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Reconstitution of a Partnership Firm: Change in Profit Sharing Ratio Among the Existing Partners Important Questions Class 12 Accountancy

Question 1.
Anant, Gulab and Khushbu were partners in a firm sharing profits in the ratio of 5 : 3 : 2. From 1st April, 2014, they decided to share the profits equally. For this purpose, the goodwill of the firm was valued at ₹ 2,40,000.
Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Anant, Gulab and Khushbu. (All India 2015)
Answer:

Working Note:
(i) Calculation of Change in Profit Share of Partners
Sacrificing/(Gaining) Share = Old Share – New Share
Anant’s Sacrifice/(Gain) = \(\frac { 5 }{ 10 }\) – \(\frac { 1 }{ 3 }\) = \(\frac { 15-10 }{ 30 }\) = \(\frac { 5 }{ 30 }\) Sacrifice
Gulab’s Sacrifice/(Gain) = \(\frac { 3 }{ 10 }\) – \(\frac { 1 }{ 3 }\) = \(\frac { 9-10 }{ 30 }\) = (\(\frac { 1 }{ 30 }\)) Gain
Khushbu’s Sacrifice/(Gain) = \(\frac { 2 }{ 10 }\) – \(\frac { 1 }{ 3 }\) = \(\frac { 6-10 }{ 30 }\) = (\(\frac { 4 }{ 30 }\)) Gain

(ii) Calculation of Share of Goodwill
Anant = 2,40,000 × \(\frac { 5 }{ 30 }\) = ₹ 40,000 30
Gulab = 2,40,000 × \(\frac { 1 }{ 30 }\) = ₹ 8,000 30
Khushbu = 2,40,000 × \(\frac { 4 }{ 30 }\) = ₹ 32,000

Question 2.
Give the meaning of ‘reconstitution of a partnership firm’. (All India: Delhi 2014)
Answer:
Change in the existing agreement of partnership is considered as reconstitution of a partnership firm.
Due to this, existing agreement comes to an end and the new agreement comes into existence and the firm continues.

Question 3.
State the ratio in which the partners share the accumulated profits when there is a change in the profit sharing ratio amongst the existing partners. (All India 2013)
Answer:
Accumulated profits are distributed in old profit sharing ratio, at the time of change in profit sharing ratio amongst the existing partners.

Question 4.
State the ratio in which the partners share profits or losses on revaluation of assets and liabilities, when there is a change in profit sharing ratio amongst the existing partners. (Delhi 2013)
Answer:
Revaluation profits or losses are distributed in old profit sharing ratio, at the time of change in profit sharing ratio amongst the existing partners.

Question 5.
State any two occasions on which a firm can be reconstituted. (Delhi 2012)
Or
List any two situations which may result in the reconstitution of a partnership firm. (All India 2011)
Answer:
A firm can be reconstituted on the following occasions (any two)

• When there is a change in the profit sharing ratio of existing partners.
• When a new partner is admitted.
• When an existing partner retires.
• When an existing partner dies.

Question 6.
Why are ‘reserves and surplus’ distributed at the time of reconstitution of the firm? (Delhi; All India 2010)
Answer:
At the time of reconstitution of the firm, reserves and surplus should be transferred to old partners capital/current accounts in their old profit sharing ratio because the new partner is not entitled to any share in such undistributed profits or losses as these are eamed/accrued by the old partners.

Question 7.
Hari, Kunal and Uma are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2018 they decided to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a balance of? 75,000 in the Profit and Loss Account and a balance of? 15,000 in Investment Fluctuation Fund. For this purpose, it was agreed that:
(i) Goodwill of the firm was valued at ₹ 3,00,000.
(ii) Investments (having a book value of ₹ 50,000 were valued at ₹ 35,000.
(in) Stock having a book value of ₹ 50,000 be depreciated by 10%.
Pass the necessary journal entries for the above in the books of the firm. (All India 2019)
Answer:

Working Note:
Calculation of Gaining or Sacrificing Ratio
Sacrificing Ratio = Old Ratio – New Ratio
Hari = \(\frac{5}{10}-\frac{2}{10}=\frac{3}{10}\); kunal = \(\frac{3}{10}-\frac{5}{10}=\left(\frac{2}{10}\right)\); Uma = \(\frac{2}{10}-\frac{3}{10}=\left(\frac{1}{10}\right)\)

Question 8.
Satish and Taruna were partners in a firm sharing profits and losses in the ratio of 3 : 2. From 1st April, 2018 they decided to share profits equally. On that date, their Balance Sheet showed a credit balance of ₹ 35,000 in workmen compensation fund and ₹ 40,000 in general reserve. The goodwill of the firm on that date was valued at ₹ 50,000. The firm accepted a claim of ₹ 40,000 for workmen compensation.
Pass necessary journal entries for the above transactions on the reconstitution of the firm. (All India 2019)
Answer:
Calculation of Sacrificing or Gaining Ratio
Sacrificing Ratio = Old Share – New Share
Satish = \(\frac{3}{5}-\frac{1}{2}=\frac{6-5}{10}=\frac{1}{10}\)
Taruna = \(\frac{2}{5}-\frac{1}{2}=\frac{4-5}{10}=\left(\frac{1}{10}\right)\)

Question 9.
L, M and N were partners in a firm sharing profits in the ratio of 2 : 3 : 5. From 1st April, 2018 they decided to share the profits in the ratio of 1: 2 : 2. On this date, the Balance Sheet showed a credit balance of ₹ 1,17,000 in General Reserve and a debit balance of ₹ 35,000 in profit and loss account. The goodwill of the firm was valued at ₹ 5,00,000. The revaluation of assets and reassessment of liabilities resulted into a gain of ₹ 30,000.
Pass necessary journal entries for the above transactions on the reconstitution of the firm. (All India 2019)
Answer:

Working Note:
Calculation of Sacrificing and Gaining Ratio
Sacrificing Ratio = Old Share – New Share

Question 10.
P, Q and R were partners in a firm sharing profits in the ratio of 1 : 1 : 2. On 31st March, 2018, their balance sheet showed a credit balance of ₹ 9,000 in the profit and loss account and a Workmen Compensation Fund of ₹ 64,000. From 1st April, 2018 they decided to share profits in the ratio of 2 : 2 : 1. For this purpose it was agreed that:
(a) Goodwill of the firm was valued at ₹ 4,00,000.
(b) A claim on account of workmen compensation of ₹ 30,000 was admitted.
Pass necessary journal entries on reconstitution of the firm. (Delhi 2019)
Answer:

Working Note:
Calculation of Sacrificing or Gaining Ratio
Sacrificing ratio = Old share – New share

Question 11.
Aman, Bobby and Chandani were partners in a firm sharing profit and losses in the ratio of 5 : 4 : 1. From 1st April, 2018 they decided to share profit equally. The revaluation of assets and re-assessment of liabilities resulted in a loss ₹ 5,000. The goodwill of the firm on its reconstitution was valued at ₹ 1,20,000. The firm had a balance 20,000 in general reserve.
Showing your workings clearly pass necessary journal entries on the reconstitution of the firm. (Delhi 2019)
Answer:

Working note:
Calculation of Sacrificing or Gaining Ratio
Sacrificing Ratio = Old Share – New Share

Question 12.
Radhika, Bani and Chitra were partners in a firm sharing profits and losses in the ratio of 2 : 3 : 1. With effect from 1st April, 2018 they decided to share future profits and losses in the ratio of 3 : 2 : 1. On that date their Balance Sheet showed a debit balance of ₹ 24,000 in Profit and Loss Account and a balance of ₹ 1,44,000 in general reserve. It was also agreed that:
(a) The goodwill of the firm be valued at ₹ 1,80,000.
(b) The land (having book value of ₹ 3,00,000) will be valued at ₹ 4,80,000.
Pass the necessary journal entries for the above changes. (Delhi 2019)
Answer:

Working Notes:
1. Calculation of Sacrificing or Gaining Ratio
Sacrificing Ratio = Old Share – New Share
Radhika = \(\frac{2}{6}-\frac{3}{6}=\left(\frac{1}{6}\right)\) = Bani = \(\frac{3}{6}-\frac{2}{6}=\frac{1}{6}\) Chitra = \(\frac { 1 }{ 6 }\) – \(\frac { 1 }{ 6 }\) = Nil

2. Firms Goodwill = ₹ 1,80,000
Radhika gains and Bani sacrifice = 1,80,000 × \(\frac { 1 }{ 6 }\) = ₹ 30,000

Question 13.
Kumar, Gupta and Kavita were partners in a firm sharing profits and losses equally. The firm was engaged in the storage and distribution of canned juice and its godowns were located at three different places in the city. Each godown was being managed individually by Kumar, Gupta and Kavita. Because of increase in business activities at the godown managed by Gupta, he had to devote more time.
Gupta demanded that his share in the profits of the firm be increased, to which Kumar and Kavita agreed. The new profit sharing ratio was agreed to be 1 : 2 : 1.
For this purpose the goodwill of the firm was valued at two years’ purchase of the average profits of last five years. The profits of the last five years were as follows

You are required to
(i) Calculate the goodwill of the firm.
(ii) Pass necessary journal entry for the treatment of goodwill on change in profit sharing ratio of Kumar, Gupta and Kavita. (Delhi 2015)
Answer:
(i) Calculation of Goodwill of the Firm
Average Profit = \(\frac{4,00,000+4,80,000+7,33,000-33,000+2,20,000}{5}=\frac{18,00,000}{5}\) = ₹ 3,60,000
Goodwill = Average Profits × Number of Years’ Purchase
= 3,60,000 × 2 = ₹ 7,20,000

Working Note:
Calculation of Sacrifice or Gain of Each Partner
Sacrificing/(Gaining) Share = Old Share – New Share

Calculation of Share of Goodwill:
Kumar = 7,20,000 × \(\frac { 1 }{ 12 }\) = ₹ 60,000, Gupta = 7,20,000 × \(\frac { 2 }{ 12 }\) = ₹ 1,20,000
Kavita = 7,20,000 × \(\frac { 1 }{ 12 }\) = ₹ 60,000

Question 14.
Anita, Asha and Amrit are partners sharing profits in the ratio of 3 : 2 : 1 respectively. From 1st January, 2010, they decided to share profits in the ratio of 1: 1 : 1. The partnership deed provided that in the event of any change in profit sharing ratio, the goodwill should be valued at three years’ purchase of the average of five years’ profits. The profits and losses of the preceding five years are

Showing the working clearly, give the necessary journal entry to record the above change. (Delhi (C) 2010)
Answer:
Solve as Q no. 13 on page 84 and 85.
Debit Amrit’s Capital Account with ₹ 1,00,000 and Credit Anita’s Capital Account with ₹ 1,00,000.

Question 15.
P, Q and R were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. On 31st March, 2018 their Balance Sheet was as follows:

On the above date the firm was reconstituted and it was decided that:
(i) The new profit sharing ratio will be 2 : 2 : 1.
(ii) Bad debts ₹ 6,000 were to be written-off and a provision of ₹ 3,000 was to be made for bad and doubtful debts.
(Hi) The capital of the partners will be adjusted in the new firms in their profit sharing ratio. For this, partners’ current accounts will be opened.
Pass the necessary journal entries on the reconstitution of the firm. (All India 2013)
Answer:

Question 16.
Parth, Raman and Zaisha are partners in a firm manufacturing furniture. They have been sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2017 they decided to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a debit balance of ₹ 74,000 in Profit and Loss Account; balance of ₹ 36,000 in General Reserve and a balance of ₹ 12,000 in Workmen’s Compensation Reserve. It was agreed that:
(i) The goodwill of the firm be valued at ₹ 76,000.
(ii) The stock (book value of ₹ 40,000) was to be depreciated by 8%.
(iii) Creditors amounting to ₹ 900 were not likely to be claimed.
(iv) Claim on account of Workmen’s Compensation amounted to ₹ 20,000.
(v) Investments (bool value ₹ 38,000) were revalued at ₹ 40,000.
Pass necessary journal entries for the above, comportment 2018 Modified
Answer:

Working Note:
Calculation of Gaining/Sacrificing Ratio
Sacrificing Ratio = Old Ratio – New Ratio

Question 17.
A, B, C and D were partners in a firm sharing profits in the ratio of 3 : 2 : 3 : 2. On 1st April, 2016 their balance sheet was as follows

From the above date the partners decided to share the future profits in the ratio of 4 : 3 : 2 : 1. For this purpose the goodwill of the firm was valued at ₹ 2,70,000.
It was also considered that:
(i) Claim against workmen compensation reserve will be estimated at ₹ 30,000 and fixed assets will be depreciated by 25,000.
(it) The capitals of the partners will be adjusted according to the new profit sharing ratio by opening current accounts of the partners.
Prepare revaluation account, partners’ capital accounts and the balance sheet of the reconstituted firm. (All India 2017)
Answer:

Working Notes:
1. Calculation of Sacrificing/ (Gaining) Share
Sacrificing/(Gaining) Share = Old Share – New Share

2. Calculation of Goodwill:
A’s share of goodwill = 2,70,000 × \(\frac { 1 }{ 10 }\) = ₹ 27,000
B’s share of goodwill = 2,70,000 × \(\frac { 1 }{ 10 }\) = ₹ 27,000
C’s share of goodwill = 2,70,000 × \(\frac { 1 }{ 10 }\) = ₹ 27,000
D’s share of goodwill =2,70,000 × \(\frac { 1 }{ 10 }\) = ₹ 27,000

3. Journal Entry Showing Adjustment for Goodwill

While posting in ledger, it has been assumed that A pays to C and B pays to D.

4. Calculation of Adjusted Capitals:

New capital of A = 9,80,000 × \(\frac { 4 }{ 10 }\) = ₹ 3,92,000
New capital of B = 9,80,000 × \(\frac { 3 }{ 10 }\) = ₹ 2,94,000
New capital of C = 9,80,000 × \(\frac { 2 }{ 10 }\) = ₹ 1,96,000
New capital of D = 9,80,000 × \(\frac { 1 }{ 10 }\) = ₹ 98,000

Question 18.
S, T, U and V were partners in a firm sharing profits in the ratio of 4 : 3 : 2 : 1. On 1st April, 2016 their balance sheet was as follows

From the above date the partners decided to share the future profits in 3 : 1 : 2 : 4 ratio. For this purpose the goodwill of the firm was valued at ₹ 90,000.
The partners also agreed for the following
(i) The claim for workmen compensation has been estimated at ₹ 70,000.
(ii) To adjust the capitals of the partners according to new profit sharing ratio by opening partners’ current accounts.
Prepare revaluation account, partners’ capital accounts and the balance sheet of the reconstituted firm. (Delhi 2017)
Answer:
Solve as Q no. 17 on page 88-90.
Loss on Revaluation : S = ₹ 4,000, T = ₹ 3,000, U = ₹ 2,000, V = ₹ 1,000
Balance in Partners’ Capital Account: S = ₹ 1,47,000, T = ₹ 49,000, U = ₹ 98,000, V = ₹ 1,96,000.
Balance in Partners’ Current Account: S = ₹ 58,000 (Cr), T = ₹ 1,16,000 (Cr), V = ₹ 1,74,000 (Dr)
Total of Balance Sheet = ₹ 8,14,000

Question 19.
R, S and T were partners in a firm sharing profits in 1 : 2 : 3 ratio. Their balance sheet as at 31st March, 2015 was as follows

From 1st April, 2015 R, S and T decided to share the future profits equally. For this purpose it was decided that
(i) Goodwill of the firm be valued at ₹ 1,50,000.
(ii) Land be revalued at ₹ 80,000 and building be depreciated by 6%.
(iii) Creditors of ₹ 6,000 were not likely to be claimed and hence be written-off.
Prepare revaluation account, partners’ capital accounts and the balance sheet of the reconstituted firm. (All India 2016)
Answer:

Working Note:
Calculation of Sacrifice or Gain of Each Partner
Sacrificing/(Gaining) Share = Old Share – New Share

Firm’s goodwill = ₹ 1,50,000
R will pay for goodwill = 1,50,000 × \(\frac { 1 }{ 6 }\) = ₹ 25,000
R’s Capital A/c Dr – 25,000
To T’s Capital A/c – 25,000

Question 20.
Ashok, Bhim and Chetan were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their balance sheet as at 31st March, 2015 was as follows

Ashok, Bhim and Chetan decided to share the future profits equally, with effect from 1st April, 2015. For this it was agreed that:
(i) Goodwill of the firm be valued at ₹ 3,00,000.
(ii) Land be revalued at ₹ 1,60,000 and building be depreciated by 6%.
(iii) Creditors of ₹ 12,000 were not likely to be claimed and hence be written off. Prepare revaluation account, partners’ capital accounts and balance sheet of the reconstituted firm. (Delhi 2016)
Answer:
Solve as Q. no. 19 on page 91-92.
Profit on Revaluation: Ashok = ₹ 33,000, Bhim = ₹ 22,000, Chetan = ₹ 11,000
Balance in Partners’ Capital Account: Ashok = ₹ 313,000, Bhim = ₹ 142000, Chetan = ₹ 21000
Total of Balance Sheet = ₹ 604000.

Question 21.
Change in relationship among partners is called
(a) dissolution of firm
(b) reconstitution of firm
(c) insolvency of firm
(d) None of these
Answer:
(b) reconstitution of firm

Question 22.
Which of the following is used to find out sacrificing ratio?
(a) Old Share – New Share
(b) New Share – Old Share
(c) Old Share – Gain Share
(d) None of the above
Answer:
(a) Old Share – New Share

Question 23.
X, Y and Z are partners sharing profits and losses in the ratio of 5 : 4 : 1. Calculate sacrificing or gaining share for each if Z acquires \(\frac { 1 }{ 10 }\)th share of X and \(\frac { 1 }{ 2 }\) share of Y.
(a) X Sacrifice = \(\frac { 5 }{ 100 }\), Y = \(\frac { 20 }{ 100 }\), Z Sacrifice = \(\frac { 25 }{ 100 }\)
(b) X Sacrifice = \(\frac { 5 }{ 100 }\), Y Sacrifice = \(\frac { 20 }{ 100 }\), Z gains = \(\frac { 25 }{ 100 }\)
(c) X Gains = \(\frac { 5 }{ 100 }\), Y Gains = \(\frac { 20 }{ 100 }\), Z Sacrifice = \(\frac { 25 }{ 100 }\)
(d) None of the above
Answer:
(b) X Sacrifice = \(\frac { 5 }{ 100 }\), Y Sacrifice = \(\frac { 20 }{ 100 }\), Z gains = \(\frac { 25 }{ 100 }\)

Question 24.
‘P’, ‘Q’ and ‘R’ are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their new profit sharing ratio will be equal. Which partner has sacrificed and by how much?
(a) Q = \(\frac { 4 }{ 30 }\)
(b) R = \(\frac { 1 }{ 30 }\)
(c) P = \(\frac { 5 }{ 30 }\)
(d) Q = \(\frac { 1 }{ 100 }\) and R = \(\frac { 4 }{ 40 }\)
Answer:
(c) P = \(\frac { 5 }{ 30 }\)

Question 25.
Reserves are distributed in old partners in …………. ratio.
(a) old
(b) gain
(c) new
(d) sacrifice
Answer:
(a) old

Question 26.
The entry to be passed for adjustment of goodwill when there is a change in profit (loss) sharing ratio of partners, without opening goodwill account is
(a) Sacrificing Partners’ Capital A/c Dr
To Gaining Partners’ Capital A/c
(b) Gaining Partners’ Capital A/c Dr
To Sacrificing Partners’ Capital A/c
(c) Gaining Partners’ Current A/c Dr
To Sacrificing Partners’ Current A/c
(d) Either (b) or (c)
Answer:
(d) Either (b) or (c)

Question 27.
When a firm is reconstituted, reserves and accumulated profits are distributed among partners by passing the following journal entry.
(a) Reserves/Profit and Loss A/c Dr
Workmen’s Compensation Reserve A/c Dr
Investment Fluctuation Reserve A/c Dr
To All Partner’s Capital A/c
(b) Reserves/Profit and Loss A/c Dr
Workmen’s Compensation Reserve A/c Dr
Investment Fluctuation Reserve A/c Dr
To All Partner’s Current A/c
(c) Either (a) or (b)
(d) None of the above
Answer:
(c) Either (a) or (b)

Question 28.
If their is a change in profit sharing ratio of existing partners and the question is silent about investment fluctuation reserve, then it is distributed among partners in
(a) old ratio
(b) new ratio
(c) sacrificing ratio
(d) gaining ratio
Answer:
(a) old ratio

Question 29.
Revaluation account is account in nature.
(a) real
(b) personal
(c) nominal
(d) None of the above
Answer:
(c) nominal

Question 30.
Whenever revaluation account is prepared, the journal entry for unrecorded assets is
(a) Unrecorded Assets A/c Dr
To Revaluation A/c
(b) Revaluation A/c Dr
To Unrecorded Assets A/c
(c) Revaluation A/c Dr
To Partner’s Capital A/c
(d) None of the above
Answer:
(a) Unrecorded Assets A/c Dr
To Revaluation A/c

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We have given these Accountancy Class 12 Important Questions and Answers Chapter 3 Reconstitution of Partnership Firm: Admission of a Partner to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 3 Reconstitution of Partnership Firm: Admission of a Partner Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Reconstitution of Partnership Firm: Admission of a Partner Important Questions Class 12 Accountancy Chapter 3

Question 1.
A and B were partners in a firm sharing profits in the ratio of 3 : 2. C and D were admitted as new partners. A sacrificed \(\frac { 1 }{ 4 }\)th of his share in favour of sacrificed 50% of his share in favour of D Calculate the new profit sharing ratio of A, B, C and D. (All India 2019)
Answer:

New ratio = 9 : 4 : 3 : 4

Question 2.
Kiya and Leela are partners sharing profits in the ratio of 3 : 2. Kiran was admitted as a new partner with \(\frac { 1 }{ 5 }\)th share in the profits and brought in ₹ 24,000 as her share of goodwill premium that was credited to the capital accounts of Kiya and Leela respectively with ₹ 18,000 and ₹ 6,000. Calculate the new profit sharing ratio of Kiya, Leela and Kiran. (All India 2019)
Answer:
Premium for goodwill ₹ 24,000 brought in by new partner Kiran was distributed among old partners was ₹ 18,000 and ₹ 6,000, i.e. in the sacrificing ratio of 3 : 1.

Question 3.
Atul and Neera were partners in a firm sharing profits in the ratio of 3 : 2. They admitted Mitali as a new partner. Goodwill of the firm was valued at ₹ 2,00,000. Mitali brings her share of goodwill premium of ₹ 20,000 in cash, which is entirely credited to Atul’s capital account. Calculate the new profit sharing ratio. (Delhi 2019)
Answer:
Firms goodwill = ₹ 2,00,000
Premium for goodwill brought in by new partner Mitali = ₹ 20000
So, Mitali s share = \(\frac { 20000 }{ 200000 }\) = \(\frac { 1 }{ 10 }\)
Premium for goodwill is entirely credited to Atul’s capital account means only Atul sacrifice.
So, Arid’s sacrificing ratio = \(\frac { 1 }{ 10 }\)
∴ Atuls new share = \(\frac{3}{5}-\frac{1}{10}=\frac{6-1}{10}=\frac{5}{10}\)
Neera’s new share = \(\frac{2}{5} \times \frac{2}{2}=\frac{4}{10}\)
Mitali’s new share = \(\frac { 1 }{ 10 }\) = \(\frac { 1 }{ 10 }\)
New Ratio = 5 : 4 : 1

Question 4.
Amit and Beena were partners in a firm sharing profits and losses in the ratio of 3 : 1 Chaman was admitted as a new partner for \(\frac { 2 }{ 5 }\)th share in the period. Chaman acquired \(\frac { 2 }{ 5 }\)th of his share from Amit. How much share did Chaman acquire from Beena? (CBSE 2018)
Answer:
Chaman’s share = \(\frac { 1 }{ 6 }\)
Share acquired from Amit = \(\frac{2}{5} \times \frac{1}{6}=\frac{2}{30}\)
Share acquired from Beena = Chaman’s share – Share acquired from Amit
Share acquired from Beena = \(\frac{1}{6}-\frac{2}{30}=\frac{5-2}{30}=\frac{3}{30}\)

Question 5.
A and B were partners in a firm sharing profits and losses in the ratio of 5 : 3. They admitted C as a new partner. The new profit sharing ratio between A, B and C was 3 : 2 : 3. A surrendered \(\frac { 2 }{ 5 }\)th of his share in favour of C. Calculate B’s 1 sacrifice. (All India 2017)
Answer:
Calculation of B’s Sacrifice
B’s Sacrifice = Old Share – New Share
= \(\frac{3}{8}-\frac{2}{8}=\frac{3-2}{8}=\frac{1}{8}\)

Question 6.
Durga and Naresh were partners in a firm. They wanted to admit five more members in the firm. List any two categories of individuals other than minors who cannot be admitted by them. (All India 2017)
Answer:
The individuals other than minors who cannot be admitted by the them are
(i) Person of unsound mind
(ii) Person disqualified by law

Question 7.
A and B were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted C as a new partner. The new profit sharing ratio between A, B and C was 3 : 2 : 2. A surrendered 1/4 of his share in favour of C. Calculate B’s sacrifice. (Delhi 2017)
Answer:
Solve as Q no. 5 on page 97, B’s sacrifice = \(\frac { 1 }{ 7 }\)

Question 8.
Gupta and Sharma were partners in a firm. They wanted to admit two more members in the firm. List the categories of individuals other than minors who cannot be admitted by them. (Delhi 2017)
Answer:
Refer to Q no. 6 on page 97.

Question 9.
P, Q and R were partners in a firm sharing profits in the ratio of 3 : 2 : 1. They admitted S as a new partner for \(\frac { 1 }{ 8 }\)th share in the profits which he acquired \(\frac { 1 }{ 18 }\)th from P and \(\frac { 1 }{ 16}\)th from Q. Calculate new profit sharing ratio of P, Q, R and S. (Delhi: All India 2016)
Answer:
Profit sharing ratio of P : Q : R = 3 : 2 : 1
S is admitted for \(\frac { 1 }{ 8}\)th share which he acquires \(\frac { 1 }{ 16}\)th from P and \(\frac { 1 }{ 16}\)th from Q.

New profit sharing ratio of P : Q : R : S is 21 : 13 : 8 : 6

Question 10.
Nishtha and Anshu were partners sharing profits in the ratio of 3 : 2. They admitted Jyoti as a new partner for 3/10th share which she acquired 2/10th from Nishtha and 1/10th from Anshu. Calculate the new profit sharing ratio of Nishtha, Anshu and Jyoti. (All India (C) 2016)
Answer:
Solve as Q no. 9 on page 97.
New profit sharing ratio of Nishtha : Anshu : Jyoti = 4 : 3 : 3

Question 11.
Anurag and Bhawana entered into partnership on 1st April, 2014. On 1st January, 2015 they admitted Monika 3 as a new partner for \(\frac { 3 }{ 10}\)th share in the profits which she acquired equally from Anurag and Bhawana. The new profit sharing ratio of Anurag, Bhawana and Monika was 4 : 3 : 3. Calculate the profit sharing ratio of Anurag and Bhawana at the time of forming the partnership. (Foreign 2015)
Answer:
New ratio = 4 : 3 : 3

Old share of Anurag and Bhawana is 11: 9.

Question 12.
State the rights acquired by a newly admitted partner. (All India 2014: Delhi 2011)
Answer:
(i) Share in the future profits of the firm,
(ii) Share in the assets of the firm.

Question 13.
What is meant by sacrificing ratio? (All India (C) 2014)
Or
State the meaning of sacrificing ratio. (All India 2011)
Answer:
It is the ratio in which the old partners have agreed to sacrifice their share of profits in favour of new or incoming partner.
Sacrificing Ratio = Old Share – New Share

Question 14.
List any two items that need adjustments in the books of accounts of a firm at the time of admission of a partner. (All India 2014)
Answer:
Two items that need adjustment at the time of admission are
(i) Goodwill of the firm.
(ii) Reserves and accumulated profits/losses.

Question 15.
X and Y are partners. Y wants to admit his son K into business. Can K become the partner of the firm? Give reason. (Delhi (C) 2014)
Answer:
K can be admitted as a partner with the consent of X, and that to if he is a major.

Question 16.
State any one purpose for admitting a new partner in a firm. (All India 2012)
Answer:
A new partner may be admitted for the following purpose: For procuring additional capital.

Question 17.
A and B are partners sharing profits in the ratio of 5 : 4. They admit C for 1/10th share of profit which he acquires in equal proportion from both. Find the new profit sharing ratio. (Delhi (C) 2011)
Answer:
Old ratio = 5 : 4; C’s share = \(\frac { 1 }{ 10}\)th
Which he acquires in equal proportion from both,

∴ New ratio among A, B and C = 91 : 71 : 18

Question 18.
A and B are partners sharing profits in the ratio of 5 : 4. They admit C for 1/3rd share, which he acquires in equal proportion from both. Find the new profit sharing ratio. (All India 2011)
Answer:
Solve as Q no. 17 on page 98.
New Profit Sharing Ratio of A, B and C = 7 : 5 : 6

Question 19.
(i) Rajeev and Sanjeev are partners in a firm sharing profits in the ratio of 3 : 2 respectively. They admit Vijay as a new partner. Rajeev surrenders \(\frac { 1 }{ 4}\) of his share and Sanjeev \(\frac { 1 }{ 4}\) of his share in favour of Vijay. Calculate new profit sharing ratio of Rajeev, Sanjeev and Vijay.
(ii) Anita and Sunita are partners in a firm sharing profits in the ratio of 3 : 2 respectively. They admitted Vinita as a new partner for \(\frac { 1 }{ 4}\)th share. The new profit sharing ratio between Anita and Sunita will be 2 : 1. Calculate their sacrificing ratio. (Delhi 2014)
Answer:
(i) Old ratio between Rajeev and Sanjeev = 3 : 2

(ii) Old ratio between Anita and Sunita = 3 : 2
Vinita is admitted for \(\frac { 1 }{ 4}\)th share.
Remaining share = 1 – \(\frac { 1 }{ 4}\) = \(\frac { 3 }{ 4}\) which will be
shared among Anita and Sunita in the ratio of 2 : 1. Accordingly,
Anita’s new share = \(\frac{3}{4} \times \frac{2}{3}=\frac{2}{4}\)
Sunita’s new share = \(\frac{3}{4} \times \frac{1}{3}=\frac{1}{4}\)
∴ New profit sharing ratio = 2 : 1 : 1
Sacrificing Ratio = Old Share – New Share
Anita = \(\frac{3}{5}-\frac{2}{4}=\frac{12-10}{20}=\frac{2}{20}\)
Sunita = \(\frac{2}{5}-\frac{1}{4}=\frac{8-5}{20}=\frac{3}{20}\)
∴ Sacrificing ratio = 2 : 3

Question 20.
(i) Rohan and Mohan are partners in a firm sharing profits in the ratio of 5 : 3 respectively. They admit Bhim as a partner for \(\frac { 1 }{ 7}\)th share in the profit. The new profit sharing ratio will be 4 : 2 : 1. Calculate the sacrificing ratio of Rohan and Mohan.
(ii) Amla and Kamla are partners in a firm sharing profits in the ratio of 4 : 1 respectively. They admitted Bimla as a new partner for \(\frac { 1 }{ 4}\)th share in the
profits, which she acquired wholly from Amla. Determine the new profit sharing ratio of the partners. (Delhi (C) 2014)
Answer:
(i) Old ratio between Rohan and Mohan = 5 : 3
New ratio after Bhim’s admission = 4 : 2 : 1
Sacrificing Ratio = Old Share – New Share
Rohan = \(\frac{5}{8}-\frac{4}{7}=\frac{35-32}{56}=\frac{3}{56}\)
Mohan = \(\frac{3}{8}-\frac{2}{7}=\frac{21-16}{56}=\frac{5}{56}\)
∴ Sacrificing ratio = 3 : 5

(ii) Old ratio between Amla and Kamla = 4 : 1
Bimla is admitted for \(\frac { 1 }{ 4}\)th share, which she gets wholly from Amla. Accordingly,
New share of Amla = \(\frac{4}{5}-\frac{1}{4}=\frac{16-5}{20}=\frac{11}{20}\)
Share of Kamla = \(\frac { 1 }{ 5}\); Share of Bimla = \(\frac { 1 }{ 4}\)
∴ New ratio = \(\frac{11}{20}: \frac{1}{5}: \frac{1}{4}\) = 11 : 4 : 5

Question 21.
On 1st April, 2010 Sahil and Charu entered into partnership for sharing profits in the ratio of 4 : 3. They admitted Tanu as a new partner on 1st April, 2012 for \(\frac { 1 }{ 5}\)th share which she acquired equally from Sahil and Charu. Sahil, Charu and Tanu earned profits at a higher rate than the normal rate of return for the year ended 31st March, 2013. Therefore, they decided to expand their business. To meet the requirements of additional capital they admitted Puneet as a new partner on 1st April, 2013 for \(\frac { 1 }{ 7}\)th share in profits which he acquired from Sahil and Charu in 7 : 3 ratio. Calculate
(i) New profit sharing ratio of Sahil, Charu and TanuTor the year 2012-13.
(ii) New profit sharing ratio of Sahil, Charu, Tanu and Puneet on Puneet’s admission. (Delhi 2015)
Answer:
(i) Calculation of New Profit Sharing Ratio of Sahil, Charu and Tanu for the year 2012-13
Tanu is admitted for \(\frac { 1 }{ 5}\) th share
Tanu acquired profit share from Sahil = \(\frac{1}{5} \times \frac{1}{2}=\frac{1}{10}\)
Tanu acquired profit share form Charu = \(\frac{1}{5} \times \frac{1}{2}=\frac{1}{10}\)
Sahil’s New Share = Old Share – Sacrifice Share
= \(\frac{4}{7}-\frac{1}{10}=\frac{40-7}{70}=\frac{33}{70}\)
New profit sharing ratio will be = \(\frac{33}{70}: \frac{23}{70} \div \frac{1}{5}\)
= \(\frac { 33:23:14 }{ 70 }\) or 33 : 24 : 14

(ii) Calculation of New Profit Sharing Ratio
Old ratio = 33 : 23 : 14
Puneet is admitted for \(\frac { 1 }{ 7 }\)th share
Which he acquired from Sahil and Cham in 7 : 3 ratio
Puneet acquired share from Sahil = \(\frac{1}{7} \times \frac{7}{10}=\frac{7}{70}\)
Puneet acquired share from Charu = \(\frac{1}{7} \times \frac{3}{10}=\frac{3}{70}\)
Sahil s new share = \(\frac{33}{70}-\frac{7}{70}=\frac{26}{70}\)
Charu’s new share = \(\frac{23}{70}-\frac{3}{70}=\frac{20}{70}\)
New Ratio = \(\frac{26}{70}: \frac{20}{70}: \frac{14}{70}: \frac{1}{7}\)
⇒ \(\frac{26}{70}: \frac{20}{70}: \frac{14}{70}: \frac{10}{70}\)
Or 13 : 10 : 7 : 5

Question 22.
Vinay and Naman are partners sharing profit in the ratio of 4 : 1. Their capitals were ₹ 90,000 and ₹ 70,000 respectively. They admitted Prateek for 1/3 share in the profits. Prateek brought ₹ 1,00,000 as his capital. Calculate the value of firm’s goodwill. Compartment 2tn8
Answer:
Prateek’s Capital for – share = ₹ 1,00,000
Firm’s Total Capital = 1,00,000 × 3 = ₹ 3,00,000
On the basis of Prateek’s Capital,
Firm Actual Capital = 90000 + 70000 + 100000 = ₹ 2,60,000
Firm’s goodwill = 300000 – 2,60000 = ₹ 40,000

Question 23.
A, B, C and D were partners in a firm sharing profits in the ratio of 4 : 3 : 2 : 1. On 1st January, 2015, they admitted E as a new partner for \(\frac { 1 }{ 10 }\)th share in the profits. E brought ₹ 10,000 for his share of goodwill premium which was correctly recorded in the books by the accountant. The accountant showed goodwill at ₹ 1,00,000 in the books. Was the accountant correct in doing so? Give reason in support of your answer. (Delhi 2015)
Answer:
No, the accountant is not correct because according to AS-26, internally generated goodwill shall not be recognised as an asset because it is not an identifiable resource controlled by the entity that can be measured reliably at cost.

Question 24.
When the new partner brings cash for goodwill, the amount is credited to which account? (Delhi (C) 2015)
Answer:
When the new partner brings cash for goodwill, the amount is credited to premium for goodwill account.

Question 25.
Under what circumstances will the premium for goodwill paid by the incoming partner not be recorded in the books of accounts? (Delhi (C) 2014)
Answer:
When the incoming partner pays his share of goodwill privately to the sacrificing partners, outside the business, then no entry is passed in the books of the firm.

Question 26.
State the need for treatment of goodwill on admission of a partner. (Delhi 2010)
Answer:
When a new partner is admitted, his share in future profits of the firm is equal to the sacrifice of profit by an existing partner or partners of the firm. The amount he pays to compensate this sacrifice, is in the form of goodwill. Therefore, it is important to treat goodwill at the time of admission of a partner.

Question 27.
A, B, C and D were partners in a firm sharing profits and losses equally. E was admitted as a new partner for \(\frac { 1 }{ 3 }\)rd share in the profits of the firm which he acquires equally from C and 3 D. On E’s admission the goodwill of the firm was valued at ₹ 3,00,000. Calculate the new profit sharing ratio on E’s admission. Also pass necessary journal entry on E’s admission, assuming that he failed to bring his share of goodwill in cash. (All India 2019)
Answer:
E’s Share = \(\frac { 1 }{ 3 }\)rd which he acquires equally from C and D.

2. Firms goodwill = ₹ 3,00,000; E’s share of goodwill = 3,00,000 × \(\frac { 1 }{ 3 }\) = ₹ 1,00,000 to be distributed among sacrificing partners i.e. C and D in sacrificing ratio of 1 : 1

Question 28.
A, B and C were partners in a firm sharing profits in the ratio of 2 : 1 : 1. On 1st April, 2018 they admitted D as a new partner. D brought ₹ 2,00,000 for his capital and ₹ 24,000 for his share of goodwill premium. The new profit sharing ratio between A, B, C and D will be 1 : 2 : 1 : 1.
Pass necessary journal entries for the above transactions in the books of the firm on D’s admission. (All India 2019)
Answer:

Working Notes:
1. Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Share – New Share

2. \(\frac { 1 }{ 5 }\)th share of goodwill = ₹ 24,000
Firms goodwill = 24,000 × 5 = ₹ 1,20,000
B would compensate = 1,20,000 × \(\frac { 3 }{ 20 }\) = ₹ 18,000
A would sacrifice =1,20,000 x \(\frac { 6 }{ 20 }\) = ₹ 36,000
C would sacrifice =1,20,000 x \(\frac { 1 }{ 20 }\) = ₹ 6,000

Question 29.
Devi, Dayal and Daya were partners in a firm sharing profits in the ratio of 2 : 1 : 2. On 31st March, 2018, they admitted Divya as a new partner for -th share in theprofits. Their new profit sharing ratio was 1 : 2 : 1 : 1. Divya bought ₹ 5,00,000 as her capital and ₹ 50,000 for her share of goodwill premium.
Pass necessary journal entries for the above transactions in the books of the firm on Divya’s admission. (All India)
Answer:
Solve as Q. No. 7 on page 103-104; Sacrificing or Gaining Ratio = Devi \(\frac { 1 }{ 5 }\), and Dayal (\(\frac { 1 }{ 5 }\)), and daya \(\frac { 1 }{ 5 }\)
Debit premium for goodwill account and Dayal’s capital account with ₹ 50,000 each and credit Devi’s and Daya’s capital accounts with ₹ 50,000 each.

Question 30.
L, M and N were partner in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 1st April, 2018 they admitted S as a new partner in the firm for 1/5th share in the profits. On S’ admission the goodwill of the firm was valued at 3 years purchase of last five average profits. The profits during the last five year were:
Table
Calculate the value of the goodwill of the firm. Pass necessary journal entry for the treatment of goodwill on S’s admission. (Delhi 2019)
Answer:
5 Years Average Profit = \(\frac{4,00,000+3,00,000+2,00,000+50,000+(50,000)}{5}\) = ₹ 108000
Firm’s Goodwill = 5 Years Average Profit x No. of Years Purchase = 1,80,000 x 3 = ₹ 5,40,000
S’s share of goodwill = 5,40,000 x \(\frac { 1 }{ 5 }\) = ₹ 108000

NOTE: it is not clearly mentioned in the question that new partners S bring his share of goodwill in cash or not. So, it Is assumed that goodwill premium is brought in cash.
Alternatively, entry for not bringing goodwill premium in cash can be passed.

Question 31.
Amit and Kartik are partners sharing profits and losses equally. They decided to admit Saurabh for an equal share in the profits. For this purpose, the goodwill of the firm was to be valued for four years’ purchase of super profits.
The Balance Sheet of the firm of Saurabh’s admission was as follows:

The normal rate of return is 12% per annum. Average profit of the firm for the last four years was ₹ 30,000. Calculate Saurabh’s share of goodwill. (comportment 2018)
Answer:
Capital Employed = Amit’s Capital + Kartik’s Capital + Reserve = 90000 + 50000 + 20000 = ₹ 1,60,000
2 12 f Normal Profit = Capital Employed x Normal Rate of Return = 100000 × \(\frac { 12 }{ 100 }\) = ₹ 19,200
Average Profit = ₹ 30,000
Super Profit = Average Profit – Normal Profit = 30000 – 19200 = ₹ 10,800
Firms Goodwill = Super Profit x Number of Years Purchase = 10000 x 4 = ₹ 43,200
Saurabh’s Share of Goodwill = 43200 x \(\frac { 1 }{ 3 }\) = ₹ 14,400

Question 32.
Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit Raghav as a partner for \(\frac { 1 }{ 4 }\)th share in the profits of the firm Raghav brings ₹ 6,00,000 as his capital and his share of goodwill in cash. Goodwill of the firm is to be valued at two years’ purchase of average profits of the last four years.
The profits of the firm during the last four years are given below
Table 2

The following additional information is given
(i) To cover management cost an annual charge of ₹ 56,250 should be made for the purpose of valuation of goodwill.
(ii) The closing stock for the year ended 31st March, 2017 was overvalued by ₹ 15,000.
Pass necessary journal entries on Raghav’s admission showing the working notes clearly. (CBSE 2018)
Answer:

Working Note:
Calculation of Adjusted Profit
2013- 14 3,50,000 – 56,250 = 2,93,750
2014- 15 4,75,000 – 56,250 = 4,18,750
2015- 16 6,70,000 – 56,250 = 6,13,750
2016- 17 7,45,000 – 56,250 – 15,000 = 6,73,750
Total profit =2,93,750 + 4,18,750 + 613,750 + 6,73,750 = ₹ 20,00,000
Average profit = \(\frac { 20,00,000 }{ 4 }\) = ₹ 5,00,000
Goodwill = Average Profit × Number of Years’ Purchase
= 5,00,000 × 2 = ₹ 10,00,000
Raghav’s share of goodwill =10,00,000 × \(\frac { 1 }{ 4 }\) = ₹ 2,50,000 to be shared by Asha and Aditi in 3 : 2 ratio.

Question 33.
Madhu and Neha were partners in a firm sharing profits and losses in the ratio of 3 : 5. Their fixed capitals were f 4,00,000 and ₹ 6,00,000 respectively. On 1st January, 2016. Tina was admitted as a new partner for \(\frac { 1 }{ 4 }\)th share in the profits. Tina acquired her share of profit from Neha. Tina brought ₹ 4,00,000 as her capital which was to be kept fixed like the capitals of Madhu and Neha. Calculate the goodwill of the firm on Tina’s admission and the new profit sharing ratio of Madhu, Neha and Tina. Also, pass necessary journal entry for the treatment of goodwill on Tina’s admission considering that Tina did not bring her share of goodwill premium in cash. (All India 2017)
Answer:

Calculation of New Profit Sharing Ratio:
Madhu’s share = \(\frac { 3 }{ 8 }\)(same as before)
Neha s share = \(\frac{5}{8}-\frac{1}{4}=\frac{5-2}{8}=\frac{3}{8}\)
Tina’s share = \(\frac{1}{4} \times \frac{2}{2}=\frac{2}{8}\)
New profit sharing ratio of Madhu : Neha : Tina = 3 : 3 : 2
Calculation of Goodwill of the Firm on Tina’s Admission

Working Notes:
1. Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Share – New Share
Madhu = \(\frac{3}{8}-\frac{3}{8}=\frac{3-3}{8}\) = Nil; Neha = \(\frac{5}{8}-\frac{3}{8}=\frac{5-3}{8}=\frac{2}{8}\)
Tina’s share of goodwill 2,00,000 × \(\frac { 1 }{ 4 }\) = ₹ 50,000

Question 34.
Karan and Varun were partners in a firm sharing profits and losses in the ratio of 1 : 2. Their fixed capitals were ₹ 2,00,000 and ₹ 3,00,000 respectively. On 1st April, 2016, Kishore was admitted as a new partner for \(\frac { 1 }{ 4 }\)th share in the profits. Kishore brought ₹ 2,00,000 for his capital which was to be kept fixed like the capitals of Karan and Varun. Kishore acquired his share of profit from Varun.
Calculate goodwill of the firm on Kishore’s admission and the new profit sharing ratio of Karan, Varun and Kishore. Also, pass necessary journal entry for the treatment of goodwill on Kishore’s admission considering that Kishore did not bring his share of goodwill premium in cash. (Delhi 2017)
Answer:
Solve as Q no. 12 on page 107.
Hidden goodwill = ₹ 1,00,000
New profit sharing ratio of Karan : Varun : Kishore =4 : 5 : 3
Debit Kishore’s current account with ₹ 25,000 and credit Vanin’s current account with ₹ 25,000.

Question 35.
Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3 : 1. Goodwill appeared in the books at ₹ 4,40,000. Raja was admitted to the partnership. The new profit sharing ratio among Anu, Bhagwan and Raja was 2 : 2 : 1. Raja brought ₹ 1,00,000 for his capital and necessary cash for his goodwill premium. The goodwill of the firm was valued at ₹ 2,50,000. Record the necessary journal entries in the books of the firm for the above transactions. (All India 2015)
Answer:

Working Note:
Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Share – New Share
Anu = \(\frac{3}{4}-\frac{2}{5}=\frac{15-8}{20}=\frac{7}{20}\)
Bhagwan = \(\frac{1}{4}-\frac{2}{5}=\frac{5-8}{20}=\left(\frac{3}{20}\right)\) gain
Since Bhagwan is gaining, he will also compensate Anu proportionately.
Bhagwan will compensate = 2,50,000 × \(\frac { 3 }{ 20 }\) = ₹ 37,500

Question 36.
Hemant and Nishant were partners in a firm sharing profits in the ratio of 3 : 2. Their capitals were ₹ 1,60,000 and ₹ 1,00,000 respectively. They admitted Somesh on 1st April,
2013 as a new partner for \(\frac { 1 }{ 5 }\)th share in the future profits. Somesh brought f 1,20,000 as his capital. Calculate the value of goodwill of the firm and record necessary journal entries for the above transactions on Somesh’s admission. (All India 2014)
Answer:
Solve as Q no. 12 on page 107.
Debit Somesh’s capital account with ₹ 44,000 and credit Hemant’s and Nishant’s capital accounts with ₹ 26,400 and ₹ 17,600 respectively; Hidden goodwill = ₹ 220000

Question 37.
Saloni and Shrishti were partners in a firm sharing profits in the ratio of 7 : 3. Their capitals were ₹ 2,00,000 and ₹ 1,50,000 respectively. They admitted Aditi on 1st April, 2013 as a new partner for 1/6th share in future profits. Aditi brought ₹ 1,00,000 as her capital. Calculate the value of goodwill of the firm and record necessary journal entries for the above transaction on Aditi’s admission. (Delhi 2014)
Answer:
Solve as Q no. 12 on page 107.
Hidden goodwill = ₹ 1,50,000
Debit Aditi’s capital account with ₹ 25,000 and credit Saloni’s capital account and Shrishti’s capital account with ₹ 17,500 and ₹ 7,500 respectively.

Question 38.
Asin and Shreya are partners in a firm. They admit Ajay as a new partner with 1/5th share in the profits of the firm. Ajay brings ₹ 5,00,000 as his share of capital. The value of the total assets of the firm was ₹ 15,00,000 and outside liabilities were valued at ₹ 5,00,000 on that date. Give the necessary journal entry to record goodwill at the time of Ajay’s admission. Also, show your workings. (All India 2013)
Answer:

Working Note:
1. Calculation of Ajay’s Share of Goodwill
(a) New firm’s capital on the basis of Ajay’s capital and his profit share = 5,00,000 x \(\frac { 5 }{ 1 }\) = ₹ 25,00,000

(b) Adjusted Capital of Old Partners = Assets – Liabilities

Value of hidden goodwill (a – b) = 25,00,000 – 15,00,000 = ₹ 10,00,000
Ajay’s share = 10,00,000 x \(\frac { 1 }{ 5 }\) = ₹ 2,00,000

2. Sacrificing ratio has been taken as equal as old partners’ profit sharing ratio is not given.

Question 39.
Abhay and Beena are partners in a firm. They admit Chetan as a partner with 1/4th share in the profits of the firm. Chetan brings ₹ 2,00,000 as his share of capital. The value of the total assets of the firm is ₹ 5,40,000 and outside liabilities are valued at ₹ 1,00,000 on that date. Give the necessary entry to record goodwill at the time of Chetan’s admission. Also show your working notes. (Delhi 2013)
Answer:
Solve as Q no. 17 on page 109.
Hidden goodwill = ₹ 1,60,000
Debit Chetan’s capital account with ₹ 40,000 and credit Abhay and Beena’s capital account with ₹ 20,000 respectively.

Question 40.
Geeta, Sunita and Anita were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 1st January, 2015 they admitted Yogita as a new partner for 1/10th share in the profits. On Yogita’s admission, the profit and loss account of the firm was showing a debit balance of ₹ 20,000 which was credited by the accountant of the firm to the capital accounts of Geeta, Sunita and Anita in their profit sharing ratio. Did the accountant give correct treatment? Give reason in support of your answer. (All India 2015)
Answer:
No, the accountant has done wrong treatment. The correct treatment would be as under

Question 41.
When a new partner is admitted, the balance of general reserve appearing in the balance sheet at the time of admission is credited to which account? (All India (C) 2015)
Answer:
The balance of general reserve appearing in the balance sheet at the time of admission is credited to capital accounts of old partners.

Question 42.
Why are assets and liabilities revalued at the time of admission of a partner? (Delhi (C) 2014)
Answer:
Assets and liabilities are revalued at the time of admission of a partner, so that profit or loss arising on account of revaluation, may be adjusted among old partners in their old profit sharing ratio, since it belongs to them.

Question 43.
Chander and Damini were partners in a firm sharing profits and losses equally. On 31st March, 2017 their balance sheet was as follows

On 1st April, 2017, they admitted Elina as a new partner for \(\frac { 1 }{ 3 }\)rd share in the profits on the following conditions.
(i) Elina will bring ₹ 3,00,000 as her capital and ₹ 50,000 as her share of goodwill premium, half of which will be withdrawn by Chander and Damini.
(ii) Debtors to the extent of ₹ 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, a liability to the extent of ₹ 8,000 will be created for the same.
Prepare revaluation account and partners’ capital accounts, (CBSE 2018)
Answer:

Working Notes
1. Provision for Doubtful Debts = (45,000 + 80,000) × \(\frac { 5 }{ 100 }\) = ₹ 6,250

Question 44.
Krishna and Suresh were partners in a firm sharing profits in the ratio of 3 : 1. On 1st April, 2015 they admitted Rahul as a new partner for 1/5th share in profits of the firm. On the date of Rahul’s admission, the balance sheet of Krishna and Suresh showed a general reserve of ₹ 1,20,000, a debit balance of ₹ 60,000 in profit and loss account and workmen compensation fund of ₹ 1,50,000. The following was agreed upon on Rahul’s admission
(i) Rahul will bring ₹ 150,000 as his capital and his share of goodwill premium in cash.
(ii) Goodwill of the firm be valued at ₹ 2,40,000.
(iii) There was a claim of workmen compensation for ₹ 1,70,000.
(iv) The partners decided to share future profits in the ratio of 3 : 1 : 1.
Pass the necessary journal entries for the above on Rahul’s admission. (All India (C) 2016)
Answer:

Working Note:
Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Share – New Share
Krishna = \(\frac{3}{4}-\frac{3}{5}=\frac{15-12}{20}=\frac{3}{20}\)
Suresh = \(\frac{1}{4}-\frac{1}{5}=\frac{5-4}{20}=\frac{1}{20}\)
Sacrificing ratio = 3 : 1

Question 45.
Anil and Beena were partners in a firm sharing profits in the ratio of 4 : 3.
On 1st April, 2015 they admitted Chahat as a new partner for 1/4th share in the profits of the firm. On the date of Chahat’s admission, the balance sheet of Anil and Beena showed a general reserve of ₹ 70,000, a debit balance of ₹ 7,000 in the profit and loss account and an investment fluctuation fund of ₹ 10,000.
The following was agreed upon, on Chahat’s admission
(i) Chahat will bring ₹ 80,000 as her capital and her share of goodwill premium of ₹ 21,000 in cash.
(ii) The market value of investments was ₹ 17,000 less than the book value.
(iii) New profit sharing ratio was agreed at 2 : 1: 1.
Pass the necessary journal entries for the above on Chahat’s admission. (Delhi (C) 2016)
Answer:
Solve as Q no. 5 on page 113 and 114.
Hint: Treatment of investment fluctuation fund will be same as treatment of workmen compensation fund in Q no. 5.

Question 46.
C and D are partners in a firm sharing profits in the ratio of 4 : 1. On 31st March, 2016, their balance sheet was as follows

On the above date, E was admitted for \(\frac { 1 }{ 4 }\) th share in the profits on the following terms
(i) E will bring ₹ 1,00,000 as his capital and ₹ 20,000 for his share of goodwill premium, half of which will be withdrawn by C and D.
(ii) Debtors ₹ 2,000 will be written off as bad debts and a provision of 4% will be created on debtors for bad and doubtful debts.
(iii) Stock will be reduced by ₹ 2,000, furniture will be depreciated by ₹ 4,000 and 10%, depreciation will be charged on plant and machinery.
(iv) Investments ₹ 7,000 not shown in the balance sheet will be taken into account.
(v) There was an outstanding repairs bill of ₹ 2,300 which will be recorded in the books.
Pass necessary journal entries for the above transactions in the books of the firm on E’s admission. (All India 2017)
Answer:

Working Notes
1. Distribution of Goodwill in Sacrificing Ratio
C’s share = 20,000 x \(\frac { 4 }{ 5 }\) = ₹ 16,000 D’s share = 20,000 x \(\frac { 1 }{ 5 }\) = ₹ 4,000
NOTE It has been assumed that C and D sacrifice in ratio of 4:1 [equal to old profit sharing ratio].

2. Provision for Bad Debts

which will be adjusted against provision for bad debts

3. Loss on Revaluation
It can be ascertained by preparing revaluation account in the following manner

Question 47.
W and R are partners in a firm sharing profits in the ratio of 3 : 2. Their balance sheet as at 31st March, 2016 was as follows Delhi 2017

On the above date, C was admitted for \(\frac { 1 }{ 6 }\)th share in the profits on the following terms
(i) C will bring ₹ 30,000 as his capital and ₹ 10,000 for his share of goodwill premium, half of which will be withdrawn by W and R.
(ii) Debtors ₹ 1,500 will be written off as bad debts and a provision of 5% will be created for bad and doubtful debts.
(iii) Outstanding salary will be paid-off.
(iv) Stock will be depreciated by 10%, furniture by ₹ 500 and plant and machinery by 8%.
(v) Investments ₹ 2,500 not mentioned in the balance sheet were to be taken into account.
(vi) A creditor of ₹ 2,100 not recorded in the books was to be taken into account. Pass necessary journal entries for the above transactions in the books of the firm oft C’s admission. (Delhi 2017)
Answer:

Working Notes
1. Distribution of Goodwill in Sacrificing Ratio
W’s share = 10,000 x \(\frac { 3 }{ 5 }\) = ₹ 6,000
R’s share =10,000 x \(\frac { 2 }{ 5 }\) = ₹ 4,000
NOTE It has been assumed that W and R sacrifice in ratio 3:2 [equal to old profit sharing ratio].

2. Provision for Bad and Doubtful Debts

3. Loss on Revaluation

Question 48.
W and R were partners in a firm sharing profits in the ratio of 3 : 2 respectively. On 31st March, 2013, their balance sheet was as follows

B was admitted as a new partner on the following conditions 4
(i) B will get \(\frac { 4 }{ 15 }\)th share of profits.
(ii) B had to bring ₹ 15,000 as his capital.
(iii) B would pay cash for his share of goodwill based on 2.5 years purchase of average profit of last 4 years.
(iv) The profits of the firm for the years ending 31st March, 2010, 2011, 2012 and 2013 were ₹ 10,000, ₹ 7,000 , ₹ 8,500 and ₹ 7,500 respectively.
(v) Stock was valued at ₹ 10,000 and provision for doubtful debts was raised up to ₹ 500.
(vi) Plant was revalued at ₹ 20,000.
Prepare revaluation account, partners’ capital account and the balance sheet of the new firm. (All India (C) 2014)
Answer:

Working Note:
Average profit = \(\frac{10,000+7,000+8,500+7,500}{4}\) = ₹ 8,250
Goodwill = Average Profit x Number of Years’ Purchase
= 8,250 x 2.5
= ₹ 20,625
B’s share = 20,625 x \(\frac { 4 }{ 15 }\) = ₹ 5,500 which will be distributed among W and R in their sacrificing ratio, i.e. 3 : 2.

Question 49.
Murari and Vohra were partners in a firm with capitals of ₹ 1,20,000 and ₹ 1,60,000 respectively. On 1st April, 2010 they admitted Yadav as a partner for l/4th share in profits on his payment of ₹ 2,00,000 as his capital and ₹ 90,000 for his 1/4th share of goodwill. On that date, the creditors of Murari and Vohra were ₹ 60,000 and bank overdraft was ₹ 15,000. Their assets apart from cash included stock ₹ 10,000; debtors ₹ 40,000; plant and machinery ₹ 80,000; land and building ₹ 2,00,000. It was agreed that stock should be depreciated by ₹ 2,000; plant and machinery by 20%, ₹ 5,000 should be written-off as bad debts and land and building should be appreciated by 25%.
Prepare revaluation account, capital accounts of Murari, Vohra and Yadav and the balance sheet of the new firm. (All India 2011)
Answer:

Working Notes:

Question 50.
Abha and Bimal are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2015 they admitted Chintu into partnership for 1/5th share in the profits of the firm. On that date their balance sheet stood as under

Chintu was admitted on the following terms
(i) He will bring ₹ 80,000 as capital and ₹ 30,000 for his share of goodwill premium.
(ii) Partners will share future profits in the ratio of 5 : 3 : 2.
(iii) Profit on revaluation of assets and reassessment of liabilities was ₹ 7,000.
(iv) After making adjustments, the capital accounts of the partners will be in proportion to Chintu’s capital. Balance to be paid off or brought in by the old partners by cheque as the case may be.
Prepare the capital accounts of the partners and bank account. (All India (C) 2016)
Answer:

Working Notes
1. Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Share – New Share
Abha = \(\frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10}\), Bimal = \(\frac{2}{5}-\frac{3}{10}=\frac{4-3}{10}=\frac{1}{10}\)
Sacrificing ratio = 1 : 1

2. Calculation of New Capitals
Chintu’s share = \(\frac { 1 }{ 5 }\)
Capital brought in by Chintu for \(\frac { 1 }{ 5 }\)th share = ₹ 80,000
Finn’s capital = 80,000 x \(\frac { 5 }{ 1 }\) = ₹ 4,00,000
Abha’s capital = 4,00,000 x \(\frac { 5 }{ 10 }\) = ₹ 2,00,000
Banal’s capital = 4,00,000 x \(\frac { 3 }{ 10 }\) = ₹ 1,20,000
Chintu’s capital = 4,00,000 x \(\frac { 2 }{ 10 }\) = ₹ 1,20,000

Question 51.
Angad, Baloo and Chitra were partners in a firm sharing profits and losses in the ratio of 6:5:3. Their balance sheet as at 31st March, 2015 was as follows

They agreed to admit Dinesh into partnership and give him 1/8th share in the profits on the following terms
(i) Dinesh will bring ₹ 1,47,000 as his capital and ₹ 1,40,700 as his share of goodwill premium.
(ii) That after making adjustments, the capital accounts of the old partners will be in proportion of Dinesh’s capital to his share in the business i.e., actual cash to be paid-off or brought in by the old partners by cheque as the case may be.
Prepare partners’ capital account and bank account considering that gain on revaluation was ₹ 95,200. (Delhi (C) 2016)
Answer:
Solve as Q no. 1 on page 124 and 125.
Balance in Farmers’ Capital A/c : Angad = ₹ 4,41,000; Baloo = ₹ 3,67,500; Chitra = ₹ 2,20,500 and Dinesh = ₹ 1,47,000
Chitra brings ₹ 1,950, Angad and Baloo withdraw ₹ 59,100 and ₹ 52,750 respectively.
Balance of Bank Account =₹ 1,96,700

Question 52.
Sanjana and Alok were partners in a firm sharing profits and losses in the ratio 3:2. On 31st March, 2018, their balance sheet was as follows:

On 1st April, 2018, they admitted Nidhi as a new partner for 1 /4th share in the profits on the following terms
(i) Goodwill of the firm was valued at ₹ 4,00,000 and Nidhi brought the necessary amount in cash for her share of goodwill premium, half of which was withdrawn by the old partners.
(ii) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(iii) Investments were to be value at ₹ 3,00,000. Alok took over investment at this value.
(iv) Nidhi brought ₹ 3,00,000 a her capital and the capitals of Sanjana and Alok were adjusted in the new profit sharing ratio.
Prepare revaluation account, partners’ capital accounts and the balance sheet of the reconstituted firm on Nidhi’s admission. (Delhi 2019)
Answer:

Working Notes
1. Firm’s goodwill = ₹ 4,00,000
Nidhi’s share of goodwill = 4,00,000 x \(\frac { 1 }{ 4 }\) = ₹ 1,00,000 to be distributed among Sanjana and Alok in sacrificing ratio.

2. Sanjana’s capital after adjustment = ₹ 5,90,000
Alok’s capital after adjustment = ₹ 1,60,000
= ₹ 7,50,000
to be in profit sharing ratio
Sanjana = 7,50,000 x \(\frac { 3 }{ 5 }\) = 4,50,000 – 5,90,000 = ₹ 1,40,000 cash withdrew
Alok = 7,50,000 x \(\frac { 2 }{ 5 }\) = 3,00,000 – 1,60,000 = ₹ 1,40,000 cash brought in

Question 53.
A and B were partners sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2018, was as follows

C was admitted as a new partner and brought ₹ 64,000 as capital and ₹ 15,000 for his share of goodwill premium. The new profit sharing ratio was 5 : 3 : 2.
On C’s admission, the following was agreed upon
(i) Stock was to be depreciated by 5%.
(it) Provision for doubtful debts was to be made at ₹ 2,000.
(iii) Furniture was to be depreciated by 10%.
(iv) Building was valued at ₹ 1,60,000.
(v) Capitals of A and B were to be adjusted on the basis of C’s capital by bringing or paying of cash as the case may be.
Prepare revaluation account, partners’ capital accounts and the balance sheet of reconstituted firm. (All India 2019)
Answer:
Working Notes:
1. Calculation of Sacrificing Ratio
A sacrifice = \(\frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10}\); B sacrifice = \(\frac{2}{5}-\frac{3}{10}=\frac{4-3}{10}=\frac{1}{10}\)
Sacrificing ratio = 1 : 1

2. \(\frac { 2 }{ 10 }\)th share capital = ₹ 64,000
Firm’s capital = 64,000 x \(\frac { 10 }{ 2 }\) = ₹ 3,20,000
A’s new capital = 3,20,000 × \(\frac { 5 }{ 10 }\) = ₹ 1,60,000
B’s new capital = 3,20,000 × \(\frac { 3 }{ 10 }\) = ₹ 96,000

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We have given these Accountancy Class 12 Important Questions and Answers Chapter 5 Dissolution of a Partnership Firm to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 5 Dissolution of a Partnership Firm Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Dissolution of a Partnership Firm Important Questions Class 12 Accountancy Chapter 5

Question 1.
Differentiate between ‘Dissolution of partnership’ and ‘Dissolution of partnership firm’ on the basis of ‘Court’s intervention’. (Delhi 2019; All India 2014)
Answer:
Difference between dissolution of partnership firm and dissolution of partnership is:

Question 2.
Distinguish between “Dissolution of partnership’ and ‘Dissolution of parthership firm’ on the basis of’Settlement of assets and liabilities’. (All India 2019; CBSE 2018)
Answer:
Difference between dissolution of partnership firm and dissolution of partnership is

Question 3.
State any two grounds on the basis of which court may order for the dissolution of partnership firm. (All india 2019)
Answer:
Court may order for the dissolution of partnership firm when

• A partner becomes a person of unsound mind.
• A partner is found guilty of misconduct.

Question 4.
State any two situations when a partnership firm may be compulsorily dissolved. (All India: Delhi 2019)
Or
Identify a situation for compulsory dissolution of a partnership firm. (All India 2014)
Answer:
Situations when a partnership firm may be compulsorily dissolved are

• On insolvency of partners.
• On business becoming illegal (unlawful).

Question 5.
State any two contingencies that may result into dissolution of a partnership firm. (Delhi 2019)
Answer:
State any two contingencies that may result into dissolution of partnership firm

• on death of a partner.
• completion of worlf.

Question 6.
A, B and C were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 31st March, 2018 their firm was dissolved. On that date provision for bad debts showed a balance of ₹ 4,500.
Pass necessary journal entry for the treatment of provision for bad debts on the firm’s dissolution. (All India 2019)

Question 7.
Pass the necessary journal entry for treatment of Partners’ loan appearing on the asset side of the balance sheet in case of dissolution of a partnership firm. (All India 2019; Compartment 2018)
Answer:
Partner’s loan a/c Dr
To cash Bamk a/c

Question 8.
B, C and D were partners in a firm sharing profits and losses in the ratio of 1: 4 : 5. On 31st March, 2018 the firm was dissolved and on that date the balance sheet of the firm showed a loan of? 10,000 given by C’s brother F. C agreed to pay his brother’s loan. Pass necessary journal entry for the above on the firm’s dissolution. (All india 2019)
Answer:

Question 9.
Distinguish between ‘Reconstitution of partnership’ and ‘Dissolution of partnership firm’ on the basis of ‘Closure of books.’ (All Indio 2019)
Or
Distinguish between ‘Dissolution of partnership’ and ‘Dissolution of partnership firm’ on the basis of ‘Closure of books’ Delhi 2014
Answer:
Difference between dissolution of partnership firm and dissolution of partnership is

Question 10.
Distinguish between ‘Dissolution of partnership’ and “Dissolution of partnership firm’ on the basis of‘Economic relationship’. (Delhi: All India 2016)
Answer:
Difference between dissolution of partnership and dissolution of partnership firm is

Question 11.
Identify a situation, under which court may order for dissolution of a partnership firm. (All India (C) 2014)
Answer:
A court may order for dissolution of a partnership firm on insanity of a partner.

Question 12.
Name the asset that is not transferred to the debit side of realisation account, but brings certain amount of cash against its disposal at the time of dissolution of the firm. (Delhi 2014)
Answes:
Unrecorded asset

Question 13.
Name the liability which is not shown in the balance sheet, but paid at the time of dissolution of the firm. (Delhi (C) 2014)
Answer:
Unrecorded liability

Question 14.
When an asset is taken over by a partner, why is his capital account debited? (Delhi 2012)
Answer:
When an asset is taken over by a partner, his capital account is debited because the Partners’ claim over the firm is decreased by the amount of asset taken over by him, thus his capital account is decreased.

Question 15.
When a liability is to be discharged by a partner, why is his capital account credited? (All India (C) 2011)
Answer:
When a liability is to be discharged by a partner, his capital account is credited because the Partners’ claim is increased over the firm by the amount of liability discharged by him, thus his capital account is increased.

Question 16.
In case of dissolution of a firm, which liabilities are to be paid first? (Delhi to 2011)
Answer:
According to Section 48 (b), the debts of the firm to the third parties are to be paid first.

Question 17.
In case of dissolution of a firm, which item on the liabilities side is to be paid last? (Delhi (C) 2011)
Answer:
According to Section 48 (b), in case of dissolution of a firm, partners’ capital is paid at last after all external liabilities are paid and all profits and losses are adjusted in capital account.

Question 18.
A and B are partners in a firm sharing profits in the ratio of 3 : 2. Mrs A has given a loan of ₹ 20,000 to the firm and the firm also obtained a loan of ₹ 10,000 from B. The firm was dissolved and its assets were realised for ₹ 25,000. State the order of payment of Mrs A’s loan and B’s loan with reason, if there were no creditor of the firm. (Delhi (C) 2010)
Answer:
According to Section 48 of the Indian Partnership Act, 1932, first of all the payment of ₹ 20,000 will be made for Mrs A’s loan as she is an outsider, then remaining ₹ 5,000 will be paid to B against his loan of ₹ 10,000.

Question 19.
J, K and L were partners in a firm sharing profits in the ratio of 4 : 5 : 1. On 31st March, 2018 their firm was dissolved. On this date the, balance sheet showed a balance of
₹ 1,34,000 in debtors account and a balance of ₹ 14,000 in provision for bad debts account. Both the accounts were closed by transferring their balances to realisation account. ₹ 4,000 of the debtors became bad and nothing could be realised from them on dissolution. K agreed to look after the dissolution work for which he was allowed a remuneration of 116,000. K also agreed to bear dissolution expenses for which he was allowed a lumpsum payment of ₹ 4,000. Actual dissolution expenses were ₹ 6,500 and the same were paid from the firm’s cash. Less on dissolution amounted to ₹ 37,000.
Pass necessary journal entries for the above transactions in the books of tlie firm on its dissolution. (All India 2019)
Answer:

Question 20.
The firm of Manjeet, Sujeet and Jagjeet was dissolved on 31st March, 2018. It was agreed that Sujeet will take care of the dissolution related activities and will get 10% of the value of assets realised, Sujeet agreed to bear the realisation expenses. Assets realised ₹ 10,00,750 and realisation expensed were ₹ 90,000, which were paid from the firm’s cash. ₹ 4,50,000 were paid to the creditors in full settlement of their claim.
Pass necessary journal entries for the above transactions in the books of the firm. (All India 2019)
Answer:

Question 21.
Jain, Sharma and Verma were partners in a firm sharing profits in the ratio of 1 : 2 : 1. On 31st March, 2018 their firm was dissolved. It was agreed that Sharma will look after the dissolution work and will be paid ₹ 15,000 as remuneration. The dissolution expenses were ₹ 5,000. ₹ 2,84,000 were paid to the creditors in full settlement of their claim of ₹ 3,00,000. Dissolution of the firm resulted into a loss of ₹ 18,000. Pass necessary journal entries for the above transactions. (All India 2019)
Answer:

Question 22.
Ravi, Shankar and Madhur were partner in a firm sharing profits in the ratio of 7 : 2 : 1. On 31st March, 2018, the firm was dissolved, after transferring sundry assets (other than cash in hand and cash at bank) and third party liabilities in the realisation accounts the following transactions took place
(i) Debtors amounting to ₹ 1,40,000 were handed over to a debt collection agency which charged 5% commision. The remaining debtors were ₹ 47,000 out of which debtors of ₹ 17,000 could not be recovered because the same become insolvent.
(ii) Creditors amounting to ₹ 5,000 were paid ₹ 3,500 in full settlement of their claim and balance creditors were handed over stock of ₹ 90,000 in full settlement of their claim of ₹ 95,000.
(iii) A bills receivable ₹ 2,000 discounted with the bank was dishonoured by its acceptor and the same had to be met by the firm.
(iv) Profit on realisation amounted to ₹ 6,000. Pass necessary journal entries for the above transactions in the books of Ravi, Shankar and Madhur. (Delhi 2019)
Answer:

Question 23.
Gaurav, Saurabh and Vaibhav were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. They decided to dissolve the firm on 31st March, 2018. After transferring sundry assets (other than cash in hand and cash at bank) and third party liabilities to realisation account, the assets were realised and liabilities were paid-off as follows
(i) A machinery with a book value of ₹ 6,00,000 was taken over by Gaurav at 50% and stock worth ₹ 5,000 was taken over by a creditor of ₹ 9,000 in full settlement of his claim.
(ii) Land and building (book value ₹ 3,00,000) was sold for ₹ 4,00,000 through a broker who charged 2% commission.
(iii) The remaining creditors were paid ₹ 76,000 in full settlement of their claim and the remaining assets were taken over by Vaibhav for ₹ 17,000.
(iv) Bank loan of? 3,00,000 was paid alongwith interest of ₹ 21,000.
Pass necessary journal entries for the above transactions in the books of the firm. (Delhi 2019)
Answer:

Question 24.
Ankit, Bobby and Kartik were partners in a firm sharing profits in the ratio 4 : 3 : 3. The firm was dissolved on 31-3-2018. Pass the necessary journal entries for the following transactions after various assets (other than cash and bank) and third party liabilities had been transferred to realisation account
(i) The firm had stock of ₹ 80,000. Ankit took over 50% of the stock at a discount of 20% while the remaining stock was sold off at a profit of 30% on cost.
(ii) A liability under a suit for damages included in creditors was settled at ₹ 32,000 as against only ₹ 13,000 provided in the books. Total creditors of the firm were ₹ 50,000.
(iii) Bobby’s sister’s loan of ₹ 20,000 was paid-off alongwith interest of ₹ 2,000.
(iv) Kartik’s loan of ₹ 12,000 was settled at ₹ 12.500.Delhi 2019
Answer:

Working Note:

Question 25.
A, B and C were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their balance Sheet as at 31st March, 2018 was as follows

On the above date, they dissolved the firm and following amounts were realised:
Fixed Assets ₹ 6,75,000; Stock ₹ 3,39,000; Debtors ₹ 1,35,000; Creditors were paid ₹ 1,85,000 in full settlement of their claim. Expanses on realisation amounted to ₹ 19,000.
Pass the necessary journal entries on the dissolution of the firm. (All India 2019)
Answer:

Question 26.
Ashish and Kanav were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2018 their balance sheet was as follows

On the above date, they decided to dissolve the firm.
(i) Ashish agreed to take over funriture at ₹ 38,000 and pay-off Mrs Ashish’s loan.
(ii) Debtors realised ₹ 18,500 and plant realised 10% more.
(iii) Kanav took over 40% of the stock at 20% less than the book value. Remaining stock was sold at a gain of 10%.
(iv) Trade creditors took over investments in full settlement.
(v) Kanav agreed to take over the responsibility of completing dissolution at an agreed remuneration of ₹ 12,000 and to bear realisation expenses. Actual expenses of realisation amounted to ₹ 8,000.
Prepare realisation account. (All India 2019)
Answer:

Working Notes:

Question 27.
Girija and Ganesh were partners in a firm sharing profits and losses in the ratio of 2 : 3. On 31st March, 2018 their balance sheet was as follows

On the above date, the firm was dissolved. The assets were realised and the liabilities were paid-off as follows
(i) Debtors of ₹ 6,000 were proved bad.
(ii) Girija agreed to pay-off her brother’s loan.
(iii) One of the creditors for ₹ 10,000 was paid only ₹ 3,000 in full settlement of his account.
(iv) Buildings were auctioned for ₹ 1,80,000 and the auctioneer’s commission amounted to ₹ 1,80,000 and the auctioneer’s commission amounted to ₹ 8,000.
(v) Ganesh took over part of stock at ₹ 4,000 (being 20% less than the book value). Balance of the stock was handed over to the remaining creditors in full settlement of their account.
(vi) Investments realised ₹ 9,000 less.
(vii) Realisation expenses amounted to ₹ 17,000 and were paid by Ganesh.
Prepare realisation account, partners’ capital accounts and bank account. (compartment 2018)
Answer:
Solve as Q. no. 46 on page 261 and 262.
Loss on Realisation-Girija = ₹ 36,000
Ganesh = ₹ 54,000
Parmer’s Capital A/c-Cash paid to Girija = ₹ 1,87,000
Cash paid to Ganesh = ₹ 53,000
Bank A/c- ₹ 3,21,000

Question 28.
Pass necessary journal entries on the dissolution of a partnership firm in the following cases
(i) Dissolution expenses were ₹ 800.
(ii) Dissolution expenses ₹ 800 were paid by Prabhu, a partner.
(iii) Geeta, a partner, was appointed to look after the dissolution work, for which she was allowed a remuneration of ₹ 10,000. Geeta agreed to bear the dissolution expenses. Actual dissolution expenses ₹ 9,500 were paid by Geeta.
(iv) Janki, a partner, agreed to look after the dissolution work for a commission of ₹ 5,000. Janki agreed to bear the dissolution expenses. Actual dissolution expenses ₹ 5,500 were paid by Mohan, another partner, on behalf of Janki.
(v) A partner, Kavita, agreed to look after the dissolution process for a commission of ₹ 9,000. She also agreed to bear the dissolution expenses. Kavita took over furniture of ₹ 9,000 for her commission. Furniture had already been transferred to realisation account.
(vi) A debtor, Ravinder, for ₹ 19,000 agreed to pay the dissolution expenses which were ₹ 18,000 in full settlement of his debt. (All India 2017)
Answer:

Question 29.
Pass necessary journal entries on the dissolution of a partnership firm in the following cases
(i) L, a partner, was appointed to look after the dissolution process for which he was given a remuneration of ₹ 10,000.
(ii) Dissolution expenses ₹ 8,000 were paid by the partner M.
(iii) Dissolution expenses were ₹ 5,000.
(iv) P, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of ₹ 7,000. P agreed to bear the dissolution expenses. Actual dissolution expenses ₹ 4,000 were paid by P.
(v) N, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of ₹ 9,000. N agreed to bear the dissolution expenses. Actual
dissolution expenses ₹ 4,000 were paid by the firm.
(vi) Q, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of ₹ 18,000. Q agreed to take over stock worth ₹ 18,000 as his remuneration. The stock had already been transferred to realisation account. (Delhi 2017)
Ans.
For points (ii), (in), (iv) and (vi). Solve as Q no. 28 on page 240.

Question 30.
Lai and Pal were partners in a firm sharing profits in the ratio of 3 : 7. On 1st April, 2015, their firm was dissolved. After transferring assets (other than cash) and outsider’s liabilities to realisation account, you are given the following information.
(i) A creditor of ₹ 3,60,000 accepted machinery valued at ₹ 5,00,000 and paid to the firm ₹ 1,40,000.
(ii) A second creditor for ₹ 50,000 accepted stock at ₹ 45,000 in full settlement of his claim.
(iii) A third creditor amounting to ₹ 90,000 accepted ₹ 45,000 in cash and investments worth ₹ 43,000 in full settlement of his claim.
(iv) Loss on dissolution was ₹ 15,000.
Pass necessary journal entries for the above transactions in the books of firm assuming that all payments were made by cheque. (All India 2016)
Answer:

Question 31.
L and M were partners in a firm sharing profits in the ratio of 2 : 3. On 28th February, 2016, the firm was dissolved. After transferring assets (other than cash) and outsiders’ liabilities to realisation account you are given the following information.
(i) A creditor for ₹ 1,40,000 accepted building valued at ₹ 1,80,000 and paid to the firm ₹ 40,000.
(ii) A second creditor for ₹ 30,000 accepted machinery valued at ₹ 28,000 in full settlement of his claim.
(iii) A third creditor amounting to ₹ 70,000 accepted ₹ 30,000 in cash and investments of the book value of ₹ 45,000 in full settlement of his claim.
(iv) Loss on dissolution was ₹ 4,000.
Pass necessary journal entries for the above transactions in the books of the firm assuming that all payments were made by cheque. (Delhi 2016)
Answer:
Solve as Q no. 28 on page 240.

Question 32.
Mala, Neela and Kala were partners sharing profits in the ratio of 3 : 2 : 1. On 1st March, 2015, their firm was dissolved. The assets were realised and liabilities were paid-off. The accountant prepared realisation account, partners’ capital account and cash account, but forgot to post few amounts in these accounts.
You are required to complete these below given accounts by posting correct amounts.

Answer:

Question 33.
Bora, Singh and Ibrahim were partners in a firm sharing profits in the ratio 5 : 3 : 1. On 2nd March, 2015, their firm was dissolved. The assets were realised and the liabilities were paid-off. Given below are the realisation account, partners’ capital accounts and bank account of the firm. The accountant of the firm left a few amounts unposted in these accounts. You are required to complete these accounts by posting the correct amounts.

Answer:
Solve as Q no. 32 on page 242 and 243.
Loss on Realisation : Bora = ₹ 5,000, Singh = ₹ 3,000, Ibrahim = ₹ 1,000; Total of Bank Account = ₹ 80,920.

Question 34.
Bhuvan, Suraj and Ibrahim were partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 30th June, 2014, they decided to dissolve the firm. Following was the balance sheet of the firm on that date.

The assets were realised and the liabilities were paid-off as follows
(i) Investments were taken over by Bhuvan for ₹ 18,000.
(ii) Stock was taken over by Suraj for ₹ 17,500 and furniture was taken over by Ibrahim at book value.
(iii) ₹ 60,500 were realised from the debtors.
(iv) Creditors were settled in full and realisation expenses were ₹ 4,500.
Prepare realisation account, cash account and partners’ capital accounts. (All Indio (C) 2015)
Answer:

Question 35.
Parth and Shivika were partners in a firm sharing profits in the ratio of 3 : 2. The balance sheet of the firm on 31st March, 2014, was as follows

On the above date, the firm was dissolved. The assets were realised and the liabilities were paid-off as follows
(i) 50% of the furniture was taken over by Parth at 20% less than book value. The remaining furniture was sold for ₹ 1,05,000.
(ii) Debtors realised ₹ 26,000.
(iii) Stock was taken over by Shivika for ₹ 29,000.
(iv) Shivika’s sister’s loan was paid-off alongwith an interest of ₹ 2,000.
(a) Expenses on realisation amounted to ₹ 5,000.
Prepare realisation account, partners’ capital accounts and bank account. (Delhi 2015)
Answer:

Question 36.
Hanif and Jubed 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
(i) Debtors were realised at a discount of 5%. 50% of the stock was taken over by Hanif at 10% less than the book value. Remaining stock was sold for ₹ 65,000.
(ii) Furniture was taken over by Jubed for ₹ 1,35,000. Machinery was sold as scrap for ₹ 74,000.
(iii) Creditors were paid in full.
(iv) Expenses on realisation ₹ 8,000 were paid by Hanif. Prepare realisation account. (All India 2014)
Answer:

Question 37.
Shanti and Satya were partners in a firm sharing profits in the ratio of 4 : 1. On 31st March, 2013, their balance sheet was as follows

On the above date, the firm was dissolved
(i) Shanti took over 40% of the stock at 10% less than its book value and the remaining stock was sold for ₹ 40,000. Furniture realised ₹ 80,000.
(ii) All unrecorded investment was sold for ₹ 20,000. Machinery was sold at a loss of ₹ 60,000.
(iii) Debtors realised ₹ 55,000.
(iv) There was an outstanding bill for repairs for which ₹ 19,000 were paid.
Prepare realisation account. (Delhi 2014)
Answer:

Question 38.
Verma and Sharma were partners sharing profits in the ratio of 3 : 1. On 31st March, 2011, their balance sheet was as follows

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows
(i) Creditors of ₹ 50,000 took over land and building in full settlement of their claim.
(ii) Remaining creditors were paid in cash.
(iii) Machinery was sold at a depreciation of 30%.
(iv) Debtors were collected at a cost of ₹ 500.
(v) Expenses on realisation were ₹ 1,700.
Pass necessary journal entries for dissolution of the firm. (Delhi 2012)
Answer:

3. No entry is required for adjustment (i), since creditors have accepted the asset (land and Building) in full and final settlement.

Question 39.
A and B were partners in a firm sharing profits in the ratio of 3 : 2. On 31st March, 2011, the balance sheet of the firm was as follows

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows
(i) Building was taken over by creditors as their full and final payment.
(ii) Furniture was taken over by B for cash payment at 5% less than the book value.
(iii) Debtors were collected by a debt collection agency at a cost of f5,000.
(iv) Stock realised ₹ 70,500.
(v) B agreed to bear all realisation expenses. For this service, B is paid ₹ 500. Actual expense on realisation amounted to ₹ 1,000.
Pass necessary journal entries for dissolution of the firm. (Delhi 2012)
Answer:

3. No entry is required for adjustment (i), since creditors have accepted the asset (Building) in full and final settlement.

Question 40.
Sanjay and Sameer were partners in a firm sharing profits in the ratio of 2 : 3. On 31st March, 2011, the balance sheet of the firm was as follows

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows
(i) Sanjay agrees to take over land and building at ₹ 3,50,000 by paying cash.
(ii) Stock was sold for ₹ 90,000.
(iii) Creditors accepted debtors in full settlement of their claim.
Pass necessary journal entries for dissolution of the firm. (All India 2012)
Answer:

3. No entry is required for adjustment (iii), since creditors have accepted debtors in full and final settlement

Question 41.
Achal and Vichal were partners in a firm sharing profits in the ratio of 3 : 5. On 31st March, 2011, their balance sheet was as follows

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows
(i) Land and building realised ₹ 4,30,000.
(ii) Debtors realised ₹ 2,25,000 (with interest) and ₹ 1,000 were recovered for bad debts written-off last year.
(iii) There was an unrecorded investment which was sold for ₹ 25,000.
(iv) Vichal took over machinery at ₹ 2,80,000 for cash.
(v) 50% of the creditors were paid ₹ 4,000 less in full settlement and the remaining creditors were paid full amount.
Pass necessary journal entries for dissolution of the firm. (All India 2012)
Answer:

Question 42.
Pass the necessary journal entries for the following transactions on the dissolution of the firm of P and Q after the various assets (other than cash) and outside liabilities have been transferred to realisation account.
(i) Bank loan ₹ 12,000 was paid.
(ii) Stock worth ₹ 16,000 was taken over by a partner Q.
(iii) Partner P paid a creditor ₹ 4,000.
(iv) An asset not appearing in the books of accounts realised ₹ 1,200.
(v) Expenses of realisation ₹ 2,000 were paid by partner Q.
(vi) Profit on realisation ₹ 36,000 was distributed between P and Q in 5 : 4 ratio. Delhi 2011
Answer:

Question 43.
Pass the necessary journal entries for the following transactions on the dissolution of the firm of James and Haider who were sharing profits and losses in the ratio of 2 : 1. The various assets (other than cash) and outside liabilities have been transferred to realisation account.
(i) James agreed to pay off his brother’s loan ₹ 10,000.
(ii) Debtors realised ₹ 12,000.
(iii) Haider took over all investment at ₹ 12,000.
(iv) Sundry creditors ₹ 20,000 were paid at 5% discount.
(v) Realisation expenses amounted to ₹ 2,000.
(vi) Loss on realisation was ₹ 10,200. (All India 2011)
Answer:

Question 44.
Srijan, Raman and Manan were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 31st March, 2017 their balance sheet was as follows

On the above date, they decided to dissolve the firm.
(i) Srijan was appointed to realise the assets and discharge the liabilities. Srijan was to receive 5% commission on sale of assets (except cash) and was to bear all expenses of realisation.
(ii) Assets were realised as follows
Plant – 85,000
Stock – 33,000
Debtors – 47,000
(iii) Investments were realised at 95% of the book value.
(iv) The firm had to pay ₹ 7,500 for an outstanding repair bill not provided for earlier.
(v) A contingent liability in respect of bills receivable, discounted with the bank had also materialised and had to be discharged for ₹ 15,000.
(vi) Expenses of realisation amounting to ₹ 3,000 were paid by Srijan.
Prepare realisation account, partners’ capital accounts and bank account. (CBSE 2018)
Answer:

Working Note:
Commission payable to Srijan = 2,31,500 × \(\frac { 5 }{ 100 }\) = ₹ 11,575

Question 45.
Arnab, Ragini and Dhrupad are partners sharing profits in the ratio of 3 : 1 : 1. On 31st March, 2015 they decided to dissolve their firm. On that date, their balance sheet was as under

The assets were realised and the liabilities were paid as under
(i) Arnab agreed to pay his brother’s loan.
(ii) Investments realised 20% less.
(iii) Creditors were paid at 10% less.
(iv) Building was auctioned for ₹ 3,55,000. Commission on auction was ₹ 5,000.
(v) 50% of the stock was taken over by Ragini at market price which was 20% less than the book value and the remaining was sold at market price.
(vi) Dissolution expenses were ₹ 8,000. ₹ 3,000 were to be borne by the firm and the balance by Dhrupad. The expenses were paid by him.
Prepare realisation account, bank account and partners’ capital accounts. (All India 2016)
Answer:

Question 46.
Following is the balance sheet of Vinit and Yogesh as on 31st March, 2015.

The firm was dissolved on 31st March, 2015. The assets were realised and the liabilities were paid as under
(i) Vinit promised to pay-off Mrs Vinit’s loan and took away stock at 20% discount.
(ii) Yogesh took away 90% of the investments at 10% discount.
(iii) Sunil, a debtor of ₹ 50,000 had to pay the amount due 3 months after the date of dissolution. He was allowed a discount of 5% for making payment immediately. The remaining debtors were collected in full.
(iv) Creditors were paid ₹ 3,50,000 in full settlement of their claim.
(v) Fixed assets realised ₹ 2,82,000 and remaining investment realised ₹ 7,500.
(vi) There was an old furniture which had been written-off completely from the books. Yogesh took away the same for ₹ 4,000.
(vii) Realisation expenses ₹ 2,000 were paid by Vinit.
Prepare realisation account, bank account and partners’ capital accounts. (Delhi (C) 2016)
Answer:

Question 47.
Kumar, Shyam and Ratan were partners in a firm sharing profits in the ratio of 5 : 3 : 2 respectively. They decided to dissolve the firm with effect from 1st April, 2013. On that date, the balance sheet of the firm was as follows

The dissolution resulted in the following
(i) Plant of ₹ 40,000 was taken over by Kumar at an agreed value of? 45,000 and remaining plant realised ₹ 50,000.
(ii) Furniture realised ₹ 40,000.
(iii) Motor van was taken over by Shyam for ₹ 30,000.
(iv) Debtors realised ₹ 1,000 less.
(v) Creditors for ₹ 20,000 were untraceable and the remaining creditors were paid in full.
(vi) Realisation expenses amounted to ₹ 5,000.
Prepare the realisation account, capital accounts of partners and bank account of the firm. (All India (C) 2014)
Answer:

NOTE; In the absence of any information, it has been assumed that nothing is realised from stock.

Question 48.
………… refers to the change in the existing relationship between partners but the firm may continue its business as before.
(a) Dissolution of partnership
(b) Dissolution of firm
(c) Either (a) or (b)
(d) None of the above
Answer:
(a) Dissolution of partnership

Question 49.
According to …………… of the Indian Partnership Act, 1932, dissolution of the firm means dissolution of partnership among all the partners in the firm.
(a) Section 38
(b) Section 40
(c) Section 39
(d) Section 42
Answer:
(c) Section 39

Question 50.
In case of dissolution Of a firm, which item on the liabilities side is to be paid last?
(a) Creditors
(b) Bank loan
(c) Partners loan
(d) Partners capital
Answer:
(d) Partners capital

Question 51.
According to Section 49 of the Indian Partnership Act, 1932, “Firm’s property is first applied for the …………… and if surplus is left then it is utilised for the payment of partners’ private debts.”
(a) payment of firm’s debt
(b) personal expenses
(c) Partners share
(d) None of the above
Answer:
(a) payment of firm’s debt

Question 52.
Profit/Loss on realisation is transferred to the
(a) profit and loss adjustment account
(b) partners’ capital account
(c) Both (a) and (b)
(d) None of the above
Answer:
(b) partners’ capital account

Question 53.
Realisation account is a
(a) nominal account
(b) real account
(c) personal account
(d) None of these
Answer:
(a) nominal account

Question 54.
In the books of XY firm, there was an unrecorded asset of ₹ 10,000. This asset realised for ₹ 12,000. In the realisation account
(a) cash account will be credited by ₹ 10,000
(b) cash account will be credited by ₹ 12,000
(c) cash account will be debited by ₹ 2,000
(d) None of the above
Answer:
(b) cash account will be credited by ₹ 12,000

Question 55.
Which account is prepared only once during the life of a partnership firm?
(a) Revaluation account
(b) Realisation account
(c) Partners capital account
(d) Profit and loss appropriation account
Answer:
(b) Realisation account

Question 56.
‘E’ and ‘F’ were partners sharing profits equally. They decided to dissolve the firm. The goodwill was taken over by ‘E’ at an agreed value of ₹ 54,000. The required journal entry will be
(a) Cash A/c Dr
To Realisation A/c
(b) ‘E’s’ Capital A/c Dr
To Realisation A/c
(c) Realisation A/c Dr
To ‘E’s’ Capital A/c
(d) None of the above
Answer:
(b) ‘E’s’ Capital A/c Dr
To Realisation A/c

Question 57.
The amount of sundry assets transferred to realisation account was ₹ 80,000, 60% of them were sold at a profit of ₹ 2000. 20% of the remaining were sold at a discount of 30% and remaining were taken over by ‘Z’ at book value. The amount realised from assets is
(a) ₹ 54,480
(b) ₹ 25,600
(c) ₹ 80,000
(d) ₹ 80,080
Answer:
(d) ₹ 80,080

Question 58.
Loan from partner is deemed to be an …………. liability at the time of dissolution.
(a) external
(b) internal
(c) not a liability
(d) None of these
Answer:
(b) internal

Question 59.
Rohit, a partner agreed to take over the responsibility of completing dissolution at an agreed remuneration of ₹ 4,000 and to bear all realisation expenses. Actual realisation expenses of ₹ 3,200 were paid by Rohit out of his private funds. In realisation account, Rohit’s capital account will be
(a) debited with ₹ 4,000
(b) debited with ₹ 3,200
(c) credited with ₹ 4,000
(d) credited With ₹ 3,200
Answer:
(a) debited with ₹ 4,000

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We have given these Accountancy Class 12 Important Questions and Answers Chapter 7 Issue and Redemption of Debentures to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Issue and Redemption of Debentures Important Questions Class 12 Accountancy Chapter 7

Question 1.
What is meant by ‘Issue of Debentures as Collateral Security’ ₹ (All India 2019: CBSE 2018)
Answer:
When a company issues debentures to the lender as secondary or collateral security, such an issue of debenture is known as debenture issued as collateral security.

Question 2.
X Ltd invited applications for issuing 500, 12% debentures of ₹ 100 each at a discount of 5%. These debentures were redeemable after three years at par. Applications for 600 debentures were received. Pro-rata allotment was made to all the applicants. Pass necessary journal entries for the issue of debentures assuming that the whole amount was payable with application. (All India 2017)
Answer:

Question 3.
X Ltd invited applications for issuing 1,000, 9% debentures of ₹ 100 each at a discount of 6%. Applications for 1,200 debentures were received. Pro-rata allotment was made to all the applicants.
Pass necessary journal entries for the issue of debentures assuming that the whole amount was payable with application. (Delhi 2017)
Solve as Q no. 2 on page 349.
Discount on Issue of Debentures = ₹ 6,000; Amount Refunded = ₹ 18,800

Question 4.
Give the meaning of ‘debenture’. (Delhi 2014)
Or
What is meant by debenture ₹ (Delhi 2014)
Answer:
It means a document showing a company’s indebtedness, issued under the seal of the company and containing a contract for the repayment of the principal sum at a specified date with interest at a fixed rate.

Question 5.
Give the meaning of a bond. All India (C) 2014
Answer:
Bond is an instrument of acknowledgement of debt, but it does not carry a pre-determined rate of interest.

Question 6.
Give the meaning of issue of debentures as collateral security. (All India 2011)
Or
What is meant by issue of debentures as a collateral security ₹ (All India 2014, 2013(C))
Answer:
When a company issues its own debentures to the lenders as a secondary security in addition to some other asset already pledged or mortgaged, it is called issue of debentures as collateral security.

Question 7.
Pass the necessary journal entry when 10,000 debentures of ₹ 100 each are issued as collateral security against a bank loan of ₹ 8.00.000. (Delhi 2011)
Answer:

Question 8.
Beta Ltd issued 5,000, 9% debentures of ₹ 500 each. Pass the necessary journal entries for the issue of debentures in the books of the company in the following case. When debentures are issued at a premium of 25% to the vendors for machinery purchased for ₹ 6,25,000. (Delhi 2011)
Answer:

Question 9.
Garvit Ltd invited applications for issuing 3,000, 11% Debentures of ₹ 100 each at a discount of 6%. The full amount was payable on application. Applications were received for 3,600 debentures. Applications for 600 debentures were rejected and the application money was refunded. Debentures were allotted to the remaining applicants. Pass the necessary journal entries for the above transactions in the books of Garvit Ltd. (Delhi 2019)
Answer:

Question 10.
On 1st April, 2015, P Ltd issues 6,000, 12% Debentures of ₹ 100 each at par redeemable at a premium of 7%. The debentures were to be redeemed at the end of third year. Prepare loss on issue of 12% Debentures Account. (Delhi 2019)
Answer:

Question 11.
UZ Ltd purchased plant and machinery from Elk Machine Ltd for ₹ 6,90,000. Elk Ltd was paid by accepting a draft of ₹ 90,000 payable after three months and the balance by issue of 6% debentures of ₹ 100 each at a discount of 20%. Pass necessary journal entries for the above transactions in the books of UZ Ltd. (All India 2019)
Answer:

Working Notes:
Number of debentures Issued = \(\frac{6,00,000}{100-20}\) = 7,500 debentures

Question 12.
Disha Ltd purchased machinery from Nisha Ltd and paid to Nisha Ltd as follows
(i) By issuing 10,000, equity shares of ₹ 10 each at a premium of 10%.
(ii) By issuing 200, 9% debentures of ₹ 100 each at a discount of 10%.
(iii) Balance by accepting a bill of exchange of ₹ 50,000 payable after one month.
Pass necessary journal entries in the books of Disha Ltd. For the purchase of machinery and making payment to Nisha Ltd. (All india 2017)
Answer:

Working Note:
Purchase Price = (10,000 × 11) + (200 × 90)+50,000 = 1,10,000 + 18,000 + 50,000 = ₹ 1,78,000

Question 13.
Z Ltd purchased machinery from K Ltd, Z Ltd, paid K Ltd as follows
(i) By issuing 5,000 equity shares of ₹ 10 each at a premium of 30%.
(ii) By issuing 1,000, 8% debentures of ₹ 100 each at a discount of 10%.
(iii) Balance by giving a promissory note of ₹ 48,000 payable after two months.
Pass necessary journal entries for the purchase of machinery and payment to K Ltd in the books of Z Ltd. (Delhi 2017)
Answer:
Solve as Q no. 12 on page 352.
Purchase Consideration = ₹ 2,03,000

Question 14.
Fill in the blanks in the following case. (All India (C) 2016)

Answer:

Working Notes:
Number of debentures Issued = \(\frac{20,00,000}{150-50}\) = 20,000 debentures

Question 15.
Fill in the blanks in the following case. (Delhi (C) 2016)

Answer:
Solve as Q no. 14 on page 353; Number of Debentures Issued = 15,000; Capital Reserve = ₹ 1,00,000

Question 16.
Tata Ltd issued 5,000, 10% debentures of ₹ 100 each on 1st April, 2012. The issue was fully subscribed. According to the terms of issue, interest on debentures is payable half yearly on 30th September and 31st March and tax deducted at source is 10%.
Pass the necessary entries related to the debenture interest for the half yearly ending on 31st March, 2013 and transfer of interest on debentures to statement of profit and loss. (All India 2014)
Answer:

Question 17.
BG Ltd issued 2,000, 12% debentures of ₹ 100 each on 1st April, 2012. The issue was fully subscribed. According to the terms of issue, interest on the debentures is payable half yearly on 30th September and 31st March and the tax deducted at source is 10%. Pass necessary journal entries related to the debenture interest for the half-yearly ending 31st March, 2013 and transfer of interest on debentures of the year to the statement of profit and loss. (Delhi 2014)
Answer:
Solve as Q no. 16 on page 354.
Interest on Debenture Transferred to Statement of Profit and Loss = ₹ 24,000

Question 18.
Sargam Ltd issued ₹ 1,00,000, 6% debentures of ₹ 10 each at a premium of ₹ 2 per on 1st April, 2012. The issue was fully subscribed. Interest will be paid at the end financial year. Pass necessary journal entries for the year 2012-13. (All India 2014)
Answer:

Question 19.
Nav Lakshmi Ltd invited applications for issuing 3,000, 12% debentures of ₹ 100 each at a premium of ₹ 50 per debenture. The full amount was payable on application. Applications were received for 4,000 debentures. Applications for 1,000 debentures were rejected and application money was refunded. Debentures were allotted to the remaining applicants.
Pass necessary journal entries for the above transactions in the books of Nav Lakshmi Ltd. (All India 2012)
Answer:

Question 20.
Narain Laxmi Ltd invited applications for issuing 7,500, 12% debentures of ₹ 100 each at a premium of ₹ 35 per debenture. The full amount was payable on application.
Applications were received for 10,000 debentures. Applications for 2,500 debentures were rejected and the application money was refunded. Debentures were allotted to the remaining applicants.
Pass necessary journal entries for the above transactions in the books of Narain Laxmi Ltd. (Delhi 2012)
Answer:
Solve as Q no. 19 on page 355.

Question 21.
Venus Ltd is a real estate company. To discharge its corporate social responsibility, it decided to construct a night shelter for the homeless. The company took over assets of ₹ 10,00,000 and liabilities of ₹ 1,80,000 of Cayns Ltd for ₹ 7,60,000. Venus Ltd issued 9% debentures of ₹ 100 each at a discount of 5% in full satisfaction of the purchase consideration in favour of Cayns Ltd.
Pass necessary journal entries in the books of Venus Ltd. for the above transactions. (Comportment 2018 Modified)
Answer:

Working Notes:
Number of debentures Issued = \(\frac{7,60,000}{100-5}\) = 8,000 debentures, 9% debentures

Question 22.
Boots Ltd issued ₹ 6,0,000, 8% debentures at a discount of 6%. The debentures were redeemable in four equal annual instalments. Pass necessary journal entries for issue of debentures and prepare ‘Discount on issue of debentures account’ for four years. Show your workings clearly.
Answer:

Working Notes:
Calculation of amount of discount to be written off every year

Question 23.
‘Ananya Ltd’ had an authorised capital of ₹ 10,00,00,000 divided into 10,00,000 equity shares of ₹ 100 each. The company had already issued 2,00,000 shares. The dividend paid per share for the year ended 31st March, 2007 was ₹ 30.
The management decided to export its products to African countries. To meet the requirements of additional funds, the finance manager put up the following three alternate proposals before the Board of Directors.
(a) Issue 47,500 equity shares at a premium of ₹ 100 per share.
(b) Obtain a long-term loan from bank which was available at 12% per annum.
(c) Issue 9% debentures at a discount of 5%.
After evaluating these alternatives the company decided to issue 1,00,000, 9% debentures on 1st April, 2008. The face value of each debenture was ₹ 100. These debentures were redeemable in four instalments starting from the end of third year, which was as follows

Prepare 9% debentures account from 1st April, 2008 till all the debentures were redeemed. (All India 2016)
Answer:

Question 24.
Pass necessary journal entries and prepare 9% debentures account for the issue of 7,500, 9% debentures of ₹ 50 each at a discount of 6%, redeemable at a premium of 10%. (All Indio 2019)
Answer:

Question 25.
X Ltd issued 1,000, 9% Debentures of ₹ 100 each at a discount of 6%. These debentures were redeemable at a premium of 10% after five years.Pass necessary journal entries for issue of debentures and prepare 9% Debentures Account. (All India 2019)
Answer:
Solve as Q. no. 1 on page 360. Loss on Issue of Debentures = ₹ 16,000 9% Debentures Account Balance = ₹ 1,00,000

Question 26.
On 1st April, 2018, RJ Ltd issued ₹ 10,00,000, 9% debentures of ₹ 100 each at a discount of 10%. These debentures were redeemable at a premium of 5% after four years. Pass necessary journal entries for the issue of debentures and prepare 9% debentures loan account. (All India 2019)
Answer:
Solve as Q. no. 1 on page 360. Loss on Issue of Debentures = ₹ 1,50,000 9% Debentures Account Balance ₹ 10,00,000

Question 27.
ZK Ltd issued ₹ 4,00,000, 9% debentures of ₹ 100 each at a discount of 5% redeemable at a premium of 10%. Pass necessary journal entries for the above transactions in the books of ZK Ltd. (All Indio 2019)
Answer:

Question 28.
On 2nd March, 2016 L and B Ltd issued 635, 9% debentures of ₹ 500 each. Pass necessary journal entries for the issue of debentures in the following situations
(i) When debentures were issued at 5% discount, redeemable at 10% premium.
(ii) When debentures were issued at 12% premium, redeemable at 6% premium. (All india 2016)
Answer:

Question 29.
KTR Ltd issued 365, 9% debentures of ₹ 1,000 each on 4th March, 2016. Pass necessary journal entries for the issue of debentures in the following situations
(i) When debentures were issued at par redeemable at a premium of 10%.
(ii) When debentures were issued at 6% discount redeemable at 5% premium. Delhi 2016
Answer:

(ii) Solve as Q no. 5 (i) on page 361.

Question 30.
Fill in the blanks in the following case

Answer:

Question 31.
Fill in the blanks in the following case

Answer:
Solve as Q no. 7 on page 362.

Question 32.
Alok Ltd issued 7,000, 10% debentues of ₹ 500 each at a premium of ₹ 50 per debenture redeemable at a premium of 10% after 5 years. According to the terms of issue, 200 was payable on application and balance on allotment. Record necessary journal entries at the time of issue of 10% debentures. (All India (C) 2015)
Answer:

Question 33.
Pass the necessary journal entries for issue of 1,000, 7% debentures of ₹ 100 each in the following cases
(i) Issued at 5% premium, redeemable at a premium of 10%.
(ii) Issued at a discount of 5%, redeemable at par. (Delhi 2013)
Answer:
(i) Solve as Q no. 5 (ii) on page 361.

Question 34.
Pass the necessary journal entries for the issue of debentures in the following cases
(i) ₹ 40,000, 12% debentures of ₹ 100 each issued at a premium of 5% redeemable at par.
(ii) ₹ 70,000,12% debentures of ₹ 100 each issued at a premium of 5% redeemable at ₹ 110. (Delhi 2013)
Answer:

(ii) Solve as Q no. 5 (ii) on page 361.

Question 35.
Pass the necessary journal entries for the issue of 7% debentures in the following cases
(i) 200 debentures of ₹ 150 each issued at 10% premium redeemable at ₹ 200 each.
(ii) 200 debentures of ₹ 200 each issued at a discount of 10% redeemable at par. (All India 2013)
Answer:

(ii) Solve as Q no. 10 (ii) on page 363 and 364.

Question 36.
SSS Ltd issued 25,000, 10% debentures of ₹ 100 each. Give journal entries and the balance sheet in each of the following cases when
(i) The debentures were issued at a premium of 20%
(ii) The debentures were issued as a collateral security to bank against a loan of ₹ 20,00,000.
(iii) The debentures were issued to a supplier of machinery costing ₹ 28,00,000 as his full and final payment. (Delhi (C) 2011)
Answer:

Question 37.
On 1st April, 2015, JK Ltd issued 8,000, 9% debentures of ₹ 1,000 each at a discount of 6%, redeemable at a premium of 5% after 3 years. The company closes its book on 31st March every year. Interest on 9% debentures is payable on 30th September and 31st March every year. The rate of tax deducted at source is 10%. Pass necessary journal entries for the issue of 9% debentures and debenture interest for the year ended 31st March, 2016. (All India 2017)
Answer:

Question 38.
On 1st April, 2015 KK Ltd issued 500, 9% debentures of ₹ 500 each at a discount of 4%, redeemable at a premium of 5% after three years. Pass necessary journal entries for the issue of debentures and debenture interest for the year ended 31st March, 2016 assuming that interest is payable on 30th September and 31st March and the rate of tax deducted at source is 10%. The company closes its books on 31st March every year. (Delhi 2017)
Answer:
Solve as Q no. 14 on page 367 and 368.
Debenture Interest Transferred to Statement of Profit and Loss = ₹ 22,500 (11,250 +11,250)

Question 39.
State the provisions of Companies Act, 2013 for the creation of debenture redemption reserve. (All India 2019; Delhi 2016)
Answer:
As per Section 71(4) of the Companies Act, 2013 and companies (share capital and debentures) rules, every company issuing debentures is required to create debenture redemption reserve of an amount that is alteast equal to 25% of the nominal (face) value of debentures that are redeemable by it.

Question 40.
Name the account to which the “balance of debenture redemption reserve is transferred after all the debentures have been redeemed. (All India (c) 2015)
Answer:
The balance of debenture redemption reserve is transferred to general reserve, after all the debentures have been redeemed.

Question 41.
When does a company create ‘debenture redemption reserve’? (Delhi (c) 2015)
Answer:
Debenture redemption reserve is a reserve which is created out of profits for the purpose of redemption of debentures.

Question 42.
On 1st April, 2013 Anushka Ltd issued ₹ 70,00,000, 9% debentures of ₹ 100 each at par, redeemable at a premium of 5% on 31st March, 2018. The company created the necessary, minimum amount of debenture redemption reserve and purchased debenture redemption reserve investments. The debentures were redeemed on 31st March, 2018.
Pass necessary journal entries for the redemption of debentures, in the books of the company. (Delhi 2019)
Answer:

Question 43.
Unilink Ltd had outstanding ₹ 12,00,000, 9% debentures on 1st April, 2014 redeemable at a premium of 8% in two equal annual instalments starting from 31st March, 2018. The company had a balance of ₹ 3,00,000 in Debenture Redemption Reserve on 31st March, 2017. Pass the necessary journal entries for redemption of debentures in the books of Unilink Ltd for the year ended 31st March, 2018. (Delhi 2019)
Answer:

Question 44.
Krishna Ltd had outstanding 20,000, 9% debentures of ₹ 100 each on 1st April, 2014. These debentures were redeemable at a premium of 10% in two equal instalments starting from 31st March, 2018. The company had a balance of ₹ 4,00,000 in Debenture Redemption Reserve on 31st March, 2017. Pass necessary journal entries for redemption of debentures in the books of Krishna Ltd for the year ended 31st March, 2018. (Delhi 2019)
Answer:

Question 45.
On 1st April, 2013, the following balances appeared in the books of Blue and Green Ltd.
12% debentures (Redeemable on 31st August, 2015) ₹ 20,00,000
Debenture Redemption Reserve ₹ 2,00,000
The company met the requirements of Companies Act, 2013 regarding debenture redemption reserve and debenture redemption investments and redeemed the debentures.
Ignoring interest on investments pass necessary journal entries for the above transactions in the books of company. (All India (C) 2016)
Answer:

Question 46.
Mahima Ltd issued ₹ 38,00,000, 9% debentures of ₹ 100 each on 1st April, 2013. The debentures were redeemable at a premium of 5% on 30th June, 2015. The company transferred an amount of? 9,50,000 to debenture redemption reserve on 31st March, 2015. Investments as required by law were made in fixed deposit of a bank on 1st April, 2015. Ignoring interest on fixed deposit pass necessary journal entries starting from 31st March, 2015 regarding redemption of debentures. (Delhi (C) 2016)
Answer:
Solve as Q no. 7 on page 372 and 373.
Amount Transferred to DRR = ₹ 9,50,000; Debenture Redemption Investment = ₹ 5,70,000

Question 47.
Manish Ltd issued ₹ 38,00,000, 8% debentures of ₹ 100 each on 1st April, 2007. The terms of issue stated that the debentures were to be redeemed at a premium of 5% on 30th June, 2009. The company decided to transfer out of profits ₹ 5,00,000 to debenture redemption reserve on 31st March, 2008 and ₹ 4,50,000 on 31st March, 2009. Pass necessary journal entries regarding the issue and redemption of debentures, without providing for either the interest or loss on issue of debentures. (All India 2011)
Answer:

Question 48.
Pass the necessary journal entries for the issue and redemption of debentures in the following cases
(i) 15;000, 9% debentures of ₹ 250 each issued at 5% premium, repayable at 15% premium,
(ii) 2,00,000,12% debentures of ₹ 10 each issued at 8% premium, repayable at par. (All India 2011)
Answer:

Question 49.
Pass the necessary journal entries for the issue and redemption of debentures in the following cases (Delhi 2011)
(i) 10,000, 10% debentures of ₹ 120 each issued at 5% premium, repayable at par.
(ii) 20,000, 9% debentures of ₹ 200 each issued at 20% premium, repayable at 30% premium.
Answer:
Solve as Q no. 10 on page 374 and 375.

Question 50.
X Ltd has ₹ 10,00,000, 9% debentures due to be redeemed out of profits on 1st October, 2009 at a premium of 5%. The company had a debenture redemption reserve of ₹ 4,14,000. Pass necessary journal entries at the time of redemption. (All India 2010)
Answer:

Working Note:
Amount Transferred to Debenture Redemption Reserve
Required DRR (100% of 10,00,000) = 10,00,000
(-) Existing balance = (4,14,000)
= ₹ 5,86,000

Question 51.
X Ltd had ₹ 8,00,000, 9% debentures due to be redeemed out of profits on 1st October, 2009 at a premium of 5%. The company had a debenture redemption reserve of ₹ 4,14,000. Pass necessary journal entries at the time of redemption. (Delhi 2010)
Answer:
Solve as Q no. 12 on page 375 and 376.
Amount Transferred to Debenture Redemption Reserve = ₹ 3,86,000

Question 52.
On 1st April, 2014, KK Ltd invited applications for issuing 5,000, 10% debentures of ₹ 1,000 each at a discount of 6%. These debentures were repayable at the end of 3rd year at a premium of 10%. Applications for 6,000 debentures were received and the debentures were allotted on pro-rata basis to all the applicants. Excess money received with applications was refunded.
The directors decided to transfer the minimum amount to debenture redemption reserve on 31st March, 2016. On 1st April, 2016, the company invested the necessary amount in 9% hank fixed deposit as per the provisions of the Companies Act, 2013. Tax was deducted at source by bank on interest @ 10% per annum.
Pass the necessary journal entries for issue and redemption of debentures. Ignore entries relating to writing-off loss on issue of debentures and interest paid on debentures. (CBSE 2018)
Answer:

Working Notes:
1. Calculation of DRR = (5,000 × 1,000) × \(\frac { 25 }{ 100 }\) = ₹ 12,50,000
2. Calculation of DRI = (5,000 × 1,000) × \(\frac { 15 }{ 100 }\) = ₹ 7,50,000
3. Interest earned on investment = 7,50,000 × \(\frac { 9 }{ 100 }\) = ₹ 67,500
4. Tax deducted of source = 67,500 × \(\frac { 10 }{ 100 }\) = ₹ 6,750

Question 53.
On 1st April, 2013, JMR Ltd had 20,000, 9% debentures of? 100 each outstanding.
(i) On 1st April, 2014 the company purchased in the open market 6,000 of its own debentures for ₹ 98 each and cancelled the same immediately.
(ii) On 28 February, 2015 the company redeemed at par debentures of ₹ 10,00,000 by draw of a lot.
(iii) On 1st March, 2016 the remaining debentures were purchased for immediate cancellation for ₹ 3,99,000.
Ignoring interest on debentures and debenture redemption reserve, pass necessary journal entries for the above transactions in the books of JMR Ltd. (All India 2016)
Answer:
(i) Not in syllabus

(iii) Not in syllabus

Question 54.
Pass necessary journal entries for the issue and redemption of debentures in the following cases 20,000, 12% debentures of ₹ 50 each were issued and to be redeemed as follows
(i) Issued at par and redeemed at a premium of 10%.
(ii) Issued at a premium of 10% and redeemable at a premium of 20%.
(iii) Issued at par and 50% of the redemption to be made in cash. (All India 2011 Modified)
Answer:

Question 55.
Devi Ltd on 1st April, 2006, acquired assets of the value of ₹ 6,00,000 and liabilities worth ₹ 70,000 from P & Co at an agreed value of ₹ 5,50,000. Devi Ltd issued 12% debentures of ₹ 100 each at a premium of 10% in full satisfaction of purchase consideration. The debentures were redeemable 3 years later at a premium of 5%. Pass journal entries to record the above including redemption of debentures. (Delhi; All India 2010 Modified)
Answer:

Question 56.
Debentures are generally redeemable after a certain period. This period is decided by company which can be
(a) less than 20 years
(b) more than 20 years
(c) more than 25 years
(d) None of these
Answer:
(a) less than 20 years

Question 57.
A company AB Ltd issued 12% debentures of ₹ 10,p0,000 of ₹ 100 each to public. In the terms of issue, these debentures are redeemable after 10 months ending on 31st January, 2018. Interest is payable on monthly basis. These debentures will be shown in balance sheet as on 31st March, 2017 under the heading
(a) long-term liability
(b) current liability
(c) fixed assets
(d) current assets
Answer:
(b) current liability

Question 58.
Discount on issue of debentures is
(a) capital loss
(b) capital income
(c) revenue loss
(d) revenue income
Answer:
(a) capital loss

Question 59.
When debentures are issued at lumpsum, journalise the acceptance of application of debentures from public.
(a) Bank A/c Dr
To Debenture Application A/c
(b) Debenture Application A/c Dr
To X% Debentures A/c
(c) Debenture Application and Allotment A/c Dr
To X% Debentures A/c
(d) None of the above
Answer:
(c) Debenture Application and Allotment A/c Dr
To X% Debentures A/c

Question 60.
Journalise the writing-off discount on issue of debentures, when company has all reserves and profits required to cover this loss.
(a) General Reserve A/c Dr
To Statement of Profit and Loss
To Discount on Issue of Debentures A/c
(b) Discount on Issue of Debentures A/c Dr
To General Reserve A/c
To Statement of Profit and Loss
(c) Loss on Issue of Debentures A/c Dr
To Statement of Profit and Loss
(d) None of the above
Answer:
(d) None of the above

Question 61.
A Ltd issued 5,000, 10% debentures @ 100 each at a discount of ₹ 10. Amount was payable as follows application ₹ 50, balance on allotment. All amount due were received on time except a holder of 1,000 debentures who did not pay allotment. Journalise the entry for receipt of allotment.
(a) Bank A/c Dr – 2,50,000
To Debenture Allotment A/c – 2,50,000
(b) Bank A/c Dr – 1,60,000
To Debenture Allotment A/c – 1,60,000
(c) Bank A/c Dr – 2,00,000
To Debenture Allotment A/c – 1,60,000
To Discount on Issue of Debentures A/c – 40,000
(d) None of the above
Answer:
(b) Bank A/c Dr – 1,60,000
To Debenture Allotment A/c – 1,60,000

Question 62.
Holder of debentures as a collateral security is entitled to
(a) interest on debentures
(b) dividend
(c) commission
(d) None of the above
Answer:
(d) None of the above

Question 63.
A company ABC Ltd has purchased an asset costing ₹ 11,00,000. Vendor issued 9% debentures of ₹ 100 each at 10% premium as consideration against asset purchased. Calculate number of debentures to be issued?
(a) 10,000 debentures
(b) 11,000 debentures
(c) 12,000 debentures
(d) 13,000 debentures
Answer:
(a) 10,000 debentures

Question 64.
A company has taken a loan of ₹ 20,00,000. The lender took 8% debentures as collateral. The director of the company wants to journalise this collateral. Accountant does not know the exact entry and has passed the following entries. Advise him as to which entry is correct?
(a) Lender Dr – 20,00,000
To 8% Debentures A/c – 20,00,000
(b) Bank Loan A/c Dr – 20,00,000
To 8% Debentures A/c – 20,00,000
(c) Debenture Suspense A/c Dr – 20,00,000
To 8% Debentures A/c – 20,00,000
(d) None of the above
Answer:
(c) Debenture Suspense A/c Dr – 20,00,000
To 8% Debentures A/c – 20,00,000

Question 65.
S Ltd bought business of R Ltd and purchase consideration is to be decided by net asset value method. Total assets and liabilities which were taken over were ₹ 11,20,000 and ₹ 2,00,000 respectively. ₹ 2,00,000 was paid in cash and for the balance amount, 6% debentures of ₹ 100 each were issued at a premium of 20%. Pass journal entry of issue of debentures in the books of S Ltd.
(a) R Ltd Dr – 7,20,000
To 6% Debentures A/c – 6,00,000
To Security Premium Reserve A/c – 1,20,000
(b) R Ltd Dr – 7,20,000
To 6% Debentures A/c – 7,20,000
(c) R Ltd Dr – 9,20,000
To Cash A/c – 2,00,000
To 6% Debentures A/c – 7,20,000
(d) None of the above
Answer:
(a) R Ltd Dr – 7,20,000
To 6% Debentures A/c – 6,00,000
To Security Premium Reserve A/c – 1,20,000

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We have given these Accountancy Class 12 Important Questions and Answers Chapter 9 Analysis of Financial Statements to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 9 Analysis of Financial Statements Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Analysis of Financial Statements Important Questions Class 12 Accountancy Chapter 9

Question 1.
State any two limitations of financial statement analysis. (compartment 2018: Delhi (C) 2015)
Or
State any one limitation of financial statement analysis. (Delhi 2014.2013,2010; Delhi (C) 2014, All India 2014.2014 (C). 2013,2010)
Answer:
Limitations of financial statement analysis are

• Financial statement analysis ignore qualitative aspects like quality of management, labour force and public relations.
• The results obtained by analysis of financial statements may be misleading due to window dressing.

Question 2.
What is meant by analysis of financial statements? Delhi (Cl 2015; All India 2011)
Answer:
The process of critical evaluation of the financial information contained in the financial statements, in order to understand and make decisions regarding the operations of the Arm, is called financial statement analysis.

Question 3.
State any two objectives of financial statement analysis. (All India Delhi 2018)
Or
State any one objective of financial statement analysis. (All India 2014,2013: Delhi 2013.2010 Delhi (C) 2014)
Answer:
Objectives of financial statement analysis are

• To judge the operating efficiency and profitability of the business.
• To measure the short-term and long-term financial position of the enterprise.

Question 4.
State one advantage of financial statement analysis. (Delhi 2013)
Answer:
Financial statement analysis helps the management to judge the overall as well as segmentwise operational efficiency of the business.

Question 5.
Explain how financial statement analysis ignores qualitative elements? (All India.2013)
Or
State how qualitative aspects are ignored in financial statement analysis? (Delhi (C) 2011)
Answer:
Financial statement analysis ignore qualitative elements as it is confined to the monetary matters only because quality cannot be measured in monetary terms.

Question 6.
State the significance of analysis of financial statements to ‘top management’. (All India 2012)
Answer:
Financial statement analysis enables the ‘top management’ to evaluate the overall efficiency of the business. It provides adequate information for planning, budgeting and controlling the affairs of the business in future.

Question 7.
State the significance of analysis of financial statements to ‘lenders’. (Delhi 2012)
Answer:
Lenders can judge the long-term and short-term solvency of the business or its ability to repay debts and interest through analysis of financial statements which will help them to decide whether they should lend or not.

Question 8.
How is the financial statement analysis useful to finance manager? (All India 2011)
Answer:
Financial statement analysis is useful to finance manager for taking financial decisions for the business. It provides adequate information for financial planning.

Question 9.
State the interest of tax authorities in the analysis of financial statements. (All India 2011)
Answer:
Tax authorities are interested to analyse the financial statements to know about the revenue of business firm and to ensure proper assessment of liabilities of the business as per the laws in force, from time to time.

Question 10.
State the interest of investors in the analysis of financial statements. (All India 2011)
Answer:
Investors are interested in knowing the earning capacity of the business and its prospects for future growth and returns through analysis of financial statements, so that they can decide whether they should invest or not.

Question 11.
How does subjectivity become a limitation of financial statement analysis? (Delhi 2010)
Answer:
Subjectivity becomes a limitation of financial statement analysis because an analyst has to exercise his own judgement and bias in the process of drawing conclusions.

Question 12.
How is ‘window dressing a limitation of financial statement analysis? (All India 2010)
Answer:
‘Window dressing’ refers to displaying the rosy picture of an enterprise through financial statements. Sometimes, material information is concealed in financial statements due to ‘window dressing’.

Question 13.
One of the objectives of ‘financial statement analysis’ is to identify the reasons for change in the financial position of the enterprise. State two more objectives of this analysis. (Delhi, All India 2016)
Or
One of the objectives of ‘financial statement analysis’ is to judge the ability of the firm to repay its debt and assessing the short-term as well as the long-term liquidity position of the firm. State two more objectives of this analysis. (Delhi; All India 2016)
Or
One of the objectives of ‘financial statement analysis’ is to ascertain the relative importance of the different components of the financial position of the firm. State two more objectives of this analysis. (Delhi; All India 2016)
Answer:
The two more objectives of this analysis are

• To compare the intra-firm position, inter-firm position and pattern position within the industry.
• To measure the operating efficiency and profitability of the enterprise.

Question 14.
Explain briefly any four objectives of ‘Analysis of financial statements’. (Delhi 2019)
Or
State the objectives of ‘analysis of financial statements’. (Delhi: All India 2017)
Answer:
The objectives of analysis of financial statements are as follows

• To judge the financial stability of an enterprise.
• To measure the short-term and long-term solvency of enterprise.
• To measure the operating efficiency and profitability of an enterprise.
• To compare the intra-firm position, inter-firm position and pattern position within the industry.

Question 15.
Explain the importance of financial analysis of (i) labour unions and (ii) creditors. (All India 2019)
Answer:
(i) Labour unions They analyse the financial statement to assess whether the business concern is earning a fair rate of return on capital employed and whether they should demand for increased wages or not. So, financial statement analysis helps the labour unions in settling wage agreements.

(ii) Creditors A creditor, through an analysis of financial statements, judges not only the present ability of the company to meet its obligations, but also the probability of its continued ability to meet all its financial obligations. Trade creditors are particularly interested in the firm’s ability to meet their claims over a short period of time.

Question 16.
Explain briefly any four limitatioixs of ‘analysis of financial statements’. (All India 2019, 2017: Delhi 2017)
Answer:
The limitations of analysis of financial statements are as follows

• It ignores price level changes.
• It is not free from bias.
• It suffers from limitations of financial statements.
• It ignores qualitative aspects.

Question 17.
What is meant by ‘analysis of financial statements’? State any two objectives of such an analysis. (All India 2017)
Answer:
The process of critical evaluation of the financial information contained in the financial statements, in order to understand and make decisions regarding the operations of the firm is called financial statement analysis.
The objectives of such analysis are as follows

• To judge the financial stability of an enterprise.
• To measure the short-term and long-term solvency of the enterprise.

Question 18.
Which item is assumed to be 100 while preparing common size statement of profit and loss? (All India (C) 2014)
Answer:
Revenue from operations are assumed to be 100 while preparing common size statement of profit and loss.

Question 19.
Name any two tools of analysis of financial statements. (All India 2014)
Answer:
Two tools of analysis of financial statements are

• Comparative financial statements
• Common size statements

Question 20.
What is meant by a common size statements? (Delhi 2011)
Answer:
The statement wherein figures reported are converted into percentage to some common base are known are common size statements. Each percentage shows the relation of the individual item to its respective total. In common size income statement, revenue from operations (net sales) figure is assumed to be 100 and all other figures of expenses and other incomes are expressed as a percentage of sales. In common size balance sheet, the total of assets or liabilities is assumed to be 100 and figures are expressed as a percentage of the total.

Question 21.
How the earning capacity of a business is assessed by financial statement analysis? (Delhi 2010)
Answer:
The earning capacity of a business is assessed by financial statement analysis through profitability ratios.

Question 22.
How the solvency of a business is assessed by financial statement analysis? (Delhi 2010)
Answer:
The solvency of a business is assessed by financial statement analysis through long-term and short-term solvency ratios.

Question 23.
From the following information, prepare a comparative statement of profit and loss for the year 2009-2010

Other Information
(i) Income tax is calculated @ 50%.
(ii) Manufacturing expenses are 50% of the total of that category. (All India (C) 2011 Modified)
Answer:

Working note:
Manufacturing expenses = 50% of manufacturing and office expenses
2009 ⇒ \(\frac { 50 }{ 100 }\) × 2,40,000 = ₹ 1,20,000 ; 2010 ⇒ \(\frac { 50 }{ 100 }\) × 2,60,000 = ₹ 1,30,000

Question 24.
From the information extracted from the Statement of Profit and Loss for the years ended 31st March, 2017 and 31st March, 2018, prepare a Comparative Statement of Profit and Loss: (All India 2019)

Answer:

Question 25.
From the following information prepare a Comparative Income Statement of NY Ltd :

Answer:

Question 26.
Prepare a comparative income statement of Bikul ltd. with the help of the following Information:

Tax rate 50%. (All India 2019)
Answer:
Solve as Q. No. 8 on page 411
Profit after Tax
2016-17 – ₹ 2,16,000
2017-18 – ₹ 2,88,000
Absolute change – ₹ 72,000 (33.33%)

Question 27.
From the following information extracted from the Statement of Profit and Loss for the years ended 31st March, 2017 and 2018, prepare a Comparative Statement of Profit & Loss.

Answer:

Question 28.
Prepare a comparative statement of Profit and Loss from the following information extracted from the statement of Profit and Loss for the year ended 31st March, 2017 and 2018.

Answer:
Solve as Q. No. 10 on page 411 and 412.
Profit after Tax
2016 – 17 – ₹ 5,25,000
2017 – 18 – ₹ 5,40,000
Absolute change – ₹ 15,000 (2.86%)

Question 29.
Prepare a comparative statement of Profit and Loss from the information extracted from the statement of Profit and Loss for the year ended 31st March, 2017 and 2018.

Answer:
Solve as Q. No. 10 on page 411 and 412.
Profit after Tax
2016- 17 – ₹ 6,30,000
2017- 18 – ₹ 8,64,000
Absolute change – ₹ 2,34,000 (37.14%)

Question 30.
From the following Balance Sheet of KP Ltd. as at 31st March, 2018, prepare a Common Size Balance Sheet:

Answer:

Question 31.
Prepare a common size balance sheet of KJ Ltd from the following information:

Answer:

Question 32.
Firm the following information, prepare a Comparative Statement of Profit and Loss:

Answer:

Question 33.
Prepare a comparative statement of profit and loss from the following information extracted from the statement of profit and loss of Fun Sports Ltd for the year ended 31st March, 2015.

Answer:

Question 34.
Prepare comparative statement of profit and loss from the following information

Answer:

Question 35.
From the following information prepare a comparative statement of profit and loss of V Ltd for the year ended 31st March, 2015.

Prepare comparative statement of profit and loss. (Delhi (C) 2016)
Answer:

Question 36.
From the following statement of profit and loss of Fenox Ltd for the year ended 31st March, 2013, prepare a comparative statement of profit and loss.

Rate of income tax was 40%. (All India 2014)
Answer:

Question 37.
From the following ‘statement of profit and loss for the year ended 31st March, 2013, preparp a comparative statement of profit and loss of Good Services Ltd. (Delhi 2014)

Rate of income tax was 50%.
Answer:
Solve as Q. No. 19 on page 416 and 417.
Net Profit after Tax; 2011-12 = ₹ 2,00,000; 2012-13 = ₹ 4,50,000; Absolute Change = ₹ 2,50,000;
Percentage Change = 125%

Question 38.
From the following ‘statement of profit and loss’ of Suntrack Ltd. for the years ended 31st March, 2011 and 2012, prepare a ‘comparative statement of profit and loss’.

Answer:
Solve as Q. No. 19 on page 416 and 417.
Profit before Tax; 2010-11 = ₹ 11,00,000; 2011-12 = ₹ 19,00,000; Absolute Change = ₹ 8,00,000
Percentage Change = 72.73%

Question 39.
From the following ‘statement of profit and loss’ of Moontrack Ltd. for the years ended 31st March, 2011 and 2012, prepare a ‘comparative statement of profit and loss.’

Answer:
Solve as Q. No. 19 on page 416 and 417.
Profit before Tax 2010-11 = ₹ 28,00,000; 2011-12 = ₹ 48,00,000; Absolute Change = ₹ 20,00,000;
Percentage Change = 71.43%

Question 40.
From the following income statement, prepare a common size statement of profit and loss

Answer:

Question 41.
Following is the statement of profit and loss of Raj Ltd for the year ended 31st March, 2011.

Prepare a common size statement of profit and loss of Raj Ltd for the year ended 31st March, 2011. (Delhi 2012: Modified)
Answer:
Solve as Q. No. 23 on page 418.
Percentage of Revenue from Operations = 30%

Question 42.
Prepare a comparative statement of profit and loss from the following information.

Answer:

NOTE Wages paid are a part of direct expenses and they are already included in cost of goods sold.

Question 43.
Prepare a comparative statement of profit and loss from the following information

Answer:
Solve as Q no. 25 on page 419.
Profit after Tax : 2009 = ₹ 2,25,000; 2010 = ₹ 2,70,000; Absolute Value = ₹ 45,000 ; Percentage Change = 20%
HINT: Carriage inwards are a part of direct expenses and they are already included in cost of goods sold.

Question 44.
From the following information given below, prepare a comparative statement of profit and loss.

Answer:

NOTE Purchase is a part of cost of goods sold and thus not shown separately.
Working Notes:

Question 45.
From the following information provided, prepare a comparative statement for the period 2008 and 2009.

Answer:

Question 46.
When financial statements for a single year are analysed, it is called
(a) vertical analysis
(b) horizontal analysis
(c) lateral analysis
(d) circular analysis
Answer:
(a) vertical analysis

Question 47.
Sumatra limited wants to assess the future profit earning capacity of its business. It will conduct
(a) external analysis
(b) short-term analysis
(c) long-term analysis
(d) None of these
Answer:
(c) long-term analysis

Question 48.
Tools of analysis and interpretation of financial statement are
(a) comparative balance sheet and income statement
(b) common size trial balance
(c) trend ratio
(d) ratios, comparative balance sheet and common size statements
Answer:
(d) ratios, comparative balance sheet and common size statements

Question 49.
Comparative statement is a analysis.
(a) horizontal
(b) vertical
(c) diagonal
(d) None of these
Answer:
(a) horizontal

Question 50.
Comparative balance sheet consists of ………. columns.
(a) five
(b) three
(c) six
(d) four
Answer:
(a) five

Question 51.
In common size statement of profit and loss, amount corresponding to is assumed to be equal to 100.
(a) net profit
(b) revenue from operations
(c) cost of revenue from operations
(d) All of the above
Answer:
(b) revenue from operations

Question 52.
express all items of an financial statements as a percentage of some common base.
(a) Common size statements
(b) Comparative statements
(c) Trend analysis
(d) Cash flow statement
Answer:
(a) Common size statements

Question 53.
Fixed assets of a company increased from ₹ 3,00,000 to ₹ 4,00,000. What is the percentage change?
(a) 25%
(b) 33.3%
(c) 20%
(d) 50%
Answer:
(b) 33.3%

Question 54.
A company’s revenue from operations is 20,00,000, cost of revenue from operations is ₹ 14,00,000 and indirect expenses are ₹ 2,00,000, then what is the amount of gross profit?
(a) ₹ 6,00,000
(b) ₹ 3,00,000
(c) ₹ 5,00,000
(d) ₹ 16,00,000
Answer:
(a) ₹ 6,00,000

Question 55.
Total of equity and liabilities is ₹ 15,00,000 and share capital is ₹ 3,00,000 as on 31st March, 2017. What will be the percentage of share capital shown in the common size balance sheet?
(a) 18%
(b) 20%
(c) 15%
(d) 25%
Answer:
(b) 20%

Question 56.
Calculate amount of tax to be deducted.
Revenue from Operations – ₹ 5,00,000
Other income (% of Revenue from Operations) – 20%
Expenses (% of Operating Revenue) – 40%
Tax Rate – 30%
(a) ₹ 1,50,000
(b) ₹ 1,20,000
(c) ₹ 1,00,000
(d) ₹ 2,00,000
Answer:
(b) ₹ 1,20,000

Question 57.
If net revenue from operations is ₹ 1,20,000, cost of revenue from operations is ₹ 40,000 and operating expenses are ₹ 20,000, what will be the percentage of operating income on net revenue from operations?
(a) 45%
(b) 55%
(c) 50%
(d) 65%
Answer:
(c) 50%

The post Analysis of Financial Statements Class 12 Important Questions and Answers Accountancy Chapter 9 appeared first on Learn CBSE.

We have given these Accountancy Class 12 Important Questions and Answers Chapter 8 Financial Statements of a Company to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 8 Financial Statements of a Company Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Financial Statements of a Company Important Questions Class 12 Accountancy Chapter 8

Question 1.
List any four items of ‘reserves’ that are shown under the heading ‘reserves and surplus’ in the balance sheet of a company as per Schedule III of the Companies Act, 2013. (All India 2016)
Answer;
The four items shown under the heading ‘reserves and surplus’ are

• Capital reserve
• Securities premium reserve
• Capital redemption reserve
• Debenture redemption reserve

Question 2.
Name any two items that are shown under the head ‘other current liabilities’ and any two items that are shown under the head ‘other current assets’ in the balance sheet of a company as per Schedule III of the Companies Act, 2013. (Delhi 2016)
Answer:
The two items shown under the head ‘other current liabilities’ are

• Unpaid dividends
• Income received in advance

The two items shown under the head ‘other current assets’ are

• Prepaid expenses
• Advance taxes

Question 3.
Identify the major heads under which the following items will be shown in the balance sheet of a company as per Schedule III of Companies Act, 2013. (All India 2016)
(i) Provision for tax
(ii) Loans payable on demand
(iii) Computer and related equipment
(iv) Goods acquired for trading
Answer:

Question 4.
Name the major heads under which the following items will be presented in the balance sheet of a company as per Schedule III of the Companies Act, 2013. (Delhi (C) 2016)
(i) Loose tools
(ii) Copyrights and Patents
(iii) Unpaid dividend
(iv) Land and Building
Answer:

Question 5.
Under which sub-headings, the following items will be placed in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Accrued incomes
(ii) Loose tools
(iii) Provision for employees benefits
(iv) Unpaid dividend
(v) Short-term loans
(vi) Long-term loans
(vii) Calls-in-advance (Compartment 2018: Delhi 2014 Modified)
Answer:

Question 6.
Under which sub-headings will the following items be placed in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Capital reserves
(ii) Bonds
(iii) Loans repayable on demand
(iv) Vehicles
(v) Goodwill
(vi) Loose tools (All India 2014)
Answer:

Question 7.
State under which major headings the following items will be presented in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Long-term borrowings
(ii) Trade payables
(iii) Provision for tax
(iv) Securities premium reserve
(v) Patents
(vi) Accrued incomes
(vii) Current investment (Delhi (C) 2014 Modified)
Answer:

Question 8.
Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Stores and spares
(ii) Proposed dividend
(iii) Computer software (All India 2013)
Answer:

Question 9.
Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Debentures
(ii) Loose tools
(iii) Calls-in-advance (All India 2013)
Answer:

Question 10.
Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Mining rights
(ii) Encashment of employees earned leave payable on retirement
(iii) Vehicles (Delhi 2013)
Answer:

Question 11.
Under what heads and sub-heads, the following items will appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Tax reserve
(ii) Interest on calls-in-advance
(iii) Stores and spares (Delhi 2013)
Answer:

Question 12.
Under what heads and sub-heads, the following items will appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Premium on redemption of debentures
(ii) Loose tools
(iii) Balances with banks (Delhi 2013)
Answer:

Question 13.
Under what heads and sub-heads, will the following items appear in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013.
(i) Subsidy reserve
(ii) Mining rights
(iii) Provision for doubtful debts (All India 2013)
Answer:

Question 14.
State the major headings under which the following items will be put as per Schedule III, Part I of the Companies Act, 2013.
(i) Long-term investments
(ii) Trade receivables
(iii) Motorcar
(iv) Discount on issue of shares
(v) Securities premium reserve
(vi) Unclaimed dividend (All India 2011)
Answer:

NOTE: ‘Discount is allowed on reissue of forfeited shares only.

Question 15.
Give the major headings under which the following items will be shown in a company’s balance sheet as per Schedule III, Part I of the Companies Act, 2013.
(i) Trade payables (Sundry creditors)
(ii) Provision for tax
(iii) Preliminary expenses
(iv) Loose tools
(v) Interest accrued on investments
(vi) Goodwill (All India 2011)
Answer:

Question 16.
How will you disclose the following items while preparing the balance sheet of a company, as per Schedule III of the Companies Act, 2013?
(i) Bank overdraft
(ii) Share issue expenses
(iii) Matured debentures
(iv) Building under construction. (Delhi 2011 Modified)
Answer:

Question 17.
List the items which are shown under the heading ‘current assets’ in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013. (Delhi 2011; Modified)
Answer:
Current Assets
(i) Current investments
(ii) Inventories
(iii) Trade receivables
(iv) Cash and cash equivalents
(v) Short-term loans and advances
(vi) Other current assets

Question 18.
List the items which are shown under the heading ‘current liabilities’ as per Schedule III, Part I of the Companies Act, 2013. (Delhi 2011)
Answer:
Current Liabilities
(i) Short-term borrowings
(ii) Trade payables
(iii) Other current liabilities
(iv) Short-term provisions

Question 19.
State under which major headings and sub-headings will the following items be presented in the Balance Sheet of a company as per Schedule-Ill, Part-I of the Companies Act, 2013.
(i) Prepaid .Insurance
(ii) Investment in Debentures
(iii) Calls-in-arrears
(iv) Unpaid Dividend
(v) Capital Reserve
(vi) Loose Tools
(vii) Capital Work-in-progress
(viii) Patents being developed by the company. (Delhi 2019)
Answer:

Question 20.
Under which major heads and sub-heads will the following items be placed in the Balance Sheet of the company as per Schedule III, Part I of the Companies Act, 2013?
(i) Cheques and bank drafts in hand
(ii) Loose tools
(iii) Securities premium reserve
(iv) Long-term investments with maturity period less than six months
(v) Work-in-progress
(vi) Mining rights
(vii) Publishing titles
(viii) Debtors (All India 2019)
Answer:

Question 21.
Under which major headings and sub-headings will the following items be presented in theBalance Sheet of a company as per Schedule III, Part I of the Companies Act, 2013?
(i) Interest accrued and due on debentures
(ii) Loose tools
(iii) Accrued interest on calls-in-advance
(iv) Interest due on calls-in-arrears
(v) Trademarks
(vi) Premium on redemption of debentures
(vii) Plant and Machinery
(viii) Patents (All India 2019)
Answer:

Question 22.
JW Ltd was a company manufacturing geysers. As a part of its long-term goal for expansion, the company decided to identify the opportunity in rural areas. Initial plan was rolled out for Bhiwani village in Haryana. Since the village did not have regular supply of electricity, the company decided to manufacture solar geysers. The core team consisting of the Regional Manager, Accountant and the Marketing Manager was taken from the Head Office and the remaining employees were selected from the village and neighbourhood areas.

At the time of preparation of financial statements, the accountant of the company fell sick and the company deputed a junior accountant temporarily from the village for two months.
The balance sheet prepared by the junior accountant showed the following items against the major heads and sub-heads mentioned which were not as per Schedule HI of the Companies Act, 2013.

Present the above items under the correct major heads and sub-heads as per Schedule III of the Companies Act, 2013. CBSE 2018 Modified
Answer:

Question 23.
(i) Give the meaning of ‘long-term provisions’.
(ii) List any four items other than ‘stock-in-trade’ that are presented under the sub-head ‘inventories’ as per Schedule III of the Companies Act, 2013. (All India 2016)
Answer:
(i) Long-term provisions are the provisions against which liability will arise after 12 months of the date of balance sheet or after the period of operating cyde. e.g. Provision made for retirement benefits payable to employees who will retire after 12 months from the date of balance sheet, provision for warranty claims that relates to the period after 12 months of the date of balance sheet.

(ii) The items other than ‘stock-in-trade’ that are presented under the sub-head inventories are

• Raw material
• Work-in-progress
• Finished goods
• Stores and spares

Question 24.
Under which major headings and sub-headings will the following items be shown in the balance sheet of a company as per Schedule III Part I of the Companies Act, 2013?
(i) Net loss as shown by statement of profit and loss
(ii) Capital redemption reserve
(iii) Bonds
(iv) Loans repayable on demand
(v) Unpaid dividend
(vi) Buildings
(vii) Trademarks
(viii) Raw materials (All India 2015)
Answer:

Question 25.
Under which heads and sub-heads the following items will be placed in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013?
(i) Cash in Hand
(ii) Mining Rights
(iii) Short-term Deposits
(iv) Debenture Redemption Reserve
(v) Income Received in Advance
(vi) Balance of the Statement of Profit and Loss
(vii) Office Equipments
(viii) Work-in-progress (Delhi 2016)
Answer:

Question 26.
Under which major headings and sub-headings will the following items be shown in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013?
(i) Balance of the statement of profit and loss
(ii) Loan of ₹ 1,00,000 payable after three years
(iii) Short-term deposits payable on demand
(iv) Loose tools
(v) Trademark
(vi) Land
(vii) Cash at bank
(viii) Trade payables (All India 2015)
Answer:

Question 27.
Under which major headings, the following items will be presented in the balance sheet of a company as per Schedule III, Part I of the Companies Act, 2013?
(i) Loans provided repayable on demand
(ii) Goodwill
(iii) Copyrights
(iv) Loose tools
(v) Cheques
(vi) General reserve
(vii) Stock of finished goods
(viii) 9% debentures repayable after three years (Delhi 2015)
Answer:

Question 28.
Under which major heads and sub-heads will the following items be placed in the balance sheet of a company as per Schedule III, Part I of the Companies Act; 2013?
(i) Bank overdraft
(ii) Cash and cash equivalents
(iii) Securities premium reserve
(iv) Negative balance of the statement of profit and loss
(v) Goodwill
(vi) Trademark
(vii) 5 years loan obtained from SBI
(viii) Investments (Foreign 2018)
Answer:

Question 29.
Financial statements are presented by directors to shareholders at every
(a) board meeting
(b) special (extraordinary) general meeting
(c) annual general meeting
(d) None of the above
Answer:
(c) annual general meeting

Question 30.
A company should disclose all the information in
(a) statement
(b) annual report
(c) accounts book
(d) None of these
Answer:
(b) annual report

Question 31.
Financial statements include balance sheet, statement of profit and loss, cash flow statement etc. Besides these statements, a special statement is also included in financial statements if applicable on company. You are required to find that statement.
(a) Statement of cash inflow and outflow
(b) Statement of changes in equity
(c) Statement of incomes and expenses
(d) Statement of assets and liabilities
Answer:
(b) Statement of changes in equity

Question 32.
Statement of profit and loss shows
(a) financial position
(b) financial performance
(c) assets and liabilities
(d) None of the above
Answer:
(b) financial performance

Question 33.
Format of profit and loss is prepared as specified in
(a) Part II, Schedule III
(b) Income Tax Act
(c) SEBI Act
(d) None of these
Answer:
(a) Part II, Schedule III

Question 34.
Which of the following is included under ‘other income’ head?
(a) Purchase of stock
(b) Sales of stock
(c) Interest received
(d) None of these
Answer:
(c) Interest received

Question 35.
A company took a loan of ₹ 1,00,000 and paid interest of ₹ 10,000 for this year @ 10% on loan amount. This interest will be shown under …………. head.
(a) finance cost
(b) employee benefit expense
(c) revenue from operation
(d) None of the above
Answer:
(a) finance cost

Question 36.
Calculate revenue from operation from following.
Sales = ₹ 1,04,00,000
Sales return = ₹ 4,00,000
Sales of scrap = ₹ 50,000
Dividend received = ₹ 20,000
Interest on fixed deposit = ₹ 60,000
(a) ₹ 1,00,00,000
(b) ₹ 1,01,30,000
(c) ₹ 1,00,80,000
(d) ₹ 1,00,50,000
Answer:
(d) ₹ 1,00,50,000

Question 37.
Compute cost of material consumed from following.
Opening inventory = ₹ 5,00,000
Materials purchased = ₹ 40,00,000
Closing inventory = ₹ 6,00,000
(a) ₹ 40,00,000
(b) ₹ 39,00,000
(c) ₹ 38,00,000
(d) ₹ 41,00,000
Answer:
(b) ₹ 39,00,000

Question 38.
Which of the following is included on assets side?
(a) Share capital
(b) Inventories
(c) Bills payable
(d) None of the above
Answer:
(b) Inventories

Question 39.
Find out which of the following is a reserve for distributing dividend?
(a) General reserve
(b) Capital reserve
(c) Revaluation reserve
(d) None of the above
Answer:
(a) General reserve

Question 40.
Find which of the following is shown in notes to accounts only.
(a) Inventories
(b) Current investments
(c) Contingent liability
(d) Building
Answer:
(c) Contingent liability

The post Financial Statements of a Company Class 12 Important Questions and Answers Accountancy Chapter 8 appeared first on Learn CBSE.

We have given these Accountancy Class 12 Important Questions and Answers Chapter 10 Accounting Ratios to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 10 Accounting Ratios Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Accounting Ratios Important Questions Class 12 Accountancy Chapter 10

Question 1.
State how personal bias can get reflected in ratio analysis. (All India (C) 2011)
Answer:
In many situations, the accountant has to make the choice out of various alternatives available, e.g. choice in the method of depreciation (straight line or written down), choice in the method of inventory valuation (LIFO, FIFO or HIFO). Since the subjectivity is inherent in personal judgement, the financial statements are therefore not free from personal bias. As a result, ratio analysis cannot be said to be free from bias.

Question 2.
State any two limitations of ratio analysis. (All India (C) 2010)
Answer:
The two limitations of ratio analysis are

• Accounting ratios ignore qualitative factors.
• Affected by personal bias and ability of the analyst.

Question 3.
What is meant by accounting ratios? (Delhi (C) 2010)
Answer:
An accounting ratio is a mathematical expression of the relationship between two items or group of items shown in the financial statements.

Question 4.
State with reason whether repayment of long-term loan will result in increase, decrease or no change of debt equity ratio. (All India 2012)
Answer:
Debt-equity ratio will decrease as repayment of long-term loan will reduce the long- term debt but the shareholders’ funds will remain same.

Question 5.
A company had current assets ₹ 3,00,000 and current liabilities ₹ 1,40,000. Afterwards, it purchased goods worth ₹ 20,000 on credit. Calculate the current ratio after the purchase of goods. (All India 2019)
Answer:
New current assets = 3,00,000 + 20,000
New current liabilities = 1,40,000 + 20,000 = ₹ 1,60,000
Current Ratio = \(\frac { current assets }{ current liabilities }\)
= \(\frac { 320000 }{ 160000 }\) = 2 : 1

Question 6.
From the following information calculate interest coverage ratio. Net profit after interest and tax ₹ 1,20,000; Rate of income tax 40% ; 15% debentures ₹ 1,00,000; 12% mortgage loan ₹ 10,000. (All India2019)
Answer:
Rate of tax 40%
Profit after tax = 100 – 40 = 60% and according to question profit after tax is ₹ 1,20,000.
So, profit before tax = \(\frac { 120000 }{ 60% }\) = 2,00,000 60%

Question 7.
What is meant by ‘profitability ratios’? (All India 2016)
Answer:
Profitability ratios measure the profitability of a business. Profitability ratios help in assessing the . overall efficiency of the business. These ratios are calculated to analyse the earning capacity of the business which is the outcome of utilisation of resources employed in the business. Various profitability ratios commonly used to analyse the earning capacity of the business are gross profit ratio, net profit ratio, operating ratio, return on investment, operating profit ratio.

Question 8.
The current ratio of Y Ltd is 2 : 1. State with reason, which of the following transactions would (a) increase, (b) decrease or (c) not change the ratio
(i) Trade receivables included debtors of ₹ 40,000 which were received Company purchased furniture of ₹ 45,000. The vendor was paid by issue of equity shares of ₹ 10 each at par (Delhi 2014)
Answer:
(i) Not change the ratio Simultaneous increase and decrease by same amount in current assets will not effect the value of current assets or current liabilities, therefore, there is no effect on the current ratio.
(ii) Not Change the ratio Issue of shares for furniture purchased do not effect either current assets or current liabilities. Therefore, current ratio will not be effected.

Question 9.
The quick ratio of Z Ltd is 1 : 1 State with reason which of the following transactions would (a) increase, (b) decrease or (c) not change the ratio
(i) Included in the trade payables was a bills payable of ₹ 3,000 which was met on maturity.
(ii) Debentures of ₹ 50,000 were converted into equity shares. (Delhi 2014)
Answer:
(i) Not change the ratio Simultaneous decrease in both current assets and current liabilities will not effect the quick ratio.
(ii) Not change the ratio Debentures converted into shares do not effect either quick assets or current liabilities. Therefore, quick ratio will not be effected.

Question 10.
X Ltd has a current ratio of 3 : 1 and quick ratio of 2 : 1. If the excess of current assets over quick assets as represented by inventory is ₹ 40,000, calculate current assets and current liabilities. (All India 2012)
Answer:
Let the current liabilities = x

Therefore, quick or liquid assets = 2x
Liquid Assets = Current Assets – Inventory
2x = 3x – 40,000
2x – 3x = -40,000
-x = -40,000
x = 40,000
Current Liabilities = ₹ 40,000
Current Assets = 3 × ₹ 40,000 = ₹ 1,20,000

Question 11.
OM Ltd has a current ratio of 3.5 : 1 and quick ratio of 2 : 1. If the excess of current assets over quick assets as represented by inventory is ₹ 1,50,000, calculate current assets and current liabilities. Delhi 2012
Answer:
Solve as Q no. 7 on page 433.
Current Liabilities = ₹ 1,00,000
Current Assets = ₹ 3,50,000

Question 12.
On basis of the following information, calculate
(i) Debt equity ratio
(ii) Working capital turnover ratio. (Delhi 2011)

Answer:
(i) Debt equity ratio

Long-term Debts = 6% Debentures + 9% Loan
= 300000 +100000 = ₹ 400000
Shareholders Funds = Paid-up Share Capital + Debenture Redemption Reserve
= 600000 + 200000 = ₹ 800000

(ii) Working Capital Turnover Ratio

*Working Capital = Current Assets** – Current Liabilities***
= 12,00,000 – 4,00,000
= ₹ 8 00 POO
**Current Assets = Other Current Assets + Closing Inventory
= 1100000 + 1,00,000
= ₹ 12,00,000
***Current Liabilities = ₹ 4,00,000

Question 13.
The quick ratio of a company is 2 : 1. State giving reasons, (for any four) which of the following would improve, reduce or not change the ratio
(i) Purchase of machinery for cash
(ii) Purchase of goods on credit
(iii) Sale of furniture at cost
(iv) Sale of goods at a profit
(v) Cash received from debtors. (Delhi (C) 2011)
Answer:
(i) Purchase of Machinery for Cash:
Effect Reduce
Reason Purchase of machinery for cash will decrease the quick assets, but the current liabilities will remain unchanged.

(ii) Purchase of Goods on Credit:
Effect Reduce
Reason Purchase of goods on credit will increase the current liabilities, but the quick assets will remain unchanged.

(iii) Sale of Furniture at Cost:
Effect Improve
Reason Sale of furniture at cost will increase the quick assets, but the current liabilities will remain unchanged.

(iv) Sale of Goods at a Profit:
Effect Improve
Reason Sale of goods at a profit will increase the quick assets, but the current liabilities will remain unchanged.

(v) Cash Received from Debtors:
Effect No change
Reason Cash received from debtors will not change the quick assets because the quick assets are increased and decreased with the same amount, and the current liabilities remain unchanged.

Question 14.
The debt equity ratio of a company is 1:1 state giving reasons, (any four) which of the following would improve, reduce or not change the ratio
(i) Purchase of machinery for cash
(ii) Purchase of goods on credit
(iii) Sale of furniture at cost
(iv) Sale of goods at a profit
(v) Redemption of debentures at a premium (All India (C) 2011)
Answer:
(i) Purchase of Machinery for Cash:
Effect No change
Reason Neither the long-term debt nor the shareholders’ funds are affected by purchase of machinery for cash.

(ii) Purchase of Goods on Credit:
Effect No change
Reason Neither the long-term debt nor the shareholders’ funds are affected by purchase of goods on credit.

(iii) Sale of Furniture at Cost:
Effect No change
Reason Neither the long-term debt nor the shareholders’ funds are affected by sell of furniture at cost.

(iv) Sale of Goods at a Profit:
Effect Reduce
Reason Shareholders’ funds are increased by the amount of profit on sale of goods, but the long-term debts remain unchanged.

(v) Redemption of Debentures at a Premium:
Effect Reduce
Reason Redemption of debentures will reduce the long-term debts, but shareholders’ funds remain unchanged. Here,it is assumed that premium payable on redemption of debenture is written-off through existing securities premium reserve.

Question 15.
Assuming that the debt equity ratio is 2 : 1. State giving reasons whether this ratio would increase, decrease or remain unchanged in the following cases. (Any four)
(i) Purchase of fixed assets on a credit of two months
(ii) Purchase of fixed assets on long-term deferred payment basis
(iii) Issue of new shares for cash
(iv) Issue of bonus shares
(v) Sale of fixed assets at a loss of ₹ 3,000. (Delhi All India 2010)
Answer:
(i) Purchase of Fixed Assets on a Credit of Two Months
Effect No change
’Reason Neither the long-term debt nor the shareholders’ funds are affected by purchase of fixed assets on a credit of two months.

(ii) Purchase of Fixed Assets on a Long-term Deferred Payment Basis
Effect Increase
Reason The long-term debts are increased by the purchase of fixed assets on a long-term deferred payment basis, but the shareholders’ fund remains unchanged.

(iii) Issue of New Shares for Cash:
Effect Decrease
Reason Shareholders’ funds are increased by the issue of new shares for cash, but the long-term debts remain unchanged.

(iv) Issue of Bonus Shares:
Effect No change
Reason Shareholders’ funds increase and decrease by the same amount.

(v) Sale of Fixed Assets at a Loss of ₹ 3,000:
Effect Increase
Reason The shareholders’ funds will reduce by the amount of loss of 3,000, but the long-term debt remain unchanged.

Question 16.
From the following information, calculate any two of the following ratios
(i) Current ratio
(ii) Debt equity ratio
(iii) Inventory turnover ratio
Information:
Revenue from operations (Net sales) ₹ 5,00,000, opening inventory ₹ 7,000, closing inventory ₹ 4,000 more than the opening inventory, net purchase ₹ 1,00,000 less than revenue from operations, operating expenses ₹ 30,000, liquid assets ₹ 75,000, prepaid expenses ₹ 2,000, current liabilities ₹ 60,000, 9% debentures ₹ 3,00,000, long-term loan from bank ₹ 1,00,000, equity share capital ₹ 10,00,000 and 8% preference share capital ₹ 2,00,000. (Delhi 2010)
Answer:
(i) Current ratio = \(\frac { Current Assets }{ Current Liabilities }\)
= \(\frac { 88000 }{ 60000 }\) = 1.47 : 1
‘Current Assets = Liquid Assets + Closing Inventory** + Prepaid Expenses
= 75000 + 11000 + 2000
= ₹ 88000

Closing Inventory = Opening Inventory + 4,000
= 7000 + 4000 = ₹ 11000

‘Long-term Debts = 9% Debentures + Long-term Loan from Bank
= 3,00,000 +1,00000 = ₹ 400000
‘‘Shareholders’ Funds = Equity Share Capital + Preference Share Capital
= 1000000 + 200000 = ₹ 1200000

‘Cost of Revenue from Operations = Opening Inventory + Net Purchases – Closing Inventory
= 7000 + (500000 -100000) -11000 = ₹ 3,96000

Question 17.
From the following information, calculate any two of the following ratios
(i) Liquid ratio
(ii) Gross profit ratio
(iii) Debt equity ratio
Information:
Revenue from operations (Net sales) ₹ 4,00,000, opening inventory ₹ 10,000, closing inventory ₹ 3,000 less than the opening inventory, net purchase 80% of revenue from operations, direct expenses ₹ 20,000, current assets ₹ 1,00,000, prepaid expenses ₹ 3,000, current liabilities ₹ 60,000, 9% debentures ₹ 4,00,000, long-term loan from bank ₹ 1,50,000, equity share capital ₹ 8,00,000 and 8% preference share capital ₹ 3,00,000. (All India (c) 2010)
Answer:

Closing Inventory = Opening Inventory – 3,000 = 10000 – 3000 = ₹ 7000

Net Purchases = 80% of Revenue from Operations = 400000 × \(\frac { 80 }{ 100 }\) = ₹ 3,20000
Cost of Revenue from Operations = Opening Inventory + Net Purchases + Direct Expenses – Closing Inventory
= 10000 + 3,20000 + 20000 – 7000 = ₹ 3,43000
‘Gross Profit = Revenue from Operations – Cost of Revenue from Operations
= 400000 – 3,43000 = ₹ 57000

‘Long-term Debts = 9% Debentures + Long-term Loan from Bank
= 400000 + 1,50000 = ₹ 550000
“Shareholders’ Funds = Equity Share Capital + 8% Preference Share Capital
= 800000 + 300000 = ₹ 1100000

Question 18.
Quick ratio of a company is 1 : 1. State, with reason, whether the following transactions will increase, decrease or not change the ratio
(i) Paid insurance premium in advance ₹ 10,000.
(ii) Purchased goods on credit ₹ 8,000.
(iii) Issued fully paid equity shares of ₹ 1,00,000.
(iv) Issued 9% debentures of ₹ 5,00,000 to the vendor for machinery purchased. (All India 2019)
Am. (i) Decrease
As payment of insurance premium will decrease the quick assets.
(ii) Decrease
As purchase of goods on credit will increase the current liabilities.
(iii) Increase
As issue of equity shares will increase quick assets.
(iv) No change
As issue of debentures to vendor of machinery would have no impact on quick assets and current liabilities.

Question 19.
From the following information of Shiva Ltd, calculate total assets to debt ratio (All India 2019)

Answer:
Total Assets = Fixed Assets + Non-current Investments + Current Assets = 12,00,000 + 1,50,000 + 1,90,000 = ₹ 15,40,000
Now, Total Liabilities = Total Assets
“Equity Share Capital + 9% Preference Share Capital + Reserve and Surplus + Non-current Liabilities (Debt) + Current Liabilities = ₹ 15,40,000
5,00,000 + 4,00,000 + 2,40,000 + 1,00,000 + Non-current Liabilitiess = ₹ 15,40,000
Non-current Liabilities (Debt) = 15,40,000 -12,40,000 = ₹ 3,00,000
Now, Total Assets to Debt Ratio = \(\frac { Total Assets }{ Debt }\) = \(\frac { 1540000 }{ 300000 }\) = 5.133 : 1

Question 20.
(a) Calculate revenue from operations of BN Ltd. From the following information

(b) The operating ratio of a company is 60%. State whether ‘Purchase of goods costing ₹ 20,000’ will increase, decrease or not change the operating ratio. Qalhi 2019
Answer:
(a) Current assets = ₹ 800000

Quick Assets = ₹ 600,000
Inventory = Current Assets – Quick Assets
= 800000 – 600000 = ₹ 200000

Cost of Revenue from Operations = ₹ 12,00,000
Profit = 25% on cost = 12,00,000 × 25% = ₹ 3,00,000
Revenue from Operations = 12,00,000 + 3,00,000 = ₹ 15,00,000

(b) No Change
As purchase of goods will increase operating cost as well as cost of goods sold.

Question 21.
(a) Calculate ‘Total assets to debt ratio’ from the following information

(b) The debt equity ratio of a company is 1 : 2. State whether ‘Issue of bonus shares’ will increase, decrease or not change the debt equity ratio. (Delhi 2019)
Answer:
(a) Total Liabilities = Equity Share Capital + Long-term Borrowings + Surplus + General Reserve + Current Liabilities + Long-term Provisions
= 4,00,000 + 1,80,000 + 100000 + 70,000 + 30,000 + 1,20,000 = ₹ 900,000
Total Assets = Total Liabilities = ₹ 900000
Long-term Debt = Long-term Borrowings + Long-term Provisions
= 100000 + 1,20000 = ₹ 300000

Total Assets to Debt Ratio = \(\frac { Total Assets }{ Long term Debt }\) = \(\frac { 900000 }{ 300000 }\) = 3 : 1

(b) Decrease
As issue of bonus shares will increase the shareholders funds/equity.

Question 22.
The operating ratio of a company is 80%. State whether the following transactions will increase, decrease or not change the ratio
(i) Purchased goods on credit ₹ 20,000
(ii) Paid wages ₹ 5,000
(iii) Redeemed ₹ 8,000, 9% debentures
(iv) Sold goods ₹ 50,000 for cash. (All Indio 2019)
Answer:
(i) Purchased goods on credit ₹ 20,000
⇒ No change
As both purchase and closing stock will increase, so there will be no effect on cost of goods sold.

(ii) Paid wages ₹ 5,000
⇒ Increase
As wages paid will increase the operating cost.

(iii) Redeemed ₹ 8,000, 9% Debentures
⇒ No change
As redemption of debentures is a non-operating activity.

(iv) Sold goods ₹ 50,000 for cash
⇒ Decrease
As goods sold will increase the net sales.

Question 23.
From the following information obtained from the books of Kundan Ltd, calculate the inventory turnover ratio for the years 2015-16 and 2016-17.

(Gross profit is 25% on cost of revenue from operations)
In the year 2015-16, inventory increased by ₹ 2,00,000. (CBSE 2018)
Answer:
For 2015-16

Question 24.
Y Ltd’s profits after insterest and tax was ₹ 1,00,000. Its current assets were ₹ 4,00,000 current liabilities ₹ 2,00,000; fixed assets ₹ 6,00,000 and 10% long-term debt ₹ 4,00,000. The rate of tax was 20%. Calculate ‘Return on Investment of Y Ltd. (Comportment 2018)
Answer:

Working Capital = Current Assets – Current Liabilities
= 400000 – 200000 = ₹ 200000
Capital Employed = Fixed Assets + Working Capital
= 600000 + 200000
= ₹ 800000
Return on Investment

Question 25.
A company earn gross profit 25% on cost. For the year ended 31st March, 2017 its gross profit was ₹ 5,00,000; equity share capital of the company was ₹ 1,00,00,000; reserves and surplus ₹ 2,00,000; long-term loan ₹ 3,00,000 and non-current assets were ₹ 10,00,000.
Compute the ‘working capital turnover ratio of the company. (Comportment 2018)
Answer:
Gross Profit = 25% on cost
Gross profit ₹ 500000
∴ Revenue from Operation = \(\frac { 125 }{ 25 }\) × 500000
= ₹ 25,00,000
Working Capital = Equity Share Capital + Reserve and Surplus + Long-term Loan – Non-current Assets
= 1000000 + 200000 + 300000 -1000000 = ₹ 500000
Working Capital Turnover Ratio

Question 26.
The proprietary ratio of M Ltd is 0.80 : 1.
State with reasons whether the following transactions will increase, decrease or not change the proprietary ratio
(i) Obtained a loan from bank ₹ 2,00,000 payable after five years.
(ii) Purchased machinery for cash ₹ 75,000
(iii) Redeemed 5% redeemable preference shares ₹ 1,00,000.
(iv) Issued equity shares to the vendors of machinery purchased for ₹ 4,00,000. (All India 2017)
Answer:
(i) Decrease Loan obtained from bank will increase the total assets but the shareholders’ funds will remain the same, so proprietary ratio will decrease.
(ii) No change Machinery purchased for cash will increase and simultaneously decrease the total assets therefore proprietary ratio will remain unchanged.
(iii) Decrease Redemption of preference shares will decrease total assets and shareholders’ funds simultaneously, so proprietary ratio will decrease.
(iv) Increase Machinery purchased by issue of equity shares will increase total assets and shareholders’ funds simultaneously, so proprietary ratio will increase.

Question 27.
The quick ratio of a company is 0.8 : 1. State with reason whether the following transactions will increase, decrease or not change the quick ratio
(i) Purchase of loose tools ₹ 2,000.
(ii) Insurance premium paid in advance ₹ 500.
(iii) Sale of goods on credit ₹ 3,000.
(iv) Honoured a bills payable ₹ 5,000 on maturity. (Delhi 2017)
Answer:
(i) Decrease Purchasing loose tools will decrease the current assets but the current liabilities will remain unaffected, so quick ratio will decrease.
(ii) Decrease Insurance premium paid in advance will decrease the current assets but the current liabilities will remain unaffected, so quick ratio will decrease.
(iii) Increase Goods sold on credit will increase the quick ratio as current liabilities will remain unchanged and quick assets will increase, so quick ratio will increase.
(iv) Decrease Bills payable honoured on maturity will decrease the quick assets and current liabilities simultaneously, so quick ratio will decrease.

Question 28.
(i) What is meant by ‘activity ratios’?
(ii) From the following information calculate inventory turnover ratio, revenue from operations ₹ 16,00,000, average inventory ₹ 2,20,000, gross loss ratio 5%. (All India 2016)
Answer:
(i) Activity ratios show how efficiently a company is using its assets to generate sales. These ratios express the number of times assets employed or for that matter, any constituents of assets, is turned into sales during an accounting period. These ratios are also known as turnover ratios or performance ratios. These ratios are calculated on the basis of sales or cost of sales. The various activity ratios are inventory turnover ratios, trade receivables or debtors turnover ratio, trade payables or creditors turnover ratio, working capital turnover ratio.

(ii) Inventory Turnover Ratio

⇒ Gross Loss = 5% of 16,00,000 = ₹ 80,000
Cost of Revenue from Operations = Revenue from Operations + Gross Loss
= 16,00,000 + 80,000 = ₹ 16,80,000

Question 29.
(i) What is meant by ‘solvency of business?
(ii) From the following details obtained from the financial statements of Jeev Ltd, calculate interest coverage ratio Net profit after tax ₹ 1,20,000 12% long-term debt ₹ 20,00,000 Tax rate 40% (Delhi 2016)
Answer:
(i) Solvency of a business means the ability of business to pay off its long-term liabilities. Solvency ratios such as debt equity ratio, total ‘assets to debt ratio, interest coverage ratio etc are some of the important solvency ratios that help the investors to know about the credibility of business and accordingly take rational investment decisions. Better the solvency position of the business, the better the market standing of such firms.

(ii) Interest Coverage Ratio

Calculation of net profit before interest and tax Net profit after tax = 1,20,000; Tax = 40%
If profit after tax is 60, profit before tax is 100 and if profit after tax is ₹ 1,20300
Profit before tax would be
= \(\frac { 100 }{ 60 }\) × 1,20300 = ₹ 2,00,000
Interest on long-term debt
= 2,00,000 × 12% = ₹ 2,40,000
Therefore, Profit before interest and tax = 2,00,000 + 2,40,000 = ₹ 4,40,000

Question 30.
(i) What is meant by ‘profitability of business’?
(ii) From the following information, calculate operating profit ratio.
Opening stock ₹ 10,000, purchases ₹ 1,20,000, revenue from operations ₹ 4,00,000, purchase returns ₹ 5,000, returns from revenue from operations ₹ 15,000, selling expenses ₹ 70,000, administrative expenses ₹ 40,000, closing stock ₹ 60,000. (Delhi 2016)
Answer:
(i) Profitability is the basic objective of every business. Profitability is the measure of efficiency and success of the business. It is related to the income of the business, i.e. how much a concern is earning in relation to the capital invested by it. The various ratios which helps to measure the profitability of a business are gross profit ratio, net profit ratio, operating ratio etc. All these ratios are used to assess a business ability to generate earnings as compared to its expenses and other relevant cost during a specific period of time.

(ii) Operating Profit Ratio

‘Operating Profit = Revenue from Operations** – Cost of Revenue from Operations (Opening stock + Purchases – Closing stock) – Selling Expenses – Administrative Expenses
= 3,85,000 – [10800 +1,15,000 (1,20000 – 5000) – 60000] – 70,000 – 40000
= 385000 – 65000 – 70000 – 40000 = ₹ 2,10,000
“Revenue from Operations = Revenue from Operations – Returns from Revenue from Operations
= 400000 -15000 = ₹ 385000

Question 31.
(i) What is meant by “liquidity of business’?
(ii) From the following information calculate operating ratio
Revenue from operations 7 6,80,000, rate of gross profit on cost 25%, selling expenses ₹ 1,44,000, administrative expenses ₹ 73,000. (Delhi 2016)
Answer:
(i) Liquidity of business refers to the ability of the firm to meet its short-term obligations. Its the ability of an organisation to meet its current financial obligations. Liquidity ratios measure the ability of a company to meet its short-term debt obligations. The various liquidity ratios used for this purpose are current ratio and acid test ratio/quick ratio.

Operating Cost = Cost of Goods Sold + Operating Expenses
= 5,44000 + 1,44000 + 73000 = ₹ 781000
Gross profit = \(\frac { 1 }{ 4 }\) on cost Or \(\frac { 1 }{ 5 }\) on sales = \(\frac { 1 }{ 5 }\) × 680000 = ₹ 136000
Let cost of goods sold be = x ⇒ 136000 = \(\frac { 1 }{ 4 }\) × x ⇒ x = ₹ 5,44,000
NOTE: Operating expenses include selling and administrative expenses.

Question 32.
(i) From the following, calculate ‘Trade receivables turnover ratio”.
Total revenue from operations for the year – ₹ 8,40,000
Cash revenue from operations – 40% of credit revenue from operations
Closing trade receivables – ₹ 2,00,000
Excess of closing trade receivables over opening trade receivables ₹ 80,000
(ii) From the following information calculate ‘Interest coverage ratio’
Profit after interest and tax – ₹ 4,97,000
Rate of income tax – 30%
12% debentures – ₹ 6,00,000 (All India (C) 2016)
Answer:

Let, credit revenue from operations be x
Cash revenue from operations be x × 40% = 0.4x
Total Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations
8,40,0 = 0.4x + x
8,40,000 = 14x
‘Credit revenue from operations ⇒ x ⇒ 6,00,000
Average Trade Receivables

Opening trade receivables
= 200000 – 80,000 = ₹ 1,20,000
(ii) Interest Coverage Ratio

Question 33.
From the given information calculate the following
(i) Cost of revenue from operations
(ii) Opening and closing inventory
(iii) Quick assets
(iv) Current assets
Information Inventory turnover ratio 6 times, inventory at the end is ₹ 6,000 more than the inventory in the beginning, revenue from operations (all credits) ₹ 2,40,000, Gross profit 25% on cost, current liabilities ₹ 80,000, quick ratio 080 : 1. (Delhi (C) 2016)
Answer:
(i) Let cost be 100
Gross profit be = 25
Revenue from operations = 100 + 25 = 125
Revenue from operations (all credits) = 2,40,000
∴ Cost of revenue from operations
= 2,40,000 × \(\frac { 100 }{ 125 }\)
Cost of revenue from operations = ₹ 1,92,000

(ii) Let opening inventory be = x
Closing inventory be = x + 6000
Average Inventory
= \(\frac{x+x+6000}{2}=\frac{2 x+6,000}{2}\) = x + 3000
Inventory Turnover Ratio
Cost of Revenue from Operations

6x + 18,000 = 1,92,000
6x = 1,92,000 – 18,000
x = \(\frac { 174000 }{ 6 }\) = 29,000
‘Opening inventory ⇒ x ⇒ 29,000 = x + 6,000
Closing inventory = 29,000 + 6,000 = ₹ 35,000

Quick Assets = ₹ 64,000

(iv) Current Assets = Quick Assets + Inventory
= 64,000 + 35,000
Current Assets = ₹ 99,000

Question 34.
The current ratio of a company is 2.1 : 1.2. State with reasons which of the following transactions will increase, decrease or not change the ratio
(i) Redeemed 9% debentures of ₹ 1,00,000 at a premium of 10%.
(ii) Received from debtors ₹ 17,000.
(iii) Issued ₹ 2,00,000 equity shares to the vendors of machinery.
(iv) Accepted bills of exchange drawn by the creditors ₹ 7,000. (All India 2015)
Answer:
(i) Decrease Current assets will decrease because of outflow of cash but current liabilities will remain unchanged therefore current ratio will decrease.
(ii) Not change the ratio Simultaneous increase and decrease in the value of current assets i.e. cash and debtors by the same amount will not effect the ratio.
(iii) Not change the ratio Issue of shares for purchase of machinery do not effect either current assets or current liabilities, therefore current ratio will not be effected.
(iv) Not change the ratio In this case one current liability (i.e. creditors) is getting converted into another current liability (i.e. bills payable), therefore current ratio will not be effected.

Question 35.
From the following information related to Naveen Ltd, calculate (i) Return on investment (ii) Total assets to debt ratio. Information Fixed assets ₹ 75,00,000; current assets ₹ 40,00,000; current liabilities ₹ 27,00,000; 12% debentures ₹ 80,00,000 and net profit before interest, tax and dividend ₹ 14,50,000. (Delhi 2015)
Answer:
(i) Return on Investment
Net Profit before Interest,

Capital Employed = Fixed Assets + Currents Assets – Current Liabilities
= 75,00,000 + 40,00,000 – 27,00,000 = ₹ 88,00,000

(ii) Total Assets to Debt Ratio = \(\frac { Total Assets }{ Debt }\) = \(\frac { 1,15,00,000 }{ 80,00,000 }\) = 1.44 : 1
*Total Assets = Fixed Assets + Current Assets = 7500000 + 4000000 = ₹ 1,15,00,000

Question 36.
The current ratio of a company is 2.5 : 1.5. State with reasons which of the following transactions will increase, decrease or not change the ratio
(i) Discounted a bills receivable of ₹ 10,000 from bank. Bank charged discount of ₹ 200.
(ii) A bill receivable ₹ 8,000 discounted with bank was dishonoured.
(iii) Cash deposited into bank 7,000.
(iv) Paid cash ₹ 5,000 to the creditors. (Foreign 2016)
Answer:

Question 37.
From the following information, calculate total assets to debt ratio

Answer:
Total Assets to Debt Ratio = \(\frac{\text { Total Assets }}{\text { Debt }}=\frac{1485,000}{6,45,000}\) = 2.30 : 1
Total Assets = Investments + Land + Trade Receivables + Cash and Cash Equivalent
= 2,10000 + 8,50,000 + 2,75,000 + 1,50,000 = ₹ 14,85,000
Debt = Capital Employed – (Equity share capital + Reserves + Surplus)
= 25,00,000 – 18,55,000 (1430,000 + 2,75000 + 130000)
= ₹ 6,45,000

Question 38.
With the help of the following information, calculate return on investment. Net profit after interest and tax ₹ 6,00,000; 10% debentures ₹ 10,00,000; tax @ 40%; capital employed ₹ 80,00,000. (Delhi (C) 2015)
Answer:
Return on Investment

Question 39.
From the following calculate the ‘gross profit ratio’ and ‘working capital turnover ratio’ (Delhi (C) 2014)

Answer:
(i) Gross Profit Ratio

*Gross Profit = Revenue from Operations – Cost of Revenue from Operations
= 3000000 – 2000000 = ₹ 1000000

(ii) Working Capital Turnover Ratio

‘Working Capital = Current Assets – Current Liabilities
= 600000 – 200000 = ₹ 400000

Question 40.
(i) From the following information, compute ‘debt equity ratio’

(ii) The current ratio of X Ltd is 2 : 1.
State with reason which of the following transaction would increase, decrease or not change the ratio
(a) Included in the trade payables was a bills payable of ₹ 9,000 which was met on maturity.
(b) Company issued 1,00,000 equity shares of ₹ 10 each to the vendors of machinery purchased. (Delhi 2014)
Answer:
(i) Debt Equity Ratio

‘Long-term Debt = Long-term Borrowings + Long-term Provisions
= 200000 +100000 = ₹ 300000
“Shareholders’ Funds = Total Assets – Total Liabilities
= 4,50,000 – 3,50,000 = ₹ 1,00,000
Total Assets = Non-current Assets + Current Assets
= 300000 + 90000 = ₹4,50,000
Total Liabilities = Long-term Borrowings + Long-term Provisions + Current Liabilities
= 200000 +100000 + 50000 = ₹ 300000

(ii) (a) Increase in the ratio Simultaneous decrease in both current assets and current liabilities, i.e. cash and trade payable will increase the current ratio.
(b) No change in the ratio Issue of shares for machinery purchased do not affect either current assets or current liabilities, therefore, the current ratio will not be affected.

Question 41.
(i) The quick ratio of a company is 1.5 : 1. State with reason which of the following transactions would increase, decrease or not change the ratio
(a) Paid rent ₹ 3,000 in advance.
(b) Trade receivables included a debtor Shri Ashok who paid his entire amount due ₹ 9,700.
(ii) From the following information compute ‘proprietary ratio’ (All India 2014)

Answer:
(i) (a) Not change the ratio:
Reason As there is a simultaneous increase and decrease in current assets by the same amount, i.e. prepaid expenses and cash, therefore it will not affect the value of current assets.
(b) Not change the ratio:
Reason As there is a simultaneous increase and decrease in current assets by the same amount, i.e. cash and trade receivables, therefore it will not affect the value of current assets.

(ii) Proprietary Ratio:

Question 42.
From the following calculate
(i) Operating profit ratio
(ii) Working capital turnover ratio. (All India (C) 2014)

Answer:
(i) Operating Profit Ratio

Operating Profit = Gross Profit – Other Operating Expenses + Other Operating Incomes
= 75,000 – 41,000 + 2,000
= ₹ 36,000
Other Operating Expenses = Office Expenses + Selling Expenses
= 15,000 +26,000
= ₹ 41,000
Other Operating Incomes = Commission
Received
= ₹ 2,000

(ii) Working Capital Turnover Ratio

‘Working Capital = Current Assets – Current Liabilities
= 60,000 – 10,000 = ₹ 50,000

Question 43.
From the following, calculate
(a) Current ratio; and (b) Working capital turnover ratio

Answer:

Total Assets = Current Assets + Non-current Assets
1,00,000 = Current Assets + 50,000
Current Assets = 100,000 – 50000 = ₹ 50000
Current liabilities = Total Assets – Shareholders Funds – Non-current Liabilities
= 100000 – 60000 – 20000 = ₹ 20000

Working Capital = Current Assets – Current Liabilities = 50000 – 20000 = ₹ 30,000

Question 44.
(i) Compute ‘debtors turnover ratio’ from the following information
Revenue from operations (Total sales) ₹ 5,20,000, cash revenue from operations 60% of the credit revenue from operations, closing debtors ₹ 80,000, opening debtors are 3/4th of closing debtors.
(ii) Current liabilities of a company are ₹ 1,60,000. Its liquid ratio is 1.5 : 1 and current ratio is 2.5 : 1. Calculate quick assets and current assets. (All India 2013)
Answer:

Let Credit revenue from operations be y
Cash revenue from operations = 60% of credit revenue from operations Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations
5,20,000 = 60% of y + y
5,20,000 = 0.6y + y


Quick Assets = 1.5 × 1,60,000 = 2,40,000

Current Assets = 1,60,000 × 2.5 = ₹ 4,00,000

Question 45.
(i) Compute ‘working capital turnover ratio’ from the following information
Cash revenue from operations ₹ 1,30,000, credit revenue from operations ₹ 3,80,000, returns from revenue from operations ₹ 10,000, liquid assets ₹ 1,40,000, current liabilities ₹ 1,05,000 and inventory ₹ 90,000.
(ii) Calculate ‘debt equity ratio’ from the following information
Total assets ₹ 3,50,000, total debt ₹ 2,50,000 and current liabilities ₹ 80,000. (Delhi 2013)
Answer:

Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations – Returns from Revenue from Operations
= 130,000 + 3,80,000 – 10,000
= ₹ 5,00,000
Current Assets = Liquid Assets + Inventory = 1,40,000 + 90,000 = ₹ 230,000
Working Capital = Current Assets – Current Liabilities = 2,30,000 – 1,05,000 = ₹ 1,25,000

Long-term Debt = Total Debts – Current Liabilities
= 2,50,000 – 80,000
= ₹ 1,70,000
Equity or Shareholders’ Funds = Total Assets – Total Debt
= 3,50,000 – 2,50,000
= ₹ 1,00,000

Question 46.
From the following information, calculate any two of the following ratios
(i) Debt equity ratio
(ii) Working capital turnover ratio
(iii) Return on investment
Information Equity share capital ₹ 10,00,000, general reserve ₹ 1,00,000, balance of statement of profit and loss after interest and tax ₹ 3,00,000, 12% debentures ₹ 4,00,000, creditors ₹ 3,00,000, land and buildings ₹ 13,00,000, furniture ₹ 3,00,000, debtors ₹ 2,90,000, cash ₹ 1,10,000.
Revenue from operations, i.e. sales for the year ended 31st March, 2011 was ₹ 30,00,000. Tax paid is 50%. (All India 2012: Modified)
Answer:

Long-term debts = 12% debentures = 4,00,000
Shareholders’ Funds = Equity Share Capital + General Reserve + Balance of Statement of Profit and Loss
= 10,00,000 +1,00,000 + 3,00,000 = ₹ 14,00,000

Working Capital = Current Assets – Current Liabilities = 4,00,000 – 3,00,000 = ₹ 1,00,000
Current Assets = Cash + Debtors = 1,10,000 + 2,90,000 = ₹ 4,00,000
Current Liabilities = Creditors = ₹ 3,00,000

Profit before Interest and Tax = 6,00,000 + 48,000 (Interest on debentures) = ₹ 6,48,000
Capital Employed = Equity Share Capital + General Reserve + Balance in Statement of Profit and Loss + 12% Debentures
= 10,00,000 + 1,00,000 + 3,00,000 + 4,00,000
= ₹ 18,00,000

Question 47.
From the following information, calculate any two of the following ratios
(i) Debt equity ratio
(ii) Working capital turnover ratio
(iii) Return on investment
Information Equity share capital ₹ 50,000; general reserve 15,000; statement of profit and loss after tax and interest ₹ 15,000; 9% debenture ₹ 20,000; creditors ₹ 15,000; land and building ₹ 65,000; equipments ₹ 15,000; debtors ₹ 14,500 and cash ₹ 5,500; revenue from operations for the year ended 31st March, 2011 was ₹ 50,000. Tax rate 50%. (Delhi 2012 (Modified))
Answer:
Solve as Q no. 43 as page 448 and 449.
Debt Equity Ratio = 0.286 : 1 Working Capital Turnover Ratio = 30 times; Return on Investment = 35.33%

Question 48.
Cross-sectional analysis is related
(a) to take a correct action
(b) to compare firm’s present ratio with past
(c) to compare of a firm ratio with other
(d) None of the above
Answer:
(c) to compare of a firm ratio with other

Question 49.
Current ratio is

Answer:
(b)

Question 50.
Working capital is the
(a) difference between current assets and current liabilities
(b) difference between current assets and quick liabilities
(c) capital and liabilities difference
(d) cash and bank difference
Answer:
(a) difference between current assets and current liabilities

Question 51.
From the following, calculate current assets?
Cash balance – ₹ 5,000
Trade payable – ₹ 40,000
Inventory – ₹ 50,000
Trade receivable – ₹ 65,000
Prepaid expenses – ₹ 10,000
Creditors – ₹ 30,000
(a) ₹ 1,25,000
(b) ₹ 1,30,000
(c) ₹ 1,60,000
(d) ₹ 1,20,000
Answer:
(b) ₹ 1,30,000

Question 52.
If inventory is ₹ 1,00,000, current assets ₹ 8,00,000 and current liabilities ₹ 4,00,000, then what will be the liquid ratio?
(a) 1.75 : 1
(b) 2 : 1
(c) 2 : 3
(d) 3 : 1
Answer:
(a) 1.75 : 1

Question 53.
Which of the following transaction will improve the quick ratio?
(a) Purchase of inventory for cash
(b) Cash collected from debtors
(c) Sale of goods (costing 10,000 for ₹ 50,000)
(d) None of the above
Answer:
(c) Sale of goods (costing 10,000 for ₹ 50,000)

Question 54.
A firm has current ratio of 4 : 1 and quick ratio of 2.5 : 1. Assuming inventories are ₹ 15,000, find out total current assets?
(a) ₹ 10,000
(b) ₹ 25,000
(c) ₹ 40,000
(d) ₹ 15,000
Answer:
(c) ₹ 40,000

Question 55.
Ideal debt ratio is
(a) 1 : 2
(b) 2 : 2
(c) 3 : 2
(d) 2 : 1
Answer:
(d) 2 : 1

Question 56.
Assuming that debt to equity ratio is 2 : 1, then which of the following transaction will have no effect on it?
(a) Purchase of a fixed assets by taking loan
(b) Sale of fixed assets (book value ₹ 40,000) at loss of 15,000
(c) Issue of bonus share
(d) Declaration of final dividend
Answer:
(c) Issue of bonus share

Question 57.
Calculate the interst coverage ratio
If profit after interest and tax ₹ 2,10,000, Rate of tax 40% 15% debenture ₹ 3,00,000.
(a) 6 times
(b) 8.8 times
(c) 11 times
(d) 4 times
Answer:
(b) 8.8 times

Question 58.
A firm’s current assets are ₹ 1,60,000, current ratio is 2 : 1, cost of revenue from operations is 2,40,000, its working capital turnover ratio will be
(a) 3 times
(b) 2 times
(c) 4 times
(d) 8 times
Answer:
(a) 3 times

Question 59.
From the following information, calculate operating profit ratio.
Opening stock ₹ 10,000; purchases ₹ 1,20,000; revenue from operations ₹ 4,00,000; purchase returns ₹ 5,000; returns from revenue from operations ₹ 15,000; selling expenses ₹ 70,000; administrative expenses ₹ 40,000; closing stock ₹ 60,000.
(a) 54.5%
(b) 62.8%
(c) 90.2%
(d) None of the above
Answer:
(a) 54.5%

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We have given these Accountancy Class 12 Important Questions and Answers Chapter 11 Cash Flow Statement to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 11 Cash Flow Statement Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Cash Flow Statement Important Questions Class 12 Accountancy Chapter 11

Question 1.
‘Payment of dividend and interest’ will be classified as which type of activity while preparing cash flow statement? (All India 2019, 2011)
Or
While preparing cash flow statement, ‘receipt of interest and dividend’ will be classified under which type of activity in case of a non-financial enterprise? (All India 2019)
Or
‘Payment and receipt of interest and dividend’ is classified as which type of activity while preparing cash flow statement? (Delhi 2017)
Answer:
Payment and receipt of interest and dividend is classified as financing activity while preparing cash flow statement of a non-financial company.

Question 2.
What is meant by ‘cash flow’? (All India 2019, 2014: Delhi 2019, 2014, 2011)
Or
State the meaning of ‘cash flow’ while preparing cash flow statement. (All India 2014)
Answer:
‘Cash flow’ implies inflow and outflow of cash and cash equivalents. Receipt of cash from an item other than cash and cash equivalents is termed as ‘cash inflow’ while cash payment in respect of such item is termed as ‘cash outflow’.

Question 3.
When can ‘receipt of dividend’ be classified as an operating activity? State. Also give reason in support of your answer. (All India 2019)
Answer:
When dividend is received by a finance company, then it can be considered as an operating activity. It is so, because investing is a primary business of finance company.

Question 4.
Mevo Ltd a financial enterprise had advanced a loan of ₹ 3,00,000, invested ₹ 6,00,000 in shares of the other companies and purchased machinery for ₹ 9,00,000. It received divided of ₹ 70,000 on investment in shares. The company sold an old machine of the book value of ₹ 79,000 at a loss of ₹ 10,000. Compute cash flows investing activities. (Dehli 2019)
Answer:
Calculation of Cash Flow from Investing Activities

Question 5.
Are ‘assets acquired by issue of shares disclosed in the cash flow statement? Give reason in support of your answer. (All India 2019)
Answer:
No, ‘assets acquired by issue of shares’ are not disclosed in the cash flow statement due to non-cash nature of the transction.

Question 6.
K Ltd a manufacturing company obtained a loan of ₹ 6,00,000, advanced a loan of ₹ 1,00,000 and purchased machinery for ₹ 5,00,000. Calculate the amount of cash flow from financing and investing activities. (Delhi 2019)
Answer:
Cash Flow from Investing Activities

Cash Flow from Financing Activities

Question 7.
Under which type of activity will you classify cash advances and loans made to third party while preparing cash flow statement? (All India 2019; Comportment 2018)
Answer:
Investing activities

Question 8.
State the primary objective of preparing a cash flow statement. (All India 2019,2017: CBSE 2018: Comportment 2018)
Answer:
The primary objective of preparing cash flow statement is to provide useful information about the cash flows of an enterprise during a particular period under various heads, i.e. operating, investing and financing activities.

Question 9.
What is meant by ‘cash and cash equivalents’? (All India 2019)
Or
Give the meaning of ‘cash equivalents’ for the purpose of preparing cash flow statement. (Delhi 2016)
Or
What is meant by ‘cash equivalents’? (All India 2014,2011: Delhi (C) 2014)
Answer:
Cash comprises cash in hand and demand deposits with banks and Cash equivalents are short-term highly liquid investments that can be easily convertible into known amount of cash and which are subject to an insignificant risk of change in value, e.g. Short-term marketable securities, which can be readily converted into cash, are treated as cash equivalents.

Question 10.
What is meant by ‘inflow of cash’? (All India 2019)
Answer:
‘Inflow of cash’ means funds received by a company due to operating, investing or financing activities.

Question 11.
How is goodwill written-off treated while calculating cash flow from operating activities? (All India 2019)
Answer:
Goodwill written-off is added to profit before tax and extraordinary items to calculate operating profit before working capital changes while calculating cash flow from operating activities.

Question 12.
When does an investment qualify as cash equivalent? (All India 2019)
Answer:
When the maturity period of investment is not more than three months.

Question 13.
‘Interest received and paid’ is considered as which type of activity by a finance company while preparing a cash flow statement? (CBSE 2018)
Answer:
Interest received by a finance company is an operating activity. Interest paid by a finance company is also an operating activity.

Question 14.
Normally, what should be the maturity period for a short-term investment from the date of its acquisition to be qualified as cash equivalents? (All India 2017)
Answer:
The maturity period for a short-term investment from the date of acquisition to be qualified as cash equivalents should not be more than three months.

Question 15.
Will ‘net decrease in working capital’ other than cash and cash equivalents, increase, decrease or not change cash flow from operating activities? Give reason in support of your answer. (Delhi: All Indio 2017)
Answer:
Net decrease in working capital implies increase in cash flow from operating activities due to inflow of cash.

Question 16.
Will ‘acquisition of machinery by issue of equity shares’ be considered while preparing ‘cash flow statement’? Give reason in support of your answer. (All India 2017)
Answer:
The acquisition of machinery by issue of equity shares will not be considered while preparing cash flow statement as there is no flow of cash.

Question 17.
State whether the following will increase, decrease or have no effect on cash flow from operating activities while preparing ‘cash flow statement’.
(i) Decrease in outstanding employees benefits expenses by ₹ 3,000.
(ii) Increase in prepaid insurance by ₹ 2,000. (All India 2017)
Answer:
(i) Outstanding employee benefits expenses is a current liability. So, decrease in current liability will decrease cash flow from operating activities.
(ii) Prepaid insurance is a current asset. Increase in current asset will decrease cash flow from operating activities.

Question 18.
What is meant by ‘cash flow statement’? (Delhi 2017: All India 2014, 2011)
Answer:
Cash flow statement is a statement showing the changes in financial position of a business concern during different intervals of time in terms of cash and cash equivalents.

Question 19.
Short-term investments are not considered while preparing cash flow statement. Why? (Delhi 2017)
Answer:
Short-term investments are a part of cash and cash equivalents therefore, they are not considered under operating, investing or financing activities.

Question 20.
Net increase in working capital other than cash and cash equivalents will increase, decrease or not change cash flow from operating activities. Give reason in support of your answer. (Delhi 2017)
Answer:
Net increase in working capital implies decrease in current assets and increase in current liabilities is more than the increase in current assets and decrease in current liabilities. So, it will increase the cash flow from operating activities.

Question 21.
Cheques and drafts in hand are not considered while preparing cash flow statement. Why? (Delhi 2017)
Answer:
Cheques and drafts are a part of cash equivalents and therefore not considered under operating, investing or financing activities.

Question 22.
State any two advantages of preparing cash flow statements. (Delhi 2017)
Answer:
The advantages of cash flow statement are as follows
(i) It helps in knowing the liquidity/actual cash position of the company.
(ii) Any discrepancy in the financial reporting can be gauged through the cash flow statement by comparing the cash position of both.

Question 23.
State any two objectives of preparing ‘cash flow statement’. (All India 2016)
Answer:
The objectives of preparing cash flow statement are
(i) To ascertain the sources and applications (receipts and payments) of cash and cash equivalents under operating, investing and financing activities of the enterprise.
(ii) To ascertain net change in cash and cash equivalents being the difference between sources (receipts) and applications (payments) under the three activities between the dates of two balance sheets.

Question 24.
“An enterprise may hold securities and loans for dealing or trading purpose in which case they are similar to inventory acquired specifically for resale.” Is the statement correct? Cash flows from such activities will be classified under which type of activity while preparing cash flow statement? (Delhi: All India 2016)
Answer:
Yes, this statemeht is correct. This statement refers to finance Companies. Cash flows from such activities for these companies is classified under operating activity.

Question 25.
Does movement between items that constitute cash or cash equivalents result into cash flow? Give reason in support of your answer. (All India 2016)
Answer:
No, the movement of items that constitute cash or cash equivalents does not result into cash flow.
This is because such movements indicate a mere change in the form of available cash balance rather than actual cash outflows or inflows.

Question 26.
Why is separate disclosure of cash flows from investing activities important? State. (All India 2016)
Answer:
Separate disclosure of cash flows from investing activities is important because it shows the extent to which the investment have been made for resources intended to generate future income and cash flows.

Question 27.
Deepu Ltd a non-financing company received dividend on shares. How will it be presented while preparing a ‘cash flow statement’? (All India (C) 2016)
Answer:
Dividend received by a non-financing company is a investing activity.

Question 28.
Why is depreciation added back to net profit while preparing ‘cash flow statement’? Al India [Cl 2016
Answer:
Depreciation is added back to net profit While preparing cash flow statement as it is a non-cash expense and does not involve any outflow of cash but results in decrease in profits.

Question 29.
Hider Ltd a mutual fund company invested ₹ 5,00,000 in shares of Prayag Ltd. It received dividend of ₹ 45,000 during the year. How will it be depicted in the cash flow statement? (Delhi (C) 2016)
Answer:
Dividend of ₹ 45,000 received by the mutual fund company will be depicted as a operating activity while preparing cash flow statement.

Question 30.
Nazma Ltd received interest on an item and the accountant classified it under investing activity while preparing cash flow statement. Name another item for which such a treatment is possible. (Delhi (C) 2016)
Answer:
The another item for which such a treatment is possible is dividend received.

Question 31.
While preparing cash flow statement, the accountant of a financing company showed ‘dividend received ₹ 50,000 on investments’ as an investing activity. Was he correct in doing so? Give reason. (All India 2018)
Or
While preparing the ‘Cash Flow Statement’ the accountant of Gulfam Ltd, a financing company showed ‘dividend received on investment’ as ‘investing activity. Was he correct in doing so? Give reason. Delhi 2016
Answer:
No, the accountant was not correct is doing so. In case of a financing company, ‘dividend received on investments’ should be classified under the head ‘operating activity’.

Question 32.
The accountant of Manav Ltd while preparing cash flow statement added depreciation provided on fixed assets to net proht for calculating cash flow from operating activities. Was he correct in doing so? Give reason. (All India Delhi 2015)
Or
While preparing cash flow statement of Sharda Ltd. ‘Depreciation provided on fixed assets’ was added to net profit to calculate cash flow from operating activities. Was the accountant correct in doing so? Give reason. (Delhi 2015)
Answer:
Yes, the accountant is correct, because depreciation is a non-cash expense and it must be added to net profit to calculate cash flow from operating activities.

Question 33.
While preparing cash flow statement, the accountant of ‘Rachana Ltd’, a financing company, included ‘interest received on loan’ in financing activities. Was he correct in doing so? Give reason. (All India 2015)
Answer:
No, accountant is not correct in doing so as Rachna Ltd is a financing company, therefore interest received on loan should be classified under the head ‘operating activity’.

Question 34.
While preparing the cash flow statement of Alka Ltd, ‘dividend paid’ was shown as an operating activity by the accountant of the. company. Was he correct in doing so ₹ Give reason.
Answer:
The treatment of the accountant is incorrect. The treatment of dividend paid while preparing the cash flow statement would be to show it under the head financing activity as ‘minus items’.

Question 35.
The accountant of ‘Nav Jeevan Ltd’ while preparing cash flow statement added the proposed dividend of the current year to net profit while calculating cash flow from operating activities. Was he correct in doing so? Give reason. (Foreign 2015)
Answer:
Yes, the accountant was correct while adding proposed dividend of the current year to net profit while calculating cash flow from operating activities. This is done in order to compute the net profit before tax and extraordinary items.

Question 36.
Payment of bonus to the employees by an insurance company is classified under which activity while preparing cash flow statement. (All India 2015 Modified)
Answer:
It is classified as operating activity.

Question 37.
Kaveri Ltd a financing company obtained loans and advances of? 5,00,000 during the year @ 12% per annum. In which activity will it be included while preparing cash flow statement? (Delhi (C) 2015 Modified)
Answer:
It will be included in operating activity.

Question 38.
G Ltd is carrying on a paper manufacturing business. In the current year, it purchased machinery for ₹ 30,00,000; it paid salaries of ₹ 60,000 to its employees, it required funds for expansion and therefore, issued shares of ₹ 20,00,000. It earned a profit of ₹ 9,00,000 for the current year. Find out cash flows from operating activities. (Delhi 2015)
Answer:
₹ 9,00,000 profit earned during the year will be the cash flow from operating activities.

Question 39.
‘Koval Ltd’ is a financing company. Under which activity will be amount of interest be paid on a loan settled in the current year be shown, while preparing cash flow statement? (All India (C) 2015 Modified)
Answer:
It will be classified under operating activity.

Question 40.
‘Shri Ltd’ was carrying on a business of packaging in Delhi and earned good profits in the past years. The company wanted to expand its business and required additional funds. To meet its requirements the company issued equity shares of ₹ 30,00,000. It purchased a computerised machine for ₹ 20,00,000. It also purchased raw material amounting to ₹ 2,00,000. During the current year, the net profit of the company was ₹ 15,00,000. Find out cash flow from operating activities from the above transactions. (All India (C) 2015)
Answer:
Net profit earned during the current year, i.e. ₹ 15,00,000 will be the cash flow from operating activities.

Question 41.
Why is specific disclosure of cash flow from financing activities important while preparing cash flow statement? (All India 2014)
Answer:
Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise.

Question 42.
Why is separate disclosure of cash flow from investing activities important while preparing cash flow statement? (All India 2014)
Answer:
Separate disclosure of cash flows from investing activities is important because they represent to which investment have been made for resources, intended to generate future income and cash flows.

Question 43.
Dividend paid by a financial company is classified under which type of activity, while preparing cash flow statement? (All Indio (C) 2014)
Answer:
It is classified under ‘financing activity’.

Question 44.
What is meant by outflow of cash while preparing cash flow statement? (Delhi 2014)
Answer:
Cash outflow arises when the net effect of transactions is a decrease in the amount of cash and cash equivalents.

Question 45.
State the objective of preparing a cash flow statement. (Delhi 2014,2012.2011 (C) All India 2014.2014)
Or
Why is a cash flow statement prepared? (All India 2014; Delhi (C) 2010)
Answer:
A cash flow statement provides information about the historical changes in cash and cash equivalents of an enterprise by classifying cash flows into operating, investing and financing activities between the dates of two balance sheets.

Question 46.
State with reason whether the issue of 9% debentures to the vendors for the purchase of machinery of ₹ 50,000 will result into inflow, outflow or no flow of cash. (All India (C) 2014)
Answer:
There is no flow of cash by the issue of 9% debentures to the vendors for the purchase of machinery of ₹ 50,000 because this transaction will not change the balance of cash and cash equivalents.

Question 47.
What is meant by ‘cash from operating activities’? (Delhi 2013)
Answer:
‘Cash from operating activities’ are the principal revenue producing activities of the enterprise and other activities, that are not investing or financing activities.

Question 48.
Under which type of activity will you classify ‘dividend received by a finance company’ while preparing cash flow statement? (Delhi 2013)
Answer:
Dividend received by a finance company is an operating activity.

Question 49.
State with reason whether ‘purchase of fixed asset on long-term deferred payment’ would result in inflow, outflow or no flow of cash. (Delhi 2013)
Answer:
No flow of cash because no cash is involved in this transaction.

Question 50.
Under which type of activity will you classify ‘refund of income tax received’ while preparing the cash flow statement? (Delhi 2013)
Answer:
Operating activity

Question 51.
When does the flow of cash take place? (Delhi 2013)
Answer:
Cash flow arises when the net effect of a transaction either increases or decreases the amount of cash or cash equivalent.

Question 52.
State with reason whether ‘discount received on making payment to suppliers’ would result into inflow, outflow or no flow of cash. (All India 2013)
Answer:
Discount received on making payment to suppliers will result in no flow of cash because discount received is a non-cash transaction and does not result in actual payment of cash.

Question 53.
Under which type of activity will you classify ‘interest paid on long-term borrowings’ while preparing cash flow statement? (All India 2013)
Answer:
Interest paid on long-term borrowings is a financing activity.

Question 54.
State with reason whether ‘old furniture written-off would result into inflow/ outflow or no flow of cash. (All India 2013)
Answer:
Old furniture written-off will result in no flow of cash because it does not affect cash as it is a non-cash transaction.

Question 55.
Under which type of activity will you classify ‘proceeds from sale of investment’ while preparing cash flow statement? (Delhi 2013)
Answer:
Proceeds from sale of investments is an investing activity.

Question 56.
Under which type of activity will you classify ‘proceeds from sale of patents’ while preparing cash flow statement? (All India 2013)
Answer:
Proceeds from sale of patents is an investing activity.

Question 57.
Give an example of the activity which remains financing activity for every enterprise. (All India 2013)
Answer:
Dividend paid

Question 58.
Under which type of activity will you classify ‘commission and royalty received’ while preparing cash flow statement? (All India 2013)
Answer:
Commission and royalty received is an operating activity.

Question 59.
While preparing cash flow statement which type of activity is, ‘payment of cash to acquire debenture by an investment company’? (Delhi 2012)
Answer:
Operating activity .

Question 60.
While preparing cash flow statement which type of activity is, ‘payment of cash to acquire shares of another company by a trading company’? (All India 2012)
Answer:
Investing activity

Question 61.
State with reason whether ‘deposit of cash into bank’ will result into, inflow, outflow or no flow of cash. (Delhi 2011)
Answer:
‘Deppsit of cash into bank’ does not result in cash flow. It is simply a movement between two components of cash and cash equivalents.

Question 62.
List any two investing activities which result into outflow of cash. (All India 2011; Delhi (C) 2011)
Answer:
Two investing activities which result into outflow of cash are
(i) Building purchased
(ii) Investments purchased

Question 63.
List any two financing activities that will result into outflow of cash. (All India 2011: Delhi (C) 2011)
Answer:
Two financing activities that result into outflow of cash are
(i) Redemption of debentures
(ii) Interest paid on debentures

Question 64.
Name any two financing activities that result into inflow of cash. (All India (C) 2011)
Answer:
The two financing activities that result into inflow of cash are
(i) Cash proceeds from issue of shares
(ii) Cash proceeds from issue of debentures

Question 65.
Name any two investing activities that result into inflow of cash. (All India (C) 2011)
Answer:
Two investing activities that result into inflow of cash are
(i) Cash proceeds from sale of building
(ii) Cash proceeds from sale of investments

Question 66.
State with reason whether ‘withdrawal of cash from bank’ will result into, inflow, outflow or no flow of cash. (Foreign 2011)
Answer:
Withdrawal of cash from bank’ does not result in cash flow. It is simply a movement between two components of cash and cash equivalents.

Question 67.
What is meant by cash flow from financing activities? (Delhi 2011)
Answer:
Financing activities are the activities which result in change in the size and composition of the owner’s capital (including preference share capital) and borrowings (including debentures) of the enterprise from other sources. It includes proceeds from issue of shares or other similar instruments, issue of debentures, loans, bonds, other short term or long term borrowings and repayment of amount borrowed.

Question 68.
State with reason whether ‘cash paid to a creditor’ will result into inflow, outflow or no flow of cash. (Delhi 2011)
Or
State with reason whether payment of cash to creditors will result into inflow, outflow or no flow of cash. (All India 2011)
Answer:
Cash paid to a creditor will result in outflow of cash.

Question 69.
Under which type of activity will you classify ‘proceeds from sale of buildings’ while preparing cash flow statement? (All India 2010)
Answer:
It will be classified as an investing activity.

Question 70.
Redemption of debentures would result in inflow, outflow or no flow of cash? Give your answer with reason. (All India 2010)
Answer:
Redemption of debentures will result in outflow of cash as payment is made to the debentureholders.

Question 71.
Under which type of activity will you classify ‘issue of equity shares at premium’ while preparing cash flow statement? (All India 2010)
Answer:
It will be classified as a financing activity.

Question 72.
Purchase of patents would result in inflow, outflow or no flow of cash? Give your answer with reason? (All India 2010)
Answer:
Purchase of patents would result in outflow of cash, because it involves payment of cash for acquisition of an asset.

Question 73.
Under which type of activity will you classify ‘issuing 9% debentures’ while preparing cash flow statement? (Delhi 2010)
Answer:
Financing activity

Question 74.
Declaration of final dividend would result into inflow, outflow or no flow of cash? Give your answer with reason. (Delhi 2010)
Answer:
No flow of cash as final dividend is only declared, not yet paid.

Question 75.
Under which type of activity will you classify ‘proceeds from sale of machinery’ while preparing cash flow statement? (Delhi 2010)
Answer:
Investing activity

Question 76.
Interest received on debentures would result into inflow, outflow or no flow of cash? Give reason. (All India 2010)
Answer:
Cash inflow, because ca$h comes in due to interest received on debentures.

Question 77.
Give one difference between an operating activity and a financing activity. (Delhi (C) 2010)
Answer:
Operating activity is the principal revenue producing activity of an enterprise whereas, financing activity are those activities which change the size and composition of owner’s equity and borrowings of an enterprise.

Question 78.
Give any two transactions which result into ‘inflow of cash’. (All India 2010)
Answer:
The two transacting which result into ‘inflow of cash’ are
(i) Cash proceeds from sale of investments.
(ii) Cash proceeds from issue of debentures.

Question 79.
Give one difference between an operating activity and an investing activity. (All India (C) 2010)
Answer:
Operating activity is the principal revenue producing activity of an enterprise whereas, investing activity includes the acquisition and disposal of fixed assets.

Question 80.
Give one transaction which may result into outflow of cash and one which may result into no flow of cash. (All India (C) 2010)
Answer:
Outflow of cash Purchase of investments.
No flow of cash Cash deposited into the bank.

Question 81.
Under which type of activity will you classify ‘furniture purchased for cash while preparing cash flow statement? (Delhi 2010)
Answer:
It will be classified under investing activity.

Question 82.
Sale of marketable securities at par would result in inflow, outflow or no flow of cash. Give your answer with reason. (All India 2010)
Answer:
No flow of cash as marketable securities are cash equivalents.

Question 83.
Under which type of activity will you classify ‘cash received from debtors’ while preparing cash flow statement. (Delhi 2010)
Answer:
Cash received from debtors will be classified under operating activity.

Question 84.
Interest paid on debentures would result in inflow, outflow or no flow of cash. Give your answer with reason. (Delhi 2010)
Answer:
Interest paid on debentures would result in outflow of cash because it involves payment of cash to debenture holders.

Question 85.
From the following balance sheet of DCX Ltd and the additional information as at 31st March, 2018. Prepare a cash flow statement.

Additional Information:
(i) During the year a machinery costing ₹ 8,00,000 on which accumulated depreciation was ₹ 3,20,000 was sold for ₹ 6,40,000.
(ii) Debentures were issued on 1st April, 2017. (All India 2019)
Answer:

Question 86.
The following is the balance sheet of R M Ltd as at 31st March, 2017. Prepare a cash flow statement.

Additional Information:
(i) During the year, a machine costing ₹ 80,000 on which accumulated depreciation was ₹ 50,000 was sold for ₹ 30,000.
(ii) 9% Debentures were released on 31st March, 2017. (All India 2019)
Answer:

Question 87.
From the following balance sheet of Kiero Ltd and the additional information as on 31-3-2018, prepare a cash flow statement. (All India 2019)

Additional Information:
12% debentures were issued on 1st September, 2017 (All India 2019)

Question 88.
From the following balance sheet of JY Ltd as at 31st March, 2017 , prepare a cash flow statement.

Additional Information:
₹ 1,00,000, 10% debentures were issued on 31st March, 2017. (CBSE 2018)
Answer:

Question 89.
Following is the balance sheet of Mevanca Ltd as at 31st March, 2017.

Additional Information:
(i) Additional loan was taken on 1st July, 2016.
(ii) Tax of ₹ 53,000 was paid during the year. Prepare cash flow statement. (Compartment 2018)
Answer:
Cash Flow Statement for the year ending 31st March, 2017

Question 90.
From the following balance sheet of SRS Ltd and the additional information as on 31st March, 2016, prepare a cash flow statement
(i) ₹ 50,000, 12% debentures were issued on 31st March, 2016
(ii) During the year a piece of machinery costing ₹ 40,000 on which accumulated depreciation was ₹ 20,000, was sold at a loss of ₹ 5,000. (All India 2017)


Additional Information:
(i) ₹ 50,000, 12% debentures were issued on 31st March, 2016
(ii) During the year a piece of machinery costing ₹ 40,000 on which accumulated depreciation was ₹ 20,000, was sold at a loss of ₹ 5,000. (All India 2017)
Answer:

Working Notes:
1. Calculation of Net Profit before Tax and Extraordinary Items

Question 91.
Following is the balance sheet of RS Ltd as at 31st March, 2016. (Delhi 2017)

Additional Information:
(i) ? 1,00,000, 12% debentures were issued on 31st March, 2016.
(ii) During the year a piece of machinery costing ₹ 80,000 on which accumulated depreciation was ₹ 40,000 was sold at a loss of ₹ 10,000.
Prepare a cash flow statement.
Answer:
Solve as Q no. 90 on page 474 – 476.
Net Cash Flow from Operating Activities = ₹ 5,12,000
Net Cash used in Investing Activities = ₹ (7,20,000)
Net Cash Flow from Financing Activities = ₹ 2,08,000

Question 92.
Following is the balance sheet of MM Ltd as on 31st March, 2015.


Additional Information:
(i) 12% debentures were redeemed on 31st March, 2015.
(ii) Tax ₹ 70,000 was paid during the year.
Prepare cash flow statement. (All India 2016)
Answer:

Question 93.
Following is the balance sheet of KK Ltd as at 31st March, 2015.

Additional Information:
(i) 12% debentures were redeemed on 31st March, 2015.
(ii) Tax ₹ 1,40,000 was paid during the year.
Prepare cash flow statement. (Delhi 2016)
Answer:
Solve as Q no. 90 on page 474-476
Cash Flow from Operating Activities = 7 6,74,000 Cash Flow Used in Investing Activities =7(8,14,000)
Cash Flow from Financing Activities = 71,80,000

Question 94.
Calculate ‘Cash flows from operating activities from the following information

Additional Information:
(i) Plant costing ₹ 60,000 having book value of? 36,000 was sold for ₹ 40,000 during the year
(ii) Income tax paid during the year was ₹ 30,000
(iii) Dividend paid during the year was ₹ 18,000 (All India (C) 2016)
Answer:

Question 95.
From the following information, calculate cash flow from operating activities

Additional Information:
(i) A piece of machinery costing ₹ 50,000 on which depreciation of ₹ 20,000 had been charged was sold for ₹ 10,000. Depreciation charged during the year was ₹ 18,000
(ii) Income tax ₹ 23,000 was paid during the year
(iii) Dividend paid during the year was ₹ 36,000. Delhi to 2016
Answer:

Question 96.
Following is the balance sheet of Solar Power Ltd as at 31st March, 2014.

Additional Information:
During the year a piece of machinery costing ₹ 48,000 on which accumulated depreciation was ₹ 32,000 was sold for ₹ 12,000. Prepare cash flow statement. (All india 2015)
Answer:

Question 97.
Following is the balance sheet of Thermal Power Ltd as at 31st March, 2014.

Additional Information:
During the year a piece of machinery, costing ₹ 24,000 on which accumulated depreciation was ₹ 16,000, was sold for ₹ 6,000.
Prepare cash flow statement. Delhi 2015
Answer:
Solve as Q no. 96 on page 484-486
Cash Flow from Operating Activity = ₹ 1,53,000; Cash Used in Investing Activity = ₹ (2,88,000);
Cash Flow from Financing Activity = ₹ 1,70,000

Question 98.
Prepare a cash flow statement on the basis of the information given in the balance sheet of Simco Ltd as at 31st March, 2013 and 2012.

Answer:

Question 99.
Prepare a cash flow statement on the basis of the information given in the balance sheets of Liva Ltd as at 31st March, 2013 and 2012.

Answer:
Solve as Q no. 98 on page 487 and 488.
Cash Flow from Operating Activities = ₹ 50,500
Cash Used in Investing Activities = ₹ (72,000)
Cash Flow from Financing Activities = ₹ 30,000

Question 100.
Following is the balance sheet of Wisben Ltd as on 31st March, 2012.

Additional Information
During the year, a piece of machinery of the book value of ₹ 80,000 was sold for ₹ 65,000. Depreciation provided on tangible assets during the year amounted to ₹ 2,00,000. Prepare a cash flow statement. (Delhi 2013)
Answer:

Question 101.
Following is the balance sheet of Krishtec Ltd for the year ended 31st March, 2011 and 2012.

Prepare a cash flow statement after taking into account the following adjustments
(i) The company paid interest ₹ 36,000 on its long-term borrowings.
(ii) Depreciation charged on tangible fixed assets was ₹ 1,20,000. (All India 2013)
Answer:

Question 102.
From the following balance sheet of BCR Ltd as at 31st March, 2010 and 2011. Prepare a cash flow statement.

Additional Information:
During the year, equipment costing ₹ 1,00,000 was purchased. Loss on sale of equipment amounted to ₹ 12,000. ₹ 18,000 depreciation was charged on equipment. (All India 2012, Modified)
Answer:

Question 103.
From the following balance sheet of Vikas Ltd as at 31st March, 2009 and 2010. Prepare the cash flow statement.

Additional Information:
(i) Depreciation charged on fixed assets for the year 2009-2010 was ₹ 20,000.
(ii) Income tax ₹ 5,000 has been paid in advance during the year. (All India 2011)
Answer:

Question 104.
‘Sale of marketable securities at par’ would result
(a) into cash outflow
(b) into cash inflow
(c) no flow
(d) None of these
Answer:
(c) no flow

Question 105.
‘Interest received by other than financial enterprise’ is shown in cash flow statement under
(a) operating activities
(b) investing activities
(c) financing activities
(d) No adjustment is made
Answer:
(b) investing activities

Question 106.
While calculating cash flow from operating activity, payment and receipts shown in profit and loss account are converted into payment and receipt in cash by eliminating
(a) non-cash expenses from expenses incurred
(b) non-cash revenue from revenue earned
(c) non-cash expenses from profit
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 107.
What will be the treatment of proposed dividend (current year) to calculate cash flow from operating activities?
(a) Add back to the next year’s profit
(b) Add back to the current year’s profit
(c) Both (a) and (b)
(d) None of these
Answer:
(b) Add back to the current year’s profit

Question 108.
Profit before tax of a company was ₹ 2,74,000. Calculate profit before working capital changes from the following information.
I. Depreciation on fixed asset ₹ 20,000
II. Transfer to general reserve ₹ 44,000
III. Loss on sale of furniture ₹ 1,000
IV. Profit on sale of machinery ₹ 6,000
Codes
(a) ₹ 2,89,000
(c) ₹ 2,95,000
(b) ₹ 3,01,000
(d) ₹ 2,99,000
Answer:
(a) ₹ 2,89,000

Question 109.
Rent received will be classified under
(a) financing activity
(b) operating activity
(c) investing activity
(d) All of these
Answer:
(c) investing activity

Question 110.
ABC Ltd has the investment @ 10%, opening balance of the investment was ₹ 5,00,000 and closing balance was ₹ 10,00,000. Half of the investment held in the beginning of the year was sold at 10% profit. Calculate purchase value of investment.
(a) ₹ (12,50,000)
(b) ₹ (12,75,000)
(c) ₹ (7,50,000)
(d) ₹ (8,75,000)
Answer:
(c) ₹ (7,50,000)

Question 111.
Opening balance and closing balance of machinery (at cost) was ₹ 8,00,000 and ₹ 8,40,000 respectively and depreciation opening and closing balance was ₹ 2,00,000 and ₹ 2,20,000. During the year, a machine costing ₹ 80,000 with its accumulated depreciation of? 48,000 was sold for ₹ 40,000. Calculate purchase value of machinery.
(a) ₹ 1,20,000
(b) ₹ 1,30,000
(c) ₹ 50,000
(d) ₹ 1,25,000
Answer:
(a) ₹ 1,20,000

Question 112.
Dividend paid by a company is classified under finance activity, whether it is non-finance or finance company because
(a) dividend is associated with share capital
(b) dividend is part of profit and loss account
(c) dividend is part of balance sheet
(d) None of the above
Answer:
(a) dividend is associated with share capital

Question 113.
ABC Ltd had opening and closing balance of equity shares of ₹ 20,00,000 and ₹ 30,00,000. Company issued bonus shares in the ratio of 2 : 1 by capitalising reserve. What will be net cash flow from this transaction?
(a) ₹ 10,00,000
(b) ₹ 20,00,000
(c) ₹ 30,00,000
(d) No cash flow
Answer:
(d) No cash flow

Question 114.
Ram Ltd is a financial company whose equity share capital in the year 2010 was ₹ 28,00,000 which got increased to ₹ 35,00,000 in the year 2011. Calculate the amount of issue of equity share capital.
(a) ₹ (7,00,000)
(b) ₹ 35,00,000
(c) ₹ 28,00,000
(d) None of these
Answer:
(a) ₹ (7,00,000)

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We have given these Accountancy Class 12 Important Questions and Answers Chapter 4 Reconstitution of Partnership Firm: Retirement/Death of a Partner to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 4 Reconstitution of Partnership Firm: Retirement/Death of a Partner Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Reconstitution of Partnership Firm: Retirement/Death of a Partner Important Questions Class 12 Accountancy Chapter 4

Question 1.
What is meant by‘gaining ratio on retirement of a partner (Delhi 2019)
Answer:
The ratio in which the continuing partners acquire the outgoing partner’s share is called as gaining ratio.

Question 2.
Aman, Yatin and Uma were partners and were sharing profits and losses in the ratio of 5 : 3 : 2. Uma retired and her share was taken over by Aman and Yatin 5 : 3 in ratio. Calculate gaining ratio of Aman and Yatin. (Compartment 2018)
Answer:
Calculation of Gaining Ratio
Uma’s share = \(\frac{2}{10}\)
Aman gams = \(\frac{5}{8} \times \frac{2}{10}=\frac{10}{80}\)
Yatin gams = \(\frac{3}{8} \times \frac{2}{10}=\frac{6}{80}\)
Gaining ratio of Aman and Yatin = 10 : 6 = 5 : 3

Question 3.
X, Y and Z are partners sharing profits in the ratio of \(\frac{1}{2}\), \(\frac{2}{5}\) and \(\frac{1}{10}\). Find the new ratio of remaining partners, if Z retires. (Delhi 2014)
Answer:
Old ratio of X : Y : Z = \(\frac{1}{2} : \frac{2}{5} : \frac{1}{10}=\frac{5}{10} : \frac{4}{10} : \frac{1}{10}\)
= 5 : 4 : 1
Z retires, after striking of the retiring Parmer’s ratio, remaining ratio will be new profit sharing ratio, i.e. 5 : 4.

Question 4.
X, Y and Z were partners sharing profits in the ratio of \(\frac{1}{2}\), \(\frac{3}{10}\) and \(\frac{1}{5}\) X retired from the firm. Calculate the gaining ratio of the remaining partners. (All India 2014)
Answer:
Old ratio of X : Y : Z = \(\frac{1}{2}: \frac{3}{10}: \frac{1}{5}=\frac{5}{10}: \frac{3}{10}: \frac{2}{10}\)
= 5 : 3 : 2
X retired, after striking of the retiring partner’s ratio, remaining ratio will be new profit sharing ratio, i.e. 3 : 2,
New profit sharing ratio = Y : Z = 3 : 2
Gaining Ratio = New Share – Old Share
Y = \(\frac{3}{5}-\frac{3}{10}=\frac{6-3}{10}=\frac{3}{10}\)
Z = \(\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}\)
Gainingratio = 3 : 2

Question 5.
Give any one distinction between sacrificing ratio and gaining ratio. (All India 2012)
Answer:
The difference between sacrificing ratio and gaining ratio is stated below
Sacrificing ratio:
It is the ratio in which old partners agree to sacrifice their share of profit in favour of new partner(s).

Gaining ratio:
It is the ratio in which continuing partners acquire the share of profit from outgoing partner(s).

Question 6.
(i) K, L and Z are partners sharing profits in the ratio of 4 : 3 : 2 respectively. L retired and surrendered \(\frac{1}{9}\)th of his share of profit to K and remaining in favour of Z. Calculate the new profit sharing ratio of K and Z.
(ii) Arun, Varun and Charan are partners sharing profits in the ratio of \(\frac{1}{2}\), \(\frac{3}{10}\) and \(\frac{1}{5}\) respectively. Varun retired from the firm and Arun and Charan decided to share future profits in 3 : 2 ratio. Calculate gaining ratio of Arun and Charan. (All Indio (C) 2014)
Answer:
(i) Old ratio between K, L and Z = 4 : 3 : 2.
Share surrendered in favour of K by L
= \(\frac{3}{9} \times \frac{1}{9}=\frac{3}{81}\)
Share surrendered in favour of Z by L

∴ New ratio = 39 : 42 or 13 : 14

(ii) Old ratio between Arun, Varun and Charan
= \(\frac{1}{2}: \frac{3}{10}: \frac{1}{5}\) = 5 : 3 : 2
New ratio between Arun and Charan = 3 : 2
Gaining Ratio = New Share – Old Share

Question 7.
Aman, Bimal and Deepak are partners sharing profits in the ratio of 2 : 3 : 5 . The goodwill of the firm has been valued at ₹ 37,500. Aman retired, Bimal and Deepak decided to share profits equally in future. Calculate gain/sacrifice of Bimal and Deepak on Aman’s retirement and also pass necessary journal entry for the treatment of goodwill. (All India 2019)
Answer:
Calculation of Sacrificing or Gaining Ratio
Sacrificing Ratio = Old share – New share
Bimal = \(\frac{3}{10}-\frac{1}{2}=\frac{3-5}{10}=\left(\frac{2}{10}\right)\); Deepak = \(\frac{5}{10}-\frac{1}{2}=\frac{5-5}{10}\) = Nil
Aman’s Share of Goodwill = 37,500 × \(\frac{2}{10}\) = ₹ 7,500

Question 8.
Neetu, Meetu and Teetu were partners in a firm. On 1st January, 2018, Meetu retired. On Meetu’s retirement, the goodwill of the firm was valued at X 4,20,000. Pass necessary journal entry for the treatment of goodwill on Meetu’s retirement. (CBSE 2018)
Answer:

Working Note:
meetu’s share of goodwill = 4,20,000 × \(\frac{1}{3}\) = 1,40,000

Question 9.
Why are heirs of a retiring/deceased partner entitled to the share of goodwill of the firm? (Delhi 2014)
Answer:
The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm at the time when he was a partner.

Question 10.
P, Q and R were partners in a firm sharing profits in the ratio of 5 : 4 : 3 respectively. Their capitals were ₹ 50,000, ₹ 40,000 and ₹ 30,000 respectively. State the ratio in which the goodwill of the firm, amounting to ₹ 6,00,000, will be adjusted in the capital accounts of the remaining partners on the retirement of Q. (Delhi (C) 2014)
Answer:
The goodwill will be adjusted in the gaining ratio of the continuing partners.

Question 11.
For which share of goodwill, a partner is entitled at the time of his retirement? (Delhi 2012)
Answer:
At the time of retirement, a partner is entitled to get an amount equal to his share out of firm’s goodwill.

Question 12.
P, Q and R were partners in a firm sharing profits in the ratio of 5 : 4 : 3. Their capitals were ₹ 40,000, ₹ 50,000 and ₹ 1,00,000 respectively. State the ratio in which the goodwill of the firm amounting to ₹ 1,20,000 will be adjusted on the retirement of R. (All India (C) 2010)
Answer:
R’s share of goodwill, i.e. ₹ 30,000 (1,20,000 × 3/12) will be contributed by P and Q in their gaining ratio, i.e. 5 : 4.

Question 13.
State the need for treatment of goodwill on the retirement of a partner. (All India 2010)
Answer:
At the time of retirement, retiring partner sacrifices his share of profit in favour of continuing partners, so the remaining partners compensate the retiring partner a share of the firm’s goodwill.

Question 14.
Kavi, Ravi, Kumar and Guru were partners in a firm sharing profits in the ratio of 3 : 2 : 2 : 1. On 1st February, 2017, Guru retired and the new profit sharing ratio decided between Kavi, Ravi and Kumar was 3 : 1 : 1. On Guru’s retirement, the goodwill of the firm was valued at ₹ 3,60,000. Showing your working notes clearly, pass necessary journal entry in the books of the firm for the treatment of goodwill on Guru’s retirement. (All india 2017)
Answer:

Working Notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share

2. Calculation of Share of Goodwill
Guru’s share of goodwill = 3,60,000 × \(\frac{1}{8}\) = ₹ 45,000
Kavi gains = 3,60,000 × \(\frac{9}{40}\) = ₹ 81,000
Ravi sacrifices = 3,60,000 × \(\frac{2}{40}\) = ₹ 18,000
Kumar sacrifices = 3,60,000 × \(\frac{2}{40}\) = ₹ 18,000

Question 15.
Amar, Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 2 : 2 : 2 : 1, on 31st January, 2017 Sohan retired. On Sohan’s retirement the goodwill of the firm was valued at ₹ 70,000. The new profit sharing ratio between Amar, Ram and Mohan was agreed as 5 : 1 : 1. Showing your working notes clearly, pass necessary journal entry for the treatment of goodwill in the books of the firm on Sohan’s retirement. (Delhi 2017)
Answer:
Solve as Q no. 8 on page 161 and 162.
Debit Amur’s Capital Account with ₹ 30,000 and Credit Ram’s, Mohan’s and Sohan’s Capital account with ₹ 10,000 each.

Question 16.
Arjun, Bheem and Nakul are partners sharing profits and losses in the ratio of 14 : 5 : 6 respectively. Bheem retires and surrenders his 5/25th share in favour of Arjun. The goodwill of the firm is valued at 2 years purchase of super profits based on average profits of last 3 years. The profits of the last three years are ₹ 50,000, ₹ 55,000 and ₹ 60,000 respectively. The normal profits of the similar firms are ₹ 30,000. Goodwill already appears in the books of the firm at ₹ 75,000. The profit for the first year after the Bheem’s retirement was ₹ 1,00,000. Give necessary journal entries to adjust goodwill and distribute profits showing your workings. (Delhi 2012)
Answer:

Working Notes:
1. Calculation of New Profit Sharing Ratio and Gaining Ratio
Old ratio of Aijun, Bheem and Nakul = 14 : 5 : 6
Bheem surrenders in favour of Arjun = \(\frac{5}{25}\)th share, Arjun’s new share = \(\frac{14}{25}+\frac{5}{25}=\frac{19}{25}\)
New ratio of Aijun and Nakul = 19 : 6
Gaining Ratio = New Share – Old Share
Arjun = \(\frac{19}{25}-\frac{14}{25}=\frac{19-14}{25}=\frac{5}{25}\); Nakul = \(\frac{6}{25}-\frac{6}{25}=\frac{6-6}{25}\) = Nil

2. Calculation of Bheem’s Share of Goodwill
Actual average profit = \(\frac{50,000+55,000+60,000}{3}\) = ₹ 55,000; Normal profit = ₹ 30,000
Super Profit = Average Profit – Normal Profit = 55,000 – 30,000 = ₹ 25,000
Firm’s goodwill = 25,000 × 2 = ₹ 50,000
Bheem’s share of goodwill = 50,000 × \(\frac{5}{25}\) = ₹ 10,000 (to be contributed by Arjun alone)

Question 17.
A, B, C and D are partners sharing profits in the ratio of 3 : 3 : 2 : 2 respectively. D retires and A, B and C decide to share the future profits in the ratio of 3 : 2 : 1. Goodwill of the firm is valued at ₹ 6,00,000. Goodwill already appears in the books at ₹ 4,50,000. The profit for the 1st year after D’s retirement amount to ₹ 12,00,000. Give the necessary journal entries to record goodwill and to distribute the profits. Show your calculations clearly. (All India 2012)
Answer:
Solve as Q no. 10 on page 162 and 163.
A gains \(\frac{6}{30}\)th share, B gains \(\frac{1}{30}\)th share and C sacrifices \(\frac{1}{30}\)th share.

Question 18.
A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A ₹ 1,00,000, B ₹ 80,000 and C ₹ 60,000 respectively. On 1st April, 2009, C retired from the firm and the new profit sharing ratio between A and B was decided as 11 : 4. On C’s retirement, the goodwill of the firm was valued at ₹ 90,000. Showing your calculations clearly, pass necessary journal entry for the treatment of goodwill on C’s retirement. (All India 2010)
Answer:
Solve as Q no. 8 on page 161.
Debit A’s capital account with ₹ 30,000, Credit B’s capital account and C’s capital account with ₹ 6,000 and ₹ 24,000 respectively.

Question 19.
A, B and C were partners sharing profits in the ratio of 6 : 4 : 5. Their capitals were A ₹ 1,00,000, B ₹ 80,000 and C ₹ 60,000. On 1st April, 2009, B retired from the firm and the new profit sharing ratio between A and C was decided as 11 : 4. On B’s retirement, the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly, pass necessary journal entry for the treatment of goodwill on B’s retirement. (Delhi 2010)
Answer:
Solve as Q. no. 8 on page 161.
Debit A’s capital account with ₹ 60,000, Credit B’s capital account and C’s capital account with ₹ 48,000 and ₹ 12,000 respectively.

Question 20.
P, Q and R were partners in a firm. On 31st March, 2018 R retired. The amount payable to R ₹ 2,17,000 was transferred to his loan account. R agreed to receive interest on this amount as per the provisions of Partnership Act, 1932. State the rate at which interest will be paid to R. (Delhi 2019)
Answer:
As per the provisions of Partnership Act, 1932, the rate of interest payable to R will be 6% per annum.

Question 21.
Give the journal entry to distribute ‘workmen compensation reserve of ₹ 60,000 at the time of retirement of Sajjan, when there is no claim against it. The firm has three partners Rajat, Sajjan and Kavita. (Delhi 2013)
Answer:

NOTE Since, the profit sharing ratio is not given, it is distributed equally.

Question 22.
Give the journal entry to distribute workmen compensation reserve of ₹ 70,000 at the time of retirement of Neeti, when there is a claim of ₹ 25,000 against it. The firm has three partners Raveena, Neeti and Rajat. (All India 2013)
Answer:

NOTE Since, the profit sharing ratio is not given, it is distributed equally.

Question 23.
Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 4 : 3 : 2. Mohan retired and his share was taken over equally by Ram and Sohan. In which ratio will the profit or loss on revaluation of assets and liabilities on the retirement of Mohan be transferred to the capital accounts of the partners? (Delhi (C) 2010)
Answer:
The profit or loss on revaluation of assets and liabilities on the retirement of Mohan will be transferred to the capital accounts of the partners in their old ratio, i.e. 4 : 3 : 2.

Question 24.
Banwari, Girdhari and Murari are partners in a firm sharing profits and losses in the ratio of 4 : 5 : 6. On 31st March, 2014, Girdhari retired. On that date the capitals of Banwari, Girdhari and Murari before the necessary adjustments stood at ₹ 2,00,000, ₹ 1,00,000 and ₹ 50,000, respectively. On Girdhari’s retirement, goodwill of the firm was valued at ₹ 1,14,000. Revaluation of assets and re-assessment of liabilities resulted in a profit of ₹ 6,000. General reserve stood in the books of the firm at ₹ 30,000.
The amount payable to Girdhari was transferred to his loan account. Banwari and Murari agreed to pay Girdhari two yearly instalments of ₹ 75,000 each including interest @ 10% per annum on the outstanding balance during the first two years and the balance including interest in the third year. The firm closes its books on 31st March every year.
Prepare Girdhari’s loan account till it is finally paid showing the working notes clearly. (CBSE 2018)
Answer:

Question 25.
Alok, Narendra and Shiv were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared at ₹ 90,000 and general reserve at ₹ 50,000 in the books of the firm. Narendra decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at f 2,40,000. The new profit sharing ratio of Alok and Shiv was 2 : 3. Record necessary journal entries on Narendra’s retirement. (All India (C) 2015)
Answer:

Working Note:
Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
Alok = \(\frac{2}{5}-\frac{5}{10}=\frac{4-5}{10}=\left(\frac{1}{10}\right)\) sacrifise; Shiv = \(\frac{3}{5}-\frac{2}{10}=\frac{6-2}{10}=\frac{4}{10}\) gain

Question 26.
Raman, Ratan and Rajan were partners sharing profits in the ratio of 4 : 2 : 1 respectively. Following was their balance sheet as at 31st March, 2013.

On the above date, Raman retired and following were agreed
(i) The assets and liabilities were valued as: stock ₹ 24,000; debtors ₹ 21,000; building ₹ 45,200; plant ₹ 50,000 and creditors ₹ 28,000.
(ii) Amount due to Raman will be transferred to Raman’s loan account.
Prepare revaluation account and Raman’s capital account. (Delhi to 2014)
Answer:

Question 27.
Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. On 31st March, 2016, their balance sheet was as follows (All india 2017)

On the above date, Sameer retired and it was agreed that
(i) Debtors of ₹ 4,000 will be written-off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(ii) An unrecorded creditor of ₹ 20,000 will be recorded.
(iii) Patents will be completely written-off and 5% depreciation will be charged on stock, machinery and building.
(iv) Yasmin and Saloni will share the future profits in the ratio of 3 : 2.
(v) Goodwill of the firm on Sameer’s retirement was valued at ₹ 5,40,000.
Pass necessary journal entries for the above transactions in the books of the firm on Sameer’s retirement.

Working Notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
Yasmin = \(\frac{3}{5}-\frac{3}{10}=\frac{6-3}{10}=\frac{3}{10}\); saloni = \(\frac{2}{5}-\frac{3}{10}=\frac{4-3}{10}=\frac{1}{10}\)
Gaining ratio = 3 : 1

2. Provision for Bad Debts:

3. Calculation of Sameer’s Share of Goodwill
Firm’s goodwill = ₹ 5,40,000
Sameer’s share = 5,40,000 × \(\frac{4}{10}\) = ₹ 2,16,000
To be contributed by Yasmin and Saloni in their gaining ratio, i.e. 3 : 1.

4. Loss on Revaluation
It can be ascertained by preparing revaluation account in the following manner

Question 28.
M, N and G were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March, 2016 their balance sheet was as under (Delhi 2017)

M retired on the above data and it was agreed that
(i) Debtors of ₹ 2,000 will be written-off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(ii) Patents will be completely written-off and stock, machinery and building will be depreciated by 5%.
(iii) An unrecorded creditor of ₹ 10,000 will be taken into account.
(iv) N and G will share the future profits in the ratio of 2 : 3.
(v) Goodwill of the firm on M’s retirement was valued at ₹ 3,00,000.
Pass necessary journal entries for the above transactions in the books of the firm on M’s retirement.
Answer:
Solve as Q no. 8 on page 170-172.
Loss on Revaluation M = ₹ 27,075, N = ₹ 16,245, G = ₹ 10,830; Amount Transferred to M’s Loan Account = ₹ 2,75,425, M’s Share of Goodwill = ₹ 1,50,000, Gaining Ratio = 1 : 4

Question 29.
Lalit, Madhur and Neena were partners sharing profits as 50%, 30% and 20% respectively. On 31st March, 2013 their balance sheet was as follows

On this date, Madhur retired and Lalit and Neena agreed to continue on the following terms
(i) The goodwill of the firm was valued at ₹ 51,000.
(ii) There was a claim for workmen’s compensation to the extent of ₹ 6,000.
(iii) Investments were brought down to ₹ 15,000.
(iv) Provision for bad debts was reduced by ₹ 1,000.
(v) Madhur was paid ₹ 10,300 in cash and the balance was transferred to his loan account payable in two equal instalments together with interest @ 12% per annum.
Prepare revaluation account, partners capital accounts and Madhur’s loan account till the loan is finally paid off. (Delhi (C) 2015)
Answer:

Working Note:
Madhur’s share in goodwill = 51,000 × \(\frac{3}{10}\) = ₹ 15,300, which is contributed by Lalit and Neenain the ratio of 5 : 2.
Lalit will pay = 15,300 × \(\frac{5}{7}\) = ₹ 10,929; Neena will pay = 15,300 × \(\frac{2}{7}\) = ₹ 4,371
Reduction in the value of investments have been adjusted through revaluation account

Question 30.
X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2009, X retires from the firm, Y and Z agrees that the capital of the new firm shall be fixed at ₹ 2,10,000 in the profit sharing ratio. The capital accounts of Y and Z after all adjustments on the date of retirement showed balances of ₹ 1,45,000 and ₹ 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners. (Delhi 2010)
Answer:

Question 31.
X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2009, Y retires form the firm. X and Z agree that the capital of the new firm shall be fixed at ₹ 2,10,000 in the profit sharing ratio. The capital accounts of X and Z after all adjustments on the date of retirement showed balances of ₹ 1,45,000 and ₹ 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners. (All India 2010)
Answer:
Calculation of Cash to be Brought In or Paid Out

Question 32.
Nandan, John and Rosa are partners sharing profits in the ratio of 4 : 3 : 2. On 1st April, 2012, John gave a notice to retire from the firm. Nandan and Rosa decided to share future profits in the ratio of 1 : 1. The capital accounts of Nandan and Rosa after all adjustments showed a balance of ? 43,000 and ₹ 80,500 respectively. The total amount to be paid to John was ₹ 95,500. This amount was to be paid by Nandan and Rosa in such a way that then- capitals become proportionate to their new profit sharing ratio. Pass necessary journal entries in the books of the firm for the above transactions. Show your workings clearly.
(All India 2013)
Answer:

Question 33.
Naresh, David and Aslam are partners sharing profits in the ratio of 5 : 3 : 7. On 1st April, 2012, Naresh gave a notice to retire from the firm. David and Aslam decided to share future profits in the ratio of 2 : 3. The adjusted capital accounts of David and Aslam show a balance of ₹ 33,000 and ₹ 70,500 respectively. The total amount to he paid to Naresh is ₹ 90,500.
This amount is to be paid by David and Aslam in such a way their capitals become proportionate to their new profit sharing ratio. Pass necessary journal entries for the above transactions in the books of the firm. Show your workings clearly. Delhi 2013
Answer:
Solve as Q no. 3 on page no. 177.
Cash to be brought in by David = ₹ 44,600; Aslam = ₹ 45,900

Question 34.
Akul, Bakul and Chandan were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2018 their balance sheet was as follows
Balance Sheet of Akul, Bakul and Chandan

Bakul retired on the above date and it was agreed that
(i) Plant and Machinery was undervalued by 10%.
(ii) Provision for doubtful debts was to be increased to 15% on debtors.
(iii) Furniture was to be decreased to ₹ 87,000.
(iv) Goodwill of the firm was valued at ₹ 3,00,000 and Bakul’s share was to be adjusted through the capital accounts of Akul and Chandan.
(v) Capital of the new firm was to be in the new profit sharing ratio of the continuing partners.
Prepare revaluation account, partners’ capital accounts and balance sheet of the reconstituted firm. (Delhi 2019)
Answer:

Working Notes:
1. Plant and machinery (original value) =1,80,000 x \(\frac { 100 }{ 90 }\) = ₹ 2,00,000

2. Firm’s goodwill = ₹ 3,00,000
Bakul’s share of goodwill =3,00,000 x \(\frac { 2 }{ 5 }\) = ₹ 1,20,000 to be contributed by Akul and Chandan in the ratio 2 : 1.

Akul’s new capital =1,50,000 x \(\frac { 2 }{ 3 }\) =1,00,000 – 92,000 = ₹ 8,000 cash brought in
Chandan’s new capital =1,50,000 x \(\frac { 1 }{ 3 }\) = 50,000 – 58,000 = ₹ 8,000 cash withdrew

Question 35.
G, E and F were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The balance sheet of the firm as at 31st March, 2018 was as follows

E retired on the above date. On E’s retirement the following was agreed upon
(i) Land and building were revalued at ₹ 1,88,000, machinery at ₹ 76,000 and stock at ₹ 10,000 and goodwill of the firm was valued at ₹ 90,000.
(ii) A provision of 2.5% was to be created on debtors for doubtful debts.
(tii) The net amount payable to E was transferred to his loan account to be paid later on.
(iv) Total capital of the new firm was fixed at ₹ 2,40,000 which will be adjusted according to their new profit sharing ratio by opening current accounts.
Prepare revaluation account, partners’ capital accounts and balance sheet of reconstituted firm. (All India 2019)
Answer:

Question 36.
Mohan, Vinay and Nitya were partners in a firm sharing profits and losses in the proportion of \(\frac { 1 }{ 2 }\), \(\frac { 1 }{ 3 }\) and \(\frac { 1 }{ 6 }\) respectively. On 31st March, 2018 their balance sheet was as follows

Mohan retired on the above date and it was agreed that
(i) Plant and machinery will be depreciated by 5%.
(ii) An old computer previously written off was sold for ₹ 4,000.
(iii) Bad debts amounting to ₹ 3,000 will be written off and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(iv) Goodwill of the firm was valued at ₹ 1,80,000 and Mohan’s share of the same was credited in his account by debiting Vinay’s and Nitya’s accounts.
(v) The capital of the new firm was to be fixed at ₹ 90,000 and necessary adjustments were to be made by bringing in or paying off cash as the case may be.
(vi) Vinay and Nitya will share future profits in the ratio of 3 : 2.
Prepare revaluation account, partners’ capital accounts and balance sheet of the reconstituted firm. (All India 2019)
Answer:


Working Notes:
1. Calculation of Gaining Ratio
Viray gain = \(\frac{3}{5}-\frac{2}{6}=\frac{18-10}{30}=\frac{8}{30}\)
Nitya = \(\frac{2}{5}-\frac{1}{6}=\frac{12-5}{30}=\frac{7}{30}\)
Gaining ratio = 8 : 7

2. Firm’s goodwill = 1,80,000
Mohan’s share of goodwill = 1,80,000 × \(\frac { 3 }{ 6 }\) = 90,000
Lo be adjusted in gaining ratio, i.e. 8 : 7

Question 37.
Kavya, Manya and Navita were partners sharing profits as 50%, 30% and 20% respectively. On March 31, 2016, their balance sheet stood as follows
Balance Sheet of Kavya, Manya and Navita

On the above date, Kavya retired and Manya and Navita agreed to continue the business on the following terms
(i) Firm’s goodwill was valued at ₹ 60,000 and it was decided to adjust Kavya’s share to goodwill in the capital accounts of continuing partners.
(ii) There was claim for workmen’s compensation to the extent of ₹ 4,000.
(iii) Investments were revalued at ₹ 2,13,000.
(iv) Fixed assets were to be depreciated by 10%.
(v) Kavya was to be paid ₹ 20,000 through a bank draft and the ablance was transferred to her loan account which will be paid in two equal annual instalments together with interest @ 10% p.a.
Prepare revaluation account, partners capital accounts and Kavya’s loan account till it is finally paid. (Comportment 2018)
Answer:
Solve as Q.no. 6 on page 180-181.
Revaluation loss Kavya = ₹ 40000
40,000 Manya = ₹ 24,000
Navita = ₹ 16,000
Capital balance Manya = ₹ 4,88,000
Navita = ₹ 3,92,000
Kavya’s Loan A/c = ₹ 6,20,000
1st Year = ₹ 3,72,000
2nd Year = ₹ 3,41,000

Question 38.
J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015 their balance sheet was as follows

On the above date, H retired and J and K agreed to continue the business on the following terms
(i) Goodwill of the firm was valued at ₹ 1,02,000.
(ii) There was a claim of ₹ 8,000 for workmen’s compensation.
(iii) Provision for bad debts was to be reduced by 12,000.
(iv) H will be paid ₹ 14,000 in cash and the balance will be transferred in his loan account which will be paid in four equal yearly instalments together with interest @ 10% per annum.
(v) The new profit sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit sharing ratio. The capital adjustments will be done by opening current accounts.
Prepare revaluation account, partners capital accounts and balance sheet of the new firm. (All India 2016)
Answer:

Working Notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
J = \(\frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10}\); K = \(\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}\)
Gaining ratio = 1 : 2

2. Adjustment for Goodwill Firm’s goodwill = ₹ 1,02,000
H’s share of goodwill = 1,02,000 × \(\frac { 3 }{ 10 }\) = ₹ 30,600 will be debited to gaining partners, i.e. J and K in gaining ratio, i.e. 1 : 2
J’s share = 30,600 × \(\frac { 1 }{ 3 }\) = ₹ 10,200; K’s share = 30,600 × \(\frac { 2 }{ 3 }\) = ₹ 20,400

3. Adjustment of Capital
J’s capital after adjustment = 1,36,800
(+) K’s capital after adjustment = 38,400
Total capital of new firm = ₹ 1,75,200
J’s adjusted capital = 1,75,200 × \(\frac { 3 }{ 5 }\) = ₹ 1,05,120; K’s adjusted capital = 1,75,200 × \(\frac { 2 }{ 5 }\) = ₹ 70,080

Question 39.
X, Y and Z were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015 their balance sheet was as follows

On the above date, Y retired and X and Z agreed to continue the business on the following terms
(i) Goodwill of the firm was valued at ₹ 51,000.
(ii) There was a claim of ₹ 4,000 for workmen’s compensation.
(iii) Provision for bad debts was to be reduced by ₹ 1,000.
(iv) Y will be paid ? 8,200 in cash and the balance will be transferred in his loan account which will be paid in four equal yearly instalments together with interest @ 10% per annum.
(v) The new profit sharing ratio between X and Z will be 3 : 2 and their capitals will be in their new profit sharing ratio. The capital adjustments will be done by opening current accounts.
Prepare revaluation account, partners’ capital accounts and the balance sheet of the reconstituted firm. (Delhi 2016)
Answer:
Solve as Q no. 9 on page 184-186.
Loss on Revaluation Account: X = ₹ 1,500, Y = ₹ 900, Z = ?600; Balance in Partners’ Capital Accounts:
X = ₹ 52,560, Z = ₹ 35,040; Balance in Current Accounts: X = ₹ 15,840 (Credit), Z = ₹ 15840 (Debit);
Balance Sheet Total = ₹ 1,89,640; Y’s Loan Account = ₹ 61,200.

Question 40.
Leena, Madan and Naresh were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 3. On 31st March, 2015 their balance sheet was as follows

On 31st March, 2015, Madan retrired from the firm and the remaining partners decided to
carry on the business. It was decided to revalue assets and liabilities as under
(t) Land and building be appreciated by ₹ 2,40,000 and machinery be depreciated by 10%.
(ii) 50% of investments were taken over by the retiring partner at book value.
(iii) An old customer Mohit whose account was written-off as bad debt had promised to pay ₹ 7,000 in settlement of his full debt of ₹ 10,000.
(in) Provision for doubtful debts was to be made at 5% on debtors.
(v) Closing stock will be valued at market price which is ₹ 1,00,000 less than the book value.
(vi) Goodwill of the firm be valued at ₹ 5,60,000 and Madan’s share of goodwill be adjusted in the accounts of Leena and Naresh. Leena and Naresh decided to share future profits and losses in the ratio of 3 : 2.
(vii) The total capital of the new firm will be ₹ 32,00,000 which will be in the proportion of the profit sharing ratio of Leena and Naresh.
(uiii) Amount due to Madan was settled by accepting a bill of exchange in his favour payable after 4 months.
Prepare revaluation account, partners capital accounts and balance sheet of the firm after
Madan’s retirement. (All India (C) 2016)
Answer:

Working notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
Leena = \(\frac{3}{5}-\frac{2}{7}=\frac{21-10}{35}=\frac{11}{35}\); Naresh = \(\frac{2}{5}-\frac{3}{7}=\frac{14-15}{35}= \frac{1}{35}\) sacrifice

2. Calculation of Share of Goodwill
Madan’s share of goodwill = 5,60,000 × \(\frac { 2 }{ 7 }\) = ₹ 1,60,000 to be contributed by Leena alone. As she is the only gaining partner, she will compensate to Naresh also.

3. Calculation of Capital of Partners in New firm
New profit sharing ratio = 3 : 2
Leena’s capital = 32,00,000 × \(\frac { 3 }{ 5 }\) = ₹ 19,20,000; Naresh’s capital = 32,00,000 x \(\frac { 2 }{ 5 }\) = ₹ 12,80,000

5. It is mentioned in the question that an old customer Mohit had promised to pay ₹ 7,000 in settlement of his debt, since it is an oral promise it is not considered as a transaction, therefore Mohit has been considered as the debtor of the firm.

Question 41.
On 31st March, 2015 the balance sheet of Saman, Harish and Meeta who were sharing profits and losses in the ratio of 2 : 3 : 2 stood as follows

On 31st March, 2015 Harish retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and liabilities as follows
(i) Land and buildings be appreciated by 20%.
(ii) Machinery be depreciated by 20%.
(iii) Closing stock be valued at ₹ 4,50,000.
(iv) Provision for doubtful debts be made at 5% on debtors.
(v) Sundry creditors of ₹ 65,000 be written-off.
(vi) Goodwill of the firm be valued at ₹ 5,60,000 and Harish’s share of the goodwill be adjusted in the accounts of Saman and Meeta who will share the future profits and losses in the ratio of 3 : 2.
(vii) The total capital of the newly constituted firm will be ₹ 35,00,000, which will be adjusted by opening current accounts.
(viii) Amount due to Harish was settled by accepting a bill of exchange in his favour payable after 4 months.
Prepare revaluation account, partners’ capital accounts and balance sheet of the new firm on Harish’s retirement. (Delhi (C) 2016)
Answer:
Solve as Q no. 11 on page 187-189.
Profit on Revaluation Account: Saman = ₹ 74,286, Harish = ₹ 1,11,428, Meeta = ₹ 74,286; Balance in Partners’ Capital Account:Saman = ₹ 21,00,000, Meena = ₹ 14,00,000; Total of Balance Sheet = ₹ 61,56,428, Gaining Ratio = 11 : 4; Partners’ Current Account (Dr) Saman = ₹ 9,61,714, Meeta = ₹ 1,49,714

Question 42.
Xavier, Yusuf and Zaman were partners in a firm sharing profits in the ratio of 4 : 3 : 2. On 1st April, 2014 their balance sheet was as follows

Yusuf had been suffering from ill health and thus gave notice of reitrement from the firm. An agreement was, therefore, enterd into as on 1st April, 2014, the terms of which were as follows
(i) That land and building be appreciated by 10%.
(ii) The provision for bad debts is no longer necessary.
(iii) That stock be appreciated by 20%.
(iv) That goodwill of the firm be fixed at ₹ 54,000. Yusuf s share of the same be adjusted into Xavier’s and Zaman’s capital accounts, who are going to share future profits in the ratio of 2 : 1.
(v) The entire capital of the newly constituted firm be readjusted by bringing in or paying necessary cash so that the future capitals of Xavier and Zaman will be in their profits sharing ratio.
Prepare revaluation account and partners capital accounts. (All India 2015)
Answer:

Working notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
Xavier = \(\frac{2}{3}-\frac{4}{9}=\frac{6-4}{9}=\frac{2}{9}\); Zaman = \(\frac{1}{3}-\frac{2}{9}=\frac{3-2}{9}=\frac{1}{9}\)
Gaining ratio = 2 : 1

2. Adjustment of Goodwill:
Yusuf’s share of goodwill = 54,000 x \(\frac { 3 }{ 5 }\) = ₹ 18,000 to be contributed in gaining ratio, i.e. 2 : 1
Xavier will pay =18,OOO x \(\frac { 2 }{ 3 }\) = ₹ 12,000; Zaman will pay = 18,000 x \(\frac { 1 }{ 3 }\) = ₹ 6,000

3. Calculation of New Capitals

Adjusted Capital of Xavier Adjusted Capital of Zaman Amount Due to Yusuf Total Capital of New Firm
Xavier’s new capital = 2,95,650 x \(\frac { 2 }{ 3 }\) = ₹ 1,97,100
Zaman’s new capital = 2,95,650 x \(\frac { 1 }{ 3 }\) = ₹ 98,550

Question 43.
Amit, Balan and Chander were partners in a firm sharing profits in the proportion of \(\frac { 1 }{ 2 }\), \(\frac { 1 }{ 3 }\) and \(\frac { 1 }{ 6 }\) respectively. Chander retired on 1st April, 2014. The balance sheet of the firm on the date of Chander’s retirement was as follows

It was agreed that
(i) Goodwill will be valued at ₹ 27,000.
(ii) Depreciation of 10% was to be provided on machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of provident fund was estimated at ₹ 2,400.
(v) Chander took over investments for ₹ 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit sharing ratio by opening current accounts.
Prepare revaluation account and partners’ capital accounts on Chander’s retirement. (Delhi 2015)
Answer:

Working Notes:
1. Adjustment for Goodwill
Chander’s share in goodwill = 27,000 x \(\frac { 1 }{ 6 }\) = ₹ 4,500; to be contributed in gaining ratio, i.e. 3 : 2
Amit will pay = 4,500 x \(\frac { 3 }{ 5 }\) = ₹ 2,700
Balan will pay = 4,500 x \(\frac { 2 }{ 5 }\) = ₹ 1,800

2. Adjustment for Capital
Combined capital ⇒ Amit’s adjusted capital = 42,100
Balan’s adjusted capital = 37,900
Total = 80,000
New profit sharing ratio = 3 : 2
Amit’s new capital = 80,000 x \(\frac { 3 }{ 5 }\) = ₹ 48,000
Chander’s new capital = 80,000 x \(\frac { 2 }{ 5 }\) = ₹ 32,000

Question 44.
Lokesh, Mansoor and Nihal were partners in a firm sharing profits as 50%, 30% and 20% respectively. On 31st March, 2014, their balance sheet was as follows

On the above date, Mansoor retired and Lokesh and Nihal agreed to continue on the following terms
(i) Firm’s goodwill was valued at ₹ 1,02,000 and it was decided to adjust Mansoor’s share of goodwill into the capital accounts of the continuing partners.
(iii) There was a claim for workmen’s compensation to the extent of ₹ 12,000 and investments were brought down to ₹ 30,000.
(iv) Provision for bad debts was to be reduced by ₹ 2,000.
(iv) Mansoor was to be paid ₹ 20,600 in cash and the balance will be transferred to his loan account which was paid in two equal instalments together with interest @ 10% per annum.
(v) Lokesh’s and Nihal’s capitals were to be adjusted in their new profit sharing ratio by bringing in or paying off cash as the case may be.
Prepare revaluation account and partners’ capital accounts. (All India 2015)
Answer:

Working Notes:
1. Calculation of Share of Goodwill
Mansoor’s share of goodwill = 1,02,000 × \(\frac { 3 }{ 10 }\) = ₹ 30,600, to be contributed by Lokesh and Nihal in gaining ratio, i.e. 5 : 2
Lokesh will pay = 30,600 × \(\frac { 5 }{ 7 }\) = ₹ 21,857; Nihal will pay = 30,600 x \(\frac { 2 }{ 7 }\) = ₹ 8,743

2. Calculation of Capital of New Firm after Mansoor’s Retirement
Lokesh’s capital after adjustment = 68,143
Nihal’s capital after adjustment = 21,257
total = ₹ 89,400
Lokesh’s new capital = 89,400 × \(\frac { 5 }{ 7 }\) = ₹ 63,857
Nihal’s new capital =89,400 × \(\frac { 2 }{ 7 }\) = ₹ 25,543

Question 45.
L, M and N were partners in a firm sharing profits in the ratio of 2 : 1 : 1. On 1st April, 2013 their balance sheet was as follows

On the above date, N retired. The following were agreed
(i) Goodwill of the firm was valued at ₹ 6,00,000.
(ii) Land was to be appreciated by 40% and building was to be depreciated by ₹ 1,00,000.
(iii) Furniture was to be depreciated by ₹ 30,000.
(iv) The liabilities for workmen’s compensation fund was determined at ₹ 1,60,000.
(v) Amount payable to N was transferred to his loan account.
(vi) Capitals of L and M were to be adjusted in their new profit sharing ratio and for this purpose current accounts of the partners will be opened.
Prepare revaluation account, partner’s capital accounts and the balance sheet of the new firm. (All India 2014)
Answer:

Working Notes:
1. Firm’s goodwill = ₹ 6,00,000
N’s share of goodwill = 6,00,000 × \(\frac { 1 }{ 4 }\) = 1,50,000 to be contributed by L and M in gaining ratio i.e., 2 : 1
L = 1,50,000 × 2/3 = ₹ 1,00,000, M = 1,50,000 × 1/3 = ₹ 50,000

2. Calculation of Proportionate’s Capital
L’s capital after all adjustment = 9,15,000
M’s capital after all adjustment = 6,37,500
Total capital of new firm = ₹ 15,52,500
L’s new capital =15,52,500 x \(\frac { 2 }{ 3 }\) = ₹ 10,35,000
M’s new capital =15,52,500 x \(\frac { 1 }{ 3 }\) = ₹ 5,17,500

Question 46.
Kushal, Kumar and Kavita were partners in a firm sharing profits in the ratio of 3 : 1 : 1. On 1st April, 2012 their balance sheet was as follows

On the above date, Kavita retired and the following was agreed
(i) Goodwill of the firm was valued at ₹ 40,000.
(ii) Land was to be appreciated by 30% and building was to be depreciated by ₹ 1,00,000.
(iii) Value of furniture was to be reduced by ₹ 20,000.
(iv) Bad debts reserve is to be increased to ₹ 15,000.
(v) 10% of the amount payable to Kavita was paid in cash and the balance was transferred to her loan account.
(vi) Capitals of Kushal and Kumar will be in proportion to their new profit sharing ratio. The surplus/deficit, if any in their capital accounts will be adjusted through current accounts.
Prepare revaluation account, partner’s capital accounts and balance sheet of Kushal and Kumar after Kavita’s retirement. (Delhi 2014)
Answer:

Working Note:
1. Finn’s goodwill = ₹ 40,000
Kavita’s share of goodwill – 40,000 × \(\frac { 1 }{ 5 }\) = ₹ 8,000, to be contributed by Kushal and Kumar in gaining ratio, i.e. 3 : 1; Kushal = 8,000 × \(\frac { 3 }{ 4 }\) = ₹ 6,000; Kumar = 8,000 × \(\frac { 1 }{ 4 }\) = ₹ 2,000

2. Adjustment of Capital
Adjusted capital of Kushal = 3,63,000
Adjusted capital of Kumar = 3,01,000 ₹
Total = 6,64,000
New profit sharing ratio = 3 : 1
New capital of Kushal = 6,64,000 × \(\frac { 3 }{ 4 }\) = ₹ 4,98,000
New capital of Kumar = 6,64,000 × \(\frac { 1 }{ 4 }\) = ₹ 1,66,000

Question 47.
State the basis of calculating the amount of profit payable to the legal representative of a deceased partner in the year of death. (All India 2019)
Answer:
Amount of profit can be calculated on time basis or sales basis.

Question 48.
Dinkar, Navita and Vani were partners sharing profits and losses in the ratio of 3 : 2 : 1. Navita died on 30th June, 2017. Her share of profit for the intervening period was based on the sales during that period, which were ₹ 6,00,000. The rate of profit during the past four years had been 10% on sales. The firm closes its books on 31st March every year.
Calculate Navita’s share of profit. (All india 2019)
Answer:
Total sales = ₹ 6,00,000 (1st April, 2017-30th June, 2017)
Finn’s profit on sales = 600000 × 10% = ₹ 60,000
Navita’s share of profit = 60000 × \(\frac { 2 }{ 6 }\) = ₹ 20,000

Question 49.
Jayant, Kartik and Leena were partners in a firm sharing profits and losses in the ratio of 6 : 2 : 3. Kartik died and Jayant and Leena decided to continue the business. Their gaining ratio was 2 : 3. Calculate the new profit sharing ratio of Jayant and Leena. (CBSE 2018)
Answer:
Jayant’s old share = \(\frac { 5 }{ 10 }\) Jayant’s gaining share = \(\frac{2}{5} \times \frac{2}{10}=\frac{4}{50}\)
Jayant’s New Share = Old Share + Gaining share = \(\frac{5}{10}+\frac{4}{50}=\frac{25+4}{50}=\frac{29}{50}\)
Leena’s old share = \(\frac { 3 }{ 10 }\); Leena’s gaining share = \(\frac{3}{5} \times \frac{2}{10}=\frac{6}{50}\)
Leena s new share = \(\frac{3}{10}+\frac{6}{50}=\frac{15+6}{50}=\frac{21}{50}\)
New profit sharing ratio = Jayant : Leena = 29 : 21

Question 50.
In which ratio do the remaining partners acquire the share of the deceased partner? (Comport mant 2018)
Answer:
The remaining partners will acquire the share of the deceased partner in gaining ratio.

Question 51.
Kumar, Verma and Naresh were partners in a firm sharing profit and loss in the ratio of 3 : 2 : 2. On 23rd January, 2015, Verma died. Verma’s share of profit till the date of his death was calculated at ₹ 2,350.
Answer:

Question 52.
Differentiate between ‘profit and loss appropriation account’ and ‘profit and loss suspense account’. (All India (C) 2015)
Answer:
Profit & Loss Appropriation Account:
Objective Profit and loss appropriation account is prepared to show the distribution of net profit among the partners.

Profit & Loss Suspense Account:
Profit and loss suspense account is prepared to adjust the deceased partner’s share of profit upto the date of his death.

Question 53.
Name the account which is opened to credit the share of profit of the deceased partner, till the time of his death to his capital account. (All India 2015; Modified; Delhi 2013)
Answer:
‘Profit and loss suspense account’ is opened, to credit the share of profit of the deceased partner.

Question 54.
A, T and R were partners in a firm sharing profits in the ratio of 5 : 6 : 7 respectively. Their capitals were ₹ 5,00,000; ₹ 6,00,000 and ₹ 7,00,000 respectively. State the ratio in which the goodwill of the firm amounting to ₹ 16,00,000 will be adjusted in the capital accounts of A and T in case of R’s death. (Comportment 2014)
Answer:
Goodwill of the firm, at the time of R’s death, will be adjusted among A and T in gaining ratio, i.e. 5 : 6.

Question 55.
At what rate is interest payable on the amount remaining unpaid to the executor of deceased partner? (All India 2013)
Answer:
Interest is payable @ 6% per annum on the amount remaining unpaid to the executor of deceased partner.

Question 56.
Ajay, Bhawna and Shreya were partners sharing profits in the ratio 2 : 2 : 1. On 1st July, 2017, Shreya died. The books of accounts are closed on 31st March every year. Sales for the year 2016-17 amounted to ₹ 5,00,000 and that from 1st April to 30th June, 2017 were ₹ 1,40,000. The rate of profit during the past three years had been 10% on sales. It was decided that the profit for the purpose of settling Shreya’s account is to be calculated as 20% on sales.
Calculate Shreya’s share of profits till the date of her death and pass necessary a journal entry for the same. (Comportment 2018)
Answer:
Shreya’s share of profit = 1,40,000 × \(\frac { 20 }{ 100 }\) × \(\frac { 1 }{ 5 }\) = ₹ 5,600

Question 57.
A, B and C are partners in a firm whose books are closed on 31st March each year. B died on 30th June, 2009 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 2005 : ₹ 14,000; 2006 : ₹ 18,000; 2007 : ₹ 16,000; 2008 : ₹ 10,000 (loss) and 2009 : ₹ 16,000. Calculate B’s share of profita upto the date of death and pass necessary journal entry. (All India; 2010)
Answer:
Calculation of B’s Share of Profit
Last 5 years’ total profit = 14,000 + 18,000 + 16,000 – 10,000 + 16,000 = ₹ 54,000
Average profit = \(\frac { 54,000 }{ 5 }\) = ₹ 10,800
B’s Share of profit = 10,800 × \(\frac { 1 }{ 3 }\) × \(\frac { 3 }{ 12 }\) = 900

Question 58.
Garima, Harish and Reena were partners in a firm sharing profits and losses equally. On 31st March, 2015, Harish died and the amount payable to his executors was ₹ 90,000. It was agreed between the remaining partners and Harish’s executors that the executors will be paid in four equal yearly instalments alongwith interest @18% per annum starting from 31st March, 2018.
Prepare Harish’s executor’s account till it is finally closed. (All India 2019)
Answer:

Question 59.
Manika, Rekha and Mohit were partners sharing profits in the ratio of 5 : 4 : 1. On 31st March, 2018 their balance sheet was as follows

Rekha died on 1st July, 2018. According to the partnership deed, her executors were entitled to
(i) Balance in her capital account.
(ii) Her share of goodwill, which is calculated on the basis of average profits of last four years.
(iii) Her share of profit upto the date of death calculated on the basis of average profits of last two years. The time period for which she survived in the year of death will be calculated in months.
(iv) Interest on capital @ 10% p.a. upto the date of death.
The firm’s profits for the last four years were 2014-15: ₹ 2,20,000, 2015-16: ₹ 3,00,000: 2016-17: ₹ 3,60,000 and 2017-18: ₹ 3,20,000.
Rekha’s executors were paid the amount due immediately. Prepare Rekha’s Capital Account to be presented to her executors. (All India 2019)
Answer:

Working Notes:
1. 4 year’s total profit = 2,20,000 + 3,00,000 + 3,60,000 + 3,20,000 = ₹ 12,00,000
Average profit or goodwill = \(\frac { 1200000 }{ 4 }\) = 3,00,000
Rekha’s share of goodwill = 3,00,000 x \(\frac { 4 }{ 10 }\) = ₹ 120,000 to be contributed by Manika and Mohit in the ratio of 5 : 1.

2. 2 years average profit = \(\frac { 3,60,000+3,20,000 }{ 2 }\) = ₹ 3,40,000
Rekha’s share of profit = 3,40,000 x \(\frac { 4 }{ 10 }\) x \(\frac { 3 }{ 12 }\) = ₹ 34,000

3. Interest on capital = 4,50,000 x \(\frac { 10 }{ 100 }\) x \(\frac { 3 }{ 12 }\) = ₹ 11,250

Question 60.
Meera, Sarthak and Rohit were partners sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2018 their balance sheet as follows

(i) Balance in his capital account.
(ii) His share of goodwill will be calculated on the basis of thrice the average of the past 4 years’ profits.
(iii) His share in profits upto the date of death on the basis of average profits of the last two years.
The time period for which he survived in the year of death will be calculated in months.
(iv) Interest on capital @ 12% p.a. upto the date of his death.
The firm’s profits for the last four years were 2014-15 : ₹ 1,20,000, 2015-16 : ₹ 2,00,000, 2016-17 : ₹ 2,60,000 and 2017-18 : ₹ 2,20,000.
Sarthak’s executors were paid the amount due immediately. Prepare Sarthaks’s capital account to be presented to his executors. (All Indio 2019)
Answer: Solve as Q. no. 13 on page 204-205.
Sarthak’s share of goodwill = ₹ 2,40,000
Sarthak’s share of profit = ₹ 201300
Debit Sarthak’s capital account with amount = ₹ 658,750

Question 61.
Ashok, Babu and Chetan were partners in a firm sharing profits in the ratio of 4 : 3 : 3. The firm closes its books on 31st March every year. On 31st December, 2016, Ashok died. The partnership deed provided that on the death of a partner, his executors will be entitled to the following
(i) Balance in his capital account. On 1st April, 2016, there was a balanee of ₹ 90,000 in Ashok’s capital account.
(ii) Interest on capital @ 12% per annum.
(iii) His share in the profits of the firm in the year of his death will be calculated on the basis of rate of net profit on sales of the previous year, which was 25%. The sales of the firm till 30th December, 2016 were ₹ 4,00,000.
(iv) His share in the goodwill of the firm. The goodwill of the firm on Ashok’s death was valued at ₹ 4,50,000.

The partnership deed also provided for the following deductions from the amount payable to the executor of the deceased partner.
(i) His drawings in the year of his death. Ashok’s drawings till 31st December, 2016 were ₹ 15,000.
(ii) Interest on drawing @ 12% per annum which was calculated as ₹ 1,500.
The accountant of the firm prepared Ashok’s capital account to be presented to the executor of Ashok but in a hurry, he left it incomplete. Ashok’s capital account as prepared by the firm’s accountant is given below

You are required to complete Ashok’s capital account. (All India 2017)
Answer:

Working Notes:
1. Calculation of Interest on Capital
= 90,000 x \(\frac{12}{100} \times \frac{9}{12}\) = ₹ 8,100

2. Calculation of Profit
= 4,00,000 x \(\frac{25}{100} \times \frac{4}{10}\) = ₹ 40,000
3. Calculation of Ashok’s Share of Goodwill
Ashok’s share of goodwill = 4,50,000 x \(\frac { 4 }{ 10 }\) = ₹ 1,80,000 to be contributed by Babu and Chetan in gaining ratio, It. 3 : 3 or 1 : 1.

Question 62.
Sandeep, Mandeep and Amandeep were partners in a firm sharing profits in the ratio of 2:2:1. The firm closes its books on 31st March every year. On 30th September, 2015 Mandeep died. The partnership deed provided that on the death of a partner, his executors will be entitled to the following
(i) Balance in his capital account and interest @ 12% per annum on capital. On 1st April, 2016 the balance in Mandeep’s capital account was ₹ 1,00,000.
(ii) His share in the profits of the fir m in the year of his death which will be calculated on the basis of rate of net profit on sales of the previous year which was 25%. The sales of the firm till 30th September, 2016 were ₹ 9,00,000.
(iii) His share in the goodwill of the firm. The goodwill of the firm on Mandeep’s death was valued at ₹ 1,50,000.
The partnership deed also provided that the following deductions will be made from the amount payable to the executor of the deceased partner
(a) His drawing in the year of his death. Mandeep’s drawings till 30th September, 2016 were ₹ 4,000.
(b) Interest on drawing @ 6% per annum which was calculated as ₹ 120.
The accountant of the firm prepared Mandeep’s capital account to be presented to the executor of Mandeep but in a hurry, he left it incomplete.
Mandeep’s capital account prepared by accountant of the firm is shown below

You are required to complete Mandeep’s capital account. (Delhi 2017)
Answer:
Solve as Q no. 15 on page 205 and 206.
Amount Transferred to Mandeep’s Executor Account = ₹ 2,51,880.

Question 64.
Manav, Nath and Narayan were partners in a firm sharing profits in the ratio of 1: 2 : 1.
The firm closes its books on 31st March every year. On 30th September, 2015, Nath died. On that date, his capital account showed a debit balance of ₹ 5,000. There was a debit balance of ₹ 30,000 in the profit and loss account. The goodwill of the firm was valued at ₹ 3,80,000. Nath’s share of profit in the year of his death was to be calculated on the basis of average profit of last 5 years, which was ₹ 90,000.
Pass necessary journal entries in the books of the firm on Nath’s death. (All India 2016)
Answer:

Working Note:
1. Calculation of Nath’s Share of Goodwill
Firm’s goodwill = ₹ 3,80,000; Nath’s share of goodwill = 3,80,000 x \(\frac { 2 }{ 4 }\) = ₹ 1,90,000

2. Calculation of Amount Transferred to Nath’s Executors Account

Question 65.
Vikas, Vishal and Vaibhav were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 31st December, 2015, Vaibhav died. On that date his capital account showed a credit balance of ₹ 3,80,000 and goodwill of the firm was valued at ₹ 1,20,000. There was a debit balance of ₹ 50,000 in the profit and loss account. Vaibhav’s share of profit in the year of his death was to be calculated on the basis of the average profit of last five years. The average profit of last five years was ₹ 75,000.
Pass necessary journal entries in the books of the firm on Vaibhav’s death. (Delhi 2016)
Answer:
Solve as Q no. 17 on page 207 and 208.
Amount Transferred to Vaibhav’s Executor Account = ₹ 4,05,250;
Vaibhav’s Share of Goodwill = ₹ 24,000; Vaibhav’s Share of Profit = ₹ 11,250

Question 66.
Ram, Ghanshyam and Vrinda were partners in a firm sharing profits in the ratio of 4 : 3 : 1. The firm closes its books on 31st March every year. On 1st February, 2015, Ghanshyam died and it was decided that the new profit sharing ratio between Ram and Vrinda will be equal. The partnership deed provided for the following, on the death of a partner.
(a) His share of goodwill be calculated on the basis of the half of the profits credited to his account during the previous four completed years. The firm’s profit for the last four years was: 2010-2011 ₹ 1,20,000, 2011-2012 ₹ 80,000, 2012-2013 ₹ 40,000 and 2013-2014 ₹ 80,000.
(b) His share of profit in the year of his death was to be computed on the basis of average profits of past two years.
Pass necessary journal entries relating to goodwill and profit to be transferred to Ghanshyam’s capital account. Also show your workings clearly. (Delhi 2016)
Answer:

Working Note:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
Ram = \(\frac{1}{2}-\frac{4}{8}=\frac{4-4}{8}\) = Nil; Vrinda = \(\frac{1}{2}-\frac{1}{8}=\frac{4-1}{8}=\frac{3}{8}\)
Since Vrinda is the gaining partner, only she will contribute.

2. Calculation of Share of Goodwill:
Ghanshyam’s share in goodwill = (1,20,000 +80,000 + 40,000 +80,000) x \(\frac { 1 }{ 2 }\) x \(\frac { 3 }{ 8 }\) = ₹ 60,000

Question 67.
Monu, Nigam and Shreya were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. The firm closes its books on 31st March every year. As per the terms of partnership deed on the death of any partner, the share of goodwill of the deceased partner will be calculated on the basis of 50% of the net profits credited to the partners’ capital account during the last four completed years before death. Monu died on 1st July, 2015.
The profits for last four years were:
2011-12 – 97,000
2012-13 – 1,05,000
2013-14 – 30,000
2014-15 – 84,000

His share of profit in the year of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2015 amounted to ₹ 21,00,000. From 1st April, 2015 to 30th June, 2015 the firm’s sales were ₹ 2,00,000.
Pass necessary journal entries relating to the amount of goodwill and profit to be transferred to Monu’s capital account. Also show your workings clearly. (All India 2016)
Answer:

Working Notes:
1. Calculation of Share of Goodwill
Monu’s share in goodwill = (97,000 +1,05,000 +30,000 +84,000) x \(\frac { 50 }{ 100 }\) x \(\frac { 4 }{ 8 }\) = ₹ 79,000

2. Calculation of Share in Profit
Monu’s share in profit = \(\frac { 84000 }{ 2100000 }\) x 2,00,000 x \(\frac { 4 }{ 8 }\) = ₹ 4,000

Question 68.
Arun, Varun and Karan were partners in a firm sharing profits in the ratio of 4 : 3 : 3. On 31st March, 2014 their balance sheet was as follows

On 30th September, 2014, Karan died. The partnership deed provided for the following to the executors of the deceased partner.
(i) His share in the goodwill of the firm calculated on the basis of three years purchase of the average profits of the last four years. The profits of the last four years were ₹ 1,90,000; ₹ 1,70,000; ₹ 1,80,000 and ₹ 1,60,000 respectively.
(ii) His share in the profits of the firm till the date of his death calculated on the basis of the average profits of the last four years.
(iii) Interest @ 8% per annum on the credit balance, if any, in his capital account.
(iv) Interest on his loan @ 12% per annum.
Prepare Karan’s capital account to he presented to his executors, assuming that his loan and interest on loan were transferred to his capital account. (All India 2015)
Answer:

Working Note:
1. Calculation of Share of Goodwill
Average profit = \(\frac{1,90,000+1,70,000+1,80,000+1,60,000}{4}\) = 1,75,000
Goodwill = Average Profit × Number of Years Purchase
= 1,75,000 x 3 = ₹ 5,25,000
Karan’s share = 5,25,000 × \(\frac { 3 }{ 10 }\) = ₹ 1,57,500, to be contributed by Arun and Varun in gaining ratio i.e. 4 : 3, Arun will contribute = 1,57,500 x \(\frac { 4 }{ 7 }\) = ₹ 90,000, Varun will contribute = ₹ 1,57,500 x \(\frac { 3 }{ 7 }\) = ₹ 67,500

2. Calculation of Profit upto Death
Average profit = ₹ 1,75,000
Karan’s share of profit = 1,75,000 x \(\frac { 3 }{ 6 }\) x \(\frac { 6 }{ 12 }\) = ₹ 26,250
NOTE: As there is no credit balance in capital account of Karan, he will not get interest on capital.

Question 69.
Sunny, Honey and Rupesh were partners in a firm. On 31st March, 2014 their balance sheet was as follows

Honey died on 31st December, 2014. The partnership deed provides that the representatives of the deceased partner shall be entitled to
(i) Balance in the capital account of the deceased partner.
(ii) Interest on capital @ 6% per annum upto the date of his death.
(iii) His share in the undistributed profits or losses as per the balance sheet.
(iv) His share in the profits of the firm till the date of his death, calculated on the basis of rate of net profit on sales of the previous year. The rate of net profit on sale of previous year was 20%. Sales of the firm during the year till 31st December, 2014 was ₹ 6,00,000.
Prepare Honey’s capital account to be presented to his executors. (Delhi 2015)
Answer:

Question 70.
Dev, Swati and Sanskar were partners in a fir pi sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2014 their balance sheet was as follows

On 30th June, 2014 Dev died. According to partnership agreement, Dev was entitled to interest on capital at 12% per annum. His share of profit till the date of his death was to be calculated on the basis of the average profits of last four years.
The profits of the last four years were
2010-2011 – 2,04,000
2011-2012 – 1,80,000
2012-2013 – 90,000
2013-2014 (Loss) – 57,000
On 1st April, 2014, Dev withdrew ₹ 15,000 to pay for his medical bills. Prepare Dev’s account to be presented to his executors. (Delhi 2018)
Answer:

Working Note:
1. Calculation of Interest on Capital
= 77000 × \(\frac{12}{100} \times \frac{3}{12}\)

2. Calculation of Profit upto Date of Death
Average profit = \(\frac{2,04,000+1,80,000+90,000-57,000}{4}\) = 1,04,250
Dev’s share of profit = 1,04,250 x \(\frac { 2 }{ 5 }\) x \(\frac { 3 }{ 12 }\) = 10,425

Question 71.
On 31st March, 2014, the balance sheet of Pooja, Qureshi and Ross, who were partners in a firm was as under

Qureshi died on 1st July, 2014. The profit sharing ratio of the partners was 2 : 1 : 1. On the death of the partner, the partnership deed provided for the following
(i) His share in the profits of the firm till the date of his death will be calculated on the basis of average profit of last three completed years.
(ii) Goodwill of the firm will be calculated on the basis of total profit of last two years.
(iii) Interest on loan given by the firm to a partner will be charged at the rate of 6% per annum or ₹ 4,000 whichever is more.
(iv) Profits for the last three years were ₹ 45,000, ₹ 48,000 and ₹ 33,000.
Prepare Qureshi’s capital account to be rendered to his executors. (Delhi to 2015)
Answer:

Working Notes:
1. Calculation of Qureshi’s Share in Profit upto Death
Average profit = \(\frac { 45000+48000+33000 }{ 3 }\) = ₹ 42,000; Qureshi s share = 42,000 x \(\frac { 1 }{ 4 }\) x \(\frac { 3 }{ 12 }\) = ₹ 2,625

2. Calculation of Share of Goodwill
Goodwill = 48,000 +33,000 = ₹ 81,000; Qureshi’s share = 81,000 x \(\frac { 1 }{ 4 }\) = ₹ 20,250
Pooja will pay = 20,250 x \(\frac { 2 }{ 3 }\) = ₹ 13,500; Ross will pay = 20,250 x \(\frac { 1 }{ 3 }\) = ₹ 6,750

Question 72.
Monika, Sonika and Manisha were partners in a firm sharing profits in the ratio of 2 : 2 : 1 respectively. On 31st March, 2013 their balance sheet was as under

Sonika died on 30th June, 2013. It was agreed between her executors and the remaining partners that
(i) Goodwill of the firm be valued at 3 years’ purchase of average profits for the last four years. The average profits were ₹ 2,00,000.
(it) Interest on capital be provided at 12% per annum.
(iti) Her share in the profits upto the date of death will be calculated on the basis of average profits for the last 4 years.
Prepare Sonika’s capital as on 30th June, 2013. (All India 2014)
Answer:

Working Notes:
1. Calculation of Sonika’s Share of Goodwill
Average profit of last 4 years = ₹ 2,00,000; Firm’s goodwill = 2,00,000 x 3 = ₹ 6,00,000
Sonika’s share = 6,00,000 x \(\frac { 2 }{ 5 }\) = ₹ 2,40,000 5
Gaining ratio of Monika and Manisha = 2 : 1
Monika will contribute = 2,40,000 x \(\frac { 2 }{ 3 }\) = ₹ 1,60,000;
Manisha will contribute = 2,40,000 x \(\frac { 1 }{ 3 }\) = ₹ 80,000

2. Calculation of Sonika’s Share of Profit
Sonika’s share of profit = 2,00,000 x \(\frac { 2 }{ 5 }\) x \(\frac { 3 }{ 12 }\) = ₹ 20,000

Question 73.
Virad, Vishad and Roma were partners in a firm sharing profits in the ratio of 5 : 3 : 2 respectively. On 31st March, 2013 their balance sheet was as under

Virad died on 1st October, 2013. It was agreed between his executors and the remaining partner’s that
(i) Goodwill of the firm be valued at 2\(\frac { 1 }{ 2 }\) years purchase of average profits for the last three years. The average profits were ₹ 1,50,000.
(ii) Interest on capital be provided at 10% per annum.
(iii) Profit for the year 2013-14 be taken as having accrued at the same rate as that of the previous year which was ₹ 1,50,000. Prepare Virad’s capital account to be presented to his executors as on 1st October, 2013. (Delhi 2014)
Answer:
Solve as Q no. 22 on page 211 and 212.
Amount Transferred to Virad’s Executors Account = ₹ 5,70,000

Question 74.
Girija, Yatin and Zubin were partners sharing profits in the ratio 5 : 3 : 2. Zubin died on 1st August, 2015. Amount due to Zubin’s executor after all adjustments was ₹ 90,300. The executor was paid ₹ 10,300 in cash immediately and the balance in two’equal annual instalments with interest @ 6% p.a. starting from 31st March, 2017. Account are closed on 31st March each year.
Prepare Zubin’s executors account till he is finally paid. (Delhi 2019)
Answer:

Question 75.
Pranav, Karan and Rahim were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 31st March, 2017 their balance sheet was as follows

Karan died on 12th June, 2017 . According to the partnership deed, the legal representatives of the deceased partner were entitled to the following
(i) Balance in his capital account.
(ii) Interest on capital @ 12% per annum.
(iii) Share of goodwill. Goodwill of the firm on Karan’s death was valued at ₹ 60,000.
(iv) Share in the profits of the firm till the date of his death, calculated on the basis of last year’s profit. The profit of the firm for the year ended 31st March, 2017 was ₹ 5,00,000.
Prepare Karan’s capital account to be Dresented to his renresentatives. (CBSE 2018)
Answer:

Working Notes:
1. Interest on Capital = 2,00,000 x \(\frac{12}{100} \times \frac{73}{365}\) = ₹ 4,800
2. Share in Goodwill = 60,000 x \(\frac { 2 }{ 5 }\) = 24,000 to be borne by remaining partners in gaining ratio i.e. 2 : 1
3. Share in Profit = 5,00,000 x \(\frac { 2 }{ 5 }\) x \(\frac { 73 }{ 365 }\) = ₹ 40,000
4. Share in General Reserve = 1,50,000 x \(\frac { 2 }{ 5 }\) = ₹ 60,000

Question 76.
On 1st January, 2008, Uday and Kaushal entered into partnership with fixed capitals of ₹ 7,00,000 and ₹ 3,00,000 respectively. They were doing good business and were interested in its expansion but could not do the same because of lack of capital. Therefore, to have more capital, they admitted Govind as a new partner on 1st January, 2010. Govind brought . ₹ 10,00,000 as capital and the new profit sharing ratio decided was 3 : 2 : 5. On 1st January, 2012, another new partner Hari was admitted with a capital of ₹ 8,00,000 for 1/10th share in the profits, which he acquired equally from Uday, Kaushal and Govind. On 1st April, 2014, Govind died and his share was taken over by Uday and Hari equally.
Calculate
(i) The sacrificing ratio of Uday and Kaushal on Govind’s admission.
(ii) New profit sharing ratio of Uday, Kaushal, Govind and Hari on Hari’s admission.
(iii) New profit sharing ratio of Uday, Kaushal and Hari on Govind’s death. (All India 2015)
Answer:
(i) Sacrificing Ratio
Sacrificing Ratio = Old Share – New Share
Uday = \(\frac{1}{2}-\frac{3}{10}=\frac{5-3}{10}=\frac{2}{10}\) Kaushal \(\frac{1}{2}-\frac{2}{10}=\frac{5-2}{10}=\frac{3}{10}\)
Sacrificing ratio = 2 : 3

New ratio = 30 : 10 : 20 Or 3 : 1 : 2

Question 77.
A, B and C are partners in a trading firm. The firm has a fixed total capital of ₹ 60,000 held equally by all the partners. Under the partnership deed, the partners were entitled for the following
(i) A and B to a salary of ₹ 1,800 and ₹ 1,600 per month respectively.
(ii) In the event of the death of a partner, goodwill was to be valued at 2 years purchase of the average profit of the last 3 years.
(iii) Profit upto the date of death based on the profits of the previous year.
(iv) Partners were to be charged interest on drawings @ 5% per annum and allowed interest on capital @ 6% per annum.
A died on 1st January, 2011. His drawings to the date of death were ₹ 2,000 and the interest thereon was ₹ 60. The profits for the three years ending 31st March, 2008, 2009 and 2010 were ₹ 21,200, ₹ 3,200 (Dr) and ₹ 9,000 respectively.
Prepare capital account to calculate the amount to be paid to his executors. (All India (C) 2011)
Answer:

Working Note:
1. Calculation of A’s Share of Capital
Total fixed capital of the firm = ₹ 60,000; A’s share = 60,000 x \(\frac { 1 }{ 3 }\) = ₹ 20,000

2. Calculation of A’s Share of Goodwill
Last 3 years profit = 21,200 – 3,200 + 9,000 = ₹ 27,000; Average profit = \(\frac { 27000 }{ 3 }\) = ₹ 9,000
Firm’s Goodwill = Average Profit x Number of Years Purchase
= 9,000 x 2 = ₹ 18,000
A’s share of goodwill = 18,000 x \(\frac { 1 }{ 3 }\) = ₹ 6,000, to be contributed by B and C in their gaining ratio, i.e. 1 : 1. C will contribute = 6,000 x \(\frac { 1 }{ 2 }\) = ₹ 3,000, B will contribute =6,000 x \(\frac { 1 }{ 2 }\) = ₹ 3,000

3. Calculation of A’s Share of Profit
A’s share of profit = 9,000 x \(\frac { 1 }{ 3 }\) x \(\frac { 9 }{ 12 }\) = ₹ 2,250

4. Calculation of Interest on A’s Capital
Interest on A’s capital = 20,000 x \(\frac { 6 }{ 100 }\) x \(\frac { 9 }{ 12 }\) = ₹ 900

Question 78.
Khanna, Seth and Mehta were partners in a firm sharing profits in the ratio of 3 : 2 : 5. On 31st December, 2010 the balance sheet of Khanna, Seth and Mehta was as follows

On 14th March, 2011 Seth died. The partnership deed provided that on the death of a partner the executor of the deceased partner is entitled to
(i) Balance in capital account.
(ii) Share in profits upto the date of death on the basis of last year’s profit.
(»i) His share in profit/loss on revaluation of assets and re-assessment of liabilities which were as follows
(a) Land and building was to be appreciated by ₹ 1,20,000.
(b) Machinery was to be depreciated to ₹ 1,35,000 and stock to ₹ 25,000.
(c) A provision of 2.5% for bad and doubtful debts was to be created on debtors.
(iv) The net amount payable to Seth’s executors was transferred to his loan account which was to be paid later.
Prepare revaluation account, partners’ capital account, Seth’s executor’s account and balance sheet of Khanna and Mehta who decided to continue the business keeping their capital balances in their new profit sharing ratio. Any surplus or deficit to be transferred to current accounts of the partners. (All India 2012)
Answer:

NOTE: Profit and loss suspense account appeared on liabilities side of balance sheet as it is a loss.

Working Notes:
1. Calculation of Seth’s Share of Profit
Number of days Seth worked for = Jan + Feb + March = 31 + 28 + 14 = 73 days
Share of Seth’s profit = 60,000 x \(\frac { 73 }{ 365 }\) x \(\frac { 2 }{ 10 }\) = ₹ 2,400

2. Calculation of Khanna’s and Mehta’s Capital
Khanna’s capital after adjustment = 2,45,100
Mehta’s capital after adjustment = 4,08,500
Total capital = ₹ 6,53,600
Khanna’s capital = 6,53,600 x \(\frac { 3 }{ 8 }\) = ₹ 2,45,100 ; Mehta’s capital = 6,53,600 x \(\frac { 5 }{ 8 }\) = ₹ 4,08,500
So, there is no deficit or surplus in Khanna’s and Mehta’s capital account which is to be adjusted through current accounts.

Question 79.
G, E and F were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The balance sheet of the firm as on 31st March, 2011 was as follows

E died on 24th August, 2011. Partnership deed provides for the settlement of claims on the death of a partner in addition to his capital as under
(i) The share of profit of deceased partner to be computed upto the date of death on the basis of average profits of the past three years which was ₹ 80,000.
(ii) His share in profit/loss on revaluation of assets and re-assessment of liabilities which were as follows
Land and building were revalued at ₹ 94,000. Machinery at ₹ 38,000 and stock at ₹ 5,000. A provision of 2.5% was to be created on debtors for doubtful debts.
(iii) The net amount payable to E’s executors was transferred to his loan account, to be paid later on. Prepare revaluation account, partners’ capital account, E’s executor account and balance sheet of ‘G’ and ‘F who decided to continue the business keeping their capital balances in their new profit sharing ratio. Any surplus or deficit to be transferred to current account of the partners. (Delhi 2012)
Answer:
Solve as Q no. 31 on page 219-221.
Profit on Revaluation = ₹ 29,700, Balance in Partners Capital Account: G = ₹ 76,790, F = ₹ 10, 970; Total of Balance Sheet = ₹ 1,60,100; Amount Transferred to Executor’s Loan Account = ₹ 58,340

Question 80.
M, N and 0 were partners in a firm sharing profits and losses equally. Their balance sheet on 31st December, 2009 was as follows

N died on 14th March, 2010. According to the partnership deed, executors of the deceased partner are entitled to
(i) Balance of partners’ capital account.
(ii) Interest on capital @ 5% per annum.
(iii) Share of goodwill calculated on the basis of twice the average of past three years profit.
(iv) Share of profits from the closure of the last accounting year till the date of death on the basis of twice the average of three completed years profits before death.
Profits of 2007, 2008 and 2009 were ₹ 80,000, ₹ 90,000 and ₹ 1,00,000 respectively. Show the working for deceased partner’s share of goodwill and profits till the date of his death. Pass the necessary journal entries and prepare NTs capital account to be rendered to his executor. (Delhi 2011)
Answer:

Working Notes:
1. Calculation of Interest on N’s Capital
Interest on N’s capital = 70,000 x \(\frac { 5 }{ 100 }\) x \(\frac { 73 }{ 365 }\) = ₹ 700

2. Calculation of Goodwill
3 years total profit = 80,000 + 90,000 + 1,00,000 = ₹ 2,70,000
Average profit = \(\frac { 270000 }{ 3 }\) = ₹ 90,000
Firm’s Goodwill = Average Profit x Number of Years Purchase = 90,000 x 2 = ₹ 1,80,000
N’s share of goodwill = 1,80,000 x \(\frac { 1 }{ 3 }\) = ₹ 60,000

3. Calculation of N’s Stare of Profit
N’s share of profit = (90,000 x 2) x \(\frac { 73 }{ 365 }\) x \(\frac { 1 }{ 3 }\) = ₹ 12,000

Question 80.
Retirement of a partner is one of the modes of
(a) dissolution of partnership firm
(b) reconstitution of partnership firm
(c) dissolution of partnership
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

Question 81.
The provisions related to retirement of a partner are contained in …………. of the Indian Partnership Act, 1932.
(a) Section 30 (2)
(b) Section 31 (1)
(c) Section 32 (1)
(d) None of these
Answer:
(c) Section 32 (1)

Question 82.
In case of death of a partner, the amount standing to the credit of his account is paid to
(a) his minor children
(b) his wife
(c) his parents
(d) his legal representative
Answer:
(d) his legal representative

Question 83.
Partner’s executor’s account is prepared
(a) at the time of retirement of partner
(b) at the time of death of partner
(c) at the time of admission of partner
(d) All of these
Answer:
(b) at the time of death of partner

Question 84.
In case of retirement/death of a partner, profit or loss on revaluation is distributed among in their profit sharing ratio.
(a) all partners; new
(b) all partners; old
(c) remaining partners; new
(d) remaining partners; old
Answer:
(b) all partners; old

Question 85.
Retirement of a partner leads to of remaining partners.
(a) gain in profit sharing ratio
(b) loss in profit sharing ratio
(c) no change in profit sharing ratio
(d) None of these
Answer:
(a) gain in profit sharing ratio

Question 86.
At the time of retirement/death of a partner, the continuing partners compensate the retiring partner/deceased partner’s executor in the form of
(a) share in general reserve
(b) share in reserve fund
(c) share in estimated profits
(d) share in goodwill
Answer:
(d) share in goodwill

Question 87.
If at the time of death or retirement of a partner, goodwill appears in the balance sheet of the firm, then this goodwill is written-off in
(a) old ratio
(b) gaining ratio
(c) sacrificing ratio
(d) new ratio
Anwer:
(a) old ratio

Question 88.
Journal entry for adjustment of goodwill, in cape if any of the remaining partner has also sacrificed a part of his share in profits of the firm or retirement or death of a partner.
(a) Continuing Gaining Partners’ Capital A/c Dr
To Retiring/Deceased Partner’s Capital A/c
To Continuing Sacrificing Partners’ Capital A/c
(b) Retiring/Deceased Partners’ Capital A/c Dr
Continuing Sacrificing Partners’ Capital A/c Dr
To Continuing Gaining Partners’ Capital A/c
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Continuing Gaining Partners’ Capital A/c Dr
To Retiring/Deceased Partner’s Capital A/c
To Continuing Sacrificing Partners’ Capital A/c

Question 89.
As per Section 37 of the Indian Partnership Act, 1932, the executor would be entitled at their choice to the interest calculated from the date of death till the date of payment on the final amount due to the deceased partner at ………….. % per annum.
(a) 7
(b) 4
(c) 6
(d) 12
Answer:
(c) 6

Question 90.
‘A’, ‘B’ and ‘C ’ are partners in a firm sharing profit in ratio of 2 : 2 : 1. The capital account of partners stood at ₹ 50,000, ₹ 50,000 and ₹ 25,000, respectively. ‘B’ retires from the firm. Balance in reserve account stood at ₹ 10,000. If goodwill is valued at ₹ 20,000 and profit on revaluation is ₹ 9,000, then what will be the amount ofloan account of TV?
(a) ₹ 75,820
(b) ₹ 53,870
(c) ₹ 23,600
(d) ₹ 65,600
Answer:
(d) ₹ 65,600

The post Reconstitution of Partnership Firm: Retirement/Death of a Partner Class 12 Important Questions and Answers Accountancy Chapter 4 appeared first on Learn CBSE.

We have given these Accountancy Class 12 Important Questions and Answers Chapter 6 Accounting for Share Capital to solve different types of questions in the exam. Go through these Class 12 Accountancy Chapter 6 Accounting for Share Capital Class 12 Important Questions and Answers Solutions & Previous Year Questions to score good marks in the board examination.

Accounting for Share Capital Important Questions Class 12 Accountancy Chapter 6

Question 1.
What is meant by ‘issued capital’? (Delhi 2019)
Answer:
It means such capital as the company issues from time-to-time for subscription.

Question 2.
What is meant by ‘reserve capital’? (All India 2019)
Answer:
Part of capital of a company which is called-up only on winding up is called ‘reserve capital’.

Question 3.
Is ‘reserve capital’ a part of ‘unsubscribed capital’ or ‘uncalled capital’? (CBSE 2018)
Answer:
Reserve capital is a part of uncalled capital.

Question 4.
Differentiate between issued share capital and subscribed share capital. (All India (C) 2016)
Answer:
Difference between issued capital and subscribed share capital is
Subscribed Share Capital:
It means such part of the capital which is for the time being subscribed by the members of a company.

Issued Share Capital:
It means such capital as the company issues from time-to-time for subscription.

Question 5.
What is the name given to the part of capital of a company which is called-up only on winding up? (Delhi (C) 2015: All India 2015,2011 Modified)
Answer:
Part of capital of a company which is called-up only on winding up is called ‘reserve capital’.

Question 6.
D Ltd invited applications for issuing 10,00,000 equity shares of ₹ 10 each. The public applied for 8,55,000 shares. Can the company proceed for the allotment of shares? Give reason in support of your answer. (All India 2014)
Answer:
No, the shares cannot be allotted because subscribed shares are less than 90%, i.e. as per SEBI guidelines, a company must receive a minimum of 90% of subscription.

Question 7.
What is meant by paid-up capital? (All India (C) 2014)
Answer:
It is the amount that the shareholder has paid and the company has received against the amount called-up against the shares towards share capital.

Question 8.
What is meant by authorised capital of a company? (All India (C) 2014; Foreign 2011)
Answer:
According to Section 2 (8) of the Companies Act, 2013, ‘authorised capital’ means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of a company.

Question 9.
Give the meaning of called-up capital. (All India 2011)
Answer:
Called-up capital means such part of the capital, which has been called for payment. Thus, it means the amount of nominal (face) value called up by the company to be paid by the shareholders towards the share capital.

Question 10.
What are preliminary expenses? (Delhi 2010)
Answer:
The expenses incurred in the promotion and formation of the company are known as preliminary expenses, such as registration fee paid to registrar of the companies, stamp duty, legal expenses, expenses regarding preparation and issue of prospectus, etc.

Question 11.
What is meant by ‘capital reserve’? (All India 2010)
Answer:
‘Capital reserve’ is the reserve which is not free for distribution as dividend. It is mandatory to create capital reserve in case of capital profits earned by the company.

Question 12.
What is meant by a ‘share’? Give any two differences between ‘preference shares’ and ‘equity shares’. (CBSE 2018)
Answer:
According to Section 2(84) of the Companies Act, 2013, “Share means a share in the capital of a company and includes share”. It is the unit into which the capital of a company is divided.

Question 13.
What is meant by private placement of shares? (All India 2019: Compartment 2018)
Answer:
Private placement of shares means selling of shares to a relatively small number of selected investors. Private placement is the opposite of a public issue, in which securities are made available for sale in the open market.

Question 14.
What is meant by employee stock option plan? (Delhi 2019: All India (C) 2016)
Answer:
Employees stock option plan is a plan whereby an option is given by the company to its whole time directors, officers and employees to purchase or acquire at a future date, a specified number of shares at a pre-determined price, which is usually lower than the market price.

Question 15.
On 28th February, 2016 the first call of ₹ 2 per share became due on 50,000 equity shares alloted by Kumar Ltd. Komal a holder of 1,000 shares did not pay the first call money. Kovil a holder of 750 shares paid the second and final call of ₹ 4 per share along with the first call.
Pass the necessary journal entry for the amount received by opening calls-in-arrears and calls-in -advance account in the books of the company. (All India 2016)
Answer:

Question 16.
On 1st January, 2016 the first call of ₹ 3 per share became due on 1,00,000 equity shares issued by Kamini Ltd. Karan, a holder of 500 shares did not pay the first call money. Arjun, a shareholder holding 1,000 shares paid the second and final call of ₹ 5 per share alongwith the first call.
Pass the necessary journal entry for the amount received by opening ‘calls-in-arrears’ and ‘calls-in-advance’ account in the books of the company. (Delhi 2016)
Answer:
Solve as’Q no. 3 on page
Calls-in-arrears = ₹ 1,500; Calls-in-advance = ₹ 5,000

Question 17.
Nirman Ltd issued 50,000 equity shares of ₹ 10 each. The amount was payable as follows
On application : ₹ 3 per share
On allotment : ₹ 2 per share
On first and final call : Balance
Applications for 45,000 shares were received and shares were allotted to all the applicants, Pooja, to whom 500 shares were allotted, paid her entire share money at the time of allotment, whereas Kundan did not pay the first and final call on his 300 shares. What amount will be received at the time of making the first and final call. (All Inda 2015 Modified)
Answer:
Calculation of amount received at the time of making first and final call.
Amount due at the time of first and final call ’ (45,000 – 500) x 5 = 2,22,500
(-) Calls-in-aiTears (300 x 5) = (1,500)
= ₹ 2,21,000

Question 18.
Joy Ltd issued 1,00,000 equity shares of ₹ 10 each. The amount was payable as follows
On application : ₹ 3 per share
On allotment : ₹ 4 per share
On first and final call : Balance
Applications for 95,000 shares were received and shares were allotted to all the applicants. Sonam, to whom 500 shares were allotted, failed to pay the allotment money and Gautam paid his entire amount due including the amount due on first and final call on the 750 shares allotted to him along with allotment. What amount will be received at the time of allotment? (Delhi 2015 Modified)
Answer:
Calculation of amount received at the time of allotment
Amount due on allotment (95,000 x 4) = 3,80,000
(-) CaUs-in-arrears (500 x 4) = (2,000)
(+) Calls-in-advance (750 x 3) = 2,250
= ₹ 3,80,250

Question 19.
What is meant by over subscription? (All India (C) 2014)
Answer:
When the number of shares applied for is more than the number of shares offered for subscription, the shares are said to be over subscribed.

Question 20.
What is meant by ‘under subscription’? (All India 2014)
Answer:
Under subscription means that number of shares applied for is less than the number of shares issued.

Question 21.
Give any one purpose for which the amount received as ‘securities premium reserve’ may be utilised. (Delhi; All India (C) 2014)
Answer:
Securities premium reserve can be utilised in writing-off preliminary expenses of the company.

Question 22.
What is meant by ‘calls-in-arrears’? (All India 2013)
Answer:
If shareholders make default in paying the money due on allotment or any call, the money not so paid is called calls-in-arrears.

Question 23.
What rate of interest the company pays on calls-in-advance, if it has not prepared its own Articles of Association? (Delhi 2013)
Answer:
As per Table F of the Companies Act, interest on calls-in-advance is payable @ 12% per annum by the company.

Question 24.
What is meant by ‘securities premium reserve’? (Delhi 2013)
Answer:
A company can issue its shares at more than its face value. Excess of issue price of shares over its face value is termed as securities premium reserve.

Question 25.
What is meant by ‘calls-in-advance’? (All India 2012)
Answer:
Calls-in-advance means the amount paid by shareholders is in excess of the amount due from them. The company may receive calls-in-advance if the articles permit. It is shown as a current liability in the balance sheet.

Question 26.
State the steps other than rejecting applications that a company can take in case of over subscription. (Delhi (C) 2011)
Answer:
The steps other than rejecting applications that a company can take in case of over subscription are
(i) All applicants are allotted shares on pro-rata basis.
(ii) Some applicants are allotted shares in full and some are allotted shares on pro-rata basis.

Question 27.
Can securities premium reserve be used as working capital? Give reason in support of your answer. (All India 2011)
Answer:
Securities premium reserve cannot be used as working capital.
According to Section 52 (2) of the Companies Act, 2013, the securities premium reserve can be applied only for the following purposes

• Issuing fully paid bonus shares to the members.
• Writing-off the preliminary expenses of the company.
• Writing-off the expenses on issue of shares, commission paid on any issue of shares or debentures of the company and discount allowed on any issue of shares and debentures.
• Providing for the premium payable on the redemption of redeemable preference shares or debentures of the company.
• In purchasing its own shares (buy back).

Question 28.
What is meant by pro-rata allotment of shares? (All India 2010)
Answer:
In the case of over subscription, it is not possible to allot shares to all applicants. Applicants may be allotted less number of shares than they have applied for. This type of allotment of shares is known as pro-rata allotment of shares, e.g. If company allots 50,000 shares to applicants of 75,000 shares, it is pro-rata allotment in proportion of 2 : 3.

Question 29.
What is meant by issue of shares at par? (All India 2010)
Answer:
When shares are issued at the face value, the shares are said to have been issued at par.

Question 30.
What is meant by ‘over subscription’ of shares? With the help of an example, briefly explain the alternatives available for allotment of shares in case of over subscription. (Delhi 2017; All India 2019)
Answer:
Refer to Q. no. 7 on page 275 and Q. no 26 on page 281.

Question 31.
“WX Ltd’ was registered with an authorised capital of 2,00,000 equity shares of ₹ 10 each. The company offered 1,50,000 shares to the public for subscription 1,45,000 shares were subscribed. All calls were made and were duly received except the final call of ₹ 3 on 5,000 shares.
Present the share capital of the company as per the provisions of Schedule III, Part I of the Companies Act, 2013. (All India 2019)
Answer:

Question 32.
JN Ltd were registered with an authorised capital of 2,00,000 equity shares of ₹ 100 each. The-company offered to the public for subscription 1,00,000 shares. Applications for 1,50,000 shares were received and allotment was made to all the applicants on pro-rata basis. All calls were made and were duly received except the second and final call of ₹ 4,000. The amount payable on second and final call was ₹ 20 per share.
Present the share capital in the balance sheet of the company as per Schedule III, Part I of the Companies Act, 2013. (All India 2019)
Answer:

Question 33.
Willow Ltd was registered with an authorised capital of ₹ 10,00,000 divided into 1,00,000 equity shares of ₹ 10 each. The company offered 80,000 shares for subscription to the public, out of which 75,000 shares were subscribed. All amounts were received except the final call of ₹ 2 per share on 3,000 shares. Fill in the missing figures in the balance sheet of Willow Ltd as per the provisions of Schedule III, Part I of the Companies Act, 2013.

Answer:

Question 34.
NK Ltd, a truck manufacturing company, is registered with an authorised capital of ₹ 1,00,00,000 divided into equity shares of ₹ 100 each. The subscribed and paid-up capital of the company is ₹ 50,00,000. To meet the capital expenditure requirements of the project, the company offered 20,000 shares to the public for subscription. The shares were fully subscribed and paid.
Present the share capital in the balance sheet of the company as per the provisions of Schedule III of the Companies Act, 2013. (CB8E 2018 Modified)
Answer:

Question 35.
Navnirman Ltd. issued 4,00,000 equity shares of ₹ 10 each at par. The amount per share was payable as follows ₹ 3 on application; ₹ 2 on allotment; ₹ 2 on first call and ₹ 3 on final call. The issue was fully subscribed and the shares were allotted fully to all the applicants. All calls were made. Mahi, a shareholder holding 6,000 shares paid the final call money alongwith the first call. Shrey holding 700 shares did not pay the first call on the due date. Shrey paid the first call alongwith the final call. The accountant of the company had correctly passed the entries till receipt of allotment money. After that the following entries were left incomplete by him. Complete these entries, (comportment 2018)

Answer:

Question 36.
K Ltd took over the assets of ₹ 16,00,000 and liabilities of ₹ 5,00,000 of P Ltd for a purchase consideration of ₹ 13,68,500. ₹ 25,500 were paid by issuing a promissory note in favour of P Ltd payable after two months and the balance was paid by issue of equity shares of ₹ 100 each at a premium of 25%. Pass necessary journal entries for the above transactions in the hooks of K Ltd. (All India 2016)
Answer:

Working Notes:
Number of shares Issued = \(\frac{13,43,000(13,68,500-25,500)}{125(100+25)}\) = 10,744 shares

Question 36.
Sandesh Ltd took over the assets of ₹ 7,00,000 and liabilities of ₹ 2,00,000 from Sanchar Ltd for a purchase consideration of ₹ 4,59,500, ₹ 8,500 were paid by accepting a draft in favour of Sanchar Ltd payable after three months and the balance was paid by issue of equity shares of ₹ 10 each at a premium of 10% in favour of Sanchar Ltd. Pass necessary journal entries for the above transactions in the books of Sandesh Ltd. (Delhi 2016)
Answer:
Solve as Q no. 24 on page 280.
Capital Reserve = ₹ 40,500
Number of equity shares issued = 41,000

Question 37.
Guru Ltd invited applications for issuing 5,00,000 equity shares of ₹ 10 each at a premium of ₹ 5 per share. Because of favourable market conditions the issue was over subscribed and applications for 15,00,000 shares were received.
Suggest the alternatives available to the Board of Directors for the allotment of shares. (All India 2015)
Answer:
In case of over subscription of shares, the Board of Directors has the following alternatives
(i) Excess application fully rejected and money refunded.
(ii) Excels application fully adjusted towards allotment and calls.
(iii) Excess applications partly rejected and partly adjusted towards further calls.

Question 38.
State any three purposes other than ‘issue of bonus shares’ for which securities premium can be utilised. (All India; Delhi 2015)
Or
State any three purposes other than “buy-back of shares’ for which securities premium can be utilised. (Foreign 2015)
Or
Securities premium can also be utilised for three other purposes besides (i) issuing fully paid bonus shares and (ii) “buy-back of shares’. State other purposes. (Delhi 2015)
Answer:
According to Section 52 (2) of the Companies Act, 2013, the securities premium reserve may be applied for the following purposes
(i) To write off preliminary expenses of the company.
(ii) To write off the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company.
(iii) To provide for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.