Why are assets revalued at the time of admission of a
are revalued at the time of admission of a partner because any profit or loss
on revaluation of assets belong to old partners and not to the new partner.
Accountant of the firm has debited the Profit and Loss Appropriation A/cfor rent paid to a
Partner. Is the treatment given by the Accountant correct? Give reason in
support of your answer.
accounting treatment given by the Accountant for rent paid to a partner is
incorrect. It is an expense/charge incurred for use of property and hence
should be debited to the Profit and Loss Account.
What are calls-in-arrear?
a shareholder fails to pay called-up allotment and/or call money, money not so
paid is known as calls-in-arrear.
What is meant by ‘issue of shares at par’ ?
When shares are issued for an amount equal to the face value
of a share, they are said to be issued at par.
the meaning of "secured debentures".
debentures refer to the debentures which are secured either on a particular
asset of the issuer company (called fixed charge) or on all the assets of the
company in general (called floating charge).
Give any two points of distinction between a share and a
- A share is a part of the capital of the company whereas a
debenture is a part of loan of the company.
- Shares cannot be converted into debentures whereas debenture
can be converted into shares.
the exceptions to the creation of Debenture Redemption Reserve as per SEBI
guidelines would not apply :
company issuing debentures with a maturity period of not more than 18 months.
debentures issued by All India Financial Institutions regulated by RBI.
debentures issued by Banking companies.
Privately placed debentures
B and C are partners. They have omitted interest on capital @ 10% p.a. forthree
years ended 31st March, 2009. Their fixed capitals on which interest was to be calculated
the necessary adjusting journal entry with working notes.
X 1,00,000 = 10,000 X 3 years = 30,000
X 80,000 = 8,000 X 3 years = 24,000
X 70,000 = 7,000 X 3 years = 21,000
Statement showing Adjustment to be made :
Rishabh and Sumedha were three partners sharing profits equally. On 1st April,
2015, Sweera retired and Arushi was admitted for 1/4th share in the profits
contributing a capital of Rs. 2,00,000. On that date the assets and liabilities
of the firm were Rs. 6,60,000 and Rs. 3,00,000 respectively. The firm decided
to donate 10% of their profits to the charitable hospitals in order to improve
the medical facilities of the country. Pass the necessary journal entry for
goodwill and identify the value involved.
of hidden goodwill
Capital of firm as per Arushi's capital = 4 x 2,00,000 = Rs. 8,00,000.
Capital of the firm = Net Assets + Arushi's Capital
(6,60,000 - 3,00,000) + 2,00,000
Firm's Goodwill = Total Capital - Actual Capital
Sweera's share of Goodwill = 1/3 x 2,40,000
Care towards the society
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 1.4.2014. They decided to record the effect of the
following without affecting their book values :.
(i) Profit and Loss Account =Rs. 24,000.
(ii) Advertisement Suspense Account = Rs. 12,000.
ratio of X, Yand 2 = 5 : 3 : 2
ratio of X, Yand Z 2: 3 : 5
Sacrifice (or Gain) =Old ratio - New ratio
X = 5/10 – 2/10
= 3/10 (sacrifice)
Y = 3/10 – 3/10
= Nil (neither gain or sacrifice)
Z = 2/10 -5/10
= (-3/10) (gain)
Balance in Profit and Loss A/c =Rs. 24,000.
Balance in Advertisement Suspense A/c =Rs. 12,000.
Total Profit to be adjusted = Rs. 12,000.
Amount payable by 2 to X = Rs. 12,000
= Rs. 3,600.
A business has earned average profits of Rs. 1,00,000during
the last few years and the normalRate of return in similar business is 10%.
Find out the value of goodwill by.
(i) capitalisation of super profit method and
(ii) super profit method if the goodwill is valued at 3
years purchase of super profit.
The assets of the business were Rs. 10,00,000and its
external liabilities Rs. 1,80,000.
of the business = Rs.
of the business = Rs.
employed =Assets - Liabilities
=Rs. 10,00,000 - Rs. 1,80,000.
rate of return = 10%
Normal Profit = Capital Employed X Normal Rate of Return/100
= 82,000 X 10/100
Average Profits = Rs. 1,00,000
Super Profit = Average Profit - Normal Profit
Rs. 1,00,000 - Rs. 82,000.
Goodwill as per capitalisation method
Goodwill = Super Profits X 100/Normal Rate of Return
= 18,000 X 100/10
= Rs. 1,80,000.
Goodwill as per super profit method
= Super Profits X Number of Years of Purchase
18,000 x 3
What is meant by debenture? State any two characteristics of
Debenture is an acknowledgement of a debt given under the
seal of the company and containing a contract for the repayment of the
principal sum at a specified date and for the payment of interest (usually half
yearly) at a fixed rate per cent until the principal sum is repaid. Following
are the characteristics of a debenture:.
(i) Loan -
Debenture represents loan to the company. It implies that a debentureholder is
a lender or creditor of the company and not the owner.
(ii) Interest - A
debentureholder receives interest at a given (fixed) rate of interest
regularly. Such interest is a charge to profit.
Band C were
partners sharing profits in the ratio of 6 : 4 : 5. Their capitals were A Rs. 1,00,000/-, B - Rs. 80,000 and C - Rs. 60,000. On 1st April
2014, 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
Rs. 1,80,000. Showing your calculations
clearly pass necessary journal entry for the treatment of goodwill on B's retirement.
profit sharing ratio of A, Band C = 6 : 4 : 5
profit sharing ratio of A and C = 11 : 4
Gaining Ratio = New Ratio - Existing Ratio
A's Gain = 11/15-6/15 = 5/15
C's Gain = 4/15-5/15 = -1/15
Since C's gain is (- )1/15, it implies that C is sacrificing 1/15 portion
in favour of A.
C's sacrifice = 1/15
B's sacrifice = 4/15
Sacrificing Ratio of Band C = 4 : 1
Goodwill of the firm Rs. 1,80,000.
Goodwill to be paid by A = Rs. 1,80,000 X 5/15 = Rs. 60,000.
Goodwill to be claimed by B =Rs. 60,000 X 4/5 =Rs. 48,000.
Goodwill to be claimed by C = Rs. 60,000
X 1/5 = Rs. 12,000.
Kumar and Kavita were partners in a firm sharing profits in the ratio of 3 : 1
: 1. On1st April, 2014 their Balance Sheet was as follows:.
the above date, Kavita retired and the following was agreed:
of the firm was valued at Rs. 40,000. I .
was to be appreciated by 30% and building was to be depreciated by Rs.
of furniture was to be reduced by Rs. 20,000.
debts reserve is to be increased to Rs. 15,000.
of the amount payable to Kavita was paid in cash and the balance was
transferred to herLoan Account.
of Kushal and Kumar will be in proportion to their new profit sharing ratio.
Thesurplus/deficit, if any in their Capital Account will be adjusted through
Revaluation Account, Partners' Capital Accounts and Balance Sheet of Kushal
andKumar after Kavita's retirement. .
of Kushal before adjustment = Rs. 3,63,000.
of Kumar before adjustment =Rs. 3,01,000.
Capital = Rs. 6,64,000.
adjusted capital = 3/4 X 6,64,000 = Rs. 4,98,000.
adjusted capital = 1/4 X 6,64,000 = Rs. 1,66,000.
ltd. on 30th June, 2013 took over the Assets of Rs. 10,00,000 and liabilities
of Rs. 1,00,000 from Mohan Enterprises at an agreed consideration of Rs.
11,00,000. Krishan limited issued 11% Debentures of Rs. 100 each at a premium
of 10% in full satisfaction of purchase consideration. The Debentures were
redeemable on 31st March, 2015. The Company decided to create a DRR on 31st
March, 2014 and also decided to invest in 10% Government Securities to meet the
legal requirement. Give the journal entries for the issue and redemption of
debentures in the books of Krishan ltd. (Ignore TDS).
entry has been made for payment to Creditors as they have accepted Machinery in
full settlement of their claim.
Band C were
partners sharing profits in the ratio of 3 : 1 : 1. Their Balance Sheet as on
March 31st 2014, the date on which they dissolved their firm, was as follows:.
over Bills Receivables at Rs. 800,
debtors amounting to Rs.
20,000 at Rs. 17,200 and the creditors
of Rs. 6,000 were to be paid by
him at this figure.
is to take over all stock
for Rs. 7,000 and some sundry
assets at Rs.
(being 10% less thanthe book value).
to take over remaining sundry assets at 90% of the book value and assume the
responsibilityof discharge of loan together with accrued interest ofRs.300. .
expenses of realisation were Rs. 270.
remaining debtors were sold to a debt collecting agency at 50% of the book
value. PrepareRealisation A/c, Partners Capital A/c and Cash A/c.
Working Notes :
of Sundry Assets - 17,000
of Sundry Assets Taken over by B (7,200 X 100/90) = 8,000
value of Sundry Assets taken over by C = 9,000
value of Sundry Assets taken over by C (90/100 X 9,000) = 8,100
Book value of Debtors = 24,200
of Debtors taken over by A
value of Debtors to be realised for cash = 4,200
realised from Debtors = 4,200 X 50/100 = 2,100
invited applications for issuing 80,000 equity shares of Rs. 10 each at a premium of.
share. The amount was payable as follows:.
(including premium) per share.
3 per share
and the balance on first and final call.
for 90,000 shareswere received. Applications for 5,000 shares were rejected and
pro-rata allotment was made to the remaining applicants. Over payments received
on application was adjusted towards sums due on allotment. All calls were made
and were duly received except the allotment and final call on 1,600 shares
allotted to Vijay. These shares were forfeited and the forfeited shares were
re-issued for Rs.
necessary Journal Entries in the books of the company.
(i) Ratio of shares applied and shares allotted
85,000 : 80,000
17 : 16
means that Vijay might have applied for
1600 X 17/16 = 17,00 shares
received from Vijay on application
x 6 =Rs. 10,200.
application money adjusted to allotment
=Rs. 10,200 - Rs. [1,600 x 6] =Rs. 600.
(ii) Total amount due from Vijay on allotment
=Rs. 3 x 1,600 =Rs. 4,800.
payable by Vijay on allotment
Rs. 4,800 - Rs. 600 = Rs. 4,200.
(iii) Amount due on allotment = 2,40,000
money transferred to share allotment = 30,000
paid by Vijay = 4,200
Amount received on allotment = 2,05,800
What is meant by common-size statement?
statement means a statement which expresses all items of a financial statement
as a percentage of some common base.
Explain how Financial Statements Analysis ignores
Financial statements analysis ignores qualitative elements
because qualitative elements such as human resources, sales policy, market
conditions are not shown in financial statements. .
Briefly explain the limitations of analysis of financial
following are the limitations of an analysis of financial statements:
(i) Limitations of financial statements –
financial statement analysis suffers from such limitations as financial
statements suffer. This ignores the qualitative elements like quality of
management and labour force, public relation etc.
(ii) Different accounting policies –
firms may follow different accounting policies. This may create difficulty in
comparing the results of two companies.
(iii) Not free from bias –
many situations, the accountant has to make a choice out of various
alternatives. He may choose that alternative which may beneficial to the
company. In such case, the financial statements are not free from bias.
(iv) Ignores price level changes –
analysis of financial statements do not disclose the current worth of the business.
The financial statements of the company are prepared on cost principle.
which type of activity will you classify 'Proceeds from sale of patents' while
preparing Cash Flow Statement?
which type of activity will you classify 'Refund of Income Tax received' while
preparing the Cash Flow Statement?
1. Investing Activity.
2. Operating Activity.
the following into operating activity, investing activity and financing
the sub-headings and headings under which the following items will be put as
per Schedule III of the Companies Act, 2013 :
on Issue of Shares;