OMTEX CLASSES: RECONSTITUTION OF APARTNERSHIP FIRM RETIREMENT /DEATH OF A PARTNER

Q.1 Distinguish between Sacrificing Ratio and Gaining Ratio.

Ans. 1

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

Q.2 Kamal, Kishore and Kunal are partners in a firm sharing profits equally. Kishore retires from the firm. Kamal and Kunal decide to share the profits in future in the ratio 4:3. Calculate the Gaining Ratio.

Ans. 2 Gaining Ratio = New ratio – Old ratio

Kamal’s Gain = 4/7 – 1/3 = 5/21

Kunal’s Gain = 3/7 – 1/3 = 2/21

Gaining Ratio = 5:2

Q.3 P, Q and R are partners sharing profits in the ratio of 7:2:1. P retires and the new profit sharing ratio between Q and R is 2:1. State the Gaining Ratio.

Ans. 3 Old ratio = P Q R

7 : 2 : 1

New ratio = Q R

2 : 1

Gaining Ratio = New ratio – Old ratio

Q’s gain = 2/3 – 2/10 = 14/30

R’s gain = 1/3 – 1/10 = 7/30

Gaining Ratio = 14:7 or 2:1

Q.4 A, B and C are partners in a firm sharing profits in the ration of 2:2:1. B retires and his share is acquired by A and C equally. Calculate new profit sharing ratio of A and C.

Ans. 4 A’s gaining share = 2/5 X ½ = 1/5

A’s new share = 2/5 + 1/5 = 3/5

C’s gaining share = 2/5 X ½ = 1/5

C’s New share = 1/5 + 1/5 = 2/5

New ratio of A and C = 3:2

Q.5 X, Y and Z are partners sharing profits in the ratio of 4/9, 1/3 and 2/9. X retires and surrenders 2/3^rd of his share in favour of Y and remaining in favour of Z. Calculate new profit sharing ratio and gaining ratio.

Ans. 5

Y’s gaining share = 4/9 X 2/3 = 8/27

Z’s gaining share = 4/9 – 8/27 = 4/27

Y’s new share = Old share + gain

= 1/3 + 8/27 = 17/27

Z’s new share = 2/9 + 4/27 = 10/27

New Ratio = 17:10

Gaining ratio = 8/27 : 4/27 or 2:1

Q.6 X, Y and Z have been sharing profits and losses in the ratio of 3:2:1. Z retires. His share is taken over by X and Y in the ratio of 2:1. Calculate the new profit sharing ratio.

Ans. 6

Old Ratio = 3:2:1

Z Retire

X’s Gaining = 1/6 X 2/3 = 2/18

X’s New share = 3/6 + 2/18 = 11/18

Y’s Gaining = 1/6 X 1/3 = 1/18

Y’s new share = 2/6 + 1/18 = 7/18

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

Q.7 P, Q and R were partners in a firm sharing profits in 4:5:6 ratio. On 28-02-2008 Q retired and his share of profits was taken over by P and R in 1:2 ratio. Calculate the new profit sharing ratio of P and R.

Ans. 7 Old ratio = P Q R

= 4:5:6

Q retired

P’s gaining = 1/3 X 5/15 = 1/9

P’s new share = 4/15 + 1/9 = 17/45

R’s Gaining share = 2/3 X 5/15 = 2/9

R’s new share = 6/15 + 2/9 = 28/45

New Ratio = 17:28

Q.8 Mayank, Harshit and Rohit were partners in a firm sharing profits in the ratio of 5:3:2. Harshit retired and goodwill is valued at Rs 60000. Mayank and Rohit decided to share future profits in the ratio 2:3. Pass necessary journal entry for treatment of goodwill.

Ans. 8 Rohit’s capital A/C Dr. 24000

To Mayank’s capital A/C 6000

To harshit’s Capital A/C 18000

(Adjustment Entry for treatment of goodwill in gaining ratio.)

Q.9 Ramesh, Naresh and Suresh were partners in a firm sharing profits in the ratio of 5:3:2. Naresh retired and the new profit sharing ratio between Ramesh and Suresh was 2:3. On Naresh retirement the goodwill of the firm was valued at Rs. 120000. Pass necessary journal entry for the treat.

Ans. 9 Suresh capital A/C Dr. 48000

To Ramesh’s capital A/C 12000

To Naresh capital A/C 36000

(Goodwill adjusted among the gaining partner in gaining ratio.)

Q.10 L, M and O were partners in a firm sharing profits in the ratio of 1:3:2. L retired and the new profit sharing ratio between M and O was 1:2. On L’s retirement the goodwill of the firm was valued Rs. 120000. Pass necessary journal entry for the treatment of goodwill.

Ans. 10 O’s capital A/C Dr. 40000

To C’s capital A/C 20000

To M’s capital A/C 20000

(Adjustment of goodwill in gaining partners in their gaining ratio.)

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

Ans. 11 Profit and loss suspense A/C Dr

To deceased partner’s capital A/C

Q.12 X, Y and Z were partners in a firm sharing profits and losses in the ratio of 3:2:1. The profit of the firm for the year ended 31^st March, 2007 was Rs. 3,00000. Y dies on 1^st July 2007. Calculate Y’s share of profit up to date of death assuming that profits in the year 2007- 2008 have been accured on the same scale as in the year 2006-07 and pass necessary journal entry.

Ans. 12 Total profit for the year ended 31^st March 2007 = Rs 300000

Y’s share of profit up to date of death = 300000 X 2/6 X 3/12

= 25000

Profit and Loss suspense A/C Dr. 25000

To Y’s capital A/C 25000

( Y’s share of profit transferred to Y’s capital A/C)

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

Ans. 13 Profit and Loss suspense A/C Dr. 10000

To B’s capital A/C 10000

(B’s share of profit transferred to B’s capital A/C)

A’s capital A/C Dr. 15000

C’s capital A/C Dr. 5000

To B’s capital A/C 20000

(B’s share of goodwill transferred to B’s capital A/C and debited to remaining

partners capital A/C in their gaining ratio.)

B’s share of profit = Number of days from 1 April to 12^th June 2007

= 73 Days

B’s share of profit = 150000 X 1/3 X 73/365

= Rs. 10000

Q.14 A, B and C were partners in a firm sharing profits in the ratio of 2:2:1. C dies on 31^st July, 2007. Sales during the previous year upto 31^st march, 2007 were Rs. 6,00,000 and profits were Rs. 150000. Sales for the current year upto 31^st July were Rs. 250000. Calculate C’s share of profits upto the date of his death and pass necessary journal entry.

Ans. 15 Profit & Loss suspense A/C Dr. Rs. 12,500

To C’s capital A/C Rs. 12,500

RETIREMENT OF PARTNER

6 to 8 marks

Q.1 The balance sheet of X, V, Z who was sharing profits in proportion of capital as follows :-

Particulars Amount Particulars Amount

Sunday creditors 1,000 Cash at bank 15,600

Capitals 25,000 Debtors 5,000 4,900

X 20,000 Less provision 100

Y 15,000

Z 67,000 Stock 10,000

P/M 11,500

Furniture 25,000

67,000 67,000

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

1. That the stock be depreciated by 5%

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

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

4. That the land and building be appreciated by 20%.

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

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

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

You are required to prepare the revolution account; partner’s capital account and bank account and revised balance sheet after V’s retirement also indicate the gaining rates.

Solution 1

Dr. Revaluation A/c Cr.

Particulars Rs. Assets Rs.

To stock A/c 500 By land and building 5,000

To provision for doubtful debts a/c 150

To outstanding

Legal charges 750

To profit transferred to

Capital A/c

X 1500

Y 1200

Z 900 3,600

5,000 5,000

Dr. Partner’s Capital Accounts Cr.

Particulars ARs. B Rs. C Rs. Particulars A Rs. B Rs. C Rs.

To Y’s Cap A/c 1350 — 1050 By bal b/d 25,000 25,000 15,000

To Y’s loan A/c - 2600 - By Rev. A/c 1500 1250 900

To bal C/d 251150 - 11850 By X’s Cap A/c - 1350 -

(G/W)

By X’s cap A/c

(G/W) - 4050 -

26500 26600 15900 26500 26600 15900

To bank A/c 1150 - - By bal b/d 25150 - 11850

To Bal C/d 24000 - 24000 By Bank - - 12150

25150 - 24000 25150 24000 25150

Dr. Bank A/c Cr.

To Bal B/d 15,600 By X’s cap A/c 1,150

To Z’s Capital A/c 12,150 By bal c/d 26,600

27,750 27,750

BALANCE SHEET OF THE NEW FIRM

Liabilities Rs. Assets Rs.

Sundry Creditors 7,000 Cash at bank 26,600

Outstanding legal charges 750 Sundry debtors (5000-250) 4,750

Y’s Loan 26,600 Stock 9,500

Capital Plan & Machinery 11,500

X 24000 Land & Building 30,000

Z 24000 48,000

83,250 83,250

Q.2 The Balance Sheet of A, B and C on 31st December 2007 was as under :

BALANCE SHEET

as at 31.12.2007

Liabilities Amount Assets Amount

A’s Capital 400,00 Buildings 20,000

B’s Capital 30,000 Motor Car 18,000

C’s Capital 20,000 Stock 20,000

General Reserve 17,000 Investments 1,20,000

Sundry Creditors 1,23,000 Debtors 40,000

Patents 12,000

2,30,000 2,30,000

The partners share profits in the ratio of 8 : 4 : 5. C retires from the firm on the same date subject to the following term S and conditions:

i) 20% of the General Reserve is to remain’ as a reserve for bad and doubtful debts. ;

ii) Motor)r Car is to be decreased by 5%.

iii) Stock is to be revalued at Rs.17, 500.

iv) Goodwill is valued at’ 2 ½ years purchase of the average profits of last 3 years.

Profits were; 2001: Rs.11,000; 200l: Rs. 16,000 and 2003: Rs.24,000.

C. was paid in July A and B borrowed the necessary amount from the Bank on the security of Motor Car and stock to payoff C.

Prepare Revaluation Account, Capital Accounts and Balance Sheet of A and B.

Ans.2 SOLUTION

REVALUATION ACCOUNT

Particulars Rs. Particulars Rs.

To Motor Cars A/C 900 By Loss transferred to

To Stock A/C 2,500 A’s Capital A/c Rs. 1,600

B’s Capital A/c Rs. 800

C’s Capital A/c Rs. 1,000 3,400

3,400 3,400

PARTNERS CAPITAL ACCOUNT

Particulars ARs. B Rs. C Rs. Particulars A Rs. B Rs. C Rs.

To C’s Capital A/c 8,334 4,166 - By Balance b/d 40,000 30,000 20,000

To Revaluation A/c (Loss) 1,600 800 1,000 By General Reserve A/c 6,400 3,200 4,000

To Bank A/c - - 35,500 By A’s Capital A/c - - 8,334

Balance c/d 36,466 28,234 - By B’s Capital A/c - - 4,166

46,400 33,200 36,500 46,400 33,200 36,500

By Balance b/d 36,466 28,234 -

BALANCE SHEET OF A AND B

Liabilities Rs. Assets Rs.

Sundry creditors 1,23,000 Building 20,000

Bank Loan 35,500 Motor Card 17,100

Capital A 36,466 Stock 17,500

B 28,234 64,700 Investment 1,20,000 Debtors 36,600

Patents 12,000

2,23,200 2,23,200

Q.3 A, Band C were partners in a firm sharing profits equally: Their Balance Sheet on.31.12.2007 stood as:

BALANCE SHEET AS AT 31.12.07

Liabilities Rs. Assets Rs.

A Rs. 30,000 Goodwill 18,000

B Rs. 30,000 Cash 38,000

C Rs. 25,000 85,000 Debtors . 43,000

Bills payable 20,000 Less: Bad Debt provision 3,000 40,000

Creditors 18,000 Bills Receivable 25,000

Workers Compensation Fund 8,000 Land and Building 60,000

Employees provide4nt Fund 60,000 Plant and Machinery 40,000

General Reserve 30,000

2,21,000 2,21,000

It was mutually agreed that C will retire from partnership and for this purpose following terms were agreed upon.

i) Goodwill to be valued on 3 years’ purchase of average profit of last 4 years which were 2004 : Rs.50,000 (loss); 2005 : Rs. 21,000; 2006: Rs.52,000; 2007 : Rs.22,000.

ii) The Provision for Doubtful Debt was raised to Rs. 4,000.

iii) To appreciate Land by 15%.

iv) To decrease Plant and Machinery by 10%.

v) Create provision of Rs;600 on Creditors.

vi) A sum of Rs.5,000 of Bills Payable was not likely to be claimed.

vii) The continuing partners decided to show the firm’s capital at 1,00,000 which would be in their new profit sharing ratio which is 2:3. Adjustments to be made in cash

Make necessary accounts and prepare the Balance Sheet of the new partners.

Ans.3 REVALUATION ACCOUNT

Particulars Rs. Particulars Rs.

To Provision for Debts A/c 1,000 By Land A/c 9,000

To Plant & Machinery A/c 4,000 By Provision on Creditors A/c 600

To Profit transferred to By Bills Payable A/c 5,000

A’s Capital A/c Rs. 3,200

B’s Capital A/c Rs. 3,200

C’s Capital A/c Rs. 3,200 9,600

14,600 14,600

PARTNER’S CAPITAL ACCOUNTS

Particulars ARs. B Rs. C Rs. Particulars A Rs. B Rs. C Rs.

To Goodwill A/c 6,000 6,000 6,000 By Balance b/d 30,000 30,000 25,000

To C’s Capital A/c 2,250 9,000 - By General Reserve 10,000 10,000 10,000

To C’s Loan A/c - - 46,116 By Worksmen A/c 2,667 2,667 2,666

Compensation Fund

To Balance c/d 40,000 60,000 - By Revalu A/c (profit) 3,200 3,200 3,200

By A’s Capital A/c - - 2,250

By B’s Capital A/c - - 9,000

By Cash A/c (Deficiency) 2,383 29,133 -

48,250 75,000 52,116 48,250 75,000 52,116

By Balance b/d 40,000 60,000 -

BALANCE SHEET

as at 31.12.07

Liabilities Rs. Assets Rs.

Bills Payable 15,000 Debtors Rs. 43,000

Creditors 17,400 Less: Provision Rs. 4,000 39,000

Employees Provident Fund 60,000 Bills Receivables 25,000

C’s Loan 46,116 Land & Buildings 69,000

A’s Capital 40000 Plant & Machinery 36,000

B’S Capital 60000 1,00,000 Cash 69,516

2,38,516 2,38,516

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

Liabilities Rs. Assets Rs.

Creditors 7,000 Buildings 20,000

Reserve 10,000 Machinery 30,000

Accounts: Stock 10,000

A 30,000 Patents 6,000

B 25,000 Debtors 8,000

C 15,000 70,000 Cash 13,000

87,000 87,000

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

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

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

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

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

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

Ans.4 Prepare A’s Capital Account and his executors’ account at the time of his death.

A’s Capital A/c

Particulars Rs. Particulars Rs.

Executor’s A/c 61,500 By Balance b/d 30,000

By Reserves [10,000× ] 5,000

By B’s Capital A/c [15,000 × ] 9,000

By C’s Capital A/c [15/000 × ] 6,000

By Revaluation A/c [10,00 × ] 5,000

By Profit & Loss Suspense A/c 5,000

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

60,500 61,500

A’s EXECUTORS ACCOUNT

Particulars Rs. Particulars Rs.

Balance c/d 61,500 By A’s Capital A/c 61,500

61,500 61,500

By Balance b/d 61,500

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

Liabilities Rs. Assets Rs.

Reserves 10,000 Buildings 20,000

Creditors 7,000 Machinery 30,000

A’s Capital 30000 Stock 10,000

B’s Capital 25000 Patents 6,000

C’s Capital 15000 70,000 Cash 21,000 87,000 87,000

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

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

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

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

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

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

Prepare C’s Capital Account and his executors account at the time of his death.

Ans.5

C’S CAPITAL ACCOUNT

Particulars Rs. Particulars Rs.

To C’s Executor’s A/c 27,750 By Balance b/d 15,000

By Reserves 2,000

By Revaluation A/c 2,000

By p& L Suspense A/c 2,000

By Interest on Capital 750

By A’s Capital A/c 3,750

By B’s Capital A/c 2,250

27,750 27,750

C’S EXECUTOR’S ACCOUNT

Particulars Rs. Particulars Rs.

To Cash A/c 7,750 By C’s Capital A/c 27,750

To Executor’s Loan A/c

or Bal c/d 20,000 27,750

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

BALANCE SHEET

as at 31.12. 2001

Liabilities Rs. Assets Rs.

Creditors 24,400 Cash 1,00,000

Bank Loan 10,000 Debtors 20000

Profit and Loss A/c 18,000 Less : Provision 1600 18,400

Bills Payable 2,000 Stock 10,000

Anil’s Capital 50,000 Land & Building 20,000

Jatin’s Capital 40,000 Investment 14,000

Ramesh’s Capital 40,000 Goodwill 22,000

1,84,400 1,84,400

Ramesh died on 31st March 2002. The following adjustments were agreed upon-

(a) Building be appreciated by Rs. 2,000

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

(d) Stock be increased by 10 %

(e) Goodwill be valued at 2 years’ purchase of the average profit of the past five years.

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

Ans.6 Prepare revaluation account, partner’s capital Account, Ramesh ‘s Executors’ Account and Balance sheet immediately after Ramesh’s death assuming that Rs. 18, 425 be paid immediately to his executors and balance to b left to the Ramesh’s Executor’s Account

REVALUATION ACCOUNT

Particulars Rs. Particulars Rs.

To Investment A/c 1,400 By Building A/c 2,000

To Provision for doubtful debt A/c 2,400 By Stock A/c 1,000

By Loss transferred to

Anil’s Capital A/c Rs.400

Jatin’s Capital A/c Rs. 200

Ramesh’s Capital A/c Rs. 200 800

3,800 3,800

PARTNERS’ CAPITAL ACCOUNTS

Particulars Anil Jatin Ramesh Particulars Anil Jatin Ramesh

Rs. Rs. Rs. Rs. Rs. Rs.

To Goodwill A/c 11,000 5,500 5,500 By Balance b/d 50,000 40,000 40,000

To Ramesh Capital A/c 7,333 3,667 - By Profit and Loss A/c 9,000 4,500 4,500

To Revaluation A/c (Loss) 400 200 200 By Profit &Loss Susp A/c - - 1,125

To Ramesh’s Executor’s A/c - - 50,925

To Balance c/d 40,267 35,133 - By Anil’s Capital A/c - - 7,333

By Jatin’s Capital A/c - - 3,667

59,000 41,500 56,625 59,000 41,500 56,625

By Balance b/d 40,267 35,133 -

Date Particulars Rs. Date Particulars Rs.

2002 2002

Mar. 31 To Cash A/c 18,425 Mar. 31 By Raeesh’s Capital A/c 50,925

Dec. 31 To Balance A/c 32,500

50,925 50,925

2003

Jan.1 By Balance b/d 32,500

BATANCE SHEET

Liabilities Rs. Assets Rs.

Bank Loan 10, 000 Cash 81,575

Creditors 20,400 Debtors Rs. 20,000

Bills Payable 2,000 Less: Provision Rs. 4,000 16,000

Ramesh’s Executor’s Loan 32,500 Stock 11,000

Anil’s Capital 40,267 Land and Building 22,000

Jatin’s Capital 35,133 Investments 12,600

Profit and Loss Suspense A/c 1,125

1,44,300 1,44,300

Retirement and Death of a Partner

Q.1 What is meant by retirement of a partner?

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

Q.2 ‘How can a partner retire from the firm?

Ans. A partner may retire from the firm;

i) in accordance with the terms of agreement; or

ii) with the consent of all other partners; or

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

Q.3 What do you understand by ‘Gaining Ratio*?

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

Q.4 What do you understand by ‘Gaining Partner’?

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

Q.5 Distinguish between Sacrificing Ratio and Gaining Ratio.

Ans. Distinction between Sacrificing Ratio and Gaining Ratio

Q.6 Give two circumstances in which gaining ratio is computed. Ans. Gaining Ratio is computed in the following circumstances: (i) When a partner retires or dies. (ti) When there is a change in profit-sharing ratio.

Q.7 Why is it necessary to revalue assets and reassess liabilities at the time of retirement of a partner ?

Ans. At the time of retirement or death of a partner, assets are revalued and liabilities are reassessed so that the profit or loss arising on account of such revaluation upto the date of retirement or death of a partner may be ascertained and adjusted in all partners’ capital accounts in their old profit-sharing ratio.

Q.8 Why is it necessary to distribute Reserves Accumulated, Profits and Losses at the time of retirement or death of a partner?

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

Q.9 What are the adjustments required on the retirement or death of a partner?

Ans. At the time of the retirement or death of a partner, adjustments are made for the following:

(i) Adjustment in regard to goodwill.

(ii) Adjustment in regard to revaluation of assets and reassessment of liabilities.

(iii) Adjustment in regard to undistributed profits.

(iv) Adjustment in regard to the Joint Life Policy and individual policies.

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

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

Q.11 How is goodwill adjusted in the books of a firm -when a partner retires from partnership?

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

Remaining Partners’ Capital A/cs ...Dr. [Gaining Ratio]

To Retiring/Deceased Partner’s Capital A/c [With his share of goodwill]

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

All Partners’ Capital/Current A/cs ...Dr. [Old Ratio]

To Goodwill (or Premium) A/c

Q.12 X, V and Z are partners sharing profits and losses in the ratio of 3 : 2 :1. Z retires and the following Journal entry is passed in respect of Goodwill:

Y’s Capital A/c ...Dr. 20,000

To X’s Capital A/c 10,000

To Z’s Capital A/c 10,000

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

Ans. Without calculating the gaining ratio, the amount to be adjusted in respect of goodwill can be calculated directly with the help of following statement:

STATEMENT SHOWING THE REQUIRED ADJUSTMENT FOR GOODWILL

Particulars X(Rs.) V(Rs.) Z(Rs.)

Right of goodwill before retirement (3:2:1) 30,000 20,000 10,000

(Old Ratio) Right of goodwill after retirement 20,000 40,000 —

(Balancing Figure) (New Ratio)

Net Adjustment (-) 10,000 (+) 20,000 (-) 10,000

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

Q.13 State the ratio in which profit or loss on revaluation will be shared by the partners when a partner retires. ;

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

Q.14 How is the account of retiring partner settled?

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

Retiring Partner’s Capital A/c ...Dr.

To Cash* [If paid in cash]

To Retiring Partner’s Loan [If transferred to loan]

Q.15 What is Joint Life Policy?

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

Q.16 What is the objective of taking a Joint Life Policy by a partnership firm?

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

Q.17 When does the Joint Life Policy become due?

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

Q.18 What is Surrender Value?

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

Q.19 How is the share of profit of a deceased partner calculated from the date of last balance sheet to the date of death?

Ans. If a partner dies on any date after the date of balance sheet; then his share of profit is calculated from the beginning of the year to the date of death on the basis of average profits or last year’s profit. It is calculated on either of the following two bases:

(i) On the Basis of Time: In this method, it is assumed that the profits had accrued uniformly in the previous year. On the basis of time, deceased partner’s share in the profits till the date of death is calculated as follows:

Share of Deceased Partner

= Average Profits x x Proportion of Deceased Partner

(ii) On the Basis of Sales: Deceased partner’s share in profit till the date of death shall be:

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

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

Q.20 How is amount payable to the representative of a deceased partner calculated?

Ans. In the case of death of a partner, the legal representatives of a deceased partner are entitled to the following:

(i) The amount standing to the credit of the deceased partner’s capital account.

(ii) His share in the goodwill of the firm.

(iii) His share of profit on the revaluation^ assets and reassessment of liabilities. (iv) His share of reserves and accumulated profits.

(v) His share of profits earned from the date of last balance sheet of the date of death.

(vi) Interest on capital provided in the partnership agreement.

(vii) His share of the proceeds of Joint Life Policy.

The following amounts will be debited to his account:

(i) His share in the reduction in the value of goodwill, if any.

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

(iii) His drawings.

(iv) Interest on drawings, if provided in the partnership deed.

(v) His share of loss from the date of last balance sheet to the date of death.

The balance in the capital account is transferred to his Executor’s Account.

Q.21 Can an outgoing partner or Legal Representative of Deceased Partner share in the subsequent profits?

What will happen if deceased or retired partner’s dues are not settled immediately?

Ans. As per the provisions of Section 37 of the Partnership Act, 1932 if full or part amount of outgoing partner still remains to be paid then

(i) He will be entitled to interest or share in profit or nothing as has been mutually agreed among partners.

(ii) If nothing is agreed among the partners, then outgoing partner or his representatives have the choice to get either of the following till final settlement:

(a) Interest @ 6% per annum on the balance amount.

(b) Share in the profit earned proportionate to their amount outstanding to total capital.

Share in Profit =

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

CHAPTER:5

DISSOLUTION OF PARTNERSHIP FIRM

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

Ans. 1 In case of dissolution of partnership, the firm may continue its business operation but in case of dissolution of partnership firm, the business operations are discontinued.

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

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

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

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

Q.4 All partners wish to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that the capital must be paid before the payment of Yastin’s loan. You are required to settle the conflict giving reasons.

Ans. 4 Yustin’s claim is valid as according to section 48 (b) of partnership Act, partners loan are to be paid before any amount is paid to partners on account of their capitals.

Q.5 On a firms dissolution debtors as shown in the Balance sheet were Rs. 17000 out of these Rs. 2000 became bad. One debtor of Rs. 6000 became insolvent and 40% could be recovered from him. Full recovery was made from the balance debtors. Calculate the amount received from debtors and pass necessary journal entry.

Ans. 5 Cash A/C Dr. 11400

To Realisation A/C 11400

(For debtors realized on dissolution of firm)

Q.6 On dissolution of a firm, Kamal’s capital account shows a debit balance of Rs. 16000. His share of profit on realization is Rs. 11000. He has taken over firms creditors at Rs. 9000. Calculate the final payment due to /from him and pass journal entry.

Ans. 6 Kamal’s capital A/C Dr. 4000

To cash A/C 4000

(for final payment to Kamal)

Q.7 A and B were partners in a firm sharing profits and losses equally. Their firm was dissolved on 15^th March, 2004, which resulted in a loss of Rs. 30,000. On that date the capital A/C of A showed a credit balance of Rs. 20,000 and that of B a credit balance of Rs. 30000. The cash account has a balance of Rs. 20000. You are required to pass the necessary journal entries for the (i) Transfer of loss to the capital accounts and (ii) making final payment to the partners.

Ans. 7 (i) A’s capital A/C Dr. 15000

B’s capital A/C Dr. 15000

To realization A/C 30000

(For transfer of loss on dissolution)

(ii) A’s capital A/C Dr. 5000

B’s capital A/C Dr. 15000

To cash A/C 20000

(For final payment to partners)

Q.8 What journal entries would be passed in the books of A and B who are partners in a firm, sharing profits in the ratio of 5:2, for the following transactions on the dissolution of the firm after various assets (other than cash) and third party liabilities have been transferred to Realisation Account?

(a) Bank loan Rs. 12,000 is paid.

(b) Stock worth Rs. 6000 is taken over by B.

(d) Realisation expenses amounted to Rs. 2,000, B has to bear these expenses.

(e) Deferred Revenue Advertising Expenditure appeared at Rs. 28,000.

(f) A typewriter completely written off in the books of the firm was sold for Rs. 200.

Ans. 8

	JOURNAL
		Dr. (Rs)	Cr. (Rs.)
(a)	Realisation A/C Dr. To Bank A/C	12000	12000
(b)	B’s capital A/C Dr. To realisation A/C	6,000	6,000
(c)	A’s capital A/C Dr. B’s capital A/C Dr. To Realisation A/C	10,000 4,000	14000
(d)	B’s capital A/C Dr. To bank A/C	2,000	2,000
(e)	A’s capital A/C Dr. B’s capital A/C Dr. To deferred revenue advertising expenditure A/C	20,000 8,000	28,000
(f)	Bank A/C Dr. To realisation A/C	200	200

CBSE SAMPLE PAPER

ACCOUNTANCY

CLASS - XII

Time Allowed : 3 Hours Maximum Marks : 80

General Instructions:

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

2. Part A is compulsory for all.

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

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

PART-A

PARTNERSHIP AND COMPANY ACCOUNTS

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

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

3. Give the formula for 'calculating gaining share' of apartner in a partnership firm. [1]

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

5. What is meant by Convertible debentures? [1]

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

Particulars Debit Rs. Credit Rs.

Tournament Fund - 1,50,000

Tournament Fund Investment 1,50,000 -

Income from Tournament Fund Investment - 18,000

Tournament Expenses 12,000 -

Additional Information :

Interest Accrued on Tournament Fund Investment Rs. 6,000. [3]

7. Shubh Limited has the following balances appearing in its Balance Sheet:

Rs.

Securities Premium 22,00,000

9% Debentures 120,00,000

Underwriting Commission 10,00,000

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

8. 20,000 Shares of Rs. 10 each were issued for public subscription at a premium of 10% Full amount was'pavaD'e °n application. Applications were received for 30,000 shares and the Board decided to allot the shares on a pro-rata basis. Pass Journal entries. [3]

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

A Rs. 1,00,000

B Rs. 80,000

C Rs. 70,000

Give the necessary adjusting journal entry with working notes. [4]

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

i) Profit and Loss Account Rs. 24,000

ii) Advertisement Suspense Account Rs. 12,000

Pass the necessary adjusting entry. [4]

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

On application Rs. 25 per share

On allotment Rs. 25 per share

On first and final call Balance

One shareholder, Pran holding 50 shares did not pay his first and final call. As a res! his shares were forfeited.

Of these, 40 shares were reissued to Ram as fully paid up @ Rs. 110 per share, Pass necessary journal entries to record the forfeiture and reissue of shares in: books of Sajal Limited. [4]

12 (a) Raghav Limited purchased a running business from Krishna Traders for a sum of Rs. 15,00,000, payable Rs. 3,00,000 by cheque and for the balance issued 9% Debentures of Rs. 100 each at par.

The assets and liabilities consisted of the following :

Rs.

Plant and Machinery 4,00,000

Buildings 6,00,000

Stock 5,00,000

Sundry Debtors 3,00,000

Sundry Creditors 2,00,000

Record necessary journal entries in the books of Raghav Limited,

(b) On January 1,2004, Rhythm Limited issued 1,000 10% debentures of Rs. 500 each at par. Debentures are redeemable after 7 years. However, the company gave an option to debenture holders to get their debentures converted into equity shares of Rs. 100 each at a premium of Rs. 25 per share any time after the expiry of one year.

Shivansh, holder of 200 debentures, informed on Jan. 1, 2006 that he wanted to exercise the option of conversion of debentures into equity shares.

The company accepted his request and converted debentures into equity shares.

Pass necessary journal entries to record the issue of debentures on Jan. 1,2004 and conversion of debentures on Jan. 1,2006. (3+3 = 6)

13. From the following Receipts and Payments Account of Sonic Club and from the given additional information; prepare Income and Expenditure Account for the year ending 31st December, 2006 and the Balance Sheet as on that date :

RECEIPTS AND PAYMENTS ACCOUNT

for the year ending 31st December, 2006

Cr. Dr.

Receipts Rs. Payments Rs.

To Balance b/d 1,90,000 By Salaries 3,30,000

To Subscriptions 6,60,000 By Sports Equipment 30,000

To Interest on Investments By Balance c/d 1,60,400

@ 8% p.a. for full year 40,000

8,90,000 8,90,000

Additional Information :

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

(b) Salaries had been paid only for 11 months

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

Liabilities Rs. Assets Rs.

Capitals : Rs Leasehold 1,25,000

Ram 1,50,000 Patents 30,000

Mohan 1,25,000 Machinery 1,50,000

Sohan 75,000 3,50,000 Stock 1,90,000

Creditors 1,50,000 Cash at Bank 40,000

Workmen's Compensation 30,000

Reserve

5,35,000 5,35,000

Sohan died on 1st August, 2006. It was agreed that:

i) Goodwill of the firm is to be valued at Rs. 1,75,000.

ii) Machinery be valued at Rs. 1,40,000; Patents at Rs. 40,000; Leasehold at Rs. 1,50,000 on this date,

iii) For the purpose of calculating Sohan?s share in the profits of 2006-07, the profits should be taken to have accrued on the same scale as in 2005-06, which were Rs. 75,000.

Prepare Sohan's Capital Account and Revaluation Account. (6)

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

On Application Rs. 10 per share

On Allotment Rs 0 per share (including

premium of Rs, 10 per share)

On First and Final Call Balance

Over-payments on application, were to be applied towards sums due on allotment and first and final call. Where no allotment was made, money was to be refunded in full. The issue was oversubscribed to the extent of 13,000 shares. Applicants for 12,000 shares were allotted only 2,000 shares and applicants for 3,000 shares were sent letters of regret and application money was returned to them. All the money due was duly received.

Give Journal Entries to record the above transactions (including cash transactions)^ the books of the company. [8]

Sangita Limited invited application for issuing 60,000 shares of Rs. 10 each at par. amount was payable as follows:

On Application Rs. 2 per share

On Allotment Rs. 3 per share

On First and Final Call Rs. 5 per share

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

i) To applicants for 40,000 shares - Full

ii) To applicants for 50,000 shares - 40% (iii) To applicants for 2,000 Shares - Nil Rs. 1,08,000 was realised on account of allotment (excluding the amount carried first application money) and Rs. 2,50,000 on account of call.

The directors decided to forfeit shares of those applicants to whom full allotment^ made and on which allotment money was overdue.

Pass journal entries in the books of Sangita Limited to record the above transactions. [5]

16. L and M share profits of a business in the ratio of 5:3. They admit N into the firm for a fourth share in the profits to be contributed equally by L&M. On the date of admission the Balance Sheet of L&M is as follows :

BALANCE SHEET

as at......

Liabilities Rs. Assets Rs.

L's Capital 30,000 Machinery 26,000

M's Capital 20,000 Furniture 18,000

Reserve Fund 4,000 Stock 10,000

Bank Loan 12,000 Debtors 8,000

Creditors 2,000 Cash 6,000

68,000 68,000

Terms of N's admission were as follows :

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

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

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

Prepare Revaluation-Account, Partners Capital Accounts and the Balance Sheet of the firm after admission of N . (8)

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

Liabilities Amount Assets Amount

Creditors 10,800 Cash at Bank 8,000

Capitals : Rs. Debtors Rs 10,000

A 45,000 Less : Provision 200 9,800

B 30,000 Stock 9,000

C 15,000 90,000 Machinery 24,000

Land and Buildings 50,000

1,00,800 1,00,800

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

i) That Land and Buildings be appreciated by 12%.

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

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

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

v) That B be paid Rs. 5,000 immediately and the balance to be transferred to his Loan Account.

Prepare Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the firm of A and C. (8)

PART-B

ANALYSIS OF FINANCIAL STATEMENTS

17. Assuming that the Current Ratio is 2:1, state giving reason whether the ratio will improve, decline or will have no change in case a Bill Receivable is dishonoured. (1)

18. State whether cash deposited in bank will result in inflow, outflow or no flow of cash.(1)

19. Interest received by a finance company is classified under which kind of activity while preparing a cash flow statement ? (1)

20. Show the major headings into which the liabilities side of a Company's Balance Sheet is organised and presented as per Schedule VI Part 1 of the Companies Act, 1956.(3)

21. Prepare a Comparative Income Statement with the help of the following information : (4)

Particulars 2006 2007

Sales Rs. 20,00,000 Rs. 30,00,000

Gross Profit 40% 30%

Indirect Expenses 50% of G P. 40% of G.P.

Income Tax 50% 50%

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

Liabilities Amount Assets Amount

Share Capital 20,00,000 Fixed Assets (Net) 29,00,000

Reserves 5,00,000 Current Assets 25,00,000

10% Loans 10,00,000 Underwriting

Commission 1,00,000

Current Liabilities 8,00,000

Profit for the year 12,00,000

55,00,000 55,00,000

Find out 'Return on Capital Employed;

23. From the following balance sheets of ABC Ltd., Find out cash from operating activities only.

Liabilities 31.3.2006 31.3.2007 Assets 31.3.2006 31.3.2007 Rs. Rs. Rs. Rs.

Equity Share Capital 30,000 35,000 Goodwill 10,000 8,000

General Reserve 10,000 15,000 Machinery 41,000 54,000

Profit & Loss Account - 7,000 10% Inv. 3.000 8.000

10% Debentures 21,000 25,000 Stock 6,000 24,500

Sundry Creditors 8,500 12,500 Cash and Bank 12,000 13,000

Provision for Depreciation Discount on

on Machinery 9,000 13,000 Debentures 500 -

Profit & Loss

Account 6,000 -

78,500 1,07,500 78,500 1,07,500

Additional Information :

*Debentures were issued on 31.3.2007.

* Investments were made on 31.3.2007.

ANNUAL PAPER

ACCOUNTANCY

CLASS - XII

Time Allowed : 3 Hours Maximum Marks : 80

General Instructions :

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

2. Part A is Compulsory for all candidates.

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

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

PART-A

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

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

2. Ram and Mohan are partners in a firm without any partnership deed. Their capitals are

Ram Rs.8,00,000 and Mohan Rs.6,00,000. Ram is an active partner and looks after the business. Ram wants that profit should be shared in proportion of capitals. State with reason whether his claim is valid or not. [1]

3. Defined goodwill. [1]

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

5. Give the meaning of 'minimum subscription'. [1]

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

1.4.2006 31.3.2007

Rs. Rs.

Stock of sports material 7,500 6,400

Creditors for sports material 2,000 2,600

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

7. Samta Ltd. forfeited 800 equity shares of Rs. 100 each for the non-payment of first call of Rs. 30 per share. The final call of Rs.20 per share was not yet made. Out of the share 400 were re-issued at the rate of Rs.105 per share fully paid up.

Pass necessary journal entries in the books of Samta Ltd. for the above transaction. [3]

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

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

i) Interest on capital @ 9% p.a.

ii) Kumar's salary Rs.50,000 per year and Raja's salary Rs.3,000 per month.

The profit for the year ended 31.3.2007 was Rs.2,78,000.

Pass the adjustment entry. [4]

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

Year ended 31.3.2007 Rs.2,00,000

Year ended 31.3.2006 Rs. 1,80,000

Year ended 31,3.2005 Rs. 2,10,000

Year ended 31.3.2004 Rs. 1,70,000 (Loss)

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

Show clearly the calculation of P's share of profit. (4)

11. Sagar Ltd. was registered with an authorised capital of Rs. 1,00,000 divided into 1,00,000 equity shares of Rs.100 each. The company offered for public subscription 60,000 equity shares.

Applications for 56,000 shares were received and allotment was made to all the applicants. All the calls were made and were duly received except the second and final call of Rs.20 per share on 700 shares. Prepare the Balance Sheet of the company showing the different types of share capital. (4)

12. Following is the Receipt and Payment Account of Indian Sports Club for the year ended 31.12.2006.

Receipts Amount Payments Amount

To Balance b/d 10,000 By Salary 15,000

To Subscriptions 52,000 By Billiards Table 20,000

To Entrance Fee 5,000 By Office Expenses 6,000

To Tournament Fund 26,000 By Tournament Expenses 31,000

To Sale of old newspapers 1,000 By Sports Equipment 40,000

To Legacy 37,000 By Balance c/d 19,000

1,31,00 1,3 1,000

Other Information:

On 31.12.2006 subscription outstanding was Rs.2,000 and on 31.12.2005 subscription outstanding was Rs.3,000. Salary outstanding on 31.12,2006 was Rs.1,500.

On 1.1.2006 the club had building Rs.75,000, furniture Rs. 18,000,12% investment Rs.30,000 and sports equipment Rs.30,000, Depreciation charged on these items including purchases was 10%.

Prepare Income and Expenditure Account of the Club for the year ended 31.12.2006 and ascertain the Capital Fund on 31.12.2005. (6)

13. K and Y were partners in a firm sharing profits in 3 :2 ratio. They admitted Z as a new partner for l/3rd share in the profits of the firm. Z acquired his share from K and Y in 2 : 3 ratio. Z brought Rs.80,000 for his capital and Rs.30,000 for his 1/3"1 share as premium. Calculate the new profit sharing ratio of K, Y and Z and pass necessary journal entries for the above transactions in the books of the firm. (6)

14. Pass necessary journal entries in the books of Varun Ltd. for the following transactions: i) Issued 58,000, 9% debentures of Rs.l,000each at a premium of 10%.

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

iii) Redeemed 450, 9% debentures of Rs.100 each by draw of lots. (6)

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

Liabilities Amount Assets Amount

Bank Loan 12,800 Cash 51,300

Sundry Creditors 25,000 Bills Receivable 10,800

Capitals : Debtors 35,600

R 80,000 Stock 44,600

S 50,000 Furniture 7,000

T 40.000 1,70,000 Plant and Machinery 19,500

Profit: and Loss A/c 9,000 Building 48,000

2,16,800 2,16,800

S retired from the firm on 1.4.2004 and his share was ascertained on the revaluation of assets as follows:

Stock Rs.40,000; Furniture Rs.6,000; Plant and Machinery Rs. 18,000; Building 40,000, Rs.1,700 were to be provided for doubtful debts. The goodwill of the firm was valued at Rs. 12,000.

S was to be paid Rs. 18,080 in cash on retirement and the balance in three equal yearly instalments. Prepare Revaluation Account, Partner's Capital Accounts, S's Loan Account and Balance Sheet on 1.4.2004.

D and E were partners in a sharing profits in 3 :1 ratio. On 1.4.2007 they admitted F as a new partner for 1/4th share in the firm which he acquired from D. Their Balance Sheet on the date was as follows:

Liabilities Amount Assets Amount

Creditors 54,000 Land and Building

Capitals : Machinery

D 1,00,000 Stock

S 70.000 1,70,000 Debtors 40,000

General Reserve 32,000 Less provision

for bad debts 3,000 37,000

Investments 50,000 Cash 44,000

2,56,000 2,56,000

F will bring R. 40,000 as his capital and the other terms agreed upon were :

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

ii) Land and Building were valued at Rs. 70,000

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

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

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

Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the New firm.

16. Janata Ltd. invited application for issuing 70,000 equity shares of Rs.10 each at a premium of Rs. 2 per share. The amount was payable as follows:

On application Rs.4 per share (including premium)

On allotment Rs.3 per share

On first and final Balance

Applications for 1,00,000 shares were received. Applications for 10,000 shares were rejected. Shares were allotted to the remaining applicants on pro-rata basis. Excess money received with applications were adjusted towards sums due on allotment. All calls were made and were duly received except first and final call on 700 shares allotted to Kanwar. His shares were forfeited.

The forfeited shares were re-issued for Rs.77,000 fully paid up.

Pass necessary journal entries for the books of the company for the above transactions. (8)

Shubham Ltd. invited applications for the allotment of 80,000 equity shares of Rs.10 each at a discount of 10%. The amount was payable as follows :

On application Rs.2 per share

On allotment Rs.3 per share

On first and final call- Balance

Applications for 1,10,000 shares were received. Applications for 10,000 shares were rejected. Shares were allotted on pro-rata basis to the remaining applicants. Excess application money received on application was adjusted towards sums due on allotment. All calls were made and were duly received. Manoj who had applied for 2,000 shares failed to pay the allotment and first and final call. His shares were forfeited. The forfeited shares were re-issued for Rs.24,000 fully paid up. Pass necessary journal entries in the books of the company for the above transaction.

PART-B

(Analysis of Financial Statements)

17. The stock turnover ratio of a company is 3 times. State, giving reason, whether the ratio improves, declines or does not change because of increase in the value of closing stock by Rs.5,000. (1)

18. State whether the payment of cash to creditors will result in inflow, outflow or no flow of cash. (1)

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

20. Show the major headings on the liabilities side of the Balance Sheet of a company as per Schedule VI Part I of the Companies Act, 1956. (3)

21. From the following information prepare a comparative Income Statement of Victor Ltd: (4)

2006 2007

Rs. Rs.

Sales 15,00,000 18,00,000

Cost of goods sold 11,00,000 14,00,000

Indirect Expenses

20% of Gross Profit 125% of Gross Profit

Income Tax 50% 50%

22. From the following information calculate any two of the following ratios (4)

i) Net Profit Ratio

ii) Debt-Equity Ratio

iii) Quick Ratio

Rs.

Paid up Capital 20,00,000

Capital Reserve 2,00,000

9% Debentures 8,00,000

Net Sales 14,00,000

Gross Profit 8,00,000

Indirect Expenses 2,00,000

Current Assets 4,00,000

Current Liabilities 3,00,000

Opening Stock 50,000

Closing Stock : 2% more than opening stock.

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

Liabilities Amount Assets Amount

Equity Share Capital 2,00,000 5,00,000 Fixed Assets 3,00,000 4,50,000

Profit and Loss 1,25,000 25,000 Stock 1,00,000 1,50,000

10% Debentures 1,00,000 75,000 Debtors 75,000 1,25,000

8% Preference Shares Capital 50,000 75,000 Bank 45,000 65,000

General Reserve 45,000 1,15,000

5,20,000 7,90,000. 5,20,000 7,90,000

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

ANSWERS

SET-1

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

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

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

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

4. The two reasons are :

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

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

5. Minimum subscription is the minimum amount which in the opinion of the Board of Directors must be raised through the issue of shares so that the company has necessary funds to carry out its objectives as stated in its memorandum of Association.

Minimum subscription, according to SEB1 guidelines is 90% of the issued capital.

6. Dr. STOCK OFSPORTS MATERIAL ACCOUNT Cr.

Particulars Amt. (Rs.) Particulars Amt (Rs.)

To Balance b/d 7,500 By Income & Expenditure A/c - 20,700

(stationery consumed)

To Creditors - 19,600 By Balance c/d 6,400

(purchases) 27,100

27,100 27,100

Dr. CREDITORS FOR SPORTS MATERIAL ACCOUNT Cr.

Particulars Amt. (Rs.) Particulars Amt (Rs.)

To Cash (paid) 19,000 By Balance b/d 2,000

To Balance c/d 2,600 By Purchases A/c 19,600

(credit -bal.fig.)

21,600 21,600

Calculation of Sports Material consumed during the year

Cash paid during the year 19,000

Add Opening Stock of sports Material 7,500

Less Closing stock of sports Material 6,400

Less Creditors in the beginning 2,000

Add Creditors at the end 2.600

Amount to be debited to Income & Expenditure A/c 20,700

JOURNAL OF SAMTALTD.

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

Share Capital A/c Dr. 64,000

To Share Forfeited A/c 40,000

To Share First Call A/c / Calls in Arrears A/c 24,000

(Being 800 shares forfeited for noh payment of

first call)

Bank A/c Dr. 42,000

To Share Capital A/c 40,000

To Securities Premium A/c 2,000

(Being 400 Shares reissued)

Share Forfeited A/c Dr. 20,000

To Capital Reserve A/c 20,000

(Being amount transferred to Capital Reserve)

JOURNAL OF DEEPAK LTD.

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

Furniture A/c Dr. 2,20,000

To M/s Furniture Mart A/c 2,20,0001

(Being furniture purchased)

Ms Furniture Mart A/c Dr. 1,10,000

To Bills Payable A/c 1,10,000:,

(Being Bill payable Accepted)

M/s Furniture Mart A/c Dr. 1,10,000

To 9% Debentures A/c 1,00,000

To Securities Premium 10,000

(Being Debentures issued at 10% premium)

JOURNAL

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

Kumar's Current A/c Dr. 11,100

To Raja's Current A/c 11,100

(Being adjustment made which was omitted earlier)

Working Notes:

STATEMENT SHOWING ADJUSTMENTS

Particulars Kumar (Rs.) Raja (Rs.)

Interest on Capitals 81,000 (Cr.) 36,000 (Cr.)

Salaries 50,000 (Cr.) 36,000 (Cr.)

Wrong Profits 1,94,600 (Dr.) 83,400 (Dr.)

Actual Profits 52,500 (Cr.) 22,500 (Cr.)

Adjustments 11,100 (Dr.) 11,100 (Cr.)

10.

JOURNAL

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

P & L Suspense A/c Dr. 10,500

To P's Capital A/c 10,500

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

Q's Capital A/c Dr. 24,000

R's Capital A/c Dr. 12,000

To P's Capital A/c 36,000

(Being adjustment made in respect of P's share

of goodwill)

Working Note :

(a) P's Share of profit = Average profit x 3/12 x 2/5

Average Profit = 2,00,000 + 1,80.000 + 2,10,000 -1,70,000

= Rs.1,05,000

P's share of profit = 1,05,000 x 3/12 x 2/5 = Rs.l0,500

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

11.

BALANCE SHEET OF SAGAR LTD.

. as at ..........

Liabilities Amount (Rs.) Assets Amount (Rs.)

SHARE CAPITAL

Authorised Capital 1,00,00,000

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

Issued Capital

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

Subscribed Capital

56,000 equity shares of Rs.100 each 56,00,000

Less calls in arrears 14.000 55,86,000

Liabilities Amount (Rs.) Assets Amount (Rs.)

A uthorised Capital

1,00,000 Equity Shares of Rs.100 each 1,00,00,000

Issued Share Capital

60,000 Equity Shares of Rs.100 each 60,00,000

Subscribed Share Capital

56,000 Equity Shares of Rs. 100 each 56,00,000

Called up and Paid up Share Capital

56,000 Equity Shares of Rs. 100 each 56,00,000

Less, calls in arrears 14.000 55,86,000

Note : If the Issued Capital is taken as Rs.56,00,000, full credit was given.

12.

INCOME & EXPENDITURE ACCOUNT

for the year ended 31st December 2006

Expenditure Amt. (Rs.) Income Amt (Rs.)

To Salary 15,000 By Subscription 52,000

Add: Outstanding Salary 1,500 16,500 Add: Subscription Outstanding

To Office Expenses 6,000 at the end 2,000

To Excess of Expenses

Over Tournament Fund 5,000 Less: Subscription

(31,000-26,000) Outstanding in the

beginning 3.000

To Depreciation on Building 7,500 By Entrance Fees 5,000

To Depreciation on Furniture 1,800 By Sale of old Newspaper 1,000

To Depreciation on Sports Equipment 7,000

To Surplus 16,800 By Accrued Interest 3,600

60,600 60,600

BALANCE SHEET

as at 31" December 2005

Liabilities Amount (Rs.) Assets Amount (Rs)

Capital 1,66,000 Cash 10,000

Subscription

Outstanding 3,000

Building 75,000

Furniture 18,000

Sports

Equipment 30,000

1 2% Investments 30,000

1,66,000 1,66,000

Notes :

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

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

13. Old Ratio = 3:2

Z's share = 1/3

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

Z acquires from Y = 1/3 x 3/5 = 3/15

K's new share = Old share-share to Z = 3/5-2/15 = 7/15

Y's new share = Old share - share to Z = 2/5 -3/15 = 3/15

New profit sharing ratio = 7:3:5

JOURNAL

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

Cash A/c Dr. 1,10;000

To Z's Capital A/c 80,000

To Premium A/c 30,000

(Being Capital and share of goodwill brought in by

the new partner)

Premium A/c Dr. 30,000

To K's Capital A/c 12,000

To Y's Capital A/c 18,000

(Being the amount of premium distributed in

Sacrificing ratio)

14. i) JOURNAL OF VARUN LTD.

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

Bank A/c Dr. 6,38,00,000

To Debenture Application and Allotment A/c 6,38,00,000

(Being Debenture Application money received)

Debenture Application and Allotment A/c Dr. 6,38,00,000

To 9% Debentures A/c 5,80,00,000

To Securities Premium A/c 58,00,000

(Being issue of Debentures at Premium of 10%)

II) JOURNAL

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

9% Debentures A/c Dr. 35,000

To Debenture Holders 35,000

(Being amount due to Debenture Holders)

Debenture holders A/c Dr. 35,000

To Equity Share Capital A/c 28,000

To Securities Premium A/c 7,000

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

III) JOURNAL

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

9% Debentures A/c Dr. 45,000

To Debenture Holders 45,000

(Being amount due to Debenture Holders)

Debenture Holders A/c Dr. 45,000

To Bank A/c 45,000

(Being amount paid to Debenture Holders)

15. REVALUATION ACCOUNT

Expenditure Amt. (Rs.) Income Amt (Rs.)

To Stock 4,600 By Loss transferred to

To Furniture 1,000 Partners capital A/cs :

To Plant &. Mach. 1,500 R 6,720

To Building 8,000 S 6,720

To Provision for T 3,360 16,800

Doubtful Debts 1,700

16.800 16.800

CAPITAL ACCOUNTS

Particulars R Rs. S Rs. T Rs. Particulars R Rs. S Rs. T Rs

Revaluation A/c 6,720 6,720 3,360 By Balance b/d 80,000 50,000 40,000

By P&L A/c 3,600 3,600 1,800

To S's Capital A/c 3,200 - 1,600 By R's

To Cash A/c 18,080 Capital A/c _ 3,200 -

To S's Loan By T's

A/c - 33,600 - Capital A/c - 1,600 -

To Bal. c/d 73,680 36,840

83,600 58,400 41,800 83,600 58,400 41,800

BALANCE SHEET

as at 1.4.2004

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

Bank Loan 12,800 Cash 33,220

Sundry Creditors 25,000 Bill Receivables 10,800

S'sLoan 33,600 Debtors 35,600

Capital Less Provision 1,700 33,900

R 73,680 Stock 40,000

T 36,840 Furniture 6,000

1,10,520 Plant & Machinery 18,000

Building 40,000

1,81,920 1,81,920

S's LOAN ACCOUNT

Cr. Dr.

Date Particular Amount (Rs,) Date Particular Amount (Rs.)

To Balance c/d 33,600 2004

Apr. 1 By S's Capital 33,600

33,600 33,600

REVALUATION ACCOUNT

Cr. Dr,

Particulars Amt (Rs.) Particulars Amt (Rs.)

To Profit TVansferred to By Land and building 20,000

Partner's Capital A/c By Provisions for doubtful debts 800

D 17,100 By Sundry Creditors 2,000

E 5,700 22,800

22,800 22,800

PARTNERS' CAPITAL ACCOUNTS

Particulars D Rs. E Rs. F Rs. Particulars D Rs. E Rs. F Rs.

To 67,100 43,700 -- By Balance b/d 1,00,000 70,000 --

Current A/c 80,000 40,000 40,000 By Revaluation A/c 17,100 5,700 --

By General Reserve 24,000 8,000 --

By Cash A/c -- -- 40,000

By F's Current A/c 6,000 --

1,47,000 83,700 46,000 1,47,000 83,700 46,000

BALANCE SHEET

as at 1" April 2007

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

Creditors 52,000 Land & Building 70,000

Capital A/c's Debtors 40,000

D 80,000 Less Provision 2.200 37,800

E 40,000 Machinery 60,000

F 40,000 1,60,000 Stock 15,000

Current A/c's Investment 50,000

D 67,100 Cash 84,000

E 43,700 F's Current A/c 6,000

1,10,800

3,22,800 3,22,800

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

16. IN THE BOOKS OF JANTA LTD.

JOURNAL

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

Bank A/c Dr. 4,00,000

To Share Application A/c 4,00,000

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

@ Rs.4 per share including premium)

Share Application A/c Dr. 4,00,000

To Share CapitaVA/c 1,40,000

To Securities Capital A/c 1,40,000

To Share Allotment A/c 80,000

To Bank A/c 40,000

(Being application money adjusted to wards share capital

& Share allotment & balance refunded)

Share Allotment A/c Dr. 2,10,000

To Share Capital A/c 2,10,000

(Being amount due on share allotment)

Bank A/c Dr. 1,30,000

To Share Allotment A/c 1,30,000

(Being allotment money-received)

Share First & Final Call A/c Dr. 3,50,000

To Share Capital A/c 3,50,000

(Being amount due on share first & final call

on 70,000 share @ Rs.5 each)

Bank A/c Dr. 3,46,500

To Share First & Final Call A/c 3,46,500

(Being first & final call received)

Bank A/c Dr. 3,46,500

Calls in Arrears A/c Dr. 3,500

To Share First & Final Call A/c 3,50,000

(Being first & final call received)

Share Capital A/c Dr. 7,000

To Share Forfeited A/c 3,500

To Share First & Final Call / Calls in Arrears A/c 3,500

(Being 7010 shares forfeited due to non payment of

first & final call)

Bank A/c Dr. 77,000

To Share Capital A/c 7,000

To Securities Premium A/c 70,000

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

Share Forfeited A/c Dr. 3,500

To Capital Reserve A/c 3,500

(Being Capital Profit on reissued shares transferred to

capital reserve A/c)

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

Bank A/c Dr. 2,20,000

To Share Application A/c 2,20,000

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

@ Rs.2 per share)

Share Application A/c Dr. 2,20,000

To Share Capital A/c 1,60,000

To Share Allotment A/c 40,000

To Bank A/c 20,000

(Being application money adjusted to wards share capital

& Share allotment & balance refunded)

Share Allotment A/c Dr. 2,40,000

Discount on Issue of Shares A/c Dr. 80,000

To Share Capital A/c 3,20,000

(Being amount due on share allotment)

Bank A/c Dr. 1,96,000

To Share Allotment A/c 1,96,000

(Being allotment money received)

Bank A/c Dr. 1,96,000

Calls in Arrears A/c Dr. 4,000

To Share Allotment A/c 2,00,000

(Being first & final call received)

Share First & Final Call A/c Dr. 3,20,000

To Share Capital A/c 3,20,000

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

shares @ Rs.4 each)

Bank A/c Dr. 3,13,600

To Share First & Final Call A/c 3,13,600

(Being first & final call received)

Bank A/c Dr. 3,31,600

Calls in Arrears A/c Dr. 6,400

To Share First & Final Call A/c 3,20,000

(Being first & final call received)

Share Capital A/c Dr. 16,000

To Share Forfeited A/c 4,000

To Share allotment A/c 4,000

To Share First & Final Call A/c 6,400

To Discount on Issue of Shares A/c 1,600

(Being 1,600 shares forfeited due to non payment of allotment & first & final call)

Share Capital A/c Dr. 16,000

To Share Forfeited A/c 4,000

To Calls in Arrears A/c 10,000

To Discount on Issue of Shares A/c 1,600

(Being 1,600 shares forfeited due to non payment of allotment & first &. final call)

Bank A/c Dr. 24,000

To Share Capital A/c 16,000

To Securities Premium A/c 8,000

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

Share Forfeited A/c Dr. 4,000

To Capital Reserve A/c 4,000

(Being Capital Profit on reissued shares transferred to

capital reserve A/c)

PART-B

(Analysis of Financial Statements)

17. Stock turnover ratio will decline because die amount of average stock will increase, cost c goods sold remaining the same.

18. Outflow of Cash

19. Financing Activity

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

i) Share Capital

ii) Reserves & Surplus

iii) Secured Loans

iv) Unsecured Loans

v) Current Liabilities & Provisions

a) Current Liabilities

b) Provisions

21. COMPARATIVE INCOME STATEMENT OF VICTOR LTD.

Particulars 2006 Rs. 2007 Rs. Absolute Change %age Change

Sales 15,00,000 18,00,000 3,00,000 20

Less Cost of

goods Sold 11,00,000 14,00,000 3,00,000 27,27

Gross Profit 4,00,000 4,00,00 -- --

Less Indirect

Expenses 80,000 1,00,000 20,000 25

Net Profit before

Tax 3,20,000 3,00,000 (20,000) (6.25)

Less : Income Tax 1,60,000 1,50,000 (10,000) (6.25)

Net Profit After Tax 1,60,000 1,50,000 (10,000) (6.25)

22. Any Two of the following ratios:

i) Net Profit Ratio = Net Profit / Net Sales X 100

Net Profit = Gross Profit - Indirect expenses

= 8,00,000-2,00,000

= Rs.6,00,000

Net Profit Ratio = 6,00,000 / 40,00,000 x 100 = 42.86%

ii) Debt Equity Ratio = Debt / Equity

Debt = Debentures = Rs.8,00,000

Equity = Equity Share Capital + Capital Reserve

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

= Rs.22,00,000

Debt Equity Ratio = 8,00,000 / 22,00,000 = 4:11

Note : Full credit was given if net profit is added to equity. Then debt equity Ratio

= Rs.8,00,000 / Rs.28,00,000 = 2 : 7 .

iii) Quick Ratio = Liquid Assets / Current Liabilities

Liquid Assets = Current Assets - Closing Stock

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

Current Liabilities = Rs.3,00,000

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

23. Calculation of Net Front / Loss before tax :

Profit for the year (1,00,000)

Add: Transferred to Reserve 70,000

Add: Dividend 24,000

(6,000)

CASH FLOW STATEMENT

for the year ended 31st March 2007

Particulars (Rs.) (Rs.)

A Cash Flows from Operating Activities

Net Loss as per Profit & Loss A/c (6,000)

Adjustments :

Add: Debenture Interest 10,000

Loss on sale of machinery 55,000 65,000

Operating Profit before Working Capital changes 59,000

Adjustments for Working Capital Changes

Less: Increase in Current Assets

Stock (50,000)

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

Net Cash used in Operating Activities (41,000) (41,000)

B. Cash Flow from Investing Activities :

Sale of Fixed Assets 15,000

Purchase of Fixed Assets (2,20,000)

Net Cash used in Investing Activities (2,05,000) (2,05,000)

C. Cash Flow from Financing Activities:

Issue of Equity Share Capital 3,00,000

Issue of {Preference Share Capital 25,000

Redemption of Debentures (25,000)

Dividend Paid (24,000)

Interest on Debentures paid (10,000)

Net Cash Flaw from Financing Activities 2,66,000 2,66,000

Net Increase / Decrease in Cash & Cash Equivalents

Add Opening Cash and Cash Equivalents 20,000

Add Opening Cash and Cash Equivalents 45,000

Closing Cash and Cash Equivalents 65,000

Working Notes :

Dr. FIXED ASSETS ACCOUNT Cr.

Particulars Amt (Rs.) Particulars Amt (Rs.)

To Balance b/d 3,00,000 By Machinery Sold A/c 70,000

To Bank-purchase 2,20,000 By Balance c/d 4,50,000

5,20,000 5,20,000

Cr. MACHINERY SOLD ACCOUNT Cr.

Particulars Amt (Rs.) Particulars Amt (Rs.)

To Fixed Assets A/c 70,000 By Bank .Sale 15,000

By P&C A/c (Less on Sate) 55,000

70,000 70,000

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

Net Profit before tax = Rs.(2,000)

Cash used in operating activities = Rs.(37,000)

Cash used in investing activities = Rs.(2,05,000)

Cash generated from financing activities = Rs.2,62,000

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

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