CHAPTER:4

RECONSTITUTION OF APARTNERSHIP FIRM

RETIREMENT /DEATH OF A PARTNER
Q.1 Distinguish between Sacrificing Ratio and Gaining Ratio.
Ans. 1
Basis
Sacrificing Ratio
(i) Meaning
Proportion in which old partners sacrifice their
share in favour of new partner.
(ii) Occasion
(iii) Formula

Sacrificing ratio is calculated at the time of

admission of new partner.
Sacrificing ratio = Old ratio New ratio

Gaining Ratio
Proportion in which continuing partner
gain the share of outgoing partner on his
retirement.
Gaining ratio is calculated at the time of
retirement or death of a partner.
Gaining ratio Old ratio

Q.2

Kamal, Kishore and Kunal are partners in a firm sharing profits equally. Kishore retires from the firm. Kamal and Kunal decide
to share the profits in future in the ratio 4:3. Calculate the Gaining Ratio.
Ans. 2 Gaining Ratio = New ratio Old ratio
Kamals Gain = 4/7 1/3 = 5/21
Kunals Gain = 3/7 1/3 = 2/21
Gaining Ratio = 5:2
Q.3 P, Q and R are partners sharing profits in the ratio of 7:2:1. P retires and the new profit sharing ratio between Q and R is 2:1.
State the Gaining Ratio.
Ans. 3 Old ratio
= P Q R
7: 2: 1
New ratio
=Q R
2:1
Gaining Ratio = New ratio Old ratio
Qs gain
= 2/3 2/10 = 14/30
Rs gain
= 1/3 1/10 = 7/30

Gaining Ratio = 14:7 or 2:1

Q.4

A, B and C are partners in a firm sharing profits in the ration of 2:2:1. B retires and his share is acquired by A and C equally.
Calculate new profit sharing ratio of A and C.
Ans. 4 As gaining share = 2/5 X = 1/5
As new share = 2/5 + 1/5 = 3/5
Cs gaining share = 2/5 X = 1/5
Cs New share = 1/5 + 1/5 = 2/5
New ratio of A and C = 3:2
Q.5 X, Y and Z are partners sharing profits in the ratio of 4/9, 1/3 and 2/9. X retires and surrenders 2/3 rd of his share in favour of Y
and remaining in favour of Z. Calculate new profit sharing ratio and gaining ratio.
Ans. 5
Ys gaining share
= 4/9 X 2/3 = 8/27
Zs gaining share
= 4/9 8/27 = 4/27
Ys new share = Old share + gain
= 1/3 + 8/27 = 17/27
Zs new share
= 2/9 + 4/27 = 10/27
New Ratio
Gaining ratio
Q.6

= 17:10
= 8/27 : 4/27 or 2:1

X, Y and Z have been sharing profits and losses in the ratio of 3:2:1. Z retires. His share is taken over by X and Y in the ratio of
2:1. Calculate the new profit sharing ratio.
Ans. 6
Old Ratio
=
3:2:1
Z Retire
Xs Gaining
= 1/6 X 2/3 = 2/18
Xs New share
= 3/6 + 2/18 = 11/18
Ys Gaining
= 1/6 X 1/3 = 1/18

Ys new share = 2/6 + 1/18 = 7/18

New Ratio
= 11/18, 7/18 Or 11:7

Q.7

P, Q and R were partners in a firm sharing profits in 4:5:6 ratio. On 28-02-2008 Q retired and his share of profits was taken over
by P and R in 1:2 ratio. Calculate the new profit sharing ratio of P and R.
Ans. 7 Old ratio
=PQR
= 4:5:6
Q retired
Ps gaining
= 1/3 X 5/15 = 1/9
Ps new share
= 4/15 + 1/9 = 17/45
Rs Gaining share
= 2/3 X 5/15 = 2/9
Rs new share
= 6/15 + 2/9 = 28/45
New Ratio
= 17:28
Q.8 Mayank, Harshit and Rohit were partners in a firm sharing profits in the ratio of 5:3:2. Harshit retired and goodwill is valued at
Rs 60000. Mayank and Rohit decided to share future profits in the ratio 2:3. Pass necessary journal entry for treatment of
goodwill.
Ans. 8 Rohits capital A/C
Dr. 24000
To Mayanks capital A/C
6000
To harshits Capital A/C
18000
(Adjustment Entry for treatment of goodwill in gaining ratio.)
Q.9 Ramesh, Naresh and Suresh were partners in a firm sharing profits in the ratio of 5:3:2. Naresh retired and the new profit sharing
ratio between Ramesh and Suresh was 2:3. On Naresh retirement the goodwill of the firm was valued at Rs. 120000. Pass
necessary journal entry for the treat.
Ans. 9 Suresh capital A/C
Dr. 48000
To Rameshs capital A/C
12000
To Naresh capital A/C
36000
(Goodwill adjusted among the gaining partner in gaining ratio.)

Q.10 L, M and O were partners in a firm sharing profits in the ratio of 1:3:2. L retired and the new profit sharing ratio between M and
O was 1:2. On Ls retirement the goodwill of the firm was valued Rs. 120000. Pass necessary journal entry for the treatment of
goodwill.
Ans. 10 Os capital A/C
Dr. 40000
To Cs capital A/C
20000
To Ms capital A/C
20000
(Adjustment of goodwill in gaining partners in their gaining ratio.)
Q.11 State the journal entry for treatment of deceased partners share of profit for his life period in the year of death.
Ans. 11 Profit and loss suspense A/C
To deceased partners capital A/C

Dr

Q.12 X, Y and Z were partners in a firm sharing profits and losses in the ratio of 3:2:1. The profit of the firm for the year ended 31 st
March, 2007 was Rs. 3,00000. Y dies on 1st July 2007. Calculate Ys share of profit up to date of death assuming that profits in
the year 2007- 2008 have been accured on the same scale as in the year 2006-07 and pass necessary journal entry.
Ans. 12 Total profit for the year ended 31st March 2007
=
Rs 300000
Ys share of profit up to date of death
=
300000 X 2/6 X 3/12
=
25000
Profit and Loss suspense A/C
Dr. 25000
To Ys capital A/C
25000
( Ys share of profit transferred to Ys capital A/C)

Q.13 A, B and C were partners in a firm sharing profits in 3:2:1 ratio. The firm closes its books on 31 st March every year. B died on
12-06-2007. On Bs death the goodwill of the firm was valued at Rs. 60000. On Bs death his share in the profit of the firm till
the time of his death was to be calculated on the basis of previous years which was Rs.150000. Calculate Bs share in the profit
of the firm. Pass necessary journal entries for the treatment of goodwill and Bs share of profit at the time of his death.
Ans. 13 Profit and Loss suspense A/C
Dr. 10000

To Bs capital A/C
(Bs share of profit transferred to Bs capital A/C)

10000

As capital A/C
Dr. 15000
Cs capital A/C
Dr. 5000
To Bs capital A/C
20000
(Bs share of goodwill transferred to Bs capital A/C and debited to remaining
partners capital A/C in their gaining ratio.)
Bs share of profit
Bs share of profit

=
=
=
=

Number of days from 1 April to 12th June 2007

73 Days
150000 X 1/3 X 73/365
Rs. 10000

Q.14 A, B and C were partners in a firm sharing profits in the ratio of 2:2:1. C dies on 31 st July, 2007. Sales during the previous year
upto 31st march, 2007 were Rs. 6,00,000 and profits were Rs. 150000. Sales for the current year upto 31 st July were Rs.
250000. Calculate Cs share of profits upto the date of his death and pass necessary journal entry.
Ans. 15 Profit & Loss suspense A/C
Dr. Rs. 12,500
To Cs capital A/C
Rs. 12,500
RETIREMENT OF PARTNER

6 to 8 marks
Q.1 The balance sheet of X, V, Z who was sharing profits in proportion of capital as follows :Particulars
Sunday creditors
Capitals
X

Amount Particulars

Amount

1,000 Cash at bank

25,000 Debtors
20,000 Less provision

15,600
5,000

4,900
100

15,000

67,000 Stock

P/M

11,500

Furniture

25,000
67,000

10,000

67,000

Y retires arid the following adjustment of the assets and liabilities has been made before the
ascertainment of the amount payable by the firm to Y
1.

That the stock be depreciated by 5%

2.

That the provision for doubtful debts be increased to 5% on debtors.

3.

That a provision of RS.750 be made in respect of outstanding legal charges.

4.

That the land and building be appreciated by 20%.

5.

That the goodwill of the entire firm be fixed at Rs. 16,200 and V share of the same be adjusted
into the account of X and Z (No good will account is to be raised)

6.

That X and Z decide to share future profits of the firm in equal proportions

7.

That the entire capital of the new firm at Rs. 48000 between X and Z in equal proportion. For
the purpose, actual cash is to be brought in or paid off.

You are required to prepare the revolution account; partners capital account and bank account and
revised balance sheet after Vs retirement also indicate the gaining rates.

Solution 1
Dr.

Revaluation A/c

Cr.

Particulars
Rs. Assets
To stock A/c
500 By land and building
To provision for doubtful debts a/c 150
To outstanding
Legal charges
750
To profit transferred to
Capital A/c
X
1500
Y
1200
Z
900 3,600
5,000
Dr.

5,000

Partners Capital Accounts

Particulars

ARs. B Rs.

To Ys Cap A/c 1350

To Ys loan A/c
To bal C/d

Rs.
5,000

- 2600

251150

Cr.

C Rs. Particulars

A Rs. B Rs. C Rs.

1050 By bal b/d

25,00025,00015,000

- By Rev. A/c

- 11850 By Xs Cap A/c

1500 1250

900

- 1350

- 4050

(G/W)
By Xs cap A/c
(G/W)
26500 26600 15900

265002660015900

To bank A/c
To Bal C/d

1150

- By bal b/d

24000

- 24000 By Bank

25150

- 24000

Dr.

Bank A/c

25150

-11850

-12150

251502400025150
Cr.

To Bal B/d

15,600 By Xs cap A/c

1,150

To Zs Capital A/c

12,150 By bal c/d

26,600

27,750

27,750

BALANCE SHEET OF THE NEW FIRM

Rs. Assets
Rs.

Liabilities
Sundry Creditors

7,000 Cash at bank

Outstanding legal charges

Ys Loan

26,600

750Sundry debtors (5000-250)

26,600 Stock

Capital
X

24000

24000 48,000

9,500

Plan & Machinery

11,500

Land & Building

30,000

4,750

83,250

83,250

Q.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 Assets

Amount

As Capital

400,00 Buildings

20,000

Bs Capital

30,000 Motor Car

18,000

Cs 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 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

REVALUATION ACCOUNT
Particulars

Rs. Particulars

To Motor Cars A/C

Rs.

900 By Loss transferred to

To Stock A/C

2,500 As Capital A/c Rs.

1,600

Bs Capital A/c Rs.

800

Cs Capital A/c Rs.

1,000

3,400

3,400

3,400

PARTNERS CAPITAL ACCOUNT

Particulars

ARs. B Rs.

To Cs Capital A/c 8,334 4,166

To Revaluation A/c (Loss) 1,600
To Bank A/c

Balance c/d

36,46628,234

C Rs. Particulars
- By Balance b/d

A Rs. B Rs. C Rs.

40,00030,00020,000

800 1,000By General Reserve A/c6,4003,200

- 35,500 By As Capital A/c

- By Bs Capital A/c

46,40033,20036,500

- 8,334
- 4,166

46,40033,20036,500
By Balance b/d

36,46628,234

BALANCE SHEET OF A AND B

4,000

Liabilities

Rs. Assets

Sundry creditors

Rs.

1,23,000 Building

Bank Loan

20,000

35,500 Motor Card

Capital A

36,466

B
Debtors

28,234 64,700 Investment

36,600

17,100

Stock

17,500
1,20,000

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:
BALANCE SHEET AS AT 31.12.07

Liabilities

Rs. Assets

Rs.

Rs. 30,000

Goodwill

18,000

Rs. 30,000

Cash

38,000

Rs. 25,000

85,000

Debtors. 43,000

Bills payable

20,000 Less: Bad Debt provision

Creditors

18,000 Bills Receivable

Workers Compensation Fund

8,000

Land and Building

3,00040,000
25,000
60,000

Employees provide4nt Fund

General Reserve

60,000 Plant and Machinery

40,000

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 firms 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

REVALUATION ACCOUNT

Particulars

Rs. Particulars

To Provision for Debts A/c

1,000

To Plant & Machinery A/c

Rs.
By Land A/c

9,000

4,000 By Provision on Creditors A/c

To Profit transferred to

By Bills Payable A/c

As Capital A/c

Rs. 3,200

Bs Capital A/c

Rs. 3,200

Cs Capital A/c

Rs. 3,200 9,600

600
5,000

14,600

14,600

PARTNERS CAPITAL ACCOUNTS

Particulars
To Goodwill A/c

ARs. B Rs.

6,000 6,000 6,000 By Balance b/d

To Cs Capital A/c 2,250 9,000

To Cs Loan A/c

C Rs. Particulars

A Rs. B Rs. C Rs.

30,00030,00025,000

- By General Reserve 10,00010,00010,000

- 46,116 By Worksmen A/c 2,667 2,667 2,666

Compensation Fund

To Balance c/d

40,00060,000

- By Revalu A/c (profit)3,2003,2003,200

By As Capital A/c

- 2,250

By Bs Capital A/c

- 9,000

By Cash A/c (Deficiency)2,38329,13348,25075,00052,116

48,25075,00052,116
By Balance b/d

40,00060,000

BALANCE SHEET
Liabilities
Rs.
Bills Payable
15,000
Creditors
17,400
Employees Provident Fund
Cs Loan
46,116
As Capital
40000
BS Capital
600001,00,000
2,38,516

as at 31.12.07
Assets
Rs.
Debtors
Rs. 43,000
Less: Provision
Rs. 4,00039,000
60,000
Bills Receivables
25,000
Land & Buildings
69,000
Plant & Machinery
36,000
Cash
69,516
2,38,516

Q.4 A, Band C were partners in a firm .sharing profits in the ratio of 5: 3: 2. On 31st March, 2005 their
Balance Sheet was as under:
Liabilities

Rs. Assets

Creditors

7,000 Buildings

20,000

Reserve

10,000 Machinery

30,000

Accounts:
A

Rs.

Stock
30,000

25,000

15,000 70,000
87,000

10,000
Patents

6,000

Debtors

8,000

Cash

13,000
87,000

A died on 1st October, 2005. It was agreed between his executors and the remaining partners that
a.

Goodwill be valued at 2 years purchase of the average profits of the previous five years, which
were 2001: Rs. 15,000; 2002: Rs. 13,000; 2003: Rs. 12,000; 2004: Rs. 15,000 and 2005: Rs.
20,000.

b.

Patents be valued at Rs. 8,000; Machinery at Rs. 28,000; Buildings at Rs. 30,000.

c.

Profit for the year 2005-06 is taken as having accrued at the same rate as the previous year.

d.

Interest on capital be provided at 10% p.a.

e.

A sum of Rs. 11,500 was to be paid to his executors immediately.

Ans.4

Prepare As Capital Account and his executors account at the time of his death.
As Capital A/c

Particulars

Rs.

Executors A/c61,500

Particulars

Rs.

By Balance b/d

30,000

By Reserves [10,000 ]

5,000

By Bs Capital A/c [15,000 ]

9,000

By Cs Capital A/c [15/000

6,000

By Revaluation A/c [10,00 ]

5,000

By Profit & Loss Suspense A/c

5,000

By Interest on Capital A/c [30/000 ]1,500

60,500

61,500

As EXECUTORS ACCOUNT
Particulars

Rs. Particulars

Balance c/d

Rs.

61,500 By As Capital A/c

61,500

61,500

61,500
By Balance b/d

61,500

Q.5 A, B and C were partners in ka firm sharing profits in the ratio of 5:3:2 On 31st March 2005 their
Balance Sheet was as under :
Liabilities

Rs. Assets

Reserves

10,000 Buildings

Creditors

7,000 Machinery

As Capital

30000

Stock

Bs Capital

25000

Patents

Cs Capital

15000 70,000 Cash

87,000

87,000

Rs.
20,000
30,000
10,000
6,000
21,000

C died on 1st Oct. 2005. It was agreed between his executors and the remain partners that:
a.

Goodwill be valued at 2 years purchase of the average profits of the pre five years, which were
2001 :Rs. 15,000; 2002 : Rs. 13,000; 2003 : Rs. 12,000; Rs. 15,000 : 2004 and 2005 : Rs.
20,000.

b.

Patents be valued at Rs. 8,000; Machinery at Rs. 28,000; Buildings at Rs. 30,

c.

Profit for the year 2005-06 be taken as having accrued at the same rate previous year.

d.

Interest on capital be provided at 10% p.a.

e.

A sum of Rs. 7,750 was paid to his executors immediately.

Prepare Cs Capital Account and his executors account at the time of his death.
Ans.5
CS CAPITAL ACCOUNT
Particulars
To Cs Executors A/c

Rs. Particulars
27,750 By Balance b/d

Rs.
15,000

By Reserves

2,000

By Revaluation A/c

2,000

By p& L Suspense A/c

2,000

By Interest on Capital

750

By As Capital A/c

3,750

By Bs Capital A/c

2,250

27,750

27,750

CS EXECUTORS ACCOUNT
Particulars
To Cash A/c

Rs. Particulars

Rs.

7,750 By Cs Capital A/c

27,750

To Executors Loan A/c

or Bal c/d

20,000

27,750

Q.6 Anil, Jatin and Ramesh were sharing profit in the ratio of 2:1:1. Their Balance Sheet as at 31.12.2001
stood as follows:BALANCE SHEET
as at 31.12. 2001
Liabilities

Rs. Assets

Creditors

24,400 Cash

Bank Loan

10,000 Debtors

Rs.
1,00,000
20000

Profit and Loss A/c

Bills Payable

18,000 Less : Provision

1600 18,400

2,000 Stock

10,000

Anils Capital

50,000 Land & Building

20,000

Jatins Capital

40,000 Investment

14,000

Rameshs Capital

40,000 Goodwill

22,000

1,84,400

1,84,400

Ramesh died on 31st March 2002. The following adjustments were agreed upon(a)

Building be appreciated by Rs. 2,000

(b)

Investments be valued at 10% less than the book value.

(c)

All debtors (except 20% which are considered as doubtful) were good.

(d)

Stock be increased by 10 %

(e)

Goodwill be valued at 2 years purchase of the average profit of the past five years.

(f)

Rameshs share of profit to the death be calculated on the basis of the profit of the preceding
year. profit for the years 1997, 1998, 1999 and 2000 were Rs. 26,000, Rs. 22,000, Rs. 20,000
and Rs. 24,000 respectively.

Ans.6

Prepare revaluation account, partners capital Account, Ramesh s Executors Account and
Balance sheet immediately after Rameshs death assuming that Rs. 18, 425 be paid immediately to

his executors and balance to b left to the Rameshs Executors Account

REVALUATION ACCOUNT
Particulars

Rs. Particulars

To Investment A/c

Rs.

1,400 By Building A/c

To Provision for doubtful debt A/c

2,400

2,000

By Stock A/c

1,000

By Loss transferred to
Anils Capital A/c Rs.400
Jatins Capital A/c Rs. 200
Rameshs Capital A/c Rs. 200 800
3,800

3,800

PARTNERS CAPITAL ACCOUNTS

Particulars

Anil
Rs.

Jatin Ramesh
Rs.

Rs.

11,000 5,500

5,500

To Ramesh Capital A/c 7,3333,667

To Revaluation A/c (Loss)400 200

200

To Goodwill A/c

To Rameshs Executors A/c

To Balance c/d

Particulars

Anil
Rs.

By Balance b/d

Jatin Ramesh
Rs.

Rs.

50,00040,00040,000

By Profit and Loss A/c 9,0004,500 4,500

By Profit &Loss Susp A/c -

50,925

40,267 35,133

By Anils Capital A/c

- 1,125

- 7,333

By Jatins Capital A/c

59,000 41,500 56,625

Particulars

Rs.

2002

- 3,667

59,00041,50056,625
By Balance b/d

Date

Date

40,26735,133

Particulars

Rs.

2002

Mar. 31 To Cash A/c

18,425

Dec. 31 To Balance A/c

32,500

Mar. 31By Raeeshs Capital A/c 50,925

50,925

50,925
2003
Jan.1

By Balance b/d

32,500

BATANCE SHEET
Liabilities
Bank Loan

Rs. Assets

Rs.

10, 000 Cash

Creditors
Bills Payable
Rameshs Executors Loan

20,400 Debtors

81,575
Rs. 20,000

2,000 Less: Provision

32,500

Rs. 4,000 16,000

Stock

11,000

Anils Capital

40,267 Land and Building

22,000

Jatins Capital

35,133 Investments

12,600

Profit and Loss Suspense A/c

1,44,300

1,125

1,44,300

Retirement and Death of a Partner

Q.1

What is meant by retirement of a partner?

Ans.

Retirement of a partner is one of the modes of reconstituting the firm in which old partnership comes to an end
and a new partner among the continuing (remaining) partners (i.e., partners other than the outgoing partner)
comes into existence.

Q.2

How can a partner retire from the firm?

Ans.

A partner may retire from the firm;

i)

in accordance with the terms of agreement; or

ii) with the consent of all other partners; or

iii) where the partnership is at will, by giving a notice in writing to all the partners of his intention to retire.
Q.3

What do you understand by Gaining Ratio*?

Ans.

Gaining Ratio means the ratio by which the share in profit stands increased. It is computed by deducting old ratio
from the new ratio.

Q.4

What do you understand by Gaining Partner?

Ans

Gaining Partner is a partner whose share in profit stands increased as a result of change in partnership.

Q.5

Distinguish between Sacrificing Ratio and Gaining Ratio.

Ans.

Q.6

Distinction between Sacrificing Ratio and Gaining Ratio

Give two circumstances in which gaining ratio is computed. Ans.

Gaining Ratio is computed in the following

circumstances: (i) When a partner retires or dies. (ti) When there is a change in profit-sharing ratio.
Q.7

Why is it necessary to revalue assets and reassess liabilities at the time of retirement of a partner ?

Ans.

At the time of retirement or death of a partner, assets are revalued and liabilities are reassessed so that the profit
or loss arising on account of such revaluation upto

the

date of retirement or death of a partner may be

ascertained and adjusted in all partners capital accounts in their old profit-sharing ratio.
Q.8

Why is it necessary to distribute Reserves Accumulated, Profits and Losses at the time of retirement or death of a
partner?

Ans.

Reserves, accumulated profits and losses existing in the books of account as on the date of retirement or death
are transferred to the Capital Accounts (or Current Accounts) of all the partners (including outgoing or deceased
partner) in their old profit-sharing ratio so that the due share of an outgoing partner in reserves, accumulated
profits/losses gets adjusted in his Capital or Current Account.

Q.9

What are the adjustments required on the retirement or death of a partner?

Ans.

At the time of the retirement or death of a partner, adjustments are made for the following:
(i) Adjustment in regard to goodwill.
(ii) Adjustment in regard to revaluation of assets and reassessment of liabilities.
(iii) Adjustment in regard to undistributed profits.
(iv) Adjustment in regard to the Joint Life Policy and individual policies.

Q.10

X wants to retire from the firm. The profit on revaluation of assets on the date of retirement is Rs. 10,000. X is of
the view that it be distributed among all the partners in their profit-sharing ratio whereas Y and Z are of the view
that this profit be divided between Y and Z in new profit-sharing ratio. Who is correct in this case?

Ans.

X is correct because according to the Partnership Act a retiring partner is entitled to share the profit upto the date
of his retirement. Since the profit on revaluation arises before a partner retires, he is entitled to the profit.

Q.11

How is goodwill adjusted in the books of a firm -when a partner retires from partnership?

Ans.

When a partner retires (or dies), his share of profit is taken over by the remaining partners. The remaining
partners then compensate the retiring or deceased partner in the form of goodwill in their gaining ratio. The
following entry is recorded for this purpose:
Remaining Partners Capital A/cs

...Dr.

To Retiring/Deceased Partners Capital A/c

[Gaining Ratio]

[With his share of goodwill]

If goodwill (or Premium) account already appears in the old Balance Sheet, it should be written off by recording

the following entry :

All Partners Capital/Current A/cs ...Dr.

[Old Ratio]

To Goodwill (or Premium) A/c

Q.12

X, V and Z are partners sharing profits and losses in the ratio of 3 : 2 :1. Z retires and the following Journal entry
is passed in respect of Goodwill:
Ys Capital A/c...Dr.

20,000

To Xs Capital A/c

10,000

To Zs Capital A/c

10,000

The value of goodwill is Rs. 60,000. What is the new profit-sharing ratio between X and Y?
Ans.

Without calculating the gaining ratio, the amount to be adjusted in respect of goodwill can be calculated directly
with the help of following statement:
STATEMENT SHOWING THE REQUIRED ADJUSTMENT FOR GOODWILL
Particulars

X(Rs.)

V(Rs.)

Z(Rs.)

Right of goodwill before retirement (3:2:1)

30,000

20,000

10,000

(Old Ratio) Right of goodwill after retirement

20,000

40,000

(Balancing Figure) (New Ratio)

Net Adjustment

(-) 10,000

(+) 20,000

(-) 10,000

The new ratio between X and Y is 1 : 2.

Q.13

State the ratio in which profit or loss on revaluation will be shared by the partners when a partner retires.

Ans.

Profit or loss on revaluation of assets/liabilities will be shared by the partners (including the retiring partner) hi
their old profit-sharing ratio.

Q.14

How is the account of retiring partner settled?

Ans.

The retiring partner account is settled either by making payment in cash or by promising the retiring partner to
pay in installments along with interest or by making payment partly in call and partly transferring to his loan
account. The -following Journal entry is passed:
Retiring Partners Capital A/c

...Dr.
To Cash*

[If paid in cash]

Or
To Retiring Partners Loan

[If transferred to loan]

Q.15

What is Joint Life Policy?

Ans.

Joint Life Policy is an insurance policy taken on the lives of the partners jointly. Premium of the policy is paid by
the firm.

Q.16

What is the objective of taking a Joint Life Policy by a partnership firm?

Ans.

A partnership firm takes a Joint Life Policy with the objective of receiving sufficient amount in cash and thereby
enabling itself to pay the amount payable to the retiring partner or to the representatives of the deceased partner,
without adversely affecting the financial position and working of the business.

Q.17

When does the Joint Life Policy become due?

Ans.

Joint Life Policy becomes due for payment by the Insurance Company either on the death of any partner or on its
maturity, whichever is earlier. The policy may also be surrendered before its maturity.

Q.18

What is Surrender Value?

Ans.

Surrender Value is the value of the insurance policy that the insurance company pays on the surrender of a policy
before the date of its maturity.

Q.19

How is the share of profit of a deceased partner calculated from the date of last balance sheet to the date of
death?

Ans.

If a partner dies on any date after the date of balance sheet; then his share of profit is calculated from the
beginning of the year to the date of death on the basis of average profits or last years profit. It is calculated on
either of the following two bases:
(i) On the Basis of Time: In this method, it is assumed that the profits had accrued uniformly in the previous year.
On the basis of time, deceased partners share in the profits till the date of death is calculated as follows:
Share of Deceased Partner

= Average Profits x x Proportion of Deceased Partner

(ii) On the Basis of Sales: Deceased partners share in profit till the date of death

shall be:

= Sales for the period* x x Proportion of Deceased Partner

*Period = from the beginning of the year to the date of death.
Q.20

How is amount payable to the representative of a deceased partner calculated?

Ans.

In the case of death of a partner, the legal representatives of a deceased partner are entitled to the following:
(i) The amount standing to the credit of the deceased partners capital account.
(ii) His share in the goodwill of the firm.
(iii) His share of profit on the revaluation^ assets and reassessment of liabilities. (iv)

His share of reserves and

accumulated profits.
(v) His share of profits earned from the date of last balance sheet of the date of death.
(vi) Interest on capital provided in the partnership agreement.
(vii) His share of the proceeds of Joint Life Policy.
The following amounts will be debited to his account:
(i) His share in the reduction in the value of goodwill, if any.

(ii) His share of loss on revaluation of assets and reassessment of liabilities.

(iii) His drawings.
(iv) Interest on drawings, if provided in the partnership deed.
(v) His share of loss from the date of last balance sheet to the date of death.
The balance in the capital account is transferred to his Executors Account.
Q.21

Can an outgoing partner or Legal Representative of Deceased Partner share in the subsequent profits?
Or
What will happen if deceased or retired partners dues are not settled immediately?

Ans.

As per the provisions of Section 37 of the Partnership Act, 1932 if full or part amount of outgoing partner still
remains to be paid then
(i) He will be entitled to interest or share in profit or nothing as has been mutually agreed among partners.
(ii) If nothing is agreed among the partners, then outgoing partner or his representatives have the choice to get
either of the following till final settlement:
(a)

Interest @ 6% per annum on the balance amount.

(b)

Share in the profit earned proportionate to their amount outstanding to

Share in Profit =

total capital.

Normally he will opt for the better of (a) or (b).

CHAPTER:5

DISSOLUTION OF PARTNERSHIP FIRM

Q.1 Distinguish between dissolution of partnership and dissolution of partnership firm on the basis of continuation of business.
Ans. 1 In case of dissolution of partnership, the firm may continue its business operation but in case of dissolution of partnership firm,
the business operations are discontinued.
Q.2 Why is Realisation Account prepared on dissolution of partnership firm?
Ans. 2 Realisation account is prepared to ascertain profit or loss on sale of assets and payment of liabilities.

Q.3 State any one point of difference between Realisation Account and Revaluation Account.
Ans. 3 Realisation Account is prepared on dissolution of partnership firm and Revaluation account is prepared on reconstitution of
partnership firm.

Q.4 All partners wish to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00000 must be paid off before the payment of
capitals to the partners. But, Amart, another partner wants that the capital must be paid before the payment of Yastins loan.
You are required to settle the conflict giving reasons.
Ans. 4 Yustins claim is valid as according to section 48 (b) of partnership Act, partners loan are to be paid before any amount is paid
to partners on account of their capitals.
Q.5 On a firms dissolution debtors as shown in the Balance sheet were Rs. 17000 out of these Rs. 2000 became bad. One debtor of Rs.
6000 became insolvent and 40% could be recovered from him. Full recovery was made from the balance debtors. Calculate the
amount received from debtors and pass necessary journal entry.
Ans. 5 Cash A/C
Dr. 11400
To Realisation A/C
11400
(For debtors realized on dissolution of firm)
Q.6 On dissolution of a firm, Kamals capital account shows a debit balance of Rs. 16000. His share of profit on realization is Rs.

11000. He has taken over firms creditors at Rs. 9000. Calculate the final payment due to /from him and pass journal entry.
Ans. 6 Kamals capital A/C
Dr. 4000
To cash A/C
4000
(for final payment to Kamal)

Q.7 A and B were partners in a firm sharing profits and losses equally. Their firm was dissolved on 15 th March, 2004, which resulted in
a loss of Rs. 30,000. On that date the capital A/C of A showed a credit balance of Rs. 20,000 and that of B a credit balance of
Rs. 30000. The cash account has a balance of Rs. 20000. You are required to pass the necessary journal entries for the (i)
Transfer of loss to the capital accounts and (ii) making final payment to the partners.
Ans. 7 (i) As capital A/C
Dr. 15000
Bs capital A/C
Dr. 15000
To realization A/C
30000
(For transfer of loss on dissolution)
(ii) As capital A/C
Dr. 5000
Bs capital A/C
Dr. 15000
To cash A/C
20000
(For final payment to partners)
Q.8 What journal entries would be passed in the books of A and B who are partners in a firm, sharing profits in the ratio of 5:2, for the
following transactions on the dissolution of the firm after various assets (other than cash) and third party liabilities have been
transferred to Realisation Account?
(a)
(b)
(c)
(d)
(e)
(f)

Bank loan Rs. 12,000 is paid.

Stock worth Rs. 6000 is taken over by B.
Loss on Realisation Rs. 14,000.
Realisation expenses amounted to Rs. 2,000, B has to bear these expenses.
Deferred Revenue Advertising Expenditure appeared at Rs. 28,000.
A typewriter completely written off in the books of the firm was sold for Rs. 200.

Ans. 8
JOURNAL
(a)

Realisation A/C
To Bank A/C
Bs capital A/C
To realisation A/C
As capital A/C
Bs capital A/C
To Realisation A/C
Bs capital A/C
To bank A/C
As capital A/C
Bs capital A/C
To deferred revenue advertising expenditure A/C
Bank A/C
To realisation A/C

(b)
(c)
(d)
(e)
(f)

Dr.

Dr. (Rs)
12000

Cr. (Rs.)
12000

Dr.

6,000
6,000

Dr.
Dr.

10,000
4,000

Dr.

2,000

Dr.
Dr.

20,000
8,000

14000
2,000
28,000
Dr.

200
200

CBSE SAMPLE PAPER

ACCOUNTANCY
CLASS - XII
Time Allowed : 3 Hours
General Instructions:
1.

This question paper contains three parts A, B and C.

2.

Part A is compulsory for all.

3.

Attempt onfy one part of the remaining parts B and C.

Maximum Marks : 80

4.

All parts of questions should be attempted at one place.

PART-A
PARTNERSHIP AND COMPANY ACCOUNTS

1.

Not-for-profit organisations have some distinguishing features from that of profit organisations. State any one of them,
[1]

2.

Alka, Barkha and Charu are partners in a firm having no partnership agreement. Alka Barkha and Charu contributed
Rs. 2,00,000, Rs. 3,00,000 and Rs. 1,00,000 respectively. Alka and Barkha desire that the profits should be divided in
the ratio of capital contribution. Charu does not agree to mis. How will you settle the dispute?
[1]

3.

Give the formula for 'calculating gaining share' of apartner in a partnership firm.

4.

Pawan and Jayshree are partners. Bindu is admitted for l/4th share. What is the ratio in which Pawan and Jayshree will
sacrifice their share in favour of Bindu?
[1]

5.

What is meant by Convertible debentures?

6.

Show the following information in the Balance Sheet of the Cosmos Club as on 31st March, 2007:

Particulars
Tournament Fund
Tournament Fund Investment
Income from Tournament Fund Investment

[1]

[1]

Debit Rs.

Credit Rs.

1,50,000

1,50,000

18,000

Tournament Expenses

12,000

Additional Information :
Interest Accrued on Tournament Fund Investment Rs. 6,000.
7.

[3]

Shubh Limited has the following balances appearing in its Balance Sheet:
Rs.
Securities Premium

22,00,000

9% Debentures

120,00,000

Underwriting Commission

10,00,000

The company decided to redeem its 9% Debentures at a premium of 10%. You are required to suggest the ways in
which the company can utilise the securities premium amount.
[3]
8.

20,000 Shares of Rs. 10 each were issued for public subscription at a premium of 10% Full amount was'pavaD'e n
application. Applications were received for 30,000 shares and the Board decided to allot the shares on a pro-rata basis.
Pass Journal entries. [3]

9.

A, B and C are partners in a firm. They have omitted interest on capital @ 10% pa.a. for three years ended 31st March,
2007. Their fixed capitals on which interest was to be calculated throughout were :
A

Rs. 1,00,000

Rs. 80,000

Rs. 70,000

Give the necessary adjusting journal entry with working notes.

[4]

10.

'X, Y'and Z were sharing profits and losses in the ratio of 5:3:2. They decided to share future profits and losses in the
ratio of 2:3:5 with effect from 1.4.2007. They decided to record the effect of the following, without effecting their
book values:i)

Profit and Loss Account

Rs. 24,000

ii)

Advertisement Suspense Account

Rs. 12,000

Pass the necessary adjusting entry.

[4]

11. Sajal Limited had issued shares of Rs. 100 each at a discount of 5%, payable as follows:
On application

Rs. 25 per share

On allotment

Rs. 25 per share

On first and final call

Balance

One shareholder, Pran holding 50 shares did not pay his first and final call. As a res! his shares were forfeited.
Of these, 40 shares were reissued to Ram as fully paid up @ Rs. 110 per share, Pass necessary journal entries to record
the forfeiture and reissue of shares in: books of Sajal Limited.
[4]
12 (a) Raghav Limited purchased a running business from Krishna Traders for a sum of Rs. 15,00,000, payable Rs.
3,00,000 by cheque and for the balance issued 9% Debentures of Rs. 100 each at par.
The assets and liabilities consisted of the following :
Rs.
Plant and Machinery

4,00,000

Buildings

6,00,000

Stock

5,00,000

Sundry Debtors

3,00,000

Sundry Creditors

2,00,000

Record necessary journal entries in the books of Raghav Limited,

(b) On January 1,2004, Rhythm Limited issued 1,000 10% debentures of Rs. 500 each at par. Debentures are
redeemable after 7 years. However, the company gave an option to debenture holders to get their debentures converted
into equity
shares of Rs. 100 each at a premium of Rs. 25 per shareany time after the expiry of one year.
Shivansh, holder of 200 debentures, informed on Jan. 1, 2006 that he wanted to
conversion of debentures into equity shares.

exercise

the

option

of

The company accepted his request and converted debentures into equity shares.
Pass necessary journal entries to record the issue of debentures on Jan. 1,2004 and conversion of debentures on
Jan. 1,2006.
(3+3 = 6)
13. From the following Receipts and Payments Account of Sonic Club and from the given additional information; prepare
Income and Expenditure Account for the year ending 31st December, 2006 and the Balance Sheet as on that date :
RECEIPTS AND PAYMENTS ACCOUNT
for the year ending 31st December, 2006
Cr.

Receipts

Dr.

Rs. Payments

To Balance b/d

1,90,000 By Salaries

To Subscriptions

6,60,000 By Sports Equipment

Rs.
3,30,000
30,000

To Interest on Investments
@ 8% p.a. for full year

By Balance c/d

1,60,400

40,000
8,90,000

8,90,000

Additional Information :
(a)

The club had received Rs. 20,000 for subscription in 2005 for 2006.

(b)

Salaries had been paid only for 11 months

(c) Stock of Sports Equipment on 31st December, 2005 was Rs. 3,00,000 and on 31
6,50,000. (6)

st December, 2006 Rs.

14. Ram, Mohan and Sohan were partners sharing profits and losses in the ratio of 5:3:2. On 31 st March, 2006 their
Balance Sheet was as under:
Liabilities
Capitals :

Rs. Assets
Rs

Leasehold

Ram

1,50,000

Patents

Mohan

1,25,000

Machinery

Sohan

75,000 3,50,000 Stock

Creditors
Workmen's Compensation

1,50,000

Cash at Bank

Rs.
1,25,000
30,000
1,50,000
1,90,000
40,000

30,000

Reserve
5,35,000

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 at Rs. 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 were Rs.
75,000.
Prepare Sohan's Capital Account and Revaluation Account.

(6)

15. Srijan Limited issued Rs. 10,00,000 new capital divided into Rs. 100 shares at a premium of Rs. 20 per share, payable
as under:
On Application

Rs. 10 per share

On Allotment

Rs 0 per share (including

premium of Rs, 10 per share)

On First and Final Call

Balance

Over-payments on application, were to be applied towards sums due on allotment and first and final call. Where no
allotment was made, money was to be refunded in full. The issue was oversubscribed to the extent of 13,000 shares.
Applicants for 12,000 shares were allotted only 2,000 shares and applicants for 3,000 shares were sent letters of regret
and application money was returned to them. All the money due was duly received.
Give Journal Entries to record the above transactions (including cash transactions)^ the books of the company. [8]
OR
Sangita Limited invited application for issuing 60,000 shares of Rs. 10 each at par. amount was payable as follows:

On Application

Rs. 2 per share

On Allotment

Rs. 3 per share

On First and Final Call

Rs. 5 per share

Applications were received for 92,000 shares. Allotment was made on the following basis :
i)

To applicants for 40,000 shares - Full

ii) To applicants for 50,000 shares - 40% (iii) To applicants for 2,000 Shares - Nil Rs. 1,08,000 was realised on
account of allotment (excluding the amount carried first application money) and Rs. 2,50,000 on account of call.
The directors decided to forfeit shares of those applicants to whom full allotment^ made and on which allotment
money was overdue.
Pass journal entries in the books of Sangita Limited to record the above transactions.
[5]
16. L and M share profits of a business in the ratio of 5:3. They admit N into the firm for a fourth share in the profits to be
contributed equally by L&M. On the date of admission the Balance Sheet of L&M is as follows :
BALANCE SHEET
as at......
Liabilities

Rs. Assets

L's Capital

30,000 Machinery

M's Capital

20,000 Furniture

Reserve Fund

4,000 Stock

Rs.
26,000
18,000
10,000

Bank Loan

12,000 Debtors

Creditors

8,000

2,000 Cash

6,000

68,000

68,000

Terms of N's admission were as follows :

i)

N will bring Rs. 25,000 as his capital.

ii) Goodwill of the firm is to be valued at 4 years? purchase of the average super profits of the last three years.
Average profits of the last three years are Rs. 20,000; while the normal profits that can be earned on the capital
employed are Rs. 12,000.
iii)

Furniture is to be appreciated to Rs. 24,000 and the value of stock into by 20%.

Prepare Revaluation-Account, Partners Capital Accounts and the Balance Sheet

of N .
(8)

of the firm after admission

OR
On 31st December, 2006 the Balance Sheet of A. B and C, who were sharing profits and losses in proportion to their
capitals, stood as follows :
Liabilities

Amount

Creditors
Capitals :

Assets

Amount

10,800 Cash at Bank

Rs.

Debtors

45,000

Less : Provision

30,000

Stock

8,000
Rs 10,000
200

9,800
9,000

15,000

90,000 Machinery
Land and Buildings
1,00,800

24,000
50,000
1,00,800

B retires and the following readjustments of assets and liabilities have been agreed upon before the ascertainment of
the amount payable to B :
i)

That Land and Buildings be appreciated by 12%.

ii)

That provision for Doubtful Debts be brought upto 5% of debtors.

iii)

That a provision of Rs. 3,900 be made in respect of an 'outstanding bill for repairs,

iv) That Goodwill of the entire firm be fixed at Rs.. 18,000 and B?s share of the same be adjusted into the accounts
of A&C, who are going to share future profits in the proportion of 3/4th and l/4th respectively,
v)

That B be paid Rs. 5,000 immediately and the balance to be transferred to his Loan Account.
Prepare Revaluation Account, Capital Accounts of Partners and the Balance Sheet
(8)

of the firm of A and C.

PART-B
ANALYSIS OF FINANCIAL STATEMENTS
17. Assuming that the Current Ratio is 2:1, state giving reason whether the ratio will improve, decline or will have no
change in case a Bill Receivable is dishonoured.
(1)
18. State whether cash deposited in bank will result in inflow, outflow or no flow of cash.(1)

19. Interest received by a finance company is classified under which kind of activity while preparing a cash flow statement
?
(1)
20. Show the major headings into which the liabilities side of a Company's Balance Sheet is organised and presented as
per Schedule VI Part 1 of the Companies Act, 1956.(3)
21. Prepare a Comparative Income Statement with the help of the following information :
(4)
Particulars

2006

2007

Sales

Rs. 20,00,000

Rs. 30,00,000

Gross Profit
Indirect Expenses
Income Tax
22.

40%
50% of G P.
50%

30%
40% of G.P.
50%

Following is the Balance Sheet of X Ltd. as on 31st March, 2006 :

Liabilities
Share Capital
Reserves
10% Loans

Amount

Assets

Amount

20,00,000 Fixed Assets (Net)

29,00,000

5,00,000 Current Assets

25,00,000

10,00,000 Underwriting
Commission

Current Liabilities

8,00,000

Profit for the year

12,00,000

1,00,000

55,00,000

55,00,000

Find out 'Return on Capital Employed;

23. From the following balance sheets of ABC Ltd., Find out cash from operating activities only.
Liabilities
31.3.200631.3.2007
Rs.
Equity Share Capital30,000 35,000
General Reserve 10,000 15,000
Profit & Loss Account
7,000
10% Debentures 21,000 25,000
Sundry Creditors
8,500 12,500
Provision for Depreciation
on Machinery
9,000 13,000

78,500 1,07,500

Assets 31.3.200631.3.2007
Rs.
Rs.
Goodwill
10,000 8,000
Machinery 41,000 54,000
10% Inv.
3.000 8.000
Stock
6,000 24,500
Cash and Bank12,00013,000
Discount on
Debentures
500
Profit & Loss
Account
6,000
78,5001,07,500

Rs.

Additional Information :
*Debentures were issued on 31.3.2007.
* Investments were made on 31.3.2007.

ANNUAL PAPER
ACCOUNTANCY
CLASS - XII
Time Allowed : 3 Hours
General Instructions :

Maximum Marks : 80

1.

This question paper contains three parts A, B and C.

2.

Part A is Compulsory for all candidates.

3.

Candidates can attempt only one part of the remaining parts B and C.

4.

All parts of the questions should be attempted at one place.

PART-A
(Not for Profit Organisations, Partnership Firms and Company Accounts)

1.

Distinguish between Income and Expenditure Account and Receipt and Payment Account on the basis-of nature of
items recorded therein.
[1]

2.

Ram and Mohan are partners in a firm without any partnership deed. Their capitals are
Ram Rs.8,00,000 and Mohan Rs.6,00,000. Ram is an active partner and looks after the business. Ram wants that
profit should be shared in proportion of capitals. State with reason whether his claim is valid or not.
[1]

3.

Defined goodwill.

[1]

4.

State any two reasons for the preparation of 'Revaluation Account' on the admission of a partner. [1]

5.

Give the meaning of 'minimum subscription'.

6.

Calculate the amount of sports material to be debited to the Income and Expenditure Account of Capital Sports Club
for the year ended 31.3.2007 on the basis of the following information

[1]

1.4.2006

31.3.2007

Rs.

Rs.

Stock of sports material

7,500

6,400

Creditors for sports material

2,000

2,600

Amount paid for sports material during the year was Rs. 19,000.

7.

Samta Ltd. forfeited 800 equity shares of Rs. 100 each for the non-payment of first call of Rs. 30 per share. The final
call of Rs.20 per share was not yet made. Out of the share 400 were re-issued at the rate of Rs.105 per share fully paid
up.
Pass necessary journal entries in the books of Samta Ltd. for the above transaction.
[3]

8.

Deepak Ltd. purchased furniture Rs.2,20,000 from M/s Furniture Mart. 50% of the amount was paid to Furniture Mart
by accepting a bill of exchange and for the balance the company issue 9% debentures of Rs.100 each at a premium of
10% in favour of Furniture Mart. Pass necessary journal entries in the books of Deepak Ltd. for the above transactions.
[3]

9.

Kumar and Raja were partners in a firm sharing profits in the ratio of 7 :3. Their fixed capital were: Kumar
Rs.9,00,000 and Raja Rs.4,00,000. The partnership deed provided for the following but the profit for the year was
distributed without providing for:
i)

Interest on capital @ 9% p.a.

ii)

Kumar's salary Rs.50,000 per year and Raja's salary Rs.3,000 per month.
The profit for the year ended 31.3.2007 was Rs.2,78,000.

Pass the adjustment entry.

[4]

10. P, Q and R were partners in a firm sharing profits in 2 : 2 :1 ratio. The firm closes its book on 31 March every year. P
died three months after the last accounts were prepared. On that date the goodwill of the firm was valued at Rs.90,000.
On the death of a partner his share of profit in the year of death was to be calculated on the basis of the average profits
of the last four years The profits of last four years were :
Year ended 31.3.2007

Rs.2,00,000

Year ended 31.3.2006

Rs. 1,80,000

Year ended 31,3.2005

Rs. 2,10,000

Year ended 31.3.2004

Rs. 1,70,000 (Loss)

Pass necessary journal entries for the treatment of goodwill and P's share of profit on his death.
Show clearly the calculation of P's share of profit.

(4)

11. Sagar Ltd. was registered with an authorised capital of Rs. 1,00,000 divided into 1,00,000 equity shares of Rs.100
each. The company offered for public subscription 60,000 equity shares.
Applications for 56,000 shares were received and allotment was made to all the applicants. All the calls were made
and were duly received except the second and final call of Rs.20 per share on 700 shares. Prepare the Balance Sheet of
the company showing the different types of share capital.
(4)
12. Following is the Receipt and Payment Account of Indian Sports Club for the year ended 31.12.2006.
Receipts

Payments

Amount

To Balance b/d

10,000 By Salary

15,000

To Subscriptions

52,000 By Billiards Table

20,000

To Entrance Fee

Amount

5,000 By Office Expenses

6,000

To Tournament Fund
To Sale of old newspapers
To Legacy

26,000 By Tournament Expenses

1,000 By Sports Equipment
37,000 By Balance c/d
1,31,00

31,000
40,000
19,000
1,3 1,000

Other Information:
On 31.12.2006 subscription outstanding was Rs.2,000 and on 31.12.2005 subscription outstanding was Rs.3,000.
Salary outstanding on 31.12,2006 was Rs.1,500.
On 1.1.2006 the club had building Rs.75,000, furniture Rs. 18,000,12% investment Rs.30,000 and sports equipment
Rs.30,000, Depreciation charged on these items including purchases was 10%.
Prepare Income and Expenditure Account of the Club for the year ended 31.12.2006 and ascertain the Capital Fund on
31.12.2005.
(6)
13. K and Y were partners in a firm sharing profits in 3 :2 ratio. They admitted Z as a new partner for l/3rd share in the
profits of the firm. Z acquired his share from K and Y in 2 : 3 ratio. Z brought Rs.80,000 for his capital and Rs.30,000
for his 1/3"1 share as premium. Calculate the new profit sharing ratio of K, Y and Z and pass necessary journal entries
for the above transactions in the books of the firm.
(6)
14. Pass necessary journal entries in the books of Varun Ltd. for the following transactions: i) Issued
debentures of Rs.l,000each at a premium of 10%.

58,000,

ii)

Converted 350,9% debentures of Rs. 100 each into equity shares of Rs. 10 each issued at premium of 25%.

iii)

Redeemed 450, 9% debentures of Rs.100 each by draw of lots.

(6)

9%

15. R, S and T were partners in a firm sharing profits in 2 :2 : 1 ratio. On 1.4.2004 their Balance Sheet was as follows :
Liabilities

Amount

Assets

Amount

Bank Loan

12,800 Cash

51,300

Sundry Creditors

25,000 Bills Receivable

10,800

Debtors

35,600
44,600

Capitals :
R

80,000

Stock

50,000

Furniture

7,000

40.000

1,70,000 Plant and Machinery

19,500

Profit: and Loss A/c

9,000 Building

48,000

2,16,800

2,16,800

S retired from the firm on 1.4.2004 and his share was ascertained on the revaluation of assets as follows:
Stock Rs.40,000; Furniture Rs.6,000; Plant and Machinery Rs. 18,000; Building 40,000, Rs.1,700 were to be provided
for doubtful debts. The goodwill of the firm was valued at Rs. 12,000.
S was to be paid Rs. 18,080 in cash on retirement and the balance in three equal yearly instalments. Prepare
Revaluation Account, Partner's Capital Accounts, S's Loan Account and Balance Sheet on 1.4.2004.
OR
D and E were partners in a sharing profits in 3 :1 ratio. On 1.4.2007 they admitted F as a new partner for 1/4th share in
the firm which he acquired from D. Their Balance Sheet on the date was as follows:
Liabilities
Creditors

Amount

Assets

54,000 Land and Building

Amount

Capitals :
D
1,00,000
S
70.000
General Reserve

Machinery
Stock
1,70,000 Debtors
40,000
32,000 Less provision
for bad debts
3,000
37,000
Investments
50,000
Cash
44,000
2,56,000
2,56,000
F will bring R. 40,000 as his capital and the other terms agreed upon were :
i)

Goodwill of the firm was valued at Rs. 24,000

ii)

Land and Building were valued at Rs. 70,000

iii)

Provision for bad debts was found to be in excess by Rs.800

iv)

A liability for Rs.2,000 included in sundry creditors was not likely to arise.

v)

Excess or shortfall, if any, to be transferred to current accounts.

'

Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the New firm.
16. Janata Ltd. invited application for issuing 70,000 equity shares of Rs.10 each at a premium of Rs. 2 per share. The
amount was payable as follows:
On application

Rs.4 per share (including premium)

On allotment

Rs.3 per share

On first and final

Balance

Applications for 1,00,000 shares were received. Applications for 10,000 shares were rejected. Shares were allotted to
the remaining applicants on pro-rata basis. Excess money received with applications were adjusted towards sums due
on allotment. All calls were made and were duly received except first and final call on 700 shares allotted to Kanwar.
His shares were forfeited.
The forfeited shares were re-issued for Rs.77,000 fully paid up.
Pass necessary journal entries for the books of the company for the above transactions.
(8)
OR
Shubham Ltd. invited applications for the allotment of 80,000 equity shares of Rs.10 each at a discount of 10%. The
amount was payable as follows :
On application

Rs.2 per share

On allotment

Rs.3 per share

On first and final call-

Balance

Applications for 1,10,000 shares were received. Applications for 10,000 shares were rejected. Shares were allotted on
pro-rata basis to the remaining applicants. Excess application money received on application was adjusted towards
sums due on allotment. All calls were made and were duly received. Manoj who had applied for 2,000 shares failed to
pay the allotment and first and final call. His shares were forfeited. The forfeited shares were re-issued for Rs.24,000
fully paid up. Pass necessary journal entries in the books of the company for the above transaction.
PART-B
(Analysis of Financial Statements)
17. The stock turnover ratio of a company is 3 times. State, giving reason, whether the ratio improves, declines or does not

change because of increase in the value of closing stock by Rs.5,000.

(1)

18. State whether the payment of cash to creditors will result in inflow, outflow or no flow of cash.
19.

(1)

Dividend paid by a manufacturing company is classified under which kind of activity while preparing cash flow
statement?
(1)

20. Show the major headings on the liabilities side of the Balance Sheet of a company as per Schedule VI Part I of the
Companies Act, 1956.
(3)
21. From the following information prepare a comparative Income Statement of Victor Ltd:

Sales
Cost of goods sold

2006

2007

Rs.

Rs.

15,00,000

18,00,000

11,00,000

14,00,000

Indirect Expenses
20% of Gross Profit
Income Tax

125% of Gross Profit

50%

22. From the following information calculate any two of the following ratios
i)

Net Profit Ratio

ii)

Debt-Equity Ratio

iii)

Quick Ratio

Paid up Capital

Rs.
20,00,000

50%
(4)

(4)

Capital Reserve
9% Debentures
Net Sales
Gross Profit
Indirect Expenses
Current Assets
Current Liabilities
Opening Stock
Closing Stock : 2% more than opening stock.

2,00,000
8,00,000
14,00,000
8,00,000
2,00,000
4,00,000
3,00,000
50,000

23. From the following Balance Sheets of Som Ltd. as on 31.3.2006 and 31.3.2007 prepare a Cash Flow Statement :

Liabilities

Amount

Assets

Amount

Equity Share Capital

2,00,000 5,00,000

Fixed Assets3,00,0004,50,000

Profit and Loss

1,25,000

25,000

Stock

10% Debentures

1,00,000

75,000

Debtors

8% Preference Shares Capital50,00075,000 Bank

General Reserve

1,00,000 1,50,000
75,000 1,25,000
45,000

65,000

45,000 1,15,000
5,20,0007,90,000.

5,20,000 7,90,000

During the year machine costing Rs.70,000 was sold for Rs. 15,000. Dividend paid Rs.24,000
(6)

ANSWERS
SET-1
(Not for Profit Organisations, Partnership Firms and Company Accounts)
1.

Income and Expenditure Account records items of revenue nature whereas Receipt and Payments Account records
items of both capital and revenue nature.

2.

His claim is not valid because in the absence of a partnership deed, profits and losses should be shared equally.

3.

Goodwill is the value of the reputation of a firm is respect of the profits expected in future over and above the normal
profits earned by other similar firms belonging to the same industry.

4.

The two reasons are :

5.

(i)

To show the assets and liabilities at their current / correct values.

ii)

To ensure that no partner is at an advantage or disadvantage due to change in the value of assets and liabilities.

Minimum subscription is the minimum amount which in the opinion of the Board of Directors must be raised through

the issue of shares so that the company has necessary funds to carry out its objectives as stated in its memorandum of
Association.
Minimum subscription, according to SEB1 guidelines is 90% of the issued capital.
6.

Dr.

Cr.

STOCK OFSPORTS MATERIAL ACCOUNT

Particulars

Amt. (Rs.) Particulars

To Balance b/d

Amt (Rs.)

7,500 By Income & Expenditure A/c -

20,700

(stationery consumed)
To Creditors -

19,600 By Balance c/d

(purchases)

27,100

6,400

27,100
Dr.

27,100

CREDITORS FOR SPORTS MATERIAL ACCOUNT

Particulars
To Cash (paid)
To Balance c/d

Amt. (Rs.) Particulars

Cr.
Amt (Rs.)

19,000 By Balance b/d

2,000

2,600 By Purchases A/c

19,600

(credit -bal.fig.)
21,600

21,600
OR

Calculation of Sports Material consumed during the year

Cash paid during the year
Add Opening Stock of sports Material

19,000
7,500

Less Closing stock of sports Material

6,400

Less Creditors in the beginning

2,000

Add Creditors at the end

2.600

Amount to be debited to Income & Expenditure A/c

20,700

JOURNAL OF SAMTALTD.
7.
Date

Particulars

L.F.

Share Capital A/c

Dr.

Dr. (Rs.)Cr.(Rs)

64,000

To Share Forfeited A/c

40,000

To Share First Call A/c / Calls in Arrears A/c

24,000

(Being 800 shares forfeited for noh payment of

first call)
Bank A/c

Dr.

42,000

To Share Capital A/c

40,000

To Securities Premium A/c

2,000

(Being 400 Shares reissued)

Share Forfeited A/c
To Capital Reserve A/c

Dr.

20,000
20,000

(Being amount transferred to Capital Reserve)

8.
JOURNAL OF DEEPAK LTD.
Date

Particulars

L.F. Dr. (Rs.) Cr.(Rs)

Furniture A/c

Dr.

To M/s Furniture Mart A/c

2,20,000
2,20,0001

(Being furniture purchased)

Ms Furniture Mart A/c

Dr.

To Bills Payable A/c

1,10,000
1,10,000:,

(Being Bill payable Accepted)

M/s Furniture Mart A/c

Dr.

1,10,000

To 9% Debentures A/c

1,00,000

To Securities Premium

10,000

(Being Debentures issued at 10% premium)

9.
JOURNAL

Date

Particulars

L.F. Dr. (Rs.) Cr.(Rs)

Kumar's Current A/c

Dr.

To Raja's Current A/c

11,100
11,100

(Being adjustment made which was omitted

earlier)

Working Notes:
STATEMENT SHOWING ADJUSTMENTS
Particulars

Kumar (Rs.)

Raja (Rs.)

Interest on Capitals

81,000 (Cr.)

Salaries

50,000 (Cr.)

36,000 (Cr.)

1,94,600 (Dr.)

83,400 (Dr.)

Wrong Profits

36,000 (Cr.)

Actual Profits

52,500 (Cr.)

22,500 (Cr.)

Adjustments

11,100 (Dr.)

11,100 (Cr.)

10.
JOURNAL
Date

Particulars

P & L Suspense A/c

To P's Capital A/c

L.F. Dr. (Rs.) Cr.(Rs)

Dr.

10,500
10,500

(Being share of profit credited to his A/c)

Q's Capital A/c

Dr.

R's Capital A/c

Dr.

To P's Capital A/c

24,000
12,000
36,000

(Being adjustment made in respect of P's share

of goodwill)
Working Note :
(a)

P's Share of profit

Average Profit

P's share of profit

Average profit x 3/12 x 2/5

=
2,00,000 + 1,80.000 + 2,10,000 -1,70,000
= Rs.1,05,000
=

1,05,000 x 3/12 x 2/5 = Rs.l0,500

P's share in goodwill = Rs.90,000 x 2/5 = Rs. 36,000

11.
BALANCE SHEET OF SAGAR LTD.
.
as at ..........
Liabilities
SHARE CAPITAL

Amount (Rs.) AssetsAmount (Rs.)

Authorised Capital

1,00,00,000

1,00,000 equity shares of Rs. 100 each

Issued Capital
60,000 equity shares of Rs. 1 00 each

60,00,000

Subscribed Capital
56,000 equity shares of Rs.100 each

56,00,000

Less calls in arrears

14.000

55,86,000

OR
Liabilities

Amount (Rs.) AssetsAmount (Rs.)

A uthorised Capital
1,00,000 Equity Shares of Rs.100 each

1,00,00,000

Issued Share Capital

60,000 Equity Shares of Rs.100 each

60,00,000

Subscribed Share Capital

56,000 Equity Shares of Rs. 100 each
Called up and Paid up Share Capital

56,00,000

56,000 Equity Shares of Rs. 100 each

Less, calls in arrears

56,00,000

14.000 55,86,000

Note : If the Issued Capital is taken as Rs.56,00,000, full credit was given.
12.
INCOME & EXPENDITURE ACCOUNT
for the year ended 31st December 2006
Expenditure
To Salary

Amt. (Rs.) Income

15,000

Amt (Rs.)

By Subscription

52,000

Add: Outstanding Salary

1,500 16,500Add: Subscription Outstanding

To Office Expenses

6,000 at the end

2,000

To Excess of Expenses
Over Tournament Fund

5,000 Less: Subscription

(31,000-26,000)

Outstanding in the
beginning

3.000

To Depreciation on Building

7,500

To Depreciation on Furniture

1,800By Sale of old Newspaper

To Depreciation on Sports Equipment

7,000

To Surplus

By Entrance Fees

16,800 By Accrued Interest

5,000
1,000

3,600

60,600

60,600

BALANCE SHEET
as at 31" December 2005
Liabilities
Capital

Amount (Rs.)
1,66,000

Assets
Cash

Amount (Rs)
10,000

Subscription
Outstanding

3,000

Building

75,000

Furniture

18,000

Sports

1,66,000

Equipment

30,000

1 2% Investments

30,000
1,66,000

Notes :
1. If Billiards Table is included in furniture, then depreciation On furniture would be
Rs.3,800 and the surplus would be Rs.l 4,800.

2. No marks were deducted if depreciation has been charged on Investments. The surplus
would change accordingly.

13.

Old Ratio

3:2

Z's share

1/3

Z acquires from K = 1/3 x 2/5 = 2/15

Z acquires from Y = 1/3 x 3/5 = 3/15
K's new share = Old share-share to Z = 3/5-2/15 = 7/15
Y's new share = Old share - share to Z = 2/5 -3/15 = 3/15
New profit sharing ratio = 7:3:5

JOURNAL
Date

Particulars
Cash A/c

L.F. Dr. (Rs.) Cr.(Rs)

Dr.

1,10;000

To Z's Capital A/c

80,000

To Premium A/c

30,000

(Being Capital and share of goodwill brought in by

the new partner)

Premium A/c

Dr.

30,000

To K's Capital A/c

12,000

To Y's Capital A/c

18,000

(Being the amount of premium distributed in

Sacrificing ratio)

14.

i)
Date

JOURNAL OF VARUN LTD.

Particulars
Bank A/c

L.F. Dr. (Rs.) Cr.(Rs)

Dr.

6,38,00,000

To Debenture Application and Allotment A/c

6,38,00,000

(Being Debenture Application money received)

Debenture Application and Allotment A/c

Dr.

To 9% Debentures A/c

5,80,00,000

To Securities Premium A/c

58,00,000

(Being issue of Debentures at Premium of 10%)

II)

6,38,00,000

JOURNAL

Date

Particulars

L.F. Dr. (Rs.) Cr.(Rs)

9% Debentures A/c

Dr.

To Debenture Holders

35,000
35,000

(Being amount due to Debenture Holders)

Debenture holders A/c

Dr.

To Equity Share Capital A/c

35,000
28,000

To Securities Premium A/c

7,000

(Being 2,800 Equity Shares issued at a premium of 25%)

III)
Date

JOURNAL
Particulars

L.F. Dr. (Rs.) Cr.(Rs)

9% Debentures A/c

Dr.

To Debenture Holders

45,000
45,000

(Being amount due to Debenture Holders)

Debenture Holders A/c
To Bank A/c
(Being amount paid to Debenture Holders)

Dr.

45,000
45,000

REVALUATION ACCOUNT

15.

Expenditure

Amt. (Rs.) Income

Amt (Rs.)

To Stock

4,600 By Loss transferred to

To Furniture

1,000 Partners capital A/cs :

To Plant &. Mach.

1,500

R 6,720

To Building

8,000

S 6,720

To Provision for

T 3,360 16,800

Doubtful Debts

1,700
16.800

16.800

CAPITAL ACCOUNTS
Particulars

R Rs. S Rs.

T Rs. Particulars

R Rs. S Rs. T Rs

To
Revaluation A/c6,7206,720 3,360 By Balance b/d
By P&L A/c
To S's Capital A/c3,200
To Cash A/c
To S's Loan

80,00050,00040,000
3,600 3,600 1,800

- 1,600 By R's

18,080

Capital A/c
By T's

_ 3,200

A/c

-33,600

- Capital A/c
To Bal. c/d

83,60058,40041,800

- 1,600

73,68036,840
83,60058,40041,800

BALANCE SHEET
as at 1.4.2004

Liabilities

Amt (Rs.) Assets

Bank Loan

12,800 Cash

33,220

Sundry Creditors

25,000 Bill Receivables

10,800

S'sLoan

33,600 Debtors

Capital

Amt (Rs.)

35,600

Less Provision

73,680

Stock

36,840

Furniture

1,700 33,900
40,000
6,000

1,10,520 Plant & Machinery

18,000

Building

40,000

1,81,920

1,81,920

S's LOAN ACCOUNT

Cr.
Date

Dr.
Particular Amount (Rs,)

Date

To Balance c/d

2004

33,600

Apr. 1

Particular

Amount (Rs.)

By S's Capital

33,600

33,600
33,600

OR

REVALUATION ACCOUNT
Cr.

Dr,

Particulars

Amt (Rs.) Particulars

Amt (Rs.)

To Profit TVansferred to

By Land and building

Partner's Capital A/c

By Provisions for doubtful debts

17,100

20,000

By Sundry Creditors

800

2,000

5,700 22,800
22,800

22,800

PARTNERS' CAPITAL ACCOUNTS

Particulars
To

D Rs. E Rs.
67,10043,700

F Rs. Particulars

D Rs. E Rs. F Rs.

-- By Balance b/d1,00,00070,000

Current A/c 80,00040,00040,000 By Revaluation A/c 17,1005,700

---

By General Reserve 24,0008,000 -By Cash A/c

--

By F's Current A/c 6,000

1,47,00083,70046,000

--40,000
--

1,47,00083,70046,000

BALANCE SHEET
as at 1" April 2007

Liabilities

Amt (Rs.) Assets

Creditors

Amt (Rs.)

52,000 Land & Building

Capital A/c's

Debtors

40,000

80,000

Less Provision

40,000

Machinery

40,0001,60,000 Stock

Current A/c's

70,000

2.200

37,800
60,000
15,000

Investment

50,000
84,000

67,100

Cash

43,700

F's Current A/c

6,000

1,10,800
3,22,800

3,22,800

Note: Full credit was given if an examinee has calculated the adjusted capitals as: D Rs. 68,000; E
Rs.34,000 and F Rs.34,000 and the total of the Balance Sheet is Rs,3,16,800.

16.

IN THE BOOKS OF JANTA LTD.

JOURNAL
Date

Particulars
Bank A/c
To Share Application A/c

L.F. Dr. (Rs.) Cr.(Rs)

Dr.

4,00,000
4,00,000

(Being application money received on 1,00,000 shares

@ Rs.4 per share including premium)
Share Application A/c

Dr.

4,00,000

To Share CapitaVA/c

1,40,000

To Securities Capital A/c

1,40,000

To Share Allotment A/c

80,000

To Bank A/c

40,000

(Being application money adjusted to wards share capital

& Share allotment & balance refunded)
Share Allotment A/c

Dr.

2,10,000

To Share Capital A/c

2,10,000

(Being amount due on share allotment)

Bank A/c

Dr.

1,30,000

To Share Allotment A/c

1,30,000

(Being allotment money-received)

Share First & Final Call A/c

Dr.

3,50,000

To Share Capital A/c

3,50,000

(Being amount due on share first & final call

on 70,000 share @ Rs.5 each)
Bank A/c

Dr.

3,46,500

To Share First & Final Call A/c

3,46,500

(Being first & final call received)

OR
Bank A/c

Dr.

3,46,500

Calls in Arrears A/c

Dr.

3,500

To Share First & Final Call A/c

3,50,000

(Being first & final call received)

Share Capital A/c

Dr.

7,000

To Share Forfeited A/c

3,500

To Share First & Final Call / Calls in Arrears A/c

3,500

(Being 7010 shares forfeited due to non payment of

first & final call)

Bank A/c

Dr.

77,000

To Share Capital A/c

7,000

To Securities Premium A/c

70,000

(Being forfeited share reissued @ Rs.77,000)

Share Forfeited A/c

Dr.

3,500

To Capital Reserve A/c

(Being Capital Profit on reissued shares transferred to
capital reserve A/c)

3,500

OR
Date

Particulars
Bank A/c

L.F. Dr. (Rs.) Cr.(Rs)

Dr.

2,20,000

To Share Application A/c

2,20,000

(Being application money received on 1,10,000 share

@ Rs.2 per share)
Share Application A/c

Dr.

2,20,000

To Share Capital A/c

1,60,000

To Share Allotment A/c

40,000

To Bank A/c

20,000

(Being application money adjusted to wards share capital

& Share allotment & balance refunded)
Share Allotment A/c

Dr.

2,40,000

Discount on Issue of Shares A/c

Dr.

80,000

To Share Capital A/c

3,20,000

(Being amount due on share allotment)

Bank A/c
To Share Allotment A/c

Dr.

1,96,000
1,96,000

(Being allotment money received)

OR
Bank A/c

Dr.

1,96,000

Calls in Arrears A/c

Dr.

4,000

To Share Allotment A/c

2,00,000

(Being first & final call received)

Share First & Final Call A/c

Dr.

3,20,000

To Share Capital A/c

3,20,000

(Being amount due on share first & final call on 80,000

shares @ Rs.4 each)
Bank A/c

Dr.

3,13,600

To Share First & Final Call A/c

3,13,600

(Being first & final call received)

OR
Bank A/c

Dr.

3,31,600

Calls in Arrears A/c

Dr.

6,400

To Share First & Final Call A/c

3,20,000

(Being first & final call received)

Share Capital A/c

Dr.

16,000

To Share Forfeited A/c

4,000

To Share allotment A/c

4,000

To Share First & Final Call A/c

6,400

To Discount on Issue of Shares A/c

1,600

(Being 1,600 shares forfeited due to non payment of

first & final call)

allotment &

OR
Share Capital A/c

Dr.

16,000

To Share Forfeited A/c

4,000

To Calls in Arrears A/c

10,000

To Discount on Issue of Shares A/c

1,600

(Being 1,600 shares forfeited due to non payment of

first &. final call)
Bank A/c

Dr.

allotment &

24,000

To Share Capital A/c

16,000

To Securities Premium A/c

8,000

(Being forfeited shares reissued @ Rs.24,000)

Share Forfeited A/c

Dr.

4,000

To Capital Reserve A/c

(Being Capital Profit on reissued shares transferred to
capital reserve A/c)

4,000

PART-B
(Analysis of Financial Statements)
17. Stock turnover ratio will decline because die amount of average stock will increase, cost c goods sold
remaining the same.
18.

Outflow of Cash

19.

Financing Activity

20. The major headings on the liability side of the balance sheet are:
i)

Share Capital

ii)

Reserves & Surplus

iii)

Secured Loans

iv)

Unsecured Loans

v)

Current Liabilities & Provisions

a)

Current Liabilities

b)

Provisions

21.

COMPARATIVE INCOME STATEMENT OF VICTOR LTD.

Particulars
Sales

2006 Rs.

2007 Rs.Absolute Change%age Change

15,00,000 18,00,000

3,00,000

20

Less Cost of
goods Sold

11,00,000 14,00,000

3,00,000

27,27

Gross Profit

4,00,000

4,00,00

--

--

80,000

1,00,000

20,000

25

3,20,000 3,00,000

(20,000)

(6.25)

1,50,000

(10,000)

(6.25)

Net Profit After Tax 1,60,000 1,50,000

(10,000)

(6.25)

Less Indirect
Expenses
Net Profit before
Tax
Less : Income Tax

1,60,000

22. Any Two of the following ratios:

i)

Net Profit Ratio

Net Profit

=
=

Gross Profit - Indirect expenses

8,00,000-2,00,000

Rs.6,00,000

Net Profit Ratio

ii)

Debt Equity Ratio

Debt
Equity

Net Profit / Net Sales X 100

6,00,000 / 40,00,000 x 100 = 42.86%

Debt / Equity

Debentures = Rs.8,00,000
=

Equity Share Capital + Capital Reserve

Rs.20,00,000 + Rs.2,00,000

Rs.22,00,000

Debt Equity Ratio

8,00,000 / 22,00,000 = 4:11

Note : Full credit was given if net profit is added to equity. Then debt equity Ratio
= Rs.8,00,000 / Rs.28,00,000 = 2 : 7

iii) Quick Ratio

Liquid Assets / Current Liabilities

Liquid Assets

Current Assets - Closing Stock

Liquid Assets

Rs.4,00,000 - Rs.60,000 = Rs.3,40,000

Current Liabilities

Rs.3,00,000

Quick Ratio

3,40,000 / 3,00,000= 17: 15 or 1.13 : 1

23. Calculation of Net Front / Loss before tax :

Profit for the year
Add: Transferred to Reserve
Add: Dividend

(1,00,000)
70,000
24,000
(6,000)

CASH FLOW STATEMENT

for the year ended 31st March 2007

Particulars

(Rs.)

(Rs.)

A Cash Flows from Operating Activities

Net Loss as per Profit & Loss A/c

(6,000)

Adjustments :
Add: Debenture Interest

10,000

Loss on sale of machinery

55,000

Operating Profit before Working Capital changes

65,000

59,000

Adjustments for Working Capital Changes

Less: Increase in Current Assets
Stock

(50,000)

Debtors

(50,000) (1,00,000)

Net Cash used in Operating Activities

(41,000) (41,000)

B. Cash Flow from Investing Activities :

Sale of Fixed Assets
Purchase of Fixed Assets
Net Cash used in Investing Activities

15,000
(2,20,000)
(2,05,000)(2,05,000)

C. Cash Flow from Financing Activities:

Issue of Equity Share Capital
Issue of {Preference Share Capital
Redemption of Debentures

3,00,000
25,000
(25,000)

Dividend Paid

(24,000)

Interest on Debentures paid

(10,000)

Net Cash Flaw from Financing Activities

2,66,000 2,66,000

Net Increase / Decrease in Cash & Cash Equivalents

Add Opening Cash and Cash Equivalents

20,000

Add Opening Cash and Cash Equivalents

45,000

Closing Cash and Cash Equivalents

65,000

Working Notes :
Dr.

FIXED ASSETS ACCOUNT

Cr.

Particulars

Amt (Rs.) Particulars

To Balance b/d

3,00,000 By Machinery Sold A/c

To Bank-purchase

2,20,000 By Balance c/d

4,50,000

5,20,000

5,20,000

Cr.

MACHINERY SOLD ACCOUNT

Particulars

Amt (Rs.) Particulars

To Fixed Assets A/c

70,000 By Bank .Sale

By P&C A/c (Less on Sate)
70,000

Amt (Rs.)
70,000

Cr.
Amt (Rs.)
15,000
55,000
70,000

Note 1 : Full credit was given to an examinee if he /she has taken preference dividend separately. The
answers would be:
Net Profit before tax

= Rs.(2,000)

Cash used in operating activities

= Rs.(37,000)

Cash used in investing activities

= Rs.(2,05,000)

Cash generated from financing activities

= Rs.2,62,000

Note 2 : In case, interest on debentures and dividend on preference shares has been calculated on the closing balances, no marks
were deducted.

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