grade xii accountancy top 100 important -...

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Grade XIIAccountancy

Top 100 Important Questions

Quick Analysis

Estimated Chapter-wise Weightage

Section A : 60 Marks

(Accounting for Partnership Firms and

Companies)

Marks Section B : 20 Marks

(Financial Statement Analysis)

Marks

Ch.1 Financial Statements of Not-for-

Profit-Organizations 10

Ch.1 Financial Statements of a

Company

12 Ch.2 Accounting for Partnership: Basic

Concepts

35

Ch.2 Analysis of Financial

Statements

Ch.3 Change in Profit Sharing Ratio Ch.3 Accounting Ratios

Ch.4 Admission of a Partner Ch.4 Cash Flow Statement 8

Ch.5 Retirement/Death of a Partner

Ch.6 Dissolution of a Partnership Firm

Ch.7 Accounting for Share Capital

15

Ch.8 Issue and Redemption of

Debentures

On the basis of the previous year trends we can say that the topics- Admission of a partner,

Retirement of a Partner, Issue of Shares by Pro-Rata Allotment, Cash Flow Statement, and

Financial Statements as per Schedule III, Companies Act 2013 are very important.

Also, since, NPO has been newly added to the syllabus of XII grade, questions regarding the

financial statements of NPO are expected.

Although partnership has the highest weightage as compared to other units, a thorough practice

and study of all the chapters is required! So, do not miss any chapter!

Difficulty Level Analysis

Accountancy Board Paper

Analysis of Difficulty Level (% share) over the last three years

Year Easy Average Difficult

2016 26.1% 43.5% 30.4%

2017 39.13% 43.48% 17.39%

2018 36.25% 37.5% 26.25%

From the trend it can be seen that in 2016, the difficulty level was quite high with a sudden dip

seen in 2017, where only 17% of the questions were on the difficult side. However, last year

again a surge was seen with 26% of questions as difficult. On the basis of the pattern, we can say

that on an average the papers have relatively been more moderate with the difficult questions

ranging between 17-30%.

On the basis of past trends, we can expect that the difficulty level in the upcoming board exam

will lie between the same range of 15-30%.

Moreover, it was seen that the last year paper was relatively lengthier, so this year as well a

lengthy accountancy paper is expected. So, practice on speed and time management!

All the best!

Top 100 Questions in Accountancy XII

Ques. 1 Show the distribution of profit or loss by preparing appropriate accounts in the following

given cases.

Case a) A and B are partners sharing profit and loss in the ratio 3:2, their partnership firm

incurred a loss of Rs 20,000.

Case b) A and B are partners sharing profit and loss in the ratio 3:2, their partnership firm earned

a profit of Rs 20,000.

Answer

Case a)

Profit and Loss (Adjustment) Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

To Net Loss 20,000 By Loss transferred to:

A’s Capital 12,000

B’s Capital 8,000 20,000

20,000 20,000

Case (b)

Profit and Loss Appropriation Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

To Profit transferred to: By Profit and Loss 20,000

A’s Capital 12,000

B’s Capital 8,000 20,000

20,000 20,000

Ques. 2 Which of the following statements cannot be regarded as a right of partner?

a) Every partner has the right to share profits or losses with other partners as per the agreement.

b) Only active partners have a right to take part in the management of the business.

Answer

b) Only active partners have a right to take part in the management of the business.

Ques. 3 Anand, Rahul and Vijay are partners in a firm sharing profits and losses in the ratio

3:2:1. Their fixed capital accounts are Rs 3,00,000, Rs 2,00,000 and Rs 1,00,000 respectively.

Anand is entitled to salary of Rs 5,000 per month and Rahul is entitled to commission of Rs

20,000. Interest on capital is provided at 10% per annum. Drawings made during the year by

Anand, Rahul and Vijay are Rs 50,000, Rs 30,000 and Rs 20,000 respectively. Interest on

drawings is to be charged at 10% irrespective of the period. Net profit for the year is Rs

4,00,000. Prepare the Profit and Loss Appropriation Account and Partners’ Current Account.

Answer

Books of Anand, Rahul and Vijay


Dr.

Cr.

Particulars Amount

Rs Particulars

Amount

Rs

To Anand’s Salary (Rs 5,000 x 12) 60,000 By Net Profit transferred from Profit

and Loss A/c

4,00,000

To Rahul’s Commission 20,000 By Interest on Drawings:

To Interest on Capital: Anand 5,000

Anand 30,000 Rahul 3,000

Rahul 20,000 Vijay 2,000 10,000

Vijay 10,000 60,000

To Profit transferred to

Anand’s Current 1,35,000

Rahul’s Current 90,000

Vijay’s Current 45,000 2,70,000

4,10,000 4,10,000

Partners’ Current Account

Dr.

Cr.

Particulars Anand Rahul Vijay Particulars Anand Rahul Vijay

To Drawings 50,000 30,000 20,000 By Interest on

Capital

30,000 20,000 10,000

To Interest on

Drawings

5,000 3,000 2,000 By Salary 60,000

To Balance c/d 1,70,000 97,000 33,000 By Commission 20,000

By Profit and Loss

Appropriation

1,35,000 90,000 45,000

2,25,000 1,30,000 55,000 2,25,000 1,30,000 55,000

Ques. 4 Is rent paid to partner debited to Profit and Loss Account or Profit and Loss

Appropriation Account?

Answer

Rent paid to partner is debited to Profit and Loss Account because it is expenditure of a firm not

an appropriation of profit.

Ques. 5 Mug, Cup and Glass are partners in a firm. They are sharing profits and losses in the

ratio of 2:5:4. With mutual agreement, they decided to change their profit sharing ratio to 7:4:3.

Ascertain the sacrifice or gain share of Cup?

Answer

Ques. 6 What is the need for revaluation of assets and reassessment of liabilities at the time of

change in profit-sharing ratio among the partners?

Answer

Usually, the assets and liabilities do not appear at its current value in the books of accounts.

However, their value might have increased or decreased with the passage of time. Thus,

Revaluation Account is prepared in order to reflect the changes in the values of assets and

liabilities in the books of accounts.

Ques. 7 Pass the necessary Journal entries for the following.

(a) Risha and Isha are partners. On 1st April, 2014, they decided to change their profit-sharing

ratio from 2:3 to equally. On this date, Investments is appearing in the books amounting to Rs

56,000 (market value Rs 60,000). There also exists Investment Fluctuation Fund amounting to

Rs 6,000.

(b) X, Y and Z are partners sharing profits and losses in the ratio of 2:2:1. They decided to

change their future profit-sharing ratio to 1:1:3. At the time of change in profit-sharing ratio,

there was an unrecorded asset (computer) of Rs 12,000, which was taken over by one of the

partner Z at Rs 11,800.

(c) Roshan and Arbaz are partners in a firm sharing profits and losses in the ratio of 1:2. With

effect from 31st March, 2014 they decided to change their future profit-sharing ratio in the

ratio of 2:1. On the date, value of goodwill appearing in the books was Rs 30,000.

Answer

(a)

Journal Entry

Date Particulars L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Investment Fluctuation Fund Dr. 6,000

To Risha’s Capital A/c 2,400

To Isha’s Capital A/c 3,600

(Investment Fluctuation Fund distributed

among the partners)

Investment A/c

Dr.

4,000

To Revaluation A/c 4,000

(Value of Investment increased)

Revaluation A/c

Dr.

4,000

To Risha’s Capital A/c 1,600

To Isha’s Capital A/c 2,400

(Profit on revaluation of assets distributed

among all the partner’s in old profit-sharing

ratio)

(b)

Journal Entry


Debit

Amount

Rs

Credit

Amount

Rs

Z’s Capital A/c Dr. 11,800


(Unrecorded computer taken over by Z at Rs

11,800)

Revaluation A/c Dr. 11,800

To X’s Capital A/c 4,720

To Y’s Capital A/c 4,720

To Z’s Capital A/c 2,360

(Profit on revaluation of assets distributed among

all the partners in old ratio)

(c)

Journal Entry


Debit

Amount

Rs

Credit

Amount

Rs

Roshan’s Capital A/c Dr. 10,000

Arbaz’s Capital A/c Dr. 20,000

To Goodwill A/c 30,000

(Goodwill appearing the books written-off in the

old ratio)

Ques. 8 When do we record Partners’ Capital Account on the Asset side of the Balance Sheet?

Answer

Usually, Partners’ Capital Account shows credit balance which is shown on the Liabilities side

of the Balance Sheet. However, in case, the capital accounts reveal a debit balance, then it will

be shown on the Assets side of the Balance Sheet.

Ques. 9 Green, Blue and White are partners in a firm sharing profits and losses in the ratio of

4:1:1. Their Balance Sheet on 31st March, 2014 is as follows.

Balance Sheet

Liabilities Amount

(Rs) Assets

Amount

(Rs)

Capital: Furniture and Fixtures 72,000

Green 1,56,000 Land and Building 95,000

Blue 84,000 Patents 30,000

White 95,000 3,35,000 Bulk Cart 36,000

Sundry Creditors 24,000 Goodwill 54,000

Accumulated Profits 36,000 Debtors 50,000

Workmen Compensation

Fund

12,000 Less: Bad-Debts (2,000) 48,000

Cash at Bank 60,000

Cash in Hand 12,000

4,07,000 4,07,000

They agreed to share future profits and losses in the ratio of 3:2:1 on the following terms.

1. Furniture and Fixtures is to be appreciated to Rs 84,000 and patents were written off by Rs

14,000.

2. Sohan, from whom Rs 2,000 is receivable, treated as bad.

3. Provision for Bad-debts is to be maintained at 5%.

4. Creditors include a contingent liability of Rs 10,000, now it is decided by court at Rs

12,000.

5. A typewriter of Rs 14,000 was unrecorded, now at the time of reconstitution it is taken into

consideration.

Prepare Revaluation Account, Partners’ Capital Account and Balance Sheet.

Answer

Revaluation Account

Dr. Cr.

Particulars Amount

(Rs) Particulars

Amount

(Rs)

Patents 14,000 Furniture and

Fixtures

12,000

Debtors (Bad-Debts) 2,000 Typewriter 14,000

Provision for Bad-debts 2,300

Creditors 2,000

Profit transferred to:

Green 3,800

Blue 950

White 950 5,700

26,000 26,000

Partners’ Capital Accounts

Dr. Cr.

Particulars Green Blue White Particulars Green Blue White

Goodwill 36,000 9,000 9,000 Balance b/d 1,56,000 84,000 95,000

Balance c/d 1,55,800 83,950 94,950 Revaluation A/c

(Profit)

3,800 950 950

Accumulated Profits 24,000 6,000 6,000

Workmen

Compensation Fund

8,000 2,000 2,000

1,91,800 92,950 1,03,950 1,91,800 92,950 1,03,950

New Balance Sheet as on 31 March, 2014

Liabilities Amount

(Rs) Assets

Amount

(Rs)

Capital: Furniture and Fixtures 72,000

Green 1,55,800 Add: Appreciated Value 12,000 84,000

Blue 83,950 Patents 30,000

White 94,950 3,34,700 Less: written-off (14,000) 16,000

Sundry Creditors 24,000 Debtors 50,000

Add: Liability

increased

2,000 26,000 Less: Bad-Debts (4,000)

Less: Provision for Bad-

Debts

(2,300) 43,700

Typewriter 14,000

Land and Building 95,000

Bulk Cart 36,000

Cash at Bank 60,000

Cash in Hand 12,000

3,60,700 3,60,700

Ques. 10 The following data of Building has been extracted from the books of Hindustan Old

Age Home.

Particulars Rs

Building Fund on January 01, 2012 5,00,000

Donation for Construction of Building during the year 2012 2,00,000

Expenditure for Construction of Building during the year 2012 3,00,000

Capital fund on January 01, 2012 4,00,000

Building on January 01, 2012 6,00,000

How will you treat the above items while preparing the financial statements of Hindustan Old

Age Home for the year ended December 31, 2012.

Answer

The given items will be shown in the Closing Balance Sheet of Hindustan Old Age Home in the

following manner:

The given items will be shown in the Closing Balance Sheet of Hindustan Old Age Home in the

following manner.

Balance Sheet Hidustan Old Age Home as on December 31, 2012

Liabilities Amount

Rs Assets

Amount

Rs

Capital Fund 4,00,000 Building 6,00,000

Add: Transferred

from

Building

Fund 3,00,000 7,00,000

Add: Construction

of Building

3,00,000 9,00,000

Building Fund 5,00,000

Add: Donations 2,00,000

Less: Transferred

to Capital (3,00,000) 4,00,000

Fund

Ques. 11 State whether the following statement is true or false.

‘A new partner can be admitted into a partnership firm with the consent of majority of partners.’

Answer

The statement is false. A new partner can only be admitted if all partners of the partnership firm

agree (i.e. on the agreement of all the existing partners).

Ques. 12 Malvika and Arpita were partners sharing profits and losses in the ratio of 3:2. They

admited Disha for th share in the firm’s profit. On the date of admission, the capital account

balances of Malvika and Arpita were Rs 2,50,000 and Rs 2,00,000 respectively, General Reserve

Rs 1,00,000, Profit and Loss (Dr.) Rs 50,000. Disha was to bring in sufficient cash in order to

make her capital 25% of the firm’s capital after adjusting all the above adjustments. Calculate the

capital account balances of all the three partners by preparing Partners’ Capital Account. Also

show the working notes properly.

Answer

Books of Malvika, Arpita and Disha

Partners’ Capital Account

Dr. Cr.

Particulars Malvika Arpita Disha Particulars Malvika Arpita Disha

Profit and Loss 30,000 20,000 Balance b/d 2,50,000 2,00,000

Balance c/d 2,80,000 2,20,000 1,50,000 General Reserve 60,000 40,000

Cash (W.N.) 1,50,000

3,10,000 2,40,000 1,50,000 3,10,000 2,40,000 1,50,000

Working Notes:

Computation of Disha’s Capital

Capital of Malvika after adjustments (2,50,000 + 60,000 –

30,000)

= 2,80,000

Capital of Arpita after adjustments (2,00,000 + 40,000 – 20,000) = 2,20,000

Combined capital of Malvika and Arpita for share = 5,00,000

Total capital of the new firm =

= 6,00,000

Disha’s share in Capital =

= 1,50,000

Ques. 13 Payal owned a business. Her Balance sheet as on March 31, 2010 is:

Balance Sheet

Liabilities Amount

Rs Assets

Amount

Rs

Bills Payable 70,000 Cash in Hand 30,000

Sundry Creditors 70,000 Cash at Bank 50,000

Salaries Outstanding 20,000 Sundry Debtors 90,000

General Reserve 40,000 Stock 70,000

Capital 3,00,000 Machinery 1,00,000

Building 1,60,000

5,00,000 5,00,000

She admitted Swati into partnership on April 01, 2011 on the following terms.

a. The profits of the firm was decided to be shared in the ratio of 2:1.

b. She need to bring her share of capital in the form of Machinery of Rs 2,00,000 and goodwill in

form of cash of Rs 50,000.

c. Building is to be appreciated by 20%

d. A provision for doubtful debts is to be created by 5% on Debtors

e. Machinery to be depreciated by 10%

Prepare Revaluation Account, Capital Account and Balance Sheet.

Answer

Books of Payal and Swati

Revaluation Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Machinery A/c 10,000 Building A/c 32,000

Provision for Doubtful Debts 4,500

Profit transferred to Payal’s Capital 17,500

32,000 32,000


Dr. Cr.

Particulars Payal Swati Particulars Payal Swati

Balance c/d 4,07,500 2,00,000 Balance b/d 3,00,000

Machinery 2,00,000

Premium for Goodwill 50,000

General Reserve 40,000

Revaluation 17,500

4,07,500 2,00,000 4,07,500 2,00,000

Balance Sheet

as on 31st March, 2012

Liabilities Amount

Rs Assets

Amount

Rs

Bills Payable 70,000 Cash in Hand 80,000

Sundry Creditors 70,000 Cash at Bank 50,000

Salaries Outstanding 20,000 Sundry Debtors 90,000

Capitals: Less: Provision for 4,500 85,500

Payal 4,07,500 Doubtful Debts

Swati 2,00,000 6,07,500 Stock 70,000

Machinery (W.N.) 2,90,000

Building 1,92,000

7,67,500 7,67,500

Working Note: Calculation of Value of Machinery

Machinery as on April 01, 2011 1,00,000

Less: Depreciation 10% (10,000)

90,000

Add: Machinery brought by Swati 2,00,000

2,90,000

Ques. 14 Enlist any two modes of reconstitution of partnership other than retirement and death

of partner.

Answer

The following are the two modes of reconstitution of partnership other than retirement and death

of partner.

1. Admission of new partner/s.

2. Change in profit sharing ratio (agreement) among the existing partners.

Ques. 15 Mention any two rights that are acquired by a newly admitted partner in a partnership

firm.

Answer

A newly admitted partner acquires the following rights.

(i) Like old partners, a newly admitted partner has the right to share the property of the firm.

(ii) A newly admitted partner has the right to claim his/her share in the firm’s profit earned after

his/her admission.

Ques. 16 Calculate new and sacrificing ratio in each of the following cases.

(i) A and B are partners sharing profits and losses in the ratio 7:3. They admitted C for

1/5th

share.

(ii) A and B are partners sharing profits and losses in the ratio 7:3. They admitted C for

1/5th

share, which he takes 1/3rd

from A and 2/3rd

from B.

(iii) A and B are partners sharing profits and losses in the ratio 7:3. They admitted C for

1/5th

share, which he takes equally from A and B.

(iv) A and B are partners sharing profits and losses in the ratio 7:3. C is admitted in the firm. A

surrenders 1/10th

of his share and B surrenders 1/8th

of his share in favour of C.

Answer

(i)

A B

Old Ratio 7 : 3

Let the total profit of the firm be 1

C’s share = share

Remaining share of A and B

A’s New Ratio = Old Ratio × Remaining share of A and B

B’s New Ratio = Old Ratio × Remaining share of A and B

New Ratio = A

B

C

=

:

:

=

28 : 12 : 10

50

=

:

:

Sacrificing Ratio = Old Ratio – New Ratio

NOTE: When new and sacrificing ratio is not given in the question, then it is assumed that old

partners will sacrifice in the same proportion as they shared before admission of new partner.

Hence, in this question, sacrificing ratio will be equal to the old ratio.

(ii)

New Ratio = Old Ratio – Sacrificing Ratio

New Ratio of all partners = A

B

C

=

:

:

=

19 : 5 : 6

30

(iii)

New Ratio of all partners = A

B

C

=

:

:

=

6 : 2 : 2

10

= 6 : 2 : 2

(iv)

Sacrificing Ratio = A : B

=

:

= 28 : 15

400

= 28 : 15

= A : B : C

New Ratio of All partners =

:

:

= 252 : 105 : 43

Ques. 17 X and Y were partners in a business sharing profits and losses in the ratio 3:2. They

admitted C for1/4th

share. On the date of C’s admission the Balance Sheet was as given below.

Balance Sheet

Liabilities Amount

Rs. Assets

Amount

Rs.

Sundry Creditors 15,000 Cash 2,000

Outstanding Expenses 2,000 Sundry Debtors 6,000

Capital : Stock 8,000

X 40,000 Investment 12,000

Y 33,000 73,000 Machinery 20,000

Building 40,000

Goodwill 2,000

90,000 90,000

C brought Rs. 30,000 as his share of capital but unable to brought Rs. 10,000 as his share of

goodwill.

On C’s admission, Creditors were increased by Rs. 2,000, Debtors Rs. 200 proved bad, Building

appreciated by 10%.

In the new firm, capital of the all partners was to be kept in proportion of their profit sharing

ratio and any surplus or deficiency in the capital is to be adjusted by opening partners’ current

account.

C’s share of capital was taken as base for determining the capital of the new firm.

Pass necessary Journal entries and prepare Revaluation Account, Partners Capital Account and

Balance Sheet.

Answer

Journal


Debit

Amount

Rs.

Credit

Amount

Rs.

X’s Capital A/c Dr. 1,200

Y’s Capital A/c Dr. 800

To Goodwill A/c 2,000

(Goodwill written off)

Cash A/c Dr. 30,000

To C’s Capital A/c 30,000

(C brought his capital)

C’s Current A/c Dr. 10,000


To Y’s Capital A/c 4,000

(C’s share goodwill adjusted between A and B)


To Creditors 2,000

To Debtors 200

(Asset and Liabilities revalued)

Building A/c Dr. 4,000


(Building appreciated)



To Y’s Capital A/c 720

(Revaluation profit transferred to Capital A/c in old

ratio)

Revaluation Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Creditors 2,000 Building 4,000

Debtors 200

Profit transferred to Capital

Account:

X 1,080

Y 720 1,800

4,000 4,000


Dr. Cr.

Particulars X Y C Particulars X Y C

Goodwill 1,200 800 Balance b/d 40,000 33,000

Cash 30,000

C’s Current 6,000 4,000

Balance c/d 45,880 36,920 30,000 Revaluation 1,080 720

47,080 37,720 30,000 47,080 37,720 30,000

Y’s Current 920 Balance b/d 45,880 36,920 30,000

Balance c/d

(Proportionate)

54,000 36,000 30,000 X’s Current 8,120

54,000 36,920 30,000 54,000 36,920 30,000

Balance Sheet

Liabilities Amount

Rs Assets

Amount

Rs

Sundry Creditors 15,000 Cash (2,000 + 30,000) 32,000

Add: Revaluation 2,000 17,000 Sundry Debtors 6,000

Outstanding Expenses 2,000 Less: Revaluation 200 5,800

Capital Stock 8,000

X 54,000 Investment 12,000

Y 36,000 Machinery 20,000

C 30,000 1,20,000 Building 40,000

Y’'s Current 920 Add: Revaluation 4,000 44,000

C’'s Current 10,000

X’'s Current 8,120

1,39,920 1,39,920

Working Note: Calculation of Capital Balances of the Old Partners-A and B

Capital of the new firm on the basis of C’s Capital = 30,000 ×4/1= Rs 1,20,000

New firms’ Capital 1,20,000

Less: C’s Capital (30,000)

Combined capital of X and Y in the new firm 90,000

Ques. 18 State any two circumstances when calculation of gaining ratio becomes inevitable.

Answer

The following are the two circumstances when gaining ratio is calculated:

1. At the time of retirement or death of a partner.

2. At the time of change in profit sharing ratio among the existing partners.

Ques. 19 Who is entitled to receive the payment in case of death of a partner?

Answer

In case of the death of a partner, his/her legal representative is entitled to receive the payment

from the partnership firm.

Ques. 20 A, B and C are partners in a firm sharing profits and losses in the ratio of 3:3:2. A

retires and his share is acquired by B and C in the ratio of 1:2 Calculate the new profit sharing

ratio.

Answer

Ques. 21 Sunil, Sanjay and Gagan were partners in a firm sharing profits and losses in the ratio

of 3:2:1. On June 30, 2010 Sunil died. His capital was Rs 1,20,000. The goodwill of the firm was

valued at Rs 1,20,000. His executor is entitled for the following receipts.

1. Interest on Sunil’s capital at 10% per annum

2. Salary of Rs 24,000 per annum

3. Profit up to the date of Sunil’s death is to be calculated on the basis of the previous year’s

profit of Rs 3,00,000.

The firm closes its books on March 31 every year. Calculate the amount payable to the Sunil’s

Executor by preparing Sunil’s Capital Account.

Answer

Books of Sanjay and Gagan

Sunil’s Capital Account

Dr. Cr.

Date Particulars J.F. Amount

Rs Date Particulars J.F.

Amount

Rs

2010 2010

June 30 Sunil’s Executors 2,26,500 March 31 Balance b/d 1,20,000

June 30 Interest on Capital 3,000

Salary 6,000

Profit and Loss Suspense 37,500

Sanjay’s Capital 40,000

Gagan’s Capital 20,000

2,26,500 2,26,500

Working Notes:

1. Calculation of Interest of Capital

Interest on Capital = Balance in Capital Account Time

Period Rate

2. Calculation of Sunil’s Salary

Salary

3. Calculation of Sunil’s Share in Profit

Share of Profit = Previous year profit × Time Period × Share in

Profit

4. Calculation of Sunil’s Share in Profit

Sunil’s Share of Goodwill

5. Calculation of Gaining Ratio

Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Sanjay and Gagan = 2 : 1

Ques. 22 Vipin, Varun and Vijay are partners in a firm sharing profits and losses in the ratio

3:2:1. On March 31, 2010, the Balance Sheet of the firm is as follows:

Balance Sheet

Liabilities Amount

Rs Assets

Amount

Rs

Creditors 50,000 Cash 10,000

Bills Payable 30,000 Debtors 50,000

General Reserve 1,20,000 Stock 1,00,000

Capitals: Plant and Machinery 3,00,000

Vipin 3,00,000 Building 2,80,000

Varun 2,00,000 Profit and Loss 60,000

Vijay 1,00,000 6,00,000

8,00,000 8,00,000

Vijay retires on March 31, 2010 on the following terms:

a. Building to be valued at Rs 4,00,000.

b. Plant and Machinery to be depreciated by Rs 55,000.

c. 10% provision to be created on Debtors.

Prepare Revaluation Account, Capital Account and Balance Sheet after Vijay’s retirement.

Answer

Books of Vipin and Varun

Revaluation Account

Particulars Amount

Rs Particulars

Amount

Rs

Plant and Machinery 55,000 Building 1,20,000

Provision for Debtors 5,000

Profit on Revaluation transferred to

Capitals:

Vipin 30,000

Varun 20,000

Vijay 10,000 60,000

1,20,000 1,20,000


Dr.

Cr.

Particulars Vipin Varun Vijay Particulars Vipin Varun Vijay

Profit and Loss 30,000 20,000 10,000 Balance b/d 3,00,000 2,00,000 1,00,000

Vijay’s Loan 1,20,000 General Reserve 60,000 40,000 20,000

Balance c/d 3,60,000 2,40,000 Revaluation 30,000 20,000 10,000

3,90,000 2,60,000 1,30,000 3,90,000 2,60,000 1,30,000

Balance Sheet as on March 31, 2010

Liabilities Amount

Rs Assets

Amount

Rs

Creditors 50,000 Cash 10,000

Bills Payables 30,000 Debtors 50,000

Less: Provision for Debtors 5,000 45,000

Vijay’s Loan 1,20,000 Stock 1,00,000

Capitals: Plant and Machinery 2,45,000

Vipin 3,60,000 Building 4,00,000

Varun 2,40,000 6,00,000

8,00,000 8,00,000

Ques. 23 A, B and C were partners sharing profits and losses in the ratio 5:3:2. C died on April

01, 2010.As per the partnership deed, the deceased partner’s share of profit from the beginning

of accounting year to the date of death is to be calculated on the basis of average profit of the

immediate three preceding years. Profits of the last three years before the death of C were Rs

10,000, Rs 15,000 and Rs 20,000, respectively. Pass the necessary Journal entries for the profit

share to be given to the deceased partner assuming the books are closed on 31st December every

year.

Answer

Profit and Loss Suspense A/c Dr. 750

To C’s Capital A/c 750

(C’s share of profit debited to Profit and Loss Suspense

Account)

Ques. 24 P, Q and R were partners sharing profits and losses in the ratio 2:2:1. Q died in an

accident on May 1, 2010. As per the partnership deed, the deceased partners’ share will be given

to his executor in the following manner:

(a) His balance of capital.

(b) His share of profit from the beginning of the accounting period till the date of death will be

considered on the basis of previous year’s turnover.

(c) His share in General Reserve and Accumulated Profit

(d) His share of Goodwill.

The capital account of Q showed a credit balance of Rs. 80,000 and his current account showed a

debit balance of Rs 10,000. Sales Rs. 3,00,000 was made evenly throughout the year 2009. Profit

earned at 20% on sales.

On December 31, 2009, Balance Sheet showed General Reserve Rs 10,000 and Goodwill Rs

12,000.

Goodwill of the firm is equal to 20% of the previous year’s turnover.

Pass the necessary Journal entries and prepare Q’s Capital Account, Q’s Current and Q’s

Executor’s Account, assuming that the partners want to show General Reserve and Goodwill

without altering its values. The balance of Q’s executors will be transferred to his Loan Account.

Answer

Journal Entry


Debit

Amount

Rs.

Credit

Amount

Rs.

P’s Current A/c Dr. 2,667

R’s Current A/c Dr. 1,333

To Q’s Current A/c 4,000

(Q’s share of General Reserve adjusted)

P’s Current A/c Dr. 12,800

R’s Current A/c Dr. 6,400


(Q’s share of Goodwill adjusted)

Profit and Loss Suspense A/c Dr. 8,000


(Q’s share of profit credited to his current account)

Q’s Current A/c

Dr.

21,200

To Q’s Capital A/c 21,200

(Balance of Q’s Current Account transferred to his

Capital Account)

Q’s Capital A/c

Dr.

1,01,200

To Q’s Executor’s A/c 1,01,200

(Q’s Capital transferred to Q’s Executors’ Account)

Q’s Executor’s A/c

Dr.

1,01,200

To Loan A/c 1,01,200

(Balance of Q’s executors transferred to Loan)

Q’s Capital Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 80,000

Q’s Executor 1,01,200 Q’s Current 21,200

1,01,200 1,01,200

Q’s Current Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 10,000 P’s Current (General Reserve) 2,667

Q’s Current (General Reserve) 1,333

Q’s Capital (Balance c/d) 21,200 P’s Current (Goodwill) 12,800

Q’s Current (Goodwill) 6,400


31,200 31,200

Q’s Executor’s Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Loan 1,01,200 Q’s Capital 1,01,200

1,01,200 1,01,200

Goodwill of the new firm = Rs 60,000

Less: Goodwill already in the firm = Rs (12,000)

Goodwill to be adjusted = Rs 48,000

As goodwill already appearing in the books at Rs 12,000, so Q’s share of goodwill will be

adjusted in proportion of Rs 48,000 not in proportion of Rs 60,000.

Ques. 25 Is Partner’s Spouse’s Loan treated as Partner’s Loan?

Answer

No, the Partner’s Spouse’s loan is not treated as Partner’s Loan because partner’s spouse is not a

partner. The amount of spouse’s loan is treated as an external liability to the business. It is

transferred to the Realisation Account whereas the Partner’s Loan is transferred to Partners’

Capital Account and to the Realisation Account.

Ques. 26 Guru and Abhishek are partners in a firm sharing profits and losses in the ratio of 7:5.

After transferring assets and liabilities from the Balance Sheet to the Realisation Account the

following transactions took place:

a) Pretam, a creditor to whom the firm owed Rs 3,00,000, took over a building of Rs 5,00,000

and the remaining amount after adjustment was returned by him.

b) Dilip, a creditor to whom the firm owed Rs 3,00,000, accepted stock of Rs 1,00,000, debtors

of Rs 50,000, vehicle Rs 1,00,000, and cash for the remaining balance.

c) An unrecorded asset of Rs 1,20,000 was taken by both the partners in their profit sharing ratio.

Pass the necessary Journal entries.

Answer

Books of Guru and Abhishek

Journal

Date Particulars L.F. Amount

Rs

Amount

Rs

(a) Cash A/c Dr. 2,00,000

To Realisation A/c 2,00,000

(Cash received from Pretam after adjusting

the amount due to him)

(b) Realisation A/c Dr. 50,000

To Cash A/c 50,000

(Balance amount paid to creditor after adjusting

assets taken by him)

(c) Guru’s Capital A/c Dr. 70,000

Abhishek’s Capital A/c Dr. 50,000

To Realisation A/c 1,20,000

(Unrecorded asset taken by the partners in their

profit sharing ratio)

Ques. 27 The following are the Balance Sheet as on December 31, 2010 and Receipts and

Payments Account as on December 31, 2011 of Netra Jyoti Hospital Trust.

Balance Sheet as on December 31, 2010

Liabilities Amount

Rs. Assets

Amount

Rs.

Outstanding Medicine Bills 5,000 Cash in Hand 20,000

Shivir Fund 1,00,000 Cash at Bank 50,000

Capital Fund 4,80,000 Stock of Medicine 15,000

Medical Equipments 1,00,000

Hospital Building 4,00,000

5,85,000 5,85,000

Receipts and Payments Account for the year ended December 31, 2011

Dr. Cr.

Receipts Amount

Rs. Payments

Amount

Rs.

Balance b/d Expenses on Shivirs 50,000

Cash in Hand 20,000 Doctors’ Honorarium 1,20,000

Cash at Bank 50,000 Salary to Clerk 15,000

Fee Collection 1,10,000 Payments for Medicine 80,000

Subscription 50,000 Medical Equipment 10,000

Donation 10,000 Expenses for Jan Jagrati 5,000

Municipal Grant 25,000 Balance c/d

Donation for Shivir 25,000 Cash in Hand 4,000

Cash at Bank 6,000

2,90,000 2,90,000

Prepare Income and Expenditure Account and Balance Sheet for the year ended December 31,

2011.

Answer

Income and Expenditure Account for the year ended December 31, 2011

Dr. Cr.

Expenditure Amount

Rs. Income

Amount

Rs.

Doctors’ Honorarium 1,20,000 Fee Collection 1,10,000

Salary Clerk 15,000 Subscription 50,000

Medicine 80,000 Donation 10,000

Add: Stock 15,000 Municipal Grant 25,000

Less: Outstanding for 2010 (5,000) 90,000 Deficit (Balancing Figure) 35,000

Expenses for Jan Jagrati 5,000

2,30,000 2,30,000


Liabilities Amount

Rs. Assets

Amount

Rs.

Shivir Fund 1,00,000 Cash in Hand 4,000

Add: Donation 25,000 Cash at Bank 6,000

Less: Expenses (50,000) 75,000 Medical Equipments 1,00,000

Add: Purchases 10,000 1,10,000

Capital Fund 4,80,000 Hospital Building 4,00,000

Less: Deficit (35,000) 4,45,000

5,20,000 5,20,000

Ques. 28 Consider the Receipts and Payments Account of National Educational Society as on

December 31, 2010.

Receipts and Payments Account

Dr. Cr.

Receipts Amount

Rs. Payments

Amount

Rs.

Balance b/d: Salary to Teachers 20,000

Cash in Hand 2,000 Rent 2,500

Cash at Bank 5,000 Salary to Peon 5,000

10% Fixed Deposits 20,000 27,000 Furniture 12,500

Subscriptions: Balance c/d:

2010 20,000 Cash in Hand 1,000

2009 5,000 25,000 Cash at Bank 2,700

Interest on Fixed Deposit 1,500 10% Fixed Deposits 20,000 23,700

Sale of Furniture 200

(Book-value of Rs 500)

Donations 10,000

63,700 63,700

Additional Information: 1. Subscription Outstanding for 2010 is Rs 2,000

2. Rent included Rs 200 outstanding for 2009 and rent still due for 2010 is Rs 500

3. On January 01, 2010, society had Furniture Rs 10,000 and Building Rs 30,000.

4. Provide depreciation on Furniture @ 10% p.a.

Prepare Income and Expenditure Account and the Balance Sheets as on January 01, 2010, and

December 31, 2010.

Answer

Income and Expenditure Account for the year ended December 31, 2010

Dr. Cr.

Expenditure Amount

Rs. Income

Amount

Rs.

Salary to Teachers 20,000 Subscriptions 25,000

Depreciation on Furniture 2,200 Less: Outstanding 2009 (5,000)

Salary to Peon 5,000 Add: Outstanding 2010 2,000 22,000

Rent 2,500 Interest on Fixed Deposits 1,500

Less: Outstanding 2009 (200) Add: Accrued Interest 500 2,000

Add: Outstanding 2010 500 2,800 Donations 10,000

Loss on Sale of Furniture 300

Surplus 3,700

34,000 34,000


Liabilities Amount

Rs. Assets

Amount

Rs.

Rent Outstanding 500 Subscription Outstanding 2,000

Capital Fund 71,800 Furniture 10,000

Add: Surplus 3,700 75,500 Add: Purchase 12,500

Less: Sale (Book-value) (500)

22,000

Less: 10% Depreciation (2,200) 19,800

Building 30,000

10% Fixed Deposit 20,000

Add: Accrued Interest 500 20,500

Cash in Hand 2,700

Cash at Bank 1,000

76,000 76,000

Balance Sheet as on January 01, 2010

Liabilities Amount

Rs. Assets

Amount

Rs.

Rent Outstanding 200 Subscription Outstanding 5,000

Capital Fund (Balancing figure) 71,800 10% Fixed Deposit 20,000

Furniture 10,000

Building 30,000

Cash in Hand 2,000

Cash at Bank 5,000

72,000 72,000

Ques. 29 What are Sweat Equity Shares?

Answer

As per the Companies Act, 2013, ’Sweat Equity Shares’ refer to those equity shares which are

issued by the company to its employees or directors at a discount or for consideration other than

cash for providing know-how or intellectual property right or value additions by, whatever name

called. In simple words, these shares are issued to the employees and the directors of a company

at discounted rate in order to motivate them and give them a sense of ownership of a part of

company’s capital. For example, Infosys first started issuing Sweat Equity Shares in India.

Ques. 30 Consider the following extract from the books of Blue Swimming Club:

Particulars Rs.

Locker rent received during the year 2010-11 60,000

Locker rent outstanding on March 31, 2011 4,000

Locker rent outstanding on April 01, 2010 3,000

Locker rent received in advance on April 10, 2010 1,500

Locker rent received in advance on March 31, 2011 2,000

Ascertain the amount of locker rent that is to be shown in the Income and Expenditure Account

as on March 31, 2011

Answer ↵

Income and Expenditure Account for the year ended March 31, 2011

Dr. Cr.

Expenditure Amount

Rs.

Income Amount

Rs.

Locker Rent 60,000

Add: Outstanding 2010-

11

4,000

Less: Outstanding 2009-

10

(3,000)

Add: Advance on April

01, 2010

1,500

Less: Advance on March

31, 2011

(2,000) 60,500

Ques. 31 Use the following information to answer the next question.

Manika Ltd. forfeited 1,000 equity shares due to non-payment of Rs. 20 each. The company had

called Rs. 60. Later, these shares were re-issued by the company @ Rs. 70 called-up for Rs. 90

per share.

Pass the entries for forfeiture and re-issue of shares.

Answer

Books of Manika Ltd. Journal


Debit

Amount

Rs.

Credit

Amount

Rs.

Equity Share Capital A/c Dr. 60,000

To Equity Share forfeiture A/c 40,000

To Calls-in-arrears A/c 20,000

(1,000 equity shares were forfeited

due to non-payment of Rs 20 each)

Bank A/c

Dr.

90,000

To Equity Share Capital A/c 70,000

To Securities Premium A/c 20,000

(1,000 forfeited equity shares were

re-issued @ Rs 70 called-up for Rs

90 per share)

Share Forfeiture A/c

Dr.

40,000

To Capital Reserve A/c 40,000

(Profit on forfeiture of equity shares

transferred to Capital Reserve)

Ques. 32 Lucks Ltd. issued 10,000 shares of Rs. 50 each at a premium of Rs 10 payable as Rs.

20 on application, Rs. 25 on allotment (including premium), Rs. 7.5 on first call and the balance

on final call. Applications were received for 18,000 shares. The company made the allotment on

the following basis:

Category- A: To the applicants for 6,000 shares- Full

Category- B: To the applicants for 5,000 shares- Rejected

Category- C: To the applicants for 3,000 shares- 2,000 shares

Category- D: To the applicants for 4,000 shares- 2,000 shares

The excess money on application (if any) was utilised towards allotment.

Amit, a shareholder of 300 shares, (belonging to Category C) failed to pay the allotment and call

money and his shares are forfeited immediately after first call. Saurabh, another shareholder to

whom 200 shares were allotted failed to pay both the calls. His shares were forfeited after

making the final call.

Out of the forfeited shares, 400 shares were reissued (which included all the shares of Amit) by

the company at Rs 40 as fully paid-up. Record the above transactions by passing necessary

Journal entries and also prepare Company’s Balance Sheet as per Schedule III of the Companies

Act, 2013.

Answer

Books of Lucks Ltd.

Journal

Date Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

Bank A/c (18,000 shares × Rs 20) Dr. 3,60,000

To Equity Share Application A/c 3,60,000

(Share application money received for 18,000

shares at Rs 20 each)

Equity Share Application A/c

Dr.

3,60,000

To Share Capital A/c (10,000 shares × Rs 20

each)

2,00,000

To Share Allotment A/c 60,000

To Bank A/c (5,000 shares × Rs 20 each) 1,00,000

(Share application money on 10,000 shares

transferred to share capital, 5,000 shares money

were refunded and the balance adjusted on

allotment)

Share Allotment A/c (10,000 shares × Rs 25)

Dr.

2,50,000

To Share Capital A/c (10,000 shares × Rs 15) 1,50,000

To Securities Premium A/c (10,000 shares × Rs

10)

1,00,000

(Allotment money due)

Bank A/c (2,50,000 – 60,000 – 4,500)

Dr.

1,85,500

To Share Allotment A/c 1,85,500

(Share allotment money received)

Share First Call A/c

Dr.

75,000

To Share Capital A/c 75,000

(Share first and final call due on 10,000 shares at

Rs 7.50 each)

Bank A/c (75,000– 2,250 – 1,500)

Dr.

71,250

To Share First Call A/c 71,250

(Share first call received)

Share Capital A/c (300 shares × Rs 42.50)

Dr.

12,750

Securities Premium A/c (300 shares × Rs 10) Dr. 3,000

To Share Forfeiture A/c 9,000

To Share Allotment A/c 4,500

To Share First Call A/c 2,250

(Amit’s shares forfeited after first call)

Share Final Call A/c (9,700 × Rs 7.5)

Dr.

72,750


(Share first and final call due on 10,000 shares at

Rs 7.50 each)

Bank A/c (72,750 – 1,500)

Dr.

71,250

To Share Final Call A/c 71,250

(Share final call received)

Share Capital A/c (200 shares × Rs 50)

Dr.

10,000

To Share Forfeiture A/c (200 shares × Rs 35) 7,000

To Share First Call A/c (200 shares × Rs 7.50) 1,500

To Share Final Call A/c (200 shares × Rs 7.50) 1,500

(Saurabh’s shares forfeited after final call)

Bank A/c (400 shares × Rs 40)

Dr.

16,000

Share Forfeiture A/c (400 shares × Rs 10) Dr. 4,000

To Share Capital A/c (400 shares × Rs 50) 20,000

(Re-issue of 400 forfeited shares)


Dr.

8,500


(Share forfeiture amount transferred to capital

reserve)

Balance Sheet of Lucks Ltd. as per Schedule III of the Companies Act, 2013

Lucks Ltd.

Balance Sheet

Particulars Note No. Amount

(Rs.)

I. Equity and Liabilities

1. Shareholders’ Funds

a. Share Capital 1 4,98,500

b. Reserves and Surplus 2 1,05,500

2. Non-Current Liabilities

3. Current Liabilities

Total 6,04,000

II. Assets

1. Non-Current Assets

2. Current Assets

a. Cash and Cash Equivalents 3 6,04,000

Total 6,04,000

NOTES TO ACCOUNTS

Note No. Particulars Amount

(Rs.)

1 Share Capital

Authorised Share Capital

…… shares of Rs 10 each

Issued Share Capital

10,000 shares of Rs 50 each 5,00,000

Subscribed, Called-up and Paid-up Share Capital

9,900 shares of Rs 50 each 4,95,000

Add: Shares Forfeited 3,500 4,98,500

2 Reserves and Surplus

Capital Reserve 8,500

Securities Premium 97,000 1,05,500

3 Cash and Cash Equivalents

Cash at Bank 6,04,000

Working Notes:

Computation Table

1 2 3 4 5 6 7

Category Shares

Applied

Shares

Allotted

Money

Received on

application

at Rs. 20

each

Application

Money

transferred

to Share

Capital

at Rs.20 each

Excess

money on

application

Bank

(Refund)

A 6,000 6,000 1,20,000 1,20,000 -

B 5,000 Nil 1,00,000 - - 1,00,000

(Refunded)

C 3,000 2,000 60,000 40,000 20,000 -

D

(Balancing

figure)

4,000 2,000 80,000 40,000 40,000

Total 18,000 10,000 3,60,000 2,00,000 60,000 1,00,000

WN2Calculation of Amount Unpaid on Allotment by Amit

Number of shares allotted = 300 shares

Amount received on application (450 shares × Rs.

20)

9,000

Less: Utilised on application (300 shares × Rs. 20) (6,000)

Excess amount received on application 3,000

Amount due on allotment (300 shares × Rs 25) 7,500

Less: Excess amount received on application (3,000)

Amount unpaid on allotment 4,500

WN3Calculation of Amount to be transferred to Capital Reserve

Amount forfeited on Amit’s 300 shares 9,000

Amount forfeited on Saurabh’s 200 shares 7,000

Amount forfeited on Saurabh’s 100 shares

3,500

12,500

Less: Discount allowed on 400 shares reissued (4,000)

Amount to be transferred to Capital Reserve 8,500

Ques. 33 State any two ways in which the amount of Securities Premium can be utilised.

Answer

Amount of Securities Premium can be utilised for the below mentioned purposes.

1. For writing-off the preliminary expenses

2. For issuing fully-paid bonus shares.

Ques. 34 (a) Baba Wool Garments Ltd. forfeited 300 shares of Rs 10 each, on which Rs 8 was

called for the non-payment of first call of Rs 3. Of the forfeited shares, 200 shares were reissued

at Rs 7 per share Rs 8 paid-up, 60 shares at Rs 9 per share Rs 8 paid-up and remaining were

reissued at Rs 10 per share fully paid-up.

(b) Modern Food Products Ltd. forfeited 400 shares of Rs 10 each issued at premium of Rs 2 per

share for the non-payment of allotment Rs 5 (including premium) and first and final call of Rs 2

per share. Out of the forfeited shares, 200 shares were reissued at Rs 9 per share, 100 shares at

Rs 10 per share, 80 shares at Rs 12 per share and the rest 20 shares remained unsold.

Pass the necessary Journal entries for forfeiture and reissue of shares for each of the above

cases.

Answer

(a)

Books of Baba Wool Garments Ltd.

Date Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Share Capital A/c

To Share Forfeiture A/c

To Calls-in-Arrears A/c

(300 shares of Rs 10 each, Rs 8 called-up

forfeited for non-payment of first call Rs 3 per

share)

Bank A/c


To Share Capital A/c

(200 shares of Rs 10 each reissued at Rs 7 per

Dr.

Dr.

Dr.

2,400

1,400

200

1,500

900

1,600

share Rs 8 paid-up)

Bank A/c


To Securities Premium A/c

(60 shares reissued at Rs 9 per share Rs 8 paid-

up)

Bank A/c


(40 shares reissued at Rs 10 each fully paid-up)


To Capital Reserve A/c

(Balance of share forfeiture of 300 shares after

reissue share transferred to capital Reserve)

Dr.

Dr.

Dr.

540

400

1,300

480

60

400

1,300

(b)

Books of Modern Food Products Ltd.

Date Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Securities Premium A/c

Share Capital A/c



(400 shares of Rs 10 each at Rs 2 premium were

forfeited for non-payment of allotment and first

and final call)

Bank A/c



(200 share reissued at Rs 9 per share fully paid-up)

Bank A/c


(100 share reissued at Rs 10 each fully paid-up)

Bank A/c


To Securities Premium

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

800

4,000

1,800

200

1,000

960

2,000

2,800

2,000

1,000

800

160

(80 share reissued at Rs 12 per share fully paid-up)



(Balance 380 shares in Share Forfeiture Account


Dr.

1,700

1,700

Ques. 35 Swastik Medicines Ltd. undertook a gage to provide the poor and destitute children

with free medicines on World Health Day on April 07, 2012. For this purpose, it issued 20,000

shares of Rs 10 each at a premium of Rs 2 per share payable as Rs 3 on application (including

Re. 1 premium), allotment Rs 4 (including Re. 1 premium), Rs 2 on first call and Rs 3 on final

call.

Applications were received for 30,000 shares of which 2,000 shares were allotted in

full (Category-I), 1,000 were rejected and remaining shares were allotted on pro-rata

basis (Category-II). Application money of rejected shares were returned outright and money

overpaid on application from the applicants of allotted shares was adjusted on allotment.

Two shareholders failed to pay the allotment and calls money; one holding 200 shares belonging

to the Category-I and another holder holding 360 shares belonging to the Category-II.

These shares were subsequently forfeited and reissued, except 100 shares of Category-I, at Rs 9

per share fully paid-up. Pass the Journal entries for issue, forfeiture, reissue and capital reserve.

Also, prepare the Company's Balance Sheet as per Schedule III of the Companies Act, 2013.

Answer

Date Particulars

L.

F.

Debit

Amount

Rs.

Credit

Amount

Rs.

Bank A/c (30,000 x 3)

To Share Application A/c

(Money received on application for 30,000 share at

Rs 3 per share)

Share Application A/c

To Share Capital A/c (20,000 x 2)

To Securities Premium A/c (20,000 x 1)

To Share Allotment A/c

To Bank A/c

(Share Application of 20,000 shares transferred to

Share Capital A/c. Application money on 1,000

shares returned and remaining amount transferred to

Share Allotment A/c)

Share Allotment A/c (20,000 x 4)

To Share Capital A/c (20,000 x 3)

To Securities Premium A/c (20,000 x 1)

(Share Allotment due on 20,000 shares at Rs 4 each

including Re. 1 premium)

Bank A/c

Calls-in-Arrears A/c

To Share Allotment A/c

(Share allotment money received, except on 560

shares)

Share First Call A/c


(Share First Call money due on 20,000 shares at Rs 2

each)

Bank A/c

Calls-in-Arrears A/c (560 shares × Rs 2)

To Share First Call A/c

(Share First Call money received on all shares, except

560 shares)

Share Final Call A/c


Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

90,000

90,000

80,000

51,300

1,700

40,000

38,880

1,120

60,000

90,000

40,000

20,000

27,000

3,000

60,000

20,000

53,000

40,000

40,000

60,000

(Share Final Call money due on 20,000 shares at Rs 3

each)

Bank A/c

Calls-in-Arrears A/c (560 shares × Rs 3)

To Share Final Call A/c

(Share Final Call money received on all shares except

560 shares)

Share Capital A/c


To Share Forfeiture A/c (1620 – 360)

To Calls-in-Arrears A/c (900 + 1,800)

(360 shares of the Category-II forfeited for non-

payment of allotment and calls money)

Share Capital A/c




(200 shares of the Category-I forfeited for non-

payment of allotment and calls)

Bank A/c (460 shares × Rs 9 )

Share Forfeiture A/c (460 shares × Re 1)


(460 shares reissued at Rs 9 per share)



(Balance in the Share Forfeiture A/c of 460 shares

transferred to the Capital Reserve)

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

Dr.

58,320

1,680

3,600

360

2,000

200

4,140

460

1,000

60,000

1,260

2,700

400

1,800

4,600

1,000

As per Schedule III of the Companies Act, 2013, the following is the Balance Sheet for

Swastik Medicine Ltd.

Swastik Medicines Ltd.

Balance Sheet


(Rs.)




b. Reserves and Surplus 2 40,440



Total 2,39,640

II. Assets


2. Current Assets


Total 2,39,640

NOTES TO ACCOUNTS


(Rs.)

1 Share Capital


…… shares of Rs 10 each -


20,000 shares of Rs 10 each 2,00,000


19,900 shares of Rs 10 each 1,99,000

Add: Shares Forfeited 200 1,99,200



Securities Premium 39,440 40,440



Working Notes: 1. Shares belong to the category of pro-rata allotment

Number of shares applied =

2. Calculation of Excess Money on Application

Money Received on application for 540 shares @ Rs 3 per

share

Less: Money transferred to capital and premium for 360

share @ Rs 3 per share

1,620

(1,080)

Excess money on Application for 360 shares 540

3. Calculation of Call-in-Arrears on Allotment

Allotment due on 360 shares @ Rs 4 each

Less: Excess money adjusted on Allotment

1,440

540

Calls-in-Arrears of 360 shares on Allotment 900

Calls-in-Arrears of 200 shares on Allotment (200 × 4) 800

Total Calls-in-Arrears on Allotment 1,700

4. Calculation of Capital Reserve Amount for 360 shares

Share forfeiture credited for 360 shares (Rs 1,620 – Rs 360 sec. prem. on application)

Share forfeited debited for 360 share @ Re 1 each

1,260

360

Capital Reserve for 360 shares 900

5. Calculation of Capital Reserve Amount for 100 shares

Shares forfeiture credited for 200 shares at Rs 2 per share

Forfeiture for 100 shares

Credit (Cr.)

Debit (Dr.)

200

100

Capital Reserve for

100 shares

100

Total Capital Reserve = 900 + 100 = Rs 1,000

Ques. 36 Is Premium on Redemption a gain for a limited company?

Answer

No, Premium on Redemption is not a gain for a limited company. It is a liability which is to be

paid along with the amount of debenture.

Ques. 37 Akrosh Ltd. issued 2,000 13% debentures of Rs 100 each at a premium of 10%,

redeemable at a premium of 9%. Show how the relevant items (involved in this transaction) will

appear in the Company’s Balance Sheet as per the Schedule III of the Companies Act, 2013.

Answer

Akrosh Ltd.

Balance Sheet


(Rs)



a. Reserves and Surplus 1 20,000


a. Long-Term Borrowings 2 2,00,000

b. Deferred Tax Liabilities

c. Other Long-Term Liabilities 18,000

Total 2,38,000

II. Assets


a. Other Non-Current Assets 3 18,000

2. Current Assets


Total 2,38,000

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)

1 Reserves and Surplus:

Securities Premium 20,000

2 Non-Current Liabilities:

a. Long-Term Borrowings

2,000, 10% Debentures of Rs 100 each 2,00,000

a. Other Long-Term Liabilities

Premium on Redemption 18,000

3 Other Non-Current Assets

Loss on Issue of Debentures 18,000



Working Notes:

Books of Akrosh Ltd.

Journal


Amount

(Rs)

Amount

(Rs)

Bank A/c Dr. 2,20,000

To Debentures Application A/c 2,20,000

(Application money received on 2,000 debentures

at Rs 110 each)

Debentures Application A/c

Dr.

2,20,000

Loss on Issue of Debentures A/c Dr. 18,000

To 10% Debentures A/c 2,00,000


To Premium on Redemption A/c 18,000

(2,000 debentures issued at a premium of 10%

repayable at 9% premium)

Ques. 38 ZA Ltd. took a loan of Rs 5,00,000 from ICICI Bank and issued 12% Debentures for

Rs 7,00,000 as collateral security to the bank. Company also bought a machine costing Rs

10,00,000 from YB Ltd. and issued 12% Debentures of Rs 9,00,000 in full consideration of the

machinery to YB Ltd. Pass the necessary Journal entries and also show the relevant items in the

Balance Sheet of the ZA Ltd. as per the Schedule III of the Companies Act, 2013.

Answer

Books of ZA Ltd.

Journal

Date Particulars L.F. Amount

Rs

Amount

Rs

Bank A/c Dr. 5,00,000

To Bank Loan A/c 5,00,000

(Loan taken from ICICI Bank)

Debenture Suspense A/c Dr. 7,00,000


(Issued 12% Debentures of Rs 7,00,000 as collateral

security

against a loan of Rs 5,00,000 from ICICI Bank)

Machinery A/c Dr. 10,00,000

To YB Ltd 10,00,000

(Machinery purchased from YB Ltd.)

YB Ltd Dr. 10,00,000


To Securities Premium A/c 1,00,000

(Issued 12% debentures at premium)

The Balance Sheet of ZA Ltd. as per the Schedule III of the Companies Act, 2013 is as

follows.

ZA Ltd.

Balance Sheet

Particulars Note

No.

Amount

(Rs)



a. Reserves and Surplus 1 1,00,000




Total 15,00,000

II. Assets


a. Tangible Assets

i. Machinery 3 10,00,000

2. Current Assets 5,00,000

a. Cash and Cash

Equivalents

4

Total 15,00,000

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)


Securities Premium 1,00,000

2 Long-Term Borrowings

Secured:

Loan From ICICI Bank (Secured against issue of Debentures

of Rs 7,00,000)

5,00,000

12% Debentures (Issued as Collateral Security

against Loan)

7,00,000

Less: Debenture Suspense Account 7,00,000 -

12% Debentures issued for consideration other than cash 9,00,000

14,00,000

3 Tangible Assets

Machinery 10,00,000



Ques. 39 Max Pvt. Ltd issued 6000 5% Debentures of Rs 100 each at 10% premium on January

20, 2010, redeemable at a premium of 12%. Out of these, 80% debentures were due for

redemption on December 31, 2012. At that time Company has balance of Rs 70,000 in its

Debenture Redemption Reserve. Pass the necessary Journal entries at time of issue and

redemption of debentures assuming company closes its books on March 31 every year.

Answer

Books of Max Pvt Ltd.

Journal


Debit

Amount

(Rs)

Credit

Amount

(Rs)

2010

Jan. 20 Bank A/c Dr. 6,60,000

To Debenture Application A/c 6,60,000

(Application money received)

Jan. 20

Debenture Application A/c

Dr.

6,60,000

Loss on Issue of Debentures A/c Dr. 72,000



To Premium on Redemption of Debentures A/c 72,000

(Issue of debentures at premium and redemption at

premium)

2012

Mar. 31 Statement of Profit and Loss Dr. 80,000

To Debenture Redemption Reserve A/c 80,000

(Amount transferred to Debenture Redemption

Reserve)

Apr. 30

Debenture Redemption Investment A/c

Dr.

72,000

To Bank A/c 72,000

(Investment is made in specified securities equal to the 15%

of the value of the debentures redeemed)

Dec. 31

5 % Debenture A/c

Dr.

4,80,000

Premium on Redemption of Debenture A/c Dr. 57,600

To Debentureholders’ A/c 5,37,600

(Amount due to debentureholder on redemption)

Dec. 31

Bank A/c

Dr.

72,000

To Debenture Redemption Investment A/c 72,000

(Investment made in specified securities, now

encashed)

Dec. 31

Debentureholders’ A/c

Dr.

5,37,600

To Bank A/c 5,37,600

(Payment made to debentureholders)

Working Note:

1. Calculation of amount to be transferred to DRR

25% of 6,00,000 (i.e. Face Value of

debentures)

1,50,000

Less: Existing Debenture Redemption

Reserve

(70,000)

DRR to be transferred 80,000

DRR is not transferred to General Reserve as all debentures are not redeemed.

2. Calculation of Amount Invested in Securities

As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every

company required to create/maintain DRR shall on or before the 30th day of April of each year,

deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the

amount of its debentures maturing during the year ending on the 31st day of March next

following year. Accordingly, entries for DRR and Investment have been passed in the previous

accounting year.

Since 80% of debentures are redeemed this year, so, amount invested in the securities will be

calculated on this 80% only i.e. Rs 4,80,000.

Ques. 40 On January 01, 2007 Pushpak Ltd. has issued 50,000 10% debentures of Rs 100 each at

a discount of 5%. These debentures are redeemable at 20% premium as under:

On March 31, 2009 30,000 debentures

On March 31, 2012 20,000 debentures

Debenture interest is payable annually on March 31st of every year till all the debentures are

redeemed. Pass the necessary Journal Entries assuming that the Company has sufficient balance

in its Debenture Redemption Reserve.

Answer

Books of Pushpak Ltd.

Journal


Debit

Amount

(Rs)

Credit

Amount

(Rs)

2007

Jan. 01 Bank A/c Dr. 47,50,000


(Application money received on 50,000 debentures at Rs 95

at a discount of Rs 5 per debenture)

Jan. 01


Dr.

47,50,000

Loss on Issue of Debentures A/c (2,50,000 +

10,00,000)

Dr. 12,50,000


To Premium on Redemption of Debentures A/c 10,00,000

(Issue of debentures at discount and redeemable at

premium)

Mar. 31

Deb. Interest A/c (50,00,000 × 10/100 × 3/12)

Dr.

1,25,000


(Interest due on debentures for 3 months)

Mar. 31


Dr.

1,25,000


(Interest payment made)

Mar. 31

Statement of Profit and Loss

Dr.

1,25,000

To Deb. Interest A/c 1,25,000

(Interest transferred to Statement of Profit and Loss)

2008

Mar. 31 Deb. Interest A/c Dr. 5,00,000


(Interest due on debentures)

Mar. 31


Dr.

5,00,000



Mar. 31


Dr.

5,00,000



Apr. 30


Dr.

4,50,000


(Investment is made in specified securities equal to

15% of the value of debentures)

2009



(Interest made due on debentures)

Mar. 31

10 % Debenture A/c

Dr.

30,00,000

Premium on Redemption of Debenture A/c Dr. 6,00,000


(Amount due on redemption)

Mar. 31

Bank A/c

Dr.

4,50,000

To Debenture Redemption Investment A/c 4,50,000


encashed)

Mar. 31

Debentureholders’ A/c (36,00,000 + 5,00,000)

Dr.

41,00,000

To Bank A/c 41,00,000

(Payment made to debentureholders on redemption along

with interest)

Mar. 31


Dr.

5,00,000



2010

Mar. 31 Deb. Interest A/c (20,00,000 × 10/100) Dr. 2,00,000


(Interest due on remaining debentures)

Mar. 31


Dr.

2,00,000



Mar. 31


Dr.

2,00,000



2011



(Interest due on debentures)

Mar. 31


Dr.

2,00,000



Mar. 31


Dr.

2,00,000



Apr. 30


Dr.

3,00,000


(Investment is made in specified securities equal to

15% of the value of debentures)

2012



(Interest made due on debentures)

Mar. 31

10 % Debenture A/c

Dr.

20,00,000

Premium on Redemption of Debenture A/c Dr. 4,00,000


(Amount made due to debentureholdesr on redemption)

Mar. 31

Bank A/c

Dr.

3,00,000

To Debenture Redemption Investment A/c 3,00,000


encashed)

Mar. 31


Dr.

26,00,000

To Bank A/c 26,00,000

(Payment made)

Mar. 31


Dr.

2,00,000



Mar. 31

Debenture Redemption Reserve A/c

Dr.

12,50,000

To General Reserve A/c 12,50,000

(Debenture redemption reserve transferred to general

reserve)

Notes:

1. As it is mentioned that the Company is having sufficient balance in its DRR Account, so no

entry has been passed for transferring profits to DRR Account.

However, after the redemption of all the debentures, the balance in DRR account will be

transferred to General Reserve Account.

2. As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every

company required to create/maintain DRR shall on or before the 30th day of April of each year,

deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the

amount of its debentures maturing during the year ending on the 31st day of March next

following year. Accordingly, entries for DRR and Investment have been passed in the previous

accounting year.

Debentures worth Rs 30,00,000 are to be redeemed on March 31, 2009

So, the amount of DRI on April 30, 2008 will be:

Debentures worth Rs 20,00,000 are to be redeemed on March 31, 2012

So, the amount of DRI on April 30, 2011 will be:

Ques. 41 a) Cafe Coffee Ltd. issued 8,000, 5% debentures of Rs 100 each as collateral security

for loan of Rs 6,00,000 from State Bank. Pass the necessary Journal entries and also disclose the

relevant items in Company’s Balance Sheet as per Schedule III of Companies Act, 2013.

b) State any two provisions for creation of debenture redemption reserve.

Answer

a)

Books of Cafe Coffee Ltd.

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Bank A/c Dr. 6,00,000

To Bank Loan A/c 6,00,000

(Loan of Rs 6,00,000 taken from State Bank)

Debenture Suspense A/c

Dr.

8,00,000


(Company issued 8,000 5% Debentures of Rs

100 each as collateral security)

Balance Sheet as at March 31, 2013

Particulars Note

No.

Amount

(Rs)




Total 6,00,000

II Assets

2. Current Assets


Total 6,00,000

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)


Secured:

Loan from State Bank (secured by issue of debentures as

collateral security)

6,00,000

8,000, 5% debentures of Rs 100 each issued as

collateral security

8,00,000

Less: Debenture Suspense A/c 8,00,000 -

6,00,000



b) The following are the provisions for debenture redemption reserve as per the Schedule III of

the Companies Act, 2013.

(i) As per Section 71 (4) of the Companies Act, 2013 and Companies (Share Capital and

Debentures) Rules, 2014, every company issuing debentures is required to create Debenture

Redemption Reserve of an amount that is atleast equal to 25% of the total nominal (face)

value of debentures that are redeemable by it.

(ii) As per Rule 18 (7) of the Companies (Share Capital and Debentures) Rules, 2014 requires

every company required to create DRR shall on or before 30th April in each year, invest or

deposit in specified securities, a sum of at least equal to fifteen percent of the amount of

debentures maturing for payment during the year ended 31st March of the next year.

Ques. 42 Show the accounting treatment of subscription in the Income and Expenditure Account

and in the Balance Sheet from the given below extract of Receipts and Payments Account.

Receipts and Payments Account for the year ending 2013

Dr. Cr.

Receipts Amount

(Rs) Payments

Amount

(Rs)

Subscription

2012 2,300

2013 7,000

2014 1,500 10,800

Additional Information: Subscription received in 2012 for 2013 is Rs 1,000. Subscription

outstanding at the end of 2012 is Rs 3,500. Subscription outstanding as on December 31, 2013

amounted to Rs 3,000.

Answer

Income and Expenditure Account for the year ending 2013

Dr. Cr.

Expenditure Amount

(Rs) Income

Amount (Rs)

Subscription 11,000

Balance Sheet

Liabilities Amount Assets Amount

(Rs) (Rs)

Subscription received in

advance 1,500 Subscription outstanding

2012 1,200 2013 3,000 4,200

Working Notes:

Subscription Account Dr. Cr.

Outstanding at the beginning

of the year (2013)

3,500 Received in advance at the

beginning of the year (2013)

1,000

Received in advance at the

end of year (2013)

1,500 Bank A/c 10,800

Outstanding at the end of year

Income and Expenditure A/c

(balancing figure)

11,000 For 2012 1,200

For 2013 3,000 4,200

16,000 16,000

Ques. 43 List the various sources through which a company can raise funds to redeem its

debentures.

Answer

The following are the various sources through which the funds can be raised to redeem the

debentures.

a. Fresh issue of debentures

b. Free Reserves

c. Raising Loan

d. Sale of Assets

Ques. 44 Why Premium on Redemption of Debentures is considered as a liability at the time of

allotment of debentures?

Answer

As per the Principle of Conservatism, Premium on Redemption of Debentures is considered as a

liability at the time of allotment of debentures. Based on this principle, Premium on Redemption

being a liability is credited at the time of allotment of debentures.

Ques. 45 Manish Ltd. has taken loan of Rs. 15,00,000 from PNB Ltd. and Rs. 20,00,000 from

ICICI Bank. It has issued 20,000 10% debentures of Rs 100 each as Collateral Security to PNB

and 25,000 10% debentures of Rs 100 each to ICICI against their respective loans. Pass

necessary Journal Entries in books of Manish Ltd. if:

i) No entry is passed in books for issue of debenture as Collateral Security against Loan PNB

Ltd.

ii) Entry is passed in books for issue of debenture as Collateral Security against Loan ICICI

Bank.

Also prepare the Company’s Balance Sheet of Manish Ltd. as per the Schedule III of the

Companies Act, 2013.

Answer

Books of Manish Ltd.

Journal


Debit

Amount

(Rs)

Credit

Amount

(Rs)

Bank A/c Dr. 35,00,000

To PNB Ltd. 15,00,000

To ICICI Bank A/c 20,00,000

(Loan taken)

Debentures Suspense A/c

Dr.

25,00,000


(25,000 debentures of Rs 100 each issued as

Collateral Security against loan from ICICI Bank)

Manish Ltd.

Balance Sheet


(Rs)






Total 35,00,000

II. Assets


2. Current Assets


Total 35,00,000

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)

1 Long Term Borrowings

Secured:

Loan from PNB Ltd. (Secured by issue of Debentures of

Rs 20,00,000 as Collateral Security) 15,00,000

Loan from ICICI Bank 20,00,000

10% Debentures of Rs 100 each (Issued as

Collateral Security against ICICI Bank

Loan)

25,00,000

Less: Debenture Suspense Account (25,00,000) -

35,00,000



Ques. 46 Pass the necessary Journal entries for each of the following cases. Also calculate the

number of debentures issued in the respective cases.

a. X Limited issued 15% Debentures of Rs 100 each at premium of 10% to Y Limited for the

purchase of machinery costing Rs 1,00,000.

b. X Limited issued 14% Debentures of Rs 100 each at 10% discount to Y Limited in

consideration of purchase of plant costing Rs 1,00,000

c. P Limited purchased business of Q Limited for Rs 14,00,000. Business purchase consisting

assets Rs 14,00,000 and liabilities Rs 3,00,000. 60% of the purchase consideration was settled

through bank draft and the balance amount was paid by issuing 16% Debentures of Rs 100 each

at 40% premium.

Answer

a.

Books of X Limited


Debit

Amount

Rs

Credit

Amount

Rs

Machinery A/c Dr. 1,00,000

To Y Limited 1,00,000

(Machinery purchased from Y Limited)

Y Limited

Dr.

1,00,000

To 15% Debentures A/c 90,900


To Bank A/c 10

909, 15% Debentures of Rs 100 each issued at premium

of Rs 10 per debenture and amount of fraction Rs 10

paid through bank to Y Ltd.

Note: The number of debentures cannot be in fraction, however; if it comes in fraction, then the

fractional amount of debenture is paid through bank. In the above solution, 909 debentures is

issued and the fractional portion (0.1 debentures) is paid through bank (0.1 × Rs 100 = Rs 10).

b.

Books of X Limited


Debit

Amount

Rs

Credit

Amount

Rs

Plant A/c Dr. 1,00,000

To Y Limited 1,00,000

(Plant purchased from Y Limited)

Y Limited

Dr.

1,00,000

Discount on Issue of Debentures A/c Dr. 1,1,110


To Bank A/c 10

1,111, 14% Debentures of Rs 100 each issued at 10%

discount to Y Limited and fraction paid in cash)

Note: In the solution, 1111 debentures is issued and the fractional portion (0.10 debentures) will

be paid through bank (0.10 × Rs 100 = Rs 10).

c.

Journal Entry


Debit

Amount

Rs

Credit

Amount

Rs

Goodwill A/c Dr. 3,00,000

Sundry Assets A/c Dr. 14,00,000

To Sundry Liabilities A/c 3,00,000

To Q Ltd. A/c 14,00,000

(Business of Q Limited taken over)

Q Limited

Dr.

8,40,000


(60% of the amount due to Q Limited paid)

Q Limited

Dr.

5,60,000

To 16% Debentures 4,00,000

To Securities Premium A/c 1,60,000

(4,000 Debentures of Rs 100 each issued at 20%

premium to Q Limited for the settling the balance

amount due)

Ques. 47 Show the following item on the Equity and Liabilities side of the Company's Balance

Sheet as per Schedule III of the Companies Act.

Particulars Rs


Issued Capital (90% subscribed) 6,00,000

Calls in Arrears 1,200

Calls in Advance 2,400

8% Debentures 2,40,000

Fixed Deposits 1,00,000

Creditors 55,000

Provision for Taxation 24,000

Profit and Loss (Dr.) 12,000

General Reserve 2,00,000

Answer

Balance Sheet


(Rs)




b. Reserves and Surplus 2 2,38,000




a. Trade Payables 4 55,000

b. Other Current Liabilities 5 2,400

c. Short-Term Provisions 6 24,000

Total 11,98,200

II. Assets


2. Current Assets

Total

NOTES TO ACCOUNTS


(Rs)

1 Share Capital


…… shares of Rs … each -


…… shares of Rs … each 6,00,000


….. shares of Rs … each 5,40,000

Less: Calls-in-Arrears (1,200) 5,38,800



General Reserve 2,00,000

Profit and Loss (12,000) 2,38,000


8% Debentures (Secured) 2,40,000

Fixed Deposits (Unsecured) 1,00,000 3,40,000

4 Trade Payables

Creditors 55,000

5 Other Current Liabilities

Calls-in-Advance 2,400

6 Short-Term Provision

Provision for Tax 24,000

Ques. 48 The following figures were extracted from the Trial Balance of Mandeep Ltd:

Particulars Rs

Building 2,00,000

Land 5,00,000

Goodwill 50,000

Live Stock 60,000

Discount on Issue of Shares 5,000

9% Government Securities (50,000) 45,000

Shares (in X Ltd.) 60,000

Interest accrued on Investment 5,000

Bills of Exchange 13,000

Show the relevant items on the Assets side of the Balance Sheet of Mandeep Ltd. as per

Schedule III of the Companies Act, 2013

Answer

Mandeep Ltd.

Balance Sheet


(Rs)





Total

II. Assets


a. Fixed Assets

i. Tangible Assets 1 7,60,000

ii. Intangible Assets 2 50,000

b. Non-Current Investments 1,05,000

c. Other Non-Current Assets 5,000

2. Current Assets

a. Trade Receivables 13,000

b. Other Current Assets 5,000

Total 9,38,000

NOTES TO ACCOUNTS


(Rs)

1 Tangible Assets

Building 2,00,000

Land 5,00,000

Live Stock 60,000 7,60,000

2 Intangible Assets

Goodwill 50,000

3 Non-Current Investments

9% Government Securities 45,000

Shares in X Ltd. 60,000 1,05,000



5 Trade Receivables

Bills of Exchange 13,000

6 Other Current Assets


*Discount on Issue of Shares has been assumed to be in respect of Sweat Equity shares and

whole of the amount is still to be written off.

Ques. 49 Preet Ltd. has an authorised capital of Rs 50,00,000 divided into shares of Rs 100 each.

The company invited application for 40,000 shares from the general public and it subscribed

only 95% of the issued shares. All calls were made and duly received except the final call of Rs

30 on 300 shares, out of which 100 shares were forfeited. Money received from the issue of

shares is utilised for the purchase of Building of Rs 20,00,000, Machinery Rs 10,00,000 and

Stock Rs 5,00,000. Show the items in the Balance Sheet of the Company as per schedule III of

the Companies Act, 2013.

Answer

Preet Ltd.

Balance Sheet


(Rs)






Total 37,91,000

II. Assets

1. Non-Current Assets 30,00,000

2. Current Assets

a. Inventories 3 5,00,000

b. Cash and Cash Equivalents 4 2,91,000

Total 37,91,000

NOTES TO ACCOUNTS


(Rs)

1 Share Capital


50,000 shares of Rs 100 each …


40,000 shares of Rs 100 each 4,00,000


37,900 shares of Rs 100 each 37,90,000

Less: Calls-in-Arrears (200 × 30) (6,000)

Add: Shares Forfeited (100 × 70) 7,000 37,91,000

2 Fixed Assets

Building 20,00,000

Machinery 10,00,000 30,00,000

3 Inventories

Stock 5,00,000


Ques. 50 Under which head ‘Interest accrued but not due’ is shown in the Company’s Balance

Sheet as per Schedule III of the Companies Act, 2013.

Answer

‘Interest accrued but not due’ is shown as Other Current Liabilities under the main head of

Current Liabilities on the Equity and liabilities side of the Company’s Balance Sheet as per

Schedule III of the Companies Act, 2013.

Ques. 51 Match the items with their Sub-heads as per Schedule III of the Companies Act.

Items Major Heads

Calls-in-Arrears Short Term Borrowings

Loose Tools Other Current Liabilities

Investment Fluctuation Reserves Capital Work-in-Progress

Bank Overdraft Other Current Assets

Interest Accrued on Investments Other Non-Current Assets

Building under Construction Reserves and Surplus

Shares Issue Expenses Inventories

Calls-in-Advance Share Capital

Answer

In adherence to Schedule III, the above items can be matched with their respective heads as

follows.

Items Major Heads

Calls-in-Arrears Share Capital

Loose Tools Inventories

Investment Fluctuation Reserves Reserves and Surplus

Bank Overdraft Short-Term Borrowings

Interest Accrued on Investments Other Current Assets

Building under Construction Capital Work-in-Progress

Shares Issue Expenses Other Non-Current Assets

Calls-in-Advance Other Current Liabilities

Ques. 52 Present the following items in the Company’s Balance Sheet as per Schedule III of the

Companies Act, 2013.

a. Authorised Capital

20,000 Equity Shares @ Rs 10 each

5,000 14% Preference Shares @ Rs 10 each

b. Subscribed and Called-up Capital

8,000 Equity share @ Rs 10 each Rs 7 called-up

4,000 14% Preference Shares @ Rs 10 each Rs 5 called-up

c. Calls-in-Arrears on Equity Shares Rs 2,000


d. Capital Reserve Rs 3,000

e. Discount on Issue of Shares Rs 4,000

f. Underwriting Commission Rs 3,000

g. Capital Redemption Reserve Rs 5,000

h. Debenture Sinking Fund Rs 8,000

i. Debenture Sinking Fund Investments Rs 5,000

j. Profit and Loss (Debit) Rs 6,500.

k. Livestock Rs 50,000

l. Stock on March 31, 2012 were valued as Football Rs 1,200; Cricket Bat Rs 350; Basket Balls

Rs 550; Baseball Bats Rs 250

Answer

Balance Sheet

Particulars Note

No.

Amount

(Rs)



a. Share Capital 1 74,000




Total

II. Assets


a. Fixed Assets

i. Tangible Assets 3 50,000

b. Non-Current Investment 4 5,000

c. Other Non-Current Assets 5 7,000

2. Current Assets

a. Inventories 6 2,350

Total

NOTES TO ACCOUNTS


(Rs)

1 Share Capital


20,000 Equity Shares of Rs 10 each 2,00,000

5,000 14% Preference Shares of Rs 10 each 50,000


8,000 Equity Shares of Rs 10 each 80,000

4,000 14 % Preference Shares of Rs 10 each 40,000


8,000 Equity Shares of Rs 10 each, Rs 7 Called-up 56,000

4,000 14% Preference Shares of Rs 10 each, Rs 5 Called- 20,000

up

Less: Calls-in-Arrears on Equity Shares (2,000) 74,000



Capital Redemption Reserves 5,000

Debenture Sinking Fund 8,000

Profit and Loss (Debit) (6,500) 9,500

3 Tangible Assets

Livestock 50,000


Debenture Sinking Fund 5,000



Underwriting Commission 3,000 7,000

6 Inventories

Footballs 1,200

Cricket Bats 350

Basket Balls 550

Baseball Bats 250 2,350

Ques. 53 Highlight any two importance of the Financial Analysis.

Answer

The following are the two main importance of Financial Analysis.

a. It helps in evaluating the relative financial status of a firm in comparison to other competitive

firms.

b. It assists management in decision making process, drafting various plans and also in

establishing an effective controlling system.

Ques. 54 State the meaning of Analysis and Interpretation.

Answer

Analysis and Interpretation refers to a systematic and critical examination of the financial

statements. It not only establishes cause and effect relationship among the various items of the

financial statements but also presents the financial data in a proper manner. The main purpose of

Analysis and Interpretation is to present the financial data in such a manner that is easily

understandable and self explanatory. This helps the accounting users to derive meaningful

conclusions without any ambiguity.

Ques. 55 List any two tools for analysing the Financial Statements.

Answer

The two important tools for analysing the Financial Statements are as follows:

a. Comparative Financial Statements

b. Common Size Financial Statements

Ques. 56 The following are the Balance Sheets of Amita Ltd. for the years 2011-12 and 2012-13.

Prepare a Common Size Balance Sheet.

Particulars Note

No. 2011-12 2012-13



a. Share Capital 1,00,000 1,15,000


a. Trade Payables 50,000 2,35,000

Total 1,50,000 3,50,000

II. Assets


a. Fixed Assets

i. Tangible Assets 60,000 55, 000

2. Current Assets

a. Inventories 52,500 1,45,000

b. Trade Receivables 30,000 1,05,000

c. Cash and Cash

Equivalents

7,500 45,000

Total 1,50,000 3,50,000

Answer

Common Size Balance Sheet as on year ended 2012 and 2013

Particulars

Absolute Amount

(Rs)

Percentage of Total of

Balance Sheet

(%)

2011-12 2012-13 2011-12 2012-13


1. Shareholder’s Funds

a. Share Capital 1,00,000 1,15,000 66.67 32.86


a. Trade Payables 50,000 2,35,000 33.33 67.14

Total 1,50,000 3,50,000 100 100

II. Assets


a. Fixed Assets

i. Tangible Assets 60,000 55, 000 40 15.71

2. Current Assets

a. Inventories 52,500 1,45,000 35 41.43

b. Trade Receivables 30,000 1,05,000 20 30

c. Cash and Cash Equivalents 7,500 45,000 5 12.86

Total 1,50,000 3,50,000 100 100

Ques. 57 State any two objectives of financial statement analysis.

Answer

The following are the two objectives of financial statement analysis.

a. It helps in evaluating the profit earning capacity and financial feasibility of a business.

b. It helps in evaluating the relative financial status of a firm in comparison to other competitive

firms.

Ques. 58 Mention any two limitations of financial statement analysis.

Answer

The following are the two important limitations of financial statement analysis.

a. Misleading and Wrong Information- The financial analysis fails to reveal the change in the

accounting procedures and practices. Consequently they may provide wrong and misleading

information.

b. Ignores Changes in the Price level- The financial analysis fails to capture the change in price

level. The figures of different years are taken on nominal values and not in real terms (i.e. not

taking price change into considerations). This may prove financial statement analysis

meaningless, if the difference between the two selected time-periods is too long (for example, 10

years, 20 years, etc).

Ques. 59 Use the following Comparative Balance Sheet to comment on the change in the

following financial items.

a. Fixed Assets in relation to Shareholders’ Funds

b. Short-term liquidity position of the organisation

Comparative Balance Sheet as on March 31, 2012 and 2013

Particulars 2012 2013

Absolute

Change

(Rs)

Percentage

Change

(%)



a. Equity Share Capital 2,00,000 3,00,000 1,00,000 50

b. 10% Preference Share Capital 1,00,000 1,50,000 50,000 50

c. Reserve and Surplus 1,00,000 1,00,000 - -

2. Non-Current Liabilities - - - -


a. Short-Term Borrowings

(Bank Overdraft)

1,35,000 1,47,500 12,500 9.26

Total 5,35,000 6,97,500 1,62,500 30.37

II. Assets


a. Fixed Assets

i. Tangible Assets 3,00,000 4,00,000 1,00,000 33.33

2. Current Assets

a. Trade Receivables (Debtors) 1,90,000 1,40,000 (50,000) (26.32)

b. Cash and Cash Equivalents 45,000 1,57,500 1,12,500 250

Total 5,35,000 6,97,500 1,62,500 30.37

Answer

Interpretation a. On analysing Shareholders’ funds in comparison of Fixed Assets, we can say that while

Total Shareholders’ Funds have increased by 37.5%, whereas, Tangible Assets have

increased by 33.33%. Form this; we can infer that the company has purchased Fixed

Assets using the long-term sources of fund.

b. The Total Current Assets of the company have increased from Rs 2,35,000 (in 2012) to

Rs 2,97,500 (in 2013). On the other hand, the Current Liabilities have increased by

9.26%. Analysing these figures, we can conclude that the short-term liquidity position of

the company has marginally improved, as the Current Ratio in 2012 was 1.77:1, which

increased to 2.02:1 in 2013.

Ques. 60 Complete the given Comparative Income Statement.

Comparative Income Statement


Absolute

Change

(Rs)

Percentage

Change

(%)

I. Revenue from operations a 10,00,000 2,00,000 b

II. Other Incomes 10,000 c d 50

Total Revenue (I + II) e f g h

Less: Expenses

Cost of Material Consumed i 2,00,000 (40,000) j

Employees Benefit cost 5,000 k 10,000 l

Finance Costs 1,50,000 m n 20

Other Expenses 12,000 15,000 o p

Profit Before Tax q r s t

Less: Provision for Tax @ 20% u v w x

Profit After Tax

Answer



Absolute

Change

(Rs)

Percentage

Change

(%)

I. Revenue from operations 8,00,000 10,00,000 2,00,000 25

II. Other Incomes 10,000 15,000 5,000 50

Total Revenue (I + II) 8,10,000 10,15,000 2,05,000 25.31

Less: Expenses

Cost of Material Consumed 2,40,000 2,00,000 (40,000) (16.66)

Employees Benefit cost 5,000 15,000 10,000 200

Finance Costs 1,50,000 1,80,000 30,000 20

Other Expenses 12,000 15,000 3,000 25

Profit Before Tax 4,03,000 6,05,000 2,02,000 50.12

Less: Provision for Tax @ 20% 80,600 1,21,000 40,400 50.12

Profit After Tax 3,22,400 4,84,000 1,61,600 50.12

Ques. 61 From the given below information, prepare Comparative Income Statement.



Revenue from operations 15,16,000 22,74,000

Less: Expenses

Cost of Material Consumed 5,45,600 6,54,720

Purchase of Stock-in-Trade 1,35,200 1,89,280

Work-in-Progress and Stock-in-

Trade

82,000 73,800

Employees Benefit cost 1,06,000 2,12,000

Finance Costs 95,000 76,000

Depreciation and Amortization

Expenses

64,500 83,850

Other Expenses 26,000 19,000

Profit Before Tax 4,61,700 9,65,350

Less: Provision for Tax 1,50,000 4,50,000

Profit After Tax 3,11,700 5,15,350

Answer



Absolute

Change

(Rs)

Percentage

Change

(%)

Revenue from operations 15,16,000 22,74,000 7,58,000 50

Less: Expenses

Cost of Material Consumed 5,45,600 6,54,720 1,09,120 20

Purchase of Stock-in-Trade 1,35,200 1,89,280 54,080 40

Work-in-Progress and Stock-in- 82,000 73,800 (8,200) (10)

Trade

Employees Benefit cost 1,06,000 2,12,000 1,06,000 100

Finance Cost 95,000 76,000 (19,000) (20)

Depreciation and Amortisation

Expenses

64,500 83,850 19,350 30

Other Expenses 26,000 19,000 (7,000) (26.92)

Profit Before Tax 4,61,700 9,65,350 5,03,650 109.09

Less: Provision for Tax 1,50,000 4,50,000 3,00,000 200

Profit After Tax 3,11,700 5,15,350 2,03,650 65.34

Ques. 62 State whether the outstanding interest on long-term loan is included in debt while

calculating Debt Equity Ratio?

Answer

If outstanding interest on loan has accrued and due, then it will be included in debt while

calculating Debt Equity ratio. But if the outstanding interest has accrued but not due, then it will

be treated as a current liability and thereby would not be included in debt while calculating Debt

Equity ratio.

Ques. 63 What will be the Operating Ratio, if Operating Profit Ratio is 27.5%?

Answer

Operating Ratio = 100 – Operating Profit Ratio.

Operating Ratio = 100 – 27.5% = 72.5%

Ques. 64 Sales Rs 6,00,000, Gross Profit 20% on Cost, Inventory Turnover Ratio is 5 times, and

Opening Stock is Rs 20,000 more than Closing Stock.

Calculate Opening Stock and Closing Stock.

Answer

Gross Profit is 20% on Cost.

Let Cost is 100%

or, Sales = Cost + Profit

or, Sales = 100%+20% = 120%

If Sales are Rs 6,00,000

Then, Cost

Let Closing stock be x

Opening Stock = Closing Stock + 20,000

= x + 20,000

or, 2,00,000 = Opening Stock + Closing Stock

or, 2,00,000 = x + 20,000 + x

or, 2,00,000 = 2x + 20,000

x = Rs 90,000

Closing Stock = Rs 90,000

Opening Stock = x + 20,000 = 90,000 + 20,000 = Rs 1,10,000

Ques. 65 Consider the given Balance Sheet of a limited company.


Particulars Note

No.

Amount

(Rs)


1. Shareholder’s Funds

a. Equity Share Capital 2,00,000

b. Reserve and Surplus 80,000


a. Long-Term Borrowings 2,50,000


a. Trade Payable (Creditors) 70,000

b. Short-Term Provisions 20,000

Total 6,20,000

II. Assets


a. Fixed Assets

i. Tangible Assets 3,20,000

ii. Intangible Assts 1,80,000

2. Current Assets

a. Inventories 52,000

b. Trade Receivables 46,000

c. Cash and Cash Equivalents 22,000

Total 6,20,000

Sales during the year amounted to Rs 3,60,000. You are required to calculate:

i. Debt-Equity Ratio

ii. Working Capital Turnover Ratio

iii. Current Ratio and Liquid Ratio

iv. Total Assets to Debt Ratio

Answer

(i)

Debt = Long-Term Borrowings = Rs 2,50,000

Equity = Share Capital + Reserves and Surplus = 2,00,000 + 80,000 = Rs 2,80,000

(ii)

Sales = Rs 3,60,000

Working Capital = Current Assets – Current Liabilities

Current Assets = Inventories + Trade Receivables + Cash and Cash Equivalents

= 52,000 + 46,000 + 22,000 = Rs 1,20,000

Current Liabilities = Trade Payable + Short-Term Provisions

= 70,000 + 20,000 = Rs 90,000

Working Capital = 1,20,000 – 90,000 = 30,000

(iii)

Liquid Assets = Current Assets – Stock (Inventories)

= 1,20,000 – 52,000 = 68,000

(iv) Total Assets to Debt Ratio

Total Assets = Current Assets + Non-Current Assets

Current Assets = Rs 1,20,000

Non-Current Assets = Tangible Assets + Intangible Assets

= 3,20,000 + 1,80,000 = Rs 5,00,000

Total Assets = 1,20,000 + 5,00,000 = Rs 6,20,000

Long-Term Debts = Rs 2,50,000

Ques. 66: Calculate Current Assets of a company from the following information:

a. Quick Ratio is 1.5 times

b. Current Liabilities Rs 50,000

c. Sales Rs 5,00,000

d. Gross Profit 20% of Sales

e. Stock Turnover Ratio : 2 times

f. Closing Stock is Rs 10,000, more than Opening Stock

Answer

Quick Assets = 1.5× 50,000

Quick Assets = Rs 75,000

Gross Profit = Sales × Gross Profit Ratio

or

Cost of Goods Sold = Sales – Gross Profit

or, 5,00,000 – 1,00,000 = Rs 4,00,000

Let Opening Stock be x, then the Closing Stock = x + 10,000

or,

or, 4,00,000 = 2x + 10,000

or, 2x = 4,00,000 – 10,000

or, 2x = 3,90,000

x = Rs 1,95,000

Opening Stock = Rs 1,95,000

Closing Stock = Rs 1,95,000 + Rs 10,000 = Rs 2,05,000

Current Assets = Quick Assets + Stock

Current Assets = 75,000 + 2,05,000 = Rs 2,80,000

Ques. 67 Existing working capital Rs 2,50,000 and Current Liabilities Rs 2,00,000.

Consider the following cases.

(a) If stock costing Rs 20,000 sold for cash at profit of 50%

(b) If machinery Rs 1,00,000 bought of which 20,000 paid by cheque and remaining amount

transferred to long-term loan

(c) If creditors Rs 40,000 is settled by paying cash Rs 20,000 in full satisfaction of their claim

(d) If a bill of exchange Rs 30,000 is received from a debtor

(e) If goods list price Rs 50,000 is bought at 10 % trade discount on cash

(f) If machinery book value Rs 1,00,000 is sold for Rs 80,000 in cash

Calculate Current Ratio in all the aforementioned cases and also comment on whether the

Current Ratio has improved, reduced or remained unchanged.

Answer

Working Capital = Current Assets – Current Liabilities

or, 2,50,000 = Current Assets – 2,00,000

or, Current Assets = 2,50,000 + 2,00,000 = Rs 4,50,000

(a)

(b)

(c)

(d)

A bill of exchange of Rs 30,000 received from a debtor does not affect Current Assets. This is

because both debtors and bills of exchange are current assets and are increasing and decreasing

with the same amount. Moreover, as this transaction does not affect current liability, so the

Current Ratio will remain unchanged.

(e)

Bought of goods list price Rs 50,000 at 10% trade discount for cash increases the stock for Rs

45,000 and decreases the cash balances by Rs 45,000, so it will not affect Current Assets. This is

because both stock and cash are increasing and decreasing with the same amount. Further, this

transaction leaves Current Liabilities unchanged. Hence, Current Ratio will remain same.

(f)

As Current Assets and Current Liabilities are unaffected, so Current Ratio remains the same.

Ques. 68 Consider the following financial items.

Particulars Amount

Rs

12% Debentures 1,00,000

Long-term Loans 2,00,000

Sundry Creditors 50,000

Bills Payable 20,000

Provision for Taxation 10,000

Proposed Dividend 20,000

Bills Receivable 30,000

Sundry Debtors 60,000

Stock 40,000

Cash in Hand 5,000

Cash at Bank 30,000

Marketable Securities 15,000

Investment in Shares and Debentures 2,00,000

Sales during the year 12,00,000

Gross Profit Ratio 20%

Debt Equity Ratio 2 : 1

Purchases during the year 7,00,000

40% of the Total Sales and 20% of the Total Purchases were

made on credit

Calculate the following ratios based on the aforementioned financial items.

(a) Shareholder's Fund

(b) Liquid Ratio (Acid Test Ratio)

(c) Debtors Turnover Ratio and Average Collection Period (in months)

(d) Working Capital Turnover Ratio

(e) Fixed Asset Turnover Ratio

(f) Stock Turnover ratio

Answer

(a)

(b)

(c)

(d)

(e)

(f)

Ques. 69 Use given data to find the information required in each of the following cases.

(a) Operating Ratio is 78%. Compute the operating profit in percentage.

(b) Net Profit Ratio is 40%, Gross Profit is Rs. 20,000 and ratio of Gross Profit to Sales is 50%.

Calculate Net Profit and Net Sales.

(c) Current Ratio is 2 : 1, Liquid Ratio is 1.5 : 1 and Current Liabilities is Rs. 50,000. Calculate

the value of Current Asset, Liquid Asset and Stock

(d) Profit before Interest and Tax is Rs. 20,000 and Capital Employed is Rs. 1,00,000. Calculate

Return on Investments.

(e) A company has 5,000 Equity Shares of Rs.10 each (market price of Rs. 20 per share). Profit

after Interest and Tax is Rs. 20,000, calculate Earnings per Share and Price Earnings Ratio.

(f) Closing Stock is Rs. 30,000, Stock Turnover Ratio is 5 Times and the Closing Stock is Rs.

5000 more than that of the beginning. Calculate Cost of Goods Sold and Opening Stock.

Answer

(a)

Let Sales = 100%,

Operating Cost = 78%

Sales = Operating Cost + Operating Profit

100% = 78% + Operating Profit

Operating Profit = 100 % – 78 %

Operating Profit = 22%

(b)

(c)

(d)

(e)

(f)

Closing Stock = Opening Stock + 5,000

or, 30,000 = Opening Stock + 5,000

Opening Stock = Rs. 25,000

Ques. 70 Complete the following sentence with the help of the option in the brackets.

The payment of tax on the capital gain due to the sale of fixed asset is considered as

____________ activity. (Operating / Investing / Financing)

Answer

The payment of tax on the capital gain due to the sale of fixed asset is considered as Investing

activity.

Ques. 71 Do you agree with the below statement.

‘Dividend paid by a finance company should be classified as financing activity in Cash Flow

Statement.’

Answer

The above statement is true. Dividend paid by any company is classified as financing activity as

dividend is paid only to the shareholders of the company. Thus, the dividend paid is considered

as a financing activity irrespective of the nature of company, i.e. whether it is a finance company

or non-finance company.

Ques. 72 State the nature of the cash flows of the following transactions and also ascertain their

resulting cash flows.

a. Plant purchased for Rs 6,00,000; Rs 1,00,000 was paid immediately in form of cash and

debentures costing Rs 5,00,000 were issued for the balance.

b. Building costing Rs 10,00,000 was sold for Rs 1,00,000. Depreciation charged on the Building

is Rs 9,00,000 till date.

c. Loan taken from HDFC bank on July 1, 2010 of Rs 10,00,000 at 10% interest p.a. Account are

closed on March 31, every year.

Answer

S.No. Inflow/Outflow of Cash Activity Amount

Rs

a. Outflow (Purchase of Plant) Investing 1,00,000

b. Inflow (Sale of Building) Investing 1,00,000

c. Inflow (Loan taken) Financing 10,00,000

Note: Interest payment of Rs 75,000, for 9 months, will be shown as an addition in the Operating

Activities (being the non-operating expense) and will be deducted from the Financing Activities.

Ques. 73 Prepare Cash Flow Statement of Shubhankar Ltd.

Shubhankar Ltd.

Balance Sheet

Particulars Note No. 2010

(Rs)

2011

(Rs)


1. Shareholders’ Fund

a. Share Capital 1 5,00,000 6,00,000

b. Reserves and Surplus 2 1,00,000 1,60,000


a. Long-Term Borrowings 3 1,00,000 2,60,000


a. Short Term Borrowings 4 18,000 25,000

b. Trade Payables 5 30,000 30,000

c. Short Term Provisions 6 16,000 12,000

Total 7,64,000 10,87,000

II. Assets


a. Fixed Assets

i. Tangible Assets 7 5,18,000 7,85,000

ii. Intangible Assets 8 1,00,000 90,000

2. Current Assets

a. Trade Receivables 9 85,000 1,25,000

b. Inventories 10 52,000 75,000

c. Cash and Cash Equivalents 11 9,000 12,000

Total 7,64,000 10,87,000

NOTES TO ACCOUNTS

Note No. Particulars

2010

Amount

(Rs)

2011

Amount

(Rs)

1 Share Capital

Equity Share Capital 5,00,000 6,00,000


General Reserve 70,000 1,00,000

Profit and Loss 30,000 60,000

1,00,000 1,60,000


Loan from PNB - 2,00,000

Debentures 1,00,000 60,000

1,00,000 2,60,000

4 Short Term Borrowings

Bank Overdraft 18,000 25,000

5 Trade Payables

Creditors 20,000 22,000

Bills Payable 10,000 8,000

30,000 30,000

6 Short Term Provisions

Provision for Tax 16,000 12,000

7 Tangible Assets

Machinery 3,68,000 4,85,000

Land - 1,80,000

Furniture 1,50,000 1,20,000

5,18,000 7.85,000

8 Intangible Assets

Patents 1,00,000 90,000

9 Trade Receivables

Debtors 60,000 1,10,000

Bills Receivable 25,000 15,000

85,000 1,25,000

10 Inventories

Stock 52,000 75,000


Cash 3,000 4,000

Marketable Securities 6,000 8,000

9,000 12,000

Additional Information:

1. Interim Dividend of Rs 10,000 paid during the year.

2. Tax paid during the year amounts to Rs 25,000.

3. In the beginning of the year, a part of machinery sold at a profit of 20% on cost for Rs 60,000.

4. Depreciation charged during the year on Machinery Rs 20,000 and on Furniture Rs 5,000.

Answer

Cash Flow Statement

Particulars Amount

Rs

Amount

Rs

(A) Cash Flow from Operating Activities

Profit for the year (60,000 – 30,000) 30,000

Transfer to Reserve 30,000

Provision for Tax (WN1) 21,000

Interim Dividend 10,000

Profit before Taxation 91,000

Add: Items to be Added:

Depreciation 25,000

Patents written-off 10,000

Less: Items to be Deducted:

Profit on Sale of Fixed Assets (WN2) (10,000)

Operating Profit before Working Capital Changes 1,16,000

Add: Decrease in Current Assets and Increase in Current Liabilities:

Decrease in Bills Receivable 10,000

Increase in Creditors 2,000

Less: Increase in Current Assets and Decrease in Current Liabilities:

Decrease in Bills Payables (2,000)

Increase in Debtors (50,000)

Increase in Stock (23,000)

Cash Generated from Operations 53,000

Less: Income Tax Paid (25,000)

Cash flow from Operating Activities 28,000 28,000

(B) Cash Flow from Investing Activities

Purchase of Land (1,80,000)

Purchase of Machinery (WN4) (1,87,000)

Proceeds from Sale of Furniture (WN3) 25,000

Proceeds from Sale of Machinery 60,000

Cash Used in Investing Activities (2,82,000) (2,82,000)

(C) Cash Flow from Financing Activities

Proceeds from Loan taken from PNB 2,00,000

Proceeds from Issue of Equity Shares 1,00,000

Repayment of Debentures (40,000)

Increase in Bank Overdraft 7,000

Interim Dividend Paid (10,000)

Cash Flow from Financing Activities 2,50,000 2,57,000

Net Decrease in Cash and Cash Equivalents (A+B+C) 3,000

Add: Opening Cash and Cash Equivalents 9,000

Closing Cash and Cash Equivalents 12,000

Working Notes:

WN1

Provision for Tax Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Bank A/c (Tax Paid) 25,000 Balance b/d 16,000

Balance c/d 12,000 Profit and Loss A/c

(Provision made) (Balancing

Figure)

21,000

37,000 37,000

WN2 Calculation of Profit/Loss on Sale of Machinery

Sale Value = Rs 60,000

Profit = 20% on Cost

Let Cost be x

WN3

Furniture Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 1,50,000 Bank A/c (Sale) (Balancing

Figure)

25,000

Depreciation A/c 5,000

Balance c/d 1,20,000

1,50,000 1,50,000

WN4

Machinery Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 3,68,000 Bank A/c (Sale) 60,000

Profit on Sale of Machinery (WN) 10,000 Depreciation A/c 20,000

Bank A/c (Purchases) (Balancing

Figure)

1,87,000 Balance c/d 4,85,000

5,65,000 5,65,000

Ques. 74 Which part of the current assets is not considered, when ‘Cash Flow from Operating

Activities’ is ascertained by using indirect method? Also state the reasons for their exclusion?

Answer

Cash in hand, Cash at bank and Marketable Investments are not taken into consideration for

ascertaining Cash Flow from Operating Activities. This is because these are considered as cash

and cash equivalents which are subjected to insignificant risk of change in their value.

Ques. 75 The following balance has been extracted taken from the financial statements of X Ltd.

Particulars Year-2010

Rs

Year-2011

Rs

Machinery (Book-value) 4,00,000 7,00,000

Goodwill 10,000 15,000

Patents 40,000 35,000

Investments in 10% Government Bonds 1,00,000 1,20,000

Investment in 12% Debentures of Y Ltd. 50,000 60,000

Building (Cost) 4,00,000 5,00,000

Accumulated Depreciation on Building 80,000 1,00,000

Plant (Cost) 2,50,000 3,00,000

Accumulated Depreciation on Plant 40,000 50,000

Additional Information: a) In 2011, depreciation Rs 60,000 charged on machinery. A machine book-value of Rs 1,50,000

was sold for Rs 1,10,000. During the year, 50% of the machinery purchased was on credit.

b) Additional debentures were purchased on July 01, 2011.

c) Depreciation Rs 30,000 charged was on building during the year 2011. A building book-value

of Rs 80,000 was sold for Rs 1,10,000.

d) Plant costing Rs 50,000 (accumulated depreciation Rs 10,000) was sold for Rs 30,000.

e) There were no sales or purchase of patents.

f) Accrued interest of Rs 10,000 is included in the Government Bonds during the year 2011.

Ascertain the Cash Flow from Investing Activities

Answer

Cash Flow from Investing Activities

Particulars Amount

Rs

Inflow

Proceeds from sale of Machinery 1,10,000

Proceeds from sale of Building 1,10,000

Proceeds from Sale of Plant 30,000

Interest Received on 12% Debentures 6,600

Outflow

Purchase of Machinery in Cash (2,55,000)

Purchase of Building (1,90,000)

Purchase of Plant (1,00,000)

Purchase of Goodwill (5,000)

Purchase of 10% Government Bonds (10,000)

Purchase of 12% Debentures of Y Ltd. (10,000)

Net Cash used in Investing Activities (3,13,400)

Working Notes: 1.

Machinery Account (Book Value)

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 4,00,000 Bank (Sale) - Inflow 1,10,000

Bank - Outflow 2,55,000 Profit and Loss (loss) 40,000

Creditors for Machinery 2,55,000 Depreciation 60,000

Balance c/d 7,00,000

9,10,000 9,10,000

Total machinery purchased during the year 2011 = Rs 5,10,000

Machinery purchased on credit = 5,10,000 × 50% = Rs 2,55,000

2. Calculation of Interest on Debentures

For whole year (January to December)

Rs 6,000

From July to December

+ Rs 600

Interest received on 12% Debentures Rs 6,600

3.

Building Account (Original Cost)

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 4,00,000 Bank (Sale) - Inflow 1,10,000

Profit and Loss (Profit) (50,000 –

20,000)

30,000 Accumulated Depreciation 10,000

Bank (Balancing figure-

Purchases)

1,90,000 Balance c/d 5,00,000

6,20,000 6,20,000

Accumulated Depreciation on Building Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Building (Balancing figure) 10,000 Balance b/d 80,000

Balance c/d 1,00,000 Depreciation 30,000

1,10,000 1,10,000

4.

Plant Account (Original Cost)

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 2,50,000 Bank - Inflow 30,000

Accumulated Depreciation 10,000

Profit and Loss (loss) (50,000 –

10,000 – 30,000)

10,000

Bank (Balancing figure-

Purchases)

1,00,000 Balance c/d 3,00,000

3,50,000 3,50,000

Accumulated Depreciation on Plant Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Plant 10,000 Balance b/d 40,000

Balance c/d 50,000 Depreciation (Balancing figure) 20,000

60,000 60,000

Ques. 76 The following are the Balance Sheets of Mohan Ltd. for two consecutive years ending

March 31, 2010 and 2011. With the help of these Balance Sheets along with the additional

information prepare Cash Flow Statements.

Mohan Ltd.

Balance Sheet as on March 31, 2010 and 2011

Particulars Note No. 2010

(Rs)

2011

(Rs)


1. Shareholders’ Fund

a. Share Capital 1 8,00,000 7,00,000

b. Reserves and Surplus 2 1,40,000 1,20,000


a. Long-Term Borrowings 3 1,80,000 4,00,000


a. Trade Payables 4 30,000 52,000

Total 11,60,000 12,90,000

II. Assets


a. Fixed Assets

i. Tangible Assets 5 6,29,000 7,11,000

ii. Intangible Assets 6 2,50,000 2,75,000

b. Other Non-Current Assets 7 50,000 1,10,000

2. Current Assets

a. Trade Receivables 8 85,000 47,000

b. Inventories 9 84,000 1,02,000

c. Cash and Cash Equivalents 10 62,000 45,000

Total 11,60,000 12,90,000

NOTES TO ACCOUNTS

Note No. Particulars 2010

(Rs)

2011

(Rs)

1 Share Capital

Equity Share Capital (Rs 10 each) 3,00,000 3,00,000

10% Preference Share Capital (Rs 100 each) 5,00,000 4,00,000

8,00,000 7,00,000


General Reserve 60,000 80,000

Profit and Loss 80,000 40,000

1,40,000 1,20,000


12% Debentures 1,80,000 4,00,000

4 Trade Payables

Creditors 30,000 52,000

5 Tangible Assets

Plant (at cost) 2,50,000 4,85,000

Less: Accumulated Depreciation (82,000) (1,25,000)

Plant (at WDV) 1,68,000 3,60,000

Land 4,61,000 3,51,000

6,29,000 7,11,000

6 Intangible Assets

Goodwill 2,50,000 2,00,000

Copyrights - 75,000

2,50,000 2,75,000

7 Other Non-Current Investments

Investment in Reliance Ltd, Shares 50,000 50,000

Investment in ICICI Bonds - 60,000

50,000 1,10,000

8 Trade Receivable

Debtors 85,000 47,000

9 Inventories

Stock 84,000 1,02,000


Bank 62,000 45,000

Additional Information:

1. New Debentures were issued on October 01, 2010.

2. 15% Dividend was proposed on Equity Shares during the year.

3. Preference Shares were redeemed on March 31, 2011 at a premium of 20%. Preference

Dividend was also paid on the same date.

4. Depreciation charged during the year on Machinery was Rs 46,000. Also, a part of Machinery

of Book Value of Rs 30,000 was sold for Rs 20,000 during the year.

5. Amounts of Proposed dividend as on 31st December 2010 and 2011 were Rs.10,000 and

Rs.15,000

Answer

Cash Flow Statement

Particulars Amount

(Rs)

Amount

(Rs)

(A) Cash Flow from Operating Activities

Profit for the year (80,000 – 40,000) (40,000)

Transfer to Reserve 20,000

Equity Shares Dividend 45,000

Preference Shares Dividend 50,000

Profit before Taxation 75,000

Add: Items to be Added:

Interest on Debentures (WN) 28,200

Loss on Sale of Machinery 7,000

Depreciation 46,000

Goodwill Written-Off 50,000

Premium on Redemption of Preference Shares 20,000

Less: Items to be Deducted: -

Operating Profit before Working Capital Changes 2,26,200

Add: Decrease in Current Assets and Increase in

Current Liabilities:

Decrease in Debtors 38,000

Increase in Creditors 22,000

Less: Increase in Current Assets and Decrease in

Current Liabilities:

Increase in Stock (18,000)

Cash Generated from Operations 2,68,200

Less:Income Tax Paid -

Cash Flow from Operating Activities 2,68,200 2,68,200

(B) Cash Flow from Investing Activities

Purchase of Copyright (75,000)

Purchase of ICICI Bonds (60,000)

Purchase of Machinery (2,65,000)

Proceeds from Sale of Land 1,10,000

Proceeds from Sale of Machinery 20,000

Cash Used in Investing Activities (2,70,000) (2,70,000)

(C) Cash Flow from Financing Activities

Proceeds from Issue of 12% Debentures 2,20,000

Redemption of Preference Shares (1,00,000 +

20,000)

(1,20,000)

Interest on Debentures (28,200)

Equity Dividend Paid (WN2) (37,000)

Preference Dividend Paid (50,000)

Cash Used in Financing Activities (15,200) (15,200)

Net Decrease in Cash and Cash Equivalents

(A+B+C)

(17,000)

Add: Opening Cash and Cash Equivalents 62,000

Closing Cash and Cash Equivalents 45,000

Working Notes:

WN1 Calculation of Interest on Debentures

Total Amount of Interest = 21,600 + 6,600 = Rs 28,200

WN2

Proposed Dividend Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Bank A/c (Dividend Paid) (Balancing

Figure)

37,000 Balance b/d 10,000

Balance c/d 18,000 Profit and Loss A/c (Equity

Dividend proposed /made)

45,000

55,000 55,000

WN3

Machinery Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Balance b/d 2,50,000 Bank A/c (Sale) 20,000

Loss on Sale

(30,000 – 3,000 – 20,000) 7,000

Accumulated Depreciation A/c 3,000

Bank A/c (Purchase) (Balancing Figure) 2,65,000 Balance c/d 4,85,000

5,15,000 5,15,000

Accumulated Depreciation Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Machinery A/c (Balancing figure) 3,000 Balance b/d 82,000

Balance c/d 1,25,000 Depreciation (during the

year)

46,000

1,28,000 1,28,000

Ques. 77 Which of the following reasons allows a partner to be exempted from bearing the

losses?

(a) Admission of a partner to share profits only

(b) Losses incurred due to willful negligence of other partners

(c) Admission of a partner who has not attained 18 years of age

(d) All of the above

Answer

Usually, all the partners are liable to borne the losses incurred. However, there may be certain

instances when a partner is exempted from bearing the losses of the firm. These are:

a. When a partner is admitted to share profits only (and not to bear any losses)

b. When the losses are incurred due to the negligence of the other partners

c. When a minor partner is admitted into partnership (a minor partner is not liable to bear any

losses, he/she is entitled to enjoy a share in the profits of the firm only)

Therefore, all the above reasons justify the exemption of a partner from bearing a share in the

firm’s losses.

Hence, the correct answer is option (d).

Ques. 78 Poorvi Ltd. forfeited 2,250 shares of Rs 15 each issued at a premium of Re 1 to Parth

on which he has paid Rs 10 per share and Final call of Rs 5 per share has not been received. Out

of these shares, sufficient shares were reissued to Creditors of Rs 10,000 in full settlement at Rs

8 as Rs 10 called-up. Pass the necessary Journal entries for the forfeiture and reissue of shares.

Answer

Books of Poorvi Ltd.

Journal


Debit

Amount

Rs

Credit

Amount

Rs

Share Capital A/c Dr. 33,750


To Share Final Call A/c 11,250

(2,250 shares were forfeited due to non-

payment of Rs 5 each)

Creditors A/c

Dr.

10,000

Share Forfeiture A/c Dr. 2,500


(1,250 shares were reissued to Creditors at Rs

8 as Rs 10 called-up)

Share Forfeiture A/c (WN2)

Dr.

10,000


(Profit on forfeiture of shares is transferred to

capital reserve)

Working Notes: (1) Calculation of number of shares issued to Creditors

(2) Amount of Capital Reserve:

Ques. 79 On April 01, 2009, Chaipani Limited issued 5,000, 12% debentures of Rs 50 each at

discount of 10% redeemable at a premium of 13% after 3 years. The company had a balance of

Rs 62,500 in its DRR Account. The company redeemed 4,000 debentures at the end of the

second year. Interest is payable on the debentures assuming income tax is payable at 5% on the

amount of interest. Pass the necessary Journal entries in the books of the company for the first

two years.

Answer

Journal


Debit

Amount

Rs

Credit

Amount

Rs

2009 At the time of Issue

Apr.

01

Bank A/c

Dr.

2,25,000


(5,000 debentures of Rs 50 each issued

at 10% discount)

Apr.

01


Dr.

2,25,000

Loss on Issue of Debenture A/c (25,000

+ 32,500)

Dr. 57,500

To 12% Debenture A/c 2,50,000

To Premium on Redemption A/c 32,500

(Debentures issued at 10% discount with

a term redeemable at 13% premium)

2010 At the end of First Year

Mar.

31

Debenture Interest A/c

Dr.

30,000

To Debentureholders’ A/c 28,500

To Income Tax Payable A/c 1,500

(Interest due on debentures @ 12%)

Mar.

31


Dr.

28,500

Income Tax Payable A/c Dr. 1,500

To Bank A/c 30,000

(Payment made to Debentureholders and

Government)

Mar.

31


Dr.

30,000

To Debenture Interest A/c 30,000

(Interest on debentures transferred to

Statement of Profit and Loss)

2010 Redemption Year

Apr.

30


Dr.

30,000

To Bank A/c 30,000

(Investment is made in specified

securities equal to 15% of the value of

debentures redeemable)

2011 At the end of Second Year

Mar.

31

Debenture Interest A/c

Dr.

30,000

To Debentureholders’ A/c 28,500

To Income Tax Payable A/c 1,500

(Interest due on debentures @ 12%)

Mar.

31


Dr.

28,500

Income Tax Payable A/c Dr. 1,500

To Bank A/c 30,000

(Payment made to Debentureholders and

Government)

Mar.

31


Dr.

30,000

To Debenture Interest A/c 30,000

(Interest on debentures transferred to

Statement of Profit and Loss)

Mar.

31 Debenture A/c (4,000 × Rs 50) Dr. 2,00,000

Premium on Redemption A/c (4,000 ×

Rs 6.5)

Dr. 26,000


(Amount due the debentureholders)

Mar.

31

Bank A/c

Dr.

30,000

To Debenture Redemption Investment A/c 30,000

(Investments encashed)

Mar.

31


Dr.

2,26,000


(Payment to the debentureholders)

Working Notes:

1. Company is required to maintain DRR at 25% of the value of debentures

Total Debentures = 5,000 50 = Rs 2,50,000

Amount of DRR = 25% =

Since Rs 62,500 already appears in the DRR Account, so, DRR will not be created further.

2. Company is required to invest in securities, an amount equivalent to 15% of the value of

debentures redeemable in a year.

Debentures of value Rs 2,00,000 are redeemed on March 31, 2011. So, DRI will be

created on April 30 of the redemption year i.e. on April 30, 2010.

Amount of DRI =

Ques. 80 Akash Limited decided to purchase 1,000, 10% Debentures of face value Rs 10 each

from open market for immediate cancellation. The debentures were purchased as:

Debentures of face value Rs 5000 at Rs 9.5 per Debenture

Debentures of face value Rs 5,000 at Rs 9.6 per Debenture

Expenses incurred on purchase of debentures amounted to Rs 300.

Pass the necessary Journal entries for the redemption of debentures.

Answer

Books of Akash Limited

Journal

Date

Particulars L.F.

Amount

Rs.

Amount

Rs.

Own Debentures A/c Dr. 9,850

To Bank A/c 9,850

(Purchased of 500 own debentures @ Rs 9.5 and

another 500 own debentures @ Rs 9.6, expenses

for purchase of Rs 300)

10% Debentures A/c Dr. 10,000

To Own Debentures A/c 9,850

To Profit on Cancellation of Debentures A/c 150

(1,000 own debentures cancelled)

Profit on Cancellation of Debentures A/c Dr. 150

To Capital Reserve A/c 150

(Profit on cancellation of own debentures


Note: It is assumed that the company has sufficient balance in its DRR Account and also have

made investment in DRI @ 15% of the debentures to be redeemed during the financial year.

Hence, the entries related to DRR and DRI and encashment of DRI are not being passed.

Ques. 81 At the time of admission of a new partner, in which ratio the debit balance of Profit and

Loss Account (appearing in the Balance Sheet) is written-off?

(a) Sacrificing Ratio

(b) Old Profit-sharing Ratio

(c) In the ratio of their capitals

(d) Is not distributed and appears in the Balance Sheet of new firm

Answer

At the time admission of a new partner, if any Profit and Loss Account (Debit) appears on the

Assets side of the Balance Sheet, then it is written-off in the old profit sharing ratio among the

old partners.

Hence, the correct answer is option (b).

Ques. 82 A and B are two partners sharing profits and losses in the ratio of 2 : 1. On January 01,

2011, their capital account showed balances of Rs 1,20,000 and Rs 90,000, respectively.

Drawings made by A and B during the year were Rs 20,000 and Rs 16,000 respectively. As per

their partnership deed, interest on drawings is to be charged at 15% p.a. After closing the

accounts for the year 2011, it was found that the profit was distributed without charging interest

on drawings. Pass the necessary Journal entry for adjustment of interest on drawings.

Answer

Date Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

B’s capital A/c

To A’s Capital A/c

(Interest on drawings adjusted)

Dr.

300

300

Working Notes:

Particulars A B

Total

Interest on Drawings Omitted (1,500) (1,200) = (2,700)

Rs 2,700 Profit Wrongly Distributed in the

ratio 2:1

1,800

900

=

2,700

300 (300) NIL

Ques. 83 Abhishek, Rahul and Deepak are partners in a firm sharing profits and losses in ratio of

5 : 3 : 2. They decided to dissolve their firm. On March 31, 2012 their Balance Sheet was as

follows.


Liabilities Amount

Rs Assets

Amount

Rs

Capital A/cs: Leasehold Premises 75,000

Abhishek 72,000 Furniture 15,000

Rahul 54,000 Investment 50,000

Deepak 60,000 1,86,000 Sundry Debtors 40,000

Investment Fluctuation Fund 14,000 Cash at Bank 45,000

Deepika’s Loan 15,000 Deferred Revenue Expenditure 8,000

Sundry Creditors 18,000

2,33,000 2,33,000

Dissolution is based on the following terms.

i. Deepak took over investment at 20% above book value. He sold 50% of the investment below

10% of purchase price and remaining investment he kept with himself.

ii. Creditors due to good relation with company agree to forego their dues.

iii. Fixed Assets were sold 10% above their book value.

Pass the necessary Journal entries for dissolution of Partnership firm

Answer

Journal


Debit

Amount (Rs)

Credit

Amount (Rs)

Realisation A/c Dr. 1,80,000

To Leasehold Premises 75,000

To Furniture 15,000

To Investment 50,000

To Sundry Debtors 40,000

(Assets transferred to Realisation Account)

Deepika’s Loan A/c

Dr.

15,000

Sundry Creditors A/c Dr. 18,000

Investment Fluctuation Fund A/c Dr. 14,000

To Realisation A/c 47,000

(Liabilities transferred to Realisation Account)

Abhishek’s Capital A/c

Dr.

4,000

Rahul’s Capital A/c Dr. 2,400

Deepak’s Capital A/c Dr. 1,600

To Deferred Revenue Expenditure A/c 8,000

(Deferred Revenue Expenditure distributed among

partner in old ratio 5:3:2)

Bank A/c

Dr.

99,000


(Fixed assets realised 10% above book-value)

Deepak’s Capital A/c

Dr.

60,000


(Deepak took over Investment at 20% above their

book value)

Realisation A/c

Dr.

15,000

To Bank A/c 15,000

(Deepika’s Loan paid)

Realisation A/c

Dr.

11,000

To Abhishek’s Capital A/c 5,500

To Rahul’s Captal A/c 3,300

To Deepak’s Capital A/c 2,200

(Profit on realisation transferred to partners in their

profit sharing ratio)

Abhishek’s Capital A/c

Dr.

73,500

Rahul’s Capital A/c Dr. 54,900

Deepak’s Capital A/c Dr. 600


(Balance of partners settled)

Note: If no information is given regarding the realised value of an asset, then it is assumed to

have realise nothing. Therefore, debtors have not been realised.

Ques. 84 Amir and Saif are partners sharing profits and losses in the ratio of 7 : 3. They decided

to admit Akshay as a partner who earlier worked as a manager. The Balances Sheet before the

admission of Akshay is as follows.

Balance Sheet

Liabilities Amount

Rs Assets

Amount

Rs

Sundry Creditors

Bills Payable

Akshay’s Loan

15,000

3,000

20,000

Cash at Bank

Sundry Debtors

Less: Provision for Doubtful

Debts

18,000

(200)

3,200

17,800

Capital A/cs:

Amir

Saif

40,000

20,000

60,000

10% Investment

Machinery

Furniture

Building

12,000

10,000

15,000

40,000

98,000 98,000

Akshay is admitted for 1/3rd

share and he needs to bring sufficient capital so that his capital

becomes 1/3rd

of the total capital of the firm. Akshay’s loan is to be converted into his capital

and any excess or deficiency after the conversion is to be adjusted through Bank Account. On the

admission of Akshay, Sundry Creditors of Rs 2,000 remained unclaimed and the Provision for

Doubtful Debts was not required anymore. Interest was accrued on Investment for two months.

Building is to be depreciated by 10%.

The total capital of the new firm is to be determined on the basis of the combined capital of Amir

and Saif after all the given adjustments. Prepare Revaluation Account, Partners’ Capital Account

and Balance Sheet.

Answer

Revaluation Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Building 4,000 Sundry Creditors

Provision for Doubtful Debts

Interest Accrued on Investment

2,000

200

200

Loss transferred to:

Amir’s Capital A/c

Saif’s Capital A/c

1,120

480

1,600

4,000 4,000

Partners’ Capital Accounts

Dr. Cr.

Particulars Amir Saif Akshay Particulars Amir Saif Akshay

Revaluation A/c

(Loss)

Balance c/d

1,120

38,880

480

19,520

Balance b/d

Akshay’s Loan

40,000 20,000

20,000

40,000 20,000 20,000 40,000 20,000 20,000

Balance c/d

(adjusted)

38,880

19,520

29,200

Balance c/d

Bank A/c

38,800 19,520 20,000

9,200

38,880 19,520 29,200 38,880 19,520 29,200

Balance Sheet

Liabilities Amount

Rs Assets

Amount

Rs

Sundry Creditors

Less: Unclaimed Creditors

15,000

(2,000)

13,000

Cash at Bank (3,200 +

9,200)

Sundry Debtors

12,400

18,000

Bills Payable

Capital:

Amir

Saif

Akshay

38,880

19,520

29,200

3,000

87,600

10% Investment

Accrued Interest on

Investment

Machinery

Furniture

Building

40,000

12,000

200

10,000

15,000

Less: 10% Depreciation (4,000) 36,000

1,03,600 1,03,600

Working Notes: Combined Capital of Amir and Saif (after all adjustments) = 38,880 + 19,520 = Rs 58,400

Total amount to be brought in by Akshay

Akshay Capital 29,200

Less: Loan (20,000)

Akshay to bring in Cash 9,200

Ques.85 Calculate the amount of Opening Debtors from the following data:

Credit Sales 5,00,000

Debtors at the end of the year 60,000

Credit Collection Period 60 days

Answer

Ques. 86 Which of the following would not affect the cash flow from operating activities?

(a) Cash receipts from insurance enterprises for premiums and claims, annuities and other policy

benefits

(b) Cash payments relating to future contracts held for trading purpose

(c) Refund of Income tax

(d) Buy back of equity shares

Answer

Operating activities are the principal revenue generating activities of an enterprise. The cash

flows from such activities imply inflow and outflow of cash and cash equivalents during the

normal course of ordinary business activities. Accordingly, cash inflows will include cash

received from sale of goods and services i.e. receipts from customers, receipt of royalties,

commission, fees, etc. and cash outflows will include payment made to creditors, employees,

income tax paid, etc. Thus,

1. cash receipts from insurance enterprises for premiums and claims, annuities and other policy

benefits

2. cash payments relating to future contracts held for trading purpose

3. refund of income tax

All will affect the cash flow from operating activities. However, buy back of equity shares is an

item of cash outflow affecting financing activities as these are the activities related to long term

funds or capital of an enterprise i.e. results into change in capital or borrowed funds.

Hence, the correct answer is option (d).

Ques. 87 Anika Ltd. has authorised capital of Rs 5,00,000 divided into equity shares of Rs 10

each. The company issued 30,000 shares to vendor for purchase of Machinery and remaining

shares issued to the general public at 20% premium. The amount was payable in the following

manner:

Rs 2 per share on application

Rs 6 per share (including premium) on allotment

Rs 2 per share on first call

Rs 2 per share on second and final call

All the shares were subscribed and allotted. Mahindra, a holder 200 shares failed to pay the last

two calls, consequently and his shares were forfeited. These shares were immediately reissued at

Rs 9 per share as fully paid-up. Prepare the Company’s Balance Sheet as per the Schedule

III and also prepare Notes to Accounts of the Share Capital.

Answer

Anika Ltd.

Balance Sheet

Particulars Note

No.

Amount

(Rs)







Total 5,41,000

II. Assets


a. Tangible assets

i. Machinery 3 3,00,000

2. Current Assets


Total 5,41,000

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)

1 Share Capital


50,000 equity shares of Rs 10 each 5,00,000


30,000 shares of Rs 10 each issued to vendor 3,00,000

20,000 shares of Rs 10 each issued to general public 2,00,000 5,00,000


30,000 shares of Rs 10 each issued to vendor 3,00,000

20,000 shares of Rs 10 each issued to general public 2,00,000 5,00,000



Capital Reserve 1,000 41,000

3 Tangible Assets

Machinery 3,00,000



Working Note:

Ques. 88 There are 800 members in a club each paying an annual subscription Rs 50.

Particulars Amount (Rs.)

Subscription received during the year 2011-12

2010-11 800

2011-12 37,500

2012-13 1,500 39,800

Subscription Outstanding as on March 31, 2011 1,200

Calculate the amount of Subscription Outstanding as on March 31, 2012.

Answer

Subscription Account

Dr. Cr.

Particulars Amount

(Rs.) Particulars

Amount

(Rs.)

Subscription Outstanding (in the

beginning)

1,200 Bank/Cash 39,800

Income and Expenditure (800

members × Rs. 50 each)

40,000 Subscription Outstanding

(Balancing figure)

2,900

Subscription received in Advance 1,500

42,700 42,700

Hence, the Outstanding Subscription on March 31, 2011 is Rs. 2,900

Ques. 89 The following figures were extracted from the Trial Balance of Jeet Limited:

Particulars Rs

Building 2,00,000

Land 3,00,000

Livestock 50,000

Prepaid Rent 3,000

Discount on Issue of Debentures 5,000

Share in Alpha Ltd. (Face-value Rs 20,000) 18,000


Show the above items in the Balance Sheet of Jeet Ltd. as per Schedule III of the Companies

Act, 2013.

Answer

Jeet Limited

Balance Sheet


(Rs)





Total

II. Assets


a. Fixed Assets

i. Tangible Assets 1 5,50,000

b. Non-Current Investments 2 18,000

c. Other Non-Current Assets 3 5,000

2. Current Assets

a. Other Current Assets 4 5,000

Total

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)

1 Tangible Assets

Land 3,00,000

Building 2,00,000

Livestock 50,000 5,50,000


Share in Alpha Ltd. (Face-value Rs 20,000) 18,000


Discount on Issue of Debentures 5,000

4 Current Assets

Interest Accrued on Investments 2,000

Prepaid Rent 3,000 5,000

Ques. 90 Y and S are partners sharing profits and losses in the ratio of 1:1 and their capital

balances on January 01, 2012 were Rs 40,000 and Rs 50,000 respectively.

As per the partnership deed, profit earned is to be distributed in the following manner.

1. Y is entitled to 5% commission on net profit and S 5% commission on net profit after charging

commission.

2. Salary to Y 500 p.a.

3. Interest on drawings to be charged at 2%.

4. S was guaranteed by Y that under any circumstances, his profit would not be less than 12,000.

During the year, Y withdrew Rs 4,000 on January 01, 2012 and S withdrew Rs 6,000 on October

31, 2012. At the end of the year, profit after charging salary amounts to Rs 21,605.

Show the distribution of profit by preparing Profit and Loss Appropriation Account.

Answer


Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Commission to: Profit (21,605 + 500)

(Profit before charging salary)

22,105

Y 1,105 Interest on Drawings:

S 1,000 2,105 Y (4,000 × 2%) 80

Salary to Y 500 S (6,000 × 2%) 120 200

Profit transferred to:

Y’s Capital A/c 7,700

S’s Capital A/c 12,000 19,700

22,305 22,305

Working Notes: WN1 Calculation of Commission to Partners

WN2 Calculation of Profit Share of each Partner

Profit available for distribution = (22,105 + 200) – (2,105 + 500) = Rs 19,700

S has been guaranteed by Y of minimum profit of Rs 12,000.

Deficiency in S’s profit share = 12,000 – 9,850 = Rs 2,150

Y’s Final Profit Share = 9,850 – 2,150 = 7,700

Ques. 91 Ramesh Ltd. has an authorised share capital of Rs 10,00,000 divided into equity shares

of Rs 100 each. Out of this, the company has already issued shares of Rs 1,00,000 last year. This

year, the company offered Rs 5,00,000 shares to the general public, Rs 50,000 shares to its

existence shareholders as bonus issue and Rs 25,000 shares to its employees as Sweat Equity

shares. The company also offered shares of Rs 1,00,000 as purchase consideration for the

purchase of machinery to the vendor. Prepare the Company’s Balance Sheet as per Schedule III

of the Companies Act, 2013 and also prepare the Notes to Accounts for Share Capital, assuming

that all the shares offered were subscribed.

Answer

Ramesh Ltd.

Balance Sheet

Particulars Note

No.

Amount

(Rs)






Total 7,75,000

II. Assets


2. Current Assets

Total

NOTES TO ACCOUNTS

Note

No. Particulars

Amount

(Rs)

1 Share Capital


10,000 shares of Rs 100 each 10,00,000


General Public: 6,500 shares of Rs 100 each 6,50,000

Employees: 250 shares of Rs 100 each 25,000

Vendor: 1,000 shares of Rs 100 each 1,00,000 7,75,000


General Public: 6,500 shares of Rs 100 each 6,50,000

Employees: 250 shares of Rs 100 each 25,000

Vendor: 1,000 shares of Rs 100 each 1,00,000 7,75,000

Ques. 92 Kumar Limited purchased furniture of Rs 2,50,000 from Furniture Mart. 1/4th

of the

amount for purchase of furniture was paid through demand draft and the balance was discharged

by issuing 10% Debentures of Rs 100 each at a premium of 25%. Pass the necessary Journal

entries in the books of Kumar Limited.

Answer

Journal in the books Kumar Limited


Debit

Amount

(Rs)

Credit

Amount

(Rs)

Furniture A/c Dr. 2,50,000

To Furniture Mart 2,50,000

(Furniture purchased from Furniture Mart)

Furniture Mart

Dr.

2,50,000

To Bank A/c 62,500



(Balance of Furniture Mart Limited discharged by

paying 1/4th

in cash and the balance by issuing

10% Debentures of Rs 100 each at 25% premium)

Working Note:

Ques. 93 A and B are partners in a partnership firm. Their capital balances as on January 01,

2011 were Rs 30,000 and 60,000 respectively. As per their partnership deed, interest on capital is

to be provided at 10% p.a. and interest on drawings at 4%. Besides these, the firm is obliged to

pay interest of Rs 1,000 on A’s loan. Profit after all adjustments is to be distributed in the ratio of

3 : 2. During the year 2011, the firm had a profit of Rs 9,000 before above adjustments.

Drawings made during the year by both the partners amounted to Rs 5,000 each. Prepare Profit

and Loss Appropriation Account showing the distribution of profit.

Answer


Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Interest on Capital: Profit and Loss A/c (9,000 – 1,000) 8,000

A 2,800 Interest on Drawings:

B 5,600 8,400 A 200

B 200 400

8,400 8,400

Working Notes:

WN1Interest on Partners’ Drawings

WN2Interest on Partners’ Capital

Ques. 94 A and B are partners sharing profits and losses in the ratio of 3 : 2. A withdrew Rs

2,000 per month in the beginning of every month, whereas, B withdrew Rs 6,000 on July 01,

2012 and Rs10,000 on October 01, 2012. After preparation of accounts, it was found that profit

for the year 2012 distributed after charging interest on drawings at 9% p.a. instead of 6% p.a.

Pass a single adjusted Journal entry to rectify the mistake committed.

Answer

Journal


Debit

Amount

Rs

Credit

Amount

Rs

B’s Capital A/c Dr. 57

To A's Capital A/c 57

(Interest on drawings adjusted)

Working Notes: Calculation of Interest on Partners’ Drawings

Interest on A’s Drawings @ 9% p.a. =

Interest on A’s Drawings @ 6% p.a. =

Interest on B’s Drawings @ 9% p.a. =

Interest on B’s Drawings @ 6% p.a. =

Statement showing Adjustment

Particulars A B Total

Interest on Drawings @ 9% p.a. 1,170 495 1,665

Interest on Drawings @ 6% p.a. (780) (330) (1,110)

(390) (165) (555)

Amount already credited Rs 555 (3:2) 333 222 555

(57) 57 NIL

Ques. 95 Desh Premi Ltd. purchased business from Mera Desh Ltd. It took over assets and

liabilities by paying Rs 2,50,000 through cheque and remaining by issuing 15% Preference

Shares of Rs 100 each at 10% premium. The following are the assets and the liabilities taken

over by Desh Premi Ltd.

Particulars Amount

(Rs)

Plant and Machinery 1,50,000

Furniture and Fixtures 50,000

Debtors 25,000

Building 7,75,000

Creditors 1,35,000

Bills Payable 65,000

Pass the necessary Journal entries in the books of Desh Premi Ltd.

Answer

Books of Desh Premi Ltd.

Journal


Debit

Amount

Rs

Credit

Amount

Rs

Plant and Machinery A/c Dr. 1,50,000

Furniture and Fixtures A/c Dr. 50,000

Debtors A/c Dr. 25,000

Building A/c Dr. 7,75,000

To Creditors A/c 1,35,000

To Bills Payable 65,000

To Mera Desh Ltd. (Balancing Figure) 8,00,000

(Assets and liabilities of Mera Desh Ltd. taken-

over)

Mera Desh Ltd. Dr. 8,00,000


To 15% Preference Share Capital A/c 5,00,000


(Rs 2,50,000 paid in cash and 5,000 15% Preference

Shares of Rs 100 each issued at 10% premium to Mera

Desh Ltd.)

Working Note:

Ques. 96 A, B and C were partners sharing profits and losses in the ratio of 3 : 3 : 2. On

December 31, 2012 their Balance Sheet was as follows:

Liabilities Amount

Rs Assets

Amount

Rs

Capital: Building 45,000

A 50,000 Machinery 30,000

B 45,000 Investment 15,000

C 35,000 1,30,000 Stock 32,000

Workmen Compensation Reserve 10,000 Sundry Debtors 25,000

General Reserve 4,000 Cash at Bank 10,000

Creditors 18,000 Cash in Hand 5,000

1,62,000 1,62,000

C died on October 01, 2012. On the date of his death, the following revisions were made:

1. There was a liability for workmen compensation of Rs 5,000.

2. Goodwill of the firm valued on 2 years’ of purchase on the basis average profit of past 3 years.

Profit for the last three years were: 2009- Rs 12,000, 2010- Rs 30,000 and 2011- Rs 18,000.

3. C’s executor is entitled to balance of C’s Capital, Interest on Capital at 6% p.a. and his share

of Goodwill, General Reserve and Workmen Compensation Reserve. C withdrew Rs 2,000 till

date of death in 2012. The interest on his drawings was calculated as Rs 40. The profit to the date

of his death was calculated on the basis of last year’s profit.

Prepare C’s Capital and his Executor’s Account.

Answer

C’s Capital Account

Dr. Cr.

Particulars Amount

Rs Particulars

Amount

Rs

Drawings A/c 2,000 Balance b/d 35,000

Interest on Drawings A/c 40 Workmen Compensation Reserve 1,250

General Reserve 1,000

A’s Capital (Goodwill) 5,000

B’s Capital (Goodwill) 5,000

C’s Executor’s A/c 50,160 Interest on Capital 1,575


52,200 52,200

C’s Executor’s Account

Particulars Amount

Rs Particulars

Amount

Rs

C’s Capital A/c 50,160

Balance c/d 50,160

50,160 50,160

Working Notes:

WN1 Calculation of Firm’s Goodwill

Goodwill = Average Profit × No. of Years’ Purchase

WN2 Calculation of C’s Interest on Capital

WN3 Calculation of C’s Share Profit

Ques. 97 Calculate Stock Turnover Ratio using the following data.

i. Sales Rs 5,00,000

ii. Gross Profit is 25% on Sales

iii. Closing Stock is 40% of Gross Profit

iv. Opening Stock is Rs 10,000 less than the Closing Stock

Answer

Gross Profit = Sales × Gross Profit Ratio

Closing Stock = Gross Profit × 40%

Opening Stock = Closing Stock – 10,000

= 50,000 – 10,000 = Rs 40,000

Cost of Goods Sold = Sales – Gross Profit

Cost of Goods Sold = 5,00,000 – 1,25,000 = Rs 3,75,000

Stock Turnover Ratio = 8.33 times

Ques. 98 Consider the following given information of M/s. Mahaveer Prasad for the year ended

March 31, 2012.

Particulars Amount

(Rs)

Opening Stock 50,000

Closing Stock 1,00,000

Purchases 5,00,000

Sales 7,00,000

Direct Expenses 50,000

Gross Profit 2,00,000

Rent 30,000

Salaries 50,000

Depreciation 40,000

Net Profit 80,000

With the help of the given financial items calculate the following ratios.

1. Gross Profit Ratio.

2. Net Profit Ratio.

3. Stock Turnover Ratio.

Answer

1. Gross Profit Ratio

2. Net Profit Ratio

3. Stock Turnver Ratio

Ques. 99 a) She Ltd. invited application for issuing 70,000 equity shares of Rs 10 each at a

premium of Rs 2 per share. The amount was payable as follows:

On application Rs 4 per share (including premium)

On allotment Rs 3 per share

On First and final call - Balance.

Application for 1,00,000 share were received. Applications for 10,000 shares were rejected.

Shares were allotted to the remaining applicants on pro-rata basis. Excess money received with

applications were adjusted towards sums due on allotment. All calls were made and were duly

received except first and final call on 700 shares allotted to Shvetika. His shares were forfeited.

The forfeited shares were re-issued for Rs 77,000 fully paid up.

Pass necessary journal entries in the books of the company for the above transactions.

b) Puri Ltd purchased a running business from Karan Ltd. for a sum of Rs 5,00,000 payable as

Rs 4,40,000 in fully paid equity shares of Rs 10 each and balance by a bank draft. The assets and

liabilities consisted of the following :

Plant & Machinery Rs 1,80,000; Building Rs 1,80,000; Sundry Debtors Rs 60,000; Stock Rs

1,00,000; Cash Rs 40,000; Sundry Creditors Rs 40,000.

Answer

a)

In the books of She Ltd.

Journal


Debit

Amount

Rs

Credit

Amount

Rs

Bank A/c (1,00,000 shares × Rs 4) Dr. 4,00,000

To Share Application A/c 4,00,000

(Applications money received on 1,00,000 shares at Rs 4 per

share including premium)

Share Application A/c (1,00,000 shares × Rs 4) Dr. 4,00,000

To Share Capital A/c (70,000 shares × Rs 2) 1,40,000

To Securities Premium A/c (70,000 shares × Rs 2) 1,40,000

To Share Allotment A/c (20,000 shares × Rs 4) 80,000

To Bank A/c (10,000 shares × Rs 4) 40,000

(Application money adjusted towards share capital and share

allotment and balance refunded)

Share Allotment A/c

Dr.

2,10,000

To Share Capital A/c 2,10,000

(Allotment money made due on 70,000 shares)

Bank A/c

Dr.

1,30,000

To Share Allotment A/c 1,30,000

(Being allotment money received (2,10,000 - 80,000)

Share First and Final Call A/c

Dr.

3,50,000

To Share Capital A/c 3,50,000

(First and final call money due on 70,000 shares at Rs 5 each)

Bank A/c

Dr.

3,46,500

To Share First and Final Call A/c 3,46,500

(First and final call money received with exception of call money

on 700 shares)

Share Capital A/c

Dr.

7,000


To Share First and Final Call A/c 3,500

(700 shares forfeited due to non-payment of first and final call)

Bank A/c

Dr.

77,000



(Forfeited shares reissued at Rs 77,000)

Share Forfeited A/c

Dr.

3,500


(Profit on reissue transferred to Capital Reserve)

b)

Journal

Date Particulars L.F. Debit

Amount

Credit

Amount

Rs Rs

Plant and Machinery A/c Dr. 1,80,000

Building A/c Dr. 1,80,000

Sundry Debtors A/c Dr. 60,000

Stock A/c Dr. 1,00,000

Cash A/c Dr. 40,000

To Creditors A/c 40,000

To Karan Ltd. 5,00,000

To Capital Reserve A/c (Balancing Figure) 20,000

(Purchase of business from Karan Ltd.)

Karan Ltd. Dr. 5,00,000

To Equity Share Capital A/c 4,40,000

To Bank A/c 60,000

(Issue of 44,000 shares of Rs 10 each and

remaining payment is made through bank

draft)

Ques. 100 Sara Ltd. forfeited 500 shares of Rs 10 each issued at par for the non-payment of first

and final call Rs 2 per share. Of the forfeited shares, 200 shares were reissued at Rs 7 per share

and 100 at Rs 11 per share and remaining shares for Rs 2,000. Pass the necessary Journal entries.

Answer

Books Sara Ltd.

Journal


Debit

Amount

Rs

Credit

Amount

Rs

Share Capital A/c (500 x 10) Dr. 5,000

To Share Forfeiture A/c (500 x 8) 4,000

To Share First and Final Call A/c (500 x 2) 1,000

(500 shares of Rs 10 each issued at par, forfeited for non-

payment of first and final call Rs 2 per share)

Bank A/c (200 x 7) Dr. 1,400

Share Forfeiture A/c Dr. 600


(200 shares of Rs 10 each reissued at Rs 7 per share fully paid-

up)

Bank A/c (100x 11) Dr. 1,100


To Securities Premium A/c 100

(100 shares of Rs 10 each reissued at Rs11 per share fully

paid-up)

Bank A/c Dr. 2,000


(200 shares of Rs 10 each reissued for Rs 2,000)

Share Forfeiture A/c Dr. 3,400


(Share forfeiture of reissued transferred to Capital Reserve

Account)

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