book value of
a) Intangible fixed asset b) wasting assets c) tangible fixed assets d) current assets
29.For providing depreciation on lease hold property, the appropriate method is
a) Revaluation method b) fixed installment method
c) replacement method d) written down value method.
30.Accumulated depreciation is an example of
a) An expense b) an unrecorded revenue c) a liability d) a contra account.
31.Share application is classified as
a) Real account b) personal account c) impersonal account d) nominal account
32.A newly established company cannot issue shares at par
a) Par b) premium c) discount d) none of these
33.The minimum share application is
a) 1% of the face value b) 5% of the face value c) 10% of the face value d)
25% of the face value.
34.The difference between subscribed capital and called up capital
a) Paid up capital b) uncalled capital c) calls in advance d) calls in arrears.
35.The number of days required from the time of issue of the prospectus to the
complete allotment should not exceed
a) 30 days b) 60 days c) 90 days d) 120 days
36.The excess price received on the par value of shares should be credited to
a) Calls in advance account b) reserve capital
Page 3
c) security premium account d) none of these
37.Which of the following should be deducted from the share capital to determine the
paid up capital
Page 4
a) Calls in advance b) calls in arrears c
) security premium d) discount on issue
of shares.
38.The security premium will be shown under the heading
a) Share capital b) current liability c) current asset d) none of these.
39.As per Table A of the companies act, the interest on calls in advance is
a) 5% b) 10% c)6% d) none of these.
40.The rate of interest a company can charge on calls in arrears according to Table A
of the companies act is
a) 10% b) 6% c) 5% d) none of these
41.The rate of discount on shares cannot exceed.
a) 5% b) 10% c) 6% d) none of
these
42. Premium on issue of shares can be
used for
a) Issue of bonus shares b) distribution of profit c) transferring to general reserve d)
none of these.
42.When shares are forfeited the share capital account is debited by
a) Paid up amount b) called up amount c) calls in arrears d) nominal value of such
shares
43.Which of the following signifies the difference between par value and issue price
below par value.
a) Security premium b) discount on issue of shares c) calls in arrear.
44.When forfeited shares (which were originally issued at a discount ) are reused at a
premium, the amount of such premium will be credited to
a) Shares forfeiture account b) security premium account
c) capital reserve account d) none of these.
45.When an existing company offers its shares for sale to the existing shareholders, it is
known as
a) Private placement b) bonus shares c) right issue d) offer for sale
46.Dividends are usually paid on
a) Authorized capital b) issued capital c) called up capital d) paid up capital
47.Which of the following should be deducted from the shares capital to find out paid up
capital
a) Calls in advance b) calls in arrears c) shares forfeited account d)
discount on issue of shares.
48.Interest on debenture is
a) Adjustment of profit b) appropriation of profit c) charge on profit d) none of these
49.In the balance sheet of a company, debentures are shown under which heading
a) Secured loan b) unsecured loan c) provisions d) reserves and surplus
50.In the balance sheet of a company , the discount on issue of debentures is shown under
which heading
a) Fixed asset b) current asset c) investment d) miscellaneous expenditure
51.Interim dividend is always shown
a) P/L appropriation account b) on the asset side of balance sheet c) on the
liability side of the balance sheet d) none of these.
52.Unclaimed dividend is shown in the balance sheet under the head
Page 5
a) Current liability b) unsecured loan c) reserve and surplus d ) provision
53.Advance payment of tax is in the nature of
a) Capital expenditure b) prepaid expenses
c) outstanding expenses d) revenue expenditure
54.Debentures are shown in the balance sheet under head
a) Current asset loans and advances b) investments c) secured loan d) unsecured loan
55.Preliminary expense Is an example of

a) Fixed asset b) current asset c) investment d) fictitious asset
56.Divisible profit do not include
a) Insurance fund b) reserve fund c) profit and loss account balance d)
revaluation reserve
57.The transfer of profit to reserve should not exceed
a) 5% of profit b) 10% of profit c)15% of profit d) 20% of profit
58.Loose tools are shown in the balance sheet under
a) Fixed asset b) investment c) current asset d) miscellaneous expenditure
59.Discount on shares and debentures are shown in
a) P/L Appropriation a/c b) asset side of the b/s c)liability side of the b/s d)
none of these.
60.Calls in arrear Is
a) Shown as current asset b) deducted from share capital c) shown as current
liability d) shown under miscellaneous expenditure
61.The amount set aside to meet the loss of bad debt is
a) Provision b) liability c) reserve d) contingent liability
62.When the proposed dividend exceeds 20% of the paid up capital, percentage of profit
to be transferred to reserve is
a) 10% b) 7.5% c) 2.5% d) 5%
63.In the case of joint stock company, goodwill is sown on the asset side under the head
a) Fixed asset b) investment c) current asset d) miscellaneous expenditure
64.Advance payment of tax should be shown on the
a) Debit side of P/L a/c b) debit side of P/L appropriation a/c c) asset side of the
B/S d) liability side of the B/S
65.Which of the following items will be taken in the P/L a/c below the line
a) Provision for taxation b) transfer to sinking fund c) contribution to PF d)
preliminary expenses written off
66.Scrip dividend means
a) Unclaimed dividend b) arrears of dividend c) dividend paid other than cash d)
cash dividend
67.Which of the following would not appear in a limited company’s appropriation a/c
a) Transfer to revaluation reserve b) proposed taxation c) interim dividend d)
transfer to general reserve.
68.As per the rules framed under the companies Act, 1956, if the dividend proposed by a
company is 12% of the paid up capital, the amount to be transferred to reserve must
not be less than
a) 5% of current year profit b) 7.5% of the current year profit c) 10% of the
current year profit d) 2.5% of the current year profit.
Page 6
69.Banks show the provision for income tax under the head
a) Contingent assets b) contingent liabilities c) other liabilities and provisions d)
borrowings.
70.Rebate on bills discounted is
a) An item of income b) a liability c) income received in advance d) accrued
income.
71. Which of the following does not include under the head “other
asset”
a) Silver b) interest accrued c) gold d) inter office
adjustment
72.A non banking asset is
Page 7
a) An item of office equipment b) any asset required from the debtors in
satisfaction of claim c) money at call and short notice d) furniture
and fixtures
73.In a bank balance sheet, unclaimed dividend will be shown under the head
a) Contingent liabilities b) other liabilities c) borrowings d) none of these.
74.With effect from 31/03/2005, a doubt full asset is none which has remained in the
substandard category for
a) 18 month b) 12 month c) 6 month d) none of these
75.Provision created for substandard is
a) 10% b) 155 c) 20% d) none of these.
76.Provision created for unsecured doubtful debt is
a) 50% b) 75% c) 100% d) none of these.
77.General insurance policies are taken
a) One year b) two year c) three year d) none of these
78.When policy matures on the death of the insured, it is expressed as
a) With profit policy b) without profit policy c) whole life policy d) none of these
79.In the revenue account bonus in reduction of premium is shown as
a) Liability b) income c) expense d) none of these
80.The assets of an insurance company are shown
in
a) Schedule 6 b) schedule 7 c) schedule 8 d) none of these
80.Insurance regulation and development authorities act came into effect in
a) 1938 b) 1999 c) 2000 d) none of these
81.Which of the following of an insurance company does not fall under income from
investment
a) Interest and dividends b) profit on sale of investment c) share transfer fee
d) none of these.
82.Which of the following of an insurance company is included in other assets
a) Loan to directors b)agents balance c) advance tax paid d) none
of these
83.Reserve for unexpired risk is shown under
a) Reserve and surplus b) current liabilities c) provision d) none of these.
84.Which of the following is not an advantage of having a conceptual framework of
accounting ?
a) Development of accounting standards is subject less political pressure
b) A consistent balance sheet or income statement approach is used to setting standards
c) Considers the needs of all user
d) Avoids a mixed up approach to setting standards
85.A conceptual framework for accounting is …
a) A set of financial statements
b) A set of rules governing financial reporting
c) A set of components of financial statements
d) A set of principles underpinning financial reporting
86.Which of the following relate to financial position in a set of financial statements?
a) Assets , liabilities, income and expense
b) Assets, liabilities, income and equity
Page 8
c) Income and expense
d) Income, expense and liabilities
87.GAAP stands for
a) Generally accepted accounting principles
b) Globally accepted accounting practices
c) Generally allowable accounting principles
d) Generally allowable accounting practices
Page 9
88.The convergence of the Indain Accounting standards with IFRS began in ---april 11
a) April 10
b) August 09
c) December 11
89.The global key professional accounting body is -----
a) Internal accounting standards board
b) The institute of chartered accountants of india
c) The financial accounting standards board
d) The international accounting standards committee
90.The original cost at which an asset or liability is acquired is known as --------
a) Amortization
b) Replacement
c) Historical cost
d) Carrying cost
91.The international accounting standards committee was set up in -------------
a) 1982
b) 1976
c) 1967
d) 2009
92.The process of converting foreign – subsidiary financial statements into the home
currency is known as
a) Transmission
b) Translation
c) Consolidation
d) Reconstruction
93.Accounting in india is governed by the ---------
a) Income tax department
b) Company law board
c) Institute of chartered accountants of india
d) Reserve bank of india
96..........................is an artificial person created by law
A. Firm
B. Sole trader
C. Company
D. None of these
97. The liability of shareholders of a company is ………………..
A. Limited
B. Unlimited
C. Uncertain
D. None of these
98. A company is managed by its…………….
A. Partners
B. Auditor
C. Board of Directors
D. Debenture holder
Page 10
99.company Is a company created by a special Act in Parliament
A. Government B. Registered C. Chartered D. Statutory
100. A company registered with Registrar of Companies under Indian Companies Act is called
Page 11
as………..
A. Government B. Registered C. Chartered D. Statutory

101. The company in which the liability of members is liable to pay the agreed amount at the
time of winding up is called as …………..
A. Unlimited Company B. Company limited by shares

C. Company limited by guarantee D. Liquidating Company
102. A company in which the transferability of share is restricted is called as …………..

A. Government Company B. Private Company
C. Public Company D. Foreign Company
103.is the first stage in the formation of a public company

A. Promotion B. Incorporation
C. Capital Subscription D. Commencement
104. Authorised capital is called as……………

A. Reserve capital B. Nominal Capital C. Capital Reserve D. Subscribed capital
105....................is that portion of capital which is called up only on winding up of the
company.
A. Authorised Capital B. Issued capital
C. Subscribed capital D. Reserve capital
106. In case of.....................preference shares, the arrears of dividend are carried forward
and paid out of the profits of the subsequent years.
A. Participating B. Convertible C. Cumulative D. Redeemable

107.shares are repayable after the expiry of the fixed period or at the option of the
company.
A. Participating B. Convertible C. Cumulative D. Redeemable

108. A bundle of fully paid shares is called……………..
A. Stock B. Sweat Equity C. Warrant D. None of these
109. IPO stands for ………………
A. Initial Private Offer B. International Public Offer
C. Initial Public Offer D. International Private Offer
110. In........the company offers the investors an opportunity to bid collectively.

A. Private Placement B. Offer for sale C. Book building D. IPO
111. As per the companies Act, the interest on calls in advance is …………..
A. 10% B. 6% C. 5% D. 7%
112. The rate of interest on Calls in arrears as per Companies Act is …………
A. 10% B. 6% C. 5% D. 7%
113. The shares of a company can be issued at …………..

A. Par B. Premium C. Discount D. All of these
114. Share application account is a ………..
A. Real Account B. Nominal Account
Page 12
C. Impersonal Account. D. Personal Account
115. The rate of discount on shares cannot exceed ……….

A. 10% B. 5% C. 6% D. 7%
116. A newly established company cannot issue shares at ……

117.of total issued amount of capital is called minimum subscription.
A. 75% B. 90% C. 95% D. 80%
118. The rate of discount should not exceed...................Of nominal vale of shares.
A. 10% B. 5% C. 6% D. 7%
119. The minimum application money to be paid by an applicant must not be less than ……
Page 13
as per Companies Act.
A. 10% B. 5% C. 15% D. 20%
120. The excess price received on the par value of shares should be credited to ………….
A. Calls in advance A/c B. Reserve Capital A/c
C. Security Premium A/c D. None of these
121. Compulsory cancellation of shares by the company\y due to non ‐payment of

allotment Or call money is called …………….
A. Surrender of Shares B. Buy back of shares
C. Forfeiture of shares D. All of these
122. The profit on reissue of forfeited shares is transferred to ………

A. General reserve B. Capital Redemption reserve
C. Capital reserve D. Investment Allowance reserve
123. Preference shareholders are…………

A. Debtors of the company B. Creditors of the company
C. Owners of the company D. None of these
124. The shares firstly offered to the existing shareholders are called as ………….
A. Right shares B. Bonus shares C. Ordinary shares D. None of these
125. The security premium account is shown in the balance sheet under the head……….
A. Share capital B. Reserves & Surplus C. Secured loans D.Current liabilities
126.should be deducted from the share capital to determine the paid up capital.
A. Security premium B. Calls in advance C. Calls in arrears D. Discount on issue
127. The share capital account is debited with.............while forfeiting shares
A. Calls in arrears B. Paid up capital C. Called capital D. Issued capital
128. On an equity share of Rs. 20, the company has called up Rs. 16 but Rs.14 has been
received
by the company, the share capital account should be credited by ……
A. Rs. 20 B. Rs. 16 C. Rs. 14 D. Rs. 6
129. Balance of forfeited share is …….

A. Revenue Reserve B. Capital Reserve C. Secret Reserve D. Security Premium
130. When shares are issued at a price higher than their face value, it is called issue
at…………..
A. Par B. Premium C. Discount D. None of these
131. The shares of a company only can be forfeited after giving a........days notice
A. 21 B. 14 C. 7 D. 30
132. The forfeited shares can be reissued at …………

133. Preference shares cannot be redeemed at ………..
134. Which of the following is an example for capital profit?
A. Capital Reserves B. Security premium
C. Forfeited shares D. All of these.
Page 14
135. The allotment of shares in case of oversubscription is called…..
A. Pro‐rata allotment B. Private Placement
C. Offer for sale D. None of these
136. Security premium account can be utilized for ………….

A. Issuing fully paid bonus shares B. Write off preliminary expenses
C. Write off underwriting commission D. All of these
137.is that portion of issued capital which is applied for by the public.
A. Issued capital B. Subscribed capital C. Nominal Capital D. Paid up capital
138.is an instrument of acknowledgment of debt.
Page 15
A. Equity share B. Preference Share C. Debenture D. All of these
139. Debenture represents............Of a company
A. Borrowed capital B. Owned capital C. Hybrid capital D. None of these
140. Debenture holders will get ……..
A. Dividend B. Interest C. Profit D. All of these
141. Debenture holders are the...........of a company
A. Debtors B. Owners C. Creditors D. Borrowers
142. A charge created not on specific assets but generally on all assets is known as………….
A. Fixed charge B. Floating charge C. Mortgage D. None of these
143.debentures can be transferred only with the knowledge of the company.
A. Naked B. Mortgage C. Registered D. Bearer
144.debentures are transferable by mere delivery
145.debentures are secured by the assets of the company
146. . Unsecured debentures are called as......................debentures
147. FCD stands for ……………
A. Fixed Charge Debentures B. Floating Charge Debentures
C. Fully Convertible Debentures D. None of these
148. Discount or loss on issue of debenture is a ………….

A. Capital Profit B. Revenue Receipt C. Capital Loss D.Revenue Expense
149. Debentures can be redeemed out of ……….
A. Fresh issue B. Capital C. Profit D. All of these
150. Interest on debenture is ……….
A. Adjustment of profit B. Appropriation of Profit.
C. Charge on profit D. None of these
151. Debentures are shown in the balance sheet under the head ………..
A. Secured loans B. Unsecured loans C. Provisions D.Current liabilities
152. After realizing all the investments, the balance in the sinking fund account is transferred
to
…………
A. Profit and Loss A/c B. Debenture Account

C. Sinking fund A/c D. Capital reserve
153. When own debentures are cancelled, any profit on cancellation is transferred to ……..
A. General Reserve B. Capital Reserve C. Profit and Loss A/c D.
Debenture A/c
154. If the purchase price of debentures includes interest for the expired period, the quotation
is
said to be …………..
A. Ex‐interest B. Cum‐interest C. Co‐interest D. None of these

155. If the purchase price of debentures excluding interest for the expired period, the
quotation
is said to be …………..
Page 16
A. Ex‐interest B. Cum‐interest C. Co‐interest D. None of these.
156. As per.............it is the statutory obligation of companies to prepare their final accounts.
A. Sec 210 B. Sec 211 C. Sec 212 D. Sec 214
157. The Balance sheet of Companies are prepare in the form ……….
A. Part I of Schedule V B. Part I of Schedule VI
C. Part II of Schedule V D. Part II of Schedule VI
158. The Profit and Loss Account of companies is prepared in the form ………….
A. Part I of Schedule V B. Part I of Schedule VI
Page 17
C. Part II of Schedule V D. Part II of Schedule VI
159. The dividend declared between two annual general meeting is called ……….
A. Proposed Dividend B. Final Dividend C. Interim Dividend D. None of these
160. The dividend recommended by the Board of Directors is called………
A. Proposed Dividend B. Final Dividend C. Interim Dividend D. None of these
161. Unclaimed dividend is shown in the balance sheet under the head ……..
A. Reserves and Surplus B. Current Liabilities
c. Loans and Advances D. Current Assets
162.is a charge against profit of the company

A. Provision B. Reserves C. Surplus D. All of these
163. An item which may or may not be the liability of the company due to happening of certain
event is…………
A. Current Liability B. Fixed Liability C. Contingent Liability D. None of these

164. Advance tax paid is shown in the balance sheet under the head……….
A. Current Liabilities B. Loans and Advances C. Fixed Assets D. None of these
165. Preliminary expenses not written off are shown in the balance sheet under the head…
A. Current Assets B. Investments
C. Current Liabilities D. Miscellaneous Expenditure
166. Which of the following is not a statutory reserve?

A. General reserve B. Development rebate reserve
C. Investment allowance reserve D. Workmen compensation fund
167. Realisation Account is a …………..

A. Real Account B. Personal Account
C. Nominal Account D. Suspense Account
168. Trade liabilities include ………..

A. Creditors B. Debentures C. Bank overdraft D. All of these
169.is called a factory of credit.
A. Company B. Firm C. Bank D. None of these
170. Banking companies are governed in India by ……….
A. Banking Regulation Act B. Indian Companies Act
C. Reserve Bank of India Act D. All of these
171. CRR stands for …………

A. Current Reserve Ratio B. Capital Reserve Ratio
C. Cash Reserve Ratio D. Capital Redemption Ratio
172. SLR stands for ……………

A. Savings Level Ratio B. Statutory Liquidity Ratio
C. Standard Liquidity Ratio D. None of these
173. The method of rapidly posting entries in the books of banks is called as ……….
A. Single Entry B. Cash Method C. Slip System D. None of these
174. The P&L A/c of Banking Companies are prepared as per........of Banking Regulation Act.
Page 18
A. Form A of Schedule III B. Form B of Schedule III
C. Form A of Schedule VI D. Form B of Schedule VI
175.of profit is transferred to statutory reserves.

A. 10% B. 20% C. 25% D. 30%
176. Banks show the provision for income tax under the head ……….
A. Contingent liabilities B. Deposits
C. Other liabilities and provisions D. Borrowings
177. Rebate on bills discounted is ………..
Page 19
A. An income accrued but not received B. A liability
C. An expense D. Income received in advance
178. NPA stands for………….

A. Non‐ Performing Assets B. Normal Performing Assets
C. National Performing Asset D. None of these
179. Schedule 1 is concerned with ………….

A. Cash and balance with RBI B. Capital
C. Reserves and Surplus D. Investments
180.s shown under Schedule 15.

A. Interest earned B. Profit C. Interest Expended D. Appropriations
181. Acceptance, endorsements and other obligations come under the head…
A. Provisions and Contingencies B. Contingent liabilities
C. Deposits D. Borrowings
182. Assets are NPAs for a period not exceeding 12 months are called ………….
A. Standard Assets B. Substandard Assets
C. Doubtful Assets D. Loss Assets
183. Assets are NPAs for a period exceeding 12 months are called ………….
A. Standard Assets B. Substandard Assets
C. Doubtful Assets D. Loss Assets
184.is a form of agreement between two parties in which one party agrees to make good
for loss of another.
A. Contract B. Insurance C. Banking D. Mutual fund

185. The agreement of insurance is called as ………..
A. Policy B. Premium C. Annuity D. None of these
186. The consideration in insurance for covering the risk is called ………….
A. Claim B. Premium C. Annuity D. None of these
187.is the party who undertakes the risk in insurance.
A. Insurer B. Assurer C. Underwriter D. All of these
188. The party whose risk is covered in insurance is known as ……….
A. Insurer B. Insured C. Underwriter D. None of these
189. In................., the insurer agrees to pay a certain sum of money to the policyholder either on
his death or a certain age, which ever is less.
A. Fire Insurance B. Marine Insurance C. Burglary Insurance D. Life Insurance

190. General Insurance includes …………….
A. Fire Insurance B. Marine Insurance C. Burglary Insurance D. All of these
191. LIC was nationalized in …………..
A. 1935 B. 1950 C. 1956 D. 1964
192. Insurance business in India is regulated by ………….

A. LIC B. IRDA C. RBI D. SEBI
193. Under................, the sum assured is given to the beneficiary only on death of policyholder.
A. Whole Life Policy B. Endowment Policy C. Annuity D. None of these
Page 20
194.is the amount payable to the insured on the happening of event.
A. Premium B. Annuity C. Claim D. Policy
195. An annual payment which an insurer guarantees to pay for lump sum money received in
the
beginning is called ………….
A. Premium B. Annuity C. Claim D. Policy

196. The amount given to the policyholder due to his inability of paying further premium is
called
…………..
Page 21
A. Annuity B. Bonus C. Surrender value D. Claim
197.is an agreement between two insurance companies whereby one transfers a part
of risk to other.
A. Reinsurance B. Sub insurance C. Shared Policy D. None of these

198. Revenue Account is also called ………….
A. Shareholders’ Account B. Policyholders’ Account
C. Creditors’ Account D. None of these
199. Valuation balance sheet is prepared by.................business.

A. Fire Insurance B. Marine Insurance C. Life Insurance D. All of these
200. The commission earned by insurance companies from others for giving them business
under reinsurance is called …………………
A. Commission on reinsurance accepted B. Agents’ commission
C. Commission on reinsurance ceded D. None of these
201.The commission given by insurance companies to others for receiving business

under reinsurance is called …………………
A. Commission on reinsurance accepted B. Agents’ commission
C. Commission on reinsurance ceded D. None of these
202. Profit and Loss Account of General Insurance Companies are prepared in …………
A. Form A‐PL B. Form B‐RA C. Form B‐PL D. Form B‐BS
203. The principle of subrogation is applicable to……………
A. Fire Insurance B. Marine Insurance C. Burglary Insurance D. All of these
Q. No Answe Q. No Answe Q. No Answe Q. No Answe Q. No Answe
r r r r r
1 D 41 B 81 D 121 C 161 B
2 C 42 A 82 A 122 C 162 A
3 B 43 B 83 C 123 B 163 C
4 A 44 B 84 B 124 A 164 B
5 C 45 B 85 C 125 B 165 D
6 C 46 C 86 C 126 C 166 A
7 C 47 D 87 D 127 C 167 C
8 A 48 B 88 B 128 B 168 A
9 C 49 C 89 A 129 B 169 C
10 B 50 A 90 A 130 B 170 A
11 A 51 D 91 A 131 B 171 C
12 B 52 A 92 C 132 D 172 B
13 D 53 A 93 C 133 C 173 C
14 B 54 B 94 B 134 D 174 B
15 D 55 C 95 C 135 A 175 C
16 B 56 D 96 C 136 D 176 C
17 B 57 D 97 A 137 B 177 D
18 B 58 B 98 C 138 C 178 A
Page 22
19 A 59 C 99 D 139 A 179 B
20 B 60 B 100 B 140 B 180 C
21 C 61 B 101 C 141 C 181 B
Page 23
Page 24
22 D 62 A 102 B 142 B 182 B
23 B 63 A 103 A 143 C 183 C
24 B 64 A 104 B 144 D 184 B
25 B 65 C 105 D 145 B 185 A
26 B 66 C 106 C 146 A 186 B
27 C 67 C 107 D 147 C 187 D
28 A 68 B 108 A 148 C 188 B
29 B 69 D 109 C 149 D 189 D
30 D 70 C 110 C 150 C 190 D
31 A 71 C 111 B 151 A 191 C
32 C 72 C 112 C 152 D 192 B
33 B 73 B 113 D 153 B 193 A
34 B 74 B 114 D 154 B 194 C
35 D 75 B 115 A 155 A 195 B
36 C 76 A 116 C 156 A 196 C
37 B 77 C 117 B 157 B 197 A
38 D 78 A 118 A 158 D 198 B
39 C 79 A 119 B 159 C 199 C
40 C 80 C 120 C 160 A 200 C
Q. No Answe
r
201 A
202 C
203 D
25

Advanced Accounting - I

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B.COM.

Note: 20% Marks for theory and 80 % marks for problem.

BOOKS FOR REFERENCE : 

According to International Accounting Standards Committee “Depreciation is the allocation of

The important characteristics of depreciation are noted below:

The following are the main causes of Depreciation:

Objectives of and Necessity for providing Depreciation

(a) For providing Depreciation:

( ii) When provision for depreciation account is maintained.

( a ) For Providing Depreciation :

According to section 29 of the companies act 1956 “ A branch is any

Enumerate/List out the objectives of Branch accounting

a) To know the profit or loss of each branch separately.

Different types of branches/ dependent branches in detail

Features/characteristics/nature of dependent Branches

DEBTORS SYSTEM (SYNTHETIC METHOD)

2) When Goods are returned to Head Office:

3) When cheque or draft is sent for branch expenses:

4) For closing balance of assets:

8) For transferring the balance of goods sent to branch a/c

9) For branch profit:

Total xxxxx Total xxxxx

Accounting adjustments required in head office books

Calculation of make up or Load

b) Goods charged to branch at selling price:

Final account system under dependent branch system

Independent branches maintain their entire accounts separately as well as independently

It is not a specific system governed by definite rules of operation. It is highly flexible

Dis-Advantages (Or) Limitations of Single System.

Difference between Double Entry And Single Entry System.

Sl No Basis of Double Entry System Single Entry System

1 Recording Both aspects of all transaction In some cases both aspects in

Revealing Reliable financial position can Balance sheet cannot be prepared.

7 Utility Suitable for any type of It can be followed by small

8 Internal check Internal check is possible Internal check is not possible

Preparing Statement of Affairs

ADD: Drawings XXX

Profit or loss during the year XXX

Differentiate Statement of affairs from Balance sheet.

Cash received Debit Cash A/c

Discount allowed to them Debit Discount A/c

Sales Returns Debit Sales Return A/c

Bad Debts written off Debit Bad Debts A/c

Bills Receivable received Debit Bills Receivable A/c

(b) Analysis of accounts of suppliers will reveal the following:

Credit Purchases Debit Purchases A/c

Bills Payable Dishonored Debit Bills Receivable A/c

Cash Paid Credit Cash A/c

Purchase Returns Credit Returns Outwards A/c

Discount Received Credit Discount A/c

Bills Payable Issued Credit Bills Payable A/c

Purchases (always ascertained by making an

Methods of maintaining capital account

To Drawings By Balance b/d

To Drawings By Balance b/d

(A) METHODS OF VALUATION OF GOODWILL

2. Super Profit Method

3. Capitalisation of Expected future net profits or Capitalisation Method