Xii Accountancy Study Mati.

Chapter-1
ACCOUNTING FOR NOT FOR PROFIT MAKING ORGANISATIONS (10 marks)

SALIENT FEATURES:-
1.Those organizations whose main aim is not to make profits, but to render services.
2.Educational institutions, clubs, hospitals are examples of theses types of organizations.
3.The main source of income are subscriptions, donations, grant from government.
4.Financial statements prepared in these organizations are: Receipt & Payments A/C, Income & Expenditure A/C
and Balance Sheet.
5. Receipts & Payment A/C is the summary of cash transactions. It starts with opening balance of cash and bank
and ends with closing balance of cash and bank.
6. Income & Expenditure A/C is just like the Profit & Loss A/C prepared in the case of trading concerns. The result
will be either surplus of deficit.
7. Calculation of some important items:-
a) Subscriptions: - Subscriptions received during the year xxxx
Add : Subscriptions outstanding at the end of the year xxxx
Subscriptions received as advance in the previous year xxxx
Less: Subscriptions outstanding at the beginning of the year xxxx
Subscriptions received as advance during the year xxxx
-------
Amount of subscriptions to be credited to Income & Expenditure A/C xxxxxx
b) Cost of material consumed during the year:-
Opening stock of consumable goods xxxxx
Add Total purchases made xxxxx
Less Closing stock of consumable goods xxxxx
----------
Amount to be written in the Income & Expenditure A/C xxxxxx
QUESTIONS (1 MARK)
1.What is meant by fund based accounting?

2.Give any two sources of income of a not for profit organization?
3.Mention any two features of Receipts & Payment A/C?
4.What is the accounting treatment when tournament expenses exceeds tournament fund?
5.When the Receipts and Payment account is converted into Income and expenditure account, an accounting
concept is to be followed for the provisions of accruals and outstanding. Name the concept that is followed.
QUESTIONS (3 marks)
1.On the basis of the information given below calculate the amount of stationery to be debited to Income &
Expenditure A/C of a club for the year ended 31 March 2010.
Particulars 01-04-2009 31-03-2010
Stock of stationery 15000 13000
Creditors for stationery 16000 18000
Stationery purchased during the year2009-2010 was Rs. 54000.
2. Receipts & Payment A/C of a club showed that Rs. 72000 were received by way of Subscriptions for the
year ended 31-03-10. Additional information is available as follows:-
i) Subscriptions outstanding on 31-03-09 were Rs. 26000.
ii ) Subscriptions received in advance as on 31-03-09 Rs. 24000.
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iii ) Subscriptions outstanding as on 31-03-2010 Rs. 41000.
iv ) Subscriptions received in advance as on 31-03-10 Rs. 27000.
Show how the above information would appear in the financial statements for the year ended on 31-03-10.
3. From the particulars given below calculate the amount of subscription to be credited to Income &
Expenditure A/C.
2008.9 24000
2009-10 1,26,600
2010-11 48000
There are 900 active members of the club and each has to subscribe Rs. 75 annually. Rs. 27000 were in
arrears for 2008-09 at the beginning of the current year 2009-10.
Questions (6 marks)
Following is the Receipts & Payments A/C for the year ended 31-03-10
Receipts Rs. Payments Rs.
Balance b/d 10000 Salary 18000
Subsciptions: 49000 Newspaper 4000
2008.9 3000
2009.10 44000
2010-11 2000
Sale of old news papers 3000 Rent 14000
Government Grants 40000 Fixed Deposit @ 12% p.a. 50000
Sale of old furniture (book 12000 Books 8000

value Rs. 18000)
Profit from entertainment 4000 Furniture 16000
Balance c/d 8000
118000 118000
Additional Information:-
i) Subscriptions outstanding as on 31-03-2009 were Rs. 4000 and on 31-03-10 Rs. 6000.
ii ) On 31-03-10 salary outstanding was Rs. 8000 and rent outstanding was Rs. 2000.
iii ) on 01-04-09 the club owned furniture Rs. 40000 and books Rs. 36000.
Prepare Income & Expenditure A/C for the year ended 31-03-10 and ascertain the capital fund pn 31-03-2009.
2. Following is the Receipt and Payment account of a sports club for the year ended 31-12-09.
Receipts Rs Payment Rs
Balance b/d 10000 Salary 24000
Subscriptions 52000 Furniture 20000
Entrance Fees 8000 Office expenses 16000
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Sports Fund 30000 Sports Expenses 42000
Sale of old papers 4000 Sports Equipment 40000
Legacy 70000 Balance c/d 32000
174000 174000
Additional Information:-
i) On 31-12-09 subscription outstanding was Rs 8000 and on 31-12-08 subscription outstanding was Rs. 6000.
ii ) Salary outstanding on 31-12-09 was RS. 4000.
iii ) On 01-01-09 the club had building Rs. 160000, furniture Rs. 40000, 10% investment Rs. 90000 and sports
equipment Rs. 50000.
iv ) Depreciation charged on assets including purchases was 10%.
Prepare Income & Expenditure A/C of the sports club for the year ended 31-12-09 and ascertain the Capital Fund on 31-
12-08.
Answers (1 mark) :-
1. Fund based accounting is a technique whereby separate balancing sets of assets , liabilities, income, expense and
fund balance accounts are maintained for each contribution for a specific purpose.
2. Subscriptions/donations and grant from government.
3. i ) Receipt and Payment A/C is the summary of cash transactions.
ii ) It records all cash receipts/payments irrespective of the fact whether they are of capital nature or revenue
nature.
4. When tournament expenses exceed tournament fund the difference is written in the debit side of the Income &
Expenditure A/C.
5. Accrual concept.
Answers (3 marks)
1. Rs. 58000
2. Rs. 84000
3. Rs. 67500.
Answers (6 marks)
1. Surplus Rs. 20000 . Assuming subscription outstanding on 31-03-10 includes arrears of Rs. 1000 of 2008-09 .
Opening capital fund- Rs. 90000.
2. Deficit Rs. 12000. Opening capital fund- Rs 352000. Since sports expenses is more than sports fund the difference
is transferred to the debit side of the Income & Expenditure A/C. Point to be noted is that there will be no
depreciation for investment.
Important points to be remembered

1. Make sure what is required as per the question. Don’t be in a hurry and prepare Income & Expenditure A/C.
Opening Balance Sheet and closing Balance Sheet.
2. If figures of separate years is given in the case of subscriptions and no. of members and subscription amount is
given as additional figure, make sure that the amount written in the amount column of the Income &
Expenditure A/C is equal to No. of members . x Yearly/Monthly subscription.
3. If fund is given in the question see that the figures related to that is written in the liabilities side of the balance
sheet. But if expenses is more that the fund the difference is written in the debit side of the Income &
Expenditure A/C.
4. Proper format to be drawn.
5. See that revenue items(receipt) of the current year is taken from the debit side (left side) of Receipts & Payments
A/C and written in the credit side (right side) of the Income & Expenditure A/C and payments of the current year
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is taken from the credit side (right) of the Receipts & Payments Account and recorded in the debit side (left) of
the Income & Expenditure A/C
Chapter- 1 Accounting for Partnership- Basic Concepts

Salient features :-
(1) Feature of Partnership: Two or more persons, Agreement between partners, Existence of business with profit
motive, Relationship of principal and agent.
(2) Partnership deed is a written agreement between partners containing all terms and conditions about
partnership.
(3) For calculating Divisible Profit among partners “Profit & Loss Appropriation A/c” is opened.
(4) Rules applicable in the Absence of Partnership Deed.
(a) The partners shall share firm’s profits or losses equally.
(b) If any partner has given some loan to the firm, he is entitled to take interest on such loan @ 6% p.a.
(c) No partner is entitled to get any remuneration as salary, commission, fees etc.
(d) No interest is allowed to partners on the capital invested by them.
(e) No interest will be charged on drawings made by the partners.
(5) There are two methods of maintaining capital account of partners
(f) Fixed capital method- two accounts (Capital a/c and Current a/c are maintained)
(g) Fluctuating capital method- only on (Capital a/c) is maintained
Q.No Question Marks

.
1. Define Partnership. 1
2. What is meant by Article of Partnership? 1
3. Give one difference between P & L A/c and P & L Appropriation A/c. 1
4. In the absence of partnership deed, how are mutual relations of partners governed? 3
5. Give 3 differences between Fixed capital method and Fluctuation capital method. 3
6. Give 3 differences between Drawings against capital and Drawings against profits. 3
7. Why is it necessary to have a partnership deed? 3
8. Sachin and Vinod were partners is a firm sharing profits in the ratio of 5 : 3 .Their fixed capitals 4
were Rs. 150000 and 100000 respectively. The partnership deed provides that :
(i) Interest on capital should be allowed @ 12 % p.a.

(ii) Sachin should be allowed a salary of Rs. 20000 p.a.
(iii) A commission of 10 % of the net profit should be allowed to Vinod.
The net profit for the year ended 31-3-2001 was 100000.
Prepare profit and loss appropriation account.
9. Heera and Rani are partners in a firm. The partnership deed Provides that interest on 4
drawings will be charged @ 6% p.a. During the year ended 31-12-2006 Heera withdrew Rs.
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2500 at the beginning of the every month and Rani withdrew Rs.2500 at the end of each
month. Calculate interest on the partner’ drawings.
10. L, M, and N were partners in a firm. On 1-4-2005 their capital stood at Rs. 25000; Rs.12500 4
and Rs. 12500 respectively. As per the partnership deed :
(i) N was entitled for a salary of Rs. 2500 p.a.
(ii) Partners were entitled to interest on capital at 5% p.a.
(iii) Profits were to be shared in the ratio of partners’ capital.
The net profit for the year 2005-06 of Rs.16500 was divided equally without providing
for the above terms. Pass an adjustment entry in journal to rectify the above error.
11. X, Y, and Z are partners sharing profits in the ratio of 5: 4: 1. Z is given a guarantee that his 4
share of profit in any given year would be Rs. 10000. Deficiency if any would be borne by X
and Y equally. The profits for the year 1998 amounted to Rs. 80000. Pass necessary entries in
the books of the firm.
12. Sunny and Pinky started partnership on 01-04-2006 with capital of Rs. 125000 and Rs. 75000, 4
respectively. On 01-10-2006, they decided that their capitals should be Rs. 100000 each. The
necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest
on capital is to be allowed @ 10 % p.a. Calculate interest on capital as on 31-03-2007.
Answers and Solutions of Chapter-1 Accounting for Partnership-Basic Concepts
Q.No. Answers and Solutions
1. Partnership is a relationship between persons who have agreed to share the profits of a business carried on
by all or any of them acting for all.
2. A written agreement which contains the various terms and conditions as to the relationship of the partners to
each other is called the Article of Partnership of Partnership deed.
3. P & L A/c includes all charges against profits whereas P & L Appropriation A/c includes all appropriations of
profits.
4. In the absence of partnership deed following rules will be applied for governing the partnership:-
(1) Profit sharing ratio will be equal.
(2) No interest will be given on partners’ capitals
(3) No interest will be charged on partners’ drawings
(4) No partner will be entitled to any salary, fees, commission or remuneration.
5. Following are the differences between Fixed capital method and Fluctuation capital method.
Basis Fixed capital method Fluctuation capital method.
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1.No.of Each partner has two accounts, capital and Each partner has only one account, capital
Accounts current account. account.
2.Change in The capital account remains unchanged The balance of capital account keeps on
balance unless there is an addition to or withdrawal changing from time to time.
of capital.
3.Negative The fixed capital account of a partner can The fluctuation capital account of a partner
balance never show a negative balance. can show a negative balance.
6. Following are the differences between Drawings against capital and Drawings against profits.
Basis Drawings against capital Drawings against profits
(i) Where debited It is debited into capital account. It is debited in drawings account.
(ii) Part It is a part of capital. It is a part of expected profit.
(iii) Effect It reduces the capital. It does not reduce the capital.
7. The three reasons for having a written agreement (partnership deed) are as follows:-
(i) In case of dispute it will serve as evidence in the court of law.

(ii) Accounts of partnership firm are regulated by those contents.
(iii) It regulates the rights, duties and responsibilities of each partner.
8. Dr. P & L Appropriation A/c Cr.
To Interest on capital:- By P & L A/c (Net profit for the year) 100000
-Sachin 150000 X 12 % 18000
-Vinod 100000 X 12 % 12000
To partner’s salary
- Sachin 20000
To Partner’s commission
-Vinod (100000-50000) 10 %
5000
To partners’ capital (divisible profit)
-Sachin 45000 X 5/8

28125
-Vinod 45000 X 3/8
16875
100000 100000
9. Interest on Heera’s drawings :- Interest on Rani’s drawings :-
(2500 X 12) 6.5/12 X 6/100 = 975 (2500 X 12) 5.5/12 X 6/100 = 825
10. M’s capital a/c Dr. 2000
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To L’s capital 1500
To N’s capital 500
(For rectifying the past errors.)
11. (i) P & L Appropriation a/c Dr. 80000
To X’s capital a/c 40000
To Y’s capital a/c 32000
To Z’s capital a/c 8000
(For distribution of profit)
(ii) A’s capital a/c Dr. 1000
B’s capital a/c Dr. 1000
To C’s capital a/c 2000
(For deficiency of C)
12. Interest on :-
Sunny’s capital = 45000
Pinky’s capital = 35000
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Chapter- 2 Reconstitution of a Partnership Firm- Admission of a Partner
Salient features :-
(1) Goodwill is the monetary value of business reputation. It is an intangible asset.
(2) Goodwill may be of two types
(a) Purchased Goodwill
(b) Non-Purchased Goodwill
(3) When existing firm faces problem of limited financial resources and man power then one new
additional partner enter into firm.
(4) There are three methods of Valuation of Goodwill

(a) Average Profit Method
(b) Super Profit Method
(c) Capitalisation Method
(5) When new partner is admitted into existing partnership them existing partners have to sacrifice in favour of
new partner, it is called sacrificing ratio.
(6) Share of Goodwill of new partner will be credited to sacrificing partners into their sacrificing ratio.
(7) At the admission of new partner Profit & Loss on Revaluation of Assets and Liabilities and Balances of
Accumulated Profits & Losses will be distributed among old partners (only) in old ratio.
Q. Question Mar
No. ks
1. What is meant by reconstitution of a Partnership Firm? 1
2. Give one effect of reconstitution of a Partnership Firm. 1
3. Give 2 rights which is got by new incoming partner in the firm. 1
4. What is meant by Goodwill? 1
5. Name 4 factors affecting the value of Goodwill. 1
6. An existing firm’s earned profits for last three are as follows :- 4
Year Profit (Rs.)
2005 200000 (including an abnormal gain of Rs. 25000)

2006 250000 (including an abnormal loss of Rs. 50000)
2007 225000 (Excluding Rs.25000 of current year’s Rent)
Calculate the value of fir’s Goodwill on the basis of two years purchase of the
average profits for the last three years.
7. (i) L and M are partners in a firm sharing profits and losses in the ratio of 7: 3. They admit N on 4
3/7th shares which he takes 2/7th from L and 1/7th from M. Calculate the new profit sharing ratio.
(ii) P and Q are partners in a firm sharing profits in the ratio of 7:5. They admit R as a partner in
the firm. The new profit sharing ratio among P, Q and R is 1:1:2. Calculate the sacrificing ratios.
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8. A firm’s average profits are Rs. 35000. It includes abnormal profits of Rs. 25000. Capital invested in 4
the business is Rs. 275000 and the normal rate of return is 10%. Calculate goodwill at four times
the super profit.
9. Arjun and Bheem are partners in a firm sharing profits and losses in the ratio of 3: 2. They admit 4
Chetan into partnership for 20 %. C brings Rs. 60000 as capital and Rs.20000 as goodwill. At the
time of admission of C, goodwill appears in the balance sheet of Arjun and Bheem at Rs.6000.
New profit sharing ratio of partner will be 5: 3: 2. Pass necessary entries.
10. P and Q are partners with capitals of Rs.52000 and Rs. 44000 respectively. They admit R as a 4
partner with 1/4th share in the profits of the firm. R brings Rs. 52000 as his share of capital. Give
journal entry to record goodwill on R’s admission.
11. A & B were partners in a firm sharing profits and losses in the ratio of 5:3. On 01-01-2000, they 4
admitted C as a new partner. On the date of admission, the balance sheet of A & B showed a
balance of Rs. 8000 in general reserve and debit balance of Rs. 12000 in profit and loss account.
Pass the necessary journal entries for the treatment of these items on C’s admission.
12. X, Y and Z are partners sharing profits and losses in the ratio of 2:3:5. On 31-12-2000 their balance 8
sheet was as follows :-
Balance Sheet as on 31-12-2000
Liabilities Rs. Assets Rs.
Capital :- Cash 9000
X 18000 Bills Receivable 7000
Y 22000 Stock 22000
Z 26000 66000 Debtors 21000
Machinery 47000
Creditors 32000 Goodwill 10000
Bills Payable 11000
General Reserve 7000
116000 116000
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They decided to admit A into the partnership on the following terms:-
(i) Machinery is to be depreciated by 15 %

(ii) Stock is to be revalued at Rs. 24000.
(iii) X, Y and Z have a joint life policy whose surrender value is Rs.6000.
(iv) Outstanding rent is Rs. 950.
(v) A is to bring Rs. 3000 as goodwill and sufficient capital for a 2/5 th share in the total
capital of the firm.
Prepare Revaluation A/c, Partners Capital A/cs and Balance sheet of new firm.
13. X and Y were partners in a firm sharing profits in 3:1. On 01-01-2000 They admitted Z as a partner 8
for 1/4th share in the profits. Z was to bring Rs. 30000 for his capital. The Balance Sheet of X and Y
on 01-01-2000 was as follows :-
Creditors 35000 Land & Building 20000
Capitals :- Plant & Machinery 35000
X 25000 Stock 15000
Y 40000 65000 Debtors 17500
Less-Provision for doubtful 500 17000
General Reserve 5000 Investments 13000
Cash 5000
105000 105000
The other terms agreed upon were :-
(i) Goodwill of the firm was valued at Rs. 12000.

(ii) Land and Buildings were valued at Rs.32500 and Plant and Machinery at Rs.30000.
(iii) Provision for bad doubtful debts was found in excess by Rs. 200.
(iv) A liability of Rs. 600 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 to
the firm.
(vi) Excess or shortfall if any to be transferred to current accounts.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the new
firm.
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Answers and Solutions of Chapter- 3 Reconstitution of a Partnership Firm- Admission of a
Partner
Q. No. Answers and Solution
1 Whenever there is a change in the existing agreement, it amounts to reconstitution of the partnership
firm.
2. Reconstitution of a firm always leads to change in the existing profit sharing ratio.
3. (i) Right of sharing future profits of the firm.
(ii) Right of sharing assets of the firm.
4. Goodwill is the value of the reputation of a firm in respect of profits expected in future over and above
the normal profits earned by other firms in the same business.
5. Determinants of Goodwill are Favourable location, Efficiency of management, Nature of Business and
Market situation.
`6. (i) Calculation of AAP:-
(200000-25000) + (250000-50000) + (225000-25000)
3 = 675000/3 = 225000
(ii) Goodwill = AAP X No. of year’s purchase = 225000 X 2 = 450000
7. (i) New PSR 29 : 11 : 30 (ii) Sacrificing Ratios are 2 : 1
8. (i) AAP = 35000-2500 = 32500
(ii) Normal Profit = Capital X NRR = 275000 X 10% = 27500
(iii) Super Profit = AAP – Normal Profit = 32500 – 27500 = 5000
(iv) Goodwill = Super Profit X No of Years’ purchase
= 5000 X 4 = 20000
9. (i) Dr. Bank 80000, Cr.Chetan’s Capital 30000 , Cr. premium for goodwill 10000
(ii) Dr. premium for goodwill 10000, Cr. Arjun’s capital 5000 , Cr. Bheem’s Capital 5000.
(iii) Dr. Arjun’s Capital 3600, Dr. Bheem’s Capital 2400, Cr. Goodwill 6000.
10. (i) Dr. Cash a/c 52000 , Cr. R’s capital 52000.
(ii) Dr. R’s Capital a/c 60000; Cr. A’s Capital a/c and B’s Capital a/c by Rs. 30000 each.
11. (i) Dr. General Reserve 8000; Cr. A’s Capital a/c 5000 ; Cr. B’s Capital a/c 3000
(ii) Dr. A’s capital 7500; Dr. B’s capital 4500; Cr. P&L a/c 12000.
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12. (i) Profit on revaluation = Nil
(ii) For Cash Goodwill :- Dr. Cash, Cr. Premium a/c 3000;
(iii) Dr. Premium 3000; Cr. X’s Capital 600, Cr. Y’s Capital 900, Z’s Capital 1500
(iv) For existing Goodwill w/off: - Dr. X’s Capital a/c 2000 , Dr. Y’s Capital a/c 3000 ,
Dr. Z’s Capital a/c 5000; Cr. Goodwill a/c 10000.
(v)Balances of capital a/cs :- X18000,Y22000,Z26000,A44000
(vi) Cash Balance 56000 (vii) Balance sheet total 153950.
13. (i) Profit on revaluation : 8300 (X 6225+Y 2075)
(ii) Dr. Z’s Capital 3000; Cr. X’s capital 2250 , Cr. Y’s capital 750
(iii) Balances of adjusted Capital A/cs : X 37225,Y 44075,Z 30000
(iv) Balances of rearranged capitals : X 67500 ,Y 22500 , Z 30000
(v) Balances of current a/cs : Z 30275(Dr.) ,Y 21575 (Cr.),Z 6000 (Dr.)
(vi) Cash Balance 35000 (vii) Balance Sheet total 175975
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Chapter- 3 Reconstitution of a Partnership Firm- Retirtement of a Partner
Salient features :-
(1) An existing partner may wish to withdraw from a firm for various reasons.
(2) The amount due to a retiring partner will be the total of :-
(a) his capital in the firm
(b) his share in firm’s accumulated profits and losses.
(c) his share of profit or loss on revaluation assets and liabilities.
(d) his share of profits till the date of retirement.
(e) his remuneration and interest on capital.
(f) his share in firm’s goodwill.
(3) The ratio in which the continuing(remaining) partners have acquired the share from the outgoing partner
is called as gaining ratio.
(4) Share of Goodwill of outgoing partner will be debited to gaining partners in their gaining ratio.
(8) At the retirement of a partner Profit & Loss on Revaluation of Assets and Liabilities and Balances of
Accumulated Profits & Losses will be distributed among all partners (including outgoing partner) in their old
ratio.
(9) The outstanding balance of outgoing partner’s capital a/c may be settled by fully or partly payment and(or)
transferring into his loan account.
Q. No. Questions :- Marks
1. What is meant by Retirement of a Partner? 1
2. Give one effect of Retirement of a Partner. 1
3. Give 4 differences between Sacrificing Ratio and Gaining Ratio. 3/4
4. (1) A, B, C are partners in a business and divide profit and loss in the ratio 15: 9: 8 3/4
respectively. C retires. A & B decide to share profits in equal proportion. Calculate the
gaining ratio.
(2) X, Y, Z were partners sharing profits in the ratio of 5: 3: 2. Y retires , X & Z agree to share
future profits in 6 : 4. Calculate gain ratio.
5. Raman, Manan, Naman and Yaman are partners in a firm sharing profits in the ratio of 2 : 2 : 3/4
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1.. On Manan’s retirement the ngoodwill of the firm is valued at Rs. 45000. Raman, Naman
and Yaman decided to share future profits equally. Pass the necessary journal entry for the
treatment of goodwill.
6. Ritu ,Yogesh and Santosh were partners sharing profits in the ratio 1 : 2 : 3 .Their capital 3/4
balances at the retirement of Yogesh were Ritu 23000 , Yogesh 30000 and Santosh17000 .
Yogesh’s capital has to be fully paid in cash and the whole amount is brought in cash by Ritu
and Santosh to make their capital thereafter equal. Calculate amount brought in by Rith and
Santosh and the total capital of each partner thereafter.
7. The Balance Sheet of A, B, and C who are partners in a firm sharing profits in the ratio of 2 : 6/8
1 : 1 ,as on 31-12-2000 was as under :-
Creditors 10500 Buildings 50000
A’s Capital 40000 Machinery 25000
B ’s Capital 20000 Stock 9000
C ’s Capital 20000 Debtors 10000
General Reserve 10000 Less : Provision for bad
debts 500 9500
Cash at bank 7000
100500 100500
On that date B decided to retire from firm and was paid for his share in the
firm subject to the following :-
(i) Buildings to be appreciated by 20%

(ii) Provision for Bad debts to be increased to 15 % on Debtors.
(iii) Machinery to be depreciated by 20 %.
(iv) Goodwill of the firm is valued at Rs. 36000 and then retiring partner’s share is
adjusted through the Capital Account of remaining partners.
(v) The capital of the new firm is fixed at Rs. 60000.
Prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.
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8. The Balance Sheet of A, B, and C on 31-12-2009 was as follows :-
`Capital :- P & L Account 15000
A 40000 Land & Buildings 40000
B 40000 Plant & Machinery 28000
C 30000 Motor Car 27000
Creditors 25000 Debtors 24000
Cash 1000
135000 135000
A was retired on 31-12-2009 according to following terms :
(i) Land and Buildings to be appreciated by Rs. 10000.
(ii) Goodwill to be valued at Rs. 21000 .
(iii) Plant and Machinery to be reduced to Rs. 23000.

(iv) Provision for doubtful debtors to be created at 5 % on Debtors.
(v) Create a provision of Rs. 1400 for discount on creditors.
(vi) The sum payable to A be brought in by B and C in such a manner that their
capitals are in proportion to the profit sharing ratio.
Answers and solutions of Chapter- 4 Reconstitution of a Partnership Firm- Retirtement of a Partner

Q. No. Answers and Solutions :-
1. It means leaving the firm by a partner due to old age or change in residence or poor health or
misunderstanding with other partners or any other reason.
2. Since it is also a reconstitution of firm and reconstitution of a firm always leads to change in the
existing profit sharing ratio.
3. Differences between Sacrificing Ratio and Gaining Ratio are as follows :-
Basis Sacrificing Ratio Gaining Ratio
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(i) Effect Decreases old partner(s) share of Increase the remaining partner(s) share of
profit. profit.
Old Ratio – New Ratio New Ratio – Old Ratio

(ii) Formula
At the time of admission new At the time of retirement or death of a
(iii) When to partner. existing partner.
calculate
Share of goodwill of the new Share of goodwill of outgoing partner is paid
(iv) Purpose partner is divided between the old by the remaining partners in their gaining
partners in their sacrificing ratio. ratio.
4. (i) Gaining ratio 1 : 2 (ii) Gaining ratio 1 : 7
5. (i) Gaining ratio of Naman and Yaman is 1 : 1
(ii) Dr. Naman Rs. 7500 and Yaman Rs. 7500 ; Cr.Manan Rs. 15000
6. Total capital of new firm Rs. 70000, Capital of Ritu and Santosh Rs. 35000 each, Cash brought in by
Ritu Rs. 12000 and Santosh Rs. 18000.
7. Profit on Revaluation Rs. 4000; Goodwill : Dr A 6000 and C 3000 ; Cr B 9000; Payment of B’s Capital
Rs. 32500, Balances of capital before adjustment : A Rs.41000 and C Rs.20500; Balances of capital
after rearranged : A Rs. 40000 ,C Rs. 20000, Bank Overdraft Rs. 27000,
Total of new Balance Sheet Rs. 97500.
8. Profit on revaluation Rs. 4500 being partner’s share Rs. 1500 each; For goodwill ; Dr. B & C 3500 each
and Cr. A Rs. 7000; Gaining ratio 1 : 1 ; Capital after adjustment A Rs.43500,B Rs.33000 and C Rs.
23000, Capital rearranged B & C 49750 each; Cash brought by B Rs. 16750 and C Rs. 26750; Cash paid
to A 43500; Cash Balance Rs. 1000; Balance sheet total Rs. 123800.
Page 16 of 75
Chapter-5 – Reconstitution of partnership-Death of a Partner
Salient Features:-
1. The accounting treatment in the case of death of a partner is same of that of the retirement of partner.
2. The term used for the partner who is dead is ‘Deceased Partner.’
3. The amount due to the deceased partner is transferred to Deceased Partner’s Executors Account.
4. Executor is legal representative of the deceased partner.
Calculation of important items.
1. Interest on Capital:- Amount of Capital (Bal b/d) X Rate/100 X Month/12.

2. Goodwill :- Firm’s Goodwill X Deceased Partner’s Share. This amount is adjusted in the remaining partners capital
account in the gaining ratio.
3. Profit & Loss Suspense Account. :- Here the amount is calculated either on the basis of the previous years profit
or on the basis of sales.
Amount of profit X Month/12 X Deceased partners share.
Questions (6marks)
Q.No Question Marks
1 A, B and C were partners in a firm sharing profits in the ratio of 5:3:2. On 6

31-03-09 their Balance Sheet was as follows:
Liabilities Rs Assets Rs.
General Reserve 12000 Machinery 60000
A’ Capital 60000 Stock 20000
B’s Capital 50000 Patents 22000
C’s Capital 30000 Debtors 16000
Cash 16000
174000 174000
Page 17 of 75
A died on 01-10-09. It was agreed between his executors and the
remaining partners that:
i) Goodwill to be valued at 2.5 years purchase of the average profits of the

previous four years, which were 2006- Rs.26000; 2007- Rs. 24000; 2008-
Rs. 40000; 2009- Rs. 30000.
ii) Patents to be valued at Rs. 16000; Machinery at RS.56000; and

buildings at Rs.50000.
iii) Profit for the year 2009-10 be taken as having accrued at the same rate
as that of the previous year.
iv) Interest on capital be provided at 10% p.a.
v) Half of the amount due to A to be paid immediately to the executor and

the balance transferred to his executor’s loan account.
Prepare A’s Capital account and A’s Executor’s Account as on 01-10-

09.
2 On 31-12-2009, the balance sheet of X, Y and Z who were partners in a 6

firm was as follows:
Sundry Creditors 25000 Building 26000
General Reserve 20000 Investment 15000
X’s Capital 15000 Debtors 15000
Y’s Capital 10000 Bills Receivable 6000
Z’s Capital 10000 Stock 12000
Cash 6000
80000 80000
Page 18 of 75
The partnership deed provides that the profits be shared in the ratio of
2:1:1 and that in the event of death of the partner, his executors will be
entitled to be paid out:
i) The capital to his credit at the date of last Balance

Sheet.
ii) His proportion of reserve at the date of last balance
sheet.
iii) His proportion of profits to the date of death on the
average profits of the last three completed years, plus
10% and
iv) By way of goodwill, his proportion of the total profits
for the the three preceeding years.
v) The net profit for the last three years was:
2007- Rs.16000
2008- Rs.16000
2009- Rs.15400.
Z died on 01-04-10. He had withdrawn Rs. 5000 to the date of death. The
investments were sold at par and Z’s executors were paid off.
Prepare Z’s Capital Account and Z’s Executor’s Account.
Answers.
Q. No. Answers Marks
1 Goodwill- Rs. 37500; Profit & Loss Suspense A/C- Rs. 7500; General Reserve- 6
Rs.6000; Interest on Capital- Rs.3000. Amount due to A’s Executor- Rs.
114000. Half amount to be paid i.e. Rs. 57000. Balance Rs. 57000 transferred
to A’s Executors Loan Account.
2 Goodwill- X-Rs.7900; Y- Rs.3950 Z- Rs.11850; Payment to Z’s Executors Rs. 6

22936.
Points to be remembered
1. Read the question carefully. In majority of the questions only deceased partners capital is to be prepared , not all
the partners capital accounts.
2. Interest on capital is to be calculated on the opening capital i.e. the amount of capital given in the balance sheet.
3. Interest on capital is calculated for a particular period i.e. from the date of last balance sheet to the date of
death.
4. Multiplying with particular month/days is not required in the case of goodwill.
5. If amount is paid to the deceased partners executor, the amount is transferred to the executors account and then
to be paid.
Page 19 of 75
Chapter-6 Dissolution of partnership
Salient Features:-
1. Dissolution of partnership firm means complete closure of the business.

2. Dissolution of partnership firm is different from dissolution of partnership.
3. Reasons of dissolution of firm may be either voluntary dissolution, compulsory dissolution and by the
intervention of the court.
4. The accounts prepared in case of dissolution of firm are Realisation A/C. Partners Capital Accounts and Cash A/C.
5. Goodwill given in the Balance Sheet is treated just like any other asset.
6. Loan taken from partner is transferred to cash account where as loan from partner’s wife is written in Realisation
A/C, since it is outsiders liability.
7. Unrecorded asset is written directly in the credit side of the Realisation A/C if the amount is realized and
unrecorded liability is written in the debit side of the Realisation A/C if it is paid.
Important Questions
Q.No Questions Marks
1 Define dissolution of partnership firm 1
2 State any two differences between dissolution of partnership and dissolution 1

of partnership firm.
3 What is the accounting treatment if firm pays dissolution expenses on behalf 1

of partner?
4 What is the treatment of goodwill if it is given in the balance sheet? 1
5 State the provisions of private debt and firm debt in the case of dissolution of 1
firm.
6 State any two cases where court orders the dissolution of firm. 1
7 State the provisions of section 48 regarding settlement of accounts 3
8 Journalise the following transactions assuming that the assets (except cash) 4
and outside liabilities are transferred to Realisation account:-
i ) X, a partner agrees to pay the loan taken from his wife Rs. 5000.
ii ) Unrecorded typewriter realized Rs. 8000.
iii ) Y, a partner agrees to take over investment at Rs. 6000.
iv ) Realisation expenses paid by partner privately.
9 Pass journal entries assuming that the assets (except cash ) and outsiders 6
liability is transferred to Realisation A/C:-
a ) Realisation expenses amounted to Rs. 2000.
b ) Deferred revenue advertising expenditure appeared in the books at Rs.

30000.
Page 20 of 75
c ) Debtors Rs. 10000 were taken over by Ajit, a partner for Rs. 8000.
d ) Loan taken from Sujit, a partner Rs. 5000 were paid.
e ) Liabilities amounting to Rs. 18000 already transferred to Realisation

account, were settled at RS. 16000.
f ) Profit on Realisation Rs. 12000 transferred to partners (Ajit and Sujit ) in the
profit sharing ratio 2:1.
10 The partnership between A and B was dissolved on 31-03-10. Their capitals on 4

that date wewre Rs. 170000 and Rs. 30000 respectively. Rs.100000 was owed
by the firm to A and B owed to the firm Rs. 20000. Creditors on that date were
Rs. 200000. The assets realized Rs. 450000 exclusive of hwat was owed by B.
Find the profit or loss on realization.
11 The following is the balance sheet of Pand Q as on 31-03-10 6
Creditors 76000 Cash at bank 23000
Mrs. P’s loan 20000 Stock 12000
Mrs. Q’s loan 20000 Debtors 38000
General Reserve 20000 Furniture 8000
P’ Capital 20000 Plant & Machinery 56000
Q’s Capital 16000 Investment 20000
Profit & Loss A/C 15000
172000 172000
The firm was dissolved on 31-03-10 on the following terms:-
i ) P agreed to take investments at Rs. 16000 and to pay off Mrs. P’s loan.
ii ) Other assets were realized as follows:- Stock Rs. 10000, Debtors RS.
37000, Furniture Rs. 9000 Plant & Machinery Rs. 50000.
iii ) Expenses on realization amounted to Rs. 3200.
iv ) Creditors agreed to accept Rs. 74000.
The profits and losses were shared in the ratio of 3:2. Prepare Realisation
account , Partners Capital Accounts and Bank Account.
Page 21 of 75
ANSWERS
Q. Answer Marks
NO
1 According to Partnership Act dissolution of firm means dissolution of 1

partnership between all the partners in the firm. When the complete business
of the firm is closed down due to any reason, it is called dissolution of
partnership firm.
2 Differences:- 1. Dissolution of partnership means to change in the existing 1

agreement between the partnership where as dissolution of firm means the
dissolution of partnership between all partners of the firm.
2. In dissolution of partnership business of the firm is continued and in

dissolution of firm the business is closed down.
3 Partners Capital account is debited and cash/bank account is credited. 1
4 Goodwill is treated just like any another asset and is written in the debit side of 1
the Reaslisation account and whatever amount is realized , it is written in the
credit side of Realisation account .
5 Firms property is first utilized for paying firms debt and then can be utilised for 1
paying private debt and private property is utilised to pay private debt first and
if balance is there is utilized for paying firm’s debt. It is to be noted private
property do not include the property of wife and children. ( Section 49 )
6 a ) When a partner becomes insane. 1
b ) When a partner becomes permanently incapable of performing his duties as

a partner.
7 Section 48:- 3
a ) Treatment of losses:-
Losses, including deficiencies of capital, shall be paid:
i ) first out of profits,
ii ) next out of capital of partners and
iii ) lastly, if necessary, by the partners individually in their profit sharing ratio.
b ) Application of assets:-
The assets of the firm, including any sum contributed by the partners to make
up deficiencies of capital, shall be applied in the following manner and order:
i ) in paying the debts of the firm to the third parties.
ii ) in paying the partners loan.
iii ) in paying the partners capital.
Page 22 of 75
iv ) the balance, if any, shall be divided among the partners in their profit
sharing ratio.
8 i) Realisation a/c Dr. 5000 4

To X’s capital a/c 5000
ii) Cash a/c Dr. 8000

To Realisation a/c 8000
iii) Y’s capital a/c 6000

iv) No entry since it is paid privately
9 i) Realisation a/c Dr. 2000 6

To Cash a/c 2000
ii) Partners Capital a/c Dr 30000

To Deferred Revenue Exp. 30000
iii) Ajit’s Capital a/c Dr. 8000

iv) Sujit’s Loan a/c Dr. 5000

To Cash a/c 5000
v) Realisation a/c Dr. 16000

To Cash a/c 16000
vi) Realisation a/c Dr. 12000
To Ajit’s Capital 8000
To Sujit’s Capital 4000
10 Sundry assets Rs. 480000, Loss on realization Rs. 30000. In the absence of 4
information, profit will be shared equally.
11 Realisation loss- Rs. 13200(P- Rs. 7920, Q- Rs.5280), Capital account- P Rs.19080 6
Q- Rs. 12720, Cash account- Rs. 129000.
Points to remember
1. Make sure that all accounts are closed. No account should remain opened.
2. If nothing is mentioned about payment of liabilities, it is assumed that the amount is fully paid.
3. If nothing is mentioned about realization of assets, it is assumed that nothing is realized.
4. As stated in salient features, goodwill shown in balance sheet is treated like any other asset.
5. In the case of unrecorded assets and unrecorded liabilities, only the amount realized and paid is written in the
Realisation account.
Page 23 of 75
Chapter 7 Accounting for Share Capital (3Marks Questions)
1. 3000 shares of Rs.10 each of vishal Ltd. Were forfeited by crediting Rs. 5,000 to share forfeited account.
Out of these, 1800 shars were reissued to Radhey for Rs. 9 per share. Give Journal entries for forfeiture and
reissue of forfeited shares on the books of Vishal ltd.
2. Satyam Ltd. Invited applications for 11,000 shares of Rs 10 each issued at 20% premium, payable as:
On application Rs.3(including Re. 1 premium)
On allotment Rs. 4 (including Re. 1 Premium)
On Ist call Rs.3
On Iind & Final call Rs.2
Application received for 24,000shares
Category I:
One-fourth of the shares applied for allotted 2000shares.
Category II:
3/4th the shares applied for allotted 9000 shares.
Remaining applications were received. Mr.Mohan holding 300 shares out of category II failed to pay
allotment and two calls and his shares were forfeited. Later on 200 shares were reissued @ Rs. 11 fully paid
up. Pass journal entries for feature and reissue of shares.
3. Mr. Akash who was the holder of 200 equity shares of Rs. 100 each at a discount of 10% on which Rs.
75Per share has been called up did not pay his dues on allotement Rs. 15 per share and first call Rs. 25 per
share. The directors forfeited the above shares and reissued 150 of such shares to Mr. Shyam at Rs. 65 per
share paid-up as Rs. 75 per share. Give journal entries for feiture and reissue of forfeited shares in the
books of company.
6Marks Question)
4. RIL Co. Ltd., with an authorized capital of Rs. 2,00,000 divided onto 20,000 equity shares of Rs. 10 each,
issued the entire shaes payble as follows:
Rs. 5 on application (including premium)
Rs.4 on allotment
Rs.3 on call
All shaes money is received in full with the exception of the allotment money on 200 shares and the call
money on 500 shares (including 200 shares on which allotment money had not been paid).
The above 500 shares are duly forfeited and 400 of these (including the 200 shares on which allotment
money had not been paid) are issued at Rs. 7 per share payable by the purchaser.
Make the necessary journal entries.
5. Wipro Ltd. Issued 25,000 equoty shares of Rs. 100 each at a premium of Rs. 15 each at Rs. 25 on
application, Rs 40 on allotement and balance on the first call. The applications were received for 75,000
equity shares but the company issued to them only 25,000 shares. Excess money was refunded to them after
adjustment for further calls. Last call on 500 shares was not received and these were forfeited after notice.
The se shares were reissued to Deepu @Rs.90 per share fully paid up. Give journal entries for feature and
reissue of forefeited shares.
(3Marks Questions)
6. What is meant by called up capital ?
7. Distinguish between Calls-in-Arrears and Calls-in-Advance.
8. Adlabs Pvt.Ltd., purchased Building for Rs. 2,00,000 and Machinery Rs. 1,50,000 from Hero Ltd. The
purchase price was paid up by alltement of equity shares of Rs. 100 each for Rs. 2,80,000 at par and
balance was paid in cash.
9. What is meant by minimum subscription ?
10. Nitin Ltd. Purchase assets of Rs. 6,30,000 from kumar Ltd. Nitin 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% ?
Page 24 of 75
Answers
1.
Date Pariculars L.F Dr. (Rs) Cr.(Rs.)
Equity Share Capital A/c (3,000Rs.10) 30,000
Dr. 5,000
To Share Forfeited A/c 25,000
To Calls-in-Arrear
(For 3,000 shares forfeited)
Bank A/c (1,800Rs.9)
Dr. 16,200
Share Forfeited A/c (1,800Rs.1) 1,800
Dr.
To Equity Share Capital A/c 18,000
(For reissue of 1,800 forfeited shares)
Share Forfeiture A/c
Dr. 1,200
To Capital Reserve A/c
(For profit on reissue of forfeited shares transferred to capital
1,200
reserve)
2.
Equity Share Capital A/c (3,00Rs.10) Dr. 3,000
Security Premium A/c(3001) Dr. 300
To Share Forfeited A/c 900
To Equity share allotment A/c 900
To Equity share Ist Call A/c (3003) 900
To Equity Share Iind & Final Call A/c(3002) 600
(For Mohan’s share forfeited om non-payment of allotment and
call money)
Bank A/c(20011) Dr.
To Equity Share Capital A/c (20010)
To Securities Premium A/c (2001) 2,200
(For 200 shares reissued @ 11 fully paid up)
Share Forfeiture A/c Dr. 2,000
To Capital Reserve A/c 200
(For balance of share forfeiture account transferred to capital
reserve)
600
600
3.
Equity Share Capital (20075) Dr 15,000
To Discount on Issue of Share A/c (20010) 2,000
Page 25 of 75
To Equity Share Allotment A/c (20015) 3,000
To To Equity Share First Call A/c(20025) 5,000
To Share Forfeiture A/c (Bal.Fig) 5,000
(for 200 shares forfeited)
Bank A/c (15065) Dr.
Discount on Issue of shares A/c (15010) Dr.
9,750
To Equity Share Capital A/c (15075)
(For reissue of 150 forfeited shares) 1,500
Share Fore feiture A/c

Dr. 11,250
(For profit on reissue of forfeited shares transferred to capital
reserve) 3,750
3,750
Working Note:
Profit on 200 forfeited shares=5,000
Profit on 150 forfeited shares=5,000150
------------- =3,750
200
Less: Loss on reissue forfeited shares = Nil
----------
Amount transferred to capital reserve 3,750
4. Working Note:
(i) Rs. 2,700,(200 shares @ Rs.3 per share+ 300 shares @Rs. 7 per share.
(ii) Calculation of profit on 400 reissued shares: Rs.
Profit on 200 shares @ Rs. 3 per share (Amount received so far) 600
Profit on 200 shares @ Rs. 7 per share (Amount received so far) 1400
------
2,000
Less:Loss on reissue of 400 forfeited shares @ Rs. 3 per share (1200)
--------
Amount transferred to Capital Reserve 800
--------
Page 26 of 75
5. .Working Note:
Calculation of amount received on first call:
Rs.
Share first call money due on 25,000 @ Rs. 50 per share 12,50,000
Less: Call-in-advance out of application money (2,50,000)
------------
Net amount due for 25,000 shares 10,00,000
Less: Proportionate call money not received on 500 shares
10,00,000500
------------------
(20,000)
25,000 ------------
9,80,000
6. Called up capital means the portion of the subscribed capital which the shareholders are called upon to pay. The
company may decide to call the entire amount or part of the face of the shares. The balance of subscribed capital
which has not been called up represents uncalled capital. It may be collected from shareholders later as and when
needed.
6. Difference between Calls-in-Arrears and Calls-in-Advance

Basis of Call-in-Arrears Call-in-Advance
Difference
Meaning It is the amount called up by the company but It is the amount not called up by the company,
not paid by the share holders. but paid by the shareholders.
Amount It is the amount due to the company from It is the amount due from the company to
due/from the shareholders. shareholders.
It shows a debit balance.
Balance of It shows a credit balance.
Account
8.
In the Books of Adlabs Pvt. Ltd.
Journal Entries
Building A/c Dr. 2,00,000

Machinery A/c Dr. 1,50,000
To Hero Ltd. 3,50,000
(For building and machinery purchased by Adlabs Ltd. From
Hero Ltd.)
Hero Ltd. Dr. 2,80,000
To Equity Share Capital A/c 2,80,000
(For Rs. 2,80,000 equity shares of Rs. 100 each issued at par)
Hero Ltd. Dr. 70,000
To Bank A/c 70,000
Page 27 of 75
(For balance amount paid in cash (3,50,000- 2,80,000)
9. Minimum subscription means the minimum amount which in the option of directors must be raised to
meet the needs of business operations of the company relating to:
(i) For the payment of purchase price of any property purchased or agreed to be purchased,
(ii) For the payment of preliminary expenses including underwriting commission and brokerage with the issue
of sahares.
(iii) For the repayment of any money borrowed by the company for the above two matters,
(iv) For working capital,and
(v) For any other expenditure realized for the usual conduct of business operations.
Minimum subscription is 90% of the issued amount. If this condition is not satisfied, the company
shallforth will refund the entire subscription amount received. If a delay occurs beyond 8 days from the
date the company becomes liable to repay the amount, the company shall be liable to pay the amount
with interest @ 15% per annum for the dealy period.
10. In the Books of NITIN Ltd.
Journal Entries
Asset A/c Dr. 6,30,000

To Kumar Ltd. 6,30,000
(For Asset purchased by NITIN Ltd. From Kumar Ltd.)
Issued At Par:
Kumar Ltd 6,30,000
(For 63,000 equity shares of Rs. 100 each issued at par)
Issued At Discount: 6,30,000
Kumar Ltd Dr. 70,000
Discount A/c Dr.
(For 7,000 equity shares issued at 10% discount)
----------------------------------------------------------------------------
- 6,30,000
Issued At Premium
Kumar Ltd Dr. 1,05,000
To Security Premium A/c 5,25,000
To Equity Share Capital A/c
(For 5250 equity shares issued at 20% premium)
Page 28 of 75
Important Note:
1. When shares are issued at premium, the company trats it like a profit. So, this premium is credited to
“Securities Premium A/c” because as per the nominal a/c, all profits and gains are credited.
2. Use of securities Premium money (Sec 78): When a share is issued at a price which is above its face
value, it is said to have been issued at a premium. For example, if a share having a face value of Rs. 10 is issued for
Rs. 15 then Rs. 5 is the premium on the share. Share premium is treated as capital receipt. The securities premium
may be utilized or applied for the following purpose:
(a) For issuing fully paid bonus shares to the members of the company
(b) For writing off preliminary expenses of the company.
(c) For writing off expenses or the commission paid or discount allowed on any issue of securities or debentures of
the company.
(d) In providing for the payment of premium payable on redemption of any preference shares or of any debentures
of the company.
(e) For buying back its own shares (Section 77A).
3. Premium can be received either along with application, allotment, or call. If question is silent, it is assumed that
premium has been called along with allotment.
4. Discount is always allowed on allotment.
5. Forfeiture of Shares:
Calculation of amount of Capital Reserve
(i) When all the forfeited shares are reissued, the amount of Capital Reserve is taken as the difference of Shares
forfeited
(ii) When a part of the forfeited shares are reissued, following formula is used to calculate the amount of Capital
Reserve:
Total amount forfeited  No of shares reissued Less: Discount on reissue of shares debited to Share Forfeited
Account
-----------------------------------------------------------------------------------------------------
Total no. of shares forfeited
Page 29 of 75
Chapter-8 Issue and redemption of deberntures
QUEATION QUESTION MARKS

NO
1 Write any two difference between a debenture holder and equity shareholder. 1
2 Why is premium on the issue of debentures considered a capital profit ? 1
3 Give the meaning of debenture. 1
4 What is meant by convertible debentures ? 1
5 What is the nature of interest on debentures ? 1
6 Raghav Limited purchased a running business from Krishna Traders for a sum of 3
Rs. 15,00,000 payable Rs. 3,00,000 by cheque and for the balance issued 9%
Debentures of Rs. 100 each at par.
The assets and liabilities consisted of the following:
Plant and Machinery 4,00,000
Building 6,00,000
Stock 5,00,000
Debtors 3,00,000
Creditors 2,00,000
Record necessary journal entries in the books of Raghav Limited.
8 Animesh Ltd. issued 1,000, 12% Debenture of Rs. 100 each in the following manner: 4
(i) For cash at par Rs. 50,000 nominal
(ii) For creditors of Rs. 45,000 against purchase og Machinery
Rs. 35,000 nominal
(iii) To SBI bank against a loan of Rs. 10,000 as
Collateral security Rs. 15,000 nominal
9 Dipesh Ltd. redeemed its 8,000, 11% Debentures of Rs. 100 each in the following 4
manner:
(i) 4,000 debentures were purchased @ Rs. 95
Page 30 of 75
(ii) 3,000 debentures were purchased @ Rs.93
(iii) 1,000 debentures were purchased @ Rs. 97.50.
The expenses on purchase of own debentures amounted to Rs. 200
The debentures were purchased for immediate cancellation. Pass journal
entries.
10. Delux Ltd. purchased machinery worth Rs. 1,00,000 from Apex Ltd. on 1.1.2009 Rs. 4
25,000 were paid immediately and the balance was paid by issue of Rs. 75,000, 12%
Debentures in Delux Ltd. Pass the necessary journal entries for recording the
transactions in the books of Delux ltd.
11. You are required to set out the journal entries relating to the issue of the debentures in 4
the books of ABC Ltd. and show how they would appear in its balance sheet under the
following cases:
(a) 80, 9% debentures of Rs. 1000 each are issued at 5% premium.
Another 400, 8% debentures of Rs. 100 each are issued as collateral security against a
loan of Rs. 40,000
12 Give the necessary journal entries at time of redemption of debentures in each of the 4
following cases:
(i) X ltd. issued 500, 9% debentures of Rs. 100 each at par and redeemable at
par at the end of 5 years out of capital.
(ii) X Ltd. issued 1,000, 12% debentures of rs. 100 each at par. These
debentures are redeemable at 10% premium at the end of 4 years.
(iii) X Ltd. issued 12% debentures of the total Face value of Rs. 1,00,000 at
premium of 5% to be redeemed at par at the end of 4 years.
(b)
Answers
1 (i) Shareholders are the owners of the company whereas debenture holders 1
are just the creditors of the company
(ii) In case of liquidation after the payment of all liabilities surplus, if any, is paid
to shareholders whereas in that case, surplus is not paid to debenture
holders.
2 Premium on the issue of debentures is considered a capital profit because it is not an 1

income arising from the normal course of business operations.
3 According to Section 2 912) 0f Indian Companies Act, 1956, “Debenture includes 1

debenture stock, bonds and any other securities of a company whether constituting a
Page 31 of 75
charge on the assets of the company or not.”
4 Convertible debentures are those, the holders of which are given an option to 1
exchanging the amount of their debentures with equity shares or other securities after a
specified period.
5 Interest on debentures is a charge against profits. 1
6 Journal of Raghav Limited 3
Dt. Particulars L.F. Dr.(Rs.) Cr.(Rs.)
Plant and Machinery A/c Dr. 4,00,000

Building A/c Dr. 6,00,000
Stock A/c Dr. 5,00,000
Debtors A/c Dr. 3,00,000
To Creditors A/c 2,00,000
To Krishna Traders 15,00,000
To Capital Reserve (Bal. Fig.) 1,00,000
(For assets and liabilities taken over from
vendor company)
Krishna Traders Dr. 3,00,000
To bank A/c 3,00,000
(For partly cash paid to vendor)
Krishna Traders Dr. 12,00,000
To 9% Debentures A/c 12,00,000
(For issue of 12,000 of Rs. 100 each at par)
7. Journal Entries 4
Dt. Particulars L.F Dr.(Rs.) Cr.(Rs.)
Page 32 of 75
Debenture Application A/c Dr. 50,000
To 12% Debentures A/c
50,000
9For 12% debentures issued at par)
Bank A/c Dr.
To Debenture Application A/c

50,000
(For application money received on 500 debentures
50,000
@ Rs. 100)
Machinery A/c Dr.
To Vendor A/c
45,000
(For machinery purchased)
45,000
Vendor A/c Dr.

45,000
To securities Premium A/c
35,000
(For debentures issued at premium)
10,000
Bank A/c Dr.
To Bank Loan A/c
(For loan borrowed)

10,000
Debenture Suspense A/c Dr.
10,000
(For debentures issued)

15,000
15,000
Page 33 of 75
9. Journal Entries 4
Page 34 of 75
P/L Appropriation A/c Dr. 4,00,000
To Debenture Redemption 4,00,000
Reserve
(For profit transferred to debenture redemption
reserve a/c)
own Debenture A/c Dr. 7,56,700
To Bank A/c 7,56,700
(For own debenture purchased)
11% Debentures A/c Dr. 8,00,000
To Own Debentures A/c 7,56,700
To Gain on Cancellation of Own 43,300
Debentures A/c
(For own debenture purchased)
Gain on Cancellation of own Debentures A/c 43,300
Dr.
43,300
(For gain on cancellation of own debentures
transferred to capital reserve)
Debenture Redemption Reserve A/c
4,00,000
Dr.
To General Reserve A/c
(For balance in debenture redemption reserve 4,00,000
account transferred to general reserve a/c)
10. In the books of Delux Ltd 4

Journal
Machinery A/c Dr. 1,00,000

To Apex Ltd. 1,00,000
(For machinery purchased on credit from Apex)
Apex Ltd. Dr.
To Bank A/c 25,000
(For cash paid to Apex Ltd.) 25,000
Apex Ltd. Dr.

To 12% Debentures A/c 75,000
75,000
Page 35 of 75
(For debentures issued at par)
11. In the Books of X Ltd. 4

Journal
12% Debentures A/c Dr. 40,000

Premium on Redemption of Debenture A/c
Dr. 2,000
To Debentureholder A/c 42,000
(For debentures issued at premium)
Debentureholders A/c Dr.
To Wquity Share Capital A/c 42,000
To Securities Premium A/c 35,000
(For 3,500 shares issued of Rs. 10 each at Rs. 2 7,000
premium)
12.(a) Books of Abc Ltd.

Journal
4
Bank A/c Dr. 84,000

To 9% Debenture App.A/c 84,000
(For debenture application money received)
9% Debenture Application A/c Dr
To Securities Premium A/c 80,000
(For issue of 80, 9% debentures of Rs. 1,000 4,000
each at 5% premium)
Balance Sheet of ABC Ltd.
Reserve & Surplus: Current Assets:

Page 36 of 75
Securities Premium
4,000 Cash at Bank 84,000
Secured Loans:
9% Debentures 80,000
84,000 84,000
12.(b) Journal 4
Bank A/c Dr. 40,000

To Bank Loan 40,000
(For loan taken from bank against collateral
security)
Debentures Suspense A/c Dr. 40,000
(For issue of 400, 8% debentures of Rs. 100 each
as collateral security against a
loan of Rs. 40,000)
Balance Sheet of ABC Ltd.
Secured Loans: Current Assets:

400 8% Debentures Rs. 100 Bank 40,000
40,000
Less:Debenture
Suspense A/c 40,000
---------
Nil
Bank Loan
40,000
40,000 40,000
13. Journal 4
(i) 9% Debentures A/c Dr. 50,000

To Debenture holders 50,000
9For amount due on redemption of debentures)
Debenture holders Dr.
Page 37 of 75
To Bank A/c 50,000
(For payment made to debentureholders) 50,000
12% Debentures A/c Dr.
(ii) Premium on Redemption of Debentures A/c
Dr. 1,00,000
To Debentureholders 10,000
(For amount due on redemption of debentures) 1,10,000
Debenture holders Dr.
To Bank A/c
1,10.000
1,10,000
(iii) 12% Debentures A/c Dr. 1,00,000

To Debenture holders 1,00,000
(For amount due on redemption of debentures)
Debenture holders A/c Dr.
To Bank A/c 1,00,000
(For payment made to debenture holders) 1,00,000
Chapter-9 Analysis of Financial Statements

Important Theory Questions:
1 What is meant by analysis of financial statements ? 1
2 Why is government interested in analyzing financial statements ? 1
3 Why are the creditors interested in analyzing financial statements ? 1
4 Why are the investors interested in analyzing financial statements ? 1
5 Why is the public interested in analyzing financial statements ? 1
Page 38 of 75
6 What are the importance of financial statements ? OR 3
What are the objectives of financial statements analysis ?
7 What are the limitations of analysis of financial statements ? 3
ANSWERS
1 The process of critical examination of the financial information contained in the financial statements 1
In order to understand and make decision regarding the operations of the firm is called ‘Financial
Analysis’.
2 Government can judge on the basis of analysis of financial statements which industry is progressing 1
on the desired lines and which industry needs help.
3. Creditors are interested to know the liquidity of the business whether the business is able to pay `1
their debts on maturity.
4. Investor are interested in analyzing of the financial statements to know the earning capacity of the 1
business and its prospect5s for future growth and prosperity.
5. The public is interested in analysis of financial statements from their own point of view such as 1
economist, trade associations, consume organizations.
6. (i) Debit Analysis: Financial statements analysis is done by the firm to know the borrowing 3
capacity of the firm which is based on the relationship of debt and equity, capacity to
repay and capacity to borrow further.
(ii) Security analysis: It is a process wherein the investor comes to know whether the firm is
fulfilling his expectations with regard to payment of dividend, capital appreciation and
security of mo
General business analysis: This analysis deals with identifying the key, profitable opportunities 3
and business risks in other to assets the profit potential of the firm. It helps in developing future
growth scenario for the firm.
7. (i) Ratios are calculated from financial statements which are affected by the financial bases 3
and policies adopted on such matters as depreciation and the valuation of stocks.
(ii) A ratio is a comparison of two figures, a numerator and a denominator. In comparing
ratios it may be difficult to determine, whether differences are due to changes in the
numerator or in the denominator or in both
(iii) Financial statements do not represent a complete picture of the business but merely a
collection of facts which can be expressed in monetary terms. These may not refer to
other factors which affect performance.
Page 39 of 75
Practical Question:
From the following data, prepare a statement of profit in comparative form:
Liabilities Year I Year II
Sales (Rs) 6,00,000 7,00,000

Gross Profit(Rs.) 36% 30%
Office & Administrative Expenses (Rs.) 1,40,000 1,45,000
Income Tax Rate 50% 50%
ANSWER:
particulars Ist Yr. IInd Yr. Absolute % Change

Increase/
Decrease
Rs. Rs. Rs. Rs.

Sales 6,00,000 7,00,000 1,00,000 16.67
Less: Cost of Goods Sold (Bal Fig.) (3,84,000) (4,90,000) 1,06,000 27.60
2,16,000 2,10,000 6,000 2.78

(1,40,000) (1,45,000) 5,000 3.57
Gross Profit
Less: Office & Administrative Expenses 76,000 65,000 11,000 14.47

(38,000) 32,500) 5,500 14.47
Net Profit before Tax

38,000 32,500 5,500 14.47
Less: Income Tax@ 50%
Net Profit after Tax
Note:
Formula of calculation of % Change:
Calculation % Change = Absolute Change  100
Chapter-10 Accounting Ratios
Page 40 of 75
Salient Features:
1. Ratios mean expression of relationship between two variables.
2. Accounting ratios mean using ratios for the purpose of analyzing the financial statements.
3. Accounting ratios cane be of four types:
a) Liquidity Ratios
b) Solvency Ratios
c) Activity Ratios
d) Profitability Ratios
4. Liquidity ratio is calculated to ascertain the short term solvency i.e. whether the firm is able to pay the short
term obligations.
5. Solvency ratio is calculated to ascertain the long term solvency. This means whether the firm is able to pay the
long term obligations.
6. Activity of turnover ratio is calculated to ascertain the efficiency of the organization.
7. Profitability ratio is calculated to ascertain the profit earning capacity of the organization.
Ratio Formula
Current Ratio Current Assets/Current Liabilities
Liquid Ratio Liquid Assets/Current Liabilities
Liquid assets= Current Assets-(stock+prepaid expenses)
Debt Equity Ratio Debt/Equity
Debt= Long term debt. Equity= Equity share capital+ Preference share
capital_ Retained earnings-Fictitious Assets.
Fictitious assets= Misc. expenditure, discount on issue of shares and

debentures, P & L a/c (debit balance).
Total Asset to Debt Total Assets/Debt
Proprietor’s Ratio Proprietor’s fund/Total Asset
Stock turnover ratio Cost of goods sold/Avg. stock
Debtors turnover ratio Credit sales/Average debtors
Working Capital Net sales/Working capital

turnover ratio
Gross Profit Ratio Gross ProfitX100 / Sales
Operating Ratio Operating Cost X100/Sales
Operating Cost= Cost of goods sold+ Operating expenses.
Return on investment Profit before interest and tax/Capital employed.
Capital employed= Share capital+ Long term loan+ Retained earnings-

fictitious assets.
Questions ------------
Page 41 of 75
Q. NO. Questions Marks
1 a) Current assets of a company are Rs. 250000, current 2+2=4

ratio= 2.5:1 and quick ratio= 1:1. Calculate the value
of current liabilities and stock.
b) Compute the gross profit from the following
information: Sales Rs.300000 and gross profit 25% on
cost.
2 From the following information, calculate: (i) Opening stock (ii) 4

Closing stock
Stock turnover 6 times
Gross profit was Rs. 80000 which was 20% of sales
Closing stock was Rs. 15000 more than the opening stock.
3 a) Stock turnover ratio is 6 times. Average stock is Rs.40000. 2+2=4

Calculate the amount of gross profit, if profit is 25% above
cost
b) Operating ratio 60% Office expenses to sales ratio is at 5%.
Calculate Gross Profit Ratio.
4 The current ratio is 2:1. Sate which of the following would improve, 4
reduce or not change the ratio:
a) Repayment of a current liability

b) Purchasing goods on credit
c) Payment of dividend
d) Sale of goods for Rs.12000 ( cost Rs.10000)
5 Calculate current assets from the following information: 4
a) Stock turnover ratio 4 times

b) Stock at the end is Rs. 20000 more than the stock in the
beginning.
c) Sales Rs. 3000000
d) Gross profit ratio 25%
e) Current liabilities Rs. 40000
f) Quick ratio 0.75
Answers
Q. No Answers Marks
1 a) Current ratio= Current Assets/Current liabilities. 2+2=4
Current assets= Rs. 250000 and current ratio is 2.5:1. Hence 2.5= RS.
250000 and 1= liabilities. Therefore , liabilities= 250000 X1/2.5 = Rs.
100000.
Page 42 of 75
Stock= Current assets- liquid assets/
Since liquid assets is equal to current liabilities (1:1) stock= Rs.250000-

Rs. 100000. Hence stock is Rs. 150000.
b) Gross profit= 300000X25/125. Since gross profit is calculated on cost ,

cosrt is taken as 100 and sales will be 100+25=125. Gross profit= Rs.
60000.
2 Cost of goods sold RS. 320000; Average stock Rs.53333; Opening stock 4
Rs. 45833; Closing stock Rs. 60833.
3 a) Stock turnover ratio= Cost of goods sold/ Average stock. 2+2=4

STR= 6; Avg. Stock Rs.40000.
Cost of goods sold = Rs. 240000.
Gross profit 25% on cost. Hence gross profit is 25% on 240000 i.e.
Rs. 60000.
b) Profit RS. 240000
4 a) Improve, since repayment of liability leads to improve in 4

current ratio.
b) Reduce
c) Improve
d) Improve
5 Current assets= Liquid assets+Stock= Rs. 30000+ Rs. 66250= 4
Rs.96250
Chapter – 11 : Cash Flow Statement

Page 43 of 75
Salient features :-
1. Cash Flow Statement is a statement which shows the inflow and outflow of cash & equivalent for a particular
period.
2. Cash flow statement is prepared according Accounting Standard-3.
3. Cash flown means increase (inflow) or decrease (outflow) of cash.
4. Cash flow may be classified into three parts.
(A) Cash flows from Operating Activities.
(B) Cash flows from Investing Activities.
(C) Cash flows from Financing Activities.
Questions :- Marks
Q.
No.
1. What is Cash Flow Statement? 1
2. What is meant by Cash Equivalent? 1
3. Give one need of preparing Cash Flow Statement 1
4. Which Accounting Standard is followed while preparing cash flow statement? 1
5. Give one limitation of cash flow statement? 1
6. In which type of activity of cash flow statement “interest and dividend received by a finance
company” is classified.
7. State whether the following items will result in Inflow, Outflow, or No flow of cash. 1
(1) Raising a long term loan from bank.

(2) Cash deposited into bank.
8. Following are the Balance Sheets of Royal Ltd. as on 31 st December-2004 and 2005. You are 6
required to prepare a Cash Flow Statement for the year ended 31-12-2005.
Liabilities 2005 Assets 2004 2005
Page 44 of 75
Equity Share Capital 15000 15000 Buildings 5550 5400
Profit & Loss A/c 1900 1950 Land 6000 5400
General Reserve 2600 2700 Inventories 4500 3510
Short term loan 180 120 Short Term Investments 1500 1650
Bills Payable 1200 810 Bills Receivables 3000 3330
Provision for Tax 2400 2700 Cash at Bank 990 2580
Provision for Bad debts Discount of issue of shares
60 90 1800 1500
23340 23370 23340 23370
Following additional information has also been supplied to you :
(i) Depreciation of Rs. 1050 has been charged on Building.

(ii) Dividend paid during the year Rs. 2250.
(iii) A part of land has been sold for Rs. 1200 at a profit of 100 %.
Answers and Solutions of Chapter 11 : Cash Flow Statement
Q. No. Questions :-
1. The statement which shows inflow and outflow of cash and equivalent during a financial year
is called cast flow statement.
2. It includes short-term or highly liquid investments that are readily convertible into known
amounts of cash.
3. It helps to know the liquidity and short term solvency of the business firm.
4. Accounting Standard-3 is followed.
5. It shows historical position of (only) short term financial position.
6. It will be classified under investing activity.
7. (i) Cash Inflow (ii) No flow of cash.
8. (i) Net cash flow from :- (a) Operating activities=Rs. 3690 (b) Investing
activities= Rs. 300 (c) Financing activities= Rs. 2250
Page 45 of 75
KENDRIYA VIDYALAYA SANGATHAN
MODEL QUESTION PAPER 1St
CLASS: XII MAX.MARKS – 80
TIME ALLOWED: 3 HOURS
GENERAL INSTRUCTIONS:-
1. This question paper contains three parts A, B & C.
2. Part-A is compulsory to all.
3. Part –B & C: - Attempt only one part.
4. All parts of a question should be attempted in one place.
{PART –A}
1. Not profit organization have some distinguishing features .State any one of them. [ 1M]
2. M and N are partners with a capital of Rs.50,000 + Rs.1,00,000 respectively .In the beginning of the year ,P was
admitted with a capital of Rs.2,00,000.At the end of the year the firm earned a profit of Rs.30,000.Show distribution of
profits if there is no express agressment regarding profit sharing ratio. - [1M]
3. Give the formula for calculating gaining ratio. [1M]
4. Vidya and Vivek are partners. Vinod is admitted for 1/4 th share. What is the ratio in which Vidya & Vivek will sacrifice
their share in favour of Vinod? [1M]
5. What is the nature of interest on debentures? [1M]
6. Show this information in the balance sheet of cosmos club as on 31 st march 2007. Particulars
Dr. Cr. Tournament Fund ---
Rs.1,50,000 Tournament fund investment Rs.1,50,000 ---
Income from fund investment --- Rs.18,000 Tournament
expenses Rs.12,000 --- Interest accrued on T.fund
investment --- Rs.6000 [3M]
7. Sheeba Ltd. has the following information appearing in the balance sheet. Particular
Amount Securities premium 25,00,000
10% Debentures 1,20,00,000 Underwriting
commission 10,00,000
The company decided to redeem its 9% debentures at a premium of 10%.You are required to suggest the ways in which
the company can utilize its share premium amount. [3M]
8. 20,000 shares of Rs.10 each were issued for public subscription at a premium of 10%.Full amount was payable on
application. Application were received for Rs.25,000 and the board decided to allotte shares on pro-rate basis. [3M]
9. X, Y & Z share profit in 3:2:1.After the final a/c’s are prepared, it was discovered that interest on drawing @ 5% P.A had
not been considered. The partner’s drawing were X-Rs.15,000; Y-Rs.12,600 Z-Rs.12,000.
Give the adjustment journal entry. [4M]
Page 46 of 75
10. P, Q & R share profit in 5:3:2. From 1st Jan, 2006 they decided to share P/L equally. Deed provides that in the event of
change in P/L ration, the goodwill should be valued at 3 years purchase of the average profits of 5 years were ;-
2001 – Rs.60,000 2004 –Rs.1,90,000 2002 – Rs.1,50,000
2005 –Rs.70,000 2003 – Rs.1,70,000
Give necessary journal entry to record the above. [4M]
11. Vikram Ltd. Decide to redeem Rs.50,000 , 10% debentures .It purchased Rs.40,000 debentures in the open market at
Rs.9750 each. The expenses being Rs.200 and redeemed the balance of Rs.10,000 debentures by draw of lots.
Journalise. [4M]
12. [A]Can India Ltd. Has outstanding Rs.1,00,000 , 10% debentures of Rs.200 each on April 2009.Directors have decide
to purchase 20% of own debentures for cancellation at Rs.190 each. Assuming there is sufficient balances in
Debenture Redemption Reserve, record entries.
[B] Manmohan Ltd. Purchased machinery worth Rs. 7,92,000 from Manas Ltd. The payment was made by issue of 9%
debentures of Rs.100 each. Pass necessary journal entries for the purchase of machinery and issue of debentures when:
{a} debentures are issued at par {b} debentures
are issued at 10% premium. [6M]
13. Following is the receipts of payments a/c of Radha Club for the year ended 31.3.2006 Receipts
Payments
To balance b/d 5000 By salary 9000
To subscription; By News paper 2000
2004-05 1500 By Rent 7000
2005-06 22,000 By Fixed deposit
2006-07 1000 {on 1.4.05 @12% p.a} 25000
To sale of old
Newspaper 1500 By Books 4000
To Govt. grant 20,000 By furniture 8000
To sale of old By balance c/d 4000
Furniture 6,000 --------------
To profit from 59,000
Entertainment 2,000 ----------------
-------------
59,000
--------------
Additional Information: [i]

Subscription outstanding as on 31.03.05 were Rs.2000 and on 31.03.06 were Rs.3,000/-. [ii] On 31.03.06
salary outstanding was Rs.4000/- and rent o/s was Rs.1000/- [iii]On 1.4.05 the club owned
furniture worth Rs.20,000 and Books Rs.18,000/- Prepare income & expenditure A/c of the club for
the year end 31.03.2006 & ascertain the capital fund as on 31.03.05. [6M]
Page 47 of 75
14. A & B were partners in a firm sharing profits in 3:1.They admitted C as a partner for 1/4 th share in the profits .C was to
bring Rs.60,000 for his capital. The B/S of A & B on 1.4.2007,the date on which C was as follows:-
Balance Sheet
Liabilities Assets
Creditors 70,000 Land & building 40,000
Capital: A 50,000 Plant & Machinery 70,000
B: 80,000 Stock 30,000
General Reserve 10,000 Debtors 35000
Less: PFDD 1000 34,000
Investments 26,000
Cash 10,000
-------------- ---------------
2,10,000 2,10,000
The other terms agreed upon were: [i] Goodwill of

the firm was valued at Rs. 24000 [ii] Land & Buildings were
valued at Rs.65000 & Plant & Machinery at Rs.60,000. [iii] PFDD was found in excess by Rs.400.
[iv] A liability of Rs.1200 included in creditors was not likely to arise. [v] The capitals of
the partners be adjusted on the basis of C’s contribution of capital to the firm. [vi] Excess or shortfall if any
transferred to current A/c. Prepare revaluation A/c, Capital A/c, Balance
sheet of the firm.
[OR]
X,Y & Z share profits in 2:2:1. On 31.03.2004 their B/S was given. On 1.04.2004,X retired & the assets and liabilities were
revalued as under:- [i ]a. Stock was depreciated by 10%.
b.Furniture was depreciated by 20%. c.Plant &
Machinery depreciated by 5%. d.Building
appreciated by 20%. [ii]The goodwill of the
firm was valued at Rs.60,000/-.
Balance Sheet as on 31.03.2004
Liabilities Assets
Bills payable 98,000 Cash 30,000
S.creditors 1,02,000 B/R 9,000
P&L A/c 75,000 Debtors 21,000
Capital: X 80,000 Stock 40,000
Y 80,000 Furniture 80,000
Z 65,000 Plant & machinery 1,20,000
Building 2,00,000
--------------- ---------------
5,00,000 5,00,000
Page 48 of 75
X was to be paid Rs.19600 in cash on retirement & the balance in three equal installments. Prepare revaluation A/c,
Capital A/c & Balance Sheet as on 1.04.2004. [8M]
15. A & B share profits in 3:2.They decided to dissolve the firm assets & liabilities have been transferred to realization
A/c .Pass journal entries [a] Bank loan of Rs.12,000 is paid
off. [b] A was to bear all expenses for which he is
given a commission of Rs.400.
[c] Debtors realised Rs.10,000. [d]Stock worth

Rs.1600 was taken over by B at Rs.1200. [e]An unrecorded
computer realised Rs.7000. [f]There was an O/S bill for
repairs for Rs.2000, which was paid off. [6M]
16. M Ltd. Invited application for issuing 80,000 shares of Rs.10 each at a premium of Rs.4 per share. The amount was
payable as follows: - On application – Rs.5 per share.
On allotment –Rs.9 per share {including premium}
Application were received for 1,40,000 shares. Allotment made [i] to

application for 80,000 shares – 60,000 shares – Category – I [ii] to application
for 60,000 shares – 20,000 shares –Category --II Money overpaid was
adjusted to allotment. Raju belonging to Cat-I, who had applied for 1200 shares failed, to pay his dues & his shares were
forfeited. Pass journal entries.
[OR]
S Ltd.invited application for 40,000 equity shares of Rs.50 each issued at a premium of Rs.10 per share payable on
application & allotment –Rs.20 per share .Balance including premium on 1 st & final call. Applications were received for
70,000 shares. 20,000 shares were rejected & pro-rate allotment was made to remaining applicants. Calls were made &
money duly received except on 400 shares allotted to Nilesh & his shares were forfeited. Journalise.
[8M]
{PART – B}
17. Assuming that Debt-equity ratio is 1:2 state giving reason whether the ratio will improve , decline or not change in
case equity shares are issued for cash. [1M]
18. Mention the net amount of ‘source’ or ‘use’ of cash when a fixed asset [having book value of Rs.15000] is sold at a
loss of Rs.5,000. 1M]
19. In cash of low statement under which activity will the dividend paid by a trading co. come. 1M]
20.Show the major preadings into which the assets side of the B/S is organized as per schedule VI part I coyster.
[3M]
21. Prepare a common size income statement.
PARTICULARS 2006 2007

Net sales 1,00,000 1,00,000
cost of goods sold 70% of sales 74.8% of sales
Operating expenses 8,000 9,800
Income tax rate 50% 50%
22. A company stock turnover ratio is 5 times . Stock at the end is Rs.20,000 more than stock at the begin. Salaries
8,00,000 Rate of G/P on cost on cost 1/4 th.Currant liabilities Rs.2,40,000. Acid test ratio =0.75. [4M]
Page 49 of 75
23. B/S as on 31.12.2006 & 2007
Liabilities 2006 2007 Assets 2006 2007
Share capital 10,00,000 7,00,000 Plant & Machinery 8,00,000 5,00,000
P&L A/c 2,50,000 1,50,000 Stock 1,00,000 75,000
Proposed Dividend 50,000 40,000 Cash 4,00,000 3,15,000
--------------- ---------------- ----------------- ---------------
13,00,000 8,90,000 13,00,000 8,90,000
Additional Info:-
a]Rs.50,000 depreciation has been charged to plant during the year 2007.
b]A piece of machinery cost up Rs.12,000 {book value Rs.5,000} was sold at 60% profit on book value .
Prepare cash flow statement. [6M]
MARKING SCHEME
1. Service oriented. 1M for CA
2. Equal ratio 1M for CA
3. NR- OR = GR 1M for CA
4. Equally 1M for CA
5. Tax deductible 1M for CA
6. For showing the figures in B/S. - 3M for CA
7. Premium amount can be utilized for writing off UW commission & for writing off premium on redemption.
[3M for CA]
Page 50 of 75
8. Pro ratio can be 5:4. 1M for CA
Journal entries 2M for CA
9. Working 1M for CA
Adjusting entry 3M for CA
10. P= 5/10 {SACRIFICE} Q= --1/30 [GAIN] R= --4/30 [gain]
Q 108000
R 43200
TOP 54000
DR. Z 135 G.X 120 Y – 15 3 MARK For the entry.
1 MARK for gaining ratio.
11. Each journal entry 2 marks each. 2 * 2 =4
12.[a] Journal entries 3 * 1 = 3M
[b] Journal entries 3 * 1 = 3M
13. Opening b/s -- 2M
I&E A/c 4M 2+4=6
14. Partner admission --
Revaluation A/c 2M
CAPITAL A/c 3M
B/S 3M 3+3+2 =8
{OR}
Partnership retirement
Revaluation A/c 2M
Capital A/c 3M
B/s 3M 2+3+3 [TOTAL 8]
Page 51 of 75
15. Each journal entry - 1M EACH 6*1=6M [TOTAL 6]
16. Other entries 1M EACH 6*1=6M
Forfeiture entry 2m 1*2=2M [TOTAL 8]
17. DER- reduce 1M
18.10,000 1M
19. Financing 1M
20. 3 Mark the heading.
21.4 Mark for correct answer.
22. 4 Mark for correct answer.
23. 6 Mark for correct answer. Each activity 2M 3*2 MARK [TOTAL 6]
Page 52 of 75
MODEL QUESTION PAPER 2nd
ACCOUNTANCY – XII
Max.Maks : 80 Time allowed : 3 hrs.
General Instructions:
1. This question paper contains three parts A, B and C

2. Part A is compulsory for all
3. Attempt only one part of the remaining parts B and C
4. All parts of questions should be attempted at one place
PART A(Accounting for Not-For-Profit Organisations, Partnership Firms and Companies)
1) Name two main sources of income to a non-profit organization 1
2) List any two items that may appear on the credit side of a partner’s
Current account? 1
3) A and B share profit in the ratio of 8:7. C was admitted to the Partnership for 1/5 th share. Find out the new profit
sharing ratio. 1
4) Mention any two methods of valuation of goodwill. 1
5) What is meant by ‘Redeemable Debentures’ ? 1
6) On the basis of the following information, calculate the anount to be
debited to stationary account in the Income and Expenditure for the year
ended 31.3.2010:
Stock of stationary on 1.4.2009 3000
Creditors for stationary on 1.4.2009 2000
Amount paid for stationary during 2009-10 10800
Stock of stationary on 31.32010 500
Creditors for stationary on 31.3.2010 1300 3
Page 53 of 75
7) Shubh Ltd has the following balance appearing in its Balance Sheet
Securities premium 22,00,000
9% Debentures 1,20,00,000
Under writing Commission 10,00,000
The Company decided to redeem its 9% Debentures at a premium of 10%.
You are required to suggest the way in which the company can utilize the
Securities premium amount. 3
8) 20,000 shares of 10/- each were issued for public subscription at a
Premium of 10%. Full amount was payable on application. Applications
were received for 39000 shares and the Board decided to allot the shares
on a pro-rata basis. Pass journal entries. 3
9) X, Y and Z are partners sharing profits and losses in the ration 3:2:1.
After the preparation of financial accounts it was discovered that interest
on drawing @ 5% per annum had not been taken into consideration. The
drawings of the partners were X-15000, Y-12600 and Y- 12000. Give
necessary journal entries. 4
10) A, B and C are partners sharing profit and losses in the ratio of 5:3:2. From
1.1.2006, they decided to share profit and losses in equal proportion. The
Partnership deed provides that in the event of any change in the profit sharing
Ratio, the goodwill should be valued at 3 years purchase of five years profit.
The profit and losses of the preceding five years are:
2001- 60,000 2002- 1,50,000 2003 – 1,70,000 2004 – 1,90,000
2005 – 70,000( loss)
Give necessary journal entries to recor the above change 4
11) Mr. Lalu was the holder of 200 preference shares of 100/- each. On which
Page 54 of 75
75/- per share has been called up, could not pay his dues on allotment and
First call each at 25/- per share. The Directors forfeited the above shares
And reissued 150 of such shares to Mr. Sumit at 65/- per share. Give journal
Entries to record the forfeiture and reissue.
12) a) Kapil Ltd issued 10,000 12% Debentures of 100/- each at a premium of
10% payable in full on application by 1.3.2006. The issue was fully subscribed
And debentures were allotted on 9.3.2006. Pass necessary journal entries
(including cash transactions)
b) X Ltd decided to redeem Rs.25000, 12% Debentures it purchased Rs 20,000
Debentures in the open market at Rs.98.50 each; the expenses being 100/- and
Redeemed the balance of Rs.5000 debentures by draw of lots. Journalise. 3
13) The Royal Tennis Club presented the following Receipts and Payment Account for the year ended 31.3.2009
Dr. Cr.
Receipts Rs. Payments Rs
Cash at Bank(Opening) 10,200 Purchase of balls 4,000
Subscriptions 24,000 Creditors for refreshments 22,000
Sale of Refreshments 30,500 Marking and repairing of 3,800

Tennis courts
Court Hire 2,700
Construction of new court
Sale of balls 3,700 25,000
Sundry expenses
3,100
Cash at Bank
13,200
71,100 71,100
========= ========
He also provides the following additional information
1. The Club’s Tennis Courts were valued at Rs.100000/- on 1.4.2008.other information as

Particulars 1.4.2008 31.3.2009
Tennis Ball in hand ( at cost ) 400 900
Creditors for refreshment 4000 3000
Subscriptions outstanding 2000 3500
Page 55 of 75
Prepare the Income and Expenditure account for the year ended 31.3.2009 and Balance sheet as on that date
6
14. A, B and C were partners in a Firm sharing profits in proportion of their Capitals.
31.3.2006 their Balance sheet was as follows:
Balance Sheet as on 31.3.2006
Liabilities Amout Assets Amount
Reserve 12000 Machinery 60000
Capitals Stock 8000
A 40000 Debtors 12000
B 60000 Cash 8000
C 100000 200000 228000
228000 ========
========
B died on 30.6.2006. Under the partnership agreement the executors of the deceased partner were entitled to:
1.Amount standing to the credit of partner’s Capital A/c
2.Interest on Capital at 12% p a.
3.Share of Goodwill. The Goodwill of the Firm on B’s death was valued at Rs.240000.
4.Share of profit from the closing of last Financial Year to the date of death on the basis of last year’s profit. Profit
for the year ended 31.3.2006 was Rs.15000.
Prepare B’s Capital A/c to be rendered to his executors. 6
15. Bharat Ltd. invited applications for issuing 2 lakh equity shares of Rs.10 each.
The amount was payable as follows:
On application Rs.3 per share
On allotment Rs.5 per share
and on First and Final call Rs.2 per share
Page 56 of 75
Applications for 3 lakh share were received and pro-rata allotment was made to all the applicants. Bajaj, who was
allotted 3000 shares failed to pay the allotment and call money. His shares were forfeited. Out of the forfeited
shares 2500 shares were reissued as fully paid up @ Rs.8 per share. Pass the necessary journal entries to record
the above transaction. 8
OR
Prakash Engineering issued 40000 equity shares of Rs.10 each at a premium of
Rs.2 per share payable as
On application Rs.2 per share
On allotment Rs.5 per share (including premium )
On first call Rs.2 per share
On final call Rs.3 per share
Applications were received for 75000 equity shares. The shares were allotted pro-rata to the applicants of 60000
shares only. The remaining applications were
rejected. Money overpaid on application was utilized towards the sum due on allotment. Ashok to whom 3000
share were allotted failed to pay the allotment money and the two calls. Banith who applied for 3000 shares paid
the call money alongwith allotment money. Pass the journal entries to record the above transctions.
16. X and Y , who were sharing profits and losses in the ratio of 3:1 respectively, decided to dissolve the firm on
31.3.2010 on which date some of the balances were:
X’s Capital – Rs.100000, Y’s Capital Rs.10000(Debit Balance), Profit and Loss A/c-Rs.8000(Debit Balance), Trade
Creditors- Rs.30000, Loan from Mrs.X-Rs.10000, Cash in Bank – Rs.2000.
The Assets(other than cash in bank) realized Rs110000 and all Creditors were paid off less 5 % discount.
Realisation expenses amounted Rs.1000.
Prepare the Realisation Account, Bank Account and the Capital Accounts of the Partners assuming that both the
partners were solvent. 8
OR
A and B were partners in a Firm sharing profits in the ratio 3:2. They admitted C as a new partner for 1/6 th share in
the profits. C was to brings Rs.40000 as his capital and the Capitals of A and B were to be adjusted on the basis of
C’s Capital having regard to profit sharing ratio. The balance sheet of A and B as on 31.3.2006 was as follows:
Balance Sheet as on 31.3.2006 of A and B
Liabilities Amount Assets Amount
Page 57 of 75
Creditors 36000 Cash 10000
Bills payable 20000 Debtors 34000
General Reserve 24000 Stock 24000
Capital Machinery 42000
A 150000 Building 200000
B 80000 230000
310000 310000
The other terms of agreement on C’s admission were as follows:
1. C will bring Rs.12000 as his share of Goodwill.

2. Building will be valued at Rs.185000 and Machinery at Rs.40000
3. A provision of 6% will be credited on Debtors for Bad Debts.
4. Capital Accounts of A and B will be adjusted by opening current accounts
Prepare Revaluation Account, Partner’s Capital Account and the Balance Sheet of A, B, and C.
PART B
17. What will be the impact of cash collected from Debtors on quick ratio? 1
18. In a financial enterprise how interest paid should be classied while preparing cash flow statement? 1
19. How will you treat redemption of debentures while preparing cash flow statement as per AS3(Revised) 1
20 Show the major headings into which the Asset side of the company’s Balance sheet as per Schedule VI Part 1 of
Companies Act, 1956. 3
21. Prepare a comparative statement with the help of the following information 4
Particulars 1997 1998
Sales 100000 200000
Cost of Goods sold 60% of sales 70% of sales
Indirect expenses 10% of gross profit
Rate of income tax 50% of net profit before tax
22. A company’s stock turnover is five times. Stock at the end is Rs.20000 morethan that at the beginning. Sales are
Rs.8 lakh. Rate of gross profit on cost ¼. Current liability Rs.240000, Acid test ratio 0.75. Calculate current ratio.
4
23. From the following Balance Sheet of Mittal Ltd. as at 31 st December prepare cash
Page 58 of 75
flow statement for the year ended 31.12.2007.
Balance Sheets
Liabilities 2006 2007 Assets 2006 2007
Equity Share Capital 150000 200000 Fixed Assets 325000 325000
9% preference share 110000 50000 Investment 20000 45000

capital
Current Asset 50000 137500
8% debentures
80000 100000 Bank 15000 20000
Reserves & Surplus
50000 100000 Discount on issue of 10000 7500
Current liabilities equity shares
30000 85000
420000 535000 420000 535000
Additional information.
1. During the year 2007, a part of the machine costing Rs.40000 (accumulated
depreciation Rs.25000) was sold for Rs.7500.
2. Depreciation charged during the year 2007 was Rs.25000 6
ANSWER KEY
1. Subscritption, Donation
2. Interest on Capital, Salary
3. Remainig Share to A and B = 1-1/5=4/5
A’s Share = 4/5 x 8/15 = 32/75
B’s Share = 4/5 x 7/15 = 28/75
New Ratio = 32:28:15
4. Average profit method, Super profit method
5. Redeemable debentures are those which are payable on the expiry of the specific
period either in lump sum or in installments during the life time of the Company
6. Statement showing stationary used during 2009-10
Page 59 of 75
Amount paid 10,800
(+) Stock of Stationary on 1.4.2009 3,000
Creditors for stationary on 31.32010 1,300 4,300
15,100
(--) Stock of Stationary on 31.3.2010 500
Creditors for stationary on 1.4.2009 2,000 2,500
Stationary used during 2009-10 12,600
======
7. 1) It can utilize 10,00,000/- out of securities premium to write off under-

writing commission
2) The company can utilize remaining 12,00,000/- out of securities premium
to provide for premium on redemption of debentures.
8. Bank A/c Dr 330000
To Share application 330000
Share application A/c Dr 330000
To Share Capila 200000
To Securities premium 20000
To Bank 110000
9. Z A/c Dr. 270
To X 240
To Y 30
10. B A/c Dr. 10000
C A/c Dr. 40000
To A 50000
Calculation of sacrifice or gaining ratio
A=5/10—1/3=5/30
B=3/10—1/3= --1/30(gain)
Page 60 of 75
C=2/10—1/3= --4/30(gain)
Goodwill = 60000+150000+170000+190000—70000=100000x3=300000
A=300000x5/30=50000
11. Preference share capital Dr. 15000
To Share allotment 5000
To first call 5000
To forfeited share 5000
Bank A/c Dr. 9750
Forfieted shares A/c Dr. 1500
To preference share capital 11250
Forfeited share A/c Dr. 2250
To Capital Reserve 2250
12. a)
Bank A/c Dr. 1100000
To Debenture application 1100000
Debenture application A/c Dr. 1100000
To Debenture 1000000
To Debenture premium 100000
Debenture premium A/c Dr. 100000
b)
In the Books of X
12% debenture a/c Dr. 20000
To Bank 19800
To Profit on redemption 200
12% debenture a/c Dr 5000
To Bank 5000
Profit on redemption A/c Dr 200
Profit and appropriation A/c Dr 25000
To Debenture Redemption Reserve 25000

Page 61 of 75
13. Excess of income over expenditure Rs.31000
Balance sheet total Rs.142600
14. B’s Capital A/c – Balance to executors A/c Rs.138525

15. Bank A/c Dr. 20000
Forfeited shares A/c Dr. 5000
To Equity share capital 25000
Forfeited A/c Dr. 6250
OR
Number of shares allotted to Benit = 40000/60000x3000=2000
Application money paid by Asok = Rs.9000
Excess of application money from Asok= Rs.3000
Money not paid by Asok = Rs.12000
Money received on allotment = Rs.148000
16. Loss on Realisation to X-----Rs.6750
toY-------Rs.2250
Partner’s Capital A/c-----to X Rs.87250
to Y Rs.14250( cash brought in)
Bank A/c total------Rs.126250
OR
Revaluation loss to A---Rs.11424
to B---Rs.7616
Capital A/cs A ---Rs.120000
B----Rs.80000
C-----Rs.40000
Balance sheet total ---Rs.342960
PART B
17. No impact. It is a mere conversion of one liquid asset to another

18. Under operating activity.
19. Financing activity as cash outflow
20. Fixed Asset, Investment, Current Asset, Loans and Advances, Misc.Expenditure and profit and loss
21.
Page 62 of 75
Particulars 1997 1998 Absolute % of
changes changes
Sales 100000 200000 100000 100
Less cost of goods sold 60000 140000 80000 133.33
Gross profit 40000 60000 20000 50
Less indirect expenses 4000 6000 2000 50
Net profit before tax 36000 54000 18000 50
Less income tax 18000 27000 9000 50
Net profit after tax 18000 27000 9000 50
22. Current ratio = 318000/240000=1.325:1

23. Cash from operating activities – Rs.60500
Cash used in investing activities- Rs.57500
Cash from financing activities- Rs.2000
Net increase in cash and cash equivalents - Rs.5000
Cash and cash equivalents in the beginning of the period - Rs.15000
Cash and cash equivalents at the end of the period - Rs.20000
Modal Question Paper -3rd
ACCOUNTANCY
CLASS XII
MAX MARKS-80
TIME: 3 HRS
General Instructions :
This question paper contains two parts A & B

Page 63 of 75
All parts of the questions should be attempted at one place
PART A
(Not for Profit Organisations , Partnershipfirms and Company Accounts)
Page 64 of 75
1 Give any two revenue
You arepayments
required of
to aprepare
not-for an
profit
Income
organisation
& Expenditure A/C after the following 1
adjustments
Subscriptions to be received are Rs 1500, but subscriptions include Rs 1000 for the year
2 Name any two occasions when reconstitution of a partnership firm take place.
2009-10 1
In the beginning of the year, club owned books Rs 4000 . Depreciate books @ 10%
(including purchase)
3 List two items that may appear on the credit side of partner’s capital account when capital is
fixed.
1
6
13 What journal entries would you pass for the following transactions on the dissolution of a firm
4 What
of partner
is sacrificing
A & B. ratio? 1
Dissolution expenses amounted to Rs 1000
5 GiveStock
the meaning
worth Rsof5000
‘Callsalready
in Advance’
transferred to realisation account was taken over by partner 1
A.
Creditors already transferred to realisation a/c were paid Rs 4500

6 Show the following information in the balance sheet of the sports club as on 31st March 2009
d) Loss on realisation of Rs14000 was to be distributed between A & B in the ratio of 5: 2
Particulars Dr Cr
6
(Rs) (Rs)
14 Pass necessary journal entries for the following transactions
Tournament Fund - 75,000
Issued 50,000, 8% debentures of Rs 75 each at a premium of Rs 25 per debenture
Tournament Fund Investment 75,000 -
Purchased 4000, 9% debentures of Rs 100 each at Rs 97 each for immediate cancellation
Income from Tournament Fund Investment - 9,000
Converted 1500, 9% debentures of Rs 100 each into equity shares of Rs 10 each issued
at aExpenses
Tournament premium of 25% 6,000 -
Additional information :
6
Interest accrued on Tournament Fund Investment Rs 3,000 3
15 A, B & C were in partnership sharing profits and losses in the ratio of 3 : 2 : 1 . On 1 st April
7 2009,
X,Y & B Z retires from the
are partners in firm. Onsharing
a firm that date, theirand
profits balance sheet
losses wasratio
in the as follows.
of 2:1:2. Their fixed
capitals were Rs 3,00,000, Rs 1,00,000 & Rs 2,00,000 respectively. Interest on capital for the
year 2008 was credited to them @ 10 % p.a instead of 9 % p.a. Pass the necessary
adjustment
Liabilities entry. Amount Assets Amount
Creditors 6,000 Cash in hand 3,000 4
8 Bills
Statepayable
the provisions of sec.9,000
78 of the Companies ActCash
1956at bank 15,000 3
Expenses owing 9,000 Debtors 30,000
9 General
Alpha Ltdreserve
forfeited 200, 9%27,000 Stock
preference shares of Rs 24,000 of 10 % ,
100 each issued at a discount
for non payment of first call of Rs 25 each. The final call of Rs 15 per share has not yet been
Capitals Building 45,000
made. The forfeited shares were re issued at Rs 22,000 fully paid up. Pass necessary journal
entries for the forfeiture and reissue of shares.
A : 30,000 Machinery 16,000
B : 30,000 Loose tools 8,000 3
10 C &: R30,000
P,Q were partners in a90,000
firm sharing profits in the ratio of 3:2:1. The firm closes its books
st
on 31 March every year. Q died on 12.06.2009. On Q’s death the goodwill of the firm was
------------- -----------
valued at Rs 90,000. On Q’s death his share in the profits of the firm till the time of his death
was to be calculated on the1,41,000
basis of previous year’s profit which was Rs 1,80,000.
1,41,000Calculate
Q’s share in the profit of the firm. Pass necessary journal entries for the treatment of goodwill
and share of
The terms profit.
were Page 65 of 75
Goodwill of the firm was valued at Rs 13,500

ACCOUNTANCY
CLASS XII - Marking Scheme
Note : 1. The given answers are guidelines to evaluate the answer script
2. Due weight age should be given to alternate answers
1) Wages & Salaries, Insurance premium or any other items ½+½=1
2) Admission of a partner ½+½=1
Retirement of a partner
3) Opening balance and Additional capital ½+½=1
4) Sacrificing ratio : Old ratio – New ratio 1
5) The amount of future calls is received in advance by the company 1
6) Balancesheet of sports club as on 31 st March 2009
Liabilities Amt Assets Amt
Tournament Fund 75000 Tournament Fund 75,000

investment
Add Income from Tournament fund
investment 9000 Interest accrued
3,000
84,000
Add Accrued Interest 3000
87,000
Less Tournament expenses 6,000
81,000
81,000
3 marks
7) Adjustment table
Particulars X Y Z Total
Interest already Credited 30,000 10,000 20,000 60,000
Actual Interest 27,000 9,000 1,800 54,000
Difference 3,000 1,000 2,000 6,000
2:1:2 2,400 1,200 2,400
600 200 400

Page 66 of 75
Dr Cr Cr
X’s current a/c - Dr 600
To Y’s current a/c 200
To Z’s current a/c 400
(Interest on capital wrongly credited now rectified) 2 + 2 = 4 marks
8) Any 3 uses of securities premium 3 marks
9) Journal entries
Particulars LF Dr Cr
a) 9% Pref. share capital a/c Dr. 17,000

To Pref. Share forfeited A/C 10,000
To Pref. share 1st call 5,000
To discount on issue of Pref. shares 2,000
(Forfeiture of 200 shares for the non
payment of 1st call)
b) Bank a/c Dr 22,000

To Pref.. Share capital 20,000
To securities premium 2,000
( Re issue of 200 shares)
c) Pref. share forfeited a/c Dr 10,000

To Capital reserve 10,000
(Transfer to capital reserve)
3 marks
10) Working note
a) Calculation of share of goodwill = 90,000 X 2/6 = 30,000
b) Share of profit = 1,80,000 X 73/365 X 2/6 = 12,000
Journal Entries
a) P’s Capital a/c Dr 22500
Page 67 of 75
R’s Capital a/c Dr 7500
To Q’s Capital 30,000
(Adjustment of goodwill)
b) P & L suspense a/c Dr 12,000
To Q’s Capital a/c 12,000
(Share of profit till date of death)
2+2=4
11) Journal entries
a) Building a/c Dr 5,40,000
To Vendor 5, 40,000
(Purchase of building)
b) Vendor a/c Dr 270000
To bank 270000
(Part payment)
c) Vendor a/c Dr 270000
Discount on issue of deb. a/c Dr 30000
To 11% debentures 300000
1+1+2=4
12) Income & Expenditure account for the year ended 31 st March 2009
Expenditure Amt Income Amt
Rent 13200 Subscription 65000
Electric charges 6400 Add outstanding 1500
66500
Lecturer’s fee 1,460
Office Expenses 2,960 Less received in
Depreciation on books 1,500 Advance 1000 65500
Printing & Stationary 2100 Donation 5000
Legal fee 3740 Profit from entertainment 14500
Loss on sale of books 500 Interest 700
Page 68 of 75
Surplus 53840 85700
85700
6 marks
13) Journal entries
a) Realisation a/c Dr 1000
To Cash 1000
b) A’s Capital a/c Dr 5000
To Realisation 5000
c) Realisation a/c Dr 4500
To Cash 4500
d) A’s Capital a/c Dr 10000
B’s Capital a/c Dr 4000
To Realisation 14000
1.5 x 4 = 6
14) Journal entries
(i) a) Bank a/c Dr 50,00,000
To debenture application & allotment a/c 50, 00,000
b) Debenture application & allotment a/c Dr 50, 00,000
To 8% debentures 37, 50,000
To securities premium 12, 50,000
(ii) a) 9% debentures a/c Dr 4,00,000
To bank 3, 88,000
To profit on Redemption of debentures 12,000
b) Profit on redemption of debentures a/c Dr 12,000
To capital reserve 12,000
(iii) a) 9% debenture a/c Dr 1,50,000
To 9% debenture holders a/c 1, 50,000
b) 9% debenture holders a/c 1, 50,000
To equity share 1, 20,000
Page 69 of 75
3x 2 = 6
15) Revaluation a/c

Machinery 1600 Expenses owing 1500
Loose Tools 800 Building 3600
Capital A/C (Profit)
A 1350
B 900
C 450 2,700 ___________
5,100 5,100
Partner’s Capital A/C
Particulars A B C Particulars A B C
Balance b/d 30,000 30,000 30,000
B’s loan a/c - 44,400 - General reserve 13,500 9,000 4,500
Balance c/d 51,600 - 37,200 Revaluation 1350 900 450
Goodwill 6750 4500 2250
51,600 44,400 37,200 51,600 44,400 37,200
Balance sheet of A & C as on 1st April 2009
Liabilities Amount Asset Amount
Creditors 6,000 Cash in hand 3000
Bills payable 9,000 Cash at bank15,000
Expenses owing 7,500 Debtors 30,000
B’s loan a/c 44,400 Stock 24,000

Page 70 of 75
Capitals Building 48,600
A 51,600 Machinery 16,000
B 37,200 Less Dep 1600 14,400
Loose tools 8,000
Less Dep. 800 7,200
Goodwill 13,500
---------------- ---------------
1,55,700 1,55,700
( 3+3+2=8 marks)
OR
Revaluation Account
Machinery 8000 Building 20,000
Provision for Debtors 1920
Capital a/c (Profit)
Sun : 6720
Moon : 3360 10080
------------ -----------
20,000 20,000
Partner’s Capital Account
Particulars Sun Moon star Particulars Sun Moon star
Balance b/d 2,00,000 1,28,000 -
Cash - - 1,20,000
Goodwill 32,000 16,000 -
Current a/c 14,720 35,360 - Revaluation a/c 6,720 3,360 -
Balance c/d 2,40,000 1,20,000 1,20,000 General reserve 16,000 8,000 -
----------- ---------- ----------- ---------- -------- -------
2,54,720 1,55,360 1,20,000 2,54,720 1,55,360 1,20,000
Balance sheet of Sun,Moon & Star as on 31 st March 2009
Page 71 of 75
Liabilities Amount Assets Amount
Creditors 32,000 Cash in hand 1,76,000
Bills payable 16,000 Cash at bank 40,000
Current account Sundry Debtors 32,000
Sun 14,720 Less prov 1,920 30,080
Moon 35,360 Furniture 20,000
Capital a/c Stock 40,000
Sun 2,40,000 Machinery 92,000
Moon 1,20,000 Building 1,80,000
Star 1,20,000
-------------- ----------------
5,78,080 5,78,080
3 + 3 + 2 = 8 marks
16) Journal entries

a) Bank a/c Dr 1, 10,000
To share application 1, 10,000
b) Share application a/c Dr 1, 10,000
To share capital 80,000
To share allotment 10,000
To bank 20,000
c) Share allotment a/c Dr 1, 20,000
Discount on issue of share’s a/c Dr 40,000
To share capital 1, 60,000
d) Bank account Dr 1, 10,000
To share allotment 1, 10,000
e) Share 1st & final call a/c Dr 1, 60,000
To share capital 1, 60,000
f) Bank a/c Dr 1, 52,000
To share 1st & final call 1, 52,000
g) Share capital a/c Dr 20,000

Page 72 of 75
To share forfeited 10,000
To share 1st & final call 8,000
To Discount on issue of share’s a/c 2,000
h) Bank a/c Dr 24,000
i) Share forfeited a/c Dr 10,000
8 marks
OR
Journal entries
a) Bank a/c Dr 52,000
To share application 52,000
b) Share application a/c Dr 52,000
To bank 8,000
c) Share allotment a/c Dr 80,000
d) Bank account Dr 76,000
e) Share 1st call a/c Dr 60,000
f) Bank a/c Dr 60,000
To share 1st call 60,000
g) Share 2nd & final call a/c Dr 40,000
Page 73 of 75
h) Bank a/c Dr 39,000
To Share 2nd & final call 39,000
i ) Share capital a/c Dr 5,000
To share forfeited 4,000
To share 2nd & final call 1,000
j) Bank a/c Dr 2,700
Share forfeited a/c Dr 300
k) Share forfeited a/c Dr 2,100
8 marks
PART B
(Analysis of financial statements)
17) Any one limitation 1 mark
18) Purchase of asset & purchase of investment ½+½=1
19) Operating activity 1 mark
20) Goodwill - Fixed asset
Unclaimed dividend - Current liabilities & provisions – current liabilities
Preliminary expenses - Miscellaneous expenditure
3 x 1 =3
21) Comparative income statement
Particulars 2007 2008 increase/decrease percentage
Sales 5, 00,000 7, 00,000 2, 00,000 40
Less cost of sales 3, 25,000 4, 20,000 95,000 29.2
Gross profit 1, 75,000 2, 80,000 1, 05,000 60
Less indirect exp 17,500 56,000 38,500 220
Profit before tax 1, 57,500 2, 24,000 66,500 42.2
Page 74 of 75
Less tax 63,000 89,600 26,600 42.2
Profit after tax 94,500 1, 34,400 39,900 42.2
4 marks
22) (i) Gross Profit Ratio = 20 %
(ii) Working capital turnover ratio = 2.5 times
(iii) Proprietary ratio = 0.7 times or 70 %
Any two 2 x 2 =4 marks
23) Calculation of cash flow from operating activities
Net profit before tax 50,000
Adjustment for :
+ Depreciation 10,000
+ Preliminary expenses 5,000
+ Loss on sale of furniture 500
+ Transfer to reserve 7,000
- Profit on sale of machinery (3,000)
-------------
Operating profit before working capital changes 69,500
- Increase in Debtors (3000)
+ Increase in Creditors 5,000
+ decrease in B/R 1,500
- Decrease in B/P (2,000)
- Increase in pre paid expenses (100)
------------
Net cash flow from operating activities 70,900
6 marks
Page 75 of 75

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Chapter-1

ACCOUNTING FOR NOT FOR PROFIT MAKING ORGANISATIONS (10 marks)

1.What is meant by fund based accounting?

Particulars 01-04-2009 31-03-2010

Stock of stationery 15000 13000

Creditors for stationery 16000 18000

Stationery purchased during the year2009-2010 was Rs. 54000.

Receipts Rs. Payments Rs.

Balance b/d 10000 Salary 18000

Subsciptions: 49000 Newspaper 4000

Sale of old news papers 3000 Rent 14000

Government Grants 40000 Fixed Deposit @ 12% p.a. 50000

Sale of old furniture (book 12000 Books 8000

Profit from entertainment 4000 Furniture 16000

Balance c/d 8000

Balance b/d 10000 Salary 24000

Subscriptions 52000 Furniture 20000

Entrance Fees 8000 Office expenses 16000

Sale of old papers 4000 Sports Equipment 40000

Legacy 70000 Balance c/d 32000

Important points to be remembered

Chapter- 1 Accounting for Partnership- Basic Concepts

Q.No Question Marks

2. What is meant by Article of Partnership? 1

7. Why is it necessary to have a partnership deed? 3

(i) Interest on capital should be allowed @ 12 % p.a.

Prepare profit and loss appropriation account.

(i) N was entitled for a salary of Rs. 2500 p.a.

(ii) Partners were entitled to interest on capital at 5% p.a.

(iii) Profits were to be shared in the ratio of partners’ capital.

Answers and Solutions of Chapter-1 Accounting for Partnership-Basic Concepts

Q.No. Answers and Solutions

(1) Profit sharing ratio will be equal.

(2) No interest will be given on partners’ capitals

(3) No interest will be charged on partners’ drawings

(4) No partner will be entitled to any salary, fees, commission or remuneration.

Basis Fixed capital method Fluctuation capital method.

Basis Drawings against capital Drawings against profits

(ii) Part It is a part of capital. It is a part of expected profit.

(i) In case of dispute it will serve as evidence in the court of law.

8. Dr. P & L Appropriation A/c Cr.

-Sachin 150000 X 12 % 18000

-Vinod 100000 X 12 % 12000

-Sachin 45000 X 5/8

9. Interest on Heera’s drawings :- Interest on Rani’s drawings :-

10. M’s capital a/c Dr. 2000

To N’s capital 500

(For rectifying the past errors.)

11. (i) P & L Appropriation a/c Dr. 80000

To X’s capital a/c 40000

To Y’s capital a/c 32000

To Z’s capital a/c 8000

(For distribution of profit)

(ii) A’s capital a/c Dr. 1000

B’s capital a/c Dr. 1000

To C’s capital a/c 2000

Sunny’s capital = 45000

Pinky’s capital = 35000

(4) There are three methods of Valuation of Goodwill