ACCOUNTANCY

MUST TO DO SYLLABUS
2024-25

ST
EA
CLASS-XII

T-
IC
TR
IS
ID
H
EL
D
T
C
N
G
N

UNDER THE GUIDANCE OF:-

IO
AT
C

SHRI K.S. UPADHYAYA

U
ED

(R.D.E. - EAST)
F
O

SHRI SUDHAKAR BHIMRAO GAIKWAD

E
AT

(D.D.E. - EAST)
R
TO

SHRI SANJAY CHAWLA

EC
IR

(D.D.E. - ZONE -1)

D

SHRI VINOD SHARMA

(H.O.S. Govt. Coed Secondary School, Joshi colony, Mandawali)

PREPARED BY: PRADEEP KUMAR (KHOKHAR) S.B.V. VIVEK VIHAR

 SYLLABUS (2023-24):
Topic Marks
Part - A ACCOUNTING FOR PARTNERSHIP FIRMS 36
➤ ACCOUNTING FOR COMPANY 24
Part - B ANALYSIS OF FINANCIAL STATEMENTS 12
➤ CASH FLOW STATEMENT 8

ST
80

EA
Part C: Practical Work

T-
One specific project based on financial statement analysis of a company covering any two

IC
aspects from the following:

TR
1. Comparative and common-size financial statements ​ ​ 2. Accounting Ratios
3. Segment Reports ​ ​ ​ ​ ​ ​ ​ 4. Cash Flow Statements

IS
Particular Marks

ID
Practical file 12

H
Viva 8

EL
D
UNIT SYLLABUS
T
➔​ Partnership:
C
features, Partnership Deed. Provisions of the Indian Partnership Act 1932 in the absence of partnership
N

deed. Fixed v/s fluctuating capital accounts. Preparation of Profit and Loss Appropriation account- division
G

of profit among partners, guarantee of profits. Past adjustments (relating to interest on capital, interest on
drawing, salary and profit sharing ratio). Goodwill: meaning, nature, factors affecting and methods of
N

valuation - average profit, super profit and capitalization.

Accounting
IO

Note: Interest on a partner's loan is to be treated as a charge against profits. Goodwill: meaning, factors
for affecting, need for valuation, methods for calculation (average profits, super profits and capitalization),
AT

Partnership adjusted through partners capital/ current account.

Firms ➔​ Accounting for Partnership firms - Reconstitution and Dissolution.
C

●​ Change in the Profit Sharing Ratio among the existing partners -

U

sacrificing ratio, gaining ratio, accounting for revaluation of assets and reassessment of liabilities and
ED

treatment of reserves, accumulated profits and losses. Preparation of revaluation account and balance
sheet.
●​ Admission of a partner -
F

effect of admission of a partner on change in the profit sharing ratio, treatment of goodwill (as per AS 26),
O

treatment for revaluation of assets and reassessment of liabilities, treatment of reserves, accumulated
profits and losses, After going through this Unit, the students will be able to: state the meaning of
E

partnership, partnership firm and partnership deed. describe the characteristic features of partnership and
AT

the contents of partnership deed. discuss the significance of provision of Partnership Act in the absence of
partnership deed. differentiate between fixed and fluctuating capital, outline the process and develop the
R

understanding and skill of preparation of Profit and Loss Appropriation Account. develop the
TO

understanding and skill of preparation profit and loss appropriation account involving guarantee of profits.
develop the understanding and skill of making past adjustments. state the meaning, nature and factors
affecting goodwill develop the understanding and skill of valuation of goodwill using different methods.
EC

state the meaning of sacrificing ratio, gaining ratio and the change in profit sharing ratio among existing
partners. develop the understanding of accounting treatment of revaluation assets and reassessment of
IR

liabilities and treatment of reserves and accumulated profits by preparing revaluation account and balance
D

sheet. explain the effect of change in profit sharing ratio on admission of a new partner. develop the
understanding and skill of adjustment of capital accounts and preparation of capital, current account and
balance sheet.
●​ Retirement and death of a partner:
effect of retirement / death of a partner on change in profit sharing ratio, treatment of goodwill (as per AS
26), treatment for revaluation of assets and reassessment of liabilities, adjustment of accumulated profits,
losses and reserves, adjustment of capital accounts and preparation of capital, current account and
balance sheet. Preparation of loan account of the retiring partner. Calculation of deceased partner’s share
of profit till the date of death. Preparation of deceased partner’s capital account and his executor’s
account.
●​ Dissolution of a partnership firm:
 meaning of dissolution of partnership and partnership firm, types of dissolution of a firm. Settlement of
accounts - preparation of realization account, and other related accounts: capital accounts of partners and
cash/bank a/c (excluding piecemeal distribution, sale to a company and insolvency of partner(s)). Note: (i)
If the realized value of tangible assets is not given it should be considered as realized at book value itself.
(ii) If the realized value of intangible assets is not given it should be considered as nil (zero value). (ii) In
case, the realization expenses are borne by a partner, clear indication should be given regarding the
payment thereof.
Note:
(i) If the realized value of tangible assets is not given it should be considered as realized at book value

ST
itself.
(ii) If the realized value of intangible assets is not given it should be considered as nil (zero value). (iii) In

EA
case, the realization expenses are borne by a partner, clear indication should be given regarding the
payment thereof.

T-
●​ Accounting for Share Capital Features and types of companies.

IC
Share and share capital: nature and types. After going through this Unit, the students will be able to: state
the meaning of share and share capital Accounting for share capital: issue and allotment of equity and

TR
preferences shares. Public subscription of shares - over subscription and under subscription of shares;
Accounting issue at par and at premium, calls in advance and arrears (excluding interest), issue of shares for

IS
consideration other than cash. Concept of Private Placement and Employee Stock Option Plan (ESOP),
for

ID
Sweat Equity. Accounting treatment of forfeiture and reissue of shares. Disclosure of share capital in the
Companies Balance Sheet of a company.

H
●​ Accounting for Debentures Debentures:
Meaning, types, Issue of debentures at par, at a premium and at a discount. Issue of debentures for

EL
consideration other than cash; Issue of debentures with terms of redemption; debentures as collateral
security-concept, interest on debentures (concept of TDS is excluded). Writing off discount / loss on

D
issue of debentures. Note: Discount or loss on issue of debentures to be written off in the year debentures
T
are allotted from Security Premium Reserve (if it exists) and then from Statement of Profit and Loss as
C
Financial Cost (AS 16)
N

Part – B: Financial Statement Analysis

G
N

Meaning, Nature, Uses and importance of financial Statement. Statement of Profit and Loss and Balance
IO

Sheet in After going through this Unit, the students will be able to: develop the understanding of major
Financial headings and sub-headings (as per Schedule III to the prescribed form with major headings and sub
AT

Statement of headings (as per Schedule III to the Companies Act, 2013)
a Company
C

Note: Exceptional items, extraordinary items and profit (loss) from discontinued operations are
excluded.
U
ED

Financial Statement Analysis:- Meaning, Significance Objectives, importance and limitations.

Tools for Financial Statement Analysis: Comparative statements, common size statements
F

Accounting Ratios: Meaning, Objectives, Advantages, classification and computation.

O

1. Liquidity Ratios: Current ratio and Quick ratio.

Financial
E

2. Solvency Ratios: Debt to Equity Ratio, Total Asset to Debt Ratio, Proprietary Ratio and Interest
AT

Statement Coverage Ratio. Debt to Capital Employed Ratio.

Analysis 3. Activity Ratios: Inventory Turnover Ratio, Trade Receivables Turnover Ratio, Trade Payables Turnover
R

Ratio, Fixed Asset Turnover Ratio, Net Asset Turnover Ratio and Working Capital Turnover Ratio.
TO

4. Profitability Ratios: Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit Ratio and
Return on Investment.
EC

Note: Net Profit Ratio is to be calculated on the basis of profit before and after tax.
IR

Meaning, objectives Benefits, Cash and Cash Equivalents, Classification of Activities and preparation (as
per AS 3 (Revised) (Indirect Method only) After going through this Unit, the students will be able to: state
D

the meaning and objectives of cash flow statement.

Note: (i) Adjustments relating to depreciation and amortization, profit or loss on sale of assets including
Cash Flow investments, dividend (both final and interim) and tax.
Statement (ii) Bank overdraft and cash credit to be treated as short term borrowings.
(iii) Current Investments to be taken as Marketable securities unless otherwise specified
Note: Previous years’ Proposed Dividend to be given effect, as prescribed in AS-4, Events occurring after
the Balance Sheet date. Current years’ Proposed Dividend will be accounted for in the next year after it is
declared by the shareholders
 Points to remember:
1. Please attempt all the questions.
2. Write down the correct serial number of the questions.
3. Please do not mix the questions of Part A with Part B.
4. Marks are awarded for each correct entry or step. So try to solve each and every question.
5. Working notes should be prepared neatly and clearly, as marks are there for working notes as well.
6. Use 15 minutes to highlight the important points, especially for lengthy questions.

ST
EA
Blueprint of Accountancy Paper, 2024-25
As per CBSE Circular No. Acad-30/2024 dated 3rd April, 2024, the theory part of 80 Marks

T-
of Question Paper will consist of:

IC
TR
Types of Questions Form of Questions %

Competency-Based Questions in the form of MCQs, case-based, source-based, or any other type. 50%

IS
Select Response Type Questions MCQ 20%

ID
Constructed Response Short Answer/Long Answer Questions (as per existing pattern). 30%

H
EL
Blueprint of Accountancy Question Paper:
This blueprint has been made on the basis of Sample Paper issued by CBSE on 5th
September' 2024, for March 2025 Exam.
D
T
This sample paper contains 34 Questions:
C
N
G

●​ Question Nos. 1 to 16 and 27 to 30 carries 1 mark each.

●​ Questions Nos. 17 to 20, 31 and 32 carries 3 marks each.
N

●​ Questions Nos. from 21, 22 and 33 carries 4 marks each

IO

●​ Questions Nos. from 23 to 26 and 34 carries 6 marks each

AT

●​ Question No. 1 to 26 are from Partnership Accounting and Company Accounts

C

●​ Question No. 27 to 34 are from Analysis of Financial Statements.

U

●​ An internal choice has been provided in 7 questions of one mark, 2 questions of three marks, 1
ED

question of four marks, and 2 questions of six marks.

F

Partnership Company Analysis of Financial Cash Flow

O

Accounting Accounts Statements Statement

Marks
E

No. of Q Marks No. of Q Marks No. of Q Marks No. of Q Marks

AT

11 11 5 5 2 2 2 2
R

1 Marks Questions
TO

3 Marks Questions 3 9 1 3 2 6 ×××× ××××

EC

4 Marks Questions 1 4 1 4 1 4 ×××× ××××

IR

6 Marks Questions 2 12 2 12 ×××× ×××× 1 6

D

In Total 17 36 9 24 5 12 3 8
➔​ I.C.:- (Internal Choice), C.B.Q.:- (Case Based Question)
➔​ An internal choice has been provided in 7 questions of one mark, 2 questions of three marks, 1 question of
four marks, and 2 questions of six marks.
 Topic-wise Marks in Accountancy 2024-25 C.B.S.E. Sample Paper Topics
No. of Questions asked in different marks
Topic of the Course/syllabus Total
Q. No.
1 3 4 6 Ques. Marks

Fundamentals of Partnership accounting 1, 2, 9, 11, & 24* 4 ×× ×× 1 5 (1*) 10

ST
Goodwill 5 1 ×× ×× ×× 1 1

EA
Change in Profit Sharing Ratio 14 1 ×× ×× ×× 1 1

Admission of a Partner 4**, 15*, 16 & 18* 3 1 ×× ×× 5 6

T-
IC
Retirement of Partner 20 & 24* ×× 1 ×× 1 2 9

TR
Death of Partner 15, 18* & 22 1 1 1 ×× 3 8

IS
Dissolution of Partnership Firm 8**, 10, 17 & 25 2 1 ×× 1 5 11

ID
Accounting for Share Capital 3*, 6**, 12, 13, 19*, 4 1 1 2 9 23

H
21, 23*, 26

EL
Accounting for Issue of Debentures 3*, 7, 19* & 23* 2 1 ×× 1 4 11

Financial Statements 27* & 31

D 1 1 ×× ×× 2 4
T
C
Analysis of Financial Statements No Question ×× ×× ×× ×× ×× ××
N
G

Comparative & Common Size Statements 32 ×× 1 ×× ×× 1 3

N

Ratio analysis 27*, 28 & 33** 2 ×× 2 ×× 4 5

IO

Cash Flow Statement 29**, 30 & 34 3 ×× ×× 1 4 8

AT

➔​ Question * - Question with choice, from a different chapter.

C
U

➔​ Question ** - Question with choice from the same chapter.

ED

➔​ An internal choice has been provided in 7 questions of one mark, 2 questions of three marks, 1 question of
four marks, and 2 questions of six marks.
F
O
E
AT
R
TO
EC
IR
D
 MUST TO DO SYLLABUS
No. of Question for
Practice
S No. of
UNIT Topic Page No
No Marks Total
Question From To
1 M.C.Q. from Fundamental of Partnership 4 150

ST
2 Preparation of Profit & Loss Appropriation A/C 4 20

EA
3 Valuation & Treatment of Goodwill 3 30
Partnership

T-
4 Accounting Preparation of Revaluation A/C 2 25

IC
5 Preparation of Deceased Partner Capital A/C 4 20

TR
6 Journal and Preparation of Realisation A/C 4 20

IS
7 Issue of Shares or Debentures for consideration 3 20

ID
other than cash

H
8 Forfeiture of Shares and Re-issue of Shares 3 30

EL
Company
9 Presentation of Share Capital in the Balance Sheet 4 20
Accounts

D
10 Issue of Debenture with terms of Redemption
T 3 20
C
11 Issue of Debenture as Collateral Security 3 20
N

12 Items to be Shown in Balance Sheet (Heading & 3 20

G

Sub-Heading)
N

13 Analysis of Comparative or Common Size Statement 4 20

IO

Financial
14 Statement Selective Ratio 1 25
AT

15 Calculation of Cash flow from Investing & Financing 2 20

C

Activities
U

Total 47 465
ED

Note:-
Students will select the topic of their preferences and comfort in the above-mentioned topic to
F

target at least 40 marks in the upcoming Board Examination.

O
E
AT
R
TO
EC
IR
D
 Topic No.:- 1

M.C.Q. from Fundamental of Partnership

In the absence of a partnership deed, interest on capital is allowed at the rate of
1 a) 6% p.a. simple interest b) 6% p.a. compound interest
c) 12% simple interest d) None of the above.

ST
Rent to a partner is shown in:

EA
2 a) Dr. side of Profit And Loss Appropriation A/c b) Cr. side of Profit And Loss Appropriation A/c
c) Dr. side of Profit And Loss A/c d) Cr. side of Profit And Loss A/c.

T-
IC
Which of the following items will be shown in Partner’s Capital A/c under Fixed Capital method?
3 a) Drawings from profits b) Drawings from capital

TR
c) Interest on drawings d) All of the above.

IS
As per the Companies Act 2013, the Central Government is empowered to prescribe the maximum

ID
4 number of partners in a firm, but the number of partners cannot be more than ---
A.50 b.100 c.20 d.10

H
EL
A partnership Deed provides for the payment of interest on capital, but there was a loss in-stead of
5 profits during the year 2020-21. At what rate will the interest on capital be al-lowed?

D
a. 6% p.a b. 12%p.a
c. The rate specified in the partnership deed d. No interest on capital will be allowed
T
C
In the absence of Partnership deed, the profits of a firm are divided among the partners
N

6 a. In the ratio of capital c. In the ratio of time devoted for the firm’s business
G

b. Equally d. According to the managerial abilities of the partners

N
IO

Interest on Partner’s Loan will be credited to:

7 a) Partner’s Loan A/c b) Partner’s Capital A/c
AT

c) Profit and Loss A/c d) None of the above.

C

Which one of the following items is not an appropriation out of profits?

U

8 a) Interest on capital b) Salary to a partner

ED

c) Commission to a partner d) Interest on partner’s loan.

Following are essential elements of a partnership firm except:

F

9 a) Equal share of profits and losses b) There is an agreement between all partners
O

c) Atleast two persons d) Partnership agreement is for some lawful business activity.
E
AT

P and Q are partners in a firm. They had advanced a loan of ₹.60, 000, contributed equally to the firm
on 1st August [Link] Partnership Deed is silent regarding the rate of interest on loan. What
R

10 amount of interest on loan is payable to P, if the firm closes its books of ac-count on 31st March every
TO

year.
a. ₹.1200 b. ₹.3,600 c. ₹.1,800 d. None of these
EC

Which of the following transactions is always recorded in the partner’s Capital account ir-respective of
11 whether the partners’ capitals are fixed or fluctuating?
IR

a. Additional capital introduced b. Withdrawal of Capital by a partner

D

c. Interest on partner’s loan d. Both (a) & (b)

Nima & Hima are partners sharing profits and losses equally. On 1st April 2020, their cap-ital
accounts showed balance of ₹4, 00,000 & 1, 00,000 respectively. Calculate the share of divisible
12 profit of the partners if the partnership deed provided for interest on capital @ 10% p.a. and the firm
earned a profit of ₹50,000 for the year ended 31st March 2021
[Link] ₹.40,000 & Hima ₹.10,000 [Link] ₹,000 & Hima ₹.25,000
[Link] Nil & Hima Nil d. None of these

Which one of the following is not a right of a partner?

 13 a) Right to inspect the books of the firm b) Right to take part in the affairs of the company
c) Right to share the profits/losses of the firm d) Right to receive salary at the end of each month.

The relation of partner with the firm is that of:

14 a) An owner b) An agent c) An owner and agent both d) A manager.

Pick the odd one out:

15 a) Rent to a partner b) Manager’s commission

ST
c) Interest on partner’s loan d) Interest on partner’s capital.

EA
Bobby and Sanjay were partners sharing profits & losses in the ratio of 5:3. On 1st April 2020, their
capital accounts showed balances of ₹.3, 00,000 and ₹.2, 00,000 respectively. The Partnership Deed
provided for interest on capital @10% p.a and the firm earned a profit of ₹45, 000 for the year ended

T-
16 31st March 2021. The interest on partners’ capitals to Bobby & Sanjay will be:

IC
a. ₹.22,500 to both partners b. ₹.27,000 & ₹.18,000 respectively

TR
c ₹.28,125 & ₹.16,875 respectively d. None of the above

IS
X and Y are partners in a firm having ₹4, 00,000 & ₹8, 00,000 respectively. The part-nership deed
provides for charging interest on drawings @5% pa. X withdrew ₹ 1, 00,000 for his personal use

ID
during the year 2020-21.Y withdrew ₹1, 00,000 from his capital on 1.9,2020. The amount of interest
17 that will be charged on partners’ drawings are

H
a. X-.₹.2,000 & Y-₹.4,000 b. ₹.5,000 from X &Y

EL
c. X-₹.5,000 &Y- Nil d. X-₹.2,500 & Y-Nil

D
Goodwill of the firm on the basis of 2 years’ purchase of average profit of the last 3 years is ₹.
T
18 25,000. Find Average profit:
C
a. ₹.50, 000, b. ₹.37, 500 c. ₹.12, 500 d. None of these
N

19 Can a partner be exempted to share the losses of the firm?

G

a) Yes b) No c) Yes, if partnership deed provides so d) Never.

N
IO

In case of partnership, the act of any partner is:

20 a) Binding on all partners b) Binding on that partner only.
AT

c) Binding on all partners except that particular partner d) None of the above.
C

Interest on capital will be paid to the partners if provided for in the partnership deed but only out of:
U

21 a) Profits b) Reserves c) Accumulated profits d) Goodwill.

ED

22 Interest on Capital of Partners is a

a. Charge on profit b. Loss to the firm c. Profit to the firm d .None of these
F
O

Goodwill is valued at the time of

E

23 a. Change in profit sharing Ratio b. Admission of a partner

AT

c. Retirement of a partner d. All of the above

R

A, B & C are partners in a firm sharing profits & losses in the ratio of 5:3:2. A guaranteed profit of
TO

24 ₹.20, 000 to [Link] profit for the year ending 31st March 2021, was ₹.80, 000. A’s share in the profit of
the firm will be
EC

a. ₹.36,000 b. ₹.16,000 c. ₹.38,000 d. ₹.44,000

IR

25 What is the minimum number of partners in a partnership firm?

a) 50 b) 100 c) 2 d) None of the above.
D

Limited Liability Partnerships came into existence in India after the enactment of:
26 a) Indian Partnership Act, 1932 b) Limited Liability Partnership Act, 1932
c) Limited Liability partnership Act, 2008 d) Indian companies Act, 2013.

Current accounts of partners are maintained under which method?

27 a) Fluctuating Capital method b) Fixed Capital method
c) Both of the above d) None of the above.

28 Which of the following will be shown on the credit side of Profit & Loss Appropriation account
 a. Interest on Capital b .Interest on Loan c. Interest on drawings d. Salary to partners

X & Y are partners sharing profits and losses in the ratio of 2:1 with capitals ₹.1,00,000 and ₹.80,000
respectively. The interest on capital has been provided to them @8% instead of 10%. In the rectifying
29 entry
a. Y will be debited by ₹.400 b. Y will be credited by ₹.400
c. Y will be debited by ₹.800 d. Y will be credited by ₹.800

ST
Capital employed of a firm is ₹.25, 00,[Link] average profit is ₹.3, 10,000. The normal rate of return
30 in similar type of business is10%.What is the amount of super profit?

EA
a. ₹.2, 50,000 b. ₹.60, 000 c. ₹.50, 000 d. None of these

A and B are partners sharing profits and losses equally. They admitted C as a partner with an

T-
31 equal share giving him a guarantee of minimum ₹50,000 profit p.a. The profit for the year after C’s

IC
admission was ₹1,20,000. What will be the net amount that will be credited to A’s Capital A/c?

TR
a) ₹50,000 b) ₹40,000 c) ₹35,000 d) ₹80,000.

IS
If a partner withdraws an equal amount in the beginning of each month for a period of 10 months,
32 what will be the average period for calculation of Interest on Drawings?

ID
a) 6.5 months b) 7.5 months c) 6 months d) 5.5 months.

H
X and Y are partners sharing profits and losses in the ratio of 3:2 with capitals ₹5,00,000 each.

EL
According to partnership deed, interest on capital is allowed @ 10% p.a. The profit for the year is ₹
33 50,000. What amount will be credited to X and Y in such condition?
a) ₹50,000 to A and B each
D
b) ₹25,000 to A and B each
T
c) ₹30,000 to A and ₹20,000 to B d) None of the above.
C
N

Manager is entitled to a commission of 10% of the net profits after charging such commission.
34 The net profit for the year is ₹1,32,000. What will be the amount of manager’s commission?
G

a) ₹13,200 b) ₹12,000 c) ₹10,000 d) None of the above.

N
IO

P and Q are partners sharing profits and losses in the ratio of 2:1 with capitals ₹1,00,000 and ₹
35 80,000 respectively. The interest on capital has been provided to them @ 8% instead of 10%. In the
AT

rectifying adjustment entry, Q will be:

a) Debited by ₹400 b) Credited by ₹400 c) Debited by ₹1600 d) Credited by ₹1600.
C
U

Akhil and Ravi are partners sharing profits and losses in the ratio of 7:3 with capitals of ₹8,00,000
ED

and ₹ 6,00,000 respectively. According to partnership deed interest on capital is to be provided @ 8%

36 p.a. and is to be treated as a charge. Profit for the year is ₹ 80,000. Choose the correct option:
F

a) A will be credited by ₹ 64,000 and B will be credited by ₹ 48,000.

O

b) A will be credited by ₹ 56,000 and B will be credited by ₹ 24,000.

c) A will be credited by ₹ 22,400 and B will be credited by ₹ 9,600.
E

d) A will be credited by ₹ 41,600 and B will be credited by ₹ 38,400.

AT

X, Y and Z are partners sharing profits and losses equally. Their capitals on March 31, 2021 are
R

₹ 80,000; ₹60,000; ₹ 40,000 respectively. Their personal assets are worth as follows: X- ₹ 20,000; Y
TO

37 -₹15,000 and Z- ₹ 10,000. The extent of their liability in the firm would be:
a) X- ₹ 80,000; Y- ₹ 60,000; Z- ₹ 40,000 b) X- ₹ 20,000; Y- ₹ 15,000; Z- ₹ 10,000
EC

c) X- ₹ 1,00,000; Y- ₹ 75,000; Z- ₹ 50,000 d) Equal.

IR

A and B are partners. B draws a fixed amount at the end of every month. Interest on drawings is
charged @15% p.a. At the end of the year interest on B’s drawings amounted to ₹8,250. Drawings of
D

38 B were:
a) ₹12,000 p.m. b) ₹10,000 p.m. c) ₹9,000 p.m. d) ₹8,000 p.m.

Mohit and Rohit were partners in a firm with capitals of ₹ 80,000 and ₹ 40,000 respectively. The
39 firm earned a profit of ₹ 30,000 during the year. Mohit's share in the profit will be:
a) ₹ 20000 b) ₹ 15000 c) ₹ 10000 d) ₹ 18000.

R and S are partners sharing profits in the ratio of 2:1. S has advanced a loan of ₹1,00,000 to the firm
on 1st October, 2020. The net profit earned by the firm for the year ending 31st March, 2021 is ₹
 40 90,000. What amount will be credited to S’s capital account?
a) ₹ 60,000 b) ₹ 30,000 c) ₹ 29,000 d) ₹ 32,000.

ASSERTION –REASON-BASED QUESTIONS

Assertion (A): Mohit, a partner in the firm gave a loan of ₹.2,00,000 to the firm without an agreement
as to the rate of interest. At the year-end, the remaining partners agreed to allow interest on the loan
of @6% p.a
Reason (R): In the absence of a Partnership deed, provisions of the Partnership Act 1932 is

ST
applicable and hence interest on loan of @6% p.a can be provided
41 In the context of the above two statements, which of the following is correct?

EA
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)

T-
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of

IC
Assertion(A)

TR
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true

IS
Assertion (A): The value of Goodwill calculated on Average profit Method and Super profit Method is

ID
not the same
Reason (R): The value of Goodwill calculated on Average profit Method and Super profit Method is

H
not the same as the basis of valuation is different

EL
In the context of the above two statements, which of the following is correct?
42 a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
D
T
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
C
Assertion(A)
N

c. Assertion(R) is true but the Reason(R) is false

G

d. Assertion(R) is false but the Reason(R) is true

N

Assertion (A): A guarantee of minimum profit may be given to a partner

IO

Reason (R): Minimum profit must be guaranteed by the remaining partners in equal ratio
In the context of the above two statements, which of the following is correct?
AT

a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
43 Assertion(A)
C

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
U

Assertion(A)
ED

c. Assertion(R) is true but the Reason(R) is false

d. Assertion(R) is false but the Reason(R) is true
F
O

Assertion (A): In the absence of Partnership deed profits and losses are divided equally among
the partners.
E

Reason (R): This rule is applicable according to Indian partnership Act, 1932.
AT

In the context of the above two statements, which of the following is correct?
44 a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
R

Assertion(A)
TO

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
EC

c. Assertion(R) is true but the Reason(R) is false

d. Assertion(R) is false but the Reason(R) is true
IR
D

Assertion (A): Personal properties of a partner may also be used to pay off the firm’s debts.
Reason (R): All partners have limited liability in the firm.
In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
45 b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
 Assertion (A): Partnership firm is a form of organisation where two or more persons carry on
business activity on the basis of agreement among them.
Reason (R): The profit or loss arising from the partnership business is shared by the partners in the
agreed ratio.
46 In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of

ST
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false

EA
d. Assertion(R) is false but the Reason(R) is true

T-
Assertion (A): Rent to partner is shown in Profit& Loss Appropriation Account
Reason (R): Rent to partner is a charge against profit

IC
In the context of the above two statements, which of the following is correct?

TR
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
47 Assertion(A)

IS
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)

ID
c. Assertion(R) is true but the Reason(R) is false

H
d. Assertion(R) is false but the Reason(R) is true

EL
Assertion (A): A partnership firm can have a maximum of 50 partners
Reason (R): Maximum limit of partners is prescribed in Indian Partnership Act,1932
D
In the context of the above two statements, which of the following is correct?
T
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
C
48 Assertion(A)
N

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
G

Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
N

d. Assertion(R) is false but the Reason(R) is true

IO
AT

Assertion (A): In a specified situation, interest on the Partners’ Capital is shown in the Profit and
Loss Account.
C

Reason (R): Interest on capital is transferred to the debit of the Profit and Loss Account if it is
U

specified to be a charge.
ED

49 In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
F

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
O

Assertion(A)
E

c. Assertion(R) is true but the Reason(R) is false

AT

d. Assertion(R) is false but the Reason(R) is true

R

Assertion (A): Maximum number of partners in a partnership firm is 50.

TO

Reason (R): Maximum number of partners in a partnership firm is prescribed in Companies Act,
2013.
EC

In the context of the above two statements, which of the following is correct?
50 a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
IR

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
D

Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true

Assertion (A): A partnership deed covers all matters relating to mutual relationship among the
partners.
Reason (R): But in the absence of partnership deed, provisions of the Indian partnership Act, 1932
shall apply for accounting purposes.
51 In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
 Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true

Assertion (A): Interest on Partner’s capital may be shown in Profit and Loss Account.
Reason (R): If Partners treat interest on capital as a charge.

ST
In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of

EA
52 Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of

T-
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false

IC
d. Assertion(R) is false but the Reason(R) is true

TR
Assertion (A): Rent payable to partner is credited to Partner’s Capital account.

IS
Reason (R): Rent is payable to partner for letting the firm use his personal property for business.
In the context of the above two statements, which of the following is correct?

ID
In the context of the above two statements, which of the following is correct?
53 a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of

H
Assertion(A)

EL
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
D
T
d. Assertion(R) is false but the Reason(R) is true
C
N

Assertion (A): If drawings by a partner are on the different dates and/or amounts of draw-ings is not
G

the same interest on drawings is calculated using the product method.

Reason (R): Interest on drawings is charged for the period it is drawn by a partner, in case the
N

amount of drawings and/or period for which is drawn is not uniform, average method cannot be
IO

53 applied to determine interest on capital.

AT

In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
C

Assertion(A)
U

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
ED

Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true
F
O

Assertion (A): Adith, a partner in the firm gave a loan of ₹. 50,000 to the firm without an agreement
to rate of interest. Interest on Loan by Adith is to be allowed at @ 6% p.a.
E

Reason (R): In the absence of the Partnership Deed, Provisions of the Partnership act 1932, apply.
AT

Thus interest on a loan to a Partner should be charged @6% p.a

R

54 In the context of the above two statements, which of the following is correct?
TO

a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
EC

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
IR

d. Assertion(R) is false but the Reason(R) is true

D

Assertion (A): Ankur, Bhaskar and Rakesh are partners with capitals of ₹. 3, 00,000, 4, 00,000 and
5, 00,000 respectively. The partnership deed provided to allow remuneration to each partner of ₹,
50,000 p.a. and interest on capital @5% p.a. Profit for the year ended 31st March 2021 of ₹. 2,
10,000 was distributed without allowing remuneration and interest on capital. Rectifying entry for the
above will be Dr. Ankur and Cr Rakesh by ₹. 5000.
Reason (R): Remuneration and Interest to Ankur, Bhaskar and Rakesh are ₹. 65000, 70,000 and
75000 respectively. Each partner was credited by ₹. 70000. As a result Ankur was ex-cess credited by
55 5000 and Rakesh was short credited by 5000. Thus Ankur will be debited and Rakesh will be credited
by ₹. 5000.
 In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true

ST
Assertion (A): Sandhya, Sudheer, and Namitha are partners sharing profits in the ratio of 3:2:1,
Sandhya is guaranteed a minimum profit share of ₹. 75000 p.a after appropriations. Profit for the year

EA
after all adjustments were ₹. 1, 80,000. The profit share of Sandhya and Namitha will be ₹90000,
30000 respectively.

T-
Reason (R): The profit share of Sudheer is ₹. 75000 since her actual share is ₹. 60000(1, 80000*2/6).
Balance profit ₹, 105000 will be distributed between Sandhya and Namitha in the ratio of 3:1. Thus

IC
Sandhya will get ₹. 78750, and Namitha ₹. 26,250.

TR
56 In the context of the above two statements, which of the following is correct?
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of

IS
Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of

ID
Assertion(A)

H
c. Assertion(R) is true but the Reason(R) is false
d. Assertion(R) is false but the Reason(R) is true

EL
Assertion (A): For calculating Interest on Drawings, product method is used.
D
Reason (R): Partners withdraw different amounts of money at different intervals of time.
T
In the context of the above two statements, which of the following is correct?
C
a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
N

57 Assertion(A)
G

b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
Assertion(A)
N

c. Assertion(R) is true but the Reason(R) is false

IO

d. Assertion(R) is false but the Reason(R) is true

AT

Assertion (A): Guarantee of minimum profit may be given to a partner.

C

Reason (R): It is compulsory as per Indian Partnership Act, 1932.

U

In the context of the above two statements, which of the following is correct?
ED

a. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
b. Both Assertion(A) and Reason (R) are true and Reason(R) is not the correct explanation of
F

Assertion(A)
O

c. Assertion(R) is true but the Reason(R) is false

E

d. Assertion(R) is false but the Reason(R) is true

AT

Case Study Based Questions

R

Read the following information carefully and answer the questions that follow:
TO

X and Y are partners in 3:2. Their capital balances as on 1st April 2020 amounting to ₹2,00,000 each. On 1st
February, 2021, X contributed an additional capital of ₹1,00,000. Following are the terms of deed:
EC

a) Interest on capital @ 6% per annum

b) Interest on drawings @ 8% per annum
IR

c) Salary to X ₹1500 per month

d) Commission to Y @10% on net profit after charging interest on capital, salary and his commission.
D

Drawings of the partners were ₹20,000 and ₹30,000 respectively during the year. Net profit earned by
the firm was ₹2,08,000.
Choose the correct option based on the above information:
58 What is the amount of Interest on capitals of X and Y:
a) ₹12,000 each b) ₹12,000 to X and ₹ ₹13,000 to Y
c) ₹13,000 to X and ₹12,000 to Y d) None of the above.
59 What is the amount of interest on drawings of X and Y:
a) ₹ 1200 and ₹ 1800 respectively b) ₹ 800 and ₹ 1200 respectively
c) ₹ 1200 and ₹ 800 respectively d) ₹ 1600 ₹ 2400 respectively
 60 What is the amount of commission payable to Y?
a) ₹ 15000 b) ₹ 16500 c) ₹ 20800 d) None of these
61 What is X's share in the net divisible profit?
a) ₹ 124400 b) ₹ 83600 c) ₹ 91200 d) ₹ 60800
62 What will be the closing capital of X after all adjustments?
a) ₹ 422200 b) ₹ 401400 c) ₹ 300000 d) ₹ 423000

Read the hypothetical text and answer the following questions.

ST
Arun, Varun, and Tarun were partners in firm sharing profits equally. On 1st April, 2020, their capitals
stood at ₹ 2, 00,000, ₹ 1, 50,000 and ₹ 1, 00,000 respectively. As per the provisions of the

EA
Partnership Deed:
1) Arun was entitled to a salary of ₹ 2,500 p.m.

T-
2) Partners were entitled to interest on capital @ 10% p.a.
The net profit for the year ended 31st March 2021, ₹ 1, 50,000 were distributed among the partners

IC
without providing for the above items.

TR
63 What is the amount of interest on capital Varun?
a) ₹ 20,000 b) ₹ 15,000 c) ₹ 10,000 d) ₹ 30,000

IS
64 What is the amount of distributable profit for the partners after providing salary and interest
on capital to the partners?

ID
a) ₹ 50,000 each b) ₹ 25,000 each c) ₹ 10,000 each d) ₹ 15,000 each

H
65 Arun’s Capital A/c will be credited with Rs…………….for giving the adjustment to the above
omissions.

EL
a) ₹ 20,000 b) ₹ 15,000 c) ₹ 25,000 d)₹ 10,000

D
66 Capital Account/Accounts of …………………… will be debited to give the effect of the above
adjustments.
T
a) Varun b) Tarun and Arun c) Arun and Varun d) Varun and Tarun
C
N

Read the following information carefully and answer the questions that follow:
G

A, B and C were partners sharing profits in the ratio of 1:2:3. Their fixed capitals on 1st April, 2020
were: A ₹3,00,000; B ₹4,50,000 and C ₹10,00,000. Their partnership deed provided the following:
N

i. A provides his personal office to the firm for business use charging yearly rent of ₹1,50,000.
IO

ii. Interest on capitals @8% p.a. and interest on drawings @ 10% p.a.
AT

iii. A was allowed a salary @ 10,000 per month.

iv. B was allowed a commission of 10% of net profit as shown by Profit and Loss account, after
C

charging such commission.

U

v. C was guaranteed a profit of ₹3,00,000 after making all adjustments.

ED

The net profit for the year ended 31st march, 2021 was ₹10,30,000 before making above
adjustments.
You are informed that A has withdrawn ₹5,000 in the beginning of each month, B has withdrawn
F

₹5,000 at the end of each month and C has withdrawn ₹ 24,000 in the beginning of each quarter.
O

Choose the correct option based on the above information:

E

67 A’s rent will be shown in:

AT

a) Profit and loss account b) Profit and Loss Appropriation account

c) A’s Capital account d) None of the above.
R

68 Net profit for the year is:

TO

a) ₹10,30,000 b) ₹11,80,000 c) ₹7,30,000 d) ₹8,80,000

69 What will be the divisible profit?
EC

a) ₹5,56,000 b) ₹5,50,000 c) ₹5,52,000 d) ₹5,53,000.

70 What will be the total interest on drawings?
IR

a) ₹24,000 b) ₹12,000 c) ₹36,000 d) 48,000.

71 What will be the commission of B?
D

a) ₹8,00,000 b) ₹96,000 c) ₹80,000 d) ₹72,000.

Read the hypothetical text and answer the following questions.

A B and C are partners in a firm. Their capitals are ₹ 30,000, ₹ 20,000 and ₹ 10,000 re-spectively. As
per the partnership deed,
i) C is to be allowed remuneration of ₹ 3,000 p.a.
ii) Interest on capital @ 5% p.a.
iii) Profits should be distributed in the ratio of 2:2:1.
Ignoring the above terms, a net profit of ₹ 18,000 was distributed among the partners equally.
 72 How much interest on capital is to be credited to partner A?
a) ₹ 1,500 b) ₹ 1,000 c) ₹ 900 d) ₹ 800
73 How much profit is to be credited to Partner B after all adjustments?
a) ₹ 2,400 b) ₹ 4,800 c) ₹ 1,000 d) ₹ 1,200
74 What is the total profit to be credited to A, B, and C after all adjustments?
a) ₹ 12,000 b) ₹ 8,000 c) ₹ 9,000 d) ₹ 10,000
75 What is the amount of the past adjustment entry?
a) ₹ 350 b) ₹ 450 c) ₹ 250 d) ₹ 55

ST
Read the hypothetical text and answer the following questions.

EA
A, B and C are partners in a firm sharing profits and losses in the ratio of 2:2:1. Their capitals (Fixed)
are ₹ 1, 00,000, ₹ 80,000, and ₹ 70,000 respectively. For the year 2018-19, interest on capital was to

T-
be credited to them @ 9% p.a. instead of 12%
76 What was the net amount that should be credited to partner B?

IC
a) ₹ 1,500 b) ₹ 2,400 c) ₹ 1,800 d) ₹1,200

TR
77 What was the net amount that should be credited to partner C?
a)₹ 1,800 b) ₹ 2,000 c ₹ 2,100 d) ₹ 1,700

IS
78 What was the amount that was debited to partner B?
a) ₹ 1,500 b) ₹ 2,000 c) ₹ 3,000 d) ₹ 4,000

ID
79 What was the number of past adjustment entries?

H
a)₹ 400 b) ₹ 300 c) ₹ 600 d) ₹ 500

EL
Read the hypothetical text and answer the following questions.
X and Y started business on 1St April 2020 with a capital of ₹ 5,00,000 each. As per the partnership
D
Deed, both X and Y are to get a monthly salary of ₹ 10,000 each, and interest on capital is ₹ 50,000
T
each. Interest in drawings is as follows X: ₹ 3,000 and Y: ₹ 5,000.
C
During the year, the firm incurred a loss of ₹ 2,00,000.
N

80 What is the amount to be transferred to the Profit and Loss Appropriation Account?
G

a) ₹ 5,00,000 b) ₹ 2,00,000 c) ₹ 3,00,000 d) ₹ 1,50,000

81 What is the total amount of salary to be credited to the Partners’ capital account?
N

a) ₹ 1,20,000 b) ₹ 2,40,000 c) ₹ 1,80,000 d) No salary will be given

IO

82 What amount of loss is to be transferred to the capital account of both partners?

AT

a) ₹ 1,92,000 b) ₹ 2,00,000 c) ₹ 1,96,000 d) ₹ 1,80,000

83 What is the share of loss of X?
C

a)₹ 1,00,000 b) ₹ 96,000 c) ₹ 98,000 d) ₹ 90,000

U
ED

Read the hypothetical text and answer the following questions.

A B and C started a firm on 1st October 2020 sharing profits equally. A drew regularly ₹ 4,000 at the
F

beginning of every month for the six months ended 31st March 2021. B drew regularly ₹ 4,000 at the
O

end of every month for the six months ended 31st March 2021. C drew regularly ₹ 4,000 in the middle
E

of every month for the six months ended 31st March 2021. IOD is charged at 5% p.a
AT

84 What is the total amount of drawings of the partners?

a)₹ 1,44,000 b) ₹ 72,000 c) ₹ 24,000 d) ₹ 96,000
R

85 What is your interest in drawings of B?

TO

a)₹ 350 b) ₹ 300 c) ₹ 200 d) ₹ 250

86 What is your interest in drawings of A?
EC

a)₹ 300 b) ₹ 250 c) ₹ 350 d) ₹ 400

87 What is the total amount of interest on the drawings of the partners?
IR

a)₹ 1,200 b) ₹1,500 c) ₹ 600 d) ₹ 900.

D

MATCH THE FOLLOWING

Q 88. MATCH THE FOLLOWING
Col. I Col. II
A Interest in Drawings i. Credit side of partners’ capital a/c
B Commission to a Partner ii. Credit side of P&L Appropriation a/c
C Interest on partners loan iii. Debit side of P&L Appropriation a/c
D Interest in partners’ capital iv. Debit side of P&L a/c
 Option ⬇ A B C D

a) I Ii Iii Iv
b) I Iv Ii Iii
c) Ii Iii Iv I
d) iv iii ii i

ST
Q 89. MATCH THE FOLLOWING
Col. I Col. II

EA
A Rent paid to a partner i. Charge against profits

T-
B Salary paid to a partner ii. Appropriations out of profits.

IC
C Partner’s Commission
D Interest on capital paid to partner

TR
IS
a) I-A; II-B; III-B b) I-A; II-A; III-B c) I-A; II-B; III-A d) I-B; II-A; III-B

ID
Q 90. MATCH THE FOLLOWING
Col. I Col. II

H
EL
A Maximum number of partners i. 6% p.a.
B Partnership Deed ii. 50
C Interest on partner’s loan
D
iii Written agreement
T
C
a) I-A; II-B; III-C b) I-B; II-A; III-C c) I-C; II-B; III-A d) I-B; II-C; III-A
N

Q 91. MATCH THE FOLLOWING

G

Col. I Col. II
N

A Drawings in the beginning of each quarter i 4.5

IO

B Drawings in the beginning of each month ii. 6.5

AT

C Drawings in the end of each quarter iii 7.5

D. Drawings in the end of each month iv 5.5
C
U

a) I-A; II-B; III-C, IV - D b) I-B; II-A; III-C,IV - D

ED

c) I-C; II-B; III-A,IV - D d) I-B; II-C; III-A,IV - D

F

Ram, Raghav, and Raghu are partners in a firm sharing profits in the ratio of 5:3:2. As per
O

Partnership Deed, Raghu is to get a minimum amount of ₹ 10,000 as profit. Net profit for the year is
₹ 40,000. Find the deficiency amount in the above case.
E

92
a) ₹ 750 b) ₹ 1,000 c) ₹ 1,500 d) ₹ 2,000.
AT

A B and C are partners sharing profits equally. A drew regularly ₹ 4,000 at the beginning of every
R

93 month for six months ended 30th September 2020. Calculate interest of A’s draw-ing @ 5% p.a.
TO

a) ₹ 200 b) ₹ 1,200 c) ₹ 350 d) ₹ 700

EC

On 1st April 2018, a partner introduced additional capital of ₹ 50,000 to the firm but Partnership
Deed is silent. The partner demands interest on capital @ 5% p.a. How much inter-est on capital will
IR

94 be payable to the partner:

D

a) ₹ 3,000 b) Interest on capital will not be allowed c) ₹ 2,500 d) ₹ 1,800

Steps involved in the distribution of profit under minimum guarantee to partner will
be…………………..
i)Calculate the amount of deficiency
ii)Calculate distributable profit between/among the partners
95
iii)Distribute the amount of deficiency between/among the partners who have given the guarantee
iv)Calculate the actual share of profit of each partner
a) (ii) iv) i) iii) b) (i) ii) iii) iv) c) (iii) ii) iv) i) d) (iv) iii) ii) i)
 Pick the odd one out of the following:
a) Rent to Partner b) Manager’s Commission
96
c) Interest on Partner’s Loan d) Interest on Partner’s Capital

In case of fixed capitals, partners will have

a) Credit balances in their Capital Accounts
b) Debit balances in their Capital Accounts
97 c) Credit or debit balances in their Capital Accounts

ST
d) Credit balance or nil balance in their Capital Accounts

EA
A manager gets 5% commission on net profit after charging such commission. Gross profit ₹
5,80,000 and expenses of indirect nature other than manager’s commission are ₹ 1,60,000.

T-
98 Commission amount will be
a) ₹ 21,000 b) ₹ 20,000 c) ₹ 15,000 d) ₹ 22,000

IC
TR
What will be partners’ profit share if Chaman’s share of profit is guaranteed at ₹ 60,000?
a) ₹ 1,50,000, ₹ 90,000, ₹ 60,000 b) ₹ 1,90,000, ₹ 50,000, ₹ 60,000
99

IS
c) ₹ 1,60,000, ₹ 80,000, ₹ 60,000 d) ₹ 1,44,000, ₹ 96,000, ₹ 60,000

ID
What will be partners’ profit share if deficiency in Chaman’s profit share is to be borne by Amar and
Binod in the ratio of 4:1?

H
100
a) ₹ 1,50,000, ₹ 90,000, ₹ 60,000 b) ₹ 1,42,000, ₹ 98,000, ₹ 60,000

EL
c) ₹ 1,44,000, ₹ 96,000, ₹ 60,000 d) ₹ 1,20,000 ₹ 1,20,000, ₹ 60,000

D
What will be partners’ profit shares, if Chaman’s share of is guaranteed after allowing interest on
T
capital @ 6% p.a.
101
C
a) ₹ 1,09,600, ₹56,400, ₹ 60,000 b) ₹ 89,600, ₹ 76,400, ₹ 60,000
N

c) ₹ 99,600, ₹ 66,400, ₹ 60,000 d) ₹ 1,00,800, ₹ 67,200, ₹ 60,000

G

A,B and C were partner in a firm sharing Profit in the ratio of 3:2:1 during the year the firm earned
N

102 profit of ₹ 84,000. Calculate the amount of Profit or Loss transferred to the capital A/c of B.
IO

a.) Loss ₹ 87,000 b.) Profit ₹ 87,000 c.) Profit ₹ 28,000 d.) Profit ₹ 14,000
AT

Commission to a partner under fixed capital account is credited to

103 a. Partner’s Capital A/c b. Partner’s current A/c
C

c. Profit & Loss A/c d. Partner’s Loan A/c

U
ED

Salary to a partner under flutuating capital account is credited to

104 a. Partner’s Capital A/c b. Partner’s current A/c
F

c. Profit & Loss A/c d. Partner’s Loan A/c

O

In the absence of partnership deed partner A and B share profit and loss in
105
E

a). Ratio of capital Employed b.) Equal Ratio c.) 2 : 1 d.) 1 : 2

AT

As per section a minor may be admitted for the benefit of the partnership if:-
106
R

a.) One partner agree b.) More than one agree c.) All partners agree d.) Both (a) or (b)
TO

A partnership firm earned divisible profit of ₹ 5,00,000, interest on capital is to be provided to partner
EC

is ₹ 3,00,000, interest on loan taken from partner is ₹ 50,000 and profit sharing ratio of
partners is 5:3 sequence the following in correct way
IR

I. Distribute profits between partners

107
II. Charge interest on loan to Profit and Loss A/c
D

III. Calculate the net profit Transfer to Profit and Loss appropriation A/c
IV. Provide interest on capital
a) iii, i, iv, i b) ii, iii, iv, i c) iv, iii, ii, i d) i, ii, iv, iii

The relation of the partner with the firm is that of

108
a) An owner b) An agent and A Principal c.) An agent d) Manager

Which one of the following item cannot be recorded in Profit and Loss Appropriation Account?
109
a) Interest on Capital b) Manager’s Commission
 c) Interest on Drawings d) Partner’s Salary

If the partner carries on the business that is similar to firm competition with the firm and profit earned
from it, the profit:
110
a) Shall be retained by the partner b) Shall be paid to firm
c) Can be retained by the partner or paid to the firm d) not to be considered

If the partner carries on the business that is similar to firm competition with the firm and loss incurred

ST
from it, the loss:
111
a) Shall be borne by the partner b) Shall be borne by the firm

EA
c) Can be borne by the partner or borne by the firm d) not to be considered

Which section of the partnership act defines partnership as the relation between person who have

T-
112 agreed to share the profit of the business carried on by all or any of them acting for all?

IC
a) Section 61 b) Section 130 c) Section 4 d) Section 48

TR
CASE STUDY BASED QUESTIONS

IS
Q 113. Read the hypothetical text and answer the following questions.

ID
Arun, Varun and Tarun were partners in a firm sharing profits equally. On 1st April, 2020, their capitals stood at
₹ 2, 00,000, ₹ 1, 50,000 and ₹ 1, 00,000 respectively. As per the provisions of Partnership Deed:

H
1) Arun was entitled to a salary of ₹ 2,500 p.m.

EL
2) Partners were entitled to interest on capital @ 10% p.a.

D
The net profit for the year ended 31st March, 2021, ₹ 1,50,000 was distributed among the partners without
providing for the above items.
T
C
Q (A).What is the amount of interest on capital of Varun?
N

a) ₹ 20,000 b) ₹ 15,000 c) ₹ 10,000 d) ₹ 30,000

G

Q (B). What is the amount of distributable profit for the partners after providing salary and
interest on capitals to the partners?
N
IO

a) ₹ 50,000 each b) ₹ 25,000 each c) ₹ 10,000 each d) ₹ 15,000 each

Q (C). Arun’s Capital A/c will be credited with ₹...............for giving the adjustment to above
AT

omissions.
C

a) ₹ 20,000 b) ₹ 15,000 c) ₹ 25,000 d) ₹ 10,000

U

Q (D). Capital Account/Accounts of ........................ will be debited to give the effect of above
ED

adjustments.
a) Varun b) Tarun and Arun c) Arun and Varun d) Varun and Tarun
F

Q 114. Read the hypothetical text and answer the following questions .
O

Sonu and Monu are partners sharing profits and losses in the ratio of 2:1. Their capital Accounts as at 1st April,
E

2015 were ₹ 10,00,000 and ₹ 8,00,000 respectively. The partners are allowed interest on capital @ 5% p.a.
AT

Drawings of the partners during the year ended 31st March, 2016 were ₹ 1,44,000 and ₹ 1,00,000 respectively.
Monu is entitled to get a salary of ₹ 10,000 p.m.
R

Profit for the year before allowing interest on capital and salary was ₹ 16,00,000. 10% of the net profit is to be
TO

transferred to General Reserve.

A) Find the amount which is to be transferred to General Reserve Account?
EC

a) ₹ 80,000 b) ₹ 1,20,000 c) ₹ 1,60,000 d) ₹ 2,00,000

IR

B). What is the distributable amount of profit which is to be credited to Partners’ Capital Accounts?
a) ₹ 16,00,000 b) ₹ 14,40,000 c) ₹ 12,30,000 d) ₹ 10,00,000
D

C). Find the closing capital of Sonu?

a) ₹ 12,70,000 b) ₹ 17,26,000 c) ₹ 16,00,000 d) ₹ 10,00,000
D). What is the share of Monu’s profit to be credited to his Capital Account?
a) ₹ 14,40,000 b) ₹ 12,30,000 c) ₹ 4,10,000 d) ₹ 8,20,000
Fill in the blanks :
Q 115. In the absence of the date of withdrawal, interest should be charged for __________ month on
the whole amount.
Q 116. Manager’s commission is a ___________ _________ profits.
 Q 117. In the absence of partnership deed or partnership deed is silent, interest on loan will be given @
____ % p.a.
Q 118. Interest on Loan is a ____________ ___________ profits.
Q 119. Salary to a partner’s is a _____________ ___ Profits.
Q 120 In the absence of partnership deed or partnership deed is silent, Salary to partners will ____ be
__________.
Q 121. Commission to a partner’s is a _____________ ___ Profits.

ST
Q 122. In the absence of partnership deed or partnership deed is silent, Commission to partners will
____ be __________.

EA
Q 123. Interest on Capital is a _____________ ___ Profits.
Q 124. In the absence of partnership deed or partnership deed is silent, interest on capital will ____

T-
be __________.

IC
Q 125. Interest on Drawings is a _____________ ___ Profits.

TR
Q 126. In the absence of partnership deed or partnership deed is silent, interest on drawings will ____
be __________.

IS
Q 127. Profit and Losses are to be shared in __________ irrespective of their capital contribution.

ID
Q 128. In the absence of partnership deed or partnership deed is silent, Profit or Lossess will be

H
shared ____________.

EL
Q 129. Interest on loan taken by a partner is recorded on___________ of Profit and Loss Account.
Q 130. Interest on Capital are under the Fixed Capital Account method is credited to ___________.
Q 131. Goodwill is an __________ assets.
D
T
Q 132. In case of guarantee of minimum profit to a partner deficiency of guaranteed partner is from
C
shared by remaining partner in ____________.
N

Q 133. The maximum numbers of partners in case of limited liability partnership is __________.
G

Q 134. The maximum numbers of partners as per section 464 of companies Act 2013 are ___.
N

Q [Link] maximum numbers of partners as per Rule 10 of Companies( Miscellaneous) Rules, 2014 are
IO

_____________.
AT

Q 136. The maximum numbers of partners in a Partnership firm are _____.

Q 137. If drawings of equal amount are made in the beginning of every month for 9 month ending 31st
C

March, then interest on drawing will be calculated for an average period for ___Months.
U

Q 138. If drawings of equal amount are made in the beginning of every month for 12 month ending
ED

31st March, then interest on drawing will be calculated for an average period for ___Months.
Q 139. If drawings of equal amount are made in the middle of every month for 12 month ending
F
O

31st March, then interest on drawing will be calculated for an average period for ___Months.
Q 140. If drawings of equal amount are made in the middle of every month for 6 month ending
E
AT

31st March, then interest on drawing will be calculated for an average period for ___Months.
Q 141. If drawings of equal amount are made in the end of every month for 12 month ending
R

31st March, then interest on drawing will be calculated for an average period for ___Months.
TO

Q 142. If drawings of equal amount are made in the end of every month for 6 month ending
31st March, then interest on drawing will be calculated for an average period for ___Months.
EC

Q 143. A and B are Partners .A drew ₹ 32,000 .If the rate of Interest on Drawing is 12% per annum
IR

then ______ will amount of interest on drawing.

Q 144. A and B are Partners .B drew ₹ 32,000 .If the rate of Interest on Drawing is 12% then ______
D

will amount of interest on drawing.

Q 143. A and B are Partners .B drew ₹ 2,000 p.m. in the beginning of the month. If the rate of Interest
on Drawing is 12% p.a. then ______ will amount of interest on drawing.
Q 144. A and B are Partners .A drew ₹ 2,000 p.m. in the middle of the month. If the rate of Interest on
Drawing is 12% p.a. then ______ will amount of interest on drawing.
Q 145. 31. A and B are Partners .B drew ₹ 2,000 p.m. in the end of the month. If the rate of Interest on
Drawing is 12% p.a. then ______ will amount of interest on drawing.
Q 146. A and B are Partners .B drew ₹ 2,000 p.m. in the biginning of the month for 6 months starting
 from the beginning of the year. If the rate of Interest on Drawing is 12% p.a. then ______ will have an
amount of interest on drawing.
Q 143. A and B are Partners .B drew ₹ 2,000 p.m. in the middle of the month for 6 months starting
from the beginning of the year. If the rate of Interest on Drawing is 12% p.a. then ______ will have an
amount of interest on drawing.
Q 144. A and B are Partners .B drew ₹ 2,000 p.m. in the end of the month for 6 months starting from
the beginning of the year. If the rate of Interest on Drawing is 12% p.a. then ______ will amount of

ST
interest on drawing.
Q 145. A and B are Partners .B drew ₹ 2,000 p.m. in the biginning of the month for 6 months starting

EA
from the middle of the year. If the rate of Interest on Drawing is 12% p.a. then ______ will have an
amount of interest on drawing.

T-
Q 146. A and B are Partners .B drew ₹ 2,000 p.m. in the middle of the month for 6 months starting

IC
from the middle of the year. If the rate of Interest on Drawing is 12% p.a. then ______ will have an

TR
amount of interest on drawing.
Q 147. A and B are Partners .B drew ₹ 2,000 p.m. in the end of the month for 6 months starting from

IS
the middle of the year. If the rate of Interest on Drawing is 12% p.a. then ______ will have an amount of

ID
interest on drawing.

H
Q 148. When there is no partnership deed then provisions of partnership act ________ will be applicable.

EL
(a) 1956​ ​ ​ (b) 1912​ ​ ​ (c) 1932​ ​ ​ (d) 1949
Q 149. Liability of a partner in Limited Liability Partnership (LLP) is ________

D
(a) limited​ ​ (b) unlimited​ ​ (c) not defined in the law​
T ​ (d) limited to the capital only
Q 150. Provisions of Table _______ are applicable in the absence of partnership deed.
C
(a) A​ ​ ​ (b) B​ ​ ​ (c) C​ ​ ​ ​ (d) D
N
G

Topic No.:- 2
N
IO

Preparation of Profit & Loss Appropriation A/C

AT

Distribution of Profit among Partners

C

➔​ The profits and losses of the firm are distributed among the partners in an agreed ratio.
U

➔​ if the partnership deed is silent, the firm’s profits and losses are to be shared equally by all the partners.
ED

➔​ In the case of a partnership, however, certain adjustments, such as interest on drawings, interest on capital,
salary to partners, and commission to partners, are required to be made by preparing Profit & Loss
F

Appropriation A/C.
O

➔​ After these adjustments, we will get distributable profit, which is to be divided between the partners in their
E

profit-sharing ratio.
AT

Journal Entries for different transaction regarding distribution of

R

profit and different adjustments

TO
EC

Transfer of the balance of Profit and Loss Account to Profit and Loss Appropriation Account:

If Profit and Loss A/C shows a credit balance (net profit) If Profit and Loss A/C shows a debit balance (net loss)
IR
D

Profit and Loss A/c Dr. ** Profit and Loss Appropriation A/C Dr. **
To Profit and Loss Appropriation A/C ** To Profit and Loss A/C **

Interest on Capital

For crediting interest on capital to partners’ capital For transferring interest on capital to Profit and
A/C Loss Appropriation A/C:
 Interest on Capital A/c Dr. ** Profit and Loss Appropriation A/C Dr. **
To ____ Capital/Current A/C ** To Interest on Capital A/C **
To ____ Capital/Current A/C **

Salary to Partner’s

For crediting Salary to partners’ capital A/C For transferring Salary to Profit and Loss App. A/C

ST
Salary to partner’s A/c Dr. ** Profit and Loss Appropriation A/C Dr. **

EA
To ____ Capital/Current A/C ** To Salary to partner’s A/C **

T-
To ____ Capital/Current A/C **

IC
TR
Commission to Partner’s

IS
For crediting Commission to partners’ capital A/C For transferring Commission to Profit and Loss App. A/C

ID
Commission to partner’s A/c Dr. ** Profit and Loss Appropriation A/C Dr. **

H
To ____ Capital/Current A/C ** To Commission to partner’s A/C **

EL
To ____ Capital/Current A/C **

Interest on Drawings
D
T
For crediting interest on drawings to partners’ capital A/C For transferring interest on drawings to Profit and Loss App. A/C:
C
N

____ Capital/Current A/C Dr. ** Interest on Drawings A/C Dr. **

G

____ Capital/Current A/C Dr. ** To Profit and Loss Appropriation A/C **

N

To Interest on Drawings A/C **

IO
AT

For transferring certain amount to General For giving/ acknowledging commission (due) to
Reserve manager
C
U

Profit and Loss Appropriation A/C Dr. ** Profit and Loss Appropriation A/C Dr. **
ED

To General Reserve A/C ** To Manager Commission A/C **

F
O

Share of Profit or Loss after appropriations

E

If Profit: If Loss:
AT

Profit and Loss Appropriation A/C Dr ** ____ Capital/Current A/C Dr. **

R
TO

____ Capital/Current A/C ** ____ Capital/Current A/C Dr. **

____ Capital/Current A/C ** To Profit and Loss Appropriation A/C **
EC
IR

➔​ Capital A/C is to be used when capital A/C are fluctuating whereas Current A/C is to be used when
D

Capital A/C are fixed.

➔​ In case of debit balance of profit & Loss A/C (Net loss), no adjustments is to be taken into account direct
loss is to be transferred into the partner’s Capital A/C.
 Format of Profit & Loss Appropriation A/C
Profit & Loss Appropriation A/C
Particular ₹ Particular ₹
To Interest on Capital:- By Profit & Loss A/C (Profit) ****
___ Capital/Current A/C **** By Interest on Drawing:-
___ Capital/Current A/C **** **** ___ Capital/Current A/C ****

ST
To Salary to partner’s ___ Capital/Current A/C **** ****

EA
___ Capital/Current A/C ****

T-
___ Capital/Current A/C **** ****

IC
To Commission to Partner’s

TR
___ Capital/Current A/C ****

IS
___ Capital/Current A/C ****

ID
To General Reserve AC ****
To Manager Commission A/C ****

H
➖

EL
To Profit transferred to ****
___ Capital/Current A/C ****
___ Capital/Current A/C **** **** D
T
C
N

**** ****
G
N

Questions for Practice

IO
AT

Q 1 X & Y are partners in a firm. X is entitled to a salary of 10,000 p.m. together with a commission of 10% of
Net Profit after charging salaries but before charging any commission. Y is entitled to a salary of 25,000 p.a.
C
U

together with a commission of 10% of Net profit after charging salaries and all commissions. Net Profit after
ED

partners’ salaries but before charging any commission for the year ended 31st March, 2012 was 2,75,000.
Show the distribution of profit.​​ ​ ​ ​ ​ Ans.:- Net distributable profit ₹ 2,25,000
F

Q 2 Asha, Disha and Raghav are partners sharing profits and losses in the ratio 2:3:1. According to the
O

partnership agreement, Raghav was guaranteed an amount of ₹ 40,000 as his share of profits. The net profit
E

for the year ended 31st March, 2022 amounted to ₹ 1,20,000.​ ​ ​

AT

Prepare Profit & Loss Appropriation Account of the firm for the year ended 31st March, 2022 (CBSE-2023)
​ Ans:- (Divisible share :- Asha:- 32,000, Disha:- 48,000 & Raghav:- 40,000)
R
TO

Q 3 Akhil and Nikhil were partners sharing profit and losses in the ratio of three is to 3:2. Their fixed capital
were ₹ 1,00,000 and ₹ 80,000 respectively. Interest in capital was agreed @ 6% p.a.. Nikhil was to be allowed
EC

an annual salary of ₹ 9200. During the year 2021-22, the net profit prior to the calculation of interest on capital
but after charging Nikhil salary amounting to ₹1,20,000. ​ ​ Ans:- Net divisible profit:- ₹ 1,09,200
IR

Prepare Profit & Loss Appropriation Account of the firm for the year ended 31st March, 2022 (CBSE-2023)
D

Q 4 On 01.04.2022, Ravi, Kavi and Avi started a partnership firm with fixed capitals of ₹ 6,00,000, ₹ 6,00,000
and ₹ 3,00,000 respectively. The partnership deed provided for the following :​ ​ (CBSE-2023 Compt.)
(i) Interest on capital @ 10% per annum.
(ii) Interest on drawings @ 12% per annum.
(iii) An annual salary of ₹ 1,20,000 to Avi.
(iv) Profits and losses were to be shared in the ratio of their capitals.
The net profit of the firm for the year ended 31.03.2023 was ₹ 3,08,000. Interest on partner’s drawing was
Ravi- ₹ 4,800, Kavi - ₹ 4,200 and Avi - ₹ 3,000.
 Prepare Profit and Loss Appropriation Account of Ravi, Kavi and Avi for the year ended 31.03.2023.
​ Ans:- (Divisible share :- Ravi:- 20,000, Kavi:- 20,000 & Avi:- 10,000

Q 5 A & B are partners sharing profits in proportion of 3:2 with capital of 4,00,000 & 3,00,000 respectively.
Interest on capital is agreed @ 5% p.a. B is to be allowed an annual salary of 30,000 which has not been
withdrwan. During 2011-12, the profit for the year prior to calculation of interest on capital but after charging B’s
salary amounted to 1,20,000. A Provision of 5% of this amount is to be made in respect of commission to the
Manager. Prepare an account showing the allocation of profits between partners.

ST
​​ ​ ​ ​ ​ ​ ​ ​ ​ Ans:- Net divisible profit:- ₹ 79,000
Q 6 Sudha, Naresh and Geeta were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Their fixed capitals

EA
were ₹ 6,00,000; ₹ 4,00,000 and ₹ 2,00,000 respectively. Besides her capital Geeta had given a loan of ₹

T-
75,000 to the firm. Their partnership deed provided for the following :
(i) Interest on capital @ 9% p.a.

IC
(ii) Interest on partners’ drawings @ 12% p.a.

TR
(iii) Salary to Sudha ₹ 30,000 per month and to Naresh ₹ 40,000 per quarter.
(iv) Interest on Geeta’s loan @ 9% p.a.

IS
During the year Sudha withdrew ₹ 50,000 at the end of each quarter; Naresh withdrew ₹ 50,000 in the

ID
beginning of each half year and Geeta withdrew ₹ 70,000 at the end of each half year.

H
The profit of the firm for the year ended 31-3-2019 before allowing interest on Geeta’s loan was ₹ 7,06,750.

EL
Prepare Profit and Loss Appropriation Account.​ ​ ​ ​ ​ ​ ​ (CBSE-2020)
​​ ​ ​ ​ ​ ​ ​ ​ ​ (Ans:- Net divisible profit:- ₹ 94,200)

D
Q 7 Yadu, Vidu and Radhu were partners in a firm sharing profits in the ratio of 4 : 3 : 3. Their fixed capitals on
T
1st April, 2018 were ₹ 9,00,000, ₹ 5,00,000 and ₹ 4,00,000 respectively. On 1st November, 2018, Yadu gave a
C
loan of ₹ 80,000 to the firm. As per the partnership agreement :
N

(i) The partners were entitled to an interest on capital @ 6% p.a.

G

(ii) Interest on partners’ drawings was to be charged @ 8% p.a.

N

The firm earned profits of ₹ 2,53,000 (after interest on Yadu’s loan) during the year 2018-19. Partners’
IO

drawings for the year amounted to Yadu : ₹ 80,000, Vidu : ₹ 70,000 and Radhu : ₹ 50,000.​ (CBSE-2020)
Prepare Profit and Loss Appropriation Account for the year ending 31st March, 2019.
AT

​​ ​ ​ ​ ​ ​ ​ ​ ​ (Ans:- Net divisible profit:- ₹ 1,53,000)

C

Q 8 Aman, Chetan and Deepak are partners in a partnership firm sharing profit/loss in the ratio of 3:2:1. The
U

balance of their capitals as on 1st April, 2021 ₹ 5,00,000; ₹ 3,00,000 and ₹ 2,00,000 respectively. They are
ED

allowed interest on capital @ 10% p.a. and Chetan allowed salary of ₹ 40,000 per annum. The profits of the
firm for the year ending 31st March, 2022 ₹ 3,20,000. Aman and Chetan have given guarantee of profits to
F

Deepak that his profits will not be less than the 20% of his capital any year.
O

You are required to prepare a Profit and Loss Appropriation Account from the above information.
​​ ​ ​ ​ ​
E

Ans:- (Divisible share :- Aman:- 84,000, Chetan:- 56,000 & Deepak:- 40,000)
AT

Q 9 P and Q were partners in a firm sharing profits in 3 : 1 ratio. Their respective fixed capitals were ₹
R

10,00,000 and ₹ 6,00,000. The partnership deed provided interest on capital @ 12% p.a. The partnership deed
TO

further provided that interest on capital will be allowed fully even if it will result into a loss to the firm. The net
profit of the firm for the year ended 31st March, 2018 was ₹ 1,50,000.​ ​ ​ (CBSE-2019)
EC

Pass necessary journal entries in the books of the firm allowing interest on capital and division of profit/loss
among the partners.​ ​ ​ ​ ​ ​
IR

Ans.:- (Interest on Capital :- A - 7,200 & B - 9,600)

D

Q 10 A, B and C were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. On 1.4.2017 the
balances in their Capital and Current Accounts were as follows :
Partner’s Capital Accounts (₹) Current Accounts (₹)
A 4,00,000 20,000
B 5,00,000 10,000
C 6,00,000 15,000
Their partnership deed provided for the following :
(i) Interest on Capital @ 9% p.a.
(ii) Salary to A @ ₹ 50,000 per quarter
 On 1.1.2016 C had given a loan of ₹ 2,00,000 to the firm at 6% per annum interest. During the year their
drawings were A ₹ 40,000, B ₹ 75,000 and C ₹ 55,000. On 1.1.2018, A introduced further capital ₹ 2,00,000.
The net profit of the firm before allowing interest on C’s loan was ₹ 4,00,000.​ ​ (CBSE-2019)
Prepare Profit and Loss Appropriation Account of the firm for the year ending 31.3.2018 and the Current
Accounts of the partners.​
Ans.:- Net Divisible Profit :- 48,500, Current A/C Bal:- A - 1,95,050 (Cr.), B - 25,450 (Dr.) & C - 3,400 (Cr.)
Q 11 Shreya and Vivek were partners in a firm sharing profits in the ratio 3 : 2. The balances in their capital
and current accounts as on 1st April,2017 were as under :

ST
Partner’s Capital Accounts (₹) Current Accounts (₹)

EA
Shreya 3,00,000 1,00,000 (Cr.)
Vivek 2,00,000 28,000 (Dr.)

T-
The partnership deed provided that Shreya was to be paid a salary of ₹ 5,000 p.m. whereas Vivek was to get a

IC
commission of ₹ 30,000 for the [Link] on capital was to be allowed @ 8% p.a. whereas interest on

TR
drawings was to be charged @ 6% p.a. The drawings of Shreya were ₹ 3,000 at the beginning of each quarter
while Vivek withdrew ₹ 30,000 on 1st September, 2017. The net profit of the firm for the year before making the

IS
above adjustments was ₹ 1,20,000.​ ​ ​ ​ ​ ​ ​ (CBSE-2019)

ID
Prepare Profit and Loss Appropriation Account and Partners’ Current Accounts.
Ans.:- Net Divisible Profit :- 1,21,500, Current A/C Bal:- Shreya - 1,66,058 (Cr.) & Vivek - 16,058 (Dr.)

H
Q 12 Vikas and Vivek were partners in a firm sharing profits in the ratio of 3: 2. On 1.4.2014 they admitted

EL
Vandana as a new partner for 1/8th share in the profits with a guaranteed profit of ₹ 1,50,000. The new profit
sharing ratio between Vivek and Vikas will remain the same but they decided to bear any deficiency on account

D
of guarantee to Vandana in the ratio 2: 3. The profit of the firm for the year ended 31.3.2015 was ₹ 9,00,000.
T
​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (CBSE-2016)
C
Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana for the year ended 31.3.2015.
N

Ans:- (Divisible share :- Vikas:- 4,57,500, Vivek:- 2,92,500 & Vandana:- 1,50,000)
G

Q 13 P and Q were partners in a firm sharing profits in the ratio of 5:3. On 1-4-2014 they admitted R as a new
N

partner for 1/8th share in the profits with a guaranteed profit of ₹ 75,000. The new profit sharing ratio between
IO

P and Q will remain the same but they agreed to bear any deficiency on account of guarantee to R in the ratio
AT

3:2. The profit of the firm for the year ended 31-3-2015 was ₹ 4,00,000.​ ​ ​ (CBSE-2016)
Prepare Profit and Loss Appropriation Account of P, Q and R for the year ended 31-3-2015.
C

Ans:- (Divisible share :- P:- 2,03,750, Q:- 1,21,250 & R:- 75,000)
U

Q 14 Ram and Mohan are partners in a firm. They admitted Rakhi as a partner without capital for 1/3rd share
ED

in the profits of the firm. The new partnership agreement provides for the following:
(i) 10% of the net profit will be transferred to General Reserve.
F

(ii) Ram is entitled to a Salary of ₹ 5,000 Per month, Mohan is entitled to Salary of ₹ 8,000 Per quarter.
O

(iii) The Drawing during the Year are as follows :- Ram - ₹ 20,000, Mohan - ₹ 30,000 & Rakhi - ₹ 12,500
E

(iv) Interest on Drawings was to be charged @ 10%.

AT

The trading profit of the firm for the year ended 31.3.2012 was ₹ 10,00,000.
Prepare the 'Profit and Loss Appropriation Account of Ram, Mohan and Rakhi for the year ended
R

31.3.2012.​ ​ ​ ​ ​ ​ ​ ​ (Ans:- Net divisible profit:- ₹ 8,14,250)

TO

Q 15 Ali, Bimal and Deepak are partners in a firm. On 1st April, 2011 their capital accounts stood at ₹ 4,00,000,
EC

₹ 3,00,000 and ₹ 2,00,000 respectively. They shared profits and losses in the proportion of 5: 3: 2. Partners are
IR

entitled to interest on capital @ 10% per annum and salary to Bimal and Deepak @ ₹ 2.000 per month and ₹
3,000 per quarter respectively as per the provisions of the partnership deed. Bimal's share of profit (excluding
D

interest on capital but including salary) is guaranteed at a minimum of ₹ 50,000 p.a. Any deficiency arising on
that account shall be met by Deepak. The profits of the firm for the year ended 3st March, 2012 amounted to ₹
2,00,000. Prepare Profit & Loss Appropriation Account for the year ended on 3st March, 2012.​ (CBSE-2013)
Ans:- (Divisible share :- Ali:- 37,000, Bimal:- 20,000 & Deepak:- 17,000)
Q 16 Amay, Anmol and Rohan entered into partnership on 1st July, 2021 to share profits and losses in the ratio
of 3:2:1. Amay guaranteed that Rohan’s share of profit after charging interest on capital @ 6% p.a would not
be less than ₹ 36,000 p.a. Their fixed capital balances are: ₹ 2,00,000, ₹ 1,00,000 and ₹ 1,00,000 respectively.
Profit for the year ended 31st March, 2022 was ₹ 1,38,000. Prepare Profit and Loss Appropriation A/c.
Ans:- (Divisible share :- Amay:- 40,000, anmol:- 38,000 & Rohan:- 36,000)
 Q 17 L, M and N are partners in a firm sharing profits & losses in the ratio of 2 : 3 : 5. On April 1, 2016 their
fixed capitals were ₹ 2,00,000, ₹ 3,00,000 and ₹ 4,00,000 respectively. Their partnership deed provided for the
following:
(i) Interest on capital @ 9% per annum.​ ​ ​ (ii) Interest on Drawings @ 12% per annum.
(iii) Interest on partners’ loan @ 12% per annum.
On July 1, 2016, L brought ₹ 1,00,000 as additional capital and N withdrew ₹ 1,00,000 from his capital. During
the year L, M and N withdrew ₹ 12,000, ₹ 18,000 and ₹ 24,000 respectively for their personal use. On January
1, 2017 the firm obtained a Loan of ₹ 1,50,000 from M. The Net profit of the firm for the year ended March 31,

ST
2017 after charging interest on M’s Loan was ₹ 85,000. Prepare Profit & Loss Appropriation Account.

EA
Ans:- (Divisible share :- L:- 1,448, M:- 2,172 & N:- 3,620)
Q 18 Garry, Harry and Robert were partners in a firm sharing profits in the ratio of 7:4:9 . Their capitals on 1st

T-
April 2021 were: Garry ₹ 2,00,000; Harry ₹ 75,000 and Robert ₹ 3,50,000. Their partnership deed provided for

IC
the following:
(i) 10% of the net profit to be transferred to General Reserve.

TR
(ii) Interest on capital is to be allowed @ 9% p.a.

IS
(iii) Salary of ₹ 6,000 per month to Harry
(iv) Interest on Drawings @ 6% p.a.

ID
Drawings made against the anticipated profits, by Garry during the year ₹ 25,000, Harry withdrew ₹ 5,000 at

H
the end of each quarter, Robert withdrew ₹ 25,000 on1st June 2021 for personal use. During the year ended

EL
31st March 2022 the firm earned profits of ₹ 1,70,000. Prepare Profit and Loss Appropriation Account.
​ ​ ​ ​ ​ ​ Ans:- (Divisible Profit :- Garry:- 9,520, Harry:- 5,440 & Robert:- 12,240)

D
Q 19 Manoj and Billu are equal partners. Manoj is a sleeping partner and Billu is an Active working partner. Their capitals
T
on 1st April 2021 were: Manoj ₹ 6,000 Credit and Billu (₹ 20,000) Debit.
C
Mr Manoj has given a loan to the firm ₹ 10,000 on 1st April 2021 @ 10% p.a. Partnership deed allows 10% p.a. interest
N

on capital. Salary to every Active working partner @ 3,000 p.a. but partnership deed is silent on interest on loan payable
G

to any partner, in case any partner provides loan to the firm. Profit for the year ending 31st March 2022 was ₹ 7,000
before providing above. Prepare Profit and Loss Appropriation Account.
N
IO

Q 20 X and Y started a partnership firm on 1st Dec.2021. Their capitals were ₹ 6,00,000 and ₹ 4,50,000 respectively. On
AT

1st Jan.2022 X advanced a loan of ₹ 1,00,000 to the firm. It was agreed that:
i. Interest on Partner’s Loan will be paid @ 10% p.a.
C

ii. Rent will be paid to Y ₹ 2,000 per month (for providing office space to the firm)
U

iii. Interest on drawings to be charged @ 10% p.a. Interest on capital allowed @ 8% p.a. as charge.
ED

iv. Manager will get a commission of 10% on the net profit after charging such commission.
Drawings made by X and Y during the year ₹ 3,000 and ₹ 4,000 respectively. A fine of ₹ 650 was charged from Y for
F

competing with the firm. Profit during the year was ₹ 16,000.
O

Show the distribution of profit/loss when interest on capital is to be allowed whether firm incurs a loss.
Ans:- (Divisible Loss :- X :- 11,000, Y :- 11,000)
E

Topic No.:- 3
AT
R

Valuation and Accounting Treatment of Goodwill

TO
EC

GOODWILL
IR

Meaning of Goodwill:-
D

​​ ​ Over a period of time, a well-established business develops an advantage of good name,

reputation and wide business connections. This helps the business to earn more profits as compared to a
newly set up business.
In accounting, the monetary value of such advantage is known as “goodwill”. It is regarded as an intangible
asset.
In other words, “goodwill is the value of the reputation of a firm in respect of the profits expected in future over
and above the normal profits.”
Goodwill can be defined as “the present value of a firm’s anticipated excess earnings” or as “the capitalised
value attached to the differential profit capacity of a business”.
 Thus, goodwill exists only when the firm earns super profits. Any firm that earns normal profits or is incurring
losses has no goodwill.
⇨ Characteristics or features of goodwill:-
It is an intangible asset.
It helps in earning higher profits.
Its value is liable to constant fluctuations:
It is valuable only when the entire business is sold

ST
⇨ Goodwill is divided into two categories.

EA
1. Purchased Goodwill: Purchased goodwill means goodwill for which consideration has been paid
2. Self-generated Goodwill is also called inherent goodwill. It is an internally generated goodwill that arises

T-
from a number of factors that a running business possesses due to which it is able to earn more profits in the

IC
future.

TR
⇨ Factors Affecting the Value of Goodwill

IS
The main factors affecting the value of goodwill are as follows:

ID
1. Nature of business: A firm that produces high value added products or having a stable demand is able to
earn more profits and therefore has more goodwill.

H
2. Location: If the business is centrally located or is at a place having heavy customer traffic, the goodwill

EL
tends to be high.
3. Efficiency of management: A well-managed concern usually enjoys the advantage of high productivity and

D
cost efficiency. This leads to higher profits and so the value of goodwill will also be high.
T
4. Market situation: The monopoly condition or limited competition enables the concern to earn high profits
C
which leads to higher value of goodwill.
N

5. Special advantages: The firm that enjoys special advantages like import licences, low rate and assured
G

supply of electricity, long-term contracts for supply of materials, well-known collaborators, patents, trademarks,
N

etc. enjoy higher value of goodwill.

IO

⇨ Need for Valuation of Goodwill

AT

Normally, the need for valuation of goodwill arises at the time of sale of a business. But, in the context of a
C

partnership firm it may also arise in the following circumstances:

U

1. Change in the profit sharing ratio amongst the existing partners;

ED

2. Admission of new partner;

3. Retirement of a partner;
4. Death of a partner; and
F
O

5. Dissolution of a firm involving sale of business as a going concern.

6. Amalgamation of partnership firms.
E
AT

⇨ Methods of Valuation of Goodwill:-

Since goodwill is an intangible asset it is very difficult to accurately calculate its value. Various methods have
R

been advocated for the valuation of goodwill of a partnership firm.

TO

Goodwill calculated by one method may differ from the goodwill calculated by another method.
EC

Methods of valuation of goodwill are as follows:

1. Average Profits Method​ ​ 2. Super Profits Method​ ​ 3. Capitalisation Method
IR
D

1. Average Profits Method:-

​​ ​ ​ the goodwill is valued at agreed number of ‘years’ purchase of the average profits of the
past few yea ₹ It is based on the assumption that a new business will not be able to earn any profits during the
first few years of its operations.
Hence, the person who purchases a running business must pay in the form of goodwill a sum which is equal to
the profits he is likely to receive for the first few years.

Simple Average Profits Method:-

Here are the step for calculating Goodwill of the firm:
 Step-1:- Calculate the Average Normal Profit of the firm for some definite period.
Total Profit of Last __ Years
Average Profit = —------------------------------------
[Link] years
⇨ Profit should be from normal course of the business
Step-2:- Goodwill = Average Profits × No. of years purchased
⇨ No. of years purchased is the number of years during which the anticipated profits are expected to accrue.

ST
Question:- The profit for the five years of a firm are as follows – year 2013 ₹ 4,00,000; year 2014 ₹ 3,98,000;
year 2015 ₹ 4,50,000; year 2016 ₹ 4,45,000 and year 2017 ₹ 5,00,000. Calculate goodwill of the firm on the

EA
basis of 4 years purchase of 5 years average profits.
Solution:

T-
​​ 4,00,000 + 3,98,000 + 4,50,000 + 4,45,000 + 5,00,000 = ₹ 4,38,600
Average Profit = —------------------------------------------------------------------------

IC
5

TR
Goodwill (Firm) = 4,38,600 × 4 = ₹ 17,54,400

IS
Weighted Average Profits Method:-

ID
Sometimes, if there exists an increasing on decreasing trend, it is considered to be better to give a higher

H
weightage to the profits to the recent years than those of the earlier years (weighted average should be used

EL
only if specified).
Step-1:- Calculate the Weighted Average Normal Profit of the firm for some definite period.
Year Profit
D
Weight Weighted Profit (Profit ×
T
Weight)
C
N
G

Total⇒
N

Total weighted Profit of Last __ Years

IO

Weighted Average Profit = —------------------------------------------------

Total Weight
AT

Step-2:- Goodwill = Weighted Average Profits × No. of years purchased.

C

Question:- The profits of firm for the five years are as follows:
U
ED

Year Profit Calculate the value of goodwill on the basis of three years’
purchase of weighted average profits based on weights 1,2,3,4 and
2012-13 20,000
F

2013-14 24,000 5 respectively.

O

2014-15 30,000
2015-16 25,000
E

2016-17 18,000
AT
R

Solution:
TO

Year Profit Weight Weighted Profit (Profit × Weight)

EC

2012-13 20,000 1 20,000

2013-14 24,000 2 48,000
IR

2014-15 30,000 3 90,000

2015-16 25,000 4 1,00,000
D

2016-17 18,000 5 90,000

Total⇒ 15 ₹ 3,48,000
3,48,000 = ₹ 23,200
Weighted Average Profit = —------------
15​ ​ ​ ​ Goodwill = 23,200 × 3 = ₹ 69,600
Question:- Calculate goodwill of a firm on the basis of three year’ purchase of the weighted average profits of
the last four years. The profit of the last four years were: 2012 ₹ 20,200; 2013 ₹ 24,800; 2014 ₹ 20,000 and
2015 ₹ 30,000. The weights assigned to each year are : 2012 – 1; 2013 – 2; 2014 – 3 and 2015 – 4.
 You are supplied the following information:
1. On September 1, 2014 a major plant repair was undertaken for ₹ 6,000, which was charged to revenue.
The said sum is to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on
reducing balance method.
2. The Closing Stock for the year 2013 was overvalued by ₹ 2,400.
3. To cover management cost an annual charge of ₹ 4,800 should be made for purpose of goodwill valuation.
Solution:-

ST
⇨ Profit should be from normal course of the business, therefore calculate Normal Profit for each year.

EA
Year Given (Less) (Add) (Less) (Less) (Add) Normal
Profits Mangement Capital Depreciation Overvaluation Overvaluation Profit

T-
Cost Expenditure of Stock of Stock

IC
2012 20,200 4,800 — — — — 15,400

TR
2013 24,800 4,800 — — 2,400 — 17,600
2014 20,000 4,800 6,000 200 — 2,400 23,400

IS
2015 30,000 4,800 — 580 — — 24,620

ID
Year Normal Profit Weight Weighted Profit (Profit × Weight)

H
2012 15,400 1 15,400

EL
2013 17,600 2 35,200
2014 23,400 3 70,200

D
2015 24,620 T 4 98,480

Total⇒ 10 ₹ 2,19,280
C
N

2,19,280 = ₹ 21,928
Weighted Average Profit = —------------
G

10​ ​ ​ ​
N

Goodwill = 21,928 × 3 = ₹ 65,784

IO

⇨ Notes:-
AT

(i) Depreciation of 2014 ​ = 10% of ₹ 6000 for 4 months

= ₹ 6000 × 10/100 × 4/12 = ₹ 200
C

(ii) Depreciation of 2015 ​ = 10% of ₹ 6000 – ₹ 200 for one year

U

= ₹ 5800 × 10/100 = ₹ 580

ED

(iii) Closing Stock of 2014 will become opening stock for the year 2015.
F

2. Super Profits Method:-

O

​​ ​ ​ The basic assumption in the average profits (simple or weighted) method of

E

calculating goodwill is that if a new business is set up, it will not be able to earn any profits during the first few
AT

years of its operations.

Hence, the person who purchases an existing business has to pay in the form of goodwill a sum equal to the
R

total profits he is likely to receive for the first ‘few years’. But it is contended that the buyer’s real benefit does
TO

not lie in total profits; it is limited to such amounts of profits which are in excess of the normal return on capital
EC

employed in similar business.

Therefore, it is desirable to value goodwill on the basis of the excess profits and not the actual profits.
IR

The excess of actual profits (Firm Profit) over the normal profits (Industry Profit) is termed as super
D

profits.
the steps involved under the method are:
Step 1. Calculate the Average profit (Firm Profit) (Same as Average Profit Method)

Step 2. Calculate the Normal profit (Industry Profit) on the capital employed on the basis of the normal rate of
return:-
​ ​ Capital employed × Normal Rate of Return
Normal Profit = —--------------------------------------------------------
​​ ​ ​ 100
Step - 3. Calculate the super profits by deducting normal profit from the average profits,
 Super Profit = Average Profits - Normal Profits​ ​ ​ ​ ​ ​ and
Step - 4 Calculate goodwill by multiplying the super profits by the given number of years’ purchase.
​ Goodwill = Super Profit × No. of years purchased.

Question:- The books of a business showed that the capital employed on December 31, 2015, ₹ 5,00,000
and the profits for the last five years were: 2010– ₹ 40,000: 2012- ₹ 50,000; 2013- ₹ 55,000; 2014- ₹70,000
and 2015- ₹ 85,000. You are required to find out the value of goodwill based on 3 years purchase of the super
profits of the business, given that the normal rate of return is 10%.

ST
Solution:-

EA
​ ​ Profit = —------------------------------------------------------------
Average 40,000 + 50,000 + 55,000 + 70,000 + 85,000 = ₹ 60,000
5

T-
​ ​ 5,00,000 × 10
Normal Profit = —-------------------- = ₹ 50,000

IC
​ ​ ​ 100

TR
​ Super Profit = 60,000 - 50,000 = ₹ 10,000
​ ​

IS
Goodwill =​ 10,000 × 3 = ₹ 30,000

ID
3. Capitalisation Methods:-

H
Under this method the goodwill can be calculated in two ways:

EL
(a) by capitalizing the average profits, ​ or ​ ​ (b) by capitalising the super profits.

(a) Capitalisation of Average Profits:

D
T
Under this method, the value of goodwill is ascertained by deducting the
C
N

actual capital employed (net assets) in the business from the capitalized value of the average profits on the
G

basis of normal rate of return. This involves the following steps:

N

Step - 1 Ascertain the average profits based on the past few years’ performance. (Same as before)
IO

Step - 2 Capitalize the average profits on the basis of the normal rate of return to ascertain the capitalised
AT

value of average profits as follows:

​ ​ Average Profit × 100
Capitalised value = —------------------------------
C

​​ Normal Rate of Return

U

Step - 3 Ascertain the actual capital employed (net assets) by deducting outside liabilities from the total assets
ED

(excluding goodwill).
Capital Employed (Net Assets) = Total Assets (excluding goodwill) – Outside Liabilities
F

Step - 4 Compute the value of goodwill by deducting net assets from the capitalised value of average profits:
O

​​ Goodwill = Capitalised Value - Net Assets

E

Question:- A business has earned average profits of ₹ 1,00,000 during the last few years and the normal rate
AT

of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation average profits method,
R

given that the value of net assets of the business is ₹ 8,20,000.

TO

Solution:-
Average Profit = ₹ 1,00,000
EC

​ ​ 1,00,000 × 100 = ₹ 10,00,000

Capitalised value = —---------------------
IR

​​ 10
D

​​ Net Assets = ₹ 8,20,000

​​ Goodwill = ₹ 10,00,000 - ₹ 8,20,000 = ₹ 1,80,000

(b) by capitalising the super profits:-

​​ ​ ​ ​ Goodwill can also be ascertained by capitalising the super profit directly. Under
this method there is no need to work out the capitalised value of average profits.
In other words, goodwill is the capitalised value of super profits. The amount of goodwill worked out by this
method will be exactly the same as calculated by capitalising the average profits.
 It involves the following steps.
Step - 1 Calculate capital employed of the firm, which is equal to total assets minus outside liabilities.
Step - 2 Calculate normal profits on capital employed.

​ ​ Capital employed × Normal Rate of Return

Normal Profit = —--------------------------------------------------------
​​ ​ ​ 100
Step - 3 Calculate average profit for past years, as specified.
Step - 4 Calculate super profits by deducting normal profits from average profits.

ST
Super Profit = Average Profits - Normal Profits

EA
Step - 5 Multiply the super profits by the required rate of return multiplier, that is,

T-
​ ​ Super Profit × 100
Goodwill = —----------------------------

IC
​ Normal Rate of Return

TR
Question:- A business has earned average profits of ₹ 1,00,000 during the last few years and the normal rate

IS
of return in a similar business is 10%. Ascertain the value of goodwill by capitalisation super profits method,
given that the value of net assets of the business is ₹ 8,20,000.

ID
Solution:-

H
​ ​ Capital Employed = ₹ 8,20,000

EL
​ ​ 8,20,000 × 10

D
​ ​ Normal Profit = —-------------------- = ₹ 82,000
​ 100
T
​ ​ Average Profit = ₹ 1,00,000
C
N

​ ​ Super Profit = ₹ 1,00,000 - ₹ 82,000 = 18,000

G

​​ ​​ 18,000 × 100 = ₹ 1,80,000

N

Goodwill = —-------------------
IO

​ 10
Practice questions
AT

Q 1. Aayush and Aarushi are partners sharing profits and losses in the ratio of 3:2. They admitted Naveen into
C

partnership for 1/4th share. Goodwill of the firm was to be valued at three year’s purchase of super profits.
U

Average net profit of the firm was ₹ 20,000. Capital investment in the business was ₹ 50,000 and Normal Rate
ED

of Return was 10%. Calculate the amount of Goodwill premium brought by Naveen.
F

Q 2 Tarun, Abhishek, Kamal and Vivek were partners in a firm. Sharing profit in the ratio of 5:3:2:2. Kamal
O

retired on 31 March 2022. Tarun, Abhishek and Vivek decided to share future profit equally. On Kamal
E

retirement, goodwill of the firm was valued at ₹ 9,00,000. Showing you are working clearly, pass the
AT

necessary journal entry for treatment of goodwill on Kamal retirement. It was decided not to show goodwill
in the books of the firm.
R
TO

Q 3 Super-profit is equal to__________less _____________

(A) Actual Profit; Normal Profit​​ ​ ​ (B) Normal Profit; Actual Profit
EC

(C) Average Profit; Net Assets​​ ​ ​ (D) Assets; Outside Liabilities

IR

Q 4 Tangible Assets of the firm are ₹ 14,00,000 and outside liabilities are ₹ 4,00,000. Profit of the firm is ₹
D

1,50,000 and normal rate of return is 10%. The amount of Capital employed will be
(a) ₹ 10,00,000 ​ ​ (b) ₹ 1,00,000​​ (c) ₹ 50,000 ​ ​ (d) ₹ 20,000
Q 5 Avya, Divya and Kavya were equal partners. They decided to change the profit sharing ratio to 4 : 3 : 2.
For this purpose the goodwill of the firm was valued at ₹ 90,000.
The journal entry for the treatment of Goodwill on change in profit sharing ratio will be :
(a) Kavya’s Capital A/c. Dr. 10,000 (b) Divya’s Capital A/c. Dr. 10,000
To Avya’s Capital A/c 10,000 To Avya’s Capital A/c. 10,000
(c) Avya’s Capital A/c. Dr. 90,000 (d) Avya’s Capital A/c. Dr. 10,000
To Kavya’s Capital A/c. 90,000 To Kavya’s Capital A/c. 10,000
 Q 6 Anita and Babita were partners sharing profits and losses in the ratio of 3 : 1. Savita was admitted for 1/5th
share in the profits. Savita was unable to bring her share of goodwill premium in cash. The journal entry
recorded for goodwill premium is given below :
Date Particular LF Dr. (₹) Cr. (₹)

Savita’s Current A/c. Dr. 24,000

To Anita’s Capital A/c. 8,000
To Babita’s Capital A/c. 16,000

ST
(Being adjustment of goodwill premium on Savita’s Admission)

EA
The new profit sharing ratio of Anita, Babita and Savita, will be
(a) 41 : 7 : 12​ ​ (b) 13 : 12 : 10​ ​ (c) 3 : 1 : 1 ​ ​ (d) 5 : 3 : 2

T-
Q 7 Kabir and Farid are partners in a firm sharing profits in the ratio of 3:1 on 1-4-2019 they admitted Manik

IC
into partnership for 1/4th share in the profits of the firm. Manik brought his share of goodwill premium in cash.

TR
Goodwill of the firm was valued on the basis of 2 years purchase of last three years average profits. The profits
of last three years were :

IS
2016-17 ​ ​ ₹ 90,000

ID
2017-18 ​ ​ ₹ 1,30,000
2018-19 ​ ​ ₹ 86,000

H
EL
During the year 2018-19 there was a loss of ₹ 20,000 due to fire which was not accounted for while calculating
the profit. Calculate the value of goodwill and pass the necessary journal entries for the treatment of

D
goodwill. T
Q 8 Veena and Somesh were partners in a firm with capitals of ₹ 1,00,000 and ₹ 80,000 respectively. They
C
N

admitted Nisha on 1st April, 2019 as a new partner for 1/4th share in the future profits of the firm. Nisha
G

Brought ₹ 90,000 as her capital. Nisha acquired her share as 1/12th from Veena and the remaining from
Somesh. Calculate the value of goodwill of the firm and pass the necessary journal entries on Nisha’s
N

admission.
IO
AT

Q 9 Mita and Sumit are partners in a firm with capitals of ₹ 6,00,000 and ₹ 4,00,000 respectively. Keshav
was admitted as a new partner for 1/5th share in the profits of the firm. Keshav brought ₹ 40,000 as his share
C

of goodwill premium and ₹ 3,00,000 as his capital. The amount of goodwill premium credited to Sumit will be :
U

(A) ₹ 20,000​ ​ (B) ₹ 24,000​ ​ (C) ₹ 16,000​ ​ (D) ₹ 40,000

ED

Q 10 Yash and Karan were partners in an interior designer firm. Their fixed capitals were ₹ 6,00,000 and ₹
F

4,00,000 respectively. There were credit balances in their current accounts of ₹ 4,00,000 and ₹ 5,00,000
O

respectively. The firm had a balance of ₹ 1,00,000 in General Reserve. The firm did not have any liability. They
E

admitted Radhika into partnership for 1/4th share in the profits of the firm. The average profits of the firm for
AT

the last five years were ₹ 5,00,000. Calculate the value of goodwill of the firm by capitalization of average
profits method. The normal rate of return in the business is 10%.
R
TO

Q 11 A, B and C were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. C retired and his
capital balance after adjustments regarding reserves, accumulated profits/losses and his share of gain on
EC

revaluation was ₹ 2,50,000. C was paid ₹ 3,22,000 including his share of goodwill. The amount credited to C’s
capital account, on his retirement, for goodwill will be :
IR

(A) ₹ 72,000​ ​ (B) ₹ 7,200​ ​ (C) ₹ 24,000​ ​ (D) ₹ 36,000

D

Q 12 The goodwill of a firm is valued at 4 years’ purchase of average profits of last five years. The profits of
the last five years were :
Year Profit (₹) Year Profit (₹)

2013 – 14 ₹ 2,00,000 2015 – 16 ₹ 4,50,000 (including an abnormal gain of ₹ 50,000)

2014 – 15 ₹ 3,00,000 2016 – 17 ₹ 3,50,000 (after charging an abnormal loss of ₹ 90,000)
2017 – 18 ₹ 2,60,000
 Calculate the amount of the goodwill.

Q 13 Ramesh, Mahesh and Suresh were partners in a firm sharing profits in the ratio of 3 : 3 : 2. Their
respective fixed capitals were : Ramesh ₹ 5,00,000; Mahesh ₹ 4,00,000 and Suresh ₹ 3,00,000. They admitted
Govind as a new partner for 1/5th share in the profits. Govind brought ₹ 4,00,000 as his capital and the
necessary amount for goodwill premium. Their new profit sharing ratio will be 2 : 1 : 1 : 1.
Calculate the value of goodwill of the firm, showing your workings clearly. Pass necessary journal entries for
the above transactions on Govind’s admission.

ST
Q 14 How does ‘Nature of business’ affect the value of goodwill of a firm ?

EA
Q 15 The capital of the firm of Anuj and Benu is ₹ 10,00,000 and the market rate of interest is 15%. Annual

T-
salary to the partners is ₹ 60,000 each. The profit for the last three years were ₹ 3,00,000, ₹ 3,60,000 and ₹

IC
4,20,000. Goodwill of the firm is to be valued on the basis of two years purchase of last three years average

TR
super profits. Calculate the goodwill of the firm.

Q 16 The goodwill of a firm was to be valued at two years’ purchase of the average profits of the last three

IS
years. The profits were as under :

ID
2014 – 15 : ₹ 20,000 (including an abnormal gain of ₹ 5,000)

H
2015 – 16 : ₹ 40,000 (after charging an abnormal loss of ₹ 10,000)

EL
2016 – 17 : ₹ 40,000
Calculate the amount of goodwill.

D
Q17 Calculate goodwill of the firm on the basis of 3 years’ purchase of the average profits of the last five
T
C
years. The profits of the last five years were :
N

Year Amount (₹) Year Amount (₹) Year Amount (₹)

G

2013-14 4,00,000 2015-16 (60,000)

N

2017-18 2,50,000
2014-15 5,00,000 2016-17 1,50,000
IO

Additional Information :
AT

(i) On 1st January, 2016, a fire broke out which resulted into a loss of goods of ₹ 3,00,000. A claim of ₹ 70,000
was received from the insurance company.
C

(ii) During the year ended 31st March, 2017 the firm received an unexpected tax refund of ₹ 80,000.
U
ED

Q17 Vinay and Naman are partners sharing profit in the ratio of 4:1. Their capitals were ₹ 90,000 and ₹ 70,000
respectively. They admitted Prateek for 1/3 share in the profits. Prateek brought ₹ 1,00,000 as his capital.
F

Calculate the value of firm’s goodwill.

O

Q18 Amit and Kartik are partners sharing profits and losses equally. They decided to admit Saurabh for an
E

equal share in the profits. For this purpose the goodwill of the firm was to be valued at four years’ purchase of
AT

super profits. Calculate the value of Goodwill of the Firm.

R

The Balance Sheet of the firm on Saurabh’s admission was as follows :

TO

Liabilities Amount (₹) Assets Amount (₹)

EC

Capitals : Amit 90,000 Machinery 75,000

Kartik 50,000 1,40,000 Furniture 15,000
IR

Reserve 20,000 Stock 30,000

D

Loan 25,000 Sundry Debtors 20,000

Sundry Creditors 5,000 Cash 50,000
1,90,000 1,90,000

Q19 The normal rate of return is 12% per annum. Average profit of the firm for the last four years was ₹
30,000. Calculate Saurabh’s share of goodwill. A, B, C and D were partners in a firm sharing profits in 3 : 3 : 3 :
1 ratio. On 31st January, 2017 D retired. A, B and C decided to share future profits in the ratio of 5 : 1 : 1. On
D’s retirement the goodwill of the firm was valued at ₹ 4,90,000. Showing your working notes clearly pass
necessary Journal Entry for the treatment of goodwill in the books of the firm on D’s retirement.
 Q 20 Karan and Varun were partners in a firm sharing profits and losses in the ratio of 1 : 2. Their fixed
capitals were ₹ 2,00,000 and ₹ 3,00,000 respectively. On 1st April, 2016 Kishore was admitted as a new
partner for 1/4th share in the profits. Kishore brought ₹ 2,00,000 for his capital which was to be kept fixed like
the capitals of Karan and Varun. Kishore acquired his share of profit from Varun.
Calculate goodwill of the firm on Kishore’s admission and the new profit sharing ratio of Karan, Varun and
Kishore. Also, pass necessary Journal Entry for the treatment of Goodwill on Kishore’s admission
considering that Kishore did not bring his share of goodwill premium in Cash.

ST
Q 21 Amar, Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 2 : 2 : 2 : 1. On
31st January, 2017 Sohan retired. On Sohan’s retirement the goodwill of the firm was valued at ₹ 70,000. The

EA
new profit sharing ratio between Amar, Ram and Mohan was agreed as 5 : 1 : 1.

T-
Showing your working notes clearly, pass necessary Journal Entry for the treatment of goodwill in the books
of the firm on Sohan’s retirement.

IC
TR
Q 22 Kavi, Ravi, Kumar and Guru were partners in a firm sharing profits in the ratio of 3 : 2 : 2 : 1. On
1.2.2017, Guru retired and the new profit sharing ratio decided between Kavi, Ravi and Kumar was 3 : 1 : 1.

IS
On Guru’s retirement the goodwill of the firm was valued at ₹ 3,60,000.

ID
Showing your working notes clearly, pass necessary journal entry in the books of the firm for the treatment of
goodwill on Guru’s retirement.

H
EL
Q 23 Madhu and Neha were partners in a firm sharing profits and losses in the ratio of 3 : 5. Their fixed
capitals were ₹ 4,00,000 and ₹ 6,00,000 respectively. On 1.1.2016, Tina was admitted as a new partner for

D
1/4th share in the profits. Tina acquired her share of profit from Neha. Tina brought ₹ 4,00,000 as her capital
T
which was to be kept fixed like the capitals of Madhu and Neha. Calculate the goodwill of the firm on Tina’s
C
admission and the new profit sharing ratio of Madhu, Neha and Tina.
N

Also, pass the necessary journal entry for the treatment of goodwill on Tina’s admission considering that
G

Tina did not bring her share of goodwill premium in cash.

N
IO

Q 24 P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2017, S
retired from the firm. On S’s retirement the goodwill of the firm was valued at ₹ 4,20,000. The new profit
AT

sharing ratio between P, Q and R will be 4 : 3 : 3. Showing your working notes clearly, pass necessary journal
C

entry for the treatment of goodwill in the books of the firm on S’s retirement.
U
ED

Q 25 Pankaj and Naresh were partners in a firm sharing profits in the ratio of 3 : 2. Their fixed capitals were ₹
5,00,000 and ₹ 3,00,000 respectively. On 1.1.2017, Saurabh was admitted as a new partner for 1/5th share in
the profits. Saurabh acquired his share of profit from Pankaj. Saurabh brought ₹ 3,00,000 as his capital which
F
O

was to be kept fixed like the capitals of Pankaj and Naresh.

Calculate the goodwill of the firm on Saurabh’s admission and the new profit sharing ratio of Pankaj, Naresh
E

and Saurabh. Also, pass necessary journal entry for the treatment of goodwill.
AT

Q 26 The average profit earned by a firm is ₹ 2,50,000 which includes overvaluation of stock of ₹ 10,000 on
R
TO

an average basis. The capital invested in the business is ₹ 14,00,000 and the normal rate of return is 15%.
Calculate goodwill of the firm on the basis of 4 times the super profit.
EC

Q 27 The average profit earned by a firm is ₹ 1,00,000 which includes undervaluation of stock of ₹ 40,000
IR

on an average basis. The capital invested in the business is ₹ 6,30,000 and the normal rate of return is 5%.
Calculate goodwill of the firm on the basis of 5 times the super profit.
D

Q 28 On 1st April, 2014 a firm had assets of ₹ 1,00,000 excluding stock of ₹ 20,000. Partners’ capital
accounts showed a balance of ₹ 60,000. The current liabilities were ₹ 10,000 and the balance constituted the
reserve. If the normal rate of return is 8%, the ‘Goodwill’ of the firm is valued at ₹ 60,000 at four years of
purchase of super profit, find the average profit of the firm.

Q 29 Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3 : 1. Goodwill appeared in the
 books at ₹ 4,40,000. Raja was admitted to the partnership. The new profit sharing ratio among Anu, Bhagwan
and Raja was 2 : 2 : 1. Raja brought ₹ 1,00,000 for his capital and necessary cash for his goodwill premium.
The goodwill of the firm was valued at ₹ 2,50,000.
Record the necessary journal entries in the books of the firm for the above transactions.

Q 30 When the new partner brings cash for goodwill, the amount is credited to :
(a) Realisation Account ​ ​ ​ ​ (b) Cash Account
(c) Premium for Goodwill Account​ ​ ​ (d) Revaluation Account

ST
Q 31 The average profit earned by a firm is ₹ 95,000 which includes undervaluation of stock of ₹ 10,000 on

EA
an average basis. The capital invested in the business is ₹ 9,00,000 and the normal rate of return is 9%.
Calculate goodwill of the firm on the basis of 8 times the super profit.

T-
IC
Q 32 The average profit earned by a firm is ₹ 80,000 which includes undervaluation of stock of ₹ 8,000 on

TR
an average basis. The capital invested in the business is ₹ 8,00,000 and the normal rate of return is 8%.
Calculate goodwill of the firm on the basis of 7 times the super profit.

IS
Q 33 The average profit earned by a firm is ₹ 75,000 which includes undervaluation of stock of ₹ 5,000 on

ID
an average basis. The capital invested in the business is ₹ 7,00,000 and the normal rate of return is 7%.

H
Calculate goodwill of the firm on the basis of 5 times the super profit.

EL
Q 34 Disha and Divya are partners in a firm sharing profits in the ratio of 3: 2 respectively. The fixed capital

D
of Disha is ₹ 4,80,000 and Divya is ₹ 3,00,000. On 1.4.2012 they admitted Hina as a new partner for 1/5th
share in future profits. Hina brought ₹ 3,00,000 as her capital.
T
C
Calculate the value of goodwill of the firm and record necessary Journal Entries on Hina's admission.
N

Q 35 Abhay and Been are partners in a firm. They admit Chetan as a partner with 1/4th share in the profits of
G

the firm. Chetan brings ₹ 2,00,000 as his share of capital. The value of the total assets of the firm is ₹ 5,40,000
N

and outside liabilities are valued at ₹ 1,00,000 on that date. Give the necessary entry to record goodwill at
IO

the time of Chetan's admission. Also show your working notes.

AT

Q 36 A business has earned average profits of ₹ 2,00,000 during the last few years and the normal rate of
return in similar business is 10%. Find out the value of goodwill by:
C

(i) Capitalisation of Super Profit Method.

U

(ii) Super Profit Method if the goodwill is valued at 3 years' purchase of super profits.
ED

The assets of the business were ₹ 20,00,000 and its external liabilities ₹ 3,60,000.
F

Q 37 Anshul, Babita and Chander were partners in a firm running a successful business of car accessories.
O

They had agreed to share profits and losses in the ratio of 1/2 : 1/3 : 1/6 respectively. After running business
E

successfully and without any disputes for 10 years,Babita decided to retire due to old age and
AT

the Anshul and Chander decided to share future profits and losses in the ratio of 3 : 2. The accountant
passed the following journal entry for Babita share of goodwill and missed some information. Fill in the
R

missing figures in the following Journal entry and calculate the gaining ratio.
TO

Date Particulars LF Amount (₹) Amount (₹)

EC

Anshul’s Capital A/c Dr ××××

IR

Chander’s Capital A/c Dr 21,000

To Babita’s Capital A/c ××××
D

(Chander’s share of Goodwill debited to the amounts of

continuing partners in their gaining ratio)

Q 38 Calculate goodwill of a firm on the basis of three years purchases of the Weighted Average Profits of
the last four years. The profits of the last four years were:
Years (ending 31st march) 2020 2021 2022 2023

Amount (₹) 28,000 27,000 46,900 53,810

 a) On 1st April, 2020 a major plant repair was undertaken for ₹10,000 which was charged to revenue. The said
sum is to be capitalized for goodwill calculation subject to adjustment of depreciation of 10% on reducing
balance method.
b) For the purpose of calculating Goodwill the company decided that the years ending 31.03.2020 and
31.03.2021 be weighted as 1 each (being COVID affected) and for year ending 31.03.2022 and 31.03.2023
weights be taken as 2 and 3 respectively.

Q 39 Navya and Radhey were partners sharing profits and losses in the ratio of 3: 1. Shreya was admitted

ST
for 1/5th share in the profits. Shreya was unable to bring her share of goodwill premium in cash. The journal
entry recorded for goodwill premium is given below:

EA
Date Particulars L.F. Amount (₹) Amount (₹)

T-
Shreya’s Current A/c. Dr. 24,000

IC
To Navya’s Capital A/c. 8,000

TR
To Radhey’s Capital A/c 16,000
(Being entry for goodwill treatment passed)

IS
The new profit-sharing ratio of Navya, Radhey and Shreya will be:

ID
a) 41: 7: 12​ ​ b) 13:12: 10​ ​ ​ c) 3:1: 1​ ​ d) 5:3: 2

H
Q 40 If average capital employed in a firm is ₹8,00,000, average of actual profits is ₹1,80,000 and normal

EL
rate of return is10%, then value of goodwill as per capitalization of average profits is:

D
(A) ₹10,00,000​​ (B) ₹18,00,000​ ​ (C) ₹80,00,000​
T ​ (D) ₹78,20,000

Topic No.:- 4
C
N

Preparation of Revaluation A/C

G
N

Link for the understanding the Concept of Revaluation A/C⇩

IO

Revaluation of Assets and Reassessment of Liabilities

AT

4. Revaluation of Assets and Reassessment of Liabilities

C

⇨ At the time of reconstitution of partnership firm, it is always desirable to ascertain whether the
U
ED

assets of the firm are shown in books at their current values.

⇨ In case the assets are overstated or understated, these are revalued.
F
O

⇨ Similarly, a reassessment of the liabilities is also done so that these are brought in the books at
E

their correct values.

AT

⇨ At times there may also be some unrecorded assets and liabilities of the firm.
R

⇨ These also have to be brought into the books of the firm. For this purpose the firm has to prepare
TO

the Revaluation Account. The gain or loss on revaluation of each asset and liability is transferred to
EC

this account and finally its balance is transferred to the capital accounts of the old partners in their old
IR

profit sharing ratio.

D

⇨ the revaluation account is credited with increase in the value of each asset and decrease in its
liabilities because it is a gain and is debited with decrease in the value of assets and increase in
its liabilities is debited to revaluation account because it is a loss.
Similarly unrecorded assets are credited and unrecorded liabilities are debited to the
revaluation account.
⇨ If the revaluation account finally shows a credit balance then it indicates net gain and
 ⇨ If there is a debit balance then it indicates net loss.
⇨ Which will be transferred to the capital accounts of the old partners in old ratio.

Journal entries at the time of Revaluation of Assets & Reassessment of Liabilities

Increase ( ⇧ ) in the Value of Asset Decrease ( ⇩ ) in the Value of Asset

__________ (Asset Name) A/C Dr. Revaluation A/C Dr.

ST
To Revaluation A/C To __________ (Asset Name)

EA
Increase ( ⇧ ) in the Value of Liability Decrease ( ⇩ ) in the Value of Liability

T-
IC
Revaluation A/C Dr. __________ (Liability Name) A/C Dr.

TR
To __________ (Liability Name) A/C To Revaluation A/C

IS
Unrecorded Asset Unrecorded Liability

ID
__________ (Asset Name) A/C Dr. Revaluation A/C Dr.

H
To Revaluation A/C To __________ (Liability Name) A/C

EL
Revaluation Profit ⭐ Revaluation Loss ⭐
Revaluation A/C Dr. D
Partner’s Capital / Current A/C Dr.
T
C
To Partner’s Capital / Current A/C To Revaluation A/C
N
G

➤ Note:- Old Partner’s in Old Ratio ➤ Note:- Old Partner’s in Old Ratio
⭐ There will be either profit or Loss on revaluation.
N

Note:-
IO

Revaluation of Assets and Reassessment of Liabilities

AT

Transactions Effect on Effect on Effect on

C

or Revaluation A/C Partner’s Capital A/C Balance Sheet

U

Adjustment Dr. Cr. Dr. Cr. Liabilites Assets

✅
ED

Increase ( ⇧ ) in the Value Revised value

of Asset to be shown
✅
F
O

Decrease ( ⇩ ) in the Revised value

Value of Asset to be shown
✅
E
AT

Increase ( ⇧ ) in the Value Revised value

of Liability to be shown

✅ Not to be shown in
R

Decrease ( ⇩ ) in the Partner’s Capital A/C Revised value

TO

Value of Liability to be shown

✅
EC

Unrecorded Asset To be Shown

Unrecorded Liability ✅ To be Shown

IR

⭐ ✅ ✅
D

Revaluation Profit Not to be shown in

Revaluation Loss ⭐ ✅ ✅ Balance Sheet

Note:- ⭐ There will be either profit or Loss on revaluation.

➤ If a Partner takes over any Asset of the firm then it will be shown in debit (Dr.) Side of
his/her Capital / Current A/C.
➤ If a Partner agrees to pay any Liability of the firm then it will be shown in debit (Cr.) Side of
his/her Capital / Current A/C
 Revaluation A/C
Particular ₹ (Dr.) Particular ₹ (Cr.)
To Assets ( ⇧ ) **** By Liabilities ( ⇧ ) ****
To Liabilities ( ⇩ ) **** By Assets ( ⇩ ) ****
To Unrecorded Liabilities By Unrecorded Assets
⭐
**** ****
To Partner’s Capital / Current A/C By Partner’s Capital / Current

ST
(Profit on revaluation)
****
A/C ⭐ ****

EA
(Loss on revaluation)

T-
**** ****

IC
⭐

TR
Note:- Only one will arrived i.e. either profit on revaluation or Loss on revolution will
ascertain at the time of Revaluation of Assets or reassessment of Liabilities.

IS
Partner’s Capital A/C

ID
Particular A B Particular A B

H
EL
To Revaluation A/C ×××× ×××× By Balance b/d ×××× ××××

⭐
(If Loss on revaluation By Revaluation A/C ×××× ××××

D ⭐
ascertain ) (If Profit on revaluation
ascertain )
T
⭐ Only one will be shown either profit or Loss on revaluation.
C
Note:-
N
G

PRACTICE QUESTIONS
N

Q 1 Kamal, Rahul and Neeraj were partners in a firm sharing profit and losses in the ratio of 5:3:2. On 31st
IO

March 2022 their Balance sheet was as follows:​ ​ ​ ​ ​ ​ (CBSE-2023)

AT

Balance Sheet of Kamal, Rahul and Neeraj as on 31st March, 2022

C

Liabilities ₹ Assets ₹
U

Capital Accounts: Kamal 1,20,000 Land and Building 1,70,000

ED

Rahul 1,20,000 Plant and Machinery 2,60,000

Neeraj 1,20,000 3,60,000 Stock 1,00,000
F

General Reserve 1,20,000 Debtors 80,000

O

Sundry Creditors 1,80,000 Cash 50,000

E

6,60,000 6,60,000
AT

On the above date Rahul retired and following terms were agreed upon:-
R

(i) Goodwill of the form was valued at ₹ 3,50,000.

TO

(ii) An item of ₹ 10,000 included in Sunday creditor is not likely to be claimed and hence written off. Stock was
valued at ₹ 90,000.
EC

(iii) Capital of the new form was fixed at ₹ 2,10,000 and the same will be adjusted in the profit sharing ratio of
the remaining partners. For this purpose the required cash will be brought in or paid off as the case maybe.
IR

(iv) Amount payable to Rahul will be transferred to is loan account.

D

Prepare Revaluation account and Partner’s capital accounts on Rahul’s retirement. (Only focus on
Preparing a Revaluation A/C)​ Ans:- Revaluation A/C :-

Q 2 Ashish and Vishesh were partners in a firm sharing profit and losses in the ratio of 3:2. On 31st March
2022 their Balance sheet was as follows:​ ​ ​ ​ ​ ​ ​ (CBSE-2023)
Balance Sheet of Ashish and Vishesh as on 31st March, 2022
Liabilities ₹ Assets ₹
Creditors 30,000 Cash at Bank 50,000
 Outstanding electricity bill 20,000 Debtors 80,000
Capital Accounts: Less:- Provisions for bad debts 2,000 78,000
Ashish 3,00,000 Stock 1,12,000
Vishesh 2,00,000 5,00,000 Machinery 3,00,000
Profit and Loss A/C 10,000
5,50,000 5,50,000
On 1st April, 2022 Manya was admitted into the firm with 1/4th share in the profit on the following terms:-

ST
(i) Manya will bring ₹ 1,00,000 as her capital and ₹ 50,000 share of goodwill premium in cash.
(ii) outstanding electricity bill will be paid off.

EA
(iii) stock was found over valued by ₹ 12000.

T-
Pass the necessary journal entries in the books of the form on Manya’s admissions.

IC
Q 3 Heena, Meena and Tina are partners in a firm sharing profits and losses equally. Their Balance Sheet on
April 1st, 2020 was as follows :​ ​ ​ ​ ​ ​ ​ ​

TR
(CBSE-2022)
Balance Sheet of Heena, Meena & Tina as on 1s April, 2020

IS
Liabilities ₹ Assets ₹

ID
Capital Accounts: Building 40,000
Heena 30,000 Machinery 30,000

H
Meena 30,000 Furniture 12,000

EL
Tina 28,000 88,000 Stock 22,000
General Reserve 12,000 Debtors 20,000
Sundry Creditors 18,000
D
Less: Provision for Doubtful Debts 1,000 19,000
T
Bills Payable 12,000 Bank 7,000
C
1,30,000 1,30,000
N

Tina retired from the firm on the above date and the following was agreed upon :
G

(a) Building was to be appreciated by 20%.

N

(b) Machinery was to be depreciated by ₹ 1,500.

IO

(c) Provision for doubtful debts was to be increased to ₹ 1,500.

(d) Goodwill was valued at ₹ 21,000 on Tina's retirement and the same was to be treated without opening
AT

goodwill account.
(e) The balance in Tina's Capital account will be transferred to her Loan account.
C
U

Prepare Revaluation Account and Partners' Capital Accounts. (Only focus on Preparing a Revaluation
ED

A/C)​ Ans:- Revaluation A/C :-

Q 4 Ravi, Mohan and Pandey were partners in a firm sharing profits and losses in the ratio of 7 : 8 : 9. On 31st
F

March, 2022, their Balance Sheet was as follows :​ ​ ​ ​ ​ ​ (CBSE-2022 Compt)

O

Balance Sheet of Ravi, Mohan & Pandey as on 1s April, 2020

E

Liabilities ₹ Assets ₹
AT

Capital Accounts: Land & Building 10,00,000

Ravi 3,00,000 Machinery 3,00,000
R

Mohan 4,00,000 Stock 12,000

TO

Pandey 8,43,000 15,43,000 Debtors 210,000

General Reserve 24,000 Less: Provision for Doubtful Debts 10,000 2,00,000
EC

Sundry Creditors 1,41,000 Bank 27,000

Profit and Loss Account (Loss of 2021 22) 90,000
IR

17,08,000 17,08,000
D

On 31st March, 2022, Mohan retired from the firm on the following terms :
(i) Goodwill of the firm was valued at ₹ 4,80,000.
(ii) account without opening goodwill account.
(iii) Debtors of ₹ 10,000 will be written off and a provision of 10% for bad and doubtful debts will be created on
debtors.
(iv) Machinery will be depreciated by 10% and land and building will be appreciated by 5%.
(v) the Balance of Mohan’s Capital A/c will be transferred to his loan account.
Prepare Revaluation Account and Capital Account on Mohan’s Retirement, in the books of the firm. (Only
focus on Preparing a Revaluation A/C)​ Ans:- Revaluation A/C :-
 Q 5 Gini, Bini and Mini were in partnership sharing profits and losses in the ratio of 5:2:2. Their Balance Sheet
as at 31st March, 2021 was as follows:
Balance Sheet of Gini, Bini & Mini as on 31st March, 2021
Liabilities ₹ Assets ₹
Capital Accounts: Machinery 1,00,000
Gini 4,60,000 Building 5,70,000
Bini 3,00,000 Inventories 1,34,000
Mini 2,90,000 10,50,000 Furniture 1,80,000

ST
Workmen’s Compensation Reserve 32,000 Debtors 38,000

EA
Sundry Creditors 56,500 Less: Provision for Doubtful Debts 2,300 35,700
Bank overdraft 61,500 Cash 1,17,300

T-
Goodwill 63,000

IC
12,00,000 12,00,000
On 31st March, 2021, Gini retired from the firm. All the partners agreed to revalue the assets and liabilities on

TR
the following basis:

IS
(i) Bad debts amounted to ₹ 5,000. A provision for doubtful debts was to be maintained at 10% on debtors.
(ii) Partners have decided to write off existing goodwill.

ID
(iii) Goodwill of the firm was valued at ₹ 54,000 and be adjusted into the Capital Accounts of Bini and Mini,

H
who will share profits in future in the ratio of 5:4.

EL
(iv) The assets and liabilities valued as: Inventories ₹1,30,000; Machinery ₹ 82,000; Furniture ₹1,95,000 and
Building ₹ 6,00,000.

D
(v) Liability of ₹23,000 is to be created on account of Claim for Workmen Compensation.
T
(vi) There was an unrecorded investment in shares of ₹ 25,000. It was decided to pay off Gini by giving her
C
unrecorded investment in full settlement of her part payment of ₹ 28,000 and remaining amount after two
N

months.
G

Prepare Revaluation Account and Partners’ Capital Accounts as on 31st March, 2021. (Only focus on
N

Preparing a Revaluation A/C)​ Ans:- Revaluation A/C :-

IO

Q6. Prem, Kumar and Aarti were partners sharing profits in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st
AT

March, 2019 was as under :

C

Balance Sheet of Prem, Kumar and Aarti as at 31st March 2019

U

Liabilities Amount Assets Amount

ED

Capitals : Buildings 25,000

Prem 30,000 Plant & Machinery 15,000
F

Investments 10,000
O

Kumar 20,000
Debtors 10,000
Aarti 20,000
E

70,000 Stock 5,000

AT

General Reserve 8,000 Cash 25,000

Sundry Creditors 10,000
R

Investment Fluctuation Reserve 2,000

TO

90,000 90,000
EC

On the above date, Kumar retired. The terms of retirement were :

(i) Kumar sold his share of goodwill to Prem for 8,000 and to Aarti for 4,000.
IR

(ii) Stock was found to be undervalued by 1,000 and building by 7,000.

D

(iii) Investments were sold for 11,000.

(iv) There was an unrecorded creditor of 7,000.
Prepare the Revaluation Account, Capital Accounts of partners. (Only focus on Preparing a
Revaluation A/C)​ Ans:- Revaluation A/C :-

Q7. Akul, Bakul and Chandan were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March,
2018 their Balance Sheet was as follows :
 Balance Sheet of Akul, Bakul and Chandan as at 31st March 2019

Liabilities Amount Assets Amount

Capitals : Furniture 90,000

Akul 1,60,000 Plant & Machinery 1,80,000
Bakul 1,20,000 Debtors. 60,000
Less: Provision for Doubtful Debts 2,000 58,000
Chandan 92,000

ST
3,72,000 Stock 80,000
General Reserve 20,000 Cash at Bank 42,000

EA
Sundry Creditors 45,000
Employees Provident Fund 13,000

T-
4,50,000 4,50,000

IC
TR
Bakul retired on the above date and it was agreed that :

IS
(i) Plant and Machinery was undervalued by 10%.

ID
(ii) Provision for doubtful debts was to be increased to 15% on debtors.
(iii) Furniture was to be decreased to 87,000.

H
(iv) Goodwill of the firm was valued at 3,00,000 and Bakul’s share was to be adjusted through the capital

EL
accounts of Akul and Chandan.
Prepare Revaluation account, Partners’ Capital accounts. ​(Only focus on Preparing a Revaluation A/C)
​ Ans:- Revaluation A/C :-​ ​ ​ ​ ​ ​
D
T
C
Q8 Divya, Yasmin and Fatima are partners in a firm, sharing profits and losses in 11:7:2 respectively. The
N

balance sheet of the firm as on 31st March 2018 was as follows:

G

Balance Sheet of Divya, Yasmin and Fatima as at March 31, 2018

N

Liabilities Amount Assets Amount

IO
AT

Capitals : Factory Building 7,35,000

Divya 5,10,000 Plant & Machinery 1,80,000
C

Yasmin 3,00,000 Furniture 2,60,000

U

Stock 1,45,000
Fatima 5,00,000
ED

13,10,000 Debtors 1,50,000

Reserve Fund 90,000 Less:- Provisions 30,000 1,20,000
Public Deposits 1,19,000 Cash at Bank 1,59,000
F

Sundry Creditors 70,000

O

Outstanding Expenses 10,000

E
AT

15,99,000 15,99,000
On 1.4.2018, Aditya is admitted as a partner for one-fifth share in the profits with a capital of ₹4,50,000 and
R

necessary amount for his share of goodwill on the following terms:

TO

i. Furniture of ₹2,40,000 were to be taken over Divya, Yasmin and Fatima equally.
EC

ii. A creditor of ₹ 7,000 not recorded in books to be taken into account.

iii. Goodwill of the firm is to be valued at 2.5 years purchase of average profits of last two years. The profit of
IR

the last three years were: 2015-16 ₹6,00,000; 2016-17 ₹2,00,000; 2017-18 ₹6,00,000
D

iv. At time of Aditya’s admission Yasmin also brought in 50,000 as fresh capital
v. Plant and Machinery is re-valued to ₹2,00,000 and expenses outstanding were brought down to ₹ 9,000.
Prepare Revaluation Account & Partners Capital Account. (Only focus on Preparing a Revaluation A/C)
​ Ans:- Revaluation A/C :-

Q9 The partners share profits in the ratio of 5:3:2. On 1-4-2018, Cris retires from the firm on the following
terms and conditions:
i. 20% of the General Reserve is to remain as a reserve for bad and doubtful debts
ii. Motor car is to be reduced by 5%
 iii. Stock is to be revalued at ₹ 17,500 and investment to be re-valued at ₹ 18,000
iv. Goodwill is to be valued at 3 years’ purchase of the average profits of last 4
years. Profits of the last four years were:
2014-15 ₹13,000; 2015-16 ₹11,000; 2016-17 ₹16,000 and 2017-18 ₹24,000
Cris was paid in full. Adil and Bhavya borrowed the necessary amount from the Bank on the security of
Building to pay off Cris.
The Balance Sheet of Adil, Bhavya and Cris as at 31st March 2018 was as under:
Balance Sheet of Adil, Bhavya and Cris as at March 31, 2018

ST
Liabilities Amount Assets Amount

EA
Capitals : Buildings 1,20,000
Adil 40,000 Motor car 18,000

T-
Bhavya 30,000 Stock 20,000

IC
Investments 20,000
Cris 20,000 90,000 Debtors 40,000

TR
General Reserve 10,000 Cash at Bank 12,000
Investment Fluctuation Reserve 7,000

IS
Sundry Creditors 1,23,000

ID
2,30,000 2,30,000

H
Pass necessary journal entries. (You have to pass Journal entries only related to Revaluation A/C)

EL
Q10 Sahaj and Nimish are partners in a firm. They share profits and losses in the ratio of 2: 1. Gauri, a

D
common friend decides to enter into the Partnership Business. Therefore, they admitted her into partnership for
a 1/3" share. She brought her share of goodwill in cash and proportionate capital. At the time of Gauri's
T
C
admission, the Balance Sheet of Sahaj and Nimish was as under :
N

Balance Sheet of Sahaj and Nimish as at March 31, 2012

G

Liabilities Amount Assets Amount

N

Capitals : Machinery 1,20,000

IO

Sahaj 1,20,000 Furniture 80,000

Nimish 80,000 Stock 50,000
AT

2,00,000 Debtors 30,000

General Reserve
30,000 Cash at Bank 20,000
C

Employee Provident Fund 40,000

U

Sundry Creditors 30,000

ED

3,00,000 3,00,000
It was decided to :
F

(a) Reduce the value of stock by ₹ 5,000.

O

(b) Depreciate furmiture by 10% and appreciate machinery by 5%.

E

(c) ₹ 3,000 of the debtors proved bad. A provision of 5% was to be created on Sundry Debtors for doubtful
AT

debts.
(d) Goodwill of the firm was valued at ₹ 45,000.
R
TO

Prepare Revaluation Account, Partners' Capital Accounts ((You have to Prepare Revaluation A/C)

Q11 Following is the Balance Sheet of Amit and Vidya as at 31st March, 2014.
EC

Balance Sheet of Sahaj and Nimish as at March 31, 2012

IR

Liabilities Amount Assets Amount

D

Capitals : Plant & Machinery 1,20,000

Amit 1,10,000 Goodwill 20,000
Vidya 60,000 1,70,000 Stock 30,000
Workmen’s Compensation Fund 30,000 Debtors 44,000
Employee Provident Fund 16,000 Lsee:- Provision for D. Debts 2,000 42,000
Sundry Creditors 26,000 Cash at Bank 20,000
Profit And Loss A/C 10,000
2,42,000 2,42,000
 On the above date Chintan was admitted as a partner for 1/4 share in the profits of the firm with the following
terms :
(a) ₹ 2,900 will be written off as bad debts.
(b) Stock was taken over by Vidya at ₹ 35,000.
(c) Goodwill of the firm was valued at ₹ 40,000. Chintan brought his share of goodwill premium in cash.
(d) Chintan brought proportionate capital and the capitals of the other partners were adjusted on the basis of
Chintan’s capital. For this necessary cash was to be brought in or paid off to the partners as the case many be.
Prepare Revaluation Account and Partners’ Capital Accounts. (You have to Prepare Revaluation A/C)

ST
Q12. Lokesh, Mansoor and Nihal were partners in a firm sharing profits as 50%, 30% and 20% respectively.

EA
On 31st March, 2014, their Balance Sheet was as follows :

T-
Balance Sheet of Lokesh, Mansoor and Nihal as at March 31, 2014

IC
Liabilities Amount Assets Amount

TR
Capitals : Investment 80,000
Lokesh 1,40,000 Goodwill 40,000

IS
Mansoor 80,000 Stock 38,000
Nihal 50,000 2,70,000 Debtors 94,000

ID
Investment Fluctution Fund 20,000 Lsee:- Provision for D. Debts 6,000 88,000
Employee Provident Fund 10,000 Cash In Hand 68,000

H
Sundry Creditors 34,000 Profit And Loss A/C 20,000

EL
3,34,000 3,34,000

D
On the above date, Mansoor retired and Lokesh and Nihal agreed to continue on the
following terms :
T
C
(a) Firm’s goodwill was valued at ₹ 1,02,000 and it was decided to adjust Mansoor’s share of goodwill into the
N

capital accounts of the continuing partners.

G

(b) There was a claim for workmen’s compensation to the extent of ₹ 12,000 and investments were brought
down to ₹ 30,000.
N

(c) Provision for bad debts was to be reduced by ₹ 2,000.

IO

(d) Mansoor was to be paid ₹ 20,600 in cash and the balance will be transferred to his loan account which was
AT

paid in two equal installments together with interest @ 10% p.a.

(e) Lokesh’s and Nihal’s capital were to be adjusted in their new profit sharing ratio by bringing in or paying off
C

cash as the case may be.

U
ED

Prepare Revaluation Account and Partners’ Capital Accounts. (You have to Prepare Revaluation A/C)

Q13. L,M & N were partners in a firm sharing profits and losses in the ratio of 3:2:1. their Balance Sheet was
F

as follows :
O

Balance Sheet of L,M & N as at March 31, 2015

E

Liabilities Amount Assets Amount

AT

Capitals : Bank 34,000

R

L 1,20,000 Debtors 46,000

TO

M 80,000 Stock 2,20,000

N 40,000 2,40,000
Investments 60,000
EC

General Reserve 42,000

Sundry Creditors 1,68,000 Furniture 20,000
Machinery 70,000
IR
D

4,50,000 4,50,000
On the above date O was admitted as a new partner and it was decided that :
(i) The new profit sharing ratio between L, M, N and O will be 2: 2: 1:1.
(ii) Goodwill of the firm was valued at ₹ 1,80,000 and O brought his share of goodwill premium in cash.
(iii) The market value of investments was ₹ 36,000.
(iv) Machinery will be reduced to ₹ 58,000.
(v) A creditor of ₹ 6,000 was not likely to claim the amount and hence was to be written off.
(vi) O will bring proportionate capital so as to give him 1/6th share in the profits of the firm.
 Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the New Firm. (You
have to Prepare Revaluation A/C)

Q14 J,H & K were partners in a firm sharing profits and losses in the ratio of 3:2:1. their Balance Sheet was as
follows :
Balance Sheet of J,H & K as at March 31, 2015
Liabilities Amount Assets Amount
Capitals : Land and Building 1,24,000

ST
J 1,00,000 Motor Vans 40,000
H 80,000

EA
Stock 30,000
K 40,000 2,20,000
Investments 38,000
Profit & Loss A/C 80,000

T-
Sundry Creditors 42,000 Machinery 24,000

IC
Investment - Fluctuation Fund Debtors 80,000

TR
Less :- Provisions 6,000 74,000
Cash 32,000

IS
3,62,000 3,62,000

ID
On the above date H retired and J and K agreed to continue the business on the following terms:
Goodwill of the firm was valued at 7 1,02,000.

H
(i) There was a claim of ₹ 8,000 for workmen's compensation. (ii) Provision for bad debts was to be reduced by

EL
₹ 2,000.

D
(iv) H will be paid ₹ 14,000 in cash and the balance will be transferred in his loan account which will be paid in
four equal yearly instalments together with interest @ 10% p.a.
T
C
(v) The new profit sharing ratio between J and K will be 3: 2 and their capitals will be in their new profit sharing
N

ratio. The capital adjustments will be done by opening current accounts.

G

Prepare Revaluation Account, Partner's Capital Accounts.(You have to Prepare Revaluation A/C)
N

Q15 Suresh, Ramesh, Mahesh and Ganesh were partners in a firm sharing profits in the ratio of 2 : 2 : 3 : 3.
IO

On 1.4.2016 their Balance Sheet was as follows :

AT

Balance Sheet of Suresh, Ramesh, Mahesh and Ganesh as at March 31, 2015
Liabilities Amount Assets Amount
C

Capitals : Fixed Assets 6,00,000

U

Suresh 1,00,000
ED

Current Assets 3,45,000

Ramesh 1,50,000
Mahesh 2,00,000
F

Gandehs 2,50,000 7,00,000

O

Sundry Creditors 1,70,000

Workmen Compensation Reserve 75,000
E
AT

9,45,000 9,45,000
From the above date the partners decided to share the future profits equally. For this purpose the goodwill of
R

the firm was valued at ₹ 90,000. It was also agreed that :

TO

(i) Claim against Workmen Compensation Reserve will be estimated at ₹ 1,00,000 and fixed assets will be
depreciated by 10%.
EC

(ii) The capitals of the partners will be adjusted according to the new profit sharing ratio. For this, necessary
IR

cash will be brought or paid by the partners as the case may be.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted
D

firm. (You have to Prepare Revaluation A/C)

Q16 C and D are partners in a firm sharing profits in the ratio of 4 : 1. On 31.3.2016, their Balance Sheet was
as follows :
Balance Sheet of C and D as at March 31, 2016
Liabilities Amount Assets Amount
Capitals : Cash 24,000
C 1,20,000 Debtors 36,000
 D 80,000 2,00,000 Stock 40,000
Sundry Creditors 40,000 Furniture 80,000
Provisions for Bad Debts 4,000 Plant & Machinery 80,000
Outstanding Salary 6,000
General Reserve 10,000
2,60,000 2,60,000
On the above date, E was admitted for 1/4th share in the profits on the following terms :
(i) E will bring ₹ 1,00,000 as his capital and ₹ 20,000 for his share of goodwill premium, half of which will be

ST
withdrawn by C and D.
(ii) Debtors ₹ 2,000 will be written off as bad debts and a provision of 4% will be created on debtors for bad and

EA
doubtful debts.

T-
(iii) Stock will be reduced by ₹ 2,000, furniture will be depreciated by ₹ 4,000 and 10% depreciation will be

IC
charged on plant and machinery.
(iv) Investments of ₹ 7,000 not shown in the Balance Sheet will be taken into account.

TR
(v) There was an outstanding repairs bill of ₹ 2,300 which will be recorded in the books.

IS
Pass necessary journal entries for the above transactions in the books of the firm on E’s admission. (You have
to pass Journal entries only related to Revaluation A/C)

ID
Q17 Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. On

H
31.3.2016, their Balance Sheet was as follows :

EL
Balance Sheet of Sameer, Yasmin and Saloni as on 31.3.2016

D
Liabilities Amount T Assets Amount
Capitals : Cash 80,000
C
Sameer 3,00,000 Debtors 90,000
N

Yasmin 2,50,000 Less:- Provisions 10,000 80,000

G

Saloni 1,50,000 7,00,000

Stock 1,00,000
Sundry Creditors 1,10,000
N

General Reserve 60,000 Patent 60,000

IO

Machinery 3,00,000
Buildings 2,00,000
AT

Profit & Loss A/C 50,000

C

8,70,000 8,70,000
U

On the above date, Sameer retired and it was agreed that :

ED

(i) Debtors of ₹ 4,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful
debts will be maintained.
F

(ii) An unrecorded creditor of ₹ 20,000 will be recorded.

O

(iii) Patents will be completely written off and 5% depreciation will be charged on stock, machinery and
E

building.
AT

(iv) Yasmin and Saloni will share future profits in the ratio of 3 : 2.
(v) Goodwill of the firm on Sameer’s retirement was valued at ₹ 5,40,000.
R
TO

Pass necessary journal entries for the above transactions in the books of the firm on Sameer’s retirement.
(You have to pass Journal entries only related to Revaluation A/C)
EC

Q18 On 31st March 2017, the Balance Sheet of Abhir and Divya, who were sharing profits in the ratio of 3 : 1
IR

was as follows : Balance Sheet of Abhir and Divya as on 31.3.2017

D

Liabilities Amount Assets Amount

Capitals : Cash at Bank 1,40,000
Abhir 6,00,000 Debtors 6,50,000
Divya 4,00,000 10,00,000 Less:- Provisions 50,000 6,00,000
Sundry Creditors 2,20,000
Stock 3,00,000
General Reserve 1,20,000
Employee Provident Fund 1,00,000 Investment (Market Value ₹ 5,00,000
Investment Fluctuation Fund 1,00,000 4,40,000)
8,70,000 8,70,000
 They decided to admit Vibhor on April 1, 2017 for 1/5th share.
(a) Vibhor shall bring ₹ 80,000 as his share of goodwill premium.
(b) Stock was overvalued by ₹ 20,000.
(c) A debtors whose dues of ₹ 5,000 were written off as bad debts, paid ₹ 4,000 in full settlement.
(d) Two months salary @ ₹ 6,000 per month was outstanding.
(e) Vibhor was to bring in Capital to the extent of 1/5th of the total capital of the new firm.
Prepare Revaluation A/c, Partners’ Capital A/c and the Balance Sheet of the reconstituted firm. (You have to
Prepare Revaluation A/C)

ST
Q19 Kavya, Manya and Navita were partners sharing profits as 50%, 30% and 20% respectively. On march

EA
31, 2016, their Balance Sheet stood as follows :

T-
Balance Sheet of Kavya, Manya and Navita as at March 31, 2016.

IC
Liabilities Amount Assets Amount

TR
Capitals : Fixed Assets 8,90,000
Kavya 6,00,000 Cash at Bank 1,50,000

IS
Manya 5,00,000 Debtors 4,00,000
Navita 4,00,000 15,00,000

ID
Less:- Provisions 30,000 3,70,000
Sundry Creditors 1,40,000
General Reserve 1,00,000 Stock 1,30,000

H
Investment 2,00,000

EL
17,40,000 8,70,000

D
On the above date, Kavya retired and Manya and Navita agreed to continue the business on the following
terms :
T
C
(a) Firm’s goodwill was valued at ₹ 60,000 and it was decided to adjust Kavya’s share of goodwill in the capital
N

accounts of continuing partners.

G

(b) There was a claim for workmen’s compensation to the extent of ₹ 4,000.
(c) Investments were revalued at ₹ 2,13,000.
N

(d) Fixed Assets were to be depreciated by 10%.

IO

(e) Kavya was to be paid ₹ 20,000 through a bank draft and the balance was transferred to her loan account
AT

which will be paid in two equal annual instalments together with interest @ 10% p.a.
Prepare Revaluation A/c, Partner’s Capital accounts and Kavya’s Loan Account till it is finally paid. (You
C

have to Prepare Revaluation A/C)

U
ED

Q20 A and B were partners sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st
March, 2018, was as follows :
F

Balance Sheet of A and B as at 31st March, 2018

O

Liabilities Amount Assets Amount

E

Capitals : Cash 8,000

AT

A 1,04,000 Debtors 37,600

B 52,000 1,56,000
R

Less:- Provisions 1,600 36,000

Sundry Creditors 1,54,000
TO

Stock 60,000
Contingency Reserve 10,000
Employee Provident Fund 16,000 Prepaid Insurance 6,000
EC

Workmen Compensation Fund 10,000 Plant & Machinery 76,000

Buildings 1,40,000
IR

Furniture 20,000
D

3,46,000 3,46,000
C was admitted as a new partner and brought ₹ 64,000 as capital and ₹ 15,000 for his share of goodwill
premium. The new profit sharing ratio was 5 : 3 : 2. On C’s admission the following was agreed upon :
(i) Stock was to be depreciated by 5%.
(ii) Provision for doubtful debts was to be made at ₹ 2,000.
(iii) Furniture was to be depreciated by 10%.
(iv) Building was valued at ₹ 1,60,000.
 (v) Capitals of A and B were to be adjusted on the basis of C’s capital by bringing or paying of cash as the
case may be.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of reconstituted firm. (You
have to Prepare Revaluation A/C)

Q21 G, E and F were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The Balance Sheet of the firm as
at 31st March, 2018, was as follows :
Balance Sheet of G, E and F as at 31st March, 2018

ST
Liabilities Amount Assets Amount

EA
Capitals : Cash 90,000
G 1,40,000 Sundry Debtors 24,000

T-
E 40,000 Stock 14,000
F 20,000 2,00,000

IC
Machinery 80,000
Sundry Creditors 28,000

TR
General Reserve 40,000 Land & Building 1,20,000
Loan from E 60,000

IS
3,28,000 3,28,000

ID
E retired on the above date. On E’s retirement the following was agreed upon :
(i) Land and Building were revalued at ₹ 1,88,000, Machinery at ₹ 76,000 and Stock at ₹ 10,000 and goodwill

H
of the firm was valued at ₹ 90,000.

EL
(ii) A provision of 2·5% was to be created on debtors for doubtful debts.

D
(iii) The net amount payable to E was transferred to his loan account to be paid later on.
(iv) Total capital of the new firm was fixed at ₹ 2,40,000 which will be adjusted according to their new profit
T
C
sharing ratio by opening current accounts.
N

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of reconstituted firm. (You
G

have to Prepare Revaluation A/C)

N

Q22 T and N were partners in a firm. On 31st March, 2018 they decided to admit M as a new partner. On 31st
IO

March, 2018 the Balance Sheet of T and N stood as follows :

AT

Balance Sheet of T and N as at 31.3.2018

Liabilities Amount Assets Amount
C
U

Capitals : Cash at Bank 1,000

T 30,000
ED

Debtors 40,000
N 15,000 45,000 Stock 6,000
Sundry Creditors 18,000
Freehold Property 15,000
F

General Reserve 2,000

O

Furniture 3,000
E

65,000 65,000
AT

They agreed to admit M as a new partner subject to the following terms and conditions :
(i) M will bring in ₹ 20,000 of which ₹ 4,500 will be treated as his share of goodwill premium to be retained in
R

the business.
TO

(ii) M will be entitled to 1/4th share of the profits in the firm.

(iii) A provision for doubtful debts was to be created at 5% on the debtors.
EC

(iv) Furniture was to be depreciated by 5%.

IR

(v) Stock was to be revalued at ₹ 5,000.

Prepare Revaluation Account, Partners’ Capital Accounts and Opening Balance Sheet of the new firm.
D

(You have to Prepare Revaluation A/C)

Q23 N, S and B were partners in a firm sharing profits and losses in proportion of 1/2, 1/6 , 1/3 respectively.
The Balance Sheet of the firm as at 31st March, 2017 was as follows :
Balance Sheet of N, S and B as at 31.3.2017
Liabilities Amount Assets Amount
Capitals : Freehold Premises 40,000
N 30,000 Machinery 30,000
 S 30,000 Furniture 12,000
B 28,000 88,000 Stock 22,000
Sundry Creditors 18,000 Sundry Debtors 20,000
General Reserve 12,000
Less : Provision for Bad Debts 1,000 19,000
Bills Payable 12,000
Cash 7,000
1,30,000 1,30,000
B retired from the business on the above date and the partners agreed to the following :

ST
(i) Freehold premises and stock were to be appreciated by 20% and 15% respectively.
(ii) Machinery and furniture were to be depreciated by 10% and 7% respectively.

EA
(iii) Provision for bad debts was to be increased by ₹ 1,500.
(iv) On B’s retirement goodwill of the firm was valued at ₹ 21,000.

T-
(v) The continuing partners decided to adjust their capitals in their new profit-sharing ratio after retirement of B.

IC
Surplus/deficit, if any, in their capital accounts was to be adjusted through their current accounts.

TR
Prepare Realisation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm.
(You have to Prepare Revaluation A/C)

IS
ID
Q24 Raman and Aman were partners in a firm and were sharing profits in 3 : 1 ratio. On 31-3-2019 their
balance sheet was as follows :

H
Balance Sheet of Raman and Aman as on 31-3-2019

EL
Liabilities Amount Assets Amount
Capitals : Bank
D 24,000
T
Raman 3,00,000 Bills Receivable 80,000
C
Aman 1,50,000 4,50,000 Sundry Debtors 95,000
N

Provision for bad debts 7,000

Stock 14,000
G

Outstanding Expenses 18,000

Bills Payable 47,000 Furniture 70,000
N

Sundry Creditors 1,02,000 Machinery 2,00,000

IO

Workmen Compensation Reserve 55,000 Land & Building 1,96,000

AT

6,79,000 6,79,000
On the above date Suman was admitted as a new partner for 1/5th share in the profits on the following
C

conditions :
U

(i) Suman will bring ₹ 2,00,000 as her capital and necessary amount for her share of goodwill premium. The
ED

goodwill of the firm on Suman’s admission was valued at ₹ 1,00,000.

(ii) Outstanding expenses will be paid off. ₹ 5,000 will be written off as bad debts and a provision of 5% for bad
F

debts on debtors was to maintained.

O

(iii) The liability towards workmen compensation was estimated at ₹ 60,000.

E

(iv) Machinery was to be depreciated by ₹ 18,000 and Land and Building was to be depreciated by ₹ 54,000.
AT

Pass necessary journal entries for the above transactions in the books of the firm. (You have to Prepare
Revaluation A/C)
R
TO

Q25 A, B and C were partners in a firm. Their Balance Sheet as at 31st March, 2019 was as follows :
Balance Sheet of A, B and C as at 31st March, 2019
EC

Liabilities Amount Assets Amount

IR

Capitals : Land & Building 1,20,000

D

A 60,000 Furniture 28,000

B 40,000 Stock 20,000
C 32,000 1,32,000
Sundry Debtors 45,000
Creditors 40,000
General Reserve 30,000 Less : Provision for Bad Debts 5,000 40,000
Bills Payable 20,000 Bank 20,000
Workmen Compensation 6,000
Reserve
2,28,000 2,28,000
 B retired on 1st April, 2019. A and C decided to share profits in the ratio of 2 : 1. The following terms were
agreed upon :
(i) Goodwill of the firm was valued at ₹ 30,000.
(ii) Bad-debts ₹ 4,000 were written off. The provision for doubtful debts was to be maintained @ 10% on
debtors.
(iii) Land and Building was to be increased to ₹ 1,32,000.
(iv) Furniture was sold for ₹ 20,000 and the payment was received by cheque.
(v) Liability towards Workmen Compensation was estimated at ₹ 1,500.

ST
(vi) B was to be paid ₹ 20,000 through a cheque and the balance was transferred to his loan account.

EA
Prepare Revaluation Account, Partners’ Capital Accounts and Bank Account. (You have to Prepare
Revaluation A/C)

T-
Topic No.:- 5

IC
Preparation of Deceased Partner’s Capital A/C or Executor’s A/C

TR
IS
DEATH OF A PARTNER

ID
➥ Death of a partner also leads to reconstitution of a partnership firm.

H
➥ On the death of a partner, the existing partnership deed comes to an end, and in its place, a new

EL
partnership deed needs to be framed whereby, the remaining partners continue to do their business on
changed terms and conditions.

D
➥ there is one major difference between retirement of a partner and Death of a partner, while the retirement
T
normally takes place at the end of an accounting period, the death of a partner may occur any time.
C
➥ Hence, in case of Death of a partner, his/her claim shall also include his/her share of profit or loss,
N

interest on capital, interest on drawings (if any) from the date of the last Balance Sheet to the date of his
G

death of these.
N

➥ the main problem relates to the calculation of profit for the intervening period (i.e., the period from date
IO

of the last balance sheet and the date of the partner’s death). Since, it is considered cumbersome to close
AT

the books and prepare final account, for the period, the deceased partner’s share of profit may be
calculated on the basis of last year’s profit (or average of past few years) or on the basis of sales.
C
U

Ascertaining the Amount Due to deceased Partner

ED

The sum due to the deceased partner includes:-

F

➥ credit balance of his/her capital account;

O

➥ credit balance of his/her current account (if any);

E

➥ his/her share of goodwill; ➥ his/her share of accumulated profits (reserves);

AT

➥ his/her share in the gain of revaluation of assets and liabilities;

R
TO

➥ his share of profits up to the date of death;

➥ interest on his capital, if involved, up to the date of death; and
EC

➥ salary/commission, if any, due to him up to the date of death.

IR
D

The following deductions, if any, may have to be made from his share:
➥ debit balance of his current account (if any);
➥ his share of goodwill to be written off, if necessary; ➥ his share of accumulated losses;
➥ his share of loss on revaluation of assets and liabilities;
➥ his share of loss up to the date of Death; ➥ his drawings up to the date of death;
➥ interest on drawings, if involved, up to the date of death.
 the various accounting aspects involved on retirement of a partner are as follows:
➥ 1. Ascertainment of new profit sharing ratio and gaining ratio;
➥ 2. Treatment of goodwill;
➥ 3. Revaluation of assets and liabilities;
➥ 4. Adjustment in respect of unrecorded assets and liabilities;
➥ 5. Distribution of accumulated profits and losses;

ST
➥ 6. Ascertainment of share of profit or loss up to the date of death;

EA
➥ 7. Adjustment of capital, if required;

T-
➥ 8. Settlement of the amounts due to deceased partner to his executor.

IC
➥ share of profit or loss up to the date of death

TR
IS
Journal Entries for Share of Profit or Loss up to the date of Death are as follows:-

ID
1 If Profit-Sharing Ratio of the continuing partner’s reamins the same as before:-

H
(i) When deceased partner’s share in Profit (i) When deceased partner’s share in Loss

EL
Profit & Loss Suspense A/C Dr. Deceased Partner’s Capital A/C Dr.

D
To Deceased Partner’s Capital A/C T To Profit & Loss Suspense A/C
➥ Note:- 1 Profit & Loss Suspense A/C is used due to non completion of the Financial year.
C
2 Profit & Loss Suspense A/C balance is transferred to Profit & Loss Appropriation A/C
N

after the completion of financial year.

G

Journal Entry for the same is :- ⬇

N

For Profit For Loss

IO

Profit & Loss Appropriation A/C Dr. Profit & Loss Suspense A/C Dr.
AT

To Profit & Loss Suspense A/C To Profit & Loss Appropriation A/C
C
U

OR
ED

2 If Profit-Sharing Ratio of the continuing partner’s changes:-

F

(i) When deceased partner’s share in Profit (i) When deceased partner’s share in Loss
O

Gaining Partner’s Capital A/C Dr. Deceased Partner’s Capital A/C Dr.
E

To Deceased Partner’s Capital A/C To Gaining Partner’s Capital A/C

AT
R

➥ Note:- Only Adjustment entry is to be recorded in Gaining Ratio.

TO

➥ Ascertainment of share of profit or loss up to the date of death

EC

There are two possibilities regarding the ascertainment of share of profit or loss up to the date of
IR

death of a partner and they are as follows:-

D

1. When share of Profit or Loss is ascertained by preparing final accounts:-

In this case as the final accounts are prepared so the ascertained profit or loss has to be
distributed among all the partner’s (including deceased partner) in the following manner:-
Profit & Loss Appropriation A/C
Journal Entry ➥ To Partner’s Capital A/C
(Profit share distributed among all partner’s including deceased
Partner in Old Ratio)
 2. When share of Profit or Loss is estimated:-
(a) on the basis of Time:-
In this method proportionate profit for the time period is calculated either on the basis of last
year’s profit or on basis of average profits of last few years.

Deceased partner Share in Profit / Loss = Past Profit × Time × Share

➥ Note:- Past Profit ⟾ last year’s profit or on basis of average profits of last few years.

ST
Time ⟾ Period upto the date of Death of the deceased Partner from Last

EA
Financial year
Share ⟾ Share of the deceased Partner

T-
Question:- Ajay, Bijay and Chetna were partners in a firm for sharing profits/losses in 3:2:1 ratio.

IC
Bijay died on January 1st, 2021. His share of profits for the intervening periods to be calculated on

TR
the basis of average profits of last three years. Profits of the previous three years are 2017-18: ₹
90,000; 2018-19: ₹ 1,00,000 and 2019-20: ₹ 1,10,000.

IS
Calculate the share of profits of Bijay on his death and make necessary Journal entry for it.

ID
Solution:-

H
Date Particular LF Dr. (₹) Cr. (₹)

EL
Profit & Loss Suspense A/C Dr. 25,000

D
To Bijay’s Capital A/C T 25,000
➥ Working Note:-
C
Time ⟾ Period from 1st April 2020 to 1st January 21 (9 months)
N

Share ⟾ Bijay’s Share in Profit i.e. 2/6 or 1/3

G
N

90,0000 + 1,00,000 + 1,10,000

IO

Average Profit = —--------------------------------------- = 1,00,000

AT

3
C

Bijay’s Share in Profit (upto the date of death) = 1,00,000 × 9/12 × 2/6 = 25,000
U
ED

(b) On Turnover or Sales Basis:-

F
O

In this method the profits up to the date of death for the current year is calculated on the basis of
current year’s sales up to the date of death by using the formula.
E
AT

Profit for the last year

Profits for the current year = —-------------------------------- × Sales of the current year ⬇
R

(up to the date of death) Total sales for the last year (up to the date of death)
TO
EC

➥ Now Time already considered therefore only Share of deceased partner is to be considered
Deceased partner Share in Profit / Loss = Profits for the current year × Share
IR
D

➥ Note:- Profits for the current year ⟾ upto to the date of death of deceased partner
as calculated above.
Share ⟾ Share of the deceased Partner

Question:- Ajay, Bhawna and Shreya were partners sharing profits in the ratio of 2:2:1. On July 1st,
2021 shreya died. The books of accounts are closed on 31st March every year. Sales for the year
2020-21 ₹ 5,00,000 and that from 1st April to 30th June 2021 were ₹ 1,40,000. Rate of profit during
the past three years had been 10% on sales.
 Calculate Shreya’s share of profits till the date of her death and pass necessary Journal entry
for the same.
Solution:-
Date Particular L.F. Dr. (₹) Cr. (₹)

Profit & Loss Suspense A/C Dr. 2,800

To Shreya’s Capital A/C 2,800

ST
➥ Working Note:- Profits up to the date of death of Shreya = 1,40,000 × 10% = ₹ 14,000
Shreya’s Share in Profit = 14,000 × 1/5 = ₹ 2,800

EA
AMOUNT DUE TO DECEASED PARTNER

T-
➥ The outgoing partner’s account is settled as per the terms of partnership deed i.e., in lumpsum

IC
immediately or in various instalments with or without interest as agreed or partly in cash immediately

TR
and partly in instalment at the agreed intervals.
➥ In the absence of any agreement, Section 37 of the Indian Partnership Act, 1932 is applicable,

IS
which states that the outgoing partner has an option to receive either interest @ 6% p.a. till the date

ID
of payment or such share of profits which has been earned with his/her money (i.e., based on capital
ratio).

H
➥Hence, the total amount due to the deceased partner which is ascertained after all adjustments

EL
have been made is to be paid immediately to the deceased partner executor.
➥ In case the firm is not in a position to make the payment immediately, the amount due is
D
transferred to the Deceased Partner’s Executor Loan A/C, and as and when the amount is paid it is
T
debited to his account. The necessary journal entries recorded are as follows.
C
N

1. Payment of Due amount in Lump Sum to deceased Partner Executor

G

If the due amount is to be paid (after all If the amount due on him/her is to be received (after
N

adjustments) i.e. Cr. Balance in Capital A/C all adjustments) i.e. Dr. Balance of Capital A/C
IO

Deceased Partner Capital A/C Dr. Deceased Partner’s Executor A/C Dr.
AT

To Deceased Partner’s Executor A/C To Deceased Partner Capital A/C

Deceased Partner’s Executor A/C Dr. Cash / Bank A/C Dr.
C

To Cash / Bank A/C To Deceased Partner’s Executor A/C

U
ED

2. When the deceased partner’s 3. When the deceased partner is partly paid in
whole amount is treated as loan. cash and the remaining amount treated as loan.
F

Deceased Partner Capital A/C Dr.

O

To Deceased Partner’s Executor A/C

E

Deceased Partner Capital A/C Dr. Deceased Partner’s Executor A/C Dr.
AT

To Deceased Partner Executor’s Loan A/C To Cash / Bank A/C

To Deceased Partner Executor’s Loan A/C
R
TO

4. When Loan account is settled by paying in instalment includes principal and interest.
a) For interest on loan b) For payment of instalment
EC

Interest A/C Dr. Deceased Partner Executor’s Loan A/C Dr.

IR

To Deceased Partner Executor’s Loan A/C To Cash/Bank A/C

D

➥ Note: 1. The balance of the deceased partner’s executor’s loan A/C is shown on the
liabilities side of the Balance Sheet till the last instalment is paid to him/her.
2. Entry number (a) and (b), above will be repeated till the loan is paid off.

Deceased Partner Capital A/C

Particular ₹ Particular ₹
To Balance b/d (if Dr Bal.) By Balance b/d
To Deceased Partner’s Current A/C (if By Deceased Partner’s Current A/C
 Credit bal. exists) (if Debit bal. exists)
To Drawings By Revaluation A/C (if Profit)
To Interest on Drawings By _________ Reserve A/C
To Deceased partner’s Loan A/C By Continuing Partner’s Capital A/C
(If taken) (for share of Goodwill)
To Accumulated Losses (if any) By P & L Suspense A/C
To Revaluation A/C (if Loss) (Share of Profit)
To Deceased Partner Executor’s A/C By Profit & Loss Appropriation A/C

ST
(For Salary/Commission/ Int. on Cap.)

EA
Preparation of Deceased Partner’s Executor’s Laon A/C in different situation

T-
Question:- Amrinder, Mahinder and Joginder are partners in a firm. Mahinder died. On his date of

IC
death, ₹. 60,000 becomes due to his Executor’s. Amrinder and Joginder promise to pay his executor
in instalments every year at the end of the year. Prepare Mahinder’s Executor’s Loan Account in the

TR
following cases:
1. When payment is made four yearly instalments plus interest @ 12% p.a. on the unpaid balance.

IS
2. When they agree to pay three yearly instalments of ₹ 20,000 including interest @ 12% p.a on

ID
the outstanding balance during the first three years and the balance including interest in the fourth
year.

H
3. When payment is made in 4 equal yearly instalment’s including interest @ 12% p.a. on the

EL
unpaid balance.
Solution:- 1. When Paument is made yearly with interest
D
T
Mahinder’s Executor’s Laon A/C
C
N

Date Particular JF ₹ (Dr.) Date Particular JF ₹ (Cr.)

G

year-1 Bank A/C 22,200 year-1 Mahinder’s Capital A/C 60,000

N

(15,000 +7,200) Interest A/C 7,200

IO

Balance c/d 45,000

AT

67,200 67,200
year-2 Bank A/C 20,400 year-2 Mahinder’s Capital A/C 45,000
C

(15,000 +5,400) Interest A/C 5,400

U

Balance c/d 30,000

ED

50,400 50,400
F

year-3 Bank A/C 18,600 year-3 Mahinder’s Capital A/C 30,000

O

(15,000 +3,600) Interest A/C 3,600

Balance c/d 15,000
E
AT

33,600 33,600
year-4 Bank A/C 16,800 year-4 Mahinder’s Capital A/C 15,000
R

(15,000 +1,800) Interest A/C 1,800

TO

16,800 16,800
EC

PRACTICE QUESTIONS
IR

Q1 On 31st March 2015 the Balance Sheet of Punit, Rahul and Seema was as follows:-
D

Balance Sheet of Punit, Rahul and Seema as at March 31, 2015

Liabilities Amount Assets Amount
Capitals : Building 40,000
Punit 60,000 Machinery 60,000
Rahul 50,000 Patents 12,000
Seema 30,000 Stock 20,000
General Reserve 1,40,000 Cash 42,000
Sundry Creditors 20,000
14,000
1,74,000 174,000
 They were sharing profit and loss in the ratio 5:3:2.
Seema died on October 1, 2015. It was agreed between her executors and the remaining partners that:
(i) Goodwill be valued at 2 years’ purchase of the average profits of the previous five years, which were:
2010-11: ₹ 30,000; 2011-12: ₹ 26,000; 2012-13: ₹ 24,000; 2013-14: ₹ 30,000 and 2014-15: ₹ 40,000
(ii) Patents be valued at ₹ 16,000; Machinery at ₹ 56,000; Buildings at ₹ 60,000
(iii) Profit for the year 2015-16 be taken as having been accrued at the same rate as that in the previous year.
(iv) Interest on capital be provided at 10% p.a.
(v) A sum of ₹ 15,500 was paid to her executors immediately.

ST
Prepare Revaluation Account, Seema’s Capital Account and Seema’s executors Account.

EA
Q2 Naveen, Kavita and Vishesh were partners in a firm sharing profits and losses in the ratio of 5 : 4 : 1. Their

T-
Balance Sheet as at 31st March, 2019 was as follows :

IC
Balance Sheet of Naveen, Kavita and Vishesh as at 31st March 2019

TR
Liabilities Amount (₹) Assets Amount (₹)

IS
Capitals : Plant & Machinery 5,50,000

ID
Naveen 3,00,000 Stock 1,20,000
Kavita 2,00,000 Debtors 1,30,000

H
Vishesh 1,00,000 6,00,000 Cash 40,000

EL
1,50,000 Advertisement Expenses 20,000
Profits for the year 2018 19
1,10,000

D
Sundry Creditors T
8,60,000 8,60,000
C
N

Naveen died on 30th June, 2019. According to the partnership deed, in addition to the deceased partner’s
G

capital, the executors are entitled to:

(i) His share in profits on the basis of average profits of the last two years. The profit for the year 2017-18 was
N

₹ 50,000.
IO

(ii) His share in the goodwill of the firm. Goodwill was to be calculated on the basis of two years’ purchase of
AT

the average profits of the last two years. Naveen withdrew ₹ 60,000 on 1st June, 2019.
Prepare Naveen’s Capital Account which is to be rendered to his executor.​ ​ ​
C
U

Q3. Aditi, Kartik and Tina were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st
ED

March, 2019, their Balance Sheet was as follows :

F

Balance Sheet of Aditi, Kartik and Tina as at 31st March 2019

O

Liabilities Amount (₹) Assets Amount (₹)

E
AT

Capitals : Furniture 4,30,000

Aditi 3,00,000 Stock 1,50,000
R

Kartik 2,00,000 Debtors 83,000

TO

Tina 1,00,000 6,00,000 Cash 33,000

96,000
Sundry Creditors
EC

6,96,000 6,96,000
IR

Aditi died on 1st November, 2019. It was agreed that :

D

(i) Goodwill of the firm be valued at ₹ 1,00,000.

(ii) Profit for the year 2019 -20 be taken as having accrued at the same rate as the previous year 2018-19.
Profit for the year 2018-19 was ₹ 96,000.
(iii) Half the amount was paid to Aditi’s executors immediately and the remaining half will be paid in two equal
annual installments with interest @ 6% p.a.
Pass the necessary journal entries to record the above transactions in the books of the firm on the
date of her death.​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
 Q4. Furkan, Tanmay and Barkat were partners in a firm sharing profits in the ratio of 3 : 2 : 1. The firm closes
its books on 31st March every year. Tanmay died on 31st July, 2019. His executor was entitled to :
(i) His capital 8,00,000 and his share of goodwill which was valued for the firm at 96,000.
(ii) His share of profit as per partnership agreement, which was to be calculated on the basis of average profit
of the last 3 years. Average profits of the last 3 years were 78,000.
(iii) Tanmay’s executors were paid 95,000 by cheque at the time of his death and the balance was transferred
to his executor’s loan account.
Pass the necessary journal entries in the books of the firm, on Tanmay’s death, for the above

ST
transactions.

EA
Q5. Ajay, Bhawna and Shreya were partners sharing profits in the ratio 2:2:1. On July 1, 2017 Shreya died.

T-
The books of accounts are closed on March 31 every year. Sales for the year 2016-17 amounted to 5,00,000

IC
and that from 1st April to 30th June 2017 were 1,40,000. The rate of profit during the past three years had
been 20% on sales.

TR
Calculate Shreya’s share of profits till the date of her death and pass necessary journal entries for the

IS
same. ​

ID
Q6. Sonali, Sohan and Shivain were partners in a pen manufacturing form. They were sharing profit and
losses in the ratio of 2:2:1. On 31st March 2022 their Balance sheet was as follows:

H
EL
Balance Sheet of Sonali, Sohan and Shivain as on 31st March, 2022
Liabilities ₹ Assets ₹
Capital Accounts:
D
Land and Building 6,00,000
T
Sonali 4,00,000 Plant and Machinery 5,00,000
C
Sohan 4,00,000 Debtors 1,60,000
N
G

Shivain 4,00,000 12,00,000 Stock 1,40,000

General Reserve 1,00,000 Cash in Hand 1,20,000
N

Creditors 3,60,000 Cash at Bank 1,80,000

IO

Bills Payable 40,000

AT

17,00,000 17,00,000
C

Sohan died on 30th June 2022. according to partnership deed his executor were entitled to:
U

(i) Interest on capital @ 12% p.a.

ED

(ii) His share of goodwill which was ₹ 48000.

(iii) His share of profit till the date of death was to be calculated on the basis of sales. The sales from 1st April
F

2022 to 30th June 2022 were ₹ 2,50,000. The sales and profit of the firm for the
O

year ending 31st March 2022 were ₹ 20,00,000 and ₹ 5,00,000 respectively.
E

Prepare Sohan capital account to be presented to his executors.​ ​ ​

AT

Q7. Nisha, Priya and Rajat were partners in a firm sharing profits in the ratio of 2: 2: 1. The firm closes its
R

books on 31st March every year. Priya died on 1st July 2022. On Priya's death, the goodwill of the firm was
TO

valued at ₹ 3,00,000 and her share in the profits of the firm till the time of her death was to be calculated on the
basis of previous year's profit which was ₹ 6,00,000.
EC

Pass necessary journal entries for the treatment of goodwill and Priya's share of profit at the time of her
death.
IR
D

Q8. Ram,Mohan and Sohan per partner uniform sharing profits and losses in the ratio of 1:2:2. the firm
clauses its books on 31st March every year. Sohan died on 1st September 2021. On sohan's death, the
Goodwill of the firm was valued at 6,00,000. the partnership deed provided that the share of profit of the
disease partner in the year of his death will be calculated on the basis of last year's profit. the profit for the year
ended 31st March 2021 was 3,00,000.
​ (i) Calculate Sohan share in the profits till the date of his death.
​ (ii) Pass necessary journal entries for the treatment of goodwill without opening Goodwill account and
sohan’s share of profit at the time of his death.
 Q9. P, Q and R were partners in a firm sharing profits and losses in the ratio of 9: 8: 7. The firm closes its
books on 31st March every year. Q died on 30th November, 2021. The partnership deed provided that a
deceased partner's share in the profits of the firm in the year of his death will be calculated on the basis of the
last year's profit. During the year ended 31st March, 2021 the firm's profit was ₹ 9,00,000.
Calculate Q's share of profit till the date of his death and pass necessary journal entry on the same
date in the books of the firm.

Q10. Karim, Saleem and Raheem were partners in a firm sharing profits and losses in the ratio of 3 : 4 : 3. The

ST
firm closes its books on 31st March every year. On 1-10-2019 Karim died. On Karim’s death the goodwill of the

EA
firm was valued at ₹ 3,50,000. Karim’s share in the profits of the firm in the year of his death was to be
calculated on the basis of average profits of last four years. The profits for the last four years were 2015-16 ₹

T-
1,70,000; 2016-17 ₹ 1,30,000; 2017-18 ₹ 1,90,000 and 2018-19 ₹ 1,10,000. The total amount payable to

IC
Karim’s executors on his death was ₹ 7,35,000. It was paid on 15-10-2019.
Pass necessary journal entries for the above transactions in the books of the firm.

TR
Q11. Keith, Bina and Veena were partners in a firm sharing profits and losses equally. Their balance sheet as

IS
on 31-3-2019 was as follows :

ID
Balance Sheet of Keith, Bina and Veena as on 31-3-2019

H
Liabilities ₹ Assets ₹

EL
Capital Accounts: Plant and Machinery 2,40,000
Keith 1,50,000 Sundry Debtors 60,000
Bina 1,00,000
D
Stock 35,000
T
Veena 75,000 3,25,000 Cash at Bank 50,000
C
General Reserve 30,000
N

Sundry Creditors 30,000

G

3,85,000 3,85,000
Veena died on 30th June, 2019. According to the partnership deed, the executors of the deceased partner
N

were entitled to :
IO

(a) Balance in capital account

AT

(b) Salary till the date of death @ ₹ 25,000 per annum.

(c) Share of goodwill calculated on the basis of twice the average profits of past three years.
C

(d) Share of profit from the closure of the last accounting year till the date of death on the basis of average of
U

three completed years profits before death.

ED

(e) Profits for 2016-17, 2017-18 and 2018-19 were ₹ 1,20,000, ₹ 90,000 and ₹ 1,50,000 respectively.
Veena withdrew ₹ 15,000 on 1st June, 2019 for paying her daughter’s school fees.
F

Prepare Veena’s capital account to be rendered to her executors.

O
E

Q12. Sanya, Piya and Trisha were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. On 31st
AT

March, 2019 their Balance Sheet was as follows :

Balance Sheet of Sanya, Piya and Trisha as at 31st March, 2019
R
TO

Liabilities ₹ Assets ₹
Capital Accounts: Furniture 6,10,000
EC

Sanya 4,00,000 Sundry Debtors 92,000

Piya 2,00,000 Stock 2,20,000
IR

Trisha 3,00,000 9,00,000 Cash 50,000

D

General Reserve 30,000

Sundry Creditors 72,000
9,72,000 9,72,000
Trisha died on 1st July,[Link] partnership deed provided for the following in the event of death of a partner :
(i) Goodwill of the firm to be valued at ₹ 2,40,000.
(ii) Profits in the year of death of a partner will be taken as having accrued at the same rate as the previous
year’s profits. Profits for the year 2018-19 were ₹ 90,000.
(iii) Half the amount was paid to Trisha’s executors immediately.
 Pass the necessary journal entries to record the above transactions in the books of the firm.

Q13. Naveen, Kavita and Vishesh were partners in a firm sharing profits and losses in the ratio of 5 : 4 : 1.
Their Balance Sheet as at 31st March, 2019 was as follows :
Balance Sheet of Naveen, Kavita and Vishesh as at 31st March, 2019
Liabilities ₹ Assets ₹
Capital Accounts: Plant and Machinery 5,50,000

ST
Naveen 3,00,000 Debtors 1,30,000
Kavita 2,00,000 Stock 1,20,000

EA
Vishesh 1,00,000 6,00,000 Cash 40,000

T-
Profits for the year 2018 19 1,50,000 Advertisement Expenditure 20,000
Sundry Creditors 1,10,000

IC
8,60,000 8,60,000

TR
Naveen died on 30th June, 2019. According to the partnership deed, in addition to the deceased partner’s

IS
capital, the executors are entitled to

ID
(i) His share in profits on the basis of average profits of the last two years. The profit for the year 2017 18 was
₹ 50,000.

H
(ii) His share in the goodwill of the firm. Goodwill was to be calculated on the basis of two years’ purchase of

EL
the average profits of the last two years. Naveen withdrew ₹ 60,000 on 1st June, 2019.
Prepare Naveen’s Capital Account which is to be rendered to his executor.
D
T
Q14. Aif, Tee and Bee were partners in a firm sharing profits in the ratio of 3 : 2 : 1. The firm closes its books
C
on 31st March every year. Tee died on 31st May, 2019. It was agreed that the deceased partner’s executors
N

will be entitled to :
G

(i) His capital, which was ₹ 8,00,000.

N

(ii) His share of profit till the date of death to be calculated on the basis of average profits of last 3 years. The
IO

average profits for the last three years were ₹ 72,000.

AT

(iii) His share of goodwill. Goodwill of the firm was valued at ₹ 1,08,000.
(iv) ₹ 40,000 was paid to his executor immediately and the balance was paid in two equal half-yearly
C

installments along with interest @ 6% p.a. from the date of death.

U

Prepare Tee’s Capital Account to be presented to his executors on the date of death.
ED

Q15. A, B and C were partners in a firm. A died on 31.3.2018 and the Balance Sheet of the firm on that date
F

was as under :
O

Balance Sheet of A, B and C as at 31.3.2018

E

Liabilities ₹ Assets ₹
AT

Capital Accounts: Debtors 32,000

R

A 40,000 Furniture 30,000

TO

B 30,000 Plant 40,000

C 20,000 90,000 Patents 8,000
EC

Profits for the year 2018-19 6,000 Cash at Bank 12,000

Creditors 7,000
IR

General Reserve 9,000

D

Workmen’s Compensation Fund 10,000

1,22,000 1,22,000
On A’s death it was found that patents were valueless, furniture was to be brought down to ₹ 24,000, plant was
to be reduced by ₹ 10,000 and there was a liability of ₹ 7,000 on account of workmen’s compensation.
Pass the necessary journal entries for the above at the time of A’s death.

Q16. Aman, Binu and Chaman were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On
31st March, 2018 their Balance Sheet was as follows :
 Balance Sheet of Aman, Binu and Chaman as at 31st March, 2018
Liabilities ₹ Assets ₹
Capital Accounts: Buildings 2,20,000
Aman 3,00,000 Machinery 1,30,000
Binu 1,50,000 Stock 1,10,000
Chaman 1,00,000 5,50,000 Patents 81,000
Creditors 1,10,000 Debtors 90,000

ST
General Reserve 60,000 Cash 89,000

EA
7,20,000 7,20,000
Aman died on 1st October, 2018. It was agreed between his executor and remaining partners that :

T-
(i) Aman’s share of goodwill will be ₹ 1,87,500.

IC
(ii) Patents will be valued at ₹ 51,000, Machinery at ₹ 1,10,000 and Building at ₹ 2,70,000.

TR
(iii) His share of profit in the year of death is calculated as ₹ 37,500.
(iv) Interest on capital was to be provided @ 10% p.a.

IS
Prepare Revaluation Account and Aman’s Capital Account to be presented to his executor.

ID
Q17. Garima, Harish and Reena were partners in a firm sharing profits and losses equally. On 31st March,

H
2015, Harish died and the amount payable to his executors was ₹ 90,000. It was agreed between the

EL
remaining partners and Harish’s executors that the executors will be paid in four equal yearly instalments along
with interest @ 18% per annum starting from 31st March, 2015.
Prepare Harish’s executor’s account till it is finally closed.
D
T
C
Q18. Giriija, Yatin and Zubin were partners sharing profits in the ratio 5 : 3 : 2. Zubin died on 1st August, 2015.
N

Amount due to Zubin’s executor after all adjustments was ₹ 90,300. The executor was paid ₹ 10,300 in cash
G

immediately and the balance in two equal annual instalments with interest @ 6% p.a. starting from 31st March,
N

2017. Accounts are closed on 31st March each year.

IO

Prepare Zubin’s Executors Account till he is finally paid.

AT

Q19. A, B and C were partners sharing P&L in the ratio 5:3:2. A died on 30th June,2019. Entry for treatment of
C

goodwill after his death was passed as follows:-

U

Date Particulars LF Amount (₹) Amount (₹)

ED

B’s Capital A/c Dr. 1,80,000

F

C’s Capital A/c Dr. 1,20,000

O

To A’s Capital A/c 3,00,000

(Entry for goodwill treatment passed at the time of death of partner)
E
AT

A’s profit till date of death was estimated as ₹ 1,20,000, based on the average profits of past three years. Final
dues payable to A’s executors on the date of death was calculated as ₹ 8,40,000 out of which ₹ 2,40,000 was
R

paid immediately by giving him Furniture valued for the same and balance was to be paid in three equal annual
TO

instalments starting from 30 June, 2020, together with interest rate as specified in Section 37 of Indian
Partnership Act, 1932..
EC

Pass necessary entry for profit share to be credited to A’s Capital and also prepare A’s executors A/C till
IR

final settlement.
D

Q20. Sandeep, Maheep and Amandeep were partners in a firm sharing profits in the ratio of 2: 2: 1. The firm
closes its books on 31st March every year. On 30th June, 2020Maheepdied. The partnership deed provided
that on the death of a partner his executors will be entitled to the following:
a) Balance in his capital account which amounted to ₹1,15,000and interest on capital till date of death which
amounted to ₹ 5,000.
b) His share in the profits of the firm till the date of his death amounted to ₹20,000.
c) His share in the goodwill of the firm. The goodwill of the firm on Maheep’s death was valued at ₹ 1,50,000.
d) Loan to Maheep amounted ₹ 20,000.
 It was agreed that the amount will be paid to his executor in three equal yearly installments with interest @10%
p.a. The first installment was to be paid on 30.06.2021.
Calculate the amount to be transferred to Maheep’s executors Account and prepare the executor’s A/C till it
is finally settled.
Topic No.:- 6
Journal Entries or/and Preparation of Realisation A/C

ST
Dissolution of Partnership Firm

EA
↦ According to Section 39 of the partnership Act 1932, the dissolution of partnership between

T-
all the partners of a firm is called the dissolution of the firm.

IC
➦ it is the breaking or discontinuance of relationship between all the partners which is termed
as the dissolution of partnership firm.

TR
➦ This brings an end to the existence of firm, and no business is transacted after dissolution

IS
except the activities related to closing of the firm as the affairs of the firm are to be wound up by

ID
selling the firm's assets and paying its liabilities and discharging the claims of the partners.

H
Difference between Dissolution of Partnership and Dissolution of Partnership Firm

EL
Basis Dissolution of Partnership Dissolution of Firm
Termination The business is not terminated.
D
The business of the firm is closed.
T
of business
C
N

Settlement of Assets and liabilities are revalued Assets are sold and liabilities are
G

assets and and a new balance sheet is drawn. paid-off.

liabilities
N
IO

Court does not intervene because A firm can be dissolved by the court’s
Court’s
partnership is dissolved by mutual order.
AT

intervention
agreement.
C

Economic relationship between the Economic relationship between the

U

Economic
partners continues though in a partners comes to an end.
ED

relationship
changed form.
Closure of Does not require because the The books of account are closed.
F

books business is not terminated.

O
E

Other It may or may not involve It necessarily involves dissolution of

AT

dissolution dissolution of the firm. partnership.

R

➦ Dissolution of a firm takes place in any of the following ways or Types:

TO

Types of Dissolution of Partnership Firm ⇩

EC

Dissolution by Compulsory On the happening of Dissolution by Dissolution by

IR

Agreement Dissolution certain contingencies Notice Court

D

➦ 1. Dissolution by Agreement:
A firm is dissolved :
(a) with the consent of all the partners or
(b) in accordance with a contract between the partners.
➦ 2. Compulsory Dissolution:
A firm is dissolved compulsorily in the following cases:
 (a) when all the partners or all but one partner, become insolvent, rendering them incompetent to
sign a contract;
(b) when the business of the firm becomes illegal; or
(c) when some event has taken place which makes it unlawful for the partners to carry on the
business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an
alien enemy because of the declaration of war with his country and India.
➦ 3. On the happening of certain contingencies:

ST
Subject to contract between the partners, a firm is dissolved :

EA
(a) if constituted for a fixed term, by the expiry of that term;
(b) if constituted to carry out one or more ventures, by the completion thereof;

T-
(c) by the death of a partner;

IC
(d) by the adjudication of a partner as an insolvent.

TR
➦ 4. Dissolution by Notice:

IS
In case of partnership at will, the firm may be dissolved if any one of the partners gives a notice in

ID
writing to the other partners, signifying his intention of seeking dissolution of the firm.

H
➦ 5. Dissolution by Court:

EL
At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following

D
grounds: T
(a) when a partner becomes insane;
C
(b) when a partner becomes permanently incapable of performing his duties as a partner;
N

(c) when a partner is guilty of misconduct which is likely to adversely affect the business of the firm;
G

(d) when a partner persistently commits breach of partnership agreement;

N

(e) when a partner has transferred the whole of his interest in the firm to a third party;
IO

(f) when the business of the firm cannot be carried on except at a loss; or
AT

(g) when, on any ground, the court regards dissolution to be just and equitable.
C

Settlement of Accounts
U
ED

➦ In case of dissolution of a firm, the firm ceases to conduct business and has to
settle its accounts.
F

➦ It has to disposes off all its assets for satisfying all the claims against it. In this context it should be
O

noted that, subject to agreement among the partners, the following rules as provided in Section 48 of
E

the Partnership Act 1932 shall apply:-

AT

Payment sequence to be Property of the Firm must private property of any

R

followed (for Liabilities) be utilised partner (if required)

TO

⇩ ⇩ ⇩
EC

paying the debts of the firm to payment of debts of the first in payment of his
IR

the third parties firm private debts

D

⇩ ⇩ ⇩
paying each partner surplus, if any, shall be surplus, if any, may be
proportionately (Partner’s Laon) divided among the utilised for payment of the
partners (as per Claims) firm’s debts
⇩
paying to each partner
proportionately (Capital
portion)
 ⇩
residue, if any divide among
partners in Old Ratio
➦ (a) Treatment of Losses
Losses, including deficiencies of capital, shall be paid :
(i) first out of profits,
(ii) next out of capital of partners, and

ST
(iii) lastly, if necessary, by the partners individually in their profits sharing ratio.
➦ (b) Application of Assets:-

EA
The assets of the firm, including any sum contributed by the partners to make up deficiencies of
capital, shall be applied in the following manner and order:

T-
(i) In paying the debts of the firm to the third parties;

IC
(ii) In paying each partner proportionately what is due to him/her from the firm for advances as

TR
distinguished from capital (i.e. partner’ loan);
(iii) In paying to each partner proportionately what is due to him on account of capital; and

IS
(iv) the residue, if any, shall be divided among the partners in their profit sharing ratio.

ID
➦ Thus, the amount realised from assets along with contribution from partners, if required,

H
shall be utilised first to pay off the outside liabilities of the firm such as creditors, loans, bank

EL
overdraft, bill payables, etc. (it may be noted that secured loans have precedence over the
unsecured loans); the balance should be applied to repay loans and advances made by the partners

D
to the firm. T
➦ Private Debts and Firm’s Debts: Where both the debts of the firm and private debts of a
C
partner co-exist, the following rules, as stated in Section 49 of the Act, shall apply.
N
G

(a) The property of the firm shall be applied first in the payment of debts of the firm and then the
surplus, if any, shall be divided among the partners as per their claims, which can be utilised for
N

payment of their private liabilities.

IO

(b) The private property of any partner shall be applied first in payment of his private debts and
AT

the surplus, if any, may be utilised for payment of the firm’s debts, in case the firm’s liabilities
C

exceed the firm’s assets.

U

➦ Note:- It may be noted that the private property of the partner does not include the
ED

personal properties of his/her wife and children.

F

Accounting Treatment
O
E

1. For transfer of assets:-

AT

All asset accounts excluding cash, bank and the fictitious assets, if any are closed by transfer
R

to the debit of Realisation Account at their book values.

TO

●​Sundry Debtors are transferred at gross value.

●​Provision for Doubtful Debts is transferred to the credit side of Realisation Account
EC

Date Particular LF ₹ (Dr.) ₹ (Cr.)

IR

Realisation A/C Dr. ××××

D

To ___________ (Name of Assets) A/C ××××

(Being assets transferred to Realisation A/C)

2. For transfer of liabilities:-

All external liability accounts including provisions, if any, are closed by transferring them to
the credit of Realisation account.
 Date Particular LF ₹ (Dr.) ₹ (Cr.)
___________ (Name of Liabilities) A/C Dr. ××××
To Realisation A/C ××××
(Being Liabilites transferred to Realisation A/C)

3. For Realisation from Assets:-

If sold in Cash If taken over by Partner

ST
Bank A/C Dr. Partner Capital A/C Dr.

EA
To Realisation A/C To Realisation A/C
(Being assets are realised by selling) (Being assets are taken over by the partner)

T-
IC
4. For Payments of Liabilites (External):-

TR
If paid in Cash If Partner agree to discharge off

IS
Realisation A/C Dr. Realisation A/C Dr.

ID
To Bank A/C To Partner Capital A/C
(Being Liabilities are paid off) (Being Liabilites are paid by the partner)

H
EL
5. For settlement with the creditor through transfer of assets

D
(a) when a creditor accepts an asset in full and final settlement of his account
T
C
journal entry needs not to be recorded.
N
G

(b) if the creditor accepts an asset only (c) when a creditor accepts an asset whose
as part payment of his/her dues, the entry value is more than the amount due to him,
N

will be made for cash payment only. he/she will pay cash to the frim for the
IO

difference for which the entry will be:

AT

Realisation A/C Dr. Bank A/C Dr.

C

To Bank A/C To Realisation A/C

U

(Being creditors are paid off partly) (Being creditors taken over assets and
ED

excess money are paid by the creditors)

F

6. For payment of realisation expenses:-

O

Realisation Expenses are paid in the process of realisation of assets and payment of liabilities
E
AT

(a) When some expenses are incurred (b) When some expenses are incurred by
and paid by the firm: the Firm and paid by the Partner:
R
TO

Realisation A/C Dr. Realisation A/C Dr.

To Bank A/C To Partner Capital A/C
EC

(Being realisation expenses are paid by the firm) (Being realisation expenses are paid by the
firm)
IR

(C) When some expenses are incurred and paid by the Partner for an agreed
D

remuneration has to paid by Firm:

For payment of Realisation Expenses
(i) if payment of realisation expenses is (ii) if the partner himself pays the
made by the firm realisation expenses:
Partner Capital A/C Dr. no entry is required
To Bank A/C
(Being realisation expenses are paid by the
firm)
 (iii) For payment of agreed remuneration to such partner
Realisation A/C Dr.
To Partner Capital A/C
(Being realisation expenses are paid by the partner)
7. For realisation of any unrecorded 8. For settlement of any unrecorded
assets including goodwill, if any liability

ST
Bank A/C Dr. Realisation A/C Dr.

EA
To Realisation A/C To Bank A/C
(Being unrecorded assets are sold off) (Being Unrecorded Liabilities are paid off)

T-
or or

IC
Partner Capital A/C Dr. Realisation A/C Dr.
To Realisation A/C To Partner Capital A/C

TR
(Being Unrecorded assets are taken over (Being Unrecorded Liabilites are paid by

IS
by the partner the partner )

ID
9 For transfer of profit and loss on realisation

H
EL
If Profit on realisation If loss on realisation
Realisation A/C Dr.
D
Partner’s Capital A/C Dr.
T
To Partner’s Capital A/C To Realisation A/C
C
(Being realisation profit transferred to (Being realisation loss transferred to
N

partner’s capital) partner’s capital)

G
N

10. For transfer of accumulated 11. For transfer of fictitious assets, if

IO

profits in the form of reserve fund or any, to partners’ capital accounts in

AT

general reserve their profit sharing ratio

C

Reserve Fund A/C Dr. Partner’s Capital A/C Dr.

U

To Partner’s Capital A/C To Fictitious Assets A/C

ED

(Being accumulated profits tranf. To (Being fictitious assets are tranfd to Capital
Capital A/C) A/C)
F
O

12 For payment of loans due to partners

E
AT

Partner Loan A/C Dr.

R

To Bank A/C
TO

(Being Partner Loan settled by the firm)

EC

13. For settlement of partners’ accounts

IR

If the partner’s capital account shows a debit The balance is paid to partners whose
D

balance, he brings in the necessary cash for capital accounts show a credit balance
which the entry will be: and the following entry is recorded.
Bank A/C Dr. Partner’s Capital A/C Dr.
To Partner’s Capital A/C To Bank A/C
(Being partner’s bring the shortage amount) (Being Partner Capital settled by the firm)
 Realisation A/C
Particular ₹ (Dr.) Particular ₹ (Cr.)
To Sundry Assets:- By Sundry Liabilities:-
Land and Building ×××× Sundry creditors ××××
Plant and Machinery ×××× Bills payables ××××
Furniture and Fittings ×××× Bank overdraft ××××
Bills receivables ×××× Outstanding expenses ××××

ST
Sundry debtors etc. ×××× Provision for doubtful debts ××××

EA
To Cash / Bank A/C:- By Cash/Bank
(payment of liabilities) ×××× (sale of assets) ××××

T-
(payment of unrecorded liabilities) ×××× By Partner’s capital A/C
To Partner’s capital A/C (assets taken by the partner) ××××

IC
(liability assumed by the partner) ×××× By Loss:-

TR
To Profit:- (transferred to partners
(transferred to partners capital account capital accounts) ××××

IS
in their profit sharing ratio) ××××

ID
×××× ××××

H
EL
➦ Note:- There only be either Profit or Loss on Realisation and we have to find out the same

Partner’s Capital A/C

D
T
C
Particular A B Particular A B
N

To Realisation A/C ×××× ×××× By Balance b/d ×××× ××××

G

(if Loss) By Realisation A/C ×××× ××××

N

To Realisation A/C ×××× ×××× (if Profit)

IO

(Assets Taken over) By Realisation A/C ×××× ××××

AT

To Cash / Bank A/C ×××× ×××× (Liability/ Realisation Expenses

(If final settlement paid paid off)
C

by the firm) By Reserves A/C ×××× ××××

U

By Cash / Bank A/C ×××× ××××

ED

(If deficit brought in by the partner)

×××× ×××× ×××× ××××
F
O
E

Bank A/C
AT

Particular ₹ (Dr.) Particular ₹ (Cr.)

R

To Realisation A/C ×××× By Realisation A/C ××××

TO

(Assets realised) (Liabilities Paid off)

To Partner’s Loan A/C (settled) ×××× By Partner’s capital A/C ××××
EC

To Partner’s capital A/C ×××× (assets taken by the partner) ××××

(Final deficit paid by partner) By Partner’s capital A/C ××××
IR

(Final settlement paid by Firm)

D

×××× ××××

PRACTICE QUESTIONS
Q1. Simar, Raja and Rita were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. The firm was
dissolved on 31st March, 2019. After the transfer of assets (other than cash) and external liabilities to the
Realization Account, the following transactions took place :
(i) A debtor whose debt of 90,000 had been written off as bad, paid 88,000 in full settlement.
 (ii) Creditors to whom 1,21,000 were due to be paid, accepted stock at 71,000 and the balance was paid to
them by a cheque.
(iii) Raja had given a loan to the firm of 18,000. He was paid 17,000 in full settlement of his loan.
(iv) Investments were 53,000 out of which investments worth 43,000 were taken over by Simar at 52,000 and
the balance of the investments were sold for 12,000.
(v) Expenses on dissolution amounted to 19,000 and the same were paid by the firm.
(vi) Profit on dissolution amounted to 30,000.
Pass the necessary journal entries for the above transactions in the books of the firm.

ST
Q2. Pass the necessary journal entries for the following transactions on the dissolution of the

EA
partnership firm of Tony and Rony after the various assets (other than cash) and external liabilities have been

T-
transferred to Realization Account :

IC
(i) An unrecorded asset of ₹ 2,000 and cash 3,000 was paid for liability of 6,000 in full settlement.
(ii) 100 shares of 10 each have been taken over by partners at market value of ₹ 20 per share in their profit

TR
sharing ratio, which is 3 : 2.
(iii) Stock of 30,000 was taken over by a creditor of 40,000 at a discount of 30% in full settlement.

IS
(iv) Expenses of realisation 4,000 were to be borne by Rony. Rony used the firm’s cash for paying these

ID
expenses.​

H
Q3. Vasudha and Dewan were partners in a firm sharing profits and losses in the ratio of 2 : 3. The firm was

EL
dissolved on 31st March, 2019. After transfer of assets (other than cash) and external liabilities to Realization

D
Account, the following transactions took place : T
(i) Investments of the face value of 60,000 were sold in the open market for 63,000 for which commission of
C
700 was paid to the broker.
N

(ii) Creditors worth 65,000 were settled by handing over the entire stock to them along with a payment of
G

23,000 by cheque.
(iii) There was old furniture which had been completely written off from the books of the firm. It was taken over
N
IO

by Vasudha at 2,000.
(iv) Dewan undertook to pay Ms. Dewan’s loan of 45,000.
AT

(v) Dewan was appointed to look after the process of dissolution for which he was allowed a remuneration of
C

7,000. He agreed to bear the dissolution expenses. Actual expenses incurred by Dewan were 11,000, which
U

were paid by the firm.

ED

(vi) Loss on realisation amounted to 9,000.

Pass the necessary journal entries to record the above transactions in the books of the firm.
F

Q4. Ravi and Mukesh were partners in a firm sharing profits and losses equally. On 31st March, 2019 their firm
O

was dissolved. On the date of dissolution their Balance Sheet showed stock of 60,000 and creditors of 70,000.
E

After transferring stock and creditors to realisation account the following transactions took place :
AT

(i) Ravi took over 40% of total stock at 20% discount.

R

(ii) 30% of total stock was taken over by creditors of 20,000 in full settlement.
TO

(iii) Remaining stock was sold for cash at a profit of 25%.

(iv) Remaining creditors were paid in cash at a discount of 10%.
EC

Pass necessary journal entries for the above transactions in the books of the firm.
IR

Q5. Girija and Ganesh were partners in a firm sharing profits and losses in the ratio of 2 : 3. On 31st March,
D

2017 their Balance Sheet was as follows :

Balance Sheet of Girija and Ganesh as at 31st March 2017
Liabilities Amount Assets Amount
Creditors 80,000 Cash at Bank 20,000
Bank Overdraft 50,000 Investments 89,000
Grija’s Brother loan 77,000 Stock 78,000
Ganesh’s Loan 28,000 Debtors 55,000
Investment Fluctuation Fund 15,000 Less: Provision for D. Debts 2,000 53,000
Capitals : Buildings 2,50,000
 Aditi 1,50,000 Profit & Loss Account 10,000
Tina 1,00,000 2,50,000
5,00,000 5,00,000

On the above date the firm was dissolved. The assets were realized and the liabilities were paid off as follows :
(a) Debtors of ₹ 6,000 were proved bad.
(b) Girija agreed to pay off her brother’s Loan.
(c) One of the creditors for ₹ 10,000 was paid only ₹ 3,000 in full settlement of his account.

ST
(d) Buildings were auctioned for ₹ 1,80,000 and the auctioneer’s commission amounted to 8,000.

EA
(e) Ganesh took over part of stock at ₹ 4,000 (being 20% less than the book value). Balance of the Stock was
handed over to the remaining creditors in full settlement of their account.

T-
(f) Investments realized ₹ 9,000 less.

IC
(g) Realisation expenses amounted to ₹ 17,000 and were paid by Ganesh.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account.

TR
Q6. Gaurav, Saurabh and Vaibhav were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1.

IS
They decided to dissolve the firm on 31st March, 2018. After transferring Sundry assets (other than cash in

ID
hand and cash at Bank) and third party liabilities to realisation account, the assets were realized and liabilities

H
were paid off as follows :

EL
(i) A machinery with a book value of ₹ 6,00,000 was taken over by Gaurav at 50% and stock worth 5,000 was
taken over by a creditor of ₹ 9,000 in full settlement of his claim.

D
(ii) Land and building (book value ₹ 3,00,000) was sold for ₹ 4,00,000 through a broker who charged 2 %
T
commission.
C
(iii) The remaining creditors were paid ₹ 76,000 in full settlement of their claim and the remaining assets were
N

taken over by Vaibhav for ₹ 17,000.

G

(iv) Bank loan of ₹ 3,00,000 was paid along with interest of ₹ 21,000.
N

Pass necessary journal entries for the above transactions in the books of the firm.
IO

Q7. Ashish and Kanav were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March,
AT

2018 their Balance Sheet was as follows :

C

Balance Sheet of Ashish and Kanav as at 31st March 2018

U

Liabilities Amount (₹) Assets Amount (₹)

ED

Trade Creditors 42,000 Cash at Bank 35,000

Workmen’s Compensation Fund 20,000 Investments 32,000
F

Mrs. Ashish loan 9,000 Stock 24,000

O

Kanav’s Loan 35,000 Debtors 19,000

E

Employees’ Provident Fund 60,000 Furniture 40,000

AT

Investment Fluctuation Reserve 4,000 Plants 2,10,000

Capitals : Profit & Loss Account 10,000
R

Ashish 1,20,000
TO

Kanav 80,000 2,00,000

3,70,000 3,70,000
EC

On the above date they decided to dissolve the firm.

IR

(i) Ashish agreed to take over furniture at ₹ 38,000 and pay off Mrs. Ashish’s loan.
(ii) Debtors realised ₹ 18,500 and plants realised 10% more.
D

(iii) Kanav took over 40% of the stock at 20% less than the book value. Remaining stock was sold at a gain of
10%.
(iv) Trade creditors took over investments in full settlement.
(v) Kanav agreed to take over the responsibility of completing dissolution at an agreed remuneration of ₹
12,000 and to bear realization expenses. Actual expenses of realization amounted to ₹ 8,000.
Prepare a Realisation Account.​ ​
 Q8. Adiraj and Karan were partners in a firm sharing profits and losses in the ratio 3 : 2. On 31st March, 2018
the firm was dissolved. After the transfer of assets (other than cash in hand and at bank) and third party
liabilities to the Realization Account, the following information was provided :
(i) Furniture of ₹ 70,000 was sold for ₹ 68,000 by auction and auctioneer's commission amounted to ₹ 2,000.
(ii) Adiraj’s loan amounting to 35,000 was paid.
(iii) Out of the stock of ₹ 80,000, Karan took over 50% of the stock at a discount of 20% while the remaining
stock was sold off at a profit of 30% on cost.
(iv) A bills receivable of ₹ 3,000 under discount was dishonoured as the acceptor had become insolvent and

ST
hence the bill had to be met by the firm.

EA
(v) Profit and Loss Account showed a debit balance of ₹ 56,000.
(vi) Realization expenses amounted to ₹ 2,000 which were paid by Adiraj.

T-
Pass the necessary journal entries for the above transactions on the dissolution of the firm.

IC
Q9. Give the necessary journal entries for the following transactions on dissolution of the firm of Anita and

TR
Ravi on 31st March 2016, after the various assets (other than cash) and the third party liabilities have been

IS
transferred to Realisation Account. They shared profits and losses in the ratio 3 : 2.
(a) Ravi was to get a remuneration of ₹ 23,000 for completing the dissolution process. He also agreed to bear

ID
realization expenses. Realisation expenses of ₹ 10,000 were paid by Ravi from the firm’s cash.

H
(b) Amitesh, an old customer whose account for ₹ 60,000 was written off as bad debt in the previous year, paid

EL
90%.
(c) Creditors of ₹ 40,000, accepted furniture valued at 38,000 in full settlement of their claim.

D
(d) Land and Building was sold for ₹ 3,00,000 through a broker who charged 2% commission.
T
(e) There were 500 shares of 40 each in Vision Ltd., acquired at a cost of ₹ 22,000 and had been written off
C
completely from the books. These shares are now valued at 50 each and divided among the partners in their
N

profit sharing ratio.

G

(f) Profit on realization was ₹ 45,000.

N
IO

Q10. Madhav, Madhusudan and Mukund were partners in Jaganath Associates. They decided to dissolve the
firm on 31st March 2021. Pass necessary journal entries for the following transactions after various assets
AT

(other than cash) and third-party liabilities have been transferred to realization account:
C

(i) Old machine fully written off was sold for ₹ 42,000 while a payment of ₹ 6,000 is made to the bank for a bill
U

discounted being dishonoured.

ED

(ii) Madhusudan accepted an unrecorded asset of ₹80,000 at ₹75,000 and the balance through cheque,
against the payment of his loan to the firm of ₹1,00,000.
F

(iii) Stock of book value of ₹30,000 was taken by Madhav, Madhusudan and Mukund in their profit sharing
O

ratio.
(iv) The firm had paid realization expenses amounting to ₹5,000 on behalf of Mukund.
E
AT

(v) There was a vehicle loan of ₹ 2,00,000 which was paid by surrender of asset to the bank at an agreed
value of ₹ 1,40,000 and the shortfall was met from the firm's bank account.
R
TO

Q11. C, D and E were partners in a firm sharing profit and losses in the ratio of 3:1:1. On 31st March 2022
their Balance sheet was as follows:
EC

Balance Sheet of C, D and E as on 31st March, 2022

Liabilities ₹ Assets ₹
IR
D

Capital Accounts: Machinery 3,20,000

C 4,00,000 Investments 3,00,000
D 2,00,000 Stock 2,00,000
E 1,00,000 7,00,000 Debtors 1,00,000
C’s Loan 1,20,000 Cash at Bank 2,00,000
Sundry Creditors 1,00,000
Bills Payable 2,00,000
11,20,000 11,20,000
 On the above date the firm was dissolved due to certain disagreement among the partners:-
(I) Machinery of ₹ 3,00,000 was given to the creditor in full settlement of their account and remaining
machinery was sold for ₹ 10,000.
(II) investment realised ₹ 2,90,000.
( III) Stock was sold for ₹ 1,80,000.
(IV) Debtors for ₹ 20,000 proved bad.
(V) Realisation expenses amounted to ₹ 10,000.
Pass the necessary Journal entries.

ST
Q12. G and H were partners in a firm sharing profits and losses in the ratio of 3 : 1. On 31.03.2022, their

EA
Balance Sheet was as follows :

T-
Balance Sheet of C, D and E as on 31st March, 2022

IC
Liabilities ₹ Assets ₹

TR
Capital Accounts: Bank 49,000
G 4,00,000 Stock 51,000

IS
H 1,10,000 5,10,000 Debtors 99,000

ID
Profit & Loss 60,000 Furniture 2,01,000
Creditors 30,000

H
EL
6,00,000 6,00,000
On the above date, the firm was dissolved.
(i) Debtors realised ₹ 1,10,000 and furniture realised ₹ 70,000.
D
T
(ii) Stock was taken over by G at ₹ 71,000.
C
(iii) Creditors were paid 10% less.
N

(IV) Expenses on dissolution amounted to ₹ 20,000.

G

Prepare a Realisation A/C and Partner’s Capital A/C

N
IO

Q13. C, D and E were partners in a firm sharing profits in the ratio of 3: 1: 1. Balance Sheet as at 31st March,
2022 was as follows:
AT

Balance Sheet of C, D and E as at 31st March, 2022

C

Liabilities ₹ Assets ₹
U

Capital Accounts: Machinery 3,20,000

ED

C 4,00,000 Investments 3,00,000

D 2,00,000 Stock 2,00,000
F

E 1,00,000 7,00,000 Debtors 1,00,000

O

C’s Loan 1,20,000 Cash At Bank 2,00,000

E

Bills Payable 2,00,000

AT

Sundry Creditors 1,00,000

R

11,20,000 11,20,000
TO

On the above date the firm was dissolved due to certain disagreement among the partners:
(i) Machinery of ₹ 3,00,000 was given to creditors in full settlement of their account and remaining machinery
EC

was sold for ₹ 10,000.

IR

(ii) Investments realised ₹ 2,90,000.

(ji) Stock was sold for ₹ 1,80,000.
D

(iv) Debtors for ₹ 20,000 proved bad.

(v) Realisation expenses amounted to ₹ 10,000.
Prepare a Realisation Account.

Q14. Give the necessary journal entry for the following transaction on dissolution of the firm of Sonu and
Monu on 31st March 2021 after transfer of various assets ( other than cash and bank balance) and the third
party liabilities to Realisation Account. they shared profits and losses in the ratio of 2:1
 (i) Monu agreed to take over the firm's goodwill ( not recorded in the books of the firm) at a valuation of ₹
40,000
(ii) Bills Payable of ₹ 30,000 falling due on 30th April, 2021 were discharged at ₹ 29,500
(iii) Stock Worth ₹ 8,00,000 was taken over by partner Sonu at 10% discount.
(iv) Creditors of ₹ 2,00,000; accepted machinery at ₹ 2,20,000 in full settlement of their claim.
(V) Expenses of realisation ₹ 10,000 were paid by partner, Sonu.

Q15. B, C and D were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 31st March, 2022

ST
their Balance Sheet was as follows :
Balance Sheet of B, C and D as at 31st March, 2022

EA
Liabilities ₹ Assets ₹

T-
Capital Accounts: Land & Building 11,00,000

IC
B 13,00,000 Furniture 60,000

TR
C 2,00,000 Stock 4,50,000
D 2,00,000 17,00,000 Debtors 2,00,000

IS
Profits and Loss A/C 2,000 Less:- Provisions for D. Debts 5,000 1,05,000

ID
Sundry Creditors 1,20,000 Bank
17,000

H
EL
18,22,000 18,22,000
On the above date the firm was dissolved. The Assets were realised
and the Liabilities were paid off as follows :
D
T
(i) Debtors were sold to a debt collection agency at 10% less than the book value.
C
(ii) Stock ₹ 2,00,000 was taken over by B at ₹ 90,000 less than its book value and the remaining stock realised
N

₹ 1,80,000.
G

(iii) Furniture was taken over by C for ₹ 65,000.

N

(iv) Creditors were paid 10% less in full settlement of their amount.
IO

(v) Land and Building realised ₹ 18,00,000.

AT

(vi) B was assigned the work of dissolution for which he was to be paid ₹ 40,000.
Prepare a Realisation Account.
C
U

Q16. G and H were partners in a firm sharing profits and losses in the ratio of 3 : 1. On 31.03.2022, their
ED

Balance Sheet was as follows :

Balance Sheet of C, D and E as on 31st March, 2022
F

Liabilities ₹ Assets ₹
O

Capital Accounts: Bank 49,000

E

G 4,00,000 Stock 51,000

AT

H 1,10,000 5,10,000 Debtors 99,000

R

Profit & Loss 60,000 Furniture 2,01,000

TO

Creditors 30,000
6,00,000 6,00,000
EC

On the above date, the firm was dissolved.

IR

(i) Debtors realised ₹ 1,10,000 and furniture realised ₹ 70,000.

(ii) Stock was taken over by G at ₹ 71,000.
D

(iii) Creditors were paid 10% less.

(IV) Expenses on dissolution amounted to ₹ 20,000.
Pass the necessary Journal entries.

Q17. A, B and C were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as at
31st March, 2018 was as follows :
 Balance Sheet of A, B and C as at 31st March, 2018
Liabilities ₹ Assets ₹
Capital Accounts: Cash At Bank 3,00,000
A 7,50,000 Stock 3,00,000
B 3,00,000 Sundry Debtors 1,95,000
C 2,50,000 13,00,000 Less:- Provisions for Bad Debts 5,000 1,90,000
Creditors 2,00,000 Fixed Assets 7,10,000

ST
15,00,000 15,00,000

EA
On the above date they dissolved the firm and following amounts were realised :
(i) Fixed Assets ₹ 6,75,000; Stock ₹ 3,39,000; Debtors ₹ 1,35,000;

T-
(ii) Creditors were paid ₹ 1,85,000 in full settlement of their claim.

IC
(iii)Expenses on Realisation amounted to ₹ 19,000.

TR
Prepare a Realisation Account on the dissolution of the firm.

IS
Q18. Adiraj and Karan were partners in a firm sharing profits and losses in the ratio 3 : 2. On 31st March, 2018
the firm was dissolved. After the transfer of assets (other than cash in hand and at bank) and third party

ID
liabilities to the Realization Account, the following information was provided :

H
(i) Furniture of ₹ 70,000 was sold for ₹ 68,000 by auction and auctioneer’s commission amounted to ₹ 2,000.

EL
(ii) Adiraj’s loan amounting to ₹ 35,000 was paid.
(iii) Out of the stock of ₹ 80,000, Karan took over 50% of the stock at a discount of 20% while the remaining
stock was sold off at a profit of 30% on cost.
D
T
(iv) A bills receivable of ₹ 3,000 under discount was dishonoured as the acceptor had become insolvent and
C
hence the bill had to be met
N

by the firm.
G

(v) Profit and Loss Account showed a debit balance of ₹ 56,000.

N

(vi) Realization expenses amounted to ₹ 2,000 which were paid by Adiraj.

IO

Pass the necessary journal entries for the above transactions on the dissolution of the firm.
AT

Q19. Michael, Jackson and John were partners in a firm sharing profits in the ratio of 3 : 1 : 1. On 31st March,
C

2017, they decided to dissolve their firm. On that date their Balance Sheet was as follows :
U

Balance Sheet of Michael, Jackson and John as at 31.3.2017

ED

Liabilities ₹ Assets ₹
Capital Accounts: Bank 6,000
F

Michael 50,000 Stock in Trade 16,000

O

Jackson 25,000 Sundry Debtors 48,400

E

John 14,000 89,000 Less:- Provisions for D. Debts 2,400 46,000

AT

Creditors 11,500 Furniture 2,000

R

Loan 3,500 Sundry Assets 34,000

TO

1,04,000 1,04,000
It was agreed that :
EC

(i) Michael was to take over Furniture at ₹ 2,600 and Debtors amounting to ₹ 40,000 at ₹ 34,400 and the
IR

Creditors of ₹ 10,000 were to be paid by him at this figure.

(ii) Jackson was to take over all the stock in trade at ₹ 14,000 and some of the other Sundry Assets at ₹ 28,800
D

(being 10% less than book value).

(iii) John was to take over the remaining Sundry Assets at 90% of the book value and assumed the
responsibility for the discharge of the loan.
(iv) The remaining debtors were sold to a debt collecting agency for 50% of the book value. The expenses of
dissolution ₹ 600 were paid by John.
Prepare Realisation Account, Bank Account and Partners’ Capital Accounts. (Only Prepare Realisation A/C)
 Q20. A, B and C were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as at
31st March, 2018 was as follows :
Balance Sheet of A, B and C as at 31st March, 2018
Liabilities ₹ Assets ₹
Capital Accounts: Cash At Bank 3,00,000
A 7,50,000 Stock 3,00,000
B 3,00,000 Sundry Debtors 1,95,000

ST
C 2,50,000 13,00,000 Less:- Provisions for Bad Debts 5,000 1,90,000
Creditors 2,00,000 Fixed Assets 7,10,000

EA
15,00,000 15,00,000

T-
On the above date they dissolved the firm and following amounts were realised :

IC
(i) Fixed Assets ₹ 6,75,000; Stock ₹ 3,39,000; Debtors ₹ 1,35,000;

TR
(ii) Creditors were paid ₹ 1,85,000 in full settlement of their claim.
(iii)Expenses on Realisation amounted to ₹ 19,000.

IS
Pass the necessary journal entries on the dissolution of the firm.

ID
Topic No.:- 7

H
EL
Issue of Share/Debentures for consideration other than Cash
D
When a company enters into an arrangement with the vendors from whom it has purchased assets /
T
Business, whereby the vendors agrees to accept, the payment in the form of fully paid shares/Debentures of
C
the company issued to them.
N

Normally, no such cash is received for issue of shares. These shares can also be issued either at par or at
G

premium and Debentures can also be issued either at par, at premium or at discount, and the number of
N

shares to be issued will depend upon the price at which the shares are issued and the amount payable to the
IO

vendor. The number of shares to be issued to the vendor will be calculated as follows:
​
AT

Number of shares to be issued Issue = ​ Purchase consideration​

C

Price
U
ED

When Share / Debentures issued :

Price
At Par At Discount At Premium
F

Let Face Value of Shares / Debentures is = 100

O

100 100 - Discount 100 + Premium

Then Price will be:-
E

Accounting Treatment When only Asset is purchased and issue

AT

of Shares / Debentures are issued against the consideration

R
TO

Books of ____________ (Company Name)

Types of
Entries
EC

Date Particular LF Amount (₹) Amount (₹)

______________ (Name of the Asset)A/C Dr. —----

IR

When Assets is
To ________________ (Vendor Name) —---
D

purchased
(Being asset purchased from ____________)
When issued at Par
________________ (Vendor Name) Dr. —--
To Share Capital A/C or % Debentures A/C —--
(Being ________ issued at ____ for purchase
consideration)
 When issued at Premium

When Shares/ ________________ (Vendor Name) Dr. —--

Debentures are To Share Capital A/C or % Debentures A/C —---
issued for the
consideration To Security Premium Reserve A/C
(Being ________ issued at ____ on Premium of
₹_ for purchase consideration)

ST
When issued at Discount (only for Debentures)

EA
________________ (Vendor Name) Dr. —--
Discount on issue of Debentures A/C Dr. —---

T-
To % Debentures A/C

IC
(Being ________ issued at ____ on discoiunt of

TR
₹_ for purchase consideration)

IS
Note:-
If part payment is made by cash/ Cheque or Bill of Exchange then the following additional entry has to pass.

ID
The amount of the part payment should also be deducted from the the purchase consideration in order to issue

H
shares/ Debentures.

EL
Date Particular LF Amount (₹) Amount (₹)
________________ (Vendor Name) Dr. —--
To *Cash A/C or Bank A/C or Bills Payable A/C D —--
T
C
(Being amount of ₹ ________ paid in _________ to the
__________(Vendor) for purchase consideration)
N
G

* As the case may be

N

Accounting Treatment When Business is taken over and issue of

IO

Shares / Debentures are issued against the consideration

AT

Books of ____________ (Company Name)

C
U

Date Particular LF Amount Amount

(₹) (₹)
ED

When Purchase consideration is greater then *Net Assets* (Assets - Liabilities)

F

______________ (Name of the Assets)A/C Dr. —----

O

Goodwill A/C Dr. —----

E

To ________________ (Name of Liabilities) —---

AT

To ________________ (Vendor Name) —---

R

(Being business is taken over from ____________)

TO

When Business When Purchase consideration is less then *Net Assets* (Assets - Liabilities)
is taken over
EC

______________ (Name of the Assets)A/C Dr. —----

To ________________ (Name of Liabilities) —---
IR

To ________________ (Vendor Name) —---

D

To Capital Reserve A/C —---

(Being business is taken over from ____________)
When issued at Par
When Shares/ ________________ (Vendor Name) Dr. —--
Debentures are
issued for the To Share Capital A/C or % Debentures A/C —--
(Being ________ issued at ____ for purchase consideration)
consideration
 When issued at Premium

________________ (Vendor Name) Dr. —--

To Share Capital A/C or % Debentures A/C —---
To Security Premium Reserve A/C ××××
(Being ________ issued at ____ on Premium of ₹_ for
When Shares/
purchase consideration)
Debentures are

ST
issued for the When issued at Discount (only for Debentures)
consideration

EA
________________ (Vendor Name) Dr. —--

T-
Discount on issue of Debentures A/C Dr. —---

IC
To % Debentures A/C
(Being ________ issued at ____ on discoiunt of ₹_ for

TR
purchase consideration)

IS
Issue of Shares to Promoters:

ID
A company can issue shares to its promoters in return for their services towards the creation and

H
establishment of the company. It is the promoter’s efforts that play a major role in the creation of the company

EL
and its goodwill. Therefore, when the promoters of the company are allotted shares as remuneration, then the

D
Goodwill A/c or Incorporation Cost A/c is debited.
Date Particular LF Amount (₹) Amount (₹)
T
C
Incorporation or Goodwill A/C Dr. —--
N

To Promoters A/C —--

G

(Being incorporation Expenses incurred by the promoters)

N

Promoters A/C Dr. —--

IO

To Share Capital or % Debentures A/C —--

AT

(Being ___________ shares/Debentures issued to the promoters

C

against the incorporation Expenses or service rendered)

U

Note:- Shares/Debentures can be issued at premium. Debentures can be issued at discount too.
ED

Issue of Shares to Underwriters:-

F
O

Underwriting is an agreement in which companies enter before the issue and are brought before the pubic. It is
done so that if the shares or debentures are not taken up by the public in full, the underwriters will have to take
E

up and pay for such part of the shares or debentures for which the public has not applied for. Therefore, the
AT

underwriters are the persons or institutions who or which guarantee or undertake the issue. For the guarantee
R

given by the underwriters or the services rendered by them, they charge the company with an agreed
TO

commission known as Underwriting Commission. Instead of paying cash for the commission, the company
may allot shares to the underwriters.
EC

Date Particular LF Amount (₹) Amount (₹)

Underwriting Commission A/C Dr. —--
IR

To Underwriters —--
D

(Being underwriting commission due)

Underwriters’s Dr. —--
To Share Capital or % Debentures A/C —--
(Being ___________ shares/Debentures issued to the
underwriter against the underwriting commission)
Note:- Shares/Debentures can be issued at premium. Debentures can be issued at discount too.
 PRACTICE QUESTIONS
Q 1. Sico Ltd. took over the assets of ₹ 4,80,000 and liabilities of ₹ 80,000 of Mittal Ltd. for a consideration of
3,20,000. ₹ 20,000 were paid by an acceptance in favour of Mittal Ltd. payable after 3 months and the balance
by issue of fully paid up 8% Preference Shares of ₹ 100 each at a premium of 50%. Pass the necessary
journal entries for the above transactions in the books of Sico Ltd.

Q 2. Vayee Ltd. purchased the following assets of E.X. Ltd. : Land and Building of ₹ 60,00,000 at ₹ 84,00,000;

ST
Plant and Machinery of ₹ 40,00,000 at ₹ 36,00,000. The purchase consideration was ₹ 1,10,00,000. Payment
was made by accepting a Bill of Exchange in favour of E.X. Ltd. of ₹ 20,00,000 and remaining by issue of 8%

EA
debentures of 100 each at a premium of 20%.
Record the necessary journal entries for the above transactions in the books of Vayee Ltd.

T-
IC
Q 3. Disha Ltd. took over assets of ₹ 8,00,000 and liabilities of ₹ 3,00,000 from Kriti Ltd. for a
purchase consideration of ₹ 6,00,000. The payment was made by issue of 9% Debentures of 100

TR
each at 20% premium.

IS
Pass the necessary journal entries for the above transactions in the books of Disha Ltd.

ID
Q 4. Venus Ltd., is a real estate company. The company took over assets of ₹ 10,00,000 and liabilities of ₹

H
1,80,000 of Cayns Ltd. for ₹ 7,60,000. Venus Ltd.. issued 9% Debentures of 100 each at a discount of 5% in

EL
full satisfaction of the purchase consideration in favour of Cayns Ltd.
Pass necessary journal entries in the books of Venus Ltd. for the above transactions.

D
T
Q 5.‘UZ Ltd.’ purchased Plant and Machinery from Elk Machine Ltd. for 6,90,000. Elk Ltd. was paid by
C
accepting a draft of 90,000 payable after three months and the balance by issue of 6% debentures of 100 each
N

at a discount of 20%.
G

Pass necessary journal entries for the above transactions in the books of ‘UZ Ltd.’​
N

Q 6. Nano Ltd. purchased assets of Dow Ltd. for 3,00,000. It also agreed to take over the liabilities of Dow Ltd.
IO

amounting to 50,000 for a purchase consideration of 2,75,000. The payment to Dow Ltd. was made by issue of
AT

8% Debentures of 50 each at a premium of 10%.

Pass necessary journal entries for the above transactions in the books of Nano Ltd.
C
U

Q 7. Sun Ltd. purchased Furniture for ₹ 8,80,000 from M/s Furniture mart. 50% of the amount was paid to
ED

furniture mart by accepting a bill of exchange and for the balance the company issued 8% debentures of ₹ 100
each at a premium of 10% in favour of furniture mart.
F

Pass necessary journal entries for the above transactions in the books of Sun Ltd.
O
E

Q 8. Disha Ltd. purchased machinery from Nisha Ltd. and paid to Nisha Ltd. as follows:-
AT

(i) By issuing 10,000, equity shares of ₹ 10 each at a premium of 10%.

(ii) By issuing 200, 9% Debentures of ₹ 100 each at a discount of 10%.
R

(iii) Balance by accepting a bill of exchange of ₹ 50,000 payable after one month.
TO

Pass necessary journal entries for the above transactions in the books of Disha Ltd. for the purchase
of Machinery and making payment to Nisha Ltd.​
EC

Q 9. Z Ltd. purchased machinery from K Ltd. and paid to Nisha Ltd. as follows:-
IR

(i) By issuing 5,000, equity shares of ₹ 10 each at a premium of 30%.

D

(ii) By issuing 1000, 8% Debentures of ₹ 100 each at a discount of 10%.

(iii) Balance by accepting a bill of exchange of ₹ 48,000 payable after two months.
Pass necessary journal entries for the above transactions in the books of Z Ltd. for the purchase of
Machinery and making payment to K Ltd.​
 Q 10. Fill in the blanks in the following case:-
Date Particular LF Amount (₹) Amount (₹)
Sundry Assets A/C Dr. 18,00,000
_______________________ Dr. —---
To Sundry Creditors A/C 2,00,000
To ________________ —----

ST
(Being business of Rohit & Co. purchased for a
consideration of ₹ 20,00,000)

EA
________________________ Dr. 20,00,000

T-
________________________ Dr. —---

IC
To 8% Debentures A/C —---

TR
(Being paid to Rohit & Co. by issue of _________ 8% debentures
of ₹ 150 each at discount of ₹ 50 per debenture)

IS
ID
Q 11. Fill in the blanks in the following case:-

H
Date Particular LF Amount (₹) Amount (₹)

EL
Sundry Assets A/C Dr. 18,00,000

D
To Sundry Creditors A/C T 2,00,000
To _______________________ —----
C
To _______________________ —---
N
G

(Being business of Rohit & Co. purchased for a

consideration of ₹ 15,00,000)
N
IO

________________________ Dr. —----

AT

________________________ Dr. —----

C

To 9% Debentures A/C —---

U

(Being paid to Rohit & Co. by issue of _________ 9% debentures

ED

of ₹ 150 each at discount of ₹ 50 per debenture)

F

Q 12. Anjali Ltd. issued, 12% Debentures of ₹ 100 each for purchase of the following assets and liabilities from
O

Palak & Co. Plant ₹ 7,00,000; Stock-in-trade ₹ 9,00,000; Land and Building ₹ 12,00,000 & Sundry Creditors ₹
2,00,000.​ You are required to pass necessary journal entries in the books of Anjali Ltd.
E
AT

Q 13. ‘Sangam Woollens Ltd.’, Ludhiana, are the manufacturers and exporters of woollen garments. The
R

company decided to distribute free of cost woollen garments to 10 villages of Lahaul and Spiti District of
TO

Himachal Pradesh. The company also decided to employ 50 young persons from these villages in its newly
established factory. The company issued 40,000 equity shares of ₹ 10 each and 1,000 9% debentures of ₹ 100
EC

each to the vendors for the purchase of machinery of ₹ 5,00,000. Pass necessary Journal Entries.
IR

Q 14. ‘Good Blankets Ltd.’ are the manufacturers of woollen blankets. Blankets of the company are exported to
D

many countries. The company decided to distribute blankets free of cost to five villages of Kashmir Valley
destroyed by the recent floods. It also decided to employ 100 young persons from these villages in their newly
established factory at Solan in Himachal Pradesh. To meet the requirements of funds for starting its new
factory, the company issued 50,000 equity shares of ₹ 10 each and 2,000 8% debentures of ₹ 100 each to the
vendors of machinery purchased for ₹ 7,00,000.
Pass necessary journal entries for the above transactions in the books of the company.
Q 15. ‘Panipat Blankets Limited’ are the manufacturers and exporters of blankets. The company decided to
distribute 1,000 blankets free of cost to five villages of Kashmir which had been damaged by the floods. It also
decided to employ 100 young persons from these villages in their newly established factory at Ludhiana in
 Punjab. To meet the requirements of funds for its new factory, the company issued 1,00,000 equity shares of ₹
10 each and 2,000, 9% debentures of ₹ 100 each to the vendors of machinery purchased for ₹ 12,00,000.
Pass necessary journal entries for the above transactions in the books of the company.

Q 16. K Ltd. took over the assets of ₹ 15,00,000 and liabilities of ₹ 5,00,000 of P Ltd. for a purchase
consideration of ₹ 13,68,500. ₹ 25,500 were paid by issuing a promissory note in favour of P Ltd. payable after
2 months and the balance was paid by issue of equity shares of ₹ 100 each at a premium of 25%.
Pass necessary journal entries for the above transactions in the books of K ltd.

ST
Q 17. Sandesh Ltd. took over the assets of ₹ 7,00,000 and liabilities of ₹ 2,00,000 from Sanchar Ltd. for a

EA
purchase consideration of ₹ 4,59,500. ₹ 8,500 were paid by accepting a draft in favour of Sanchar Ltd. payable
after three months and the balance was paid by issue of equity shares of ₹ 10 each at a premium of 10% in

T-
favour of Sanchar Ltd.

IC
Pass necessary journal entries for the above transactions in the books of Sandesh Ltd.

TR
Q 18. Samachar India Ltd. took over the assets of ₹ 14,00,000 and liabilities of ₹ 4,00,000 from News Ltd. for a

IS
purchase consideration of ₹ 9,19,000. Samachar India Ltd. issued a promissory note of ₹ 17,000 payable after

ID
60 days in favour of News Ltd. and the balance amount was paid by issue of equity shares of ₹ 100 each at a
premium of ₹ 25 per share.

H
Pass necessary Journal entries for the above transactions in the books of Samachar India Ltd.

EL
Q 19. ‘B’ Ltd. took over the assets of ₹ 14,00,000 and liabilities of ₹ 4,00,000 of C Ltd. for a purchase

D
consideration of ₹ 9,19,000. ₹ 17,000 were paid by a bank draft in favour of C Ltd. and the balance was paid
T
by issue of equity shares of ₹ 10 each at a premium of 10% in favour of C Ltd.
C
Pass necessary journal entries for the above transactions in the books of B Ltd.
N
G

Q 20. Mico Ltd. took over the assets of ₹ 9,60,000 and liabilities of ₹ 1,60,000 of Aunara Ltd. for an agreed
consideration of ₹ 6,40,000. ₹ 40,000 were paid by an acceptance payable after 4 months and the balance by
N

issue of fully paid 8% Preference Shares of ₹ 100 each at a premium of 50%.

IO

Show the necessary Journal Entries for the above transactions in the books of Mico Ltd.
AT

Q 21. Pico Ltd. took over the assets of ₹ 2,40,000 and liabilities of ₹ 40,000 of Rajware Ltd. for a consideration
C

of ₹ 1,60,000. ₹ 10,000 were paid by an acceptance payable after 3 months and the balance by issue of fully
U

paid Equity Shares of ₹ 100 of a bill each at a premium of 50%.

ED

Show the necessary journal entries for the above transactions in the books of Pico Ltd.
F

Q 22. Madhur Ltd. took over the assets of ₹ 3,90,000 and Liabilities of ₹ 40,000 of Rasova Ltd. for a
O

consideration of ₹ 4,00,000. 20% was paid by a cheque and the balance by issue of fully paid equity shares of
E

₹ 100 each at a premium of 60%.

AT

Show necessary journal entries for these transactions in the books of Madhur Ltd.
R

Q 23. Hunam Ltd. took over the assets of ₹ 6,80,000 and liabilities of ₹ 80,000 of Ramtel Ltd. for a
TO

consideration of ₹ 7,00,000. 20% was paid by a cheque and the balance by issue of fully paid equity shares of
₹ 100 each at a premium of 40%.
EC

Pass the necessary journal entries in the books of Hunam Ltd. for these transactions.
IR

Q 24. Kadura Ltd. took over the assets of ₹ 2,70,000 and liabilities of ₹ 30,000 of Bavi Ltd. for a consideration
D

of ₹ 3,00,000. 20% was paid by a cheque and the balance by issue of fully paid equity shares of ₹ 100 each at
a premium of 60%.
Show the necessary journal entries for these transactions in the books of Kadura Ltd.

Q 25. On 1st April, 2016, Ganesh Ltd. acquired assets of ₹ 6,00,000 and took over liabilities of ₹ 70,000 of
Sohan Ltd. at an agreed value of ₹ 6,60,000. Ganesh Ltd. issued 12% Debentures of ₹ 100 each at a premium
of 10% in full satisfaction of purchase consideration. The debentures were redeemable after three years at a
premium of 5%.
Pass the necessary journal entries to record the issue of debentures.
 Q 26. LT Ltd. purchased land from JSS Ltd. The payment was made by issuing a cheque for ₹ 10,00,000 and
by accepting a bill of exchange for 6 months for ₹ 5,00,000. The balance amount was paid by issuing 5,000,
10% Debentures of ₹ 100 each at par redeemable at 10% premium after 3 years.
Pass the necessary journal entries in the books of LT Ltd. for the above transactions.

Q 27. ABC Ltd. purchased assets of ₹ 4,20,000 and took over liabilities of ₹ 40,000 of XYZ Ltd. at a value of ₹
3,60,000. ABC Ltd. issued 10% Debentures of ₹ 100 each at a discount of 10% in full settlement of the
purchase consideration.

ST
Pass the necessary journal entries in the books of ABC Ltd. for the above transactions.

EA
Q 28. B Ltd. issued 10,000, 9% Debentures of ₹ 100 each at a premium of 20% to vendors for purchase of
plant costing ₹ 6,00,000.

T-
Pass the necessary Journal entry for the payment made to vendors.

IC
TR
Q 29. Pass the necessary journal entries for the issue of debentures for the Anand Ltd. issued 800, 9%
Debentures of ₹ 500 each at a premium of 20%, to the vendors for machinery purchased from them costing ₹

IS
4,80,000.

ID
Q 30. Pass journal entries in the book of X Ltd. for Purchased of machinery ₹ 4,60,000, from Beta Ltd.

H
Payment was made by issue of 9% debentures of ₹ 100 each at a premium of 15% redeemable at par.

EL
Q 31. Hero Ltd. purchased plant and machinery for ₹ 18,00,000 from Pearl Machines Ltd. payable ₹ 3,00,000

D
by drawing a promissory note and the balance by issue of 9% debentures of ₹ 100 each at a premium of 20%.
Pass the necessary journal entries in the books of Hero Ltd. for the above transactions.
T
C
Q 32. Vanya Ltd. purchased a cunning business from Hardik Ltd. for a sum of ₹ 18,00,000. The payment of ₹
N

10,00,000 was made by issue of equity shares of ₹ 10 each and balance by a cheque. The assets and liabilites
G

acquired from Hardik Ltd. consisted the following:-

N

​​ ​ ​ ​ ₹​ ​ ​ ​ ​ ​ ​ ​ ​ ₹
IO

Machinery . ​ ​ ​ 9,00,000​ ​ Land & Building​ ​ ​ ​ 13,50,000

AT

Furnitue​​ ​ ​ 8,50,000​ ​ Sundry Creditors​ ​ ​ ​ 3,00,000

C

Q 33. Khandelwal Ltd. took over assets of Sharma Ltd. of ₹ 25,00,000 and liabilities amounting to ₹ 7,80,000
U

for a purchase consideration of ₹ 27,00,000. The payment to Sharma Ltd. was made by issuing 10%
ED

Debentures of ₹ 100 each at a discount of 10%.

Pass the necessary journal entries for the above transactions in the books of Khandelwal Ltd.
F
O

Q 34. X Ltd. purchased assets of ₹ 18,00,000 and took over liabilities of ₹ 6,00,000 of Y Ltd. for a purchase
consideration of ₹ 10,00,000. The payments to Y Ltd. was made by issue of 9% debentures of ₹ 100 each at
E

₹125. Calculate the number of 9% debentures issued in favour of Y Ltd. and pass the necessary journal
AT

entries for the above transactions in the books of X Ltd.

R
TO

Q 35. B Ltd. purchased Building worth ₹ 3,00,000, Plant worth ₹ 2,80,000 and Furniture worth ₹ 20,000 from C
Ltd. for a purchase consideration of ₹ 6,30,000. B Ltd. paid the purchase consideration by issuing 9%
EC

debentures of ₹ 100 each.

Pass necessary journal entries in the books of B Ltd. for the acquisition of assets and issue of
IR

debentures when :
D

(a) Debentures were issued at par.

(b) Debentures were issued at a premium of 25%.
(c) Debentures were issued at a discount of 10%.

Q 36. BX Ltd. took over a building worth ₹ 3,00,000, machinery worth ₹ 2,00,000, furniture worth ₹ 30,000 and
its liabilities of ₹ 40,000 from PQ & Company for a purchase consideration of ₹ 6,00,000. BX Ltd. paid the
purchase consideration by issuing 11% debentures of ₹ 100 each at a premium of 20%.
Pass necessary journal entries for the above transactions in the books of BX Ltd.
 Q 37. Vedesh Ltd. purchased a running business of Vibhu Enterprises for a sum of ₹ 12,00,000. Vedesh Ltd.
paid ₹ 60,000 by drawing a promissory note in favour of Vibhu Enterprises., ₹1,90,000 through bank draft and
balance by issue of 8% debentures of ₹ 100 each at a discount of 5%. The assets and liabilities of Vibhu
Enterprises consisted of Fixed Assets valued at ₹ 17,30,000 and Trade Payables at ₹ 3,20,000.
You are required to pass necessary journal entries in the books of Vedesh Ltd.

ST
EA
Topic No.:- 8

T-
IC
Forfeiture and Re-issue of Shares

TR
Forfeiture of Shares:-

IS
It may happen that some shareholders fail to pay one or more instalments, viz. allotment money and/or call

ID
money. In such circumstances, the company can forfeit their shares, i.e. cancel their allotment and treat the
amount already received thereon as forfeited to the company within the framework of the provisions in its

H
articles. These provisions are usually based on Table F which authorise the directors to forefeit the shares for

EL
non-payment of calls made.
It may be noted here that when the shares are forfeited, all entries relating to the forfeited shares
D
★​
must be reversed except the entry relating to share premium received, if any.
T
★​ I.e Securities Premium Reserve A/C only to be debited for the amount not received by the
C
company.
N
G

★​ The balance of shares forfeited account is shown as an addition to the total paid-up capital of the
company under the head ‘Share Capital’ under title ‘Equity and Liabilities’ of the Balance Sheet till the
N

forfeited shares are reissued.

IO

Journal Entry for Forfeiture of Share

AT

Date Particular LF Amount (₹) Amount (₹)

C
U

Share Capital A/C (Called-up by the Company) Dr. —---

ED

Securities Premium Reserve A/C (only not received) Dr. —----

To Share Forfeiture A/C (amount received) —---
F
O

To Calls-in-Arrears A/C (amount not received) —---

E

(Being _____ shares of ₹ ___ each ₹ __ called up issued at a

AT

______ of ₹ ___ per share forfeited for non-payment of

________ of ₹ __ per share including_______)
R

Note:- Securities Premium Reserve only to be recorded when shares are originally issued at Premium and
TO

premium is not paid by the shareholder.

EC

Re-issue of Forfeited Shares:-

IR

The directors can either cancel or re-issue the forefeited shares. Forfeited shares may be reissued as fully paid
at a par, premium, discount. In this context,
D

★​ it may be noted that the amount of discount allowed cannot exceed the amount that had been
received on forfeited shares at the time of initial issue, and
★​ Discount allowed on reissue of forfeited shares should be debited to the ‘Forfeited Share Account’.
★​ The balance, if any, left in the Share-Forfeited Account relating to reissued Shares, should be
treated as capital profit and transferred to Capital Reserve Account.
 ★​ capital profit arises only in respect of the forefited share reissued, and not on all forefeited shares.
Hence, when a part of the forfeited shares are reissued, it is only the proportionate amount of balance
that relates to the forefeited shares reissued which should be transferred to capital reserve, ensuring that
the remaining balance in share forefeiture account is proportionate to the amount forefeited on shares not
yet reissued.
★​ Calculation of share forfeiture amount for the re-issued shares is to be done in the following manner:-

ST
Share Forfeiture = Total amount of Share Forfeiture A/C * Re-issued Shares

EA
Total Shares Forfeited

T-
Journal Entry for Re-issue of Share

IC
Date Particular LF Amount (₹) Amount (₹)

TR
For Re- issue of Shares

IS
If shares Re-issued at a Discounted Price

ID
Bank A/C (Received) Dr. —---

H
Share Forfeiture A/C (Discount) Dr. —----

EL
To Share Capital A/C (Paid-up Capital) —---

D
(Being _____ shares of ₹ ___ each re-issued at ₹ __)
T
C
If shares Re-issued at a Premium
N
G

Bank A/C (Received) Dr. —---

To Share Capital A/C
N

(Paid-up Capital) —---

IO

To Securities Premium Reserve A/C —---

AT

(Being _____ shares of ₹ ___ each re-issued at ₹ __ at

premium of ₹ ___ each)
C
U

If shares Re-issued at Par

ED

Bank A/C (Received) Dr. —---

F

To Share Capital A/C (Paid-up Capital) —---

O

(Being _____ shares of ₹ ___ each re-issued at ₹ __)

E
AT

Transfer of Capital profit to the Capital Reserve

R

Share Forfeiture A/C Dr. —---

TO

To Capital Reserve A/C —--

(Being gain on reissue of forfeited shares transferred to
EC

capital reserve)
IR
D

Share Forfeiture A/C

Particular Dr. (₹) Particular Cr. (₹)
To Share Capital A/C (Used in Re-issue) —-- By Share Capital A/C —--
To Capital Reserve A/C (Capital Profits part) —-- (from Forfeiture)
To Balance c/d (For non-reissue part of
forfeited share) if any —--
—-- —--
 PRACTICE QUESTIONS
Q 1. Fill in the blank spaces in the Journal Entries given below :
Date Particular LF Amount (₹) Amount (₹)
Share Capital A/C Dr. —---
_______________________ Dr. —----
To Share Forfeiture A/C 3,000

ST
To Calls-in-Arrears A/C —---

EA
(Being 1,000 shares of ₹ 10 each ₹ 8 called up issued at a

T-
premium of ₹ 2 per share forfeited for non-payment of
allotment of ₹ 5 per share including premium and first call of

IC
₹ 2 per share)

TR
Bank A/C Dr. 9,800

IS
To Share Capital A/C —---

ID
To ______________________ —---

H
(Being 700 shares reissued @ ₹ 14 per share fully paid-up)

EL
Share Forfeiture A/C Dr. —---
To Capital Reserve A/C
D —--
T
(Being gain on reissue of forfeited shares transferred to
C
capital reserve)
N
G

Q 2. Fill in the blank spaces in the Journal Entries given below :

N

Date Particular LF Amount (₹) Amount (₹)

IO

Share Capital A/C Dr. 80,000

AT

To Share Forfeiture A/C —---

C

To Calls-in-Arrears A/C 30,000

U

(Being 1,000 shares of ₹ 100 each, ₹ 80 called up issued

ED

at a premium of 10% forfeited for non-payment of first

call of ₹ 30 per share)
F
O

Bank A/C Dr. —---

E

______________________ Dr. —---

AT

To Share Capital A/C —---

R

(Being 400 shares reissued at ₹ 70 per share ₹ 80

TO

paid-up)
EC

Share Forfeiture A/C Dr. —---

To Capital Reserve A/C —--
IR

(Being gain on reissue of forfeited shares transferred to

D

capital reserve)

Q 3. Fill in the blank spaces in the Journal Entries given below :

Date Particular LF Amount (₹) Amount (₹)
Share Capital A/C Dr. —---
_______________________ Dr. —----
To Share Forfeiture A/C 6,000
 To Calls-in-Arrears A/C —---
(Being 2,000 shares of ₹ 10 each ₹ 8 called up issued at a
premium of ₹ 2 per share forfeited for non-payment of
allotment of ₹ 5 per share including premium and first call of
₹ 2 per share)

Bank A/C Dr. 19,600

ST
To Share Capital A/C —---
To ______________________ —---

EA
(Being 1400 shares reissued @ ₹ 14 per share fully paid-up)

T-
Share Forfeiture A/C Dr. —---

IC
To Capital Reserve A/C —--

TR
(Being gain on reissue of forfeited shares transferred to

IS
capital reserve)

ID
Q 4. Fill in the blank spaces in the Journal Entries given below :

H
Date Particular LF Amount (₹) Amount (₹)

EL
Share Capital A/C Dr. 80,000
To Share Forfeiture A/C
D —---
T
C
To Calls-in-Arrears A/C 60,000
N

(Being 1,000 shares of ₹ 100 each, ₹ 80 called up issued at

G

a premium of 10% forfeited for non-payment of first call.)

N

Bank A/C Dr. —---

IO

______________________ Dr. —---

AT

To Share Capital A/C —---

C

(Being 800 shares reissued at ₹ 70 per share ₹ 80 paid-up)

U
ED

Share Forfeiture A/C Dr. —---

To Capital Reserve A/C —--
F

(Being gain on reissue of forfeited shares transferred to

O

capital reserve)
E
AT

Q 5. Cemto Ltd. forfeited 6,000 shares of ₹ 10 each issued at a premium of ₹ 2 per share for the non-
payment of final call of ₹ 3 per share. 300 of the forfeited shares were reissued for ₹ 8 per share as fully paid
R
TO

up. Pass necessary journal entries for the forfeiture and re-issue of shares. Also prepare a share
forfeited account.
EC

Q 6. Prayuj Ltd. forfeited 2,000 shares of ₹ 10 each, fully called up, on which they had received only ₹ 14,000.
IR

50 of the forfeited shares were reissued for ₹ 9 per share fully paid up. Pass necessary journal entries for
forfeiture and re-issue of shares. Also prepare a share forfeited account.
D

Q 7. Max Ltd. forfeited 500 shares of ₹ 100 each for non-payment of first call of ₹ 20 per share and final call of
₹ 25 per share. 250 of these shares were re-issued at ₹ 50 per share fully paid-up.
Pass the necessary journal entries in the books of Max Ltd. for forfeiture and re-issue of shares. Also
prepare the Share Forfeiture Account.

Q 8. AXN Ltd. forfeited 2,400 shares of ₹ 10 each for non-payment of final call of ₹ 3 per share. Out of the
forfeited shares, 800 shares were reissued at ₹ 8 per share as fully paid-up. Pass the necessary journal
entries in the books of AXN Ltd. regarding the forfeited shares.
 Q 9 .The director of Poly Plastic Limited resolved that 200 equity shares of Rs.100 each be forfeited for
non-payment of the second and final call of ₹30 per share. Out of these, 150 shares were re-issued at ₹60 per
share to Mohit. Show the necessary journal entries.

Q 10. Naman Ltd. issued 20,000 shares of ₹ 100 each, payable ₹ 25 on application, ₹ 30 on allotment , ₹ 25
on first call and the balance on final call. All money duly received except Anubha, who holding 200 shares did
not pay allotment and calls money and Kumkum, who holding 100 shares did not pay both the calls. The
directors forfeited the shares of Anubha and Kumkum. Give journal entries for forfeiture of Shares.

ST
Q 11. Kishna Ltd. issued 15,000 shares of ₹ 100 each at a premium of ₹10 per share, payable as follows:

EA
On application ₹ 30​ ​ On allotment ₹ 50 [including premium]​ On first and final call ₹ 30
All the shares subscribed and the company received all the money due, with the exception of the allotment

T-
and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of ₹ 12

IC
each. Give journal entries related to the forfeiture and re-issue of shares in the books of the company.

TR
Q 12. Arushi Computers Ltd. issued 10,000 equity shares of ₹100 each at 10% premium. The net amount

IS
payable as follows:

ID
On application -​ ₹ 20​ ​ ​ ​ On allotment -​​ ₹ 50 (including premium)
On first call ​ -​ ₹ 30​ ​ ​ ​ On final call - ​ ₹ 10

H
A shareholder holding 200 shares did not pay the final call. His shares were forfeited. Out of these 150 shares

EL
were reissued to [Link] at ₹ 75 per share.
Give journal entries related to the forfeiture and re-issue of shares in the books of the company.

D
T
Q 13. Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of ₹100 each at a
C
premium of ₹20 per shares, payable as follows:
N

On application-​ ₹ 20​ ​ ​ ​ On allotment -​​ ₹ 50 [including premium]

G

On first call -​ ₹ 30​ ​ ​ ​ On final call - ​ ₹ 20

N

Applications were received for 10,000 shares and allotment was made pro-rata to the applicants of 8,000
IO

shares, the remaining applications being refused. Money received in excess on the application was adjusted
toward the amount due on allotment. Rohit, to whom 300 shares were allotted failed to pay allotment and calls
AT

money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her shares
C

were also forfeited. All these shares were sold to Kartika as fully paid for ₹ 80 per share.
U

Give journal entries related to the forfeiture and re-issue of shares in the books of the company.
ED

Q 14. Life Machine Tools Limited issued 50,000 equity shares of ₹ 10 each at ₹ 12 per share, payable at to ₹
5 on application (including premium), ₹ 4 on allotment and the balance on the first and final call. Applications
F
O

for 70,000 shares had been received. Of the cash received, ₹40,000 was returned and ₹60,000 was applied
to the amount due on allotment. All shareholders paid the call due, with the exception of one shareholder of
E

500 shares. These shares were forfeited and reissued as fully paid at ₹ 8 per share. Give journal entries
AT

related to the forfeiture and re-issue of shares in the books of the company.
R
TO

Q 15. Prince Limited issued a prospectus inviting applications for 20,000 equity shares of ₹10 each at a
premium of ₹3 per share payable as follows:
EC

With Application-​ ₹ 2​ ​ ​ On Allotment (including premium)-​ ​ ₹5

On First Call -​ ₹ 3​ ​ ​ On Second Call -​ ​ ₹3
IR

Applications were received for 30,000 shares and allotment was made on pro- rata basis. Money overpaid on
D

applications was adjusted to the amount due on allotment. Mr. Mohit whom 400 shares were allotted, failed to
pay the allotment money and the first call, and his shares were forfeited after the first call. Mr. Joly, whom 600
shares were allotted, failed to pay for the two calls and hence, his shares were forfeited. Of the shares
forfeited, 800 shares were reissued to Supriya as fully paid for ₹ 9 per share, the whole of Mr. Mohit’s shares
being included.
Give journal entries related to the forfeiture and re-issue of shares in the books of the company.

Q 16. Alfa Limited invited applications for 4,00,000 of its equity shares of ₹10 each on the following terms:
Payable on application ₹ 5 per share
 Payable on allotment ₹ 3 per share
Payable on first and final call ₹ 2 per share
Applications for 5,00,000 shares were received. It was decided :
(a) to refuse allotment to the applicants for 20,000 shares;
(b) to allot in full to applicants for 80,000 shares;
(c) to allot the balance of the available shares’ pro-rata among the other applicants; and
(d) to utilise excess application money in part as payment of allotment money.
One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment

ST
and on the call, and his 400 shares were forfeited. The shares were reissued @ ₹ 9 per share.

EA
Q 17. Journalise the following transactions in the books Bhushan Oil Ltd.:

T-
(a) 200 shares of ₹ 100 each issued at a premium of ₹ 10 were forfeited for the non-payment of allotment
money of ₹ 60 per share. The first and final call of ₹ 20 per share on these shares were not made. The

IC
forfeited shares were reissued at ₹ 70 per share as fully paid-up.

TR
(b) 150 shares of ₹ 10 each issued at a premium of ₹ 4 per share payable with allotment were forfeited for
non-payment of allotment money of ₹ 8 per share including premium. The first and final calls of ₹ 4 per share

IS
were not made. The forfeited shares were reissued at ₹ 15 per share fully paid-up.

ID
(c) 400 shares of ₹ 50 each issued at par were forfeited for non-payment of final call of ₹ 10 per share. These

H
shares were reissued at ₹ 45 per share fully paid-up.

EL
Q 18. Record the journal entries for forfeiture and reissue of shares in the following cases:-

D
(i) Anupama Ltd. forfeited 20 shares of ₹ 10 each ₹ 7 called up in which the shareholder had paid application
and allotment money of ₹ 5 per share. Out of these, 15 shares were reissued to Naresh at ₹ 7 per share paid
T
C
up for ₹ 8 per share.
N

(ii) Anuj Ltd. forfeited 90 shares of ₹ 10 each ₹ 8 called up issued at a premium of ₹ 2 per share to R for
G

non-payment of allotment money of ₹ 5 per share (including premium) . out of these, 80 shares were reissued
to Sanjay at ₹ 8 called up for ₹ 10 per share.
N
IO

Q 19. SSP Ltd forfeited 300 shares of Rs 10 each issued at a premium of ₹ 2 per share for the non-payment of
AT

allotment of ₹ 4 per share (including premium). The first and final call of ₹ 3 per share has not been made yet,
50% of forfeited shares were re-issued at ₹ 8 per share fully paid-up.
C

Pass necessary journal entries for the forfeiture and re-issue of shares. (Delhi 2011)
U
ED

Q 20. TAG Ltd forfeited 400 shares of ₹ 10 each issued at a premium of ₹ 1 per share for the non-payment of
allotment of ₹ 4 per share (including premium). The first and final call of ₹ 3 per share has not been made yet.
F

50% of forfeited shares were re-issued at ₹ 8 per share fully paid-up.

O

Pass necessary journal entries for the forfeiture and re-issue of shares.
E
AT

Q 21. The directors of a company forfeited 200 shares of ₹ 10 each issued at a premium of ₹ 3 per share, for
the non-payment of the first call money of ₹ 3 per share. The final call of ₹ 2 per share has not been made.
R

Half the forfeited shares were re-issued at ₹ 1,000 fully paid.

TO

Record the journal entries for the forfeited shares and re-issue of shares.
EC

Q 22. PS Ltd forfeited 500 shares of ₹ 100 each for the non-payment of first call of ₹ 30 per share. The final
call of ₹ 10 per share was not yet made. The forfeited shares were re-issued for ₹ 65,000 fully paid-up. Pass
IR

necessary journal entries for the books of the company.

D

Q 23. Samta Ltd forfeited 800 equity shares of 100 each for the non-payment of first call of ₹ 30 per share.
The final call of ₹ 20 per share was not yet made. Out of the forfeited shares 400 were re-issued at the rate of
₹ 105 per share fully paid-up.
Pass necessary journal entries in the books of Samta Ltd for the above transactions.

Q 24. Gagan Ltd forfeited 1,500 equity shares of ₹ 10 each for the non-payment of first call of ₹ 2 per share.
The final call of ₹ 1 per share was not yet made. The forfeited shares were re-issued for ₹ 21,000 fully paid-up.
Pass necessary journal entries in the books of the company for forfeiture and re-issue of the shares.
 Q 25. Give journal entries in the books of the company for forfeiture and re-issue of shares.
(i) A company forfeited 200 shares of ₹ 20 each, ₹ 15 per share called-up on which ₹ 10 per share had been
paid. Directors reissued all the forfeited shares to B as ₹ 15 per share paid up for a payment of ₹ 10 each.
(ii) A Ltd forfeited 100 equity shares of the face value of ₹ 10 each, for the non-payment of first call of ₹ 2 per
share ₹ 6 per share had already been called and paid. These shares were subsequently re-issued as fully paid
at the rate of ₹ 7 per share.

ST
EA
Topic No.:- 9

T-
PRESENTATION OF SHARE CAPITAL IN THE BALANCE SHEET

IC
SHARE CAPITAL

TR
A company, being an artificial person, cannot generate its own capital which has necessarily to be collected

IS
from several persons. These persons are known as shareholders and the amount contributed by them is

ID
called share capital. An individual capital account can not be opened due to a large number of shareholders,

H
therefore the common capital account is opened called a ‘Share Capital Account’.

EL
Categories of Share Capital:-

D
From accounting point of view the share capital of the company can be classified as follows:-
T
C
N
G
N
IO
AT
C
U
ED
F
O
E

1.​ Authorised Capital: Authorised capital is the amount of share capital which a company is
AT

authorised to issue by its Memorandum of Association. The company cannot raise more than the amount of
R

capital as specified in the Memorandum of Association. It is also called Nominal or Registered capital.
TO

The authorised capital can be increased or decreased as per the procedure laid down in the Companies
Act.
EC

2.​ Issued Capital: It is that part of the authorised capital which is actually issued to the public for
subscription including the shares allotted to vendors and the signatories to the company’s memorandum.
IR

3.​ Subscribed Capital: It is that part of the issued capital which has been actually subscribed by the
D

public.
(I) Subscribed and Fully paid-up Capital:- If the subscribed capital is fully called-up and paid-up by the
shareholders then it is termed as subscribed and fully paid-up capital.
(II) Subscribed and not Fully paid-up Capital:- If the subscribed capital is not fully called-up or not paid-up
by the shareholders then it is termed as subscribed and fully paid-up capital.
Unissued Capital:- The authorised capital which is not offered for public subscription is known as
‘unissued capital’.
 Uncalled Capital: That portion of the subscribed capital which has not yet been called up. As stated
earlier, the company may collect this amount any time when it needs further funds.
Reserve Capital: A company may reserve a portion of its uncalled capital to be called only in the event of
winding up of the company. Such uncalled amount is called ‘Reserve Capital’ of the company. It is available
only for the creditors on winding up of the company.

Capital Reserve Reserve Capital

ST
A capital reserve is defined as the reserve that On the other hand, reserve capital is defined as the
is created from the capital profits of the reserve that is uncalled, i.e., this capital is called only

EA
company. when the company is on the verge of liquefying.
The capital reserve is written as the liability in Reserve capital is not shown in the company's balance

T-
the company's balance sheet. sheet.

IC
The capital reserve is utilized to write the Reserve capital is utilized at the time of the liquidation of

TR
losses and fictitious assets of the company. the company.

IS
Presentation of Share Capital in the Balance Sheet of the Company as per companies Act,2013

ID
_________________________ (Name of the Company)

H
Balance Sheet

EL
as at ________________

Particulars D Note Amount

T
No. (₹)
C
I Equity & Liabilities
N
G

1.​ Share holders Funds

N

(a)​ Share Capital 1 —------ *

IO

* The amount to be shown here from the Subscribed Capital.

AT

Notes to Accounts
C
U

Particulars Amount (₹)

ED

1.​ Share Capital:-

F

(A)​Authorised Capital
O

—--------------- shares of ₹ —-- each —------

E
AT
R

(B)​Issued Capital
—-----
TO

—--------------- shares of ₹ —-- each

EC

(C) Subscribed Capital

IR

(i) Subscribed & Fully Paid-Up Capital

D

—--------------- shares of ₹ —-- each —-----

Add:- Share forfeiture A/C —----- —-----
(ii) Subscribed & not Fully Paid-Up Capital
—--------------- shares of ₹ —-- each —-----
Less:- Calls-in-Arrears —----- —-----
 —----- *

PRACTICE QUESTIONS
Q 1. Raunit Styles Ltd. was registered with a capital of ₹ 85,00,000 divided into equity shares of ₹ 100 each.
The company invited applications for issuing 45,000 shares.
The amount was payable as ₹ 25 on application, ₹ 35 on allotment, ₹ 25 on first call and balance on final call.

ST
Applications were received for 42,000 shares and allotment was made to all the applicants. Kavi, to whom
3,300 shares were allotted, failed to pay both the calls. His shares were forfeited. ​ Present the Share Capital

EA
in the Balance Sheet of the company as per Schedule III of the Companies Act, 2013.

T-
Q 2. Willow Ltd. was registered with an authorized capital of ₹ 10,00,000 divided into 1,00,000 equity shares of

IC
10 each. The company offered 80,000 shares for subscription to the public, out of which 75,000 shares were

TR
subscribed. All amounts were received except the final call of 2 per share on 3,000 shares.
Present the Share Capital in the Balance Sheet of the company as per Schedule III of the Companies

IS
Act, 2013.

ID
Q 3. Janta Ltd. had an authorized capital of 2,00,000 equity shares of ₹ 10 each. The company offered to the

H
public for subscription 1,00,000 shares. Applications were received for 97,000 shares. The amount was

EL
payable as follows on application was ₹ 2 per share, ₹ 4 was payable each on allotment and balance on first

D
and final call. A shareholder holding 600 shares failed to pay the allotment money. His shares were forfeited.
The company did not make the first and final call.
T
C
Present the share capital in the Balance Sheet of the company as per Schedule III of the Companies
N

Act, 2013. Also prepare Notes to accounts.

G

Q 4. Kansa Ltd. was registered with a capital of ₹ 75,00,000 divided into equity shares of ₹ 100 [Link]
N

Ltd. offered 32,000 equity shares of 100 each to the public at a premium of 20 per share. The amount was
IO

payable as : 20 on application; 40 (including premium) on allotment; and the balance on first and final call.
AT

30,000 shares were subscribed by the public.

All the money was duly received except from a shareholder holding 4,000 shares who failed to pay the first and
C

final call money. His shares were forfeited.

U

Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.
ED

Q 5. Sumit Machine Ltd. was registered with a capital of 85,000 equity shares of ₹ 100 each. Sumit Machine
F

Ltd. issued 50,000 shares of Rs.100 each at premium of 5%. The shares were payable Rs.25 on application,
O

Rs. 50 on allotment and Rs.30 on first and final call. The issue was fully subscribed and money was duly
E

received except the final call on 400 shares. The premium was adjusted on allotment.
AT

Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.
R

Q 6. Arushi Computers Ltd. has a Nominal capital of ₹ 25,00,000 divided into equity shares of ₹ 100
TO

[Link] issued 10,000 equity shares of Rs.100 each at 10% premium. The net amount payable as
follows:
EC

On application ₹ 20​ ​ ​ ​ On allotment ₹ 50 (₹ 40 + premium ₹ 10 )

IR

On first call ₹ 30​ ​ ​ ​ On final call ₹ 10

A shareholder holding 200 shares did not pay final call. His shares were forfeited. Out of these 150 shares
D

were reissued to [Link] at ₹ 75 per share.

Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.

Q 7. Himalaya Company Limited was registered with a capital of ₹ 30,00,000 divided into equity shares of ₹
10 [Link] issued for public subscription of 1,20,000 equity shares of Rs.10 each at a premium of Rs.2
per share payable as under :
With Application ₹ 3 per share​ ​ On allotment (including premium) ₹ 5 per share
On First call ₹ 2 per share​ ​ ​ On Second and Final call ₹ 2 per share
 Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on
application was adjusted against the amount due on allotment. Rohan, whom 4,800 shares were allotted, failed
to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the
shares forfeited were reissued to Teena as fully paid at ₹ 7 per share.
Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.

Q 8. Life Machine Tools Limited was registered with a capital of ₹ 15,00,000 divided into equity shares of ₹
10 [Link] has issued 50,000 equity shares of ₹.10 each at ₹12 per share, payable at to ₹ 5 on

ST
application (including premium), ₹ 4 on allotment and the balance on the first and final call. Applications for
70,000 shares had been received. Of the cash received, ₹ 40,000 was returned and ₹ 60,000 was applied to

EA
the amount due on allotment. All shareholders paid the call due, with the exception of one shareholder of 500

T-
shares. These shares were forfeited and reissued as fully paid at ₹.8 per share.

IC
Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.

TR
Q 9. The Orient Company Limited was registered with a capital of ₹ 5,00,000 divided into equity shares of ₹
10 [Link] has offered for public subscription 20,000 equity shares of ₹ 10 each at a premium of 10%

IS
payable at ₹ 2 on application; ₹ 4 on allotment including premium; Rs.3 on First Call and ₹ 2 on Second and

ID
Final call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata
allotment was made to the remaining applicants. Both the calls were made and all the money were received

H
except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later reissued as fully

EL
paid at ₹ 9 per share.

D
Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.
T
Q 10. Kishna Ltd. was registered with a capital of ₹ 25,00,000 divided into equity shares of ₹ 100
C
N

[Link] has issued 15,000 shares of ₹ 100 each at a premium of ₹ 10 per share, payable as follows:
G

On application ₹ 30​ ​ On allotment ₹ 50 [including premium] ​ On first and final call ₹ 30

All the shares subscribed and the company received all the money due, with the exception of the allotment and
N

call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of ₹ 12 each.
IO

Show “Share Capital” in the Balance Sheet of Kansa Ltd. Also prepare ‘Notes to Accounts’.
AT

Q 11. ‘Tractors India Ltd.’ is registered with an authorized capital of ₹ 10,00,000 divided into 1,00,000 equity
C

shares of ₹ 10 each. The company issued 50,000 equity shares at a premium of ₹ 5 per share. ₹ 2 per share
U

were payable with application, ₹ 8 per share including premium on allotment and the balance amount on first
ED

and final call. The issue was fully subscribed and all the amount due was received except the first and final call
money on 500 shares allotted to Balaram.
F

Present the ‘Share Capital’ in the Balance Sheet of ‘Tractors India Ltd.’ as per Schedule VI Part I of the
O

Companies Act, 1956. Also prepare Notes to Accounts for the same.
E
AT

Q 12. ‘Scooters India Ltd.’ is registered with an authorized capital of ₹ 50,00,000, divided into 5,00,000 shares
of ₹ 10 each. The company issued 1,00,000 shares for subscriptions to the public at par. The amount was
R

payable as follows :
TO

On application and allotment – ₹ 3 per share. ​ ​ On 1st call – ₹ 2 per share.

On 2nd and final call – ₹ 5 per share.
EC

The issue was fully subscribed. All calls were made and were duly received except the 2nd and final call on
IR

1,000 shares held by Rohan. His shares were forfeited and afterwards re-issued at ₹ 8 per share as fully paid
up. Present ‘Share Capital’ in the Balance Sheet of the company as per Schedule VI Part I of the
D

Companies Act, 1956. Also prepare Notes to accounts for the same.

Q 13. Sun Pharma Ltd. is registered with an authorized capital of ₹ 1,00,00,000 divided into 1,00,000 equity
shares of ₹ 100 each. The company issued 50,000 shares at a premium of ₹ 40 per shares. A shareholder
holding 500 shares did not pay the final call of ₹ 20 per share. His shares were forfeited.
Present the ‘Share Capital’ in the Balance Sheet of the Company as per Schedule VI Part I of the
Companies Act, 1956. Also prepare notes to accounts.
 Q 14. ‘Suvidha Ltd.’ is registered with an authorised capital of ₹ 10,00,00,000 divided into 10,00,000 equity
shares of ₹ 100 each. The company issued 1,00,000 shares for public subscription. A shareholder holding 100
shares, failed to pay the final call of ₹ 20 per share. His shares were forfeited. The forfeited shares were
re-issued at ₹ 90 per share as fully paid up.
Present the ‘Share Capital’ in the Balance Sheet of the company as per Schedule VI Part I of the
Companies Act, 1956. Also prepare ‘Notes to Accounts’.

Q 15. ‘India Auto Ltd.’ is registered with an authorised capital of ₹ 7,00,00,000 divided into 7,00,000 shares of

ST
₹ 100 each. The company issued 50,000 shares to the vendor for building purchases and 2,00,000 shares

EA
were issued to the public. The amount was payable as follows :
On application and allotment – ₹ 20 per share ​ ​ On first call – ₹ 50 per share

T-
On second and final call – The balance

IC
All calls were made and were duly received except on 100 shares held by Rajani, who failed to pay the second
and final call. Her shares were forfeited.

TR
Present the ‘Share Capital’ in the Balance Sheet of the company as per Schedule VI Part I of the

IS
Companies Act, 1956. Also prepare ‘Notes to Accounts’.

ID
Q 16. ‘David Ltd.’ issued ₹ 40,00,000 equity shares of ₹ 10 each out of its registered capital of ₹ 10,00,00,000.
The amount payable on these shares was as follows :

H
EL
On application – ₹ 1 per share​​ ​ On allotment – ₹ 2 per share
On first call – ₹ 3 per share ​ ​ ​ On second and final call – ₹ 4 per share

D
All calls were made and were duly received, except the second and final call on 1,000 shares held by Vipul.
T
These shares were forfeited.
C
Present the ‘Share Capital’ in the Balance Sheet of the company as per Schedule VI Part I of the
N

Companies Act, 1956. Also prepare ‘Notes to Accounts’.

G

Q 17. ‘Telecom Limited’ is registered with an authorized capital of ₹ 8,00,00,000 divided into 80,00,000 equity
N

shares of ₹ 10 each. The company issued 1,00,000 shares at a premium of ₹ 2 per share. The amount was
IO

payable as follows :
AT

On application ₹ 3 per share ​ ​ ​ On allotment ₹ 5 per share (including premium)

On first and final call
C

The balance All calls were made and were duly received except the first and final call on 1,000 shares held by
U
ED

Asha. Present the ‘Share Capital’ in the Balance Sheet of the company as per Schedule VI Part I of the
Companies Act, 1956.
F

Q 18. Fidasa Ltd. was registered with a capital of ₹ 85,00,000 divided into equity shares of ₹ 100
O

[Link] has offered 64,000 equity shares of ₹ 100 each to the public at a premium of ₹ 20 per share.
E

The amount was payable as :

AT

₹ 20 – on application; ₹ 40 (including premium) – on allotment and the balance on first and final call. 60,000
R

shares were subscribed by the public. All the money was duly received except from a shareholder holding
TO

8,000 shares, who failed to pay the first and final call money. His shares were forfeited.
Show ‘Share Capital’ in the Balance Sheet of Fidasa Ltd. Also, prepare ‘Notes to Accounts’.
EC

Q 19. Vivo Ltd. was registered with a capital of ₹ 25,00,000 divided into equity shares of ₹ 100
IR

[Link] has offered 16,000 equity shares of ₹ 100 each to the public at a premium of ₹ 20 per share.
D

The amount was payable as ₹ 20 on application; ₹ 40 (including premium) on allotment; and the balance on
first and final call. 15,000 shares were subscribed by the public. All the money was duly received, except from
a shareholder holding 2,000 shares who failed to pay the first and final call money. His shares were forfeited.
Show ‘Share Capital’ in the Balance Sheet of Vivo Ltd. Also prepare ‘Notes to Accounts’.

Q 20. Xansa Ltd. was registered with a capital of ₹ 35,00,000 divided into equity shares of ₹ 100
[Link] has offered 22,000 equity shares of ₹ 100 each to the public at a premium of ₹ 20 per share.
The amount per share was payable as ₹ 30 on application; ₹ 50 (including premium) on allotment; and the
 balance on first and final call. 20,000 shares were subscribed by the public. All calls were made. A shareholder
holding 1,000 shares failed to pay the first and final call money. His shares were forfeited.
Show ‘Share Capital’ in the Balance Sheet of Xansa Ltd. Also, prepare ‘Notes to Accounts’.

Topic No.:- 10
ISSUE OF DEBENTURES WITH TERM OF REDEMPTION

ST
Terms of Issue of Debentures

EA
➢​ When a company issues debentures, it usually mentions the terms on which they will be redeemed on
their maturity. Redemption of debentures means discharge of liability on account of debentures by

T-
repayment made to the debenture holders. Debentures can be redeemed either at par or at a premium.

IC
Depending upon the terms and conditions of issue and redemption of debentures, the following six

TR
situations are commonly found in practice:-
➔​ (i) Issued at par and redeemable at par

IS
➔​ (ii) Issued at discount and redeemable at par

ID
➔​ (iii) Issued at a premium and redeemable at par
➔​ (iv) Issued at par and redeemable at a premium

H
➔​ (v) Issued at a discount and redeemable at a premium

EL
➔​ (vi) Issued at a premium and redeemable at a premium

D
(I) Issue at Par & redeemable at Par
T
Journal Entry
C
N

Date Particular LF Dr. (₹) Cr. (₹)

G

For receiving amount through bank

N

Bank A/C (Par) Dr. —-

IO

—--
To __ % Debenture Application and Allotment A/C
AT

(Being received ₹ ___________ for issue of ________ __%

Debenture of ₹ ______ each at _______ redeemable at Par)
C

For transferring Debenture Application and Allotment money to Debenture A/C

U
ED

__ % Debenture Application and Allotment A/C Dr. —--

—---
To __ % Debenture A/C
F

(Being __ % Debenture Application and Allotment money

O

transferred to __ % Debenture A/C )

E
AT

(II) Issue at Discount & redeemable at Par

R

Journal Entry
TO

Date Particular LF Dr. (₹) Cr. (₹)

For receiving amount through bank
EC

Bank A/C (Par - Discount) Dr. —-

IR

—--
To __ % Debenture Application and Allotment A/C
D

(Being received ₹ ___________ for issue of ________ __%

Debenture of ₹ ______ each at _______ redeemable at Par)
For transferring Debenture Application and Allotment money to Debenture A/C
__ % Debenture Application and Allotment A/C Dr. —--
—---
Discount on Issue of Debenture A/C Dr.
—---
To __ % Debenture A/C
(Being __ % Debenture Application and Allotment money
transferred to __ % Debenture A/C )
 (III) Issue at Premium & redeemable at Par
Journal Entry
Date Particular LF Dr. (₹) Cr. (₹)
For receiving amount through bank
Bank A/C (Par + Premium) Dr. —-

ST
—--
To __ % Debenture Application and Allotment A/C
(Being received ₹ ___________ for issue of ________ __%

EA
Debenture of ₹ ______ each at _______ redeemable at Par)

T-
For transferring Debenture Application and Allotment money to Debenture A/C

IC
__ % Debenture Application and Allotment A/C Dr. —--

TR
To __ % Debenture A/C —---
To Securities Premium Reserve A/C —---

IS
(Being __ % Debenture Application and Allotment money

ID
transferred to __ % Debenture A/C )

H
EL
(IV) Issue at Par & redeemable at Premium

D
Journal Entry
T
Date Particular LF Dr. (₹) Cr. (₹)
C
For receiving amount through bank
N
G

Bank A/C (Par) Dr. —-

—--
To __ % Debenture Application and Allotment A/C
N
IO

(Being received ₹ ___________ for issue of ________ __%

Debenture of ₹ ______ each at ______ redeemable at premium)
AT

For transferring Debenture Application and Allotment money to Debenture A/C

C

__ % Debenture Application and Allotment A/C Dr. —--

U

—---
To __ % Debenture A/C
ED

(Being __ % Debenture Application and Allotment money transferred

to __ % Debenture A/C )
F

Loss on issue of Debenture A/C Dr. —--

O

—--
To Premium on Redemption of Debenture A/C
E

(Being Loss on issue of debenture recorded in the books of accounts

AT

for premium on redemption of debenture)

R
TO

(V) Issue at Discount & redeemable at Premium

EC

Journal Entry
Date Particular LF Dr. (₹) Cr. (₹)
IR

For receiving amount through bank

D

Bank A/C (Par - Discount) Dr. —-

—--
To __ % Debenture Application and Allotment A/C
(Being received ₹ ___________ for issue of ________ __%
Debenture of ₹ ______ each at _______ redeemable at Par)
For transferring Debenture Application and Allotment money to Debenture A/C
__ % Debenture Application and Allotment A/C Dr. —--
—---
Discount on Issue of Debentutre A/C Dr.
—---
 To __ % Debenture A/C
(Being __ % Debenture Application and Allotment money transferred
to __ % Debenture A/C )
Loss on issue of Debenture A/C Dr. —--
—---
To Premium on Redemption of Debenture A/C
(Being Loss on issue of debenture recorded in the books of accounts
for premium on redemption of debenture)

ST
(VI) Issue at Premium & redeemable at Premium

EA
Journal Entry

T-
Date Particular LF Dr. (₹) Cr. (₹)

IC
For receiving amount through bank

TR
Bank A/C (Par + Premium) Dr. —-
—--

IS
To __ % Debenture Application and Allotment A/C

ID
(Being received ₹ ___________ for issue of ________ __%
Debenture of ₹ ______ each at _______ redeemable at Par)

H
For transferring Debenture Application and Allotment money to Debenture A/C

EL
__ % Debenture Application and Allotment A/C Dr. —--

D
To __ % Debenture A/C T —---
To Securities Premium Reserve A/C —---
C
(Being __ % Debenture Application and Allotment money
N

transferred to __ % Debenture A/C )

G

Loss on issue of Debenture A/C Dr. —--

N

—-
To Premium on Redemption of Debenture A/C
IO

(Being Loss on issue of debenture recorded in the books of

AT

accounts for premium on redemption of debenture)

C

Note:-
U
ED

➔​ Only one entry is added when the condition for redemption of Debenture is at Premium all the other
treatments remain the same as the case may be regarding the issue condition. The additional entry is as
follows:-
F
O

Date Particular L.F. Dr. (₹) Cr. (₹)

Loss on issue of Debenture A/C Dr. —--
E

—--
AT

To Premium on Redemption of Debenture A/C

(Being Loss on issue of debenture recorded in the books of
R

accounts for premium on redemption of debenture)

TO

➔​ Discount on issue of Debenture is also a Loss on issue of Debenture therefore can be written as Loss
EC

on issue of Debenture.
IR

PRACTICE QUESTIONS
D

Q1. Alka Ltd. issued 5,000, 10% debentures of ₹ 1,000 each at a discount of 10% redeemable at a premium of
5% after 5 years. According to the terms of issue ₹ 500 was payable on application and the balance amount on
allotment of debentures. Record necessary entries regarding the issue of 10% debentures.

Q2. Aishwarya Ltd. issued 7,000, 10% debentures of ₹ 1,000 each at a discount of 10% redeemable at a
premium of 5% after 4 years. According to the terms of issue ₹ 300 was payable on application and balance on
allotment of debentures. Record necessary entries regarding the issue of 10% debentures.
 Q3. Nandini Ltd. issued 60,000, 8% debentures of ₹ 100 each at a discount of 10% redeemable at a premium
of 5% after 7 years. According to the terms of issue ₹ 50 was payable on application and balance on allotment
of debentures. Record necessary entries regarding the issue of 8% debentures.

Q4. Alok Ltd. issued 7,000, 10% debentures of ₹ 500 each at a premium of ₹ 50 per debenture redeemable at
a premium of 10% after 5 years. According to the terms of issue, ₹ 200 was payable on application and
balance on allotment. Record necessary journal entries at the time of issue of 10% debentures.

ST
Q5. On June 1, 2022 L and B Ltd. issued 9% Debentures of ₹ 500 each. Pass necessary journal entries for

EA
the issue of debentures in the following situations:-
(a) When debentures were issued at 5% discount, redeemable at 10% premium.

T-
(b) When debentures were issued at 12% premium, redeemable at 6% premium.

IC
Q6. KTR Ltd., issued 365, 9% Debentures of ₹ 1,000 each on 4-3-2022. Pass necessary journal entries for

TR
the issue of debentures in the following situations :

IS
(a) When debentures were issued at par redeemable at a premium of 10%.
(b) When debentures were issued at 6% discount redeemable at 5% premium.

ID
H
Q7. VKR Ltd. issued 975; 9% Debentures of ₹ 500 each on 4-3-2022. Pass necessary journal entries for the

EL
issue of debentures under the following situations :
(a) When debentures were issued at a premium of 10% redeemable at a premium of 6%.

D
(b) When debentures were issued at a par redeemable at 9% premium.
T
C
Q8. TRK Ltd. issued 767, 9% debentures of ₹ 100 each on 1-1-2016. Pass necessary journal entries for the
N

issue of debentures in the following situations :

G

(a) When debentures were issued at a discount of 3% and were redeemable at a premium of 7%.
N

(b) When debentures were issued at a premium of 4% and were redeemable at a premium of 9%.
IO
AT

Q9. Journalise the following transaction on issue of 11% debentures :

Winona Ltd. issued ₹ 80,000, 11% debentures of ₹ 100 each at a premium of 5% redeemable at a premium of
C

10%.
U
ED

Q10. Journalise the following transaction on the issue of 11% debentures :

Kina Ltd. issued ₹ 1,60,000, 11% debentures of ₹ 100 each at a premium of 5% redeemable at a premium of
F

10%.
O
E

Q11. Journalise the following transaction on issue of 12% debentures :

AT

Mona Ltd. issued 40,000, 12% debentures of ₹ 100 each at a premium of 10% redeemable at a premium of
5%.
R
TO

Q12. Journalise the following transaction at the time of issue of 12% debentures ;
EC

Nandan Ltd. issued ₹ 90,000, 12% debentures of ₹ 100 each at a discount of 5% redeemable at 110%.
IR

Q13. Journalise the following transaction on issue of 12% debentures :

D

Pincel Ltd. issued ₹ 2,70,000, 12% debentures of ₹ 100 each at a discount of 5% redeemable at 110%.

Q14. Garvit Ltd. invited applications for issuing 3,000, 11% Debentures of ₹ 100 each at a discount of 6%. The
full amount was payable on application. Applications were received for 3,600 debentures. Applications for 600
debentures were rejected and the application money was refunded. Debentures were allotted to the remaining
applicants. Pass the necessary journal entries for the above transactions in the books of Garvit Ltd.

Q15. ‘ZK Ltd.’ issued ₹ 4,00,000, 9% Debentures of ₹ 100 each at a discount of 5% redeemable at a premium
of 10%. Pass necessary journal entries for the above transactions in the books of ‘ZK Ltd.’
 Q16. Pass necessary journal entries for the issue of 7,500, 9% Debentures of ₹ 50 each at a discount of 6%,
redeemable at a premium of 10%.

Q17. Zed Ltd. issued 2,00,000, 8% debentures of ₹ 100 each at a discount of 6% redeemable at a premium of
10% after 5 years. The amount was payable as follows :
On application – ₹ 50 per debenture and
On allotment – balance

ST
Record the necessary journal entries for the issue of debentures in the books of Zed Ltd.

EA
Q18. Kati Ltd. issued 8,000, 9% debentures of ₹ 100 each at a discount of 10%. The full amount was payable

T-
on application. Applications were received for 9,000 debentures and allotment was made on a pro-rata basis.

IC
Pass the necessary journal entries for the above transactions in the books of Kati Ltd.

TR
Q19. On 1st April, 2018, Sakshi Ltd. issued 1,000, 11% Debentures of ₹ 100 each at a discount of 6%,

IS
redeemable at a premium of 5% after three years.
Pass the necessary journal entries for the issue of debentures in the books of Sakshi Ltd.

ID
H
Q20. Pass the necessary journal entries for the issue of debentures for the following transactions :

EL
(ii) Dawar Ltd. issued 5,000, 7% Debentures of ₹ 200 each at a premium of 5%, redeemable at a premium of
10%.

D
(iii) Novelty Ltd. issued 1,000, 8% Debentures of ₹ 100 each at a discount of 5%, redeemable at a premium of
T
10%.
C
N

Q21. On 1st April, 2019, Bright Ltd. issued ₹ 4,00,000, 6% Debentures of ₹ 100 each at a discount of 5%,
G

redeemable after three years. The amount per debenture was payable as follows :
N

On Application – ₹ 80 per debenture

IO

On Allotment – Balance
AT

The debentures were fully subscribed and all money was duly received.
Pass necessary journal entries for issue of debentures.
C
U

Q22. Pass journal entries in the book of X Ltd. for Issue of 1,000, 12% debentures of ₹ 100 each at 10%
ED

premium, redeemable at a premium of 5%.

F

Q23. BGP Ltd. invited applications for issuing 15,000, 11% debentures of ₹ 100 each at a premium of ₹ 50 per
O

debenture. The full amount was payable on application. Applications were received for 25,000 debentures.
E

Applications for 5,000 debentures were rejected and the application money was refunded. Debentures were
AT

allotted to the remaining applicants on a pro-rata basis.

Pass the necessary journal entries for the above transactions in the books of BGP Ltd.
R
TO

Q24. Pass journal entries for issue of debentures for the following transactions:-
(i) Issued 3,000, 11% debentures of ₹ 100 each at par, redeemable at 5% premium.
EC

(ii) Issued 4,000, 12% debentures of ₹ 100 each at 5% premium, redeemable at 10% premium.
(iii) Issued ₹ 3,00,000, 9% debentures of ₹ 100 each at par, redeemable at par.
IR

(iv) Issued ₹ 7,00,000, 9% debentures of ₹ 100 each at a discount of 10%, redeemable at par.
D

(v) Issued ₹ 10,00,000, 9% debentures of ₹ 100 each at a discount of 10%, redeemable at a 5% premium.

[Link] the necessary journal entries in the books of Pankaj Limited for the issue of Debentures in the
following cases :
(a) Issued 7500, 10% Debentures of ₹ 100 each at a discount of ₹ 10,000 redeemable at a premium of 5%.
(b) Issued 5000, 10% Debentures of ₹ 100 each at a premium of 10% redeemable at a premium of 10%.
(c) Issued 1000, 9% Debentures of ₹ 100 each at par redeemable at par.
(d) Issued ₹ 2,00,000, 9% Debentures of ₹ 100 each at a discount of 10% redeemable at par.
 (e) Issued 5,000, 9% Debentures of ₹ 100 each at 20% premium redeemable at par.

Q26. Pass the necessary journal entries in the books of Pankaj Limited for the issue of Debentures in the
following cases :
(a) Issued 50,000, 9% Debentures of ₹ 100 each at par redeemable at par.
(b) Issued 10,000, 8% Debentures of ₹ 100 each at a premium of 7% redeemable at par.
(c) Issued 750, 8% Debentures of ₹ 100 each at 10% discount redeemable at par.
(d) Issued 1,000, 9% Debentures of ₹ 100 each at a premium of 5% redeemable at 8% premium.

ST
(e) Issued 500, 9% Debentures of ₹ 100 each at 10% discount redeemable at 10% premium.

EA
Q27. X Ltd. invited applications for issuing 15,000 8% Debentures of ₹ 100 each. The amount was payable as

T-
follows :

IC
On Application ₹ 20 per Debenture
On Allotment Balance

TR
Applications for 30,000 Debentures were received. Applications for 5,000 Debentures were rejected and the

IS
application money was refunded to the applicants. Pro Rata allotment was made to the remaining applicants.
Excess money received with applications was adjusted towards sums due on allotment. The remaining

ID
allotment money was duly received.

H
Pass necessary journal entries for the above transactions in the books of X Ltd.

EL
Q28. Pass necessary journal entries for the issue of Debentures in the following cases :

D
(i) Y Ltd. issued ₹ 5,00,000, 9% Debentures of ₹ 100 each at par redeemable at a premium of 10% after three
T
years.
C
(ii) Z Ltd. issued 4500, 9% Debentures of ₹ 100 each at a discount of 10% redeemable at a premium of 5%
N

after three years.

G
N

Q29. XZ Ltd. invited applications for issuing 5000, 9% debentures of ₹ 100 each. The amount was payable as
IO

follows :
On application ₹ 40 per debenture
AT

On allotment Balance
C

Applications for 10,000 debentures were received. Applications for 2000 debentures were rejected and the
U

application money of these applicants was refunded to them. Pro-rata allotment was made to the remaining
ED

applicants. Excess application money received with those applications against which pro-rata allotment was
made was adjusted towards the amount due on allotment.
F

Pass the necessary journal entries for the issue of debentures in the books of XZ Ltd.
O

Q30. Pass the necessary journal entries for the issue of 9% debentures in the following cases :
E

(a) Issued ₹ 5,00,000, 9% debentures of ₹ 100 each at par, redeemable at par, after three years.
AT

(b) Issued 4,000, 9% debentures of ₹ 100 each at a discount of 3%, redeemable at a premium of 10% after five
R

years.
TO

(c) Issued 10,000, 9% debentures of ₹ 100 each issued at a premium of 20%, redeemable at a premium of
10% after five years.
EC

Topic No.:- 11
IR
D

ISSUE OF DEBENTURES AS COLLATERAL SECURITY

➔​ A collateral security may be defined as a subsidiary or secondary or additional security besides the
primary security when a company obtains a loan or overdraft from a bank or any other financial
Institution. It may pledge or mortgage some assets as a secured loan against the said loan. But the lending
institutions may insist on additional assets as collateral security so that the amount of loan can be realised in
full with the help of collateral security in case the amount from the sale of principal security falls short of the
loan money.
 ➔​ In such a situation, the company may issue its own debentures to the lenders in addition to some other assets
already pledged. Such an issue of debentures is known as ‘Debentures issued as Collateral Security’.
➔​ If the company fails to repay the loan along with interest, the lender is free to receive his money from the
sale of primary security and if the realisable value of the primary security falls short to cover the entire
amount, the lender has the right to invoke the benefit of collateral security whereby debentures may
either be presented for redemption or sold in the open market. Debentures issued as collateral security can be
dealt within two ways in the books of the company:
★​ First Method

ST
No entry is made in the books of accounts since no liability is created by such an issue. However, on the

EA
liability side of the balance sheet, below the item of loan, a note to the effect that it has been secured by issue
of debentures as a collateral security is appended.

T-
Journal Entry (issue of debentures as a collateral security)

IC
Date Particular LF Dr. (₹) Cr. (₹)

TR
Bank A/C (for primary Loan taken) Dr. —-
—--

IS
To Bank loan A/C
(Being bank loan taken of ₹ ____________ and issue ________

ID
Debentures of ₹ ______ each as collateral securities )

H
EL
_________________________ (Name of the Company)
Balance Sheet

D
as at ________________
T
Particulars Note No. Amount (₹)
C
I Equity & Liabilities:-
N

2. Non-Current Liabilities:-
G

(a)​Long-Term Borrowings 1 —---

N
IO
AT

Notes to Accounts
Particulars Amount (₹)
C

1. Long-Term Borrowings:-
U

—----
ED

Bank Loan
(Issued _________ Debentures of ₹ _____ each as collateral securities)
F

★​ Second Method
O

The issue of debentures as a collateral security may be recorded by means of journal entry as follows:
E

Journal Entry (issue of debentures as a collateral security)

AT

Date Particular LF Dr. (₹) Cr. (₹)

R

Bank A/C (for primary Loan taken) Dr. —--

TO

—--
To Bank loan A/C
EC

(Being bank loan taken of ₹ ____________ )

Debenture Suspense A/C (for issue of Debenture) Dr. —---
IR

—---
To % Debenture A/C
D

(Being issue ________ __% Debentures of ₹ ______ each as collateral

securities )

_________________________ (Name of the Company)

Balance Sheet
as at ________________
Particulars Note No. Amount (₹)
I Equity & Liabilities:-
 2. Non-Current Liabilities:-
Long-Term Borrowings 1 —---

Notes to Accounts
Particulars Amount (₹)
1. Long-Term Borrowings:-
—----

ST
Bank Loan
__ % Debenture —-----

EA
NIL
Less:- Debenture Suspense A/C —------

T-
Long Term Borrowings —---

IC
TR
PRACTICE QUESTIONS

IS
ID
Q 1. Youth Ltd. took a loan of ₹ 15,00,000 from State Bank of India against the security of tangible assets. In
addition to principal security, it issued 10,000 11% debentures of ₹ 100 each as collateral security.

H
Pass necessary journal entries for the above transactions, if the company decided to record the issue of 11%

EL
debentures as collateral security and show the presentation in the Balance Sheet of Youth Ltd. ​

D
Q 2. Beta Ltd. issued 10,000, 9% Debentures of ₹ 100 each as collateral security for a loan of ₹ 6,00,000
T
taken from Varsha Bank. Pass the necessary journal entry for the issue of debentures as collateral security.
C
N

Q 3. Beta Ltd. issued 10,000, 9% Debentures of ₹ 100 each as collateral security for a loan of ₹ 6,00,000
G

taken from Varsha Bank. Pass the necessary journal entries for the issue of debentures as collateral
N

security if company want to record the issue of debenture as collateral Security.

IO

Q 4. Beta Ltd. issued 10,000, 9% Debentures of ₹ 100 each as collateral security for a loan of ₹ 6,00,000
AT

taken from Varsha Bank. Prepare the extract of Balance Sheet for the bank loan and issue of debentures as
collateral security.(ignore Cash at Bank portion)
C
U

Q 5. Beta Ltd. issued 10,000, 9% Debentures of ₹ 100 each as collateral security for a loan of ₹ 6,00,000
ED

taken from Varsha Bank. Prepare the extract of Balance Sheet for the bank loan and issue of debentures as
collateral security.(ignore Cash at Bank portion) if company wants to record the issue of Debenture as
F

collateral security.
O
E

Q 6. Vashya Ltd. issued 30,000, 10% Debentures of ₹ 100 each as collateral security for a loan of ₹ 25,00,000
AT

taken from Bank of India. Fill in the blanks for the journal entry for issue of debentures as a collateral security :
R

Date Particular LF Amount (₹) Amount (₹)

TO

_____________________ A/C Dr. —--

EC

To ____________________ A/C —--

(Being ₹ 30,00,000; 10% debentures issued as collateral
IR

security for a loan of ₹ 25,00,000)

D

Q 7. Pass journal entries in the book of X Ltd. for taking a loan of ₹ 1,60,000 from SBI and issued 2,000, 12%
debentures of ₹ 100 each as collateral security.

Q 8. A company took a loan of ₹ 10,00,000 from Punjab National Bank and issued 10%, debentures of ₹
12,00,000 of ₹ 100 each as a collateral security. Show treatment in the Balance Sheet of the company, when
the company decided to record the issue of debentures as collateral security. Also pass the journal entries
to record the above effect.
 Q 9. A company took a loan of ₹ 10,00,000 from Punjab National Bank and issued 10%, debentures of ₹
12,00,000 of ₹ 100 each as a collateral security. Show treatment in the Balance Sheet of the company, when
the company decided not to record the issue of debentures as collateral security. Also pass the journal
entries to record the above effect.

Q 10. Ruchi Enterprises Limited issued 5,000, 9% debentures of ₹ 100 each at par for cash which are
redeemable at 10% premium and also raised a loan of ₹ 80,000 from America Bank, for which the company
placed with the bank ₹ 1,00,000, 9% debentures as collateral security.

ST
As per the terms, the bank is obliged and bound to immediately release the debentures, as soon as the loan is

EA
repaid. How will you show the debentures in the balance sheet of the company assuming that the company
has recorded the issue of debentures as collateral in the books? Also pass the journal entries.

T-
Q 11. Yogadatra Ltd. (pharmaceutical company) appointed marketing expert, Mr. Kartikay as the CEO of the

IC
company, with a target to penetrate their roots in the rural regions. Mr. kartikay discussed the ways and means

TR
to achieve the target of the company with financial, production and marketing departmental heads and asked
the finance manager to prepare the budget. After reviewing the suggestions given by all the departmental

IS
heads, the finance manager proposed a requirement of an additional fund of ₹52,50,000. Yogadatra Ltd. is a

ID
zero-debt company. To avail the benefits of financial leverage, the finance manager proposed to include debt in
the capital structure. After deliberations, on April 1,2020, the board of directors had decided to issue 6%

H
EL
Debentures of ₹100 each to the public at a premium of 5%, redeemable after 5 years at ₹110 per share.
You are required to answer the following questions:

D
(i) Calculate the number of debentures to be issued to raise additional funds.
T
(ii) Pass Journal entry for the allotment of debentures.
C
(iii) Pass Journal entry to write off loss on issue of debentures.
N

(iv) Calculate the amount of annual fixed obligation associated with debentures.
G

(v) Prepare Loss on Issue of Debentures Account. ​ ​ ​ ​

N

Part-B
IO
AT

Option-I (Analysis of Financial Statements)

C
U

Theory of Analysis of Financial Statement

ED

Q1.. Give any two examples of Cash flow from Operating activities.
F

Q2.. Give any two examples of Cash flow from Investing activities.
O

Q3. Give any two examples of Cash flow from Financing activities.
E

Q4. Interest received by a financing company is what kind of activities in Cash Flow Statement.
AT

Q5. Interest received by a non-financing company is what kind of activities in Cash Flow Statement.
R

Q6. Dividend received by a financing company is what kind of activities in Cash Flow Statement.
TO

Q7. Dividend received by a Non-financing company is what kind of activities in Cash Flow Statement.
Q8. Dividend Paid by a financing company is what kind of activities in Cash Flow Statement.
EC

Q9. Dividend paid by a Non-financing company is what kind of activities in Cash Flow Statement.
IR

Q10. Interest on Calls in Arrears is to be shonw in ______________ Activities.

D

Financial Statements of a Company

➔​ Meaning of Financial Statements
Financial statements are the basic and formal annual reports through which the corporate management
communicates financial information to its owners and various other external parties which include investors, tax
authorities, government, employees, etc.
These normally refer to:
 ●​ the Balance Sheet (position statement) as at the end of accounting period, and
●​ the Statement of Profit and Loss of a company.
●​ the Cash Flow Statement is also taken as an integral component of the financial statements of a
company.
➔​ Nature of Financial Statements
The following points explain the nature of financial statements:
★​ Recorded Facts: Financial statements are prepared on the basis of facts in the form of cost data

ST
recorded in accounting books.
★​ Accounting Conventions: Certain accounting conventions are followed while preparing financial

EA
statements. The convention of valuing inventory at cost or market price, whichever is lower, is followed. The
use of accounting conventions makes financial statements comparable, simple and realistic.

T-
★​ Postulates: Financial statements are prepared on certain basic assumptions (pre-requisites) known as

IC
postulates such as going concern postulate, money measurement postulate, realisation postulate, etc. Going

TR
★​ Personal Judgements: Under more than one circumstance, facts and figures presented through
financial statements are based on personal opinion, estimates and judgements.

IS
Thus, financial statements are the summarised reports of recorded facts and are prepared the following

ID
accounting concepts, conventions and requirements of Law.

H
➔​ Objectives of Financial Statements

EL
the primary objective of financial statements is to assist the users in their decision-making.

D
The specific objectives include the following:
★​ To provide information about economic resources and obligations of a business
T
C
★​ To provide information about the earning capacity of the business
N

★​ To provide information about cash flows

G

★​ To judge effectiveness of management

★​ Information about activities of business affecting the society
N

Disclosing accounting policies

IO

★​
AT

➔​ Types of Financial Statements

The financial statements generally include two statements: balance sheet and statement of profit
C

★​
U

and loss which are required for external reporting and also for internal needs of the management like
ED

planning, decision-making and control.

★​ Apart from these, there is also a need to know about movements of funds and changes in the financial
position of the company. For this purpose, a statement of changes in financial position of the company or
F
O

a cash flow statement is prepard.

Every company registered under The Companies Act 2013 shall prepare its balance sheet, statement of profit
E

and loss and notes to account thereto in accordance with the manner prescribed in the revised Schedule III
AT

to the Companies Act, 2013.

R
TO

➔​ Uses and Importance of Financial Statements:-

The various uses and importance of financial statements are as follows:
EC

1. Report on stewardship function:

Financial statements report the performance of the management to the shareholders.
IR

2. Basis for fiscal policies:

D

The fiscal policies, particularly taxation policies of the government, are related with the financial
performance of corporate undertakings.
3. Basis for granting of credit:
Corporate undertakings have to borrow funds from banks and other financial institutions for different
purposes.
4. Basis for prospective investors:
The investors include both short-term and long-term investors. Their prime considerations in their
investment decisions are security and liquidity of their investment with reasonable profitability.
 5. Guide to the value of the investment already made:
Shareholders of companies are interested in knowing the status, safety and return on their investment.
6. Aids trade associations in helping their members:
Trade associations may analyse the financial statements for the purpose of providing service and
protection to their members.
7. Helps stock exchanges:
Financial statements help the stock exchanges to understand the extent of transparency in reporting on

ST
financial performance and enables them to call for required information to protect the interest of investors.

EA
➔​ Limitations of Financial Statements

T-
Though utmost care is taken in the preparation of the financial statements and provide detailed information

IC
to the users, they suffer from the following limitations:

TR
1. Do not reflect current situation:
Financial statements are prepared on the basis of historical cost. Since the purchasing power of money is

IS
changing, the values of assets and liabilities shown in financial statement do not reflect current market

ID
situation.
2. Assets may not realise:

H
EL
Accounting is done on the basis of certain conventions. Some of the assets may not realise the stated
values, if the liquidation is forced on the company. Assets shown in the balance sheet reflect merely

D
unexpired or unamortised cost. T
3. Bias:
C
Financial statements are the outcome of recorded facts, accounting concepts and conventions used and
N

personal judgements made in different situations by the accountants.

G

4. Aggregate information:
N

Financial statements show aggregate information but not detailed information.

IO

5. Vital information missing:

AT

Balance sheet does not disclose information relating to loss of markets, and cessation of agreements,
which have vital bearing on the enterprise.
C

6. No qualitative information:
U
ED

Financial statements contain only monetary information but not qualitative information like industrial
relations, industrial climate, labour relations, quality of work, etc.
F
O

7. They are only interim reports:

E

Statement of Profit and Loss discloses the profit/loss for a specified period. It does not give an idea about
AT

the earning capacity over time similarly, the financial position reflected in the balance sheet is true at that
point of time, the likely change on a future date is not depicted.
R
TO

Analysis of Financial Statements

EC
IR

➔​ Meaning of Analysis of Financial Statements

●​ The process of critical evaluation of the financial information contained in the financial statements in
D

order to understand and make decisions regarding the operations of the firm is called ‘Financial Statement
Analysis’.
●​ The term ‘financial analysis’ includes both ‘analysis and interpretation’.
●​ The term analysis means simplification of financial data by methodical classification given in the
financial statements. Interpretation means explaining the meaning and significance of the data.
●​ Financial statement analysis is a judgemental process which aims to estimate current and past
financial positions and the results of the operation of an enterprise, with primary objective of determining
the best possible estimates and predictions about the future conditions.
 ➔​ Significance of Analysis of Financial Statements
Financial analysis is useful and significant to different users in the following ways:
(a) Finance manager:
Financial analysis focusses on the facts and relationships related to managerial performance, corporate
efficiency, financial strengths and weaknesses and creditworthiness of the company.
(b) Top management:

ST
The importance of financial analysis is not limited to the finance manager alone. It has a broad scope which
includes top management in general and other functional managers.

EA
(c) Trade payables:

T-
Trade payables, through an analysis of financial statements, appraises not only the ability of the company
to meet its short-term obligations, but also judges the probability of its continued ability to meet all its

IC
financial obligations in future.

TR
(d) Lenders:

IS
Suppliers of long-term debt are concerned with the firm’s long- term solvency and survival. They analyse
the firm’s profitability over a period of time, its ability to generate cash, to be able to pay interest and repay

ID
the principal and the relationship between various sources of funds

H
(e) Investors:

EL
Investors, who have invested their money in the firm’s shares, are interested about the firm’s earnings.
They are interested in the firm’s capital structure to ascertain its influences on firm’s earning and risk.
(f) Labour unions:
D
T
Labour unions analyse the financial statements to assess whether it can presently afford a wage increase
C
N

and whether it can absorb a wage increase through increased productivity or by raising the prices.
G

(g) Others:
The economists, researchers, etc., analyse the financial statements to study the present business and
N

economic conditions. The government agencies need it for price regulations, taxation and other similar
IO

purposes.
AT

Objectives of Analysis of Financial Statements

C

➔​
U
ED

Analysis of financial statements serve the following purposes (objectives):

• to assess the current profitability and operational efficiency of the firm as a whole as well as its different
F
O

departments so as to judge the financial health of the firm.

• to ascertain the relative importance of different components of the financial position of the firm.
E
AT

• to identify the reasons for change in the profitability/financial position of the firm.
R

• to judge the ability of the firm to repay its debt and assessing the short-term as well as the long-term
TO

liquidity position of the firm.

Limitations of Financial Analysis

EC

➔​
1. Financial analysis does not consider price level changes.
IR

2. Financial analysis may be misleading without the knowledge of the changes in accounting procedure
D

followed by a firm.
3. Financial analysis is just a study of reports of the company.
4. Monetary information alone is considered in financial analysis while non-monetary aspects are ignored.
5. The financial statements are prepared on the basis of accounting concept, as such, it does not reflect
the current position.
 Topic No.:- 12
Items to be Shown in Balance Sheet (Heading & Sub-Heading)

Format of Balance Sheet

Balance Sheet as at 31st March, 20.....

ST
Figure as at the Figure as at the
Particular Note No. end of Current end of previous

EA
reporting period reporting period
I. EQUITY AND LIABILITIES

T-
IC
1) Shareholder’s Funds

TR
(a) Share Capital

IS
(b) Reserves and Surplus
(c) Money received against share warrants

ID
H
2) Share Application money pending allotment

EL
3) Non-current Liabilities
(a) Long term borrowings
D
T
(b) Deferred tax liabilities (net)
C
(c) Other long term liabilities
N

(d) Long term provisions

G
N

4) Current Liabilities
IO

(a) Short-term borrowings

AT

(b) Trade payables

(c) Other current liabilities
C

(d) Short-term provisions

U
ED

Total
F

II. ASSETS
O
E

1) Non-Current Assets
AT

(a) Property, Plant and Equipment, and Intangible

Assets
R

(i) Property, Plant and Equipment

TO

(ii) Intangible assets

(iii) Capital work-in-progress
EC

(iv) Intangible assets under development

IR

(b) Non-current investments

(c) Deferred tax assets (net)
D

(d) Long-term loans and advances

(e) Other non-current assets

2) Current Assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
 (e) Short term loans and advances
(f) Other current assets

Total

Important Features of Presentation:-

1. It applies to all Indian companies preparing financial statement commencing on or after April 01, 2011.

ST
2. It does not apply to :-
(i) Insurance or Banking Company,

EA
(ii) Company for which a form of balance sheet or income statement is specified under any other Act.
3. Accounting standards shall prevail over Schedule III of the Companies Act, 2013.

T-
4. Disclosure on the face of the financial statements or in the notes are essential and mandatory.

IC
5. Terms in the revised Schedule III will carry the meaning as defined by the applicable accounting

TR
standards.
6. Balance to be maintained between excessive details that may not assist users of financial statements and

IS
not providing important information.

ID
7. Current and non-current bifurcation of assets and liabilities is applicable.
8. Rounding off requirements is mandatory.

H
9. Vertical format for presentation of financial statement is prescribed.

EL
10. Debit balance in the statement of profit and loss to be disclosed as a negative figure under the head
“Surplus”.
D
11. Mandatory disclosure for share application money pending allotment.
T
12. ‘Sundry Debtors’ and ‘Sundry Creditors’ replaced by terms ‘Trade Receivables’ and ‘Trade
C
Payables’.
N
G
N

Rounding-Off of the Figures

IO

Rounding-off Rule for figures in the Presentation of Financial Statements

AT

Rounding off of figures to be reported in the financial statements is based on the size of
C

turnover:
U

1. Turnover < Rs.100 crore: Nearest hundreds, thousands, lakhs or millions or decimal thereof;
ED

2. Turnover > Rs.100 crore: Nearest lakhs or millions or decimal thereof;

F
O

Significant additions/modifications regarding disclosure of reserve and surplus are as follows:

E

a) A reserve specifically represented by earmarked investments shall be termed as “Fund”.

AT

b) ‘Debit’ balance of statement of profit and loss shall be shown as a negative figure under ‘Surplus’
head.
R

c) The balance of “Reserve and Surplus” after adjusting the negative balance of Surplus, if any, shall be
TO

shown under “Reserve and Surplus” read even if the resulting figure is ‘negative’.
d) Share options outstanding account has been recognised as a separate item under ‘Reserve and
EC

Surplus’. ICAI’s Guidance Note on Accounting for Employee share based payments requires a credit
IR

balance in the ‘Stock option outstanding Account’ to be disclosed in balance sheet under separate heading’
between share capital and reserves and surplus as a part of shareholders fund.
D

Current and Non-current Classification

❖​ The classified balance sheet in terms of current and non-current assets and current and non-current
liabilities have been introduced.
❖​ The criteria for defining current assets and liabilities has been clearly spelled out with non-current
assets and liabilities being the residual items.
Current/Non-current distinction
 An item is classified as current:
★​ if it is involved in entity’s operating cycle or,
★​ is expected to be realised/settled within twelve months or,
★​ if it is held primarily for trading or,
★​ iis cash and cash equivalent or,
★​ if entity does not have on unconditional rights to defer settlement of liability for atleast 12 months
after the reporting period,
★​ Other assets and liabilities are non-current.

ST
EA
Important points:
➔​ Preliminary expenses or Borrowing costs such as discount on issue of debenturesare to be

T-
written-off completely in the year in which such expenses are incurred. They should be written-off first from

IC
securities premium and the balance if any, from statement of profit & loss.

TR
➢​ Borrowings

IS
Total borrowings are categorised into long-term borrowings, short-term borrowings and current maturities to

ID
long-term debt.
(i) Loans which are repayable in more than twelve months/operating cycle are classified as long-term

H
EL
borrowings on the face of balance sheet.
(ii) Loans repayable on demand or whose original tenure is not more than twelve months/operating cycle

D
are classified as short-term borrowings on the face of balance sheet.
T
(iii) Current maturities to long-term loan include amount repayable within twelve months/operating cycle
C
under other current liabilities with Note to Account.
N
G

➢​ Deferred tax assets/liabilities are always non-current. This is in accordance to IAS-I.

N

➢​ Trade payables
IO

★​ Sundry creditors have been replaced with the term Trade payables and are classified as current and
AT

non-current. Trade payables to be settled beyond 12 months from the date of balance sheet or beyond the
C

operating cycle are classified under “other long-term liabilities” with Note to Account. For example, purchase
U

of goods and services in normal course of business. The balance of trade payables are classified as current
ED

liabilities on the face of balance sheet.

➢​ Provisions
F

★​ The amount of provision settled within 12 months from balance sheet date or within operating cycle
O

period from date of its recognition is classified as short term provisions and shown under current liabilities
E

on the face of balance sheet.

AT

★​ Others are depicted as long-term provisions under non-current liabilities on the face of balance
sheet.
R

➢​ Fixed assets
TO

★​ There is no change in the treatment of fixed assets. Both tangible and intangible assets are
EC

non-current. This may also be noted if the useful life of the asset is less than 12 months, it will still fall under
non-current.
IR

➢​ Investments
D

★​ Investments are also classified into current and non-current categories.

★​ Investments expected to realise within twelve months are considered as current investments under
current assets.
★​ Others are classified as non-current investments under non-current assets. Both are however shown
on the face of the balance sheet.
➢​ Inventories
★​ All inventories are always treated as current.
 ➢​ Trade receivables
★​ Trade receivables realised beyond twelve months from reporting date/operating cycle starting from
the date of their recognition are classified as “Other non- current assets” under the head non-current assets
with Note to Accounts. For example, sale of goods or services rendered in the normal course of business.
★​ Others are classified as current assets and shown on the face of the balance sheet.

➢​ Cash and cash equivalent

ST
★​ It is always current however, amounts which qualify as cash and cash equivalents as per IAS-3 is

EA
shown here.
★​ The supremacy is accorded to AS over Schedule III, cash and cash equivalents are to the disclosed

T-
in accordance to IAS-3.

IC
TR
➢​ Trade Investments:-

IS
★​ are those investments that are made by the company in shares or debentures of other companies for
the promotion of its own trade and business.

ID
Other Investments:-

H
➢​

EL
★​ are those investments that are not trade investments.

➢​Provision for Doubtful Debts: D

T
C
●​ It is a provision made by the company to meet the expected loss of bad debts of a company. It is
N

shown under the relevant head separately and leads ti two approaches as follows:
G

1.​ The first approach is to show the amount of Provision for Doubtful Debts as Provision under either
Long-term Provisions or Short-term Provisions depending upon the duration of Trade Receivables.
N

2.​ Second approach is to show the amount of Provision for Doubtful Debts by deducting it from the
IO

amount under Trade Receivables.

AT
C

➢​ Contingent Liabilities and Commitments:

U

★​ (A) Contingent Liabilities: The liabilities which may or may not arise because of their dependency
ED

on the event happening in the future are known as Contingent Liabilities. For example, if there is a claim
filed against the company in court, then the court may hold the company innocent or guilty. Now, the liability
F

of the company depends on the court’s order. Therefore, it is a contingent liability. Besides, the Proposed
O

Dividend is also shown as a contingent liability of the company because it depends upon the approval of
E

shareholders, who may or may not reduce the amount of dividend to be paid [AS-4 (Revised)].
AT

Note: Contingent Liability is not shown in the Books of Accounts of the Company. However, it is
disclosed in Notes to Accounts to provide information to the users. It is classified into the following:
R

●​ Claims against the company not acknowledged as debts

TO

●​ Bills Receivable discounted from Bank not yet due for payment
●​ Proposed Dividend (Current Year), and
EC

●​ Other claims for which the company is contingently liable.

IR

★​ (B) Commitments: It is the financial commitment made because of the activities agreed to by the
company that it has to undertake in the future. Commitments are classified as follows:
D

Estimated amounts of contracts remaining to be executed on Capital Account and not provided for Uncalled
liability on shares and other investments partly paid, and Other commitments (Nature to be specified).

●​ Estimated amounts of contracts remaining to be executed on Capital Account and not provided for
Uncalled liability on shares and other investments partly paid, and
●​ Other commitments (Nature to be specified).
 I EQUITY AND LIABILITIES
Main-Headings Sub-Headings Items

* Equity Share Capital

Share Capital
* Preference Share Capital
Disclosures relating to share capital
* Calls-in-Arrears
are to be given in notes to accounts.
* Share Forfeiture

ST
* Capital Reserve

EA
* Capital Redemption Reserve
* Securities Premium Reserve

T-
Shareholders
* Debenture Redemption Reserve

IC
Fund:-
* Revaluation Reserve
The shareholders’ funds Reserves and Surplus

TR
* Share Options Outstanding Account
are sub- classified on the Reserves and Surplus are required to * Other Reserves (Specifying nature

IS
face of the balance sheet. be classified as: and purpose)

ID
* Surplus: Balance in statement of
profit and loss; disclosing allocations

H
and Appropriation such as dividend,

EL
bonus shares, transfer to/from reserve,

D
T etc.

Money received against Share Not to Be Asked in the Board Exam.

C

Warrants
N

Money received against share

G

warrants’ to be disclosed as a
N

separate line item under

IO

‘shareholder’s fund’.
AT

Share application money not Not to be asked in Board

exceeding the issued capital and to Examination.
C

Share application the extent non-refundable shall be

U
ED

money pending classified as non-current. It will be

allotment shown on this face of balance sheet
as share application money pending
F
O

allotment.
E

Long term borrowings:- * Debentures

AT

Loans which are repayable in more * Bonds

R

than twelve months/ operating cycle * Term Loan from bank/ other parties
TO

are classified as long- term * Public Deposits

borrowings * Other Loans & Advances
EC

Deferred tax liabilities (net):- Not to be asked in Board

Non-current
IR

Deferred tax liabilities comes into Examination.

Liabilities:-
existence when Accounting Income is
D

are sub-classified on the

found to be more than taxable
face of the balance sheet.
income.
* Trade Payables (settled after 12
Other long term liabilities:-
months)
Long-term Liabilities other than
* Premium payable on redemption of
long-term borrowings are classified
Debentures
as other long- term liabilities.
* Premium payable on redemption of
 preference shares

Long term provisions:- * Provision for Retirement Benefits like

All provisions for which the related Providend fund
claims are expected to be settled
* Provision for warranties or warranties
after 12 months of the date of
Balance sheet. claims

ST
* Loans repayable on demand;

EA
# from bank
Short-term borrowings:-
# from other parties

T-
Loans which are repayable within
* Loans & Advances from related
twelve months/ operating cycle are

IC
parties
classified as Short- term borrowings.

TR
* Deposits
* Other Loans & Advances.

IS
Trade Payables:- * Sundry Creditors

ID
Refers to the amount due on * Bills payable

H
account of goods purchased or

EL
services rendered in the normal
course of business.

D
T
*Current Maturity of Long- term Debts
C
* Interest accrued but not due on
N

borrowings
G

* Interest accrued and due on

N

Current Liabilities:- borrowings

IO

are sub-classified on the * Income received in advance

* Excess application money which is
AT

face of the balance sheet.

due for refund
Other long term liabilities:-
C

* Interest due on excess application

Short-term Liabilities other than
U

money
Short-term borrowings are classified
ED

* Unpaid Dividends
as other long- term liabilities.
* Unpaid matured deposits and interest
F

accrued thereon
O

* Unpaid matured debentures and

E

interest accrued thereon

AT

* Calls in advance and interest accrued

thereon
R

* Outstanding Expenses
TO

* Provident Fund payables

EC

Short-term provisions:- * Provision for Tax

All provisions for which the related * Provision for Expenses
IR

claims are expected to be settled * Proposed Dividends

D

within 12 months of the date of * Provision for Doubtful Debts

Balance sheet.

II ASSETS
Main-Headings Sub-Headings Sub-sub Headings Items

Non-Current (a) Property, Plant and (i) Property, Plant and * Land,
 Assets:- Equipment, and Equipment:- * Machinery,
A non-current Intangible Assets:- Assets having physical * Equipment,
asset is an asset The assets which are existence * Buildings,
that the company held by the company for * Vehicles,
acquires or increasing its earnings * Computers
invests, but the instead of the purpose of
value of that sale are included under (ii) Intangible assets:- * Trademarks,

ST
investment does this head. These assets Assets that do not have * Goodwill,
not recur within an are used by the company a physical existence * Mastheads and Publishing

EA
accounting year. for a long time to earn * Titles,
These type of profit * Patents,

T-
investments lasts * Mining Rights,

IC
for long and * Copyrights,

TR
cannot be easily
(iii) Capital work-in- * Pavilion work-in progress.
liquidated into

IS
progress:- * Shed work-in progress.
cash and can
The fixed tangible * Building under

ID
generate economic
assets that are under construction.
benefits to the

H
construction
company for more

EL
than a year. (iv) Intangible assets * Intellectual / Property

D
under development:- Rights / Patents under
The fixed intangible development
T
C
assets, which are under
N

development
G

Sub-Headings Items
N
IO

* Investments in Property, Investments in Preference

(b) Non-current
Shares
AT

investments:-
* Investments in Equity Instruments
Investments that are held
C

* Investments in Government or Trust Securities

for the purpose of
U

* Investments in Debentures or Bonds

retaining them and not
ED

* Investments in Mutual Funds

reselling are covered
* Investments in Partnership Firms, and
under this head.
F

* Other Non-current Investments

O

(c) Deferred tax assets Not to be asked in Board Examination.

E
AT

(net):-
It consists of all the
R

deferred tax assets,

TO

including the balance of

Deferred Tax Liabilities
EC

(Net), which gets

converted into Deferred
IR

Tax Assets (Net).

D

(d) Long-term loans * Capital Advances:-

and advances:- These are the advances that are given for the acquisition
The loans and advances of property, plant and equipment, and intangible assets.
which are expected to be
* Other Loans and Advances:
received back in cash or
The long-term advances and loans, which are not
kind; i.e., in the form of covered under capital advances.
assets after the period of # long-term loans to employees,
 the Operating Cycle from # long-term advances to suppliers
the date of the Balance
Sheet or after 12
months.

(e) Other non-current * Security Deposits:

ST
assets Deposits given for a long period; i.e., for more than 12
All the non-current months or after the period of the Operating Cycle

EA
assets that do not fall in # security deposit for electricity

T-
any of the above four
* Long-term Trade Receivables
mentioned heads and

IC
their sub-heads are * unamortised losses/expenses

TR
included in Other * Insurance Claim Receivable
Non-current Assets.

IS
ID
Current * Investments in Equity Instruments
Investments:-

H
* Investments in Preference Shares

EL
Investments that are held
* Investments in Government or Trust Securities
for the purpose of

D
converting them into * Investments in Debentures or Bonds
T
cash within a short * Investments in Mutual Funds, and
C
period; i.e., within 12 * Investments in Partnership Firms, etc.
N

months from the date of

G

Current purchase of investment

N

Assets:- are covered under

IO

Current Assets is Current Investments.

AT

an account on a
Inventories:- * Work-in-Progress,
balance sheet that
The stock held by the
C

represents the * Raw Materials,

U

company for the purpose

value of all assets * Finished Goods,
ED

of trade in their ordinary

that could be * Stock-in-Trade,
course of business is
converted into
covered under
F

cash within one * Loose Tools

O

Inventories. In simple
year. * Store & Spares
terms, stock held for
E

A current asset is
manufacturing or trading
AT

an asset that a
goods and converted into
company holds
R

Cash and Cash

and can be easily
TO

Equivalents within a
sold or consumed
short period are
EC

and further lead to

classified as Current
the conversion of
Assets.
IR

liquid cash.
D

Trade Receivables: * Debtors,

the amount is receivable * Bills Receivable.
within a period of 12
months or within the
period of the Operating
Cycle from the date of
the Balance Sheet, they
are shown as current
 assets.

* Balances with Banks

* Drafts on Hand, Cheques,
* Cash in Hand
Cash and Cash
* Others
Equivalents:-
* Earmarked balances with banks such as Unpaid
According to Schedule

ST
Dividend
III, Cash and Cash
* Balance with banks held as Margin Money,
Equivalents can be

EA
* Bank Deposits with more than 12 months of
classified as:
maturity.

T-
* Security against the borrowings, guarantees, other

IC
commitments

TR
The loans and advances, which are expected to be
Short-term Loans

IS
realised within 12 months or the period of the Operating
and Advances: Cycle from the date of the Balance Sheet, whichever is

ID
more.

H
EL
Other Current * Accrued Income,
Assets: * Prepaid Expenses,
All current assets which
D
* Advance Taxes
T
do not fall under any of
C
the above-mentioned * Dividend receivables
N

heads and sub-heads, * Amortization expenses / losses to be written off

G

come under Other within 12 months

N

Current Assets.
IO
AT

Complete the Table

C
U

Items Major Head Sub-Head Sub-Sub-Head

ED

1. Goodwill
F

2. Forfeited shares
O

3. Acceptances
E

4. Preliminary expenses
AT

5. Capital reserve
R

6. Loans from banks

TO

7. Investment in shares and

EC

debentures
8. Interest accrued and due on
IR

debentures
D

9. Interest accrued but not due on

Secured Loans
10. Interest accrued but not due
on Unsecured Loans
11. Interest accrued on
Investments
 12. Surplus
13. Securities Premium Reserve
14. Loose Tools
15. Provision for Taxation
16. Under writing Commission
17. Bills of Exchange

ST
18. Unclaimed dividend

EA
19. Short term loans & advances
20. Live stock

T-
21. Calls unpaid/calls in arrears

IC
22. Uncalled liability on shares

TR
partly paid

IS
23. Discount allowed on issue of

ID
shares and debentures (if
amortised after 12 months)

H
EL
24. Discount allowed on issue of
shares and debentures (if
amortised within 12 months)
D
T
25. Pre-paid Insurance
C
N

26. Stores and spare parts

G

27. Advances from customers

N

28. Debentures redemption

IO

reserve
AT

29. Premium on redemption of

C

debentures
U

30. Loss on issue of debentures

ED

31. Debentures redemption fund

32. Debentures redemption fund
F
O

investment
E

33. Vehicles
AT

34. Sinking fund

35. Sinking fund investment
R
TO

36. Advances to suppliers

37. Patents, trademarks, design
EC

38. Calls in advance

IR

39. Deposits with custom

D

authorities
40. Arrears of fixed cumulative
dividend
41. Furniture and fittings
42. Brokerage on issues of shares
43. Statement of profit & loss (Dr.)
44. Capital work- in- progress
 45. Provision for doubtful debts
46. Statement of profit & loss (Cr.)
47. Uncalled liability on partly paid
shares held as investments
48. Claims against the company
not acknowledged as debt

ST
49. Capital redemption reserve

EA
50. Public deposits
51. Authorised capital

T-
52. Preliminary expenses

IC
[Link] on Issue of shares

TR
54. Loose Tools

IS
55. Masthead and publishing tiles

ID
56. Licences and franchise
57. Gain on reissue of forfeited

H
EL
equity shares
58. Arrears of dividends on
cumulative preference shares
D
T
59. Investment in Debentures
C
N

60. Advance payment of Tax

G

61. Claims against the company

N

not acknowledged as debts

IO

62. Uncalled liability on shares

AT

63. Goods acquired for trading

C

64. Provisions for warrantie

U

65. Capital Advances

ED

66. Tax Reserve

F
O

Form and content of Statement of Profit and Loss

E
AT

Statement of Profit and Loss is a statement that shows the financial performance of the company, i.e., profit
earned or loss incurred during the accounting period.
R
TO

Statement of Profit and Loss for the year ended ______________

Particular Note Figure as at the Figure as at the
EC

No. end of Current end of previous

reporting period reporting period
IR

I Revenue from operations

D

II Other income
III Total Revenue (I+II)
IV Expenses:
Cost of materials consumed
Purchases of stock-in-trade
Changes in inventories of finished goods
Work-in-progress and stock-in-trade
Employee benefits expense
Finance costs
 Depreciation and amortisation expense
Other expenses
Total expenses
Profit before extraordinary items and tax
V
(III-IV)
VI Exceptional items
Profit before extraordinary items and tax
VII

ST
(V-VI)
VIII Extraordinary items

EA
IX Profit before tax (VII-VIII)

T-
Tax expense:
X (1) Current tax

IC
(2) Deferred tax

TR
Profit/(Loss) for the period from continuing
XI
operations (IX-X)

IS
XII Profit/(Loss) from discontinuing operations

ID
XIII Tax expense of discontinuing operations

H
XIV Profit/(Loss) from Discontinuing operations

EL
(after tax) (XII-XIII)
XV Profit/(Loss) for the period (XI + XIV)
Earnings per equity share:
D
T
XVI (1) Basic
C
(2) Diluted
N
G

The items of statement of profit and loss are discussed as follows:

1. Revenue from operations:-
N
IO

This includes:
(i) Sale of products
AT

(ii) Sale of services

C

(iii) Other operating revenues

U

In respect to a finance company, revenue from operational shall include revenue from interest, dividend and
ED

income from other financial services. It may be noted that under each of the above heads shall be disclosed
separately by way of notes to accounts to the extent applicable.
F
O

2. Other income:-
(i) Interest income (in case of a company other than a finance company),
E
AT

(ii) Dividend income,

(iii) Net gain/loss on sale of investments,
R

(iv) Other non-operating income (net of expenses directly attributable to such income).
TO

3. Expense:-
EC

Expenses incurred to earn the income shown under various heads as discussed below:
IR

(a) Cost of Materials It applies to It consists of raw materials and other materials consumed in
D

manufacturing companies. manufacturing of goods.

(b) Purchase of Stock-in-trade It means purchases of goods for the purpose of trading.
(c) Changes in inventories of finished It is the difference between opening inventory (stock) of finished
goods, WIP and stock-in-trade goods, WIP and stock-in-trade and closing inventory.
Expenses incurred on employees towards salary, wages, leave
encashment, staff welfare, etc., are shown under this head.
(d) Employees benefit expenses
Employees benefit expenses may be further categorised into
direct and indirect expenses.
 It is the expenses towards interest charges during the year on
the borrowings. Only the interest cost is to be shown under this
(e) Finance cost
head. Other financial expenses such as bank charges are
shown under “Other Expenses”.
Depreciation is the diminution in the value of fixed assets
(f) Depreciation whereas amortisation is writing off the amount relating to
intangible assets.

ST
All other expenses which do not fall in the above categories are
shown under other expenses. Other expenses may further be

EA
(g) Other expenses
categorised into direct expenses, indirect expenses and

T-
non-operating expenses.

IC
ITEMS ASKED IN CBSE BOARD EXAMINATION

TR
S No

IS
Items Major Head Sub-Hed Remarks

ID
1 Patents and trade mark Non current assets Fixed assets-intangible asset C.B.S.E- 2020, 18,
17, 15

H
2 Prepaid insurance Current assets Other current assets C.B.S.E 2019

EL
3 Goods acquired for trading Current assets Inventories C.B.S.E 2019

D
T
4 Debentures with maturity period in Current liabilities Other current liabilities C.B.S.E S.P.- 2019
C
current financial year
N

5 Calls in advance Current liabilities Other current liabilities C.B.S.E 2020, 17

G
N

6 Accrued interest on calls in advance Current liabilities Other current liabilities C.B.S.E S.P.- 2019
IO

7 Provision for retirement benefits Non current liabilities Long term provisions C.B.S.E S.P.- 2019
AT

8 Stores and spares Current assets Inventory C.B.S.E 2020,S.P.-

C

2017, 18
U

9 Capital work in progress Non current assets Fixed assets C.B.S.E 2019
ED

10 Security premium reserves Shareholder’s fund Reserves and surplus C.B.S.E S.P.-19,20
F
O

11 Short term loan Current Liabilities Short term borrowings C.B.S.E 2017
E

12 Calls in arrears Shareholder’s fund Share capital (deducted) C.B.S.E 2020, 19

AT

13 Cheques/ Drafts in hand Current assets Cash and cash equivalents C.B.S.E 2018
R
TO

14 Bank overdraft Current liabilities Short term borrowings C.B.S.E 2020

EC

15 Computer software Non current assets Fixed assets-intangible C.B.S.E 2020

16 Term loan from bank Non current liabilities Long term borrowings C.B.S.E 2018
IR
D

17 Interest accrued on investment Current assets Other current assets C.B.S.E 2020

18 Trade mark Non current assets Fixed assets -Intangible C.B.S.E 2019

19 Provident fund Non current liabilities Long term provisions C.B.S.E S.P.-19

20 Unclaimed dividends Current liabilities Other current liabilities C.B.S.E 2020

21 Debentures issued by the Company Non current liabilities Long term borrowings C.B.S.E 2020
 22 Income received in advance Current liabilities Other current liabilities C.B.S.E 2020

23 Motor vehicle Non current assets Fixed assets - tangible C.B.S.E 2020

24 Trade payable Current liabilities Trade payable C.B.S.E 2020

25 Outstanding salaries Current liabilities Other current liabilities C.B.S.E 2020

26 Capital Advance Non current assets Long term loans and advances C.B.S.E 2020

ST
27 Goodwill Non current assets Fixed assets -intangible C.B.S.E 2020

EA
28 Provision for tax Current liabilities Short term provisions C.B.S.E 2020

T-
IC
29 Bonds issued by the company Non current liabilities Long term borrowings C.B.S.E 2015,14

TR
30 General reserves Shareholder’s fund Reserves and surplus C.B.S.E 2017

IS
ID
Topic No.:- 12

H
Preparation of Comparative and Common Size Statement

EL
D
The most commonly used techniques of financial analysis are as follows:
T
1. Comparative Statements: These are the statements showing the profitability and financial position of a firm
C
for different periods of time in a comparative form to give an idea about the position of two or more periods.
N

It usually applies to the two important financial statements, namely, balance sheet and statement of profit and
G

loss prepared in a comparative form.

N

Comparative figures indicate the trend and direction of financial position and operating results.
IO

This analysis is also known as ‘horizontal analysis’.

AT

➔​ The following steps may be followed to prepare the comparative statements:

C

Step 1 : List out absolute figures in rupees relating to two points of time i.e. Previous Year/Quarter Figure and
U

Current Year/Quarter Figure.

ED

Step 2 : Find out change in absolute figures by subtracting the Previous year from the Current year and
F

indicate the change as increase (+) or decrease (–).

O

I.e. Absolute Change = Current Year Figure ₋ Previous Year Figure

E

Step 3 : Preferably, also calculate the percentage (%) change as follows:-

AT
R

​​ Absolute Increase or Decrease (step-2)

_______________________________________ × 100
TO

​ Previous Year absolute figure

EC

Comparative Statement Format

IR

Previous
D

Note Current Absolute

Particulars Year Fig. % change
No Year Fig. (₹) Change
(₹)
×××× ×××× ×××× ××.×× %

2. Common Size Statements: These are the statements which indicate the relationship of different items of a
financial statement with a common item by expressing each item as a percentage of that common item. The
percentage thus calculated can be easily compared with the results of corresponding percentages of the previous
year or of some other firms, as the numbers are brought to common base.
 Such statements also allow an analyst to compare the operating and financing characteristics of two
companies of different sizes in the same industry.
Thus, common size statements are useful, both, in intra-firm comparisons over different years and also in making
inter-firm comparisons for the same year or for several years.
This analysis is also known as ‘Vertical analysis’.

The following procedure may be adopted for preparing the common size statements.:-

Step-1. List out absolute figures in ₹ at two points of time, i.e. Previous Year/Quarter Figure and Current

ST
Year/Quarter Figure.

EA
Step-2. Common base (as 100) will be:-

T-
⇰ Revenue from operations is taken as base (100) in case of Statement of Profit and Loss and

IC
Total assets or Total liabilities as base (100) in case of Balance Sheet.

TR
Step-3. Then Find out Percentage (%) Change for both the Year’s i.e. Previous Year as well as Current Year.

IS
Common Size Statement Format

ID
Previous % change
Note Current % change

H
Particulars Year Fig. in P.Y.
No Year Fig. (₹) C.Y. Figure

EL
(₹) Figure
×××× ×××× ××.×× % ××.×× %

D
T
PRACTICE QUESTIONS
C
N

Q 1. From the following particulars obtained from the books of Mark Ltd., prepare a Comparative
G

Statement of Profit and Loss :

N

Particulars Note No. 2017 − 18 (₹) 2016 − 17 (₹)

IO

Revenue from operations 50,00,000 40,00,000

AT

Purchase of stock-in trade 40,00,000 30,00,000

Changes in inventory 10,00,000 8,00,000
C

Other expenses 5,00,000 4,00,000

U

Other incomes 2,50,000 2,00,000

ED

Q 2. From the following Balance Sheet of Swaraj Ltd., as at 31st March, 2019, prepare a common size
F

Balance Sheet :
O

Swaraj Ltd.
E

Balance Sheet as at 31st March, 2019

AT

Particulars Note No. 2017 − 18 (₹) 2016 − 17 (₹)

R

I – Equity and Liabilities :

TO

1.​ Shareholders Funds :

EC

(a)​ Share Capital 34,00,000 30,00,000

(b)​ Reserves and Surplus 10,00,000 10,00,000
IR

2. Non-Current Liabilities :
Long Term Borrowings 5,00,000 3,00,000
D

3. Current Liabilities :
Trade Payables 1,00,000 7,00,000
Total of Equity and Liabilities 50,00,000 50,00,000
II – Assets :

Non-Current Assets :
Fixed Assets : 36,00,000 28,00,000
Tangible Assets
Current Assets :
 (a) Inventories 13,00,000 20,00,000
(b) Cash and Cash Equivalents 1,00,000 2,00,000
Total of Assets 50,00,000 50,00,000

Q 3. From the following information, prepare Comparative Statement of Profit and Loss :
Particulars Note No. 2017 − 18 (₹) 2018 − 19 (₹)
Revenue from operations 4,00,000 3,00,000
Other Expenses 80,000 40,000

ST
Expenses - 50% of Revenue from operations

EA
Income Tax Rate 40% 40%

T-
.Q 4 Prepare a common size Balance Sheet of L.X. Ltd. from the following information :

IC
L.X. Ltd.

TR
Balance Sheet as at 31st March, 2019
Particulars Note No. 2019 (₹) 2018 (₹)

IS
I – Equity and Liabilities :

ID
1. Shareholders Funds 20,00,000 10,00,000

H
2. Non-Current Liabilities 20,00,000 5,00,000

EL
3. Current Liabilities 10,00,000 5,00,000

D
Total of Equity and Liabilities 50,00,000 20,00,000
II – Assets :
T
C
1.​ Non-Current Assets 30,00,000 12,50,000
N

2.​ Current Assets 20,00,000 7,50,000

G

Total of Assets 50,00,000 20,00,000

N
IO

Q 5. From the following information obtained from the books of Vichar Ltd., prepare a Comparative
AT

Statement of Profit and Loss for the year ending 31st March, 2019 :
C

Particulars 2018 − 19 2017 − 18

U
ED

Revenue from operations 300% of cost of materials consumed 200% of cost of materials consumed
Cost of materials consumed 4,00,000 2,00,000
Other expenses 20% of cost of materials consumed 20% of cost of materials consumed
F

Tax rate 50% 50%

O
E

Q 6. From the following Balance Sheet of Sanchi Ltd., as at 31st March, 2019, prepare a comparative
AT

Balance Sheet :
R

Sanchi Ltd
TO

Balance Sheet as at 31st March, 2019

Particulars Note No. 2019 (₹) 2018 (₹)
EC

I – Equity and Liabilities :

IR

1. Shareholders Funds :
D

(i) Share Capital 4,00,000 2,00,000

(ii) Reserves and Surplus 1,00,000 70,000
2. Non-Current Liabilities :
(i) Long Term Borrowings 3,00,000 4,30,000
3. Current Liabilities :
(i) Trade Payables 2,00,000 3,00,000
Total of Equity and Liabilities 10,00,000 10,00,000
II – Assets :
 1. Non-Current Assets :
(i) Fixed Assets : 6,00,000 5,00,000
(a) Tangible Assets
2. Current Assets :
(i) Inventories 2,00,000 2,00,000
(ii) Cash and Cash Equivalents 1,00,000 3,00,000
Total of Assets 10,00,000 10,00,000

ST
Q 7. Prepare a Common-Size Statement of Profit and Loss of ‘Hari Darshan Ltd.’ from the following

EA
information :​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Particulars Note No. 2018−19 (₹) 2017−18 (₹)

T-
Revenue from operations 20,00,000 10,00,000

IC
Purchase of stock-in trade 7,70,000 4,20,000
Changes in inventory 1,20,000 80,000

TR
Other expenses 52,000 30,000
Other incomes 62,000 50,000

IS
Tax rate 50% 50%

ID
Q 8. Following information is extracted from the Statement of Profit and Loss of Delko Ltd. for the year ended

H
31st March, 2019 :

EL
D
Particulars Note No. 2018−19 (₹) 2017−18 (₹)
Revenue from operations 60,00,000 45,00,000
T
C
Employees benefits Expenses 30,00,000 22,50,000
Depreciation 7,50,000 6,00,000
N

Other expenses 15,50,000 10,00,000

G

Tax rate 50% 50%

N
IO

Prepare Comparative Statement of Profit and Loss.​ ​ ​ ​ ​ ​

AT

Q 9. From the following information, prepare a Comparative Statement of Profit and Loss
C
U

Particulars Note No. 2018−19 (₹) 2017−18 (₹)

ED

Revenue from operations 24,00,000 18,00,000

Other income (% of revenue from operations) 15% 25%
F

Expenses (% of revenue from operations) 60% 50%

O

Tax rate 40% 40%

E
AT

Q 10. From the following details provided by Kumud Ltd., prepare Comparative Statement of Profit & Loss
for the year ended 31st March 2021:
R
TO

Particulars 31.03.20 (₹) 31.03.21 (₹)

Revenue from operations 30,00,000 35,00,000
EC

Other Income 3,00,000 4,50,000

Cost of materials Consumed 20,00,000 23,00,000
IR

Other Expenses 1,00,000 1,20,000

Tax rate 40% 40%
D

Q 11. From the following Balance Sheets of Vinayak Ltd. as at 31st March,2021, Prepare a Common-size
Balance Sheet. Vinayak Ltd.
Balance Sheet as on 31st March, 2021
Particulars Note No. 31.03.21 (₹) 31.03.20 (₹)
I EQUITY AND LIABILITIES
1. Shareholder’s Funds:
a. Share Capital 30,50,000 20,00,000
 b. Reserve and Surplus 2,80,000 6,00,000
2. Current Liabilities:
a. Trade Payable 6,70,000 4,00,000
Total 40,00,000 30,00,000
II ASSETS
1. Non-Current Assets:
a. Fixed Assets:
i. Tangible Assets 16,00,000 12,00,000

ST
ii. Intangible Assets 2,00,000 3,00,000
2. Current Assets

EA
a. Inventories 8,00,000 3,00,000
b. Trade Receivables 12,00,000 10,00,000

T-
c. Cash and Cash Equivalents 2,00,000 2,00,000

IC
Total 40,00,000 30,00,000

TR
Q 12. Prepare a Common size statement of profit and loss of Shefali Ltd. with the help of following

IS
information:

ID
Particulars 2015-16 (₹) 2016-17 (₹)
Revenue from operations 6,00,000 8,00,000

H
Indirect expense 25% of Gross Profit 25% of Gross Profit

EL
Cost of revenue from operations 4,28,000 7,28,000

D
Other incomes 10,000 12,000
Income tax 30 % 30 %
T
C
N

Q 13 Prepare a Comparative statement of profit and loss of Shefali Ltd. with the help of following
G

information:
N

Particulars 2015-16 (₹) 2016-17 (₹)

IO

Revenue from operations 6,00,000 8,00,000

AT

Indirect expense 25% of Gross Profit 25% of Gross Profit

Cost of revenue from operations 4,28,000 7,28,000
C

Other incomes 10,000 12,000

U

Income tax 30 % 30 %
ED

Q 14. Prepare a Common Size balance sheet from the following balance sheet of Aditya Ltd., and Anjali
F
O

Ltd.:
Balance Sheet as on 31st March, 2021
E
AT

Particulars Note No. Aditya Ltd. (₹) Anjali Ltd. (₹)

I EQUITY AND LIABILITIES
R

1. Shareholder’s Funds:
TO

a. Share Capital 6,00,000 8,00,000

b. Reserve and Surplus 3,00,000 2,50,000
EC

2. Current Liabilities:
a. Trade Payable 1,00,000 1,50,000
IR

Total 10,00,000 12,00,000

D

II ASSETS
1. Non-Current Assets:
a. Fixed Assets:
i. Tangible Assets 4,00,000 7,00,000
2. Current Assets 6,00,000 5,00,000

Total 10,00,000 12,00,000

 Q 15. Prepare a Comparative balance sheet from the following balance sheet of Aditya Ltd., and Anjali
Ltd.:
Balance Sheet as on 31st March, 2021
Particulars Note No. Aditya Ltd. (₹) Anjali Ltd. (₹)
I EQUITY AND LIABILITIES
1. Shareholder’s Funds:
a. Share Capital 6,00,000 8,00,000
b. Reserve and Surplus 3,00,000 2,50,000

ST
2. Current Liabilities:

EA
a. Trade Payable 1,00,000 1,50,000
Total 10,00,000 12,00,000

T-
II ASSETS

IC
1. Non-Current Assets:
a. Fixed Assets:

TR
i. Tangible Assets 4,00,000 7,00,000
2. Current Assets 6,00,000 5,00,000

IS
ID
Total 10,00,000 12,00,000

H
EL
Topic No.:- 13
D
T
Ratio Analysis (Selected Ratio & Board Questions)
C
N

Accounting Ratios
G
N

LEARNING OBJECTIVES:-
IO

After studying this chapter, you will be able to :

AT

• explain the meaning, objectives and limitations of accounting ratios;

• identify the various types of ratios commonly used ;
C

• calculate various ratios to assess solvency, liquidity, efficiency and profitability of the firm;
U

• interpret the various ratios calculated for intra-firm and inter-firm comparisons.
ED

➔​ Meaning of Accounting Ratio :-

F
O

“A accounting ratio is a mathematical number calculated as a reference to relationship of two or more

accounting numbers derived from the financial statements and can be expressed as a fraction, proportion,
E
AT

percentage and a number of times.”

R

accounting ratios exhibit relationship, if any, between accounting numbers extracted from financial
TO

statements. Ratios are essentially derived numbers and their efficacy depends a great deal upon the
basic numbers from which they are calculated.
EC

➔​ Objectives of Ratio Analysis:-

IR

1. To know the areas of the business which need more attention;

D

2. To know about the potential areas which can be improved with the effort in the desired direction;
3. To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the business;
4. To provide information for making cross-sectional analysis by comparing the performance with the best
industry standards; and
5. To provide information derived from financial statements useful for making projections and estimates for
the future.

➔​ Advantages of Ratio Analysis:-

 1. Helps to understand the efficiency of decisions: The ratio analysis helps you to understand whether the
business firm has taken the right kind of operating, investing and financing decisions.
2. Simplify complex figures and establish relationships: They help summarise the financial formation
effectively and assess the managerial efficiency, firm’s credit worthiness, earning capacity, etc.
3. Helpful in comparative analysis: When many year figures are kept side by side, they help
a great deal in exploring the trends visible in the business.
4. Identification of problem areas: Ratios help business in identifying the problem areas as well as the
bright areas of the business.

ST
5. Enables SWOT analysis: The information of change helps the management a great deal in understanding

EA
the current threats and opportunities and allows business to do its own SWOT
(Strength-Weakness-Opportunity-Threat) analysis.

T-
6. Various comparisons: Ratios help comparisons with certain bench marks to assess as to whether firm’s

IC
performance is better or otherwise. the profitability, liquidity, solvency, etc., of a business, may be compared:

TR
(i) Intra-firm Comparison/Time Series Analysis, (ii) Inter-firm Comparison/Cross-sectional Analysis and (iii)
comparison with standard or industry expectations.

IS
ID
➔​ Limitations of Ratio Analysis:-

H
1. Limitations of Accounting Data: the financial statements may not reveal the true state of affairs of the

EL
enterprises and so the ratios will also not give the true picture as data “reflect a combination of recorded facts,
accounting conventions and personal judgements which affect them materially.

D
2. Ignores Price-level Changes: A change in the price-level makes analysis of financial statement of
T
different accounting years meaningless because accounting records ignore changes in value of money.
C
3. Ignore Qualitative or Non-monetary Aspects: the ratios also reflect only the monetary aspects, ignoring
N

completely the non-monetary (qualitative) factors.

G

4. Variations in Accounting Practices: As there are variations in accounting practices followed by different
N

business enterprises, a valid comparison of their financial statements is not possible.

IO

5. Forecasting: Forecasting of future trends based only on historical analysis is not feasible. Proper
forecasting requires consideration of non-financial factors as well.
AT
C

Limitations of the ratios are:

U

1. Means and not the End: Ratios are means to an end rather than the end by itself.
ED

2. Lack of ability to resolve problems: Their role is essentially indicative and of whistle blowing and not
providing a solution to the problem.
F

3. Lack of standardised definitions: There is a lack of standardised definitions of various concepts used in
O

ratio analysis. Normally, it includes all current liabilities, but sometimes it refers to current liabilities less bank
E

overdraft.
AT

4. Lack of universally accepted standard levels: There is no universal yardstick which specifies the level of
R

ideal ratios. There is no standard list of the levels universally acceptable, and, in India, the industry averages
TO

are also not available.

5. Ratios based on unrelated figures: A ratio calculated for unrelated figures would essentially be a
EC

meaningless exercise. For example, creditors of ₹ 1,00,000 and furniture of ₹ 1,00,000 represent a ratio of
1:1. But it has no relevance to assess efficiency or solvency.
IR
D

Types of Ratios

There is a two way classification of ratios:

(i) ‘Statement A ratio of two variables from the statement of profit and
of Profit and loss is known as statement of profit and loss ratio.
1.​ Traditional
Loss Ratios: Example:- Gross Profit Ratio.
Classification
(ii)Balance In case both variables are from the balance sheet, it is
 Sheet Ratios: classified as balance sheet ratios.
Example:- Current Ratio, Debt-Equity Ratio etc.

If a ratio is computed with one variable from the

(iii) statement of profit and loss and another variable from
Composite the balance sheet, it is called composite ratio.
Ratios: Example:- Trade Receivables Turnover Ratio, Trade
Payables Turnover Ratio etc.

ST
To meet its commitments, business needs liquid funds.

EA
The ability of the business to pay the amount due to
stakeholders as and when it is due is known as

T-
(i) Liquidity iquidity, and the ratios calculated to measure it are
Ratios: known as ‘Liquidity Ratios’. These are essentially

IC
Short-term in nature.

TR
A. Current Ratio
B. Quick Ratio

IS
Solvency of business is determined by its ability to

ID
meet its contractual obligations towards stakeholders,
particularly towards external stakeholders, and the

H
ratios calculated to measure solvency position are

EL
known as ‘Solvency Ratios’. These are essentially
(ii) Solvency
long-term in nature.

D
Ratios:
A. Debt-Equity Ratio;
T
B. Total Asset to Debt Ratio,
C
C. Proprietary Ratio,
N

D. Interest Coverage Ratio,

G

E. Debt to Capital Employed Ratio.

2.​ Functional
N

Classification. This refers to the ratios that are calculated for easuring
IO

the efficiency of operations of business based on

effective utilisation of resources. Hence, these are also
AT

known as ‘Efficiency Ratios’.

(iii) Activity
C

A. Inventory Turnover;
(or Turnover)
U

B. Trade receivable Turnover;

Ratios:
C. Trade payable Turnover;
ED

D Investment (Net assets) Turnover

E. Fixed assets Turnover; and
F

F. Working capital Turnover.

O

It refers to the analysis of profits in relation to revenue

E

from operations or funds (or assets) employed in the

AT

business and the ratios calculated to meet this

R

objective are known as ‘Profitability Ratios’.

(iv)
A. Gross profit ratio
TO

Profitability
B. Operating ratio
Ratios:
C. Operating profit ratio
EC

D. Net profit ratio

E. Return on Investment (ROI) or Return on Capital
IR

Employed (ROCE)
D

Note: Net Profit Ratio is to be calculated on the basis of profit before and after tax.

PRACTICE QUESTIONS
Q1.. X Ltd. obtained a loan for ₹ 4,00,000 from IDBI Bank. The company issued; 9% Debentures of ₹ 100
each as collateral security for the same. Show how these items will be presented in the Balance Sheet of the
Company. ​ ​ ​ ​ CBSE, AI 2010
 Q2..​ Amay Ltd. issued 80,000; 8% Debentures of Rs 10 each at par, redeemable after 5 years. The
company also raised a short-term loan of ₹ 2,00,000 from ICICI Bank, collaterally secured by issue of 25,000;
10% Debentures. How will be the Debentures shown in the Balance Sheet of the company assuming that the
company has passed Journal entry for the issue of Debentures as Collateral security in the books.

Q3. ABC Ltd. issued 6,000; 15% Debentures of Rs. 100 each at par, redeemable after 7 years. The company
also raised a short-term loan of Rs. 4,00,000 from Bank of Baroda and also issued 4,500; 10 % Debentures of
Rs. 100 each as a collateral security for the same. How will the Debentures be shown in the Balance Sheet of

ST
the company?

EA
T-
IC
TR
Q4. From the following information , Calculate Proprietary Ratio.

IS
Particular Amount (₹)

ID
Equity Share Capital 2,00,000
Preference Share Capital 50,000

H
General Reserves 70,000

EL
Surplus i.e. Balance in Statement of Profit & Loss 80,000
Non-Current Liabilities 8,00,000

D
Current Liabilities T 4,00,000
Current Assets 3,00,000
C
N

Q5. From the following information , Calculate Proprietary Ratio.​ ​ CBSE, AI 2014
G

Particular Amount (₹)

N

Long-Term Borrowings 2,00,000

IO

Long-Term Provisions 1,00,000

Non-Current Assets 3,60,000
AT

Current Liabilities 50,000

Current Assets 90,000
C
U
ED

Q6. from the following information , Calculate Proprietary Ratio.

Particular Amount (₹)
F

Equity Share Capital 8,70,000

O

Preference Share Capital 4,00,000

E

Reserves & Surplus 50,000

AT

12 % Debentures 4,00,000
Tangible Assets 12,00,000
R

Intangible Assets 5,00,000

TO

Current Assets 5,00,000

EC
IR
D

Q 7. ​ From the following details obtained from the financial statements of JN Ltd., calculate “Interest
Coverage Ratio”. ​ ​ ​ ​ ​ ​ ​ ​ ​
Particular Amount (₹) / Tax Rate
Net Profit before Interest & Tax 2,00,000
8 % Debentures 5,00,000
 Q 8.. ​From the following details obtained from the financial statements of JN Ltd., calculate “Interest
Coverage Ratio”. ​ ​ ​ ​ ​ ​ ​ (CBSE, F 2016)
Particular Amount (₹)/ Tax Rate
Net Profit after Tax 2,00,000
12 % Long-Term Debt 40,00,000
Rate of Tax 40 %

ST
Q 9. ​ From the following details obtained from the financial statements of Aanya Ltd., calculate “Interest
Coverage Ratio”. ​ ​ ​ ​ ​ ​ ​ ​

EA
Particular Amount (₹)

T-
Net Profit after Interest & Tax 80,000

IC
15 % Long-Term Loan 1,00,000
Tax Paid during the year 40,000

TR
IS
Q 10.. ​ From the following details obtained from the financial statements of Avishi Ltd., calculate

ID
“Interest Coverage Ratio”. ​ ​ ​ ​ ​ ​ ​ ​
Particular Amount (₹)

H
Net Profit after Interest & Tax 97,200

EL
12 % Debentures 1,00,000
40,000

D
Tax Paid during the year
1,00,000
15 % Long-Term Loan
T
C
N

Q 11. Calculate “ Cash Flows from Operating Activities” from the following information:
G

Particular 31-03-2015 (₹) 31-03-2014 (₹)

N

Surplus i.e. Balance in Statement of Profit & Loss 80,000 1,00,000

IO

Trade Receivables 2,50,000 2,40,000

Goodwill 15,000 20,000
AT

Outstanding Expenses 8,000 --

General Reserve 80,000 50,000
C

Provision for Depreciation on Plant 1,00,000 82,000

U

Prepaid Expenses -- 6,000

ED

Trade Payables 84,000 60,000

F

Additional information:-
O

(i) Plant costing Rs. 60,0000 having book value of Rs. 36,000, was sold for Rs. 40,000 during the year.
E

(ii) Income tax paid during the year is 30,000.

AT

(iii) Dividend paid during the year was Rs. 18,000.​ ​ CBSE, Compt 2016
R

Q 12.. Calculate “Cash Flow from Investing Activities” from the following information:
TO

Particular 31-03-2018 (₹) 31-03-2017 (₹)

EC

Investments in Land 16,00,000 6,00,000

10% Long Term Investments 2,50,000 4,00,000
IR

Plant & Machinery 3,00,000 2,00,000

D

Goodwill 80,000 15,000

Additional information:-
(i) A machine costing ₹ 40,000 (depreciation provided thereon ₹ 12,000) was sold for ₹ 35,000.
(ii) Depreciation charged during the year 25,000.​ ​ ​ (CBSE, D, Compt 2017)

Q 13. Calculate “Cash Flow from Investing Activities” from the following information:
Particular 31-03-2017 (₹) 31-03-2016 (₹)
Investments in shares of Amay Ltd. 2,00,000 2,00,000
12% Investments 4,00,000 3,50,000
 Plant & Machinery 5,00,000 3,00,000
Goodwill 70,000 55,000
Patents 60,000 90,000
Land 5,00,000 5,00,000
Additional information:- ​ ​ ​ ​ ​ ​ (CBSE, D, Compt 2017)
(i) A piece of and was purchased as an investment out of profits. It was let out for commercial purposes and
the rent received was Rs. 20,000.
(ii) Patents of Rs. 12,000 were written off, some patents were sold at a profit of Rs. 4,000.

ST
(iii) Dividend received from Amay Ltd. @ 12%
(iv) During the year, 12% investments were purchased for Rs. 80,000 and some investments were sold at

EA
profit of Rs 8,000. Interest on investments of Rs. 15,000 for the year was duly received.

T-
Q 14. Calculate “Cash Flow from Financing Activities” from the following information:

IC
Particular 31-03-2017 (₹) 31-03-2016 (₹)

TR
Equity Share Capital 8,00,000 6,00,000
12% Preference Share Capital 1,50,000 2,00,000

IS
Securities Premium Reserve 10,000 --

ID
Additional information:-
(i) Equity shares were issued at a premium of 5% on 31st March 2017.

H
EL
(ii) The company paid dividend of Rs. 72,000

D
Q 15. Calculate “Cash Flow from Financing Activities” from the following information:
T
Particular 31-03-2018 (₹) 31-03-2017 (₹)
C
Equity Share Capital 5,00,000 3,00,000
N

12% Preference Share Capital 2,00,000 2,00,000

G

Securities Premium Reserve 10,000 --

14% Debentures 5,00,000
N

Additional information:-
IO

(i) Equity shares were issued at a premium of 5% on 31st March 2018.

AT

(ii) Additional Debentures were issued on 1st April, 2017 at a discount of 10%. The company wrote off the
discount on the issue of Debentures from the Securities Premium Reserve.
C

(iii) The company declared and paid Equity Dividend @ 10%.

U
ED

Profitability Ratio
F
O
E
AT
R
TO

Q 16. From the following information, Calculate Gross Profit Ratio:-

Particular Amount (₹)
EC

Revenue from operations (Sales) 4,00,000

IR

Gross Profit 25 % on Cost

D

Q 17. From the following information, Calculate Gross Profit Ratio:-

Particular Amount (₹)
Purchase of stock-inTrade 2,76,000
Credit revenue from operations 2,40,000
Excess of Closing Inventory over Opening Inventory 20,000
If Cash Sales are 25% of total sales.
Q 18. From the following information, Calculate Gross Profit Ratio:-
 Particular Amount (₹)
Revenue from Operations 9,00,000
Purchases 7,00,000
Opening Inventory 1,50,000
Closing Inventory 1,20,000
Wages 30,000
Purchase Returns 10,000

ST
EA
T-
IC
TR
Q 19. From the following information, Calculate Operating Ratio:-
Particular Amount (₹)

IS
Cost of Revenue from Operations 50,000

ID
Revenue from Operations 1,50,000
Other operating Expenses 20,000

H
EL
Q 20. From the following information, Calculate Cost of Revenue from Operations:-
Particular
D Amount (₹)
T
Revenue from Operations 4,80,000
C
Operating Ratio 70%
N

Other operating Expenses 40,000

G
N

Q 21. From the following Statement of Profit & Loss of Amay Ltd. for the year ended 31st March 2019,
IO

Calculate Cost of Revenue from Operations:-

AT

Particular Note No. Amount (₹)

I Revenue from Operations 20,00,000
C
U

II Expenses:-
ED

Cost of Material consumed 12,00,000

Change in inventories of Finished Goods and Work-in-Progress 1 1,00,000
Employees Benefit Expenses 60,000
F

Finance Cost 1,00,000

O

Other Expenses 2 40,000

E

Total Expenses 15,00,000

AT

III Profit before Tax (I - II) 5,00,000

Notes to Accounts
R
TO

Particular Amount (₹)

1.​ Change in inventories of Finished Goods and Work-in-Progress:
EC

Opening Inventory 1,50,000

Less: Closing Inventory (50,000)
IR

1,00,000
D

2.​ Other Expenses:

Administrative Expenses 12,000
Selling and Distribution Expenses 18,000
Loss on Sale of Machinery 10,000
40,000

Q 22 From the following Statement of Profit & Loss of Aanya Ltd. for the year ended 31st March 2019,
Calculate Cost of Revenue from Operations:-
 Particular Amount (₹)
I Revenue from Operations 12,00,000
II Expenses:-
Cost of Material consumed 4,50,000
Change in inventories of Finished Goods and Work-in-Progress 90,000
Employees Benefit Expenses 50,000
Finance Cost 25,000
Other Expenses 10,000

ST
Total Expenses 6,25,000

EA
III Profit before Tax (I - II) 5,75,000

T-
IC
TR
IS
ID
Q 23. Calculate Operating Profit Ratio in each of the following cases:-

H
(a) Revenue from operations = Rs 8,00,000; Operating Profit = Rs. 1,20,000.

EL
(b) Revenue from operations = Rs 8,00,000; Operating Cost = Rs. 1,20,000.
(c) Revenue from operations = Rs 8,00,000; Gross Profit = 25%; Operating Expenses = Rs 40,000

D
Q 24 If Gross Profit = 20%, Operating Expenses = Rs. 60,000 and Operating Cost = Rs. 7,00,000 then
T
C
calculate Operating profit Ratio.
N
G

Q 25. From the following information, Calculate Operating Profit Ratio :-

N

Particular Amount (₹)

IO

Opening Inventory 1,00,000

Purchases 6,00,000
AT

Employees benefit Expenses 60,000

Closing Inventory 35,000
C

Other Expenses 40,000

U

Revenue from operations 9,00,000

ED

Net-Profit Ratio
F
O
E
AT
R
TO

Q 26. From the following information, Calculate Net-Profit Ratio :-

EC

Particular Amount (₹)

Revenue from operations 10,00,000
IR

Gross Profit 20%

D

Indirect Expenses 1,10,000

Q 27. From the following information, Calculate Net-Profit Ratio :-

Particular Amount (₹)
Cash Revenue from operations 3,00,000
Credit Revenue from operations 5,00,000
Gross Profit 30%
Indirect Expenses 1,10,000
 Return on Investment (or Return on Capital Employed Ratio)

ST
Q 28. From the following information, Calculate Return on Investment :-

EA
Particular Amount (₹)

T-
Net profit after Interest and Tax 3,00,000

IC
10 % Debentures 10,00,000
Tax 2,00,000

TR
Equity Share Capital 8,00,000
Preference Share Capital 3,00,000

IS
Reserves & surplus 1,00,000

ID
Q 29. From the following information, Calculate Return on Investment :-CBSE C 2015

H
EL
Particular Amount (₹)

D
Net profit after Interest and Tax 8,00,000
10 % Debentures 9,00,000
T
C
Tax 50%
Capital Employed 2,00,00,000
N
G

Q 30. From the following information, Calculate Return on Investment :-​

N
IO

Particular Amount (₹)

Net profit before Interest and Tax 5,40,000
AT

Fixed Assets 18,00,000

Net Working Capital 9,00,000
C

Current Liabilities 5,00,000

U
ED

Activity (or Turnover) Ratio

F

Inventory Turnover Ratio

O
E
AT
R
TO
EC
IR
D

Q 31. From the following information, Calculate Inventory Turnover Ratio :-​ ​ ​

Particular Amount (₹)

Cost of Revenue from Operations 8,40,000
Inventories in the beginning of the year 1,25,000
 Inventories at the Close of the year 1,55,000

Q 32. From the following information, Calculate Inventory Turnover Ratio :-​ ​ ​

Particular Amount (₹)

Revenue from Operations 7,50,000
Inventories in the beginning of the year 1,00,000
Inventories at the Close of the year 3,00,000

ST
Gross Profit 20% on sales

EA
Q 33. From the following information, Calculate Inventory Turnover Ratio :-​​

T-
IC
Particular Amount (₹)
Revenue from Operations 11,25,000

TR
Inventories in the beginning of the year 75,000
Inventories at the Close of the year 2,25,000

IS
Gross Profit 25% on cost

ID
H
Q34. From the following information, Calculate the amount of Gross Profit and Revenue from operations:-

EL
​ ​ ​ ​ ​ ​ ​ ​ CBSE, Compt. 2005​

D
Particular Amount (₹)
Average Inventory 80,000
T
C
Inventory Turnover Ratio 6 Times
Selling price above cost 25% above cost
N
G

​
Q35. From the following information, Calculate OPENING & CLOSING INVENTORY:-​
N
IO

Particular Amount (₹)

Cost of Revenue from operations 2,40,000
AT

Inventory Turnover Ratio 8 Times

C

Inventory in the beginning is 1.5 Times more than the inventory at the end. CBSE, AI 2004
U

Q36. From the following information, Calculate OPENING & CLOSING INVENTORY:-
ED

Particular Amount (₹)

F

Revenue from operations 6,00,000

O

Inventory Turnover Ratio 5 Times

E

Gross Profit 25%

AT

Closing inventory is Rs. 12,000 more than the opening inventory. CBSE, AI C 2005
R

Q37. From the following information, Calculate OPENING & CLOSING INVENTORY:-​ ​
TO

Particular Amount (₹)

EC

Cost of Revenue from operations 4,00,000

Inventory Turnover Ratio 8 Times
IR

Closing inventory is 4 times of the opening inventory.

D

Working Capital Turnover Ratio

 Q38. From the following information, Calculate Working Capital Turnover Ratio:-​ ​

Particular Amount (₹)

Cash Revenue from operations 11,80,000
Credit Revenue from operations 2,90,000
Sales Return 30,000
Current Assets 6,00,000
Current Liabilities 1,20,000

ST
Q39. From the following information, Calculate Working Capital Turnover Ratio:-​

EA
Particular Amount (₹)

T-
Cost of Revenue from operations 4,00,000

IC
Gross Profit Ratio 20 %
Current Assets 3,50,000

TR
Current Liabilities 1,00,000

IS
Trade Receivables & Payables Ratio

ID
H
EL
D
T
C
N
G
N
IO
AT
C
U
ED
F
O
E
AT
R
TO
EC
IR
D

Q 40. From the following information Calculate:

1. Trade Receivables Turnover Ratio​ 2. Trade Payables Turnover Ratio
3. Average Collection Period​ ​ 4. Average Payment Period
Particular Amount (₹)
Total revenue from operations 12,00,000
Total Purchases 5,60,000
Cash Revenue from operations 2,00,000
Cash Purchases 70,000
 Opening Debtors 1,00,000
Opening Creditors 40,000
Closing Debtors 2,50,000
Closing Creditors 55,000
Opening Bills Receivables 70,000
Opening Bills Payables 20,000
Closing Bills Receivables 80,000
Closing Bills Payables 25,000

ST
Q 41. From the following information:

EA
Particular Amount (₹)
Average payment period 4 months

T-
Credit purchases 3,00,000

IC
Calculate Opening Creditors and Closing Creditors if Opening Creditors are ₹ 1,00,000 more than the

TR
Closing Creditors.

IS
Q 42. The following information is given for Avishi Ltd.:

ID
Particular Amount (₹)
Trade Receivable Turnover Ratio 3 Times

H
Revenue from operation 3,00,000

EL
Calculate Opening Debtors and Closing Debtors in each of the following conditions:-

D
(a)​ If Closing Debtors were 3 times of the Opening Debtors.
(b)​ If Closing Debtors were 3 times more than the Opening Debtors.
T
C
Q 43 The quick ratio of a company is 0.75 : 0.50. Will credit purchase of goods ₹ 10,000 increase,
N
G

decrease or not change the ratio ? Give reason in support of your answer.
N

Q 44 From the following information obtained from the books of Raja Ltd, calculate :
IO

(i) Trade Receivables Turnover Ratio, and

AT

(ii) Trade Payables Turnover Ratio.

Information (₹)
C
U

Revenue from operations 15,00,000

ED

Creditors 2,00,000
Bill Receivable 79,000
F

Bills Payables 87,000

O

Debtors 2,21,000
E

Purchases 11,48,000
AT

Q 45 A company had a liquid ratio of 1.5:1 and a current ratio of 2:1. Its inventory turnover ratio
R
TO

was 6 times. It had total current assets of ₹ 2,00,000.

Find out revenue from operations if the goods are sold at 25% profit on cost.
EC

Q 46. Calculate the amount of opening trade receivables and closing trade receivables from the following
IR

information :
D

Trade receivables turnover ratio 8 times

Cost of revenue from operations ₹ 4,80,000
The amount of credit revenue from operations is ₹ 2,00,000 more than cash revenue from operations. Gross
profit ratio is 20%. Opening trade receivables are 1/4th of Closing trade receivables.
Q 47 . ............ is included in current assets while preparing balance sheet as per revised Schedule III but
excluded from current assets while calculating Current Ratio
a) Debtors.​ ​ ​ ​ ​ ​ ​ b) Cash and Cash Equivalent.​
c) Loose tools and Stores and spares.​ ​ ​ d) Prepaid Expense.
 Q 48. Debt-Equity Ratio of Dhamaka Ltd is 3 : 1. Which of the following will result in decrease in this ratio?
a) Issue of Debentures for Cash of ₹2,00,000.
b) Issue of Debentures of ₹3,00,000 to Vendors from whom Machinery was purchased.
c) Goods purchased on Credit of ₹1,00,000.
d) Issue of Equity Shares of ₹2,00,000.

Q 49 . A company had a liquid ratio of 1.5 and current ratio of 2 and inventory turnover ratio 6 times It had
total current assets of ₹8,00,000. Find out annual sales if goods are sold at 25% profit on cost.

ST
Q 50 Calculate debt to capital employed ratio from the following information.

EA
Shareholder funds ₹ 15,00,000​​ ​ 8% Debenture ₹ 7,50,000

T-
Current liabilities ₹ 2,50,000​ ​ ​ Non -current Assets ₹ 17,50,000
Current Assets ₹7,50,000

IC
TR
Topic No.:- 14

IS
Preparation of Cash Flow Statement (only 2 Activities)

ID
H
CASH FLOW STATEMENT

EL
➔​ A cash flow statement provides information about the historical changes in cash and cash equivalents

D
of an enterprise by classifying cash flows into operating, investing and financing activities.
T
➔​ A Cash flow statement shows inflow and outflow of cash and cash equivalents from various activities
C
of a company during a specific period.
N
G

★​ Objectives of Cash Flow Statement

N
IO

➔​ The primary objective of cash flow statement is to provide useful information about cash flows
(inflows and outflows) of an enterprise during a particular period under various heads, i.e., operating
AT

activities, investing activities and financing activities.

C

➔​ To provide the useful information to the users.

U

➔​ To provide the base for taking economic decisions of the business

ED

★​ Benefits of Cash Flow Statement

F

➔​ A cash flow statement provides information that enables users to evaluate changes in net assets of
O

an enterprise, its financial structure its ability to affect the amounts and timings of cash flows in order
to adapt to changing circumstances and opportunities.
E
AT

➔​ Cash flow information is useful in assessing the ability of the enterprise to generate cash and cash
equivalents.
R

➔​ It also enhances the comparability of the reporting of operating performance by different enterprises
TO

➔​ It also helps in balancing its cash inflow and cash outflow, keeping in response to changing
condition.
EC

➔​ It is also helpful in checking the accuracy of past assessments of future cash flows.
IR

Cash Flows
D

➔​ ‘Cash Flows’ implies movement of cash in and out due to some non-cash items.
➔​ Receipt of cash from a non-cash item is termed as cash inflow, like sale of goods, loan taken from
bank etc.
➔​ while cash payment in respect of such items as cash outflow, like Purchase of Machinery, Salary
paid etc.
➔​ Cash management includes the investment of excess cash in cash equivalents. Like investment in
marketable securities.
 Classification of Activities for the Preparation of Cash Flow Statement
As per AS-3, these activities are to be classified into three categories:
1. Operating Activities
2. Investing Activities
3. Financing Activities
➔ This helps the users of cash flow statement to assess the impact of these activities on the financial
position of an enterprise and also on its cash and cash equivalents.

ST
Treatment of Some Peculiar Items

EA
T-
★​ Extraordinary items

IC
Extraordinary items are not the regular phenomenon, e.g., loss due to theft or earthquake or

TR
flood.
Extraordinary items are non-recurring in nature and hence it accounting treatment is as

IS
follows:-

ID
➔ Cash flows associated with extraordinary items should be classified and disclosed
separately as arising from operating, investing or financing activities.

H
EL
★​Interest and Dividend

D
T
In case of a non-financial enterprise, as per AS-3,
C
➔ It is considered more appropriate that payment of interest and dividends are classified as financing
N

➔ Activities whereas receipt of interest and dividends are classified as investing activities.
G

➔ In case of a financial enterprise, interest paid, interest received and dividend received are classified
N

as operating activities while dividend paid is a financing activity.

IO

★​Taxes on Income and Gains

AT
C

AS-3 requires that cash flows arising from taxes on income should be separately disclosed and should
U

be classified as cash flows from operating activities

ED

➔ Tax on Operating Profit should be classified as operating cash flows.

➔ Dividend Tax, i.e., tax paid on dividend should be classified as financing activity along with
F

dividend paid.
O

➔ Capital Gains Tax paid on sale of fixed assets should be classified under investing activities.
E

Proposed Dividend
AT
R

➔ As per AS-4, Contingencies and Events Occurring after the Balance Sheet Date, Proposed dividend
TO

is shown in the Notes to Accounts.

➔ Proposed Dividend will be shown as contingent liability since it becomes a liability after it is declared
EC

(approved) by the shareholders.

➔ Since, previous year's Proposed Dividend will be declared (approved) in the current year; previous
IR

year's Proposed Dividend will be accounted as dividend payable.

D

➔ Also, declared dividend is paid within 30 days of its declaration therefore; it will be paid within the
same financial year.
➔ Treatment of Proposed Dividend While preparing cash flow statement:
➔ previous year's proposed dividend will be added to Act Profit under operating activities and
➔ It will be shown under financial activity as outflow of cash
➔ Current’s year Proposed dividend will be shown in Notes to account as contingent liability.
 Calculation of Net Profit before Tax and Extraordinary items

Particular Amount

Surplus i.e. Closing balance of Statement of profit & Loss

Less Surplus i.e. Opening Balance of Statement of profit & Loss

ST
Profit for the year
Add:- Transfer to reserve

EA
Provision for Tax (Current year)

T-
Interim Dividend paid during the year

IC
Less; Transfer from Reserve

TR
Net Profit before Tax and Extraordinary items

IS
ID
Non Cash and Non Operating items:-

H
Items to be added :-

EL
★​Depreciation
★​Goodwill/Patents/Trademark Amortised (Written off)
★​Interest on Borrowings(Long-term / short-term )
D
T
★​Loss on sale of Fixed Assets/Investments
C
N

★​Premium of Redemption of Preference Shares/ Debentures

G
N

Items to be deducted :-
IO

★​Profit on Sale of Fixed Assets/Investments

★​Interest Income
AT

★​Dividend Income
C

★​Rental Income
U

WORKING CAPITAL CHANGES:-

ED

⏫ increase ⏬ Decrease Where to Show the Impact

F
O

Current Assets Deducted Added In Operating Activities

E
AT

Current Liabilities Added Deducted (Working Capital Changes)

R
TO

Types of Activities ⬇ Classification of Business Activities

EC

These are the principal revenue producing activities of the enterprise

Operating Activities and other activities that are not Investing and Financing Activities.
IR

(Related with goods and services in which business deals in.)

D

These are activities of acquisition(purchase) and disposal (sale) of

Investing Activities long-term assets and other investments not included in cash
equivalents
These are the activities that result in change in the size and composition
of the owner's capital (including Preference Share Capital in the case of
Financing Activities
a company and borrowings of the enterprise (Taking loans'capital and
paying back loans/capital
 Types of Activities ⬇ Inflow of Cash & Cash Equivalents Outflow of Cash & Cash Equivalents
Proceeds from sale of goods and services to Payment of employee benefit expenses
Operating customers Purchase of inventory from suppliers
Activities Receipt from royalties,fees, commission and Pay operating expenses
other revenues Payment of taxes
Sale of property, plant, equipment, long-term Purchase of property, plant, equipment
investments and non-current investments
Investing
Receipt from Interest and dividends

ST
Activities Proceeds from issue of preference or equity
shares

EA
Proceeds from Issuance of Debts/Bonds Redemption of debentures and payment
Financing

T-
Procurement of loans of the long-term debts
Activities Payment of dividends and interest

IC
TR
Asset A/C

IS
Date Particular Amount Date Particular Amount

ID
To Balance b/d ×××× By Bank A/C (Sale) ××××
To Bank A/C (Purchase) ×××× By Provision for Depreciation A/C ××××

H
To Statement of Profit & Loss A/C* ×××× By Statement of Profit & Loss A/C* ××××

EL
(If Profit) (If Loss)

D
×××× T ××××
Note:-
C
1. If there is Profit from selling of an existing Asset then it will be shown in the Debit Side of the Asset A/C & If
N

there is Loss from selling of an existing Asset then it will be shown in the Credit Side of the Asset A/C.
G

2. * Either profit or Loss can be realised or to bear when business is selling an existing Asset.
N

3. Profit from selling of an existing Asset will be deducted while calculating the Cash generated from
IO

Operating Activities & Loss from selling of an existing Asset will be added while calculating the Cash
AT

generated from Operating Activities.

4. Purchase of an Asset will be shown in as outflow of Cash in Investing Activities & Sale of an existing
C

Asset will be shown in as inflow of Cash in Investing Activities.

U
ED

Provision for Depreciation A/C

Date Particular Amount Date Particular Amount
F
O

To Asset A/C (Transfer of Dep.) ×××× By Balance b/d ××××

E

To Balance c/d ×××× By Depreciation A/C* ××××

AT

×××× ××××
Note:-
R
TO

1.​ The amount of Depreciation charged on an existing asset which has been sold out should be transfered to
Asset A/C
EC

2.​ *Depreciation charged on existing Asset will be shown as a Non-Cash Transactions in Operating
Activities.
IR
D

Provision for Tax A/C

Date Particular Amount Date Particular Amount
To Bank A/C (Paid)* ×××× By Balance b/d ××××
To Balance c/d ×××× By Statement of Profit & Loss A/C* (Made) ××××
×××× ××××
Note:-
1.​ If there is no adjustment regarding the Tax Paid or Made then the opening balance of Provision
 for Tax A/C is Paid & Closing balance of Provision for Tax A/C is Made.
2.​ *Either Tax Paid (Debit Side) or Tax Made (Credit Side) will be found by preparing Provision for
Tax A/C.
3.​ Tax Paid is to be deducted from Cash Generated from Operating Activites & Tax Made is to be
added back while finding out Net Profit before Tax and Extra ordinary items

Cash and Cash Equivalents

ST
As per AS-3:-
➔​ ‘Cash’ comprises cash in hand and demand deposits with banks, and

EA
➔​ ‘Cash equivalents’ means short-term highly liquid investments that are readily convertible into known
amounts of cash and which are subject to an insignificant risk of changes in value.

T-
➔​ An investment normally qualifies as cash equivalents only when it has a short maturity, of say, three months

IC
or less from the date of acquisition.

TR
➔​ Investments in shares are excluded from cash equivalents
➔​ short-term marketable securities which can be readily converted into cash are treated as cash equivalents.

IS
ID
Cash Flow Statement

H
EL
Particular Details Amount

D
(A) Cash Flow from Operating Activities:-
Net Profit before Tax and Extraordinary Activities ××××
T
C
Non Cash and Non-Operating activities
N

Add:- Depreciation ××××

G

Intangible Assets Written off ××××

Loss on Sale of Assets ××××
N

Interest paid on Borrowings etc. ××××

IO

Less:- Profit on Sale of Assets (××××)

AT

Interest received on Investments/Assets (××××)

Operating Profit before working Capital Changes ××××
C

Working Capital Changes:-

U

Increase in Current Assets (××××)

ED

Decrease in Current Liabilities (××××)

Decrease in Current Assets ××××
F

Increase in Current Liabilities ××××

O

Cash Generated from Operating Activities ××××

Less:- Income Tax Paid (Net of Refund of Tax) ××××
E
AT

Cash Flow before Extraordinary from Operating Activities ××××

Less:- Extraordinary Activities ××××
R

Net Cash Flow From Operating Activities ××××

TO

(B) Cash flow from Investing Activities

EC

Proceeds from sale of Tangible Assets/Investments/Intangible Assets ****

Interest and Dividend Received (for Non-Financial business) ****
IR

Rental Income ****

D

Purchase of Tangible Assets/Investments/Intangible Assets (****)

Extraordinary items (****)
Cash Flow from (or used in) Investing Activities *****

(C) Cash flow from Financing Activities:-

Proceeds from issue of Shares (Including Premium) *****
Proceeds from issue of Debentures (Including Premium and Excluding ****
Discount) ****
Proceeds from other Long-term Borrowings (****)
Redemption of Debentures/Preference Shares (****)
Repayment of Loans (****)
Dividend paid (Interim / Final ) (****)
Interest on Long-term borrowings (****)
Extraordinary items

Cash Flow from (or used in) Financing Activities *****

ST
Net cash increase/Decrease in Cash & Cash Equivalents (A+B+C) *****
Add:- Opening Cash & Cash Equivalents *****

EA
Closing Cash & Cash Equivalents ****

T-
IC
PRACTICE QUESTIONS

TR
Q [Link] of the following are not tool of financial analysis ?

IS
(i) Cash flow statement (ii) Income statement

ID
(iii) Balance sheet (iv) Ratio analysis

H
(A) (i) and (ii) (B) (ii) and (iv) (C) (ii) and (iii) (D) (iii) and (iv)

EL
Q 2. State whether the following transactions will result in inflow, outflow or no flow of cash while

D
preparing cash flow statement: T
(i) Decrease in outstanding employees benefits by ₹3000
C
(ii) Increase in Current Investment by ₹ 6,000.
N
G

Q 3. From the following information of Nova Ltd., calculate the cash flow from investing activities :
N

Particular 31-03-2019(₹) 31-03-2018(₹)

IO

Machinery (At cost) 5,00,000 3,00,000

AT

Accumulated Depreciation on machinery 1,00,000 80,000

Goodwill 1,50,000 1,00,000
C

Land 70,000 1,00,000

U
ED

Additional Information :
During the year, a machine costing ₹ 50,000 on which the accumulated depreciation was ₹ 35,000, was sold
F
O

for ₹ 12,000.​ ​ ​ ​ ​ ​ ​ ​ ​ ​
E

Q 4 .The profit of Jova Ltd. for the year ended 31st March, 2019 after appropriation was ₹ 2,50,000.
AT

Additional Information:
R

Particular 31-03-2019 (₹)

TO

Depreciation of Machinery 20,000

Goodwill written off 9,000
EC

Loss on sale of Furniture 2,000

Transfer to General Reserve 22,500
IR
D

The following was the position of its Current Assets and Current Liabilities as at 31st March, 2018 and 2019.
Particular 31-03-2018 31-03-2019

Income Received in Advance 8,000 ××××

Inventory 12,000 8,000
Calculate the Cash flow from operating activities.​ ​ ​ ​ ​

Q 5. Following is the Balance Sheet of Mevanca Limited as at 31st March, 2017:

 Mevanca Limited
Balance Sheet as at 31st March, 2017
Particulars Note No. 2017 (₹) 2016 (₹)
I – Equity and Liabilities :
2.​ Shareholders Funds :
(c)​ Share Capital 3,00,000 1,00,000
(d)​ Reserves and Surplus 1 25,000 1,20,000
2. Non-Current Liabilities :

ST
Long Term Borrowings 80,000 60,000
3. Current Liabilities :
2

EA
Trade Payables 6,000 20,000
Short-Term Provisions 3 68,000 70,000

T-
Total of Equity and Liabilities 4,79,000 3,70,000

IC
II – Assets :

TR
Non-Current Assets :

IS
Fixed Assets 4 3,36,000 1,92,000

ID
Current Assets :
(a) Inventories 67,000 60,000

H
(b) Trade Receivables 51,000 65,000
(b) Cash and Cash Equivalents 25,000 49,000

EL
(d) Other Current Assets ×××× 4,000

D
Total of Assets
T 4,79,000 3,70,000
C
Notes to Accounts:
N

Particulars 31/03/17 (₹) 31/03/16 (₹)

G

1. Reserves and Surplus

N

Surplus i.e., Balance in Statement of Profit & Loss 25,000 1,20,000

IO

25,000 1,20,000
AT

2. Long-term Borrowings
10% Long term Loan 80,000 60,000
C

80,000 60,000
U

3. Short-term Provisions
ED

Provision for Tax 68,000 70,000

68,000 70,000
F

4. Fixed Assets
O

Machinery 3,84,000 2,15,000

E

Accumulated Depreciation (48,000) (23,0000

AT

3,36,000 1,92,000
Additional Information :
R
TO

(i) Additional loan was taken on 1st July, 2016.

(ii) Tax of ₹ 53,000 was paid during the year.
EC

Prepare Cash Flow Statement..​ (Only Prepare Cash Flow from Investing and Financing Activities)

Q 6. Calculate Cash Flows from Investing Activities from the following information :
IR
D

Particulars 31/03/21 (₹) 31/03/20 (₹)

Investments in shares of Miko Ltd. 18,00,000 8,00,000
12% Long Term Investments 1,50,000 5,00,000
Plant and Machinery 6,00,000 4,00,000
Goodwill 1,20,000 40,000
Additional information :
(i) 9% dividend was received from Miko Ltd.
 (ii) A machine costing 50,000 (depreciation provided thereon 15,000) was sold for 40,000. Depreciation
charged during the year was 55,000.​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Q 7. From the following information, calculate Cash Flow from Operating Activities:
Particulars 31/03/21 (₹) 31/03/20 (₹)
Surplus (i.e. Balance in the statement of profit and Loss) 71,000 89,000
Inventory 12,000 4,000
Trade Receivables 58,000 45,000

ST
Outstanding Expenses 144,600 10,000
Goodwill 57,000 27,000

EA
Cash in Hand 9,000 12,000
Machinery 82,000 56,000

T-
IC
(i) A piece of machinery costing ₹ 50,000 on which depreciation of ₹ 20,000 had been charged was sold for ₹

TR
10,000. Depreciation charged during the year was ₹ 18,000.
(ii) Income Tax ₹ 23,000 was paid during the year.

IS
(iii) Dividend paid during the year was ₹ 36,000.

ID
Q 8. On the basis of information given by Aradhana Ltd., prepare Cash Flow Statement for the year ending

H
31st March, 2021: (Only Prepare Cash Flow from Investing and Financing Activities)

EL
Aradhana Ltd.

D
Balance Sheet as on 31st March, 2021
T
Particulars Note No. 31.03.20 (₹) 31.03.21 (₹)
C
I EQUITY AND LIABILITIES
N

1. Shareholder’s Funds:
G

a.​ Share Capital 5,00,000 7,30,000

N

b.​ Reserve and Surplus 1 3,50,000 3,70,000

IO

2. Non-Current Liabilities:-
a.​ Long Term Borrowings 2 4,00,000 2,00,000
AT

3. Current Liabilities:
a.​ Trade Payable 3 3,60,000 4,60,000
C

b.​ Short-Term Provisions 4 3,25,000 3,20,000

U

Total 19,35,000 20,80,000

ED

II ASSETS
1. Non-Current Assets:
F

a.​ Fixed Assets:

O

I. Tangible Assets 5 4,50,000 5,00,000

E

ii. Intangible Assets 6 3,10,000 3,02,000

AT

b Long-term Loans and Advances 4,00,000 4,30,000

2. Current Assets
R

a.​ Inventories 2,70,000 2,90,000

TO

b.​ Trade Receivables 2,40,000 2,60,000

c.​ Cash and Cash Equivalents 2,65,000 2,98,000
EC

Total 19,35,000 20,80,000

IR

Notes to Accounts:
D

Particulars 31/03/20 (₹) 31/03/21 (₹)

1. Reserves and Surplus
Surplus i.e., Balance in Statement of Profit & Loss 3,50,000 3,70,000
3,50,000 3,70,000
2. Long-term Borrowings
10% Debentures 4,00,000 2,00,000
4,00,000 2,00,000
3. Trade Payables:-
 Creditors 2,40,000 2,60,000
Bills Payable 1,20,000 2,00,000
3,60,000 4,60,000
4. Short-term Provisions
Provision for Tax 3,25,000 3,20,000
3.25,000 3,20,000
5. Tangible Fixed Assets

ST
Machinery 5,50,000 6,60,000
Less:- Accumulated Depreciation (1,00,000) (1,60,000)

EA
4,50,000 5,00,000
6. Intangible Fixed Assets

T-
Patents 3,10,000 3,02,000

IC
3,10,000 3,02,000

TR
Additional Information:
1. Debentures were redeemed on 1st April,2020.

IS
2. Tax paid during the year ₹2,80,000. ​ ​ ​ ​ ​ ​ ​

ID
Q 9. Which following transactions will result in no flow of cash?

H
(A) Purchase of machinery (B) Sale of Investments

EL
(C) Acquisition of machinery by issuing equity share (D) Redemption of debenture

D
Q 10. Of the following activities are operating activities for the purpose of preparing ‘cash flow statement’?
(i) Dividend and interest received on securities.
T
C
(ii) payment of employee benefit expenses.
N

(iii) cash receipt from royalties and fees.

G

(iv) issue of shares against purchase of machinery.

(A) (i), (ii) and (iii) (B) (ii), (iii) and (iv) (C) (i), (ii) and (iv) (D) (ii) and (iii)
N
IO

Q 11. Read the following hypothetical text and answer the question given below on the basis of the same:
AT

Aditi, initiated her start-up “fizz Ltd” in 2019. “Fizz Ltd” Is an organic juice extracting unit. it's profit are
increasing year-after-year because of the increasing awareness towards health.
C
U

Following information has been extracted from the balance sheet of Fizz Limited for the year ended 31st
ED

March 2022
Particular 31st March 2022 (₹) 31st March 2021 (₹)
F
O

Equity share capital 90,00,000 60,00,000

11% debentures 30,00,000 50,00,000
E

Machinery (at cost) 28,00,000 20,00,000

AT

Accumulated depreciation on Machinery 90,000 60,000

R

Additional Information:-
TO

(i ) During the year a Machine costing ₹ 4,00,000 was sold at a gain of ₹ 30,000..
(ii) Depreciation charge on machinery during the year was ₹ 50,000.
EC

(iii) Interest paid on 11% debenture awanted to ₹ 5,50,000.

(iv) Dividend of ₹ 3,00,000 was paid on equity shares.
IR

(iv) Debentures were redeemed at a premium of 10% on 31st March 2022.

D

Calculate cash flows of “Fizz Limited” from “Investing activities” and “Financing activities”
Q 12. State whether the following transactions will result in inflow, outflow or no flow of cash while preparing
cash flow statement :
(i Issued bonus shares ₹ 5,00,000.
(it) Interest received in cash from loans and advances ₹ 80,000.

Q 13. Calculate 'Cash Flows from Investing Activities' and 'Cash Flows from Financing Activities' for
the year ended 31st March, 2021 from the following Balance Sheet of Kamna Ltd. as at 31st March, 2021
showing your workings clearly:
 Balance Sheet as on 31st March, 2021
Particulars Note No. 31.03.20 (₹) 31.03.21 (₹)
I EQUITY AND LIABILITIES
1. Shareholder’s Funds:
A. Share Capital 12,00,000 11,00,000
B. Reserve and Surplus 1 3,00,000 2,00,000
2. Non-Current Liabilities:-
A. Long Term Borrowings 2,40,000 1,70,000

ST
3. Current Liabilities:
A. Trade Payable 2,20,000 2,81,000

EA
Total 19,60,000 17,51,000

T-
II ASSETS
1. Non-Current Assets:

IC
A. Property,Plant & Equipments & Intangible assets:

TR
I. Tangible Assets 2 10,70,000 8,50,000
ii. Intangible Assets 3 40,000 1,12,000

IS
2. Current Assets 4,00,000 4,30,000
A. Current Investments

ID
B. Inventories 2,40,000 1,50,000
C. Trade Receivables 1,20,000 1,21,000

H
D. Cash and Cash Equivalents 1,70,000 1,43,000

EL
3,20,000 3,75,000

D
Total T 19,60,000 17,51,000
C
Notes to Accounts:
N

Particulars 31/03/20 (₹) 31/03/21 (₹)

G

1. Reserves and Surplus

N

Surplus i.e., Balance in Statement of Profit & Loss 3,00,000 2,00,000

IO

3,00,000 2,00,000
AT

2. Tangible Fixed Assets

Machinery 12,70,000 10,00,000
C

Less:- Accumulated Depreciation (2,00,000) (1,50,000)

U

10,70,000 8,50,000
ED

3. Intangible Fixed Assets

Goodwill 40,000 1,12,000
F

40,000 1,12,000
O

Additional Information :
E

A piece of Machinery costing ₹ 24,000 on which accumulated depreciation was ₹ 16,000, was sold for ₹ 6,000.
AT

Q 14 Interest received in cash from loans and advance is considered as _____ activity while preparing cash
R

flow statement.
TO

Q 15. While preparing cash flow statement, will ‘Cash withdrawn from bank’ result into inflow, outflow or no
EC

flow of cash ? Give reason in support of your answer.

IR

Q 16. State the primary objective of preparing cash flow statement.

D

Q 17. From the following information, calculate the amount of cash flow from investing activities.
Acquired machinery for ₹ 10,00,000, paying 10% immediately in cash and accepting a draft for the balance in
favour of the vendor, payable after three months.

Q 18. State giving reason, whether issue of shares for consideration other than cash will result into inflow,
outflow or no flow of cash.

Q 19. Which of the following is not a tool of financial analysis ?

 (a) Comparative income statement​ ​ ​ (b) Comparative position statement
(c) Statement of profit and loss​ ​ ​ ​ (d) Cash flow statement

Q 20. Statement I:- Sale of Marketable Securities will result in no flow of Cash.
​ Statement II:- Debentures issued as collateral security will result in inflow of cash.
A. Statement I is incorrect and Statement I is correct.​ ​ B. Both Statements are incorrect.
C. Statement I is correct and Statement II is incorrect.​ ​ D. Both Statements are correct.

ST
Q [Link] will be the effect of the issue of Bonus shares on Cash Flow Statement?
A. No effect ​ ​ ​ ​ ​ B. Inflow in Financing Activity

EA
C. Inflow in Operating activity ​ ​ D. Inflow in Investing Activity

T-
Q [Link] Sunrise Ltd. provides you the following information:

IC
Particulars 31.3.2023(₹) 31.3.2022(₹)

TR
10% Bank Loan NIL 1,00,000

IS
Additional Information:

ID
1. Equity Share Capital raised during the year ₹3,00,000;

H
2. 10% Bank Loan was repaid on 01.04.2022.

EL
3. Dividend received during the year was ₹20,000.
4. Dividend Proposed for the year 2021-22 was ₹50,000 but only ₹20,000 was approved by the Shareholders.

D
Find out the cash flow from Financing Activities. T
a) ₹ 1,50,000​ ​ b) ₹ 2,00,000​ ​ c) ₹ 1,70,000​ ​ d) ₹ 1,80,000
C
N

Q 23. Prepare a Cash Flow Statement from the following Balance Sheets of Arya Ltd.:
G

Balance Sheet as on 31st March, 2021

N

Particulars Note No. 31.03.23 (₹) 31.03.22 (₹)

IO

I EQUITY AND LIABILITIES

1. Shareholder’s Funds:
AT

a. Share Capital 1 10,00,000 8,00,000

b. Reserve and Surplus 2 6,40,000 5,40,000
C

2. Non-Current Liabilities:-
U

a. Long Term Borrowings 1,50,000 1,00,000

ED

3. Current Liabilities:
a. Trade Payable 3 30,000 12,000
F

b. Short-Term Provisions 30,000 28,000

O

Total 18,50,000 14,80,000

E

II ASSETS
AT

1. Non-Current Assets:
a) Property, Plant and equipment and intangible assets:
R

I Property, Plant and Equipment 4 7,75,000 4,90,000

TO

b Non-Current Investments 90,000 50,000

2. Current Assets
EC

a. Inventories 6,20,000 4,13,000

b. Trade Receivables 3,20,000 4,94,000
IR

c. Cash and Cash Equivalents 45,000 33,000

D

Total 18,50,000 14,80,000

Notes to Accounts:
Particulars 31/03/20 (₹) 31/03/21 (₹)
1. Share Capital:-
General Reserve 5,00,000 4,30,000
Capital Reserve 60,000 50,000
Surplus ie balance in statement of profit and loss 80,000 60,000
6,40,000 5,40,000
 2. Long-term Borrowings
10% Debentures 1,50,000 1,00,000
1,50,000 1,00,000
3. Short-term Provisions
Provision for Tax 30,000 28,000
30,000 28,000
4. Tangible Fixed Assets

ST
Plant & Machinery 7,75,000 4,90,000
7,75,000 4,90,000

EA
Additional Information:

T-
1. Tax provided during the year is ₹17,000.

IC
2. Depreciation charged on plant and Machinery during the year amounted to ₹1,20,000.

TR
3. Non-current Investments costing ₹ 30,000 were sold for ₹ 40,000 during the year. Gain on sale of
Investments was credited to Capital Reserve.

IS
4. Additional Debentures were issued on 31.03.2023.

ID
Q 24. Read the following hypothetical text and answer the given questions on the basis of the same:
Aashna, an alumnus of CBSE School, initiated her start up Smartpay, in 2015. Smartpay is a service

H
platform that processes payments via UPI and POS, and provides credit or loans to their clients.. During

EL
the year 2021-22, Smartpay issued bonus shares in the ratio of 5:1 by capitalising reserves. The profits of

D
Smartpay in the year 2021-22 after all appropriations was ₹ 7,50,000. This profit was arrived after taking
into consideration the following items: -
T
C
Particulars Amount (₹)
N
G

Interim Dividend paid during the year 90,000

Depreciation on Machinery 40,000
N

Loss of Machinery due to fire 20,000

IO

Insurance claim received for Loss of Machinery due to Fire 10,000

AT

Interest on Non-Current Investments received 30,000

Tax Refund 20,000
C
U
ED

Particulars 31.3.22 (₹) 31.3. 21(₹)

Equity Share Capital 12,00,000 10,00,000

F

Securities Premium Account 3,00,000 5,00,000

O

General Reserve 1,50,000 1,50,000

E

Investment in Marketable Securities 1,50,000 1,00,000

AT

Cash in hand 2,00,000 3,00,000

Machinery 3,00,000 2,00,000
R

10% Non-Current Investments 4,00,000 3,00,000

TO

Bank Overdraft 2,50,000 2,00,000

Goodwill 30,000 80,000
EC

Provision for Tax 80,000 60,000

(i) Goodwill purchased during the year was ₹ 20,000.
IR

(ii) Proposed Dividend for the year ended March 31, 2021 was ₹ 1,60,000 and for
D

the year ended March 31,2022 was ₹ 2,00,000.

You are required to:
1. Calculate Net Profit before tax and extraordinary items.
2. Calculate Operating profit before working capital changes.
3. Calculate Cash flow from Investing activities.
4. Calculate Cash flow from Financing activities.
5. Calculate closing cash and cash equivalents.