Solution

ACCOUNTS DAV

Class 12 - Accountancy
Section A
1. (a) Rs.900

Explanation: When drawings are made at the end of each quarter for the same amount, use these two steps to find out the
interest on drawings:

period af ter 1st installment + period af ter last installment 9+0 9

Step 1: Average Time Period = 2
 = 2
 = 2
= 4.5 months

Step 2: Interest on Drawings Charged during the year = 24,000 × 10

100
×
4.5

12
= Rs. 900

2. (a) Nominal Account

Explanation: Rent paid to a partner is an expense for the business. All expenses and losses are considered as Nominal account.
Rent paid to the partner is a charge against the profit and it will be paid whether there is profit or loss in the business. Rent paid
to the partner is expenses hence charged from P& L A/c.
3. (d) Profits

Explanation: Interest on Capital: If the partnership deed is silent on interest on partner's capital, then according to the
Partnership Act of 1932, no interest on capital should be given to the partners of the firm. However, interest on capital is given
only out of the profits, if mutually agreed by all the partners. If there is loss no interest on capital will be provided unless it is
not charged against profit.
4. (b) 40%

Explanation: Total assets = ₹20,00,000

Fixed assets = ₹8,00,000

8,00,000
Percentage of fixed assets on total assets =  20,00,000
× 100 = 40%.

5. (a) Number of Employees Statement

Explanation: Number of Employees Statement is not used as a tool for Financial Statement Analysis.
6. (b) All of these

Explanation: All of these

7. (c) Ascertain the interest paying capacity of a company.

Explanation: The main objective of Interest Coverage Ratio is to determine how easily a company can pay interest on
outstanding debt.
8. (d) To measure the financial strength of the business

Explanation: The main objective of analysis of financial statement is to measure the financial strength and performance  of the
firm.
9. (c) Inter-firm comparative study possible

Explanation: Inter-firm comparative study possible is not a limitation.

10. (a)  A company‘s Balance Sheet format is fixed under schedule III .Whereas, there is no standard form prescribed under the
Indian partnership Act,1932 for a partnership Firm’s balance sheet.

Explanation: Partnership firm's balance sheet is a T format balance sheet where capital and liabilities are shown on left hand
side and assets are shown on right hand side. There is no need of sub dividing assets and liabilities into sub heads. A
Company's balance sheet has a vertical format under which assets,liabilities and capital has to be sub divided into sub headings
like shareholders fund,non current assets,current assets,current liabilities etc.
11. Under the 'Fixed Capital' method, current accounts of partners are maintained. All transactions relating to the partners, which
include interest on capital and drawings, salary, interest on drawing, share of profit or loss, etc., are entered in the Partner's
Current account. The partner's capital account balance remains fixed whereas the current account fluctuates from time to time.
12. Neha, a partner owns a building and firm carries on its business in her premises. In turn, the firm pays her rent. This rent is an
expense for the firm. So, Rent will be debited to the Profit and Loss Account of the firm.
13. A common size balance sheet is a statement in which total of assets or equity & liabilities is assumed to be equal to 100 and all the
figures are expressed as percentage of the total.

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14. Common size Statement express all items of a financial statement as a percentage of some common base such as revenue from
operation for profit and loss statement and total assets for balance sheet.
15. Operating profit ratio shows the relationship between operating profit and net sales.
16. Current Assets = Total Assets - Fixed Assets (since long term investments not exist)

Fixed Assets = 10,00,000

Total Assets = 22,00,000

∴ Current Assets = 22,00,000 - 10,00,000 = 12,00,000

Current Liabilities = Total Assets - Capital Employed

= 22,00,000 - 20,00,000 = 2,00,000

12,00,000
Current Ratio = Current Assets

Current Liabilities
=
2,00,000
=6:1
17. Solvency refers to a company's ability to pay off all its bills, even at the expense of selling everything off.The solvency of a
business is assessed by financial statement analysis through long-term and short-term solvency ratios. Balance sheets provide the
most useful information to identify a company’s solvency. However, balance sheets reflect a company’s financial position on a
specific day. When trying to identify solvency, it is best to have several consecutive balance sheets available to perform horizontal
trend analysis. Horizontal trend analysis looks at the change over time of the same measure, such as debt ratio or current ratio.
18. i. Long-term as well as short-term solvency can be determined with the help of Analysis of Financial Statements.
ii. It helps to determine the creditworthiness and earning the potential of a business entity.
Section B
19. Statement Showing Calculation of Interest on Drawings
H (₹) A (₹)

Period (in
Amount (₹) Period (in months) Product (₹) Amount (₹) Product (₹)
months)

5000 12 60,000
7,000
12 84,000

8000 9
72,000
4,000
9
36,000

5000 4
20,000
5,000
4
20,000

4000 1 4,000 10,000 1 10,000

1,56,000 1,50,000
Rate
Amount of Interest on Drwaings= Sum of Product × 100
×
1

12

1,56,000×10×1
M=₹ 100×12
= ₹ 1,300

1,50,000×10×1
A=₹ 100×12
= ₹ 1,250
20. Interest on capital is an expense to the firm and is debited to the profit and loss appropriation account. Interest is payable to the
partners and hence, the partner's capital account is credited with the amount of interest.
Interest on A’s Capital

= (20, 000 ×
8

100
×
3

12
) + (25, 000 ×
100
8
×
3

12
) + (22, 000 ×
8

100
×
6

12
)

= 400 + 500 + 880 = Rs 1,780

Interest on B’s Capital

= (30, 000 × 8

100
×
3

12
) + (36, 000 ×
8

100
×
6

12
) + (34, 500 ×
8

100
×
3

12
)

= 600 + 1,440 + 690 = Rs 2,730

21. Comparative Statement of Profit and Loss

for the years ended 31st March 2012 and 2013

31st March 2012 31st March 2013 Absolute Change
Percentage Change

Particulars Note No. Amount Amount (Increase/ Decrease)

(Increase/ Decrease)

(Rs.) (Rs.) (Rs.) (%)

(A) (B) (C = B - A) (D = C

A
× 100 )

I. Revenue from Operations 2,42,500 2,12,500 (30,000) (12.37)

II. Expenses:

(a) Cost of Materials Consumed 1,30,000 1,22,500 (7,500) (5.76)

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 (b) Employee Benefit Expenses 30,000 22,500 (7,500) (25.00)

II. Total Expenses 1,60,000 1,45,000 (15,000) (9.37)

III. Net Profit(I - II) 82,500 67,500 (15,000) (18.18)

This analysis is being carried out in between the income statements of the various accounting duration of the firm, with other
firms in the industry and with the industrial average. This will facilitate the firm to know about the status of itself regarding the
financial performance. It facilitates to understand about the changes pertaining to various financial data which closely relevantly
connected with the financial performance
22. Format of common size statement as per Companies Act is as follows:-
Common Size Statement of Profit and Loss

For the years ended 31st March 2018 and 2019

Absolute Amounts Percentage of Balance Sheet Total
Particulars Note 31.3.2018 31.3.2019 31.3.2018
31.3.2018
₹ ₹ % %

Revenue from Operations

Add: Other Incomes

Total Revenue

Less: Expenses

Cost of Materials Consumed

Purchase of Stock in Trade

Changes in Inventories of Finished Goods

Work In Progress and Stock in Trade

Employee Benefit Expenses

Finance Costs

Depreciation

Other Expenses

Total Expenses

Profit before Tax (Total Revenue - Total Exp.)

Less: Tax

Profit after Tax

23. Financial statement analysis is the process of reviewing and analysing a company's financial statements to make better economic
decisions.The two more objectives of this analysis are:
i. To compare the intra-firm position, inter-firm position and pattern position within the industry.
ii. To measure the operating efficiency and profitability of the enterprise
24. Financial statement analysis is the process of receiving and analysing a company's financial statements to make better economic
decisions. These statements include the income statement, balance sheet, statement of cash flows and a statement of changes in
equity.The objectives of analysis of financial statements are as follows:
i. To judge the financial stability of an enterprise.
ii. To measure the short-term and long-term solvency of enterprise.
iii. To measure the operating efficiency and profitability of an enterprise.
iv. To compare the intra-firm position, inter-firm position and pattern position within the industry.
Section C
25. Profit and Loss Appropriation Account. It is a special account which a firm prepares to show the distribution of profits/losses
among the partners or partner's capital.
Profit and Loss Appropriation A/c

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 Dr Cr

Particulars (Rs) Particulars (Rs)

------ By Profit and Loss A/c

-----
To Interest on partner's Capital
- (Net profit transferred from P & L A/c) -

------ -----
To Partner's salary By interest on Drawings
- -

By Loss transferred to partner's Capital/Current A/cs(if -----

To Partner's Comission ------
any) -

To Profit transferred to Partner's Capital/Current A/c(if

------
any)
26. In the books of KJ Ltd.

Common Size - Balance Sheet

for the year ended 2016 and 2017

Absolute Amount Percentage of Balance Sheet Total
Particulars Note No.
31.3.2016 31.3.2017 31.3.2016 31.3.2017

I. EQUITY AND LIABILITIES: (Rs.) (Rs.) (%) (%)

(1) Shareholder’s Funds 4,00,000 8,00,000 50 50

(2) Non-Current Liabilities 2,00,000 5,00,000 25 31.25

(3) Current Liabilities 2,00,000 3,00,000 25 18.75

TOTAL 8,00,000 16,00,000 100 100

II. ASSETS:

(1) Non-Current Assets 5,00,000 10,00,000 65.5 65.5

(2) Current Assets 3,00,000 6,00,000 37.5 37.5

TOTAL 8,00,000 16,00,000 100 100

27. Comparative Statement of Profit and Loss

for the year ended 31st March, 2009

Absolute Change Percentage Change
31st March, 2008 31st March, 2009
Particulars (Increase or Decrease) (Increase or Decrease)
(Rs.) (Rs.)
(Rs.) (%)

I. Revenue from Operations (Sales) 6 ,00,000 8,00,000 2,00,000 33.33

II.Total Revenue 6,00,000 8,00,000 2,00,000 33.33

III. Expenses:

(a) Cost of Revenue from Operations 3,60,000 4,00,000 40,000 11.11

(b) Administrative Expenses 48,000 60,000 12,000 25.00

IV. Total Expenses (a+b) 4,08,000 4,60,000 52,000 12.74

V. Profit before Tax ( I I - IV ) 1,92,000 3,40,000 1,48,000 77.08

VI. Income Tax @ 50% (96,000) (1,70,000) (74,000) (77 08)

VII. Profit after Tax ( V- VI) 96,000 1,70,000 74,000 77.08

Working Note
2008 2009

Revenue from operations 6,00,000 8,00,000

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 ( - ) Gross profit (2,40,000) (4,00,000)

Cost of revenue from operations 3,60,000 4,00,000

Administrative expenses 20% on Gross profit i e 48,000 15% on Gross profit i e. 60,000
Comparative statement of P&L A/c is prepared as per Schedule 3, Part 1 of the Companies Act,2013. A comparative statement is
a document that compares a particular financial statement with prior period statements or with the same financial report generated
by another company. Analysts and business managers use the income statement, balance sheet and cash flow statement for
comparative purposes. The process reveals trends in the financials and compares one company's performance with another
business.
28. i. Decrease: Loan obtained from bank will increase the total assets but the shareholders' funds will remain the same, so
proprietary ratio will decrease.
ii. No change: Machinery purchased for cash will increase the total assets and simultaneously decrease the total assets, therefore
proprietary ratio will remain unchanged.
iii. Decrease: Redemption of preference shares will decrease total assets and shareholders' funds simultaneously, so proprietary
ratio will decrease.
iv. Increase: Machinery purchased by issue of equity shares will increase total assets and shareholders' funds simultaneously, so
proprietary ratio will increase.
Proprietory ratio establishes the relationship between proprietors funds and total assets. This ratio is computed as follows:
′ ′
P roprieto r s Funds or shareholde r s f unds
Proprietory ratio= T otal assets

Proprietors funds = Liabilities Approach: Share capital + Reserves and Surplus

29. i. To compare inter firm position and identify the strong and weak areas if any and to corrective steps.
ii. To help determine the credit worthiness and earning potential of business.
iii. To Determine operational efficiency with which resources are utilized in generating revenue.
iv. To determine profitability with respect to sales and investment.
Section D
30. PROFIT AND LOSS APPROPRIATION ACCOUNT

for the year ended 31st March, 2019

Dr. Cr.

Particulars Amount(₹) Particulars Amount(₹)

To Provision for Donation (10% of By Profit & Loss A/c

60,000 6,00,000
6,00,000) (Net Profit as per Profit & Loss A/c)

To Salary: By Interest on Drawings:

Sarita (₹10,000 × 12) 1,20,000 Sarita 10,000

Vandana (₹15,000 × 12) 1,80,000 3,00,000 Vandana 12,500 22,500

To Interest on Capital:

Sarita 48,000

Vandana 36,000 84,000

To Profit transferred to:

Sarita's Capital A/c ( 4

7
of 1,78,500) 1,02,000

Vandana's Capital A/c ( 3

7
of 1,78,500) 76,500 1,78,500

TOTAL 6,22,500 TOTAL 6,22,500

PARTNER’S CAPITAL ACCOUNTS
Dr. Cr.

Sarita
Vandana
Sarita
Vandana

Date Particulars Date Particulars

₹ ₹ ₹ ₹

2018-2019 To Drawings 2,00,000 2,50,000 2018-2019 By Bank 4,00,000 3,00,000

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 March 31 April 1

To Interest on 2019 March

March 31 10,000 12,500 By Salary 1,20,000 1,80,000
Drawings 31
March 31 To Balance c/d 4,60,000 3,30,000 March 31 By Interest on Capital 48,000 36,000

By Profit & Loss Appropriation

March 31 1,02,000 76,500
A/c (Share of Profit)

TOTAL 6,70,000 5,92,500 TOTAL 6,70,000 5,92,500

Working Note:

Profits are to divided in the ratio of Capitals contributed. Hence, profit sharing ratio will be 4,00,000 : 3,00,000 or 4 : 3.
31. Working Note:
A Past Adjustment Table

Particulars Abhir Bobby Vineet Total

Concellation of profits 60,000 Dr. 60,000 Dr. 30,000 Dr. 1,50,000 Cr.

Omission of IOD 6,600 Dr. 4,500 Dr. 2,500 Dr. 13,600 Cr.

Omission of IOC: 76712 Cr. 50098 Cr. 36,790 Cr. 1,63,600 Dr.

Net Effect 10,112 Cr. 14,402 Dr. 4,290 Cr. 00

B Calculation of Opening Capital:

Particulars Abhir Babby Vineet

Capital on 31-3-2018 8,00,000 6,00,000 4,00,000

ADD : Drawings 2,40,000 1,00,000 1,00,000

LESS: Share of profit (60,000) (60,000) (30,000)

Capital on 1-4-2017 9,80,000 6,40,000 4,70,000

C. Interest on Capital @ 10% 98,000 + 64,000 + 47,000 = Rs.2,09,000

Profits available = Rs.1,50,000 + 13,600 = Rs.163,600

Therefore, interest on Capital is given as Rs.1,63,600 divided in the ratio of 98:64:47.

Books of the Abir, Bobby and Vineet
Journal Entry
Date Particulars LF Dr(Rs.) Cr.(Rs.)

2018 Apr 1 Bobby's Capital A/c Dr. 14,402

To Abhir's Capital A/c 10,112

To Vineet's Capital A/c

4,290
(Being interest on Capital and Interest on drawings omitted, now rectified)
 Credit Revenue from Operations (Credit Sales) 
32. Trade Receivables Turnover Ratio =

 Average Trade Receivables 

2,00,000
=
1

(30,000+50,000)
2
2,00,000
=
40,000
= 5 times

Effect on Trade Receivables Turnover Ratio:

Reasons

(i) Increase Collection from trade receivables will

decrease the closing trade

receivables which will result in increase

in trade receivables turnover ratio:

2,00,000 2,00,000

1
=
35,000
= 5.71 times.
(30,000+40,000)
2

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 Credit Revenue from Operations will
result in equal increase in credit Revenue
from Operations and closing trade

(ii) Decrease receivables which will result in decrease

in trade receivables turnover ratio as
follows:

2,20,000 2,20,000

1
=
50,000
= 4.4 times.
(30,000+70,000)
2

Revenue from Operations return will

result in equal decrease in credit Revenue
from Operations and closing trade
(iii) Increase receivables which will result in increase
in trade receivables turnover ratio as
follows:

1,96,000 1,96,000

1
=
38,000
= 5.16 times.
(30,000+46,000)
2

Neither the credit Revenue from

(iv) Not Alter Operations nor the trade receivables are
affected.
33. Financial Analysis has great importance to various accounting users on various matters. Income Statements, Balance Sheets and
other financial data provide information about expenses and sources of income, profit or loss and also helps in assessing the
financial position of a business. These financial data are not useful until they are analyzed. There are various tools and methods
such as Ratio Analysis, Cash Flow Statements that make the financial data cater to varying needs of various accounting users.
The following are the reasons that advocate in favor of Financial Analysis:
i. It helps in assessing the long-term solvency of the business.
ii. It helps in evaluating the profit earning capacity and financial feasibility of a business.
iii. It assists management in the decision-making process, drafting various plans and also in establishing an effective controlling
system.
iv. It helps in evaluating the relative financial status of a firm in comparison to other competitive firms.

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