Model Test Paper 1

ANSWERS

Part A
1. (d)
Working Note:
1 2 2
Share acquired by Karan from Parnav =  
4 3 12
1 1 1
Share acquired by Karan from Rahim =  
4 3 12
3 2 36  10 26
Parnav’s New Share =   
5 12 60 60
2 1 24  5 19
Rahim’s New Share =   
5 12 60 60
26 19 1
New Ratio of Parnav, Rahim and Karan = : : = 26 : 19 : 15.
60 60 4
2. (d)

3. (a) Or (c)

4. (b)
Working Note:
Net Effect of General Reserve and Dr. Balance of Profit & Loss A/c = ` 80,000 – ` 20,000 = ` 60,000
Sacrifice Share = Old Profit Share – New Profit Share
5 1 5
P =   (i .e., sacrifice )
10 3 30
4 1 2
Q =   (i .e., sacrifice ) ;
10 3 30
1 1 7
R =   (i .e., gain)
10 3 30
Entry: R’s Capital A/c (60,000 × 7/30) ...Dr. ` 14,000
To P‘s Capital A/c (60,000 × 5/30) ` 10,000
To Q’s Capital A/c (60,000 × 2/30) ` 4,000

Or
(d)

5. (b)

6. (b) Or (b)

7. (c)

1
 8. (a)
Working Note:
X Z
4 2
A. Their Existing Share
9 9
1 1 1 1 1 8
B. Profit Share taken of Y   − =
9 3 27 3 27 27
4 1 13 2 8 14
C. New Profit Share of X and Z (A + B)    
9 27 27 9 27 27
New Profit-sharing Ratio of X and Z = 13 : 14.

Or
(b)
Working Note:
Akil’s share of goodwill of ` 2,50,000 (` 5,00,000 × 5/10) to be adjusted between Vipul and Ritik in their
gaining ratio of 3 : 2.

9. (b)

10. (d)

11. (c)

12. (b)

13. (a)

14. (d)
Working Note:
Combined Capital of X and Y for 4/5th Share = ` 4,50,000
5
Total Capital of Firm = ` 4,50,000 × = ` 5,62,500
4
1
Z’s Capital = ` 5,62,500 × = ` 1,12,500.
5
15. (c) Or (c)
16. (a)

Working Note:
80

` 72,000 + of ` 37,000 (` 1,17,000 – ` 80,000*) = ` 1,01,600
100
100
*Book Value of Sundry Assets taken over by Y = ` 72,000 ×
= ` 80,000.
90

17. Calculation of Shreya’s share of profit till the date of her death:
Sales from 1st April to 30th June, 2022 = ` 1,40,000
Rate of Profit to be taken = 20% on sales
Profit on Sales during 1st April to 30th June, 2022 = ` 1,40,000 × 20/100 = ` 28,000
Shreya’s share of profit till the date of her death = ` 28,000 × 1/5 = ` 5,600.

2
 JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2022
June 30 Profit & Loss Suspense A/c ...Dr. 5,600
To Shreya’s Capital A/c 5,600
(Shreya’s share of profit up to the date of death credited to her Capital A/c)

18. ADJUSTING JOURNAL ENTRY

Date Particulars L.F. Dr. (`) Cr. (`)
Priyanka’s Capital A/c ...Dr. 15,000
To Mona’s Capital A/c 7,500
To Nisha’s Capital A/c 7,500
(Profit distributed in wrong ratio, now rectified)

Working Note: ADJUSTMENT TABLE

Particulars Mona (`) Nisha (`) Priyanka (`)
A. Amount already credited by way of share of profit in the ratio of 1 : 1 : 2 22,500 22,500 45,000
B. Amount which on should have been credited as profit in the ratio of 1 : 1 : 1 30,000 30,000 30,000
C. Difference (A – B) 7,500 (Cr.) 7,500 (Cr.) 15,000 (Dr.)
Short Short Excess

Or

PROFIT & LOSS APPROPRIATION ACCOUNT

Dr. for the year ended 31st March, 2022 Cr.
Particulars ` Particulars `
To Interest on Capital: By Profit & Loss A/c (Net Profit) 1,20,000
Aman (` 3,00,000 × 5/100 × 6/12) 7,500
Beena (` 2,00,000 × 5/100 × 6/12) 5,000
Chaman (` 1,00,000 × 5/100 × 6/12) 2,500
To Profit transferred to:
Aman’s Capital A/c (` 1,05,000 × 3/6) 52,500
Beena’s Capital A/c (` 1,05,000 × 2/6) 35,000
Chaman’s Capital A/c (` 1,05,000 × 1/6) 17,500
1,20,000 1,20,000

Note: Guaranteed amount for half year = ` 30,000 × 6/12 = ` 15,000. Since actual profit share (` 17,500) exceeds the
guaranteed profit, no adjustment is required.

3
19. JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c ...Dr. 20,00,000
To Shares Application and Allotment A/c 20,00,000
(Application Money received from promoters)
Shares Application and Allotment A/c ...Dr. 20,00,000
To Share Capital A/c 20,00,000
(Shares allotted to promoters)
Fixed Assets A/c ...Dr. 10,00,000
Stock A/c ...Dr. 5,00,000
Goodwill A/c (Balancing Figure) ...Dr. 1,50,000
To Sundry Liabilities A/c 5,00,000
To Muduse Ltd. 11,50,000
(Assets and Liabilities taken over)
Muduse Ltd. ...Dr. 11,50,000
Discount on Issue of Debentures A/c ...Dr. 50,000
To Bank A/c 2,00,000
To Share Capital A/c 5,00,000
To 7% Debentures A/c 5,00,000
(Consideration paid)
Statement of Profit & Loss (Finance Cost) ...Dr. 50,000
To Discount on Issue of Debentures A/c 50,000
(Discount on issue of debentures written off)
Note: No. of Debentures to be issued = `(11,50,000 – 2,00,000 – 5,00,000)/` 90 = 5,000 Debentures.

Or
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c ...Dr. 1,00,00,000
To Sundry Liabilities 25,00,000
To Amusement Ltd. 75,00,000
(Business taken over)
Amusement Ltd. ...Dr. 75,00,000
To Bank A/c 20,00,000
To 8% Preference Share Capital A/c 50,00,000
To Securities Premium A/c 5,00,000
(Purchase consideration paid)
Bank A/c ...Dr. 50,00,000
To Debentures Application and Allotment A/c 50,00,000
(Application money received from Grow More Ltd.)
Debentures Application and Allotment A/c ...Dr. 50,00,000
To 10% Debentures A/c 50,00,000
(10% Debentures allotted)

4
20. CALCULATION OF NORMAL PROFIT
Year Ended Profit/(Loss) (`) Adjustments* (`) Normal Profit (`)
31st March, 2019 70,000 (10,000) 60,000
31st March, 2020 1,00,000 20,000 1,20,000
31st March, 2021 (55,000) (45,000) (1,00,000)
31st March, 2022 1,44,000 6,000 1,50,000
2,30,000

Total Normal Profit ` 2 , 30 , 000

Average Profit = = = ` 57,500
Number of Years 4

Value of Goodwill = Average Profit × Number of Years’ Purchase

= ` 57,500 × 2 = ` 1,15,000.

*Adjustments:
1. Repair expenses that should have been debited to Profit & Loss Account `
as expense but accounted as capital expenditure. Loss to increase by ` 50,000 (50,000)

2. Depreciation wrongly debited to Profit & Loss Account for the

Year ended 31st March, 2021 (` 50,000 × 12/100 × 10/12) 5,000
Adjustment to be made in profit for the year ended 31st March, 2021 (45,000)

3. Adjustment to be made for depreciation for the year ended

31st March, 2022 (12% of ` 50,000) 6,000

21. (a) JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)
Preliminary Expenses A/c ...Dr. 5,00,000
To Promoters 5,00,000
(Services of promoters in incorporating the company)
Promoters ...Dr. 5,00,000
To Share Capital A/c 5,00,000
(Shares issued to promoters against their services)
Machinery A/c ...Dr. 30,00,000
To Vendor’s A/c 30,00,000
(Machinery purchased)
Vendor’s A/c ...Dr. 30,00,000
To Share Capital A/c 20,00,000
To Securities Premium A/c 10,00,000
(2,00,000 shares issued to vendor at a premium of ₹ 5 per share)

5
 (b) BALANCE SHEET OF GNS LTD.
as at ...
Particulars Note No. Current Year
`
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
Share Capital 1 50,00,000

Notes to Accounts
Particulars `
1. Share Capital
Authorised Capital
5,00,000 Equity Shares of ` 10 each 50,00,000
Issued Capital
5,00,000 Equity Shares of ` 10 each 50,00,000
Subscribed Capital
Subscribed and Fully Paid-up
5,00,000 Equity Shares of ` 10 each 50,00,000
(2,50,000 shares have been issued for consideration other than cash)
50,00,000

Note: The question requires to show share capital in the Balance Sheet of the company. Hence, Securities
Premium on issue of shares is not shown.

22. (i) PARTNERS’ CAPITAL ACCOUNTS

Particulars Keshav (`) Pankaj (`) Particulars Keshav (`) Pankaj (`)
To Balance b/d ... 50,000 By Balance b/d 1,00,000 ...
To Profit & Loss A/c 12,500 12,500 By General Reserve A/c 8,750 8,750
To Bank A/c (Dissolution Exp.) 2,500 ... By Realisation A/c 7,500 ...
To Realisation A/c ... 5,000 (Unrecorded Liability)
(Unrecorded Asset) By Bank A/c ... 1,33,750
To Realisation A/c (Loss) 75,000 75,000 (Amount Brought—Bal. Fig.)
To Bank A/c 26,250 ...
(Final Payment—Bal. Fig.)
1,16,250 1,42,500 1,16,250 1,42,500

(ii)
Dr. KESHAV’S LOAN ACCOUNT Cr.
Particulars ` Particulars `
To Bank A/c (Payment) 38,750 By Balance b/d 37,500
By Interest on Loan A/c 1,250
38,750 38,750

6
23. (i)
Dr. SHARES ALLOTMENT ACCOUNT Cr.
Particulars ` Particulars `
To Share Capital A/c (10,000 × ` 2) 20,000 By Shares Application A/c (WN 1) 8,000
To Securities Premium A/c (10,000 × ` 3) 30,000 By Bank A/c (WN 3) 37,800
By Calls-in-Arrears A/c (WN 2) 4,200
50,000 50,000

(ii)
Dr. SECURITIES PREMIUM ACCOUNT Cr.
Particulars ` Particulars `
To Calls-in-Arrears A/c (1,000 × ` 3) 3,000 By Shares Allotment A/c (10,000 × ` 3) 30,000
To Balance c/d 27,000
30,000 30,000

(iii)
Dr. SHARES FORFEITURE ACCOUNT Cr.
Particulars ` Particulars `
To Share Capital A/c 800 By Share Capital A/c (1,200 × ` 4) 4,800
(Discount on reissue of 800 shares)
To Capital Reserve A/c (WN 4) 3,040
To Balance c/d (` 4,800/1,000 × 200) 960
4,800 4,800

(iv)
Dr. CALLS-IN-ARREARS ACCOUNT Cr.
Particulars ` Particulars `
To Shares Allotment A/c 4,200 By Share Capital A/c 3,200
To Shares First Call A/c 2,000 By Securities Premium A/c 3,000
6,200 6,200

Working Notes:
1. Excess application money adjusted on allotment = (12,000 – 10,000) × ` 4 = ` 8,000.
2. Amount not received from defaulter shareholders (Calls-in-Arrears):
10 , 000
(i) Shares allotted to him =  1, 200  1, 000
12, 000
(ii) Application money received = 1,200 × ` 4 = ` 4,800
(iii) Application money due on shares allotted = 1,000 × ` 4 = ` 4,000
(iv) Excess Application money adjusted on allotment = ` 4,800 – ` 4,000 = ` 800
(v) Allotment money due on shares allotted = 1,000 × ` 5 = ` 5,000
(vi) Allotment money due but not received (Calls-in-Arrears) = ` 5,000 – ` 800 = ` 4,200.

7
 3. Calculation of amount received on allotment: `
Total allotment money due (10,000 × ` 5) 50,000
Less: Excess application money adjusted (WN 1) 8,000
42,000
Less: Allotment money due but not received (WN 2) 4,200
Amount received on Allotment 37,800
4. Calculation of amount transferred to Capital Reserve:
Amount forfeited on reissued shares (` 4,800/1,000 × 800) 3,840
Less: Reissue Discount (800 × ` 1) 800
Gain on reissue transferred to Capital Reserve 3,040
Or
JOURNAL OF GOLD BRAND LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c ...Dr. 9,00,000
To Equity Shares Application A/c 9,00,000
(Application money received for 3,00,000 shares)
Equity Shares Application A/c ...Dr. 9,00,000
To Equity Share Capital A/c (1,00,000 × ` 3) 3,00,000
To Equity Shares Allotment A/c 3,20,000
To Calls-in-Advance A/c 60,000
To Bank A/c (WN) 2,20,000
(Application money adjusted and surplus refunded) (WN 1 and 2)
Equity Shares Allotment A/c ...Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Allotment money due on 1,00,000 shares)
Bank A/c (` 4,00,000 – ` 3,20,000) ...Dr. 80,000
To Equity Shares Allotment A/c 80,000
(Balance allotment money received)
Equity Shares First and Final Call A/c ...Dr. 3,00,000
To Equity Share Capital A/c 3,00,000
(First and final call money due on 1,00,000 shares)
Bank A/c* ...Dr. 2,39,520
Calls-in-Arrears A/c (160 × ` 3) ...Dr. 480
Calls-in-Advance A/c ...Dr. 60,000
To Equity Shares First and Final Call A/c 3,00,000
(First and final call money received except on 160 shares
@ ` 3 per share and advance received earlier (` 60,000) adjusted)
*` 3,00,000 – ` 480 – ` 60,000 = ` 2,39,520.
Equity Share Capital A/c (160 × ` 10) ...Dr. 1,600
To Calls-in-Arrears A/c (160 × ` 3) 480
To Forfeited Shares A/c (160 × ` 7) 1,120
(160 shares forfeited for non-payment of call money)
Bank A/c (160 × ` 15) ...Dr. 2,400
To Equity Share Capital (160 × ` 10) 1,600
To Securities Premium A/c (160 × ` 5) 800
(160 forfeited shares reissued @ ` 15 per share as fully paid)
Forfeited Shares A/c ...Dr. 1,120
To Capital Reserve A/c 1,120
(Gain on reissue of forfeited shares transferred to Capital Reserve) (WN 3)

8
Working Notes:
1. Adjustment of Application Money: `
Application money received on shares applied (3,00,000 × ` 3) 9,00,000
Less: 20% applications rejected (20% of 3,00,000, i.e., 60,000 × ` 3)—Refunded (A) 1,80,000
7,20,000
Less: Application money adjusted on allotted shares (1,00,000 × ` 3) 3,00,000
(Category I and II)
Excess Application money (Category I and II) 4,20,000
2. Adjustment of Excess Application Money: `
Category I: Application money received (1,60,000 × ` 3) 4,80,000
Less: Application money adjusted on allotted shares (80,000 × ` 3) (C) 2,40,000
Excess application money 2,40,000
Less: Excess application money to be adjusted on allotment 2,40,000
Surplus Nil
Category II: Application money received on shares applied (80,000 × ` 3) 2,40,000
Less: Application money due on shares allotted (20,000 × ` 3) 60,000
Excess Application money 1,80,000
Less: Amount to be adjusted on Allotment (20,000 × ` 4) (D) 80,000
Amount to be adjusted on first and final call (20,000 × ` 3) (E) 60,000 1,40,000
Excess Amount to be refunded (B) 40,000
• Total Application Money Refunded (A + B) = ` 1,80,000 + ` 40,000 = ` 2,20,000.
• Excess Application Money to be adjusted on Allotment (C + D) = ` 2,40,000 + ` 80,000 = ` 3,20,000.
• Excess Application Money to be adjusted on First and Final Call (Calls-in-Advance) = ` 60,000 (E).
3. Shares are reissued at premium, discount on reissue is Nil. Therefore, total amount of ` 1,120 credited to
Forfeited Shares Account is capital gain and is transferred to Capital Reserve Account.

24. (a)
Dr. REVALUATION ACCOUNT Cr.

Particulars ` Particulars `
To Fixed Assets A/c 2,500 By Creditors A/c 2,000
To Provision for Doubtful Debts A/c 5,000 By Loss transferred to:
Lisa’s Capital A/c (` 5,500 × 5/10) 2,750
Monika’s Capital A/c (` 5,500 × 3/10) 1,650
Nisha’s Capital A/c (` 5,500 × 2/10) 1,100
7,500 7,500

(b)
Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars Lisa Monika Nisha Particulars Lisa Monika Nisha
` ` ` ` ` `
To Goodwill A/c 25,000 15,000 10,000 By Balance b/d 1,07,500 1,02,500 60,000
To Revaluation A/c (Loss) 2,750 1,650 1,100 By Monika’s Capital A/c 8,000 ... ...
To Lisa’s Capital A/c ... 8,000 32,000 (Goodwill)
(Adjustment of Goodwill) By Nisha’s Capital A/c 32,000 ... ...
To Bank A/c (Bal. Fig.) 1,19,750 ... ... (Goodwill)
To Balance c/d (WN 3 and 4) ... 79,000 1,18,500 By Bank A/c (Bal. Fig.) ... 1,150 1,01,600
1,47,500 1,03,650 1,61,600 1,47,500 1,03,650 1,61,600

9
Working Notes:
1. Gain/(Sacrifice) = New Profit Share – Old Profit Share
Monika’s Gain = 2/5 – 3/10 = 1/10; Nisha’s Gain = 3/5 – 2/10 = 4/10; Gaining Ratio = 1 : 4.
2. Lisa’s share of goodwill = ` 80,000 × 5/10 = ` 40,000 to be contributed by gaining partners in the gaining ratio,
i.e., 1 : 4. Monika’s contribution = ` 40,000 × 1/5 = ` 8,000 and Nisha’s contribution = ` 40,000 × 4/5 = ` 32,000.
3. Calculation of Total Capital of New Firm after Lisa’s retirement: `
Amount payable to Lisa 1,19,750
Adjusted old capital of Monika (` 1,02,500 – ` 15,000 – ` 1,650 – ` 8,000) 77,850
Adjusted old capital of Nisha (60,000 – 10,000 – 1,100 – 32,000) 16,900
Bank balance required in new firm 15,000
Existing bank balance [` 40,000 – ` 8,000 (claim of creditors settled)] (32,000)
Total capital of new firm 1,97,500
4. Monika’s capital in new firm = ` 1,97,500 × 2/5 = ` 79,000
Nisha’s capital in new firm = ` 1,97,500 × 3/5 = ` 1,18,500.
Or
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Partners’ Capital A/cs: (Profit) By Plant & Machinery A/c 15,000
Raghu 19,200 By Building 10,000
Rishu 12,800 32,000 By Provision for Doubtful Debts A/c 7,000
32,000 32,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Raghu Rishu Rishabh Particulars Raghu Rishu Rishabh
` ` ` ` ` `
To Current A/cs (Bal. Fig.) 7,200 4,800 ... By Balance b/d 1,35,000 90,000 ...
To Balance c/d (WN 1 & 2) 1,80,000 1,20,000 1,00,000 By Cash A/c ... ... 1,00,000
By General Reserve A/c 15,000 10,000 ...
By Revaluation A/c 19,200 12,800 ...
By Rishabh’s Current A/c 18,000 12,000 ...
(Goodwill)
1,87,200 1,24,800 1,00,000 1,87,200 1,24,800 1,00,000

Working Notes:
1. Calculation of New Profit Sharing Ratio:
Let the Total Share = 1,
1
Rishabh‘s Share =
4
1 3
Remaining Share = 1 
4 4
3 3 9
Raghu’s New Profit Share =  
4 5 20
3 2 6
Rishu’s New Profit Share =  
4 5 20
9 6 1
New Profit-sharing Ratio of Raghu, Rishu and Rishabh = : : = 9 : 6 : 5.
20 20 4

10
2. Calculation of Partners’ New Capitals:
Capital of the New Partner (Rishabh)
Total Capital of the Firm =
Share of Profit of Rishabh

` 1, 00 , 000 4
= = ` 1,00,000 × = ` 4 , 00 , 000.
1/ 4 1
New Capital of Partners:
9
Raghu = ` 4,00,000 × = ` 1,80,000.
20
6
Rishu = ` 4,00,000 × = ` 1,20,000.
20

25.
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Provision for Doubtful Debts A/c 1,500 By Machinery A/c 4,000
To Loss transferred to: By Furniture A/c 1,000
Ajay’s Capital A/c 1,750
Salil’s Capital A/c 1,050
Ravi’s Capital A/c 700 3,500
5,000 5,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Ajay (`) Salil (`) Ravi (`) Particulars Ajay (`) Salil (`) Ravi (`)
To Profit & Loss A/c 5,000 3,000 2,000 By Balance b/d 12,000 16,000 10,000
To Ajay’s Executor’s A/c 25,750 ... ... By General Reserve 10,000 6,000 4,000
To Salil’s Current A/c ... 400 ... By Revaluation A/c (Profit) 1,750 1,050 700
(Balancing Figure) By Loan from Ajay 7,000 ... ...
To Balance c/d ... 19,650 13,100 By Ravi’s Current A/c ... ... 400
(WN 1 and 2 ) (Balancing Figure)
30,750 23,050 15,100 30,750 23,050 15,100

BALANCE SHEET OF THE NEW FIRM

as at 20th February, 2022
Liabilities ` Assets `
Creditors 19,000 Machinery 45,000
Ajay’s Executors’ A/c 25,750 Furniture 7,000
Salil’s Current A/c 400 Stock 9,000
Capital Accounts: Debtors 15,000
Salil 19,650 Less: Provision for Doubtful Debts 1,500 13,500
Ravi 13,100 32,750 Cash 3,000
Ravi’s Current A/c 400
77,900 77,900

11
Working Notes:
1. Calculation of Total Capital of New Firm after Ajay’s Death: `
A. Adjusted old capital of Salil (16,000 + 6,000 + 1,050 – 3,000) 20,050
B. Adjusted old capital of Ravi (10,000 + 4,000 + 700 – 2,000) 12,700
C. Total Capital of New Firm after Ajay’s Death 32,750

2. Calculation of Current Account Balances: Salil (`) Ravi (`)

A. New Capital (` 32,750 in the ratio of 3 : 2) 19,650 13,100
B. Adjusted Old Capital 20,050 12,700
C. Current A/c Balance (A – B) 400 (Cr.) 400 (Dr.)

26. (a) JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)
2021
Oct. 1 Bank A/c ...Dr. 66,00,000
To Debentures Application and Allotment A/c 66,00,000
(Application money received)
Debentures Application and Allotment A/c ...Dr. 66,00,000
Loss on Issue of Debentures A/c ...Dr. 12,00,000
To 8% Debentures A/c 60,00,000
To Securities Premium A/c 6,00,000
To Premium on Redemption of Debentures A/c 12,00,000
(Debentures issued at 10% premium to be redeemed at 20% premium)

(b)
Dr. SECURITIES PREMIUM ACCOUNT Cr.
Particulars ` Particulars `
To Loss on Issue of Debentures A/c 12,00,000 By Balance b/d 8,20,000
To Balance c/d 2,20,000 By Debentures Application and Allotment A/c 6,00,000
14,20,000 14,20,000

(c)
Dr. LOSS ON ISSUE OF DEBENTURES ACCOUNT Cr.
Date Particulars ` Date Particulars `
2021 2022
Oct. 1 To Premium on Redemption of 12,00,000 March 31 By Securities Premium A/c 12,00,000
Debentures A/c
12,00,000 12,00,000

12
 (d) JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2022
March 31 Interest on Debentures A/c ...Dr. 3,40,000
To Debentureholders’ A/c 3,40,000
(Interest due on debentures) (WN 1)
Debentureholders’ A/c ...Dr. 3,40,000
To Bank A/c 3,40,000
(Payment of Interest)
Statement of Profit & Loss (Finance Cost) ...Dr. 4,40,000
To Interest on Debentures A/c (WN 2) 4,40,000
(Transfer of Debentures interest to Statement of Profit & Loss)

Working Notes:
1. Interest on Debentures:
8 6
` 25, 00 , 000 × × = ` 1,00,000
100 12
8 6
` 60 , 00 , 000 × × = ` 2,40,000
100 12
Total ` 3,40,000

 8   8 6 
2.  ` 25, 00 , 000     ` 6 , 00 , 000      ` 4 , 40 , 000.
 100   100 12  

Part B
27. (d)  Or  (d)
28. (d)  Or  (c)
29. (c)
Working Note:
Debt = Total Debt – Current Liabilities
= ` 1,80,000 – ` 20,000 = ` 1,60,000
Total Assets = Shareholders’ Funds + Total Debt
= ` 80,000 + ` 1,80,000 = ` 2,60,000
Total Assets ` 2,60,000

Total Assets to Debt Ratio = = = 26 : 16 = 1.63 : 1.
Debt ` 1,60,000
30. (d)
Working Note:
Calculation of Net Profit before Tax and Extraordinary Items: `
Surplus, i.e., Balance in Statement of Profit & Loss (31st March, 2022) 11,00,000
Less: Surplus, i.e., Balance in Statement of Profit & Loss (31st March 2021) 5,00,000
6,00,000
Add: Proposed Dividend for the year ended 31st March, 2021 declared in the year 2022
7,00,000
13,00,000

Note: Dividend Payable (₹ 50,000) has no affect on Net Profit before Tax and Extraordinary Items.

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31.
Item Major Head Sub-head
(i) Marketable Securities Current Assets Cash & Cash Equivalents.
(ii) Stores & Spares Current Assets Inventories.
(iii) Interest Accrued and Due on Debentures Current Liabilities Other Current Liabilities.
(iv) Debentures payable within the period of 12 months or Current Liabilities Short-term Borrowings
Operating Cycle Period from the Date of Balance Sheet.
(v) Bank Overdraft Current Liabilities Short-term Borrowings.
(vi) Securities Premium. Shareholders’ Funds Reserves & Surplus.

32. Variations of Accounting practices as limitation of Ratio Analysis is highlighted in the

given statement.
Other two limitations of Ratio Analysis
(i) Ratio Analysis ignores Qualitative Factors: Accounting ratios are calculated from the
factors contained in financial statements. Financial statements ignore qualitative
information and as a result, accounting ratios do not consider qualitative factors,
viz., human resources, sales policy, market conditions, etc.
(ii) Ratio Analysis ignores Price-level Changes: Accounting ratios are calculated from
financial statements which are drawn on the basis of historical costs as recorded
in the books of account. Thus, these ratios ignore the change in price level and
they do not reflect the actual analysis.
Net Profit before Interest and Tax
33. (i) Return on Investments (ROI) = ×100
Capital Employed

` 2 , 40 , 000  ` 1, 60 , 000  ` 40 , 000

=  100
` 12 , 00 , 000

` 4 , 40 , 000
=  100  36.67%.
` 12 , 00 , 000

Capital Employed = Equity Share Capital + Reserves and Surplus

+ 15% Preference Share Capital + 10% Debentures

= ` 5,00,000 + ` 2,00,000 + ` 1,00,000 + ` 4,00,000

= ` 12,00,000.

Revenue from Operations

(ii) Net Assets or Capital Employed Turnover Ratio =
Capital Employed

` 24,00,000
= = 2 Times.
` 12,00,000

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 Or
Net Profit before Interest, Tax and Dividend
(a) Return on Investment =  100
Capital Employed
Net Profit before Interest, Tax and Dividend = ` 14,50,000
Capital Employed = Fixed Assets + Current Assets – Current Liabilities
= ` 75,00,000 + ` 40,00,000 – ` 27,00,000 = ` 88,00,000
` 14,50,000
Return on Investment =
 100 = 16.48%.
` 88,00,000
Total Assets ` 1,15,00,000
(b) Total Assets to Debt Ratio = = = 1.44 : 1.
Long-term Debts ` 80,00,000
Total Assets = Fixed Assets + Current Assets
= ` 75,00,000 + ` 40,00,000 = ` 1,15,00,000
Long-term Debts = 12% Debentures
= ` 80,00,000.
34.  1. Net Profit before Tax and Extraordinary Items:
= Net Profit for the year + Interim Dividend + Loss of furniture due to fire + Provision
for Tax + Proposed Dividend – Tax Refund
= ` 15,00,000 + ` 1,20,000 + ` 10,000 + ` 1,00,000 + ` 1,50,000 – ` 10,000
= ` 18,70,000.
2. Operating Profit before Working Capital Changes:
= Net Profit before Tax and Extraordinary Items + Adjustments for Non-cash and
Non-operating Expenses – Adjustments for Non-cash and Non-operating Incomes.
= ` 18,70,000 + ` 1,00,000 (Depreciation) + ` 80,000* – ` 25,000 (Interest on Investments)
= ` 20,25,000.
*Patents Amortised = Opening Patents + Purchased – Closing Patents
= ` 80,000 + ` 50,000 – ` 50,000
= ` 80,000.
3. Cash Flow from Investing Activities:
= Interest on Long-term Investments – Purchase of Machinery – Purchase of Non-
current Investment – Purchase of Patents
= ` 25,000 – ` 2,00,000 – ` 1,00,000 – ` 50,000
= ` (3,25,000) Outflow.
4. Cash Flow from Financing Activities:
= Proceeds from Issue of Shares – Payment of Bank Overdraft – Payment of Proposed
Dividend – Payment of Interim Dividend
= ` 5,00,000 – ` 2,00,000 – ` 1,50,000 – ` 1,20,000
= ` 30,000.
5. Cash and Cash Equivalents:
= Cash in Hand and at Bank + Marketable Securities
= ` 50,000 + ` 1,00,000
= ` 1,50,000.
15