Chapter2 Formula

Commerce By:- SUBHASH THAKUR 9810190005
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FUNDAMENTALS OF PARTNERSHIP
INTEREST ON DRAWINGS
CASE I Product method for Irregular Drawings:
When partners withdraw the Different Amount on Different Dates.

Rate 1
Interest on Drawings = Sum of Products of Drawings x 100 x 12
Product of Drawings = Amount of Drawings x No. of Months for which it has been used
1. A is partner in a firm. For the year ending 31.12.2005, A’s drawings were :
Rs.
1st March 1,000
1st May 750
1st July 1,250
1st September 500
1st November 500
Interest on drawings is charges @10% per annum.
Calculate interest on drawings of A.
2. In a partnership, partners are charged interest on drawings at 15% p.a. During the year ended 31st Dec.,
2006, a partner drew as follows:
Feb. 1 Rs. 2,000

May 1 Rs. 5,000
June 30 Rs. 2,000
Oct. 31 Rs. 6,000
Dec. 31 Rs. 2,000
What is the interest chargeable to the partner?
3. During the year ended 31-12-2005, a partner made the following drawings:
January 21 Rs. 2,000; April 1 Rs. 5,000; July 31 Rs. 4,000; December 1 Rs. 3,000; December 31 Rs.
2,000.
Calculate interest on drawings when it charged @10% p.a.
CASE II When a Fixed Amount is Withdrawn on a Fixed Date:
1. If the Partners withdraw same Amount in the beginning of every month for full year.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 6 2 x 12
2. If the Partners Withdraw same Amount in the Middle of Every Month for full year.
Rate 1
Interest on Drawings = Total Drawings x 100 x 6 x 12
3. If the Partners Withdraw same Amount at the End of Every Month for full year.
Commerce By:- SUBHASH THAKUR -1- 9810190005

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Rate 1 1
4. When the same Amount is Withdrawn at the beginning of Each Quarter.

Rate 1 1
5. When the same Amount is Withdrawn at the end of Each Quarter.

Rate 1 1
6. If the Partners Withdrawn at the end of Each Quarter.

Rate 1 1
7. If the Partners Withdraw same Amount at the End of Every Month for 6
Months Regularly and Books are Closed Half Yearly Ending.
Rate 1 1
8. If Partners Withdraw same Amount the middle of every month for 6

months regularly and books are closed half yearly ending.
Rate 1
Interest on Drawings = Total Drawings x 100 x 3 x 12
CASE III If the Partners Withdraw Amount during the year. But Date of Drawings is not given:
(a) If interest on Drawings is charged @ 10% p.a.

10 6
Interest on Drawings = Total Drawings x 100 x 12
(b) If Interest on Drawings is charged @ 10% p.a.

10
Interest on Drawings = Total Drawings x 100
4. A and B are partners in a firm. They share profits and losses equally. Their monthly drawings are Rs.
2,000 each. Interest on drawings is to be charged @ 10% p.a.
Calculate interest on A’s drawings for the year 2005 assuming drawings are made (i) in the beginning
of every month, (ii) in the middle of every month, and (iii) at the end of every month.
(Ans: (i) Rs. 1,300; (ii) Rs. 1,200; (iii) Rs. 1,100)
5. Calculate interest @ 8% p.a. on drawings made by the following partners: (a) Raj withdrew Rs. 600 at
the end of every month. (b) Deepak withdrew Rs. 700 in the beginning of every month. (c) Mukesh
withdrew Rs. 800 in the mid of every month.
(Ans: Rs.264;Rs.364;Rs.384)
6. How will you calculate interest on drawings in following cases?
(i) Rs. 500 drawn on last day of every month.
(ii) Rs. 500 drawn on 15th of every month?
(Ans: (i) int. = 6000 x Rate of Int. / 100 x 5 1/2 x 1/12 (ii) int. = 6000 x Rate of Int. / 100 x 6/12)
7. A partner makes a drawing of Rs. 1,000 p.m. Under the Partnership Deep, interest is to be charged at
15% p.a. What is the interest that should be charged to the partner?
(Ans. Rs. 900)
8. A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the end of every month
for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a.
(Ans: Interest on Drawings Rs. 25)
9. A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the beginning of every
month for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a.
(Ans: Interest on Drawings Rs. 35)
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10. Ram and Mohan, two partners, draw for private use Rs. 6,000 and Rs. 4,000. Interest is chargeable @
6% p.a. on the drawings. What is the interest on Drawings? Also calculate interest on Drawings if
interest is chargeable @ 6%.
(Ans: Ram Rs. 180 and Mohan Rs. 120; Ram Rs. 360 and Mohan Rs. 240)
11. A and B are partners sharing profits and losses equally with capitals of Rs. 30,000 and Rs. 20,000
respectively.
Their drawings during the year are as follows:
A’s drawings on 31-3-1992 Rs. 500
30-4-1992 Rs. 600
01-7-1992 Rs. 450
1-12-1992 Rs. 1,400
B drew Rs. 300 at the end of each month. The deed provides interest on capitals and drawings at 6%
p.a.
Calculate interest on capitals and drawings.
(Ans: Int. on Capitals: A Rs. 1,800 : B Rs. 1,200 ; Interest on Drawings: A Rs. 67; B Rs.
99)
11(B). B and M are partners in a firm. They withdrew Rs. 48,000 and Rs. 36,000 respectively duri9ng the year
evenly at the middle of every month. According to the partnership agreement, interest on drawing is
to be charged @ 10% p.a. Calculate the interest on drawings of the partners using appropriate formula.
(Ans: Rs. 2,400 ; B Rs. 1,800) (CBSE Sample Paper 1,2003)
INTEREST ON CAPITAL
12. Rajendra Mohan and Radhey Mohan are partners and they had Rs. 40,000 and Rs. 60,000 in capital
accounts as on 1st January, 1990 respectively. Rajendra Mohan paid in further Rs. 5,000 on 1- 8-90
and another Rs. 5,000 on
15-11-90.Compute the interest on capital to be allowed to Rajendra Mohan assuming the rate of interest
to be 6%
(Ans: Total Interest to be paid on Rajendra Mohan’s Capital Rs. 2,562.50) (CBSE Comptt. 1991)
13. A and B started business on 1.1.2001 with capitals of Rs. 60,000 and Rs.40, 000 respectively. During
the year, A introduced Rs. 10,000 to the firm as additional capital on 1.7.2001. They withdrew Rs .500
per month for the house expenses in lieu of profit . Interest on capital is to be allowed @ 10% per
annum. Calculate the interest payable to A and B for the year ending 31.12.2001.
(Ans. Rs. 6,500; Rs. 4000)[C.B.S.E.Comptt.1991]
14.(a) X and Y contribute Rs. 20,000 and Rs. 10,000 respectively. They decide to allow interest on capital
@6% p.a. Their respective share of profits is 2:3 and the business profit (before interest) for the year is
Rs.1, 500. Show the distribution of profits (a) where there is no agreement except for interest on
capitals, and (b) where there is a clear agreement that the interest on capitals will allowed even if it
involves the firm in loss.
[Ans. (a) int. on capital: A Rs.1,000; B Rs.500;(b) Loss: A Rs. 120;B Rs . 180]
14.(b) A and B are partners sharing profit or loss in the ratio of 3:2 having capital balances of Rs.50,000 &
Rs.40,000 on 1.4.2003. On 1st July, 2003 A introduced Rs.10,000 as his additional capital whereas B
introduced only Rs. 1,000. If the interest on capital is allowed to partners @10% p.a. calculate the
interest on capital if the financial year closes on 31st of march every year.
(Ans. Rs.5,750;Rs.4075)[C.B.S.E Sample Paper 11, 2003]
INTEREST ON LOAN
15. A and B are Partners in a firm sharing profits in the ratio of 3:2. They had advanced to the
firm a sum of Rs.30,000/- as a loan in their profit sharing ratio on 1st July 2005. The
partnership deed cis silent on the question of interest on loan from partners . Compute the
interest payable by the firm to the partners ; assuming the firm closed its books on 31st dec.
(Ans. Rs. 540; Rs 360)[CBSE 1999]

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16. M and N are partners in a firm. M has given a loan of Rs.8, 000 to the firm on 1st April 2004.
The partnership deed is silent upon the question of provision of interest on partners’ loan .
Compute the amount of Interest payable of the loan advanced by M to the firm assuming the
Books are closed on 31st December each year.
(Ans. Rs. 360)[CBSE 1998]
DISTRIBUTION OF PROFITS
If A’s Interest on capital Rs.5,000, B’s Interest on capital Rs. 3,000 and B’s salary Rs.6,000.
Case 1. Profit for the year before charging Interest on capital and B’s Salary Amounted to Rs.25, 000.
OR
Net Profit for the year amounted to Rs. 25,000.
Dr. Profit & Loss appropriation Amount

Cr.
For the year ending …………..
Particulars Amount Particulars Amount

Interest on capital A/c : Profit Loss A/c (profit for the year ) 25,000
A 5,000
B 3,000 8,000
B’s Salary A/c 6,000
Profit transferred to :
A’s Capital A/c 5,500
B’s Capital A/c 5,500 11,000 25,000
25,000
Case 2. Profit for the year before charging Interest on capital but after charging B’s Salary Amounted
to Rs. 25,000.
Dr. Profit & Loss Appropriation Amount Cr.

B’s Salary A/c 6,000 Profit and Loss A/c 31,000
Interest on Capital A/c: (Profit for the year ) (25,000+6,000)
A 5,000
B 3,000 8,000
Profit transferred to :
B’s Capital A/c 8,500 17,000
31,000
31,000
17. A and B are partners with capitals of Rs. 60,000 and Rs. 20,000 respectively on 1st Jan, 2005.
The trading profit (before taking into account the provisions of the deed) for the year 2005
was Rs. 24,000.Interest on capitals is to be allowed at 6% per annum . B is entitled to salary of
Rs. 6,000 per annum. The drawings of the partners were Rs.6, 000 and Rs. 4,000; the interest
for A being Rs. 200 and for B Rs.100.Prepare Profit and Loss appropriation A/c .
(Ans: Rs. 13,500)
18.(a) On 1st jan,2005 , X and Y entered into partnership contributing Rs.20,000 and Rs.15,000
respectively and sharing profits in the ratio of 3:2. Y is to be allowed a salary of Rs. 4,000 per
year. Interest on capital is to be allowed at 6 % per annum . During the year, X withdrew Rs.
3,000 and Y Rs. 6,000, interest on the same will be 6%. Profit in 2005 before the above-noted
adjustment was Rs.10,560. Prepare profit and Loss Appropriation A/c .
(Ans: Profit : Rs. 5,000)
18.(b) A and B are partners in a firm , sharing profits and Losses in the ratio of 3:2.The Profit and
Loss Account of the firm for the year ending March 31,2005 shows a net profit of Rs.1,51,900
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Prepare the Profit and Loss Appropriation Account by taking into consideration the following
Information:
(i) Partners’ Capitals on April 1.2001: A—Rs.32, 000; B—Rs.12, 000.
(ii) Partners’ drawings during the year amounted to A—Rs.14, 000; B –Rs.12, 000.
(iii) Interest on Capital was allowed @10 % p.a.
(iv) Interest on drawings was to be charged @ 10 % p.a.
(v) Partners’ salaries: A Rs .14, 000 and B Rs. 12,000.
(Ans:Profit1,20,000)
19. Amit and Vijay started a partnership Business on 1st Jan, 2005.Their capital contribution were
Rs.2, 00,000 and Rs.1, 50,000 respectively. The partnership deed provided inter alia that :
(i) Interest on capital at 10% p.a.
(ii) Amit to get a salary of Rs. 2,000 p.m. and Vijay Rs. 3,000 p.m.
(iii) Profits are to be shared in the ratio of 3:2.
The profits for the year ended 31st December, 2005 before making above appropriation were
Rs. 2, 16,000. Interest on drawings amounted to Rs.2, 200 for Amit and Rs.2, 500 for Vijay.
Prepare Profit and Loss Appropriation Account and Partner’s Capital Account.
(Ans: Profit :Amit Rs.75,420; Vijay Rs. 50,280)(CBSE. Annual Exam (Delhi),1992,set 3)
20. Kaku and Polu started a Partnership business on 1st Jan, 1985. They contributed Rs. 80,000 and
Rs.60, 000 respectively, as their capitals. The terms of the partnership agreement are as under:
(i) Interest on capital and drawing @ 12 % per annum.
(ii) Kaku and Polu to get a monthly salary of Rs. 2,000 and Rs. 3,000 respectively.
(iii) Sharing of profit or Loss will be in the ratio of their capital contribution.
The Profit for the year ended 31st December, 1985, before making above appropriation was Rs.
1, 00,300. The drawing of Kaku and Polu were Rs. 40,000 and Rs. 50,000 respectively. Interest
on drawings amounted to Rs. 2,000 for Kaku and Rs. 2,500 for Polu.
Prepare profit and Loss appropriation account and partners’ capital accounts assuming that their
Capitals are fluctuating.
(Ans: Profit Kaku Rs.16,000;Polu Rs.12,000) (Delhi S.S.C.E,1986)
21. A and B formed a partnership on 1st Jan,1992. They agreed that out of profits:
(i) A should receive a salary of Rs.500 per month.
(ii) Interest on capital should be allowed @ 6 % p.a. and
(iii) Remaining profits be divided equally .
A contributed a capital of Rs. 50,000 on 1st jan,1992 but B brought in his capital of Rs.1,00,000
On 1st April,1992. During the year, the drawing were A Rs.15,000 and B, Rs 20,000. Profits
Before the above noted salary and interest were Rs.50,000. Prepare Profit and Loss
Appropriation Account and capital account of the partners and Partner’s Current Account.
(Ans: Current A/c :A, Rs. 12,250; B, Rs.2,750)
22.(a) A,B and C are partnership with respective capitals of Rs. 20,000. Rs. 15,000 and Rs.10,000.
B and C are entitled to annual salaries of Rs.1,000 and Rs. 1,500 respectively payable before
division of profits. Interest on capital is allowed at 5 percent per annum , but interest is not
Charged on drawings of the first Rs.6,000 divisible as profit in any year, A is entitled to 50 per
Cent ,B to 30 percent and C to 20 percent. Annual profits in excess of Rs.6,000 are divisible
Equally. The profit for the year ended 31st December ,1992 was Rs.10,050 after debiting
Partner’s salaries but before charging interest on capital . The partner’s drawings for the year
were :
A Rs. 4,000 ; B Rs.3,750 and C Rs. 2,000. The balance on the partner’s current accounts on 1st
Jan,1992 were A Rs.1,500 credit ; B Rs. 250 credit ; C Rs. 500 debit .
Prepare Profit and Loss Appropriation Account and the partner’s Current Accounts for the year
1992 and Partners Capital Account.
(Ans: Profit: A Rs. 3,600; B Rs. 2,400; C Rs. 1,800)
22.(b) Pappu and Munna are partners in a firm sharing profit in the ratio of 3:2. The partnership
deed provided that Pappu was to be paid salary of Rs. 2,500 per month and Munna was to get a
commission of Rs.10,000 per year. Interest on capital was to be allowed @ 5 % per annum and interest

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on drawings was to be charged @ 6 % per annum. Interest on Pappu’s drawings was Rs.1,250 and on
Munna’s drawings Rs.425. Capital of the Partners were Rs.
2,00,000 and Rs.1,50,000 respectively, and were fixed. The firm earned a profit of Rs.90,575 for the
year ended 31.03.2004.
Prepare Profit and Loss Appropriation Account of the firm .
(Ans: Profit Rs. 34,750) (CBSE 2005)
23. A,B and C are partners sharing profits and Losses in the proportion of A ½,B 3/10, C 1/5 after
providing for interest at 5 % on their respective capitals, viz. A Rs. 50,000, B Rs. 30,000 and C
Rs. 20,000 and allowing B and C a salary of Rs. 5,000 each p.a.. During the year 1992. A has drawn
Rs. 10,000 and B and C in addition to their salaries have drawn Rs. 2,500 and Rs 1,000 respectively .
The profit and Loss A/c for the year ended 31st Dec. 1992 showed a net profit of Rs. 45,000 before
charging (1) interest on capital, and (2) partners salaries. On 1 st Jan, 1992 , the balances in the Current
A/c s of the partners were A (Cr.) Rs. 4,500 , B (Cr.)Rs. 1,500 and C (Cr.)Rs. 1,000. Interest is not
charged on drawing on Current Account Balances . Show the Partners Capital and Current Accounts as
at 31st December ,1992 after division of profits in accordance with the partnership agreement .
( Ans: Balances in Current A/c: A(Cr.)Rs.12,000;B(Cr) Rs.9,500;C(Cr.) Rs.7,000)
24. Ali and Bahadur are partners in a firm sharing profits and Losses as ali 70 % and Bahadur
30 %. Their Capital Accounts, as on 1st April,1992 stand as Ali Rs. 25,000 and Bahadur Rs.
20,000 . The partners are allowed 5% per annum by way of interest on capitals. The
drawings of the partners during the year ended 31st march ,1993 amounted to Rs.3,500 and
Rs. 2,500 respectively.
The profit during the year , before charging interest on capital and annual salary of Bahadur
at the of Rs. 3,000 , amounted to Rs. 40,000, 10 % of this profit is to be kept in a Reserve
account. Prepare Profit and Loss Appropriation Account and Current Account.
(Ans: Ali’s Current A/c Bal. Rs 19275; Bahadur’s Current A/c Rs.10,725 )
25. A and B are partners sharing profits in proportion of 3:2 with capitals of Rs.40,000 and Rs.
30,000 respectively. Interest on capital is agreed at 5 % p.a. B is to be allowed an annual
salary of Rs. 3,000 which has not been withdrawn . During 1991, the profit for the year prior
to calculation of interest on capital but after charging B’s salary amounted to Rs. 42,000.
A provision of 5 % of this amount is to be made in respect of commission to the manager .
Prepare an Account showing the allocation of profits.
(Ans: A & B each gets Rs.66,614 as profit and A gets Rs. 2,250 as interest on loan )
26. Mahesh and Ramesh are partners with capital of Rs. 50,000 and Rs. 60,000 respectively . On
1st jan,1998, Mahesh gives a loan of Rs 10,000 and Ramesh introduced Rs.20,000 as a
additional capital. Profit for the year ending 31st march 1998 was Rs. 15,200. There is no
partnership deed . Both Mahesh and Ramesh expect interest @ 10 % p.a. on the loan and
additional capital advanced b them. Show how the profit would be divided ? Give Reason ?
(Ans. Profit Rs. 7,525 each ) (CBSE 2001 Comptt.)
PAST ADJUSTMENT
CASE I: Omission of Interest on Capital :

Ex . A,B,C and D are partners sharing profits and losses in the ratio of 4:3:3:2 and their
respective capitals on 31st December, 2005 were Rs. 3,000, Rs 4,500 ,Rs. 6,000 and Rs.
4,500. After closing and finalizing the accounts, it was found that interest on capital @ 6%
p.a was omitted . Instead of altering the signed accounts ,it was decided to pass a single
adjustment entry on 1st Jan, 2006 crediting or debiting the respective partners accounts .
sol: A’s Capital A/c …..Dr. 180
C’s Capital A/c 90
(Being the adjustment entry due to omission of interest on capital)
Working :
A B C D
Dr. Cr . Dr. Cr. Dr. Cr Dr. Cr. Total
Interest on Capital to be
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Credited @ 6 % p.a -- 180 -- 270 -- 360 -- 270 1080

Excess Profit taken back in
profit sharing ratio 360 -- 270 -- 270 -- 180 -- 1080
Difference (Net Effect) 180 -- -- -- -- 90 -- 90

27. A,B and C are partners. Theirs capital accounts on 1st Jan,1992, A Rs . 3000 ; B Rs.5,000 ,C Rs.
8,000 and D Rs. 10,000. After the accounts for the year have been Prepared , it is discovered
that interest at 5 % p.a. as Provided for in the partnership agreement has not been credited to the
Partners capital accounts before distributing profits. Instead of altering the signed Balance
Sheet it is decided to make an adjusting entry at the beginning of the next year . Give the
Necessary journal entry.
(Ans: Dr. A & B Rs.175 & Rs. 75 & Cr. C & D Rs . 75 & Rs .175) (SSE Delhi )
28. On 31st December 1995 , After closing the capital accounts, capitals of X,Y and Z stood at Rs.
80,000, Rs.60,000 and Rs. 40,000 respectively . It was subsequently discovered that interest
@ 5 % p.a. on capital at the beginning of the year was left out. Their drawing during the year
were Rs. 20,000, Rs. 15,000 and Rs. 9,000 respectively . Profit for the year was Rs. 1,20,000.
Partners share profit as 3:2:1. Give necessary adjustment entry and show the working notes.
(Ans: Dr. X Rs. 600, Cr .Y Rs. 17. Cr. Z Rs.583) (CBSE AI 1999)
29. A, B and C were partners in a firm sharing profits in the ratio of 5:4:3. After division of the
profit for the year ended 31.3.2001 their capital were Rs 5,00,000;Rs.4,00,000; and Rs.3,00,000
respectively . During the year they withdrew Rs . 30,000 each . The Profit of the year was Rs.
1,20,000. The partnership deed provided that interest on capital will be allowed @ 10 %p.a .
While preparing the final accounts interest on capital was not allowed .
You are required to calculate the capitals of A,B and C as on 1.4.2000 and pass the necessary
Adjustment entry for providing interest on capitals. Show Your workings clearly.
(Ans: Dr. A Rs . 750,Cr. Rs.750) (CBSE delhi 2002)
30. The net trading profits of X, Y and Z for the year ended 31st December 1992 was Rs.60,000
and the same was distributed amongst the partners X,Y and Z in their agreed ratio of 3:2:1.
It was subsequently discovered that the under-mentioned transactions were not passed through
Accounts .
(i) Interest on capital @ 5 % p.a.
(ii) Interest on drawings amounting to X Rs.700,Y Rs.500, Z Rs. 300.
(iii) Partnership salary --- X Rs. 10,000 and Y Rs.1,500 p.a.
(iv) An agreed commission of Rs. 6,000 payable to X arising out of a special transaction
of the firm .
The capital accounts of partners were fixed X Rs.1,00,000, Y Rs. 80,000 and Z Rs. 60,000.
Give a single journal entry to record necessary adjustment.
(Ans: Dr. Y’s Current A/c by Rs. 600 and Z’s Current A/c by Rs. 2,900 and Cr. X’s current
A/c by Rs. 3,500)
31. Mohan , Vijay and Anil are partners , the balances on their capital accounts being Rs. 30,000
Rs.25,000 and Rs. 20,000 respectively . In arriving at these figures , the profits for the year ended
December 31,1992 Rs. 24,000 had already been credited to partners in the proportion
in which they shared profits. Their drawings were Rs. 5,000(Mohan ), Rs. 4,000(Vijay) and Rs.
3,000(Anil) in 1992. Subsequently the following omission were noticed and it was decided to
bring them into account:
(i) Interest on capital at 10 % per annum .
(ii) Interest on drawings Mohan Rs. 250, Vijay Rs. 200, and Anil Rs. 150.
Make the necessary corrections through a journal entry a3nd show your workings clearly .
(Ans: Journal :Dr. Anil by Rs. 550 and Cr. Mohan by Rs. 550;Corrected profit transferred to
each partners Rs. 6,100)
Case II: When Interest on capital allowed at Higher Rate in Past : (Cancellation of Excessive Interest )
Ex. Ram , Mohan and Sohan sharing profits and losses equally have capital Rs. 1,20,000, Rs.90,000 an
Rs. 60,000. For the year 1992, Interest was credited to them at 6 % instead of 5 %. Give adjusting
journal entry .
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32. P,Q and R are partners in a firm sharing profits and losses in the ratio 2:5:3. Their –fixed capital were
Rs. 2,00,000, Rs.3,00,000 and Rs.3,00,000 respectively .For the year 20X1 Interest on capital was
credited to them @ 12 % instead of 10 % . Show your working notes clearly and pass the necessary
adjusting entry .
(Ans: Dr. P & R Rs.800 and Rs. 1200; Cr. Q Rs. 2000) (CBSE 1997)
33. Ram and Mohan were partners in a firm sharing profits in 3:2 ratio . Their capitals were: Ram
Rs.1,20,000 and Mohan Rs. 90,000. For the year 1999 interest on capital was credited to them
@ 6 % instead of 5 %. Give the necessary adjusting entry for the rectification of the error . Show also
the working notes clearly.
(Ans: Mohan Rs. 60(Dr.), Ram Rs.60(Cr.))[CBSE 2000 Comptt.]
Case III: If Interest on Capital allowed at lower rate Interest :
34. P and Q were partners in a firm sharing profits in 7:3 ratio. Their capitals were P Rs.5,00,000
and Q Rs. 8,00,000. For the year 20X1 interest on capital was credited @ 7% instead of 11%.
Show the necessary adjusting entry for the rectification of the error .Also show the working notes
clearly .
(Ans: Dr. P Rs. 16,400 and Cr. Q Rs. 16,400)(CBSE 2000)
35. A,B and C are partners in a firm sharing profits and losses in the ratio of 2:2:1. Their capital
(Fixed) are Rs. 1,00,000. Rs.,80,000 and Rs.70,000 respectively . For the year 1989, interest
on capital was credited to them @ 9 % p.a. instead of 12 %. Give adjusting journal entry .
(Ans: Dr. B Current A/c Rs.600 and Cr. C’s current A/c Rs.600)
Case IV: Change in Profit Sharing Ratio with Retrospective Effect:

Ex. The firm of X, Y and Z who have been sharing profits in the ratio of 2:2:1 respectively ,
Have existed fro some years. Z wants that he should share equally on the profits with X and Y
and he further wants that change in the profit –sharing ratio should come into effect retrospectively
from the last 3 years. X and Y have no objection to this . The profits for the last three
years were Rs. 24,000;Rs.23,000 and Rs. 28,000. Show the adjustment of profit for the last
three years by means of journal entries .
36. Sachin, Kapil and Rashmi have been sharing profits in the ratio of 3:2:1 respectively. Rashmi
wants that she should share equally in profits with Sachin and Kapil. She further wants that change in
profit sharing ratio should be applicable retrospectively for the last three years .
Other partners have no objection to this . The profits for the last three years were Rs. 60,000,
Rs.47,000 and Rs.55,000.
Record the adjustment by means of journal entry. Give workings.
(Ans: Dr. Sachin by Rs. 27,000 and Cr, Rashmi by Rs.27,000)
37. Jagdish, Ashish and Deepak are partners sharing profit ratio of 3:2:1. The firm has been in
existence for many years. Now the partners decide to share profits in the ratio of 2:2:1.They
have also decided that the change shall be carried out with retrospective effect from 1995.
The profits and losses during the last few years have been 1994 Rs.16,000,1995 Rs. 12,000,
1996 Rs. 14,000, 1997 Rs. 19,000 and 1998(loss)Rs. 15,000. Show the adjustment of the
profit for the last 4 years by means of a single adjustment entry .
(Ans: Jagdish Rs.3,000(Dr.), Ashish Rs.2,000(Cr.),Deepak Rs. 1,000(Cr.) (CBSE 2001)
Case V: Manager to be Treated as a Partner with Retrospective Effect :
Ex: A and B are partners sharing profits and losses in the ratio of 3:2. At the end of the year, i.e.,
on 31st December ,1992, They decided to take their manager C into partnership. As manager
C was getting annual salary of Rs 4,500.He had also advanced Rs.30,000 to the firm by way
of a loan on which he is getting interest @ 10 % p.a. During the three years, firm’s profit
after adjusting salary to C, interest on loan and interest on the capital of the partners were:
1990 Profit Rs.40,000
1991 Loss Rs.20,000
1992 Profit Rs.60,000
According to the new agreement , C is to be given annual salary of Rs.3,500 and 1/5th share
in the profits of the firm . C’s loan shall be treated as his capital from the beginning and
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similar to other partners , his capital will carry interest @ 6% p.a. Record the necessary
journal to give effect to the above arrangement.
38. A and B are partners sharing profits and losses in the ratio of 3:2. They employed C as their
manager to whom they paid of Rs.750 p.m . C had deposited Rs.20,000 on which interest
was payable @ 9% per annum . At the end of 1992(after division of the year’s profits), it was
decided that C should be treated as partner with effect from jan.1.1989 with 1/6th share of
profit . his deposit being considered as capital carrying interest at 6 % per annum like capital
of other partners. The firm’s profit and losses after allowing interest on capitals were as
follows:
1989 Profit Rs. 59,000
1990 Profit Rs. 62,600
1991 Loss Rs. 4,000
1992 Profit Rs. 78,000
Record the necessary journal Entries to give effect to the above .
(Ans: Debit A by Rs. 360, B by Rs.240 and Credit C , by Rs. 600) (S.S.C 1980)
39. X and Y are partners sharing profit and losses in the ratio of 3:2. At the end of the year, i.e..,
on 31st December ,1998, they decided to take their manager Z into partnership. As manager
Z was getting annual salary of Rs.3,000.He had also advanced Rs. 20,000 to the firm by way
of a loan on which he is getting interest @ 10% per annum. During the three years, firm’s
profits after adjusting salary to Z, interest on loan and interest on the capital of the partners
were :
1996 Profit Rs.30,000
1997 Loss Rs.15,000
1998 Profit Rs. 45,000
According to the new agreement Z is to be given annual salary of Rs.2,500 and 1/5th share in
the profit of the firm. Z’s loan shall be treated as his capital from the beginning and similar
to other partners, his capital will carry interest @ 6% per annum .Record the necessary entries to
give effect to the above arrangement . (Ans: X Rs.5,328(Dr.),Y Rs. 3,552(Dr.),Z Rs8,880(Cr.))
GUARANTEE OF PROFIT TO A PARTNER
e.g. A,B and C are partners in the ratio of 3:2:1. Guarantee to Mr. C minimum profit of Rs.1,000.
Case 1. If divisible profit Rs.15,000

Profit Transferred to :
B’s Capital A/c 5,000
C’s Capital A/c 2,500 15,000
Case 2. If divisible profit Rs.3,600

Profit Transferred to:
- C’s deficiency borne 240 1,560
+ deficiency recovered from A 240
+ deficiency recovered from B 160 1,000 3,600
A bears = 400 x 3/5 =240; B bears = 400 x 2/5 =160
Case 3. If divisible profit Rs.3,600 and any deficiency will be borne by A and B in the ratio of 1:3

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Profit Transferred to:
- C’s deficiency borne 300 900
+ deficiency recovered from A 100
+ deficiency recovered from B 300 1,000 3,600
(i) P & L Appropriation A/c. …Dr.3,600 (ii) A’s Capital A/c ..Dr. 100
A’s Capital A/c 1,800 B’s Capital A/c ..Dr. 300
B’s Capital A/c 1,200 C’s Capital A/c ..Dr. 400
(Being the division of profit if there is no guarantee) (Being the deficiency of C is borne by A and B)
40. A,B and C were partners in a firm sharing profits in the ratio in the ratio of 2:2:1. C was
guaranteed to be given a profit of Rs.50,000 per year. Deficiency, if any , on that account
shall be borne by A and B in the ratio of 3:2. The net profit of the firm for the year ended
31.3.2004 was Rs. 2,00,000.
Prepare Profit and Loss Appropriation Account of A,B and C .
(Ans: A Rs.74,000; B Rs.76,000; C Rs.50,000) (CBSE 2005)
41. A and B are partners in a firm sharing profit in the ratio of 2:1. On 1-4-2002 they decide the
admit C for 1/5 share in profits with a guaranteed amount of Rs.25,000 per annum . A under
took to meet the liability arising out of the guaranteed amount to C . The firm earned a profit
of Rs. 75,000 for the year ended March 31,2003.
Prepare Profit and Loss Appropriation Account .
(Ans. A Rs. 30,000; B Rs.20,000; C Rs.25,000) (CBSE 20004)
42. A, B and C are partners sharing profits in the ratio of 5:4:1. C is given a guarantee that his
share in any year will not be less than Rs.5,000. The profit for the year ending 31st march 1995
amounts to Rs.35,000 . Amount of shortfall in the profits given to C will be Borne by A and B
in the ratio of 3:2. Pass necessary journal entry regarding deficiency borne by A and B.
(Ans: A Rs.900(Dr.), B Rs. 600(Dr.),C Rs.1,500(Cr.))[CBSE 1997]
43. Ram ,Mohan and Sohan are partners with capitals of Rs. 10,000, Rs. 5,000 and Rs. 2,000
respectively . After providing interest on capital at 6% per annum , the profit are divisible as
follows:
Ram ½, Mohan 1/3 and Sohan 1/6. But Ram and Mohan have guaranteed that Sohan’s share
shall not amount to less than Rs. 500 in any one year.
During the year 1992, Ram and Mohan have each withdraw Rs.1,000 and sohan Rs.500. the
net profit for the year before providing interest on partners capital ,was Rs.2400. You are
required to show the current Accounts of the partners.
(Ans: Balances of current A/c :Ram Rs.128(Cr.);Mohan ,Rs.348(Dr.);Sohan,Rs.120(Cr.))
44. A,B and C entered into partnership on 1st jan ,1992 to share profit and losses in the ratio of
5:3:2. A, however , personally guaranteed that C’s share of profit, after charging interest on
Capital @ 5% p.a.. would not be less than Rs.30,000 in any year . The capital was provided as
follows:
A Rs.3,20,000, B Rs.2,00,000 and C Rs.1,60,000.
The profit for the year ended 31st December ,1992 amounted to Rs1,59,000 before provided
for interest on capitals. Show the Profit & Loss Appropriation Account .
(Ans: Share of profit :A Rs.57,500, B Rs.37,500, C Rs.30,000)
45. Three Chartered Accountants A,B and C form a partnership, profit being divisible in the ratio
Commerce By:- SUBHASH THAKUR - 10 - 9810190005
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of 3:2:1 subject to the following :

(i) C’s share of profits guaranteed to be not less than Rs. 15,000 per annum
(ii) B gives guarantee to the effect that gross fee earned by him for the firm shall be equal to
his average gross fee of the preceding five years when he was carrying on profession
alone (which average works out at Rs.25,000).
The profit for the first year of the partnership is Rs.75,000. The gross fees earned by B for
firm Rs.16,000. You are required to show profit and loss Appropriation Account (After giving
effect to the above )
(Ans: A’s share Rs.41,400, B shareRs.18,600 and C’s share Rs.15,000)
46. A,B,C and D are partners in a firm . Their Capital Accounts stood at Rs. 60,000, Rs.30,000,
Rs.30,000 and Rs.20,000 respectively on 1st jan ,1992. They share profit and losses in the
proportion of 5:3:2:2. D’s share of profit (excluding interest on capital )is guaranteed by the
firm to be not less than Rs.16,000 per annum .C’s share of profit (including interest on capital
and salary)is guranteed by A at a minimum of Rs.26,000 p.a . The profit for the year ended 31 st
December 1992,amounted to Rs .91,000 before considering interest on capital @ 5% per annum
and salary to C @ Rs.1,000 per month which under the partnership deed are allowable.
Prepare the profit and loss Appropriation Account for the year ended 31st december1992.
(Ans: Share of profit: A Rs26,700; B Rs16,800; C Rs. 12,500;D Rs.16,000)
47. A,B and C entered into partnership on 1st April 1990, to share profits & losses in the ratio of
4:3:3:,. A , however , personally guaranteed that C’s share of profits after charging interest on
capitals @ 5 % p.a. would not less than Rs.40,000 in any year. The capital contributes were:
A—Rs.3,00,000 , B – Rs. 2,00,000 and C –Rs.1,50,000. The profit for the year ended on 31st
March , 1991 amounted to Rs.1,60,000.
Show the profit & loss Appropriation Account.
(Ans: Profit: A Rs. 49,250;B Rs.38,250 ;C Rs.40,000) (CBSE Delhi 1992)
48. X and Y share profit & losses in the ratio of 3:2. As from 1st jan,1992, they admit Z who is to
have one-tenth share of the profit with a guaranteed minimum of Rs. 7,500. X and Y continued
to share profit as before but agree to suffer any excess over 1/10th going to Z. The profit of the
firm in respect of the year are Rs. 50,000.
Prepare Profit and Loss Appropriation Account.
(Ans: Profit: X Rs.25,000;Y Rs.17,000;Z Rs. 7,500)
MISCELLANEOUS PROBLEMS
49. P,Q and R are partners in the firm. Their capital accounts stood at Rs.30,000, Rs.15,000 and Rs.
15,000 respectively on 1st January ,20X1.
As per the provision of the deed :
(i) R was to be allowed a remuneration of Rs. 3,000 p.a.
(ii) Interest at 5% p.a was to be provided on capital
(iii) Profits were to be divided in the ratio of 2:2:1..Ignoring the above terms , net profit of Rs.
18,000 for the year ended 20X1 was divided among the three partners equally.
Pass an adjustment entry to rectify the error . Show the working clearly.
(Ans: Dr. Q Rs.450 and Cr. P & R Rs.300 and 150) (CBSE 1998 Delhi )
50. A,B and C were partners in a firm . On 1-1-2001 their capitals stood at Rs.50,000 Rs.25,000 and
Rs.25,000 respectively . As per the provisions of the partnership deed :
(a) C was entitled for a salary of Rs.1,500 p.m.
(b) Partners were entitled to interest on capital at 5% p.a.
(c) Partners were to be shared in the ratio of capitals.
The net profit for the year 20X1 of Rs.45,000 was divided equally without providing for the
above terms . Pass an adjustment entry to rectify the above error .
(Ans: Dr. A Rs. 1500 and B Rs. 8250 & Cr. C Rs. 9750)(CBSE 1999 Delhi )
51. X,Y and Z partners have omitted interest on capital for three years ended 31st December ,1992.
Their fixed capitals on which interest is based were throughout X Rs. 20,000,Y Rs.16,000; and
Z Rs.14,000. Interest is to be allowed at 5% per annum . Their profit –sharing ratios were :
1990—1 :2:2; 1991—5:3:2; 1992—4:5:1. Give the necessary adjusting entry .
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(Ans: Dr. Y’s Current A/c by Rs.600 and Cr. X’s Current A/c by Rs.250 and Z’s Current A/c
by Rs.200)
52. A,B and C are partners in a firm. Through there is no provision in the partnership deed for
interest on capital, this has been provided to the accounts @ 5% p.a. for the two years ended on
31st dec,1991, and 31st dec,1992. Their fixed capital on which interest was calculated were
throughout ---A Rs.50,000. B Rs.40,000 and C Rs.30,000.
During the two years, they share profit as follows:
1991-----5 : 3 : 2
1992-----2 : 2 : 1
You are required to put through an adjustment entry as on 1st jan,1993.
(Ans: Dr. C Rs.600; Cr. A and B Rs.400 and Rs.200)
53. A and B are partners in a firm. A is to get a commission of 10 % of Net Profit before charging
any commission .B is to get commission of 10 % on Net Profit after charging all commission .
Net Profit before charging any commission was Rs.55,000. Find out the commission of A nad B.
(Ans: A commission 5,500; B’s commission 4,500)(CBSE 1991 Delhi )
54. Ram and Gopal were partners in a firm sharing profits in the ratio of 3:2. On 1:1 20x1 their fixed
capitals were Rs.1,00,000 and Rs.1,50,000 respectively. On 31.3.2001, they decided that their
total capital(Fixed)should be Rs.3,00,000 in their profit sharing ratio. Accordingly they introduced
or withdrew the necessary capital. The partnership deed provided the following :
(i) Interest on capital @ 12 %p.a.

(ii) Interest on drawings @ 18%p.a.
(iii) Monthly salary to Ram @ Rs.2000 per month and to Gopal @ Rs.3,000 per month. The
drawings of Ram and Gopal during the year were as follows:
Date Ram Gopal
2001 Rs. Rs.
July 1 10,000 12,000
September 30 15,000 12,000
The profit earned by the firm for the year ended 31.12.2001 was Rs.2, 00,000. 10% of this profit
was to be kept in a reserve.
You are required to prepare profit and loss appropriation account.
(Ans: Profit Rs. 88,695)[CBSE 1998 Delhi]
55. A, B and C are partners sharing profit in the ratio 5:4:1. C is given a guaranteed that his share
in any year will not be less than Rs.5,000. The profit for the year ended December 31,20X1
amounted to Rs.40,000. Amount excess given to C will be borne by B. Pass the journal entries in
the books of A, B and C.
(Ans: Dr. B Rs. 1000 and Cr. Rs. 1000)[CBSE 1991 Delhi (C)]
56. A, B and C are partners sharing profits in the ratio 5:4:1. C is given a guarantee that his share of
profits in any given years would be Rs.5,000. Deficiency, if any, would be borne by A and B
equally. The profits for the year 20X1 amounted to Rs. 40,000. Pass necessary entries in books
of the firm.
(Ans: Dr. A and B Rs. 500, 500 and C Cr. Rs. 1000)[CBSE 1999 Delhi]
57. The partners of a firm distributed the profits for the year ended 31st March 2003, Rs. 90, 000 in
the ratio of 3:2:1 without providing for the following adjustments :
(i) A & B were entitled to a salary of Rs. 1,500 each per annum
(ii) B was entitled to a commission of Rs. 4,500.
(iii) B & C had guaranteed a minimum profit of Rs. 35, 000 p.a. to A.
(iv) Profits were to be shared in the ratio of 3:3:2.
Pass necessary journal entry for the above adjustment in the books of the firm .
(Ans: Dr. A Rs.8,500,B Cr. Rs.4,500,C Cr.Rs.4,000)[CBSE 2004]
58. A and B are partners sharing profits in the ratio of 5:3 . C was to receive salary of Rs.150 per
month, plus a commission of 5 % on the profits after charging such salary and commission
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or 1/5th of the profits of the firm ,whichever is larger. Any excess of the latter over the former is
under the partnership agreement to be borne personally by A. Prepare the profit & Loss
Appropriation Account in each of the following alternative cases:
Case (a): If the profits before charging C’s salary and commission for the year amounted to Rs.24,900.
Case (b): If the profits for the year amounted to Rs.10,710 after charging C’s salary.
Case (c): If the profits for the year amounted to Rs.12,000 after charging C’s salary and commission .
59. A is a partner in a firm for the year ending 31 march 2006.

A’s drawings were : 31 may 2005 Rs.5,000; 30 Sept. 2005 Rs.4,000; 31 dec. 2005 Rs.6,000;
31 Jan. 2006 Rs.7,000.
Calculate A’s interest on drawings @ 12 % p.a. [Ans: Rs.1,060]
ADMISSION OF A PARTNER -1
VALUATION OF GOODWILL
(I) Average Profit Method

Goodwill = Average Profit * No. of Years Purchase
Q1. Calculate Goodwill by average profit method if the profit for 2002 to 2005 are Rs.5,000;
Rs. 8,000; Rs.4,000 and Rs.7,000 and the value of goodwill is at two years purchase.
(Goodwill Rs.12,000)
Q2. A and B are partners in a firm. The admit C into the firm. The goodwill for the purpose
is to be calculated at 2 years purchase of the average normal profits of the last three years
which were Rs.10,000; Rs.15,000 and Rs.30,000 respectively. Second years profit included
profit on sale of machinery Rs.10,000. Find the value of goodwill of the firm on C’s
admission .
Q3. Calculate Goodwill if : The goodwill of a firm is estimated at three years purchase of the
average profit of the last five years which are as follows:
Years: 2000 2001 2002 2003
2004
Profits(Loss) Rs.20,000 30,000 8,000 (10,000) 12,000
Q4. Ram and Shyam were partners from 1st April 2002. They disclosed the profit for the last
three years :
2002-2003----Rs..2,800(Including an abnormal gain of Rs.800)
2003-2004----Rs. 2,100(Including an abnormal loss of Rs.100)
2004-2005----Rs. 3,000(Excluding Rs.600 as insurance premium of the firm.)
Calculate the value of the firm’s goodwill on the basis of 3 years purchase of the average
profits for the last 3 years.
(Ans: Goodwill Rs.6,600)
(II) Weighted Average Profit Method

Goodwill =Weighted Average Profit * No. of Years Purchase
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Weighted Average Profits = Total of Products of Profits

Total of Weights
Q1. The profits of a firm for the year ended 31st March for the last five years were as follows:
Year Profit(Rs.) Year Profit(Rs.)
2001 2,000 2002 2,400
2003 3,000 2004 2,500
2005 1,800
Calculate the value of goodwill on the basis of three years purchase of weighted average
profits after weights 1,2,3,4 and 5 respectively to the profits 2001,2002,2003,2004 and
2005.
(Ans: Goodwill Rs.6,960)
(III) Super Profit Method
Goodwill = Super Profit * No. of Years Purchase
Super Profit = Average Actual Profit---Normal Profit
Normal Profit = Capital Employed * Normal rate of return
100
Q1. The average net profits expected in the future by the firm are Rs.46,000 per year. The
average capital employed in the business by the firm is Rs. 3,00,000. The rate of return
expected from capital invested in this class of business is 10% . The remuneration of the
partners is estimated to be Rs. 8,000 per annum . Find out the value of goodwill on the basis
of two years purchase of Super Profits. (Goodwill Rs.16,000)
Q2. The average net profit expected in the future by ABC firm are Rs. 86,000 per annum .
The average capital employed in the business by the firm is Rs.5,00,000. The rate of interest
expected from capital invested in this class of business is 10 %. The remuneration of the
partners is estimated to be Rs. 6,000 per annum .Find out the value of goodwill on the basis
of two years purchase of Super Profits. (Goodwill Rs.60,000)
Q3. A firm earned net profit during the last three years as follows:
1st year 2nd year 3rd year
18,000 20,000 22,000
The capital investment of the firm is Rs.60,000.
A fair return on the capital having regard to the risk involved is 10% . Calculate the value
of goodwill on the basis of 3 years purchases . (Goodwill Rs. 42,000)
Q4. Dutta and Bose had a firm in which they had Invested Rs.50,000, On the average the profits
were Rs. 16,000. The usual rate of earning in the industry is 15 % . Goodwill is to be valued
at 4 years purchase of profits in excess of profits @15 % on the money invested . Value the
goodwill. (Goodwill Rs.34,000)
Q5. A firm earned net profit during the last five years as follows :
I—Rs. 7,000; II—Rs 6,500; III--Rs. 6,00; IV--Rs.7,500 and V—Rs. 8,000
The capital investment of the firm is Rs.40,000. A fair return on capital in the market is 12%.
Find out the value of goodwill of the business if it is based on three years purchase of
average super profits of the past five years. (Goodwill Rs. 5400)
Q6. On April 1st 1998, an existing Firm had assets of Rs.75,000/- including cash of Rs.5,000/-.
The partner’s capital accounts showed a balance of Rs.60,000/- and reserve constituted
the rest . If the normal rate of return is 10% and the goodwill of the firm is valued at Rs.
24,000/- at 4 years purchase of super profits find the average profits of the firm .
(Goodwill Rs. 13,500)
Q7. On 1st April 1994, an existing Firm had assets of Rs. 75,000 including cash of Rs.5,000. It’s
creditors amounted to Rs.5,000 on that date . The firm had a Reserve Fund of Rs. 10,000
while partners capital accounts showed a balances of Rs.60,000. If the Normal Rate of return

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is 20%, and the goodwill of the firm is valued at Rs.24,000, at four years purchase of super
profit, find the average profits per year , of the firm .
(Ans:Rs.20,000)
(IV) Capitalization Method
(a) Capitalization of Average Profit Method
Goodwill = Total Capitalized Value of Average profit – Capital Employed (Net Tangible
Assets)
Total Capitalized Value of Average Profits =Average Profits * 100

Normal Rate of Return
Capital Employed (Net Tangible Assets)= Total Tangible Assets(other than goodwill,
fictitious assets )- Outsider’s Liabilities
Q1. A firm earns Rs. 3,00,000 as its annual profits, the rate of return being 12%. The assets of the
firm amount to Rs. 36,00,000 and liabilities Rs. 12,00,000. Calculate the value of goodwill
by capitalization method. (Goodwill Rs. 1,00,000)
Q2. A firm earns a profit of Rs.16,00,000 per year .In the same business at 10% return is
generally expected . The total assets of the firm are Rs.1,70,000. The value of other
liabilities is Rs.60,000. Find out the value of goodwill. (Goodwill Rs.50,000)
Q3. A business has earned average profit Rs.10,000 during the last few years and the normal
rate of return in a similar type of business is 10%. As certain the value of goodwill by
capitalization method , given that the value of net assets of the business is Rs.82,000.
(Goodwill Rs.18,000)
Q4. A firm has earned an average profit of Rs.55,000 during the last years and the normal
rate of return in similar type of business is 10 %. Find out the goodwill by capitalization
method assuming that the firm owns total assets worth Rs.5,50,000 including there in a
goodwill of Rs.50,000 and the firm has to pay Rs.1,00,000 to the outside liabilities.
(Goodwill Rs.1,50,000)
(b) Capitalization of Super Profits Method:

Goodwill = Super Profit * __________100_________
Normal Rate of Return
Q1. Calculate goodwill if : A firm earn net profit of Rs.12,000 with a capital of Rs.80,000.
The normal rate of return in the business is 10%. Use capitalization of Super Profit method I
in to value the goodwill . (Goodwill Rs 40,000)
Q2. The average net profit expected in future a co. are Rs.3,000 per year. The average capital
employed in the business by firm is Rs.20,000. The normal rate of return on the capital
employed in similar business is 10%. Calculate goodwill of the firm by Capitalization
Method of Super Profits. (Goodwill Rs. 10,000)
Q3. The average profit of the firm is Rs. 15,000. The total tangible assets in the firm is Rs.
1,40,000 and outside liabilities are Rs.40,000. In the same type of business , the normal rate
of return is 10% of the capital employed . Calculate the value of goodwill by capitalization
of super profit method. (Goodwill Rs. 50,000)
NEW PROFIT SHARING RATIO
Rules:
Sacrificing share = Old Share – New Share
New Share = Old Share – Sacrificing Share
Commerce C’s New Share
By:- SUBHASH THAKUR = A’s Sacrificing
- 15 - Share + B’s Sacrificing Share
9810190005
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Type 1: When the incoming partner is given a specific share of the future profits .
Que. A B C was admitted for 1/7th share

3 : 2 Calculate New Ratio& Sacrificing Ratio
Q1. A and B are partners sharing profits and losses in the ratio of 3:2.. C is admitted for 1/5th share
of profit . Calculate the new profit sharing ratio. (New Ratio 12:8:5)
Q2. Ravi and Mukesh were partners sharing profits in the ratio of 7:3. Ashok was admitted on 3/7
share in the profits. Calculate new profit –sharing ratio of the partners.
(New Ratio 14:6:15)
Q3. A,B and C sharing profits in the ratio of 6:5:3 agreed to admit D for 1/8 th share. Calculate the
new profit sharing ratio. (New Ratio 6:5:3:2)
Q4. A and B shared profit in the ratio of 3:2. C was admitted to get 4/15 th of profits. Calculate the
new profit sharing ratio. (New Ratio 33:22:20)
Type 2: When the incoming partner acquires his share of profits from the old partners.
Ques. A B C was admitted for 1/6th share .
3 : 2 Which he took 1/8 from A & 1/24 from B . Calculate New ratio.
Q1. A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7th
profits which he takes 2/7th from A and 1/7th from B .Calculate the new profit sharing ratio.
(New Ratio 11:9:15)
Q2. A and B are partners sharing profit and losses in the proportion of 7:5. They agree to admit C
their manager into partnership who is to get 1/6th share in the profits. He acquires his share as
1/24th from A and 1/8th from B . Calculate the new profit sharing ratio.
(New Ratio 13:7:4)
Q3. A and B are partners sharing profits in the ratio of 5:3.. C is admitted as partner, he acquires
3/16 of the profits from A and B 1/16 from B. Calculate the new profit sharing ratio.
(New Ratio 7:5:4)
Q4. A and B are partners in a firm sharing profits and losses in the ratio of 3:2.. C is admitted as
partner, he gets 3/20 of the profits from A and 1/20 from B. Calculate the new profit sharing ratio.
(New Ratio 9:7:4)
Q5. A and B are partners sharing profits and losses in the ratio of 5:3.. C is admitted in the firm
with 1/5th share in the profits which he acquired 1/10 the from A and 1/10th from B. Calculate
the new profit sharing ratio. (New Ratio 21:11:8)
Q6. A and B are partners sharing profits in the ratio of 2:1. They admit C into partnership giving
him 1/5 share in the profit which he acquires from A and B in the ratio of 1:2.. Calculate the
Q7. A and B are partners sharing profits in the ratio of 3:2..C is admitted for 1/5th share in the
profits which he acquires equally from A and B . Calculate the new profit sharing ratio.
(New Ratio 5:3:2)
Q8. A and B are partners sharing profits in the ratio of 4:1.. C is admitted for ¼ share in profits
which he acquires wholly from A. Calculate the new profit sharing ratio.
(New Ratio 11:4:5)
Q9. A and B are partners sharing profits in the ratio of 3:2.. C is admitted for 1/5 share in the

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profit of the firm. which he acquires wholly from B . Calculate the new profit sharing ratio.
(New Ratio 3:1:1)
Type 3: When the old partners surrender a particular fraction of their share in favour of incoming partner.
Ex.
A B C was admitted for A surrendered 1/5th of his share and B surrendered 1/10th of his share
3 2 Calculate New Ratio and Sacrificing share.
Q1. A and B are partners sharing profits in the ratio of 7:3.. C is admitted . A sacrifices 2/7th of his
share and B 1/7 of his share in favour of C. Calculate the new profit sharing ratio.
(New profit sharing Ratio 3:3:2 Sacrificing Ratio 13:5)
Q2. A and B are partners sharing profits in the ratio 7:3. A surrenders 1/7th of his share and B surrenders
1/3rd of his share in favour of C, a new partner . What is the new ratio and what is the sacrificing ratio?
(New Ratio 4:3:1)
Q3. R and S are partners in a firm sharing profits and losses in the ratio of 3:2. They admit T as a new
partner. R surrenders 1/5th share of his profit in favour of T and S surrenders 2/5th of his share in favour
of T. Calculate their new profit sharing ratio. (New Ratio 12:6:7)
Q4. A and B are partners sharing the profits in the ratio of 3:2. C is admitted , A sacrifices 1/3 of his share
and B ¼ of his share in favour of C. Calculate the new profits sharing ratio. (New Ratio 4:3:3)
Q5. X and Y are partners in a firm sharing profits and losses in the ratio of 9:6.. A new partner Z is
admitted .X surrenders 3/15th of his share and Y surrender 6/15 of his share n favour of Z. Calculate the
Q6. Shanno and Sukesh are two partners sharing profits in the ratio of 3:2.. They admit Susheem into
partnership as a partner from 1st April 1997. Shanno gives 1/3 of his share while Sukesh gives 1/10
from his share. Calculate new profit sharing ratio and sacrificing ratio.
(New Ratio sharing ratio 4:3:3,sacrificing ratio 2:1)
Type 4: When the new profit sharing ratio of old partners is given.
Ex. A:B=3:2
C was admitted for 1/5th share. A & B agree to share future profit equally.
Calculate the new ratio.
Q1. A and B are partners sharing profit and losses in the ratio of 5:4.. C was admitted for 1/4th share . A
and B decided to share equally in future . Find the sacrificing ratio and new profit sharing ratio.
(New profit sharing ratio 3:3:2 Sacrificing ratio 13:5)
Q2. A and B are partners sharing profits in the ratio of 3:2.. They admit C with 1/8th share in the profits.
The new profit sharing ratio between A and B is 4:3. Calculate the new profit sharing ratio.
(New Ratio 4:3:1)
Q3. A, B,C and D are in partnership sharing profits and losses in the ratio of 36:24:20:20 respectively. E
joins the partnership for 20% share, A ,B ,C and D would in future share profit among themselves as
3/10:4/10: 2/10:1/10. Calculate the new profit sharing ratio after E’s admission.
(New Ratio A,B ,C,D & E 6:8:4:2:5)
Q4. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. Z is admitted as partner
with 1/8th share in profits . It is decided that X and Y will share profits and losses in future in the ratio
of 5:3. Calculate the new profit sharing ratio and the sacrificing ratio. (New Ratio 35:21:8)
Type 5: When the old ratio & new ratio both are given.
Q1. A and B are partners sharing profits in the ratio of 5:3. They admit C and the new profit sharing ratio is
agreed at 4:2:1. Calculate the sacrificing ratio. (Sacrificing Ratio 3:5)
Q2. A and B are partners sharing profits in the ratio of 3:2. C is admitted into partnership. The new profit
Sharing ratio among A,B and C is 5:3:2. Calculate the sacrificing ratio. (Sacrificing Ratio 1:1)

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Q3. A,B and C are partners sharing profits and losses in the ratio of 3:2:1. D is admitted . The new profit
Sharing ratio between A, B and C and D will be 3:3:2:2. Calculate the gain /sacrifice.
(A sacrificed 6/30, B sacrificed 1/30, C gained 1/30)
Q4. A and B are partners sharing profit in the ratio of 3:1. They admit C and the new ratio of A,B and C is
agreed at 3:1:1. Calculate the sacrificing ratio. (Sacrificing Ratio 3:1)
Q5. A,B and C partners sharing profit in the ratio 4:3:2. D is admitted . The new profit sharing ratio of A,B
and C will be 3:2:2:2 respectively. Calculate the sacrificing ratio. (A & B 1:1 )
Q6. A and B are partners who share the profits in the ratio of 2:1. They admit C , and decide to share the
future profit in the ratio of 2:2:1. Calculate the gain or sacrifice.
(A Scarified 4/15 & B Gain 1/1)
Q7. A and B share profit in the ratio of 3:2.. c is admitted for 1/6th share . A and B will in future get 2/6th
and 3/6th share of profits . Calculate the gain or sacrifice .
MISCELLANEOUS
Q1. X, Y and Z are partners in the ratio of 3:2:1. W is admitted with 1/6 share in profit. Z would retain his
original share . Find out new profit sharing ratio. (New Ratio 12:8:5:5)
Q2. X and Y are partners sharing profit and losses in the ratio of 3:2. Z is admitted for 1/4th share.
Thereafter W enters for 20paise in the rupee. Compute the profit sharing ratio of X,Y and Z and W
after W’s admission . (New Ratio 9:6:5:5)
TREATMENT OF GOODWILL
CASE 1: WHEN A NEW PARTNER BRINGS AMOUNT OF GOODWILL IN CASH

A : B = 3 : 2. C’s share = 1/6
C’s Share of goodwill = Rs.10,000
C’s Share of Capital = Rs.80,000
Goodwill already appears at Rs.25,000
1st STEP : ENTRY FOR WRITING OFF THE 3rd STEP : ENTRY FOR TRANSFERRING THE
OLD GOODWILL AMOUNT OF GOODWILL
(If old goodwill is given in old balance sheet ) (Premium A/c……………Dr. 10,000
A’s Capital A/c ………….Dr.15,000 A’s capital A/c 6,000
B’s Capital A/c ………….Dr.10,000 B’s capital A/c 4,000
(This entry is done in the old ratio 3:2) (This entry is done by sacrificing ratio.)
2nd STEP : ENTRY FOR BRINGING AMOUNT OF 4th STEP : IF MENTIONED IN QUESTION
GOODWILL & CAPITAL ENTRY FOR WITHDRAWING
THE AMOUNT OF GOODWILL
CASH A/c …………….Dr. 90,000
C’s Capital A/c 80,000 A’S Capital A/c …………Dr. 6,000
Premium A/c 10,000 B’s Capital A/c ………….Dr. 4,000

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(This entry is done by sacrificing ratio.)

Q1. A and B, sharing profits and losses in the ratio of 3:2, admit C partnership , C paying Rs.1,000 as
goodwill for ¼ share and Rs.10,000 as capital . No goodwill account appears in the books . Partners
withdrew amount of goodwill . Give journal entries to record these transactions.
(Goodwill credited to A Rs.600, B Rs.400)
Q2. A and B share profits in the ratio : A, 5/8 and B , 3/8 . C was admitted as a partner. He brings in
Rs.10,000 as his capital and Rs.8,000 as remaining for goodwill . The new profit –sharing ratio will be
7:5:4, Make journal entries. (Goodwill credited to A Rs.6,000, B Rs.2,000)
Q3. A and B sharing profit in the ratio of 5:3, admit C who brings in Rs.1,40,000 as his capital and
Rs.36,000 as goodwill . They new profit sharing ratio will be 7:5:4. Pass journal entries .
(Sacrificing Ratio 3:1, Goodwill credited to A Rs.27,000, B Rs.9,000)
Q4. A and B are in partnership with capitals of Rs.10,000 and Rs.6,000 and sharing profit two-thirds and
one –thirds respectively. On 1st Jan , 1992, they agree to admit C into partnership with a one –sixth
share on condition that he brings in Rs.5,500(Rs.4,000 to represent his capital and Rs,1,500 to represent
goodwill). The whole of Rs.5,500 is to remain in the business . give the journal entries to record these
transactions, the relative shares of A and B remaining the same as before , and state the future shares of
the partners .
(Goodwill Credited to A Rs.1,000: B Rs.500, New ratio 10:5:3)
Q5. P and S are partners sharing profit in the ratio of 3:2. Their books showed goodwill at Rs.20,000. R is
admitted with 1/5th share which he acquires equally from P and S . R brings in Rs.40,000 as his capital
and Rs.10,000 as his share of goodwill . Profits at the end of the year were the amount of Rs.1,00,000
You are required to give journal entries to carry out the above arrangement .
(Goodwill credited to A and B Rs.5,000 each)
Q6. A and B are partners sharing profits and losses in the ratio 7:3. C is admitted as a new partners for 3/7 th
share which he acquires 2/7th from A and 1/7th from B . C brings in Rs.24,000 as capital and Rs.18,000
as his share of goodwill . Pass the necessary journal entries in the books of the firm .
(Sacrificing Ratio 2:1, Goodwill credited to A Rs.12,000, B Rs.6,000)
Q7. A and B are partners in a firm. Their profit sharing ratio is 5:3. They admit C into partnership for 1/4th
share. As between themselves A and B decide to share profits equally in future . C brings in Rs.12,000
as his capital and Rs.6,000 as premium . Calculate the sacrificing ratio and pass the necessary journal
entries.
(Sacrificing Ratio 1:0, Goodwill credited to A Rs.6,000)
Q8. On 1st Jan,1999, A and B sharing profits in the ratio of 2:1 respectively agree to admit to C into
partnership on the condition that he pays Rs.30,000 as capital and Rs.6,000 for 1/6th share of goodwill
which he acquires equally from A and B . Pass necessary journal entries .
(Goodwill credited to A and B Rs.3,000 each)
Q9. A and b are partners ,sharing profits and losses in the ratio of 3:2. Goodwill appears in their balance
sheet at Rs.24,000. When C is admitted into partnership for 1/5th share in profit, he pays Rs.50,000 for
capital and Rs.18,000 for goodwill. The ratio of the partners A ,B and C in the new firm would be
2:2:1. It is decided that goodwill account will not appear in the books . Pass journal entries in the
books of the new firm to Record above adjustment.
(Goodwill credited to A Rs.18,000)
Q10. A and B are partners sharing profits and losses in the ratio of 3:2. They admit into partnership for 1/4 th
share. C brings in Rs.10,000 fro capital and the requisite amount premium in cash. The goodwill of
firm is valued at Rs.4,000.Partners withdrew their share of goodwill .Give the necessary journal entries.
(Goodwill credited to A Rs.600 and B Rs.400)
Q11. A and B are partners sharing profit in the ratio of 2:1. They admit C who brings in Rs.10,000 as his
capital and the requisite share of goodwill in cash . A, B and C agree share future profits equally . The
amount of Goodwill is withdrawn from the business. The value of goodwill was determined as
Rs.9,000. Give the necessary journal entries.
(Goodwill credited to A Rs.3,000 Sacrificing ratio 1:0)
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Q12. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit Z into
Partnership with ¼ share in the profits, Z will brings in Rs.18,000 for capital and the requisite amount
of Premium in cash . The goodwill of the firm is valued at Rs.12,000.The new profit sharing ratio
becomes 2:1:1. X and Y withdraw their share of goodwill . Give necessary journal entries.
(Goodwill credited to X Rs.1,200, Y Rs.1,800, Sacrificing ratio 2:3)
Q13.(a) A and B are in partnership sharing profit and losses in the ratio of 5:3. C is admitted as a partner paying
Rs.40,000 as capital and the necessary amount of goodwill which is valued at Rs.30,000 for the firm.
His share of profits is 1/5th of which he takes 1/10th from A and 1/10th from B . The profit for the first
year of new partnership amounts to Rs.24,000. Appropriation the first years profit among the partners.
(Goodwill credited to A & B Rs.3,000each)
Q13.(b) A,B and C are partners sharing profits in the ratio of 5:3:2. Goodwill is appearing in the book at
Rs.50,000.D is admitted in to the partnership, the new profit sharing ratio between A,B ,C and D being
3:3:2:2. Give the journal entries for goodwill if the new partner D brings Rs.1,00,000 for capital and
cash for his share of goodwill . The goodwill of the firm is valued Rs.1,20,000 and it is not to appear
in the books after D’s admission.
(Goodwill credited to A Rs.24,000)
Q14. Give journal entries to record the following arrangements in the books of the firm :
A,B and C are partners sharing profits in the ratio of 3:2. D is admitted paying a premium (goodwill)
of Rs.4,000 for 1/4th share of the profits Share of B and C remaining as before . No goodwill account
appears in the books .
(Goodwill credited to B Rs.2,400, C Rs.1,600)
Q15. B and C are partners sharing profits in the ratio of 3:2, D is admit paying a premium of Rs.21,000 for
1/4th Share of profit which acquires 1/6th from B and 1/12th from C. No goodwill account appear in the
books .
(Goodwill credited to B Rs.14,000, C Rs.7,000)
Q16.(a) P and Q are partners sharing profits in the ratio of 4:3. They admit R into partnership for 1/5th share
who pays Rs.7,000 in cash for goodwill . P and Q decide to share future equally among themselves .
No goodwill account appears in the books .Pass the necessary journal entries .
(Goodwill credited to P Rs.6,000, Q Rs.1,000 Sacrificing Ratio 6:1)
Q16.(b) A and B are partners sharing profit and losses in the ratio of 3:2 respectively. They admit C paying a
Premium of Rs.1,000 for ¼ share while A and B as between sharing profit and losses equally in future .
Give the necessary journal entries . (Goodwill credited to A Rs.900,B Rs.100 sacrificing Ratio 9:1)
Q17. Give journal entries to record the following arrangement in the books of a firm. A and B are partners
Sharing profits in the ratio of 3:2. Goodwill appears in their books at Rs.3,000. They admit C into
Partnership, C paying a premium of Rs.2,000 for one-fourth share of the profits. A and B as between
themselves sharing profit as before .
(Goodwill A/c raised in the ratio of 9:6:5,Goodwill credited to A Rs.1,200,B Rs.800)
Q18. B and C are partners sharing profits in the ratio of 3:2. Goodwill appears in the books at Rs.3,000.
Disadmitted into partnership on payment Rs.20,000 fro Goodwill for 1/4th share, B and C sharing
profits between themselves in the same proportion as before:
(a) Calculate the Sacrificing Ratio./
(b) Record the transactions assuming Goodwill account will not appear in the books of
B,C and D.
(Goodwill credited to B Rs.12,000, C Rs.8,000 Sacrificing Ratio 3:2)
Q19.(a) A and B are partner sharing profits in the ratio of 3:2. They admit C into partnership . C paying a
premium of Rs.2,000 for 1/4th share of profit. The new ratio is 3:3:2. Goodwill account appears in the
books at Rs.1,000.Pass the necessary journal entries .
(Goodwill credited to A Rs.1,800, B Rs.200 )
Q19.(b) A and B are partners sharing profits in the ratio of 3:2. They admit C as new partner. C pays a premium

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of Rs.3,000 for 3/10th share of profits , which he acquires from A and B in the ratio of 2:1. goodwill
account appears in the books at Rs.2,000. Give the necessary journal entries .
(Goodwill credited to A Rs.2,000, B Rs.1,000 )
Q20.(a) A and B are partners sharing profit in the ratio of 3:2. They admit C into partnership and he is to pay
Rs.3,000 as a premium for 1/4th share of profit. Goodwill account already appears in the books at Rs.
4,000.It is decided to write off the goodwill account the new profit –sharing ratio is 3:3:2.
(Goodwill credited to A Rs.2,700, B Rs.300 )
Q20.(b) A and B are partners sharing profits in the ratio 3:2. They admit C into partnership. C pays a premium
of Rs.1,000 for 1/4th share of profit . The new ratio is 3:3:2. Goodwill account appears in the books at
Rs.1,000.Give the necessary journal entries .
(Goodwill credited to A Rs.900, B Rs.100 )
Q21.(a) Pass the journal entries to record the following adjustment in the books of a partnership firm: X and Y
are partners profits equally, they admit Z into partnership and has to pay a premium (goodwill) of
Rs.12,000 for 1/3rd share of profit. The amount is withdrawn by the partners . No goodwill account
appears in the books.
(Goodwill credited to X & Y Rs.6,000each )
Q21.(b) Vimal and Kamal admit Amal as a new partner who brings Rs.15,000 as his share of goodwill
(premium). Amal is entitled to 1/3rd share in profits. As between themselves , Vimal and Kamal agre to
share future profit and loss equally. Calculate the new profit sharing ratio and pass the journal entries
showing the appropriation of premium.
(New Ratio 1:1:1,Sacrificing ratio 1:1, Goodwill credited Vimal & Kamal Rs.7,500each )
Q22. A and B carrying on business as partners used to share profits and losses thus: A 4/7th and B 3/7th and
Goodwill appeared in the books of the firm at Rs.5,600 when C was admitted as a partner having 1/7th
Share in profit and losses . C was asked to pay a premium of Rs.1,400 for goodwill and the profit
sharing ratio as between A and B remained uncharged . Show journal entries .
(Goodwill credited to A Rs.800, B Rs.600 )
Q23.(a) A and B are partners sharing profits and losses in the ratio of 3:2. They admit C as a new partner for
1/5th share in profit . The goodwill is valued at Rs.30,000, C brings in the necessary amount of
premium. Pass the necessary journal entries .
(Goodwill credited to A Rs.3,600,B Rs.2,400 Sacrificing Ratio 3:2)
Q23.(b) A and B are partners sharing profits and losses as 2:1, C and Dare admitted and profits sharing ratio
becomes 4:2:3:1. Goodwill is valued at Rs.40,000. D brings required goodwill and Rs.5,000 cash for
capital. C brings in Rs.5,000 cash and Rs.6,000 worth stock as his capital in addition to the required
amount of goodwill in cash .Show the necessary journal entries .
(D’s share of Goodwill Rs.4,000, C’s share of goodwill Rs.12,000 )
Q24. X and Y are partners sharing profits and losses in the ratio of 3:2. They agree to admit Z upon payment
in cash of Rs.4,800 for 2/7th share of goodwill and Rs.6,000 as his capital. Give the necessary journal
entries to give effect to these arrangement.
(S.R.3:2 G/W credited to X Rs.2,880,Y Rs.1,920)
Q25. A,B and C are partners sharing profits in the ratio of 4:3:2. D is admitted for 2/9th share of
profit and brings Rs.30,000 as his capital and Rs.10,000 for his share of goodwill. The new profit
sharing ratio of A,B ,C and D will be 3:2:2:2. journalize the above arrangement in the books .
(Goodwill credited to A Rs.5,000, B Rs.5,000 )
Q26.(a) A and B are partners in a firm sharing profit and losses in the ratio of 5:3. C is admitted in the firm for
1/5th share of profits. He is to bring in Rs.12,000 as capital and Rs.2,400 as his share of goodwill . Give
the necessary journal entries in each of the following alternative cases:
(a) When the amount of goodwill is retained in the business .
(b) When the amount of goodwill is fully withdrawn.
(c) When 50% of the amount of goodwill is withdrawn.
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(Goodwill credited to A Rs.1,500, B Rs.900 Sacrificing Ratio 5:3)
Q27. B and C are in partnership sharing profits and losses at 3:1. They admit D into the firm , paying a
premium of Rs.15,000 for one third share of the profits. As between themselves, B and C agree to share
future profits and losses equally. Draft journal entries showing the appropriation of the premium
money.
Q28. A,B and C are partners sharing profit and losses in the ratio of 3:2:1. D is admitted . The new profit
sharing ratio between ratio A,B ,C and D will be 3:3:2:2. Goodwill of the firm is valued at
Rs.3,00,000. D brings his share of goodwill in cash. Give the journal entries relating to adjustment of
goodwill .
Q29. A ,B ,C are partners sharing ratio 3:2:1. D is admitted for 1/4th share D brings Rs.1,20,000 as his share
of Capital & Rs.30,000 as his share of goodwill. The new ratio of all partners will be equally. Give
journal.
Q30. P and Q share profits in the ratio of 3:2. R is admitted as a partner with 1/6th share, P and Q will in
future get 2/6th and 3/6th share of profits. R pays Rs.30,000 as goodwill. Partners decide to maintain a
goodwill account at Rs.60,000. Record the concerned entries in the journal of the firm.
CASE 2: WHEN A NEW PARTNER DOES NOT BRING THE AMOUNT OF GOODWILL IN CASH.
A : B = 3 :2 . C’s share = 1/6

C’s share of goodwill = Rs.10,000
C’s share of capital = Rs.80,000
Goodwill already appears at Rs.25,000.
1st STEP : ENTRY OF WRITING OFF THE OLD 3rd STEP : ENTRY FOR TRANSFERRING THE
GOODWILL ACCOUNT AMOUNT OF GOODWILL
(If old goodwill is given in old balance sheet)
A’s capital A/c …………..Dr. 15,000 C’s Capital A/c ……….Dr. 10,000
B’s Capital A/c ………….Dr. 10,000 A’S Capital A/c 6,000
Goodwill A/c 25,000 B’s capital A/c 4,000
(Amount of old G/W written off in old ratio) (The amount of C’s share of goodwill transfer in S.R)
2nd STEP: ENTRY FOR BRINGING AMOUNT OF CAPITAL
Cash A/c ……………Dr. 80,000

C’s Capital A/c 80,000
(The amount of Capital brought in by C)
Q1. Santosh and Brij are partners in a business sharing profits and losses in the ratio of 4:3. On 1 st Jan 1993,
their Capital were Rs.20,000 and Rs.15,000 respectively. They admitted Ravinder into partnership as
form 1st Jan 1993, on the following :
(a) Ravinder to be given one –eight share in future profits of the business.
(b) He should bring in Rs.20,000 as his capital.
(c) As he was unable to bring his share of goodwill in cash, the goodwill of the firm was
valued at Rs.14,000.
Give the necessary journal entries, and prepare partners capital accounts and Goodwill accounts.
Calculate the future profit-sharing ratio.
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(Goodwill credited to Santosh Rs.1,000, Brij Rs.750)
Q2. A and B are partners sharing profits in the ratio of 3:2. Their books showed goodwill at Rs.2,000. C is
admitted with 1/4th share of profit and brings Rs.10,000 as his capital but is not able to b ring in cash
his share of goodwill Rs.3,000, Draft journal entries .
(Goodwill credited to A Rs.1,800, B Rs1,.200)
Q3. A and B are partners sharing profits in the ratio of 3:2. They admit C as a partner who is unable to
bring Goodwill in cash but pays Rs.60,000 his capital . The goodwill of the firm is to be valued at 2
years purchase of 3 years profits. The profits for the three years were Rs.30,000 ,Rs.24,000 and
Rs.27,000. The new ratio will be 5:2:2 . Make journal entries .
(Goodwill credited to A Rs.2,400, B Rs.9,600)
Q4. A and B are partners sharing profit and losses equally. They admit C into partnership and the new ratio
is fixed as 4:3:2. C is unable to bring anything for goodwill but is to bring Rs.15,000 as capital.
Goodwill of the firm is valued at Rs.10,800 . Give the necessary journal entries of admission of C.
(Goodwill credited to A Rs.600, B Rs1,800)
Q5. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decided to admit C
into Partnership for 1/5th share of profits which he acquires equally from A and B . Goodwill is valued
at Rs.20,000, C brings in Rs.9,600 for his capital but is not in a position to bring any amount for
goodwill. No goodwill account appears in books of the firm. Pass the necessary journal entries .
Q6. A and B are partners in a firm sharing profit and losses in the ratio 3:2. C is admitted into partnership .
He will bring in Rs.60,000 as capital fro 1/3rd share in profit. The goodwill of the firm has been valued
at Rs.18,000.
Give journal entries under the following circumstances:
Case (a) When there is no goodwill appearing in the books of the firm.
Case (b) When the goodwill account appears at Rs.9,000 in the books of the firm.
Case (c) When the goodwill account appears at Rs.21,600 in the books of the firm .
Q7. A and B are partners sharing profits and losses in the ratio of 3:2. They decide to admit C as a partner
and all the partners share future profits and losses equally. C brings in Rs.30,000 as his capital.
Goodwill of the firm is valued at Rs.36,000.Pass the necessary journal entries .
Case (a) When no goodwill appears in books .
Case (b) When goodwill appears at Rs.30,000 and
Case (c) When goodwill appears at Rs.60,000
Q8. A and B are partners sharing profits and losses in the ratio of 3:2. They admit C into partnership for
1/3rd share in profits, C brings capital Rs.20,000. Goodwill is valued at Rs.12,000. Show what entries
shall be passed in the following cases:
(a) Goodwill does not appear in the books .
(b) Goodwill appears in the books at Rs.9,000.
(c) Goodwill appears in the books at Rs.18,000.
Q9. A and B are partners sharing profits in the ratio of 3:2 .Their books showed goodwill at Rs.2,000. C is
admitted with 1/4th share of profit; C brings 25,000 as his capital but is unable to bring his share of
goodwill of Rs.3,000 in cash. Give necessary journal entries fro the following.
Q10. A and B are partners in a firm sharing profits and losses in the ratio of 5:3., C is admitted as a new
partner for 1/8th share in the profit of the firm . C brings in Rs.48,000 as his capital but is not in a
position to bring any amount by way of goodwill. Goodwill of the firm is valued at Rs.32,000. It was
decided that the new profit sharing ratio will be 9:5:2 and adjustment regarding goodwill is to be made
without raising any goodwill account in books . Pass the necessary journal entries in the books of the
firm.

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Q11. X and Y are partners in a firm sharing profits and losses in the ratio of 5:3. On March 1, 2004 they
admitted Z as a new partner . The new profit sharing ratio will be 4:3:2. Z brought in Rs.1,00,000 in
cash as his share of capital but could not bring any amount for goodwill in cash The firm’s goodwill on
Z’s admission was valued at Rs.1,80,000. At the time of Z’s admission goodwill existed in the books of
the firm at Rs.2,40,000
Pass the necessary journal entries in the books of the firm on firm on Z’s admission .Show your
workings clearly.
(Goodwill credited to X Rs.1,50,000, Y Rs.90,000)
HIDDEN GOODWILL
Goodwill = Normal Capital of Firm – Actual Capital of Partners

Normal Capital of firm = Capital of New Partner x Reciprocal of his share
Actual Capital of partners (after all Adjustments) = Adjusted Capital Balances of Old Partners +
New Partners Capital
Q1. A and B are partners with capital of Rs.8,000 and Rs.6,000 respectively. They admit C as a partner
with 1/4th share in the profits of the firm . C bring Rs.8,000 as his share of capital. Give journal entries
to record goodwill.
Q2. A and B are partners with capital of Rs.16,000 and Rs.12,000 respectively. They admit C as a partner
with 1/4th share in the profits of the firm. C brings Rs.16,000 as his share of capital. Give journal
entries to record goodwill.
Q3. A & B are partners with capitals of Rs.30,000 and Rs.10,000 respectively. They admit C as a partner
for 1/4th share in the profits of the firm. C brings Rs.15,000 as his capital. Give journal entries to
record goodwill.
(Goodwill credited to A & B Rs.625each)
Q4. A & B are partners sharing ratio 3:2 with a capitals of Rs.10,000 & Rs.12,000 respectively. They
admitted C as a partner for 1/5th share . He brings Rs.7,000 as his share of Capital & necessary Amount
of Goodwill in cash. Give journal.
(Goodwill credited to A & B Rs.720 & Rs.480)
A : B = 3 :2 . C’s share = 1/5 1st STEP : ENTRY FOR WRITING OFF THE OLD
Goodwill already appears=Rs.6,000 GOODWILL ACCOUNT
C’s share of goodwill = Rs.10,000 A’s capital A/c …………..Dr. 3,600
C’s share of capital = Rs.80,000 B’s Capital A/c ………….Dr. 2,400
But he brings only Rs.7,000 Goodwill A/c 6,000
(This entry is done in the ratio 3:2)
2nd STEP: ENTRY FOR BRINGING AMOUNT OF 3rd STEP : ENTRY FOR TRANSFERRING THE
CAPITAL & PART OF GOODWILL AMOUNT OF GOODWILL
Cash A/c ……………Dr. 87,000 Premium A/c ………..Dr. 7,000
C’s Capital A/c 80,000 A’s Capital A/c 4,200
Premium A/c 7,000 B’s capital A/c (S.R.3:2) 2,800
C’s Capital A/c ………….Dr. 3,000
CASE 3.: WHEN A NEW PARTNER BRINGS ONLY A PART OF HIS SHARE OF GOODWILL IN CASH
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Q1. A and B are partners sharing profit equally. They admit C into partnership. C paying only Rs.2,000 for
Premium out of his share premium of Rs.2,800 for 1/4th share of profit. Goodwill A/c appears in the
books at Rs.5,000. Give the necessary journal entries .
Q2. A and B are partners sharing profits and losses in the ratio 3:2. They admit C into the firm for 1/4 th
share in profit which he takes 1/6th from A and 1/12th from B . New partner bring in only a part of his
share of Goodwill C brings Rs.1,800 as goodwill out of his share of Rs.3,000. No goodwill account
appears in the books of the firm . Pass the necessary journal entries to record this arrangement.
Q3. X,Y and Z were partners sharing profits and losses as to X one-half ; Y one-third and Z one-sixth. As
from 1st Jan 1992, they agreed to admit a into partnership for a one-sixth share in profits and losses,
which he acquires equally from X and Y and he brings in Rs.20,000 for his capital and Rs.10,000 as
premium for goodwill. A paid in his capital money but in respect of premium for goodwill . he could
bring in only Rs.5,000. You are required to :
(i) Give the journal entries to carry out the above arrangements, and
(ii) Work out the new profit sharing ratio of the partners.
Q4. A and B are partners sharing profit equally . They admit C into partnership. C paying only Rs.1,000 for
Premium, out of his share of premium of Rs.1,800 for 1/4th share of profit. Goodwill account appears in
the Books at rs.6,000. All the partners have decided that goodwill should not appear in the new books
of the firm. Give the necessary journal entries.
Q5.(a) A and B are partners in the ratio of 3:4. They admit C for 3/7th which he acquires 2/7th from A and 1/7th
from B and brings Rs.1,000 as premium out of his share of Rs.1,900. Goodwill account does not
appear in the Books .
Q5.(b) A and B are partners sharing profits equally. They admit C into partnership. C paying only Rs.1,000 for
Premium out of his share of premium of Rs.1,800 for 1/4th share of profit. Goodwill account appears in
the Books at rs.6,000. All the partners have decided that goodwill should not appear in the new books
of the Firm. Give the necessary journal entries.
Q6. A and B are partners sharing profits in the ratio of 3:2. they admit C for 1/5th share in profits. C brings
Rs.30,000 for his capital and Rs.8,000 out of his share of Rs.10,000 for goodwill. Before admission
goodwill appeared in books at Rs.18,000. Give the journal entries to give effect to above arrangement.
Q7. A & B are partners sharing profits and losses equally. They admit C for 1/4th share by paying Rs.5,000
out of his share of Rs.9,000 of goodwill. Goodwill already appears at Rs.30,000. Give journal entries
to record the above transactions.
Q8. A and B profits in the ratio of 2:1, admit C for 1/4th share in profits. C pays Rs.20,000 for capital and
Rs.3,000 out of his share of Rs.4,000 for goodwill. Give journal entries in connection with C’s
admission.
Q9. A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7th share in
profit of which he takes 2/7th from A and 1/7th from B and brings Rs.1,000 as premium out of his
share of Rs.1,800.goodwill account does not appears in the books of A and B. Give the journal entries.
Q10. A and B are partners sharing profits in the ratio of Rs.5:3. They admit C into the firm for 3/10th share in
Profit which he takes 2/10th from A and 1/10th from B . C brings Rs.3,00,000 as premium in cash out of
his share of Rs.7,800 . Goodwill account does not appear in the books of A and B . Give necessary
journal entries in the books of new firm.
Q.11. A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7thy profits
(which he takes 2/7th from A and 1/7th from B ) and brings Rs.3,000 as premium out of his share of
Rs.3,600. Goodwill account does not appear in the books of A and B . Draft the necessary journal
entries .
ASSIGNMENT --- II
ADMISSION OF A PARTNER
Q1. The following was the balance sheet of A and B who were sharing profits 2:1 on 1st December 1980:
Liabilities Rs. Assets Rs.

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Sundry Creditors 65,900 Building 50,000

General Reserve 30,000 Plant and Machinery 35,000
Capital’s accounts Stock 20,000
A 30,000 Sundry Debtors 9,700
B 20,000 50,000 Cash in Hand 1,200
_______ Bank 30,000
1,45,900 _______
1,45,900
On this date C is admitted into the partnership on the following terms:
(a) C was to bring Rs.15,000 as his capital and Rs.6,000 as goodwill for one-fourth share in the
firm .
(b) That the value of the stock and plant and machinery was to be reduced by 5% .
(c) That a Reserve was to be created in respect of sundry Debtors, Rs.750.
(d) That the building Account was to be appreciated by 10% .
(e) That Goodwill money was to be retained in the business.
Prepare Profit and loss Adjustment Account (Revaluation Account), Partners Capital accounts,
and The Balance sheet of the new firm.
(Ans. Profit on Revaluation Rs.1,500; B ‘s 1,68,400)
Q2.(a) A an B were partners sharing profits and losses in the ratio of 3:2. on 31st March 1999. their Balance
sheet was as follows:

Creditors 15,000 Cash in Hand 500
Bills payable 7,500 Cash at Bank 8,000
General Reserve 10,000 Debtors 40,000
Capitals : Stock 20,000
A 30,000 Furniture 12,000
B 50,000 Land & Building 32,000
_____________ ____________
1,12,500 1,12,500
On that date they admitted C as a partner on the following terms :
(a) C will get 1/4th share in profits.
(b) New profit sharing ratio be 3:3:2.
(c) C shall bring Rs.10,000 for 1/4th share of goodwill and Rs.25,000 as his capital.
(d) Stock was to be reduced by 20% and the furniture be depreciated by 15%.
(e) Land & building were revalued at Rs.39,400.
Prepare Revaluation Account, Partners capital Accounts and the Balance Sheet of the new firm .
(Ans. Profit on revaluation Rs.1,600 Total of balance sheet A/c Rs.1,49,100)
Q2.(b) The balance sheet of A and B as on 31st March 1991 is given below :

A’s Capital 60,000 Freehold property 20,000
B’s Capital 30,000 Furniture 6,000
General Reserve 24,000 Stock 12,000
Creditors 16,000 Debtors 80,000
Cash 12,000
____________ ____________
1,30,000 1,30,000
A and B share profits and losses in the ratio of 2:1 they agree to admit P into the firm subject to the
following terms and conditions:
(a) P will bring in Rs.21,000 of which Rs.9,000 will be treated as his share of goodwill to be
retained in the business.
(b) P will be entitled to 1/4th share of profits of the firm.

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(c) A reserve for Bad and Doubtful Debt is to be created at 3% of the debtors.
(d) Furniture is to be depreciated by 5% .
(e) Stock is to be revalued at Rs.10,500.
Prepare Revaluation Account, Capital accounts and Opening Balance Sheet of the new firm.
(Ans. Loss on Revaluation Rs.4,200 Balance sheet Rs.1,46,800)
Q3.(a) A and B are carrying on business in partnership sharing profits and losses in the ratio of 2:3
respectively. Their balance sheet as at 31st March,1999 was as under:

Sundry Creditors 24,870 Cash in Hand 1,420
Reserve 50,000 Cash in Bank 23,850
Capital’s: Sundry Debtors 11,000
A 48,100 Stock 36,000
B 38,100 Furniture 8,800
Building 80,000
_____________ ____________
1,61,070 1,61,070
On that date they admit C into partnership and give him one-third share in future profits on the
following
Terms:
(a) Stock and furniture are to be reduced in value by 12 ½ %.
(b) Buildings are to be appreciated by Rs.16,000.
(c) A provision of 5% is to be created on Sundry Debtors for doubtful debts.
(d) C is to bring in Rs.60,000 as his capital and Rs.40,000 as goodwill, which is to
remain in the
Business.
Prepare necessary ledgers. Show the opening Balance Sheet of the new firm.
(Ans: Profit on Revaluation Rs.9,850;B/S 2,70,920)
Q3.(b) A and B are partners in a firm sharing profits and losses in the ratio of 2:1 respectively. On 31st
December, 1991, their Balance sheet stood as follows:

A’s Capital 1,60,000 Buildings 80,000
B’s Capital 1,20,000 Furniture 24,000
Creditors 64,000 Debtors 2,40,000
_________________ Cash at bank 48,000
4,40,000 ________________
4,40,000
It was decided to admit C into the firm subject to the following terms and condition :
(a) C will bring in Rs.84,000 of which Rs.36,000 will be treated as his share of goodwill
to be
Retained in the business .
(b) C will be entitled to 1/4th share of the profits.
(c) Rs.9,000 is to be provided for doubtful debts.
(d) Depreciation on furniture is to be provided @ 5% .
(e) Stock is to be revalued at Rs.42,000.
You are required to prepare the necessary ledger accounts and the Balance sheet of the firm after the
admission of from the above information.
(Ans: Loss on Revaluation Rs.16,200 ; Capital A/c A: Rs.2,37,200;B Rs.1,58,600 and C Rs.48,000;
B/S Rs.5,07,800)
Q4. M and N are partners in a firm sharing profits and losses in the ratio of 5:3. On 31st December 1985,
their Balance sheet was as under :

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Sundry Creditors 4,000 Machinery 12,000
Bills payable 2,000 Stock 8,000
Capitals: Sundry Debtors 7,200
M 12,000 Bank Balance 500
N 10,000 22,000 Cash in hand 300
____________ __________
28,000 28,000
On the above date the partners decide to admit R as a partner on the following terms :
(a) The new profit sharing ratio of M,N and R will be 7:5:4 respectively.
(b) R shall bring Rs.8,000 as his capital and Rs.4,000 for his share of goodwill.
(c) M and N will draw half of the goodwill in cash.
(d) Machinery is to be valued at Rs.15,000,Stock at Rs.10,000 and a provision for bad
debts of Rs.1,000 is to be created.
(e) There is a liability of Rs.2,000, being the outstanding salary payable to employees of
the firm.
This liability is not included in the creditors . Partners decide to show this liability in the books of
accounts of the new firm.
Prepare Revaluation Account, Partners Capital accounts and Balance sheet of the M,N and R.
(Ans. Profit on Revaluation Rs.2,000 Balance sheet total Rs.42,000 )
Q5. A and B were carrying on business in partnership sharing profits and losses in the ratio of 3:2
respectively. On December 1986, their balance sheet as follows:

A’s Capital Account 30,200 Land and Buildings 40,000
B’s Capital Account 35,400 Furniture 10,600
Bank loan 20,000 Stock 38,500
Sundry Creditors 20,800 Sundry Debtors 19,000
Bills Payable 10,000 Cash 8,300
_______ _______
1,16,400 1,16,400
C was admitted to partnership on the following conditions :
(a) C would be entitled to one-third share in profits.
(b) C would bring Rs.30,000 as capital and Rs.10,000 as his share of goodwill.
(c) The book value of land and buildings would be increased by Rs.10,000 and a
provision for bad debts @ 5% of Sundry Debtors would be created.
(e) Bank loan would be paid off.
You are required to :

(i) Prepare Revaluation Account, Cash book and Partners Capital Accounts.
(ii) Show initial Balance Sheet of the new firm.
(Ans. Profit on Revaluation Rs.9,050; B/S Rs.1,45,450)
Q6. Vimal and Nirmal are partners in a firm sharing profits and losses in the ratio of 3:2. On 31st
December ,1983, the position of the business was as follows:

Sundry Creditors 20,000 Cash 14,000
Capital Accounts : Debtors 18,000
Vimal 60,000 Plant and machinery 50,000
Nirmal 32,000 Stock 40,000
Profit and loss A/c 10,000
___________ ___________
1,22,000 1,22,000

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On this day, Kailash agree to join the business on the following terms and condition :
(a) He will introduce Rs.40,000 as his capital and pay Rs.20,000 to the existing partners
for his share of
Goodwill.
(b) The new profit sharing ratio is 2:1:1 respectively for Vimal, Nirmal and Kailash .
(c) A revaluation of the assets will be made by reducing plant and machinery to
Rs.35,000 and stock by 10%.
Provision of Rs.1,000 is to be created for bad and doubtful debts.
Prepare necessary ledgers. Give the balance sheet of the newly constituted firm. Also specify the
sacrificing Ratio.
(Ans. Loss on Revaluation Rs.20,000 Balance Sheet Rs.1,62,000)
Q7. A and B were partners sharing profits and losses equally. The balance sheet as on March 31,1999 was
as follows:

Creditors 50,000 Cash in hand 12,000
Bills Payable 15,000 Cash at Bank 15,000
Outstanding expenses 3,000 Debtors
General Reserve 20,000 20,000 19,500
Capitals : Less : Provision 500 20,000
A 50,000 Stock 10,000
________ Machinery 73,500
1,68,000 Land & building ______
1,68,000
On that date, They agreed to admit C as a partner on the following terms:

(a) C shall get 1/5th share in profits and he will bring Rs.20,000 as Capital and Rs.5,000
as his share
of goodwill.
(b) Goodwill brought in by C shall be withdrawn by A and B .
(c) Provision for doubtful debts should be brought up to 5% debtors.
(d) Machinery be depreciated by Rs.1,000 and furniture by 12 ½ %.
(e) Stock be revalued at Rs.23,000.
(f) Land & Building be appreciated by 20% and
(g) Investment of Rs.2, 000 which did not appear in books should be recorded.
Prepare Revaluation A/c, Partners Capital A/c and Balance sheet.
(Ans. Profit on Revaluation Rs.16,950; Balance sheet Rs.2,04,950)
Q8. The following is the Balance sheet of X and Y sharing profits and losses in the ratio of 2:1.

Sundry Creditors 1,00,000 Cash 60,000
X 2,50,000 Debtors 3,00,000
Y 2,00,000 4,50,000 Furniture 30,000
Property 1,00,000
_________ ____________
5,50,000 5,50,000
They agreed to admit Z into partnership on the following Conditions :

(a) Z to pay Rs.45,000 as goodwill.
(b) Z to bring Rs.55,000 as his capital for 1/4th share of profit in the business .
(c) Property and Furniture to be depreciated at 5%.Stock to be reduced by Rs.8,000 and
a bad debt
Reserve of Rs.60,000 to be provided for .

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Assuming the above terms to have been effect to, show the necessary ledgers and prepare the initial
Balance Sheet.
(Ans. Loss on Revaluation 74,500; Balance sheet Rs.5,75,500)
Q9. Following is the Balance sheet on 31st March ,1999 of Sushil and Satish who are in partnership sharing
profits and Losses in the ratio of 3:2 respectively.

Creditors 18,000 Freehold Premises 10,000
Reserve 5,000 Machinery 5,400
Capital Accounts Stock 12,000
Sushil 22,000 Debtors 22,500
Satish 7,000 Less: Provision 4,000 18,500
Cash at Bank 6,000
______________ ____________
52,400 52,400
They admit Samir into partnership with effect from 1st April 1999, on the following conditions :
(a) Samir to bring in Rs.6,000 as Capital and Rs.4,800 for two-seventh share of
Goodwill , Both the
Sums remaining in the business .
(b) Freehold Premises have been revalued at Rs.15,000. Stock to be discounted at 10%
and Provision
For doubtful debts to be reduced by Rs.1,000.
Pass the journal entries in the books of the firm to record the transactions relating to Samir’s admission,
and prepare the Balance sheet of sushil, Satish and Samir on 1st April,1999.
(Ans. Profit on Revaluation Rs.4,750; Balance sheet Rs.67,950)
Q10. A and B are partners in a firm sharing profits in the ratio of 3:2. On 1st Jan,1982 the position of the
business was as follows:

Capital Accounts Goodwill 5,000
A 30,000 Stock 19,000
B 25,000 Plant and Machinery 25,000
Sundry Creditors 10,000 Debtors 20,000
General reserve 5,000 Less : Provision for 1,000 19,000
Bad and doubtful debts
Cash 2,000
____________ ___________
70,000 70,000
C agree to join the business on the following conditions:

(a) He will introduce Rs.20,000 as his capital and pay Rs.10,000 to the partners as premium for
goodwill . The new profit sharing ratio is 2:1:1 for A,B and C respectively.
(b) A revaluation of the assets of the firm will be made by reducing plant and machinery to
Rs.22,000 stock is to be reduced by Rs.2,000 and create provision for bad and doubtful debts
at 6% on debtors. You are asked to give necessary ledgers and give the new balance sheet
(Ans. Loss on Revaluation Rs.5,200; B/S A/c Rs.89,800)
Q11. A and B share profits in the proportion of 3/4th and ¼. Their Balance sheet on December 31,1981 was
as follows:

Sundry Creditors 41,500 Cash at Bank 26,500
Reserve Fund 4,000 Bills Receivable 3,000
Capitals: Debtors 16,000
A 30,000 Stock 20,000
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B 16,000 Fixtures 1,000

Land and Buildings 25,000
______________ _____________
91,500 91,500
On Jan,1,1982 , C was admitted into partnership on the following terms:
(a) That C pays Rs.10,000 as his capital for 1/5th share.

(b) That C pays Rs.5,000 for goodwill . Half of this sum is to be withdrawn by A and B .
(c) That stock and fixtures be reduced by 10% and a 5% provision for doubtful debts be created
on Sunday Debtors and Bills Receivable .
(d) That the value of land and buildings be appreciated by 20%.
(e) There being a claim against the firm for damages, a liability to the extent of Rs.1,000 should
be created.
(f) An item of Rs.650 included in sundry creditors is not likely to be claimed and hence should be
written back. Record the above transactions(journal entries )in the books of the firm assuming
that the profit sharing ratio between A and B has not changed .
Prepare the new balances sheet on the admission of Mr. C.

Record the above transactions (journal entries) in the books of the firm assuming that the
profit sharing ratio between A and B has not changed . Prepare the new balance sheet on the
admission of Mr. C.
(Ans. Profit on Revaluation Rs.16,000;Balance sheet A/c Rs.1,05,950)
Q12. A and B are partners sharing profits in the ratio of 3:1. Their Balance sheet are as on 31-12-90 was as
follows:

Capital Accounts Bank 1,000
A 9,000 Debtors 6,000
B 3,000 Stock 3,000
Creditors 2,000 Investment 5,000
Workman’s Compensation Fund 2,000 Goodwill 1,000
________________ ______________
16,000 16,000
C is admitted for 2/5th share in future profits. For this purpose ,following adjustments are agreed upon:
C will bring Rs.8,000 for capital and Rs.2,000 for goodwill . Market value of investment is Rs.4,500; claim on
account of workmen’s compensation is Rs.1,000. Goodwill is not to appear in the new firm at all.
Prepare ledger accounts i.e. Revaluation Account, Partners Capital Accounts, to record the above and show the
balance sheet .
(Ans. Loss on Revaluation 500; Total B/S=24,500)
Q13. A and B are partners sharing profits in the ratio of 2:1. Their Balance sheet as at 31st December,1996
was as under:

Sundry Creditors 44,000 Cash at bank 17,000
Capital Sundry Debtors 15,000
A 30,000 Bills receivable 4,000
B 20,000 Stock 25,000
Furniture 3,000
Land and Building 30,000
_________________ ______________
94,000 94,000
C is admitted to partnership with effect from 1st Jan 1997, on the following terms:
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(a) That he brings in Rs.15,000 as his capital for 1/4th share and pays Rs.6,000 for goodwill , half
of which is to be withdrawn by A and B.
(b) That there is likely to be a claim against the firm for damages for which a provision to the
extent of Rs.1,500 is to be made.
(c) That all bill for Rs.300 for electric charges is omitted from the books. It should be provided
for .
(d) That the value of stock would be reduced to Rs.23,000 and furniture and fixtures by
Rs.1,000.
(e) That provision for doubtful would be created at 5% on debtors.
(f) That the value of land and buildings would be appreciated by 20%.
(g) That included in sundry creditors is an item of Rs.1,200 which is not to be paid and therefore
has to be written back.
Prepare Capital Accounts and other necessary accounts . Also prepare the balances sheet as at
1.1.1997.
(Ans. Profit Rs.1,650; Capital A 33,100; B -21,550; C 15,000; B/s 1,14,250;Cash at Bank 25,000)
Q14. Balance Sheet of A,B and C sharing profit in the ratio of 3:2:1 is given below:

A’s Capital 4,00,000 Bank 40,000
B’s Capital 4,00,000 Debtors 2,00,000
C’s Capital 2,00,000 Less : Provision 3,000 1,97,000
Contingency Reserve 1,20,000 For Doubtful debts 2,03,000
Trade Creditors 1,80,000 Stock
Furniture 30,000
Machinery 5,30,000
Buildings 3,00,000
_______________ ______________
13,00,000 13,00,000
It was decided to admit D into partnership on the following terms and conditions:
(a) New profit Sharing ratio between A,B,C and D will be 3:3:2:2.
(b) Goodwill of the firm is valued at Rs.3,00,000. D brings his share of goodwill in cash which is
credited to the old partners .
(c) D brings Rs.1,50,000 as his share of capital.
(d) Contingency Reserve is not required an more.
(e) Provision for bad and doubtful debts to be raised to 5% on debtors.
(f) Machinery is revalued at Rs.5,00,000 and Buildings is revalued at Rs.3,67,000.
Prepare Revaluation A/c Capital A/c’s of A,B ,C and D and the Balances Sheet of the firm after D’s
admission .Also show the calculation regarding goodwill.
(Ans. Profit 30,000 B/s 1,54,000; Capital A’s 5,35,000; B’ 4,60,000, C’s 2,15,000)
Q15. Surrender and Narender share profit and losses in the ratio of 3:2. On 1st Jan 1994, Mahender was
admitted who paid Rs.40,000 for capital and Rs.20,000 for Goodwill, Surrender and Narender
withdrew half of the goodwill . The Balance sheet of surrender and Narender as on 31st dec,1993 was
as follows:

Creditors 14,000 Cash 7,000
Bills Payable 4,000 Stock 40,000
Capital Accounts Sundry Debtors 22,000
Surrender 56,000 Less: Provision
Narender 30,000 For bad debts 2,000 20,000
Furniture 7,000
Plant 10,000

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Buildings 20,000
______________ _______________
1,04,000 1,04,000
The assets and liabilities of the firm were revalued as under :
(a) Stock at Rs.36,000, Furniture at Rs.8,000, plant at Rs.8,000 and building at Rs.24,000.
(b) Provision for doubtful debts is to be maintained at 10% of the debtors.
(c) A liabilities of Rs.1,000 included in creditors was not likely to be paid .
Prepare Revaluation Account , partners Capital Accounts and balance sheet of the reconstituted firm.
Mahender was admitted for 1/6 share in future .
(Ans. Loss Rs.200 B/s 1,52,800 Capital Surrender 61,880; Narender 33920)
Q16. X and Y are partners in a firm sharing profits and losses as X-6% and Y, 40%. On 31st March ,1999
the position of the business was as follows:

Sundry Creditors 15,000 Plant and Machinery 30,000
Loan 20,000 Furniture and fitting 15,000
Reserve 10,000 Stock 20,000
Capital Debtors 18,000
X’s 24,000 Cash 7,000
Y’s 21,000
_________________ __________________
90,000 90,000
Z agrees to join the business on the following conditions :
(a) He will introduce Rs.20,000 as his capital and pay Rs.10,000 to the partners as premium for
goodwill 1/4th share of the furniture profits of the firm .
(b) A revaluation of the assets of the firm will be made by reducing plant and Machinery Account
to Rs.20,000 and Stock by 10% and by raising provision for doubtful debts to 6 ¼ % of
debtors.
You are asked to give the necessary entries in the books of account , recording the above transactions
and give the Balance sheet of the new firm on completion of the transactions. How will the partners
share profits in the new firm, assuming that the relative ratios of X and Y remains unaltered ?
(Ans. Loss on Revaluation Rs.13,125; X Capital Rs.28,125; Y’s Capital Rs.23,750;Z Capital Rs.20000)
Q17. Given below is the balance sheet of A and B, who share profit & losses in the ratio of 2:1.

Bills Payable 10,000 Cash in hand 10,000
Creditors 58,000 Cash at bank 40,000
Outstanding Express 2,000 Sundry Debtors 60,000
Capital : Plant 1,00,000
A 1,60,000 Buildings 1,50,000
B 1,40,000
________________ _______________
4,00,000 4,00,000
C is admitted as a partner on the date of the balance sheet on the following terms :
(a) C will Bring in Rs.1,00,000 as his capital and Rs.60,000 as his share of goodwill for 1/4th
share in the profits.
(b) Plant is to be appreciated to Rs.1,20,000 and the value of building is appreciated by 10%.
(c) Stock is found overvalued by Rs.3,000.
(d) A provision for doubtful debts to be created at 5% of debtors .
(e) Creditors were unrecorded to the extent of Rs.1,000.
Prepare the revaluation account and partner ‘s capital accounts and show the balance sheet after the
admission of C. (Ans. Profit on Revaluation Rs.28,000;Total of B/s Rs.5,89,000)
Q18. A and B are partners sharing profit and losses in the ratio of 4:3. On 31st March 1999, their balance
sheet was as follows:
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Reserve 7,000 Cash at bank 28,000
Capital Accounts Sundry Debtors 31,000
A 1,20,000 Less: Provision 1,000 30,000
B 80,000 Stock 30,000
Machinery 60,000
Buildings 80,000
Patients 4,200
_______________ _______________
2,34,200 2,34,200
On this date they agree to admit C into partnership on the following terms :
(a) C will be entitled to 1/8 share in the profit of the firm and he will bring in Rs.30,000 as his
capital.
(b) C will be also bring in Rs.14,000 as his share of goodwill.
(c) Building have been valued at Rs.76,500 and machinery at Rs.67,000.
(d) A provision of Rs.1,700 is to appear in respect of bad and doubtful debts.
(e) Patents should be written off.
Prepare the necessary ledgers and balance sheet .
(Ans. Loss on Revaluation Rs.1,400,Total of .B/s Rs.2,76,800)
Q19. The balance sheet of A and B who shared profits in the ratio of 3:2 was as follows on 1st Jan 1999:

Sundry Creditors 20,000 Cash in hand 5,000
Reserve 20,000 Sundry Debtors 20,000
A’s Capital 28,000 Less: Provision 700 19,300
B’s Capital 22,000 Stock 25,000
Plant and Machinery 35,000
Patients 5,700
_________________ _________________
90,000 90,000
On this date , C was admitted as a partner on the following terms :
(a) He was to get 4/15th of profit;
(b) He was to introduce Rs.30,000 as capital;
(c) He would pay cash for goodwill which would be based on 2 ½ years purchase of the average
profits of past four years;
(d) A and B would withdraw half the goodwill in cash;
(e) Assets would be revalued as under; Sundry Debtors at book value less a provision of 5%.
stock at Rs.20,000.
Plant and Machinery at Rs.41,000 and patents at Rs.12,000 and
(f) Liabilities were proved at Rs.23,000 one bill for goods purchased having been omitted from
book.
Profits for the purchase of calculation of goodwill were :
1995 Rs.15,000 1997 Rs.14,000
1996 Rs.20,000 1998 Rs.17,000
Give ledger accounts to record the above and the Balance sheet on C’s admission . What will be the
new profit sharing ratio ?
(Ans. Profit on Revaluation Rs.4,000;Total of B/s Rs.1,32,500; New Profit Sharing
Ratio:33:22:20)
Q20. P & Q are partners in a firm sharing profits and losses in the ratio of 3:1. Their Balance sheet as on
march 31,1999 was as follows:

Reserve 8,000 Cash at bank 40,000

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Capital Sundry Debtors 32,000

P 60,000 Bills receivable 6,000
Q 32,000 Stock 40,000
Furniture 2,000
Building 50,000
_________________ ________________
1,75,000 1,75,000
On this day they admit R as a partner for 1/5th share in profits on the following terms :
(a) R will brings Rs.20,000 as his capital.
(b) Goodwill of firm valued Rs.40,000.
(c) The values of stock and furniture be reduced by 10%
(d) A provision for doubtful debts be created @ 5% on debtors.
(e) Buildings be appreciated by 20%.
Prepare Revaluation account partner’s capital accounts , and the balances sheet of the new firm.
(Ans. Profit on Revaluation Rs.4,200;Total of B/s Rs.1,99,200)
Q21. The following was the balance sheet of A,B and C as on 30th June 1992:

Creditors 11,000 Land and Building 50,000
Bills Payable 6,000 Furniture 7,500
Capital Accounts Stock 30,000
A 40,000 Debtors 26,000
B 33,500 Cash 1,500
C 25,000 98,500
________________ _______________
1,15,500 1,15,500
They share profits and losses in the ratio 6:5:3. On 1st July 1989 , they agreed to admit D in to partnership
and give him a share of 10 paise in the rupee on the following terms :
(a) That D should bring in Rs.14,000 as Capital.
(b) That Stock be depreciated by 10% and furniture by Rs.900
(c) That a reserve of Rs.1,300 be made for outstanding repair bill.
(d) That the value of land and building be brought up to Rs.65,000.
(e) That s goodwill of firm valued at Rs.8,400
Pass necessary Journal entries to record the above arrangements and prepare the new balance sheet of
the firm .
(Ans. Profit Rs.9,800;Total of B/s Rs.1,40,600)
Q22. X and Y are partners sharing profits and losses in the ratio of 3:1 respectively. Their balances sheet as
at 31st December 1986 was as under :

Sundry Debtors 75,000 Bank 45,000
Profit & Loss A/c 8,000 Bills receivable 6,000
Capital Debtors 32,000
X 60,000 92,000 Less: Reserve for
Y 32,000 Doubtful debts 2,000 32,000
Stock 50,000
Furniture 3,000
__________________ ________________
1,75,000 1,75,000
Z is admitted as a partner on 1.1.86 on the following terms:

(a) Z pays Rs.20,000 as capital for 1/5th share in partnership profits.
(b) Goodwill of the new firm valued at Rs.40,000.
(c) Stock and furniture to be reduced by 10% each .
(d) Reserve for doubtful debts is to be made up to 5% on the debtors.
(e) Appreciate land and building by 20%.

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Prepare Revaluation account, Goodwill Account ,Partner’s Capital Accounts and the Balance Sheet of
the reconstituted new firm.
(Ans. Profit on Revaluation Rs.3,300;Total of B/s Rs.1,98,300)
Q23. L and M share the profits of a business in the ratio of 5:3. They admit N into the firm for a ¼ share in
the profit to be contributed equally by L and M . On the date of admission the balance sheet of the firm
was as follows :

L’s Capital 30,000 Machinery 26,000
M’s Capital 20,000 Furniture 18,000
Workmen’s compensation fund 4,000 Stock 10,000
Bank loan Debtors 8,000
Creditors 12,000 Bank 6,000
2,000
________________ _______________
68,000 68,000
Terms of N’s admission were as follows :
(a) N will bring Rs.25,000 as his capital.
(b) 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 with
the capital employed are Rs.12,000. Furniture appreciated by Rs.6,000. Stock reduced by 20%.
(Ans. Profits 4,000; Capital 39,000; M 27,000; N 17,000 B/s 97,000)
Q24. B and C are partners in a firm, sharing profits and losses in the ratio of 5:3. They admit A into the firm
on 1st April 1991, When their balance sheet was as follows:

B’s Capital 32,000 Goodwill 8,000
C’s Capital 34,000 Machinery 38,000
General Reserve 8,000 Furniture 5,000
Bank loan 6,000 Debtors 23,000
Creditors 6,000 Stock 7,000
Bank 5,000
_______________ ______________
86,000 86,000
Terms of A’s admission were as follows :
(a) A will bring Rs.30,000 through cheque, as his share of capital and will be entitled to 1/3rd
share in the profits.
(b) A is not to bring goodwill in cash. Goodwill of firm valued on the basis of 2 years purchase of
the average
Profit of the last three years .
(c) Average profits of the last three years are Rs.6,000.
(d) Machinery and stock are revalued at Rs.45,000 and Rs.8,000 respectively.
(e) Goodwill is not to be shown in the books of the firm.
Prepare necessary ledgers and balance sheet.
(Ans. Profit 8,000; capital A 39,500 B 38,500, C 26,000 B/s 1,16,000)
Q25. A and B sharing profits in the ratio of 5:3 admit C as a partner with 1/3rd share in profits. He has to
contribute Rs.25,000 as his capital . The balance sheet of A and B before admission was as follows :

Sundry Debtors 21,000 Goodwill 10,000
Bills payable 6,000 Land and Building 25,000
Capital Plant and Machinery 30,000

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A 50,000 Stock 15,000

B 35,000 Sundry Debtors 20,000
General Reserve 16,000 Less: provision 1,500 18,500
Investment 20,000
Cash 9,500
_______________ ______________
1,28,000 1,28,000
Other terms agreed upon were :
(a) Goodwill of the firm was to be valued at Rs.22,000.

(b) Land and building were to be valued at Rs.35,000 and Plant and Machinery at Rs.25,000.
(c) The provision for doubtful debts was found to be in excess by 400.
(d) A liability for Rs.1,000 included in Sundry Creditors was not likely to arise .
(e) Rs.12,000 of investment were to be taken over by A and B in their profit sharing ratio.
(f) B is to withdraw Rs.3,400 in Cash.
Give journal entries to record the above transactions and show the balance sheet of the firm after C’s
admission .
(Ans. Profit on Revaluation Rs.6,400; Total of balance sheet Rs.1,33,000)
Q26. Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3:2. On 31st
December 1987, their balance sheet was as under :

Sundry Debtors 16,000 Cash in hand 1,200
Public Deposits 61,000 Cash at bank 2,800
Bank overdraft 6,000 Stock 32,000
Outstanding liabilities 2,000 Prepaid Insurance 1,000
Capital Accounts : Sundry Debtors 28,800
Deepika 48,000 Less: Reserve for
Rajshree 40,000 88,000 Doubtful debts 800 28,000
Plant and Machinery 48,000
Furniture 10,000
_______________ ______________
1,73,000 1,73,000
On the above date, the partners decided to admit Anshu as a partner on the following terms :
(a) The new profit sharing ratio of Deepika ,Rajshree and Anshu will be 5:3:2 respectively.
(b) Anshu shall bring Rs.32,000 as his capital.
(c) Anshu is unable to bring in cash for his share of goodwill . They decide to calculate goodwill
on the basis of Anshu’s share in the profits and the capital contribution made by him to the
firm.
(d) Plant and machinery is to be valued at Rs.60,000. Stock at Rs.40,000 and the reserve for
doubtful debts is to
Be maintained at Rs.4,000.Value of land and Building has appreciated by 20%. Furniture has
depreciated by
10%.
(e) There is an additional liability of Rs.8,000 being outstanding salary payable to employees of
the firm. This
Liability is not included in the outstanding liabilities, stated in the above balance sheet.
Partners decide to show this liability in the books of accounts of the reconstituted new firm.
Prepare Revaluation Account, Partners Capital Accounts and the balance sheet of Deepika,Rajshree and Anshu.
(Ans. Revaluation A/c –Profit Rs.17,800;B/s Rs.2,30,800;Bank A/c Rs.34,800)
Q27. Rajesh and Ravi are partners sharing profits in the ratio of 3:2. Their balance sheet stood as under on
31-12-1991:

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Contingency reserve 2,500 Stock 15,000
Capital : Prepaid Insurance 1,500
Rajesh 26,000 Debtors 9,400
Ravi 13,000 39,000 Less: Provision 400 9,000
Employee’s Provident fund 4,000 Machinery 19,000
Workmen’s compensation 2,500 Building 35,000
reserve Furniture 5,000
________________ _______________
86,500 86,500
Raman is admitted as a new partner introducing a capital of Rs.16,000. The new profit sharing ratio is
decided as 5:3:2. Raman is unable to bring in cash for goodwill . So. It is decided that the amount of
goodwill calculated on the basis of Raman’s share in the profits and the capital contributed by him.
Following revaluation are made :

(a) Stock to depreciate 5%.
(b) Provision for Doubtful debts is to be Rs.500.
(c) Furniture to depreciate 10%
(d) Building are valued at Rs.40,000.
Show the necessary Ledger Account and the balance sheet of the new firm.
(Ans. Profit 3,650, B/s 1,06,150)
Q28. A and B are partners sharing profits in the ratio of 2:1. On Jan 1, 1990, they agree to admit C as a
partner , C agreeing to contribute Rs.50,000 as his capital. A ,B and C agree to share profits and losses
in the ratio of 2:3:3 respectively. The balance sheet of A and B on December 31, 1992 was as under :

Sundry Debtors 50,000 Cash at Bank 6,250
Capital Accounts : Stock on Hand 50,000
A 62,500 Debtors 31,000
B 37,500 1,00,000 Plant 25,000
Premises 37,500
1,50,000 1,50,000
They agree to revalue the assets as under :

Stock in hand Rs.45,000; Plant Rs.18,000; Premises Rs.50,000; a provision of 5 per cent for doubtful
debts is to be maintained. C agrees to transfer Rs.15,000 to A’s capital for goodwill from his capital
Account.
Pass the necessary Journal entries and Prepare revised balance sheet
(Ans. Loss on Revaluation A/c Rs.1,062; B/s Rs.1,98,938)
Q29. Following is the balance sheet of the firm , Ashirvad , owned by A,B and C who share profits and
losses of the business in the ratio of 3:2:1.

A’s Capital 1,20,000 Furniture 95,000
B’s Capital 1,20,000 Business Premises 2,05,000
C’s Capital 1,20,000 Stock in Trade 40,000
Sundry Debtors 20,000 Debtors 28,000
Outstanding Salaries and wages 7,200 Cash in Hand 4,200
Cash at Bank 15,000
3,87,200 3,87,200
On 1st June 1992, they admit D as a partner on the following conditions :

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(a) D will bring Rs.1,20,000 as his capital and also Rs.30,000 as goodwill premium for a quarter
of the share in
The future profit/Loss of the firm.
(b) The values of the fixed assets of the firm will be increased by 10% before the admission of D .
(c) The future profits and losses of the firm will be shared equally by all the partners .
Show the journal entries , Revaluation Account, Partner Capital Account and the Opening balance sheet
of the new firm to include the above mentioned transactions assuming that the conditions were duly
satisfied.
(Ans. Profit on Revaluation Rs.30,000; Capital balance : A Rs.1,65,000, B Rs.1,40,000, C

Rs.1,15,000, D Rs.1,20,000; Balance sheet Total Rs.5,67,200)
Q30. The balance sheet of X and Y , who are partners sharing profits in the ratio of 3:2. On 31st December
1990 is a under:

Capital Plant and Machinery 18,000
X 16,000 Investments 3,000
Y 13,200 Goodwill 5,000
44,500 44,500
On the above date Z is admitted as partner , X surrendered 1/6th of his share and Y 1/3rd of his share in
favor of Z .Goodwill is worth Rs.60,000. Z brings only ½ of his share of goodwill in cash and
Rs.15,000 as his capital.
The following revaluation are made : Stock and Plant and machinery are worth 10% less than the book
value . The Market value of investment is Rs.12,000. Make a provision of 5 % for bad & doubtful debts
on debtors and a provision of 5% for discount on creditors .
Calculate New ratio, Sacrificing Ratio and Pass Journal entries to record the above arrangement. Also
Prepare
The balance sheet of the firm as newly constituted.
(Ans. Profit on Revaluation of 6,300; Capital Accounts: X Rs.26,580; Y Rs.23,720; Z Rs.15,000;
B/s Rs.67,490)
Q31. Ram and Shyam are partners sharing profits and losses in the ratio of 3:1. They agreed to admit Mohan
into the Partnership firm.
Mohan is to bring Rs.40,000 as his capital and Rs.12,000 as goodwill for 1/4th share of future profits.
This he acquires in the ratio of 2:1. from Ram and Shyam .The amount of goodwill brought by
Mohan is to remain in the business at the time of Mohan’s admission a general reserve of Rs.16,000
existed in the books of the old firm. For the purpose of admission , the assets and liabilities are to be
revalued as under:
(a) Building was appreciated by Rs.20,000.
(b) Provision for Rs.1,000 was to be made for an outstanding bill for repairs .
Pass the necessary journal entries in connection with Mohan’s admission and also calculate the future
profit sharing ratio of the partners.
(Ans. Profit on Revaluation Rs.20,000; New ratio :7:2:3)
Q32. A and B are partners in a firm sharing profit in the ratio of 3:1 the balance sheet of the firm on 31st
December 1992 was as follows:

Workmen’s Compensation Bills Receivable 25,000
Fund 12,000 Sundry Debtors 40,000
General Reserve 21,000 Less: Provision 5,000 35,000

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Capital : Stock 30,000

A 60,000 Investment 50,000
B 49,000 Goodwill 10,000
1,60,000 1,60,000
On the above date C is admitted for 2/5th share in the profits of the firm and the following revaluations
were made:
(a) Accrued incomes not appearing in the books Rs.1,000.

(b) Market value of investments is Rs.45,000.
(c) Claim on account of workmen’s compensation is estimated at Rs.1,500.
(d) X , an old customer , whose account was written off as bad has promised to pay Rs.3,500 in
settlement of his fulldebt.
(e) C is required to bring Rs.80,000 as capital and Rs.20,000 as goodwill . his share of goodwill
was calculated as Rs.24,000.
You are required to make journal entries and prepare initial balance sheet of the firm .
(Ans. Loss on Revaluation A/c Rs.500 ; Balance sheet Total Rs.2,49,500)
Q33. A, B and C were in partnership sharing profits as to A ½, B 1/3 , C 1/6. As from 1st Jan 1999, they
admitted D into Partnership on the following terms:
D to have 1/6th share , which he purchased entirely from A , Paying Rs.8,000 for his share of goodwill.
Of this amount A retained Rs.6,000 and put the balance in the firm as additional capital. D also
brought Rs.5,000 as his Capital into the firm . It was further agreed that investment should be reduced
to their market value . viz. Rs.3,600 and that Plant should be reduced to Rs.5,800. The balance sheet of
the firm at 31st December 1998 was as follows :

Reserve 6,000 Debtors 28,800 12,000
Capital Stock 10,000
A 9,000 Investment(at cost) 6,000
C 3,000 Plant 7,000
45,000 45,000
(Ans. Loss on Revaluation Rs.3,600; Total of opening balance sheet Rs.48,400)
Q35. L and M are partners sharing profits in the ratio of 5:3. The balance sheet of the firm as at march
31,2003 is given below:

Capitals : Land 6,00,000
L 12,85,000 Building 8,80,000
M 7,16,000 20,01,000 Other Fixed Assets 3,90,000
Reserve fund 2,40,000 Stock 1,98,000
Sundry Creditors 1,49,000 Debtors 1,83,000
Cash in Hand and at Bank 1,39,000
23,90,000 23,90,000
On 1.4.2003 N is admitted into partnership on the following terms :
(a) L,M and N will share profits in the ratio of 7:5:3.

(b) The Assets were revalued for the purpose of admission : land Rs.7,50,00; Buildings
Rs.8,00,000.
(c) Goodwill of the firm was valued at Rs.3,60,000 N was to bring his share of goodwill in cash
which was to be retained in the business .
(d) N has to bring Rs.6,00,000 towards his share of capital.

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Prepare Revaluation A/c , capital A/c ,cash A/c and balance sheet of the reconstituted firm.
(Ans. Profit on Revaluation Rs.70,000; balance sheet Rs.31,32,000)
Q36. P and S were partners in a firm sharing profits in the ratio of 3:2. Their balance sheet as on 31-3-2001
was as follows

Bank overdraft 20,000 Cash 8,000
Provision for bad debts 1,000 Bills Receivable 40,000
V’s loan 20,000 Building 90,000
Capital Land 1,48,000
P 1,00,000
S 1,80,000 2,80,000
3,66,000 3,66,000
On 1.4.2001 they admitted V as a new partner on the following Conditions :

(a) V will be get 1/8th share in profits of the firm.
(b) V’s loan will be converted into his capital.
(c) The goodwill of the firm was valued at Rs.80,000 and V brought his share of goodwill
premium in cash.
(d) Provision for bad debts was to be made equal to 5% of the debtors .
(e) Stock was to be depreciated by 5 %
(f) Land was to be appreciated by 10 % .
Prepare Revaluation Account , Capital Accounts of P,S and V and the balance sheet of the firm as on
1.4.2001.
Q37. A and B are partners in a firm sharing profits in the ratio of 3:2. On April 1,2003 they admit C as anew
partner for 3/13 share in the profits. The new ratio will be 5:5 :3, C contributed the following assets
towards his capital and for his share of goodwill. Stock Rs.40,000, Debtors Rs.60,000, Land
Rs.1,00,000, Plant and Machinery Rs.60,000. On the date of admission of C, the goodwill of the firm
was valued at Rs.5,20,000. Record necessary journal entries in the books of the firm on C’s admission
and prepare Cs’ capital account .
Q38. E and F are partners in a firm sharing profits in the ratio of 3:2. They admitted G as a new partner on
March 1,2003. G brought Rs.70,000 as her capital. On G’s admission the firm had a joint life policy of
Rs.5,00,000.The annual premium paid on the policy was Rs.12,000 and E and F had debited the same
into their profit and loss account. On G’s admission, the surrender value of the policy was Rs.30,000.
Record the necessary journal entries in the books of the firm.
Q39. S and G are partners in a firm sharing profits in 3:1 ratio. They admit M as a new partner for 1/4th share
in the profit. The new profit sharing ratio of S,G nad M is 2:1:1. M brought Rs.75,000 as her capital.
On the date of M’s admission on Jan.1.2002 the firm had a joint life policy of Rs.10,00,000. S and G
considered the annual premium paid on the policy as revenue expenditure . The surrender value of the
policy was Rs.80,000. S ,G and M decided not to show joint life policy in the balance sheet of the new
firm. Show the treatment of joint life on M’s admission .
Q40. On the admission of N on April 1,2003 in the firm of D and G there existed a balance of Rs.30,000
each in the joint life policy account and joint life policy reserve account . It was decided that these
accounts will not be shown in the books of the new firm. Record the necessary journal entries for the
same .
Q41. R and S are partners in a firm sharing profits in the ratio of 4:1. On April 15, 2003 they admit N as
anew partner . On that date there was a balance of Rs.20,000 in general reserve and a balance of
Rs.50,000 in the profit and loss account of the firm. Record necessary journal entries .

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Q42. X and Y were partners in a firm , sharing profits in 2:3 ratio. On April 1.2003, they admitted Z as a new
partner for 1/6th share in the profits. Z brought Rs.1,25,000 for his capital and Rs.25,000 for his share
of premium .At the time of Z admission the balance sheet of the firm showed Rs.40,000 in joint life
policy account. It was decided that the joint life policy would not be shown in the books of the firm.
Record necessary journal entries for the above transactions in the books of the firm.
Q43. Usha and Asha are partners in a firm sharing profits in the ratio of 3:2. Their balance sheet on 31st
march 2003 was as
Follows :

Bills payable 5,000 Less: Provision for 4,800 43,200
Capital Bad Debt
Usha 40,000 Stock 30,000
Asha 35,000 Patents 7,400
Building 20,400
1,25,000 1,25,000
Neelam is admitted into the partnership giving her 1/5th share in profits. Neelam to bring in Rs.30,000
as her capital
and her share of goodwill in cash subject to the following terms:
(a) Goodwill of the firm to be valued at Rs.50,000.
(b) Stock to be reduced by 10% and provision for bad debts be reduced by Rs.2,400.
(c) Patents are valueless.
(d) There was a claim against the firm for damages amounting to Rs.2,000. The claim has now
been accepted .
Prepare Revaluation Account , Partners Capital Accounts and the balance sheet of the firm.
(Ans. Profit on Revaluation Rs.8,000; Balance sheet Rs.1,95,000)
Q44. A and B are partners in a firm sharing profits in the ratio of 2:1. C is admitted into the firm with 1/4 th
share in profits . He will bring Rs.30,000 as his capital. The balance sheet of A and B as on 31.3.2002
was as under :

A’s Capital 52,000 Furniture 5,000
B’s Capital 30,000 Machinery 25,000
Building 40,000 [
1,00,000 1,00,000
Other terms of the agreement are as under :
(a) C will bring in Rs.12,000 as his share of goodwill.
(b) Building was valued at Rs.45,000 and machinery at Rs.23,000.
(c) A provision for bad debts is to be created @ 6% on debtors.
Prepare Revaluation Account, Partners Capital Accounts and the balance sheet of the new firm.
(Ans. Profit on Revaluation Rs.2,520; balance sheet Rs.1,44,520)
Q45. M and N were partners in a firm sharing profits in the ratio of 3:1. Their balance sheet as on 31.3.2004
was as follows:

Bills payable 40,000 Debtors 60,000
Outstanding salary 2,000 Stock 40,000

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Capital Accounts : Plant 1,00,000

M 2,00,000 Land and Building 1,50,000
N 1,30,000 3,30,000
4,00,000 4,00,000
On the above date ‘O’ was admitted as a partner for 1/4th share in profits on the following terms:
(i) O will bring Rs.1,50,000 as his capital and Rs.90,000 as his share of premium for goodwill for
his share of profits.
(ii) Plant is to be appreciated to Rs.1,30,000 and the value of land and building is to be
appreciated by 5%.
(iii) Stock is overvalued by Rs.6,000.
(iv) A provision for bad and doubtful debts is to be created at 5%on debtors.
(v) There were unrecorded creditors Rs.4,500.
Prepare Revaluation Account, Partners Capital Accounts and the balance sheet of the new firm.
(Ans. Profit on Revaluation Rs.24,000)
Q46. Balance sheet of A,B,C ,D as on 01,Jan,2005

Capitals : Land and building 1,00,000
A 2,00,000 Plant and Machinery 80,000
B 90,000 Stock 70,000
C 60,000 3,50,000 Investments 60,000
Workmen’s Compensation Fund 10,000 Bank 51,000
4,10,000 4,10,000
A, B , C had been sharing profits in the ratio 2:2:1. From 01-01-2005 they decide to admit D into
partnership for 1/10th share of profit. The new Ratio is 4:3:2:1.
(1) Land & Building is revalued at Rs.1,30,000.
(2) Plant and Machinery is to be reduced to Rs.75,000.
(3) Stock is to be reduced by Rs.10,000.
(4) An investment with book value of Rs.10,000 is taken over by A at a valuation of Rs.16,000.
Rest of the investment are revalued 20% above their book value .
(5) Provision for doubtful debts is to be maintained at 5% of debtors.
(6) Insurance premium amounting to Rs.3,000 was charged to profit and loss A/c. However ,
Rs.1,000 out of this is still unexpired.
(7) Creditors include Rs.4,000 which is not likely to be claimed.
(8) Liabilities for Workmen Compensation is Estimated at Rs.3,000.
(9) A claim for damages against the firm for Rs.5,000 is likely to materials suitable provision
should be made therefore.
(10) Goodwill of the firm valued at Rs.60,000.
(11) D will bring Rs.35,000 as his share Capital & necessary amount of goodwill in cash .
Prepare Revaluation A/c , Capital A/c , & new balance sheet .

Dr. REVALUATION ACCOUNT
Cr.

To Plant & Machinery 5,000 By Land & Building 30,000
To Stock 10,000 By Investments(6,000 +10,000) 16,000
To Pro. Fro D.D 1,500 By Prepaid Insurance 1,000
To Provision for claim for 5,000 By Creditors 4,000
damages
Capitals :
A 11,800
B 11,800
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C 5,900 29,500
51,000 51,000
PARTNER’S CAPITAL ACCOUNTS
A B C D A B C D
To 16,000 ____ ____ ____ By Balance 2,00,000 90.000 60,000 - -----
Investment b/d ----- ----- ------ 35,000
To Balance 2,10,600 1,22,600 73,300 35,000 By Bank A/c 2,800 2,800 1,400 ------
C/d By ------
Workmen’s 12,000 12,000 6,000 ------
Comp. Fund 11,800 11,800 5,900 ------
By General -------- ------- ------- ------
By
Revaluation
By premium
A/c
2,26,600 1,22,600 73,300 35,000 2,26,600 1,22,600 73,300 35,000
Balance Sheet of A,B,C ,D as on 01 Jan 2005

Capitals Account Land & Building 1,30,000
A 2,10,600 Plant & Machinery 75,000
B 1,22,600 Stock 60,000
C 73,300 Investment 60,000
D 35,000 4,41,500 Debtors 50,000
Creditors 16,000 Less: Provision for 2,500 47,500
Workmen’s Compensation 3,000 B/D
Fund Prepaid Insurance 1,000
Provision for claim for 5,000 Bank 92,000
damages
4,65,500 4,65,500
CAPITAL ADJUSTMENT
IF MENTIONED IN QUESTION:
Capital accounts of all partners be adjusted on the basis of their profit sharing ratio.
OR Capital accounts of old partners be adjusted on the basis of proportion of new partners capital to his
share in the firm.
Total Capital of Firm = Closing Balance of new Partner’s Capital x Reciprocal of new partner share
1st STEP : Close the new Partners Capital A/c .

2nd STEP: Find the Total capital of firm on the basis of new partner’s capital
3rd STEP : Distribute the total capital of the firm in their (all partners) new profit sharing ratio.
4th STEP: Write new capitals of partner as ‘balance c/d’ on the debit side of their capital accounts.
5th STEP: Put the balancing figure under the head “ Cash A/c. “ on Debit or Credit side.
OR (If mentioned ) Any excessor deficiency be transferred to their Current A/c . Then put the balancing
figure under the Head “Current A/c” on debit or credit side.
Q1. The following was the balance sheet of A,B and C sharing profits and losses in the ratio of 6:5:3
respectively.

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Creditors 10,000 Land and building 24,000
Bills payable 4,000 Furniture 3,500
Capital Accounts : Stock 14,000
A 19,000 Debtors 12,600
B 16,000 Cash 2,900
C 8,000
57,000 57,000
They agreed to take D into partnership and give him a share of 1/8th in the Profits on the following terms :
(a) That D should bring in Rs.4,200 as goodwill and Rs.7,000 as his capital.
(b) That furniture be depreciated by 12%.
(c) That stock be depreciated by 10%.
(d) That a provision of 5% be created for doubtful debts.
(e) That the value of Land and building be brought up to Rs.31,000.
(f) That after making the above adjustment the capital account of the old partners (who continue
to share in the same proportion as before)be adjust on the basis of the proportion of D’s
Capital to his share in the business i.e. actual cash to be paid off to or brought in by the old
partners as the case may be .
Prepare the cash A/c ,profit & loss adjustment A/c and the opening balance sheet of the new firm.
(Profit : Rs.4,550; Cash:Rs.11,350; B/s-70,000)

Q2. A,B and C are partners sharing profits and losses in the ratio 2:3:5. On 31st march 1995 , their balance
sheet was as follows :

Capital Accounts : Cash 18,000
A 36,000 Bills Receivable 24,000
C 52,000 Stock 44,000
Creditors 1,32,000 Debtors 42,000
Bills payable 64,000 Investment 32,000
Profits & loss A/c 32,000 Machinery 34,000
14,000 Goodwill 20,000
2,42,000 2,42,000
They admit D into partnership on the following terms:
(1) Furniture , Investment and machinery to be depreciated by 15%.
(2) Stock is revalued at rs.48,000
(3) Goodwill to be valued at Rs.36,000.
(4) Outstanding Rent amounted to Rs.1,800.
(5) Prepaid Salaries Rs.800
(6) D to bring Rs.38,000towards capital for 1/6 share and other partnership to readjust their
capital accounts on the basis of their profit sharing ratio.
(7) Adjustment of capital to be made in cash.
Prepare Revaluation Account, Partner’s Capital Accounts , Cash Account and Balance sheet of the new firm .
(Loss Rs.11,100; Capitals: A-32,000; B-48,000; C-80,000; D-32,000; Cash -95,100; B/s-2,89,800)
Q3. A and B are partners in a firm, sharing profits and losses in the ratio of 3:2. Their balance sheet was as
follows on 1st Jan. 1985..:

Sundry Creditors 30,000 Plant 60,000
Capital Accounts: Patent 20,000
A 60,000 Stock 40,000
B 50,000 1,10,000 Debtors 36,000
General Reserve 20,000 Bank 4,000
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1,60,000 1,60,000
C was admitted to the firm on above date on the following terms :
(a) He would pay rs.20,000 as goodwill for 1/4th share in profits.
(b) Assets were revalued as under : Plant Rs.64,000; Stock Rs.36,000; Debtors at book value less
5%
provision for bad debts.
(d) It was found that the creditors include Rs.2,800, which were not to be paid . But it was also
found that there
Was liabilities for compensation to workers amounted to Rs.4,000.
(e) C was to introduce Rs.40,000 as capital and the capitals of other partners were to be adjusted
in new profit
Sharing ratio. For this purpose , current accounts were to be opened . (Any excess or
Deficiency be transfer to current A/c ).
Give Revaluation Account, Capital Accounts and balance sheet after C’s admission .
Q4.(a) A and B are partners in a firm sharing profits and losses in the ratio of 7:3. Their balance sheet as at
31st march 1993 is as follows :

Sundry Creditors 40,000 Cash in hand 36,000
Bank Overdraft 20,000 Sundry debtors 46,000
Reserve 10,000 Less: Provision for 2,000 44,000
Capital Doubtful debt
B 40,000 90,000 Stock in Trade 50,000
1,60,000 1,60,000
On 1st April 1993, C joins the firm as a third partner for 1/4th share of the future profits on the following terms
and conditions :
(a) Goodwill is valued at Rs.40,000 and C is to bring the necessary amount in cash as premium
for goodwill.
(b) 20% of the reserve is to remain as a provision against bad and doubtful debts .
(c) Stock in trade is to be reduced by 40% and furniture is to be reduced to 40%.
(d) A is to pay off the bank Overdraft.
(e) C is to introduce Rs.30,000 as his share of capital to which amount other partner’s capital shall
have to be adjusted .
Show the necessary journal entries to carry out the above transaction and prepare balance sheet of the
firm immediately after C has become a partner.
(Loss Rs.38,000; B/s -1,60,000; Capitals :A-63,000; B-27,000;C-30,000)
Q4.(b) Ram, Rahim and Bhaji are equal partners in a firm, their balance sheet as on 31st march 1999 was as
follows:

Sundry Creditors 27,000 Goodwill 1,17,000
Employees Provident Fund 6,000 Buildings 1,25,000
Bills Payable 45,000 Machinery 72,000
Capital Accounts : Stock 1,14,000
Ram 2,17,000 Book debt 1,02,000
Rahim 1,66,000 Cash 12,000
Bhajji 90,000
5,66,000 5,66,000
On that date they agree to take peter as equal partner on the following terms :
(a) Peter should bring in Rs.1,60,000 as his capital and goodwill . He share of goodwill is valued
at Rs.60,000.
(b) Goodwill appearing in the books must be written off .

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(c) Provision for loss on stock and provision for bad debt is to be made at 10% and 5%
respectively .
(d) The value of building is to be taken at Rs.2,00,000.
(e) The total capital of the new firm has been fixed at Rs.4,00,000 and the partners capital
accounts are to be
Adjusted in the profit sharing ratio.Any excess is to be transferred to current account and any
deficit is to be brought in cash.
Prepare the Revaluation Account, Partners Capital accounts ,and the balance sheet of the new firm.
(Profit –Rs.58,500; B/s -6,72,000;)
Q4.(c) Saddam and Osama are partners in s firm sharing profit and losses in the ratio of 3:2. They admit C into
partnership of 1/5th share in profits on 31st December , 1996. On that date their balance sheet stood as
under :

Capital Accounts : Goodwill 5,000
Saddam 60,000 Plant and Machinery 65,000
Osama 50,000 Furniture 15,000
General reserve 10,000 Investments 20,000
Sundry Creditors 50,000 Stock 20,000
Sundry Debtors 30,000
Cash in hand 15,000
1,70,000 1,70,000
Bush was admitted on the following terms :

(a) Bush is to bring capital Rs.40,000 and goodwill Rs.15,000.
(b) Partners agreed to share the future profits in the ratio of 5:3:2.
(c) Investment will be appreciated by 20% and furniture depreciated by 10%.
(d) One customer who owed the firm Rs.2,000 become in solved and nothing could be realized
from him.
(e) Creditors will be written back by Rs.2,000.
(f) Outstanding bills for repairs Rs.1,000 will be provided for
(g) Interest accrued on investment Rs.2,000.
(h) Capital of the partners shall be in proportion to their profit sharing ratio. For this , adjustment
be made through cash.
Prepare Revaluation Account, capital Account and balance sheet of the new firm .
(Profit rs.3,500; Capitals:Saddam:Rs.1,00,000; Osama rs.60,000; Bush Rs.40,000; B/s
Rs.2,49,000)
PROPORTIONATE CAPITAL
IF MENTIONED IN QUESTION :
New partner is to be contribute proportionate capital.

OR New partner is to be contribute a fraction of total capital of firm .(total capital of partners)
Proportionate capital = Closing balance of old partner’s Capital A/c’s x Reciprocal of Remaining
Share x New partner’s share .
1st STEP : Close the old partners capital accounts.

2nd STEP: Find the total capital of firm on the basis of old partners combined capitals .
3rd STEP : Calculate the new partners capital on the basis of total capital of firm.
Q5. Daler and Mikka are partners with profit sharing ratio of 2:1.Theri balance sheet on 31-3-1996 was as
follows :

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Creditors 20,000 Sundry Debtors 40,000
Bills Payable 15,000 Less: Provision 3,600 36,400
Reserve Fund 12,000 Stock 20,000
Capital Accounts : Building 25,000
Daler 40,000 Patents 2,000
Mikka 30,000 Machinery 33,600
1,17,000 1,17,000
They admitted Jassi into partnership on the date . New profit sharing ratio is agreed as 3:2:1. Jassi brings
in proportionate capital after the following adjustment :
(a) Jassi brings Rs.10,000 in cash as his share of goodwill .
(b) Provision for doubtful debts is to be reduced by Rs.2,400.
(c) There is an old type writer valued at Rs.2,600. It does not appear in the books of the firm. It is now
to be recorded.
(d) Patents are valueless.
Prepare Revaluation Account, Capital Accounts and the opening Balance sheet of Daler , Mikka and Jassi.
(Profit : 3,000; Capital: daler:60,000;Mikka:35,000;Jassi:19,000; B/s:1,49,000)
Q6. A,B and C are partners sharing profits and losses in the ratio 2:3:5. On March 31st 1998 their Balance sheet
was as follows :

Capital Accounts : Cash 18,000
A 36,000 Bills receivable 14,000
B 44,000 Stock 44,000
C 52,000 1,32,000 Debtors 42,000
Creditors 64,000 Machinery 94,000
Bills Payable 22,000 Goodwill 20,000
General Reserve 14,000
2,32,000 2,32,000
They decided to admit D into the partnership on the following :

(a) Machinery is to be depreciated by 15%.
(b) Stock is to be revalued at Rs.48,000.
(c) A,B and C have a joint life policy whose surrender value is Rs.12,000.
(d) Outstanding rent is Rs.1,900.
(e) D is to bring Rs.6,000 as goodwill and sufficient capital for a 2/5th share in the total capital of the
firm.
Prepare Revaluation Account, Partner Capital A/c, Cash A/c and Balance sheet of new firm.
(Loss Rs.12.000; Capitals: A-36,000; B-44,000;C-52,000;D-88,000;Cash-1,12,000;B/s-3,07,900)
Q7. The following is the Balance sheet as on 31st December 2002 of A and B, who share profits and losses in
the ratio of 3:2.:

Capital Accounts : Plant and Machinery 10,000
A 10,000 Land and Building 8,000
B 10,000 Debtors 12,000
General Reserve 15,000 Less : Provision 1,000 11,000
Workman’s 5,000 for D.D
Compensation Fund Stock 12,000
50,000 50,000
On 1st Jan 2003, they agreed to admit C into partnership of the following terms :
(i) Provision of doubtful debts would be increased by Rs.2,000.
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(ii) The value of land and building would be increased to Rs.18,000.

(iii) The value of stock would be increased by Rs.4,000.
(iv) The liability against Workmen’s Compensation Fund is determined at Rs.2,000.
(v) C brought in as his share of goodwill Rs.10,000 is cash .
(vi) C would brings further cash as would make his capital equal to 20% of the total capital of the new
firm after the above revolution and adjustment are carried out.
Prepare Revaluation Account, Partner Capital A/c and Balance sheet of the firm after C’s admission.
(Profit Rs.12.000; Capitals: A-34,000; B-26,000;C-15,000;Cash-34,000;B/s-87,000)
Q8. Below is the Balance sheet of Khanna and Seth who share profit and losses in the ratio of 3:2.

Sundry Creditors 15,000 Plant and Machinery 30,000
Bills Payable 2,750 Patents 5,000
Capital Accounts : Stock 16,000
Khanna 30,000Sundry Debtors 15,000
Seth 20,000Cash 1,000
Goodwill 10,000
78,000 78,000
On the date of the Balance sheet Mehta is admitted as a partner with 1/4th share in profits upon the following
conditions :
(a) He is to contribute proportional capital.
(b) Goodwill is to be valued at 2 years purchase of four years average profit which were Rs.10,000,
Rs.9,000,Rs.8,000 and Rs.13,000 respectively.
(c) Plant and Machinery is to be written down to Rs.25,000 and Patents written up to Rs.9,000. A
provision of 5 % on debtors is required . A liability of Rs.500 included in Sundry creditors is not
likely to arise .
A joint life policy for Rs.50,000 taken out by Khanna and Seth on which premium totaling Rs.10,000 have
been paid has a surrender value of Rs.6,000.
Pass entries to record transactions on Mehta’s admission and give the balance sheet after admission is complete
assuming that joint life policy is to appear in the books of the new firm.
(Loss on Revaluation Rs.1,250 Total of B/s .Rs.97,250)
Q9. The following is the balance sheet of X and Y as at 31st March 1991. Z is admitted as a partner on that date
when the position of X and Y was as under :

X ‘s Capital 10,000 Debtors 11,000
Y’s Capital 8,000 Stock 12,000
General Reserve 16,000 Buildings 8,000
Workman’s 4,000 Machinery 10,000
Compensation Fund
50,000 50,000
X and Y shared profit in the proportion of 3:2. The following terms of admission are agreed upon :
(a) Revaluation of assets : Buildings Rs.18,000; stock Rs.16,000.
(b) The liability on workmen’s compensation fund is determined at Rs.2,000.
(c) Z brought in as his share of goodwill Rs.10,000 in cash .
(d) Z was to bring further cash as would make his capital equal to 20% of the combined capital of X
and Y are at above revaluation and adjustment are carried out.
(e) The future profits sharing proportions were as under X 2/5th , Y 2/5th and Z 1/5th.
Prepare the new balance sheet of the firm and the capital account of the partners.
(Revaluation Profit rs.14,000 B/s Rs.86,000)
Q10. Rahul Vaidya & Amit Sana were partners in a firm sharing profits and losses in the ratio of 4:3. The following
is the balance sheet of the firm as on 31st December ,2001:
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Bank Overdraft 17,000 Debtors 20,000
Employees Provident Fund 3,000 Less : Provision 300 20,000
Workman’s Compensation Stock 20,000
Reserve 7,000 Plant 40,000
Rahul’s Capital A/c Buildings 75,000
Amit Capital A/c 66,000
57,000
1,70,000 1,70,000
They agreed to admit Abhijeet Sawant with effect from 1st Jan 2002 with 1/4th share in profits on the following
terms :
(a) Abhijeet bring in capital to the extent of 1/.4th of the total capital of the new firm after all adjustment
have been made. The necessary adjustment should be made through the current accounts of partners.
(b) Buildings are to be appreciated by Rs.14,000 and plant to be depreciated by Rs.7,000.
(c) The provision on debtors is to be raised to Rs.1,000.
(d) The goodwill of the firm has been valued at Rs.21,000 but no goodwill is to appear in the books.
Prepare the Revaluation account, Partner Capital accounts and the balance sheet of the new firm after Mishra
admission .
(Profit: Rs.6,300;Capital: Rahul 76,600: Amit 64,950;abhijeet 47,183 B/s Rs.2,28,733)
Q11. R and T are partners in a firm sharing profits in the ratio of 3:2. S joins the firm. R surrenders 1/4th of his share
and T 1/5th of his share in favour of S. Find the new profit sharing ratio.
(NPSR : 45:32:23)
Q12. X and Y are partners in a firm sharing profits in the ratio of 5:3. On 1, March 20004 they admitted Z as anew
partner. The new profit sharing ratio will be 4:3:2. Z brought in Rs.1,00,000. in cash as his share of capital
but could not bring any amount for goodwill in cash. The firms goodwill on Z’s admission was valued at
Rs.1,80,000. At the time of Z’s admission goodwill existed in the books of the firm at Rs.2,40,000.
Pass necessary journal entries in the books of the firms on Z’s admission .Show your workings clearly.
(S.R 13:3)
Q.13. Ram and Mohan were partners in a firm sharing profits in the ratio of 4:1. On 1.03.2005 , they admitted
Sohan as a new partner for 1/3rd share in the profit of the firm. They fixed the new profit sharing ratio as
4:2:3.On the date of Sohan’s admission , the firm had a joint life policy for Rs.60,000(surrender value
Rs.20,000). The P & L A/c on the date of admission showed a balanced of Rs.32,000(Dr.). The firm also had
a reserve of Rs.1,00,000. Sohan is to bring Rs.60,000 as premium for his share of goodwill.
Showing your calculation clearly, pass necessary journal entries to record the above transactions .
(Ram Sacrifice 16/45, Mohan gains 1/45)
CHANGE IN PROFIT SHARING RATIO
Q1. X,Y and Z are partners sharing profits and losses in the ratio of 4:3:2.Goodwill does not appear in the
books but it is worth Rs.36,000. The partners decide to share future profits in equal proportional .Give
a journal entry to record the above change. Also indicate the individual partner’s gain or loss due to
change in the ratio. Show your working clearly.
(Z (Dr.4,000; X (Cr.)4,000)
Q2. A and B are partners in a firm sharing profits in the ratio of 3:2. On March 31,2003, their balance sheet
showed a general reserve of Rs.54,000, Profit and loss Account Rs.27, 000 (Cr. Balance) , Surrender
value of Joint life policy Rs.9,000. On that date they decided to admit C as a new partner. The new
profit sharing ratio between A,B and C will be 4:3:2. Record the necessary journal entry in the books of
the firm under the following circumstances :
(a) When they want to transfer the general reserve profit & loss A/c and joint life policy A/c in
their capital accounts .
(b) When they don’t want to transfer general reserve , Profit and loss A/c ; Joint life policy A/c in
their capital accounts and prefer to record adjustment entries for the same .

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(A’s Sacrifice 7/45, B’s Sacrifice 3/45, C gains 10/45)
Q3. Sharma and Verma were in partnership sharing profits in the ratio of 2:3. With effect from 1st May
2003 they agreed to share profits in the ratio of 1:2. For this purpose the goodwill of the firm is to be
valued at two years purchase of the average profits of last three years, which were Rs.1,50,000,
Rs.1,40,000 and Rs.2,20,000 respectively .Reserve appear in the books at Rs.1,10,000. Partners neither
want to show goodwill in the books nor want to distribute the reserve .You are required to give effect
to the change by passing a single journal entries .
(Verma (Dr.) 30,000; Sharma (Cr.) 30,000)
Q4. Dhruv and Sonu are partners in a firm sharing profits in the ratio of 3:2. They decided to share future
profits equally. On the date of change in the profit sharing ratio the profit and loss account showed a
debt balance of Rs.20,000. Record the necessary journal entry for the distribution of the balance in the
profit and loss account immediately before the change in the profit sharing ratio.
(Dhruv (Dr.)12,000; Sonu(Cr.)8,000)
Q5. Sunny, Anu and Mohit are partners sharing profits and losses in the ratio 5:3:2. Their balance sheet on
31st December,2001 was as follows :

Capitals : Bank 20,000
Sunny 75,000 Buildings 1,00,000
Anu 45,000 Furniture 35,000
Mohit 30,000 1,50,000 Debtors 45,000
Workmen Compensation 15,000 Stock 75,000
Fund Profit and Loss A/c 25,000
Bills payable 55,000
General reserve 10,000
Creditors 70,000
3,00,000 3,00,000
On 1st Jan,2002, They decide to share future profits and losses in the ratio 3:3:1 and following
adjustment were agreed
Upon :
(a) A provision for debt @ 5% is to be made on debtors.
(b) Buildings is to be appreciated by 25%.
(c) 5% of stock has been spoiled .
(d) Furniture to be depreciated by 10%.
(e) Goodwill is to be valued at Rs.90,000.
Prepare Revaluation Account, Partner Capital Accounts and Balance sheet of the reconstituted firm.
(Profit Rs.15,500; Capital Rs.82,750,46,650,36,100; B/s 2,90,500)
Q6. X ,Y and Z are partners in a firm sharing ratio of 2:2:1. Their balance sheet as at March 31, 20X3 was
as follows:

Creditors 30,000 Land 30,000
Bills payable 15,000 Building 30,000
X’s Capital 60,000 Plant 60,000
Y’s Capital 30,000 Stock 30,000
Z’s Capital 15,000 Debtors 9,000

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General Reserve 12,000 Cash 3,000

1,62,000 1,62,000
X,Y and Z decide to share the profit equally w.e.f. April 1, 20X3, For this purpose it was agreed that :
(a) The goodwill of the firm should be valued at Rs.18,000.
(b) Land should be revalued at Rs.48,000 and building should be depreciated by 6%.
(c) Creditors amounting to Rs.1,000 were not likely to be claimed and hence should be written
off .
You are required to :
(a) Record the necessary journal entries to give effect to the above agreement, without
opening
Revaluation account.
(b) Prepare the capital account of the partners and
(c) Prepare the balance sheet of the firm after reconstitution .
(Capitals Rs.67,200,37,200,12,600; B/s 1,62,000)
Q7. X ,Y and Z are partners in affirm sharing profits and losses in the ratio of 5:3:2. They decide to share
future profits and losses in the ratio of 2:5:3 with effect from 1st April, 20X2. Their Balance sheet
showed a debit a Balance of Rs.4,000 in profit and loss Account and a balance of Rs.24,000 in General
Reserve . For this purpose , it was agreed that ---
(a) The goodwill of the firm be valued at Rs.30,000.
(b) The Land (having book value of Rs.50,000) be valued at Rs.80,000.
(c) The Stock (having book value of Rs.50,000) be depreciated by 6%.
(d) Creditors amounting to Rs.400 were not likely to be claimed .
(e) Joint life policy of which premium were written off to P and L A/c be valued at a surrender
value of Rs.22,600.
Give the necessary single adjusting entry to record the above arrangement.
(Y(Dr.20,000; Z (Dr.)10,000 X (Cr.) 30,000)
Q8. Parul, Swati and Neha are partners in a firm, sharing profits equally. Following is the balance sheet as
on December 31st ,2004 :

Capitals : Fixed Assets 2,50,000
Parul 1,20,000 Stock in Trade 35,000
Swati 90,000 Sundry Debtors 28,000
Neha 80,000 (---)Provision 4,800 23,000
General Reserve 45,000 Bank Balance 16,000
Creditors 71,000 Investment 60,000
Profit & Loss A/c 21,000
4,06,000 4,06,000
They decided to change the ratio as 2:3:5. For this purpose following revaluations were agreed upon :
(a) Fixed Assets depreciated by 20%.
(b) Stock appreciated by 10%.
(c) Investment valued at Rs.48,000
(d) All the debtors proved good.
(e) Goodwill of the firm valued at Rs.30,000.
Pass the journal entries if partners decided to keep all the assets at their present book values and to keep
general reserve undisturbed.
(Parul Sacrifice 4/30 ; Swati Sacrifice 1/30 ; Neha gains 5/30)
TREATMENT OF ADJUSTMENTS
ADMISSION OF A PARTNER
Dr. REVALUATION ACCOUNT Cr.

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Decrease in value of Assets Increase in value of Assets

Increase in value of Liabilities + Provision Decrease in value of Liabilities + Provision
Any Assets or Liabilities Increase by -------------------

Decrease by ------------------
Same Amount to be Shown in Revaluation Account

Any Assets or liabilities Increase up to -------------------
Decrease up ------------------
Increase at -------------------
Decrease at ------------------
Brought up to ------------------
Brought up to ------------------
Then compare with old figure and put the difference amount only in Revaluation Account
 Un expired Insurance, Accrued Income -------------- Revaluation A/c Cr. Side & balance sheet assets
side
 Provision for outstanding Legal Charges or Provision fro outstanding repair bills .
Revaluation A/c Dr. side & balance sheet Liability Side .
Liability OLD BALANCE SHEET Assets

Machinery 30,000
Furniture 20,000
Machinery is under valued by Rs.5,000.
Furniture is over valued by Rs.3,000.

Furniture 3,000 Machinery 5,000
NEW BALANCE SHEET

Machinery 35,000
Furniture 17,000
Liability OLD BALANCE SHEET Assets

Debtors 30,000
Less : Provision for B/D 2,000 28,000
1. Provision for bad debt increased by Rs.2,600

Provision for b/d 2,600
Liabilities New balance sheet Assets
Debtors 30,000
(-)Pro. For b/d 4,600 25,400
2. Provision for bad debts increase up to Rs.2, 600.

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Dr. Revaluation Account Cr. Liabilities New balance sheet Assets

Provision for b/d 600 Debtors 30,000
3. (-) Pro for b/d 2,600 27,400
Provision for bad debts decreased by Rs.1, 200.
Dr. Revaluation Account Cr.

Pro for b/d 1,200 Liabilities New balance sheet Assets
Debtors 30,000
4. Provision for bad debts decreased up to (-) Pro for b/d 800 29,200
Rs.1,300.

Pro for b/d 700 Debtors 30,000
5. (-) Pro for b/d 1,300 28,700
Provision for bad debts brought up to 5% of
debtors.
debtors = 30,000 and Provision for b/d = 5% of 30,000=1,500

6. (-) Pro for b/d 1,500 28,500
Existing Provision for bad debts increase by 30%.

7. (-) Pro for b/d 2,600 27,400
Provision for bad debts is not necessary.(All
debtors are good)

Pro for b/d 2,000 Debtors 30,000
8. Provision for bad debts was found to be excess by Rs.400.

(-) Pro for b/d 1,600 28,400
When any unrecorded Assets realized:

Cash A/c (unrecorded Assets sold ) -----
When any unrecorded Liabilities paid:

Cash A/c (unrecorded Liabilities paid) -----
Investment worth Rs.2, 000 not mentioned in the Balance sheet were taken into account:

Investment A/c 2,000 Investment A/c 2,000
Liabilities Old
balance sheet
Assets
Investment A/c 20,000

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(a) Investment worth Rs.12, 000 was taken over by A and B in ratio of 3:2.
A’s Capital A/c ………..Dr. Rs.7, 200

B’s Capital A/c ……….. Dr. Rs.4, 800 Liabilities New balance sheet Assets
Investment A/c 12,000 Investment A/c 8,000
(b) A & B took over investment at Rs.12,000 in the ratio of 3:2.

Investment A/c 8,000
A’s Capital A/c ………..Dr Rs.7, 200

B’s Capital A/c ……….. Dr. Rs.4, 800 Liabilities New balance sheet Assets
Investment A/c 12,000 Investment XXX
Liabilities Old balance sheet Assets

Machinery 30,000
(i) B took over machine at Rs.34, 000.

B’s Capital A/c ……… Dr.
34,000 Liabilities New balance sheet Assets
Machinery XXX
Machinery A/c
34,000
(ii) B took over machine at Rs.25, 000.

B’s Capital A/c ……… Dr. 25,000 Revaluation Account
Machinery A/c 25,000 Machinery A/c 5,000
Liabilities balance sheet Assets

Machinery Nil
Accrued income not appearing in the books is Rs.100.

Accrued income 100 Accrued income 100
It was found that there was a liability for Rs.1,500 for goods
received but not recorded in books.

Creditors 1,500 Creditors ------
Add: liab. for goods
Received 1,5000
Out of insurance Premium which was debited to P
& L A/c Rs.1, 000 be carried forward as unexpired insurance

unexpired insurance 1,000 unexpired insurance 1,000
Liabilities Old
balance sheet
Assets
Creditors

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10,000
Provision for discount of 2.5% on Creditors be made.

Prov. for dis. on Crs. 250 Creditors 10,000
A and (-) Pro for Crs. 250 9, 750
B are partners in the ratio of 3:2. C 1/6.

Workmen Compensation Fund 2,000
Claim on account of Workmen Compensation is estimated at Rs.1,300.
Workmen Compensation Fund A/c ………Dr.700

A’s Capital A/c 420
B’s Capital A/c 280 Liabilities New balance sheet Assets
(This entry is done in the ratio of 3:2) Workmen Compensation Fund 1,300

Claim on account of Workmen Compensation is estimated at Rs.8, 000.

Workmen Compensation Fund 3,000 Workmen Compensation Fund 8,000

No adjustment of claim of Workmen’s Compensation.

Workmen Compensation Fund A/c ………Dr.5,000
B’s Capital A/c 2,000 Liabilities New balance sheet Assets
(This entry is done in the old ratio of 3:2) Workmen Compensation Fund X
X, an old customer whose account was written off as bad has premium to pay Rs.350 in settlement of his full
debt.

Debtors(bad debts recovered ) 350 Liabilities New balance sheet Assets
Debtors
Add: 350
Liabilities Old
balance sheet
Assets
Bank loan
2,000
Outstanding Expenses
7,000
Creditors
4,000
(i) A agrees to pay creditors:

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Creditors A/c …….. Dr.4,000

A’s Capital A/c 4,000 Liabilities New balance sheet Assets
Creditors XXX
Bank loan 2,000
Outstanding Expenses 7,000
(ii) Outstanding Expenses Amount Rs.2,000 paid by B.

Outstanding Expenses A/c …..Dr.2,000
Bank loan 2,000
Creditors 4,000
(iii) Bank Loan would be paid off.

Bank loan A/c ……. Dr. 4,000
Cash A/c 4,000 Liabilities New balance sheet Assets
Bank loan XXX
Creditors 4,000
A:B = 3:2. C is admitted for 1/6th Share .

A joint policy for Rs.50,000 was taken out by A & B, on which premium totaling Rs.10,000 has been paid,
has a surrender value of Rs.6,000.
Joint life policy A/c ……..Dr.6,000

A’s Capital A/c 3,600 Liabilities New balance sheet Assets
B’s Capital A/c 2,400 Joint life policy 6,000
(This entry is done in the ratio of 3:2. old ratio)
A:B = 3:2. C is admitted for 1/6th Share .

A joint policy for Rs.50,000 was taken out by A & B, on which premium totaling Rs.10,000 have been paid has
a surrender value of Rs.6,000.JLP is not to appear in new balance sheet . (They decided not to keep any account
in books in respect of Joint life policy)
C’s capital A/c ………..Dr. 1,000

A’s Capital A/c 600
B’s Capital A/c 400
(Being adjustment entry for surrender value of Joint life policy in S.R.)

Sundry Creditors 15,000
It was found that creditors included a sum of 1,400 which was not to be paid and hence they should be written
back. (An unclaimed Liabilities for Rs.1,400 should be written back)

Creditors 1,400 Creditors 13,600

Accident fund 9,000
Liabilities Against accident fund is estimated to be Rs.10,000.

Commerce
Accident fund By:-1,000
SUBHASH THAKUR - 57 - Accident fund 10,000
9810190005
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Interest accrued on investment Rs.2,000.

Acc. Int. on Inv. 2,000 Liabilities New balance sheet Assets
A& B Acc. Int. on Inv. 2,000
are partner in the ratio 3:2.

Investment 20,000
Half of the investment were to be over by A and B in their profit sharing ratio at book value . Remaining
investment are valued at Rs.13,000.
investment A/c 10,000

Investment 3,000 Investment 13,000
Rs.3,600 for damages claimed by a customer had been disputed by a firm. It was settled at Rs.1,500 by a
compromise between the customer and the firm:

Pro against Pro against
Claim forLiabilities
damages 1,500 Claim for damages 1,500
Old balance sheet
Assets
General Reserve
10,000 debtors
40,000
(-) Pro. for B/d

500 39,500
20% of General reserve is to remain as a provision for bad debts.

General Reserve Dr. 10,000
provision for bad debts 2,000
B’s Capital A/c 3,200 Liabilities New balance sheet Assets
debtors 40,000
(-) Pro. for B/d 2,500 37,500

provision for D/D 4,000 Debtors 50,000
Case I to write off bad debts Rs.2,500

Provision for bad debts A/c Dr. 2,500
Debtors A/c 2,500 Liabilities New balance sheet Assets
(-) Pro. for B/d 1,500 debtors 50,000
(-)bad debt 2,500 47,500
Case II To write off bad debts Rs.6, 000

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Provision for bad debts A/c Dr. 4,000

Revaluation A/c Dr.2,000
Debtors A/c 6,000

Debtors 2,000 Liabilities New balance sheet Assets
Provision for B/d XXX debtors 44,000
Liabilities
Old balance sheet
Assets
Investment Fluctuation fund
10,000 Investment
90,000
Case I If No Adjustment Given

Investment Fluctuation fund 10,000 investment 90,000
Case II Market Value of Investment Rs.75,000

I.F Fund 5,000 Investment Fluctuation fund 10,000 investment 90,000
Case
III Market Value of Investment Rs.82,000

I.F Fund 2,000 Investment Fluctuation fund 8,000 investment 90,000
Unrecorded investment Rs.4,000 are taken over by A at Rs.3,000.

A’s capital A/c 3,000 No effect
Creditors 20,000
A liability of Rs.5, 000 included in the creditors is settled at Rs.7, 000.
Creditors A/c Dr. 7,000

Cash A/c 7,000

Creditors 20,000 Creditors 20,000
A : B = 3 : 2. C is admitted for 1/6th share.. C Brings Rs.6,000 as capital and Rs.4,800 as goodwill. Rs.4,800
Paid by C is transferred to loan accounts of A & B.
Cash A/c Dr. 10,800

C’s capital A/c 6,000
Premium A/c 4,800
Premium A/c Dr. 4,800
A’s capital 2,880
B’s capital 1,920

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(This entry is done in Sacrificing Ratio)

A’s Loan 2,880
B’s Loan 1,920
RETIREMENT OF A PARTNER
New Profit Sharing Ratio
New Share = Old Share + Gaining Share
Gaining Share = New Share - Old Share
1st Type
A, B and C are partners in the ratio 3:2:1. B retiProv. Calculate New ratio.
A Gains = 2/6 x ¾ = 6/24 B’s Share
C Gains = 2/6 x ¼ = 2/24 G.R = 3: 1 2/6
A’s New Share = 3/6 + 6/24 = 18/24
C’s New Share = 1/6 + 2/24 = 6/24
A : C = 18 : 6 or 3:1 A B
New Ratio = 3:1
2nd Type
A,B and C are partners in the ratio 3 :5 : 2. C retires and his Share was taken up by A and B in the ratio
of 1 :4 . Calculate New ratio.
A Gains = 2/10 x 1/5 = 2/50 C’s Share
B Gains = 2/10 x 4/5 = 8/50 G.R = 1:4 2/10
A’s New Share = 3/10 + 2/50 = 17/50
B’s New Share = 5/10 + 8/50 = 33/50
New Ratio of A and B = 17:33 A B
3rd Type Gaining Share = New Share – Old Share
TREATMENT OF JOINT LIFE POLICY

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Case 1 : A,B and C are partners sharing ratio 3 : 2 : 1, B retires New Ratio of A and C 3:2. The firm had a joint
life policy for Rs.40,000 on which premium paid Rs.23,000, has a surrender value Rs.9,000.
Joint life policy A/c Dr. 9,000
B ‘s Capital A/c 3,000
C’s Capital A/c 1,500
(This entry is done in the ratio of 3 : 2 : 1)

Joint Life Policy 9,000
Case 2 : (Information of Case 1st is given)

Partners decides that the joint life policy not to appear in the balance sheet
A’s Capital A/c Dr. 900
C’s Capital A/c Dr. 2,100

Joint Life Policy X
RETIREMENT
Q.1. X, Y and Z were partners sharing profits and losses in the ratio of 5: 4: 1. X retires from the firm. Calculate
New Ratio. (N.R. 4:1)
Q. 2. A, B and C share profits as ½ to A, 1/3 to B and 1/6 to C. Calculate the new profit sharing ratio if B retires.
(3:1)
Q.3. From the following particulars calculate the new profit sharing ratio of the partners.
A, B and C are partners in a firm sharing profits and losses in the ratio 5: 3: 2. B retires from the firm and his
share was taken up by A and C at the ratio of 2:1. (N.R.7:3)
Q. 4. A, B and C are partners sharing profits in the ratio of ½, 2/5 and 1/10. B retires and
his share is taken up by A and C in the ratio of 1:5. Calculate the new ratio of A and C.
(17:13)
Q. 5. A, B and C share profits in the ratio of 4/9, 1/3 and 2/9. B retires. Calculate the new ratio if B’s share is
purchased by (i) A : (ii) C {(i) 7:2; (ii) 4:5}
Q. 6. W, X, Y and Z are partners sharing profits and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Y retires
and W, X and Z decide to share the profit and losses equally in future. Calculate the gaining ratio.
(0 : 1 : 1)
Q. 7. Kangli, Mangali and Sanvali are three partners sharing Profits in the ratio of 4:3:2. Kangli retires. Assuming
Mangali and Sanvali will share profits in future in the ratio of 5:3 determine he gaining ratio.
(21 : 11)
Q. 8. X, Y and Z are partners sharing profits and losses in the ratio ½, 3/10 and 1/5. Y retires from the firm and X
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and Z decide to share the profits and losses equally in future. Calculate the gaining ratio.
(G.R. 0 : 1)
Q. 9. X, Y and Z are partners sharing profits losses in the ratio of ½, 1/8 and 3/8. Z retires and surrenders 4/9th of
his share in favour of X and remaining in favour of Y. Calculate the new profit sharing ratio and the gaining
ratio. (NR 2 : 1. G.R. 4 : 5)
Q. 10. A, B and C are partners sharing profits in the ratio of 3:4:2. B retires and the goodwill of the firm is valued at
Rs. 16,200. No goodwill account appears in the books of the firm. A and C decide to share profits in the ratio
of 5:3. Give journal entries (with full narration) to record the above.
(GR of A and C =21 : 11; B’s share of goodwill Rs. 7,200)
Q.11. P, Q and R equal partners in a firm. Goodwill has been valued at Rs.36, 000; On R’s retirement from the firm
P and Q agree to share profits in the ratio of 3:2. Pass necessary journal entry for treatment of R’s share of
goodwill.
(P’s A/c Dr. 9, 600, Q‘s A/c Dr. 2, 400, R’s A/c Cr. 12, 000)[CBSE 2004]
Q. 12. X, Y and Z are partners sharing profits and losses in the ratio of 2/5, 2/5 and 1/5 respectively. Z retires and X
and Y decide to share the future profits and the losses in the ratio of 2:1 respectively. There is no goodwill
account in the books of the firm. Give necessary journal entries to record this arrangement. Goodwill of firm
valued Rs. 3, 000. (X’s A/c Dr. 800, Y’s A/c Cr. Rs. 200, Z’s A/c Cr. 600)
Q. 13. A, B and C are partners sharing profits and losses in the ratio of 4:3:1. B retires selling his share of profits to
A and C for Rs. 8, 100; Rs. 3, 600 being paid by A and Rs. 4, 500 by C. The profit for the year after B
retirement was Rs. 10, 500. You are required to give necessary journal entries.
(New ratio 2:1)
Q. 14. A, B and C were partners, sharing profits in the proportion of one half, one third and one-sixth respectively.
The firms Balance Sheet as on 31st M arch 2005, stood as under:

Sundry Creditors 19, 000 Cash at Bank 2, 500
Bills Payable 5, 000 Debtors 16, 000
Reserve 12, 000 Less Provision 500 15, 500
Capital Accounts: Stock 25, 000
A 40, 000 Motor Vans 8, 000
B 30, 000 Plant & Machinery 35, 000
C 25, 000 Factory Buildings 45, 000
1, 31, 000 1, 31, 000
B retires on that date subject to the following adjustment:
(a) The goodwill of the firm to be valued at Rs. 18, 000.

(b) Plant and Machinery to be depreciated b 10% and Motor Vans by 15%.
(c) Stock to be appreciated by 20% and Buildings by 10%.
(d) Provision for Doubtful Debts to be increased to Rs. 2, 450.
Prepare Revaluation A/c, Capital Accounts to Partners and the Balance Sheet of the new firm.
(Capital: A - 42, 925, C – 25, 975, B’s Loan – 40, 950; Profit Rs. 2, 850; Balance Sheet Rs. 1, 33, 850)
Q.15 Ram, Shyam and Mohan were in partnership sharing profits and losses in the proportion of 3:2:1. On 31st
March. 2005 shaym retires from the firm. On that date, their Balance Sheet was as follows:
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Trade Creditors 3, 000 Cash in hand 1, 500
Bills Payable 4, 500 Cash at Bank 7, 500
Expenses Owing 4, 500 Debtors 15, 000
Reserve 13, 500 Stock 12, 000
Capital: Factory Premises 22, 500
Ram 15, 000 Machinery 8, 000
Shyam 15, 000 Loose Tools 4, 000
Mohan 15, 000
70, 500 70, 500
The terms were:
(a) Goodwill of the firm was valued at Rs. 13, 500.

(b) Expenses owing to be brought down to Rs. 3, 750.
(c) Machinery and loose tools are to be valued at 10% less than their book value.
(d) Factory premises to be revalued at Rs. 24, 300.
Show the Revaluation A/c, Partners Capital Accounts and Prepare the Balance Sheet of the firm after the
retirement of Shyam.
(Profit on Revaluation Rs. 1, 350: Balance Sheet Rs. 71, 100; A.I.S.S.E. 1983)
Q. 16. N, B and S are partners sharing profits in the ratio of ½: 1/3: 1/6. Their Balance Sheet as at 31st Dec. 2005
was as under:

Capital: Cash 800
N 5, 000 Stock 5, 200
B 4, 000 Debtors 6, 000
S 4, 000 Plant and Machinery 4, 800
Reserve 6, 000 Buildings 7, 200
Sundry Creditors 4, 000
Bills Payable 800
24, 000 24, 000
On 1st January, 2006, N retired from the firm and the assets of firm were revalued as follows:
Goodwill Rs. 1, 600; Stock Rs. 4, 800; Debtors Rs. 5, 600, Plant and Machinery Rs. 4, 400; Buildings
Rs. 8,800;
Creditors agreed to a discount of 2 ½ %. Assuming that above adjustments were duly carried through. Prepare
Revaluation Account, Partners Capital Accounts, and the Balance Sheet of B and S. Amount due to N on
retirement was agreed to be transferred to his Loan Account.
(Profit on Revaluation Rs. 500; Total of Balance Sheet Rs. 24, 400){D.S.S.E. (Comptt.) 1992}
Q. 17. Mukesh, Naresh and Kamlesh are equal partners and their Balance Sheet as on 31st Dec.2005 was as follows:

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Reserve 15,000 Debtors 27,000
Capitals Accounts : Less: Reserve 1,000 26,000
Mukesh 60,000 Investment 7,000
Naresh 50,000 Stock 32,000
Kamlesh 50,000 Plant 51,200
Buildings 75,000
1,97,400 1,97,400
Kamlesh retires on that date subject to the following conditions:
(a) Goodwill of firm valued Rs.21,000.
(b) Plant be depreciated by 10% and the stock be appreciated by 20%.
(c) Reserve for doubtful debts be raised to 6%.
(d) Interest accrued on investment Rs.348.
Pass the necessary Journal entries ,prepare necessary ledger accounts and the openings balance sheet of the
new firm.
(Profit Rs.1,008,Capital A/c 61,836;51,836;B/s 1,98,408 Kamlesh ‘s loan Rs.62,336)
Q18. X,Y and Z were partners sharing profits and losses in the ratio of ½: 1/3:1/6 respectively. The Balance
sheet of the firm on 31st December ,2005 stood as follows:

Reserve fund 6,000 Less: Reserve 250 7,750
Capitals Accounts : Stock 12,500
X 20,000 Motors Vans 4,000
Y 15,000 Machinery 17,500
Z 12,500 47,500 Buildings 22,500
65,500 65,000
Y retires on that date subject to the following conditions:

(a) Goodwill of the firm is valued Rs.9, 000.
(b) Machinery to be depreciated by 10% and Motor Vans by 15%.
(c) Stock to be appreciated by 20% and buildings by 10%.
(d) The provision for doubtful debts is to be increased by Rs.975.
(e) Liability for workmen’s compensation to the extent of Rs.825 is to be created.
It was agreed that X and Z will share profits in future in the ratio of 3:2 respectively.
You are required to prepare the revaluation account, Capital accounts of the partner and the balance
sheet of the firm after the retirement of Y.
(Profit Rs.600; Capital 22,400; 11,500; Y’s Loan 20,200;B/s Rs.66,925)
Q19. Ram & Co. is a partnership firm with ram , Vijay and Shyam sharing profits and losses in the ratio of
5:3:2. The balance sheet of the firm on 31st March 2005 is as under :

Capitals : 80,000 Land and Building 2,10,000
Ram 20,000 Plant and Machinery 1,30,000
Shyam 30,000 Furniture 40,000
General Reserve 20,000 Investments 12,000
Long term Loan 3,00,000 Stock 1,26,000
Bank overdraft 44,000 Debtors 1,39,000
Trade Creditors 1,63,000

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6,57,000 6,57,000
It was mutually agreed that Vijay will retire from partnership , and for this purpose the following
adjustment are to be made :
(i) Goodwill is to be valued at Rs.1 Lakh but the same was to be treated without opening
goodwill a/c.
(ii) Land and Building ; Plant and machinery are to be depreciated by 10% and 5% respectively .
(iii) Provision for doubtful debts is maintained by 20% on debtors .
(iv) Investment are to be taken over by Vijay at Rs.15,000.
Ram and Shyam will share future profits equally. The amount due to Vijay is to be transferred to his
loan account .
Prepare Revaluation Account, Capital Accounts of the partners and balance sheet of the reconstituted
firm.
(Loss 52,300; Vijay’s Loan 25,310; Capital 63,850(Dr.); 6460(Cr.) B/s Rs.5,96,160)
Q20. A,B and C were carrying on business in partnership sharing profits and losses in the ratio of 3:2:1
Respectively . On 31st march,2005 Balance sheet of the firm stood as follows :

A 12,000 Building 23,000
B 8,000
C 9,000 29,000
49,590 49,590
B retired on the above –mentioned date on the following terms :

(a) buildings be appreciated by Rs.7,000.
(b) Provision for doubtful debts be made at 5% on Debtors .
(c) Goodwill of the firm be valued at Rs.9,000 and adjustment in this respect be made without
raising goodwill account .
(d) Rs.5,000 be paid to B immediately and the balance due to him to be treated as a loan carrying
interest at 6% per annum.
Pass Journal entries to respect the above mentioned transactions and show the balance sheet of the
Firm as it should appear immediately after ‘B’ retirement.
(Profit Rs.6,600. B/s Rs.51,190)
Q21. On 31st March 2005, the balance sheet of M/s A,B and C sharing profits and losses in proportion
To their capitals, stood as follows :

Creditors 1,08,000 Cash at Bank 80,000
Capitals : Debtors 1,00,000
A 4,20,000 Less : Provision 2,000 98,000
B 2,80,000 Stock 90,000
C 1,40,000 Machinery 2,40,000
Reserve 60,000 Land and Buildings 5,00,000
10,08,000 10,08,000
On that date , B wants to retire from the firm and the remaining partners decide to carry on . The
Following readjustments of assets and liabilities have been agreed upon before the ascertainment
of the amount payable to B:
(a) That out of the Fire Insurance Premium paid during 1998-99, Rs.10,000 be carried forward
As unexpired.
(b) That the land and building be appreciated by 10%.
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(c) That the provision for doubtful debts be brought up to 5% on debtors.

(d) That machinery be depreciated by 5% .
(e) That a provision for Rs.15,000 be made in respect of an outstanding bill for repairs .
(f) That the goodwill of the entire firm be fixed at Rs.1,80,000 and B’s share of the same be
adjusted in the A/c of A and C who share future profit in the proportion of 3/4th and 1/4th
respectively.
(g) That B be paid Rs.50,000 in cash and the balance be transferred to his loan A/c .
Prepare Revaluation Account, Capital Accounts of the partners and the balance sheet of the firm of A
and C.
(Revaluation Profit Rs.30,000; Balance sheet total Rs.10,03,000)
Q22. X,Y and Z are partners sharing profits in the ratio of their capitals . Y retired from the firm on 31st
December ,2006. the date on which the balance sheet of the firm was as follows :

Outstanding Salary 500 Less : Provision 400 5,600
Capitals : X 30,000 Stock 10,000
Y 24,000 Machinery 28,000
Z 18,000 Land and building 30,000
79,000 79,000
The following adjustment were made :
(a) Buildings appreciated by 20%, stock depreciated by 10% and Provision for doubtful debts
Was to be 5%.. A reserve for legal charge payable was to be made at Rs.900.
(b) Goodwill of the firm be valued at Rs.12,000 and Y’s share in it be adjusted into the capitals
Accounts of X and Z without opening goodwill A/c .
(c) Rs.24,000 from Y’s capital accounts be transferred to his loan account and balance be paid
In cash.
(d) New profit sharing ratio of X and Z decided to be 3:2.
Give the necessary ledger accounts and the balance sheet of the firm after Y’s retirement.
(Profit Rs.4,200 Y’s loan 24,000 Capital 29,550 ; 17,250 B/s 78,700)
Q23. Odd and Even are partners sharing profits and losses equally. On 31st December 2005. Their balance
Sheet was under:

Sundry creditors 7,000 Buildings 3,000
Capitals : Machinery 1,500
Odd 5,000 Stock 3,250
Even 4,000 Sundry debtors 8,150
Bank balance 100
16,000 16,000
It is agreed that odd shall retire on 31st December 2005 and that Even shall continue the business on
The following terms :
(a) The goodwill of the firm to be agreed as worth Rs.1,000.

(b) Stock to be agreed as worth Rs.2,750.
(c) A provision for doubtful debts (4% on the sundry debtors ) to be made .
(d) Odd to be paid out as to Rs.2,000 of the amount due to him in cash and the balance by a bill of
exchange (without interest ) at 12 months.

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Give journal entries regarding the above and the balance sheet of Even on 31st December 1991 after the
adjustment have been made .
(Loss 826, Even‘s Capital 3,087 B/s 15,074)
Q24. The following was the balance sheet of A and B as on 31st December 2005:

Capitals : Machinery and Plant 20,000
A 10,000 Patents 2,000
B 7,500 Stock in Trade 5,000
Reserve 6,000 Sundry Debtors 4,000
Employees Provident 500 Cash 1,000
Fund
Sundry creditors 2,000
Profit and loss A/c 6,000
32,000 32,000
A retired from the business on 1st Jan,2006, According to the partnership deed , goodwill is to be
Calculated at two years purchased of the average profit in the three years preceding dissolution
of the partnership. The profit of the years ending 31stdecember, 2003 and 31st December 2004, were
Rs.6,000 and Rs.3,000 respectively. The patents are valueless. Machinery and plant is to be depreciated
by 10% . A provision @ 5% for doubtful debts is to be created on the book debts. Assuming that these
adjustment are duly carried out, show the capitals accounts of the partners and
The balance sheet of B after A has been paid off. B borrows money from his bank on the security of
plant and stock to pay off A.
(Capital A—6,400; Loss on Revaluation Rs.4,200 Total of balance sheet 27,800)
Q25. A,B and C are partners sharing profits in the ratio of 4:3:2. Their balance sheet on 31st march 2005
Was as follows :

A 70,000 Machinery 50,000
B 45,000 Land and Building 1,00,000
C 30,000 1,45,000
2,05,000 2,05,000
The firm had a joint life policy for Rs.40,000. The surrender value of the policy was Rs.13,500 as on 31st March,2005.
B retires on the above date on the following conditions :
(a) Land and building be appreciated at rs.18,000.

(b) Goodwill is to be valued at Rs.18,000.
(c) A provision for doubtful debts of 5% is to be created and machinery be written down by 10%
and stock by 5%.
(d) A provision of Rs.1,500 be made in respect of legal charges .
B to be paid Rs.5,000 and balance be transferred to his loan account.

Prepare Revaluation Account, Partners capital accounts and balance sheet of A and C .
(Capitals 89,000, 39,500 Profit Rs.11,250 B’s loan Rs.63,250 B/s 2,26,250)
Q26. A,B and C were partners sharing profits in the ratio of 3:2:1. Their balance sheet on 31st March 2005
was as follows :

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Sundry Creditors 20,000 Goodwill 10,000
General Reserve 9,000 Patents 8,000
A 40,000 Debtors 20,000
B 30,000 Machinery 45,000
C 20,000 Cash 11,000
1,19,000 1,19,000
The firm had a joint life policy for Rs.60,000 on which premium were paid in all amounting to
Rs.25,000 . The surrender value of the policy was Rs.9,000 on 31st March, 2005. B retires on the above
date upon the following terms :
(a) Goodwill of the firm be valued at Rs.25,000.
(b) Machinery be written down by 10%, Partners be written up by 25%, a provision of 5% be
created on debtors and a Reserve of 2/12 % on creditors be made.
(c) B to be paid Rs.15,000 immediately, which is to be contributed by the other partners in the
ratio of their capitals.
A and C agreed to share profits in future in the ratio of 3:2 and decided not to keep any account in
books in respect of joint life policy. Give journal entries to record the above and the balance sheet of
the firm after B’s retirement.
(Loss on Revaluation Rs.3,000; B’s loan a/c .Rs.25,000 B/s Rs.1,05,500)
Q27. A,B and C were in partnership sharing profits and losses equally. On 14thJan 2005, A retired when
The firm balance sheet was as under :

Sundry Creditors 6,928 Land and building 4,200
Capitals : Plant and machinery 6,980
A 16,000 Sundry Debtors 8,915
B 12,000 Investments 8,000
C 7,800 22,600 Cash 1,433
29,528 29,528
According to partnership deed , assets were to be revalued on A’s retirement as under :
(a) Land and building Rs.5,800, Plant and machinery Rs.6,564; Investment Rs.8,400.
(b) Besides , goodwill was then valued at Rs.9,600.
(c) A accepted the investment at their revalued figures in part payment of his dues: B paid in
Rs.4,000 as further capital and A was paid off the balance of his account.
Prepare the Revaluation account, partners capital accounts and the revised balance sheet of B and c.
(Profit rs.1,584, cash paid to A rs.3,328 ; B/s Rs.23,384; capital A/c B Rs.9,728 and C Rs.6,728)
Q28. The balance sheet of A,B and C who were sharing the results in proportion to their capitals as on
31st march 2005, stood as follows :

Bills payable 6,250 Factory Buildings 16,000
Sundry Creditors 11,000 Debtors 12,000
Capitals : Less : Provision 500 12,000
A 16,000 Stock 14,000
B 12,000 Plant and machinery 14,000
C 8,000 36,000 Bank balances 6,000
General Reserve 9,000
62,250 62,250

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B retired on that date and the following adjustment were made :
(a) Stock was depreciated by 8%.

(b) Factory building were appreciated by 20%.
(c) Provision for doubtful debts to be created up to 5%.
(d) Provision for legal charges to be made at Rs.135.
(e) The goodwill of the entire firm was fixed at Rs.10,800 and B’s share was to be adjusted
into the accounts of A and C who will share profits in future in the ratio of 5:3 respectively.
(f) The entire capital of the new firm be fixed at rs.28,000 in the profit and loss sharing ratio.
Pass journal entries and prepare the initial balance sheet of A.B and C after transferring the balance
In B’s capital account tot his loan account.
(Ans. Profit Rs.1,800 Total of B/s Rs.64,585)
Q29. A,B and C are partners in the ratio of 5:3:2. Their balance sheet as at 31st march 2005 was as follows

Trade Creditors 37,000 Deferred Advertisement 18,000
General Reserve 12,000 Expenditure
Capitals : Land and building 16,000
A 10,000 Machinery 9,000
B 12,000 Stock 14,500
C 4,000 Sundry Debtors 16,000
Bank 1,500
75,000 75,000
It was agreed that A shall retire on 31st March 2005 as per the following conditions :
(i) Goodwill of the firm is to be valued at three years purpose of the annual profits of the last f
four years. The profits for the preceding years were Rs.30,000; Rs.8,000; Rs.12,000;
Rs.14,000.
(ii) Stock is agreed to be valued at Rs.13,500.
(iii) Land and buildings are to be revalued at Rs.24,000 and Machinery at Rs.6,400.
(iv) Provision for doubtful debts at 5% on Sundry debtors is to be created.
(v) An unclaimed liability of Rs.400 is to be written off.
(vi) A to be paid the amount due to him by raising a loan of Rs.20,000 on the security
(Mortgage)of the land and building and the balance by exchange (without interest ) payable at
the expiry of 12 months.
(vii) B and C to bring in or take out cash so as to maintain the capital of the new firm at Rs.40,000
in their profit sharing ratio.
Show the calculation of goodwill , and record the above adjustment and prepare the balance of B and C
on 31st March , 2005 after the retirement of A.
(Profit on Revaluation Rs.4,000; Total of B/s Rs.1,09,600)
Q30. On 31st march 2005, the balance sheet of P, Q and R who were sharing profits and losses in proportion
to their capitals stood as follows :

Bills Payable 6,000 Land and Machinery 55,000
Creditors 12,000 Machinery 25,000
Capitals : Less : Pro. 200 9,800
P 42,000 Stock 10,000
Q 28,000 Cash at bank 8,200
R 14,000 1,08,000
1,08,000

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Q retired and the following re-adjustments of the assets and liabilities have been agreed upon before
the ascertainment of the amount payable to Q.
(a) That out of the amount of insurance which was debited entirely to profit and loss account
Rs.1,400 be carried forward as an unexpired insurance .
(b) That the land and building be appreciated by 10%.
(c) That the provision for doubtful debts be brought up to 5% as debtors.
(d) That machinery be depreciated by 6%.
(e) That a provision of Rs.1,500 be ,made be made in respect of an outstanding bill for repairs.
(f) That the goodwill of the entire firm be fixed at Rs.18,000 and Q’s share of the same be
adjusted into the accounts of P and R who are going to share future profits in the proportion of
three –fourth and one- fourth, respectively.
(g) That the entire capital of the firm as newly constituted be fixed at Rs.60,000 between P & R in
the proportion of three- fourth and one-fourth after passing entries inn their accounts for
adjustments, i.e. actual cash to be paid off or to be brought in by the continuing partners as the
case may be .
(h) That Q be paid Rs.5,000 in cash and the balance be transferred to his loan account.
Prepare necessary accounts and the balance sheet of the firm of P & R.
(Profit on Revaluation Rs.3,600 Total of b/s Rs.1,11,700)
Q31. A,B and C were partners sharing profits and losses in the ratio of 3:2:1. their balance sheet on at 31st
March 2005 was as follows :

Sundry Creditors 16,000 Goodwill 6,000
Bank Overdraft 5,000 Land and buildings 26,000
Capitals : Plant and machinery 30,000
A 33,000 Stock 15,000
B 22,000 Sundry debtors 22,000
C 16,000 Less: Provision 500 19,000
General Reserve 6,000 Cash in hand 1,500
98,000 98,000
B retires on the date of Balance sheet on the following conditions:

(a) Goodwill is to be valued at 2 years purchase of the average profits of the past years which
were Rs.14,000;Rs.16,000; Rs.13,000;Rs.29,000.
(b) Land and buildings are to be revalued at Rs.30,000.Plant and machinery is to be written
Down to Rs.25,000; the provision for doubtful debts to be increased to 5% on Sundry debtors
and a liabilities of Rs.1,500 is to be created for a claim against the firm.
(c) B is to be paid Rs.10,000(by increase in bank overdraft) immediately and the balance is to
be left as loan at 9% p.a.
The capitals of the newly constituted firm is fixed at Rs.80,000 to be divided among A and C in their
Profit sharing ratio; adjustment to be made by payment into or out of cash.
Journalize the entries required and give the balance sheet after B’s retirement .
(Loss on revaluation Rs.3,000 : Total of B/s Rs.1,35,500)
Q32. A , B and C were partners sharing profits in the ratio of 5:4:3. Their final position as on March 31,
2005 was as below:

Trade Creditors 15,000 Cash at bank 32,200
Capitals : Debtors 22,000
A 45,000 Less: Provision 200 9,800
B 36,000 Stock 20,000
C 27,000 Machinery & Equipment 23,000

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General Reserve 12,000 Buildings 50,000
1,35,000 1,35,000
B decide to retire . The partners agreed upon the following adjustment to assets and liabilities for
determining the amount payable to B:
(a) That the provision for doubtful debts be increased to 5%.

(b) That the stock be depreciated by 5% and building be appreciated by 20%.
(c) That a provision of Rs.1,500 to be made for setting a dispute with a former employee.
(d) That the goodwill of the firm to be valued at Rs.32,400. No goodwill account to be raised .
(e) That A and C to be equal partners for future .
(f) That cash is to be brought in by or paid off to the partners in the new firm to maintain tha
capital of Rs.96,000 in equal proportion.
Pass the necessary journal entries and prepare Revaluation account , Bank account , partners capital
accounts and the balance sheet of the new firm after B’s retirement .
(Profit on Revaluation Rs.7,200; Total of B/s Rs.1,65,700)
Q33. The balance sheet of A, B and C as at 31st march 2006 is as under :

Creditors 1,31,000 Goodwill 15,000
Capitals Land and buildings 5,00,000
A 2,90,000 Printing Press 2,00,000
B 2,90,000 Stock of Papers etc. 50,000
C 2,90,000 Debtors 1,00,000
Cash at bank 1,61,000
10,16,000 10,16,000
C decided to retire on 31st March 2006 as he got some foreign assignment. The partners agreed for
The following terms and conditions:
(a) Stock to be depreciated by 30% and sale of old papers realized at Rs.1,000.
(b) Provision for doubtful debts to be increased to 18% of sundry debtors.
(c) Printing Press to be depreciated by 40% and Land and building to be appreciated by 15%.
(d) The goodwill of the entire firm to be valued at Rs.75,000.
(e) A and B to share future profit in the ratio of 5:3 and maintain the capital of the firm at Rs.8
lakhs in that ratio.
(f) A and B to bring in sufficient cash in case of deficiency and withdraw the surplus balance , if
any.
(g) Final settlement of retiring partners share to be done immediately on his retirement .
Pass the journal entries and prepare the necessary ledger accounts and the balance sheet of the firm on
the retirement of C.
(Loss on Revaluation Rs.27,000; Total of b/s Rs.9,31,000)
Q34. J,R and Y were sharing profits and losses in proportion to their capitals . Their balance sheet on 31st
December 2005 was as under:

Sundry creditors 20,000 Buildings 1,00,000
Capitals: Machinery 48,000
J 76,000 Stock 18,000
R 57,000 Debtors 20,000
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Y 38,000 1,71,000 Less: provision 400 19,600

Employees provident fund 1,600 Bank 8,000
Contingency Reserve fund 4,500 Cash 8,000
Employees compensation reserve 4,500
2,01,600 2,01,600
R decided to retire due to old age . They agreed to the following adjustment in the books of accounts
to decide R’s share:
(a) Buildings to be appreciated by 20%.

(b) Provision for bad and doubtful debts is to be increased to 5% on debtors.
(c) Out of total insurance premium paid Rs.2,800 is to be treated as prepaid insurance. This
amount was earlier debited to profit and loss account .
(d) Machinery is to be depreciated by 20% .
(e) Goodwill of the entire firm is to be valued at Rs.72,000. R’s share is to be adjusted in the
account of J and Y.
(f) J and Y also decide that the total capital of the firm after R’s retirement will be in their new
profit sharing ratio,(i.e.5:3) actual cash to be brought in or paid to a partner as the case may be
.
You are required to prepare Revaluation account , the capitals Accounts of all the partners and the
balance sheet of J and Y.
(Capitals Rs.65,250;39,150, R’s loan 88,200;B/s 2,13,800; Profit 12,600 Amount paid to J
Rs.7,350; Amt. Brought in by Y Rs.7,350)
Q35. A,B and C are partners sharing profits and losses in the ratio of 3:2:1. Their balance sheet as at 31st
December 2005 stood as under:

General Reserve 9,000 Less: Provision 5000 30,000
Capitals : For D/D
A 70,000 Stock 40,000
B 80,000 Investment 20,000
C 50,000 2,00,000 Furniture 24,000
Plant and furniture 1,24,000
Goodwill 12,000
2,72,000 2,72,000
A retires and the following is agreed upon:
(a) Debtors are all good .

(b) Depreciate furniture by 5% and stock by 10%.
(c) Interest accrued on investment is Rs.3,000.
(d) Creditors will be written back by Rs.3,000 .
(e) Goodwill of the firm is valued at Rs.30,000.
(f) The firm had taken a joint life policy of Rs.1,00,000. The surrender value of the policy on
31st December ,2005 was R.15,000.
(g) A takes over investment at a valuation of Rs.25,000.
(h) Joint life policy are not to appear in the new balance sheet .
(i) Capital of the newly constituted firm shall remain the same as before and capital of B and C
shall be in proportion to their new profit sharing ratio 3:2.
Prepare Revaluation Account, Partners capital account and the balance sheet of B and C after
retirement assuming that amount due to A is paid off on retirement .
(Profit rs.10,800: Capital 1,20,000; 80,000; Amt. paid to A-71,000; B/s 2,60,000)
Q36. The balance sheet of X, Y and Z who shared profits in the ratio of 4:3:2 as on 31st March 2005 was
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As follows:

Sundry Creditors 7,700 Cash at bank 6,300
Capitals Less: Provision 300 5,700
X 19,000 Stock 7,000
Y 14,000 Plant and Machinery 10,500
Z 12,000 45,000 Buildings 25,000
54,500 54,500
Y retired on the above date:
(a) Stock be depreciated by 5%.

(b) buildings be appreciated by 5%.
(c) A provision of Rs.320 be made for legal charges.
(d) Goodwill of the firm is valued at Rs.14,400.
(e) X and Z to share the future profits in the ratio of 5:3.
(f) Y to be paid Rs.5,000 in cash and the balance to be transferred to his loan account.
(g) X and Z to maintain their capitals in the new profit sharing ratio and to bring in or withdraw
cash for the purpose. Capital of the new firm be fixed at Rs.28,000.
Prepare Revaluation account, Capital accounts of all partners , bank account and the balance sheet of
X and Z after retirement of Y.
(Profit rs.580. Capital A/c 17,500;10,500;bank Rs.6,513; B/s 50,613 Y’s loan 14,593)
Q37. P,Q and R were partners sharing profits and losses in the ratio of 5/10 P; 3/10 Q; and 2/10 R. They
Had taken a joint life policy of the face value of Rs.20,000. On 31st March 2006 its surrender value
Was Rs.4,000.On this date the balance sheet of the firm stood as under:

Sundry creditors 5,300 Fixed Assets 25,000
Expenses Outstanding 700 Stock 11,000
Reserve 3,000 Book Debts 9,000
Capitals Cash at Bank 2,000
P 20,000 (Minimum balance)
Q 10,000
R 8,000 38,000
47,000 47,000
On this date Q decided to retire and for this :
(a) Goodwill was valued at Rs.15,000.

(b) Fixed Assets were valued at Rs.30,000.
(c) Stock was considered as worth Rs.10,000.
Q was to be paid through cash brought in by P and R in such a way as to make their capitals
proportionate to their new profit sharing ratio which was to be P 3/5 and R 2/5. Goodwill was passed
through books without raising as goodwill account; the joint life policy was not to appear in the balance
sheet . Record these matters in the journal of the firm and prepare the resultant balance sheet.
(Revaluation Profit Rs.4,000; Total of B/s Rs.51,000)
Q38. A,B and c were partners sharing profits and losses in the ratio of 5:3:2. They had taken a joint life
Policy for a sum assured of Rs.1,00,000. On 31st December ,2006, its surrender value was Rs.20,000
On that date, the balance sheet of the firm stood as under:

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Sundry Creditors 26,500 Bank 10,000
Expenses due 3,500 Debtors 45,000
A’s Capital 1,00,000 Fixed Assets 1,25,000
B’s Capital 50,000
C’s capital 40,000
2,35,000 2,35,000
B retires on 31st dec,2006. For the purpose the following adjustment were agreed upon:
(a) That Goodwill be valued at Rs.75,000.
(b) That Fixed assets be appreciated by 20%.
(c) That Stock be reduced to Rs.50,000.
(d) That B be paid through cash brought in by A and C in such a way as to make their capitals
proportionate to their new profit sharing ratio which is to be A 3/5 and C 2/5.
(e) That Joint life policy are to appear in the balance sheet .
Prepare the partners capital A/c and the balance sheet of A and C.
(Profit Rs.20,000 capital 1,47,000; 98,000;B/s 2,75,000 Payment to B 89,000)
Q39. The balance sheet of A,B and C on 31st December 2006 was as follows:

Creditors 50,000 Goodwill 30,000
Capitals Accounts Land and buildings 80,000
A 80,000 Plant and machinery 56,000
B 80,000 Motor car 54,000
C 60,000 Debtors 48,000
Cash at bank 2,000
2,70,000 2,70,000
The following terms have been agreed upon on A’s retirement:

(a) Goodwill of firm valued Rs.42,000.
(b) The value of land and building would be appreciated by Rs.20,000.
(c) The value of plant and machinery would be reduced to Rs.46,000.
(d) Create provision for doubtful debts at 5% on debtors.
(e) Create provision of Rs.1,400 on creditors.
(f) The remaining partners decided not to show goodwill as an asset.
(g) The entire sum payable to A is to be brought by B and C in such a manner that their capital
accounts are in proportion to their profit sharing ratio, which is equal.
Prepare necessary ledger accounts.
(Profit 9,000; Capital 99,500; 99,500; B/s 2,47,600 Payment to 87,000)
Q40. A,B and C were partners sharing profits and losses in the ratio of 3:2:1. Their balance sheet as at
31st dec,2006 stood as under:

Expenses owing 8,000 Debtors 32,000
Loan 20,000 Less: Provision 3,000 29,000
Capital Accounts: Investment 20,000
B 30,000 Machinery 50,000
C 30,000 Goodwill 10,000
1,64,000 1,64,000
On that date B retired on the following terms:

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(a) Provision for doubtful debts would be brought down to Rs.2,000.

(b) Expenses owing would be reduced by Rs.3,000.
(c) Interest accrued on investment was Rs.2,600.
(d) Depreciate furniture by 10% and machinery by 5%.
(e) There was an outstanding bill for repairs of Rs.2,500 and it was to be provided for .
(f) The firm had taken a joint life policy of Rs.80,000 in the name of partners . The surrender
value of the policy at the time of retirement of B was Rs.9,000.
(g) Goodwill of the firm was valued at Rs.25,000.
(h) A and C decided that joint life policy would not appear in the books of the firm .
(i) B was paid in full with the cash brought in by A and C in such a manner that their capitals
remain proportionate to their profit sharing ratio 3:2. and cash in hand must be maintained at
Rs.20,000.
Prepare Revaluation Account, Partners Capital Accounts and Balance sheet of A and C.
(Capital 64,200,42,800; Payment to B 42,000 B/s 1,58,500)
Q41. The balance sheet of M,N and O who are sharing profit and losses ratio of ½,1/3,1/6 respectively,
Was as follows on 30.6.2005:

Bills payable 6,000 Cash in hand 150
Capital Accounts : Bills receivable 5,400
M 40,000 Book debt 17,800
N 25.000 Stock 22,300
O 20,000 Furniture 3,500
Profits & loss A/c 4,500 Plant and machinery 9,750
Building 24,000
1,08,400 1,08,400
M retires from business 1st July 2005. Assets were revalued as under:
Stock rs.20,000; Furniture rs.3,000; Plant and machinery Rs.9,000; Building Rs.20,000; and Rs.850
are to be provided for doubtful debts. The goodwill of the firm is agreed to be valued at Rs.6,000.
M is to be paid Rs.11,050 in cash on retirement and balance in the three equal yearly installments
with interest at 5% per annum.
Prepare Revaluation Account, Partners capital Accounts and M’s loan account till it is finally closed.
(Loss 8,400 M’s loan 30,000; B/s 88,950; Int. on loan 1,500;1,000;500)
Q42. Following is the balance sheet on 31st dec,2005 of M/s A,B and C who share profits in the ratio of
4:2:1 respectively:

Capital Accounts : Goodwill 10,000
A 30,000 Stock 15,000
B 20,000 Sundry debtors 11,000
C 15,000 Land and building 20,000
Sundry creditors 15,000 Plant and machinery 26,500
Bills payable 3,000 Motor Vehicle 10,000
General reserve 10,500 Cash 1,000
93,500 93,500

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On the above date , A retired and the following arrangements were agreed upon:
(a) Goodwill of the firm is to be valued at Rs.24,000.

(b) The assets and liabilities are to be valued as under : Stock Rs.12,000; Sundry Debtors
Rs.10,500; Land and buildings Rs.22,600, Plant and machinery Rs.25,000 and sundry
creditors Rs.14,000.
(c) B and C were to introduce Rs.20,000 and Rs.5,000 respectively into the business and
Rs.16,200 was to be paid to A. The balance due to A was to be paid in three equal annual
installments together with interest at 9% p.a.
Give journal entries to record the above transactions , the balance sheet of the firm after A’s retirement
and A’s loan account until it is paid off.
(Loss on Revaluation Rs.1,400; total of B/s Rs.89,900)
Q43. A,B and C were partners sharing profits in the proportion of ½,1/3,and 1/6 respectively. The balance
Sheet of the firm on 31st march 2005 was as follows:

Provident Fund 3,000 Debtors 30,000
Reserve fund 9,000 Less: Provision 1,000 29,000
A 40,000 Investment 10,000
B 36,500 Patents 5,000
C 20,000 Plant and machinery 48,000
1,21,100 1,21,100
C retired on the above date on the following terms:
(a) Goodwill of the firm was valued at Rs.27,000.

(b) Value of the patents was to be reduced by 20% and that of plant and machinery by 10%.
(c) Provision for doubtful debts was to be raised to 6%.
(d) C took over the investment at a value of Rs.15,800.
(e) Liability on account of Provident fund was only Rs.2,500.
Show the necessary journal entries for the treatment of goodwill, prepare revaluation account, capital
accounts of the partners and the balance sheet of A and B after C’s retirement.
(Loss Rs.300; Capital 41,650;37600; C’s loan 10,150;B/s 1,04,500)
Q44. P,Q and R are in the partnership sharing profits in the ratio of 5:3:2. The balance sheet of the firm as
on April 1,2006 was as follows:

Capitals : Bills Receivable 15,000
P 40,000 Machinery 82,000
Q 61,000 Furniture 4,000
R 24,000 1,25,000 Sundry debtors 70,000
Reserve 30,000 Less: Provision 3,000 67,000
Sundry Creditors 50,000 For D/D
Profit & loss A/c 28,000 Stock 20,000
Bills payable 5,000 Cash at bank 50,000
2,38,000 2,38,000

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On April 1,2006 , Q retire due to his foreign assignment and P and R continued in partnership, sharing
profits and losses in the ratio 3:2. It was agreed that following adjustment were to be made on the
retirement of Q.
(a) The machinery was to revalued at Rs.85,000.
(b) The stock was to be reduced by Rs.1,000.
(c) The furniture was to be reduced to Rs.1,600.
(d) The provision for doubtful debts would be 6%.
(e) A provision of Rs.800 was to be made of outstanding expenses .
(f) A liability on account of damages of Rs.7,000 included in creditors is settled at Rs.12,000.
The partnership agreement provides that in case of retirement of a partner goodwill was to be valued at
three years purchase of average profits, which are 10,000.
Q was paid off in full. P and R were to deposit such an amount in bank so as to make capital in
proportionate to the new profit sharing ratio, subject to the condition that a bank balance of Rs.40,000
was to be maintained as working capital.
Record the necessary journal entries to give effect to the above arrangements and prepare the partners
capital accounts as on 1st April 2006 and also the balance sheet after retirement.
(Loss Rs.7,400; P=Rs.99,360;R=Rs.66,240;Payment to Q Rs.85,180; B/s Rs.2,26,400)
Q45. The balance sheet of A,B and C who are partners in a firm sharing profits according to their capitals
as on 31st March 2005 was as under:

Creditors 21,000 Buildings 1,00,000
A’s Capital 80,000 Machinery 50,000
B’s Capital 40,000 Stock 18,000
C’s capital 40,000 Debtors 20,000
For B/d
Cash at bank 14,000
2,01,000 2,01,000
On that date, B decided to retire from the firm and was paid for his share in the firm subject to the following:
(a) Buildings to be appreciated by 20%.
(b) Provision for bad debts to be increased to 15% on debtors.
(c) Machinery to be depreciated by 20%.
(d) Goodwill of the firm is valued at Rs.72,000 and the retiring partners share is adjusted through
the capital accounts of remaining partners .
(e) The capitals of the new firm be fixed at Rs.1,20,000.
Prepare Revaluation account, capital accounts of the partners and the balance sheet after retirement of
B. (Profit Rs.8,000; A=Rs.80,000; C=Rs.40,000; B/s Rs.1,95,000)
Q46. X,Y and Z were partners in a firm sharing profits in the ratio of 2:2:1. Their balance sheet on 31.3.2005
was as follows:

X’s Capital 82,000 Stock 42,000
Y’s Capital 60,000 Buildings 2,07,000
Z’s Capital 75,500 Patents 9,000
2,85,000 2,85,000
Y retired on 31.3.2005 on the following terms:

(a) Goodwill of the new firm was valued at Rs.70,000 and was not to appear in the books.
(b) Bad debts amounting to Rs.2,000 were to be written off.
(c) Patents were considered as valueless.

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Prepare Revaluation Account, Partners capital accounts and the balance sheet of X and Z after Y’s
retirement.
(Loss Rs.11,100; X =Rs.66,333; Z=Rs.67,667;B/s Rs.2,74,000)

Q47. P,Q and R were partners in affirm sharing profits in the ratio of 2:3:5. On 31.3.2005 their balance sheet
was as follows:

Capitals Accounts : Debtors 40,000
P 80,000 Less: Provision 5,000 35,000
Q 70,000 for D/D 50,000
R 60,000 2,10,000 Stock 1,40,000
Building 10,000
Profit & loss A/c
2,80,000 2,80,000
On the above date R retire from the firm due to his illness on the following terms:
(a) Building was to be depreciated by Rs.40,000.

(b) Provision fro doubtful debts was to be maintained at 20% on debtors.
(c) Salary outstanding Rs.5,000 was to be recorded and creditors Rs.4,000 will not be claimed .
(d) Goodwill of the firm was valued at Rs.72,000 and the same was to be treated without opening
goodwill account.
(e) R was to be paid Rs.15,000 in cash, through bank and the balance was to be transferred to his
loan account.
Prepare Revaluation Account, Partner’s capital Accounts and the balance sheet of P and Q after R’s
retirement.
(Ans. Loss Rs.44,000; B/s Rs.2,12,000)

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DEATH OF A PARTNER
Q1. Ram, Manohar and Joshi were partners in a firm. Joshi died on 28 th February 1994. His share of profit
from the closer of the last accounting year till date of death was to be calculated on the basis of the
average of three completed years of profits before death. Profits for 1991, 1992 and 1993 were
Rs.7,000, Rs. 8,000 and Rs.9, 000 respectively.
Calculate Joshi’s share of profit till his death and Pass the necessary entry for the same.
(Joshi’s share of profit = Rs.Rs.444)
Q2. A,B and C are sharing profits in the ratio of 2:2:1. B died on 31st March, 1999. Accounts are closed on
31st December. Sales for the year 1998 amounted to Rs.3, 00,000. Sales of Rs.1, 00,000 amounted
between the period from 1st Jan,1999 to 31st March ,1999. The profit for the year, 1998 amounted to
Rs.30, 000.
Calculate the deceased partner’s share in the profits of the firm.
(B’s share = Rs.4, 000)
Q3. Following in the balance sheet of Ram, Mohan and Sohan as on 31st December 1999:
Liabilities Rs Assets Rs
Sundry Creditors 2, 000 Plant & Machinery 10,000
Reserve Fund 3, 200 Stock 4,000
Capital Accounts: Sundry Debtors 6,000
Ram 10, 000 Cash at Bank 5,000
Mohan 5, 000 Cash in Hand 200
Sohan 5, 000
25, 200 25,200
Sohan died on 31st March 2000. Under the terms of partnership deed, the executors of a deceased
partner were entitled to:
(a) Amount standing to the credit of the Partners Capital Account.

(b) Interest on capital at 5% per annum.
(c) Share of goodwill on the basis of twice the average of the past three years profit .
(d) Share of profit from the closing of the last financial year to the date of death on the basis of
the last year’s profit.
Profit for 1997, 1998 and 1999 were respectively Rs.6, 000, Rs.8, 000 and Rs.7, 000. Profit was shared
in the ratio of capitals.
Pass the necessary journal entries and drawn up Sohan’s account to be rendered to his executors.
(Balance TFR to Sohan’s Executor A/c Rs.9, 800)
Q4. Bhatt and Seth were carrying on a business in partnership sharing profits and losses in the ratio of 3:2
Respectively. They closed their books of account every year on 31st December. Their balance sheet as
on 31st December, 1991 was as follows:

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Bhatt’s Capital 90,000 Furniture 20,000

Seth’s Capital 60,000 Stock 1,00,000
2,00,000 2,00,000
Seth died on 1st May, 1992, Partnership deed provided that in the event of death of a partner his heirs
Would be entitled to be paid out:
(a) Capital to his credit at the date of death.

(b) His share of reserve at the date of the last Balance sheet.
(c) His share of profit to the date of his death based on the average profit of the last three
accounting years.
(d) His share of goodwill based on the total profits of the preceding three accounting years.
The profits for the three preceding accounting years were as follows:
1989----Rs.41, 800 1990---- Rs.39, 200 1991----Rs.45, 000
Prepare Seth’s capital account transferring amount due to Seth’s Heir’s loan account. Clearly show
your calculations.
(Amount TFR to Heirs loan A/c Rs.1, 28,000)
Q5. A and B are in partnership sharing profits and losses 3:2. They insure their lives jointly for Rs.75, 000
at an annual premium of Rs.3, 400 to be debited to the business. B dies three month after the date of the
last Balance sheet. According to the partnership deed, the legal personal representatives of B are
entitled to the following payments:
(a) His capital as per the last Balance sheet.

(b) Interest on above capital at 3 per cent annum to date of death.
(c) His share of profit to date of death calculated on the basis of last years profit.
His drawings are to bear interest at an average rate of 2% on the amount irrespective of the period.
The net profit for the last three years , after charging insurance premium ,were Rs.20,000, Rs.25,000
and Rs.30, 000 respectively. B’s capital as per Balance sheet was Rs.40, 000 and his drawings to date
of death were Rs.5, 000. Draw B’s Account to be rendered to his representatives.
(Balance due, Rs.68, 200)
Q6. Bimla and Nutan were partners. The partnership deed provides inter alia:
(i) That the accounts be balanced on 31st December each year.

(ii) That the profit be divided as follows: Bimla one- half, Nutan one-third and carried to reserve
Account one-sixth.
(iii) That in the event of death of a partner, his executor will be entitled to the following:
(a) The capital to her credit at the date of death.
(b) Her proportion of profit to date of death based on the average profit of the last three
completed years.
(c) Her share of Goodwill based on three years purchases of the average profit for the
three preceding completed years.
On 31st December ,1991 the trial Balance was as under :
Particulars (Dr.) Rs. (Cr.) Rs

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Bimla’s Capital 90,000

Nutan’s Capital 60,000
Reserves 30,000
Bills receivable 50,000
Investment 40,000
Cash 1,10,000
Creditors 20,000
2,00,000 2,00,000
The profit for the three years was: 1989---Rs.42, 000, 1990---Rs.39, 000 and 1991---Rs.45, 000.
Nutan died on 1st May, 1992. Show the calculations of Nutan’s (i) Share of profits, (ii) Share of
Goodwill, and (iii) draw up Nutan’s Executor’s account as would appear in firm’s ledger transferring
the amount to her Executer loan account.
(Nutan’s Share of Reserve Rs.12,000; Nutan’s Share of profits Rs.5,600; Share of goodwill
Rs.50,400; Nutan’s Executors loan A/c Rs.1,28,000)
Q7. P, R and S are in partnership sharing profit 4/8, 3/8 and 1/8 respectively. It is provided under the
partnership deed that on the death of any partners his share of goodwill is to be valued at one-half of
the net profit credited to his account during the last 4 completed years (books of accounts are closed on
31st December.)
R died on 1st Jan, 1985.The firm’s profits for the last 4 years were as follows: 1981(Profits Rs
1,20,000); 1982 (Profit Rs.60, 000); 1983(Loss Rs.20, 000) and 1984 (Profit Rs.80, 000).
(i) Determine the amount that should be credited to R in respect of his share of goodwill.
(ii) Pass a journal entry without raising Goodwill account for its adjustment assuming that profits
sharing
Ratio between P and S in future will be 3:2. Show your workings clearly.
(Dr. P by Rs.12, 000 and S by Rs.33, 000 and Cr. R by Rs.45, 000)
Q8. R,S and T were partners sharing profits and losses in the ratio of 5:3:2 respectively. On 31st December
1990 their balance sheet stood as under :
Sundry Creditors 55, 000 Goodwill 25,000
Reserve Fund 30, 000 Leasehold 1,00,000
Capital Accounts: Patents 30,000
R 1,50,000 Machinery 1,50,000
S 1,25,000 Stock 50,000
T 75,000 3,50,000 Debtors 40,000
Cash at Bank 40,000
4,35,000 4,35,000
T died on1st May 1991, It was agreed that:
(a) Goodwill be valued at 2 ½ years purchase of last four years profits which were:
1987---Rs.65, 000, 1988---Rs.60, 000, 1989----Rs.80, 000 and 1990----Rs.75, 000.
(b) Machinery be valued at Rs.1, 40,000; patents be valued at Rs.40, 000;
Leasehold be valued at Rs.1, 25,000 on 1st May, 1991.
(c) For the purpose of calculating T’s share in the profits of 1991 the profits in 1991 should be
taken to have accrued on the same scale as in 1990.
(d) A sum of Rs.21, 000 to be paid immediately to the executors of T and the balance to be paid in
four equal half-yearly installments together with interest @ 10% interest per annum.

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Pass the necessary journal entries to record the above transactions and T’s executors account for 1991.
(T’s Executors A/c Rs.1,21,000)
Q9. A,B and C were partners sharing profits in the proportion of ½,1/4 and ¼ respectively. Their Balance
sheet on 31st December ,1991 was as follows:
A’s Capital 10,000 Sundry Debtors 4,500
B’s Capital 6,000 Stock in Trade 5,500
C’s Capital 4,000 Loan to A 3,000
Buildings 10,000
24,000 24,000
A died on 1st Jan,1992. The firm had effected an assurance for Rs.10,000 on the joint lives of the three
partners and the amount of the policy was realised on 1st February ,1992. According to the partnership
agreement , Goodwill was to be calculated at two years purchase of the average profit of three
completed years preceding the death or retirement of a partner . The deceased partners share of capital
and goodwill, etc. was paid out in cash on 1 st March ,1992, the available cash balance supplemented by
a loan from the firm’s banker on the security of the building. The net profits of three preceding years
were Rs.5,500, Rs.4,800 and Rs.6,500.
You are required to show the ledger accounts of the partners, and the balance sheet of B and C as it
would stand after A’s share is paid off.
(Amount paid to A’s Executors Rs.17,600; Loan taken from bank Rs.6,600;balance sheet total
Rs.31,200)
Q10. A,B and C are partners sharing profits of 2:1:1. They closed their books on 31st December each year. A
died on 38th February, 1991 when their balance sheet was as follows:
Joint life policy Reserve 3,600 Sundry Debtors 3,900
Profit for 2 months 3,110 Loan to A 4,000
(before interest & salaries) Joint life policy 3,600
A’s Capital
B’s Capital
C’s Capital 21,000
31,500 31,500
According to the partnership deed:
(a) Interest on capital is allowed @ 6% p.a. A and B are entitled to salaries @ R.300 and Rs.250 p.m.
(b) In the event of death of a partner Goodwill was to be valued at 2 years purchase of the average net
profits of 3 completed years preceding death. The net profits for the year 1988, 1989 and 1990 was
Rs.5,500, Rs.4,800 and Rs.6,500 respectively.
Firm had taken a joint life policy (with profit policy) of Rs.10,000. The insurance company admitted a
claim of Rs.12,600 including bonus.
A’s share was paid to his executors. B and C continued the firm. Prepare profit &Loss A/c, partners’
capital A/c, and balance sheet of B and C .

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(Profit after Interest and salary Rs.1,800; capital B Rs.12,960 and C Rs.11,450; Amount paid to
A’s Executor Rs.19,500; Balance sheet Total Rs.28,200)
Q11. You are given the balance sheet of Jassi, Jaipaul and Jyoti who are partners sharing profits in the ratio
of 2:2:1. as on 31 march 1993:

Creditors 40,000 Goodwill 30,000
Reserve Fund 25,000 Fixed Assets 60,000
Capitals: Stock 10,000
Jassal 30,000 Sundry Debtors 20,000
Jaipaul 25,000 Cash Bank 15,000
Jyoti 15,000
1,35,000 1,35,000
Jaipaul died in 15th June 1993, According to the deed, his legal representatives were entitled to:
(i) Balance in Capital A/c .

(ii) Share of goodwill valued in the basis of thrice the average of the past four year’s profit.
(iii) Share in profits up to the date of death on the basis of average profits for the past four year .
Interest on capital A/c @12%p.a.
Profits for the years ending on March 31 of 1990, 1991, 1992 and 1993 respectively were Rs.15, 000;
Rs.17, 000; Rs.19, 000; Rs.13, 000.
The firm had taken insurance policies in the lives of the partners, premium being charged to profit
every year. The policy amount and surrender value (on 15.6.93)were:
Policy Amount Surrender value

Jassal 70,000 30,000
Jaipaul 70,000 30,000
Jyoti 60,000 25,000
Jaipaul’s legal representatives were to be paid the amount due . Jassal and Jyoti continued as partners
by taking over Jaipaul’s share equally. Work out the amount payable to Jaipaul’s legal representatives.
(Balance Transfer to Jaipaul’s Executors A/c Rs.94,158)

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ISSUE OF SHARES AT PAR

Q1 Nisha Ltd. Invited applications for 20,000 shares of Rs.10 each payable as follows:
Rs.2 on application, Rs.3 on allotment, Rs.2 on first call and the balance on final call. All the shares
were applied and allotted. All the money duly received. You are required to journalize these
transactions.
Q2. Ashu Limited invited applications for 10,000 equity shares of the value of Rs.10 each. The amount
is payable at Rs.2.50 on application and Rs.3.50 on allotment and balance on first call. The whole of
the above issue was applied for and shares were allotted to all of them. Money was duly received. Give
the journal entries for the above transactions.
Q3. A company was registered with an Authorized Capital of Rs.1,00,000 divided into 80,000 Equity
Shares of Rs.100 each and 20,000, 9% Preference shares of Rs.100 each. 30,000 Equity and 10,000
Preferences shares were offered to public on the following term-Equity shares payable
Rs.10 on application , Rs.40 on allotment and the balance in two calls of Rs.25 each. Preference shares
are payable Rs.25 on application. Rs.25 on allotment and Rs.50 on first and final call . All the shares
applied for and allotted . All the money was duly received . Pass the necessary journal entries to record
the above issue of shares.
Q4. The Hardik Cotton Mills Ltd. was registered on 1 st Jan 1999, with a capital of Rs.20,00,000 divided
into 2,00,000 shares of Rs.10 each. The company issued 70,000 shares of which 50,000
Shares were taken up by the public and Rs.1 share was received with application. On 1 st February, these
share were allotted and Rs.2 per share was duly received on 28 th February as allotment money. A first
call of Rs.3 per share was made on 1st march and the call money on all shares with the exception of 100
shares was received . The final call of Rs.4 per share was made on 1 st june and the amount due with the
exception of 400 shares, was received by 30th June . Pass the necessary journal and cash book entries.
ISSUE OF SHARES AT PREMIUM

Q5. Sonu Ltd. was registered with a capital of Rs.2,00,000 divided into shares of Rs.10 each. It issued

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a prospectus inviting application for 8,000 shares on the following terms : Rs.2 per share on
application, Rs.5 per share (including Rs.2 premium) on allotment, Rs.3 per share on first call and Rs.2
per share on final call.
Q6. Harish limited company offered for subscription 20,000 shares of Rs.25 each, payable Rs.5 per share
on application, Rs.10 per share on allotment (including Rs.5 per share as premium) Rs.5 per share as
first call on the shares and the balance in two equal amounts at intervals of three months.
All the shares were applied for and allotted . All the money were received excepting the 2 nd call and
final call moneys on 200 and 400 shares respectively. You are asked to show the entries in the
Company journal, Cash book. Show also the company’s balance sheet on completion of the above
transactions.
(Cash book Bal, Rs.4,97,000)
Q7. Raju Ltd. was floated with a capital of Rs.6,00,000 divided into shares of Rs.10 each. It offered 5,000
shares on the following terms:
Rs.2 per share on application, rs5 per share (including Rs.2 premium) on allotment, Rs3 per share on
first call and Rs.2 per share on final call . Applications were received for 7,000 shares. Applicants for
2,000 shares were sent letters of regret and application money was refunded. All the money due on
shares were duly received . Give the necessary journal entries.
ISSUE OF SHARES AT DISCOUNT

Q8. A company issued 20,000 shares of Rs.15 each at a discount of Rs.1 per share payable Rs.5 on
application and the balance on allotment. All the shares offered were applied for and allotted. The
money due on allotment was received Pass the necessary Journal entries.
Q9. Anmol Ltd. issued 25,000 equity shares of Rs.10 each at a discount 5%. Payments were to be made as
on application Rs.2.50; on allotment Rs.3 and balance on first and final call . Application were received
for all the shares and allotment made in full. All money was duly received except first and final call on
250 shares. Pass necessary entries.
Q10. Saloni Limited issued 20,000 equity shares of Rs.10 each at Rs.9 per share. The amount on these shares
were payable as Rs.5 on application. Rs2 on allotment, Rs.2 on first and final call. All the money were
duly received except A who had 100 shares paid in full on allotment and b who had
1,000 shares failed to pay first and final call . Give journal entries.
Q11. Gandhi Ltd. was incorporated with a capital of Rs.50,00,000 divided into shares of Rs.100 each. It
invited applications for 10,000 shares at a discount of 4% payable as follows:
Rs.20 on application, Rs30 on allotment and Rs.46 on first and final call. Applications were received
for 9,000 shares and all of these were accepted . All money due was received. Give the journal entries.
ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH

Q12. Sony Ltd. Purchased the business of Ram Bros. for Rs.1,80,000 payable in fully paid shares of Rs.100
each. What entries will be made in the books of Sony Ltd. If such issue is : (i) at par,
(ii) at a premium of 20%, and (iii) at a discount of 10 % ?
Q13. Manish Limited purchased land for Rs.80,000 from Ram Bros. It issued equity shares of Rs.10 each
fully paid – up in satisfaction of their claim. Give the necessary journal entries .
Q14. CTC Ltd. purchased the assets of shyam Ltd. for Rs.5,40,000. The consideration was payable in fully
paid equality shares of Rs.10 each. Give the necessary journal entries if such shares are to be issued at a
premium of 20%.

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Q15. Dev. Limited purchased assets of Rs.3,80,000 from RAJ traders , it issued shares of Rs.100 each fully
paid at a discount of 5 % in satisfaction of purchase consideration .
Q16. Chanu Ltd. Purchased business of Naresh Ltd. fro Rs.4,50,000 payable in fully paid shares of Rs.10
each . Give the necessary journal entries if such shares are to be issued at a discount of 10%.
Q17. Hindu Ltd. acquired Plant and machinery from Krishan Ltd. .for Rs.6,00,000 payable in 25% in cash
and the balance in fully paid shares of Rs.100 each. Give the necessary journal entries if such shares
are to be issued at a discount of 10%.
Q18. Lata Limited purchased the assets of Hari Ltd. For Rs.5,00,000 payable 16% in cash and the balance in
fully paid shares of Rs.100 each. Give the necessary journal entries if such shares are to be issued at a
Premium of Rs.40 per share.
Q19. (a) Anmol was formed with 20,000 shares of Rs.50 each. Out of These 4,000 shares were
issued to the vendors as fully paid up as purchase consideration . 10,000 shares were
offered to the public and of these 8,000 shares were applied for and allotted . Rs.5 per
share was payable on application and Rs.20 on allotment and the balance was to be called in
two equal installments whenever required. All money were duly received on allotment except
in the case of one share holder holding 100 share who failed to pay the
allotment money . You are required to give journal entries.
(b) Lagaan Ltd. was registered with a capital of Rs.4,00,000 divided into shares of Rs.10 each.
Out of these 10,000 shares were issued to the vendors a fully paid up as purchase
consideration . 30,000 shares were offered to the public and of these 25,000 shares were
applied for and allotted Rs.2 per share on application, Rs.4 per share on allotment (including
Rs.2 per share as premium), Rs.2 per share on first call and the balance in two equal amounts
at interval of 3 month. All the money were duly received except the 2 nd call and final call
money on 500 and 1,000 shares respectively. Give the journal & cash book.
CALLS IN ADVANCE
Q20. Dalip Ltd. was registered with a capital of Rs.10,00,000 in share of Rs.10 each and issued 40,000
Such shares at a premium of Rs.2 per share, payable as to Rs.2 per share on first call made three
months later. All the money payable on application, and allotment was duly received but when the first
call was made, one share holder paid the entire balance on his holdings of 600 shares, and another
shareholder holding 2,000 shares failed to pay the first call money. Give journal entries to record the
above transactions.
Q21. Rupesh Limited company with an authorized capital of Rs.3,00,000 in shares of Rs.100 each issued
2,000 of such shares, payable Rs.25 per share on application, Rs.20 on allotment , Rs.20 three months
later, and the balance as and when required.
Q22. Y, the holder of 200 shares, paid his arrears in respect of shares first call of Rs.25 on 1 st august, 1992,
the due date of call being 1st may 1992. The interest charges on calls – in arrears are 5%p.a. Pass
journal entries.
Q23. X, the holder of 100 shares, paid his second call of Rs.10 per share along with the share first call
money of Rs.20 on 1 st May,1992. The second call, made by the company on 1 st August 1992. The
interest allowed on calls – in – advance as per Articles is 6%p.a. Interest paid to the holders on 1 st
August 1992. Pass journal entries to record the above transactions.
OVERSUBSCRIPTION
Q24. The Atlas Cycle Ltd. was registered with a capital of Rs.10,00,000 divided into 40,000 shares of Rs.25
each. The company offered to the public for subscription 10,000 shares payable Rs.5 per share on
application, Rs5 per share on allotment and the balance in two calls of Rs.7.50 each. The company
received applications fro 11,600 shares. Applications for 1,000 shares were rejected

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Altogether and application money was returned to the applicants. A person who applied for Rs.1,000
shares was allotted only 400 shares and excess of his application money was carried forwards the
payment of allotment and calls. Give the journal entries to record the above issue of shares.
Q25. Sonu company issued Rs.10,00,000 new capital divided into Rs.100 shares at a premium of Rs.20 per
share payable thus:
Rs.10 per share on application.
Rs.40 per share and Rs.10 premium on allotment; and
Rs.50 per share and Rs.10 premium on final payment.
Over- payments on application were to be applied towards sums due on allotment and over- payments
on application exceeding sums due on allotment were to be returned. Where no allotment was made,
money was to be returned in full. The issue was over-subscribed to the extent of 13,000 shares.
Applicants for 12,000 shares were allotted only 1,000 shares and applicants for 2,000 shares were sent
letters of regret and application deposits were returned to them. All the money due on allotment and
final call was duly received. Make the necessary entries in the company books to record the above
transactions.
FORFEITURE AND REISSUE OF SHARES WHEN ORIGINALLY ISSUED AT PAR
Q26. A company issues 20,000 shares of the face value of Rs.10 each, payable Rs.3 on application, Rs.3
On allotment, Rs.2 on first call and Rs.2 on final call. All the shares are subscribed and duly allotted
and both the calls are made. All cash is duly received except the final call on 400 shares. These are
subsequently forfeited by the directors and are resold as fully paid for Rs.2500. give entries necessary
to record these transactions in the company journal. (Ans. Capital Rs.1,700)
Q27. Ram Ltd. makes an issue of 10,000 Rs.100 equity shares , payable as follows:
On Application and allotment Rs.50
On first call Rs.25
On second call Rs.25
Members holding 400 shares do not pay the second call and the shares are duly forfeited, 200 of which
are re-issued as fully paid at Rs.60 per share. Pass journal entries in the books of the company.
(Ans. Capital Rs.7000)
Q28. (a) A company issued 30,000 share of Rs.100 each payable Rs.25 per share on application,
Rs.25 per share on allotment, and the balance in two calls of Rs.25 each. The company did not
make the final call of Rs.25 per share. All the money was duly received with the exception of
the amount due on the first call on 400 shares held by Mr. Ram. The board of directors
forfeited these shares and subsequently re-issued them, Rs.75 per share paid –up, for a sum of
Rs.28,000. Journalize the above transactions and prepare share capital account.
(Ans. Capital Res.18,000)
(b) Escorts Ltd. having an authorized capital of
Rs.30,00,000 in shares of Rs.100 each
invited applications for 20,000 shares payable as follows:
On Application Rs.20 On allotment Rs.30
On First call Rs.25 On Final call Rs.25
The company received applications For 22,000 shares. Applications for 20,000 share
Were accepted in full and the money on the applications rejected was returned .
All money due as stated above was received with the exception of the final call on 250
shares. Half of these were forfeited and re-issue as fully paid at Rs.90 per share.
Pass necessary journal entries and show how the share capital account will account will stand
in the balance sheet .
(Ans. B/s 20,05,000)
(c) A Ltd. with the registered capital of Rs.6,00,000 in shares of Rs.10 each, invited applications
for 30,000 shares payable as under:
Rs.2 per share on application Rs.2 per share on allotment
Rs.3 per share on first call Rs.3 per share on final call
An applicants who had been allotted 250 shares failed to pay allotment and first call money
due from him. His shares were forfeited . After this the final call was made, and the forfeited
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shares were re3issued as fully paid up at Rs.8.50 per share . Make journal entries and show the
company balance sheet.
(Ans. B/s 3, 00,125)
Q29. Ashu Ltd. company with registered capital of Rs.5, 00,000 in shares of Rs.10 each issued, 20,000
Of such shares payable Rs.2 on application, Rs.4 on allotment, Rs.2 on 1st call and Rs.2 on final call .
All the moneys payable on allotment were duly received , but on the first call being made one
shareholder paid the entire balance on his holding of 300 shares and five shareholders with a
Total holding of 1,000 share Failed to pay their dues on the first call. These shares were forfeited for
non-payment of 1st call money. Final call was made and all the money due was received . Later on,
forfeited shares were re-issued at Rs.6 per share fully paid up. Record the above in the company’s
journal and prepare the balance sheet.
(Ans. B/s Rs.2, 02,000)
Q30. (a) The directors of a company forfeited 200 equity shares of Rs.10 each on which Rs.8 has
Been paid. The shares were re-issued upon payment of Rs.1, 500. journalize the above.
(Ans. Capital Reserve Rs.1, 100)
(b) The directors of a company forfeited 100 share of Rs.10 each fully called up for non-payment
of first call of Rs.2 per share and final call of Rs.3 per share . Sixty of these shares were
subsequently re-issued at Rs.6 per share fully paid up. Pass necessary journal entries to record
the above.
(Ans. Capital Reserve Rs.60)
Q31. The directors of a company forfeited 200 equity shares of Rs.10 each (Rs.8 called) on which Rs.1,000
had been paid . These shares were re-issued upon payment of Rs.1,050. Journalize the transactions of
forfeited and re-issue of shares.
Q32. J.M.D. Ltd. forfeited 80 shares of Rs.10 each for non-payment of a first call of Rs.3 per share and a
final call of Rs.2 per share and re-issued to C as fully paid for Rs.9 per share. Journalize.
Q33. Sharvan Ltd. 600 shares of Rs.10 each on which first call of Rs.3 per share was not received the second
and final call of Rs.2 per share has not yet been called. Out of these 150 shares were reissued to J as
Rs.8 called up for Rs.3 per share. Journalize.
(Ans. Capital Reserve nil)
Q34. The director of Manu Ltd. resolved that 2,000 equity shares of Rs.10 each Rs.7.50 paid be forfeited for
non- payment of final call of Rs.2.50, 1800 of these share were re-issued as fully paid for Rs.6 per
share. Journalize.
Q35. Rishi Ltd. forfeited 30 shares of Rs.10 each fully called up, held by Karim for non-payment of
allotment money of Rs.3 per share and final call of Rs.4 per share. He had paid the application money
of Rs.3 per share. These shares were re-issued to Salim for Rs.8 per share.
Q36. Manu Ltd. forfeited 20 shares of Rs.10 each, Rs.7 called up on which Mahesh had paid application and
allotment money of Rs.5 per share. Of these 15 shares were re-issued to Naresh as fully paid up for
Rs.6 per share.
Q37. Alok Ltd. forfeited 300 shares of Rs.10 each fully called up held by Ram for non –payment of
allotment money of Rs.3 per share and final call money of rs.4 per share. Out of These shares 250 were
re-issued to shyam for a payment of Rs.2, 000. Give journal entries for forfeited and re-issue.
Q38. The directors of Devendra Ltd. resolved on 1st Jan,1992 that 100 equity shares of Rs.10 each.Rs.8 paid
be forfeited for non-payment of final call of Rs.2. On 1st February, 60 of these share were re-issued at
Rs.7 per share fully paid up.
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Q39. (a) A holds 100 shares of Rs.10 each on which he has paid Rs.1 per share on application.
B holds 200 shares of Rs.10 each on which he has paid Rs.1 and Rs.2 per share on application
and allotment respectively. C holds 300 shares of Rs.10 each and has paid Rs.1 on application,
Rs.2 on allotment and Rs.3 on first call.
They all fail to pay their arrears and the second call of Rs.2 per share. Shares are forfeited
and subsequently re-issued at Rs.11 per shares as fully paid. Journalize the above.
(Ans. Share premium A/c Rs.600)
(b) Rupesh Ltd. invited applications for 10,000 equity shares of Rs.10 each for public
subscription. The amount of these shares was payable as under:
On Application Rs.1 per share, On allotment Rs.2 per share , On first call Rs.3 per share,
On second call Rs.4 per share.
All sums payable on application, allotment and calls were duly received with the following
exceptions:
(i) A, who held 200 shares, failed to pay the money on allotment and calls.
(ii) B, to whom 150 shares were allotted , failed to pay the money on first call and final
call.
(iii) C, who held 50 shares , did not pay the amount of final call.
The shares of A,B and C were forfeited and were subsequently re-issued for cash as fully paid
at a discount of 5%. Give necessary journal entries to record these shares capital transactions
in the books of Rupesh ltd.
(c) A limited company has a nominal capital of Rs.2,50,000 in Rs.10 shares. Of these, 4000
shares were issued as fully paid in payment of building purchased, 8,000 shares were
subscribed for by the public and during the first year Rs.5 per share were called up, payable
Rs.2 on application, Rs.1 on allotment, Rs.1 on first call, Rs.1 on second call. The amounts
received in respect of these shares were as follows:
On 6,000 shares the full amount called
On 1,250 shares Rs.4 per share
On 500 shares Rs.3 per share
On 250 shares Rs.2 per share
The directors forfeited the 750 shares on which less then Rs.4 had been paid. The shares were
subsequently re-issued at Rs.3 per share. Give the journal entries recording the above
transactions and prepare the company balance sheet .
(Ans. B/sRs.79,250)
FORFITTURE OF SHARES WHEN ORIGINALLY ISSUED AT PREMIUM
Q40. A company invited applications for 10,000 shares of Rs.100 each at a premium of Rs.20 per share. The
share were payable as under:
On application Rs.40(including premium )
On Allotment Rs.30
On First & final call Rs.50
The public applied for 8,000 shares. These were allotted. All moneys due were received with the
exception of the call on 200 shares. These shares were forfeited and re-issued at Rs.80 per share.. Give
journal entries and the balance sheet.
(B/s Rs.9, 66,000)
Q41. Friends Car Ltd. Forfeited 100 shares of Rs.100 each issued at 20% premium (to be paid at the time of
allotment) for non-payment of a first call of Rs.30 per share and second & final call of Rs.20 per share.
Out of these 40 shares were re-issued as fully paid up for Rs.90 per share. Journalize.
Q42. Kitu Ltd. Forfeited 400 shares of Rs.100 each, issued at 20% premium (to be paid at the time of
allotment) for non-payment of a first call of Rs.30 per share. The second and final call of Rs.20 per
share has not yet been called. Out of these, 160 shares were re-issued as Rs.80 paid up for Rs.70 per
share.
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Q43. Gadar Ltd. forfeited 800 shares of Rs.100 each(Rs.70 called up, issued at a premium of 30%(to be paid
at time of allotment) for non-payment of a first call of Rs.20 share. Out of these 320 shares were re-
issued as Rs.70 paid – up for Rs.30 per share, Journalize.
Q44. (a) PCC Ltd./ forfeited 3,200 shares of Rs.100 each issued at 10% premium for non-
Payment of allotment money of Rs.40 per share (including premium) and first call of Rs.30
per share. The second and final call of Rs.20 has not yet been called. Out of these 1,280 shares
were re-issued as Rs.80 paid up for Rs.70 per share. Journalize.
(Ans. Capital Reserve Rs.12,800)
(b) X Ltd. forfeited 100 shares of Rs.10 each (Rs.8 called up ) issued at a premium of Rs.2 per share
to Mr. R on which he had paid application money of Rs.5 per share , for non-payment of allotment
money of Rs.5 per share (including premium). Out of these 70 shares were re-issued to Mr. Sanjay
as Rs.8 called for Rs.7 per share. Give necessary journal entries relating to forfeiture and reissue of
shares.
Q45. Geetanjali Ltd. issued 50,000 Equity shares of Rs.10 each at a premium of 10 % payable as under:
On Application Rs.2 On allotment Rs.5
On First call Rs.2 On Final call Rs.2
The whole of the issue was called for by company and all the money was duly received except the
allotment and call money on 500 share. These shares were, Therefore, forfeited and later on re-issued at
Rs.9 per share as fully paid.
Pass the necessary journal to record the above transactions.
Q46. Bheem Ltd. has authorized capital of Rs.2,00,000, divided into shares of Rs.20 each, the whole of
which is issued and subscribed at a premium of Rs.2 per share . The amount was payable as follows:
On application and allotment Rs.12 per share(including premium) and on first call Rs.2 per share, the
balance as and when required.
The application and allotment money (including premium) was duly received, but a shareholder
holding 500 shares failed to pay the first call and his shares were forfeited. They were later
re-issued for Rs.16 per share fully paid. Give the journal entries for the above.
(Ans. Capital Reserve Rs.3,000)
Q47. (a) A company forfeited 100 shares of Rs.10 each issued at 20% premium (to be paid at time
of allotment) on which first call money of Rs.3 was not received; the final call money of
Rs.2 is not yet called. These shares were subsequently re-issued at Rs.7 per share as Rs.8
paid up. Give necessary journal entries regarding forfeited and re-issue of share.
(b) A limited company issued 20,000 equity shares of Rs.10 each at a premium of Rs.5 per
Share , payable as to Rs.7 (including premium) on application, Rs.5 on allotment and the
balance after three months of allotment. A shareholder to whom 200 shares were allotted
Failed to pay the allotment and the call moneys and his shares were forfeited . 160 of the
forfeited shares were re-issued for Rs.1600. Give necessary company’s journal entries and
balance sheet.
(Ans. B/s 3,00,000; Capital Reserve Rs.320, Balance of share forfeited A/c Rs.80)
Q48. A share of Rs.100 issued at a premium of Rs.10 on which Rs.80 (including premium) was called and
Rs.60 (including premium) was paid , has been forfeited . The share was afterwards re-issued
as fully paid for Rs.70. Give journal entries to record the above.

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Q49. A company issued 10,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable Rs.5 on
application Rs.5 (including premium) on allotment and the balance on 1st call. All the shares offered
were applied for and allotted. All the money due on allotment was received except on 200 shares. Call
was made. All the amount due thereon was received except on 300 shares. Directors forfeited 200
shares on which both allotment and call money was not received.
Pass the necessary journal entries to record the above.
(Shares forfeited A/c Rs.1,000)
Q50. Rajesh Limited has an authorized capital of Rs.4,00,000 divided into shares of Rs.20 each, the whole of
which is issued and subscribed at a premium of Rs.2 per share. The amount was payable as follows:
On application and allotment Rs.10 per share;
On 1st call Rs.4 per share (including premium)
The balance as and when required.
The company made both the calls. The application and allotment money was duly received. But a
shareholder holding 2,000 shares failed to pay both the calls and his shares were forfeited. They were
later re-issued at Rs.14 per share as fully paid. Give journal entries regarding the above.
Q51. (a) On 1st February,1991 the directors of anmol Ltd. issued 50,000 equity shares of Rs.10
each at Rs.12 per share, payable as to Rs.5 on application (including the premium) Rs.4 on
allotment and the balance on 1st may 1991.
The lists were closed on 10th February,1991 by which date applications for 70,000 shares had
been received. Of the cash received Rs.40,000 was returned and Rs.60,000 was applied to the
amount due on allotment , the balance of which was paid on 16th February,1991. All
shareholders paid the call due on 1st may 1991, with the exception of one allotted of 500
shares. These shares were forfeited on 29th September,1991.
Give journal entries to record these transactions and prepare company’s balance sheet.
(Ans. Sh.forfeited A/c of Rs.3500)
(b) A co. Ltd offered to the public 20,000 equity shares of Rs.100 each at a premium of Rs.10 per
share. The payment was to be as follows:
On Application Rs.20
On allotment Rs.40(including premium)
On First call Rs.25
On Second call Rs.25
Applications were received for 35,000 shares. Applications for 10,000 shares were rejected.
Applicants fro 15,000 shares were allotted 10,000 shares and remaining applications are
accepted in full. The directors made both the calls. One shareholder holding 500 shares failed
to pay the two calls and as a consequences his share were forfeited 200 of these shares were
re-issued as fully paid at Rs.80 per share.
Expenses of issue came to Rs.10,000. Prepare cash book, the journal and the balance sheet on
the basis of information given above.
(B/s Rs.21, 91,000)
FORFEITURE OF SHARE WHEN ORIGINALLY ISSUED AT DISCOUNT
Q52. Subhash Ltd. forfeited 40 shares of Rs.10 each, issued at a discount of 10% for non-payment
of a final call of Rs.2 per share. Out of these 10 shares were re-issued as fully paid for Rs.8.50
per share. Journalize.
Q53. Anurag Ltd. forfeited 10 shares of Rs.10 each(Rs.6 called up) issued at a discount of 10% to Mr. Y on
which he had paid an application money of Rs.2 per share . Out of These, 8 shares were re-issued to Z
as Rs.8 called up for Rs.9 per share. Journalize.
Q54. Harish Ltd. Forfeited 10 shares of Rs.10 each. Rs.6 called issued at a discount of 10% to Neeta on
which she had paid Rs.2 per share. Out of these 8 shares were re-issue to Meenu as Rs.8 called up for
Rs.6 per share. Give journal entries for the forfeiture and re-issue.
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Q55. Mother Ltd. forfeited 100 equity shares of Rs.10 each issued at a discount of 10% for non-payment of
first call of Rs.2 per share and the final call of Rs.3 per share on 31st March 1995.
50 Forfeited shares were re-issued as fully paid for Rs.8 per share and the balance of the share were re-
issued on 30th June 1995 at Rs.7 per share. Give journal entries to record forfeiture and re-issued of
shares.
Q56. Shyam Ltd. invited applications for 1, 00,000 shares of Rs.10 each at a discount of 6% payable as
follows:
On application Rs.2.50
On first and final call Rs.3.50
On allotment Rs.3.40
The applications received were for 90,000 shares and all of these were accepted. All money due was
received except the first call on 1,000 shares which were forfeited. Of these 500 shares were reissued
at Rs.9 as fully paid. Pass necessary entries in the Cash book and in the journal of the company. Also
show how these transactions would appear in balance sheet of the company.
(Ans. B/s Rs.9, 00,700)
Q57. A ltd. Company invited applications for 20,000 shares of Rs.100 each at a discount of Rs.5 per share
(allowed at the time of allotment). The amount was payable as under:
On application Rs.25
On allotment Rs.50
Balance on call
The public applied for 18,000 shares and these were allotted. All money due was received with the
exception of allotment and call money on 300 shares. These shares were forfeited afterwards 200 of
these shares were re-issued as fully paid for a payment of Rs.75 per share. Journalize the transactions in
the books of the company.
PRORATA
Q1. A company offered 10,000 shares of Rs.10/- each payable of Rs.2/- on application, Rs.3/- on allotment,
Rs.3/- on 1st call and Rs.2 on final call. The public applied for 15,000 shares. The shares were allotted
on a pro-data basis to the applications of 12,000 shares. All shareholders paid the allotment money
excepting one shareholder X who was allotted 200 shares. These shares were forfeited. The first call
was made thereafter. The forfeited shares were re-issued @ Rs.9/- per share, Rs.8/- paid up. The final
call was yet made. You are required to prepare the cash book and pass journal entries.
(Ans. Amt. Received on allotment Rs.25,480, Capital Reserve 480)
Q2. Shagoon India Ltd. issued for public subscription 40,000. Equity Shares of Rs.10 each at a premium of
Rs.2 per share payable as under:
On application Rs.2 per share
On allotment Rs.5 per share (including premium)
On first call Rs.2 per share
On second call Rs.3 per share
Applications were received for 60,000 shares. Allotment was made pro-data to the applicants for
48,000 shares, the remaining applications being refused. Money overpaid on application was applied
towards sums due on allotment.
A to whom 1,600 shares were allotted failed to pay the allotment money and B to whom 2,000 shares
were allotted failed to pay the two calls. These were subsequently forfeited after the second
Call was made.
Pass journal entries in the books of Shagoon India ltd. to record the above transactions including the
bank entries.
(Ans. Amount received on allotment Rs.1, 76, 640; Sh. Forfeiture A/c Rs.13,840)

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Q3. K limited has been registered with an authorized capital of Rs.4,00,000 divided into 4,000 shares of
Rs.100 each, of which 2,000 shares were offered for public subscription at a premium of Rs.5 per share
payable as under:
On application Rs.10 On allotment Rs.25(including premium)
On first call Rs.40 On final call Rs.30
Applications were received for 3,600 shares; of which applications for 600 shares were rejected the rest
of the applicants were allotted 2,000 shares on pro-data basis. Excess application money was
transferred to allotment. All the money were duly received except from sunder , holder of
200 shares , who failed to pay allotment and first call money.
His share were later forfeited, and re-issued to shyam at Rs.60 per share Rs.70 paid up. Final call has
not been made. Pass necessary cash book and journal entries in the books of K limited.
(Ans. Arrears on allotment rs.4,000; bank balance Rs.1,50,000, capital Reserve Rs.1,000)
Q4. A company issued fro public subscription 50,000 equity shares of Rs.10 each at a premium of Rs.2 per
share payable as under:
On allotment Rs.5 per share(including premium )
Applications were received for 75,000 shares.
Allotment was made pro-data to the applicants for 60,000 shares, the remaining applications being
refused.
Money overpaid on application was utilized towards sum due on allotment. A to whom 2000 shares
were allotted failed to pay the allotment money and the two calls. B to whom 2,500 shares were
allotted failed to pay the two calls. These shares were subsequently forfeited after the second call was
made. All the forfeited shares were sold to X as fully paid at Rs.8 per share. Give the necessary
journal entries for the above transactions.
(Ans. Amt. Received on allotment Rs.2,20800: Capital Res. Rs.8300)
Q5. A company issued for public subscription 75,000 equity shares of Rs.10 each at a premium of Rs.2 per
share payable as under:
On allotment Rs.5 per share (including premium)
Applications were received for 1, 12, 500. Shares were allotted to the applicants for 90,000 shares the
remaining applications being rejected. Money overpaid on application was utilized towards sum due on
allotment.
A to whom 3,000 shares allotted failed to pay the allotment money and the two calls and B to whom
3,750 shares were allotted failed to pay the two calls. All these shares were forfeited after the final call.
5,000 shares including all shares of A were re-issued as fully paid share for Rs.7.50 per share excluding
premium. Give journal entries to record the above transaction in the books of the company.
Q6. X Ltd .invited applications for 2, 00,000 equity shares of Rs.10 each at a premium of Rs.2 per share
Payable as to Rs.2 on application, Rs.5 on allotment including premium, Rs.2 on first call and Rs.3 on
Final call.
Applications were received for 3, 00,000 shares. Applications for 60,000 shares were rejected and pro-
rata allotment was made to the remaining applicants.. Ram, who applied for 9,600 shares failed to pay
allotment money. Shyam, the holder of 12,000 shares failed to pay two calls. These shares were
forfeited subsequently all these shares were re-issued at Rs.8 per share as fully paid up. Pass necessary
Journal entries in the books of X ltd.
(Ans. Capital Reserve Rs.39200; Arrears on allotment Rs.36800)
Q7. AB Ltd. invited applications for 1, 00,000 12% Preferences Shares of Rs.100 each issued at a discount
of 10 %. The amount was payable as follows:
On application Rs.20
On allotment Rs.30
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On first and final call Balance

Applicants for 1, 50,000 shares were received. Applications for 30,000 shares were rejected
and pro-rata allotment was made to the remaining applicants. All calls were made and were
duly received except the first and final call on 1,000 shares held by Kumar. His shares were
forfeited. Out of the
Forfeited shares 750 were re-issued at Rs.120 per share fully paid up.
Pass the necessary journal entries in the books of AB ltd.
(Ans. First and Final call money Received Rs.39, 60,000 Capital Reserve Rs.37, 500)
Q8. M/s Reliable Investments issued a prospectus inviting applications for 4,000 Equity Shares of
Rs.20/- each at a premium of Rs.4/- per share payable as under:
On application Rs.4/- per share
On allotment Rs.10/-per share (including premium)
On first call Rs.6/-per share
On Second call Rs.4/- per share
Applications were received for 6,000 shares and allotment was made pro-rata to the applicants
of 4,800 shares, the application for remaining shares being refused. Money overpaid on
application was Used on account of sums due on allotment.
Harish, to whom 80 shares were allotted, could not pay allotment money and on his
subsequent failure to pay the first call , his shares were forfeited after the first call.
Mukesh to whom 120 shares were allotted , failed to pay the two calls and his shares were
forfeited after the second call.
Of the shares forfeited, 160 share were sold to Suresh credited as fully paid at Rs.18/- per
share all of Harish’s forfeited shares being included . Pass journal entries in the books of the
company to record the above transactions.
(Ans. Arrears on allotment Rs.736; Capital reserve Rs.864)
Q9. A Company offered 1,00,000 shares of Rs.10 each to the public on the following terms :
Rs.3 payable on application, Rs.4 on allotment , the balance as and when required .
Applications were received for 1,40,000 shares. Allotment was made as under:
80,000 Applications were given 80,000 shares.
50,000 Applications were given 20,000 shares.
10,000 Applications were given nil.
Application money is to be applied towards allotment and balance beyond that is to be
returned.
A share holder who applied for 1,000 shares and was given 1,000 shares failed to pay the
allotment money. His shares were forfeited . Pass journal entries to record the above
transactions.
(Ans. Allotment money received Rs.3,06,000; Balance in share forfeited A/c Rs.3000)
Q10. A,B Ltd . invited applications for issuing 1,00,000 equity shares of Rs.10 each. The amount
was payable as follows:
On Allotment Rs.3 per share
On First & final call Rs.5 per share
Application for 1,50,000 shares were received and pro-rata allotment was made to all
applicants as follows:
(i) Applications for 80,000 shares were allotted 60,000 shares on pro-rata basis .
(ii) Applicants for 70,000 shares were allotted 40,000 shares on pro-rata basis.
Sudha to whom 600 shares were allotted out of the group applying for 80.000 shares failed
to pay the Allotment money. Her shares was forfeited immediately after allotment . Asha who
had applied for 1,400 shares out of the group applying for 70,000 shares failed to pay the
first and final call. Her shares were also forfeited. Out of the forfeited shares 1,000 were re-
issued @ Rs.8 per share fully paid up. The re-issued shares included all the forfeited shares of
Sudha. Pass necessary journal entries to record the above transactions.
(Ans. Allotment money Rs.1, 98,600; Capital Reserve Rs.1600)
Q11. A Limited Company invites application for 50,000 equity shares of Rs.10 each payable as
follows:
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On application Rs.3
On Allotment Rs.4
On First call Rs.2
in final call the balance
Applications were received for 55,000 shares. Allotment were made on the following basis:
(i) To Applicants for 35,000 shares –in full
(ii) To Applicants for 20,000 shares – 15,000 shares.
Excess money paid on application was utilized towards allotment money.
A shareholder who was allotted 1,500 shares out of the group applying for 20,000 shares
failed to pay allotment money and money due on calls. These shares were forfeited. 1,000
forfeited shares were re-issued as fully paid on receipt of Rs.8 per share. Show the journal
entries in the book of company.
(Ans. Amount Received on Allotment Rs.1,80,500; Capital Reserve Rs.2,000)
Q12. Sudershan Ltd. invited applications for 1, 00,000 equity shares of Rs.10 each. The shares were
issued at a premium of Rs.5 per share. The amount was payable as follows:
On Application and allotment Rs.8 per share (including premium Rs.3)
Balance including premium on first and final call.
Applications for 1,50,000 shares were received . Applications for 10,000 shares were rejected
and pro-rata allotment was made to the remaining applicants on the following basis:
(i) Applicants for 80,000 shares were allotted 60,000 shares; and
(ii) Applicants for 60,000 shares were allotted 40,000 shares.
X who belonged to the first category and was allotted 300 shares, failed to pay the first call
money. Y who belonged to the second category and was allotted 200 shares also failed to pay
the first call money. Their shares were forfeited. The forfeited shares were re-issued @Rs.12
per share fully paid up. Pass necessary Cash book and journal entries.
(Ans. Arrears on first and final call Rs.1900, Bank balance Rs.15,04,100;Capital Reserve
4,100)
Q13. (a) X Ltd. invited applications for 20,000 Equity shares of Rs.10 each, payable Rs.2.50
on application; Rs.5 on allotment (including premium Rs.2.50) and Rs. 5 on first
and final call. The company received applications for 25,000 shares. It was decided:
(i) to refuse allotment to the applicant for 1,000 shares .
(ii) to allot full to the applicant for 4,000 shares.
(iii) to allot balance of the available shares pro-rata among the other
applicants
(iv) to utilize the excess application money in part payment of the
allotment money.
All the money due was received except from one applicant to whom shares had been
allotted on pro-rata basis. He failed to pay allotment and call money and his 100
shares were forfeited . These shares were reissued at Rs.9 as fully paid . Give journal
entries to record the above transactions in the books of the company.
(Ans. Capital Reserve Rs.212.50)
(b) Bharti Ltd. issued a prospects inviting applications for 50,000 shares of Rs.10 each.
These shares were issued at par on the following terms .
On application Rs.3, on allotment Rs.4,on first call Rs.2 and on final call the balance.
Applications were received for 60,000 shares. Allotments were made on the
following basis :
(i) To applicants for 10,000 shares – in full
(ii) To applicants for 20,000 shares – 15,000 shares
(iii) To applicants for 30,000 shares – 25,000 shares
All excess amount paid on applications is to be adjusted against amount due on
allotment The share were fully called and paid up except amount of allotment , first
and final call not paid by those who applied for 2,000 shares out of the group
applying for 20,000 shares.
All the shares on which calls were not paid were forfeited by the board of directors .
1000 forfeited shares were re-issued as fully paid on receipt of Rs.8 per share.
Show the journal entries in the books of Bharti Ltd.
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Q14. Amrit Ltd. issued a prospectus inviting applications for 20,000 shares at a premium of Rs.2
per share payable as follows:
On applicable Rs.5(including premium)
On allotment Rs.4
On call Rs.3
Applications were received for 30,000 share and pro-rata allotment made on application for
24,000 shares Excess money paid on application for these shares was utilized towards
allotment
money. Atul who applied for 600 share failed to pay the allotment money and on his
subsequent failure to pay the call, his shares were forfeited . Pass necessary entries in the
books of Amrit Limited.
(Ans. Share forfeited A/c Rs.2,0000; Allotment money Received Rs.58,500)
Q15. S.M Ltd issued 5,000 Equity shares of Rs.10 each at a premium of Rs.15 per share payable
Rs.12.50 on application (including premium Rs.7.50) and the balance on allotment.
Applications were received for 9,000 equity shares, out of which letters of regret were issued
to
2,000. Full allotment was made to applications for 1,000 shares. pro –rata allotment was
made on the balance . Money overpaid on application was used in allotment.
All money due on allotment was received except from a shareholder holding 100 shares to
whom pro-rata allotment was made.
Q16. A company invited applications for 50,000 equity shares of Rs.10 each on the following
terms:
On application Rs.3
On allotment Rs.2
On first and final call Rs.5
Applications were received for 1, 10,000 shares . it was decided (i) to refuse allotment to the
applicants for 10,000 shares (ii) to allot 50% to Mr. X who has applied for 20,000 shares
(iii) to allot in full to Mr. Y who has applied for 10,000 shares (iv) to allot balance of the
available shares pro-rata among the other applicants and (v) to utilize excess application
money
in part payment of allotment and final call.
Give journal entries till the stage of allotment assuming that the entire sum due on allotments
is received in full.
(Ans. Amt Received on Allotment Rs.20,000)
Q17. Hindustan Steel Ltd. invited applications for 50,000 equity shares of Rs.10 each at a premium
of Rs.4 per share. The amount was payable as under :
On application Rs.4(including premium Rs.2)
On allotment Rs.6 (including premium Rs.2)
On first and final call Balance
Applicants for 60,000 shares were received. Allotment was made to all applications of pro-rata
basis . Excess application money was adjusted towards sums due on allotment and call money
Ram to whom 400 shares were allotted, failed to pay allotment and call money. Shyam to
whom 200 shares were issued failed to pay the call money. These shares were forfeited. The
forfeited shares were re-issued @ Rs.8 per share fully paid up. Pass the necessary journal
entries in the books of the company.
(Ans. Allotment money received Rs.2, 57,920; Capital Reserve Rs.1120)
Q18. Radhika Textiles Ltd. Invites application for 75,000 equity shares of Rs. 10 each issued at a
premium of Rs.5 per share. The amount was payable as follows:
On application Rs7 (including Rs.3 premium)
On allotment Rs.5 (including Rs.2 premium)
Balance on first and final call
Application for 1, 00,000 shares were received. Allotment was made to all applicants on pro-
rata basis. Puneet to whom 300 shares were allotted, failed to pay allotment and call money.
Sumeet to whom 150 shares were allotted failed to pay the call money. These shares were
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forfeited. The forfeited shares were re-issued @Rs.8 per share fully paid up. Pass the
necessary journal entries.
(Ans. Allotment money received Rs.199200)
Q19. 10,000 equity shares of Rs.20 each are issued for public subscription at a premium of 10%.
The full amount is payable on application. Applications were received for 20,000 shares and it
was decided to make pro-rata allotment to all the applicants, journalize the transactions.
Q20. Azad Co. Ltd. Offered to public for subscription 10,000 12% preferences shares of Rs.100
each at a premium of Rs.5 per share. Payments were to be made as follows:
With Application Rs.20
With allotment Rs.55(including premium)
On first and final call Rs.30
Applications were received for Rs.34,000 shares .
Appliances for 2,000 shares were accepted in full. The remaining 8,000 shares were allotted to
the applicants for 32,000 shares on pro-rata basis. No money was refunded , the surplus being
treated
as calls in advance on which interest was payable @ 6% per annum. The call was made three
months after the date of the allotment. All money were duly received . The company promptly
paid interest on calls in advance to shareholders . Journalize the above mentioned
transactions. Also prepare callas in advance account and 12 % preferences share capital
accounts .
(Interest on calls in adv.Rs.600)
Q21. A Ltd. forfeited 60 shares of Rs.10 each issued at a premium of 20% to dev who had applied
for 72 shares for non payment of allotment money of Rs.5 per share (including premium ) and
the first and final call of Rs.5 per share . Out of these 20 shares were re-issued to shyam
credited as fully paid up for Rs.9 per share.
Give journal entries to record forfeited and re-issue of shares assuming that A ltd. follows the
policy of adjusting excess application money towards other sums due on shares .
(Capital Reserve Rs.28)
Q22. Z Ltd. invited application for issuing 40,000 equity shares of Rs.10 each at a premium of Rs.2
per share. The amount was payable as follows:
On application Rs.6 (including premium) and balance on allotment
Application for 50,000 shares were received. Pro-rata allotment was made to all applicants.
Excess money received on application was adjusted towards sums due on allotment.
A shareholder to whom 8,000 shares were allotted failed to pay the allotment money and
therefore, his shares forfeited. Later on the forfeited shares were re-issued for Rs.70,000 as
fully paid up.
Pass necessary journal entries in the books of Z ltd.
Q23. Sonam Ltd. invited applications for issuing 10,000 equity shares of Rs.10 each at a discount
of 10%. Rs.4 per shares were payable on application and the balance after discount on
allotment. Applications for 20,000 shares were received. Shares were allotted proportionately
to all applicants. An applicant who was allotted 1,500 shares failed to pay the allotment
money. His shares were , therefore , forfeited. The forfeited shares were re-issued at Rs.6 per
share as fully paid up. Pass necessary journal entries in the books of the company.
ISSUE OF DEBENTURES
Q1. X ltd. issued 4,000, 6% Debentures of Rs.100 each payable as follows:
Rs.25 on application; Rs.25 on allotment and Rs.50 on first and final call. Application were received
for all the debentures along with the application money and allotment was made. The call money was
also received on the due date. Pass necessary journal entries in the books of the company.
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Q2. Exe. Ltd , issued 20,000, 9% debentures of Rs.100 each at a premium of 10% payable Rs.25 on
application, Rs.35 on allotment (including premium) and the balance on first and final call.
Applications were received for 35,000 debentures. All allotment was made proportionality, over-
subscription being applied to the due on allotment. All sums due were received by the company in due
course. Journalize the above transaction on the book of Exe. Ltd.
Q3. Exe. Ltd issued 10,000 , 9% debentures of Rs.100 each at a discount of 4% payable Rs.30 on
application and the balance on allotment. Give the necessary journal entries and the resulting balance
sheet.
Q4. XYZ company limited issued 10,000, 10 % debentures of Rs.100 each at a premium of Rs.5 payable
as follows:
On application Rs.40(including premium) On allotment Rs.65
All the debentures were subscribed for and the money was duly received. Pass the journal entries to
Record the above issue of debentures.
ISSUE OF DEBENTURES FOR CONSIDERATION OTHER THAN CASH
Q5. A building has been purchased for Rs.1,10,000 from X.. X has been issued 12% debentures in
purchase consideration at a premium of 10%. Journalize.
Q6. A limited company issued 1,000 debentures of Rs.100 each as fully paid up in consideration of the
purchase of plant and machinery worth Rs.99,000. Make entries in company’s journal.
Q7. M Ltd. issued debentures of Rs.80 each at a premium of Rs.10 per debentures for satisfying the
purchase price of machinery at Rs.45,000. Pass the journal entries for the same.
Q8. Rama Ltd purchase machinery worth Rs.72,000. This company issued 12% debentures of Rs.100 each
at a discount of 4% in satisfaction of the purchase price. Pass the required journal entries.
Q9. Make Journal entries for the following transaction:

Z ltd purchased plant and machinery for Rs.2,00,000 payable as to Rs.65,000 in cash and the balance
by an issue of 6% debentures of Rs.1,000 each at a discount of 10 per cent.
Q10. X ltd. purchased building from Z Ltd. for Rs.2,00,000 . Half the payment was made in cash and the
remaining half by issue of 12% debentures issued at a premium of 10%. Pass the necessary journal
entries.
Q11. AB ltd. Purchased building costing Rs.4,05,000. It was agreed that the purchase consideration be paid
by issue of 12 % debentures of Rs.100 each. Assuming that debentures have been issued (i) at par and
(ii) at a discount of 10%.Pass necessary journal entries.
Q12. Suvidha Ltd. purchased machinery Rs.1,98,000 from Suppliers Ltd. The payment was to be made by
issue of 12% debentures of Rs.100 each. Pass the necessary journal entries for the purchase of
machinery and issue of debentures when:
(a) Debentures are issued at par .
(b) Debentures are issued at 10% premium.
Q13. R Ltd. purchased the assets of S Ltd .for Rs.4,50,000. It also agreed to take over the liabilities of S Ltd.
amounting to Rs.2,00,000 for a purchase consideration of Rs.2,80,000. The payment to S Ltd. was
made by issue of 12% debentures of Rs.100 each at par. Pass the journal entries in the books R ltd.
Q14. A company purchased assets of Rs.4,20,000 and took over liabilities of Rs.40,000 at an agreed value of
Rs.3,60,000. The company issued debentures at 10% discount in full satisfaction of the purchase price .
Give journal entries in the book of purchasing company .
(1/90 x 3,60,000=4,000 Deb, Dis.10% of 4,00,000= 40,000)

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Q15. The Ram Ltd. took over assets of Rs.7,00,000 and liabilities of Rs.60,000 of shyam Ltd. for the
purchase consideration of Rs.6,60,000. The Ram Ltd. paid the purchase consideration by issuing
debentures of Rs.100 each at 10% premium. Give journal entries in the book of Ram Ltd.
Q16. The Jai Ltd . purchased assets of Rs.8,40,000 and took over liabilities of Rs.80,000 at an agreed value
of Rs.7,20,000. The Jai Ltd. issued debentures at 10% discount in full satisfaction of the purchase price.
Give journal entries in the books of Jai Ltd.
Q17. D Ltd . purchased machinery worth Rs.2,00,000 from E ltd.. On 1.1.2001 Rs.50,000 were paid
immediately and the balance was paid by issue of Rs.1,60,000 12% debentures in D Ltd.. Pass the
necessary journal entries for recording the transactions in the books of D Ltd.
Q18. A Ltd. took over assets of Rs.10,000 and creditors of Rs.1,00,000 from B Ltd. and issued 6%
debentures of Rs.100 each at a premium of 25% as purchase consideration . Pass necessary journal
entries in the books of Ltd.
Q19. LG LTD. purchased assets of the book value of Rs.4,00,000 and took over the liabilities of Rs.50,000
from Samsung Ltd. It was agreed that the purchase consideration , settled at Rs.3,80,000, be paid by
issuinf debentures of Rs.100 each. What journal entries will be made in the following three cases if
debentures are issued: (a) at par, (b) at discount of 10% and (c) at premium of 10%?
It was agreed that any fraction of debentures be paid in cash.
(Goodwill Rs.30,000; case (a) 3,800 debentures of Rs.100 each ; case (b) 4,222 debentures of
Rs.100 each; case (c) 3454 debentures of Rs.100 each (d) paid cash Rs.20 ; paid cash Rs.60)
ISSUE OF DEBENTURES AS A COLLATERAL SECURITY

Q20. A Ltd . secured a loan of Rs.1,80,000 from the Canara bank by issuing 2,000, 15% debentures of
Rs.100 each as collateral security. How will you treat the issue of such debentures ?
Q21A. A Ltd issued 5,000, 13% debentures of Rs.100 each at par and raised a loan of Rs.80,000 from bank,
collaterally secured by Rs.1,00,000 13%Debentures . how will you show the debentures in the balance
sheet of the company assuming that the company has recorded the issue of debentures as collateral
security in the books.
Q21B. JMD Ltd. raised a loan of Rs.20,00,000 from State bank of India on 1.4.2000. Interest @ 10% was
payable on 30th Sept. and 31st March every year. As per terms of the agreement, loan amount was to be
repaid after three years. The company has offered its plant and machinery as primary security and 8%
debentures of Rs.12,00,000 as collateral security. Due to shortage of funds, company could not pay
interest on loan after two years. Company has also failed to repay the loan amount on due date. The
State bank of India took the possession of plant and machinery at an agreed value of Rs.18,00,000 and
invoked its right vested in the collateral security through Court of Law on 1.7.2003. Pass necessary
entries.
ISSUE OF DEBENTURES CONSIDERARTION THE TERMS

AND CONDITION OF REDEMPTION
Q22. Give journal entries in each of the following alternatives cases:
(a) A debentures issued at Rs.1000 repayable at Rs.1000
(b) A debentures issued at Rs.950 repayable at rs.1000
(c) A debentures issued at Rs.1050 repayable at Rs.1000.
(d) A debentures issued at Rs.1000 repayable at Rs.1050.
(e) A debentures issued at Rs.950 repayable at Rs.1050.
(f) A debentures issued at Rs.1025 repayable at Rs.1050.
(g) A debentures issued at Rs.1000 repayable at Rs.950.
(h) A debentures issued at Rs.980 repayable at Rs.950.
(i) A debentures issued at Rs.1030 repayable at Rs.950.
Note: The face value of each debentures is Rs.1000.
Q23. What journal entries will be made in the following cases:
(a) A company issued Rs.40,000, 12% Debentures at a discount of 10% redeemable at par.
(b) A company issued Rs.40,000, 12% Debentures at a premium of 5% redeemable at par.

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(c) A company issued Rs.40,000, 12% Debentures at par redeemable at 10% premium, and
(d) A company issued Rs.40,000, 12% Debentures at a discount of 5% and redeemable at 5%
premium.
Q24. A company issued Rs.1,00,000, 15% Debentures at a discount of 5% redeemable after 10 years at
premium of 10%. Pass journal entries.
Q25. Pass the journal entries to record the issue of debentures in the following cases;
(a) 5,000 15% Debentures of Rs.100 each issued at a discount of 5% and premium after 5
years.
(b) 10,000 15% Debentures of Rs.100 each issued at a premium of 10% and redeemable at par
after 6 years.
Q26. Journalize the following transactions;

(a) X Ltd issues Rs.2,00,000 , 12% debentures at discount of 5% redeemable at par .
(b) Y ltd. issues Rs.5,00,000 , debentures at discount of 5% redeemable at a premium of 7%.
Q27. Show by means of journal entries the following at the time of issue on 1st Jan 1981 and redeemable
after 6 years on 31st December,1986.
(a) A ltd.issues 20,000,13% debentures of Rs.100 each at a discount of 3% to be redeemable at par at
the end of sixth year.
(b) B ltd.issues 10,000,13% debentures of Rs.100 each at a discount of 3% to be redeemable at
premium of 3% at the end of sixth year.
(c) C ltd.issues 15,000,14% debentures of Rs.100 each at par to be redeemable at a premium of 4% at
(d) D ltd.issues 12,000,15% debentures of Rs.100 each at a premium of 3% to be redeemed at par at
Q28. What journal entries will be made in the following cases for issue of debentures ;
(a) A company issued Rs.30,000, 12% Debentures at a discount of 10% redeemable at par.
(b) A company issued Rs.40,000, 12% Debentures at a premium of 5% redeemable at par.
(c) A company issued Rs.50,000, 12% Debentures at par redeemable at 10% premium .
(d) A company issued Rs.60,000, 12% Debentures at a discount of 5% and redeemable at 5%
premium.
Note. The face value of a 12% debenture is Rs.100.
Q29. J.M.D Ltd. issued 3,000, 7% debentures of Rs.100 payable as follows:

On application Rs.30 On allotment Rs.70
The debentures were fully subscribed and all the money was duly received . As per terms of issue, the
debentures are redeemable at Rs.110 per debenture. Record necessary entries regarding issue of
debenture.
Q30. Guru Nanak Ltd. issued 10,000, 8% debentures of Rs.100 each at a discount of 6% redeemable at a
premium of 10% after 3 years payable as: Rs.50 on application and Rs.44 on allotment .Record
necessary journal entries for issue of debentures.
Q31. On 1.1.2005, Fast Computers Ltd. issued 20,000, 6% debentures of Rs.100 each at a discount of 4%.
Redeemable at a premium of 5% after three years . The amount was payable as follows:
On application Rs.50 per debentures Balance on allotment
Record the necessary journal entries for issue of debentures.
Q32. You are required to show by means of journal entries how to record the following issues:
(a) A company issued 14,000 Debentures of Rs.100 each at a discount of 5% to be repaid at par at the
end of 5 years.
(b) A company issued 5,000 December of Rs.100 each at a discount of 5%repayable at a premium of
10% at the end of 5 years.

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Q33. On 1.1.2000, X Ltd. issued 5,00,000, 8% debentures of Rs.100 each, redeemable after 10 years.
Debentures holders were given the option to get their debentures redeemed at any time after 3 years at
Rs.105 per debentures. At the end of four years, debenture holding 40,000 exercised their option and
got their debentures redeemed.
Record the necessary journal entries for issue and redemption of debentures in the books of the
company.
WRITING OFF DISCOUNT/LOSS ON ISSUE OF DEBENTURES

Q34. On 1st Jan 1992 A Limited company issues Rs.40,000 debentures at a discount of 5%, repayable at the
end of five years. Show the discount account in the ledger for the period.
Q35. X Ltd issued debentures @ 94% for Rs.1,00,000 on 1st Jan 2001 repayable by five equal annual
drawing of Rs.20,000 each. Calculate the amount of discount to be written off each year assuming that
the company closes its accounts on calendar year basis.
Q36. On 1st Jan2001 A limited company issued Rs.2,00,000 debentures at 6% discount repayable by draw of
lots starting from 31st December 1991 of Rs.40,000 every year. Show discount in issue of debentures
account till all debentures are redeemed.
Q37. X Limited issued 12% debentures of Rs.10,00,000 at 8% discount redeemable at par. Assuming that the
debentures are redeemed by drawings method in the following manner:
Year end Face Value (Rs.) Year end Face Value (Rs.)
2 1,00,000 4 3,00,000
3 2,00,000 5 4,00,000
Required : Prepare discount on issue of debentures account.
Q38. X Limited issued 6,000, 12% debentures of Rs.100 each at a discount of 6% on 1-1-1991. The
debentures were payable in installments of Rs.2,00,000 starting from 31-12-1993. Show the discount
on issue of debentures account for the year 1991 to 1995. Calculate debentures discount to be written
off.
Q39. Limited issued 12% debentures of Rs.20,00,000 at 8% discount redeemable at par. Debentures are to
be redeemed in the following manner:
Year end Face value (Rs.) Year end face value(Rs.)
2 2,00,000 4 6,00,000
3 4,00,000 5 8,00,000
Required : Write discount on issue of debentures account for five years.
Q40. P Ltd. issued 6,000 12% Debentures of Rs.100 each at a discount of 6% to be redeemed as follows:
1st year : Nil; 2nd year : Nil; 3rd year : Rs.4,00,000; 4th year : Rs.2,00,000.
Q41. On 1st Jan,1990 Exe. Ltd issued Rs.2,20,000 , 9% debentures at a discount of 5% repayable as follows:
On 31st December, 1990 Rs.40,000
On 31st December, 1991 Rs.80,000
On 31st December,1992 Rs.1,00,000
Show the amount of discount to be written off in each of the three years.
Q42. A company issued 10% debentures of the value of Rs.2,20,000 at a discount of 6% on 1st Jan,2005.
The debentures are payable by annual drawings of Rs.40,000 commencing from the end of 3rd year.
How will you deal with discount on debentures?
Show the discount on debentures account in the company ledger for the period of duration of
debentures. Assume accounts are closed on 31st December.
Q43. Green Ltd. issued 5,000, 6% debentures of Rs.100 each at a discount of 5% repayable after 5 years at a
premium of 5%.
You are required to show (i) Journal entries at the time of issue and redemption of debentures.
(ii) Show the Loss on issue of debentures account over the period.
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Q44. X Ltd. issued debentures at 94% for Rs.50,000 on 1st April,1985 repayable by five equal annual
drawing of Rs.10,000 each. The company prepares its final accounts on 31st December every year.
Indicate the amount of discount to be written off every accounting year assuming that the company
decides to write off the debentures discount during the life of the debentures.
Q45. Pass the necessary journal entries for the following transactions in the books of Y Ltd.
(a) Purchased machinery Rs.1,65,000. The vendors were paid by issuing 12 % debentures of Rs.100
each at premium of 10%.
(b) Issued 12% debentures of Rs.1,50,000 as collateral security.
(c) Paid half yearly interest on Rs.1,80,000 12% debentures.
(d) Issued 1,000, 12% debentures of Rs.100 each at a discount of 5%.These debentures were repayable
at a premium of 10%.
FINAL ACCOUNTS OF COMPANIES
HORIZONTAL FORM OF BALANCE SHEET

Balance sheet of ………. Co. Limited
As on ……..
Figures Liabilities Figures Figures Assets Figure
for the for the for the for the
previous current previous current
year Rs. year year Rs. year
Rs. Rs.
Share Capital: Fixed Assets:
Authorized Capital: (a) Goodwill
………..Share of Rs…….each (b) Land
Issued capital : (c) Building
………..Share of Rs…….each (d) Leaseholds
Subscribed Capital: (e) Railway Sidings
………..Share of Rs…….each (f) Plant and
Less: Calls unpaid machinery
(i) By directors ….. (g) Furniture and
(ii) By others……. fittings
Add: Forfeited shares (h) Development and
( Amount originally paid up on property
forfeited shares) (i) Patents, Trade
Reserves and surplus: marks and
(1) Capital Reserve Designs
(2) Capital Redemption (j) Live stock
Reserve (k) Vehicles
(3) Securities Premium A/c Investment:
(4) Other Reserve (1) Investment in Government
(5) Surplus i.e. balance in P& or Trust Securities
L A/c after providing (2) Investment in Shares,
proposed dividend, Bonus debentures and bonds
or Reserve (3) Investment in immovable
(6) Proposed addition to properties
reserve (4) Investment in the capital
(7) Sinking Fund of partnership firms
Secured Loans: Current Assets, Loans and
(1) Debentures Advances:
(2) Loans and Advances from A. Current accrued:
subsidiaries (1) Interest accrued
(3) Short term loans & advance (2) Stores and spare parts
(a) From bank (3)Loose tools
(b) From others (4) Stock in trade

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(4) Other loans and (5) Work in progress

advances (6) Sundry debtors
Current Liabilities and provision: (a) Debts outstanding for
A. Current Liabilities: a period exceeding
(1) Acceptance six months
(2) Sundry Companies (b) Other debts
(3) Subsidiary Companies (7) (a) Cash balance in hand
(4) Advance payment (and (7) (b) bank balances
unexpired discount for (a) With scheduled
which value is still to be banks
given) (b)With debts
(5) Unclaimed dividend
(6) Other liabilities (if any) B. Loans and Advance
(7) Interest accrued but not due (8) (a) Advances and Loans to
on loans subsidiaries
B. Provision: (b) Advances and loans to
(8) Provision for taxation partnership firms in
(9) Proposed dividends which company or any
(10) For contingencies of its subsidiary is a
(11) For Provident Fund partner.
Schemes (9) Bills of exchange
(12) For Insurance and (10) Advances receivable,
other staff benefit prepaid rates, taxes and
schemes insurance
(13) Other provisions (11) balance with customers,
Contingent Liabilities port trust(where payable
(1) Claim against the company on demands)
not acknowledged as debt
(2) Uncalled liability on Miscellaneous Expenditure:
Shares, partly paid (To the extent not written off or
(3) Arrears of Fixed adjusted)
cumulative dividend (1) Preliminary expenses
(4) Estimated amount of (2) Expenses including
contract remaining to be commission or brokerage
executed or under writing on
(5) Other contingent liabilities subscription of shares of
shares or debentures
(3) Discounts allowed on
issue of shares and
debentures
(4) Interest paid out of capital
(5) Development expenditure,
not adjusted
(6) Other sums(Specify
nature)
Profit and loss A/c.
(Debit balance):
(This is shown only
when its debit balance
could not be written
off out of
uncommitted
reserves.)
Note:
(1) Fixed assets are shown at original cost less total depreciation to date.
(2) Investments should be divided in tow parts: (I) quoted and (II) unquoted. In the case of quoted
investments market price must be shown.
(3) Contingent liabilities are not included in the total of the liabilities side.
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REDEMPTION OF DEBENTURES
REDEMPTION OF DEBENTURES BY PURCHASE IN THE OPEN MARKET
Q1. Ram Ltd. purchased for cancellation its own 10, 00,000; 9% debentures of Rs.500 each at Rs.480 each.
Record necessary journal entries.
Q2. Shyam Ltd. has outstanding 11, 00,000, 10% debentures of Rs.200 each. On April 1,2003. The board of
directors have decided to purchase 20% of own debenture for cancellation at Rs.200 each. Record
necessary entries for the same.
Q3. On August 1, 2002 Hutch Ltd. buys 100, 9% debentures of Rs.100 at Rs.95 each cum-interest , the
dates of interest being March 31 and September 30.Record necessary journal entries when debenture
are purchased for cancellation.
Q4. Anurag Ltd. buys 400, 12% debentures of Rs.100 at Rs.95 each. Ex-interest on March 1, 2002, the
dates of interest being June 30 and Dec 31. Record necessary entries if debentures are purchased for
cancellation.
Q5. A company purchases from the market its own 400,12% debentures of Rs.100 each at Rs.90 on
31-12-2002. Calculate the price paid exclusively for the debentures of the quotation are:
(a) Cum – interest
(b) Ex- interest
Debentures interest is paid on march 31 and September 30 every year. Also journalize in both the cases
assuming that these debentures are not yet cancelled.
Q6. On June 1st, 2003 Moon Ltd. purchased 5,000, 8% debentures of Rs.100 each at the rate of Rs.98. The
interest is payable on March 31 and September 30 every year. Calculate the real price of the
Debentures acquired if the price quoted above is (i) Cum-interest and (ii) Ex-interest and give journals.
Q7. Mohan Ltd. has 1, 00,000; 9% debentures of Rs.100 each outstanding on April1, 2002. The interest is
payable on March 31 and September 30 every year. On July 1, 2002 Company purchased 8,000
debentures at Rs.97 (cum-interest) for immediate cancellation. Record journal entries for purchase of
debentures and cancellation and payment of interest on September 30, 2002.
Q8. Manoj India Ltd. has 1,00,000. 9% debentures of Rs.100 each outstanding on April 1,2002. tHe
company pays interest on Sept.30 and March 31 every year. Company purchased 10,000 debenture at
Rs.96.(Ex-interest) on May 1,2002. It further purchased 2,000 debentures at Rs.98 (cum-interest) on
Jan 1, 2003. All these debentures were cancelled on March 31, 2003. Record the journal entries for
purchase of debentures, payment of interest and cancellation of dcebenture.
Q9. On 1st Jan,1999 a company made an issue of 1,000 6% debentures of Rs.1,000 each at Rs.960 per
debenture. The terms of issue provided for the redemption of Rs.20,000 debentures every year
commencing from 2000 either by purchase or by drawings at par at company’s option. Rs.10,000 was
also written off the debenture discount account in each of the years 1999 and 2000.
During 2000 the company purchased for cancellation debentures of the face value of Rs.6,000 at
Rs.950 per debenture and of Rs.12,000 at Rs.900 per debenture.
Journalize the above transactions dealing with the profit on redemption in way you consider fit.
Q10.(a) Sonu Ltd. has an authorized capital of Rs.1,50,00,000 divided into equity shares of Rs.10 each and its
balance sheet as at March 31, 2003 was as follows:

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Share Capital issued 50,00,000 Fixed Assets 60,00,000
and fully paid up Current Assets 15,00,000
General Reserve 10,00,000 Own Debentures 4,50,000
8% debenture 20,00,000 (nominal value
Sundry creditors 10,00,000 Rs.5,00,000)
90,00,000 90,00,000
The Company decided the following:

(1) To redeem the 8% debenture due for redemption on September 30, 2003 and also to cancel
its own debenture .
(2) To pay interest to debenture holders being due on the date of redemption.
Record necessary entries to give effect to the above transactions.
(b) Given below is the balance sheet of Sarika Ltd. as at March 31, 2003.

Share Capital Fixed Assets 80,00,000
Authorized share of Current Assets 90,50,000
Rs.50 each 5,00,00,000 Own Debentures 8,50,000
issued, Called up and (face value Rs.9,00,000)
paid up shares of Cash at bank 6,00,000
Rs.50 each 1,00,00,000
General Reserve 20,00,000
8%Debentures 40,00,000
Sundry creditors 25,00,000
1,85,00,000 1,85,00,000
The following decided the following :

(a) To redeem all the 8% debentures due for redemption on September 30, 2003 and also to
Cancel its own debenture.
(b) To pay interest to debenture holders due on the date of redemption.
Pass necessary Journal entries on September 30, 2003.
Q11. Raju Electronics Ltd. has an outstanding balance of 40,00,000, 8% debenture of Rs.100 each and
sufficient funds in debenture Redemption Reserve to meet legal requirements. The board of directors
decided to purchase 1,00,000 debenture at a price of Rs.96 for investments purpose. But after few
months they took decision to sell them @ Rs.99 in the market. Record necessary entries to show above
transactions.
Q12. On 31.3.2003 Govind Ltd. had Rs.8,00,000 ,9% debentures due for redemption . The company had a
balance of Rs.3,40,000 in its debenture Redemption Reserve Account. Pass necessary journal entries
for redemption of debentures.
Q13. On 31.3.2003 Ram Ltd. had Rs.10,00,000 ,9% debentures due for redemption. The company had a
balance of Rs.4,60,000 in its Debenture Redemption Reserve Account. Pass necessary journal entries
for redemption of debentures.

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Q14. Rakesh Ltd. had Rs.20,00,000 , 8% debenture. The same were to be redeemed at 5% premium on
31.03.2004, out of profits. Show the journal entries at the time of redemption, if Debenture Redemption
Reserve has a balance of Rs.4, 00,000.
Q15. Vishal Ltd. issued 20,000 , 9% debentures of Rs.100 each of 1.1.2000. As per the terms of the issue
threes debentures were to be redeemed at a premium of 5% on 30 th June, 2004. The company decided
to transfer out of profits Rs.6,00,000 to debenture Redemption Reserve on March 31, 2001;
Rs.3,00,000 on March 31,2002 and Rs.1,00,000 on march 2003. Pass necessary journal entries
regarding issue and redemption of debentures. Ignore writing off loss on issue of debentures and
interest paid thereon.
Q16. Guru Nanak Ltd. issued Rs.4,00,000, 11% debenture divided into debenture of Rs.100 each on April 1,
2001, redeemable in four equal annual installments starting from April 1, 2003. The board of directors
have decided to create Debenture Redemption Reserve of Rs.1,00,000 on March 31, 2002 and 2003.
Record necessary journal entries at the time of issue and at the time of redemption of debenture and
creation of debenture Redemption Reserve .
CONVERSION
Q1. On 1st Jan 1999, a limited company issued Rs.2, 00,000. 10% debentures of Rs.1,000 each at par
repayable at 5% premium . As per terms of issue the debenture holders had an option to at 5%
premium. As par terms to issue, the debenture holders had an option to convert their holdings into
equity shares of Rs.100 each at any time after 3 years.
On 31st December , 2000 a holder of 40 debenture gave a notice of exercising the option .
Interest on debentures for full one year had accrued and remained unpaid until 31 st December , 2000.
Interest for the pats two years had been paid as and when due.
Pass journal entries.
Q2. On 1st Jan 2000, a company issued 800, 12% Debentures of Rs.500 each at Rs.450 each. Debenture
Holders were given an option to get their debentures converted into equity shares of Rs.100 each at a
premium of Rs.50 per share. On 31 st December,2000, one year’s interest had accrued on these
debentures which was not paid. A holder of 100 debentures informed that he wanted to exercise the
option for conversion of debentures into equity shares. The company, therefore, accepted his request
and redeemed these 100 debentures by issuing him equity shares. The interest , however, on these 100
debentures was paid to the debenture holders.
Pass the necessary journal entries to record the above transactions in the books of the company.
Q3. Manoj Ltd. issued 5,000, 6% Debentures of Rs.100 each at Rs.105. The debenture holders had the
option of converting within a year, Debenture into 8%. Preference Shares of Rs.100 each at Rs.1 25.
At the end of the 1st year interest on Debentures was outstanding. Holders of 200 Debentures to take the
advantage of the option.
Give the journal entries.
Q4. Exe. Ltd. issued Rs. 20, 000, 9% Debentures of Rs. 10 each at per redeemable at a premium of 5%.
According to the terms of issue debenture holders were given an option to convert their holding into
9%. Preference shares of Rs. 100 each at a premium of 20% at any time after two year.
On 31st December, 1999, (the third year of issue) a holder of 400 debentures gave a notice of
exercising his option to the company.
Interest on Debentures for the full one year had accrued and remained unpaid until 31st December,
1999. Give necessary Journal entries for the year 1997 and 1999.
Q5 On July 1, 1999, A Ltd. gave notice of its intention to redeem its outstanding Rs. 4, 00, 000 4 ½%
debentures on January 1, 2000 at 102 percent and offered the holders the following option:
(i) To subscribe for:
(a) 6% cum Preference Shares of Rs. 20 each at Rs. 22.50 per share accepted by holders of Rs. 1, 71, 000
stock
OR

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(b) 6% debentures stock at 96 percent accepted by the holders of Rs. 1, 44, 000 stock.
(ii) To have their holding redeemed for cash if neither of option under (i) was accepted.
You are required to give Journal entries necessary to record the redemption and allotment under (i) (a)
and (b) and to state the amount of cash required to satisfy the option (ii).
Q6. On Jan 1, 1999, a company issued 400, 5% debentures of Rs.1, 000 @ Rs.980. Holders of these
debentures had an option to convent their holding into 8% preference shares of Rs.100 each at a
premium of Rs.20 per share at any time within five years.
On December 31, 1999, one year’s interest had accrued on debentures and remained unpaid. A holder
of 24 debentures notified his intention to exercise the above option.
Pass the necessary Journal entries and show how the items affected would appear in the company
Balance sheet.
Q7. Hussain Ltd. assets 8,000, 8% debentures of Rs.100 each redeemable at a premium of 10%. According
to the terms of redemption the company redeemed 25% of the above debentures by
Converting them into shares of Rs.50 each issued at a premium of 60%.
Pass journal entries regarding issue & redemption of debentures.
Q8. Ansh Ltd. redeemed 6,000, 9% debentures of Rs.100 each issued at par by converting them into equity
shares of Rs.20 each at par. Journalize.
Q9. Joshi Ltd. redeemed 10,000,12% Debentures of Rs.50 each which were issued at par , at 10% premium
by converting them into equity shares of Rs.10 each issued at a premium of 25% .
Journalize.
Q10. Bansal Ltd. Redeemed 20,000, 11% debentures of Rs.10 each at Rs.12 by converting them into equity
shares of Rs.25 each at 20% of discount each. Journalize.
Q11. Harish Ltd. redeemed Rs.1, 00,000, 10% debentures of Rs.100 each, at 108% by converting them into
14% debentures of Rs.10 at 90%. Journalize.
Q12. Puneet Ltd. redeemed 1,000, 10% debentures of Rs.10 each which were issued at par by converting
them into equity shares of Rs.20 each at 25% premium, Journalize.
Q13. Nikhil Ltd. redeemed 37,500; 10% debentures of Rs.25 each issued at premium of Rs.5 by converting
them into equity shares of Rs.100 each. Journalize.
Q14. Sumit Ltd. redeemed Rs.12, 000, 7% debentures of Rs.100 each which was issued at par at 110 per cent
by converting them into equity shares Rs.10 each issued at par. Journalize.
Q15. Umesh Ltd. redeemed Rs.15,000; 11% debentures of Rs.10 each which were issued at par , at 105 per
cent by converting them into equity shares of Rs.100 each issued at a discount of 10%.Jounalize.
Q16. Gopi Ltd. redeemed 10,000; 12% debentures of Rs.10 each which were issued at a discount of 5% by
converting them into equity shares of Rs.100 each issued at a premium of 25%.Journalize.
Q17. Pass necessary journal entries in the books of the company in following cases for redemption of 1,000.
12% debentures of Rs.10 each issued at par:
(a) Debentures redeemed at par by conversion into 12% preference shares of Rs.100 each.
(b) Debentures redeemed at a premium of 10% by conversion into Equity shares issued at
Par.
(c) Debentures redeemed at a premium of 10% by conversion into Equity shares issued at
Premium of 25%.
Q18. On 1.4.1999 Manoj Ltd. issued 2,000 7% debentures of Rs.100 each at a discount of 10% redeemable
at par after 4 years by converting them into equity shares of Rs.100 each issued at a premium of 25%.
Pass necessary journal entries for the issue and redemption of debentures.

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RATIO ANALYSIS
LIQUIDITY RATIO
1. Current/working capital ratio: Current ratio depicts the relationship between current assets and
current liabilities and can be calculated as under:
Current Ratio = Current Assets

Current liabilities
Current assets are those which can be converted into cash within one year.
Current Assets = Cash + bank + Closing Stock (Raw material + Work in progress + Finished Goods)
+ Debtors / Accounts Receivable (Less: provision for D/D) + Bills Receivable +Short
term investment / Marketable Securities / Temporary investment + prepaid Express
(Unexpired Expenses) +Accrued incomes, Advances, loose tools
Current liabilities are those which are repayable within a year.
Current Liabilities = Creditors / Accounts payable +Bills payable + Bank overdraft +provision for
Taxation + proposed Dividends + Unclaimed Dividend +Loans payable within
a year, Short term loan, temporary loan + Un-expired income /Unearned
income(income received in advance), Dividend payable , income Tax payable
Expenses payable (outstanding Expenses ).
Generally, Current Ratio of 2:1 is considered to be satisfactory.
2. Quick Ratio: It is also called Liquid ratio or Acid test ratio. It is a ratio between quick assets and
Current liabilities .It is calculated as follows:
Quick Ratio = Quick Assets or liquid Assets or Acid test Assets

Current Liabilities
Liquid Assets means those assets which will yield cash very soon. (Short period)
i.e. Quick assets = Current Assets = Current Assets – (Stock + prepaid Expenses)
OR Except stock and prepaid expenses all other current assets are liquid assets.
Generally, Liquid Ratio of 1:1 is considered to be satisfactory.
Q1. From the following compute the current ratio and liquid ratio .
Particulars Rs. Particulars Rs.

Sundry Debtors 20,000 Prepaid Expenses 30,000
Cash in hand and at bank 10,000 Short term investment 1,00,000
Machinery 7,000 Bills payable 20,000
Sundry Creditors 40,000 Debentures 2,00,000
Stock 40,000 Expenses payable 40,000
(Current Ratio 2:1 ; Liquid Ratio 1.3:1)

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Q2. From the following compute the current ratio and liquid ratio:
Share Capital 21,000 Fixed Assets 17,000
Profit and Loss A/c 1,500 Stock 6,000
Bank Loan 2,500 Cash 3,400
Bank overdraft 2,000 Debtors 6,600
33, 000 33,000

(Current Ratio 2:1; Liquid Ratio 1.25:1)
Q3.(a) Following is the Balance sheet of Z Ltd as on 30th June 2005:
Equity Share Capital 50,000 Premises 20,000
Capital Reserve 10,000 Plant & Machinery 30,000
Reserve for Contingencies 5,000 Loose Tools 1,500
Profit and Loss A/c 9,000 Patents 6,000
15%Bank Loan 6,000 Closing Stock 10,000
Provision for Tax 5,000 Debtors 20,600
Sundry Creditors 3,200 Less: Provision for d/d 600 20,000
outstanding Expenses 700 Cash 2,000
Dividend payable 3,400 Marketable Securities 3,000
Bank overdraft 2,700 Prepaid Expenses 1,000
Share issue expenses 1,500
95, 000 95,000
(Current Ratio 2.5:1; Liquid Ratio 1.77:1)
Q3.(b) Following is the Balance sheet of Crescent Chemical Works Limited as on 31st December 2004.
Equity Share Capital 55,000 Land and Building 20,000
10% Preference share Capital 15,000 Plant & Machinery 22,000
General Reserve 25,000 Furniture and Fixtures 3,000
Reserve for Contingencies 10,000 Trade investment 5,000
12%MortagageDebentures 25,000 Bills Receivable 20,000
Income Tax payable 4,000 Debtors 10,000
Bills Payable 3,000 Stock 50,000
Bank overdraft 3,000 Prepaid Expenses 2,000
Sundry Creditors 8,000 Cash and bank balances 18,000
outstanding Expenses 2,000
1,50, 000 1,50,000
Throw light on the short term financial Position of the company with the help of suitable ratio.
(5:1; 2.4:1)
Q4.(a) Calculate Current Ratio and Quick ratio from the following information:

Bills Receivable 13,000 Sundry Debtors 20,000
Cash 26,000 Stock of Raw material 59,500
Stock of Finished Goods 90,000 Prepaid Insurance 6,000
Loose Tools 26,000 Goodwill 1,00,000
Bills payable 25,000 bank overdraft 45,000
Sundry Creditors 60,000 15% Debentures 40,000

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(Current Ratio 2.2:1; Liquid Ratio 1:1)

Q4.(b) Calculate the current ratio and Acid test ratio from the given particulars and give your comments about
the same.

Debtors 10,000 Cash 71,000
Short term investment 20,000 Long term investment 40,000
Closing Stock: Prepaid Expenses 9,000
Raw material 1,00,000 Plant & machinery 2,00,000
Finished Product 40,000 1,40,000 Loose Tools 50,000
Creditors 1,00,000 Provision for Taxation 25,000
Outstanding Expenses 5,000 Profit & Loss A/c 80,000
(Current Ratio 2.31:1; Liquid Ratio 1.16:1)
Q5. Current liabilities of a company are Rs.4, 00,000. Its current ratio is 4:1 and liquid ratio is 2.5:1.
Calculate the value of stock. (Value of Stock = Rs.6, 00,000)
Q6. The current ratio of B Ltd. is 4:5:1 and liquid ratio is 3:1. Stock is rs.3, 00,000. What are the current
liabilities? (Current liabilities =Rs.2, 00,000)
Q7. Working capital of a company is Rs.60,000. Its current ratio is 2:5:1. Calculate the value of (i) current
liabilities (ii) Current assets and (iii) Acid Test ratio, assuming stock of Rs.40, 000.
Q8. X Ltd. has a liquid (acid test ) ratio 2:1. If its stock is Rs.20, 000 and its total current liabilities are
Rs.50, 000, Find out its current ratio. (Current ratio = 2.4:1)
PROFITABILITY RATIOS
1. Gross Profit Ratio: This ratio expresses the relationship of gross profit to net sales. It’s expressed in
percentage.
Gross Profit Ratio = Gross Profit x 100

Net Sales
Gross Profit = Net Sales – Cost of goods sold

Cost of goods sold = Net sales – gross profit
Net Sales = Sales – Sales returns
Net Purchases = purchases – Purchases Return
Direct Expenses are all those expenses which have been incurred in relation to the production /
purchases e.g. wages, carriage , power, freight, fuel, carriage inward , octroi cleaning charges, custom
duty, dock dues, cartage non – recurring expenses etc.
2. Operating Ratio : It may be defined as a ratio which indicates operating cost as a percentage of total sales
Operating ratio is calculated as operating cost divided by net sales. Formula is as follows:
Operating Ratio = Operating Cost x 100

Net Sales
OR Operating Ratio = Cost of Goods Sold + Operating Expenses x 100

Net Sales
Operating Expenses includes all office and administrative Expenses e.g. salary, electricity, rent, etc. and all the
expenses incurrent for Selling and Distribution Expenses e.g. advertising, commission etc. General Expenses,
Depreciation.
Q1. Calculate Gross Profit ratio from the following:

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Particulars Rs.
Sales 2,80,000
Gross Profit 90,000
Return inwards 40,000
(Gross Profit ratio = 37.5%)
Q2. Compute Gross Profit Ratio from the following
Particulars Rs. Particulars

Rs.
Opening Stock 50,000 Closing Stock 70,000
Credit Sales 1,00,000 Cash sales 1,70,000
Returns outward 15,000 Purchase 2,41,000
Advertisement Expenses 30,000 Carriage inward 10,000
(Gross Profit ratio = 20%)
Q3. Calculate Gross Profit Ratio:

Sales return 5,000 Opening Stock 30,000
Closing stock 45,000 Credit Sales 50,000
Cash Sales 55,000 Purchase Returns 5,000
Purchases 90,000 Direct Expenses 25,000

Q4. Determine Operating ratio:

Purchases 1,33,000 Purchase Returns 13,000
Net sales 2,80,000 Carriage & Wages 5,000
Office & Administration Expenses 10,000 Selling and distribution Expenses 30,000

Q5.(a) Calculate Gross Profit from the following:
Sales Rs.4, 00,000
Gross Profit is 25% on Sales.
(Gross Profit = Rs.1, 00,000)
Q5.(b) Calculate Gross Profit from the following:
Sales Rs.3,30,000
Gross Profit is 25% on cost.
(Gross Profit = Rs.66,000)
Q6.(a) Calculate Gross Profit from the following:
Cost of goods Sold Rs.6, 00,000
Gross Profit is 25% on sales.
(Gross Profit = Rs.2,00,000)
Q6.(b) Calculate Gross Profit from the following:
Cost of goods Sold Rs.30,000
Gross Profit is 30% on cost.
(Gross Profit = Rs.15,000)
Q7. The following is the Trading and Profit and Loss Account of Wye Ltd. for the year ended 31st March 2005.
Particulars Rs Particulars Rs

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Stock 70,000 Sales 4,00,000

Purchases 3,00,000 Stock 1,90,000
Carriage 6,000
Wages 14,000
Gross Profit c/d 2,00,000
5,90,000 5,90,000
Administrative Expenses 1,02,000 Gross Profit b/d 2,00,000
Selling and Distribution 20,000 Dividend Received 5,000
Expenses
Interest 3,000
Net Profit 80,000
2,05, 000 2,05,000
You are required to calculate : (a) Gross Profit Ratio (b) Operating ratio.
(Gross Profit ratio =50%; Operating ratio= 80.5%)
Q8. Calculate Operating ratio and Gross Profit ratio from the following:

Sales 3,16,000 Purchases 2,00,000
Sales Return 16,000 Purchases 14,000
Office and Administrative 25,000 selling and Distribution Expenses 32,500
Expenses Opening Stock 11,000
Closing Stock 27,500
Carriage 500
(Operating Ratio= 75.83%; Gross Profit ratio = 43.33%)
Q9. Calculate the Gross Profit ratio and Operating ratio from the following details:

Sales 6,30,000 Sales Return 30,000
Gross Profit 1,50,000 Office Expenses 16,000
Selling Expenses 14,000 Interest on Loan 10,000
Loss by theft 12,000 Income from Investment 6,000
Provision for Tax 50%
(Operating Ratio= 80%; Gross Profit ratio = 25%)
Q10. Calculate the gross Profit Ratio from the following data:
Cash Sales being 25% of Total sales, purchases Rs.6,90,000, Credit sales Rs.9,00,000. Excess of closing stock
over opening stock Rs.50,000.
(Gross Profit ratio= 46.67%)
SOLVENCY RATIO
1. Debt to Equity Ratio : Debt to equity ratio is the relation between borrowed funds and owners capital in the
firm.
Debt to equity ratio = Long Term Debt or Long Term Loans
Shareholder’s Fund

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OR Debt
Equity
2. Total assets to Debt Ratio: This ratio shows the relationship between total assets and long term debts .
Total Assets to debt Ratio = Total Real Assets

Long Term Loan
3. Proprietary Ratio: It is also called Equity Assets Ratio or Ratio of net Worth to total assets or stock holder
equity ratio. It shows the relationship between Proprietors funds and total assets. It indicates the extent to which
the shareholders own the business.
Proprietary Ratio = Shareholder’s funds OR Shareholder’s funds x 100

Total Real assets total real assets
Internal Equities (Share holder fund or Proprietary fund or net worth) :
Equity share capital Preference share capital, Reserve and Surplus, Profit and Loss A/c, Capital Reserve ,
General Reserve , Retained Earning,
Sinking fund, Security Premium, Reserve for contingencies, Accumulated Profit capital Redemption Reserve –
(Fictitious Assets), Preliminary Expenses , Discount on Share, Discount on Debentures. Profit and Loss Account
(Dr.).Under writing Commission.
Total Assets = Current Assets + Net Fixed Assets + Investment

Total Assets = Shareholder’s Fund + Total Debts
Long Term Loans = Debentures , Public Deposits, Mortgage Loan, Secured loan, Unsecured loan
Bank loans , Long Term loans.
Q1. From the following information. Calculate Debt equity Ratio, Total assets to Debt ratio and Proprietary ratio:
Equity Share Capital 12,00,000 Fixed Assets 16,50,000
General Reserve 6,00,000 Investments (Long term) 1,60,000
12%Debentures 9,00,000 Stock in trade 9,10,000
Bank overdraft 2,00,000 Debtors 12,40,000
Sundry Creditors 11,00,000 Cash at bank 40,000
40,00,000 40,00,000
(Debt Equity Ratio = 0.5:1; Total Assets to Debt Ratio = 4.44:1; Proprietary Ratio=45%)
Q2. From the following , Calculate Debt Equity Ratio, total assets to debt ratio and Proprietary . Equity Share capital
Rs.1,00,000. Preference Share capital Rs.50,000, General Reserve 1,50,000. Accumulated Profit Rs.60,000,
Debentures Rs.1,50,000, Sundry Creditors Rs.80,000. Expenses Payable Rs.20,000,
Preliminary expenses not yet written off Rs.10,000.
(Debt Equity Ratio = 0.43:1; Total Assets to Debt Ratio = 4.:1; Proprietary Ratio=58.33%)
Q3. Calculate Debt Equity Ratio, Total Assets to Debt Ratio and Proprietary ratio from the balance sheet of Raj Ltd.
as on 31st March, 20x1:

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90,000 Equity shares of Rs.10 Land and building 6,20,000

each, fully paid up 9,00,000 Plant and machinery 12,00,000
4,000, 11% redeemable pref. Furniture and Fitting 1,80,000
Shares of Rs.100 each , fully paid up 4,00,000 Stock 5,30,000
Securities Premium A/c 80,000 Trade debtors 4,70,000
General Reserve 5,00,000 Cash in hand 65,000
Profit and Loss account 1,40,000 Cash at bank 3,00,000
10,000, 12% convertible debentures Bills payable 1,35,000
of Rs.100 each. Fully paid up 10,00,000 Preliminary expenses 20,000
Bills payable 80,000
Trade creditors 1,40,000
Outstanding expenses 60,000
Provision for Tax 2,20,000
35,20,000 35,20,000
(Debt Equity Ratio = 0.5:1; Total Assets to Debt Ratio = 3.5.:1; Proprietary Ratio=56.82%)
Q4. From the following balance sheet , calculate debt-equity ratio, total assets to debt ratio. Proprietary ratio.
Equity Share Capital 60,000 Fixed Assets 1,14,000
12% Preference share capital 15,000 Current Assets 66,000
Reserve 10,000 Preliminary Expenses 3,000
Securities Premium 8,000
Profit & loss A/c 18,000
15% debentures 30,000
Loan from bank 21,000
Current Liabilities 21,000
1,83,000 1,83,000
(Debt Equity Ratio = 0.47:1; Total Assets to Debt Ratio = 3.53.:1; Proprietary Ratio=60%)
Q5. Following is the balance sheet of Reliance India Ltd. as on 31st march 2001.
Equity Share Capital 90,000 Fixed Assets 1,60,000
12% Preference share capital 40,000 Investment 90,000
Profit & loss A/c 37,000 Stock 40,000
General Reserve 33,000 Sundry debtors 77,000
Bank loan 50,000 Cash 23,000
15% debentures 80,000 Miscellaneous Expenditure 10,000
Provision for Taxation 14,000
4,00,000 4,00,000
Calculate (a) debt equity ratio (b) Total assets to debt ratio and (c) proprietary ratio.
(Debt Equity Ratio = 0.68:1; Total Assets to Debt Ratio = 3:1; Proprietary Ratio=48.72%)
Q6. From the following balance sheet calculate Proprietary Ratio and debt-equity ratio . Total assets to debts ratio.
Equity Share Capital 50,000 Fixed Assets 82,000
12% Preference share capital 10,000 Current Assets 38,000
Reserve 15,000 Underwriting Commission 2,000
Profit & loss A/c 12,000
15% debentures 17,000
Current liabilities 18,000
1,22,000 1,22,000

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(Proprietary Ratio=70.83%;Debt Equity Ratio = 0.2:1; Total Assets to Debt Ratio = 7.06:1)
Q7. From the following balance sheet calculate (i) Total Assets to debt ratio and (ii) Proprietary ratio (iii) Debt
equity ratio.
Equity Share Capital 60,000 Land and building 50,000
12% Preference share capital 10,000 Furniture 25,000
Reserve 30,000 Plant and machinery 40,000
Debentures 40,000 Stock 19,000
Current liabilities 20,000 Debtors 20,000
Cash and bank balance 5,500
Prepaid Expenses 500
1,60,000 1,60,000
(Total assets to debts Ratio = 4:1; Proprietary ratio= 62.5%; debt equity ratio = 4:1)
ACTIVITY RATIOS
1. Debtors (or Receivable) Turnover ratio: debtors Turnover Ratio expresses the relation between receivable
and net credit sales.
Debtors Turnover Ratio = Net credit sales

Average Accounts Receivable
Average accounts Receivable = Opening Debtors + Opening B/R + Closing Debtors + Closing B/R
2
OR Debtor + Bills Receivable
Net Credit Sales = Total sales – Cash Sales – sales Returns
2. Inventory Turnover Ratio/ Stock Turnover ratio: It shows the relationship between the cost of goods sold and the
inventory level. It is also called Stock or Merchandise Ratio.
Inventory/ Stock Turnover Ratio = Cost of Goods Sold

Average Stock
Average Stock = Opening Stock + Closing Stock

2
3. Working Capital Turnover Ratio: It is a ratio between cost of goods sold (or sales) and net working capital. It is
a measure of efficiency in the utilization of working capital. It is calculated as follows:
Working Capital Turnover Ratio = Net sales or Cost of Goods Sold

Net working capital
Net working capital is calculated as follows:
Net working capital = current Assets – Current Liabilities
Q1. Calculate Stock Turnover ratio.

Stock(Opening) 25,000 Stock(Closing) 35,000
Purchases 85,000 Carriage inwards 15,000
Sales 1,14,000
(Stock Turnover Ratio= 3 Times)

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Q2. Total Sales for the year Rs.60, 000. Debtors Rs.8, 000; Bills Receivable rs.4, 000. Calculate Debtors Turnover
Ratio.
(Debtors Turnover ratio = 5 times)
Q3. From the following data, calculate stock(inventory) Turnover Ratio: Total sales Rs.2,10,000. Sales returns
Rs.20,000, Gross Profit Rs.50,000. Closing Stock Rs.80,000, Excess of Closing Stock over Opening stock
Rs.20,000.
Q4. Calculate Stock Turnover ratio from the data given below:
Stock at the beginning of the year Rs.20,000, Stock at the end of the year Rs.10,000, Purchase Rs.50,000.
carriage inwards Rs.5,000. Total Sales Rs.1,00,000, Cash Sales Rs.20,000.
(Stock Turnover Ratio= 4.33 Times)
Q5. Opening Stock Rs.59,000, Closing Stock Rs.61,000. Sales Rs.4, 80,000. . Gross Profit 25% on Sales.
Calculate Stock Turnover Ratio.
Q6. Calculate the debtors Turnover Ratio from the following:

Rs.
Total Sales for 2005 2, 00,000
Cash Sales for 2005 40,000
Debtors as on Jan1,2005 35,000
Debtors as on December 31, 2005 45,000
(Debtors Turnover ratio = 4 times)
Q7. Calculate (i) debtors turnover ratio, and (ii) average collection period from the following as on 31st dec.1998
assuming 365 working days in a year:

Total Gross Sales 60,000 Cash Sales 13,000
Sales Returns 5,000 Total Debtors on 31-12-1997 4,400
Total Debtors on 31-12-1998 4,800 Bills Receivable on 31-12-1997 1,200
Bills Receivable on 31-12-1998 1,600
(Debtors Turnover ratio = 7 times; Average Collection period = 52.14 days)
Q8. From the following details, calculate Debtors Turnover ratio:

Rs.
Total Sales for the year 1,75,000
Cash Sales 20% of total sales
Sales Returns --- out of credit sales 10,000
Opening balance 18,000
Closing balance 8,000
(Debtors Turnover ratio 10 times)
Q9. Calculate the working Capital turnover ratio from the following: Current Assets Rs.8,00,000, Total Sales
Rs.30,50,000. Current Liabilities Rs.3,00,000, Sales Returns Rs.50,000.
(Working Capital Turnover ratio 6 times)
Q10. The following is the Balance sheet of Gyan Ltd. You are required to calculate Working Capital Turnover ratio,
Debtors Turnover Ratio, Stock Turnover ratio.

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Equity Share Capital 5,00,000 Fixed Assets 5,00,000

General Reserve 2,00,000 Less: Accumulated Depreciation 1,00,000
Bills payable 2,20,000 4,00,000
Creditors 30,000 Short term Investments 1,00,000
Provision for income tax 50,000 Sundry debtors 1,00,000
Stock 2,00,000
Bills Receivable 50,000
Cash in hand 50,000
10,00,000 10,00,000
(i) Total Sales during the year Rs.32,00,000

(ii) Sales Returns during the year Rs.2,00,000
(iii) Cash Sales Rs.1,50,000
(iv) Gross Profit Rs.18,00,000
(Working capital Turnover Ratio 10 times; Debtors turnover Ratio 19 times; Stock turnover Ratio 6
times)
EXAMINATION PROBLEMS
Q1 X Ltd. has a current ratio of 2.5:1 and quick ratio of 1.5:1. Its current assets are Rs. 2, 00, 000. Calculate the value
of stock.
(Value of Stock 80, 000; CBSE 1991)
Q2 X Ltd. has a current ratio of 4.5:1 and quick ratio of 3:1. If its inventory is Rs. 36, 000, find out its Total Current
Assets, and Total Current Liabilities and Quick Assets.
(Current Liabilities 24, 000; Current Assets 1, 08, 000 Quick Assets 72, 000; CBSE 1991)
Q3 Calculate the stock Turnover Ratio from the following:
Opening Stock 75, 000 Sales 3, 00, 000

Purchases 1, 00, 000 Less Return 50, 000 2, 50, 000
Carriage Inward 4, 000 Closing Stock 10, 000
Wages 11, 000
Manufacturing Expenses 9, 000
Gross profit 61, 000
2, 60, 000 2, 60, 000
(Stock Turnover Ratio 4.45 Times; COGS 1, 89, 000; Average Stock 42, 500; CBSE 1991)
Q4 From the following information, determine the Opening Stock and Closing Stock. Stock Turnover Ratio 5 times.
Total Sales Rs. 2, 00, 000, Gross Profit Ratio 25%. Closing Stock is more by Rs. 4, 000 than the opening stock.
(Closing Stock 32, 000; Opening Stock 28, 000; CBSE 1991)
Q5 Calculate the Stock Turnover Ratio from the following:

Opening Stock Rs. 29, 000; Closing Stock Rs. 31, 000; Sales Rs. 3, 20, 000; Gross Profit Ratio 25%.
(Stock Turnover Ratio 8 Times; CBSE 1991)
Q6 Following figures have been extracted from J.M.D Ltd.:

Stock in the beginning of the year Rs. 60, 000; Stock at the end of the year Rs. 1, 00, 000; Stock Turnover Ratio 8
Times; Selling Price 25% above cost. Compute the amount of gross profit and sales.
(Gross Profit 1, 60, 000; Sales 8, 00, 000; CBSE 1991)
Q7 A trader carries an average stock of Rs. 40, 000 (cost). His stock turnover is 8 times. If he sells goods at a profit of
20% on sales, find out his profit.
(Gross Profit 80, 000; CBSE 1991)
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Q8 Commute the Debtors Turnover ratio from the following:

20X1 20X2
Year I Year II
(Rs) (Rs)
Gross Sales 9, 00, 000 7, 50, 000
Debtors in the beginning of year 83, 000 1, 17, 000
Debtors at the end of year 1, 17, 000 83, 000
Sales Returns 1, 00, 000 50, 000
(Debtor Turnover Ratio 2001-8; 2002-7 Times; CBSE 1991)
Q9 Following is the Trading and Profit and Loss A/c of a firm for the year ending 31.3.20X2:

Stock 35,000 Sales 4,00,000
Purchases 2,25,000 Stock at end 50,000
Wages 6,000
Gross Profit c/d 1,84,000
4,50,000 4,50,000
Administrative Expenses 10,000 Gross profit b/d 1,84,000
Selling and Distribution Expenses 14,000
Loss on Sale of plant 10,000
Net profit 1,50,000
1,84,000 1,84,000
Calculate Operating ratio.

(Operating ratio 60 %;)
Q10. Following figures have been extracted from the books of Elite Electrical:
Net Sales Rs.30,00,000; Cost of goods sold Rs.20,00,000; Net Profit Rs.3,00,000; Current Assets Rs.6,00,000;
Current Liabilities Rs.2,00,000; Paid up share Capital Rs.5,00,000; Debentures Rs.2,50,000.
Compute:
(i) Gross Profit Ratio
(ii) Working Capital Turnover ratio
(iii) Debt Equity
(GPR 33 1/3%; WCTR 7.5 Times DER 1.2)
Q11. A firm had current assets of Rs.1, 50,000.It then paid a current liability of Rs.30, 000. After this Payment the
current ratio was 2:1. Determine the size of current liability and working capital later and before the Payment
was made.
(Current liabilities After Payment 60,000; Current Liabilities before Payment 90,000; Working Capital
before Payment 60,000; Working Capital after Payment 60,000)
Q12. From the following figures compute the Debtors Turnover Ratio:
Year I (Rs.) Year II(Rs.)
Gross Sales 9, 50,000 8, 00,000
Sales Returns 50,000 50,000
Debtors in the beginning 86,000 1, 17,000
Debtors at the end of year 1, 17,000 86,000
Provision for doubtful debts 7,000 6,000
Q13. Current Ratio is 2:5 working capital is Rs.60, 000.Calculate the amount of current assets and current liabilities.
(Current Assets 1, 00,000; Current Liabilities 40,000)
Q14. X Ltd. has a current ratio of 4:5 and quick ratio of 3:1.If its inventory is Rs. 72, 000, find out its total current
assets and total Current liabilities.
(Current Assets 2, 16,000; Current Liabilities 48,000)
Q15. Quick Ratio 1:5, Current Assets Rs.1, 00,000; current liabilities Rs.40, 000. Calculate the value of Stock.
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(Value of Stock 40,000)

Q16. A firm has current ratio of 4:1 and quick ratio of 2.5:1. Assuming inventories are Rs.22, 500.find out total
Current assets and total current liabilities.
(Current Assets 60,000; Current Liabilities 15,000)
Q17. From the following as certain Debt-equity ratio:
Equity Share Capital Rs.2,00,000, General Reserve Rs.1,60,000, 10%Debentures Rs.1,50,000,Current
liabilities Rs.1,00,000. Preliminary Expenses Rs.10, 000.
(Debt Equity Ratio-3:7)
Q18. Opening Stock Rs.29, 000; Closing Stock Rs.31, 000; Sales Rs.3, 00,000. Gross profit 25%on cost. Calculate
Stock Turnover Ratio.
(Stock Turnover Ratio-8 times)
Q19. Calculate Debtors Turnover Ratio and Average Collection period in terms of months from the following:
Credit Sales for the year Rs. 60,000. Debtors Rs.5, 000, Bills Receivable Rs.5, 000.
(Debtor Turnover ratio 6 times; Average Collection period 2 months)
Q20. From the following data, calculate:

(a) Gross profit ratio.
(b) Current Ratio
(c) Debt equity ratio
Net Sales Rs.30, 000; Cost of Sales Rs.20, 000, Net profit Rs.3, 000, Current Assets Rs.6, 000. Stock
Rs.1, 000, Current liabilities Rs.2, 000, paid up share capital Rs.5, 000, Debentures Rs.2, 500.
(GPR 331/3 % Current Ratio 3:1; Debt Equity Ratio 1:2)
Q21. A business has a current ratio of 3:1. Its net working capital is Rs.4, 00,000 and its stocks are valued at Rs.2,
50,000. Calculate Quick ratio.
(Quick Ratio 7:4)
Q22. From the following information, calculate the Stock Turnover Ratio and the gross profit ratio.
Opening Stock Rs.18, 000. Closing Stock Rs.22, 000. Purchases Rs.46, 000, Wages Rs.14, 000, Sales Rs.80,
000. Carriage inwards Rs.4, 000.
(Stock Turnover Ratio 3 times; Gross Profit ratio 25%)
Q23. From the following information, calculate the Debt Equity Ratio and the current ratio:
share capital Rs.1,50,000, Bills Payable Rs.13,000, Creditors Rs.57,000, Debentures Rs.2,75,000 debtors
Rs.95,000. Bank balance Rs.45, 000, Long term loan Rs.1, 00,000, General Reserve Rs.20, 000.
(Debt Equity Ratio-2.2:1; Current Ratio 2:1)
Debentures 1,40,000 Long term Loans 70,000

Bank Balance 30,000 Debtors 70,000
General Reserve 40,000 Creditors 66,000
Share Capital 1,20,000 Bills payable 14,000
(Debt Equity Ratio-1.31:1; Current Ratio 1.25:1)


Purchases 73,000 Wages 20,000
Sales 1,20,000 Carriage inwards 9,000
(Stock Turnover Ratio 3 times; Gross Profit ratio 25%)
Q26. From the following particulars, you are required to compute (i) Current Ratio (ii) Gross profit Ratio.

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Stock Rs.50, 000, Debtors Rs.40, 000, Bills receivable Rs.10, 000, Advantage paid Rs.4,000.Cash in hand
Rs.30,000, Creditors Rs.60,000, Bills Payable Rs.40,000, Bank Overdraft Rs.4,000.Net Sales Rs.7,00,000.
Gross Profit Rs.50, 00,000, Net Profit Rs.30, 000.
(Current Ratio 1.29:1; Gross Profit ratio 7.14%)
Q27. Calculate the amount of opening Debtors and closing debtors from the following figures:
Debtors Turnover Ratio 4 times, Cost of Goods Sold Rs.6, 40, 000, Gross profit ratio 20%, Closing Debtors
were Rs.20, 000 more than at the beginning, Cash Sales being 33 1/3 % of Credit Sales.
(Total sales Rs.8, 00,000; Opening Debtors 1, 40,000, Closing Debtors 1, 60,000)
Q28. Calculate Current Assets of a Company from the following information:

Stock Turnover Ratio 4 times, Stock at the end Rs.20,000 more than that in the beginning Sales Rs.3,00,000.
Gross profit Ratio 25% current liabilities Rs.40, 000. Quick Ratio 0.75.
(Current Assets 96,250)
Q29. Calculate the current Assets of a Company from the following information:
(i) Stock Turnover Ratio: 5 times
(ii) Stock at the end is Rs.15, 000 more than stock in the beginning.
(iii) Sales Rs.2, 00,000
(iv) Gross profit Ratio 25%
(v) Current Liabilities Rs.50, 000
(vi) Quick ratio 0.75
(Closing stock 37,500; Current Assets 75,000)
Q30. The following is the Balance sheet of X Ltd. as on 31st December, 1998:
Equity Share Capital 2,00,000 Land and Building 1,50,000
Reserves 90,000 Plant & Machinery 80,000
Profit of the year 60,000 Stock 1,40,000
Bank overdraft 30,000 Debtors 80,000
Trade Creditors 1,00,000 Cash 30,000
4,80,000 4,80,000
Calculate quick ratio.
(Quick ratio 0.85:1)

Share Capital 2,50,000 Bills Payable 15,000
12% debentures 2,80,000 Bank balance 30,000
Long term loan 1,10,000 General Reserve 25,000
(Debt Equity Ratio-1.42:1; Current Ratio 1.5:1)

Q32. X Ltd. has a current ratio of 3.5:1 and quick ratio of 2:1.If the stock is Rs.24, 000, calculate total current
liabilities and current assets.
(Current liabilities 16,000; Current Assets 56,000)
Q33. Priya Ltd. has a current ratio of 3:1. If its Stock is Rs.40, 000 and total current liabilities are Rs.75, 000. Find out
its quick ratio,
(Quick ratio 2.46:1)
Q34. A Ltd. has a current ratio of 3.5:1 and acid test ratio of 2:1. If the inventory is Rs.30, 000. Find out its total
current assets and total current liabilities.
(Current liabilities 20,000; Current Assets 70,000)
Q35. From the following details, calculate (i) Opening Stock (ii) Closing Stock: Stock turnover ratio 6 times. Gross
profit 20% on Sales. Sales Rs.1, 80,000. Closing Stock is Rs.15, 000 in excess of opening stock.

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(Opening Stock 16,500; Closing Stock 31,500)
Q36. From the following information, calculate Debtors Turnover ratio and average collection period.
Opening Debtors Rs.37,000 Closing Debtors Rs.43,000
Sales Rs.6, 00,000 Cash Sales Rs.80, 000
(Debtors Turnover Ratio 13 times; Avg. collection period 28.08 days)
Q37. Calculate Opening ratio from the following Trading & Profit and loss account of M/s Sudhi Ltd. for the Year
ending 31st December, 20X1.

Stock (1.1.20X1) 45,000 Sales (Less: Sales Returns) 3,00,000
Purchases 1,10,000 Closing Stock(31.12.20X1) 55,000
Wages 15,000
Gross Profit 1,85,000
3,55,000 3,55,000
Administrative Expenses 6,000 Gross profit 1,85,000
Selling Expenses 8,000 Rent Received 10,000
Interest Paid 14,000
Net profit 1,67,000
1,95,000 1,95,000
(Operating Ratio 43%)
Q38. On the basis of following information, calculate (i) Gross profit ratio (ii) Working capital turnover ratio
(iii) Debt equity ratio.
Net Sales Rs.30,00,000; Cost of goods sold Rs.20,00,000; current assets Rs.6,00,000; current liabilities
Rs.2,00,000; Paid up share capital Rs.5,00,000; Debentures Rs.2,50,000; loan Rs.1,25,000.
(Gross Profit ratio 331/3%; Working capital turnover ratio 7.5 times; debt equity ratio 0.75)
Q39. From the following information, calculate:

(i) Gross profit ratio
(ii) Stock turnover ratio
(iii) Debtors turnover ratio
Sales Rs.1, 50,000; Cost of goods sold Rs.1, 20,000: Opening stock Rs.27, 000; Closing Stock Rs.33, 000;
Debtors Rs.14, 000; Bills Receivable Rs.6,000.
(Gross Profit ratio 20%; Stock turnover ratio 4 times; debtor turnover ratio 7.5times)
Q40. From the following information, calculate the Gross profit ratio and Stock turnover ratio.

Sales 2,00,000 Purchases 1,69,000
Opening stock 35,500 Closing Stock 44,500
(Gross Profit ratio 20%; Stock turnover ratio 4 times)
Q41. Mr.Atul owns a business and give the following figures:
Particulars 1993(Rs.) 1994(Rs.)

Sales 9,00,000 18,00,000
Gross profit 2,25,000 3,60,000
Current Assets 3,00,000 4,50,000
Current liabilities 1,50,000 2,50,000

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He is of the opinion that his manager Rajeev is very efficient as there is an increase in profit from Rs.2, 25,000
to Rs.3, 60,000 by his efforts.
A gain his current assets are increasing from Rs.3, 00,000 to Rs.4, 50,000 whereas current liabilities are
increasing only by Rs.1, 00,000 and thus his short term financial position is also becoming strong.
Do you agree with him? State yes/no. Give reasons for your answer.
Q42. Calculate (i) Stock turnover ratio (ii) Debtors turnover ratio from the following details :

Annual Sales 2,00,000 Gross profit 25% on cost
Credit Sales 60,000 debtors 5,000
Bill receivable 5,000
(Stock turnover ratio 4 times; ; debtor turnover ratio 6 times)
Q43. The following are the summarized Trading , profit and loss account of Hindustan product for the year ended
31.12.1996 and the balance sheet of the Company as on that date:

Opening Stock 99,000 Sales 8,00,000
Purchases 5,45,000 Closing Stock 1,99,000
Direct Expenses 15,000
Gross Profit 3,40,000
9,99,000 9,99,000
Selling and Distribution Expenses 2,40,000 Gross profit 3,40,000
Loss on sale of assets 40,000
Net profit 60,000
3,40,000 3,40,000
Balance Sheet
Equity Share Capital 2,90,000 Land 2,30,000
Profit and Loss A/c 60,000 Stock 1,99,000
Creditors 1,15,000 Debtors 21,000
Outstanding Expenses 15,000 Cash 30,000
4,80,000 4,80,000
Calculate the following ratio: (i) Quick Ratio; (ii) Stock Turnover Ratio.
(Quick ratio 0.39:1; Stock; Stock turnover ratio 3.09 times)
Q44. From the following information calculate Stock Turnover ratio, operating ratio.
Opening Stock Rs.28.000; Closing Stock Rs.22.000; purchases Rs.46, 000; Sales Rs.90, 000. Sales Returns
Rs.10, 000; Carriage inwards Rs.4, 000; Office Expenses Rs.4, 000; Selling and Distribution Expenses Rs.2,
000; Capital Employed Rs.2, 00,000.
(Stock turnover ratio 2.24 times; Operating Ratio 77.5%)
Q45. From the following information calculate following ratio:

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(i) Gross profit ratio (ii) Working Capital Turnover ratio (iii) Debt equity ratio (iv) Proprietary ratio
Information:
Net Sales Rs.20,00,000; Cost of Goods Sold Rs.12,00,000; Current assets Rs.6,00,000; Current liabilities
Rs.3,00,000; Paid up share capital Rs.8,00,000; 12% Debentures Rs.4,00,000.
(Gross Profit ratio 40%; Working capital turnover ratio 6.67 times; debt equity ratio 0.50:1; Proprietary
ratio 50.33%)
Q46. From the following information given below, calculate any three of the following ratio:
(i) Gross profit ratio (ii) Working Capital Turnover ratio (iii) Debt equity ratio (iv) Proprietary ratio
Information:
Net Sales Rs.5,00,000; Cost of Goods Sold Rs.3,00,000; Current assets Rs2,00,000; Current liabilities
Rs.1,40,000; Paid up share capital Rs.2,50,000; 13% Debentures Rs.1,00,000.
(Gross Profit ratio 40%; Working capital turnover ratio 8.33 times; debt equity ratio 0.40:1; Proprietary
ratio 51%)
Q47. (a) The current ratio of a Company is 2:1 State giving reasons which of the following would improve, reduce or not
change the ratio:
(a) Repayment of a current liability (b) purchasing goods on cash (c) Sale of office equipment for
Rs.4,000(Book Value Rs.5,000) (d) Sale of goods for Rs.11,000(cost Rs.10,000) (e) payment of dividend.
Q47. (b) The Debt Equity ratio of X Ltd. is 1:2. Which of the following would increase, decrease or not change the debt
equity ratio?
(a) Issue of Equity Shares
(b) Cash received from Debtors
(c) Sale of goods on cash basis
(d) Redemption of Debentures
(e) Purchase of goods on credit
(f) Issue of Debentures
(g) Conversion of Debenture into Preference shares
Q48. Calculate: (a) Stock Turnover ratio (b) Debtors Turnover Ratio from the following details:
Annual Sales Rs.2, 00, 000: Gross profit 25% on cost: Opening Stock Rs.38, 500; Closing Stock Rs.41,500:
Credit Sales Rs.60,000; Debtors Rs.5,000; Bills Receivable 5,000.
(Stock turnover ratio 4 times; ; debtor turnover ratio 6 times)
Q49. The following information is provided to you:

Share Capital 1,60,000 General Reserve 50,000
15% Loan 1,00,000 Sales for the year 2,00,000
Tax paid during the year 40,000 profit after interest and Tax 80,000
From the above information, calculate debt equity ratio.

(Debt Equity Ratio-0.31:1)
Q50. AB Ltd. has a current ratio of 4.5:1 and a quick ratio of 3:1. If its stock is Rs.36,000 find out its current assets
and current liabilities.
(Current liabilities 24,000; Current Assets 1, 08,000)
Q51. A Company earns a gross profit of 20% on cost. Its credit sales are twice its cash sales. If the credit sales are
Rs.4, 00,000. Calculate the gross profit ratio of the Company.
(Gross Profit ratio 16.67%)
Q52. With the help of the given information calculate the following ratio:
(i) Operating ratio (ii) Quick ratio (iii) Working capital turnover ratio and (iv) Total Assets to debt ratio.
Information:
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Equity Share Capital Rs.1,00,000; 12% Preferences share capital Rs.80,000; 12% debentures Rs.60,000;
General Reserve Rs.40,000; Sales Rs.3,00,000; Opening Stock Rs.10,000; Purchases Rs.1,20,000;Wages
Rs.30,000; Closing Stock Rs.30,000;Selling and distribution expenses Rs.10,000. Other current Assets Rs.2,
00,000 and Current Liabilities Rs.1, 20,000.
(Operating Ratio 46.67%; Quick ratio 5:3; WCTR 2.73 times; Total assets to debt ratio 6.67:1)
Q53. Calculate the following ratio with the help of the following information:
(i) Operating Ratio (ii) Current Ratio
Information:
Equity Share Capital Rs.5,00,000; 12% debentures Rs.6,00,000;9% Preferences share capital Rs.3,00,000;
General Reserve Rs.1,00,000; Sales Rs.10,00,000; Opening Stock Rs.80,000; Purchases Rs.6,00,000;Wages
Rs.1,00,000; Closing Stock Rs.1,00,000;Selling and distribution expenses Rs.20,000. Other current Assets Rs.5,
00,000 and Current Liabilities Rs.3, 00,000.
(Operating Ratio 70%; Current Ratio 2:1)
Q54. Calculate the following ratio with the help of the following information:
(i) Operating Ratio (ii) Quick Ratio
Information:
Equity Share Capital Rs.1,00,000; 9% debentures Rs.60,000; 8% Preferences share capital Rs.80,000; General
Reserve Rs.10,000; Sales Rs.2,00,000; Opening Stock Rs.12,000; Purchases Rs.1,20,000;Wages Rs.8,000;
Closing Stock Rs.18,000;Selling and distribution expenses Rs.2,000. Other current Assets Rs.50,000 and
Current Liabilities Rs.30,000.
(Operating Ratio 62%; Quick Ratio 1.67:1)
Q55. Current Liabilities of a Company are Rs.2, 80,000.Current Ratio is 4:3 and Quick ratio is 1:1. Find the value of
stock.
(Value of stock 93,333)
Q56. From the following information:

Opening Stock 5,00,000 Fixed Assets 5,25,000
Cost of Goods Sold 18,00,000 Net Sales 30,00,000
Operating Expenses 4,80,000 Interest Charge 1,80,000
Current liabilities 6,00,000 Current assets 9,75,000
Closing Stock 7,00,000
Calculate: (i) Opening Ratio (ii) Stock Turnover ratio.

(Operating Ratio 76%; Stock Turnover Ratio 3 times)
Q57. Compute the Gross profit ratio from the following information:
Sales = Rs.4,20,000 and Gross profit 20%on Cost.
(Gross Profit ratio 16.67%)
Q58. Calculate current Assets of a Company from the following information:

(i) Stock Turnover 4 times (ii) Stock in the end is Rs.20,000 more than Stock in beginning (iii) Sales
Rs.3,00,000 (iv) Gross profit ratio 20%of Sales (v) Current liabilities Rs.40,000 (vi) Quick ratio 0.75.
(Current Assets 1, 00,000)
Q59. Current Liabilities of a Company are Rs.5, 60,000, Current ratio is 5:2 and Quick ratio is 2:1.Find the value of
stock.
(Value of stock 2, 80,000)
Q60. X Ltd has a Liquid ratio 7:3. If its Stock is Rs.25,000 and its Current liabilities are Rs.75,000.Find the current
ratio.
(Current Ratio 2.67:1)
Q61. From the data given below, calculate the current ratio and debt equity ratio.

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12% debentures Rs.6, 00,000; Total current liabilities Rs.3, 60,000 ;equity share capital Rs.20,00,000;
Preferences share capital Rs.8,00,000; General Reserve Rs.2,00,000; Cost of goods sold Rs.4,48,000;Total
current assets Rs.6,00,000; debtors Rs.2,80,000; Net profit Rs.1,80,000.
(Current Ratio 1.67:1; Debt Equity Ratio-0.2:1)
Q62. The following information is given about a Company:

Sales 1,50,000 Gross profit 30,000
Cost of Goods Sold 1,20,000 Opening Stock 28,000
Closing Stock 29,000 Debtors 18,000
Net profit 14,000 Net Fixed Assets 1,10,000
Calculate the gross profit ratio and Stock turnover ratio.

(GPR 20%; STR 4.14 times)
Q63. Gross profit ratio of a Company was 25%. It s cash sales Rs.2, 00,000 and its credit sales was 80% of the total
sales. If the indirect expenses of the Company were Rs.20, 000, calculate its Net profit ratio.
(Net profit ratio 24%)
Q64. From the information given below calculate the following ratio:
(i) Current Ratio (ii) Debt equity ratio
Information:
Net profit of the year Rs.80,000; Fixed assets Rs.2,00,000;Closing Stock Rs.10,000; Other current assets
Rs.1,00,000; Current liabilities Rs.30,000; Equity share capital Rs.1,00,000; 10% Preferences share capital
Rs.70,000; 12% debentures Rs.60,000 and sales during the year Rs.5,00,000.
(Current Ratio 3.67:1; Debt Equity Ratio-0.35:1)
Q65. Calculate Current ratio, quick ratio and debt equity ratio from the figures given below:

Stock 30,000 Prepaid expenses 2,000
Other Current Assets 50,000 Current liabilities 40,000
12% debentures 30,000 Accumulated Profit 10,000
Equity Share Capital 1,00,000 Long term investment 18,000
(Current Ratio 2.05:1; Quick ratio 1,25:1; Debt Equity Ratio-0.27:1)
Q66. A Company had a liquid ratio of 1.5 and current ratio of 2 and inventory turnover ratio 6 times . If has total
current assets of Rs.8,00,000 in the year 2003.Find out annual sales if goods are sold at 25%rofit on cost.
(Sales = Rs.15,00,000;Cost of goods Sold Rs.12,00,000)
Q67. Calculate following ratios from the given information :

(i) Operating ratio (ii) Stock turnover ratio (iii) Proprietary ratio
Information:
Net Sales Rs.3,75,000; Cost of Goods Sold Rs.1,08,500; Administrative expenses Rs.42,000;Selling expenses
Rs.47,500; Share capital Rs.8,00,000; Reserves Rs.3,50,000;Long term loans Rs.8,20,000; Fixed assets (net)
Rs.4,62,000;Investment Rs.2,42,000; Debtors Rs.72,000; Opening Stock Rs.2,00,000; Closing stock
Rs.2,20,000 and bank balance Rs.3,15,000.
(Operating Ratio 52.80%; Stock Turnover Ratio 0.516 times; Proprietary ratio 87.69%)
Q68. Rs.2,00,000 is the cost of goods sold, inventory turnover 8 times ; Stock at the beginning is 1.5 times more than
the stock at the end . Calculate the values of opening & Closing stocks.
(Closing Stock 14,286; Opening Stock 35,715)

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Q69. The ratio of current assets (Rs.6,00,000) to current liabilities (Rs.4,00,000) is 1.5:1. The accountant of the firm
is interested in maintaining a current ratio of 2:1, by paying off a art of the current liabilities. Compute the
amount of current liabilities that should be paid , so that the current ratio at the level of 2:1 may be maintained.
(Current liabilities to be paid off is 2, 00,000)
Q70. On the basis of information given below, calculate of the following ratio:
(i) Gross profit ratio (ii) Debt profit ratio (iii) Working Capital turnover ratio
Information:

Net Sales 3,75,000 Current Assets 4,25,000
Cost of Goods Sold 2,50,000 Equity Share Capital 1,90,000
Current Liabilities 1,20,000 Debentures 75,000
Loan 60,000
(Gross Profit ratio 33.3%; Debt Equity Ratio-0.7:1; Working Capital turnover ratio 1.23 times)
Q71. Current Liabilities of a Company are Rs.1, 20,000. Its current ratio is 3.00 and liquid ratio is 0.90. Calculate the
amount of current assets: Liquid assets and inventory.
(Current Assets 3, 60,000; Liquid Assets 1, 08,000; Inventory 2, 52,000)
Q72. Current Liabilities of a Company are Rs.4, 50,000. Its current ratio is 3 and liquid ratio is 1.60. Calculate the
amount of current assets: Liquid assets and inventory.
(Current Assets 13, 50,000; Liquid Assets 7, 20,000; Inventory 6, 30,000)

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FORMAT OF CASH FLOW STATEMENT (Indirect Method) FOR CLASS Xll
CASH FLOW FROM OPERATING ACTIVITIES Amount Amount

NET PROFIT TAX & EXTRA ORDINARY ITEMS (Rs.) (Rs.)
ADD: Non Cash and Non Operating Charges ........
Depreciation written off, Goodwill, Patents, Trade Marks written off, Discount on issue of shares ........
written off, Discount on issue of debentures written off, underwriting commission, written off, ........
Preliminary Exps. written off, Loss on sale of fixed assets/investments, premium redemption of ........
Debentures, interest on Debentures/interest on Loan, Share issue expenses. ........
LESS: Non Cash and Non Operating Receipt .........
Profit on sale of fixed Assets, Profit on Redemption of (........)
Debentures Interest Received, Rent Received. (........)
Dividend Received, Excess Depreciation. (........)
Operating Profit Before Working Capital Changes. .........
ADD: Decrease in Current Assets, Except Cash, Bank, Bank O.D., .........
Increase in Current Liabilities Short Term Investment, (........)
LESS: Increase in Current Assets Marketable Securities, Short Term (........)
Decrease in Current Liabilities Loans. .........
Cash From Operating (........)
LESS: Income Tax Paid (Net of Refunds) (........)
Extra Ordinary Expenses.
ADD: Extra Ordinary Income .........
Net Cash from Operating Activities (........)
(if-ive Ans) Net Cash used in Operating Activities.
CASH FLOW FROM INVESTING ACTIVITIES
Sale of Machinery, Land & Building and Other Fixed Assets, Sale of investments, Sale of Goodwill/ Patents/
Trade Mark/Copy Right, Dividend received on shares held as investments, Interest Received on Debentures held .........
as investments, Rent Received from property held as investments. .........
LESS: Purchase of Machinery, Land & Building & other fixed Assets, Purchase of .........
Investments, Purchase of Goodwill/Patents/ Trade Marks. ........
Net Cash from investing Activities (.......) ..........
(if-ive Ans. Cash Used in investing Activities) (.......) (.........)
CASH FLOW FROM FINANCING ACTIVITIES
Cash From Issue of Equity Shares/ Preference Shares, Cash From Issue of
Debentures, Cash From Raising of Loans (Short term & Long term). ........
LESS: Redemption of Preference shares, Payment of Loans ( Short term & Lon term).
........
Payment of Dividend (interim and Final), Payment of interest on loans and Debentures (.......)
Net Cash from Financing Activities ..........
(.......)
(if-ive Ans. Net Cash Used in Financing Activities) (........)
Net Increase (Decrease) in Cash and Cash Equivalents (I +II+III)
Cash and Cash Equivalents at the Beginning of Period.
Cash in hand, Cash at bank,
Marketable Securities/Short-term investments. ………
LESS: Bank Overdraft .........
Cash and Cash Equivalents at End of period (IV+V) .........
Cash in hand, Cash at bank, (........)
………
Marketable Securities/Short-term investments.
LESS: Bank Overdraft
WORKINGS ………
Net profit for the year (Closing Balance of P & L A/c---Opening Balance of P & L A/c)
Add: Proposed Dividend for the current year. ………..
Add: Interiem Dividend paid for the current year.
Add: Transfer to reserves (General Reserve, Sinking fund),(Debenture Redemption fund) Capital Redemption
Reserve, Dividend Equalization fund. (……….) ……….
Add: Provision for Taxation made (Provided) during the current year.
Add: Extra Ordinary Expenses.
Less: Extra Ordinary incomes.
=NET PROFIT BEFORE TAX & EXTRA ORDINARY ITEMS
CASH FLOW STATEMENT (ADJUSTMENTS)

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(i) 1. Calculation of Net profit before Tax and Extra ordinary Items:
Assets 2004 2005 Net profit for the year
Plant and machinery 90,000 30,000 Add: provision for Tax provided 40,000
2. Cash from Operation:
Depreciation charged on plant & machinery Rs.24,000 Less: payment of Tax 30,000
PLANT AND MACHINERY (v)
Particulars Amount Particulars Amount Liabilities 2004 2005
Balance b/d 90,000 Depreciation A/c 24,000 Provision 30,000 40,000
Cash A/c(Sale) 36,000
Balance c/d 30,000 Income Tax Paid Rs.18, 000 during the year.
Tax Paid: Tax A/c………………. Dr.
90,000 90,000 To cash A/c ……………..
Depreciation A/c Dr. 24,000 Tax provided (made): profit and loss A/c Dr
To Plant and machinery A/c 24,000 To Tax A/c
1. Non Cash & Non Operating Charges: Particulars Amount Particulars Amount
Add : Depreciation on plant & machinery 24,000 Cash A/c 18,000 Balance b/d 30,000
2. Investing Activities: (Tax Paid) Profit & loss 28,000
Add: Sale of plant and machinery 36,000 Balance c/d 40,000 A/c
(ii) (tax provide )
Assets 2004 2005
58,000 58,000
Plant and 80,000 20,000
machinery
Gain on Sale of Plant & machinery Rs.4,000 1. Calculation of Net profit before tax and extra ordinary items:
Net profit for the year …………….
Particulars Amount Particulars Amount Add: provision for tax provided 28,000
Balance b/d 80,000 Cash A/c(Sale) 64,000 2. Cash from Operation:
Profit & Loss 4,000 Balance c/d 20,000 Less: payment of Tax 18,000
A/c
84,000 84,000 (vi) Liabilities 2004 2005
1. Non cash & Non operating Receipts: Provision for 30,000 40,000
Less: Gain on Sale of plant (4,000) taxation
2. Investing Activities:
Add: Sale of Plant & machinery 64,000 Provision for tax Rs.24, 000 made (provide) during the year.
(iii)
Assets 2004 2005 Particulars Amount Particulars Amount
Plant and 1,00,000 1,00,000 Cash A/c (Tax Paid) 14,000 Balance b/d 30,000
machinery Balance c/d Profit & 24,000
Depreciation charged on plant & machinery Rs.26,000, A part of 40,000 loss A/c
plant & machinery costing Rs.15,000 (accumulated depreciation (tax provide
provided on it Rs.3,000) was sold for Rs.11, 000. )
54,000 54,000
Balance b/d 1,00,000 Depreciation A/c 26,000 1. Calculation of Net profit before tax and extra ordinary items:
Cash 78,000 Cash A/c(Sale) 11,000 Net profit for the year …………….
A/c(Purchase) Profit & Loss A/c 1,000 Add: provision for tax provided 24,000
Balance c/d 1,40,000 2. Cash from Operation:
Less: payment of Tax (14,000)
1,78,000 1,78,000
1. Non Cash & Non operating Charges: (vii) Liabilities 2004 2005
Add: depreciation on plant & machinery 26,000 Proposed 42,000 50,000
Add: Loss on Sale of plant & machinery 1,000 dividend (div. paid ) (Div. proposed)
2. Investing Activities:
Add: Sale of plant & machinery 11,000
Less: Purchases of plant & machinery 78,000 No adjustment
(iv) 1. Calculation of Net profit before tax and extra ordinary items:
Liabilities 2004 2005
Add: Proposed dividend 50,000
Provision for 30,000 40,000
Tax (tax paid) (tax provide) 2. Financing Activity:
No adjustment Less: payment of Dividend (42,000)

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Classes
(viii) 1. Non Cash & Non Operating Charges:

Liabilities 2004 2005 Add: Depreciation on plant & Machinery 6,000
Proposed 30,000 45,000 2. Investing Activities:
dividend (div. paid ) (Div. proposed) Less: purchases of plant & Machinery 20,000
Interim dividend paid Rs.20, 000 (xii)
1. Calculation of Net profit before tax and extra ordinary items: Liabilities 2004 2005 Assets 2004 2005
Net profit for the year ……………. Provision for 18,000 24,000 Plant & 80,000 1,00,000
Add: Proposed dividend 45,000 Depreciation Machinery
Add: Interim dividend 20,000 on plant &
2. Financing Activity: Machinery
Less: payment of Dividend 30,000
Less: payment of Interim Dividend 20,000 During the year a machinery costing Rs.15, 000(accumulated
Deprecation provided on its Rs.3, 000) was sold for Rs.11, 000.
(ix)
Liabilities 2004 2005 Plant & Machinery Account
Proposed ------ ------
dividend Particulars Amount Particulars Amount
Balance b/d 80,000 Cash A/c 11,000
Dividend paid Rs.18, 000 during the year. Profit & loss 1,000
Cash A/c 35,000 A/c
1. Calculation of Net profit before tax and extra ordinary items: (purchase) Pro. for 3,000
Net profit for the year ……………. Depreciation
Add: Dividend paid 18,000 A/c
2. Financing Activity: Balance c/d 1,00,000
Less: payment of Dividend 18,000 1,15,000 1,15,000
(x)
Liabilities 2004 2005 Provision for Depreciation on plant & Machinery Account
Proposed 40,000 50,000 Particulars Amount Particulars Amount
dividend
Machinery 3,000 Balance b/d 18,000
Dividend paid Rs.18, 000 during the year. A/c Depreciation 9,000
Particulars Amount Particulars Amount (Depreciation A/c
on selling
Cash A/c 18,000 Balance b/d 40,000 part)
(Tax Paid) Profit & loss 28,000 Balance c/d 24,000
Balance c/d 50,000 A/c 27,000 27,000
(Proposed
68,000 dividend ) 68,000
1. Non Cash & Non Operating Charges:
Add: Depreciation on machinery 9,000
1. Calculation of Net profit before tax and extra ordinary items: add: Loss on sale of Machinery 1,000
Net profit for the year ……………. 2. Investing Activities:
Add: Proposed dividend 28,000 Add: Sale of plant & Machinery 11,000
2. Financing Activity: Less: purchases of plant & Machinery 35,000
Less: payment of Dividend 18,000
Calculation:
(xi) Provision for Depreciation = Depreciation Reserve = Cost = 15,000
Accumulated depreciation (-)Depreciation = 3,000
Either given on liabilities side or subtracted from a particular Book value = 12,000
Assets. (-) Sold for = 11,000
Loss = 1,000
Liabilities 2004 2005 Assets 2004 2005
Provision 18,000 24,000 plant & 80,000 1,00,000 Assets 1.1.04 31.12.04
for Machinery Machinery 80,000 55,000
Depreciation
on plant & During the year a machinery costing Rs.10, 000(accumulated
Machinery deprecation Rs.3, 000) was sold for Rs.5, 000. The provision
for depreciation against machinery as on 1st Jan. 2004 and
No Adjustment 31st December, 2004 were of Rs.25, 000 and Rs.40, 000 respective

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MACHINERY ACCOUNT FURNITURE ACCOUNT
Particulars Amount Particulars Amount Particulars Amount Particulars Amount

Balance b/d 1,05,000 Cash A/c 5,000 Balance c/d 20,000 Bank A/c 5,000
(80,000 + (Sale) Profit & loss 3,000 Accumulated 2,000
25,000) Profit & loss 2,000 A/c Dep. A/c
A/c (loss) Bank A/c 12,000 Balance c/d 28,000
Pro. for 3,000 35,000 35,000
Depreciation
A/c
Balance c/d 95,000 Accumulated Depreciation Account
(55,000 +
40,000) Particulars Amount Particulars Amount
1,05,000 1,05,000 Furniture A/c 2,000 Balance c/d 6,000
(Dep. on Dep. A/c 5,000
Provision for Depreciation on Machinery Account selling part)
Balance c/d
Particulars Amount Particulars Amount 9,000
11,000 11,000
Machinery 3,000 Balance b/d 25,000
A/c Depreciation 18,000
(Depreciation A/c (xv) For partnership Firm & proprietorship Firm
on selling
part) Liabilities 2004 2005
Balance c/d 40,000
Capital 30,000 40,000
43,000 43,000
(a) Net profit for the year Rs.14, 000
1. Non Cash & Non Operating Charges: CAPITAL ACCOUNT

Add: Depreciation on machinery 18,000
Add: Loss on sale of Machinery 2,000 Particulars Amount Particulars Amount
2. Investing Activities: Cash A/c 4,000 Balance b/d 30,000
Add: Sale of Machinery 5,000 (Drawing) P & L A/c 14,000
Balance c/d 40,000 (Net profit)
Calculation:
Cost = 10,000
(-)Depreciation on selling part = 3,000 44,000 44,000
Book value = 7,000
(-) Sold for = 5,000
1. Calculation of Net profit before tax and extra ordinary items:
Loss = 2,000
Net profit for the year ……………. 14,000
(xiv)
2. Financing Activity:
Assets Opening Closing Less: Drawing 4,000
Furniture(at 20,000 28,000
cost) (b) Drawing made during the year Rs.8, 000
Accumulated 6,000 9,000
Dep. on CAPITAL ACCOUNT
Furniture
During the year a furniture costing Rs.4, 000 was sold at a Cash A/c 8,000 Balance b/d 30,000
profit of Rs.3, 000. Depreciation on furniture charged (Drawing) P & L A/c 18,000
during the year amounted to Rs.5,000. Balance c/d 40,000 (Net profit)
Investing Activities:
Add: Sale of furniture 5,000 48,000 48,000

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Less: purchase of furniture (12,000)

Net profit for the year ……………. 18,000
2. Financing Activity:
Less: Drawing 8,000
(xvi) (xx)
Debentures 1,50,000 1,10,000 Profit & Loss 30,000 50,000
(a) If debentures were redeemed at 10% premium. Calculation of Net profit before Tax and Extra Ordinary items:
Redemption of Debenture (Face value) = 40,000 Net profit for the year [(-) 50,000-(-30,000)] = (-) 20,000
(+) 10% premium = 4,000
Redeemed at = 44,000 (xxi) Balance sheet as on………….
1. Non Cash & Non Operating Charges: Liabilities 2004 2005 Assets 2004 2005
Add: premium on redemption of debentures 4,000 Profit & --- 50,000 Profit & Loss 30,000 ----
2. Financial Activities: Loss
Less: Redemption of debentures 44,000
Calculation of Net profit before Tax and Extra Ordinary items:
(b) If debentures are redeemed at discount of 15%. Net profit for the year [50,000-(-30,000)] = (+) 80,000
Redemption of Debenture (Face value) = 40,000
(-) 15% discount = 6,000 (xxii) Balance sheet as on………….
Redeemed at = 34,000
1. Non Cash & Non Operating Charges:
Add: Discount on redemption 6,000 Profit & 50,000 ---- Profit & Loss ---- 30,000
2. Financial Activities: Loss
Less: Redemption of debentures 34 ,000
Calculation of Net profit before Tax and Extra Ordinary items:
(xvii) Net profit for the year [-30,000-50,000] = (-) 80,000
Particulars Rs. (xxiii) Balance sheet as on………….
Investments at the beginning of the period 34,000 Liabilities 2004 2005 Assets 2004 2005
Investments at the end of the period 28,000
Pro. for B/D 2,000 2,800 Debtors 30,000 40,000
(good)
During the year the Company had sold 40% of its
Investment held in the beginning of the period at a profit of
Rs.8, 400.Calculate cash flows from investing Activities.
Add: provision for b/d 800
2. Operating profit before working capital changes:
Cash Flow From Investing Activities
Less: Increase in debtors 10,000
(xxiv)
Particulars Rs. Rs.
Add: Sale of Investment 22,000 Assets 2004 2005
Less: purchase of Investment 7,600
Net Cash Flow from Investment Activities Plant & machinery 90,000 50,000
14,400
INVESTMENT ACCOUNT A part of plant costing Rs.15, 000(Depreciation provided on it

Rs.3, 000) was sold for Rs.11, 000
PLANT & MACHINERY ACCOUNT
Balance b/d 34,000 Bank A/c 22,000
P & L A/c (13,600 + 8,400) Particulars Amount Particulars Amount
Bank A/c 8,400 (40% of
7,600 34,000=13,600)
Balance c/d
28,000

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50,000 50,000 Balance b/d 90,000 Cash A/c (Sale) 11,000

Profit & Loss A/c (Loss) 1,000
Prov. for Depreciation A/c 28,000
(xviii) Balance c/d 50,000
Liabilities 2004 2005
Provision for X X
Tax 90,000 90,000
Tax provided during the year Rs.4, 000.

It means Tax paid Rs.4, 000; Tax provide Rs.4, 000
COMPARISON OF FINANCIAL STATEMENT

Comparison of Financial Statements
Income Statement Balance Sheet

COMPARATIVE INCOME STATEMENTS
for the year ended 31st December 2006 & 2007
Particulars 2006 2007 Absolute Percentage
Rs. Rs. Change (Rs.) Change (%)
Net Sales ……. …….
Less: Cost of Goods Sold ……. …….
Gross Profit ……. …….
Less: Operating Expenses ……. …….
(Office & Admn. Exp Selling &
Dist. Exp., General Exp.) ……. …….
Operating Net Profit ……. …….
Add: Non Operating Incomes
(Other Incomes) ……. …….
Less: Non Operating Expenses
(Other Expenses) ……. …….
Net Profit Before Tax
Income Tax ……. …….
Less: Net Profit After Tax ……. …….
……. …….
When Non-operating Income and Non-operating Expenses both are not given
COMPARATIVE INCOME STATEMENTS
for the year ended 31st December 2006 & 2007
Net Sales ……. …….
Less: Cost of Goods Sold ……. …….
Gross Profit
Less: Operating Expenses ……. …….
Net Profit Before Tax
Less: Income Tax
Net Profit After Tax
Format of Comparative Balance Sheet of N. Co. Ltd.

COMPARATIVE BALANCE SHEET as at 2006 and 2007

1. Net Fixed Assets ……. …….
2. Investment ……. …….
3. Working Capital
(Current Assets) ……. …….
Less: Current Liabilities)

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4. Capital Employed ……. …….

(1+2+3)
5. Less: Long Term loans ……. …….
6. Shareholders Funds (4-5) ……. …….
Represented by
……. …….
7. Equity Share Capital
……. …….
8. Preference Share Capital
……. …….
9. All Reserves & Surplus
Less: Fictitious Assets
Operating Net Profit = Income from Operation = Operating Net Income

(Expenses, Indirect Expenses = Operating Expenses) (Materials Consumed = Cost of Goods Sold)

Classes

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Commerce By:- SUBHASH THAKUR 9810190005

CASE I Product method for Irregular Drawings:

When partners withdraw the Different Amount on Different Dates.

Calculate interest on drawings of A.

Feb. 1 Rs. 2,000

What is the interest chargeable to the partner?

CASE II When a Fixed Amount is Withdrawn on a Fixed Date:

Commerce By:- SUBHASH THAKUR -1- 9810190005

4. When the same Amount is Withdrawn at the beginning of Each Quarter.

5. When the same Amount is Withdrawn at the end of Each Quarter.

6. If the Partners Withdrawn at the end of Each Quarter.

8. If Partners Withdraw same Amount the middle of every month for 6

(a) If interest on Drawings is charged @ 10% p.a.

(b) If Interest on Drawings is charged @ 10% p.a.

Commerce By:- SUBHASH THAKUR -3- 9810190005

Dr. Profit & Loss appropriation Amount

Particulars Amount Particulars Amount

Particulars Amount Particulars Amount

Commerce By:- SUBHASH THAKUR -5- 9810190005

CASE I: Omission of Interest on Capital :

Credited @ 6 % p.a -- 180 -- 270 -- 360 -- 270 1080

Difference (Net Effect) 180 -- -- -- -- 90 -- 90

Case III: If Interest on Capital allowed at lower rate Interest :

Case IV: Change in Profit Sharing Ratio with Retrospective Effect:

Case V: Manager to be Treated as a Partner with Retrospective Effect :

GUARANTEE OF PROFIT TO A PARTNER

Case 1. If divisible profit Rs.15,000

Particulars Amount Particulars Amount

Case 2. If divisible profit Rs.3,600

Particulars Amount Particulars Amount

Commerce By:- SUBHASH THAKUR -9- 9810190005

Particulars Amount Particulars Amount

of 3:2:1 subject to the following :

(i) Interest on capital @ 12 %p.a.

59. A is a partner in a firm for the year ending 31 march 2006.

(I) Average Profit Method

(II) Weighted Average Profit Method

Weighted Average Profits = Total of Products of Profits

Commerce By:- SUBHASH THAKUR - 14 - 9810190005

Total Capitalized Value of Average Profits =Average Profits * 100

(b) Capitalization of Super Profits Method:

NEW PROFIT SHARING RATIO

Que. A B C was admitted for 1/7th share

Commerce By:- SUBHASH THAKUR - 16 - 9810190005

Commerce By:- SUBHASH THAKUR - 17 - 9810190005

CASE 1: WHEN A NEW PARTNER BRINGS AMOUNT OF GOODWILL IN CASH

Commerce By:- SUBHASH THAKUR - 18 - 9810190005

(This entry is done by sacrificing ratio.)

Commerce By:- SUBHASH THAKUR - 20 - 9810190005

(Goodwill credited to A Rs.1,500, B Rs.900 Sacrificing Ratio 5:3)

A : B = 3 :2 . C’s share = 1/6

2nd STEP: ENTRY FOR BRINGING AMOUNT OF CAPITAL

Cash A/c ……………Dr. 80,000

(Goodwill credited to Santosh Rs.1,000, Brij Rs.750)

Commerce By:- SUBHASH THAKUR - 23 - 9810190005

Goodwill = Normal Capital of Firm – Actual Capital of Partners

Liabilities Rs. Assets Rs.