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Prepared By:

S.N. Topics Name of PGT Commerce Name of KV

1. PARTNERSHIP— FUNDAMENTALS Mr. Lallu Amhat Sultanpur

2. CHANGE IN PROFIT SHARING RATIO Mrs. Manju Maurya IFFCO Phulpur
3. ADMISSION OF A PARTNER Mr. Mahendra Kumar AFS Bamrauli
4. RETIREMENT AND DEATH OF A PARTNER Mr. Rajiv Kumar Naini Prayagraj
5. DISSOLUTION OF A PARTNERSHIP FIRM Mr. Satish Kumar Chaubey BLW Varanasi
6. ACCOUNTING FOR ISSUE OF SHARES Mrs. Geeta Rani Old Cantt. Prayagraj
7. ACCOUNTING FOR ISSUE OF DEBENTURES Mr. Alok Ghosh Old Cantt. Prayagraj
8. FINANCIAL STATEMENT ANALYSIS Mr. C. B. Pandey New Cantt. Sh-I Prayagraj
9. COMPARATIVE AND COMMON SIZE Mr. C. B. Pandey New Cantt. Sh-I Prayagraj
STATEMENTS

10. RATIO ANALYSIS Mr. Santosh Kumar Ballia

11. CASH FLOW STATEMENT Mrs. Kavita Singh AFS Manauri
12. COMPUTERISED ACCOUNTING Mr. S K Sinha New Cantt. Sh-II Prayagraj

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 CONTENTS

SNO TOPIC PAGE NO

COMPTENCY BASED QUESTIONS CBQ MLL

1 Fundamental of Partnership 11-13 56-57

2 Change in PSR 14-21 58-63

3 Admission of partners 22-25 64-68

4 Retirement of Partner 26-30 69-73

5 Dissolution of Partnership Firm 31-34 74-77

6 Issue of Shares 35-38 78-80

7 Issue of Debentures 39-41 81-83

8 Financial Statements For Bright Learners 42-44 84-86

9 Comparative And Common Size Statements For 45-47 87-90

Bright Learners

10 Ratio Analysis 48-49 91-92

11 Cash Flow Statement 50-55 93-98

10
 PARTNERSHIP - BASIC FUNDAMENTAL
[Link] and Chaman are partners in a firm. On 1st July, 2021 Aman advanced a loan of
₹6,00,000 to the firm. There is no partnership deed. On 31st March, 2022, Aman was entitled to
get the following amount as interest on loan
(a) ₹ 36,000 (b) ₹ 18,000
(c) ₹ 9,000 (d) ₹ 27,000

Q.2. Assertion (A) : Goodwill is an intangible asset.

Reason (R) : Goodwill is the value of the reputation of a firm in respect of profits expected
in future, over and above the normal profits. Select the correct answer from the following:
(a) Assertion (A) is correct, but Reason (R) is wrong.
(b) Assertion (A) is wrong, but Reason (R) is correct.
(c) Both Assertion (A) and Reason (R) are correct.
(d) Both Assertion (A) and Reason (R) are wrong.

Q.3. A and B were a partner in a firm sharing profits and losses in the ratio 7 : 1, A withdrew a
fixed amount of 12,000 at the beginning of each quarter. Interest on drawings is charged @ 6%
p.a. The journal entry for charging interest on drawings at the end of the year will be :
(a) Interest on Drawings A/c Dr. ₹ 1,800
To A‘s Capital A/c ₹ 1,800
(b) Interest on Drawings A/c Dr. ₹ 1,800
To A‘s Current A/c ₹ 1,800
(c) A‘s Capital A/c Dr. ₹ 1,800
To Interest on Drawings A/c ₹ 1,800
(d) Profit and Loss Appropriation A/c Dr. ₹ 1,800
To Interest on Drawings A/c ₹ 1,800

[Link] doing the adjustments regarding drawings ₹ 40,000, share of profit ₹ 24,000 and the
additional capital introduced ₹ 32,000, the capital of Ashok, a partner, as on 31.03.2022 was ₹
5,00,000. His capital as on 01.04.2021 was :
(a) ₹ 4,84,000
(b) ₹ 5,16,000
(c) ₹ 4,46,000
(d) ₹ 5,96,000

[Link] 1st April, 2022, the capital of the firm of Ashu and Madhav is ₹ 1,50,000. The normal
rate of return on capital employed is 10%. Average profits of the firm are ₹ 23,500. Calculate
goodwill of the firm based on three years purchase of super profits.

11
[Link] and Malik are partners in a firm sharing profits and losses in the ratio of 4 : 1. On
1st April, 2021, their capitals were 1,20,000 and ₹ 80,000 respectively. On 1st December, 2021,
they decided that the total capital of the firm should be ₹ 3,00,000 to be contributed by them in
the ratio of 2 : 1. According to the partnership deed, interest on capital is allowed to partners @
6% p.a.
Calculate interest on capital to be allowed for the year ending 31st March, 2022.

[Link] 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 :
(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
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.

[Link] and Ruby were partners in a firm with a combined capital of ₹ 2,50,000. The normal
rate of return was 10%. The profits of the last four years were as follows :

2019 -20 35,000

2020 -21 25,000
2021 -22 32,000
2022 -23 33,000
The closing stock for the year 2022 23 was overvalued by ₹ 5,000.
Calculate goodwill of the firm based on three year purchase of the last four year average super
profit.

Q.9 Mohan, Suhaan and Adit were partners in a firm sharing profits and losses in the ratio of 3 :
2 : 1. Their fixed capitals were :₹ 2,00,000, ₹ 1,00,000 and ₹ 1,00,000 respectively. For the year
ended 31st March, 2023, interest on capital was credited to their accounts @ 8% p.a. instead of
5% p.a.
Pass necessary adjusting journal entry. Show your workings clearly.

Q.10. Manoj and Nitin were partners in a firm sharing profits and losses in the ratio of 2 : 1. On
31st March, 2023, the balances in their capital accounts after making adjustments for profits and
drawings were ₹ 90,000 and ₹ 80,000 respectively. The net profit for the year ended 31st March,
2023 amounted to ₹ 30,000. During the year Manoj withdrew ₹ 40,000 and Nitin withdrew ₹

12
20,000. Subsequently, it was noticed that Interest on Capital @ 10% p.a. was not provided to the
partners. Also Interest on Drawings to Manoj ₹ 3,000 and to Nitin ₹ 2,000 was not charged.
Pass necessary adjusting journal entry. Show your workings clearly.

Q.11 Ayush and Aarushi are partners sharing profit and losses in the ratio 3:2. They admitted
Naveen into partnership for ¼ share. Goodwill of the firm was to be valued at three years
purchase of super profit. Average net profit of the firm was 20,[Link] investment in the
business was 50.000 and Normal Rate of return was 10%. Calculate the amount of Premium for
Goodwill brought by Naveen.

Q.12 Asha Disa and Raghav were partner in a firm sharing profit in the ratio of [Link].According
to the partnership agreement Raghav was guaranteed an amount of 40,000 as his share of profit
.The net Profit for the year ended 31st March 2022 amounted 1,20,000. Prepare Profit and Loss
Appropriation Account of the firm for the year ended 31st March2022.

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 CHANGE IN PROFIT SHARING RATIO

Q. no. Marks

1 Assertion (A): Change in the profit-sharing ratio of the existing partners 1

amounts to dissolution of the partnership firm.

Reason (R): Change in the profit-sharing ratio of the existing partners results in

a change in the existing agreement between the partners leading to

reconstitution of the firm.

a) Both A and R are correct

b) A is correct, but R is wrong

c) A is wrong, but R is correct

d) Both A and R are wrong

2 The capitalized value attached to the differential profit capacity of a business is 1

called………….

a) Goodwill b) Super profit

c) Normal profit d) Average profit

3 Value of goodwill of a firm at 3 times of Super profits is ₹54,000. Average 1

profits of the firm are ₹60,000(after an abnormal loss of ₹8,000). Normal rate of

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 return is 10%. Capital invested in the firm will be:

(A) ₹3,40,000 (C) ₹4,20,000

(B) ₹5,00,000 (D) ₹8,60,000

4 D, E and F who were sharing profits and losses in the ratio of [Link] decided to 1

share the future profits and losses in the ratio of [Link] with effect from 1st April

2024. On that date following balances appeared in their books:

Liabilities Amount Assets Amount

Workmen compensation reserve 65,000

At the time of reconstitution, a certain amount of claim on workmen

compensation was determined for which E’s share of loss amounted to ₹5,000.

The claim for workmen compensation would be: -

(A) ₹15,000 (B) ₹70,000 (C) ₹50,000 (D) ₹80,000

5 P, Q and R are partners in a firm sharing profits in the ratio of [Link]. From 1st 3

April 2021, they decided to share profits equally. On that date following

balances appeared in their books:

Particulars Amount ₹

Workmen Compensation Reserve 72,000

Investment Fluctuation Reserve 30,000

Investments (at cost) 6,00,000

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Based on the above information you are required to answer the following

alternate questions:

Q.1. If a Claim on account of Workmen’s Compensation is estimated at ₹48,000,

then in respect of Workmen Compensation:

A. Credit P, Q and R by ₹8,000 each

B. Debit P, Q and R by ₹8,000 each

C. Debit R by ₹2,000 and Credit P and Q by ₹1,000 each

D. Credit P by ₹9,000, Q by ₹9,000 and R by ₹6,000

Q.2. If investments are valued at ₹4,50,000, then in respect of investments:

A. Debit P, Q and R by ₹50,000 each

B. Debit P, Q and R by ₹40,000 each

C. Debit P by ₹45,000; Q by ₹45,000 and R by ₹30,000

D. Debit P by ₹56,250; Q by ₹56,250 and R by ₹37,500

Q.3. If goodwill of the firm is valued at ₹2,40,000, then in respect of goodwill:

A. Credit P by ₹90,000; Q by ₹90,000 and R by ₹60,000

B. Credit P, Q and R by ₹ 80,000 each

C. Debit R by ₹ 20,000 and Credit P and Q by ₹10,000 each

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 D. Debit P and Q by ₹10,000 each and Credit R by ₹ 20,000

6 The average net profit of electronic Home Depot expected in the future is 3

₹1,08,000 per year. Average capital employed in the business is ₹6,00,000.

Normal profit expected from capital invested in this type of business is 10%.

The remuneration of the partners is estimated to be ₹18,000 per annum.

Calculate the value of goodwill on the basis of two years, purchase of super

profit

7 The following were the profits of a firm for the last 3 years: 3

Year Profit

2018 ₹ 4,00,000(including an abnormal gain of 50,000)

2019 ₹ 5,00,000 (after charging an abnormal loss of 1,00,000 ₹

4,50,000(without charging 50,000 payable on the insurance of

2020

plant and machinery

What will be the value of Firm’s goodwill on the basis of 2-years purchase of

the average profits for the last 3 years?

8 H, K and U are partners in a firm sharing profits and losses in the ratio of [Link]. 3

From 1st April, 2018 they decided to share future profits and losses in the ratio

of [Link]. Their balance sheet showed a balance of ₹75,000 in the profit and loss

account and a balance of ₹ 15,000 in investment fluctuation fund. For this

purpose, it was agreed that:

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 (a) That investment (having a book value of ₹50,000) were valued at ₹ 35,000.

That stock having a book value of ₹ 50,000 be depreciated by 10%.

9 Radhika, Bani and Chitra were partners in a firm sharing profits and losses in 4

the ratio of [Link]. With effect from 1st April, 2018, they decided to share future

profits and losses in the ratio of [Link]. On that date, their balance sheet showed

a debit balance of ₹24,000 in profit and loss A/c. It was also agreed that:

1) The goodwill of the firm be valued at ₹1,80,000.

2) The land having book value of ₹3,00,000 will be valued at ₹4,80,000.

Pass the necessary journal entries for the above changes.

10 L, M and N were partners in a firm sharing profits in the ratio of [Link], decide 4

to share future profits and losses in the ratio of [Link] with effect from 1st April

2024. Following is an extract of their Balance sheet as at 31st March 2024.

Liabilities Amount Assets Amount

Workmen Compensation Reserve 60,000

Show the accounting treatment under the following alternative cases.

Case (i): If there is no other information.

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 Case (ii): If a Claim on account of Workmen compensation is estimated at

₹24,000.

Case (iii): If a claim on account of Workmen compensation is estimated at

₹60,000.

Case (iv): If a claim on account of Workmen compensation is estimated at

₹75,000.

11 R, S and T were partners in a firm sharing profits in the ratio of [Link]. Their 6

Balance Sheet as on 31.3.2023 was as follows:

Balance Sheet of R, S and T as at 31st March, 2023

Liabilities Amount Assets Amount

Creditors 50,000 Land 50,000

50,000
Bills Payable 20,000 Building
1,00,000
General Reserve 30,000 Plant 40,000
Capitals: 30,000
Stock
R :1,00,000 5,000
Debtors
S: 50,000
1,75,000 Bank
T: 25,000

2,75,000 2,75,000

R, S and T decided to share the profits equally with effect from 1.4. 2023. For

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 this it was agreed that:

(i) Goodwill of the firm be valued at ₹ 1,50,000.

(ii) Land be valued at ₹ 80,000 and building be depreciated by 6%.

(iii) Creditors of ₹ 6,000 were not likely to be claimed and hence be written

off.

Prepare revaluation account, partners’ capital accounts and the balance sheet of

the reconstituted firm.

12 Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in 6

the ratio of [Link]. They decided to share the profit equally w.e.f. 1st April, 2023.

Their balance sheet as on 31st march, 2024 was as follows:

Liabilities Amount ` Assets Amount `

Sundry creditors 1,50,000 Cash at bank 40,000

General reserve 50,000
80,000 Bills receivable
Partner’s loan: 60,000
Dinesh 40,000 Sundry debtors 1,20,000

Stock 2,80,000
Ramesh 30,000

Partner’s Capital 70,000 Fixed assets

Dinesh 1,00,000
Ramesh 80,000

Suresh 70,000

2,50,000

Total 5,50,000 Total 5,50,000

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It was also decided that:

1) The fixed assets should be valued at ₹3,31,000.

2) A provision of 5% on sundry debtors be made for doubtful debts

3) The goodwill of the firm at this date be valued at 4 ½ years purchase of the

average net profits of last, five years which were ₹ 14,000; ₹17,000; ₹20,000; ₹

22,000 and ₹27,000 respectively.

4) The value of stock be reduced to ₹1,12,000.

5) Goodwill was not to appear in the books.

Pass the necessary journal entries in the books of the firm.

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 Admission of Partner

Q 1-On the admission of a new partner:

(A) Old firm is dissolved
(B) Old partnership is dissolved
(C) Both old partnership and firm are dissolved
(D) Neither partnership nor firm is dissolved
Q 2- A and B are partners sharing profits and losses in the ratio of 7: 5. They agree to admit C,
their manager, into partnership who is to get 1/6th share in the profits. He acquires this share as
1/24th from A and 1/8th from B, the new profit-sharing ratio will be:
(A) 13: 7: 4
(B) 7: 13: 4
(C) 7: 5: 6
(D) 5: 7: 6
Q 3- Partners A, B and C share the profits of a business in the ratio of 3 : 2 : 1 respectively. They
admit D who brings in ₹60,000 for his share of goodwill. A, B, C and D decided to share the
profits in the ratio of 5 : 3 : 2 : 2. Find out the amount of goodwill to be credited to Sacrificing
partners?
(A) A ₹6,000; B ₹6,000
(B) A ₹30,000; B ₹18,000; C ₹12,000
(C) A ₹30,000; B ₹20,000; C ₹10,000
(D) A ₹30,000; B ₹30,000
Q 4-When a new partner does not bring his share of goodwill in cash, the amount is debited to :
(A) Cash A/c
(B) Premium A/c
(C) Current A/c of the new partner
(D) Capital A/c of the old partners
Q 5-In the absence of an express agreement as to who will contribute to new partners‘ share of
profit, it is implied that the old partners will contribute:
(A) Equally
(B) In the ratio of their capital
(C) In their old profit-sharing ratio
(D) In the gaining ratio

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Q 6-Radha and Rukmani are partners in a firm, sharing profits in 3:2 ratio. They admitted Gopi
as a new partner. Radha surrendered 1/3 of her share in favour of Gopi and Rukmani surrendered
1/4 of her share in favour of Gopi. Calculate the new profit-sharing ratio.

Q 7-Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new
profit-sharing ratio between Rajesh, Mukesh and Hari is [Link]. On Hari’s admission goodwill of the firm is
valued at Rs. 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and
Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the
treatment of goodwill on Hari’s admission.

Q 8-Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. On Ist
Jan. 2024, they admitted Om as a new partner. On the date of Om‘s admission, the balance sheet
of Leela and Meeta showed a balance of Rs. 16,000 in general reserve and Rs. 24,000 (Cr) in
Profit and Loss Account. Record necessary journal entries for the treatment of these items –
Q 9-. A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on Dec. 31,
2023 was as follows-
Balance Sheet (As on 31st Dec 2024)
Liabilities Amount Assets Amount

Capital 41,500 Cash at Bank 26,500

Reserve Fund 4,000 B/R 3,000

Capital Debtors 16,000

A 30,000 Stock 20,000

B 16000 Fixtures 1,000

Land and Building 25,000

91,500 91,500

On Jan 1,2024, C was admitted into partnership on the following terms:

(a) That C pays Rs. 10,000 as his capital.
(b) That C pays Rs. 5,000 for goodwill. Half of this sum is to be withdrawn by A and B.
(c) That stock and fixtures be reduced by 10% and a 5%, provision for doubtful debts be created on
Sundry Debtors and Bills Receivable.
(d) That the value of land and buildings be appreciated by 20%.
(e) There being a claim against the firm for damages, a liability to the extent of Rs. 1,000 should
be created.
(f) An item of Rs. 650 included in sundry creditors is not likely to be claimed and hence should
be written back.
Record the above transactions (journal entries) in the books of the firm assuming that the profit-

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 sharing ratio between A and B has not changed.

Q.10- D, Y and F are partners in a firm, sharing profits and losses in [Link] respectively. The
Balance Sheet of the firm as on 31st March 2024 was as follows:
Liabilities Rs. Assets Rs.
Sundry Creditors 800 Factory 7,350
Public Deposits 1,190 Plant & Machinery 1,800
Reserve fund 900 Furniture 2,600
Capital A/c Stock 1,450
D 5,100 Debtors Rs. 1,500
Y 3,000 Less: Prov B/D Rs. 300 1,200
F 5,000 Cash in hand 1,590
15,990 15,990
On the same date, A is admitted as a partner for one-fifth share in the profits with Capital of Rs.
4,500 and necessary amount for his share of goodwill on the following terms: -
a. A Liability of Rs. 1,670 is created against Bills discounted.
b. Goodwill of the firm is to be valued at 2.5 years' purchase of average profits of 2 years.
The profits are as under: 2000: - Rs. 2,000 and 2001 - Rs. 6,000.
c. Furniture and Public Deposits are revalued to Rs. 2,000 and Rs. 980 respectively.
Prepare Revaluation Account, Partners' Capital Accounts

Q 11- B, J and H are the partner sharing profits and loss in the ratio of [Link]. On 31st march, 2024 their
balance sheet was:
BALANCE SHEET (31ST MARCH, 2024)
Liabilities Amount Assets Amount
Capital a/c‘s:- Cash at bank 18,000
B 36,000 Bill receivable 24,000
J 44,000 Furniture 28,000
H 52,000 1,32,000 Stock 44,000
Creditors 64,000 Debtors 42,000
Employee‘s provident fund 32,000 Investment 32,000
Profit and loss a/c 14,000 Machinery 34,000
Goodwill 20,000
2,42,000 2,42,000

They admitted S into partnership on the following terms :

1- Furniture, investment and machinery to be depreciated by 10%.
2-Shami bring in Rs 36,000 towards capital and required amount Rs 12000 for goodwill

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 for1/6 share
3-50% Investment taken by old partners.
Prepare revaluation account, partner‘s capital account.

[Link] and Alok were partners in a firm sharing profits and losses in the ratio 3:2. On 31st
March, 2024, their balance sheet was as follows:

BALANCE SHEET (31ST MARCH, 2024)

Liabilities Amount Assets Amount
Creditors 60,000 Cash 1,66,000
WCR 60,000 Debtors –1,46,000
Capital- Provision-2000 1,44,000

Sanjana-5,00,000 Stock 1,50,000

Alok -4,00,000 9,00,000 Investment 2,00,000
Furniture 3,00,000
10,20,000 10,20,000

On 1st April, 2024, they admitted Nidhi as a new partner for 1 /4th share in the profits on the
following terms
(i) Goodwill of the firm was valued at ₹ 4,00,000 and Nidhi brought the necessary amount in
cash for her share of goodwill premium, half of which was withdrawn by the old partners.
(ii) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(iii) Investments were to be value at ₹ 3,00,000. Alok took over investment at this value.
(iv) Nidhi brought ₹ 3,00,000 a her capital and the capitals of Sanjana and Alok were adjusted in
the new profit sharing ratio.
Prepare revaluation account, partners‘ capital accounts and the balance sheet of the reconstituted
firm on Nidhi‘s admission.

25
 Retirement and Death of Partner
1 mark questions
Q1:- X, Y and Z are partners in a firm. Y retires and his claim including his capital and his share
of
goodwill is R. 1,20,000. He is paid partly in cash and partly in kind. A vehicle at Rs. 60,000
unrecorded in the books of the firm and the balance in cash is given to him to settle his
account. The amount of cash to be paid to Y will be:
(a) Rs. 80,000
(b) Rs. 60,000
(c) Rs. 40,000
(d) Rs. 30,000
Q2:- X, Y and Z are partners in the ratio of [Link]. Goodwill is already appearing in their books at
a value of Rs. 60,000. X retires and Y and Z decided to share future profits equally. Journal entry
will be:
(a) Y‘s capital A/c Dr. 12,000 and X‘s capital A/c Cr. 12,000
(b) Y‘s capital A/c Dr. 60,000 and X‘s capital A/c Cr. 60,000
(c) X‘s capital A/c Dr. 2,400, Y‘s capital A/c Dr. 3,600, Z‘s capital A/c Dr. 6,000 and Goodwill
A/c Cr. 12,000
(d) X‘s capital A/c Dr. 12,000, Y‘s capital A/c Dr. 18,000, Z‘s capital A/c 30,000 and Goodwill
A/c Cr. 60,000

Q3:- Assertion (A): Reserves cannot appear at the same amount in the Balance Sheet of the
reconstituted firm.
Reason (R): Reserves are to be distributed among partners in their old ratio.
(a) Both A and R are correct and R is the correct explanation of A.
(b) Both A and R are correct but R is not the correct explanation of A.
(c) A is correct but R is wrong
(d) A is wrong but R is correct.
Q4:- Assertion (A): Unrecorded assets at time of death of partner is recorded on credit side of
Revaluation a/c.
Reason (R): Revaluation account is credited due to increase in liability.
(a) Both Assertion and reason are true and reason is correct explanation of assertion.
(b) Assertion and reason both are true but reason is not the correct explanation of assertion.
(c) Assertion is true, reason is false.
(d) Assertion is false, reason is true

26
 3 and 4 marks questions
Q5:- A, B and C are partners sharing in the ratio of [Link]. B retires from the firm. After B‘s
retirement A and C decide to share profits in the ratio of 1:2. Suppose the goodwill of the entire firm
to be valued at Rs.48,000. Pass necessary journal entries regarding goodwill.

Q6:- A, B and C were partners in a firm sharing profits and losses in the ratio of [Link]. C retired on 1st
August, 2023 (i.e. 4 months after the last Balance Sheet date of 31-03-2023). On that date, the capital
of A and B after all necessary adjustments stood at Rs.1,20,000 and Rs.80,000
respectively. The total amount due to C was Rs.50,000. The amount due to C was not paid by A
and B until 31st March, 2024. The firm earned a profit of Rs.40,000 during this period of 8 months
ended 31st March , 2024. C wants to exercise provisions of Section 37 of the Indian Partnership Act,
1932. Which of the two options available under section 37 should be exercised by C? also calculate
the total amount payable to C, if A and B clears the dues of C on 31-03-24.

Q7:- Manav, Nath and Narayan were partners in a firm sharing profits in the ratio of [Link]. The firm
closes its books on 31st March every year. On 30th September 2015 Nath died. On that date his capital
account showed a debit balance of Rs. 5,000. There was a debit balance of Rs. 30,000 in the profit
and loss account. The goodwill of the firm was valued at Rs. 3,80,000. Nath‘s share of profit in the
year of his death was to be calculated on the basis of average profit of last 5 years.
Average profit of last five years was Rs. 90,000. Pass necessary journal entries in the books of
the firm on Nath‘s death.
Q8:- A, B and C are partners sharing profit and losses in the ratio [Link] . C died on 31st March 2024.
Profit and sales for the calendar year 2023 were Rs. 3,00,000 and Rs. 30,00,000 respectively. Sales
during Jan to March 2024 were 4,50,000. Calculate share and profit of C up to date of death and pass
necessary journal entry.
6 marks questions
Q9:- J, H and K were partners in a firm sharing profits in the ratio of [Link]. On 31st March 2024
their Balance Sheet was as follows: Balance Sheet of J, H and K as on 31st March 2024
Liabilities Amount Assets Amount
Creditors 42,000 Land and Building 1,24,000
Investment Fluctuation Fund 20,000 Motor Vans 40,000
Profit and Loss Account
80,000 Investments 38,000
Capitals:
Machinery 24,000
J 1,00,000
Stock 30,000
H 80,000
Debtors 80,000
K 40,000
2,20,000 less: Provisions 6,000 74,000

27
 Cash 32,000
3,62,000 3,62,000
On the above date H retired and J and K agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at Rs.1,02,000.
(ii) There was a claim of Rs. 8,000 for workmen‘s compensation.
(iii) Provisions for bad debts were to be reduced by Rs. 2,000.
(iv) H will be paid Rs. 14,000 in cash and the balance will be transferred in his loan account
which will be paid in four equal yearly installments together with interest @ 10%p.a.
(v) The new profit-sharing ratio between J and K will be 3:2 and their capitals will be in
new profit-sharing ratio.
The capital adjustments will be done by opening current accounts. Prepare Revaluation
Account, Partner‘s Capital Accounts and Balance Sheet of the new firm.
Q10:- A, B and C are partners in a firm sharing profits and losses in the ratio of [Link]. Their
balance sheet as at 31-03-2024 was as under:
Liabilities Amount Assets Amount
Partner Capital Bank 2,000
A 28,000 Debtors 10,000
20,000
B Stock 14,000
12,000
C 10,000 Plants 36,000
Provident Fund Goodwill 8,000
70,000 70,000
C retired on 01-04-2024 on following terms:
(a) Plants be valued at Rs.48,000. Provident Fund increased by Rs.2,000.
(b) A customer whose account was written off as bad Rs.2,000. In the previous year now
promised to pay in writing, therefore to be accounted.
(c) C‘s interest in the firm is valued at Rs.18,800 after revaluation profits and all others
adjustment.
(d) The entire sum payable to C is brought in by A and B in such a way, so as that their capital
remains in new profit-sharing ratio of 2:1, while keeping minimum bank balance of Rs.4,000.
Prepare Revaluation Account and Capital Accounts of Partners, Bank account and Balance Sheet.
Q11:- X, Y and Z are partners sharing profits and losses in the ratio of [Link] respectively. Their
Balance Sheet as on 31st March 2020 was as follows—

28
Liabilities Amount Assets Amount
Sundry Creditors 1,00,000 Cash at bank 20,000
Capital Accounts Stock 30,000
X 60,000 Sundry Debtors 80,000
Y 1,00,000 Investments 70,000
Z 40,000 Furniture 35,000
1,15,000
General Reserve 50,000 Buildings
3,50,000 3,50,000
Z died on 30th September 2020 and the following was provided—
a) ―Z‖ will be entitled to his share of profit up-to the date of death based on last year‘s profit.
b) Z‘s share of Goodwill will be calculated on the basis of 3 years purchase of average profits of
last four years . The profits of the last four years was as follows— Year I – 80,000, Year II –Rs.
50,000 Year III – Rs. 40,000 and Year IV –Rs. 30,000
c) Interest on Capital was provided at 12% p.a.
d) Drawings of the deceased partner up-to the date of death was Rs. 10,000.
e) Rs. 15,400 should be paid immediately to the executor of the deceased partner and the
balance in four equal yearly instalments with interest at 12% on remaining balance.
Prepare Z‘s capital account and Z‘s executors account till the account is finally closed.
Q12:- A, B and C were partners sharing profits and losses in the ratio of [Link]. On 31st March,
2024 their Balance Sheet was as follows ;
Balance Sheet
Liabilities Amount Assets Amount
Capital Goodwill 6,000
A 67,500 Patents 26,000
B 47,500 Machinery 31,200
C 37,000 Investments 3,000
General Reserve 1,000 Stock 10,000
Investment Fluctuation Reserve 3,500
Workmen‘s Compensation 3,500 Debtors 12,000

29
Reserve Loan to C 1,000
Creditors 11,000 Cash at Bank 5,800
Advertisement Expenditure 1,000
Profit & Loss A/c(2023- 24) 75,000
1,71,000 1,71,000
C died on 1st August, 2024, C has withdrawn Rs.5,000 during 2024-25. It was agreed between
his executors and the remaining partners that ;-
a) Goodwill be valued at 2.5 years purchase of average of four completed years profits which
were 2020-21 Rs.1,01,000, 2021-22 Rs.14,000, 2022-23 Rs. 16,000
b) C‘s Share of profit from the closure of last accounting year till date of death be calculated on
the basis of the average of three completed years; profits before death.
c) Patents undervalued by Rs.7,000; machinery overvalued by Rs.3,200
d) Investments be sold for Rs.4,200 and a sum of Rs.5,200 be paid to C‘s Executors immediately.
You are required to Pass necessary journal entries.

30
 DISSOLUTION OF PARTNERSHIP FIRM

1 mark questions
Q1- Which of the following will be transferred to realisation account at the time of dissolution of firm

(1) Profit and Loss Account (2) Partners Loan

(3) General Reserve. (4) Goodwill

Q2- Total Assets of a partnership firm which was dissolved were ₹30,00,000 and its total liabilities were
₹6,00,000. Assets were realised at 80% and liabilities were settled at 5% less. If the dissolution expenses
were ₹3,00,000 profit or loss on dissolution were

(1) Profit ₹18 ,00,000 (2) Loss ₹6,00,000

(3) Profit ₹6,00,000. (4) Loss ₹18,00,000

Q3- On dissolution of a firm, a creditor of ₹75,000 accepted furniture at ₹ 60,000 in full settlement of his
claim. Pass the necessary journal entry.

Q4- Pass the necessary journal entry for treatment of partner’s loan appearing on the asset side of the
balance sheet in case of dissolution of a partnership firm.

3 and 4 marks questions

Q5- Give the necessary journal entries for the following transactions in case of dissolution of a
partnership firm after various assets (other than cash and bank) and third party liabilities have been
transfer to realisation account

(1) Dissolution expenses ₹5,000 were paid by the firm

(2) An unrecorded computer not appearing in the books of accounts realised ₹2,200.
(3) A creditor for ₹1,40,000 accepted the building valued at ₹1,80,000 and paid to the firm ₹40,000.

31
Q6- Sun and Kiran are partners sharing profits and losses equally. They decided to dissolve their firm.
Assets and Liabilities have been transferred to realisation account. Pass necessary journal entries for the
following.

(1) Deferred advertising expenditure account appeared in the books at ₹28,000.

(2) Out of the stock of ₹1,20,000 Kiran (a partner) took over 1/3rd of the stock at a discount of 25%
and 50% of remaining stock was took over by a creditor of ₹30,000 in full settlement of his
claim. Balance amount of stock realised at ₹25,000.
(3) An outstanding bill for repairs and renewal of ₹3,000 was settled through an unrecorded asset
which was valued at ₹10,000. Balance being settled in cash

Q7- T U and V were partners in a firm sharing profits and losses in the ratio of [Link]. Their firm was
incurring huge losses. They decided to close the firm. After transferring assets (other than cash in hand
and Bank) and third party liabilities to realisation account following transactions took place

(1) T took away 50% of the stock at book value less 10% for ₹90,000 and the remaining stock was
sold for ₹40,000
(2) Creditors of ₹78,000 took over machinery of ₹80,000 in full settlement of their claim.
(3) ₹5,000 debtors previously written off were recovered.

Q8- Ravi, Shankar and Madhur were partners in a firm sharing profits in the ratio of [Link]. On 31st March
2018, The firm was dissolved after transferring sundry assets (other than cash in hand and cash at bank)
and third party liabilities in the realisation account the following transactions took place.

(1) Debtors amounting to ₹1,40,000 were handed over to a debt collection agency which charged
5% commission. The remaining debtors were ₹ 47000 out of which debtors of ₹17,000 could not
be recovered because the same become insolvent.
(2) Creditors amounting to ₹5000 were paid ₹3,500 in full settlement of their claim and balance
creditors were handed over stock of ₹90,000 in full settlement of their claim of ₹ 95,000.

Q9- A, B and C were partners sharing profits and losses in the ratio of [Link]. Their balance sheet as a
31st March 2018 was as follows.

Liabilities ₹ Asset ₹

Creditors 2,00,000 Cash at Bank 3,00,000

Capital S. Debtors. 1,95,000
A. 7,50,000 (-) Pro. For B/D. 5,000 1,90,000
B. 3,00,000
C. 2,50,000 Stock 3,00,000

32
 13,00,000 Fixed Assets 7,10,000
. .
15,00,000 15,00,000

On the above date they dissolved the firm and following amounts were realised

Fixed assets₹ 6,75,000 stock ₹3,39,000 debtors ₹1,35,000 creditors were paid ₹1,85,000 in full
settlement of their claim. Expenses on realisation amounted to ₹19,000. Pass necessary journal entries
on the dissolution of the firm

Q10- Pass necessary journal entries in the following cases on the dissolution of a partnership firm of
partners X , Y, A and B.

(1) Realisation expenses of ₹5000 were to borne by X, a partner. However it was paid by Y
(2) Investments costing ₹25,000 (comprising 1000 shares) had been written off from the books
completely. These shares are₹20 each and were divided amongst the partner
(3) Y’s loan of ₹50000 settled at ₹48000.
(4) Machinery (book value ₹6,00,000) was given to the creditor at a discount of 20%.

Q11- Madhav Madhusudan and Mukund were partners in a firm. They decided to dissolve the firm on
31 of March 2021. Pass necessary entries for the following transactions

(1)Old machine fully written off was sold for ₹42,000 while a payment of ₹6,000 is made to bank for a
bill discounted being dishonoured.

(2) Stock a book value of ₹30,000 was taken by Madhav, Madhusudan and Mukund in their profit
sharing ratio.

(3) 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 banks account.

(4) The firm had paid realisation expenses amounting to ₹5,000 on behalf of Mukund

6 marks questions

Q12- Pradeep and Rajesh were partner in a firm sharing profit and losses in the ratio of 3:2. They
decided to dissolve their partnership firm on 31st March 2018. Pradeep was deputed to realise the asset
and to pay off the liabilities. He was paid ₹1000 as a commission for his services. The financial position of
the firm on 31st March 2018 was as follows.

33
Liabilities ₹ Asset ₹

Creditors 80,000 Building 1,20,000

Mrs. Pradeep Loan 40,000 Investments 30,600
Rajesh loan 24,000 Debtors. 34,000
Investment fluctuation fund (-)Pro. For D/D. 4,000 30,000
Capital A/C 8,000 Bills Receivable 37,400
Pradeep 42,000 Bank 6,000
Rajesh. 42,000 Profit & Loss A/C 8,000
84,000 Goodwill 4,000

. .
2,36,000 2,36,000

Following terms and conditions were agreed upon

(1) Pradeep agreed to pay of his wife's loan

(2) Half of the debtors realised ₹ 12,000 and the remaining debtors were used to pay of 25% of the
creditors.
(3) Investments sold to Rajesh for ₹27,000.
(4) Building realised ₹1,52,000.
(5) Remaining creditors were to be paid after two months, they were paid immediately at 10% p.a.
discount
(6) Bill Receivable were settled at a loss of ₹1,400.
(7) Realisation expenses amount to ₹2,500.
Prepare a Realisation Account.

34
 ACCOUNTING FOR SHARE CAPITAL

1 mark questions

[Link] QUESTIONS MARKS

1 Calculate the amount of second & final call when Ekta Ltd, issues Equity
shares of ₹ 10 each at a premium of 40% payable on Application ₹ 3, On
Allotment ₹ 5, On First Call ₹ 2.
(A) Second & final call ₹ 3.
(B) Second & final call ₹ 4.
(C) Second & final call ₹ 1.
(D) Second & final call ₹ 14
2 A company issued 10,000 shares of ₹10 each at par for which Application
were received for 50,000 shares. Amount called up:-On application ₹4 each,
on allotment ₹3 and final call remaining Amount Shares were allotted on pro-
rata basis Excess money will be refunded. After utilization for allotment and
final call. The Bank A/c will be credited with ₹_______
3 Mohit Ltd purchase the running business of Prem Ltd consist total asset of ₹
10,00,000 liabilities of ₹ 2,00,000. Mohit Ltd paid ₹ 2,00,000 immediately in
cash and balance by issuing 7,000 shares of ₹ 100 each at a premium of ₹ 20
per share. The goodwill A/c will be debited by ₹_______.
4 As per Companies Act 2013, Securities Premium balance can be utilized for
which of the following companies?
(a)Issuing bonus to existing shareholders to convert partly paid up into fully
paid up bonus shares
(b)Providing for Premium payable on redemption of debentures
(c)Writing of all Capitalised expenditure
(d)Buy back of debentures

35
 3 and 4 marks questions
5 Mahek Ltd purchased furniture costing ₹ 2,20,000 from Krishna Ltd. The
payment was to be made by issue of 9% Preference Shares of ₹ 100 each at a
premium of ₹ 10 per share .
Pass necessary Journal entries in the books of Z Ltd.
6 Ashok Ltd made the first call of ₹ 2 per share on its 1,00,000 Equity Shares
on 1st March, 2022. Kumar, a shareholder, holding 800 shares paid the second
and final call amount along with the first call money. The second and final
call amount was ₹ 3 per share. Pass necessary journal entries for recording the
above using the Calls-in Advance Account.
7 XYZ Ltd issued 50,000 shares of Rs.10 each payable as Rs.2 per share on
application, Rs. 3 on allotment, and Rs.5 on first and final call. Applications
were received for 70,000 shares. It was decided that
a) to refuse allotment to the applicants for 10000 shares
b) to allot 20000 shares to Ramesh who had applied for similar number and
c) to allot the remaining shares on pro rata basis.
Ramesh failed to pay the allotment and Suresh who (belonged to category C)
was allotted 3000 shares paid the call money with allotment.
Calculate the amount received on allotment.
8 The Directors of Raj Ltd resolved on 1st May, 2022 that 2,000 Equity Shares
of ₹ 10 each ₹7.50 paid be forfeited for non-payment of final call of ₹ 2.50.
On 10th June, 2022, 1,800 of these shares were reissued for ₹6 per share.
Give necessary Journal entries.
9 M Ltd. is registered with an Authorised Share Capital of ₹10,00,00,000 was
divided into 1,00,00,000 equity shares of ₹10 each. The company invited
applications for issuing 10,00,000 equity shares. The amount per share was
payable as follows:
On Application - ₹3 per share On Allotment - ₹4 per share
On First and Final Call - ₹3 per share
The issue was fully subscribed. All calls were made and were duly received
except the first and final call on 1000 shares.
Present the share capital in the Balance Sheet of the company as per the
provisions of Schedule III Part I of the Companies Act, 2013 and also prepare

36
 Notes to Accounts.

10 Nikhil Ltd. purchased a running business from Sonia ltd. for a sum of Rs
22,00,000 by issuing 20,000 fully paid equity shares of Rs 100 each at a premium
of 10%.The assets and liabilities consisted of the following :
Building of Rs.11,50,000 ,Debtors Rs.2,50,000, Machinery Rs.7,00,000,Stock
Rs.5,00,000 and Bills Payable 2,50,000 .
Record the necessary journal entries for the above transactions in the books
of Nikhil Ltd.

6 marks questions

11 XYZ limited invited Application for 1,00,000 equity shares of Rs.10 each at a
premium of 25%. The amount was payable as follows:
On application Rs.5
On allotment Rs.5 (including premium)
On First and Final Call Balance
Application for 1,50,000 shares were received. Pro rata allotment was made
for all applicants. All the money was duly received except the allotment and
first and final call on 200 shares held by Mr. K. His shares were forfeited. All
the forfeited shares were reissued at Rs.9 per share fully paid. Pass journal
entry in the books of company
12 Sunidra Limited was incorporated on 1"April 2019 with registered office in
Kerala. The capital clause of memorandum of Association reflected a
registered capital of 8,00,000 equity shares of Rs.10 each and 1,00,000
preference shares of Rs.50 each. Since some large investments were required
for building and machinery the company in consultation with vendors, Ms.
XYZ Enterprises, issued 1,00,000 equity shares and 20,000 preference shares
at par to them in full consideration of assets acquired. Besides this the
company issued 2,00,000 equity shares for cash at par payable as Rs 3 on
application, 2 on allotment, 3 on first call and 2 on second call. Till date
second call has not yet been made and all the shareholders have paid except
Mr. Ajay who did not pay allotment and calls on his 300 shares and Mr. Vipul
who did not pay first call on his 200 shares. Shares of Mr. Ajay were then
forfeited and out of them 100 shares were reissued at Rs.12 per share. Based
on above information you are required to answer the following questions.
i) Shares issue to vendor of building and machinery, Ms. XYZ Enterprises,
would be classified as:

37
a. Preferential Allotment. b. Employee Stock Option Plan
c. Issue for Consideration other than cash d. Right Issue of Shares
ii) How many equity shares of the company have been subscribed?
а.3,00,000. b.2,99,800. c. 2,99,500. d. None of these
iii) What is the amount of security premium reflected in the balance sheet at
the end of the year?
[Link].200. [Link].600. с. Rs.400. [Link].1,000
iv. What amount of share forfeiture would be reflected in the balance sheet?
a. Rs.600. [Link].900. [Link].200. d. Rs. 300

38
 ACCOUNTING FOR DEBENTURE
1 mark questions
QUESTION MARK

When debentures of Rs.1,00,000 are issued as Collateral Security against a loan of

₹1,50,000. The entry for issue of such debentures will be:

i) Credit Debentures A/C Rs.1,50,000 and Debit Bank A/C Rs.1,50,000

ii) Debit Debenture Suspense A/C Rs.1,00,000 and Credit Bank A/C Rs.1,00,000

iii) Debit Debenture Suspense A/C Rs.1,00,000 and Credit Debentures A/C Rs.1,00,000

iv) Debit Cash A/C Rs.1,50,000 and Credit Bank A/C Rs.1,50,000

On 1st April 2021, Sunrise Ltd. issued 5,000, 8% debentures of Rs.100 each at a discount of 5%.
What will be the total amount of interest for the year ending 31st March 2022

P Ltd. issued 6,000, 12% Debentures of Rs.100 each at par redeemable at a premium of 7% on
1st April, 2022. The debentures were to be redeemed at the end of third year. You are required to
show Loss on issue of 12% Debentures Account

The company issued Rs.15,00,000 9% debentures of Rs.100 each, in favour of SBI as collateral
security. Pass necessary Journal entries for the above transactions :-when company decide not to
record the issue of 9% Debentures as collateral security

3 and 4 marks questions

On April 1,2022 , Lawanglata Ltd. issued 10,000, 8% debentures of ₹100 each at premium of 5% to
be redeemable at a premium of 10% , after 5 yea₹The entire amount was payable on application.
The issue was oversubscribed to the extent of 10,000 debentures and the allotment was made
proportionately to all the applicants. The securities premium amount has not been utilized for any
other purpose during the year. Give journal entries for the issue of debentures and writing off loss
on issue of debentures

39
On 1st April ,2020, Vishwas Ltd. was formed with an Authorised Capital of Rs.10,00,000 divided into
1,00,000 equity shares of Rs.10 each. On 1st April 2021 it acquired the running business of its
competitors with following assets and liabilities:

Land ₹4,50,000; Debtors Rs1,00,000; Furniture Rs.90,000; Creditors Rs.1,80,000. The purchase
consideration decided at ₹6,00,000 which was paid by issuing cheque of Rs.1,25,000 and balance in
form of 8% debentures of Rs.100 each at a discount of 5%. On the same date, the company issued
1,000, 8% debentures of Rs.100 each as collateral security to Punjab National Bank who had
advanced a loan of ₹1,50,000. The company had already a balance in Security Premium Account of
Rs.20,000.

i) How many 8% debentures are to be issued to Vendor?

ii) What journal entry will be passed for writing off Discount on issue of debentures?

iii) How will excess amount on net assets over the purchase consideration will be treated in the
books of account?

iv) How much interest is paid on debentures issued as collateral security?

Vishesh Ltd. issued 10,000, 8% debentures of Rs.100 each on 1st April 2021 redeemable at a
premium of 10% after 4 yea₹The issue was subscribed by 95%. According to the terms of issue,
interest on the debentures is payable half-yearly on 30th September and 31st March.

i) What is the nature of interest on debentures?

ii) What journal entry will be passed for writing off the interest on debentures at the end of the
year?

iii) At the time of issue of debentures what amount will be credited to premium on redemption of
debentures account?

iv) What is the ownership status of Debenture holders in a company?

Health2Wealth Ltd. had share capital of Rs.80,00,000 divided in shares of Rs.100 each and
20,000,8% Debentures of Rs.100 each as part of capital employed. The Company need additional
funds of Rs.55,00,000 for which they decided to issue debentures in such a way that they got
required funds after issuing debentures of the same class as earlier, at 10%premium. These
debentures were to be redeemed at 20% premium after 4 yea₹These debentures were issued on
1st October [Link] are required to pass entries for issue of debentures

6 marks questions

Excel Ltd. an educational company founded in 2007, deals in providing offline (face to face)
educational services to the schools, colleges and private institutes. Within a span of 15 years, the
company gained lot of popularity among the students, teachers and school principals. During the
Covid-19 pandemic situation, the entire education system went online and the company was bound
to shift from offline to online system. For this a huge investment was required on the part of the

40
company. The company decided to raise the required funds through issue of debentures. For this,
Excel Ltd invited applications, 12% debentures of Rs.100 each at a premium of Rs.60 per debenture,
repayable after 5 years along with the same amount of premium. The full amount was payable on
application. Applications were received for 18,000 debentures. The company decided to make pro-
rata allotment.

Answer the following questions on the basis on information provided above:

i) How much amount will be received at the time of application?

ii) While issuing debentures, what amount will be credited to 12% Debentures Account?

iii) How much amount will be credited to Securities Premium Account?

iv) How much amount will be credited on Premium on Redemption of Debentures Account?

v) The excess application money received on 3,000 debentures will be adjusted to which account?

vi) What journal will be passed to write off loss on issue of debentures account

Pass Journal entries to record the following transaction:

(i) A Ltd. issued 15000; 8% Debentures of ₹ 100 each at discount of 5% to be repayable at par at the
end of 5 years.

(ii) A Ltd. Issues 10% Debentures of ₹100 each for the total nominal value of ₹ 80,00,000 at a
premium of 5% to be redeemed at par.

(iii) A Ltd. Issues ₹50,00,000; 9% Debentures of ₹100 each at par but redeemable at the end of 10
years at 105%.

(iv) A Ltd. Issued ₹40,00,000, 12% debentures of ₹100 each at a discount of 5% repayable at a
premium of 10% at the end of 5 years.

(v) A Ltd issued ₹70,000; 12% debentures of ₹100 each at a premium of 5% repayable at 110% at
the end of 10 years

Janhvi Ltd. issued 20,000, 9% Debentures of ₹ 100 each at 10% discount to Aryahi Ltd. from whom
Assets of ₹23,50,000 and liabilities of ₹6,00,000 were taken over. Pass entries in the books of Janhvi
Ltd. if these debentures were to be redeemed at 5% premium. Loss on issue is to be written off in
the first year.

On 1.4.2022, [Link]. issued 8,000, 9% debentures of ₹1,000 each at a discount of 6% redeemable at

a premium of 5% after three years. The company closes its books on 31st March every year. Interest
on 9% debentures is payable on 30th September and 31st March every year. Pass necessary journal
entries for the year ended 31.3.2023

41
 TOPIC: FINANCIAL STATEMENTS

QN. QUESTIONS WITH ANSWERS ( ONE MARKS )

1 Which of the following points out nature of financial statements?

(i) Financial statements are prepared on the basis of recorded facts.
(ii) Certainaccountingconventionsarefollowedwhilepreparingfinancialstatements.
(iii) Financial statements are prepared on certain basic assumptions(pre-
requisites)known as postulates.
(iv) Facts and figures presented through financial statements are based on
personal opinion, estimates and judgements.

(a) Only (i)

(b) (i),and(ii)
(c) (i),(ii) and (iii)
(i) ,(ii),(iii) and (iv
2 Read the following statements: Assertion and Reason. Choose one of the
correctalternatives given below:
Assertion (A): Common Size statement is a statement in which individual items
of financial statements of two or more years are converted into a percent of a
commonbase for comparison.
Reason (R): Common size Balance Sheet is prepared to place each item thereof
andto convert them into percent of Total of Liabilities part or Assets Part.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correctexplanation 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 (A) is true but Reason (R) is False
Assertion (A) is False but Reason (R) is True.
3 Under which major heading and sub heading will Unclaimed dividend be

presented in the Balance sheet of the company as per Schedule III Part I of

Companies Act 2013

42
 a) Current liabilities- Short term provisions

b) Current liabilities- Short term borrowings

c) Current liabilities- Other Current liabilities

d) Current liabilities- Trade payables

(THREE MARKS )

4 Under what heads and sub-heads, will the following items appear in the balance sheet of a
company as per Schedule III, Part I of the Companies Act, 2013.

(i) Subsidy reserve

(ii) Mining rights

(iii) Provision for doubtful debts

5 (i) Give the meaning of ‘long-term provisions’.

(ii) List any four items other than ‘stock-in-trade’ that are presented under the sub-head
‘inventories’ as per Schedule III of the Companies Act, 2013

6 Under what heads and subheads the following items will appear in the balance sheet of a company
as per schedule III part I of the companies act 2013?

a. Forfeited shares account

b. Calls-in-arrears
c. Prepaid insurance
d. Debenture redemption reserve
e. Premium on Redemption of debentures.
7 The assets which cannot be realized in cash or from which no further benefit can be
derived are known as: ( ONE MARKS )

(a) Tangible asset

(b) Fictitious asset

(c) Intangible asset

(d) None of the above

Read the following case study and answer questions 8 to 12 on the basis of the same.

Mochit Ltd is a company that deals in manufacturing of pharmaceutical products. Ram has
recently been hired as an assistant to the accountant of Mohit Ltd. The accountant of the
firm Mr. Rajat asks Ram to go for financial statement analysis of the firm to assess the
financial position of the firm. To judge the knowledge and capabilities of Raman, Mr. Rajat
asked him to analyse the financial statements from

the viewpoint of various parties interested in the firm g. the management, the lenders, the
investors, labour unions ,government etc.

43
8 Which of the following statements will primarily be utilized by Ram for the purpose of
financial statement analysis?

(a) Balance sheet and cash flow statement.

(b) Statement of profit and loss and cash flow statement.

(c) Balance sheet and statement of profit and loss.

(d) Cash flow statement and fund flow statement.

9 If Ram is to analyse the financial statements for the top management, what should he
consider?

(a) Short-term liquidity of the firm.

(b) Ability to pay its long-term lenders.

(c) To see that their sources of the firm are used most efficiently and that the firm's
financial condition is sound.

(d) None of the above

10 If Ram is to analyse the financial statements for the short-term lenders, what should he
consider?

(a) Short-term liquidity of the firm

(b) Long-term solvency of the firm

(c) To see that the resources of the firm are used most efficiently and that the firm's
financial condition is sound

(d) None of the above

11 If Ram is to analyse the financial statements for the investors, what should he consider?

(a) Firm's present and future profitability

(b) Ability to pay its long-term lenders

(c) Firm's capital structure

(d) Both(a)and (c)

12 While analyzing the financial statements, Ram should be conscious of which of the
following?

(a) Window dressing of financial statements

(b) Changes in accounting policies of a firm

(c) Personal judgements

44
 (d) All of the above

COMPARATIVE AND COMMONSIZE STATEMENTS

QN. QUESTIONS

1 State the interest of tax authorities in the analysis of financial statements.

2 How is ‘window dressing a limitation of financial statement analysis?

3 One of the objectives of ‘financial statement analysis’ is to judge the ability of the firm to
repay its debt and assessing the short-term as well as the long-term liquidity position of
the firm. State two more objectives of this analysis.

4 What are common size statements? State any two uses of common size statements

5 Discuss the differences between the comparative and common size statements.

6 How is the financial statement analysis useful to finance manager?

7 From the following statement, of profit and loss of Shaswat ltd for the year ended 31st
march 2025 prepare a comparative profit and loss

Particular 31.03.2025 31.03.2024

Revenue from Operation 20,00,000 25,00,000

Employees benefit expenses (% of revenue from

operations )
50% 50%

Other expenses (% of revenue from operations )

10% 10%
Income Tax @40%

8 From the following information of NM Ltd, Prepare Comparative Income

Statement.
Particular 31.03.2023 31.03.2024
Revenue from Operation 24,00,000 28,00,000

45
 Cost of Revenue from 18,00,000 20,00,000
Operations 10% of Material 12% of Material
Indirect Expenses Consumed Consumed
Income Tax 50% 50%
9 Prepare a comparative income statement from the following details:

31.3.2023 31.3.2022

Revenue from operations ₹30,00,000 ₹20,00,000

Other income(% of revenue from operations) 15% 20%

Expenses (% of operating revenue) 60% 50%

10
Prepare Common Size Statement of Profit and Loss of Shri Dinesh Spinning Mills
Ltd. From the following information:
Particulars 31-3-2022 31-3-2023
Rs. Rs.
Revenue from operation 20,00,000 30,00,000
Expenses 17,00,000 25,08,000
Other incomes 2,00,000 4,00,000
Income Tax 35% 40%
11 From the following information prepare a comparative statement of profit & loss of Akash
ltd.:-

Particulars 31.3.2023 31.3.2022

Revenue from operations 18,00,000 15,00,000

Cost of material consumed 14,00,000 11,00,000
Other expenses 12% of materials 10% of materials
consumed consumed
Income tax 50% 40%

12 From the following Balance Sheet of R ltd. Prepare a common size Balance sheet:-
Particulars Note no. 31/03/2023 31/03/2022

46
 EQUITY AND LIABILITIES

(I)SHAREHOLDERS FUNDS

(a) share capital 2,50,000 2,00,000

(b) reserve & surplus 80,000 60,000

(II) CURRENT LIABILITIES

Trade payable 70,000 40,000

TOTAL 4,00,000 3,00,000

ASSETS:

NON –CURRENT ASSETS

Property,Plant & Equipment & intangible

assets

Property,Plant & Equipment

1,60,000 1,20,000
Intangible assets
20,000 30,000
CURRENT ASSETS
80,000 30,000
Inventories
1,20,000 1,00,000
Trade receivables
20,000 20,000
Cash & cash equivalents
4,00,000 3,00,000

TOTAL

13 Complete the Comparative Statement of Profit and Loss:

Particulars 2023-24 2024-25 Absolute %

change change
Revenue from 10,00,000 ? ?
Operations 8,00,000
Less: Employees ? ? 25%
Benefit
Expenses 4,00,000
Less: Other ? 1,00,000 ?
Expenses 1,00,000
Profit before tax 3,00,000 ? ? 0%
Tax @30% ? ? 90,000 ?
Profit after tax 1,20,000 ? (90,000) ?

47
 ACCOUNTING RATIO

Q.1- Debt to Equity ratio establishes the relationship between ______.

A) Long-term debt (external equities) and current assets (internal equities).
B) Long-term debt (external equities) and equity (internal equities), and long-term debt
(external equities) and current assets (internal equities).
c) Long-term debt (external equities) and equity (internal equities).
D) None of the options are correct.

Q.2-Assertion (A): Liquidity Ratios are used to assess the short-term financial obligations of the firm.
Reason (R): Current Ratio and Acid-test Ratio are two liquidity ratios which measure the firm's ability to
meet its current obligations in time.
In the context of the above two statements, which of the following is correct Codes:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A).
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (R) is correct.
(d) Both (A) and (R) are wrong.

Q.3-Assertion (A): If Gross Profit Ratio is 20%, goods for 50,000 sold to employees at cost will decrease
the ratio.
Reason (R): There will be no change in Gross Profit Ratio, because both Cost of Revenue from
Operations and Revenue from Operations will increase by the same amount
In the context of the above two statements, which of the following is correct?
(a) (A) and (R) both are correct and (R) correctly explains (A).
(b) Both (A) and (R) are correct but (R) does not explain (A).
(c) Both (A) and (R) are incorrect.
(d) (A) is correct but (R) is incorrect.

Q.4-A Company's Current Ratio is 2: 1. After cash payment to some of its creditors, Current Ratio will:
(a) Decrease
(b) As before
(c) Increase
(d) None of these

Q.5- Ltd has a current ratio of 3 : 1 and quick ratio of 2 : 1. If the excess of current assets over
quick assets as represented by inventory is ₹ 40,000, Calculate current assets and current
liabilities.

Q.6 - From the following information, calculate any two of the following ratios
(i) Liquid ratio
(ii) Gross profit ratio

48
(iii) Debt equity ratio
Information:
Revenue from operations (Net sales) ₹ 4,00,000, opening inventory ₹ 10,000, closing inventory
₹ 3,000 less than the opening inventory, net purchase 80% of revenue from operations, direct
expenses ₹ 20,000, current assets ₹ 1,00,000, prepaid expenses ₹ 3,000, current liabilities ₹
60,000, 9% debentures ₹ 4,00,000, long-term loan from bank ₹ 1,50,000, equity share capital ₹
8,00,000 and 8% preference share capital ₹ 3,00,000.
Q.7- A Company earn gross profit 25% on cost. For the year ended 31st March, 2017 its gross
profit was ₹ 5,00,000; equity share capital of the company was ₹ 1,00,00,000; reserves and
surplus ₹ 2,00,000; long-term loan ₹ 3,00,000 and non-current assets were ₹ 10,00,000.
Compute the ‗working capital turnover ratio of the company.

Q.8 -.Shareholders‘ funds Rs. 1,40,000

Total Debts (Liabilities) Rs. 18,00,000
Current Liabilities = Rs. 2,00,000.
Calculate total assets to debt ratio.

Q.9- from the following details, calculate interest coverage ratio:

Net Profit after tax Rs. 60,000; 15% Long-term debt 10,00,000; and Tax rate 40%.

Q.10- From the following information, calculate inventory turnover ratio:

Inventory in the beginning = 18,000
Inventory at the end = 22,000
Net purchases = 46,000
Wages = 14,000
Revenue from operations = 80,000
Carriage inwards = 4,000

Q.11- Calculate the Trade receivables turnover ratio from the following information:
Total Revenue from operations 4,00,000
Cash Revenue from operations 20% of Total Revenue from operations
Trade receivables as at 1.4.2014 40,000
Trade receivables as at 31.3.2015 1,20,000

Q.12- Following information is available for the year 2014 -15, calculate gross profit
ratio:
Revenue from Operations: Cash 25,000
Credit 75,000
Purchases: Cash 15,000
Credit 60,000
Carriage Inwards 2,000
Salaries 25,000
Decrease in Inventory 10,000
Return Outwards 2,000
Wages 5,000

49
 CASH FLOW STATEMENT

1 1
Under which type of activity will you classify ‗Commission and Royalty received‘
while preparing cash flow statement.
a. Operating activity b. Investing activity
c. Financing Activity d. None of the above

2 ‗Shri Ltd.‘ was carrying on a business of packaging in Delhi and earned good profits 1
in the past years. The company wanted to expand its business and required
additional funds. To meet its requirements the company issued equity shares of Rs.
30,00,000. It purchased a computerized machine of Rs. 20,00,000. It also purchased
raw material amounting to Rs.2,00,000. During the current year the Net Profit of the
company was Rs.15,00,000. Find out ‗Cash flows from operating activities‘ from
the above transactions.

3 M. Ltd. had purchased a machinery on deferred payment basis. During the year 1
ended 31-3-2016 the company paid an instalment of Rs. 4,00,000 which included
interest of Rs.4,000. Under which activity or activities payment of instalment will
be classified while preparing Cash Flow Statement

4 How will you treat Bank overdraft in a Cash Flow Statement? 1

(a) Cash flow from operating activities
(b) Cash flow from Investing activities
(c) Cash flow from Financing activities
(d) Cash equivalent
5 An example of cash flow investing activity is : 1
a) Issue of debentures
b) Repayment of long-term loan
c) Purchase of raw materials for cash
d) Sale of investment by non –financial enterprise

6 Ruchi Ltd. paid Rs. 80,000 as instalment for machinery purchased on credit which 1

50
 included interest of Rs. 20,000. How will this payment be presented while preparing
Cash Flow Statement.

7 Assertion (A): Depreciation is added back to net profit while calculating cash flows 1
from operating activities
Reason (R): Depreciation is a non cash expense. It had reduced
the net profit while there is no cash flow
a) Both assertion and reason are true. Reason is a correct explanation of
assertion.
b) Both assertion and reason are true but reason is not the correct explanation
of assertion
c) Both assertion and reason are false
d) Assertion is true but Reason is false
8 Prepare a cash flow statement from the following balance sheet:
Particulars Note 31st March 31st March
No. 2018 2017
(Rs.) (Rs.)

[Link] AND LIABILITIES

1. Shareholders‘ Funds
(a)Share Capital 6,00,000 5,00,000
(b) Reserve and Surplus 1 4,00,000 2,00,000
2. Current Liabilities
Trade payables 2,80,000 1,80,000

12,80,000 8,80,000

3. Assets
(i)Non current assets:
(a)Fixed assets
( i)Plant and machinery 5,00,000 3,00,000
(ii)Current assets:
a)Inventories 1,00,000 1,50,000
b)Trade receivables 6,00,000 4,00,000
c)Cash and cash equivalents 80,000 30,000
Total
12,80,000 8,80,000
Notes to accounts:
Particulars 31-03- 31-03-
2018 (Rs.) 2017(Rs.)
1. Reserve and Surplus:
Surplus (Balance in statement of Profit and Loss) 4,00,000 2,00,000
Additional information:
i)An old machinery having book value of Rs 50,000 was sold for Rs 60,000.

51
 ii)Depreciation provided on machinery during the year was Rs 30,000.

9
Following is the balance sheet of thermal power limited as at
31/03/2018
Particulars Note 2017-18 2016-17
no.

I. Equity and Liabilities

(1) Shareholders fund 12,00,000 11,00,000
(a) Share capital
(b) Reserves and Surplus 1 3,00,000 2,00,000
(2) Non-current liabilities
Long term borrowings 2,40,000 1,70,000
(3) Current liabilities
(a) Trade payables 1,79,000 2,04,000
(b) Short-term provisions 50,000 77,000

19,69,000 17,51,000
TOTAL

II. Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible 2 10,70,000 8,50,000
(ii) Intangible 3 40,000 1,12,000
(2) Current assets
(a) Current investments 2,40,000 1,50,000
(b) Inventories 1,29,000 1,21,000
(c) Trade receivables 1,70,000 1,43,000
(d) Cash and Cash Equivalents 3,20,000 3,75,000

19,69,000 17,51,000
TOTAL

Notes to Accounts:
S.n Particulars 2017-18 2016-17
o
Reserves and surplus:
1 Balance in statement of profit and loss 3,00,000 2,00,000

52
 Tangible assets:
2 Machinery 12,70,000 10,00,000
Less: Accumulated depreciation (2,00,000) (1,50,000)
Intangible assets:
3 Goodwill 40,000 1,12,000

Additional information:
During the year a piece of machinery costing Rs.24,000 on which
accumulated depreciation was Rs. 16,000, was sold for Rs. 6,000.
Prepare cash flow statement.

10 From the following Balance Sheet of Max Ltd., Prepare a Cash Flow
Statement. .
BALANCE SHEET OF MAX [Link] ON 31ST MARCH 2019
Particulars Notes 31st March 31st March
no. 2019 2018
I. EQUITY AND LIABILITIES
1. Shareholders’ fund
(a) Share capital 1 1,70,000 92,000
(b) Reserve and surplus 2 34,000 48,000
2. Noncurrent Liabilities
(a) Long term borrowings 3 36,000 40,000
Total 2,40,000 1,80,000
II. ASSETS
1. Fixed Assets
(a) Tangible assets 4 1,40,000 1,00,000
2. Current Assets
(a) Inventories 50,000 42,000
(b) Trade receivable 38,000 28,000
(c) Cash and cash equivalent 12,000 10,000
Total 2,40,000 1,80,000
Notes to accounts:-
Notes Particulars 31st March 31st March
No. 2019 2018
1 share capital:-
Equity Share capital 1,50,000 80,000
8%Preference Share Capital 20,000 12,000
Total 1,70,000 92,000
2 Reserve and Surplus:-
General Reserve 20,000 14,000
Statement of Profit and Loss 14,000 34,000
Total 34,000 48,000
3 Long term borrowings 36,000 40,000
4 Machinery 1,40,000 1,00,000

53
 Additional information: During the year machinery costing
Rs.16,000 was sold for Rs. 10,000. Dividend was paid Rs.16,000.

11 From the following Balance Sheets of Vijay Ltd. as at 31-03-3016 and 31-
03-2015, prepare a Cash Flow Statement: [6]
Particulars Note 31-03-2016 03-2015
No.
I EQUITY AND LIABILITIES : 31-
[1] Shareholder’s Funds :
[a] Share Capital 1,05,000 75,000
[b] Reserve & Surplus 1 85,000 50,000
[2] Current Liabilities :
[a] Short-term Borrowings 2 25,000 15,000
[b] Trade Payables 3 22,000 17,400
2,37,000 1,57,400
II ASSETS
[1] Non-Current Assets :
Fixed Tangible Assets 1,66,000 93,400
[2] Current Assets :
[a] Inventory 27,000 24,000
[b] Trade Receivables 4 39,000 36,000
[c] Cash and Cash Equivalents 5,000 4,000
2,37,000 1,57,400

Notes : 31-03-2016 31-03-2015

[1] Reserves & Surplus :
General Reserve 55,000 30,000
Balance of Statement of Profit & Loss 30,000 20,000
85,000 50,000
[2] Short-term Borrowings :
Bank Overdraft 25,000 15,000
[3] Trade Payables :
Sundry Creditors 20,000 14,000
Bills Payables 2,000 3,400
22,000 17,400
[4] Trade Receivables :
Sundry Debtors 36,000 36,000
Bills Receivables 3,000 --------
39,000 36,000
Additional Information :
I Depreciation charged on Fixed Tangible Assets for the year 2015-16
was Rs. 20,000.
II Income Tax Rs. 5,000 has been paid during the year.

12 Prepare a cash flow statement from the following balance sheet:

54
 Particulars Note 31st March 31st March
No. 2018 2017
(Rs.) (Rs.)

[Link] AND LIABILITIES

1. Shareholders‘ Funds
(a)Share Capital 6,00,000 5,00,000
(b) Reserve and Surplus 1 4,00,000 2,00,000
2. Current Liabilities
Trade payables 2,80,000 1,80,000

12,80,000 8,80,000

3. Assets
(i)Non current assets:
(a)Fixed assets
( i)Plant and machinery 5,00,000 3,00,000
(ii)Current assets:
a)Inventories 1,00,000 1,50,000
b)Trade receivables 6,00,000 4,00,000
c)Cash and cash equivalents 80,000 30,000
Total 12,80,000 8,80,000

Notes to accounts:
Particulars 31-03-2018 31-03-
(Rs.) 2017(Rs.)
1. Reserve and Surplus:
Surplus (Balance in statement of Profit and Loss) 4,00,000 2,00,000
Additional information:

55
 i)An old machinery having book value of Rs 50,000 was sold for Rs 60,000.
ii)Depreciation provided on machinery during the year was Rs 30,000.

LATE BOOMERS (MLL)

1-PARTNERSHIP — FUNDAMENTALS

Q1.P Gagan, a partner in a partnership firm withdrew 10,000 in the beginning of each
quarter. For how many months would interest on drawings be charged ?
(A) 6 months
(B) 6·5 months
(C) 7·5 months
(D) 4·5 months

[Link] of the following is a charge against profit ?

(A) Interest on Partners' Loan
(B) Partners' Salary
(C) Interest on Partners' Capital
(D) Interest on Partners' Drawings
[Link] the absence of a —---------- —------- , mutual relations between partners are governed by the
Indian Partnership Act, 1932.

[Link]-profit is equal to —---- —-------

(A) Actual Profit - Normal Profit
(B) Normal Profit -; Actual Profit
(C) Average Profit - Net Assets
(D) Assets - Outside Liabilities

Q.5. P, Q and R were partners in a firm sharing profits and losses in the ratio of 5 :3 :2. The
partnership deed provides for charging interest on drawings@ 10% p.a. The drawings of P, Q and R
during the year ending 31st March, 2024 amounted to 20,000, 30,000 and 50,000 respectively. After the
final accounts have been prepared, it was discovered that interest on drawings had not been charged.
Pass the necessary adjustment entry to rectify the omission of interest on drawings. Also show your
working notes clearly.

Q.6. W, X and Y were partners sharing profits and losses in the ratio of 2 :2 : 1. X was
guaranteed a profit of 10,00,000. The firm earned a profit of 17,50,000 for the year ended 31st March,

56
2024 Prepare the Profit and Loss Appropriation Account of W, X and Y for the year ended 31st March,
2024.

Q.7. State whether the claim is valid if the partnership deed is silent in the following cases,
give reason in support of your answer :
(i) Anil and Priya are partners in a firm. Anil had advanced a loan to the firm. He claims interest @ 9%
p.a.
(ii) S and V are partners in a firm. S wants interest on capital @ 8% p.a.

Read the following hypothetical situation and answer questions number 8 and 9 on the basis of the
given information :
Kavita, Savita and Madhu were partners in a firm with capitals of ₹6,00,000, ₹4,00,000 and ₹2,00,000
respectively. After providing interest on capital @ 10% p.a., the profits are divided as follows :
Kavita 1/3 Savita1/2 and Madhu 1/6. Kavita personally guaranteed that Savita‘s share of profit after
charging Interest on capital would not be less than ₹1,00,000 in any year.

Q.8 The profit for the year ending 31st March, 2024 amounted to ₹3,00,000 before providing interest on
capital.

(a) ₹ 40,000 (b) ₹70,000

(c) ₹20,000 (d) ₹10,000

Q.9 The total profits of the firm after adjustment of guaranteed amount will be distributed between the
partners as :
(a) Kavita 60,000, Savita 40,000 and Madhu 20,000
(b) Kavita 50,000, Savita 1,00,000 and Madhu 30,000
(c) Kavita 60,000, Savita 90,000 and Madhu 30,000
(d) Kavita 60,000, Savita 1,00,000 and Madhu 20,000.

Q.10 On 1st April, 2024, the capital of the firm of Ashu and Madhav is 1,50,000. The normal rate of
return on capital employed is 10%. Average profit of the firm is 23,500. Calculate goodwill of the firm
based on three years purchase of super profits.

Q.11 Rakshit and Malik are partners in a firm sharing profits and losses in the ratio of 4 : 1. On 1st April,
2023 their capitals were 1,20,000 and 80,000 respectively. On 1st December, 2023, they decided that the
total capital of the firm should be 3,00,000 to be contributed by them in the ratio of 2 : 1.
According to the partnership deed, interest on capital is allowed to the partners @ 6% p.a. Calculate
interest on capital to be allowed for the year ending 31st March, 2024.

Q.12 P and Q were partners in a firm sharing profits and losses in the ratio of 2 : 1. On 01.04.2023, they
admitted R as a new partner for 1/10th share of profits with a guaranteed minimum of 50,000. P and Q
continued to share profits as before but agreed to share any deficiency on account of guarantee to R in the
ratio of 3 : 2. The net profit of the firm for the year ended 31.03.2024 was 3,00,000.
Pass necessary journal entries in the books of P and Q for the above transactions.

57
 2-CHANGE IN PROFIT SHARING RATIO
Q. No. Marks

1 Akbar and Birbal were partners in a firm sharing profit and losses in the ratio of 3:5. With 1
effect from 1st April 2023, they agreed to share profit or loss is equally. Due to change in
profit, sharing ratio, Akbar‘s gain or sacrifice will be:

A. Gain 3/8 B. Gain 1/8

C. Sacrifice 3/8 D. Sacrifice 1/8

2 A and B share profit and losses in the ratio of 3:2 with effect from 1st January 2023. They 1
agree to share profits, equally. sacrificing ratio and gaining ratio will be:

A. Sacrifice by A 1/10, sacrifice by B 1/ 10

B. Gain by A 1/10, gain by B 1/10

C. Sacrifice by A 1/10, gain by B 1/ 10

D. Gain by A 1/10, sacrifice by B 1/ 10

3 Match the following in the case of change in profit sharing ratio. 1

1. Ratios in which partner share profit and losses A. New profit-sharing ratio
before reconstitution of firm

2. Ratio in which partner surrender their share of B. Gaining ratio

profit in favour of other partners.

3. Ratio in which all the partners share, future profit

and losses.
C. Sacrificing ratio
4. The ratio in which partners acquired the share from D. Old ratio

58
 others.

A. 1:D, 2:C, 3: B, 4: A

B. 1:D, 2:C, 3: A, 4: B

C. 1:C, 2:D, 3: A, 4: B

D. 1:C, 2:D, 3: B, 4: A

4 Accumulated profit/losses are transferred to the capital accounts of old partners in 1

A. New profit–sharing ratio

B. Old profit-sharing ratio

C. Capital ratio

D. None of the above

5 R and S are partners in a firm, sharing profits and losses in the ratio of 3:2. On 31st March, 3
2024 their Balance Sheet was as under:

Balance Sheet as at 31st March 2024

Liabilities Amt (₹) Assets Amt (₹)

Sundry creditors 13,800 Furniture 16,000

General Reserve 23,400 Land & Building 56,000
Investment
Investment Fluctuation Fund 20,000 30,000
Trade receivables
R‘s capital 50,000 18,500
Cash in hand
S‘s capital 40,000 26,700

1,47,200 1,47,200

The partners have decided to change their profit-sharing ratio to 1:1 with immediate effect.
For this purpose, they decided that:

(a) Investments to be valued at ₹ 20,000

59
 (b) Goodwill of the firm valued at ₹ 24,000

(c) General reserve not to be distributed between the partners. You are required to pass
necessary journal entries in the books of the firm. Show workings.

6 On 1st April 2024, an existing firm had assets of 10,00,000 including cash of 20,000. Its 3
creditors amounted to 50,000 on that date. The partner‘s capital accounts showed a balance
of 8,00,000 while the reserve fund amounted to 1,50,000. If the normal rate of return is
15% and the goodwill of the firm is valued at 1,80,000 at 3 year‘s purchase of super profit,
find the average profits of the firm.
7 A & B were in partnership sharing profits in the ratio of 2:3. With effect from 1st May, 3
2024 they agreed to share profits in the ratio of 1:2. For this purpose, the goodwill of the
firm is to be valued at 1.5 years purchase of the average profit of last three years which
were 1,90,000, 30,000(loss) and 2,00,000 respectively. Reserves appear in the books 1,
20,000. Partners do not want to distribute the reserves. You are required to give effect to
the change, by passing a single Journal Entry.
8 S and T are partners in a firm sharing profit and losses in the ratio of 3:2. On 31st March 3
2024, their balance sheet was as under: -
Liabilities Amount ` Assets Amount

Sundry creditors 1,50,000 Land and building 3,00,000

General reserve 60,000 Investments 2,00,000
Profit and loss a/c Investment 80,000 Sundry Debtors 1,10,000
fluctuation reserve 50,000 Cash in hand 30,000
Capital accounts
S 1,50,000
T 1,50,000
3,00,000
6,40,000 6,40,000

The partners decided that with effect from 1st April 2024, they would share profit and
losses equally. You are required to answer the following alternate questions.

(i) If investments are valued at ` 1,70,000 then

(a) Credit S and T by `10,000 each.
(b) Debit S and T ` 15,000 each.
(c) Credit S by `12,000 and T by `8000.

60
 (d) Debit S by `18,000 and T by `12,000.

(ii) If goodwill is valued at 1,00,000 then.

(a) Debit S by `10,000 and Credit T by `10,000.
(b) Debit T by ` 10,000 and Credit S by `10,000.
(c) Credit S by `60,000 and T by `40,000.
(d) Credit S & T by `50,000 each.

(iii) If General reserve appearing in the balance sheet at `60,000 is not to be distributed,
then.
(a) Credit S & T by `30,000 each.
(b) Debit T by `6000 and Credit S by ` 6000.
(c) Debit S by ` 6000 and Credit T by `6000.
(d) Credit S by ` 36,000 and T by `24,000.

9 S, T and U were partners sharing profits in the ratio of [Link], decided to share future profits 4
in [Link]. On this date firm had assets of `3,80,000 including cash of `20,000. The partners‘
capital account showed a balance of `3,00,000 and reserves constituted the rest. Normal
date of return is 10% and Goodwill of the firm is valued at `75,000 at three years purchase
of super profits. On the basis of the above type of information, answer the following: -
(i) Normal profit of the firm is
(a) `30,000 (b)` 38,000 (c) `36,000 (d) ` 40,000.
(ii)Super profit will be
(a) `2,25,000 (b) ` 13,000 (c) ` 25,000 (d) ` 75,000.
(iii) Average Profit will be
(a) `13000 (b) `38,000 (c) ` 25,000 (d) ` 63,000.
(iv) For adjustment of goodwill.
(a) Dr. U by ` 22,500; Credit S by `15,000; Credit T by `7,500.
(b) Dr. U by ` 22,500; Credit S by `5,000; Credit T by ` 17,500.
(c) Cr. U by ` 22,500; Debit S by `17,500; Debit T by `5,000.
(d) Dr. U by ` 22,500; Credit S by `17,500; Credit T by `5,000.

10 A and B were partners sharing profits equally. Since P was devoting more time to the 4
st
business it was agreed that profit sharing ratio will be charged to 2:1 from 1 April 2024.
Following balances have been extracted from their books on this date:

61
 Capitals: A `5,00,000
B `3,00,000
General reserve `90,000
Profit & loss a/c (Dr.) `30,000
It is agreed between the partners that:
(i) Goodwill should be valued at `1,20,000.
(ii) Profit and loss account (Dr.) balance is to be carried forward.
(iii) Furniture (book value `50,000) be reduced to `30,000.
(iv) Computers (book value `1,00,000) be reduced by `60,000.
Based on the above information, choose the correct option.

(i) In respect of profit and loss (Dr.) balance.

(a) Debit A & B by `15,000 each.
(b) Debit A by `20,000 and B by `10,000.
(c) Debit A by ` 5000 and Credit B by `5000.
(d) Credit A by `5000 and Debit B by `5000.
(ii) Loss on revaluation will be.
(a) `90,000 (b) `60,000 (c) ` 80,000 (d) ` 70,000
(iii) In respect of goodwill:
(a) Credit A and B by `60,000 each.
(b) Credit A by `40,000 and B by `20,000.
(c) Debit A by `20,000 and Credit B by `20,000.
(d) Credit A by `20,000 and Debit B by `20,000.
(iv) Balance of A‘s capital account will be:
(a) `4,45,000 (b) `4,90,000 (c) `4,80,000 (d) ` 5,30,000
11 A, B and C were partners in a firm sharing profits and losses in the ratio of [Link]. Their 6
Balance Sheet as at 31st March 2024 was as follows:

Liabilities Amount Assets Amount

Creditors 12,00,000 Plant & Machinery 14,80,000

2,00,000
General Reserve Stock 2,20,000
Capitals:
Sundry debtors 2,60,000
A :3,00,000
(-) Provision for doubtful debts
B :2,00,000 (20,000)
2,40,0000

62
 C :1,00,000 6,00,000 Bank 60,000

20,00,000 20,00000

A, B and C decided to share future profits equally with effect from 1st April 2023. For this,
it was agreed that:

(i) Goodwill of the firm be valued at ₹ 1,50,000

(ii) Bad debts amounted to ₹ 40,000. A provision for doubtful debts was to be
made @ 5% on debtors.
Pass the necessary journal entries to record the above transactions in the books of the
firm.

12 Calculate the value of Goodwill on the basis of three years purchase of the weighted 6
average profits of the last five years. Profits to be weighted 1,2,3,4 and 5, the greatest
weight to be given to last year. Profits of the last five years were: -
Year ended
31st March 2018: Profit `80,000.
31st March 2019: Profit `1,05,000(after considering abnormal loss of 41,500.)
31st March 2020: Loss `20,000(after considering salary to employees of ` 40,000)
31st March 2021: Profit ` 1,80,000.
31st March 2022: Profit ` 2,00,000.
Books of the accounts of the firm revealed that: -
(i) Closing stock as on 31st March 2018 was overvalued by `40,000.
(ii) Repairs to machinery `60,000 were wrongly debited to machinery account on 1st

July 2020. Depreciation was charged on machinery @ 20% on diminishing

balance method.

63
 3-ADMISSION OF A PARTNER
Q-1 When the balance sheet is prepared after the new partnership agreement, the assets and
liabilities are recorded at:
(A) Historical cost
(B) Current cost
(C) Realisable value
(D) Revalued figures
Q-2-Goodwill of a firm of A and B is valued at ₹30,000. It is appearing in the books at ₹12,000.
C is admitted for 1/4 share. What amount he is supposed to bring for goodwill?
(A) ₹3,000
(B) ₹4,500
(C) ₹7,500
(D) ₹10,500
Q -3. X and Y are partners sharing profit in the ratio of 3: 2. Z was admitted with 1/4 share in
profits which he acquires equally from X and Y. The new ratio will be:
(A) 9 : 6 : 5
(B) 19 : 11 : 10
(C) 3 : 3 : 2
(D) 3 : 2 : 4
Q 4-A and B share profits and losses equally. They have ₹20,000 each as capital. They admit C
as equal partner and goodwill was valued at ₹30,000. C is to bring in ₹30,000 as his capital and
necessary cash towards his share of goodwill. Goodwill Account will not remain open in books.
If profit on revaluation is ₹13,000, find the closing balance of the capital accounts.
(A) ₹31,500; ₹31,500; ₹30,000
(B) ₹31,500; ₹31,500; ₹20,000
(C) ₹26,500; ₹26,500; ₹30,000
(D) ₹20,000; ₹20,000; ₹30,000
Q 5-A, B and C are partners sharing profits in the ratio of [Link]. They decide to admit Mr D as a
partner and his share is 1/3. Calculate NR and SR.

Q -6-A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to
admit C into partnership with 1/4 share in profits. C will bring in Rs. 30,000 for capital and the
requisite amount of goodwill premium in cash. The goodwill of the firm is valued at Rs, 20,000.

64
The new profit-sharing ratio is [Link]. A and B withdraw their share of goodwill. Give necessary
journal entries?

Q 7-Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2024
they admitted Ranjan as a partner. On Ranjan‘s admission the profit and loss account of Amit and
Viney showed a debit balance of Rs. 40,000.
Record necessary journal entry for the treatment of the same.

Q 8-Vijay and Sanjay are partners in a firm sharing profits and losses in the ratio of 3:2. Their
capital is Rs3,00,000, and 2,00, [Link] decide to admit Ajay into partnership with 1/4 share in
profits. Ajay brings in Rs. 30,000 for capital and the requisite amount of premium for goodwill in
cash. The goodwill of the firm is valued at Rs. 20,000. The new profit sharing ratio is [Link].
Vijay and Sanjay withdraw their share of goodwill. Show in partners‘ capital account.

Q.9 X and Y are partners as they share profits in the proportion of 3:1 their balance sheet as at
31.03.2024 as follows.
BALANCE SHEET
Liabilities Rs. Assets Rs.
Capital Account Land 1,65,000
X 1,76,000 Furniture 24,500
Y 1,45,200 Stock 1,32,000
Creditors 91,300 Debtors 35,000
Bills Receivable 28,500
Cash 27,500
4,12,500 4,12,500
On the same date, Z is admitted into partnership for 1/5th share on the following terms
1-Goodwill is to be valued at Rs 60,000.Z brings his share of goodwill and Capital Rs 1,00,000.
2-Stock is found to be overvalued by Rs. 2,000 Furniture is to be reduced and Land to be
appreciated by 10% each, a provision for Bad Debts @ 5% is to be created on Debtors.
3-A liability to the extent of Rs. 1,500 should be created for a claim against the firm for damages.
4-An item of Rs. 1,000 included in Creditors is not likely to be claimed, and hence it should be
written off.

65
 Prepare Revaluation Account, Partners: Capital Accounts.

Q.10- Dinesh, Yasmine and Faria are partners in a firm, sharing profits and losses in [Link]
respectively. The Balance Sheet of the firm as on 31st March 2024 was as follows:
Liabilities Rs. Assets Rs.
Sundry Creditors 800 Factory 7,350
Public Deposits 1,190 Plant & Machinery 1,800
Reserve fund 900 Furniture 2,600
Capital A/c Stock 1,450
Dinesh 5,100 Debtors Rs. 1,500
Yasmine 3,000 Less: Prov B/D Rs. 300 1,200
Faria 5,000 Cash in hand 1,590
15,990 15,990
On the same date, Annie is admitted as a partner for one-fifth share in the profits with Capital of
Rs. 4,500 and necessary amount for his share of goodwill on the following terms:-
a. A Liability of Rs. 1,670 is created against Bills discounted.
b. Goodwill of the firm is to be valued at 2.5 years' purchase of average profits of 2 years.
The profits are as under: 2000:- Rs. 2,000 and 2001 - Rs. 6,000.
c. Furniture and Public Deposits are revalued to Rs. 2,000 and Rs. 1,020 respectively.
Prepare Revaluation Account, Partners' Capital Accounts

Q 11- Bhuvneshwar, Jaspreet and Hardik are the partner sharing profits and loss in the ratio of [Link]. On 31st
march, 2024 their balance sheet was:
BALANCE SHEET (31ST MARCH, 2024)
Liabilities Amount Assets Amount
Capital a/c‘s:- Cash at bank 18,000
Bhuvneshwar 36,000 Bill receivable 24,000
Jaspreet 44,000 Furniture 28,000

66
 Hardik 52,000 1,32,000 Stock 44,000
Creditors 64,000 Debtors 42,000
Employee‘s provident fund 32,000 Investment 32,000
Profit and loss a/c 14,000 Machinery 34,000
Goodwill 20,000
2,42,000 2,42,000

They admitted Shami into partnership on the following terms :

1- Furniture, investment and machinery to be depreciated by 10%.
2-Shami bring in Rs 36,000 towards capital and required amount Rs 12000 for goodwill
for1/6 share
3. 50% Investment taken by old partners.
Prepare revaluation account, partner‘s capital account.

[Link] and Alok were partners in a firm sharing profits and losses in the ratio 3:2. On 31st
March, 2024, their balance sheet was as follows:

BALANCE SHEET (31ST MARCH, 2024)

Liabilities Amount Assets Amount
Creditors 60,000 Cash 1,66,000
WCR 60,000 Debtors –1,46,000
Capital- Provision-2000 1,44,000

Sanjana-5,00,000 Stock 1,50,000

Alok -4,00,000 9,00,000 Investment 2,00,000
Furniture 3,00,000

67
 10,20,000 10,20,000

On 1st April, 2024, they admitted Nidhi as a new partner for 1 /4th share in the profits on the
following terms
(i) Goodwill of the firm was valued at ₹ 4,00,000 and Nidhi brought the necessary amount in
cash for her share of goodwill premium, half of which was withdrawn by the old partners.
(ii) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(iii) Investments were to be value at ₹ 3,00,000. Alok took over investment at this value.
(iv) Nidhi brought ₹ 3,00,000 a her capital and the capitals of Sanjana and Alok were adjusted in
the new profit sharing ratio.
Prepare revaluation account, partners‘ capital accounts and the balance sheet of the reconstituted
firm on Nidhi‘s admission.

68
 4-Retirement and Death of Partner
1 mark questions
Q1:- A, B and C were partners sharing profits in the ratio of 4 : 5 : 3, C retired and continuing
partners decided to share future profits in the ratio of 7:8. Gaining ratio will be:
(a) 8 : 7 (b) 4 : 5 (c) 1 : 1 (d) 2 : 1
Q2:- X, Y and Z are partners in a firm. Y retires and his claim including his capital and his share
of goodwill is R. 1,20,000. He is paid partly in cash and partly in kind in the ratio of 2:1. The
amount of cash to be paid to Y will be:
(a) Rs. 80,000 (b) Rs. 60,000 (c) Rs. 40,000 (d) Rs. 30,000
Q3:- As per Section 37 of the Indian Partnership Act, 1932, the executors would be entitled at
their choice to the interest calculated from the date of death till the date of payment on the final
amount due to the dead partner at ________ percentage per annum.
(a) 7. (b) 4 (c) 6. (d) 12.
Q4:- An account operated to ascertain the loss or gain at the time of death of a Partner is called
(a) Realisation Account (b) Executors Account (c) Revaluation Account (d) Deceased Partners
capital account

3 and 4 marks questions

Q5:- X, Y and Z are partners sharing profits in the ratio of 5 : 3 : 2. Y retires on 1st April, 2024
from the firm, on which date capitals of X, Y and Z after all adjustments are Rs.1,03,680, Rs.
87,840 and Rs. 26,880 respectively. The Cash and Bank Balance on that date was Rs. 9,600. Y is
to be paid through amount brought in by X and Z in such a way as to make their capitals
proportionate to their new profit-sharing ratio which will be 3:2. Calculate the amount to be paid
or to be brought in by the continuing partners assuming that a minimum Cash and Bank Balance
of Rs. 7,200 was to be maintained. Also pass the necessary journal entries.
Q6:- X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 :1. Z retires
from the firm on 31st March, 2018. On the date of Z's retirement, the following balances
appeared in the books of the firm: General Reserve Rs. 1,80,000 Profit and Loss Account (Dr.)
Rs. 30,000 Workmen Compensation Reserve Rs. 24,000 which was no more required
Employees' Provident Fund Rs. 20,000. Pass necessary journal entries for the adjustment of these
items on Z's retirement.

69
Q7:- Ajit and Bijit are in partnership sharing profits and losses in the ratio of 3: 2. Bijit died three
months after the date of the last Balance Sheet prepared on 31.03.2024. According to the
Partnership Deed, Bijit‘s representative is entitled to the following payments:
a) His capital as per the last Balance Sheet.
b) Interest on above capital @ 6% p.a. till the date of death.
c) His share of profits till the date of death calculated on the basis of last year‘s profits.
Bijit‘s capital as per the last Balance Sheet was Rs. 40,000 and his drawings till the date of death
were Rs. 5,000. The last year‘s profits were Rs. 30,000. Draw Bijit‘s Account to be rendered to
his legal representative.
Q8:- Carrot, Radish and Turnip were partners sharing profits in ratio of [Link]. Radish met an
accident on 11 June 2024 and died. The books of accounts are closed on 31st December every
year. Sales for the year ending 31st December, 2023 was Rs.10,00,000, Gross profit was
Rs.1,00,000. Firm‘s sales during 1st January, 2024 to 11 June, 2024 was Rs.4,50,000. According
to partnership deed share in profit of deceased partner was to be calculated on the basis of Sales
to Net profit ratio. Calculate deceased partners share in profit and pass related journal entry.

6 marks questions
Q9:- Bhavin, Ankit and Kartik were equal partners. Their Balance Sheet as at 31st March 2024
was : BALANCE SHEET as at 31st March, 2024
Liabilities Amount Assets Amount
Creditors 60,000 Cash 18,000
15,000
Reserve 30,000 Stock
15,000
Investment Fluctuation Fund 6,000 Investment (Market Value Rs.8,000)
Workmen Compensation
10,000
Reserve
28,000
Furniture
Capital A/c :
Debtors 45,000
Bhavin : 60,000
Less : Provision for Bad debts
Ankit : 40,000
5,000 40,000
1,30,000
Kartik : 30,000
Land & Building 1,20,000
2,36,000 2,36,000
Ankit retired on 1st April, 2024. Bhavin and Kartik decided to continue the business as equal
partners on the following terms:
a) Goodwill of the firm was valued at Rs. 30,000.

70
b) Bad debts amounted to Rs.1,000. The Provision for Bad Doubtful debts to be maintained @
10 % on Debtors.
c) Land and Buildings to be increased to Rs. 1,40,000.
d) Furniture to be reduced by Rs. 6,000.
e) There was a claim of Rs.4,000 on account of workmen compensation.
f) Rent outstanding (not provided for as yet) was Rs. 1,500. Pass necessary journal entries on
retirement of Ankit.

Q10:- The Balance Sheet of A,B and C who are partners in a firm sharing profits in the ratio of
[Link] as at 31st March, 2024 was as follows:
Liabilities Amount Assets Amount
Sundry Creditors 1,22,000 Building 2,00,000
General Reserve 40,000 Machinery 1,00,000
Capitals A/cs Stock 36,000
A 1,60,000 Debtors 40,000
40,000
B Less: Provision for Bad Debts 38,000
40,000
2,000
C
Cash at Bank
28,000
4,02,000 4,02,000
On that date B decided to retire from the firm subject to the following:
(a) Buildings to be appreciated by 20%.
(b) Provision for Bad Debts to be increased to 15% on Debtors.
(c) Goodwill of the firm is valued at Rs.1,44,000 and the retiring partner‘s share is adjusted
through the capital accounts of remaining partners.
(d) Machinery to be depreciated by 20%.
(e) Capital of the new firm in total will be Rs. 2,40,000 and will be in the new profit-sharing ratio
of the continuing partners.
Prepare Revaluation Account and Capital Accounts of the partners after retirement.

71
Q11:- A, B and C were partners in a firm sharing profits in the ratio of [Link]. On 31-03-2024
their Balance Sheet was as follows:
Balance Sheet as on 31-03-2024
Liabilities Amount Assets Amount
Sundry Creditors 22,000 Buildings 40000
General Reserve 12,000 Machinery 60000
Capitals A/cs Stock 20000
A 60,000 Patents 22000
B 50,000 Debtors 16000
C 30,000 Cash 16000
174000 174000
A died on 01-10-2024. It was agreed between his executors and the remaining partners that:
(a) Goodwill to be valued at 2.5 years purchase of the average profits of the previous four years,
which were 2020-21- Rs.26000; 2021-22- Rs. 24000; 2022-23- Rs. 40000; 2023-24- Rs. 30000.
(b) Patents to be valued at Rs. 16000; Machinery at Rs.56000; and buildings at Rs.50000.
(c) Profit for the year 2024-25 be taken as having accrued at the same rate as that of the
previous year.
(d) Interest on capital be provided at 10% p.a.
(e) Half of the amount due to A to be paid immediately to the executor and the balance
transferred to his executor‘s loan account.
Prepare A‘s Capital account and A‘s Executor‘s Account as on 01-10-2024.
Q12:- A, B and C were partners in a firm sharing profits and losses equally. Their Balance Sheet
as at 31 December, 2018 is given below:

Liabilities Amount Assets Amount

Sundry Creditors 5,000 Plant & Machinery 20,000
General Reserve 15,000 Cash 3,000
Capitals A/cs Stock 10,000
A 20,000 Debtors 15,000

72
B 15,000 Investments 12,000
C 5,000
60000 60000

B died on 31/5/2018. The partnership deed provides that the representatives of all the
deceased partner shall be entitled to:
(a) Deceased partners capital as appearing in the last Balance Sheet.
(b) Interest on Capital @6% p.a. up-to the date of death.
(c) B had drawing Rs.2,200 per month which he drew at the beginning of each month. He is
allowed to retain these drawings as a part of his share of profit. Interest on these
drawing is to be charged @ 6% p.a
(d) His share of any reserve as per last Balance Sheet.
(e) His share in profit based on last year profit plus 10%. Last year profit was Rs.65,000.
This profit includes Rs7,000 loss by fire.
(f) The firm sold investments for Rs.15,000.
(g) It was decided that after keeping a cash balance of Rs.6,000, entire cash was paid to B‘s
executors and balance was treated as loan.
Prepare B‘s capital account and B‘s executor account.

73
 5 - DISSOLUTION OF PARTNERSHIP FIRM

Q1- On dissolution of partnership firm, what entry is passed if a partner takes over an asset of
the firm valued ₹10,000 at ₹6,000 ? (1)
Q2- On the basis of following data, on dissolution of firm, how much final payment to a partner
of firms will be made?
Debit balance of his capital account ₹14,000. Share of his profit on realisation ₹43,000. Firm‘s
asset taken over by him for ₹17,000. (1)
Q3- Assertion (A). (1)
Loan from a partner is not transferred to realisation account.
Reason (R )
Loan from a partner is not an outside liability. It is paid prior to repayment of capitals of
partners.
In the context of the above two statements which of the following is correct:
Codes:-
(A) Both (A) and (R ) are true, but (R ) is not the correct explanation of (A).
(B) Both (A) and (R ) are true and (R ) is the correct explanation of (A).
(C) Both ((A) and (R ) are false.
(D) (A) is false but (R ) is true.
Q4- When a creditor takes over an asset whose value is less than the amount due to him in full
settlement of his claim, what entry shall be passed? (1)
Q5- Jain, Sharma and Verma were partners in a firm sharing profits in the ratio of [Link]. On 31st
March, 2018 their firm was dissolved. It was agreed that Sharma will look after the dissolution
work and will be paid ₹15,000 as remuneration. The dissolution expenses were ₹5,000.
₹2,84,000 were paid to the creditors in full settlement of their claim of ₹3,00,000. Dissolution

74
of the firm resulted in to a loss of ₹18,000. Pass necessary journal entries for the above
transactions. (3)
Q6- Mahesh and Nandi were partners sharing profits in the ratio of 3:2. Pass journal entries
under following situations at the time of dissolution of firm. (3)
(I) Workmen Compensation Reserve is stood at ₹ 1,00,000 and liability in respect of it was
ascertained at ₹75,000
(II) Workmen Compensation Reserve is stood at ₹1,00,000 and liability in respect of it was a
certain at ₹1,20,000
(III) Workmen Compensation Reserve is stood at ₹1,00,000 and liability in respect of it was
ascertain at ₹1,00,000.
Q7- Pass necessary journal entries in the following cases on the dissolution of a partnership firm.
(3)
(I) Realisation expenses of ₹5,000 were to borne by X a partner. However it was paid by Y.
(II) Y‘s loan of ₹ 50,000 settled at ₹48,000.
(III) Machinery (Book Value₹ 6,00,000) was given to a creditor at a discount of 20%.
Q8- A and B who were sharing profit and losses in the ratio of 60% and 40% respectively,
decided to dissolve the firm on 31st March 2024. On which date some of the balance were as
follows. (4)

A Capital 2,40,000

B Capital (Dr. Balance) 25,000

Profit & Loss A/C (Debit Balance) 30,000

Trade Creditors 40,000

Loan from Mrs.A 20,000

Cash at Bank 15,000

75
The assets (Other than cash at bank) realised ₹1,90,000 and all creditors were paid off less 5%
discount. Realisation expenses amounted to ₹4,000. Prepare Realisation Account.
Q9- A and B were partners in a firm sharing profit and losses equally. Their firm was dissolved
on 15th of March 2023, which resulted in a loss of ₹30,000. On that date the capital account of
A showed a credit balance of ₹20,000 and that of B a credit balance of ₹30,000. The cash
account had a balance of ₹20,000. You are required to pass the necessary journal entries for the
(4)
(I) Transfer of loss to the capital accounts of the partners and
(II) Making final payment to the partners.
Q10- Pass necessary journal entries on the dissolution of a partnership firm in the following
cases. (4)
(I) Expenses of realisation ₹ 8,000.
(II) Expenses of realisation ₹10,000 were paid by a partner.
(III) Realisation expenses of ₹12,000 were to be met by Tushar, a partner but were paid by the
firm.
(IV) Suresh, a partner was paid remuneration of ₹10,000 and he was to meet all expenses.
Q11- G and M were partners in a firm sharing profits and losses in the ratio of 3:2. On 31st
March 2022, their balance sheet was as follows. (4)

Liabilities ₹ Asset ₹

Creditors 50,000 Bank 75,000

Outstanding Expenses 45,000 Other Current Assets 4,80,000
Provision for D/D 5,000 Machinery 7,00,000
9% Loan 15,00,000 Land & Building 15,00,000
Capital Patents 10,000
G 6,00,000 Profit and Loss 15,000
M. 7,00,000 13,00,000 Goodwill 1,20,000
29,00,000 29,00,000

76
 . .

On the above date, the firm was dissolved other current assets released 10% less. Machinery
was sold at it's book value. 9% loan was discharged together with unrecorded interest of ₹
1,35,000. Expenses on dissolution amount it to ₹ 10,000. Prepare Realisation Account.
Q12- Girija and Ganesh were partners uniform sharing profits and losses in the ratio of 2:3 on
31st March 2017 their balance sheet was as follows. (6)

Liabilities ₹ Assets ₹

Creditors 80,000 Cash at Bank 20,000

Bank overdraft 50,000 Debtors 55,000
Girija brothers loan 77,000 (-)Provision for D/D. 2,000 53,000
Ganesh loan 28,000 Stock 78,000
Investment fluctuation fund 15,000 Investments 89,000
Capital Building 2,45,000
Girija 1,50,000 Accrued interest 5,000
Ganesh. 1,00,000 2,50,000 Profit and Loss 10,000
5,00,000 5,00,000
.

On the above date the firm was dissolved. The assets were released and the liabilities were paid
of as follows:-
(1) Debtors of ₹6,000 were proved bad.
(2) Girija agreed to pay off her brother's loan.
(3) One of the creditors for ₹10,000 was paid only ₹3,000 in full settlement of his account
(4) Buildings were auctioned for ₹18,0000 and the auctioneer commission amounted to ₹8,000.
(5) Ganesh took over part of the 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.

77
(6) Investments released ₹9,000 less
(7) Realisation expenses amounted to ₹17,000 and were paid by Ganesh.
Prepare Realisation Account.

6-ACCOUNTING FOR SHARE CAPITAL

[Link] QUESTIONS MARKS

1 Maximum amount of discount allowed at the time of reissue of forfeited 1
shares should not exceed the --------------amount.
2 A Ltd. forfeited 200 equity shares of ₹ 10 each on which ₹ 6 was paid 1
(including ₹ 1 premium). On reissue, the company can allow maximum
₹______as discount.
3 The maximum amount with which the company is registered is called 1
________
(a)Authorised share capital
(b)Issued share capital
(c)Paid up capital
(d)Called up capital
4 R Ltd. offered 2,00,000 equity shares of ₹ 10 each. Out of these 1,98,000 1
shares were subscribed. The amount was payable as ₹ 3 on application ₹ 4 on
allotment and balance on first call. A shareholder holding 3000 shares has
defaulted on first call. What is the amount of money received on first call?
(a)₹9,000
(b)₹5,85,000
(c) ₹5,91,000
(d)₹ 6,09,000
5 2,000 Equity Shares of ₹ 10 each were issued to A Limited from whom assets 3

78
 of ₹ 25,000 were acquired. Pass Journal entry
6 P Ltd. invited applications for 10,000 Equity Shares of ₹ 100 each issued at 3
par. The amount was payable on application. The issue was oversubscribed by
2,000 shares and allotment was made on pro rata basis. Pass necessary
Journal entries.
7 Win Ltd. was formed with a capital of ₹ 10,00,000 divided into shares of ₹ 10 3
each. It offered 90% shares. 40% amount was payable on application, 20% on
allotment and balance on final call. The applicants paid ₹ 3,60,000 on
application and ₹ 1,69,000 on allotment. Final call had not been made as yet.
Calculate the following from the above mentioned details :
(i) Authorised Capital; (ii) Issued Capital; (iii) Subscribed Capital; (iv) Calls-
in Arrears
8 M Ltd. forfeited 900 Equity Shares of ₹ 100 each for the non-payment of 4
allotment money of ₹ 30 per share and the first call of ₹ 20 per share. The
second and final call of ₹ 25 per share has not been made . The forfeited
shares were reissued for ₹ 90 per share , ₹ 75 paid-up. Journalise the above.
9 Data Ltd is registered with an authorised capital of ₹10,00,000 divided into 4
1,00,000 equity shares of ₹10 each. The company issued 50,000 equity shares
at a premium of ₹5 per share. ₹2/ per share payable with application, ₹8/-per
share ( including premium) on allotment and the balance amount on first 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. Present the Share capital
in the Balance Sheet of Data Ltd as per Schedule III, Part I of the Companies
Act,2013. Also prepare Note to Accounts for the same.
10 Y Ltd took over the assets of ₹15,00,000 and liabilities of ₹ 5,00,000 of P Ltd. 4
The purchase consideration of ₹13,68,500; ₹25,500 were paid by issuing a
promissory note in favour of P Ltd. payable after two 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 transaction in the books of Y Ltd.
11 Regal Ltd. invited applications for 1,00,000 Equity shares of ₹10 each 6
payable as ₹2 on application , ₹3 on allotment and the balance on first
and final call. Application were received for 3,00,000 shares and the
shares were allotted on a pro rata basis. The excess application money was
to be adjusted against allotment only. Mohan, a shareholder, who had
applied for 3,000 shares, failed to pay the call money and his shares were
accordingly forfeited and reissued @ of ₹8 per shares as fully paid up.
Pass necessary journal entries.

79
12 Yuvraj Ltd., a pharmaceutical company is in need of finance to meet its increased 6
demand. Therefore it decided to issue 60,000 equity shares of ₹100 each at ₹120
per share payable at ₹50 on application (including premium), ₹40 on allotment
and the balance on the first and final call. Applications for 80,000 shares had
been received. Out of the cash received ₹2,00,000 was returned and 8,00,000 was
applied to the amount due on allotment all shareholders paid the call the due,
with the exceptions of one shareholder of 15,000 shares.
These share were forfeited and reissued as fully paid at ₹70 per share.
Answer the following questions on the basis of above information:
1. Excess application on_______ shares is adjusted to share allotment account.
(A)16,000 (B)12,000
(C)14,000 (D)10,000
2. The amount of Calls in Arrears will be________.
(A)1,50,000 (B)3,00,000
(C)4,50,000 (D)1,00,000
3. At the time of forfeiture of share, Share Capital Account will be debited
with______.
(A)18,00,000 (B)15,00,000
(C)10,00,000 (D)12,00,000
4. What amount will be credited to Shares Forfeited Account at the time of
forfeiture of 15,000 Shares?
(A)1,50,000 (B)13,50,000
(C)10,50,000 (D)15,00,000
5. At the time of reissue of forfeited share, how much amount will be debited to
Shares Forfeited Account?
(A)12,00,000 (B)10,50,000
(C)4,50,000 (D)15,00,000
6. What amount will be transferred to capital reserve?
(A)4,50,0000 (B)10,50,000
(C)6,00,000 (D)16,00,000

80
 7- Accounting for Issue of Debenture
Q. QUESTION MARK
NO

1 The Principal amount of debentures will be repaid by the company either at the end of a 1
specified period or in instalments during the life time of the company. Such types of
debentures are called:
i) Redeemable Debentures
ii) Irredeemable Debentures
iii) Convertible Debentures
iv) Bearer Debentures
‗A‘ Ltd. purchased the assets from ‗B‘Ltd. for Rs.8,10,000. ‗A‘ Ltd.
2 1
‗A‘ Ltd. purchased the assets from ‗B‘ Ltd. for Rs.8,10,000. ‗A‘ Ltd. issued 10%
debentures of Rs.100 each at 10% discount against the payment. The number of
debentures received by ‗B‘ Ltd. will be:
i) 8,100
ii) 9,000
iii) 90,000
iv) None of the above

3 If vendors are issued debentures of Rs. 80,000 in consideration of net assets of 1

Rs.1,00,000, the balance of Rs. 20,000 will be credited to which account:
i) Statement of Profit and Loss
ii) Goodwill Account

81
 iii) General Reserve Account
iv) Capital Reserve Account

4. Debentures represent the: 1

i) Long Term Borrowings of a Company.
ii) The investment of Equity Shareholders.
iii) Directors shares in a company
iv) Short term borrowings of a company

5. Kanak Ltd. Purchased a building for Rs. 60,00,000 payable as 20% in cash And balance 1
by allotment of 12% debentures of Rs. 500 each at a premium of 20%. Number of
debentures issued will be :
a. 9,600
b. 8,000
c. 12,000
d. 10,000
6 If vendors are issued debentures of Rs. 6,50,000 in consideration of assets of Rs. 1
7,00,000 and liabilities of Rs. 70,000 , the balance of Rs. 20,000 will be debited to :
a. general reserve account
b. capital reserve account
c. goodwill account
d. statement of profit & loss

7 Sheen Ltd. Issued 5,000, 9% debentures of Rs. 100 each at a discount of 10%. The full 3
amount was payable on application. Applications were received for 6,000 debentures
and allotment was made on pro-rata basis.
Pass the necessary journal entries for the above transactions in the books of Sheen Ltd.

8 Journalise the following entries : 3

Winora Ltd. Issued 800, 11% Debentures of Rs.100 each at a premium of 5%

82
 redeemable at a premium of 10%. Ignore the writing off the loss on debentures.

9 Ranya Ltd. Purchased assets of Shon Ltd. as under : 3

Plant and machinery of Rs. 20,00,000 at Rs. 18,00,000; land and buildings of
Rs. 30,00,000 at Rs. 42,00,000 for purchase consideration of Rs. 55,00,000 and paid Rs
10,00,000 in cash and remaining by issue of 8% Debentures of Rs. 100 each at a
premium of 20%. Record necessary entries in the books of Ranya Ltd

10 A company had Rs. 10,00,000, 12% debentures outstanding as on 1st April , 4

[Link] the year company took a loan of Rs. 2,00,000 from the State Bank of India
for which the company placed with the bank debentures for Rs. 2,50,000 as collateral
security . Pass journal entries, if any. Also show how the debentures and bank loan will
appear in the company‘s balance sheet as at 31st March,2023 using first method

11 Moti [Link] loan of Rs.120000 from Bank of India and issued 1500; 6
9% Debentures of Rs.100 each as collateral security. How will be issues of Debentures
shown in the Balance Sheet?
Case I. when journal entry is not passed.
Case II. When journal entry is passed

12 On 1st April , 2022 , [Link]. issued Rs. 10,00,000 , 9% debentures of Rs. 100 each at 6
a discount of 10%. These debentures were redeemable at a premium of 5% after four
years. Pass necessary Journal Entry for issue of debenture and prepare Debenture
account and Loss on issue of Debenture A/c.

13 Pass necessary journal entries for issue of 12% debentures in the books of Ganesh ltd. 6
In the following cases
(1) Issued 1,000, 12% Debenture of 100 each at a premium of 10%, redeemable at a
premium of 5%.
(2) Issued 5,000 12% Debenture of 100 each at a premium of 10%, redeemable at par.
(3) Issued 2,000, 12% Debenture of 100 each at a discount of 10%, redeemable at a
premium of 5%.

83
 8- FINANCIAL STATEMENTS ANALYSIS
QN. QUESTIONS WITH ANSWERS
1 Livestock is an item of ________ under the sub-head of Property Plants and Equipment.
(a) Tangible assets.
(b) Inventories
(c) Trade Receivables
(d) Intangible assets
2 ……………… appears in a Company‘s Balance Sheet under the Sub-head Short-term
Provision
(a) Interest Accrued but not due on Borrowings
(b) Provision for Tax
(c) Unpaid Dividend
(d) Calls in Advance
3 Under which schedule of Companies Act 2013, the Statement of Profit & Loss
is prepared?
a) Schedule III Part I of Companies Act 2013
b) Schedule VI of Companies Act 2013
c) Schedule III Part II of Companies Act 2013

84
 d) Section 52 of Companies Act 2013.
4 Finance cost includes which of the following?
a) Discount on issue of debentures & premium payable on redemption of debentures
b) Interest received on fixed deposits
c) Bank charges
d) Repayment of loan
5 Identify the major heads and sub heads under which the following items will be shown in the
balance sheet of a company as per Schedule III of Companies Act, 2013.
(i) Provision for tax
(ii) Loans payable on demand
(iii) Computer and related equipment
(iv) Goods acquired for trading
6 List any three objectives of financial statements.
7 Under what Heads and Subheads the following items will appear in the balance sheet of a
company as per schedule III part I of the companies act 2013?
a. Capital reserves
b. Bonds
c. Loans repayable on demand
d. Vehicles
e. Goodwill/Patent
f. loose tools
g. Provision for tax
h. Advance from customer

8 Classify the following items under Major heads and Sub-head (if any) in the Balance Sheet
of a Company as per schedule III of the Companies Act 2013.
(i) Current maturities of long term debts
(ii) Computer Software
(iii) Securities Premium
(iv) Income received in advance
(v) Premium on Redemption of Debentures
(vi) Advances recoverable in cash within the operation cycle

85
9 State the major headings under which the following items will be put as per Schedule III,
Part I of the Companies Act, 2013.
(i) Long-term investments
(ii) Trade receivables
(iii) Motorcar
(iv) Discount on issue of shares
(v) Securities Premium
(vi) Unclaimed dividend
10 How is analysis of financial statements suffered from the limitation of window dressing?
11 What will be the amount shown under the head current liabilities when the following data is
given? Short-term borrowings=Rs.2,00,000 Trade Payables = 1,00,000 Other Current
Liabilities = 1,50,000,
Short-term Provisions=20,000
12 Under what heads and sub-heads, will the following items appear in the balance sheet of a
company as per Schedule III, Part I of the Companies Act, 2013.
(i) Mining rights
(ii) Encashment of employees earned leave payable on retirement
(iii) Design

86
 9-COMPARATIVE AND COMMONSIZE STATEMENTS

1 List the techniques of Financial Statement Analysis.

2 Describe the different techniques of financial analysis.

3 State any two limitations of financial statement analysis.

4 What is meant by analysis of financial statements?

5 State any two objectives of financial statement analysis

6 Explain the importance of financial analysis of (i) labour unions and (ii) creditors.

7 Explain briefly any four limitations of ‗analysis of financial statements‘

8 Which item is assumed to be 100 while preparing common size statement of profit and loss?

9 From the following information, prepare a Comparative Statement of Profit & Loss:
87
 Particular 31.03.2025 31.03.2024
Revenue from
Operation
75,00,000 60,00,000
Other Incomes
1,20,000 1,50,000
Expenses
50,60,000 44,00,000
Income Tax
40% 35%

10 From the following information prepare common size Profit and Loss statement.

Absolute Figures
Particulars 2023 2024
Revenue from Operation 10,00,000 12,50,000

Expenses
a. Purchase of stock-in-trade 7,20,000 8,70,000
b. Change in inventories of stock-in-
trade
30,000 (20,000)
c. Depreciation and amortization
20,000 30,000
d. other expenses
30,000 50,000
Total expenses
8,00,000 9,30,000

11 From the following balance sheet, prepare the comparative balance sheet of Z Ltd.

Particular 31st March,2023 31st March,2024

(Rs.) (Rs.)

88
 1. EQUITY AND LIABILITIES
1. Shareholders‘ Funds
(a) Share Capital 2,00,000 3,00,000
(b) Reserves and Surplus 2,00,00 2,00,000
2. Non Current Liabilities
Long Term Borrowings 40,000 1,60,000
3. Current liabilities 60,000 1,00,000
Trade payables
Total 5,00,000 7,60,000

2. ASSETS
1. Non Current Assets
3,60,000 5,60,000
(a) Fixed Assets
(b) Non Current Investment 40,000 40,000
2. Current Assets
Trade Receivables 1,00,000 1,60,000
Total
5,00,000 7,60,000

12 From the following balance sheet, prepare the common size balance sheet of Z Ltd.

Particular 31st March,2023 31st March,2024

(Rs.) (Rs.)
3. EQUITY AND LIABILITIES
4. Shareholders‘ Funds
(c) Share Capital 2,00,000 2,80,000
(d) Reserves and Surplus 2,00,000 2,10,000
5. Non Current Liabilities
Long Term Borrowings 40,000 1,40,000
6. Current liabilities 60,000 70,000
Trade payables
Total 5,00,000 7,00,000

4. ASSETS
3. Non Current Assets
3,60,000 4,90,000
(c) Fixed Assets
(d) Non Current Investment 40,000 35,000

89
 4. Current Assets 1,00,000 1,75,000
Trade Receivables
Total 5,00,000 7,00,000

10-ACCOUNTING RATIO

Q.1-. The ______ is a measure of liquidity that excludes _______ generally the least liquid asset.
A) Liquid ratio, Accounts receivable.
B) Current ratio, inventory.
C) Liquid ratio, inventory.
D) Current ratio, Accounts receivable.
Q.2-`Find Quick Ratio if current assets of ₹1,05,000, inventory ₹20,000 Current Liabilities ₹80,000 and
advance tax ₹5,000
A) 1:1
B) 1:2
C) 2:1
D) 3:1
Q.3-. From the following data, calculate the liquid ratio:-
Current Assets = 50,000 ; Current Liabilities = 20,000 ; Inventory = 13,000 ; Prepaid Expenses = 1,000.
A) 1:1
B) 1.8:1
C) 1:1.8
D) 1.5 :1

90
Q.4- Opening Inventory of a firm is ₹ 80,000. Cost of revenue from operation is ₹6,00,000.
Inventory Turnover Ratio is 5 times. Its closing inventory will be:
(a) ₹ 1,60,000
(b) ₹ 1,20,000
(c) ₹ 80,000
(d) ₹ 2,00,000

Q.5- Current liabilities of a company are ₹ 75,000. If current ratio is 4:1 and liquid ratio is 1:1,
calculate value of current assets, liquid assets and inventory.

Q.6-. Calculate Current Ratio if:

Inventory is ₹ 6, 00,000; Liquid Assets ₹ 24, 00,000; Quick Ratio 2:1.

Q.7- Given the following information:

Revenue from Operations 3,40,000
Cost of Revenue from Operations 1,20,000
Selling expenses 80,000
Administrative Expenses 40,000
Calculate Gross profit ratio and Operating ratio.
Q.8- Current Ratio is 3.5:1. Working Capital is ₹ 90,000. Calculate the amount of Current Assets
and Current Liabilities.
Q.9- If current ratio 4.5:1 and quick ratio 3:1; if the inventory is 36,000, calculate current liabilities and
current assets.

Q.10- Current liabilities of a company are ₹ 75,000. If current ratio is 4:1 and liquid ratio is 1:1,
calculate value of current assets, liquid assets and inventory.

Q.11- A company has inventory of ₹ 20,000. Total liquid assets are ₹ 1, 00,000 and quick ratio is 2:1.
Calculate current ratio.
Q.12- Calculate Current Ratio if: Inventory is ₹ 6, 00,000; Liquid Assets ₹ 24, 00,000; Quick Ratio
2:1.

91
 11-CASH FLOW STATEMENT

1 Cash Flow Statement is prepared from:

(a) Balance Sheet
(b) Profit & Loss Account
(c) Additional Information
(d) All of these

2 Which of the following statements is/are correct?

(a) Dividend paid is always shown as an operating activity.
(b)Depreciation and amortization, being non-cash expenses, are deducted from net
profit before tax and extraordinary items.
(c) Both (a) and (b)
(d) None of these

3 Assertion (A): Depreciation is added back to net profit while calculating cash flows
from operating activities

Reason (R): Depreciation is a non-cash expense. It had reduced

the net profit while there is no cash flow

a) Both assertion and reason are true. Reason is a correct explanation of assertion.
b) Both assertion and reason are true but reason is not the correct explanation of
assertion
c) Both assertion and reason are false
d) Assertion is true but Reason is false

92
4 ‗‗Loans and advances granted‘ by a company will be considered, as which type of activity
while preparing Cash Flow Statement.
(a) Operating activity b) Investing activities c) Financing activities d) None of these

5 Which of the following is a source of cash?

a. Cash deposited into bank
b. Cash withdrawn form bank
c. Sale of goods costing Rs. 10,000 for Rs. 8,000
d. Sale of marketable securities for cash

6 State whether cash deposited into bank is classified under which kind of activity.
a. Cash flow from operating activities
b. Cash flow from investing activities
c. Cash flow from financing activities
d. No cash flow

7 D Ltd. a financing company, paid dividend on shares. Under which kind type of activity
will you classify while preparing Cash flow statement?
a) Financing b)Operating
c) Inventing d) None of the above

8 Which of the following transactions will result into flow of cash?

a) Cash withdrawn from bank Rs. 20,000
b) Issued Rs, 20,000, 9% debentures to the vendors of machinery.
c) Received 19,000 from debtors
d) Deposited cheques of Rs. 10,000 into bank

9 Ruchi Ltd. paid Rs. 80,000 as instalment for machinery purchased on credit which
included interest of Rs. 20,000. How will this payment be presented while preparing Cash
Flow Statement?

10 Under which type of activity will you classify ‗Refund of Income Tax received‘ while
preparing Cash Flow Statement?

11 From the following Balance Sheet of Ajanta Limited as on March 31, 2019,
prepare a Cash Flow Statement:

93
Particulars Note 31-3-2019 31-3-2018
No. (Rs.) (Rs.)

I. Equity and Liabilities

(1) Shareholders‘ Funds
(a) Equity Share Capital 10,00,000 10,00,000
(b) Reserves and Surplus 1 2,40,000 1,20,000
(2) Non- Current Liabilities
Long-Term Borrowings- 9 % 3,20,000 2,40,000
Debentures
(3) Current Liabilities 2,40,000
1,80,000
(a) Trade Payables 2 1,60,000
1,80,000
(b) Other Current Liabilities 3
19,20,000
Total 17,60,000
II. Assets
(1) Non-Current Assets
(a) Fixed Assets 4 12,00,000
Tangible Assets 13,40,000
(b) Non-Current 5 1,60,000
Investments 2,40,000
(2)Current Assets
(a) Inventories 1,60,000
(b) Trade Receivables 1,20,000
1,60,000
(c) Cash and Cash 1,60,000
80,000
Equivalents 60,000
17,60,000
19,20,000
Total

Notes to Accounts
Note Particulars 22. 31-3-2019 23. 31-3-2018
Numb (Rs.) (Rs.)
er

1 Reserves and Surplus

General Reserve 1,20,000 1,20,000
Balance in Statement of
Profit & Loss
1,20,000 ……………
2,40,000 1,20,000

94
 2 Trade Payables
Creditors 1,40,000 1,20,000
Bills Payable 40,000
1,20,000
1,80,000 2,40,000

3 Other Current Liabilities 1,60,000

Outstanding Rent 1,80,000
1,80,000 1,60,000
4 Tangible Assets
Plant & Machinery 14,90,000 13,00,000
Accumulated Depreciation (1,50,000) (1,00,000)
13,40,000 12,00,000

5 Non-Current Investments
Shares in XYZ Limited 2,40,000 1,60,000
2,40,000 1,60,000
Additional Information:
(a) During the year 2018-19, a machinery costing Rs. 50,000 and accumulated
depreciation thereon Rs. 15,000 was sold for Rs. 32,000.
(b) 9 % Debentures Rs. 80,000 were issued on April 1, 2018.

12 Prepare a cash flow statement from the following balance sheet: 6

Particulars Note 31st 31st
No. March March
2018 2017
(Rs.) (Rs.)

[Link] AND LIABILITIES

1. Shareholders‘ Funds
(a)Share Capital 6,00,000 5,00,000
(b) Reserve and Surplus 1 4,00,000 2,00,000
2. Current Liabilities
Trade payables 2,80,000 1,80,000

12,80,000 8,80,000

95
 3. Assets
(i)Non current assets:
(a)Fixed assets
( i)Plant and machinery 5,00,000 3,00,000
(ii)Current assets:
a)Inventories 1,00,000 1,50,000
b)Trade receivables 6,00,000 4,00,000
c)Cash and cash equivalents 80,000 30,000
Total 12,80,000 8,80,000

Notes to accounts:
Particulars 31-03- 31-03-
2018 (Rs.) 2017(Rs
.)
1. Reserve and Surplus:
Surplus (Balance in statement of Profit and 4,00,000 2,00,000
Loss)
Additional information:
i)An old machinery having book value of Rs 50,000 was sold for Rs 60,000.
ii)Depreciation provided on machinery during the year was Rs 30,000

13 From the following Balance Sheet of Max Ltd., Prepare a Cash Flow Statement. 6
.
BALANCE SHEET OF MAX [Link] ON 31ST MARCH 2019
Particulars Notes 31st March 31st March
no. 2019 2018
III. EQUITY AND
LIABILITIES
3. Shareholders‘ fund 1 1,70,000 92,000
(c) Share capital 2 34,000 48,000
(d) Reserve and surplus
4. Noncurrent Liabilities 3 36,000 40,000
(b) Long term borrowings
Total 2,40,000 1,80,000
IV. ASSETS
3. Fixed Assets
(b) Tangible assets 4 1,40,000 1,00,000
4. Current Assets
(d) Inventories 50,000 42,000
(e) Trade receivable 38,000 28,000
(f) Cash and cash
12,000 10,000
equivalent
Total 2,40,000 1,80,000

96
Notes to accounts:-
Note Particulars 31st March 31st March
s 2019 2018
No.
1 share capital:-
Equity Share capital 1,50,000 80,000
8%Preference Share 20,000 12,000
Capital 1,70,000 92,000
Total
2 Reserve and Surplus:-
General Reserve 20,000 14,000
Statement of Profit and 14,000 34,000
Loss 34,000 48,000
Total
3 Long term borrowings 36,000 40,000
4 Machinery 1,40,000 1,00,000
Additional information: During the year machinery costing Rs.16,000 was sold
for Rs. 10,000. Dividend was paid Rs.16,000.

97
 MARKING SCHEME (CBQ )

CHAPTER - 1 (Fundamental )

Ans1.(d) ₹27,000
Ans2. (c) Both Assertion (A) and Reason (R) are correct
Ans 3.(c)
A‘s Capital A/c Dr. ₹1,800
To Interest on drawings A/c ₹ 1,800
Ans4.(a) ₹4,84,000
Ans [Link] Profit = 10/100 x 150,000 = `15,000
Average Profit = `23,500
Super Profit = Average Profits – Normal Profit
= 23,500 - 15,000
= `8,500
Goodwill = Super Profits x Number of years‘ purchase
= 8500 x 3
= ` 25,500
Ans.6 Rakshit (`)
Interest on Capital from 1 April 2021 to 30 Nov. 2021
6/100 x 8/12x 1,20,000 = 4,800
Interest on Capital from 1 Dec. 2021 to 31 March 2022
6/100 x 4/12x 2,00,000 = 4,000
Interest on Capital 8,800
Malik (`)

98
 Interest on Capital from 1 April 2021 to 30 Nov. 2021
6/100 x 8/12x 80,000 = 3,200
Interest on Capital from 1 Dec. 2021 to 31 March 2022
6/100 x 4/12x 1,00,000 = 2,000
Interest on Capital 5,200

Ans 7
Profit and Loss Appropriation A/c
for the year ended 31.3.2023

Particulars Amounts Partculars Amounts

To Partners‘ Current A/c‘s- 1,50,000 By Profit & Loss A/c 3,08,000

Interest on capital (Net Profit)
Ravi 60,000 By Partners‘ Current A /c‘s-
Kavi 60,000 Interest on drawings 12,000
Avi 30,000 1,20,000 Ravi 4,800
To Avi‘s Current A/c‘s- Kavi 4,200
Salary Avi 3,000
To Partners‘ Current A/c‘s-
Divisible Profit 50,000
Ravi 20,000
Kavi 20,000
Avi 10,000

3,20,000 3,20,000

ANS.8
Calculation of Normal Adjusted Profit
Year Profit (₹) Adjustment (₹) Adjusted Profit (₹)
2019-20 35000 35000
2020-21 25000 25000
2021-22 32000 32000

99
 2022-23 33000 (5,000) 28000

TOTAL 1,20,000
Average Profit= (Total Adjusted Profit)/ No. of years
= 1,20,000/4 = ₹30,000
Normal Profit= Capital Employed x Normal Rate of Return
—-----------------------
100
= 2,50,000 x 10/100 = ₹25,000
Super Profit = Average Profit – Normal Profit
= 30,000 - 25,000 = ₹5,000
Goodwill= Super Profit x No. of years‘ purchase
= 5,000 x 3 = ₹15,000
Ans.9 In the Books of Mohan, Suhaan and Adit
JOURNAL
Date Particulars L.F [Link] Cr.A
t mount

Adit‘s Current A/c Dr. 1000

To Suhaan‘s Current A/c 1000
(Adjustment entry for Interest on Capital credited at
a higher rate)

Working Notes:
Statement of Adjustment

Particulars Mohan Suhaan Adit

Interest on capital to be debited (6000) (3000) (3000)

Profit to be credited now (₹12,000 in [Link]) 6000 4000 2000

Adjustment 1000(cr.) 1000(Dr.)

Ans.10.
In the Books of Manoj and Nitin
JOURNAL

100
Date Particulars L.F [Link] [Link]

Manoj‘s Capital A/c Dr. 2000

To Nitin‘s Capital A/c 2000
(Adjustment entry for omission of Interest on
Capital and Interest on Drawings)

Working Notes:
Calculation of opening capital

Particulars manoj Nitin

Closing capital 90000 80000

Add: Drawing 40000 20000

Less(Profit 30000 in 2:1) (20000) (10000)

Opening capital 1,10,000 90,000

Statement of Adjustment

Particulars manoj Nitin

Amount to be credited
Interest on Capital 11,000 9,000
Less: Interest on Drawings (3,000) (2,000)
—------- —------
8000 7000

Amount to be debited now (₹15,000 in 2:1) (10,000) (5,000)

Adjustment (2,000) 2,000

Dr Cr

Ans11
Aayush and Aarushi are partners…
. Average Net Profit = `20,000

101
 Normal Profit = Normal Rate of Return x Capital Employed
Normal Profit = 10 x 50,000/1000 = `5,000
Super Profit = Average Net Profit – Normal Profit
= 20,000 – 5,000
= `15,000 …
Goodwill of the firm = Super Profit x Number of Years‘ Purchase …………
= 15,000 x 3
= `45,000 …
Goodwill Premium brought by Naveen = 1 x 45,000 = `11,250

Ans:12
Profit and Loss Appropriation Account
for the year ended 31st March 2022

Particulars Amounts Partculars Amounts

To Profit transferred to Partners‘ By P&L A/c 1,20,000

Capital A/c (Net Profit)
Asha 40,000 32000
(-) guarantee to Raghav 8,000
Disha
60,000 48,000
(-) guarantee to Raghav
12,000
Raghav 40000
20,000
(+) guarantee from Asha
8,000
(+) guarantee from Disha
12,000

1,20,000 1,20,000

102
 CHAPTER 2 (Change In PSR )

1. (c) A is wrong, but R is correct

2. (a) Goodwill
3. (b) `5,00,000
4. (D) `80,000
5. (i) D. Credit P by ₹9,000, Q by ₹9,000 and R by ₹6,000
(ii) C. Debit P by ₹45,000; Q by ₹45,000 and R by ₹30,000
(iii) C. Debit R by ₹ 20,000 and Credit P and Q by ₹10,000 each

6. Average profit 1,08,000

Less partners Remuneration 18,000.
Actual average profit =1,08,000 – 18,000 = 90,000
Normal profit on capital employed. 6,00,000*10/100= 60,000
Super profit =Average profit – normal profit = 90,000 – 60,000 = ` 30,000
Goodwill = super profit * no. of years purchase = 30,000 *2 = ` 60,000
7. Calculation of average profit
Year Maintainable profit (₹)

2018 4,00,000-50,000 (abnormal gain) = 3,50,000

2019 5,00,000 + 1,00,000 (abnormal loss) = 6,00,000

103
 2020 4,50,000- 50,000 (insurance) = 4,00,000

Total 13,50,000

Average profits= 13,50,000/3 = 4,50,000

Goodwill = average profit x number of years purchase= 4,50,000x2

=₹ 9,00,000

8. JOURNAL

Date Particulars LF Amt Amt

2018 Profit and Loss A/c Dr 75,000

April 1
To H’s capital A/c 37,500

22,500
To K’s capital A/c
15,000
To U’s capital A/c

(Being balance in P/L account distributed)

April 1 Investment Fluctuation Fund A/c Dr 15,000

To investment A/c 15,000

(Being value of investment decreased)

April 1 Revaluation A/c Dr 5000

104
 To stock A/c 5000

(Being stock depreciated)

April 1 H’ s capital A/c 2500

K’s capital A/c 1500

U’s capital A/c 1000

To Revaluation A/c 5000

(Being loss on revaluation transferred)

9. JOURNAL

Date Particulars LF Amt Amt

Radhika’s capital a/c Dr 8,000

Bani’s capital a/c Dr 12,000

Chitra’s capital a/c Dr 4,000

To Profit & loss a/c 24,000

Radhika’s capital a/c Dr 30,000

To Bani’s capital a/c 30,000

Land A/c Dr 1,80,000

To Revaluation A/C 1,80,000

105
 Revaluation A/C Dr 1,80,000

To Radhika’s capital a/c 60,000

To Bani’s capital a/c 90,000

To Chitra’s capital a/c 30,000

Working notes: sacrificing ratio and gaining ratio will be

Radhika = 2/6-3/6=1/6 (gain)

Bani =3/6-2/6=1/6 (sacrifice)

Chitra = 1/6-1/6 = 0

10. JOURNAL
Date Particulars LF Amt Amt

(i) Workmen compensation reserve Dr. 60,000

To L’s capital a/c 30,000
To M’s capital a/c 20,000
To N’s capital a/c 10,000

(ii) Workmen compensation reserve Dr. 60,000

To Provision for workmen compensation claim 24,000
a/c 18,000
To L’s capital a/c 12,000
To M’s capital a/c 6,000
To N’s capital a/c
(iii) Workmen compensation reserve Dr. 60,000
To Provision for workmen compensation claim 60,000
a/c

106
 (iv)a Workmen compensation reserve Dr. 60,000
Revaluation a/c Dr. 15,000
To Provision for workmen compensation 75,000
claim a/c
(iv)b L’s capital a/c Dr 7,500
M’s capital a/c Dr 5,000
N’s capital a/c Dr 2,500
To Revaluation a/c 15,000

11. Revaluation Account

Particulars Amount Particulars Amount

To Building A/c 3,000 By land 30,000

To Profit transferred to By creditors 6,000

partners’ capital A/cs:

R 5,500

S 11,000

T 16,500 33,000
̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
36,000 36,000 ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅

Partners’ Capital Account

Particulars R S T Particulars R S T

To T’s capital 25,000 By balance b/d 1,00,000 50,000 25,000

To Balance By revaluation A/c 5,500 11,000 16,500

c/d 85,500 71,000 81,500 By General reserve

107
 A/c 5,000 10,000 15,000

By R’s capital A/c 25,000

1,10,500 71,000 81,500 1,10,500 71,000 81,500

Balance Sheet

as at 1st April 2023

Liabilities Amount Assets Amount

Creditors 50,000 Land 80,000

(-) Unclaimed creditors Building 50,000

(6000) 44,000 (-) Depreciation (3000) 47,000

Bills Payable 20,000 Plant 1,00,000

Capitals Stock 40,000

R 85,500 Debtors 30,000

S 71,000 2,38,000 Bank 5,000

T 81,500

3,02,000 3,02,000

Working Notes: Calculation of sacrifice or gain

108
 R = 1/6-1/3= (1/6) gain

S = 2/6 -1/3 = 0/6 Nil

T = 3/6-1/3 = 1/6 sacrifice

Share of Goodwill credited to T =₹ 1,50,000X1/6 = ₹ 25,000

R will compensate to T, since he is gaining

R’s capital A/c Dr. 25,000

To T’s capital A/c 25,000

12. JOURNAL

Date Particulars LF Amt Amt

Fixed asset a/c dr 51,000

To revaluation a/c 51,000

Revaluation a/c dr 11,000

To stock a/c 8,000

To provision for doubtful debts a/c 3,000

Revaluation a/c dr 40,000

To Dinesh capital a/c 15,000

To Ramesh capital a/c 15,000

To Suresh capital a/c 10,000

109
 General reserve a/c dr 80,000

To Dinesh capital a/c 30,000

To Ramesh capital a/c 30,000

To Suresh capital a/c 20,000

Suresh capital a/c dr 7,500

To Dinesh capital a/c 3,750

To Ramesh capital a/c 3,750

Gaining and sacrificing ratio

Dinesh = 3/8 - 1/3 = 1/24(sac)

Ramesh = 3/8 – 1/3 = 1/24(sac)

Suresh = 2/8 – 1/3 = 2/24 (gain)

Goodwill Total profit=₹14,000+ ₹17,000+ ₹ 20,000+ ₹ 22,000+rs27,000 =₹1,00,000 Average

profit = 1,00,000/5= 20,000

Goodwill = 20,000 * 4.5 = 90,000

Suresh’s share in goodwill = 90,000 *2/24 =`7500

Dinesh will receive 90,000 * 1/24 = ₹3750

Ramesh will receive 90,000 * 1/24 = ₹3750

110
 CHAPTER 3 ( Admission of Partner)
1 Ans-B
2 ANS-A

3 ANS-D

4 ANS-C
5. ANS-C
6. Solu. - O R -Radha: Rukmani-3:2=3/5,2/5
Radha surrendered in faour of Gopi=1/3*3/5=3/15
Rukmani surrendered in faour of Gopi=1/4*2/5=2/20
New ratio -Radha=3/5-3/15=6/15, Rukmni=2/5-2/20=6/20,
Gopi=3/15 +6/20=30/60
N R=3/15,6/20,3/60= [Link]=[Link]
7. Ans –
Journal Entries
Date Particular LF Amount Dr. Amount Cr.

Hari’s Current A/C Dr 8000

To Rajesh Capital A/C 2000

To Mukesh Capital A/C 6000

W. N.-Goodwill of Firm=36000, Share of Hari=36000*2/9=8000 divide in S R

111
 Rajesh=8000*1/4=2000 and Mukesh=8000*3/4=6000

8- Ans - Journal Entries

Date Particular LF Amount Dr. Amount Cr.

General Reserve A/C Dr 16000

Profit & Loss A/C Dr 24000

To Rajesh Capital A/C 25000

To Mukesh Capital A/C 15000

9-

112
 10
REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.
To Liability against Bills 1670 By Public deposits A/c 210
discounted By Partner‘s capital A/C 2060
To Furniture 600 D -1030
Y- 687
F-343
2270 2270

Partner‘s Capital A/c

Particulars D Y F A Particulars D Y F A
To Rev 1030 687 343 By Bal b/d 5100 3000 5000
To Bal c/d 5520 3280 5140 4500 By Reserve 450 300 150
By cash -- 4500
By Prem. 1000 667 333
6550 3967 5483 4500 G/W 6550 3967 5483 4500

11 ANSWER -
REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.

To Furniture 2800 By Parners capital a/c

To Investment 3200 B-1880

To Machinery 3400 J-2820

113
 H-4700 9400

9400 9400

Partner‘s Capital A/c

Particulars B J H S Particulars B J H S
TO Rev a/c 1880 2820 4700 By Bal b/d 36000 44000 52000
To Goodwill 4000 6000 10000 By P/L 2800 4200 7000
To investment 5760 8640 14400 By bank 36000
To Bal c/d By Prem for 2400 3600 6000
29560 34340 35900 29560 G/W
41200 51800 65000 36000 41200 51800 65000 36000

12. Answer:
REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.

To Furniture 30,000 By stock 30,000

To Partners capital a/c By Investment 40,000

Sanjana-24,000

Alok -16,000 40,000

70,000 70,000

Parner‘s Capital A/c

Particulars Snajana Alok Nidhi Particualrs Snajana Alok Nidhi
To Cash 30,000 20,000 By Bal b/d 5,00,000 4,00,000
By Rev a/c 24,000 16,000
To investment 3,00,000 By Bank 3,00,000
To Cash By Prem for 60,00 40,000
1,40,000 G/W
By W C R 36,000 24,000
To Bal c/d 4,50,000 3,00,000 3,00,000 By Bank 1,40,000
6,20,000 6,20,000 3,00,000 6,20,000 6,20,000 3,00,000

BALANCE SHEET (as at ………….)

Liabilities Amount Assets Amount

114
 Creditors 60,000 Cash 5,16,000
WCR 60,000 Debtors – 1,46,000
Capital- Provision-2000 1,44,000

Sanjana-4,50,000 Stock 1,80,000

Alok -3,00,000
Nidhi -3,00,000 10,50,000 Furniture 2,70,000
10,20,000 11,10,000

Working Notes
1. Firm‘s goodwill = ₹ 4,00,000
Nidhi‘s share of goodwill = 4,00,000 x 14 = ₹ 1,00,000 to be distributed among Sanjana and
Alok in sacrificing ratio.
2. Sanjana‘s capital after adjustment = ₹ 5,90,000
Alok‘s capital after adjustment = ₹ 1,60,000
= ₹ 7,50,000
to be in profit sharing ratio
Sanjana = 7,50,000 x 35 = 4,50,000 – 5,90,000 = ₹ 1,40,000 cash withdrew
Alok = 7,50,000 x 25 = 3,00,000 – 1,60,000 = ₹ 1,40,000 cash brought in

115
 CHAPTER 4 ( Retirement Of Partner )

Solutions
1 mark questions
Q1: Option A
Q2: Option D
Q3: Option D
Q4: Option C

3 and 4 marks questions

Q5: Old Ratio of A,B and C = [Link] New ratio of A and C = 1:2
Gaining Ratio = New Share – Old Share A‘s Gain =1/3 – 3/6 or 2/6 – 3/6 = (-1/6) Sacrifice C‘s
Gain =2/3 – 1/6 or 4/6 -1/6 =3/6 Note: C‘s Gain 3/[Link] constitute B‘s share 2/6 and A‘s sacrifice
1/6 Goodwill of the firm =48,000 B‘s share of goodwill = 48,000 X B‘s share .i.e 2/6 =16,000 As
per new profit sharing ratio on retirement, A sacrifice 1/6 of his share in favour of C. So C should
compensate A. The amount of compensation will be equal to the proportionate amount of firm‘s
goodwill. A‘s compensation = Goodwill of the firm X A‘s Sacrifice = 48,000 X 1/6 = 8000

C‘s Capital Dr. 24,000

To B‘s Capital 16000
To A‘s Capital 8000

116
(Being adjustment of goodwill on B‘s retirement)
Q6: Option I – Interest on balance amount @ 6% p.a.
50000* 6/100*8/12 = 2,000
Option – II Proportionate share in profit (Based on capital employed)
50000 𝑋 40000/250000 = 8,000
So C will exercise option II. Total amount payable to C = 50,000 + 8,000 = 58,000
Q7: Manav‘s Capital Dr. 7,500
Narayan‘s Capital Dr. 15000
Nath‘s Capital A/c Dr. 7500
To Profit & Loss A/c 30000
(Dr. balance of Profit and Loss distributed among partners in their old profit-sharing ratio)
Manav‘s Capital Dr. 95000
Narayan‘s Capital Dr. 95000
To Nath‘s Capital A/c 190000
(Adjustment for Goodwill)
Profit & Loss Suspense A/c Dr. 22500
To Nath‘s Capital A/c 22500
(Adjustment of his share of profit)
Nath‘s Capital A/c Dr. 1,92,500
To Nath‘s Executor A/c 192500
(Balance of Capital account transferred to Executor‘s Account)

Q8: 4,50,000 X300000/3000000 X 1/5 = 9,000

Profit & Loss Suspense A/c Dr. 9000
To C‘s Capital 9000
(C‘s share of profit transferred to his capital account)

6 marks questions

Q9: Revaluation A/c

Particulars Amount Particulars Amount
Provision for Workmen 8,000 Provision For Bad debts 2,000
Compensation

Loss transferred to

117
 J‘s Capital 3,000
H‘s Capital 1,800
K‘s Capital 1,200
8,000 8,000

Partners‘ Capital A/c

Particulars J H K Particulars J H K
X 10,200 1,800 20,400 Balance b/d 1,00,000 80,000 40,000
Revaluation 3,000 1,38,800 1,200
Y 10,200
Balance c/d 1,36,800 38,400
20,400
Z
24,000
Profit & Loss 40,000 16,000
6,000
Inv. Fluc 10,000 4,000
Fund
1,50,000 1,40,600 60,000 1,50,000 1,40,600 60,000
Cash 14,000 Bal. b/d 1,36,800 1,38,800 38,400
1,24,800
H‘s Loan
Current A/c
31,680 Current A/c
(Bal. Fig.)
(Bal. Fig.)
Balance c/d 1,05,120 70,080 31,680
1,36,800 1,38,800 70,080 1,36,800 1,38,800 70,080

Q10: Revaluation A/c

Particulars Amount Particulars Amount
Provident Fund 2,000 Plant 12,000
2,000
Profit transferred to Debtors
A‘s Capital 6,000
B‘s Capital 3,600
C‘s Capital 2,400
14,000 14,000

118
 Partners‘ Capital A/c
Particulars A B C Particulars A B C
Goodwill 4,000 2,400 1,600 Balance b/d 28,000 20,000 12,000
Revaluation 6,000 3,600 2,400
C 5,000 1,000
5,000
A
Balance 1,000
c/d B
25,000 20,200 18,800
34,000 23,600 20,400 34,000 23,600 20,400
Bank 18,800 Bal. b/d 25,000 20,200 18,800
Balance c/d 19,000 1,800
44,000 22,000 Bank
([Link].)

44,000 22,000 18,800 44,000 22,000 18,800

TOTAL OF BALANCE SHEET:- 78000

Working Note –
1. Calculation of C’s share of Goodwill Balance of Capital Account of C = Opening Balance
+ Revaluation Profit – Old Goodwill written off 12,000 + 2,400 – 1,600 = 12,800 C‘s interest in
firm is valued at Rs.18,800 So 18,800 – 12,800 = 6,000 (C‘s share of Goodwill in firm) To be
debited to remaining partners in Gaining Ratio
2. Capital Adjustment Total Capital of Firm = Adjusted capital of remaining partners + Amount
required to pay retiring partner + Required Closing balance of Bank – Existing balance of Bank
= 25,000 + 20,200 + 18,800 + 4,000 – 2,000 = 66,000 (to be in ratio of 2:1 between A & B)

Q11: Z‘s Capital Account

Particulars Rs. Particulars Rs.
To Drawings 10,000 By Balance b/d 40,000
10,000
To Z‘s Executor‘s a/c 75,400 By General Reserve
3,000
By Profit &Loss Suspense a/c
2400

119
 By Interest on capital
By X‘s Capital a/c 15,000
15,000
By Y‘s capital a/c
85400 85400

Q12: A‘s Capital A/c Dr. 4375

B‘s Capital A/c Dr.2625
To C‘s Capital A/c 7000
(Adjustment of goodwill made in gaining and sacrifice ratio)
C‘s Capital A/c Dr. 1000
To Profit & Loss Suspense A/c 1000
(C‘s share in loss transferred to his capital )
Patents A/c Dr.7000
Investments A/c Dr. 1200
To Revaluation A/c 8200
(Profit on revaluation of assets)
Revaluation A/c Dr.3200
To Machinery A/c 3200
(Loss on revaluation of assets)
Revaluation A/c Dr. 5000
To A‘s Capital A/c 2500
To B‘s Capital A/c 1500
To C‘s Capital A/c 1000
(Revaluation profit distributed among partners)
General Reserve A/c Dr. 1000
Investment Fluctuation Reserve A/c Dr.3500
Workmen‘s Compensation Reserve A/c Dr. 3500
To A‘s Capital A/c 4000
To B‘s Capital A/c 2400
To C‘s Capital A/c 1600
(Accumulated profits distributed)
A‘s Capital A/c Dr. 41000
B‘s Capital A/c Dr.24600
C‘s Capital A/c Dr. 16400
To Advertisement Expenditure A/c 1000
To Profit & Loss A/c 75000
To Goodwill A/c 6000
(Accumulated losses and goodwill written off)
Cash A/c Dr. 4200
To Investments 4200

120
 (Investments sold)
C‘s Capital A/c Dr. 28,200
To C‘s Executor A/c 28200
(Balance of C‘s capital transferred to his executor account)
C‘s Capital A/c Dr. 1000
To C‘s Loan A/c 1000
(Loan to C transferred to his capital acc.)
C‘s Executor A/c Dr. 28200
To Cash A/c 5200
To C‘s Executor Loan A/c 23000
(Rs.5,200 paid to C‘s Executor and balance transferred to his loan account)

CHAPTER 5 (Retirement And Death )

1- (a) (i. ) and (iv)

2- (b)

3- No entry

4-Partners Loan A/C Dr

To Cash/Bank A/C

5- (I) Realisation A/C. Dr. 5,000

To Cash A/C. 5,000

(II) CashA/C. Dr. 2,200

To Realisation 2,200

(III) Cash/Bank A/C. Dr. 4,000

To Realisation 4,000

6- (I) S’s Capital A/C. Dr. 14,000

K’s Capital A/C. Dr. 14,000

To deferred Revenue Expenditure 28,000

(II)(a) K’s Capital A/C. Dr. 30,000

121
 To Realisation 30,000

(b) No Entry

(c )BankA/C. Dr. 25,000

To Realisation 25,000

(III) Cash/Bank A/C. Dr. 7,000

To Realisation 7,000

7- (I) (a) T’s Capital A/C. Dr. 90,000

To Realisation A/C. 90,000

(b) Cash A/C. Dr. 40,000

To Realisation 40,000

(II) No Entry

(III) Cash A/C. Dr. 5,000

To Realisation A/C. 5,000

8- (I)(a) Bank A/C. Dr.(1,40,000 - 7,000=1,33,000)

To Realisation A/C. 1,33,000

(b) Bank A/C. Dr. 30,000

To Realisation A/C. 30,000

(II) Realisation A/C. Dr. 3,500

To Bank A/C. 3,500

NOTE- No Entry will be passed for assets handed over to creditors in full settlement

9- (I) Realisation A/C. Dr. 12,05,000

To S. Assets A/C. 12,05,000

(II) Creditors A/C. Dr. 2,00,000

Pro. For B/DA/C. Dr. 5,000

To Realisation A/C. 2,05,000

(III) Cash/Bank A/C. Dr. 11,49,000

To Realisation A/C. 11,49,000

122
 (IV) Realisation A/C Dr. 1,85,000

To Cash/ Bank 1,85,000

(V) Realisation A/C. Dr. 19,000

To Cash/Bank. 19,000

(VI) A’s Capital A/C. Dr. 22,000

B’s Capital A/C. Dr. 22,000

C’s Capital A/C. Dr. 11,000

To Realisation A/C. 55,000

10- (I) X’s Capital A/C. Dr. 5,000

To Y’s Capital A/C. 5,000

(II) X’s Capital A/C. Dr 5,000

Y’s Capital A/C. Dr 5,000

A’s Capital A/C. Dr 5,000

B’s Capital A/C Dr 5,000

To Realisation A/C. 20,000

(III) Y’s Loan A/C. Dr. 50,000

To Bank A/C. 48,000

To Realisation A/C. 2,000

(IV) No Entry

11- (I) Bank A/C. Dr. 42,000

To Realisation A/C. 42,000

123
 (II) Realisation A/C. Dr. 6,000

To Bank A/C. 6,000

(III) Madhav’ Capital A/C. Dr. 10,000

Madhusudan ‘s Capital A/C Dr. 10,000

Mukund ‘s Capital A/C. Dr. 10,000

To Realisation A/C. 30,000

(IV) Mukund ‘s Capital A/C. Dr. 5,000

To Bank A/C. 5,000

(V) Realisation A/C. Dr. 60,000

To Bank A/C 60,000

12- Realisation Account

Particular ₹ Particular ₹

To Building 1,20,000 By Prov. on Debtors 4,000

To Investments 30,600 By Creditors 80,000
To Debtors 34,000 By Mrs. Pradeep Loan By 40,000
Investments Fluctuation
To Bills Receivable 37,400 Fund 8,000
To Goodwill 4,000 By Bank
To Pradeep's Capital(Wife’s Debtors 12,000
Loan)
40,000 Building. 1,52,000
To Bank (Expenses)
25,00 B/ Receivable 36,000 2,00,000
To Bank ( Creditors )
59,000 By Cash (Investments) 27,000
To Pradeep's Capital
1,000
To Partners capital
Pradeep 18,300

124
 Rajesh. 12,200 30,500
.
. 3,59,000
3,59,000

CHAPTER 6 (Share )

1 Second & final call ₹ 4.

2 1,00,000
3 2,40,000
4 Providing for Premium payable on redemption of debentures
5 Assets A/c Dr. 2,20,000
To Krishna Ltd. 2,20,000
(Assets purchased from Krishna Ltd.)
Krishna Ltd. Dr. 2,20,000
To 9% Preference Share Capital 2,00,000
To Securities Premium A/c 20,000
(2,000 9% Preference Shares of Rs 100 each issued at 10% premium to Krishna
Ltd.)
6 Equity Share First Call A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(Shares first call due on 1,00,000 shares at Rs 2 per share)

125
 Bank A/c Dr. 2,02,400
To Equity Share First Call A/c 2,00,000
To Call-In-Advance A/c 2,400
(Share first call received with call-inadvance of 800 shares at Rs 3 per share)
7 Category Shares applied Shares allotted
A 10000 shares Nil
B 20000 shares 20000 shares allotted
C 40000 shares 30000 shares allotted
Total 70000 shares 50000 shares
Calculation of amount received on allotment.
Amount due on allotment (50000*3) 1,50,000
Less: Excess application money adjusted on allotment
Pro rara allotment. 10000*2 (20,000)
Less: class in arrears . 20000*3 (60,000)
————
70,000
Add: Calls in advance(3000*5) 15,000
--------------
Amount received on allotment. 85,000*
8 Equity Share Capital A/c Dr. 20,000
To Share Forfeiture A/c 15,000
To Call-in-Arrears A/c 5,000
(2,000 shares of Rs 10 each forfeited for non-payment of final call Rs 2.5 per
share)
June 10 Bank A/c Dr. 10,800
Share Forfeiture A/c Dr. 7,200
To Share Capital A/c 18,000
(1,800 shares of Rs 10 each re-issued at Rs 6 per share fully paid-up)

126
 Share Forfeiture A/c Dr. 6,300
To Capital Reserve A/c 6,300
(Balance in Shares Forfeiture Account of 1,800 re-issue, transferred to Capital
Reserve Account)

Working Notes:
Share Forfeiture 7.5 Cr.
Share Forfeiture 4 Dr.
Balance in Share Forfeiture Account after re-issue 3.5 Cr. per share
Capital Reserve = No. of Shares reissued × Balance in Share Forfeiture Account
after reissue (per share)
= 1,800 × Rs 3.5 (per share)
= Rs 6,300
9 M Limited
Balance Sheet (Extract) as at
Particulars Note No Amount

I. EQUITY AND LIABILITIES

Shareholders funds
Share Capital 1 99,97,000

Notes to Accounts Amount Amount

Particulars
1. Share Capital
Authorised Capital
10000000 Equity shares of Rs.10 each 10,00,00,000
-----------------
Issued Capital

127
 10,00,000 Equity shares of 10 each 10000000
-----------------
Subscribed capital
Subscribed and fully paid up
9,99,000 equity shares of 10 each 99,90,000
Subscribed but not fully paid-up
1,000 equity shares of 10 each 10,000
Less: calls in arrears (3000) 7,000

99,97,000
10 Journal Entries in the Books of Nikhil Ltd.

Buildings A/c Dr. 11,50,000

Machinery A/c Dr. 7,00,000
Debtors A/c Dr. 2,50,000
Stock A/c Dr. 5,00,000
To Sonia Ltd. 22,00,000
To B/P A/c 2,50,000
To Capital Reserve A/c 1,50,000

(Assets of E.X. are purchased)

Sonia Ltd. A/c Dr. 22,00,000
To Equity share capital A/c (20,000 x 100) 20,00,000
To Securities Premium Reserve A/c (20000 x 10) 2,00,000
(20,000 Equity share of Rs. 100 each at 10% premium issued to Sonia Ltd. )
Working Note :-
No of Equity shares = 22,00,000/100+10
No of Equity shares = 22,00,000/110= 20,000 Equity shares

11 Bank A/c …. Dr. 7,50,000

128
 To Share application A/c 7,50,000
Share application A/c …. Dr. 7,50,000
To Share capital A/c 5,00,000
To Share allotment A/c 2,50,000
Share allotment A/c …. Dr. 5,00,000
To Share Capital A/c 2,50,000
To Securities premium 2,50,000
Bank A/c …. Dr. 2,49,500
To Share allotment A/c 2,49,500
Share First & Final call A/c…. Dr . 2,50,000
To Share Capital A/c 2,50,000
Bank A/c …. Dr. 2,49,500
To Share Share First & Final call A/c 2,49,500
Share capital A/c …. Dr. 2,000
Securities premium ….Dr. 500
To Share Forfeiture A/c 1,500
To Calls in arrear A/c 1,000
Bank A/c …. Dr. 1,800
Share forfeiture A/c …..Dr . 200
To Share Capital A/c 2,000
Share Forfeiture A/c …. Dr. 1,300
To Capital Reserve A/c 1,300
12 i. (c) Issue for consideration other than cash.
ii. (b) Rs.2,99,800
iv. (c) Rs.400
v. (a) Rs. 600

129
 CHAPTER -7 (Debenture )

Ans1 iii) Debit Debenture Suspense A/C Rs.1,00,000 and Credit

Debentures A/C Rs.1,00,000

Ans2 40000

Ans3 Loss on Issue of Debentures Account

Date Particular Amount Date Particular Amount

To premium 42000 Mar 31 By 42000

on Statement
Redemption of P.l.
of
debenture

Ans4 Bank A/c----------------------Dr 10,00,000

To Bank Loan A/c 10,00,000

Ans5 Bank a/c ….Dr 21,00,000

To debenture application and allotment A/c 21,00,000

Debenture application and allotment a/c…..dr 21,00,000

130
 Loss on issue of debentures a/c..dr 1,00,000

To 8% debentures a/c 10,00,000

To securities Premium a/c 50,000

To Premium on redemption 1,00,000

To Bank 10,50,000

securities Premium a/c ---------Dr 50,000

Statement of P.L.-----------------Dr 50,000

To Loss on issue of debentures a/c 1,00,000

Ans6 i) 5,000

ii) Security Premium Reserve A/C Dr. 20,000

Statement of P/L A/C Dr. 5,000

To Discount on issue of deb. A/C 25,000

iii) Debited to Goodwill A/C by Rs.1,40,000

iv) Nil

Ans7 i) Charge against profits.

ii) Statement of P/L A/c Dr. 76,000

To Interest on debentures A/C 76,000

iii) Credited by ₹95,000

iv) Lenders of the company.

Ans8 Bank A/c----------------------------------Dr 55,00,000

To Debenture and Appli 55,00,000

Debenture and Appli ----------------Dr 55,00,000

Loss on issue of deb------------------Dr 10,00,000

To 8% Debenture 50,00,000

To Security Premium Reserve 5,00,000

To Prem on Rede of Deb 10,00,000

131
Ans9 i) Rs.28,80,000

ii) Rs.15,00,000

iii) Rs.9,00,000

iv) Rs.9,00,000

v) Refunded and credited to bank

Ans10 Pass necessary entry

(1) Bank A/c Dr. 1425000

To Debenture application and allotment A/C 1425000

Debenture application & Allotment A/c Dr. 1425000

Dis on issue of deb -------------Dr 75000

To 10% Debentures A/c 1500000

(2) Bank A/c Dr. 8400000

To Debenture application and allotment A/C 8400000

Debenture application & Allotment A/c Dr. 8400000

To 10% Debentures A/c 8000000

To Security premium 400000

(3) Bank A/c Dr. 5000000

To Debenture application and allotment A/C 5000000

Debenture application & Allotment A/c Dr. 5000000

Loss on issue of deb------------------------------Dr 250000

To 10% Debentures A/c 5000000

To premium on red of deb 250000

(4) Bank A/c Dr. 3800000

To Debenture application and allotment A/C 3800000

Debenture application & Allotment A/c Dr. 3800000

132
 Loss on issue of deb------------------------------Dr 600000

To 10% Debentures A/c 4000000

To premium on red of deb 400000

(5) Bank A/c Dr. 7350000

To Debenture application and allotment A/C 7350000

Debenture application & Allotment A/c Dr. 7350000

Loss on issue of deb------------------------------Dr 700000

To 10% Debentures A/c 7000000

To Security premium 350000

To premium on red of deb 700000

(6) Bank A/c Dr. 200000

To Debenture application and allotment A/C 200000

Debenture application & Allotment A/c Dr. 200000

To 10% Debentures A/c 200000

Ans11 Sundry Assets -----------------------------Dr 23.50,000

Goodwill A/c-------------------------------Dr 50,000

To Sundry Liab 6,00,000

To Aryahi Ltd 18,00,000

Aryahi Ltd -------------------------------Dr 18,00,000

Loss on issue of Deb--------------------Dr 3,00,000

To 9% Debenture 20,00,000

To Prem on Red of deb 1,00,000

Statement of P.L.-----------------Dr 3,00,000

To Loss on issue of debentures a/c 3,00,000

133
Ans12 Bank A/C………………………………………Dr 75,20000

To debenture application& allotment A/c 75,20000

Debenture Application & Allotment A/c …Dr75,20000

Loss on issue of debentures A/c…----------Dr. 8,80,000

To 9% Debentures A/C 80,00,000

To premium on Redemption of debentures A/c 4,00,000

Sept.30 Interest on debentures A/C…Dr. 3,60,000

To Debentureholders A/C 3,60,000

Sept.30 Debentureholders A/C…Dr. 3,60,000

To bank A/C 3,60,000

134
 CHAPTER – 8 (Financial Statement)
Ans.1 (d)(i),(ii),(iii)and(iv)
Ans. 2 b) Both Assertion(A)and Reason(R) are true and Reason(R) is not thecorrect
explanation of Assertion(A)
Ans. 3 c) Current liabilities- Other Current liabilities

Ans. 4 Items Major Headings Sub-headings

(i) Subsidy reserve Shareholders Funds Reserves and Surplus

(ii) Mining rights Non-current Assets Fixed Assets (Intangible assets)

(iii) Provision for doubtful debts Current Liabilities Short-term Provisions

Ans. 5 (i) Long-term provisions are the provisions against which liability will arise after 12 months
of the date of balance sheet or after the period of operating cyde. e.g. Provision made for
retirement benefits payable to employees who will retire after 12 months from the date of
balance sheet, provision for warranty claims that relates to the period after 12 months of
the date of balance sheet.

(ii) The items other than ‘stock-in-trade’ that are presented under the sub-head inventories
are:

Raw material

Work-in-progress

Finished goods

135
 Stores and spares

Ans 6 Items major head subhead

a. Forfeited shares account Shareholders’ funds Subscribed capital

b. Calls-in-arrears Shareholders’ funds Subscribed capital
c. Prepaid insurance Current assets other current assets
d. Debenture redemption reserve Shareholders’ funds Reserves and
surplus
e. Premium on Redemption of debentures. Non-current liabilities other current
liabilities
f. Proposed dividend Current liabilities short term provision

Ans. 7 (b)Fictitious asset

Answers to questions 8 to 12

Ans 8 (c)Balance sheet and Statement of profit and loss.

Ans 9 (c) To see that the resources of the firm are used most efficiently and that the firm's
financial condition is sound

Ans 10 (a) Short-term liquidity of the firm

Ans 11 (d) Both (a) and (c)
Ans 12 (d) All of the above

136
 CHAPTER – 9 (Comparative and Common size )

Ans. Tax authorities are interested to analyse the financial statements to know about the
1 revenue of business firm and to ensure proper assessment of liabilities of the business as
per the laws in force, from time to time.

Ans. Window dressing’ refers to displaying the rosy picture of an enterprise through financial
2 statements. Sometimes, material information is concealed in financial statements due to
‘window dressing’.

Ans. The two more objectives of this analysis are

3

To compare the intra-firm position, inter-firm position and pattern position within the
industry.

To measure the operating efficiency and profitability of the enterprise.

Ans. The statement wherein figures reported are converted into percentage to some common
4 base are known are common size statements. Each percentage shows the relation of the
individual item to its respective total. In common size income statement, net sales figure
is assumed to be 100 and all other figures of expenses are expressed as a percentage of
sales. In common size balance sheet, the total of assets or liabilities is assumed to be 100
and figures are expressed as a percentage of the total.

Uses of common size statements are as follows:

(i) It helps in comparing the relative values of various items of income statement and
position statement over two or more accounting periods. Thus, financial managers
prepare common size statements for business reporting and decision-making purposes.

137
Ans. Comparative financial statement is an effective tool for assessing a business's financial
5 performance over different time periods. This helps investors identify business trends and
make informed investment decisions.

On the other hand, a common size financial statement presents all items in percentage
terms. It includes assets, liabilities, and sales as percentages, enabling a detailed analysis
of each line item relative to the base amount for the given accounting period.

Ans Financial statement analysis is useful to finance manager for taking financial decisions for
6 the business. It provides adequate information for financial planning.

Ans COMPARATIVE STATEMENT OF PROFIT & LOSS

7

Absolute Figures Change (Base Year 2024)

Particulars 31.03.2025 31.03.2024 Absolute Percentage

figures %

Revenue from Operation 20,00,000 25,00,000 5,00,000 25

Expenses _____________ _____________ _________ ________

__
a. Employees benefit 10,00,000 12,50,000 2,50,000
expenses 25
b. Other expenses
Total Expenses
2,00,000 2,50,000 50,000
Profit before Tax 3,00,000 25
12,00,000 15,00,000
Less: Tax 2,00,000
8,00,000 10,00,000 25
Profit after Tax 80,000
3,20,000 4,00,000 25
1,20,000
4,80,000 6,00,000 25

25

Ans . In the books of NM Ltd.

8
Comparative Income Statement for the year ended 31/03/2023 and 31/03/2024
Particulars 31/03/202 31/03/2024 Absolute Percentage
3 Change Change
(%)
[Link] from Operation 24,00,000 28,00,000 4,00,000 16.67
2. Less: Expenses
Cost of Material Consumed 18,00,000 20,00,000 2,00,000 11.11

138
 Indirect Expenses
1,80,000 2,40,000 60,000 33.33
[Link] Expenses 19,80,000 22,40,000 2,60,000 13.13
4. Profit before Tax (1-3) 4,20,000 5,60,000 1,40,000 33.33
5. Less: Tax 2,10,000 2,80,000 70,000 33.33
6. Profit after Tax (4-5) 2,10,000 2,80,000 70,000 33.33
Ans Profit before tax 2021-22 ----₹14,00,000
9
2022-23------₹16,50,000
Absolute change -------₹2,50,000
%age change --------17.85%

Ans Common size Statement of Profit and Loss

10
Particulars Absolute amounts %age of Revenue

2021-22 2022-23 2021-22 2022-23

Revenue from operation 20,00,000 30,00,000 100 100

Other incomes 2,00,000 4,00,000 10 13.33

Total revenue 22,00,000 34,00,000 110 113.33

Expenses 17,00,000 25,08,000 85 83.60

PBT 5,00,000 8,92,000 25 29.73

Less Tax 1,75,000 3,56,800 8.75 11.89

Profit after Tax 3,25,00 5,35,200 16.25 17.84

Ans PARTICULARS 31.3.2022 31.3.2023 Absolute change % change

11
Revenue from operations 15,00,000 18,00,000 3,00,000 20

Add other income ….….. ….…..

….…… …...

Total revenue 15,00,000 18,00,000 3,00,000 20

Less expenses

Cost of material consumed 11,00,000 14,00,000

3,00,000 27.27
Other expenses 1,10,000 1,68,000
58,000 52.73

139
 Total expenses 12,10,000 15,68,000 3,58,000 29.59

Profit before tax 2,90,000 2,32,000 (58,000) (20)

Less income tax 1,16,000 1,16,000 ….……….. ….…

Profit after tax 1,74,000 1,16,000 (58,000) (33.33)

Ans COMMON SIZE BALANCE SHEET

12

Particulars Note 31/03/2022(`) 31/03/2023(`) % OF BALANCE SHEET TOTAL

no.
2022 2023

EQUITY AND LIABILITIES

(I)SHAREHOLDERS FUNDS

(a) share capital 2,00,000 2,50,000 66.67 62.5

(b) reserve & surplus 60,000 80,000 20 20

(II) CURRENT LIABILITIES

Trade payable 40,000 70,000 13.33 17.5

TOTAL 3,00,000 4,00,000 100 100

ASSETS:

NON –CURRENT ASSETS

Property,Plant & Equipment &

intangible assets

Property,Plant & Equipment

1,20,000 1,60,000 40 40

Intangible assets
30,000 20,000 10 5

CURRENT ASSETS

Inventories
30,000 80,000 10 20

Trade receivables
1,00,000 1,20,000 33.33 30

140
 Cash & cash equivalents 20,000 20,000 6.67 5

TOTAL

3,00,000 4,00,000 100 100

ANS Comparative Income Statement

13
Particulars 2023-24 2024-25 Absolute % change
change
Revenue from
Operations 8,00,000 10,00,000 2,00,000 25%
Less: Employees
Benefit
Expenses 4,00,000 5,00,000 1,00,000 25%
Less: Other
Expenses 1,00,000 2,00,000 1,00,000 100%
Profit before tax 3,00,000 3,00,000 0 0%
Tax @30% 1,80,000 2,70,000 90,000 50%
Profit after tax 1,20,000 30,000 (90,000) -75%

141
 CHAPTER – 10 (Ratio Analysis )

Q.1- c) Long-term debt (external equities) and equity (internal equities).

Q.2- a) Both Assertion and Reason are correct and Reason is the correct explanation of
Assertion.
Q.3- d) A is correct but R is incorrect
Q.4- c) Increase
Q.5- Let the current liabilities = x
Therefore, quick or liquid assets = 2x
Liquid Assets = Current Assets – Inventory
2x = 3x – 40,000
2x – 3x = -40,000
-x = -40,000
x = 40,000
Current Liabilities = ₹ 40,000
Current Assets = 3 × ₹ 40,000 = ₹ 1,20,000
Q.6-
Liquid Ratio = 90000/60000= 1.5:1

Closing Inventory = Opening Inventory – 3,000 = 10000 – 3000 = ₹ 7000*100 =14.25 %

II Grass profit ratio = Grass profit Revenue from operations *100
OR 57,000 /4,00,000*100 =14.25 %
Net Purchases = 80% of Revenue from Operations = 400000 × 80100 = ₹ 3,20000
Cost of Revenue from Operations = Opening Inventory + Net Purchases + Direct
Expenses – Closing Inventory
= 10000 + 3,20000 + 20000 – 7000 = ₹ 3,43000
‗Gross Profit = Revenue from Operations – Cost of Revenue from Operations
= 400000 – 3,43000 = ₹ 57000

Debt Equity Ratio = Long Term Debt/Shareholders Fund

142
 5, 50000/11,00,000 = 0.5:1

‗Long-term Debts = 9% Debentures + Long-term Loan from Bank

= 400000 + 1,50000 = ₹ 550000
―Shareholders‘ Funds = Equity Share Capital + 8% Preference Share Capital
= 800000 + 300000 = ₹ 1100000

Q.7-
Gross Profit = 25% on cost
Gross profit ₹ 500000
∴ Revenue from Operation = 12525 × 500000
= ₹ 25,00,000
Working Capital = Equity Share Capital + Reserve and Surplus + Long-term Loan – Non-current
Assets
= 1000000 + 200000 + 300000 -1000000 = ₹ 500000
Working Capital Turnover Ratio = Revenue from operations/ Working capital
25,00,000/5,00,000 = 5 times

Q.8-
Total Assets to debt ratio = Total Assets / Long term Debts
= 32,00,000 / 16,00,000 = 2 : 1
Long term debts = total debts (Liabilities) − Current Liabilities
= 18,00,000 − 2,00,000 = 16,00,000
Total assets = shareholder funds + total debts (liabilities)

Q.9-
Net Profit after Tax = Rs. 60,000
Tax Rate = 40%
Net Profit before tax = Net profit after tax × 100/ (100 − Tax rate)
= Rs. 60,000 × 100/(100 − 40)
= Rs. 1,00,000
Interest on Long-term Debt = 15% of Rs. 10,00,000 = Rs. 1,50,000
Net profit before interest and tax = Net profit before tax + Interest
= Rs. 1,00,000 + Rs. 1,50,000 = Rs. 2,50,000
Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on long -term
debt
= Rs. 2,50,000/Rs. 1,50,000
= 1.67 times

Q.10-
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
Cost of Revenue from Operations = Inventory in the beginning + Net Purchases +
Wages + Carriage inwards − Inventory at the end
= Rs. 18,000 + Rs. 46,000 + Rs. 14,000 + Rs. 4,000 − Rs. 22,000 = Rs. 60,000
Average Inventory = Inventory in the beginning + Inventory at the end / 2
= Rs. 18,000 + Rs. 22,000/ 2 = Rs. 20,000
∴ Inventory Turnover Ratio = Rs. 60,000/ Rs. 20,000 = 3 Times

143
Q.11-
Trade Receivables Turnover Ratio = Net Credit Revenue from Operations / Average
Trade Receivables
Credit Revenue from operations = Total revenue from operations − Cash revenue
from operations
Cash Revenue from operations = 20% of Rs. 4,00,000
= Rs. 4,00,000 × 20 / 100 = Rs. 80,000
Credit Revenue from operations = Rs. 4,00,000 − Rs. 80,000 = Rs. 3,20,000
Average Trade Receivables = Opening Trade Receivables + Closing Trade
Receivables / 2
= Rs. 40,000 + Rs. 1,20,000 / 2 = Rs. 80,000
= Net Credit Revenue Form Operations / Average Inventory
= Rs. 3,20,000 / Rs. 80,000 = 4 times

Q.12-
Revenue from Operations = Cash Revenue from Operations + Credit R evenue from
Operation
= Rs.25, 000 + Rs.75, 000 = Rs. 1,00,000
Net Purchases = Cash Purchases + Credit Purchases − Return Outwards
= Rs. 15,000 + Rs. 60,000 − Rs. 2,000 = Rs. 73,000
Cost of Revenue from = Purchases + (Opening Inventory − Closing Inventory ) +
operations Direct Expenses
= Purchases + Decrease in inventory + Direct Expenses
= Rs. 73,000 + Rs. 10,000 + (Rs. 2,000 + Rs. 5,000)
= Rs. 90,000
Gross Profit = Revenue from Operations − Cost of Revenue from Operation
= Rs. 1,00,000 − Rs. 90,000 = Rs. 10,000
Gross Profit Ratio = Gross Profit/Net Revenue from Operations × 100
= Rs.10,000/Rs.1,00,000 × 100 = 10%.
(b) Operating Ratio: It is computed to analyse cost of operation in relation to
revenue from operations.
It is calculated as follows:
Operating Ratio = (Cost of Revenue from Operations + Operating Expenses)/ Net
Revenue from Operations × 100
(c) Operating Profit Ratio: It is calculated to reveal operating margin. It may be
computed directly or as a residual of operating ratio. It is calculated as under
Operating Profit Ratio = Operating Profit/ Revenue from Operations × 100
Where,
Operating Profit = Revenue from Operations − Operating Cost

144
 CHAPTER 11 (CASH FLOW STATEMENT )

1 Option A
2 Cash flow from operating Activity = R 15,00,000
3 i. Payment of principal- Investing Activity
ii. Payment of interest- Financing Activity
4 Option C
5 Sale of investment by non –financial enterprise
6 Principal amount Rs. 60,000 will be classified as an Investing Activity whereas
interest amount i.e. Rs. 20,000 will be classified as Financing Activity
7 Option a) Both Assertion and Reason are true. Reason is a correct explanation
of assertion.

8 Cash Flow Statement

Particulars Amount(Rs) Amount(Rs)

I. Cash flow from operating activities:
Net profit before tax (4,00,000-2,00,000) 2,00,000
Adjustment for non cash and non operating items:
Depreciation
Profit on sale of machinery 30,000
(10,000) 20,000

145
 2,20,000
Operating profit before working capital changes
Change in current assets and current liabilities:
Decrease in inventories
Increase in trade receivable
Increase in trade payables 50,000
(2,00,000)
Net cash inflow from operating activities 1,00,000 (50,000)

II. Cash flow from investing activities: 1,70,000

Sale of plant
Purchase of plant
Net cash used in investing activities 60,000
(2,80,000)
III. Cash flow from financing activities: (2,20,000)
Issue of share capital
1,00,000
Net cash inflow from financing activities
1,00,000
[Link] increase in cash and cash equivalents

V. Opening cash and cash equivalents 50,000

VI. Closing cash and cash equivalents 30,000

80,000
Working Note

Plant and Machinery Account

Particulars Amount Particulars Amount
To Balance b/d 3,00,000 By Bank A/c(Sale) 60,000
To Statement of P/L(Profit) 10,000 By Depreciation A/c 30,000
To Bank A/c(Purchase) 2,80,000 By Balance c/d 5,00,000

5,90,000 5,90,000

146
 Cash Flow Statement for the year ended 31.3.2018
Particulars Rs. Rs
Cash flow from operating activities:
Net profit before tax and extraordinary items 1 00 000
Add: Non cash and non operating charges
Good will written off 72 000
Depreciation on machinery loss on sale of machinery 66 000
Loss on sale of machinery 2 000
Operating profit before working capital changes. 2 40 000
Less increase in current assets
Increase in TR (27 000)
Increase in inventories. (8 000)
Less decrease in current liabilities
Decrease in trade payable (25 000
Decrease in short term provision (27 000) 1 53 000
Cash generated from operating activity
Cash flow from investing activity:
Purchase of machinery (2 94 000)
Sale of machinery 6 000 (2 88 000)
Cash used in investing activity
Cash flows from financing activities:
Issue of share capital 1 00 000
70 000 1 70 000
Money raised from borrowing
Cash flow from financing activity 35 000
Net increase in cash and cash equivalent 5 25 000
Add : opening cash and cash equivalent 5 60 000
Closing cash and cash equivalent

10
Cash Used in Operating activities Rs 10,000, Cash Used in 6
Investing activities-46,000, Cash flow from Financing activities
58,000
Solution:
CASH FLOW STATEMENT FOR THE YEAR ENDED 31-03-2019
( Indirect Method) AS -3
A. CASH FLOW FROM OPERATING ACTIVITIES Amount Amount

147
 Net Loss before Tax and extraordinary items (20,000)
Add: Loss on sale of Machinery 6,000
Dividend Made during the year 16,000
General Reserve Creates 6,000

Less: Increase in Inventory 8,000

Increase in Receivables 10,000 (18,000)
CASH USED IN OPERATING ACTIVITIES
(10,000)
B. Cash flow from investing activities
Purchase of Machinery (56,000)
Sale of Machinery 10,000
CASH USED IN INVESTING ACTIVITIES (46,000)
c. Cash flow from Financing Activities
Issue of Eq, Share Capital 70,000
Issue of Pref Sh Capital 8,000
Redemption of Long term borrowing ( 4,000)
Payment of Dividend (16,000) 58,000
NET FLOW(A+B+C) 2,000
Add. Opening cash & Cash Equivalent 10,000
Closing cash and cash equivalent 12,000

WN: Plant & Machinery Account

To Balance b/d 1,00,000 By Bank 10,000
By P/L(Loss) 6,000
TO Cash(Purchase) 56,000 By Balance c/d 1,40,000
1,56,000 1,56,000

11 CASH FLOW STATEMENT

Prticulars Amount Amount

A. Cash flow from Operating Activities :
Net Profit before tax 40,000
Adjustments for Non-Cash and Non-Operating items :
Add : Depreciation 20,000
Operating profit before Working Capital Changes 60,000
Add : Increase in Current Liabilities
Sundry Creditors
6,000
66,000
Less : Decrease in Current Liabilities
Bills Payables 1,400
Less : Increase in Current Assets
Inventory 3,000
Bills Receivables 3,000
Cash Generated from Operating Activities 7,400 58,600
Less : Income Tax Paid 5,000
Net Cash Flow from Operating Activities
B. Cash Flow from Investing Activities :
Purchase of Fixed Assets (92,600)

148
 Net Cash Used in Investing Activities 53,600
C. Cash Flow from Financing Activities :
30,000
Issue of Share Capital 10,000
Increase in Bank Overdraft 40,000 (92,600)
Net Cash Flow from Financing Activities
D. Net Increase in Cash & Cash Equivalents [A+B+C]
Add : Cash & Cash Equivalents in the beginning of the period
Cash & Cash Equivalents at the end of the period
40,000
1,000
4,000
5,000
12 Cash Flow Statement

Particulars Amount(Rs) Amount(Rs)

I. Cash flow from operating activities:
Net profit before tax (4,00,000-2,00,000) 2,00,000
Adjustment for non cash and non operating items:
Depreciation
Profit on sale of machinery 30,000
(10,000) 20,000
Operating profit before working capital changes 2,20,000
Change in current assets and current liabilities:
Decrease in inventories
Increase in trade receivable
Increase in trade payables 50,000
(2,00,000)
Net cash inflow from operating activities 1,00,000 (50,000)
1,70,000
II. Cash flow from investing activities:
Sale of plant
Purchase of plant
Net cash used in investing activities
60,000
III. Cash flow from financing activities: (2,80,000)
Issue of share capital (2,20,000)

Net cash inflow from financing activities

1,00,000
[Link] increase in cash and cash equivalents
1,00,000
V. Opening cash and cash equivalents
50,000
VI. Closing cash and cash equivalents
30,000

149
 80,000

Working Note

Plant and Machinery Account

Particulars Amount Particulars Amount
To Balance b/d 3,00,000 By Bank A/c(Sale) 60,000
To Statement of P/L(Profit) 10,000 By Depreciation A/c 30,000
To Bank A/c(Purchase) 2,80,000 By Balance c/d 5,00,000

5,90,000 5,90,000

150
 MARKING SCHEME OF LATE BLOOMERS

CHAPTER 1

SOLUTIONS
Ans. 1.(C)/ 7.5 months
Ans.2. (A)/ Interest on Partners‘ Loan
Ans.3. Partnership Deed/ Partnership Agreement
Ans.4 (A)/ Actual profit; Normal profit
Ans.5
Date Particulars Debit Credit
R capital A/c Dr. 1500
To P capital A/c 1500
(Interest on capital omitted ,Now rectified)

Working Notes

Particulars P Q R Total
Interest on drawing (Dr.) 1000 1500 2500 5000
Profit (Cr.) 2500 1500 1000 5000
Adjustment 1500(Cr.) —--- 1500(Dr..)

Ans.6 . Profit & Loss Appropriation A/c

for the year ended 31st March, 2024

Particulars Amount Particulars Amount

To Profit transferred to By Profit & Loss A/c- 17,50,000
W‘s Capital A/c 7,00,000 balance b/d
-guarantee to X (2,00,000) 5,00,000
X‘s Capital A/c 7,00,000
+Guaranteed
Amount 3,00,000 10,00,000
Y‘s Capital A/c 3,50,000
- Guarantee to X 2,50,000
(1,00,000)

17,50,000 17.50,000

Ans 7.(a) No, the claim is not valid.

Reason- In the absence of a partnership deed, interest on Partners Loan is given @ 6% p.a.
(b)No, the claim is not valid.
Reason- In the absence of a partnership deed, interest on Capital is not allowed to the partners.

151
 Ans.8 Savita‘s share of profit…. (d) `10,000
Ans 9 The total profits of the firm……(b) Kavita `50,000, Savita `1,00,000, Madhu `30,000
Ans 10.
Normal Profit = 10/100 x 150,000 = `15,000
Average Profit = `23,500
Super Profit = Average Profits – Normal Profit
= 23,500 - 15,000
= `8,500
Goodwill = Super Profits x Number of years‘ purchase
= 8500 x 3
= ` 25,500

Ans.11 Calculation of Interest on Capital

Rakshit (`)
Interest on Capital from 1 April 2023 to 30 Nov. 2023
6/100 x 8/12x 1,20,000 = 4,800
Interest on Capital from 1 Dec. 2023 to 31 March 2024
6/100 x 4/12x 2,00,000 = 4,000
Interest on Capital 8,800
Malik (`)
Interest on Capital from 1 April 2023 to 30 Nov. 2023
6/100 x 8/12x 80,000 = 3,200
Interest on Capital from 1 Dec. 2023 to 31 March 2024
6/100 x 4/12x 1,00,000 = 2,000
Interest on Capital 5,200
Ans.12 Books of P, Q and R
Journal
Date Particulars L.F. Debit Credit
2023 Profit & Loss A/c Dr. 3,00,000
April 1 To Profit & Loss Appropriation A/c 3,00,000
(Being profit transferred from Profit & Loss A/c to Profit &
Loss Appropriation A/c)
—--------------------------------------------------------------------------
Profit & Loss Appropriation A/c Dr. 3,00,000
To P‘s Capital A/c 1,80,000
To Q‘s Capital A/c 90,000
To R‘s Capital A/c 30,000
(Being Net profit distributed among the partners)
—-----------------------------------------------------------------------
P‘s Capital A/c 12,000
Q‘s Capital A/c 8,000
To R‘s Capital A/c 20,000
(Being adjustment of guaranteed amount to R)

152
CHAPTER 2
1. B. Gain 1/8
2. C. Sacrifice by A 1/10, gain by B 1/ 10
3. B. 1:D, 2:C, 3: A, 4: B
4. B. Old profit-sharing ratio
5. JOURNAL
Date Particulars LF Amt Amt

2018 Investment Fluctuation fund A/c Dr 20,000

March 31
To investment A/c 10,000

To R‘s capital A/c 6,000

To S‘s capital A/c 4,000

(Being investment Fluctuation Fund adjusted

against the fluctuation in market value and balance
distributed amongst partners)

March 31 S‘s capital A/c Dr. 2,400

To R‘s capital A/c 2,400

(Being adjustment of goodwill made between

partners due to change in PSR)

March 31 S‘s capital A/c Dr. 2,340

To R‘s capital A/c 2,340

(Being general reserve adjusted among the partners

without writing off)

Working Note:

Sacrificing ratio = Old ratio – New ratio

R‘s = 3/5-1/2 = 1/10 sacrifice

S‘s = 2/5-1/2 = (1/10) gain

153
6. Goodwill = Super profit * no. of years purchase
1,80,000 = Super profit * 3
Super profit = 1,80,000 /3 = `60,000
Capital employed = Assets – creditors = 10,00,000 – 50,000 = `9,50,000
Normal profit = Capital employed * Normal rate of return
= 9,50,000 * 15/100 = `1,42,500
Super profit = average profit – normal profit
average profit = Super profit+ normal profit = 60,000 + 1,42,500 = `2,02,500

7. Average profit =[ `1,90,000 + `30,000(loss) + `2,00,000] / 3 = `1,20,000

Goodwill = average profit * no. of years purchase
= 1,20,000 * 1.5 = `1,80,000
General reserve = `1,20,000
Total of general reserve and goodwill = `1,80,000 + `1,20,000 = `3,00,000
Calculation of sacrifice or gain
A = 2/5 – 1/3 = (6 – 5)/15 = 1/15
B= 3/5 – 2/3 = (9 – 10)/15 = (1/15) gain
B‘s capital A/c Dr. 20,000
To A‘s capital A/c 20,000
8. (i) (c) Credit S by `12,000 and T by `8000.
(ii) (b) Debit T by ` 10,000 and Credit S by `10,000.
(iii) (b) Debit T by `6000 and Credit S by ` 6000.
9. (i) (b)` 38,000
(ii) (c) ` 25,000
(iii) (d) ` 63,000
(iv) (d) Dr. U by ` 22,500; Credit S by `17,500; Credit T by `5,000.

10. (i) Credit A by `5000 and Debit B by `5000.

(ii) (c) `80,000
(iii) Debit A by `20,000 and Credit B by `20,000.
(iv) (b) `4,90,000

154
11. JOURNAL
Date Particulars LF Dr Amount Cr Amount

General Reserve A/c Dr. 2,00,000

To A‘s capital A/c 80,000
To B‘s capital A/c 80,000
To C‘s capital A/c 40,000
(Being General reserve distributed)
C‘s capital A/c Dr. 20,000
To A‘s capital A/c 10,000
To B‘s capital A/c 10,000
(Being adjustment of goodwill among partners)
Bad debts A/c Dr. 40,000
To Debtors A/c 40,000
(Being bad debts written off)
Provision for Doubtful debts A/c Dr. 20,000
Revaluation A/c Dr. 20,000
To Bad debts A/c 40,000
(Bad debts charged to provision and revaluation)
Revaluation A/c Dr. 11,000
To provision for Doubtful debts A/c 11,000
(Provision for D.D @5% on Drs)
A‘s capital A/c Dr. 12,400
B‘s capital A/c Dr. 12,400 6,200
C‘s capital A/c Dr.
To Revaluation A/c 31,000
(Loss on revaluation debited to Partners capital
A/cs)

12. Calculation of adjusted profit

Profit /year 31.3.2018 31.3.2019 31.3.2020 31.3.2021 31.3.2022

Profit 80,000 1,05,000 (20,000) 1,80,000 2,00,000

Less overvaluation of (40,000) …….. …… ……….. ………..
closing stock

155
 Add overvaluation of ---- 40,000 …… ……….. ………..
opening stock
Add abnormal loss …….. 41,500 ……. ………… …………

Add salary to employees ………. ………..

Less repair of machine ………. ………. …… (60,000) …….

Add depreciation ……….. ……… ….. 9,000 10,200

Adjusted profit 40,000 1,86,500 (20,000) 1,29,000 2,10,200

year ended Adjusted Profit weight Weighted average profit

31st March 2018 40,000 1 `40,000

1,86,500 2 3,73,000
31st March 2019
20,000 3 (`60,000)
st
31 March 2020 1,29,000 4 `5,16,000

31st March 2021 2,10,200 5 `10,51,000

31st March 2022

15 `19,20,000

Weighted average profit = 19,20,000/15 = `1,28,000

Value of goodwill = weighted average profit * no. of years purchase

= 1,28,000 * 3

= `3,84,000

CHAPTER 3

ANS 1-D
ANS 2-C
ANS 3-C
ANS 4-A
ANS 5-A
Let Profit = Rs.1

156
Share of D=1/3
Remaining Profit=1-1/3=2/3
Share of A, B, C in Remaining Profit
A=2/3*2/5=4/15 ,B=2/3*2/5=4/15, C=2/3*1/5=2/15,D=1/3*5/5=5/15
N R=[Link]

Scarifying Ratio (SR)

PARTNER OLD RATIO NEW RATIO SR=OR-NR
A 2/5 4/15 =2/5-4/15=2/15
B 2/5 4/15 =2/5-4/15=2/15
C 1/5 2/15 =1/5-2/15=1/15
D *** ** ****

ANS 6:
Journal
Date Particular LF Debit Credit
Cash A/C Dr 35000
To C Capital A/C 30000
To Premium for Goodwill 5000
Premium for Goodwill A/C Dr 50000
TO Amit‘s Capital A/C 3000
TO Vinay Capital A/C 2000
(The amount to capital account)

157
ANS 7:

Date Particular LF Debit Credit

Amit‘s Capital A/C Dr 30000
Vinay Capital A/C Dr 10000
To Profit & Loss A/C 40000
(The amount to capital account)

ANS 8:

Solution (a) Ajay will bring Rs. 5,000 (1/4 of Rs. 20,000) as his share of goodwill (premium)

(b) Sacrificing Ratio is 2:3 as calculated below:

For Vijay, old ratio is 3/5 and the new ratio is 2/4, hence, his sacrificing ratio is = 3 /5-2/ 4 =
12/20-10/20 = 2 /20
For Sanjay, old ratio is 2/5 and the new ratio is 1/4, hence, his sacrificing ratio is = 2 / 5-1/ 4 =
8/20 – 5/20 = 3 /20
Books of Vijay and Sanjay
Partners’ capital account
Particular Vijay Sanjay Ajay Particular Vijay Sanjay Ajay
To Bank 2000 3000 By Balance b/d 300000 200000
By Bank 30000
To Balance c/d 300000 200000 30000 By Premium for 2000 3000
Goodwill
302000 203000 30000 302000 203000 30000

ANS 9:

BOOK OF X, Y AND Z
REVALUATION ACCOUNT

158
 Particulars Rs. Particulars Rs.
To Stock A/c 2000 By Land A/c 16500
To Claim against damages A/c 1500
To Furniture A/c 2450 By Creditors A/c 1000
To Provision for bad debts A/c 1750
To Profit transferred to capital A/c
X's 7350
Y's 2450 9800
17500 17500
PARTNER'S CAPITAL ACCOUNT
Particulars X Y Z Particualrs X Y Z
By Bal b/d 1,76,000 1,45,200
By Rev a/c 7,350 2,450
By Bank 1,00,000
To Bal c/d By Prem for 9,000 3,000
1,82,350 1,50,650 1,00,000
G/W
1,82,350 1,50,650 1,00,000 1,82,350 1,50,650 1,00,000

ANS 10:

REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.
To Liability against Bills 1670 By Public deposits A/c 210
discounted
By Partner‘s capital A/C
To Furniture
600 Dinesh -1030
Yasmine- 687
Faria - 343 2060
2270 2270

Parner‘s Capital A/c

159
 Particulars D Y F A Particualrs D Y F A
To Rev 1030 687 343 By Bal b/d 5100 3000 5000
To Bal c/d 5520 3280 5140 4500 By Reserve 450 300 150
By cash -- 4500
By Prem.
G/W
1000 667 333
6550 3967 5483 4500 6550 3967 5483 4500

ANS 11:

REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.
To Furniture 2800 By Partners capital a/c
To Investment 3200 B-1880
To Machinery 3400 J-2820
H-4700 9400
9400 9400
Partner‘s Capital A/c
Particulars B J H S Particulars B J H S
To Rev a/c 1880 2820 4700 By Bal b/d 36000 44000 52000

To Goodwill 4000 6000 10000 By P/L 2800 4200 7000

To Investment 5760 8640 14400 By Bank 36000
To Bal c/d By Prem
for G/W
29560 34340 35900 29560 2400 3600 6000
41200 51800 65000 36000 41200 51800 65000 36000

160
 ANS 12:
.
REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.
To Furniture 30,000 By stock 30,000
To Parners capital a/c By Investment 40,000
Sanjana-24,000
Alok -16,000 40,000
70,000 70,000

Parner‘s Capital A/c

Particulars Snajana Alok Nidhi Particualrs Snajana Alok Nidhi

To Cash 30,000 20,000 By Bal b/d 5,00,000 4,00,000

By Rev a/c 24,000 16,000

To investment 3,00,000 By Bank 3,00,000

To Cash By Prem for 60,00 40,000

1,40,000 G/W
By W C R 36,000 24,000

To Bal c/d 4,50,000 3,00,000 3,00,000 By Bank 1,40,000

6,20,000 6,20,000 3,00,000 6,20,000 6,20,000 3,00,000

BALANCE SHEET (as at ………….)

Liabilities Amount Assets Amount
Creditors 60,000 Cash 5,16,000
Debtors – 1,46,000
Capital- Provision-2000 1,44,000

Sanjana-4,50,000 Stock 1,80,000

Alok -3,00,000

161
 Nidhi -3,00,000 10,50,000 Furniture 2,70,000
11,10,000 11,10,000

Working Notes
1. Firm‘s goodwill = ₹ 4,00,000
Nidhi‘s share of goodwill = 4,00,000 x 14 = ₹ 1,00,000 to be distributed among Sanjana and
Alok in sacrificing ratio.
2. Sanjana‘s capital after adjustment = ₹ 5,90,000
Alok‘s capital after adjustment = ₹ 1,60,000
= ₹ 7,50,000
to be in profit sharing ratio
Sanjana = 7,50,000 x 35 = 4,50,000 – 5,90,000 = ₹ 1,40,000 cash withdrew
Alok = 7,50,000 x 25 = 3,00,000 – 1,60,000 = ₹ 1,40,000 cash brought in.

CHAPTER – 4

1 mark questions
Q1: Option A
Q2: Option A
Q3: Option C
Q4: Option C

3 and 4 marks questions

Q5: Total capital of firm before retirement = 1,03,680 + 87,840 + 26,880 = Rs. 2,18,400
Availability of cash = 9,600 - 7,200 (Minimum Balance) = Rs. 2,400
Combined new capital of X and Z = Rs. 2,16,000 (2,18,400 – 2,400)
X's new capital = 216000 X 3/5
= 1,29,600
Existing capital of X = Rs. 1,03,680 So, X has to bring = 1,29,600 − 1,03,680 = Rs. 25,920
Z's new capital = 216000 X2/5
= 86,400

162
Existing capital of Z = Rs. 26,880 So, Z has to bring = 86,400−26,880 = Rs. 59,520
Journal
Cash A/c Dr. 85,440
To X‘s Capital 25,920
To Z‘s Capital 59,520
(Cash brought in by X and Z to pay Y)
Y‘s Capital Dr. 87840
To Cash 87840
(Cash paid to Y)

Q6: General Reserve Dr. 1,80,000

Workmen Compensation Reserve Dr. 24,000
To X‘s Capital 1,02,000
To Y‘s Capital 68,000
To Z‘s Capital 34,000
(General Reserve and Workmen Compensation Reserve distributed among
partners in their old profit-sharing ratio)
X‘s Capital Dr. 15000
Y‘s Capital Dr. 10000
Z‘s Capital Dr. 5000
To Profit & Loss A/c 30000
(Accumulated Loss distributed in old profit ratio)
Note – No entry for Employees Provident Fund will be made because it is an external liability.

163
Q7: Bijit‘s Capital A/c
Particulars Amount Particulars Amount
Drawings 5,000 Balance b/d 40,000
Bijit‘s Executor‘s A/c 38,600 Interest on Capital 600
Profit & Loss Suspense A/c 3,000
43600 43600

Q8: Net Profit = 1,00,000

Rate of net profit = 100000/1000000𝑋 100 = 10%
Sales till date of death = Rs.4,50,000
Profit till date of death = 450000 X10/100
= 45,000
Radish‘s share = 45,000 X 2/5
= 18,000
Journal
Profit & Loss Suspense A/c Dr. 18,000

To Radish‘s Capital A/c 18,000

(Radish‘s share of profit credited to his capital)

6 marks questions
Q9: Bhavin‘s Capital Dr.5000
Kartik‘s Capital Dr.5000
To Ankit‘s Capital 10000
(Adjustment of Goodwill)
Provision for Bad Debts Dr.1000
To Debtors 1000

164
(Bad debts written off)
Revaluation Dr. 6400
To Provision of Bad Debts 400
To Furniture 6000
(Losses transferred to Revaluation)
Land & Building Dr.20000
To Revaluation 20000
(Gain on Building transferred to Revaluation)
Workmen Compensation Reserve Dr.10000
To Prov. for Workmen Compensation 4000
To Bhavin‘s Capital 2000
To Ankit‘s Capital 2000
To Kartik‘s Capital 2000
(Adjustment of Workmen Compensation
Reserve)
Reserve Dr. 30000
To Bhavin‘s Capital 10000
To Ankit‘s Capital 10000
To Kartik‘s Capital 10000
(Reserve distributed among partners)
Investment Fluctuation Fund Dr.6000
Revaluation Dr.1000
To Investment 7000
(Loss on investment adjusted through
Investment Fluctuation Fund and balance
transferred to Revaluation account)
Revaluation Dr.12600
To Bhavin‘s Capital 4200
To Ankit‘s Capital 4200
To Kartik‘s Capital 4200

165
 (Revaluation profit distributed to partners)
Ankit‘s Capital Dr. 66200
To Ankit‘s Loan 66200
(Balance of Ankit‘s Capital transferred to his
loan account on retirement)

Q10: Revaluation A/c

Particulars Amount Particulars Amount
Provision for Doubtful debts 4,000 Building 40000
Machinery 20,000
Profit transferred to
A‘s Capital 8,000
B‘s Capital 4,000
C‘s Capital 4,000
40000 40000
Partners‘ Capital A/c
Particulars A B C Particulars A B C
B 24,000 12,000 Balance b/d 1,60,000 40,000 40,000
B‘s Loan 90,000 A 24,000
Balance c/d 1,60,000 80,000 C 12,000
General 10,000 10,000 10,000
Reserve
Revaluation 8,000 4,000 4,000
Cash (bal. 6,000 38,000
fig.)
1,84,000 90,000 92,000 1,84,000 90,000 92,000

166
 Q11: Goodwill- Rs. 37500; Profit & Loss Suspense A/C- Rs. 7500; General Reserve- Rs.6000;
Interest on Capital- Rs.3000. Amount due to A‘s Executor- Rs. 114000. Half amount to be paid
i.e. Rs.57000. Balance Rs. 57000 transferred to A‘s Executors Loan Account.

Q12: B‘s Capital A/c

Particulars Amount Particulars Amount
To Drawings A/c 11,000 By Balance b/d 15,000
To Interest on Drawings A/c 165 By General Reserve 5,000
To B‘s Executor A/c 21,210 By Interest on Capital 375
By Revaluation A/c 1,000
By Profit & Loss 11,000
Suspense A/c
32,375 32,375

B‘s Executor A/c

Particulars Amount Particulars Amount
To Cash A/c 12,000 By B‘s Capital A/c 21,210
To B‘s Executor Loan A/c 9,210
21,210 21,210

Working Notes -
Interest on Capital = 15,000 x 6/100x5/12
= 375
Interest on Drawings = 11000 x 6/100x3/12
= 375 = 165
𝑇𝑖𝑚𝑒 𝑃𝑒𝑟𝑖𝑜𝑑 𝑓𝑜𝑟 𝑓𝑖𝑟𝑠𝑡 𝑑𝑟𝑎𝑤𝑖𝑛𝑔𝑠 + 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑓𝑜𝑟 𝑙𝑎𝑠𝑡 𝑑𝑟𝑎𝑤𝑖𝑛𝑔𝑠

2
=
5+1

167
 2
= 3 𝑀𝑜𝑛𝑡ℎ𝑠
First drawings will be on 1st January and last on 1st May.
Share in Profit = 65,000 + 7,000 = 72,000 X 5/12
= 30,000 + (30,000 𝑋10/100)
= 33,000
B‘s Share = 33000 X 1/3
= 11,000
Profit on Revaluation of Investment = 3000 X 1/3
= 1,000
Cash paid to B‘s Executor = [3,000 + 15,000 (sale of investment) – 6000 (Cash balance to be
maintained)] = 12,000

168
 CHAPTER-5

Partners capital A/C Dr. 6,000

To Realisation A/C. 6,000
2- ₹ 12,000
3- B
4- No Entry
5- (I) Dr. Realisation account and Credit Sharma‘s capital account by ₹15,000
(II)Dr. Realisation account and Credit Bank account by₹ 5,000
(III)Dr. Realisation account and Credit Bank account by ₹2,84,000
(IV)Dr. Partners capital account respectively by₹ 4,500, ₹9,000 and ₹4,500 and credit
Realisation account by ₹18,000.
6- (I) Dr. Workman Compensation Reserve and Credit Realisation account by ₹75,000 and
Partners Capital account by ₹25,000.
(II) Dr. Workman Compensation Reserve and Credit Realisation account by ₹1,00,000
(III) Same as case (ii)
7- (I) Debit X Capital Account and Credit Y‘s Capital Account by ₹5,000
(II) Debit Y‘s Loan Account by ₹50,000 and Credit Bank Account by₹ 48,000 and Realisation
Account by ₹ 2,000
(III) No Entry
8- Realisation Account

Particular ₹ Particular ₹

To Sundry Assets 2,30,000 By Trade Creditors 40,000

To Bank (Trade creditors) 38,000 By Loan form Mrs. A 20,000
To Bank (Loan from Mrs.A) 19,000 By Bank(Assets released) 1,90,000
To Bank (Expenses) By Loss on Realisation
4,000 41,000
A‘s capital 24,600
. .
B‘s capital 16,400
2,91,000 . 2,91,000. .

169
9- (I) A‘s Capital A/C. Dr. 15,000
B‘s Capital A/C. Dr. 15,000
To Realisation A/C. 30,000
(II) A‘s Capital A/C. Dr. 5,000
B‘s Capital A/C. Dr. 15,000
To Bank A/C. 20,000

10- (I)Dr. Realisation Account and Credit Bank Account

(II)Dr. Realisation Account and Credit Partners Capital Account
(III)Dr. Tushar Capital Account and Credit Bank Account
(IV)Dr. Realisation Account and Credit Suresh Capital Account
11- Realisation Account

Particular ₹ Particular ₹

To Sundry Assets 28,10,000 By Creditors 50,000

To Bank Account By Outstanding Expenses 45,000
By [Link] Doubtful Debts 5,000
9% loan 16,35,000 By 9% Loan
15,00,000
Creditors 50,000 By Bank (Assets Released)
By Loss transferred 26,32,000
O/S expenses 45,000 17,30,000
To Bank(Expensive paid) 10,000 G's Capital 1,90,800
M‘s Capital 1,27,200 3,18,000
.
.
45,50,000
45,50,000

170
12- Realisation Account

Particular ₹ Particular ₹

To Sundry Assets 4,72,000 By Sundry Liabilities 2,09,000

To Girija's Capital Account By Investments Fluctuation
(Brothers Loan) Fund
77,000 15,000
To Bank Account (creditors By Bank Account (Assets
paid) Released) 3,01,000

To Bank (overdraft paid) 3,000 By Ganesh capital(Stock) 4,000

To Ganesh Capital 50,000 By Loss transferred to:

(Expenses paid) 17,000 Girija‘s Capital 36,000
Ganesh‘s Capital 54,000 90,000
. .
6,19,000 6,19,000

171
CHAPTER -6

[Link] ANSWERS
1 forfeited
2 5 each
3 Authorized share capital
4 ₹5,85,000
5 Assets A/c Dr. 25,000
To A Ltd. 25,000
(Assets bought from X Ltd.)
A Ltd. Dr. 25,000
To Share Capital A/c 20,000
To Securities Premium A/c 5,000
(2,000 shares of Rs 10 each issued to X Ltd.)
6 Bank A/c (12,000 × 100) Dr 12,00,000
To Share Application and Allotment A/c (12,000 × 100) 12,00,000
(Being application money received on 12,000 equity shares)
Share Application and Allotment A/c Dr 12,00,000
To Share Capital A/c (10,000 × 100) 10,00,000
To Bank A/c (2,000 × 100) 2,00,000
(Being share application and allotment money adjusted for 10,000
shares and balance money refunded)
Note: Since the entire amount is receivable on application so the excess money on 2,000
shares has been refunded and allotment is made on a pro-rata basis to 12,000
shareholders
7 (i) Authorized Capital = ₹10,00,000
(ii) Issued Capital = 90,000 Shares @ 10 each ₹9,00,000
(iii)Subscribed Capital= 90,000 Shares @ 6 each ₹5,40,000-
11,000=₹5,29,000

172
 (iv)Calls-in Arrears= 11,000
8 Equity Share Capital A/c (900×75) Dr. 67,500
To Share Forfeiture A/c 22,500
To Calls-in-Arrears A/c 45,000
(900 shares of Rs 100 each Rs 75 called up, forfeited for the non-payment sum
of allotment Rs 30 and first call Rs 20 per share)
Bank A/c Dr. 81,000
To Share Capital A/c 67,500
To Securities Premium A/c 13,500
(900 shares of Rs 100 each re-issued as Rs 75 paid-up for Rs 90 each)
Share Forfeiture A/c Dr. 22,500
To Capital Reserve A/c 22,500
(Balance of Share Forfeiture Account after re-issue, transferred to Capital
Reserve Account)

173
9
Data Limited
Balance Sheet (Extract) as at
Particulars Note No Amount

I. EQUITY AND LIABILITIES

Shareholders‘ funds
Share Capital 1 4,97,500

Notes to Accounts Amount Amount

Particulars
1. Share Capital
Authorised Capital
100000 Equity shares of ₹10 each 10,00,000
-----------------
Issued Capital
50000 Equity shares of ₹10 each 500000
-----------------
Subscribed capital
Subscribed and fully paid up
49500 equity shares of ₹10 each
Subscribed but not fully paid-up 495000
500 equity shares of ₹10 each 5000
Less: calls in arrears (500x5) 2500 2500 4,97,500

10 (i) Sundry Assets A/c Dr. 15,00,000

Goodwill A/c Dr. 3,68,500
To Sundry Liabilities A/c 5,00,000
To P Ltd 13,68,500

174
 (ii) P Ltd Dr. 13,68,500
To Bills Payable A/c 25,500
To Equity Share Capital A/c 10,74,400
To Securities Premium A/c 2,68,600
11 Bank A/c Dr. 6,00,000
6,00,000
To Equity Share Application A/c
(Being application and allotment money received with premium)

Equity Share Application A/c Dr. 6,00,000

To Equity Share Capital A/c 2,00,000
To Equity Share allotment A/c 3,00,000
To Bank A/c 1,00,000
(Being application and allotment money transferred to share capital)

Equity Share Allotment A/c 3.00,000

To Equity Share Capital A/c 3,00,000

(Being allotment money due on 1,00,000 shares @ ₹3)

Equity share allotment money fully adjusted with excess amount

₹3,00,000

Equity Share First and Final Call A/c 5,00,000

To Equity Share Capital A/c 5,00,000
(Being call money due on 1,00,000 shares @ ₹5 each)

Bank A/c Dr. 4,95,,000

To Equity Share First and Final Call A/c
4,95,000
OR
4,95,000
Bank A/c Dr.
5,000
Calls in Arrears A/c Dr.
5,00,000
To Equity Share First and Final Call A/c
(Being call money received except on 1,000 shares)
Equity Share Capital A/c(1,000x10)Dr. 10,000
To Share Forfeiture A/c 5,000
5,000
To Equity Share First and Final Call A/c
(Being1000 shares forfeited)
Bank A/c Dr. 8,000
Share Forfeited A/c 2,000
10,000
To Equity Share Capital A/c
(Being shares reissued 1000 @ 8 each)
Share Forfeited A/c Dr. 3,000
3,000
To Capital Reserve A/c
(Being balance of share forfeited transferred to capital reserve A/c)
12 1.(A)16,000 ; 2.(C)4,50,000 3.(b)15,00,000

175
 4.(c)10,50,000 5.(c)4,50,000 6.(c)6,00,000

CHAPTER-7
Ans1 i) Redeemable Debentures
Ans2 ii) 9,000
Ans3 iv) Capital Reserve Account
Ans4 i) Long Term Borrowings of a Company.
Ans5 b. 8,000
Ans6 c. goodwill account
Ans7 Bank A/C………………..Dr. 540000
To 9% Debenture application and Allotment A/C 540000

9% Debenture Application and Allotment A/C………….Dr.540000

Discount on issue of Debentures A/C…………………….…Dr. 50000
To 9% Debentures A/C 500000
To Bank A/C 90000
Ans8 Bank A/c----------------Dr 84,000
To 11% Debenture Application and Allotment A/c 84,000

11% Debenture Application and Allotment A/c -Dr 84,000

Loss on issue of debenture A/c Dr. 8000
To 11% Debentures A/c 80,000
To Securities Premium A/c 4,000
To Premium on Redemption of Debentures A/c 8000

Ans9 Plant & Machinery A/c--------------Dr 18,00,000

Land and Building A/c----------------Dr 42,00,000
To Capital Reserve 5,00,000

176
 To Shon Ltd 55,00,000

Shon Ltd A/c----------------------------Dr 55,00,000

To Bank 10,00,000
To 8% Debenture 37,50,000
To Security premium 7,50,000
Ans10 Bank ----------------------------------Dr 2,00,000
To Bank Loan A/c 2,00,000

Balance sheet
Particular 2023 2022
1. Equity and liability
Non current liability
Long term borrowing 12,00,000 10,00,000
Ans11 Case 1
Balance sheet
Particular Note no Amount
Equity and liability
Non Current Liability
Long term borrowing 1 120000
Notes to account
1 Long term borrowing
Loan from State Bank of India 120000

Case 2
Debenture suspense a/c------------Dr 150000
To 9% Debenture 150000

177
 Balance sheet
Particular Note no Amount
Equity and liability
Non Current Liability
Long term borrowing 1 120000
Notes to account
1 Long term borrowing
Loan from bank of india
120000
1500,9% debenture issued as colletral security
150000
120000
-Debenture Suspense
150000

Ans12 Prepare necessary journal entry

Bank ---------------------------Dr 900000
To Deb app & Allo 900000
Deb app & Allo-------------------------- 900000
---Dr
150000
Loss on issue of Deb
1000000
To 9% Debenture
50000
To Prem on Red of deb
Statement of pl------------Dr 150000
Loss on issue of Deb 150000
9% Debenture A/c
Date Particular Amount Date Particular Amount
Mar To balance C/d 1000000 April1 By Deb app & 900000
31 Allo
100000
By Loss on issue
of Deb

178
 Loss on issue of Debenture A/c
Date Particular Amount Date Particular Amount
April1 To 9% Debenture 100000 Mar By Stat of p.l 150000
31
To Prem on Red
of deb
50000

Ans13 (1)Bank A/c----------------------------------------Dr 1,10,000

To Debenture appli and Allot A/c 1,10,000
Debenture appli and Allot A/c ------------Dr 1,10,000
Loss on issue of Debenture A/c-----------Dr 5,000
To 12% Debenture A/c 1,00,000
To Security Premium A/c 10,000
To Premium on Red of Deb 5,000

(2) Bank A/c----------------------------------------Dr 5,50,000

To Debenture appli and Allot A/c 5,50,000
Debenture appli and Allot A/c ------------Dr 5,50,000
To 12% Debenture A/c 5,00,000
To Security Premium A/c 50,000

(3) Bank A/c----------------------------------------Dr 1,80,000

To Debenture appli and Allot A/c 1,80,000
Debenture appli and Allot A/c ------------Dr 1,80,000
Loss on issue of Debenture A/c-----------Dr 30,000
To 12% Debenture A/c 2,00,000

179
 To Premium on Red of Deb 10,000

CHAPTER -8
Ans1. (a)Tangible assets.
Ans2. (b)Provision for Tax
Ans3. c) Schedule III Part II of Companies Act 2013
Ans4. a) Discount on issue of debentures & premium payable on redemption of
debentures
Ans5. Items Major Heads Sub Heads
(i) Provision for Tax Current Liabilities Short Term
Provisions
(ii) Loans Payable on Demand Current Liabilities Short Term
Borrowings
(iii) Computer and Related Equipment Non-current Assets Property Plants
and Equp (Tan)
(iv) Goods Acquired for Trading Current Assets Inventory
Ans6. The objectives of preparing financial statements are
1. A financial statement provides timely and reliable information on the economic status
of a company on a periodical basis. It also makes information available to external users
or stakeholders who do not have direct access to the information.

2. A financial statement helps in revealing the true financial position of a company. It

contains information related to liquidity, profitability, financial viability and solvency of
an organisation.
3. A financial statement is helpful in evaluating the earning capacity of a firm.
Ans7. Items Major Heads Sub Heads
a. Capital reserves Shareholders‘ Funds Reserves
and Surplus
b. Bonds Non-current Liabilities Long Term
Borrowing
c. Loans repayable on demand Current Liabilities Short Term
Borrowing
d. Work- in- progress Current Asset Inventory
e. Goodwill /Patent Non-current Assets Intangible
assets
180
 f. Loose tools Current Asset Inventory
g. Provision for tax Current Liability Short Term
Provisions
h. Advance from customer Non-current liabilities Other Long
Term Liabilities

Ans8. (i) Current liabilities- Short term borrowings

(ii) Fixed Assets-Intangible Assets
(iii) Shareholders Fund-Reserve and Surplus
(iv) Current Liability-Other Current Liabilities
(v) Non-Current Liability- Other Long Term Liabilities
(vi) Current Assets-Short Term Loans and Advances
Ans9. Items Major Heads
(i) Long-term investments Non-current Assets
(ii) Trade receivables Current Assets
(iii) Motorcar Non-current Assets
(iv) Discount on issue of shares Adjusted through Share Forfeiture
A/c
(v) Securities premium reserve Shareholders‘ Funds
(vi) Unclaimed dividend Current Liabilities
Ans10. Analysis of financial statements is affected from the limitation of window dressing as
companies hide Some vital information or show items at incorrect value to portray better
profitability and
financial Position of the business, for example the company may overvalue closing stock
to show higher profits.
Ans11. (d)4,70,000
ANS12. Items Major Headings Sub-headings
(i)Shares in listed companies Non-current Assets Non current investments
(ii) Encashment of employees earned leave payable on retirement Non-current
Liabilities
Long-term
Provisions

181
 (iii) Design Non-current Assets Property, Plant and Equipment and
Intangible assets-Intangible assets

CHAPTER -9
An The most commonly used techniques of Financial Statement Analysis are as listed below:
s1.
1. Common Size Financial Statements
2. Trend Analysis
3. Comparative Financial Statements
4. Cash Flow Statement
5. Fund Flow Statement
6. Ratio Analysis
An The following different techniques are used for financial analysis:
s2.

1. Cash Flow Analysis: This analysis focuses on the inflow and outflow of cash and cash
equivalents from the various activities of a business, namely investing, operating and financing
activities during an accounting period. This helps in analysing cash payments and the reason
for receipt, and the respective changes in cash balances during the accounting year.

2. Ratio Analysis: This method highlights the relationship between items of the Balance Sheet
and Income Statements. It is helpful in determining the efficiency, profitability and solvency of
a firm. This analysis expresses the financial items as fractions, percentages or proportions.
Also, it determines the qualitative relationship among different financial variables. It also
serves as a source of information regarding the performance, viability and financial position of
a firm.

3. Trend Analysis: This technique studies the trends in operating performance and financial
position of the business over a period of many years in succession. In such a study, any
particular year is considered as the base year, and the rest years are expressed as a percentage
of the base year‘s figures. It helps in identifying problems and inefficiency along with
detecting operating efficiency and the financial position of the firm.

182
 4. Comparative Statements: These statements use figures from two accounting periods that
help determine financial position and profitability. It also enables to do intra and inter-firm
comparisons and, therefore, determines the efficiency of the firm in relative terms. It uses both
percentages as well as absolute terms. This analysis is known as Horizontal analysis.

5. Common Size Statements: Common Size Statements are those statements where the items
are displayed as percentages of a common base figure instead of absolute figures. It is helpful
for proper analysis between companies (inter-firm comparison) or between time periods of the
same company (intra-firm comparison). In these statements, the relationship between items
present in financial statements and common items like balance sheet, total and net sales are
highlighted in percentage. The analysis based on these statements is called Vertical Analysis.
An Limitations of financial statement analysis are
s3.

Financial statement analysis ignore qualitative aspects like quality of management, labour
force and public relations.
The results obtained by analysis of financial statements may be misleading due to window
dressing.
An The process of critical evaluation of the financial information contained in the financial
s.4 statements, in order to understand and make decisions regarding the operations of the Arm, is
called financial statement analysis.
An Objectives of financial statement analysis are
s.5

To judge the operating efficiency and profitability of the business.

To measure the short-term and long-term financial position of the enterprise.

An (i) Labour unions They analyse the financial statement to assess whether the business concern
s.6 is earning a fair rate of return on capital employed and whether they should demand for
increased wages or not. So, financial statement analysis helps the labour unions in settling
wage agreements.

(ii) Creditors A creditor, through an analysis of financial statements, judges not only the
present ability of the company to meet its obligations, but also the probability of its continued
ability to meet all its financial obligations. Trade creditors are particularly interested in the

183
 firm‘s ability to meet their claims over a short period of time.
An The limitations of analysis of financial statements are as follows
s.7

It ignores price level changes.

It is not free from bias.
It suffers from limitations of financial statements.
It ignores qualitative aspects.

An Revenue from operations are assumed to be 100 while preparing common size statement of
s.8 profit and loss.

A
NS
COMPARATIVE STATEMENT OF PROFIT & LOSS
9

Absolute Figures Change (Base Year

2024)
Particulars
31.03.2025 31.03.2024 Absolute Percentage
figures %
Revenue from 75,00,000 60,00,000 15,00,000 25.00
Operation
1,20,000 1,50,000 (30,000)* (20.00)
Add: Other Incomes
76,20,000 61,50,000 14,70,000 23.90
Total Revenue I + II
50,60,000 44,00,000 6,60,000 15.00
Less: Expenses
25,60,000 17,50,000 8,10,000 46.29
Profit before Tax
10,24,000 6,12,500 4,11,500 67.18
Less: Tax
15,36,000 11,37,500 3,98,500 35.03
Profit after Tax

A
NS
10

184
 COMMON SIZE STATEMENT OF PROFIT & LOSS
Absolute Figures Parentage of revenue from
operation (net sales)
Particulars
2023 2024 2023 (%) 2024( %)
Revenue from Operation 10,00,000 12,50,000 100.00 100.00

Expenses
a. Purchase of stock-in-trade 7,20,000 8,70,000 72.00 69.60
b. Change in inventories of
stock-in-trade
30,000 (20,000) 3.00 (1.60)
c. Depreciation and
amortization 20,000 30,000 2.00 2.40

d. other expenses 30,000 50,000 3.00 4.00

Total expenses 8,00,000 9,30,000 8.00 74.40

Profit before Tax 2,00,000 3,20,000 20.00 25.60

185
A
NS
11
Comparative Balance Sheet
As at 31st March, 2024and 2025
Particulars 31st 31st Absolut Percentage
March March e change
change
2023 2024

EQUITY AND LIABILITIES

7. Shareholders‘ Funds
(e) Share Capital 2,00,000 3,00,000 1,00,000 50.00
Reserves and Surplus
2,00,000 2,00,000 ------ -------
Non Current Liabilities
LongTerm Borrowings
Current liabilities 40,000 1,60,000 1,20,000 300.00
Trade payables
Total 60,000 1,00,000 40,000 66.67

ASSETS 5,00,000 7,60,000 2,60,000 52.00

Non Current Assets
Fixed Assets 3,60,000 5,60,000 2,00,000 55.55
Non Current 40,000 40,000
Investmet
Current Assets 1,00,000 1,60,000 60,000 60.00
Trade Receivables
Total 5,00,000 7,60,000 2,60,000 52.00

186
A From the following balance sheet, prepare the common size balance sheet of Z Ltd.
NS
12
Particular 2023 (Rs.) 2024 % %
(Rs.) 2023
2024
5. EQUITY AND LIABILITIES
8. Shareholders‘ Funds
(f) Share Capital 2,00,000 2,80,000 40 40
(g) Reserves and Surplus 2,00,000 2,10,000 40 30
9. Non Current Liabilities
Long Term Borrowings 40,000 1,40,000 8 20
10. Current liabilities 60,000 70,000 12 10
Trade payables
5,00,000 7,00,000 100 100
Total

6. ASSETS
5. Non Current Assets 72 70
3,60,000 4,90,000
(e) Fixed Assets
(f) Non Current Investment 40,000 35,000 8 5
6. Current Assets
Trade Receivables
Total 1,00,000 1,75,000 20 25

5,00,000 7,00,000 100 100

187
CHAPTER – 10
Q.1..C) Liquid ratio, Inventory

Q.2- A) 1:1

Q.3- B) 1.8:1

Q.4- A) Rs 1,60,000,

Q.5 – Current Ratio = CA /CL OR, 4 =CA /75,000 OR ,4*75,000 =CA OR CA =3,00,000

Liquid Ratio = LA / CL

1 = LA /75,000

Liquid Assets = 75,000

Inventory = Current Assets − Liquid Assets

= 3, 00,000 − 75,000

= 2, 25,000

Q.6-– Liquid Ratio = LA / CL

2 = 24,00,000 / CL Or, CL =24,00,000 / 2 =12,00,000

Current Assets = Liquid Assets + Inventory

24,00,000 +6,00,000 =30,00,000 THEN CR = 30,00,000 /12,00,000

=2.5:1

Q.7- Gross Profit = Revenue from Operations − Cost of Revenue from Operations
= Rs. 3,40,000 − Rs. 1,20,000
= Rs. 2,20,000
Gross Profit Ratio = Gross Profit / Revenue from operation × 100
= Rs. 2,20,000 / Rs. 3,40,000 × 100 = 64.71%
Operating Cost = Cost of Revenue from Operations + Selling Expenses + Administrative
Expenses
= Rs. 1,20,000 + 80,000 + 40,000 = Rs. 2,40,000
Operating Ratio = Operating Cost / Net Revenue from Operations × 100
= Rs. 2,40,000 / Rs. 3,40,000 x 100 = 70.59%
Q.8- Current Ratio =CA/CL

188
Current Assets = 3.5 Current Liabilities (1)
Working Capital = Current Assets − Current Liabilities
Working Capital = 90,000
or, Current Assets − Current Liabilities = 90,000

or, 3.5 Current Liabilities − Current Liabilities = 90,000 (from 1)

or, 2.5 Current Liabilities = 90,000
CL = 90,000 /2.5 =36,000 AND CA = 3.5 CL THEN CA =3.5*36,000 =1,26,000

Q.9- CR = CA / CL
4.5 =CA /CL

or, 4.5 Current Liabilities = Current Assets

QR =QA /CL or, 3 = QA /CL
or, 3 Current Liabilities = Quick Assets
Quick Assets = Current Assets − Inventory = Current Assets − 36,000Quick Assets = Current Ass
ets – Inventory = Current Assets – 36,000
Current Assets − Quick Assets = 36,000
or, 4.5 Current Liabilities − 3 Current Liabilities = 36,000
or, 1.5 Current Liabilities = 36,000
or, Current Liabilities = 24,000
Current Assets = 4.5 Current Liabilities OR CA = 4.5*24,000 =1,08,000

Q.10. CR = CA /CL

4 = CA / 75,000 Or, 4 × 75,000 = Current Assets

Or, Current Assets = 3, 00,000
LR = LA /CL OR , 1 = LA/ 75,000
Liquid Assets = 75,000
Inventory = Current Assets − Liquid Assets
= 3, 00,000 − 75,000 = 2, 25,000
Q.11- QR =QA /CL or, 2 =1,00,000 CL OR , CL = 1,00,000 /2 =50,000

189
Current Assets = Liquid Assets + Inventory
= 1, 00,000 + 20,000 = 1,20,000 AND CR = CA / CL OR 1,20,000 /50,000 =2.4:1

Q.12- Quick Ratio =Liquid assets / CA OR 2= 24,00,000 / CL Then CL=24,00,000 /2

=12,00,000. And CA= LA + Inventory,24,00,000 + 6,00,000 =30,00,000
CR =CA /CL , 30,00,000 /12,00,000 =2.5:1

190
CHAPTER – 11

1 ANSWER-(d) All of these

2
ANSWER-(d) None of these

3 Answer. a) Both Assertion and Reason are true. Reason is a correct explanation of
assertion.

4 ANSWER-Investing Activity
5 ANSWER- c sale of goods costing Rs. 10,000 for Rs. 8,000
(Other three are the parts of Cash and Cash Equivalent)
6
ANSWER- d no cash flow
7 d) None of the above
ANSWER- Financing activities
8 ANSWER-(c)

9 ANSWER- Principal amount Rs. 60,000 will be classified as an Investing Activity

whereas interest amount i.e. Rs. 20,000 will be classified as Financing Activity
10 ANSWER- Operating Activity.
11 ANSWER- Cash Flow Statement
For the year ended 3st March 2019
Particulars Rs. Rs.
[Link] Flow From Operating Activities 1,20,000
Surplus i.e. balance in the Statement of P&L
Add: Non cash and Non-operating Items:
Depreciation(WN2) 65,000
Loss on sale of Machinery 3,000
Interest on Debentures 28,800 96,800
Operating profit before working capital 2,16,800
changes
Add: Decrease in Current Assets and Increase
in Current Liabilities
Inventories 40,000
O\s Rent 20,000
Creditors 20,000 80,000
Less: Decrease in Current Liabilities and
Increase in Current Assets
Bills Payable (80,000)
2,16,800

191
 Net cash flow from Operating Activities 2,16,800

2. Cash Flow from Investing Activities

Purchase of Machinery (WN1) (2,40,000)
Sale of Machinery 32,000
Purchase of shares in XYZ ltd (80,000)
(2,88,000)
Net cash used in Investing Activities (2,88,000)

[Link] flow from Financing Activities

Issue of Long Term borrowings(9% 80,000
Debentures)
Interest on long term Borrowings (Debentures) (28,800)
51,200
Net cash flow from Financing Activities 51,200
Net Decrease in cash and cash equivalents (20,000)
Add: opening balance of cash and cash 80,000
equivalents 60,000
Closing balance of cash and cash equivalents

Working note:
Dr. Plant and Machinery Account Cr.
Particulars amount Particulars Amount
To Balance B\d 13,00,000 By Bank A\c 32,000
To Bank A\c 2,40,000 By accumulated
(Purchase) Depreciation A\c 15,000
By Statement of profit
and loss(loss on sale) 3,000
By Balance C\d 14,90,000
15,40,000 15,40,000

Dr. Accumulated Depreciation Account Cr.

Particulars amount Particulars Amount
To plant and machinery 15,000 By Balance B\d 1,00,000
a\c By Statement of profit 65,000
To Balance C\d 1,50,000 and loss

1,65,000 1,65,000

192
12 6
Cash Flow Statement

Particulars Amount( Amount(Rs)

Rs)
I. Cash flow from operating activities:
Net profit before tax (4,00,000- 2,00,000
2,00,000)
Adjustment for non cash and non
operating items:
Depreciation 30,000 20,000
Profit on sale of machinery (10,000)
2,20,000
Operating profit before working
capital changes
Change in current assets and current
liabilities: 50,000
Decrease in inventories (2,00,000
Increase in trade receivable ) (50,000)
Increase in trade payables 1,00,000
1,70,000
Net cash inflow from operating
activities

II. Cash flow from investing

activities: 60,000
Sale of plant (2,80,000)
Purchase of plant (2,20,000)
Net cash used in investing activities

III. Cash flow from financing

activities:
Issue of share capital 1,00,000

Net cash inflow from financing 1,00,000

193
 activities

[Link] increase in cash and cash

equivalents 50,000

V. Opening cash and cash equivalents 30,000

VI. Closing cash and cash equivalents 80,000

Working Note

Plant and Machinery Account

Particulars Amount Particulars Amount
To Balance b/d 3,00,000 By Bank A/c(Sale) 60,000
To Statement of 10,000 By Depreciation A/c 30,000
P/L(Profit) 2,80,000 By Balance c/d 5,00,000
To Bank
A/c(Purchase) 5,90,000 5,90,000

13 6
Ans: Cash Used in Operating activities Rs 10,000, Cash Used in Investing
activities-46,000, Cash flow from Financing activities 58,000

Solution:
CASH FLOW STATEMENT FOR THE YEAR ENDED 31-03-2019
( Indirect Method) AS -3
A. CASH FLOW FROM OPERATING Amount Amount
ACTIVITIES
Net Loss before Tax and extraordinary items (20,000)
Add: Loss on sale of Machinery 6,000
Dividend Made during the year 16,000
General Reserve Creates 6,000

Less: Increase in Inventory 8,000

Increase in Receivables 10,000 (18,000)
CASH USED IN OPERATING ACTIVITIES (10,000)
B. Cash flow from investing activities
Purchase of Machinery (56,000)
Sale of Machinery 10,000
CASH USED IN INVESTING (46,000)

194
 ACTIVITIES

c. Cash flow from Financing Activities

Issue of Eq, Share Capital 70,000
Issue of Pref Sh Capital 8,000
Redemption of Long term borrowing ( 4,000)
Payment of Dividend (16,000) 58,000
NET FLOW(A+B+C) 2,000
Add. Opening cash & Cash Equivalent 10,000
Closing cash and cash equivalent 12,000

WN: Plant & Machinery Account

To Balance b/d 1,00,000 By Bank 10,000
By P/L(Loss) 6,000
TO Cash(Purchase) 56,000 By Balance c/d 1,40,000
1,56,000 1,56,000

195
 COMPUTERISED ACCOUNTANCY (CBQ )

CHAPTER 1 - OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

QUESTION BANK

MULTIPLE CHOICE QUESTIONS

Q1 Which of the following are the five pillars of computerised accounting system:
(a) Data, Report, Ledger, Hardware, Software
(b) Data, People, Procedure, Hardware, Software
(c) People, Procedure, Ledger, Data, Chart of Accounts
(d) Data, Coding, Procedure, Rules, Output

Q2 To safeguard assets and optimize the use of resources a business

(A) Only tries to earn sufficient revenue.
(B) Only ensures accuracy in accounting records.
(C) Keeps internal controls.
(D) Only protects its assets

Q3 Computer-related peripherals and their network is known as which of the following

components of Computerised Accounting System?
(A) Procedure (B) Data (C) Hardware (D)Software

Q4 Which of the following statement is not a limitation of computerised accounting

system?
(a) Data is not made available to everyone.
(b) Data may be lost or corrupted due to power interruptions.
(c) Data are prone to hacking.
(d) Unprogrammed and unspecified reports cannot be generated

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 SHORT ANSWER TYPE QUESTIONS [3/4 MARKS]
Q5 Explain ‗Transparency and Control‘ and ‗Accuracy and Speed‘ as features of
Computerised Accounting System.

Q6 Write differences between data and information with examples?

Q7 Explain any two advantages and one limitation of Computerised Accounting

System.

Q8 Define Accounting Cycle and state the phases involved in an Accounting Cycle.

Q9 State five pillars of computerised accounting system.

Q 10 What are the salient features of Computerised Accounting Software (CAS)

lONG ANSWER TYPE QUESTIONS [6 MARKS]

Q 11 The subsystems of an Accounting Information System (AIS) work together to
provide comprehensive financial data and reports. Analyze how the integration of
the Inventory Subsystem, Sales and Accounts Receivable Subsystem, and
Costing Subsystem can enhance decision-making in a manufacturing organization

Q 12 If a company uses Generic software but experiences growth and diversification,

what challenges might it face? How could transitioning to Specific software
address these challenges?

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 SOLUTIONS
Q1 (B) Data, People, Procedure, Hardware, Software

Q2 (C) Keeps internal controls

Q3 (C) Hardware

Q4 (D) Unprogrammed and unspecified reports cannot be generated

A5 (a) Transparency and Control: CAS provides sufficient time to plan, increase
data accessibility and enhances user satisfaction. With computerised accounting,
the organisation will have greater transparency for day-to- day business
operations and access to vital information. This will make feedback and decision
making timely, hence, better control over the processes can be established.

(b) Accuracy and Speed: CAS provides user definable templates (data entry
screen or forms) for fast, accurate data entry of the transactions. It not only makes
data entry fast but also provides checks to check its accuracy from time to [Link]
the same time, the facility of generating desired documents and reports is also
there.

A6 1. Definition
Data refers to raw, unprocessed facts or figures without context. It is the basic
input for processing and can be numerical, text-based, or even a collection of
symbols.
Information is data that has been processed, organized, or structured to provide
context, meaning, and relevance. It is useful for decision-making.
2. Nature
Data is raw and unorganized; it doesn‘t convey any specific understanding on its
own whereas Information is organized and processed; it provides knowledge and

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 insights.
3. Examples
―100,‖ ―200,‖ and ―300‖ are numbers in the form of data, that, by themselves, don‘t
convey any meaning. If these numbers are interpreted in a context—―Revenue for
three products in ₹: Product A: ₹100, Product B: ₹200, Product C: ₹300‖—they
provide specific insights about revenue for each product.
4. Purpose
Data acts as the raw material for creating information. Information on the other
hand helps in making decisions or understanding a situation better.
5. Dependency
Data does not depend on information for its existence; it is the base component.
Information depends on data; information is derived from data by adding context
or interpretation.

Examples in Accounting
Data:
Transactions recorded in accounting journals, such as ―₹100 expense‖ or ―₹500
revenue,‖ are data points without much context.
Information:
When this data is processed to show ―Total monthly expenses are ₹500, and total
revenue is ₹2,000, resulting in a profit of ₹1,500,‖ it becomes valuable information
for financial analysis.

A7 Advantages of Computerised Accounting System (Any two)

1. Timely generation of reports and information in desired format.
2. Efficient record keeping.
3. Ensures effective control over the system.
4. Economy in the processing of accounting data.

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 Limitations (Any one):
1. Faster obsolesce of technology necessitates investment in short period of time.
2. Data may be lost or corrupt due to power interruptions.
3. Data are prone to hacking. Un-programmed and un-specified reports cannot be
generated.

A8 Accounting Cycle Accounting Cycle means the process involved in identifying,

measuring and communicating the information.
The basic phases of the cycle are as follows:
• Business transactions are analysed
• The transactions are recorded in the journal
• Journal entries are posted to the ledger accounts
• Accounts are reviewed and the necessary adjustments made.
• Adjustments are posted in the ledger to prepare adjusted trial balance.
• Adjusted trial balance is used to prepare the Balance Sheet and Profit and Loss
Account
• Financial statements are prepared from the finally adjusted ledger and balancing
the accounts

A9 The computerized accounting system have five components, namely procedure,

data, people, hardware and software. They are regarded as five pillars of
computerized accounting system.
1. Procedure: A logical sequence of actions to perform a task.
Example for Procedure in Accounting: (Identifying business transaction -----
collect its source documents ------- journalizing -----posting ----- trial balance-----
consider adjustments ------prepare final accounts)
2. Data: Data refers to raw facts. Data is a collection of facts, such as numbers,
words, measurements, observations or just descriptions of things. When data
are processed, organized, structured or presented in a given context so as to
make them useful, they are called Information. Processed data is called

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 information.
3. People (Human ware): Human ware are persons who operate the computer.
They include users like owners, managers, system analyst, data entry
operator, etc.
4. Hardware: All physical components associated with a computerized accounting
system are referred to as hardware. It includes CPU, monitor, mouse, printer,
scanner, modem etc.
5. Software: Software is a set of instructions that tell a computer what to do. It
comprises the entire set of programs, procedures, and routines associated
with the operation of a computer system. Software includes system software
like Windows, Linux etc. and application software like Tally, Dac Easy etc.

A 10 Computerised Accounting Software (CAS) comes with several features designed

to streamline financial accounting and business processes:

1. Integration and Simplicity: CAS integrates various business functions

(sales, inventory, finance) into a unified system, making it easier to access
and manage data across departments.
2. Transparency and Control: Real-time data updates provide transparency
in transactions, making it easier for managers to maintain control over
business operations.
3. Accuracy and Speed: CAS automates data entry processes, reducing
errors and allowing for quick processing and reporting of information.
4. Scalability: CAS can be scaled to accommodate growing data as a
business expands.
5. Reliability: The software ensures consistent, accurate, and secure financial
data, reducing the risk of data loss or manipulation.
6. Security Features: Data encryption, password protection, and audit trails
enhance data security, ensuring that only authorized personnel can access
sensitive information.

These features make CAS a valuable tool for businesses of all sizes, helping them
maintain accurate records, support decision-making, and stay competitive.

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A 11 Integration of the Inventory Subsystem, Sales and Accounts Receivable
Subsystem, and Costing Subsystem can enhance decision-making in a
manufacturing organization. In a manufacturing organization, the Inventory
Subsystem, Sales and Accounts Receivable Subsystem, and Costing
Subsystem are critical for efficient operations and informed decision-making.
Inventory Subsystem: It deals with the recording of different items purchased
and issued specifying the price, quantity and date. It generates the inventory
position and valuation report.
Sales and Accounts Receivable Subsystem: It deals with recording of sales,
maintaining of sales ledger and receivables. It generates periodic reports about
sales, collections made, overdue accounts and receivables position as also
ageing schedule of receivables/debtors.
Costing Subsystem: It deals with the ascertainment of cost of goods produced. It
has linkages with other accounting sub-systems for obtaining the necessary
information about cost of material, labour, and other expenses. This system
generates information about changes in the cost that takes place during the period
under review.

Integration and Interdependence:

 Inventory and Costing: The Inventory Subsystem provides real-time data on
material consumption and stock levels to the Costing Subsystem. Accurate
costing relies on up-to-date inventory values to calculate production costs
effectively.
Example: If raw material prices fluctuate, the Costing Subsystem must adjust
the cost of goods produced, which impacts profit margins.
 Inventory and Sales: The Inventory Subsystem ensures that finished goods
are available to fulfil orders recorded in the Sales Subsystem. It prevents stock
outs and lost sales opportunities.
Example: If the Inventory Subsystem identifies a low stock level for a high-
demand product, it signals the need for immediate replenishment.
 Sales and Costing: The Sales Subsystem feeds sales volume data to the
Costing Subsystem, enabling accurate profit margin calculations and identifying
underperforming products.
Example: If a product is selling well but has high production costs, the Costing
Subsystem can suggest cost reduction strategies.

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 The seamless integration of these subsystems ensures that the organization
operates efficiently, minimizes costs, and maximizes profitability. A breakdown
in one subsystem can disrupt the entire Accounting Information System, leading
to poor decision-making and financial inefficiencies. Therefore, businesses
must maintain accurate, real-time data flow among subsystems to achieve
strategic goals.

A 12 Generic software packages are mass-produced, off-the-shelf applications

designed to cater to a broad range of users, regardless of industry or specific
needs. These packages are flexible and can be used for multiple purposes,
offering common functionalities that are valuable across various contexts.

Key Characteristics:
Mass-market appeal: Designed for a wide audience and sold in large volumes.
Multi-purpose: They serve general functions that are not limited to a single type of
task or industry.
Ease of use: Often feature user-friendly interfaces because they are designed for
non-specialist users.
Low cost: Compared to tailored or specific software, generic packages are often
less expensive since development costs are spread across many users.
Standardization: They follow industry standards and include common tools and
functionalities, making them easy to integrate and use without extensive
customization.
Limited customization: They may not always meet the specific needs of certain
industries, but they often allow for some level of configuration.

If a company uses Generic software but experiences growth and diversification, it

may face may challenges relating to following issues:
1. Limited customization: While they offer basic features, they may lack the
ability to tailor the software to specific business processes.

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 2. Overload of unused features: Many generic software packages come with
a wide range of features, some of which might never be used, leading to a
cluttered interface.
3. Industry-specific needs unmet: Businesses with very specific
requirements might find generic software insufficient for their operational
needs.

Transitioning to Specific software can address these challenges. Specific software

packages are designed to meet the needs of particular industries, businesses, or
specialized tasks. Unlike generic software, which serves a broad range of users,
specific software focuses on providing solutions for a narrower, defined set of
requirements. These packages include specialized functionalities tailored to
particular processes, often integrating unique features that address the specific
challenges faced by certain professions or industries.

Key Characteristics:
1. Task/Industry-specific: These software packages are built to address the
needs of particular industries (e.g., healthcare, education, finance) or
specific tasks (e.g., accounting, project management).
2. Tailored functionalities: They provide specific tools and functions that are
directly applicable to the field or task for which they were designed.
3. Limited user base: They tend to have a smaller, more specialized user base
compared to generic software.
4. Higher complexity: As these packages are often developed for niche tasks,
they may have a steeper learning curve or require specific domain
knowledge to use effectively.

Advantages of Specific Software:

1. Tailored to Industry Needs: Specific software is designed with the particular
industry or task in mind, providing highly relevant features.
2. Increased efficiency: Due to the specialized nature, it allows users to
streamline processes, improving productivity and accuracy in carrying out
tasks.
3. Specialized Support: Since it is built for a smaller, more focused group of
users, the customer support is often highly specialized and responsive to
the exact needs of the industry.
4. Regulatory Compliance: In industries like healthcare or finance, specific
software often comes pre-configured to meet local, national, or international
regulatory standards.
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5. Custom Reporting: Specific software usually provides detailed reports that
are tailored to the needs of the particular industry, such as sales forecasts,
patient histories, or financial statements.

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CHAPTER 2

ACCOUNTING APPLICATION OF ELECTRONIC SPREADSHEET

QUESTION BANK

Q 1 Correct ##### appears :

(A) When column is not wide enough. (B) When a number is divided by
zero.
(C) When value is not available. (D) When there are exceptions of
summary of data.

Q 2 To see all available shape styles of a chart, which of the following buttons is
clicked?
(A) More (B) Chart tool (C) Picture (D) Custom

Q 3 How are absolute cell references and mixed references identified in Excel?
(A) Using $ sign (B) Using £ sign (C) Using # sign (D) Using ~
sign

Q 4 A piece of information shown in a graph which is assigned to the data serios is

known as
(A) data point (B) data table
(C) plot point (D) legend

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Q5

Q 6 State the steps to freeze a formula so that the present value is maintained in the
given cell and recalculation is prevented.

Q 7 Explain the steps to define ‗Print area‘ using Dialog box.

Q 8 Explain ‗Sequential Code‘ and ‗Mnemonic Code‘ with the help of an

example.

Q 9 What is meant by Num digit? State the situations where it can be used.

Q What are the uses of ‗Error Alert tab‘?

10

207
Q Explain the two syntax forms of LOOKUP Function.
11

Q Using Fill: Series command in Excel write down the steps to fill data from
12 120,320…..2300 in Column A.

SOLUTIONS

Ans 1 (A) When column is not wide enough.

Ans 2 (A) More

Ans 3 D) Using ~ sign

Ans 4 (D) legend

Ans 5 (i) Error # N/A

Reason- Value being looked up is not in array range.
(ii) Error # NUM!
Reason- Negative value in square root function is invalid.
(iii) Error # N/A
Reason- Lookup value is less than the array range provided.
(iv) Error # REF!
Reason- The column value being searched is greater than array range
provided.
(v) Error # VALUE!
Reason- Value being searched is not available as column does not exist.
(vi) Error # DIV/0!
Reason- Value searched is being divided by zero.

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Ans 6 To prevent recalculation and maintain the present calculated value, we can
freeze the formula using paste special command. The following steps are
required:
1. Select the cell/cells that contain the formula.
2. Click the home Tab and select copy symbol to click; this will copy the
values and formulas of the cells.
3. Click the ‗Paste‘ tab and select ‗Paste Special‘.
In the ‗Paste Special‘ box, under paste select the ratio button next to values
and click Ok. This will permanently remove the formula from the workbook.

Ans 7 By default, Excel prints all data on the current worksheet but for specific
formatted print, we have to define print area from page set up dialog box or
print area command from page layout option of ribbon following are the steps
to define Print area using Dialog box option:
(i) Select the page layout command tab on the ribbon
(ii) In the page set up group click page set up. The page set up dialog box
appears
(iii) Select the sheet tab
(iv) In the print area text box type the range of cells you want to print or (to
select the area
 Click to collapse Dialog
 Select the desired range of cells
 Click restore the Dialog.
(v) Click Ok and the print area is defined

Ans 8 Sequential codes: Numbers and /or letters are assigned in consecutive order.
These codes are applied primarily to source documents such as cheque,
invoices etc. This code can facilitate searches. This process enables in either
identification of missing codes relating to a particular document or a relevant
document can be traced on the basis of code.
For example: A creditor Rajesh Gupta can be given a code
CL001-Rajesh Gupta 1317.

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 Similarly for Bajaj and Sons
CL002- Bajaj and Sons 1319.

Mnemonic Code: A mnemonic code consists of abbreviations as symbols to

codify a piece of information like ‗PJ‘ can be used for Purchase Journal, DDN
for Dehradun. These codes can be remembered easily and aids its users in
recalling the information it represents.
For Example: Entering SUB may initiate computer to subtract

Ans 9 Num-digits-refers to the numbers of digits to round the number. The different
situation for Num-digits are as follows:
a) If Num-digits is greater than zero, then number is rounded to the specified
number of decimal places.
b) If Num-digits is zero, then the number is rounded to the nearest integer.
c) If Num-digits is less than zero, then number is rounded to the left of the
decimal point.

Ans Error Alert Tab enables:

10
a) To display the error alert after invalid data is entered in the box.
b) Enter message allow to type the desired message for user and title for
reference purpose.
c) In style drop down menu, select information warning or stop as per severity
and accuracy requirement for data where-
i. Information: display a message but will prevent entry of invalid data.
ii. Warning: display a warning message but will not prevent entry of invalid
data.
iii. Stop: will prevent invalid entry of data.

Ans The ‗LOOKUP‘ function has two syntax forms:

11
(i) Vector: This ‗LOOKUP‘ form looks in a one row or one column range for a
value and then returns a value from the same position in a second one row or
one column range.

210
 The syntax is LOOKUP (lookup- value, lookup-vector, result-vector)
• LOOKUP-Value is a value that LOOKUP searches for in the first vector. It
can be a number, text, a logical number, name, etc.
• LOOKUP- Vector is a range that contains only one row or one column.
The value in LOOKUP- Vector can be text, numbers or logical values.
• Result- Vector is range that contains only one row or column. It must be
the same size as LOOKUP- Vector.
(ii) Array: It looks in the first row or column of an array for the specified value,
and then returns a value from the same position in the last row or column of the
array.
The syntax is • LOOKUP (lookup- value-array)
• LOOKUP- Value cannot find the lookup-value, it uses largest value in the
array that is less than or equal to lookup-value.
• If lookup-value is smaller than the smallest value in the first row or
column, it returns the #N/A error values.
• Array is the range of cells that contains text, numbers or logical values
that we want to compare with lookup-values.

Ans To use the Fill: Series command in Excel to fill a column with numbers from
12 120, 320, ... 2300 in Column A, follow these steps:
1. Enter the Starting Value:
o Click on cell A1 and type 120, as this is the first value in the
series.
2. Open the Series Dialog Box:
o Go to the Home tab on the Excel ribbon.
o In the Editing group, click on Fill.
o From the dropdown menu, select Series.
3. Set the Series Options:
o In the Series in section, choose Columns (since you want the
data to fill down Column A).
o Under Type, select Linear (for a linear series of numbers).
o In the Step Value box, enter 200 (as each number increases by

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 200).
o In the Stop Value box, enter 2300 (as this is the last number in
the series).
4. Click OK:
o Press OK to apply the Fill: Series command. Excel will fill down
Column A with numbers in increments of 200, starting from 120 and
ending at 2300.
Now, Column A will display the values 120, 320, 520, ... , 2300.

212
CHAPTER 3

USING COMPUTERIZED ACCOUNTING SYSTEM.

Question Bank

Q1 The need for codification is for :

(A) the generation of mnemonic codes
(B) securing the accounting reports
(C) easy processing of data and keeping records
(D) the encryption of data

Q2 A sequential code refers to code applied to some documents where:

(A) Account heads are assigned to documents
(B) Numbers and letters are assigned in consecutive order
(C) Special names are given to accounts
(D) Documents are arranged in special sequence

Q3 When the accumulated data from various sources is processed in one shot it is called:
(A) Real time processing (B) Data validation
(C) Batch processing (D) Processing and revalidation

Q4 Codes Dealer Type

100 - 199 Cycle tyres
200 - 299 Cycle seats
From the following, identify the type of code used by a trading company:
(A) Block code (B) Sequential code
(C) Mnemonic code (D) Secret code

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Q5 What is meant by ‗data validation‘? Give two examples when the cell will give error if
the values are not meeting the conditions.

Q6 Explain password security and Data Audit as Security Features of Computerised

Accounting System (CAS)

Q7 What is encryption, and how is it helpful in CAS?

Q8 What is a Chart of Accounts (COA), and how is it structured to organize financial

transactions effectively?

Q9 Explain various types of coding methods and the situations where each is best suited.

Q 10 What are the steps involved in the installation of a Computerised Accounting System?

Q 11 What do you mean by Adjusting entry? Name some common types of adjusting entries.

Q 12 What are the steps for data entry in a Computerised Accounting System (CAS)?

SOLUTIONS
A1 (D) the encryption of data

A2 (B)Numbers and letters are assigned in consecutive order

A3 (C) Batch processing

A4 (A) Block code

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A5 Data validation is the process of ensuring that the data entered into a system or
spread sheet meets specific rules or conditions. It is used to maintain data accuracy
and consistency, preventing incorrect data from being entered.
When data validation is applied to a cell, only values that meet the predefined
conditions can be entered, and any values outside those conditions will trigger an error.

Examples of Data Validation and Errors:

1. Range Validation:
o Condition: A cell is set to accept values only between 1 and 100.
o Error: If you try to enter a value like 150 or -5, the cell will give an error
because the value is outside the specified range.
2. Date Validation:
o Condition: A cell is set to accept only dates within the year 2024.
o Error: If you try to enter a date like 15/09/2023 or 01/01/2025, the cell will
give an error because the date does not meet the required condition of
being within 2024.
These errors help prevent invalid data from being saved, ensuring data integrity and
consistency.

A6 Password Security: Password security is a mechanism, which enables a user to

access a system including data. The system facilitates defining the user rights
according to organisation policy. Consequently, a person in the organisation may be
given access to a particular set of data while he may be denied access to another set
of data. Password is the key (Code) to allow the access to the system
Data Audit: This feature enables one to know as to who and what changes have been
made in the original data, thereby helping and fixing the responsibility of the person
who has manipulated the data and also answers data integrity. Basically, this feature is
similar to Audit Trail.

A7 Encryption is a data security technique that converts information into a coded format,
making it unreadable without a decryption key. Data is scrambled using an algorithm.
Only users with the correct decryption key can access the information.
Example: Financial data like passwords or confidential financial reports can be
encrypted to prevent unauthorized access.
Benefits in CAS:
1. Enhanced Security: Protects sensitive data from hackers and unauthorized users.
2. Data Privacy: Ensures that even if data is intercepted, it cannot be understood

215
 without the decryption key.
3. Regulatory Compliance: Helps businesses comply with laws requiring data
protection (e.g., GDPR, HIPAA).

Use Case: Encrypting payroll data ensures that only authorized personnel can access
sensitive employee salary information.
A8 A chart of accounts is a structured list of all accounts used by an organization to record
financial transactions. Each account is assigned a unique code for identification. It
serves as the backbone of the accounting system, categorizing assets, liabilities,
revenues, and expenses. The arrangement is hierarchical, typically grouped into
categories like Assets, Liabilities, Equity, Revenues, and Expenses.

Example Arrangement:
Assets:
1001: Cash
1002: Accounts Receivable
Liabilities:
2001: Accounts Payable
2002: Loans
Revenues:
3001: Sales Revenue
3002: Service Revenue
Expenses:
4001: Rent Expense
4002: Utilities Expense
Importance:
Facilitates easy recording and reporting of financial data.
Ensures accurate categorization of transactions for financial statements

A9 Sequential Codes:
 Explanation: In this method, numbers or letters are assigned in a consecutive
order. For example, invoices, checks, or purchase orders might use sequential
numbering (e.g., INV001, INV002).
 Best Suited For: Tracking documents or ensuring continuity, as missing or skipped
codes can help identify errors or omissions.
 Example: Cheque numbers (CH001, CH002).

Block Codes:
 Explanation: In this method, a range of numbers is divided into blocks, with each

216
 block assigned to a specific category or group. Within each block, numbers can be
assigned sequentially.
 Best Suited For: Categorizing large datasets or grouping similar items under
predefined ranges.
 Example: In inventory management, codes 100–199 for pumps, 200–299 for
motors.

Mnemonic Codes:
 Explanation: Mnemonic codes use letters or abbreviations that represent the item
being coded. These codes are easy to remember and provide a clear link to the item
or category they represent.
 Best Suited For: Situations where users need to recall codes easily, such as
department or station identification.
 Example: "SJ" for Sales Journal, "NDLS" for New Delhi Railway Station.

A 10 Various steps involved in the installation of Computerised Accounting system are:

1. Preparation of System Requirement
o Identify the hardware and software requirements.
o Ensure the system meets the necessary specifications for installation.
2. Selection of Accounting Software
o Choose the appropriate accounting software based on the organization's
needs (such as Tally, Busy, QuickBooks, etc.).
o Consider factors like budget, features, ease of use, and scalability.
3. Procurement of Software
o Purchase the selected accounting software or subscribe to a cloud-based
version.
o Ensure that all legal requirements such as software licenses are met.
4. Installation of the Software
o Install the software on the system following the instructions provided.
o If it‘s a cloud-based system, follow the procedure for setting up an online
account.
o Ensure the software is compatible with the hardware.
5. Creation of Chart of Accounts (COA)
o Set up a chart of accounts that defines the categories for transactions,
including assets, liabilities, income, and expenses.
6. Configuration of User Rights
o Set user roles and permissions to ensure that only authorized personnel have
access to specific accounting functions.
7. Customisation of Software

217
 o Customize the software settings to fit the needs of the organization. This may
include defining company information, fiscal year, currency, tax rates, and
financial reports.
8. Trial Run
o Conduct a trial run to ensure the system is functioning properly.
o Enter sample data and generate reports to check the accuracy and ease of
use.
9. Training of Users
o Train the staff or accounting team on how to use the software.
o Ensure that everyone knows how to record transactions, generate reports,
and perform backups.
10. Implementation
o Once the system is fully tested and customized, implement it for regular use.
o Continue monitoring and updating the system as needed.
These steps provide a structured process for installing a CAS and ensuring that it
meets the operational requirements of an organization.

A 11 Adjusting entries are made at the end of an accounting period to update revenues and
expenses that are not recorded during the regular course of transactions. These
adjustments are necessary to follow the accrual accounting principle, ensuring that
financial statements accurately reflect the company‘s financial position.

Common Types of Adjusting Entries:

Prepaid Expenses: Expenses paid in advance but not yet incurred (e.g., prepaid rent).
Entry: Debit the expense account and credit the prepaid asset account.
Accrued Expenses: Expenses that have been incurred but not yet paid (e.g., salaries
payable).
Entry: Debit the expense account and credit a liability account.
Accrued Revenues: Revenues earned but not yet received (e.g., interest receivable).
Entry: Debit an asset (Receivables) and credit the revenue account.
Depreciation: Allocating the cost of a fixed asset over its useful life.
Entry: Debit Depreciation Expense and credit Accumulated Depreciation (a contra
asset account).

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A 12 Various steps for data entry in a Computerised Accounting System (CAS) are:
1. Access the Data Entry Module:
 Open the accounting software and navigate to the data entry module. Most
software will have options like "Voucher Entry," "Transaction Entry," or similar.
 Choose the type of voucher or transaction you want to enter (e.g., receipt,
payment, sales, purchase, etc.).
2. Select the Type of Voucher/Transaction:
 The type of transaction or voucher is selected based on the nature of the
financial transaction. Common types include:
 Payment Voucher (for cash or bank payments)
 Receipt Voucher (for cash or bank receipts)
 Sales Voucher (for sales transactions)
 Purchase Voucher (for purchase transactions)
 Journal Voucher (for adjustments, non-cash transactions)
3. Specify the Date:
 Enter the date of the transaction. The system allows entering past or future
dates, but it is essential to enter the correct date for accurate record-
keeping.
4. Select the Accounts Involved:
 Choose the appropriate accounts from the chart of accounts for both the
debit and credit sides of the transaction. For example:
 In a sales transaction, the Sales Account will be credited, and the
Debtors Account will be debited.
 In a payment transaction, the Bank/Cash Account will be
credited, and the Expense Account will be debited.
5. Enter the Transaction Amount:
 Input the correct amount for the transaction. Ensure that the amount is
accurately entered for both debit and credit sides.
6. Provide Additional Details (If Required):
 Depending on the software and the type of transaction, additional fields
may be present for:
 Invoice number
 Narration (a brief description of the transaction)
 Tax details (GST/VAT, etc.)
 Cost centers or projects
 Party name (for sales/purchase entries)
7. Save the Transaction:
 After all necessary details are entered, save the transaction. The entry will
be recorded in the system and reflected in the relevant accounts.
8. Verify the Data Entry:

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 After saving, review the entry for accuracy. Most accounting software
provides options to preview the transaction before finalizing.

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 LATE BLOOMERS MARKING SCHEME (MLL)

CHAPTER 1 - OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

QUESTION BANK

MULTIPLE CHOICE QUESTIONS

Q1 Name the Accounting information sub-system which is linked with other sub-systems for
obtaining information about cost and expenses:
(A) Cash and Bank sub-system (B) Costing sub-system
(C) Expense accounting sub-system (D) Final accounts sub-system

Q2 The components of computerised accounting system are:

(A) Data, Report, Ledger, Hardware, Software
(B) Data, People, Procedure, Hardware, Software
(C) People, Procedure, Ledger, Data, Chart of Accounts
(D) Data, Coding, Procedure, Rules, Output

Q3 Which of the following is not an advantage of computerised accounting system?

(A) Timely generation of reports in desired format
(B) Ensures effective control over the system
(C) Faster obsolescence of technology
(D) Confidentiality of data is maintained

Q4 Which of the following type of software suffer from the limitation of low secrecy level and
software being prone to data frauds?
(A) Tailored (B) Specific (C) Generic (D) (A) and (B) both

SHORT ANSWER TYPE QUESTIONS [3/4 MARKS]

Q5 Explain any three features of Computerised Accounting System.

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Q6 State any three limitations of Computerised Accounting System.

Q7 Explain any three advantages of Computerised Accounting System.

Q8 Why the computerisation of Financial Accounting is required and why is it useful?

Q9 Differentiate between ‗Generic Software‘ and ‗Tailored Software‘ on any three basis.

Q 10 Name and explain the type of software which meets the requirements of large
business organizations with multi-users and scattered locations.

LONG ANSWER TYPE QUESTIONS [6 MARKS]

Q 11 Explain the following subsystems in detail.

(a) Fixed Assets Accounting Sub-System
(b) Costing Sub-System
(c) Payroll Accounting Sub-System

Q 12 Describe a situation in which a small business might prefer using generic software
for their accounting needs rather than specific or tailored software. What factors
would influence this decision?

SOLUTIONS
A1 (B) Costing sub-system

A2 (B) Data, People, Procedure, Hardware, Software

A3 (C) Faster obsolescence of technology

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A4 (C) Generic

A5 Following are the salient features required for CAS software:

Simple and Integrated: CAS is designed to automate and integrate all the business
operations, such as sales, finance, purchase, inventory and manufacturing. CAS is
integrated to provide accurate, up-to-date business information rapidly.
Scalability: CAS enables in changing the volume of data processing in tune with the
change in the size of the business. The software can be used for any size of the business
and type of the organisation.
Reliability: CAS makes sure that the generalized critical financial information is accurate,
controlled and secured.

A6 The three limitations of Computerised Accounting System are:

1. Faster obsolescence of technology necessitates investment in shorter period of time.
2. Data may be lost or corrupted due to power interruptions.
3. Un-programmed and un-specified reports cannot be generated.

A7 Advantages of Computerised Accounting System (Any three)

1. Timely generation of reports and information in desired format.
2. Efficient record keeping.
3. Ensures effective control over the system.
4. Economy in the processing of accounting data.

A8 Computerisation is required to handle the growing complexity of financial

transactions, ensuring accurate, timely, and efficient processing of data. Benefits
include real-time information, enhanced decision-making, improved accuracy,
reduced manual errors, data security, and the ability to generate reports quickly.

A9 Any three of the following differences:

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 Basis Generic Tailored
1 Nature of business Small, Conventional Large, typical
business business
2 Cost of installation and Low High
Maintenance
3 Expected level of Low Relatively high
secrecy
4 No. of users and their Limited Unlimited
interface
5 Linkage to other Restricted Yes
information system
6 Adaptability High Specific
7 Training requirements Low High

A 10 Name of the software is ―Tailored Accounting Software‖

As they are designed to meet the requirements of large business organisations
with multi users who are scattered on different geographical locations. They
require special training to run and use. They are important part of the
organisational MIS. The secrecy and authenticity checks are robust in such
software and they provide high flexibility in terms of number of users as well.

A 11 Accounting Information System (AIS) and its various sub-systems may be

implemented through Computerised Accounting System. The three subsystems of
AIS are briefly described below:
(a) Fixed Assets Accounting Sub-System: It deals with the recording of
purchases, additions, deletions, usage of fixed assets such as land and buildings,
machinery and equipments, etc. it also generates reports about the cost,
depreciation, and book
value of different assets.

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 (b) Costing Sub-System: It deals with the ascertainment of cost of goods
produced. It has linkages with other accounting sub-systems for obtaining the
necessary information about cost of material, labour, and other expenses. This
system generates information about changes in the cost that takes place during
the period under review.

(c) Payroll Accounting Sub-System: It deals with payment of wages and salary
to employees. A typical wage report details information about basic pay, dearness
allowance, and other allowances and deductions from salary and wages on
account of provident fund, taxes, loans, advances and other charges. The system
generates reports about wage bill, overtime payment and payment on account of
leave encashment, etc.

A 12 A small business, such as a retail store with basic accounting needs, might prefer
using generic software like QuickBooks or Tally. Since the business primarily
requires bookkeeping, invoicing, payroll, and basic reporting, generic software
would provide these functions in a cost-effective and user-friendly package.
The factors influencing this decision include:
 Cost: Generic software is generally more affordable than specific or tailored
software, making it ideal for businesses with budget constraints.
 Ease of Use: Generic software is typically designed for ease of use and
doesn‘t require specialized training.
 Standard Needs: The business doesn‘t require industry-specific features or
customization, as its accounting needs are relatively simple.

CHAPTER - 2

ACCOUNTING APPLICATION OF ELECTRONIC SPREADSHEET

QUESTION BANK

Q1 How many categories of data can be plotted on a pie chart in Excel software?
(A) 4 (B) 12 (C) 20 (D) 7

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Q2 A ‗legend‘ can be repositioned on the chart :
(A) On the right side only (B) On the left side only
(C) On the bottom of x-axis (D) Anywhere

Q3 Excel considers which of the following group of mathematical operations of equal

importance? (A) Multiplication and Addition (B) Division and
Multiplication
(C) Exponent and Multiplication. (D) Subtraction and Division

Q4 How many rows are available in Excel 2007?

(A) 5663 (B) 65536 (C) 72257 (D) 4332

Q5 Explain the terms Doughnut and Exploded Doughnut as types of charts.

Q6 Explain the advantages of using a Graph.

Q7 List the points of nomenclature used in Excel for charts/ graphs.

Q8 Give the meaning of ‗Labels‘ and ‗Formulas‘ as used in spreadsheet.

Q9 State steps to be taken in preparation of a chart.

Q 10 Write any five advantages using electronic spreadsheet in place of manual spreadsheet.

Q 11 Define Pivot Table and explain usage?

Q 12 What is meant by ‗Merging a range of cells? How is it done? State the steps to split a
merged cell.

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 SOLUTION

A1 (D) 7

A2 (D) Anywhere

A3 (B) Division and Multiplication

A4 B) 65536

A5 (a) Doughnut Chart: It displays data in rings where each ring represents a data series. It is like
pie-chart. It shows the relationship of parts to a whole, but it can contain more than one. These
charts are not easy to read.
(b) Exploded Doughnut: Much like exploded pie chart, exploded doughnut display the
contribution of each value to a total while emphasising individual values but they can contain more
than one data series.

A6 Following are the advantages of using graph:

Helps to explore:
• Helps in exploring the relationships between various variables.
• A quick in easier way to find possible relationships than paging through raw data.
Helps to present:
• Quick provision of information.
• Provides summary of ideas.
Helps to convince:
• Can be used to present and explore different characteristics of data.
• Large amount of information can be exhibited to persuade decision making.

A7 The nomenclature used in Excel for charts is as follows:

(i) The chart area

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 (ii) The plot area covering the plot of values in the selected type of chart
(iii) The data points
(iv) The Horizontal (Base Values e.g. Category) and Vertical (Derived Values) Axes.
(v) The legend to specify distinguishing criteria in case of multiple lines pies, bars etc.
(vi) Chart and Axes Titles
(vii) Data labels

A8 Labels: A text or special character will be treated as labels for rows or columns or descriptive
information. Labels cannot be treated mathematically, multiplied, subtracted etc. Labels include
any cell contents beginning with A-Z.
Formula: It means a mathematical calculation on asset of cells. By convention, the left hand side
of equal sign in a formula is normally considered then it is calculated and displayed in cell. A
formula identifies the calculation needed to place the result in the cell it is contained within. The
cell will display two components –the formula itself and resulting value. A spreadsheet without any
formula is a collection of data which are arranged in rows and columns.

A9 Following are the steps taken to prepare a chart:

1. Enter data in a worksheet with proper columns and rows titles.
2. From chart group option, create a basic chart.
3. Change layout or style of chart by applying predefined chart lay out and style the layout and
format of chart elements can be changed.
4. Add or remove titles or data tables.
5. Show or hide a legend.
6. Display or hide chart axes or gridlines.
7. Move (resize) a chart. 8. Save the chart.
A 10 Five advantages of using an electronic spreadsheet over a manual spreadsheet are:
1. Automatic Calculations and Formula Use: Electronic spreadsheets allow for automatic
calculations using formulas. Once formulas are set up, any change in data is immediately
reflected in the results, saving time and reducing errors compared to manually
recalculating values.
2. Efficient Data Management and Editing: Electronic spreadsheets offer easy data editing,
copying, pasting, and deleting, making it simple to adjust and rearrange data without
having to recreate tables from scratch. This flexibility makes data management more
efficient.
3. Data Visualization: Electronic spreadsheets can generate charts, graphs, and pivot tables
to visually represent data. This feature helps in better understanding and analyzing data
trends, which is difficult to achieve with manual spreadsheets.

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 4. Enhanced Accuracy: By automating calculations and reducing the need for manual data
entry, electronic spreadsheets minimize human error, enhancing the overall accuracy of
calculations and data.
5. Storage and Retrieval: Electronic spreadsheets can store vast amounts of data and are
easily retrievable on digital devices. They also provide the ability to back up data,
reducing the risk of data loss, which is a common issue with paper-based records.

A 11 A Pivot Table is a data summarization tool in spreadsheet software (like Microsoft Excel or Google
Sheets) that allows users to automatically sort, count, and total the data stored in one table or
spreadsheet. It helps in reorganizing and summarizing selected columns and rows of data to get a
desired report.

Key Features of a Pivot Table:

1. Data Summarization: A Pivot Table summarizes large sets of data and provides a way to
aggregate information.
2. Data Grouping: You can group data based on certain categories, such as grouping dates
by month or year.
3. Data Filtering: Allows filtering and viewing subsets of data based on specified criteria.
4. Sorting and Organizing: Pivot tables can sort and arrange data in various ways to help in
the analysis.
5. Dynamic Reports: They can easily be modified to show different views of the data.

Usage of Pivot Table:

1. Summarizing large datasets: For example, it can help summarize sales data for different
regions and time periods.
2. Analyzing trends: It can display monthly sales data or product performance across different
time periods.
3. Comparative Analysis: It allows comparison of data like total sales for each region, or
average sales per product.
4. Data Exploration: Pivot Tables help in identifying patterns, outliers, or significant data
points in a dataset.

A 12 Merged cells are a single cell that is created by combining two or more selected cells. The cell
reference for a merged cell is the upper left cell in the original selected range. When two or more
adjacent horizontal or vertical cells are merged, the cells become one large cell and displayed
across multiple columns or rows. The contents of one appear in the center of the merged cell.
To merge the cell:
1. Select the two or more adjacent cells that we want to merge.
2. On the Home tab, in the Alignment group, click, merge and center (or bottom).

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3. The cell will be merged in a row or column, and the cell contents will be centered in the merged
cell. To merge cell without centering, click the arrow next to Merge and Centre and then click
Merge Across or Merge Cells. The cell address of merge cells will be the address of lower
active cell.
4. To change the text alignment in the merged cell, select the cell; click any of the alignment
buttons in the Alignment group on the Home tab.
To split a merged cell:
1. Select the merged cell.
2. When we select a merged cell, the Merge and Centre button also appears selected in the
Alignment group on the Home tab.
3. To split the merged cell, click merge and Centre. The contents of the merged cell will appear in
the upper left cell of the range of split cell.

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CHAPTER - 3

USING COMPUTERIZED ACCOUNTING SYSTEM

QUESTION BANK

Q1 The Grouping of Accounts means the classification of data from :

(a) Asset, liabilities and capital
(b) Asset, capital, liabilities, revenue and expenses
(c) Asset, owners equity, revenue and expenses
(d) None of the above.

Q2 Codification of Accounts required for the purpose of :

(a) Hierarchical relationship between groups and components
(b) Data processing faster and preparing of final accounts
(c) Keeping data and information secured
(d) None of the above.

Q3 Method of Codification should be :

(a) Such that it leads to grouping of accounts
(b) An identification mark.
(c) Easy to understand, cryptic, and leads to grouping of accounts
(d) None of the above

Q4 The need of Codification is :

(a) The Encryption of data
(b) The Generation of mnemonic code
(c) To secure the accounts, reports, etc.
(d) Easy to process data, keeping proper records

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Q5 What is data validation? Provide an example where entering invalid values in a cell
results in an error message.

Q6 What are the key security features of a Computerised Accounting System (CAS)

Q7 What is encryption and what are its benefits?

Q8 What is a chart of accounts? How is it arranged?

Q9 Explain various types of coding methods and the situations where each is best suited.

Q 10 What are the steps involved in the installation of a Computerised Accounting System?

Q 11 What is meant by Adjusting entry? Name any three adjusting entries.

Q 12 Enlist the steps for data entry in a Computerised Accounting System (CAS)?

SOLUTIONS
A1 (c) Asset, owners equity, revenue and expenses

A2 (a) Hierarchical relationship between groups and components

A3 (a) Such that it leads to grouping of accounts

A4 (a) The Encryption of data

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A5 Data Validation is a feature in software applications like Microsoft Excel and other
spreadsheet tools that allows users to set rules or constraints on the type of data that
can be entered into a cell or range of cells. The purpose of data validation is to ensure
the accuracy and quality of the data being entered, reducing the likelihood of errors.

Example of Data Validation Rule and Error

 Rule: Allow only whole numbers between 1 and 100.
If a user attempts to enter:
1. 200 – An error will be shown because it exceeds the maximum limit (100).
2. -5 – An error will be shown because it is less than the minimum limit (1).
3. "Text" – An error will be shown because the input is not a number.
Error Message Example:
 Title: "Invalid Input"
 Message: "Please enter a whole number between 1 and 100.

A6 The key security features of a Computerised Accounting System (CAS)

1. Password Security: Password security is a mechanism, which enables a user to
access a system including data. The system facilitates defining the user rights
according to organisation policy.
2. Data Audit: This feature enables one to know as to who and what changes have
been made in the original data, thereby helping and fixing the responsibility of the
person who has manipulated the data and also answers data integrity.

A7 Encryption is a security process that converts data into a coded format (ciphertext) that
can only be accessed or deciphered by authorized users who possess a decryption
key. In a Computerised Accounting System (CAS), encryption ensures that sensitive
financial data remains secure, both during storage and transmission.

Benefits in CAS:
4. It enhances Security
5. It ensures that even if data is intercepted, it cannot be understood without the
decryption key.
6. It helps businesses comply with laws requiring data protection.

A8 A chart of accounts is a structured list of all accounts used by an organization to record

financial transactions. Each account is assigned a unique code for identification. It
serves as the backbone of the accounting system, categorizing assets, liabilities,

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 revenues, and expenses. The arrangement is hierarchical, typically grouped into
categories like Assets, Liabilities, Equity, Revenues, and Expenses.

A9  Sequential Codes: In this method, numbers or letters are assigned in a

consecutive order. For example, invoices might use sequential numbering like INV001,
INV002. They are best suited for tracking documents or ensuring continuity, as
missing or skipped codes can help identify errors or omissions.
 Block Codes: In this method, a range of numbers is divided into blocks, with each
block assigned to a specific category or group. Within each block, numbers can be
assigned sequentially. For example, in inventory management, codes 100–199 for
pumps, 200–299 for motors. They are best suited for categorizing large datasets or
grouping similar items under predefined ranges.
 Mnemonic Codes: It use letters or abbreviations that represent the item being
coded. These codes are easy to remember and provide a clear link to the item or
category they represent. For example, "NDLS" for New Delhi Railway Station. They
are best suited for situations where users need to recall codes easily, such as
department or station identification.

A 10 The installation of a Computerised Accounting System (CAS) involves a structured

process to ensure the system meets the specific accounting needs of the business.
The key steps are as follows:

1. Understanding the Requirements: Identify the business's accounting needs, such

as transaction recording, inventory management, payroll, or tax compliance. Analyze
the volume of transactions and reporting requirements.
2. Selecting Suitable Software: Choose software based on business size and
complexity and Cost and user-friendliness.
3. Setting Up the Hardware: Install the software on compatible devices (computer,
server, or cloud-based platforms). Ensure hardware meets software requirements,
such as RAM, storage, and network connectivity.
4. Creating the Chart of Accounts (COA): Define a list of accounts categorized into
assets, liabilities, equity, revenue, expenses. Assign unique codes for each account for
easy identification.
5. Entering Opening Balances: Input initial balances for key accounts, such as Cash
and bank accounts, Accounts receivable and payable, Inventory and fixed assets.
6. Customizing the System: Configure the software to suit business needs set up
fiscal year dates, tax rates, and invoicing templates. Enable modules like payroll,
inventory, or banking if required.

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 7. Configuring User Roles and Permissions: Create user accounts and assign
specific roles (e.g., Accountant, Manager). Set permissions to ensure data security and
prevent unauthorized access.
8. Training and Testing: Train employees on how to operate the system efficiently.
Conduct testing by entering sample transactions and verifying the accuracy of reports.
9. Going Live: Start using the system for actual transactions. Monitor the system
closely during the initial phase to resolve any issues.
10. Regular Maintenance: Perform regular data backups to prevent loss.
Update the software periodically for security patches and compliance updates.
A11 Adjusting entries are made at the end of an accounting period to update revenues and
expenses that are not recorded during the regular course of transactions.
Common Types of Adjusting Entries:
Prepaid Expenses: Expenses paid in advance but not yet incurred (e.g., prepaid rent).
Accrued Expenses: Expenses that have been incurred but not yet paid (e.g., salaries
payable).
Accrued Revenues: Revenues earned but not yet received (e.g., interest receivable).
Depreciation: Allocating the cost of a fixed asset over its useful life.

A12 Various steps for data entry in a Computerised Accounting System (CAS) are:
1. Access the Data Entry Module
2. Select the Type of Voucher/Transaction
3. Specify the Date
4. Select the Accounts Involved
5. Enter the Transaction Amount
6. Provide Additional Details (If Required):
7. Save the Transaction
8. Verify the Data Entry

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