1. Answer the following.

[ 1 x 15 = 15 ] a) If at the time of admission some profit and loss account balance appears in the books, it will be transferred to: i) Profit and loss adjustment account ii) All partners capital account iii) Old partners capital account iv) Revaluation Account b) A partner acts as __________ for a firm. i) Agent ii) Employee iii) Third party iv) None of these c) Debenture premium cant be used to i) Write off the discount on issue of shares or debentures ii) Write off the premium on redemption of shares or debentures iii) Pay dividend iv) write off capital loss d) Assets are depreciated on the basis of expected life rather than on the basis of market value according to i) Going concern concept ii) Cost Concept iii) Entity concept iv) Matching concept e) Under capitalization basis goodwill is calculated by : i) Average profits x years of purchase ii) Super profit x years of purchase iii) Total of discounted value of expected benefits iv) Super profit divided with expected rate of return f) In the absence of an agreement partners are entitled to: i) Salary ii) Commission iii) Interest on loans and advances iv) Profit sharing in capital ratio g) General reserve at the time of admission of a partner is transferred to: i) Revaluation A/c ii) Partners capital A/c iii) Profit and loss A/c iv) None of these h) X & Y are partners sharing profits in the ratio of 1:1. They admit Z for 1/5 th share who contributed Rs. 25,000 for his share of goodwill. The total value of the goodwill of the firm will be: i) Rs. 25,000 ii) Rs. 50,000 iii) Rs. 1,00,000 iv) Rs 1,25,000 i) Share application and allotment is a ________ account i) Real A/c ii) Personal A/c iii) Nominal A/c iv) Addition to capital A/c j) The liabilities of a share holder of a public company permitted to the extent of i) Paid up value of the share ii) The face value of the share iii) Called up value of the share iv) All of the above k) If the forfeited shares are issued at a premium the amount of the premium shall be credited to i) Share capital A/c ii) Capital reserve A/c iii) Share forfeiture A/c iv) Share premium A/c l) Which one of the following is known as Registered capital of the company i) Paid up capital ii) Authorised capital iii) Uncalled capital iv) Reserve capital

m) Straight line method of providing depreciation is useful when: i) Output can be effectively measured ii) Use of an asset can be measured in terms of time iii) Utility of the asset is directly related to its productive use iv) Asset is liquid n) For charging depreciation on which of the following assets the depletion method is adopted i) Plant & Machinery ii) Land & Building iii) Goodwill iv) Wasting assets like mines and quarries o) Which of the following sets of expenses are the direct expenses of the business: i) Salaries, wages and shop rent ii) Stationary, postage and telephone iii) Wages, carriage inward & local taxes iv) Advertisement, legal fees & audit fees
5. a) Q.7. Ashok and Tanaji are Partners sharing Profit and Losses in the ratio 2:3 respectively. Their Trial Balance as on 31st March, 2007 is given below. You are required to prepare Trading and Profit and Loss Account for the year ended 31st March, 2007 and Balance Sheet as on that date after taking into account the given adjustments.

Trial Balance as on 31st Particulars Amt. (Rs.) Purchases 98,000 Patents Right 4,000 Building 1,00,000 Stock (1.04.2006) 15,000 Printing and Stationery 1,750 Sundry Debtors 35,000 Wages and Salaries 11,000 Audit Fees 700 Sundry Expenses 3,500 Furniture 8,000 Investment 10,000 Cash 4,000 Provident Fund Contribution 800 Carriage Inwards 1,300 Travelling Expenses 2,700 2,95,750

March, 2007 Particulars Capital: Ashok Tanaji Provident Fund Creditors 10% Bank Loan taken on 1st April 2006 Sales Reserve for Doubtful Debts Purchase Returns

Amt. (Rs.) 30,000 40,000 7,000 45,000 12,000 1,58,000 250 3,500

2,95,750

Adjustments: (1) Closing stock is valued at the cost of Rs. 15,000 while its market price isRs.18,000. (2) On 31st March, 2007 the stock of stationery was Rs. 500. (3) Provide reserve for bad and doubtful debts at 5% on debtors. (4) Depreciate building at 5% and patent rights at 10%. (5) Interest on capitals is to be provided at 5% p.a. (20)

Particulars

Trading Account for the year ended 31st March 2007 Rs. Rs. Particulars

Rs.

Rs.

To Opening Stock To Purchases Less: Returns To Wages & Salaries To Carriage Inwards To Gross Profit c/d

15,000 By Sales 98,000 3,500 94,500 11,000 1,300 51,200 By Closing Stock 1,73,000

1,58,000

15,000 1,73,000
Rs.

Particulars To Printing & Stationery Less: Stock To Audit Fees To Sundry Expenses To Provident Fund Contribution To Travelling Expenses To Bad Debts Add: New Bad debts Add: New R.D.D.

Profit & Loss A/c for the year ended 31st March 2007 Rs. Rs. Particulars Rs.

1,750 500 1,250 700 3,500 800 2,700 1,750 1,750 250 400 5,000 1,500 2,000

To Gross Profit b/d

51,200

Less: Old R.D.D. To Depreciation on Patent Right Building To Interest on Capital Ashok Tanaji To Interest on loan To Net Profit Ashok (2/5) Tanaji (3/5)

1,500 5,400 3,500 1,200 30650 51,200

Partners Capital A/c

12260 18390

51,200 Ashok 30,000 1,500 12,260 43,760

Rs.

Particulars

Ashok

To Balance c/d

43,760 43,760

Tanaji Particulars By Balance b/d By Interest on Capital 60,390 By Net Profit 60,390

Tanaji 40,000 2,000 18,390 60,390

Rs.

Liabilities Partners Capital

Balance Sheet as on 31-3-2007 Rs. Rs. Assets

Ashok Tanaji

Provident Fund Creditors Bank Loan (10%) Add: Interest

43,760 Patents Right 4,000 3,600 60,390 1,04,150 (-) 10% Depreciation 400 Building 1,00,000 95,000 Less: 5% 5,000 Depreciation 7,000 Sundry Debtors 35,000 33,250 45,000 Less: New R.D.D. 1,750 12,000 Furniture 8,000 13,200 Investment 1,200 10,000 Cash 4,000 Closing Stock 15,000 Stock of Stationery 500 1,69,350 1,69,350

b. Fantastic Industries Ltd. issued a prospectus, inviting applications for 1,00,000 shares of
premium of 10 per share, payable as follows:

20 each at a

On Application On Allotment On First Call On Final Call

5 15 (Including Premium) 8 2

Applications were received for 1,50,000 shares and allotment was made pro-rata to the applicants of 1,20,000 shares, the remaining applications being refused. Money received in excess on the applications was adjusted towards the amount due on allotment. P, to whom 2,000 shares were allotted, failed to pay allotment money and on his failure to pay the first call, his shares were forfeited. Q, the holder of 3,000 shares, failed to pay the two calls, and so his shares were also forfeited. All these sold to R, credited as fully paid for 16 per share.

Journalize the above transactions in the books of the company.

Solution Basic calculations shown step-wise: Step 1:


Step 2:

This is a Case of Over-subscription. For 1,20,000 Applicants, 1,00,000 Shares Were Allotted. The Remaining 30,000 Applications Were Rejected and Application Money is to be Refunded on this.

Excess Application Money: Application Received: 1,50,000 Less: Rejected & Refunded: 30,000 5 5 = = 7,50,000 1,50,000 6,00,000 Less: Application Money on 1,00,000 Shares: Excess Application Money This Amount Has to be Adjusted on Allotment Money. = 5,00,000 1,00,000

Step 3: Amount Due on Allotment & Actual Money Received on Allotment Due: Due for 1,00,000 Shares @ 15 per Share = 15,00,000

Less: Excess Application Money Already Adjusted with Allotment (Step 2) 1,00,000 14,00,000 Less: P Failed to Pay on Allotment (2,000 Shares 15, He Would Have Applied for

2,400 Application Money = for Excess 400 Shares ( 30,000 2,000)

5=

2,000)

28,000

Actual Amount Received on Allotment Due Step 4: Amount Paid by P: As Already Calculated in Step 3, the Shares.

13, 72,000

Step 5: [Amount Paid by Q: For 3,000 Shares, He Would Have Applied for:

As He Paid His Application Money and Allotment Money, the Excess Money on (3,600 - 3,000) = 600 Shares Need Not Be Adjusted Again. To Explain the Difference Between P and Q, This Step is Inserted Here: Here for Q, Only 3,000 Shares Need be Taken into Account] Step 6:

Profit Transferred to Capital Reserve:

Forfeited Shares Amount P (Ref: Step 4) Forfeited Shares Amount Q (3,000 10)

= =

12,000 30,000 42,000

Exc 1. Prem. Less: Discount on Re-issue of (2,000 + 3,000) 5,000 Shares ( 20 16) 4 = = 20,000 22,000

Profit to be Transferred