Answers

(Multiple Choice Questions)

1. (i) (c); (ii) (a); (iii) (c); (iv) (c); (v) (b); (vi) (c); (vii) (d); (viii) (b); (ix) (a); (x) (b); (xi) (a);
(xii) (a); (xiii) (c); (xiv) (b); (xv) (d); (xvi) (a); (xvii) (a); (xviii) (c); (xix) (d); (xx) (a); (xxi) (d);
(xxii) (a); (xxiii) (b); (xxiv) (c).

Working Notes:

(viii) A B C
Present Profit Share 3 2 1
1 3 3
Profit Share of A Taken 1 3 3
   
2 6 12 2 6 12

2 3 7 1 3 5
New Profit Share    
6 12 12 6 12 12
7 : 5

New Profit-sharing Ratio = 7 : 5.
 ` 7, 50 , 000 

(xii)   6 , 000 shares  .
 ` 125 
 ` 60 , 000 

(xix)   100  12%  .
 ` 5, 00 , 000 

(Short Answer Type Questions)

2. (i) Partnership business means a business carried on by 2 or more persons (not exceeding 50)
in partnership sharing profits and losses.
OR

X Y Z
Old Profit-sharing Ratio 5 4 3
New Profit-sharing Ratio 3 2
3 5 11 2 3 9
Gaining Ratio    
5 12 60 5 12 60
Gaining Ratio of X and Z = 11 : 9.
(ii)
Date Particulars L.F. Dr. (`) Cr. (`)
Revaluation A/c ...Dr. ...
To Old Partners’/Capital/Current A/cs ...
(Being the revaluation profit distributed among old partners in their
old profit-sharing ratio)

OR
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c ...Dr. ...
To Premium for Goodwill A/c ...
(Being the premium for goodwill brought by new partner)

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 (iii) Preference Share Capital is that capital which is collected by issuing Preference Shares.
Preference shares are the shares which are not Equity Shares and have following
two rights.
(a) to receive dividend; and
(b) to receive capital on winding-up before repayment of Equity Share Capital.
(iv) Executor is the person who executes the will of the deceased partner. In the case of
a firm, executor settles and receives the amount on behalf of the deceased partner.
OR
To meet the capital requirement of the firm.
(v) No, Goodwill is not a fictitious asset but is an intangible asset since it has a realisable value.
OR
Two factors which affect the value of goodwill are:
(a) Favourable location, and
(b) Profit of the firm.

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(vi) ` 2,800  ` 30 , 800  .
 110 

(vii) Joint Life Policy is Life Insurance Policy taken jointly on the lives of the partners.
The policy amount becomes due on death of any of the partners.

(viii) Reserve Capital is that part of subscribed capital which the company decides to call
at the time of winding-up of the company.
(ix) Comparative Financial Statement is a Statement (Balance Sheet or Statement of Profit
& Loss) prepared to compare financial data of one or more years.
OR
Ratio Analysis is the process of determining and interpreting relationships between the
items of financial statements to provide meaningful understanding of the performance
and financial position of the enterprise.
Cost of Revenue from Operations
(x) Stock Turnover Ratio = .
Average Stock (Inventory)

OR
Liquid Assets or Quick Assets

Liquid Ratio =
Current Liabilities
(xi) Proprietory Ratio is the ratio that establishes the relationship between proprietors
funds and total assets. It is computed as follows:

Proprietor's Funds or Shareholders' Funds or Equity

Total Assets

(xii) Financing Activities.

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 (Subjective/Descriptive Type Questions)
3. PROFIT & LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2024 Cr.
Particulars ` Particulars `
To Interest on Capital A/cs: By Net Profit transferred from Profit & Loss A/c 1,47,100
A 5,400 By Interest on Drawings:
B 4,200 A 1,040
C 7,200 16,800 B 1,040
To Salary to B (B’s Capital A/c) 60,000 C 440 2,520
To General Reserve A/c 6,620
(10% of Distributable Profit)
To Profit transferred to:
A’s Capital A/c 33,100
B’s Capital A/c 22,067
C’s Capital A/c 11,033 66,200
1,49,620 1,49,620

OR

(a) Fixed Capital Account means capitals of the partners are fixed, i.e., capitals do not
change frequently and changes when capital is introduced or withdrawn by the partner.
(b) Interest on Drawings is calculated by product method when different amounts are withdrawn
on different dates. Amount withdrawn is multiplied by no. of days or months left from
the date of drawing for each drawing. The product is totalled. Rate of interest is applied
to the product total and interest is determined. It is illustrated in the following example:

Detail of Drawings
Date 1st May, 2023 1st September 1st November 1st January 1st March
Amount (`) 15,000 20,000 25,000 20,000 10,000

Rate of interest on drawing is 10% p.a.

Calculation of Interest on Drawings for the year ended 31st March, 2024
Date of Drawing Amount (`) Months After Drawing Product (`)
1st May, 2023 15,000 11 1,65,000
1st September, 2023 20,000 7 1,40,000
1st November, 2023 25,000 5 1,25,000
1st January, 2024 20,000 3 60,000
1st March, 2024 10,000 1 10,000
5,00,000

10 1
Interest @ 10% p.a. = ` 5, 00 , 000 × ×
100 12
= ` 4,167.

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 4. JOURNAL OF X LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
Share Capital A/c ...Dr. 40,000
To Forfeited Shares A/c 20,000
To Calls-in-Arrears A/c 20,000
(Being 4,000 shares of Mr. Sen forfeited for non-paymen of ` 5 per share)
Bank A/c ...Dr. 27,000
Forfeited Shares A/c ...Dr. 3,000
To Share Capital A/c 30,000
(Being 3,000 (3/4th of 4,000) shares reissued at 10% discount)
Forfeited Shares A/c ...Dr. 12,000
To Capital Reserve A/c 12,000
(Being the gain amount proportionate to reissued shares transferred )

OR
(a)
Equity Share Preference Share
(i) Rate of dividend may differ each year. Rate of dividend is fixed.
(ii) On winding-up, Equity Shareholders are paid after On winding-up, Preference shareholders have
payment to Preference Shareholders. preference over Equity Shares as for repayment.

(b)
Basis Reserve Capital Capital Reserve
1. Meaning It is that part of the uncalled capital which It is that part of the reserves which is not
cannot be called-up except in the event of free for distribution as dividend.
winding up.
2. Creation It is an uncalled capital. It is created out of capital profits.

5. JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Entry in both (a) and (b)
Assets A/c ...Dr. 5,00,000
Goodwill A/c ...Dr. 30,000
To Liabilities A/c 50,000
To Z Ltd. 4,80,000
(Being the assets and liabilities takenover from Z Ltd.)
(a) When Debentures are issued at Par:
Z Ltd. ...Dr. 4,80,000
To ...% Debentures A/c 4,80,000
(Being 4,800 Debentures of ` 100 each issued at par)
(b) When Debentures are issued at 10% Premium:
Z Ltd. ...Dr. 4,80,000
To ...% Debentures A/c 4,36,300
To Securities Premium A/c 43,630
To Bank A/c 70
(Being 4,363 Debentures of ` 100 each issued at 10% premium,
balance paid by cheque)
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 6. (i) JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
A’s Capital A/c ...Dr. 15,000
B’s Capital A/c ...Dr. 15,000
To C’s Capital A/c 30,000
(Being the adjustment of two years’ profit share)

Working Note:
Particulars A (`) B (`) C (`)
I. Profit share credited for past two years (` 2,25,000) in their 90,000 90,000 45,000
profit-sharing ratio, i.e., 2 : 2 : 1
II. Profit share to be shared equally 75,000 75,000 75,000
Net Effect (I – II) 15,000 Dr. 15,000 Dr. 30,000 Cr.

(ii) JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c ...Dr. 5,39,000
To C’s Capital A/c 5,00,000
To Premium for Goodwill A/c 39,000
(Being the capital and premium for goodwill brought by C)
Premium for Goodwill A/c ...Dr. 39,000
To A’s Capital A/c 23,400
To B’s Capital A/c 15,600
(Being the premium for goodwill credited to Sacrificing Partners in
Sacrificing Ratio)

Calculation of New Profit-sharing Ratio:

A B C
Old Profit-sharing Ratio 1/2 1/2 ...
Sacrifice of Profit-share 3/20 2/20 ...

New Profit Share = 10 − 3 10 − 2 ...

20 20
7 8 1 5
or
20 20 4 20

New Profit-sharing Ratio = 7 : 8 : 5.

OR
(i) It is necessary because neither of the partners (existing partners and new partner)
should be at loss or gain due to reconstitution of the partnership.
(ii) (a) Goodwill is the result of past efforts of the existing partners.
(b) To compensate old partners for their loss in profit share.
(iii) (a) Right to share in the assets of the firm.
(b) Right to share future profits of the firm.

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 7. JOURNAL OF XYZ LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c ...Dr. 4,50,000
To Shares Application A/c 4,50,000
Shares Application A/c ...Dr. 4,50,000
To Share Capital A/c 3,00,000
To Shares Allotment A/c 75,000
To Bank A/c 75,000
Shares Allotment A/c ...Dr. 5,00,000
To Share Capital A/c 3,00,000
To Securities Premium A/c 2,00,000
Bank A/c ...Dr. 4,16,500
To Shares Allotment A/c 4,16,500
Shares First and Final Call A/c ...Dr. 4,00,000
To Share Capital A/c 4,00,000
Bank A/c ...Dr. 3,92,000
To Shares First & Final Call A/c 3,92,000
Share Capital A/c ...Dr. 20,000
Securities Premium A/c ...Dr. 4,000
To Forfeited Shares A/c 7,500
To Shares Allotment A/c 8,500
To Shares First & Final Call A/c 8,000
Bank A/c ...Dr. 16,000
Forfeited Shares A/c ...Dr. 4,000
To Shares Capital A/c 20,000
Forfeited Shares A/c ...Dr. 3,500
To Capital Reserve 3,500

Working Notes:
`
1. Shares Allotted to X (1,00,000/1,25,000 × 2,500): 2,000
Application Money received from X (2,500 × ` 3) 7,500
Less: Adjusted towards Share Capital (2,000 × ` 3) 6,000
Application Money adjusted against Allotment 1,500

`
2. Allotment Money due from X (2,000 × ` 5) 10,000
Less: Excess Application Money adjusted 1,500
Allotment Money not received 8,500

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3. Calculation of Allotment Money Received: `
Allotment Money due 5,00,000
Less: Excess Application Money already adjusted 75,000
4,25,000
Less: Allotment Money not received from X 8,500
Allotment Money received 4,16,500
4. Amount transferred to Capital Reserve: `
Amount forfeited 7,500
Less: Discount allowed on re-issue 4,000
Amount transferred to Capital Reserve 3,500

OR
(i) Securities Premium means excess of issue price of securities over its nominal (face) value.
It can be used for (two uses) the following purposes:
(a) Issuing Fully Paid Bonus Shares;
(b) Writing off Preliminary Expenses.
(ii) Forfeiture of shares means cancelling the shares allotted for non-payment of allotment
money or calls. Forfeited shares can be re-issued at discount. However, discount allowed
on re-issued shares cannot be more than the amount forfeited on the re-issued shares.

8.
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Provision for Doubtful Debts A/c 1,800 By Land & Building A/c 27,000
To Stock A/c 15,000 By Investment A/c 25,000
To Profit transferred to:
X’s Capital A/c 17,600
Y’s Capital A/c 5,867
Z’s Capital A/c 11,733 35,200
52,000 52,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)
To Y’s Capital A/c 5,400 ... 3,600 By Balance b/d 3,00,000 1,00,000 2,00,000
To Bank A/c ... 23,200 ... By Workmen’s
To Y’s Loan A/c ... 1,00,000 ... Compensation Fund 15,000 5,000 10,000
To Balance c/d 3,37,200 ... 2,24,800 By General Reserve A/c 10,000 3,333 6,667
By Revaluation A/c 17,600 5,867 11,733
By X’s Capital A/c ... 5,400 ...
By Z’s Capital A/c ... 3,600 ...
3,42,600 1,23,200 2,28,400 3,42,600 1,23,200 2,28,400

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 BALANCE SHEET as at 31st March, 2023
Liabilities ` Assets `
Capital A/cs: Land and Building 3,27,000
X 3,37,200 Plant and Machinery 2,00,000
Z 2,24,800 5,62,000 Furniture & Fittings 60,000
Y’s Loan A/c 1,00,000 Investments 25,000
Employees’ Provident Fund 50,000 Debtors 42,000
Sunday Creditors 1,00,000 Less: Provision for Doubtful Debts 3,800 38,200
Stock 1,35,000
Bank (` 30,000 – ` 23,200) 6,800
Cash 20,000
8,12,000 8,12,000

Cost of Revenue from Operations

9. (a) Stock Turnover Ratio =
Average Stock
` 75, 000
= = 5 Times.
` 15, 000
Cost of Revenue from Operations = Opening Stock + Purchases + Wages
+ Carriage Inwards – Closing Stock
= ` 20,000 + ` 45,000 + ` 15,000 + ` 5,000 – ` 10,000
= ` 75,000
Opening Stock + Closing Stock
Average Stock =
2
` 20 , 000  ` 10 , 000
=  ` 15, 000.
2

Gross Profit
(b) Gross Profit Ratio = × 100
Sales

` 25, 000
=  100  25%.
` 1, 00 , 000
Gross Profit = Sales – Cost of Revenue from Operations
= ` 1,00,000 – ` 75,000 = ` 25,000.

OR
(a) Interest Coverage Ratio.

Interest Coverage Ratio is a ratio calculated to determine whether the company’s
earning before interest and tax is adequate to meet interest expense. High ratio is
considered to be better.
Interest Coverage Ratio is calculated using the formula as follows:
Net Profit before Interest and Tax
Interest on Long-term Borrowings

8
 (b) Debtors Turnover Ratio.

Debtors Turnover Ratio establishes the relationship between Credit Revenue from
Operations, i.e., Net Credit Sales and Average Debtors and Bills Receivables. It
establishes the number of times investment in debtors is turned around in achieving
credit sales.

This ratio is calculated using the following formula:

Credit Revenue from Operations (Net Credit Sales)
Average Trade Receeivables

Net Credit Sales = Credit Sales – Sales Return.

Opening Debtors + Opening Bills Receivables

+ Closing Debtors + Closing Bills Receivables
Average Trade Receivables =
2
11. CASH FLOW STATEMENT for the year ended 31st March, 2023
Particulars ` `
A. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items:
Closing Surplus, i.e., Balance in Statement of Profit & Loss 80,000
Less: Opening 30,000 50,000
Add: Non-cash Items—Depreciation 10,000
60,000
Add/Less Changes in Working Capital
Add: Increase in Current Liabilities—Trade Payables 44,000
1,04,000
Less: Increase in Current Assets:
Inventories 52,000
Trade Receivables 32,000 (84,000)
Cash Flow from Operating Activities 20,000
B. Cash Flow from Investing Activities
Proceeds from Sale of Plant & Machinery (WN 1) 50,000
Cash Flow from Investing Activities 50,000
C. Cash Flow from Financing Activities
Proceeds from Issue of Shares 20,000
Repayment of Long-term Borrowings (75,000)
Increase in Short-term Borrowings 13,000
Cash Used in Financing Activities (42,000)
D. Net Increase in Cash and Cash Equivalents (A + B + C) 28,000
E. Add: Opening Cash and Cash Equivalents 5,000
F. Closing Cash and Cash Equipvanets 33,000

9
Working Notes:
1.
Dr. PLANT & MACHINERY ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 1,50,000 By Depreciation A/c 10,000
By Cash/Bank A/c 50,000
(Balancing Figure)
By Balance c/d 90,000
1,50,000 1,50,000

2. In the absence of date of repayment of Long-term Borrowings, it is assumed to have been repaid on 1st April, 2022.

OR
Cash Flow Statement is a Statement prepared to determine inflow and outflow of Cash and Cash
Equivalents during the accounting period under:
(a) Operating Activities,
(b) Investing Activities, and
(c) Financing Activities.
The objectives of preparing Cash Flow Statement are:
(i) To determine the sources (receipts) of Cash and Cash Equivalents under Operating, Investing
and Financing Activities of the enterprise.
(ii) To determine applications (payments) of Cash and Cash Equivalents under Operating,
Investing and Financing Activities of the enterprise.
(iii) To determine net change in Cash and Cash Equivalents. It is the difference between sources
(receipts) and applications (payments) under Operating, Investing and Financing Activities
between the dates of two Balance Sheets.

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