KENDRIYA VIDYALAYA SANGATHANGURGAON REGION
STUDY MATERIAL – ACCOUNTANCYFOR
CLASS – XII(2014-15)
PATRONMR. C. MANI
DEPUTY COMMISSIONER KVS RO, GURGAON
ADVISORMR. B.L. MORODIA (GR)
MR. C. S. AZAD (GR)Mr. A.K. Sharma (GR)
COORDINATOR
MR. RAJENDRA SINGHPRINCIPAL KV SEC-5DWARKA NEW DELHI
Resource Persons:1. MS. SHOBHA PGT COMM. K.V NO1 AIRFORCE STATION SEC 14,
GURGAON2. MR. RAKESH PGT COMM. K.V. SEC 5, DWARKA3. MR. ANGREJ SINGH PGT COOM. K.V. SEC 5 DWARKA4. MRS. NAVNEET KAUR, PGT COMM. , KV BSF CAMP CHHAWLA
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PREFACE
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S.NO PARTICULARS PAGE NO.
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ACCOUNTING FOR PARTNERSHIP FIRM - FUNDAMENTALS
GOODWILL: NATURE & VALUATION
CHANGE IN PROFIT SHARING RATIO ( AMONG THE EXISTING PARTNER )
ADMISSION OF PARTNER
RETIREMENT AND DEATH OF A PARTNER
DISSOLUTION OF PARTNERSHIP FIRM
SHARE CAPITAL ACCOUNTING FOR SHARE CAPITAL
COMPANY ACCOUNTS:-(ISSUE OF DEBENTURES)
COMPANY ACCOUNTS-REDEMPTION OF DEBENTURES
PART II
FINANCIAL STATEMENTS OF A COMPANY
FINANCIAL STATEMENT ANALYSIS
TOOLS OF FINANCIAL STATEMENT ANALYSIS - COMPARATIVE STATEMENT AND COMMON SIZESTATEMENT
RATIO ANALYSIS
CASH FLOW STATEMENT
9-15
16-17
18-21
22-30
31-39
40-47
48-60
61-66
67-74
75-82
83-84
85-86
87-96
97-102
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Index
Accountancy(Code No.055)Classs–XII (2014-15)
One Paper Theory: 80Marks 3Hours
Units Periods MarksPart A Accounting for Partnership Firms and Companies
Unit1. Accounting for Partnership Firms 90 35Unit2. Accounting for Companies 60 25
150 60Part B Financial Statement Analysis
Unit3. Analysis of Financial Statements 30 12Unit4. Cash Flow Statement 20 8
50 20Part C Project Work 40 20
Project work will include:Project File: 4MarksWritten Test: 12 Marks(One Hour)VivaVoce:4 MarksOR
Part B Computerized AccountingUnit3. Computerized Accounting 60 20
Part C Practical Work 26 20Practical work will include:File 4 MarksPractical Examination 12 Marks(One Hour)Viva Voce 4 Marks
Part A: Accounting for Partnership Firms and Companies 60 Marks 150-Periods
Unit1: Accounting for Partnership Firms
Partnership: Features, Partnership deed.
Provisions of the Indian Partnership Act 1932in the absence of partnership deed.
Fixed v/s fluctuating capital accounts. Preparation of Profit & Loss Appropriation account – division of profit among partners, guaranteed of profits.
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Past adjustments (relating to interest on capital, interest on drawing, salary and profit sharing ratio).
Goodwill : nature, factors affecting and methods of valuation- average profit, super profit and capitalization.
Scope: Interest on partner’s loan is to be treated as a charge against profits
Accounting for Partnership firms – Reconstitution and Dissolution.
Change in the Profit Sharing Ratio among the existing partners-sacrificing ratio, gaining ratio.Accounting for revaluation of assets and re-assessment of liabilities and treatment of reserves and accumulated profits.
Admission of a partner-effect of admission of a partner on change in the profit sharing ratio, treatment of goodwill (asperAS26), treatment for revaluation of assets and re-assessment of liabilities, treatment of reserves and accumulated profits, adjustment of capital accounts and preparation of balance sheet.
Retirement and death of a partner: effect of retirement/death of a partner on change in profit sharing ratio, treatment of goodwill(as per AS 26),treatment for revaluation of assets and re-assessment of liabilities, adjustment of accumulated profits and reserves, adjustment of capital accounts and preparation of balance sheet. Preparation of loan account of the retiring partner.
Calculation of deceased partner's share of profit till the date of death. Preparation of deceased partner's capital account, executor's account and preparation of balance sheet.
• Dissolution of a partnership firm : types of dissolution of a firm. Settlement of accounts-preparation of realization account, and other related accounts: Capital accounts of partners and Cash/ Bank A/c (excluding piece meal distribution, sale to accompany and insolvency of partner(s)).
Note:
(i) If value of asset is not given, its realised value should be taken as nil.
(ii) Incase, the realization expenses are borne by a partner ,clear indication should be given regarding the payment there of.
(iii)Workmen Compensation Fund is to be discussed.
Unit-2 Accounting for Companies
Accounting for Share Capital
• Share and share capital : nature and types.
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• Accounting for share capital: issue and allotment of equity shares, private placement of shares, Public subscription of shares - oversubscription and undersubscription of shares; Issue at par and at premium and at discount, calls in advance and arrears (excluding interest),issue of shares for consideration other than cash.
• Accounting treatment of forfeiture and re-issue of shares.
• Disclosure of share capital in company's Balance Sheet.
Accounting for Debentures
• Debentures: Issue of debentures at par, at a premium and at a discount. Issue of debentures for consideration other than cash; Issue of debentures with terms of redemption; debentures as collateral security-concept, interest on debentures.
• Redemption of debentures: Lumpsum, draw of lots and purchase in the open market (excluding ex- interest and cum - interest).Creation of Debenture Redemption Reserve.
Part B: (i)Financial Statement Analysis 20 Marks 50 Periods
Unit3: Analysis of Financial Statements
• Financial statements of a company: Statement of Profit and Loss and Balance Sheet in the prescribed form with major headings and sub headings (as per Schedule VI to the Companies Act, 1956).Scope: Exceptional Items, Extra ordinary Items and Profit (loss) from Discontinued Operations are excluded.
• Financial Statement Analysis: Objectives and limitations.
• Tools for Financial Statement Analysis: Comparative statements ,common size statements, cashflow analysis, ratio analysis.
• Accounting Ratios: Objectives, classification and computation.
Liquidity Ratios: Current ratio and Quick ratio.
Solvency Ratios :Debt to Equity Ratio, Total Asset to Debt Ratio ,Proprietary Ratio and Interest CoverageRatio.
Activity Ratios: Inventory Turnover Ratio, Trade Receivables Turnover Ratio, Trade Payables TurnoverRatio and Working Capital Turnover Ratio.
Profitability Ratios: Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit Ratio and Return on Investment.
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Scope: As ratio analysis is a managerial tool, for the computation of profitability ratios, relevant information should be specified whether it is a part of Statement of Profit and Loss as per Schedule VI or not.
Unit4: Cash Flow Statement
• Meaning, objectives and preparation (as per AS3 (Revised)(Indirect Method only)
Scope:
(i) Adjustments relating to depreciation and amortisation, profit or loss on sale of assets including investments, dividend (both final and interim)and tax.
(ii) Bank over draft and cash credit to be treated as short term borrowings.
(iii)Current Investments to be taken as Marketable securities unless otherwise specified.
PROJECT WORK 20 Marks 40 Periods
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Suggested Question Paper Design Accountancy (CodeNo.055) Class XII(2014-15)
March 2015 ExaminationOne Paper Theory: 80Marks
Duration:3hrs.
S. No.
Typology of Questions Very Short Answer MCQ1Mark
Short
AnswerI3Marks
ShortAns
II4Marks
Long
AnswerI6Marks
Long Answer II8 Ma
Marks %
1. Remembering (Knowledge based Simple recall Questions to know specific facts, terms concepts, principles, or theories, identify, define, or recite information
3 1 2 1 - 20 25
2. Understanding (Comprehension - to be familiar with meaning and to understand conceptually interpret, compare, contrast, explain, paraphase information)
2 - 1 1 1 20 25
3. Application (Use abstract information in concrete situation, to apply Knowledge to new situation, Use given content to interpret a situation. Provide an example, or solve a problem)
- 2 1 1 - 16 20
4. High order Thinking Skills (Analysis & Synthesis- Classify, compare, contrast, or differiante between different piece of information; organize and /or integrate unique pieces of information from a variety of sources)
2 - 1 1 1 16 20
5. Evaluation and Multi-Discipliary - (Appraise, Judge, and /or ustify the value or worth of a decision or outcome, or to predict outcomes based on values)
1 1 1 - - 08 10
TOTAL 8x1=8 4x3=12
5x4=20 4x6=24
2x8=16
80(23)+20
100
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CHAPTER – 1ACCOUNTING FOR PARTNERSHIP FIRM - FUNDAMENTALS
LEARNING OBJECTIVES Meaning of Partnership Essential features or characteristics of Partnership Rights of Partners Partnership Deed Importance of Partnership Deed Provision affecting Accounting Treatment in the Absence of Partnership Deed Distribution of Profits among Partners: Profit and Loss Appropriation Account Special Aspects of Partnership Accounts
i. Partner’s capital Accounts under Fixed and Fluctuating Methodsii. Interest on Partners’ Drawings iii. Salary or Commission to Partnersiv. Past Adjustmentsv. Interest on Partners’ Capitalsvi. Interest on Partners’ Loan to the firmvii. Guarantee of Profit
Meaning of Partnership:
According to sec. 14 of the Indian Partnership Act, 1932, the term 'Partnership' is "the relation between two or more persons who have agreed to share the profits of a business carried on by all or by any of them acting for all."
Essential features of Partnership:
The essential features of partnership are:1. Association of Two or More Persons: Partnership is an association of two or
more persons who have agreed to do business and share profits or losses.2. Agreement: Partnership comes into existence by an agreement, either written
or oral, and not by the status or process of law. The written agreement among the partners is known as Partnership Deed.
3. Business: The firm must be engaged in a lawful business. Business includes trade, vocation and profession.
4. Profit-sharing: The agreement between/among the partners must be to share profits or losses. It is not essential that all the partners must share losses also.
5. Business can be carried on by All or Any of the Partners Acting for All: Business of the partnership can be carried on by all the partners or by any of them acting for all the partners. In other words, partners are agents as well as the principals.
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Rights of Partners:1. Every partner has the right to participate in the management of the
business.2. Every partner has the right to be consulted about the affairs of the
business.3. Every partner has the right to inspect the books of accounts and have a
copy of it.4. Every partner has the right to share profits or losses with others in the
agreed ratio.5. A partner has the right not to allow the admission of a new partner.
Partnership Deed:
'Partnership Deed' is a written document which contains the terms and conditions of partnership agreed upon by all the partners.
Importance of Partnership Deed:
i. It is important to have Partnership Deed in writing to settle any possible dispute with regard to the terms of partnership.
ii. It serves as an evidence in the Courts of Law.
Provision affecting Accounting Treatment in the Absence of Partnership Deed:
i. Salary/Commission to a partner: No remuneration for taking part in the conduct of business is to be allowed to any partner.
ii. Sharing of Profits & Losses: Profits & Losses are to be shared equally.iii. Interest on Capital: No interest is to be allowed on capital. If the agreement
provides for interest on capital, such interest is payable only out of available profits.iv. Interest on Advances/Loan by a partner: Interest @ 6% p.a. is to be allowed on
Advances/Loans. Such interest is payable even if there are losses.v. Interest on Drawings: No interest is to be charged on Drawings.
Distribution of Profits among Partners: Profit and Loss Appropriation Account
Meaning: P & L Appropriation Account shows the distribution of Net Profits as per P & L A/c among the partners by way of Interest on Capital, Salary, Commission to partners, Transfer to Reserves.Purpose: P & L Appropriation is prepared to show the distribution of Net Profit among the partners. The balance in Profit & Loss Appropriation account may be used:
i. To provide for Interest on Capitals of Partners (if Partnership Deed so provides).
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ii. To provide for Salary or Commission to partners (if Partnership Deed so provides).
iii. To distribute the profits among the partners in their profit sharing ratio.
FORMAT OF PROFIT AND LOSS APPROPRIATION ACCOUNTPROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ending on…… Cr.Particulars Rs. Particulars Rs.To interest on Capital: X xxx Y xxxTo Salary to partnerTo Commission to partnerTo ReserveTo Profit transferred to: * X's Capital A/c xxx **(for X's Current A/c) * Y's Capital A/c xxx ** (or Y's Current A/c)
xxxxxxxxxxxx
xxxxxx
By Profit & Loss A/c(Net Profit subject toAppropriations)By interest on Drawings:X xxxY xxx
xxx
xxx
xxx
Special Aspects of Partnership Accounts:
i. Partner’s capital Accounts under Fixed and Fluctuating Methods : a. Fluctuating Capital Method:
a.1) Under Fluctuating Capital method, only one account (viz. Capital Account) for each partner is maintained.a.2) All the transactions relating to a partner are recorded in his Capital Account.
b. Fixed Capital Method:b.1) Under Fixed Capital method, two accounts (viz. Capital Account and Current Account) for each partner are maintained.b.2) The transactions relating to introduction or withdrawal of Capital are recorded in Capital account.b.3) Other transactions like interest on Capital, Drawings, Salary, Commission, Share of Profit/Loss are recorded in Current Account.
ii. Interest on Partners’ Drawings
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a. Meaning of DrawingsDrawings mean the amount withdrawn in cash or in kind for personal purposes. Drawings may be against profits or against capital.
b. Accounting Treatment of Interest on Drawings.When to charge: Interest on Drawings is to be charged for partners only when partnership agreement provides for the same.How to calculate interest on drawings:
Short Cut Method: When a fixed amounts is withdrawn at fixed dates, the interest on drawings may be calculated with the help of short cut formula as follows:
If Fixed Amount is Withdrawn… Interest on Drawings
In the beginning of each month = Total Drawings x (Rate of interest) x 6(1/2) * 100 12
At the end of each month = Total Drawings x (Rate of interest) x 5(1/2) ** 100 12
During the middle of each month = Total Drawings x (Rate of interest) x 6 100 12
In the beginning of each quarter = Total Drawings x (Rate of interest) x 7(1/2) * 100 12
At the end of each quarter = Total Drawings x (Rate of interest) x 4(1/2) ** 100 12
During the middle of each quarter = Total Drawings x (Rate of interest) x 6 * 100 12
Note: The above formulae have been given on the assumption that Total Period of Drwaings is 12 months. In case the Period of Drawings is less than 12 months, that above formulae will change accordingly. * (Total Period + Time interval)/2** (Total Period – Time interval)/2
Product Method1. Calculate the period for which amount withdrawn has been used.2. Calculate the Product as follows:
Product = Amount of Drawings x Period of Use3. Calculate the Total Product4. Calculate the interest on Drawings as follows:
If Period is expressed in a month = Total Product x (Rate of Interest/100) x (1/12)If Period is expressed in a day = Total Product x (Rate of Interest/100) x (1/365)
iii. Salary or Commission to Partners
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When to allow : Salary or Commission to a partner is to be allowed if the partnership agreement provides for the same.
How to calculate : Commission may be allowed as percentage of Net Profit before charging such commission or after charging such commissionI – Commission as % of Net Profit before charging such commission = Net Profit before Commission x (Rate of Commission/100)II -- Commission as % of Net Profit after charging such commission = Net Profit before Commission x (Rate of Commission / 100 + Rate of Commission)
iv. Past Adjustments Meaning : Past Adjustments refer to those adjustments which
affect the distribution of past profits like omission or commission in respect of interest on Capital/Drawings of a Partner, Salary/Commission to a partner, Sharing of Profits.
How to Carry Out: Past Adjustments should be carried out directly through the Capital Accounts of the concerned Partners.
How to Pass Single Adjusting Journal Entry : The passing of the necessary Adjusting Journal Entry involves the following steps:
1. Calculate the amount already recorded by way of share of Profit, Interest on Capital, Salary, Commission etc.
v. Interest on Partners’ CapitalsCalculation of Interest
Particulars Rs
Interest on Opening Capital [Opening Capital x Rate/100 x 12/12Add: Interest on Additional Capital [ Additional Capital x Rate/100 x Period from the date of introduction to the end of accounting period/12]Less: Interest on Capital withdrawn = Capital Withdrawn x Rate/100 x Period from the date of withdrawl to the end of accounting period/12]
Total interest on Capital [ A + B – C]
xxx
xxx
(xxx)xxx
vi. Interest on Partners’ Loan to the firm
Rate of interet
Case Rate of Interest
i. If there is an agreement as to the rate of Interest on Loan.
Partner is entitled to an interest on loan at an
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To be allowed
agreed Rate of Interest
ii. If there is no agreement as to rate of Interest on Loan
Partner is entitled to Interest on Loan @ 6% p.a.
vii. Guarantee of ProfitMeaning : It means assurance to give a minimum amount of Profit to a partner.
If in any year, the actual Share of Profit of a Guaranteed Partner is less than the Guaranteed Amount, then the deficiency (i.e, excess of Guaranteed Amount over actual share of Profit) is borne by the Guaranteeing Partners in their agreed ratio.
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1 MARK Questions
1. Define Partnership2. What do you understand by ‘Partner’, ‘firm’ and ‘firm’s name’?
Ans. The persons who have entered into a Partnership with one another are individually called ‘Partners’ and collectively ‘a firm’ and the name under which the business carried is called ‘the firm’s name’.
3. Write any four main features of partnership.4. What is the minimum and maximum number of partners in all partnership?5. What is the status of partnership from an accounting viewpoint?
Ans. From an accounting viewpoint, partnership is a separate business entity. From the legal viewpoint, however, a Partnership , is not separate from the owners.
6. What is meant by partnership deed?7. In the absence of Partnership deed , how are mutual relations of partners governed?
Ans. Through Partnership Act, 1932.8. Give two circumstances in which the fixed capital of partners may change.
Ans. (i) When additional capital is introduced by the partners. (ii) When a part of the capital is permanently withdrawn by the Partners.
9. List the items that may appear on the debit side and credit side of a Partners’ Fluctuating capital account.Ans. On debit side: Drawing, interest on drawing, share of loss, closing credit balance of capital. On credit side: Opening credit balance of capital, additional capital introduced, share of profit, interest on capital, salary to a Partner, commission to a Partner.
10. If the partners capital accounts are fixed, where will you record the following items:(i) Salary to partners(ii) Drawing by a partners(iii) Interest on capital and(iv) Share of profit earned by a partner?
11. Ramesh, a partner in the firm has advanced a loan of a Rs. 1,00,000 to the firm and has demanded on interest @ 9% per annum to which other partners do not agree. The partnership deed is silent on the matter how will you deal with it?
12. The partnership deed provides that Anjali, the partner will get Rs. 10,000 per month as salary. But the remaining partners object to it. How will this matter be resolved?
13. Give one difference between Profit and Loss A/c and Profit and Loss Appropriation Account.
14. A, B and C were partners in a firm having no partnership agreement. A, B and C contributed Rs. 4,00,000, Rs. 6,00,000 and Rs. 2,00,000 respectively. A and B desire that the profits should be divided in the ratio of capital contribution. C does not agree to this. How will the dispute be settled?
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QUESTIONS: 4 &6 Marks
1. A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs. 8,00,000 and Rs. 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. B is to be allowed an annual salary of Rs. 60,000 which has not been withdrawn. During 2013-14, the profits of the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 2,40,000. A provision of 5% of the profits is to be made in respect of Manager’s commission.Prepare an account showing the appropriation of profit.
Solution: P&L A/c
For the year ended 31st March 2014Dr. Cr.
Particulars Amount (Rs.)
Particulars Amount (Rs.)
To Manager’s Commission(3,00,000 X5/100)To Profit tr. To P&L App. A/c
15,000
2,85,000
3,00,000
By Profit (Rs. 2,40,000+60,000)
3,00,000
3,00,000
P & L Appropriation A/cFor the year ended 31st March 2014
Dr. Cr.
Particulars Amount (Rs.)
Particulars Amount (Rs.)
To B’s SalaryTo Interest on CapitalA 40,000B 30,000To Profit tr. ToA’s capital 93,000B’s capital 62,000
60,000
70,000
1,55,000
2,85,000
By Net Profit transferred from P & L A/c
2,85,000
2,85,000
2. A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs. 10,00,000 and Rs. 6,00,000 respectively. Interest on capital is agreed @ 6% p.a. B is to allowed an annual salary of Rs. 50,000. During 2006, the profits of the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 2,50,000. A provision of 5% of the profits is to be made in respect of Manager’s commission.
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Prepare an account showing the appropriation of profit.
3. X and Y are Partners sharing Profit and Loss in the ratio of 2:3 with a capital of Rs. 20,000 and Rs. 10,000 respectively. Show distribution of Profit/losses for the year ended 31st march 2014 by preparing relevant account in each of the alternative cases.Case 1. If Partnership deed is silent as to the interest on capital and the profit for year ended is Rs. 2,000.Case 2. If Partnership deed provides for the interest on capital @ 6% p.a. and loss for the year is Rs. 1,500.Case 3. If Partnership deed provides for interest on capital @ 6% p.a. and trading profit is Rs. 2,100.
Solution:
Case 1.
P & L Appropriation A/cFor the year ended 31st March 2014
Dr. Cr.
Particulars Amount (Rs.)
Particulars Amount (Rs.)
To Profit transferred toX’s capital 800Y’s capital 1,200 2,000
2,000
By Net Profit transferred from P & L A/c
2,000
2,000
Case 2. P & L Appropriation A/c
For the year ended 31st March 2014Dr. Cr.
Particulars Amount (Rs.)
Particulars Amount (Rs.)
To loss for the year (Trading loss)
1,500
1,500
By loss transferred toX’s Capital 600Y’s Capital 900 1,500
1,500
Case 3.P & L Appropriation A/c
For the year ended 31st March 2014Dr. Cr.
Particulars Amount (Rs.)
Particulars Amount (Rs.)
To Interest on Capital By Profit & Loss A/c 2,10017
X 1,200Y 600To Profit tr. ToX’s Capital 120Y’s Capital 180
1,800
300
2,100 2,100
4. X and Y are partners in a firm. X is to get a commission of 10% of net profit before charging any commission. Y is to get a commission of 10% on net profit after charging all commission. Net profit for the year ended 31st March 2014 before charging any commission was Rs. 1,10,000. Find the commission of X and Y. Also show the distribution of profit.
ANS .P & L Appropriation A/cFor the year ended 31st March 2014
Dr. Cr.
Particulars Amount (Rs.)
Particulars Amount (Rs.)
To X’s commission A/c(1,10,000 X 10/100)To Y’s Commission(1,10,000 – 11,000) X10/110To Net Profit tr. To Capital A/cX 45,000Y 45,000
11,000
9,000
90,000
1,10,000
By Profit before any commission
1,10,000
1,10,000
5. A, B and C are Partners in a firm sharing Profit and Losses in the ratio 2:3:5. Their fixed capitals were 3,00,000; 6,00,000; and 1,20,000 respectively for the year 2014 interest on capital was credited to them @ 12% instead of 10%. Pass the necessary adjustment entry.Solution:
Table showing Adjustment
Particulars A B C TotalInterest that should have been credited @ 10%Interest already credited @ 12%
30,000
36,000
60,000
72,000
12,000
14,400
1,02,000
1,22,400(6,000) (12,000) (2,400) (20,400)
By recovering the extra amount paid the share will increase and it will be credited in the ratio of 2:3:5
(4,080) (6,120) (10,200)
Net effect (1,920) (5,880) 7,800
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A’s Current A/c Dr. 1,920B’s Current A/c Dr. 5,880To C’s Current A/c 7,800
6. X, Y and Z were partners in a firm sharing profit and losses in the ratio of 2:1:2. Their capitals were fixed at Rs. 6,00,000; Rs. 2,00,000 and Rs. 4,00,000 for the year 2014. Interest on capital was credited to them @ 9% instead of 10%p.a. the profit for the year before charging interest was Rs. 5,00,000.Show your working note clearly and Pass necessary adjustment entry.
(Ans. Y’s current A/c Dr. 400, Z’s Current A/c Dr. 800, X ’s current A/c Cr. 1,200)
7. P, Q and R were partners in a firm sharing profit in the ratio of 1:2:2 after division of the profit for the year ended 31st March 2014, their capitals were P Rs. 3,00,000; Q Rs. 3,60,000; R Rs. 4,20,000. During the year, they withdrew Rs. 40,000 each. The profit for the year was Rs. 1,20,000. The partnership deed provided that the interest on capital will be allowed @ 10% while preparing the final accounts. Interest on partners’ capital was not allowed.(a) Pass adjustment entry.(b) You are required to calculate the opening capital of P, Q and R.
8. (HOTS) A, B and C were partners. Their capitals were Rs. 60,000; Rs. 40,000 and Rs. 20,000 respectively. According the partnership deed they were entitled to an interest on capital @ 5%p.a. In addition B was also entitled to draw a salary of Rs. 1,000 per month. C was entitled to a commission of 5% on the profit after charging the interest on capital, but before charging the salary payable to B. The Net Profit for the year were Rs. 60,000 distributed in the ratio of their capitals without providing for any of the above adjustment. The profit were to be shared in the ratio of 2:2:1. Pass necessary adjustment entry showing the workings clearly.(Hint: A’s current A/c Dr. 11,280; B’s current A/c Cr. 9,720; C’s current A/c 1,560)
9. (Value Based Question) Mira, Neera and Pooja are partners in a firm. They contributed Rs. 1,00,000 each as capital three years ago. At that time Pooja agreed to look after the business as Mira and Neera were busy. The profit for the past three years were Rs. 30,000; Rs. 50,000; and Rs. 1,00,000 respectively. While going through the book of accounts Mira noticed that the profit had been distributed in the ratio of 1:1:2. When she enquired from Pooja about this, Pooja answered that since she looked after the business she should get more profit. Mira disagreed and it was decided to distributed profit equally retrospectively for the last three years.(a) You are required to make necessary correction in the books of accounts of Mira,
Neera and Pooja by Passing and adjusting entry.(b) Identify the value which was not practiced by Pooja while distributing profit.
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(Ans. Dr. Pooja’s capital Rs. 30,000; Cr. Mira’s Capital Rs. 15,000; Cr. Neeraj’s capital Rs. 15,000)(Pooja did not practice the value of honesty and fairness besides ignoring low.)
10. (HOTS) The Partners of a firm distributed the profits for the year ended 31st March 2014. Rs. 1,80,000 in the ratio of 3:2:1 without providing for the following adjustments:(i) A and C were entitled to a salary of Rs. 3,000 p.a.(ii) B was entitled to a commission of Rs. 9,000.(iii) B and C had guaranteed a minimum profit of Rs. 70,000 p.a. to A.(iv) Profit were to be shared in the ratio of 3:3:2.
Pass necessary journal entry for the above adjustments in the books of the firm.(HINT: Dr. A’s capital Rs. 17,000; Cr. B’s capital Rs. 6,000; Cr. C’s capital Rs. 11,000)
11. A, B and C were Partners in a firm sharing profit in the ratio of 2:3:5. A was guaranteed a minimum profit of Rs. 2,00,000. Any deficiency as this account was to be borne by C. The net profit of the firm for the year ended 31st March 2014 was Rs. 9,00,000.Prepare Profit and Loss Appropriation Account of A, B and C for the year ended 31st March 2014.(HINT: A = Rs. 2,00,000; B = Rs. 2,70,000; C = Rs. 4,30,000)
12. Akbar, Birbal and Chandar are partner in a firm as on 1st April 2014 their capital accounts stood at Rs. 40,000; Rs. 30,000 and Rs. 20,000 respectively. They share Profit and Losses in the proportion of 5:3:2. Partners are entitled to interest on capital @ 10% p.a. and salary to Birbal and chander @ Rs. 200 per month and Rs. 300 per quarter respectively as per the provision of the partnership deed Birbal’s share of profit (excluding interest as capital but including salary) is guaranteed at a minimum of Rs. 5,000 p.a. Any deficiency arising on that account shall be met by chander. The profit of the firm for the year ended 31st March 2014 amounted to Rs. 20,000. Prepare P&L Appropriation Account for the year ended on 31st March 2014. (6)(HINT: Deficiency is to be borne by ChanderRs. 380; Akbar Rs. 3,700; BirbalRs. 2,600; ChanderRs. 1,100)
13. Give the answer to the following: (6)(1) P and Q are partners sharing profits and losses in the ratio of 3:2. On 1st April
2013 their capital balances were Rs. 50,000 and Rs. 40,000 respectively. On 1st July 2009 P brought Rs. 10,000 as his additional capital whereas Q brought Rs. 20,000 as additional capital on 1st October 2013. Interest on capital was provided @ 5% p.a. Calculate the interest on capital of P and Q on 31st March 2014.
(2) A and B are partners sharing profits and losses in the ratio of 2:1. A withdraws Rs. 1,500 at the beginning of each month and B withdrew Rs. 2,000 at the end of each month for 12 months. Interest on drawings was charged @ 6% p.a. calculate the interest on drawings of A and B for the year ended 31st December 2013.
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14. (HOTS) A, B and C are partners with fixed capitals of Rs. 2,00,000; Rs. 1,50,000 and Rs. 1,00,000 respectively. The balance of current accounts on 1st January, 2013 were A Rs. 10,000(Cr.); B Rs. 4,000(Cr.) and C Rs. 3,000(Dr.). A gave a loan to the firm of Rs. 25,000 on 1st July 2013. The Partnership deed provided for the following:(i) Interest on Capital @6%(ii) Interest on drawings @ 9%. Each partner withdrew Rs. 12,000 on 1st July
2013.(iii) Rs. 25,000 is to be transferred in a Reserve Account.(iv) Profit sharing ratio is 5:3:2 up to Rs. 80,000 and above Rs. 80,000 equally.Net
Profit of the firm before above adjustments was Rs. 1,98,360.From the above information prepare Profit and Loss Appropriation Account, Capital and Current Accounts of the partners.(Profit tr. To current A/cs = Rs. 1,47,230; Balance of current A/cs A=Rs. 71,870; B= Rs. 46,870; C=Rs. 28,870 (6)
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CHAPTER – 2 GOODWILL: NATURE & VALUATION
Learning Objectives Meaning Characteristics of Goodwill Nature of Goodwill Need for valuing Goodwill Factors affecting the Value of Goodwill Classification of Goodwill Methods of Valuation of Goodwill
Meaning:- Goodwill is the value of benefit or advantage that a business has because of the factors that help in increasing its profits say because of its location, favourable contracts, access to supplies and customer loyalty etc.
Characteristics of Goodwill: 1. It is an intangible asset and not a fictitious asset.2. It can't have an existence separate from that of an enterprise.
Nature of Goodwill:Goodwill is an intangible asset. Intangible asset mean an asset not having physical existence. But, it is not a fictitious asset. It can be sold, though a sale will be possible only along with the sale of the business itself. Sometimes, goodwill has more value than the tangible assets.
Que. What is the nature of Goodwill?
Need for valuing Goodwill:
The need for valuation of goodwill arises in the following circumstances:i. When there is a change in the profit-sharing ratio.ii. When a new partner is admitted.iii. When a person retires or dies,iv. When partnership firm is sold as a going concern.
Factors affecting the Value of Goodwilli. Efficient Managementii. Locationiii. Favorable Contractsiv. Qualityv. Market Situation
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Classification of Goodwill
i. Purchased Goodwill: It is the Goodwill that is acquired by making payment. For example, when a business is purchased, the excess of purchase consideration of its net assets (i.e., assets - liabilities) is the Purchased Goodwill.
ii. Self-generated Goodwill : It is an internally generated goodwill which arises from a number of factors that a running business possesses due to which it is able to earn higher profit.
Methods of Valuation of Goodwill
Simple Average Profit Method - It is calculated by taking the average profit for a specified number of years and multiplying it with the years of purchase.
Goodwill = Average Profit X No. of Years’ Purchase
Weighted Average Profit Method – It is calculated by multiplying the profit for each year with the weight assigned to it. The amounts so arrived at are totaled and divided by the total of weights. The weighted average profit is multiplied by the years of purchase.
Goodwill = Weighted Average Profit X No. of Years’ Purchase
Super Profit Method – Super Profit is the profit earned by the business that is in excess of the normal profit. Goodwill is determined by multiplying the super profit by the number of years ‘ purchase.
Goodwill = Super Profit X NO. of Years’ Purchase
Capitalisation Method
Under Capitalisation Method, capitalized value of the business is determined by capitalizing the average profit by the normal rate return. Out of the value so determined, value of net assets is deducted, the balance amount is the value of goodwill.
Goodwill = Capitalised Value – Net Assets
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Capitalisation of Super Profit – Under this method, super profit is capitalized at the normal rate of return.
Goodwill = Super Profit X 100 / Normal rate of return
.
1 MARK QUESTIONS
1. Define Goodwill.
2. State any four factors which influence the valuation of goodwill of a partnership firm.
3. Why is Goodwill considered as an Intangible Assets but not a fictitious Assets? Ans. It is not a fictitious Assets because it has a realizable value. It is an intangible assets because it cannot be seen and touched.
4. Apart from location and profitability, list any two other factors affecting Goodwill of a firm.
5. State any four reasons for valuation of Goodwill in relation to a partnership firm.
(3 MARKS QUESTIONS)6. A business has earned average profit of Rs. 4,00,000 during the last few years and the
normal rate of return in similar business is 10%. Find out the value of goodwill by(i) Capitalisation of Super Profit(ii) Super profit method if the goodwill is valued at 3years’ purchase of super
profits.The assets of the business were Rs. 40,00,000 and its external liabilities Rs. 7,20,000.(Ans. 2,16,000)
7. Capital of the firm Sharma and Verma is Rs. 4,00,000 and the market rate of interest is 15%. Annual salary to partners is Rs. 2,400 each. The profit for the last three years were Rs. 1,20,000, Rs. 1,44,000 and Rs. 1,68,000. Goodwill is tovalued at 2 years’ purchase of last 3 years average super profit. Calculate the Goowill of the firm.(Hint Rs. 72,000)
8. On Ist Jan 2014 an existing firm has Asset of Rs. 1,50,000 including cash of Rs. 10,000. Its creditors amounted to Rs. 10,000 on that date. The firm had a Reserve of Rs. 20,000 while Partner’s Capital Accounts showed a balance of Rs. 1,20,000. If Normal Rate of Return is 20% and goodwill of the firm is valued at Rs. 4,8000 at four years’ purchase of super profit, find the average profit per year of the existing firm.(Ans Average profit – Rs. 40,000)
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9. Calculate value of goodwill on the basis of three year purchase of average profit of the preceding five years which were as follows:
Years ended 31.3.2014 4,00,000Years ended 31.3.2013 7,50,000Years ended 31.3.2012 9,00,000Years ended 31.3.2011 2,00,000 (loss)Years ended 31.3.2010 6,50,000Hint: (Goodwill = 1,5,00,000)
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Chapter – 3
Change in profit sharing ratio ( among the existing partner )
Learning objectives-
Meaning Mode of reconstitution of a partnership firm Change in profit sharing ratios among the existing partners. Adjustment required at the time of change in profit sharing ratio.
Meaning
Any change in existing agreements of partnership among to constitution of a firm. As a result existing agreements comes to the end and a new agreement comes into existence and the firm continues.
Modes of reconstitution of a partner firm:
i. Change in the profit sharing ratio of existing partner.ii. Admission of a new partner .iii. Retirement of a existing partneriv. Death of a partner.
Change in the profit sharing ratio among the existing partners:
i. When one or more partner acquires an interest in the business from another partner(s), it said to be change in the profit sharing ratio in a partnership firm.
ii. A change in the profit ratio among the existing partner means it is a reconstitution of the firm without the admission , requirement or the death of a new partner .
iii. Therefore, the aggregate amount of gain by the one or more partner is equal to the aggregate amount of sacrifice made by the other partner.
Adjustment required at the time of change in profit sharing ratio:
Determination of sacrificing the ratio and gaining ratio.
Sacrificing/(Gaining)share = old share – New share
Accounting treatment of goodwill.
Goodwill (if any) appearing in the books written off by debating it to all partner capital accounts in their old profit-sharing ratio and by crediting the goodwill account.
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Accounting treatment of accumulated profit and reserves. At the time of change in the profit sharing ratio , if any reserves or
accumulated profit/loss existing in the books of the firm, they are transferred to patterns capital/current account in their old profit sharing ratio.
Revaluation of asset and reassessment of liabilities.
At the time of change in the profit sharing ratio , the asset are revalued and the liabilities are reassessed since the realisable or actual value of asset and the liabilities may be different from those shown in balance sheet.
Revaluation of asset and reassessment of liabilities belong to period prior to change in their old profit sharing ratio. Hence, any gain or loss on revaluation must be shared in their old profit sharing ratio by the partners.
Two alternatives are available for the purposes
1) When revised values are to be recorded in the books of accountsAn account titled revaluation account or the profit and the loss adjustment account is opened for this purpose
2) When the values are not to be recorded in the books of account(Adjustment of profits/loss on revaluation of asset and reassessment of liabilities through the capital account only.)
If the partner decides to record the net effect of revaluation of asset and liabilities without affecting the old amount of asset and liabilities, a single adjusting entry involving the capital accounts of gaining partner and sacrificing partner is passed.
In this regard, we take the following steps
Step 1. Calculating of the net effect of revaluationIncrease in the values of asset …(+)Decrease in the amount of asset. …(-)Decrease in values of asset. (…)(-)Increase in amount of liabilities (…)Net effect of revaluation …
Step 2. To find share of gain/sacrifice by the partner Their new share … Their old share … Difference …
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Step 3. Calculation of proportional amount of net effect of revaluation.For gaining partnerProportion amount of the net effect of revaluation = shared gained x net effect of revaluation for sacrificing partner
Proportion amount of net effect of revaluation = shared sacrificed x net effect of revaluation
Step 4. Pass the following journal entries
For profit on revaluationGaining partner(s) capital A/c Dr To sacrificing partner(s) capital A/c For net loss on revaluationSacrificing partner(s) capital A/c Dr To gaining partner(s) capital A/c
Questions: 1 mark
Q1.) What is meant by change in profit sharing ratio? (1)Q2.) Why are reserved and surplus distributed at the time of reconstitution of the firm?
(1)
Practical Problems: (3 marks)
Q1.) Anita, Asha, Amrit are partners sharing profit in the ratio of 3:2:1 respectively. Form 1 January, 2014, they decide to share profit in the ratio 1:1:1. The partnership deed provided that in the event of any change in profit sharing ratio, the goodwill should be valued at three years purchase of the average of five years, profits. The profit and losses of the preceding five years are
Profit 2009 Rs 1, 20,000 2010 RS 3, 00,000 2011 Rs 3, 40,000 2012 Rs 3, 80,000Loss 2013 Rs 1,40,000Give Single Journal EntryHint – Amrit capital A/c Dr 1, 00,000 To Anita’s capital A/c 1, 00,000
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Q2.)Akansha, Amit and Shalu are partner sharing profits in the ratio of 5:3:2. On 1 April 2014 they decided to share the profits in the ratio of 2:2:1. On that date, following balance were appearing in the balance sheet.
Profit and loss (Cr) Rs 1, 5000 General reserve Rs 5, 000 Deferred revenue expenditure Rs 1, 000
Pass single journal entry.
Q3.)Sanjeev, Mohan and Ashish are partner sharing profits and losses in the ratio 2:3:4. They decided to share future profits and losses in the ratio of 4:3:2. They also decided to record the effect of the following without affecting their books values.
General reserve Rs 80, 000 Profit and loss account Rs 40, 000Advertisements suspense account Rs 30, 000
You are required to give the necessary single journal entry.
6 marks
Q4). X, Y & Z are partners sharing profit and losses in the ratio of 7:5:4. Their balance sheet as at 31st March 2014 stood as:
Liabilities Rs. Assets Rs.Capital A/cX 4,20,000Y 3,00,000Z 2,40,000 General ReserveP & L A/CCreditors
9,60,0001,30,000 50,0002,60,00014,00,000
Sundry Assets 14,00,000
14,00,000
Partners decided that with effect from 1st April 2014 that will share profit and loss in the ratio of 3:2:1 for this purpose goodwill of the firm was valued at Rs. 3,00,000. The partners neither want to record the goodwill nor want to distribute the general reserve and profit.Pass a Single Journal Entry to record the change and prepare the revised Balance Sheet. Hint: Dr X by 30,000 Y 10,000 Cr. Z 40,000
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CHAPTER-4
ADMISSION OF PARTNER
Learning Objectives Admission of Partner Effects of Admission of Partner Rights of a new Partner Meaning and Calculation of New Profit –Sharing Ratio Meaning and Calculation of Sacrificing Ratio Accounting Treatment of Goodwill as per Accounting Standard 26 Revaluation of Assets and Reassessment of liabilities Accounting treatment of Reserves and Accumulated Profits/losses Adjustment of capital
Admission of Partner:Meaning:-According to the provisions of Partnership Act 1932 unless it is otherwise provided in the partnership deed a new partner can be admitted only when the existing partners unanimously agree for it.
Effects of Admission of Partner:The effect of admission of a new partner on the firm is that there is a change in the relations of the partners and reconstitution of the partnership firm.
Rights of a new Partner:(i) Right of sharing the assets of the firm. (ii) Right of sharing in the future profits of the firm.
Position of a new Partner:Under Section 31 of Indian Partnership Act, position of a new partner will be as under: (i) He is not liable to pay any debts of the firm incurred before the admission, (ii) He cannot be held responsible for the acts of the old partners.
Meaning and Calculation of New Profit –Sharing RatioNew Profit-Sharing ratio is the ratio in which all partners, including new or incoming partner, share future profits and losses of the firm.New or Incoming partner may acquire his share from old partners in any of the following alternatives:i. In their old profit-sharing ratio.ii. In a particular ratio or surrendered ratioiii. In a particular fraction from some of the partners.
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Meaning and Calculation of Sacrificing Ratio:Sacrificing ratio is the ratio in which the old partners agree to sacrifice their shares of profit in favor of the new partner.
Sacrificing Ratio = Old Ratio – New Ratio
Accounting Treatment of Goodwill as per Accounting Standard 26:Goodwill should be recorded in the books only when consideration in money or money's worth has been paid for it, i.e. goodwill is purchased.. Goodwill, should not be raised in the books of the firm. If any partner brings any premium over and above his capital contribution at the time of his admission, such premium should be distributed among the existing partners in their sacrificing ratios.
Calculation of Hidden Goodwill:When the value of the goodwill of the firm is not specifically given, the value of goodwill has to be inferred on the basis of the Net Worth of the firm as follows:
Particulars Rs.Net Worth (including goodwill) on the basis of capital brought in by Incoming Partner (Incoming Partner's Capital x Reciprocal of Share Incoming Partner)Less: Net Worth (excluding goodwill) of the reconstituted firm (including Incoming Partner's Capital)Value of Goodwill (A-B)
xxx
xxxxxx
Net Worth = Sundry Assets – Outsiders' liabilities Or = Capitals of Partners + Net accumulated Profits & Reserves (if any)
Revaluation of Assets and Reassessment of liabilitiesIt is debited by decrease in the value of assets and increase in the amount of liabilities and credited by the increase in the value of assets or decrease in the amount of liabilities.
Accounting treatment of Reserves and Accumulated Profits/losses: Before the admission of a new partner, there is balance in Reserve and Accumulated Profits/Losses in the Balance Sheet, they are transferred to Old Partner's Capital Accounts in their old profit-sharing ratio.
QUESTIONS: 1 MARK1. State any one of the rights that the newly admitted partner acquires in the firm.2. How is a new partner admitted to a firm?
Ans: A new partner is admitted according to terms of the agreement between the new partner and the old partners.
3. A and B are partners sharing profits in the ratio of 5:4. They admit C for 1/9th share which he acquires from A. find the new profit sharing ratio.
4. State the meaning of sacrificing ratio.5. How is sacrificing ratio calculated?
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6. Why are assets revalued at the time of admission of a partner?
PRACTICAL PROBLEMS: (3 MARKS)
7. A, B and C were partners in a firm sharing profits in 3:2:1. They admitted D for 10% profits. Calculate the new profit sharing ratio. ( Ans: 9:6:3:2).
8. X and Y are partners sharing profits in 5:3 ratio admitted Z for 1/10th share which he acquired equally for X and Y. Calculate new profit sharing ratio.(Ans. 23:13:4).
9. Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha surrendered 1/3rd of her share in favour of Gopi and Rukmani surrendered 1/4th of her share in favour of Gopi. Calculate new profit sharing ratio.(Ans. 4:3:3)
10. X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8th share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his 1/8th share of goodwill. Show necessary journal entries in the books of X, Y and Z.(Ans. 4:3)
11. Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. On 1st January, 2014 they admitted Om as a new partner. On the date of Om’s admission, the Balance Sheet of Leela and Meeta showed a balance of Rs. 16,000 in general reserve and Rs. 24,000 (Cr.) in Profit and Loss Account. Record necessary Journal entries for the treatment of these items on Om’s admission. The new profit sharing ratio between Leela, Meeta and Om was 5:3:2.
12. Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2014 they admitted Ranjan as a partner. On Ranjan’s admission, the Profit and Loss Account of Amit and Vinay showed a debit balance of Rs. 40,000. Record necessary Journal entry for the treatment of the same.
13. A and B are partners in a firm sharing profits in the ratio of 3:2. They admit C into partnership for 1/5th share of profits in the firm. The goodwill of the firm is valued at Rs. 1,00,000. He is unable to bring in his share of goodwill. What will be the journal entries?
Solution: Goodwill of the firm = Rs 1,00,000C’s share of goodwill = 1,00,000 X 1/5 = Rs. 20,000
JOURNAL
Date Particulars L.F.
Dr.(Rs.) Cr.(Rs.)
C’s Capital A/c Dr. To A’s Capital A/c To B’s Capital A/c
20,00012,0008,000
8 MARKS
14. (Value Based) Karan and Jitendra are Partners in a firm. They share Profit and losses in the ratio of 2:1. Since both of them are specially abled, sometimes they find it difficult to run the business are their own. Leena, a common friend decides to help
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them. Therefore, they admitted her into partnership for a 1/3rd share. She brought her share of goodwill in cash and proportionate capital. At the time of leena’s admission the balance sheet of karan and Jitender was as under:
Liabilities Amount (Rs.) Assets Amount (Rs.)CapitalKaran 2,40,000Jitender 1,60,000General ReserveCreditorEmployees Provident fund
4,00,00060,00060,00080,000
MachineryFurnitureStockSundry DebtorsBankCash
2,40,0001,60,0001,00,00060,00020,00020,000
6,00,000 6,00,000
It was decided to :(i) Reduce the value of stock by 10,000.(ii) Depreciate furniture by 10% and appreciated machinery by 5%.(iii) Rs. 6,000 of Debtors proved bad. A provision of 5% was to be created on Sundry
debtors for Doubtful Debts.(iv) Goodwill of the firm was valued at Rs. 90,000.
Prepare Revaluation A/c, Partner’s capital A/c and Balance Sheet. Identify the value being conveyed in the question. (Ans. Revaluation Loss 22,700; Capital: Leena = 2,33,650; Balance Sheet Total=8,40,950).
15. A and B share profits of a business in the ratio of 5:3. They admit C into the firm for a fourth share in the profits to be contributed equally by A and B. on the date of admission, the Balance Sheet of A & B is as follows:
BALANCE SHEET AS AT MARCH 31 2014
Liabilities Amount (Rs.) Assets Amount (Rs.)
A’s CapitalB’s CapitalReserve FundBank LoanCreditors
60,00040,0008,00024,0004,000
MachineryFurnitureStockDebtorsCash
52,00036,00020,00016,00012,000
1,36,000 1,36,000
Terms of C’s admission were as follows:(i) C will bring Rs. 50,000 his capital.(ii) Goodwill of the firm is to be valued at 4 years’ purchase of the average
super profits of the last three years. Average profits of the last three years are Rs. 40,000; while the normal profits that can be earned the capital employed are Rs. 24,000.
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(iii) Furniture is to be appreciated to 24,000 and the value of stock to be reduced by 20%.Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the firm after admission of N.(Ans. Revaluation Profit = 8,000; Capital A/c A = Rs.7,800; B = Rs.5,400; C = Rs. 3,400)
16. P and Q are partners in a firm sharing profits and losses in the ratio of 7:3. Their Balance Sheet as at 31st March 2014 is as follows:
Liabilities Amount(Rs) Asset Amount(Rs.)
CreditorsReserveCapital A/cRajat 50,000Ravi 40,000
30,0005,000
90,000
Cash in HandCash at BankDebtorsFurnitureStock
18,00045,00022,00015,00025,000
1,25,000 1,25,000
On 1st April,2014, they admit R on the following terms:(i) Goodwill is valued at Rs. 20,000 and R is to bring in the necessary
amount in cash as premium for goodwill and Rs. 30,000 as capital for 1/4th share in profits.
(ii) Stock is to be reduced by 40% and furniture is to be made by cash.(iii) Capitals of the partners shall be proportionate to their Profit Sharing Ratio
taking R’s capital as base. Adjustments of capitals to be made by cash.Prepare Revaluation Account, Partners’ Capital Accounts and Cash Account and Balance Sheet. (Ans. Revaluation Loss = 19,000; Cash A/c = 62,000)
17. Abhay and Beena are partners in a firm. They admit Chetan as a partner with 1/4th share in the profits of the firm. Chetan brings Rs.40,000 as his share of capital. The value of the total assets of the firm is 1,08,000 and outside liabilities are valued at 20,000 on that date. Give necessary enty to record goodwill at the time of Chetan’s admission. Also show your working notes. (Firms Goodwill = 32,000)
18. P and Q were partners sharing profits in the ratio of 3:2. Their balance sheet on March 31st 2014 are as follows:
Liabilities Amount (Rs.) Assets Amount (Rs.)
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CreditorsBills PayableBank overdraftReserveP’s CapitalQ’s Capital
20,0003,00017,00015,00070,00060,000
CashDebtors 20,500Less: Provision for bad debts 300StockPlantBuildingsMotor Vehicles
14,800
20,20020,00040,00070,00020,000
1,85,000 1,85,000
They agreed to admit Mishra for 1/4th share from 1.4.2014 subject to the following terms:(a) P to bring in capital equal to 1/4th of the total capital of P and Q after all
adjustments including premium for goodwill.(b) Buildings to be appreciated by Rs. 14,000 and stock to be depreciated by Rs.
6,000.(c) Provision for Bad debts on Debtors to be raised to Rs. 1,000.(d) A provision be made for Rs. 1,800 for outstanding legal charges.(e) P’s share of goodwill/premium was calculated at Rs. 10,000.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm on R’s admission.Solution:
Revaluation A/cDr. Cr.Particulars Rs. Particulars Rs.To Stock A/cTo provision for Legal Charges A/cTo Provision for Doubtful Debts A/cToProfittransferred to Capitals:
P 3,300Q 2,200
6,0001,800
700
5,500
By Buildings A/c 14,000
14000 14,000
Partner’s Capital A/cDr. Cr.Particulars P Q R Particulars P Q RTo balance c/d 88,300 72,200 40,125 By Balance 70,000 60,00
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b/dBy CashBy Premium for Goodwill A/cBy Revaluation A/cBy Reserves
6,0003,3009,000
0
4,0002,2006,000
40,125
88,300 72,200 40,125 88,300 72,200
40,125
Balance SheetAs on April1, 2014
Dr. Cr.Liabilities Rs. Particulars Rs.Bills PayablesCreditorsProvision for Legal ExpensesBank OverdraftCapital AccountsP 88,300Q 72,200R 40,125
3,00020,000
1,80017,000
2,00,625
242,425
Cash in HandDebtors 20,500Less:ProvforDoubtful debts 1,000StockMotor VehiclesPlantBuildings
64,925
19,50014,00020,00040,00084,000
242,425
Working Notes:(i) Calculation of Mishra’s Capital:
Sum of capitals of Jain and Gupta Rs. 88,300+Rs. 72,200=Rs. 1,60,500Mishra’s capital = ¼(1,60,500) = Rs. 40,125
(ii) Cash Account = Opening Balance + Goodwill + Mishra’s Capital= 14,800+10,000+40,125=Rs. 64,925
19. On 31.3.14, the Balance sheet of W and R sho shared profits in 3:2 ratio was as follows:
Liabilities Amount Assets Amount
CreditorsProfit and loss A/cCapital Accounts:W 80,000R 60,000
40,00030,000
1,40,000
CashSundryDebtors 40,000Less: Provision 14,00StockPlant and MachineryPatents
10,000
38,60050,00070,00041,400
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2,10,000 2,10,000
On this date, B was admitted as a partner on the following conditions:(a) B will get 4/15th share of profits.(b) B had to bring Rs. 60,000 as his capital to which amount other partners
capitals shall have to be adjusted.(c) He would pay cash for his share fo goodwill which would be based on 2
1/2years purchase of average profits of past 4 years.(d) The assets woul be revalued as under:
Sundry debtros at book value less 5% provision for bad debts. Stock at Rs. 40,000, plant and Machindery at Rs. 80,000.
(e) The profits of the firm for the years 2011, 2012, 2013 were Rs. 40,000, 28,000 and Rs. 34,000 respectively.
Prepare Revaluation A/c, Partner’s Capital A/c and the Balance Sheet of the new firm.
Solution:Revaluation A/c
Dr. Cr.
Particulars Amount Particulars Amount
To prov. For Bad debts A/cTo Stock A/c
600
10,000
By Plant and Machinery A/cBY Capitals A/cW 360R 240
10,000
600
10,600 10,600
Partner’s Capital A/cDr. Cr.
Particulars
W R B Particulars W R B
To Rev. A/c
To Bal. c/d
360
110840
240
80560
60000
By Balance b/dBY Cash A/cBy P&L A/cBy Prem for G/w
80000
1800013200
60000
120008800
60000
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111200 80800
60000 111200 80800 60000
To CashTo Bal. c/d
1184099000
1456066000
60000By Balance b/d
110840 80560 60000
110840 80560
60000 110840 80560 60000
Balance SheetAs on 31st March 2014
Liabilities Amount Assets Amount
CreditorsCapitalsW 99,000R 66,000B 60,000
40,000
2,25,000
CashSundryDebtors40,000Less: Prov. 2,000StockPlant and MachineryPatents
65,600
38,00040,00080,00041,400
2,65,000 2,65,000
Working Notes:
(i) Let total profit = 1B’s share = 4/15Remaining profit = 1 – 4/15 = 11/15W’s share = 11/15X3/5 = 33/75R’s share = 11/15X2/5 = 22/75B’s share = 4/15=20/75New profit sharing ratio of W, R and B
= 33/75: 22/75:20/75 = 33:22:20
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(ii) Year Profit2011 40,0002012 28,0002013 34,0002014 30,000
_______Total 1,32,000
_______Average Profit = 1,32,000/4
= 33,000Goodwill = Average Profit X Number of Years Purchase
= 33,000 X 5/2= 82,500
(iii) B’s capital for 4/15th share = Rs. 60,000(iv) Total capital of firm 60,000 X 15/4 = 2,25,000
2,25,000-60,000 = 1,65,000
W’s capital = 1,65,000 X 3/5 = 99,000R’s capital = 1,65,000 x 2/5 = 33,000
OR
Distribute 2,25,000 in 33:22:20.
20. X and Y were partners in a firm sharing profits in 5:3 ratio. They admitted Z as a new partner for 1/3rd share in the profits. Z was to contribute Rs. 20,000 as his capital. The Balance Sheet of X and Y on 1.4.2014 the date of Z’s admission was as follows:
Liabilities Amount Assets AmountCreditorsCapitals:X 50,000Y 35,000General Reserve
27,000
85,00016,000
Land and BuildingPlant and MachineryStocksDebtors 20,000Less:Prov. 1,500InvestmentsCash
25,00030,00015,000
18,50020,00019,500
1,28,000 1,28,000
Other terms agreed upon were:(i) Goodwill of the firm was valued at Rs. 12,000.(ii) Land and Building were to be valued at Rs. 35,000 and Plant and
Machinery at Rs. 25,000.(iii) The provision for doubtful debts was found to be in excess by Rs. 400.
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(iv) A liability for Rs. 1,000 included in sundry creditors was not likely to arise.
(v) The capitals of the partners be adjusted on the basis of Z’s contribution of capital in the firm.
(vi) Excess or shortfall if any to be transferred to accounts. Prepare Revaluation Account, Partners’ Capital Accounts and the Balance sheet of the new firm.
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CHAPTER-5
RETIREMENT AND DEATH OF A PARTNER
LEARNING OBJECTIVES Meaning of Retirement of a Partner New Profit sharing ratio after retirement/death Gaining ratio of remaining partners Adjustment of Goodwill Revaluation of Assets and Liabilities Adjustment of Accumulated Profits and Losses Computation of amount due to retiring partner Adjustment of Capital Accounts of the remaining partners in New Profit-sharing ratio Death of partner Preparation of Deceased Partner’s Capital Account and Executor’s Account
Meaning of Retirement of a Partner:Retirement of a partner is one of the modes of reconstituting the firm under which an old partnership comes to an end and a new one between the continuing partners '(I,e, partners other than the outgoing partner) comes into existence. However, the firm continues its business.
New Profit sharing ratio after retirement/death:New profit sharing ratio is the ratio in which the remaining partner will share future profits after the retirement or death of any partner.
New Share = Old share + Gaining share.
Gaining ratio of remaining partners:Gaining ratio is the ratio in which the continuing partners have acquired the share from the retiring deceased partner.
Gaining ratio = New ratio – Old Ratio The basic rule is that gaining partner shard compensate the sacrificing partner to the extent of their gain for the respective share of goodwill.
Adjustment of Goodwill: If goodwill already appears in the books, it will be written off by debiting all partner’s capital account in their old profit sharing ratio.
All Partners' Capital A/cTo outgoing Partner's Capital A/c
Give credit for outgoing partners' (i.e. retiring/deceased partner) share of goodwill to outgoing partner. Following entry is passed.:
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Continuing Partners' Capital Current A/c …. Dr. [In gaining ratio]To Outgoing Partner's Capital/Current A/c
Revaluation of Assets and Liabilities:Revaluation of Assets and Liabilities: At the time of retirement/death of a partner, there may be some assets which may not have been shown at their current values.
Adjustment of Accumulated Profits and LossesThe reserves (Accumulated profits) or losses belong to all the partners and should be transferred to capital account of all partners on retirement.
Computation of amount due to retiring partnerRetiring partner/deceased partner may be paid in one lump sum or installments with interest.
Adjustment of Capital Accounts of the remaining partners in New Profit-sharing ratioDeath of partner
At the time of retirement/death of a partner, the remaining partner may decide to keep their capital contributions in their profit sharing ratio.
Preparation of Deceased Partner’s Capital Account and Executor’s Account
QUESTIONS: (1 MARK)
1. What is meant by retirement of a partner?2. Define gaining ratio.3. How is gaining ratio calculated?4. When is Partner’s Executors Account prepared?5. Why is gaining ratio calculated?6. A, B and C are partners sharing profits in the ratio of 3:2:1. B retires and the new
profit sharing ratio between A and C is 3:1. State the gaining ratio.7. State the need for treatment of Goodwill on retirement of a partner.8. P, Q and R were partners in a firm sharing profits in the ratio of 5:4:3. Their capitals
were Rs. 40,000, Rs. 50,000 and Rs. 1,00,000 respectively. State the ratio in which the goodwill of the firm amounting to Rs. 1,20,000 will be adjusted on the retirement of R.
9. Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 4:3:2. Mohan retired, his share was taken over equally by Ram and Sohan. In which ratio
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will the profit or loss on revaluation of assets and liabilities on the retirement of Mohan be transferred to the capital account of the partners?
10. State any two deductions that may have to be made from the amount payable to the legal representatives of a deceased partner.
11. What are the different ways in which a partner can retire from the firm?12. Distinguish between Sacrificing Ratio and Gaining ratio.13. Write the various matters that need adjustments at the time of retirement of a partner.
PRACTICAL PROBLEMS (6 OR 8 MARKS)1. R, S and M were carrying on business in partnership sharing profits in the ratio of
3:2:1, respectively. On March 31, 2009, Balance Sheet of the firm stood as follows:Balance Sheet as on March 31, 2009
Liabilities Amount Assets AmountCreditorsCapitals:R 40,000S 15,000M 25,000
32,000
80,000
BuildingDebtorsStockPatentsBank
46,00014,00024,00016,00012,000
1,12,000 1,12,000
S retired on the above mentioned date on the following terms:(a) Buildings to be appreciated by Rs. 14,000(b) Provision for doubtful debts to be made @ 5% on debtors, stock is valued at Rs.
20,700.(c) Goodwill of the firm to be valued at Rs. 18,000.(d) Rs. 10,000 to be paid to S immediately.
Prepare Revaluation A/c, Partner’s Capital A/c and Balance Sheet.(Ans. Revaluation A/c = 10,000, R’s capital A/c = Rs.40,500, M’s Capital A/c = Rs. 15,167, S’s capital A/c = Rs.24.333)
2. Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and goodwill of the firm is valued at Rs. 1,80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Pass necessary Journal entries.Journal
Aparna’s Capital A/c Dr. 18,000Sonia’s Capital A/c Dr. 42,000
To Manisha’s Capital A/c 60,000(Goodwill credited to Manisha’s capital and debited to continuing partners’ capitals in the gaining ratio) (3)
3. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1 on March 31, 2007, Naman retiresThe various assets and liabilities of the firm on the date were as follows:Cash Rs. 10,000, Building Rs. 1,00,000, Plant and Machinery Rs. 40,000, Stock Rs. 20,000, Debtors Rs. 20,000 and Investments Rs. 30,000.
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The following was agreed upon between the partners on Naman’s retirement:(i) Building to be appreciated by 20%.(ii) Plant and Machinery to be depreciated by 10%.(iii) A provision of 5% on debtors to be created for bad and doubtful debts.(iv) Stock was to be valued at Rs.18,000 and Investment at Rs. 35,000.
Record the necessary Journal entries to the above effect and prepare the revaluation account.(Ans. Revaluation A/c = Rs. 18,000)
4. Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On april 1, 2013, Sheela retires from the firm. On that date, their Balance Sheet was as follows:
Liabilities Amount Assets AmountCreditorsBills PayableExpenses OwingGeneral ReserveCapitals:Radha 15,000Sheela 15,000Meena 15,000
3,0004,5004,50013,500
45,000
Cash in HandCash at BankDebtorsStockFactory PremisesMachineryLoose Tools
1,5007,50015,00012,00022,5008,0004,000
70,500 70,500
The terms were:(a) Goodwill of the firm was valued at Rs. 13,000.(b) Expenses owing to be brought down to Rs. 3,750.(c) Machinery and Loose Tools are to be valued at 10% less than their book value.(d) Factory premises are to be revalued at Rs. 24,300.
Prepare :1. Revaluation account.2. Partner’s capital accounts and 3. Balance Sheet of the firm after retirement of Sheela.
5. Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3:2:1. Naresh retired from the firm due to his illness. On that date the Balance sheet of the firm was as follows:
Balance sheet as on March 31st 2013Liabilities Amount Assets AmountGeneral ReserveSundry CreditorsBills PayableOutstanding SalaryProvision for legal damages
12,00015,00012,0002,2006,000
BankDebtors 6,000Less: Provision for D.debts 4,00Stock
7,600
5,6009,00041,000
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CapitalsPankaj 46,000Naresh 30,000Saurabh 20,000 96,000
FurniturePremises
80,000
1,43,200 1,43,200
Additional Information:(i) Premises have appreciated by 20% ,Stock depreciated by 10% and provision for
doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs. 1,200 and furniture to be brought up to Rs. 45,000.
(ii) Goodwill of the firm be valued at RS. 42,000.(iii) Rs.26,000 from Naresh’s Capital Account be transferred to his loan account and
balance be paid through bank; if required, necessary loan may be obtained from bank.
(iv) New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.Give the necessary ledger accounts and Balance Sheet of the firm after Naresh’s retirement.(Ans. Revaluation A/c – Rs. 18,000; Balance Sheet – 1,54,000)
6. Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of ½, 1/6 and 1/3 respectively. The Balance Sheet on april 1, 2013 was as follows:
Liabilities Amount Assets AmountBills PayableSundry creditorsReservesCapital AccountsNarang 30,000Suri 30,000Bajaj 28,000
12,00018,00012,000
88,000
Freehold PremisesMachineryFurnitureStockSundry Debtor20,000Less:Provision 1,000Cash
40,00030,00012,00022,000
19,0007,000
1,30,000 1,30,000
Bajaj retires from the business and the partners agree to the following:(a) Freehold premises and stock are to be appreciated by 20% and 15%
respectively.(b) Machinery and furniture are to be depreciated by 10% and 7% respectively.(c) Bad debts reserve is to be increased to Rs. 1,500.(d) Goodwill is valued at Rs. 21,000 on Bajaj’s retirement.(e) The continuing partners have decided to adjust their capitals in their new profit
sharing ratio after retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.(Ans. Revaluation A/c – Rs. 6,960, B/s total – Rs. 1,51,960)
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7. The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2013
Liabilities Amount Assets AmountBills PayableSundry CreditorsReserve FundCapital Accounts:Rajesh 20,000Pramod 15,000Nishant 15,000
6,25010,0002,750
50,000
Factory BuildingDebtors 10,500Less: Reserve 500Bills ReceivableStockPlant and MachineryBank Balance
12,000
10,0007,00015,50011,50013,000
69,000 69,000
Pramod retires on the date of Balance Sheet and the following adjustments were made:(a) Stock was valued at 10% less than the book value.(b) Factory buildings were appreciated by 12%.(c) Reserve for doubtful debts be created up to 5%.(d) Reserve for legal charges to be made at Rs. 265.(e) The goodwill of the firm be fixed at Rs. 10,000.(f) The capital of the new firm be fixed at Rs. 30,000. The continuing partners decide
to keep their capitals in the new profit sharing ratio of 3:2.Pass Journal entries and prepare the Balance Sheet of the reconstituted firm after transferring the balance in Pramod’s capital Account to his loan account. (Ans. B/s Total = Rs. 65,220)
8. A, B and C are partners in a firm sharing profits and losses in the ratio of 3:2:1. Their Balance Sheet as at 31st March, 2014 is
Liabilities Amount Assets AmountCreditorsBills PayableGeneral ReserveCapital A/csA 40,000B 40,000C 30,000
30,00016,00012,000
1,10,000
Cash in HandDebtors 25,000Less: Provisio3,000StockFurnitureMachineryGoodwill
18,000
22,00018,00030,00070,00010,000
1,68,000 1,68,000
B retires on 1st April, 2014 on the following terms:(a) Provision for Doubtful Debts be raised by Rs. 1,000.(b) Stock to be depreciated by 10% and Furniture by 5%.(c) There is an outstanding claim for damages of Rs. 1,100 and it is to be provided for.(d) Creditors will be written back by Rs. 6,000.(e) Goodwill of the firm is valued at Rs. 22,000.
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(f) B is paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at Rs. 10,000.Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of A and C.(Profit on revaluation – Rs.600, Goodwill Dr. A – Rs. 5,500and C – Rs. 1,833; Cr. B – 7,333, Balance Sheet Total- Rs. 1,45,700)
Death of a partner Competation of amount due to deceased partner Amount standing to the credit of the deceased partner’s capital account. His share of goodwill lf the firm. His share of prifit in revaluation of assets and reassessment of liabilities. His share of accumulated profit of reserve. Int. on capital upto date of his death, if allowed by the partnership deed.
Follow amounts are debited to his accountHis share of loss on revaluation of the assets and reassessment of liabilities , if any
His share of accumulated losses His drawings. Int. on drawings. Int. on drawings and his share of loss if any
Calculation of deceased partner’s share profit
According to profit basis According to sales basis
1. A,B and C were partners in a firm. C died on 28th Feb 2014. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average profit of three complete years before death, profit for 2011 2012 and 2013 were Rs. 1400 and Rs. 1600 and Rs. 1800 respectively.Calculate C’s share of profit till his death.
Ans:- Average profit = 14,000 +16,000 +18,000
3=48,000=16,000
3
Estimate profit till the date of death = 16,000 X 212 = 2666.66
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C’s share of estimated profit = 2666.66 x 13 = 888.8
2. If profit till the date of death are to be ascertained A B and sharing profit in the ratio of 2:2:1 B died on 31st March 2014,Accounting are closing on December sales for the year 2013 amounted to Rs. 9,00,000 , sales of Rs. 3,00,000 amounted between the period from 1 Jan 2014 to 31 March 2014. The profit for the year 2013 amounted to Rs. 90,000.Calculate deceased partner’s share in the Profit of the firm.
Solution:- % of profit to sale for the year 2013 = 90,000
9,00,000 X 100 = 10%
Profit up to death 10% of 3,00,000 i.e. 30,000
B’s share 30,000 X 25 = 12,000
Or90,000
9,00,000 X 3,00,000 = 30,000
1 mark question3. A B and C are partners sharing profit and losses in the ratio 2:2:1 . C died on 31st
March 2014 profit and sales for the calendar year 2013 were Rs. 3,00,000 and Rs. 30,00,000 respectively. Sales during Jan to March 2014 were 4,50,000. Calculate share and profit of C up to date of death.Hint:- C’s share 9,000.
4. D P and G were partner in a firm sharing profit and losses in the ratio of 5:3:2 . P died on 31May 2013 his share of profit from the closure of the last accounting year to the date of death , was to be calculated on the basis of the average of three completed years of profit, before death, profit for the years ended 31stdec 2010,2011,2012 were Rs. 51,000 Rs. 45,000 and 39,000 respectively.Calculate P’s share of profit.Hint:- 5,625
4 0r 35. P R and S are in partnership sharing profit 4:3:1, respectively. It provided in
the partnership deed that on the death of any partner his share of goodwill is
to be valued at 13 (one third) of the net profit credit to the account during the last
four completed years. R died on 1st Jan 2014.The firm profit for the four years were as:-2010 Rs. 2, 40,000 2014 Rs. 1, 60,000 2012 Rs. 80,000 2013 Rs. 1, 20,000.(a) Determine the amount that should be Credited to R in respective of his share
of goodwill(b) Pass Journal entry without goodwill A/C for its adjustment.
6. Ram and Shyam in partnership sharing profit and losses 3:2 .Shyam died three months after the date of the last Balance Sheet. According to the partnership
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deed, the legal personal representatives shyam are entitle to the following payments.(a) His Capital as per the last Balance sheet.(b) Interest on above capital @ 10% till the date of death.(c) His sharing of profit till the date of death. Calculate on the basis of last year’s
profits. His drawings are to bear Interest at an average rate of 6% on the amount irrespective of the profit.The Netr profit for the last three years after charging insurance premium were Rs.60,000 , Rs. 75,000 and Rs. 90,000 respectively. Shyam’s Capital as per Balance Sheet was Rs. 1,20,000 and his drawings till the date death were Rs. 15,000.Draw Shyam’s Account to be rendered to his representatives. (6)
7. K L and M are partners in firm sharing profits in the ratio of 1 : 1 ;3 respectively . Their Capital Accounts showed for following balance on 31.3.2014 K Rs. 2,10,000 L Rs. 1,95,000 and M Rs. 6,30,000. From closes its accounts every year on 31st March K died on 1 Aug 2014. In the event of death of any partner , the partnership deed provides for the following:- (a) Interest on capital will be calculated at the rate of 10% p.a.(b) The deceased partner’s share in the goodwill of the firm will be calculated as
the basis of 2 years purchases of the average profit of last three years. The profit of the firm for the last three years were Rs. 2,70,000Rs. 3,00,000 Rs. 3,30,000.
(c) His share in the reserve fund of the firm will be paid. The reserve fund of the firm was Rs. 1,80,000 at the time of K’s death.
(d) His share of profit till the date of death will be calculated on the basis of sale. It is also specified that the sales during the year 2013-14 were Rs. 60,00,000. The sales from 1st April 2014 to 1st Aug 2014 were Rs. 1,20,000. The profit of the firm for the year ending 31st March 2014 was Rs. 6,00,000 prepare K’s Capital Account to be presented to this legal representatives.(8) A B and C were partners in a firm sharing profit and losses equally,Their Balance sheet on 31.12.2013.
Liabilities Rs. Assets Rs.
Capital A 14,000 B 14,000 C 14,000 42,000
6,000
4,000
Plant and machinery
Stock
Debtors
Cash on Balance
Goodwill
12,000
6,000
19,000
8,000
7,000
52,000 52,000
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B. Died on 14 March 2014. According to the partnership deed, executors of the deceased partner are entitled to :- (1) Balance of partner’s Capital account.(2) Interest on Capital @5%p.a.(3) share of goodwill calculated on the basis of twice the average of part three year’s profit and (4) share of profit from the c/o of the last accounting year till the date of death on the basisof twice the average of three completed year’s profit before death. Profit for 2011,n 2012 and 2013 were Rs. 16,000 , Rs. 18,000, Rs. 20,000 respectively.Pass the necessary Journal entries and prepare B’s capital Account to be rendered to his executes.
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CHAPTER-6
DISSOLUTION OF PARTNERSHIP FIRMLearning Objectives
Meaning of dissolution Dissolution of Partnership Dissolution of Firm Mode of dissolution of a firm. Settlement of Accounts in case of Dissolution of Firm Treatment of Firm’s Debts and Private Debts Accounting treatment on Dissolution
Meaning of dissolution:The term 'Dissolution stands for discontinuation. Under The Indian PartnerShip Act. 1932, the dissolution may be either of partnership or of a firm.
Dissolution of PartnershipDissolution of Partnership means termination of the old partnership agreement and a reconstitution of the firm due to admission, retirement or death of a partner.
Dissolution of Firm:Dissolution of Partnership firm means that the firm close down its business activities assets are sold out, liabilities are paid off, balance if any distributed among partners as cap.
Mode of dissolution of a firm.(i) Voluntary dissolution(ii) Compulsory dissolution(iii) Dissolution by court(iv) Dissolution by notice.
Settlement of Accounts in case of Dissolution of Firm:(i) Realisation Account: The object of realization account is to close the books of
account of a dissolved firm and to compute the net effect of realization of various assets and payments of various liabilities.
FORMAT OF REALISATION A/CDr. Cr.Particulars Amount Particulars AmountTo Sundry Assets A/c ( excluding cash, bank, fictitious assets, accumulated losses, debit balance of Partners’ capital/current a/c, loans to partners)To Provision on Any Liability A/cTo Bank/Cash A/c(amount paid for discharging liabilities)To Bank/Cash A/c (expenses on
_
_
__
By Sundry liabilities A/c (excluding partners’ capital, loan from partners reserve, accumulated profit etc.)By Provision on Any Assets A/cBy Bank/Cash A/c (amount received on realization of assets)
_
__
_
_51
realization)To Partner’s Capital/Current A/c(liability taken over by a partner or remuneration/commission paid to him or any expenses beared by him)To Partners’ Capital/Current A/c (profit on realization)
_
_
By Bank/Cash A/c (amount received from unrecorded assets)BY Partner’s Capital A/c(assets taken over by a partner recorded or unrecorded)By partner’s capital/Current A/c (loss on realization)
_
TREATMENT OF REALISATION EXPENSES(a) When Realisation expenses are paid by firm and borne by firm
Realisation A/c Dr.To Cash/Bank A/c (Actual amount)
(b) When expenses are paid by any partner and borne by firmRealisation A/c Dr.
To Partners Capital A/c (Actual amount)(c) When expenses are paid by firm and borne by partner
Partners Capital A/c Dr.To Cash/Bank A/c (Actual amount)
(d) When a partner is paid a fixed amount for the purpose of bearing realization expenses and actual expenses are borne by partnerRealisation A/c Dr.
To Partner’s Capital A/c (amount fixed by firm)
(ii) Partner Loan Account:The loan advanced by a partner to the firm shall be paid off after all the outside liabilities are paid in full.Journal EntryPartner’s Loan A/c Dr.
To Bank A/c
(iii) Partner’s Capital Accounts:Balances of partners’ capital account and current account are recorded in this account.Any asset of firm, taken over by the partner is recorded on the debit side of their capital account and any liability taken over is recorded on the credit side of their capital account.
(iv) CALCULATION OF MISSING FIGURES BY PREPARATION OF MEMORANDUM BALANCE SHEET:
When Balance sheet is not given but some items of Balance sheet are given then students should prepare Balance sheet with the help of given items and find out the missing figures as Balancing amount.
52
For eg. If liabilities and Capital A/C s are given then the value of assets could be found out as balancing figure.TREATMENT OF CERTAIN OF SPECIFIC ITEMS
Deferred Revenue Expenditure/P&L A/c loss/Advertisement Expenditure – transferred to the Dr. side of Partner’s capital a/c in profit sharing ratio.
Partner’s current a/c – Transferred to Dr. side of Capital A/c if given in the assets side. Transferred to Cr. Side of capital A/c if given in the liabilities side.
P&L A/c (profit), General Reserve – transferred to Cr. Side of Capital A/c in profit sharing ratio.
Joint Policy Reserve A/c, Investment Fluctuation Fund, Plant and Machinery replacement reserve, Reserve for discount on Creditors – If Joint policy, investment, plant and machinery,creditors appears in the B/s then these items will be transferred to Realisation A/c otherwise these items will be transferred to Cr. Side of capital A/cs in profit sharing ratio.
Provident fund – It is a liability towards the workers, so it will be transferred to the Realisation Account and its payment will be made.
Treatment of Firm’s Debts and Private Debts:
Application of Firm's Property: Firm's property shall be applied first in payment of firm's debts then the surplus, (if any), shall be applied in the payment of partner's private debts to the extent to which the concerned partner is entitled to share in the surplus.
Application of Partner's Pvt Property: Partner's private property shall be applied first in payment of his private debts and the surplus, (if any), in payment of firm's debts if the firm's liabilities exceed the form's assets.
QUESTIONS: (1 MARK)
1. What is meant by Dissolution of firm?
2. Give any one difference between Reconstitution of firm and dissolution of firm
3. What is Realisation A/c?
4. Difference between firm's debts and private debts?
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5. Difference revaluation a/c and realization a/c?6. A and B are partners in a firm sharing profit in the ratio 3:2. Mrs A has given a loan
of Rs. 10,000 to the firm and the firm also obtains a loan of Rs. 5,000 from B. the firm was dissolved and its assets were realized for Rs. 12,500. State the order of payment of Mrs. A loan and B’s loan with reason if there were no creditors of firm.Ans. According to sec 48, of the Indian Partnership Act, 1932, MrsA loan of Rs. 10,000 will be paid first and after that B’s loan will be paid upto the available cash Rs. 2,500.
7. In case of dissolution of firm which liabilities are to be paid first?Ans. In case of dissolution of firm the debt of the firm to the third party (outsiders) are to be paid first.
8. In case of dissolution of a firm which item on the liabilities side are to be paid last?Ans. Payment of the capital a/cs of partners i.e. settlement of capital a/cs of the partners which are left after transferring losses profit, reserve and effecting entry relating to dissolution.
9. When an assets are taken over by partner, why is his capital a/c dr.?Ans.Because the claim of capital a/c is reduced by the value of that assets.
10. When a liability is to be discharged by a partner, why is his capital a/c credited?Ans. Because the claim of the partner against the firm is increased by the amount of liability assumed.
(3 MARKS)11. (FOR BRIGHT STUDENTS) The firm of Ram and Mohan was dissolved on 1st
March 2014. According to the agreement Ram had agreed to undertake the dissolution work for an agreed remuneration of Rs. 4,000 and bear all realization expenses. Dissolution expenses were Rs. 3,000 and the same were paid by the firm. Pass the necessary journal entry for the payment of dissolution expenses.
Ans. (1) Realisation expenses a/c Dr. 4,000To Ram’s Capital A/c 4,000
(2) Ram’s Capital A/c Dr. 3,000To Cash A/c 3,000
12. Give any four points of difference between Dissolution of Partnership and Dissolution of firm.
PRACTICAL PROBLEMS:13. (FOR BRIGHT STUDENTS) The amount of sundry assets transferred to Realisation
A/c was Rs. 80,000, 60% of them have been sold at a profit of Rs. 2,000. 20% of the
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remaining were sold at a discount of 30% and remaining were taken over by Z ( a partner) at book value. Journalise.
Ans.(HINT ; Bank A/c Dr. 54,480To Realisation A/c 54,480
Z’s Capital A/c Dr. 25,600To Realisation A/c 25,600)
14. Record the necessary Journal entry(a) Creditors worth Rs. 85,000 accepted Rs. 40,000 as cash and investments worth
Rs. 43,000, in full settlement of their claim.(b) Creditors were worth Rs. 16,000. They accepted machinery valued at Rs.
18,000 in settlement of their claim.(c) Creditors were worth Rs. 90,000. They accepted buildings valued at Rs.
1,20,000 and paid cash to the firm Rs. 30,000.
Ans. JOURNAL(a) Realisation A/c Dr. 40,000
To Cash A/c 40,000(b) No entry(c) Cash A/c Dr. 30,000
To Realisation A/c 30,000
(6 MARKS)
15. Pass the journal entry for the following transactions of Aakash and Prakash after the various assets other than cash and outside liabilities have been transferred to Realisation A/c
(a) Bank loan Rs. 2,40,000 was paid.(b) Stock worth Rs. 3,20,000 was taken over by Partner Prakash.(c) Partner Aakash paid a creditor Rs. 80,000.(d) An Asset not appearing in the books of accounts realized Rs. 2,40,000.(e) Expenses of RealisationRs. 40,000 were paid by partner Prakash.(f) Profit of realization Rs. 7,20,000 were distributed between partners in 5:4.
16. Pass the necessary journal entry for the following transaction on the dissolution of the firm of Sheena and Meena after the various assets other then cash and outside liabilities have been transferred to Realisation A/c
(a) Sheena agreed to pay off her husband’s loan Rs. 3,80,000.(b) A debtor whose debt of Rs. 18,000 was written off in his books was paid Rs.
15,000 in full settlement.(c) Meena took over all investment at Rs. 2,66,000.(d) Sundry creditors Rs. 2,00,000 were paid at 9% discount.(e) Realisation expenses Rs. 34,000 was paid by Sheena for which she was
allowed Rs. 30,000.(f) Loss on realization Rs. 94,000 was divided between Sheena and Meena in 3:2.
(hint. (e) Realisation A/c Dr. 30,000To Sheena’s capital A/c 30,000)
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17. (for bright students) Record the necessary journal entries for the following unrecorded assets and liabilities of Paras and Priya.
(a) There was an old furniture in the firm which had been written off completely in the books. This was sold for Rs. 30,000
(b) Ashok an old customer whose account for Rs. 10,000 was written off as bad in the previous year paid 60% of the amount.
(c) Paras agreed to take over the firm’s goodwill (not recorded in the books) as a valuation of Rs. 3,00,000.
(d) There was an old typewriter which had been written off completely from the books. It was estimated to realize Rs. 40,000. It was taken away by Priya at an estimated price less 25%.
(e) There was 1,000 shares of Rs. 10 each in Star Ltd. Acquired at a cost of Rs. 20,000 which had been written off completely from the books. These shares are valued at Rs. 6 each and divided among the partners in their profit – sharing ratio.
(f) Priya took over the stock cost Rs.80,000 at Rs. 60,000.
(8 MARKS)18. A and B were partners in a firm sharing profit in the ratio of 3:5 on 31st March 2014
there balance sheet was as follows:
liabilities Amount Assets Amount
CapitalA 6,00,000B 10,00,000CreditorsEmployees Provident Fund
16,00,0003,58,000
42,000
Land & BuildingMachineryDebtorsCash at Bank
8,00,0006,00,004,44,0001,56,000
20,00,000 20,00,000
The firm was dissolved on 1st April 2014 and the Assets and liabilities were follows:(a) Land and building realized Rs. 8,60,000.(b) Debtors realized Rs. 4,50,000 ( with interest) and Rs. 2,000 were
recovered for bad debts written off last year.(c) There was an unrecorded investment which was sold for Rs. 50,000.(d) B took over machinery at Rs.. 5,60,000 for cash.(e) 50% of the creditors were paid Rs. 8,000 less in full settlement and the
remaining creditors were paid full amount.Prepare Realisation A/c, Capital A/cs and Balance Sheet.(Hint.Realisation Profit – Rs. 43,000)
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19. P, Q and R were partners in a firm sharing profits and losses in the ratio of 5:3:2. They agreed to dissolve thir partnership firm on 31st March 2014. P was deputed to realize the assets and pay the liabilities. He was paid Rs. 2,000 as commission for his services. The financial position of the firm was as follows:
Balance SheetAs on 31st March, 2014
liabilities Amount Assets Amount
CreditorsBills PayableInvestment Fluctuation FundCapitals:P 75,000Q 30,000
20,0007,4009,000
1,05,000
Plant and MachineryStockInvestmentsAccounts Receivable 14,200Less: 9,00CashR’s Capital
60,00010,10030,000
13,30011,20016,000
1,41,500 20,00,000
P took over investments for Rs. 25,000. Stock and debtors were realized Rs. 23,000. Plant and Machinery were sold to Q for Rs. 45,000 for cash. Unrecorded assets realized for Rs. 3,000. Reaisation expenses paid Rs. 1,800.Prepare necessary Ledger Accounts to close the books of the firm.(Ans. Loss on Realisation – Rs. 13,100)
20. (for bright students) K,P and A decided to dissolve their partnership on 31st march 2014. Their profit sharing ratio was 3:2:1 and their balance sheet was as under
Balance Sheet As at 31st March 2014
liabilities Amount Assets Amount
CapitalKaran 80,000Parkash 40,000Bank LoanSundry CreditorsProvision for Doubtful debtsGeneral Reserve
1,20,00020,00037,0001,20012,000
Land and BuildingStockSundry DebtorsA’s capitalCash
81,00056,76018,60023,00010,840
1,90,200 1,90,200
The stock of value of Rs. 41,600 are taken over by Karan for Rs. 35,000 and he agreed to discharge bank loan. The remaining stock was sold at Rs. 14,000 and
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debtors amounting to Rs. 10,000 realisedRs. 8,000. Land is sold for Rs. 1,10,000. The remaining debtors realized 50% at their book value. Cost of realization amounted to Rs. 1,200. There was a typewriter not recorded in the books worth Rs. 6,000, which were taken over by one of the creditors at this value. Prepare realization account, partner’s capital account and cash account.(Hint: Profit on Realisation- Rs. 20,940, Total of Cash Account – Rs. 1,64,650)
21. Ram, Mohan and Sohan are partners sharing their profits and losses in the ratio of 5:3:2. On 31st March 2014, Ram’s capital and Mohan’s Capital were Rs. 1,80,000 and Rs. 1,20,000 respectively. But Sohan owed Rs. 30,000 owed Rs. 30,000 to the firm. The Creditors were of Rs. 1,20,000. The assets realized Rs. 3,00,000.
Prepare Realisation Account, Partner’s Capital Accounts and Bank Account.
Solution:Dr. REALISATION ACCOUNT Cr.
PARTICULARS Amount PARTICULARS Amount
To Sundry Assets A/c (W/N)To Bank A/c – Creditors
3,90,0001,20,000
By CreditorsBy Bank A/c – Assets RealisedBY Loss tr. ToRam’s Capital A/c 45,000Mohan’s Capital A/c 27,000Sohan’s Capital A/c 18,000
1,20,0003,00,000
90,000
5,10,000 5,10,000
Dr. PARTNER’S CAPITAL ACCOUNT Cr.
PARTICULARS
RamRs.
MohanRs.
SohanRs.
PARTICULARS
RamRS
MohanRs.
SohanRs.
To bal. b/dTo real. A/c (loss)To Bank A/c (amount paid)
-----45,000
135000
-----27,000
93000
3000018000
-----
By bal. c/dBy Bank A/c(Amount received)
180000
120000
-----48000
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180000
120000
48000
180000
120000
48,000
BANK ACCOUNTDr. Cr.
PARTICULARS Amount PARTICULARS Amount
To Realisation A/c – Assets realizedTo Sohan’s capital A/c – amount received
3,00,000
48,000
By Realisation A/c – CreditorsBy Ram’s Capital A/c – Amount paidBy Mohan’s Capital A/c – Amount paid
1,20,000
1,35,000
93,000
3,48,000 3,48,000
WORKING NOTE:Dr. MEMORANDUM BALANCE SHEET Cr.
LIABILITIES Amount ASSETS Amount
CreditorsCapital A/csRam 1,80,000Mohan 1,20,000
1,20,000
3,00,000
Sohan’s CapitalSundry Assets (B.f.)
30,0003,90,000
4,20,000 4,20,000
22. A and B were partners from 1st April 2014 with capitals of Rs. 600,000 and Rs. 400,000 respectively. They shared profits in the ratio of 3:2. They carried on business for two years. In the first year ended 31st March, 2013,they earned a profit of Rs. 500,000 but in the second year ended 31st March 2014 a loss of Rs. 200,000 was incurred . As the business was no longer profitable, they dissolved the firm on 31st March, 2014, creditors on that date were Rs. 20,0000. The partners withdrew for personal use Rs. 80,000 per partner per year. The assets realisedRs. 1,00,0000. The expenses of realization were Rs. 30,000.
Prepare Realisation Account, Partner’s Capital Account and Cash Account.(Ans. Realisation loss – Rs. 2,10,000, Sundry Assets – Rs. 1,18,000)
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CHAPTER - 7SHARE CAPITAL
ACCOUNTING FOR SHARE CAPITAL
LEARNING OBJECTIVES Meaning of a company Meaning of Share capital Classification of share capital Types of shares Issue of shares Private placement of shares. Understand the meaning of forfeiture of shares. forfeiture and reissue of shares. Differentiate between capital reserve and reserve capital Understand the disclosure of the share capital in the balance sheet.
Meaning of a company:A Company is an organization formed by an association of persons through a process of law for undertaking a business venture under companies Act 1956.
Meaning of Share capital:Share Capital is the amount invested by owners(share holders) of the company in small units.
Classification of share capital:
i. Authorised Share capital – maximum capital that a company can raise.ii. Issued share capital – issued by company for subscription.iii. Subscribed share capital – part of issued share capital that is subscribed by public.iv. Called up amount – amount of nominal value called up for payment.v. Paid up amount – amount received by company.
Types of shares:Share: A share is one of the units into which the capital of the company is divided.Types:
i. Preference Share: ii. Equity Share: An equity share is a share which is not a preference share.
Issue of shares:At par: When they are issued at a price equal to the face value.At premium: When they are issued at a price higher than the face value.
Securities Premium Reserve – Can be utilized for the following purposes: Issuing fully paid bonus shares. Writing off preliminary expenses. Writing off expeses such as share issue expenses, commission, discount allowed etc.
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Providing for premium payable on redemption of debentures or Preference shares. In buying back its own shares.
At discount: When they are issued at a price lower than the face value. Shares cannot be issued at discount of more than 10% of the face value except with
the permission of the central government.
Issue of shares for consideration other than cash-When the company purchases some assets or business, instead making the payment to the supplier in the form of cash, it issues its fully paid shares, such issue of share is called as the issue of shares for consideration other than cash. Such shares can be issued at par, premium or at discount.
Example: X ltd purchased machinery from Y ltd. Rs. 4,95,000 payable 20% in cash and the balance by the issue of fully paid equity shares of 100 each at par.Solution:
Machinery A/c Dr. 4,95,000To Y ltd. 4,95,000
(Being purchase of machinery from vendor)
Y ltd. Dr. 99,000To Cash A/c 99,000
(Being 20% paid in cash)
Y ltd Dr. 3,96,000To Equity share capital 3,96,000
(Being 3,600 shares issue to vendor at par)
Oversubscription of Shares – means shares applied for are more than shares offered for subscription.
Pro-rata allotment – means allotment of shares in some fixed proportion.
Undersubscription of shares – means shares applied for are less than the shares offered for subscription.
Call – instalment demanded by company out of nominal amount.
Calls-in-arrear - is the amount not yet received by the company against the calls or call demand.Calls-in-advance – is the amount received by the company from its allottee against the calls not yet made.Forfeiture of shares – means cancellation of shares and forfeiting the amount received against the share.
Re – issue of forfeited shares – can be re-issued.
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If the shares are reissued at a price lower than its face value the maximum discount that the company may allow is
When shares were originally issued at par or premium – the amount credited to forfeited shares account.
When shares were originally issued at a discount – the amount credited to Forfeited account + amount of original discount.
Private placement of shares- refers to issue and allotment of shares to a selected group of persons.Differentiate between capital reserve and reserve capital - Reserve capital – a part of subscribed share capital that a company resolves, by a special resolution, not to call, except in the event and for the purpose of company being wound up.
Capital Reserve – it is a reserve created out of capital profits.
Understand the disclosure of the share capital in the balance sheet.
1. Kanha Ltd. Was registered with an authorized capital of Rs. 2,00,000 divided into 2,00,000 Equity Shares of Rs. 100 each. The company offered for public subscription 1,20,000 Equity Shares. Applications for 1,12,000 shares were received and allotment was made to all the applicants. All the calls were made and were duly received except the second and final call of Rs. 20 per share on 1,400 shares. Prepare Balance Sheet of the company showing all different types of share capital.
Solution:BALANCE SHEET OF KANHA LTD. As at
Particulars Note no.
Rs.
I EQUITY AND LIABILITIESShareholders’ FundsShare CapitalII ASSETSCurrent assetsCash and Cash Equivalents
1
2
11,172,000
11,172,000
Notes to Accounts1. Share Capital
Authorised Share Capital1,00,000 Equity Shares of Rs. 100 each 2,00,000
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Issued Share Capital60,000 Equity Shares of Rs. 100 eachSubscribed Share CapitalSubscribed and Fully Paid-up55,300 Shares of Rs. 100 eachSubscribed but not fully paid-up700 Shares of Rs. 100 each 1,40,000Less: Calls-in Arrears 28,000
2. Cash and Cash Equivalents: Cash at Bank
120,00,000
11,060,000
1,12,00055,86,000
11,172,000
QUESTIONS (1 MARK)2. What are preference shares?
Ans. Shares which enjoy some preferential rights over equity shares like receipt of dividend, payment at the time of winding up etc.
3. What is meant by Share capital?4. What is meant by Reserve Capital?5. What is meant by Private Placement of shares?6. What is under-subscription?7. What is over-subscription?8. Vani ltd invited applications for issuing 1,00,000, 10% Preference Shares of
Rs. 100 each. Applications were received for 85,000 shares. What will be the consequences?Ans. The company will refund the application money as minimum subscription is not received.
9. What is meant by pro-rata allotment of shares?10. State any two conditions for the issue of shares at discount.
Ans. (a) if they are of class already issued.(a) company should have commenced its business one year before.
11. What are calls- in- arrear?12. What are calls- in- advance?13. What is meant by forfeiture of shares?14. What is meant by Capital Reserve?15. What is meant by issue of shares for consideration other than cash?
Ans. When company issue shares not for cash but for assets or service acquired, it is called issue of shares for consideration other than cash. Eg. For purchase of machinery etc.
16. Distinguish between over-subscription and under-subscription.17. State the purposes for which balance to the credit of securities premium can be
utilized.
PRACTICAL PROBLEMS: (4 MARKS)
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18. The authorized capital of Vandana is Rs. 90,00,000 divided into 60,000 shares of Rs.150 each. Out of these company issued Rs. 30,000 shares of Rs. 150 each at a premium of Rs. 10 per share. The amount was payable as follows:Rs. 50 per share on application, Rs. 40 per share on allotment (including premium), Rs. 30 per share on first call and balance on final call. Public applied for 28,000 shares. All the money was duly received.Prepare an extract of Balance Sheet of Vandan Ltd. As per revised Schedule VI, Part – I of the Companies Act 1956 disclosing the above information. Also prepare “Notes to Accounts” for the same.
3 Marks
19. Suri Ltd. Was registered with an authorized capital of Rs. 100,00,000 divided into Equity Shares of Rs. 10 each. The company offered for public subscription Rs. 50,00,000 shares. Public applied for Rs. 45,00,000 shares and allotment was made to all the applicants. All the calls were made and were duly received except the final call of Rs. 2 per share on 500 shares.Prepare the Balance Sheet of the company showing the different types of Share capital.(3 MARKS)
20. Sharma ltd. Purchased assets of Rs. 12,60,000 from Veer Ltd. sharma ltd issued equity shares of Rs. 100 each fully paid in consideration. What journal entries will be made, if the shares are issued (i) at par (ii) at discount of 10% and (iii) at premium of 20%.
21. Z ltd. Purchased furniture costing Rs. 44,000 from CD Ltd. The payment was to be made by issuing of 9% preference share of Rs. 100 each at a premium of Rs. 10 per share. Pass necessary journal entries in the books of Z Ltd.
22. Shyam Ltd. Purchased Machinery for Rs. 6,00,000 from Mohan Ltd. Of Rs. 2,00,000 were paid by drawing a promissory note in favour of Mohan ltd. The balance was paid by issue of equity shares of Rs. 10 each at a premium of 25%.
23. Rashi ltd issued 5,000 shares of Rs. 10 each credited as fully paid to the promoters for their services and issued 4,000 shares of Rs. 10 each credited as fully paid to the underwriters for their services. Journalise these transactions.
24. A company issued 60,000 fully paid-up shares of Rs. 100 each for purchase of the following assets and liabilities from Mehra& co.
Land and Building 24,00,000 Stock – in – trade 18,00,000Machinery 14,00,000 Sundry creditors 4,00,000You are required to pass necessary journal entries.(Ans. Goodwill – 8,00,000)
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25. A company purchased a running business form XYZ for a sum of Rs. 7,50,000 payable Rs. 6,00,000 in fully paid shares of Rs. 10 each and balance through cheque.The assets and liabilities consisted of the following:Plant and Machinery Rs. 2,00,000 Stock Rs. 2,00,000 Building Rs. 2,00,000Cash Rs. 1,50,000 Debtors Rs. 1,50,000 Creditors Rs. 1,00,000(Ans. Capital reserve – Rs. 50,000)
26. The Directors of a company forfeited 300 shares of Rs. 10 each issued at a premium of Rs. 3 per share, for the non-payment of the first call money of Rs. 3 per share. The final call of Rs. 2 per share has not been made. Half the forfeited shares were reissued at Rs. 1,500 fully paid. Record the Journal entries for the forfeited shares and reissue of shares.Solution: JOURNAL
Particulars L.F. Amt.(Dr.) Amt.(Dr.)
Share Capital a/c (600X8)Dr. To Share Forfeiture A/c (600X5) To Share First Call A/c (600X3)(Being 600 shares forfeited for the non-payment of allotment of Rs. 3 each)
2,4001,5009,00
Bank A/c (150X10)Dr.. To Share capital A/c(Being reissue of 600 shares at Rs. 3,000 as fully paid up)
1500
1500
Share Forfeiture A/c Dr. To Capital Reserve A/c(Being balance of forfeited share account transferred to capital reserve)
750750
Amount of half forfeited shares = 1500 X 150/300 = 75027. BS ltd forfeited 500 shares of Rs. 100 each for the non-payment of first call of
Rs. 30 per share. The final call of Rs. 10 per share was not yet made. The forfeited shares were reissued for Rs. 65,000 fully paid up. Pass necessary journal entries for the books of the company.Solution: JOURNAL
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Particulars L.F. Amt.(Dr.) Amt.(Dr.)
Share Capital a/c (500X90) Dr. To Share Forfeiture A/c (500X6) To Share First Call A/c (500X30)(Being 500 shares forfeited for the non-payment of allotment of Rs. 30 each)
45,00030,00015,000
Bank A/c Dr. To Share capital A/c(500X100) To Securities Premium A/c(B.f.)(Being reissue of 500 shares at Rs. 65,000 as fully paid up)
65,00050,00015,000
Share Forfeiture A/c Dr. To Capital Reserve A/c(Being balance of forfeited share account transferred to capital reserve)
30,00030,000
28. Poonam Ltd. Forfeited 200, 8% preference shares of Rs. 100 each issued at a discount of 10%, for the non-payment of the first call money of Rs. 20 each. The second and final call of Rs. 20 per share has not yet been made. The forfeited shares were reissued at Rs. 22,000 fully paid-up. Pass necessary journal entries for the forfeited shares and reissue of shares.Solution: JOURNAL
Particulars L.F.
Amt.(Dr.)
Amt.(Dr.)
8% Preference Share Capital A/c To share forfeiture A/c To Discount on Issue of Shares A/c To 8% Preference Share First Call A/c(Being 200 8% preference shares forfeited shares)
16,00010,0002,000
4,000
Bank A/c 22,000
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To 8% Preference Share Capital A/c To Securities Premium A/c(Being reissue of 200 8% preference shares at Rs. 22,000 as fully paid-up)
20,000
2,000
Share Forfeiture A/c Dr. To Capital Reserve A/c(Being balance of forfeited share account transferred to capital reserve)
10,00010,000
29. Samta ltd. Forfeited 800 equity shares of Rs. 100 each for the non-payment of first call Rs. 30 per share. The final call of Rs. 20 per share was not yet made. Out of the forfeited shares 400 were reissued at the rate of Rs. 105 per share fully paid-upPass necessary journal entries in the books of samtaltd for the above transactions.(Capital reserve = Rs. 20,000)
30. Veenu ltd. Company which had issued equity shares of Rs. 20 each at discount of Rs. 4 per share. Forfeited 1,000 shares for non-payment of final call of Rs. 4 per share. 400 of the forfeited shares are reissued at Rs. 14 per share, out the remaining shares 200 shares were reissued at Rs. 20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in share forfeiture account.(Ans. Capital reserve = 6,400)
31. Journalise the following transactions in the books of Sharma ltd.(i) 400 shares of Rs. 100 each issued at a discount of Rs. 10 per share
were forfeited for the non-payment of allotment money of Rs. 50 per share. The first and final call of Rs. 20 per share on these share were not made. The forfeited share were reissued at Rs. 70 per share as fully paid-up.
(ii) 300 shares of Rs.. 10 each issued at a premium of Rs. 4 per share payable with allotment were forfeited for non-payment of allotment money of Rs. 8 per share including premium. The first and final call of Rs. 4 per share were not made. The forfeited share were reissued at Rs. 15 per share fully paid-up.
(iii) 200 share of Rs. 50 each issued at par were forfeited for non-payment of final call of Rs. 10 per share. These shares were reissued at Rs. 45 per share fully paid-up.Solution:
JOURNAL68
Case (i)
Particulars L.F. Amt.(Dr.) Amt.(Dr.)
Share Capital a/c Dr. To Share Allotment A/c To Share Forfeiture A/c To Discount on Issue of Shares A/c(Being 200 shares forfeited for the non-payment of allotment of Rs. 50 each)
32,00020,0008,0004,000
Bank A/c (400X70) Dr.Discount on Issue of Shares A/C(400X10) Dr.Share Forfeiture A/c (400x20) Dr. To Share capital A/c
(Being reissue of 400 shares at Rs.70 per share as fully paid up)
28,0004,0008,000
40,000
Note : There will be no capital reserve in case (i) as full amount transferred to forfeiture account is adjusted on reissue.
Case (ii) JOURNAL
Particulars L.F.
Amt.(Dr.)
Amt.(Dr.)
Share Capital a/c (300 X 6) Dr.Securities Premium A/c (300 X 4) Dr.To Share Forfeiture A/c (300 x2) To Share Allotment Call A/c(300x8) (Being 300 shares forfeited for the non-payment of allotment of Rs. 8 each including premium of Rs. 4)
1,8001,200
6002400
BankA/c (300X15)Dr To Share capital A/c(Being reissue of 300 shares at Rs. 15 as
4,5004,500
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fully paid up)
Share Forfeiture A/c Dr. To Capital Reserve A/c(Being balance of forfeited share account transferred to capital reserve)
600600
Case (iii) JOURNAL
Particulars L.F. Amt.(Dr.) Amt.(Dr.)
Share Capital A/c (200X50)Dr. To Share Final Call A/c To Share Forfeiture A/c(Being 200 shares forfeited for the non-payment of final call)
10,0002,0008,000
Bank A/c (200X45) Dr.Share forfeiture a/c (200X5) To Share capital A/c (200X50)(Being reissue of 400 shares at Rs. 45 as fully paid up)
9,0001,000
10,000
Share Forfeiture A/c Dr. To Capital Reserve A/c(Being balance of forfeited share account transferred to capital reserve)
70007000
32. Nisha ltd issued 5,000 equity shares of Rs. 100 each at 10% discount. The net amount payable as follows:On application Rs. 20, on allotment Rs. 30 (40-10), on first call Rs. 30 and on final call Rs. 10. A shareholder holding 100 shares did not pay final call. His shares were forfeited. Out of these 75 shares were reissued to Mr. Amit at Rs. 75 per share. Give journal entries
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in the books of the company.(Ans. Capital Reserve = 4,875) (8 marks)
33. (Bright) Mona Ltd. Invited applications for 2,000 equity shares of Rs. 100 each, payable as follows Rs. 25 on application, Rs. 40 on allotment, Rs. 35 on first and final call.Applications were received for 2,500 shares. It was decided to allot the shares as underW, who applied for 500 shares was allotted 300 shares.X, who applied for 1,200 shares, was allotted 1,000 shares.Y, who applied for 800 shares, was allotted 700 shares.All money was received except from X who did not pay anything after application. Journalise.Solution: JOURNAL
Particulars L.F. Amt.(Dr.) Amt.(Dr.)
Bank A/c Dr. To Equity Share Application A/c(Being money received on application for 2,500 shares at Rs. 25 per share)
62,50062,500
Equity Share Application A/c Dr. To Equity Share Capital A/c To Equity Share Allotment A/c(Being application money adjusted)
62,50060,0002,500
Equity Share Allotment A/c Dr. To Equity Share capital A/c(Being allotment money due on 2,000 shares at Rs. 40 per share)
80,00080,000
Bank A/c (80,000 – 12,500 – 35,000) Dr. To Equity Share Allotment A/c(Being money received on share allotment except surplus application money and amount not received by X)
32,50032,500
Equity Share First and Final Call A/c Dr. To Equity Share Capital A/c(Being amount due on first and final call on 2,000 shares at Rs. 35 per share)
70,00070,000
Bank a/c Dr. To Equity Share First and Final Call A/c(Being money received on first and final call except 1,000 shares of X)
35,00035,000
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Shares to be issued - 2000 shares Rs. 100 – Rs.25 - application
Rs. 40 – allotmentRs. 35 – First and Final call
Money not received from XExcess application money received from X = (1200 -1000) X 25 = 5000Money due on allotment = 1000 X 40 = 40,000Money not received = 40,000 – 5,000 = 35,000
34. Alpha ltd. Issued 25,000 shares of Rs. 10 each at a premium of Rs. 2 per share payable as Rs. 3 on application, Rs. 5 including premium on allotment and balance in equal instalments over two calls. Applications were received for 46,000 shares and the allotment was done as under
(i) Applications of 20,000 shares – allotted 15,000 shares(ii) Applications of 20,000 shares – allotted 10,000 shares(iii) Applications of 6,000 shares – Nil
Mukesh who had applied for 1,000 shares category (a) did not pay any money other than application money. Chander who was allotted 400 shares in category (b) paid the call money due along with allotment.
All other allottees paid their dues as per schedule.
Pass necessary journal entries in the books of alpha ltd. For the above transactions.Solution:
Solution: JOURNAL
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Applied Allotted500
1200
800
300
1000
700
2,5002,000
Particulars L.F. Amt.(Dr.) Amt.(Dr.)
Bank A/c Dr. To Share Application A/c(Being share application money received on 46,000)
2,400
1,38,000
1,5009,00
75,00045,00018,000
Share Application A/c Dr. To Share Capital A/c To Share Allotment A/c To Bank A/c(Being share application money transferred)
Share Allotment A/c Dr. To Share Capital A/c To securities Premium A/c(Being allotment money due)
1,25,00075,00050,000
BankA/c(12,5000-4,5000=8,0000-3,000= 77,000 +16,00)Dr. To Equity Share Allotment A/c To Calls-in-advance a/c(Being allotment money received and calls-in-advance on 800 shares @ Rs. 4 per share).
78,600
50,000
77,0001,600
50,000Share First call A/c Dr. To Share capital A/c(Being first call money due)
Bank A/c Dr.Calls-in-advance A/c To Share First Call A/c(Being first call money received )
47,700800
48,500
Share Final Call A/c Dr. To Share Capital A/c(Being final call money due)
50,000050,000
Bank A/c Dr.Calls-in-advance A/c Dr. To Share Final Call A/c(Being final call money received)
47,700800
48,500
Shares issued 25,000Nominal value – Rs. 10 + 2 – Rs. 3 on application
- Rs. 3 + 2 on allotment- Rs. 2 on first call - Rs. 2 on final call
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Applied Allotted
(i) 20,000(ii) 20,000(iii) 6,000
15,00010,000Nil
46,000 25,000
Money not received from Mukeshand advance received from Chander
Applied Allotted
Mukesh 1000Chander 800
750 (15,000/20,000)X1000400(20,000/10,000X800)
Money not received from MukeshExcess application money (1000 X 3 – 750 X 3) = 750Due on Allotment (750 X 5) = 3,750Less : Excess = 750Money not received (Call-in-arrear) = 3,000
Calls – in – advance = 400 X 4 = 1,60035. Max Ltd. Issued 1,00,000 shares of Rs. 10 each at a premium of Rs. 2 per
share payable as Rs. 3 on application, Rs. 5 including premium on allotment and the balance in equal instalments over two calls, applications were received for 92,000 shares and the allotment was done as under:A. Applicants of 80,000 shares – Allotted 60,000 sharesB. Applicants of 80,000 shares – allotted 40,000 sharesc. Applicants of 24,000 shares – NilSuresh, who had applied for 4,000 shares (Category A) did not pay any money other than application money.Chander, who was allotted 1,600 shares (Category B) paid the call money due
alongwith allotment.All other allottees paid their dues as per schedule.Pass necessary journal entries in the books of Max Ltd to record the above.
36. Z ltd. Issued 1,00,000 shares of Rs. 10 each at a premium of Rs. 2 per share payable as follows:Rs. 3 on application;Rs. 6 on allotment ( including premium) and Rs. 3 on call.Applications were received for 1,50,000 shares and a pro-rata allotment was made as follows:
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To the applicants of 80,000 shares, 60,000 shares were issued and for the rest 40,000 shares were issued. All money due was received except the allotment and call money from Ram who had applied for 2,400 shares (out of the group of 80,000 shares). All his shares were forfeited. The forfeited shares were reissued for Rs. 7 per share fully paid-up.Pass necessary Journal entries for the above transactions.(Capital Reserve = Rs. 1,800)
37. P ltd. Invited applications for issuing 20,000 Equity Shares of Rs. 100 each at a discount of 6%. The amount was payable as follows:On application – Rs. 20 per shareOn allotment – Rs. 44 per share and the balance on first and final call.Applications for 26,000 shares were received. Applications for 1,000 shares were rejected and pro rata allotment was made to the remaining applicants. Over payments received on application were adjusted towards sums due on allotment. All calls were made and were duly received except Kanwar who had applied for 500 shares failed to pay allotment and call money. His shares were forfeited. The forfeited shares were reissued at Rs. 44,000 fully paid-up.Pass necessary Journal entries in the books of the company.(Capital reserve = 10,000)
CHAPTER 8
COMPANY ACCOUNTS:-(ISSUE OF DEBENTURES)
Learning Objectives Meaning of Debenture and Bonds Issue of Debentures for cash Issue of debentures at Par, Premium and at discount Issue of debentures for consideration other than cash Issue of debentures as collateral security Accounting entries for interest on debentures
Meaning of Debenture and Bonds
Debenture is a written instrument acknowledging a debt under the common seal of the company.
According to Section 2(12) of the Companies Act, 1956 Debenture includes Debenture Stock, Bonds and any other securities of a company whether constituting a charge on the assets of the company or not.
The return on debentures is called interest on Debentures.
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The debentures are generally secured and carry a fixed or floating charge over the assets of the company.
Bond is similar to debentures in terms of contents and texture. The only difference is with respect of issue condition i.e. bonds can be issued without predetermined rate of interest as in case of deep discount bonds.
Issue of Debentures
The debentures may be issued for (i) For cash(ii) Consideration other than cash – Debentures can be issued to vendors against the
purchase of assets or for purchase of business.
Question: Pass Journal entries for the following transactions:Y ltd. Purchased plant and machinery for Rs. 4,00,000 payable as to Rs.100,000 in cash and the balance by an issue of 6% Debentures of Rs. 100 each.
Solution:Particulars Lf Dr. Cr.Plant and Machinery A/c Dr. To Vendor’s A/c(Being the assets purchased from Vendor)
4,00,0004,00,000
Vendor’s A/c Dr. To Cash A/c To 6% Debentures A/c(Being cash paid to vendor and balance issue of debentures @ Rs.100 each)
4,00,0001,00,0003,00,000
Debentures whether issued for cash or otherwise may be issue (i) At par – nominal value(ii) At premium - When a debenture is issued at price higher than its nominal value
then it is known as Premium on issue of debentures.(iii) At discount - When a debenture is issued at a price below its nominal value, it is
known as discount on issue of debentures.
Issue of debentures as collateral security
Any security in addition to primary security is called collateral security. Debentures are normally issued as collateral security when the borrower is not able to mortgage an asset as collateral security. The holder of debenture as a collateral security is not entitled to interest on debentures. But if the company fails to repay loan, the lender may exercise its rights and claim the rights of a debentureholder.
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Question: Pass the necessary Journal entry when 5,000 debenture of Rs. 100 each are issued as collateral security against a bank loan of Rs. 4,00,000.
Ans. Debenture Suspense A/c Dr. 5,00,000To Debentures A/c 5,00,000
(Being issue of 5,000 debentures of Rs. 100 each as collateral security against the bank loan of Rs. 4,00,000)
QUESTIONS (1 MARKS)1. What is meant by a debenture?
Ans: Debenture is a written instrument acknowledging a debt under the common seal of the company.
2. Why would an investor prefer to invest in a company’s debenture than a share?Ans. Because there is an assured annual return in Debentures.
3. Why would an investor prefer to invest in acompany’s share than a debenture?Ans. Because of the benefit from higher dividend income.
4. What do you mean by an Irredeemable Debenture?Ans. It Means a debenture whose date of redemption is not specified at the time of issue of debenture.
5. State the meaning of secured debenture.Ans: Secured Debenture are the debenture which are the issued by the security of the assets of company for payment.
6. What is the nature of interest on Debenture?Ans. A charge to P&L A/c – Nominal A/c.
3 MARKS7. X ltd issued 15,000 9% debenture of Rs. 100 each on 1st April 2014 redeemable at
a premium of 8% after 10 years. According to the term of prospectus Rs. 40 is payable on application and balance on allotment of debenture.
8.Record necessary entries regarding issue of Debentures.
Bank A/c(1500x40) Dr. To Debenture Application A/c
6,00,0006,00,000
Debenture Applications a/c Dr. To 9% Debenture Application A/c
6,00,0006,00,000
Debenture allotment a/c(15,000 X 60)Loss on Issue of Debentures a/c (15,000 X 8) To 9% Debentures a/c To Premium on redemption of debenturesa/c
9,00,0001,20,000
9,00,0001,20,000
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Bank A/c Dr. To Debenture Allotment a/c
9,00,0009,00,000
9. Z ltd issue 5,000 9% Debenture of Rs. 100 each on 1st April 2014 redeemable at par.
Ans.
Bank A/c Dr. To Debenture Application & Allot A/c
5,00,0005,00,000
Debenture Application& Allot a/c Dr. To 9% debentures a/c
5,00,0005,00,000
10. P ltd. Issued 3,000; 8% Debentures of Rs. 50 each at a discount of 8% redeemable at par after 4 years.Record necessary entries in the books of P ltd.
Bank A/c (3000 x46) Dr.To Debenture Application& Allot A/c
1,38,0001,38,000
Debenture Application a/c Dr.Discount on issue of debentures a/c To Debentures a/c
1,38,00012,000
1,50,000
11. Green ltd issued 80,000 9% Debentures of Rs 100 each at a premium of 5% redeemable at par. Give Journal entry.
Bank A/c Dr.To Debenture Application& Allot A/c
8,40,0008,40,000
Debenture Application & Allot A/c Dr.
To 9% Debentures a/c To Security Premium a/c
8,40,000
8,00,00040,000
12. Yellow ltd. Issued 90,000 9% Debentures, of Rs. 100 each at par repayable at 10% premium, Pass journal entry.
Bank A/c Dr. To Debenture Application& Allot A/c
90,00,00090,00,000
Debenture Application a/c Dr.loss on issue of Allot debentures a/c To 9% Debentures a/c To Premium on Redemption
90,00,0009,00,000
90,00,0009,00,000
13. JB Ltd issued 10,000 8% Debenture at 10% discount and repayable at 15% premium after 5 years.
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Give journal entry in the books of JB Ltd.
Bank A/c Dr. To Debenture Application A/c
9,00,0009,00,000
Debenture Application & Allot a/c Dr.Discount on issue of debentures a/cLoss on Issue of Debentures Dr. To 8% Debentures a/c To Premium on redemption of debentures a/c
9,00,0001,00,0001,50,000
10,00,000
1,50,000
14. Q ltd. Issued 4,000 9% debentures of Rs. 100 each issue at 10% premium and repayable at 20% premium. Give journal entries.
Bank A/c Dr. To Debenture Application A/c
4,40,0004,40,000
Debenture Application & Allot a/c Dr.loss on issue of debenture Dr. To 9% Debentures a/c To securities premium a/c To Premium on redemption a/c
4,00,00080,000
4,00,00040,00080,000
15. X ltd. Secured a loan of Rs. 1,60,000 from Bank of Baroda issuing 2,000; 9% Debentures of Rs. 100 each as collateral security. How will you show issue of debentures in the Balance Sheet and give journal entry if any.
FIRST METHOD
Particulars Note No.
Rs.
I EQUITY AND LIABILITIESNon-Current Liabilities
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Long-term Borrowings 1 1,60,000
Note to AccountsParticulars Rs.
Long-term BorrowingsLoan from Bank of Baroda(Secured by issue of 2000 debentures of Rs. 100 each as collateral security)
1,60,000
SECOND METHOD
Particulars Dr. (Rs.) Cr. (Rs.)
Debenture Suspense a/c Dr. To 9% Debentures a/c(Being the issue of 1,000 9% debentures of Rs. 100 each as collateral security for a loan from a bank as per Boards Resolution No. …….. dated ……..)
2,00,000
2,00,000
Particulars Note No.
Rs.
I EQUITY AND LIABILITIESNon-Current LiabilitiesLong-term Borrowings 1 1,60,000
Notes to AccountsParticulars Rs.
Long-term BorrowingsLoan from Bank of Baroda(Secured by issue of 2000 debentures of Rs. 100 each as collateral security) 2,00,000Less: Debenture suspens 2,00,000
1,60,000
…………..
16. P ltd. Issued 10,000; 9% Debentures of Rs. 100 each at par and also raised a loan of Rs. 1,60,000 from bank, collaterally secured by Rs. 2,00,000; 9% debentures. How will be the Debentures shown in the balance sheet of the company assuming that the company has passed.Journal entry for issue of Debentures as collateral security in the books?
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17. A limited company bought a Building for Rs. 18,00,000 and the consideration was paid by issuing debentures at a discount of 10%. Give journal entries. (face value Rs. 20,00,000)
18. Reliance ltd. Purchased machinery costing Rs. 2,70,000. It was agreed that the purchase consideration be paid by issuing 9% debentures of Rs. 100 each. Assume debentures have been issued (i) at par and (ii) at a discount of 10%. Give necessary journal entries. (no. of debentures issued (i) 2700 (ii) 3,000)
19. Shyama ltd. Purchased Computers of Rs. 1,10,000 from M/s Computers. 50% of the amount was paid to M/s Computers by accepting a Bill of Exchange and for the balance the company issued 9% Debentures of rs. 100 each at a premium of 10% in favour of M/s Computers. Pass Journal entries in the books of Shyama ltd.(Dr. Computers A/c and Cr. M/s Computers A/c By Rs. 1,10,000.Dr. M/s computers A/c – Rs. 1,10,000; Cr. Bills Payable A/c – Rs. 55,000; 10% Debentures A/c – Rs. 50,000 and Securities Premium Reserve A/c – RS. 5,000)
20. Z ltd. Purchased assets of the book value of Rs. 2,00,000 and took over the liabilities of Rs. 25,000 from Verma Bros. it was agreed that the purchase consideration, settled at Rs. 1,90,000, be paid by issuing debentures of Rs. 100 each.What Journal entries will be made in the following three cases if debentures are issued (i) at par (ii) at a discount of 10% and (iii) at apremium of 10%? It was agreed that any fraction of debentures be paid in cash. (Goodwill Rs. 15,000 case (i) 1,900 debentures of Rs. 100 each; case (ii) 2,111 debentures of Rs. 100 each and paid cash Rs. 10 Case (iii) 2,727 debentures of Rs. 100 each and paid cash Rs. 30)
21. XYZ ltd. Took a loan of Rs. 10,00,000 from a bank giving Rs. 16,00,000; 9% debentures as collateral security. Pass journal entries regarding issue of debentures, if any, and show this loan in the Balance Sheet of the company.
22. Y ltd. Obtained a loan of Rs. 6,00,000 from IDBI Bank. The company issued 8,000; 9% Debentures of Rs. 100 each as a Collateral security for the same. Show how these items will be presented in the Balance Sheet of the company.
23. What Journal entries will be made in the following cases:(i) A Co. issued 40,000; 12% debentures of Rs. 100 each at a premium of 5%
redeemable at par?(ii) A co. issued 40,000; 12% debentures of Rs. 100 each at a discount of 10%
redeemable at par?(iii) A Co. issued 40,000; 12% debentures of Rs. 100 each at par redeemable at
10% premium?(iv) A Co. issued 40,000; 12% debentures of Rs. 100 each at a discount of 5%
and redeemable at 5% premium?
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24. Zee Ltd. Issued 1,000, 10% Debentures of Rs. 100 each on 1st April, 2005 at a discount of 10% redeemable at a premium of 10% after 4 years. Give journal entries for the period ended 31st March, 2012 assuming that the interest was payable half yearly on 30th September and 31st March.
25. Pass Journal entries for the following transactions in the books of N ltd.(a) Purchased machinery Rs.3,30,000. The vendor was paid by issuing 9%
Debentures of Rs. 100 each at a premium of 10%.(b) Issued 9% Debentures of Rs. 3,00,000 as collateral security.(c) Paid half yearly interest on Rs. 3,60,000’ 9% Debentures.(d) Issued 2,000 9% Debentures of Rs. 100 each at a discount of 5%.
The debentures were repayable at a premium of 10%.
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CHAPTER-9COMPANY ACCOUNTS-
REDEMPTION OF DEBENTURES
LEARNING OBJECTIVES: Meaning of Redemption of Debentures Sources of redemption of debentures Debenture Redemption Reserve Methods of Redemption of Debentures
Meaning of Redemption of Debentures
Redemption of debentures means repayment of the amount of debentures.
Sources of redemption of debentures
Redemption of debentures can be done(i) Out of Capital(ii) Out of Profits(iii) Redemption by converting them into shares or new debentures.
Debenture Redemption Reserve
Redemption of Debentures out Profits is done when adequate profits are transferred from surplus i.e. Balance in Statement of Profit and Loss to Debenture Redemption Reserve before redemption of debentures, such redemption is Redemption of Debentures out of profits.
MEANING – DRR is a reserve created out of profits for the purpose of redemption of debentures.
CREATION – As per Sec 117(c) of The Companies Act, 1956, a company is required to transfer adequate amounts of its profits every year to DRR until such debentures are redeemed.
WHEN TO CREATE – Before the redemption starts.
DISCLOSURE – under the head “Shareholders’ funds” and Sub-head ‘Reserves & Surplus” in the Balance Sheet.
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NOT MANDATORY AS PER SEBI GUIDELINES – 1. For debentures with a maturity period of 18 months or less.
For Infrastructure companies (i.e. companies engaged in the business of developing, maintaining and operating infrastructure facilities).
Non-convertible debentures are the debentures the holders of which do not have the right to convert their debentures into shares.
Specific coupon Rate Debenture means a debenture which carries a specific rate of interest on them.
Discount on issue of debentures appears in the Balance sheet of a company under the head “Miscellaneous Expenditure”.
Date of maturity means the date on which the debenture can be redeemed. Guideline issued by SEBI regarding creation of DRR are:
A company is required to debenture redemption reserve of an amount at least equal to 50% of the amount of debentures issued before redemption of debentures commences.
Methods of Redemption of Debentures
(i) Redemption of Debentures in Lump sum means all the debentures are redeemed at the date specified for redemption of debentures.
(ii) Redemption by Draw of Lots means redemption of debentures (selected by lottery) at the specified date.
(iii) Redemption by Purchase from open Market when a company purchases its own debentures from open market for the purpose of cancellation, such an act of purchasing and cancelling the debentures is redemption by purchase from open market.
QUESTIONS: (1 Marks)1. What is meant by a debenture?2. What does an irredeemable debenture mean?3. Why would an investor prefer to invest partly in Shares and partly in Debentures
of a company?4. What is the nature of Interest on Debentures?5. List any three differences between a Share and a Debenture.6. What is meant by Redemption of Debentures?7. State the meaning of Redemption of Debentures Out of Profits.
PRACTICAL PROBLEMS: 4 MARKS
Q8: Y ltd. Issued 50,000; 10% Debentures of Rs. 10 each on 1st April, 2013 redeemable at par on 30th June, 2014. The company received applications for 55,000 debentures and the allotment was made to all the applicants on pro-rata basis. The debentures were redeemed on due date. How much amount of Debentures Redemption Reserve is to be created before the redemption is carried out?
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Pass necessary Journal entries regarding issue and redemption of debentures. Assume that interest was payable on debentures on 31st March every year.
Solution: In the books of Y ltd.JOURNAL
Dt. Part. l.f. Dr. Cr.
2013April 1
April 1
2014March 31
March 31
June 30
June 30
June 30
Bank A/c Dr. To Deb. Application A/c(Being the receipt of app. Money)Debenture Application A/c Dr. To 10% Debentures A/c To Bank A/c(Being the debenture app. Money adjusted)Int. on debentures A/c Dr. To Deb. Holders A/c(Being the int. due)Deb. Holders A/c Dr. To Bank A/c(Being the payment of interest)Interest on Debentures A/c Dr. To Deb. Holders A/c(being the int. due for 3 mths)10% Debentures A/c Dr. To Deb. Holders A/c(Being the payment on red. Of deb. Holders due to deb holders)Debenture holders’ A/c Dr. To Bank A/c(Being the payment due to deb. Holders disch. Incl. interest)
5,50,000
5,50,000
50,000
50,000
12,500
5,00,000
5,12,500
5,50,000
5,00,00050,000
50,000
50,000
12,500
5,00,000
5,12,500
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Note: 1. According to SEBI Guidelines, DRR is not required to be created since maturity period of debentures does not exceed 18 months. Hence, not amount is transferred to DRR.
2. Interest on Debentures Account will be shown in Statement of Profit and Loss under the head ‘finance Costs’.
Q9 PQR ltd. Issued 20,000; 10% Debentures of Rs. 100 each at a premium of 8% on 30 th June 2013 redeemable at par on 31th June, 2014. The issue was fully subscribed. Pass necessary entry for the issue and redemption of debentures. How much amount of DRR is to be created before redemption of debentures?Q10 Noida Toll Bridge Corporation Ltd. An infrastructure company, has outstanding of 2 lakh; 10% Debentures of Rs. 10 each issued on 2004 due for redemption on 30th June, 2014. How much amount of DRR should be created before the redemption of debentures begins?
Pass Journal entries at the time of redemption of debentures.
Solution:
Dt. Particulars l.f. Dr. Cr.
2013June 30
10% Debenture A/c Dr. To deb. Holders A/c(being the amt. due to deb holders on redemption)Debentureholders’ A/c Dr. To Bank A/c(Being the amt. due to deb holders paid)
20,00,000
20,00,000
20,00,000
20,00,000
Q12 X ltd. Has 8,000; 9% Debentures of Rs. 100 each due for redemption on 31st march, 2014. DRR has a balance of Rs. 2,80,000 on that date.
Pass Journal entries at the time of redemption of debentures.Solution:
Dt. Particulars l.f. Dr. Cr.
2014Mar 31
P&L A/c Dr. To DRR(Being the transfer of profit to DRR as per SEBI Guide)9% Debentures A/c Dr. To Deb. Holders( Being the amt. due)
1,20,000
8,00,000
1,20,000
8,00,000
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Deb. Holders A/c Dr. To Bank A/c(Being the amt. paid)DRR A/c Dr. To Gen. Reserve A/c(Being DRR tr. To G. Reserve)
8,00,000
4,00,000
8,00,000
4,00,000
Q13 X ltd. Issued 2,00,000; 9% Debentures of Rs. 50 each at a premium of 2% on 30th June, 2013 redeemable on 30th June, 2014. The issue was fully subscribed. Pass journal entries for issue and redemption of debentures. How much amount of DRR is to be created before redemption of debentures?
Solution:
Dt. Particulars l.f. Dr. Cr.
2013June 30June 30
2014June 30
June 30
Bank A/c (200 000 X 51) Dr. To Deb. App. A/c(Being app money rec.)Deb. App. A/c Dr. To 9% Debentures A/c To Sec. Prem. Res. A/c(Being app money tr. To 9% deb. And sec. prem. Res. a/c)9% Debentures a/c Dr. To Debentureholders(Being the payment due)Debentureholders a/c Dr. To Bank A/c(Being the payment made)
102,00,000
102,00,000
100,00,000
100,00,000
102,00,000
100,00,0002,00,000
100,00,000
100,00,000
Note: DRR is not created because debentures issued are for a period of less than 18 months.
Q 14 N ltd. Issued 10,000 Debentures of Rs. 100 each at par with the condition that they will be redeemed at a premium of 5% after the expiry of five year.Pass Journal entries only for issue and redemption of these debentures after the expiry of five years.Solution: In the books of N ltd.
Journal
Dt. Particulars l.f.
Dr. Cr.
87
Year 1
Year 5
Year 5
On issue of debenturesBank A/c Dr. To Debenture app.a/c(Being the amt. rec.)Deb. App. A/c Dr.Loss on issue of deb. A/cDr. To Deb. A/c To Prem. On red.of deb.(Being the allotment done)On creation of DRRP&L A/c Dr. To DRR(being transfer of profit to DRR)On redemption of debenturesDebentures A/c Dr.Prem. On red. Of deb. A/cDr. To Deb. Holders(being the amt payable on red. Transf. to deb. a/c)Deb. Holders a/c Dr. To Bank A/c(being the amt paid)DRR A/c Dr. To Gen reserve(being the tr. To G. res.)
10,00,000
10,00,00050,000
5,00,000
10,00,00050,000
10,50,000
5,00,000
10,00,000
10,00,00050,000
5,00,000
10,50,000
10,50,000
5,00,000
Q15 X ltd. Has a balance of Rs. 8,00,000 in the statement of P&L. the company decided to forego the payment of dividend and instead utilize the profits to repay Rs. 7,00,000; 12% Debentures on 30th June, 2013 at a premium of 10%. Debentures interest is payable annually on 31st December every year when the accounts are closed. The company also has a balance of Rs. 4,00,000 in the Debenture Redemption reserve.
Journalise the transactions.
Date Particulars LF Dr. Cr.
2013Jun 30 Interest on Debentures A/c Dr.
To Debentureholders A/c(Being the interest due)12% Debentures A/c Dr. Premium on Red. Of Deb. A/c
42,000
7,00,00070,000
42,000
7,70,000
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Dr. To debentureholders A/c(Being the amtpayableon red. Including prem. On redemption)P&L A/c Dr. To DRR A/c(Being the app. Of profits to redeem the deb. Fully out of profits)Debentureholders’ A/c Dr. To Bank A/c(being the payment made to debentureholders on redemption with interest due)DRR A/c Dr. To General Reserve(being the transfer of DRR to GenRes. On redemption of all debentures)
3,00,000
8,12,000
7,00,000
3,00,000
8,12,000
7,00,000
*Redemption of Debenture by purchase from open Market- Redemption of Debentures by purchase form open Market means purchase own debentures by the company from the stock market for cancellation like share, Debenture are also transferable form one person to another. Under this method, the company can discharge the debenture liability in full or in part by purchasing its own debenture from the open market provided it is authorized to do so by its Articles of Association.Debentures may be purchased by the or keeping them as investment and cancel at 9 later date.*When Debenture are purchased from the open market for immediate cancellation:(I) Own debenture A/c Dr. {With purchase Cost} To Bank A/c
(ii) % Debenture A/c Dr. (With nominal Value) To own Debenture (With purchase Price of own debenture excess of face value ) To Profit on Cancellation
(iii)Profit on cancellation A/c Dr. To Capital Reserve A/c.
Q16 Z ltd. Purchased its own 400 debentures of the face value of Rs. 40,000 from the open market for immediate cancellation at Rs. 92. Pass Journal entries.
Solution:In the books of z ltd.
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Journal
Dt. Particulars l.f. Dr. Cr.
Own Debentures A/c Dr. To Bank A/c(Being the purchase of 200 own debentures @ Rs. 92 each.)Debentures A/c Dr. To own Debentures A/c To profit on cancellation of own debentures A/c(Being own debentures purchased from open market and cancelled)Profit on Cancellation of Own Debentures A/c Dr. To Capital Reserve A/c(Being the transfer of profit on redemption of debentures to capital reserve)
36,800
40,000
3,200
36,800
36,8003,200
3,200
Q17 On 1st April, 2013, a company issued 2,000, 9% Debentures of Rs. 100 each at Rs. 110 per debenture. The terms of issue provided for the redemption of Rs. 40,000 debentures every year commencing from 31st March 2014 either by purchase from Open Market or at par by drawings at the company’s option. The board of directors decided to transfer the required amount of profits to Debenture Redemption Reserve on 31st March 2014.
On 31st march, 2014, the company purchased for cancellation Debentures of the face value of Rs. 16,000 at Rs. 95 per debenture and of Rs 24,000 at Rs. 90 per debenture.Journalise the above transactions and show how the profit on redemption would be treated(ignore the payment of interest).(Ans. Capital Reserve Rs. 3,200)
Q18 At the commencement of 2010, XYZ Ltd. Issued 1,000 10% Debentures of Rs. 100 each at par. The terms of issue provided for redemption of Rs. 10,000 annually,commencing from the end of 2012, either by drawings at par or by purchase from the market at the company’s option. Interest is payable on 31st December every year.
At the end of 2012, the company purchased for immediate cancellation Rs. 5,000 of its debentures at Rs. 96 each, Rs. 3,000 at Rs. 98 each and Rs. 2,000 at Rs. 98.50 each. The expenses of purchase amounted to Rs. 40. Pass journal entries regarding issue of debentures and for the year 2012.
(capital reserve – Rs. 250)
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PART IICHAPTER 1
Financial Statements of a CompanyLearning ObjectivesThe study of this chapter would enable you to understand:
Financial Statements of a Company Statement of Profit and Loss Balance sheet
Statement of Profit and Loss Major heads of statement of Profit and Loss Balance Sheet Major Heads of Balance Sheet Objectives of Financial Statements Limitations of Financial Statements
FINANCIAL STATEMENTS OF A COMPANY
STATEMENT OF PROFIT AND LOSS Revenue from Operations It is the revenue earned by the company from its
operating activities.
Other Income It is the revenue earned by the company from the sources other than
its operating activities. Cost of Material Consumed It is the aggregate of cost of raw materials and other
materials used in manufacture of goods.
Purchase of Stock- In –Trade It means purchases of goods for resale. Change in Inventories of It is the difference between the opening inventories and
of Finished finished Goods ,WIP and Goods, WIP and Stock –in-Trade .It is shown separately in the Note to Stock –in-Trade Accounts and one single amount on the face of the Statement of Profit and Loss
Employees Benefit Expenses They are the expenses incurred on the employees, say for wages,salaries, bonus,etc.
Financial Costs They are the expenses of the company incurred on the borrowing,
i.e loans taken by it. Depreciation and Amortisation It is the fall in the value of fixed assets due to its or
afflux of time or91
obsolescence .Amortisation is writing off of intangible assets.
Other Expenses Expenses that do not fall in the above classifications are shown as Other ExpensesHINTExpenses shown under Employees Benefit Expenses and Other Expenses may be further shown as Directed and Indirect Expenses. Other Expenses may be shown under different heads, say Administration Expenses, selling and Distribution Expenses and General Expenses, etc.
BALANCESHEETEQUITY AND LIABILITIES
Shareholders' Funds Shareholders Funds are the funds belonging to the shareholders of the company .They consist of ShareCapital; Reserves and Surplus and Money received against Share Warrants.
Share Capital It is the amount received by the company as capital. Reserves and Surplus It is the amount appropriated out of Surplus
(profit)or Surplus ,i.e., Balance in Statement of Profit andloss or amount received as securities in Premium Reserve.
Money Received against It is the amount received against Share Warrents .Share WarrentsShare Warrentsare the financial instruments whichgive the holder theright toacquire Equity Shares in the company.
Share Application MoneyIt is the amount received as share application and against which the Pending Allotment company will make allotment.
Non-current Liabilities Non-current Liabilities are defined in Schedule VI as those liabilitieswhich are not current liabilities.
Long –term Borrowings Long Term borrowings which are repayable after more than 12months.
Deferred Tax Liabilities It is the amount of tax on the temporary differences between the
accounting income and taxable income. It is only a book entry and not an actual liability. It arises when accounting income is more than
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taxable income. Other Long-term Liabilities They are the Liabilities other than Long-term
Borrowings of the company .
Long-term Provisions They are the provision for liabililities that will be payable after 12
months from the date of Balance Sheet or after the period of Operating Cycle.
CurrentLiabilitiesCurrent Liabilities are those liabilities which are : expected to be settled in company's
normal Operating Cycle: or due to be settled within 12 months
after reporting date.
Operating CycleIt is the time between the acquisition of assets for processing and their realization into cash and cash
equivalents. Where theOperating Cycle cannot be identified, It is assumed to be of 12months.HINTCurrent Liabillitiesare classified into Short –term Borrowings; Trade Payables: Other Current Liabilities ; and Short-term Provisions.
ASSETS Non-current Assets Non-current assets are those assets which are not current
assets.These are sub-classified into:Fixed Assets ;Non-currentInvestments ;Deferred Tax Assets (Net);Long–termLoansand Advances: and Other Non-current Assets.
CurrentAssets Current assets are those assets which are: expected to be realized in or intended
for sale or consumption in normal Operating Cycle of the company;or
held primarily for the purposes of trading ; or
expected to be realised within 12 months from the reporting data or closing date.
Cash and cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
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HINTCurrent Assets are classified into : Current Investments; Inventories; Trade Receivables; Cash and Cash Equivalents; Short-term Loans and Advances; and Other Current Assets
MEANING OF FINANCIAL STATEMENTSFinancial Statements are summarized statements of accounting data prepared at the end of an accounting process, i.e., after preparing Trial Balance by an enterprise.It is a medium of communicating accounting information to the internal and external users. Customarily, a set of financial statements include:
Balance Sheet Statement of Profit and Loss Notes to Accounts
Form of Statement of Profit and LossSTATEMENT OF PROFIT AND LOSS
Particulars Note No.
Figures for the Current Reporting Period
Figures for the Previous Reporting Period
I. Revenue from Operations
II. Other Income
III. Total Revenue(I + II)
IV. Expenses
Expense Cost of Materials Consumed
Purchases of Stock-in-Trade
Change in inventories of Finished Goods,
Work-in-Progress and Stock-in-Trade
Employees Benefit Expenses
Finance Costs
Depreciation and Amortisation Expenses
Other Expenses
Total Expenses
V. Profit before Tax (III – IV)
VI. Less: Tax
VII. Profit or Loss for the Period (V – VI)
……
……
… …
… …
…
…………......
… … …
for the year ended….
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Form of the Balance SheetThe form of Balance Sheet as prescribed in Part I of Schedule VI of the Companies Act, 1956, is as follows:
Name of the Company…BALANCE SHEET as at…
Particulars Note No.
Figures for the Current Reporting Period
Figures for the Previous Reporting Period
1) EQUITY AND LIABILITIESa) Shareholders' Funds
i) Share Capitalii) Reserves and Surplusiii) Money Received against Share Warrants
b) Share Application Money Pending Allotmentc) Non-Current Liabilities
i) Long-Term Borrowingii) Deferred Tax Liabilities (Net)iii) Other Long-Term Liabilitiesiv) Long – Term Provisions
d) Current Liabilitiesi) Short- term Borrowingsii) Trade Payablesiii) Other Current Liabilitiesiv) Short-term Provisions
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Total2) ASSETS
a) Non-Current Assetsi) Fixed Assets
Tangible Assets Intangible Assets Capital Work-in-progress Intangible Assets under Development
ii) Non-Current Investmentsiii) Deferred Tax Assets(Net)iv) Long Term Loans and Advancesv) Other Non-current Assets
b) Current Assetsi) Current Investmentsii) Inventoriesiii) Trade Receivablesiv) Cash and Cash Equivalentsv) Short Term Loans and Advancesvi) Other Current Assets
Total
Objective of financial statements1. To provide financial data on economic resources and obligations of
an enterprise.2. To present true and fair view of the business.3. To provide sufficient and reliable information to various parties
interested in financial statements.Limitations of financial statements
1. Historical records.2. Effected by personal judgement.3. Different accounting practice.4. Qualitative elements are ignored5. Price level changes are ignored.
Questions:(1) Under which head and sub-head of Equity and Liabilities are following items shown
in a company’s Balance Sheet as per Schedule VI?(i) Debentures
(ii) Public Deposits(iii) Securities Premium reserve(iv)Capital Reserve(v) Forfeited Shares Account(vi)Interest Accrued and due on Debentures
(2) Under which main heads and sub-heads of Equity and Liabilities re the following itmes shown in the Balance Sheet of a company as per schedule VI:
(i) Unclaimed Dividend96
(ii) Calls-in-arrear(iii) Calls-in-advance(iv)Interest Accrued but not due on debentures(v) Arrears of fixed cumulative preference dividends(vi)Sundry creditors
(3) Under which head following revenue items of a non-financial companies will be shown:
(i) Interest Earned(ii) Dividend(iii) Profit on sale of Asset(iv)Refund of Income Tax
Solution:Revenue from Operations: Interest Earned and DividendOther Income: Profit on Sale of Asset and Refund of Income Tax.
(4) Under which head following revenue items of a non-financial companies will be shown:
(i) Sales (ii) Sale of Scrap (iii) Interest Earned (iv) DividendSolution:Revenue from Operations: Sales and Sale of ScrapOther Income: Interest Earned and Dividend
(5) Calculate Revenue from Operations, other Income and Total Revenue for a non-financial company from the following information:Sales Rs. 52,00,000; Sales Return Rs. 2,00,000; Sale of Scrap Rs. 25,000; Interest on Fixed Deposits Rs. 30,000; Dividend Earned Rs. 10,000.Solution:
Particulars Rs. Rs.
I Revenue from operationsSalesLess: Sales ReturnSale of Scrap
II Other IncomeInterest on Fixed DepositsDividend
Total Revenue (I+II)
52,00,0002,00,000
30,00010,000
50,00,00025,000
50,25,000
40,000
50,65,000(6) Under which main heads and sub-heads of Equity and Liabilities re the
following itmes shown in the Balance Sheet of a company as per schedule VI:(i) Mortgage Loan(ii) Investments(iii) Bills receivable
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(iv)Patents(v) General reserve(vi)10% Debentures
(7) Under which main heads and sub-heads of Equity and Liabilities re the following itmes shown in the Balance Sheet of a company as per schedule VI:
(i) Bills receivable(ii) Long-term investments(iii) Pre-paid insurance(iv)Buildings(v) Sundry debtors(vi)Share of reliance ltd. Deposit with custom authorities.
(8) Under which main heads and sub-heads of balance sheet of a company.I. Calls in Arrears
II. DebenturesIII. Commission receive in advanceIV. Stores and spare partsV. Land and Building
VI. Forfeited Share account
CHAPTER-2FINANCIAL STATEMENT ANALYSISLearning objective
Meaning of financial statement analysis Tools of Financial statement analysis Types of financial statement analysis Purpose/objectives of financial statement analysis Uses of financial Analysis Parties Interested of financial analysis Limitation of financial analysis
Meaning of financial statement analysis
Financial statement Analysis is largely a study of relationship among the various financial factor in a business, as disclosed by the various financial of statements and a study of trends of these factors as shown in a series of statement.
Financial statement Analysis is an important part of the overall financial analysis. It is based on the financial statement i.e Balance sheet and statement ofP& L which are the end products of accounting process.
Tools of Financial statement analysis
(i) Comparative statement98
(ii) Common size statement(iii) Ratio Analysis(iv) Cash Flow Statement
Type of financial statement Analysis(i) External (ii) Internal (iii) Vertical(iv) Horizontal
Uses of financial Analysis
(i) Security Analysis(ii) Credit Analysis(iii) Debit Analysis(iv) Dividend Decision
Purpose/Objective of Financial Analysis
(i) Assessing the earning Capacity(ii) Managerial Efficiency(iii) Short term and long term Solvency of the enterprise
Limitations of financial analysis
(i) Ignores Price level Changes(ii) Qualitative Aspect Ignored(iii)Historical analysis
Parties Interested of financial analysis
(i)Management(ii)Employees(iii)Shareholder(iv)Suppliers(v)Bankers(vi) Researches
Questions 1 Mark1. What is meant by Analysis of Financial Statement?2. What is Horizontal Analysis?3. What is Vertical Analysis?4. Why are creditors interested in analyzing financial statement?5. How is the financial statement analysis useful to finance manger?6. State any one objective of financial statement analysis?
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7. State any one limitation of financial statement analysis 8. Name two parties interested in Financial statement Analysis
CHAPTER -3TOOLS OF FINANCIAL STATEMENT ANALYSIS -COMPARATIVE STATEMENT AND COMMON SIZE STATEMENT
Learning Objectives Meaning of Comparative Financial Statement. Objectives of preparing comparative financial statements. Preparation of comparative Balance Sheet. Preparation of comparative Income Statement. Meaning of Common size Financial statement Objectives of preparing common size financial statement. Preparation of common-size Balance Sheet. Preparation of Common-size Income Statement.
Meaning of Comparative Statement
Comparative statement is the statement prepared to compare individual components of the financial statement of two or more years of a company.
Objectives of preparing comparative financial statements:1. Data presentation becomes simple and comparable.2. Gives information about the changes affecting financial position
and performance of an enterprise.3. Comparision of performance with other firms becomes easy.
PREPARTION OF COMPARATIVE FINANCIAL STATEMENTSFORMAT OF COMPARATIVE BALANCE SHEETCOMPARATIVE BALANCE SHEETAs at……………
Particulars Note No.
Previous YearA
Current YearB
Absolute changeC=B-A
%geChangeD=C/Ax100
100
I EQUITY AND LIABILITIES1. Shareholders' Funds
(a) Share Capital(b) Reserves and Surplus
2. Non-Current Liabilitiesi. Long-Term Borrowing
ii. Long – Term Provisions3. Current Liabilities
i. Short- term Borrowingsii. Trade Payables
iii. Other Current Liabilitiesiv. Short-term Provisions
TotalII. ASSETS
2. Non-Current Assets(a) Fixed Assets
(i)Tangible Assets(ii)Intangible Assets
(b) Non-Current Investments(c) Long Term Loans and Advances
3. Current Assetsi. Current Investments
ii. Inventoriesiii. Trade Receivablesiv. Cash and Cash Equivalentsv. Short Term Loans and Advances
vi. Other Current Assets
Total
Question: from the following Balance Sheets of Y ltd. As at 31st March, 2014 and 2013 prepare a Comparative Balance Sheet:
Particulars Note No.
Previous YearA
Current YearB
I EQUITY AND LIABILITIES1. Shareholders' Funds
(c) Share Capital7. Non-Current Liabilities
i. Long-Term Borrowings8. Current Liabilities
9,00,000
3,00,000
6,00,000
3,00,000
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i. Trade Payables
TotalII. ASSETS
2. Non-Current Assets(a) Fixed Assets
(i)Tangible Assets3. Current Assets
i. Trade Receivablesii. Cash and Cash Equivalents
Total
3,00,000 1,50,000
15,00,000 10,50,000
9,00,000 7,50,000
5,00,0001,00,000
2,50,00050,000
15,00,000 10,50,000
SOLUTION: Exe ltd.COMPARATIVE BALANCE SHEETAs at 31st march 2013 and 2014Particulars Note
No.31st march2013(A)
31st march2014(B)
AbsoluteChange(C= B-A)
%geChange(D = C/AX100)
I EQUITY AND LIABILITIES1. Shareholders’ fundsShare Capital:Equity Share Capital2. Non-current liabilitiesLong-term borrowingsSecured loan- 8% debentures3. Current LiabilitiesTrade Payables
6,00,000
3,00,000
1,50,000
9,00,000
3,00,000
3,00,000
3,00,000
-
1,50,000
50%
-
100%
Total 10,50,000 15,00,000 4,50,000 42,86%II ASSETS1. Non-Current AssetsFixed Assets (Tangible)2. Current Assets(a) Trade Receivables(b) Cash and Cash Equivalents
7,50,000
2,50,00050,000
9,00,000
5,00,0001,00,000
1,50,000
2,50,00050,000
20%
100%100%
Total 10,50,000 15,00,000 4,50,000 42.86%
FORMAT OF COMPARATIVE STATEMENT OF PROFIT AND LOSS
COMPARATIVE STATEMENT OF PROFIT AND LOSSFor the years ended 31st march, 2013 and 2014
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Particulars NoteNo.
31st March2013
31st March2014
AbsoluteChange
%geChange
I. Revenue from OperationsII. Other Income
Total Expenses
III. Total Revenue (I+II)
IV. Expenses(a) Cost of Materials
Consumed(b) Purchase of Stock-in-trade(c) Change in inventories of
finished goods, work-in-progress and stock-in-trade
(d) Employees benefit expenses
(e) Finance costs(f) Depreciation and
amortization expenses(g) Other expenses
V. Profit before Tax (III-IV)Less: income Tax
VI. Profit after tax
Question: Prepare Comparative Statement of Profit and loss from the following:Particulars 31st March 2012 31st March 2011
Revenue from Operations 15,00,000 10,00,000Expenses 10,50,000 6,00,000Other Income 1,80,000 2,00,000
COMPARATIVE STATEMENT OF PROFIT AND LOSSFor the years ended 31st march, 2013 and 2014
Particulars NoteNo.
31st March2013
31st March2014
AbsoluteChange
%geChange
I. Revenue from Operations
II. Other Income
10,00,0002,00,000
15,00,0001,80,000
5,00,000(20,000)
50%(10)
III. Total Revenue (I+II)
12,00,000 16,80,000 4,80,000 40%
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IV. Expenses 6,00,000 10,50,000 4,50,000 75%
V. Profit before Tax (III-IV)
6,00,000 6,30,000 30,000 5%
Meaning of Common size Financial statement
Common size financial statement are the statement in which amounts of individual items are written and converted to percentages of common base (e.g. Sales/revenue from operations in case of Profit and loss and total of Balance sheet in case of Statement of Balance sheet)
Objectives of preparing common size financial statement.
1. To analyse change in individual items of Income statement and Balance sheet.
2. To study the trend in different items of Incomes and Expenses / Liabilities and Assets.
3. To assess the efficiency and financial soundness.
PREPARATION OF COMMON SIZE STATEMENTS
FORMAT OF COMMON SIZE INCOME STATEMENTS
COMMON-SIZE STATEMENT OF PROFIT & LOSS for the year ended 31st March 2013 and 2014
Particulars NoteNo.
31st March2013
31st March2014
2013 (%)
2014(%)
I. Revenue from Operations (Net Sales)
II. Other IncomeTotal Expenses
100 100
III. Total Revenue (I+II)
IV. Expenses(h) Cost of Materials
Consumed(i) Purchase of Stock-in-trade(j) Change in inventories of
finished goods, work-in-progress and stock-in-trade
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(k) Employees benefit expenses
(l) Finance costs(m)Depreciation and
amortization expenses(n) Other expenses
V. Profit before Tax (III-IV)Less: income Tax
VI. Profit after tax
Question: from the following details of Star ltd. For the years ended 31st March 2012 and 2011, prepare a common-size statement of Profit and loss:
Particulars 31st March2014 31st March 2013Revenue from operations 10,00,000 8,00,000Employees benefit expenses 5,00,000 4,00,000Other expenses 50,000 1,00,000
Solution:
Particulars NoteNo.
31st March2013
31st March2014
2013% 2014%
I. Revenue from Operation
8,00,000 10,00,000 100% 100%
Employees benefit expenses
Other expenses
4,00,000
1,00,000
5,00,000
50,000
50%
12.5
50%
5
Total Expenses 5,00,000 5,50,000 62.5 55
Profit before Tax (III-IV)
3,00,000 4,50,000 37.5 45
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FORMAT OF COMMON-SIZE BALANCE SHEET
COMMON SIZE BALACE SHEET as at 31st March 2013 and 2014
Particulars NoteNo.
31st march2013(A)
31st march2014(B)
2013 % 2014%
I EQUITY AND LIABILITIES1. Shareholders’ funds (a) Share Capital:(i) Equity Share Capital(ii) Preference Share Capital(b) Reserves and Surplus
2. Non-current liabilities(a) Long-term borrowings(b) long-term provisions3. Current Liabilities(a) short term borrowings(b) Trade payables(c) Other current liabilities(d) short term provisions
Total 100 100II ASSETS1. Non-Current Assets(a) Fixed Assets(i) Tangible Assets(ii) Intangible Assets(b) Non-current Investments(c) Long-term Loans and Advances2. Current Assets(a) Current Investments(b) Inventories© Trade Receivables(d) Cash and Cash Equivalents(e) Short term loans and advances(f) other current assetsTotal 100 100
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uestion: from the following Balance Sheets of XYZ Ltd. As at 31st march, 2014 and 2013 prepare a Common-size Balance Sheet.
BALANCE SHEETS
As at 31st march 2014 and 2013Particulars Note
No.31st march2013(A)
31st march2014(B)
I EQUITY AND LIABILITIES
1. Shareholders’ funds
(a) Share Capital:
(b) Reserves and Surplus
2. Non-current liabilities
(a) Long-term borrowings
3. Current Liabilities
(a) Trade payables
5,00,000
1,00,000
4,00,000
2,00,000
2,50,000
1,50,000
2,50,000
1,00,000
Total 12,00,000 7,50,000
II ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
2. Current Assets
(a) Cash and Cash Equivalents
7,50,000
4,50,000
5,00,000
2,50,000
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Total 12,00,000 7,50,000
Particulars NoteNo.
31st march2013(A)
31st march2014(B)
2013% 2014%
I EQUITY AND LIABILITIES1. Shareholders’ funds (a) Share Capital:(b) Reserves and Surplus
2. Non-current liabilities(a) Long-term borrowings3. Current Liabilities(a) Trade payables
2,50,0001,50,000
2,50,000
1,00,000
5,00,0001,00,000
4,00,000
2,00,000
33.33%20
33.34
13.33
41.678.33
33.33
16.67
Total 12,00,000 7,50,000 100 100II ASSETS1. Non-Current Assets(a) Fixed Assets(i) Tangible Assets2. Current Assets(a) Cash and Cash Equivalents
5,00,000
2,50,000
7,50,000
4,50,000
66.67
33.33
62.5
37.5
Total 12,00,000 7,50,000 100 100SOLUTION:
BALANCE SHEETSAs at 31st march 2014 and 2013
4 MARKS QUESTIONS
1. Prepare comparative statement of Profit and Loss from the following:Particulars 2013 2014
Revenue from operationsExpensesOther IncomeIncome tax
1,00,00060,00020,00050%
1,50,0001,05,00018,00050%
2. From the following statement of Profit and Loss Star Ltd. For the year 2013-14.. Prepare comparative statement of Profit and Loss from the following:
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Particulars 2013 2014
Revenue from operationsExpensesOther IncomeIncome tax
1,60,00080,00020,00050%
2,00,0001,00,00010,00050%
3. Prepare comparative statement of Profit and Loss from the following:
Particulars 2013 2014
Revenue from operationsEmployee benefit expensesOther ExpensesInterest on investmentIncome tax
10,00,0005,00,00050,00030,00050%
12,50,0006,50,00060,00030,00050%
4. Prepare comparative statement of Profit and Loss from the following:
Particulars 2013 2014
Revenue from operationsOther Income(% of revenue from operations)Expenses(% of revenue from operations)
30,00,00015%60%
20,00,00020%50%
5. From the following Balance sheet prepare Comparative Balance Sheet :
Particulars 2014 2013
I EQUITY AND LIABILITIES1. Shareholders’ fundsShare Capital2. Non-current liabilitiesLong-term borrowings3. Current liabilitiesTrade payablesTotalII ASSETS1. Non-current AssetsFixed Assets(Tangible)2. Current AssetsTrade ReceivablesTotal
7,00,000
2,00,000
3,00,00012,00,000
8,00,000
4,00,00012,00,000
6,00,000
4,00,000
2,00,00012,00,000
6,00,000
6,00,00012,00,000
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6. From the following statement of Profit & Loss of Star Ltd. For the year ended 2014, prepare a common-size Profit & Loss Statement.
Particulars 2014
Revenue from operationsEmployee benefit expensesOther Expenses
10,00,0005,00,00050,000
7. From the following balance sheet of Sun Ltd. As on 31st March, 2014, Prepare a common size balance sheet. Sun Ltd.
Particulars Note No.
2014
1. Equity & liabilities Share holder’s fund
a. Share Capitalb. Reserve & Surplus
2. Non current liabilities Long term borrowing3. Current liabilities
Trade payable
Total
2. Assetsa. Non Current AssetsFixed Assetsi. Tangible Assetsii. Intangible Assets
Current Assetsi. Inventoriesii. Cash and cash equivalents
Total
30,00,0004,00,00010,00,000
6,00,000
50,00,000
30,00,0006,00,000
10,00,004,00,000
50,00,000
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CHAPTER-4RATIO ANALYSIS
LEARNING OBJECTIVES: Meaning of Accounting Ratio Meaning of Ratio analysis Objectives and limitations of ratio analysis Classification of Ratios and their calculation
Meaning of Accounting Ratio
Accounting ratio means the numerical relationship between two figures or two groups of figures contained in Profit and Loss A/c and Balance Sheet.
Meaning of Ratio analysis
Ratio analysis is the process of establishing and interpreting the quantitative relationship between two related items of Financial Statements to make a qualitative judgement about the:
1. Liquidity 2. long-term solvency3. Operating efficiency4. Profitability of the enterprise.
Objectives of ratio analysis
1. To determine Liquidity – i.e. ability of the enterprise to meet its short-term obligation as and when they become due.
2. To determine Short-term solvency – i.e. ability of the enterprise to pay the interest regularly.
3. To determine Operating efficiency – with which resources are utilized in generating revenue.
4. To determine Profitability of the enterprise with respect to Revenue from operations and investments.
limitations of ratio analysis
1. Ratio analysis ignores qualitative factors.2. It ignores price-level changes.3. It is a Historical analysis because financial statements on the basis of
which the ratios are established are historical in nature.
Classification of Ratios
Liquidity Ratios Solvency ratios
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Activity Ratios Profitability Ratios
LIQUIDITY RATIOS
Meaning: Liquidity ratios are the ratios which are calculated to assess company’s ability to repay the short-term loans on their due dates.
Two important liquidity ratios are: (a) Current ratio (b) Quick ratio
CURRENT RATIO
Meaning:It establishes a relationship between Current Assets and Current Liabilities.
Objective: To measure the ability of the firm to meet its short-term obligations.
Current Assets = Current Investments + Inventories + Trade Receivables + Cash and Cash Equivalents + Short-term Loans and Advances + Other Current AssetsOR= Current liabilities + Working CapitalOR= Total Assets – Non-current Assets
Current Liabilities = Short-term Borrowings + Trade Payables + Other Current Liabilities + Short term ProvisionsOR = Current Assets – Working CapitalOR = Total Debts –Debt
Current Ratio = Current Assets Current Liabilities
Ideal Current Ratio is 2:1.
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Question: Current Assets Rs. 2,00,000; Inventories Rs. 1,00,000; Working Capital Rs. 1,20,000; Calculate Current Ratio.Solution : Current liabilities = Current Assets – Working Capital
= Rs. 2,00,000 – Rs. 1,20,000 = Rs. 80,000Current Ratio = Current Assets/ Current liabilities
= Rs. 2,00,000/Rs. 80,000 = 2.5:1
QUICK RATIO/LIQUID RATIO/ACID TEST RATIO
Meaning:It establishes a relation between quick assets and current liabilities.
Objective: To measure the ability to meet current obligations without relying on the sale and collection of inventories.
Quick Ratio = Quick Assets Current liabilities
Quick Assets = Current Assets – Inventories – Prepaid Expenses
Ideal Quick Ratio is 1:1
Question 1: Liquid Assets Rs. 6,80,000, Inventories Rs. 1,90,000, Prepaid Expenses Rs. 10,000, Working Capital Rs. 2,00,000. Calculate the Current Ratio and Quick Ratio.
Question 2. The Quick Ratio of a company is 2:1. State giving reason, which of the following would improve, reduce or not change the ratio:
(i) Purchase of Stock-in-trade(costing Rs.10,000) for Rs. 11,000.(ii) Sale of an office furniture (Book value Rs. 10,000) for Rs. 9,000.(iii) Payment of Dividend.(iv) Issue of Equity shares.
SOLVENCY RATIOS
Meaning
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Solvency ratios are the ratios which are calculated to assess company’s ability to repay the interest regularly and to repay the principle on maturity or in pre-determined installments on due dates.Usually the following ratios are calculated to judge long-term financial solvency of the enterprise:
1. Debt-Equity ratio2. Total assets to Debt ratio3. Proprietory ratio4. Interest coverage ratio
Debt-Equity ratio :
Meaning It establishes a relationship between Debt and Equity.
Objective: To measure the long-term financial solvency.
Calculation:Debt = Long-term Borrowings + Long-term ProvisionsDebt = Total Debt – Current LiabilitiesDebt = Capital Employed – EquityEquity = Which means funds belonging to all the shareholders ( whether Equity or Preference).
Debt-Equity Ratio = Debt / Equity
Question: From the following information. Calculate Debt-equity Ratio:
Equity Share Capital 1,50,000Preference Share capital 1,00,000Reserves and Surplus 1,50,000Long-term Borrowings 6,00,000Long-term Provisions 2,00,000
Solution: Debt = Long-term Borrowings + Long-term Provisions
= Rs. 6,00,000 + Rs. 2,00,000 = Rs. 8,00,000
Equity = Equity Share Capital + Pref. Share Capital + Reserves & Surplus= Rs. 1,50,000 + Rs. 1,00,000 + Rs. 1,50,000 = Rs. 4,00,000
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Debt-Equity Ratio = Debt/Equity = Rs. 8,00,000/Rs. 4,00,000= 2:1
SOME IMPORTANT RELATIONSHIPS
1. Debt = Total Debt – Current Liabilities2. Debt = Capital Employed – Equity3. Capital Employed = Total Assets – Current liabilities4. Capital Employed = Non-Current Assets + Working Capital5. Capital Employed = Equity + Debt6. Equity = Equity Share Capital + Preference Share Capital +
Reserves & Surplus7. Equity = Non-Current Assets + Working Capital – Non-
current Liabilities8. Equity = Capital Employed – Debt9. Equity = Total Assets – Total Debt
Question: X ltd. Has a liquid ratio of 1.5:1. Its Net working Capital is Rs. 1,20,000 and its inventories are Rs 80,000. Total Assets Rs. 3,80,000. Total Debt Rs. 2,80,000. Calculate Debt-Equity Ratio. (Ans. 2:1)
Total Assets to Debt Ratio
Meaning:It establishes the relationship between total assets and debts.
Objective :To measure the safety margin available to the suppliers of long-term debts.
Total Assets to Debt Ratio = Total Assets / Debt
Question: Equity shareholders funds Rs. 3,00,000, Reserves and Surplus Rs. 1,00,000, Preference Share Capital Rs. 1,00,000. Total Debt Rs. 11,40,000, Current Liabilities Rs. 3,40,000. Calculate Total Assets to debt Ratio. Solution: Total Assets to Debt Ratio = 15,40,000/8,00,000
= 77:40
Proprietary Ratio
Meaning:It measures a relation between Proprietor’s Funds and Total assets.
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Objective: To measure the proportion of Total Assets financed by the Proprietors’ funds
Calculation:
.
Proprietary ratio = Proprietors’ Funds/Total Assets X 100
Proprietors’ funds means funds belonging to shareholders i.e. Share capital + Reserves & Surplus.
Question: From the following information, calculate Proprietory Ratio:Share Capital Rs. 2,50,000 Reserves & Surplus Rs. 1,50,000Non-current Assets Rs. 11,00,000 Current AssetsRs. 5,00,000.
Solution : Rs. 4,00,000/Rs. 16,00,000 X 100 = 25%
INTEREST COVERAGE RATIO
Meaning:It shows the relation between Profit before interest and tax and interest on long term borrowings.
Objective:
The objective to calculate this ratio is to ascertain the amount of profit available to cover the interest. A higher ratio is considered better for the lenders as it means higher safety margin.
Calculation:
Interest Coverage Ratio = Profit before interest and tax/Interest on long term debt =…………. Times
Question : P ltd has a long term loan Rs. 10,00,000. Interest on the loan for the year is Rs. 1,25,000 and its profit before interest and tax is Rs. 5,00,000. Calculate Interest coverage ratio.
Solution : Interest coverage ratio = 5,00,000/1,25,000 = 4 times.
TURNOVER OR ACTIVITY OR PERFORMANCE RATIOS116
Meaning:It measures the effectiveness with which a firm use its available resources.
Objective:To measure how well the resources have been used by the enterprise. A higher ratio indicates better use of capital which in turn shows better profitability of the firm.
Usually the following ratios are calculated:
1. Inventory turnover ratio2. Trade receivables/Debtors turnover ratio3. Trade payables/Creditors turnover ratio4. Working capital turnover ratio
Inventory turnover ratio
Meaning:It establishes the relationship between Cost of Revenue from Operations and Average Inventory.
Objective:To determine the efficiency with which the Inventory of finished goods is converted into Revenue from operations.
Calculation:
Cost of Revenue from operations = Revenue from operations – Gross Profit
Or
= Opening Inventory+ Net Purchases +Direct Expenses – Closing Inventory
Average Inventory = Opening Inventory + Closing Inventory/2
Question: Calculate Inventory turnover ratio:Cost of goods sold/Revenue from operations Rs. 9,00,000Inventories in the beginning Rs. 2,00,000
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Inventory turnover ratio
= Cost of Revenue from operations /Average Inventory= …….times
Inventories at the end Rs. 2,50,000Solution: Inventory turnover ratio = 9,00,000/2,25,000
= 4 times
Trade receivables/Debtors turnover ratio
Meaning:It shows the relations between Credit revenue from operations and average trade receivables.
Objective:To determine the efficiency with which the trade receivables are managed and collected.
Calculation:
Average trade receivables = Receivables in the beginning + Receivables at the end/2
Receivables = Debtors + Bills Receivables
Average Collection Period = 12 months/ Debtors turnover ratio=…..months
Question: Calculate Trade receivable or Debtors turnover ratio and Average collection period.Credit revenue from operation for the year is Rs. 12,00,000, Debtors Rs. 1,00,000; Bills receivable Rs. 1,00,000.
Solution: Debtors turnover ratio = 12,00,000/2,00,000 = 6 times
Average collection period = No. of days in a year/Trade receivable ratio=365/6= 61 days approx..
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Debtors turnover ratio
= Credit Revenue from operations/Average trade receivables=……. times
Trade payables/Creditors turnover ratio
Meaning:It shows the relation between Net credit purchases and Accounts payable.
Objective:To determine the efficiency with which creditors make payment. A higher ratio indicates the shorter payment period.
Calculation:
Trade payable turnover ratio = Net Credit Purchases / Accounts Payable
Net Credit Purchases = Net Purchases – Cash Purchases
Average Trade Payables = Opening Trade Payables+Closing Trade Payables/2Trade Payables = Trade Creditors + Bills Payables
Question: Closing Trade Payables Rs. 45,000, Net Purchases Rs. 3,60,000, Cash Purchases Rs. 90,000, Reserve for Discount on Closing Trade Payables Rs. 5,000. Calculate the Creditors Turnover Ratio.Solution: Creditors Turnover Ratio = (Rs. 3,60,000 – Rs. 90,000)/Rs. 45,000
= 6 times
Average Payment Period = 12 months/Creditors turnover ratio = ……..months
Working capital turnover ratio
Meaning:It establishes the relation between Revenue from operations and Working capital.
Objective:It indicates the firm’s ability to generate Revenue from operations per rupee of working capital. Higher ratio indicates more efficiency in utilization of working capital and vice versa.
Calculation:
Working capital turnover ratio = Revenue from operations / Working Capital
Working capital = Current Assets – Current Liabilities
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Revenue from operations = Revenue(cash + Credit) – Revenue from operations return
Questions: Calculate Working capital turnover ratio from the following:Cost of revenue from operations Rs. 3,00,000Current Assets Rs. 2,00,000Current liabilities Rs. 1,50,000
Solution: Working capital turnover ratio = 3,00,000/50,000= 6 times.
PROFITABILITY RATIOSMeaning:These ratios measure management’s overall effectiveness as shown by the returns generated on Revenue from Operations and Investment.
Objective:These ratios help in measuring profitability of the firm. Higher ratios indicate better performance.
The various types of profitability ratios are as follows:1. Profitability Ratio in relation to Revenue from operations:
(a) Gross Profit Ratio(b) Operating Profit Ratio(c) Operating ratio(d) Net profit ratio
2. Profitability Ratio in relation to Investment:(a) Return on Investment or Return on Capital Employed
Gross Profit Ratio
Meaning:It measure the relation between gross profit and revenue from operations.
Objective:It determines the efficiency with which production and/or purchase operations and selling operations are carried on.
Calculation:
Gross Profit = Revenue from operations – Cost of revenue from operations
Question: Calculate Gross Profit Ratio:Revenue from operations – Rs. 6,00,000
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Gross Profit ratio = Gross Profit / Revenue from operation X 100
Gross profit 25% on cost.
Solution: Let the cost = Rs.100 Gross profit = Rs. 25 Revenue from operations = Rs..125Cost of revenue from operations = 100/125 X 6,00,000
= 4,80,000
Gross Profit = 6,00,000 – 4,80,000= 1,20,000
Gross Profit Ratio = 1,20,000 /6,00,000 X 100= 20%
Operating Profit Ratio
Meaning:It measures the relationship between Operating Profit and Revenue from operations.
Objective:To determine the operational efficiency of the management.
Calculation:
Operating profit ratio = Operating Profit / Revenue from operation X 100
Question: Revenue from operations Rs. 6,00,000, Operating Cost Rs. 5,10,000. Cost of Revenue form operations Rs. 4,00,000. Calculate Operating Profit Ratio.
Solution: Operating Profit = Rs. 6,00,000 – 5,10,000 = Rs. 90,000 Operating Profit Ratio = Rs. 90,000/Rs. 6,00,000 X 100
= 15%
Operating ratio
Meaning:It measure the relationship between Operting Cost and Revenue from Operations.
Objectives:
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To determine the operational efficiency with which production and/or Purchases and Selling Operations are carried on.
Calculation:
Operating ratio =(Cost of revenue from operations + Operating expenses)/Revenue from operation X 100
Note: Both Operating Profit Ratio and Operating Ratio are complementary to each other and thus if one of such ratios is deducted from 100 another ratio may be obtained.
Question: From the following information calculate operating ratioCost of revenue from operation = Rs. 6,00,000Operating expenses = Rs. 40,000Revenue from operation = Rs. 8,20,000Revenue return from operations = Rs. 20,000
Solution:Operating ratio =( 6,00,000 + 40,000/8,00000)X100 = 80%
Net profit ratio
Meaning: It measures the relationship between Net Profit and Revenue from Operations.
Objective:To determine the overall profitability due to various factors such as operational efficiency, trading on equity etc.
Calculation:
Net Profit = Revenue from operations – Cost of Revenue from Operations – Operating Expenses – Non-operating Expenses + Non Operating IncomesOR= Revenue from Operations – Operating Cost – Non-operating Expenses + Non-operating incomesOR
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Net profit ratio = Net Profit// Revenue from operations X 100
= Operating Profit – Non-operating Expenses + Non-operating Incomes
Question: Revenue from Operations Rs. 10,00,000, Gross Profit Ratio 25%, Operating Ratio 90%, Operating Rs. 1,00,000, Non-operating Expenses Rs. 5,000, Non-operating income Rs 55,000. Calculate Net Profit Ratio.Solution: Operating Profit Ratio = 100 – Operating Ratio = 100 - 90% = 10%Operating Profit = Rs. 10,00,000 X 10/100 = Rs. 1,00,000Net Profit = Operating Profit + Non-operating Incomes – Non-Operating Expenses
= Rs. 1,00,000+Rs. 55,000 – Rs. 5,000 = Rs. 1,50,000Net Profit Ratio = Rs. 1,50,000/Rs. 10,00,000 X 100 = 15%
Return on Investment or Return on Capital Employed
Meaning:It measures a relationship between Net Profit before Interest and Tax and Capital Employed.
Objective:To find out how efficiently the long-term funds supplied by the creditors and shareholders have been used.
Calculation:
Return on investment (ROI) = Net profit before interest, tax and dividend/capital employed X 100
Capital employed = Share Capital + undistributed profit + long term loans – (Fictitious assets like underwriting commission, Preliminary expenses, Discount or loss on issue of shares and debentures and non-operating assets like Investments).
Or
= Net fixed assets + Working CapitalWorking Capital = Current Assets – Current Liabilities
Question: From the following information calculate Return on InvestmentNet profit after interest and tax – Rs. 1,20,000
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Tax – Rs 1,20,000Net fixed Assets – Rs.. 5,00,000Long term trade investment – Rs. 50,000Current assets – Rs. 2,20,00012% debentures – Rs. 4,00,000Equity share capital – Rs. 50,00010% preference share capital – Rs. 50,000Reserve and surplus – Rs. 1,00,000Current liability – Rs. 1,70,000
Solution : Return on Investment = 1,20,000+ 1,20,000 + 48,0005,00,000 + 50,000 + 50,000 = 6,00,000
= 2,88,000 X 100 = 48%
QUESTIONS: 4 marks1. From the following information calculate:
(i) Gross Profit Ratio (ii) Inventory Turnover Ratio (iii) Current Ratio (iv) Liquid Ratio (v) net Profit ratio (vi) Working Capital Ratio Revenue from operations Rs. 25,20,000Net Profit Rs. 3,60,000Cost of Revenue from operations Rs. 19,20,000Long-term Debt Rs, 9,00,000Trade Payables Rs. 2,00,000Average Inventory Rs. 8,00,000Other Current Assets Rs. 7,60,000Fixed Assets Rs. 14,40,000Current liabilities Rs. 6,00,000Net Profit before interest and tax Rs. 8,00,000
2. From the following calculate :(a) Net Profit Ratio(b) Operating Profit Ratio
Revenue from operations Rs. 2,00,000Gross Profit Rs. 75,000Office Expenses Rs. 15,000Selling Expenses Rs. 26,000Interest on Debentures Rs. 5,,000Accidental Losses Rs. 12,000Income from Rent Rs. 2,500Commission received Rs. 2,000( Ans Net profit ratio = 10,75% and Operatin profit ratio = 18%
3. Find the value of current liabilities and current assets if Current Ratio is 2.5:1. Liquid Ratio is 1.2:1 and the value of inventory of the firm is Rs. 78,000.(Ans. Current Assets = Rs. 1,50,000; Current liabilities = Rs. 60,000)
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4. Current Ratio is 3.5. Working Capital is RS. 90,000. Calculate the amount of Current Assets and Current Liabilities.Hint: Current Assets – 1,26,000
5. Shine Limited has current ratio 4.5:1 and quick ratio 3:1; if the inventory is Rs. 36,000, calculate current liabilities and current assets.Hint: Current Assets – 1,08,000
6. Current liabilities of a company are Rs. 75,000. If current ratio is 4:1 and liquid ratio is 1:1, calculate value of current assets, liquid assets and inventory.Hint: Inventory – 2,25,000
7. Handa Ltd. has inventory of Rs. 20,000. Total liquid assets are Rs. 1,00,000 and quick ratio is 2:1. Calculate current ratio.Hint: Current Ratio: 2:4:1
8. Calculate Debt-Equity ratio from the following information:Total Assets Rs. 625000Total Debt Rs. 500000Current Liabilities Rs. 250000Hint: Debt Equity Ratio – 2:1
9. Calculate following ratios from the following information:i. Current Ratio ii. Acid – Test Ratioiii. Operating Ratioiv. Gross Profit Ratio
Current Assets Rs. 35000Current Liabilities Rs. 17,500Inventory Rs. 15,000Operating Expenses Rs. 20,000Revenue from Operaions Rs. 60,000Cost of revenue from Operations Rs. 30,000Hint: 2:1, 1.14:1, 83.3%, 50%
10. Akshara Ltd. has 8% Debentures of Rs. 5,00,000. Its profit before interest & tax is Rs. 2,00,000. Calculate Interest Coverage Ratio.Hint: 5 times
11. Calculate working Capital Turnover ratio from the following:Hint: 3 times
12. Find the value of current liabilities and cuurent assets if Current ratio is 2.5:1, Liquid Ratio is 1.2:1 and the value of inventory of the firm is Rs. 78,000.Hint: Current Liabilities = Rs. 60,000, CurrntAssets : 1,50,000
13. A company’s Inventory Turnover is 5 times. Inventory at the end is Rs. 20,000 more than that at the beginning. Revenue from operations are Rs. 8,00,000. Rate of Gross Profit on cost ¼; Current liabilities Rs. 2,40,000. Acid Test ratio 0.75. Calculate Current RatioHint: 1.325:1
14. From the following information, calculate any two of the following ratios:i. Gross Profit Ratio;
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ii. Working Capital Turnover Ratioiii. Proprietary Ratio
Information:Paid – up Capital Rs. 8,00,000Current Assets Rs 5,00,000Credit Revenue from Operations Rs. 3,00,000Cash revenue from operations Rs. 75% of Credit Revenue from operations9% Debentures Rs. 3,40,000Current Liabilities Rs. 2,90,000Cost of Revenue from OPeartions Rs. 6,80,000Hint: Gross Profit Ratio, (-) 29.5%, Working Caoital Turnover Ratio, 2.5 times.Proprietary Ratio : 0.55:1
15. From the following information, calculate any two of the following ratios:i. Net Profit Ratioii. Debt – Equity ratioiii. Quick Ratio.
Information Paid-up capital 20,00,000Capital Reserve 2,00,0009% Debenture 8,00,000Revenue from operations 14,00,000Gross Profit 8,00,000Indirect expenses 2,00,000 Current Assets 4,00,000Current Liabilities 3,00,000Opening Inventory 50,000Closing Inventory – 20% more than Opening Inventory.Hint: Net Profit – 42.86%, Debt Equity - 2:7, Quick Ratio – 1.13:1
16. i. Net Profit after Interest but before tax Rs 1,40,000; 15% long term debt rs. 4,00,000, Share holders fund Rs. 2,40,000; Tax rate 50%. Calculate Return on capital employed.ii. opening inventory : Rs, 60,000; closing inventory rs 1,00,000; Inventory Turnover ratio 8 times; Selling Price 25% above cost. Calculate the gross profit ratio.Hint : (i) 31.25%, (ii) 20%
17. On the basis of following information calculatei. Debt-Equity Ratioii. Working Capital Turnover Ratio.
Information Rs.Revenue from Operation 30,00,000Cost of revenue from Operation 22,50,000Other current assets 5,50,000Current Liabilities 2,00,000Paid up share capital 3,00,0006% debentures 1,50,0009% loan 50,000
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Debenture redemption reserve 1,00,000Closing inventory 50,000Hint: 0.5:1, 7.5 times
18. The Current Ratio is a Company is 2:1 state giving reason which of the following would improve reduce or not change.(1) Repayment of current Liabilities(2) Purchase of goods on credit(3) Sale of office equipment for Rs 8,000 (book value Rs.4,000)(4) Payment of Dividend.
19. Debt equity ratio of a company is 0.5:1 which of the following suggestions would increase, decrease or not change it-(i)Issue of equity share(ii)Cash received from debtors(iii)Redemption of debenture(iv)Purchase of good on credit.
20. From the following information cal.Int.Coverage Ratio 20,000 equity share capital 10 each Rs 2,00,0008% Prefence Share Capital Rs.1,40,00010% Debenture Rs. 100,000
Profit after tax Rs.1,50,000 Tax Rs. 18,000
21. Calculate return on investment and debt Equity ratio form the following information
Net profit after interest and tax Rs. 3,00,00010%Debenture Rs.5,00,000Tax Rate 40%Capital Employed Rs.40,00,000
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Chapter 5
CASH FLOW STATEMENT
LEARNING OBJECTIVES Meaning of Cash flow Statement Objectives of Cash flow statement Importance or Uses Limitations Preparation of Cash flow statement
Meaning of Cash flow Statement
Cash flow statement is governed by Accounting Standard – 3(Revised).It means the statement of changes in cash and cash equivalents during a particular accounting period.
Objectives of Cash flow statement
The objective of preparing CFS is(i) to ascertain Net cash flows from Operating, Investing and Financing Activities of an enterprise (ii) to ascertain the Net Change in Cash & Cash Equivalents.
Importance or Uses
1. Short term planning – it gives information about sources and applications of cash and cash equivalents for a specific period.2. Efficient cash management – it gives information about surplus or deficit of cash and decide about the short-term investment of the surplus and can arrange the short-term credit in case of deficit.
Limitations
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1. Non cash transactions are ignored.2. No Cash flow statement is not a substitute of Income Statement as it does not tell
the Profit or loss and Balance sheet as it does not disclose the complete financial position.3. Historical in nature.
Preparation of Cash flow statement
Two methods of calculating cash flows from operating activity(i) Direct Method(ii) Indirect Method.
Cash flow Statement should be prepared and presented for each period for which finance statements are presented.The preparation of CFS has been made mandatory w.e.f. 1st April 2001.
KEY TERMSCash – Cash in hand and demand deposits with banksCash Equivalents – Short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.Eg . – Treasury Bills, Commercial Papers, Commercial Bills, Call Money, Certificate of Deposit.Transactions not regarded as Cash FlowsEg. Cash deposited/withdrawn into Bank, Purchase/Sale of Short-term Marketable SecuritiesOperating activities – The principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities.Investing activities – The acquisition and disposal of Long-term Assets and other investment not included in cash equivalents.Financing activities - the activities that result in change in the size and composition of the owners capital and borrowing of the enterprise.
FORMAT OF CASH FLOW STATEMENT (INDIRECT METHOD)As per Accounting Standard -3 Revised
Particulars Rs.I Cash flow from Operating ActivitiesNet Profit as per P&L A/c+ Transfer to Reserves Proposed Dividend for current year Interim Dividend paid during the year Provision for tax for the current year +/- Extraordinary itemsNet profit before Tax and Extraordinary itemsAdjustments for Non-cash and Non-operating items+ Depreciation Interest on Borrowings and Debentures Loss on Sale of Fixed Assets- Interest Income Dividend Income Rent Income
129
Profit on sale of Fixed AssetsOperating profit before Working capital changes+ Increase in Current Assets and decrease in Current liabilities- Decrease in Current Assets and Increase in Current liabilitiesCash generated from operations- Income tax paidCash flow from (or used in) Operating Activities (A)II Cash flow from Investing Activities+ Proceeds from Sale of Tangible/Intangible assets Interest and Dividend received (for non-finance companies only) Rent Income- Purchase of Tangible/Intangible assets+/- Extraordinary items
Cash flow from(or used in) Investing Activities (B)
III Cash flow from financing activities
+ Proceeds from issue of shares, Debentures and other long
Term borrowings
- Final/interim dividend paid
- Interest on debentures and loans
- Repayment of loans
- Redemption of Debentures/Preference Shares
- Share issue expenses
Cash flow from( or used in) financing activities (C)
Net Increase/Decrease in Cash and Cash Equivalents (A+B+C)
+ Cash and Cash equivalents in the beginning of year
Cash in hand
Cash at bank(less bank overdraft)
Short term deposits
Marketable securities
- Cash and Cash Equivalents at the end of the year
Cash in hand
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Cash at bank(less bank overdraft)
Short term deposits
Marketable securities
VERY SHORT ANSWER QUESTIONS1. What do you mean by Cash Flow statement?2. What are the various activities classified as per AS-3(revised) related
to Cash flow statement?3. State one objective of Cash flow Statement.4. What do you mean by cash equivalents?
Ans. Short-term highly liquid investments which are readily convertible into known amount of cash and which are subject to an insignificant risk of change in the value.
5. State the category of the following items for a financial as well as non-financial company
(a) Dividend received (b) Interest received (c) Interest paid(d) Dividend paid
Ans. Financial company
Non-financial company(a) Dividend received Operating activity
Investing activity(b) Interest received Operating activity
Investing activity(c) Interest paid Operating activity
financing activity(d) Dividend paid Financing activity
financing activity6. Calculate the net amount of cash flow if a fixed asset costing Rs.
32,000 (having a book value of Rs. 24,000) is sold at a loss of Rs. 8,000.Solution: Cash Inflow from Investing activities = Rs. 16,000(Book value-loss=Amount received from sale)(Rs. 24,000-Rs.8,000=Rs. 16,000)
7. Calculate Cash Flow from Operating Activities from the following information:
Particulars Amount (Rs.)
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Profit for the year 2013-2014 1,00,000Transfer to General Reserve during the year 20,000Depreciation provided during the year 40,000Profit on sale of furniture 10,000Loss on sale of Machine 20,000Preliminary Expenses written off during the year20,000
Additional Information:
Particulars March(2013) March(2014)
Debtors 20,000 30,000Bills Receivable 14,000 10,000Stock 30,000 36,000Prepaid Expenses 4,000 6,000Creditors 40,000 36,000Bills Payables 30,000 50,000Outstanding Expenses 6,000 8,000
(Ans. 1,94,000)8. Following balances appeared in the Machinery Account and
Accumulated Depreciation Account in the books of JB Ltd.
Particulars March (2013) March (2014)Machinery A/c 17,78,985 26,55,450Accumulated depreciation A/c3,40,795 4,75,690Additional Information:Machinery costing 2,65,000 on which accumulated depreciation was Rs. 1,00,000 was sold for Rs. 75,000. You are required to (i) Compute the amount of Machinery purchased, depreciation
charged for the year and loss on sale of Machinery.(ii) How shall each of the items related to Machinery be shown in
Cash Flow Statement.
Hint: Purchase of Machinery= Rs. 11,41,465Sale of Machinery = Rs. 75,000Depreciation Provided = Rs. 2,34,895Loss on sale of machinery = Rs. 90,000
9. From the following information, prepare a Cash Flow Statement:Balance Sheet as at
Particulars Note no.
31.03.14Rs.
31.03.13Rs.
I. Equity and Liabilities(1) Shareholders’
Funds 1 1,30,0 90,000
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(a) Share capital(b) Reserves and
Surplus(2) Non-Current
Liabilities(3) Current Liabilities
Trade PayablesTotal
II. ASSETS(1) Non-Current Assets
Tangible Fixed AssetsIntangible Assets(Goodwill)
(2) Current AssetsInventoriesTrade ReceivablesCash & Cash EquivalentsShort-term Loans & Advances (Adv. Tax)Total
2 0085,000
22,0002,37,000
21,00039,0006,0005,000
2,37,000
50,000
17,4001,57,400
93,4001,000
22,00036,0005,000
1,57,400
Note 1. SHARE CAPITALParticulars 31.03.14 31.03.13Equity shares of Rs. 10 each1,30,000 90,000
Note 2. RESERVES AND SURPLUSGeneral Reserve 55,000 30,000Profit and loss A/c 30,000 20,000
Additional Information: During the year Depreciation charged on fixed assets was Rs. 20,000 and Income Tax Rs. 5,000 was paid in advance.(Ans. Purchase of fixed Asset = 92,600)
10. From the following information prepare Cash Flow statement:
Particulars 31.03.14 31.03.13
I. EQUITY AND LIABILITIES(1) Shareholders’ funds
Share capitalReserves & Surplus (P&L A/c)
(2) Non-Current Liabilities (6% Debentures)
(3) Current LiabilitiesTrade Payables
1,00,00060,000
1,00,00030,000
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Other Current LiabilitiesTotal
II. ASSETS(1) Non-Current Assets
Tangible Fixed AssetsNon-Current Investments
(2) Current AssetsInventoriesTrade ReceivablesCash & Cash EquivalentsTotal
80,000
35,00065,000
3,30,000
1,90,000
30,000
55,00045,00010,000
3,30,000
60,000
30,00070,000
2,90,000
1,50,000
40,000
40,00040,00020,000
2,90,000
Andditional Information:(i) A piece of Machinery costing Rs. 5,000 on which depreciation
of Rs. 2,000 had been charged was sold for Rs. 1,000. Depreciation charged during the year was Rs. 17,000.
(ii) During the Current year New Debentures have been issued on 1st Aug.
(Ans. Operating Activities = 23,400, Investing Activities = (49,000), Financing Activities = 15,600)
11. From the following information prepare a Cash flow Statement:
BALANCE SHEET as at
Particulars Note no.
31.03.14 31.03.13
I. EQUITY AND LIABILITIES(1) Shareholders’ Funds
(a) Share Capital(b) Reserves and Surplus
(2) Current Liabilities
12
1,00,00031,000
1,00,00030,000
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Trade PayablesShort-term Provisions(for Taxation)Total
II. ASSETS(1) Non-current Assets
Tangible fixed AssetsIntangible Assets (goodwill)Non-current Investments (10% Investments)
(2) Current AssetsInventoriesTrade ReceivablesProvision for Doubtful DebtCash & Cash EquivalentsTotal
6,20018,000
1,55,200
72,00012,00011,000
23,40022,200(600)15,200
1,55,200
9,20016,000
1,55,200
77,00012,00010,000
30,00020,000(400)6,600
1,55,200
Note No. 1Share CapitalEquity shares of Rs. 10 each 1,00,000
1,00,000
Note NO. 2Reserves and SurplusGeneral Reserve 18,000
14,000Profit & Loss A/c 13,000
16,000
Additional Information: Deprecition charges Rs. 8,000. Provision for taxation of Rs. 19,000 made during the year.(Ans. Operating activities = 11,600; Investing Activities = (3,000))
12. From the following information, prepare a Cash Flow Statement:Balance Sheets as at
Particulars Note no.
31.03.14 31.03.13
I. EQUITY AND LIABILITIES(1) Shareholders’ Funds
(a) Share Capital(b) Reserves and Surplus
(2) Non-Current Liabilities (10% Loan on
12
50,00029,950
45,00028,275
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Mortgage)(3) Current Liabilities
Trade PayablesOther current liabilitiesTotal
(c) ASSETS(3) Non-current Assets
Tangible fixed AssetsAccumulated DepreciationNon-current Investments (10% Sinking fund Investments)
(4) Current AssetsInventoriesTrade ReceivablesProvision for Doubtful DebtCash & Cash EquivalentsTotal
40,000
15,00010,000
1,44,950
78,000(15,200)
16,000
35,00021,300(1,350)11,200
1,44,950
18,0007,500
1,38,775
77,000(11,400)
12,000
30,60023,500(1,425)8,500
1,38,775
Note No. 1Equity shares of Rs. 10 each 50,000
45,000Note No. 2Sinking fund 16,000
12,000Retained Earnings 13,950
16,275
Additional Information:Dividend amounting to Rs. 5,000 was paid during the year.(Ans. Operating Activities = 10,500; Investing Activities = (3,800); Financing Activities = (4,000))
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SOLOVED SAMPLE PAPER -I ACCOUNTANCY CLASS-XII
Time Allowed-3 Hrs. Max. Marks-80General Instructions:-
1. The question paper is divided into two parts.2. All the questions are compulsory.3. All parts of a question to be done together.4. Prepare working notes wherever required.5. The question paper contains 25 questions.
PART-A(Partnership Firm And Company Accounts)
Q1. A and B are partners are partners in a firm without a partnership deed, A is an active partner and claimsa salary of Rs.10,000 per month state with reasons whether the claim is valid or not. (1)Q2. P and Q are partners in a firm sharing profit in the ratio of 7:5. They admit R as a partner in the firm. The new profit ratio among P, Q and R is1:1:2. Calculate the sacrifice ratio.
(1)Q3. State the two main rights that a newly admitted partner acquires in the firm.
(1)Q4. Give two circumstances in which gaining ratio is applied. (1)Q 5. What is meant by debenture issued as collateral security? (1)Q6. What is under subscription? (1)Q7. State any two conditions for the issue of share at discount. (1)Q8. A, B and C are partners in a firm. They had omitted interest on capital @10% p.a. for three years ended 31st December 2011. Their fixed capitals on which interest was to be calculated throughoutWere: - Rs.2,00,000 Rs.1 60,000 Rs.1,50,000 Give the necessary adjusting journal entry with working notes. (3)Q9. Pass necessary journal entries for issue of debentures for the following:-
i. Gupta ltd issued 1000 12% Debentures of Rs. 100 each at a discount of 10% repayable at a premium of 5%.
ii. Hriday ltd issued 8000 9%Debentures of Rs. 100 each at a premium of Rs. 20 per debenture repayable at a premium of Rs. 12 per Debenture. (3)
Q10. On 1st January 2009 kalpana garments ltd issue 20008%Debentures of Rs.100 each at par and redeemable at par after 4 years and offered the holders an option to convert their holding into equity share of Rs. 10 each at a premium of Rs. 5 per share any time after the expiry of one year on 1st Jan 2011 30% holder exercised their option.
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Give the journal entry on Jan 1st 2011. (3)Q11. After doing their post graduation Mohan suggested to his class mate Sohan to form a partnership to sell low cost school uniforms to the students belonging to low income group who have been admitted to the private school of the city as per the provision of right to education act 2009.sohan agreed to the proposal and requested to admit his friend Hema, a visually handicapped unemployed person also to be a member of the proposed firm. All of them agreed to form a partnership firm but they were not having enough capital to invest. Mohan therefore persuaded a rich friend of his Rohan, who hailed from Mumbai to be a partner and contribute the required capital. All of them formed a partnership on the following terms:-
i. Mohan will contribute Rs. 2, 00,000, Sohan Rs. 1, 00,000, Rohan Rs.8, 00,000 and Hema will be partner without capital.
ii. Profit will be equally.iii. Interest on capital will be allowed @10% p.a.
The profit of the firm for the year ended 31st march 2012 were Rs.4, 00,000.
a) Identify any two value which according to you motivated them to form the partnership firm.
b) Prepare P&L appropriation account of the firm for the year ending 31st march 2012. (2+2 = 4)
Q12. A, B and C were partners sharing profits in the ratio of 3:2:1 their balance sheet as on 1st April 2012 was as following:-Balance SheetLiabilities Amount Assets AmountCreditorsEmployed provident fundCapital:-
A. 2,00,000B. 1,40,000C. 1,00,000
40,00052,000
4,40,000
5,32,000
CashDebtorsStockFurnitureBuilding
32,00032,0001,60,00068,0002,40,000
5,32,000
C retires on the above date and it was agreed that:-i. C’s share of goodwill was Rs.60, 000.
ii. 5%Provision for doubtful debts was to be made on debtors.iii. Sundry creditors were valued Rs. 8,000 more than the book value.
Pass necessary journal entry for the above transaction on C’s retirement. (4)Q13. A company purchased a running business from M/s Ram brothers for a sum of Rs. 7 50,000 payable Rs.1,50,000 by cheque and for the balance issue equity share of Rs.10 each at premium Rs.2 per share.the Assets and liabilities consisted of the following :
i. Plant & Machinery Rs.2,00,000ii. Land & Building Rs.2,00,000
iii. Sundry Debtor Rs.1,50,000iv. Stock Rs.2,00,000
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v. Cash Rs.1,50,000vi. Sundry creditors Rs.1,00,000
You are required to pass the necessary journal entries in the company’s book.(4)
Q.14.Gopal ltd.was registered with an authorized capital of rupees 1crore,divided into equity shares of Rs.10 each.The company offered for public subscription all the shares,public applied for 9,50,000 shares and allotment was made to all the applicants ,all the calls were made and duly received except the final call of Rs. 2 per share on 1000 shares.Show how the share capital a/c will be shown in the companies balance sheet also prepare note to the a/c for the same. (4)Q15 .Kalu and Lalu are partners in a firm sharing profits in the ratio 3:2.The partnership deed provided that kalu was to be paid salary of rs.10,000 per month and lallu was to get a commission of rupees 1,00,000 per year.Interest of Capital was to be allowed @5%p.a and interest on drawing was to be charged @6%p.a,Interest on kalu’s drawing was Rs.2500 and on Lalu’s drawing Rs.900.Capital of the partners were Rs.5,00,000 and 3,00,000 respectively and were fixed.The firm earned a profit of Rs.4,20,000 for the year ended 31st march 2012.Prepare the profit and loss appropriation A/c and partners capital A/C and the current A/C.Q16. A,B,C are partners sharing profits and losses in the ratio 3:2:1 and their balance sheet as on 31st march 2012 stood as under: Liabilities Amt. Assets Amt.A’s capitalB’s capitalC’s capitalCreditorsWorkmens’s compensation reserve
1,50,0001,50,0001,50,00051,000
30,000
5,31,000
BuildingMachineryStockDebtorsBank
2,10,00075,00096,00045,0001,05,000
5,31,000
A died on June 30th 2012 and following decisions were taken by surviving partners According to the partnership deed his executor were entitled to :
a) The deceased partners capital as appearing in the last balance sheet and interest thereon at @6%p.a upto the date of death.
b) His share of profit for the period he was alive should be based on the figure of 31st march 2012
c) Goodwill according to his share of profit to be calculated by taking twice the amount of the average profit of the last 3 years,the profit of the previous years were:2010:30,0002011:45,0002012:33,000
d) Assets were to be revalued:Building:2,40,000
139
Stock:90,000Prov.for bad debts :@10%p.a
Prepare revaluation a/c and A’s capital a/c (6)
Q17.A ltd invited applications for issuing 1,50,000 equity shares of rs.10 each at a discount of 10%.The amount was payable as follows:On application Rs.2 per shareOn allotment Rs.2 per shareOn first and final call balance.Applications for rs.3,00,000 shares were received.Applications for 50,000 shares were rejected and application money of these applicants was refunded.Shares were allotted on prorata basis to the remaining applicants Excess money received with these applicants was adjusted towards sum due on allotment.Neha who had applied for 2,500 shares, failed to pay the allotment and first and final call money.Hemant did not pay the first and final call money on his 2000 shares.All these shares were forfeited and later on 2000 of these shares were reissued at Rs.17 per share fully paid up.The reissue shares included all the shares of Neha
a) Which value has not been followed by A ltd. While allotting for shares.b) Pass the necessary journal entries in the books of A ltd. For the above
transactions.
ORJk.ltd invited application for issuing 70,000 equity shares of Rs.10 each at a premium of rs.2 per share the amount was payable as follows:
On application Rs.3 per share On allotment Rs.4(including premium Rs.2)On first and final call balanceApplications for 65,000 shares were received and allotment was made to all the applicants .A shareholder Ram who was allotted 2000 shares failed to pay the allotment money. His shares were forfeited immediately after the allotment.Afterwards the first and final call was made. Soham who had 3,000 shares failed to pay the first and final call his shares were also forfeited.Out of forfeited shares 4,000 were reissued at Rs.20 per share fully paid up.The reissued share included all the shares of Ram.
a) Which value has been followed by the JK ltd. While alloting the shares.b) Pass the necessary journal entries for the above transactions in the book of JK.ltd
(8)
Q18.A,B,C are partners in a firm sharing profits in the ratio 2:1:1.Their balance sheet as on 31st march 2012 was:Liabilties Amt Assets AmtCreditorB/PCapital a/c’sA-80,000B-80,000C-60,000General reserve
50,0006,000
2,20,00010,000
GoodwillLand and BuildingPlant and machineryMotor carDebtorsCashProfit & Loss A/c
30,00086,00056,00054,00048,0008,0004,000
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2,86,000 2,86,000The firm was dissolved on the date the assets realized:Goodwill:20,000 ,Land and building:1,50,000,Plant and machinery:50,000,Motor car:25,000,Debtors:50%of the book value,The realisation expenses were Rs.2000.prepare realisation a/c partners capital A/C and cash A/C.ORA and B are partners sharing profits in the ratio 3:2.They admitted C into the firm for 1/6th share in the profit to be contributed equally by A and B.On the date of admission the Balance sheet of A and B was as follows:-
Liabilities Amt. Assets Amt.Capital :
A. 3,00,000B. 2,00,000
Reserve fundBank loanCreditors
5,00,00040,0001,20,00020,000
6,80,000
MachineryFurnitureStockDebtorsCash
2,60,0001,80,0001,00,00080,00060,000
6,80,000
Terms of C’s admission were as follows:-i. C will bring Rs. 250000 as his capital and necessary amount of goodwill in
cashii. Furniture is to be revalued at Rs. 240000 and value of stock to be reduced by
20%iii. Provision for doubtful debt is 10%iv. Goodwill of the firm is to be valued at four year purchase of the average super
profit of the last three years average profit of the last three years are , Rs. 200000, while the normal profit that can be earned on the capital employed are Rs. 120000.
Prepare Revaluation Account , Partners Capital Account and Balance Sheet of the firm after admission of C. (8)
Part-B(Financial Statement Analysis)
141
Q19. State how qualitative aspect are ignored in financial statement analysis. (1)Q20. Interest received by a finance company is classified under which kind of activity while preparing a Cash Flow statement. (1)Q21.State weather cash deposit in bank will result in inflow , outflow or not flow of cash.
(1)Q22. Give the major headings under which the following item will be Shown in a company’s balance sheet as per revised schedule VI,Part I of Company Act 1956.(i)Sundry Creditors(ii)Preliminary Expenses(iii)Interest accrued on investment(iv)Provision for taxation(v)Loose Tools(vi)Goodwill (3)Q23. Prepare a comparative statement of profit and loss with help of following information.
Particular 2011 2012Revenue from operations 10,00,000 15,00,000Expenses 6,00,000 10,50,000Other Income 2,00,000 1,80,000Income Tax 50% 50%
(4)Q24.Working capital of a company is Rs 60,000 . Its Current Ratio is 2.5:1 Calculate the value of(i)Current Liability(ii)Current Assets(iii)Acid Test Ratio assuming stock of Rs. 40,000 (4)Q25. From the following summarized balance sheet of a company , Calculate Cash Flow from Operating Activities.Particular 31.3.11 31.3.12I. Equity and LiabilitiesShareholders Fund Equity Share Capital 2,00,000 2,00,000 Reserve and Surplus 60,000 1,20,000Non-Current Liabilities 6% Debenture 1,20,000 1,60,000Current Liabilities Creditor 60,000 70,000 Bill Payable 60,000 20,000 Other Current Liabilities 80,000 90,000
5,80,000 6,60000II.AssetsNon-Current Assets Fixed Assets 3,00,000 3,80,000 Non-Current Investments 80,000 60,000Current Assets Stock 80,000 1,10,000 Debtor 80,000 90,000 Cash 40,000 20,000
142
5,80,000 6,60000
Additional Information.(i) A Piece of machinery costing Rs.10,000 on which depreciation of Rs. 4,000
has been charged was sold for Rs.4000 . Depreciation charged during the year was Rs. 34000.
(ii) New Debentures have been issued on 1st October 2011. (6)
AccountancySAMPLE PAPER -I
MARKING SCHEME1.As in the absence of partnership deed, no partner is entitled to get any salary. So A’s claim is not valid. (1 )2.2:1. (1/2+1/2=1)3. Right of sharing in the assets of the firm.Right of sharing in the future profit of the firm. (1/2+1/2=1)4. Retirement of a partner Death of a partner (1/2+1/2=1) 5.Debencture issued as collateral securities means an additional and secondary security for securing loan. (1)6.When the number of shares applied for is less than the number of share offered for issue,it is known as under subscription. (1)7.Class Already Issued: The shares to be issued at a reduced price must belong to a class of shares that has already been issued.
At Least One Working Year: A company can issue shares at discount only if it has been functioning for a minimum period of one year from the date it was entitled to begin business transactions. (1/2+1/2=1)
Or
143
Any other correct point
Particulars Amt. Amt.B’s current a/c…….dr.
C,s current a/c ……dr.
To A’s current a/c
2000
8000
10000
(2 marks for entry and 1 mark for full working note)
9.
Particulars Amt. Amt.(a)1.Bank a/c….dr
To debenture application and allotment a/c
Deb.appli.&allot a/c…..dr
Loss on issue a/c……dr
To deb. a/c
To premium on redemtion a/c
(b)Bank a/c….dr
To deb. Application&allot a/c
deb app &allot….dr
Loss on issue a/c…..dr
To debenture a/c
To security premium a/c
To premium on redemption a/c
100000
100000
10000
960000
960000
96000
100000
100000
10000
960000
800000
160000
144
96000
(1/2+1+1/2+1=3)
10.
Particulars Amt. Amt.Bank a/c dr.
To deb app&allot a/c
Deb app &allot a/c..dr
To 8% deb a/c
8% deb a/c..dr
To debenture holder a/c
Debenture holder a/c..dr
To equity cap a/c
To security premium a/c
200000
200000
60000
60000
200000
200000
60000
40000
20000
(1/2+1/2+1+1=3)11.
Following are the value which motivated mohan and sohan to form the partnership firm:(i).Studentssensitivity towards belonging to low income group.(ii). Supporting the implementation of right to education act 2009(iii) . Providing entrepreneurial oppurtunity to people from different areas of the country.(iv). any other correct point.
(any 2, 1+1=2)Profit&loss Appropriation a/c
145
Particulars Amt. Particulars Amt.
Interest on capital a/c-
Mohan-20000
Sohan-10000
Rohan-80000
Profit
Mohan-72500
Sohan-72500
Rohan-72500
Hema-72500
110000
290000
400000
Profit 400000
400000
1 mark correct interest on capital and 1 mark correct profit.
(1 + 1 = 2)
12.
Pariculars Amt. Amt.Revaluation a/c Dr.
To prov for bad debts
To sundry creditors
9600
4800
1600
8000A’s capital Dr.
B’s capital Dr.
146
C’s capital Dr.
To revaluation3200
1600
6000
4000
108400
9600
10000
108400
A’s capital dr.
B’s capital dr.
To C’s capital a/cC’s capital Dr.
To C’ loan a/c
(1 mark for each correct entry) (1x4 = 4)
13
Pariculars Amt. Amt.Plant and Machine Dr.
Land And Building Account Dr.
Debtors Account Dr.
Stock Account Dr.
Cash Account Dr.
To Creditor
To Ram brothers
To Capital Reserve
Ram Brothers Account Dr.
To Bank Account
Ram Brothers Account Dr.
2,00,000
2,00,000
1,50,000
2,00,000
1,50,000
1,50,000
6,00,000
1,00,000
7,50,000
50,000
1,50,000
5,00,000
1,00,000
147
To Equity share capital
To Security Premium
(11/2 +1+11/2)
14.
Balance Sheet OfGopal Ltd
As at…………
Particular Note No. Current Year
Rs
Previous YearRs
Equity and Liability
Share holder’s fund
(a)Share Capital
1 94,98,000
Note to account
Note-1
Share capital
Authorised capital 1,00,00,000
10,00,000 share of Rs. 10 each
Issued capital 1,00,00,000
10,00,000 share of Rs. 10 each
148
Subscribed,called up and payed up capital
9,50,000 share of Rs. 10 each 95,00,000
-calls in arrear 2,000 94,98,000
(1+1/2+1/2+2=4)
15.
Profit and loss appropriation account
For the year ending 31 march 2012
To Kalu’s Sal.
To Lalu’scomm.
Int on capital
K. 25000
L. 15000
To profit
K. 98,040
L. 65,360
1,20,000
1,00,000
40,000
1,63,400
4,23,400
By Profit
Interest on Drawing
K. 2,500
L. 900
4,20,000
3,400
4,23,400
3 Mark
Partner’s Capital Account
Particular K L Particular K L
149
To balance c/d 5,00,000 3,00,000 By balance b/d 5,00,000 3,00,000
1Mark
Partner’s Current Account
Particular K L Particular K LInt. on draw.
Bal. c/d
2500
2,40,540
900
1,79,460
By Salaries
By Commission
Int. on cap.
By profit
1,20,000
25000
98,040
1,00,000
15000
65,3602,43,040 1,80,360 2,43,040 1,80,360
2 Mark(3+1+2=6)Ans-16-Revaluation AccountTo StockTo Provision for b/dTo Profit
A. 9,750B. 6,500C. 3,250
6,0004,500
19,500
By building 30,000
30,000 30,0002A’S Cap. AccountTo Execute AC 2,17,125 Bal b/d
Int. on cap.P& L SuspenseRev acc. (P)W.C.RB’S Cap.C’S Cap.
1,50,0002,2504,1259,75015,00024,00012,000
2,17,125 2,17,1254(2+4=6)
Ans. 17 (a) A limited has not followed the value of equality by rejecting the applications. The better alternative may be to allot share proportionately to all the applicants
1(b) Journal
150
Date Particular L.F Rs. Rs.Bank A/C Dr. To Share application A/C
6,00,0006,00,000
Share application account Dr. To Share capital account To Bank Account To share allotment account
6,00,0003,00,0001,00,0002,00,000
Share allotment Dr.Discount on issue of share account Dr. To share capital account
3,00,0001,50,000
4,50,000
Bank A/C Dr. To Share allotment account
99,00099,000
Share first & Final A/C Dr. To Share capital account
7,50,0007,50,000
Bank A/C Dr. To Share First & Final Account
7,32,5007,32,500
Share Capital A/C Dr. To Share Forfeited To discount A/C To Share allotment account To Share First & Final Account
35,00013,000 3,500 100017,500
Bank A/C Dr.
To Share capital account To Security Premium
34,00020,00014,000
Share forfeited A/C Dr. To Capital Reserve A/C
7,0007,000
OR
J.K limited has followed value of equality by allotting share to all the applicants’ i.e. by not rejecting any applications.
JournalDate Particular L.F Rs. Rs.
151
½
½
½
½
1
½
½
1
1
1
Bank A/C Dr. To Share application A/C
1,95,0001,95,000
Share application account Dr. To Share capital account
1,95,0001,95,000
Share allotment Dr. To share capital accountTo Security Premium
2,60,0001,30,0001,30,000
Bank A/C Dr. To Share allotment account
2,52,0002,52,000
Share capital account Dr.Security Premium Dr.To Share ForfeitedTo Share allotment account
10,000 4,000
6,0008,000
First & Final Call account Debit To Share Capital account
3,15,0003,15,000
Bank A/C Dr. To Share First & Final Account
3,00,0003,00,000
Share Capital A/C Dr.To Share Forfeited To Share First & Final Account
30,00015,00015,000
Bank A/C Dr.
To Share capital account To Security Premium
80,00040,00040,000
Share Forfeited account Dr. To Capital Reserve A/C
16,00016,000
18. Realisation a/c
Particulars Amt. Particulars Amt.To GoodwillTo land and buildingTo plant&machineryTo Motor carTo debtorsTo bank :-realization expense-2000
3000086000560005400048000
By creditorsBy B/PBy Cash :G/W-20000land&building-150000Plant and machinery-50000
500006000
152
creditors 50000B/P-6000
58000
332000
motor car-25000debtors-24000By partners capA-3500B-1750C-1750
269000
7000332000
Partners capital a/cParticulars A B C Particulars A B CProfit/LossRealisation(L)Cash
200035007950085500
100017507975082500
100017505975062500
Bal b/dG/R
800005000
85000
800002500
82500
600002500
62500
(4 +3 + 1 = 7)Cash A/C Particulars Amt. Particulars Amt.Bal B/DRealisation
8000269000
277000
By partners cap.A-79500B-79750C-59750Realisation
21900058000
277000
Revaluation a/c Particulars Amt. Particulars Amt. StockBad debtsPartners capitalA-19200B-12800
200008000
3200060000
Furniture 60000
60000
Partners Capital AccountParticular A B C Particular A B CBal. c/d 3,63,000
3,63,000
2,48,800
2,48,800
2,50,000
2,50,000
Balance b/dCashPremiumReserveProfit
3,00,000
20,0002400019200
363200
2,00,000
20,0001600012800
248800
2,50,000
250000
153
Balance sheet as on 31st
Liabilities Amount Assets AmountCapital
A. 3,63,200B. 2,48,800C. 2,50,000
BankCreditor
8,62,0001,20,00020,00010,02,000
MachineryFurnitureStockDebtorCash
2,60,0002,40,00080,00072,0003,50,000
10,02,000
(2 + 3 + 3 = 8)
Part-B19. Since the financial statement are confined to the monetary matters only, the qualitative elements like quality of product, quality of management public relation are ignored while carry out the analysis of financial statement. (1)20. interest received b6y finance company is classified as operating activity because interest is the income from financial revenue producing activities. (1)21. Cash deposit in bank will result in no flow of cash because cash includes bank also.Item Major HeadingSundry CreditorPreliminary Expenses
Int accrued on investment provision for taxation loose toolsgoodwill
Current LiabilitiesDeducted from security premium, reserve if available or debit in statement in P&L.Current Assets Current LiabilitiesCurrent AssetsNon Current Assets
(1/2X6=3)
Particular Change(base year 2011)2011 2012 Absolute fig %
154
Revenue from operativeAdd: other incomeTotal revenueLess: expensesProfit before taxLess: tax paidProfit after tax
10,00,0002,00,00012,00,0006,00,0006,00,0003,00,0003,00,000
15,00,0001,80,00016,80,00010,50,0006,30,0003,15,0003,15,000
5,00,000(20,000)4,80,0004,50,00030,00015,00015,000
50%10%40%75%5%5%5%
(1 x 4 = 4)
24. Working capital=Current Assets-current Liabilities Current Ratio= 2.5:1Let us assume current lia=xCurrent Assets=2.5xW.C (60,000)=current assets-current liabilities 60,000=2.5x-x=1.5xTherefore,
i. Current lia (x)=60,000/1.5=40,000 (1)ii. Current assets= 40,000 X 2.5=1,00,000 (1)
iii. A.T.R = quick assets /current liaiv. Quick assets = C.A-stock = 1,00,000-40,000= 60,000 (1)v. A.T.R = 60,000/40,000= 1.5:1 (1)
25. Cash flow statement For the year ended 31st march 2012
Particular Amount AmountA. Cash from op-activity
Net profit before extra ordinary item
Add: non operational expensesDep- Interest- Loss on sale of machineryNet profit before working capital changeAdd : C.A & C.L Creditor Other current liabilitiesLess : C.A & C.L Stock Debtor B/PCash flow from operative activity
34,0009,0002,000
10,00010,000
30,00010,00040,000
60,000
45,0001,05,000
20,0001,25,000
80,00045,000
155
AccountancySet - I
MARKING SCHEME1.As in the absence of partnership deed, no partner is entitled to get any salary. So A’s claim is not valid. (1 )2.2:1. (1/2+1/2=1)3. Right of sharing in the assets of the firm.Right of sharing in the future profit of the firm. (1/2+1/2=1)4. Retirement of a partner Death of a partner (1/2+1/2=1) 5.Debencture issued as collateral securities means an additional and secondary security for securing loan. (1)6.When the number of shares applied for is less than the number of share offered for issue,it is known as under subscription. (1)7.Class Already Issued: The shares to be issued at a reduced price must belong to a class of shares that has already been issued.
At Least One Working Year: A company can issue shares at discount only if it has been functioning for a minimum period of one year from the date it was entitled to begin business transactions. (1/2+1/2=1)
Or
Any other correct point
Particulars Amt. Amt.B’s current a/c…….dr.
C,s current a/c ……dr.
To A’s current a/c
2000
8000
10000
(2 marks for entry and 1 mark for full working note)
9.
Particulars Amt. Amt.(a)1.Bank a/c….dr
To debenture application and allotment a/c
100000
100000
156
Deb.appli.&allot a/c…..dr
Loss on issue a/c……dr
To deb. a/c
To premium on redemtion a/c
(b)Bank a/c….dr
To deb. Application&allot a/c
deb app &allot….dr
Loss on issue a/c…..dr
To debenture a/c
To security premium a/c
To premium on redemption a/c
100000
10000
960000
960000
96000
100000
10000
960000
800000
160000
96000
(1/2+1+1/2+1=3)
10.
Particulars Amt. Amt.Bank a/c dr.
To deb app&allot a/c
Deb app &allot a/c..dr
To 8% deb a/c
8% deb a/c..dr
To debenture holder a/c
200000
200000
60000
60000
200000
200000
60000
157
Debenture holder a/c..dr
To equity cap a/c
To security premium a/c
40000
20000
11. Following are the value which motivated mohan and sohan to form the partnership firm:
(i).Studentssensitivity towards belonging to low income group.
(ii). Supporting the implementation of right to education act 2009
(iii) . Providing entrepreneurial oppurtunity to people from different areas of the country.
(iv). any other correct point. (any 2, 1+1=2)
Profit&loss Appropriation a/c
Particulars Amt. Particulars Amt.
Interest on capital a/c-
Mohan-20000
Sohan-10000
Rohan-80000
Profit
Mohan-72500
Sohan-72500
Rohan-72500
Hema-72500
110000
290000
400000
Profit 400000
400000
1 mark correct interest on capital and 1 mark correct profit.
158
(1 + 1 = 2)
12.
Pariculars Amt. Amt.Revaluation a/c Dr.
To prov for bad debts
To sundry creditors
9600
4800
3200
1600
6000
4000
108400
1600
8000
9600
10000
108400
A’s capital Dr.
B’s capital Dr.
C’s capital Dr.
To revaluation
A’s capital dr.
B’s capital dr.
To C’s capital a/cC’s capital Dr.
To C’ loan a/c
(1 mark for each correct entry) (1x4 = 4)
13
Pariculars Amt. Amt.Plant and Machine Dr.
Land And Building Account Dr.
Debtors Account Dr.
Stock Account Dr.
Cash Account Dr.
To Creditor
To Ram brothers
2,00,000
2,00,000
1,50,000
2,00,000
1,50,000 1,00,000
7,50,000
50,000
159
To Capital Reserve
Ram Brothers Account Dr.
To Bank Account
Ram Brothers Account Dr.
To Equity share capital
To Security Premium
1,50,000
6,00,000
1,50,000
5,00,000
1,00,000
(11/2 +1+11/2)
14.
Balance Sheet OfGopal Ltd
As at…………
Particular Note No. Current Year
Rs
Previous YearRs
Equity and Liability
Share holder’s fund
(a)Share Capital
1 94,98,000
Note to account
Note-1
160
Share capital
Authorised capital 1,00,00,000
10,00,000 share of Rs. 10 each
Issued capital 1,00,00,000
10,00,000 share of Rs. 10 each
Subscribed,called up and payed up capital
9,50,000 share of Rs. 10 each 95,00,000
-calls in arrear 2,000 94,98,000
(1+1/2+1/2+2=4)
15. Profit and loss appropriation account
For the year ending 31 march 2012
To Kalu’s Sal.
To Lalu’scomm.
Int on capital
K. 25000
L. 15000
To profit
K. 98,040
L. 65,360
1,20,000
1,00,000
40,000
1,63,400
4,23,400
By Profit
Interest on Drawing
K. 2,500
L. 900
4,20,000
3,400
4,23,400
3 Mark
161
Partner’s Capital Account
Particular K L Particular K LTo balance c/d 5,00,000 3,00,000 By balance b/d 5,00,000 3,00,000
1Mark
Partner’s Current Account
Particular K L Particular K LInt. on draw.
Bal. c/d
2500
2,40,540
900
1,79,460
By Salaries
By Commission
Int. on cap.
By profit
1,20,000
25000
98,040
1,00,000
15000
65,3602,43,040 1,80,360 2,43,040 1,80,360
2 Mark(3+1+2=6)Ans-16-Revaluation AccountTo StockTo Provision for b/dTo Profit
D. 9,750E. 6,500F. 3,250
6,0004,500
19,500
By building 30,000
30,000 30,0002A’S Cap. AccountTo Execute AC 2,17,125 Bal b/d
Int. on cap.P& L SuspenseRev acc. (P)W.C.RB’S Cap.C’S Cap.
1,50,0002,2504,1259,75015,00024,00012,000
2,17,125 2,17,1254
162
(2+4=6)
Ans. 17 (a) A limited has not followed the value of equality by rejecting the applications. The better alternative may be to allot share proportionately to all the applicants
1(b) JournalDate Particular L.F Rs. Rs.
1/2
1
½
1
½
½
1
1
1
Bank A/C Dr. To Share application A/C
6,00,0006,00,000
Share application account Dr. To Share capital account To Bank Account To share allotment account
6,00,0003,00,0001,00,0002,00,000
Share allotment Dr.Discount on issue of share account Dr. To share capital account
3,00,0001,50,000
4,50,000
Bank A/C Dr. To Share allotment account
99,00099,000
Share first & Final A/C Dr. To Share capital account
7,50,0007,50,000
Bank A/C Dr. To Share First & Final Account
7,32,5007,32,500
Share Capital A/C Dr. To Share Forfeited To discount A/C To Share allotment account To Share First & Final Account
35,00013,000 3,500 100017,500
Bank A/C Dr.
To Share capital account To Security Premium
34,00020,00014,000
Share forfeited A/C Dr. To Capital Reserve A/C
7,0007,000
OR
163
J.K limited has followed value of equality by allotting share to all the applicants’ i.e. by not rejecting any applications. JournalDate Particular L.F Rs. Rs.
½
½
½
½
1
½
½
1
1
1
Bank A/C Dr. To Share application A/C
1,95,0001,95,000
Share application account Dr. To Share capital account
1,95,0001,95,000
Share allotment Dr. To share capital accountTo Security Premium
2,60,0001,30,0001,30,000
Bank A/C Dr. To Share allotment account
2,52,0002,52,000
Share capital account Dr.Security Premium Dr.To Share ForfeitedTo Share allotment account
10,000 4,000
6,0008,000
First & Final Call account Debit To Share Capital account
3,15,0003,15,000
Bank A/C Dr. To Share First & Final Account
3,00,0003,00,000
Share Capital A/C Dr.To Share Forfeited To Share First & Final Account
30,00015,00015,000
Bank A/C Dr.
To Share capital account To Security Premium
80,00040,00040,000
Share Forfeited account Dr. To Capital Reserve A/C
16,00016,000
18. Realisation a/c Particulars Amt. Particulars Amt.To GoodwillTo land and buildingTo plant&machineryTo Motor carTo debtorsTo bank :-
3000086000560005400048000
By creditorsBy B/PBy Cash :G/W-20000land&building-150000Plant and machinery-
500006000
164
realization expense-2000 creditors 50000B/P-6000
58000
332000
50000motor car-25000debtors-24000By partners capA-3500B-1750C-1750
269000
7000332000
Partners capital a/cParticulars A B C Particulars A B CProfit/LossRealisation(L)Cash
200035007950085500
100017507975082500
100017505975062500
Bal b/dG/R
800005000
85000
800002500
82500
600002500
62500
(4 +3 + 1 = 7)Cash A/C Particulars Amt. Particulars Amt.Bal B/DRealisation
8000269000
277000
By partners cap.A-79500B-79750C-59750Realisation
21900058000
277000
Revaluation a/c Particulars Amt. Particulars Amt. StockBad debtsPartners capitalA-19200B-12800
200008000
3200060000
Furniture 60000
60000
Partners Capital AccountParticular A B C Particular A B CBal. c/d 3,63,000 2,48,800 2,50,000 Balance b/d
CashPremiumReserveProfit
3,00,000
20,0002400019200
2,00,000
20,0001600012800
2,50,000
165
3,63,000 2,48,800 2,50,000 363200 248800 250000
Balance sheet as on 31st
Liabilities Amount Assets AmountCapital
D. 3,63,200E. 2,48,800F. 2,50,000
BankCreditor
8,62,0001,20,00020,00010,02,000
MachineryFurnitureStockDebtorCash
2,60,0002,40,00080,00072,0003,50,000
10,02,000
(2 + 3 + 3 = 8)
Part-B19. Since the financial statement are confined to the monetary matters only, the qualitative elements like quality of product, quality of management public relation are ignored while carry out the analysis of financial statement. (1)20. interest received b6y finance company is classified as operating activity because interest is the income from financial revenue producing activities. (1)21. Cash deposit in bank will result in no flow of cash because cash includes bank also.Item Major HeadingSundry CreditorPreliminary Expenses
Int accrued on investment provision for taxation loose toolsgoodwill
Current LiabilitiesDeducted from security premium, reserve if available or debit in statement in P&L.Current Assets Current LiabilitiesCurrent AssetsNon Current Assets
(1/2X6=3)
Particular Change(base year 2011)2011 2012 Absolute fig %
166
Revenue from operativeAdd: other incomeTotal revenueLess: expensesProfit before taxLess: tax paidProfit after tax
10,00,0002,00,00012,00,0006,00,0006,00,0003,00,0003,00,000
15,00,0001,80,00016,80,00010,50,0006,30,0003,15,0003,15,000
5,00,000(20,000)4,80,0004,50,00030,00015,00015,000
50%10%40%75%5%5%5%
(1 x 4 = 4)
24. Working capital=Current Assets-current Liabilities Current Ratio= 2.5:1Let us assume current lia=xCurrent Assets=2.5xW.C (60,000)=current assets-current liabilities 60,000=2.5x-x=1.5xTherefore,
vi. Current lia (x)=60,000/1.5=40,000 (1)vii. Current assets= 40,000 X 2.5=1,00,000 (1)
viii. A.T.R = quick assets /current liaix. Quick assets = C.A-stock = 1,00,000-40,000= 60,000 (1)x. A.T.R = 60,000/40,000= 1.5:1 (1)
25. Cash flow statement For the year ended 31st march 2012
Particular Amount AmountB. Cash from op-activity
Net profit before extra ordinary item
Add: non operational expensesDep- Interest- Loss on sale of machineryNet profit before working capital changeAdd : C.A & C.L Creditor Other current liabilitiesLess : C.A & C.L Stock Debtor B/PCash flow from operative activity
34,0009,0002,000
10,00010,000
30,00010,00040,000
60,000
45,0001,05,000
20,0001,25,000
80,00045,000
½ x12 = 6
167
168
SOLOVED SAMPLE PAPER-IIACCOUNTANCY
CLASS-XII
Time Allowed-3 Hrs. Max. Marks-80General Instructions:-
6. The question paper is divided into two parts.7. All the questions are compulsory.8. All parts of a question to be done together.9. Prepare working notes wherever required.10. The question paper contains 25 questions.
PART-A(Partnership Firm And Company Accounts)
1. Give the average period in months for charging interest on drawing for the same amount withdrawn at the beginning of each quarter.
(1)
2. Give any one difference between Revaluation Account and Realisation Account. (1)3. Gautam, Nanak and Subhash are partners sharing profit in the ratio of ½, 1/3 and 1/6. Nanak retires. What will be new profit sharing ratio of Gautam and Subhash. (1)4. Name any two factors which affect the goodwill of a partnership firm. (1)5. You are director of Jalaj Auto Ltd has invited application for 50,000 equity share of Rs. 100 each. Applications were received for 75,000 Share, Name the kind of subscription. (1)6. What do you mean by Private Placement of Share? (1)7. Why would an investor prefer to invest in the debentures of a Company rather than in the shares? (1)8. A Company issues the following debentures:(i) 10,000 12% debentures of Rs. 100 each at par but redeemable at premium of 5% after 5 years.(ii) 5000 12% debentures of Rs. 1000 each at a premium 5 % but repayable at par after 5 years.Pass Journal entries to record the issue of debenture (3)
9. A, B &C are partners whose fixed capitals were Rs.10,000/-,8,000/- and Rs. 6,000/- respectively. As per the partnership agreement, there is a provision for allowing interest on Capital @ 10% p.a. but entries for the same have not been made for last three years. The profit sharing Ratio during three years remained as follows:
Years A B C 2009 4 3 5
2010 3 2 1 2011 1 1 1Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan 1, 2012. (3)
169
10. Godrej Ltd has Rs. 40,00,000 8% Debenture of Rs. 100 each due for redemption on 30th June 2009 at a premium 5%. There is a balance of Rs. 13,50,000/- in Debenture redemption reserve Account on the date of redemption. Record the necessary journal entries at the time of redemption.
(3)11. After completing MBBS, Nirmala suggested to her classmate Rajeev to form a partnership to run hospital in the locality inhabited by low income group. After along thought, he agreed to proposal. Since they did not have sufficient resources for implementing the proposal they persuaded a rich friend Narayana, who contribute the required capital. All of them formed a partnership on the following terms:(i)Nirmala, Rajeev and Narayana will contribute Rs. 6,00,000, 10,00,000 and Rs. 20,00,000/-.(ii Interest on capital @ 5% p.a. will be allowed(iii) The p[rofit of the firm for the year ended 31st March 2012 were Rs. 9,00,000/-(a) Identify any two value which according to you motivate them to form the
partnership(b) Prepare profit and loss app. A/C. (2+2 = 4)
12. Following is the balance Sheet of Prateek, Rockey and Kunal as on 31st March 2012.Balance SheetAs on 31st March 2012
Liabilities Amount (Rs.)
Assets Amount (Rs.)
CreditorsGeneral ReserveCapital:-Preteek 30,000
Rockey 20,000Kunal 20,000
18,00014,000
70,000
Bill ReceivableFurnitureStockSundry DebtorCash at BankGoodwill
16,00022,60020,40022,00014,000 7,000
1,02,000 1,02,000
Rockey died on June 30, 2012 under the term of the partnership deed the executor of a deceased partner were entitle to:
(i) Amount standing to the credit of the partner’s capital Account(ii) Interest on capital @ 10% p.a.(iii) Share of goodwill on the basis of twice the averge of the past three year’s
profit; and(iv) Share of profit from the closing date of the last financial year to the date of
death on the basis of last year’s profit. Profit for the year ending on March 31,2010, 2011, 2012 were 24,000, 32,000, 28,000 respectively
(v) Profit were shared in the ratio of capital.
170
Pass the necessary Journal entries. (4)
Q13. Kumar Ltd. Purchase assets of Rs. 12,60,000/- from Bhamu Oil Ltd. Kumar Ltd issued equity share of Rs. 100 each fully paid in consideration. What Journal entiries will be made, if the share are issue:
(a) At par
(b) At discount 10%
(c) At premium of 20% (4)
Q 14.Surya Ltd was formed with a nominal share capital of Rs. 10,00,000/- divided into 10,000 share of Rs. 100 each. The company offers 6500 share to the public payable 30 per share as application Rs. 30 each per share on allotment and the balance on First and Final call. Applications were received for 6000 share. All money payable on allotment was duly received except on 50 shares held by X. First and final call was not made by the Company. How would you show the relevant items in the Balance sheet of Surya Ltd? (4)Q 15. Pass the necessary Journal entries for the following transactions as the dissolution of the firm of Meena and Shubham after the various assets (other than cash) and outside liabilities have been transferred to Realisation Account:
(i) Meena agreed to pay off here husband’s loan Rs. 20,000(ii) A debtor whose debt Rs. 10000 was written of in the books paid Rs.8,500 in
full settlement.(iii) Shubham took over all investments at Rs. 15,000.(iv) Sundry creditors Rs. 15,000 were paid at 10% discount(v) Realisation expenses Rs. 5400 were paid by Meena for which she was allowed
5000.(vi) Loss on realization Rs. 15,000 was divided between Meena and Shubham in
3:2 ratio.(6)
Q 16. Ramesh and Suresh were in a firm sharing profit in the ratio of their capitals contributed on commencement of business which were Rs. 1,60,000 and Rs. 1,20,000 respectively. The firm started business on April 1, 2011. According to the partnership agreement, interest on capital and drawing are 12% and 10% respectively. Ramesh and Suresh are to get a monthly salary of Rs. 4000 and 6000 respectively and Commission to Ramesh @ 2% on sales. The profit for the year ended March 31, 2012 before making above appropriation was Rs. 2,04,000. The drawing of Ramesh and Suresh wee Rs. 80,000 and Rs. 1,00,000 respectively. Interest on drawings amounted to Rs. 4000 for Ramesh and 5000 for Suresh. Sale for the year ended 31st March 2012 was 2,40,000. Prepare Profit and loss Appropriation Account and Partner’s capital accounts, assuming that their capital are fluctuating.
(6)
Q 17. X limited invited application for 11000 share of Rs. 10 each issue at 20% premium, payable as:
On application – Rs. 3 (including 1 premium) On allotment - Rs. 4 (including 1 premium)
171
On 1st call - Rs. 3 On 11nd and Final call - Rs. 2 Application received for 24,000 shares Category-1 One fourth of the share applied for allotted 2000 shares.Category – II three forth the share applied for allotted 9000 share. Mr. Hriday holding 300 shares out of category 11 failed to pay allotment and two calls and his share were forfeited. Later on 200 of his share were reissued Rs. 11 fully paid up.(a) Which value has been followed by X Ltd. While allotting the share.(b) Pass Journal entries in the books of X Ltd. For the above transactions.
ORRaja ltd invited applications for issuing50,000 equity shares of Rs.500 each at a discount of 10%.The amount payable as follows:On application 100 per share On allotment 150 per shareOn first and final call the balanceApplications for 1,00,000 shares were received.applications for 25,000 shares were rejected and application money was refunded.Prorata allotment was made to the remaining applicants.Excess application money received from the applicants to whom Pro-rata allotment was made,was adjusted towards sum due on allotment,All calls were made and were duly received except the first and final call on 200 shares held by Nath.His shares were forfeited.The forfeited shares were reissued to Atin for Rs.90,000 fully paid up.
a) Which value has not been followed by Raja ltd.while allotting the shares?b) Pass the journal entries in the book of Raja ltd. the above transactions. (8)
Q18.A,B and C are partners in a firm sharing profits in the ratio 3:2:1.their balance sheet as at 31st march 2012 is: Liabilities Amt. Assets Amt.CreditorsB/PGeneral reserveCapitalA-80000B-80000C-60000
600003200024000
220000
336000
Cash in handDebtors-50,000Less:provision for doubtful debts:6000StockFurnitureMachineryGoodwill
36000
44000360006000014200018000336000
B retires on 1srt april 2012 on the following terms:i. Provision for doubtful debts be raised by 2000.
ii. Stock to be depreciated by 10% and furniture by 5%.iii. There is an outstanding claim of damages of 2200 and it is to be provided for.iv. Creditor will be written back by 12000v. Goodwill of the firm is valued at 42,000
172
vi. B is to be paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit sharing ratio and cash in hand remains at Rs.16000.Prepare revaluation a/c,partners capital a/c and balance sheet of A and C. ORRam and Shyam are partners sharing profits in the ratio 2:1.their balance sheet as at 31st march 2012 was:
Liabilities Amt. Assets Amt.
Sundry creditors 75000 Cash 15000
Reserve fund 54000 Sundry debtors 45000
CapitalRam-225000Shyam-186000 411000
StockInvestmentTypewriterFixed assets
3000024000150004,11,000
5,40,000 5,40,000
They admit Gopal into partnership on the same date on the following terms:a) Gopal brings in Rs.1,20,000 as his capital and he is given 1/4th share in the
profits.b) Gopal brings in rs.45000 for goodwill half of which is withdrawn by the old
partners.c) Investments are valued at 30,000 and Ram is to take over investments at this
value.d) Typewriter to be depreciated by 20% and fixed Assets by 10%.e) An unrecorded stock of stationery on 31st march 2012 is rs.3000.f) By bringing in or withdrawing cash the capital of ram and Shyam are to be
made proportionate to that of Gopal on their profit sharing basis. Prepare revaluation A/C ,partners capital a/c and balance sheet of the firm.
(8)
PART-B(Financial statement Analysis)
Q19.X ltd. has a debt equity ratio of 3:1.According to the magement it should be maintained at 1:1.What are the two choices to do so. (1)Q20.Sale of marketable securities at par would result in inflow,outflow or no flow of cash give reasons for your answer with reason.
(1)Q21.Mutual fund companies received a dividend of rs.25,00,000 on its investment in other companies share.Why is it a cash flow from operating activity for this company? (1)
173
Q22..list the items which are shown under the heading current assets in the balance sheet of a company as per provisions of schedule VI of the companies act 1956. (3)Q23 .A companies stock turnover ratio is 5 times.Stock at the end is Rs.20000 more than that at the beginning. Sales are 8,00,000.Rate of gross profit on cost ¼,current liabilities Rs. 2,40,000.Acid test ratio 0.75.Calculate current ratio. (4)Q24.Prepare a comparative statement of ‘profit and loss’ with the help of following information: Particulars 2011 2012Revenue from operationsExpensesOther incomeIncome tax
2000012000600050%
3000021000800050%
(4)Q25. The balance sheet ofSahil ltd. As at 31st march 2011 and 31stmarch 2012 were: Particulars 31.3.2012 31.3.2011Equity and liabilities:Share capitalProfit and loss balanceProposed dividend
Assets:Plant and MachineryInventories(stock)Cash
5,00,0001,25,00025,000
6,50,000
40000050000200000
6,50,000
3,50,00075,00020,000
4,45,000
25000040000155000
4,45,000
Additional information:i. Rs.30000 depreciation has been charged to plant and machinery during the year 2012.
ii. A piece of machinery costing Rs.20,000(book value rs.10000)was sold at 60% profit on book value.
ACCOUNTANCYSAMPLE PAPER- II
MARKING SCHEME1. 7.5 months. 12. 1 marks any correct difference. 13. New ratio = 3:1 14. Any two factor
[Efficient mgt, location, favourable contract, quality, market situation] OrAny correct point ½ + ½ = 1
5. Over subscription 16. It refers to issue and allotted of share to selected group of persons. In other words an
issue which is not a public issue but offered to a selected group of person is called private placement of share. 1
174
7. The investor would prefer to invest in the debentures rather than shares because there is an assured annual return. 1
8. Journal Entry
Date Particular L.F Amt. (D.r) Amt. (C.r)Bank A/c D.r To deb. App & allot A/cDeb.app &allot A/c D.rLoss on issue of deb. D.r To 12% debenture A/c To Pre. On Red. Of deb. A/cBank A/c D.r To 12% Deb. App. &allot. A/cDeb. App & allot A/c D.r To 12% deb. A/c To security premium A/c
10,00,000
10,00,00050,000
52,50,000
52,50,000
10,00,000
10,00,00050,000
52,50,000
50,00,0002,50,000
½+1+1/2+1=3
9. Journal Entry
1 + 2 = 3(1marks for journal entry & 2 marks for workings.)
10. Journal Entry
Date Particular L.F Amt. (D.r) Amt. (C.r)P&L App. A/c D.r To D.R.R A/cDeb A/c D.rPre. On red. Of deb. D.r To Debenture holder A/cDebenture holder A/c D.r To bank A/cD.R.R A/c To general reserve A/c
6,50,000
40,00,0002,00,000
42,00,000
20,00,000
6,50,000
42,00,000
42,00,000
20,00,000
1+1+1/2+1/2=311. Sensitivity toward people belonging to low income group.
Working as a team for a good cause OrAnycorrect ans. 1+1=2P&L App. A/c
Particular Amt.(D.r) Particular Amt.(C.r)
175
To int. on cap. Nirmala 30,000 Rajeev 50,000 Narayan 1,00,000To profit Nirmala 2,40,000 Rajeev 2,40,000 Narayan 2,40,000
1,80,000
7,20,0009,00,000
By profit 9,00,000
9,00,000
(1 + 1 = 2)12. Journal Entry
Date Particular L.F Amt. (D.r) Amt. (C.r)PRK To goodwillGeneral reserve A/c To P To R To KInt. on cap. To R’s cap. A/cP’s cap. A/cK’s cap. A/c To R’s cap. A/cP&L susp. A/c To R’s cap. A/cR‘s cap. A/c To R’s executor A/c
3,0002,0002,000
14,000
500
9,6006,400
2,000
40,500
7,000
6,0004,0004,000
500
16,000
2,000
40,500
½
½
½
1
1
½
13. Journal Entries
176
Date Particular L.F Amt. (D.r) Amt. (C.r) MarksAssets A/c To Bhanu oil ltd.Bhanu oil ltd. To equity share capitalBhanu oil ltd.Dis. On issue of share A/c To equity share cap A/cBhanu oil ltd. To Eq. share cap. A/c To sec. premium A/c
12,60,000
12,60,000
12,60,0001,40,000
12,60,000
12,60,000
12,60,000
14,00,000
10,50,0002,10,000
1
1
1
1
14. Balance sheet as on ………
Equity &Libilities Note No.
Current YearAmount
Previous YearAmount
Share Holder’s FundShare Capital (a)
Note 1358500
AssetsCurrent AssestsCash & Cash equivalents
358500
Note to Account:-1. Share Capita
Authorised Capita 10,00,000
Issued Capita :- 6500 Share of Rs. 100 each 6,50,000
Subscribes & fully Paid Capita6000 Share of Rs. 100 each 6,00,000Subscribes but not fully paid capital 6000x100 each 60 perShare called up 3,60,000less Calls in arrear 50x30 1500 358500
2 Marks for Note 2 Account and 1 marks share capital & 1 marks current Assests.
177
15. Journal Entries
Date Particular L.F Amt. (D.r) Amt. (C.r)Realisation A/c D.r To Meena’s cap. A/cCash A/c D.r To Realisation A/cMeena’s cap. A/c D.r To Realisation A/cRealisation A/c D.r To Cash A/cRealisation A/c D.rMeena’s cap. A/c D.r To Cash A/cMeena’s A/c D.rShubham A/c D.rTo Realisation A/c
20,000
8,500
15,000
13,500
5,000400
9,0006,000
20,000
8,500
15,000
13,500
5,400
15,000
(1 Marks for each correct entery)16. P&L App. A/c
Particular Amt.(D.r) Particular Amt.(C.r)To int. on cap. Ramesh 19,200 Suresh 14,400To salaries A/c Ramesh 48,000 Suresh 72,000To commission RameshTo Profit Ramesh 31,200 Suresh 23,400
33,600
1,20,000
4,800
54,600
2,13,000
By Profit A/cBy int. on drawing Ramesh 4,000 Suresh 5,000
2,04,000
9,000
2,13,0001+1+1/2+1/2+1 = 4
Partner’s Capital A/cParticular Ramesh Suresh Particular Ramesh SureshTo drawingInt. on Drawing
To balance c/d
80,0004,000
1,79,200
1,00,0005,000
1,24,800
By balance b/dBy int.By SalaryBy commissionBy Profit
1,60,00019,20048,0004,80031,200
1,20,00014,40072,000
23,400
178
2,63,200 2,29,800 2,63,200 2,29,800
1+1 = 2(a) X limited has followed the value of equality by allotting share to all the
applicants in(b) proportion i.e. by not rejecting any application or any other correct value. 1
Marks
(b)
OR179
Date Particular L.F Rs. Rs.
1/2
1/2
½
1/2
1/2
1/2
1/2
1/2
1
1
1
Bank A/C Dr. To Share application A/C
72,00072,000
Share application account Dr. To Share capital account To Security Premium Account To share allotment account
72,00022,00011,00039,000
Share allotment A/c Dr. To share capital account To sec. premium A/c
44,00033,00011,000
Bank A/C Dr. To Share allotment account
4,7004,700
Share first call A/C Dr. To Share capital account
33,00033,000
Bank A/C Dr. To Share First Call Account
32100
32100Share Final Call A/c Dr. To Share Capital
22,00022,000
Bank A/C Dr. To Share Final Call Account
21,400
21,400Share Capital A/C Dr.Security PremiumDr. To Share Forfeited
To Share allotment account To Share First Call To Share Final Call
3000300
15,00
300900600
Bank A/C Dr.To Share capital account
To Security Premium
2,200
2000200
Share forfeited A/C Dr. To Capital Reserve A/C
1000
1000
(a) Value of equality has been effected by rejecting the applications of the investorsThe better alternative may be to allot the share Proportionately to all the applicants so that such applicants may not be demotivated from investing in the capital of big company in future or any other correct value. ( 1 Marks)
(b)
Ans. 18.Revaluation A/c
180
Date Particular L.F Rs. Rs.
1/2
1/2
1/2
1
1/2
1
1
1
1
Bank A/C Dr. To Share application A/C
1,00,00,0001,00,00,00
Share application accountDr. To Share capital accountTo share allotment account To Bank
1,00,00,00050,00,00025,00,00025,00,000
Share allotment A/c Dr.Discount A/C Dr. To share capital account
75,00,00025,00,000
1,00,00,000
Bank A/C Dr. To Share allotment account
50,00,00050,00,000
Share first & Final call A/C Dr. To Share capital account
1,00,00,0001,00,00,000
Bank A/C Dr.To Share First& Final Call A/C
99,60,00099,60,000
Share Capital A/C Dr. To Forfitied A/CTo DiscountTo Share First& Final Call
1,00,00050,00010,00040,000
Bank A/C Dr.Discount A/C Dr.
To Share capital account
90,00010,000
1,00,000Share forfeited A/C Dr. To Capital Reserve A/C
50,000
50,000
Particulars Amt. Particulars Amt.To DebtorsTo stockTo FurnitureTo O/S LibilitiesTo Profit A 600 B 400 C 200
2,0003,600,3,0002,200
1200
By Creditors 12,000
12,000 12,000
Partners Capital AccountParticular A B C Particular A B C
To GoodwillTo B
To Bal. C/d
900010500
73100
6000
96400
30003500
57700
By Bal. b/dBy Gr. Res.By A’Cap.By C Cap.By Reve. Pr
80,00012000
600
80,0008000105003500400
60,0004000
20092600 102400 64200 92500 102400 64200
To BankTo Balance c/d 155400
96400 5900
51800
By Bal. B/dCash
7310082300
96400 57700
155400 96400 57700
Cash A/cParticular Amount Particular AmountTo Balance b/dTo A’s Capital
36,00082,300
By B’s CapitalBy C’s CapitalBy Bal. c/d
96,4005,90016,000
1,18,300 1,18,300
Balance SheetLiabilities Amount Assets AmountCapitalA 155400C 51800CreditorsB/PO/S Lib.
2,07,20048000320002200
CashDebtorsStockFurnitureMachinery
16000 42000 32400 570001,42,000
2,89,400 2,89,400(2+3+3=8)Or.Revaluation A/c Particulars Amt. Particulars Amt.To TypewriterTo Fixed Assets
300041100
By InvestmentTo StockTo loss R 23400 S 11700
6000 300035100
181
44100 44100
Partner’s Capital AccountParticular R S G Particular R S G
To CashTo InvestmentTo Rev. LossTo Balan. C/d
15,000
30,00023400222600
7500
117001,99,800 1,20,000
By Bal. b/dBy CashBy PremiumBy G/R
2,25,000
30,00036,000
1,86,000
1500018,000
1,20,000
2,91,000 1,99,800 1,20,000 2,91,000 1,99,800 1,20,000To CashTo Balance c/d
24000079800120000 120000
By Bal. B/dCash
22260017400
199800 120000
2,91,000 1,99,800 1,20,000 240000 199800 120000
Cash A/cParticular Amount Particular AmountTo Balance b/dTo G’s CapitalTo PremiumTo R’s Cap.
15000120,0004500017400
By R’s CapitalBy S’s CapitalBy S’ Cap.By Bal. C/d
15,000 7,5007980095100
1,97,400 197400
Balance SheetLiabilities Amount Assets AmountCapitalR 240000S 120000G 120000Creditors
4,80,00075000
CashDebtorsStockTypewriterFixed Assets
95100450003300012,0003,69,900
5,55,000 5,55,000(2+3+3=8)Ans. 19 :- Following are two choices to maintain debt equity ratio from 3:1 to 1:1
(i) To reduce debt(ii) To increase equity 1/2x2=1
Ans. 20 :- No flow of cash because marketable securities are cash equivalents into cash does not result any flow. (1)Ans. 21:- Because investment is the Principal revenue producing activity of a mutual fund company. (1)Ans. 22 Balance Sheet of ……………………….As at 31st March 2012Particular Note No. Current Year Previous YearIi AssetsC.AC. InvestmentInventoriesTrade receivable
182
Cash & cash equitant.Short term loan and advance othe C.A(1/2X6=3)
Sales 80,000Rate of Gross Profit on cost = ¼800000x1/5= 1,60,000 Mark(½)COGS = 8,00,000-1,60,000 = 6,40,000 Mark(½)STR = COGS/A. Stock5/1 = 640000/A. stock = 128,000 Mark(½)Opening Stock = xClosing Stock x+20000Averge Stock x+x+20000/2 2x+20000/2 = 128000 X=128000-10000 = 118000 Mark(½)Opening Stock = 11800Closing Stock = 118000+ 20000 = 1,38,000 Mark(½)Acid Test Ratio = Quick Assets/ Current Liabilities .75/1 = x/2,40,000X = 1,80,000 Mark(½)C.A = Q. A + stockC.A = 1,80,000 + 1,38,000 = 318000 Mark(1/2)C.R = C.A/C.L C.R = 318000/240000 = 1.3:1 Mark(½)Ans. 24
Particular 31.3.2011 31.3.12 Absolute fig. %Revenue from operationsAdd other income
20,000 6,000
30,000 8,000
10,000 2,000
5033.3
Less Exp.2600012000
3800021000
120009000
4675
Net profit before TaxLess Tax Paid
140007000
170008500
30001500
21.421.4
Net Profit after Tax 7000 8500 2000 21.4(1x4 = 4)
Ans. 25 Particular Amount Amount
A) Cash flow from operating activitiesNet profit before tax & dividendAdd Non-operating Exp.Dep. 30,000
75000
30,000105000
183
Less Non operating IncomeProfit on sale of Machinery 6000 6000Net profit before changing in W.C 99000Add decrease c.A&inc. C.L - -
Less Inc. C.A & Dec. C.LStock 10000 10000Cash Flow from Operating Activities 89000
B) Cash from Investing ActivitiesSale of Mach.Purchase of Mach.
16000(1,90,000)
Cash use in investing Activities (1,74,000)C) Cash Flow from Financing activitiesIssue of Share Cap.Payment of Proposed Dividend 1,50,000
(-20,000) 130000D) Increase/decrease in cash & cash equitantOpening Cash &Equa.
1,55,000
45,000
1,55,0002,00,000
E) Closing Cash & Cash Equ.
Working Note:-1. Net Profit before Tax & Dividend 50,000+25,000 = 75,000
2. Machinery A/C
Particular Amount Particular Amount
By Bal. b/dProfitCash ( Purch)
25000060001,90,000
Dep.CashBal. c/d
30,00016,0004,00,000
446000 4,46,000
(½ Marks for correct items 1/2X12 = 6)
184
ACCOUNTANCYSET- II
MARKING SCHEME17. 7.5 months. 118. 1 marks any correct difference. 119. New ratio = 3:1 120. Any two factor
[Efficient mgt, location, favourable contract, quality, market situation] OrAny correct point ½ + ½ = 1
21. Over subscription 122. It refers to issue and allotted of share to selected group of persons. In other words an
issue which is not a public issue but offered to a selected group of person is called private placement of share. 1
23. The investor would prefer to invest in the debentures rather than shares because there is an assured annual return. 1
24. Journal Entry
Date Particular L.F Amt. (D.r) Amt. (C.r)Bank A/c D.r To deb. App & allot A/cDeb.app &allot A/c D.rLoss on issue of deb. D.r To 12% debenture A/c To Pre. On Red. Of deb. A/cBank A/c D.r To 12% Deb. App. &allot. A/cDeb. App & allot A/c D.r To 12% deb. A/c To security premium A/c
10,00,000
10,00,00050,000
52,50,000
52,50,000
10,00,000
10,00,00050,000
52,50,000
50,00,0002,50,000
½+1+1/2+1=3
25. Journal Entry
1 + 2 = 3(1marks for journal entry & 2 marks for workings.)
26. Journal Entry
Date Particular L.F Amt. (D.r) Amt. (C.r)P&L App. A/c D.r To D.R.R A/cDeb A/c D.rPre. On red. Of deb. D.r
6,50,000
40,00,0002,00,000
6,50,000
185
To Debenture holder A/cDebenture holder A/c D.r To bank A/cD.R.R A/c To general reserve A/c
42,00,000
20,00,000
42,00,000
42,00,000
20,00,000
1+1+1/2+1/2=327. Sensitivity toward people belonging to low income group.
Working as a team for a good cause OrAnycorrect ans. 1+1=2P&L App. A/c
Particular Amt.(D.r) Particular Amt.(C.r)To int. on cap. Nirmala 30,000 Rajeev 50,000 Narayan 1,00,000To profit Nirmala 2,40,000 Rajeev 2,40,000 Narayan 2,40,000
1,80,000
7,20,0009,00,000
By profit 9,00,000
9,00,000
(1 + 1 = 2)28. Journal Entry
Date Particular L.F Amt. (D.r) Amt. (C.r)PRK To goodwillGeneral reserve A/c To P To R To KInt. on cap. To R’s cap. A/cP’s cap. A/c
3,0002,0002,000
14,000
500
9,600
7,000
6,0004,0004,000
500
½
½
½
186
K’s cap. A/c To R’s cap. A/cP&L susp. A/c To R’s cap. A/cR‘s cap. A/c To R’s executor A/c
6,400
2,000
40,500
16,000
2,000
40,500
1
1
½
29. Journal Entries
Date Particular L.F Amt. (D.r) Amt. (C.r) MarksAssets A/c To Bhanu oil ltd.Bhanu oil ltd. To equity share capitalBhanu oil ltd.Dis. On issue of share A/c To equity share cap A/cBhanu oil ltd. To Eq. share cap. A/c To sec. premium A/c
12,60,000
12,60,000
12,60,0001,40,000
12,60,000
12,60,000
12,60,000
14,00,000
10,50,0002,10,000
1
1
1
1
30. Balance sheet as on ………
Equity &Libilities Note No.
Current YearAmount
Previous YearAmount
Share Holder’s FundShare Capital (a)
Note 1358500
AssetsCurrent AssestsCash & Cash equivalents
358500
Note to Account:-2. Share Capita
Authorised Capita 10,00,000
Issued Capita :- 187
6500 Share of Rs. 100 each 6,50,000
Subscribes & fully Paid Capita6000 Share of Rs. 100 each 6,00,000Subscribes but not fully paid capital 6000x100 each 60 perShare called up 3,60,000less Calls in arrear 50x30 1500 358500
2 Marks for Note 2 Account and 1 marks share capital & 1 marks current Assests.
31. Journal Entries
Date Particular L.F Amt. (D.r) Amt. (C.r)Realisation A/c D.r To Meena’s cap. A/cCash A/c D.r To Realisation A/cMeena’s cap. A/c D.r To Realisation A/cRealisation A/c D.r To Cash A/cRealisation A/c D.rMeena’s cap. A/c D.r To Cash A/cMeena’s A/c D.rShubham A/c D.rTo Realisation A/c
20,000
8,500
15,000
13,500
5,000400
9,0006,000
20,000
8,500
15,000
13,500
5,400
15,000
(1 Marks for each correct entery)32. P&L App. A/c
Particular Amt.(D.r) Particular Amt.(C.r)To int. on cap. Ramesh 19,200 Suresh 14,400To salaries A/c
33,600
By Profit A/cBy int. on drawing Ramesh 4,000 Suresh 5,000
2,04,000
9,000
188
Ramesh 48,000 Suresh 72,000To commission RameshTo Profit Ramesh 31,200 Suresh 23,400
1,20,000
4,800
54,600
2,13,000 2,13,000
1+1+1/2+1/2+1 = 4
Partner’s Capital A/cParticular Ramesh Suresh Particular Ramesh SureshTo drawingInt. on Drawing
To balance c/d
80,0004,000
1,79,200
2,63,200
1,00,0005,000
1,24,800
2,29,800
By balance b/dBy int.By SalaryBy commissionBy Profit
1,60,00019,20048,0004,80031,2002,63,200
1,20,00014,40072,000
23,4002,29,800
1+1 = 2(a) X limited has followed the value of equality by allotting share to all the applicants in proportion i.e. by not rejecting any application or any other correct value. 1 Marks
(b)
189
OR(c) Value of equality has been effected by rejecting the applications of the investors
The better alternative may be to allot the share Proportionately to all the applicants so that such applicants may not be demotivated from investing in the capital of big company in future or any other correct value. ( 1 Marks)
(d)
190
Date Particular L.F Rs. Rs.
1/2
1/2
½
1/2
1/2
1/2
1/2
1/2
1
1
1
Bank A/C Dr. To Share application A/C
72,00072,000
Share application account Dr. To Share capital account To Security Premium Account To share allotment account
72,00022,00011,00039,000
Share allotment A/c Dr. To share capital account To sec. premium A/c
44,00033,00011,000
Bank A/C Dr. To Share allotment account
4,7004,700
Share first call A/C Dr. To Share capital account
33,00033,000
Bank A/C Dr. To Share First Call Account
32100
32100Share Final Call A/c Dr. To Share Capital
22,00022,000
Bank A/C Dr. To Share Final Call Account
21,400
21,400Share Capital A/C Dr.Security PremiumDr. To Share Forfeited
To Share allotment account To Share First Call To Share Final Call
3000300
15,00
300900600
Bank A/C Dr.To Share capital account
To Security Premium
2,200
2000200
Share forfeited A/C Dr. To Capital Reserve A/C
1000
1000
Ans. 18.Revaluation A/c Particulars Amt. Particulars Amt.
191
Date Particular L.F Rs. Rs.
1/2
1/2
1/2
1
1/2
1
1
1
1
Bank A/C Dr. To Share application A/C
1,00,00,0001,00,00,00
Share application accountDr. To Share capital accountTo share allotment account To Bank
1,00,00,00050,00,00025,00,00025,00,000
Share allotment A/c Dr.Discount A/C Dr. To share capital account
75,00,00025,00,000
1,00,00,000
Bank A/C Dr. To Share allotment account
50,00,00050,00,000
Share first & Final call A/C Dr. To Share capital account
1,00,00,0001,00,00,000
Bank A/C Dr.To Share First& Final Call A/C
99,60,00099,60,000
Share Capital A/C Dr. To Forfitied A/CTo DiscountTo Share First& Final Call
1,00,00050,00010,00040,000
Bank A/C Dr.Discount A/C Dr.
To Share capital account
90,00010,000
1,00,000Share forfeited A/C Dr. To Capital Reserve A/C
50,000
50,000
To DebtorsTo stockTo FurnitureTo O/S LibilitiesTo Profit A 600 B 400 C 200
2,0003,600,3,0002,200
1200
By Creditors 12,000
12,000 12,000
Partners Capital AccountParticular A B C Particular A B C
To GoodwillTo B
To Bal. C/d
900010500
73100
6000
96400
30003500
57700
By Bal. b/dBy Gr. Res.By A’Cap.By C Cap.By Reve. Pr
80,00012000
600
80,0008000105003500400
60,0004000
20092600 102400 64200 92500 102400 64200
To BankTo Balance c/d 155400
96400 5900
51800
By Bal. B/dCash
7310082300
96400 57700
155400 96400 57700
Cash A/cParticular Amount Particular AmountTo Balance b/dTo A’s Capital
36,00082,300
By B’s CapitalBy C’s CapitalBy Bal. c/d
96,4005,90016,000
1,18,300 1,18,300
Balance SheetLiabilities Amount Assets AmountCapitalA 155400C 51800CreditorsB/PO/S Lib.
2,07,20048000320002200
CashDebtorsStockFurnitureMachinery
16000 42000 32400 570001,42,000
2,89,400 2,89,400(2+3+3=8)Or.Revaluation A/c Particulars Amt. Particulars Amt.To TypewriterTo Fixed Assets
300041100
By InvestmentTo StockTo loss R 23400 S 11700
6000 300035100
192
44100 44100
Partner’s Capital AccountParticular R S G Particular R S G
To CashTo InvestmentTo Rev. LossTo Balan. C/d
15,000
30,00023400222600
7500
117001,99,800 1,20,000
By Bal. b/dBy CashBy PremiumBy G/R
2,25,000
30,00036,000
1,86,000
1500018,000
1,20,000
2,91,000 1,99,800 1,20,000 2,91,000 1,99,800 1,20,000To CashTo Balance c/d
24000079800120000 120000
By Bal. B/dCash
22260017400
199800 120000
2,91,000 1,99,800 1,20,000 240000 199800 120000
Cash A/cParticular Amount Particular AmountTo Balance b/dTo G’s CapitalTo PremiumTo R’s Cap.
15000120,0004500017400
By R’s CapitalBy S’s CapitalBy S’ Cap.By Bal. C/d
15,000 7,5007980095100
1,97,400 197400
Balance SheetLiabilities Amount Assets AmountCapitalR 240000S 120000G 120000Creditors
4,80,00075000
CashDebtorsStockTypewriterFixed Assets
95100450003300012,0003,69,900
5,55,000 5,55,000(2+3+3=8)Ans. 19 :- Following are two choices to maintain debt equity ratio from 3:1 to 1:1
(iii) To reduce debt(iv) To increase equity 1/2x2=1
Ans. 20 :- No flow of cash because marketable securities are cash equivalents into cash does not result any flow. (1)Ans. 21:- Because investment is the Principal revenue producing activity of a mutual fund company. (1)Ans. 22 Balance Sheet of ……………………….As at 31st March 2012Particular Note No. Current Year Previous YearIi AssetsC.AC. InvestmentInventories
193
Trade receivableCash & cash equitant.Short term loan and advance othe C.A(1/2X6=3)
Sales 80,000Rate of Gross Profit on cost = ¼800000x1/5= 1,60,000 Mark(½)COGS = 8,00,000-1,60,000 = 6,40,000 Mark(½)STR = COGS/A. Stock5/1 = 640000/A. stock = 128,000 Mark(½)Opening Stock = xClosing Stock x+20000Averge Stock x+x+20000/2 2x+20000/2 = 128000 X=128000-10000 = 118000 Mark(½)Opening Stock = 11800Closing Stock = 118000+ 20000 = 1,38,000 Mark(½)Acid Test Ratio = Quick Assets/ Current Liabilities .75/1 = x/2,40,000X = 1,80,000 Mark(½)C.A = Q. A + stockC.A = 1,80,000 + 1,38,000 = 318000 Mark(1/2)C.R = C.A/C.L C.R = 318000/240000 = 1.3:1 Mark(½)Ans. 24
Particular 31.3.2011 31.3.12 Absolute fig. %Revenue from operationsAdd other income
20,000 6,000
30,000 8,000
10,000 2,000
5033.3
Less Exp.2600012000
3800021000
120009000
4675
Net profit before TaxLess Tax Paid
140007000
170008500
30001500
21.421.4
Net Profit after Tax 7000 8500 2000 21.4(1x4 = 4)
Ans. 25 Particular Amount Amount
F) Cash flow from operating activitiesNet profit before tax & dividendAdd Non-operating Exp.Dep. 30,000
75000
30,000
194
105000Less Non operating IncomeProfit on sale of Machinery 6000 6000Net profit before changing in W.C 99000Add decrease c.A&inc. C.L - -
Less Inc. C.A & Dec. C.LStock 10000 10000Cash Flow from Operating Activities 89000
G) Cash from Investing ActivitiesSale of Mach.Purchase of Mach.
16000(1,90,000)
Cash use in investing Activities (1,74,000)H) Cash Flow from Financing activitiesIssue of Share Cap.Payment of Proposed Dividend 1,50,000
(-20,000) 130000I) Increase/decrease in cash & cash equitantOpening Cash &Equa.
1,55,000
45,000
1,55,0002,00,000
J) Closing Cash & Cash Equ.
Working Note:-3. Net Profit before Tax & Dividend 50,000+25,000 = 75,000
4. Machinery A/C
Particular Amount Particular Amount
By Bal. b/dProfitCash ( Purch)
25000060001,90,000
Dep.CashBal. c/d
30,00016,0004,00,000
446000 4,46,000
(½ Marks for correct items 1/2X12 = 6)
195
UNSOLVED SAMPLE PAPER-3ACCOUNTANCYCLASS XII
TIME ALLOWED – 3 HRSMAXIMUM MARKS – 80
PART – A (Accountancy for Partnership firm and Companies)
1. State the need for treatment of goodwill or admission of a partner. (1)2. What is meant by under-subscription?
(1)3. Give the meaning of Bond. (1)4. State any one difference between fixed capital accounts and fluctuating capital of
partners. (1)5. What is meant by Sacrificing ratio? (1)6. What is meant by Authorised capital of a company? (1)7. What is meant by Dissolution by Notice? (1)8. Hemant and Dinesh are partners sharing Profit & Losses in the ratio of 3:2
respectively. They admit Ansh as partner with 1/6th share in the profit of the firm. Hemant personally guaranteed that Ansh’s share of profit would not be less than Rs. 60,000 in any year. The net profit of the firm for the year ending 31st March 2014 was Rs. 1,80,000. Prepare Profit & Loss Appropriation Account.
(3)9. Kashish ltd issued Rs. 3,50,000, 12% debentures of Rs. 100 each at a premium of
10% repayable at premium of 20%. Pass necessary Journal entries at the time of issue of debentures. (3)
10. P ltd. Redeemed 4,000 8% Debentures of Rs. 100 each which were issued at par by converting them into equity shares of Rs. 100 each issued at a premium of 25%.Pass necessary journal entries in the books of P ltd. (3)
11. (a) P, Q and R are partners sharing profit in the ratio of 6:5:4 respectively. R retired surrendering 1/4th of his share in favour of P and remaining in favour of Q. Calculate the new profit sharing ratio of P and Q.(b) X, Y and Z are partners sharing profit in the ratio of 4:3:3 respectively. Z retire and his share was taken over by the remaining partners equally. Calculate gaining ratio of X and Y.
12. S ltd. Was registered with an authorized capital of Rs. 10,00,000 divided into equity share of Rs. 10 each. The company invited appllications for the issue of 50,000 shares. Applications for 48,000 share were received. All calls were made and were dulyreceived except the final call of Rs. 2 per share as 1000 shares. All these shares were forfeited and later on re-issued at Rs. 9,000 as fully paid.(i) Show how share capital will appear in the Balance Sheet of B ltd. As per
schedule VI Part I of the companies Act 1956.(ii) Also prepare Notes to Accounts for the same.
(4)
196
13. Sahaj Ltd. Purchased a running business from G ltd. For a sum of Rs. 9,00,000 payable by issue of equity shares of Rs. 100 each at a premium of Rs. 20 per share. The assets and liabilities consisted of the following:Plant 1,75,000 land 3,00,000 Stock 2,25,000 and creditors Rs. 50,000Pass necessary Journal entries in the books of X Ltd. For the above transactions.
(4)14. Gunjan and Akansha were partners in a firm sharing profit in the ratio of their capitals
Rs. 1,60,000 and Rs. 1,00,000 respectively. They admitted Seema in the firm on Jan 1, 2014 as a new partner for 1/4th share in the future profit. Seema brought Rs. 1,20,000 as her capital. Calculate the value of goodwill of the firm and record the necessary journal entries on Seema’s admission.
(4)15. Nikhil, Rishabh and Jagat were partners. They started a business in one of the remote
tribal areas of North-east India. They were interested in the development of the tribal community by providing good education and health. On 31st March 2014 Nikhil, Rishabh and Jagat had capital of Rs. 6,00,000; Rs. 4,00,000 and Rs. 2,00,000 respectively. The partnership deed provided that interest on capital will be allowed @ 6% p.a. Drawing for the year were Nikhil Rs. 40,000; RishabhRs. 30,000; and JagatRs. 10,000. It was found that the interest on capital for the year ended 31st March 2013 was not allowed. The profit earned by the firm for the year ended 31st March 2014 were Rs. 3,60,000. Showing your workings clearly, pass necessary adjustment entry. Also identify any two values highlighted in the above question. (6)
16. A, B and C were partners sharing profit in 2:3:1 ratio respectively. The partnership deed provided that in case of death of a partner the deceased partner’s share of capital will be donated for the construction of a hospital in the tribal area.Due to ill health C died on 30th September 2013. The Balance sheet of A,B and C on 31st March 2013 was as followsBalance Sheet as on 31.3.2013
Particulars Amount Particulars Amount
CapitalA 50,000B 1,00,000C 1,50,000CreditorsWorkmen Compensation fundProvision for doubtful debts
3,00,0001,80,00010,0005,000
GoodwillCashStockDebtorsInvestmentLand
7,0001,48,00040,0001,50,00025,0001,25,000
4,95,000 4,95,000
On that date of C’s death i.e. 30th September 2013, the following was agreed upon:
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Goodwill is valued at two years’ purchase of average profits of last three completed years i.e. 2010 – 11 = Rs. 22,5002011 – 12 = Rs. 45,0002012 – 13 = Rs. 67,500C’s share of profit till the date of his death will be calculated on the basis of average profits of last three years land was undervalued by Rs. 12,500 and stock overvalued by Rs. 4,000. Provision for doubtful debts is to be made at 5% of debtors claim on account of workmen compensation estimated at Rs. 2,500. Prepare C’s capital A/c to be rendered to his executor.Also identify the value that A,B and C wanted to communicate to the society.
(6)17. B ltd. Invited application for issuing 1,00,000 equity shares of Rs. 10 each. The
amounts were payable as follows:On Application Rs. 3On allotment Rs. 5On First and final Call Rs. 2Applications were received for 1,50,000 shares and pro-rata allotment was made to all the applicants prorate allotment was made to all the applicants. Money overpaid on applications was adjusted towards allotment money. B who was allotted 1,500 shares, failed to pay the first and final call money. His shares were forfeited out of the forfeited shares, 1250 share were reissued as fully paid up @ Rs. 8 per share.Pass necessary journal entries to record the above transactions in the books of B ltd.
OR(a) A company forfeited 400 share of Rs. 20 each, Rs. 15 per share called up on which
Rs. 10 per share had been paid. Directors reissued all the forfeited share to B as Rs. 15 per share paid up for a payment of Rs. 10 each. Give journal entries in the books of the company for forfeiture and reissue of share.
(b) A ltd forfeited 200 equity shares of the face value of Rs. 10 each, for the non-payment of first call of Rs. 2 per share. Rs. 6 per share had already been called and paid these share were subsequently reissued as fully paid at the rate of Rs. 7 per share. Give journal entries in the books of the company for forfeiture and reissue of share.
(8)18. S and G were partners in a firm sharing profit in the ratio of 3:2 respectively. On 31st
March 2014 their Balance Sheet was as follows:Balance Sheet of S and G as at 31st March 2014.
Particulars Amount Particulars Amount
CreditorsInvestment fluctuation fundCapitalSGBank Loan
35,0008,000
70,00020,000
CashDebtor 20,000Prov. For b. debts 700StockPlantPatentsInvestmentGoodwill
5000
19,30025,00035,00020,70020,0008,000
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1,33,000 1,33,000
B was admitted as a new partner as the following conditions:(a) B will get 4/15th share of profits.(b) B had to bring Rs. 30,000 as his capital.(c) B would pay cash for his share of goodwill based on 2 ½ years purchase of
average profit of last 4 years.(d) The profits of the firm for the year ending on 31st March 2011, 2012, 2013 and
2014 were Rs. 20,000; Rs. 14,000; Rs. 17,000 and Rs. 15,000 respectively.(e) Stock was valued at Rs. 20,000 and provision for doubtful debts was raised up to
Rs. 100.(f) Plant was revalued at Rs. 40,000.
Prepare Revaluation Account, Partner’s capital A/c and the Balance Sheet of the new firm.
ORK, S and R were partners in a firm sharing profit in the ratio of 3:2:1 respectively. They decided to dissolve the firm with effect from April 1, 2014. As that date the Balance Sheet of the firm was as follows:
Balance Sheet As at 1.04.2014
Liabilities Amount Particulars Amount
CapitalK 1,36,000S 1,00,000R 54,000Creditors
2,90,0002,40,000
PlantMotor VanFurnitureStockDebtorsCash
1,60,00050,00090,00060,0001,40,00030,000
5,30,000 5,30,000
The dissolution result in the following:(i) Plant of Rs. 80,000 was taken over by K at an agreed value of Rs. 90,000
and remaining Plant realisedRs. 1,00,000.(ii) Furniture realisedRs. 80,000.(iii) Motor Van was taken over by S for Rs. 60,000.(iv) Debtor realisedRs. 2,000 less.(v) Creditor for Rs. 40,000 were untraceable and the remaining creditors were
paid in full.(vi) Realisation expenses amounted to Rs. 10,000.
Prepare the Realisation Account, capital accounts of partners and Bank Account of the firm.
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PART – B(Financial Statement Analysis)
19. Name any two tools of analysis of financial statements.(1)
20. Dividend paid by a financial company is classified under which type of activity, while preparing cash flow statement?
21. State any one objective of preparing Cash Flow Statement. (1)22. State under which major heading the following items will be presented in the Balance
Sheet of a Company as per revised schedule VI Part I of the company Act 1956:(i) Trade Mark(ii) Capital Redemption Reserves(iii) Income received in advance(iv) Stores and spares(v) Office equipment(vi) Current investment (3)
23. From the following calculate:(a) Current Ratio(b) Working Capital turnover Ratio
(I) Revenue from operation 3,00,000(II) Total Assets 2,00,000(III) Shareholder’s funds 1,20,000(IV) Non current liabilities 40,000(V) Non current Assets 1,00,000
(2+2 = 4)24. On the basis of the following information extracted from the statement of Profit
&Loss for the year ended 31st March 2013-14. Prepare a comparative statement of profit and loss:
Particulars Note no.
31-3-13 31-3-14
Revenue from operationsExpensesOther incomeTax rate
30,00021,0003,60050%
20,00012,0004,00050%
25. Prepare of cash flow statement from the following sheet:
Particulars Note no.
31-3-13 31-3-14
I EQUITY AND LIABILITIES(1) Shareholder fund
(a) Share Capital(b) Reserve and Surplus
3,00,000 2,50,000
200
(2) Current LiabilitiesTrade Payables
Total
II ASSETS(1) Non-Current Assets
(a) Fixed AssetsPlant & Machinery
(2) Current Assets(a) Inventories(b) Trade receivables(c) Cash and Cash equivalents
Total
1 2,00,000
1,40,000
6,40,000
2,50,000
50,0003,00,00040,000
6,40,000
1,00,000
90,000
4,40,000
1,50,000
75,0002,00,00015,000
4,40,000
Notes to AccountsNote – 1
Particulars Note no.
31-3-13 31-3-14
Reserve and Surplus(Surplus balance in statement of Profit & Loss)
2,00,000 1,00,000
(1) An old machinery having book value of Rs. 25,000 was sold for Rs. 30,000.(2) Depreciation provided on Machinery during the year was Rs. 15,000. (6)
Answers:15. Jagats capital a/c Dr. Rs. 13,000, Nikhils capital a/c Cr. Rs. 12,800, Rishabs capital a/c cr. Rs. 200
19. His share of goodwill – Rs. 25,000
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Unsolved Sample paper – 4
ACCOUNTANCY
T.A. 3 HRS. M.M. 80Part – A
(Accounting for Partnership Firms and Companies)1. The net profit of a partnership firm is Rs. 2,10,000 after all adjustments. Calculate the
commission to partner after charging such commission @ 5% p.a. (1)2. P, Q and R are partners sharing profit in the ratio of ½, 2/5 and 1/10. Find the new
ratio of remaining partners if R retires. (1)3. What is meant by Private Placement of Shares? (1)4. At what rate interest on calls-in-arrears received by the company according to Table
A of Companies Act 1956? (1)5. Why are assets and liabilities revalued at the time of admission of a partner?(1)6. P, Q and R were partners in a firm sharing profit in the ratio of 5:4:3 respectively.
Their capitals were Rs. 1,00,000; Rs. 80,000 and Rs. 60,000 respectively. State the ratio in which the goodwill of the firm amounting to Rs. 12,00,000 will be adjusted in the capital accounts of the remaining partners on the retirement. (3)
7. X, Y and Z are partners in a firm. They omitted interest on capital @ 10% p.a. for three years ended 31st December, 2013. Their fixed capitals on which interest was to be calculated throughout were:X Rs. 3,40,000Y Rs. 2,72,000Z Rs. 2,38,000Pass the necessary adjusting journal entry with clear working notes. (3)
8. W ltd. Had a balance of Rs. 66,00,000 in its profit and loss Statement. Instead of declaring a dividend, it decided to redeem its Rs. 60,00,000, 9% debentures at a premium of 10%. Pass necessary journal entries in the books of the company for the redemption of debentures. (3)
9. Mahendra ltd.issued 60,000 shares of Rs. 10 each at a premium of Rs. 2 per share payable as Rs. 3 on Application; Rs. 5(including premium) on Allotment and the balance on first and final call.Applications were received for 82,000 shares. The Directors resolved to allot as follows:(a) Applicants of 30,000 shares 20,000 shares(b) Applicants of 50,000 shares 40,000 shares(c) Applicants of 2,000 shares Nil
X who applied for 900 shares in category (a) and Y who was allotted 600 shares in category (b) failed to pay the allotment money.(a) Identify (i) two values ignored by the company (ii) value violated by X and Y.(b) Calculate the number of shares allotted to X. (4)
10. Kartik ltd. Purchased assets from Konark & Co. for Rs. 7,00,000. A sum of Rs. 1,50,000 was paid by means of a bank draft. For the balance due, Kartik ltd. Issued
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equity shares of Rs. 10 each at a premium of 10%. Pass necessary journal entries in the books of the company. (4)
11. What journal entries should be made for issue of debentures in following cases:(i) X ltd. Issued Rs. 50,00,000, 12% debentures of Rs. 100 each at par but
redeemable at the end of six years at Rs. 105 each.(ii) Z ltd. Purchase its own debentures of the face value of Rs. 2,00,000 from the
open market for immediate cancellation at Rs. 92. Pass journal entries.(2+2=4)
12. Anil and Bharat after doing their MBA decided to start a partnership firm to manufacture ISI marked electronic goods for economically weaker section of the society. Anil also expressed his willingness to admit Dolly as a partner without capital who is specially abled but a very creative and intelligent friend of him. Bharat agreed to this. They formed a partnership on 1st April 2014 on the following term:(i) Anil will contribute Rs. 8,00,000 and Bharat will contribute Rs. 4,00,000 as
capitals.(ii) Anil and Bharat and Dolly will share profit in the ratio of 2:2:1.(iii) Interest on capital will be allowed @ 6% p.a.
Due to shortage of capital Anil contributed Rs. 2,00,000 on 30th September 2013 and Bharat contributed Rs. 1,00,000 on January 1 2014 as additional capitals. The profit of the firm for the year ended 31st March 2013 was Rs. 7,00,000.(a) Identify two values which the firm want to communicate to the Society.(b) Prepare P&L Appropriation A/c for the year ending 31st March 2014.
13. Journalise the following transactions on the dissolution of a firm:(a) P, a partner, took over all investments at Rs. 15,800.(b) Creditors worth Rs. 69,000 accepted machinery valued at Rs. 73,000 in settlement
of their claim.(c) R, a partner, took over 60% of the stock at a discount of 25%(book value of stock
is Rs. 50,000)(d) An asset, not appearing in the books of accounts, realised Rs. 13,900.(e) Realisation expenses Rs. 9,600 were paid by P for which he was paid Rs. 8,000.(f) Loss on realization Rs. 72,000 was to be distributed between P and R in the ratio
of 5:4. (6)14. L, M and N were partners in a firm sharing profits in the ratio of 5:6:9. On 31st March
2014, their Balance sheet was as follows:Balance SheetAs at 31st march, 2014
Liabilities Rs. Amount Rs.
Bills PayableCreditorsGeneral ReserveCapital A/csL 1,17,000M 1,80,000M 3,60,000
36,00027,00054,000
6,57,000
BankDebtorsStockLandBuildingProfit and Loss A/c
81,00063,00036,0002,70,0001,80,0001,44,000
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7,74,000 7,74,000
N died on 30th April, 2014. The partnership deed provide for the following on the death of a partner:(i) N’s share of profit/loss till the date of death was to be calculated on the basis
of profit and loss for the year ending 31st March, 2014.(ii) Goodwill of the firm was to be valued at two years’ purchase of average of
last four years.(iii) The profit for the years ending 31st March 2009, 2010, 2011, 2012, 2013 were
Rs. 65,000, Rs. 90,000, Rs. 1,10,000, Rs. 70,000 and Rs. 60,000 respectively.Calculate (a) N’s share in the profit/loss till his death.(b) N’s share of goodwill at the time of his death.
Prepare N’s Capital Account to be presented to his executor. (6)15. A and B are partners in a firm sharing profits and losses in the ratio of 7:3. Their
Balance Sheet as at 31st march, 2013 is as follows:16. Balance Sheet17. As at 31st march, 2014
Liabilities Rs. Amount Rs.
CreditorsReserveCapital Accounts:A 2,00,000B 1,60,000
1,20,00020,000
3,60,000
GoodwillCash at BankDebtorsFurnitureStock
72,0001,80,00088,00060,0001,00,000
5,00,000 5,00,000
On 1st April, 2013, they admit Rohan on the following terms:(a) Goodwill is valued at Rs. 80,000 and C is to bring in the necessary amount in cash
as premium for goodwill and Rs. 60,000 as capital for 1/4th share in profits.(b) Stock is to be reduced by 40% and furniture is to be reduced to 40%.(c) Capitals of the partners shall be proportionate to their profit sharing ratio takin C’s
capital as base. Adjustments of capitals to be made by cash.Prepare Revaluation A/c, Partner’s capital a/c and Cash A/c.
OROn 31st March, 2014 the Balance sheet of P, Q and R sharing profits and losses in the ratio of 2:3:2 stood as follows:
Balance SheetAs at 31st march, 2014
Liabilities Rs. Amount Rs.
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Capital A/cP 1,00,000Q 1,50,000R 1,00,000Sundry Creditors
3,50,00050,000
Land & BuildingsMachineryClosing StockSundry DebtorsCash BalanceBank Balance
1,00,0001,70,00050,00060,0005,0001,50,000
4,00,000 4,00,000
On 31st March, 2014 Q desired to retire from the firm and the remaining partners decided to carry on. It was agreed to revalue the Assets and Liabilities on that date on the following basis:
(a) Land and Buildings be appreciated by 30%.(b) Machinery be depreciated by 20%.(c) Closing Stock to be valued at Rs. 45,000.(d) Provision for bad debts be made at 5%.(e) Old credit balances of Sundry Creditors Rs.5,000 be written back.(f) Unrecorded investment was sold for Rs. 35,000.(g) Goodwill of the entire firm be valued at Rs . 63,000 and Q’s share of the Goodwill be
adjusted in the accounts of P and R who share the future profits and losses in the ratio of 3:2.
(h) The total capital of the firm is to be the same as before retirement and individual capital to be in their profit sharing ratio.
(i) Amount due to Q is to be settled on the following basis:50% on retirement and the balance 50% within one year.Prepare Revaluation Account, Capital Accounts of Partners, Bank Account and Balance Sheet as on 1.4.2014 of P and R. (8)
16. Vandana ltd. Invited applications for issuing 10,000 equity shares of Rs. 10 each. The amount was payable as follows:On Application Rs. 3 per shareOn Allotment Rs. 2 per shareOn first and final call Rs. 5 per shareApplications were received for 22,000 shares. Applications for 2,000 shares were rejected and their application money was refunded. Shares were allotted to the remaining applicants as follows:(a) Allotted 50% shares to Himanshu who had applied for 4,000 shares.(b) To allot in full to Robin who had applied for 2,000 shares.(c) To allot balance of the shares on pro-rata basis to the other applicants.
Excess application money was utilized in payment of allotment and final call. All calls were made and were duly received except the first and final call on 600 shares allotted to an applicant in category (c). His shares were forfeited. The forfeited shares were re-issued for Rs. 9 per share fully paid up.Pass necessary journal entries in the books of Vandana Ltd. For the above transactions.OR
205
Avni Ltd. Invited applications for issuing 12,000 equity shares of Rs. 10 each at a discount of 10% which was payable as Rs. 2 each on application and allotment and the balance on first and final call. Applications for 24,000 shares were received. Out of these, applications for 4,000 shares were rejected and their application money was refunded. To the remaining applicants, shares were allotted on pro-rata basis.Excess application money received with applications was adjusted towards sums due on allotment.K (applied 200 shares) failed to pay allotment and first and final call money. M did not pay the first and final call money on his 160 shares. All these shares were forfeited. Later on, 160 shares (including all the shares of K) were reissued at Rs. 17 per share fully paid up.Pass necessary journal entries for the above transactions. (8)
PART – B(Financial Statement Analysis)17. State any one limitation of Analysis of financial statement. (1)18. List any two financing activities that result into outflow of cash. (1)19. State the objective of preparing Cash Flow Statement. (1)20. Under which major sub-heading the following item will be placed in the Balance Sheet of a company as per revised Schedule VI par –I of the companies Act 1956.(i) Accrued Income(ii) Loose tools(iii) provision for employees benefits(iv) Unpaid divididend(v) Short –term loans(vi) Long-term loans (3)
21. Working Capital of a company is Rs.30,00,000. Its current ratio is 2.5:1 what will be the value of (a) Current Liabilities (b) current Assets (c) Quick Assets and (d) Liquid Ratio? Assume inventories of Rs. 20,00,000. (4)22. Prepare a Common-size Balance Sheet of Bajaj Ltd. From the following information:Particulars Note
No.2013-14 2012-13
I EQUITY AND LIABILITIESShare capitalReserves and SurplusLong-term BorrowingsTrade PayablesShort-term Provisions
5,00,00050,0001,00,00080,00020,000
2,50,00050,0001,50,00040,00010,000
7,50,000 5,00,000II ASSETSFixed AssetsNon-current InvestmentsInventoriesTrade ReceivablesCash and Cash Equivalents
6,00,000-75,00045,00030,000
3,00,0001,00,00050,00030,00020,000
7,50,000 5,00,000
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23. From the following information, prepare Cash Flow Statement:Particulars Note
No.31.03.13 31.03.14
I EQUITY AND LIABILITIES1. Shareholders’ funds:
(a) Share Capital(b) Reserves and Surplus
2. Non-current Liabilities:(a) Long-term borrowings (15% Debentures)
3. Current Liabilities:(a) Short-term borrowings (Cash credit)(b) Trade Payables(c) Short-term Provisions
12
3
2,00,00012,800
28,000
27,20044,00040,000
1,60,00012,000
24,000
50,00048,00032,000
Total 3,52,000 3,26,000II ASSETS
1. Non-current Assets:(a) Fixed Assets – Tangible
Less: Accumulated Depreciation2. Current Assets:
(a) Inventories(b) Trade Receivables(c) Cash and Cash Equivalents(d) Other Current Assets (Prepaid Expense)
1,60,000(60,000)
1,40,00096,00014,0002,000
1,64,000(44,000)
1,20,00080,0004,8001,200
Total 3,52,000 3,26,000
Notes to Accounts:Particulars Note
No.2013-14 2012-13
1. Share capitalEquity Share Capital12% Preference Share Capital
1,60,00040,000
1,10,00050,000
Total 2,00,000 1,60,000
2. Reserves and SurplusGeneral ReserveBalance in Profit & Loss Statement
8,0004,800
8,0004,000
Total 12,800 12,000
3. Short-term ProvisionsProvision for TaxationProposed Divident
16,80023,200
12,00020,000
207
Total 40,000 32,000
Additional Information:(a) Provision for tax made Rs. 18,800.(b) Fixed assets sold for Rs. 20,000 their cost Rs. 40,000 and accumulated depreciation
till date of sale is Rs. 12,000.(c) An interim dividend paid duing the year Rs. 18,000. (6)
208
Unsolved Sample Paper - 5ACCOUNTANCY
Class : XII Time Allowed : 3 hours Maximum Marks: 80
1. A and B are partners with capitals of Rs. 13,000 and 9000 respectively. They admit C as partner with 1/5th share in the profit of the firm. C brings Rs. 8,000 at his capital.
Calculate C’s share of goodwill only(1)
2. How would you calculate interest on drawings of equal amounts drawn in the middle of every month?
(1)
3. Asha Bawana and chanda are partners in a firm, chanda retired from the firm. After making adjustment for Reserve and Revaluation of Assets and Liabilities the balance in the chanda’s capital account was Rs. 24,000. Asha and Bhawana paid360,000 in full settlement to chanda. Identify the item for which Asha and Bhawana paid Rs. 120,000 more to chanda. (1)
4. You are director of Julaj Auto ltd. Julaj Auto Ltd. Has invited applications for 100,000 equity share of Rs. 10 each. Application were received for 175,000 shares. Name the kind of subscription.
(1)
5. State any two conditions for the issue of share at discount. (1)
6. Ankit, Parnesh & Devender sharing profit and losses equally have capital of Rs. 60,000, Rs. 45,000 and Rs. 30,000. For the year 2014 interest was credited to them 9% instead of 10%p.a. Give adjusting Journal entry.
(3)
7. Pass the necessary Journal entries for issue of 7% Debentures of Rs. 100 each in the following cases:
(3)a. 200 debentures of Rs. 150 each issued at 10% Premium redeemable at Rs. 200
each.b. 200 Debentures of Rs. 200 each issued at a discount of 10% redeemable at par.c. 200 Debenture of Rs. 100 each issue at discount of 10% redeemable at premium
15%
8. Z ltd. Purchase its own 400 debentures of the face value of Rs. 40,000 from the open market for immediate cancellation at 96 Pass journal Entries.
(3)9. State any 4 factors which influence the valuation of goodwill of a partnership firm.
(4)
10. A company issue Rs. 60,000 fully paidup share of Rs. 100 each for purchase of the following Assets and Liabilities from Gupta & Co.
209
Plant Rs. 14,00,000Land and Building Rs. 24,00,000Stock in Trade Rs. 18,00,000Sandry Creditors Rs. 4,00,000 (4)
11. A ltd. was registered with an authorized capital od Rs. 5,00,000 decided into equity share of Rs. 10 each. The company invited applications for the issue of 25,000 shares. Applications for 24,000 shares were received. All calls were made and were duly received except the final call of Rs. 2 per share on 500 share. All these shares were forfeited and later on re-issued at Rs. 4,500 as full paid.i. Show how ‘share capital’ will appear in the Balance Sheet of A ltd as per
schedule VI Part – I of the companies Act 1956. ii. Also prepares ‘Notes to Accounts’ for the same.
(4)
12. G and H were partners in a firm on Ist April 2014 their capital Rs. 250,000 and Rs. 2,00,000 respectively. They admitted R on Ist July with a capital of Rs. 3,00,000. As per new partnership agreement.i. Profit will be divided in the ratio of 2:2:1ii. Interest on capital will be allowed @ 6%iii. G will get on annual commission of Rs. 25,000iv. H & R will get a monthly salary of Rs. 4000 and 3000 respectively.
The profit for the year was Rs. 210,000.Prepare profit andloss appropriation account for the year. (6)
13. Journalise the following transaction on the dissolution of a firm:i. P a partner, took over all investment at 31600.ii. Creditor were Rs. 1,38,000 accepted machinery valued at Rs. 1,46,000 in
settlement of their claim.iii. R a partner took over 60% of the stock at a discount of 25% (book value of
stock is Rs. 1,00,000)iv. An assets, not appearing in the books of accounts realised Rs. 27,800.v. Realization expenses Rs. 19,200 were paid by ‘P’ for which he was paid Rs.
16,000.vi. Bank loan Rs. 72,000 was paid.vii. R agreed to pay off his brother’s loan 20,000.viii. Loss on realization Rs. 144,000 was to be distributed between Phenomena &
R in the ratio of 5:4.(6)
14. A, B & C are partners in a firm sharing profit in the ratio of 5:3:2 respectively. Their Balance Sheet as on 31st March 2014 was as follows.Balance Sheet as on 31st March 2014
Liabilities Amount Assets AmountCreditorsReservesCapitals: A 60,000
24,00020,000
CashDebtorsStockMachineryBuilding
26,00016,00020,00060,00040,000
210
B 40,000 C 30,000
1,30,0001,74,000
Patents 12,0001,74,000
On 1st Sep 2014 due to illness B died. It was agreed between the firm and B’s executors that the amount due to B will be used for construction of a community hall in the village. As per the agreement. i. goodwill is to be valued at two years’ purchase of the average profit of
previous five years which were 2010- Rs. 20,000 2011- Rs. 26,000 2012- Rs 24,000 2013- Rs. 30,000 and 2014 Rs 40,000.
ii. Patents were valued at Rs. 16,000, Machinery at Rs. 56,000 and Building at Rs. 60,000.
iii. B’s share of profit till the date of his death will be calculated on the basis of profit of the year 2014.
iv. Interest on capital will be provided at 10% p.a.v. Amount due to B’s executors will be transferred to charity account.
a. Prepare ‘B’ capital account to be presented to his executor and b. Identify any one value being highlighted to the question.
(6)
15. R ltd. invited application for issuing 20,000 equity share of Rs. 100 each at a discount of Rs. 4 per share. The amount was payable as follows.On application – Rs. 20 per shareOn allotment – Rs 30 per share On First & Final Call – Rs 46 per share.Application were received for Rs. 18,000 share and allotment was made to the all applicants. All amounts due were received except the first and final call on 800 shares. These share were forfeited: out of the forfeited share, 600 shares were reissued at a payment of Rs. 54,000 fully paid up.Pass necessary journal entries in the books of the company.ORa. C ltd forfeited 2000 shares of Rs. 2100 each issued at a discount of Rs 8 per
shares, On these shares the first call of Rs. 30 per share was not received and final call of Rs. 20 per share was not made. Subsequently these shares were reissued at Rs. 70 per share Rs. 80 paidup.Pass necessary Journal entries for the above transaction in the books of C ltd. .
b. L. ltd forfeited 940 equity share of Rs. 20 each issue at a premium of Rs. 3 per share for the non payment of allotment money of rs 8 (including premium Rs 3) and first call Rs. 5 per share. Final call of Rs. 5 per share were not made. Out of these 470 shares were reissued at Rs. 38 each fully paid.Pass necessary journal entries for the above transaction in the book of L ltd. 4 + 4 = (8)
16. R & L are partners in a firm sharing profit and losses in the ratio of 3:2. They admit D into the firm when their balance sheet was as follows.Balance sheet as on 31st March 2014.
211
Liabilities Amount Assets AmountCreditorsBank LoanContingency Reserve
Capital A/CR 1,60,000L 1,00,000
40,00080,00060,000
2,60,000
4,40,000
BankDebitorsStockInvestmentFurnitureBuildingProfit and Loss
80,00070,0001,00,00080,00040,00050,00020,000
4,40,000
Terms of D’s admission were as follows.i. D will bring Rs. 1,40,000 as his share of capital.ii. Goodwill is valued at Rs. 1,20,000 and bring hisshare of goodwill in cash.iii. Furniture and building is to be revaluated at Rs. 30,000 and 70,000
respectively.iv. Capital of old partners is to be readjusted on the basis of new partners’s capital
adjustment of capital is to be made through bank.v. New ratio of R. L & D is 3:2:1.
Prepare Rev. A/c Partner’s Capital A/c and Balance Sheet of the new firm.
Or
Sita, Geeta & Meeta were partners sharing Profit in the ratio of 2:2:1 respectively.Following was their Balance sheet as on 31st March 2014
Balance Sheet as on 31st March 2014
On the above date SIta returned and following were agreed:i. Stock was valued at RS. 1,00,000, Debtors Rs. 80,000 Building Rs.
4,40,000; Plant Rs. 1,40,000 and creditors Rs. 1,00,000 ii. Amount due to Sita will be transferred to Sita’s loan account.iii. Goodwill is valued at Rs. 60,000. Prepare Revaluation Account and
Sita’s Capital Account. (8)
Part – B
212
Liabilities Amount Assets AmountCapital: Sita 2,40,000 Geeta 1,60,000 Meeta 2,00,000
CreditorsBills PayableP & L A/C
6,00,0001,20,00080,00050,000
8,50,000
GoodwillCashDebtorsBuildingPlant
40,00042,00088,0004,00,0001,60,000
8,50,000
(Financial Statement Analysis)17. State why non-cash transaction are ignored while preparing a cash flow statement?
(1)
18. State with reason whether the issue of 9% debentures to a vendor for the purchase of machinery of Rs. 1,00,000 will result in inflow, outflow or no flow of cash while preparing cash flow statement.
(1)
19. State any one advantage of analysis of financial statements. (1)
20. State under which major heading the following item will be presented in the balance sheet of a company as per revised schedule VI part 1 of the Companies Act 1956.i. Long Term Borrowingsii. Trade Payablesiii. Provision for Taxiv. Securities Premium Reservev. Patentsvi. Accrued Income (3)
21. Calculate current Rates of a company from the following information:Inventory Turnover Ratio 4 time.Inventory in the end was Rs. 20,000 more than inventory in the beginning.Revenue from operation Rs. 3,00,000Gross Profit Ratio 25%Current Liabilities Rs 40,000Quick Ratio 0.75:1 (4)
22. From the following extract of the statement of Phenomena & L for the years ended 31st March 2013-14 of XYZ ltd. Prepare a comparative statement of Profit & Loss.
(4)
Particular 31.3.2014 31.3.13Revenue from operationEmployees Benefit ExpensesOther ExpenseTax Rate
24,00,00011,00,0001,00,00050%
15,00,0009,00,0002,00,00050%
23. From the following Balance Sheet of Samta Ltd. as at 31st March 2013 and 2014 . Prepare cash Flow Statement.
Particular 2014 2013
213
1. Equity & liabilities Share holder’s fund
Share CapitalReserve & Surplus 2014 2013
Balance in statement of P & L 2,00,000 1,00,000Miscellaneous Exp. ----- (1,00,000) 2,00,000 ---
Current liabilitiesProvision:Proposed Dividend:
2. Assets Non Current Assets
Fixed Assets Current Assets
Total
10,0,000
2,00,000
2,00,0001,00,00015,00,000
9,00,0006,00,00015,00,000
7,50,000
NIL
50,0009,50,0009,50,000
6,00,0003,50,0009,50,000
Additional Information:i. During Rs. 40,000 depreciation charged on fixed assets.ii. A price of machinery including in fixed assets costing Rs. 10,000 on which
depreciation charged was Rs. 4000 was sold Rs. 5000. (6)
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