Q.1 Give two main sources of income of a ‘Not for profit organisation’.

Q.2 State any two characteristics of Receipt and Payment Account.

Q.3 How would you account for ‘subscription due to be received’ in the   current year in the books of a non trading organisation?

Q.4 How  would you account for ‘subscription received in advance’ in the current year in the books of a non trading organisation?

Q.5 What is meant by fund based accounting?

Q.6 Tournament fund appears in the books Rs. 15,000 and expenses on tournament during the year were Rs. 18000. How will you show this in format while preparing financial statement of a not-for-profit organisation?

Q.7 As per Receipt and Payments account for the year ended on March 31, 2008, the subscription received were Rs. 2,50,000. Addition information given is as follows:-
(i) Subscriptions outstanding on 01-04-2007 Rs. 50,000.
(ii) Subscription outstanding on 31-03-2008 Rs. 35,000.
(iii)Subscription Received in advance as on 31-03-2008 Rs. 30000.
     Ascertain the amount of income from subscription for the year 2007-08.

Q.8 From the following extracts of Receipts and Payments Account and the additional information given below, compute the amount of income from subscriptions and show us how they would appear in the Income and Expenditure Account for the year ending March 31, 2007and the Balance sheet on that date:-

Receipts and Payments A/C
For the year ending March 31, 2007
Subscription :-
2005-06                                -      7000
2006-07                                 -     30000
2007-08                                 -       5000


Additional information:-
(i)              Subscription outstanding on March 31, 2006 Rs. 8500.
(ii)            Total subscriptions outstanding on March 31, 2007 Rs. 18,500.
(iii)          Subscriptions received in advance as on March 31, 2006 Rs. 4000.

Q. 9 From the following particulars of a club, calculate the amount of salaries to be shown in Income and expenditure account for the year ended 31 March, 2008:-
            Total salaries paid during the year 2007-08   Rs. 87,000
Outstanding salaries on 01-04-2007               Rs. 17,000
Prepaid salaries on 01-04-2007                      Rs. 19,000
Outstanding salaries on 31-03-2008               Rs. 32,000
Prepaid salaries on 31-03-2008                      Rs 20,000

Q.10 Calculate the amount to be debited  to Income and Expenditure account under the heading sports items for the year 2006-07 in respect of the Osmosis club:-
Stock of sports items on 01-04-2006              Rs. 44,700
            Stock of sports items on 31-03-2007              Rs. 24,500
            Paid for sports items during the year               Rs. 97,900

Creditors for supplies of sports items 31-03-2007 Rs. 26,500.

Q.11 Show the following information in the Balance Sheet of the Cosmos club as on 31st March 2007:-
Dr (Rs)
Cr (Rs)
Tournament Fund
Tournament Fund Investment
Income From Tournament Fund


Tournament Expenses

Additional Information:-
                                                Interest accrued on Tournament Fund Investment Rs. 6000.

Q.12 Calculate the amount medicines to be debited in the Income and Expenditure Account of a Hospital on the basis of the following information:-

Stock of Medicines
Creditors for Medicines

Amount paid for medicines during the year was Rs. 6,79000.

Q.13 Distinguish between Receipts and Payments A/C and Income and expenditure A/C.


Q.1 State the conditions under which capital balances may change under the system of a Fixed Capital Account.

Q.2 A is partner in a firm. His capital as on Jan 01, 2007 was Rs. 60,000. He introduced additional capital of Rs. 20000 on Oct 01 2007. Calculate interest on A’s capital @ 9% p.a.

Q.3 A, B and C are partners in a firm having no partnership agreement. A, B and C contributed Rs. 20,000,  Rs. 30,000 and Rs. 1,00,000 respectively. A and B desire that the profit should be divided in the ratio of capital contribution. C does not agree to this. How will you settle the dispute.

Q.4 A and B are partners in a firm without a partnership deed. A is an active partner and claims a salary of Rs. 18,000 per month. State with  reason whether the claim is valid or not.

Q.5 Chandar and Suman are partners in a firm without a partnership deed. Chandar’s capital is Rs. 10,000 and Suman’s capital is Rs. 14,000. Chander has advanced a loan of Rs. 5000 and claim interest @ 12% p.a. State whether his claim is valid or not.

Q.6 R, S, and T entered into a partnership of manufacturing and distributing educational CD’s on April 01, 2006. R looked after the business development, S content development and T financed the project. At the end of the year (31-03-2007) T wanted an interest of 12% on the capital employed by him. The other partners were not inclined to this. How would you resolve this within the ambit of the Indian Partnership Act, 1932?

Q.7 A, B and C are partners in a firm. A withdrew Rs. 1000 in the beginning of each month of the year. Calculate interest on A’s drawing @ 6% p.a.

Q.8 A, B and C are partners in a firm, B withdrew Rs. 800 at the end of each month of the year. Calculate interest on B’s drawings @ 6% p.a.

Q.9 A, B and C are partners in a firm. They have omitted interest on capital @ 10 % p.a. for three years ended 31st march 2007. Their fixed capitals on which interest was to be calculated through –out were
                                                A                                 Rs. 1,00,000
                                                B                                 Rs.    80,000
                                                C                                 Rs.    70,000

         Give the necessary Journal entry with working notes.

Q.10 X, Y, and Z are partners sharing profits and losses in the ratio of 3:2:1. After the final accounts have been prepared it was discovered that interest on drawings @ 5 % had not been taken into consideration. The drawings of the partner were X Rs. 15000, Y Rs. 12,600, Z Rs. 12,000. Give the necessary adjusting Journal entry.

Q.11 A, B and C are partners sharing profits and losses in the ratio of 3:2:1. Their fixed capitals are Rs. 1,50,000, Rs. 1,00,000 and Rs. 80,000 respectively. Profit for the year after providing interest on capital was Rs. 60,000, which was wrongly transferred to partners equally. After distribution of profit it was found that interest on capital provided to them @ 10% instead of 12% . Pass necessary adjustment entry.
         Show your working clearly.

Q.12 Ravi and Mohan were partner in a firm sharing profits in the ratio of 7:5. Their respective fixed capitals were Ravi Rs. 10,00,000 and Mohan Rs. 7,00,000. The partnership deed provided for the following:-
         (i) Interest on capital @ 12% p.a.
         (ii) Ravi’s salary Rs. 6000 per month and Mohan’s salary Rs. 60000 per year.
The profit for the year ended 31-03-2007 was Rs. 5,04,000 which was distributed equally without providing for the above. Pass an adjustment Entry.

Q.13 Distinguish between fixed capital method and fluctuating capital method.

Q.14 A, B and C were partners in a firm having capitals of Rs. 60,000, Rs. 60,000 and Rs. 80,000 respectively. Their current account balances were A- Rs. 10,000, B- Rs. 5000 and C- Rs. 2000 (Dr.). According to the partnership deed the partners were entitled to an interest on capital @ 5% p.a. C being the working partner was also entitled to a salary of Rs. 6,000 p. a. The profits were to be divided as follows:
         (i) The first Rs. 20,000 in proportion to their capitals.
         (ii) Next Rs. 30,000 in the ratio of 5:3:2.
         (iii) Remaining profits to be shared equally.
        During the year the firm made a profit of Rs. 1,56,000 before charging any of the above items.  
        Prepare the profit and loss appropriate on A/C.

Q.15 A and B are partners sharing profits in proportion of 3:2 with capitals of Rs. 40,000 and Rs. 30,000 respectively. Interest on capital is agreed at 5 % p.a. B is to be allowed an annual salary of Rs. 3000 which has not been withdrawn. During 2001 the profits for the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 12,000. A provision of 5% of this amount is to be made in respect of commission to the manager.
                        Prepare profit and loss appropriation account showing the allocation of profits.



Q.1 On what occasions does the need for valuation of goodwill arise?

Q.2 Why is it necessary to revalue assets and  liabilities at the time of admission of a  new partner?

Q.3 What is meant by sacrificing ratio?

Q.4 State two occasions when sacrificing ratio may be applied.

Q.5 A business has earned average profit of Rs. 60,000 during the last few years. The assets of the business are Rs. 5,40,000 and its external liabilities are Rs. 80,000. The normal rate of return is 10%. Calculate the value of goodwill on the basis of capitalisation of super profits.

Q.6 The capital of a firm of Arpit and Prajwal is Rs. 10,00,000. The market rate of return is 15% and the goodwill of the firm has been valued Rs. 1,80,000 at two years purchase of super profits. Find the average profits of the firm.

Q.7 The average profits for last 5 years of a firm are Rs. 20,000 and goodwill has been worked out Rs. 24,000 calculated at 3 years purchase of super profits. Calculate the amount of capital employed assuming the normal rate of interest is 8 %.

Q.8 Rahul and Sahil are partners sharing profits together in the ratio of 4:3. They admit Kamal as a new partner. Rahul surrenders 1/4th  of his share and Sahil surrenders 1/3rd of his share in favour of Kamal. Calculate the new profit sharing ratio.

Q.9 Ajay and Naveen are partners sharing profits in the ratio of 5:3. Surinder is admitted in to the firm for 1/4th share in the profit which he acquires from Ajay and Naveen in the ratio of 2:1. Calculate the new profit sharing ratio.

Q.10 A and B were partners sharing profits in the ratio of 3:2. A surrenders 1/6th of his share and B surrenders 1/4th of his share in favour of C, a new partner. What is the new ratio and the sacrificing ratio.

Q.11 Aarti and Bharti are partners sharing profits in the ratio of 5:3. They admit Shital for 1/4th share and agree to share between them in the ratio of 2:1 in future. Calculate new and sacrificing ratio.

Q.12 X and Y divide profits and losses in the ratio of 3:2. Z is admitted in the firm as a new partner with 1/6th share, which he acquires from X and Y in the ratio of 1:1. Calculate the new profit sharing ratio of all partners.

Q.13 Rakhi and Parul are partners sharing profits in the ratio of 3:1. Neha is admitted as a partner. The new profit sharing ratio among Rakhi, Parul and Neha is 2:3:2. Find out the sacrificing ratio.

Q.14 X and Y are partners sharing profits in the ratio of 5:4. They admit Z in the firm for 1/3rd profit, which he takes 2/9th from X and 1/9th from Y and brings Rs. 1500 as premium. Pass the necessary Journal entries on Z’s admission.

Q.15 Ranzeet and Priya are two partners sharing profits in the ratio of 3:2. They admit Nilu as a partner, who pays Rs. 60,000 as capital. The new ratio is fixed as 3:1:1. The value of goodwill of the firm was determined at Rs. 50,000. Show journal entries if Nilu brings goodwill for her share in cash.

Q.16 A and B are partners sharing profits equally. They admit C into partnership, C paying only Rs. 1000 for premium out of his share of premium of Rs. 1800 for 1/4th share of profit. Goodwill  account appears in the books at Rs. 6000. All the partners have decided that goodwill should not appear in the new firms books.

Q.17  A and B are partners sharing profits in the ratio of 3:2. Their books showed goodwill at Rs. 2000. C is admitted with 1/4th share of profits and brings Rs. 10,000 as his capital but is not able to bring in cash goodwill Rs. 3000. Give necessary Journal entries.

Q.18 Piyush and Deepika are partners sharing in the ratio of 7:3. they admit Seema as a new partner. The new ratio being 5:3:2. Pass journal entries.

Q.19 A and B are partners with capital of Rs. 26,000 and Rs. 22,000 respectively. They admit C as partner with 1/4th share in the profits of the firm. C brings Rs. 26,000 as his share of capital. Give journal entry to record goodwill on C’s admission.

Q.20 A and B are partners sharing profits in the ratio of 3:2. They admit C into partnership for 1/4th share. C is unable to bring his share of goodwill in cash. The goodwill of the firm is valued at Rs. 21,000. give journal entry for the treatment of goodwill on C’s admission.

Q.21 A and B are partners with capitals of Rs. 13,000 and Rs. 9000 respectively. They admit C as a partner with 1/5th share in  the profits of the firm. C brings Rs. 8000 as his capital. Give journal entries to record goodwill.

Q.22 A, B and C were partners in the ratio of 5:4:1. On 31st Dec. 2006 their balance sheet showed a reserve fund of Rs. 65,000, P&L A/C (Loss) of Rs. 45,000. On 1st January, 2007, the partners decided to change their profit sharing ratio to 9:6:5. For this purpose goodwill was valued at Rs. 1,50,000.
                  The partners do not want to distribute reserves and losses and also do not want to record goodwill.
             You are required to pass single journal entry for the above.

Q.23 A and B were partners in the ratio of 3:2. They admit C for 3/13th share. New profit ratio after C’s admission will be 5:5:3. C brought some assets in the form of his capital and for the share of his goodwill.
                         Following were the assets:

                         Assets                                     Rs.
                         Stock                                                  2,44,000
                         Building                                              2,40,000
                         Plant and Machinery               1,40,000

At the time of admission of C goodwill of the firm was valued at Rs. 12,48,000.
Pass necessary journal entries.

Q.24 X, Y and Z are sharing profits and losses in the ratio of 5:3:2. They decide to share future profits and losses in the ratio of 2:3:5 with effect from 1st April, 2002. They also decide to record the effect of the reserves without affecting their book figures, by passing a single adjusting entry.

Book Figure
General Reserve                                                                              Rs. 40,000
Profit & loss A/C                                                                            Rs. 10,000
Advertisement Suspense A/C                                                          Rs. 20,000

Pass the necessary single adjusting entry.


Q.1    Distinguish between Sacrificing Ratio and Gaining 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.

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.

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.

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 2/3rd of his share in favour of Y and remaining in favour of Z. Calculate new profit sharing ratio and gaining ratio.
Q.6    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.

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.

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.

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.

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 L’s retirement the goodwill of the firm was valued Rs. 120000. Pass necessary journal entry for the treatment of goodwill.

Q.11  State the journal entry for treatment of deceased partners share of profit for his life period in the year of death.

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 31st March, 2007 was Rs. 3,00000. Y dies on 1st July 2007. Calculate Y’s 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.

Q.13 A, B and C were partners in a firm sharing profits in 3:2:1 ratio. The firm closes its books on 31st March every year. B died on 12-06-2007. On B’s death the goodwill of the firm was valued at Rs. 60000. On B’s 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 B’s share in the profit of the firm. Pass necessary journal entries for the treatment of goodwill and B’s share of profit at the time of his death.

Q.14 A, B and C were partners in a firm sharing profits in the ratio of 2:2:1. C dies on 31st 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 31st July were Rs. 250000. Calculate C’s share of profits upto the date of his death and pass necessary journal entry.


Q.1 Distinguish between dissolution of partnership and dissolution of partnership firm on the basis of continuation of business.

Q.2 Why is Realisation Account prepared on dissolution of partnership firm?

Q.3 State any one point of difference between Realisation Account and Revaluation Account.

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 Yastin’s loan. You are required to settle the conflict giving reasons.

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.

Q.6 On dissolution of a firm, Kamal’s 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.

Q.7 A and B were partners in a firm sharing profits and losses equally. Their firm was dissolved on 15th 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.

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)   Bank loan Rs. 16,000 is paid.
(b)   Stock worth Rs. 6000 is taken over by B.
(c)   Loss on Realisation Rs. 14,000.
(d)   Realisation expenses amounted to Rs. 2,000, B has to bear these expenses.
(e)    Deferred Revenue Advertising Expenditure appeared at Rs. 28,000.
(f)    A typewriter completely written off in the books of the firm was sold for Rs. 200.



Q.1 Jain Ltd has incurred a loss of  Rs. 8,00,000 before payment of interest on debentures. The directors of the company are of the opinion that interest on debentures is payable only when company earn profit. Do you agree?

Q.2 As per latest guidelines governing the servicing of debentures a company is required to create on special account. Name that account.

Q.3 Name the method of redemption of debentures in which there is no requirement of creating Debenture Redemption Reserve.

Q.4 What is the nature of receipt of premium on issue of shares?

Q.5 Can a company issue shares at a premium in the absence of any express authority in its articles?

Q.6 What is the maximum rate of interest which the board of directors of a company can normally pay on calls-in-advance if the articles are silent on the matter of such interest?

Q.7 State with reason whether a company can issue its shares at a discount in its Initial Public Offer (IPO).

Q.8 Why securities premium money can not be used for payment of cash dividend among shareholders?

Q.9 Jamuna Ltd. with paid-up share capital of Rs. 60,00,000 has a balance of Rs. 15,00,000 in securities premium account. The company management does not want to carry over this balance. You are required to suggest the method for utilizing this premium money that would achieve the objectives of the management and maximize the return to shareholders.

Q.10 Distinguish between a share and a Debenture.

Q.11 Can share premium be utilised for the purchase of fixed assets?

Q.12 State in brief, the SEBI guidelines regarding Debenture Redemption Reserve(DRR).

Q.13 Which companies are exempted from the obligation of creating DRR by SEBI?

Q.14 What is the restriction on reissue of forfeited shares at discount?


Q.1 X Ltd. issued 20,000 shares of Rs. 10 each at a premium of 10% payable as follows:-

On application Rs. 2 ( 1st Jan 2001), on allotment Rs. 4 (including premium) (1st April 2001), On first call Rs. 3 (1st June 2001), on second call & final call Rs. 2 (1st Aug. 2001).
Applications were received for 18,000 shares and the directors made allotment in full. One shareholder to whom 40 shares were allotted paid the entire balance on his share holdings with allotment money and another shareholder did not pay allotment and 1st call money on his 60 shares but which he paid with final call.
Calculate the amount of interest paid and received on calls-in-advance and calls-in-arrears respectively on 1st Aug. 2001.

Q.2 X Ltd took over the assets of Rs. 6,60,000 and liabilities of Rs. 80,000, Y Ltd for Rs. 600,000. Show the necessary journal entries in the book of X Ltd. assuming that

Case-I : The consideration was payable 10% in cash and the balance in 54000 equity shares of    Rs. 10 each.
Case-II : The consideration was payable 10% in cash and the balance in 45000 equity shares of   Rs. 10 each.
Case-III : The consideration was payable 10% in cash and the balance in 60,000 equity shares of Rs. 10 each.

Q.3 X ltd. was formed with a capital of Rs. 500,000 divided into shares of Rs. 10 each out of these 2000 shares were issued to the vendors as fully paid as purchase consideration for a building acquired, 1000 shares were issued to signatories to the memorandum of association as fully paid. The directors offered 6500 shares to the public and called up Rs. 6 per and received the entry called  up amount on share allotted. Show these transaction in the Balance sheet of a company.

Q.4 X Ltd. invited applications for 11,000 shares of Rs. 10 each issued at 10% premium payable as:
On application                         Rs. 3 (including Rs. 1 premium)
On allotment                Rs. 4 (including Rs. 1 premium)
On 1st Call                               Rs. 3
On 2nd& final call                   Rs. 2
Application were received for 24000 shares.
Category I : One fourth of the shares applied for allotted 2000 shares.
Category II: Three fourth the shares applied for allotted 9000 shares.

Remaining applicants were rejected. Mr. Mohan holding 300 shares out of category II failed to pay allotment and two calls and his shares were re issued @ Rs. 11 fully paid-up. Pass necessary journal entries.

Q.5 A company forfeited 240 shares of Rs. 10 each issued to raj at a premium of 20%. Raman had applied for 300 shares and had not paid anything after paying Rs 6 per share including premium on application. 180 shares were reissued at Rs. 11 per share fully paid up. Pass journal entries relating to forfeiture and reissue of shares.

Q.6 On 1st July 2007. A Ltd gave notice of their intention to redeem their outstanding Rs. 400,000 8% Debentures on 1st January, 2008 @ Rs. 102 each and offered the holders the following options-
(a) To subscribe for (i) 6% cumulative preference shares of Rs. 20 each at Rs. 22.50 per share, accepted by debenture holders of Rs. 1,71,000 or (ii) 12% debentures were issued @96% accepted by the holders of Rs. 1,44,000 Debentures.
(b) Remaining debentures to be redeemed for cash if neither of the option under (a) was accepted. Pass necessary journal entries.

Q. 7 Sonu Ltd. company issued 15,000 shares of Rs. 10 each. Payment on there shares is to be made as follows:
                        On application Rs. 4 ( 1st Feb, 2003)
                        On allotment    Rs. 3 (1st April, 2003)
                        On final call    Rs. 3 (1st May, 2003)
Rakesh to whom 1000 shares were allotted paid the full amount on application and mohan to whom 200 shares were allotted paid the final call money on allotment. Interest @ 6% was paid on 1st May, 2003. Pass necessary journal entries.

Q.8 TPT Ltd. invited applications for issuing 1,00,000 equity shares of Rs. 10 each at a premium of Rs. 3 per share. The whole amount was payable on application. The issue was oversubscribed by 30,000 shares and allotment was made on pro-rata basis. Pass necessary journal entries in the books of the company.

Q9   What is Zero Coupon Bond ?

Q10 What is a Debenture Trust Deed?

Q.11 On 01-04-1999, A Ltd., issued 2000, 7% debentures of Rs. 100 each at a discount of 10% redeemable at par after 4 years by converting them into equity shares of Rs. 100 each issued at a premium of 25%.
            Pass journal entries in the following cases:
(i)              If debentures are redeemed on maturity.
(ii)            If debentures are redeemed before maturity.

Q.12 Pass journal entries for the following at the time of issue of debentures:
(a) B Ltd. issues 30,000, 12% Debentures of Rs. 100 each at a discount of 5 % to be repaid at par at the end of 5 years.
(b) E Ltd. issues Rs. 60,000, 12%  Debentures of Rs. 100 each at a discount of 5 % repayable at a premium of 10% at the end of 5 years.
(c) F Ltd. issues Rs. 70,000, 12% Debentures of Rs. 100 each at a premium of 5 % redeemable at 110%.

Q.13 500 shares of Rs. 100 each issued at a discount of 10% were forfeited for the non-payment of allotment money of Rs. 50 per share. The first and final call of Rs.10 per share on these shares were not made. The forfeited shares were reissued at Rs. 80 per share fully paid-up.

Q.14 200 shares of Rs. 100 each issued at a discount of 10% were forfeited for the non- payment of allotment money of Rs. 50 per share. The first and final call of Rs. 10 per share on these shares  were not made. The forfeited share were reissued at Rs. 14 per share fully paid up.
Q.15 800 Shares of Rs. 10 each issued at per were forfeited for the non-payment of final call of Rs. 2 per share. These shares were reissued at Rs. 8 per share fully paid-up.

Chapter 3 & 4
Analysis of Financial Statements

    Qus:1   How will you show the following items in the Balance sheet of a company.
    (i) Loose tools       (ii) Livestock
    Qus:2  Under what heads the following items on the Liabilities side of the Balance sheet Of a company will   
                be presented
(i)              Provision for taxation.
(ii)            Bills Payable
 Qus:3   State any two items which are shown under the head ‘Reserves and Surplus” in a company balance sheet.
 Qus:4   Give the format of the Balance sheet of a company(main headings  only) as per the requirement of
              Schedule VI of the companies Act.1956.
    Qus:5   Give the heading under which the following items will be shown in a company’s Balance sheet:
(i)              Patents.
(ii)            Discount on issue of Debentures
(iii)          Sundry Debtors
(iv)          Securities Premium.
(v)            Railway sliding.
    Qus:6    The following balance have been from the book of Sahara Ltd. Share capital Rs.10,00,000, securities
                  Premium Rs. 1,00,000, 9% Debentures Rs. 500,000, Creditors Rs. 200,000., Proposed Dividend
                  Rs. 50,000. , Freehold property RS. 9,00,000, share of Reliance Industries Rs. 4,00,000, Work-in-
                  Progress Rs. 4,00,000, Discount on Issue of Debentures Rs. 1,00,000.
                  Prepare the balance sheet of the company as per schedule VI part 1 of the companies Act.1956.
   Qus:7      List any three items that can be shown as contingent   Liabilities in a company’s Balance sheet.
 Qus:8      Give two examples Of “Miscellaneous Expenditure”
Q 9. State how the creditors are interested in the Analysis of Financial statements.
Qus:10   Prepare Comparative income statement from the following information for the years ended march
                   31,2003 and 2004.

1.Net Sales
2.Cost of Goods Sold
3. Direct Expenses
3.Indirect Expenses
4.Income Tax rate
60% of sales
10% of Gross profit
60% of sales
10% of Gross Profit
Interest on Investments @ Rs 40,000 p.a



Qus:1 How will you assess the liquidity or short term financial position of a  business ?

Qus:2 Current ratio of Reliance Textiles Ltd. Is 1.5 at present. In future it want to improve this ratio to 2. Suggest any two accounting transaction for improving the current ratio.

Qus:3 State one transaction which results in an increase in ‘ liquid ratio ‘and nochange in ‘current ratio’.

Qus:4 Why stock is excluded from liquid assets ?

Qus:5 Quick ratio of a company is 1.5 :1 . State giving reason whether the ratio will improve , decline or  Not change on payment of dividend by the company.

Qus:6 State one transaction which result in a decrease in ‘ debt-equity ratio ‘ and no change in ‘ current Ratio ‘.

Qus:7 How does ratio analysis becomes less effective when the price level changes?

Qus:8. Indicate which ratio a shareholders would use who is examining his portfolio and wants to decide Whether he should hold or sell his shareholdings?

Qus:9 Indicate which ratio would be used by a Long-Term creditor who is interested in determining    whether his claim is adequately secured ?

Qus:10 What will be the Operating profit, If operating Ratio is 78% ?

Qus:11 The Debaters turnover Ratio of a company is 6 times. State with reasons whether the ratio will Improve , decrease, or not change due to increases in the value of closing stock by Rs. 50,000?

Qus:12 What will be the impact of ‘ Issue of shares against the purchase of fixed assets ‘ on a debt  Equity ratio of 1:1 ?

            Qus:13 State one transaction involving a decrease in Liquid ratio and no change in current ratio.

            Qus:14 Assuming that the Debt Equity Ratio is 2:1. State giving reason , whether the ratio  will improve, decline or will have no change in case bonus shares allotted to equity shareholders by Capitalizing profits.

Qus:15  The ratio of current Assets (Rs. 9,00,000) to current liabilities is 1.5:1. The accountant of this Firm is interested in maintaining a current ratio of 2:1 by paying some part of current liabilities You are required to suggest him the amount of current liabilities which must be paid for the Purpose.

             Qus:16   A company has a loan of Rs.15,00,000 as part of its capital employed. The interest payable on    Loan is 15% and the ROI of the company is 25%. The rate of income tax is 60%.what is the Gain to shareholders due to the loan raised by the company?

              Qus:17   Rs.2,00,000 is the cost of goods sold, inventory turnover 8 times, stock at the beginning is 1.5 Times more than the stock at the end. Calculate the value of opening & closing stock .       

             Qus:18   From the given information, calculate the stock turnover ratio: sales  Rs.5,00,000, Gross Profit 25% on cost , opening stock was 1/3rd of the value of closing stock. Closing stock was 30%  Of sales.

Qus:19   Calculate cost of goods sold from the following information: Sales Rs.12,00,000, Sales  Returns Rs.80,000, operating expenses Rs.1,82,000, operating ratio 92%.

Qus:20   Calculate the amount of opening stock and closing stock from the following figures:  Average Debt collection period 4 month stock turnover ratio 3 times. Average Debtors Rs.1,00,000 Cash sales being 25% of total sales Gross profit ratio 25% stock at the end was 3 Times that in the beginning.

             Qus:21    (a) Calculate return on Investment from the following information :

                                 Net profit after Tax Rs.6,50,000.
                                 12.5% convertible debentures Rs 8,00000.
                                 Income Tax 50%.
                                 Fixed Assets at cost Rs.24,60,000.
                                 Depreciation reserve Rs.4,60,000.
                                 Current Assets Rs. 15,00,000.
                                 Current Liabilities Rs. 7,00,000.

(b)   Profit before interest and tax(PBIT) Rs.2,00,000, 10% preference shares of Rs.100 each.
       Rs.2,00,000, 2,0000 equity shares of Rs. 10 each, Rate of tax @ 50% calculate earning pen



Qus:1 Why is the cash flow statement not a suitable judge of profitability ?

Qus:2 Under which accounting standard , cash flow statement is prepared ?

Qus:3 Why do we add back depreciation to net profit while calculating cash flow from operating activities.

Qus:4 How will you classify loans given by Birla Finance Ltd.? While preparing cash flow statement.

Qus:5 How will you classify deposits by customers in HDFC Bank while preparing cash flow statement.

Qus:6 Where will you show purchase of computer in cash flow statement ?

Qus:7 Give two examples of ‘ Significant non cash transactions ‘.

Qus:8 How will you classify loans given by Tata Manufacturing Company.

Qus:9 A company receives a dividend of Rs. 2 Lakhs on its investment in other company’s share will it be
           Cash inflow from operating or investing activities in case of a.
(i)              Finance Company.
(ii)            Non-Finance Company.

Qus:10  How are various activities classified as per AS-3 (Revised) ?

Qus:11 Cash flow from operating Activities + Cash flow from Investing Activities + Cash flow from Financing
             Activities =……………………………………

Qus:12 What are the two methods which can be employed to calculate net cash flow from operating activities ?

Qus:13 Escorts Ltd. Engaged in the business of manufacturing tractors invested Rs.40,00,000 in the shares of a Car manufacturing Company. state with reason whether the dividend received on this investment will  be cash flow from operating activities or Investing activities.

Qus:14 Modern Toys Ltd. Purchased a machinery of Rs.20,00,000 for manufacturing toys. State giving reason  Whether the cash flow due to the purchase of machinery will be cash flow from operating activities,
             Investing activities or Financing activities ?

Qus:15 From the following profit or loss account find out the flow of cash from operating activities of
               Mohan Ltd.

       Dr.                                                   PROFIT AND LOSS ACCOUNT                         


To Rent Paid                         14,000
      Less: Prepaid                    2,000
To Salaries
To Depreciation
To Loss on sale of Furniture
To Goodwill written Off
To Bad Debts
To Office Expenses
To Discount allowed
To Proposed Dividend
To Provision for Tax
To Net Profit


By Gross Profit
By Profit on Sale of Machine
By Tax Refund
By Rent received                        4,000
      Add: Rent accrued                1,000



                Note: There was increase in Closing stock by Rs. 25,000.

 Qus:16 Prepare Cash flow Statement from the following information of Box Ltd. For the year ended March



Share capital
Profit & Loss Account
General Reserve
Tax Provision
Bill Payables
Depreciation Provision






12% Investments
Cash at Bank
Short term Investment





     Additional Information :

1.Investment costing Rs.50,000 were sold for Rs. 48,000 during the year.
2.Tax paid during the year Rs.70,000.
3.Interest received on Investment Rs. 12,000.


Q. 1 (i) Subscription   (ii) Donation.

Q.2 (i) Receipts and Payments Account is a summary of Cash Book.
        (ii) Non- cash expenses such as depreciation and outstanding expenses are not shown in Receipts and Payments Account.

Q.3 Subscription due to be received is added with subscription received during the year in Income and Expenditure A/C and shown as an asset in the closing balance sheet.

Q.4 Subscription received in advance is subtracted from subscription received during the year in Income and Expenditure A/C and shown as a liability in the closing Balance sheet.

Q.5 Fund based accounting is a book peeping technique where by separate self-balancing sets of assets, liability, income, expenses and fund balance accounts are maintained for each contribution for a specific purpose.

Q.6                                                      Income and Expenditure A/C
For the year ended ………

To Tournament Expenses          18000

Less Tournament Fund                                15000


Q. 7 Calculation of current year subscription to be shown in Income and Expenditure A/C for the year ended March 31, 2008 :-
Total subscription received during the year                                                    250000

Outstanding subscription on 31-03-2008                    35000
            Advance subscription on 01-04-2007                         NIL                   35000

Less :-
Outstanding subscription on 01-04-07            50000
Advance subscription on 31-03-2008                         30000              (80000)
Current year subscription                                                               205000

Q. 8                                               Income and Expenditure A/C
For the year ending March 31, 2007


By Subscription                                   30000
Add:- outstanding subscription for 2006 -07 (18500-1500)                        17000
Add:- Advance in 2005-06                4000


                                                                           Balance sheet
                                                                   As on 31st March 20007
Subscription in advance
Subscription outstanding 2005-06                          1500
                                       2006-07                   17000


Q. 9 Calculation of salaries to be shown in Income and Expenditure A/C for the year ended March 31, 2008:-
Total Salaries paid during the year                                                     87,000
Outstanding salaries on 31-03-2008               32,000
            Prepaid salaries on 01-04-2007                      19,000             51,000

             Outstanding Salaries on 01-04-2007              17,000
             Prepaid salaries on 31-03-2008                      2,000           (37,000)
Salaries to be shown in Income and Expenditure A/C                      101000

Q. 10
            Amount paid for sports items during the year                                      97900
                       Stock of sports items as on 01-04-2006           44700
                       Creditors for sports as on 31-03-2007             26500              71200
Less :-
            Stock of sports items as on 31-03-2007                                  24500
Sports items to be debited in the Income and expenditure A/C           144600

Q.11                                            Balance sheet of Cosmos Ltd.
As on 31st March, 2007
Tournament Fund                                 1,50000

Income from Tournament Fund Investment                                    18,000

Accured interest on tournament fund Investment                                       6000
Less Tournament Expenses                       12,000

Tournament Fund investment.

Accured interest on Tournament fund Investment



Q. 12 Amount paid for medicine during the year                                             6,79000

                        Stock of medicine on 01-04-2006                   90,000                        
                       Creditors for medicine on 31-03-2007            204,000           294,000

            Stock of medicine on 31-03-2007                  124,000
            Creditors for medicine as on 01-04-2006       240,000           364,000
                  Medicine to be debited in in Income and Expenditure A/C.         609000

Q. 13 Difference between Receipts and Payments and Income and Expenditure.

Income and Expenditure
Receipts and Payments
(i) Nature
It is a kin to profit and loss A/C
It is the summary of Cash book.

(ii) Nature of Items
It records income and expenditure of revenue nature only
It records receipts and payments of both capital and revenue nature.
(iii) Result
The result of Income and expenditure A/C is surplus or deficit.
The result of Receipt and Payments is closing balance of cash and Bank.


Ans. 1 (i) When additional capital is introduced.
            (ii) When capital is withdrawn.

Ans. 2              60000 X 9/100                        =                  5400

                        20000 X 9/100 X 3/12            =                     450
                        Total Interest                                                5850

Ans. 3 C is correct as in the absence of partnership agreement, profits and losses are divided equally among partners.

Ans. 4 A’s claim is not valid as in the absence of partnership deed, no salary is allowed to partners.

Ans. 5 Chander’s claim is not valid as in the absence of partnership deed interest on partners loan is provided @ 6% p.a.

Ans. 6 As per provision of Indian Partnership act 1932, when there is no partnership, no partner is entitled for interest on his capital contribution.

Ans. 7 Interest on drawing      =          12000 X 6/100 X 6.5/12 = 390

Ans. 8  Interest on drawing     =          9600 X 6/100 X 5.5/12   = 264

Ans. 9                                                   ANALYSIS TABLE 

Interest on Capital (3 years)                              Cr.
Adjustment of profit                                          Dr.

(Cr) 5000
(Dr) 1000
(Dr) 4000)
Journal Entry :-
                                    B’s current A/C                       Dr. 1000
                                    C’s Current A/C                      Dr. 4000
                                    To A’s current A/C                                         5000
(Adjustment entry for omission of interest on capital @ 10% p.a.)

Ans. 10                                                            ANALYSIS TABLE   

Interest on drawings                            (Dr)
Adjustment of profit                            (Cr)

(Cr) 240
(Cr) 30

                                    Z’s Capital A/C                       Dr. 270
                                    To X’s Current A/C                                        240
                                    To Y’s current A/C                                            30
(Adjustment entry for omission of interest on drawings @ 5 % p.a.)

Ans. 11                                                                                    ANALYSIS TABLE   

Wrong profit                                        Dr.
Interest on Capital @ 2%                     Cr.                             
Correct profit                                         Cr.

(Cr) 9700
(Dr) 200
(Dr) 9500

                                    B’s Current      A/C                Dr. 200
                                    C’s Current A/C                      Dr. 9500
                                    To A’s current A/C                                         9700
(Adjustment entry for interest on capital and distribution in wrong ratio.)

Ans. 12
                                                                                    ANALYSIS TABLE   

Wrong Profit Distributed                     Dr.            
Interest on capital omitted                   Cr.
Salary to be provided                           Cr.
Current Profit                                       Cr.
Net adjustment             Cr. 38000                    Dr. 38000
                                    Mohan’s current A/C               Dr. 38000
                                    To Ravi’s Current A/C                                    38000
 (Adjustment entry for omission of certain provisions of partnership deed.)

Ans. 13 Distinction between Fixed and Fluctuating Capital method:-

Basis of differences
Fixed capital method
Fluctuating Capital Method
(i) Number of Accounts
Two accounts are maintained in fixed capital method.
Only one account is maintained.
(ii) Change in capital A/C balances
Remain unchanged
Balance fluctuate frequently.
(iii) Recording of transactions
Adjustment regarding interest on capital, interest on drawings partners salary and profits etc are recorded in partners current account.
All these adjustments are recorded in partners capital accounts.

Ans. 14       Profit transferred to A’s current A/C        Rs. 51,000
                                                   B’s current A/C        Rs. 45,000
                                                   C’s current A/C        Rs. 44,000

Ans. 15 Net profit transferred to A’s Capital A/C      Rs. 4,650
                                                     B’s Capital A/C     Rs. 3,100



Ans. 1 Need of valuation of goodwill arises on the following occasions:-
(i)              Change in profit sharing ratio of existing partners.
(ii)            Admission of a partner.
(iii)          Retirement of a partner.
(iv)          Death of a partner.

Ans. 2 It is necessary to revalue assets and reassess liabilities at the time of admission of new partners as if assets and liabilities are overstated or understated in the books then its benefits or loss should not affect the near partner.

Ans. 3 Sacrificing ratio is the ratio in which old partners have agreed to sacrifice their share of profit in favour of the new partner. This ratio is calculated by deducting the new ratio from the old ratio.
                        Sacrificing Ratio = Old Ratio - New Ratio

Ans. 4 (i) On admission of a new partner.
            (ii) On change on profit sharing ratio of existing partner.

Ans. 5 (i)Capital employed = Assets – Liabilities
                                                = 540000 – 80000
                                                = Rs. 460000

           (ii) Normal Profit = Capital employed X Normal rate of return/100
                                                = Rs. 460000 X 10/100 = 46000

           (iii) Super Profit = Firm’s Average profit – Normal Profit
                                            = 60000 – 46000
                                            = 14000

            (iv) Goodwill   = Super profit X 100/ Normal rate of return
                                          = 14000 X 100/ 10
                                          = 140000

Ans. 6 (i) Super profit = Value of goodwill /Number of years purchase
                                           = 180000/2
                                           = 90000
           (ii) Normal Profit = Capital employed X Normal rate of return /100
                                                = 1000000 X 15/ 100
                                                = 150000
(iii)          Average Profit = Normal Profit  + Super profit
                                                = 150000 + 90000
                                                = 240000
Ans. 7 (i) Super profit = value of goodwill/ number of years purchase
                                          = 240000/3
                                          = 80000
           (ii) Normal Profit = Average profit – Super profit
                                        = 20000 – 8000
                                        = Rs. 12000
           (iii) Capital Employee = Normal Profit X 100/ Normal rate of return
                                                =   12000 X 100/8
                                                = 150000

Ans. 8 Rahul’s sacrificing share         = 4/7 X 1/4      = 1/7
           Sahil’s sacrificing share           = 3/7 X 1/3      = 1/7
            Rahul’s new share                   = 4/7 – 1/7      = 3/7
            Sahil’s New share                   = 3/7 – 1/7      = 2/7
            Kamal’s share                                     = 1/7+1/7        = 2/7
            New profit sharing ratio          = 3:2:2

Ans. 9 Ajay’s scarifies                        = 1/4  X 2/3     = 2/12
            Naveen’s scarifies                  =1/4  X 1/3      = 1/12
            Ajay’s new share                    = 5/8 – 2/12   = 11/24
            Naveen’s New share               = 3/8 – 1/12   = 7/24
            Surender’s share                     = 1/4 or 6/24
            New ratio                                = 11:7:6

Ans. 10
            Old ratio                      = A: B                         = 3:2
            A surrender                 = 3/5 X 1/6      = 3/30              =1/10
            B surrender                 = 2/5 X 1/4      = 1/10
            A’s new share             = 3/5 – 1/10    = 5/10
            B’s new share             = 2/5 – 1/10   = 3/10
            C’s new share             = 1/10 +1/10 = 2/10
            New ratio                    = 5/10, 3/10, 2/10 OR 5:3:2

            Sacrificing Ration       = Old ratio – New ratio
            A                                 = 3/5 – 5/10   = 1/10
            B                                 = 2/5 – 3/10   = 1/10
            Sacrificing ratio          = 1:1
Ans. 11
            Old ratio          =          5:3
            Shital               =          1/4th Share

            Let the profit be Rs. 1
            Remaining profit         = 1-1/4                        =3/4
            Arti : Babita                = 2:1
            Arti’s share                 = 3/4 X 2/3      = 1/2
            Babita’s Share             = 3/4 X 1/3      = 1/4
            New Ratio                   = 1/2, 1/4, 1/4  Or 2:1:1

            Sacrificing ratio          = Old ratio – New ratio
            Arti’s sacrifies            = 5/8 – 2/4      = 1/8
            Babita’s Sacrifies       = 3/8 – 1/4      = 1/8                                       
            Sacrificing Ratio         = 1:1

Ans. 12  Old ratio = X:Y = 1:1
              Z is admitted for 1/6th share which he acquire from X,Y in the ratio of 1:1
            Since 1/6 X 1/2  = 1/12  from X and Y
            X’s new ratio   = 3/5 – 1/12 = 31/60
            Y’s New ratio               = 2/5 – 1/12 = 19/60
            Z’s share           = 1/6
            New ratio          = 31/60, 19/60,1/6 or 31:19:10

Ans. 13
            Old ratio          = Rakhi : Parul            = 3:1
            New ratio = Rakhi: Parul: Neha          = 2:3:2
            Rakhi’s sacrifice                                 = 3/4 – 2/7 = 13/28
            Parul’s sacrifice                                  = 1/4 -3/7 = 5/28 (Gain)

            So, Rakhi’s sacrifice 13/28th share and Parul is gaining to the extent of 5/28th share.

Ans. 14
            Cash A/C                                                         Dr. 1500
            To premium A/C                                                                     1500
            (cash brought in by Z for his share of goodwill)

            Premium A/C                                                  Dr. 1500
            To X’s capital A/C                                                                 1000
            To Y’s Capital A/C                                                                   500
            (Goodwill distributed among sacrificing partners in the ratio of 2:1.)

Ans. 15
            Cash A/C                                                         Dr. 70000
            To Nilu’s capital A/C                                                             60000
            To premium A/C                                                                     10000
            (Cash brought in by new partner)
            Premium A/C                                                  Dr. 10000
            To Priya’s capital A/C                                                            10000
            (Amount of goodwill distributed among sacrificing partner in their sacrificing ratio.)

Ans. 16
            Cash A/C                                                         Dr. 1000
            To premium A/C                                                                     1000
            (Amount of goodwill brought in by C)
            Premium A/C                                                  Dr. 1000
            C’s capital A/C                                               Dr. 800
            To A’s capital A/C                                                                 900
            To B’s capital A/C                                                                  900
            (Rs. 1800 distributed among sacrificing partners in sacrificing ratio.)

            A’s capital A/C                                               Dr. 3000
            B’s capital A/C                                               Dr. 3000
            To goodwill A/C                                                                     6000
            (Old goodwill written off among old partners in old ratio.)

Q. 17
            Cash A/C                                                         Dr. 10000
            To C’s capital A/C                                                                  10000
            (Cash brought in by C for his share of capital)

            A’s capital A/C                                               Dr. 1200
            B’s Capital A/C                                              Dr. 800
            To goodwill A/C                                                                     2000
            (Old goodwill written off among old partners in old ratio.)

            C’s capital A/C                                               Dr. 3000
            To A’s capital A/C                                                                 1800
            To B’s capital A/C                                                                  1200
            (Adjustment of goodwill on admission of C)

Ans. 18
            Cash A/C                                                         Dr. 4000
            To premium A/C                                                                     4000
            (Amount of goodwill brought in by new partner)

            Premium A/C                                                  Dr. 4000
            To Piyush’s capital A/C                                                          4000
            (Goodwill distributed among sacrificing partners in their sacrificing ratio.)

Ans. 19
            Cash A/C                                                         Dr. 26000
            To C’s capital A/C                                                                  26000
            (Amount of capital brought in by new partner.)

            C’s capital A/C                                               Dr. 7500
            To A’s capital A/C                                                                 3750
            To B’s capital A/C                                                                  3750
            (C’s share of goodwill distributed among A and B)

            Calculation of Hidden goodwill:-
            Capital of A and B                              = 26000 + 22000
                                                                        = 48000
            C brings                                               = 26000 for 1/4th share
            Total capital of the firm                      = 26000 X 4/1
                                                                        = 104000
            Existing capital of the firm                  = 48000 + 26000
                                                                        = 74000

            Goodwill                                             = 104000 – 74000      
                                                                        = 30000

            C’s share of goodwill                         = 30000 X 1/4 = 7500

Ans. 20
            C’s capital A/C                                               Dr. 5250
            To A’s capital             A/C                                                                 3150
            To B’s capital A/C                                                                  2100
            (C’s share of goodwill distributed among old partners in sacrificing ratio i.e. 3:2)
Ans. 21
            Cash A/C                                                         Dr. 8000
            To C’s capital A/C                                                                  8000
            (Amount of capital brought in by new partner)

            C’s capital A/C                                               Dr. 2000
            To A’s capital A/C                                                                 1000
            To B’s capital A/C                                                                  1000
            (Share of goodwill distributed among A and B in sacrificing ratio i.e. 1:1)

            Calculation of Hidden Goodwill.
            C brings 8000 for 1/5 share

            Since total capital of the firm              = 8000 X 5/1
                                                                        = 40000

            Existing capital of the firm                  = 13000 + 9000 + 8000
                                                                        = 30000
            Goodwill                                             = 40000 – 30000
                                                                        = 10000
            C’s share of goodwill                         = 10000 X 1/5
                                                                        = 2000
Ans. 22
            C’s Capita; A/C                                  Dr. Rs. 25, 500
            To A’s Capital A/C                                                                 Rs. 8,500
            To B’s Capital A/C                                                                 Rs. 17,000

Ans. 23

(i) Stock A/C                                                      Dr.
Building A/C                                                        Dr
Plant & Machinery A/C                                                     Dr.
To C’s capital A/C
To premium A/C

(ii) Premium A/C                                                               Dr.
To A’s Capital A/C
To B’s Capital A/C

Ans. 24
Z’s Capital A/C                                                             Dr.
Rs. 9000

To X’s Capital A/C

Rs. 9000

Chapter -4
Ans. 1
Sacrificing Ratio
Gaining Ratio
(i) Meaning
Proportion in which old partners sacrifice their share in favour of new partner.
Proportion in which continuing partner gain the share of outgoing partner on his retirement.
(ii) Occasion
Sacrificing ratio is calculated at the time of admission of new partner.
Gaining ratio is calculated at the time of retirement or death of a partner.
(iii) Formula
Sacrificing ratio = Old ratio – New ratio
Gaining ratio – Old ratio

Ans. 2 Gaining Ratio = New ratio – Old ratio
            Kamal’s Gain = 4/7 – 1/3 = 5/21
            Kunal’s Gain = 3/7 – 1/3 = 2/21
            Gaining Ratio = 5:2

Ans. 3 Old ratio          =  P      Q     R
                                          7 :  2 :  1
            New ratio        = Q  R
                                        2 : 1
            Gaining Ratio = New ratio – Old ratio
            Q’s gain          = 2/3 – 2/10 = 14/30
            R’s gain           = 1/3 – 1/10 = 7/30
            Gaining Ratio = 14:7 or 2:1

Ans. 4 A’s gaining share = 2/5 X ½ = 1/5
            A’s new share     = 2/5 + 1/5 = 3/5
            C’s gaining share = 2/5 X ½ = 1/5
            C’s New share     = 1/5 + 1/5 = 2/5
            New ratio of A and C = 3:2

Ans. 5
            Y’s gaining share        = 4/9 X 2/3 = 8/27
            Z’s gaining share         = 4/9 – 8/27 = 4/27
            Y’s new share             = Old share + gain
                                                = 1/3 + 8/27 = 17/27
            Z’s new share              = 2/9 + 4/27 = 10/27
            New Ratio                   = 17:10
            Gaining ratio   = 8/27 : 4/27 or 2:1
Ans. 6
            Old Ratio                    =          3:2:1
            Z Retire
            X’s Gaining                 = 1/6 X 2/3 = 2/18
            X’s New share            = 3/6 + 2/18 = 11/18
            Y’s Gaining                 = 1/6 X 1/3  = 1/18
            Y’s new share             = 2/6 + 1/18 = 7/18
            New Ratio                   = 11/18, 7/18 Or 11:7            

Ans. 7 Old ratio                     = P Q R
                                                = 4:5:6
            Q retired
            P’s gaining                  = 1/3 X 5/15    = 1/9
            P’s new share              = 4/15 + 1/9    = 17/45
            R’s Gaining share       = 2/3 X 5/15    = 2/9
            R’s new share                         = 6/15 + 2/9    = 28/45
            New Ratio                   = 17:28

Ans. 8  Rohit’s capital A/C                             Dr. 24000
            To Mayank’s capital A/C                                            6000
            To harshit’s Capital A/C                                             18000
            (Adjustment Entry for treatment of goodwill in gaining ratio.)

Ans. 9 Suresh capital A/C                               Dr. 48000
            To Ramesh’s capital A/C                                            12000
            To Naresh capital A/C                                                36000
            (Goodwill adjusted among the gaining partner in gaining ratio.)

Ans. 10 O’s capital A/C                                  Dr. 40000
            To C’s capital A/C                                                     20000
            To M’s capital A/C                                                     20000
            (Adjustment of goodwill in gaining partners in their gaining ratio.)

Ans. 11 Profit and loss suspense A/C             Dr
            To deceased partner’s capital A/C

Ans. 12 Total profit for the year ended 31st March 2007        =          Rs 300000
            Y’s 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 Y’s capital A/C                                                     25000
            ( Y’s share of profit transferred to Y’s capital A/C)

Ans. 13 Profit and Loss suspense A/C            Dr. 10000
            To B’s capital A/C                                                     10000
            (B’s share of profit transferred to B’s capital A/C)

            A’s capital A/C                                   Dr. 15000
            C’s capital A/C                                   Dr. 5000
            To B’s capital A/C                                                     20000
            (B’s share of goodwill transferred to B’s capital A/C and debited to remaining
            partners capital A/C in their gaining ratio.)
            B’s share of profit       =          Number of days from 1 April to 12th June 2007
                                                =          73 Days
            B’s share of profit       =          150000 X 1/3 X 73/365
                                                =          Rs. 10000
Ans. 15 Profit & Loss suspense A/C               Dr. Rs. 12,500
            To C’s capital A/C                                                     Rs. 12,500


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.

Ans. 2 Realisation account is prepared to ascertain profit or loss on sale of assets and payment of liabilities.

Ans. 3 Realisation Account is prepared on dissolution of partnership firm and Revaluation account is prepared on reconstitution of partnership firm.

Ans. 4 Yustin’s 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.

Ans. 5 Cash A/C                                 Dr. 11400
            To Realisation A/C                                         11400
            (For debtors realized on dissolution of firm)

Ans. 6 Kamal’s capital A/C                Dr. 4000
            To cash A/C                                                    4000
            (for final payment to Kamal)

Ans. 7 (i)    A’s capital A/C                Dr. 15000
                   B’s capital A/C                Dr. 15000
                   To realization A/C                                   30000
                   (For transfer of loss on dissolution)
                   (ii) A’s capital A/C                      Dr. 5000
                   B’s capital A/C                Dr. 15000
                   To cash A/C                                          20000   
                   (For final payment to partners)
Ans. 8


Dr. (Rs)
Cr. (Rs.)
Realisation A/C                                            Dr.
To Bank A/C

B’s capital A/C                                            Dr.
To realisation  A/C

A’s capital A/C                                            Dr.
B’s capital A/C                                            Dr.
To Realisation A/C

B’s capital A/C                                      Dr.
To bank A/C

A’s capital A/C                                             Dr.
B’s capital  A/C                                            Dr.
To deferred revenue advertising expenditure A/C

Bank A/C                                                 Dr.
To realisation A/C



Ans.1 No’ because Interest on debentures is a charge against profit and not an appropriation of profit.

Ans. 2 Debenture Redemption Reserve Account.

Ans. 3 Redemption of debentures by conversion.

Ans. 4 Capital Nature.

Ans. 5 Yes. [ Hint See section 78]

Ans. 6 According to table ‘A’ not exceeding 6 % p.a.

Ans. 7 Section 79 Companies Act- the shares must be of a class already issued. So a company cannot issue shares at a discount in its Initial Public Offer.

Ans. 8 It is restricted under section 78 of Indian Companies Act.

Ans. 9 Mention the provisions of section 78.

Ans. 10 Basis of difference :
(i)     Ownership
(ii)   Return
(iii) Voting Right
(iv) Convertibility

Ans. 11 No.

Ans. 12 As per SEBI guidelines, an amount equal to 50% of the debenture issue, must be transferred to DRR before the redemption begins.

Ans. 13 The following companies are exempted from the obligation of creating DRR –
(i)     A company which has issued debentures with a maturity of 18 months or less.
(ii)   Infrastructure companies, which are wholly engaged in the business of developing, maintaining and operating infrastructure facilities.

Ans. 14 A Company can reissue forfeited shares at a discount not more than amount forfeited on these shares.

Ans. 1 Interest on Calls in advance Rs. 2.80
            Interest on Calls in arrears Rs. 5.50
Ans. 2
Sundry Assets A/C                                                                        Dr.
Goodwill A/C                                                                                Dr.
To Sundry Liabilities
To Y Ltd.

Y Ltd.                                                                                            Dr.
To Bank A/C                                                                                 

Case I
Y Ltd                                                                                             Dr.
To Equity share capital A/C                                                         

540, 000
Case II
Y Ltd                                                                                             Dr.
To Equity share capital A/C
To securities premium A/C

Case III
Y’ Ltd                                                                                            Dr.
Discount on issue share A/C                                                         Dr.
To Equity share capital A/C


Ans. 3 Issued Capital Rs. 95000.

Ans. 4 Hint-
(i)              Amount received on allotment Rs. 26,100.
(ii)            Amount transferred to share forfeited A/C Rs. 900
(iii)          Amount transferred to Capital Reserve Rs. 600.

Ans. 5 Capital Reserve Rs. 990.

Ans. 6
                   (1) Case a (i) – No. of preference shares issued 7752.
                   (2) Case a (ii)- No. of debentures issued 1530.
                   (3) Remaining 85000 debentures paid in cash.

Ans. 7 Interest on Calls in advance     = 15 + 3 = Rs. 18

Ans. 8
(i)     Dr. Bank A/C Rs. 16,90,000, Cr.Eq.share Application A/C Rs. 16,90,000.
(ii)   Dr.Eq.Share Application A/C Rs. 16,90,000, Cr.Eq. share Capital A/C Rs.10,00,000, Cr. Security premium A/C Rs. 300,000, Cr. Bank A/C Rs. 3,90,000.

Ans. 9  Debentures Issued without a predetermined rate of interest are called zero coupon Bond.

Ans 10. A company issuing Debentures by way of public issue is required to appoint the trustees and execute  a trust deed . It is a document created by the company which issues the Debentures.

Ans. 11 Case (i) – No. of Equity shares to be issued 1,600.
            Case (ii) – No. of Equity shares to be issued 1,440.

Ans. 12
                                                Journal of B Ltd.
(i) Bank A/C                                                   Dr. 28,50,000
            To. Deb. Application & Allotment A/C                                              28,50,000

(ii) Deb. Application & allotment A/C           Dr. 28,50,000
      Discount on issue of Debentures              Dr. 1,50,000
               To 12 % debentures A/C                                                      30,00,000

                                                      Journal of E Ltd.
(i) Bank A/C                                                   Dr. 57,000
        To. Deb. Application & Allotment A/C                                      57,000

(ii) Deb. Application & allotment A/C           Dr. 57,000
      Loss on issue of Debentures A/C             Dr.   9,000
            To 12 % debentures A/C                                                         60,000
            To Debenture Redemption Premium A/C                                   6000

                                                          Journal of F Ltd.

(i) Bank A/C                                                   Dr. 73,500
         To. Deb. Application & Allotment A/C                                     73,500

(ii) Deb. Application & allotment A/C           Dr. 73,500
      Loss on issue of Debentures A/C             Dr.   7,000
            To 12 % debentures A/C                                                         70,000
            To Securities premium A/C                                                      3,500
            To Debenture Redemption Premium A/C                                   7,000

Ans. 13 Capital Reserve Rs. 10,000

Ans. 14 Capital Reserve Rs. 600

Ans. 15 Capital Reserve Rs. 4,800.

Analysis of Financial Statements

Ans:1 (i- Current Assets
ii)              Fixed Asset.

Ans:2  Items                                   Heading                                   Sub-Heading
   Provision for Taxation           Current Liabilities                                  Provision
      & Provision
Bills payable                           Current Liabilities                     Current Liabilities
     & Provision
Ans:3 (i) Capital Reserve
          ii) Debenture Redemption Reserve

Ans:4  Balance sheet as on______

             Liabilities     Rs.                                                     Assets    Rs.

           Share capital                                                           Fixed Assets                                                       
           Reserve & surplus                                                  Investment
           Secured Loans                                                        Current Assets,
           Unsecured Loans                                                    Loan and Advances 
                                                                                            (a) Current Assets
                                                                                            (b) Loans & Advance
           Current Liabilities & Provision                              Miscellaneous Expenditures             
(a)   Current Liabilities                                         Profit & Loss amount (Dr.Balance)
(b)  Provision                                                               

Ans:5  (i) Fixed Assets.
            (ii) Miscellaneous Expenditures
            (iii)Current Assets Loans & Advance under Current Assets.
            (iv)Reserve and Surplus.
            (v)Fixed Assets.

Ans:6   Total of Balance Sheet  Rs.18,50,000.

Ans:7   (i) Claims against the Company not acknowledged as debts .
             (ii) Uncalled Liability on partly paid shares.
             (iii)Arrears of Dividend on Cumulative preference shares.

Ans:8. Discount on Issue of shares, Advertisement Suspense a/c

Accounting Ratios
Ans:1 Short term financial position of the business is assessed by calculating current ratio and liquid ratio.

Ans:2 (i) Payment of current liabilities.
           (ii) Issue of share capital etc.

Ans:3 Sale of stock at cost price.

Ans:4 (i) because there is uncertainty whether it will be sold or not.
           (ii) It will take time before it is converted into debtors’ and cash.

Ans:5 Quick ratio will improve as both the liquid assets and current liabilities will decrease by the same
Ans:6 Conversion of debentures into shares.

Ans:7 Accounting ratios are calculated from financial statements, which are down on the basis of historical
           Cost as recorded in the book of accounts .
Ans:8 Total Assets to Debt Ratio.
Ans:9 Debt-Equity-Ratio.
Ans:10 100-78=22%
Ans:11 No change because it will neither affect net credit sales nor average receivable.
Ans:12 Debt-equity ratio will decrease because the Long-term loans remain unchanged where as the
             Shareholders’ funds are increased by the amount f share capital issued .
Ans:13 Purchase of goods for cash .

Ans:14 Debt equity ratio will not change as the total amount of shareholders funds will remain same.

Ans:15 Payment of current Liabilities Rs.3,00,000.
Ans:16 Net gain to shareholders Rs.60,000.

Ans:17 Closing stock = Rs.14,285.
             Opening stock = Rs.35,715.
Ans:18 Stock turnover Ratio = 4 times .
Ans:19 Cost of goods sold =Rs.8,48,400.
Ans:20 Opening stock Rs. 50,000.
             Closing stock Rs. 1,50,000.
Ans:21 (a) Net profit before interest Rs.14,00,000
                  capital employed Rs. 28,00,000
                  Return on investment 50%.
            (b)Earning per share Rs. 4.

Cash Flow Statement
Ans:1 Cash Flow statement is prepared on cash basis of accounting but profit is calculated on accrual basis.  So cash flow statement is not a judge of profitability.

Ans:2 Under accounting standard-3(Revised).

Ans:3 Depreciation reduces the net profit without reducing the cash balance as it is a non-cash item.

Ans:4 As Operating Activities.

Ans:5 Operating Activities.

Ans:6 As Outflow under Investing Activities.

Ans:7 Give any two examples-
(i)              Acquisition of fixed asset by issue of debentures or shares.
(ii)            Conversion of debentures into shares.

Ans:8 Classified as Financing Activities.

Ans:9 It will be operating activities in case of a finance company and investing activities in case of Non-Financing Company.

Ans:10 (i) Operating Activities.
(ii)Investing Activities.
(iii)Financing Activities.

Ans:11  …= Net Increase /Decrease in cash and Cash Equivalents.

Ans:12 Direct Method and Indirect Method.

Ans:13 Investing Activities Because …………….

Ans:14 Investing Activities Because …………….

Ans:15 Cash from Operating Activities Rs.1,03,800.

Ans:16  (i) Cash Inflow From Operating Activities Rs.80,000.
(ii)Cash Outflow on  Investing Activities Rs.1,60,000,
(iii)Cash Inflow From Financing Activities Rs. 1,00,000.