Revision Booklet Accountancy

ACCOUNTANCY Revision Booklet Class XII 1
REVISION NOTES
CBSE Class XII Accountancy
Financial Statements of
Not-for-Profit Organisations
1. Meaning
Not-for-profit organisations also known as non-profit organisations refer to those organisations that are set-up
for the welfare of the society and are set-up as charitable institutions which function without any profit motive.
Non-profit organisations are separate legal entity not owned by any individual or an enterprise. Examples of
non-profit organisations are clubs, hospitals, libraries, schools, societies for promotion of sports, arts and culture,
etc.
2. Accounting Records of Not-for-Profit Organisations
(i) Receipts and Payments Account
Receipts and Payments Account
for the year ended …
Receipts Amt (`) Payments Amt (`)
To Balance b/d (Opening balance) By Balance b/d (Opening) ...

Cash in Hand ... (In case of bank overdraft)
Cash at Bank ... Revenue Payments
Revenue Receipts By Salaries ...

To Subscriptions (Present, past and future) ... By Rent ...
To Entrance Fees (In recurring nature) ... By Postage Expenses ...
To General Donations ... By Advertisement Expenses ...
To Locker’s Rent ... By Newspapers and Magazines, etc. ...
To General Grants ... By Repairs ...
To Sale of Newspapers, Grass, etc. ... By Audit Fee ...
To Interest on Investments ... By Entertainment Expenses ...
To Sale of Old Used Sports Materials ... By Maintenance Expenses ...
To Interest on Investments ... By Insurance ...
To Proceeds from Entertainment ... By Secretary’s Honorarium ...
To Income from Concerts/Lectures ... By Lecturer’s Honorarium ...
To Receipts from Show ... By Municipal Tax ...
To Dividends ... By Gardening ...
To Rent ... By Prize Distributed ...
To Interest ... By Office Expenses ...
To Miscellaneous Receipts ... By Expenses on Show ...
2 ACCOUNTANCY Revision Booklet Class XII
Receipts Amt (`) Payments Amt (`)

Capital Receipts By Miscellaneous Payments ...
To Life Membership Fees ... Capital Payments
To Subscriptions for Specific Purpose ... By Purchase of Fixed Assets (e.g. Furniture) ...
To Donation for Specific Purpose ... By Sports Equipment ...
To Grant for Specific Purpose By Investments
... ...
To Entrance Fees (Non-recurring) ... By Books ...
To Legacies ... By Loan (Repayment) ...
To Endowment Fund ... By Building Construction ...
To Sale of Fixed Assets ... By Balance c/d (Closing balance)
To Receipts on Account of Special Fund, Cash in Hand ...

i.e. Match Fund, Prize Fund, etc.
... Cash at Bank ...
... ...
(ii) Income and Expenditure Account

Income and Expenditure Account
Dr for the year ended … Cr
Expenditure Amt (`) Income Amt (`)
To Salaries ... By Subscriptions ...
( + ) Outstanding at the End ... ( + ) Outstanding at the End ...
... ( + ) Advance in the Beginning ...
( - ) Outstanding in the Beginning (...) ... ...
To Rent ... ( - ) Outstanding in the Beginning (...)
To Insurance Premium ... ...
( - ) Prepaid (...) ... ( - ) Advance at the End (...) ...
To Audit Fees ... By Entrance Fees (Only that amount ...
To Printing and Stationery which is treated as revenue)
...
To Honorarium ... By Donations ...
To Telephone Expenses ... By Sale of Old Newspapers ...
To Repairs ... By Hall Rent ...
To Depreciation on Building ... By Sundry Receipts ...
To Sports Material Used ... By Deficit (Excess of expenditure over income)* ...
To Surplus (Excess of income over expenditure)* ...
... ...
*Either of the two will appear.

(iii) Balance Sheet

Balance Sheet
as at…
Liabilities Amt (`) Assets Amt (`)
Capital Fund Fixed Assets
Opening Balance ... Building
( + ) Surplus [or ( - ) Deficit] ... Opening Balance ...
... ( + ) Additions ...
( + ) Entrance Fees ...
(Capitalised amount) ... ( - ) Depreciation (...) ...
Building Fund Furniture ...
Opening Balance ... Opening Balance ...
( + ) Donation for Building ... ( + ) Additions ...
Income from Building Fund ( - ) Depreciation (...)
Investments ... ... Sale (...) ...
Sports Fund Current Assets
Opening Balance ... Cash in Hand ...
( + ) Donation for Sports Fund ... Cash at Bank ...
Interest on Sports Fund Subscriptions in Arrear ...
Investments ... Accrued Interest ...
... Investments
( - ) Sports Prize Awarded (...) ... Building Fund Investments ...
Current Liabilities Sports Fund Investments ...
Outstanding Expenses Prepaid Expenses
Rent ... Insurance ...
Salaries ... Rent ...
Electricity/Water Charges ... ...
Subscriptions Received in Advance ...
... ...
3. Fund Based Accounting

The accounting where receipts and incomes relating to a particular fund are credited to that particular fund
and payments and expenses are debited to that particular fund, it is known as fund based accounting. These
funds are created for specific purposes, e.g. prize fund, sports fund, library fund, building fund, endowment
fund, etc.
If the fund account has a credit balance, it is shown in the balance sheet on the liabilities side. If the fund
account has a debit balance, i.e. the fund is less than the balance, it is transferred to the debit of income and
expenditure account.
4. Classification of Funds
Funds may be classified as
(i) Unrestricted funds (ii) Restricted funds
Various types of restricted funds are as follows:
(a) Endowment fund (b) Annuity fund (c) Loan fund
(d) Fixed assets fund (e) Prize fund
ACCOUNTANCY Revision Booklet Class X II 4
5. Some Peculiar Items deceased person is termed as legacy. It is

(i) Subscriptions It is the membership fee paid treated as a capital receipt and shown on the
by the members on annual basis. It is the liabilities side. However, legacies of small
main source of income of non-profit amount may be treated as income and shown
organisations. Subscriptions relating to the on the income side of the income and
current year whether received or not, are expenditure account.
shown in the credit side of income and (vi) Entrance Fees Entrance fee also known as
expenditure account. admission fee is paid only once by the
Subscriptions not received, i.e. outstanding member at the time of becoming a member.
are shown on the assets side of a balance As entrance fee is paid by a member only
sheet. Subscriptions received in advance for once, it is argued that it should be treated as a
the following year are shown on the liabilities capital receipt and transferred to capital
side of a balance sheet. fund. However, it should be treated as
revenue receipt and credited to the income
Table Showing Calculation of Subscriptions
and expenditure account, when the amount is
Particulars Amt (`) small to cover the expenses of admission.
NCERT guidelines advocate treating of
Subscriptions received during the year
(whether in respect of previous, current or ... entrance fees as revenue item.
future period) as shown in receipts and (vii) Life Membership Fees When lumpsum
payments account
amount is paid by the members instead of
( + ) Subscriptions outstanding at the end of ... paying periodic subscription, it is treated as
the year
life membership fees. Life membership fee is
Subscriptions received in advance in the ... ...
beginning of the year treated as a capital receipt and added to the
(–) Subscriptions outstanding in the beginning
capital fund/ general fund on the liabilities
(...)
of the year side of a balance sheet.
Subscriptions received in advance at the end ... ... (viii) Sale of Old Assets Book value of an asset is
of the year
credited to the asset account. Any profit on
Subscriptions to be Shown in the ... sale of an asset is credited and any loss on
Income and Expenditure Account
sale of an asset is debited to income and
(ii) Donations Donations are often received by expenditure account.
charitable institutions. It is a sort of gift in (ix) Sale of Periodicals It is an item of recurring
cash or property received from some person nature and shown on the credit side of
or organisation. Donation can be for specific income and expenditure account.
purposes or general purposes.
(x) Sale of Sports Material Sports materials are
(iii) Specific Donation When the donations consumable assets. Sale of sports material
received are to be utilised for a specific (used materials like old balls, bats, nets, etc) is
purpose say, extension of the existing the regular feature with any sport club. It is
building, construction of a new computer usually shown as an income in the income
laboratory, creation of a book bank, etc., it is and expenditure account.
called specific donation. It should be
capitalised and be shown on the liabilities (xi) Payment of Honorarium Honorarium is the
side of a balance sheet. amount paid to the person who is not an
employee of the institution and has
(iv) General Donation When donations are
voluntarily undertaken a service. It is debited
utilised to promote the general purpose of the
to income and expenditure account.
organisation, they are called as general
donations. They are treated as revenue (xii) Endowment Fund It is a fund arising from a
receipts, as it is a regular source of income. It bequest or gift, the income of which is
is shown on the income side of the income devoted for a specific purpose. Hence, it is a
and expenditure account of the current year. capital receipt and shown on the liabilities
side of the balance sheet as an item of a
(v) Legacies The amount received by a
specific purpose fund.
non-profit organisation as per the will of a
(xiii) Government Grants Various institutions (xvii) Revenue Receipts Revenue receipts are shown
like schools, colleges, public hospitals, etc., on the credit side of income and expenditure
depend on government grants for their account. e.g. rent, interest on investment,
activities. Grants which are recurring in proceeds from concerts, shows, etc.
nature are treated as revenue receipt and (xviii) Revenue Expenses Revenue expenses are the
credited to income and expenditure expenses which are incurred for performing
account. However, grants of capital nature day-to-day activities or expenses which are
such as building grant are treated as capital recurring in nature, e.g. salary, rent, etc. It also
receipt and transferred to building account. includes expenses incurred on the
(xiv) Special Funds Certain special funds are maintenance of fixed assets, e.g. repairs,
created for certain purposes/activities, e.g. depreciation, etc.
prize funds, match fund, sports fund, etc. (xix) Capital Expenditures Capital expenditures are
The income earned from such funds is shown on the assets side of balance sheet,
added to the respective fund and not e.g. expenditure on purchase of books,
credited to income and expenditure furniture, investments, building, etc.
account and also the expenses incurred on
such specific purposes are also deducted 6. Calculation of the Cost of Consumable
from the special fund. Goods
(xv) Special Receipts When there is a receipt of The amount of goods consumed during the year is
amount by non-profit organisations for calculated as follows:
special occasions, it is referred to as special
receipts. Such amounts are credited to a Particulars Amt (`)
separate account and expenses against Opening Stock of Consumable Goods ...
these receipts are debited to it. The balance ( + ) Purchases During the Year ...
is transferred to the credit side of income
and expenditure account. ...
(xvi) Sale of Old Newspapers Amount which is ( - ) Closing Stock ...
realised by selling of old newspapers is Balance (It is to be shown in the income and
treated as income and credited to income expenditure account) ...
and expenditure account.
Accounting for Partnership Firms : Fundamentals

1. Meaning of Partnership 3. Provisions of the Indian Partnership
According to Section 4 of the Indian Act, 1932 in the Absence of
Partnership Act, 1932, “Partnership is the Partnership Deed
relation between persons who have agreed to (i)Sharing of profits/losses– Equally
share the profits of a business carried on by all (ii)Interest on capital – Not allowed
or any of them acting for all”.
(iii)Salary/commission to a partner– Not allowed
Note Minimum number of partners in a partnership
business must be 2 and as per Section 464 of the (iv) Interest on advances or loan by a partner
Companies Act, 2013, maximum number of — 6% per annum
partners of a firm cannot exceed the number as (v) Interest on drawings – Not charged
prescribed in the Rules, which at present is 50.
4. Maintenance of Capital Accounts of
2. Partnership Deed Partners
The document containing the agreement in Capital accounts of partners can be maintained by
writing among partners is called partnership the following two methods
deed. It generally contains the details about all (i) Fixed Capital Method Under this method, two
the aspects affecting the relationship between accounts are maintained namely, capital account
the partners. and current account.
Dr Partners’ Capital Account Cr

Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)
To Cash/Bank A/c ... ... ... By Balance b/d ... ... ...
(Withdrawal of capital) By Cash/Bank A/c ... ... ...
To Balance c/d ... ... ... (Additional capital
introduced)
... ... ... ... ... ...
Dr Partners’ Current Account Cr

*To Balance b/d (In case of ... ... ... *By Balance b/d (In case of ... ... ...
debit opening balance) credit opening balance)
To Drawings A/c ... ... ... By Interest on Capital A/c ... ... ...
To Interest on Drawings A/c ... ... ... By Commission A/c ... ... ...
To Profit and Loss ... ... ... By Salary A/c ... ... ...
Appropriation A/c (Loss) By Profit and Loss Appropriation ... ... ...
**To Balance c/d … … … A/c (Profit) ... ... ...
**By Balance c/d
... ... ... ... ... ...
*Any one will appear. **Any one will appear
(ii) Fluctuating Capital Method Under fluctuating capital method, one account is maintained, i.e. capital account.
*To Balance b/d ... ... ... *By Balance b/d ... ... ...
(In case of debit opening balance) (In case of credit opening balance)
To Drawings A/c ... ... ... By Cash/Bank A/c
... ... ...
To Interest on Drawings A/c ... ... ... (Additional capital introduced)
To Profit and Loss Appropriation A/c ... ... ... By Salary A/c ... ... ...
(Loss) By Interest on Capital A/c ... ... ...
**To Balance c/d ... ... ... By Commission A/c ... ... ...
By Profit and Loss Appropriation A/c ... ... ...
(Profit)
**By Balance c/d ... ... ...
... ... ... ... ... ...
*Any one will appear. **Any one will appear
5. Interest on Capital
It is generally allowed to compensate partners for contributing capital to the firm in excess of profit
sharing ratio. It is an appropriation of profits and is provided only if there is profit. It will be provided in
case of loss also only if partnership deed so provides or it is to be treated as a charge against profits.
6. Different Cases Related to Interest on Capital

The various cases related to interest on capital are
Case I When partnership agreement is silent about interest on capital : Not allowed
Case II When partnership agreement provides that interest on capital is to be allowed.
(i) In case, there is a loss — Not provided
(ii) In case, there are sufficient profits — Fully allowed
(iii) If there are insufficient profits — Proportionately allowed to the extent of available
profits in the ratio of capital of each partner
Case III When partnership agreement states that interest on capital is to be provided as a charge : Fully
allowed irrespective of profits or losses.
Note Interest on capital is always calculated on the opening balance of capital in a year.
In case, closing capital is given, then opening capital will be calculated first by using the following formula:
Opening Capital = Closing Capital - Profits + Drawings
- Additional Capital
7. Interest on Drawings
The amount withdrawn by the partners in cash or in kind for their personal use is termed as drawings.
When the partnership deed is silent, no interest on drawings is charged. Interest on drawings is calculated
with reference to the time period for which money was withdrawn.
Case I When fixed amount is withdrawn at fixed
intervals
Interest on Drawings = Total Drawings
Rate of Interest Average Period
´ ´
100 12
Value of time under different circumstances will be as under
Case II When unequal amount is withdrawn at irregular intervals

(i) Simple Method
Rate of Interest Months Remaining
Interest on Drawings = Amount of Drawings ´ ´
100 12
Rate of Interest 1
(ii) Product Method Interest on Drawings = Total of Products ´ ´
100 12
8. Accounting Treatment of Interest on Partner’s Loan to the Firm
Interest on partner’s loan is a charge against the profits and not an appropriation out of profits and hence,
must be transferred to the debit of profit and loss account and not to the debit of profit and loss
appropriation account.
9. Accounting Treatment of Salary or Commission to a Partner
Salary or commission to a partner is to be allowed, if the partnership agreement provides for the same.
Salary or commission to a partner is an appropriation out of profits and not a charge against the profits,
i.e., they are to be allowed only if there are profits and hence, must be transferred to the debit of profit and
loss appropriation account and not to the debit of profit and loss account.
Calculation of Commission based on Profit
(i) Commission as Percentage of Net Profit before Charging such Commission
Rate of Commission
= Net Profit before Commission ´
100
(ii) Commission as Percentage of Net Profit after Charging such Commission
Rate of Commission
= Net Profit before Commission ´
100 + Rate of Commission
10. Rent Paid to a Partner
It is a charge against the profits and not an appropriation out of profits. It is therefore debited to profit and
loss account and credited to partners’ current accounts, in case of fixed capitals or to partners’ capital
account, when capitals are fluctuating.
11. Distribution of Profit among Partners: Profit and Loss Appropriation Account
Profit and loss appropriation account is an extension of the profit and loss account. It is prepared to show
appropriation or distribution of net profit among the partners.
Profit and Loss Appropriation Account

Dr for the year ended … Cr
Particulars Amt (`) Particulars Amt (`)
To Interest on Capital A/cs By Net Profit as per Profit and Loss A/c
A … (Net profit subject to appropriations) …
B … … By Interest on Drawings A/c
To Partners’ Salaries A/c … A …
To Partners’ Commission A/c … B … …
To Reserve A/c …
To Profit Transferred to
A’s Capital A/c* (or A’s Current A/c)** …
B’s Capital A/c* (or B’s Current A/c)** … …
… …
* When capitals are fluctuating. ** When capitals are fixed.

Note Students should note that profit and loss appropriation account will never show loss under any situation.
12. Past Adjustments

If after closing the accounts of a partnership firm, some errors or omissions are discovered in the
accounts, e.g. interest on capital or drawings may not have been allowed or charged; charged or allowed at
a higher or lower rate, etc. Then under such circumstances, the accounts once closed are not reopened.
Such errors and omissions are rectified by recording an adjusting entry. Such adjustments are called past
adjustments as they relate to past period.
JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
Gaining Partners’ Capital A/c (Who received excess) Dr
To Sacrificing Partners’ Capital A/c (Who received less)
13. Guarantee of Profits to a Partner

A partner may be admitted into the firm with a guarantee of minimum profits which means that if his
share of profit is less than that of guaranteed profit, then he would be paid the guaranteed share of profit.
The deficiency (difference between guaranteed profit and actual profit) is borne by partner or partners
who have guaranteed the profit in agreed ratio.
14. Goodwill
It is the good name or reputation of a business earned by a businessman through hard work and honesty
which helps it to earn more profits than normal profits.
15. Methods of Valuation of Goodwill

(i) Average Profit Method
(a) Simple average profit method
Value of Goodwill = Average Profit ´ Number of Years’ Purchase
Abnormal and Non - business Items
Profit = Total Actual Profits of Given Number of Years before
Given Number of Years
(b) Weighted average profit method
Value of Goodwill = Weighted Average Profit ´ Number of Years’ Purchase
Total of Products
Weighted Average Profit =
Total of Weights
(ii) Super Profit Method
Value of Goodwill = Super Profit ´ Number of Years’ Purchase
Normal Rate of Return

Normal Profits = Average Capital Employed ´
100
Capital Employed (Net assets) = Total Assets (excluding goodwill) - External Liabilities
Super Profits = Average (Actual) Profits - Normal Profits
(iii) Capitalisation Method
(a) Capitalisation of average profit
Value of Goodwill = Capitalised Value of Average Profits - Actual Capital Employed
100
Capitalised Value of Average Profits = Average profits ´
Actual Capital Employed = Total Assets (excluding goodwill) - External Liabilities
(b) Capitalisation of super profit
100
Goodwill = Super Profits ´
Normal Profits = Average Capital Employed ´
100
Super Profits = Average (Actual) Profits - Normal Profits
Reconstitution of a Partnership Firm :

Change in Profit Sharing Ratio
1. Change in the Profit Sharing Ratio
When one or more partners acquire an intrerest in the business from another existing partner(s), it is said
to be a change in the profit sharing ratio in a partnership firm. A change in the profit sharing ratio among
the existing partners means, it is reconstitution of the firm without admission, retirment or death of a
partner.
2. Treatment of Goodwill
At the time of change in profit sharing ratio, the gaining partner must compensate the sacrificing partner
by way of payment to him as goodwill in the gaining ratio.
Gaining Partners’ Capital*/Current A/c** Dr [In gaining ratio]

To Sacrificing Partners’ [In sacrificing ratio]
Capital*/Current A/c**
Note *Under fluctuating capital method ** Under fixed capital method
3. Treatment of Revaluation of Assets and Liabilities

(i) When revised values are to be recorded in the books of accounts An account titled ‘revaluation
account’ or ‘profit and loss adjustment account’ is opened for this purpose (as is discussed in the
previous chapter admission of a partner).
(ii) When revised values are not to be recorded in the books of accounts In this case, a single adjusting entry
involving the capital accounts of gaining partners and sacrificing partners is passed.
Journal Entries
(i) For profit on revaluation Gaining Partners’ Capital A/c Dr
To Sacrificing Partners’ Capital A/c
(ii) For net loss on revaluation Sacrificing Partners’ Capital A/c Dr

To Gaining Partners’ Capital A/c
10 ACCOUNTANCY Revision Booklet Class X II
4. Treatment of Accumulated Profits, Reserves and Losses

Journal Entries
(i) When these are not required to be shown (a) For transfer of reserves and accumulated profits
in the books of the newfirm Reserves / ProfitLoss A/c Dr
Workmen Compensation Dr
Reserve A/c
Investment Fluctuation Dr
Reserves A/c
To All Partners’
Capital/Current A/c
(b) For transfer of
accumulated losses
All Partners’ Dr
Capital/Current A/c
To Profit and Loss A/c
To Deferred Revenue
Expenditure A/c
(ii) When these are required to be Gaining Partners’ Capital / Current A/c Dr
shown in the books of new firm To Sacrificing Partners’
Capital / Current A/c
Reconstitution of a Partnership Firm:

Admission of a Partner
Admission of a partner is one of the modes of reconstituting the firm under which old partnership comes to an
end and a new one among all partners (including incoming partner) comes into existence.
1. New Profit Sharing Ratio

The ratio in which all the partners (including incoming partner) share the future profits and losses is
known as the new profit sharing ratio.
New Profit Sharing Ratio = Old Share – Sacrificing Share
2. Sacrificing Ratio
The ratio in which old partners agree to sacrifice their share of profit in favour of the new partner is called
the sacrificing ratio.
Sacrificing Ratio = Old Share - New Share
3. Various Cases Related to Treatment of Goodwill
Case I When premium for goodwill is In case a new partner pays premium to the old partners privately or directly or
paid privately by a new partner outside the business, it will not be recorded because it is an out of business
transaction. However entry for capital brought in by new partner will be recorded.
Cash/Bank A/c Dr
To New Partner’s Capital A/c
Case II When premium for goodwill is (a) For bringing premium for goodwill and capital
brought in business by new Cash / Bank A/c Dr
partner and retained in the To New Partner’s Capital A/c
business To Premium for Goodwill A/c
(b) For sharing of premium for goodwill by sacrificing partners

Premium for Goodwill A/c Dr
To Sacrificing Partner’s Capital/Current A/c (In sacrificing ratio)
Case III When premium for goodwill is (a) For assets brought in by new partner
brought in kind Assets A/c Dr
To Premium for Goodwill A/c
To New Partner’s Capital A/c
(b) For giving credit of incoming partner’s share of goodwill to sacrificing

partners
Premium for Goodwill A/c Dr
To Sacrificing Partners’ Capital/Current A/c
Case IV When premium for goodwill is In this case, in addition to the two entries of case II, an entry for drawings will also be
brought in by new partner and is passed as follows
withdrawn by old (sacrificing)
For withdrawing of premium by old (sacrificing) partners
partners fully or partly.
Old (sacrificing) Partner’s Capital/Current A/c (In sacrificing ratio) Dr
To Cash/ Bank A/c
Case V When a new partner brings only (a) First entry will be same in case II.
a part of premium for goodwill in (b) Premium for Goodwill A/c (goodwill brought in cash) Dr
cash
New Partner’s Current A/c (goodwill not brought in cash) Dr
To Sacrificing (Old) Partners’ Capital/Current A/c (in sacrificing ratio)
Case VI When the new partner is unable New Partner’s Current A/c (With the share of new partner in goodwill of the firm) Dr
to bring his share of premium for To Sacrificing (Old) Partners’ Capital/Current A/c (in sacrificing ratio)
goodwill in cash
4. Hidden or Inferred Goodwill

Hidden or inferred goodwill is the excess of desired total capital of the firm over the actual combined
capital of all partners.
Calculation of Hidden Goodwill
A. Net worth (including goodwill) on the basis of capital brought in by incoming partner ´´´
(Incoming partner’s capital ´ Reciprocal of share of incoming partner)
B. (–) Net worth (excluding goodwill of the reconstituted firm including incoming partner’s capital) ´´´
C. Value of goodwill (A – B) ´´´
Net Worth = Total Assets – Total Outside Liabilities

or Net Worth = Total of Adjusted Capitals of all the Partners
5. Accounting Treatment of Reserves, Accumulated Profits/Losses

Journal Entries
(i) For transfer of reserves and Reserves A/c Dr
accumulated profits Profit and Loss A/c Dr
Workmen Compensation Dr (Excess of reserve over actual liability)
Reserve A/c
Investment Fluctuation Dr (Excess of reserve over the difference
Reserve A/c between the book
value and the market value of
investments)
To Old Partner’s Capital or (Old Ratio)
Current A/c (Individually)
(ii) For transfer of accumulated Old Partners’ Capital or Dr (Old Ratio)
losses Current A/c (Individually)
To Profit and Loss A/c
To Deferred Revenue
Expenditure A/c
6. Revaluation of Assets and Reassessment of Liabilities

Revaluation account is a account which is prepared to record changes in the value of assets and liabilities
at the time of admission, retirement, death and change in profit sharing ratio. It is also known as profit and
loss adjustment account.
Dr Revaluation Account Cr
To Decrease in Value of Assets (Loss) .... By Increase in Value of Assets (Profit) ....
To Increase in Value of Liabilities (Loss) .... By Decrease in Value of Liabilities (Profit) ....
To Unrecorded Liabilities (at an agreed value) .... By Unrecorded Assets (at an agreed value) ....
*To Profit Transferred to Old Partners’ .... *By Loss Transferred to Old Partners’ ....
Capital/Current A/c (in old ratio) Capital/Current A/c (in old ratio)
.... ....
*Any one will appear.
7. Adjustment of Capital Step 3 ➙ Calculate the proportionate capital of

(i) Adjusting the Capitals of Old Partners new partner as follows
on the Basis of the Capital of Incoming New Partner’s Capital = Total Capital
Partner ´ Proportion of Share of New Partner
(When the total capital of the new firm is (iii) Determining the New Partner’s Capital on the
not given) Basis of the Total Capital of Firm and also
Step 1 ➙ Calculate total capital of new firm Adjusting the Capitals of the Old Partners in
as under New Profit Sharing Ratio
Total Capital = New Partner’s Steps 1, 2 and 3 are the same as discussed in case 2.
Capital ´ Reciprocal of Proportion
Step 4 ➙ Calculate the new capitals of old
of Share of New Partner
partners with the help of the
Step 2 ➙ Calculate the new capitals of old
following formula:
partners by dividing the total
Total Capital ´ New Share of Old
capital in their new profit sharing
ratio. Partner
Step 3 ➙ Calculate the adjusted old capitals Step 5 ➙ Calculate the actual cash to be paid
of old partners off or brought in by old partners by
Step 4 ➙ Calculate the surplus/deficiency comparing their new capitals with
in each of the old partner’s capital adjusted old capitals.
account by comparing the new (iv) When Total Capital of the New Firm is Given
capital with adjusted old capital. Step 1 ➙ Find out the adjusted capitals of the
(i.e. New capital – Adjusted old old partners.
capital).
Step 2 ➙ Calculate the capital of all the
(ii) Determining the New Partner’s Capital on the
partners with the help of the
Basis of Total Capital of the Firm
following formula
Step 1 ➙ Calculate the adjusted old capitals of Capital given ´ Partners share
old partners Step 3 ➙ Calculate surplus/deficiency of old
Step 2 ➙ Calculate the total capital of new firm partners by comparing their adjusted
as follows capitals with computed capitals.
Total Capital = Combined Adjusted Step 4 ➙ Adjust the surplus/deficiency
Old Capitals of Old Partners through cash or current accounts (as
´ Reciprocal of Proportion of Share given in the question). If the question
of Old Partners is silent then adjustments should be
made through cash.
Reconstitution of a Partnership Firm:

Retirement/Death of a Partner
Retirement of a partner means retiring from the firm, re-assessment of liabilities etc., the excess will be
i.e. ceasing to be a partner of the firm. Retirement of treated as his share of goodwill.
a partner is one of the modes of reconstituting the
firm under which an old partnership comes to an end
6. Revaluation of Assets and
and a new one between the continuing partners (i.e. Re-assessment of Liabilities
partners other than the outgoing partner) comes into Accounting Treatment Revaluation account is to
existence, however, the firm continues its business. be prepared in the same manner as in the case of
admission of a partner.)
1. New Profit Sharing Ratio
After retirement of a partner, the new ratio in 7. Adjustment for Reserves and
which the continuing partners (i.e. partners Accumulated Profits/Losses
other than an outgoing partner) decides to
Accounting treatment of reserves and
share the future profits and losses, is known as
accumulated profits/losses is same as in the case
new profit sharing ratio. of admission of a partner with the exception that
New Share = Old Share + Acquired Gaining Share any reserves and accumulated profits/losses
2. Gaining Ratio appearing in the balance sheet is distributed
The ratio in which the continuing partners among all the partners in their old profit sharing
acquire the outgoing (retired or deceased) ratio.
partners’ share is called as gaining ratio. 8. Computation of Amount Due to the
Gaining Ratio = New Share - Old Share Retiring Partner
3. Treatment of Goodwill The amount due to a retiring partner is
ascertained by preparing retiring partners’ capital
At the time of retirement or death of a partner, account.
retiring partner’s share of profits is taken by the
continuing partners. 9. Settlement of the Amount Due to the
So, the continuing partners should compensate Retiring Partner
the retiring or deceased partner for this. Accounting Treatment
The compensation paid is known as goodwill.
(i) If the amount is Retiring Partners’ Capital A/c Dr
Journal entry paid in lumpsum To Cash/ Bank A/c
Gaining Partners’ Capital/Current A/c Dr (Continuing partners
(ii) In case the (a) For amount due transferred to
in gaining ratio)
amount is paid retiring partners’ loan account
To Outgoing/SacrificingPartners’ (Retiring partners)
in instalments Retiring Partners’ Capital A/c Dr
Capital/Current A/c
To Retiring Partners’ Loan A/c
4. Goodwill Already Appearing in (b) On interest being provided
Books Interest on Loan A/c Dr
Journal entry To Retiring Partners’ Loan A/c
All Partners’ Capital/Current A/c (Continuing partners in (c) On payment of instalment with
Dr gaining ratio) interest
To Goodwill A/c (Retiring Partner) Retiring Partners’ Loan A/c Dr
Cash/Bank A/c
5. Hidden Goodwill (iii) If payment is Retiring Partners’ Capital A/c Dr
Sometimes the firm agrees to settle the retiring partly paid in To Cash/ Bank A/c
or deceased partners’ account by payment of a cash and the
To Retiring Partners’ Loan A/c
remaining
lumpsum amount.
amount is to be
If such amount is in excess of his capital and treated as loan
share in reserves/ revaluation of assets and
14 ACCOUNTANCY Revision Booklet Class X II
10. Adjustment of Capital The deceased partner’s executor’s are entitled to

Case I When the total capital of the new firm is get his share in the firm, as per the provision of
given the partnership agreement. His share in the firm
is calculated in the same manner as in the case
Step 1 Calculate the adjusted old capitals of
of a retiring partner.
continuing partners (i.e. after all other
adjustment). 12. Ascertainment of the Amount Due to
Step 2 Calculate the new capitals of continuing the Deceased Partner
partners. It is calculated in the same way as in the case of
New Capital of Continuing Patners = retirement of a partner.
Total Capital of New Firm ´ New Profit
13. Ascertainment of the Share of the
Sharing Ratio
Deceased Partner
Step 3 Calculate the surplus/deficit capital by
comparing Step 2 and 3. Balance in the capital account of a deceased
partner is transferred to his executors’ account.
Case II When the total capital of the new firm is
not given Deceased Partner’s Capital A/c Dr
To Deceased Partner’s Executors A/c
Step 1 Calculate the adjusted old capitals of
continuing partners after all other
adjustments.
14. Accounting Treatment of Deceased
Partners’ Share in Profits
Step 2 Calculate total capital of the new firm.
(i) Through Profit and Loss Suspense Account
Step 3 Calculate the new capitals of the
continuing partners. (a) In case of profit Profit and Loss Suspense A/c Dr
Step 4 Calculate the surplus/deficit capital by To Deceased Partner’s Capital
A/c
comparing Step 2 and 3.
Note In this case, profit and loss suspense account will
Case III When the outgoing partner is to be paid
appear on the assets side of the balance sheet.
through cash brought by the continuing
partners in such a way as to make their (b) In case of loss Deceased Partner’s Capital A/c Dr
capitals proportionate to their new profit To Profit and Loss Suspense
sharing ratio A/c
Step 1 Calculate the adjusted old capital of Note In this case, profit and loss suspense account
continuing partners after all other will appear on the liabilities side of the
adjustment. balance sheet.
Step 2 Calculate total capital of the new firm. (ii) Through Capital Transfer
Step 3 Calculate the new capital of continuing (a) In case Gaining Partners’ Capital Dr [Gaining ratio]
partners of profit A/c
To Deceased Partner’s Capital [Share of profit]
11. Death of a Partner A/c
The partnership comes to an end immediately, (b) In case Deceased Partner’s Dr [Share of loss]
whenever a partner dies although the firm may of loss Capital A/c
continue with the remaining partners. To Gaining Partners’ [Gaining ratio]
Capital A/c
15. Settlement of Deceased Partners’ Executor Account

(i) If payment is made infull/ lumpsum Deceased Partner’s Executor’s A/c Dr
To Cash/ Bank A/c
(ii) If payment is made in instalment (a) Deceased Partner’s Executor’s A/c Dr

To Deceased Partner’s Executor’s Loan A/c
(b) Interest A/c Dr
To Deceased Partner’s Executor Loan A/c
(c) Deceased Partner’s Executor Loan A/c Dr
To Cash/Bank A/c
Dissolution of a Partnership Firm

1. Meaning of Dissolution Dissolution means breaking up or extinction, i.e. discontinuance of existing
relationship among the partners. Under the Indian Partnership Act 1932, the dissolution may be either
of partnership or of a firm.
2. Dissolution of Partnership It refers to the change in the existing relationship between partners
but the firm may continue its business as before.
3. Dissolution of a Firm Dissolution of the firm means dissolution of partnership among all the
partners’ in the firm. In such a case, the business of the firm also comes to an end.
4. Accounting Treatment on Dissolution Realisation Account Realisation account is opened
on the dissolution of a firm. It is a nominal account. It is prepared to determine the profit or loss on
the realisation of assets and payment of liabilities.
(i) Realisation Account
Dr Realisation Account Cr
To Sundry Assets A/c {Excluding cash, bank, … By Sundry Liabilities A/c …

fictitious asset, accumulated losses, debit {Excluding partners’ capital, loan from partner(s),
balance of partners’ capital/current A/c, loans to reserve, accumulated profit, etc.}
partner(s)} By Provision on any Assets A/c
To Bank/Cash A/c … …
By Bank/Cash A/c
(Amount paid for discharging liabilities) (Amount received on realisation of assets) …
To Bank/Cash A/c …
By Bank/Cash A/c
(Expenses on realisation) … (Amount received from unrecorded assets) …
To Partners’ Capital/Current A/c (Liability
By Partner’s Capital A/c …
taken over by a partner or remuneration/
(Assets taken over by a partner recorded or
commission paid to him or any expenses
unrecorded)
beared by him) … …
*By Partners’ Capital/Current A/c (Loss on realisation)
*To Partners’ Capital/Current A/c
(Profit on realisation)
… …
*Any one of two amounts will appear.

(ii) Partners’ Capital Account

Particulars X (`) Y (`) Particulars X (`) Y (`)
To Balance b/d (Debit balance) … … By Balance b/d (Credit balance) … …
To Profit and Loss A/c … … By General Reserve A/c … …
To Advertisement Expenditure A/c … … By Profit and Loss A/c … …
To Realisation A/c (Assets taken over) … … By Workmen’s Compensation Fund A/c … …
To Realisation A/c (Loss on realisation) … … By Realisation A/c (Liabilities taken over) … …
To Cash/Bank A/c (Excess cash paid) … … By Realisation A/c (Profit on realisation) … …
By Cash/Bank A/c (Cash brought in) … …
… … … …
(iii) Partners’ Loan Account If any loan is advanced by a partner to the firm, it will be paid only after all
outside liabilities are paid in full. The following journal entry is passed:
Partner’s Loan A/c Dr
To Cash/Bank A/c
(iv) Cash/Bank Account

Dr Cash/Bank Account Cr
To Balance b/d (Cash in hand or cash at bank) … By Balance b/d (Bank overdraft) …
To Realisation A/c (Assets realised) … By Realisation A/c (Liabilities paid) …
To Partner’s Capital A/c (Cash brought in by a … By Realisation A/c (Realisation expenses paid) …
partner)
By Partner’s Loan A/c (Partner’s loan paid) …
By Partner’s Capital A/c (Excess cash paid to …
partner)
… …
5. Preparation of Memorandum Balance Sheet

If a balance sheet, on the date of dissolution, is not given in the question, then it is always advisable to
prepare memorandum balance sheet on the date of dissolution to ascertain the amount of balancing
figure.
Accounting for Share Capital

1. Share
According to Section 2(84) of the Companies Act, 2013, “Share means a share in the capital of a company
and includes stock.” The capital of a company is divided into small units. Each of these small units is
called a share. Each share has a nominal value or face value which may be ` 1 or ` 2 or ` 5 or ` 10 or any
amount.
2. Share Capital
It is the amount that a company can raise or has raised by issue of shares. It is that part of the capital of a
company which is represented by the total nominal value of shares, which it has issued.
3. Classification of Share Capital
(i) Authorised share capital (ii) Issued capital
(iii) Subscribed capital : (a) Subscribed and fully paid-up (b) Subscribed but not fully paid-up
4. Reserve Capital
It is that portion of uncalled share capital which shall not be capable of being called-up except in the
event and for the purposes of the company being wound up.
5. Capital Reserve
It is the reserve which is not readily available for distribution as dividend. It is mandatory to create capital
reserve in case of capital profits earned by the company. Reserves which are created out of capital profits
and are not readily available for distribution as dividend among the shareholders.
e.g. premium on issue of shares or debentures, profits on re-issue of shares, profits prior to incorporation,
premium on redemption of debentures etc.
6. Classes or Kinds of Shares
Shares are mainly classified into two categories: (i) Preference shares (ii) Equity shares
7. Presentation of Share Capital in Company’s Balance Sheet
As per Schedule III of Companies Act, 2013, share capital is to be disclosed in a company’s balance sheet
on equity and liabilities part under the head shareholders’ funds.
8. Terms of Issue of Shares
(i) Issue of shares at par (ii) Issue of shares at premium (iii) Issue of shares at discount
9. Accounting Treatment for Issue of Shares for Cash
I. Shares Payable in Lumpsum Shares are said to have been
issued against lumpsum payment when amount is payable in one instalment.
(i) For receiving share application money Bank A/c Dr
To Share Application
and Allotment A/c
(ii) For allotment of shares At par

Share Application Dr
and Allotment A/c
To Share Capital A/c
At premium
Share Application and Allotment A/c Dr
(With the face value of shares)
To Securities Premium Reserve A/c
(With the amount of premium)
II. Shares Payable in Instalments

(i) On receipt of Bank A/c Dr (With application money received)
application money To Share Application A/c (Number of shares applied ´ Application
money per share)
(ii) On allotment Share Application A/c Dr (With application money due on shares
of shares To Share Capital A/c allotted)
(Number of shares allotted ´ Application
money per share)
(iii) On making allotment (a) At par
money due Share Allotment A/c Dr (With allotment money due)
To Share Capital A/c (Number of shares allotted ´ Allotment
money per share)
(b) At premium
Share Allotment A/c Dr (With total)
To Share Capital A/c (With allotment money due)
To Securities Premium Reserve A/c (With premium money due)
(iv) On receipt of Bank A/c Dr (With allotment money received)

allotment money To Share Allotment A/c
(v) On making the first Share First Call A/c Dr (With first call money due)
call due To Share Capital A/c (Number of shares allotted ´ First call
money per share)
(vi) On receipt of the Bank A/c Dr (With first call money received)
first call To Share First Call A/c
10. Over Subscription of Shares

When the number of shares applied for, is more than the number of shares offered for subscription, the
shares are said to be oversubscribed. Allotment of shares cannot be made to all the applicants in full. In
case of oversubscription, following three alternatives are available:
(i) Rejection of applications (ii) Partial or pro-rata allotment
(iii) Combination of pro-rata allotment and rejection
11. Undersubscription of Shares

When the number of shares applied for, is less than the number of shares offered to the public, the shares
are said to be undersubscribed.
12. Calls-in-Arrears
When one or more shareholders fail to pay his dues at the time of allotment or call, it is technically called
calls-in-arrears. Table F of the Companies Act, 2013 provides for the payment of interest on
calls-in-arrears at a rate not exceeding 10% per annum.
Bank A/c Dr
To Interest on Calls-in-arrears A/c
13. Calls-in-Advance
The part of the whole amount received from the shareholders before the call is made, is called
calls-in-advance. This amount is shown on the liabilities side of the balance sheet as a separate item
under the head ‘share capital’ but is not added to the amount of paid-up capital. Table F of the Companies
Act, 2013 provides for the payment of interest on calls-in-advance at a rate not exceeding 12% per annum.
Interest on Calls-in-advance A/c Dr
To Bank A/c
14. Issue of Shares for Consideration other than Cash (Issue of Shares to Vendors)
(i) Issue of shares (a) When assets are purchased
to vendors Assets A/c (individually) Dr
To Vendor
(b) When business is purchased
Sundry Assets A/c Dr
Goodwill A/c* Dr
To Sundry Liabilities A/c
To Vendor
To Capital Reserve A/c*
(ii) On issue of (a) At par
shares Vendor Dr
(b) At premium
To Share Capital A/c Dr
15. Forfeiture of Shares

It means cancellation of shares for non-payment of allotment or calls due and seizure of the amount
received from the defaulting shareholders whose shares have been forfeited.
Accounting Treatment
(i) Forfeiture of shares Share Capital A/c Dr (Called-up value)
which were issued at par To Share Allotment A/c (Amount not received)
To Share Call A/c (Amount not received)
To Share Forfeiture A/c (Amount received)
(ii) Forfeiture of shares which (a) If premium has been received
were originally issued at Share Capital A/c Dr (Amount called-up less premium)
premium To Share Allotment A/c (Amount not received)
To Share Forfeiture A/c (Amount received, so far excluding
securities premium reserve)
(b) If premium has not been received
Share Capital A/c Dr (Amount called-up, so far less premium)
Securities Premium Reserve A/c Dr (Premium not received)
To Share Allotment A/c (Amount not received)
To Share Forfeiture A/c (Amount received)
16. Re-issue of Forfeited Shares

The directors can either cancel or reissue the forfeited shares. Shares forfeited can be re-issued at par,
at premium or at a discount.
Accounting Treatment
(i) At par Bank A/c Dr
(ii) At discount Bank A/c Dr (With the amount received on re-issue)
Share Forfeiture A/c Dr (With the discount allowed on re-issue)
To Share Capital A/c (With the amount credited as paid-up)
(iii) At premium Bank A/c Dr
Transfer of Balance in the Forfeited Shares Account

Share Forfeiture A/c Dr
To Capital Reserve A/c
17. Employee Stock Option Plan (ESOP)

It is a plan where an option is given by the company to its whole time directors, officers and employees to
purchase or acquire at a future date a specified number of shares at a pre-determined price, which is
usually lower than the market price.
Journal Entries
(a) At the time of Employees Compensation Expenses A/c Dr (With the expense i.e. difference between the
accounting the market price and exercise price, over the
To Share Options Outstanding A/c
expenses vesting period)
Note The above entry is passed for each year of the vesting period.
(b) At the time of When all the employees exercise the option in full
option being Bank A/c Dr
exercised by Shares Options Outstanding A/c Dr [With the amount received]
the employee [With the amount credited to shares options
outstanding account]
To Share Capital A/c [With the nominal value of share]
To Securities Premium Reserve A/c [With the balance amount]
When all the employees have not excercised the
options and the options have expired
Bank A/c Dr [With the amount received]
Shares Options Outstanding A/c Dr [With the amount credited to shares options
outstanding account]
To Share Capital A/c [With the nominal value of share]
To Securities Premium Reserve A/c [With the amount out of shares options
outstanding account relating to options that
have been exercised]
To General Reserve A/c [With the amount out of shares options
outstanding account relating to options that
have not been exercised, i.e., lapsed]
(c) On Transfer of Statement of Profit and Loss Dr
Employee
To Employees Compensation
Compensation
Expenses Expenses A/c
18. Private Placement of Shares

It means issue and allotment of shares to a selected group of persons privately and not to public in
general. It is generally made by private or unlisted companies. When a company issues shares through
private placement route a special resolution to this effect should be passed. All SEBI guidelines
concerning preferential issue are applicable to private placement of shares as well.
Issue and Redemption of Debentures

1. Debenture
It is an instrument acknowledging a debt issued under the common seal of the company. It specifies
nominal/ par value of debenture, the rate of interest to be paid, periodicity of payment, the tenure of
debentures and terms of redemption.
2. Bond
It is also an instrument of acknowledgement of debt. It is similar to debenture in terms of contents and
texture. However, bonds can be issued without predetermined rate of interest.
3. Issue of Debentures for Cash

Debentures whether issued for cash or otherwise may be issued at par, at premium or at discount.
Note Debentures can be issued at a discount. However, shares cannot be issued at discount, except sweat equity shares.
Accounting Treatment of Issue of Debentures for Cash

(i) On receipt of applications Bank A/c Dr [With the application money received]
To Debenture Application A/c
(ii) (a) On acceptance of Debenture Application A/c Dr [With the amount of application money on the
applications To Debentures A/c allotted debentures]
(b) On making allotment ■ At par

money due [With the amount due on allotment of the
Debenture Allotment A/c Dr
debentures]
To X% Debentures A/c
■ At premium
Debenture Allotment A/c Dr [With the money due on allotment]
To X% Debentures A/c [With the nominal value of debentures due at the
To Securities Premium Reserve A/c time of allotment]
[With the premium money received]
■ At discount
Debenture Allotment A/c Dr [With the amount due on allotment]
Discount on Issue of Debentures A/c Dr [With the amount of discount]
[With the face value]
(c) On adjustment of excess Debenture Application A/c Dr [With the surplus application money on
debenture application To Debenture Allotment A/c partially accepted applications]
money
(d) On refund of excess Debenture Application A/c Dr [With the application money on rejected
debenture To Bank A/c applications]
application money
(e) On receipt of allotment Bank A/c Dr [With the amount actually received on
money To Debenture Allotment A/c allotment]
(iii) (a) On making calls Debenture Call A/c Dr [With the money due on a particular call]
To Debentures A/c
(b) On receipt of call money Bank A/c Dr [With the amount received on a particular call]
To Debenture Call A/c
4. Issue of Debentures for Consideration other than Cash

(i) Issue of debentures to vendors
On purchase of assets or business ■ When assets are purchased
To Vendor’s A/c
■When business is purchased
Goodwill A/c* Dr
To Sundry Liabilities A/c
To Vendor’s A/c
To Capital Reserve A/c*
*Either of the two will appear
On issue of debentures ■ When debentures are issued at par

Vendor’s A/c Dr
To Debentures A/c
■ When debentures are issued at premium
Vendor’s A/c Dr
To Debentures A/c
■ When debenture are issued at discount
Vendor’s A/c Dr
Discount on Issue of Debentures A/c Dr
To Debentures A/c
5. Issue of Debentures as Collateral Security

When a company takes a loan, it may provide primary security on its assets. However, the lending
institution may insist on some more assets as secondary or collateral security. In such a situation, the
company may issue debentures to the lender as secondary or collateral security such an issue of
debentures is known as ‘debentures issued as collateral security’. Debentures issued as collateral security
can be dealt in two ways, first by passing a journal entry and second, without passing journal entry. It is
shown in the note in which the loan secured by debenture is shown.
6. Interest on Debentures
(i) When interest is due Debentures Interest A/c Dr [With gross interest]
To Debentureholders’ A/c [With net interest]
To Income Tax Payable A/c [With income tax deducted]
(ii) When interest is paid Debentureholders’ A/c Dr [With net interest]
To Bank or Cash A/c
(iii) On payment of income Income Tax Payable A/c Dr [With the amount of income tax
tax to government To Bank A/c deduction at source]
Note Interest is not payable on debentures issued as collateral security.
7. Various Cases from the Point of View of Redemption

(i) When debentures are issued at par and redeemable at par, (a) Bank A/c Dr
i.e. redeemable value is equal to the face value To Debenture Application A/c
(b) Debenture Application A/c Dr
(ii) When debentures are issued at par and redeemable at (a) Bank A/c Dr
premium, i.e. in excess of nominal value To Debenture Application A/c
Loss on Issue of Debentures A/c Dr
To Premium on Remeption of Debentures A/c
(iii) When debentures are issued at a discount and are (a) Bank A/c Dr
redeemable at par To Debenture Application A/c
(iv) When debentures are issued at a discount and are (a) Bank A/c Dr
redeemable at premium To Debenture Application A/c
To Premium on Redemption of Debentures A/c
(v) When debentures are issued (a) Bank A/c Dr
at a premium and redeemable To Debenture Application A/c
at par (b) Debenture Application A/c Dr
(vi) When debentures are issued at a premium and are (a) Bank A/c Dr
redeemable at premium To Debenture Application A/c
To Premium on Redemption of Debentures A/c
8. Redemption of Debentures
Redemption of debentures refers to extinguishing or discharging the liability on account of debentures in
accordance with the terms of issue. In other words, redemption of debentures means repaying or
returning the amount of debentures to the debentureholders after the period for which they were issued.
9. Sources of Redemption of Debentures
The debentures may be redeemed:
(i) Out of capital (ii) Out of profits
(iii) By converting them into shares or new debentures
10. Debenture Redemption Reserve (DRR)

As per the guidelines issued by SEBI, an amount equal to 25% of the debentures issued must be
transferred to debenture redemption reserve, before redemption starts, if such redemption is out of
profits. Further, Every company required to create/maintain DRR shall on or before the 30th April of each
year, deposit or invest, as the case may be, a sum atleast equal to 15% of the amount of its debentures
maturing during the year ending on 31st March next year in specified securities.
11. Methods of Redemption of Debentures

I. Redemption of Debentures in Lumpsum on Maturity
Transaction Entry Amount
(a) On creation of debenture Surplus, i.e. Balance in Statement of Profit and Loss Dr
redemption reserve To Debenture Redemption Reserve A/c
(b) On investment or deposit being Debenture Redemption Investment A/c Dr

made in specified securities To Bank A/c
(c) On the amount being due to ¡ If the debentures are to be redeemed at par
debentureholders on redemption X% Debentures A/c Dr [With nominal
To Debentureholders’ A/c value]
¡ If the debentures are to be redeemed at a premium
X% Debentures A/c Dr [With nominal
Premium on Redemption of Debentures A/c Dr value]
To Debentureholders’ A/c [With premium
payable]
[With total]
(d) On encashing investment Bank A/c Dr [With the amount

To Debenture Redemption Investment A/c paid]
(e) On payment to debentureholders Debentureholders’ A/c Dr [With the amount

To Bank A/c paid]
(f) When all debentures are Debenture Redemption Reserve A/c Dr [With the amount
redeemed To General Reserve A/c of DRR]
II. Redemption of Debentures in Instalments by Draw of Lots

In this method, the company may redeem its debentures in instalments beginning from a particular
year, i.e. by payment in each year of a certain portion, the actual debentures to be redeemed are
selected usually by draw of lots. The holders are repaid the amount at par or at a premium as per the
terms of issue. The journal entries required to be passed are the same as discussed when debentures
are repayable in lumpsum.
Note DRR must be created before commencing redemption of debentures under this method also.
Financial Statements of a Company

1. Meaning of Financial Statements
Financial statements are the final products of an accounting process which begins with the identification
of accounting information and recording it in the books of primary entry.
Financial statements are prepared following the accounting concepts and principles. Financial statements
are historical in nature.
A set of financial statements include
(i) Balance sheet (ii) Statement of profit and loss (iii) Notes to accounts
2. Balance Sheet
It may be defined as a statement of assets and liabilities of the company at a particular date.
Format of Balance Sheet The form of the balance sheet is prescribed in Part I of Schedule III of the
Companies Act, 2013.
The form prescribed under Schedule III of the Companies Act, 2013 is as follows
Balance Sheet
as at … (` in.......)
Note Figures as at the End of Figures as at the End of the
Particulars
No. Current Reporting Period Previous Reporting Period
I. EQUITY AND LIABILITIES

1. Shareholders’ Funds
(a) Share Capital … …
(b) Reserves and Surplus … …
2. Non-current Liabilities
(a) Long-term Borrowings … …
(b) Long-term Provisions … …
3. Current Liabilities
(a) Short-term Borrowings … …
(b) Trade Payables … …
(c) Other Current Liabilities … …
(d) Short-term Provisions … …
Total … …
II. ASSETS
1. Non-current Assets
(a) Fixed Assets … …
(i) Tangible Assets … …
(ii) Intangible Assets … …
(b) Non-current Investments … …
(c) Long-term Loans and Advances … …
(d) Other Non-current Assets … …
2. Current Assets
(a) Current Investments … …
(b) Inventories … …
(c) Trade Receivables … …
(d) Cash and Cash Equivalents … …
(e) Short-term Loans and Advances … …
(f) Other Current Assets
Total … …
3. Statement of Profit and Loss

Statement of profit and loss shows the net result of business operations, i.e. financial performance during
an accounting period.
The vertical form for preparing statement of profit and loss is prescribed under Schedule III, Part II of the
Companies Act, 2013.
Format of Statement of Profit and Loss
The format of statement of profit and loss as specified in Schedule III is as follows:
Note Figures for the Current Figures for the Previous
Particulars
No. Reporting Period (`) Reporting Period (`)
I. Revenue from Operations ... ...
II. Other Income ... ...
III. Total Revenue (I + II) ... ...
IV. Expenses
Cost of Materials Consumed ... ...
Purchases of Stock-in-trade
Changes in Inventories of Finished Goods … …
Work-in-progress and Stock-in-trade ... ...
Employees Benefits Expenses ... ...
Finance Costs ... ...
Depreciation and Amortisation Expenses ... ...
Other Expenses ... ...
Total Expenses … …
V. Profit before Tax (III – IV) ... ...
VI. Tax Expenses
1. Current tax ... ...
2. Deferred tax ... ...
VII. Profit after Tax (V – VI) ... ...
Financial Statement Analysis

1. Meaning of Financial Statement Analysis
The process of critical evaluation of the financial information contained in the financial statements, in
order to understand and make decisions regarding the operations of the firm, is called financial statement
analysis.
2. Comparative Statements
(i) Comparative Statement of Profit and Loss
Comparative Statement of Profit and Loss
for the years ended …
Previous Year Current Year Absolute Change Percentage Change
Particulars
(`) (`) (Increase or Decrease) (`) (Increase or Decrease) (%)
I. Revenue from Operations … … … …
II. Other Income … … … …
III. Total Revenue (I + II) … … … …
IV. Expenses
Cost of Materials Consumed … … … …
Purchases of Stock-in-Trade … … … …
Changes in Inventories of
Finished Goods, … … … …
Work-in-progress and
Stock-in-trade
Employees Benefit Expenses … … … …

Particulars
(`) (`) (Increase or Decrease) (`) (Increase or Decrease) (%)
Finance Cost … … … …
Depreciation and Amortisation … … … …
Other Expenses … … … …
Total Expenses … … … …
V. Profit before Tax (III – IV) … … … …
(-) Income Tax … … … …
VI. Profit after Tax … … … …
(ii) Comparative Balance Sheet

Comparative Balance Sheet
as at …
Particulars
(`) (`) (Increase or Decrease) (`) (Increase or Decrease)%

(a) Share Capital
(i) Equity Share Capital … … … …
(ii) Preference Share … … … …
Capital
(b) Reserves and Surplus … … … …
(a) Long-term Borrowings … … … …
(b) Long-term Provisions … … … …
(a) Short-term Borrowings … … … …
(b) Trade Payables … … … …
(c) Other Current Liabilities … … … …
(d) Short-term Provisions … … … …
Total … … … …
II. ASSETS
(a) Fixed Assets
(i) Tangible Assets … … … …
(ii) Intangible Assets … … … …
(b) Non-current Investments … … … …
(c) Long-term Loans and … … … …
Advances
2. Current Assets
(a) Current Investments … … … …
(b) Inventories … … … …
(c) Trade Receivables … … … …
(d) Cash and Cash … … … …
Equivalents
(e) Short-term Loans and … … … …
Advances
(f) Other Current Assets … … … …
Total … … … …
3. Common Size Statements

(i) Common Size Statement of Profit and Loss
for the years ended …
Percentage of Revenue
Absolute Amounts
from Operation (Net Sales)
Particulars
Previous Year Current Year Previous Year Current Year
(`) (`) (%) (%)
I. Revenue from Operations (Net Sales) … … … r…
II. Other Income … … … …
III. Total Revenue (I + II) … … … …
IV. Expenses
(a) Cost of Materials Consumed … … … …
(b) Purchases of Stock-in-Trade … … … …
(c) Changes in Inventories of Finished Goods … … … …
Work-in-progress and Stock-in-trade
(d) Employess Benefit Expenses … … … …
(e) Finance Cost … … … …
(f) Depreciation and Amortisation … … … …
(g) Other Expenses … … … …
Total Expenses … … … …
V. Profit before Tax (III – IV) … … … …
VI. (–) Income Tax … … … …
VII. Profit after Tax … … … …
(ii) Common Size Balance Sheet

as at …
Percentage of
Absolute Amounts
Balance Sheet Total
Particulars Previous Year Current Year Previous Year Current Year
(`) (`) (%) (%)
(a) Share Capital … … … …
(b) Reserves and Surplus … … … …
(a) Long-term Borrowingss … … … …
(b) Long-term Provisions … … … …
(a) Short-term Borrowings … … … …
(b) Trade Pbayables … … … …
(c) Other Current Liabilities … … … …
(d) Short-term Provisions … … … …
Total … … 100 100
II. ASSETS
(a) Fixed Assets
(b) Non-current Investments … … … …
(c) Long-term Loans and Advances … … … …
2. Current Assets
(a) Current Investments … … … …
(b) Inventories … … … …
(c) Trade Receivables … … … …
(d) Cash and Cash Equivalents … … … …
(e) Short-term Loans and Advances … … … …
(f) Other Current Assets … … … …
Total … … 100 100
Accounting Ratios
1. Ratio Analysis It is a technique which involves regrouping of data by application of arithmetical relationships.
It is the most important and powerful tool for measuring performance of a business enterprises.
Classification of Ratios
Ratio Formula
Liquidity Ratios
Current Ratio Current assets
1. =…:…
Current liabilities
Liquid Ratio/ Acid Test Ratio/ Quick Ratio Quick assets or liquid assets
2. =…:…
Current liabilities
Solvency Ratios
Debt Equity Ratio Debt
1. =…:…
Equity (Shareholders' funds)
Total Assets to Debt Ratio Total assets
2. =…:…
Long - term debts
Proprietary Ratio Shareholders' funds or proprietors' funds
3. = …%
Total assets
Interest Coverage Ratio Net profit before interest and tax
4. = …times
Interest on long - term debt
Activity Ratios/Turnover Ratios

1. Inventory (Stock) Turnover Ratio Cost of revenue from operations
= ... times
Average inventory
2. Trade Receivables or Debtors Turnover Ratio Credit revenue from operations
= ... times
Average trade receivables
3. Trade Payables or Creditors' Turnover Ratio Net credit purchases

= … times
Average trade payables
4. Working Capital Turnover Ratio Revenue from operations
= … times
Working capital
Profitability Ratios
1. Gross Profit Ratio Gross profit
´ 100 = …%
Revenue from operations
2. Operating Ratio Cost of revenue from operations + Operating expenses

´ 100 = …%
3. Operating Profit Ratio Operating profit
´ 100 = …%
4. Net Profit Ratio Net profit before

Interest and tax
= ´ 100 = …%
5. Return on Investment or Return on Capital Employed Net profit before Interest

Tax and preference dividend
= ´ 100 = …%
Capital employed
Cash Flow Statement

Cash flow statement is a statement showing the changes in financial position of a business concern during
different intervals of time in terms of cash and cash equivalents.
Format of Cash Flow Statement

Cash Flow Statement
for the year ending ...
Particulars Amt (`)
I. Cash Flow from Operating Activities

Net Profit before Taxation and Extraordinary Items ...
Adjustment for Non-cash and Non-operating Items
(+) Items to be Added
Depreciation ...
Increase in Provision for Doubtful Debts ...
Goodwill, Patents and Trademarks Amortised ...
Interest on Borrowings and Debentures ...
Loss on Sale of Fixed Assets ... ...
(–) Items to be Deducted

Interest/Dividend/Rental Income (...)
Profit on Sale of Fixed Assets (...) (...)
Operating Profit before Working Capital Changes ...

( + ) Decrease in Current Assets and Increase in Current Liabilities ...
( - ) Increase in Current Assets and Decrease in Current Liabilities (...)
Cash Generated from Operations ...
( - ) Income Tax Paid (Net of tax refund received) (...)
Net Cash from (or used in) Operating Activities ...
II. Cash Flow from Investing Activities

Proceeds from Sale of Fixed Assets/Investments/Intangible Assets ...
Interest and Dividend Received (For non-financial companies only) ...
Rental Income ...
Purchase of Fixed Assets/Investments/Intangible Assets (...)
Net Cash from (or used in) Investing Activities ...
III. Cash Flow from Financing Activities

Proceeds from Issue of Shares and Debentures/Other Long-term Borrowings ...
Final/Interim Dividend Paid (...)
Interest on Debentures and Loans Paid (...)
Repayment of Loans (...)
Particulars Amt (`)
Redemption of Debentures/Preference Shares (...)

Share Issue Expenses (...)
Net Cash from (or used in) Financing Activities ...
IV. Net Increase/Decrease in Cash and Cash Equivalents (I + II + III) ...

V. ( + ) Cash and Cash Equivalents in the Beginning of the Year
Cash in Hand and Cash in Bank ...
Short-term Ddeposits ...
Marketable Securities ... ...
VI. Cash and Cash Equivalents at the End of the Year
Cash in Hand and Cash at Bank ...
Short-term Deposits ...
Marketable Securities ... ...
...

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ACCOUNTANCY Revision Booklet Class XII 1

To Balance b/d (Opening balance) By Balance b/d (Opening) ...

Cash at Bank ... Revenue Payments

Revenue Receipts By Salaries ...

Receipts Amt (`) Payments Amt (`)

To Receipts on Account of Special Fund, Cash in Hand ...

(ii) Income and Expenditure Account

*Either of the two will appear.

(iii) Balance Sheet

3. Fund Based Accounting

5. Some Peculiar Items deceased person is termed as legacy. It is

Accounting for Partnership Firms : Fundamentals

Dr Partners’ Capital Account Cr

Dr Partners’ Current Account Cr

*Any one will appear. **Any one will appear

*Any one will appear. **Any one will appear

6. Different Cases Related to Interest on Capital

Case II When unequal amount is withdrawn at irregular intervals

Profit and Loss Appropriation Account

* When capitals are fluctuating. ** When capitals are fixed.

12. Past Adjustments

13. Guarantee of Profits to a Partner

15. Methods of Valuation of Goodwill

Normal Rate of Return

Reconstitution of a Partnership Firm :

Gaining Partners’ Capital*/Current A/c** Dr [In gaining ratio]

Note *Under fluctuating capital method ** Under fixed capital method

3. Treatment of Revaluation of Assets and Liabilities

(ii) For net loss on revaluation Sacrificing Partners’ Capital A/c Dr

4. Treatment of Accumulated Profits, Reserves and Losses

Reconstitution of a Partnership Firm:

1. New Profit Sharing Ratio

(b) For sharing of premium for goodwill by sacrificing partners

(b) For giving credit of incoming partner’s share of goodwill to sacrificing

4. Hidden or Inferred Goodwill

Net Worth = Total Assets – Total Outside Liabilities

5. Accounting Treatment of Reserves, Accumulated Profits/Losses

6. Revaluation of Assets and Reassessment of Liabilities

*Any one will appear.

7. Adjustment of Capital Step 3 ➙ Calculate the proportionate capital of

Reconstitution of a Partnership Firm:

10. Adjustment of Capital The deceased partner’s executor’s are entitled to

15. Settlement of Deceased Partners’ Executor Account

(ii) If payment is made in instalment (a) Deceased Partner’s Executor’s A/c Dr

Dissolution of a Partnership Firm

To Sundry Assets A/c {Excluding cash, bank, … By Sundry Liabilities A/c …

*Any one of two amounts will appear.

(ii) Partners’ Capital Account

(iv) Cash/Bank Account

5. Preparation of Memorandum Balance Sheet

Accounting for Share Capital

(ii) For allotment of shares At par

II. Shares Payable in Instalments

(iv) On receipt of Bank A/c Dr (With allotment money received)

10. Over Subscription of Shares

11. Undersubscription of Shares

15. Forfeiture of Shares

16. Re-issue of Forfeited Shares