KVS REGIONAL OFFICE, BHOPAL

SUPPLEMANTRY MATERIAL
CLASS – XII
SUBJECT- ACCOUNTANCY
मागदशक
1. ी िजत िसंह रावत, ाचाय , पीएम ी क ीय िव ालय मांक 3, भोपाल

2. ी मनीष कुमार गु ा, उप- ाचाय पीएम ी क ीय िव ालय . 1 भोपाल

CONTENT PREPARATION TEAM

S.N. NAME OF NAME OF THE PGT K.V.
CHAPTER/UNIT COMM
1. Admission of Partner DURGESH NANDINI KV NO 1 OF
SARATHE ITARSI
2. DEATH of PARTNER NO. 1 INDORE
AND ACCOUNTING VANDANA SHARMA (SHIFT-1)
RATIOS
3. Dissolution of Partnership Manisha choure RAISEN

4. Issue of shares &

Disclosure of share capital RAJNI PARMAR NO.2, INDORE

5. ISSUE OF DEBENTURES NO 1 INDORE

Mukesh Chouhan SHIFT -2

6. ACCOUNTING RATIOS NO. 1 INDORE

VANDANA SHARMA (SHIFT-1)

7. CASH FLOW NO. 2 AFS

STATEMENT SOMDATTA SAHA GWALIOR

COMPILED BY CO ORDINATED BY
ISHA KAPILA S.K.SINGHAL
K.V. NEPANAGAR K.V. NO.1 ,BHOPAL

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 CHAPTER- ADMISSION OF PARTNER

MCQ(1 MARKS)

1 On the admission of a new partner:

(A) Old firm is dissolved
(B) Old partnership is dissolved
(C) Both old partnership and firm are dissolved
(D) Neither partnership nor firm is dissolved
2 A and B are partners in a firm sharing profits and losses in the ratio of 3 :2. A new
partner C is admitted. A surrenders 1/15th share of his profit in favour of C and B
surrenders 2/15th of his share in favour of C. The new ratio will be:
(A) 8:4:3 B)42:26:7 (C) 4:8:3 (D) 26:42:7

3 A, B and C are partners sharing in the ratio of 5:4:3. They admit D for 1/7th share. It is
agreed that B would retain his original share. Sacrificing ratio will be:
(A) A, B and C – 5:4:3 (B) A and C – 4:3

(C) A and C – 5:4 (D) A and C – 5:3

4 Assertion (A): In case of admission of a partner, the old firm is dissolved and a new firm
comes into existence.

Reason (R): After admission of a new partner, old partners along with the new partner
constitute the new firm. As such, the old firm is dissolved and a new firm comes into
existence.

(A) Both (A) and (R) are correct and (R) is the correct reason for (A).

(B)(A) and (R) are correct but(R) is not the correct reason for (A).
(C) (A) is wrong Only (R) is correct.
(D) Both (A) and (R) are wrong

5 Assertion (A): Admission of a partner does not mean dissolution of the firm but dissolution
of old partnership.
Reason (R): Admission of a partner means reconstitution of the partnership whereby old
partnership ceases to exist and new partnership comes into existence However, the firm
continues.

(A) (A) and (R) both are correct and (R) correctly explains (A).
(B) Both (A) and (R) are correct and (R) does not explain (A).
(C) Both (A) and (R) are incorrect.
(D) is correct but (R) is incorrect.

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 THREE MARKS QUESTIONS (03 MARKS)
6 A and B are partners sharing profits and losses in the ratioof3:2. They admitted C into partnership
for ¼ share. Goodwill of the firm was to be valued at 3 years’ purchase of super profits. Average
net profits of the firm were Rs. 20,000. Capital invested in the business was Rs. 50,000 and
Normal Rate of Return was 10%. Calculate the amount of goodwill C has to bring

7 A and B are equal partners with fixed capitals of Rs. 90,000 and Rs. 60,000 respectively. They
admit C as a partner with 1/4th share in the profit of the firm. C brings Rs. 16,000 to acquire his
right to share profits of the business and Rs. 80,000 to acquire the right to share the firm's assets.
Give Journal Entries at the time of C's admission.
FOUR MARKS QUESTIONS (04 MARKS)
8
X and Y are partners in a firm sharing profits in the ratio of 5:3. On March 1st, 2021 they
admitted Z as a new partner. The new profit- sharing ratio will be 4:3:2. Z brought in Rs.
1,00,000 in cash as his share of capital but could not bring any amount for goodwill in cash. The
firm's goodwill on Z's admission was valued at Rs. 1,80,000. X and Y decided that Z can bring
his share of premium for goodwill later or it can be adjusted against his share of profits. At the
time of Z's admission goodwill existed in the books of the firm at Rs. 2,40,000.You are required
to pass necessary journal entries in the books of the firm on Z’s admission

9 Leeta and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. On 1st
April, 2024 they admitted Omi as a new partner. On the date of Omi's admission, the balance
sheet of Leeta and Meeta showed a balance of Rs. 1,60,000 in General reserve and Rs. 2,40,000
(Cr.) in Profit and Loss Account. Record necessary journal entries for the treatment of these
items on Omi's admission. The new profit-sharing ratio between Leeta, Meeta and Omi was
5:3:2.

SIX MARKS QUESTIONS (06 MARKS)

10 Chander and Damini were partners in a firm sharing profits losses equally. On 31st March, 2023
their Balance Sheet was as follows: Balance sheet of Chander and Damini as of 31.03.2023

Liabilities Amt. (Rs.) Assets Amt. (Rs.)

Sundry Creditors 1,04,000 Cash at Bank 30,000
Capitals: Bills Receivable 45,000
Chander2,50,000 Debtors 75,000
Damini2,16,000 4,66,000 Furniture 1,10,000
Land and Building3,10,000
5,70,000 5,70,000
On 01.04.2023, they admitted Elina as a new partner for 1/3rd share in the profits on the
following conditions:

3
 (i)Elina will bring Rs. 3,00,000 as her capital and Rs. 50,000 as her share of goodwill premium,
half of which will be withdrawn by Chander and Damini.
(ii)Debtors to the extent of Rs. 5,000 were unrecorded.
(iii)Furniture will be reduced by 10% and 5% provision for bad and doubtful debts will be
created on bills receivables and debtors.
(iv)Value of land and building will be appreciated by 20%.
(v)There being a claim against the firm for damages, aliability to the extent of Rs. 8,000 will
be created for the same. Prepare Revaluation Account and Partners' Capital Accounts.
11 Charu and Harsha were partners in a firm sharing profits in the ratio of 3:2. On 01.04.2024,
their Balance Sheet as follows:

Liabilities Amt. (Rs.) Assets Amt. (Rs.)

Creditors General Reserve 17,000 Cash 6,000
Workmen Compensation Fund 4,000 Debtors 15,000
Investment Fluctuation Fund 9,000 Investment 20,000
Provision for Bad Debts Capitals: 11,000 Plant 14,000
Charu30,000 2,000 Land and Building 38,000
Harsha 20,000

50,000
93,000 93,000
Vaishali was admitted for 1/4th share in the profit of the firm on the following terms:
1. Vaishali will bring Rs. 20,000 for her capital and Rs. 4,000 for her share of goodwill
premium.
2. All debtors were considered good.
3. The market value of investments was Rs. 15,000.
4. There was a liability of Rs. 6,000 for workmen compensation.
5. Capital accounts of Charu and Harsha are to be adjusted on the basis of Vaishali's capital by
opening current accounts.
Prepare Revaluation Account and Partners' Capital Accounts.

SOURCE BASED QUESTIONS

12
A and B are partners sharing profits and losses in the ratio of 3:2. They admitted C with effect
from 1st April, 2024. New profit-sharing ratio is agreed at 4:3:3. An extract of their Balance
Sheet as at 31st March, 2024 is as follows:

Liabilities Rs. Assets Rs.

Workmen Compensation Reserve 90,000

Based on the above information you are required to answer the following questions
1 If there is no other information in respect of Workmen Compensation Reserve:
(A) Cr. A's Capital A/c with Rs. 60,000 and B's Capital A/c with Rs.30,000

4
 (B) Cr. A's Capital A/c with Rs. 54,000 and B's Capital A/c with Rs. 36,000
(C) Dr. A's Capital A/c with Rs. 54,000 and B's Capital A/c with Rs. 36,000
(D) Cr. A's Capital A/c with Rs. 36,000 and B's Capital A/c with Rs.27,000 and C's Capital A/c
Rs. 27,000
2 If a claim for Workmen Compensation is estimated at Rs. 60,000:
(A) Cr. A's Capital A/c with Rs. 20,000 and B's Capital A/c with Rs.10,000
(B) Dr. A's Capital A/c with Rs. 18,000 and B's Capital A/c with Rs.12,000
(C) Cr. A's Capital A/c with Rs. 18,000 and B's Capital A/c with Rs.12,000
(D)Cr. A's Capital A/c with Rs.12,000 and B's Capital A/c with Rs.9,000 and C's Capital A/c
with Rs. 9,000
3 If a claim for Workmen Compensation is estimated at Rs. 1,50,000
(A)Dr. C’s Capital with Rs. 60,000
(B)Dr. C’s Capital A/c with Rs. 18,000
(C)Dr. Workmen Compensation Reserve A/c with Rs. 90,000 and Revaluation A/c with Rs.
60,000
(D) Dr. Revaluation A/c with Rs. 60,000

13 Q13 Jolly and mayank are partners since last 5 years. Vinod gets 75% of the profit and mayank
gets 25%. Their capitals are fixed. They need more capital for the business so they decided to
admit a new partner Yuvraj for ¼ share.
Yuvraj brings rs. 3,00,000 as his capital .
He could bring only 40% of his share in cash and furniture of rs. 16,000 for his share of
goodwill.
Goodwill of the firm was valued at R. 2,40,000.
1) The new ratio of the partners will be :
(A) 3:1:1
(B) 5:3:2
(C) 9:4:3

(D) 9:3:4
2) Sacrificing ratio of vinod and mayank is 3:1
(A) True
(B) False

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3) Yuvraj share of premium for goodwill is rs. 60,000
(A) True
(B) False
4) How much amount of premium for goodwill brought in cash by yuvraj?
(A) 9,600

(B) 24,000
(C) 25,600
(D) 24,600

ANSWER OF MCQS (01 MARKS)

1. B

2. B

3. D

4. D

5. A

ANSWER OF THREE MARKS QUESTIONS (03MARKS)

6 Super profit = Average Profit – Normal Profit.

Normal profit = 50,000 x 10% = 5,000
= 20,000 – 5,000 = 15,000

Goodwill = super profit x No. of years’ purchase

= 15,000 x 3 = 45,000

C’s share of goodwill = 45,000 x ¼ = Rs. 11,250

7
Date Particulars L.F. Dr. Cr.
(Rs.) (Rs.)

6
 Cash A/cDr. 96,000

To C’s Capital A/c 80,000

To Premium for Goodwill A/c 16,000

(capital and premium for goodwill brought in

cash)
Premium for Goodwill A/cDr. 16,000
To A’s Current A/c
8,000
To B’s Current A/c
(premium for goodwill credited to old 8,000
partners' curren account in their sacrificing
ratio)

ANSWER OF FOUR MARKS QUESTIONS (04MARKS)

SOLUTION 8

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

2021
March1 X’s Capital A/c Dr. 1,50,000

Y’s Capital A/c Dr. 90,000

To Goodwill A/c 2,40,000

(Goodwill already existing in the books, now
written off in old ratio i.e. 5:3)

March1 Bank A/c Dr. 1,00,000

To Z’s Capital A/c 1,00,000

(Amount brought in by Z as his

Capital)
March1 Z’s Current A/c(2/9 of 1,80,000) Dr. 40,000

To X’s Capital A/c 40000

SOLUTION 9

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

April 1 General reserve A/c Dr. 1,60,000

To Leeta’s Capital A/c
1,00,000
To Meeta’s Capital A/c
60,000
(The transfer of the balance of General reserve
to old partner’s capital accounts in old ratio on
the admission of Omi)

April 1 Profit & Loss A/c Dr. 2,40,000

To Leeta’s Capital A/c
1,50,000
To Meeta’s Capital A/c
90,000
(The transfer of the balance of Accumulated
profits to old Partner’s capital accounts in old
ratio on the admission of Omi)

ANSWER OF SIX MARKS QUESTION

Solution 10

REVALUATION ACCOUNT
Particulars Amt. (Rs.) Particulars Amt. (Rs.)

To Furniture A/c 11,000 By Debtors A/c 5,000

To provision for Doubtful Debts By Land and 62,000
A/c {On Debtors} Building A/c
4,000
To provision for Doubtful Debts
A/c {On B/R}
2,250
To Claim for Damages A/c
8,000
To Profit Transferred to:
Chander’s Capital A/c 20,875
Damini’s Capital A/c20,875
41,750

67,000 67,000

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 PARTNER’S CAPITAL ACCOUNTS

Particulars Chander Damini Elina Particulars Chander Damini Elina

(Rs.) (Rs.)
(Rs.) (Rs.) (Rs.) (Rs.)

To Bank 12,500 12,500 - By Balance 2,50,000 2,16,000 -

A/c b/d
- -
To By Bank A/c
2,83,375 2,49,375 3,00,000 3,00,000
Balance
By Premium
c/d
for Goodwill 25,000 25,000
A/c -
By 20,875 20,875
Revaluation
A/c
2,95,875 2,61,875 3,00,000 2,95,875 2,61,875 3,00,000

SOLUTION 11

REVALUATION ACCOUNT AND PARTNER’S CAPITAL ACCOUNT

Particulars Amt Particulars Amt.

. (Rs.) (Rs.)
To Profit Transferred to: Charu’s Capital A/c1,200 By Provision for2,000
Harsha’s Capital A/c800 Bad Debts A/c

2,000
2,000 2,000

Particulars Charu Harsha Vaishali Particulars Charu Harsha Vaishali

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

To Charu’s 5,400 By Balance 30,000 20,000 -
b/d
Current A/c
- - By General 2,400 1,600 -
To Harsha’s Reserve A/c
- - -
Current A/c By Cash
3,600 - 20,000
By Premium
36,000 24,000 20,000 2,400 1,600
To Bal. c/d for Goodwill A/c

By Rev. A/c 1,200 800 -

By WCF A/c 1,800 1,200 -

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 By Inv. 3,600 2,400 -

Fluct.
Fund A/c -
41,400 27,600 20,000 41,400 27,600 20,000

ANSWERS OF SOURCE BASED QUESTIONS

12 1.A
2.B
3.C
13 1.D
2. A
3.A
4.B

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 CHAPTER- DEATH OF A PARTNER

MCQS (1 MARK)

Q. NO. QUESTIONS

Q1. Assertion (A): Unrecorded assets at time of death of partner is recorded on credit side of
Revaluation a/c.
Reason (R): Revaluation account is credited due to increase in liability.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
( D) Assertion is false, reason is true

Q2. At what rate is interest payable on the amount remaining unpaid to the executer of deceased partner,
In the absence of any agreement among partners, when he opts for interest and not share of profit:
(A) 6%
(B) 12%
(C) 7.5%
(D) 8%

Q3. Assertion (A): At the time of death of a partner the deceased partner will get his share in General
Reserve and credit balance in Profit & Loss Account
Reason (R): Deceased partner will get his share of Workmen Compensation Reserve remaining after
claim if any in the context of above two statements, which of the following a correct?
(A) Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation
(B) Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation

(C) Assertion (A) is correct but Reason (R) is not correct

(D) Assertion (A) is not correct but Reason (R) is correct.

Q4. A, B and C were partners sharing profits and losses in the ratio of 2 : 2 : 1. Books are closed on 31st
March every year. C dies on 5th November, 2018. Under the partnership deed, the executors of the
deceased partner are entitled to his share of profit to the date of death, calculated on the basis of last
year’s profit. Profit for the year ended 31st March, 2018 was ₹2,40,000. C’s share of profit will be :
(A) ₹28,000
(B) ₹32,000
(C) ₹28,800
(D) ₹48,000

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Q5. Assertion (A): When goodwill is not appearing in the books, retiring or deceased partner’s capital
account is to be credited with his share of goodwill and gaining partners’ capital accounts are to be
debited in gaining ratio.
Reason (R): Goodwill needs to be compensated by the gaining partners in the gaining ratio.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.

(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.

THREE MARKS QUESTIONS (03 MARKS)

Q6. A, B and C are partners in a firm whose books are closed on 31st March each year. B died on 30th
June, 2023 and according to the agreement, the share of profit of a deceased partner up to the date of
the death is to be calculated on the basis of the average profits for the last five years. The net profits
for the last 5 years have been 2020 : Rs. 14,000; 2021 : Rs. 18,000; 2022 : Rs. 16,000; 2023 : Rs.
10,000 (loss) and 2024 : Rs. 16,000.
Calculate B’s share of profits up to the date of death and pass necessary journal entry.

Q7. A, B and C were partners sharing profits and losses in the ratio of 2: 2: 1. C died on 30th June, 2023.
Profit and Sales for the year ended 31st March, 2023 were Rs 1,00,000 and Rs 10,00,000 respectively.
Sales during April to June, 2023 were Rs 1,50,000.
You are required to calculate share of profit of C up to the date of his death and pass journal entry
FOUR MARKS QUESTIONS (04 MARKS)

Q8. X, Y and Z were partners in a firm sharing profit in 3 : 2 : 1 ratio. The firm closes its books on 31st
March every year. Y died on 30th June, 2023. On Y's death the goodwill of the firm was valued at Rs
60,000. Y's share in the profits of the firm till the time of his death was to be calculated on the basis
of previous year's profit which was Rs 1,50,000.
Pass necessary journal entries for the treatment of goodwill and Y's share of profit at the time of his
death.

Q9. P, Q and R are partners, sharing profits in the ratio of 4: 3 : 1. It is provided in the Partnership Deed
that, on the death of any partner, Deceased Partners' share of goodwill will be valued at half of the
profits credited to his account during the previous four completed years.
Q died on 1st April, 2023. The firm's profits/losses for the last four years ended 31st March, are:2020-
₹1,20,000; 2021- ₹60,000; 2022- ₹20,000 (loss): 2023- ₹80,000.
(i)Determine the amount that is to be credited to Q's Capital Account as his share of goodwill.
(ii)Pass Journal entry for adjustment of goodwill if profit-sharing ratio between P and R in future will
be3: 2

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 SIX MARKS QUESTIONS (06 MARKS)

Q10. Vijay, Vivek and Vinay are partners in a business sharing profits as 3/4, 1/8 and 1/8 respectively and
their Balance Sheet as at 31st March, 2023 was:
Liabilities Amount Assets Amount
Capitals : Plant 5,00,000
Vijay 5,00,000 Debtors 4,00,000
Vivek 3,00,000 Stock 2,00,000
Vinay 2,50,000 Cash 50,000
Reserve 50,000 Bank 2,50,000
Sundry Creditors 50,000
Loan by Vinay 2,50,000
14,00,000 14,00,000
Vinay died on 31st December, 2023 and the Partnership Deed provided the following:
(a) The deceased partner will be entitled to his share of profits up to the date of death, calculated on
the basis of previous year’s profits.
(b) He will be entitled to his share of goodwill of the firm, calculated on the basis of three years’
purchase of the average profits of the four years.
The net profits for the last four years ended 31st March, 2020 – ₹ 8,00,000; 2021 – ₹ 6,00,000; 2022
– ₹ 4,00,000 and 2023 – ₹ 2,00,000.
(a) His drawing up to the date of death was ₹ 18,000.
Determine the amount payable to the legal representatives of the deceased partner by preparing the
accounts.
Q11. Neeraj, Ravi & Vasu were partners in a firm sharing profits & losses in the ratio of 5:4:1. Their Balance
Sheet as at 31st March, 2023 was as follows:
Balance Sheet of Neeraj, Ravi & Vasu as at 31st March, 2023
Liabilities Amt. (₹) Assets Amt. (₹)
Capitals: Plant & Machinery 5,50,000
Neeraj - 1,80,000 Stock 1,20,000
Ravi - 1,45,000 Debtors 1,30,000
Vasu - 1,00,000 6,00,000 Bank 40,000
Profit for the year 2022-23 1,55,000 Advertisement Expenditure 20,000
Creditors 1,10,000
Total 8,60,000 Total 8,60,000

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 SOURCE BASE QUESTIONS

Q.12 A. B and Care partners in a firm sharing profits and losses in the ratio of 3:2:1. Their books are closed
on March 31st every year. B died on September 30th, 2023 and A and C decided to share future profits
in 3:2. The executors of B are entitled to:
(i) His share of Capital i.e. Rs. 25,00,000 along with his share of goodwill. The total goodwill of the
firm was valued at 1,20,000.
(ii) His share of profit up to his date of death on the basis of sales till date of death. Sales for the year
ended March 31, 2023 was 3,00,000 and profit for the same year was 10% on sales. Sales show a
growth trend of 20% and percentage of profit earning is reduced by 1%.

You are required to give answer to the following questions:

12.1 In respect of goodwill:

(A) A and C will be debited by 30,000 and 10,000 respectively
(B) A and C will be debited by 28,000 and 12,000 respectively

(C) A and C will be debited by 12,000 and 28,000 respectively

(D) A and C will be debited by 36,000 and 84,000 respectively

12.2 In respect of B's share of profit:

(A) Profit and Loss Suspense Account will be debited by 5,400

(B) Profit and Loss Suspense Account will be debited by 16,200

(C) A and C will be debited by 4,050 and 1,350 respectively
(D) A and C will be debited by ₹1,620 and 3,780 respectively

Q.13 Analyze the case given below and answer the questions that follow:

A, K and S were partners in a firm sharing profits in the ratio of 5: 3: 2. Goodwill appeared in their
books at the value of Rs 60,000. ‘K’ died on 30 September’ 2023. On the date of his death, goodwill
of the firm was valued at Rs 2,40,000. The new profit-sharing ratio was decided among A and S as 2:
3.

13.1 How much of the existing goodwill will be transferred to K’s Capital Account?
(A) Rs 18,000
(B) Rs 30,000
(C) Rs 12,000
(D) Rs 72,000

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13.2 What is A’s gaining or sacrificing ratio:
A) 1/10 Gain
B) 1/10 Sacrifice
C) 4/10 Gain
D) 4/10 Sacrifice

13.3 What amount of goodwill will be transferred to K’s capital account as compensated by A and S?
(A) Rs 96,000
(B) Rs 72,000
(C) Rs 24,000
(D) Rs18,000

ANSWERS OF MCQS (01 MARKS)

Ans.1. (C) Assertion is true, reason is false.

Ans.2. (A) 6%

Ans.3. (B) Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation

Ans.4. (C) ₹28,800

Ans.5. (A) Both Assertion and reason are true and reason is correct explanation of assertion.

ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)

ANS.6. Calculation of B’s Share of Profit

Last 5 years’ total profit = 14,000 +18,000 +16,000 -10,000 +16,000 =Rs. 54,000
Average profit = 54,000 / 5 = Rs. 10,800
B’s share of profit = 10,800 x 1/3 x 3/12 = Rs. 900

Date Particulars L.F Dr. (₹) Cr. (₹)

2023 P an L Suspense A/C Dr 900

June 30 To B’s Capital A/C 900
( Being B’s share of profit credited to B’s capital A/C)

ANS.7. The share of profit of C up to the date of death

Previous year’s net profit X Current year’s sales X C’s share of profit
Previous year’s sales

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 = 1,00,000 X 1,50,000 X 1/5 = 3,000
10,00,000

Date Particulars L.F Dr. (₹) Cr. (₹)

2023 P an L Suspense A/C Dr 3,000

June 30 To C’s Capital A/C 3,000
( Being C’s share of profit credited to C’s capital A/C)

ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)

ANS.8. Note 1: Calculation of Gaining Ratio

Ratio of X : Y : Z = 3 : 2 : 1
New Ratio of X : Z = 3 : 1
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = 3/4 - 3/6 = (18-12)/24 = 6/24
Z’s Gain = 1/4 - 1/6 = (6-4)/24 = 2/24
Therefore Gaining Ratio of X : Z = 6 : 2 = 3 : 1
2 Goodwill of the firm = 60,000
Y’s share of goodwill = 60,000 × 2/6 = 20,000
X’s Capital Account debited for goodwill = 20,000 × 3/4 = 15,000
Z’s Capital Account debited for goodwill = 20,000 × 1/4 = 5,000
Y’s share of profit till the date of his death = 1,50,000 × 3/12 × 2/6 = 12,500

Date Particulars L.F Dr. (₹) Cr. (₹)

2023 X’s Capital A/C Dr 15,000
June 30 Z’s Capital A/C Dr 5,000
To Y’s Capital A/C 20,000
( Being goodwill adjusted in gaining ratio)
June 30P & L Suspense A/C Dr 12,500
To Y’s Capital A/C 12,500
( Being Y’s share of profit transferred to Y’ capital a/c on date of his
death)
ANS.9. (i)Total profit of 4 years =₹ 1,20,000 +₹ 60,000 – ₹20,000 +₹ 80,000 = ₹2,40,000

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 Q's share in profit already credited to his account = ₹2,40,000 × 3/8 = ₹90,000
Goodwill to be credited to Q's Capital Account on his death = ₹90,000 × 1/2 = ₹45,000
(ii) Journal

Date Particulars L.F Dr. (₹) Cr. (₹)

2023 P's Capital A/c (45,000 × 4/15) Dr 12,000

Apr .R's Capital A/c (45,000 × 11/15) Dr 33,000
1
To Q's Capital A/c 45,000
(Goodwill adjusted by debiting gaining partners in gaining
ratio,i.e., 4 : 11 and crediting sacrificing partner)

Working Note:
Calculation of Gaining Ratio: Gain of a Partner = New Profit Share – Old Profit Share
P gains; = 3/5-4/8= 4/40
R gains; =2/5-1/8=11/40
Thus, Gaining Ratio = 4 : 11.

ANSWERS OF SIX MARKS QUESTIONS (06 MARKS)

ANS.10. VINAY’S CAPITAL ACCOUNT

Partiiculars AmountParticulars Amount

To Drawing A/c 18,000 By Balance b/d 2,50,000

To Vinay’s Executors’ 4,96,750 By Loan by Vinay A/c 50,000
A/c-Transfer By Interest on Loan by Vinay a/c 2,250
(Balancing Figure) By General Reserve A/c 6,250
By Profit and Loss Suspense A/c – Profit 18,750
By Vijay’s Capital A/c (Goodwill) 1,60,714
By Vivek’s Capital A/c (Goodwill) 25,786

5,14,750 5,14,750

*Loan by Vinay account (₹ 50,000) and Interest on Loan by Vinay Account (₹ 2,250) may be
transferred to Vinay’s Executor’s Account directly.

17
 VINAY’S EXECUTOR’S ACCOUNT

Partiiculars Amount Particulars Amount

To Balance c/d 4,96,750 By Vinay’s Capital A/c 4,96,750

4,96,750 4,96,750

ANS.11. Dr. Neeraj’s Capital A/c Cr.

Particulars Amt. (₹)Particulars Amt. (₹)
To Drawings A/c 60,000By Balance b/d 3,00,000
To Advertisement Expenditure A/c 10,000By Profit & Loss A/c (2022-23)
To Neeraj‘s Executor A/c 4,17,500(₹ 1,50,00 X 5/10) 75,000

(Balancing figure) By Profit & Loss Suspense A/c 12,500

By Ravi‘s Capital A/c 80,000
By Vasu‘s Capital A/c 20,000

4,87,500 4,87,500
Working Note:
1. Calculation of Neeraj’s Share of Profit till death:
Average profit of the last two years = ₹ 1,50,000 + ₹ 50,000
---------------------------- = ₹ 1,00,000
2
Neeraj‘s Share of Profit = ₹ 1, 00,000 X 5/10 X 3/12 = ₹ 12,500
2. Adjustment of Goodwill:
Firms Goodwill = Average Profit X No. of Year‘s Purchase = ₹ 1, 00,000 X 2 = ₹ 2, 00,000
Neeraj‘s Share of goodwill = ₹ 2, 00,000 X 5/10 = ₹ 1, 00,000, which has been debited to Ravi &
Vasu in their gaining ratio i.e., 4:1.

ANSWERS OF SOURCE BASE QUESTIONS (6 Marks)

ANS.12. 12.1 (C) A and C will be debited by 12,000 and 28,000 respectively
Gaining Ratio = N R – O R
A = 3/5- 3/6 = 3/30
B= 2/5- 1/6= 7/30

18
 Goodwill of the firm = 1,20,000
A’s share= 1,20,000x 3/30 = 12,000
B’s share = 1,20,000x 7/30 = 28,000
12.2 (A) Profit and Loss Suspense Account will be debited by 5,400
Calculate Sales and Profit for the Current Year-

Sales for the previous year = 2,00,000.

Growth rate = 20%
Current year sales = 2,00,000 +(2,00,000*20%) = 2,40,000
Profit for previous year = 10% of previous sales = 10% of 2,00,000 = 20,000.
New profit percentage = 10% - 1% = 9%
Current year's profit = 9% of 2,40,000 = 21,600
B's Share of Profit =₹21,600×5/10×6/12=₹5,400

ANS.13. 13.1 (A) Rs 18,000

60,000x310 = 18,000
13.2 (B) 1/10 Sacrifice
Gaining Ratio = N R – O R
A = 2/5- 5/10 = -1/10 ( sacrificing ratio)
S= 3/5- 2/10= 4/10 ( gaining ratio)
13.3 (B) Rs 72,000
2,40,000x3/10 = 72,000
Which is given by S to K = 2,40,000 x3/10 =72,000 ( K’ sacrificing ratio )
Given by S to A = 2,40,000x1/10= 24,000 (as A is also sacrificing)

19
 CHAPTER- DISSOLUTION OF PARTNERSHIP
MCQS (1 MARK)
Q. NO. QUESTIONS

Q1. Unrecorded asset when realised is credited to:

a. Realisation Account.
b. Partners' Capital Accounts.
c. None of the above.
Q2. At the time of dissolution of the firm, loan from partner is:
a. Transferred to Realisation Account.
b. Not transferred to Realisation Account.
c. Transferred to the Partner's Capital Account.
Q3. At the time of dissolution of the firm, the assets and liabilities appearing in the Balance Sheet are
transferred to:
a. Revaluation Account.
b. Realisation Account.
c. Partners' Capital Accounts.
Q4. At the time of dissolution of the firm, loan from partner's relative is:
a. Transferred to Realisation Account.
b. Not transferred to Realisation Account.
c. Transferred to the Partner's Capital Account.
Q5. Where it is agreed that a partner will be paid a lump sum amount for dissolution, if the payment is
made by the firm, the payment is debited to:
a. Realisation Account.
b. Concerned Partner's Capital Account.
c. All Partners' Capital Accounts.

THREE MARKS QUESTIONS (03 MARKS)

Q6. X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1 respectively. The firm was
dissolved on 1st March, 2013. After transferring assets (other than cash) and third party liabilities to
the Realisation Account' you are provided with the following information:
a. There was a balance of ₹ 18,000 in the firm's Profit and Loss Account.
b. There was an unrecorded bike of ₹ 50,000 which was taken over by X.

20
 c. Creditors of ₹ 5,000 were paid ₹ 4,000 in full settlement of accounts.
Pass necessary journal entries for the above at the time of dissolution of firm.
Q7. Book value of assets (other than cash and bank) transferred to Realisation Account is ₹ 1,00,000.
50% of the assets are taken over by a partner Atul, at a discount of 20%, 40% of the remaining assets
are sold at a profit 30% on cost 5% of the balance being obsolete, realised nothing and remaining
assets are handed over to a Creditor, in full settlement of his claim.
You are required to record the journal entries for realisation of assets.

FOUR MARKS QUESTIONS (04 MARKS)

Q8. Ramesh and Umesh were partners in a firm sharing profits in the ratio of their capitals. On 31st
March, 2013, their Balance Sheet was as follows:

On the above date the firm was dissolved.

a. Ramesh took over 50% of stock at ₹ 10,000 less then the book value. The remaining stock was sold
at a loss of ₹ 15,000. Debtors were realised at a discount of 5%.
b. Furniture was taken over by Umesh for ₹ 50,000 and machinery was sold for ₹ 4,50,000.
c. Creditors were paid in full.
d. There was an unrecorded bill for repairs for ₹ 1,60,000 which was settled at ₹ 1,40,000.
Prepare Realisation Account.
Q9. What journal entries would be passed for discharge of following unrecorded liabilities on the
dissolution of a firm of partners A and B:
a. There was a contingent liability in respect of bills discounted but not matured of ₹ 18,500. An
acceptor of one bill of ₹ 2,500 became insolvent and fifty paise in a rupee was recovered. The
liability of the firm on account of this bill discounted and dishonoured has not so far
been recorded.

21
 b. There was a contingent liability in respect of a claim fro damages for ₹ 75,000, such liability
was settled for ₹ 50,000 and paid by the partner A.
c. Firm will have to pay ₹ 10,000 as compensation to an injured employee,which was a contingent
liability not accepted by the firm.
d. ₹ 5,000 for damages claimed by a customer has been disputed by the firm. It was settled at 70%
by a compromise between the customer and the firm.

SIX MARKS QUESTIONS (06 MARKS)

Q10. A, B and C were equal partners. On 31st March,2018, their Balance Sheet stood as:

The firm was dissolved on the above date on the following terms:
a). For the purpose of dissolution, Investments were valued at ₹ 18,000 and A took over
the Investments at this value.
b). Fixed Assets realised ₹ 29,700 whereas Stock and Debtors realised ₹ 80,000.
c). Expenses of realisation amounted to ₹ 1,300.
d). Creditors allowed a discount of ₹ 800.
e). One Bill receivable for ₹ 1,500 under discount was dishonoured as the acceptor had
become insolvent and was unable to pay anything and hence the bill had to be met by the firm.
Prepare Realisation Account, Partner's Capital Accounts and Cash Account showing how the
accounts would finally be settled among the partners.
Q11. Pass necessary journal entries on the dissolution of a firm in the following cases:
A.Dharam, a partner, was appointed to look after the process of dissolution at a remuneration of
₹ 12,000 and he had to bear the dissolution expenses. Dissolution expenses ₹ 11,000 were paid by
Dharam.

B.Jay, a partner, was appointed to look after the process of dissolution and was allowed a remuneration
of ₹ 15,000. Jay agreed to bear dissolution expenses. Actual dissolution expenses ₹ 16,000 were paid by
Vijay, another partner on behalf of Jay.

C. Deepa, a partner, was to look after the process of dissolution and for this work she was allowed
a remuneration of ₹ 7,000. Deepa agreed to bear dissolution expenses. Actual dissolution
expenses ₹ 6,000 were paid from the firm's bank account.

22
 D. Dev, a partner, agreed to do the work of dissolution for ₹ 7,000. He took away stock of the
same amount as his commission. The stock had already been transferred to Realisation Account.
E. Jeev, a partner, agreed to do the work of dissolution for which he was allowed a commission
of ₹ 10,000. He agreed to bear the dissolution expenses. Actual dissolution expenses paid by Jeev
were ₹ 12,000. These expenses were paid by Jeev by drawing cash from the firm.
F. A debtor of ₹ 8,000 already transferred to Realisation Account agreed to pay the realisation
expenses of ₹ 7,800 in full settlement of his account.

SOURCE BASE QUESTIONS

Q.12 A and B were partners in a firm sharing profits in the ratio of 3:2. On 31 st March, 2020, the balance
sheet of the firm was as follows : Balance sheet
As at 31st March, 2020

LIABILITIES AMOUNT ASSETS AMOUNT

CAPITAL: Building 2,40,000

A 3,00,000 Stock 75,000

B 2,00,000 5,00,000 Debtors 80,000

Creditors 1,17,000 Cash 47,000

Furniture 1,75,000

6,17,000 6,17,000

The firm was dissolved on 1st April, 2020 and the assets and liabilities were settled.

1. Building was taken over by creditors as their full and final payment. How much amount will
be debited to Realisation Account ?
A) Rs 1,23,000
B) NIL
C) Rs 1,33,000
D) Rs 1,43000
2. Furniture was taken over by B for cash payment as 5%less than the book value. The account
Debited will be :
A) Realisation A/C
B) B’s Capital A/C
C) A ‘s Capital A/C
D) Cash A/C

23
 3. Debtors were collected by a debt collection agency at a cost of Rs 5,000. How much amount
will be credited to Realisation Account ?
A) Rs 80,000
B) NIL
C) Rs 75,000
D) Rs 85,000
4. B agreed to bear all realization expenses. For this service, B is paid Rs 500.Actual expense
on realization amounted to Rs 1,000. Realization A/C will be debited with
A ) Rs 1500
B) Rs 500
C) Rs 3,000
D)Rs 1,000
Q13. Read the following passage and answer any four questions given below:The partnership firm
of Vikram and Mohan located in Jorhat Assam a backwardand rural area of northeast. The firm
is producing tea and producing the productwith the help of machinery and labour. This firm was
dissolved on 1.3.2021 due to bad financial position.. According to the agreement Mr. Vikram had
agreed toundertake the dissolution work for an agreed remuneration of Rs.2,000.
Dissolutionexpenses were paid by Vikram

1. Who will bear the expenses of firm at dissolution?

A) Vikram
B) Mohan
C) Firm
D) None of the above
2.What will be the entry if payment made by partner Vikram?
A) Realisation A/c Dr
To Bank A/c
B) Realisation A/c Dr
To Vikram’s Capital A/c
C) No Entry
D) Vikram’s Capital A/c Dr
To Bank A/c

24
 3.What will be the entry if expenses of dissolution if expenses is paid by firm Rs.2500 ?
A)Realisation A/c Dr 2500
To Bank A/c 2500
B)Realisation A/c Dr 2500
To Vikram’s Capital A/c 2500
C) No Entry
D)Vikram’s Capital A/c Dr 2500
To Bank A/c 2500
4.What will be the entry if expenses of dissolution if expenses is paid by mohanRs.2000?
A)Realisation A/c Dr 2000
To Bank A/c 2000
B)Realisation A/c Dr 2000
To Vikram’s Capital A/c 2000
C)Vikram’s Capital A/c Dr 2000
To Mohan’s Capital A/c 2000
D)Vikram’s Capital A/c Dr 2000
To Bank A/c 2000

ANSWERS OF MCQS (01 MARKS)

Ans.1. A. Realisation Account

Ans.2. B. Not transferred to Realisation Account.

Ans.3. B. Realisation Account.
Ans.4. A. Transferred to Realisation Account.
Ans.5. B. Concerned Partner's Capital Account

25
 ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)
ANS.6. Journal
Date Particulars LF Dr Cr
.Amount .Amount
₹ ₹
(a) Profit and Loss A/C Dr 18,000
To X’s Capital A/C 9,000
To Y’s Capital A/C 6,000
To Z’s Capital A/C 3,000
( Balance in P&L A/C divided among Partners in the ratio
of 3:2:1)
(b) X’s Capital A/C Dr 50,000
To Realisation A/C 50,000
( An unrecorded asset taken over by x )
( c) Realization A/C Dr 4,000
To Bank A/C 4,000
(Creditors were paid ₹ 4,000 in full settlement of their
claim of ₹ 5,000 )

ANS.7.

26
 ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)
ANS.8.

ANS.9.

27
 ANSWERS OF SIX MARKS QUESTIONS (06 MARKS)
ANS.10.

ANS.11.

28
 ANSWERS OF SOURCE BASE QUESTIONS (6 Marks)
ANS.12. 1. (B) Nil
2. (D) Cash A/C
3. ( C) Rs 75,000
4. (B) Rs 500

ANS.13. 1. (A) Vikram

2. ( C) No entry
3. (D) Vikram Dr 2500
To Bank A/C 2500
4. ( c) Vikram A/C Dr 2,000
To Mohan 2000

29
 CHAPTER- ISSUE OF SHARES & DISCLOSURE OF SHARE CAPITAL
MCQS (1 MARK)
Q. NO. QUESTIONS
Q1. The maximum amount with which the company is registered is called ________
(a)Authorised share capital
(b)Issued share capital
(c)Paid up capital
(d)Called up capital
Q2. As per Companies Act 2013, Securities Premium balance can be utilized for which of the
following companies?
(a)Issuing bonus to existing shareholders to convert partly paid up into fully paid up bonus
shares
(b)Providing for Premium payable on redemption of debentures
(c)Writing of all Capitalised expenditure
(d)Buy back of debentures
Q3. Ambrish Ltd. Offered 2,00,000 equity shares of Rs. 3 each of these 1,98,000 shares were
subscribed .The amount of was payable as Rs. 3 on application Rs. 4 on allotment and balance
on first call. The shareholder holding 3000 shares as defaulted on first call, what is the amount
of money received on first call?
(a)Rs.9,000
(b)Rs.5,85,000
(c) Rs.5,91,000
(d)Rs. 6,09,000
Q4. Which of the following statement is true?
(a)The shares of a public limited company are not freely transferable
(b)Paid up capital is that part of the subscribed capital which has been called up.
(c) The company cannot raise more capital than the amount of capital as specified in the
Memorandum of Association.
(d) The part of the uncalled capital which is called only in the event of winding up of company
id called reserve capital.
Q5. The liability of a shareholder of a Public Ltd. Company is limited to :
(a)unpaid value of shares
(b)nominal value of shares
(c)extent of private assets
(d)called up share capital
THREE MARKS QUESTIONS (03 MARKS)
Q6. Pass necessary journal entries for the forfeiture and re-issue of shares.
Geetika Limited forfeited 1,200 shares of ₹50 each issued at par for non- payment of final call of
₹10 per share. Out of these, 900 shares were reissued at ₹45 per share fully paid-up.

30
Q7. Pass necessary journal entries for the forfeiture and re-issue of shares.
BCG Limited forfeited 75 shares of ₹10 each issued at a premium of ₹4 per share for non-
payment of allotment money of ₹8 per share (including premium). The first and final call of ₹4
per share was not made. The forfeited shares were reissued at ₹15 per share fully paid.
FOUR MARKS QUESTIONS (04 MARKS)
Q8. MM Ltd. is registered with an Authorised Share Capital of ₹10, 00, 00,000 was divided into
1,00,00,000 equity shares of ₹10 each. The company invited applications for issuing 10, 00,000
equity shares. The amount per share was payable as follows:
On Application - ₹3 per share On Allotment - ₹4 per share
On First and Final Call - ₹3 per share
The issue was fully subscribed. All calls were made and were duly received except the first and
final call on 1000 shares.
Present the share capital in the Balance Sheet of the company as per the provisions of Schedule
III Part I of the Companies Act, 2013 and also prepare Notes to Accounts.
Q9. Nikhil Ltd. purchased a running business from Sonia ltd. for a sum of Rs 22,00,000 by issuing
20,000 fully paid equity shares of Rs 100 each at a premium of 10%.The assets and liabilities
consisted of the following :
Building of Rs.11,50,000 ,Debtors Rs.2,50,000, Machinery Rs.7,00,000,Stock Rs.5,00,000 and
Bills Payable 2,50,000 .
Record the necessary journal entries for the above transactions in the books of Nikhil Ltd.
SIX MARKS QUESTIONS (06 MARKS)
Q10. DF ltd.invited applications for issuing 50,000 shares of RS.10 each at a premium of Rs. 2 per
share .
The amount was payable as follows :
On application Rs. 3 per share (including premium of Rs.1)
On allotment Rs. 3 per share (including premium of Rs. 1)
On first call Rs. 3 per share
On second and final call balance amount
Applications for 70,000 shares were received . allotment was made on the following basis:
applications for 5000 shares –full; applications for 50,000 shares-90%
Balance of the application were rejected. RS.1,20,000 were received on account of allotment .
the amount of allotment due from the shareholders to whom shares were allotted in full, failed to
pay the allotment money.RS.1,20,000 were receive first call the amount of calls in arrears on
allotment was received along with the first call. second and final call was not yet made.
Pass the necessary journal entries for the above transactions in the books of DF ltd.

31
Q11. Pushkar Limited invited applications for 30,000 shares of ₹100 each at 20% premium. The
amount per share was payable as under:
On application ₹40 (including ₹10 premium) ,
On allotment ₹30 (including ₹10 premium),
On first call ₹30
On second and final call Balance
Applications were received for 40,000 shares and pro-rata allotment was made to the applicants
for 35,000 shares, the remaining applications being refused.
Excess application money was adjusted towards sums due on allotment.
Yogesh, who applied for 700 shares, failed to pay the allotment money and his shares were
forfeited immediately after allotment. First call was made thereafter and all the money due on
first call was received. The second and final call was not made.
Pass necessary journal entries for the above transactions in the books of Pushkar Limited
SOURCE BASE QUESTIONS
Q.12 Yuvraj ltd. A pharmaceutical company is in need of finance to meet its increased demand.
Therefore it decided to issue 60,000 equity shares of RS.100 each at RS.120 per share payable at
RS.50 on application (including premium),RS.40 on allotment and the balance on the first and
final call.Applications for 80,000 shares had been received. Out of the cash received
RS.2,00,000 was returned and 8,00,000 was applied to the amount due on allotment all
shareholders paid the call the due, with the exceptions of one share holder of 15,000 shares.
These share were forfeited and reissued as fully paid at RS.70 per share.
Answer the following questions on the basis of above information:
1. Excess application on_______ shares is adjusted to share allotment account.
(A)16,000 (B)12,000
(C)14,000 (D)10,000
2. The amount of Calls in Arrears will be________.
(A)1,50,000 (B)3,00,000
(C)4,50,000 (D)1,00,000
3. At the time of forfeiture of share, Share Capital Account will be debited with______.
(A)18,00,000 (B)15,00,000
(C)10,00,000 (D)12,00,000

32
 4. What amount will be credited to Shares Forfeited Account at the time of forfeiture of
15,000 Shares?
(A)1,50,000 (B)13,50,000
(C)10,50,000 (D)15,00,000
5. At the time of reissue of forfeited share, how much amount will be debited to Shares
Forfeited Account?
(A)12,00,000 (B)10,50,000
(C)4,50,000 (D)15,00,000
6. What amount will be transferred to capital reserve?
(A)4,50,0000 (B)10,50,000
(C)6,00,000 (D)16,00,000
Q.13 Nidiya ltd. Was incorporated on 1st April 2017 with registered office in Mumbai. The capital
clause of memorandum of association reflected a registered capital of 8,00,000 equity share of
RS. 10 each and 1,00,000 preference share of RS. 50 each.
Since some large investment were required for building and machinery the company in
consultation with vendor , VPS enterprises , issued 1,00,000 equity shares and 20,000 preference
shares at par to them in full consideration of assets acquired . beside this the company issued
2,00,000 equity share for cash at par payable as Rs. 3 on application , Rs. 2 on allotment , Rs. 3
on first call and Rs 2 on second call .
Till date second call has not yet been made and all the shareholders have paid except Mr. Ajay
who did not pay allotment and calls on his 300 shares and Mr. Vipul who did not pay first call
on his 200 shares . Shares of Mr. Ajay were then forfeited and out of them 100 shares were
reissued at Rs. 12 per shares .
Based on above information you are required to answer the following questions.
1. Shares issue to vendors of building and machinery, MS. VPS enterprises, would be classified
as:
(A)preferential allotment (B)employee stock option plan
(C)issue for consideration other than cash (D)right issue of share
2. How many equity shares of the company have been subscribed?
(A)3,00,000 (B)2,99,500
(C)2,99,800 (D)none of these

33
 3. What is the amount of securities premium reflected in the balance sheet at the end of the year?
(A) RS.200 (B)RS.600
(c)RS.400 (D)RS.1000
4.What amount of share forfeiture would be reflected in the balance sheet?
(A)RS.600 (B)RS.900
(C)RS.200 (D)RS.300
5.The amount of calls-in arrears on First call will be____________.
(A)RS.1500 (B)RS.900
(C)RS.2000 (D)RS.3000
6.At the time of forfeiture of shares,share capital account will be debited with __________.
(A)RS.1500 (B)RS.10,000
(C)RS.4000 (D)RS.3000

ANSWERS OF MCQS (01 MARKS)

Ans.1. (a)Authorised share capital
Ans.2. (b)Providing for Premium payable on redemption of debentures
Ans.3. (b)Rs.5,85,000
Ans.4. (d) The part of the uncalled capital which is called only in the event of winding up of company
id called reserve capital.
Ans.5. (a)unpaid value of shares
ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)
ANS.6. Journal Entries in the Books of Geetika Ltd.
DateParticulars Dr.(Rs.)Cr.
(Rs.)
Share Capital A/c Dr. 60,000
To Forfeited Shares A/c 48,000
To Call in Arrear A/c 12,000
(1200 shares forfeited for non-payment of final call)

34
 Bank A/c Dr. 40,500
Forfeited Shares A/c Dr. 4,500
To Share capital A/c 45,000
(900 shares were reissued at
₹45 per share fully paid-up.)
Forfeited Shares A/c Dr. 31,500
To Capital Reserve A/c 31,500
(Gain on 900 shares on re-issued shares transferred to
Capital Reserve.)
ANS.7. Journal Entries in the Books of Geetika Ltd.
DateParticulars Dr.(Rs.)Cr.
(Rs.)
Share Capital A/c Dr. 450
Securities Premium Reserve A/c Dr. 300
To Forfeited Shares A/c 150
To Call in Arrear A/c 600
(75 shares forfeited for non-payment of final call)
Bank A/c Dr. 1,125
To Share capital A/c 750
To Securities Premium A/c 375
(75 shares re-issued at Rs. 15 per share, fully paid up)
Forfeited Shares A/c Dr. 150
To Capital Reserve A/c 150
(Gain on 75 re-issued shares transferred to Capital
Reserve.)

ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)

ANS.8. MM LTD
BALANCE SHEET (EXTRACT) AS AT…..
PARTICULAR NOTE NO. AMOUNT

EQUITY & LIABILITIES

SHAREHOLDERS’ FUNDS

35
 SHARE CAPITAL 1 99,97,000
NOTES TO ACCOUNTS:
PARTICULARS AMOUNT (RS)
SHARE CAPITAL:
AUTHORISED CAPITAL
1,00,00,000 EQUITY SHARES OF RS. 10 EACH 10,00,00,000
ISSUED CAPITAL
10,00,000 EQUITY SHARES OF RS. 10 EACH 1,00,00,000
SUBSCRIBED CAPITAL
SUBSCRIBED AND FULLY PAID UP
9,99,000 EQUITY SHARES OF RS. 10 EACH 99,90,000
SUBSCRIBED BUT NOT FULLY PAID UP
1,000 EQUITY SHARES OF RS. 10 EACH 10,000
LESS : CALLS IN ARREARS (3000) 7,000
99,97,000
ANS.9. Journal Entries in the Books of Nikhil Ltd.
DateParticulars Dr.(Rs.) Cr. (Rs.)
Buildings A/c Dr. 11,50,000
Machinery A/c Dr. 7,00,000
Debtors A/c Dr. 2,50,000
Stock A/c Dr. 5,00,000
To Sonia Ltd. 22,00,000
To B/P A/c 2,50,000
To Capital Reserve A/c 1,50,000
(Assets of E.X. are purchased)
Sonia Ltd. A/c Dr. 22,00,000
To Equity share capital A/c (20,000 x 100) 20,00,000
To Securities Premium Reserve A/c (20000 x 10) 2,00,000
(20,000 Equity share of Rs. 100 each at 10% premium
issued to Sonia Ltd. )

36
 Working Note :-
No of Equity shares = 22,00,000/100+10
No of Equity shares = 22,00,000/110= 20,000 Equity shares
ANSWERS OF SIX MARKS QUESTIONS (06 MARKS)
ANS.10. Journal entries in The Books of DF Ltd.

S.NOParticulars Dr.(Rs.) Cr.(Rs.)

1. Bank A/C Dr. 2,10,000

To Equity Share Application A/C 2,10,000
(Being application money received for application for 70,000 shares)

2. Bank A/C Dr. 2,10,000

To Equity Share Capital A/C 1,00,000
To Security Premium A/C 50,000
To Equity Share Allotment A/C 15,000
To Bank A/C 45,000
(Being application money transferred to equity share capital, security
premium, equity share allotment and the balance refunded)
3. Equity Share Allotment A/C Dr. 1,50,000
To Equity Share Capital A/C 1,00,000
To Securities Premium A/C 50,000
(Being application money due on 50,000 shares )
4. Bank A/C Dr. 1,20,000
To Equity Share Allotment A/C 1,20,000
OR
Bank a/c Dr. 1,20,000
Calls in arrears A/C Dr. 15,000 1,35,000
To Equity Share Allotment A/C
(Being allotment money received except on 5,000 shares)

37
 5. Equity share first call A/C Dr. 1,50,000
To Equity Share Capital A/C 1,50,000
(Being first call money due on 50,000)
6. Bank A/C Dr. 1,35,000
To Equity Share First Call A/C 1,20,000
To Calls in arrears A/C 15,000
OR
Bank A/C Dr. 1,35,000
Calls in arrear A/C Dr. 30,000
To Equity Share First Call A/C 1,50,000
To Calls in arrears A/C
15,000
(Being first call money received except on 10,000 shares along with
calls in arrears on share allotment)
ANS.11. Books of Pushkar Limited
Journal

S.NO Particulars Dr.(Rs.) Cr.(Rs.)

1. Bank A/C Dr. 16,00,000

To Share Application A/c 16,00,000
(Application money received on 40,000 shares)

2. Share Application A/C Dr. 16,00,000

To Share Capital A/c 9,00,000
To Securities Premium/Securities 3,00,000
Premium Reserve A/c
To Share Allotment A/c 2,00,000
To Bank A/c 2,00,000
(Transfer of application money on 30,000 shares to
Share Capital account, on 5,000 shares to Allotment
account, and of 5,000 shares refunded)

3. Share Allotment A/C Dr. 9,00,000

To Share Capital A/C 6,00,000
3,00,000

38
 To Securities Premium/Securities Premium
Reserve A/c
(Money due on allotment on 30,000 debentures )

4 Bank A/c Dr. 6,86,000

Calls in Arrears A/c 14,000
To Share Allotment A/c 7,00,000
(Money received on share allotment)

OR 6,86,000 6,86,000
Bank A/c Dr.
To Share Allotment A/c
(Money received on share allotment)

5. Share Capital A/c Dr. 30,000

Securities Premium/Securities Premium Reserve 6,000 22,000
A/c Dr.
14,000
To Forfeited Shares A/c
To Calls in Arrears A/c/ Share Allotment
A/c
(Forfeiture of 600 shares for non-payment of
allotment money)

6. Share First Call A/c Dr. 8,82,000 8,82,000

To Share Capital A/c
(First call amount due on 29,400 shares)

7. Bank A/c Dr. 8,82,000

To Share First Call A/c 8,82,000
(Money received on first call)

ANSWERS OF SOURCE BASE QUESTIONS (6 Marks)

ANS.12. 1.(A)RS.16,000 ; 2.(C)4,50,000 3.(b)15,00,000
4.(c)10,50,000 5.(c)4,50,000 6.(c)6,00,000
ANS.13. 1.(C) Issue for consideration other than cash 2. (C)2,99,800
3. (A)RS.200 4.(A)RS.600
5.(A)RS.1,500 6.(C)RS.4,000

39
 CHAPTER- ISSUE OF DEBENTURES

MCQS (1 MARK)

Q. NO. QUESTIONS

Q1. X Limited purchased the assets from Y Limited for Rs.16, 20,000. X Limited issued 10%
debentures of Rs.10 each at 10% discount against the payment. The number of debentures issued
by X Limited will be
(a) 16,200
(b) 18,000
(c) 1,80,000
(d) 1,62,000

Q2. The following entry is appeared in Chanda Ltd.

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

Bank A/c Dr. 2,00,000

Loss on issue of debentures A/c Dr. 1,00,000

To 12% Debentures A/c 2,50,000

To Premium on Redemption of Debentures A/c 50,000

Debentures are issued at a discount of

(a) 5%
(b) 10%
(c) 15%
(d) 20%

Q3. Which of the following statements is correct about debenture trust deed?
(a) It shows the list of debenture holders
(b) It protects the interest of debenture holders
(c) It is created after public subscription
(d) It tells that in case of losses, there will be no interest

Q4. Which of the following is correct about loss on issue of debentures?

(a) It is written-off out of securities premium reserve only
(b) It is written-off out of statement of profit and loss only
 (c) It is written-off out of discount on issue of debentures account
(d) It is written-off out of securities premium reserve and statement of profit and loss

Q5. Assertion (A): Interest on Debentures is payable to Debenture holder by the company whether the
company earns profit or incurs loss.
Reason(R): Interest on Debentures is an expense, i.e., charge against profit to be paid irrespective
of the fact that the company has incurred loss.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation
of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.

THREE MARKS QUESTIONS (03 MARKS)

Q6. ABC Ltd. Purchased assets of Rs.4,20,000 and took over liabilities of Rs.40,000 of XYZ Ltd. At
a value of Rs.3, 60,000. ABC Ltd. Issued 10 Debentures of Rs.100 each at a discount of 10% in
full settlement of the purchase consideration.
Pass the necessary Journal entries in the books of ABC Ltd. For the above transactions.

Q7. X Ltd. Has 4,000, 12% debentures of Rs.100 each on 1st April 2023. According to the terms of
issue, interest on debentures is payable half yearly on 30th September and 31st March. Pass
necessary journal entries for interest on debentures as on 31st March, 2024.
FOUR MARKS QUESTIONS (04 MARKS)

Q8. Savita Ltd. Had Rs. 20,00,000, 10% debentures outstanding as on 1 st April. 2022. During the year,
company took a loan of Rs. 4,00,000 for 5 years from Bank of Punjab for which the company
placed with the bank, debentures for Rs. 5,00,000 as collateral security. Show how the debentures
and bank loan will appear in the company’s balance sheet.

Q9. Complete the missing information.

JOURNAL

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

……………………………………………….……………Dr. ….…..
To …………………………. …...…
(Being application money received on 600 debentures @ 100 each at a
discount of 6%)
……………………………………………………………..Dr ……….

41
 …………………………………………………………..…Dr. ………
To …………………………… ……..
To …………………………… ……..
(Being transfer of application money to 9% debenture account, discount
on issue of debentures account, money refunded for 100 debentures for
rejected application)
……………………………………………………………..Dr. ………
To …………………………… ……...
(Being discount on issued of debentures written-off)
SIX MARKS QUESTIONS (06 MARKS)

Q10. XYZ Ltd. Issued 25,000, 10% Debentures of Rs.100 each at 10% premium to the public on 1 st
April, 2022, which are redeemable after 5 years of issue at a premium 20%. Pass journal entry for
the issue of debentures, for writing-off ‘loss on issue of debentures’ in the same year of issue and
prepare ‘loss on issue of debenture account’ also.

Q11. Pass the necessary journal entries for the issue of debentures in the following cases
(i) 10,000, 12% debentures of ₹50 each issued at 10% premium, repayable at 20%
premium.
(ii) 7,500, 10% debentures of ₹ 100 each issued at 10% discount, repayable at 20%
premium.
(iii) 10,000, 12% debentures of ₹50 each issued at par, repayable at 10% premium.

ANSWERS OF MCQS (01 MARKS)

Ans.1. (c) Number of Debentures= 16,20,000/10-(10%x10)=1,80,000

Ans.2. (d)1,00,000-50,000=50,000 x 100/2,50,000=20%

Ans.3. (b)it protects the interest of debenture holders

Ans.4. (d) It is written-off out of securities premium reserve and statement of profit and loss

Ans.5. (b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of
Assertion (A).

ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)

ANS.6. JOURNAL OF ABC LTD.

Date Particulars Dr.(Rs.) Cr.(Rs.
Assets A/c Dr. 4,20,000

42
 To Liabilities A/c 40,000
To XYZ Ltd. 20,000
To Capital Reserve A/c 3,60,000
(Balancing figure)
(Being assets purchased and liabilities taken over of XYZ Ltd)
XYZ Ltd. Dr. 3,60,000
Discount on issue of Debentures A/c Dr. 40,000
To 10% Debentures A/c 4,00,000
(Being 4000, 10 debentures issued at a discount in settlement of
purchase consideration)
No. of Debentures issued=3,60,000/90(100-10% of 100)=4,000
ANS.7. JOURNAL OF X LTD.
Date Particulars Dr.(Rs.) Cr.(Rs.
2023 Interest on Debentures A/c Dr. 24,000
30 Sept To Debentureholders A/c 24,000
(Being Interest on debentures due)
30 Sept Debentureholders A/c Dr. 24,000
To Bank A/c 24,000
(Being Interest on debentures paid)
2024 Interest on Debentures A/c Dr. 24,000
st
31 To Debentureholders A/c 24,000
March (Being Interest on debentures due)
st
31 Debentureholders A/c Dr. 24,000
March To Bank A/c 24,000
(Being Interest on debentures paid)
31st Statement of Profit and Loss A/c Dr. 48,000
March To Interest on Debentures A/c 48,000
(Being Interest on debentures transferred to statement of profit
and loss)
Working note: 4,00,000 x 12/100 x 6/12=24,000
ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)

ANS.8. Balance Sheet (Extract)

As at 31st March, 2023

Particulars Note No. Current year(Rs.) Previous year(Rs.)

43
 1. EQUITY AND LIABILITIES

A. Non-current Liabilities
(i) Long-term Borrowings 1 24,00,000

Notes to Accounts

Particulars Detail amount Net

(Rs.) Amount(Rs.)

1. Long-term Borrowings

10% Debentures 25,00,000

(-) Debentures Suspense (5,00,000) 20,00,000

Long-term Loan from Bank of Punjab 4,00,000

(Secured by issue of Rs. 5,00,000 debentures as collateral
security)

24,00,000

ANS.9. JOURNAL

Date Particulars Dr.(Rs.) Cr.(Rs.

Bank A/c ( 600 x 94) Dr. 56,400
To 9% Debenture Application and Allotment A/c 56,400
(Being application money received on 600 debentures @ 100 each at a
discount of 6%)
9% Debenture Application and Allotment A/c Dr. 56,400
Discount on Issue of Debentures A/c (500 x 6 ) Dr. 3,000
To 9% Debentures A/c ( 500 x 100 ) 50,000
To Bank A/c (100 x 94 ) 9,400
(Being transfer of application money to 9% debenture account, discount
on issue of debentures account, money refunded for 100 debentures for
rejected application)
Statement of Profit and Loss Dr. 3,000
To Discount on Issue of Debentures A/c 3,000
(Being discount on issued of debentures written-off)
ANSWERS OF SIX MARKS QUESTIONS (06 MARKS)

ANS.10. JOURNAL

Date Particulars Amount Amount

44
 (Dr.) (Cr.)

2022 Bank A/c Dr. 27,50,000

April 1
To Debenture Application and Allotment A/c (Being 27,50,000
application money received on 25,000 debentures @ 110)

April 1 Debenture Application and Allotment A/c Dr. 27,50,000

Loss on Issue of Debentures A/c Dr. 5,00,000
To 10% Debentures A/c 25,00,000
To Securities Premium A/c 2,50,000
To Premium on Redemption of Debentures A/c 5,00,000
(Being the issue of debentures at 10% premium, redeemable at
20% premium)

2023 Securities premium A/c Dr. 2,50,000

March Statement of Profit and Loss Dr. 2,50,000
31
To Loss on Issue of Debentures A/c 5,00,000
(Being loss on issue of debenture is written-off from available
balance of securities premium and profit and loss account)

Working Note:
Securities premium (By issue of 25,000, 10% Debentures of Rs.100 each at 10%
premium)=25,000 x 10=2,50,000, Loss on issue of debentures = 25,000 x 20= 5,00,000

Date Particulars Amount Date Particulars Amount

(Rs.) (Rs.)

2022 2022
April To Premium on Redemption of March By Securities Premium
1 Debentures A/c 31 A/c
5,00,000 2,50,000
March By Statement of Profit
2,50,000
31 and Loss A/c

5,00,000 5,00,000

ANS.11. JOURNAL

Date Particulars Amount Amount

(Dr.) (Cr.)

45
(i) Bank A/c (10,000 x55) Dr. 5,50,000
To Debenture Application and Allotment A/c 5,50,00
(Being application money received)

Debenture Application and Allotment A/c Dr. 5,50,000

Loss on Issue of Debentures A/c Dr. 1,00,000
To 12% Debentures A/c 5,00,000
To Premium on Redemption of Debentures A/c 1,00,000
To Securities Premium A/c 50,000
(Being debentures issued at premium and redeemable at premium)

(ii) Bank A/c (7,500 x90) Dr. 6,75,000

To Debenture Application and Allotment A/c 6,75,000
(Being application money received)

Debenture Application and Allotment A/c Dr. 6,75,000

Discount on Issue of Debentures A/c Dr. 75,000
Loss on Issue of Debentures A/c Dr. 1,50,000
To 10% Debentures A/c 7,50,000
To Premium on Redemption of Debentures A/c 1,50,000
(Being debentures issued at discount and redeemable at premium)

(iii) Bank A/c (10,000 x 50) Dr. 5,00,000

To Debenture Application and Allotment A/c 5,00,000
(Being application money received)

Debenture Application and Allotment A/c Dr. 5,00,000

Loss on Issue of Debentures A/c Dr. 50,000
To 10% Debentures A/c 5,00,000
To Premium on Redemption of Debentures A/c 50,000
(Being debentures issued at discount and redeemable at premium)

46
 CHAPTER- RATIO ANALYSIS
MCQS (1 MARK)
Q. NO. QUESTIONS

Q1. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason
(R):
Assertion (A): Profitability ratios are calculated to analysis the earning capacity of the
business.
Reason (R): Profitability ratios are calculated to determine the ability of the business to
service its debt in the long run.
In the context of the above two statements, which of the following is correct:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of
Assertion (A).
(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true.

Q2. Current Ratio is 1.5:1. Working Capital is Rs 30,000. What will be the amount of current
liabilities?
(A) Rs 20,000
(B) Rs 60.000
(C) Rs 1,65,000
(D) Rs 1,20,000

Q3. Opening Inventory of a firm is ₹ 80,000. Cost of revenue from operation is ₹ 6, 00,000.
Inventory Turnover Ratio is 5 times. Its closing inventory will be:
(A) ₹ 1,60,000
(B) ₹ 1,20,000
(C) ₹ 80,000

(D) ₹ 2,00,000

Q4. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason
(R): In the context of the above two statements, which of the following is correct:

Assertion (A): Purchase of Loose Tools against cash will reduce the current ratio.

47
 Reason: Loose Tools and Stores and spares are excluded from Current Assets because
they are not held for sale or conversion into cash.
(A) Both (A) and (R) are true and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true and (R) is not the correct explanation of (A).
(C) (A) is true, but (R) is false

(D) (A) is false, but (R) is true.

Q5. Ramesh cannot convert stock and prepaid expenses into cash in one year. Under which assets he
would categorize them:
(a) Current assets

(b) Non-current assets

(c) Liquid assets
(d) None of the above

THREE MARKS QUESTIONS (03 MARKS)

Q6. Mr. Arun Birla owns a business and gives the following figures for two successive years-

Particulars first yr (Rs) second year (Rs)

Revenue from operations: 60,000 1,20,000

Gross profit : 15,000 24,000

Mr Arun Birla speaks very high of his manager who has increased the profits from Rs 15000
to Rs 24000 and describes him very efficient .do you agree with him? if not why?

Q7. A company has a Current Ratio of 4:1 and Quick Ratio is 2.5:1. Assuming that the Inventories
are ₹ 22,500.
Find out Total Current Assets and Current Liabilities.
FOUR MARKS QUESTIONS (04 MARKS)

Q8. Calculate the following ratios-

(A) Calculate Working Capital Turnover Ratio if
Cost of Revenue from Operations is ₹ 8,40,000;
Gross Profit Ratio is 20% and excess of Current Assets over Current Liabilities is ₹ 3,50,000.
(B) From the following details, Calculate Interest Coverage Ratio.
Net Profit After Tax ₹ 7,00,000 , 6% Debentures of ₹ 20,00,000

Tax Rate 30%

48
Q9. (A) From the following, Calculate Stock Turnover Ratio—
Net Revenue = ₹ 2, 00,000; Gross Profit = 25%,
Opening Inventory = ₹ 5000,
Closing Inventory = ₹ 15,000
(B) Calculate Gross Profit and Revenue—
Average Inventory = ₹ 80,000 ; Inventory Turnover Ratio = 6 times
Selling price = 25% above cost.
SIX MARKS QUESTIONS (06 MARKS)

Q10. Suggestions would improve the ratio, which would reduce it, which would not change it?
(A) Purchased goods on credit for Rs 50,000 from Ramesh
(B) Purchase of goods from Rahul Rs 20,000 against cheque
(C) Sale of goods costing Rs 50,000 for Rs 60,000 on credit
(D) To sell a fixed asset at Rs 5,000 loss
(E) To borrow money on promissory note
(F) To give promissory note to a creditor
Q11. The Balance Sheet of Punjab Auto Limited as on 31‐12‐2002 was as follows:

Particular Rs.Particular Rs.

Equity Share Capital 40,000 Plant and Machinery 24,000

Capital Reserve 8,000 Land and Buildings 40,000
8% Loan on Mortgage 32,000 Furniture & Fixtures 16,000
Creditors 16,000 Stock 12,000
Bank overdraft 4,000 Debtors 12,000
Taxation: Investments (Short‐term) 4,000
Current 4,000 Cash in hand 12,000
Future 4,000
Profit and Loss A/c 12,000

1,20,000 1,20,000

From the above, compute (a) the Current Ratio, (b) Quick Ratio, (c) Debt‐Equity Ratio, and (d)
Proprietary Ratio.

49
 SOURCE BASE QUESTIONS

Q.12 Read the following hypothetical extract of Rehan Limited and answer the given
questions on the basis of the same:
YEAR 2023 2022 2021

AMOUNT RS RS RS

Outstanding Expenses 50,000 40,000 25,000

Prepaid Expenses 3,00,000 2,50,000 3,50,000
Trade Payables 18,00,000 16,00,000 14,00,000
Inventory 12,00,000 10,00,000 11,00,000
Trade Receivables 11,00,000 8,00,000 10,00,000
Cash in hand 17,00,000 12,00,000 15,00,000
Revenue from operations 24,00,000 18,00,000 20,00,000
Gross Profit Ratio 12% 15% 18%

12.1 Current Ratio for the year 2023 will be_______________ (Choose the correct alternative)
(a) 2:1 (b) 1.8:1 (c) 2.32:1 (d) 2.4:1

12.2 Quick Ratio for the year 2021 will be______________(Choose the correct alternative)
(a) 1.75:1 (b) 1.8:1 (c) 2:1 (d) 1.25:1

12.3 Inventory turnover ratio for the year 2023 will be______(Choose the correct alternative)
(a) 1.62times (b) 1.82 times (c) 1.55times (d) 1.92 times

12.4 Cost of Revenue from Operations for the year 2023 would be _____________________
(Choose the correct alternative)
(a) ₹21,12,000 (b) ₹21,13,000 (c) ₹21,15,000 (d) ₹21,17,000

Q.13 A ltd want to analyse its liquidity position along with assessment of inventory position from
the given information: -
Inventory turnover ratio: 4 times
Inventory in the beginning was Rs 20,000 less than the inventory at the end
Revenue from operations Rs 6,00,000
Current liabilities Rs 60,000

Gross profit ratio 25%

50
 Quick ratio 0.75:1
From the following information given above answer the following questions:

13.1 State the amount of cost of revenue from operations

(A) Rs 4,50,000
(B) Rs 4,90,000
(C) Rs 4,80,000
(D) Rs 3,50,000

13.2 State the amount of average inventory

(A) Rs 1,25,000
(B) Rs 1,12,500
(C) Rs 2,50,000
(D) Rs 1,52,000

13.3 State the amount of closing inventory

(A) Rs 1,12,000
(B) Rs 1,12,500
(C) Rs 1,67,500

(D) Rs 1,22,500

13.4 State the current ratio of accounts of guru ltd

(A) 2.4:1
(B) 2.5:1

(C) 2.79:1
(D) 2.6:1

ANSWERS OF MCQS (01 MARKS)

Ans.1. Option (C) is correct.

Explanation: Solvency ratio are calculated to determine the ability of the business to service its
debt in the long run.

Ans.2. (B) Rs 60.000

51
Ans.3. (A) ₹ 1,60,000

Ans.4. (A) Both (A) and (R) are true and (R) is the correct explanation of (A).

Ans.5. (C) liquid assets

ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)

ANS.6. No , the manager is not very efficient although his revenue from operations have doubled this
year compared to last year.
His gross profit ratio has come down from 25% to 20% this can either be due to lower selling
prices or higher purchase prices or due to inefficiency
ANS.7. Current ratio = 4:1; Quick Ratio = 2.5:1 Inventory = 4 - 2.5 = 1.5
If Inventory is 1.5, then Current Assets = 4
If Inventory = ₹ 22,500, then Current Assets = 4 x ₹ 22,500/1.5 = ₹ 60,000
and the Current Liabilities = ₹ 60,000/ 4 = ₹ 15,000.
ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)

ANS.8. (A)Working Capital = Current Assets – Current Liabilities

= ₹ 3,50,000 (Given)

1. Revenue from Operations (Sales) :

Gross Profit Ratio = 20 % of Revenue from Operations.
So Gross Profit Ratio on Cost of Revenue from Operations = 25%
Gross Profit = 8,40,000 X 25/100
= ₹ 2,10,000
Revenue from operation = Cost of Revenue from Operations+ Gross Profit
Revenue from operation = 8,40,000+2,10,000
2. Working Capital Turnover Ration = Revenue from Operations/Working Capital
= 10,50,000/3,50,000
= 3 Times
(B)Net Profit Before Tax = ₹ 100
Tax Rate = 30
Net Profit after Tax = 70
Net Profit after Tax = ₹ 7,00,000
So Net Profit before Tax = ₹ 7,00,000 x 100/70 = ₹ 10,00,0000

52
 Add : Interest on Debentures ₹ 20,00,000 x 6% =₹ 1,20,000
Net Profit before Interest and Tax = ₹ 11,20,000
Interest Coverage Ratio = Net Profit before Interest and Tax/Interest on Long-term Debts
= ₹ 11,20,000/1,20,000
= 9.33 Times

ANS.9. (A) Inventory Turnover Ratio = Cost of Revenue from Operation/Average inventory

= ₹ 1, 50,000/ 10,000 = 15 Times.

Working:
Cost of Revenue= Revenue - Gross Profit
Cost of Revenue = ₹ 2, 00,000 – ₹ 50,000 = ₹ 1, 50,000
Average Inventory = Opening Inventory + Closing Inventory / 2
= ₹ 5,000+ ₹15,000 / 2 = ₹ 20,000/2 = ₹ 10,000

(B) Inventory Turnover Ratio =

Cost of Revenue/Average Inventory

6 = Cost of Revenue/ 80,000
Cost of Revenue = ₹ 80,000 x 6 = ₹ 4,80,000
Gross Profit = ₹ 4,80,000 x 25/100 = ₹ 1,20,000
Revenue = Cost of Revenue + Gross Profit
= ₹ 4, 80,000 + ₹ 1, 20,000
= ₹ 6, 00,000.

ANSWERS OF SIX MARKS QUESTIONS (06 MARKS)

ANS.10. (A) Reduce

(B) No Change
(C) Improve
(D) Improve
(E) Reduce
(F) No Change

ANS.11. (A) Current Ratio = Current Assets/Current liabilities

53
 Current Assets = Stock + debtors + Investments (short term) + Cash In hand
Current Liabilities = Creditors + bank overdraft + Provision for Taxation (current & Future)
CA = 12000 + 12000 + 4000 + 12000 = 40,000
CL = 16000 + 4000 + 4000 + 4000 = 28,000
Current Ratio = 40,000 / 28,000

= 1.43: 1
(B) Quick Ratio = Quick Assets / Quick Liabilities
Quick Assets = Current Assets ‐ Stock
Quick Liabilities = Current Liabilities – (BOD + PFT future)
QA = 40,000 – 12,000 = 28,000
QL = 28,000 – (4,000 + 4,000) = 20,000
Quick Ratio = 28,000 / 20,000
= 1.40: 1
(C) Debt – Equity Ratio = Long Term Debt (Liabilities) / Shareholders Fund
LTL = Debentures + long term loans
SHF = Eq. Sh. Cap. + Reserves & Surplus + Preference Sh. Cap. – Fictitious Assets
LTL = 32,000
SHF = 40,000 + 8,000 + 12,000 = 60,000
Debt – Equity Ratio = 32,000 / 60,000
= 0.53: 1

( D) Proprietary Ratio = Shareholders’ Funds / Total Assets

SHF = Eq. Sh. Cap. + Reserves & Surplus + Preference Sh. Cap. – Fictitious Assets
Total Assets = Total Assets – Fictitious Assets
SHF = 40,000 + 8,000 + 12,000 = 60,000
TA = 1,20,000
Proprietary Ratio = 60,000 / 1,20,000
= 0.5: 1

ANSWERS OF SOURCE BASE QUESTIONS (6 Marks)

ANS.12. 12.1 (C) 2.32:1

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 Current Ratio ( 2023) = Current Assets/Current liabilities
Current Assets = Prepaid Expenses+ Inventory + Trade Receivables+ Cash in hand
= 3,00,000+12,00,000+11,00,000+17,00,000 = 43,00,000
Current Liabilities = Outstanding Expenses+ Trade Payables
= 50,000+18,00,000 = 18,50 000

Current Ratio = 43,00,000/18,50,000 = 2.32 :1

12.2 (C) 2:1
Quick ratio = Quick assets/ current liabilities
(2021) Current Assets = Prepaid Expenses+ Inventory + Trade Receivables+ Cash in hand
= 3,50,000+11,00,000+10,00,000+15,00,000 = 39,50,000
Current Liabilities = Outstanding Expenses+ Trade Payables
= 25,000+14,00,000 = 14,25, 000
Quick assets = Current Assets - inventory
Quick assets= 39,50,000 – 11,00,000 = 28,50,000
Quick ratio = 28,50,000/ 14,25,000 = 2:1
12.3 (D) 1.92 times
Inventory turnover ratio (2023) = Cost of Revenue from operations / Average inventory
= 21,12,000/ 11,00,000 = 1.92 times
Cost of Revenue from operations = Revenue from operations- Gross Profit
= 24,00,000- ( 24,00,000x12%) = 21,12,000

Average inventory = (op inventory+ clo inventory) / 2

= 10,00,000(2022) + 12,00,000(2023) / 2 = 11,00,000
12.4 (A) ₹21,12,000
Cost of Revenue from operations (2023) = Revenue from operations- Gross Profit
= 24,00,000- ( 24,00,000x12%) = 21,12,000

ANS.13. 13.1 (A) Rs 4,50,000 (Revenue from operations Rs 6,00,000- 25% OR 1,50,000)
13.2 (B) Rs 1,12,500
Average inventory = (op inventory+ clo inventory) / 2
clo inventory = 1,22,500
op inventory = 1,22,500-20,000=1,02,500

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 Average inventory = (1,22,500+1,02,500) /2= 1,12,500

13.3 (D) Rs 1,22,500

(Inventory turnover ratio: 4 times = 4,50,000
(X-20,000+X/2)
4,50,000*1= 4*( X-20,000+X/2)
4,50,000= 4X-80,000+4X /2)
4,50,000= 2X-40000+2X
4,50,000+40,000=4X
4,90,000/4=X
1,22,500=X
Inventory in the beginning was Rs 20,000 less than the inventory at the end

13.4 (C) 2.79:1

Current Ratio = Current Assets/Current liabilities
Current liabilities Rs 60,000
Quick ratio 0.75:1 = Quick assets/ current liabilities
Quick ratio 0.75:1= = Quick assets/ 60,000
= Quick assets= 60,000x .75 = 45,000
Current assets = Quick assets + inventory
Current assets = 45,000 +1,22,500= 1,67,500
Current Ratio = 1,67,500/60,000 = 2.79 : 1

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 CHAPTER- CASH FLOW STATEMENT

MCQS (1 MARK)

Q. NO. QUESTIONS

Q1. Monu Ltd. purchased furniture for Rs.20,00,000 paying 60% by issue of Equity Shares of Rs.10
each and the balance by a cheque. This transaction will result in :
(a) Cash used in investing activities Rs.20,00,000.
(b) Cash generated from financing activities Rs.12,00,000.
(c) Increase in Cash and Cash Equivalents Rs.8,00,000.
(d) Cash used in investing activities Rs.8,00,000.

Q2. Which of the following is not an investing activity under Cash Flow Statement?
(a) Purchase of marketable securities for Rs.25,000 for cash.
(b) Sale of Land for Rs.28,000 for cash.
(c) Sale of 2,500 shares (held as investment) for Rs.15 each.
(d) Purchase of equipment for Rs.500 for cash.

Q3. Assertion A- Non cash transactions are not considered in preparing cash flow statement
ReasonR- Non cash transactions do not affect cash and cash equivalent
(a) Assertion( A) and Reason (R )are correct but R is not the correct explanation of A
(b) Assertion (A) and Reason ® are correct but R is the correct explanation of A
© Assertion (A) is correct but Reason ® is wrong
(d) Both Assertion (A )and Reason (R )are not correct
Q4. Dividend paid by a finance company is classified under which kind of activity while preparing
cash flow statement?
a) Cash Flow from Investing Activities
b) No Cash Flow
c) Cash Flow from Financing Activities
d) Cash Flow from Operating Activities
Q5. An example of cash flow from investing activity is:
a) purchase of raw materials for cash
b) repayment of long-term loan
c) issue of debenture
d) sale of investment by non-financial enterprise.

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 THREE MARKS QUESTIONS (03 MARKS)

Q6. Define cash and cash equivalent

Q7. Balance Sheet (Extract)

Assets 31 Mar 2020 (₹) 31 Mar 2019 (₹)
Plant and Machinery 1,00,000 2,00,000
Additional Information:
I. Depreciation on Plant and Machinery during the year ₹ 40,000
II. A Plant was sold at 40 % profit during the year.
How much amount (related to the above information) will be shown in Investing Activity for Cash
Flow Statement prepared on 31st Mar 2020?
FOUR MARKS QUESTIONS (04 MARKS)

Q For each of the following transactions, calculate the resulting cash flow and state the nature of cash
8. flow(type)
(a) Acquired machinery for Rs 2,50,000 by paying 20% by cheque and executing a bond for the balance
payable
(b) Paid Rs 2,50,000 to acquire shares in Z ltd and eceived a dividend of Rs 50,000 after acquisition.
© Sold machinery of cost Rs 2,00,000 with an accumulated depreciation of Rs 1,60,000 for Rs 60,000

Q Define non- cash transactions and give two examples.

9.

SIX MARKS QUESTIONS (06 MARKS)

Q10. Prepare Cash Flow Statement from the following Balance Sheet:

Particulars Note No. 31st Mar 2020 (₹) 31st Mar 2019 (₹)
I EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 6,30,000 5,60,000
(b) Reserves and Surplus 1 3,08,000 1,82,000
2. Current Liabilities
(a) Trade Payables 2,80,000 1,82,000
Total 12,18,000 9,24,000

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 II ASSETS
1. Non-Current Assets
Fixed Assets:
(a) Plant 3,92,000 280000
2. Current Assets
(a) Inventories 98,000 1,40,000
(b) Trade Receivables 6,30,000 4,20,000
(c) Cash and Cash Equivalents 98,000 84,000
Total 12,18,000 9,24,000

Notes to Account: -
31st Mar 2020 31st Mar 2019
Particulars
(₹) (₹)
1. Reserves and Surplus
Surplus (Balance in Statement of Profit and Loss) 3,08,000 1,82,000
Additional Information:
A. An old machinery having book value ₹ 42,000 was sold for ₹ 56,000
Depreciation provided on machinery during the year was ₹ 28,000..

11 Prepare a Cash Flow Statement on the basis of the information given in the Balance Sheet of
Hindustan Ltd., as at 31/03/2024 & 31/03/2023.
Particulars Note No. 31/03/2024 31/03/2023
I. Equity and Liabilities :
(1) Shareholder’s Funds
(a) Share Capital 70,000 60,000
(b) Reserves and Surplus 44,000 8,000
(2) Non-Current Liabilities
(a) Long-term Borrowings 50,000 50,000
(3) Current Liabilities
(a) Trade Payables 25,000 9,000
Total 1,89,000 1,27,000

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 II. Assets :
(1) Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 98,000 84,000
(b) Non-Current Investment 16,000 6,000
(2) Current Assets
(a) Current Investment 18,000 20,000
(b) Inventories 49,000 12,000
(c) Cash and Bank Balances 8,000 5,000
Total 1,89,000 1,27,000
Notes to Accounts:- 31/03/2024 31/03/2023
1. Reserve & Surplus
General Reserve 30,000 20,000
Surplus i.e. Balance in Statement of Profit and Loss 14,000 (12,000)
44,000 8,000
2. Trade Payables :
Sundry Creditors 23,500 6,500
Bills Payables 1,500 2,500
25,000 9,000
Additional Information:-
(1) Depreciation provided on tangible assets (Machinery) during the year Rs.8,000.
(2) Interest paid on debentures Rs.5,000.
SOURCE BASE QUESTIONS

Q.12 Explain the accounting treatment of payment of interest and dividend in case of financing and
non-financing companies

Q.13 Mr Abhishek is the Chief Financial Officer of Useless Ltd and due to his lack of knowledge on
Management Accounting, he is unable to prepare a cash flow statement. Prepare a Cash Flow
Statement on the basis of the information given in the Balance Sheet of Useless Limited

Particulars Note No 31-03-2021 31-03-2020 (Rs.)

(Rs.)

1 2 3 4

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 I.EQUITY AND LIABILITIES

1.Share Holder’s Fund

(a)Share Capital 70,000 60,000
(b)Reserve and Surplus 1 44,000 8,000

2. Non-Current Liabilities
a) Long term borrowings: 2 50,000 50,000

3.Current Liabilities
(a)Trade Payables 25,000 9,000

TOTAL 1,89,000 1,27,000

II.ASSETS

(1) Non-Current Assets

(a) Fixed Assets
(i) Tangible assets 98,000 84,000
(b) Non-current investments 16,000 6,000

2) CURRENT ASSETS
(a) Current investments (Marketable) 18,000 20,000
(b) Inventories 49,000 12,000
(c) Cash & Cash Equivalents 8,000 5,000

TOTAL 1,89,000 1,27,000

Notes to Accounts

Particulars

1. Reserves & Surplus

General Reserve 30,000 20,000
Surplus i.e. Balance in Statement of Profit and Loss 14,000 (12,000)

Additional information:-
(a)Depreciation provided on tangible assets (Machinery) Rs.8,000 for the year.
(b)Interest paid on debenture Rs. 5,000.

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 ANSWERS OF MCQS (01 MARKS)

Ans.1. (d) Cash used in investing activities Rs.8,00,000.

Ans.2. (c) Sale of 2,500 shares (held as investment) for Rs.15 each.

Ans.3. (b) Cash deposited into Bank Rs.12,50,000

Ans.4. (b) Cash Flow from Financing Activities

Ans.5. d) sale of investment by non-financial enterprise. Explanation: purchase -sale of investments are
part of investing activities.
ANSWERS OF THREE MARKS QUESTIONS (03 MARKS)

ANS.6. Cash equivalents are short term highly liquid investments that are readily convertible into known
amounts of cash subject to an insignificant change of value
ANS.7. Inflow ₹ 84,000

ANSWERS OF FOUR MARKS QUESTIONS (04 MARKS)

ANS.8. (a) Rs 50,000 Investing activity- Outflow

(b) Rs 2,00,000 Investing activity. Outflow

© Rs 60,000 – Investing activity- Outflow

ANS.9. Non cash transactions are those transactions which donot involve cash and therefore flow of
cash does not take place.

(a) Depreciation

(b) Issue of shares/debentures for consideration other than cash

ANSWERS OF SIX MARKS QUESTIONS (06 MARKS)

ANS.10.

Q. 34 CASH FLOW STATEMENT

for the year ended 31st March, 2020

Particulars ₹ ₹ 6 MARKS

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I. Cash Flow from Operating Activities

Net Profit before Tax and extraordinary items 126000

Adjustments for Non-cash and Non-operating items:

Add: Depreciation 28000

154000

Less: Profit on sale of Machinery 14000

Operating Profit before Working Capital Changes 140000

Adjustments for working Capital Changes:

Add: Increase in Current Liabilities and Decrease in currents

Assets:

Trade Payables 98000

Inventories 42000 140000

280000

Less: Increase in Current Assets:

Trade Receivables 210000

Cash Flow from Operating Activities 70000

II. Cash Flow from Investing Activities

Proceeds from Sale of Machinery 56000

Purchase of Machinery (182000)

Cash Used in Investing Activities (126000)

III. Cash Flow from Financing Activities

Proceeds from issue of Shares 70000

Cash Flow from Financing Activities 70000

Net increase in Cash and Cash Equivalents 14000

Add: Opening Cash and Cash Equivalents 84000

Closing Cash and Cash Equivalents 98000

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ANS.11. Net Cash Flow from Operating Activities Rs.28,000

Net Cash Used in Investing Activities Rs.(32,000)

Net Cash Flow from Financing Activities Rs.5,000

ANSWERS OF SOURCE BASE QUESTIONS (6 Marks)

ANS.12. In case of non- financing companies

(a) Dividend /interest paid is shown as cash flow from financing activity

(b) Dividend and interest received is shown as cash flow from investing activity

In case of Financing companies

(a) Cash flow for dividend paid is shown as cash flow from financing activity

(b) Dividend and interest received is shown as cash inflow from operating activity

© Cash flow for interest paid is shown as cash outflow from operating activity

ANS.13.

Cash flow statement for the year ended 31-03-2014

Particulars Amount(Rs.) Amount(Rs.)

1. Cash flow from operating activity 36,000

(A)Net Profit before tax(See Note 1)
(B)Items to be added:-
Dep. On Machinery 8,000
Int. on Debt. 5,000 13,000
(C)Operating profit before working capital changes(A+B) 49,000
(D)Add :Increase in CL(Trade payables)
(E)Less : Decrease in CA(Inventory) 16,000
(H) Net cash from operating activities (37,000) (21,000)
28.000
2. Cash flow from Investing activities
Purchase of Machinery(See note 2)
Purchase of non current investments (22,000)

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Net cash used in Investing Activities (10,000)
(32,000)
3. Cash flows from financing activities
Issue of shares
Int. on debt. Paid 10,000
Net cash flow from financing activities (5,000)
Increase in cash and cash equivalent (1+2+3) 5,000
Add. Cash and Cash Equivalent(Op.)(20000+5000) 1,000
Cash and Cash Equivalent(Cl.)(18000+8000) 25,000 25,000
1,000

Note 1: NPBT=(14000+12000)-10000=36,000
Note 2:Purchase of Machinery=8000+98000-84000=22000
(2+2+2=6)

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