FOUNDATION COURSE

REVISION TEST PAPERS

MAY, 2026

BOARD OF STUDIES (ACADEMIC)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

All rights reserved. No part of this publication may be reproduced, stored in a

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Edition : February, 2026

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ISBN No. :

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 Contents
Page Nos.
Objective & Approach................................................................................................ i – vi

Objective of RTP ..................................................................................................................... i

Planning & Preparing for Examination ........................................................................... ii

Subject-wise Applicability .................................................................................................. iii

Paper-wise RTPs

Paper 1: Accounting ............................................................................................... 1 – 46

Paper 2: Business Laws ....................................................................................... 47 – 72

Paper 3: Quantitative Aptitude ................................................................................... 73 – 80

Paper 4: Business Economics ....................................................................................... 81 – 87

Applicability of Standards/Guidance Notes/Legislative Amendments etc.

for May, 2026 – Foundation Examination .................................................. 88
 REVISION TEST PAPER, MAY 2026–OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to
derive maximum benefit out of this RTP)
I. Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs
provided by the Board of Studies (Academic) to its students. Popularly
referred to as RTP by the students, it is one of the very old publications
of the BOS (A) whose significance and relevance from the examination
perspective has stood the test of time.
The primary objectives of the RTP are:
• To help students get an insight of their preparedness for the
forthcoming examination;
• To update them on the latest developments relevant for the
forthcoming examination in select subjects;
• To enhance the confidence level of the students adequately.
Students must bear in mind that the RTP contains a variety of questions
based on different topics of the syllabi and thus a comprehensive study
of the entire syllabus is a pre-requisite before answering the questions
of the RTP. In other words, in order to derive maximum benefit out of
the RTPs, it is advised that before proceeding to solve the questions
given in the RTP, students ought to have thoroughly read the Study
Materials and Statutory Update, wherever applicable.
The topics on which the questions are set herein have been carefully
selected and meticulous attention has been paid in framing different
types of questions. Detailed answers are provided to enable the
students to do a self-assessment and have a focused approach for
effective preparation.
Live Virtual Classes by renowned subject experts conducted free of
charge for the students of Foundation, Intermediate and Final levels
provide the students much required support in preparing for their exams
conveniently at home as these classes can be accessed live or viewed
later as recorded lectures through hand-held devices such as smart
phones, laptops, I-pads, tablets, etc. anytime and anywhere. Further,
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FOUNDATION EXAMINATION

students are advised to attempt the Multiple-Choice Questions (MCQs)

at MCQ Paper Practice Portal which is a holistic platform for self-
assessment within the stipulated timeframe.
Students are welcome to send their suggestions for fine tuning the RTP
to the Joint Director, Board of Studies (Academic), The Institute of
Chartered Accountants of India, A-29, Sector-62, Noida 201309 (Uttar
Pradesh). RTP is also available on BOS Knowledge Portal at
[Link] for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading
the relevant Study Materials of all the subjects available at the BoS
Knowledge Portal. Get a good grasp of the concepts/ provisions/
amendments/ cases discussed therein.
After reading the Study Materials proceed to solve the questions given
in the RTP on your own. RTP is an effective tool to revise and refresh
the concepts and provisions discussed in the Study Material. RTPs are
provided to you to help you assess your level of preparation. Hence you
must solve the questions given therein on your own and thereafter
compare your answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and
depth of his preparation. However, there are certain important points
which can help a student better his performance in the examination.
These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and
thoroughly. You are given separate 15 minutes for reading the
question paper.
 Plan your time so that appropriate time is awarded for each
question.
 First impression is the last impression. The question which you can
answer in the best manner should be attempted first.

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 Always attempt to do all questions. Therefore, it is important that

you must finish each question within allocated time. Keep
sometime for checking the answers as well.
 Read the question carefully more than once before starting the
answer to understand very clearly as to what is required.
 Answer all parts of a question one after the other; do not answer
different parts of the same question at different places.
 Write in a neat and legible hand-writing.
 Always be concise and write to the point and do not try to fill
pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions
and then answer the question.
 Check your answers carefully and underline important points
before leaving the examination hall.
III. Subject-wise Applicability
PAPER – 1 : ACCOUNTING
The August, 2024 (Reprint August 2025 and onwards) edition of the
Study Material, comprising of two modules, is applicable for the
students appearing for May, 2026 Examination. For understanding the
coverage of syllabus, it is important to read the Study Material carefully.
You must read the study material thoroughly to attain conceptual clarity.
The tables, diagrams and flow charts in study material have been
extensively prepared to facilitate easy understanding of concepts.
Likewise, examples, and illustrations given in the Study Material would
enable you to grasp the application of theoretical concepts in real-world
scenarios. After covering the concepts and illustrations, work out the
test your knowledge questions at the end of each chapter and then
compare your answers with the answers given to test your level of
understanding. This will help you to maximize your speed and accuracy
in solving Practical Questions in the Examination.

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The RTP consists of eighteen questions together with their answers on

different topics discussed in the study material. Answers to the questions
have been given in detail along with the working notes for easy
understanding and comprehending the steps in solving the problems.
Moreover, the answers have been presented in the same manner as
expected from the students in the examination. The students are
expected to solve the questions under examination conditions and then
compare their solutions with the solutions given in the RTP. This will
facilitate them to further strategise their preparation for scoring good
marks in the examination.
PAPER – 2: BUSINESS LAWS
The August 2024 edition (Reprint August 2025 and onwards) of the
Study Material is applicable for Paper 2: Business Laws, Foundation
Course. The Study Material is based on the provisions of the Indian
Contract Act, 1872, the Sale of Goods Act, 1930, the Indian Partnership
Act, 1932, the Limited Liability Partnership Act, 2008, the Companies Act,
2013, and the Negotiable Instruments Act, 1881 as amended upto
30th June, 2025.
The students are advised to read the Study Material thoroughly to attain
conceptual clarity. Tables, diagrams and flow charts have been
extensively used to facilitate easy understanding of concepts. Examples
given in the Study Material would help the students to understand the
application of concepts. Work out the exercise questions at the end of
each chapter and then compare your answers with the answers given to
test your level of understanding.
This RTP consists of twenty-three questions together with their answers
on different topics discussed in the study material. Answers to the
questions have been given in detail for easy understanding and
comprehending the steps in solving the problems. Moreover, the
answers have been presented in the same manner as expected from the
students in the examination. The students are expected to solve the
questions given in this RTP independently and compare the same with
the answers given to assess your level of preparedness for the
examination.

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PAPER – 3: QUANTITATIVE APTITUDE

The August 2024 edition of the Study Material is applicable for
May, 2026 Examination of Foundation Course Paper 3: Quantitative
Aptitude. The Study material divided into three parts, the first part of the
study material Business Mathematics (Chapters 1-8) covers basic
mathematical techniques like ratio, proportion, indices, logarithms,
equations and linear inequalities, mathematics of finance, permutations
and combinations, sequence and series, sets, relations and basic
applications of differential and integral calculus in economics and
business. The second part of the study material (Chapters 9-12) covers
logical reasoning and the third part (Chapters 13-18) of the basic
principles of statistical techniques and measurement thereof.
Features of the Study Material:
• Simple, clear language for easy understanding.
• Illustrations and examples in each chapter to clarify concepts and
techniques.

• A comprehensive MCQ’s and Additional Question Bank at the end

of chapters to practice and strengthen understanding.
Apart from the Study material, The Revision Test Paper (RTP) for
Foundation Course Paper 3: Quantitative Aptitude is a valuable tool
designed to help students prepare effectively for the CA Foundation
examination.

About the Revision Test Paper (RTP)

• Contains 30 questions with answers.
• Covers diverse topics from the study material.
• Designed to test conceptual understanding and computational
skills.
• Acts as a practice set before the main exam.

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PAPER – 4: BUSINESS ECONOMICS

The August 2024 edition of the Study Material is applicable for
May, 2026 Examination of Foundation Course Paper 4: Business
Economics. The Study is having 10 Chapters which includes
Microeconomics, Macro Economics, Public Finance, Money Market,
International Trade and Indian Economy.

Features of the Study Material:

Simple, clear language for easy understanding
Illustrations and examples in each chapter to clarify concepts and
techniques.
A comprehensive MCQ’s and Summary at the end of chapters to practice
and strengthen understanding.

Apart from the Study material, The Revision Test Paper (RTP) for
Foundation Course Paper 4: Business Economics is a valuable tool
designed to help students prepare effectively for the CA Foundation
examination.
About the Revision Test Paper (RTP)
• Contains 25 questions with answers.
• Covers diverse topics from all of the study material.
• Designed to test conceptual understanding and computational
skills.
• Acts as a practice set before the main exam.

vi MAY 2026 EXAMINATION

 PAPER – 1:
ACCOUNTING

QUESTIONS

True and False

1. State with reasons, whether the following statements are true or false:
(a) Insurance claim received on account of plant and machinery
completely damaged by fire is a capital receipt.
(b) Purchase of office furniture & fixtures of ` 2,500 has been debited
to General Expense Account. It is an error of omission.
(c) Bank reconciliation statement are prepared to arrive at the bank
balance.
(d) The provision for bad debts is debited to sundry debtors
account.
(e) Periodic inventory system is a method of ascertaining inventory by
taking an actual physical count.
(f) Discount at the time of retirement of a bill is a gain for the drawee.
(g) A withdrawal of cash from the business by the proprietor should
be charged to profit and loss account as an expense.
(h) The firm will receive surrender value of Joint Life Policy on the
death of the partner.
(i) Fees received for Life Membership are a revenue receipt as it is of
recurring nature.
(j) In the balance sheet of X Limited, preliminary expenses amounting
to ` 5 lakhs and securities premium account of ` 35 lakhs are
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appearing; The accountant can use the balance in securities

premium account to write off preliminary expenses.
Theoretical Framework
2. (a) Distinguish between Money measurement concept and matching
concept.
(b) Change in accounting policy may have a material effect on the
items of financial statements.” Explain the statement with the help
of an example.
Journal Entries
3. (a) You are required to pass necessary journal entries in the books of
Batra:
(i) Employees had taken stock worth ` 25,000 (Cost price
` 22,500) on the eve of Deepawali and the same was
deducted from their salaries in the subsequent month.
(ii) Sold goods to Manik costing 20,000 at 25% above cost less
trade discount of 10% plus CGST and SGST @6% each and
cash discount of 5%.Manik did not avail cash discount.
(iii) Goods costing ` 6,000 (Sale price ` 8,000) distributed as free
samples.
(iv) Received commission ` 10,000, half of which does not relate
of current year and is received in advance.
(v) Purchased second hand machinery from Swayam industries
for ` 4,00,000 plus CGST and SGST @ 4% each. Paid
` 1,00,000 immediately by cheque and balance to be paid
after two months.
Capital or Revenue Expenditure
(b) Classify the following expenditures as capital or revenue
expenditure:
(i) Travelling expenses of the directors for trips abroad for
purchase of capital assets.
(ii) Drainage for new equipment.

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(iii) Amount paid for removal of stock to a new site.

(iv) Cost of repairs on second-hand car purchased to bring it into
working condition.
(v) Carriage costs on a replacement part for a piece of
machinery.
(vi) Repainting of a delivery van
Subsidiary Books
4. (a) From the following information prepare the Purchase Book of
M/s Victory & Company who deals in eye care business:
(i) Purchased from Pink & Company on credit:
10 pairs of black sun glasses @ ` 800 per Pair.
5 pairs of brown sun glasses @ 900 per pair
Less: Trade Discount @ 10%
(ii) Purchased Computer from M/s. Glory. Enterprises on credit
for ` 20,000.
(iii) Purchased from Blue & Company in cash:
5 pairs of black lens @ ` 700 per pair
15 pairs of brown lens@ ` 100 per pair
Less: Trade Discount @ 15%
Rectification of Errors
(b) Pass the Journal entries in the books of Mr. Dhuria to rectify the
following errors detected during preparation of the Trial Balance:
(i) Wages paid for construction of office building debited to
wages account ` 20,000.
(ii) A purchase of goods from Seema amounting to ` 10,000 has
been wrongly entered through the sales book.
(iii) Sale of goods to Nikhil at the list price of ` 2,40,000/- less
10% trade discount. Out of the amount due 50% is received,

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out of which three-fourth is received by cheque and the

balance amount is received in cash. CGST and SGST
applicable is 6% each.
(iv) Goods (Cost being ` 15,000 and Sales price being ` 16,000)
distributed as free samples amount prospective customers
were not recorded anywhere.
(V) A bill of Exchange (received from SS & Co.) for ` 10,000 had
been returned by the bank as dishonoured and had been
credited to the bank and debited to bills receivable account.
(vi) A Bills Receivable for ` 2,500 was passed through Bills
Payable Book. The Bill was given by Hans
(vii) Sushil has been issued a credit note allowing rebate of
` 16,000/- as goods supplied to him was found defective.
CGST and SGST charged @ 4% each.
Bank Reconciliation Statement
5. Prepare a Bank Reconciliation Statement for Vibha Traders as on
31st March, 2025. The Cash Book of Vibha Traders shows a debit balance
of ` 3,29,000 at Bank as on 31st March, 2025, but it does not agree with
the balance as per the Bank Pass Book. After checking, the following
differences were found:
1. On 12th March, 2025, the payment side of the Cash Book was
undercast by ` 12,000.
2. A cheque of ` 85,000 issued on 23rd March, 2025 was not taken in
the bank column.
3. On 22nd March, 2025, the debit balance of ` 18,500 as on the
previous day was brought forward as a credit balance.
4. Out of the total cheques amounting to 42,000 issued in the last
week of March, 2025, cheques aggregating 28,500 were encashed
in March, 2025.
5. Dividends of 35,000 collected by the Bank and Fire Insurance
Premium of 20,000 paid by the Bank were not recorded in the Cash
Book.

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6. One cheque issued to a creditor of ` 1,29,000 was recorded twice

in the Cash Book.
7. A cheque from a customer for ` 12,000 was deposited in the Bank
on 28th March, 2025 but was dishonoured and advice was received
from the Bank on 5th April, 2025.
8. The Bank paid a credit card bill of ` 2,500 which was not recorded
in the Cash Book.
9. The Bank wrongly credited a cheque of ` 25,000 of another
customer in our account.
10. ` 500 discount received was wrongly entered in the bank column
in the Cash Book.
11. A Debtor Mr, X deposited a cheque for ` 32,000 in the bank
directly in the month of March 2025, without intimating to Rani
traders and the same cheque was dishonoured by bank due to
insufficient fund in the month of March itself
Valuation of Inventories
6. Lavender Ltd. prepared their accounts financial year ended on
31st March 2025. Due to unavoidable circumstances actual stock has
been taken on 10th April 2025, when it was ascertained at ` 2,50,000. It
has been found that;
(i) Sales are entered in the Sales Book on the day of dispatch and
return inwards in the Returns Inward Book on the day of the goods
received back. Purchases are entered in the Purchase Book on the
day the Invoices are received.
(ii) Sales between 1st April 2025 to 9th April 2025 amounting to
` 60,000 as per Sales Day Book.
(iii) Free samples for business promotion issued during 1st April 2025
to 9th April 2025 amounting to ` 4,000 at cost.
(iv) Purchases during 1st April 2025 to 9th April 2025 amounting to
` 10,000 but goods amounts to ` 2,000 not received till the date of
stock taking.

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(v) Invoices for goods purchased amounting to ` 55,000 were entered on

28th March 2025 but the goods were not included in stock.
Rate of Gross Profit is 25% on cost. Ascertain the value of Stock as on
31st March 2025
Depreciation and Amortisation
7. A firm purchased a second-hand machinery on April 1, 2023 for
` 30,00,000, subsequent to which ` 4,00,000 were spent on its repairs
and installation. On October 1, 2023, another machinery was purchased
for ` 18,00,000 and the cost of installing the machine in a new plant was
` 40,000. The firm also shifted the machinery purchased on April 1, 2023
to the new plant and incurred freight of ` 20,000 and loading charges of
` 30,000.
They adopted a policy of charging depreciation @ 12% per annum on
the diminishing balance method.
On April 1, 2025, it was decided to change the method and rate of
depreciation to the straight line basis. On this date, the remaining useful
life was assessed as 5 years for both the machines purchased, with no
scrap value.
On October 1, 2025, the first machine became outdated and was sold for
` 5,00,000. On the same date, another machinery was purchased for
` 17,00,000. The estimated useful life of the machine is 10 years and the
residual value is ` 60,000.
You are required to prepare the Machinery Account for the year ending
March 31, 2026.
Bills of Exchange
8. On 1st January 2025, Tamal draws three bills of exchange for ` 16,000,
` 25,000 and `10,000.
The first bill of exchange for ` 16,000 is for two months while the second
and third bill of exchange for ` 25,000 and `10,000 is for three months.
These bills are accepted by Tapas. On 4th March, 2025, Tapas requests
Tamal to renew the first bill with interest at 15% p.a. for a period of two
months. Tamal agreed to this proposal. On 25th March, 2025, Tapas

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retires the acceptance for the second bill of ` 25,000, the interest rebate
i.e. discount being ` 250 and the third bill of 10,000, the interest rebate
i.e. discount being ` 500. Before the due date of the renewed bill, Tapas
becomes insolvent and only 30 paisa in a rupee could be recovered from
his estate.
Show the Journal Entries in the books of Tamal.
Final Accounts
9. From the following schedule of balances extracted from the books of
Mr. Manas, prepare Trading and Profit and Loss Account for the year
ended 31 March, 2026 and the Balance Sheet as on that date after
making the necessary adjustments:

Particulars Dr. (`) Cr. (`)

Capital Account 8,85,000
Stock on 1.4.2025 3,86,000
Cash in hand 18,500
Cash in Bank 73,500
Investment (at 9%) as on 1.4.2025 50,000
Deposits (at 20%) as on 1.10.2025 3,00,000
Drawings 78,000
Purchases 24,95,000
Sales 29,86,000
Return Inwards 1,10,000
Return outwards 1,38,000
Carriage inwards 1,26,000
Rent 66,000
Salaries 1,15,000
Sundry Debtors 2,35,000
Sunday Creditors 1,37,500
Bank Loan (at 12%) as on 1.10.2025 2,00,000

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Furniture as on 1.4.2025 25,000

Interest paid 12,500
Interest received 28,500
Advertisement 40,300
Printing & Stationery 32,200
Electricity Charges 57,700
Discount allowed 55,200
Discount received 24,600
Bad debts 18,500
General expenses 36,800
Motor Car Expenses 8,500
Insurance Premium 30,000
Travelling Expenses 21,800
Postage & Courier 8,100
43,99,600 43,99,600

Adjustments:
(i) The value of stock as on 31st March, 2026 is ` 7,65,000. This
includes goods returned by customers on 31st March, 2026 to the
value of ` 25,000 for which no entry has been passed in the books.
(ii) Purchases include one furniture item purchased on 1st January,
2026 for ` 10,000. Depreciation @ 10% p.a. is to be provided on
furniture.
(iii) One months' rent is outstanding and Insurance premium includes
` 18,000 paid towards proprietor's life insurance policy.
(iv) Interest paid includes ` 9,000 paid against Bank loan and Interest
received pertains to Investments and Deposits.
(v) Provide for interest payable on Bank Loan and interest receivable
on investments and deposits.

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(vi) Make provision for doubtful debts at 2.5% on the balance under
sundry debtors.
Financial Statements of Not for Profit Organizations
10. The accountant of City Club gave the following information about the
receipt and payment of the club for the year ended 31st March ,2025

Receipts ` Payments `
Subscriptions 62,130 Premises 30,000
Fair Receipts 7,200 Rent 2,400
Variety Show Receipts 12,810 Rates and Taxes 3,780
(Net)
Interest 690 Printing and Stationery 1410
Restaurant Collections 22,350 Sundry Expenses 5,350
Wages 2,520
Fair Expenses 7,170
Honorarium to Secretary 11,000
Restaurant Purchases 17,310
Repairs 960
New Car (less proceeds of
old car ` 9,000)

The following additional information could be obtained:

Particulars 1-4-2024 31-3-2025

(`) (`)
Cash in hand 450 Nil
Bank Balance as per Cash-book 24,420 10,350
Cheques issued for Sundry Expenses not
presented to the bank (entry has been
duly made in the Cash-book) 270 90
Subscriptions Due 3,600 2,940
Premises at Cost 87,000 1,17,000

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Provision for Depreciation on Premises 56,400 —

Car at Cost 36,570 46,800
Accumulated Depreciation on Car 30,870 —
Restaurant Stock 2,130 2,610
Creditors for Restaurant 1,770 1,290

Annual Honorarium paid to Secretary is ` 12,000. Depreciation on

Premises is to be provided at 5% on written down value. Depreciation on
new car is to be provided at 20%.
You are required to prepare the Receipts and Payments Account and
Income and Expenditure Account for the year ended 31-3-2025.
Accounts from Incomplete Records
11. Roshan Washing House is owned by Roshan. He keeps his books on
single entry and provides you with the following information:

1st January, 2025 31st December, 2025

` `
Furniture and Fittings 50,000 60,000
Stock of Raw Materials 30,000 10,000
Sundry Debtors 60,000 70,000
Sundry Creditors 20,000 Nil
Prepaid Expenses Nil 2,000
Outstanding Expenses 6,000 10,000
Cash in hand 11,000 3,000
Receipts from Debtors 2,10,000
Paid to Creditors 1,00,000
Cartage 20,000
Drawings 1,20,000
Sundry Expenses 1,60,000
Furniture purchased for 10,000
Cash

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Prepare Trading, Profit and Loss Account and Balance Sheet for the year
ended 31 December 2025 after providing for bad debts at 10%. There
was considerable amount of cash sales.
Partnership Accounts
Calculation of Goodwill
12. The profits and losses for the previous years are: 2022 Profit ` 5,000,
2023 Loss ` 8,500, 2024 Profit ` 25,000, 2025 Profit ` 38,500. The
average Capital employed in the business is ` 1,00,000. The rate of
interest expected from capital invested is 10%. The remuneration from
alternative employment of the proprietor ` 3,000 p.a. Calculate the value
of goodwill on the basis of 3 years’ purchases of Super Profits based on
the average of 2 years.
Dissolution of Partner
13. A, B and C who were sharing profits in the ratio of 3: 2:1 decided to
dissolve the firm on 31st March,2025 when their Balance Shet was as
follows:
Liabilities ` Assets `
Capital A/cs: Building 1,50,000
A 1,80,000 Machinery 90,000
B 1,35,000 Tools 12,000
C 90,000 4,05,000 Car 18,000
Creditors 51,000 Debtors 93,000
Stock 55,500
Bank 37,500
4,56,000 4,56,000

Following transactions took place at the time of dissolution:

Assets realized are : `

Tools 7,500
Machinery 1,23,000

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Building 1,26,000
Car 37,500
Goodwill 90,000
Debtors 88,500

(a) Creditors accepted stock in settlement of their dues.

(b) There was an unrecorded asset valued at ` 4,500 which was taken
by A for `3,000.
(c) There was an old furniture which had been written off from the
books. B agreed to take it at ` 12,000.
(d) Firm had to pay ` 12,000 for outstanding salary which not
provided earlier.
Prepare Realisation Account, Partners’ Capital Accounts and Bank
Account.
Issue and Redemption of Shares
14. (a) Give necessary journal entries for the forfeiture and re-issue of
shares:
(i) A Ltd. forfeited 3,000 shares of ` 10 each fully called up, held
by Ramesh for non-payment of allotment money of ` 3 per
share and final call of ` 4 per share. He paid the application
money of ` 3 per share. These shares were re-issued to
Mahesh for ` 8 per share.
(ii) A Ltd. forfeited 2,000 shares of ` 10 each (` 7 called up) on
which Naresh had paid application and allotment money of
` 5 per share. Out of these, 1500 shares were re-issued to
Mahesh as fully paid up for ` 6 per share.
(iii) A Ltd. forfeited 1,000 shares of ` 10 each (` 6 called up)
issued at a discount of 10% to Dimple on which she paid ` 2
per share. Out of these, 800 shares were re-issued to Isha at
` 8 per share and called up for ` 6 share.

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(b) Following is the extract of Balance Sheet of Laxmi Ltd. as at

31st March, 2025 :
`
Authorized capital:
4,50,000 equity shares of ` 10 each 45,00,000
37,500,10% preference shares of ` 10 each 3,75,000
48,75,000
Issued and subscribed capital:
4,05,000 equity shares of ` 10 each fully paid up 40,50,000
36,000, 10% preference shares of ` 10 each fully 3,60,000
paid up
44,10,000
Reserves and surplus:
General reserve 5,40,000
Capital redemption reserve 1,80,000
Securities premium 1,12,500
Profit and loss account 9,00,000
17,32,500

On 1st April, 2025, the company decided to capitalize its reserves

by way of bonus at the rate of two shares for every five equity
shares held.
Show necessary journal entries in the books of the company and
prepare the extract of the balance sheet after bonus issue.
15. The following balances appeared in the Books of MCM Ltd. as on
31st December, 2025:

Amount (`)
40,000, 10% Preference shares of ` 100 each, ` 75 paid
up 30,00,000
1,00,000 Equity share of ` 100 each fully paid up 1,00,00,000

13 MAY 2026 EXAMINATION

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Securities Premium 3,25,000

Capital Redemption Reserve 21,00,000
General Reserve 42,50,000

Under the terms of their issue, the preference shares are redeemable on
31st March,2026 at a premium of 5%. In order to finance the redemption,
the company makes a right issue of 30,000 equity shares of ` 100 each
at a premium of 10%, ` 25 being payable on application, ` 45 (including
premium) on allotment and the balance on 1st August, 2026. The issue
was fully subscribed and the allotment made on 1st March,2026. The
amount due on allotment was duly received by 25th March,2026.
The preference shares were redeemed after fulfilling the necessary
conditions of section 55 of the Companies Act, 2023.
You are required to pass the necessary Journal Entries (including
narrations) to give effect to the above arrangement. Also prepare the
Notes to accounts on Share Capital Reserves and Surplus relevant to the
Balance Sheet immediately after the redemption of preference shares as
on 31st March, 2026. Ignore date column in Journal.
Issue and Redemption of Debentures
16. On 1st April, 2025, the following balances appeared in the books of
Globe Limited (an unlisted company other than AIFI, Banking Company,
NBFC and HFC):
(i) 75,000 9% Debentures of ` 100 each issued at par
(ii) Balance of Debenture Redemption Reserve (DRR) ` 7,50,000.
(iii) Debenture Redemption Reserve (DRR) Investment ` 7,50,000
represented by 8.75% Secured Bonds of the Government of India
of ` 100 each.
Interest on Debentures was paid half- yearly on 30th of September and
31st March every year.
The funds required for purchasing the aforesaid debentures were partly
raised by selling off the DRR Investment.

14 MAY 2026 EXAMINATION

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ACCOUNTING

On 31st March, 2026, the investments were realized at par and the
Debentures were also redeemed at par.
You are required to prepare the following accounts for the year ended
31st March, 2026:
(1) 9% Debentures Account.
(2) Debenture Redemption Reserve Account.
(3) Debenture Redemption Reserve Investment Account.
(4) Interest on Debentures Account.
17. FLK Ltd. issues 3,00,000 12% Debentures of ` 10 each at ` 9.40 on
1st January, 2025. Under the terms of issue, the Debentures are
redeemable at the end of 5 years from the date of issue.
Calculate the amount of discount to be written-off in each of the
5 years.
18. Write short notes on the following:
(i) Fundamental Accounting Assumptions.
(ii) Noting Charges.
(iii) Posting of journal entries into the Leger.
(iv) Machine Hour Rate method of calculating depreciation.
(v) Retirement of bills of exchange

SUGGESTED ANSWERS/HINTS

1. (a) True: Insurance claim received on account of plant and machinery

completely damaged by fire is a capital receipt as it is not obtained
in course of normal business activities.
(b) False: When a transaction is recorded in contravention of
accounting principles, like treating the purchase of an asset as an

15 MAY 2026 EXAMINATION

REVISION TEST PAPERS
FOUNDATION EXAMINATION

expense, it is an error of principle. Purchase of office furniture and

fixtures is a capital expenditure, if debited to General Expenses
account, is an error of principle and not an error of omission.
(c) False: Bank reconciliation statement is prepared to reconcile and
explain the causes of differences between bank balance as per
cash book and the same as per bank statement as on a particular
date.
(d) False: The provision for bad debts is debited to Profit and loss
Account, in Balance Sheet it is shown either on liability side or
deducted from the head debtors.
(e) True: Periodic inventory system is a method of ascertaining
inventory by taking an actual physical count of all the inventory
items on hand at a particular date on which inventory is valued.
(f) True - Discount at the time of retirement of a bill is a gain for the
drawee and loss for the drawer.
(g) False: Cash withdrawal by the proprietor from his business should
be treated as his drawings and not a business expense chargeable
to profit and loss account. Such drawings should be deducted
from the proprietors capital.
(h) False: The firm will receive full value of sum assured of Joint Life
Policy on the death of Partner.
(i) False: Life Membership Fee received for life membership is a
capital receipt as it is of non-recurring nature. It is directly added
to capital fund or general fund.
(j) True: According to Section 52 of the Companies Act, 2013,
Securities Premium Account may be used by the company to write
off preliminary expenses of the company. Thus, the accountant can
use the balance in securities premium account to write off the
preliminary expenses amounting ` 5 lakhs.

16 MAY 2026 EXAMINATION

REVISION TEST PAPERS
ACCOUNTING

2. (a) Distinction between Money measurement concept and

matching concept
As per Money Measurement concept, only those transactions,
which can be measured in terms of money are recorded. Since
money is the medium of exchange and the standard of economic
value, this concept requires that those transactions alone that are
capable of being measured in terms of money be only to be
recorded in the books of accounts. Transactions and events that
cannot be expressed in terms of money are not recorded in the
business books.
In Matching concept, all expenses matched with the revenue of
that period should only be taken into consideration. In the
financial statements of the organization if any revenue is
recognized then expenses related to earn that revenue should also
be recognized.
(b) Change in accounting policy may have a material effect on the
items of financial statements. For example, cost formula used for
inventory valuation is changed from weighted average to FIFO.
Unless the effect of such change in accounting policy is quantified,
the financial statements may not help the users of accounts.
3. (a) (i) In the books of Kewal
Journal entries
Particulars Dr. Cr.
Amount Amount
` `
(i) Salaries A/c Dr. 22,500
To Purchase A/c 22,500
(Being entry made for stock taken
by employees)
(ii) Manik’s A/c (WN -1) Dr. 25,200
To Sales A/c (WN- 2) 22,500

17 MAY 2026 EXAMINATION

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To Output CGST A/c 1,350

To Output SGST A/c 1,350
(Being goods to manik at trade
discount and CGST & SGST @ 6%.
(iii) Sales promotion A/c Dr. 6,000
To Purchases A/c 6,000
(Being the goods distributes as
free samples).
(iv) Bank A/c Dr. 10,000
To Commission A/c 10,000
(Being commission received).
Commission A/c Dr. 5,000
Prepaid Commission A/c 5,000
(Being commission received in
advance adjusted).
(v) Machinery A/c Dr. 4,00,000
Input CGST A/c Dr. 16,000
Input SGST A/c Dr. 16,000
To Bank A/c 1,00,000
To Swayam Industries A/c 3,32,000
(Being machinery purchased from
Swayam and paid 1,00,000
immediately CGST and SGST
@ 4% each)

Workings:
1. Manik’s Account will be debited (not Cash A/c) since Manik
did not avail the cash discount.
2. Value of Sales = Cost Price+ Profit – trade Discount = 20,000
+ 5,000 - 2,500 = 22,500
20,000 x 25/100 = 5,000
Trade Discount = (20,000+5,000) x 10/100 = 2,500

18 MAY 2026 EXAMINATION

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ACCOUNTING

(b) (i) Capital Expenditure.

(ii) Capital Expenditure.
(iii) Revenue Expenditure.
(iv) Capital Expenditure.
(v) Revenue Expenditure
(vi) Revenue Expenditure
4. (a) Purchases Book
Amount
Date Particulars L.F.
`
(i) Pink & Co.
10 pair of black sun glasses @ ` 800 8,000
5 pair of Brown sun glasses @ ` 900 4,500
12,500
Less: 10% trade discount (1,250)
11,250
Note:
1. Purchases made in cash are entered in cash book not in
purchase book.
2. Purchase of computer cannot be entered in the Purchase
Book but entered in journal proper.
(b) In the Books of Mr. Dhuria
Journal Entries
Particulars L.F. Dr. Cr.
` `
(i) Building A/c Dr. 20,000
To Wages A/c 20,000
(Wages paid for the construction of
office building debited to wages A/c
now rectified)

19 MAY 2026 EXAMINATION

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FOUNDATION EXAMINATION

(ii) Purchases A/c Dr. 10,000

Sales A/c Dr. 10,000
To Seema 20,000
(Purchases from Seema wrongly
entered in Sales Book now rectified)

(iii) Nikhil A/c Dr. 2,41,920

To Sales 2,16,000
To Output CGST 12,960
To Output SGST 12,960
(Being goods sold to Nikhil at 10%
trade discount, CGST and SGST is
applicable at 6% each.)
Bank A/c Dr. 90,720
Cash A/c Dr. 30,240
To Nikhil 1,20,960
(Being 50% of the amount due is
received from Nikhil, out of which
3/4rd is received by cheque and
1/4rd in cash)
(iv) Advertisement expenses A/c Dr. 15,000

To Purchases A/c 15,000

(Being entry of the goods

distributed as free samples omitted
from records)

(v) SS & Co A/c Dr. 10,000

To Bills Receivable A/c 10,000

(Bills of Exchange dishonoured and

had credited to bank and debited to
Bills receivable a/c now rectified)

(vi) Bills Receivable A/c Dr. 2,500

Bills Payable A/c Dr. 2,500

20 MAY 2026 EXAMINATION

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ACCOUNTING

To Hans A/c 5,000

(Bills receivable wrongly passed

through Bills payable now rectified)

(vii) Rebate A/c Dr. 16,000

Output CGST Dr. 640

Output SGST Dr. 640

To Sushil 17,280
(Being rebate allowed to Sushil for
the goods supplied was found
defective)

5. (i) Bank Reconciliation Statement of Vibha Traders as on

31st March,2025

Particulars Amount Amount

Balance as per Cash Book 3,29,000
Add:
Mistake in bringing forward ` 18,500/- 37,000
debit balance as credit balance on 22nd
March
Cheques issued but not presented Issued 13,500
= ` 42,000 less cashed ` 28,500 =
` 13,500/-
Dividend directly collected but not entered 35,000
in cash book
Cheques recorded twice in the cash book 1,29,000
Wrongly credited cheque by bank 25,000
Discount amount wrongly entered in bank 500 2,40,000
column
Less: Wrong casting in cash book on 12,000
12th March, 2025

21 MAY 2026 EXAMINATION

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FOUNDATION EXAMINATION

Cheque issued and not entered in the Bank 85,000

Column
Fire insurance premium paid directly by 20,000
bank
Cheque dishonored not recorded in books 12,000
Credit card payment not recorded in cash 2,500 (1,31,500)
book
Balance as per the Pass book 4,37,500

Note: No effects of cheque deposit directly and dishonored in the

same month. Alternatively figure of ` 32,000/- can be added as
well as deducted from balance as per cash book.
6. Statement of Valuation of Physical Stock as on 31st March,2025
` `
Value of stock as on 10th April, 2025 2,50,000
Add: Cost of sales during the intervening period
Sales made between 1.4.2025 and 9.4.2025 60,000
Less: Gross profit @20% on sales (12,000) 48,000
Free sample 4,000
3,02,000
Less: Purchases actually received during the
intervening period:
Purchases from 1.4.2025 to 9.4.2025 10,000
Less: Goods not received upto 9.4.2025 (2,000) (8,000)
2,94,000
Add: Purchases during March, 2025 but not
recorded in stock 55,000
Value of physical stock as on 31.3.2025 3,49,000

22 MAY 2026 EXAMINATION

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ACCOUNTING

7. Machinery Account
Date Particulars Amount Date Particulars Amount
(` ) (` )
2025 2025
April 1 To Bal b/d- Oct. 1 By Depreciation- on 2,63,296
Machine 1 26,32,960 machinery 1 sold
Machine 2 15,22,048 41,55,008 Oct. 1 By Bank – machinery 5,00,000
Oct. 1 To Bank A/c (Machine 3) 17,00,000 Oct. 1 1 sold
By Profit & Loss– 18,69,664
2024 Loss on Sale of
Mar. 31 machinery (WN. 1)

By Depreciation
(WN. 2)
Machine 2 3,04,410
Mar. 31 Machine 3 82,000
3,86,410
By bal c/d
28,35,638
58,55,008 58,55,008

Working Note:
1. Calculation of depreciation and Profit/loss on sale:

Machine 1 Machine 2 Total

purchased on purchased on
April 1, 2023 Oct 1, 2023
(`) (`) (`)
Cost of Purchase 30,00,000 18,00,000
4,00,000 40,000
Total Cost 34,00,000 18,40,000
Less: Depreciation @ 12%
Machine 1 (12 months) (4,08,000)
Machine 2 (6 months) (1,10,400) 5,18,400
W.D.V. on 31-3-2024 29,92,000 17,29,600
Less: Depreciation @ 12% (3,59,040) (2,07,552) 5,66,592
W.D.V. on 31-3-2025 26,32,960 15,22,048

23 MAY 2026 EXAMINATION

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FOUNDATION EXAMINATION

Less: Depreciation on SLM (2,63,296) (3,04,410) 5,67,706

Basis (WN. 2)
23,69,664 12,17,638
Less: Sale proceeds on (5,00,000)
1-10-2025
Loss on sale of machinery 18,69,664

2. Calculation of Depreciation on the basis of Straight-line

method with effect from April 1,2023
1. Machine 1 (purchased on 1st April,2023) = 34,00,000 -
4,08,000 - 3,59,040 = 26,32,960/5 = 5,26,592/2 = ` 2,63,296
2. Machine 2 (purchased on 1st Oct,2023) = 18,40,000 –
1,10,400 – 2,07,552 = 15,22,048 / 5 = ` 3,04,410
3. Machine 3 (purchased on 1st Oct, 2025) = (17,00,000 –
60,000) ÷ 10 = 1,64,000 /2 = `82,000
Note: Freight and loading charges incurred on Machinery purchased on
1st April,2025 is to be excluded from the cost of machinery since this
cost is incurred only for shifting the machinery to the new plant and
does not increase the operating capacity of the machinery
8. Journal Entries in the books of Tamal

2025 Particulars Dr (`). Cr. (`)

Jan. 1 Bills receivable (No. 1) A/c Dr. 16,000
Bills receivable (No. 2) A/c Dr. 25,000
Bills receivable (No. 3) A/c Dr. 10,000
To Tapas A/c 51,000
(Being drawing of bills receivable
No. 1 due for maturity on
4.3.2025 and bills receivable No.
2 and 3 due for maturity on
4.4.2025)

24 MAY 2026 EXAMINATION

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ACCOUNTING

March 4 Tapas ’s A/c Dr. 16,000

To Bills receivable (No.1) A/c 16,000
(Being the reversal entry for bill
No.1 on renewal)
March 4 Bills receivable (No. 4) A/c Dr. 16,400
To Interest A/c 400
To Tapas ’s A/c 16,000
(Being the drawing of bill of
exchange no. 4 due for maturity
on 7.5.2025 together with
interest at 15%p.a. in lieu of the
original acceptance of Tapas)
March 25 Bank A/c Dr. 34,250
Discount A/c Dr. 750
To Bills receivable (No. 2) A/c 25,000
To Bills receivable (No. 3) A/c 10,000

(Being the amount received on

retirement of bills No.2 and bills
No.3 before the due date)
May 7 Tapas’s A/c Dr. 16,400
To Bills receivable (No. 4) A/c 16,400
(Being the amount due from
Tapas on dishonour of his
acceptance on presentation on
the due date)
May 7 Bank A/c Dr. 4,920
To Tapas’s A/c 4,920
(Being the amount received from
official assignee of Tapas at 30
paise per rupee against
dishonoured bill)

25 MAY 2026 EXAMINATION

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FOUNDATION EXAMINATION

May 7 Bad debts A/c Dr. 11,480

To Tapas’s A/c 11,480
(Being the balance 70% debt in
Tapas’s Account arising out of
dishonoured bill written off as
bad debts)

9. In the books of Mr. Manas

Trading and Profit & Loss Account for the year ended
31st March,2026

Particulars Amount Amount Particulars Amount Amount

(`) (`) (`) (`)

To Opening stock 3,86,000 By Sales 29,86,000

To Purchases 24,95,000 Less: Returns (135,000) 28,51,000

Less: Transfer to furniture (10,000) By closing stock 7,65,000

A/c

24,85,000
Less: Returns (1,38,000) 23,47,000

To Carriage inwards 1,26,000

To Gross profit c/d 7,57,000

36,16,000 36,16,000

To Salaries 1,15,000 By Gross profit 7,57,000

b/d
By Interest 34,500

To Rent 66,000 By Discount 24,600

received

Add: Outstanding 6,000 72,000

To Advertisement 40,300

To Printing & stationery 32,200

To Electricity charges 57,700
To Interest (` 12,500 + 15,500
3000)

To Discount allowed 55,200

26 MAY 2026 EXAMINATION

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ACCOUNTING

To Bad Debts 18,500

Add: Provision for 5,250 23,750
Doubtful Debts

To General expenses 36,800

To Motor Car expenses 8,500

To Insurance premium 30,000

Less: Drawings 18,000 12,000
To Travelling expenses 21,800

To Postage & courier 8,100

To Depreciation on 2,750
furniture (WN 4)

To Capital A/c (Net profit 3,14,500

transferred)

8,16,100 8,16,100

Balance Sheet as at 31st March,2026

Liabilities Amount Amount Assets Amou Amount
(`) (`) nt (`) (`)
Capital account: Furniture 25,000
Balance on 1st 8,85,000 Additions during the 10,000
April,2025 year
Add: Net profit 3,14,500 35,000
11,99,500 Less: Depreciation (2,750) 32,250
Less: Drawings (78,000) 9% Investments 50,000
Less: Insurance (18,000) 11,03,500
premium
12% Bank Loan 2,00,000 10% Deposits 3,00,000
Interest accrued 3,000 Interest accrued on 6,000
on bank loan investment & deposits
(W.N.2) (W N. 3)
Sundry creditors 1,37,500 Stock in trade 7,65,000
Outstanding Rent 6,000 Sundry debtors (W N. 1) 2,04,750
Cash in hand 18,500
Cash at Bank 73,500
14,50,000 14,50,000

27 MAY 2026 EXAMINATION

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Working Notes:

1. Calculation of sundry debtors at the end Amount

(`)
Sundry debtors as per trial balance 2,35,000
Less: Sales returns not recorded (25,000)
Adjusted balance of sundry debtors 2,10,000
Provision for doubtful debts @ 2.5% (5,250)
2,04,750
2. Interest Payable on bank loan:
Annual interest @12% for 6 months on ` 2,00,000 12,000
Less: Interest paid (9,000)
Unpaid interest 3,000
3. Interest accrued on investments and deposits:
Annual interest on investments @ 9% 4,500
Annual interest on deposits @ 20% for half year 30,000
34,500
Less: Interest received on investments and deposits (28,500)
Accrued interest 6,000

4. Depreciation on Furniture:
Depreciation @ 10% p.a. on Opening Balance ` 25000 2,500
On new purchase of ` 10,000 for 3 months (Jan to March ) 250
Depreciation to be charged 2,750
10. Receipts and Payments Account
for the year ended 31st March, 2025

Receipts (Dr.) ` Payments (Cr.) `

To Opening Balances: By Premises 30,000

Cash in Hand 450 By Rent 2,400

28 MAY 2026 EXAMINATION

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ACCOUNTING

Bank Balance 24,420 By Rates and Taxes 3,780

To Subscriptions 62,130 By Printing and Stationery 1,410
To Fair Receipts 7,200 By Sundry Expenses 5,350
To Variety Show Receipts (Net) 12,810 By Wages 2,520
To Interest 690 By Fair Expenses 7,170
To Restaurant Collections 22,350 By Honorarium to Secretary 11,000
To Sale Proceeds of Old Car 9,000 By Restaurant Purchases 17,310
(Payments)
By Repairs 960
By purchase of new Car 46,800
By Closing Balances:
Cash in Hand Nil
Bank Balance 10,350
1,39,050 1,39,050

Income and Expenditure Account

for the year ended 31st March, 2025

Expenditure ` (Dr.) Income ` (Cr.)

To Rent 2,400 By Subscriptions 62,130
To Rates and Taxes 3,780 Add: Due as on 31-3-25 2,940
65,070
To Printing and Stationery 1,410 Less: Due as on 31-3-24 3,600 61,470
To Wages 2,520 By Surplus from Fair
To Honorarium to 12,000 Fair Receipts 7,200
Secretary
Less: Fair Expenses 7,170 30
To Sundry Expenses 5,170 By Surplus from Variety Show 12,810
(5,350-270+90)
To Repairs 960 By Interest 690

29 MAY 2026 EXAMINATION

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To Depreciation on 3,030 By Profit from Restaurant 6,000

Premises (5%) (W.N. 4) (W.N.2)
To Depreciation on Car 9,360 By Profit on Sale of Car (W.N.3) 3,300
(20%)
To Excess of Income over
Expenditure transferred to
Capital Fund 43,670
84,300 84,300

Working Notes
(1) Calculation of Restaurant Purchases
Restaurant Creditors Account

Dr. ` Cr. `
To Bank A/c 17,310 By Balance b/d 1,770
To Balance c/d 1,290 By Restaurant Purchases 16,830
(Balancing Figure)
18,600 18,600

(2) Calculation of Profit from Restaurant Trading Account

` Dr. ` Cr.
To Opening Stock 2,130 By Restaurant Collections 22,350
To Purchases 16,830 By Closing Stock 2,610
To Profit from 6,000
Restaurant
24,960 24,960

(3) Calculation of Profit on Sale of old Car

Sale proceeds of old car: ` 9,000
Less: Written down value of old car (` 36,570 – ` 30,870): ` 5,700
Profit on sale of old car: ` 3,300

30 MAY 2026 EXAMINATION

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ACCOUNTING

(4) Depreciation on Premises

Premises purchased during the year (1,17,000-87,000) 30,000
Old premises- acc depreciation (87,000-56,400) 30,600
Total 60,600
Depreciation @ 5% 3,030
11. Trading Account for the Year ending 31 December,2025

Particulars Amount Particulars Amount

` `
Opening Stock 30,000 Sales:
Purchases 80,000 Cash 1,92,000
Cartage 20,000 Credit 2,20,000 4,12,000
Gross Profit c/d 2,92,000 Stock at the end 10,000
4,22,000 4,22,000

Profit and Loss Account for the year ending 31 December,2025

Particulars Amount Particulars Amount
Sundry Expenses 1,60,000 Gross Profit b/d 2,92,000
Add Outstanding as on 10,000
31st Dec, 2025
Less: Outstanding as (6,000)
on 31st Dec 2024
Less: Prepaid as on (2,000) 1,62,000
31st Dec, 2025
Provision for Bad 7,000
Debts
Net Profit transferred
to Capital Account 1,23,000
2,92,000 2,92,000

31 MAY 2026 EXAMINATION

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Balance Sheet as at 31 December 2025

Liabilities Amount Amount Assets Amount Amount
(`) (`) (`) (`)
Capital account: Cash in hand 3,000
Balance on 1,25,000 Stock 10,000
1st Jan, 2025
Add: Net profit 1,23,000 Sundry Debtors 70,000
2,48,000 Less: Provision 7,000 63,000
Less: Drawings (1,20,000) Prepaid Expenses 2,000
1,28,000
Outstanding 10,000 Furniture and
Expenses Fittings 60,000

1,38,000 1,38,000

Balance Sheet as on 1st January,2025

Liabilities ` Assets `
Sundry Creditors 20,000 Cash in hand 11,000
Outstanding Expenses 6,000 Sundry Debtors 60,000
Capital (Balancing 1,25,000 Stock 30,000
Figure)
Furniture and Fitting 50,000
1,51,000 1,51,000

Total Debtors Account

` `
To balance b/d 60,000 By cash received 2,10,000
from Debtors
To Credit Sales A/c Balance c/d 70,000
(Balancing Figure) 2,20,000
2,80,000 2,80,000

32 MAY 2026 EXAMINATION

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ACCOUNTING

Total Creditors Account

` `
To Cash A/c 1,00,000 By Balance b/d 20,000
To balance c/d - By Purchase A/c
(Balancing figure) 80,000
1,00,000 1,00,000

Cash and Bank Account

` `
To Balance b/d 11,000 By amount paid 1,00,000
To amount received 2,10,000 Sundry Creditors
from Sundry Debtors By Drawings 1,20,000
To Cash Sales 1,92,000 By Sundry Expenses 1,60,000
(Balancing Figure) By Cartage 20,000
By Furniture 10,000
By Balance c/d 3,000
4,13,000 4,13,000

12. Total Profit for 4 years = ` 5000+ ` (8,500) + ` 25,000 + ` 38,500

= ` 60,000.

Total Profit 6000

Average profits = = = `15,000
No. of years 4

Average Profits for Goodwill = ` 15,000 – Proprietor Remuneration

= ` 15,000 – ` 3,000 = ` 12,000
Normal Profit = Interest on Capital employed

= ` 10,000 (i.e. ` 1,00,000 x10/100) = ` 10,000

Super Profit = Average Profit-Normal Profit = ` 12,000 – ` 10,000 = ` 2,000
Goodwill = Super Profit x No of years purchases = ` 2,000 x 2 = ` 4,000

33 MAY 2026 EXAMINATION

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13. Realisation Account

Particulars Particulars
To Sundry Assets
By Creditors 51,000
– Transfer:
Debtors 93,000 By bank A/c –
Assets Realised:
Stock 55,500 Machinery 1,23,000
Tools 12,000 Car 37,500
Car 18,000 Debtors 88,500
Machinery 90,000 Tools 7,500
Building 1,50,000 4,18,500 Building 1,26,000
To bank A/c 12,000 Goodwill 90,000 4,72,500
(outstanding
Salary)
To gain (Profit) By B’s Capital
on realization A/c (Old 12,000
transferred to Furniture)
A’S Capital A/c 54,000 By A’s Capital
A/c Unrecorded 3,000
Asset
B’s Capital A/c 36,000
C’s Capital A/c 18,000 1,08,000
5,38,500 5,38,500

Partners Capital Accounts

Particulars A B C Particulars A B C
(`) (`) (`) (`) (`) (`)
To Realisation By Balance
A/c 3,000 12,000 b/d 1,80,000 1,35,000 90,000
To Bank A/c By Realisation
2,31,000 1,59,000 1,08,000 A/c (Gain) 54,000 36,000 18,000
2,34,000 1,71,000 1,08,000 2,34,000 1,71,000 1,08,000

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Bank Account
Particulars ` Particulars `
To Balance b/d 37,500 By Realisation A/c 12,000
(Outstanding Salary)
To Realisation A/c 4,72,500 By A Capital A/c 2,31,000
Assets Realised - By B Capital A/c 1,59,000
- By C Capital A/c 1,08,000
5,10,000 5,10,000

Note: Since the stock is taken over by creditors, no entry is passed for
such payment.
14. (a) (i) Journal Entries in the books of A Ltd.
Date Dr. Cr.
` `
(a) Equity Share Capital A/c Dr. 30,000
To Equity Share Allotment money A/c 9,000
(3,000 x ` 3)
To Equity Share Final Call A/c (3,000 x ` 4) 12,000
To Forfeited Shares A/c (3,000 x ` 3) 9,000
(Being the forfeiture of 3,000 equity shares of
` 10 each for non-payment of allotment
money and final call, held by Ramesh as per
Board’s resolution No………….dated………..)
(b) Bank Account (3000 x 8) Dr. 24,000
Forfeited Shares Account (3,000x 2) Dr. 6,000
To Equity Share Capital A/c 30,000
(Being the re-issue of 3,000 forfeited shares @
` 8 each as fully paid up to Mahesh as per
Board’s resolution No……….dated……………..)
(c) Forfeited Shares A/c Dr. 3,000
To Capital Reserve A/c 3,000
(Being the profit on re-issue, transferred to
capital reserve)

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(ii)

Date Dr. Cr.

` `
(a) Equity Share Capital A/c (2000 x ` 7) Dr. 14,000
To Equity Share First Call A/c (2000 x ` 2) 4000
To Forfeited Shares A/c (2000 x ` 5) 10,000
(Being the forfeiture of 2000 equity shares of
` 10 (`7 called up) for non-payment of first call
@ ` 2 per share as per Board Resolution No….
dated………)
(b) Bank A/c Dr. 9000
Forfeited Shares A/c Dr. 6000
To Equity Share Capital A/c 15,000
(Being the re-issue of 1500 forfeited shares as
fully paid up as per Board’s resolution
No.…………… dated…………..)
(c) Forfeited Shares A/c Dr. 1500
To Capital Reserve A/c 1500
(Being the profit on re-issue, transferred to
capital reserve)

Working Note:
Balance in forfeited shares account on forfeiture of

1,500 shares (1,500 x 5) ` 7,500

Less: Forfeiture of 1500 shares (` 6,000)
Profit on re-issue of shares ` 1,500

36 MAY 2026 EXAMINATION

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(iii)

Date Dr. Cr.

` `

(a) Equity Share Capital A/c (1000 x ` 6) Dr. 6000

To Equity Share Final Call A/c (100 x ` 3) 3000

To Discount on issue of shares (1000 x ` 1) 1000

To Forfeited Shares A/c (1000 x ` 2) 2000

(Being the forfeiture of 1000 equity shares issued

at a discount as per Board’s resolution
No………….dated…….)

(b) Bank Account (800 x ` 6) Dr. 4800

Discount on issue of shares (800 x ` 1) Dr. 800

Forfeited Shares A/c (800 x ` 1) Dr. 800
To Equity Share Capital Account (800 x ` 8) 6400

(Being the re-issue of 800 shares fully paid up as

per Board’s Resolution No………dated……….)

(c) Forfeited Shares A/c 800

To Capital Reserve A/c 800

(Being the profit on re-issue, transferred to

capital reserve)

Working Note:
Balance in forfeited shares account on forfeiture of 100 shares
(1000 x 2) ` 2000
Forfeited shares balance for 800 shares ` 1600
Less: Forfeiture of 800 shares (` 800)
Profit on re-issue of shares ` 800.

37 MAY 2026 EXAMINATION

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(b) Laxmi Ltd.

Journal Entries
Dr. Cr.
April 1 Capital Redemption Reserve A/c Dr. 1,80,000
Securities Premium A/c Dr. 1,12,500
General Reserve A/c Dr. 5,40,000
Profit and Loss A/c (b.f.) Dr. 7,87,500
To Bonus to Equity Shareholders 16,20,000
A/c
(Bonus issue @ two shares for every
five shares held by utilizing various
reserves as per Board’s Resolution
dated...)
Bonus to Shareholders A/c Dr. 16,20,000
To Equity Share Capital A/c 16,20,000
(Issue of bonus shares)

Balance Sheet (Extract) as on 1st April, 2025 (after bonus issue)

Particulars Notes Amount (`)

Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 60,30,000
b Reserves and Surplus 2 1,12,500

Notes to Accounts

(`)
1 Share Capital
Authorized share capital:
5,67,000* Equity shares of ` 10 each 56,70,000*
37,500 10% Preference shares of ` 10 3,75,000
each
Total 60,45,000

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Issued, subscribed and fully paid share

capital:
5,67,000 Equity shares of ` 10 each, fully
paid (Out of above, 1,62,000 equity 56,70,000
shares @ ` 10 each were issued by way of
bonus)
36,000 10% Preference shares of ` 10 3,60,000
each
Total 60,30,000
2 Reserves and Surplus
Capital Redemption Reserve 1,80,000 Nil
Less: Utilized 1,80,000
Securities Premium 1,12,500
Less: Utilised for bonus issue (1,12,500) Nil
General reserve 5,40,000
Less: Utilised for bonus issue (5,40,000) Nil
Profit & Loss Account 9,00,000
Less: Utilised for bonus issue (7,87,500) 1,12,500
Total 1,12,500
Note: *Authorized capital has been increased by the minimum required
amount i.e. ` 11,70,000 (56,70,000 – 45,00,000) in the above solution
15. Journal Entries In the books of MCM Ltd.
Amount Amount
(` ) (` )
10% Preference Share Final Call A/c Dr. 10,00,000
To 10% Preference Share Capital A/c 10,00,000
(Being final call made on preference shares
@ ` 25 each to make them fully paid up)
Bank A/c Dr. 10,00,000
To 10% Preference Share Final Call A/c 10,00,000
(Being receipt of final call money on
preference shares)

39 MAY 2026 EXAMINATION

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10% Preference Share Capital A/c Dr. 40,00,000

Premium on Redemption of Preference Dr. 2,00,000
Shares A/c
To Preference Shareholders A/c 42,00,000
(Being amount payable to preference
shareholders on redemption at 5%
premium)
Bank A/c Dr. 7,50,000
To Equity Share Application A/c 7,50,000
(Being receipt of application money on
30,000 equity shares @ ` 25 per share)
Equity Share Application A/c Dr. 7,50,000
To Equity Share Capital A/c 7,50,000
(Being capitalisation of application money
received)
Equity Share Allotment A/c Dr. 13,50,000
To Equity Share Capital A/c 10,50,000
To Securities Premium A/c 3,00,000
(Being allotment money due on 30,000
equity shares @ ` 45 per share including a
premium of ` 10 per share)
Bank A/c Dr. 13,50,000
To Equity Share Allotment A/c 13,50,000
(Being receipt of allotment money on
equity shares)
General Reserve A/c (WN 1) Dr. 22,00,000
To Capital Redemption Reserve A/c 22,00,000
(Being transfer of CRR the amount not
covered by the proceeds of fresh issue of
equity shares i.e., 40,00,000 - 7,50,000 –
10,50,000)

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Preference Shareholders A/c Dr. 42,00,000

To Bank A/c 42,00,000
(Being amount paid to preference
shareholders)
General Reserve A/c Dr. 2,00,000
To Premium on Redemption of 2,00,000
Preference shares A/c
(Being writing off premium on redemption
of preference shares)

Notes to Accounts:
`
1 Share Capital:
Equity Share Capital
Issued, Subscribed & Paid Up:
1,00,000 Equity Shares of ` 100 each 1,00,00,000
fully paid up
30,000 Equity Shares of `100 each, 18,00,000 1,18,00,000
` 60 called up & paid up
2 Reserves and Surplus:
Securities Premium 3,25,000
Add: Amount received @ - 10 per share 3,00,000 6,25,000
on 30,000 Equity Shares
Capital Redemption Reserve 21,00,000
Add: Transferred on Redemption(WN-1) 22,00,000 43,00,000
General Reserve 42,50,000
Less: Transferred to Capital Redemption (22,00,000)
Reserve
Less: Adjustment of Premium payable (2,00,000) 18,50,000
on Redemption
67,75,000

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Working Note 1
Amount to be transferred to Capital Redemption Reserve on
Redemption:
Nominal Value of 40,000 Preference Shares Redeemed 40,00,000
Less: Proceeds of 30,000 Equity Shares issued,
- 60 called up & paid up 18,00,000
Transfer to Capital Redemption Reserve 22,00,000
Note: At the time of redemption of preference shares out of
accumulated divisible profits, it is necessary to transfer to the Capital
Redemption Reserve Account an amount equal to the amount repaid on
the redemption of preference shares on account of face value less
proceeds of a fresh issue of shares made for the purpose of redemption.
16. In the book of Globe Ltd.
9% Debentures Account

Date Particulars ` Date Particulars `

31.3.26 To Bank 75,00,000 1.4.25 By Bal b/d 75,00,000

75,00,000 75,00,000

Debenture Redemption Reserve Account

Date Particulars ` Date Particulars `

31.3.26 To General reserve 7,50,000 1.4.25 By Bal b/d 7,50,000

7,50,000 7,50,000

Debenture Redemption Reserve Investment Account

Date Particulars ` Date Particulars `

1.4.25 To Bal b/d 7,50,000 31.3.26 By Bank A/c 11,25,000

(75,000 x 100 x
15%)

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1.4.25 To Bank A/c 3,75,000

11,25,000 11,25,000

Interest on Debentures Account

Date Particulars ` Date Particulars `

30.9.25 To Bank A/c 3,37,500 31.3.26 By P&L A/c 6,75,000

(75,000 x 100 x
9% x 6/12)
31.3.26 To Bank A/c 3,37,500
(75,000 x 100 x
9% x 6/12)
6,75,000 6,75,000

Working Note:
Additional Investment in Debenture Redemption Reserve Investment
DRR Investment required = 15% of ` 75,00,000 = ` 11,25,000
DRR Investment existing on 1/04/25 = 7,50,000
Additional DRR Investment required =` 11,25,000 - ` 7,50,000
= ` 3,75,000

17. Total amount of discount comes to ` 1,80,000 (` 0.6 X 3,00,000). The

amount of discount to be written-off in each year is calculated as under:
1st ` 30,00,000 1/5 1/5th of ` 1,80,000 = ` 36,000
2nd ` 30,00,000 1/5 1/5th of ` 1,80,000 = ` 36,000
3rd ` 30,00,000 1/5 1/5th of ` 1,80,000 = ` 36,000
4th ` 30,00,000 1/5 1/5th of ` 1,80,000 = ` 36,000

5th ` 30,00,000 1/5 1/5th of ` 1,80,000 = ` 36,000

43 MAY 2026 EXAMINATION

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18. (i) Fundamental Accounting Assumptions: Fundamental accounting

assumptions underline the preparation and presentation of
financial statements. They are usually not specifically stated
because their acceptance and use are assumed. Disclosure is
necessary if they are not followed. The Institute of Chartered
Accountants of India issued Accounting Standard (AS-1)
‘Disclosure of Accounting Policies’ according to which the
following have been generally accepted as fundamental
accounting assumptions:
(i) Going Concern: The enterprise is normally viewed as a going
concern, i.e., as continuing operations for the foreseeable
future. It is assumed that the enterprise has neither the
intention nor the necessity of liquidation or of curtailing
materially the scale of the operations.
(ii) Consistency: It is assumed that accounting policies are
consistent from one period to another.
(iii) Accrual: Revenues and costs are accrued, i.e. recognised as
they are earned or incurred (and not as money is received or
paid) and recorded in the financial statements of the periods
to which they relate.
(ii) Noting Charges: It is necessary that the fact of dishonour and the
causes of dishonour should be established. If there is a fear of
dishonour, the bill will be given to the public official known as
“Notary Public”. These officials present the bill for payment and if
the money is received, they will hand over the money to the
original party. But, if the bill is dishonoured they will note the fact
of dishonour, and the reasons given and give the bill back to their
client. For this service, they charge a small fee. This fee is known
as noting charges. The amount of noting charges is recoverable
from the party who is responsible for dishonour.

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(iii) Rules regarding posting of journal entries in the ledger:

1. Separate account is opened in ledger book for each account
and entries from journal are posted to respective ledger
account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting
transactions in the ledger. The word ‘To’ is used in the
particular column with the accounts written on the debit side
while ‘By’ is used with the accounts written in the particular
column of the credit side. These ‘To’ and ‘By’ do not have any
meanings but are used to the account debited and credited.
3. The concerned account debited in the journal should also be
debited in the ledger but reference should be of the
respective credit account.
(iv) Machine Hour Rate method of calculating depreciation: Where
it is practicable to keep a record of the actual running hours of
each machine, depreciation may be calculated on the basis of
hours that the concerned machinery worked. Under machine hour
rate method of calculating depreciation, the life of a machine is
not estimated in years but in hours. Thus depreciation is calculated
after estimating the total number of hours that machine would
work during its whole life; however, it may have to be varied from
time to time, on a consideration of the changes in the economic
and technological conditions which might take place, to ensure
that the amount provided for depreciation corresponds to that
considered appropriate in the changed circumstances. Proper
records are maintained for running hours of the machine and
depreciation is computed accordingly. For example, the cost of a
machine is ` 10,00,000 and life of the machine is estimated at
50,000 hours. The hourly depreciation will be calculated as follows:

Total Cost of Machine

Hourly Depreciation =
Estimated Life of Machine

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` 10,00,000
=
50,000 Hours

= ` 20 per hour
If the machine runs for say, 2,000 hours in a particular period,
depreciation for the period will be 2,000 hours × ` 20 = ` 40,000.
(v) Retirement of bills of exchange: Sometimes, the acceptor of a
bill of exchange has spare funds much before the maturity date of
the bill of exchange accepted by him. He may, therefore, desire to
pay the bill before the due date. In such a circumstance, the
acceptor shall ask the payee or the holder of the bill to accept cash
before the maturity date. If the payee agrees, the acceptor may be
allowed a rebate or discount on such early payment. This rebate is
generally the interest at an agreed rate for the period between the
date of payment and date of maturity. The interest/rebate/
discount becomes the income of the acceptor and expense of the
payee. It is a consideration for premature payment. When a bill is
paid before due date, it is said to be retired under rebate.

46 MAY 2026 EXAMINATION

 PAPER – 2:
BUSINESS LAWS

QUESTIONS

Indian Regulatory Framework

1. What is the Insolvency and Bankruptcy Board of India (IBBI)? Discuss its
establishment, powers, functions and the categories of persons and
entities covered under the Insolvency and Bankruptcy Code, 2016.
The Indian Contract Act, 1872
2. Mr. Sharma, a trader, wrote to Mr. Verma offering to sell him 100 barrels
of “oil” at ` 5,000 per barrel. The letter reached Verma on 1st June. On
2nd June, Sharma posted another letter revoking the offer. However,
before receiving the revocation, Verma posted a letter of acceptance on
3rd June. Sharma’s letter of revocation reached Verma on 4th June. When
Verma later demanded delivery, Sharma refused, stating that the
contract was void since he had not specified which kind of oil was being
offered (mustard, groundnut, or refined), and further claimed that he
had no oil stock at all. Verma sued for breach of contract, insisting that
valid acceptance had already been communicated. Sharma defended
himself by stating that the contract was void for uncertainty and
impossibility.
Examine the relevant provisions of the Indian Contract Act, 1872, and
decide whether a binding contract was created between Sharma and
Verma and whether Sharma is liable for damages.
3. Mr. Das, a landowner, transferred his property to his daughter, Geeta, on
the condition that she would pay ` 20,000 annually to her maternal
uncle, Mr. Gopal. Geeta accepted the property but later failed to pay the
annuity. Mr. Gopal sued Geeta for recovery. Geeta argued that since
REVISION TEST PAPERS
FOUNDATION EXAMINATION

Gopal was not a party to the agreement, he had no right to sue. Gopal
contended that the consideration had moved from Das on his behalf
and that he was entitled to enforce the promise.
Examine whether Mr. Gopal can recover the annuity under the Indian
Contract Act, 1872.
4. Mr. Sen, an elderly widower, executed a gift deed transferring his
valuable house to his nephew, Kashish. Subsequently, it was discovered
that Kashish had threatened Mr. Sen that, unless the property was gifted
to him, he would file a false criminal complaint of harassment against
him. Further, Kashish, being Mr. Sen’s sole caretaker, emotionally
influenced him into believing that transferring the property would
guarantee him lifelong care and affection.
Mr. Sen now seeks to set aside the transaction. Examine whether the gift
deed is valid under the Indian Contract Act, 1872.
5. Mr. Rohan entered into a contract with Mr. Sohan to deliver 1,000 bags
of cement to his construction site on or before 15th August. The
payment was to be made immediately upon delivery. However, Rohan
failed to deliver the cement by the stipulated date. On 25th August,
Rohan offered to deliver the goods, but by that time, the delay had
caused disruption to the construction schedule, resulting in Sohan losing
a contract with a government department.
Sohan refused to accept the delayed delivery and filed a suit for
damages. Rohan contended that the delay was minor and argued that
Sohan was obligated to accept the goods. Examine the rights and
liabilities of the parties under the Indian Contract Act, 1872.
6. Mr. Ramesh delivered his gold ornaments to a jeweller, Mr. Arun, for
polishing. Arun kept the ornaments in the locker of his shop and locked
the premises before leaving. Unfortunately, during the night, thieves
broke into the shop and stole the ornaments. When Ramesh asked for
the return of his ornaments, Arun expressed his inability to do so and
stated that he had taken as much care of the goods as he would have
taken of his own property. Ramesh, however, claimed compensation for
the loss on the ground that the ornaments had been delivered under a
contract of bailment and that the bailee was bound to return them.

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Decide, under the Indian Contract Act, 1872, whether Arun is liable to
compensate Ramesh.
7. Mr. VG and Mr. PG were trading in unlisted shares for the last seven
years. They used to borrow funds from each other whenever required for
any trade. Within a week's time, they used to refund the money to each
other as per circumstances of the case. They were following this practice
for the last five years. On 25th January 2025, Mr. PG wants to buy 20,000
shares of an unlisted company @ ` 500/- each. But due to insufficiency
of funds, he asked Mr. VG for ` 40 lakhs. Mr. VG transferred ` 40 lakhs to
Mr. PG. After about three months, Mr. VG reminded that Mr. PG had not
refunded ` 40 lakhs to him till then. He asked him to pay back his
money. Mr. PG told him that he was trying very hard to sell the shares at
a reasonable price of 10% more than the price at which he bought these
shares but was unable to do so due to market conditions. He asked
Mr. VG to sell his shares on his behalf and authorised him to appropriate
the amount of loan of ` 40 lakhs with interest out of the sale proceeds.
Mr. VG agreed to do so.
After about 15 days, when market started recovering Mr. PG denied and
revoked the authorization by saying that he would sell his shares
himself.
With reference to provisions of the Indian Contract Act, 1872, whether
the revocation of said agency by Mr. PG was lawful?
8. “Distinguish between a Contract of Indemnity and a Contract of
Guarantee. Explain the points of distinction with reference to the Indian
Contract Act, 1872.”
9. Wagering agreements are void under Section 30 of the Indian Contract
Act, 1872. However, certain transactions resemble wagering transactions
but are valid in the eyes of law. Discuss such transactions.
The Sale of Goods Act, 1930
10. Mr. Rohit, a trader, entered into a contract with Mr. Mohan for the
purchase of 100 chairs for a total consideration of ` 1,00,000. The
agreement expressly provided that ownership of the goods would pass
to Rohit immediately, while the price was to be paid in two equal

49 MAY 2026 EXAMINATION

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instalments within 30 days. The goods were duly delivered in accordance

with the contract.
However, when the second instalment became due, Rohit defaulted in
payment and contended that since a part of the price remained unpaid,
the transaction amounted only to an agreement to sell and not a
completed sale. On this basis, he refused to pay the balance amount.
Examine the legal validity of Rohit’s contention with reference to the
Sale of Goods Act, 1930.
11. Mr. Sameer, a retail shopkeeper, purchased 10 cartons of packaged fruit
juice bottles from Fresh Foods Ltd., a reputed beverage dealer. The
cartons were sealed and appeared to be in good condition, and
therefore Sameer accepted them without objection. Subsequently, when
the bottles were sold to customers, it was discovered that several of
them were contaminated with fungus. A few customers even fell ill after
consuming the juice, compelling Sameer to issue refunds and causing
significant reputational damage to his business.
When Sameer demanded a refund and compensation from Fresh Foods
Ltd., the seller refused, contending that the goods had been sealed and
were accepted by him at the time of delivery. Examine whether Sameer
can succeed in his claim under the Sale of Goods Act, 1930.
12. A government department conducted an auction of used vehicles.
Mr. Suresh bid for a truck at ₹5,00,000. Before the auctioneer’s hammer
fell, Suresh tried to withdraw his bid, but the auctioneer refused. Later,
the auctioneer also bid through his agent without prior notice to the
bidders. Another bidder, Mr. Akash, complained that the auction was not
fairly conducted. Decide, with reference to the Sale of Goods Act, 1930,
whether the auction sale is valid.
13. What is meant by Reservation of Right of Disposal? Explain the
circumstances under which the seller is deemed to have reserved this
right under the Sale of Goods Act, 1930.
14. “What is meant by the doctrine of Caveat Emptor? State the conditions
for its applicability and discuss the exceptions to this doctrine under the
Sale of Goods Act, 1930.”

50 MAY 2026 EXAMINATION

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The Indian Partnership Act, 1932

15. A, B and C are partners in an unregistered partnership firm named
M/s ABC & Associates. Is the suit maintainable in the following cases as
per the provisions of the Indian Partnership Act, 1932? Give justification
also.
(i) A filed a suit against B who had stolen the goods of the firm.

(ii) A filed a suit against M/s ABC & Associates for claiming shares of
the assets on its dissolution.
(iii) M filed a suit against the firm M/s ABC & Associates for the
recovery of ` 10,000/- dues from the firm. M also owed ` 4,000/-to
the firm. The firm claimed a set off of ` 4,000/-.
16. M/s LMP & Associates, a partnership firm engaged in carpet
manufacturing and exporting, was initially managed by senior partners
L, M, and P. On 25th August, 2022, the firm admitted Mr. G, an expert in
carpet manufacturing, as a partner. However, on 10th January, 2024,
Mr. G was accused of unauthorized activities and subsequently expelled
from the partnership with the unanimous approval of the remaining
partners.

With reference to the provisions of the Indian Partnership Act, 1932,

answer each of the following:
(i) Examine whether action by the partners was justified or not?
(ii) What are the factors which should be kept in mind prior to
expelling a partner from the firm by other partners?
17. Describe the following kinds of partnership with reference to the Indian
Partnership Act, 1932:
(a) Partnership at will
(b) Partnership for a fixed period

(c) Particular partnership

(d) General partnership.

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The Limited Liability Partnership Act, 2008

18. Explain the following features of a Limited Liability Partnership under the
LLP Act, 2008:
(a) Artificial legal person
(b) Common seal.
The Companies Act, 2013
19. Mr. Ramesh Saluja incorporated a private limited company under the
name Saluja & Sons Pvt. Ltd., with himself, his wife, and his children as
shareholders. The newly formed company took over his existing leather
business and continued its operations.
Subsequently, the company went into liquidation. The creditors
contended that the company was merely a façade or alter ego of
Mr. Saluja and that it lacked an independent existence. On this basis,
they argued that the corporate veil should be lifted and Mr. Saluja
should be held personally liable for the company’s debts. With reference
to the relevant case law on lifting of the corporate veil, examine whether
Mr. Saluja can be held personally liable.
20. A company, ABC limited as on 31.03.2025 had a paid-up capital of
` 1 lakh (10,000 equity shares of ` 10 each). In June 2025, ABC limited
had issued additional 10,000 equity shares of ` 10 each which was fully
subscribed. Out of 10,000 shares, 5,000 of these shares were issued to
XYZ private limited company. XYZ is a holding company of PQR private
limited by having control over the composition of its board of directors.

Now, PQR private limited claims the status of being a subsidiary of

ABC limited as being a subsidiary of its subsidiary i.e. XYZ private
limited. Examine the validity of the claim of PQR private limited.

State the relationship if any, between ABC limited & XYZ private limited
as per the provisions of the Companies Act, 2013.

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21. Do you agree that a company is an artificial person? Elucidate. Also

explain how the authorization by Beeta Limited, a company incorporated
under the Companies Act, 2013 can be made in case it does not have a
common seal.
The Negotiable Instruments Act, 1881

22. Referring to the provisions of the Negotiable Instruments Act, 1881,

answer the following in the given scenario:
(i) Aman drew the bill of exchange (the bill) on Baban, who accepted
it, payable to Magan or order. Magan indorsed the bill to Gagan.
Gagan indorsed the bill to Akash to be delivered to him on the
next day. However, on the death of Gagan on the same day, his
only son Ankit delivered the bill to Akash on the next day as
intended by his deceased father. On presenting the bill on the due
date, Baban refused to pay. Explaining the importance of delivery
in negotiation, decide, whether Akash can enforce the payment of
the bill against Baban or the previous parties.
(ii) Reliable Limited, an Indian company, is a global leader in
Petrochemical products. For payment of the sale price of
machinery imported from Alex Manufacturing Limited, a USA
based company (the exporter), the Indian company drew a bill of
exchange on Manish, a resident of Mumbai (India) who accepted
the bill at Mumbai payable to the exporter in Los Angeles, USA.
Decide, whether the bill of exchange is an inland instrument or a
foreign instrument. Assume that the bill of exchange was signed
by the authorised person for the drawer company.
23. A promissory note, payable at a certain period after sight, must be
presented to the maker thereof for payment. Under which scenarios
presentment for payment is not necessary and the instrument is
dishonoured at the due date for presentment according to the
provisions of the Negotiable Instruments Act, 1881?

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SUGGESTED ANSWERS/HINTS

1. Insolvency and Bankruptcy Board of India (IBBI): IBBI is the regulator

for overseeing insolvency proceedings and entities like Insolvency
Professional Agencies (IPA), Insolvency Professionals (IP) and
Information Utilities (IU) in India.
It was established on 1 October 2016 and given statutory powers
through the Insolvency and Bankruptcy Code, which was passed by
Lok Sabha on 5th May 2016.
It covers Individuals, Companies, Limited Liability, Partnerships and
Partnership firms. The new code will speed up the resolution process for
stressed assets in the country.
It attempts to simplify the process of insolvency and bankruptcy
proceedings.
It handles the cases using two tribunals like NCLT (National Company
Law Tribunal) and Debt recovery tribunal.
2. Section 4 of the Indian Contract Act, 1872 lays down the rules of
communication of acceptance and revocation:
• The communication of acceptance is complete, as against the
proposer, when it is put in the course of transmission to him, so as
to be out of the power of the acceptor.
• The communication of revocation is complete, as against the
person who makes it, when it is put into transmission; and, as
against the person to whom it is made, when it comes to his
knowledge.
• Therefore, revocation is valid only if it reaches the offeree before
he posts his acceptance.
Further, Section 10 provides the essentials of a valid contract. Among
them, the agreement must be certain and capable of being performed. If
the meaning of the agreement is uncertain, or if it is incapable of
performance, it cannot be enforced. Section 56 declares that agreements

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to do an impossible act are void. If a contract becomes impossible to

perform after it is made, it becomes void when the act becomes
impossible.
In the instant case, Mr. Sharma offered to sell “oil” to Mr. Verma and
later posted a revocation. Before receiving the revocation, Verma posted
his acceptance. Sharma then refused delivery, claiming the contract was
void due to the unspecified “oil” and his lack of stock.
On the basis of the provisions of law and the facts of the case, it can be
concluded that although acceptance was validly communicated before
revocation, the agreement was void because (a) it was uncertain (the
type of oil was not specified), and (b) performance was impossible
(Sharma had no oil stock). Hence, no enforceable contract exists and
Verma cannot claim damages.
3. Under Section 2(d) of the Indian Contract Act, 1872, consideration may
move from the promisee or any other person. However, under the
doctrine of privity of contract, only parties to a contract can sue upon it.
An exception was recognized in Chinnayya vs. Ramayya, where an
agreement made between two parties for the benefit of a third party
was held enforceable, even though the third party was not directly a part
of the agreement.
In the present case, Mr. Das transferred his property to his daughter,
Geeta, on the condition that she would pay ₹20,000 annually to her
maternal uncle, Mr. Gopal. Geeta accepted the property but failed to
fulfil her obligation. Although Gopal was not a party to the original
contract, the promise was clearly intended for his benefit, and
consideration had moved from Das to Geeta on his behalf.
Although the general rule is that a stranger to a contract cannot sue,
Gopal falls within the recognized exception. Since consideration moved
from Das and the contract was made expressly for Gopal’s benefit, he is
entitled to enforce the promise. Hence, Geeta is legally bound to pay the
annuity to Gopal.

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4. Section 15 of the Indian Contract Act, 1872 defines coercion as

committing or threatening to commit any act forbidden by the Indian
Penal Code, or unlawfully detaining property, with the intention of
compelling a person to enter into an agreement.
Section 16 defines undue influence as a situation where one party, being
in a position to dominate the will of another, uses that position to
obtain an unfair advantage. Under Sections 19 and 19A, contracts
induced by coercion or undue influence are voidable at the option of the
aggrieved party.
In the present case, Kashish forced Mr. Sen to execute a gift deed by
threatening to lodge false criminal proceedings, which constitutes
coercion. Further, as Mr. Sen’s caretaker and close relative, Kashish held
a fiduciary position and emotionally manipulated him into believing that
the transfer would secure lifelong care. This amounts to undue influence,
since Kashish used his position to dominate Mr. Sen’s will and obtain an
unconscionable advantage.
Here, the gift deed suffers from two vitiating factors—coercion and
undue influence. Therefore, it is voidable at the option of Mr. Sen. He
can approach the court to have the deed set aside, and he is not bound
to transfer his property under such unfair circumstances.
5. As per section 52 of the Indian Contract Act, 1872, when the order of
performance of reciprocal promises is expressly fixed, they must be
performed in that order. While section 53 provides, if the promisor
prevents the promisee from performing his promise, the promisee is
entitled to compensation. Further, section 55 provides if time is
expressly of the essence, and promisor fails, contract becomes voidable
at the option of the promisee. If not of essence, contract continues but
damages can be claimed for delay.
In the instant case, Rohan promised to deliver 1,000 bags of cement by
15th August, which was crucial for Sohan’s construction project. Rohan
failed to deliver on the stipulated date and instead offered the goods
after 10 days. Because of this delay, Sohan’s project was disrupted, and
he lost a government contract.

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In commercial contracts such as supply of materials for construction

projects, time is usually regarded as the essence of the contract. Since
Rohan failed to deliver the cement by the stipulated date, the contract
became voidable at the option of Sohan. He was justified in refusing the
delayed performance. Furthermore, under Section 53, Rohan’s failure
prevented Sohan from performing his reciprocal obligation with the
government department, resulting in financial loss. Therefore, Sohan is
entitled to reject the goods and claim damages from Rohan for the
actual loss suffered. Rohan’s defense of a “minor delay” is not valid
under the law.
6. According to Section 148 of the Indian Contract Act, 1872, bailment is
the delivery of goods from one person to another for a specific purpose,
upon a contract that the goods shall be returned once the purpose is
completed.
Section 151 provides that the bailee is bound to take as much care of
the goods bailed as a man of ordinary prudence would take of his own
goods. Further, Section 152 states that if the bailee has taken such
reasonable care, he is not responsible for loss, destruction or
deterioration of the goods.
In the present case, Ramesh entrusted his ornaments to Arun, the
jeweller, for polishing. Arun locked them securely in his shop’s locker. A
theft occurred at night, and the ornaments were stolen despite the
precautions taken. Ramesh demanded compensation, but Arun refused,
claiming he exercised ordinary care.
On the basis of the law provisions and facts of the case concerned, it is
clear that Arun has taken reasonable precautions by locking the
ornaments in the locker and securing the shop. The theft was beyond his
control and does not amount to negligence. Therefore, Arun cannot be
held liable to compensate Ramesh for the stolen ornaments.
7. According to Section 202 of the Indian Contract Act, 1872 an agency
becomes irrevocable where the agent has himself an interest in the
property which forms the subject-matter of the agency and such an
agency cannot, in the absence of an express provision in the contract, be
terminated to the prejudice of such interest.

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The rule of agency coupled with interest applies and does not come to
an end even on death, insanity or the insolvency of the principal.
In the instant case, Mr. PG appointed Mr. VG to sell his shares on his
behalf and authorized him to appropriate the amount of loan of
` 40 lakh with interest out of the sale proceeds.
Since, interest was created in favour of Mr. VG, thus the revocation of
the said agency is not lawful.
8. Distinction between a Contract of Indemnity and a Contract of
Guarantee

Point of Contract of Contract of

distinction Indemnity Guarantee
Number of party/ There are only two There are three
parties to the parties namely the parties- creditor,
contract indemnifier [promisor] principal debtor and
and the indemnified surety.
[promisee]
Nature of liability The liability of the The liability of the
indemnifier is primary surety is secondary
and unconditional. and conditional as the
primary liability is that
of the principal
debtor.
Time of liability The liability of the The liability arises only
indemnifier arises only on the non-
on the happening of a performance of an
contingency. existing promise or
non-payment of an
existing debt.
Time to Act The indemnifier need The surety acts at the
not act at the request request of principal
of indemnity holder. debtor.
Right to sue third Indemnifier cannot Surety can proceed
party sue a third party for against principal

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loss in his own name debtor in his own

as there is no privity right because he gets
of contract. Such a all the right of a
right would arise only creditor after
if there is an discharging the debts.
assignment in his
favour.
Purpose Reimbursement of loss For the security of the
creditor
Competency to All parties must be In the case of a
contract competent to contract of guarantee,
contract. where a minor is a
principal debtor, the
contract is still valid.

9. Wagering agreements are void under Section 30 of the Indian Contract

Act, 1872. However, certain transactions resemble wagering transactions
but are valid in the eyes of law which are following:
(i) Chit fund: Chit fund does not come within the scope of wager
(Section 30). In case of a chit fund, a certain number of persons
decide to contribute a fixed sum for a specified period and at the
end of a month, the amount so contributed is paid to the lucky
winner of the lucky draw.
(ii) Commercial transactions or share market transactions: In these
transactions in which delivery of goods or shares is intended to be
given or taken, do not amount to wagers.
(iii) Games of skill and Athletic Competition: Crossword puzzles,
picture competitions and athletic competitions where prizes are
awarded on the basis of skill and intelligence are the games of skill
and hence such competition are valid. According to the Prize
Competition Act, 1955 prize competition in games of skill are not
wagers provided the prize money does not exceed ` 1,000.
(iv) A contract of insurance: A contract of insurance is a type of
contingent contract and is valid under law and these contracts are
different from wagering agreements.

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10. Section 4 of the Sale of Goods Act, 1930, defines a contract of sale of
goods as a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. If the property in goods is
transferred at the time of the contract, it is a sale. If the transfer is to
take place in the future or subject to some conditions, it is an agreement
to sell. Thus, the distinction lies in the passing of ownership, not in the
time of payment or delivery. Once ownership is transferred, the buyer
becomes owner and must pay the agreed consideration.
In the present case, Mohan delivered 100 chairs to Rohit and ownership
was intended to pass immediately as per their agreement. However,
Rohit failed to pay the second installment and contended that the
contract was incomplete and only an agreement to sell.
Since the ownership of chairs had already passed to Rohit at the time of
delivery, the contract was a completed sale under Section 4 of the Act.
Rohit’s contention that it was only an agreement to sell is legally
unsustainable. He is bound to pay the balance of the price to Mohan,
and his refusal amounts to a breach of contract.
11. As per Section 16(2) of the Sale of Goods Act, 1930, when goods are
bought by description from a seller who deals in goods of that
description, there is an implied condition that the goods shall be of
merchantable quality. In addition, in case of eatables and consumable
goods, there is an implied condition as to wholesomeness, i.e., the
goods must be fit for human consumption. Where such goods are
harmful or dangerous to health, the buyer is entitled to reject them and
also claim damages.
In this case, Sameer purchased fruit juice bottles from Fresh Foods Ltd.
The cartons were sealed and appeared proper from outside. However,
when consumed, they were found contaminated, making them harmful
for human health. Customers who consumed them became sick, and
Sameer suffered both financial and reputational loss. Fresh Foods Ltd.
denied liability citing that the cartons were sealed and accepted.
On the basis of the above provisions and facts, the juice bottles were not
of merchantable quality and also failed the implied condition of
wholesomeness. It was the duty of the seller to ensure that food
products supplied were fit for human consumption. Hence, Sameer is

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entitled to reject the goods, recover the price, and also claim damages
for the loss suffered. The seller cannot escape liability merely because
the cartons were sealed.
12. Section 64 of the Sale of Goods Act, 1930 deals with auction sales. A sale
is complete when the auctioneer announces its completion by the fall of
the hammer or in other customary manner. Until then, a bidder may
withdraw his bid. The seller has the right to reserve bidding, but if he
intends to bid himself or through an agent, such right must be expressly
notified. If the seller bids without such notice, the sale may be treated as
fraudulent and voidable.
Here, Suresh made a bid of ₹5,00,000 for a truck but attempted to
withdraw it before the fall of the hammer. Legally, he was entitled to do
so. The auctioneer’s refusal to permit withdrawal was incorrect. Further,
the seller also bid through his agent without notifying bidders of such
right, which amounts to fraudulent conduct under Section 64.
Therefore, on the basis of the above provisions, the auctioneer’s refusal
to allow Suresh to withdraw his bid was invalid, as a bid can be
withdrawn before completion of sale. Further, the seller’s secret bidding
through an agent without notice made the auction unfair and voidable
at the option of buyers. Hence, the auction was not validly conducted.
13. Reservation of right of disposal (Section 25 of the Sale of Goods
Act, 1930)
This section preserves the right of disposal of goods to secure that the
price is paid before the property in goods passes to the buyer.
Where there is contract of sale of specific goods or where the goods
have been subsequently appropriated to the contract, the seller may, by
the terms of the contract or appropriation, as the case may be, reserve
the right to dispose of the goods, until certain conditions have been
fulfilled. In such a case in spite of the fact that the goods have already
been delivered to the buyer or to a carrier or other bailee for the
purpose of transmitting the same to the buyer, the property therein will
not pass to the buyer till the condition imposed, if any, by the seller has
been fulfilled. (sub-section1)

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Circumstances under which the right to disposal may be reserved: In

the following circumstances, seller is presumed to have reserved the
right of disposal:
(1) If the goods are shipped or delivered to a railway administration
for carriage and by the bill of lading or railway receipt, as the case
may be, the goods are deliverable to the order of the seller or his
agent, then the seller will be prima facie deemed to have reserved
to the right of disposal. (sub-section 2)
(2) Where the seller draws a bill on the buyer for the price and sends
to him the bill of exchange together with the bill of lading or (as
the case may be) the railway receipt to secure acceptance or
payment thereof, the buyer must return the bill of lading, if he
does not accept or pay the bill.
And if he wrongfully retains the bill of lading or the railway receipt, the
property in the goods does not pass to him. (sub-section 3)
14. Caveat Emptor
In case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘let the
buyer beware’. When sellers display their goods in the open market, it is
for the buyers to make a proper selection or choice of the goods. If the
goods turn out to be defective, he cannot hold the seller liable. The
seller is in no way responsible for the bad selection of the buyer. The
seller is not bound to disclose the defects in the goods which he is
selling.
It is the duty of the buyer to satisfy himself before buying the goods
that the goods will serve the purpose for which they are being bought. If
the goods turn out to be defective or do not serve his purpose or if he
depends on his own skill or judgment, the buyer cannot hold the seller
responsible.
The rule of Caveat Emptor is laid down in the Section 16, which states
that, “subject to the provisions of this Act or of any other law for the
time being in force, there is no implied warranty or condition as to the
quality or fitness for any particular purpose of goods supplied under a
contract of sale”.

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Following are the conditions to be satisfied:

- if the buyer had made known to the seller the purpose of his
purchase, and
- the buyer relied on the seller’s skill and judgement, and
- seller’s business to supply goods of that description
Exceptions: The doctrine of Caveat Emptor is, however, subject to the
following exceptions:
1. Fitness as to quality or use: Where the buyer makes known to the
seller the particular purpose for which the goods are required, so
as to show that he relies on the seller’s skill or judgment and the
goods are of a description which is in the course of seller’s
business to supply, it is the duty of the seller to supply such goods
as are reasonably fit for that purpose [Section 16 (1)].
2. Goods purchased under patent or brand name: In case where
the goods are purchased under its patent name or brand name,
there is no implied condition that the goods shall be fit for any
particular purpose [Section 16(1)]. Here, the buyer is relying on the
particular brand name.
3. Goods sold by description: Where the goods are sold by
description there is an implied condition that the goods shall
correspond with the description [Section 15]. If it is not so, then
seller is responsible.
4. Goods of Merchantable Quality: Where the goods are bought by
description from a seller who deals in goods of that description
there is an implied condition that the goods shall be of
merchantable quality. The rule of Caveat Emptor is not applicable
for latent defects. But where the buyer has examined the goods,
this rule shall apply if the defects were such which ought to have
not been revealed by ordinary examination [Section 16(2)].
5. Sale by sample: Where the goods are bought by sample, this rule
of Caveat Emptor does not apply if the bulk does not correspond
with the sample [Section 17].

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6. Goods by sample as well as description: Where the goods are

bought by sample as well as description, the rule of Caveat Emptor
is not applicable in case the goods do not correspond with both
the sample and description or either of the condition [Section 15].
7. Trade Usage: An implied warranty or condition as to quality or
fitness for a particular purpose may be annexed by the usage of
trade and if the seller deviates from that, this rule of Caveat
Emptor is not applicable [Section 16(3)].
8. Seller actively conceals a defect or is guilty of fraud: Where the
seller sells the goods by making some misrepresentation or fraud
and the buyer relies on it or when the seller actively conceals some
defect in the goods so that the same could not be discovered by
the buyer on a reasonable examination, then the rule of Caveat
Emptor will not apply. In such a case the buyer has a right to avoid
the contract and claim damages.
15. (i) A filed a suit against B who had stolen the goods of the firm:
The said suit by A is Maintainable.
Justification: According to Section 69(1) of the Indian Partnership
Act, 1932, a partner of an unregistered firm cannot file a suit in any
court against the firm or any partner to enforce a right arising
from a contract, unless the firm is registered. Section 69 only bars
civil suits to enforce contractual rights. It does not prevent criminal
action. But, in this case, A had filed a suit against B for stealing the
goods of the firm which is a criminal offense.
Hence the suit filed against B for the theft of the goods of the firm,
is maintainable.
(ii) A filed a suit against M/s. ABC & Associates for claiming share
of the assets on its dissolution
The said suit by A is Maintainable.
Justification: According to Section 69(3) of the Indian Partnership
Act, 1932, a partner of an unregistered firm is precluded from
bringing legal action against the firm. But such a person may sue
for realization of his share in the firm’s property where the firm is

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dissolved. Here, A’s claim is valid as the shares are the assets of the
dissolved firm and A can claim it even if the firm is unregistered.
(iii) M filed a suit against the firm for recovery of `10,000/- dues.
M also owed ` 4,000/-. The firm claimed a set-off.
The said suit by M is Maintainable
Justification: According to Section 69(2) of the Indian Partnership
Act, 1932, in case of an unregistered firm, an action can be
brought against the firm by a third party. If an action is brought
against the firm by a third party, then neither the firm nor the
partner can claim any set-off, if the suit be valued for more than
` 100 or pursue other proceedings to enforce the rights arising
from any contract.
Here, M filed a suit against the firm for the recovery of ` 10,000
dues from the firm. M also owed ` 4,000/- to the firm.
The firm cannot set-off the claim of `4,000/- as it is more than
` 100/. Nevertheless, M is entitled for recovery of ` 10,000 from
firm.
16. (i) Whether action by the Partners was Justified?
Expulsion of a Partner (Section 33 of the Indian Partnership
Act, 1932): A partner may not be expelled from a firm by a
majority of partners except in exercise, in good faith, of powers
conferred by contract between the partners.
The test of good faith as required under Section 33(1) includes
three things:
• The expulsion must be in the interest of the partnership.
• The partner to be expelled is served with a notice.
• He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
Action by the partners of M/s LMP & Associates, a partnership firm
to expel Mr. G from the partnership was justified as he was
expelled by unanimous approval of the partners exercised in good

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faith to protect the interest of the partnership against the

unauthorized activities charged against Mr. G. Provided, a proper
notice and opportunity of being heard has been given to Mr. G.
(ii) Factors to be kept in mind before expelling a Partner
The following are the factors to be kept in mind prior expelling a
partner from the firm by other partners:
(a) the power of expulsion must have existed in a contract
between the partners;
(b) the power has been exercised by a majority of the partners;
and
(c) it has been exercised in good faith.
17. The various kinds of partnership are as follows:
(a) Partnership at will according to Section 7 of the Act,
partnership at will is a partnership when:
1. no fixed period has been agreed upon for the duration of the
partnership; and
2. there is no provision made as to the determination of the
partnership.
These two conditions must be satisfied before a partnership can be
regarded as a partnership at will. But, where there is an agreement
between the partners either for the duration of the partnership or
for the determination of the partnership, the partnership is not
partnership at will.
Where a partnership entered into for a fixed term is continued
after the expiry of such term, it is to be treated as having become
a partnership at will.
A partnership at will may be dissolved by any partner by giving
notice in writing to all the other partners of his intention to
dissolve the same.

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(b) Partnership for a fixed period: Where a provision is made by a

contract for the duration of the partnership, the partnership is
called ‘partnership for a fixed period’. It is a partnership created
for a particular period of time. Such a partnership comes to an
end on the expiry of the fixed period.
(c) Particular partnership: A partnership may be organized for the
prosecution of a single adventure as well as for the conduct of a
continuous business. Where a person becomes a partner with
another person in any particular adventure or undertaking the
partnership is called ‘particular partnership’.
A partnership, constituted for a single adventure or undertaking is,
subject to any agreement, dissolved by the completion of the
adventure or undertaking.
(d) General partnership: Where a partnership is constituted with
respect to the business in general, it is called a general
partnership. A general partnership is different from a particular
partnership. In the case of a particular partnership, the liability of
the partners extends only to that particular adventure or
undertaking, but it is not so in the case of general partnership.
General partnership is different from limited liability partnership.
18. Artificial Legal Person: A LLP is an artificial legal person because it is
created by a legal process and is clothed with all rights of an individual.
It can do everything which any natural person can do, except of course
that, it cannot be sent to jail, cannot take an oath, cannot marry or get
divorce nor can it practice a learned profession like CA or Medicine. A
LLP is invisible, intangible, immortal (it can be dissolved by law alone)
but not fictitious because it really exists.
Common Seal: A LLP being an artificial person can act through its
partners and designated partners. LLP may have a common seal, if it
decides to have one [Section 14(c)]. Thus, it is not mandatory for a LLP
to have a common seal. It shall remain under the custody of some
responsible official and it shall be affixed in the presence of at least 2
designated partners of the LLP.

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19. Under the Companies Act, 2013, a company on incorporation becomes a

distinct legal person, separate from its members. The principle was
established in the landmark case of Salomon v. Salomon & Co. Ltd.,
where it was held that even if one person holds substantially the entire
shareholding, the company is not his agent or trustee. Creditors can
proceed only against the company, and not against its members, unless
the corporate veil is lifted in exceptional cases.
In this case, the creditors contended that Saluja & Sons Pvt. Ltd. was in
reality the business of Mr. Ramesh Saluja and that he should be
personally liable for the company’s debts. However, the company was
duly incorporated with separate legal existence and had complied with
statutory requirements.
Applying the principle in Salomon v. Salomon & Co. Ltd., the company is
a separate legal entity. The creditors cannot make Mr. Saluja personally
liable merely because he held almost all the shares. Thus, the veil cannot
be lifted in this case, and liability rests with the company alone.
20. As per Section 2(46) of the Companies Act, 2013, holding company in
relation to one or more other companies, means a company of which
such companies are subsidiary companies.
Section 2(87) defines “subsidiary company” in relation to any other
company (that is to say the holding company), means a company in
which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies.
In the instant case, as on 31.03.2025, ABC Limited had a paid-up capital
of ` 1 lakh (10,000 equity shares of ` 10 each). In June 2025, ABC Limited
issued additional 10,000 equity shares, which was fully subscribed. Post-
issue, the total paid-up capital of ABC Limited is ` 2 lakhs (20,000 equity
shares of ` 10 each).
Out of these, 5,000 shares were issued to XYZ Private Limited. Since
XYZ Private Limited holds only 25% of the shares in ABC Limited, it does

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not have control of more than one-half of the total voting power of
ABC Limited. Hence, XYZ Private Limited cannot be considered as a
subsidiary company of ABC Limited in terms of the second criteria stated
above, that of controlling of voting power.
XYZ Private Limited is the holding company of PQR Private Limited by
having control over the composition of its Board of Directors. But since
XYZ Private Limited cannot be termed as a subsidiary company of
ABC Limited, PQR Private Limited cannot claim the status of being a
subsidiary of ABC Limited in terms of the first criteria, that of controlling
of the composition of directors.
As per section 2(6) of the Act, Associate Company in relation to another
company, means a company in which that other company has a
significant influence, but which is not a subsidiary company of the
company having such influence and includes a joint venture company.
The expression “significant influence” means control of at least twenty
per cent of total voting power, or control of or participation in business
decisions under an agreement.
In terms of the above provision, the relationship between ABC Limited
and XYZ Private Limited can be of an Associate Company.
Since XYZ Private Limited holds more than 20 percent of voting power in
ABC Limited, it can be considered as an Associate Company of
ABC Limited.
21. Do you agree that a Company is an artificial person?
Yes, I agree that a company is an Artificial Person:
A Company incorporated under the provisions of the Companies Act,
2013 is an artificial person as it is created by a process other than
natural birth. It is legal or judicial as it is created by law.
Further, the Company being a separate legal entity can own property,
have banking account, raise loans, incur liabilities and enter into
contracts. Even members can contract with company, acquire right
against it or incur liability to it. It can sue and be sued in its own name.
It can do everything which any natural person can do except be sent to

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jail, take an oath, marry or practice a learned profession. Hence, it is a

legal person in its own sense.
As the Company is an artificial person, it can act only through some
human agency, viz., directors. The directors can control affairs of the
company but they are not the “agents” of the members of the company.
The directors can either on their own or through the common seal, if
any, (of the company) can authenticate its formal acts.
Further, the Company being an artificial person has perpetual succession
and it continues to exist until it is legally dissolved. The members of a
company may come and go but the company will go on forever.
However, the Company being an artificial person cannot have
citizenship, lack of physical action and corporate veil can be lifted.
Thus, a company is an artificial legal person.
Authorization by a Company not having a Common Seal:
In case a company does not have a common seal, the authorization shall
be made by two directors or by a director and the Company Secretary,
wherever the Company has appointed a Company Secretary.
Hence, Beeta Limited can do the authorization as mentioned in the
above manner.
22. (i) Importance of Delivery in Negotiation [Section 46 of the
Negotiable Instruments Act, 1881]
Delivery of an instrument is essential whether the instrument is
payable to bearer or order for effecting the negotiation. The
delivery must be voluntary, and the object of delivery should be to
pass the property in the instrument to the person to whom it is
delivered. The delivery can be, actual or constructive. Actual
delivery takes place when the instrument changes hand physically.
Constructive delivery takes place when the instrument is delivered
to the agent, clerk or servant of the indorsee on his behalf or when
the indorser, after indorsement, holds the instrument as an agent
of the indorsee.

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Section 46 also lays down that when an instrument is conditionally

or for a special purpose only, the property in it does not pass to
the transferee, even though it is indorsed to him, unless the
instrument is negotiated to a holder in due course.
The contract on a negotiable instrument until delivery remains
incomplete and revocable. Delivery is essential not only at the time
of negotiation but also at the time of making or drawing of
negotiable instrument. The rights in the instrument are not
transferred to the indorsee unless after the indorsement the same
has been delivered. If a person makes the indorsement of
instrument but before the same could be delivered to the
indorsee, the indorser dies, the legal representatives of the
deceased person cannot negotiate the same by mere delivery
thereof. (Section 57).
In the instant case, Ankit the only son of Gagan delivered the bill
to Akash on the next day as intended by his deceased father
(Gagan) which is not valid.
Hence, Akash cannot enforce the payment of the bill against
Baban or the previous parties.
(ii) As per section 11 of the Negotiable Instruments Act, 1881, a
promissory note, bill of exchange or cheque drawn or made in
India and made payable in, or drawn upon any person resident in
India shall be deemed to be an inland instrument.
In the instant case, the bill of exchange was:
• Drawn in India (since it was drawn by Reliable Limited, an
Indian company).
• Accepted in India (Manish, a resident of Mumbai, accepted
the bill in Mumbai).
• Payable outside India, in Los Angeles, USA.
The bill of exchange in this case is an inland instrument because it
was drawn in India and accepted by a person resident in India,
even though it is payable outside India (Los Angeles, USA).

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23. As per Section 76 of the Negotiable Instruments Act, 1881, no

presentment for payment is necessary, and the instrument is
dishonoured at the due date for presentment, in any of the following
cases:
(a) (i) If the maker, drawee or acceptor intentionally prevents the
presentment of the instrument, or
(ii) if the instrument being payable at his place of business, he
closes such place on a business day during the usual
business hours, or
(iii) if the instrument being payable at some other specified
place, neither he nor any person authorised to pay it attends
at such place during the usual business hours, or
(iv) if the instrument not being payable at any specified place, he
cannot after due search be found;
(b) as against any party sought to be charged therewith, if he has
engaged to pay notwithstanding non-presentment;
(c) as against any party if, after maturity, with knowledge that the
instrument has not been presented—
o he makes a part payment on account of the amount due on
the instrument,
o or promises to pay the amount due thereon in whole or in
part,
o or otherwise waives his right to take advantage of any
default in presentment for payment;
(d) as against the drawer, if the drawer could not suffer damage from
the want of such presentment.

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QUESTIONS

1. 4 tables and 3 chairs together cost ` 2,250 and 3 tables and 4 chairs cost
` 1950. Find the cost of 2 chairs and I table.
(A) ` 550
(B) ` 1050
(C) ` 750
(D) None of these
2. One root of the equation: x2 – 2(5 + m) + 3(7 + m) = 0 is reciprocal of
the other. Find the value of m.
(A) -20/3
(B) 7
(C) 1/7
(D) 117
3. Sangeeta leaves from her home. She first walk 30 metres in North-West
direction, and then 30m in South-West direction, next she walks 30
metres in South-East direction. Finally she turns towards her house. In
which direction is she moving?
(A) North-West

(B) North-East
(C) South-East
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FOUNDATION EXAMINATION

(D) South-West
4. If a simple interest on a sum of money at 6% p.a. for 7 years is equal to
twice of simple interest on another sum for 9 years at 5% p.a. The ratio
will be:
(A) 2:15

(B) 7:15
(C) 15:7
(D) 1:7

5. The Scarap value of machine valued at Rs,10,00,000 after 15 years of

depreciation is 10% per annum.
(A) ` 215891.13
(B) ` 205891.13
(C) ` 225891.13
(D) None
6. If the difference between the compound interest compounded annually
and simple interest on a certain amount at 10% per annum for two years
is ` 372, then the principal amount is.
(A) ` 37,000
(B) ` 37,200
(C) ` 37,500
(D) None of the above
7. Find the present value of an annuity of ` 1,000 payable at the end of
each year for 10 years. If rate of interest is 6% compounding per annum.
(given (1.06)-10 = 0.5584):
(A) ` 7,360
(B) ` 8,360

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(C) ` 12,000
(D) None of these.
8. What will be the population after 3 years, when present population is
1,00,000 and the population increases at 3% in year 1st year, at 4% in
second year and 5% in third year.

(A) 1,12,476
(B) 1,15,476
(C) 1,20,576

(D) 1,25,600
9. Find the present value of an annuity which pays 200 at the end of each 3
months for 10 years assuming money to be worth 5% converted
quarterly?
(A) ` 3473.86
(B) ` 3108.60
(C) ` 6265.38
(D) None of these
10. The value of furniture depreciates by 10% a year, if the present value of
the furniture in an office is ` 21870, calculate the value of furniture 3
years ago:
(A) ` 30,000

(B) ` 40,000
(C) ` 35,000
(D) ` 50,000
11. The letters of the word VIOLENT are arranged so that the vowels occupy
even place only. The number of permutations is:
(A) 144

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(B) 120
(C) 24
(D) 72
12. If the pth term of an A.P. is ‘q’ and the qth term is ‘p’, then its rth term is:
(A) p+q+r
(B) p+q–r
(C) p–q–r
(D) p+q
13. Find the sum of all natural numbers between 250 and 1,000 which are
exactly divisible by 3:
(A) 1,56,375

(B) 1,56,357
(C) 1,65,375
(D) 1,65,357
14. Let R is the set of real numbers, such that the function f: R → R and g : R
→ R are defined by f(x) = x2 + 3x + 1 and g(x) = 2x – 3. Find (fog) :
(A) 4x2 + 6x + 1

(B) x2 + 6x + 1
(C) 4x2 – 6x +1
(D) x2 – 6x + 1

15. Find the positive value of k for which the equations: x2 + kx + 64 = 0 and
x2 – 8x + k = 0 will have real roots:
(A) 12
(B) 16
(C) 18

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(D) 22
16. Praveen is facing west. He turns 45° in the clockwise direction and then
again another turns with 180° in the same direction i.e. clockwise
direction, after that he turns 270° in the anti-clockwise direction. Which
direction is he facing now?

(A) North-West
(B) West
(C) South-West

(D) South
17. If log4(x2 + x) – log4(x + 1) = 2 then the value of x is
(A) 2

(B) 3
(C) 16
(D) 8
18. If HEALTH is written as GSKZDG, then how will NORTH be written in that
code?
(A) OPSUI
(B) GSQNM
(C) FRPML
(D) IUSPO

19. In a certain code, TEACHER is written as VGCEJGT. How is CHILDREN

written in that code?
(A) EJKNEGTP

(B) EGKNEITP
(C) EJKNFGTO
(D) EJKNFTGP

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20. The covariance between two variables X and Y is 8.4 and their variances
are 25 and 36 respectively. Calculate Karl Pearson’s coefficient of
correlation between them.
(A) 0.82
(B) 0.28

(C) 0.01
(D) 0.09
21. If two variables x and y are related by 2X + 3Y – 7 = 0 and the mean and
mean deviation about mean of X are 1 and 0.3 respectively, then the co-
efficient of mean deviation of Y about mean is.
(A) -5
(B) 4
(C) 12
(D) 50
22. The mean salary for a group of 40 female workers is ` 5200 per month
and that for a group of 60 male workers is ` 6800 per month. What is
the combined salary?
(A) ` 6160
(B) ` 6280
(C) ` 6890

(D) ` 6920
23. The average age of 15 students is 15 years. Out of these the average age
of 5 students is 14 years and that of other 9 students is 16 years, then
the age of 15th student is _____
(A) 11 years
(B) 14 years
(C) 15 years

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(D) None of these

24. The standard deviation of 25, 32, 43, 53, 62, 59, 48, 31, 24, 33 is
(A) 13.23
(B) 12.33
(C) 11.33
(D) none of these
25. If the range of x is 2, what would be the range of – 3x + 50?
(A) 2
(B) 6
(C) -6
(D) 44
26. The Standard deviation is independent of change of
(A) Origin
(B) Scale
(C) Both
(D) none
27. In ______ distribution, mean = variance.

(A) Normal
(B) Binomial
(C) Poisson

(D) none of these

28. The pair of averages whose value can be determined graphically.
(A) Mean and Median
(B) Mode and Mean

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(C) Mode and Median

(D) None of these
29. The tests of shifting bases are called ________
(A) Unit test
(B) Time reversal test
(C) Circular test
(D) None
30. Purchasing power of money is stated as _______ price index?
(A) Equal to
(B) Reciprocal of
(C) Unequal to
(D) None

SUGGESTED ANSWERS/HINTS

1. (C) 2. (A) 3. (B) 4. (C) 5. (B)

6. (B) 7. (A) 8. (A) 9. (C) 10. (A)
11. (A) 12. (B) 13. (A) 14. (C) 15. (B)
16. (C) 17. (C) 18. (B) 19. (D) 20. (B)
21. (C) 22. (A) 23. (A) 24. (A) 25. (B)
26. (A) 27. (C) 28. (C) 29. (C) 30. (B)

80 MAY 2026 EXAMINATION

 PAPER – 4:
BUSINESS ECONOMICS

QUESTIONS

1. Business Economics bridges the gap between:

(A) Economics and Sociology
(B) Theory and Practice
(C) Micro and Macro Economics
(D) Business and Law
2. The concern regarding changing health consciousness of consumers
highlights which limitation of economic theory in real-world decision
making?
(A) Static nature of demand analysis
(B) Excessive reliance on normative assumptions
(C) Unrealistic ceteris paribus assumption
(D) Absence of marginal analysis
3. The concept of 'Consumer Sovereignty' means that:
(A) Government controls what consumers can buy
(B) Consumers ultimately determine which goods will be produced
through their purchases
(C) Producers decide what consumers should buy
(D) Only wealthy consumers have purchasing power
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FOUNDATION EXAMINATION

4. Arc elasticity of demand is used when:

(A) Price change is infinitesimal
(B) Price change is large
(C) Demand curve is vertical
(D) Demand is perfectly elastic
5. Which of the following is an example of circulating capital?
(A) Machinery
(B) Factory building
(C) Raw material
(D) Tools
6. Match the Pairs

Column A Column B
a. Implicit Cost 1. Cost already incurred
b. Sunk Cost 2. Foregone alternative
c. Opportunity Cost 3. Cost of self-owned factors
d. Explicit Cost 4. Cash payment

(A) a–3, b–1, c–2, d–4

(B) a–2, b–1, c–3, d–4
(C) a–1, b–2, c–3, d–4
(D) a–4, b–1, c–2, d–3
7. Exchange value of a commodity refers to:
(A) Its usefulness
(B) Its sentimental worth
(C) Its command over other goods
(D) Cost of production

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8. Which market structure is characterized by extreme product

differentiation?
(A) Perfect competition
(B) Monopolistic competition
(C) Oligopoly
(D) Monopoly
9. Which of the following situations would definitely result in a stable
equilibrium being achieved through market mechanism alone?
(A) Price ceiling below equilibrium price
(B) Price floor above equilibrium price
(C) Initial price above equilibrium with no external intervention
(D) Government-fixed procurement price
10. A phase where unemployment is mainly frictional and structural is
known as:
(A) Trough
(B) Peak
(C) Expansion
(D) Contraction
11. The concept of 'deflationary gap' in Keynesian economics specifically
refers to:
(A) The excess of actual output over potential GDP at full employment
(B) The shortfall in aggregate demand required to achieve full
employment equilibrium
(C) The reduction in price levels due to contractionary monetary policy
(D) The difference between actual inflation and target inflation rates
12. The Net Divisible Pool (NDP) consists of:
(A) Gross tax revenue including cesses

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(B) Only direct taxes

(C) All union taxes excluding cesses and surcharges
(D) Only GST revenues
13. Which situation best illustrates adverse selection?
(A) Insured driver drives rashly
(B) Seller hides product defects before sale
(C) Consumer overuses subsidized healthcare
(D) Government fixes minimum prices
14. Which of the following expenditures is not subject to voting by
Parliament?
(A) Defense expenditure
(B) Interest on public debt
(C) Education expenditure
(D) Health expenditure
15. Credit multiplier differs from money multiplier mainly because credit
multiplier assumes:
(A) No time deposits
(B) No excess reserves and no currency leakages
(C) Perfect capital mobility
(D) Fixed interest rates
16. The Heckscher–Ohlin theory fails to explain extensive intra-industry
trade primarily because it:
(A) Ignores opportunity costs
(B) Assumes constant returns to scale
(C) Relies on factor price equalization
(D) Treats products as homogeneous

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17. A tariff-rate quota (TRQ) combines:

(A) Export subsidy with import licensing
(B) Import quota with ad valorem tariff
(C) Preferential tariff with MFN tariff
(D) Quantity restriction with differential tariff rates
18. Under a managed floating exchange rate regime, central bank
intervention is most effective when it primarily influences:
(A) Trade volumes directly
(B) Inflation expectations alone
(C) Market expectations about future exchange rate movements
(D) Long-term capital formation
19. What was the primary reason for the "Crisis of Confidence" in 1991 that
triggered the New Economic Policy?
(A) Failure of the monsoon for three consecutive years.
(B) Foreign exchange reserves falling to $1.2 billion, sufficient for only
two weeks of imports.
(C) A total collapse of the banking sector due to high NPAs.
(D) The sudden withdrawal of all US food aid under PL 480.
20. Which specific NITI Aayog initiative is aimed at reducing India's oil
import bill and converting coal reserves into cleaner fuel?
(A) Shoonya
(B) E-Amrit
(C) Methanol Economy
(D) Life
21. The "Hindu growth rate," referring to the modest 3.5% average annual
GDP growth, occurred during which period?
(A) 1947–1964
(B) 1950–1980

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(C) 1965–1981
(D) 1981–1991
22. Under the Monetary Policy Framework Agreement, RBI is deemed to
have failed if inflation:

(A) Deviates from target even once

(B) Breaches tolerance limits for two consecutive quarters
(C) Exceeds upper or lower tolerance limits for three consecutive
quarters
(D) Deviates from WPI targets
23. Which of the following limits the effectiveness of fiscal policy?
(A) Flexible prices
(B) Time lags in implementation
(C) High tax compliance
(D) Balanced budget
24. Consumer surplus can be graphically represented as:
(A) The area above the demand curve and below the price line

(B) The triangular area below the demand curve and above the price
line
(C) The total area under the demand curve
(D) The rectangular area formed by price and quantity
25. The 'bandwagon effect' on consumer behavior leads to:
(A) Decrease in demand when others start consuming the product
(B) No change in demand pattern
(C) Increase in demand because others are also consuming the same
commodity

(D) Perfectly inelastic demand

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SUGGESTED ANSWERS/HINTS

1. (B) 2. (C) 3. (B) 4. (B) 5. (C)

6. (A) 7. (C) 8. (D) 9. (C) 10. (C)
11. (B) 12. (C) 13. (B) 14. (B) 15. (B)
16. (B) 17. (D) 18. (C) 19. (B) 20. (C)
21. (B) 22. (C) 23. (B) 24. (B) 25. (C)

87 MAY 2026 EXAMINATION

Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
May 2026 Examination
Foundation Level

Paper 2: Business Laws

The provisions of the Companies Act, 2013 and the Limited Liability Partnership
Act, 2008 along with significant Rules/ Notifications/ Circulars/ Clarification/
Orders issued by the Ministry of Corporate Affairs up to 31.10.25 are applicable
for May, 2026 examination.

88 MAY 2026 EXAMINATION