Bhalotia FA (II)

(9883034569/9330960172)
Financial Accounting II:

[3rd Semester Honours & Pass: 2022-2023]
S. No. Chapters Page Number
1. Departmental accounts (10 Marks) 02 – 14
2. Hire purchase (10 Marks) 15 – 29
3. Branch accounting (10 Marks) 30 – 45
4. Profit or loss Prior to incorporation (10 Marks) 46 – 52
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5. Conversion of Partnership into company (10 Marks) 53 – 63
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6. Investment (10 Marks) 64 – 70
7. P/L Appropriation (9 Marks) 8 83 71 – 78
8. Goodwill Treatment (6 Marks) 79 – 80

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9. Change in Profit Sharing Ratio (6 Marks) 80 – 80

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10. Admission (15 Marks) 81 – 90

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11. Retirement (15 Marks) 91 – 98

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12. Admission cum Retirement (15 Marks) 99 – 99

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13. Death 100 – 102

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14. Dissolution (15 Marks) 103 – 117

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15. Piecemeal Distribution (15 Marks) 118 – 123
16. Question Paper 2018 Honours & General 124– 133
17. Question Paper 2019 Honours & General 134 – 145
Book Price: ₹ 150

Expected Question pattern: Hons & pass
Group A: [5 Question x 10 Marks = 50 Marks]
[3 Questions With Alternative]
Question 1 (Branch):
Branch Stock & Debtors Method /Branch Debtors Method [Practical]

Or
Wholesale & Retail Branch/Independent Branch [Practical]
Question 2 (Hire-Purchase):
Hire purchase Complete Repossession / Partial Repossession [Practical]
Or
Hire purchase Trading Method/ H.P Stock & Debtors Method [Practical]
6 9)
Question 3 (Department):
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Department Trading & P/L A/c [including inter-Dept Transfer] [Practical]
3 03
Question 4 (Investment):
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Investment in Debenture/Govt. Stock [FIFO OR Average Method] [Practical]
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Question 5 (Profit loss Prior or Conversion):

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Profit & Loss Prior [Practical]

OR
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Conversion into Company [Practical]

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Group B: [2 Question x 15 Marks = 30 Marks]

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Question 6 (P/L Appro + Goodwill OR Retirement/Admission):

P/L Appro + Goodwill [Practical]
OR
Retirement/Admission [Practical]
Question 7 (Dissolution or Piecemeal Any one will come):

Dissolution (Important for Hons), Piecemeal (Important for pass) [Practical]
Note:
• Expected no compulsory theory.
• 2018/2019 Qn pattern will be followed
Bhalotia Classes (9883034569): Accounts (3rd Sem Hons/Pass)
3rd Semester: Honours & General:

FINANCIAL ACCOUNTING – II (SYLLABUS)
Unit 1: Partnership accounts-I [15 Marks]
Correction of appropriation items with retrospective effect. Change in constitution of firm – change in P/S ratio,
admission, retirement and retirement cum admission – treatment of Goodwill, revaluation of assets & liabilities
(with/without alteration of books), treatment of reserve and adjustment relating to capital; treatment of Joint Life
Policy, Death of a partner
Unit 2: Partnership accounts-II [15 Marks]

Accounting for dissolution of firm – insolvency of one or more partner, consideration of private estate and private
liabilities. Piecemeal distribution – surplus capital basis; maximum possible loss basis.
9)
Unit 3: Branch accounting [10 Marks]
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Concept of Branch; different types of Branches. Synthetic method – preparation of Branch account. Preparation of
Branch Trading and P/L account. ( at cost & at IP ) – normal and abnormal losses. Analytical method – preparation
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of Branch Stock, Adjustment etc A/C (at cost & at IP ) – normal & abnormal losses Independent branch – concept
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of wholesale profit
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Unit 4: Hire purchase and Instalment payment system [10 Marks]
Meaning; difference with Installment payment system; Recording of transaction in the books of buyer – allocation
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of interest – use of Interest Suspense a/c – partial and complete repossession Books of Seller – Stock and Debtors
A/C ( with repossession)
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Books of Seller – H.P. Trading A/C without HP Sales and HP Debtors and General Trading A/c ( with
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repossession) Concept of operating and financial lease – basic concept only.

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Unit 5: Departmental accounts [10 Marks]

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Concept, objective of preparation of departmental accounts; apportionment of common cost; Preparation of

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Departmental Trading and P/L account, Consolidated Trading and P/L account; inter departmental transfer of
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goods at cost, cost plus and at selling price and elimination of unrealized profit.
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Unit 6: Investment Accounts [10 Marks]

Maintenance of Investment Ledger; Preparation of Investment Account (transaction with brokerage, STT, cum &
ex-interest), Valuation of Investment under FIFO and Average method; Investment Account for Shares (with Right
Shares, Bonus Shares and Sale of Right). Relevant Accounting Standard. [10 L /10 Marks]
Unit 7: Business Acquisition and Conversion of partnership into limited company [10 Marks]
• Profit/ loss prior to incorporation; Accounting for Acquisition of business.
• Conversion of Partnership into Limited Company – with and without same set of books
Relevant Accounting Standards issued by the Institute of Chartered Accountants of India are to be followed.
- 1 – Admission going on Regular course/ 1 month /2 days crash course. Contact

Chapter 1: Department
(10 Marks)
1. Allocation of common expenditure having a number of departments
Expenses Basis
1. Selling Expenses, Selling Commissions, Turnover or Sales of each department.
Advertisement, Bad Debts, Carriage Outwards,
Packing and Delivery Expenses, Godown Rent,
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Storage, Discount allowed, Travelling Salesmen’s
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Salary and Commission, Sales Managers Salary,
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Provision for Discount Allowed, Freight Outwards,
office expenses, Administration expenses,
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Management expenses, General Expenses etc.
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2. Discount Received, Carriage Inwards Purchase of each department.
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3. Rent, Rates, Taxes, Repairs to Building, Insurance & Floor area occupied or Value of floor
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Maintenance or Depreciation of Building, space

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4. Lighting, Electricity Charges, Heating etc. Light Points/Floor Area Occupied

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5. Insurance of Machinery, Depreciation of Machinery, Value of Machinery

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Repairs of Machinery (or Cost of Machinery)

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6. Supervisors’ Salary, Contribution to ESI etc. Direct wages of each department

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7. Canteen Expenses Numbers of workers

8. Works Manager’s Salary Time spent in each department
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9. Power Horse Power or Horse Power x Hours

worked
10. Insurance of Stock. Average stock of each department
Note:
There are certain expenses which cannot be apportioned or allocated among the different departments on a
suitable basis, the same should be transferred to General Profit and Loss Account (e.g., Interest on Capital,
Debenture Interest, Loss on sale of assets, Interest on loan, etc.).

2. Department:
Sleek Traders has two departments A and B. from the following particulars you are required to prepare
Departmental Trading and Profit and Loss Account and the General Profit and Loss Account for the year
ended on 31.03.2021
Dept. A Dept. B General
₹ ₹ ₹
Sales excluding inter-departmental transfer 4,50,000 3,75,000
Purchases 1,70,000 1,45,550
Stock as on 01.04.2020 22,500 1,12,500
Salaries 52,500 40,000
Depreciation 40,000 36,000
9)
Stock as on 31.03.2021 at cost to respective departments 87,500 1,02,500
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Expenses (to be apportioned on the basis of sales) 92,400
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Carriage inward 24,750
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Rent and Rates (10% for general office and 90% for 1,60,000
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departments) 88
Legal and other general expenses (not to be apportioned) 25,800
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Other information:
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(a) Space occupied by Department A is double the space occupied by Department B.

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(b) Inter departmental transfers during the year:

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Department A to Department B ₹ 60,000, at cost plus 25%

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Department B to Department A ₹ 75,000 at normal selling price.

(c) Transferred goods included in stock as on 31.03.2021:
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In department A (out of goods transferred by department B) ₹ 20,000.

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In department B (out of goods transferred by department A) ₹ 18,000.

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(d) Opening stock did not include goods transferred from other department.
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Solution:
Sleek Traders
Dr. Departmental Trading and Profit & Loss Account for the year ended 31.03.21 Cr.
Particulars Dept. A Dept. B particulars Dept. A Dept. B
₹ ₹ ₹ ₹
To Opening Stock 22,500 1,12,500 By Sales 4,50,000 3,75,000
To Purchases 1,70,000 1,45,550 By Transfer of goods
To Carriage Inward A to B 60,000 ---
[Note – 1] 13,334 11,416 B to A --- 75,000
To Transfer of goods By Closing Stock 87,500 1,02,500
A to B --- 60,000
B to A 75,000 ---
9)
To Gross Profit c/d 3,16,666 2,23,034
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5,97,500 5,52,500 5,97,500 5,52,500
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To Salaries 52,500 40,000 By Gross Profit b/d 3,16,666 2,23,034
To Depreciation
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40,000 36,000 88
To Expenses [Note 2] 50,400 42,000
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To Rent & Rates [Note 3] 96,000 48,000
To General Profit & Loss
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A/c (Dept. Net Profit) 77,766 57,034

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3,16,666 2,23,034 3,16,666 2,23,034

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Dr. General Profit & Loss Account for the year ended 31.03.21 Cr.
A
TI
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Particulars Amount Particulars Amount

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₹ ₹
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To Legal Expenses 25,800 By Departmental Profit & Loss A/c

To Rent & Rates [Note 3] 16,000 Department A 77,766
To Provision on Stock [Note 4] Department B 57,034
Department A 9,912
Department B 3,600 13,512
To Capital Balance (balancing figure) 79,488
1,34,800 1,34,800

Working Notes:
1. Carriage Inward =₹ 24,750 apportioned in the ratio Departmental Purchases or 1,70,000 : 1,45,550
A = ₹ 13,334 and B = ₹ 11,416
2. Expenses ₹ 92,400 apportioned in Sales Ratio or 450 : 375 or 6 : 5

A = ₹ 50,400 and B = ₹ 42,000
3. Rent Total ₹ 1,60,000

Less: for General Office @ 10% 16,000
Apportioned as 2 : 1 1,44,000
A = ₹ 96,000 and B = ₹ 48,000
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4. Provision on Closing Stock
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Percentage of Gross Profit of Department B = 2,23,034 /(3,75,000 +75,000) x 100 = 49.563111% or
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say 49.56%
Provision on Stock
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Department A 49.56% of ₹ 20,000 = ₹ 9,912
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Department B = 18,000 x 25/125 = ₹ 3,600
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3. Department: ****
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The Following purchases were made during the year 2021 by a business house, having 3 departments.
Output during the year was:
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Dept. Sona—4000 units;

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Dept. Mona—8,000 units;

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Dept. Dona– 9,600 units.

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The total cost of production was ₹ 8,00,000.

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Stock on 1.1.21 were:

Dept. Sona —450 units;
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Dept. Mona —300 units

Dept. Dona – 600 units.
Sales during the year were:
Dept Sona —4100 units @ ₹ 48 each
Dept Mona —7700 units @ Rs 54 each
Dept Dona – 10,000 units @ ₹ 60 each
The rate of gross profit is the same in each case. Total departmental expenses of ₹ 96,000 were to be
apportioned to various departments in the ratio of 1:2:2. Prepare departmental Trading account.

Solution:
Dr. Department Trading Account for the year ended 31st December, 2021 Cr.
Particulars Sona Mona Dona Particulars Sona Mona Dona
To Opening Stock By Sales:
Sona (450 x 32) 14,400 Sona (4100 x 48) 1,96,800
Mona (300 x 36) 10,800 Mona
Dona (600 x 40) 24,000 (7700 x 54) 4,15,800
Dona
To cost of (10,000 x 60)
production: 6,00,000
Sona (4000 x 32) 1,28,000 By Closing
Mona (8000 x 36) 2,88,000 Stock:
Dona (9600 x 40) 3,84,000 Sona (350 x 32) 11,200
Mona
To Department (600 x 36) 21,600
Gross Profit 65,000 1,38,600 2,00,000 Dona (200 x 40) 8,000
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(33.33 % of sales)
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2,08,000 4,37,400 6,08,000 2,08,000 4,37,400 6,08,000
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Working Notes:
(1) Calculation of Rate of Gross Profit & Cost of Production
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Sales value of goods produced:
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Sona : 4,000 x ₹ 48
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1,92,000
Mona : 8,000 x ₹ 54
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4,32,000
Dona : 9,600 x ₹ 60
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5,76,000 12,00,000
Less: Total Cost of production
8,00,000
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Expected Gross Profit

(a) Rate of gross profit = 4, 00,000/12, 00,000 x 100 = 33.33% 4,00,000
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(on sales)
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(b) Cost prices per unit: Sona: 48 - 16 = A 32; Mona : 54 –18 = A 36; Dona : 60 –20 = 40.
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(2) Calculation of Number of Units Unsold

Department Opening Stock (a) Production (b) Sales (c) Closing Stock
(a + b - c)
Sona (units) 450 4,000 4,100 350
Mona (units) 300 8,000 7,700 600
Dona (units) 600 9,600 10,000 200

4. Department: [B.com 2018 3rd Semester General]

How would you allocate the following indirect expenses between different departments
(a) Sales Manager's Salary
(b) Insurance on Stock
(c) Carriage inwards
(d) Labour Welfare Expenses
(e) Rent Paid
(f) Depreciation
(g) Lighting
(h) Advertisement
(i) Canteen expenses
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(j) Discount Allowed
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5. Department: [B.Com 1994 General]
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M/s. Z & Co. has two departments. You are requested to prepare the trading and profit and loss
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account for each department for the year ended on 31st March, 2021 on the basis of following
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information:
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Dept A (₹ ) Dept B (₹ )
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Opening stock (1.4.20) 25,000 20,000

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Purchases 2,30,000 1,90,000

Sales 6,33,000 4,92,000
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Sales return 3,000 2,000

Closing stock (31.3.21) 30,000 18,000
A
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Wages 80,000 60,000

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Salaries 40,000 25,000

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Other common expenses: ₹

Rent 15,000
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Electricity 6,000
Depreciation 18,000
Selling expenses 8,000
Some other relevant information is given below:
Light points 18 9
Value of assets (₹ ) 1,50,000 1,20,000
Floor area (sq. ft) 300 200
[Gross profit : A ₹ 3,25,000 ; B ₹ 2,38,000. Net profit: A ₹ 2,57,500 ; B ₹ 1,93,500]

6. Department: [B.com 2018 3rd Semester General]

Prepare Departmental Trading and Profit & Loss Account for the year ended on 31.03.2021 on the basis
of the following information :
Dept. P (₹) Dept. Q (₹)
Stock (01.04.2020) 20,000 30,000

Purchases 2,50,000 2,00,000
Goods from Dept. P (at cost) 40,000
Wages 70,000 80,000
Salaries 25,000 20,000
Stock (31.03.2021) 1,00,000 50,000
Sales 6,50,000 5,00,000
Sales Return 20,000 10,000
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Other Common Expenses :
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Rent 10,000
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Electricity 12,000
Selling Expenses 6,400
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Depreciation 19,000
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Additional information : Dept. P Dept. Q
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Floor Area (sq. ft.) 600 400

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Light Points 10 5
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Value of Assets 2,00,000 1,80,000

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7. Department: [B.com 2016 Pass]

A
On the basis of the following information relating to a departmental organisation having departments X and
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Y, prepare Departmental Trading and Profit & Loss Account for the year ended 31.03.2021.
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Particulars Dept. X Dept. Y Particulars Dept . X Dept. Y

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Stock as on 1.4.20 30,000 30,000 Stock as on 31.3.21 40,000 30,000

Purchases 2,00,000 1,00,000 Sales 4,50,000 2,50,000
Wages 25,000 20,000 Building 4,00,000 5,00,000
Salaries 20,000 10,000 Machinery 2,00,000 2,00,000
Goods from Dept. X - 10,000 (W.D.V. as on 31.3.21)
(at cost) No. of staffs 30 20
Other Common Expenses:
(a) Salaries – ₹ 20,000; (b)Advertisement – ₹ 14,000.
(c) Rate of depreciation of fixed assets – 10% p.a.

8. Department: [Compiled by Ravi Bhalotia]***

From the following particulars given by M/s Tins and Toys, prepare a Departmental Trading and
Profit and Loss Account for their two departments, viz., Tins Department and Toys Department,
for the year ended 31st March, 2021:
₹ ₹
Opening Stock — Office Expenses 4,800
Tins 15,000 Depreciation:-
Toys 5,000 Factory Equipment 3,200
Raw Materials consumed (Tins) 36,000 Building 1,600
Stores consumed 9,000 Sales:-
Wages — Tins 90,000
Tins 6,000 Toys 18,000
Toys 3,000 Closing Stock
9)
Advertisement 1,500 Tins 12,000
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Packing expenses (Toys) 600 Toys 6,000
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You are also given the following additional information:
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(a) Toys are made of end bits of sheets of raw materials used by Tins Department. The value of
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such materials used during the year by Toys Department was ₹ 2,000.
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(b) Toy making does not require any Equipment.
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(c) Only 1/8 of the total area of Building is occupied by Toys Department.
[G.P of Tins ₹ 38,500 and Toys ₹ 13,500, N.R of Tins ₹ 28,650 and Toys ₹ 11,650]
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9. Department: [B.com Honours 2007 old,1991]****

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You are given the following particulars of a business having three departments:
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Particulars Purchases Opening stock Closing stock

A
units units units

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Department X 1,500 200 100

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Department Y 1,000 300 160

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Department Z 2,000 150 200

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Additional information:
i. Purchases were made at a total cost of ₹ 92,000.
ii. The percentage of gross profit on turnover is the same in each case.
iii. Purchases and sales are constant for the least 2 years.
iv. Selling price per unit. ₹
Department X 20
Department Y 25
Department Z 30
You are required to prepare departmental trading account.
[GP = 20%; GP: X = 6,400; Y = 5,700; Z = 11,700; Cost/unit: X = ₹ 16; Y = ₹ 20; Z = ₹ 24]

10. Department: [B.Com Honours, 1993,1982]****

The Following purchases were made during the year 2021 by a business house, having 3
departments. Output during the year was: Dept. A—4000 units; Dept B—8,000 units; Dept. C –
9,600 units. The total cost of production was ₹ 4,00,000.Stock on 1.1.04 were:
Dept. A—480 units; Dept. B—320 units Dept. C – 608 units.
Sales during the year were:
Dept. A—4080 units @ ₹ 24 each
Dept. B—7680 units @ ₹ 27 each
Dept. C—9984 units @ ₹ 30 each
The rate of gross profit is the same in each case. Total departmental expenses of ₹ 48,000 were
to be apportioned to various departments in the ratio of 1:2:2. Prepare departmental Trading
account.
[Gross profit: A ₹ 32,640; B ₹ 69,120; C ₹ 99,840. Net profit: A ₹ 23,040; B ₹ 49,920; C ₹
80,640. Rate of GP on sales 33 1/3 %. Cost per unit: X ₹ 16; X Rs 18 ;Z ₹ 20]
6 9)
11. Department:***
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A firm had two departments X and Y. Department Y (which was a Manufacturing Department) received
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goods from Department X as its raw materials. Department X supplied the said gods to Y at cost price.
From the following particulars you are required to prepare a Departmental Trading and profit and Loss
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Account for the year ended on 31st December, 2021. (All figures in rupees).
Particulars Dept X Dept Y
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Opening Stock (as on 1.1.2021) 2,50,000 75,000
Purchases (from outside suppliers) 10,00,000 20,000
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Sales (to outside customers) 12,00,000 3,00,000

Closing Stock (as on 31.12.2021) 1,50,000 50,000
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The following information is to be taken into account:

(a) Depreciation of Buildings to be provided at 20% p.a. The value of the Building occupied by both the
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Departments was ₹ 1, 05,000 (Dept. X occupying two-third portion and Dept. Y occupying the rest).
(b) Goods transferred from Department X to Department Y ₹ 2, 50,000 at cost.
A
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(c) Manufacturing Expenses amounted to ₹ 10,000.

(d) Selling Expenses amounted to ₹ 15,000 (to be apportioned on the basis of sales of respective
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department)
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(e) General Expenses of the business as a whole amounted to ₹ 58,000.

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[G.P of Dept. X ₹ 3,50,000 and Gross Loss of Dept. Y ₹ 5,000; N.P of Dept. X ₹ 3,24,000
and Net Loss of Dept. Y ₹ 15,000; Net Profit of the business ₹ 2,51,000]

12. Department: [B.com Honours 2007]***

From the following data, prepare Departmental Trading and P/L for the year ended December 31, 2021:
Department A Department B
₹ ₹
Opening Stock 40,000 -----------
Purchase from outside 2,00,000 20,000
Wages 10,000 1,000
Transfer of Goods from Department A -------- 50,000
Closing stock at cost to the department 30,000 10,000
Sales to outsiders 2,00,000 71,000
B’s Entire stock represents Goods from Department A which transfers them at 25 % above its
cost. Administrative and Selling Expenses amount to ₹ 15,000 which are to be allocated between
Departments A and B in the ratio 4 : 1 respectively. Also show the amount of provision to be
made for unrealised profit.
[GP : Dept A ₹ 30,000; Dept B ₹ 10,000; NP: Dept A ₹ 18,000; Dept B ₹ 7,000; Combined
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Profit ₹ 23,000]
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13. Department: [B.com Honours 2013, Honours 2015 ]**
Modern Engineering Works carried on business with two departments: Raw Materials and
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Manufacturing. The finished goods are produced by the Manufacturing Department with raw
material supplied from Raw Materials Department at selling price. Prepare departmental Trading
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and Profit and Loss Account for the year ending on 31st December, 2021 after allocation of
expenses on reasonable basis between the two departments.
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Necessary particulars are furnished below:

Raw Materials Department Manufacturing Department
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Opening Stock 60,000 10,000

Purchases 4,00,000 3,000
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Raw Materials transferred to 60,000 ------

manufacturing Department
A
Sales 4,40,000 90,000

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Manufacturing Expenses ------ 12,000

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Selling Expenses 800 400

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Closing Stock 40,000 12,000

BH
It is estimated that the cost of closing stock in the hands of Manufacturing Department consists
of 80% for raw materials and 20% for manufacturing expenses. The rate of gross profit earned
during the preceding year by the Raw Materials Department was 10%. Other administrative
expenses are as follows: Salaries ₹ 2,500; (ii) Insurance Premium ₹ 800.
[Gross Profit Ratio of Raw Materials Department = 16%; G.P: 80,000; 17,000; Combined
Net Profit 91,764; Insurance premium can be shared by R.M. Dept. and Mfg. Dept. in the ratio of
average stock of each department; Salaries can be shared by the R.M. Dept. and Mfg. Dept. in the
ratio of Sales of each department. Provision for Unrealized Profit on Closing Stock = (12,000 x 80%)
x 16 % = ₹ 1,536]

14. Department: [B.com Honours 2018 3rd sem hons]***

A firm has two departments – Clothing and Outfitting is made with clothes supplied by the Clothing
Department at its usual selling price. From the following figures, prepare Departmental Trading and Profit
& Loss Account for the year ended on 31.3.21 and also the General Profit and Loss A/c for the same period.
Clothing ( ₹ ) Outfitting ( ₹ )
Stock on April 01, 2020 6,00,000 1,00,000
Stock Reserve as on April 01, 2020 --- 9,000
Sales 44,00,000 9,00,000
Purchases 36,00,000 30,000
Supply to Outfitting Department 6,00,000 ---
Selling Expenses 1,40,000 42,000
Wages 4,00,000 1,20,000
Stock on March 31.2021 4,00,000 1,20,000
6 9)
The value of stock on 31.3.2021 in the Outfitting Department includes clothes worth ₹ 80,000 out of those
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transferred by the Clothing Department. General Expenses of the business as a whole came to ₹ 1,80,000
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15. Department: [Compiled by Ravi Bhalotia]*****
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O and K are two departments of Red Company of Kolkata. O Department sells goods to K
Department at normal market price. From the following particulars, prepare a trading and profit
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and loss account of the two departments for the year ended 31st March, 2021:
O K General
S
SE
₹ ₹ ₹
Stock on 1st April, 2020 12,000 Nil
AS
Purchases 2,76,000 24,000

Goods from O Department ------ 84,000
CL
Wages 12,000 19,200

Salaries 8,000 5,000
A
Stock on 31/3/2021 at cost to department 60,000 21,600

TI
Sales 2,76,000 1,74,000

O
Stationery and printing 2,560 1,960

AL
Plant and machinery 14,400

Salaries (general) 18,000
BH
Miscellaneous expenses 3,600

Advertisement 9,600
Bank charges 2,400
Depreciate plant and machinery by 10%. The general unallocated expenses are to be apportioned
between O and K in the ratio of 3:2.
[G.P: Dept. O ₹ 1,20,000 and Dept. K ₹ 68,400; N.R : Dept. O ₹ 89,280 and Dept. K Rs
46,560; N.P of the business ₹ 1,30,240]

16. Department: [B.com 2014 type]****

A & Co. has two departments P and Q. Department P sells goods to Department Q at normal
selling prices. From the following particulars, prepare Departmental Trading and Profit and Loss
Account for the year ended 31.3.2021 and also ascertain the Net Profit to be transferred to Balance
Sheet:
Department P (₹ ) Department Q (₹ )
Opening Stock 5,00,000 -
Purchases 28,00,000 3,00,000
Goods from P - 8,00,000
Wages 3,50,000 2,00,000
Travelling Expenses 20,000 1,60,000
Closing Stock at cost to the Department 8,00,000 2,09,000
Sales 30,00,000 20,00,000
Printing & Stationery 30,000 25,000
The following expenses incurred for both the departments were not apportioned between the
9)
departments:
6
Salaries ₹ 3,30,000; (b) Advertisement Expenses ₹ 1,20,000; (c) General Expenses ₹ 5,00,000;
45
(d) Depreciation is to be charged @ 30% on the machinery value of ₹ 96,000.
The advertisement expenses of the departments to be apportioned in the turnover ratio. Salaries
03
and depreciation are to be apportioned in the ratio 2:1 and 1:3 respectively. General Expenses are
3
to be apportioned in the ratio 3:1. 88
[Gross Profit Ratio of Department P=25%.Proportionate P Department’s Stock in
Department Q ₹ 1, 52,000; Gross Profit 9,50,000; 9,09,000; Net Profit 2,25,800; 4,19,400]
(9
S
17. Department: [B.com Honours 2012]****

SE
A firm has two departments Ex and Zed. Department Ex transfers goods to Department Zed at
AS
normal selling price while Department Zed transfers goods to Department Ex at cost plus 10%.
From the following figures, prepare Departmental Trading and Profit & Loss Account and General
CL
Profit & Loss A/c for the year 2021.

Ex (₹ ) Zed (₹ )
A
Stock – 1st January, 2021 1,50,000 25,000

TI
Sales 11,00,000 2,20,000

O
Purchases 6,00,000 1,15,000

AL
Transfer to other department 1,00,000 1,50,000

Rent & Rates 10,000 15,000
BH
Wages 1,00,000 30,000

Stock – 31 December, 2021
st
1,00,000 20,000
Advertisement ₹ 15,000 (to be apportioned based on sales)
General Expenses ₹ 23,000 (not to be apportioned)
Stock on 31.12.21 includes transferred goods as 39,600 12,000
[GP: ₹ 3,00,000; ₹ 1,20,000; NP ₹ 2,77,500; ₹ 1,02,500; Stock Reserve ₹ 3000 & ₹ 3,600;
Combined Net Profit ₹ 3,50,400]

18. Department: [B.com Honours 2016 type]****

M/S Mega Co. has two departments, A and B. from the following particulars; prepare Departmental Trading
Account and General Profit & Loss Account for the Year ended 31st March, 2021.
Dept. A Dept. B
₹ ₹
Opening Stock (at cost) 1,00,000 60,000
Purchases 4,60,000 3,40,000
Carriage Inward 10,000 10,000
Wages 60,000 40,000
Sales (exluding inter-transfers) 7,00,000 5,60,000
Purchased goods transferred:
By Dept. B to A 50,000 ----
By Dept. A to B ---- 40,000
Finished goods transferred:
9)
By Dept. B to A 1, 75,000 ----
6
By Dept. A to B ---- 2,00,000
45
Return of finished goods:
03
By Dept. B to A 50,000 ----
By Dept. A to B ---- 35,000
3
Closing Stock :
88
Purchased goods 22,500 30,000
(9
Finished goods 1,20,000 70,000

S
Purchased goods have been transferred mutually at their respective departmental purchase cost and finished
SE
goods at departmental market price. 20% of the closing finished stock with each department represents
AS
finished goods received from the other department.

CL
19. Department: [B.com Honours 2013]****

A
A Ltd. has three departments X, Y and Z. From the following particulars prepare a Departmental Trading
TI
Account for the year ended 31st December, 2021:

Dept. X Dept. Y Dept. Z
O
₹ ₹ ₹
AL
Stock on 1.1.2021 48,000 72,000 24,000

BH
Purchases 2,92,000 2,48,000 96,000

Actual Sales 3,45,000 3,18,800 1,49,200
Gross profit on normal selling price 20% 25% 1
33 %
3
During the year certain items were sold at discounts and these discounts were reflected in the sales
figures shown above. The items sold at discounts were:
Dept. X Dept. Y Dept. Z
₹ ₹ ₹
Sales at normal price 20,000 6,000 2,000
Sales at actual price 15,000 4,800 1,200
[GP: ₹ 65,000, ₹ 78,800, ₹ 49,200; closing stock ₹ 60,000, 80,000, 20,000]

Chapter 2: Hire Purchase [10]

1. Hire Purchase [Computation of cash price]
D Ltd. had purchased a machine on hire purchase system from H Ltd. The terms are that D Ltd. would pay
₹20,000 down on 01.01.2017 and 5 annual instalments of ₹ 11,000 each commencing from 01.01.2018.
They charged depreciation on machinery at the rate of 15 % per annum under diminishing balance system.
H Ltd. had charged interest at the rate of 10 % per annum.
Show the 'Machinery Account' and 'H Ltd. Account' to record above transactions in the books of D Ltd.,
till the instalments are paid off. Every year D Ltd.'s accounting year ends on December 31.
Solution:
In the books of D Ltd.
Dr. Machinery Account Cr.
9)
Date Particulars ₹ Date Particulars ₹
1.1.2017 To H Limited A/c 61,700 31.12.2017 By Depreciation A/c 9,255
6
45
(Note 1) 31.12.2017 By Balance c/d 52,445
61,700 61,700
03
1.1.2018 To Balance b/d 52,445 31.12.2018 By Depreciation A/c
3
88 7,867
31.12.2018 By Balance c/d 44,568
52,445 52,445
(9
1.1.2019 To Balance b/d 44,578 31.12.2019 By Depreciation A/c

S
6,667
SE
31.12.2019 By Balance c/d 37,891

44,578 44,578
AS
1.1.2020 To Balance b/d 31.12.2020 By Depreciation A/c

CL
37,891 5,684
31.12.2020 By Balance c/d
32,207
A
37,891
TI
37,891
O
32,207 4,831
27,376
AL

32,207 32,207
BH
Dr. H Ltd. Account Cr.

1.1.2017 To Bank A/c 20,000 1.1.2017 By Machinery A/c 61,700
31.12.2017 To Balance c/d 45,868 31.12.2017 By Interest A/c 4,168
65,868 65,868
1.1.2018 To Bank A/c 11,000 1.1.2018 By balance b/d 45,868

49,355
49,355

1.1.2019 To Bank A/c 11,000 1.1.2019 By balance b/d 38,355

41,091 41,091
1.1.2020 To Bank A/c 1.1.2020 By balance b/d 30,091

11,000
31.12.2020 To Balance c/d 31.12.2020 By Interest A/c 1,909
21,000
32,000 32,000
1.1.2021 To Bank A/c 1.1.2021 By balance b/d
11,000 1,000
22,000
1.1.2022 To Bank A/c 1.1.2022 By Balance b/d 22,000
11,000 11,000
Working Notes:
9)
1. Computation of Cash Price (by Back Calculation)
6
45
Particulars Amount
03
Last installment [5th] 11,000
3
th
Less : interest included in 5 instalment (11,000 x 10/110) 88 1,000
10,000
(9
Add : installment [4th] 11,000

S
21,000
SE
Less : interest included in 4th instalment (21,000 x 10/110) 1,909

AS
19,019
CL
Add : installment [3rd] 11,000

A
30,019
TI
Less : interest included in 3rd instalment (30,019 x 10/110) 2,735

O
AL
27,356
Add : installment [2nd] 11,000
BH
38,356
nd
Less : interest included in 2 instalment (38,356 x 10/110) 3,486
34,870
st
Add : installment [1 ] 11,000
45,870
Less : interest included in 1st instalment (45,870 x 10/110) 4,170
41,700
Add : down payment 20,000
Cash Price 61,700
2. Hire Purchase: Complete Repossession

Kundu Transporter purchases a truck on hire purchase from Koley Motor for 56,000. Payment to be made
as 15,000 down cash and 3 installments of 15,000 each at the end of each year. Rate of interest is charged
at 5% p.a. Buyer depreciates assets at 10% p.a. on written down value method. Because of financial
difficulties Modern Transporter after having paid the down cash and the first installment at the end of the
first year could not pay the second installment and Koley motors took possession of the Truck.
Prepare (a) The Truck Account (b) Seller’ Account in the books of the buyer assuming that year ends on
31st December.
Solution:
In the Books of Kundu Transporter
Dr. Koley Motor Account Cr.
Date Particulars Amount Date Particulars Amount
9)
1st yr To Bank A/c 15,000 1st yr By Truck A/c 56,000
Op. dt Op.dt.
6
45
Cl.dt. To Bank A/c 15,000 Cl.dt. By Interest A/c 2,050
(56,000 x 5 %)
03
Cl.dt. To Balance c/d 28,050
58,050
3 58,050
88
nd
2 yr
(9
Cl.dt. To Machinery A/c (Balance 29,453 Op.dt. By Balance B/d 28,050

transferred) (Balancing figure)
S
SE
Cl.dt. By Interest 1,403

(28,050 x 5 %)
AS
29,453 29,453
CL
Dr. Truck A/c Cr

A
TI

O
1st yr To Koley Motor 56,000 At 1 yr. By Depreciation A/c @10% 5,600

st
AL
Op.Dt. end
BH
Cl.dt. By Balance c/d 50,400

56,000 56,000
2nd yr. To Balance b/d 50,400 2nd yr.cl. dt. By Depreciation 5,040
Op. dt.
Cl.dt. By Koley Motor 29,453
(surrender value)
Cl.dt. By Profit &Loss A/c 15,907

50,400 50,400

3. Hire Purchase: Partial Repossession

Seema Agency purchased three trucks from Vishal Auto Ltd. on 1st January, 2019, under hire-
purchase agreement. The cash price of each truck is ₹ 1,50,000. According to the terms and
conditions of Vishal Auto Ltd. 10% of the cash price is to be paid on delivery and balance cash
price in three equal yearly instalments payable at the end of each year together with interest @
10% p.a.
Seema Agency writes-off 20% depreciation on straight line method. Seema Agency paid the first
and second instalment in due time but failed to pay the last instalment due on 31st December,
2021.
Vishal Auto Ltd. agreed to leave two trucks with Seema Agency and take back the third one,
adjusting the value against amount due. The returned truck being valued @ 30% depreciation on
diminishing balance method. Vishal Auto Ltd. sold the re-possessed truck for ₹ 45,000 in cash on
7th January, 2022 after incurring repairing expenses of ₹ 8,000.
9)
Show trucks account and Vishal Auto Ltd. account in the books of Seema Agency and re-possessed
truck account in the books of Vishal Auto Ltd. to give effect to the above transactions.
6
45
Solution:
03
In the books of Seema Agency
3
Dr. Truck Account
88 Cr.
1.1.2019 To Vishal 4,50,000 31.12.2019 By Depreciation A/c 50,000
(9
Automobile Ltd. A/c 31.12.2019 By Balance c/d 3,60,000

S
4,50,000 4,50,000
SE

AS
3,60,000 90,000
________ 31.12.2020 By Balance c/d 2,70,000
CL
3,60,000 3,60,000
A
1.1.2021 To Balance b/d 2,70,000 31.12.2021 By Depreciation A/c 90,000

TI
31.12.2021 By Vishal Automobile Ltd. 51,450

31.12.2021 By Profit & Loss A/c
O
8,550
AL
1,20,000
(W.D.V. of Trucks still in
BH
_________ possession) (Balancing fig.) _________

2,70,000 2,70,000
Dr. Vishal Automobile Ltd. Account Cr.

1.1.2019 To Bank A/c 45,000 1.1.2019 By Truck A/c 4,50,000
(Down Payment) 31.12.2019 By Interest A/c 40,500
31.12.2019 To Bank A/c 1,75,000 (10% of ₹ 4,05,000)
(1,35,000 + 40,500)
31.12.2019 To Balance c/d 2,70,000
4,90,500 4,90,500

31.12.2020 To Bank A/c 1,62,000 1.1.2020 By Balance b/d 2,70,000

(1,35,000 + 27,000) 31.12.2020 By Interest A/c 27,000
31.12.2020 To Balance c/d 1,35,000 (10% of ₹ 2,70,000)
2,97,000 2,97,000
31.12.2021 To Truck A/c 51,450 1.1.2021 By Balance b/d 1,35,000

1,48,500 1,48,500
In the books of Vishal Automobiles Ltd.

Dr. Re-possessed Truck Account Cr.
9)
31.12.21 To Seema Agency A/c 51,450 31.12.21 By Balance c/d 51,450
6
45
03
51,450 51,450
1.1.22 To balance b/d 51,450 7.1.22 By Cash (Sale) 45,000
3
88
7.1.22 To Cash (Expenses) 8,000 7.1.22 By P & L A/c 14,450
(9
(Loss on Sale –
Balance Figure)
S
SE
59,450 59,450
AS
Working Notes:
CL
1. valuation of one returned / repossessed truck

A
₹
TI
1.1.19 Cash Price 1,50,000

O
AL
31.12.19 Less: Depreciation @ 30% 45,000

1,05,000
BH
31.12.20 Less: Depreciation @ 30% of 1,05,000 31,500

73,500
31.12.21 Less: Depreciation @ 30% of 73,500 22,050
Surrender value 51,450
(2) Computation of loss on surrender:
W.D. value of one Truck surrendered = 1/3 of 1,80,000 = ₹ 60,000
Loss of Surrender = ₹ 60,000 – ₹ 51,450= Rs. 8,550

4. Hire Purchase: Partial Repossession

Roman Transport Co. purchased five Trucks from Ramos Auto Ltd. on 1st January, 2020 on hire purchase
system. The Cash Price of each Truck is ₹ 1,20,000. The mode of payments was as follows :-
(i) 15% of Cash Price down.
(ii) 25% of Cash Price at the end of each year for 4 years.
Roman Transport Co. writes off 15% depreciation annually under WDV Method. The payment due on 31st
December, 2021 could not be made. Ramos Auto Ltd. agreed to leave three trucks with the buyer on the
condition that the value of other two trucks would be adjusted against the amount due, the Trucks being
valued at cost less 25% depreciation p.a.. Show the necessary Accounts in the books of both the parties.
Solution:
Books of Roman Transport Co.
Dr. Ramos Auto Ltd. Account Cr.
9)
Rs. Rs.
6
45
1.1.20 To Bank A/c 90,000 1.1.20 By Motor Trucks A/c 6,00,000
31.12.20 To Bank A/c 1,50,000 31.12.20 By Interest A/c
03
36,000
31.12.20 To Balance c/d 3,96,000
3
88
6,36,000 6,36,000
(9
31.12.21 To Motor Trucks A/c 1,20,000 1.1.21 By Balance b/d 3,96,000
(Surrender value) 31.12.21 By Interest A/c 27,000
S
SE
31.12.21 To Balance c/f (Bal.fig.) 3,03,000

AS
4,23,000 4,23,000
CL
Dr. Motor Trucks Account Cr.

A

TI
Rs. Rs.
O
1.1.20 To Ramos Auto Ltd. A/c 6,00,000 31.12.20 By Depreciation A/c 90,000
AL
[15% of 6,00,000]
BH
31.12.20 By Balance c/d 5,10,000

6,00,000 6,00,000
1.1.21 To Balance b/d 5,10,000 31.12.21 By Depreciation A/c
[15% of 5,10,000] 76,500
31.12.21 By Ramos Auto Ltd. A/c 1,20,000
31.12.21 By Loss on surrender 53,400
31.12.21 By Balance c/f (Bal. fig.) 2,60,100
5,10,000 5,10,000

Working Notes:
1. Calculation of Interests
(a) Total Payment for each Truck = 15% + 25% x 4 = 115% of Cash Price
∴ Total Interest for each Truck = 15% of Cash Price.
(b) Cash Price of 5 Trucks = 5 x Rs. 1,20,000 = Rs. 6,00,000
(c) Total Interest Payable = 15% of 6,00,000 = Rs. 90,000
(d) Down Payment for 5 Trucks = 15% of 6,00,000 = Rs. 90,000
(e) Value of each instalment = 25% of 6,00,000 = Rs. 1,50,000
As the rate of interest is unknown, the amounts of interests included in each instalments is to be
ascertained by dividing the total interest in the ratio of hire purchase price outstanding at the
beginning of each period, that is in the reducing ratio of 4 : 3 : 2 : 1.
9)
∴ The interest for the years should be –
6
45
2020: 4/10 of 90,000 = Rs. 36,000;
2021: 3/10 of 90,000 = Rs. 27,000;
3 03
88
2. Computation of Surrender Value of two trucks repossessed by Ramos Auto Ltd.
(9
Rs.
S
SE
1.1.2020 Value of 2 Trucks = 2 x Rs. 1,20,000 2,40,000

AS
31.12.2020 Less: Depreciation @ 25% on Cost 60,000

1,80,000
CL
31.12.2021 Less: Depreciation @ 25% on Cost 60,000

A
Surrender value of two trucks 1,20,000

TI
O
AL
BH
3. Computation of loss on Surrender

Rs.
31.12.2021 Book Value of 2 Trucks after depreciation 1,73,400
{(₹ 5,10,000 – 76,500) ÷ 5}x 2
31.12.2021 Less: Surrender value of two trucks 1,20,000
Loss on Surrender of two trucks 53,400

5. Hire Purchase: H.P Trading Method

Bright star Ltd sold goods on hire purchase system making profit 33 1/3 % on sales. From the following
particulars prepare Hire purchase trading account:
1.1.2020: ₹
Stock with customers at hire purchase price 45,000
Shop Stock 90,000
Installment Due 25,000
31.12.2021:
Cash received from customers 3,00,000
Goods Repossessed (Instalment Due ₹ 10,000) as valued 2,500
Instalment Due 45,000
Shop Stock (excluding repossessed stock) 1,00,000
Goods purchased during the year 3,00,000
Solution:
9)
Dr. Bright Star Ltd. Cr.
6
Hire Purchase Trding Account for the year ended 31.12.21
45
03
Rs. Rs.
3
To Balance b/f By (OP) H.P Stock Reserve A/c 15,000
88
Hire Purchase Stock (at H.P. price) 45,000 �1 𝑜𝑜𝑜𝑜 45,000�
(9
3
Hire Purchase Debtors 25,000 3,00,000
By Cash A/c
S
To Goods sold on Hire Purchase A/c 4,35,000

SE
By Goods sold on Hire Purchase A/c

(At H.P. Price) (see working note) 1,45,000
AS
1
� 𝑜𝑜𝑜𝑜 4,35,000�
To Loss on Repossessed Goods A/c 7,500 3
CL
(₹ 10,000 – ₹ 2500) By Repossessed Goods A/c 10,000

To (closing) H.P. Stock Reserve A/c 50,000 (Instalments Unpaid)
A
By Balance c/f:
TI
1
� 𝑜𝑜𝑜𝑜 1,50,000�
3
O
By Hire Purchase Stock (H.P. Price) 1,50,000

AL
1,02,500 By Hire Purchase Debtors 45,000

To Profit & Loss A/c (balancing fig)
BH
6,65,000 6,65,000
Working Notes:
Dr. Memorandum Shop Stock Account Cr.
Rs. Rs.
To Balance b/f 90,000 By Goods Sold on Hire Purchase A/c 2,90,000
To Purchase A/c 3,00,000 (At cost – Balancing Figure)
By Balance c/f 1,00,000
3,90,000 3,90,000

Dr. Memorandum Hire Purchase Stock Account Cr.
Rs. Rs.
To Balance b/f (H.P. Price) 45,000 By H.P. Debtors A/c (Transfer 3,30,000
To Goods Sold on Hire Purchase A/c 4,35,000 from H.P Debtors Account)
1
[H.P. Price = 2,90,000+ of 2,90,000] By Balance c/d (at H.P. Price) 1,50,000
2
(Balancing figure)
4,80,000 4,80,000
Dr. Memorandum Hire Purchase Debtors Accounnt Cr.

9)
To Balance b/f 25,000 By Cash A/c 3,00,000
6
To H.P Stock A/c (Balancing 3,30,000 By Goods Repossessed A/c 10,000
45
Figure) By Balance c/f 45,000
03
3,55,000 3,55,000
3
88
6. Hire Purchase: Stock & Debtors Method
(9
Decor Ltd. supply goods on hire purchase system at a profit of 50% over the cost. The following are the
S
SE
transactions for the year ending December 31, 2021:

₹
AS
Stock out on hire at cost on 01/01/2021 60,000

CL
on 31/12/2021 48,000
A
Instalments Due (customers still paying)

TI
On 01/01/2021 5,400
O
AL
On 31/12/2021 9,000
BH
Goods Repossessed during the year

(For instalments unpaid ₹ 900) evaluated at: 450
Instalments realised during the year 1,17,000
Prepare the Hire-Purchase Stock A/c, Hire-Purchase Debtors' A/c and the Hire-Purchase Adjustment A/c.

Solution:
Books of Décor Ltd.
Dr. Hire Purchase Stock Account Cr.
Rs. Rs.
1.1.21 To Balance b/f 90,000 31.12.21 By Hire Purchase Debtors 1,21,500
[Rs. 60,000 + 50 % ] A/c (Instalments matured)
31.12.21 To Goods Sent on Hire (from H.P Debtors A/c)
Purchase A/c (H.P. Price) 1,03,500 31.12.21 By Balance c/f 72,000
(Balancing Figure) [48,000 + 50 %]
1,93,500 1,93,500
6 9)
Dr. Hire Purchase Debtors Account Cr.
45
03
Rs. Rs.
3
1.1.21 To Balance b/f 5,400 31.12.21 By Bank A/c (instalments
88 1,17,000
(Opening Instalments Due) collection)
(9
31.12.21 To Hire Purchase Stock A/c 1,21,500 31.12.21 By Repossessed Stock A/c 900
(Unpaid instalments)
S
(Balance Figure)
SE
31.12.21 By Balance c/f 9,000

AS
(Closing Instalments Due)

CL
1,26,900 1,26,900
A
TI
Dr. Hire Purchase Adjustment Account Cr.

O

AL
Rs. Rs.
BH
31.12.21 To Balance c/f 24,000 1.1.21 By Balance b/f 30,000

[Closing H.P. Stock [Opening H.P. Stock
Reserve] [72,000 x 1/3) Reserve] (90,000 x 1/3)
31.12.21 To Loss on Repossessed 450 31.12.21 By Goods sent on Hire
Stock (900 – 450) Purchase A/c 34,500
31.12.21 To Profit & Loss A/c 40,050 [1/3 of Rs. 1,03,500]
(Balance Figure)
64,500 64,500
Working Notes:
Loading on cost = 50 % hence Loading on H.P. Price = 50/150 = 1/3

7. Hire Purchase: [Equal Instalments Excluding Interest]*

On January 1,2018, A purchased a machine (under Hire Purchase System) from B. valued at ₹
37,000. A sum of ₹ 5,000 was paid at the time of signing the contract and the balance in four
yearly instalments of ₹ 8,000 plus interest at 5% payable on 31st December each year. The
machine was depreciated at 10% on diminishing balance method.
Show the Machinery Account and the Hire Vendor Account in the books of buyer.
[Int Rs 1,600, ₹ 1,200, ₹ 800 and ₹ 400; Dep ₹ 3,700, ₹ 3,330, ₹ 2,997 and ₹ 2,697]
8. Hire Purchase: [Equal Instalments Including Interest]*

X Ltd. purchased Machinery from Y Ltd. on hire purchase agreement on 1st January, 2019. It was
decided that ₹ 15,000 was to be paid on signing the agreement and an amount of ₹ 15,000 was to
be paid annually for 3 years. The cash price of the machinery was ₹ 52,300 and the rate of interest
was 10% p.a. Show the Machinery Account and the Hire Vendor Account in the books of buyer
9)
[Interests ] ₹ 3,730, ₹ 2,603 and ₹ 1,367]
6
9. Hire Purchase: [Instalments Including Interest] [B.com 2012 Pass type]*
45
On 1st January, 2019, Quick Transport Company purchased a fleet of 4 trucks from Hind Autos
03
Limited on hire purchase terms. The cash price of each truck was ₹ 29,800; ₹ 8,000 per truck
3
was to be paid on the date of purchase and the balance in 3 instalments of ₹ 8.000 each on 31st
88
December every year subject to interest @ 5% p.a. Depreciation was to be provided @ 10% on
(9
the reducing balances. Show the Trucks Account and the Hire Vendor Account in the books of
buyer. [Interests for 3 years ₹ 4,360, ₹ 2,978 and ₹ 1,462]
S
SE
10. Hire Purchase: [Interest % not given] [Compiled by Ravi Bhalotia]*

AS
Mr. A purchased machinery under hire-purchase arrangements from Mr. B. The cash price of the
CL
machinery was ₹ 15,500. The payment, for the purchase is to be made as under:
₹
A
On signing the agreement 3,000

TI
First year-end 5,000

O
Second year-end 5,000

AL
Third year-end 5,000

BH
18,000
Show the hire Vendor Account in the books of A.
[Interest: 1st year ₹ 1,250 ; 2nd year ₹ 833 ; 3rd year ₹ 417]
11. Hire Purchase: [Cash Price not given] [B.com 2013 Honours]*
Rain Ltd. Purchased a Motor Van on hire purchase from Storm Ltd. On 1.1.2019. The terms of
payment were ₹ 23,000 on delivery, ₹ 11,700 at the end of first year, ₹ 10,800 at the end of
second year and ₹ 9,900 at the end of third year including interest. Rain Ltd. Charged depreciation
at 10% p.a. under diminishing balance method. Assume that Storm Ltd. Charged interest @ 10%
p.a. on the outstanding amount at the beginning of each year.
Show Storm Ltd. Account and Motor Van Account in the books of Rain Ltd.

12. Hire Purchase: Complete Repossession [with interest] [2018 2nd year hons]
On 01.01.2020, Mr. A acquired machinery from Mr. B on hire purchase valued at ₹ 6,00,000 payable in
three annual instalments of ₹ 2,00,000, plus interest @ 6% p.a. Mr. A paid the first instalment but could
not pay the second instalment. Mr. B took back the machinery having original cost of ₹ 4,00,000 allowing
₹ 2,25,000 as surrender value. Mr. A paid all the interest due to the date of surrender on the full amount
owing. Mr. A had written off depreciation at 10% p.a. on diminishing balance method. Show Machinery
Account and Mr. B Account in the books of Mr. A.
13. Hire Purchase: Complete Repossession [Instl. incl. Interest] [2014 Hons]**
On 1.1.2019 XY Corporation purchased a Truck on Hire-Purchase from AB Motors for ₹ 60,000. Payment
to be made ₹ 20,000 on delivery and three instalment of ₹ 15,000 each at the end of each year. Rate of
interest is charged at 5% p.a. Rate of depreciation is 10% p.a. on written down value method.
The buyer defaulted after paying down payment and the first instalment and the vendor seized the truck
9)
immediately after non-payment of the second instalment.
6
45
Prepare Truck Account and AB Motors Account in the books of XY Corporation.
[Loss on surrender ₹ 20,250; Surrender ₹ 28,350]
3 03
14. Hire Purchase: Complete Repossession [Cash Price not given] [16 H]*
88
Alpha Capital Co. purchased a machine from Beta Co. on 1st January, 2019 on hire purchase system. As
(9
per agreement the payment should be made in three annual instalments of ₹ 12,000 each (including interest).
S
The rate of interest was 20% p.a. the purchaser defaulted in the payment of the final instalment and the
SE
vendor re – possessed the machinery. Depreciation on machinery was provided @ 10% p.a. under reducing
AS
balance method.
Show Machinery Account and Beta Co. Account in the books of Alpha Co. to the end of the agreement
CL
period.
A
[Cash price ₹ 25,277, Interest Rs 5,056,₹ 3,667, ₹ 2,000; Dep. ₹ 2,528, ₹ 2,275, ₹ 2,047;
TI
Loss on surrender ₹ 6427]

O
AL
15. Hire Purchase: Partial Repossession [Instalments excl. Interest] [2001 H]*
BH
Transport Ltd. Purchased 2 trucks costing ₹ 4,00,000 each from Auto Ltd. on 1st January, 2019 on Hire-
purchase system. The terms were :
Payment on delivery ₹ 1,00,000 for each truck, remainder in 3 equal instalments together with interest at
10% per annum to be paid at the end of each year.
Transport Ltd. writes off 25% depreciation each year on diminishing balance method. Transport Ltd. paid
the instalments due on 31st December, 2019 and on 31st December, 2020 but they could not pay the final
instalment. Auto Ltd. repossessed one truck adjusting its value against the amount due. The re-possession
was done on the basis of 30% depreciation on diminishing balance method. Prepare necessary ledger
accounts in the books of Transport Ltd.
[Value adjusted for Truck repossessed ₹ 1,37,200; Loss on Truck seized ₹ 31,550; Balance
of Motor Truck A/c ₹ 1,68,750 (Dr.) and of Auto Ltd. A/c ₹ 82,800 (Cr.)]

16. Hire Purchase: Partial Repossession [Instalments excl. Int] [2012 H]****
Arunagshu Transport Agency purchased 2 motor vans costing ₹ 80,000 each from Debika Auto Company
on 1st January 2019, on the hire purchase system. The terms of payment were as follows:
Payment of ₹ 20,000 each for motor van on delivery. Remainder in three equal instalments together with
interest 10% p.a. to be paid at the end of each year.
Arunagshu Transport Agency write-off 20% depreciation each year on the diminishing balance method.
The hire purchaser paid two instalments due on 31st December 2019 and 2020 but could not pay the final
instalment.
Debika Auto Company re-possessed one motor van adjusting its value against the amount due. The re-
possession was done on the basis of 25% depreciation on the Fixed Instalment Method. Write-up the Ledger
Accounts in the books of Arunagshu Transport Agency.
[Motor Van A/c ₹ 40,960 (Bal.); Debika Auto Co. ₹ 24,000 (Bal.), Interest for 3 years ₹
12,000, ₹ 8,000, ₹ 4,000; Value of Van repossessed ₹ 20,000, Loss on Repossession ₹ 20,960]
6 9)
17. Hire Purchase: Partial Repossession [2017] [Interest % not given]**
45
Roy transport co. purchased five trucks from French Motor Car Ltd. On 1st January, 2020 on hire purchase
03
system. The cash price of the each truck was 9,60,000. 15% of the cash was payable on the date of delivery
3
and 25% of the cash price was payable at the end of each year for four years. Roy transport co. writes off
88
10% depreciation annually under W.D.V method. The hire purchaser failed to make the payment due on
(9
31st December, 2021. French Motor car Ltd. agreed to leave two trucks with the buyer on the condition that
the value of the other three trucks would be adjusted against the amount due, the trucks being valued at cost
S
SE
less 20% depreciation p.a. Show the necessary accounts in the books of Roy Transport co.
AS
18. Hire Purchase: Partial Repossession [Interest % not given] [B.com 2015]**
CL
RK Transport Company Ltd. purchased four Trucks from AB Auto Ltd. on 1st January 2020 on hire
purchase system. The cash price of each Truck was ₹ 8, 00,000. The mode payment was as follows:
A
TI
20% of cash price to be paid on delivery and 25% of cash price to be paid at the end of each year for four
O
years.
AL
RK Transport Company Ltd. writes off depreciation @ 10% p.a. on diminishing balance method. The
payment due on 31st December, 2021 could not be paid. AB Auto Ltd. Re – possessed two Trucks adjusting
BH
its value against the amount due. The re – possession was done on the basis of 25% depreciation on fixed
installment method. Show the necessary Accounts in the books of RK Transport Company Ltd.
[Surrender Value ₹ 8,00,000; Loss ₹ 4,96,000; Balance c/d: Vendor ₹ 14,08,000; Truck ₹
1,29,600]

19. Hire Purchase: H.P Trading Method [2013 Hons, 2016 Pass type]****
Khosla Bros. Which sells products on hire purchase terms, has the following balances as on dates
mentioned below: (in ₹)
2021 Stock out on hire at hire purchase prices 12,000
Jan. 1 Stock at shop 1,500
Instalments overdue 900
Dec. 31 Stock at shop 2,100
Instalments overdue 1,500
Prepare the H.P. Trading Account for the year ending on 31.12.2021, if cash of ₹ 24,000 is received
during the year by way of instalments and gross profit is reckoned at 25% on selling price.
[HP Profit ₹ 6,150]
20. Hire Purchase: H.P Trading Method [B.com 2015 Hons]****
9)
M/S H.P. Trader sells goods on hire purchase basis at cost plus 50%. From the following information,
6
prepare Hire Purchase Trading Account for the year ending on 31.3.2021:
45
April 1, 2020 ₹
Stock with customers (at HP price) 90,000
03
Stock at shop (at cost) 1, 80,000
3
Instalments due but not yet received 50,000
88
During the year:
Purchases 6, 00,000
(9
Cash received from customers 6, 00,000

S
Goods repossessed (against

SE
Instalments due ₹ 20,000) 5,000

AS
March 31 , 2021
Stock with customers (at HP Price) 3, 00,000
CL
Stock at shop (excluding

Repossessed goods) 2, 00,000
A
Instalments due but not yet received 90,000

TI
[HP Profit ₹ 2,05,000]

O
AL
21. Hire Purchase: H.P Trading Method [B.com 2002]****

Shree Rahaman sells goods on hire-purchase basis at a profit of 50% on cost. Following
BH
particulars are given to you relating to his business during 2021: ₹

Hire-purchase stock (at selling price) as on 1.1.21 27,000
Instalments due on 1.1.21 15,000
Goods sold on hire-purchase during the year (at selling price) 2,61,000
Cash received from hire-purchase customers during the year 1,84,000
Goods re-possessed (instalments due ₹ 2,000) as valued 1,500
Hire-purchase stock (at selling price) as on 31.12.21 90,000
Prepare hire-purchase trading account showing the profit earned for the year 2001.
[Profit ₹ 65,500]

22. Hire Purchase: H.P Trading Method [B.com 2012 Honours]****

Credit Ltd. Sells its products only on hire purchase terms; the hire purchase price (HP price) being cost plus
331�3 %. From the following particulars relating to the year 2021, prepare the Hire Purchase Trading A/c:
1.1.2021 (₹ ) 31.12.2021 (₹ )
Stock out on hire at H.P. price 1,20,000 ?
Stock in hand at shop 15,000 21,000
Installments due (customers still paying) 9,000 15,000
Cash received during the year – ₹ 2, 40,000.
Purchases during the year – ₹ 2, 04,000.
Goods repossessed (installments not yet matured – ₹ 6,000) – valued at ₹ 2,400.
(Workings should form part of your answer)
[Profit ₹ 59,400]
9)
23. Hire Purchase: Stock & Debtors Method [B.com 2016 Honours]**
6
45
Great Eastern Stores, which sells products on hire purchase terms, has the following balances as on dates
mentioned below:
03
2020 ₹
3
April, 1 Stock out on hire purchase at H.P. prices 88 12,000
Instalments overdue 900
2021
(9
March, 31 Stock on hire purchase at H.P. prices 13,800

S
Instalments overdue 1,500

SE
Instalments realized during the year 24,000

Prepare Hire Purchase stock A/c, Hire Purchase Debtors A/c and Hire purchase Adjustment A/c assuming
AS
that gross profit is reckoned at 25% on selling price.

CL
24. Hire Purchase: Stock & Debtors Method [B.com 2018 3sem Honours]**
A
TI
Credit Ltd. Sells goods on hire purchases basis at cost plus 50%. From the following particulars, you are
O
required to prepare HP Stock A/c, HP Debtors A/c, Repossessed Stock A/c and HP Adjustment A/c to
AL
ascertain the profit made for the year ended 31.3.21 (in ₹ )
Stock on hire with customers at S.P. on 01.04.20 1,35,000
BH

Instalments due on 31.3.21 from paying customers 1,35,000
Goods repossessed (instalment due ₹ 6,000), valued at 1,800
Purchase made during the year 2020-21 9,20,000
Goods sent on hire purchase at S.P 12,93,000

Chapter 3: Branch [10 Marks]

1. Branch Debtors Method:****
From the following particulars, prepare branch account showing the profit or loss of the branch:
₹
Opening stock at the branch 30,000
Goods sent to branch 90,000
Sales (Cash) 1,20,000
Expenses:
---Salaries 10,000
---Other expenses 4,000
Closing stock could not be ascertained, but it is known that the branch usually sells at cost plus
9)
20%. The branch manager is entitled to a commission of 5% on the profits of the branch before
charging such commission.
6
45
Solution In the books of the Head Office
Dr. Branch Account Cr.
03
To Balance b/d: By Bank A/c
3
Stock 30,000
88 Cash Sales 1,20,000
To goods sent to Branch 90,000 By Balance c/d : 20,000
(9
A/c Stock (Note 1)
To Bank A/c:
S
SE
Salaries
10,000 14,000
AS
Other Expenses
4,000
CL
To Balance c/d:
A
Manager’s Commission 300

TI
To General Profit & Loss

O
A/c (Balancing Figure) 5,700

AL
1,40,000 1,40,000
BH
Working Notes:
(1) Calculation of Closing Stock ₹
Opening Stock 30,000
Add: Goods sent to branch (at cost) 90,000
1,20,000
Less: Cost of goods sold (₹ 1,20,000 x 100/120) 1,00,000
Closing Stock 20,000
(2) Profit before commission is ₹ (1, 20,000 + 20,000) – ₹ (30,000 + 90,000 + 10,000 + 4,000) – ₹
6, 000. Manager’s Commission is payable @ 5%. So commission is ₹ 6,000 x5/100 = ₹ 300.
Manager’s commission is still payable, and, therefore, is a liability for the business at the end of
the accounting period.

2. Branch Debtors Method [B.com Honours 2013]*

A company with its head office at Mumbai has a branch at Kolkata. The Branch receives all goods from
head office who also remits cash for all expenses. Sales are made by the Branch on credit vas well as for
cash:
Total sales by the branch for the year ended 31st March, 2021 amounted to ₹ 5,60,000 out of which 20%
is cash sales. The following further information is relevant:
1.4.20 31.03.21
Stock in trade (₹ ) 25,000 36,000
Debtors (₹ ) 60,000 48,000
Petty Cash (₹ ) 120 180
Expenses actually incurred by the branch during the year were
Salaries 36,000
Rent 12,000
9)
Petty expenses 5,600
6
45
All sales are made by the branch at cost plus 25%.
Prepare the Kolkata Branch Account in the books of Head Office for the year ended 31st March, 2021.
03
Solution:
3
In the Books of Head Office
88
Dr. Mumbai Branch Account Cr.
(9

S
1.4.20 To Balance b/f ? By Bank A/c

SE
Stock 25,000 Cash Sales 1,12,000

AS
Debtors 60,000 [20% of Rs. 5,60,000]

CL
Petty Cash 120 Collection from Debtors 4,60,000

[Working Note 3]
A
TI
? To Goods Sent to Branch

O
A/c (Working Note 2) 4,59,000 31.3.21 By Balance c/f 36,000

AL
Stock 48,000
BH
? To Branch Cash Debtors 180

Salary 36,000 Petty Cash
Rent 12,000
Petty Cash (W. Note 4) 5,660
31.3.21 To General Profit & Loss 58,400

A/c
(Net profit of the Branch
Transferred) (Bal. fig.)
6,56,180 6,56,180

Working Notes:
1. Cosf of goods sold = Sales x 100/125 = 5,60,000 x 100/125 = ₹ 4,48,000
2. Computation of Goods sent to Branch during the year

Dr. Memorandum Branch Stock Account Cr.
1.4.20 To Balance b/f 25,000 By Cost of Goods sold
? To Goods Sent to 4,59,000 31.3.2021 By Closing Stock 4,48,000
Branch A/c (Bal. Fig) 36,000
4,84,000 4,84,000
3. Computation of Collection from Debtors
9)
Dr. Memorandum Branch Debtors Account Cr.
6
45
1.4.20 To Balance b/f 60,000 ? By Cash Collection
03
? To Sales [Credit] from Debtors (Bal. Fig) 4,60,000
3
(80% of 5,60,000] 4,48,000 31.3.2021 By Balance c/f
88
48,000
(9
5,08,000 5,08,000
S
4. Computation of Cash Sent to Branch for Petty expenses

SE
Dr. Branch Petty Cash Account Cr.

AS
Particulars Amount Particulars Amounts

CL
To Balance b/f 120 By Expenses (as given) 5,600

To Cash (Sent to Branch) (Bal. fig.) 5,660 By Balance c/d 180
A
TI
5,680 5,680
O
AL
3. Branch stock & Debtors Method

BH
C Ltd. has a branch at Lake Town where it sends goods at cost plus 50%. From the following particulars
regarding the Branch, prepare Branch Stock A/c, Branch Adjustment A/c and Branch Profit & Loss A/c as
would appear in the books of C Ltd.:
₹ ₹
Stock at cost (1.4.20) 20,000 Bad Debts 200
Debtors (1.4.20) 18,000 Sales return to branch 3,000
Cash (1.4.20) 5,000 Expenses paid by H.O. 10,000
Goods sent to Branch (IP) 99,000 Cash remitted to H.O. 80,000
Sales: Cash 27,000 Cash (31.3.21) 6,000
Credit 79,000 Stock at IP (31.3.21) 27,000
Normal loss at cost 2,000 Debtors (31.3.21) 30,000

Solutions:
Books of C Ltd. (Head Office)
Dr. Lake Town Branch Stock A/c Cr.
1.4.20 To Balance b/f 30,000 31.3.21 By Bank A/c (Cash 27,000
31.3.21 To Goods Sent to Branch Sales)
A/c (IP) 99,000 31.3.21 By Branch Debtors 79,000
31.3.21 To Branch Debtors A/c 3,000 A/c (Credit Sales)
(Sales Return) 31.3.21 By Branch Stock
To Branch. Stock Adjustment A/c
31.3.21 4,000 3,000
Adjustment A/c (Bal. (Normal loss)
figure) (Apparent Profit) By Balance c/f
31.3.21 27,000
6 9)
1,36,00 1,36,000
45
03
Dr. Lake Town Branch Stock Adjustment Account Cr.
3
Date Particulars Amount Date
88 Particulars Amount
31.3.21 To Branch Stock A/c 3,000 1.4.20 By Opening Stock
(9
(Normal Loss at I.P) Reserve A/c 10,000
S
31.3.21 To Closing Stock 9,000 [1/3 of 30,000]

SE
Reserve A/c [1/3 of 31.3.21 By Goods Sent to

AS
31.3.21 27,000] 35,000 Branch A/c 33,000

By Branch Profit & Loss [1/3 of 99,000]
CL
A/c (Gross Profit) By Branch Stock A/c

31.3.21 4,000
A
TI
47,000 47,000
O
AL
Dr. Lake Town Branch Debtors Account Cr.

BH

1.4.20 To Balance b/f 18,000 31.3.21 By Branch Stock A/c 3,000
31.3.21 To Branch Stock A/c 79,000 31.3.21 By Bad Debts A/c 200
(Credit Sales) 31.3.21 By Bank/Cash A/c 63,800
(Collection from
Debtors)
31.3.21 By Balance c/f 30,000
97,000 97,000

Dr. Lake Town Branch Profit & Loss Account for the year ended 31/3.21 Cr.
Rs. Rs.
To Expenses A/c By Branch Stock Adjustment A/c 35,000
Paid by Head Office 10,000 (Gross Profit)
Paid by Branch [Note 1] 9,800
To Bad Debts A/c 200
To General Profit & Loss A/c [Net 15,000
Profit]
35,000 35,000
Working Note:
1. Expenses paid by Branch
69)
Dr. Branch Cash Account Cr.
45
03
Rs. Rs.
3
To Balance b/f 5,000 By Bank A/c
88 80,000
To Branch Stock A/c (Cash 27,000 (Remittance to H.O)
(9
Sales) 63,800 By Expenses A/c (Balancing Figure) 9,800
To Branch Debtors A/c
S
By Balance c/f 6,000

SE
(Collection from Debtors) 95,800 95,800

AS
CL
4. Branch Stock & Debtors Method***

A
BT Ltd. sends goods to its Chennai branch at cost plus 25% on cost. From the Allowing particulars you are required
TI
to show the Branch Stock Account, Branch Stock Adjustment Account and Branch Profit & Loss Account in the
O
Head Office books:

AL
₹
BH
Opening stock at Branch at Invoice Price 20,000

Goods sent to Branch at Invoice price 80,000
Loss-In-transit at Invoice Value 10,000
Pilferage at Invoice Price 4,000
Sales 1,22,000
Expenses 32,000
Closing stock at Branch at Invoice price 24,000
Recovered From Insurance Company against Loss – in – transit 6,000

Solution:
In the books of BT Ltd (Head office)
Dr. Chennai Branch Stock Account Cr.
To Balance b/d (I.P) 20,000 By goods lost in transit A/c (I.P) 10,000
To goods sent to Branch A/c 80,000 By Pilferage A/c (I.P) 4,000
(At Invoice Prcie) 60,000 By Cash A/c (Sales) 1,22,000
To Branch Stock Adjustment By Balance c/d (I.P) 24,000
(Apparent Profit) (Bal. Fig.)
1,60,000 1,60,000
Dr. Chennai Branch Adjustment Account Cr.

To lost in Transit (Loading) 2,000 By Stock reserve A/c 4,000
9)
(10,000 x 25/125) (loading on opening stock)
6
(20,000 x 25/125)
45
To Pilferage A/c (Loading) 800
(4,000 x 25/125) By goods sent to Branch A/c 16,000
03
(loading) (80,000 x
3
To Stock Reserve A/c 4,800 88 25/125)
(Loading) 60,000
(24,000 x 25/125) By Branch Stock A/c
(9
74,400 (Apparent Profit)

S
To Chennai Branch Profit &

SE
Loss A/c (GP) (Bal. Fig.) 82,000 82,000

AS
CL
Dr. Chennai Branch Profit and Loss Account Cr.

A
To Pilferage A/c (At Cost) 3,200 By Chennai Branch 74,400

TI
(4000 – 800) Adjustment A/c (GP)

To Branch Expenses A/c 32,000
O
To Loss in Transit 2,000

AL
(see Working notes 1)

BH
To General Profit & Loss 35,200

A/c
74,400 74,400
Working Notes:
Dr. (1) Goods Lost-in-Transit Account Cr.
Particulars ₹ Particulars ₹
To Chennai Branch Stock A/c 10,000 By Chennai Branch Adjustment A/c 2,000
(loading)
By Bank A/c (claim received) 6,000
By Branch Profit & Loss A/c 2,000
10,000 10,000

5. Wholesale & retail Branch [B.com 2007 Honours]*

A head office invoices goods at 20% less then the list price. Goods are sold to customers at cost plus 100%.
From the following particulars, ascertain the profit made at the head office and the branch on the wholesale
basis for the year ended 31-12-2021.
H.O (₹ ) Branch (₹ )
Opening stock 72,000 57,600
Purchases 3,60,000 -----
Sales 3,06,000 1,44,000
Goods sent to branch at cost price 1,12,500 -----
Goods received from H.O at invoice price ---- 1,72,800
Salaries 20,000 12,400
Rent and rates 5,200 2,000
Stock at head office are valued at cost price but those of branch are valued at invoice price. Assume the
9)
Head office sells goods to customers at list price.
6
45
Solutions:
Books of D & Co. Ltd
03
Dr. Trading and Profit & Loss Account for the year ended 31/12/2021 Cr.
3
Particulars H.O Branch
88
Particulars H.O. Branch
Rs. Rs. Rs. Rs.
(9
To opening Stock A/c 72,000 57,600 By Sales A/c 3,06,000 1,44,000

S
SE
To Purchases A/c 3,60,000 --- By Goods Sent to 1,80,000 ---

Branch A/c
AS
To Goods Sent to
Branch A/c --- 1,80,000 By Closing Stock A/c 1,66,500 1,22,400
CL
To Gross Profit c/d 2,20,500 28,800 [See Note 2 & Note 3]

A
(Balancing Figure)
TI
6,52,500 2,66,400 6,52,500 2,66,400

O
To Salaries A/c 20,000 12,400

AL
To Rent and Rates A/c 5,200 2,000 By Gross Profit b/d 2,20,500 28,800
BH
To Provision on Stock 21,600 ---

A/c [Note 4] 1,73,700 14,400
To Net Profit (Bal.
Fig.)
2,20,500 28,800 2,20,500 28,800
Working Notes:
1. If cost price is Rs. 100, selling price or list price = Rs. 200
Invoice price = Rs. 200 – 20% of Rs. 200 = Rs. 160.
1
Loading included in List Price = 100/200 or
2
Loading on Invoice Price = 60/160 on I.P. and Cost Price =100/160 of I.P.

2. Calculation of closing stocks
(A) Head office stocks at C.P
Rs.
Opening Stock (Cost) 72,000
Add: Purchases 3,60,000
4,32,000
Less: Cost Price of Goods Sold [ 100/200 of 3,06,000] 1,53,000
2,79,000
Less: Cost Price of Goods Sent 1,12,500
H.O. Stock (closing) 1,66,500
(B) Branch Stock at (I.P.)
9)
Rs.
6
Opening Branch Stock (I.P.) 57,600
45
Add: I.P. of Goods Received 1,72,800
03
2,30,400
3
Less: I.P. of Sales made by branch [100/160 of 1,44,000] 1,15,200
88
Closing Branch Stock at I.P. (Physical) 1,15,200
(9
S
3. Goods in Transit
SE
Rs.
AS
I.P. of Goods Sent to Branch [1,12,500 x

60
] 1,80,000
100
CL
1,72,800
Less: I.P. of Goods received by Branch Goods in transit (I.P.)
7,200
A
Goods in Transit (I.P)

TI
Total Closing Branch Stock = 1,15,200 + 7,200 = Rs. 1,22,400

O
AL
4. Provision on Branch Stock

BH
Rs.
(A) Provision on Closing Branch Stock [60/160 x Rs. 1,15,200] 43,200
(B) Provision on opening Branch Stock [60/160 x Rs. 57,600] 21,600
Further provision to be be made 21,600

6. Branch Debtors Method [Compiled by Ravi Bhalotia]*

BS Ltd. of Kolkata has a branch at Asansol. The branch does not maintain account books and all
the collections at branch are remitted to head office. The head office reimburses the expenses of
the branch. From the following information prepare the branch account in the books of BS Ltd:
₹
Goods sent to branch 1,30,000
Goods returned to head office 5,000
Sales at branch 1,60,000
Cash remitted by the branch 1,52,000
Cash remitted to branch for reimbursement of expenses
Salaries 10,000
Rent 5,000
Electricity 2,000
Other expenses 3,000
Other particulars: 1.1.21 31.12.21
9)
₹ ₹
6
Stock 8,000 9,000
45
Debtors 12,000 20,000
Cash 1,500 1,500
03
[Answer: Branch Profit: ₹ 16,000]
3
88
7. Branch Debtors Method [Compiled by Ravi Bhalotia]*
(9
Joy & Co. Ltd, Kolkata has a branch at Guwahati for sale of its goods. For the year ending 31st
March, 2021 the following particulars are furnished:
S
SE
₹
Goods sent to branch 1,42,000
AS
Goods returned by branch 4,000

CL
Cash sales 79,000

Credit sales 2,02,000
A
Cash received from debtors 1,89,500

TI
Branch expenses paid by the head office:

O
Rent 10,000
AL
Salaries 30,000
Cash sent by head office to branch for petty cash 5,000
BH
st st
Other particulars: 1 April 2020 31 March 2021
₹ ₹
Petty cash at branch 100 150
Debtors 23,500 ?
Branch stock 44,500 27,000
All cash collections are remitted to the head office.
Show the Guwahati branch account in the head office books.
[Answer: Branch Profit: ₹ 80,550; Gross Profit as per trading Account ₹ 1,25,500]

8. Branch Debtors Method; [B.COM Honours 1982]*

From the following details regarding West Coast Branch of Bombay Trading Co., prepare a branch account
and a branch debtor’s account in respect of the year 2021:
₹
Stock on 1st January, 2021 12,000
Stock on 31st December, 2021 9,600
Debtors on 1st January, 2021 10,000
Debtors on 31st December, 2021 11,500
Goods sent to branch during 2021 42,000
Cash sales 25,800
Credit sales 36,000
Returns to head office 4,800
Bad debts 600
9)
Discount allowed to customers 310
Returns from customers 3,000
6
45
Expenses paid by head office:
Salaries and wages 8,400
03
Rent (from 1.1.21 to 31.3.22) 5,250
3
Sundry expenses 3,600
88
Normal loss of goods due to wastage 800
(9
Abnormal loss of goods due to pilferage 2,200
[Branch Profit ₹ 2,090; Collection from debtors ₹ 30,590]
S
SE
9. Branch Debtors Method; [B.com 2014 Honours] [Goods sent at IP]

AS
Sawan & Co. Of Mumbai has a branch at Siliguri. Goods are invoiced to the branch at cost - plus 25%. The
CL
branch is instructed to deposit everyday in the H.O. Account with the bank. All the expenses are paid
through cheques by the Head Office except petty cash expenses which are paid by the branch. From the
A
following information, prepare Siliguri Branch Account in the books of Head Office: -
TI
₹
O
Stock on 1.4.2020 (invoice price) 82,000

AL
Stock on 31.3.2021 (invoice price) 96,000

BH
Sundry Debtors on 1.4.2020 31,700

Sundry Debtors on 31.3.2021 42,150
Furniture and Fixture as on 1.4.2020 23,400
Cash sales 4,01,300
Goods sent to branch by Head Office (invoice price) 6,28,000
Expenses paid by Head Office 1,32,000
Petty expenses paid by branch 10,450
Furniture acquired by the branch on 1.10.2020 2,500
(on permission from head office)
Depreciation to be provided on Furniture and Fixtures @10% p.a. on WDV basis.
[Branch Profit ₹ 1,37,285]

10. Branch Debtors Method; [B.com 2015 Hons] [Goods sent at IP]
Akash Ltd. sends goods to its Malda Branch at an invoice price so as to show 20% profit on such invoice
price. Branch sales are partly in cash and partly on credit. Form the following details prepare Branch
Account in the books of the Head Office:
₹
Opening stock at Branch at invoice price 4,000
Closing stock at Branch at invoice price 4,250
Goods sent to Branch (cost price) 2,40,000
Goods returned to Head office (invoice price) 20,000
Cash sales 55,000
Credit sales 3, 40,000
Return from customer 7,000
9)
Discount allowed to customers 10,000
6
Bad debts 1,000
45
03
Opening balance of sundry debtors 50,000
Closing balance of sundry debtors 46,000
3
Sundry branch expenses
88 75,000
[Branch Profit ₹ 77,200]
(9
S
11. Branch Debtors Method; [B.com 2018 3sem Hons] [Goods sent at IP]
SE
Tree Ltd. has a branch at Munnar to which it sends goods at a price which is 160% of cost price. All cash
AS
received are deposited by the branch to the head office bank account on the same day and all expenses
CL
of branch are paid by the head office directly except petty expenses which are paid by the branch out of
cash sent by the head office for this purpose. From the following particulars, prepare the Munnar Branch
A
A/c in the books of head office showing Profit or Loss on branch –

TI
O
₹ ₹
AL
Stock at I.P. (1.4.20) 48,000 Abnormal loss of goods (at IP) 8,000
Debtors (1.4.20) 40,000 Insurance claim received against 4,600
BH
abnormal loss
Petty Cash (1.4.20) 2,800 Return Inward (out of credit 6,500
sales)
Goods sent by H.O. (at cost) 3,25,000 Bad debt 3,000
Sales by branch (of which 1/3rd 6,00,000 Expenses paid by the head office 44,400
are in cash)
Normal loss (at cost) of goods 2,000 Petty expenses paid by the 9,900
branch
Cash sent by head office for 9,000 Debtors (31.3.21) 92,000
petty expenses
Stock at I.P. (31.3.21) 70,400

12. Branch stock & Debtors Method [B.com 2018 Honours 3rd sem]****
Finex Pvt. Limited of Kolkata has a branch at Delhi. Goods are sent by the Head Office (H.O) to the Branch
at selling price which is cost plus 25%. All expenses of the branch are paid by HO. All cash collected by
the branch (from customers and from cash sales) is deposited to H.O. account with the bank. From the
following particulars, prepare Branch Stock Account, Branch Adjustment Account, Branch Debtors
Account and Branch Profit & Loss Account in the books of Head Office.
₹
Stock on 01.04.2020 (at I.P) 80,000
Stock on 31.03.2021 (at I.P) 1,00,000
Debtors on 01.04.2020 60,000
Debtors on 31.03.20 ?
Cash Sales during the year 3,00,000
9)
Credit Sales during the year 7,50,000
6
45
Total amount deposited in the H.O during the year 9,80,000
Goods returned by Branch to H.O. (at I.P) 20,000
03
Expenses Paid 56,000
Discount allowed to customers
3 13,000
88
Bad debts written off 7,000
(9
Spoilage (abnormal) at I.P 10,000

S
Goods sent to Branch (at I.P) ?

SE
AS
13. Branch stock & Debtors Method [B.com 2018 pass 3rd sem]****
CL
Mis. Ananda Electricals has a branch at Patna. Goods are invoiced to the branch at cost plus 50% Branch remits
all cash receipts to the head office and all expenses are paid by the head office. From the following particulars,
A
prepare Branch Stock Account and Branch Stock Adjustment Account in th books of head office.
TI
O
Particulars ₹
AL
Stock on 01.01.2021 (Invoice Price) 37,200

BH
Debtors on 01.01.2021 27,200

Goods invoiced to Branch (cost price) 1,36,000
Cash Sales 10,040
Credit Sales 1,24,000
Cash received from Debtors 1,21,600
Goods returned by Debtors 4,800
Goods returned to Head Office 6,000
Expenses at Branch 21,600
Stock on 31.12.2021 (Invoice Price) 1,01,160

14. Branch stock & Debtors Method [B.com 2019 Honours 3rd sem]****
SKG & Co. of Delhi has a branch at Kolkata. All purchases are made by the head office and goods are sent to
branch at selling price which is 20% above cost. All sales by the branch are on credit terms. Branch expenses
are paid by the head office and all cash received by the branch is remitted to the head office. All branch
transactions are recorded in the head office books.
From the following particulars, prepare Branch Stock Account, Branch Debtors Account, Branch Adjustment
Account, Branch Profit and Loss account and Shortage Account in the books of head office.
Balance as on Balance as on
01.01.2021 31.12.2021
(₹) (₹)
Branch Stock Account (at Invoice Price) 36,000 48,180
Branch Debtors Account 25,750 10,000
9)
Transactions during the year from 01.01.2021 to 31.12.2021:
6
₹
45
Goods sent to branch at invoice price 3,24,600
03
Goods returned by branch to head office at invoice price 6,420
3
Cash received from debtors 88 3,10,000
Discount allowed to debtors 5,750
(9
Branch Expenses paid by head office 30,000
Normal loss of goods at branch (at invoice price) 1,200
S
SE
AS
15. Branch Stock & debtors Method: [B.com Honours Old 2009 type]****
Madras Ltd. invoices goods to its branch at cost plus 33 1/3 %. From the following particulars prepare the
CL
Branch Stock Account and the Branch Stock Adjustment Account as they would appear in the books of the
A
Head Office:
TI
₹
O
Stock at commencement at Branch at invoice price 1,50,000

AL
Stock at close at Branch at invoice price 1,20,000

BH
Goods sent to Branch during the year at invoice price 10,00,000

(included goods invoiced at ₹ 20,000 to the branch but not received by the branch before
the close of the year)
Return of goods to the Head Office (invoice price) 50,000
Cash Sales at Branch 9,00,000
Invoice value of goods pilfered 10,000
Credit Sales at Selling Price (above invoice price) 50,000
Normal Loss at Branch due to wastage and deterioration of stock (at invoice price) 15,000
Madras Ltd. closed its books on 31.3.21
[Apparent gross profit ₹ 15,000, Gross profit ₹ 2,37,500]

16. Branch Stock & debtors Method: [B.com Honours Old 2017]****
Dark Ltd. with its head office at Delhi invoiced goods to its branch at Jaipur at cost plus 331/3. From the
following information, prepare branch stock Adjustment Account in the books of the Head office.
₹
Stock at Branch at invoice price on 1-4-2020 2,00,000
Stock at Branch at invoice price on 31-3-2021 1,17,000
Goods received by branch during the year at cost price 8,25,000
Goods in transit at invoice price on 31-3-2021 1,00,000
Goods returned by branch to Head office at invoice price 40,000
Cash sales at Branch 10,00,000
Invoice price of goods pilfered 10,000
9)
Stock lost due to wastage 20,000
6
45
17. Branch stock & Debtors Method [B.com 2014 Honours, 2016 type]****
03
Sun Ltd. has a head office in Kolkata and also a branch in New Delhi. Goods are invoiced to the Branch at
3
cost plus 33 1/3 % which is the selling price. From the following information in respect of the Branch for
88
the year ended 31st December, 2021, prepare Branch Stock Account, Branch Debtors Account and Branch
(9
Adjustment Account:
₹
S
SE
Stock at Branch on 1.1.2021 (Invoice price) 20,000

Branch Debtor on 1.1.2021 30,000
AS
Goods sent to Branch (Cost price) 3,60,000

CL
Goods received by Branch (Invoice price) 4,70,000

Cash sales 1,80,000
A
Return from Debtors 10,000

TI
O
Discount allowed 1,500

AL
Bad debt 1,000

Collection from Debtors 2,75,000
BH
Cheques received from Debtors but dishonoured 10,000

Branch expenses 49,000
Stock at Branch on 31.12.2021 48,000
Branch Debtors on 31.12.2021 36,000

A company has its Head Office at Kolkata and a retail branch at Patna. Goods are sold at 60% profit on
cost. The wholesale price is cost plus 40%. Goods are invoiced from Kolkata Head Office to Patna Branch
at wholesale price. From the following particulars, prepare Trading and Profit and Loss Account of both
Head Office and Branch for the year ended on 31st December, 2021:

Head Office (₹ ) Patna Branch (₹ )

Opening stock 1, 25,000 14,000
Purchases 10, 50,000 -
Goods sent to branch(at IP) 3,78,000 -
Sales 10,71,000 4,16,000
Closing stock 3,00,000 ?
Salaries 20,000 12,000
Other expenses 5,000 2,000
Stocks at head office are valued at cost price but those of Branch are valued at Invoice price. Sales at Head
Office are made only on wholesale basis and that at branch only to retail customers.
19. Wholesale & retail Branch [B.com 2019 3sem Honours]*

Lokesh & Co., with their H.O. at Kolkata, invoiced goods to their Mumbai Branch at I.P. which is the
9)
wholesale price. The I.P. is cost plus 40%. The branch is required to sell the goods at 125% of IP; the head
6
office, however, sells goods at wholesale price to its customers in Kolkata. From the following particulars
45
ascertain the profit earned by the H.O. and Branch preparing a columnar Trading and Profit & Loss
03
Account:
3
88 Calcutta Mumbai
(₹) (₹)
(9
Purchases 3,00,000 --
S
SE
Goods sent to Branch (at cost) 80,000 --

AS
Goods received from H.O. (I.P) -- 1,33,000

Sales 2,80,000 1,57,500
CL
Trade Expenses 18,000 11,000

Selling expenses 10,000 6,000
A
TI
Stock at H.O. are valued at cost price but those of branch are valued at I.P.
O
AL

BH
Janata Ltd. has a retail branch at Kanpur. Goods are sold to customers at cost plus 100%. The wholesale
price is cost plus 80%. Goods are invoiced to Kanpur at wholesale price. From the following particulars,
find out the profit made by the Head Office and Kanpur Branch for the year ended 31st March, 2021:
H.O. Kanpur Branch
Opening Stock 50,000 -
Purchases 3,00,000 -
Goods sent to branch (at invoice price) 1,08,000 -
Sales 3,06,000 1,00,000
Expenses 90,000 4,000
Sales at Head Office are made only on wholesale basis and sales at Branch are made only to customers.
Stock at Branch is valued at invoice price.
[Branch Profit ₹ 6,000; Head office Profit ₹ 86,000]

21. Independent Branch [B.com 2006 Honours]****

As an accountant of Head Office how you will record the following items while dealing with the accounts
of 'Independent' branches:
(i) Expenses incurred by Head Office on behalf of Branch.
(ii) Depreciation on Branch's Fixed Assets.
(iii) Goods sent by Head Office to Branch remain in transit up to the last day of the accounting year.
(iv) Inter-branch transfers of goods.
22. Independent Branch [B.com 2012 Honours]****

MTS Ltd. has a branch which closes its books of accounts every year on 31st March. This is an independent
branch which maintains comprehensive books of accounts for recording their transactions.
You are required to show journal entries in the books of both the Branch and the Head Office for 31st
March, 2021 to rectify or adjust the following:
9)
(a) Branch paid ₹ 1,00,000 as salary to an official from Head Office on visit to Branch and debited the
6
45
amount to its Salaries Account.
(b) Head office collected ₹ 35,000 directly from a Branch customer on behalf of the Branch, but no
03
intimation was received earlier by the Branch. Now the branch learns about it.
3
(c) Goods (cost ₹ 1,000) purchased by branch, but payment made by the Head Office. The Head Office
88
has debited the amount to its own Purchase Account.
(9
(d) It is learnt that a remittance of ₹ 2,50,000 sent by the branch has not been received by Head Office till
date.
S
SE
(e) Goods sent by the Head Office to the branch of ₹ 40,000 but not yet received by the Branch.
AS
(f) Charge depreciation @ 20% on the Branch assets of ₹ 40,000 whose accounts are kept in Head Office
CL
Books.
(g) Expenses ₹ 3,000 to be charged to Branch for work done on its behalf by the Head Office.
A
TI
O
AL
BH

Chapter 4: Profit & Loss Prior to

incorporation:
1st January 2021= Date of acquisition
st
1 April 2021 = Date of Incorporation/Convert into company
st
31 December 2021 = Year end
So, Pre – incorporation period = (January to March) = 3 months
Post – incorporation period = (April to December) = 9 months
Therefore, Time Ratio = 3:9 = 1:3
Sale of Pre-Incorporation Period: Sale of Post-Incorporation Period = Sales Ratio
9)
Allocate gross profit and expenses (indirect) between pre-and post-incorporation period on the basis of the
6
following principles:
45
a. Gross profit is allocated in the ratio of Net sales of each period.
b. Fixed portion of an allocated on the basis of time.
03
c. Expenses related to sales, e.g., traveller’s commission, discount allowed; advertisement; salaries of
3
salesman; carriage outward; after-sales service cost, etc. are allocated on the basis of Net sales.
88
d. Expenses relates to time e.g., rent, rates and taxes; insurance; depreciation, salaries of general staff
(9
etc. are allocated on the basis of time.
e. Discount Received on the basis of Net Purchases
S
f. Interest on Purchase Consideration (i.e. Interest to vendor) on the basis of Time upto date of
SE
payment of Purchase Consideration (i.e. Issue of Shares & Debentures to Vendor)

AS
g. Expenses which are exclusively related to pre or post-incorporation period must be charged entirely
to that period’s profit. Some examples are:
CL
(i) Preliminary expenses, director’s fees, debenture interest, etc are to be charged against
A
post- incorporation profit.

TI
(ii) Partner’s salaries, interest on partners’ capital, etc are to be charged against the profit of
O
pre- incorporation period.

AL
List of expenses & GP allocated in ratio of sales List of expenses allocated on basis of time
BH
1. Gross profit 1. Rent, Rates and Taxes

2. Bad debts 2. Depreciation
3. Discount allowed 3. Salaries of General Staff
4. Carriage outwards 4. Insurance
5. Selling expenses 5. Interest on Purchase Consideration
6. Salesmen’s commission 6. Audit Fees
7. Advertisement expenses 7. General Expenses
8. Sales promotion expenses 8. Printing and Stationery
9. Travelling Expenses 9. Office Expenses

1. Write a note on profit prior to incorporation. How is profit prior to

incorporation treated in accounts?
It may happen in case of new companies that a running business is taken over from a certain date, whereas
the company may be incorporated at a later date. The company would be entitled to all profits earned after
the date of purchase of business unless the agreement with the vendors provides otherwise.
But profits upto the date of incorporation of the company have to be treated as capital profits because these
are the profits which have been earned even before the company came into existence. Such profits are
known as profits prior to incorporation. Strictly speaking, “Profit Prior to Incorporation” means only the
profits earned up to the date of incorporation.
Accounting treatment:
Thus, any profit/loss made before the incorporation is known as “Profit (Loss) Prior to Incorporation” which
is treated as a capital profit and the same cannot be distributed as business profit. Hence, it cannot be
distributed by way of dividend.
9)
The same is to be transferred to Capital Reserve or may be adjusted against Goodwill. “Loss prior to
6
incorporation” is treated as a capital loss and, hence, the same will be adjusted against existing capital
45
reserve & unadjusted amount will be shown under the head “other non-current Assets” in the assets side of
03
the Balance Sheet.
3
88
2. Profit or loss prior to incorporation [Compiled]****
(9
Pawan Ltd. was incorporated on 1st March, 2021 and received its certificate of commencement of business
S
on 1st April, 2021. The company bought the business of Pramod Ltd. with effect from 1st November, 2020.
SE
From the following figures relating to the year ending October, 2021, find out the profit available for
AS
dividends :
(i) Sales for the year were ₹ 3,00,000 out of which sales upto 1st March were ₹ 1,25,000.
CL
(ii) Gross profit for the year was ₹ 90,000.

A
(iii) Expenses debited to the profit and loss account were :

TI
₹
O
Rent 4,500
AL
Salaries 7,500
Directors' fees 2,400
BH
Interest on debentures 2,500

Audit fees 750
Discount on sales 1,800
Depreciation 12,000
General expenses 2,400
Advertising 9,000
Stationery and printing 1,800
Commission oh sales 3,000
Bad debts 750
Interest to vendor on purchase consideration upto 1.5.21 1,500
Note : ₹ 250 of the bad debts relate to debts created prior to incorporation.
Solution:
Pawan Ltd.
Statement showing Apportionment of profit between Pre- and Post-Incorporation Period
Particulars Basis Total Pre- Post-
(₹) incorporation Incorporation
(4 months) (8 months)
Gross Profit (A) Sales 90,000 37,500 52,500
Expenses (B)
Rent Time 4,500 1,500 3,000
Salaries Time 7,500 2,500 5,000
Director’s fees Direct 2,400 - 2,400
Interest on Debentures Direct 2,500 - 2,500
Audit fees Time 750 250 500
9)
Discount on sales Sales 1,800 750 1,050
6
Depreciation Time 12,000 4,000 8,000
45
General Expenses Time 2,400 800 1,600
03
Advertising Sales 9,000 3,750 5,250
3
Stationery & Printing Time 88 1,800 600 1,200
Commission on Sales Sales 3,000 1,250 1,750
(9
Bad Debts Direct 750 250 500
Interest to Vendors Time 1,500 1,000 500
S
SE
49,900 16,650 33,250

40,100 20,850 19,250
AS
Net Profit (A – B) (capital (Revenue

CL
Profit) Profit)
*Profit available for dividend.
A
Working Notes:
TI
(2) Total Sales for the year were ₹ 3, 00,000. Sales from 1st November, 2020 to 28th February, 2021 =
O
₹ 1, 25,000. Therefore, sales from 1st March, 2021 to 31st October, 2021 = ₹ 3,00,000 – ₹ 1, 25,000
AL
= ₹ 1,75,000. Ratio of Sales = 1,25,000: 1,75,000 = 5:7

BH
(3) Director’s fees are paid in case of company only. These must naturally be shown in the post-
incorporation period.
(4) Debenture interest is paid in case of company only. This must naturally be shown in post-
incorporation period.
(5) Total Interest paid for 6 months. Out of which 4 months falling in pre-incorporation period and 2
falling in post-incorporation period. Therefore, it is to be apportioned in the ratio of 4:2 or 2:1.

3. Profit or loss prior to incorporation [Compiled]**

The promoters of proposed New Wave Ltd. purchased a running business on 1st January, 2021 & was
incorporated on 1st May, 2021. The combined Profit and Loss Account of the company is as under:
Profit & Loss Account for the year ended on 31.12.2021
₹ ₹
To Rent, rates, insurance, electricity & salaries 12,000 By Gross Profit 1,50,000
To Directors' sitting fees 3,600 By Discount Received 6,000
To Preliminary expenses 4,900
To Carriage outwards and selling expenses 5,500
To Interest paid to Vendors 10,000
To Profit 1,20,000
1,56,000 1,56,000
Following further information is available:
9)
(a) Sales up to 30.4.2021 were Rs 3,00,000 out of total sales of Rs 15,00,000 of the year.
6
(b) Purchases up to 30.4.2021 were Rs 300,000 out of total purchases of Rs 9,00,000 of the year.
45
(c) Interest paid to Vendors on 1.11.2021 @ 12% p.a on Rs 1,00,000 being purchase consideration.
03
From the above information, prepare Profit and Loss Account for the year ended 31st December, 2021,
showing the profit earned prior to and after incorporation
3
88
4. Profit or loss prior to incorporation [B.com 2006]
(9
Star Pvt. Ltd. was incorporated on 1st March, 2021 to acquire a running business with effect from 1st
S
SE
January, 2021. The purchase consideration was agreed at ₹ 90,000 to be satisfied by issue of 3,000 Equity
Shares of ₹ 10 each fully paid and ₹ 60,000, 8% Debentures.
AS
The following Profit & Loss Account for the year ended 31st December, 2021 is presented to you:
CL
₹ ₹
Staff Salary 12,000 By Gross profit 80,000
A
Selling & Distribution Expenses 6,000

TI
O
Rent and Rates 4,200

AL
Debenture Interest 3,600

Bad Debt (there was no cash Sales] 1,000
BH
Preliminary expenses 25,000

Interest on Purchase consideration 2,250
Balance 25,950
80,000 80,000
(a) Sales for the year was ₹ 4,00,000, whereas sales incurred by the Company after incorporation was ₹
3,00,000.
(b) The shares and 8 % Debentures were issued to the Vendor on 1st April 2021.
(c) Interest at 10 % p.a. was paid on the Purchase consideration from 1st January, 2021 to the date of
payment.
Prepare a statement showing the amount of profit made before and after incorporation.
[Profit of Pre incorporation period ₹ 14,050, Post incorporation period 11,900]
5. Profit or loss prior to incorporation [3sem 2019 pass]****

A company was incorporated on 1st August, 2020 to take over a business from 1st April, 2020. The Profit and
Loss Account of the business for the year ended on 31st March 2021 is given here under:
To opening Stock 3,50,000 By Sales 30,00,000
To Purchases 22,75,000 By Closing Stock 3,75,000
To Gross Profit c/d 7,50,000
33,75,000 33,75,000
To Rent and Rates 45,000 By Gross Profit b/d 7,50,000
To Directors Fees 50,000
To salaries 1,27,500
To Office Expenses 1,20,000
9)
To Traveller’s Commission 30,000
6
To Discount 37,500
45
To Bad Debts 7,500
03
To Audit fees 21,250
3
To Depreciation 15,000 88
To Debenture Interest 11,250
(9
To Net Profit 2,85,000
S
7,50,000 7,50,000
SE
It is ascertained that the sales for each of February and March 2021 are one and half time the average monthly
sales of the year, and sales for each of May 2020 July 2020 are only half the average monthly sale of the year.
AS
Apportion the year’s profit between the pre-incorporation and the post-incorporation period.
CL
6. Profit & Loss Prior to incorporation [B.com 2007]***

A
Roy & Roy Pvt. Ltd was formed by taking over the existing business of Roy Bros, on 1st April, 2020. But
TI
the company was incorporated on 1st July, 2020. No entries were made relating to the transfer till 31.03.21.
O
On that day, the balances were there : Gross Profit—₹ 90,000; Carriage outwards — ₹ 3,300; Travellers'
AL
Commission—₹ 7,500; Office salaries—₹ 21,000; Administrative Expenses—₹ 19,900; Rent & Rates ₹
BH
12,000; Directors Fees—₹ 18,000; Preliminary Expenses ₹ 5,200; Depreciation on fixed assets — ₹
25,000; Other Information :
(a) Closing Stock — ₹ 44,000.
(b) The gross profit ratio is constant and monthly sales in April-2020, February 2021 and March 2021 are
double the average monthly sales for remaining months of the year.
(c) The preliminary expenses arc to be written-off.
You are required to prepare Profit & Loss Account for the year ended 31st March, 2021, appropriating the
profit or loss of the periods before and after incorporation.
[Profit of Pre incorporation. period ₹ 1,645, Post incorporation period Loss ₹ 23,545, sales Ratio: 4
: 11]

7. Profit & Loss Prior to incorporation [B.com 2009,2016]*

From the following information, calculate the ratio of sales between pre-Incorporation Period and Post
Incorporation Period in each case separately.
(a) (i) Date of Acquisition - 1.4.2020; Date of incorporation - 1.7.2020 and date of closing the books of
account - 31st March, every year.
(ii) The sales for the year ending on 31st March, 2021 were ₹ 24,00,000 of which ₹ 4,80,000 were
sold during first six months of the accounting period.
(b) (i) The accounts were made upto 31.12.20. The company was incorporated on 01.05.20 to take over
a business from the preceding 1st January.
(ii) Total sales for the year were ₹ 12,00,000. It is ascertained that the sales for Nov and Dec. are one
and half times the average of those for the year, while those for Feb and April are only half of the
average.
(c) (i) X Ltd. was incorporated on 01.07.20 to take the existing business or 01.04.20. Date of closing the
9)
books of account - 31.03.21.
6
(ii) Monthly sales in April, 2020, Feb. 2021 March-2021 ae double the average monthly sales for
45
remaining months of the year.
03
(d) (i) S. Ltd. was incorporated on 1st Aug. 2020 to take over the running business of Dhar Bros, with
3
effect from 01.04.20, The Company received the certificate of commencement of business on
88
01.10.20.
(9
(ii) Total sales for the year 2020-21 was ₹ 16,00,000 arose evenly upon the date of certificate of
commencement, thereafter they recorded an increase of 2/3rd during the remaining period.
S
SE
[Ans. (a) Ratio of Sales 1 : 9 (b) Ratio of Sales 1 : 3, (c) Ratio of Sales 4 : 11, (d) Ratio of Sales 1:3]
AS
8. Profit & Loss Prior to incorporation [B.com 2020 honours]*

CL
Caltex Limited was incorporated on 01.07.2020 to acquire a running business with effect from 01.04.2020.
The accounts for the year ended 31st March, 2021 disclosed the following :
A
(a) Gross profit for the year 2020-21 was ₹ 4,00,000.

TI
(b) The sales for the year 2020-21 amounted to ₹ 12,00,000 of which ₹ 2,40,000 was for the first six
O
months.
AL
(c) The expenses debited to Profit and Loss account included :

BH
(i) Director’s fees ₹ 18,000

(ii) Bad Debts ₹ 5,000
(iii) Advertising ₹ 15,000 [@ ₹ 1,000 per month for first six months, thereafter @ ₹ 1,500 per
month].
(iv) Salaries and General expenses ₹ 72,000
(v) Debenture interest ₹ 13,500
Prepare a statement showing pre-incorporation and post-ioncorporation profit for the year ended 31st
March, 2021.

9. Profit or loss prior to incorporation [B.com 2014 Honours]

C. Ltd. Was incorporated on 1.8.20 to take over the business of K with effect from 1.4.20; certificate of
commencement was however, received on 1.10.20. Given below is the Profit & Loss A/c for the year ended
31.3.21:
₹ ₹
Office salaries 21,000 Gross Profit 1,20,000
Office rent 9,600 Share transfer fees 1,000
Auditors charges 600
Directors charges 1,000
Administrative expenses 18,000
Commission on sales 4,000
Preliminary expenses 700
Debenture interest 1,600
9)
Interest on capital 1,800
6
Depreciation 2,100
45
Net profit 60,600
03
1,21,000 1,21,000
3
Additional Information:
88
(a) Sales for the year arose evenly upto the date of certificate of commencement, thereafter they
(9
recorded an increase of 2/3. Rate of GP was at a uniform.
(b) Office rent was paid @ ₹ 8,400 p.a. upto 30.9.20 and thereafter @ ₹ 10,800 p.a.
S
SE
Show the pre and post incorporation results.

[Pre-incorporation profit ₹ 10,500; post-incorporation profit ₹ 50,100]
AS
10. Profit & Loss Prior to incorporation [B.com 2019 Honours]*

CL
Kiran Limited was incorporated on August 1, 2020. It had acquired a running business of Kirana & Co. with
A
effect from April 1, 2020.

TI
During the year 2020-21, the total sales were ₹ 45,00,000 and gross profit was ₹ 6,75,000. The sales per
O
month in the first six months of 2020-21 were half of what they were in the next six months of the year.
AL
Net profit of the company to be worked out after charging the following expenses:
BH
(i) Depreciation ₹ 1,44,000

(ii) Office Salaries ₹ 24,000
(iii) Director’s fees ₹ 50,000
(iv) Preliminary Expenses ₹ 18,000
(v) Office Expenses ₹ 84,000
(vi) Selling Expenses ₹ 63,000
(vii) Interest to Vendor upto September 30, 2020 ₹ 6,000
Prepare a statement showing pre-incorporation and post incorporation profit for the year ended 31st March,
2021.

Chapter 5: Conversion into Company

For New Company we have to prepare:
a. Journal
b. Balance Sheet
For Old Firm we have to prepare:

a. Journal
b. Ledger
Working Notes:
a. Purchase Consideration: - Payment to Partners of old firm (Mode of payment in shares, cash etc.)
In Equity Shares = _________ (issue Price)
In Preference Shares = _________ (issue Price)
9)
In Debentures = _________ (issue Price)
6
In Cash = _________
45
03
b. Net Assets Taken Over (NATO): -
Sundry Assets taken over [Excluding Goodwill, Preliminary expenses, P/L (Dr. Bal.)] _________
3
88
Less: Sundry Liabilities (Excluding Capital, Reserves, Liabilities not taken over) _________
(9
c. Goodwill OR Capital Reserve
If Purchase Consideration > NATO then Goodwill = Purchase Consideration – NATO
S
SE
If Purchase Consideration < NATO then Capital Reserve = NATO – Purchase Consideration
AS
If Purchase Consideration is not given then Purchase Consideration = NATO (including G/Will)
CL
In the books of New Company:

Journal Entry
A
a. Sundry Assets A/c ………………………………………………….Dr.

TI
Goodwill A/c …………………………………………………………Dr.

O
To Sundry Liabilities A/c

AL
To Capital Reserve A/c

BH
To Old firm A/c

(Being Sundry Assets & Liabilities of old companay were taken over)
(Only Assets & Liabilities taken over) (At Taken over Value)
b. Old firm A/c …………………………………………………………Dr.

Discount on issue of share/Debentures……………….Dr.
To Equity Share Capital A/c
To Preference Share Capital A/c
To Debenture A/c
To Security Premium A/c
To Bank/Cash A/c
(Being payment made to old firm)
c. Goodwill A/c ---------------------Dr.

To Bank A/c
(Being Realisation expenses/cost of absorption of old firm paid by new company)
d. Preliminary Expenses A/c ---------------Dr.

To Bank A/c
(Formation Expenses of new company paid by new company)
FORMAT OF BALANCE SHEET

Name of the company .................
Balance Sheet as at ......................
Figures in ₹ Lakhs
Particular Note No. Figures as at the Figures as at the
9)
end of current end of previous
6
reporting period reporting period
45
I EQUITY AND LIABILITIES
03
(1) Shareholders’ Funds
3
(a) Share Capital
88
(b) Reserve and Surplus
(9
(2) Share Application Money Pending
Allotment
S
SE
(3) Non-Current Liabilities

AS
(a) Long term borrowings

(4) Current Liabilities
CL
(a) Short term borrowings

(b) Trade payable
A
TI
Total
O
II Assets
AL
1). Non-Current Assets

(a) Property, Plant & Equipment &
BH
Intangible Assets
(i) Property, Plant & Equipment
(ii)Intangible assets
(b) Non-current investment
(c) Other non-current Assets
2). Current Assets
(a) Inventories
(b) Trade receivable
(c) Cash and cash equivalent
Total

In the books of Old Firm:

Journal Entry
a. Sundry Assets to be closed [Except, Preliminary expenses, Cash & Bank (if not taken over)]
Realisation A/c -----------------Dr.
To Sundry Assets A/c (At Book Value)
(Being Sundry Assets transferred to Realisation A/c)
b. Sundry Liabilities to be closed [Except Capital & Reserves]

Sundry Liabilities A/c --------Dr.
To Realisation A/c
(Being Sundry liabilities transferred to Realisation A/c)
c. Assets Sold (if not taken over) (either recorded or unrecorded)
9)
Bank A/c ---------------------Dr.
6
To Realisation A/c
45
(Being Sundry Assets Sold)
03
d. Liabilities paid off (if not taken over)
3
Realisation A/c -------------Dr.
88
To Bank A/c
(9
(Being Sundry liabilities paid off)

S
SE
e. Realisation Expenses (or cost of absorption) paid by old firm

AS
Realisation A/c -------------Dr.

To Bank A/c
CL
(Being Realisation Expenses paid)

A
TI
f. Purchase Consideration due

O
New Company A/c ---------------Dr.

AL
To Realisation A/c
(Being Purchase Consideration due)
BH
g. P/L (Debit Balance), Preliminary expenses are to be closed

Partners’ capital A/c --------------Dr.
To Profit & Loss A/c
To Preliminary expenses A/c
(Being P/L (Debit Balance), Preliminary expenses transferred to Partners’ capital A/c)

h. Reserves A/c ---------------Dr.

P/L (credit) -----------------Dr.
To Partners’ capital A/c
(Being Reserves, Equity Share Capital A/c transferred to Partners’ capital A/c)
i. Realisation A/c --------------------Dr.

To Partners’ capital A/c
(Being Realisation Profit transferred to Partners’ capital A/c)
j. Partners’ capital A/c --------------------Dr.

To Realisation A/c
(Being Realisation Loss transferred to Partners’ capital A/c)
9)
k. Purchase Consideration received:
6
Equity Shares in new company A/c -----------------Dr.
45
Preference Shares in new company A/c -----------Dr.
03
Debentures in new company A/c -------------------Dr.
Bank A/c ---------------------------------------------------Dr.
3
To New Company A/c
88
(Being Purchase Consideration received)
(9
S
l. Distribution of Purchase Consideration to Partners :

SE
Partners’ capital A/c -------------------Dr.

AS
To Equity Shares in new company A/c

To Preference Shares in new company A/c
CL
To Debentures in new company A/c

A
To Bank A/c
TI
(Being distribution of Purchase Consideration to Partners)

O
AL
Note:
(a) If no information given the Shares, Debentures & Cash will be distributed among partners in their
BH
capital Ratio after all adjustments.
(b) If information has been given that shares , Debentures etc has been given in Profit sharing ratio or
equally then the balance amount of partner’s capital A/c will be paid or received by Cash.

1. Conversion of firm into company*

Somsons Ltd. agreed to purchase the business of a firm consisting of two brothers, K.Som and D.Som as on
31st March, 2021. The balance sheet of the firm on that date was as
Liabilities ₹ Assets ₹
Capital accounts : Land and building 47,000
K. Som 76,000 Plant and machinery 28,000
D. Som 58,000 Furniture and fixtures 7,000
General reserve 30,000 Stock-in-trade 62,000
Sundry creditors 37,000 Sundry debtors 55,000
Outstanding expenses 3,000 Cash 5,000
2,04,000 2,04,000
The company agreed to take over the liabilities and the assets with exception of cash, the agreed purchases
9)
price being ₹ 1, 80,000 to be satisfied as to 1/4 in cash and 3/4 by the issue of fully paid equity shares of ₹ 10
6
each at an agreed value of ₹ 12.50 per share. The company made the following revaluations of the asset taken
45
over when bringing them into books: Land and Building ₹ 62,000; Plant and Machinery ₹ 25,000; Furniture
03
and Fixtures ₹ 5,000; Stock-in-Trade ₹ 58,000; Sundry Debtor ₹ 50,000.
Give the entries necessary to record the acquisition of the business in the book of the company.
3
Solution
88
(9
In the books of the Somsons Ltd.
Journals
S
SE
Date Particulars Dr. (₹) Cr. (₹)

1.4.2021 Goodwill A/c (Note 1) Dr.
AS
Land and Building A/c Dr. 20,000

CL
Plant and Machinery A/c Dr. 62,000

25,000
Furniture and Fixtures A/c Dr.
A
Stock-in-trade A/c Dr. 5,000

TI
Sundry Debtors A/c Dr. 58,000

O
To Sundry Creditor A/c 50,000

AL
To Outstanding Expenses A/c 37,000

BH
To Business Purchase A/c 3,000

(Being different assets and liabilities of the firm taken over at 1,80,000
agreed Value)
Business Purchase Account Dr. 1,80,000
To Cash A/C 45,000
To Equity Share Capital A/C 1,08,000
To Securities Premium A/C 27,000
(Being the purchase consideration paid off by issuing
10,800 equity shares of ₹ 10 each at a premium of ₹ 2.50 as per
Board’s Resolution No….Dated…….

Working Note:
1. Calculation of Goodwill / Capital Reserve:
Asset Taken over (at agreed value) ₹
Land and Building 62,000
Plant and Machinery 25,000
Furniture and Fixtures 5,000
Stock-in-Trade 28,000
Sundry Debtors 50000
Total 2,00,000
Less, Liabilities Taken over (at agreed value)
Sundry Creditor (37,000)
Outstanding Expenses (3000)
(A) Net Asset Taken over 1,60,000
9)
(B) Purchase Consideration Paid 1,80,000
6
45
Goodwill (B-A) 20,000
03
2. Conversion of firm into company*
3
88
Nandita and Piyali were partners in a firm sharing profits and losses in the ratio of 3:2. The firm was
(9
following calendar year as its accounting year. The following is the Balance Sheet of the firm on 31st
December, 2021.
S
SE
Partner’s Capital: Goodwill 30,000

AS
Nandita 2, 40,000 Land and Buildings 1, 00,000

Piyali 2, 18,000 Plant and Machinery 2, 10,000
CL
Bills Payable 35,000 Furniture and Fittings 1, 00,000

Creditors for goods 25,000 Stock – in – trade 65,000
A
Creditors for Expenses 40,000 Debtors 25,000

TI
Cash and Bank Balance 28,000

O
5, 58,000 5, 58,000
AL
On 1st Jan, 2022 a new company, Parijat Ltd. Was formed to take over the business of the firm on the
following terms:
BH
(a) The company would not take over creditors for expenses to the extent of ₹ 17,000.
(b) Assets are to be valued as follows:
Goodwill ₹ 50,000; Land & Building ₹ 1,87,000; Plant & Machinery ₹ 50,000 above book value,
Furniture & Fittings to be depreciated by 10%; ₹ 5,000 of Debtors to be treated as bad debts and of the
balance 5% is to be treated as doubtful of recovery. Cash and Bank balance to be taken over by the
company except 17,000 left for payment to creditors for goods
(c) The purchase consideration is to be satisfied by issuing 20,000 equity shares of ₹ 10 each at a premium
of 20%, ₹ 1,50,000 by issuing 8% preference shares of ₹ 100 each at par and the balance in the form
of 6% debentures issued at 5% discount.
Pass necessary journal entries in the books of the company and prepare the Balance Sheet after acquisition.

Solution
In the books of Parijat Ltd.
Journal Entries
Debit Credit
Date Particulars LF Amount(₹) Amount(₹)
2019
Jan. 1 Goodwill A/c…………………………………………………..Dr. 50,000
Land and Building A/c………………………………………...Dr 1,87,000
Plant & Machinery A/c . ……………………………………...Dr 2,60,000
Furniture and Fittings A/c…………………………………......Dr 90,000
Stock A/c …………………………………..............................Dr 65,000
Debtors A/c…………………………………............................Dr 20,000
Bank A/c…………………………………...............................Dr 11,000
To Provision for Bad Debts A/c 1,000
To Creditors A/c 25,000
9)
To Bills Payable A/c 35,000
To Creditors for Expenses A/c 23,000
6
45
To Liquidator of firm A/c 5,99,000
(Assets and liabilities of firm taken over)
03
Liquidator of firm A/c………………………………………….Dr. 5,99,000
3
Discount on Issue of Debentures A/c………………………….Dr. 11,000
88
To Equity Share Capital A/c 2,00,000
(9
To 8% Preference Share Capital A/c 1,50,000

S
To 6% Debentures A/c 2,20,000

SE
To Securities Premium A/c 40,000

AS
(20,000 equity shares of ₹ 10 each issued at a premium of

CL
2 each, 1,500 numbers of 8% preference shares of ₹ 100

each issued at par and balance 6% Debentures issued ata discount
A
TI
of 5% against purchase consideration.)

O
Securities Premium A/c ………………………………………..Dr. 11,000

AL
To Discount on Issue of Debentures A/c 11,000

BH
(Discount on issue of debentures written off against securities

premium)

Balance Sheet of Anjana Ltd. as on 1st January 2022
Particulars Note Amount (₹)

No.
1. EQUITY AND LIABILITIES
(1) Share holders’ Fund :

(a) Share capital (1) 3,50,000
(b) Reserves and surplus (2) 29,000
(2) Share application money pending Allotment:

N
(3) Non-current liabilities :

(a) long term borrowings 2,20,000
(4) Current liabilities:
(a) trade payable (3) 60,000
9)
(b) other current liabilities(creditors for expenses) 23,000
6
45
TOTAL 6,82,000
II. ASSETS
03
(1) Non-current assets
(i)Property, Plant & Equipment (4)
3 5,37,000
88
(ii) Intangible assets (Goodwill) 50,000
(9
(2) Current assets:
(a) inventories 65,000
S
(b) trade receivable (5) 19,000

SE
(c) cash and cash equivalent (Cash at Bank) 11,000

AS
TOTAL 6,82,000
Notes to Accounts:
CL
Note Particulars Amount Amount

A
No. (₹) (₹)

TI
1. 1. Share Capital:
O
Issued and Paid up Capital:

AL
Equity share capital (20,000 shares of ₹ 10 each) 2,00,000

BH
8% Pref. share Capital (1500 Shares of ₹ 100 each) 1,50,000

Total 3,50,000
2. 2. Reserve and Surplus:
40,000
Securities Premium (11,000) 29,000
Less, Discount on Debenture set off
3. Trade Payables:
(a) Creditors for Goods 25,000
(b) Bills Payable 35,000
Total 60,000
4. Property, Plant & Equipment:
(a) Land and Building 1,87,000

(b) Plant and Machinery 2,60,000
(c) Furniture 90,000
5 Total 5,37,000
5. Trade Receivable: 20,000
Debtors (1,000)
Less, Provision for Doubtful debts 5%
Total 19,000
Working Note:
(1) Purchase Consideration (Net Assets Method) Amount (₹)
Goodwill 50,000
Land and Building 1,87,000
9)
Plant & Machinery (210000 + 50000) 2,60,000
6
45
Furniture and Fittings (100000 – 10% thereof) 90,000
03
Stock 65,000
Debtors (25,000 – 5000 – 5% of 20000) 19,000
3
Cash at Bank (28,000 – 17,000)
88 11,000
Total Assets taken 6,82,000
(9
Less, Liabilities taken:

S
SE
Creditors for goods (25,000)

AS
Bills Payable (35,000)

Creditors for Expenses (40,000 – 17,000) (23,000)
CL
Purchase Consideration 5,99,000

A
TI
O
(2) Mode of Payment of purchase consideration:

AL
BH
(i) Equity Share Issued (20,000 shares of ₹10 at ₹ 12 per share) 2,40,000
(ii) 8% Pref. Shares issued (1,500 shares of ₹ 100 each) 1,50,000
(iii) Value of Debenture issued (Balancing figure) 2,09,000
Total Payment 5,99,000
(3) As Debentures are issued at 5% discount, so ₹ 2,09,000 payable as consideration is 95% value.
Therefore, Face Value of Debentures issued = 2,09,000/95% = ₹ 2,20,000. And Discount on issue of
Debentures = ₹ 2,20,000 – 2,09,000 = ₹ 11,000.

3. Conversion of firm into company [B.com Pass 2005]*

A: B: C= 2: 2 : 1. The following is the balance sheet of the firm on 31st March; 2021.
Balance Sheet as on 2021
A’ Capital 60,000 Land 80,000
B’ Capital 50,000 Plant 50,000
C’ Capital 40,000 Stock 25,000
Reserve Fund 35,000 Debtors 25,000
Creditors 15,000 Cash & Bank 20,000
2,00,000 2,00,000
The Partners agree to convert the partnership firm into a private limited company on that date on the
following terms & condition:
(a) All assets and liabilities to be taken over by the company at the following revalued figures: Land ₹
1,00,000; Plant is to be depreciated by 10%; a provision of 15% is to be made for obsolete stock and
9)
5% provision is to be made on debtors for doubtful debts.
6
(b) The company will issue 16,000 shares of ₹ 10 each as purchase consideration.
45
Give the entries necessary to record the acquisition of the business in the books of the company.
03
[Capital Reserve on acquisition Rs 35,000]
3
88
4. Conversion of firm into company [3rd sem Hons 2018]*
(9
Zed Stores is owned by Mr. Ketu. On 31.03.2021, the business is acquired by a limited company called
S
PQR Ltd. on the below mentioned terms –

SE
a) Land and Building and Plant & Machinery to be valued at 150% and 140% of book value.
AS
b) Stock is to be written off by 10%.

c) Other assets and liabilities will be taken at their book values.
CL
d) The proprietor will receive 13,000 equity shares of ₹ 10 each at 20% premium, 700, 8% Preference
shares of ₹ 100 each at par and ₹ 24,000 in cash.
A
TI
Balance Sheet of Zed Stores as on 31.3.2021

O
AL
Capital Account 1,60,000 Land & Building 1,00,000

BH
Bank Loan 4,80,000 Plant & Machinery 2,00,000

Creditors 90,000 Stock 3,00,000
Debtors 1,00,000
Cash & Bank 30,000
7,30,000 7,30,000
Calculate purchase consideration. Show necessary journal entries in the books of PQR Ltd. for the acquisition.

5. Conversion of firm into company [3rd sem General 2018]*

A, B and C are partners in a firm sharing profits and losses in the ratio of 4 : 3 : I respectively . The Balance
Sheet of the firm as on 31.03.21 is as follows :
A's Capital A/c 8,00,000 Land & Buildings 5,00,000
B's Capital A/c 4,00,000 Plant & Machinery 3,00,000
C's Capital A/c 2,00,000 Stock 2,50,000
Creditors 1,00,000 Debtors 3,50,000
Bank 1,00,000
15,00,000 15,00,0000
On 01.04.2021 a new company ABC Ltd. was formed to takeover the business of the firm. ABC Ltd. took over
the following assets at the valuation shown below :
Land and Building ₹ 6,00,000, Plant and Machinery ₹ 2,00,000, Stock ₹ 2,70,000, Debtors ₹ 3,30,000. The
6 9)
purchase consideration was paid by issuing requisite number of equity shares of ₹ 10 each fully paid . The
45
creditors were paid off by the firm at a discount of 10 % and the cost of dissolution ₹ 10,000 was paid by the
03
firm.
3
You are required to pass necessary journal entries in the books of ABC Ltd. Compute purchase consideration
88
and no. of equity shares to be issued at the time of takeover by ABC Ltd.
(9
6. Conversion of firm into company [3rd sem Hons 2019]*

S
SE
A, B and C are partners of a partnership firm sharing profit and losses in the ratio of 4 : 3 : 1. The Balance Sheet
AS
of the firm as on 31.03.2021 was as follows:

CL
A’s Capital 4,00,000 Freehold Property 4,80,000

A
B’s Capital 3,00,000 Machinery 4,20,000

TI
C’s Capital 2,60,000 Debtors 1,50,000

O
Loan on Mortgage 1,60,000 Stock 2,30,000

AL
Creditors 1,80,000 Cash 20,000

BH
13,00,000 13,00,000
On the date of the balance sheet, the partners decided to convert their firm into a company entitled
‘Company Private Limited’. For this purpose, freehold property, machinery, debtors and stock are revalued
at ₹ 6,24,000, ₹ 2,94,000, ₹ 1,35,000 and ₹ 2,07,000 respectively.
Compact Private Limited agreed to take over ‘Loan on mortgage’ and trade creditors. The trade creditors
offered a discount of 5% to the company.
The purchase consideration is to be satisfied by issue of 67,000 equity shares of ₹ 10 each at par, 2000,
9% Preference Shares of ₹ 100 each at par and the balance in cash.
Required:
(a) Calculate purchase consideration.
(b) Give necessary journal entries for acquisition in the books of Compact Private Limited.
Chapter 6: Investment
1. Investment in shares
On 1.4.2020, Sundar had 25,000 equity shares of 'X' Ltd. at a book value of ₹ 15 per share (Face value ₹ 10).
On 20.6.2020, he purchased another 5,000 shares of the company at ₹ 16 per share. The directors of 'X' Ltd.
announced a bonus and rights issue. No dividend was payable on these issues. The terms of the issue are as
follows:
(a) Bonus basis 1: 6 (Date 16.8.2020).
(b) Rights basis 3 : 7 (Date 31.8.2020) Price ₹ 15 per share. Due date for payment 30.9.2020.
(c) Sundar sold 33.33% of his entitlement to Sekhar for a consideration of ₹ 2 per share.
(d) Dividends: Dividends for the year ended 31.3.2020 at the rate of 20% were declared by X Ltd. and
received by Sundar on 31.10.2020.
(e) On 15.11.2020, Sundar sold 25,000 equity shares at a premium of ₹ 5 per share. You are required to
prepare Investment Account in the books of Sundar.
9)
For your exercise, assume that the books are closed on 31.03.2021 and shares are valued at average cost.
6
Solution
45
In the books of Sundar
03
Dr. Investment account for the year ending on 31st March 21 Cr.
(Investment in Equity shares in X Ltd)
3
88
Dividend Cost Dividend Cost
Date Particulars No. Date Particulars No.
( ₹) (₹) ( ₹) ( ₹)
(9
By Bank A/c
01-4-20 To Balance 25, 000 ---- 3,75,000 31-10-20 50,000 10,000
S
(Note 5) ----
SE
b/d
AS
By Bank A / c
20.6.20 To Bank A / c 5,000 ---- 80,000 15-11-20 25,000 ---- 3,75,000
(Sale of shares)
CL
(purchase)
By Balance c/d
16.8.20 To Bonus 5,000 ---- 31.03.21 20,000 - 2,64, 444
A
---- (Balanncing
TI
figure)
O
AL
To Bank A / c
30.9.20 10,000 ---- 1,50,000
(Right)
BH
44,444
15-11-20 To P & L
(WN-9)
(Profit on
sale of
shares)
31.12.20 To P & L 50,000

(Bal. fig. of
dividend
column)
45,000 50,000 6,49,444 45,000 50,000 6,49,444

Working Notes:
(1) Bonus shares = (25,000 + 5,000) ÷ 6 = 5,000 shares.
(2) Rights shares offered = (25,000 + 5,000 + 5,000) ÷ 7 x 3 = 15,000 shares.
(3) Rights shares subscribed = (2/3 x 15,000) = 10,000 shares.
(4) Sale of rights entitlement = 1/3 x 15,000 x ₹2 = ₹10,000.
(Amount received by selling rights entitlement will be credited to Profit and Loss Account (AS-13)).
(5) Dividend received on shares held on 01.04.2020 = 25,000 x 10 x 20 % = ₹ 50,000. (Post acquistion
dividend)
(6) Dividend received on shares purchased on 20.06.2020 = 5,000 x 10 x 20% = ₹10,000 will be adjusted
to investment Account. (Pre Acquisition dividend)
(7) At the time of calculating cost of shares, ₹10,000 (sale of rights) will not be consideration. It will be
9)
treated as windfall gain and it will be credited to Profit and Loss Account. However, dividend received
6
45
on shares purchased on 20.06.2020 ₹ 10,000 will be taken into consideration.
03
(8) Cost of 25,000 shares = ₹(3,75,000 + 80,000 + 1,50,000 - 10,000) ÷ 45,000 x 25,000 (Average
3
basis) = ₹ 3,30,556 88
(9) Profit on sale of 25,000 shares = Sale proceeds - Average Cost.
(9
= 3,75,000 - 3,30,556 (Refer note) = ₹ 44,444

S
SE
2. Investment in Debenture
AS
CL
Mr. Chatur had 12% Debentures of Face Value ₹ 100 of M/s. Unnati Ltd. as current investments.
He provides the following details relating to the investments.
A
01-04-2020 Opening balances 4,000 debentures costing ₹ 98 each

TI
O
01-06-2020 Purchased 2,000 debentures @ ₹ 120 cum interest

AL
01-09-2020 Sold 3,000 debentures @ ₹ 110 cum interest

01-12-2020 Sold 2,000 debentures @ ₹ 105 ex interest
BH
31-01-2021 Purchased 3,000 debentures @ ₹ 100 ex interest 31-

03-2021 Market value of the investment @ ₹ 105 each
Interest due dates are 30th June and 31st December.

Mr. Chatur closes his books on 31-03-2021. He incurred 2% brokerage for all his transactions at
Purchase Price/Sales Price. Show investment account in the books of Mr. Chatur assuming FIFO method
is followed.

Solution
Investment A/c of Mr. Chatur for the year ending on 31-03-2015
(Scrip: 12% Debentures of Unnati Limited)
(Interest Payable on 30th June and 31st December) (Amount in ₹)
Nominal Nominal
Date Particulars Interest Cost Date Particulars Interest Cost
Value Value
To Balance By Bank
1.4.20 b/d 4,00,000 12,000 3,92, 000 30.6.20 (6,00,000 x - 36,000 -
6 %)
1.6.20 To Bank 2,00,000 10,000 2,34, 800 1.9.20 By Bank 3,00 000 6,000 3,17, 400
To Profit &
1.9.20 - - 23,400 1.12.20 By Bank 2,00 , 000 10,000 2,05, 800
Loss A/c
To Bank By Profit &

31.1.21 3,00,000 3, 000 3,06, 000 1.12.20 - - 9, 600
Loss a/c
9)
To Profit & By Bank
6
31.3.21 Loss A/c 45,000 31.12.20 (1,00,000 x - 6,000 -
45
(Bal .fig.) 6 %)
03
By Profit &
31.3.21 3, 400
3
- -
88 Loss A/c
By Balance
31.3.21 4,00, 000 12,000 4,20, 000
c/d
(9
9,00,000 70, 000 9,56, 200 9,00, 000 70,000 9,56, 200
S
SE
Working notes:
AS
(1) Purchase Cost of 2,000 debentures on 1.6.2020

CL
Amount ( ₹)
2,000 Debentures @ ₹ 120 cum interest 2,40,000
A
TI
Add: Brokerage @ 2% 4,800

O
2,44,800
AL
Less: Interest for 5 months (10,000)

Purchase cost of 2,000 debentures 2,34,800
BH
(2) Profit on sale of debentures as on 01.09.2020

Amount ( ₹)
Sales price of debentures cum interest (3,000 x ₹ 110) 3,30,000
Less: Brokerage @ 2% (6,600)
3,23,400
Less: Interest for 2 months (6,000)
Sale value for 3,000 debentures 3,17,400
Less: Cost price of Debentures [3,92,000 x 3,000 ÷ 4,000) 2,94,000
Profit on sale 23,400

(3) Loss on sale of debentures as on 1.12.2020:
Amount ( ₹)
Sales price of debentures ex interest (2,000 x ₹ 105) 2,10,000
Less: Brokerage @ 2% (4,200)
2,05,800
Less: Cost price of Debentures (98,000 + 1,17,400) (2,15,400)
Loss on sale 9,600
(4) Purchase Cost of 3,000 debentures on 31.1.2021
Amount ( ₹)
3,000 Debentures @ ₹ 100 ex interest 3,00,000
9)
Add: Brokerage @ 2% 6,000
6
Purchase cost of 3,000 debentures 3,06,000
45
03
(5) Valuation of closing balance as on 31.03.2021:
3
88 Amount ( ₹)
Market value of 4,000 Debentures at ₹ 105 4,20,000
(9
Cost price of 1,000 debentures 1,17,400
Cost price of 3,000 debentures 3,06,000
S
Total cost of 4,000 debentures 4,23,400

SE
Value at the end = ₹ 4,20,000 i.e. whichever is less

AS
CL
3. Investment in shares [B.com 2005]****

A
On 1.4.2020 Investors Ltd. had 15,000 Equity shares of ₹ 10 each in I.T.C ltd purchased for ₹ 1,75,000. On
TI
15.7.2020 I.T.C. Ltd. made a bonus issue of 1 fully paid up share for 3 held. Again on 1.9.2020 I.T.C. Ltd
O
offered right entitlement of 3 for 5 held on that date at a premium of ₹ 2 per share. Investors Ltd. exercised
AL
one-fourth of its right entitlement and sold the rest at ₹ 3 each on 11.9.2020. On 15.8.2020 I.T.C. Ltd. declared
BH
dividend of 10 % for the year ending on 31.03.2020 Bonus shares were not considered for dividend. On
31.01.2021 Investors Ltd. sold half of the right shares purchased at cost plus 20 %. Show Investment Account
in the books of Investors Ltd. for the accounting year 2020- 21. You are required to use weighted average
method for valuing the closing stock of shares 31.03.2021
[Dividend received ₹ 15,000; Closing Balance: ₹ 2,15,000 (Nominal); ₹ 1,97,239 (Principal); Profit on
sale of share ₹ 7,839 credited to P/L account]

4. Investment in shares [B.com Honours 2014]****

Following information relate to investment of X. Ltd. in shares of Flow Ltd. You are required to make out
the investment in Shares of Flow Ltd. Account in the Investment Ledger of X. Ltd. Ignore Income Tax.
(a) On 1.4.2020, X Ltd. had 10,000 Equity Shares at ₹ 10 each in Flow Ltd. These shares were
purchased for ₹ 1, 32,000 on 07-09-2018.
(b) On 1.8.2020, X. Ltd. Purchased 2,000 more shares in Flow Ltd. at a premium of ₹ 3.50 per share.
(c) On 15.8.2020, Flow Ltd. made a Bonus issue of 1 fully paid share for 2 shares held. In addition, on
the same day right shares were issued, at 2 for 3 held, at a premium of ₹ 3. These shares are not
to rank for dividend for the year ending on 31.03.2020.
(d) 4,000 right shares were taken up by X, Ltd., balance right being sold at ₹ 2.50 each on 25.10.2020.
(e) On 15.1.2021, Flow Ltd. paid a dividend of 10% for the year ending on 31.03.2020.
(f) On 20.02.2021, X. Ltd. sold 5,000 shares at ₹ 19 per share.
6 9)
5. Investment in shares [3rd semester Honours 2019]
45
From the following information prepare Equity shares in F. Ltd. Account in the investment ledger of Mr. K for
03
the year 2020-21.
3
(a) On 01.04.2020, Mr. K had 8,000 Equity Shares of ₹ 10 each in F Ltd. These shares were purchased
88
for ₹ 1,08,000 on 07.09.2018.
(9
(b) On 01.08.2020, Mr. M purchased 2,000 more shares in F. Ltd. @ ₹ 14 per share from the secondary
market.
S
(c) On 15.09.2020, F. Ltd. paid a dividend of 20% for the year ending on 31.03.2020 and Mr. M received
SE
₹ 20,000 dividend on 10,000 shares held by him.

AS
(d) On 15.10.2020, F. Ltd. made a bonus issue and Mr. M received 5,000 bonus shares from the company.
CL
(e) On 12.01.2021, F. Ltd. offered right shares @ ₹ 12 per share and Mr. M purchased 3,000 of such right
shares at the price offered.
A
(f) On 20.02.2021, Mr. M sold 4,500 shares at ₹ 19 per share.

TI
O
AL
6. Investment in shares [B.com 2007]****

BH
On 1.4.20 Subiman had 35,000 Equity Shares in Alfred Ltd. at a book value of ₹ 15 per share (Face Value
₹ 10). On 1.6.20 he purchased 5,000 more shares of the company at ₹ 16 per share. On 15.8.20 Alfred Ltd.
issued Bonus Shares on the basis of 1 : 4. Dividend @ 10% for the year ended 31.03.20 were paid by Alfred
Ltd. on 31.10.20 but no dividend was paid on Bonus Shares. On 1.12.20 30,000 Equity Shares were sold at
a premium of ₹ 5 per shares. Prepare Investment Account in the books of Subiman on 31.03.21.
[Ans: Dividend for the years ₹ 35,000, No. of bonus share issued 10,000 Closing Balance of investment
Account : Nominal ₹ 2,00,000; Capital ₹ 2,40,000; Profit on sale of sharer ₹ 90,000]

7. Investment [3rd semester Pass 2018]****

Mr. Nomad held 260 12% Debentures in Star Ltd. @ ₹ 110 on 01.04.2020 . The face value of each debenture
was ₹ 100. The following were his transactions during 2020-21 :
01.07 .20 Bought 400 Debentures cum-interest @ ₹ 108.
01.09.20 Bought 240 Debentures ex-interest @ ₹ 105.
01.01.21 Sold 360 Debentures cum-interest @ ₹ 115.
Interest on debentures are payable annually on 31/03 every year.
Prepare Investment Account for the year ended 31.03.2021 assuming that average cost method was followed
for calculating profit/loss on sale and valuation of closing investments . Ignore Income Tax and Stamp Duty.
8. Investment [3rd semester honours 2018]****

Ess Ltd. was dealing in 9% Government Stock. They furnished the following details about their
transaction:-
9)
01.04.20 Opening balance – Face value ₹ 30,000, Cost ₹ 27,000
6
45
01.08.20 Purchased ₹ 20,000 stock @ 91% cum-interest
31.10.20 Sold ₹ 36,000 stock @ 93% cum-interest
03
01.12.20 Bought ₹ 26,000 stock @ 90% ex-interest
01.02.21 Sold ₹ 20,000 stock @ 94% ex-interest
3
88
Interests are payable on March 31 and September 30 each year.
(9
The company follows weighted average method (after each transaction) for stock valuation.
S
Prepare investment Account for the year ended 31.3.21 (Assume that the prices given above are after
SE
adjustment for appropriate Brokerage).

AS
9. Investment [C.U., B.Com. (Hons. 1989)] ****

CL
On 1st April, 2020 Janaki Ltd. had ₹ 3,00,000 6% Government stock at ₹94.Interest is payable half-yearly
A
on 31st March and 30th September. The company sold ₹90,000 of the stock at ₹95 ex-interest on 1st June
TI
and purchased ₹ 72,000 stock at ₹ 97 cum-interest on 1st September. A further purchase of ₹ 36,000 stock
O
was made on 1st December at ₹ 98 ex-interest. Draw up 6% Government stock account in the investment
AL
ledger of the company for the year ended 31st March, 2021. Ignore brokerage and income-tax.
The stock was quoted at ₹ 96 at the stock exchange on that date.
BH
[Ans. Profit on Sale of Investment (on the basis of average cost) ₹900. Closing Balance: Nominal
value ₹ 3,18,000; Cost ₹ 3,00,720; Interest for the year ₹ 16,740]
10. Investment [B.com Honours 2013, 3rd sem 2020 honours]****

On15th March, 2021, AB Ltd. Purchased ₹ 1, 00,000, 9% Govt. Stock (interest payable on 31st March and
30th September) at ₹ 88.50 cum-interest (face value ₹ 100 each). On 1st August, ₹ 20,000 stock is sold at
₹ 89 cum-interest and on 1st September ₹ 30,000 stock is sold at ₹ 89.25 ex-interest. On 31st December,
the date of the Balance Sheet, the market price was ₹ 90. Show 9% Govt. Stock Account assuming
investments are current investments. [Ans. ₹325 & ₹ 1462]

11. Investment [C.U., B.Com. (Hons. 2004, 1991,1997)]***

X Ltd. was dealing in 10 % Government stock. They furnished the details about their transactions:
1.1.21 Opening balance: Face value ₹30, 000.Cost ₹25,000
1.3. 21 Bought ₹12000 Stock @ 91 7/8 cum-interest
15.6. 21 Sold ₹5,000 Stock @ 93 7/8 cum-interest
1.8. 21 Bought ₹ 8,000 Stock @ 90 3/8 ex –interest
1.9. 21 Sold ₹4,000 Stock @ 94 1/8 ex-interest
1.12. 21 Bought ₹6,000 Stock @ 93 1/8 cum-interest
Interest is payable on March 31 and September 30 each year. Prepare investment account or the year ended
31.12.21 assuming brokerage is payable at 1/8 % in each case. (Detailed workings are to be given)
[Closing Stock of Investment: Nominal value ₹ 47,000; Cost ₹ 40,618. Accrued Interest ₹ 1,175, Profit
on Sale ₹ 353, Total Interest transferred to P/L ₹ 3979]
6 9)
12. Investment [Compiled by Ravi Bhalotia]*
45
Midnapore Finance Ltd. furnished the following details relating to its holding in 6% Govt. Bonds. The
03
financial year of this company ends on 31st December every year.
3
Opening Balance 2021 Nominal Value ₹ 80,000, Cost ₹ 76,000
88
st
1 March, 2021 200 units purchased ex-interest at ₹ 98.
1st July, 2021
(9
100 units (original holding) sold ex-interest at ₹ 100
st
1 August, 2021 100 units purchased at ₹ 99 cum-interest.
S
st
1 November, 2021 200 units (original holding) sold at ₹ 99 cum-interest
SE
Interest dates are 30th September and 31st March.

AS
Show the Investment Account in the books of Midnapore Finance Ltd.

CL
[Interest to be transferred to P/L Ale ₹ 5,550 Profit on 1st Sale 500 and on 2nd Sale ₹ 700 (under
FIFO method); Closing; balance : ₹ 76,800 Nominal and ₹ 76,800]
A
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13. Investment [B.com PASS 2016]*

O
On 31.03.2021 S .K. Khan held 100, 10% securities valued at ₹ 105 each, on which interest is payable
AL
half yearly on 30th June and 31st December every year.

BH
Following were his transactions for the year ended 31.03.2021:

01.04.21 : Purchase 100 securities ex – interest @ ₹ 104 each
30.06.21: Sold 150 securities ex – interest @ ₹ 102 each
30.09.21: Purchase 100 securities cum – interest @ 105 each
31.12.21: Sold 120 securities cum – interest @ ₹ 110 each.
Brokerage paid @ 2%. Assume FIFO method for calculation of Profit / Loss on sale of securities. Prepare
Investment Account.
[Loss on Sale ₹ 800 & ₹ 255, Closing Balance ₹ 3135]

CHAPTER 7: P/L Appropriation

PROFIT AND LOSS APPROPRIATION ACCOUNT
For the year ended….
Dr. Cr.
To interest on capital By Profit and loss A/c ……
A …… (net profit subject to appropriations)
B …… …… By interest on drawings:
To partners’ salaries …….. A ……
To partners’ Commissions …… B ……
To Reserve ……
To profit transferred To:
9)
A’s capital A/c …..
(or A’s current A/c)
6
45
B’s capital A/c ….. ……
(or B’s current A/c)
03
…… ……
3
When capital accounts are Fixed 88
PARTNERS’ CAPITAL ACCOUNTS
(9
Dr. Cr.
Particulars X Y Particulars X Y
S
₹ ₹ ₹ ₹
SE
To cash/ bank A/c …. ….. By balance b/d …. ….

AS
(withdrawal of capital) By cash /bank A/c …. ….

To balance c/d ….. ….. (Additional capital)
CL
….. …. …. ….
PARTNERS’ CURRENT ACCOUNTS
A
TI
Dr. Cr.
O
₹ ₹ ₹ ₹
AL
To balance b/d …. ….. By balance b/d …. ….

BH
(in Case of debit opening balance) (in Case of credit opening

To Drawings A/c balance)
To interest on Drawings ….. ….. By interest on capital …. ….
To profit and loss A/c ….. ….. By interest on Partner’s loan …. ….
(loss) ….. ….. By commission … ….
To balance C/d By salary … ….
….. …… By profit and loss App. A/c
(Profit)
….. …. …. ….

When capital accounts are Fluctuating

Partners’ Capital A/C Accounts
Dr. Cr.
₹ ₹ ₹ ₹
To balance b/d(in Case of …. ….. By balance b/d(in Case of credit …. ….
debit opening balance) opening balance)
To Drawings ….. ….. By cash / bank A/c …. ….
To interest on Drawings ….. ….. (additional capital)
To profit and loss A/c By interest on capital …. ….
(loss) ….. ….. By commission … ….
To balance C/d ….. …… By salary … ….
By profit and loss App. A/c
(Profit) …. ….
9)
….. …. …. ….
6
45
03
Interest on capital
3
If opening capital is not given. In such case compute opening capital in the following manner.
88
Closing capital xxx
(9
+Drawing xxx
+ losses xxx
S
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- Additional capital xxx

- profit xxx
AS
Opening capital xxx

CL
A
1. P/L Appropriation (Effective capital Ratio)

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O
Sachin, Sanat and Sohail started a partnership firm on 1.1.2021.

AL
(a) Sachin introduced ₹ 10,000 on 1.1.2021 and further introduced ₹ 5,000 on 1.7.21.
BH
(b) Sanat introduced ₹ 20,000 at first on 1.1.21 but withdrew ₹ 8,000 from the business on 31.7.21.
(c) Sohail introduced ₹ 12,000 at the beginning on 1.1.21, increased it by ₹ 4,000 on 1.6.21 and
reduced it to ₹ 10,000 on 1.11.21.
(d) During the year 2021 they made a net profit of ₹ 56,100.
(e) The partners decided to provide interest on their capitals at 12% p.a. and to divide the balance of
profit in their effective capital contribution ratio.
Prepare the Profit & Loss Appropriation Account for the year ended 31.12.21.

Solution:
(a) Calculation of effective capital contribution:
₹
Sachin: ₹ 10,000 for 6 months (10.1 to 1.7.) 60,000 for 1 month
₹ 15,000 for 6 months (1.7 to 31.12) 90,000 for 1 month
1,50,000 for 1 month
Sanat: ₹ 20,000 for 7 months (1.1 to 31.7) 1,40,000 for 1 month
₹ (20,000 – 8,000) for 5 months (1.8 to 31.12) 60,000 for 1 month

Sohail: ₹ 12,000 for 5 months (1.1 to 1.6) 60,000 for 1 month
₹ (12,000 + 4,000) for 5 months (1.6 to 1.11) 80,000 for 1 month
9)
₹ 10,000 for 2 months (1.11 to 31.12) 20,000 for 1 month
6
45
∴ Profit Sharing Ratio = Effective Capital Ratio = 15 : 20 : 16
3 03
(b) Interest on Capitals :
88
Sachin = 1,50,000 x 12 % x 1/12 = ₹ 1,500;
(9
Sanat = 2,00,000 x 12 % x 1/12 = ₹ 2,000;

S
SE
Sohail = 1,60,000 x 12 % x 1/12= ₹ 1,600

AS
In the books of M/s ………………………………….

CL
Dr. Profit & Loss Appropriation Account for the year ended 31.12.2021 Cr.
A
TI
Particulars Amount Amount Particulars Amount Amount

O
₹ ₹ ₹ ₹
AL
To Interest on Capital By Profit & Loss A/c 56,100

BH
Sachin 1,500 (Net Profit)

Sanat 2,000
Sohail 1,600 5,100
To Divisible Profit:
Sachin 15,000
Sanat 20,000
Sohail 16,000 51,000
(51,000 x 15 : 20 : 16)
56,100 56,100

2. P/L Appropriation (Single Journal Entry)

The Capital Account of Adhar and Bhudhar stood at ₹ 40,000 and ₹ 30,000 respectively after the necessary
adjustments in respect of the drawings and the net profits for the year ended 31st December, 2021. It was
subsequently ascertained that 5% p.a. interest on Capitals and drawings was not taken into account in
arriving at the net profit. The drawings of the partners had been: Adhar ₹ 1,200 at the end of each quarter
and Bhudhar ₹ 1,800 at the end of each half year.
The Profits for the year as adjusted amounted to ₹ 20,000. The partners share profits in the proportion of
Adhar 3/5 and Bhudhar 2/5.
You are required to pass single journal entries and show the adjusted capital accounts of the partners.
Solution:
Adjustment Entry:
Journal
9)
Date Particulars L.F Amount ( ₹) Amount ( ₹)
6
45
Dr. Cr.
31.12.2021 Adhar’s Capital Account……………..Dr. 121
03
To Bhudhar’s Capital Account 121
3
88
(Adjustment made for interest on capital and on
drawings not provided and the net amount
(9
wrongly shared as profits, now rectified]

S
SE
Dr. Partners’ Capital Account Cr.

AS
Date Particulars Adhar Bhudhar Date Particulars Adhar Bhudhar

CL
₹ ₹ ₹ ₹
A
1.1.21 To Bhudhar’s 121 --------- 1.1.21 By Balance c/f 40,000 30,000

TI
Capital 31.12.21 By Adhar’s -------- 121

O
31.12.21 To Balance c/f 39,879 30,121 Capital

AL
BH
40,000 30,121 40,000 30,121

Working Notes:
(i) Calculation of opening capitals (1.1.21)
Adhar Bhudhar
₹ ₹
Capital as on 31.12.21 40,000 30,000
Added Back : Drawings already deducted
[Adhar = 1,200 x 4] 4,800
[Bhudhar = 1,800 x 2] 3,600
44,800 33,600
Deducted : Share of Profits already credited [20,000 x 3 : 2] 12,000 8,000
Capital as on 1.1.2021 32,800 25,600
∴ Interest on Capitals @ 5% p.a.
9)
1,640 1,280
6
45
(ii) Interest on Drawings
03
Adhar Bhudhar
3 ₹ ₹
88
On 1,200 drawn at the end of first quarter [1,200 x
5
x
9
] 45
(9
100 12
5 6 30
On 1,200 drawn at the end of second quarter [1,200 x x ]
S
100 12
SE
rd 5 3
On 1,200 drawn at the end of 33 quarter [1,200 x x ] 15
AS
100 12
On 1,200 drawn at the end of last quarter Nil
CL
90
5 6 45
A
On 1,800 drawn at the end of 1st half year [1,200 x x ]

100 12
TI
Nil
On 1,800 drawn at the end of 2nd half year
O
45
AL
BH
(iii) Adjustment Required

Adhar Bhudhar
₹ ₹
Interest on Capitals (to be credited to capital) 1,640 1,280
Interest on Drawings (to be debited to capital) 90 45
Net Interest to be credited to Capital 1,550 1,235
( ₹ 1,550 + ₹ 1,235 = 2,785 wrongly shared as profits in 3: 2 and
credited 1,671 1,114
121 121
Difference (excess cr.) (under cr.)
3. P/L appropriation : [Compiled by Ravi Bhalotia]**

A and B were partners in a firm with capitals of ₹ 40,000 and ₹ 20,000 respectively on 1.1.21.
Partnership deed contains:
(a) Interest on capital to be allowed @ 5% p.a.
(b) A is entitled to a salary of ₹ 200 per month.
(c) B is entitled to a commission of 10% on the net distributable profit after charging such commission.
(d) Interest on drawings to be charged @ 4% p.a.
(e) Drawings of A during the year amounts to ₹ 6,000 drawn in 4 equal instalments at the end of each
quarter and that of B ₹ 4,000 drawn in 2 equal instalments at the end of each half year.
(f) Profit-sharing ratio is 3: 2.
Net profit for the year amounts to ₹ 28,000. Prepare profit and loss appropriation account and capital
accounts of the partners assuming capitals are fluctuating.
[Share of divisible profit: A ₹ 12,398; B ₹ 8,266. Capital A/cs: A ₹ 50,708; B ₹ 27,292]
6 9)
4. P/L appropriation : [3rd semester 2020 Pass]
45
A and B are partners sharing profits and losses in the ratio of their effective capital. They had respectively
03
₹ 1,00,000 and ₹ 60,000 in their Capital Accounts as on 01.01.2021. A introduced a further capital of ₹
3
10,000 on 01 04.2021 and another ₹ 5,000 capital he introduced on 01.07.2021. On 30.09.2021, he
88
withdrew ₹ 40,000 from his Capital Account. B introduced further capital of ₹ 20,000 on 01.04.2021.
(9
Profits for the year ended 31.12.2021 were ₹ 34,275. Calculate effective capital ratio and determine the
profits to be shared by each partner.
S
SE
5. P/L appropriation : [Effective capital ratio] [Compiled by Ravi Bhalotia]*

AS
X, Y and Z start business in partnership. X puts in Rs, 20,000 for the whole year, Y puts ₹ 30,000 at first
CL
and increases it to ₹ 40,000 at the end of four months but withdraws ₹ 20,000 at the end of six months,
while Z puts ₹ 40,000 at first but withdraws ₹ 10,000 at the end of nine months. At the end of the year
A
how should they divide a profit of ₹ 79,100 on the basis of effective capital employed by each partners?
TI
[24: 32 : 45]
O
AL
6. P/L appropriation : [C.U B.Com]******

BH
X, Y and Z are three partners in a firm. According to partnership deed, the partners are entitled to
draw up to ₹ 1,400 per month. On the 1st day of every month, X, Y and Z drew ₹ 1,400, ₹ 1,200
and ₹ 1,000 respectively. Interest on capitals and drawings are fixed at 8% and 10% p.a.
respectively. Profit during the year ended 31.03.21 was ₹ 1, 51,000 out of which ₹ 40,000 is to
be transferred to General Reserve. Y and Z entitled to receive salary of ₹ 6,000 and ₹ 9,000 p.a.
respectively and ‘X’ is entitled to receive commission at 10% on net distributable profit after
charging such commission. On 1st April, 2020 the balances of their capital accounts were ₹
1,00,000, ₹ 80,000 and ₹ 70,000 respectively. You are required to show Profit and Loss
Appropriation Account for the year ended 31.03.21 and Capital Accounts of Partners in the books
of the firm.
[Div. profit Rs 71218, Capital: 121151; 100960; 95689]

7. P/L appropriation : [C.U B.com: Honours 1994]*

Ram. Rahim and Karim are partners in a Firm. They have no agreement in respect of profit sharing ratio,
interest on capital, interest on loan, advanced by partners and remuneration payable to Partners. In the
matter of distribution of profit they have put forward the following claims:-
(a) Ram, who has contributed maximum capital demands interest on capital at 10% p.a. and share of
profit in the capital ratio. But Rahim and Karim do not agree.
(b) Rahim has devoted full time for running the business and demands salary at the rate of ₹ 500 p.m.,
but Ram and Karim do not agree.
(c) Karim demands interest on Loan ₹ 2, 000 advanced by him at the market rate of interest which is
12% p.a.
How shall you settle the dispute and prepare P.L. Appropriation A/c. In that light transferring 10% of the
divisible profit to Reserve Fund. Net profit before taken into account any of the above claims, amounted to
₹ 45, 000 at the end of the 1st year of their business.
[Ans. Distributable Profit ₹ 40, 392; Reserve Fund transferred ₹ 4, 488.]
9)
8. P/L appropriation : [C.U B.Com]****
6
45
A, B and C are partners sharing profits and losses in the proportion of 4:3:2.
03
During 2021 their Fixed Capital and Drawings (including Salaries) were as follows:
Partners Capital Fixed Drawings including Salaries
₹
3 ₹
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A 2, 40,000 24,000
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B 1, 60,000 18,000
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C 1, 00,000 15,000
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Each partner is entitled to a salary of ₹ 1,000 p.m. and interest @ 5% on the capital.
At the middle of the year A made an advance of ₹ 1,00,000 to the firm bearing interest at 6% p.a. The net
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profit for the year stood at ₹ 1,09,000 before charging interest on capital and loan but after charging
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partners’ salaries. Prepare the Partners’ Current Accounts.

[Ans. Divisible Profit ₹ 81,000; Balance of Current Accounts: A ₹ 39,000, B ₹ 29,000 and C ₹ 20,000]
A
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9. P/L appropriation : [Rectification] [C.U B.com: Honours 2002]****

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A and M are two partners sharing profits and losses in the ratio 3:2. On 31.12.21 their Capital Accounts
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stood at ₹ 55,000 and ₹ 45,000 after distribution of net profit of ₹ 15.000 and due consideration of drawings
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of the partners for ₹ 6,000 and ₹ 4,000 respectively. After closing the books following discrepancies were
discovered:
(a) An item in the inventory was valued at ₹ 12, 800 but had a realisable value of ₹ 8,300;
(b) ₹ 2,400 paid for insurance premium for the year ending on 31.3.22 had been debited to Profit & Loss
A/c.
(c) Interest on capital at 5% on partners' capital as at the beginning of the year and interest on drawing
of partners at 8% p.a. were left out of consideration.
Ascertain the correct net profit of the firm and redistribute the profit by preparing a Profit & Loss A/c, and
determine the balance of partners' Capital A/c.
[Ans. Correct Net Profit ₹ 11,100; Distributable Profit ₹ 6,750; Opening Capital balances ₹ 52,000
and ₹ 43,000; Correct Closing Balances of Capital A/c’s ₹ 52,410 and ₹ 43,690]

10. P/L appropriation : [3rd semester 2018 Honours]

P and Q are partners in a firm sharing profits equally. Their capital accounts as on 31.3.2021 showed
balances of ₹ 70,000 and ₹ 60,000 respectively after distribution of profit for the year 2020-21 of ₹ 40,000
and drawings of ₹ 10,000 and ₹ 6,000 respectively during the year. Subsequently, it was found that the
following items have not been considered while preparing the final accounts for the year ended 31st March,
2021:
(a) Interest on partners’ opening capital @ 6% p.a.
(b) Interest on drawings @ 8% p.a.
(c) P was entitled to salary of ₹ 21,000 for the year 2020- 21.
(d) Give a single adjusting entry in the books of the firm through partners’ capital account.

Given below is the Profit and Loss Appropriation A/c of X and Y for the year ended 31.03.2021 (in ₹ ):
9)
To Int. on Capital @ 8% By Net Profit 40,000
6
X 3,200 By Int. on Drawings @
45
Y 2,400 5,600 6%
X 240
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To Salary – X 4,800 Y 180 420
3
To Share of Profit : X 15,010
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Y 15,010 30,020
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40,420 40,420
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The above entries were duly passed in the books but the following discrepancies were subsequently
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discovered –
(i) Interest should have been at 6% on Capital and 8% on Drawings.
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(ii) X was not entitled to get any salary but Y was entitled to get a monthly salary of ₹ 250.
(iii) Profit should have been shared in capital ratio.
A
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You are required to pass a journal entry to rectify the above.

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A, B and C are partners in a firm. Net profit of the firm for the year ended 31st March, 2021 was ₹ 30,000
which had been duly distributed amongst the partners, in the profit sharing ratio of 3 : 1 : 1. It is discovered
on 10th May, 2021 that the undermentioned transactions were not passed through the books of account of
the firm for the year ended 31st March, 2021.
(a) Interest on capital @ 6 % per annum, the capital of A, B and C being ₹ 50,000, ₹ 40,000 and ₹
30,000 respectively as on 01.04.2020.
(b) Interest on drawings : A ₹ 350; B ₹ 250; C ₹ 150
(c) Partner’s salaries : A ₹ 5,000; B ₹ 7,500
(d) Commission due to A (for some special transaction) ₹ 3,000
You are required to show necessary calculations and pass a journal entry to rectify the above.

Chapter 8: Goodwill Treatment

1. Treatment of Goodwill : [Compiled by Ravi Bhalotia]*
Papiya and Bulbul are partners in a firm sharing profits and losses in the ratio of 2 : 1. They admit Mayna
as a new partner for l/5th share of profits of the firm. Mayna brings ₹ 25,000 as capital and ₹ 9,000 as
premium for goodwill. You are required to pass necessary journal entries and to compute the sacrificing
ratio and new profit sharing ratio under the following circumstances :-
(a) Mayna acquires her share form others in their profit sharing ratio:
(b) Mayna acquires her share 3/20th from Papiya and l/20th from Bulbul;
(c) Mayna acquires her share equally from others;
(d) Mayna acquires her share entirely from Papiya; ,
(e) Mayna acquires her share entirely from Bulbul.
6 9)
2. Treatment of Goodwill : [B.com Honours 2004]**
45
A and B are partners of a firm sharing profits or losses in the ratio 2: 3. They admit C as a new partner. The
03
new profit or loss sharing ratio is 1: 2: 2. C brings 60% of his due for goodwill. For this purpose the goodwill
3
is valued at 3 years purchase of last 5 years' average profits.
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Net Profits for last 5 years are as under:
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2017 - ₹ 40,000; 2018 - ₹ 35,000; 2019 - ₹ 25,000; 2020 - ₹ 38,000 and 2021-₹ 45,000.
Calculate the value of goodwill and show how transactions for goodwill be recorded in the books of the
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firm without opening a Goodwill Account.

[Ans.: Value of Goodwill ₹ 1, 09,800. C's share of Goodwill ₹ 43,920. C bring ₹ 26,352 in cash for
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premium for Goodwill and balance for ₹ 17,568 C's Capital will be debited and A's & B's Capital
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will be credited by ₹ 8,784 each]

A
3. Treatment of Goodwill : [Compiled by Ravi Bhalotia]*

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Surya and Chandra entered into a partnership sharing profits and losses in the ratio of 3:1. They admitted
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Tara as a partner for l/5th share of future profit. The goodwill of the firm valued at ₹ 40,000. Show the
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journal entries in the following cases:-

BH
(a) If Tara brought in required amount of premium for goodwill;

(b) If Tara brought in Rs, 5,000 only as premium for goodwill and Goodwill A/c raised for the balance;
(c) If Tara paid personally required amount of premium for goodwill.
4. Treatment of Goodwill : [B.com Honours 2007] [Old]****

M and N were in partnership business sharing profits & losses in the ratio 2 :1.On 1st August, 2021, they
agreed to take P into partnership on condition that P will have 1/6th Share. The old partners agreed to share
profit equally between them in the new firm. P brings Rs 8,000 as his share of Goodwill. State how the
Goodwill premium obtained from P will be distributed among M and N and Pass the necessary journal
Entries in the books of the firm.

5. Treatment of Goodwill : [B.com Honours 2009; B.com Honours 2000]****

P and Q are partners in a firm sharing profits and losses in ratio of 3: 2. They admit R as a partner on 1.1.20
on the basis of his buying 1/5 of P's share and 1/6 of Q's share. On 1.1.22 they permit R to purchase a further
1/10 of their remaining shares. How much did R pay each of the others on each occasion for goodwill,
assuming that the goodwill of the firm was ₹ 30, 000 on the first occasion and ₹ 40, 000 on the second?
What is the ultimate share of each partner in the business?
[ Ans. Sacrificing Ratio of P and Q on 1.1.97 is 9 : 5 and on 1.1.99 is 36 : 25; Profit Sharing Ratio of
P, Q and R after 1.1.97 is 36 : 25 :14 and after 1.1.99 is 324: 225 : 201]
6. Treatment of Goodwill*****
Ram, Shyam and Jadu were in a partnership sharing profits and losses in the ratio of 5:3:2. On 1st January,
2021 Shyam died and his share of goodwill is valued at ₹ 18,000. However, other partners want to continue
9)
the business and agreed to share future profits equally. Show the necessary entries under the following
cases:-
6
45
(f) If no goodwill account is raised in the books.
(g) If goodwill account is raised at full value.
03
(h) If goodwill account is raised and written off.
3
[Ans: (i) Jadu’s Capital to be debited ₹ 18,000 and Shyam’s capital to be credited ₹ 18,000; (iii)
88
Goodwill ₹ 60,000 is to be raised and distributed in 5:3:2 to Ram, Shyam and Jadu.]
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Chapter 9: Change in PSR

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1. Change in proft sharing ratio [3rd semester 2018 Honours]

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X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1 and their capitals are ₹ 1,80,000, ₹
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1,20,000 and ₹ 60,000 respectively. It is decided that with effect from April 1, 2021, the profit sharing
ratio will be 2:2:1.
A
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The partnership deed states that goodwill is to be valued at 2 years purchase of average of 3 years profits
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and capitals of the partners should be proportionate to the profit-sharing ratio.

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The profit for the last three years 2018-19, 2019-20 and 2020-21 were ₹ 1,20,000, ₹ 1,00,000 and ₹
1,40,000 respectively.
BH
Make necessary journal entries in the books of the firm.
2. Change in proft sharing ratio [3rd semester 2019 Honours]

A and B were in partnership sharing profits and losses in 3 : 2. They decided to change their profit sharing
ratio from 01.04.2021 in 7 : 3 ratios. As on the date of change following were noted:
(a) Reserve standing in the books at ₹ 60,000
(b) Goodwill is valued at ₹ 1,40,000 (no goodwill appearing in the books)
(c) Assets were revalued by ₹ 20,000 more than the book value.
They decided to adjust their capital account without affecting the Balance Sheet.
You are required to suggest necessary journal entry to make necessary adjustment.

Chapter 10: Admission

Accounting Entries to record the Revaluation of Assets and Liabilities
1. For Increase In The Value Of An Asset
Concerned Asset A/C Dr.
To Revaluation A/C
(Being The Increase In Value Of An Asset Recorded)
2. For Decrease In The Value Of An Asset
Revaluation A/C Dr.
To Concerned Asset A/C
9)
(Being The Decrease In Value Of An Asset Recorded)
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45
3. For Increase In The Amount Of Liability
03
Revaluation A/C Dr.
3
To Concerned Liability A/C 88
(Being The Increase In The Amount Of Liability Recorded)
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4. For Decrease In The Amount Of Liability

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Concerned Liability A/C Dr.

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To Revaluation A/C
(Being The Decrease In The Amount Of Liability Recorded)
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5. For Recording An Unrecorded Asset

A
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Unrecorded Assets A/C Dr.

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To Revaluation A/C
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(Being An Agreed Value Of An Unrecorded Asset Brought Into Account)

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6. For Recording An Unrecorded Liability

Revaluation A/C Dr.
To Unrecorded Liability A/C
(Being An Agreed Value Of An Unrecorded Liability Brought Into Account)
7. For Transfer o f Balance of the Revaluation Account
(I) If Credit Side Exceeds Debit Side (Net Gain)
Revaluation A/C Dr.
To Partners Capital A/Cs (Individually In Old Ratio)

(Being The Net Gain On Revaluation Transferred To Partners' Capital Accounts In

Old Profit Sharing Ratio)
(II) If Debit Side Exceeds Credit Side (Net Loss)
Partners Capital A/Cs (Individually In Old Ratio) Dr.
To Revaluation A/C
(Being The Net Loss On Revaluation Transferred To Partners' Capital Accounts In
Old Profit Sharing Ratio)
Tutorial Note
When Revaluation Account is prepared, the assets and liabilities appear in the Balance Sheet of new firm
at their revised figures.
9)
Accounting Treatment of Reserves, Accumulated Profits/Losses
6
(a) For transfer of Reserve and Accumulated Profits
45
03
Dr
Reserve A/C
.
3 Dr
88
P & L A/C
.
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Dr
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Workmen Compensation Reserve A/C

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.
[Excess Of Reserve Over Actual Liability]
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Dr
Investment Fluctuation Reserve A/C
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.
[Excess Of Reserve Over The Difference Between Book Value And Market Value]
A
To Old Partners' Capital Accounts

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[Individually] [Old Ratio]

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(Being The Reserves & Profits Transferred To Old Partners In Their Old Ratio)
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BH
(b) For transfer of Accumulate Loss
Old Partners' Capital Accounts

Dr.
[Individually] [Old Ratio]
To Profit & Loss A/C
To Deferred Revenue Expenditure A/C
(Being Accumulated Losses Transferred To Old Partners In Their Old Ratio)

1. Partnership Admission
Arun and Barun are partner sharing profit and losses in the ratio of 7: 3. The Balance Sheet of the firm on
31st March, 2021 was as follows:
Balance Sheet as on 31.03.2021
Liabilities Amount (₹) Assets Amount (₹)
Capital : Goodwill 20,000
Arun 88,000 Plant and Machinery 45,000
Barun 64,000 Land and Building 40,000
Sundry Creditors 1,52,000 Furniture 13,600
Reserve Fund 70,000 Sundry Debtors 45,000
18,000 Bills Receivable 29,400
Stock 35,000
9)
Bank 12,000
6
2,40,000 2,40,000
45
Karan joined the partnership as a new partner for 1/6th share of future profits and losses of thefirm on
03
the following terms:
3
(a) Stock is revalued at ₹ 39,000; one unrecorded assets for ₹ 2,000 to be recorded for unexpired Rent.
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(b) Depreciation to be charged for Plant and Machinery ₹ 6,000, Land and Building ₹ 4,400 and Furniture
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are depreciated by 10%.

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(c) Karan brought ₹ 40,000 as his capital and ₹ 12,000 for his share of goodwill.
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(d) Capital of the partners shall be proportionate to their profit sharing ratio. Adjustment of Capitals to be
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made by Cash.
Prepare Revaluation Account, Partners Capital Account, Cash Account and Balance Sheet of the new firm.
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Solution:
A
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In the books of Arun, Barun and Karan

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Dr. Revaluation Account Cr.

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BH
(₹) (₹)
To Plant and Machinery A/c 6,000 By Stock A/c 4,000
To Land and Building A/c 4,400 By Unexpired Rent A/c 2,000
To Furniture A/c 1,360 By Partners Capital A/c
- Arun’s Capital 4,032
- Barun’s Capital 1,728 5,760
(loss on revaluation) (Balancing figure)
(Rs. 5,760 x 7 : 3)
11,760 11,760

Dr. Partner’s Capital Accounts Cr.
Particulars Arun Barun Karan Particulars Arun Barun Karan
(₹) (₹) (₹) (₹) (₹) (₹)
To Goodwill A/C 14,000 6,000 - By Balance b/d 88,000 64,000 -
To Revaluation A/c 4,032 1,728 - By Reserve Fund A/c 12,600 5,400 -

(Loss on Revaluation)
By Premium for Goodwill 8,400 3,600 -
To Bank A/c ------ 5,272 ------- By Bank A/c - - 40,000

(Excess capital withdrew) (Capital brought in)
[bal. fig.]
To Balance c/d 1,40,000 60,000 40,000 By Bank A/c 49,032 - -
[See Working Note 3] (Further capital) [bal. fig.]
1,58,032 73,000 40,000 1,58,032 73,000 40,000
6 9)
Dr. Bank Account Cr.
45
03
(₹) (₹)
3
To Balance b/d 12,000 88By Barun’s Capital A/C 5,272
To Arun’s Capital A/C - Further capital 49,032 - Excess capital withdrew
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To Premium for Goodwill A/C 12,000
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To Karan’s Capital A/C 40,000 By Balance c/d 1,07,760

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1,13,032 1,13,032
AS
CL

Liabilities Amount Assets Amount
A
(₹) (₹)
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Capitals A/c: Bank 1,07,760

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Arun 1,40,000 Bills Receivable 29,400

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Barun 60,000 Sundry Debtors 45,000

BH
Karan 40,000 2,40,000 Stock 39,000

Sundry Creditors 70,000 Furniture 12,240
Unexpired Rent 2,000
3,10,000 3,10,000

Working Note:
(1) Calculation of New profit Sharing Ratio:
Karan’s share of profit = 1/6th
Therefore, Remaining Profit ( i . e . , 1 – 1/6) or 5/6th t o b e shared by Arun and Barun according to their
existing profit sharing ratio.
Arun’s share = 5/6 x 7/10 = 7/12
Barun’s shares = 5/6 x 3/10 = 3/12
Karan’s share = 1/6 x 2/2 = 2/12
New profit sharing ratio of Arun, Barun and Karan = 7/12 : 3/12 : 2/12 = 7 : 3 : 2.
(2) Calculation of Sacrificing Ratio:

As after admission, old ratio of old partners does not change hence sacrificing ratio = old ratio = 7 : 3
9)
(3) Adjustment of Capital of partners in their profit sharing ratio:
6
45
Karan brought capital for 1/6 share = ₹ 40,000
Total Capital of the firm = ₹ 40,000 × 6/1 = ₹ 2,40,000
03
Therefore, new capital of the partners are:
3
Arun’s Capital = ₹ 2,40,000 × 7/12 = ₹ 1,40,000
88
Barun’s Capital = ₹ 2,40,000 × 3/12 = ₹ 60,000
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Karan’s Capital = ₹ 2,40,000 × 2/12 = ₹ 40,000

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2. Partnership Admission: [B.Com 2008, 2016 Honours] [16 Marks] ****

AS
The following is the Balance Sheet of A & B as at March 31, 2021. C is admitted as a partner on that date
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when the position of A and B was as under:

A
Capital Account: Plant & Machinery 10,000

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A 10,000 Land & Building 8,000

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B 8,000 Stock of Goods 12,000

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Creditors 12,000 Debtors 11,000

BH
General Reserve 16,000 Cash & Bank Balance 9,000

Workmen’s Compensation fund 4,000
50,000 50,000
A & B Shared profits in the proportion of 3:2. The following terms of admission are agreed upon:
(a) Revaluation of Assets: Land & Building ₹ 18,000 and Stock of Goods ₹ 16,000
(b) The liability on Workmen's Compensation Fund is determined at ₹ 2,000.
(c) C brought in as his share of goodwill ₹ 10,000 in cash.
(d) C was to bring further cash as would make his capital equal to 20% of the combined capital of partners
A and B after above revaluation and adjustments are carried out.
(e) The future profit sharing proportions are : A 2/5th; B 2/5th ; C 1/5th
Prepare the new Balance Sheet of the firm and the Capital Accounts of the Partners.
[Profit on Revaluation ₹ 14,000; Capital: A ₹ 39,200; B ₹ 20,800; C ₹ 12,000. B/Sheet ₹ 86,000]

3. Partnership Admission: [2013 Supplementary]*****

Hadlee and Botham are in partnership sharing profits and losses in the ratio of 3 : 2. The balance sheet of
the firm on 31st December, 2021 was as under:
Capital Account Building 30,000
Hadlee 40,000 Plant 25,000
Botham 20,000 Stock 16,000
Reserve 15,000 Debtors 40,000
Creditors 38,000 Less: Provision 5,000 35,000
Bills Payable 2,000 Bank 9,000
1,15,000 1,15,000
They admitted Imran as a new partner on 1st January, 2022 on the following conditions
(a) Imran should pay ₹ 15,000 as premium for goodwill.
(b) He would receive 1/6th share of future profits.
9)
(c) Plant should be depreciated by 10%.
6
(d) Building should be increased to ₹ 35,000.
45
(e) Stock should be reduced by ₹ 6,000.
03
(f) ₹ 3,000 more should be provided for bad debts.
(g) Reserve account should be closed.
3
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(h) Imran should bring as capital an amount equal to 25% of the adjusted capitals of the old Partners.
Giving effect to the above arrangements, show revaluation account, partners' capital accounts and the
(9
opening balance sheet of the firm as newly constituted.

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[Loss on Rev. ₹ 6,500; Balance Sheet total ₹ 1,44,375; Capital ₹ 54100; 29400; 20875; Bank 44875]
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4. Partnership Admission: [2019 3rd Semester Hons]*****

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Following is the Balance Sheet A and B sharing profits and losses in the ratio of 2 : 1 as on 31.03.2021.
CL
Capital Account Building 2,00,000

A 1,50,000 Investment 70,000
A
B 1,00,000 Stock 1,10,000

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General Reserve 1,20,000 Sundry Debtors 60,000

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Sundry Creditors 90,000 Cash and Bank 20,000

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4,60,000 4,60,000
BH
On 01.04.2021 Mr. C is admitted into the partnership on the following terms:

(i) C will bring in ₹ 1,25,000 as his capital and ₹ 75,000 as premium for goodwill for 1/4th
share in the firm.
(ii) Out of the creditors, a sum of ₹ 25,000 is due to Mr. C which will be transferred to his
capital.
(iii) Building is to be appreciated by 50%.
(iv) Provision for bad debts on debtors @ 5% is to be created.
(v) Stock is to be reduced by ₹ 10,000.
(vi) Market value of investment is ₹ 64,000.
(vii) An unrecorded liability for expenses of ₹ 9,000 is to be accounted for.
(viii) Premium for goodwill to be withdrawn by A and B in cash.
Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet of the newly constituted firm
just after admission of C.

5. Partnership Admission: [2018 3rd Semester Pass]*****

Srijani and Shukla are partners in a firm sharing profits and losses in the ratio of 3 : 2. Their balance sheet as
on 31st March , 2021 is as follows :
Liabilities Assets
Capital Accounts : Land and Buildings 70,000
Srijani 80,000 Plant and Machinery 50,000
Shukla 50,000 1,30,000 Stock 40,000
Creditors 80,000 Less : Provision for
doubtful debts 4,000 50,000
Cash 10,000
2,20,000 2,20,000
On 01.04.2021 they agreed to take Mou as a partner on the following terms :
(i) Mou shall contribute ₹ 50,000 as her share of capital.
9)
(ii) Land and Buildings shall be valued at ₹ 90,000, Machinery shall be depreciated by ₹ 10,000,
6
Provision for doubtful debts shall be raised to ₹ 10,000 and Stock shall be appreciated by ₹ 6,000.
45
(iii) The new profit sharing ratio would be 2 : 1 : 1.
(iv) Capitals of Srijani and Shukla will be adjusted on the basis of Mou 's capital and any excess or
03
shortfall will be withdrawn or brought in cash by the concerned partner.
3
You are required to prepare : 88
(a) Revaluation Account
(b) Partner 's Capital Account
(9
(c) Balance Sheet of the new firm after admission of Mou.

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6. Partnership Admission: [2019 3rd Semester Pass]*****

AS
Amal and Bimal are partners in a firm sharing Profits & Losses in the ratio 3:2. Their Balance Sheet is on
31st December, 2021 is as follows:
CL

A
Capital Accounts: Goodwill 10,000

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Amal ₹ 35,000 Plant and Machinery 22,000

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Bimal ₹ 30,000 65,000 Furniture 10,000

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General Reserve 10,000 Stock 24,000

BH

Bills Payable 5,000 Cash 2,000
98,000 98,000
Partners agreed to admit Kamal with 1/5th share of profit on the following terms:
(a) That the Furniture be depreciated by ₹ 920.
(b) That the Plant and Machinery and Goodwill be valued at ₹ 30,000 and ₹ 15,000 respectively.
(c) That Kamal should bring ₹ 20,000 as his capital.
(d) That after the above adjustments capitals of the old partners be made proportionate to the capital
of the new partners and for the purpose the old partners are to bring or withdraw cash as the case
may be.
Prepare (i) Revaluation Account (ii) Capital Accounts of the Partners and (iii) Balance Sheet

7. Partnership Admission: [2020 3rd Semester Hons]*****

P and Q are partners in a firm sharing profits and losses in the ratio of 4 : 1. Their Balance Sheet
as on 31.03.2021 is as under :
Capital Accounts : Furniture 50,000
P 60,000 Stock 1,00,000

Q 1,40,000 Bills Receivable 24,000
Reserves 50,000 Debtors 80,000
Creditors 60,000 Cash at Bank 76,000
Bills Payable 20,000
3,30,000 3,30,000
They agreed to take R as a partner with effect from 01.04.2021 on the following terms :
9)
(a) P, Q and R will share profits and losses in the ratio of 5 : 3 : 2
(b) R will bring ₹ 30,000 as premium for goodwill and ₹ 70,000 as capital.
6
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(c) The assets will be revalued as follows : Furniture ₹ 70,000, Stock ₹ 97,000 and Debtors ₹ 77,000.
(d) A creditor has agreed to forgo his claim by ₹ 8,000.
03
(e) After making the above adjustments, the capital accounts of P and Q should be adjusted on the basis
3
of R’s capital by bringing in cash or withdrawing cash as the case may be.
88
Show Revaluation Account, Partners’ Capital Account and prepare the Balance Sheet of the new firm on
(9
01.04.2021.
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8. Partnership Admission: [2020 3rd Semester General]*****

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Bijoy and Nilay share profits in a partnership business respectively as 60% and 40%. Their Balance Sheet
AS
as at 31st March, 2021 given as under :

CL
Creditors 40,000 Cash at bank 2,000
A
TI
Capital Accounts : Debtors 25,000

O
Bijoy 60,000 Stock 40,000

AL
Nilay 30,000 90,000 Plant 43,000

BH
Premises 20,000
1,30,000 1,30,000
They admit Dhiman as new partner on the following terms :
(a) Dhiman will pay ₹ 20,000 as his capital for 40 % of the future profits of the firm.
(b) Before his joining in the firm, Stock value was to be reduced to ₹ 32,000, Plant was to be
depreciated by ₹ 6,300 and Premises were to be revalued at ₹ 25,000. A reserve of 2½ % was to
be raised against Debtors.
(c) As the new partner is unable to bring any cash for his share in the goodwill, so goodwill account
was to be raised in the books for ₹ 30,000.
Show the journal entries and give the calculation of future profit sharing ratio. Prepare the new Balance
Sheet after the admission of new partner.
9. Partnership Admission: [Compiled by Ravi Bhalotia]*

Red and White are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st July, 2021 the
position of the firm was as follows:
Partner’s Capital Account Building 50,000
--- Red 1,50,000 Machinery 2,50,000
---White 98,000 Furniture 40,000
Sundry Creditors 1,70,000 Debtors 90,000
Cash 12,000
5,02,000 5,02,000
Blue joined the firm as a partner and the following terms and conditions were agreed upon :
(a) Red, White and Blue will share the future profits of the firm in the ratio 5:3:2 respectively.
(b) Blue would first pay ₹ 10,000 as his share of goodwill and this sum is to be retained in the business.
(c) The value of machinery is to be increased by ₹ 20,000 and stock is to be written down by 10%.
9)
(d) Blue would introduce such an amount of capital in cash which should be proportionate to the
6
combined capital accounts of Red and White after making all adjustments.
45
It was decided that the capital accounts of Red and White would be adjusted on the basis of Blue's
capital by opening current accounts.
03
Show the capital accounts of the partners and the balance sheet of the firm after Blue's admission.
3
[Balance Sheet : 623700] 88
(9
10. Partnership Admission: [B.com 2014 Honours type]****
S
A and B are partners in a firm sharing profits and losses in the ratio of 4 : 1. Their balance sheet as on 31st
SE
March, 2021 is as follows :

AS
Capital accounts : Furniture 20,000
CL
A 25,000 Stock 40,000

B 65,000 Bills receivable 10,000
A

TI

O
Bills payable 5,000

AL
1,40,000 1,40,000
BH
They agreed to take C as a partner with effect from 1st April, 2021 on the following terms:
(a) A, B and C will share profits and losses in the ratio of 5 : 3 : 2.
(b) C will bring ₹ 20,000 as premium for goodwill and ₹ 30,000 as capital.
(c) Half of the reserve is to be withdrawn by the Partners.
(d) The assets will be revalued as follows : Furniture ₹ 30,000; Stock ₹ 39,500; Debtors ₹ 28,500
(e) A creditor for ₹ 12,000 has agreed to forego his claim by ₹ 2,000.
(f) After making the above adjustments, the capital accounts of A and B should be adjusted on the basis
of Cs capital, by bringing or withdrawing cash, as the case may be.
Pass necessary journal entries and prepare the balance sheet of the new firm as on 1st April, 2021.
[Profit on revaluation ₹ 10,000. Balance sheet total ₹ 1,78,000. Capital of: A ₹ 75.000, of B ₹ 45,000.
Cash introduced by A ₹ 4,000 and withdrawn by B ₹ 14,000. Cash at bank ₹ 70,000]

11. Partnership Admission: [B.Com 2001, 2011 type] [16 Marks] ***********
Rain and Storm are partners in a firm sharing profits and losses as 3: 2. Their Balance Sheet on 31st
December, 2020 stands as under:
Creditors 35,000 Cash 4,000
Capital Accounts Debtors 22,000
Rain 40,000 Less: Provisions 2,000 20,000
Storm 20,000 60,000 Stock 18,000
Machinery 20,000
Land and Buildings 33,000
95,000 95,000
On 1st January, 2021 they agree to take Dust as a partner on the following conditions:-
(a) The goodwill of the firm shall be valued at ₹ 23,750 and Dust shall pay his share of goodwill in cash.
(b) Dust shall contribute ₹ 15, 000 as his share of capital.
(c) Land and Building shall be valued at ₹ 42, 000. Machinery shall be depreciated by ₹ 5,000. Provision
9)
for bad debts shall be raised to ₹ 3,000 and another provision for damages amounting to ₹ 1,300.
6
(d) The Profit and Loss sharing ratio shall be so adjusted that, between Rain and Storm the former ratio
45
is maintained. While between Storm and Dust there shall be the same ratio as between Rain and
Storm.
03
(e) The capital shall be adjusted (without disturbing the ultimate total capital) so as to correspond with
3
the new ratio, the excess of deficit being transferred to their respective Current Accounts.
88
Show Journal entries and prepare the opening Balance Sheet of the new firm.
(9
12. Admission****
S
Brick, Sand and cement were partners in a firm sharing profits and losses in the ratio of 3:2:1 respectively.
SE
Following is their Balance Sheet as on 31st December, 2021:

Liabilities ₹ ₹ Assets ₹
AS
Capital A/cs: Land & Building 50,000

CL
Brick 30,000 Furniture 15,000

Sand 20,000 Stock 20,000
Cement 10,000 Bills Receivable 5,000
A
60,000 Debtors 7,500

TI
Reserve 29,800 Cash in hand and at 2,500

O
Creditors 6,200 Bank

AL
Bills Payable 4,000

BH
1,00,000 1,00,000
st
Lime is to be admitted as a partner with effect from 1 January, 2022 on the following terms:
a) Line will bring in ₹ 15,000 as Capital and ₹ 12,000 as Premium for Goodwill. Half of the
Goodwill will be withdrawn by the Partners.
b) Line will be entitled to 1/6th share in the profits of the firm.
c) The assets will be revalued as follows:
₹ ₹
Land Building 56,000 Stock 16,000
Furniture 12,000 Debtors 7,000
d) The claim of a creditor for ₹ 2,300 is paid at ₹ 2,000.
e) Half of the Reserve is to be withdrawn by Partners.
Record the Journal Entries (including cash transactions) in the books of the firm and show the opening
Balance Sheet of the new firm.

Chapter 11: Retirement

The various matter that need adjustment at the time of retirement of a partner are given below:
1. Adjustment in the Profit Sharing Ratio
2. Adjustment of Goodwill.
3. Adjustment of Profit/Loss arising on the Revaluation of Assets and Liabilities.
4. Adjustment of Accumulated Profits, Reserves and Losses
5. Adjustment of Capitals (if agreed)
ACCOUNTING TREATMENT OF GOODWILL
Step 1 - write off the existing book value of goodwill (if any) appearing in the books of the firm by
debiting all partner's capital accounts in their old profit sharing ratio and by crediting the goodwill
account
9)
Old Partners Capital A/Cs Dr. [In Old Ratio]
To Goodwill A/C [With Existing Book Value Of Goodwill]
6
45
(Being The Existing Goodwill Written Off In Old Ratio)
03
Step 2 - Give credit for outgoing Partner’s full share of goodwill to outgoing partner by debiting
Gaining partners in their gaining ratio and crediting outgoing partner.
3
88
Gaining Partner’s Capital A/Cs Dr. [In Gaining Ratio]
(9
To Outgoing Partner’s Capital A/Cs [With His Share Of Goodwill]
(Being the adjustment made for goodwill on retirement)
S
SE
Step 3 – If any existing partner (other than outgoing partner) is also sacrificing his share, a
AS
separate entry to adjust proportionate goodwill should be passed as follows:

Gaining Partner’s Capital A/Cs Dr.
CL
To Sacrificing Partner’s Capital A/c

REVALUATION OF ASSETS AND LIABILITIES
A
Same as Admission
TI
O
ADJUSTMENT OF CAPITALS
AL
The capitals of the continuing partners may be required in any one of the following three ways:
BH
When the Total Capital of the New Firm is Given

The various steps involved in adjusting the capitals of the partners are given below:
Practical steps involved in adjusting the capitals when the total Capital of the new firm is given
Step 1 – Calculate the adjusted old capitals of continuing partners (i.e. after all other adjustments);
Step 2 – Calculate the new capitals of continuing partners by dividing the total capital in their new profit
sharing ratio;
Step 3 – Calculate the surplus/deficiency in each of continuing partners’ capital accounts by comparing
the new capitals with the adjusted old capitals;
Step 4 – Adjust the surplus by paying off or by transfer to the credit of current account and adjust the
deficiency by asking the concerned partner to bring in the necessary amount or by transfer to the debit of
his current account.

1. Partnership Retirement
Amal, Bimal and Kamal were the partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. The
Balance Sheet of the firm as on.31.12.2021 was as follows:
Balance Sheet as at 31.12.21
Capital Plant 40,000
Amal 45,000 Building 50,000
Bimal 35,000 Furniture 4,000
Kamal 25,000 Stock 25,000
Reserve fund 15,000 Debtors 30,000
Profit and Loss A/C 12,000 Cash & Bank 3,500
Creditors 20,500
1,52,000 1,52,000
9)
Kamal retired on that date subject to the following conditions:
6
(a) Goodwill of the firm to be shown at ₹ 36,000;
45
(b) Building is to be appreciated by 20%;
03
(c) Plant and Furniture are to be depreciated by 10% and 15% respectively;
3
(d) Provision to be made for doubtful debts @ 5%. 88
(e) Amal and Bimal are to bring in cash, if necessary, in their profit sharing ratio to pay off
(9
Kamal’s dues on retirement and leave a sum of ₹ 10,000 as working capital.
Prepare Revaluation Account, Partners’ Capital Account and Balance Sheet of the new firm as on31.12.21.
S
SE
Solution:
AS
In the books of Amal, Bimal and Kamal

CL

A
(₹) (₹)
TI
To Provision for Doubtful Debts A/c 1,500 By Goodwill A/c 36,000

O
To Depreciation on Plant A/c 4,000 By Building A/c 10,000

AL
To Depreciation on Furniture A/c 600

BH
To Partner’s Capital A/c

- Amal’s Capital 19,950
- Bimal’s Capital 13,300
- Kamal’s Capital 6,650 39,900
(Profit on Revaluation: (39,900 x 3 : 2 : 1)
(Balancing figure)
46,000 46,000

Particulars Amal Bimal Kamal Particulars Amal Bimal Kamal
(₹) (₹) (₹) (₹) (₹) (₹)
To Bank A/c - - 36,150 By Balance b/d 45,000 35,000 25,000
- Dues paid off By Reserve Fund A/c 7,500 5,000 2,500
To Balance c/d 1,04,040 74,360 - By Revaluation A/c 19,950 13,300 6,650
(Balancing Figure) (Profit Transferred)
By Profit & Loss A/c 6,000 4,000 2,000
By Bank A/c 25,590 17,060 -
[See Working Note (1)]
1,04,040 74,360 36,150 1,04,040 74,360 36,150
By Balance b/d 1,04,040 74,360 -
9)
6
45
Capital A/c Goodwill 36,000
03
Amal 1,04,040 Buildings 60,000
Bimal
3
74,360 1,78,400 Plant
88 36,000
Furniture 3,400
Creditors
(9
20,000 Debtors 30,000
Less: Provision 1,500 28,500
S
SE
Stock 25,000
Bank 10,000
AS
1,98,900 1,98,900
CL
A
Working Note (1):

TI
Computation of Additional amount to be brought in by Amal and Bimal:

O
Amount (₹)
AL
Amount paid to Kamal 36,150

BH
Add: required working capital to be maintained 10,000

46,150
Less, Cash at Bank as per existing balance Sheet 3,500
Amount to be brought in by Amal and Bimal in their Profit sharing Ratio: 42,650
Amal : (42,650 x 3 /5) = 25,590
Bimal: (42,650 x 2 /5) = 17,060

2. Partnership Retirement [2012 Supplementary]*

M, S and R were in partnership sharing profits and losses equally. On 1ST January, 2022 M retired when
the firm's Balance Sheet was as under:
Capital Accounts: Land & Building 5,700
M 9,000 Plant & Machinery 7,280
S 7,200 Sundry Debtors 9,915
R 8,200 Investment 8,000
Sundry Creditors 7,928 Cash 1,433
32,328 32,328
According to the partnership deed, assets were agreed to be revalued on retirement as under:
(i) Land & Building ₹ 7,300; Plant & Machinery ₹ 6,864 and Investments ₹ 8,400.
(ii) Besides, Goodwill was then valued at ₹ 8,100,
9)
(iii) M accepted the Investments at their revalued figure in part payment of his dues.
6
45
(iv) S paid ₹ 4,500 as further capital and M was paid off the balance of his account.
Prepare Revaluation A/c; Partners' Capital Accounts and the revised Balance Sheet of Sand R as on
03
1.1.2022
3
88
3. Partnership Retirement [3rd semester 2018 General]*
(9
A, B and C were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 respectively. The Balance
S
Sheet of the finn as on 31st December, 2021 was as follows:

SE
AS
Capital Accounts Buildings 60,000

A ₹ 40,000 Plant & Machinery 40,000
CL
B ₹ 40,000 Furniture 10,000

A
C ₹ 30,000 1,10,000 Closing Stock 30,000

TI
Reserve 15,000 Sundry Debtors ₹ 20,000

O
AL
Bills Payable 12,000 Less : Provision ₹ 1,000 19,000

BH

1,62,000 1,62,000
On 31st December , 2021 B retires. The terms of retirement provided the following:
(a) The Goodwill of the firm is to be valued at ₹ 20,000.
(b) Furniture, Plant & Machinery are to be depreciated by 10% and 5% respectively.
(c) Stock and Building are to be appreciated by 20% and 10% respectively .
(d) Provision for doubtful debts is to be increased to ₹ 1,500.
(e) The Reserve is to be transferred to the Capital Account of the Partners.
(f) The amount due to B is to be transferred to a separate Loan Account carrying interest @ I 0%.
Show the Partner 's Capital Account and the Revaluation Account, assuming that the profit & loss sharing ratio
between A and C will remain the same.

4. Partnership Retirement [B.com 2015 Pass]****

A, B and C are partners of a sharing profits and losses in the ratio of 5 : 3 : 2 respectively. The Balance
Sheet of the firm as on 31.12.2021 was as follows:
Balance Sheet
As on 13.12.2021
Capital Accounts: Land & Building 1,60,000
A = 1,00,000 Furniture 4,000
B = 60,000 Stock 6,000
C = 40,000 2,00,000 Debtors 50,000
General reserve 40,000 Less : provisions 4,000 46,000
Bank 24,000
2,40,000 2,40,000
‘B’ retires on 31.12.2021 subject to the following conditions:
(a) Furniture to be depreciated by 10% and Land & Building to be appreciated by 10%.
(b) Provision for doubtful Debts to be increased to ₹ 6,000
9)
(c) The goodwill of the firm is to be valued at 40,000
6
(d) Of the amount outstanding to ‘B’, ₹ 20,000 will be paid immediately and the balance amount due
45
to ‘B’ will be transferred to a separate Loan a/c of ‘B’.
03
(e) A and C agreed to continue the business and share the future profits and losses in the ratio of 3 : 2
respectively. Change in the value of assets and liabilities are to be recorded in the books.
3
(f) Show Revaluation A/C. And Partners’ Capital A/C. Prepare Balance Sheet after retirement of ‘B’.
88
(9
5. Partnership Retirement [Compiled by Ravi Bhalotia]*********
S
A, B and C were partners sharing profits and losses in the ratio of 2: 3: 1 respectively. The balance
SE
sheet of the firm on 31st December, 2021 stood as follows:

AS
Capital accounts: Goodwill 10,000

CL
A 40,000 Plant & Machinery 50,000

B 50,000 Furniture 25,000
C 20,000 1,10,000 Stock 20,000
A
General reserve 10,000 Debtors 25,000

TI
Sundry creditors 15,000 Less: Provision 2,000 23,000

O
Bills payable 5,000 Bank 7,000

AL
Advertisement Suspense 5,000

1,40,000 1,40,000
BH
B decided to retire on 31.12.21. The terms of retirement were as follows:

(a) The value of goodwill was ₹ 20,000.
(b) The values of furniture and machinery had to be reduced by 20% and 10% respectively.
(c) The value of stock to be increased by 10%.
(d) The provision for doubtful debts had to be increased to ₹ 2,500.
(e) A and C would bring required amount of cash in their profit sharing ratio, so that cash of ₹ 10,000
could be maintained and dues to B can be discharged.
Prepare revaluation account; capital accounts of partners & Balance Sheet.
[Profit on rev ₹ 1,500 (including goodwill); Capital: 79667; 39833; 139500]

6. Partnership Retirement [3rd semester 2018 Honours]*

Following is the Balance Sheet of A, B and C sharing profits and losses in 5:3:2. Balance sheet as 01.04.2021
(in ₹) was as below:
Capital Fixed Assets 3,00,000
A 2,40,000 Stock 1,20,000
B 1,80,000 Investment 90,000
C 90,000 Debtors 2,40,000
Reserve 1,80,000 Cash & Bank 30,000
Creditors 90,000
7,80,000 7,80,000
On 01.04.2021, C retired from the following term:
(a) Goodwill is to be valued at ₹ 80,000.
(b) New profit sharing ratio will be 3:2.
9)
(c) Fixed assets are to be valued at ₹ 4,20,000 and Stock is to be reduced by ₹ 30,000. Market
value of Investment is ₹ 84,000.
6
45
(d) C is to be paid in full and for this purpose sufficient cash is to be introduced by A and B in
such a manner that their capital is retained in the business in profit sharing ratio and cash
03
balance of ₹ 15,000 is retained as working capital of the business.
Prepare necessary account and show the Balance Sheet of A and B as on 01.04.2021 (just after the
retirement of C).
3
88
(9
7. Partnership Retirement [2015 Honours]***

S
On 31 december,2021, the Balance Sheet of the Partnership Business of A, B and C sharing Profit And
st
SE
Loss in the ratio of 1:1:1 stands as follows:

AS
Capital account Land and Buildings 70,000
CL

B 50,000 Furniture 10,000
A
C 60,000 1,50,000 Stock 21,000

TI
General reserve 24,000 Sundry Debtors 40,000

O
Sundry creditors 20,000 Bank 8,000

AL
Bills payable 15,000

2,09,000 2,09,000
BH
A retires from the business on 31.12.21 as per the following terms and conditions. B and c will
continue the business sharing profits and losses in the new ratio of 3:2.
a. Deprecation is to be written off at 15% on Machinery and 10% on Furniture.
b. The value of Buildings is to be increased to ₹90,000 and the value of stock is to be increased
by 7,000.
c. A provision of ₹ 2,000 is to created for Bad and Doubtful Debts.
d. Goodwill of the firm is valued at ₹ 45,000.
e. B and C have to adjust their capitals in their new profit sharing ratio and bring in cash to pay
off A and leave ₹ 20,000 in Bank for working capital.
f. The goodwill account is to be closed after retirement of A.
Prepare Revaluation Account, Partner’s Capital Account and the Balance Sheet of the new firm.

8. Partnership Retirement [B.com 1994]******

Ajoy, Bikash and Kamal were partners sharing Profits and Losses in the ratio of 3:2:1. Their Balance Sheet
as on 31.3.2021 stood as follows:-
Liabilities ₹ ₹ Assets ₹ ₹
Sundry Creditors 12,500 Cash at Bank 1,500
General reserve 18,000 Debtors 15,000
Capital Accounts: Less: R.B.D. 1,500 13,500
Ajoy 40,000 Stock 12,500
Bikash 21,000 Joint Life Policy 8,000
Kamal 20,000 81,000 Office Equipments 14,000
Furniture 12,000
Buildings 50,000
9)
1, 11,500 1, 11,500
6
Bikash retires on 1.4.21 subject to the following conditions:
45
(a) A typewriter purchased on 1.10.2020 for ₹ 2, 000 debited to Office Expenses A/c is to be brought
03
into account charging depreciation at the rate of 10% p.a.
3
(b) Building revalued at ₹ 75, 000. 88
(c) Furniture is to be written down by ₹ 2, 000 and stock is reduced to ₹ 10,000.
(9
(d) Reserve for Bad Debt is to be calculated @5% on Debtors;
S
(e) Goodwill of the Firm is valued at ₹ 18, 000. But no Goodwill A/c is to be raised,
SE
(f) Life Policy is to be shown at surrender value. The surrender value is ₹ 7.500.
AS
(g) Amount due to Bikash is to be transferred to Loan A/c carrying interest @ 10% p.a.
(h) Ajoy and Kamal will share Profits & Losses in the ratio of 2 : 1 and their capital is to be adjusted in
CL
the profits sharing ratio.

A
You are required to prepare: Revaluation A/c, Partner's Capital A/cs and Balance Sheet
TI
[Ans, Profit on Rev ₹ 22, 650; Bikash's Loan A/c ₹ 40, 550; Capital A/c of Ajoy ₹ 54, 067 and Kamal
O
₹ 27, 033; Balance Sheet total ₹ 1,34,150]

AL
BH
9. Partnership Retirement [2012]*****

The Balance Sheet of A, B and C who are sharing profits in proportion to their capital, stood as follows on
31st March, 2021
B 20,000 Stock 20,000
C 40,000 1,20,000 Debtors 10,000
Creditors 12,000 Less: Provision 200 9,800
Cash at Bank 17,200
1,32,000 1,32,000

C retired on the above date and the following was agreed upon:
(a) That the provision for doubtful debts be brought upto 5 % on Debtors
(b) That the Land and Buildings be appreciated by 25%.
(c) That a provision of ₹ 4,500 be made in respect of outstanding legal charges.
(d) That the Goodwill of the entire firm be fixed at ₹ 24,000 and C's share of it be adjusted into the
accounts of A and B who are going to share future Profits in the ratio of 3:1.
(e) That the entire capital of the firm as newly constituted be fixed at ₹ 60,000 between X and Z in the
proportion of 5 : 3 (actual cash to be brought in as paid off, as the case may be).
(f) Total amount due to C be transferred to his Loan A/c.
Prepare Profit & Loss Adjustment A/c, Partner’s capital Accounts and also the Balance Sheet after C’s
Retirement.
6 9)
10. Partnership Retirement [B.com Honours 2006]******
45
The Balance Sheet of X, Y and Z who are sharing profits in proportion to their capital, stood as follows on
03
31st March, 2021
Liabilities ₹ Assets
3 ₹
88
(9
X 20,000 Plant & Machinery 8,500

S
Y 15,000 Stock 8,000

SE
Z 10,000 45,000 Debtors 5,000

AS
Creditors 6,900 Less: Provision 100 4,900

CL
Cash at Bank 5,500

51,900 51,900
A
Y retired on the above date and the following was agreed upon:
TI
O
(a) That Stock be depreciated by 6 %.

AL
(b) That the provision for doubtful debts be brought upto 5 % on Debtors
BH
(c) That the Land and Buildings be appreciated by 20%.

(d) That a provision of ₹ 770 be made in respect of outstanding legal charges.
(e) That the Goodwill of the entire firm be fixed at ₹ 10,800 and Y's share of it be adjusted into the
accounts of X and Z who are going to share future Profits in the ratio of 5:3.
(f) That the assets and liabilities (except Bank) were to appear in the Balance Sheet at their old figures.
(g) That the entire capital of the firm as newly constituted be fixed at ₹ 28,000 between X and Z in the
proportion of 5 : 3 (actual cash to be brought in as paid off, as the case may be).
Show the Memorandum Reavaluation A/c, Partners’capital A/c and Balance Sheet after Y's retirement.
[Balance Sheet ₹ 54,700.]

Chapter 12: Admission cum

Retirement
1. Admission cum retirement [C.U B.com 1999, 2013 Pass]****
D and K were working in partnership sharing profits equally. On 31st December, 2021 D decided to retire
and in her place it was decided that L, her daughter, would be admitted as partner from January 1, 2022 and
her share in profits will be one-third. The Balance Sheet of the firm as on December 31, 2021 was as
follows:
Sundry creditors 22,050 Goodwill 22,500
Capital: Land & Buildings 60,075
9)
D 81,450 Motor Car 18,000
6
45
K 72,000 Furniture 13,950
Sundry Debtors 36,225
03
Cash & Bank Balances 24,750
1, 75,500
3 1, 75,500
88
It was further decided as follows:
(9
(a) The Goodwill should be raised to ₹ 30, 000.
S
(b) The Motor Car would be taken over by D at its Book Value.
SE
(c) The value of Land and Buildings would be increased by ₹ 12,420.

AS
(d) K and L would introduce sufficient Capital to pay off D and to leave thereafter a sum of ₹ 11, 025 as
working Capital in a manner that the capitals of the new partners will be in proportion to their profit
CL
sharing ratio.
(e) The capital payable by L was to be gifted to her by her mother.
A
TI
(f) The new partners decided not to show Goodwill as an asset.

O
(g) The partners introduced the capital on January 1, 2022. Show the accounts of the partners, the Cash
AL
Account and the Balance Sheet.

[Ans. Profit on Revaluation ₹ 12,420; Increase in the value of goodwill ₹ 7,500; Capital transferred
BH
from D to L ₹ 47,215; Further Capital brought in by K ₹ 12,470; Cash paid to D ₹ 26,195; Total of
Balance (New) Sheet ₹ 1,33,695. ]

Chapter 13: Death

Basic difference between the Retirement of a partner and Death of a partner
The basic difference between the two situations are: (a) that the retirement of a partner may be planned to
be effective from a particular date whereas the death o f a partner may occur any time during the year; (b)
that the payment of amount due is made to the retiring partner in case of retirement of a partner whereas
the payment of the amount due is made to the legal representative of a deceased partner in case of a partner.
How to ascertain the Share of deceased Partner
When a partner dies, the deceased partner’s share in the firm is calculated in the same manner in case of a
retiring partner
Debit amounts Credit amount
1. Debit balance of Capital Account 1. Credit balance of Capital Account
9)
2. Debit balance of Current Account 2. Credit balance of Current Account
6
3. His share in fictitious goodwill [when the 3. His share in undisclosed goodwill [when
45
present value of goodwill is less than the the present value of goodwill is more
03
recorded value of goodwill] than the recorded value of goodwill]
4. His share of loss on revaluation of assets 4. His share of profit on revaluation of
3
88
and liabilities assets and liabilities
5. His share of undistributed
(9
5. His share of undistributed loss
profits/reserves
S
6. His share of loss to date of death 6. His share of profit to date of death
SE
7. Interest on capital/salary (if any,

AS
7. Interest on drawings (if any, charged)

allowed)
CL
8. His drawings 8. His share of balance in Joint Life Policy

and his own individual life policy. His
A
share of surrender value of unrecorded

TI
and unmatured individual life policies of

O
other Partners.
AL
Accounting Treatment of Outgoing Partner’s Share in the Profits

The outgoing partner’s share in the profits may be adjusted in either of the following ways:
BH
I. In Case of Profit
Profit & Loss Suspense A/C Dr.
To Partner's Capital A/C
II. In Case of Loss
Reverse of the above entry is passed.
Tutorial Notes
(i) The Profit & Loss Suspense Account should be closed by transferring its balance to Profit &
Loss Account at the end of accounting period.
(ii) This treatment is appropriate only when the new profit sharing ratio of continuing partners
does not differ from their old profit sharing ratio.
1. Partnership: Death [Compiled by Ravi Bhalotia]*

Rahul, Ranjit and Rakes are the partners of a firm sharing profits and losses in the ratio of 5:3:2. The Balance
sheet of the firm as on 31st December 2020 is:
Balance Sheet as on 31st December 2020
(₹) (₹)
Capital Accounts: Plant 50,000
Rahul 40,000 Land and Building 40,000
Ranjit 35,000 Furniture & Fixture 24,000
Rakes 25,000 1,00,000 Debtors 8,000
9)
Reserve Fund 10,000 Stock 15,000
6
45
Creditors 28,000 Bank 13,000
03
Outstanding Expenses 12,000
1,50,000
3 1,50,000
88
Rahul has died on 1st July 2021 on the following terms-
(9
(i) Plant to be valued at ₹ 48,000.

S
SE
(ii) Land and Building revalued at ₹ 50,000.

AS
(iii) Furniture & Fixture are to be increased by ₹ 2,000.

CL
(iv) Interest on Capital is to be charged at 10% p.a.

(v) Profit for the year 2021 has been accrued on the same scale as it was in 2020.
A
(vi) Goodwill of the firm is valued at 2 years’ purchase of the average profits of the last five years
TI
O
which were:
AL
2016 : ₹ 15,000;
BH
2017 : ₹ 13000;
2018 : ₹ 12,000;
2019 : ₹ 15,000 and
2020 : ₹ 20,000
(vii) ₹ 12,000 of the due to Rahul is to be paid in cash to Rahul’s Executor and the balance is to
transfer to his loan account.
Prepare Revaluation Account, Rahul’s Capital Account and Rahul’s Executors Account.
Solution:
In the books of Rahul, Ranjit and Rakes
Particulars Amount (₹) Particulars Amount (₹)
To Plant A/c 2,000 By Furniture & Fixture A/c 2,000
To Capital Accounts A/c By Land and Buildings A/c 10,000
Rahul 5,000
Ranjit 3,000
Rakesh 2,000
(Profit on Revaluation) (Bal. Fig.)
(10,000 x 5: 3 : 2)
12,000 12,000
Dr Rahul’s Capital Account Cr.

9)
To Rahul’s Executors A/c 72,000 By Balance b/d 40,000
6
(Balance Transferred)
45
By Reserve fund A/c 5,000
03
[₹ 10,000 X 5/10]
3
By Interest on capital A/c
88 2,000
By Revaluation A/c 5,000
(9
By Ranjit’s Capital A/c 9,000
By Rakes’s Capital A/c 6,000
S
SE
72,000 72,000
AS
Dr. Rahul’s Executor’s Account Cr.

CL

To Bank A/c 12,000 By Rahul’s Capital A/c 72,000
A
To Rahul’s Executor’s Loan A/c 60,000

TI
72,000 72,000
O
AL
Working Note :
BH
a) Interest on Rahul’s Capital = ₹ 40,000 X 10/100 X 6/12 = ₹ 2,000

b) Since, profit for the year 2021 has been accrued on the same scale as it was in 2020,
therefore, profit for 6 months upto June 2021 is ₹ 20000 X 6/12 = ₹ 10,000.
And, Rahul’s Share of profits = ₹ 10,000 X 5/10 = ₹ 5000.
c) Total Goodwill of the firm =
Average profits for last 5 years = ₹ 75000/5 = ₹ 15000
Therefore, Goodwill = ₹ 15000 × 2 years = ₹ 30,000
Rahul’s share of Goodwill = ₹ 30,000 × 5/10 = ₹ 15000 (to be adjusted against capital accounts of partners
in Gaining Ratio 3:2)
Chapter 14: Dissolution

1. Partnership: Dissolution
P, Q and R are the partners in sharing profits and losses at 5: 3 : 2. The Balance Sheet as on 31.12.2021 is
given below:
Balance Sheet as on 31st December 2021

(₹) (₹)
Capital Accounts: Machinery 50,000
P 10,000 Car 10,000
Q 40,000 Debtors 45,000
9)
R 20,000 70,000 Stock 60,000
6
Creditors 1,00,000 Bank 5,000
45
1,70,000 1,70,000
03
Machinery and stock are sold for ₹ 25,000 and ₹ 18,000 respectively. Car is taken by Q for ₹ 12,000.
3
Debtors realized ₹ 20,000. Deficiency of any partner in Capital account is to be met by other partners in
88
profit sharing ratio. P is insolvent; R can bring in ₹ 5,000 only.
(9
You are required to prepare Realisation Account, Bank Account and Partners Capital Account.
Solution:
S
SE
In the books of P, Q and R

Dr. Realisation Account
AS
Cr.
CL

(₹) (₹)
A
To Machinery A/c 50,000 By Creditors A/c 1,00,000

TI
To Car A/c 10,000 By Bank A/c (assets realised)

O
To Debtors A/c 45,000 - Machinery 25,000

AL
To Stock A/c 60,000 - Stock 18,000

BH
To Bank (Payment to creditors) 1,00,000 - Debtors 20,000 63,000

By Q’s Capital A/c 12,000
- Car taken over.
By Partners Capital A/c
- P [ 90,000 X 5/10] 45,000
- Q [90,000 X 3/10] 27,000
- R [90,000 X 2/10] 18,000 90,000
(Loss on Realisation) (Balancing Figure)
1,65,000 1,65,000
Particulars P Q R Particulars P Q R
(₹) (₹) (₹) (₹) (₹) (₹)
To Realisation A/c ------ 12,000 ------- By Balance b/d 10,000 40,000 20,000
(Car taken over)
To Realisation A/c 45,000 27,000 18,000 By Bank A/C ------ ------ 5,000
(Loss) (Cash brought in
against deficiency)
To P’s Capital A/c ------ 21,000 14,000 By Q’s & R’s Capital A/c 35,000 ------ ------
(see Working note 1) (Insolvency loss of P)
To R’s Capital A/c ------ 7,000 ------ By Q’s Capital A/C ------ ------ 7,000
Deficiency borne (Deficiency of R)
By Bank (Balancing Figure) 27,000
9)
(cash brought in by Q)
6
45,000 67,000 32,000 45,000 67,000 32,000
45
03
Dr. Bank Account
3
Cr.
88
(9
To Balance b/d 5,000 By Realisation A/C 1,00,000

S
To Realisation A/C 63,000 (Payment to creditors)

SE
- assets realised
AS
To R’s Capital Accounts A/C 5,000

To Q’s Capital Accounts A/C 27,000
CL
1,00,000 1,00,000
A
TI
Working Note:
O
P is insolvent. His entire deficiency ₹ 35,000 is borne by Q and R in the ratio of 3 : 2.

AL
BH
P, Q and R are the partners in Bosco Engineering Works sharing profits and losses at 6: 3: 5. The Balance
Sheet as on 31.12.2021 is given below:
(₹) (₹)
Capital Accounts: Land and Building 10,000
P 25,000 Furniture & Fixture 5,000
R 15,000 40,000 Debtors 30,000
Current Accounts: Stock 23,100
P 1,000 Bank 2,500
R 500 1,500 Q’s Current Accounts 4,900
Reserve 1,400
Creditors 28,600
9)
Mortgage Loan 4,000
6
45
75,500 75,500
It was decided by the partners to dissolve the partnership on 31.12.2021. The following amount has been
03
realized:
3
Furniture & Fixture ₹ 2,000; Land and Building ₹ 6,000; Debtors ₹ 20,000 and Stock ₹ 15,000.
88
Creditors are agreed to forgo 25% in full settlement of their total dues. The full amount of Mortgage Loan
has been paid. Realisation expenses paid for ₹ 1,650. It was ascertained that Q had become insolvent. Q’s
(9
estate had contributed only 50 paise in a rupee.

S
You are required to prepare Realisation Account, Bank Account and Partners Capital Account following the
SE
rule given in Garner Vs. Murray.

AS
Solution:
In the books of Bosco Engineering Works
CL
Dr. Realisation Account Cr.

Particulars Amount Amount Particulars Amount
A
(₹) (₹) (₹)

TI
To Land and Building A/c 10,000 By Creditors A/c 28,600

O
To Furniture & Fixture A/c 5,000 By Mortgage Loan A/c 4,000

AL
To Debtors A/c 30,000 By Bank A/C (assets realised)

BH
To Stock A/c 23,100 - Land and Building 6,000

To Bank A/c - Furniture & Fixture 2,000
- Creditors 21,450 - Debtors 20,000
- Mortgage Loan 1,650 - Stock 15,000 43,000
- Realisation Expenses 4,000 27,100 By Partners Capital A/c
(payment of liabilities & Exp) - P [ 19,600 X 6/14] 8,400
- Q [ 19,600 X 3/14] 4,200
- R [ 19,600 X 5/14] 7,000 19,600
(Loss on Realisation) (Balancing figure)
95,200 95,200
Particulars P Q R Particulars P Q R
(₹) (₹) (₹) (₹) (₹) (₹)
To Current A/c - 4,900 - By Balance b/d 25,000 - 15,000
To Realisation A/c 8,400 4,200 7,000 By Current A/C 1,000 - 500

(Loss)
To Q’s Capital A/c 2,750 - 1,650 By Reserve A/C 600 300 500
(Working Note 1)
To Bank A/c 23,850 - 14,350 By Bank A/C 8,400 - 7,000
(Balance paid off) (Cash brought in against
realisation loss)
By Bank A/c 4,400
9)
[(9,100 – 300) x 50%]
6
45
By P’s Capital A/C & R’s 4,400
03
Capital A/c
(Insolvency Loss of Q)
3
35,000 9,100 23,000
88 35,000 9,100 23,000
(9

S
SE

To Balance b/d 2,500 By Realisation A/c 27,100
AS
To Realisation A/c 43,000 By P’s Capital A/c 23,850

CL
To P’s Capital A/c 8,400 By R’s Capital A/c 14,350

To R’s Capital A/c 7,000
A
TI
To Q’s Capital A/c 4,400

65,300 65,300
O
AL
Working Note:
BH
Q’s total deficiency of ₹ [(9,100 – 300) x 50%] or ₹ 4,400 to be shared by P and R in their Fixed Capital
Ratio i.e., 25,000 : 15,000 or 5 : 3. [As here current Accounts are given, i.e. fixed capital Method is followed
hence the insolvency loss be borne in fixed capital Ratio.
3. Dissolution of partnership [Important for Honours]

Sachin, Rahul and Laxman are three partners in a firm sharing profits and losses equally. Below is the Balance
Sheet when the firm was dissolved:
Sachin’s Capital A/c 47,000 Land & Building 30,000
Laxman’s Capital A/c 35,000 Plant & Machinery 35,000
Sachin’s Loan A/c 20,000 Furniture 5,000
Sundry Creditors 65,000 Stock 5,000
Debtors 5,000
Profit & loss A/c 37,000
Rahul’s Capital A/c 50,000
1,67,000 1,67,000
The assets realized as follows:
9)
Land and Buildings ₹ 26,000; Plant and Machinery ₹ 30,000; Furniture ₹ 3,000; Stock ₹ 3,000; Debtors ₹
6
2,000. The expenses of realization amounted to ₹ 3,500.
45
The position of the partners was as follows:
03
Partners Private Estates Private Liabilities
Sachin 33,000 35,000
Rahul 27,000
3 36,000
88
Laxman 27,000 25,000
(9
Prepare the necessary Ledger Accounts to close the books of the firm.
S
Solution:
SE
In the Books of………………

AS

CL
Particulars Amount Particulars Amount Amount

To Land & Building 30,000 By Cash A/c (Realization of
A
To Plant & Machinery 35,000 Assets) 26,000

TI
: Land & Building

O
To Furniture A/c 5,000

AL
To Stock A/c 5,000 : Plant & Machinery 30,000

To Debtors A/c 5,000 : Furniture 3,000
BH
To cash A/c [Expenses paid] 3,500 : Stock 3,000

: Debtors 2,000 64,000
By Partners’ Capital A/c
(Loss on Realization) (Bal. fig.)
: Sachin (19,500 x 1/3) 6,500
: Rahul (19,500 x 1/3) 6,500
: Laxman (19,500 x 1/3) 6,500 19,500
83,500 83,500
Dr. Partners Capital Account Cr.
Particulars Sachin Rahul Laxman Particulars Sachin Rahul Laxman
₹ ₹ ₹ ₹ ₹ ₹
To Balance b/f --- 50,000 --- By Balance b/f 47,000 --- 35,000
To Profit & Loss 12,334 12,333 12,333 By Sachin’s Loan 20,000 --- ---
A/c A/c
To Realisation 6,500 6,500 6,500 By Cash A/c --- --- 2,000
A/c (Loss) (brought in)
To Deficiency 48,166 --- 18,167 By Deficiency A/c --- 68,833 ---
A/c (Balancing Fig.)
(Unpaid amount)
9)
(Balancing Fig.)
6
67,000 68,833 37,000 67,000 68,833 37,000
45
3 03
Dr. Cash Account
88 Cr.
(9
(₹) (₹)
S
To Realisation A/c (Asset realised) 64,000 By Realization A/c (Expenses) 3,500

SE
To Laxman Capital A/c 2,000 By Creditors A/c 62,500

AS
(introduced surplus available) (Balancing Figure)

CL
66,000 66,000
A
TI
Dr. Deficiency Account Cr.

O

AL
(₹) (₹)
BH
To Rahul Capital A/c 68,833 By Sachin Capital A/c 48,166

By Laxman Capital A/c 18,167
By Creditors A/c (Unpaid 2,500
amount – bal.fig.)
68,833 68,833
Dr. Creditors Account Cr.
(₹) (₹)
To Deficiency A/c 2,500 By Balance b/f 65,000
To cash A/c (Balance paid) 62,500
65,000 65,000
Dr. Sachin’s Loan Account Cr

₹ ₹
To Sachin’s Capital A/c 20,000 By Balance b/f 20,000
9)
(It could be transferred to Deficiency Account also.)
6
45
Working Notes:
03
(1) For Sachin and Rahul the private liabilities exceeds the values of private assets. Only Laxman could
3
bring the surplus available [ ₹ 27,000 – ₹ 25,000 or ₹ 2,000].
88
(2) Sachin’s loan remained fully unpaid.
(9
(3) Amount unpaid to creditors here ₹ 2,500 transferred to deficiency A/c.
S
SE
AS
Tupai, Nupai, Jogai and Madhai were partners sharing profits and losses in the ratio of 3/10th, 3/10th,
CL
2/10th, 2/10th. Following is their Balance Sheet on December 31st, 2021.

A
TI
Capital: Capital:
O
Tupai 60,000 Jogai 48,000

AL
Nupai 45,000 1, 05,000 Madhai 18,000 66,000

Sundry Creditors 46,500 Furniture 12,000
BH
Tupai’s Loan 30,000 Trade Marks 21,000

Stock 30,000
Sundry debtors 48,000
Less: Provision for
Bad Debts 1,500 46,500
Cash at bank 6,000
1, 81,500 1, 81,500
On December, 2021 the firm was dissolved and Nupai was appointed to realise the assets and pay off the
liabilities. He was entitled to receive 5% commission on the amounts finally paid to other partners as Capital.
He was to bear the expenses of realisation. The assets realised as follows:-
₹ ₹
Sundry Debtors 33,000 Furniture 3,000
Stock 24,000 Trade Marks 12,000
Creditors were paid off in full, in addition, a contingent liability for Bills Receivable discounted materialised
to the extent of ₹ 7,500. Also there was a Joint Life Policy for ₹ 90,000. This was surrendered for ₹ 9, 000.
Expenses of realisation amounted to ₹ 1,500. Jogai was insolvent but ₹ 11,100 was recovered from his estate.
Write up Realisation Account, Bank Account and Capital Accounts of the Partne ₹
Solution:
Books of the Partnership of Tupal, Nupal, Jogal and Madhai
Date Particulars Amount Date Particulars Amount Amount
9)
₹ ₹ ₹
6
45
31.12.21 To Furniture A/c 12,000 31.12.21 By Provision for Bad Debts A/c 1,500
03
To Trade Marks A/c 21,000 By Creditors 46,500
3
88
To Stock A/c 30,000 By Bank A/c (Realization of
(9
Assets)
S
Debtors
SE
To Debtors A/c 48,000 33,000

Stock 24,000
AS
To Bank A/c Furniture 3,000

CL
(Contingent Liability 7,500 Trade Marks 12,000

A
paid off) Joint life policy (surrender value) 9,000 81,000

TI
(Creditors paid off) 46,500

O
AL
By Capital A/cs:
BH
(Loss on Realization) (Bal. Fig) 10,800

Tupai (36,000 x 3/10) 10,800
Nupai (36,000 x 3/10) 7,200
Jogai (36,000 x 2/10) 7,200 36,000
Madhai (36,000 x 2/10)
1,65,000 1,18,500
Dr. Partners Capital Account Cr.
Particulars Tupai Nupai Jogai Madhai Particulars Tupai Nupai Jogai Madhai
₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹
31.12.21 31.12.21
To Balance b/f ---- --- 48,000 18,000 By Balance b/f 60,000 45,000 --- ---
To realisation A/c 10,800 10,800 7,200 7,200 By Bank A/c --- --- 11,100 ---
(loss) (brought in)
To Jogai’s Capital By Tupai’s &
(In capital ratio) Nupai’s Capital --- --- 44,100 ---
(44,100 x 4 : 3) 25,200 18,900 ---- --- (Deficiency)
To Nupai’s By Bank A/c
9)
Capital A/c [Note 1,143 ---- ---- ---- (cash brought 10,800 10,800 --- 7,200
6
1] for realisation
45
loss)
03
To Bank A/c By Bank A/c ----- ------ ------- 18,000
3
(Final Payments) 33,657 27,243 --- --- (Cash brought
88
in by Madhai)
(9
By Tupai’s
Capital A/c
S
--- 1,143 --- --

SE
70,800 46,143 55,200 25,200 70,800 56,943 55,200 25,200

AS
CL

A
TI
(₹) (₹)
O
31.12.21 To Balance b/f 6,000 31.12.21 By Tupai’s Loan A/c 30,000

AL
To Realization A/c 81,000 By Realisation A/c 54,000

BH
(Realization of Assets & Joint (Creditors & contingent

life policy surrenderd) Liabilities paid off)
To Madhai’s Capital A/c 25,200 By Tupai’s Capital A/c 33,657
(18,000 + 7,200)
To Tupai’s Capital A/c 10,800 By Nupai’s Capital A/c 27,243
To Nupai’s Capital A/c 10,800
To Jogai’s Capital A/c 11,100
1,44,900 1,44,900
Working Notes:
1. In this problem only expenses of realization are given without any indication. No entry has been
made in the firm’s books. It has been assumed that Nupai paid these personally.
2. Jogai amd Madhai do not get back any amount. Only Tupai is to get ₹ 60,000 – (10,800 +
25,200) = ₹ 24,000
∴ Nupai’s Commission = 5/105 of 24,000= ₹ 1,143 (Approx.)
Tupai’s Capital A/c…………………………………………….Dr. 1,143
To Nupai’s Capital A/c 1,143
5. Dissolution of partnership [Important for Pass]****
6 9)
Yesterday, Today and Tomorrow were partners in a firm sharing profits and losses in the ratio of 3:2:1. They
45
decided to dissolve their firm with effect from December 31,2021, the balance sheet on which date was as
follows :
03
Creditors 25,000
3
Machinery 45,000
88
Loan on Mortgage 20,000 Stock 20,000
(9
Joint life policy reserve 12,000 Debtors 30,000
S
Capital account: Less: Provision 1,500

SE
Yesterday 45,000 Joint Life policy 15,000

AS
Today 30,000 Patents 20,000

Tomorrow 15,000 Cash at bank 18,500
CL
1,47,000 1,47,000
Additional information in connection with the dissolution was as follows :
A
TI
(a) Joint life policy was surrendered and insurance company paid a sum of ₹ 18,000.
O
(b) Today took some of the patents at ₹ 3,500 whose book value was ₹ 5,000.
AL
(c) The remaining assets realised as follows: Machinery ₹ 30,000; Stock ₹ 15,500; Debtors ₹ 25,500;
Patents 50% of the book value.
BH
(d) Liabilities were paid and discount of ₹ 1,250 was allowed by the creditors.
(e) Expenses of dissolution amounted to Rs, 1,500.
Prepare the necessary ledger accounts to close the books of the firm.
[Loss ₹ 28,750. Final repayment: Yesterday ₹ 36,625 ; Today ₹ 20,917 ; Tomorrow ₹ 12,208]
6. Partnership: Dissolution [3rd semester Honours 2020]*******

The following is the Balance Sheet of X, Y and Z sharing profits in the ratio of 2 : 2 : 1.
Creditors 64,000 Sundry Assets 1,96,000
Capital : X 90,000 Cash at Bank 8,000
Capital : Y 60,000 Capital : Z 10,000
2,14,000 2,14,000
The firm is dissolved. Sundry assets realised ₹ 1,88,000 and creditors accepted ₹ 62,000 in full settlement.
Expenses amounted to ₹ 4,000. Z was insolvent and final dividend of 60 % was received from his estate.
Prepare Realisation Account, Bank Account and Partners’ Capital Account. [Apply Garner vs. Murray
Principle].
9)
7. Partnership: Dissolution [3rd semester Pass 2019]*******
6
45
Tejpal, Nagpal, Joypal and Manipal were partners sharing Profits and Losses in the ratio 3:3:2:2. Following
03
is their Balance Sheet as on 31st December, 2021.
3
Liabilities Amount Amount
88 Assets Amount Amount
₹ ₹ ₹ ₹
(9
Capital Accounts: Capital Account

S
Tejpal 2,40,000 Jaypal 1,92,000

SE
Nagpal 1,80,000 4,20,000 Manipal 72,000 2,64,000

AS

CL
Tejpal’s Loan 1,20,000 Trade Marks 84,000

Stock 1,20,000
A
Sundry Debtors 1,92,000

TI
Less Provision for 6,000 1,86,000

O
doubtful debts
AL
Cash at bank 24,000

BH
7,26,000 7,26,000
st
On 31 December, 2021 the firm was dissolved. The following are the realizations from the assets:
Sundry Debtors ₹ 1,32,000
Stock ₹ 96,000
Furniture ₹ 12,000
Trademarks ₹ 48,000
Sundry Creditors and Tejpal’s Loan were paid in full. There was a Contingent Liability for bills receivables
discounted for ₹ 30,000. The bill was honoured on due date. The dissolution expenses of ₹ 6,000 was
borne by Nagpal. Joypal was declared insolvent and ₹ 44,000 was realized from his assets.
Prepare Realisation Account, Bank Account and Partners Capital Account.
8. Dissolution of partnership [Compiled by Ravi Bhalotia] [Honours]****

A, B and C are partners sharing profits and losses @ 40%, 30% and 30% respectively. They decide to dissolve
the firm and appoint B to realise the assets and distribute the proceeds. B is to receive 5% of the amounts
realised from Stock and Debtors as his remuneration and is to bear all the expenses of realisation.
The following is the Balance Sheet of the firm as on the date of dissolution:
Liabilities ₹ Assets ₹ ₹
Capital Account: Debtors 45,500
A 30,000 Less: Reserve 2,500 43,000
B 20,000 Stock 60,000
Capital Accounts
C (overdrawn) 4,500
1,09,000 1,09,000
9)
B reports the result of realisations as follows :
6
45
Debtors realised 35,000
Stocks realised 45,000
03
Goodwill is sold for 2,000
3
Creditors are paid 57,500
88 in full Settlement
Outstanding Creditors 500 have also been paid.
(9
The expenses of realisation came to ₹ 600 which B met personally.
A and B agree to receive from C ₹ 3,000 in full settlement of the Firm's claims against him.
S
SE
Show the Capital Accounts and the Realisation Account of the Firm (apply Garner vs. Murray rule).
AS
9. Partnership: Dissolution [B.com 2012] [Important for Honours]*******

CL
Bee, Cee, Dee and Zee are partners in a firm sharing profits and losses in the ratio of 4:1:2:3. The following
is their Balance Sheet as at 31st March, 2021 (in ₹ ).
A
TI
Capital : Bee 6,20,000 Debtors 3,50,000

O
Zee 2,40,000 Less: Provision 50,000 3,00,000

AL
Creditors 3,00,000 Cash 1,30,000

General Reserve 2,50,000 Stock 2,00,000
BH
Bank Loan 60,000 Investments 70,000

Machinery 3,10,000
Capital : Cee 2,20,000
Dee 1,90,000
Preliminary Expenses 50,000
14,70,000 14,70,000
On 31.03.2021, the firm is dissolved and the following points are agreed upon:
(a) Bee is to take over 40% of debtors at 80% of book value.
(b) Zee is to take over the stocks at 95% of the value.
(c) Dee is to discharge the sundry creditors.
(d) Bank to take the Investments in full settlement of their loan.
(e) Fixed assets and balance of Debtors realized ₹ 3, 00,000 and ₹ 1,78,000 respectively.
(f) Expenses of realization amounted to ₹ 30,000.
(g) Cee is declared insolvent and ₹ 22,000 is realized from his estate.
Prepare Realization Account, Capital Accounts of the partners and Cash A/c in the books of the firm.
[Realisation loss: 70,000; Insolvency loss: 185000; Capital Ratio: 7:3; FP: 458500; 54500; 150000]
10. Partnership: Dissolution [B.com 2014] [Important for Honours]*******

Amal, Bimal, Charu and Deben were partners in a firm sharing Profits/Losses in the ratio 3:3:2:2. The
following was their Balance Sheet as at 31st December, 2021:
Partners capital: Furniture 14,000
Amal 20,000 Debtors 22,000
Bimal 15,000 Less: Provision 1,000 21,000
Amal’s Loan 12,500 Cash at Bank 3,000
9)
Sundry Creditors 25,000 Stock 12,500
6
Capital:
45
Charu 16,000
03
Deben 6,000
3
72,500 88 72,500
The firm was dissolved on 31.12.2021. Bimal was appointed to realise the assets and pay off the liabilities
(9
and was entitled to receive 5% of the amount realised from the assets. The assets realised as follows:
Furniture ₹ 11,000; Debtors ₹ 16,500; Stock ₹ 10,500.
S
SE
Sundry creditors were paid in full including a contingent liability of ₹ 3,500. Realisation expenses of ₹ 1,500
were paid by the firm. Charu was insolvent and ₹ 5,000 could be recovered from his private estate.
AS
Write up the Realisation Account, Bank Account and Capital Accounts of the partners following the rules
CL
given in Garner vs. Murray.

[Realisation loss: ₹ 16,400; Insolvency loss ₹ 14280; Final Payment to A & B: ₹ 11840 & ₹ 10780; D will
A
bring ₹ 6000; Bank A/c total ₹ 65120]

TI
O
11. Dissolution of partnership [3rd semester 2018 Honours]

AL
Arun, Barun and Kiran are partners in A & Company sharing profits and losses in the ratio of 2:2:1
BH
respectively. The Balance Sheet of A & Company as at 31st March, 2021 is as follows:
Capital: Fixed Assets 3,00,000
Arun 3,52,000 Current Assets
Barun 68,000 Stock 2,50,000
Kiran 1,00,000 Debtors 2,60,000
Mrs. K’s Loan Account 25,000 Less: Provision 30,000 2,30,000
Reserves 1,00,000 Cash 50,000
Sundry Creditors 1,85,000
8,30,000 8,30,000
The partners decided to dissolve the firm on the date of Balance Sheet.
Kiran is assigned with the work of dissolution and will be allowed to a commission @ 3% on the amount
realized; however, he is to bear all expenses relating to dissolution.
Fixed Assets realized ₹ 1,00,000, Stock ₹ 1,05,000 and Debtors ₹ 1,52,500. Creditors were paid after
deduction of discount @ 10%. The expenses of dissolution came to ₹ 5,400 and paid by the firm. Kiran
agreed to take over the loan of Mrs. K.
Barun is insolvent and his private estate realized ₹ 50,000, whereas his private liabilities are ₹ 32,000. The
partnership deed stated that deficiency due to insolvency of partner should be borne by the solvent partners
equally. Prepare the relevant accounts to close the books of A & Company.
12. Partnership: Dissolution [B.com 2nd year Honours 2018] [Important]

Ram, Shyam, Jadu and Hari were partners in a firm sharing Profits and Losses in the ratio 4:3:2:1. The
following was their Balance Sheet as at 31st December, 2021:
9)
6
45
Capital Accounts Capital Accounts
Ram 30,000 Jadu 20,000
03
Shyam 25,000 55,000 Hari 10,000 30,000
Sundry Creditors 40,000
3
Furniture 25,000
88
Shyam’s Loan 10,000 Stock 22,000
(9
Debtors 22,000
S
Less Provision 1,000 21,000

SE
Bank 7,000
AS
1,05,000 1,05,000
CL
On 31st December, 2021, the firm was dissolved and Ram was appointed to realise the assets and to pay the
liabilities. He was entitled to receive commission at 2% o the amount realised from assets.
A
Ram was to bear expenses of realisation. The assets realised as follows:

TI
Furniture Rs 21,000; Debtors ₹ 16,000 and Stock ₹ 18,000

O
Creditors were paid in full including a contingent liability of ₹ 4,000. There was a joint Life Policy for ₹
AL
8,000 which was surrendered for ₹ 2,100. Expenses of realisation amounted to ₹ 3,000. Hari was declared
BH
insolvent and ₹ 8,600 was recovered from his estate.

Close the books of the firm applying the rule in the case Garner vs. Murray.
13. Partnership: Dissolution [C.U.B.com 2016] [Important for Honours]

P, Q, R and S were partners sharing profits and losses in the ratio 4:3:2:1. The following was their Balance
Sheet as on 31st March, 2021 :
Capital Accounts Capital Accounts
P 50,000 R 45,000
Q 40,000 90,000 S 20,000 65,000
Creditors 40,000 Furniture 15,000

P’s Loan 30,000 Trade Marks 18,000
Stock 22,000
Debtors 35,000
Less: Provision 2,000 33,000
Bank 7,000
1,60,000 1,60,000
On 31st March, 2021, the firm was dissolved and Q was appointed to realise the assets and to pay the
liabilities. He was entitled to receive commission at 5% on the amount finally paid to other partners towards
their capital. Q was to bear expenses of realisation. The assets realised as follows:
Furniture ₹ 9,000; Trade Marks ₹ 11,000; Debtors ₹ 22,000 and Stock ₹ 12,000. Creditors were paid of
₹ 35,000 in full settlement of their claim. There was a Joint Life Policy for ₹ 40,000 which was surrendered
9)
for ₹ 4,000. Expenses of realisation amounted to ₹ 2,000. R was declared insolvent and ₹ 10,400 was
6
recovered from his estate.
45
Prepare Realisation Account and Partner’s capital A/c after applying the rule in the case Garner vs. Murray.
03
14. Dissolution of partnership [3rd semester 2020 Pass]
3
Amal and Bimal were in equal partnership. Their Balance Sheet stood as follows on the 31st December,
88
2021, the date of dissolution :
(9
S
Creditors 4,80,000 Plant and Machinery 1,60,000

SE
Bimal’s Capital 60,000 Furniture and Fittings 50,000

AS
Debtors 60,000
CL
Stock 1,20,000
Cash 25,000
A
Amal’s Capital 1,25,000

TI
O
5,40,000 5,40,000
AL
On dissolution, the assets realised as under :

BH
₹
Furniture and Fittings 15,000
Debtors 45,000
Stock 25,000
Realisation expenses amounted to ₹ 26,000. Bimal’s private estate is not sufficient even to meet his private
debts whereas in Amal’s private estate there is a surplus of ₹ 16,000 only. Give necessary Accounts to close the
books of the firm.
Chapter 15: Piecemeal

Distribution
1. Piecemeal Distribution
Chaitali, Reshmi and Ipsita were partners in a firm sharing profits and losses in the ratio of 3:2:1. The
partnership was dissolved on 30th September, 2021 when the Balance Sheet was as follows:-
Capital: Cash 8,000
Chaitali 12,000 Debtors 19,000
Reshmi 11,000 Stock 40,000
9)
Ipsita 3,000
Loan:
6
45
Chaitali 6,000
Reshmi 10,000
03
Creditors 25,000
67,000
3 67,000
88
It was agreed that net realisation should be distributed in the due order at the end of each month, the
(9
realisation and expenses were as follows:
Debtors (₹) Stock (₹) Expenses (₹)
S
SE
October 2021 5,000 8,000 2,000

November 2021 3,000 8,000 1,000
AS
December 2021 5,000 12,000 1,000

CL
January 2022 2,000 10,600 2,000

February 2022 3,000 1,000 500
A
The stock was completely disposed of. It was agreed that Ipsita should take over the remaining debts of ₹
TI
100. Show the distribution of cash as and when realised.

O
Solution:
AL
Statement showing Absolute Surplus Capital

BH
Particulars Chaitali Reshmi Ipsita

₹ ₹ ₹
(a) Capitals as per Balance Sheet 12,000 11,000 3,000
(b) Profit Sharing Ratio 3 2 1
(c) Base capital (a ÷ b) 4,000 5,500 3,000
(Ipsita’s capital being lowest taken as base)
(d) Adjusted Capitals 9,000 6,000 3,000
(Base capital x b)
(e) Surplus Capital (e = a – d) 3,000 5,000 Nil
(f) Profit Sharing Ratio 3 2 ----
(g) Base capital (a ÷ b) 1,000 2,500 -----

(Chaitali’s capital being lowest taken as base)
(h) Relative Surplus Capital (Base capital x f) 3,000 2,000 -----
(i) Absolute Surplus Capital (e – h) Nil 3,000
Nil
(B) Statement showing Priority of Payment

Particulars Amount (₹)
(a) Payment to Creditors 25,000
(b) Repayment of Partners’ loans
Chaitali 6,000
9)
Reshmi
10,000 16,000
6
(In the ratio of 6,000 : 10,000 or 3 : 5)
45
(c) Absolute Surplus capital : Reshmi 3,000
03
(d) Relative surplus capitals:
3
Chaitali 3,000
88
Reshmi 2,000 5,000
(9
(In the ratio of 3 : 2)

S
(e) Balance to all partners in their profit sharing ratio of 3 : 2 :1.

SE
AS
(C) Statement showing Amount Realised in Cash

CL
Month Debtors (a) Stock (b) Expenses (c) Amount Realised (d = a + b - c)

A
₹ ₹ ₹ ₹
TI
October 2021 5,000 8,000 2,000 11,000

O
November 2021 3,000 8,000 1,000 10,000

AL
December 2021 5,000 12,000 1,000 16,000

BH
January 2022 2,000 10,600 2,000 10,600

February 2022 3,000 1,000 500 3,500
(D) Satement showing Distribution of Cash

Particulars Amount Creditors Loans Capitals
Available ₹
₹
Chaitali Reshmi Chaitali Reshmi Ipsita
₹ ₹ ₹ ₹ ₹
Balance Due --- 25,000 6,000 10,000 12,000 11,000 3,000

1 Realization (October)
st
11,000
Add: Cash in hand 8,000
19,000
Less: Paid to Creditors 19,000
19,000
Balance Due 6,000 6,000 10,000 12,000 11,000 3,000
2 nd
Realization (November) 10,000
Less: Paid to Creditors 6,000 6,000
4,000
Less: Paid to Chaitali & Reshmi 1,500 2,500
4,000
towards loans (4,000 x 3 : 5)
9)
Balance due Nil 4,500 7,500 12,000 11,000 3,000
6
3 Realization (December)
rd
16,000
45
Less: Paid to Chaitali & Reshmi
03
₹ 12,000 as 3 : 5 for balance due 12,000 4,500 7,500
3
against loans
88
4,000
Less: Paid to Reshmi against her
(9
absolute surplus 3,000
3,000
1,000
S
Less: Paid Chaitali & Reshmi for

600
SE
400
relative surplus capitals (3 : 2) 1,000
AS
Balances Due Nil Nil Nil 11,400 7,600 3,000

CL
4th realization (January) 10,600

Less: ₹ 4,000 paid to Chaitali & 4,000 2,400 1,600
A
TI
Reshmi towards relative surplus

O
as 3 : 2 6,600
AL
BH
Less: Payment to all partners 6,600 3,300 2,200 1,100

(3 : 2 : 1)
Balances Due 5,700 3,800 3,000

5th Realization (February) 3,600 1,800 1,200 600
[3500 + ₹ 100 for remaining 3,600
debts taken over by Ipsita]
[To all partners as 3 : 2 : 1]
Loss on Realization 3,900 2,600 1,900
Note:
At 5th realisation, payment to Ipsita includes ₹ 100 Debt and balance in Cash.
2. Piecemeal Distribution [B.com Honours]* [Important for Pass]

The following is the balance sheet of M/s. X, Y and Z, a partnership firm, as on 31.12.20:
Sundry creditors 10,000 Cash at bank 1,000
Bills payable 6,000 Sundry debtors 42,000
Capital accounts: Fixed assets 30,000
X 31,000
Y 20,000
Z 6,000
73,000 73,000
The profits and losses are divided in the ratio of 3: 2: 1. The firm was dissolved on 31st December, 2020,
and the assets were gradually realised and distributed amongst the partners on a piecemeal basis.
The following are the realisation made during January to March, 2021:
9)
January, 2021 ₹ 20,000; February, 2021 ₹ 21,000; March, 2021 ₹ 40,000.
Prepare a statement setting out the progressive distribution of cash among the Partners.
6
45
3. Piecemeal Distribution [B.com 2013 Honours]** [Important for Pass]
03
Ajay, Bijay and Sujay were partners sharing profits and losses as 2:1:1. The Balance Sheet as on 31.12.2021
when they dissolved their partnership was under:
3
88
(9
Capital: Sundry Assets 1,85,000
Ajay 60,000
S
SE
Bijay 50,000
Sujay 30,000
AS
Reserves 10,000 Cash 15,000

CL
Govt. Dues 10,000

A
Bijay’s Loan 20,000

TI
Creditors 20,000
O
2,00,000 2,00,000
AL
₹ 2,000 was spent for packaging of materials before sale. The realizations were made on different dates as
BH
under: January, ₹ 15,000; February, ₹ 20,000; March, ₹ 30,000; April, ₹ 60,000 and May, ₹ 40,000. The
collections were distributed as and when realized. Show the distribution of cash collected.
4. Piecemeal Distribution [B.com 2015 Honours]* [Important for Honours]
A, B and C are partners of a firm and share profits and losses in the ratio 4:3:3. Their Balance Sheet as on
31st December, 2021 was as under :
Capital Accounts: Cash in hand 2,000
A 20,000
B 12,000
C 8,000 40,000
Reserve Fund 8,000 Bank 3,000
Contingency Reserve 4,000 Other assets 65,000
A’s Loan 5,000
B’s Loan 3,000
70,000 70,000
The partnership is dissolved and the assets are realised as follows: ₹
1st Realisation 12,000
2nd Realisation 30,000
9)
3rd Realisation 15,000
6
45
Realisation expenses were estimated at ₹ 3,000 but actual expenses was ₹ 2,500 and paid on 3rd realisation.
C took stock worth ₹ 700 at the time of 2nd realisation.
03
Prepare a statement showing how the distribution should be made by following ‘Surplus Capital Method’.
[Realisation Loss ₹ 3,920; ₹ 2940; ₹ 2,940]
3
88
(9
5. Piecemeal Distribution [B.com 2017 Hons] [Important for Honours]****
S
A, B and C are Partners in a firm and share profits and losses in the ratio 2:1:1.Their balance sheet as on
SE
December,2020 was as under:

AS
Liabilities ₹ ₹ Assets ₹
Capital Account: Cash in hand 10,000
CL
A 76,000
A
B 48,000
TI
C 36,000 1,60,000
O
Reserve Fund 10,000 Other Assets 1,90,000

AL
A’s Loan 5,000

BH

2,00,000 2,00,000
The partnership is dissolved and the assets were realised in instalments. The payments were made on the
proportionate capital basis. Creditors were paid ₹ 20,000 in full settlement of their claims. Realisation
expenses were estimated at ₹ 5,400 but actual amount spent was ₹ 4,500 which was paid on 20th March.
A took furniture worth ₹ 2,000 on 15th February.
Draw up a memorandum of distribution of cash which were realised as follows:
On 20th January, 2021 ₹ 15,000
On 15th February, 2021 ₹ 70,000
On 20th March, 2021 ₹ 84,500
6. Piecemeal Distribution [3rd semester 2019 honours]

A, B and C were partners in a firm sharing profits and losses in 3 : 2 : 1. The partnership was dissolved on
30.09.2021, when the Balance Sheet (in ₹ ) was as follows:
Capital : A 12,000 Cash 16,000
B 14,000
C 2,000
Loan: [A -12,000; B - 20,000] 32,000 Debtors 38,000
Reserves and profits 36,000 Stock 80,000

Creditors 38,000
1,34,000 1,34,000
It was agreed that net realizations should be distributed in due order at the end of each month starting from
October 2021. The realizations from assets and expenses (in ₹ ) were as follows:
Oct. Nov. Dec. Jan. Feb.
Debtors 10,000 6,000 10,000 4,000 6,000
9)
Stock 16,000 16,000 24,000 20,000 2,000
6
45
Expenses 2,000 1,000 1,000 800 400
03
The partners decided to distribute cash as and when available. Show the distribution thereof.
3
88
7. Piecemeal Distribution [B.com 2003 Hons] [Important for Honours]****
(9
Luck, Duck and Pluck were partners sharing profits and losses as 2: 1: 1. Their Balance Sheet as on
31.12.2020 is given below and they dissolved their partnership as on that date:
S
SE

AS
Income Tax payable 4,000 Stock 40,000

Loan from Bank (secured by pledge of stock) 30,000 Debtors 60,000
CL
Duck’s Loan 11,000 Furniture 36,000

A
Capital: Motor car 25,000

TI
Luck 40,000
O
Duck 40,000
AL
Pluck 30,000 1, 10,000

BH
1,70,000 1,70,000
The Bank could realise only ₹ 25, 000 on disposal of stock. A sum of ₹ 3, 000 was spent for Motor Car
for getting better price. Other assets were realised as follows:
January 2021 ₹ 12,000
February 2021 ₹ 15,000
March 2021 ₹ 10,000
April 2021 ₹ 30,000
May 2021 ₹ 34,000
Duck took over unsold furniture worth ₹ 1,000 at the end of May 2021. The partners distributed the cash
as & when realised. Show the distribution of Cash.
[Loss on realisation ₹ 37,000]
3rd Semester 2018: Financial Accounting II: Hons

Tree Ltd. has a branch at Munnar to which it sends goods at a price which is 160% of cost price. All cash
received are deposited by the branch to the head office bank account on the same day and all expenses of
branch are paid by the head office directly except petty expenses which are paid by the branch out of cash
sent by the head office for this purpose. From the following particulars, prepare the Munnar Branch A/c
in the books of head office showing Profit or Loss on branch –
₹ ₹
Stock at I.P. (1.4.20) 48,000 Abnormal loss of goods (at IP) 8,000
Debtors (1.4.20) 40,000 Insurance claim received against 4,600
abnormal loss
9)
Petty Cash (1.4.20) 2,800 Return Inward (out of credit 6,500
6
sales)
45
Goods sent by H.O. (at cost) 3,25,000 Bad debt 3,000
03
Sales by branch (of which 1/3rd 6,00,000 Expenses paid by the head office 44,400
are in cash)
Normal loss (at cost) of goods 2,000
3
Petty expenses paid by the 9,900
88
branch
(9
Cash sent by head office for 9,000 Debtors (31.3.21) 92,000
petty expenses
S
Stock at I.P. (31.3.21) 70,400

SE
AS
Or
Finex Pvt. Limited of Kolkata has a branch at Delhi. Goods are sent by the Head Office (H.O) to the Branch
CL
at selling price which is cost plus 25%. All expenses of the branch are paid by HO. All cash collected by the
branch (from customers and from cash sales) is deposited to H.O. account with the bank. From the
A
following particulars, prepare Branch Stock Account, Branch Adjustment Account, Branch Debtors
TI
Account and Branch Profit & Loss Account in the books of Head Office.
O
₹
AL
Stock on 01.04.2020 (at I.P) 80,000

BH
Stock on 31.03.2021 (at I.P) 1,00,000

Debtors on 01.04.2020 60,000
Debtors on 31.03.20 ?
Cash Sales during the year 3,00,000
Credit Sales during the year 7,50,000
Total amount deposited in the H.O during the year 9,80,000
Goods returned by Branch to H.O. (at I.P) 20,000
Expenses Paid 56,000
Spoilage (abnormal) at I.P 10,000
Goods sent to Branch (at I.P) ?
Fast Ltd. Purchased a car from Slow Ltd. on 1.4.19 on hire purchase system. Payment is to be made as
below –
₹ 1,00,000 on signing the agreement and 3 annual instalments of ₹ 35,000, ₹ 43,500 & ₹ 31,500
payable on 31.3.20, 31.3.21 and 31.3.22 respectively, instalments include interest @ 5% p.a. Fast Ltd.
Charges depreciation @ 40% p.a. on W.D.V and closes its books on 31.3. every year. It failed to pay the
instalment due on 31.3.21 and as a result Slow Ltd. repossessed the car in full settlement of their claim.
Show Car A/c and Slow Ltd. A/c. in the books of Fast Ltd.
Or
Credit Ltd. Sells goods on hire purchases basis at cost plus 50%. From the following particulars, you are
required to prepare HP Stock A/c, HP Debtors A/c, Repossessed Stock A/c and HP Adjustment A/c to
ascertain the profit made for the year ended 31.3.21 (in ₹ )
Stock on hire with customers at S.P. on 01.04.20 1,35,000
9)
6
45
Instalments due on 31.3.21 from paying customers 1,35,000
03
Goods repossessed (instalment due ₹ 6,000), valued at 1,800
3
Purchase made during the year 2020-21 9,20,000
88
Goods sent on hire purchase at S.P 12,93,000
(9
S
SE
A firm has two departments – Clothing and Outfitting is made with clothes supplied by the Clothing
AS
Department at its usual selling price. From the following figures, prepare Departmental Trading and Profit
& Loss Account for the year ended on 31.3.21 and also the General Profit and Loss A/c for the same period.
CL
Clothing ( ₹ ) Outfitting ( ₹ )
A
Stock on April 01, 2020 6,00,000 1,00,000

TI
Stock Reserve as on April 01, 2020 --- 9,000

O
Sales 44,00,000 9,00,000

AL
Purchases 36,00,000 30,000

BH
Supply to Outfitting Department 6,00,000 ---

Selling Expenses 1,40,000 42,000
Wages 4,00,000 1,20,000
Stock on March 31.2021 4,00,000 1,20,000
The value of stock on 31.3.2021 in the Outfitting Department includes clothes worth ₹ 80,000 out of those
transferred by the Clothing Department. General Expenses of the business as a whole came to ₹ 1,80,000.
Ess Ltd. was dealing in 9% Government Stock. They furnished the following details about their
transaction:-
01.04.20 Opening balance – Face value ₹ 30,000, Cost ₹ 27,000
01.08.20 Purchased ₹ 20,000 stock @ 91% cum-interest
31.10.20 Sold ₹ 36,000 stock @ 93% cum-interest
01.12.20 Bought ₹ 26,000 stock @ 90% ex-interest
01.02.21 Sold ₹ 20,000 stock @ 94% ex-interest
Interests are payable on March 31 and September 30 each year.
The company follows weighted average method (after each transaction) for stock valuation.
Prepare investment Account for the year ended 31.3.21 (Assume that the prices given above are after
adjustment for appropriate Brokerage).
9)
6
Calculate the ratio of sales between pre-incorporation period and post-incorporation period for each of the
45
following independent cases:
03
(a) P. Ltd. Was incorporated on 1.7. 20 and took over the business of S. Co. with retrospective
3
effect from 1.4. 20; it closes its books on 31st March every year. Sales for the year 2020- 21
88
were ₹ 24,00,000 of which ₹ 9,00,000 were sold during the first 6 months of the year.
(9
(b) Q. Ltd. was incorporated on 1.8.2020 and took over the business of A & Co. with retrospective
effect from 1.4.2020; it closes its books on 31st March every year. Sales for the year 2020-
S
SE
21were ₹ 5,60,000. It is ascertained that monthly sales for June and July is double the
AS
monthly sales of other months.

(c) R. Ltd. was incorporated on 1.9.20 and took over the business of C. Bros. with retrospective
CL
effect from 1.4.20; it closes its books on 31st March every year. Sales for the year 2020- 21
A
were ₹ 24,00,000 and monthly sales after the date of certificate of incorporation recorded
TI
an increase of 2/3 over monthly sales during period before incorporation.

O
(d) S. Ltd. was incorporated on 1.8.20 and took over the business of Mr. A with retrospective
AL
effect from 1.4.2020; it closes its books on 31st March every year. Sales for the year 2020- 21
BH
were ₹ 12,00,000. It is ascertained that monthly sales for September and October is double
the average monthly sales for the year.
OR
Zed Stores is owned by Mr. Ketu. On 31.03.2021, the business is acquired by a limited company called
PQR Ltd. on the below mentioned terms –
a) Land and Building and Plant & Machinery to be valued at 150% and 140% of book value.
b) Stock is to be written off by 10%.
c) Other assets and liabilities will be taken at their book values.
d) The proprietor will receive 13,000 equity shares of ₹ 10 each at 20% premium, 700, 8%
Preference shares of ₹ 100 each at par and ₹ 24,000 in cash.
Balance Sheet of Zed Stores as on 31.3.2021

Capital Account 1,60,000 Land & Building 1,00,000
Bank Loan 4,80,000 Plant & Machinery 2,00,000
Creditors 90,000 Stock 3,00,000
Debtors 1,00,000
Cash & Bank 30,000
7,30,000 7,30,000
Calculate purchase consideration. Show necessary journal entries in the books of PQR Ltd. for the acquisition.

9)
Question 6 (P/L Appro + Goodwill OR Retirement):
6
a. X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1 and their capitals are ₹ 1,80,000,
45
₹ 1,20,000 and ₹ 60,000 respectively. It is decided that with effect from April 1, 2021, the profit
03
sharing ratio will be 2:2:1.
3
The partnership deed states that goodwill is to be valued at 2 years purchase of average of 3 years
88
profits and capitals of the partners should be proportionate to the profit-sharing ratio.
(9
The profit for the last three years 2018-19, 2019-20 and 2020-21 were ₹ 1,20,000, ₹ 1,00,000 and ₹
1,40,000 respectively.
S
SE
Make necessary journal entries in the books of the firm.

b. P and Q are partners in a firm sharing profits equally. Their capital accounts as on 31.3.2021 showed
AS
balances of ₹ 70,000 and ₹ 60,000 respectively after distribution of profit for the year 2020-21 of
CL
Rs, 40,000 and drawings of ₹ 10,000 and ₹ 6,000 respectively during the year. Subsequently, it was
found that the following items have not been considered while preparing the final accounts for the
A
TI
year ended 31st March, 2021:

O
(i) Interest on partners’ opening capital @ 6% p.a.

AL
(ii) Interest on drawings @ 8% p.a.

(iii) P was entitled to salary of ₹ 21,000 for the year 2020- 21.
BH
Give a single adjusting entry in the books of the firm through partners’ capital account.
OR
Following is the Balance Sheet of A, B and C sharing profits and losses in 5:3:2. Balance sheet as 01.04.2021 (in
₹) was as below:
Capital Fixed Assets 3,00,000
A 2,40,000 Stock 1,20,000
B 1,80,000 Investment 90,000
C 90,000 Debtors 2,40,000
Reserve 1,80,000 Cash & Bank 30,000
Creditors 90,000
7,80,000 7,80,000
On 01.04.2021, C retired from the following term:
(a) Goodwill is to be valued at ₹ 80,000.
(b) New profit sharing ratio will be 3:2.
(c) Fixed assets are to be valued at ₹ 4,20,000 and Stock is to be reduced by ₹ 30,000. Market
value of Investment is ₹ 84,000.
(d) C is to be paid in full and for this purpose sufficient cash is to be introduced by A and B in such
a manner that their capital is retained in the business in profit sharing ratio and cash balance
of ₹ 15,000 is retained as working capital of the business.
Prepare necessary account and show the Balance Sheet of A and B as on 01.04.2021 (just after the
retirement of C).
Question 7 (Dissolution):
Arun, Barun and Kiran are partners in A & Company sharing profits and losses in the ratio of 2:2:1
9)
respectively. The Balance Sheet of A & Company as at 31st March, 2021 is as follows:
6
45
Capital: Fixed Assets 3,00,000
03
Arun 3,52,000 Current Assets
3
Barun 68,000 Stock 88 2,50,000
Kiran 1,00,000 Debtors 2,60,000
(9
MRS. K’s Loan Account 25,000 Less: Provision 30,000 2,30,000
S
Reserves 1,00,000 Cash 50,000

SE
Sundry Creditors 1,85,000

AS
8,30,000 8,30,000
The partners decided to dissolve the firm on the date of Balance Sheet.
CL
Kiran is assigned with the work of dissolution and will be allowed to a commission @ 3% on the amount
realized; however, he is to bear all expenses relating to dissolution.
A
TI
Fixed Assets realized ₹ 1,00,000, Stock ₹ 1,05,000 and Debtors ₹ 1,52,500. Creditors were paid after
O
deduction of discount @ 10%. The expenses of dissolution came to ₹ 5,400 and paid by the firm. Kiran
AL
agreed to take over the loan of MRS. K.

Barun is insolvent and his private estate realized ₹ 50,000, whereas his private liabilities are ₹ 32,000.
BH
The partnership deed stated that deficiency due to insolvency of partner should be borne by the solvent
partners equally.
Prepare the relevant accounts to close the books of A & Company.
3rd Sem 2018: Financial Accounting II: GENERAL

Mis. Ananda Electricals has a branch at Patna. Goods are invoiced to the branch at cost plus 50% Branch remits
all cash receipts to the head office and all expenses are paid by the head office. From the following particulars,
prepare Branch Stock Account and Branch Stock Adjustment Account in th books of head office.
Particulars ₹
Stock on 01.01.2021 (Invoice Price) 37,200

Debtors on 01.01.2021 27,200
Goods invoiced to Branch (cost price) 1,36,000
Cash Sales 10,040
9)
Credit Sales 1,24,000
6
Cash received from Debtors 1,21,600
45
Goods returned to Head Office 6,000
03
Stock on 31.12.2021 (Invoice Price)
3 1,01,160
88
(9
S
SE
Raipur Electronics which sells a popular product on hire-purchase system, has the following balances:
₹
AS
2021 January 1 Stock out on hire at Hire-purchase price 30,000

CL
Stock in hand (at the Shop) 7,000

Instalment due (Customers still paying) 3,300
A
2021 Dec. 31 Stock out on hire at Hire-Purchase price 20,000

TI
Stock in hand (at the Shop) 9,000

O

AL
Prepare the Hire Purchase Trading Account in the books of Raipur Electronics for the year ending on
BH
31.12.2021, if cash of ₹ 35,000 is received during the year by way of instalments and gross profit rate is 50%
on cost.
Or
Distinguish between :
(a) Hire-Purchase System and Instalment Payment System.
(b) Operating Lease and Finance Lease.
Prepare Departmental Trading and Profit & Loss Account for the year ended on 31.03.2021 on the basis
Dept. P ( ₹ ) Dept. Q ( ₹ )
Stock (01.04.2020) 20,000 30,000

Purchases 2,50,000 2,00,000
Goods from Dept. P (at cost) 40,000
Wages 70,000 80,000
Salaries 25,000 20,000
Stock (31.03.2021) 1,00,000 50,000
Sales 6,50,000 5,00,000
9)
Other Common Expenses :
6
45
Rent 10,000
03
Electricity 12,000
Selling Expenses 6,400
3
88
Depreciation 19,000
(9
Additional information : Dept. P Dept. Q

S
SE

Light Points 10 5
AS
Value of Assets 2,00,000 1,80,000

CL
Or
How would you allocate the following indirect expenses between different departments
A
TI
(a) Sales Manager's Salary

O
(b) Insurance on Stock

AL
(c) Carriage inwards

BH
(d) Labour Welfare Expenses

(e) Rent Paid
(f) Depreciation
(g) Lighting
(h) Advertisement
(i) Canteen expenses
(j) Discount Allowed
Mr. Nomad held 260 12% Debentures in Star Ltd. @ ₹ 110 on 01.04.2020 . The face value of each debenture
was ₹ 100. The following were his transactions during 2020-21 :
01.07 .20 Bought 400 Debentures cum-interest @ ₹ 108.
01.09.20 Bought 240 Debentures ex-interest @ ₹ 105.
01.01.21 Sold 360 Debentures cum-interest @ ₹ 115.
Interest on debentures are payable annually on 31/03 every year.
Prepare Investment Account for the year ended 31.03.2021 assuming that average cost method was followed
for calculating profit/loss on sale and valuation of closing investments . Ignore Income Tax and Stamp Duty.

A, B and C are partners in a firm sharing profits and losses in the ratio of 4 : 3 : I respectively . The Balance
Sheet of the firm as on 31.03.21 is as follows :
9)
A's Capital A/c 8,00,000 Land & Buildings 5,00,000
6
B's Capital A/c 4,00,000 Plant & Machinery 3,00,000
45
C's Capital A/c 2,00,000 Stock 2,50,000
03
Creditors 1,00,000 Debtors 3,50,000
Bank 1,00,000
15,00,000
3 15,00,0000
88
On 01.04.2021 a new company ABC Ltd. was formed to takeover the business of the firm. ABC Ltd. took over
(9
the following assets at the valuation shown below :

S
SE
Land and Building ₹ 6,00,000, Plant and Machinery ₹ 2,00,000, Stock ₹ 2,70,000, Debtors ₹ 3,30,000. The
purchase consideration was paid by issuing requisite number of equity shares of ₹ 10 each fully paid . The
AS
creditors were paid off by the firm at a discount of 10 % and the cost of dissolution ₹ 10,000 was paid by the
CL
firm.
A
You are required to pass necessary journal entries in the books of ABC Ltd. Compute purchase consideration
TI
and no. of equity shares to be issued at the time of takeover by ABC Ltd.
O
AL
Or
BH
Sun Ltd. was incorporated on 01.07.2020 to acquire an existing business with effect from 01.04.2020. The
accounts for the year ended 31.03.2021 disclosed the following :
Gross profit ₹ 3,00,000
Sales for the year amounted to ₹ 12,00,000 of which ₹ 2,40,000 were for the first six months.
The expenses charged to the Profit & Loss Statement included - Directors' fees ₹ 10,000, Bad Debt ₹ 4,000,
Advertising ₹ 9,600 (under a contract amounting to ₹ 800 p.m.), Salaries and general expenses ₹ 80,000, Office
and administrative expenses ₹ 10,000.
Prepare a statement showing the amount of profit made before and after the incorporation of the company.

Question 6 (Retirement OR Admission):
A, B and C were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 respectively. The Balance
Sheet of the finn as on 31st December, 2021 was as follows:
Capital Accounts Buildings 60,000
A ₹ 40,000 Plant & Machinery 40,000
B ₹ 40,000 Furniture 10,000
c ₹ 30,000 1,10,000 Closing Stock 30,000
Reserve 15,000 Sundry Debtors ₹ 20,000
9)
Bills Payable 12,000 Less : Provision ₹ 1,000 19,000
6
45
1,62,000 1,62,000
03
On 31st December , 2021 B retires. The terms of retirement provided the following:
3
88
(a) The Goodwill of the firm is to be valued at ₹ 20,000.
(b) Furniture, Plant & Machinery are to be depreciated by 10% and 5% respectively.
(9
(c) Stock and Building are to be appreciated by 20% and 10% respectively .
S
(d) Provision for doubtful debts is to be increased to ₹ 1,500.

SE
(e) The Reserve is to be transferred to the Capital Account of the Partners.

AS
(f) The amount due to B is to be transferred to a separate Loan Account carrying interest @ I 0%.
Show the Partner 's Capital Account and the Revaluation Account, assuming that the profit & loss sharing ratio
CL
between A and C will remain the same.

A
Or
TI
Srijani and Shukla are partners in a firm sharing profits and losses in the ratio of 3 : 2. Their balance sheet as
O
on 31st March , 2021 is as follows :

AL
Liabilities Assets
BH
Capital Accounts : Land and Buildings 70,000

Srijani 80,000 Plant and Machinery 50,000
Shukla 50,000 1,30,000 Stock 40,000
Creditors 80,000 Less : Provision for
doubtful debts 4,000
Cash 50,000
10 000
2,20,000 2,20,000
On 01.04.2021 they agreed to take Mou as a partner on the following terms :

(i) Mou shall contribute ₹ 50,000 as her share of capital.
(ii) Land and Buildings shall be valued at ₹ 90,000, Machinery shall be depreciated by ₹ 10,000,
Provision for doubtful debts shall be raised to ₹ 10,000 and Stock shall be appreciated by ₹ 6,000.
(iii) The new profit sharing ratio would be 2 : 1 : 1.
(iv) Capitals of Srijani and Shukla will be adjusted on the basis of Mou 's capital and any excess or
shortfall will be withdrawn or brought in cash by the concerned partner.
You are required to prepare :
(a) Revaluation Account
(b) Partner 's Capital Account
(c) Balance Sheet of the new firm after admission of Mou.
9)
6
P, Q and R were partners i n a firm sharin g profits and losses i n the ratio of 2 : 2 : 1. They decided to dissolve
45
their firm on 3 I st March, 2021 on which date the Bala nce Sheet of the firm was as follows:
03
3
Capital : Sundry Assets
88 1,60,000
p 90,000 Cash at Bank 5,000
(9
Q 60,000 Capital : R 10,000
S
Creditors 25,000
SE
1,75,000 1,75,000
AS
Sundry assets realised ₹ 1,52,000 and creditors accepted ₹ 22,000 in full settlement of their claim. The expenses
CL
of dissolution amounted to ₹ 5,000.

A
R was insolvent and a final dividend of 50 % was received from his estate.
TI
Prepare Realisation Account, Bank Account and Capital Accounts of the Partners. Apply the principles laid
O
down in 'Garner Vs. Murray'.

AL
BH
3rd Sem 2019: Financial Accounting II: Honours

SKG & Co. of Delhi has a branch at Kolkata. All purchases are made by the head office and goods are sent to
branch at selling price which is 20% above cost. All sales by the branch are on credit terms. Branch expenses
are paid by the head office and all cash received by the branch is remitted to the head office. All branch
transactions are recorded in the head office books.
From the following particulars, prepare Branch Stock Account, Branch Debtors Account, Branch Adjustment
Account, Branch Profit and Loss account and Shortage Account in the books of head office.
Balance as on Balance as on
01.01.2021 31.12.2021
(₹) (₹)
9)
Branch Stock Account (at Invoice Price) 36,000 48,180
6
Branch Debtors Account 25,750 10,000
45
Transactions during the year from 01.01.2021 to 31.12.2021:
03
₹
3
Goods sent to branch at invoice price 88 3,24,600
Goods returned by branch to head office at invoice price 6,420
(9
Cash received from debtors 3,10,000
Discount allowed to debtors 5,750
S
SE
Branch Expenses paid by head office 30,000

Normal loss of goods at branch (at invoice price) 1,200
AS
Or
CL
Lokesh & Co., with their H.O. at Kolkata, invoiced goods to their Mumbai Branch at I.P. which is the wholesale
A
price. The I.P. is cost plus 40%. The branch is required to sell the goods at 125% of IP; the head office, however,
TI
sells goods at wholesale price to its customers in Kolkata. From the following particulars ascertain the profit
O
earned by the H.O. and Branch preparing a columnar Trading and Profit & Loss Account:
AL
Calcutta Mumbai
BH
(₹) (₹)
Purchases 3,00,000 --
Goods sent to Branch (at cost) 80,000 --
Goods received from H.O. (I.P) -- 1,33,000
Sales 2,80,000 1,57,500
Trade Expenses 18,000 11,000
Selling expenses 10,000 6,000
Stock at H.O. are valued at cost price but those of branch are valued at I.P.
On 01.04.18 X Ltd. acquired 5 machines of ₹ 60,000 each on HP system from V. Ltd. The price was payable
in 5 instalments of ₹ 13,200 each per machine, the first being paid on the date of singing the agreement and
other instalments at the end of each year. Instalments included interest @ 5% 5% p.a. The buyer decided to
charge depreciation @ 20% p.a. on WDV.
After paying the first and two more instalments, the buyer failed to pay the instalment due on 31.03.21. As a
result, V. Ltd. repossessed 3 machines at an agreed valuation of cost less 20% depreciation p.a. under straight
line method.
Show machinery A/c and V. Ltd. A/c in the books of X. Ltd.
OR
Y Ltd. sells its products only on hire purchase terms, the prices being cost plus 33.1/3%. From the following
particulars, prepare Hire Purchase Trading Account for the year ended 31-03-21:
6 9)
01.04.2020 ( ₹ ) 31.03.2021 ( ₹ )
45
Stock out on hire (at SP) 2,40,000 2,60,000
03
Stock in hand (at cost) 30,000 42,000
3
Instalments due (customers still paying)
88 18,000 30,000
(9
Cash received during the year ₹ 4,80,000
S
Goods repossessed (instalments due ₹ 16,000) and

SE
valued at ₹ 9,600
AS
CL
A
The Trading and Profit and Loss Account of Electronics Limited for the year ended on 31.03.2021 is as under:
TI
O
Purchases: Sales:
AL
Refrigerator (X) 16,00,000 - Refrigerator (X) 29,50,000

Air conditioner (Y) 12,50,000 - Air Conditioner (Y) 24,50,000
BH
Spare parts for Servicing and - Servicing and repair 3,50,000

job(Z)
repairing job (Z) 8,00,000
Stock on 31.03.2021:
Salaries and wages 8,80,000 Refrigerator (X) 6,10,000
Rent 4,80,000 Air Conditioners (Y) 2,05,000
Sundry expenses 2,30,000 Spare parts for servicing and 4,48,000
Profit 17,73,200 repairs jobs (Z)
70,13,200 70,13,200
Prepare Departmental Trading and Profit and Loss A/c for each of the three Departments X, Y and Z mentioned
above, after taking into consideration the following:
(a) Refrigerators and air conditioners are sold at the showrooms. Servicing and repairs are carried out at
the service centre.
(b) Salaries and wages consist of the following :
Showroom – 3/4th, Services Centre – 1/4th
It was decided to allocate the Showroom salaries and wages in the ratio of 3 : 2 between departments
X and Y.
(c) The Service Centre rent is ₹ 12,000 per month. The rent of the showroom is to be divided equally
between the departments X and Y.
(d) Sundry expenses are to be allocated on the basis of turnover of each department.
From the following information prepare Equity shares in F. Ltd. Account in the investment ledger of Mr. K for
the year 2020-21.
9)
(a) On 01.04.2020, Mr. K had 8,000 Equity Shares of ₹ 10 each in F Ltd. These shares were purchased
6
for ₹ 1,08,000 on 07.09.2018.
45
(b) On 01.08.2020, Mr. M purchased 2,000 more shares in F. Ltd. @ ₹ 14 per share from the secondary
03
market.
(c) On 15.09.2020, F. Ltd. paid a dividend of 20% for the year ending on 31.03.2020 and Mr. M received
3
88
₹ 20,000 dividend on 10,000 shares held by him.
(d) On 15.10.2020, F. Ltd. made a bonus issue and Mr. M received 5,000 bonus shares from the company.
(9
(e) On 12.01.2021, F. Ltd. offered right shares @ ₹ 12 per share and Mr. M purchased 3,000 of such right
S
shares at the price offered.

SE
(f) On 20.02.2021, Mr. M sold 4,500 shares at ₹ 19 per share.

AS
CL

Kiran Limited was incorporated on August 1, 2020. It had acquired a running business of Kirana & Co. with
A
effect from April 1, 2020.

TI
During the year 2020-21, the total sales were ₹ 45,00,000 and gross profit was ₹ 6,75,000. The sales per
O
month in the first six months of 2020-21 were half of what they were in the next six months of the year.
AL
Net profit of the company to be worked out after charging the following expenses:
BH
(i) Depreciation ₹ 1,44,000

(ii) Office Salaries ₹ 24,000
(iii) Director’s fees ₹ 50,000
(iv) Preliminary Expenses ₹ 18,000
(v) Office Expenses ₹ 84,000
(vi) Selling Expenses ₹ 63,000
(vii) Interest to Vendor upto September 30, 2020 ₹ 6,000
Prepare a statement showing pre-incorporation and post incorporation profit for the year ended 31st March,
2021.
OR
A, B and C are partners of a partnership firm sharing profit and losses in the ratio of 4 : 3 : 1. The Balance Sheet
of the firm as on 31.03.2021 was as follows:
A’s Capital 4,00,000 Freehold Property 4,80,000
B’s Capital 3,00,000 Machinery 4,20,000
C’s Capital 2,60,000 Debtors 1,50,000
Loan on Mortgage 1,60,000 Stock 2,30,000
Creditors 1,80,000 Cash 20,000
13,00,000 13,00,000
9)
On the date of the balance sheet, the partners decided to convert their firm into a company entitled
6
‘Company Private Limited’. For this purpose, freehold property, machinery, debtors and stock are revalued
45
at ₹ 6,24,000, ₹ 2,94,000, ₹ 1,35,000 and ₹ 2,07,000 respectively.
03
Compact Private Limited agreed to take over ‘Loan on mortgage’ and trade creditors. The trade creditors
3
offered a discount of 5% to the company.
88
(9
The purchase consideration is to be satisfied by issue of 67,000 equity shares of ₹ 10 each at par, 2000,
9% Preference Shares of ₹ 100 each at par and the balance in cash.
S
SE
Required:
AS
(a) Calculate purchase consideration.

CL
(b) Give necessary journal entries for acquisition in the books of Compact Private Limited.
A

TI
O

AL
Question 6 (P/L Appro + Goodwill OR Admission):

BH
(a) A and B were in partnership sharing profits and losses in 3 : 2. They decided to change their profit sharing
ratio from 01.04.2021 in 7 : 3 ratios. As on the date of change following were noted:
(i) Reserve standing in the books at ₹ 60,000
(ii) Goodwill is valued at ₹ 1,40,000 (no goodwill appearing in the books)
(iii) Assets were revalued by ₹ 20,000 more than the book value.
They decided to adjust their capital account without affecting the Balance Sheet.
You are required to suggest necessary journal entry to make necessary adjustment.
(b) Given below is the Profit and Loss Appropriation A/c of X and Y for the year ended 31.03.2021 (in ₹ ):
To Int. on Capital @ 8% By Net Profit 40,000
X 3,200 By Int. on Drawings @
Y 2,400 5,600 6%
X 240
To Salary – X 4,800 Y 180 420
To Share of Profit : X 15,010
Y 15,010 30,020
40,420 40,420
The above entries were duly passed in the books but the following discrepancies were subsequently
discovered –
(i) Interest should have been at 6% on Capital and 8% on Drawings.
(ii) X was not entitled to get any salary but Y was entitled to get a monthly salary of ₹ 250.
9)
(iii) Profit should have been shared in capital ratio.
6
45
You are required to pass a journal entry to rectify the above.
OR
3 03
Following is the Balance Sheet A and B sharing profits and losses in the ratio of 2 : 1 as on 31.03.2021.
88
Capital Account Building 2,00,000
(9
A 1,50,000 Investment 70,000

B 1,00,000 Stock 1,10,000
S
SE
General Reserve 1,20,000 Sundry Debtors 60,000

Sundry Creditors 90,000 Cash and Bank 20,000
AS
4,60,000 4,60,000
CL
On 01.04.2021 Mr. C is admitted into the partnership on the following terms:

(i) C will bring in ₹ 1,25,000 as his capital and ₹ 75,000 as premium for goodwill for 1/4th
A
share in the firm.

TI
(ii) Out of the creditors, a sum of ₹ 25,000 is due to Mr. C which will be transferred to his
O
capital.
AL
(iii) Building is to be appreciated by 50%.

BH
(iv) Provision for bad debts on debtors @ 5% is to be created.

(v) Stock is to be reduced by ₹ 10,000.
(vi) Market value of investment is ₹ 64,000.
(vii) An unrecorded liability for expenses of ₹ 9,000 is to be accounted for.
(viii) Premium for goodwill to be withdrawn by A and B in cash.
Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet of the newly constituted firm
just after admission of C.
Question 7 (Piecemeal):
A, B and C were partners in a firm sharing profits and losses in 3 : 2 : 1. The partnership was dissolved on
30.09.2021, when the Balance Sheet (in ₹ ) was as follows:
Capital : A 12,000 Cash 16,000
B 14,000 Debtors 38,000
C 2,000 Stock 80,000
Loan: [A -12,000; B - 20,000] 32,000
Reserves and profits 36,000
Creditors 38,000
1,34,000 1,34,000
9)
It was agreed that net realizations should be distributed in due order at the end of each month starting from
6
October 2021. The realizations from assets and expenses (in ₹ ) were as follows:
45
Oct. Nov. Dec. Jan. Feb.
3 03
Debtors 10,000 6,000
88 10,000 4,000 6,000
Stock 16,000 16,000 24,000 20,000 2,000
(9
Expenses 2,000 1,000 1,000 800 400
S
The partners decided to distribute cash as and when available. Show the distribution thereof.
SE
AS
CL
A
TI
O
AL
BH
3rd Sem 2019:

Financial Accounting II: General
1
Head office invoiced to their Haldia Branch goods at selling price (being 33 % added to cost) to ₹ 74,000
3
during the year, 2021. The credit sales of the Branch were ₹ 31,000 and cash sales ₹ 17,000. The Branch
returned to H.O. ₹ 2,000 stock at selling price and received goods returned from customers ₹ 1,000. The
discounts allowed to customers by Branch amounted to ₹ 1,200. The Branch remitted to Head office ₹
38,600 being the amount of cash sales and receipts from customers. The opening and closing stock of the
Branch were ₹ 15,000 (cost ₹ 11,250) and ₹ 39,000 (Cost ₹ 29,250). The Branch had debtors of ₹ 12,000
6 9)
at the beginning and ₹ 19,200 at the end. Loss through pilferage was ascertained to be ₹ 1,000 (Cost ₹
45
750).
03
Prepare Branch Trading and Profit & Loss Account in the books of Head Office.
3
Or
88
(a) What are the different types of Branches?
(9
(b) What are the treatment of Normal and Abnormal Loss in Branch Accounts
S
SE
AS
CL
Kanchan Transporters purchased two motors vans costing ₹ 4,80,000 each from Dewars Garage on 1st
A
January, 2020 on hire purchase system. The terms of payment were as follows:
TI
Payment of ₹ 1,20,000 for each motor van on delivery and the remainder in three equal instalments
O
together with interest@ 10% p.a. to be paid at the end of each year.
AL
Kanchan Transporters writes off depreciation @ 20% p.a. each year on diminishing balance method. The
BH
hire purchaser paid two instalments due on 31-12-2020 and 31.12.2021 but could not pay the final
instalment.
Dewar Garage then repossessed one motor van adjusting its value against the amount due. For the
purpose of repossession the motor van was valued by charging depreciation @ 25% p.a. under fixed
instalment method.
Write up the motor van account and Dewars Garage Account in the books of Kanchan Transporters.
Vishal Garments has two departments – Cloth Deptt. And Tailoring Deptt. Tailoring Deptt. gets all its
requirements of cloths from the Cloth Deptt. at their usual selling price. From the following particulars
prepare Departmental Trading and Profit and Loss Account for the year ended 31st March 2021;
Cloth Deptt. Tailoring Deptt.
₹ ₹
Stock on 01.04.2020 2,40,000 32,000
Purchases 13,60,000 20,000
Sales 16,00,000 3,20,000
Transfer of cloth to Tailoring Deptt. 2,00,000 --
Manufacturing Expenses -- 48,000
9)
Selling Expenses 20,000 8,000
6
Stock on 31.03.2021 4,00,000 60,000
45
The value of stock in Tailoring Department is assumed to consist 80% cloth and 20% other expenses.
03
General expenses of the business for the year came to ₹ 92,000. In 2019-20 the Cloth Department earned
a gross profit of 30% on sales.
3
88
(9
S
On 01.04.2020 Excel Investment Ltd had 15,000 Equity Shares of ₹ 10 each in ITC Ltd. purchased for ₹
SE
1,75,000. On 15.07.2020 ITC Ltd made a bonus issue of one fully paid up share for every three held. Again
AS
on 01.09.2020 ITC Ltd offered right entitlement of three shares for every five held on that date at a
CL
premium of ₹ 2 per share. Excel Investment Ltd. exercised one-fourth of its right entitlement to purchase
A
right shares and sold the rest at a 3 each on 11.09.2020. On 15.08.2020 ITC Ltd declared dividend of 10%
TI
for the year ending on 31.03.2020. Bonus shares were not considered for dividend. On 31.01.2021 Excel
O
AL
Investment Ltd. sold 1,500 shares at cost plus 20%.

BH
Show Investment Account in the books of Excel Investments Ltd. for the year ending 31.03.2021. You are
required to use weighted average method for valuing the closing stock of shares 31.03.2021
Or
(a) What are the utilities of maintaining investment ledger?
(b) What do you understand by cum-interest and ex-interest purchases and sales of investments?

A company was incorporated on 1st August, 2020 to take over a business from 1st April, 2020. The Profit
and Loss Account of the business for the year ended on 31st March 2021 is given here under:
To opening Stock 3,50,000 By Sales 30,00,000
To Purchases 22,75,000 By Closing Stock 3,75,000
To Gross Profit c/d 7,50,000
33,75,000 33,75,000
To Rent and Rates 45,000 By Gross Profit b/d 7,50,000
To Directors Fees 50,000
To salaries 1,27,500
To Office Expenses 1,20,000
9)
To Traveller’s Commission 30,000
6
To Discount 37,500
45
To Bad Debts 7,500
03
To Audit fees 21,250
3
To Depreciation 15,000 88
To Debenture Interest 11,250
(9
To Net Profit 2,85,000
S
7,50,000 7,50,000
SE
It is ascertained that the sales for each of February and March 2021 are one and half time the average
AS
monthly sales of the year, and sales for each of May 2020 July 2020 are only half the average monthly sale
of the year.
CL
Apportion the year’s profit between the pre-incorporation and the post-incorporation period.
A
OR
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Lalit and Sanjay are partners in a firm sharing Profits and Losses in the ratio 3:2. The Balance Sheet of the
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firm as at 31st December 2021 is given here:

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BH
Capital Accounts:- 1,20,000 Land and Building 75,000
Lalit - 80,000 Plant and Building 1,05,600
Sanjay - 65,000 Bills Receivable 12,000
Bank Overdraft 44,800 Stock 31,400
Creditors Sundry Debtors 80,500
Cash in hand 5,300
3,09,800 3,09,800
The Partners agree to convert the partnership firm into a Limited company on 31.12.2021. The following
terms and conditions will be applicable for the purpose:
(a) The authorized capital of the company will be ₹ 5,00,000 consisting of 30,000 Equity Shares of ₹ 10
each and 2,000 Preference Shares of ₹ 100 each.
(b) All assets and liabilities to be taken over by the company at the following values:
₹
Bills Receivables 12,000
Stock 36,000
Cash in hand 5,300
Sundry Debtors – to be taken with provision of 10%
Creditors 40,000
Bank Overdraft 65,000
9)
Goodwill 15,000 (to be newly taken)
6
(c) The purchase consideration is to be discharged by the issue of 12,000 Equity shares of ₹ 10 each at
45
a premium of ₹ 2 each and 750 preference shares of ₹ 100 each. The balance of purchase
03
consideration to be satisfied by cash payment.
3
(d) Calculate purchase consideration and prepare the opening Balance Sheet in the books of the new
88
company.
(9

S
SE
AS

CL
Question 6 (Admission):
A
TI
Amal and Bimal are partners in a firm sharing Profits & Losses in the ratio 3:2. Their Balance Sheet is on
O
31st December, 2021 is as follows:

AL

BH
₹ ₹
Amal ₹ 35,000 Plant and Machinery 22,000
Bimal ₹ 30,000 Furniture 10,000
65,000 Stock 24,000
General Reserve 10,000 Debtors 30,000
Bills Payable 5,000
98,000 98,000
Partners agreed to admit Kamal with 1/5th share of profit on the following terms:
(a) That the Furniture be depreciated by ₹ 920.
(b) That the Plant and Machinery and Goodwill be valued at ₹ 30,000 and ₹ 15,000 respectively.
(c) That Kamal should bring ₹ 20,000 as his capital.
(d) That after the above adjustments capitals of the old partners be made proportionate to the
capital of the new partners and for the purpose the old partners are to bring or withdraw cash
as the case may be.
Prepare
(i) Revaluation Account
(ii) Capital Accounts of the Partners and
(iii) Balance Sheet of the new firm.
Question 7 (Dissolution or piecemeal):
9)
Tejpal, Nagpal, Joypal and Manipal were partners sharing Profits and Losses in the ratio 3:3:2:2. Following
6
is their Balance Sheet as on 31st December, 2021.
45
03
Liabilities Amount Amount Assets Amount ₹ Amount ₹
3
₹ ₹ 88
Capital Accounts: Capital Account
(9
Tejpal 2,40,000 Jaypal 1,92,000
Nagpal 1,80,000 4,20,000 Manipal 72,000 2,64,000
S
SE

AS
Tejpal’s Loan 1,20,000 Trade Marks 84,000

Stock 1,20,000
CL
Sundry Debtors 1,92,000

A
Less Provision for 6,000 1,86,000

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doubtful debts
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Cash at bank 24,000

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7,26,000 7,26,000
BH
On 31 December, 2021 the firm was dissolved. The following are the realizations from the assets:
st
Sundry Debtors ₹ 1,32,000

Stock ₹ 96,000
Furniture ₹ 12,000
Trademarks ₹ 48,000
Sundry Creditors and Tejpal’s Loan were paid in full. There was a Contingent Liability for bills receivables
discounted for ₹ 30,000. The bill was honoured on due date. The dissolution expenses of ₹ 6,000 was
borne by Nagpal. Joypal was declared insolvent and ₹ 44,000 was realized from his assets.
Prepare Realisation Account, Bank Account and Partners Capital Account.
Or
A, B and C are partners sharing Profit and Losses in the ratio of 4 : 3 : 1. They dissolved the firm on 31st
March, 2021. Their capitals are to be repaid as and when the assets are realized. On the date of dissolution
the balance Sheet of the firm was as under:
₹ ₹
Sundry Creditors 52,500 Building 1,00,000
Bank Overdraft (Unsecured) 17,500 Plant and Machinery 40,000
Capital Accounts Stock 1,10,000
A ₹ 1,40,000 Sundry Debtors 1,20,000
B ₹ 60,000
9)
C ₹ 1,00,000 3,00,000
6
45
3,70,000 3,70,000
The following net amounts of the assets realized and it was immediately distributed:
03
2021:
May 31, ₹ 40,000;
3
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July 31, ₹ 30,000;
(9
Sep. 30 ₹ 50,000;
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Oct, 31, ₹ 80,000 and

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Dec. 31, ₹ 1,30,000.

AS
No further sums could be realized.

Prepare a statement showing piecemeal distribution of cash according to the Maximum Possible Loss
CL
Method.
A
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BH
3rd Sem 2020:

Financial Accounting II: Honours
Group A:
[Answer any 4 Qns = 4 x 10 = 40 Marks]
PKT Limited has a branch at Mumbai. Goods are invoiced from head office at cost plus 331/3%. Branch
expenses are paid by the head office and all cash received by the branch is remitted to the head office.
Branch does not maintain complete set of books of accounts.
From the following particulars relating to Mumbai branch, find out profit at the branch preparing Mumbai
Branch Account in the books of head office :
9)
₹
6
Opening Balances :
45
Debtors 10,000
03
Petty cash 1,000
3
Furniture
88 2,000
(9
Stock at I.P. 8,000
S
Cash sent by head office for petty expenses 2,000

SE
Branch Expenses :
AS
Freight and Advertisement 3,200

CL
Bad debts 500

Depreciation on furniture 200
A
TI
Petty expenses 1,800

O
Sales : Cash 50,000

AL
Credit 40,000
BH
Goods returned by Branch to Head-office 2,000

Cash received from debtors 18,000
Goods invoiced by Head Office to branch during the year at I.P. 88,000
Stock at the end of the year at I.P. 7,800
On April 1, 2020 Ray & Co. purchased a delivery van from Mohan Automobiles Ltd. on hire purchase basis
for ₹ 6,00,000; payment to be made ₹ 1,00,000 as cash down and three instalments of ₹ 2,08,000
(including interest) each at the end of each financial year. Rate of interest charged is 12% per annum.
Ray & Co. depreciates the delivery van at 20% p.a. on written down value method. The buyer, having paid
the down money and the first instalment, could not pay the second instalment and as a result, Mohan
Automobiles Ltd. took possession of the delivery van. Ray & Co. closes its books of accounts every year
on March 31.
Show Delivery Van A/C and Mohan Automobiles Ltd. A/C in the books of Ray & Co.
From the following particulars, ascertain (a) rate of gross profit, (b) cost price per unit and (c) value of
closing stock of each department, assuming that the rate of gross profit is same in each case :
9)
Dept. A Dept. B Dept. C
6
45
Purchase of total cost of ₹ 1,00,000 1000 units 2000 units 2400 units
03
Closing stock 120 units 80 units 152 units
3
Sales 1020 units
88 1920 units 2496 units
(9
S
On 15th March 2021, PQ Ltd. purchased ₹ 2,00,000, 9% Govt. Stock (interest payable on 31st March and
SE
30th September) at ₹ 88.50 cum-interest (face value ₹ 100 each).

AS
On 1st August, 2021, ₹ 40,000 stock is sold at ₹ 89 cum-interest and on 1st September, 2021, ₹ 60,000
stock is sold at ₹ 89.25 ex-interest. On 31st December, 2021, the date of the Balance Sheet, the market
CL
price was ₹ 90. Show 9% Govt. Stock Account assuming investments are current investments.
A
TI
Question 5 (Profit loss Prior):

O
Caltex Limited was incorporated on 01.07.2020 to acquire a running business with effect from 01.04.2020.
AL
The accounts for the year ended 31st March, 2021 disclosed the following :
(a) Gross profit for the year 2020-21 was ₹ 4,00,000.
BH
(b) The sales for the year 2020-21 amounted to ₹ 12,00,000 of which ₹ 2,40,000 was for the first six
months.
(c) The expenses debited to Profit and Loss account included :
(i) Director’s fees ₹ 18,000
(ii) Bad Debts ₹ 5,000
(iii) Advertising ₹ 15,000 [@ ₹ 1,000 per month for first six months, thereafter @ ₹ 1,500
per month].
(iv) Salaries and General expenses ₹ 72,000
(v) Debenture interest ₹ 13,500
Prepare a statement showing pre-incorporation and post-ioncorporation profit for the year ended 31st
March, 2021.
Question 6 (Profit loss Prior theory):

(a) Write a note on profit prior to incorporation.
(b) How is profit prior to incorporation treated in accounts?
Question 7 (Investment theory):

(a) State the objectives of maintaining Investment Ledger.
(b) What do you mean by cum-interest and ex-interest price in debentures?
Question 8 (Conversion into company):

K. Som and D. Som are partners sharing profits and losses in the ratio of 3 : 2. The Balance Sheet of the
firm as on 31.03.2021 is given below :
9)
6
45
Capital Accounts : Land and Building 75,000
K. Som 1,20,000 Plant and Machinery 1,05,600
03
D. Som 80,000 Bills Receivable 12,000
3
Bank Overdraft 65,000
88
Stock 31,400
(9
Creditors 44,800 Book Debt 80,500
Cash in hand 5,300
S
SE
3,09,800 3,09,800
AS
The partners agree to convert the partnership firm into limited company on the date of the Balance Sheet
CL
on the following terms and conditions :

(a) The authorised capital of the company will be ₹ 5,00,000 consisting of 30,000 Equity Shares of
A
₹ 10 each and 2,000 Preference Shares of ₹ 100 each.

TI
(b) All assets and liabilities to be taken over by the company at the following revalued figures :
O
AL
Land and Building – ₹ 95,000; Plant and Machinery – ₹ 92,000; Bills Receivable – ₹ 12,000; Stock
– ₹ 36,000; Book Debt – ₹ 80,500 less a provision @10%. Creditors – ₹ 40,000 and Goodwill is to
BH
be valued at ₹ 15,000.
(c) The purchase consideration is to be discharged by the issue of 12,000 Equity Shares of ₹ 10 each
at a premium of ₹ 2 each and 750 Preference Shares of ₹100 each and the balance, if any, in Cash.
Calculate purchase consideration and prepare the opening Balance Sheet in the books of the new
company.
Group B:
Question 9 (P/L Appropriation):
A, B and C are partners in a firm. Net profit of the firm for the year ended 31st March, 2021 was ₹ 30,000
which had been duly distributed amongst the partners, in the profit sharing ratio of 3 : 1 : 1. It is discovered
on 10th May, 2021 that the undermentioned transactions were not passed through the books of account
of the firm for the year ended 31st March, 2021.
(a) Interest on capital @ 6 % per annum, the capital of A, B and C being ₹ 50,000, ₹ 40,000 and ₹
30,000 respectively as on 01.04.2020.
(b) Interest on drawings : A ₹ 350; B ₹ 250; C ₹ 150
(c) Partner’s salaries : A ₹ 5,000; B ₹ 7,500
(d) Commission due to A (for some special transaction) ₹ 3,000
9)
You are required to show necessary calculations and pass a journal entry to rectify the above.
6
45
03
P and Q are partners in a firm sharing profits and losses in the ratio of 4 : 1. Their Balance Sheet as on
3
31.03.2021 is as under : 88
(9
S
Capital Accounts : Furniture 50,000

SE
P 60,000 Stock 1,00,000

AS
Q 1,40,000 Bills Receivable 24,000

CL
Reserves 50,000 Debtors 80,000

A

TI
O
3,30,000 3,30,000
AL
They agreed to take R as a partner with effect from 01.04.2021 on the following terms :
BH
(a) P, Q and R will share profits and losses in the ratio of 5 : 3 : 2

(b) R will bring ₹ 30,000 as premium for goodwill and ₹ 70,000 as capital.
(c) The assets will be revalued as follows : Furniture ₹ 70,000, Stock ₹ 97,000 and Debtors ₹ 77,000.
(d) A creditor has agreed to forgo his claim by ₹ 8,000.
(e) After making the above adjustments, the capital accounts of P and Q should be adjusted on the
basis of R’s capital by bringing in cash or withdrawing cash as the case may be.
Show Revaluation Account, Partners’ Capital Account and prepare the Balance Sheet of the new firm on
01.04.2021.
Question 10 (Dissolution theory)

(a) Explain circumstances under which a partnership firm is dissolved.
(b) State the order of priority of distribution of assets realised when a partnership firm is dissolved.
Question 11 (Dissolution)
The following is the Balance Sheet of X, Y and Z sharing profits in the ratio of 2 : 2 : 1.
Creditors 64,000 Sundry Assets 1,96,000
Capital : X 90,000 Cash at Bank 8,000
Capital : Y 60,000 Capital : Z 10,000
9)
2,14,000 2,14,000
6
45
The firm is dissolved. Sundry assets realised ₹ 1,88,000 and creditors accepted ₹ 62,000 in full settlement.
Expenses amounted to ₹ 4,000. Z was insolvent and final dividend of 60 % was received from his estate.
03
Prepare Realisation Account, Bank Account and Partners’ Capital Account. [Apply Garner vs. Murray
Principle].
3
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(9
S
SE
AS
CL
A
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BH
3rd Sem 2020:

Financial Accounting II: General
Group A: [Answer any 4 Qns = 4 x 10 = 40 Marks]
Universal Limited has its head office in Kolkata and a branch at Haldia. All purchases are made by Head
Office and goods sent to the branch are invoiced at cost plus 25 per cent. All cash received by branch is
deposited to the Head Office account in Haldia Branch of the Head Office’s bank. The Branch maintains a
Sales Ledger and other necessary subsidiary books; but all other Branch transactions are recorded in the Head
Office books.
The following informations pertaining to the Branch has been collected for the year ended December 31, 2021
:
Stock at Branch (01.01.2021) (Cost Price) 96,000
6 9)
Stock at Branch (31.12.2021) (Cost Price) 80,000
45
Goods received from Head Office (Invoice Price) 3,80,000
03
Cash Sales 2,16,000
3
Credit Sales 88 1,72,000
(9

S
Branch expenses paid 22,800

SE
Branch Debtors (01.01.2021) 1,000

AS
Branch Debtors (31.12.2021) 3,000

CL
In the books of Head Office, prepare the Haldia Branch Account.

A
TI
Gupta & Co. Ltd. which sells a patent product on hire-purchase terms, has the following balances as on the
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dates mentioned below :

AL

BH
Jan. 1 Stock in hand (at the Shop) 10,000

Dec. 31 Stock in hand (at the Shop) 14,000
Prepare the Hire-Purchase Trading Account in the books of Gupta & Co. Ltd. for the year ending on
31.12.2021, if cash of ₹ 70,000 is received during the year by way of Instalment and gross profit rate is 33
1/3 % on selling price.
Ramesh & Sons of Kolkata has a departmental store with two departments P and Q. From the following
particulars prepare a Departmental Trading and Profit & Loss Account for the year ended 31.12.2021.
Particulars Department P Department Q
(₹ ) (₹ )
Stock as on 01.01.2021 40,000 25,000

Purchase 2,50,000 2,00,000
Salaries 60,000 45,000
Wages 30,000 30,000
Sales 4,50,000 3,50,000
9)
Other expenses 10,000 10,000
6
45
Machinery 2,00,000 2,00,000
03
Stock as on 31.12.2021 35,000 40,000
Other information :
3
88
(a) Total administrative expenses ₹ 10,000 to be distributed in sales ratio
(9
(b) General electricity expenses ₹ 20,000

S
SE
(c) Department P and Q have light points 20 and 30 respectively

AS
(d) Rate of Depreciation on Machinery @ 20% p.a.

CL
Question 4 (Department theory):

A
(a) Discuss the objectives of preparation of departmental accounts.

TI
(b) How would you allocate the following indirect expenses between different departments?
O
(i) Purchase Manager’s salary

AL
(ii) Insurance on machinery

BH
(iii) Carriage outward

(iv) Discount received
(v) Depreciation on building.
Question 5 (Investment theory):

(a) What are the advantages of using investment ledger?
(b) What do you understand by cum-interest and ex-interest purchases and sales of investments?
On 1st January, 2021 Garfield Investment Trust held as investment ₹ 30,000; 8% Government Stock costing
₹ 25,000. On 1st March, 2021 ₹ 12,000 of stock was purchased @ ₹ 91 ex-interest. On 15th June, 2021 ₹
5,000 stock was sold @ ₹ 93 cum-interest. On 1st August, 2021 ₹ 8,000 stock was purchased @ ₹ 90 ex-
interest. On 1st September, 2021 ₹ 4,000 stock was sold @ ₹ 94 ex-interest. Interest being payable on 31st
March and 30th September each year.
Prepare Investment Account for the year ended 31.12.2021 assuming Average Cost Method was followed
for valuation of closing investments.

Mahim and Rahim sold their partnership business to a limited company. The position of their business on
31st December, 2021 was as follows :
₹
9)
Cash 500
6
45
Book Debts 35,000
Stock 20,000
03
Plant & Machinery 14,500
3
88
Liabilities amounted to ₹ 10,000. The partners used to share profits and losses as 3 : 2 and their capitals
also stood in the business on the date of Balance Sheet in the same proportion. The newly formed limited
(9
company agreed to takeover the assets of the partnership firm excepting the cash balance and to discharge
S
the purchase consideration. The capital of the company consisted of 10000 preference shares of ₹ 25 each
SE
and 25000 equity shares of ₹ 10 each. The purchase consideration was determined on the following basis:
AS
(a) Book Debts ₹ 34,500; (b) Stock ₹ 19,000; (c) Plant & Machinery ₹ 14,000 and the purchase
consideration was to be satisfied by issuing (i) 1000 preference shares fully paid up (ii) 2000 equity shares
CL
fully paid up and (iii) the balance in cash. The company issued the balance preference shares and 15000
A
equity shares to the public and the amount was fully realised.
TI
You are required to close the books of the Partners. (Assume that shares were issued to the vendors and
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the balance of purchase consideration was paid in cash)

AL
Question 8 (P/L Appro Practical + Profit loss Prior theory):

BH
(a) A and B are partners sharing profits and losses in the ratio of their effective capital. They had
respectively ₹ 1,00,000 and ₹ 60,000 in their Capital Accounts as on 01.01.2021. A introduced a
further capital of ₹ 10,000 on 01 04.2021 and another ₹ 5,000 capital he introduced on 01.07.2021.
On 30.09.2021, he withdrew ₹ 40,000 from his Capital Account. B introduced further capital of ₹
20,000 on 01.04.2021. Profits for the year ended 31.12.2021 were ₹ 34,275. Calculate effective
capital ratio and determine the profits to be shared by each partner.
(b) What is the concept of profit prior to incorporation in accounting for acquisition of a business? How
this profit is treated in such accounting?
Group B:
Question 9 (Partnership theory)
(a) Why in partnership accounting assets are revalued at the time of admission of a partner?
(b) What are the occasions where goodwill of a firm is required to be valued?
(c) Discuss the different ways to treat goodwill at the time of –
i. admission of a partner and
ii. retirement of a partner.
Question 10 (Dissolution)
9)
Amal and Bimal were in equal partnership. Their Balance Sheet stood as follows on the 31st
6
December, 2021, the date of dissolution :
45
3 03
Creditors 4,80,000 Plant and Machinery
88 1,60,000
Bimal’s Capital 60,000 Furniture and Fittings 50,000
(9
Debtors 60,000
S
SE
Stock 1,20,000
AS
Cash 25,000
CL
Amal’s Capital 1,25,000

A
5,40,000 5,40,000
TI
On dissolution, the assets realised as under :

O
AL
₹
BH

Furniture and Fittings 15,000
Debtors 45,000
Stock 25,000
Realisation expenses amounted to ₹ 26,000. Bimal’s private estate is not sufficient even to meet his private
debts whereas in Amal’s private estate there is a surplus of ₹ 16,000 only.
Give necessary Accounts to close the books of the firm.
Bijoy and Nilay share profits in a partnership business respectively as 60% and 40%. Their Balance Sheet
as at 31st March, 2021 given as under :

Capital Accounts : Debtors 25,000
Bijoy 60,000 Stock 40,000
Nilay 30,000 90,000 Plant 43,000
Premises 20,000
9)
1,30,000 1,30,000
6
They admit Dhiman as new partner on the following terms :
45
(a) Dhiman will pay ₹ 20,000 as his capital for 40 % of the future profits of the firm.
03
(b) Before his joining in the firm, Stock value was to be reduced to ₹ 32,000, Plant was to be
3
88
depreciated by ₹ 6,300 and Premises were to be revalued at ₹ 25,000. A reserve of 2½ % was to
(9
be raised against Debtors.
S
(c) As the new partner is unable to bring any cash for his share in the goodwill, so goodwill account
SE
was to be raised in the books for ₹ 30,000.

AS
Show the journal entries and give the calculation of future profit sharing ratio. Prepare the new Balance
CL
Sheet after the admission of new partner.

A
TI
O
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BH
Question 12 (Retirement):
Orchid, Tulip and Gerbera share profits and losses as 1/2, 1/3 and 1/6 as Partners. Their Balance Sheet as
at 31st March, 2021 stood as follows :
Capital Accounts : Land and Building 80,000

Orchid Plant and Machinery 30,000
1,20,000
Tulip Motor Cars 12,000
60,000
Gerbera
Stock 56,000
40,000
2,20,000
Debtors 60,000
9)
Loan from Orchid 20,000 Less : Provision 6,000 54,000
6
45
03
2,80,000 2,80,000
3
Orchid retired on 31st March, 2021 to commence business individually, and Tulip and Gerbera continued
88
in partnership sharing profits and losses equally. It was agreed that Orchid should takeover certain Plant
(9
and Machinery valued at ₹ 7,500 and one of the firm’s cars at the book value of ₹ 5,000. It was further
S
SE
agreed that the following adjustments should be made in the balance sheet as on 31st March, 2021 :
AS
(i) Land and Building to be revalued at ₹ 1,00,000 and Plant & Machinery (inclusive of that taken by
Orchid) at ₹ 25,000.
CL
(ii) The provision for doubtful debts should be increased by ₹ 1,500.

A
(iii) A provision of ₹ 2,500 included in creditors for claim for damages was no longer required.
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O
(iv) The stock should be reduced by ₹ 4,000.

AL
The total value of goodwill was agreed at ₹ 1,80,000. In view of the fact that Orchid intended to retain some
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of the customers of the firm, the proportion of goodwill to be purchased by him was ₹ 60,000. Tulip and
Gerbera decided that goodwill should not appear in the books of the new partnership and necessary
adjustments should be made through the capital accounts of the Partners. The amount due to Orchid to be
transferred to his Loan Account.
You are required to prepare (a) Revaluation Account, (b) Capital Accounts of the partners, (c) Opening
Balance sheet of the new firm.
3rd Sem 2021: Financial Accounting II Honours

Group A:
APZ Ltd. has a branch at Patna. Goods are invoiced from head office to branch at cost plus 50%. Branch
sells goods at the invoice price. Branch remits all cash received to the head office and all branch expenses
are paid by the head office. Branch does not maintain complete set of books of accounts.
From the following information relating to Patna branch, prepare a Patna Branch A/c for the year ending
31/12/2021 in the books of head office :
Particulars ₹
9)
Stock at invoice price on 01.01.2021 78,000
6
Debtors on 01.01.2021 43,500
45
Goods sent to branch at invoice price 2,70,000
03
Goods returned by Debtors at branch 7,500
3
Abnormal Loss at invoice price 88 15,000
Cash sales 12,000
(9
S
Shortages in stock at invoice price [considered normal] 1,200

SE

AS
Discount allowed to Debtors 1,750

Debtors on 31.12.2021 35,750
CL
A
TI
On 01.01.2019 P. Basu purchased a machine from Sinha & Co. on hire purchase basis whose cash price
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was ₹ 59,040. Payment was to be made in four equal annual instalments of ₹ 25,000 at the end of each year.
BH
First instalment was paid on 31.12.2019. Interest is charged @ 25% per annum and is included in the annual
instalment. As per the agreement there was no down payment.
P. Basu paid the first and second instalment but could not pay the third instalment. As a result of such
default in payment, Sinha & Co. repossessed the machine.
P. Basu is providing depreciation on machinery at 20% per annum on written down value method.
P. Basu closes his books of accounts every year on 31st December.
In the books of P. Basu, show Machinery Account and Sinha & Co. Account for the year 2019, 2020 and
2021.
During the year ended 31st December 2021, Apex Ltd. entered into the following transactions: 25.04.2021:
Purchased 8000 equity shares of ₹ 10 each in PQ Ltd. for ₹ 2,00,000
15.06.2021 : PQ Ltd. made a bonus issue of 1 equity share for every 2 shares held.
01.07.2021 : Received dividend @ 40% on shares in PQ Ltd. for the year ended 31st March 2021.
01.09.2021 : Apex Ltd. sold all the bonus shares received for ₹ 30 each.
Show ‘Investment in Equity shares in PQ Ltd. Account’ in the books of Apex Ltd. assuming investments
are current investments. Assume that average cost method is followed.
Question 4 (Department & Branch theory):

(a) State the objectives of preparation of departmental accounts.
9)
(b) Discuss the major differences between synthetic method and analytical method of branch
6
45
accounting.
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A Company has two departments— Cloth Department and Tailoring Department. Cloth Department sells
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goods to Tailoring Department at usual selling price. From the following particulars, prepare a
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Departmental Trading and Profit & Loss Account for the year ended 31st March, 2021 :
AS
CL
Cloth Department Tailoring Department

(₹) (₹)
A
Stock on 01.04.2020 10,80,000 1,44,000

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Purchases 61,20,000 90,000

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Manufacturing Expenses — 2,16,000

Sales 72,00,000 14,40,000
BH
Selling Expenses 90,000 36,000

Transfer from Cloth Dept. to Tailoring Dept. 9,00,000 —
Stock on 31.03.2021 18,00,000 2,70,000
The stock in Tailoring Department is assumed to consist 80% cloth and 20% other expenses. General
expenses of the business for the year are ₹ 4,14,000. Gross profit earned by Cloth Department during
the year was 30% on sales.

Tamal and Kartick are partners in a firm who wished to dissolve their partnership firm. AB Ltd. agreed to
purchase the business of the firm as on 31st March, 2021. The Balance Sheet of the firm on that date was
as follows :

Capital Accounts: (₹) (₹)
Tamal 1,52,000 Land & Building 94,000
Kartick 1,16,000 Plant & Machinery 56,000
General Reserve 60,000 Furniture & Fixtures 14,000
Sundry Creditors 74,000 Stock-in-trade 1,24,000
Outstanding Expenses 6,000 Sundry Debtors 1,10,000
9)
Cash 10,000
6
4,08,000 4,08,000
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The company agreed to take over the liabilities and all the assets with the exception of cash balance. The
03
agreed price being ₹ 3,60,000 to be satisfied as one-third in cash and two-third by the issue of fully paid
3
equity shares of ₹ 10 each at a premium of ₹ 2.50 per share. The company made the following revaluation
88
of the Assets taken over while considering them in the books : Land and Building
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₹ 1,24,000, Plan and Machinery ₹ 50,000, Furniture and Fixtures ₹ 10,000, Stock-in-trade ₹ 1,16,000,
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Sundry Debtors ₹ 1,00,000.

Pass journal entries (without narration) to record the acquisition of the business in the books of AB Ltd.
AS
CL
A
TI
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BH

PQ Ltd. was incorporated on 01.08.2020 to take over the business of Mr. P. Das with effect from
01.04.2020; certificate for commencement of business was, however, received on 01.10.2020. Profit &
Loss Account of Mr. P. Das for the year ended 31.03.2021 was as follows :

Office salaries 42,000 Gross Profit 2,40,000
Office Rent 19,200
Audit Fees 1,200
Director’s Fees 2,000
Office Expenses 36,000
Commission on sales 8,000
9)
Preliminary Expenses 1,400
6
Debenture Interest 3,200
45
Interest on Capital 3,600
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Insurance 4,200
3
Net Profit 1,19,200 88
2,40,000 2,40,000
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Additional Information :
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(a) Sales for the year were evenly up to the date of certificate of commencement, thereafter sales
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were increased evenly by 2/3rd GP rate was also uniform.

AS
(b) Office rent was paid @ ₹ 16,800 p.a. up to 30.09.2020 and thereafter @ ₹ 21,600 p.a.
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(c) Show the amount of pre and post incorporation profit from the above mention information.
A
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Question 8 (Hire purchase & Branch theory):

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(a) Mention the differences between Hire Purchase and Installment Purchase System.
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(b) State the purposes of preparing Branch Adjustment Account.
Group B:
Question 9 (P/L Appropriation + Goodwill):
(a) M, B and A are equal partners in a firm. The balances of their capital accounts are ₹ 30,000, ₹ 25,000
and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended 31st December
2021 of ₹ 45,000 had already been credited to partners in their profit sharing ratio. Their drawings
during the year were as follows : M – ₹ 5,000, B – ₹ 4,000 and A – ₹ 3,000
Subsequently the following omissions were noticed and it was decided to bring them into account :
(a) Interest on capital @ 10% per annum
(b) Interest on drawings M – ₹ 250, B – ₹ 200 and A – ₹ 150
(c) A was entitled for a salary of ₹ 1,500 per month.
Make the necessary corrections through a single journal entry. Show your workings clearly.
(b) A and B are partners sharing profits and losses in the ratio of 5 : 4. They admit C into partnership for
9)
1/5th of the share in the profits which is given as 2/15th by A and 1/15th by B. C brings ₹ 3,00,000 as
6
capital and 1,20,000 as premium. Goodwill account appears in the books at ₹ 3,30,000. Give
45
necessary journal entries in the books of the firm at the time of C’s admission in the firm after
determining the new profit sharing ratio.
3 03
Question 10 (Piecemeal Distribution): 88
R, S and K were partners in a firm sharing profits and losses in the ratio 5 : 3 : 2. On March 31, 2020, their
(9
Balance Sheet was as follows :
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(₹) (₹)
SE
Sundry Creditors 2,00,000 Plant & Equipments 40,000

AS
R’s Loan 80,000 Stock 2,60,000

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S’s Loan 60,000 Debtors 3,20,000

Capitals: Cash at bank 20,000
A
R 1,50,000
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S 1,20,000
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K 30,000 3,00,000
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6,40,000 6,40,000
BH
The firm was dissolved on 1st April, 2020. The assets realized were as follows :
2020 Stock Debtors Plant & Equipments Expenses
(₹) (₹) (₹) (₹)
April 30 60,000 50,000 15,000 5,000
June 30 60,000 50,000 — 8,000
July 31 80,000 1,50,000 20,000 15,000
August 31 50,000 20,000 — 5,000
Cash received was paid to the rightful claimants at the end of each month.
Prepare a statement showing the distribution of cash (following Surplus Capital Method).
Anil, Bimal and Chayan are partners in a partnership firm sharing profits & losses equally. The balance
sheet of the firm as on 31st December, 2020 was as follows :
Balance Sheet as on 31st December, 2020
Liabilities Amount (₹) Assets
Amount(₹)
Capital Accounts: — Land & Buildings 1,40,000
Anil 80,000 Plant & Machinery 1,20,000
Bimal 1,00,000 Furniture 20,000
Chayan 1,20,000 Stock 42,000
3,00,000 Sundry Debtors 80,000
General Reserve 48,000 Bank 16,000
9)
6
45
4,18,000 4,18,000
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Anil retires from the business on 31.12.2020 as per the following terms and conditions. Bimal and
3
Chayan will continue the business sharing profits & losses in the new ratio of 3 : 2.
88
(i) The value of Machinery and Furniture are to be depreciated by 15% and 10%
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respectively.
S
(ii) The value of Building is to be increased to ₹ 1,80,000 and the value of stock is to be
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increasedby ₹ 14,000.
AS
(iii) A provision of ₹ 4,000 is to be made for doubtful debts.

CL
(iv) Goodwill of the firm is to be valued at ₹ 90,000

A
(v) Bimal and Chayan have to adjust their capitals in the new profit sharing ratio and bring
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in cashto pay off Anil leaving a bank balance of ₹ 40,000 for working capital.
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(vi) The goodwill account is to be closed after retirement of Anil.

AL
Prepare Revaluation Account, Partners’ Capital Account and the Balance Sheet of the new firm.
BH
Question 12 (Dissolution theory):

(a) Mention the circumstances under which a firm may be dissolved.
(b) Mention two methods for distribution of assets on dissolution of a partnership firm.
(b) What do you mean by ‘Garner vs. Murray’ rule in case of insolvency of a partner?
3rd Sem 2021: Financial Accounting II General

Group A:
Kalyani Ltd. has a branch at Delhi. Goods are invoiced to the branch at cost plus 25%. Branch remits all
cash received to the Head Office and all expenses are paid by the Head Office.
From the following particulars for the year ended December 31st, 2020, prepare Delhi Branch Account.
Particulars ₹
Stock at Branch on 01.01.2020 (Cost Price) 64,000
9)
Stock at Branch on 31.12.2020 (Cost Price) 80,000
6
Goods invoiced to the branch during the year (Invoice Price) 2,00,000
45
03
3
Credit Sales
88 1,20,000
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Cash Sales 50,000
Discount allowed to Debtors 4,800
S
SE
Branch Expenses 16,000

AS
Bad Debts written off 3,200

CL
Goods returned by the Branch (Invoice Price) 5,000

There has not been any normal loss of branch stock during the year.
A
TI
O
AL
BH
X & Co. purchased machinery from Y & Co. on hire purchase terms :
The cash price of the machinery was ₹ 1,19,200, ₹ 32,000 was to be paid on 01.04.2018 and the balance in
three instalments of ₹ 32,000 each on March 31st every year, subject to interest @ 5% p.a. Depreciation is
to be provided @ 15% p.a. under straight line method. All instalments were duly paid.
Show Machinery Account and Y & Co. Account in the books of X & Co.
Prepare Departmental Trading and Profit & Loss Account for the year ended March 31st, 2021 on the basis
Particulars Dept. X (₹) Dept. Y (₹)

Stock (01.04.2020) 20,000 30,000
Purchases 2,50,000 2,00,000
Goods from Dept. X (at cost) – 40,000
Wages 70,000 80,000
Salaries 25,000 20,000
Stock (31.03.2021) 1,00,000 50,000
9)
Sales 6,50,000 5,00,000
6
45
03
Other common expenses : Rent- ₹ 10,000, Electricity- ₹ 12,000, Selling Expenses- ₹ 6,400, Depreciation-
3
₹ 19,000. 88
Additional Information :
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Particulars Dept. X Dept. Y

S
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AS
Light Points 10 5
Value of Assets (₹) 2,00,000 1,80,000
CL
A
Question 4 (Department & Branch theory):

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(a) Distinguish between Branch Accounting and Departmental Accounting.

O
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(b) How will you treat normal and abnormal loss in Branch Accounting under Analytical Method?
BH
Question 5 (Profit loss Prior theory):

(a) What do you mean by profits prior to incorporation?
(b) Which ratios are applicable for the apportionment of the following expenses between pre and post
incorporation period?
(i) Commission on sales (ii) Carriage inward

(iii) Insurance (iv) Depreciation.
On January 1st, 2020, Universal Investment Trust held as investment ₹ 30,000; 8% Government Stock
costing ₹ 25,000. On March 1st, 2020, ₹ 12,000 of stock was purchased @ ₹ 91 ex-interest. On June 15th,
2020, ₹ 5,000 stock was sold @ ₹ 93 cum-interest. On August 1st, 2020, ₹ 8,000 stock was purchased @ ₹
90 ex-interest. Interest being payable on June 30th and December 31st each year.
Prepare Investment Account for the year ended 31.12.2020 assuming Average Cost Method was followed
for valuation of closing investments.

Moon Ltd. was incorporated on 01 07.2020 to acquire an existing business with effect from 01.04.2020.
The accounts for the year ended 31.03.2021 disclosed the following :
9)
(a) Gross Profit ₹ 1,50,000
6
45
(b) Sales for the year amounted to ₹ 6,00,000 of which ₹ 1,20,000 were for the first six months;
03
(c) The expenses charged to the Profit & Loss Statement included : Director’s fees ₹ 5,000, Bad Debts
3
(d) ₹ 2,000, Advertising ₹ 4,800 (under a contract amounting to ₹ 400 per month), Salaries and
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General Expenses ₹ 40,000, Office and Administrative Expenses ₹ 5,000.
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S
Prepare a statement showing the amount of profit made before and after the incorporation of the company.
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AS
Question 8 (Hire purchase & Department theory):

CL
(a) Differentiate between Hire Purchase and Instalment Payment System.

A
(b) How will you treat unrealised profit on stock in departmental accounting?
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Group B:
BH

Question 9 (Retirement + Dissolution theory):
(a) Why are assets and liabilities revalued in partnership at the time of retirement of a partner?
(b) Why do we prepare Realisation Account at the time of dissolution of partnership firm?
(c) State the principles under Garner vs. Murray Rule in the context of insolvency of a partner at the
time of dissolution of a firm.
Amit and Labanya are partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance
Sheet as on December 31st, 2020 is as follows :

Amit 70,000 Plant and Machinery 44,000
Labanya 60,000 1,30,000 Furniture 20,000
Bills Payable 10,000 Cash 4,000
9)
1,96,000 1,96,000
6
Partners agreed to admit Ketaki with 1/5th share of profit on the following terms :
45
(a) The Furniture to be depreciated by ₹ 1,840.
03
(b) The Plant and Machinery and Goodwill be valued at ₹ 60,000 and ₹ 30,000 respectively;
3
88
(c) Ketaki should bring ₹ 40,000 as her capital;
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(d) After the above adjustments, capitals of the old partners be made proportionate to the capital
ofthe new partner and for this purpose, the existing partners are to bring or withdraw cash
S
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as thecase may be.

Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet of the new firm.
AS
CL
A
Behari, Mahen and Binodini were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1
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respectively. The Balance Sheet of the firm as on December 31st, 2020 was as follows :
O

AL

BH
Capital Accounts: Buildings 30,000

Behari 20,000 Plant and Machinery 20,000
Mahen 20,000 Furniture 5,000
Binodini 15,000 55,000 Closing Stock 15,000
Reserve 7,500 S/Debtors 10,000
Bills Payable 6,000 Less: Provision for
Creditors 12,500 doubtful debts 500 9,500
Cash 1,500
81,000 81,000
On 31.12.2020, Mahen retires. The terms of retirement provided the following :
(a) The Goodwill of the firm is to be valued at ₹ 10,000;
(b) Furniture, Plant & Machinery are to be depreciated by 10% and 5% respectively;
(c) Stock and Building are to be appreciated by 20% and 10% respectively;
(d) Provision for doubtful debts is to be increased to ₹ 750;
(e) The Reserve is to be transferred to Partners’ Capital Account;
(f) The amount due to Mahen is to be transferred to a separate Loan Account carrying interest @10 %.
Show journal entries and Balance Sheet of the firm after retirement.
9)
Bimala, Sandip and Nikhil were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. They
6
decided to dissolve their firm on March 31st, 2021 on which date the Balance Sheet of the firm was
45
as follows :
03
3
88
Capital Accounts : Sundry Assets 80,000
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Bimala 45,000 Cash at Bank 2,500
Sandip 30,000 75,000 Capital Account : Nikhil 5,000
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Creditors 12,500
AS
87,500 87,500
Sundry Assets realised ₹ 76,000 and creditors accepted ₹ 11,000 in full settlement of their claim. The
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expenses of dissolution amounted to ₹ 2,500. Nikhil was insolvent and a final dividend of 50% was received
from his estate.
A
Prepare Realisation Account, Partners’ Capital Account and Bank Account applying the principles of the
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Garner vs. Murray decision.

O
AL
BH
3rd Semester: Hons & Pass

Subject's Name Marks Course fees:
Financial Accounting II 100 2,500
Business Mathematics & Statistics 100 2,500
IT Theory 50 1,500
IFS (Hons only) 100 1,500
Acct + Maths & Stats 200 4,500
Honours (All Subjects) 350 7,500
9)
6
3rd Semester: Hons & Pass
45
03
Subject's Name Marks Course fees:
3
Financial Accounting II 88100 2,500
Business Mathematics & Statistics 100 2,500
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IT Theory 50 1,500
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Acct + Maths & Stats 200 4,500

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Pass (Acct + Maths & Stats, IT) (All Subjects) 250 6,000
CL
A
• Admission going on throughout the year, but join early to finish early.
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O
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• Online, offline & recorded all options. Offline classes at Girish park.
BH
• Morning/evening/day batches.
• All subjects by specialised & experienced faculty team.
• Gpay or Phonepe or Paytm at 8820696761/9883034569 and send the

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Financial Accounting II:

2. Hire purchase (10 Marks) 15 – 29

3. Branch accounting (10 Marks) 30 – 45

4. Profit or loss Prior to incorporation (10 Marks) 46 – 52

7. P/L Appropriation (9 Marks) 8 83 71 – 78

8. Goodwill Treatment (6 Marks) 79 – 80

9. Change in Profit Sharing Ratio (6 Marks) 80 – 80

10. Admission (15 Marks) 81 – 90

11. Retirement (15 Marks) 91 – 98

12. Admission cum Retirement (15 Marks) 99 – 99

13. Death 100 – 102

14. Dissolution (15 Marks) 103 – 117

15. Piecemeal Distribution (15 Marks) 118 – 123

16. Question Paper 2018 Honours & General 124– 133

17. Question Paper 2019 Honours & General 134 – 145

18. Question Paper 2020 Honours & General 146 – 156

19. Question Paper 2021 Honours & General 157 – 167

Book Price: ₹ 150

Branch Stock & Debtors Method /Branch Debtors Method [Practical]

Question 5 (Profit loss Prior or Conversion):

Profit & Loss Prior [Practical]

Conversion into Company [Practical]

Group B: [2 Question x 15 Marks = 30 Marks]

[1 Questions With Alternative]

Question 6 (P/L Appro + Goodwill OR Retirement/Admission):

Question 7 (Dissolution or Piecemeal Any one will come):

3rd Semester: Honours & General:

Unit 2: Partnership accounts-II [15 Marks]

repossession) Concept of operating and financial lease – basic concept only.

Unit 5: Departmental accounts [10 Marks]

Concept, objective of preparation of departmental accounts; apportionment of common cost; Preparation of

Unit 6: Investment Accounts [10 Marks]

- 1 – Admission going on Regular course/ 1 month /2 days crash course. Contact

Maintenance or Depreciation of Building, space

4. Lighting, Electricity Charges, Heating etc. Light Points/Floor Area Occupied

5. Insurance of Machinery, Depreciation of Machinery, Value of Machinery

Repairs of Machinery (or Cost of Machinery)

6. Supervisors’ Salary, Contribution to ESI etc. Direct wages of each department

7. Canteen Expenses Numbers of workers

9. Power Horse Power or Horse Power x Hours

- 2 – Admission going on Regular course/ 1 month /2 days crash course. Contact

(a) Space occupied by Department A is double the space occupied by Department B.

(b) Inter departmental transfers during the year:

Department A to Department B ₹ 60,000, at cost plus 25%

Department B to Department A ₹ 75,000 at normal selling price.

In department A (out of goods transferred by department B) ₹ 20,000.

In department B (out of goods transferred by department A) ₹ 18,000.

- 3 – Admission going on Regular course/ 1 month /2 days crash course. Contact

A/c (Dept. Net Profit) 77,766 57,034

3,16,666 2,23,034 3,16,666 2,23,034

Particulars Amount Particulars Amount

To Legal Expenses 25,800 By Departmental Profit & Loss A/c

- 4 – Admission going on Regular course/ 1 month /2 days crash course. Contact

2. Expenses ₹ 92,400 apportioned in Sales Ratio or 450 : 375 or 6 : 5

3. Rent Total ₹ 1,60,000

Dept. Sona—4000 units;

Dept. Mona—8,000 units;

Dept. Dona– 9,600 units.