Subject: Accountancy: Kendriya Vidyalaya Sangathan Guwahati Region

KENDRIYA VIDYALAYA SANGATHAN
GUWAHATI REGION
STUDY MATERIAL CLASS XII (2020-21)

Subject: ACCOUNTANCY
CHAPTER WISE QUESTION BANK
Foreword
Preparation of study material for all the major subjects of class X and XII and presenting the same
on the hands of the students well on time is not anything new for the Kendriya Vidyalayas.
However, this time the backdrop of the Covid-19 pandemic looming large in front of all and the 9
months of suspended physical classes have given an extra novel meaning and significance to this
endeavor. On all previous occasions, teachers sat together on a designated place face to face to
discuss, to reject, to select & modify and thereby gather together the best material for the
students. This time, they could not do so that way because of the limitations of gatherings in light
of the pandemic. And therefore, this time, there has been the endeavor to craft out a chapter-
wise exhaustive question bank for all the major subjects. The major chunk of the session has
already played out in the most extraordinary way during this most extraordinary time as we have
all seen, with the syllabi having been covered only through online classes with the teachers and the
students never coming face to face inside the classrooms.
Anyway, with our examination system the way it is, the role of intelligent and rigorous study of
question bank has been always enormous for success in all examinations. Having a sound grasp of
probable questions and the most pertinent ones, leads to better negotiation of the course material
on hand especially when the examination comes near.
It is hoped that the teachers of each school will bring the materials home to the needy students
with further necessary guidance from them during this extraordinary academic session and
extraordinary time as a whole.
It has been wonderful for KVS RO Guwahati to be involved in preparation of study material in the
form of chapter wise question banks. The enormous contribution of the Subject teachers and
Principals for making the project successful is highly praiseworthy.
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DELETED TOPICS FROM EACH CHAPTER FOR THE YEAR 2020-21
PART I
NAME DELETED SYLLABUS

UNIT
1 ACCOUNTING FOR NOT FOR PROFIT NIL
ORGANISATION
2 ACCOUNTING FOR PARTNERSHIP:BASIC Nil
CONCEPT
3 RECONSTITUTION OF A PARTNERSHIP Adjustment of capital
FIRM-ADMISSIN OF A PARTNER account and
preparation of balance
sheet.
4 RECONSTITUTION OF A PARTNERSHIP Adjustment of capital
FIRM-RETIREMENT/DEATH OF A PARTNER account. Preparation
of loan account of the
retiring partner.
Preparation of
deceased partner’s
capital account and his
executor’s account.
5 DISSOLUTION OF A PARTNERSHIP FIRM: Nil
RETIREMENT/DEATH OF A PARTNER
6 DISSOLUTION OF PARTNERSHIP FIRM Nil
PART II
UNIT NAME DELETED SYLLABUS

1 ACCOUNTING FOR SHARE CAPITAL Nil
2 ISSUE AND REDEMPTION OF DEBENTURES Redemption of
Debentures- methods:
lump sum, draw of lots.
3 FINANCIAL STATEMENT OF A COMPANY Nil
4 ANALYSIS OF FINANCIAL STATEMENT Nil
5 ACCOUNTING RATIOS Nil
6 CASH FLOW STATEMENT Nil
UNIT NAME PAGE
NO.
1 ACCOUNTING FOR NOT FOR PROFIT 1-11
ORGANISATION
2 ACCOUNTING FOR PARTNERSHIP:BASIC 12-46
CONCEPT
3 RECONSTITUTION OF A PARTNERSHIP FIRM- 47-72
ADMISSIN OF A PARTNER
4 RECONSTITUTION OF A PARTNERSHIP FIRM- 73-86
RETIREMENT/DEATH OF A PARTNER
5 DISSOLUTION OF PARTNERSHIP FIRM 87-98
6 ACCOUNTING FOR SHARE CAPITAL 99-108
7 ISSUE AND REDEMPTION OF DEBENTURES 109-123
8 FINANCIAL STATEMENT OF A COMPANY 124-136
9 ANALYSIS OF FINANCIAL STATEMENT 137-149
10 ACCOUNTING RATIOS 150-156
11 CASH FLOW STATEMENT 157-163
1. ACCOUNTING FOR NOT-FOR-PROFIT ORGANISATIONS
(A) Very Short Answer Questions (1 MARK)
1. The financial statements of the Not-for-Profit Organisation are:

(A) Receipts and Payments Account
(B) Income and Expenditure Account
(C) Balance Sheet
(D) All of the above
Answer: (D) All of the above
2. The Receipts and Payments Account is a summary of:

(A) Debit and Credit balance of Ledger Accounts
(B) Cash Receipts and Payments
(C) Expenses and Incomes
(D) Assets and Liabilities
Answer: (B) Cash Receipts and Payments
3. Receipts and Payments Account is a:

(A) Personal Account
(B) Real Account
(C) Nominal Account
(D) Real and Nominal Account, both
Answer: (B) Real Account
4. Income and Expenditure Account is a:

(A) Personal Account
(B) Real Account
(C) Nominal Account
(D) Real and Nominal Account, both
Answer: (C) Nominal Account
5. Source of income for a not-for-profit organisation is:

(A) Subscription from Members
(B) Donation
(C) Entrance Fees
6. Subscription received in advance during the current year is:

(A) An income
(B) An asset
(C) A liability
(D) None of these
Answer: (C) A liability
[1]
7. If a general donation of smaller amount is received by a school, that donation will be
shown in:
(A) Liability Side
(B) Asset Side
(C) Debit side of Receipt and Payment A/c
(D) Credit side of Receipt and Payment A/c
Answer: (C) Debit side of Receipt and Payment A/c
8. If there is a ‘Match Fund’, then match expenses and incomes are transferred to:
(A) Income and Expenditure A/c
(B) Assets side of Balance Sheet
(C) Liabilities side of Balance Sheet
(D) Both Income and Expenditure A/c and to Balance Sheet
Answer: (C) Liabilities side of Balance Sheet
9. Amount received from sale of grass by a club should be treated as:

(A) Capital Receipt
(B) Revenue Receipt
(C) Asset
(D) Earned Income
Answer: (B) Revenue Receipt
10. Which of the following is not a revenue receipt?

(A) Life Membership Subscription
(B) Donation
(C) Subscription
(D) Interest on Investments
Answer: (A) Life Membership Subscription
11. Out of the following items, which is shown in the ‘Receipts and Payments A/c’ of
a not-for-profit organisation?
(A) Subscription received in advance
(B) Last year subscription received
(C) Current year subscription received
12. Subscription received in cash during the year amounted to ₹40,000; subscription
outstanding at the end of previous year was ₹1,500 and outstanding at the end of
current year was ₹2,000. Subscription received in advance for next year was ₹800.
The amount credited to Income & Expenditure Account will be:
(A) ₹38,700
(B) ₹39,700
[2]
(C) ₹40,300
(D) ₹41.300
Answer: (B) ₹39,700 (40,000+2,000-1,500-800)
13. What amount will be credited to the Income and Expenditure Account for the year
ending 31st March 2020 on the basis of the following information?
31-03- 31-03-2020(₹)
2019(₹)
Outstanding Subscription 10,000 25,000
Advance Subscription 3,000 2,000
Subscriptions received during the year 2019-20 were ₹4,00,000.
(A) ₹3,84,000
(B) ₹4,16,000
(C) ₹3,86,000
(D) ₹4,14,000
Answer: (B) ₹4,16,000 (4,00,000+25,000+3,000-10,000-2,000)
14. How much amount will be recorded in Income and Expenditure Account in the
following case?
31-03- 31-03-2020(₹)
2019(₹)
Outstanding Salary 6,500 6,000
Prepaid Salary 1,200 1,000
Salary paid for the year ended 31st March 2020 amounted to ₹75,000.
(A) ₹75,700
(B) ₹74,300
(C) ₹75,300
(D) ₹74,700
Answer: (D) ₹74,700 (75,000+6,000+1,200-6,500-1,000)
15. How much amount will be shown in Income and Expenditure Account in the
following case?
31-03- 31-03-2020(₹)
2019(₹)
Unpaid for Medicines 10,000 12,000
Stock of Medicines 8,000 13,000
Payment made for medicines during 2019-20 was ₹2,5 0,000.
(A) ₹2,53,000
(B) ₹2,47,000
(C) ₹2,57,000
(D) ₹2,43.000
Answer: (B) ₹2,47,000 (2,50,000+8,000+12,000-13,000-10,000)
16. Which of the following is not an income?

(A) Subscription
(B) Donation
[3]
(C) Sale of Ticket
(D) Endowment Fund
Answer: (D) Endowment Fund
17. Scholarships grant to students by the government will be ____________ to Income &
Expenditure account.
Answer: Debited
18. Outstanding Subscriptions are shown on the ______________ side of Balance

sheet.
Answer: Assets
19. Donations for specific purposes are always ____________.

Answer: Capitalised
20. Purchase of sports material is ______________ to Income & Expenditure account.

Answer: Debited
(B) Short Answer Questions (3/4 MARKS)
1. State the meaning and objective of Not-for-profit organisation.

Answer: Not-for-profit organisation is an economic entity that provides services
beneficial to the society without making profits.
The objective of these organisations is to promote charity, religion, education,
literature, sports, art and culture, without aiming at profit.
2. How is ‘Sale of old newspapers and magazines’ treated in Not-for-profit

organisation?
Answer: Amount received from the sale of old newspapers and magazine are
treated as revenue receipts because it is a regular feature of Not-for-profit
organisation. Hence sale of old newspaper etc. are shown on the credit side of
income and expenditure account.
3. What is meant by Fund Based Accounting?

Answer: In fund-based accounting separate accounts are maintained for specific
activities of the organisation such as sports fund, price fund etc. All items related to
the specific fund are recorded fund wise, i.e., incomes related to the fund is added
to it and expenses related to the fund are deducted from it. The consolidation of
these accounts is presented on the liabilities side of the balance sheet.
4. State any three features of income and expenditure account.

Answer: The main features of Income and Expenditure Account:
[4]
i) It is prepared for an accounting period on accrual concept following the matching
principle.
ii) Only revenue items are considered, while capital items are excluded.
iii) All items both cash and non-cash (depreciation) are recorded.
5. Give any three differences between Receipt & Payment account and Income &
Expenditure account.
Answer: Three differences between Receipt & Payment A /c & Income &
Expenditure A/c are:
Basis Receipts & Payments A/c Income & Expenditure A/c

1. Nature It is a summary of cash book It acts like profit & loss A/c
2. Nature It records receipts and payment of It records only incomes and
of items revenue and capital nature expenditure of revenue nature
3.Opening There is no opening balance Balance in the beginning
balance represents cash in hand /cash at
bank or bank overdraft
6. What is Receipts and Payments account? State its features.
Answer: Receipts and Payments account is a financial statement prepared by not-

for- organization with the help of cash book that is maintained throughout the
year. Its features are as follows:
a) It is a summary of cash and bank transactions, prepared at the end of the year.
b) It starts with the opening balance of cash in hand, cash at bank or bank
overdraft.
c) It follows cash basis of accounting wherein all capital and revenue items are
recorded irrespective of period, i.e. preceding year, current year or succeeding
year.
7. How would a “Not- for- profit organization” deal with the following items:
a. Outstanding Subscription
b. Subscription received in advance
c. Tournament Fund
Answer:
a. Outstanding Subscription is credited to Income & Expenditure A/c and shown on
assets side of Balance sheet.
b. Subscription received in advance is Deducted from subscription received on
income side of Income & Expenditure A/c and shown on liabilities side of Balance
sheet.
[5]
c. Tournament Fund is a specific Fund which is capitalised, i.e., shown on
liabilities side of Balance sheet.
(C) Long Answer Questions (6/8 MARKS)
1. From the following information, prepare Income and Expenditure Account for the year
ended 31st March 2020.
Details ₹
Salaries paid 55,000
Lighting and Heating 5,500
Printing and Stationery (including ₹ 400 for the 2019) 4,000
Subscriptions received (including ₹1,000 in advance for 2021 and 44,000
₹750 for 2019)
Net proceeds from refreshment room 30,000
Miscellaneous expenses 3,000
Interest paid on Loan for 3 months 1,200
Rent and rates (including ₹500 prepaid) 4,500
Locker’s rent received 4,900
Additional information: Subscription in arrears on 31.03.2020 were ₹4,700 and
interest on Loan outstanding for 9 months.
Answer:
Income and Expenditure A/c
for the year ended 31st March 2020
Expenditure ₹ Income ₹
To Salaries 55,000 By Subscriptions 44,000
To Lighting and Heating 5,500 (+)O/S at the end
To Print. & Stationery 4,700
4,000 3,600 (-) Adv. at the end 46,950
(-) O/S for 2019 3,000 (1,000) 30,000
(400) (-) O/S at the beg.
To Miscellaneous expenses 4,800 (750) 4,900
[6]
To Interest on loan 4,000 By Net proceeds from
1,200 5,950 refreshment room
(+) O/S for 9 months By Locker’s rent received
3,600
To Rent and rates
4,500
(-) Prepaid
(500)
To Surplus
81,850 81,850
2. From the following Receipts and Payment Account of Pioneer Cricket Club and from
the information supplied, prepare Income and Expenditure Account for the year
ended 31st March, 2020.
Receipts and Payment A/c
for the year ended 31st March, 2020
Receipts ₹ Payments ₹
To Balance b/d By Salaries 11,000
Cash 3,520 By Match Expenses 13,240
Bank 27,380 By Maintenance 6,820
6% FD 30,000 60,900 By Crockery 2,650
To Subscriptions 40,000 By Conveyance 820
(including ₹6,000 for By upkeep of Lawns 4,240
2019) 2,750 By Postage& Stationery 1,050
To Entrance fees 5,010 By Cricket Goods 9,720
To Donation 900 By Sundry Expenses 2,000
To Interest on FD 20,000 By Investment 5,700
To Tournament fund 2,000 By Tournament Expenses 18,800
To Sale of crockery By Balance c/d
(Book value ₹1,200) Cash 2,200
Bank 23,320
6% FD 30,000 55,520
1,31,560 1,31,560
Additional Information:
a) Salary outstanding is ₹1,000
b) Opening balance of stock of postage and stationery and cricket goods is ₹750
and ₹3,210, respectively. Closing stock of the same is ₹900 and ₹2,800,
respectively.
c)Outstanding subscriptions for 2018-19 and 2019-20 are ₹6,600 and
₹8,000respectively.
Answer:
[7]
Income and Expenditure A/c
To Salaries By Subscriptions
11000 12,000 40000
(+) O/s at the end 13,240 (+) O/s at the end 42,000
1000 6,820 8000 2,750
To Match Expenses 2,650 (-) O/s at the beg. 5,010
To Maintenance 820 6000
To Conveyance By Entrance fees 1,800
To upkeep of Lawns By Donation 800
To Postage Stationery 850 By Interest on FD
1050 5,700 900
(+) Opening Stock (+) Accrued
750 900
(-) Closing Stock 2,410 By profit on sale of Crockery
(900) 2,860
To Sundry Expenses
To Cricket Goods
2000
(+) Opening Stock
3210
(-) Closing Stock
2800
To Surplus
47,350 47,350
3. Prepare an Income and Expenditure Account for the year ended 31st March 2020 from
the following particulars of Arts club which organises art competitions for disabled
people during the year:
[8]
Receipts and Payments account (for the year ended 31.03.2020)
To balance b/d 32,500 By Salaries 31,500
To Subscriptions 70,300 By Postage 1,250
To Donation (Billiard Table) 90,000 By Rent 9,000
To Entrance fees 1,100 By Printing & stationery 14,000
To Sale of old magazines 450 By Sports material 11,500
By Miscellaneous expenses 3,100
By Furniture 20,000
By 10% Investments 70,000
(on 1.7.2019)
By Balance c/d 34,000
1,94,350 1,94,350
Additional information:
i. ₹4,700 is still in arrears for the year 2019-20 for subscription.
ii. Value of sports material at the beginning and the end of the year was ₹3, 000 and
₹4,500 respectively.
iii. Depreciation to be provided @10% p.a. on furniture.
Answer: Income and expenditure A/c

for the year ended on 31st March 2020
To Salaries 31500 By subscription
To Postage 1250 70300 75000
To Rent 9000 + Outstanding 1100
To Printing & stationery 14000 4700 450
To Sports material consumed By Entrance fees 5250
Opening By Sale of old magazines
3000 By Interest. on investment
+Purchases 10000 (for 9 months)
11500 3100
- Closing 2000
(4500) 10950
To Misc. Expenses
To Depreciation(furniture)
To Surplus
81800 81800
4. From the following Receipts and payments Account of Cosmo Club, from the
information supplied, prepare the Income and Expenditure account for the year ended
December 31st, 2019 and balance sheet as at that date:
[9]
Receipts and Payments A/c
for the year ended 31st December 2019
To balance b/d 250 By Salaries 1,200
To Subscriptions: By General Expenses 300
2018 250 By Electricity Charges 200
2019 1,000 By Books 100

2020 200 1,450 By Newspapers 400
To Sale of old furniture 60 By Postage 50
(costing ₹100)
To Rent received for use of hall 740 By Furniture 250
To Profit from entertainment 400 By Balance c/d 500
To Sale of old Newspapers 100
3,000 3,000
a) The club has 50 members each paying an annual subscription of ₹25. Subscriptions
Outstanding on 31st December 2018 were to value of ₹300.
b) On the 31st December 2019, Salaries outstanding amounted to ₹100. Salaries paid
included ₹100 for the year 2018.
c) On January 1, 2019, the club owned land and buildings valued at ₹10,000, Furniture
worth ₹600 and Books ₹500.
Answer: Income & Expenditure A/c

for the year ended 31st Dec, 2019
To Salaries By Subscriptions 1,250
1200 By Rent of Hall 740
Add. O/S (2019) By Profit from entertainment 400
100 By Sale of old news papers 100
1300
Less. O/S (2018)
100 1,200
To General Expenses 300
To Electricity 200
To Purchase of News paper 400 2,490
To Postage 50
[10]
To Loss on sale of old furniture 40
To Surplus 300
2,490
Balance Sheet as on 31st Dec, 2019

Liabilities ₹ Assets ₹
Salaries Outstanding 100 Cash 500
Subscriptions received in advance 200 O/S Subscription
Capital Fund 2016 -
11550 11,850 50 300
Add: Surplus 2017 750
300 - 250
Furniture 600
Books 500 10,000
12,150 Add: Purchases 100 12,150
Land &Building
WN:-
Balance sheet as as on 1st January 2019
Liabilities ₹ Assets ₹
Salaries outstanding 100 Cash 250
Capital Fund(B/F) 11,550 O/S Subscription 300
Furniture 600
Books 500
Building 10,000
11,650 11,650
5. Following are the particulars of cash transactions of Geeta Pustakalaya Allahabad for
the year ended 31st December 2019.
To Balance b/f 1,319 By Rent and rates 168
To Entrance fees 255 By Wages 245
To Subscriptions 1,600 By Lighting 72
To Donation 165 By Lecturers fee 435
To Life membership fee 250 By Books 213
To Interest 14 By Office expenses 450
To Profit on entertainment 42 By 3% Fixed deposits 800
(1.7.2019)
By Bank balance 242
By Cash in hand 1,020
3,645 3,645
[11]
Additional information:
Library has books worth ₹2,000 and furniture worth ₹850 in the beginning of year.
Outstanding subscription was ₹35 in the beginning of year and ₹45 at the end of
year. Outstanding rent was ₹60 in the beginning as well as at the end of year.
Charge depreciation ₹50 on Furniture and ₹113 on Books.
You are required to prepare Income and Expenditure Account and Balance Sheet of
Pustakalaya as on 31st December 2019.
Answer: Income and expenditure account

for the year ended 31st
Dec. 2019
Particulars Amt. Particulars Amt.
To rent 168 By Subscription 1600
Add. O/s (current year) 60 Add: O/s (current year) 45
Less: O/s (previous year) 60 168 Less: O/s (previous year) 35 1,610
To Wages 245 By Interest 14
To Lighting 72 Add: Accrued int. 12 26
To Lecture fee 435 By Profit on entertain 42
To Depreciation on: 450 By Entrance fees 255
Book 113 By Donations 165
Furniture 50 163
To Surplus 565
2,098 2,098
Balance sheet as at 31st Dec. 2019

Liabilities Amt. Assets Amt.
Capital Fund 4144 Cash in hand 1,020
Add: Surplus of this year 565 4,709 Cash at bank 242
Life membership fees 250 Fixed deposit 800
Outstanding rent 60 O/s Subscriptions 45
Books 2,100
Furniture 800
Accrued interest 12
5,019 5,019
WN: Calculation of opening capital fund

Balance sheet as at 31st Dec. 2018
Liabilities Amt. Assets Amt.
Outstanding rent 60 Cash in hand 1,319
Capital fund (balancing figure) 4,144 Outstanding subscription 35
Book 2,000
Furniture 850
4,204 4,204
[12]
2. FUNDAMENTAL OF PARTNERSHIP
OBJECTIVE TYPE QUESTIONS
1. Select the Best Alternate Answer.

(i) Features or Characteristics of Partnership
1. Features of a partnership firm are :
(A) Two or more persons are carrying common business under an agreement.
(B) They are sharing profits and losses in the fixed ratio.
(C) Business is carried by all or any of them acting tor all as an agent.
(D) All of the above.
Answer: D
2. Following are essential elements of a partnership firm except:

(A) At least two persons
(B) There is an agreement between all partners
(C) Equal share of profits and losses
(D) Partnership agreement is for some business.
Answer: C
3. In case of partnership the act of any partner is :

(A) Binding on all partners
(B) Binding on that partner only
(C) Binding on all partners except that particular partner
(D) None of the above
Answer: A
4. Which of the following statement is true

(A) a minor cannot be admitted as a partner
(B) a minor can be admitted as a partner, only into the benefits of the partnership
(C) a minor can be admitted as a partner but his rights and liabilities are same of adult
[13]
partner
(D) none of the
Answer: B
5. Ostensible partners are those who

(A) do not contribute any capital but get some share of profit for lending their name to
the business
(B) contribute very less capital but get equal profit
(C) do not contribute any capital and without having any interest in the business, lend
their name to the business
(D) contribute maximum capital of the business
Answer: C
6. Sleeping partners are those who

(A) take active part in the conduct of the business but provide no capital. However,
salary is paid to them.
(B) do not take any part in the conduct of the business but provide capital and share
profits and losses in the agreed ratio
(C) take active part in the conduct of the business but provide no capital. However,
share profits and losses in the agreed ratio.
(D) do not take any part in the conduct of the business and contribute no capital.
However, share profits and losses in the agreed rati
Answer: B
7. The relation of partner with the firm is that of:

(A) An Owner
(B) An Agent
(C) An Owner and an Agent
(D) Manage
Answer: C
8. What should be the minimum number of persons to form a Partnership :

(A) 2
(B) 7
[14]
(C) 10
(D) 20
Answer: A
9. Number of partners in a partnership firm may be :

(A) Maximum Two
(B) Maximum Ten
(C) Maximum One Hundred
(D) Maximum Fifty
Answer: D
10, Liability of partner is :

(A) Limited
(B) Unlimited
(C) Determined by Court
(D) Determined by Partnership Act
Answer: B
11. Which one of the following is NOT an essential feature of a partnership

(A) There must be an agreement
(B) There must be a business
(C) The business must be carried on for profits
(D) The business must be carried on by all the partners
Answer: D
12. X, Y and Z are partners sharing profits and losses equally. Their capital balances on
March, 31, 2012 are ₹80,000, ₹60,000 and ₹40,000 respectively. Their personal assets
are worth as follows : X — ₹20,000, Y — ₹15,000 and Z — ₹10,000. The extent of their
liability in the firm would be :
(A) X — ₹80,000 : Y — ₹60,000 : and Z — ₹40,000
(B) X — ₹20,000 : Y — ₹15,000 : and Z — ₹10,000
[15]
(C) X — ₹1,00,000 : Y — ₹75,000 : and Z — ₹50,000
(D) Equal
Answer: B
13. Every partner is bound to attend diligently to his in the conduct of

the business.
(A) Rights
(B) Meetings
(C) Capital
(D) Duties
Answer: D
(ii) Partnership Deed

14. Forming a Partnership Deed is :
(A) Mandatory
(B) Mandatory in Writing
(C) Not Mandatory
(D) None of the Above
Answer: C
15. Partnership Deed is also called

(A) Prospectus
(B) Articles of Association
(C) Principles of Partnership
(D) Articles of Partnership
Answer: D
16. Which of the following is not incorporated in the Partnership Act.

(A) profit and loss are to be shared equally
(B) no interest is to be charged on capital
[16]
(C) all loans are to be charged interest @6% p.a.
(D) all drawings are to be charged interest
Answer: D
17. When is the Partnership Act enforced

(A) when there is no partnership deed
(B) where there is a partnership deed but there are differences of opinion between the
partners
(C) when capital contribution by the partners varies
(D) when the partner’s salary and interest on capital are not incorporated in the
partnership deed
Answer: A
18. In the absence of Partnership Deed, the interest is allowed on partner’s capital:
(A) @ 5% p.a.
(B) @ 6% p.a.
(C) @ 12% p.a.
(D) No interest is allowed
Answer: D
19. In the absence of a partnership deed, the allowable rate of interest on partner’s
loan account will be :
(A) 6% Simple Interest
(B) 6% p.a. Simple Interest
(C) 12% Simple Interest
(D) 12% Compounded Annually
Answer: B
20. A and B are partners in partnership firm without any agreement. A has given a loan
of ₹50,000 to the firm. At the end of year loss was incurred in the business. Following
interest may be paid to A by the firm :
(A) @5% Per Annum
(B) @ 6% Per Annum
[17]
(C) @ 6% Per Month
(D) As there is a loss in the business, interest can’t be paid
Answer: B
21. A and B are partners in a partnership firm without any agreement. A has withdrawn
RS50,000 out of his Capital as drawings. Interest on drawings may be charged from A by
the firm :
(A) @ 5% Per Annum
(B) @ 6% Per Annum
(C) @ 6% Per Month
(D) No interest can be charged
Answer: D
22. A and B are partners in a partnership firm without any agreement. A devotes more
time for the firm as compare to B. A will get the following commission in addition to
profit in the firm’s profit:
(A) 6% of profit
(B) 4% of profit
(C) 5% of profit
Answer: D
23. In the absence of partnership deed, the following rule will apply :
(A) No interest on capital
(B) Profit sharing in capital ratio
(C) Profit based salary to working partner
(D) 9% p.a. interest on drawings
Answer: A
24. In the absence of agreement, partners are not entitled to :

(A) Salary
(B) Commission
[18]
(C) Equal share in profit
(D) Both (a) and (b)
Answer: D
25. Interest on capital will be paid to the partners if provided for in the partnership deed
but only out of:
(A) Profits
(B) Reserves
(C) Accumulated Profits
(D) Goodwill
Answer: A
26. Which one of the following items cannot be recorded in the profit and loss
appropriation account
(A) Interest on capital
(B) Interest on drawings
(C) Rent paid to partners
(D) Partner’s salary
Answer: C
27. If any loan or advance is provided by partner then, balance of such Loan Account
should be transferred to :
(A) B/S Assets side
(B) B/S Liability Side
(C) Partner’s Capital A/c
(D) Partner’s Current A/c
Answer: B
[19]
28. A, B and C Were Partners with capitals of ₹50,000; ₹40,000 and RS 30,000
respectively carrying on business in partnership. The firm’s reported profit for the year
was ₹80,000. As per provision of the Indian Partnership Act, 1932, find out the share of
each partner in the above amount after taking into account that no interest has been
provided on an advance by A of ₹20,000 in addition to his capital contribution.
(A) ₹26,267 for Partner B and C and ₹27,466 for Partner A.
(B) ₹26,667 each partner.
(C) ₹33,333 for A ₹26,667 for B and ₹20,000 for C.
(D) ₹30,000 each partner.
Answer: A
29. X, Y, and Z are partners in a firm. At the time of division of profit for the year, there
was dispute between the partners. .Profit before interest on partner’s capital was
₹6,000 and Y determined interest @24% p.a. on his loan of ₹80,000. There was no
agreement on this point. Calculate the amount payable to X, Y, and Z respectively.
(A) ₹2,000 to each partner.
(B) Loss of ₹4,400 for X and Z; Twill take ₹14,800.
(C) ₹400 for A, ₹5,200 for Land ₹400 for Z.
(D) None of the above.
Answer: C
30. X, Y, and Z are partners in a firm. At the time of division of profit for the year, there
was dispute between the partners. Profit before interest on partner’s capital was
₹6,00,000 and Z demanded minimum profit of ₹5,00,000 as his financial position was not
good. However, there was no written agreement on this point.
(A) Other partners will pay Z the minimum profit and will share the loss equally.
(B) Other partners will pay Z the minimum profit and will share the loss in capital ratio.
(C) Xand T will take ₹50,000 each and Z will take ₹5,00,000.
(D) ₹2,00,000 to each of the partners.
Answer: D
31. On 1st June 2018 a partner introduced in the firm additional capital ₹50,000. In the
absence of partnership deed, on 31st March 2019 he will receive interest :
(A) ₹3,000
(B) Zero
[20]
(C) ₹2,500
(D) ₹1,800
Answer: B
32. On 1st January 2019, a partner advanced a loan of ₹1,00,000 to the firm. In the
absence of agreement, interest on loan on 31st March 2019 will be :
(A) Nil
(B) ₹1,500
(C) ₹3,000
(D) ₹6,000
Answer: B
33. A partner introduced additional capital of ₹30,000 and advanced a loan of ₹40,000 to
the firm at the beginning of the year. Partner will receive year’s interest:
(A) ₹4,200
(B) ₹2,400
(C) Nil
(D) ₹1,800
Answer: B
34. In the absence of partnership deed, partners share profits or losses :

(A) In the ratio of their Capitals
(B) In the ratio decided by the court
(C) Equally
(D) In the ratio of time devoted
Answer: C
35. In the absence of Partnership Deed :

(A) Interest will not be charged on partner’s drawings
(B) Interest will be charged @. 5% p.a. on partner’s drawings
[21]
(C) Interest will be charged @ 6% p.a. on partner’s drawings
(D) Interest will be charged @ 12% p.a. on partner’s drawings
Answer: A
36. In the absence of express agreement, interest @ 6% p.a. is provided :

(A) On opening balance of partner’s capital accounts
(B) On closing balance of partner’s capital accounts
(C) On loan given by partners to the firm
(D) On opening balance of partner’s current accounts
Answer: C
37. Which of the following items are recorded in the Profit & Loss Appropriation Account
of a partnership firm
(A) Interest on Capital
(B) Salary to Partner
(C) Transfer to Reserve
Answer: D
38. Is rent paid to a partner appropriation of profits

(A) It is appropriation of profit
(B) It is not appropriation of profit
(C) If partner’s contribution as capital is maximum
(D) If partner is a working partner.
Answer: B
(iii) Calculation of Profit and Division of Profit among partners

39. According to Profit and Loss Account, the net profit for the year is ₹1,50,000. The
total interest on partner’s capital is ₹18,000 and interest on partner’s drawings is
₹2,000. The net profit as per Profit and Loss Appropriation Account will be :
(A) ₹1,66,000
(B) ₹1,70,000
[22]
(C) ₹1,30,000
(D) ₹1,34,000
Answer: D
40. According to Profit and Loss Account, the net profit for the year is ₹4,20,000. Salary
of a partner is ₹5,000 per month and the commission of another partner is ₹10,000. The
interest on drawings of partners is ₹4,000. The net profit as per Profit and Loss
Appropriation Account will be :
(A) ₹3,54,000
(B) ₹3,46,000
(C) ₹4,09,000
(D) ₹4,01,000
Answer: A
41. A and B are partners. According to Profit and Loss Account, the net profit for the
year is ₹2,00,000. The total interest on partner’s drawings is ₹1,000. As salary is
₹40,000 per year and B’s salary is ₹3,000 per month. The net profit as per Profit and
Loss Appropriation Account will be :
(A) ₹1,23,000
(B) ₹1,25,000
(C) ₹1,56,000
(D) ₹1,58,000
Answer: B
42. According to Profit and Loss Account, the net profit for the year is ₹1,40,000. The
total interest on partner’s capital is RS 8,000 and a partner is to be allowed commission
of ₹5,000. The total interest on partner’s drawings is ₹1,200. The net profit as per
Profit and Loss Appropriation Account will be :
(A) ₹1,28,200
(B) ₹1,44,200
(C) ₹1,25,800
(D) ₹1,41,800
[23]
Answer: A
43. Sangeeta and Ankita are partners in a firm. Sangeeta’s capital is ₹70,000 and
Ankita’s Capital is ₹50.000. Firm’s profit is ₹60,000. Ankita share in profit will be :
(A) ₹25,000
(B) ₹3 0,000
(C) ₹35,000
(D) ₹20,00
Answer: B
44. A, B and C are partners. A’s capital is ₹3,00,000 and B’s capital is ₹1,00,000. C
has not invested any amount as capital but he alone manages the whole business. C
wants RS30,000 p.a. as salary. Firm earned a profit of ₹1,50,000. How much will be
each partner’s share of profit:
(A) A ₹60,000; B ₹60,000; C ₹Nil
(B) A ₹90,000; B ₹30,000; C ₹Nil
(C) A ₹40,000; B ₹40,000 and C ₹40,000
(D) A ₹50,000; B ₹50,000 and C ₹50,000.
Answer: D
45. Net profit of a firm is ₹49,500. Manager is entitled to a commission of 10% on

profits before charging his commission. Manager’s Commission will be :
(A) ₹4,950
(B) ₹4,500
(C) ₹5,500
(D) ₹495
Answer: A
46. Net profit of a firm is ₹79,800. Manager is entitled to a commission of 5% of profits

after charging his commission. Manager’s Commission will be :
(A) ₹4,200
(B) ₹380
[24]
(C) ₹3,990
(D) ₹3,800
Answer D
47. Ram and Shyam are partners in the ratio of 3:2. Before profit distribution, ‘ Ram
is entitled to 5% commission of the net profit (after charging such commission). Before
charging commission, firm’s profit was ₹42,000. Shyam’s share in profit will be :
(A) ₹16,000
(B) ₹24,000
(C) ₹26,000
(D) ₹16,400
Answer: A
48. A, B and C are partners in the ratio of 5 : 3 : 2. Before B’s salary of ₹17,000
firm’s profit is ₹97,000. How much in total B will receive from the firm
(A) ₹17,000
(B) ₹40,000
(C) ₹24,000
(D) ₹41,000
Answer: D
Hint: Total amount received by die partner will be Salary + Share of Profit
49. A, B and C are partners in a firm without any agreement. They have contributed
750,000, 730,000 and 720,000 by way of capital in the firm. A was unable to work for six
months in a year due to illness. At the end of year, firm earned a pro lit of 7 15,000.
A’s share in the profit will be :
(A) 77.500
(B) 73,750
(C) 75,000
(D) 72,500
Answer: C
[25]
50. In a partnership Firm, partner A is entitled a monthly salary of ₹7,500. At the end of
the year, firm earned a profit of ₹75,000 after charging T’s salary. If the manager is
entitled a commission of 10% on the net profit after charging his commission, Manager’s
commission will be :
(A) ₹7,500
(B) ₹16,500
(C) ₹8,250
(D) ₹15,000
Answer: D
51. Seeta and Geeta are partners sharing profits and losses in the ratio 4 : 1. Meeta
was manager who received the salary of ₹4,000 p.m. in addition to a commission of 5%
on net profits after charging such commission. Profit for the year is ₹6,78,000 before
charging salary. Find the total remuneration of Meeta.
(A) ₹78,000
(B) ₹88,000
(C) ₹87,000
(D) ₹76,000
Answer: A
52. Which of the following statement is true

(A) Fixed capital account will always have a credit balance
(B) Current account can have a positive or a negative balance
(C) Fluctuating capital account can have a positive or a negative balance
Answer: D
(iv) Capital Accounts of Partners

53. Which accounts are opened when the capitals are fixed
(A) Only Capital Accounts
(B) Only Current Accounts
(C) Capital Accounts as well as Current Accounts
(D) Either Capital Accounts or Current Accounts
[26]
Answer: C
54. Which accounts are opened when the capitals are fluctuating
(A) Only Capital Accounts
(B) Only Current Accounts
(C) Capital Accounts as well as Current Accounts
(D) Either Capital Accounts or Current Accounts
Answer: A
55. Balance of partner’s current accounts are :

(A) Debit balance
(B) Credit balances
(C) Debit or Credit balances
(D) Neither Debit nor credit balances
Answer: C
56. Which item is recorded on the credit side of partner’s current accounts :
(A) Interest on Fanner’s Capitals
(B) Salaries of Partners
(C) Share of profits of Partners
(D) All of the Above
Answer: D
57. If the Partners’ Capital Accounts are fixed ‘salary payable to partner’ will be
recorded :
(A) On the debit side of Partners’ Current Account
(B) On the debit side of Partners’ Capital Account
(C) On the credit side of Partners’ Current Account
Answer: C
[27]
58. It the Partner’s Capital Accounts are fixed, interest on capital will be recorded:
(A) On the credit side of Current Account
(B) On the credit side of Capital Account
(C) On the debit side of Current Account
(D) On the debit side of Capital Account
Answer: A
59. If the Partner’s Capital Accounts are fluctuating, in that case following item/items
will be recorded in the credit side of capital accounts :
(A) Interest on capital
(B) Salary of partners
(C) Commission of partners
Answer: D
60. Interest on partner’s capitals will be debited to :

(A) Profit and Loss Account
(B) Profit and Loss Appropriation Account
(C) Partner’s Capital Accounts
Answer: B
61. Interest on partner’s capitals will be credited to :

(C) Interest Account
(D) Partner’s Capital Accounts
Answer: D
62. For the firm interest on drawings is

(A) Capital Payment
(B) Expenses
[28]
(C) Capital Receipt
(D) Income
Answer: D
63. Interest on Partner’s drawings will be debited to :

(C) Partner’s Current Account
(D) Interest Account
Answer: C
64. When partners’ capital accounts are floating, which one of the following items will
be written on the credit side of the partners’ capital accounts :
(A) Interest on drawings
(B) Loan advanced by partner to the firm
(C) Partner’s share in the firm’s loss
(D) Salary to the active partners
Answer: D
65. When partners’ capital accounts are fixed, which one of the following items will be
written in the partner’s capital account :
(A) Partner’s Drawings
(B) Additional capital introduced by the partner in the firm
(C) Loan taken by partner from the firm
(D) Loan Advanced by partner to the firm
Answer: B
66. Interest on partner’s drawings will be credited to

[29]
(C) Partner’s Capital Accounts
Answer: B
67. For the firm interest on capital is :

(A) Capital Payment
(B) Capital Receipt
(C) Loss
(D) Income
Answer: C
(v) Interest on Capital

68. On 1st April 2018, 2fs Capital was ₹2,00,000. On 1st October 2018, he introduces
additional capital of ₹1,00,000. Interest on capital @ 6% p.a. on 31st March, 2019 will
be :
(A) ₹9,000
(B) ₹18,000
(C) ₹10,500
(D) ₹15,000
Answer: D
69. X and Y are partners in the ratio of 3 : 2. Their capitals are RS2,00,000 and
₹1,00,000 respectively. Interest on capitals is allowed @ 8% p.a. Firm earned a profit
of RS60,000 for the year ended 31st March 2019. Interest on Capital will be :
(A) X ₹16,000; Y ₹8,000
(B) V ₹8.000; Y ₹4,000
(C) X ₹14,400; Y ₹9,600
(D) No Interest will be allowed
Answer: A
70. X and Y are partners in the ratio of 3:2. Their capitals are ₹2,00,000 and ₹1,00,000
respectively. Interest on capitals is allowed @ 8% p.a. Firm earned a profit of ₹15,000
[30]
for the year ended 31st March 2019. Interest on Capital will be :
(A) X ₹16,000; Y ₹8,000
(B) X ₹9,000; Y ₹6,000
(C) X ₹10,000; Y ₹5,000
Answer: C
71. X and Y are partners in the ratio of 3:2. Their capitals are RS2,00,000 and
₹1,00,000 respectively. Interest on capitals is allowed @ 8% p.a. Firm incurred a loss
of ₹60,000 for the year ended 31st March 2019. Interest on Capital will be :
(A) X ₹16,000; Y ₹8,000
(B) A ₹8,000; Y ₹4,000
(C) X ₹14,400; Y ₹9,600
Answer: D
72. X and Y are partners in the ratio of 3:2. Their capitals are ₹2,00,000 and ₹1,00,000
respectively. Interest on capitals is allowed @ 8% p.a. Firm earned a profit of ₹15,000
for the year ended 31st March 2019. As per partnership agreement, interest on capital is
treated a charge on profits. Interest on Capital will be :
(A) X ₹16,000; Y ₹8,000
(B) X ₹9,000; Y ₹6,000
(C) X ₹10,000; Y ₹5,000
Answer: A
73. A and B contribute ₹1,00,000 and RS₹60,000 respectively in a partnership firm by

way of capital on which they agree to allow interest @ 8% p.a. Their profit or loss
sharing ratio is 3 : 2. The profit at the end of the year was ₹2,800 before allowing
interest on capital. If there is a clear agreement that interest on capital will be paid even
in case of loss, then S’s share will be:
(A) Profit ₹6,000
(B) Profit ₹4,000
(C) Loss ₹6,000
(D) Loss ₹4,000
[31]
Answer: D
(vi) [nterest on Drawings

74. Partners are suppose to pay interest on drawing only when by the
(A) Provided, Agreement
(B) Permitted, Investors
(C) Agreed, Partners
(D) ‘A’ & ‘C’ above
Answer: D
75. Where will you record interest on drawings :

(A) Debit Side of Profit & Loss Appropriation Account
(B) Credit Side of Profit & Loss Appropriation Account
(C) Credit Side of Profit & Loss Account
(D) Debit Side of Capital/Current Account only
Answer: B
76. How would you close the Partner’s Drawing Account:

(A) By transfer to Capital or Current Account Debit Side.
(B) By transfer to Capital Account Credit Side.
(C) By transfer to Current Account Credit Side.
(D) Either ‘B‘ or ‘C’.
Answer: A
77. If date of drawings of the partner’s is not given in the question, interest is charged
for how much time
(A) 1 month
(B) 3 months
(C) 6 months
(D) 12 months
[32]
Answer: C
78.Vikas is a partner in a firm. His drawings during the year ended 31st March, 2019
were RS72,000. If interest on drawings is charged @ 9% p.a. the interest charged will
be :
(A) ₹324
(B) ₹6,480
(C) ₹3,240
(D) ₹648
Answer: C
79. If a fixed amount is withdrawn by a partner on the first day of every month, interest
on the total amount is charged for …………… months :
(A) 6
(B) 61/2
(C) 51/2
(D) 12
Answer: B
80. If a fixed amount is withdrawn by a partner on the last day of every month, interest
on the total amount is charged for …………… months :
(A) 12
(B) 6 1/2
(C) 5 1/2
(D) 6
Answer: C
81. If a fixed amount is withdrawn by a partner in the middle of every month, interest on
the total amount is charged for …………… months
(A) 6
(B) 6 1/2
(C) 5 1/2
(D) 12
[33]
Answer: A
82. In a partnership firm, a partner withdrew ₹5,000 per month on the first day of every
month during the year for personal expenses. If interest on drawings is charged @ 6%
p.a. the interest charged will be : (C.S. Foundation, Dec. 2012)
(A) ₹3,600
(B) ₹1,950
(C) ₹1,800
(D) ₹1,650
Answer: B
83. Ajay is a partner in a firm. He withdrew ₹2,000 per month on the last day of every
month during the year ended 31st March, 2019. If interest on drawings is charged @ 9%
p.a. the interest charged will be :
(A) ₹990
(B) ₹1,080
(C) ₹1,170
(D) ₹2,160
Answer: A
84. Sushil is a partner in a firm. He withdrew ₹4,000 per month in the middle of every
month during the year ended 31st March, 2019. If interest on drawings is charged @ 8%
p.a. the interest charged will be :
(A) ₹2,080
(B) ₹1,760
(C) ₹3,840
(D) ₹1,920
Answer: D
85. If fixed amount is withdrawn by a partner on the first day of each quarter, interest on
the total amount is charged for …………….. months
(A) 4.5
(B) 6
[34]
(C) 7.5
(D) 3
Answer: C
86. If a fixed amount is withdrawn by a partner on the last day of each quarter, interest
on the total amount is charged for ……………… months
(A) 6
(B) 4.5
(C) 7.5
(D) 3
Answer: B
87. If a fixed amount is withdrawn by a partner in each quarter, interest on the total
amount is charged for ……………….. months
(A) 3
(B) 6
(C) 4.5
(D) 7.5
Answer: B
88. Anuradha is a partner in a firm. She withdrew ₹6,000 in the beginning of each
quarter during the year ended 31st March, 2019. Interest on her drawings @ 10% p.a.
will be :
(A) ₹900
(B) ₹1,200
(C) ₹1,500
(D) ₹600
Answer: C
89. Bipasa is a partner in a firm. She withdrew ₹6,000 at the end of each quarter during
the year ended 31st March, 2019. Interest on her drawings @ 10% p.a. will be :
(A) ₹900
[35]
(B) ₹600
(C) ₹1,500
(D) ₹1,200
Answer: A
90. Charulata is a partner in a firm. She withdrew ₹10,000 in each quarter during the
year ended 31st March, 2019. Interest on her drawings @ 9% p.a. will be:
(A) ₹1,350
(B) ₹2,250
(C) ₹900
(D) ₹1,800
Answer: D
Short answer questions

1 Anna and Bobby were partners sharing profits and losses in the ratio of 5 : 3. On 1st 1
April 2014, their capital accounts showed balances of Rs 3,00,000 and Rs 2,00,000
respectively. Calculate the amount of profit to be distributed between the partners if the
partnership deed provided for interest on capital @ 10% per annum and the firm earned a
profit of Rs 45,000 for the year ended 31st March 2015.
[36]
Solution :_No profit will be distributed as the amount of profit (i e., Rs 45,000) is not
sufficient to pay the interest on capital (Rs 50,000),so Interest on capital i.e.
Rs.45,000, to be provided in the interest ratio of the partners.
2. What do you understand by Sacrificing Partners? 1
Solution :_The partners whose share stand decreased as a result of change in profit-
sharing ratio are known as Sacrificing Partners. Sacrificing ratio shows the sacrifice of
share of each sacrificing partner.
3. What do you understand by Sacrificing Ratio? 1
Solution :_Sacrificing ratio is the ratio in which the partner or partners have agreed to
sacrifice their share of profit in favour of one or more partners of the firm. Sacrificing
ratio of each partner is calculated as follows: Sacrificing Ratio = Old Ratio - New Ratio
4. What is meant by Partnership? / Define Partnership. 1

Ans. According to Section 4 of Indian Partnership Act 1932, “Partnership is the
relation between persons who have agreed to share the profits of a business carried
on by all or any of them acting for all”.
5. What is the status of partnership firm from an accounting viewpoint? 1

Ans. From the accounting view point, Partnership is a separate business entity from
the partners.
6. Which Act of the Parliament specified the number of partners in Partnership? Ans. 1
Section 464 of Companies Act, 2013
7 Name the Act under which partnership is governed? 1
Ans. Partnership Act, 1932.
8 What is a legal status of a firm? 1

Ans. A firm is not a legal person it is merely a collection of partners.
9 Mention two items that are recorded in Partners 1

Fixed Capital Account. Ans. i) Capital
Withdrawal ii) Fresh Capital Introduced.
10 What are the circumstances under which the balance of the ‘Fixed capitals Accounts’ 1
may change?
Ans. i) Additional capital Introduced. ii) Capital Withdrawn.
11 Would a “Charitable Dispensary” run by 8 members be deemed a Partnership Firm? 1

Give reason in support of your
answer.
[37]
(i) In Partnership, there must be a business;
(ii) There must be sharing of profits from such business among the partners.
12 Why is it preferable to have a written agreement between the partners? Ans. To avoid 1
all kinds of misunderstanding and disputes among the partners
13 Why is that the Fixed Capital Account of a partner does not show “Debit Balance” in 1
spite of regular and
Consistent losses year after year?
Ans. When the capitals are fixed, the Capital Account of a partner will never show
debit balance since, all transactions between the firm and the partner are recorded
in Current Account.
14 A & B are two working partners whereas B is sleeping partner in the firm. 1
B wants to inspect books of Accounts but A denies. What shall be done?
Ans. A is wrong, he cannot deny as B holds the right to inspect the accounts
15 Under fixed capital method, partner’s drawings are shown in which account? 1
Ans. Partners Current A/cs
16 1
Debit balance of Partners Current A/Cs is shown on which
side of the balance sheet?
Ans. Assets side.
17 1
Give the journal entry of P & L credit balance.
Ans. Profit and Loss A/c Dr
To Profit and Loss Appropriation A/c.
18 If the partners’ capitals account are fixed where will you 1

record drawings of partners?
Ans. Debit side of partners current A/c.
19 How will you calculate interest on drawings when date of 1

withdrawal is not given?
Ans. It will be calculated on the average basis of 6
months.
20 In which account interest on partners loan is debited and why? 1

Ans. It is debited to Profit and Loss Account because it
is a charge against theprofit
21 A and B are partners in a firm sharing profit in the ratio of 3:2. They had advanced to 1
the firm a sum of Rs. 30,000 as a loan in their profits sharing ratio on 1st Oct. 2014.
The partnership deed is silent on the question of interest on loan for partners. Compute
the interest payable by the firm to the partners, assuming the firm closes its books on
31st March.
[38]
Ans. A- Rs.540 B- Rs. 360. (Note: In the absence of
Partnership deed, 6% p.a will be allowed as Interest on Loan)
22 In the absence of Partnership deed, how are mutual relations of partners governed? 1
Ans. In the absence of |Partnership deed, mutual relations are governed by The
Indian partnership Act 1932.
18.
23 A,B and C are partners and decided that no interest on drawings is to be charged from 1
any Partner. But after one Year ‘C’wants that interest on drawings should be charged
from every partner. State how ‘C’ can do this?
Ans. He can do so only by changing the Partnership deed with the consent of all
partners.
24 Can a Partner be exempted from sharing the losses in a firm? If yes, 1

under what circumstances?
Ans. Yes, if Partnership Deed provides so.
25 What share of profits would a “sleeping partner” who has contributed 75% 1
of the total Capital get in the absence of Partnership Deed?
Ans. In the absence of Partnership Deed, a sleeping partner will get equal share
of profits.
26 Can a Partner be exempted from sharing the losses in a firm? If yes, 1

under what circumstances?
Ans. Yes, if Partnership Deed provides so.
27 What share of profits would a “sleeping partner” who has contributed 75% `1
of the total Capital get in the absence of Partnership Deed?
Ans. In the absence of Partnership Deed, a sleeping partner will get equal share
of profits.
PRACTICAL QUESTIONS
1 A, B and C were partners in a firm. On 1 ST January, 2018, their fixed capitals 4

were ₹ 60,000, ₹30,000 and ₹ 30,000 respectively. As per partnership deed,
partners were entitled to
(a) Salary to C at ₹500 per month.
(b) Interest on Capital 5% p.a.
(c) Profits to be shared in the capital ratio.
Net profit for 20 18 amounting to ₹ 15,000 was divided equally without providing for
[39]
above adjustments. Pass adjustment entry to rectify the above errors.
SOLUTION:
A’s current a/c Dr 500

B’s current a/c Dr 2750
To C’s current account 3250
( rectification of salary and IOC)
ANALYSE TABLE
PARTIC FIRM A B C
ULARS
Dr Cr Dr Cr Dr Cr Dr Cr
Profit 15000 5000 5000 5000
revised
Salary 6000
to C 6000
IOC
Diff. 6000 3000 1500 1500
adj
750
3000 1500 750
15000 15000 5000 4500 5000 2250 5000 8250
differe 500 2750 320
nce
2 Amit and Sumit are partners in ratio of 3 :1. They invested ₹ 50,000 and ₹ 4
100,000 as their capitals. Amit has advanced a loan of ₹ 20,0O0 to the firm.
Partners are entitled to:
1) Intereston capital @10% pa
2) Salary to a Rs 5000 per quarter
Net profit for the year was Rs 22,200
Prepare Profit & Loss Appropriation Account if :
(a) Interest on capital and salary are appropriation
(b) Interest on capital and salary are treated as charge against
profits.
[40]
SOLUTION:
(a) PROFIT AND LOSS APPROPRIATION ACCOUNT
Ioc Net profit 22200

Amit 3000 Less: interest
Sumit 6000 9000 On Amits loan 1200 21000
Sumit’s salary 12000
21000 21000
Working note:
Total appropriation
Amit’s IOC Rs 5000+ Sumit’s IOC 10000+ Sumi’s salary Rs 20000=35000
Profit is less than total appropriation I.e Appropriation will be in the ratio of
=5000:10000:20000 or 1:2:4
(b)interest and salary considered as charged

Profit and loss Adjustment account
Interest on capital Net profit 22200

Amit 5000 Less: interest on
Sumit 10000 15000 Amits loan 1200 21000
Sumit salary 20000 (loss transferred)
Amit 10500
Sumit 3500 14000
35000 35000
3 Raju and Jai commenced business in partnership on April 1, 2019. No partnership agreement was 4
made whether oral or written. They contributed `4,00,000 and `1,00,000 respectively as capitals.
In addtion, Raju advanced `2,00,000 as loan to the firm on October 1, 2019. Raju met with an
accident on July 1, 2019 and could not attend the business up to september 30, 2019. The profit
for the year ended March 31, 2020 amounted to `50,000 before charging interest on Raju’s loan.
Disputes have arisen between them on sharing the profits of the firm. Raju Claims:
(i) He should be given interest at 10% p.a. on capital and so also on loan. (ii) Profit should be
distributed in the
proportion of capitals. Jai Claims: (i) Net profit should be shared equally. (ii) He should be allowed
remuneration of
`1,000 p.m. during the period of Raju’s illness. (iii) Interest on capital and loan should be given @
6% p.a.
State the correct position on each issue as per the provisions of the Partnership Act, 1932.
[41]
SOLUTION:
Settlement of disputes as per the provisions of the Partnership Act, 1932:
(i) No interest is payable on Partners’ capitals in the absence of partnership agreement.
(ii) Interest on Raju’s loan is payable @6% p.a., i.e., 2,00,000 × 6% × 6/12 = `6,000
(iii) Jai’s claim for remuneration @ `1,000 p.m. is not valid since no remuneration is payable when
there is no
partnership agreement.
(iv) Profits should be distributed equally among the partners irrespective of their capital
contributions.
Net profit after charging interest on Raju’s loan = 50,000 – 6,000 = `44,000, which will be
distributed equally
between Raju and Jai, i.e. RS `22,000 each.
4 Harsh and Keshav are partners sharing profits and losses in the ratio of 3:1. Their capitals at the 4
end of the financial year 2019-20 were `1,50,000 and `75,000. During the year 2019-20, Harsh’s
drawings were `20,000 and the drawings of Keshav were `5,000, which had been duly debited to
partner’s capital accounts. Profit before charging interest on capital for the year was `16,000. The
same had also been distributed in their profit sharing ratio. Keshav
had brought additional capital of `16,000 on October 1, 2019. Interest on capital is allowed @ 12%
p.a.
SOLUTION:
.
Calculation of Opening Capitals:
Particulars HARSH KESHAV
Capital at the end 1,50,000 75,000

Add: Drawings during the year 20,000 5,000
Less: Share of profit already distributed (12,000) (4,000)
Less: Additional capital – (16,000)
Capital in the beginning 158000 60000
Interest on Harsh’s Capital = 12% of 1,58,000 = `18,960

Interest on Keshav’s Capital =(12 %OF 60, 000 X6/12)+(76, 000 X12 X6/12 = 3,600 + 4,560 =
`8,160
Total interest payable to the partners = 18,960 + 8,160 = `27,120.
But profit for the year is `16,000, which is less than total interest payable.
Therefore, the payment of interest on capital will be restricted to the amount of profits.
In that case, the profit will be effectively distributed in the ratio of interest on capital of each
partner i.e. 18,960 : 8,160.
Interest on Harsh’s Capital = 18 960/27120X16000=11186
Interest on Keshav’s Capital = 8 160/27120X16000=4814
[42]
5 A and B are partners sharing profits in the ratio of 3:2, with capitals of `50,000 and `30,000
respectively. Interest 4
on capital is agreed @ 6% p.a. B is to be allowed a quarterly salary of `625. Manager is to be
allowed commission
`5,000. A has also given a Loan on 1 October 2019 of `1,00,000 to the firm without any agreement.
During the year
2019-20, the profits earned is `22,250.
SOLUTION:
.
Profit and Loss Appropriation Account for the year ending March 31, 2020
Particulars Amount Particulars Amount
To B’s Capital A/c: Salary (`625 × 4) 2,500 By Profit and Loss A/c – Net Profit 14250
To Interest on capital: A’s Capital 4,800 b/d
A/c 3,000 6,950
B’s Capital A/c 1,800
To Profit transferred to: A’s Capital
A/c 4,170
B’s Capital A/c 2,780
14250 14250
Working notes: Interest on A’s Loan = `1,00,000 × 6/100 × 6/12 = `3,000

Manager’s Commission and Interest on Partner’s Loan are charged to Profit and Loss Account.
Dr. Profit and Loss Account

Cr.
To Manager’s 5,000 By Profit 22250

Commission
To Interest on A’s 3,000
Loan
To Net Profit c/d 14,250
22250 22250
6
Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:
(i) Profits would be shared by Sukesh and Vanita in the ratio of 3:2. 6
(ii) 5% p.a. interest is to be allowed on capital.
(iii) Vanita should be paid a monthly salary of `600.
The following balances are extracted from the books of the firm, on March 31, 2019.
[43]
Particulars Sukesh Vanita
Capital Accounts 40,000 40,000
Current Accounts 7,200 (Cr.) 2,800 (Dr.)
Drawings 10,850 8,150
Net profit for the year, before charging interest on capital and after charging partner’s salary was
`9,500.
Prepare the Profit and Loss Appropriation Account for the year ending 31 March 2020 and the
Partner’s Current
Accounts.
SOLUTION:
Books of Sukesh and Vanita
Dr. Profit and Loss Appropriation Account for the year ending 31 March 2020 Cr.
To Salary- Vanita’s Current A/c (600 7,200 By Net profit (before Vanita’s 16,700
× 12) Salary)
To Interest on Capital (9,500 + 7,200)
Sukesh’s Current A/c 2,000
Vanita’s Current A/c 2,000 4,000
To Share of Profit transferred to:
Sukesh’s Current A/c 3,300
Vanita’s Current A/c 2,200 5,500
16,700 16,700
Dr. Partners’ Current Accounts

Cr.
Dat Particulars Sukesh Vanita Dat Particulars Sukesh Vanita
e e
To Balance b/d 10,850 2,800 By Balance b/d 7,200 7,200
To Bank A/c 1,650 8,150 By Salary A/c 2,000 2,000
(Drawings) 450 By Interest on 3,300 2,200
To Balance c/d capital
By Profit and
Loss
Appropriation
A/c
(for share of
profit)
12500 11400 12500 11400
[44]
7 Alpha & Beta are partners with capitals of ₹ 2,00,000 and ₹ 1,00,000
respectively. Give journal entries for distribution of profit according to
following provisions in the deed.
A) Partners are entitled to interest on capital@5% p.a.
B) B being a working partner was also allowed a half yearly
salary of ₹ 10,000.
C) Profits were to be divided as follows:
(i) First ₹ 30,000 in proportion to their capitals
(ii) Next ₹ 20,000 in ratio of 3 : 2
(iii) Remaining profits to be shared equally.
Profit for the year was ₹ 100000.
SOLUTION:
Profit & Loss A/c Dr. 10000

To Profit & Loss App. A/r 0
(NetprofittransferredtoAppropriationA/c 100000
)
Interest on Capital A/c 15000
To Alpha’s Capital A/c
10000
To Beta’s Capital A/c
5000
(Interest on Capital allowed 5%)|
Profit & Loss App. A/c 15000
To Interest on Capital A/c (Interest on Capital
transferred|) 15000
Partner’s Salary A/c 20000
(Salary allowed to Beta R s 5,O0O 20000
quarter)
To Partners’ Salary A/c (Partner’s Salary
transferred| 20000
To Alpha’s Capital A/c
39500
25500
(divisible profits distributed)
[45]
profit R++++++ ALPH BETA
A
DIVISIBLE 2:1 65000 20000 10000
PROFIT (30000)
30000
20000 3:2 35000 12000 8000
(20000)
15000 1:1 15000 7500 7500
TOTAL 39500 25500
[46]
3.RECONSTITUTION OF PARTNERSHIP FIRM – ADMISSION OF
A PARTNER
MCQ:
1. When is Revaluation A/c prepared?

a) At the time of admission
b) At the time of retirement
c) At the time of death
d) All of the above
2. Profit or loss on revaluation of assets is transferred to Partners’ Capital account in

which ratio?
a) Equally
b) Profit sharing ratio
c) Fixed capital ratio
d) Current capital ratio
3. New partner may be admitted to partnership:

a) With the consent of all the old partners
b) With the consent of any one partner
c) With the consent of 2/3rd of the old partners
d) With the consent of 3/4th of the old partners
4. When a new partner is admitted into the firm the old partner stands to :
a) Gain in profit sharing ratio
b) Lose in profit sharing ratio
c) Not affected at all
d) Only one partner gain other loose
5. The proportion in which old partners make a sacrifice:

a) Ratio of capital
b) Ratio of sacrifice
c) Gaining ratio
d) Profit sharing ratio
6. General reserve at the time of admission of a partner is transferred to:

a) Revaluation a/c
[47]
b) Partners’ capital a/c
c) Neither of two
d) Profit and loss a/c
7. All accumulated losses are transferred to the capital a/c of the partners in:
a) New profit sharing ratio
b) Old profit sharing ratio
c) Capital ratio
d) None of the above
8. When goodwill is not recorded in the books at all on admission of a partner:

a) If paid privately
b) If brought in cash
c) If not brought in cash
d) If brought in kind
9. The need of revaluation of assets and liabilities on admission:

a) Assets and liabilities should appear at revised value
b) Any profit and loss on account of change in values belong to old partners
c) All unrecorded assets and liabilities get recorded
10. On admission of a partner, which of the following items of the balance sheet is
transferred to the credit of capital accounts of old partners in the old profit sharing
ratio, if capital accounts are maintained on fluctuating capital accounts method:
a) Deferred revenue expenditure
b) Profit and loss account (debit balance)
c) Profit and loss account (credit balance)
d) Balance in drawing account of partners
11. If the new partner brings his share of goodwill in cash, it will be shared by old
partners in:
a) Sacrificing ratio
b) Old profit sharing ratio
c) New ratio
d) Capital ratio
[48]
12. Revaluation account is a :
a) Real account
b) Nominal account
c) Personal account
13. When new partner brings cash for goodwill, the amount is credited to:
a) Realization account
b) Cash account
c) Premium for goodwill account
d) Revaluation account
14. The balance in the investment fluctuation fund after meeting the fall in book value of
investment, at the time of admission of partner will be transferred to:
a) Revaluation account
b) Capital accounts of old partners
c) General reserve
d) Capital account of all partners
15. A and B are partners sharing profits in the ratio of 3:2. They admit C for ¼
Rs.30000 for his share of goodwill. The total value of the goodwill of the firm will
be:
a) 150000
b) 120000
c) 100000
d) 160000
16. The credit balance of profits abnd loss account appears in the books at the time of
admission of partner will be transferred to:
a) Profit and loss appropriation account
b) All partners capital account
c) Old partners capital account
17. Goodwill of the firm is valued at Rs.100000. Goodwill also appears in the books
at RS.50000. C is admitted for ¼ share. The amount of goodwill to be brought
in by C will be:
[49]
a) 20000
b) 25000
c) 30000
d) 40000
18. If the new partner brings any additional cash other than his capital contributions
then it is termed as:
a) Capital
b) Reserves
c) Profits
d) Premium for goodwill
19. A and B are partners sharing profits and losses in the ratio of 3:2. C is admitted for
1/5 share in profits which he gets from A. New profit sharing ratio will be:
a) 12:8:5
b) 8:12:5
c) 2:2:1
d) 2:2:2
20. A and B are partners sharing profits and losses in the ratio of 3:2. A’s capital is
Rs.120000 and B’s capital is Rs.60000. they admit C for 1/5th share of profits. C
should bring as his capital:
a) 36000
b) 48000
c) 58000
d) 45000
21. If at the of admission, some balance of profit and loss account appears in the books,
it will be transferred to :
a) Profit and loss adjustment account
b) All partners’ capital account
c) Old partners’ capital account
22. When a new partner brings his share of goodwill in cash, the amount is debited to:
a) Cash account
b) Capital accounts of the new partner
c) Goodwill account
[50]
d) Capital accounts of the old partner
23. When new partner does not bring his share of goodwill in cash, the amount is
debited to:
a) Current account of the new partner
b) Premium account
c) Capital account of the old partners
d) Cash account
24. At the time of admission of a new partner, the entry for unrecorded investment will
be:
a) Dr. Investment A/c and Cr. Revaluation A/c
b) Dr. Partners’ Capital A/c and Cr. Investment A/c
c) Dr. Revaluation A/c and Cr. Investment A/c
25. A, B, C, and D are partners. A and B share 2/3rd of profits equally and C and D share
remaining profits in the ratio of 3:2. Find the profit sharing ratio of A/ B, C and
D.
a) 5:5:3:2
b) 7:7:6:4
c) 2.5:2.5:8:6
d) 3:9:8:3
26. X and Y are partners in a firm with capital of Rs.180000 and Rs.200000. Z was
admitted for 1/3rd share in profits and brings Rs.340000 as capital. Calculate the
amount of goodwill
a) 240000
b) 100000
c) 150000
d) 300000
27. A and B are partners sharing profits and losses in the ratio of 5:3. On admission,
C brings Rs.70000 as capital and Rs.43000 against goodwill. New profit ratio
between A, B and C is 7:5:4. The sacrificing ratio of A and B is:
a) 3:1
b) 1:3
c) 4:5
[51]
d) 5:9
28. Ramesh and Suresh are partners sharing profits in the ratio of 2:1 respectively.
Ramesh’s capital is Rs.102000 and Suresh capital is Rs.73000. they admit
Mahesh and agreed to give him 1/5th share in future profit. Mahesh brings
Rs.14000 as his share of goodwill. He agrees to contribute capital in the new
profits sharing ratio. How much capital will be brought by Mahesh?
a) 43750
b) 45000
c) 47250
d) 48000
29. A and B are partners in a firm having capital of Rs.54000 and Rs.36000
respectively. They admitted C for 1/3rd share in the profits. C brought
proportionate amount of capital. The capital brought in by C would be
a) 90000
b) 45000
c) 5400
d) 36000
30. Anil and Aman are partners sharing profits and losses in the ratio of 3:2. Akhil is
admitted as a new partner for 1/3rd share in the profits. Goodwill of the firm is
valued at Rs.60000 and goodwill already appears in the books at Rs.18000. It is
decided that the existing goodwill should continue to appear in the books at its old
value. Akhil’s share of goodwill is:
a) 26000
b) 14000
c) 20000
d) 6000
31. Ajay and Vijay are partners sharing profits in the ratio of 2:1. Ajay’s son Anil was
admitted for ¼ share of which 1/8 was gifted by Ajay to his son. The remaining was
contributed by Vijay. Goodwill of the firm is valued at Rs.40000. How much of
the goodwill will be credited to each of old partners’ capital account:
a) 2500
b) 5000
c) 20000
[52]
32. On the admission of a new partner increase in the value of assets is debited to :
a) Profit and loss adjustment account
b) Assets account
c) Old partners’ capital account
33. At the time of admission of a partner, undistributed profits appearing in the balance
sheet of the old firm is transferred to the capital accounts of :
a) Old partners in old profit sharing ratio
b) Old partners in new profit sharing ratio
c) All the partner in the new profit sharing ratio
34. Which of the following is not the reconstitution of partnership?
a) Admission of a partner
b) Dissolution of Partnership
c) Change in Profit Sharing Ratio
d) Retirement of a partner
35. On the admission of a new partner:

a) Old partnership is dissolved
b) Both old partnership and firm are dissolved
c) Old firm is dissolved
36. Sacrificing ratio is used to distribute ------------------ in case of admission

of a partner.
a) Goodwill
b) Revaluation Profit or Loss
c) Profit and Loss Account (Credit Balance)
d) Both b and c
37. Himanshu and Naman share profits & losses equally. Their capitals were Rs.1,20,000
and Rs. 80,000 respectively. There was also a balance of Rs. 60,000 in General
reserve and revaluation gain amounted to Rs. 15,000. They admit friend Ashish
with 1/5 share. Ashish brings Rs.90,000 as capital. Calculate the amount of
goodwill of the firm.
a. Rs.1,00,000
b. Rs. 85,000
c. Rs.20,000
d. None of the above
[53]
38. Yash and Manan are partners sharing profits in the ratio of2:1. They admit Kushagra
into partnership for 25% share of profit. Kushagra acquired the share from old
partners in the ratio of 3:2. The new profit sharing ratio will be:
a) 14:31:15
b) 3:2:1
c) 31:14:15
d) 2:3:1
39. A and B are partners sharing profit and losses in ratio of 5:3. C is admitted for 1/4th
share. On the date of reconstitution, the debtors stood at Rs 40,000, bill receivable
stood at Rs. 10,000 and the provision for doubtful debts appeared at Rs. 4000. A
bill receivable, of Rs 10,000 which was discounted from the bank, earlier has been
reported to be dishonored. The firm has sold, the debtor so arising to a debt collection
agency at a loss of 40%. If bad debts now have arisen for Rs 6,000 and firm decides to
maintain provisions at same rate as before then amount of Provision to be debited to
Revaluation Account would be:
a) Rs 4,400
b) Rs 4,000
c) Rs 3,400
40. Heena and Sudha share Profit & Loss equally. Their capitals were Rs.1,20,000 and
Rs. 80,000 respectively. There was also a balance of Rs. 60,000 in General reserve
and revaluation gain amounted to Rs. 15,000. They admit friend Teena with 1/5
share. Teena brings Rs.90,000 as capital. Calculate the amount of goodwill of the
firm.
a) Rs.85,000
b) Rs.1,00,000
c) Rs.20,000
41. Which of the following is not true with respect to Admission of a partner?
a) A new partner can be admitted if it is agreed in the partnership deed.

b) If all the partners agree, a new partner can be admitted.
c) A new partner has to bring relatively higher capital as compared to the existing
partners
d) A new partner gets right in the assets of the firm
42. As per ---------, only purchased goodwill can be shown in the Balance Sheet.
a) AS 37
b) AS 26
c) Section 37
d) AS 37
[54]
43. A, and B are partners sharing profits in the ratio of 2:3. Their balance sheet shows
machinery at ₹2,00,000; stock ₹80,000, and debtors at ₹1,60,000. C is admitted and
the new profit sharing ratio is 6:9:5. Machinery is revalued at ₹1,40,000 and a
provision is made for doubtful debts @5%. A’s share in loss on revaluation amount to
₹20,000. Revalued value of stock will be:
a) ₹62,000
b) ₹1,00,000
c) ₹60,000
d) ₹98,000
44. At the time of admission of a partner, Employees Provident Fund is:

a) Distributed to partners in the old profit sharing ratio
b) Distributed to partners in the new profit sharing ratio
c) Adjusted through gaining ratio
45. If at the time of admission if there is some unrecorded liability, it will be -------
------to -- ------------ Account.
a) Debited, Revaluation
b) Credited, Revaluation
c) Debited, Goodwill
d) Credited, Partners’ Capital
46. At the time of admission of a new partner, the balance of Workmen Compensation
Reserve will be transferred to:
a) Old partners in the old profit sharing ratio
b) Sacrificing partners in the sacrificing ratio
c) Revaluation Account
d) All partners in the new profit sharing ratio
47. The firm of P, Q and R with profit sharing ratio of 6:3:1, had the balance in General
Reserve Account amounting Rs. 1,80,000. S joined as a new partner and the new
profit sharing ratio was decided to be 3:3:3:1. Partners decide to keep the General
Reserve unchanged in the books of accounts. The effect will be:
a) P will be credited by Rs. 54,000
b) P will be debited by Rs. 54,000
c) P will be credited by Rs. 36.000
d) P will be credited by Rs. 36,000
48. Which statement is true with respect to AS-26?

a) Purchased goodwill can be shown in the Balance Sheet
b) Revalued goodwill can be shown in the Balance Sheet
c) Both purchased goodwill and revalued can be shown in the Balance Sheet
[55]
49. Premium brought by newly admitted partner should be:

a) Credited to sacrificing partners
b) Credited to all partners in the new profit sharing ratio
c) Credited to old partners in the old profit sharing ratio
d) Credited to only gaining partners
50. Sacrificing ratio is calculated because:

a) Profit shown by Revaluation Account can be credited to sacrificing partners
b) Goodwill brought in by the incoming partner can be credited to the new partner
c) Goodwill brought in by the incoming partner can be credited to the sacrificing partners
d) Both a and c
51. Aryaman and Bholu are partners sharing profit and losses in ratio of 5:3. Chirag is
admitted for 1/4th share. On the date of reconstitution, the debtors stood at Rs
40,000, bill receivable stood at Rs. 10,000 and the provision for doubtful debts
appeared at Rs. 4000. A bill receivable, of Rs 10,000 which was discounted from the
bank, earlier has been reported to be dishonored. The firm has sold, the debtor so
arising to a debt collection agency at a loss of 40%. If bad debts now have arisen for Rs
6,000 and firm decides to maintain provisions at same rate as before then amount of
Provision to be debited to Revaluation Account would be:
a. Rs 4,400
b. Rs 4,000
c. Rs.3,400
d. None of the above
52. Match the following:
i. Sacrificing Ratio A Nominal Account
ii. Gaining Ratio B Reconstitution of Partnership
iii. Revaluation Account C New Ratio – Old Ratio
iv. Admission of a Partner D Old Ratio – New Ratio
a) i- B, ii-C, iii-A, iv-D

b) i- D, ii-B, iii-A, iv-C
c) i- D, ii-C, iii-A, iv-B
d) i- D, ii-C, iii-B, iv-A
53. Match the following with respect to journal entries for treatment of goodwill.
i. Incoming partner brings his share of A No Entry
goodwill
ii. Incoming partner does not bring his B Premium for Goodwill A/c Dr.
share of goodwill Incoming Partner’s Capital A/c
Dr.
To Sacrificing Partners Capital A/c
[56]
iii. Incoming partner pays his share of C Premium for Goodwill A/c Dr.
goodwill privately To Sacrificing Partners Capital A/c
iv. Incoming partner brings only a part of D Incoming Partner’s Capital A/c
his share of goodwill Dr.
To Sacrificing Partners Capital A/c
a) i- B, ii-C, iii-A, iv-D

b) i- C, ii-D, iii-A, iv-B
c) i- D, ii-C, iii-A, iv-B
d) i- D, ii-C, iii-B, iv-A
54. A and B are partners in a firm sharing profits in 4:1. They admit Pal as a new partner
for ¼ share in the profits, which he acquired wholly from A. New profit sharing ratio of the
partners is:
a) 4:1:1
b) Equally
c) 11:4:5
d) none of the above
55. A and B are partners sharing profits in the ratio of 3:1. C is admitted to partnership
firm for 1/4th share. The sacrificing ratio of A and B will be:
a) Equal
b) 2:1
c) 3:2
d) 3:1
56. The profit sharing ratio of Seeema and Ghosh was 5:3. They admitted Munmun as a
new partner and the new profit sharing ratio of Seema, Gosh and Munmun was 4:3:3. The
sacrificing ratio Seem and Gosh will be:
a) 5:3
b) 4:3
c) 1:1
d) 3:1
57. A and B are partners sharing profits in the ratio of 7:3. A surrenders 1/7th of his share
and B surrenders 1/3rd of his share in favour C the new partner. The sacrificing ratio will
be:
a) 3:7
[57]
b) 1:1
c) 7:3
d) 3:2
58. The share of new partner and the sacrificing ratio of old partners is decided by:
a) the new partner only
b) the old partners only
c) the old partners and the new partner
d) the accountant of the firm
59. On admission of a new partner, the method of valuation of goodwill is decided by:
a) the new partner only
b) the old partners only
c) the old partners and the new partner
d) the accountant of the firm
60. Share of goodwill brought by the new partner in cash is shared by old partners in:
a) ratio of sacrifice
b) old profit sharing ratio
c) new profit sharing ratio
d) none of the above Answers:
1. (d) 2. (b) 3 (a) 4. (b) 5. (b) 6. (b) 7. (b)

8. (a) 9. (b) 10. (c)
11. (a) 12. (b) 13. (c) 14. (b) 15. (b) 16. (c) 17. (b) 18.
(d) 19. (c) 20. (d)
21. (c) 22. (a) 23. (c) 24. (a) 25. (a) 26. (d) 27. (a) 28.
(c) 29. (b) 30. (b)
31. (b) 32. (b) 33. (b) 34. (b) 35. (a) 36. (a) 37. (b) 38. (c) 39.
(c) 40. (a)
41. (c) 42. (b) 43. (c) 44. (d) 45. (a) 46. (a) 47. (a) 48.
(a) 49. (a) 50. (c)
51. (c) 52. (c) 53. (b) 54 (c) 55. (d) 56. (d) 57. (b) 58. (c)
59. (c) 60. (a)
[58]
True/ False:
1. “At the time of admission, old partnership comes to an end”.
2. “As per Section 26 of the Indian Partnership Act, 1932, a person can be admitted as a
new partner if it is agreed in the Partnership Deed”.
3. “A newly admitted partner cannot pay his share of the goodwill to the sacrificing
partners privately”.
4. “Unless agreed otherwise, Sacrificing Ratio of the old partners will be the same as their
Old Profit Sharing Ratio”.
5. In the case of admission of a partner, all existing partners sacrifice.
6. New partner may or may not contribute capital at the time of admission.
7. New partner may bring his share of goodwill premium in kind.
8. At the time of admission of partner, the partnership firm is dissolved.
9. The goodwill brought at the time of admission of partner will be distributed among all
the partners in new profit sharing ratio.
10. Claim of workmen compensation if more than workmen compensation reserve, is

debited to revaluation account.
11. Increase in provision for doubtful debts will credited to revaluation account.
12. New partner brings goodwill in the firm to get share in the past profits.
13. Reserve and accumulated profits are distributed in old profit sharing ratio at the time of
admission of a partner.
14. Admission of a partner changes the relationship between / among existing partners.
15. Hidden goodwill arises when total capital is computed based on the new partner’s
capital is less than total capitals of remaining partners after all adjustments.
16. Employee Provident Fund is a part of Accumulated profits and reserves.
17. At the time of admission, reserves may be carried forwarded by the partners.
18. Admission of a new partner does not amount to reconstitution of the partnership firm.
19. Goodwill exists only when firm earns super profits.
20. The need for valuation of goodwill also arises when the firm is dissolved involving sale
of business as a going concern.
[59]
ANSWER
1. True 2. False 3. False 4. True 5. False 6. True 7. True 8. False 9. False
10. True 11. False 12. False 13. True 14. True 15. False 16. False 17. True
18. False
19. True 20. True
Fill in the blanks

1. when the value of goodwill of the firm is not given but has to be inferred on the basis of
net worth of the firm, it is called…………….
2. Vinay and Naman are partners sharing profit in the ratio of 4:1. Their capitals were
Rs.90000 and Rs.70000 respectively. They admitted Pratik for 1/3 share in the profits.
Pratik brings Rs.100000 as his capital. The value of firm’s goodwill be…………..
3. Goodwill appearing in the books oat the time of admission of a new partner is written off
by debiting …………..and crediting ………….
4. On the admission of a new partner, after revaluation has been done, the value of assets
and liabilities appear in the books of the firm at………….
5. Debit balance in the profit and loss account indicates…………….
6. General reserve account indicates ………..and shows ………..balance.
7. If, at the time of admission of a new partner, provision for doubtful debts is to be reduced,
it shall be …………to profit and loss adjustment account.
8. Gain or loss arising from revaluation is shared by ………..partners in …………ratio.
9. If the revaluation account finally shows a debit balance then it indicates ………….., which
will be transferred to …………
10. A and B are partners sharing profits equally. They admit C for 1/3 share in profits. A
debtor whose dues of Rs.5000 were written off as bad debts, paid Rs.4000 in full
settlement.
Bad debts recovered Rs.4000 will be debited to …………and credited to ……………
11. At the time of admission, the assets are revalued and liabilities are reassessed. The
increase or decrease in the values is debited or credited in ……………..
12. Revaluation account is a …………………
13. In the case of downward revaluation of an asset, revaluation account is ………………
14. Revaluation account shows ………….in the values of assets and liabilities.
[60]
15. In case of upward revaluation of a liability, revaluation account is …………….
16. At the time of admission of a partner, new profit sharing is used for sharing future………
17. At the time of admission, it the book value and the market value of investment is same
then investment fluctuation reserved is transferred to …………….account of the old partners in
their ………..ratio.
18. The newly admitted partner brings his/ her share of capital for which he/she will get
……….in firm.
19. A, B and C are partners sharing profits and losses in the ratio of 3:2:1. On admission
of D, they agree to share profits and losses in the ratio of 5:4:2:1. Sacrificing ratio of A, B
and C will be………..
20. R and S are partners sharing profits equally. They admitted T for 1/3 share in the firm.
New profit sharing ratio will be………..
ANSWER
1. Hidden goodwill 2. 40000 3. Old partners’ capital accounts, goodwill account
4. their current value 5. Accumulated loss 6. Accumulated profits, credit
7. credited 8. Old partners, old profit sharing ratio 9. Net loss, debit side of old partners’
capital accounts 10. Cash account, revaluation account 11. Revaluation account 12.
Nominal account 13. Debited 14. Increase or decrease 15. Debited 16. Profits 17.
Capital accounts of old partners, old profit sharing ratio 18. Profit share 19. Only A
sacrifice- 1/12 20. Equal
LONG QUESTIONS
1 At the time of admission of a new partner, the assets and liabilities of A and B were
. revalued as follows.
i) A provision for Doubtful Debts @10% was made on sundry debtors
(Sundry Debtors Rs.50,000)
ii) Creditors were written back by Rs.5,000.
iii) Building was appreciated by 20% (Book Value of Building Rs.2,00,000)
iv) Unrecorded investments were worth Rs.15,000.
v) A provision of Rs.2,000 was made for an outstanding bill for repairs.
vi) Unrecorded Liability towards suppliers was Rs.3,000.
Pass necessary journal entries.
Solution:
Date Particulars L.F. Debit Credit
i. Revaluation A/c Dr. 5000
To Provision for Doubtful Debts A/c 5000
(being provision for DD created)
ii. Creditors A/c Dr. 5000
To Revaluation A/c 5000
[61]
(being Creditors written back)
iii. Building A/c Dr. 40000
(being Building appreciated)
iv Investment A/c Dr. 15000
(being unrecorded investment recorded)
v Revaluation A/c Dr. 3000
To Creditors A/c 3000
vi Revaluation A/c Dr. 52000
To A’s Capital A/c 26000
To B’s Capital A/c 26000
(being profit of revaluation account
distribute among A and B equally)
2 A & B carrying on business in partnership and sharing profits and losses in the ratio
. of3:2 require a partner when their Balance Sheet stood as follows:
Assets Amount Liabilities Amount
Creditors 11,800 Cash 1,500
A’s Capital 51,450 Stock 28,000
B’s Capital 36,750 88,200 Debtors 19,500
Furniture 2,500
Machinery 48,500
1,.00,000 1,00000
th
They admit C into partnership and gave him 1/8 share in the future profits in the
following terms.
i. Goodwill of their firm will be valued twice the average of the last three years
profits which amounted to Rs.21000; Rs.24000 and Rs.25560.
ii. C is to bring in cash for the amount of his share of goodwill.
iii. C is to bring Rs.15000 as his capital.
iv Furniture decreased by Rs.500
v Machinery increased to Rs50000
vi. Make a provision @5% for DD on debtors.
Pass journal entries to record these transactions.
Solution:
i. Cash A/c Dr. 20880
To C’s Capital A/c 15000
To Premium for Goodwill A/c 5880
(being cash brought in by C for capital and
premium)
ii. Premium for Goodwill A/c Dr. 5880
(being premium for goodwill distributed)
iii. Revaluation A/c Dr. 500
[62]
To Furniture A/c 500
(being Furniture depreciated)
iv Machinery A/c Dr. 1500
(being unrecorded investment recorded)
distribute among A and B )
Working note:
Total Profit=21000+24000+25560=70560
Average profit= 70560/3=23520
Goodwill= 23560*2=47040
C’s share of goodwill premium=47040/8
=5880
3 Given below is the balance sheet of A and B who are carrying partnership business on
. 31st March 2018 A and B share profits and losses in the ratio of 2:1
Balance Sheet of A and B as on 31st March 2018
Bills Payable 10,000 Cash in hand 22,000
Creditors 58,000 Cash at Bank 40,000
Outstanding Expenses 2,000 Sundry Debtors 60,000
Profit & Loss a/c 12000 Stock 40,000
Capital Accounts Plant 1,00,000
A-1,80,000 3,30,000 Building 1,50,000
B-1,50,000
4,12,000 4,12,000
C is admitted as a partner on the date of the Balance Sheet on the following terms
i. C will bring in Rs.1,00,000 as his capital and Rs. 60,0000 as his share of goodwill
for 1/4th share in the profits.
ii. Plant is to be appreciated to Rs.1,20,000 and the value of Building is to be
appreciated by 10%.
iii. Stock is found overvalued by Rs.4,000
iv. A provision for doubtful debts is to be created at 5% of Sundry Debtors.
v. A creditors were unrecorded to the extent of Rs.1,000.
Pass the necessaries journal entries.
Solution:
i. Bank A/c Dr. 160000
[63]
(being cash brought in by C for capital
and premium)
(being premium for goodwill
distributed)
iii. Plant A/c Dr. 20000
Building A/c Dr. 15000 35000
To Revaluation A/c
(being Plant & Building appreciated)
iv Revaluation A/c Dr. 4000
To Stock A/c 4000
(Being stock found overvalued)
distribute b/w A and B)
vii Profit and Loss A/c Dr. 12000
(being undistributed profits distributed
b/w A and B_
4 Charu and Harsha were partners in a firm sharing profits in the ratio of 3:2. On
. 1stApril, 2014 their Balance Sheet was as follows:
General Reserve 4,000 Debtors 15,000
Workmen’s Compensation 9,000 Investment 20,000
Fund Plant 14,000
Investment Fluctuation Fund 11,000 Land and Building 38,000
Provision for Doubtful Debts 2,000
Capital Account:
Charu- 30,000
Harsha- 20,000 50,000
93,000 93,000
th
On the above date Vaishali was admitted for 1/4 share in the profits of the firm on
the following terms.
i. Vaishali will bring Rs.20,000 for her capital and Rs.4,000 for her share of goodwill
premium.
ii. All Debtors were considered good.
iii. The market value of Investments was Rs.50,000.
[64]
iv. There was a liability of Rs.6,000 for Workmen’s compensation.
Pass necessary entries.
Solution:
To Vaishali’s Capital A/c 20000
(being amount of capital and premium
brought by Vaishali)
To Charu’s Capital A/c 2400
To Harsha’s Capital A/c 1600
(being premium for goodwill distributed)
iii. Provision for DD A/c Dr. 2000
(being Provision for DD not required)
iv Investment A/c Dr. 30000
(Being value of investment increased)
To Harsh’s Capital A/c 12800
distribute b/w Charu and Harsha)
vi Workmen’s Compensation Fund A/c 9000
Dr. 6000
To Provision for Work. Comp. Claim 1800
A/c 1200
To Charu’s Capital A/c
To Harsha’s Capital A/c
(being WCF adjusted )
vii Investment Fluctuation Fund A/c Dr. 11000
(being Investment Fluctuation Fund
distribute b/w Charu and Harsha)
viii General Reserve A/c Dr. 4000
(being General Reserve distribute b/w
Charu and Harsha )
5 The balance sheet of Madhu and Vidhi who are sharing profits in the ratio of 2:3 as at
. 31st March 2016 is given below
Liabilities Rs. Assets Rs.
Madhu’s capital 528000 Land and building 300000
[65]
Vidhi’s capital 300000 Machinery 280000
General reserve 30000 Stock 80000
Bills payable 50000 Debtors 300000
Creditors 100000 Less:provision 10000 290000
Bank 50000
Profit and Loss account 8000
1008000 1008000
st
Madhu and Vidhi decided to admit Gayatri as a new partner from 1 april 2016 and
their new profit sharing ratio will be 2:3:5.Gayatri brought Rs 400000as capital and
goodwill premium in cash.
A. Goodwill of the firm was valued at Rs.300000
B. Land and building was found undervalued by Rs.26000
C. Provision for doubtful debts was to be made equal to 5% of the debtors.
D. There were unrecorded supplier to the extent of Rs.20000.
E. There was a claim of Rs.6000 on account of workmen compensation.
Solution:
To Gayatri’s Capital A/c 400000
(being amount of capital and premium
brought by Vaishali)
To Madhu’s Capital A/c 60000
To Vidhi’s Capital A/c 90000
(being premium for goodwill distributed
in sacrificing ratio)
iii. Land and Building A/c Dr. 26000
(being value of land and building
increased)
iv Revaluation A/c Dr. 5000
To Creditors A/c 16000
(being creditors found unrecorded )
To Provision for Work. Comp. Claim 6000
A/c
vii Madhu’s Capital A/c Dr. 1000
Vidhi’s Capital A/c Dr. 400
[66]
(Being loss on revaluation transferred to
Madhu and Vidhi)
viii General Reserve A/c Dr. 30000
To Madhu’s Capital A/c 12000
To Vidhi’s Capital A/c 18000
(being General Reserve distribute b/w
Madhu and Vidhi )
ix Madhu’s Capital A/c Dr. 3200
Vidhi’s Capital A/c Dr. 4800
To Profit and Loss A/c 8000
(Being debit balance of P &L
(undistributed loss) transferred to
Madhu and Vidhi)
6 A, B and C were partners sharing profits and losses in the ratio of 4:3:2. They admit
. D as a new partner on April 1, 2020. An extract of their Balance Sheet as at 31st
March, 2020 is as follows:
Liabilities Amount Assets Amount
Workmen Compensation Reserve 63000
Show the accounting treatment under the following alternative cases:
Case 1: If there is no claim made against WCR.
Case 2: If a claim on account of WCR is estimated at Rs.18000.
Case 1: If a claim on account of WCR is exactly Rs.63000
Case 1: If a claim on account of WCR is Rs.18000.
Solution:
Case1 63000
Workmen’s CompensationReserve A/c Dr. 28000
To C’s Capital A/c
(being the transfer of WCR to partners’
capital accounts in their old psr)
Case2 63000
To Provision for Work. Comp. Claim A/c 20000
(being the transfer of surplus WCR to
partners’ capital accounts in their old psr)
Case-3 63000
To Provision for Work. Comp. Claim A/c
(being amount for workmen compensation
claim provided for)
[67]
Case 4 (a)
Revaluation A/c Dr. 9000
To Provision for Work. Comp. Claim A/c 72000
(being amount for workmen compensation
claim provided for)
(b)
A’s Capital A/c Dr. 4000
B’s Capital A/c Dr. 3000
C’s Capital A/c Dr. 2000
( being loss on revaluation transferred to
7 A, B and C were partners sharing profits and losses in the ratio of 2:1:1. They admit
. D as a new partner on April 1, 2020. On that date their Balance Sheet had following
items appearing in it.
Investment Fluctuation 15000 investments 180000
Fund
You are required to pass necessary journal entries in each of the following situation in
connection with investment Fluctuation Fund:
a) There is no additional information given.
b) Market value of investment is Rs.175000
c) Market value of investment is Rs.165000
d) Market value of investment is Rs.198000
e) Market value of investment is Rs.155000
Solution:
a Investment FluctuationReserve A/c Dr. 15000
(being the transfer of IFR to partners’
b Investment FluctuationReserve A/c Dr. 15000
To Investment A/c 5000
(being fall in the value of Investment
adjusted and balance of IFR transferred to
capital accounts in old ratio)
c Investment FluctuationReserve A/c Dr. 15000
[68]
adjusted to IFR)
d (i) 18000
Investments A/c Dr. 18000
To Revaluation A/c
(being profit on revaluation of Investments
transferred to Revaluation account)
(ii)
(being profit on revaluation transferred to
capital accounts in old ratio)
(iii)
Investment FluctuationReserve A/c Dr. 15000
3750
To B’s Capital A/c
3750
(being the transfer of IFR to partners’
e (i)
Investment FluctuationReserve A/c Dr. 15000
adjusted and Revaluation account)
(ii)
A’s Capital A/c Dr. 5000
B’s Capital A/c Dr. 2500
( being loss on revaluation transferred to
8 The Balance Sheet of Madan and Mohan who share profits and losses in the ratio of
. 3:2 as at 31st March 2017 was as follows.
Workmen’s Comp Res 12,000 Debtors 62000
General Reserve 20,000 Provision for D/d 2000 60,000
Capital Account Stock 30,000
Madan-60,000 Investment 50,000
Mohan-40,000 1,00,000 Patent 10,000
1,60,000 1,60,000
st th
They decided to admit Gopal on 1 April 2017 for 1/4 share on the following terms.
[69]
i. Gopal shall bring Rs.25,000 as his share of premium for goodwill and capital
Rs.80000.
ii. That unaccounted accrued income of Rs.500 be provided for.
iii The market value of investment was Rs.45,000.
iv. A debtor whose dues of Rs.1,000 were written off as Bad Debts paid Rs.800 in
full settlement.
v. A claim of Rs.2,000 on account of Workmen’s Compensation to be provided for.
vi. Patents are undervalued by Rs.5,000.
Pass journal entries.
Ans: Loss on revaluation- 8700
9 A,B and C were partners in a firm sharing profits in the ratio 3:2 :1. On 31st
. march,2015, their balance sheet was as follows:
Liabilities Rs Assets Rs
Creditors 84000 Bank 17000
General reserve 21000 Debtors 23000
Capital a/c s Stock 110000
A 60000 Investments 30000
B 40000 Furniture and fittings 10000
C 20000 120000 Machinery 35000
225000 225000
On the above date, D was admitted as a new partner, he brought Rs.100000 as capital
and further it was decided that:
a. The new profit sharing ratio between A,B,C and D will be 2:2:1:1
b. Goodwill of the firm was valued at Rs 90000 and D bought his share of goodwill
premium in cash
c. The market value of investments was Rs 24000
d. Machinery will be reduced to Rs 29000
e. A creditor of Rs 3000 was not likely to claim the amount and hence to be
written off
Ans: profit on revaluation- 3000
1 X, Y and Z were partners sharing profits and losses in the ratio of 5:3:2. They
0 admit S as a new partner on April 1, 2020. On that date their Balance Sheet had
following items appearing in it.
Investment Fluctuation 28000 Investments 200000
Fund
You are required to pass necessary journal entries in each of the following situation
in connection with investment Fluctuation Fund:
i) There is no additional information given.
ii) Market value of investment is Rs.180000
iii) Market value of investment is Rs.172000
iv) Market value of investment is Rs.224000
v) Market value of investment is Rs.160000
[70]
1 Vinay and Madan were partners sharing profits in the ratio of 2:1. On 1st April 2019,
1 They admitted Sunil, a retired army officer who had lost his legs while servicing in
army, as a new partner for 1/4 share in profits. Sunil will bring 60,000 for Goodwill
and ₹ 50,000 as capital, At the time of admission of Sunil the Balance Sheet Vinay and
Madan was as under :-
Liabilities Amount (₹) Assets Amount (₹)

Capital accounts Plant 66,000
Vinay 7,0000 Furniture 30,000
Madan60,000 1,30,000 Investment 40,000
Stock 46,000
General Reserve 18,000 Debtors 38,000
Bank Loan 18,000 Less PBD- 4,000 34,000
Total 2,38,000 Total 2,38,000
It was decided to
(i) Reduce the value of stock by ₹.10, 000.
(ii) Plant to be valued at ₹ 80,000.
(iii) An amount of ₹.3,000 included in creditors was not payable.
(iv) Half of the investment were taken over by Vinay and remaining were
valued at ₹.25,000.
Prepare revaluation account, partners ‘capital account and Balance sheet of the
reconstituted firm.
Solution:- Solution:
Balance sheet as on
Liabilities Amount₹ Assets Amount₹
Bank Loan 18,000 Plant 80,000
Creditor 69,000 Furniture 30,000
Capital Investment 25,000
Vinay 1,10,000 stock 36,000
Madan 90,000 Debtors 34,000
Sunil 50000 2,50,000 Cash 1,32,000
3,37,000 3,37,000
Partners Capital Account

Vinay Madan Sunil Vinay Madan Sunil
To Investment 20,000 Bal b/d 70000 60000
G/R 12000 6000
G/W 40000 20000
Prem
To Bal c/d 1,10,000 90,000 50000 Rev.profit 8000 4000
cash 50000
1,30,000 90,000 50000 1,30,000 90,000 50000
[71]
Revaluation Account
To Stock 10,000 By Plant 14,000
TO partners Capital By Creditors 3,000
Vinay- 8,000
Madan 4,000 12,000 By Investment 5,000
22,000 22,000
Revaluation account -3 marks
Partners capital account – 3 marks
Balance sheet – 2 marks
[72]
4.RETIREMENT AND DEATH
1. P, Q and R are partners sharing profits in the ratio of 8:5:3. P retires. Q takes
3/16th share from P and R takes 5/16th share from P. What will be the new profit
sharing ratio?
a) 1:1
b) 10:6
c) 9:7
d) 5:3
Answer- a
2. X, Y and Z are partners sharing profits and losses in the ratio of 4:3:2. Y retires and
surrenders 1/9th of his share in favour of X and the remaining in favour of Z. The
new profit sharing ratio will be:
a) 1:8
b) 13:14
c) 8:1
d) 14:13
Answer- b
Q. 3 Gaining ratio is used to distribute ------------------ in case of retirement of

a partner.
a) Goodwill
b) Revaluation Profit or Loss
c) Profit and Loss Account (Credit Balance)
d) Both b and c
Answer- a
Q. 4 X, Y and Z are partners in a firm. Y retires and his claim including his capital and his
share of goodwill is R. 1,20,000. He is paid partly in cash and partly in kind. A vehicle
at Rs. 60,000 unrecorded in the books of the firm and the balance in cash is given to
him to settle his account. The amount of cash to be paid to Y will be:
a) Rs. 80,000
b) Rs. 60,000
c) Rs. 40,000
d) Rs. 30,000
Answer- a
Q. 5 At the time of retirement of a partner, share of retiring partner’s goodwill will be

credited to ---------------- Capital Account(s).
[73]
a) Remaining Partner(s)
b) Retiring Partner’s
c) Both Sacrificing and Gaining Partner(s)
d) Gaining Partner(s)
Answer- b
Q. 6 A and B were partners. They shared profits as A- ½; B- 1/3 and carried to reserve
1/6. B died. The balance of reserve on the date of death was Rs. 30,000. B’s
share of reserve will be:
a) Rs. 10,000
b) Rs. 8,000
c) Rs. 12,000
d) Rs. 9,000
Answer- c
Q. 7 If goodwill is already appearing in the books of accounts at the time of retirement,

then it should be written off in -------------.
a) New Ratio
b) Gaining Ratio
c) Sacrificing Ratio
d) Old Ratio
Answer- d
Q. 8 As per Section 37 of the Indian Partnership Act, 1932, interest @ ----------- is

payable to the retiring partner if full or part of his dues remain unpaid.
a) 9% p.m.
b) 12% p.m.
c) 6% p.m.
Answer- d
Q. 10 What do you mean by gaining ratio?
ANS- The ratio in which remaining partners share the retiring or death partners share of
profit is called gaining ratio.
Q.11 Name two adjustments to be made at the time of death of partner
[74]
ANS- a) calculation of death partners share of goodwill b) calculation of death partners
share of profit to the date of death.
Q.12 At what rate is interest payable to the amount remain unpaid to the executor of
deceased partner?
ANS-. 6% p.a
Q. 13 “Retiring partner is not liable for firm’s acts after his retirement”. Is the statement
True or False?
Answer- false
Q.14 From the following particulars, calculate new profit-sharing ratio of the partners:
(a) Shiv, Mohan and Hari were partners in a firm sharing profits in the ratio of 5 : 5 : 4.
Mohan retired and his share was divided equally between Shiv and Hari.
(b) P, Q and R were partners sharing profits in the ratio of 5 : 4 : 1. P retires from the
firm.
Solution:
[75]
Q. 15 Write any three rights of a retiring partner?
Ans- Any three of these:
1.Share in Reserves and Profits or Losses
2.Share in Revaluation of Assets and Reassessment of Liabilities
3.Share in Goodwill
4.Right to get back his Capital
Q.16 The date of Z,s retirement following balances appeared in the books of the firm:
General reserve Rs 90,000, Profit and loss a/c (Dr) Rs 15,000, Workman compensation
reserve Rs12, 000 which was no more required. Pass necessary journal entries at the time
of Z,s retirement
Ans journal
Date Particulars L/F Dr Amount Cr amount

2018 General reserve a/c dr 90,000
April1 To X,s capital a/c 45,000
To Y,s capital a/c 30,000
To Z,s capital a/c 15,000
(reserve credited to all partners
capital a/c)
X,s capital a/c Dr 7,500

April 1 Y,s capital a/c Dr 5,000
Z,s capital a/c Dr 2,500
To P/L a/c 15,000
(debit balance of p/l a/c debited
to partners capital a/c)
Workman compen. Reserve a/c 12,000
Dr 6,000
To X,s capital a/c 4,000
2,000
To Y,s capital a/c
To Z,s capital a/c
Q.17. A, B and C were partners sharing profits in the ratio of 5:3:2. Their Balance Sheet
as on 1st April, 2020 was as follows:
[76]
Balance Sheet of A, B and C
as at 1st April, 2020

Employees Provident 26,000 Debtors 16,000
Fund
Capitals: Stock 80,000
A 1,00,000 Furniture 34,000
B 70,000 Building 1,20,000
C 50,000 2,20,000
Total 2,66,000 Total 2,66,000
C retires on the above date and it was agreed that:
(i)C’s share of goodwill was Rs.8,000
(ii)5% provision for doubtful debts was to be made on debtors
(iii)Sundry creditors were valued Rs.4,000 more than the book value
Pass necessary journal entries for the above transactions on C’s retirement.
Ans- Journal Entries

Revaluation A/c Dr. 4,800
To Sundry Creditors A/c 4,000
A’s Capital A/c Dr. 2,400
B’s Capital A/c Dr. 1,440
To Revaluation A/c 4,800
A’s Capital A/c Dr. 5,000
B’s Capital A/c Dr. 3,000
Q.18 X,Y and Z are partners of a firm sharing profit and losses in the ratio of 3:1:1. Pass
necessary journal entries at the time of Y,s death in the following cases. 3
i) There is a balance of workman’s compensation reserve Rs 70,000 and there is a claim of
Rs 25,000 against it.
ii) Balance in workman compensation reserve Rs 60,000 and there is no any claim against
it.
iii) Investment fluctuation reserve Rs 4,000. Investment appear at Rs 20,000 (market
value Rs 19,000)
sol-
[77]
Date particulars l/f Dr Cr amount
amount
i) Workman compensation reserve. a/c 70,000
Dr 25,000
To prov. for workman compens.claim 27,000
To Z,s capital a/c
(surplus of w.c.r credited to capital
a/c)
ii) Workman compens. Reserve a/c Dr 60,000
To Z,s capital a/c 12,000
(surplus of w.c.r credited to capital
a/c)
iii) Investment Fluctuation reserve a/c Dr 4,000

To investment a/c 1,000
To Y,s capital a/c 600
To Z,s capital a/c 600
(surplus of investment fluctuation fund
credited to capital a/c in old ratio)
Q.19 P, Q and R are partners sharing profits and losses in the ratio of 3:2:1 respectively.
The balance sheet of the firm as on 1st April, 2016 was as under:

Creditors 24,000 Bank 10,000
Outstanding Salary 10,000 Debtors 25,000
Reserve 18,000 Less: Provisions 1,000 24,000
Capital A/cs: Stock 30,000
A 59,000 Furniture 16,000
B 40,000 Plant & Machinery 48,000
C 21,000 1,20,000 Building 44,000
Total 1,72,000 Total 1,72,000
Q retires on the above date and it was agreed that:
(i)The goodwill of the firm is valued at Rs.24,000
(ii)Furniture, Plant and Machinery are depreciated by 10% and 6% respectively
(iii)Bills receivables of a customer Rs.5,000 discounted from bank was decided to create
provision for doubtful debts on debtors @ 5%
[78]
(iv)Stock is appreciated by 10% and building is valued at Rs.53,000
(v)Revaluation expenses Rs.750 were paid by the firm
(vi)The amount due to Q is to be transferred to his loan account

Pass journal entries, Prepare Revaluation Account, Capital Accounts and Opening Balance
Sheet of the new firm.
Ans- Journal Entries
Reserve A/c Dr. 18,000
To P’s Capital A/c 9,000
To Q’s Capital A/c 6,000
To R’s Capital A/c 3,000
Debtors A/c Dr. 5,000
To Bank A/c 5,000
Revaluation A/c Dr. 5,730
To Furniture A/c 1,600
To Plant & Machinery A/c 2,880
To Bank A/c (Exps.) 750
Stock A/c Dr. 6270
To P’s capital a/c 3135
To Q’s capital a/c 2090
To R’s capital a/c 1045
P’s capital a/c Dr. 6000
R’s capital a/c Dr. 2000
Q’s capital a/c Dr. 56090
Revaluation Account
[79]
To Furniture a/c 1600 By Stock A/c 3000
To Plant and By Building A/c 9000
Machinery a/c 2880
To prov. For 500
D.D.A/c 750
To Bank A/c (Exp.)
To Profit transferred
to capital a/c
P 3125
Q 2090 6270
R 1045
12000 12000
Partner’s capital Accounts

Particulars P Q R Particulars P Q R
Rs. Rs. Rs. Rs. Rs. Rs.
To Q’s cap 6000 - 2000 By Bal.b/d 59000 40000 21000
To Q’s Loan - 56090 - By Reserve 9000 6000 3000
a/c
To Bal. c/d 65135 - 23045 By Reval. 3135 2090 1045
a/c
By P’s cap - 6000 -
a/c
By R’s cap - 2000 -
a/c
71135 56090 25045 71135 56090 25045
[80]
Q-20
The balance sheet of PQ & R as 31st Dec.2019 was as follows.
Liabilities (Rs.) Assets (Rs.)
Bill Payable 20,000 1,58,000
Cash at Bank
Employees Provident Fund 50,000 8,000
Bills Receivable
Workmen compensation reserve 90,000 90,000
Stock
Loan 1,71,000 1,60,000
Sundry Debtors
Capitals Accounts: 20,000
Furniture
P 2,27,500 65,000
Plant & Machinery
Q 1,52,500 3,00,000
Building
R 1,20,000 5,00,000 30,000
Advertisement Suspense
8,31,000 8,31,000
The profit ratio was 3:2:1 R died on 30th April 2020. The partnership deed provides that :
a. Goodwill is to be calculate on the basis of 3 years purchase of preceding 5 years
average profits. The profits were Rs. 2,40,000, Rs. 1,60,000, Rs. 2,00,000 Rs.
1,00,000 and. Rs. 50,000.
b. Deceased partner should be given share of profits upto the date of death on the basis
of previous your profits.
c. The assets have been revalued as under Stock Rs. 1,00,000 Debtors Rs. 3,50,000.
A bill for Rs. 6000 was found worthless.
d. PREPARE R’s capital account.
Prepare Revolution account. Accounts are closed on 31st December.
Solution :
Revaluation Account
Particulars (Rs.) Particulars (Rs.)
To provision for Doubtful debts 10,000
To Furniture 5,000
To Plant & Machinery 15,000
To Bill Receivable 6,000 10,000
By Stock
To Profits transferred to 50,000
By Building
P’s capital A/c 12,000
Q’s capital A/c 8,000
R’s capital A/c 4000 24,000
60,000 60,000
R’s Capital A/c

Date Particulars (Rs.) Date Particulars (Rs.)
1,20,000
By Balance b/d
To advertisement By workmen
15,000
5,000 Compensation reserve
30.4.20 1.1.20 4,000
By Revaluation A/c
To R’s Executor A/c By P’s Capital A/c
45,000
2,22,333 (goodwill)
[81]
By Q’s capital A/c 30,000
(goodwill)
By P&L Suspense A/c 13,333
2,27,333 2,27,333
Q. 20 X,Y& Z were partners in a firm sharing profits in the ratio of 2:3:5. On 31.03.2020
their balance sheet was as follows:
Balance sheet as on 31.03.2020
Liabilities Amount Rs. Assets Amount Rs.

Capital Accounts: Debtors 40,000
X- 80,000 Less: Prov for
Y-70,000 bad debts5,000 35,000
Z-60,000 2,10,000 Stock
Building
Profit & loss A/c 50,000
140,000
10,000
2,80,000 2,80,000
On the above date Z retired from the partnership on the following terms:
I. Building was to be depreciated by Rs.40,000.

II. Provision for doubtful debts was to be maintained at 20% of the debtors.
III. Salary outstanding Rs.5,000 was to be recorded and creditors of Rs.4,000 will
not be claimed.
IV. Goodwill of the firm was valued at Rs.72,000.
V. Z will be paid Rs.15,000 by cheque immediately and balance is to be transferred
to his loan account.
Z decided to donate this amount to an orphanage. Name two values shown by Z with this
act. Prepare Revaluation account, Partners’ capital Accounts and Balance sheet of the firm
after Z’s retirement.
ANSWER-
[82]
. Dr. Revaluation
A/c Cr.
To Building 40,000 By Creditors not to be 4,000

To Prov. For doubtful debts claimed
To Salary Outstanding 3,000 By Loss transferred to
5,000 Partners’ Capital A/c
X - 8,800
Y - 13,200
Z - 22,000 44,000
48,000 48,000
Dr. Partner’s Capital Account Cr.
Particulars X Y Z Particulars X Y Z
To Revaluation 8,800 13,200 22,000 By Balance b/d 80,000 70,000 60,000

To Profit & Loss A/c 2,000 3,000 5,000 By X’s Capital 14,400
To Z’s Capital 14,400 21,600 By Y’s Capital 21,600
To Bank 15,000
To Z’s Loan 54,000
To Balance c/d 54,800 32,200
80,000 70,000 96,000 80,000 70,000 96,000
[83]
Balance Sheet as at -----------
Creditors(70,000-4,000) 66,000 Bank (45,000 -15,000) 30,000
Z’s Loan 54,000 Debtors 40,000
Capital Accounts - Less PDD 8,000
X 54,800 Stock 32,000
Y 32,200 Building 50,000
Outstanding Salary 5,000 1,00,000
2,12,000 2,12,000
Q.21
A, B and C were partners sharing profit and losses in the ratio of 5:3:2. Their
balance sheet as at 1stApril ,2019 was as follows:
liabilities Amount Assets Amount
Sundry creditors 15,000 Cash 2,000
Reserve fund 6,000 Sundry debtors 8,000
Workman compensation 2,000 Stock 40,000
reserve Furniture 13,000
Capital a/c: Patents 4,000
A 50,000 Buildings 60,000
B 35,000 1,10,000 Goodwill((old) 6,000
C 25,000
1,33,000 1,33,000
i) C retires on the above date on the following terms:

ii) Goodwill of the firm is valued at Rs 20,000
iii)Provision for doubtful debts is to be maintained at 5% on debtors
iv)Stock be appreciated by 10%
v)Patents are valueless
vi)Building be appreciated by 20%
vii)Sundry creditors to be paid Rs 2,000 more than book value.
Prepare revaluation a/c, partners’ capital a/c and balance sheet of new firm.
Solution
[84]
Workings:
1. C,s share of goodwill
20,000x 2/10=4,000
A,s contribution=4,000x 5/8=2,500 B,s
contribution=4,000c3/8=1,500
(journal for goodwill: A,s capital a/c Dr 2,500
B,s capital a/c Dr 1,500
To C,s capital a/c 4,000
Revaluation a/c
Dr Cr
Particulars Amount particulars Amount
To provision for d/d 400 By stock 4,000
To patents 4,000 By building 12,000
To creditors 2,000
To capital a/c(profit)
A 4,800 9,600
B 2880
C 1920
16,000 16,000
Partners capital a/c

Dr Cr
Particulars A B C Particulars A B C
To 3000 1,800 1200 By balance 50,000 35,000 25,000
goodwill b/d 3,000 1800 1200
(written 2500 1500 By reserve 1000 600 400
off) 31,320 By w.c.r 4800 2880 1920
To C,s 53,300 36980 By 2500
capital revaluation 1500
To C,s By A,s
loan a/c 58,800 40,280 32,520 capital 58,800 40280 32,520
To By C,s
balance capital
c/d
[85]
Balance sheet
.
As at 1st April 2019
liabilities Amount Assets Amount
Sundry creditors 17,000 Cash 2,000
C,s loan a/c 31,320 Sundry debtors
Capital 8,000
A 53,300 Less prov. For
B 36,980 90,280 d/d 400 7,600
Stock s44,000
Furniture 13,000
Buildings 72,000
1,38,600 1,38,600
[86]
5.DISSOLUTION OF PARTNERSHIP FIRM
I. Multiple Choice Questions:

1. Realization account is a ___________ account
(a) Real (b) personal
(c) nominal (d) cash
2. At the time of dissolution of a firm, ___________ account is prepared.
(a) Revaluation (b) Realisation (c) Profit
and Loss (d) Trading
3. At the time of dissolution, partner’s loan account is closed by
(a) Transferring in realization (b) payment (c)
abolished (d) none of these
4. Unrecorded assets taken over by any creditor will ___________
(a) Be debited to realization account (b) be debited and credited to
realization account
(c) be credited to realization account (d) not be recorded anywhere
5. At the time of dissolution, goodwill of the firm is closed by transferring it to

___________ account
(a) Realization (b) partners loan (c) partner’s capital (d) bank
6. Realisation expenses are debited to
(a) Bank a/c (b) realization a/c (c) revaluation a/c (d) either realization
or bank a/c
7. Accumulated profits and losses are transferred to credit of
(a) Revaluation A/c (b) Partner’s Capital A/c (c) Realisation A/c (d) Bank
A/c
8. Accumulated losses and reserves are transferred to the debit of ______ a/c
(a) Revaluation (b) partner’s capital (c) realization (d) bank
9. Unrecorded liabilities when paid are debited to
(a) Realisation a/c (b) Partner’s Capital a/c (c) bank a/c (d) none of
these
10. On firm’s dissolution, when a partner voluntarily gives his personal asset to
firm’s creditor payment, the account credited will be
(a) Realization a/c ((b) Partner’s Capital a/c (c) bank a/c (d) none of
these
{ Answers: 1 (c ), 2 (b) , 3(b) , 4(d), 5(a) , 6 (b) , 7(b) 8 ((b) , 9

(a), 10 (b) }
II. Fill in the blanks:
[87]
1. At the time of dissolution of firm assets are ___________ and liabilities are
____________.
2. Under partnership at ______, any partner may ask for the dissolution of the
firm.
3. At the time of dissolution, partner’s current account balance will be
transferred to ________ account.
4. Provision for doubtful debts is transferred to _______ side of Realisation
A/c.
5. If any partner takes any asset, then such partner’s capital account will be
____
{ Answers : 1 sold, paid off 2. Will 3. Partner’s Capital 4. Credit 5.
Debited}
III. Match the following:
1. Change in existing relationship of partners A. Dissolution of firm
2. Partner’s Loan B. Realisation
A/c
3. Dissolution Expenses borne by partner C. paid after outside
liabilities
4. Discontinuance of relationship between all partners D. debit partner’s capital
a/c
5. Unrecorded assets E. Dissolution of
partnership
{ Answer 1-E, 2-C ,3-D, 4-E, 5-B}
IV. Short Answer Questions:
1. In case of dissolution of a firm which liabilities are to be paid first?
Ans: Debt of third parties
2. In case of dissolution of a firm, which item on the liabilities is to be paid last?
Ans: Partner’s Capital
3. State any one occasion for the dissolution of the firm on court’s order when
a partner becomes.
Ans: Partner becomes permanently incapable of performing his duties as a
partner.
4. Give any one difference between reconstitution of firm and dissolution of a
firm.
Ans: Reconstitution of firm means change in the existing agreement
between partners, whereas dissolution of firm means dissolution of
partnership between all partners of the firm.
5. Distinguish between “Dissolution of Partnership’’ and ‘Dissolution of
Partnership Firm” on the basis of settlement of accounts.
[88]
Ans:In case of Dissolution of Partnership assets are revalued and liabilities
are reassessed where as in case of Dissolution of Firm all assets are sold off
except cash and liabilities are paid .
6. Mention one difference between Realisation and Revaluation Account.
Ans: Realisation Account is prepared at the time of dissolution of firm
where as Revaluation Account is prepared at the time of
admission/retirement/death of a partner.
7. On dissolution of a firm, where are assets shown in Balance Sheet
transferred?
Ans: On the Debit side of Realisation Account.
8. On dissolution of a firm ,where is cash in hand transferred?
Ans: On the debit side of Cash Account.
9. In case of dissolution,where are general reserves and accumulated profits
and losses transferred?
Ans: In partner’s Capital Accounts in their profit sharing ratio.
10. In the event of dissolution of a partnership firm, where is provision for
doubtful debts transferrd?
Ans: On the credit side of Realisation Account.
11. On dissolution, patents appearing in the balance sheet is transferred to which
account?
Ans: Realisation Account.
12. If total assets are Rs 2,00,000; total liabilities are Rs 40,000; amount realized
on sale of assets is Rs 1,75,000 and realization expenses are Rs 3,000,what
will be the profit or loss on realization?
Ans: Loss Rs 28,000 (Realisation A/c Debit 2,43,000 Credit 2,15,000,
difference of debit and credit= 28000(loss)
13. How much amount will be paid to creditors for Rs 25,000 if Rs 5,000 of the
creditors are not to be paid and the remaining creditors agreed to accept 5%
less amount?
Ans : Rs 19000 ( Creditors to be paid 25000- 5000= 20,000; Amount
paid= 20,000- 5% of 20,000)
14. How much amount will be paid to A, if his opening capital is Rs 2,00,000 and
his share of realization profit amounts to Rs 10,000 and he has taken over
assets Rs 25,000 from the firm?
Ans: Rs 2,000 ( opening capital +realisation profit – asset taken over)
15. If creditors are Rs 25,000, capital is Rs 1,50,000 and cash balance is Rs 10,000,
what will be amount of sundry assets?
Ans : 1,65,000 ( Sundry Assets= Creditors +Capital -Cash balance)
16. A and B are partners in a firm .Their firm was dissolved on 1.1.2019. A
was assigned the work of dissolution. For this work, A was to be paid Rs 500.
A paid dissolution expenses from his own pocket. Will any journal entry be
passed for Rs 400 paid by A? If yes, pass the entry, If no, give reason
[89]
Ans: Yes, journal entry will be passed.
Realisation A/c Dr. 400
(being realization expenses paid by A on firm’s behalf)
17. The firm of Ravi and Mohan was dissolved om 31.03.2019. According to
the agreement ,Ravi had agreed to undertake the dissolution work for an
agreed remuneration of Rs 2,000 and bear all realization expenses.
Dissolution expenses were Rs 1500 and the same were paid by the firm.
Ans (i) Realisation A/c Dr. 2000
To Ravi’s Capital A/c 2000
(remuneration due to Ravi)
(ii) Ravi’s Capital A/c Dr. 1500
To bank A/c 1500
(realization expenses paid on behalf of Ravi)
18. Creditors of Rs 50,000 took over stock at an agreed value of Rs 45,000 and
the balance was paid to him. Pass the necessary journal entry.
Ans:For stock taken over by creditor no Journal entry , for the balance paid
the entry will be
Realisation A/c Dr. 5000
To bank A/c 5000
(being balance of creditors settled for cash)
19. List any four modes of dissolution of partnership firm.
Ans: Dissolution by agreement, Compulsory dissolution, Dissolution by
Court, Dissolution by notice in case of partnership at will.
20. Name the assets that are not transferred to the debit side of Realisation
Account, but brings certain amount of cash against its disposal at the time of
dissolution of the firm.
Ans; Unrecorded Assets.
V. Numerical Questions
1. Pass the necessary journal entries for the following transactions on the
dissolution of the firm of P and Q after the various assets( other than cash)
and outside liabilities have been transferred to Realisation account.
i. Bank Loan Rs 12,000 was paid
ii. Stock worth Rs 16,000 was taken over by partner Q
iii. Partner P paid a creditor Rs 4,000
iv. An asset not appearing in the books of accounts realized Rs 1,200
v. Expenses of realisation Rs 2,000 were paid by partner Q
vi. Profit on realisation Rs 36,000 was distributed between P and Q in 5:4
ratio.
[90]
Solution :
JOURNAL

Amount Amount
(Rs) (Rs)
i Realisation A/c Dr. 12,000
To bank A/c 12,000
(being bank loan paid)
ii Q’s Capital A/c Dr. 16,000
To Realisation A/c 16,000
(being stock taken over by partner,Q)
iii Realisation A/c Dr. 4,000
(being payment of creditor by a partner,P)
iv Bank A/c Dr. 1,200
(being an unrecorded asset realised)
v Realisation A/c Dr. 2,000
(being realisation expenses paid by a partner,
Q)
vi Realisation A/c Dr. 36,000
(being profit on realisation transferred to
partners’ capital accounts)
2. Pass Journal entries in the following cases:

i. Expenses of realisation Rs 1500
ii. Expenses of realisation Rs 600 but paid by Mohan, a partner
iii. Mohan, one of the partners of the firm ,was asked to look into the
dissolution of the firm for which he was allowed a commission of Rs
2,000.
iv. Realisation expenses of Rs 15,000 were to be met by Rahul, a partner, but
were paid by the firm.
[91]
v. Vivek a partner was appointed to look after dissolution work and he
agreed to bear the dissolution expenses.Actual dissolution expenses Rs
6,500 were paid by Rishi another partner, on behalf of Vivek.
Solution JOURNAL

Amount Amount
(Rs) (Rs)
To bank A/c 1,500
(being realisation expenses)
ii Realisation A/c Dr. 600
To Mohan’s Capital A/c 600
(being realisation expenses paid by Mohan)
iii Realisation A/c Dr. 2,000

To Mohan’s Capital A/c 2,000
(being commission allowed to Mohan for
dissolution work)
iv Rahul’s Capital A/c Dr. 15,000
To Bank A/c 15,000
(being realisation expenses paid by firm on behalf
of a partner)
v Vivek’s Capital A/c Dr. 6,500
To Rishi’s Capital A/c 6,500
(being dissolution expenses paid by Rishi on behalf
of Vivek)
3. Sita , Rita and Meeta are partners in a firm sharing profits and losses in the ratio
2:2:1. Their balance sheet as on March 31, 2020 is as follows:
Balance Sheet of Sita ,Rita and Meeta as
on March 31, 2020
LIABILITIES Amount(Rs) ASSETS Amount (Rs)
Reserve Fund 2,500 Cash at bank 2,500

Creditors 2,000 Stock 2,500
Capitals: Furniture 1,000
Sita 5,000 Debtors 2,000
Rita 2,000 Plant and Machinery 4,500
Meeta 1,000 8,000
12,500 12,500
They decided to dissolve their business. The following amounts were realized:
[92]
Plant and machinery rs 4,250, Stock Rs 3,500 , Debtors s 1,850, Furniture 750.
Sita agreed to bear all realisation expenses. For the service Sita is paid Rs 60.
Actual expenses on realisation amounted to Rs 450.Creditors were paid 2%less.
There was an unrecorded asset of Rs 250 , which were taken over by Rita at Rs
200.
Prepare Realisation Account, Partners’Capital Accounts and Bank Account.
Solution:
Dr. Realisation A/c Cr.

(Rs) (Rs)
To Sundry Assets: By Creditors 2,000
Stock By Bank (assets realized):
2,500 Plant and Machinery 4250
Furniture Debtors 1850
2,500 10,000 Stock 3,500
Debtors 1960 Furniture 750 10,350
1,000 By Rita’s Capital a/c 200
Plant and Machinery 4,500 60 (unrecorded asset)
To Bank a/c (creditors)
To Sita Capital A/c (remuneration)
To Profit on realisation transferred
to capital a/c of 530
Sita 212
Rita 212
Meeta 106
12,550 12,550
Dr. Partner’s Capital A/c Cr.
Particulars Sita Rita Meeta Particulars Sita Rita Meeta

(Rs) (Rs) (Rs) (Rs) (Rs) (Rs)
To Realisation A/c - 200 - By balance b/d 5000 2000 1000
To Bank A/c 6272 3012 1606 By Realisation A/c 212 212 106
By Reserve Fund 1000 1000 500
By Realisation A/c 60
6272 3212 1606 6272 3212 1606
[93]
Dr.
Bank A/c Cr.
Particulars Amount (Rs) Particulars Amount

(Rs)
To balance b/d 2,500 By Realisation A/c (creditors) 1960
To Realisation A/c 10,350 By Sita’s Capital A/c 6272
(assets realised) By Rita’s Capital A/c 3012
By Meeta’s Capital A/c 1606
12,850 12,850
4. Surjit and Rahi were sharing profits(or losses) in the ratio of 3:2, their
Balance Sheet as on march 31, 2020 is as follows:
Balance Sheet of Surjit and Rahi as
on March 31, 2020
LIABILITIES Amount(Rs) ASSETS Amount (Rs)

Mrs. Surjit’s Loan 10,000 Stock 6,000
Reserve Fund 15,000 Debtors 19,000
Rahi’s Loan 5,000 Furniture 4,000
Capitals: Plant 28,000
Surjit 10,000 Investment 10,000
Rahi 8,000 Profit and Loss A/c 7,500
86,000 86,000
The firm was dissolved on March 31, 2020 on the following terms:
i. Surjit agreed to take investments at Rs 8000 and to pay Mrs.Surjit’s
Loan.
ii. Other assets were realised as follows:
Stock - Rs 5000,Debtors – Rs18,500, Furniture –Rs 4,500,Plant – Rs
25,000
iii. Expenses on realisation amounted to Rs 1,600
iv. Creditors agreed to accept Rs 37,000 as a final settlement.
Pass necessary journal entries on dissolution of the firm.
Solution:
JOURNAL
[94]
Date Particulars L.F. Debit(Rs) Credit(Rs)
To Stock A/c 6,000
To Debtors A/c 19,000
To Furniture A/c 4,000
To Plant A/c 28,000
To Investment A/c 10,000
( being assets transferred to Realisation A/c)
ii Creditors A/c Dr. 38,000
Mrs. Surjit’s Loan A/c Dr. 10,000
(being external liabilities transferred to Realisation
A/c)
iii Surjit’s Capital A/c Dr. 8,000
(being investments taken over by Surjit, a partner)
iv Realisation A/c Dr. 10,000
To Surjit’s Capital A/c 10,000
(being Mrs. Sujit’s Loan paid by a partner, Surjit)
v Bank A/c Dr. 53,000
(being various assets realised viz. Stock
5000+Debtors 18,500+Furniture 4,500+Plant
25,000)
vi Realisation A/c Dr. 1,600

To Bank A/c 1,600
(being realisation expenses)
vii Realisation A/c Dr. 37,000
To Bank A/c 37,000
(being creditors paid in full settlement)
viii Surjit’s Capital A/c Dr. 3,960
Rahi’s Capital A/c Dr. 2,640
(being loss on realisation transferred to partner’s
capital accounts)
ix Rahi’s Loan A/c Dr. 5,000
To Bank A/c 5,000
(being payment of partner’s loan )
x Reserve Fund A/c Dr. 15,000
To Surjit’s Capital A/c 9,000
To Rahi’s Capital A/c 6,000
(being reserves distributed)
[95]
xi Surjit’s Capital A/c Dr. 4,500
To Profit and Loss A/c 7,500
(being accumulated losses distributed)
xii Surjit’s Capital A/c Dr. 12,540

To Bank A/c 20,800
(being final payment to partners)
5. Ashish and Neha were partners in a firm sharing profits and losses in the ratio
4:3. They decided to dissolve the firm on 31st Mar, 2019. From the
following information given below, complete Realisation A/c, Partner’s
Capital A/c s and bank A/c:
Dr. Realisation A/c Cr.
Particulars Amount Particulars Amount (Rs)
(Rs)
To Sundry Assets: By Sundry Liabilities:
Machinery 5,60,000 Creditors 40,000
Stock 90,000 Ashish’s wife’s loan 25,000
Debtors 55,000 By Bank:
To Bank Machinery 4,80,000
Creditors ……. Debtors 10,000
To Ashish’s Capital A/c 34,000 By Ashish’s Capital A/c:
(Ashish’s wife loan) Stock 1,28,000
To Neha’s capital A/c 7,000 Typewriter 70,000
(realisation expenses) By Neha’s Capital A/c: 1,98,000
To Profit transferred to: Debtors
Ashish’s Capital A/c…… 40,000
Neha’s Capital A/c …… 7,000
7,93,000 7,93,000
Dr Partner’s Capital A/c s Cr.

Particulars Ashish Neha Particulars Ashish (Rs) Neha
(Rs) (Rs) (Rs)
To Realisation A/c …….. …….. By ……. ……… ……
To Bank A/c 4,00,000 4,50,000 By………. …….. …….
By……….. …….. …….
…….. ……… ……… ……..
[96]
Dr Bank A/c Cr.
Particulars Amount(Rs) Particulars Amount(Rs)
To balance b/d ……. By Realisation A/c ……..
To Realisation A/c 4,90,000 By Ashish’s Loan A/c 4,000
By Ashish’s Capital A/c 4,00,000
By Neha’s Capital A/c …….
……….. ………
Solution:
Dr Realisation A/c Cr.
Particulars Amount Particulars Amount (Rs)

(Rs)
To Sundry Assets: By Sundry Liabilities:
Machinery 5,60,000 Creditors 40,000
Stock 90,000 Ashish’s wife’s loan 25,000
Debtors 55,000 By Bank:
To Bank Machinery 4,80,000
Creditors 40,000 Debtors 10,000
To Ashish’s Capital A/c 34,000 By Ashish’s Capital A/c:
(Ashish’s wife loan) Stock 1,28,000
To Neha’s capital A/c 7,000 Typewriter 70,000
(realisation expenses) By Neha’s Capital A/c: 1,98,000
To Profit transferred to: Debtors
Ashish’s Capital A/c 4000 40,000
Neha’s Capital A/c 3000 7,000
7,93,000 7,93,000
Dr Partner’s Capital A/c s Cr.
Particulars Ashish Neha Particulars Ashish Neha

(Rs) (Rs) (Rs) (Rs)
To Realisation A/c 1,98,000 40,000 By balance b/d 5,60,000 4,80,000
To Bank A/c 4,00,000 4,50,000 By Realisation A/c 34,000 7,000
By Realisation A/c
4,000 3,000
5,98,000 4,90,000 5,98,000 4,90,000
[97]
Dr. bank A/C CR.
Particulars Amount(Rs) Particulars Amount(Rs)

To balance b/d 4,04,000 By Realisation A/c 40,000
To Realisation A/c 4,90,000 By Ashish’s Loan A/c 4,000
By Ashish’s Capital A/c 4,00,000
By Neha’s Capital A/c 4,50,000
8,94,000 8,94,000
[98]
6.COMPANY ACCOUNTS-ISSUE OF SHARES
Say whether the following statements are true or false: ( 1 mark each)
1. Equity shareholders are the creditors of the Company

(True)
2. Promoters are the owners of the Company
(False)
3. Pro rata allotment is made in case of over subscrriptions
(True)
4. Application money should not be less than 25% of the face value of shares (True)
5. Shares cannot be issued at discount
(True)
Fill in the blanks: (1 mark each)
1. A private Ltd. Company with only one person as its members is called
.............
2. .............. Shareholders are given dividend at a fixed rate.
3. Share capital of a company is divided into small units. Each such unit is called
.......
4. Actual number of shares offered to the public for subscription is known as
...........
5. At the time of forfeiture of shares , Share capital account will be debited with
........ value
6. A ........... Company is one which restricts the rigt to transfer its shares.
Ans: 1. One person company (OPC) 2. Preference shareholders

3. Shares
4. Issued capital 5. Called up value of shares 6. Private

Ltd Company
From the given alternatives choose the right answer: (1 mark each)
1. Who are the real owners of the Company?

a) Government b) Board of directors c) Equity shareholders d)
Debenture holders
2. Maximum number of members in a private Company is :
a) 7 b) 200 c) 20 d) No limit
[99]
3. In case of private placement of shares to raise capital a company:
a) Invite the public through prospectus b) Does not invite the public
c) Invite the public through advertisement d) None of the above
4. As per SEBI Guidelines , Application money should not be less than .......
..of the issue price of each shares:
a) 10% b) 15% c) 25% d) 50%
5. If applicants for 80,000 shares were allotted 60,000 shares on pro rata basis , the
shareholders who was allotted 1,200 shares must have applied for:
a) 900 shares b) 3,600 shares c) 1,600 shares d) 4,800 shares
6. If shares of Rs 4,00,000 are issued for purchase of assets of Rs 5,00,000, Rs 1,00,000

will be treated as ..........
a) Discount b) Premium c) Profit d) Loss

7. Forfeiture of shares result in reduction of :
a) Subscribed capital b) Authorised capital c) Reserve capital d) None of
the above
8. If the premium on forfeited shares has already been received , then securities
premium A/c should be:
a) Credited b) Debited c) No treatment d) None of these
9. 600 shares of Rs 10 each were forfeited for non payment of Rs 2 per share on first
call and Rs 5 per share on final call. Share forfeiture account will be credited with:
a) Rs 1,200 b) Rs 1,800 c) Rs 3,000 d) Rs 4,200
10. Issued 20,000 , 12% debenture of Rs 100 each at a premium of 4%, redeemable at a
premium of 10%. In such case:
a) Loss on issue will be debited by Rs 1,20,000
b) Loss on issue will be debited by Rs 2,00,000
c) Loss on issue will be debited by Rs 2, 88,000
Ans: 1.(c) 2.(b) 3(b) 4(c) 5(c) 6(b)

7(a) 8(c) 9(b) 10(b)
Very short answer questions: (1 mark each)

1. What is a share?
Ans: Total capital of the Company is divided in units of small denominations
such as Rs 10 or Rs 100. Each such unit is called share.
2. What do you mean by Authorised Capital of a Company?
[100]
Ans: This is the maximum capital for which a Company is authorised to issue
shares during its lifetime. It is also known as Registered or Nominal capital.
3. What is meant by Capital reserve?
Ans: Capital reserve is the reserve created out of Capital profits.
4. What is meant by forfeiture of shares?
Ans: If any shareholder fail to pay allotment and call money within the
specified period, the directors may cancel his shares. This is called forfeiture of
shares.
5. Can a Company issue a shares having face value of Rs 10 at Rs 9?
Ans: No. Under section 53 of Companies Act 2013, a Company can not issue
shares at a discount
PRACTICAL QUESTIONS:
Q No1: X Ltd has an authorised capital of Rs 40, 00,000 divided into 4, 00,000 Equity
shares of Rs 10 each. Out of these shares ,the Company invited application for 3,00,000
equity shares. The public applied for 2, 80,000 shares and all the money was duly
received.
Show how share capital will appear in the Balance sheet of the Company. Also
prepare notes to accounts. Mark :3
Balance sheet of X Ltd
As at .....
particulars Note no Amount Amount
current year Prevoius year
1. EQUITY AND LIABILITIES
Shareholders funds:
a) Share capital 1 28,00,000
Notes to accounts:
Rs
1. Share capital:
Authorised capital:
4,00,000 Equity shares of Rs 10 each 40,00,000
Issued capital:
3,00,000 equity shares of Rs 10 each 30,00,000
Subscribed and fully paid up:
2,80,000 shares of Rs 10 each 28,00,000
[101]
Q.no 2: Rohit Ltd purchased machinery from Mohan & Co. For Rs 3, 50,000. A sum of
Rs 75,000 was paid by means of a bank draft and for the balance due Rohit Ltd issued equity
shares of Rs 10 each at a premium of 10%. Pass journal entries in the books of Rohit Ltd.
Mark: 3
Date particulars L/F Dr amo Cr amo
Machinery a/c Dr 3,50,000
To Mohan & Co 3,50,000
( Purchase of machinery)
Mohan & Co Dr 3,50,000

To bank a/c 75,000
To equity share capital 2,50,000
(275,000/11 x10) 25,000
To security prem. Reserve
a/c
(paid purchase consideration by issue of
shares at premium)
Note: Equity share capital= Amount to be paid/Issue price of shares x Nominal value of
shares
Q no 3: X Ltd took over the following assets and Liabilities of Y Ltd:

Land and building Rs 20,00,000; Stock Rs 5,00,000; Sundry debtors Rs 2,50,000 and sundry
creditors Rs 2,00,000.
X Ltd paid the purchase consideration by issuing bank draft of Rs 16,00,000 and
50,000 equity shares of Rs 20 each at a premium of 10%. Calculate purchase consideration
and pass journal entries in the books of X Ltd
Sol: calculation of purchase consideration:
Nominal value of shares issued =50,000 x 20= 10,00,000
Securities premium reserve = 1,00,000
Bank draft =16,00,000

27,00,000
[102]
Journal In the books of X Ltd

Land and and building a/c Dr 20,00,000
Stock a/c Dr 5,00,000
Sundry debtors a/c Dr 2,50,000
*Goodwill a/c Dr 1,50,000
To sundry creditors a/c 2,00,000
To Y Ltd a/c 27,00,000
(purchase of assets and liabilities)
Y Ltd Dr 16,00,000
To Bank a/c 16,00,000
(issue of bank draft)
11,00,000
Y Ltd Dr
10,00,000
To equity share capital a/c
1,00,000
To securities premium reserve a/c
(Issue of 50,000 equity shares of 20

each at premium)
Q.NO 4: Ref: (partial reissue)
X Ltd forfeited 600 shares of Rs 10 each Rs 7 called up on which Mahesh has paid
application and allotment money of Rs 5 per share. Out of these 400 shares were reissued
to Naresh as fully paid up for Rs 6 per share. Pass journal entries for forfeiture and reissue
of shares.
Mark:3
Date particulars l/f Debit ( Credit (

Rs) Rs)
Share capital a/c Dr 4,200
(600x7)
To calls in arrear(600x2) 1200
To share forfeiture a/c 3,000
(forfeiture of shares for non payment
of call money)
Bank a/c Dr (400x6) 2,400

Share forfeiture a/c Dr 1,600
To share capital a/c 4,000
(400x10)
Share forfeiture a/c Dr 400
To capital reserve a/c 400
(3,000/600 x400)-
1,600
[103]
Q5: Y Ltd forfeited 1,000 shares of Rs 10 each issued at 10% premium to Shyam (Rs 9
called up) on which he did not pay Rs 3 on allotment(including premium) and on first
call of Rs 2. Out of these ,600 shares were reissued to Ram as fully paid up for Rs 8 per
share and 200 shares to Mohan as fully paid up @ Rs 12 at different intervals of time.
Give journal entries for forfeiture and reissue.

Sol: Journal
Share capital a/c Dr 9,000
Securities premium reserve a/c Dr 1,000
To share allotment a/c 3,000
To share first call a/c 2,000
To share forfeiture a/c 5,000
(Forfeiture of 1,000 shares of
Shyam) 4,800
Bank a/c Dr 1,200
To share capital a/c
(Reissue of 600 shares at Rs 8 per
share as fully paid up) 1,800
To capital reserve a/c
(profit on reissue transferred to
2,400
capital reserve )
2,000
Bank a/c Dr
400
To share capital a/c
To securities premium reserve a/c 1,000
(reissue of 200 shares) 1,000
Share forfeiture a/c Dr
(profit on reissue of 200 shares
transferred )
Working notes: Profit on reissue of 600 forfeited shares =

(5,000x600/100)-1,200(loss on reisssue) =1,800
Ref: Pro-rata allotment
Q No6: Amrit Ltd issued 50,000 shares of Rs 10 each at a premium of Rs 2 per share
payable as follows:
Rs 3 on application Rs 4 on allotment(including premium), Rs 2 on 1st call and the balance

on 2nd call.
[104]
Application were received for 75,000 shares and prorate allotment was made to all the
applicants. All money due were received except allotment and 1st call from Mohan who
applied for 1200 shares. All his shares were forfeited. The forfeited shares were reissued
for Rs 9,600. Final call was not yet made. Pass necessary journal entries.
Mark:8

Bank a/c (75,000x3) 2,25,000
Dr 2,25,000
To eq. Share appl. a/c
(share application money received) 2,25,000
Eq. Share appl. a/c Dr 1,50,000
To eq. Share capital a/c 75,000
(50,000x3)
To eq. Share allot. a/c
(applic. Money transferred to share 2,00,000
capital) 1,00,000
Eq. Share allot. a/c (50,000x4) Dr 1,00,000
(50,000x2)
To security premium reservea/c 1,23,000
(allotment money
made due)
1,00,000
Bank a/c Dr (w.n 2)
To Eq.Share allot. a/c 1,23,000
(allotment money 98,400
received)
Eq. Share1st call a/c (50,000x2)
Dr 1,00,000
To equity share capital
5,600
a/c
1600 98,400
(share 1st call money made
due)
Bank a/c (49,200x2) Dr
st
To Eq. Share 1 call a/c
(share 1st call money received
on 49,200 shares) 9,600 2,000
Eq. Share capital a/c (800x7) 1600
Dr Security premium reserve 3600
a/c (800x2) Dr
To Eq. Share allot. a/c
(wn1) 3,600
To Eq. Share 1st call. a/c 5600
(800x2)
[105]
To share forfeiture a/c (diff) 4000
(forfeiture of shares for non
payment of allot. &1stcall )
3,600
Bank a/c
Dr
To equity share capital
a/c (800x7)
To Security premium
reserve a/c
(reissue of forfeited shares at
premium)

(profit on reissue
transferred to capital reserve)
Workings:1. Allotment money not received:

Shares applied by Mohan = 1200 shares
Shares allotted to him =50,000/75,000 x1200 = 800 shares
Excess application money paid by Mohan = 400x 3 =1200
Allotment money due from Mohan = 800x 4 =3,200
Less : excess application money paid by him 1,200
Allotment money not received from Mohan =2,000
2. Allotment money received:

Tota allotment money = 50,000 x 4 =2,00,000
Less Excess application money with the company= 25,000x3= 75,000
=1,25,000
Less : Allotment money not paid by Mohan 2,000
Total allotment received =1,23,000
3.profit on reissue of forfeited shares: 3600
Q No 7: X Ltd issued 50,000 shares of Rs 10 each at a premium of Rs 2 per share

payable as follows:
Rs 3 on application, Rs 6 on allotment (including premium) and Rs 3 on call.
Application was received for 75,000 shares and pro-rata allotment was made as follows:
[106]
To the applicants of 40,000 shares, 30,000 shares were issued and for the rest 20,000
shares were issued. All money due was received except the allotment and call money from
Ram who had applied for 1,200 shares (out of group of 40,000 shares). All his shares
were forfeited. The forfeited shares were reissued for Rs 8 per share as fully paid up.
Pass necessary journal entries for the above transactions.

Mark:8
SOL: Workings:
1. Allotment money not received from Ram:
Shares applied by Ram 1200 shares

Shares allotted to him = 30,000/40,000 x 1200 = 900 shares
Excess application money paid by him =300x 3= 900
Allotment money due from Ram = 900 x 6 = 5400
Less : excess application money paid by him 900
Allotment money not received = 4,500
2. Allotment money received:
Total allotment money = 50,000 x6 =3,00,000

Less : excess application money with company 25,000x3= 75,000
2,25,000
Less : Allotment money not paid by Ram 4,500

Total allotment money received
=2,20,500
Date particulars l/f Dr Cr

Bank a/c Dr 2,25,000
(75,000x3) 2,25,000
To eq. Share appl. a/c
(shareapplic. Money received) 2,25,000
[107]
Eq. Share appl. a/c Dr 1,50,000
To eq. Share capital a/c 75,000
(50,000x3) 3,00,000
To eq. Share allot. a/c 2,00,000
Eq. Share allot. a/c Dr 1,00,000
(50,000x6)
To equity share capital a/c ( 2,20,500
50,000x4) 2,20,500
To security premium reserve a/c
(allot.money made due) 1,50,000
Bank a/c Dr 1,50,000
ToEq.Shareallot. a/c
(share allot. Money received) 1,47,300
1,47,300
Eq.Share1st&finalcalla/c Dr
(50,000x3)
9,000
(share 1st &final call money made due)
4,500
Bank a/c Dr (49,100x3) 2,700
To Eq. Share 1 st and final tcall a/c
1800
(share call money received on 49,100
shares
Eq. Share capital a/c Dr (900x10) 7,200
To share alloment a/c (wn1 ) 1,800
To Eq. Share call. a/c (900x3) 9,000
To share forfeiture a/c
(forfeiture of shares for nonpayment of
allot. And call money)
Bank a/c dr( 900x8)
To equity share capital a/c (900x10)
(reissue of forfeited shares at discount)
Note: there is no profit on reissue of
shares
[108]
7. ISSUE AND REDEMPTION OF DEBENTURES
1. Choose the correct answer:
A. Debentures which are transferrable by mere delivery are:

(a) Registered debentures (b) First Debentures
(c) Bearer debentures (d) None of these
B. The following journal entry appears in the books of X Co. Ltd.

Bank a/c Dr. 9,50,000
Loss on issue of debenture a/c Dr. 1,50,000
To 12 % Debentures a/c 10,00,000
To Premium on Redemption of Debenture A/c
1,00,000
Debentures have been issued at a discount of :
(a) 15 % (b) 5 %
(c) 10 % (d) 8 %
C. X Co. Ltd purchased assets worth Rs 14, 40,000. It issued debentures of Rs 100 each
at a discount of 4 percent in full satisfaction of the purchase consideration. The number of
debentures issued to vendor is:
(a) 15, 000 (b) 14,400
(c) 16,000 (d) 30,000
D. Convertible debentures cannot be issued at a discount if:

(a) They are to be immediately converted; (b) They are not to be immediately
converted,
(c) None of the above (d) Both a and b
E. Discount on issue of debentures is shown under the following head in the Balance sheet
:
(a) Statement of profit and Loss, (b) Other non-Current Assets,
(c) Debentures account (d) None of these
F. Debentures can be issued at :

(a) Par (b) Discount
(c) Premium (d) All of them
G. Debenture is also named as :

(a) Share (b) Bond
(c) Equity (d) Reserve
H. When debentures are issued at a discount and are redeemable at a premium, which of
the following accounts is debited at the time of issue:
[109]
(a) Debentures account (b) Premium on redemption of debentures
account,
(c) Loss on issue of debentures account (d) Securities Premium Reserve Account
I. When all the debentures are redeemed, balance in the debentures redemption fund
account is transferred to :
(a) Capital reserve, (b) General reserve,
(c) Statement of profits and loss (d) Any of these
2. Fill in the blanks

a) A.................... may be defined as subsidiary or secondary or
additional security beside the primary security when a company obtains a loan or overdraft
from a bank or any other financial Instituiton.
Ans - collateral security
b) .......................... is a written instrument acknowledging a debt

under the common seal of the company.
Ans- Debenture
c) ................... refer to those debentures where a charge is created on
the assets of the company for the purpose of payment in case of default. The charge may
be fixed or floating. Ans- Secured debentures
d) Debentures which are convertible into equity shares or in any other security either at
the option of the company or the debenture holders are called ................
Ans- convertible debentures
e) ........... can be issued at dicount but............ cannot be issued at

discount except ESOP.
Ans- Debentures, Shares
f) ................. refers to extinguishing or discharging the liability on account

of debentures in accordance with the terms of issue.
Ans- Redemption of debentures
g) The amount credited to the Debenture Redemption Reserve shall not be utilised by the
company except for the purpose of ....................
Ans- redemption of debentures
h) No DRR is required for debentures issued by ............... regulated by

Reserve Bank of India ................. Companies for both public as well as
privately placed debentures.
Ans- All India Financial Institutions (AIFIs) Banking
[110]
3. Z ltd issued 2000, 10% debentures of Rs 100 each, at par. Debentures payable as
follows:
Application Rs.40 Allotment Rs.60
The debentures were fully subscribed and all the amount was duly received. Pass the
necessary journal entry.
Solution:[DEBENTURES ISSUED AT PAR]
IN THE BOOKS OF Z LTD.

JOURNALS
Date Particulars LF. Dr. Cr.
Bank A/c Dr. 80,000
To Debentures Application A/C 80,000
(Being debentures application money
received)
Debentures Application A/C Dr. 80,000
To 10%Debentures A/C 80,000
(Being 2000; 10% debentures allotted)
Debentures Allotment A/C Dr. 1,20,000
To 10% Debentures A/C 1,20,000
(Being the allotment money due)
Bank A/C Dr. 1,20,000
To Debentures Allotment A/C 1,20,000
(Being the amount due on allotment
received)
4. X ltd issued 5000; 9% Debentures of Rs.100 each at a premium of 20% payable:

On Application-Rs.50, On Allotment- Balance
Applications were received for the debentures issued and also the amount due on
allotment including premium was received. Pass journal entries for the above.
Solution:[DEBENTURES ISSUED AT PREMIUM]

IN THE BOOKS OF X LTD.
JOURNALS
Date Particulars LF Dr. Cr.
Bank A/c Dr. 2,50,000
To Debentures Application A/C 2,50,000
received)
Debentures Application A/C Dr. 2,50,000
To 9%Debentures A/C 2,50,000
[111]
Debentures Allotment A/C (5000×70) 3,50,000
Dr. 2,50,000
To 9% Debentures A/C (5000×50) 1,00,000
To Securities Premium Reserve A/C
(5000×20)
(Being the allotment money along with
premium due)
Bank A/C 3,50,000
To Debentures Allotment A/C 3,50,000
received)
5. Y ltd issued 20,000, 9% Debentures of Rs.100 each at a discount of 4% on 1st April,

2019, payable Rs.30 on application and the balance on allotment. The debentures
are redeemable after 5 years. Pass Journal entries for the issue of debentures and
writing off discount on issue of debentures.
Solution:[DEBENTURES ISSUED AT A DISCOUNT]
IN THE BOOKS OF Y LTD.

JOURNALS
Date Particulars LF Dr. Cr.
.
1- Bank A/c Dr. 6,00,000
04- To Debentures Application A/C 6,00,000
2019 (Being debentures application money received)
1- Debentures Application A/C Dr. 6,00,000
04- To 9%Debentures A/C 6,00,000
2019 (Being the debentures application money transferred to 9%
Debentures Account)
1- Debentures Allotment A/C (20000×66) 13,20,000
04- Dr. 80,000
2019 Discount on issue of Debentures A/C (20000×4) Dr. 14,00,000
To 9% Debentures A/C(20000×70)
(Being the allotment money due on 20000; 9%
Debentures)
1- Bank A/C Dr. 1320000
04- To Debentures Allotment A/C 1320000
2019 (Being the amount due on allotment received)
31- Statement of Profit and Loss Dr 80,000
03- To Discount on issue of Debentures A/C 80,000
2020 (Being discount on issue of debentures written off)
[112]
6. Jyoti ltd. invited applications for 3000;12% Debentures of Rs.100 each at a
premium of Rs.50 per Debentures. Full amount was payable on application.
Application were received for 4000 debentures. Applications for 1000 debentures
were rejected and application money was refunded. Debentures were allotted to
the remaining applicants.
Solution:[OVER SUBSCRIPTION]
IN THE BOOKS OF JYOTI LTD.
JOURNALS
Bank A/c Dr. 6,00,000
To Debentures Application and allotment 6,00,000
A/C
(Being application money of Rs.150 received
on 4000 debentures)
Debentures Application and allotment Dr. 6,00,000
To 12%Debentures A/C 3,00,000
To Securities Premium Reserve A/C 1,50,000
To Bank A/C 1,50,000
(Being 3000; 12% issued at a premium of
Rs50 each and application money for 1000
debentures refunded)
7. Honey ltd issued 10,000, 9% Debentures of Rs.100 each for subscription, payable
Rs.60 on application and balance on allotment. Subscription was received for 9000
debentures. Allotment was made and due amount was received.
Pass necessary journal entries for issue and allotment of debentures.
Solution:[UNDER SUBSCRIPTION]
IN THE BOOKS OF HONEY LTD.
JOURNALS
Bank A/c Dr. 540000
To Debentures Application A/C 540000
received for 9000;9% debentures @Rs.60
per debentures)
Debentures Application A/C Dr. 540000
To 9%Debentures A/C 540000
Debentures Allotment A/C Dr. 360000
To 9% Debentures A/C 360000
(Being the allotment money due)
Bank A/C Dr. 360000
To Debentures Allotment A/C 360000
received)
[113]
8. A company purchased assets of Rs.9,90,000 from another firm. Payment was by
issuing, 11% Debenture of Rs.100 each. Pass journal entries when debentures
have been issued at par.
Solution:[ISSUE OF DEBENTURES FOR CONSIDERATION OTHER THAN CASH]

IN THE BOOKS OF……….
JOURNALS
Date Particulars L.F. Dr. Cr.
Sundry Assets A/C 990000
To Vendors A/C 990000
(Being the sundry assets purchased from
Vendor for Rs.990000)
Vendors A/C 990000
(Being the allotment of 9900; 11%
Debentures of Rs.100 each at par to the
Vendor)
9. A company purchased assets of Rs.990000 from another firm. Payment was by

have been issued at a premium of 10%.
Solution:
IN THE BOOKS OF …..
JOURNALS
Vendors A/C 990000
To Securities Premium Reserve A/C 90000
(Being the allotment of 9000(i.e
990000÷110); 11% Debentures of Rs.100
each issued at a premium of 10% to the
Vendor)
10. A company purchased assets of Rs.990000 from another firm. Payment was by
have been issued at a discount of 10%.
Solution:
[114]
Vendors A/C 990000
Discount on issue of Debentures A/C 110000
To 11% Debentures 1100000
(Being the allotment of 11000(i.e
990000÷90); 11% Debentures of Rs.100
each issued at a premium of 10% to the
Vendor)
Statement of Profit and Loss 110000
To discount on issue of Debentures 110000
11. X ltd purchased building for Rs.22,00,000. Half the payment was made by cheque
and the balance half by issue of 9% Debentures of Rs.100 each at a premium of
10%. Pass necessary Journal entries.
Solution:
Date Particulars L.F Dr. Cr.
Building A/C 22,00,000
To Vendors A/C 22,00,000
(Being the building purchased)
Vendors’s A/C 11,00,000
To Bank A/C 11,00,000
(Being the half payment made by cheque)
Vendor’s A/C 11,00,000
To Securities Premium Reserve A/C 1,00,000
(Being the balance payment made by issue
of 10000; 9%Debentures at 10%)
Number of Debentures issued= (2200000-1100000)÷110=10000 Debentures
12. Pass Journal entries to record the following transaction:
(i) A Ltd. issued 15000; 8% Debentures of Rs. 100 each at discount of 5% to be

repaid at par at the end of 5 years.
(ii) A Ltd. Issues 10% Debentures of ` 100 each for the total nominal value of Rs.
80,00,000 at a premium of 5% to be redeemed at par.
[115]
(iii) A Ltd. Issues ` 50,00,000; 9% Debentures of ` 100 each at par but redeemable
at the end of 10 years at 105%.
(iv) A Ltd. Issued ` Rs40,00,000, 12% debentures of ` 100 each at a discount of 5%

repayable at a premium of 10% at the end of 5 years.
(v) A Ltd issued ` 70,000; 12% debentures of ` 100 each at a premium of 5%

repayable at 110% at the end of 10 years.
Solution: [Issue of debentures from terms of Redemption]
DATE PARTICULARS Dr. (Rs) Cr. (Rs)

(i) Bank A/c 14,25,000
Dr. 14,25,000
To debenture application and allotment A/C
(Being the debenture application money
record)
Debenture application & Allotment A/c 14,25,000
Dr. 75,000
Discount on issue of Deb. A/c 15,00,000
Dr.
To 10 Debentures A/c
(Being the issue of 15,000, 8% debentures of
Rs. 100 each at a discount of 5%
(ii) Bank A/c Dr. 84,00,000
To debenture application and allotment A/c 84,00,000
received)
Debenture application and allotment A/C
Dr. 84,00,000 80,00,000
To 10% debenture A/C 4,00,000
To security premium A/C
(Being the issue of 80,000, 10% debenture of
Rs. 100 each at a premium of 5%)
(iii) Bank A/C 50,00,000
Dr. 50,00,000
To debenture application and allotment A/C
received)
Debenture application and allotment A/C 50,00,000
Dr. 250000
Loss on issue of debenture A/c 5000000
Dr. 250,000
To 12% Debenture A/c
[116]
To premium on Redemption of Debenture A/c
Rs. 100 each at par redeemable at 105%
(iv) Bank A/C Dr. 38,00,000
To debenture application and allotment A/C 38,00,000
(Being the debentures application money
received)
Debenture application and allotment A/C 38,00,000
Dr. 6,00,000
Loss on issue of debenture A/C 4000000
Dr. 400000
To 12% debenture A/C
To premium on redemption of debenture A/c
Rs. 100 each at a discount of 5% and
repayable at a premium 10%
(vi) Bank A/c Dr. 73,50,000
To debenture application and allotment A/c 73,50,000
second)
Debenture application and allotment A/c 73,50,000
Dr. 7,00,000
Loss on issue of debenture A/c 70,00,000
Dr. 3,50,000
To 12% debenture A/c 7,00,000
To security Premium Reserve A/c
To premium on redemption of debenture
A/c. (Being the issue of 70,000, 12%
debentures of Rs. 100 each at a premium of
5% and repable at a premium of 10%
13. Moti ltd. Obtained loan of Rs.120000 from Bank of India and issued 1500; 9%
Debentures of Rs.100 each as collateral security. How will be issues of Debentures
shown in the Balance Sheet?
Case I. when journal entry is NOT passed.
Case II. When journal entry is passed.
Solution:[ Debentures as collateral Security]
Case I. An extract of Balance Sheet of Moti Ltd.

Particulars Note NO. Rs.
Non-Current liabilities
Long term Borrowings 1 120000
[117]
Notes to Accounts
1. Long-term Borrowings
Loan from Bank of India 120000
(Secured by issue of 1500;9%Debentures of Rs100 each as
collateral Security)
Case II Journal Entry

(i) Debenture Suspense A/C Dr. 150000
(Being the issue of 1500;9%debentures of
Rs.100 each as collateral security for a loan
from a bank as per Board’s resolution
No….Dated…)
An extract of Balance Sheet Moti Ltd.

Particulars Note NO. Rs.
Non-Current liabilities
Long term Borrowings 1 120000
Notes to Accounts
1. Long-term Borrowings
Loan from Bank of India 120000
1500;9% Debentures of par value Rs.100 each issued as collateral
security 150000
Less: Debenture Suspense A/C ……..
150000
120000
14. Times ltd issued 20000; 10% Debentures of Rs.100 each on 1st April 2018. The
issue was fully subscribed. According to the terms of issue, interest is payable on
half yearly basis. Pass journal entries for the year ended 31st March,2019 (Ignore
TDS)
Solution:[ Interest on Debentures]

In the books of Times Ltd
JOURNAL
2014 Debenture Interest A/C 1,00,000
Sep. To Debentureholder’s A/C 1,00,000
30 (Being the interest on debentures payable for
the half-year ended 30th sep,2018
Debentureholder’s A/C 1,00,000
[118]
(Being the interest paid to debentureholders)
2015 Debenture Interest A/C 1,00,000
March To Debentureholder’s A/C 1,00,000
31 (Being the interest on debenture payable for
the half year ended 31st March, 2015)
Debentureholder’s A/C 1,00,000
(Being the interest paid to debentureholders)
15. Rohit Ltd. Has issued 50000, 8% Debentures of Rs.100 each at a discount of 9% on
July 1, 2019. The company has balance of Rs.5,00,000 in Securities Premium
Reserve. Pass necessary journal entries for issue of debentures and to write off
discount/loss on issue of debentures. The debentures are redeemable after 5 years
at a premium of 7%.
Solution: [Writing off discount/loss on issue of debentures]

July Bank A/c Dr. 4550000
1,19 To debenture application and allotment A/C 4550000
record)
July Debenture application & Allotment A/c Dr. 4550000
1,19 Loss on issue of Deb. A/c 800000
Dr. 5000000
To 8%Debentures A/c 350000
To premium on redemption of debenture A/C
(Being 50000 debentures of Rs.100 each
issued at a discount of 9% redeemable at
7%premium)
July Securities Premium Reserve A/C 500000
1,19 Statement of Profit and Loss 300000
To loss on issue of debentures A/C 800000
(loss on issue of debentures written off)
16. On April 1st 2019 X ltd issued 10,000 ,8% Debentures of Rs.100 each at a premium of
5%, to be redeemable at a premium of 10%, after 5 years. The entire amount was
payable on application. The issue was oversubscribed to an extent of 10,000
debentures and the allotment was made proportionately to all the applicants. The
securities premium account has not been utilised for any other purpose during the
year. Give journal entries for the issue of debentures and writing off loss on issue of
debentures.
Solution:
[119]
In the books of X Ltd.
Journals
1-04- Bank A/C DR 21,00,000
2019 To Debenture Application and Allotment A/C 21,00,000
(Being Application money received on 20000
8% Debentures)
1-04- Debenture Application and Allotment A/C 21,00,000
2019 Dr 1,00,000
Loss on issue of Debenture A/C Dr 10,00,000
To 8% Debentures 50,000
To Security Premium Reserve 1,00,000
To Premium on redemption of debentures 10,50,000
To Bank
(Being the Debentures allotted and the
balance refunded)
31- Security Premium Reserve A/C 50,000
03- Dr 50,000
2020 Statement of Profit and Loss A/C 1,00,000
Dr
To loss on issue of Debentures A/C
(Being loss on issue of Debentures written
off)
17. X ltd took over the business of Y Ltd. on 01-04-2020. The details of the
agreement regarding the assets and liabilities to be taken over are:
Particulars Book value Agreed Value
Land and building 2000000 35,00,000
Machinery 12,00,000 8,00,000
Stock 4,00,000 4,00,000
Debtors 5,00,000 4,00,000
Creditors 2,00,000 3,00,000
Outstanding expenses 50,000 1,00,000
It was decided to pay for purchase consideration as Rs.700,000 through cheque and
balance by issue of 2,00,000 9%Debentures of Rs.20 each at a premium of 25%.
Journalise.
Solution:
Journals
Land and Building A/C Dr 35,00,000
Machinery A/C Dr 8,00,000
Stock A/C Dr 4,00,000
[120]
Debtors A/C Dr 4,00,000
Goodwill A/C 10,00,000
Dr 3,00,000
To Creditors A/C 1,00,000
To Outstanding Expenses A/C 57,00,000
To Y Ltd A/C
(Being the assets and liabilities of business
taken over, recorded at agreed value)
Y ltd A/C 57,00,000
Dr 7,00,000
To Bank A/C 40,00,000
To Securities Premium Reserve A/C
(Being Purchase consideration paid to Y Ltd)
18. A ltd. issued 2,000: 9% Debentures of Rs.100 each on the following terms:
Rs.20 on Application: Rs.20 on allotment : Rs.30 on first call: Rs.30 on final
call.
The public applied for 2,400 debentures. Applications for 1800 debentures were
accepted in full. Applications for 400 Debentures were allotted 200 debentures and
applications for 200 debentures were rejected. Pass necessary journal entries.
Solution:
Journals
Date Particulars Dr. Cr.
Bank A/C Dr 48,000
To 9% Debenture Application A/c 48,000
(being application received for 2400 debenture at
Rs.20 each)
9% Debenture Application A/c Dr 48,000
To 9% Debenture 40000
To 9% Debenture allotment 4,000
ToBank A/C 4,000
(Being debenture application money transferred to
9% Debenture A/C for 2000 debentures; Adjusted
to debenture allotment A/C for 200 debentures and
money refunded for 200 debentures)
9% debenture Allotment A/C dr 40,000
To 9% Debenture A/C 40,000
(Being Debenture allotment money due on 2000 9%
debentures at Rs.20 each)
Bank A/C Dr 36,000
To 9% debenture allotment A/C 36,000
(Being debenture allotment money received)
Debenture first call A/C Dr 60,000
To 9% debenture A/C 60,000
[121]
(Being debenture first call money due)
Bank A/C dr 60,000
To Debenture first call A/C 60,000
(Being debenture first call received)
Debenture final call A/C dr 60,000
To 9% debenture A/C 60,000
(Being debenture final call money due)
Bank A/C dr 60,000
To Debenture final call A/C 60,000
(Being debenture final call received)
19. Romi ltd acquired assets of Rs.20 lakhs and took over the creditors of Rs. 2 lakhs
from Kapil enterprise. Romi ltd issued 8% debentures of Rs.100 each at a discount
of 10% as purchase consideration. Record necessary journal entries in the books of
Romi ltd.
Solution:
In the books of Romi Ltd.

Journals
Date Particulars Dr. Cr.
Assets A/C dr 20,00,000
To creditors A/C 2,00,000
To Kapil Enterprise A/C 18,00,000
(Being assets and liabilities taken over from Kapil
enterprise)
Kapil Enterprise A/C Dr 18,00,000
Discount on issue of debenture A/C Dr 2,00,000
To 8% Debentures 20,00,000
(Being 20,000 8%debentures of rs.100 each issued
at a discount of 10% to Kapil Enterprise)
No. of debentures issued=purchase consideration/issue price
=18,00,000/(100-10)= 20000 debentures
20. Bright ltd. issued 5000; 10% Debentures of Rs.100 each on 1st April, 2015. The
issue was fully subscribed. According to the terms of issue, interest on debenture is
payable half yearly on 30th September and 31st March and the tax deducted at source
is 10%. Pass necessary journal entries related to the debenture interest for the year
ending 31st March 2016 and transfer of interest on debentures of the year to the
statement of profit and loss.
Solution:
[122]
In the books of Bright Ltd.
Journals
30th Debenture Interest A/C Dr 25,000
sep, 15 To Debenture holders A/C 22,500
To income Tax Payable A/C 2,500
(Being debenture interest due)
30th Debenture holder A/C Dr 22,500
sep, 15 Income Tax payable A/C Dr 2,500
To Bank A/C 25,000
(Being interest on debenture paid)
31st Debenture Interest A/C Dr 25,000
march To Debenture holders A/C 22,500
16 To income Tax Payable A/C 2,500
(Being debenture interest due)
31st Debenture holder A/C Dr 22,500
march Income Tax payable A/C Dr 2,500
16 To Bank A/C 25,000
(Being interest on debenture paid)
31st Statement of profit and loss A/C Dr 50,000
march To Debenture Interest A/C 50,000
16 (Being interest transferred to statement of
profit and loss)
[123]
8. Financial statements of a company
Q.1 Debenture redeemable after 12 years of the issue are shown as

(a) Long term borrowings
(b) Short term borrowings
(c) Other short-term liabilities
(d) Other long-term liabilities
Ans. Long term borrowings
Q.2 As per companies act, the Balance sheet is required to be presented

(a) Vertical Form
(b) Horizontal Form
(c) Either Vertical Form or Horizontal Form
(d) Any of the above
Ans. Vertical Form
Q.3Sales is termed as
(a) Employee benefit expenses
(b) Revenue from operation
(c) Cost of material Consumed
(d) None of the above
Ans. Revenue from operation
Q.4Income statement is termed as –

(a) Statement of profit and loss
(b) Trading Account
(c) Balance sheet
(d) Profit and loss
Ans. Statement of profit and loss
[124]
Q.5 Provision for tax appears in a company’s Balance sheet under the sub head –
(a) Long term provision
(b) Short term provision
(c) Other current liability
(e) Ans. Short term provision
Q.6 Revenue from sales of goods is shown in the statement of profit and loss as-
(a) Other Income
(b) Revenue from operation
(c) Any of the above
Ans. Revenue from operation
Q.7 The prescribed form of balance sheet for the companies has been given in the
schedule:
(a) III, Part I
(b) VI, Part I
(c) VI, Part II
(d) None of these
Ans. III, Part I
Q.8 Maximum amount of capital mentioned in the memorandum of association is known as

(a) Subscribed capital
(b) Authorised capital
(c) Called up capital
(d) Paid up Capital
Ans. Authorised capital
Q.9 Which statement is not included in final accounts of a company?

(a) Balance sheet
(b) Statement of profit and loss
(c) Both (a) & (b)
[125]
Ans. None of the above
Q.10 List the items Shown under the head ‘Long term borrowings.
Ans.
1. Debentures
2. Bonds
3. Long term loans from Bank
Public deposits
Q.11 List any three items that can be shown under the heading ‘Reserves and surplus’ in
a company’s balance sheet
Ans.
1. Security premium reserve
2. General Reserve
Debenture redemption reserve
Q.12 List the sub heading which are shown under the headings ‘Current Liabilities ‘as per
Schedule III part-1 of the companies Act.2013
Ans. (a) Short term borrowings
(b) Trade payables
(c) Other current liability
(d) Short term provision
Q.13 Prepare balance Sheet of XYZ Ltd. As at 31st March, 2013 from the details given
below
₹
Reserve and Surplus 4,80,000
Other long-term liabilities 2,00,000
Trade Payables 1,50,000
Long term borrowings 2,40,000
Other current liabilities 1,00,000
Short term provisions 40.000

Long term provisions 60,000
[126]
Share Capital 10,00,000
Cash and Cash Equivalents 4,00,000
Other current Assets 4,00,000
Inventories 1,00,000
Trade receivables 2,40,000
Intangible Fixed Assets 2,60,000
Tangible fixed Assets 8,70,000
Solution:
Particulars Note 2012-13(₹) 2011-12(₹)

No.
I.EQUITY AND LIABILITIES

(1) Shareholders Fund
(a) Share Capital 10,00,000
(b) Reserve and Surplus 4,80,000
(2) Non-Current Liability

(a) Long Term Borrowing 2,40,000
(b) Other long-term Liabilities 2,00,000
(c) Long term Provisions 60,000
(3) Current Liabilities

(a) Short Term Borrowings ----------
----
(b) Trade Payables
1,50,000
(C) Other Current Liabilities
1,00,000
(d) Short term Provisions
40.000
Total
II. ASSETS
22,70,000
(1) Non-Current Assets
(a) Fixed Assets
8,70,000
(i) Tangible
[127]
(ii) Intangible 2,60,000
(iii) Non-Current Investment ----------

--
(iv) Long term Loans and Advances
----------
(2) Current Assets -
(a) Current Investment
(b) Inventories
(c) Trade receivables
(d) Cash and Cash Equivalents 1,00,000
(e) Short term Loans and Advances 2,40,000
(f) Other Currents Assets 4,00,000
----------
-
Total
4,00,000
22,70,000
Q.14 From the following Information, Prepare Balance sheet of Goel Ltd:
Particulars 31.03.2014
Reserve and Surplus 6,00,000
Equity Share Capital 5,00,000
Trade payables 6,35,000
Building 8,00,000
Machinery 3,15,000
Investment 60,000
Current Assets 7,60,000
Long term Borrowings 2,00,000
Solution:
Balance Sheet of Goel Ltd
Particulars Note 31st March 2014 31st March

No. 2013
I. Share holder’ Fund
[128]
(a) Equity Share Capital 5,00,000
(b) Reserves and Surplus 6,00,000
2. Noncurrent Liabilities:
Long term Borrowings 2,00,000
3. Current Liabilities:
Trade payables 6,35,000
Total 19,35,000
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible assets 11,15,000
(ii) Intangible Assets -------
(b) Investment 60,000
2. Current Assets 7,60,000
19,35,000
Notes to Accounts
Particulars 31.03.2014
1. Tangible Assets
Building 8,00,000
Machinery 3,15,000
Q.15 XYZ Ltd. Has the following balances on 1st April 2013:
₹
Securities Premium 60,000
General Reserve 1,25,000
Statement of Profit and Loss 2,50,000
st
During the year ending 31 March 2014, it incurred a loss of ₹ 75,000. Show how these
items will be shown in the balance sheet the company and Notes to accounts
Solution:
Particulars Note 31st 31st

No March,2014 March,2013
(₹) (₹)
EQUITIES AND LIABILITIES

Shareholders fund
Reserve and surplus 3,60,000
Notes to accounts
[129]
Reserves and Surplus ₹
Securities Premium 60,000

General Reserve 1,25,000
Statement of Profit and Loss 2,50,000
Loss incurred during the year (75,000)
3,60,000
Q.16 Compute the change in Inventory of Stock in Trade if

Opening Inventory of stock in Trade ₹80,000
Closing Inventory of Stock in Trade ₹50,000
₹
Solution: Opening Inventory of Stock in Trade 80,000
Less: Closing Inventory of Stock in Trade 50000

Change in Inventory of stock in Trade 30,000
Q.17 Under which major heads of the statement of profit and loss of a company following
items will be shown –
(i) Material Purchased
(ii) Sales
(iii) Wages and Salaries
Ans. Material Purchased- Cost of Material Consumed
Sales- Revenue from operation
Wages and Salaries – Employee benefit expenses
Q.18 Out of the following, Identify the items that are shown in the Notes to accounts on
employee benefit expenses –
(a) Wages (b) Salaries (c ) Entertainment expenses (d) Bonus ( E)

Gratuity Paid (f) Conveyance Expenses
Ans. Wages, Salaries, Bonus and Gratuity Paid
Q.19 Out of the following, Identify the items that are shown in the Notes to accounts on
Finance Cost
[130]
(a) Interest paid on term loan (b) Interest paid on overdraft (c) Interest
received on fixed deposits (d) Bank Charges ( e) Discount on Issue of
debentures written off
Ans. Interest paid on term loan , Interest paid on overdraft, Discount on Issue of
debentures written off
Q.20 Identify which of the following items are to be shown in the notes to accounts on
other expenses
(a) Wages and Salaries (b) Internet expenses (c) Rent for Factory (d)
Depreciation on furniture (e ) Rent for office (f) Audit Fees (g) Staff
welfare Expenses (h) Courier expenses
Ans. Internet expenses, Rent for Factory, Rent for office, Audit Fees, Courier expenses
Q.21 Under which major head of the statement of profit and loss of a company following
items will be shown
(i) Bonus (ii) Material Purchased (iii) Wages (iv) Purchase of stock in
trade
(v) Sales (vi) Sale of Scrap (vii) Interest earned (viii) Gratuity
Paid
Ans.
Bonus Employee benefit Expenses

Material Purchased Cost of material consumed
Wages Employee benefit Expenses
Purchase of stock in trade Purchase of stock in trade
Sales Revenue from operation
Sale of Scrap Revenue from operation
Interest earned Other Income
Gratuity Paid Employee benefit Expenses
Q.22 Under which major heads of the statement of Profit and Loss of a company following
Items will be shown
(i) Interest on public deposits
(ii) Entertainment Expenses
(iii) Discount on issue of debentures written off
[131]
(iv) Interest paid on debentures
(v) Profit on sale of Investment
(vi) Contribution of Provident Fund
(vii) Revenue from service rendered
(viii) Goodwill written off
Ans.
(i) Interest on public deposits Finance Cost

(ii) Entertainment Expenses Other expenses
(iii) Discount on issue of debentures written Finance Cost
off
Finance Cost
(iv) Interest paid on debentures
(v) Profit on sale of Investment
Revenue from operation
(vi) Contribution of Provident Fund
Employee benefit Expenses
(vii) Revenue from service rendered
Revenue from operation
(viii) Goodwill written off
Depreciation and amortisation
expenses
Compute cost of material Consumed from the following:
₹
1st
Inventory of Material on April,2015 2,50,000
Inventory of Material on 31st March,2016 1,20,000
Purchase of Material 14,00,000
Return of Material Purchased 20,000
Solution:
Particulars ₹
Inventory of Material on 1st April,2015 2,50,000
Add: Purchase of Material
14,00,000
16,50,000
Less: Return of Material Purchased 20,000
Inventory of Material on 31st March,2016 1,20,000
1,40,000
Cost of Material Consumed (16,50,000- 1,40,000) 15,10,000
[132]
Q.23Calculate Revenue from operation, other Income, and total revenue for a non-
financial company from the following information
Particulars ₹
Sales 21,00,000
Sales return 90,000
Sales of scrap 30,000
Interest on fixed Deposits 30,000
Dividend received 10,000
Refund of Income tax 15,000
Sale of other items 7,000
Solution:
Particulars ₹
Revenue from operation (sale) 21,00,000
Add: Sale of Scrap 30,000
21,30,000
Less: Sales return 90,000
Revenue from operation 20,40,000
Other Income
Dividend received 10,000
Refund of Income Tax 15,000
Interest on F.D 30,000 55,000
Q.24 From the following Information of Aroma Ltd, Prepare Statement of Profit and Loss as
on 31st March 2016:
Sale 35,00,000
Sale of Scrap 15,000
Purchase of Stock in trade 20,00,000
Wages and Salaries 6,00,000
Interest received 25,000
Bonus Paid 70,000
Gratuity paid 50,000
Depreciation on Building 25,000
Opening stock in trade 1,50,000
[133]
Closing Stock In trade 2,25,000
Solution:
Particulars Note 31st March 31st March

No.
2016 2015
I. Revenue from Operation 1 35,15,000

II. Other Income 25,000
III. Total Revenue (I+II) 35,40,000

IV. Expenses
(a) Cost of Materials Consumed ----------
-----
(b) Purchase of Stock in Trade 2
19,25,000
(c) Change in Inventories of finished
goods, work in progress and stock
in trade
----------
(d) Employees Benefit Expenses --
3
(e) Finance Cost
(f) Depreciation and Amortisation 7,20,000
Expenses ----------
(g) Other Expenses --
Total Expenses
V. Profit Before tax (III-IV) 25,000
Less: Income tax ----------

-
VI. Profit After tax
26,70,000
8,70,000
Notes to Accounts
[134]
1. Revenue From operation ₹
Sale 35,00,000
Sale of Scrap 15,000
35,15,000
2. Purchase of Stock In trade

Opening Stock In trade 1,50,000
Purchase of stock in trade 20,00,000
Closing Stock In trade (2,25,000)
19,25,000
3. Employee benefit expenses

Wages and Salaries 6,00,000
Bonus paid 70,000
Gratuity paid 50,000
7,20,000
Q.25 From the following information Prepare Notes to accounts on Finance Cost :
(i) Interest paid on Bank Overdraft ₹50,000
(ii) Interest Paid on term loan ₹2,60,000
(iii) Interest received on fixed deposits ₹ 40,000
(iv) Bank Charges ₹ 8,000
(v) Discount of Issue of debenture Written Off ₹ 15,000
(vi) Processing charges for loan ₹ 20,000
Solution: Notes to accounts
Finance Cost ₹
Interest paid on Bank Overdraft 50,000
Interest paid on Bank Loan 2,60,000
Discount of Issue of debenture written off 15,000
[135]
Processing charges for loan 20,000
3,45,000
Q.26 Prepare Statement of Profit and loss from the following particulars as on 31 st
March,2013
Revenue from operation 10,00,000

Expenses 6,00,000
Other Income 1,00,000
Income Tax 50%
Particulars Note 31st March 31stmarch,

No. 2013
2012
I. Revenue from operation 10,00,000

II. Other Income 1,00,000
III. Total Revenue from operation 11,00,000
IV. Expenses 6,00,000
V. Profit before tax
5,00,000
VI. Less: Tax
2,50,000
VII. Profit after tax
2,50,000
[136]
9.Analysis of financial statement
Q.1 Comparative Financial statements means.

(a) To facilitate comparison for two or more Years
(b) To show Financial Position
(c) To compute profit or loss of two or more years
Ans. To facilitate comparison for two or more Years
Q.2 Reserve and surplus of current year is ₹24,00,000 and ₹12,00,000 for previous year.
What will be the Absolute change?
Solution: Absolute change = 24,00,000-12,00,000=12,00,000
Q.3 Reserve and surplus of current year is ₹24,00,000 and ₹12,00,000 for previous year.
What will be the percentage change?
100
Solution: (24,00,000 − 12,00,000) × =100%
12,00,000
Q.4 In a company other income is ₹ 2,00,000 and Revenue from operation is ₹8,00,000.
What will be the percentage to revenue from operation?
200000
Ans.800000 ×100=25%
Q.5 Which of the following cannot be identified with the help of comparative Balance
Sheet?
(a) Rate of Increase or decrease in share Capital
(b) Rate of increase or decrease in reserve and surplus
(c) Rate of increase or decrease in revenue from operation
(d) Rate of increase or decrease in Trade receivables
Ans. Rate of increase or decrease in revenue from operations
Q.6 Which of the following cannot be identified with the help of comparative Statement of
profit and loss?
(a) Rate of increase or decrease in expenses
(b) Rate of increase or decrease in revenue from operation
(c) Rate of increase or decrease in net profit
(d) Rate of increase or decrease in Trade payables
[137]
Ans. Rate of increase or decrease in Trade payables
Q.7 In Common size Balance sheet, which figure is assumed to be equal to 100?
(a) Revenue from operation
(b) Net profit
(c) Total expenses
(d) Equities and liabilities
Ans. Equities and liabilities
Q.8 In Common size Balance sheet, which of following figure is assumed to be equal to
100?
(a) Equities and liabilities
(b) Total Assets
(c) Either (a) or (b)

Ans. Either (a) or (b)
Q.9 In common size statement of Profit and Loss which figure is assumed to be equal to
100?
(a) Total Assets
(b) Equities and Liabilities
(c) Revenue from Operation
Ans. Revenue from Operation
Q.10 Prepare comparative Balance sheet of Gama Ltd. following Balance sheet from the
balance sheet as at 31st March 2018 and 2017:
Particulars Note 31st March 31st

No 2018 (₹) March,2017(₹)
(c) Share Capital 55,000 50,000
(d) Reserve and Surplus 12,000 10,000
(2) Non-Current Liability
(d) Long Term Borrowing 22,000 18,000
(3) Current Liabilities
(a) Short term borrowings 11,000 12,000
Total 1,00,000 90,000
[138]
II. ASSETS
(i) Non-Current Assets
(b) Fixed Assets 80,000 70,000
(II) Current Assets
Cash and Cash Equivalent 20,000 20,000
Total 1,00,000 90,000
Particulars Note 31st 31st Absolute Percentage

No. March,2017(₹) March change change
2018
(₹)

(e) Share Capital 55,000 50,000 5,000 9.09
(f) Reserve and
Surplus
12,000 10,000 2,000 16.67
(2) Non-Current
Liability
(a) Long Term

Borrowing 22,000 18,000 4,000 18.18
(3) Current Liabilities 11,000
(a)Short term 1,00,000

borrowings
12,000 (1,000) (9.09)
Total
90,000 10,000 (10)
II. ASSETS
(j) Non-Current
Assets
(4) Fixed Assets 80,000 70,000 (10,000) (12.5)
(III) Current Assets

Cash and Cash
Equivalent 20,000 20,000 ----
Total 1,00,000 90,000 (10,000) (10)
[139]
Q.11 Prepare Comparative Statement of Profit and Loss from the Given Statement of Profit
and Loss
Particulars Note No 31st March 2014 31st March,2013
I. Revenue from Operation 10,00,000 6,00,000
II. Expenses
(a) Purchase of Stock in Trade 6,00,000 3,00,000
(b) Change in Inventories of Stock In trade 60,000 60,000
(c) Other expenses 66,000 43,200
(d) Total Expenses 7,26,000 4,03,200
III. Profit Before Tax (I-II) 1,64,000 1,96,800
Less: Tax 1,09,600 78,720
Profit After tax 1,64,400 1,18,080
Solution:
Particulars Note 31st March 31st Increase Increase %/

No 2013 March,2014 /Decrease Decrease %
I. Revenue from Operation 6,00,000 10,00,000 4,00,000 66.67
II. Expenses
(a) Purchase of Stock in Trade 3,00,000 6,00,000 3,00,000 100
(b) Change in Inventories of Stock 60,000 60,000 ----- -----

In trade
43,200 66,000 22,800 52.78
(c) Other expenses
(d) Total Expenses 4,03,200 7,26,000 3,22,800 80.06
III. Profit Before Tax (I-II) 1,96,800 1,64,000 46,320 39.23
Less: Tax 78,720 1,09,600 30,880 39.23
Profit After tax 1,18,080 1,64,400 46,320 39.23
[140]
Q12. From the following Information Prepare comparative Statement of profit and Loss
Particulars Note No 31st 31st March,2007

March,2008
Revenue from operation 50,00,000 40,00,000
Other Income 2,00,000 5,00,000
Employee benefit Expenses 25,00,000 20,00,000
Depreciation 60,000 50,00,000
Other Expenses 2,00,000 2,50,000
Tax rate 40% 40%
Solution:
Particulars Note 31st March, 31st march, Increase or Increase%/

No Decrease
2007 2008 Decrease %
I. Revenue from Operation 40,00,000 50,00,000 10,00,000 25
II. Other Income 5,00,000 2,00,000 (3,00,000) (60)
III. Total revenue 45,00,000 52,00,000 7,00,000 15.55
IV. Expenses
(a) Employee benefit Expenses 20,00,000 25,00,000 5,00,000 25
(b) Depreciation 50,000 60,000 10,000 20
(c) Other Expenses 2,50,000 2,00,000 (50,000) (20)
V. Total Expenses 23,00,000 27,60,000 4,60,000 20
VI. Profit Before tax (III-V) 22,00,000 24,40,000 2,40,000 10.9
Less: Tax 8,80,000 9,76,000 96,000 10.9
Profit After Tax 13,20,000 14,64,000 1,44,000 10.9
Q.13 Prepare Common Size Balance Sheet from the given Balance Sheet
Particulars Norte No 31st March 2015 31st March,2014
[141]
1.EQUITY AND LIABILITIES
(i) Shareholder fund
(a) Share Capital 36,00,000 36,00,000
(b) Reserve and Surplus 10,80,000 8,00,000
(ii) Non-current Liabilities 28,80,000 28,00,000
(iii) Current Liabilities 14,40,000 8,00,000
Total 90,00,000 80,00,000
II. ASSETS
(i) Noncurrent Assets 61,20,000 56,00,000
Current Assets 28,80,000 24,00,000
Total 90,00,000 80,00,000
Solution:
Common Size Balance Sheet as at 31st march,2014 and 31st March 2015
Particulars Norte 31st March 31st Percentage of Balance Sheet

No 2014 March,2015 Total
31stMarch, 31stMarch,
2014 2015
(a) Share Capital 36,00,000 36,00,000 45 40
(b) Reserve and Surplus 8,00,000 10,80,000 10 12
(ii) Non-current Liabilities 28,00,000 28,80,000 35 32
(iii) Current Liabilities 8,00,000 14,40,000 10 16
Total 80,00,000 90,00,000 100 100
II. ASSETS
(i) Noncurrent Assets 56,00,000 61,20,000 70 68
[142]
Current Assets 24,00,000 28,80,000 30 32
Total 80,00,000 90,00,000 100 100
Q.14 Prepare Common Size Balance Sheet from the given Balance Sheet
(a) Share Capital 20,00,000 15,00,000
(ii) Non-current Liabilities

Long term Borrowing 9,00,000 6,00,000
(iii) Current Liabilities

Trade Payable 3,00,000 2,00,000
Total 35,00,000 27,00,000
II. ASSETS
(i) Noncurrent Assets
(a) Fixed Assets
(i) Tangible 20,00,000 15,00,000
(ii) Intangible 9,00,000 6,00,000
Current Assets
(a) Inventories 3,00,000 4,00,000
(b) Cash and Equivalent 3,00,000 2,00,000
Total 35,00,000 27,00,000
Solution:
[143]

2018 2019
(a) Share Capital 15,00,000 20,00,000 55.56 57.14
(b) Reserve and Surplus 4,00,000 3,00,000 14.81 8.57
(ii) Non-current Liabilities

Long Term Borrowings 6,00,000 9,00,000 22.22 25.72
(iii) Current Liabilities

Trade Payables 2,00,000 3,00,000 7.41 8.57
Total 27,00,000 35,00,000 100 100
II. ASSETS
(a) Noncurrent Assets
(i) Tangible Assets 15,00,000 20,00,000 55.56 57.14
(ii) Intangible Assets 6,00,000 9,00,000 22.22 25.72
Current Assets
(a) Inventories 4,00,000 3,00,000 14.81 8.57
(b) Cash and Cash Equivalent 2,00,000 3,00,000 7.41 8.57
Total 27,00,000 35,00,000 100 100
Q.15 Prepare common size Balance sheet from the following information
Particulars 31st March, 2017 31st March,2016
Equity Share Capital 5,25,000 5,25,000
Reserve and Surplus 2,27,000 1,50,000
Current Assets 6,65,000 6,00,000
Non-current Liabilities 6,11,250 5,10,000
[144]
Non- current Assets 10,85,000 9,00,000
Current liabilities 3,86,250 3,15,000
Solution:

2016 2017
(a) Share Capital 5,25,000 5,25,000 35 30
(b) Reserve and Surplus 1,50,000 2,27,500 10 13
(ii) Non-current Liabilities 5,10,000 6,11,250 34 34.93
(iii) Current Liabilities 3,15,000 3,86,250 21 22.07
Total 15,00,000 17,50,000 100 100
II. ASSETS
(a) Noncurrent Assets 9,00,000 10,85,000 60 62
(b) Current Assets 6,00,000 6,65,000 40 38
Total 15,00,000 17,50,000 100 100
Q.16 Prepare Common size Statement of profit and loss as of 31st March,2019 and 31st
March,2020 from the given Statement of profit and loss
I. Revenue from operation 17,00,000 12,20,000
II. Other Income 8,000 14,000
III. Total Income 17,08,000 12,34,000
IV. Expenses
(a) Cost of Material Consumed 12,40,000 10,00,000
[145]
(b) Other Expenses 2,00,000 1,20,000
Total Expenses 14,40,000 11,20,000
V. Profit Before Tax (III-IV) 2,68,000 1,14,000
VI. Income Tax 1,10,000 90,000
VII. Profit After Tax (V-VI) 1,58,000 24,000
Solution:
Common Size Statement of profit and Loss as on 31st March2018 and 2019
Particulars Norte 31st March 31st Percentage of Revenue from

No 2018 March,2019 operation
2018 2019
I. Revenue from operation 12,20,000 17,00,000 100 100
II. Other Income 14,000 8,000 1.15 0.47
III. Total Income 12,34,000 17,08,000 101.15 100.47
IV. Expenses
(a) Cost of Material Consumed 10,00,000 12,40,000 81.97 72.94
(b) Other Expenses 1,20,000 2,00,000 9.84 11.76
Total Expenses 11,20,000 14,40,000 91.80 84.71
V. Profit Before Tax (III-IV) 1,14,000 2,68,000 9.34 15.76
VI. Income Tax 90,000 1,10,000 7.38 6.47
VII. Profit After Tax (V-VI) 24,000 1,58,000 1.97 9.29
Q.17: Prepare Common Size statement of profit and loss from the following Information:
Particulars 2013 2014
Sales 5,00,000 6,00,000
Cost of Goods Sold 60% of Sale 70% of Sale
Indirect taxes 40% of Gross profit 30% of Gross Profit
[146]
Income tax 30% of net profit Before 30% of net profit Before tax
tax
Solution:
Common Size Statement of profit and Loss as on 31st March2018 and 2019
Particulars Norte 31st March 31st Percentage of Revenue from

No 2018 March,2019 operation
2018 2019
I. Revenue from operation 5,00,000 6,00,000 100 100
II. Other Income ------- --------
III. Total Income 5,00,000 6,00,000 100 100
IV. Expenses
(a) Cost of Material Consumed 3,00,000 4,20,000 60 70
(b) Other Expenses 80,000 54,000 16 9
Total Expenses 3,80,000 4,74,000 76 79
V. Profit Before Tax (III-IV) 1,20,000 1,26,000 24 21
VI. Income Tax 36,000 37,800 7.20 6.30
VII. Profit After Tax (V-VI) 84,000 88,200 16.80 14.70
Q.18 Under which headings and subheadings will the following items be shown in the
balance sheet of the company as per schedule III part I of the companies Act.2013:
(a) Cheque in hand (b) Stock of work In progress (c) Copy right (d) Loose
tools (e) Provision for bad debts (f) Negative balance shown by the profit and
loss (g) Bonds (h) Unpaid Dividend
Solution:
S.no Items Headings Sub-headings
1 Cheque in hand Current Assets Cash and Cash Equivalent
Stock of work In progress Current Assets Inventory
[147]
Copy right Non -Current Assets Intangible Fixed Assets
Loose tools Current Assets Inventory
Provision for bad debts Current Liabilities Short term provisions
Negative balance shown by the Shareholders Fund Reserve and Surplus as negative
profit and loss items
Bonds Non-current liabilities Long term borrowings
Unpaid Dividend Current liabilities Other current liabilities
Q.19 From the following Information, Prepare comparative statement of Profit and loss:
Particulars Note 31st march ,2014 31st march ,2013

No
Cost of material Consumed 11,25,000 6,25,000
Revenue from operation 18,75,000 12,50,000
Other Income 2,25,000 2,50,000
Other expenses 1,87,000 1,25,000
Tax rate 50% 50%
Solution:
Particulars Note 31st march 31st march Increase/Decrease Increase% /

No ,2013 ,2014 Decrease %
I. Revenue from 12,50,000 18,75,000 6,25,000 50

Operation
II. Other Income 2,50,000 2,25,000 (25,000) (10)
Total Income 15,00,000 21,00,000 6,00,000 40
Expenses
(a) Cost of material 6,25,000 11,25,000 5,00,000 80

Consumed
(b) Other Expenses 1,25,000 1,87,000 62,000 49.6
Total Expenses 7,50,000 13,12,000 5,62,000 74.93
Profit before tax 7,50,000 7,88,000 38,000 5.07
[148]
Less: Tax 3,75,000 3,94,000 19,000 5.07
Profit After tax 3,75,000 3,94,000 19,000 5.07
[149]
10.ACCOUNTING RATIOS
Q.1 The Two Basic Measures of Liquidity Ratio are-

(a) Stock and Debtors Turnover Ratio
(b) Current Ratio and operating ratio
(c) Current ratio and Liquid ratio
(d) Gross and Net profit Ratio
Ans. Current ratio and Liquid ratio
Q.2 Ideal Current Ratio is
(a) 3:1
(b) 2:2
(c) 2:1
(d) 1:1
Ans. 2:1
Q.3 Ratio=
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
(a) 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 𝐴𝑠𝑠𝑒𝑡𝑠
(b) 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
(c)
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Ans. 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Q.4 100- Operating Profit Ratio is equal to
(a) Operating Ratio
(b) Operating Net profit Ratio
(c) Gross Profit Ratio
(d) Current ratio
Ans. Operating Ratio
Q.5 Liquid Assets=
(a) Current Assets-Inventory
(b) Current Assets + Inventory
(c) Current Assets- (Inventory + prepaid Expenses)
Ans. Current Assets- (Inventory + prepaid Expenses)
Q.6 Which of following is not Activity Ratio?
(a) Inventory Turnover Ratio
(b) Trade receivable turnover Ratio
(c) Interest coverage Ratio
(d) All of these
Ans. Interest coverage Ratio
Q.7 Debts to Equity ratio=
𝐷𝑒𝑏𝑡𝑠
(a) 𝐸𝑞𝑢𝑖𝑡𝑦
[150]
(b) 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐹𝑢𝑛𝑑
(c) Both (a) and (b)
(d) None of these
Ans. Both (a) and (b)
Q.8 Activity Ratio Also Known As
(a) Performance Ratio
(b) Turnover Ratio
(c) Both (a) and (b)
Ans. Both (a) and (b)
Q.9 Inventory Turnover Ratio=
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
(a) 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
(b) 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
(c) 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
(d) None of these
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Q.10 Trade receivable Includes:
(a) Debtors
(b) Bills receivables
(c) both (a) and (b)
(d) Either (a) or (b)
Ans. both (a) and (b)
Q.11
61 Calculate Current Ratio and Liquid Ratio from the given information

(a) Share Capital 5,25,000 5,25,000
(ii) Non-current Liabilities 5,10,000 6,11,250
(iii) Current Liabilities 3,15,000 3,86,250
Total 15,00,000 17,50,000
II. ASSETS
(a) Noncurrent Assets 9,00,000 10,85,000
(b) Current Assets
Inventory 6,00,000 6,65,000
Total 15,00,000 17,50,000
Solution: For, 2017-18
[151]
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 9,00,000 1.77
Current Ratio=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠=5,10,000= =1.77:1
1
𝐿𝑖𝑞𝑢𝑖𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 9,00,000−6,00,000 3,00,000 0.59
Liquid ratio=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠= =5,10,000= = 0.59: 1
5,10,000 1
For, 2018-19
Current Ratio=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠= 3,86,250 = =2.81:1
1
𝐿𝑖𝑞𝑢𝑖𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 10,85,000−6,65,000 4,20,000 1.09
Liquid ratio=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠= =3,86,250= = 0.09: 1
3,86,250 1
Q.12 From the following information calculate the Inventory Turnover Ratio
Revenue from operations ₹6,00,000; Gross profit 25% on cost; Opening inventory was 1/3rd
of closing inventory; Closing Inventory was 30% of revenue from operation.
Solution: Revenue from operation=6,00,00
Cost of revenue from operations= Revenue from operation - Gross profit
25
Gross Profit=3,00,000 × 125=60000
Cost of revenue from operations=600000 – 60000=240000
30
Closing Inventory=90000×100 =₹90,000
1
Opening Inventory=3 × 90000=30000
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜
Inventory turnover Ratio= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
2,40,000
= 60,000 =4 Times
Q.13 Calculate Net Profit Ratio from the following Statement of profit and Loss
I. Revenue from operation 17,00,000 12,20,000

II. Other Income 8,000 14,000
III. Total Income 17,08,000 12,34,000
IV. Expenses
(a) Cost of Material Consumed 12,40,000 10,00,000
(b) Other Expenses 2,00,000 1,20,000
Total Expenses 14,40,000 11,20,000
V. Profit Before Tax (III-IV) 2,68,000 1,14,000
VI. Less: Income Tax 1,10,000 90,000
VII. Profit After Tax (V-VI) 1,58,000 24,000
Solution:
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥
Net Profit Ratio=𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛 × 100
1,58,000
=17,00,000 × 100 = 9.29%
Q.14 Following is the Balance sheet and Statement of profit and loss of a company
Statement of Profit and Loss
Particulars ₹
I. Revenue from operation (sale) 10,00,000
[152]
Add: Non-Operating Income (Profit on sale of share) 50,000
II. Total Income 10,50,000
Less: Purchase 3,00,000
Change in inventories (Opening Stock-Closing Stock) (1,50,000-2,50,000) (1,00,000)
Wages 2,00,000
Manufacturing Expenses 1,00,000
III. Total 5,00,000
IV. Gross Profit (III -II) 5,50,000
Less: Administrative Expenses 50,000
Selling and distribution Expense 50,000
Loss on sales of plant 55,000
Interest on debentures 10,000
Total 1,65,000
Net profit 3,85,000
Balance Sheet
Particulars ₹
1. EQUITYAND LIABILITIES
(I) Shareholder Fund
Equity share Capital 1,00,000
Preference share capital 1,00,000
Reserves 1,00,000
(ii) Non-Current Liability:
Debentures 2,00,000
(iii) Current Liability
Sundry creditors 1,00,000
Bills payable 50,000
Total 6,50,000
II. Assets
(i) Non-Current Assets
Fixed Assets 2,50,000
(ii) Current Asset
Stock 2,50,000
Sundry debtors 1,00,000
Cash and Cash equivalent 50,000
Total 6,50,000
Calculate Following ratios from above information
(a) Gross profit ratio
(b) Current Ratio
(c) Debt Equity ratio
(d) Stock Turnover Ratio
(e) Total Assets to Debts Ratio
Solution:
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
Gross profit ratio = 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 × 100
5,00,000
=10,00,000 × 100 = 50%
[153]
Current ratio =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 1,50,000 = = 2.67:1
1
𝐷𝑒𝑏𝑡 2,00,000 0.67
Debt Equity Ratio=𝐸𝑞𝑢𝑖𝑡𝑦 = 3,00,000 = =0.67:1
1
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
Stock Turnover ratio= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Cost of revenue from operation=Revenue from operation -Gross profit
= 10,00,000-5,00,000=5,00,000
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Average Inventory = 2
1,50,000+2,50,000 4,00,000
= = = 2,00,000
2 2
5,00,000
Stock Turnover ratio= =2.5 Times
2,00,000
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 6,50,000

Total Assets to Debts ratio= = 2,00,000 =3.25:1
Q.15 Stock at beginning of the year ₹60,000
Stock at end of the year ₹1,00,000
Stock turnover Ratio ₹ 8 times
Selling Price 25% above cost
Compute Gross profit Ratio and Sales amount
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑠𝑡𝑜𝑐𝑘+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘 ₹60,000+₹1,00,000 ₹1,60,000
Solution: Average Stock= = = =80,000
2 2 2
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
Stock turnover Ratio= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
Cost of goods Sold =Average Stock ×Stock turnover ratio
=₹80,000×8= ₹6,40,000
Gross Profit =25% of ₹6,40,000=1,60,000
Sales = Cost of Goods Sold +Gross Profit
= 6,40,000+1,60,000=₹8,00,000
1,60,000
Gross Profit Ratio=8,00,000 ×100= 20%
Q.16 Calculate ‘Debt-Equity Ratio’ from the following information: Total Assets: Rs.
3,50,000; Total Debt: Rs. 2,50,000; Current Liabilities: Rs. 80,000
𝐷𝑒𝑏𝑡
Solution: Debt Equity Ratio =𝐸𝑞𝑢𝑖𝑡𝑦
Debt = Total Debt – Current Liabilities

= Rs. 2,500,000-Rs. 80,000 = Rs. 1,70,000
Equity = Total Assets – Total Debts
= Rs. 3,50,000 – Rs. 2,50,000 = Rs. 1,00,000
1,70,000
Debt – Equity Ratio = 1,00,000= 1.7:1
Q.17 From the following information Calculate proprietary Ratio and Total Assets to Debt
Ratio
Balance sheet of ABC Ltd.
[154]
Particulars Note No Figure for current
Year
I EQUITY AND LIABILITIES
(a) Share Capital 4,50,000
(b) Reserve and Surplus 1,80,000
(2) Non-Current Liabilities
Long term borrowings 75,000
(3) Current liabilities
Trade payables 45,000
Total 7,50,000
II. Assets
(1) Non-Current Assets
(a) Fixed assets 2,25,000
(b) Non-current Investment 1,50,000
(2) Current Assets
Inventories 3,75,000
Total 7,50,000
𝐸𝑞𝑢𝑖𝑡𝑦 4,50,000+1,80,000
Solution: Proprietary Ratio= 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = =0.84:1
7,50,000
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 75,000
Total Assets to Debt Ratio = =7,50,000 =10:1
Q.18 Calculate Interest Coverage Ratio from the following information.

Net Profit (after taxes) = Rs. 1,00,000
Fixed interest charges on long term borrowing = Rs. 20,000
Rate of Income Tax 50%
𝑃𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥
Solution: Interest coverage Ratio= 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
Profit before interest and tax =Net profit after Tax+ Income Tax + Interest
=1,00,000+1,00,000+20,000=2,20,000
2,20,000
Interest coverage ratio= 20,000 =11 Times
Q.19 Calculate Debtors Turnover Ratio if Closing Debtors are Rs. 40,000; Opening Debtors
Rs. 60,000; Cash Sales is 25% of Credit Sales and Total Sales are Rs. 2,00,000.
𝑁𝑒𝑡 𝑐𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
Solution: Debtors Turnover Ratio = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑟𝑎𝑑𝑒 𝑑𝑒𝑏𝑡𝑜𝑟𝑠
Cash Sales = 25% of Credit Sales

Let the Credit Sales be Rs. X
Then Cash Sales is 25% of X
Total Sales = Cash Sales + Credit Sales=Rs. 2,00,000
X+25x/100=2,00,00
100x+25x=2,00,000×100
[155]
125x= 2,00,00,000
X=2,00,00,000/125=1,60,000
X = Credit Sales=1,60,000
25
Cash sales=1,60,000× 100 =40,000
60,000+40,000 1,00,000
Average Debtors= = =50,000
2 2
1,60,000
Debtors Turnover Ratio= 50,000 =3.2 Times
Q.20 Calculate ‘Operating Profit Ration’ and ‘Operating Ratio’ from the following
information: Net Revenue from Operations ₹80,000
Cost of Revenue from Operations ₹60,000
Operating Expenses ₹10,000
Indirect Expenses ₹60,000
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡
Solution: Operating profit Ratio = 𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 ×100
Operating profit = Net Revenue from Operation – Operating Cost

Operating Cost = Cost of Revenue from Operation + Operating Expenses
= Rs. 60,000+10,000 = Rs. 70,000
Operating profit =80,000 -70,000 = Rs. 10,000
10,000
Operating profit Ratio = 80,000 ×100 =12.5%
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
Operating Ratio = 𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 ×100 or 100- Operating profit ratio
60,000+10,000 70,000
= ×100=80,000 ×100=87.5 or 100-12.5=87.5
80,000
[156]
11.CASH FLOW STATEMENT
1. Classify the following into (i) Operating Activities, (ii) Investing Activities (iii)
Financing Activities and (iv) Cash and Cash Equivalents while preparing Cash Flow
Statement:
a. Cash Sales
b. Purchase of Building
c. Cash received from Trade Receivable
d. Sale of Building
e. Issue of shares
f. Dividend paid
g. Interest paid on Debenture by Finance Company
h. Cash Purchases
i. Depreciation
j. Selling and Distribution Expenses
k. Dividend received on share by finance company
l. Sale of investment by non-finance company
m. Current investment
n. Income tax Paid
Solution:
a. Operating Activities
b. Investing Activities
c. Operating Activities
d. Investing Activities
e. Finance Activities
f. Finance Activities
g. Operating Activities
h. Operating Activities
i. Operating Activities
j. Operating Activities
k. Operating Activities
l. Investing Activities
m. Cash and Cash Equivalents
n. Cash and Cash Equivalents
2. On March 31st 2020 Ramesh and Co. indicated a profit of ₹ 1,25,000, after
considering the following:
₹
Depreciation on buildings 25,000
Depreciation on Plant and Machinery 45,000
Amortization of Goodwill 20,000
Gain on sale of machinery 10,000
[157]
Additional Information
31.3.2020 31.3.2019
Trade Receivable 45,000 35,000
Inventories 69,000 75,000
Cash in hand 30,000 18,000
Trade payable 32,000 30,000
Expenses payable 5,000 10,000
Bank Overdraft 35,000 60,000
Ascertain the net cash flow / use from operating activities.
Solution :
Calculation of Cash Flow from Operating Activities
₹ ₹
Net Profit before Tax 1,25,000
Adjustments for non-cash and non-operating items:
Add: Depreciation (25,000 + 45,000) 70,000
Goodwill W/off 20,000 90,000
2,15,000
Less: Gain on sale of Fixed Tangible Assets (Land) 10,000
Operating profit before working capital changes 2,05,000
Add: Decrease in Current Assets:
Inventories 6,000
Increase in Current Liabilities
Trade Payable 2,000 8,000
2,13,000
Less: Increase in Current Assets:
Trade Receivable (10,000)
Decrease in Current Liabilities
Expenses payable (5,000) (15,000)
Net Cash Flow from Operating Activities 1,98,000
 Cash in hand will not affect Cash flow from operating activities.
 Bank Overdraft is a financing Activities, hence it will not appear Cash Flow from
Operating Activities.
3. From the following figures calculate cash from operating activities
31.3.2019 31.3.2020
Balance of Profit and Loss 3,00,000 2,50,000
Provision for depreciation 60,000 80,000
Outstanding Wages 18,000 15,000
Prepaid Insurance 6,000 9,000
Goodwill 40,000 32,000
Provision for Doubtful Debts 10,000 14,000
Trade Receivable 1,40,000 98,000
Cash and Bank Balance 30,000 25,000
[158]
Solution:
₹ ₹
Net Loss (Note 1) (50,000)
Add: Depreciation (₹80,000 -₹60,000) 20,000
Goodwill W/off (₹ 40,000 - ₹ 32,000) 8,000
Transfer to Provision for Doubtful Debts
(₹ 14000-10000) 4,000 32,000
Operating loss before working capital changes (18,000)
Trade Receivables 42,000
Increase in Current Liabilities - 42,000
24,000
Prepaid Insurance 3,000
Outstanding Wages 3,000 (6,000)
Net Cash Flow from Operating Activities 18,000
Note:
1. Calculation of Net Loss:

Balance of Profit & Loss on 31.3.2020 2,50,000
(-) Balance of Profit & Loss on 31.3.2019 3,00,000
Net Loss during the year (50,000)
2. Cash and Bank balance will not affect Cash flow from
operating activities
4. Prateek Ltd. Made a profit of ₹ 5,00,000 after considering the following items:
₹
Goodwill Written off 5,000
Depreciation on Fixed Tangible Assets 50,000
Loss on sale of Fixed Assets (Machinery) 20,000
Provision for Doubtful Debts 10,000
Gain on sale of Fixed Tangible Assets (Land) 7,500
Additional Information
31.3.2020 31.3.2019
Trade Receivable 78,000 52,000
Prepaid Expenses 3,000 2,000
Trade payable 51,000 40,000
Expenses payable 20,000 34,000
Ascertain the net cash flow / use from operating activities.
Solution:
[159]
₹ ₹
Net Profit before Tax 5,00,000
Add: Depreciation 50,000
Goodwill W/off 5,000
Loss on sale of Fixed Tangible Assets (Machinery) 20,000
Provision for Doubtful Debts 10,000 85,000
5,85,000
Less: Gain on sale of Fixed Tangible Assets (Land) 7,500
Add: Decrease in Current Assets: -
5,88,500
Prepaid Expenses (1,000)
Expenses payable (14,000) (41,000)
Net Cash Flow from Operating Activities 5,47,500
5. Prepare a Cash Flow Statement on the basis of the information given in the Balance
Sheet of Neelakshi Trading Co. as at 31.03.2020 and 31.03.2019.
Particulars Note 31-3-2020 31-3-

No. 2019
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds:
a.Share capital 2,10,000 1,80,000
b. Reserve and Surplus 1 1,32,000 24,000
2. Non-Current Liabilities
Long -term Borrowings 1,50,000 1,50,000
3. Current Liabilities
Total 5,67,000 3,81,000
II. ASSETS
1. Non-Currents Assets
a.Fixed Assets
i. Tangible Assets 2,94,000 2,52,000
b. Non-Current 48,000 18,000
Investments
2. Current Assets: 54,000 60,000
a.Current-Investments 1,07,000 24,000
b. Inventories 40,000 17,500
c. Trade Receivables 24,000 9,500
d. Cash & Cash Equivalents
Total 5,67,000 3,81,000
[160]
Notes:
Particulars 31-3-2020 31-3-
2019
1. Reserve & Surplus:
Surplus, i.e. Balance in Statement of Profit and Loss 1,32,000 24,000
Solution:
₹ ₹
I. Cash Flow from Operating Activities
Net Profit before Tax (Note 1) 1,08,000
Adjustments for non-cash and non-operating items: -
Trade Payable 48,000
156,000
Inventories (22,500)
II. Cash Flow from Investing Activities
Purchase of Fixed Assets (2,94,000 -2,52,000) (42,000)
Purchase of Non-Current Investments (48,000 – (30,000)
18,000)
Net Cash used from Investing Activities (72,000)
III. Cash Flow from Financing Activities
Issue of share Capital 30,000
Net Cash Flow from Financing Activities 30,000
Net increase/decrease in cash and cash equivalents 8,500
(I+II+III) 69,500
Add: Opening cash and cash equivalents
Closing cash and cash equivalents 78,000
Notes
1. Calculation of Net profit:
Balance of Profit & Loss on 31.3.2020 1,32,000
(-) Balance of Profit & Loss on 31.3.2019 24,000
Net profit during the year 1,08,000
6. Prepare a Cash Flow Statement on the basis of the information given in the Balance
Sheet of Riddhiman Trading Co. as at 31.03.2020 and 31.03.2019.
[161]
Particulars Note 31-3-2020 31-3-
No. 2019
I. EQUITY AND LIABILITIES
a. Shareholder’s Funds:
i. Share capital 70,000 60,000
ii. Reserve and Surplus 1 44,000 8,000
b. Non-Current Liabilities
Long -term Borrowings 50,000 50,000
c. Current Liabilities
Total 1,89,000 1,27,000
II. ASSETS
a. Non-Currents Assets
i. Fixed Assets
1. Tangible Assets 98,000 84,000
ii. Non-Current Investments 16,000 6,000
b. Current Assets:
i. Current-Investments 18,000 20,000
ii. Inventories 49,000 12,000
iii. Cash & Cash Equivalents 8,000 5,000
Total 1,89,000 1,27,000
Notes:
Particulars 31-3-2020 31-3-
2019
1. Reserve & Surplus:
General Reserve 30,000 20,000
Surplus, i.e. Balance in Statement of Profit and Loss 14,000 (12,000)
44,000 8,000
2. Trade Payables
Sundry Creditors 23,500 6,500
Bills Payable 1,500 2,500
25,000 9,000
1. Depreciation provided on tangible assets (Machinery) during the year ₹ 8,000
2. Interest paid on debentures ₹ 5,000.
Solution:
₹ ₹
I. Cash Flow from Operating Activities
Net Profit before Tax (Note 1) 36,000
Add: Depreciation 8,000
Interest on long term borrowings 5,000
Operating profit before working capital changes 49,000
[162]
Sundry Creditors 17,000
66,000
Inventories (1,000)
Bills Payable (37,000)
II. Cash Flow from Investing Activities
Purchase of Fixed Assets (Note 2) (22,000)
Purchase of Non-Current Investments (10,000)
Net Cash used from Investing Activities (32,000)
III. Cash Flow from Financing Activities
Issue of share Capital 10,000
Interest on long term borrowings (5,000)
Net Cash Flow from Financing Activities 5,000
Net increase/decrease in cash and cash equivalents 1,000
(I+II+III) 25,000
Add: Opening cash and cash equivalents
Closing cash and cash equivalents 26,000
Notes
1. Calculation of Net profit:
Balance of Profit & Loss on 31.3.2020 14,000
(-) Balance of Profit & Loss on 31.3.2019 (12,000)
Net profit during the year 26,000
Transfer to General Reserve 10,000
36,000
Fixed Tangible Assets

Particulars ₹ Particulars ₹
To Balance b/d 84,000 By Depreciation 8,000
To Bank (Purchase) 22,000 By Balance c/d 98,000
1,06,000 1,06,000
[163]

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KENDRIYA VIDYALAYA SANGATHAN

STUDY MATERIAL CLASS XII (2020-21)

NAME DELETED SYLLABUS

UNIT NAME DELETED SYLLABUS

1. The financial statements of the Not-for-Profit Organisation are:

2. The Receipts and Payments Account is a summary of:

3. Receipts and Payments Account is a:

4. Income and Expenditure Account is a:

5. Source of income for a not-for-profit organisation is:

6. Subscription received in advance during the current year is:

9. Amount received from sale of grass by a club should be treated as:

10. Which of the following is not a revenue receipt?

16. Which of the following is not an income?

18. Outstanding Subscriptions are shown on the ______________ side of Balance

19. Donations for specific purposes are always ____________.

20. Purchase of sports material is ______________ to Income & Expenditure account.

(B) Short Answer Questions (3/4 MARKS)

1. State the meaning and objective of Not-for-profit organisation.

2. How is ‘Sale of old newspapers and magazines’ treated in Not-for-profit

3. What is meant by Fund Based Accounting?

4. State any three features of income and expenditure account.

Basis Receipts & Payments A/c Income & Expenditure A/c

6. What is Receipts and Payments account? State its features.

Answer: Receipts and Payments account is a financial statement prepared by not-

(C) Long Answer Questions (6/8 MARKS)

Answer: Income and expenditure A/c

2019 1,000 By Books 100

Answer: Income & Expenditure A/c

Balance Sheet as on 31st Dec, 2019

Answer: Income and expenditure account

Balance sheet as at 31st Dec. 2019

WN: Calculation of opening capital fund

1. Select the Best Alternate Answer.

2. Following are essential elements of a partnership firm except:

3. In case of partnership the act of any partner is :

4. Which of the following statement is true

5. Ostensible partners are those who

6. Sleeping partners are those who

7. The relation of partner with the firm is that of:

8. What should be the minimum number of persons to form a Partnership :

9. Number of partners in a partnership firm may be :

10, Liability of partner is :

11. Which one of the following is NOT an essential feature of a partnership

13. Every partner is bound to attend diligently to his in the conduct of

(ii) Partnership Deed

15. Partnership Deed is also called

16. Which of the following is not incorporated in the Partnership Act.

17. When is the Partnership Act enforced

24. In the absence of agreement, partners are not entitled to :

34. In the absence of partnership deed, partners share profits or losses :

35. In the absence of Partnership Deed :

36. In the absence of express agreement, interest @ 6% p.a. is provided :

38. Is rent paid to a partner appropriation of profits

(iii) Calculation of Profit and Division of Profit among partners

45. Net profit of a firm is ₹49,500. Manager is entitled to a commission of 10% on

46. Net profit of a firm is ₹79,800. Manager is entitled to a commission of 5% of profits

52. Which of the following statement is true

(iv) Capital Accounts of Partners

55. Balance of partner’s current accounts are :