KENDRIYA VIDYALAYA SANGATHAN 1

ERNAKULAM REGION
MINIMUM LEARNING MATERIAL
ACCOUNTANCY
क ीय िव ालय सं गठन े ीय कायालय एनाकुलम
KENDRIYA VIDYALAYA SANGATHAN
ERNAKULAM REGION

CLASS XII
ACCOUNTANCY

MINIMUM LEARNING MATERIAL

SESSION-2022-23

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KENDRIYA VIDYALAYA SANGATHAN ERNAKULAM REGION
MINIMUM LEARNING MATERIAL

INSPIRATION

SHRI R SENTHIL KUMAR, DEPUTY COMMISSIONER

SMT DEEPTI NAIR, ASSISTANT COMMISSIONER
SHRI SANTHOSH KUMAR N, ASSISTANT COMMISSIONER
SHRI S AJAYA KUMAR, ASSISTANT COMMISSIONER

CONTENT PREPARATION

Ms. Soja, KV Payyanur

Ms. Sanira Baiju, KV Adoor
Ms. Sangeetha Nair, KV Malappuram
Ms. Nisha, KV Akkulam
Ms. Ambili, KV INS Dronacharya
Mr. Jubin, KV Pattom - Shift 1
Ms. Dhanya, KV -1, Palakkad
Ms. Jayasree, KV Ernakulam
Mr. Jayakrishnan, SAP Peroorkada
Ms. Sreedevi Dinesh, KV Keltron Nagar

REVIEW & COMPILATION

Ms. Sudha, KV NO: 1 Calicut
Ms. Swapna, KV NO: 2 Calicut

CO-ORDINATOR

SHRI ANIL MOHAN

PRINCIPAL, KV 1 KOCHI

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 MINIMUM LEARNING MATERIAL
CONTENT INDEX
CLASS XII -ACCOUNTANCY

CHAPTER/CONTENT
UNIT 1 - ACCOUNTING FOR PARTNERSHIP
1 PARTNERSHIP -FUNDAMENTALS 5-7
2 CHANGE IN PROFIT SHARING RATIO 8-9
3 ADMISSION OF A PARTNER 10-14
4 RETIREMENT AND DEATH OF A PARTNER 15-20
5 DISSOLUTION OF A FIRM 21-23
UNIT 2 - COMPANY ACCOUNTS
6 ACCOUNTING FOR SHARE CAPITAL 24-27
7 ACCOUNTING FOR DEBENTURES 28-31
UNIT 3 - ANALYSIS OF FINANCIAL STATEMENTS
8 FINANCIAL STATEMENTS 32-34
9 RATIO ANALYSIS
UNIT - 4 CASH FLOW STATEMENT
10 CASH FLOW STATEMENT 35-37

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 CHAPTER 1
PARTNERSHIP - FUNDAMENTALS
1 Minimum number of persons to start a partnership is 2 and maximum is 50 based on…..
A. Partnership Act of 1932
B. Companies Act of 2013
C. Companies Act 1956
D. None of these. Ans : (B)
2 . In the absence of a partnership agreement, how the profit is shared among the partners?
A. According to the partner’s decision
B. Equally
C. It will depend on the experience of a partner
D. partner’s capital ratio. Ans : (B)
3 3. Average profit of a business over the last five years ware ₹60,000. The normal yield on
capital invested in such a business is estimated at 10% pa. Capital invested in the business
is ₹5,00,000. Amount of goodwill, it is based on 3 year’s purchase of last 5 years super
profit will be
A. ₹1,00,000
B. ₹1,80,000
C. ₹30,000
D. ₹1,50,000 . Ans : (C)
4 4. A firm earned ₹60,000 as profit, the normal rate of return being 10%. Assets of the firm are
₹7,20,000 (excluding goodwill) and liabilities are ₹2,40,000. Find the value of goodwill by
the capitalization of the Average Profit Method.
A. ₹2,40,000
B. ₹1,80,000
C. ₹1,20,000
D. ₹60,000 Ans : (C)
5 5. P and Q are partners in a partnership firm. Q has withdrawn ₹ 9,000 at the end of each quarter,
throughout the year. Calculate interest on drawings at the rate of 6% per annum.
A. 5400 B.800 C.810 D. 2700 Ans : (C)
6 6. A and B are partners sharing profits and losses in the ratio of 3:2 with capitals ₹5,00,000
each. According to partnership deed, interest on capital is allowed @ 10% p.a. The profit
for the year is ₹ 50,000. What amount will be credited to A and B in such condition?
A. ₹50,000 each to A and B
B. ₹25,000 each to A and B
C. ₹30,000 to A and ₹20,000 to B
D. None of the above Ans : (B)
7 When Partner’s Cpital Accounts are fixed,which one of the following items will be written in
the Partner’s Capital account?
A. Partners drawings against Profit
B. Drawings agaist Capital
C. Loan taken by Partner from the Firm
D. Loan advanced by Partner to the Firm Ans:(B)

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Long Answer questions:
8 A and B are partners in a firm. A’s Capital is ₹ 1,00,000 and B’s Capital is ₹ 60,000.
Interest on capital is payable @ 6% p.a. B is entitled to a salary of ₹ 3,000 per month.
Profit for the current year before interest and salary to B is ₹ 80,000. Prepare Profit and
Loss Appropriation Account
9 Veena and Karan were partners in a firm sharing profits in the ratio of 7:5. Their fixed
capitals were ₹10,00,000 and ₹7,00,000 respectively. Partnership deed provided for the
following:
a. Interest on Capital @ 12% pa.
b. Veena’s salary ₹6,000 per month and Karan’s salary ₹60,000 per year.
c. The profit till March 31-3-2022 was ₹5,04,000 which was distributed equally,
without providing for the above.
Record an adjustment entry
10 Varun, Shivam and Manu are partners in a partnership firm sharing profit and loss in the
ratio of 3:2:1. The balance of their capitals as on 1st April, 2021 ₹ 5,00,000; ₹ 3,00,000
and ₹ 2,00,000 respectively. They are allowed interest on capital @ 10% p.a. and Shivam
allowed salary of ₹ 40,000 per annum. The profits of the firm for the year ending 31st
March, 2022 were ₹ 3,20,000. Varun and Shivam guaranteed Manu that his profits will
not be less than₹ 40,000. You are required to prepare Profit and Loss Appropriation A/C.
Solution: QN 8
Profit &Loss Appropriation A/C
Particulars Particulars ₹
Interest on Capital: Profit and Loss A/c (Net Profit) 80,000
A 6,000 9,600
B 3,600
Salary to B (₹ 3,000 × 12) 36,000
Profit transferred to:
A’s Capital A/c 17,200
B’s Capital A/c 17,200 34,400
80,000 80,000
Solution: QN 9
Veena(₹) Karan(₹) firm(₹)
Total Interest on Capitals Cr. 1,20,000 84,000 2,04,000
Salary Cr. 72,000 60,000 1,32,000
Profit left after interest on capital and salary will be
₹5,04,000 – ₹2,04,000 – ₹1,32,000 = ₹1,68,000.
Profit 1,68,000 divided in to 7:5 Cr. 98,000 70,000 1,68,000
Net amount that should have been received (total) Cr. 2,90,000 2,14,000 5,04,000
Profit already distributed equally Dr. 2,52,000 2,52,000 5,04,000
Net effect( difference) Cr Dr nil
38,000 38,000
Karan’s Current A/c …….Dr 38,000
To Veena’s current A/c 38,000
(Being adjustment entry passed)

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Solution: QN 10
Profit & Loss Appropriation Account
Particulars Amount Particulars Amount
To Shivam’s Salary 40,000 By profit and Loss 3,20,000
To Interest on Capital:
Varun 50,000
Shivam 30,000
Manu 20,000 1,00,000
To Capital A/cs: 84,000
Varun’s Capital A/c 90,000
Less: Guarantee to Manu (6,000)
Shivam’s Capital A/c 60,000 56,000
Less: Guaranttee to Manu (4,000)
Manu’s Capital A/c 30,000 40,000
Add: Guarantee of profit
From Varun 6,000
Shivam 4,00010,000

3,20,000 3,20,000

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 CHAPTER 2
PARTNERSHIP- CHANGE IN PROFIT SHARING RATIO
1 Ram, Shyam and Manoj share profits in the ratio of 5:3:2. They decided to share future
profits in the ratio of 2:3:5. If the workmen compensation Reserve exists in the Balance
sheet, it will be distributed among partners in their ______ratio.
A. Old Rtio
B. New Ratio
C. Sacrificing Ratio
D. Gaining Ratio Ans: (A)
2 A, B and C were partners in a firm sharing profits in the ratio of 3:4:1. They decided to
share profits equally w.e.f from 1 .4.2019. On that date the profit and loss account showed
the credit balance of 96,000. Instead of closing the profit and loss account, it was decided
to record an adjustment entry reflecting the change in profit sharing ratio.In the journal
entry:
A. Dr. A by 4,000; Dr. B by 16,000; Cr C by 20,000
B. Cr. A by 4,000; Cr. B by 16,000; Dr C by 20,000
C. Cr. A by 16,000; Cr. B by 4,000; Dr C by 20,000
D. Dr. A by 16,000; Dr. B by 4,000; Dr C by 20,000 Ans: (B)
3 According to AS 26, which goodwill is recorded in the books
A. Purchased goodwill
B. Self-generated goodwill
C. Both (i) and (ii)
D. Any of the above Ans: (A)
4 Assertion (A): It is very important to calculate gaining and sacrificing ratio at the time of
change in profit sharing ratio.
Reason (R): Sacrificing partner compensate the gaining partner by paying him proportion of
amount of goodwill.
A. Both Assertion and reason are true and reason is correct explanation of assertion.
B. Assertion and reason both are true but reason is not the correct explanation of assertion.
C. Assertion is true, reason is false.
D. Assertion is false, reason is true. Ans: (C)
5 In which of the following cases, Revaluation Account is credited?
A) Decrease in the value of Asset
B) Increase in the value of Liabilities
C) Increase in the value of Asset
D) Profit in Revaluation of Asset and Re assessment of Liabilities Ans: (C)
Long Answer questions
6 Mita ,Gopal and Farhan were partners sharing profit and losses in the ratio of 3:2:1. On
st
31 march 2020, they decided to change the profit sharing ratio to 5:3:2. On this date,
the Balance Sheet showed Deferred Advertisement expenditure Rs 30000 and
Contingency Reserve Rs 9000. Goodwill was valued at Rs 480000. Pass the necessary
journal entries for the above transactions in the books of the firm on its reconstitution.

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7 Rekha, Seema and Mahesh were partners sharing profits and losses in the ratio of 5: 3: 2.
With effect from 1st April, 2020, they mutually agreed to share profits and losses in the
ratio of 2 : 2 : 1. On that date, there was a workmen’s compensation fund of Rs.90,000 in
the books of the firm. It was agreed that:
(i) Goodwill of the firm be valued at RS.70,000.
(ii) Claim for workmen’s compensation amounted to Rs.40,000.
(iii) Profit on revaluation of assets and reassessment of liabilities amounted to Rs.40,000
(A) What is the Sacrificing/Gaining Ratio of Partners?
(B) Pass necessary entry for treatment of Goodwill, workmen compensation reserve.
(C) Calculate the amounts of profit on Revaluation to be distributed among old partners.
Solution: QN 6
Date Particulars LF Dr Cr

31/3/20 Mita’s Capital A/C Dr 15000

Gopal’s Capital A/C Dr 10000
Farhan’s Capital A/C Dr 5000
To Deferred Advertisement Expenditure 30000
(Being Deferred Advertisement Expenditure
debited in old ratio 3:2:1)

Contingency Reserve A/C Dr 9000

To Mita’s Capital A/C 4500
To Gopal’s Capital A/C 3000
To Farhan’s Capital A/C 1500
Contingency Reserve distributed in old ratio3:2:1

Farhan’s Capital A/C Dr 16000

To Gopal’s Capital A/C 16000
(Being goodwill adjusted on change in profit ratio)
Solution: QN 7
A) Rekha’s Sacrificing share – 1/5;
Seema’s Gaining Share – 1/5;
Mahesh – No sacrifice No Gain.
B) Workmen Compensation Reserve A/C….. Dr 90,000
To Claim for Workmen Compensation A/C 40,000
To Rekha’s Capital A/C 25,000
To Seema’s Capital A/C 15,000
To Mahesh’s Capital A/C 10,000
(For the Adjustment of Workmen Compensation Reserve)
C) Seema’s Capital A/C………... Dr 14000
To Rekha’s Capital A/C 14000
(For Treatment of Goodwill)
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 CHAPTER 3
RECONSTITUTION OF PARTNERSHIP-ADMISSION OF A PARTNER
1 Profit or loss on revaluation of assets and re-assessment of liabilities is transferred to
Partners Capital Accounts in their
(a) Capital sharing ratio
(b) Equally
(c) Old profit-sharing ratio
(d) Gaining ratio (C)
2 Goodwill brought in the incoming partner is distributed among the old partners in their
(a) Old profit sharing ratio
(b) Gaining ratio
(c) Sacrificing ratio
(d) New profit sharing ratio (C)
3 When the new partner brings cash for goodwill the amount is credited to
(a) Revaluation account
(b) Cash account
(c) Old partner’s Capital account
(d) Premium for goodwill account (d)
4 At the time of admission, if the profit sharing ratio among the old partners does not change
then sacrificing ratio will be
(a) Their old profit sharing ratio
(b) According to the contribution of capital
(c) Their new profit sharing ratio
(d) Equal (a)
5 Unrecorded assets and liabilities are transferred to
(a) Partner’s Capital account
(b) Revaluation account
(c) Profit and Loss account
(d) Partner’s current account (b)
Long Answer questions:
6 Alfa and Beta were partners in a firm. On 1/4/2021 they admitted Gama, a good friend of Beta
into the partnership. The Balance Sheet of Alfa and Beta as on 31 st March 2022 was as follows:
Liabilities Amount Assets Amount
Capitals: Machinery 3,86,000
Alfa 5,00,000 Stock 2,00,000
Beta 6,00,000 11,00,000 Sundry Debtors 8,00,000
Creditors 3,00,000 Less: Provision for
Outstanding expenses 30,000 doubtful debts 40,000 7,60,000
Workmen’s Compensation 56,000 Cash 1,00,000
Reserve Profit & Loss A/c 40,000
14,86,000 14,86,000

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 Gama was admitted in the firm on the following terms:
(i) Gama will bring in Rs. 4,00,000 as his capital but he was unable to bring any amount
for goodwill
(ii) The new profit sharing ratio between Alfa, Beta and Gama will be 3:2:1
(iii) Claim on account of Workmen Compensation was Rs. 30,000
(iv) To write off bad debts amounting Rs.40,000
(v) Creditors were paid Rs. 20,000 more
(vi) Outstanding expenses be brought down to Rs.12,000
(vii) Rs.20,000 be provided for an unforeseen liability
(viii) Goodwill of the firm was valued at Rs.1,80,000
Prepare Revaluation Account, Partner’s Capital Account and Balance Sheetof the new firm
7 T and N were partners in a firm, on 31st March 2021 they decided to admit as a new partner. On
31st March 2021 the Balance Sheet of T and N stood as follows:
Liabilities Amount Assets Amount
(Rs.) (Rs.)
Capitals: Freehold Property 15,000
T 30,000 Furniture 3,000
N 15,000 45,000 Stock 6,000
Creditors 18,000 Sundry Debtors 40,000
General Reserve 2,000 Cash at Bank 1,000
65,000 65,000
They agreed to admit M as a new partner subject to the following terms and conditions:
(i) M will bring in Rs. 20,000 of which Rs.4,500 will be treated as his share of goodwill
premium to be retained in the business.
(ii) M will be entitled to 1/4th share of the profits in the firm
(iii) A provision for doubtful debts was to be created at 5% on the debtors.
(iv) Furniture was to be depreciated by 5% and Stock was to be revalued at Rs. 5,000
Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet.
8 Raman and Aman were partners in a firm and were sharing profits in the ratio of 3:1. On 1 st April
2022 they admitted Suman as a new partner into the partnership with1/5 th share in the profits on
the following conditions. The Balance Sheet of Raman and Aman as on 31/3/2022 was as under:
Liabilities Amount Assets Amount
Capitals: Machinery 2,00,000
Raman 3,00,000 Land& Building 1,96,000
Aman 1,50,000 4,50,000 Furniture 70,000
Creditors 1,02,000 Stock 14,000
Outstanding expenses 18,000 Sundry Debtors 95,000
Bills Payable 47,000 Less: Provision for
Workmen’s Compensation 55,000 doubtful debts 7,000 88,000
Reserve Bills Receivable 80,000
Bank 24,000
6,72,000 6,72,000

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 Suman was admitted in the firm on the following terms:
(i) Suman will bring in Rs. 2,00,000 as her capital and necessary amount for her share
of goodwill. The goodwill of the firm on admission was valued at Rs. 1,00,000
(ii) Claim on account of Workmen Compensation was estimated at Rs. 60,000
(iii) Rs.5,000 will be written off as bad debts and a provision of 5% was to be maintained
for bad debts on debtors.
(iv) Outstanding expenses will be paid off
(v) Machinery was to be depreciated by Rs. 18,000 and Land & Building was to be
depreciated by Rs.54,000
Pass necessary Journal Entries for the above transactions in the books of the firm
Solution: QN 6
Dr. REVALUATION A/C Cr
Particulars Amount Particulars Amount
( Rs.) (Rs.)
To Creditors 20,000 By Outstanding expenses 18,000
To Provision for unforeseen 20,000 By Partner’s Capital Account
liability Alfa 11,000
Beta 11,000 22,000
40,0000 40,000
Dr. PARTNER’S CAPITAL ACCOUNT Cr.
Particulars ALFA BETA GAMA Particulars ALFA BETA GAMA
To Profit & 20,000 20,000 ---- By Balance b/d 5,00,000 6,00,000 -
Loss A/c 11,000 11,000 ----- By Workmen’s
To 4,82,000 6,12,000 4,00,000 Compensation 13,000 13000 -
Revaluation Reserve -- -
A/c By Gama’s 30,000
To Balance c/d Current A/c --
_______ _______ By Bank A/c -- 4,00,000
5,13,000 6,43,000 4,00,000 513,000 6,43,000 4,00,000

BALANCE SHEET
Liabilities Amount Assets Amount
Capitals: Machinery 3,86,000
Alfa 4,82,000 Stock 2,00,000
Beta 6,12,000 Sundry Debtors 8,00,000
Gama 4,00,000 14,94,000 Less: Provision for
Outstanding expenses 12,000 doubtful debts 40,000 7,60,000
Provision for unforeseen Cash 1,00,000
liabilities 20,000 Bank(4,00,000-3,20,000) 80,000
Workmen’s Compensation Gama’s Current Account 30,000
Claim 30,000
15,56,000 15,56,000
Working Note: Alfa : 3/6-1/2 =0 Beta: 2/6-1/2=-1/6 (sacrifice) Gama 1/6 (new partner’s share)
Bad debts of Rs. 40,000 is met out of the existing provision.

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Solution: QN 7.
REVALUATION A/C
Particulars Amount Particulars Amount
To Furniture 150 By Partner’s Capital Account
To Stock 1,000 T 1,575
To Provision for doubtful debts 2,000 N 1,575
3,150
3,150 3,150
Dr PARTNER’S CAPITAL ACCOUNT Cr
Particulars T N M Particulars T N M
To Revaluation A/c 1,575 1,575 - By Balance b/d 30,000 15,000 -
To Balance c/d 31,675 16,675 15,500 By General Reserve 1,000 1,000
-
By Premi Goodwill 2,250 2,250 -

_______ _______ By Bank A/c 15,500

33,250 18,250 15,500 33,250 18,250 15,500

BALANCE SHEET
Liabilities Amount Assets Amount
Capitals: Freehold Property 15,000
T 31,675 Furniture 2,850
N 16,675 Stock 5,000
M 15,500 63,850 Sundry Debtors 40,000
Creditors 18,000 Less: Provision 2,000 38,000
Cash at Bank 21,000
81,850 81,850
Solution: QN 8.
Date Particulars LF Amount Amount
Bank A/c……………………………….Dr 2,20,000
To Suman’s Capital A/c 2,00,000
To Premium for goodwill A/c 20,000
(Being Capital and premium for goodwill
brought in by Suman)
Premium for goodwill A/c……………Dr. 20,000
To Raman’s Capital A/c 15,000
To Aman’s Capital A/c 5,000
(Being the share of goodwill credited to old
partners in the sacrificing ratio)
Outstanding Expenses A/c……………Dr. 18,000
To Bank A/c 18,000
(Being outstanding expenses paid off )
Bad debts A/c………………………….Dr. 5,000
To Debtors A/c 5,000
( Being bad debts written off )

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Provision for bad debts A/c……………Dr. 5,000
To Bad debts A/c 5,000
(Being the provision created)
Revaluation A/c………………………..Dr. 2,500
To Provision for bad debts A/c 2,500
( Being bad debts adjusted from provision)
Workmen’s Compensation Reserve A/c……Dr. 55,000
Revaluation A/c…………………………….Dr. 5,000
To Workmen’s Compensation Claim A/c 60,000
(Being workmen’s claim recorded)
Revaluation A/c……………………………Dr. 72,000
To Machinery A/c 18,000
To Land & Building A/c 54,000
(Being the assets depreciated)
Raman’s Capital A/c………………………..Dr 59,625
Aman’s Capital A/c…………………………Dr. 19,875
To Revaluation A/c 79,500
(Being Loss on revaluation debited to old
partner’s Capital account in the old ratio)

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 CHAPTER 4
RECONSTITUTION OF PARTNERSHIP- RETIREMENT OF A PARTNER
1 Jayant, Kartik and Leena were partners in a firm sharing profits and losses in the ratio
of 5: 2: 3. Kartik retired and Jayant and Leena decided to continue the business. Their
gaining ratio was 2 : 3. Calculate the new profit-sharing ratio of Jayant and Leena.
a) 21:29 b) 29:21 c) 1:3 d) 3:1 Ans:(b)
2 Aman, Yatin and Uma were partners and were sharing profits and losses in the ratio of
5 : 3 : 2. Uma retired and her share was taken over by Aman and Yatin 5 : 3 in ratio.
Calculate the gaining ratio of Aman and Yatin.
a) 5:3 b) 2:1 c) 3:5 d) 1:2 Ans:(a)
3 On the retirement of a partner, profit on revaluation of assets and liabilities should be
credited to the Capital Accounts of :
a) Retiring partner in old ratio
b) All partners in their old ratio
c) Remaining partners in old ratio
d) Remaining partners in New Ratio. Ans: (b)
4 On the retirement of Hari from a firm of Hari, Ram and Sharma, the Balance sheet
showed a debit balance of Rs 12000 in the Profit and Loss A/c. For calculating the
amount payable to Hari, the balance will be transferred to:
a) The debit of the capital A/c of Ram and Sharma equally.
b) The credit of the capital A/c of Ram and Sharma equally.
c) The debit of the capital A/c of Hari, Ram and Sharma equally.
d) The credit of the capital A/c of Hari, Ram and Sharma equally Ans: (c)
5 Neetu, Meetu and Teetu were partners in a firm. On 1st January, 2018, Meetu retired.
On Meetu’s retirement the goodwill of the firm was valued at Rs. 4,20,000.Find the
missing figure in the journal entry for the treatment of goodwill on Meetu’s retirement.
Date Particulars L Debit Credit
F
Jan 1 Neetus capital A/c..Dr -------
2018 Teetus capital A/c…Dr 70000
To Meetus capital A/c -------
(Meetus share of goodwill credited in her capital
A/c and debited in existing partners’ capital A/c
in Gaining ratio)
Long Answer questions:
6 X, Y and Z are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the
books at a value of ₹ 60,000. Y retires and at the time of Y's retirement, goodwill is valued
at ₹ 84,000. X and Z decided to share future profits in the ratio of 2: 1. Pass the necessary
Journal entries through Goodwill Account.

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7 Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in the ratio of
4 : 3 : 3. On 31.3.2016, their Balance Sheet was as follows :
Liabilities Amoun Assets Amoun
t t
Trade creditors 110000 Cash 80000
General Reserve 60000 Debtors 90000
Sameer’s Capital 300000 Less Prov. 10000 80000
Yasmin’s Capital 250000 Stock 100000
Saloni’s Capital 150000 Machinery 300000
Building 200000
Patents 60000
Profit & Loss A/c 50000
870000 870000
On the above date, Sameer retired and it was agreed that :
(i) An unrecorded creditor of Rs. 20,000 will be recorded.
(ii) Patents will be completely written off and 5% depreciation will be
charged on stock, machinery and building.
(iii) Yasmin and Saloni will share future profits in the ratio of 3 : 2.
(iv) Goodwill of the firm on Sameer’s retirement was valued at Rs. 5,40,000.
Pass necessary journal entries in the books of the firm on Sameer’s retirement.
8
Kanika, Disha and Kabir were partners sharing profits in the ratio of 2: 1: 1. On 31-3-
2016, their Balance Sheet was as under:
Liabilities Amount Assets Amount
Trade creditors 53000 Bank 60000
Employees Provident fund 47000 Debtors 60000
Kanika’s Capital 200000 Stock 100000
Disha’s Capital 100000 Fixed Assets 240000
Kabu’s Capital 80000 Profit & Loss A/c 20000
480000 480000
Kanika retired on 1-4-2016. For this purpose, the following adjustments were agreed
upon:
a) Goodwill of the firm was valued at 2 years’ purchase of average profits of
three completed years preceding the date of retirement.
b) The profits for the year :2013-14 were Rs. 1,00,000 and for 2014-15 were
Rs. 1,30,000.
c) Fixed assets were to be increased to Rs. 3,00,000.
d) Stock was to be valued at 120%.
e) The amount payable to Kanika was transferred to her loan account.
Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of
the reconstituted firm.

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Solution: QN 6
Date Particulars LF Debit Credit
Jan 1 X’ s capital A/c..Dr 30000
2018 Y’ s capital A/c…Dr 20000
Z’ s capital A/c…Dr 10000
To Goodwill A/c 60000
(Goodwill existing written off))
X’ s capital A/c..Dr
Z’ s capital A/c…Dr 14000
To Y’ s capital A/c 14000
(Adjustment of Y’s share of goodwill) 28000
WN1: Calculation of Gaining Ratio
X :Y :Z=3:2:1(Old ratio)X :Z = 2:1(New ratio)Gaining Ratio = New Ratio - Old Ratio
X's Gain=2/3−3/6=1/6 Z's Gain = 1/3 -1/6 = 1/6 X:Z=1:1.Y’s share of Goodwill – 84000 x2/6 = 28000.
Solution: QN 7
Particulars LF Debit Credit
General reserve A/c……………Dr 60000
To Sameer’s Capital A/c 24000
To Yasmin’s Capital A/c 18000
To Saloni’s Capital A/c 18000
(General reserve distributed in old ratio)
Sameer’s Capital A/c … ……….Dr 20000
Yasmin’s Capital A/c…………..Dr 15000
Saloni’s Capital A/c…………… Dr 15000
To Profit & Loss A/c 50000
(Accumulated loss distributed in old ratio)
Revaluation A/c………………..Dr 20000
To Creditors A/c 20000
(Unrecorded creditors recorded)
Revaluation A/c……………..Dr 90000
To Patents A/c 60000
Stock A/c 5000
Machinery A/c 15000
Building A/c 10000
(Decrease in assets recorded)
44000
Sameer’s Capital A/c … ……Dr
33000
Yasmin’s Capital A/c………..Dr
33000
Saloni’s Capital A/c………....Dr
110000
To Revaluation A/c
(Revaluation loss distributed to partners)
162000
Yasmin’s Capital A/c…………Dr
54000
Saloni’s Capital A/c…………..Dr
216000
To, Sameer’s Capital A/c
(Goodwill adjusted on Sameers retirement)

17
 Sameer’s Capital A/c …………. Dr 476000
To Sameer’s Loan A/c 476000
(Balance transferred to his Loan A/c)
Working note:Amount Payable to Sameers Loan A/c
[Op. balance+ G. reserve +Goodwill – ( P/L A/c+ Loss on revaluation)](300000+24000+216000-
(20000+44000)= 476000
Solution: QN 8
REVALUATION A/C
Particulars Amount Particulars Amount
To, profit transferred to By, Fixed Assets A/c 60000
capital A/c
Kanika - 40000 80000 Stock A/c 20000
Disha -20000
Kabu - 20000
80000 80000

PARTNERS CAPITAL A/C

Particulars Kanika Disha Kabu Particulars Kanika Disha Kabu
Kanikas 35000 35000 By Bal b/d 200000 100000 80000
P/L A/c 10000 5000 5000 Revaluation A/c 40000 20000 20000
Kanikas Dishas Capital 35000
Loan A/c 300000 Kabus Capital 35000
Balancc/d 80000 60000
310000 120000 100000 310000 120000 100000
BALANCE SHEET OF THE RECONSTITUTED FIRM
Liabilities Amount Assets Amount
Trade creditors 53000 Bank 60000
Employees Provident fund 47000 Debtors 60000
Kanika’s Loan A/c Stock 120000
Disha’s Capital 300000 Fixed Assets 300000
Kabu’s Capital 80000
60000

540000 540000
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18
 CHAPTER 5
DEATH OF A PARTNER
According to the Partnership Act,1932 the interest payable to the deceased partner on the
1.
amount left by him will be:
A. 6% p.a B. 12% p.a C. 10% p.a D.16% p.a Ans: (A)
A, B and C are partners sharing profits and losses in the ratio of 3:2:1. On 1.3.2022, C died.
2.
The average profits of the firm for the last four years were Rs.72,000. Books are closed on31st
December. C’s share of profit till the date of his death will be:
A. Rs. 2000 B. Rs.12000 C. Rs.1400 D. Rs.24000 Ans: (A)
Revaluation account is a …...
3.
A. Real account B. Personal account C. Nominal account D. None of these Ans: (C)
What journal entry will be recorded for deceased partner’s share in profit from the closure of
4.
last balance sheet till the date of his death?
(A) Profit and Loss A/c To Deceased Partner’s Capital A/c
(B) Deceased Partner’s Capital A/c To Profit and Loss A/c
(C) Deceased Partner’s Capital A/c To Profit and Loss Suspense A/c
(D) Profit and Loss Suspense A/c To Deceased Partner’s Capital A/c Ans: (D)
P, Q and R were partners sharing profits in the ratio of their Capital ‘contribution which were
5.
₹6,00,000; ₹4,00,000 and ₹5,00,000 respectively. Their books are closed on 31st March every
year. P dies on 24th August, 2018. Under the partnership deed, deceased partner is entitled to
his share of profit/loss to the date of death based on the average profits of preceding three
years. Profits were 2015 ₹50,000; 2016 ₹1,20,000 (Loss); 2017 ₹30,000 and 2018 ₹60,000. P’s
share of profit/loss will be :
(A) ₹3,200 (B) ₹6,400 (C) ₹12,000 (D) ₹4,800 Ans: (D)
Long Answer questions:
6 Manav, Nath and Naran were partners in a firm sharing profits in the ratio of 1: 2 : 1.The firm
closes its books on 31st March every year. On 30th September, 2021, Nath died. On that date, his
capital account showed a debit balance of ₹ 5,000. There was a debit balance of ₹ 30,000 in the
profit and loss account. The goodwill of the firm was valued at ₹ 3,80,000. Nath’s share of profit
in the year of his death was to be calculated on the basis of average profit of last 5 years, which
was ₹ 90,000.
Pass necessary journal entries in the books of the firm on Nath’s death.
7 Suma, Hari and Ravi were partners in a firm. On 31st March, 2021 their balance sheet was as
follows:
BALANCE SHEET as at 31 st March, 2021
Liabilities Rs. Assets Rs.
Creditors 10,000 Plant and Machinery 40,000
General Reserve 30,000 Furniture 15,000
Capital Accounts: Investments 20,000
Suma: 30,000 Debtors 20,000
Hari : 30,000 Stock 25,000
Ravi: 20,000 80,000
Total 1,20,000 Total 1,20,000
Hari died on 31st December, 2021.
The partnership deed provides that the representatives of the deceased partner shall be entitled to:

19
 (i) Balance in the capital account of the deceased partner.
(ii) Interest on capital @ 6% per annum up to the date of his death.
(iii) His share in the undistributed profits or losses as per the balance sheet.
(iv) His share in the profits of the firm till the date of his death, calculated on the basis of rate of net
profit on sales of the previous year. The rate of net profit on sale of previous year was 20%. Sales of
the firm during the year till 31st December, 2021 was ₹ 6,00,000.
Prepare Hari’s capital account to be presented to his executors.
Solution: QN 6
Journal entries in the books of the firm on Nath’s death.
Date Particulars Dr. Amt. Cr. Amt
30/9/2021 Manav’s Capital A/C (190000x1/2) Dr. 95,000
Naran’s Capital A/C (190000x1/2) Dr. 95,000
To Nath’s Capital A/C 1,90,000
(Nath’s share of goodwill adjusted in the capital
accounts of gaining partners in the gaining ratio)
30/9/2021 Manav’s Capital A/C (300000x1/4) Dr. 7,500
Nath’s Capital A/C (300000x2/4) Dr. 15,000
Naran’s Capital A/C (30000x1/4) Dr. 7,500
To P & L A/C 30,000
( transfer of profit to old partners in the old ratio)
30/9/2021 P & L Suspense A/C (90,000 x2/4 x6/12) Dr. 22,500
To Nath’s Capital A/C 22,500
(Nath’s share of profit till the date of his death
transferred to capital a/c)
30/9/2021 Nath’s Capital A/C Dr. 1,92,500
To Nath’s executor’s A/C 1,92,500
(Transfer, amount due to Nath’s Executor
A/C(190000+22500-5000-15000))
Working Note:Calculation of Nath’s Share of Goodwill
Firm’s goodwill = ₹ 3,80,000; Nath’s share of goodwill = 3,80,000 x 24 = ₹ 1,90,000.
Solution: QN 7
Dt. Particulars Amt. Dt. Particulars Amt.
By Balance b/d 30,000
By General Reserve
(30,000x1/3) 10,000
By IOC (30000x6/100x9/12) 1,350
By P & L suspense A/C
31/12/’21 Hari’s Executors a/c 81,350 (600000x20/100x1/3) 40,000
81350 81350

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20
 CHAPTER 6
DISSOLUTION OF A FIRM
1 At the time of Dissolution of a partnership firm, creditors given in the Balance sheet Rs.1,70,000.
They accepted Stock valued Rs.2,20,000 and paid cash to the firm Rs.50,000. Entry for the above
statement:
A. Realisation A/c Dr. 50,000 B. Cash A/C…….Dr 50000
To Cash A/c 50,000 Creditors A/C …Dr 170000
To Stock 220000
C. Cash A/c Dr. 50,000 D. Cash A/c Dr. 50,000
To Realisation A/c 50,000 Creditors A/c Dr.1,70,000
To Realisation A/c 2,20,000
Ans: (C)
2 At the time of Dissolution of partnership firm, Debtors given in the Balance sheet Rs.72,000 and
provision for doubtful debts Rs.6,000. On dissolution, 40% of the debtors were realized at 90%
and remaining debtors were sold to a Debt Collecting Agency for 75%.
Total amount realized from debtors…………………
(a)Rs.55,320 (b) Rs.56,320 (c) Rs.57,320 (d)Rs.58,320 Ans: (D)
3 If Sundry assets of Rs.2,00,000 and Sundry liabilities of Rs.40,000 are transferred to Realisation
Account. If amount realized on sale of assets is Rs.1,75,000 and realization expenses of Rs.2,000
were paid. Profit or loss of the firm on realization will be:
(a)Profit Rs.27,000 (b) Profit Rs.30,000 (c) Loss Rs.27,000 (d) Loss Rs.30,000 Ans: (C)
4 On dissolution of a firm, its Balance sheet revealed total creditors Rs.50,000. Total Capital
Rs.48,000; Cash Balance Rs.3,000. Its assets realized at 12% less.
Loss on realization will be :
(a)Rs.6,000 (b) Rs.11,760 (c) Rs.11,400 (d) Rs.3,600 Ans: (C)
5 A, B, C and D were partners in a firm. Due to some reasons, they decided to dissolve the firm.
Pass necessary journal entries for the following transactions on the date of dissolution.
(a)B’s Loan of Rs.50,000 to the firm was settled by paying Rs.42,000.
(b)D’s Loan of Rs.40,000 was settled by giving an unrecorded asset of Rs.45,000.
(c)Loan to A of Rs.60,000 was settled by payment to A’s brother loan of the same amount.
(d) C’s Loan of Rs.80,000 to the firm and she took over machinery of Rs.60,000 as part payment.
6 Following is the Balance sheet of Raj and Samar, who were sharing profit& loss in the ratio 2:1.
Balance sheet (31.03.2022)
Liabilities Rs Assets Rs
Capital Goodwill 40,000
Raj- 3,00,000 Plant and machinery 1,00,000
Samar-2,00,000 5,00,000 Furniture and fixture 50,000
Workmen compensation Reserve 30,000 Investment 1,50,000
Raj’s Loan 20,000 Stock 2,00,000
Employees Provident fund 25,000 Debtors
Creditors 75,000 1,30,000 1,20,000
Profit and Loss Account 60,000 Less provision 50,000
10,000
Cash at bank
7,10,000 7,10,000

21
 They decided to dissolve the firm. The assets realized and liabilities were paid off as under:
(a)Half of the creditors were agreed to take over furniture and fixtures in full settlement and the
remaining creditors were paid at a discount of 20%.
(b) The assets realized as under:
Debtors at 90% of Book value less Rs.7,000
Plant and machinery at Rs.70,000 & Stock at 80%
(c) 1/3rd of investments were taken over by Samar at book value and remaining was sold in open
market at 120%.
(d)Raj’s Loan was settled by paying Rs.18,500
(e)Claim against workmen compensation was paid Rs.25,000.
(f) Expenses on dissolution paid by Raj Rs.7,500
Prepare Realisation A/c
7 X, Y and Z are partners. They decided to dissolve their firm. Pass necessary journal entries for the
following after various assets (other than cash and bank) and the third party liabilities have been
transferred to Realisation A/c.
(a)There were total book debts of Rs.38,000. A provision of bad and doubtful debts also stood in
the books at Rs.3,000. Book debts Rs.6,000 proved bad and rest paid the amount due.
(b)X agreed to pay off his wife’s loan of Rs.3,500 at a discount of 5%.
(c) A Laptop which was not recorded in the books was taken over by Y at Rs.1,500, whereas its
expected value was Rs.2,500.
(d)A contingent liability (not provided for) of Rs.2,000 was also discharged
Solution: QN 5
Journal entries in the Books of A, B, C and D
Date Particulars LF Dr(Rs) Cr(Rs)
(a) B’s Loan A/c Dr. 50,000
To Bank 42,000
To Realisation A/c 8,000
(B’s Loan of 50,000 is settled at 42,000)
(b) D’s Loan A/c Dr. 40,000
To Realisation A/c 40,000
(D’s Loan of 40,000 settled by giving an unrecorded
asset)
(c) Realisation A/c Dr. 60,000
To Loan to A A/c 60,000
(Loan to A was settled by payment to A’s brother Loan)
(d) C’s Loan A/c Dr. 80,000
To Realisation A/c 60,000
To Bank A/c 20,000
(C’s Loan of 80,000 and machinery was given as part
payment and rest through bank)

22
Solution: QN 6
Realisation A/c
Particulars Rs Particulars Rs
To Goodwill 40,000 By Provision for D/D 10,000
To Plant and Machinery 1,00,000 By WCR 25,000
To furniture and fixtures 50,000 By EPF 25,000
To investment 1,50,000 By Creditors 75,000
To Stock 2,00,000 By Bank(Assets Realised) 4,60,000
To Debtors 1,30,000 By Samar’s
To Bank(Creditors-30,000,WC- Capital(Investment)
25,000,EPF-25,000) By Raj’s Loan 50,000
To Raj’s Capital(Exp) 80,000 By Loss 1,500
7,500 Raj -74,000
Samar-37,000 1,11,000
7,57,500 7,57,500

Solution: QN 7
Date Particulars LF Debit Credit
(a) Bank A/c Dr. 32,000
To Realisation A/c 32,000
(Being amount received from debtors after bad debts)
(b) 3,325
Realization A/c Dr. 3,325
To X’s Capital A/c
(Being X pays his wife loan) 1,500
Y’s Capital A/c Dr. 1,500
(c) To Realisation A/c
(Being asset taken over by Y) 2,000
2,000
(d) Realisation A/c Dr.
To Bank A/c
(Being Contingent liability discharged)

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23
 CHAPTER 7
ACCOUNTING FOR SHARE CAPITAL
1 If a share of ₹10, on which ₹8 is called up and ₹6 is paid, is forfeited, the amount the Share
Capital Account will be debited would be ………
A. ₹10 B. ₹6 C. ₹8 D. ₹4 Ans. (C)
2 Neeraj Ltd. issued a prospectus inviting applications for 15,000 shares of ₹10 each payable ₹3
on application, ₹5 on allotment and balance on call. Public had applied for certain number of
shares and application money was received. Which of the following application money, if
received restricts the company to proceed with the allotment of shares as per SEBI guidelines?
A. ₹ 45,000 B. ₹13,500 C. ₹40,500 4. ₹30,000 Ans. (C)
3 A share of Rs. 10 each, issued at ₹4 premium out of which 7(including premium) was called
up and paid up. The uncalled capital will be:
A. ₹7 per share B. ₹4 per share C. ₹8 per share D. ₹3 per share Ans. (B)
4 Zen Ltd purchased the sundry assets of M/s Surat Industries for Rs.28,60,000 payable in fully
paid shares of Rs.100 each. State the number of shares issued to vendor when issued at
premium of 10%.
A. 28,000
B. 31,778
C. 28,600
D. 26,000 Ans. (D)
5 Abhinav Ltd. forfeited 20,000 equity shares of ₹100 each for non-payment of first and final
call of ₹40 per share. The maximum amount of discount at which these shares can be reissued
will be:
A. ₹8,00,000
B. ₹ 12,00,000
C. ₹20,00,000
D. ₹20,000 Ans. (B)
6 Sunshine Ltd. issued fully paid shares of ₹6,00,000 in consideration of net assets of
₹4,00,000. The difference ₹2,00,000 will be transferred to:
A. Surplus A/c
B. Capital reserve A/c
C. Goodwill A/c
D. None of these Ans. (C
7 Which of the following is not a purpose for which Securities Premium amount can be used:
A. Issuing fully paid bonus shares to shareholders
B. Issuing partly paid bonus shares to shareholders
C. Writing off preliminary expenses of the company
D. In purchasing its own shares (buy back) Ans. (B )
8 Shares issued by a company to its employees or directors in consideration of ‘Intellectual
Property Rights’ are called:
A. Right Equity Shares
B. Private Placement of shares
C. Sweat Equity Shares
D. Bonus Equity Shares Ans. (C)

24
Long Answer questions
9 J Ltd. had authorised capital of ₹2,00,000 divided into equity shares of ₹10 each. The
company offered for subscription 10,000 shares. The issue was fully subscribed. The amount
was payable on application was ₹2 per share, ₹4 per share were payable each on allotment
and first and final call. A shareholder holding 100 shares failed to pay the allotment money.
His shares were forfeited. The company did not make the final call. How the ‘Share capital’
will be presented in the company’s Balance Sheet? Also prepare notes to accounts.
10. Sarangi Ltd. took over assets of ₹9,40,000 and liabilities of ₹ 1,40,000 of Tara Ltd. at an
agreed value of ₹7,80,000. Sarangi Ltd. paid Tara Ltd. by issue of equity shares of ₹100
each at a premium of 20%. Pass necessary Journal entries to record transactions in the books
of Sarangi Ltd.
11. Zara Ltd. took over running business of Vikram Ltd. comprising of assets of ₹15,00,000 and
liabilities of ₹7,00,000 for a purchase consideration of ₹ 9,00,000. The amount was settled
by bank draft of ₹ 1,50,000 and balance by issuing 10% preference shares of ₹100 each at
25% premium. Pass Journal entries in the books of Zara Ltd.
12. Venus Ltd. forfeited 500 shares of Ram, for non-payment of allotment money ₹5 per share
and first and final call of ₹2 per share. Only application money of ₹3 was paid by him. Out
of these 300 shares were re-issued @12 per share as fully paid.
Pass Journal entries for forfeiture and re-issue.
13. Kiran Ltd. invited applications for issuing 50,000 shares of ₹ 10 each. The amount was
payable as follows: On application – ₹3 per share
On allotment - ₹5 per share
On first & final call – balance
Applications for 70000 shares were received. Allotment was made to all applicants on pro
rata basis. Excess money received on application was adjusted towards sums due on
allotment. Dev, who had applied for 700 shares failed to pay allotment money and his
shares were forfeited. Out of the forfeited shares 400 shares were re-issued at ₹8 per share
as fully paid up.
Pass necessary Journal entries in the books of Kiran Ltd.
Solution: QN 9
Balance sheet of J Ltd. As at ……………
Particulars Note no. ₹
I Equity and Liabilities
1. Share Capital 1 59,600
Notes to Accounts:
Particulars ₹
Authorised Capital
20,000 Equity shares of ₹10 each 2,00,000
Issued Capital
10,000 Equity shares of ₹10 each 1,00,000
Subscribed Capital
Subscribed but not fully paid-up:
9,900 Equity shares of ₹10 each, ₹ 6 called up: 59,400
Add: Share Forfeiture (100×2) 200 59,600

25
Solution: QN 10
JOURNAL
Date Particulars Debit Credit
Assets A/c Dr. 9,40,000
To Liabilities A/c 1,40,000
To Tara Ltd 7,80,000
To Capital Reserve A/c 20,000
(Being running business purchased)
Tara Ltd. Dr. 7,80,000
To Equity share capital A/c 6,50,000
To Securities Premium reserve 1,30,000
(Being 6500 shares of ₹100 each issued to
Tara Ltd.@ premium of 20 per share)
Noof shares = 7,80,000 = 6500 shares
120
Solution: QN 11
Date Particulars Debit Credit
Assets A/c Dr. 15,00,000
Goodwill A/c Dr. 1,00,000
To Liabilities A/c 7,00,000
To Vikram Ltd 9,00,000
(Being running business purchased)
Vikram Ltd. Dr. 9,00,000
To Bank A/c 1,50,000
To 10%Preference share capital 6,00,000
To Securities Premium reserve 1,50,000
(Being 6000 shares of ₹100 each issued to
Vikram Ltd. @ premium of ₹25 per share)
900000-150000 = 7,50,000 Number of shares = 7,50,000/125= 6000 shares
Solution: QN 12
Date Particulars Debit Credit
Share Capital A/c Dr. 5000
To Share forfeited A/c (500*3) 1500
To Calls in arrears A/c (500*7) 3500
(Being 500 shares forfeited for non-payment of
allotment and first & final call)
Bank A/c Dr. 3600
To Share Capital A/c (300*10) 3000
To Securities Premium Reserve A/c 600
(Being 300 shares reissued at premium of ₹2)
Share Forfeited A/c Dr. 900
To capital reserve A/c 900
(Being profit on reissue transferred to CR)
Gain on reissue = 1500 × 300 shares = ₹900
500 shares

26
Solution: QN 13
JOURNAL
Date Particulars Debit Credit
Bank A/c (70000*3) Dr. 210000
To share application A/c 210000
(Being Application money received)
Share Application A/c Dr. 210000
To Share Capital A/c (50000*3) 150000
To Share Allotment A/c 60000
(Application money adjusted to SC &S.Allot)
Share Allotment A/c (50000*5) Dr. 250000
To Share Capital A/c 250000
(Alloment money due)
Bank A/c Dr. 188100
Calls in arrears A/c Dr. 1900
To Share Allotment A/c 190000
(Alloment money received)
Share Capital A/c (500*8) Dr. 4000
To Share Forfeited A/c 2100
To Calls in Arrears A/c 1900
(Shares forfeited)
Bank A/c (400*8) Dr. 3200
Share Forfeited A/c(400*2) Dr. 800
To Share Capital A/c 4000
(Shares re-issued)
Share Forfeited A/c Dr. 880
To Capital Reserve A/c 880
(Share forfeiture transferred to CR)
Calculation of Calls in Arrears in Allotment money
Dev’s Allotted shares = 700 × 50000 shares = 500 shares
70000 shares
Application money given 700× ₹3 = ₹2100
Less: Application money required 500×₹3 = ₹1500
Excess Application money = ₹600

Dev’s Allotment Money Due 500× ₹5 = ₹ 2500

Less: Excess Application money = ₹ 600
Calls in Arrears = ₹1900
Calculation of gain on reissue :

₹ 2100× 400 shares - 800 = ₹880

500 shares

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27
 CHAPTER 8
ACCOUNTING FOR DEBENTURES
1 Sources of finance of the redemption of debentures are ______.
(a) Redemption out of profits
(b) Redemption out of capital
(c) The proceeds from fresh issue of shares/debentures
(d) All of the above Ans:(d)
2 When debentures are issued at par and are redeemable at a premium, the loss on such an
issue is debited to _______.
(a) Profit and loss A/c
(b) Debenture application and allotment A/c
(c) Loss on the issue of debentures A/c
(d) Premium on redemption A/c Ans:(C)
3 Company can utilize premium received on issue of debenture for which of the following
purpose?
a) Written off discount allowed on issue
b) For writing off preliminary expenses
c) Both (a) and (b)
d) None of these Ans:(C)
4 When debentures of ₹1,00,000 are issued as Collateral Security against a
loan of ₹1,50,000, the entry for issue of debentures will be :
a) Credit Debentures ₹1,50,000 and debit bank A/c ₹1,50,000
b) Debit Debenture Suspense A/c ₹1,00,000 and Credit Bank A/c ₹1,00,000
c) Debit Debenture Suspense A/c ₹1,00,000 and Credit Debentures A/c ₹1,00,000.
d) Debit Cash A/c ₹1,50,000 and Credit Bank A/c ₹1,50,000. Ans:(C)
5 What will be the journal entry for issue of 2,000,12 % debenture of rupees 100 each at the
premium of 10% ?
a) Bank account Dr 2,20,000
To Debenture application and allotment 2,20,000
b) Debenture application and allotment account 2,20,000
To Bank account 2,20,000
c) Debenture application allotment account 2,20,000
To 12% debenture account 2,00,000
To security premium reserve A/C 20,000
d) Both (a) and (c ) Ans:(a)
Long Answer Questions
6 NTL Company purchased assets of the value of Rs 1,90,000 from another company and
agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures
of Rs 100 each at a discount of 5%.
Record necessary journal entries.
7 A company took a loan of Rs. 10,00,000 from Punjab National Bank and issued 10%
Debentures of Rs. 12,00,000 of Rs. 100 each as a collateral security. Explain how you
will deal with the issue of debentures in the books of the company

28
8 XYZ Industries Ltd., issued 2,000, 10% debentures of Rs 100 each, at a premium of Rs
10 per debenture payable as follows:
On application Rs 50
On allotment Rs 60
The debentures were fully subscribed and all money was duly received.
Record the journal entries in the books of a company
9 Give journal entries for the issue of debentures in the following conditions.
A) Issued 2,000, 12% debentures of Rs. 100 each at a discount of 2%, redeemable at par.
B) Issued 2,000, 12% debentures of Rs. 100 each at a premium of 5%, redeemable at
premium of 10%.
10 Blue Prints Ltd., purchased building worth Rs 1,50,000, machinery worth Rs 1,40,000
and furniture worth Rs 10,000 from XYZ Co., and took over its liabilities of Rs 20,000
for a purchase consideration of Rs 3,15,000. Blue Prints Ltd., paid the purchase
consideration by issuing 12% debentures of Rs 100 each at a premium of 5%. Record
necessary journal entries.
Solution: QN 6

Sundry Assets A/c Dr. 1,90,000

To Vendors 1,90,000
(Assets purchased from vendors)
Vendors Dr. 1,90,000
Discount on Issue of Debenture A/c Dr. 10,000
To 10% Debentures A/C 2,00,000
(Allotment of 2,000 debentures of Rs 100 each at a discount of 5%
as purchase consideration
Solution: QN 7
Journal Entry:
Debenture suspense Account Dr 1200000
To 10% Debenture Account 12000000
Balance Sheet
Particulars Note No Amount (Rs)

I EQUITIES AND LIABILITIES

1. Shareholders fund
2. Non current Liabilities
a. Long term Borrowings 1 1000000
3. Current Liabilities

TOTAL 1000000

II ASSETS
1. Non current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 1000000

TOTAL 1000000

29
Notes to Accounts
Note No Particulars Amount (Rs)

1 Long term borrowings 1000000

Loan (Secured by issue of of
10% debentures of Rs. 1200000
as Collateral security) 1200000
Less Debenture Suspense Account (1200000) –
2 Cash and Cash Equivalents
Cash at Bank 1000000
Solution: QN 8
Books of XYZ Industries Limited
Bank A/c Dr. 100000
To 10% Debenture Application A/c 100000
(Application money Rs 50 per debentures received)
10% Debenture Application A/c Dr. 100000
To 10% Debentures A/c 100000
(Transfer of application money )
10% Debenture Allotment A/c Dr. 120000
To 10% Debentures A/c 100000
To Securities Premium A/c 20000
(Allotment money due on debentures including the premium)
Bank A/c Dr. 120000
To 10% Debenture Allotment A/c 120000
(Allotment money received)
Solution: QN 9

a) Banka/c………………. Dr. 196000

To 12% debentures application & allotment A/C 196000
(Application money received)
12% debentures application &allotment A/C……… Dr. 196000
Discount on issue of debentures A/C………………….. Dr. 4000
To 12% debentures A/C 200000
(Transfer of application money to debentures a/c, issued @ discount )
b) Bank a/c Dr. 2,10,000 210000
To 12% debentures application & allotment A/C 2,10,000 210000
(Application money received)
12% debentures application &allotment A/C……………….Dr. 210000
Loss on issue of debentures A/C………………………………….Dr 20000
To Securities premium reserve A/C 10000
To premium on redemption A/C 20000
To 12% debentures A/C 200000
(Transfer of application money to debentures a/c, issued at a premium of
5% and redeemable at a premium of 10%)

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Solution: QN 10

Building A/c ………………………………Dr 150000

Plant & Machinery A/c ……………….Dr 140000
Furniture A/c ………………………………Dr 10000
Goodwill A/c …………………………….. Dr. 35000
To Liabilities 20000
To XYZ Co. 315000
(Purchase of assets and taking over of liabilities of XYZ Co.)
XYZ Co. …………………………………Dr 315000
To 12% Debentures A/c 300000
To Securities Premium A/c 15000
(Issue of 3,000 debentures at a premium of 5%)
Note: Since the purchase consideration is more than net assets taken over, the difference has
been debited to goodwill account.
2. No. of debentures issued = Purchase Consideration
Issue Price of a Debenture= Rs 3,15,000/105 = 3,000
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 CHAPTER 9
ANALYSIS OF FINANCIAL STATEMENTS
1 Main objective of analysis of financial statement is
(i) To know the financial strength
(ii) To make a comparative study with other firms
(iii) To know the efficiency of management
(iv) All of the above Ans: (iv)
2 When financial statement for a number of years are analysed, the analysis is called…..
(i) Vertical Analysis
(ii) Horizontal Analysis
(iii) Swot Analysis
(iv) Work force Analysis Ans: (ii)
3 When financial statements for a single year are analysed, the analysis is called
(i) Vertical Analysis
(ii) Horizontal Analysis
(iii) Swot analysis
(iv) Work force analysis Ans: (i)
4 Main limitation of analysis of financial statement is
(i) Affected by window dressing
(ii) Difficulty in forecasting
(iii) Do not reflect changes in price level
(iv) All of the above Ans: (iv)
5 While preparing the balance sheet of a company ‘securities premium reserve is shown
under
(i) Current Liability
(ii) Share capital
(iii) Long term borrowings
(iv) None of the above Ans:(iv)
6 Balance Sheet of a company is required to be prepared in the format given in..
(i) Schedule III Part II
(ii) Schedule III Part I
(iii) Schedule III Part III
(iv) Table A Ans:(ii)
7 According to prescribed order of assets in a Company’s Balance Sheet …………assets
should be shown first .
(i) Non-Current Asset
(ii) Loans and Advances
(iii) Current Asset
(iv) Current Investment Ans: (i)

8 What is meant by Solvency of Business?

9 Give two uses of ratio analysis

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Long Answer Questions:
10 Under which head and sub-head will the following items appear in the balance sheet of a
company.
(i) Share option outstanding account
(ii) Interest accrued and due on secured loans
(iii) Advances recoverable in cash
11 Calculate Current Ratio and Liquid Ratio from the following:
Rs
Cash and Cash Equivalents 40,000
Trade Receivable 2,70,000
Inventories (Includes Loose Tools Rs.30,000) 1,80,000
Prepaid wages 20,000
Working Capital 2,80,000
12 Following particulars are extracted from the books of Bharath Rubber Ltd.
Rs
Share Capital 3,20,000
General Reserve 1,00,000
Profit and Loss balance 48,000
9% Debentures 1,20,000
Current Liabilities 3,04,000
You are required to work out the following ratios
(i) Debt Equity Ratio (ii) Total Asset to Debt Ratio Proprietary Ratio
13 Calculate (i) GP Ratio (ii) Operating Ratio (iii) Operating Profit Ratio (iv) Inventory
Turn over Ratio (V) Working Capital Turn Over Ratio from the following figures
Rs
Purchases 18,30,000
Direct Expenses 4,10,000
Opening Inventory 3,60,000
Closing Inventory 4,40,000
Operating Expenses 5% of Sales
Revenue from Operations 30,00,000
Current Assets ( including inventory) 7,00,000
Current Liabilities 2,00,000
14 Current ratio of a company is 2:1. Which of the following suggestions would improve
the ratio, which would reduce it and which would not change it?
(i) Purchase of goods on credit
(ii) Purchase of goods against Cheque
(iii) Sale of goods costing Rs. 50,000 for Rs.60,000 on credit
(iv) To sell a fixed asset at a slight loss
(v) To borrow money on a promissory note (B/P)
(vi) To give promissory note to a creditor

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Solution: QN 8
Solvency of business refers to ability of the business to pay its long- term liabilities
Solution: QN 9
It is useful in analysis of financial statements
Helps in simplifying figures
Useful in judging the operating efficiency of business
Helps in identification of problem areas
Helpful in comparative analysis
Solution: QN 10
i)Shareholders Fund/ Reserve and Surplus
(ii)Current liabilities/ other Current Liabilities
(iii) Current Assets/ Other Current Assets
Solution: QN 11
Current Ratio- 2.4: 1
Liquid Ratio – 1.55: 1
Solution: QN 12
Debt Equity Ratio - 0.26:1
Total Asset to Debt Ratio -7.43:1
Proprietary Ratio- 52.47%

Solution: QN 13
i) GP Ratio - 28%
(ii) Operating Ratio-77%
(iii) Operating Profit Ratio- 23%
(iv) Inventory Turnover Ratio-5.4 times
(V) Working Capital Turn Over Ratio- 6times
Solution: QN 14
i)Reduce
(ii)No change
(iii)Improve
(iv)Improve
(v)Reduce
(vi)No Change
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 CHAPTER 10
CASH FLOW STATEMENT
1 Which of the following transactions would not create a cash flow?
a) A company purchased some of its own stock Ramesh stock holder.
b) Amortisation of patents.
c) Payment of dividend by cash
d) Sale of equipment at book value Ans: b)
2 Which of the following transactions would result in inflow of cash
a) cash withdrawn from bank for office use
b) Purchase of machinery worth ₹ 2,00,000 and issued shares in consideration thereof
c) Sale of furniture for ₹6000 to Mr Mohan
d) Cash received from debtors ₹3000 Ans: d)
3 Declaration of final dividend would result in————
a) outflow in financing activities
b) Outflow in operating activities
c) Inflow in operating activities
d) No flow of cash Ans.d)
4 From the following particulars what will be the amount of provision for tax made during the year?
provision for tax as on :
31.3.2021 ₹ 50,000
31.3.2022 ₹ 40,000
The company paid the taxes ₹ 45,000 for the year 2021-2022
a) ₹ 45,000 b) ₹ 35,000 c) ₹ 40,000 d) ₹ 50,000 Ans. b)
5 While calculating profit from operating activities, which one will be added back to net profit
a) goodwill written off
b) depreciation
c) Loss on sale of fixed assets
d) All of the above Ans.d)
Long Answer Questions
6 Nidhi Limited made a profit of ₹ 1,00,000 after considering the following terms:
Depreciation on fixed assets ₹ 20,000
Writing off preliminary expenses ₹ 10,000
Loss on sale of furniture ₹ 1,000
Provision for tax ₹ 1,60,000
Transfer to general reserve ₹ 14,000
Profit on sale of machinery ₹ 6,000
Income tax paid ₹ 1,60,000
Additional information:
Particulars 2020(₹) 2021(₹)
Debtors 24,000 30,000
Creditors 20,000 30,000
Bills receivable 20,000 17,000
Bills payable 16,000 12,000
Prepaid expenses 400 600
Calculate cash flow from operating activities.

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7 From the following Balance sheet of X Ltd, calculate cash flow from operating activities
Particulars 31.3.2020 31.3.2021
I.Equity and liabilities
Shareholders fund:
Equity share capital 1,00,000 1,00,000
Reserves and surplus 30,000 60,000
Non Current Liabilities
6% Debentures 60,000 80,000
Current Liabilities
Creditors 30,000 35,000
Bills payable 30,000 10,000
Other Current liabilities 40,000 45,000
TOTAL 2,90,000 3,30,000
II Assets
Non current assets
Fixed assets 1,50,000 1,90,000
Non current investments 40,000 30,000
Current Assets
Stock 40,000 30,000
Debtors 40,000 45,000
Cash 20,000 35,000
TOTAL 2,90,000 3,30,000
Additional information:
a) A piece of machinery costing ₹ 5,000 on which depreciation of ₹ 2,000 had been charged
was sold for ₹ 1,000. Depreciation charged during the year ₹17,000.
b) New debenture had been issued on 1st August 2020
Solution: QN 6 Cash flow from operating activities
Net profit for the year 1,00,000
Add.Provision for tax 1,60,000
Transfer to reserve 14,000
Net profit before tax and extra ordinary items 2,74,000 2,74,000
Adjustment for non cash and non operating activities
Add.Depreciation on fixed assets 20,000
Preliminary expenses written off 10,000
Loss on sale of machinery 1,000 31,000
Less .Profit on sale of furniture (6,000) (6,000)
Operating profit before working capital changes 2,99,000
Add.Increase in creditors 10,000
Decrease in bills receivables 3,000 13,000
Less.Increase in debtors (6,000)
Increase in prepaid expenses (200)
Decrease in bills payable (4,000) (10,200)
Cash generated from operations 3,01,800
Less. Income tax paid (1,60,000) (1,60,000)
Net cash from operating activities 1,41,800

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Solution: QN 7
CASH FLOW STATEMENT
I Cash flow from operating activities
Net profit 30,000 30,000
Adjustment for non cash and non operational activities
Add. Interest on debentures 4400
Loss on sale of machinery 2000
Depreciation 17,000 23400
Operating profit before working capital changes 53,400
Add.increase in creditor 5000
Increase in other liabilities 5000
Decrease in stock 10,000 20,000
Less.decrease in bills payable (20,000)
Increase in debtors (5,000) (25,000)
Cash generated from operations 48,400
Less tax paid Nil
Net cash from operating activities 48,400
II Cash. Flow from investing activities
Proceeds from sale of investments 10,000
Payment for purchase of Machinery (60,000)
Proceeds from sale of Machinery 1,000
Net cash used in investing activities (49,000)
II Cashflow from financing activities
Proceeds from Issue of debentures 20,000
Interest paid on debentures (4400)
Net cash from financing activities 15600
Net increase in cash and cash equivalents 15,000
Add opening cash and cash equivalents 20,000
Closing cash and cash equivalents 35,000
Machinery A/C
To Balance b/d 150,000 By Bank 1,000
To Bank (balancing figure) 60,000 By statement of profit and loss 2,000
By Depreciation 17,000
By Balance c/d 1,90,000
2,10,000 2,10,000
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