IMPORTANT QUESTIONS FOR
XII-ACCOUNTANCY (055)
PART A -60 MARKS
PARTNERSHIP AND COMPANY ACCOUNTS
CHAPTER – 1
ACCOUNTING FOR PARTNERSHIP FIRM - FUNDAMENTALS
1 MARK Questions
1. What do you understand by ‗Partner‘, ‗firm‘ and ‗firm‘s name‘?
Ans. The persons who have entered into a Partnership with one another are individually called
‗Partners‘ and collectively ‗a firm‘ and the name under which the business carried is called ‗the
firm‘s name‘.
2. What is the minimum and maximum number of partners in all partnership?
Ans. Minimum 2 and Maxi 20 (In banking 10)
3. What is the status of partnership from an accounting viewpoint?
Ans. From an accounting viewpoint, partnership is a separate business entity. From the legal
viewpoint, however, a Partnership , is not separate from the owners.
4. In the absence of Partnership deed , how are mutual relations of partners governed?
Ans. Through Partnership Act, 1932.
5. Give two circumstances in which the fixed capital of partners may change.
Ans. (i) When additional capital is introduced by the partners.
(ii) When a part of the capital is permanently withdrawn by the Partners.
6. List the items that may appear on the debit side and credit side of a Partners‘ Fluctuating capital
account.
Ans. On debit side: Drawing, interest on drawing, share of loss, closing credit balance of capital.
On credit side: Opening credit balance of capital, additional capital introduced, share of
profit, interest on capital, salary to a Partner, commission to a Partner.
QUESTIONS: 4 &6 Marks
1. A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs. 8,00,000 and Rs.
6,00,000 respectively. Interest on capital is agreed @ 5% p.a. B is to be allowed an annual
salary of Rs. 60,000 which has not been withdrawn. During 2013-14, the profits of the year prior
to calculation of interest on capital but after charging B‘s salary amounted to Rs. 2,40,000. A
provision of 5% of the profits is to be made in respect of Manager‘s commission.
Prepare an account showing the appropriation of profit.
Solution:
P&L A/c
For the year ended 31st March 2014
Dr.
Particulars
To Manager’s Commission
(3,00,000 X5/100)
To Profit tr. To P&L App. A/c
Cr.
Amount
(Rs.)
Amount
(Rs.)
Particulars
15,000
By Profit (Rs. 2,40,000+60,000)
3,00,000
2,85,000
3,00,000
3,00,000
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
To B’s Salary
To Interest on Capital
A
40,000
B
30,000
To Profit tr. To
A’s capital
93,000
B’s capital
62,000
Cr.
Amount
(Rs.)
Particulars
Amount
(Rs.)
60,000
By Net Profit transferred from P
& L A/c
2,85,000
70,000
1,55,000
2,85,000
2,85,000
2. X and Y are Partners sharing Profit and Loss in the ratio of 2:3 with a capital of Rs. 20,000 and
Rs. 10,000 respectively. Show distribution of Profit/losses for the year ended 31st march 2014 by
preparing relevant account in each of the alternative cases.
Case 1. If Partnership deed is silent as to the interest on capital and the profit for year ended is
Rs. 2,000.
Case 2. If Partnership deed provides for the interest on capital @ 6% p.a. and loss for the year is
Rs. 1,500.
Case 3. If Partnership deed provides for interest on capital @ 6% p.a. and trading profit is Rs.
2,100.
Solution:
Case 1.
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
Cr.
Amount
(Rs.)
To Profit transferred to
X’s capital
800
Y’s capital
1,200
Particulars
Amount
(Rs.)
By Net Profit transferred from P
& L A/c
2,000
2,000
2,000
2,000
Case 2.
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
Cr.
Amount
(Rs.)
To loss for the year (Trading loss) 1,500
Particulars
Amount
(Rs.)
By loss transferred to
X’s Capital
600
Y’s Capital
900
1,500
1,500
1,500
Case 3.
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
To Interest on Capital
X
1,200
Y
600
To Profit tr. To
X’s Capital 120
Y’s Capital
180
Cr.
Amount
(Rs.)
1,800
300
Particulars
Amount
(Rs.)
By Profit & Loss A/c
2,100
2,100
2,100
3. X and Y are partners in a firm. X is to get a commission of 10% of net profit before charging
any commission. Y is to get a commission of 10% on net profit after charging all commission.
Net profit for the year ended 31st March 2014 before charging any commission was Rs. 1,10,000.
Find the commission of X and Y. Also show the distribution of profit.
ANS .
P & L Appropriation A/c
For the year ended 31st March 2014
Dr.
Particulars
To X’s commission A/c
(1,10,000 X 10/100)
To Y’s Commission
(1,10,000 – 11,000) X10/110
To Net Profit tr. To Capital
A/c’s
X
45,000
Y
45,000
Cr.
Amount
(Rs.)
Particulars
Amount
(Rs.)
11,000
By Profit before any
commission
1,10,000
9,000
90,000
1,10,000
1,10,000
4. A, B and C are Partners in a firm sharing Profit and Losses in the ratio 2:3:5. Their fixed capitals
were 3,00,000; 6,00,000; and 1,20,000 respectively for the year 2014 interest on capital was
credited to them @ 12% instead of 10%. Pass the necessary adjustment entry.
Solution:
Table showing Adjustment
Particulars
A
B
C
Total
Interest that should have been credited
@ 10%
Interest already credited @ 12%
30,000
60,000
12,000
1,02,000
36,000
72,000
14,400
1,22,400
(6,000)
(12,000)
(2,400)
(20,400)
(4,080)
(1,920)
(6,120)
(5,880)
(10,200)
7,800
By recovering the extra amount paid the
share will increase and it will be credited
in the ratio of 2:3:5
Net effect
A’s Current A/c Dr.
B’s Current A/c Dr.
To C’s Current A/c
1,920
5,880
7,800
5. X, Y and Z were partners in a firm sharing profit and losses in the ratio of 2:1:2. Their capitals
were fixed at Rs. 6,00,000; Rs. 2,00,000 and Rs. 4,00,000 for the year 2014. Interest on capital
was credited to them @ 9% instead of 10%p.a. the profit for the year before charging interest
was Rs. 5,00,000.
Show your working note clearly and Pass necessary adjustment entry.
(Ans. Y‘s current A/c Dr. 400, Z‘s Current A/c Dr. 800, X ‘s current A/c Cr. 1,200)
6. A, B and C are partners in a firm sharing profits and losses in the ratio of 2:3:5. Their fixed
capitals were 15, 00,000, Rs.30, 00,000 and Rs.60, 00,000 respectively. For the year 2009
interest on capital was credited to them @ 12% instead of 10%. Pass the necessary adjustment
entry.
Ans:
TABLE SHOWING ADJUSTMENT
PARTICULARS
Interest that should have been
credited @ 10%
Interest already credited @ 12%
Excess credit in partners account
A
B
C
TOTAL
Rs.
Rs.
Rs.
Rs.
1,50,000
3,00,000
6,00,000
10,50,000
1,80,000
3,60,000
7,20,000
12,60,000
(60,000)
(1,20,000)
(2,10,000)
2,10,000
(30,000)
By recovering the extra amount
paid the share of profits will
increase and it will be credited in
the ratio of 2:3:5
42,000
63,000
1,05,000
Net effect
+12,000
+3,000
-15,000
Nil
Adjustment Entry:
C‘s current A/c
Dr.
To A‘s Current A/c
To B‘s Current A/c
( For interest less charged on capital, now rectified)
15,000
12,000
3,000
7. A, B and C arte partners. They admit D and guarantee that his share of profit will not be less than
Rs. 20,000. Profits to be shared 4:3:3:2 respectively. Total profits were Rs. 96,000. It was agreed
that excess payable to D over his share will be borne by A,B and C in the ratio of 3:2:1.
Calculate share of profit for each partner.
Books of A,B and C
Profit and Loss appropriation account for the year ending………
Particulars
Rs.
To profit transferred to:
A‘s Capital a/c
(Rs.96,000x4/12)
32,000
Less: Deficiency borne
2,000
32,000
B‘s Capital A/c
(96,000x3/12)
24,000
Less: Deficiency borne
1,333
22,667
C‘s Capital A/C
(Rs.96,000x3/12)
24,000
Less: Deficiency borne
667
23,333
D‘s Capital A/C
(Rs.96,000x2/12)
16,000
Add: Deficiency recovered
from the Capitals of:
A
2,000
B
1,333
C
667
20,000
Particulars
By Profit & Loss A/c
Rs.
96,000
(6)
CHAPTER – 2
GOODWILL: NATURE & VALUATION
(3 MARKS QUESTIONS)
1. A business has earned average profit of Rs. 4,00,000 during the last few years and the normal
rate of return in similar business is 10%. Find out the value of goodwill by
(i)
Capitalisation of Super Profit
(ii)
Super profit method if the goodwill is valued at 3years‘ purchase of super profits.
The assets of the business were Rs. 40,00,000 and its external liabilities Rs. 7,20,000.
(Ans. 2,16,000)
2. Capital of the firm Sharma and Verma is Rs. 4,00,000 and the market rate of interest is 15%.
Annual salary to partners is Rs. 2,400 each. The profit for the last three years were Rs. 1,20,000,
Rs. 1,44,000 and Rs. 1,68,000. Goodwill is tovalued at 2 years‘ purchase of last 3 years average
super profit. Calculate the Goowill of the firm.
(Hint Rs. 72,000)
3. On Ist Jan 2014 an existing firm has Asset of Rs. 1,50,000 including cash of Rs. 10,000. Its
creditors amounted to Rs. 10,000 on that date. The firm had a Reserve of Rs. 20,000 while
Partner‘s Capital Accounts showed a balance of Rs. 1,20,000. If Normal Rate of Return is 20%
and goodwill of the firm is valued at Rs. 4,8000 at four years‘ purchase of super profit, find the
average profit per year of the existing firm.
(Ans Average profit – Rs. 40,000)
4. Calculate value of goodwill on the basis of three year purchase of average profit of the preceding
five years which were as follows:
Years ended
31.3.2014
4,00,000
Years ended
31.3.2013
7,50,000
Years ended
31.3.2012
9,00,000
Years ended
31.3.2011
2,00,000 (loss)
Years ended
31.3.2010
6,50,000
Hint: (Goodwill = 1,5,00,000)
CHAPTER-3
ADMISSION OF PARTNER
PRACTICAL PROBLEMS: (3 MARKS)
1. A, B and C were partners in a firm sharing profits in 3:2:1. They admitted D for 10% profits.
Calculate the new profit sharing ratio. ( Ans: 9:6:3:2).
2. X and Y are partners sharing profits in 5:3 ratio admitted Z for 1/10th share which he acquired
equally for X and Y. Calculate new profit sharing ratio.(Ans. 23:13:4).
3. Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a
new partner. Radha surrendered 1/3rd of her share in favour of Gopi and Rukmani surrendered
1/4th of her share in favour of Gopi. Calculate new profit sharing ratio.(Ans. 4:3:3)
4. A and B are partners in a firm sharing profits in the ratio of 3:2. They admit C into partnership
for 1/5th share of profits in the firm. The goodwill of the firm is valued at Rs. 1,00,000. He is
unable to bring in his share of goodwill. What will be the journal entries?
Solution: Goodwill of the firm = Rs 1,00,000
C‘s share of goodwill = 1,00,000 X 1/5 = Rs. 20,000
JOURNAL
Date
Particulars
L.F. Dr.(Rs.)
C’s Capital A/c
Dr.
To A’s Capital A/c
To B’s Capital A/c
Cr.(Rs.)
20,000
12,000
8,000
(8 MARKS)
5. P and Q were partners sharing profits in the ratio of 3:2. Their balance sheet on March 31st 2014
are as follows:
Liabilities
Amount (Rs.)
Assets
Amount (Rs.)
Creditors
Bills Payable
Bank overdraft
Reserve
P’s Capital
Q’s Capital
20,000
3,000
17,000
15,000
70,000
60,000
Cash
Debtors
20,500
Less: Provision for bad
debts
300
Stock
Plant
Buildings
Motor Vehicles
14,800
1,85,000
20,200
20,000
40,000
70,000
20,000
1,85,000
They agreed to admit Mishra for 1/4th share from 1.4.2014 subject to the following terms:
(a) P to bring in capital equal to 1/4th of the total capital of P and Q after all adjustments
including premium for goodwill.
(b) Buildings to be appreciated by Rs. 14,000 and stock to be depreciated by Rs. 6,000.
(c) Provision for Bad debts on Debtors to be raised to Rs. 1,000.
(d) A provision be made for Rs. 1,800 for outstanding legal charges.
(e) P‘s share of goodwill/premium was calculated at Rs. 10,000.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm on R’s
admission.
Solution:
Revaluation A/c
Dr.
Cr.
Particulars
Rs.
Particulars
Rs.
To Stock A/c
6,000
By Buildings A/c
14,000
To provision for Legal Charges A/c
1,800
To Provision for Doubtful Debts A/c
700
ToProfittransferred to Capitals:
P
3,300
Q
2,200
5,500
14000
14,000
Partner’s Capital A/c
Dr.
Cr.
Particulars
P
Q
R
Particulars
To balance c/d
88,300
72,200 40,125 By Balance b/d
P
Q
R
70,000 60,000
By Cash
88,300
40,125
By Prem. for gw A/c
6,000
4,000
By Revaluation A/c
3,300
2,200
By Reserves
9,000
6,000
72,200 40,125
88,300 72,200 40,125
Balance Sheet
As on April1, 2014
Dr.
Cr.
Liabilities
Rs.
Particulars
Rs.
Bills Payables
3,000
Cash in Hand
64,925
Creditors
20,000
Debtors
Provision for Legal Expenses
1,800
Less:Pro. D. debts
Bank Overdraft
17,000
Stock
14,000
Capital Accounts
Motor Vehicles
20,000
P
88,300
Plant
40,000
Q
72,200
Buildings
84,000
R
40,125
20,500
1,000
19,500
2,00,625
242,425
242,425
Working Notes:
Calculation of Mishra‘s Capital:
(i)
Sum of capitals of Jain and Gupta Rs. 88,300+Rs. 72,200=Rs. 1,60,500
Mishra‘s capital = ¼(1,60,500) = Rs. 40,125
Cash Account = Opening Balance + Goodwill + Mishra‘s Capital
= 14,800+10,000+40,125=Rs. 64,925
6. On 31.3.14, the Balance sheet of W and R sho shared profits in 3:2 ratio was as follows:
Liabilities
Amount
Assets
Amount
Creditors
Profit and loss A/c
Capital Accounts:
W
80,000
R
60,000
40,000
30,000
Cash
SundryDebtors 40,000
Less: Provision
14,00
Stock
Plant and Machinery
Patents
10,000
1,40,000
2,10,000
38,600
50,000
70,000
41,400
2,10,000
On this date, B was admitted as a partner on the following conditions:
(a) B will get 4/15th share of profits.
(b) B had to bring Rs. 60,000 as his capital to which amount other partners capitals shall
have to be adjusted.
(c) He would pay cash for his share fo goodwill which would be based on 2 1/2years
purchase of average profits of past 4 years.
(d) The assets would be revalued as under:
Sundry debtors book value less 5% provision for bad debts. Stock at Rs. 40,000, plant
and Machinery at Rs. 80,000.
(e) The profits of the firm for the years 2011, 2012, 2013 were Rs. 40,000, 28,000 and Rs.
34,000 respectively.
Prepare Revaluation A/c, Partner‘s Capital A/c and the Balance Sheet of the new firm.
Solution:
Revaluation A/c
Dr.
Particulars
Cr.
To prov. For Bad debts A/c
To Stock A/c
Amount
Particulars
Amount
600
By Plant and Machinery
A/c
BY Capitals A/c
W
360
R
240
10,000
10,000
600
10,600
10,600
Partner’s Capital A/c
Dr.
Particulars
W
R
To Rev. A/c
360
240
To Bal. c/d
110840
80560
60000
111200
80800
60000
11840
99000
14560
66000
To Cash
To Bal. c/d
B
B
Particulars
W
By Balance b/d
BY Cash A/c
By P&L A/c
By Prem for G/w
80000
60000
18000
13200
111200
12000
8800
80800
60000
110840
80560
60000
By Balance b/d
60000
Cr.
R
60000
110840
80560
60000
110840
80560
60000
Balance Sheet
As on 31st March 2014
Liabilities
Amount
Assets
Amount
Creditors
Capitals
W
99,000
R
66,000
B
60,000
40,000
Cash
SundryDebtors40,000
Less: Prov.
2,000
Stock
Plant and Machinery
Patents
65,600
2,25,000
2,65,000
Working Notes:
(i)
(ii)
(iii)
(iv)
Let total profit = 1
B‘s share = 4/15
Remaining profit = 1 – 4/15 = 11/15
W‘s share = 11/15X3/5 = 33/75
R‘s share = 11/15X2/5 = 22/75
B‘s share = 4/15=20/75
New profit sharing ratio of W, R and B
= 33/75: 22/75:20/75
= 33:22:20
Year
Profit
2011
40,000
2012
28,000
2013
34,000
2014
30,000
_______
Total
1,32,000
_______
Average Profit = 1,32,000/4
= 33,000
Goodwill = Average Profit X Number of Years Purchase
= 33,000 X 5/2
= 82,500
B‘s capital for 4/15th share = Rs. 60,000
Total capital of firm 60,000 X 15/4 = 2,25,000
38,000
40,000
80,000
41,400
2,65,000
2,25,000-60,000 = 1,65,000
W‘s capital = 1,65,000 X 3/5 = 99,000
R‘s capital = 1,65,000 x 2/5 = 33,000
OR
Distribute 2,25,000 in 33:22:20.
RETIREMENT AND DEATH OF A PARTNER
QUESTIONS: (1 MARK)
PRACTICAL PROBLEMS
1. Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and
goodwill of the firm is valued at Rs. 1,80,000. Aparna and Sonia decided to share future in the
ratio of 3:2. Pass necessary Journal entries.
Journal
Aparna‘s Capital A/c
Dr.
18,000
Sonia‘s Capital A/c
Dr.
42,000
To Manisha‘s Capital A/c
60,000
(Goodwill credited to Manisha‘s capital and debited to continuing partners‘ capitals in the
gaining ratio)
(3)
2. The Balance Sheet of A, B and C on 31st December 2007 was as under :
BALANCE SHEET as at 31.12.2007
Liabilities
Amount Rs. Assets
Amount Rs.
A‘s Capital
40,000 Buildings
20,000
B‘s Capital
30,000 Motor Car
18,000
C‘s Capital
20,000 Stock
20,000
General Reserve
17,000 Investments
Sundry Creditors
1,20,000
1,23,000 Debtors
40,000
Patents
12,000
2,30,000
2,30,000
The partners share profits in the ratio of 8 : 4 : 5. C retires from the firm on the same date subject
to the following term S and conditions:
i)
20% of the General Reserve is to remain as a reserve for bad and doubtful debts.
ii)
Motor)r Car is to be decreased by 5%.
iii)
Stock is to be revalued at Rs.17, 500.
iv)
Goodwill is valued at‘ 2 ½ years purchase of the average profits of last 3 years.
Profits were; 2001: Rs.11,000; 200l: Rs. 16,000 and 2003: Rs.24,000.
C was paid in July, A and B borrowed the necessary amount from the Bank on the security of
Motor Car and stock to payoff C.
Prepare Revaluation Account, Capital Accounts and Balance Sheet of A and B.
Ans.2 SOLUTION
1. REVALUATION ACCOUNT
Particulars
Rs. Particulars
Rs.
To Motor Cars A/C
900By Loss transferred to
2,500A‘s Capital A/c Rs.1,600
To Stock A/C
B‘s Capital A/c Rs.800
C‘s Capital A/c
3,400
1,000
3400
3,400
2. PARTNERS CAPITAL ACCOUNT
Particulars
ARs.
B Rs.
C Rs.
To C‘s Capital A/c
8,334
4,166
-
To Revaluation A/c (Loss)
1,600
800
1,000
-
-
35,500
36,466
28,234
-
46,400
33,200
36,500
To Bank A/c
To Balance c/d
Particulars
By Balance b/d
By General Res. A/c6,400
A Rs.
B Rs.
C Rs.
40,000 30,000 20,000
3,200
4,000
By A‘s Capital A/c
-
-
8,334
By B‘s Capital A/c
-
-
4,166
46,40033,20036,500
By Balance b/d
36,466 28,234
-
3.
4. BALANCE SHEET OF A AND B
Rs.
Liabilities
Sundry creditors
1,23,000
Bank Loan
35,500
Capital A
36,466
B 28,234
64,700 Investment
Debtors
Rs.
Assets
Building
20,000
Motor Card
17,100
Stock
17,500
1,20,000
36,600
Patents
12,000
2,23,200
2,23,200
Q.3 A, Band C were partners in a firm sharing profits equally: Their Balance Sheet on.31.12.2007
stood as:
5. BALANCE SHEET AS AT 31.12.07
Liabilities
Rs. Assets
Rs.
A
Rs. 30,000
Goodwill
18,000
B
Rs. 30,000
Cash
38,000
C
Rs. 25,000
85,000 Debtors
Bills payable
20,000 Less: Bad Debt provision
Creditors
18,000 Bills Receivable
. 43,000
3,000
40,000
25,000
Workers Compensation Fund
8,000 Land and Building
60,000
Employees provide4nt Fund
60,000 Plant and Machinery
40,000
General Reserve
30,000
2,21,000
2,21,000
It was mutually agreed that C will retire from partnership and for this purpose following terms
were agreed upon.
i) Goodwill to be valued on 3 years‘ purchase of average profit of last 4 years which were 2004 :
Rs.50,000 (loss); 2005 : Rs. 21,000; 2006: Rs.52,000; 2007 : Rs.22,000.
ii)
The Provision for Doubtful Debt was raised to Rs. 4,000.
iii)
To appreciate Land by 15%.
iv)
To decrease Plant and Machinery by 10%.
v)
Create provision of Rs.;600 on Creditors.
vi)
A sum of Rs.5,000 of Bills Payable was not likely to be claimed.
vii)
The continuing partners decided to show the firm‘s capital at 1,00,000 which would be in
their new profit sharing ratio which is 2:3. Adjustments to be made in cash
Make necessary accounts and prepare the Balance Sheet of the new partners.
Ans.3
6. REVALUATION ACCOUNT
Particulars
Rs. Particulars
Rs.
To Provision for Debts A/c
1,000 By Land A/c
To Plant & Machinery A/c
4,000 By Provision on Creditors A/c
To Profit transferred to
9,000
By Bills Payable A/c
A‘s Capital A/c
Rs. 3,200
B‘s Capital A/c
Rs. 3,200
C‘s Capital A/c
Rs. 3,200
600
5,000
9,600
14,600
14,600
7. PARTNER‘S CAPITAL ACCOUNTS
Particulars
ARs.
BRs.
CRs. Particulars
To Goodwill A/c
6,000
6,000
6,000 By Balance b/d
To C‘s Capital A/c
2,250
9,000
-
-
To C‘s Loan A/c
- By General Reserve
46,116 By Workmen A/c
A Rs. B Rs. C Rs.
30,000 30,000 25,000
10,000 10,000 10,000
2,667 2,667 2,666
Compensation Fund
To Balance c/d
40,000 60,000
- By Revalu A/c (profit) 3,200 3,200 3,200
By A‘s Capital A/c
-
- 2,250
By B‘s Capital A/c
-
- 9,000
By Cash A/c (Deficiency)2,38329,133
48,250 75,000
52,116
-
48,250 75,000 52,116
By Balance b/d
40,000 60,000
-
8. BALANCE SHEET
9. as at 31.12.07
Liabilities
Rs.
Bills Payable
15,000
Creditors
17,400
Employees Provident Fund
60,000
C‘s Loan
46,116
A‘s Capital
40000
B‘S Capital
60000 1,00,000
2,38,516
Assets
Debtors
Less: Provision
Bills Receivables
Land & Buildings
Plant & Machinery
Cash
Rs.
43,000
4,000
39,000
25,000
69,000
36,000
69,516
2,38,516
4. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1 on
March 31, 2007, Naman retires
The various assets and liabilities of the firm on the date were as follows:
Cash Rs. 10,000, Building Rs. 1,00,000, Plant and Machinery Rs. 40,000, Stock Rs. 20,000,
Debtors Rs. 20,000 and Investments Rs. 30,000.
The following was agreed upon between the partners on Naman‘s retirement:
(i)
Building to be appreciated by 20%.
(ii)
Plant and Machinery to be depreciated by 10%.
(iii) A provision of 5% on debtors to be created for bad and doubtful debts.
(iv)
Stock was to be valued at Rs.18,000 and Investment at Rs. 35,000.
Record the necessary Journal entries to the above effect and prepare the revaluation
account.
(Ans. Revaluation A/c = Rs. 18,000)
The terms were:
(a) Goodwill of the firm was valued at Rs. 13,000.
(b) Expenses owing to be brought down to Rs. 3,750.
(c) Machinery and Loose Tools are to be valued at 10% less than their book value.
(d) Factory premises are to be revalued at Rs. 24,300.
Prepare :
1. Revaluation account.
2. Partner‘s capital accounts and
3. Balance Sheet of the firm after retirement of Sheela.
5. Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3:2:1. Naresh retired from
the firm due to his illness. On that date the Balance sheet of the firm was as follows:
Balance sheet as on March 31st 2013
Liabilities
Amount
Assets
Amount
General Reserve
12,000
Bank
7,600
Sundry Creditors
15,000
Debtors
Bills Payable
12,000
Less: Provision for D.debts 4,00
5,600
Outstanding Salary
2,200
Stock
9,000
Provision for legal damages
6,000
Furniture
41,000
Premises
80,000
Capitals
Pankaj
46,000
Naresh
30,000
Saurabh
20,000
6,000
96,000
1,43,200
1,43,200
Additional Information:
(i)
(ii)
(iii)
(iv)
Premises have appreciated by 20% ,Stock depreciated by 10% and provision for doubtful
debts was to be made 5% on debtors. Further, provision for legal damages is to be made for
Rs. 1,200 and furniture to be brought up to Rs. 45,000.
Goodwill of the firm be valued at RS. 42,000.
Rs.26,000 from Naresh‘s Capital Account be transferred to his loan account and balance be
paid through bank; if required, necessary loan may be obtained from bank.
New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.
Give the necessary ledger accounts and Balance Sheet of the firm after Naresh‘s retirement.
(Ans. Revaluation A/c – Rs. 18,000; Balance Sheet – 1,54,000)
6. Find out missing figures of the following financial statements of Partnership firm.
(Chapter-5-Retirement/Death of a Partner)
Particualrs
Revaluation Account
AmountRs. Particulars
AmountRs.
To Provision for Doubtful Debts A/c
To warranty Claim A/c
To Provision for outstanding Repairs
A/c
To Profit transferred to :
A‘s Capital A/c
(b)
B‘s Capital A/c
(c)
C‘s Capital A/c
(d)
Particulars
To B‘s Capital
(Goodwill)
To Bank
To B‘s Loan
A/c
To Bal C/d
10,000 By Computer Account
(a) By Land and Building
30,000
(e)
1,24,000
Partners’ Capital Accounts
A
B
C
Particulars
(i)
Nil
(j) By Balance B/d
By capital a/cs:
Nil 1,00,000
Nil A
Nil 6,40,000
Nil C
8,40,000
24,000
1,00,000
Nil 2,80,000 By Revaluation
A/c
1,24,000
A
B
(f)
C
(g)
(h)
90,000
30,000
30,000
20,000
10,000
9,30,000 7,40,000 3,10,000
Liabilities
Creditors
Provision for outstanding repairs
Warranty claim
B‘s Loan
Capital A/cs
A
C
8,40,000
2,80,000
Balance Sheet after retirement
AmountRs. Assets
2,16,000 Cash at Bank
(m) Debtors
2,00,000
24,000 Less: Provision for Bad Debts
(k)
6,40,000 Stock
Computer
Machinery
11,20,000 Land and Building
10,00,000
Less : Appreciation
1,00,000
AmountRs.
56,000
(l)
1,80,000
24,000
4,80,000
11,00,000
20,30,000
20,30,000
Ans. (a) 24,000 (b)30,000 (c)20,000 (d)10,000 (e)60,000 (f)9,00,000 (g)6,00,000
(h)3,00,000 (i)90,000(j)30,000(k) 10,000(l)1,90,000(m)30,000.
DEATH OF A PARTNER
1. A,B and C were partners in a firm. C died on 28th Feb 2014. His share of profit from the
closure of the last accounting year till the date of death was to be calculated on the basis of
the average profit of three complete years before death, profit for 2011 2012 and 2013 were
Rs. 1400 and Rs. 1600 and Rs. 1800 respectively.
Calculate C‘s share of profit till his death.
Ans:- Average profit =14,000 +16,000 +18,000
3
=48,000/3 = 16000
Estimate profit till the date of death = 16,000 X
C’s share of estimated profit = 2666.66 x
= 2666.66
= 888.8
2. If profit till the date of death are to be ascertained A B and sharing profit in the ratio of 2:2:1
B died on 31st March 2014,Accounting are closing on December sales for the year 2013
amounted to Rs. 9,00,000 , sales of Rs. 3,00,000 amounted between the period from 1 Jan
2014 to 31 March 2014. The profit for the year 2013 amounted to Rs. 90,000.
Calculate deceased partner‘s share in the Profit of the firm.
Solution:- % of profit to sale for the year 2013 =
X 100 = 10%
Profit up to death 10% of 3,00,000 i.e. 30,000
B‘s share 30,000 X = 12,000
Or
X 3,00,000 = 30,000
1 mark question
3. A B and C are partners sharing profit and losses in the ratio 2:2:1 . C died on 31st March
2014 profit and sales for the calendar year 2013 were Rs. 3,00,000 and Rs. 30,00,000
respectively. Sales during Jan to March 2014 were 4,50,000. Calculate share and profit of C
up to date of death.
Hint:- C‘s share 9,000.
4. D P and G were partner in a firm sharing profit and losses in the ratio of 5:3:2 . P died on
31May 2013 his share of profit from the closure of the last accounting year to the date of
death , was to be calculated on the basis of the average of three completed years of profit,
before death, profit for the years ended 31stdec 2010,2011,2012 were Rs. 51,000 Rs. 45,000
and 39,000 respectively.
Calculate P‘s share of profit.
Hint:- Rs. 5,625
(4 0r 3Marks )
5. P R and S are in partnership sharing profit 4:3:1, respectively. It provided in the partnership
deed that on the death of any partner his share of goodwill is to be valued at (one third) of
the net profit credit to the account during the last four completed years. R died on 1st Jan
2014.The firm profit for the four years were as:2010 Rs. 2, 40,000 2014 Rs. 1, 60,000 2012 Rs. 80,000 2013 Rs. 1, 20,000.
(a) Determine the amount that should be Credited to R in respective of his share of goodwill
(b) Pass Journal entry without goodwill A/C for its adjustment.
6. A, B and C are partners sharing profits and losses in the ratio of 5:4:1. The profit for the year
ending 31, March, 2010 was Rs. 1, 00,000. B died on 30th June 2010. Calculate C‘s share of
profit till the date of death and pass necessary journal entry.
Profit and Loss suspense a/c – Dr
10,000
B‘s Capital Account
(Being B‘s share of profit transferred to his
capital account)
10,000
C‘s share of profit = 1, 00,000 X 4/10 X 3/12 = 10,000
7. X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5:4:1.The
Partnership agreement provides that the share of profit of the deceased partner will be
worked out on the basis of sales. The sales for the year 2009-10 was Rs. 8,00,000 and the
sales from April 1, 2010 to June 30, 2010 was Rs. 1,50,000. The profit for the year ended 31st
March 2010 amounted to Rs. 1,00,000. Y died on 30th June 2010. Calculate his share of
profit and pass necessary journal entry.
Profit and Loss suspense a/c – Dr
7500
Y‘s Capital Account
(Being Y‘s share of profit transferred to
his capital account
Sales for the year 2009-10 Rs.8, 00,000
7500
Profit for the year 2009-10 Rs. 1,00,000
Sales from April 1,2010 to 30th June 2010 Rs. 1,50,000 Profit upto 30th June 2010 = ?
C‘s share of profit = 1,00,000/8,00,000 X 1,50,000 = 18750 X 4/10 = Rs.7500.
8.
Ram, Mohan and Sohan were partners sharing profits and losses in the ratio of 5:3:2. On
31st March, 2006 their Balance Sheet was as under:
Liabilities
Capitals
Ram
Mohan
Amount Rs. Assets
Leasehold
1,50,000 Patents
1,25,000 Machinery
Amount Rs.
1,25,000
30,000
1,50,000
Sohan
Workmen‘s
Compensation Reserve
Creditors
75,000 Stock
30,000 Cash at Bank
1,55,000
5,35,000
1,90,000
40,000
5,35,000
Sohan died on 1st August, 2006. It was agreed that :
(i) Goodwill of the firm is to be valued at Rs. 1,75,000.
(ii) Machinery be valued at Rs. 1,40,000; Patents at Rs. 40,000; Leasehold atRs. 1,50,000 on this date.
(iii) For the purpose of calculating Sohan‘s share in the profits of 2006-07, the profits
should be taken to have accrued on the same scale as in 2005-06, which wereRs. 75,000.
Prepare Sohan‘s Capital Account and Revaluation Account.
(6)
Revaluation Account
Particulars
Machinery
Capital Accounts
Ram
Mohan
Sohan
AmtRs.
10,000
Particulars
Leasehold
Patents
12500
7500
5000
35000
AmtRs.
25000
10,000
35000
Sohan‘s capital Account
Particulars
To Sohan‘s Executor‘s
account
Rs.
1,26,000
1,26,000
Particulars
By Balance b/d
By Revaluation a/c
Rs.
75000
5000
By Ram‘s Capital a/c
By Mohan‘s capital a/c
By P & L Suspense A/c
By Workmen‘s Compensation a/c
21875
13125
13125
6000
1,26,000
Working Note :
a)Total Goodwill of the firm = 1,75,000
Sohan‘s share of goodwill = 1,75,000 X 2/10 = 35000 ( to be divided in the ratio of 5:3 i.e
gaining ratio)
b) Sohan‘s share of profit = 75000 X 4/12 x 2/10 = Rs. 5000
9. Following is the Balance sheet of P , Q and R as on 31st December 2010 sharing profits in
the ratio of 5:3:2.
Liabilities
Capital Accounts
P
Q
R
Creditors
Reserve Fund
Rs.
Assets
Cash
Debtors
Machinery
Stock
Patents
Building
30000
25000
15000
7000
10000
87000
Rs.
13000
8000
30000
10000
6000
20000
87000
P died on 1st July 2011 on the following termsi)
ii)
iii)
iv)
v)
Patents are to be valued at Rs. 8000, Machinery at Rs. 28000 and Building at Rs. 30,000.
Interest on Capital is to be provided at 10% p.a.
Goodwill of the firm is valued at 2 years purchase of the average profits of the last five years
which were2006 Rs. 15,000
2007 – Rs. 13000
2008 – Rs. 12,000
200915,000 and
2010 -Rs. 20,000
Profit for the year 2011 has been accrued on the same scale as in 2010.
P‘s Executor is to be paid Rs. 11,500 and balance transferred to his loan account.
Prepare Revaluation Account, P‘s Capital account and P‘s executors account.Also pass
necessary journal entries.
Particulars
Machinery
Capital AccountsP
Q
R
Particulars
To P‘s Executors a/c
Revaluation Account
Rs.
Particulars
2000
Patents
Buildings
5000
3000
2000
12000
Rs.
61500
Rs.
2000
10000
12000
P‘s Capital Account
Particulars
By Balance b/d
By Reserve fund
By Q‘s Capital a/c
By R‘s Capital a/c
Rs.
30000
5000
9000
6000
By Revaluation a/c
By Interest on capital
61500
Particulars
To Bank/cash a/c
To P‘s Executor‘s Loan a/c
5000
1500
61500
P‘s Executor‘s account
Rs.
Particulars
11500
By P‘s Capital a/c
Rs.
61500
50000
61500
61500
Working Note :
a) Interest on Capital : 30,000 X 10/100 X 6/12 = Rs. 1500
b) Reserve fund = 10,000 X 5/10 = Rs. 5000
c) P‘s Share of profits = 20,000 X 5/10 X 6/12 = Rs. 5000.(for 6 months)
d) Total Goodwill of the firm =
Average profits = 75000/5 = Rs. 15000
Goodwill = 15000 X 2 = 30,000
P‘s share of Goodwill = 30,000 X 5/10 = 15000(to be divided in Gaining ratio 3:2)
Journal
SN
1
2
3
4
5
6
Particulars
Revaluation a/c ----Dr
To Machinery a/c
(Being machinery revalued)
Patents a/c --Dr
Building a/c - Dr
To Revaluation a/c
(Being Assets revalued)
Revaluation a/c --- Dr
To P‘s Capital a/c
To Q‘s Capital a/c
To R‘s Capital a/c
(Being Revaluation profit distributed)
Reserve fund a/c –Dr
To P‘s Capital a/c
(Being reserve distributed)
Q‘s Capital a/c ---Dr
R‘s Capital a/c ---Dr
To P‘s capital a/c
(Being deceased partner ‗s account
credited by his share of goodwill
contributed by the gaining partners)
Interest on capital a/c – Dr
To P‘s Capital a/c
LF AmtRs.
2000
AmtRs.
2000
2000
10000
12000
10000
5000
3000
2000
5000
5000
9000
6000
15000
1500
1500
7
8
(Being Interest on capital provided to the
deceased partner)
P‘s Capital a/c ---Dr
To P‘s executor‘s a/c
(Being P‘s balance due transferred to his
executor‘s a/c)
P‘s executor‘s a/c --Dr
To Cash a/c
To P‘s executor‘s loan a/c
(Being amount paid to the executor and
balance transferred to his loan account)
61500
61500
61500
11500
50000
10. X, Y and Z are partners sharing profits and losses in the ratio of 2:2:1 respectively. Their
Balance Sheet as on 31st march 2007 was as follows—
Balance Sheet as on 31/03/10
Liabilities
Sundry Creditors
Capital Accounts
X
Y
Z
General Reserve
Rs.
1,00,000
Assets
Cash at bank
Stock
Sundry Debtors
Investments
Furniture
Buildings
60,000
1,00,000
40,000
50,000
3,50,000
Rs.
20,000
30,000
80,000
70,000
35,000
1,15,000
3,50,000
Z died on 30th September 2007 and the following was provided—
a) ―Z‖ will be entitled to his share of profit upto the date of death based on last year‘s profit.
b) Z‘s share of Goodwill will be calculated on the basis of 3 years purchase of average profits of
last four years . The profits of the last four years was as follows—
Year I – 80,000,
Year II –Rs. 50,000
Year III – Rs. 40,000 and Year IV –Rs. 30,000
c) Interest on Capital was provided at 12% p.a.
d) Drawings of the deceased partner upto the date of death was Rs. 10,000.
e) Rs. 15,400 should be paid immediately to the executor of the deceased partner and the balance in
four equal yearly installments with interest at 12% on remaining balance.
Prepare Z‘s capital account and Z‘s executors account till the account is finally closed.
Particulars
To Drawings
To Z‘s Executor‘s a/c
Rs.
10,000
75,400
Z‘s Capital Account
Particulars
To Balance b/d
To General Reserve
To Profit &Loss Suspense
a/c
Rs.
40,000
10,000
3,000
To Interest on capital
2400
To X‘s Capital a/c
To Y‘s capital a/c
15,000
15,000
85400
85400
Date
Particulars
30/09/07 Bank a/c
31/03/08 Balance c/d
30/09/08 Bank a/c
( 15000+ 7200)
31/03/09 Balance c/d
30/09/09 Bank a/c
(15000+5400)
Balance c/d
Z‘s Executor‘s Account
Rs.
Date
Particulars
15400
30/09/07 Z‘s Capital a/c
31/03/08 Interest on Loan
(on Rs. 60,000@12% for
6 months)
63600
79000
1/04/08
Balance b/d
22,200
30/09/08 Interest on Loan(On Rs.
60,000 @ 12% for 6
months)
47,700
31/03/09 Interest on Loan(on Rs.
45000 @12% for 6
months)
69900
1/04/09
Balance b/d
20,400
30/09/09 Interest on loan(on Rs.
45000 @ 12% for 6
months)
31800
Rs.
75400
3600
79000
63600
3600
2700
69900
47,700
2700
31/03/10
31/03/10
Interest on loan ( on Rs.
30,000@12% for 6
months)
52200
30/09/10 Bank a/c(15000
+ 3600)
31/03/11 Balance c/d
18600
15900
1/4/10
Balance b/d
30/09/10
Interest on loan(on Rs.
30,000 @12% for 6
months)
Interest on Loan(on Rs.
15000 @12% for 6
months)
31/03/11
1800
52200
31800
1800
900
34500
30/09/11 Bank a/c
(15000+1800)
1/04/11
Balance b/d
30/09/11
Interest on loan(on Rs.
15000 @12% for 6
months)
34500
15900
16800
900
16800
16800
CHAPTER-6DISSOLUTION OF PARTNERSHIP FIRM
FORMAT OF REALISATION A/C
Dr.
Cr.
Particulars
Amount
To Sundry Assets A/c ( excluding cash, _
bank, fictitious assets, accumulated
losses, debit balance of Partners’
capital/current a/c, loans to partners)
To Provision on Any Liability A/c
To Bank/Cash A/c(amount paid for
discharging liabilities)
To Bank/Cash A/c (expenses on
realization)
To Partner’s Capital/Current
A/c(liability taken over by a partner
or remuneration/commission paid to
him or any expenses beared by him)
To Partners’ Capital/Current A/c
(profit on realization)
_
_
_
_
Particulars
Amount
By Sundry liabilities A/c (excluding
partners’ capital, loan from partners
reserve, accumulated profit etc.)
_
By Provision on Any Assets A/c
By Bank/Cash A/c (amount received
on realization of assets)
By Bank/Cash A/c (amount received
from unrecorded assets)
BY Partner’s Capital A/c(assets taken
over by a partner recorded or
unrecorded)
By partner’s capital/Current A/c (loss
on realization)
_
TREATMENT OF REALISATION EXPENSES
(a) When Realisation expenses are paid by firm and borne by firm
Realisation A/c
Dr.
To Cash/Bank A/c
(Actual amount)
(b) When expenses are paid by any partner and borne by firm
_
_
_
_
_
Realisation A/c
Dr.
To Partners Capital A/c
(Actual amount)
(c) When expenses are paid by firm and borne by partner
Partners Capital A/c
Dr.
To Cash/Bank A/c
(Actual amount)
(d) When a partner is paid a fixed amount for the purpose of bearing realization expenses and actual
expenses are borne by partner
Realisation A/c
Dr.
To Partner‘s Capital A/c
(amount fixed by firm)
(i)
Partner Loan Account:
The loan advanced by a partner to the firm shall be paid off after all the outside liabilities are
paid in full.
Journal Entry
Partner‘s Loan A/c
Dr.
To Bank A/c
(ii)
Partner’s Capital Accounts:
Balances of partners‘ capital account and current account are recorded in this account.
Any asset of firm, taken over by the partner is recorded on the debit side of their capital account
and any liability taken over is recorded on the credit side of their capital account.
(iii)
CALCULATION OF MISSING FIGURES BY PREPARATION OF MEMORANDUM
BALANCE SHEET:
When Balance sheet is not given but some items of Balance sheet are given then students should
prepare Balance sheet with the help of given items and find out the missing figures as Balancing
amount.
For eg. If liabilities and Capital A/C s are given then the value of assets could be found out as balancing
figure.
TREATMENT OF CERTAIN OF SPECIFIC ITEMS




Deferred Revenue Expenditure/P&L A/c loss/Advertisement Expenditure –
transferred to the Dr. side of Partner‘s capital a/c in profit sharing ratio.
Partner‘s current a/c – Transferred to Dr. side of Capital A/c if given in the assets
side. Transferred to Cr. Side of capital A/c if given in the liabilities side.
P&L A/c (profit), General Reserve – transferred to Cr. Side of Capital A/c in
profit sharing ratio.
Joint Policy Reserve A/c, Investment Fluctuation Fund, Plant and Machinery
replacement reserve, Reserve for discount on Creditors – If Joint policy,
investment, plant and machinery,creditors appears in the B/s then these items will

be transferred to Realisation A/c otherwise these items will be transferred to Cr.
Side of capital A/cs in profit sharing ratio.
Provident fund – It is a liability towards the workers, so it will be transferred to
the Realisation Account and its payment will be made.
Treatment of Firm’s Debts and Private Debts:

Application of Firm's Property: Firm's property shall be applied first in payment of firm's
debts then the surplus, (if any), shall be applied in the payment of partner's private debts to the
extent to which the concerned partner is entitled to share in the surplus.

Application of Partner's Pvt Property: Partner's private property shall be applied first in
payment of his private debts and the surplus, (if any), in payment of firm's debts if the firm's
liabilities exceed the form's assets.
QUESTIONS: (1 MARK)
1. A and B are partners in a firm sharing profit in the ratio 3:2. Mrs A has given a loan of Rs.
10,000 to the firm and the firm also obtains a loan of Rs. 5,000 from B. the firm was dissolved
and its assets were realized for Rs. 12,500. State the order of payment of Mrs. A loan and B‘s
loan with reason if there were no creditors of firm.
Ans. According to sec 48, of the Indian Partnership Act, 1932, MrsA loan of Rs. 10,000 will be
paid first and after that B‘s loan will be paid upto the available cash Rs. 2,500.
2. In case of dissolution of firm which liabilities are to be paid first?
Ans. In case of dissolution of firm the debt of the firm to the third party (outsiders) are to be paid
first.
3.
When an assets are taken over by partner, why is his capital a/c dr.?
Ans.Because the claim of capital a/c is reduced by the value of that assets.
4. When a liability is to be discharged by a partner, why is his capital a/c credited?
Ans. Because the claim of the partner against the firm is increased by the amount of liability
assumed.
(3 MARKS)
5. The firm of Ram and Mohan was dissolved on 1st March 2014. According to the agreement Ram
had agreed to undertake the dissolution work for an agreed remuneration of Rs. 4,000 and bear
all realization expenses. Dissolution expenses were Rs. 3,000 and the same were paid by the
firm. Pass the necessary journal entry for the payment of dissolution expenses.
Ans. (1) Realisation expenses a/c
Dr.
4,000
To Ram‘s Capital A/c
4,000
(2) Ram‘s Capital A/c
Dr.
3,000
To Cash A/c
3,000
6. Give any four points of difference between Dissolution of Partnership and Dissolution of firm.
PRACTICAL PROBLEMS:
7. (FOR BRIGHT STUDENTS) The amount of sundry assets transferred to Realisation A/c was
Rs. 80,000, 60% of them have been sold at a profit of Rs. 2,000. 20% of the remaining were sold
at a discount of 30% and remaining were taken over by Z ( a partner) at book value. Journalise.
Ans.
Bank A/c
Dr.
54,480
To Realisation A/c
54,480
Z‘s Capital A/c
Dr.
25,600
To Realisation A/c
25,600)
8. Record the necessary Journal entry
(a) Creditors worth Rs. 85,000 accepted Rs. 40,000 as cash and investments worth Rs.
43,000, in full settlement of their claim.
(b) Creditors were worth Rs. 16,000. They accepted machinery valued at Rs. 18,000 in
settlement of their claim.
(c) Creditors were worth Rs. 90,000. They accepted buildings valued at Rs. 1,20,000 and
paid cash to the firm Rs. 30,000.
Ans.
(a) Realisation A/c
To Cash A/c
(b) No entry
(c) Cash A/c
To Realisation A/c
JOURNAL
Dr.
40,000
40,000
Dr.
30,000
30,000
(6 MARKS)
9. Pass the journal entry for the following transactions of Aakash and Prakash after the various
assets other than cash and outside liabilities have been transferred to Realisation A/c
(a) Bank loan Rs. 2,40,000 was paid.
(b) Stock worth Rs. 3,20,000 was taken over by Partner Prakash.
(c) Partner Aakash paid a creditor Rs. 80,000.
(d) An Asset not appearing in the books of accounts realized Rs. 2,40,000.
(e) Expenses of RealisationRs. 40,000 were paid by partner Prakash.
(f) Profit of realization Rs. 7,20,000 were distributed between partners in 5:4.
10. Pass the necessary journal entry for the following transaction on the dissolution of the firm of
Sheena and Meena after the various assets other then cash and outside liabilities have been
transferred to Realisation A/c
(a) Sheena agreed to pay off her husband‘s loan Rs. 3,80,000.
(b) A debtor whose debt of Rs. 18,000 was written off in his books was paid Rs. 15,000 in
full settlement.
(c) Meena took over all investment at Rs. 2,66,000.
(d) Sundry creditors Rs. 2,00,000 were paid at 9% discount.
(e) Realisation expenses Rs. 34,000 was paid by Sheena for which she was allowed Rs.
30,000.
(f) Loss on realization Rs. 94,000 was divided between Sheena and Meena in 3:2.
(hint. (e) Realisation A/c
Dr.
30,000
To Sheena‘s capital A/c
30,000)
(8 MARKS)
11. P, Q and R were partners in a firm sharing profits and losses in the ratio of 5:3:2. They agreed to
dissolve thir partnership firm on 31st March 2014. P was deputed to realize the assets and pay
the liabilities. He was paid Rs. 2,000 as commission for his services. The financial position of
the firm was as follows:
Balance Sheet
As on 31st March, 2014
Amount
Liabilities
Amount Assets
Creditors
Bills Payable
Investment Fluctuation Fund
Capitals:
P
75,000
Q
30,000
20,000
7,400
9,000
Plant and Machinery
Stock
Investments
Accounts Receivable
Less:
1,05,000 Cash
R’s Capital
1,41,500
60,000
10,100
30,000
14,200
9,00
13,300
11,200
16,000
20,00,000
P took over investments for Rs. 25,000. Stock and debtors were realized Rs. 23,000. Plant
and Machinery were sold to Q for Rs. 45,000 for cash. Unrecorded assets realized for Rs.
3,000. Reaisation expenses paid Rs. 1,800.
Prepare necessary Ledger Accounts to close the books of the firm.
(Ans. Loss on Realisation – Rs. 13,100)
12. Ram, Mohan and Sohan are partners sharing their profits and losses in the ratio of 5:3:2. On 31st
March 2014, Ram‘s capital and Mohan‘s Capital were Rs. 1,80,000 and Rs. 1,20,000
respectively. But Sohan owed Rs. 30,000 owed Rs. 30,000 to the firm. The Creditors were of
Rs. 1,20,000. The assets realized Rs. 3,00,000.
Prepare Realisation Account, Partner‘s Capital Accounts and Bank Account.
Solution:
Dr.
PARTICULARS
REALISATION ACCOUNT
Amount PARTICULARS
To Sundry Assets A/c (W/N)
To Bank A/c – Creditors
Cr.
Amount
3,90,000 By Creditors
1,20,000 By Bank A/c – Assets Realised
BY Loss tr. To
Ram’s Capital A/c
45,000
Mohan’s Capital A/c
27,000
Sohan’s Capital A/c
18,000
1,20,000
3,00,000
5,10,000
5,10,000
Dr.
PARTICULAR
S
PARTNER‘S CAPITAL ACCOUNT
Ram
Mohan Sohan PARTICULARS
Rs.
Rs.
Rs.
To bal. b/d
To real. A/c
(loss)
To Bank A/c
(amount
paid)
----45,000
----27,000
30000
18000
135000
93000
-----
180000
120000
48000
By bal. c/d
By Bank A/c
(Amount
received)
Ram
RS
Cr.
Mohan
Rs.
90,000
Sohan
Rs.
180000
120000
----48000
180000
120000
48,000
BANK ACCOUNT
Dr.
PARTICULARS
To Realisation A/c – Assets
realized
To Sohan’s capital A/c –
amount received
Cr.
Amount
PARTICULARS
Amount
3,00,000
By Realisation A/c – Creditors
By Ram’s Capital A/c – Amount
paid
By Mohan’s Capital A/c –
Amount paid
1,20,000
1,35,000
48,000
3,48,000
93,000
3,48,000
WORKING NOTE:
Dr.
LIABILITIES
MEMORANDUM BALANCE SHEET
Amount
ASSETS
Creditors
Capital A/cs
Ram
Mohan
1,20,000
1,80,000
1,20,000
Sohan’s Capital
Sundry Assets (B.f.)
3,00,000
4,20,000
Cr.
Amount
30,000
3,90,000
4,20,000
13. A and B were partners from 1st April 2014 with capitals of Rs. 600,000 and Rs. 400,000
respectively. They shared profits in the ratio of 3:2. They carried on business for two years. In
the first year ended 31st March, 2013,they earned a profit of Rs. 500,000 but in the second year
ended 31st March 2014 a loss of Rs. 200,000 was incurred . As the business was no longer
profitable, they dissolved the firm on 31st March, 2014, creditors on that date were Rs. 20,0000.
The partners withdrew for personal use Rs. 80,000 per partner per year. The assets realized Rs.
1,00,0000. The expenses of realization were Rs. 30,000.
Prepare Realisation Account, Partner‘s Capital Account and Cash Account.
(Ans. Realisation loss – Rs. 2,10,000, Sundry Assets – Rs. 1,18,000)
CHAP-SHARE CAPITAL
Q-1.
E Ltd. Had allotted 10,000 shares to the applicants of 14,000 shares on pro-rata basis. The
amount payable on application was Rs. 5.F applied for 420 shares. What will be the number of shars
allotted and the amount carried forward for adjustment against allotment money due from F in case of
pro-rata allotment?
1
Shares Allotted 300;Amount adjusted against allotment Rs 240.
Q-2.
State two essential features of a Private company
1.
Two essential features of a private company are :
(i)
It restricts the right to transfer its shares.
(ii)
It limits the number of its members to 200 (exclusive of past and present employees).
Q-3. Rajdhani Ltd., issued 50,000 shares of Rs. 10 each at a premium of 10% payable as Rs. 2 per share
on application, Rs. 3 on allotment and Rs. 3 each on first and final call. Applications were received
for 70,000 shares. It was decided that :
(a)
Refuse allotment to the applicants for 10,000 shares
(b)
Allot 20,000 shares to Mohan who had applied for similar number and
(c)
Allot the remaining shares on pro-rata basis.
Mohan failed to pay the allotment money and Sohan whho belonged the category ‗C‘ and was
allotted 3,000 shares paid both the calls with allotment. Calculate the amount received on
allotment.3
Q-4. (a) Amrit Ltd. Has a paid up share capital of Rs. 10 Crore and a balance of Rs. 2 Crore in
Securities Premium Acount. The company management do not want to carry over this balance.
State the purposes for which this balance can be utilised.
4
Q-5 .Star Ltd. Was registered with a capital of Rs. 4, 00,000 in shares of Rs. 100 each. It issued 2,000 of
such shares payable Rs. 25 per share on application; Rs. 25 on allotment; Rs. 20 on first call, and
the balance as and when required.
All moneys payable on application and allotments were duly received; but when the first call of
Rs. 20 per share was made, one shareholder holding 100 share failed to pay the amount due and
another shareholder holding 200 shares paid them in full.Record these transactions in the journal
and also show the Share Capital in the Balance Sheet of Star Ltd.
8
JOURNAL OF STAR LTD.
DATE
Particulars
Bank A/c
To Share Application A/c
(Application money received)
Share Application A/c
To Share Capital A/c
(Application money transferred to Share Capital A/c)
Dr.
L.F Dr.
amount
Rs.
50,000
Cr.
amount
Rs.
50,000
Dr.
50,000
50,000
Share Application A/c
Dr.
To Share Capital A/c
(Allotment due)
Bank A/c
Dr.
To Share Allotment A/c
(Allotment money transferred)
Share First Call A/c
Dr.
To Share Capital A/c
(First call due on 2,00 shares @ Rs. 20 per share)
Bank A/c
Dr.
To Share First Call A/c
To calls in advance A/c
(First calls received on 1,900 shares @Rs.20 per share;plus
second call received in advance on 200 shares @ Rs.30 per
share)
50,000
Calls-in-Arrears A/c
To Share First Call A/c
(Calls-in-Arrears brought into account)
2,000
50,000
50,000
50,000
40,000
40,000
44,000
38,000
6,000
Dr.
2,000
Note: Last two entries may also be combined.
EXTRACT OF BALANCE SHEET OF STAR LTD.
As at…….
Particulars
I.
EQUITY AND LIABILITIES
Shareholder‘s Funds:
Share Capital
Note
No.
Current
year
Rs.
1
1,38,000
Previous
year
Rs.
-
Note to Accounts:
(1) Share Capital
Authorised Capital:
4,000 shares of Rs.100 each
4,00,000
Hint
: In
Issued Capital:
2,000 shares of Rs. 100 each
2,00,000
this
que
Subscribed but not fully paid capital:
2,000 shares of Rs. 100 each Rs. 70 called up
Les: Calls in arrears
1,40,000
2,000
second call is not made by directors, hence the entries are to be
stio
1,38,000
n
Q-6. Why would an investor prefer to invest in the Debentures of a Company rather than in its Shares?
(i)
Intrest on debentures is payable irrespective of the company making a profit or incurring a loss
whereas dividend on shares in paid only when the company makes profit.
(ii)
Debentures are mostly secured whereas a share is always unsecured.
Q-7. B Ltd. Forfeited 300 shares of Rs. 100 each, Rs. 70 called up, for non-payment of first call of Rs.
20 per share. Out of these, 200 shares were reissued for Rs. 60 per share as Rs. 70 paid up. What is
the amount to be transferred to Capital Reserve Account?
1
Rs. 8,000
Q-8.R. K. Ltd. invited applications for issuing 70,000 Equity Shares of Rs. 10 each at a premium of Rs.
35 per share. The amount was payable as follows :
On Application
Rs. 15 (including Rs. 12 premium)
On Allotment
Rs. 10 (including Rs. 8 premium)
On First and Final Call
Balance
Applications for 65,000 shares were received and allotment was made to all the applicants. A
shareholder, Ram, who was allotted 2,000 shares, failed to pay the allotment money. His shares were
forfeited immediately after allotment. Afterwards, the first and final call was made. Sohan, who had
3,000 shares, failed to pay the first and final call. His shares were also forfeited. Out of the forfeited
shares, 4,000 shares were re-issued at Rs. 50 per share fully paid up. The re-issued shares included all
the shares of Ram.
Pass necessary journal entries for the above transactions in the books of R. K. ltd. 8
In the Books of R.K. Ltd.
JOURNAL
Date Particulars
Bank A/c
L.f
Dr.
To equity share application A/c
(application money received on 65,000 shares @ Rs15 per
Dr. amount
Cr. amount
9,75,000
9,75,000
share)
Equity share application A/c
Dr.
9,75,000
To equity share capital A/c
1,95,000
To securities premium reserves A/c
7,80,000
(transfer of application money)
Equity share allotment A/c
Dr.
6,50,000
To equity share capital A/c
1,30,000
To securities premium reserves A/c
5,20,000
(allotment money due on 65,000 shares @Rs10 per share)
Bank A/c
Dr.
6,30,000
Equity share allotment A/c
6,30,000
(allotment money received on 63,000 shares)
Equity share capital A/c (2,000 × Rs.5)
Dr.
10,000
Securities premium A/c(2,000 × Rs.8)
Dr.
16,000
To equity share allotment A/c(2,000 × Rs10)
20,000
To forfeited shares A/c(2,000 × Rs3)
6,000
(2,000 shares forfeited due to non-payments of allotment
money )
Equity share First &final call A/C
Rs20)
(63,000 ×
Dr.
12,60,000
To equity share capital A/c (63,000 × Rs5)
To securities premium reserve A/c
Rs15)
3,15,000
(63,000 ×
9,45,000
(amount due on first and final call)
Bank A/c
To equity share first & final call A/c
(first & final call received on 60,000 shares)
Dr.
12,00,000
12,00,000
Equity share capital A/c
securities premium reserve A/c
30,000
Dr.
Dr.
45,000
To Equity share First &final call A/C
60,000
To forfeited shares A/c
15,000
(3,000 shares forfeited)
Bank A/c
Dr.
2,00,000
To Equity share capital A/c
40,000
To securities premium reserve A/c
1,60,000
(4,000 forfeited shares re issued)
Forfeited share A/c
Dr.
16,000
To capital Reserve A/c
16,000
(profit on re issued shares transferred to capital reserve)
Note (1): calculation of capital reserve
Amount forfeited on Ram‘s shares
Amount forfeited on sohan‘s shares
= 6,000
=Rs.15,000×2,000
= 10,000
3,000
Profit on re issue transferred to capital reserve
Q-9.
=
16,000
D Ltd. purchased Machinery for Rs. 10,00,000 and a Motor Van for Rs. 5,00,000 from E Ltd.
on 1-1-2012, Rs. 3,60,000 were paid immediately and the balance was paid by issue of 9,500
fully paid equity shares of Rs. 100 each. Pass the necessary Journal entries for recording the
transactions in the books of D Ltd.
.
4
JOURNAL OF LTD.
Date
Particulars
L.F
Dr.
amount
Cr.
amount
2012
Jan 1
Jan 1
Jan 1
Q-10.
Rs.
10,00,000
5,00,00
Machinery A/c
Dr.
Motor van A/c
Dr.
To E Ltd
(machinery& motor van purchased from E Ltd.)
Rs.
15,00,000
E Ltd
To bank A/c
(part payment made in cash)
E Ltd
To equity share capital A/c
To securities premium reserve A/c
(balance amount of Rs. 11,40,000 settled by the
issue of 9,500 equity shares of Rs. 100 each)
3,60,000
3,60,000
11,40,000
9,50,000
1,90,000
C Ltd. forfeited 1,000 shares of Rs. 100 each issued at par. On these shares the first call of Rs.
30 per share was not received and the final call of Rs. 20 per share was yet to be called. Out of
these, 60 shares were subsequently re-issued Rs. 80 paid up at a price that Rs. 27,000 was
transferred to Capital Reserve.
Give journal entries to record the forfeited and re-issue of shares and open share forfeited
account in the books of C Ltd.
4
IN THE BOOKS OF C‘ LTD.
JOURNAL
Date
Particulars
share capital A/c (1,000 × Rs. 80)
Dr.
To share first call A/c (1,000 × Rs. 30)
To forfeited shares A/c (1,000 × Rs. 50)
(1,000 shares forfeited due to non payment of
first call)
Bank A/c (600× Rs.75)
Dr.
Forfeited shares A/c(600× Rs.80)
Dr.
To share capital A/c (600× Rs.80)
(600 shares re issued at Rs. 75 per share Rs.80
paid up)
L.F
Dr.
amount
Rs.
80,000
Cr.
amount
Rs.
30,000
50,000
45,000
3,000
48,000
Forfeited shares A/c
Dr.
To capital reserve A/c
(profit on re issued transferred to capital reserve
A/c)
Dr.
27,000
FOREFIETED SHARES ACCOUNT
Date
Particulars
To share capital A/c
To capital reserve
A/c
To balance c/d
J.
F
Rs.
3,000
27,000
20,00
Date
Particulars
By share capital A/c
50,000
Working note:
27,000
Cr.
J.F Rs.
50,000
50,000
Rs.
Profit on 600 forfeited shares = 50,000 × 600 =
30,000
1,000
Less: transfer to capital reserve
Loss in reissue
27,000
3,000
Loss on reissue per share = 3,000 ÷ 600 = Rs. 5
Hence, reissue price = Rs.80 – Rs.5 = Rs.75
Since interest on capital is always calculated on opening capitals and the same have
Q-11.
Ganga Ltd. issued 60,000 shares of Rs. 10 each at a premium of 20% payable as follows : On
Application Rs. 5 *(including premim) : On Allotment Rs. 3; and on First and Final call Rs. 4.
The Company received applications for 75,000 shares and allotment was made as follows :
List I
Applicants for 40,000 shares were allotted in full.
List II
Applicants for 25,000 shares were allotted 20,000 shares.
List III
Applicants for 10,000 shares were allotted Nil Shares.
A Shareholder to whim 200 shares were allotted under List I paid full amount due on shares
alongwith money. Another shareholder holding 600 shares failed to pay subsequently re-issued
as fully paid @ Rs. 11 per share.
Expenses of issue came to Rs. 20,000 which were fully written off against securities premium
A/c.
Pass journal entries and show the ‗Share Capital‘ in the balance sheet of Ganga Ltd. 8
Ganga Ltd.
JOURNAL
Particulars
Date
Bank A/c
Dr.
To share application A/c
(application money received on 75,000 shares)
Shares application A/c
Dr.
To share capital A/c
To securities premium A/c
To share allotment A/c
To bank A/c
(application money transferred)
Share allotment A/c
Dr.
To share capital A/c
(allotment due on 60,000 share @ Rs. 3 per share)
Bank A/c
Dr.
To share allotment A/c
To calls in advance A/c
(receipt of allotment money:
60,000 shares@ Rs.3
1,80,000
Less: already received alongwith application
25,000
1,55,000
Add: received in advance on 200 shares @Rs.4
800
1,55,800
Share first &final call A/c
Dr.
To share capital A/c
(first & final call due on60,000 shares @Rs. Per share)
Bank A/c
Dr.
calls in advance A/c
Dr.
To share first & final call A/c
(receipt of first and final call except on 600 shares @Rs. 4)
l.f
Dr.
Amount
Rs.
3,75,000
Cr.
Amount
Rs.
3,75,000
3,75,000
1,80,000
1,20,000
25,000
50,000
1,80,000
1,80,000
1,55,800
1,55,000
800
2,40,000
2,40,000
2,36,800
800
2,37,600
6,000
2,400
3,600
share capital A/c
Dr.
To share first & final call A/c
To share forfeiture A/c
(forfeiture of 600 shares for non-payment of first and final
call)
Bank A/c
Dr.
To share capital A/c
To securities premium reserve A/c
(re-issued shares transferred to capital reserve)
Share forfeiture A/c
Dr.
To capital reserve A/c
(profit on 500 re-issued shares transferred to capital
reserve)
Share issue expenses A/c
Dr.
To bank A/c
(expenses incurred on issue of shares)
Securities premium a/c
Dr.
To share issue expense A/c
(share issue expenses written off against securities
premium reserve)
5,500
5,000
500
3,000
3,000
20,000
20,000
20,000
20,000
EXTRACT OF BALANCE SHEET OF GANGA LTD.
As at……
Particulars
I.
EQUITY AND LIABILITES
Shareholder‘s funds:
(a) Share capital
Notes to accounts:
Note Current
no.
year
Rs.
1
5,99,600
Rs.
(1) Share capital :
Authorized:
Issued:
60,000 shares of Rs.10 each fully paid
Previous
year
Rs.
……
------6,00,000
Rs.
Subscribed & fully paid:
59,900 shares of Rs. 10 each fully paid
Add: share forfeiture A/c
Note (2) profit on 600 shares
Hence, profit on 500 shares
5,99,600
59,9000
600
= Rs.3,600
= Rs. 3,600 ×500 = Rs. 3,000
600
Note (3) profit on the forfeiture of 600 shares is Rs. Rs.3,600 out of this amount profit on the re-issue of
500 shares Rs. 3,000 has been transferred to capital reserve. The balance of Rs.600 will be shown on the
equity and liabilities side of the balance sheet under the head ‗share capital‘.
Q-12. Pragya Ltd. invited applications for 10,000 shares of Rs. 100 each at a premium of Rs. 10
each
payable as follows :
Rs. 50 per share on Application
Rs. 35 per share on Allotment and
Balance on first and final call
Applications for 16,500 shares were received. Applications for 4,000 shares were rejected and
allotment was made on pro-rata basis to the remaining applicants,
Ankur who had applied for 250 shares failed to pay the amount due on allotment and call.
Company forfeited his shares. Later on out of the forfeited shares company reissued 100 shares
at Rs. 105 per share fully paid up.
Pass necessary Journal Entries in the books of Pragya Ltd.
8
journal of pragya ltd.
Date
Particulars
Bank A/c
To share application A/c
(application money received for 16,500 shares)
Dr.
L.F Dr.
amount
Rs.
8,25,000
Cr.
amount
Rs.
8,25,000
share application A/c
Dr.
To share capital A/c
To Bank A/c
To share allotment A/c
(application money adjust and surplus refunded)
share allotment A/c
Dr.
To share capital A/c
To securities premium A/c
(allotment money due)
Bank A/c
Dr.
To share allotment A/c
(allotment money received except on 200 shares (note 1)
Share first and final call a/c
Dr.
To share capital A/c
(call money due on 10,000 shares)
Bank A/c
Dr.
To Share first and final call a/c
(call money received except on 200 shares)
Share capital A/c (200×Rs.100)
Dr.
Securities premium A/c
To share allotment A/c
To share first and final call A/c
To forfeited shares A/c
(200 shares forfeited due to non-payment of allotment and
call money)
Bank A/c
Dr.
To share capital A/c
To securities premium A/c
(100 shares re-issued at Rs.105 per share fully paid up)
Forfeited shares A/c
Dr.
To capital reserve
(transfer of profit on re-issue of 100 shares)
8,25,000
5,00,000
2,00,000
1,25,000
3,50,000
2,50,000
1,00,000
2,20,500
2,20,500
2,50,000
2,50,000
2,45,000
2,45,000
20,000
2,000
4,500
5,000
12,500
10,500
10,000
500
6,250
6,250
Working note:
(1) (A) No. of shares allotted to Ankur = 10,000 ×250 = 200 shares
12,500
Excess application money received from ankur
= 250 shres-200 shares
= 50 shares×Rs. 50 = Rs.2,500
Rs.
(B) allotment money due from ankur (200×Rs.35)
7,000
Less: excess application money received from ankur2,500
Allotment money dur not received from ankur4,500
(b)Total amount due on allotment (10,000 ×Rs. 35)
3,50,000
Less: allotment money already received on application stage
1,25,000
2,25,000
Less: allotment money due but not received from Ankur4,500
,
2,20,500
(2)calculation of amount to be transferred to capital reserve:
Amount forfeited on re-issued shares (12,500× 100/200)
6,250
Less: re –issued discount
NIL
Profit on re-issue to be transferred to capital reserve:
6,250
Q.13x Ltd. has its share capital divided into shares of Rs. 10 each. On 1 st April, 2014 it granted 10,000
employees stock options at Rs. 40, when the market price was Rs. 130. The options were to be
exercised between 15th March, 2015 and 31st March, 2015. The employees exercised their options
for 9,000 shares only, the remaining options lapsed. The company closes its books on 31st March
every year. Pass entries.
4
Solution:
.
X Ltd.
JOURNAL ENTRIES
Date
Particulars
L.F.
Dr.
Cr.
Amount
Amount
15th
March
2015
To 31st
Bank A/c
(9,000 × Rs. 40 )
Dr.
3,60,000
Employee Compensation Expenses A/c
8,10,000
( 9,000 × Rs. 90 )
Dr.
March
To Equity Share Capital A/c
2015
( 9,000
× 10 )
90,000
10,80,000
To Securities Premium Reserve A/c ( 9,000 ×
120 ) ( Allotment to employees of 9,000 equity
shares of Rs. 10 each at apremium of Rs. 120 per
share in exercise of stock options by employees )
31st
Statement of profit and loss
March
Dr.
8,10,000
To Employee Compensation Expense A/c
2015
8,10,000
(Transfer of employee compensation expanses to
Statement of profit & loss)
CHAPTER-DEBENTURES.
Q-1.Yashraj Ltd. Has 40,000, 9% Debentures of Rs. 100 each due for redemption on 31 st March
2015. Assume that Debenture Redemption Reserve has a balance of Rs. 7, 20,000 on that date. It
was decided to invest the required amount towards Debenture Redemption Investment.
Investments were realized at 102% less 0.25% brokerage and debentures were redeemed. Record
the necessary entries.
3
BOOKS OF YASHRAJ LTD.
DATE
2014
april 30
2015
March 31
PARTICULAR
L.
F.
Dr.(Rs.)
Debenture redemption investment A/c
Dr.
To bank A/c
(investment made @ 15% of the face value of
debentures to be redeemed)
6,00,000
bank A/c
Dr.
To Debenture redemption investment A/c
To profit on sale of investment A/c
(Investmentencashed at 102% less brokerage
0.25%)
6,10,470
Cr.(Rs.)
6,00,000
6,00,000
10,470
March 31
profit on sale of investment A/c
To statement of profit & loss
(transfer of profit on sale of investment)
March 31
Dr.
10,470
Surplus in statement of profit & loss
Dr.
To debenture redemption reserve A/c
(transfer of profits as per SEBI guidelines)
9% debentures A/c
Dr.
To Debenture holders A/c
(amount due to redemption)
March 31
Debenture holders A/c
To bank A/c
(Payment of amount due to debenture holders)
March 31
Debenture redemption reserve A/c
Dr.
To general reserve A/c
(transfer of Debenture redemption reserve A/c
To general reserve A/c on the redemption of all
the debentures)
March 31
10,470
2,80,000
2,80,000
40,00,000
40,00,000
40,00,000
40,00,000
10,00,000
10,00,000
Working note :
RS.
(1) 102% of RS.6,00,000
Less : 0.25% of Rs.6,12,000
6,10,470
(2) Total amount required for transfer to
Debenture redemption reserve = 25% of 40,00,000
Less: existing balance
Amount now required to be transferred to debenture
Redemption reserve
6,12,000
1,530
Rs.
= 10,00,000
= 7,20,000
2,80,000
Q-2.Suruchi Garmets Ltd. Purchased for immediate cancellation 5,000, 10% debentures of Rs. 250 each
for Rs. 12,00,000. Brokerage paid @ 0.5% pass necessary journal entries
DATE
PARTICULARS
Own Debentures A/C
To Bank A/C
(Purchase of 5,000 own debentures)
L.F
Dr.
Dr. AMOUNT
3
Cr. AMOUNT
12,06,000
12,06,000
10% debentures A/C
Dr.
To own Debentures A/C
To profit on redemption of debentures A/C
(cancellation of 5,000 own debentures)
12,50,000
Profiton Redemption of Debentures A/C
Dr.
To Capital Reserve A/C
(profits on cancellation of own debentures credited
to capital reserves)
44,000
12,06,000
44,000
44,000
Q-3. Z ltd. Took over assets of Rs. 7,00,000 and liabilities of Rs. 60,000 of x Ltd. For a purchase
consideration of Rs. 6,60,000. Z Ltd. Paid the purchase consideration by issuing 12% debentures
of Rs. 100 each at 10% premium.
Give Journal entries in the books of Z Ltd.
3
JOURNAL OF Z LTD.
Particulars
D
a
t
e
Sundry Assets A/c
L.F.
Dr.
7,00,000
Goodwill A/c
Dr.
20,000
1.
To Sundry Liabilities A/c
To X Ltd.
(Purchase of assets and liabilities of X Ltd.)
Dr.
Cr.
Amount
Amount
60,000
6,60,000
X Ltd.
Dr.
6,60,000
To 12% Debentures A/c
6,00,000
To Securities Premium A/c
60,000
( Issue of 6,000 Debenture of Rs.100 each at 10%
premium,
Calculated as follows :
660000/110
= 6,000 Debentures )
Q-4.
X Ltd., decided to redeem Rs. 5,00,000, 8% debentures on 31st March 2015. On the same
date in purchased Rs. 4,00,000 debentures in open market at Rs. 98.50 each. The expenses being
Rs. 1,500 and redeemed the balance of Rs. 1, 00,000 debentures by draw of lots. Journalise.
3
X Ltd.
JOURNAL
Date
2014
April 30
Particular
Debenture Redemption Investment Ac
L.F. Dr. Amount
Dr.
To Bank A/c
Rs.
March 31
Bank A/c
75,000
Dr
To debenture Redemption Investment A/c
75,000
(Investment encashed ).
March 31 Own Debenture A/c
Rs.
75,000
(Investment made @ 15% of the face value of
debentures to be redeemed )
2015
Cr. Amount
75,000
Dr.
3,95,500
To Bank A/c
3,95,500
(4,000 debentures
purchased
for immediate
cancellation at Rs. 98.50 each plus Rs. 1,500 paid for
expanses )
March 31 8% Debentures A/c
To Own Debentures A/c
Dr.
4,00,000
3,95,500
To Profit on Redemptiom of Debenture A/c
4,500
(Cancellation of 4,000 debentures )
March
8% Debentures A/c
31
Dr.
1,00,000
To debenture holder A/c
1,00,000
(Payment due on redemption of debentures
By drawing lot )
March
Debenture holders A/c
31
Dr.
1,00,000
To Bank A/c
1,00,000
(Payment made to debetureholders )
March
Profit on redemption of Debentures A/c
31
Dr.
4,500
To capital Reserve A/c
4,500
(Profit on Redemption transferred to Capital
Reserve A/c ).
Notes : Entries for debenture Redemption Investment should be passed when in addition to
Purchase in the open market debentures are redeemed by draw of lots.
Q-5. What entry may be passed when debentures are issued as Collateral Security?
1. Debentures suspense A/c
To debentures A/c
1
Dr.
(debentures issued as collateral security)
Q-6. Madhu Ltd. issued 5,000, 9% Debentures of Rs. 1,000 each on April 1, 2012 redeemable at a
premium of 8% after 10 years. According to the terms of prospectus Rs. 400 is payable on
application and balance on allotment of debentures. Record necessary entries regarding issue of
debentures.
3
Books of Madhu Ltd.
JOURNAL
Date
Particular
L.F
Dr.
Cr.
2012
April 1
amount
amount
Rs.
Rs.
20,00,000
20,00,000
Bank A/c
Dr.
To 9%debenture application A/c
(application money received on 5,000
debentures @ Rs. 400 each)
9% Debenture Application A/c
Dr.
To 9% Debentures A/c
(application money transferred to 9%
Debentures A/c
Consequent to allotment)
9% Debenture allotment A/c
Dr.
Loss on issue of Debentures A/c
Dr.
To 9% Debentures A/c
To premium on redemption A/c
(allotment due @ Rs. 600 each on 5,000
debentures issued at par, redeemable at 8%
premium)
Bank A/c
To 9% Debenture allotment A/c
(allotment money received)
20,00,000
20,00,000
30,00,000
4,00,00
30,00,000
4,00,00
30,00,000
Dr.
30,00,000
Q-7. Dhariwal Ltd. had issued 40,000, 11% Debentures of Rs. 100 each which are due for redemption
on March 31st 2015. It was decided to invest the required amount Redemption Reserve Account a
balance of Rs. 3, 10,000. Record the necessary journal entries at the time of Redemption of
Debentures.
3
Books of Dhariwal Ltd.
JOURNAL
Date
Particulars
Dr. (Rs.)
Cr. (Rs.)
L.F
2014
April 30
Debenture redemption investment A/c
Dr.
To bank A/c
(investment made @ 15% of the face value of
Debentures to be redeemed i.e. 15% of Rs. 40,00,000)
6,00,000
6,00,000
2015
March 31
March 31
March 31
March 31
Bank A/c
Dr.
To debenture redemption investment A/c
(investment encashed)
Surplus in statement of profit and loss
Dr.
To debenture redemption reserve A/c
(transfer of profit to Debenture redemption reserve)
11% Debenture holders A/c
Dr.
To debentureholders A/c
(amount due to debenture holders on redemption of
debentures)
Debentureholders A/c
Dr.
To bank A/c
(payment of amount due to debentureholders)
6,00,000
6,00,000
6,90,000
6,90,000
40,00,000
40,00,000
40,00,000
40,00,000
Notes:
(1) Total amount required for transfer to debenture redemption
Reserve = 25% of Rs. 40,00,000
Less: Existing Balance
Amount now required to be transferred to Debenture
Redemption reserve
Rs.
10,00,000
3,10,000
6,90,000
(2) Debenture redemption reserve will be transferred to General Reserve when all debentures are
redeemed.
Q.8 Pass the necessary journal entries form the following cases for issue of debentures.
(i) 10000, 10% debentures of Rs. 120 each issued at 5% premium, repayable at par.
(ii) 20,000, 9% Debentures of Rs. 200 Each issued at 20% premium, repayable at 30% premium.
Date Particular
L.F.
Dr. Rs.
Cr. Rs.
(i)1. Bank A/c Dr
1260000
To 10%debentures app and allot ac
1260000
2
10%debentures app and allot ac Dr.
1260000
To 10% Debentures ac
1200000
To security prem res ac
60000
(ii)1. Bank A/c Dr.
4800000
To 9% Debentures app and allot ac
4800000
2.
9% Debentures app and allot ac Dr.
4800000
Loss on issue of debentures ac Dr.
1200000
To 9% Debentures Ac
4000000
To Security prem res. Ac
800000
To Prem on red on debentures ac
1200000
PART II
CHAPTER 1
FINANCIAL STATEMENTS OF A COMPANY
Questions:
(1) Under which head and sub-head of Equity and Liabilities are following items shown in a
company‘s Balance Sheet as per Schedule VI?
(i) Debentures
(i) Public Deposits
(ii) Securities Premium reserve
(iii)Capital Reserve
(iv) Forfeited Shares Account
(v) Interest Accrued and due on Debentures
(2) Under which main heads and sub-heads of Equity and Liabilities re the following itmes
shown in the Balance Sheet of a company as per schedule VI:
(i) Unclaimed Dividend
(ii) Calls-in-arrear
(iii)Calls-in-advance
(iv) Interest Accrued but not due on debentures
(v) Arrears of fixed cumulative preference dividends
(vi) Sundry creditors
(3) Under which head following revenue items of a non-financial companies will be shown:
(i) Interest Earned
(ii) Dividend
(iii)Profit on sale of Asset
(iv) Refund of Income Tax
Solution:
Revenue from Operations: Interest Earned and Dividend
Other Income: Profit on Sale of Asset and Refund of Income Tax.
(4) Under which head following revenue items of a non-financial companies will be shown:
(i) Sales
(ii) Sale of Scrap
(iii) Interest Earned (iv) Dividend
Solution:
Revenue from Operations: Sales and Sale of Scrap
Other Income: Interest Earned and Dividend
(5) Calculate Revenue from Operations, other Income and Total Revenue for a non-financial
company from the following information:
Sales Rs. 52,00,000; Sales Return Rs. 2,00,000; Sale of Scrap Rs. 25,000; Interest on
Fixed Deposits Rs. 30,000; Dividend Earned Rs. 10,000.
Solution:
Particulars
I Revenue from operations
Sales
Less: Sales Return
Sale of Scrap
II Other Income
Interest on Fixed Deposits
Dividend
Rs.
52,00,000
2,00,000
30,000
10,000
Rs.
50,00,000
25,000
50,25,000
40,000
50,65,000
Total Revenue (I+II)
(6) Under which main heads and sub-heads of Equity and Liabilities re the following itmes
shown in the Balance Sheet of a company as per schedule VI:
(i) Mortgage Loan
(ii) Investments
(iii)Bills receivable
(iv) Patents
(v) General reserve
(vi) 10% Debentures
(7) Under which main heads and sub-heads of Equity and Liabilities re the following itmes
shown in the Balance Sheet of a company as per schedule VI:
(i) Bills receivable
(ii) Long-term investments
(iii)Pre-paid insurance
(iv) Buildings
(v) Sundry debtors
(vi) Share of reliance ltd. Deposit with custom authorities.
(8) Under which main heads and sub-heads of balance sheet of a company.
I.
Calls in Arrears
II.
Debentures
III.
Commission receive in advance
IV.
Stores and spare parts
V.
Land and Building
VI.
Forfeited Share account
CHAPTER-2
FINANCIAL STATEMENT ANALYSIS
Questions 1 Mark
1.
2.
3.
4.
5.
6.
7.
8.
What is meant by Analysis of Financial Statement?
What is Horizontal Analysis?
What is Vertical Analysis?
Why are creditors interested in analyzing financial statement?
How is the financial statement analysis useful to finance manger?
State any one objective of financial statement analysis?
State any one limitation of financial statement analysis
Name two parties interested in Financial statement Analysis
CHAPTER -3
TOOLS OF FINANCIAL STATEMENT ANALYSIS COMPARATIVE STATEMENT AND COMMON SIZE STATEMENT
Question: from the following Balance Sheets of Y ltd. As at 31st March, 2014 and 2013 prepare a
Comparative Balance Sheet:
Particulars
Note
No.
I EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital
2. Non-Current Liabilities
i. Long-Term Borrowings
3. Current Liabilities
i. Trade Payables
Total
II. ASSETS
2. Non-Current Assets
(a) Fixed Assets
(i)Tangible Assets
3. Current Assets
Previous
Year
A
Current
Year
B
9,00,000
6,00,000
3,00,000
3,00,000
3,00,000
1,50,000
15,00,000
10,50,000
9,00,000
7,50,000
i. Trade Receivables
ii. Cash and Cash Equivalents
5,00,000
1,00,000
2,50,000
50,000
15,00,000
10,50,000
Total
SOLUTION:
Exe ltd.
COMPARATIVE BALANCE SHEET
As at 31st march 2013 and 2014
Particulars
I EQUITY AND LIABILITIES
1. Shareholders‘ funds
Share Capital:
Equity Share Capital
2. Non-current liabilities
Long-term borrowings
Secured loan- 8% debentures
3. Current Liabilities
Trade Payables
Total
II ASSETS
1. Non-Current Assets
Fixed Assets (Tangible)
2. Current Assets
(a) Trade Receivables
(b) Cash and Cash Equivalents
Total
Note
No.
31st march
2013
(A)
31st march
2014
(B)
Absolute
Change
(C= B-A)
%ge
Change
(D =
C/AX100)
6,00,000
9,00,000
3,00,000
50%
3,00,000
3,00,000
-
-
1,50,000
3,00,000
1,50,000
100%
10,50,000
15,00,000
4,50,000
42,86%
7,50,000
9,00,000
1,50,000
20%
2,50,000
50,000
10,50,000
5,00,000
1,00,000
15,00,000
2,50,000
50,000
4,50,000
100%
100%
42.86%
Question: Prepare Comparative Statement of Profit and loss from the following:
Particulars
31st March 2012
31st March 2011
Revenue from Operations
15,00,000
10,00,000
Expenses
10,50,000
6,00,000
Other Income
1,80,000
2,00,000
COMPARATIVE STATEMENT OF PROFIT AND LOSS
For the years ended 31st march, 2013 and 2014
Particulars
Note
No.
I.
31st March
2013
10,00,000
2,00,000
31st March
2014
15,00,000
1,80,000
Absolute
Change
5,00,000
(20,000)
%ge
Change
50%
(10)
II.
Revenue from
Operations
Other Income
III.
Total Revenue (I+II)
12,00,000
16,80,000
4,80,000
40%
IV.
Expenses
6,00,000
10,50,000
4,50,000
75%
V.
Profit before Tax (IIIIV)
6,00,000
6,30,000
30,000
5%
Question: from the following details of Star ltd. For the years ended 31 st March 2012 and 2011,
prepare a common-size statement of Profit and loss:
Particulars
31st March2014
31st March 2013
Revenue from operations
10,00,000
8,00,000
Employees benefit expenses
5,00,000
4,00,000
Other expenses
50,000
1,00,000
Solution:
Particulars
Note
No.
I.
Revenue from Operation
Employees benefit
expenses
Other expenses
31st March 31st March
2013
2014
8,00,000
10,00,000
2013%
2014%
100%
100%
4,00,000
5,00,000
50%
50%
1,00,000
50,000
12.5
5
Total Expenses
5,00,000
5,50,000
62.5
55
Profit before Tax (IIIIV)
3,00,000
4,50,000
37.5
45
Question: from the following Balance Sheets of XYZ Ltd. As at 31 st march, 2014 and 2013 prepare a
Common-size Balance Sheet.
BALANCE SHEETS
As at 31st march 2014 and 2013
31st march
2013
(A)
31st march
2014
(B)
(a) Share Capital:
5,00,000
2,50,000
(b) Reserves and Surplus
1,00,000
1,50,000
4,00,000
2,50,000
(a) Trade payables
2,00,000
1,00,000
Total
12,00,000
7,50,000
7,50,000
5,00,000
Particulars
Note
No.
I EQUITY AND LIABILITIES
1. Shareholders‘ funds
2. Non-current liabilities
(a) Long-term borrowings
3. Current Liabilities
II ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
2. Current Assets
(a) Cash and Cash Equivalents
4,50,000
2,50,000
Total
12,00,000
7,50,000
SOLUTION:
31st march
2013
(A)
31st march
2014
(B)
2013%
2014%
2,50,000
1,50,000
5,00,000
1,00,000
33.33%
20
41.67
8.33
2,50,000
4,00,000
33.34
33.33
1,00,000
2,00,000
13.33
16.67
Total
II ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
2. Current Assets
(a) Cash and Cash Equivalents
12,00,000
7,50,000
100
100
5,00,000
7,50,000
66.67
62.5
2,50,000
4,50,000
33.33
37.5
Total
12,00,000
7,50,000
100
100
Particulars
I EQUITY AND LIABILITIES
1. Shareholders‘ funds
(a) Share Capital:
(b) Reserves and Surplus
2. Non-current liabilities
(a) Long-term borrowings
3. Current Liabilities
(a) Trade payables
Note
No.
BALANCE SHEETS
As at 31st march 2014 and 2013
4 MARKS QUESTIONS
1. Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
Expenses
Other Income
Income tax
1,00,000
60,000
20,000
50%
1,50,000
1,05,000
18,000
50%
2. From the following statement of Profit and Loss Star Ltd. For the year 2013-14.. Prepare
comparative statement of Profit and Loss from the following:
Particulars
Revenue from operations
Expenses
Other Income
Income tax
2013
1,60,000
80,000
20,000
50%
2014
2,00,000
1,00,000
10,000
50%
3. Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
10,00,000 12,50,000
Employee benefit expenses 5,00,000 6,50,000
Other Expenses
50,000
60,000
Interest on investment
30,000
30,000
Income tax
50%
50%
4. Prepare comparative statement of Profit and Loss from the following:
Particulars
2013
2014
Revenue from operations
30,00,000 20,00,000
Other Income(% of revenue from operations) 15%
20%
Expenses(% of revenue from operations)
60%
50%
5. From the following Balance sheet prepare Comparative Balance Sheet :
Particulars
2014
I EQUITY AND LIABILITIES
1. Shareholders’ funds
Share Capital
2. Non-current liabilities
Long-term borrowings
3. Current liabilities
Trade payables
Total
II ASSETS
1. Non-current Assets
Fixed Assets(Tangible)
2013
7,00,000
6,00,000
2,00,000
4,00,000
3,00,000
12,00,000
2,00,000
12,00,000
8,00,000
6,00,000
2. Current Assets
Trade Receivables
Total
4,00,000
12,00,000
6,00,000
12,00,000
6. From the following statement of Profit & Loss of Star Ltd. For the year ended 2014, prepare a
common-size Profit & Loss Statement.
Particulars
2014
Revenue from operations
10,00,000
Employee benefit expenses 5,00,000
Other Expenses
50,000
7. From the following balance sheet of Sun Ltd. As on 31st March, 2014, Prepare a common size
balance sheet. Sun Ltd.
Particulars
Note
2014
No.
1. Equity & liabilities
 Share holder‘s fund
30,00,000
a. Share Capital
4,00,000
b. Reserve & Surplus
10,00,000
2. Non current liabilities
 Long term borrowing
3. Current liabilities
6,00,000
Trade payable
50,00,000
Total
2. Assets

a. Non Current Assets
Fixed Assets
i.
Tangible Assets
ii.
Intangible Assets
Current Assets
i.
Inventories
ii.
Cash and cash equivalents
30,00,000
6,00,000
10,00,00
4,00,000
Total
50,00,000
CHAPTER-4
RATIO ANALYSIS
Current Ratio
CA/CL
Question: Current Assets Rs. 2,00,000; Inventories Rs. 1,00,000; Working Capital Rs. 1,20,000;
Calculate Current Ratio.
Solution : Current liabilities = Current Assets – Working Capital
= Rs. 2,00,000 – Rs. 1,20,000 = Rs. 80,000
Current Ratio = Current Assets/ Current liabilities
= Rs. 2,00,000/Rs. 80,000
= 2.5:1
QUICK RATIO/LIQUID RATIO/ACID TEST RATIO
Liquid assets/CL
Question 1: Liquid Assets Rs. 6,80,000, Inventories Rs. 1,90,000, Prepaid Expenses Rs. 10,000, Working
Capital Rs. 2,00,000. Calculate the Current Ratio and Quick Ratio.
Question 2. The Quick Ratio of a company is 2:1. State giving reason, which of the following would
improve, reduce or not change the ratio:
(i)
(ii)
(iii)
(iv)
Purchase of Stock-in-trade(costing Rs.10,000) for Rs. 11,000.
Sale of an office furniture (Book value Rs. 10,000) for Rs. 9,000.
Payment of Dividend.
Issue of Equity shares.
SOLVENCY RATIOS
Debt/ Equity
Question: From the following information. Calculate Debt-equity Ratio:
Equity Share Capital
Preference Share capital
Reserves and Surplus
Long-term Borrowings
Long-term Provisions
1,50,000
1,00,000
1,50,000
6,00,000
2,00,000
Solution:
Debt = Long-term Borrowings + Long-term Provisions
= Rs. 6,00,000 + Rs. 2,00,000 = Rs. 8,00,000
Equity = Equity Share Capital + Pref. Share Capital + Reserves & Surplus
= Rs. 1,50,000 + Rs. 1,00,000 + Rs. 1,50,000 = Rs. 4,00,000
Debt-Equity Ratio = Debt/Equity = Rs. 8,00,000/Rs. 4,00,000= 2:1
Question: X ltd. Has a liquid ratio of 1.5:1. Its Net working Capital is Rs. 1,20,000 and its inventories are
Rs 80,000. Total Assets Rs. 3,80,000. Total Debt Rs. 2,80,000. Calculate Debt-Equity Ratio.
(Ans. 2:1)
Total Assets to Debt Ratio
Question: From the following information, calculate Proprietory Ratio:
Share Capital Rs. 2,50,000
Reserves & Surplus
Rs. 1,50,000
Non-current Assets Rs. 11,00,000
Current Assets Rs. 5,00,000.
Solution : Rs. 4,00,000/Rs. 16,00,000 X 100 = 25%
INTEREST COVERAGE RATIO
EBIT/Fixed int charges
Question : P ltd has a long term loan Rs. 10,00,000. Interest on the loan for the year is Rs. 1,25,000
and its profit before interest and tax is Rs. 5,00,000. Calculate Interest coverage ratio.
Solution : Interest coverage ratio = 5,00,000/1,25,000
= 4 times.
TURNOVER OR ACTIVITY OR PERFORMANCE RATIOS
INVENTRY TURNOVER RATIO
COGS/AVG inventory
Question: Calculate Inventory turnover ratio:
Cost of goods sold/Revenue from operations
Rs. 9,00,000
Inventories in the beginning
Rs. 2,00,000
Inventories at the end
Rs. 2,50,000
Solution: Inventory turnover ratio = 9,00,000/2,25,000
= 4 times
Trade receivables/Debtors turnover ratio
Net credit sales/ avg accts receivables
Question: Calculate Trade receivable or Debtors turnover ratio and Average collection period.
Credit revenue from operation for the year is Rs. 12,00,000, Debtors Rs. 1,00,000; Bills receivable Rs.
1,00,000.
Solution: Debtors turnover ratio = 12,00,000/2,00,000
= 6 times
Average collection period = No. of days in a year/Trade receivable ratio
=365/6
= 61 days approx..
Trade payables/Creditors turnover ratio
Net credit purchases/avg accounts payables
Question: Closing Trade Payables Rs. 45,000, Net Purchases Rs. 3,60,000, Cash Purchases Rs. 90,000,
Reserve for Discount on Closing Trade Payables Rs. 5,000. Calculate the Creditors Turnover Ratio.
Solution: Creditors Turnover Ratio = (Rs. 3,60,000 – Rs. 90,000)/Rs. 45,000
= 6 times
Average Payment Period = 12 months/Creditors turnover ratio = ……..months
Working capital turnover ratio
Working Capital/net sales
Questions: Calculate Working capital turnover ratio from the following:
Cost of revenue from operations
Rs. 3,00,000
Current Assets
Rs. 2,00,000
Current liabilities
Rs. 1,50,000
Solution: Working capital turnover ratio
= 3,00,000/50,000
= 6 times.
PROFITABILITY RATIOS
Gross Profit Ratio:
Gross profit/net sales *100
Question: Calculate Gross Profit Ratio:
Revenue from operations – Rs. 6,00,000
Gross profit 25% on cost.
Solution: Let the cost = Rs.100
Gross profit = Rs. 25
Revenue from operations = Rs.125
Cost of revenue from operations = 100/125 X 6,00,000
= 4,80,000
Gross Profit = 6,00,000 – 4,80,000
= 1,20,000
Gross Profit Ratio = 1,20,000 /6,00,000 X 100
= 20%
Operating Profit Ratio
Operating profit/net sales
Question: Revenue from operations Rs. 6,00,000, Operating Cost Rs. 5,10,000. Cost of Revenue form
operations Rs. 4,00,000. Calculate Operating Profit Ratio.
Solution: Operating Profit = Rs. 6,00,000 – 5,10,000 = Rs. 90,000
Operating Profit Ratio = Rs. 90,000/Rs. 6,00,000 X 100
= 15%
Operating ratio
Operating cost/Net sales
Question: From the following information calculate operating ratio
Cost of revenue from operation = Rs. 6,00,000
Operating expenses = Rs. 40,000
Revenue from operation = Rs. 8,20,000
Revenue return from operations = Rs. 20,000
Solution:
Operating ratio =( 6,00,000 + 40,000/8,00000)X100 = 80%
Net profit ratio
Question: Revenue from Operations Rs. 10,00,000, Gross Profit Ratio 25%, Operating Ratio 90%,
Operating Rs. 1,00,000, Non-operating Expenses Rs. 5,000, Non-operating income Rs 55,000. Calculate
Net Profit Ratio.
Solution:
Operating Profit Ratio = 100 – Operating Ratio = 100 - 90% = 10%
Operating Profit = Rs. 10,00,000 X 10/100 = Rs. 1,00,000
Net Profit = Operating Profit + Non-operating Incomes – Non-Operating Expenses
= Rs. 1,00,000+Rs. 55,000 – Rs. 5,000 = Rs. 1,50,000
Net Profit Ratio = Rs. 1,50,000/Rs. 10,00,000 X 100 = 15%
Return on Investment or Return on Capital Employed =
EBIT
*100
Capital Employed
Question: From the following information calculate Return on Investment
Net profit after interest and tax – Rs. 1,20,000
Tax – Rs 1,20,000
Net fixed Assets – Rs.. 5,00,000
Long term trade investment – Rs. 50,000
Current assets – Rs. 2,20,000
12% debentures – Rs. 4,00,000
Equity share capital – Rs. 50,000
10% preference share capital – Rs. 50,000
Reserve and surplus – Rs. 1,00,000
Current liability – Rs. 1,70,000
Solution : Return on Investment = 1,20,000+ 1,20,000 + 48,000
5,00,000 + 50,000 + 50,000 = 6,00,000
= 2,88,000 X 100
= 48%
QUESTIONS: 4 marks
1. From the following information calculate:
(i)
Gross Profit Ratio
(ii) Inventory Turnover Ratio (iii) Current Ratio (iv) Liquid Ratio
(v) net Profit ratio
(vi) Working Capital Ratio
Revenue from operations
Rs. 25,20,000
Net Profit
Rs. 3,60,000
Cost of Revenue from operations Rs. 19,20,000
Long-term Debt
Rs, 9,00,000
Trade Payables
Rs. 2,00,000
Average Inventory
Rs. 8,00,000
Other Current Assets
Rs. 7,60,000
Fixed Assets
Rs. 14,40,000
Current liabilities
Rs. 6,00,000
Net Profit before interest and tax Rs. 8,00,000
2. From the following calculate :
(a) Net Profit Ratio
(b) Operating Profit Ratio
Revenue from operations
Rs. 2,00,000
Gross Profit
Rs. 75,000
Office Expenses
Rs. 15,000
Selling Expenses
Rs. 26,000
Interest on Debentures
Rs. 5,,000
Accidental Losses
Rs. 12,000
Income from Rent
Rs. 2,500
Commission received
Rs. 2,000
( Ans Net profit ratio = 10,75% and Operatin profit ratio = 18%
3. Find the value of current liabilities and current assets if Current Ratio is 2.5:1. Liquid Ratio is
1.2:1 and the value of inventory of the firm is Rs. 78,000.
(Ans. Current Assets = Rs. 1,50,000; Current liabilities = Rs. 60,000)
4. Current Ratio is 3.5. Working Capital is RS. 90,000. Calculate the amount of Current Assets and
Current Liabilities.
Hint: Current Assets – 1,26,000
5. Shine Limited has current ratio 4.5:1 and quick ratio 3:1; if the inventory is Rs. 36,000, calculate
current liabilities and current assets.
Hint: Current Assets – 1,08,000
6. Current liabilities of a company are Rs. 75,000. If current ratio is 4:1 and liquid ratio is 1:1,
calculate value of current assets, liquid assets and inventory.
Hint: Inventory – 2,25,000
7. Handa Ltd. has inventory of Rs. 20,000. Total liquid assets are Rs. 1,00,000 and quick ratio is
2:1. Calculate current ratio.
Hint: Current Ratio: 2:4:1
8. Calculate Debt-Equity ratio from the following information:
Total Assets Rs. 625000
Total Debt Rs. 500000
Current Liabilities Rs. 250000
Hint: Debt Equity Ratio – 2:1
9. Calculate following ratios from the following information:
i.
Current Ratio
ii.
Acid – Test Ratio
iii.
Operating Ratio
iv.
Gross Profit Ratio
Current Assets
Rs. 35000
Current Liabilities
Rs. 17,500
Inventory
Rs. 15,000
Operating Expenses
Rs. 20,000
Revenue from Operaions
Rs. 60,000
Cost of revenue from Operations
Rs. 30,000
Hint: 2:1, 1.14:1, 83.3%, 50%
10. Akshara Ltd. has 8% Debentures of Rs. 5,00,000. Its profit before interest & tax is Rs. 2,00,000.
Calculate Interest Coverage Ratio.
Hint: 5 times
Chapter 5
CASH FLOW STATEMENT
VERY SHORT ANSWER QUESTIONS
1. What do you mean by Cash Flow statement?
2. What are the various activities classified as per AS-3(revised) related to Cash flow statement?
3. State one objective of Cash flow Statement.
4. What do you mean by cash equivalents?
Ans. Short-term highly liquid investments which are readily convertible into known amount of cash and
which are subject to an insignificant risk of change in the value.
5.State the category of the following items for a financial as well as non-financial company
(a) Dividend received
Dividend paid
(b) Interest received (c) Interest paid
(d)
Ans.
Financial company
Non-financial
Operating activity
Investing
Operating activity
Investing
Operating activity
financing
Financing activity
financing
company
(a) Dividend received
activity
(b) Interest received
activity
(c) Interest paid
activity
(d) Dividend paid
activity
6. Calculate the net amount of cash flow if a fixed asset costing Rs. 32,000 (having a book value of Rs.
24,000) is sold at a loss of Rs. 8,000.
Solution: Cash Inflow from Investing activities = Rs. 16,000
(Book value-loss=Amount received from sale)
(Rs. 24,000-Rs.8,000=Rs. 16,000)
7. Calculate Cash Flow from Operating Activities from the following information:
Particulars
Amount (Rs.)
Profit for the year 2013-2014
Transfer to General Reserve during the year
Depreciation provided during the year
Profit on sale of furniture
Loss on sale of Machine
Preliminary Expenses written off during the year
1,00,000
20,000
40,000
10,000
20,000
20,000
Additional Information:
Particulars
March(2013)
March(2014)
Debtors
20,000
30,000
Bills Receivable
14,000
10,000
Stock
30,000
36,000
Prepaid Expenses
4,000
6,000
Creditors
40,000
36,000
Bills Payables
30,000
50,000
Outstanding Expenses
6,000
8,000
(Ans. 1,94,000)
8. Following balances appeared in the Machinery Account and Accumulated Depreciation Account
in the books of JB Ltd.
Particulars
March (2013)
March (2014)
Machinery A/c
17,78,985
26,55,450
Accumulated depreciation A/c3,40,795
4,75,690
Additional Information:
Machinery costing 2,65,000 on which accumulated depreciation was Rs. 1,00,000 was sold for Rs.
75,000. You are required to
Compute the amount of Machinery purchased, depreciation charged for the year and loss on sale of
Machinery.
How shall each of the items related to Machinery be shown in Cash Flow Statement.
Hint: Purchase of Machinery= Rs. 11,41,465
Sale of Machinery = Rs. 75,000
Depreciation Provided = Rs. 2,34,895
Loss on sale of machinery = Rs. 90,000
9.
From the following information, prepare a Cash Flow Statement:
Balance Sheet as at
Particulars
I.
Equity and Liabilities
(1) Shareholders‘ Funds
(a) Share capital
(b) Reserves and Surplus
(2) Non-Current Liabilities
(3) Current Liabilities
Trade Payables
Note 31.03.14
no.
Rs.
31.03.13
Rs.
1
2
90,000
50,000
1,30,000
85,000
22,000
2,37,000
Total
II.
ASSETS
(1) Non-Current Assets
Tangible Fixed Assets
Intangible Assets(Goodwill)
(2) Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Short-term Loans & Advances (Adv. Tax)
Total
17,400
1,57,400
93,400
1,000
21,000
39,000
6,000
5,000
2,37,000
Note 1. SHARE CAPITAL
Particulars
31.03.14
Equity shares of Rs. 10 each1,30,000
90,000
Note 2. RESERVES AND SURPLUS
General Reserve
55,000
Profit and loss A/c
30,000
30,000
20,000
22,000
36,000
5,000
1,57,400
31.03.13
Additional Information: During the year Depreciation charged on fixed assets was
Rs. 20,000 and Income Tax Rs. 5,000 was paid in advance.
(Ans. Purchase of fixed Asset = 92,600)
10. From the following information prepare Cash Flow statement:
Particulars
I.
EQUITY AND LIABILITIES
(1) Shareholders‘ funds
Share capital
Reserves & Surplus (P&L A/c)
(2) Non-Current Liabilities (6%
Debentures)
(3) Current Liabilities
Trade Payables
Other Current Liabilities
31.03.14
31.03.13
1,00,000
60,000
1,00,000
30,000
80,000
60,000
35,000
65,000
30,000
70,000
3,30,000
2,90,000
1,90,000
30,000
1,50,000
40,000
55,000
45,000
10,000
40,000
40,000
20,000
3,30,000
2,90,000
Total
II.
ASSETS
(1) Non-Current Assets
Tangible Fixed Assets
Non-Current Investments
(2) Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Total
Andditional Information:
(i)
(ii)
A piece of Machinery costing Rs. 5,000 on which depreciation of Rs.
2,000 had been charged was sold for Rs. 1,000. Depreciation charged
during the year was Rs. 17,000.
During the Current year New Debentures have been issued on 1st Aug.
(Ans. Operating Activities = 23,400, Investing Activities = (49,000), Financing
Activities = 15,600)
11. From the following information prepare a Cash flow Statement:
BALANCE SHEET as at
Particulars
No
te
no.
I.
EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
1
(b) Reserves and Surplus
2
(2) Current Liabilities
Trade Payables
Short-term Provisions(for
Taxation)
Total
II.
ASSETS
(1) Non-current Assets
Tangible fixed Assets
Intangible Assets (goodwill)
31.03.14
31.03.13
1,00,000
31,000
1,00,000
30,000
6,200
18,000
9,200
16,000
1,55,200
1,55,200
72,000
77,000
Non-current Investments (10%
Investments)
(2) Current Assets
Inventories
Trade Receivables
Provision for Doubtful Debt
Cash & Cash Equivalents
Total
12,000
11,000
12,000
10,000
23,400
22,200
(600)
15,200
30,000
20,000
(400)
6,600
1,55,200
1,55,200
Note No. 1
Share Capital
Equity shares of Rs. 10 each
1,00,000
Note NO. 2
Reserves and Surplus
General Reserve
Profit & Loss A/c
1,00,000
18,000
13,000
14,000
16,000
Additional Information: Deprecition charges Rs. 8,000. Provision for taxation of
Rs. 19,000 made during the year.
(Ans. Operating activities = 11,600; Investing Activities = (3,000))
12. From the following information, prepare a Cash Flow Statement:
Balance Sheets as at
Particulars
Note 31.03.14
no.
I.
EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
1
50,000
(b) Reserves and Surplus
2
29,950
(2) Non-Current Liabilities (10% Loan on
40,000
Mortgage)
(3) Current Liabilities
Trade Payables
15,000
Other current liabilities
10,000
Total
(c) ASSETS
1,44,950
(3) Non-current Assets
Tangible fixed Assets
31.03.13
45,000
28,275
18,000
7,500
1,38,775
Accumulated Depreciation
Non-current Investments (10%
Sinking fund Investments)
(4) Current Assets
Inventories
Trade Receivables
Provision for Doubtful Debt
Cash & Cash Equivalents
Total
78,000
(15,200)
77,000
(11,400)
16,000
12,000
35,000
21,300
(1,350)
11,200
30,600
23,500
(1,425)
8,500
1,44,950 1,38,775
Note No. 1
Equity shares of Rs. 10 each
Note No. 2
Sinking fund
Retained Earnings
50,000
45,000
16,000
13,950
12,000
16,275
Additional Information:
Dividend amounting to Rs. 5,000 was paid during the year.
(Ans. Operating Activities = 10,500; Investing Activities = (3,800); Financing Activities = (4,000))