Accounts Theory Chapterwise - 27069624 - 2023 - 12 - 27 - 19 - 231227 - 193022

YOU TUBE: SUNIL PANDA -THE EDUCATOR
CHAPTERWISE
MOST IMPORTANT THEORY
FUNDAMETALS OF PARTNERSHIP
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or
any of them acting for all.
Section 4 of partnership act, 1932
Minimum partner 2
Maximum partner 50 as per rule 10 of the companies’ rules, 2014
Essential condition of Partnership
Business + profits + Mutual agency
Essential Features of Partnership
a) Two or more persons
b) Agreement
c) Lawful business (Existence of business & profit motive)
d) Sharing of profits
e) Principle and Agent relationship
f) No separate existence (legal point of View)
g) Business can be carried on by all or any one of them acting for all.
Rights of a partner
a) Right to participate in management
b) Right to inspect books of account and have a copy of it
c) Right to share profits or losses
d) Right to received interest on his/her loan to the firm @6% p.a.
e) A partner has the right not to allow the admission of a new partner
f) After giving proper notice, a partner has right to retire from the firm
Partnership Deed:-
A partnership deed is an agreement between the partners of a firm that contains the terms and conditions of
partnership.
It may be written or oral
It is not mandatory
It also called “Articles of partnership”

It contains the following points
i) Name and Address of the firm & partners
ii) Nature of business, capital contribution, profit sharing ratio
iii) Interest on capital, salary, commission, etc.
iv) In partnership the liability of all partners are unlimited
v) Registration of Partnership firm is not Compulsory.
vi) LLP : Limited Liability Partnership (LLP ACT 2008)
vii) Here liability of partners are limited
viii) (Mix of Partnership and Company)
In the absence of partnership deed (Partnership Act provision are applicable)
a) Profit sharing ratio will equal
b) No interest on capital, no salary, no interest on drawings, etc.
c) Interest on (partners loan to firm) @ 6% p.a.
d) Interest on (firm loans to Partners) – NO INTEREST
It is a charge against profit hence provided even in case of losses
e) Interest on capital & salary if given in partnership deed then it will provide but only out of profits.
Methods of maintaining partners capital A/c
▪ Fixed capital A/c method
a) Here balance of partners’ capital account is fixed (only change when additional capital is introduced or withdrawn
of capital)
b) Two accounts are maintained partners current a/c & partners capital a/c
c) Capital a/c always shown a credit balance
Fluctuating partners’ capital A/c Method
a) Here balance of partners’ capital a/c fluctuate (Changes)
b) Only partners’ capital a/c is maintained
c) Partners capital a/c may have Dr. or Cr. Balance
(If nothing is mentioned we assumed Fluctuating Method)
In case of guarantee of profits to a partner if nothing is given then Deficiency will share by remaining Partners in
Their Old Profit sharing Ratio. Don’t Forget the date when they commenced Partnership Calculate Guarantee
Amount Accordingly
Section 30 of the Indian Partnership Act 1932, provides that though a minor cannot be a partner in a firm, but, with
the consent of all the partners for the time being, he may be admitted to the benefits of partnership by an
agreement executed through his guardian with the other partners.
There must be a partnership in existence before a minor can be admitted to its benefits. Thus, a minor cannot form a
new partnership but can be admitted in an existing partnership. There cannot be a partnership consisting of all
minors
GOODWILL VALUATION
Goodwill is the value of the reputation of a firm which enables it to earn higher profits.
It is a fixed intangible assets not a fictitious asset.
Two Types of goodwill
1. Purchased goodwill. Recorded in books
2. Self-generated goodwill. not recorded in books (AS-26)
Need for valuation of goodwill
a) When a new partner is Admitted
b) When a partner retires or dies
c) When there is a change in the profit-sharing ratio
d) At the time of sale of a business
e) When partnership firm is converted into a company
f) When two or more firm amalgamate
Factors affecting the value of goodwill
a) Efficient management
b) Favorable location
c) Favorable contract
d) Longer establishment of business
e) Quality products
f) Past performance
g) Good customer relations
h) Sales after services, etc.
CHANGE IN PSR
Meaning When existing partners decide to change their profit-sharing ratio. It leads to dissolution of partnership
/reconstitution of partnership
In case of any partner(s) gain due to change in profit sharing ratio then He/she will compensate to sacrificing
partner(s)
Sacrificing ratio = old ratio –new ratio
Gaining ratio = new ratio –old ratio
A firm is reconstituted in the event of
1) Admission of a partner
2) Retirement of a partner
3) Death of a partner
4) Change in profit sharing ratio
5) Amalgamation of two or more partnership firm
REVALUATION ACCOUNT
Particular’s Amount Particular’s Amount
To Increase in liability X By Decrease in liability X
To Decrease in assets X By Increase in assets X
To Unrecorded liability X By Unrecorded assets X
To Revaluation Gain transfer to Partner’s X By Revaluation Loss transfer to Partner’s X
Capital/Current A/c Capital/Current A/c
XX XX
ADMISSION OF A PARTNER
According to section 31 of the partnership Act 1932,
A person can be admitted as a partner
i) If it is so agreed in the partnership deed, or

ii) In the absence of the agreement if all the partners agree to admit a new partner
new partners is admitted for extension of capital he will bring his share of capital & his share of premium for goodwill
Sacrificing ratio = old ratio –new ratio
(old partners will sacrifice for upcoming partner)
Revaluation Gain will distribute in Old ratio among Old partners
RETIREMENT & DEATH OF A PARTNER

A partner may retire form the firm
i) If there is an agreement to that effect, or

ii) If the agreement does not exist then if all the partners agree to his retirement, or
iii) If the partnership is at will, by giving a notice (written) to the remaining partners of his decision to retire
A Retiring partner also continues to be liable to third parties for the acts of the firm even after his retirement until a
public notice of his retirement is given.
A Retiring partner is entitled to get the following
➢ His share of Capital
➢ His share of Goodwill
➢ His share of profits up to date of retirement
➢ His share of revaluation of Assets and Liabilities
➢ His share of Accumulated profit and losses
➢ Interest @6% p.a. on his Loan (if Deed is silent)

The accounting process on the death of a partner is same as that of retirement of a partner. The difference
between the two situations are
i) Retirement of a partner is voluntary in nature and it can be planned, whereas death of a partner cannot
be planned.
ii) Payment of the amount due is made to the retiring partner in case of retirement of a partner, whereas
due to amount is paid to the legal heirs of the deceased partners in case of death of a partner
Deceased share of profit is credited to his A/c only for up to date of death.
His balance in deceased capital A/c is transferred to executor A/c
DISSOLUTION OF FIRM
Dissolution of a partnership firm
Dissolution of the firm means dissolution of partnership among all the partners in the firm. It means end of economic
relationship among the partners and business is closed
Mode of dissolution of a firm are
➢ By mutual agreements
➢ Compulsory dissolution
a) when all the partners except one become insolvent
b) when business of the firm becomes unlawful
➢ By Notice
➢ On happening of an event
a) on death of a partner
b) on the insolvency of a partner
c) on completion of the venture / objective
d) on the expiry of the period for which the firm was formed
➢ Dissolution by Court
a) when a partner has become of unsound mind
b) when a partner permanently incapable of performing his duties as a partner
c) when a partner is found guilty of misconduct
d) Continuously breach of contract by a partner or partners
e) The business of the firm can’t be carried on except at a loss
f) When a partner other than a partner filing a suit, has transferred the whole of interest in the firm to a third party
g) Any other reason where court finds dissolution of the firm justified
Difference between Dissolution of firm and Dissolution of partnership
Basis Dissolution of firm Dissolution of partnership
Meaning It means closure of the firm and end of It means change in business relationship among
business relationship among all the partners the partners the firm continues its business
Business Business of the firm comes to an end Business of the firm continues
continuation
Economic Economic relationship between/ among the Economic relationship between/ among the
relationship partners ends partners changes
Closure of Books of accounts have to be closed Books of accounts need not be closed
books of A/c
Settlement Assets are sold and liabilities are paid off and Assets and liabilities are revalued and revaluation
of assets and balance if any is distributed among partners gain or loss is distributed among partners
liabilities
Effect Dissolution of firm also means dissolution of Dissolution of partnership may or may not
partnership involve dissolution of the firm
Court It can be either voluntarily by the partners or It always voluntary
intervention compulsory by court order
➢ Nature of Realisation A/c is nominal account
➢ Settlement of account at the time of dissolution (section 48)
Payment should be made in the following order
a) First priority to make payment to third parties (outside liabilities)
b) Then partner’s loan
c) Then partners’ capital
d) Rest if any distributed among the partners in their profit-sharing ratio
Difference between firm debt and Private debts

Basis Firm debts Private debts
Meaning Liabilities of firm outsides Liabilities of partners (personal)
liabilities All partners are liable jointly Concerned partner is liable
Application of Firms properly is applied first for payment of Share of the concerned partner in excess of
firm property firm debt firms property over firms debt can be applied
for payment of private debts
Application of Excess of partners private property over his Private property is applied first for payment of
private property private debts can be applied for payment of private debts then towards firms liability
firm debts
Difference between Revaluation A/c and Realisation A/c

Basis Revaluation A/c Realisation A/c
Meaning It shows effect of revaluation of assets and It shows the realization of assets and
reassessment of liabilities settlement of liabilities
Objective To determine revaluation gain or loss To determine realization gain or loss
Time It is prepared at the time of admission, It is prepared at the time of dissolution of the
retirement and death firm
Frequency of This account may be prepared a number of This account is prepared only once during the
preparation times during the life of a firm life of a firm
Effect Here Assets & Liabilities are Revalued Here assets are sold & Liabilities are paid
ISSUE OF SHARES
A company is an artificial person, created by law having separate legal entity with a perpetual succession and a
common seal. (prof. Haney)
Share is the smallest unit of share capital of a company
Applicable: companies act 2013
Person holding company shares are called shareholders (or) members.
Difference between partnership and company (joint stock company)

Basis Partnership Company
1. Mode of It is set up by an agreement among the It is a set up by registration under the companies
formation partners. Registration is not compulsory act 2013 or under any previous companies acts
under the Indian partnership act 1932
2. Act Partnership act 1932 applies Companies act 2013 applies
3. No. of Minimum partners 2 & maximum 50 Private company:- minimum 2 & maximum 200
members Public company :- minimum 7 & maximum no
limit
4. Liability Unlimited liability of partners Limited liability of members
5. Audit Audit of books is not mandatory Audit of books is mandatory
6. Transfer of A partners can’t transfer his shares to any Except is case of private company normally
share other without the consent of other transfer of shares is not restricted
partners
7. Winding up A partnership firm may be wound in A company can be wound up only by carrying out
different ways process prescribed in the companies act 2013
8. Stability Partners death retirement or insolvency Shareholders death and solvency do not affect
affects the firm the firm continuity
One Person Company
One person company (OPC): - it means a company which has only one person as member section 2 (62) of companies
act 2013.
Its paid-up share capital is not more than 50 lakhs
Its average annual turnover of three years should not exceed 2 crores.
It should have at least 1director but not more than 15 directors
It cannot be formed for charitable purposes
It can’t issue of shares to public
It has a special articles of association

Difference between Private Company and Public Company
Basis Private company Public Company
1. Number of Minimum 2, maximum 200 (excluding minimum 7 & maximum no limit
members present / past employees)
2. Transfer of Not allowed Freely transferable
shares
3. Prospectus Prospectus need not be issued Prospectus must be issued
4. no. of Minimum 2 director Minimum 3 director
directors Maximum 15 director Maximum 15 director
5. Subscribed of Shares cannot be offered to public Shares can be offered to public
shares
6. AOA Article of association are necessary Table F given in the companies act may be
adopted it articles of asocial is silent or absent
7.Name The word private limited are used as part The word limited is used as part of the name
of the name
Minimum subscribed should be 90%
In case minimum subscribed is not received within the specified period, application money shall be refunded within
15 days from the closure of issue.
Till date the whole application money saved in Escrow account preliminary expenses: - these are the expenses
incurred for incorporating the company such as registration fee, legal expenses, share issue expenses (other)
It is written off either from securities premium reserve or statement of PL (if money is not repaid in case of minimum
subscription not full filled then 15% p.a. interest shall be paid)
Share capital of a company broadly can be of two types
i) Equity shares
ii) Preference shares
Classes of preference shares
i) Cumulative & non-cumulative preference shares.
Cumulative preference shares carry the right to receive arrears of dividend before dividend is paid to equity
shareholders.
Non-cumulative preference shares do not carry the right to receive arrears of dividend only for the year in which
profit are earned dividend is distributed
ii) Participating and non-participating preference shares the articles of association of a company may provide that
after dividend has been paid to the equity shareholders, holders of preference shares will also have a right to
participate in the remaining profit. The preference share carrying the right are called participating preference shares
Preference shares which do not carry the right to participate in the profit remaining after equity shareholders have
been paid dividend are non-participating preference shares
iii) Convertible and non-convertible preference shares
Convertible preference shares carry a right to be converted into equity shares
Non-convertible preference shares do not carry a right to be converted into equity shares
iv) Redeemable and Irredeemable preference shares

Redeemable preference shares are redeemed by the company with in a specific period not exceeding 20 years from
issue
Irredeemable preference shares are those the amount of which can be returned by the companies to the holders of
such shares when the company is winding up but the companies act 2013 does not permit issue of irredeemable
preference shares
Over subscription of shares:- when number of shares applied are more than number of shares offered for
subscription Shares can be allotted by any of the following three alternatives
1st alternative:- rejection of excess applicants
2nd alternative:- full allotment
3rd alternative:-pro rata allotment
Difference between Preference Shares and Equity Shares

Basis Preference Shares Equity Shares
1. Right to Dividend is paid before the payment of Dividend is paid to equity shareholders after
dividend dividend to equity shareholders making payment to preference shareholders
2. Role of Rate of dividend is fixed Rate of dividend is proposed by the directors
dividend
3. Arrears of If preference share are cumulative Dividend is declared every year in case it is not
dividend preference shares arrears of dividend is declared during the year it is not accumulated to
paid before dividend is paid on equity be paid in the coming years
shares
4.convertibility It may be converted into equity shares It can’t be converted
5. Redemption These are redeemed A company may buy back its equity shares
6.Voting rights They have voting right only in special Equity shares have voting rights in all the
circumstances circumstances
7. Right of They have no right to participate in They have right to participate in management
participation management
8. Redemption On winding up the preference share capital On winding up equity shares capital is repaid
of capital is repaid before the equity shares capital is after the preference share capital is paid
paid
Difference between Reserve Capital & Capital Reserve

Basis Reserve Capital Capital Reserve
Meaning It is the part of the uncalled capital which It is the part of reserve which is not free for
cannot be called up except in the event distribute as dividend
of winding up
Creation It is an uncalled capital It is created out of capital profit
Optional/mandatory It is not mandatory to have reserve It is mandatory to create capital reserve in case
capital of capital profits earned by company
Resolution It cannot be use to write off capital loss It can be used to write off capital loss
Writing off capital Special resolution is required Special resolution is not required
losses
Disclosure It is not disclosed in the company balance It is disclosed under the head Reserve and
sheet surplus in head shareholder fund
❖ Utilisation of Securities Premium Reserve (SPR)
Section 52(2) of the companies Act, 2013 restricts the use of the amounts received as premium on securities for the
following purpose
a) Issuing fully paid bonus share to the members
b) Writing off preliminary expenses of the company
c) Writing off loss or discount on issue of debenture
d) In purchase its own share (buy back)
e) Providing for the premium payable on the redemption of any redeemable preference shares or of any debentures
of the company
➢ Private Placement of shares –It means issued shares to a small number of select group of investors privately to
raise capital and not to general public. These investors usually are bank, mutual funds and insurance companies’
shares can’t sell minimum for 3 years- lack in period Sec 42 Companies Act, 2013.
➢ Initial Public Offer- Making an offer or inviting the public in general for the first time to subscribe shares, is known
as IPO
➢ Interest on calls in arrears @10% p.a. (as per table F)
➢ Interest on calls in advance @12% p.a. (as per table F)
➢ Calls in arrear is deducted from Subscribed share capital
➢ Share Forfeited account is added in subscribed share capital
➢ Calls in advance main head –current liabilities and sub head – other current liabilities
➢ Capital reserve and securities premium reserve main head - Shareholder fund and sub head- reserve and surplus
ESOP/ ESOS
Employees stock option plan/ scheme ESOP/ESOS- it means option granted by the company to its employees, whole
time directors, officers to subscribe the shares at a price lower than the market price. It is an option not a obligation.
ESOP is a category of sweat equity Sweat equity is a wider term than ESOP it includes issue of shares to promoters for
incorporating the company. Shares under ESOP scheme locked in for minimum period of one year from the date of
allotment. Sweat equity shares can be issued at discount
ESOP Terms
Grant date
Vesting date
Vesting Period
Exercise Period
Objective of ESOP: -
a) To inspire employees and higher participation
b) Monetary incentive for motivation
c) Longer stability and reduce employee’s turnover
➢ Surrenders of shares –it is voluntary return of shares by a shareholder for the purpose of cancellation.
➢ According to section 39(2) of companies act,2013 minimum application money should be 5% of the face value of
share or such other percentage or amount as may be prescribed by SEBI
➢ SEBI prescribes that application money should not be less than 25% of the issue price
➢ A period of one month must exist between two calls
➢ Amount of one call should not be more than 25% of the face value of shares
➢ Notice of 14 days should be given to the shareholders to pay the amount
➢ The company before forfeiture must first give clear 14 days’ notice to the defaulting shareholders that he shall pay
the due amount along with the interest
ISSUE OF DEBENTURES
Meaning - Debenture is a written instrument or Document issued by the company acknowledging the borrowing,
bearing fixed rate of interest
Interest on debentures is a charge against profit
Debenture holders do’ not have voting rights
Debenture can be issued at par, premium, discount
Interest on debentures is always calculated on the face value of debentures
Debenture may be issued for long-term or short-term period. Thus, they are shown as either long-term borrowings
under the head non-current liabilities or short-term borrowing under the head of current liabilities.
If question is silent, we assume debenture are long term borrowings
Issue of Debenture as collateral security
When company issue debentures as an additional security with principal security to obtain a loan, it is known as
issue of debentures as collateral security
Types of Debentures
1. From security point of view
a) Secured debentures: - these are those debentures which are secured by either fixed or floating charge on the
assets of the company
b) Unsecured debentures: - these are those debentures that are not secured by any charge on assets of the company
• A charge on fixed assets is called fixed charge
• A charge on stock/current assets is called floating charge
2. From Redemption point of view
a) Redeemable debentures:- these are those debentures that are payable by the company on maturity
b) Irredeemable debentures:- these are those debentures that are not repayable during the life time of the company
and hence are repaid only when the company is wound up
3. From Registration point of view:-
a) Registered debentures:- these are the debenture that are registered in the company records in the name of the
holders
b) Bearer debentures :- these are the debentures that are not registered in the record of the company in the name of
the holder. These are transferable by more delivery
4. From convertibility point of view:-
a) Convertible debentures :- these are the debentures that are convertible into shares. If a part of the debentures
amount is convertible into equity shares they are known as partly convertible. Debentures if full amount of
debentures is convertible into equity shares they are known as fully convertible debentures
b) Non convertible debentures:- these are those debentures that are not convertible into shares
In case of issue of debentures consideration other than cash
If Purchase consideration > net assets (Goodwill A/c)
If purchase consideration <net assets (Capital reserve A/c)
➢ if debentures are redeemable at premium, no matter the conditions of issue, in issue due entry
Loss on issue of debentures debited &
Premium on redemption of debentures credited
Premium on redemption of debentures is a capital loss and it is shown as main head non-current liabilities and sub-
head other long-term liabilities
It is a personal A/c in traditional approach and liability A/c in modern approach
And the loss on issue of debentures A/c is a capital loss which is written off in the year it is incurred from
i) Securities premium reserve
ii) Statement of profit and loss
FINANCIAL STATEMENTS OF A COMPANY

Financial statements -The financial statement are a summary of accounts of a business enterprise. Like Balance
sheet, income statement, cash flow statement and Notes to accounts.
Content of Annual Report
Report by Board of Directors
Auditors Report
Financial statements
Notes to Accounts
Explanatory notes
Additional information required to be disclosed in terms of Part III of schedule III of Indian companies Act 2013
Objective of financial statements
a) To provide financial data on economic resources and obligations of an enterprise
b) To show implications of operating profit on the financial position of an enterprise
c) To provide information about cash flow to investors and creditors for assessing, comparing and evaluating,
potential cash flow in terms of amount
d) To provide sufficient and reliable information to various parties interested in financial statements
e) To present a true and fair view of the business
f) To assess effectiveness of management towards utilization of resources of business
g) To provide information about activities of business affecting the society
h) To disclose accounting policies followed in the accounting process for the better understanding of financial
statement
Format of Balance sheet prescribed in Part I of Schedule III of the companies Act,
2013, is as follows.
Particulars Note no. CY PY

I.EQUITY AND LIABILITIES
1. Shareholder’s Funds
a) Share Capital
b) Reserve and Surplus
c) Money Received against Share Warrants.
2. Share Application Money Pending Allotment
3. Non-Current Liabilities
a) Long-term Borrowings
b) Deferred Tax Liabilities (Net)
c) Other Long-term Liabilities
d) Long-term Provisions
4. Current Liabilities
a) Short-term Borrowings
b) Trade Payables
c) Other Current Liabilities
d) Short-term Borrowings
Total
II. ASSETS
1. Non-Current Assets
a) Property, Plant and Equipment’s and Intangible Assets
b) Non-Current Investment
c) Deferred Tax Assets (net)
d) Long-term loans and Advance
e) 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 Advance
f) Other Current Assets
Total
Particulars Note no. CY PY
I.EQUITY AND LIABILITIES
a) Share Capital
b) Reserve and Surplus
➢ Capital Reserve
➢ Capital Redemption Reserve
➢ Securities Premium
➢ Debentures Redemption Reserve
➢ Revaluation Reserve
➢ Share Options Outstanding Account
➢ Other Reserve (to specify the nature and purpose of each reserve)
➢ Surplus i.e. Balance in Statement of Profit & Loss.
c) Money Received against Share Warrants.
2. Share Application Money Pending Allotment
3. Non-Current Liabilities
a) Long-term Borrowings
➢ Debentures
➢ Bonds
➢ Term loans
➢ Public Deposit
➢ Other loan and advance (Nature to be Specified)
b) Deferred Tax Liabilities (Net)
c) Other Long-term Liabilities
➢ Trade payables (i) Creditors (ii) Bills Payables
d) Long-term Provisions
a) Short-term Borrowings
➢ Loans Repayable on Demand
➢ Bank Overdraft or Cash Credit from Banks
➢ Current Maturities of Long-term Debts
➢ Loans from other parties repayable within in 12 months from the date of
loan
➢ Deposits
➢ Other loans and Advance (Nature to be Specified)
b) Trade Payables
➢ Creditors and Bills Payable
c) Other Current Liabilities
➢ Interest Accrued but not Due on Borrowings
➢ Interest accrued and Due on Borrowings
➢ Income Received in Advance
➢ Unpaid Dividend
➢ Excess application money refundable and interest accrued thereon
➢ Unpaid matured deposits and interest accrued thereon
➢ Unpaid matured debentures and interest accrued thereon
➢ Calls-in-Advance
➢ Other Payable (Nature to be Specified)
d) Short-term Borrowings
➢ Provision for Employee Benefits
➢ Provision for Expenses
➢ Provision for Tax
➢ Other Provisions
Total
II. ASSETS
1. Non-Current Assets
a) Property, Plant and Equipment’s and Intangible Assets
➢ Property, Plant and Equipment
( Land and Building, Machinery, Furniture and Fixture, Computer, Vehicles,
Office Equipment’s etc)
➢ Intangible Assets
(Goodwill, Trade Mark, Computer Software, Mining Rights, Copy Rights,
Patents Licences and Franchise, etc)
➢ Capital Work-in-Progress
➢ Intangible Assets under Development
b) Non-Current Investment
➢ Investment in Property
➢ Investment in Equity Instruments
➢ Investment in Preference Shares
➢ Investment in Government or Trust Securities
➢ Investment in Debentures or Bonds
➢ Investment in Mutual Funds
➢ Investment in Partnership Firms
➢ Other Non-Current Investment (Nature to be Specified)
c) Deferred Tax Assets (net)
d) Long-term loans and Advance
➢ Capital Advance
➢ Other loans and Advance (Nature to be Specified)
e) Other Non-Current Assets
➢ Security Deposits
➢ Long-term Trade Receivables
➢ Others
➢ Insurance Claim Receivables
2. Current Assets
a) Current Investments
➢ Investment in Equity Instruments
➢ Investment in Preference Shares
➢ Investments in Government or Trust Securities
➢ Investment in Debenture or Bonds
➢ Investment in Mutual Funds
➢ Investment in Partnership Firms
b) Inventories
➢ Raw Material
➢ Work-in-Progress
➢ Finished Goods
➢ Spares and Losse Tools
c) Trade Receivables
➢ Debtors and Bills Receivables
d) Cash and Cash Equivalents
➢ Balances with banks
➢ Cheques, Drafts on Hand
➢ Cash in Hand
➢ Others
➢ Earmarked balance with banks (for example, unpaid dividend)
➢ Balance with banks held as Margin Money
➢ Bank Deposits with more than 12 months maturity
e) Short-term Loans and Advance
f) Other Current Assets
Total
Cash Raw Material
OPERATING CYCLE
Debt collection/credit work in

payment progress
Finished
goods
Heading & Sub headings

Items Main head Sub head
Calls in Arrears Shareholders fund By way of deduction from subscribed share
capital.
Share forfeited A/c Shareholders fund By way of addition in subscribed share
capital
Calls in advance Current liabilities Other current liabilities
Unclaimed dividend Current liabilities Other current liabilities
% Debenture Non current liabilities Long term borrowings
General reserve, Securities premium Shareholders fund Reserve and surplus
reserve ,DRR/CR, Statement of P&l (CR)
Statement of P&l Dr. Shareholders fund Reserve & surplus by way of deduction
Public deposits/ Bonds Non current liability Long term borrowings
Debtors & Bill receivables Current Assets Trade receivable
Creditor & Bill payable Current liability Trade payable
Provision for tax Current liability Short term provision
Bank overdraft Current liability Short term borrowings
Provision for doubtful debt Current assets By way of deduction from trade receivable
Loose tools/spare & stores Current assets Inventory
Cash and Bank balance Current assets Cash & cash equivalent
Goodwill/ Mining rights/Patents/Trade Non current assets Property, Plant and Equipment’s and
marks/License intangible assets – Intangible Assets
Unpaid dividend Current liabilities Other current liabilities
Premium on redemption of debentures Non current liabilities Other long term liabilities
Interest on calls in Advance Current liabilities Other Current liabilities
Loans repayable on Demand Current liabilities Short term Borrowings
Capital Advances Non Current Assets Long term loan and Advances
Capital Work in Progress Non Current Assets PPE- intangibles- PPE
Outstanding Salary Current liabilities Other Current liabilities
Raw materials Current Assets Inventories
Statement of profit or loss
Particulars Note No. CY PY
I. Revenue from operations
II. Other income
III. Total revenue (I+II)
IV. Expenses
a) Cost of material
b) Purchase in stock in trade
c) Change in inventories
d) Employees benefit expenses
e) Finance cost
f) Depreciation and amortization expenses
Total expenses
V. Profit before tax (III-IV)
VI. Less : income tax
VII. Profit after tax (V-VI)
Difference between Provision and Reserve

Basis Provision Reserve
Nature It is a liability or diminution of value of assets It is shareholders money
or is an estimated loss
Purpose Provision is created for some specific Reserve may be created for a specific
purpose say depreciation, expenses, etc. purpose like Debenture Redemption Reserve
and it may not be created for a specific
purpose like General reserve
Charge Vs. Provision, if for expenses is a charge against Reserve is an appropriation of profit it is
Appropriation profit and reduces the amount of profit made only when there is profit
Disclosures in It is shown under expenses in the statement It is shown in the balance sheet under
financial of Profit and loss shareholder’s fund
statements
Disclosures in Provision are shown under long term Reserve is shown as a separate item under
Balance sheet provision or short term provision or as Reserve and Surplus in the Equity and
deduction from the value of concerned Liabilities part of the balance sheet
assets in the assets part of the balance
sheet.
Investment Outside Amount of provision cannot be invested Reserve can be invested outside the
Business outside. It always remains in the business business but in that case it is known as fund
Legal Requirement Provision is made to comply with Accrual Creating a reserve is a matter of financial
concept, Prudence Concept, and also prudence
because of legal requirement
LIMITATIONS OF FINANCIAL STATEMENTS
1. Historical records
2. Affected by estimates
3. Different accounting practices
4. Qualitative elements are ignored
5. Historical cost concept

Users of Accounting Information
Internal Users
a) Management
External Users
a) Shareholders
b) Employees
c) Govt./ tax authorities
d) Creditors & Bankers
e) Investors & Potential investors
f) Financial Analysist
g) Public & Researchers
ANALYSIS OF FINANCIAL STATEMENTS

Analysis of financial statements is a systematic process of analyzing the financial information in the financial
statements to understand and take economic decisions.
Tools of analysis of Financial statement
• Comparative and common size statements
• Ratios analysis
• Cash flow statement
Types of financial statement analysis
a) External analysis:- external analysis is conducted by those who do not have access to the detailed records of
an enterprise and therefore have to depend on published account i.e., statement of profit and loss, balance
sheet, directors and auditors reports. Such type of analysis is made by investors, lenders, creditors,
government agencies and research scholars
b) Internal analysis:- internal analysis is conducted by the management to know the financial position and
operational efficiency of the organization. The important features of such analysis is the management has
access to all information of the enterprise and , therefore the analysis is more detailed extensive and
accurate
c) Horizontal (or dynamic) analysis :- This analysis is made to review and Analyse financial statements for a
number of years. It is a time series analysis. It show comparison of financial data for several years against a
chosen base year. It is useful for trend analysis and long –term planning. Comparative statements or
comparative financial statements are examples of horizontal analysis
d) Vertical ( or static) analysis :- This analysis is made to review and analyse the financial statements of one
year only. It is a cross-sectional analysis. Ratio analysis of the financial statement relating to a particular
accounting year is an example of this type of analysis. Such an anlysis is useful in comparing the performance
of several companies of the same type or divisions or departments in one enterprise
e) Intra-firm comparison and inter-firm comparison :-
(1) Intra firm comparison : A comparison of financial variables of an enterprise over a period of time is
known as intra firm comparison. It is also called time series analysis or trend analysis
(2) Inter firm comparison : it compares financial variables of two or more enterprises or firms to determine
their competitive positions. When single set of statements of two firms is compared it known as cross
sectional analysis
Limitations of financial statements analysis
1) Historical analysis
2) Ignores price level changes
3) Qualitative aspects ignored
4) Suffers form the limitations of financial statements
5) Not free from bias
6) Window dressing
ACCOUNTIG RATIOS
Ratio :- Ratio is an arithmetical expression of relationship between two interdependent or related item. Ratio
when calculated on the basis of accounting information are called Accounting Ratio.
Accounting ratio can be expressed by any of the following manner:
1. Pure ratio
2. Percentage
3. Time
4. Fraction
Objective of Ratio Analysis :- Ratio Analysis serves the purpose of various users who are interested in the financial
statements. It simplifies, Summarises and systematics the figures in the financial statements
1) To simplify the accounting information
2) To determine liquidity, i.e. short term solvency (ability of the enterprise to meet its short term financial
obligation) and long term solvency (ability of the enterprise to pay its long term liabilities) of the business
3) To asses the operating efficiency of the business
4) To Analyse the profitability of the business
5) To help in comparative analysis, i.e. inter-firm and intra-firm comparisons
Advantage of Ratio Analysis
a) Useful tool for analysis of financial statements
b) Simplifies accounting data
c) Useful in assessing the operating efficiency of business
d) Useful for forecasting
e) Useful in locating the weak areas
f) Useful in inter-firm and intra firm comparison
Classification or Types of accounting ratio

a) Liquidity ratio :- These ratio show the ability of the enterprise to meet it short term financial obligations.
Important liability ratio are (i) current ratio (ii) quick ratio
b) Solvency ratio :- These ratio are calculated to assess long term financial position of the enterprise solvency means
ability of the enterprise to meet its long term financial obligation i.e. liabilities. Important solvency ratio are (i) debt
to equity ratio, (ii) total assets to debt ratio, (iii) proprietary ratio, and (iv) interest coverage ratio
c) Activity Ratio or Turnover ratios:- These ratio show how efficiently a company is using its resources. Important
activity ratio are
(i) inventory turnover ratio, (ii) trade receivables turnover ratio,
(iii) trade payables turnover ratio, and (iv) working capital turnover ratio
d) Profitability Ratio :- Profitability of a firm can be measured by its profitability ratio. Important profitability ratio are
(i) gross profit ratio, (ii) operating ratio, (iii) operating profit ratio, (iv) net profit ratio and (v) return on investment
Liquidity (Short term solvency) ratio “Current ratio”
Liquidity of business refers to the firm ability to meet its current obligation i.e. short term financial liabilities
Inventories ( excluding loose tools and stores and spare) FOR CALCULATION OF CURRENT RATIO
Current ratio Ideal ratio is 2:1
If the current ratio is 2 or more than 2, it means the firm is adequately liquid and shall be able to meet its current
financial obligation but if the current ratio is less than 2 it means the firm may face difficulty in meeting its current
financial obligation. High current ratio means better liquidity position. But a very high current ratio means poor
management of funds.
Liquid ratio or quick ratio or acid test ratio :-
Ideal ratio :- Quick ratio of 1:1 is an accepted standard, since for every rupee of current liabilities, there is a rupee of
quick assets
In case of liquid ratio is less than 1 it means that current liabilities are more than its quick assets. As a result the
enterprise may not be able to meet its short term financial obligation i.e. current liabilities,
if they fall due for payment on that date
Debt to equity ratio
Ideal ratio 2:1
A high debt to equity ratio means that the enterprise is depending more on borrowings or external debts in
comparison to shareholders to shareholders fund. In effect lenders are at higher risks and have lower safety cover. On
the other hand low debt to equity ratio means that the enterprise is depending more on share holders funds than
external equities. In effect lenders are at a lower risk and have higher safety cover
Total assets to debt ratio
A high ratio means higher safety cover for lenders to the business. On the other hand a low ratio means lower safety
for lenders as the business depends largely on outside loans for existence. In other words investment by the
proprietor is low
Debt to Capital Employed Ratio
This ratio established a relationship between Long-term Debt and Capital Employed or Net Assets. Capital Employed
is total of Long-term funds which are shareholder’s funds and Long-term Debt. It is computed as follows:
Debt to Capital Employed Ratio = Long-term Debt/Capital Employed (or net Assets))
Significance: The ratio shows the amount of long-term debts in capital employed. Low ratio means more security to
lenders and high ratio means lesser security to lenders. High ratio helps the management in trading on equity.
Proprietary ratio:-
The objective of computing this ratio is to measure the proportion of total assets financed by proprietors funds.
A high proprietary ratio means adequate safety for unsecured lenders and creditors. But a very high ratio means
improper mix of proprietors funds and loan funds, which results in lower return on investment
A lower proprietary ratio indicates greater risk to unsecured lenders and creditors
Interest coverage ratio
Objective and significance
The ratio is important and meaningful to debenture holders and lenders of long term funds. The objective of
calculating this ratio is to determine the amount of profit available to cover interest on long term debt.
A high ratio is considered better for the lenders as it shows higher profit margin to meet interest cost
Activity ratio :-
Activity ratio also termed as performance or Turnover ratio measures how well the resources have been used by the
enterprises. In other words these ratio measure the effectiveness with which the enterprise uses its available
resources
The objective of computing inventory turnover ratio is to determine whether investment in stock has been judicious
or not i.e. only the required amount is invested in stock. It measures the efficiency of inventory management.
A high ratio shows that more sales are being produced by a rupee of investment in inventories. A very high inventory
turnover ratio shows overtrading and it may result in working capital shortage
A low inventory turnover ratio means inefficient use of investment in inventory, over-investment in stocks.
Trade receivables turnover ratio
This ratio indicates the number of times trade receivables are turned over in a year in relation to credit sales. It show
how quickly trade receivables are converted into cash and cash equivalents and thus show the efficiency in collection
of amount due against trade receivables. A high ratio is better since it show that debts are collected more promptly
A lower ratio shows inefficiency in collection or increased credit period
Debt collection period or Average collection period
It provide an approximation of the average time that it takes to collect debtors
Trade payables turnover ratio:-
The objective of calculating trade payables turnover ratio is to determine the efficiency with which the trade payables
are managed and paid.
High turnover ratio or shorter payment period shows less credit period being available or early payments being
made. A high ratio also indicates that the enterprise is not availing full credit period. A low ratio or longer payment
period indicates that creditors are not paid in time or increased credit period
Working capital turnover ratio
The objective of computing the ratio is to ascertain whether or not working capital has been effectively used in
generating revenue.
A high ratio show efficient use of working capital, whereas, low ratio show its inefficient use.
Working capital turnover ratio is considered to be a better measure than the inventory turnover ratio since it shows
the efficiency or inefficiency in the use of the working capital
Fixed Assets Turnover Ratio
Fixed Assets Turnover Ratio is the ratio that analyse the relationship between Net Fixed Assets and Revenue from
Operations, i.e. the number of times net fixed assets are used or turned around for earning revenue from operations
during the year. It is computed as follow:
Fixed Assets Turnover Ratio = Revenue from operation/Fixed Asset (net)
Revenue from operation means Gross Revenue less Reversals, if any in terms of sales, it means Gross sale less sale
return.
Fixed assets (net) means Fixed asset cost-depreciation.
Significance- It shows the efficiency with which the fixed assets have been used in earning revenue from operations
during the year. It should be noted that fixed assets are held by an enterprise to enhance its earning capacity. A high
ratio means efficient utilisation of fixed asset while low ratio means inefficient utilisation of fixed assets.
Net Assets Turnover Ratio
Net assets (also known as capital employed turnover ratio) Turnover ratio is the ratio that analyse the relationship
between Net Assets or Capital employed and Revenue from operations. It shows the number of times net assets or
capital employed is used or turned around in earning revenue from operations during the year. Stating it differently it
is the relationship between revenue from operations and net assets (capital employed) in the business.
Net Assets or Capital Employed Turnover Ratio = Revenue from operations/ Capital employed
Net Assets means Total Assets less Current liabilities = is capital employed
Significance – Higher Turnover ratio means better and efficient utilisation of net assets or capital employed and thus
higher profitability and liquidity
Gross profit ratio
The main objective of computing gross profit ratio is to determine the efficiency with which production and / or
purchase operation and selling operation are carried on.
Higher gross profit ratio is better as it leaves higher margin to meet operating expense and creation of reserve
Operating ratio
The objective of computing operating ratio is to assess the operational efficiency of the business
It show the percentage of revenue from operation that is absorbed by the cost of revenue from operation (COGS)
and operating expense.
Lower operating ratio is better because it leaves higher profit margin to meet non-operating expense to pay dividend
etc. a rise in the operating ratio indicates decline in efficiency
Operating profit ratio
The objective of computing the ratio is to determine operational efficiency of the business
An increase in the ratio over the previous period shows improvement in the operational efficiency of the business
enterprise
Net profit ratio
Net profit ratio is an indicator of overall efficiency of the business.

Higher the net profit ratio better the business. This ratio helps in determining the operational efficiency of the
business. An increase in the ratio over the pervious period shows improvement in the operational efficiency and
decline means otherwise.
A comparison with the industry standards is also an indicator of the efficiency of the business
Return on investment (ROI) or Return on capital employed
Return on capital employed or return on investment assess overall performance of the enterprise. It measure how
efficiently the resources of the business are used. Return on capital employed is a fair measure of the profitability of
any concern with the result that the performance of different industries may be compared
An enterprise should have a satisfactory ratio. To assess whether the ratio is satisfactory or not it should be
compared with its own ratios of the past year or with the ratio of similar enterprises in the industry or with the ratio
of industry standards.
CASH FLOW STATEMENT
Meaning
It is a statement that shows the cash flows, i.e. inflow and outflow of cash and cash equivalents during the
accounting period from operating, investing and financing activities
It is prepared according to AS-3 (Revised)
Objective of cash flow statement is to determine the cash inflow and outflow from operating, investing, financing
activities.
Importance of cash flow statement
• It helps in ascertaining cash flow from operating, investing & financing activities
• It helps management in planning
• It helps in maintenance of liquidity & determine solvency
• It helps in efficient cash management
• Helps in comparison
• Investment & dividend decision are also taken by the finance manager by help of cash flow statemen
SUNIL PANDA- THE EDUCATOR
MOST IMPORTANT QUESTIONS
RATIOS
Q.1) Working Capital is 9,00,000; Total Assets are 45,00,000; Non-Current Assets are 33,00,000. Calculate Current
Ratio.
Q.2) Ratio of Current Assets (6,00,000) to Current Liabilities (4,00,000) is 1.5:1. The firm is interested in maintaining
the Current Ratio of 2:1, by paying a part of the current Liabilities. Compute amount of Current Liabilities that should
be paid, so that Current Ratio at the level of 2:1 may be maintained.
Q.3) Current Ratio of a company is 2:1. State giving reasons, which of the following would improve, reduce or not
change the ratio:
i) Repayment of a current liability ii) Purchase of goods for cash
iii) Sale of office equipment for 20,000 (Book value 25,000) iv) Purchase of goods on Credit.
v) Sale of goods for 30,000 (Cost 25,000) vi) Payment of declared dividend.
Q.4) The Current Ratio of a Company is 2:1. State with reasons which of the following transactions will increase,
decrease or not change the ratio:
i) Redeemed 9% Debentures of 1,00,000 at a premium of 10%
ii) Received from debtors 17,000
iii) Issued 2,00,000 Equity Share to the Vendors of Machinery
iv) Accepted bills of Exchange drawn by the creditors 7,000
Q.5) Current Ratio of A Ltd. is 4.5:1 and Liquid Ratio is 3:1. If its inventories are 3,00,000, find its Current Liabilities;
Current Assets and Quick Assets.
Q.6) Capital Employed 20,00,000; Fixed Assets 14,00,000; Current Liabilities 2,00,000. There are no Long term
Investments. Calculate Current Ratio.
Q.7) Assuming that the Debt-to-Equity Ratio is 2:1, State giving reasons, which of the following transactions would (i)
increase, (ii) Decrease, (iii) Not alter Debt to Equity Ratio:
i) Issue of New share for cash
ii) Conversion of Debentures into Equity Shares
iii) Sale of Fixed Assets at profit
iv) Purchase of a fixed Assets on Long-term Deferred payments basis
v) Payment to creditors.
Q.8) If Debt to Equity is 2:1. State giving reasons, whether this ratio will increase or decrease or will not change in
each one of the following cases:
i) Purchas of a fixed assets by taking long-term loan
ii) Sale of fixed assets (book value 40,000) at a loss of 5,000
iii) Sale of Fixed assets (book value 40,000) for 50,000
iv) Issue of new share for cash

v) Issue of bonus shares
vi) Redemption of debentures for cash
vii) Conversion of debentures into equity shares
viii) Declaration of final dividend
Q.9) Shareholders funds 14,00,000; Total liabilities 18,00,000; Current liabilities 2,00,000. Calculate total assets to
debt ratio.
Q.10) Calculate Proprietary ratio if total assets to debt ratio is 2:1. Debt is 5,00,000. Equity shares capital is 0.5 times
of debts. Preference share capital is 25% of equity share capital. Net profit before tax is 10,00,000 and rate of tax is
40%.
Q.11) State with reason whether the Proprietary ratio will improve, decline or will not change because of the
following transactions if Proprietary ratio is 0.8:1.
i) Obtained a loan of 5,00,000 from State Bank of India payable after five years.
ii) Purchased machinery of 2,00,000 by cheque
iii) Redeemed 7% Redeemable Preference shares 3,00,000
iv) Issued equity shares of the vendor of building purchased for 7,00,000
v) Redeemed 10% redeemable debentures of 6,00,000
Q.12) From the following information, calculate interest coverage ratio:
Net profit after interest and tax 1,20,000; Rate of income tax 40%; 15% debentures 1,00,000; 12% Mortgage loan
1,00,000.
Q.13) From the following information calculate inventory turnover ratio:
Revenue from operations 16,00,000
Average inventory 2,20,000
Gross loss ratio 5%
Q.14) Revenue from operations 4,00,000; Gross profit 1,00,000; Closing inventory 1,20,000; Excess of Closing
inventory over opening inventory 40,000. Calculate inventory turnover ratio.
Q.15) 2,00,000 is the cost of revenue from operations (COGS) during the year. If inventory turnover ratio is 8 times,
calculate inventories at the end of the year. Inventories at the end is 1.5 times that of in the beginning.
Q.16) From the following information determine opening and closing inventories
Inventory turnover ratio 5 times, Total sales 2,00,000, Gross profit ratio 25%. Closing inventory is more by 4,000 than
the opening inventory.
Q.17) Mercury Ltd. made Credit sales of 4,00,000 during the financial period. If the collection period is 36 days and
year is assumed to be 360 days, calculate
i) Trade receivable turnover ratio
ii) Average trade receivables
iii) Trade receivables at the end when trade receivables at the end are more than that in the beginning by 6,000
Q.18) Gross Profit at 25% on cost, Gross profit 5,00,000; Equity share capital 10,00,000; Reserve and Surplus
2,00,000; Long term loan 3,00,000; Fixed assets (net) 10,00,000. Calculate working capital turnover ratio.
Q.19) Capital employed 12,00,000; Net fixed assets 8,00,000; Cost of goods sold or cost of revenue from operations
40,00,000; Gross profit is 20% on cost. Calculate working capital turnover ratio.
Q.20) Opening inventory 2,00,000; Closing inventory 1,20,000. Inventory turnover ratio 8 times; Selling price 25%
above cost. Calculate Gross profit ratio.
Q.21) Calculate Gross Profit ratio from the following data:
Average inventory 3,20,000; Inventory turnover ratio 8 times; Average trade receivables 4,00,000; trade receivables
turnover ratio 6 times; cash sales 25% of net sales.
Q.22) Gross profit ratio of a company is 25%. State giving reason which of the following transaction will (a) increase,
(b) decrease (c) not alter the gross profit ratio
i) Purchase of stock in trade 50,000
ii) Purchases return 15,000
iii) Cash sales of stock in trade 40,000
iv) Stock in trade costing 20,000 withdrawn for personal use
v) Stock in trade costing 15,000 distribution as free sample.
Q.23) Calculate Cost of revenue from operations from the following information’s:
Revenue from operations 12,00,000; Operating ratio 75%; Operating expenses 1,00,000
Q.24) What will be the operating profit ratio, if operating ratio is 65.33%?
Q.25) Operating cost 3,40,000; Gross profit ratio 20%; Operating expenses 20,000. Calculate operating profit ratio
Q.26) Y Ltd. Profit after interest and tax was 1,00,000. Its current assets were 4,00,000; current liabilities 2,00,000;
fixed assets 6,00,000 and 10% long term debt 4,00,000. The rate of tax was 20%. Calculate return on investment of Y
Ltd.
Q.27) Calculate return on investment (ROI) from the following details: Net profit after tax 6,50,000; rate of income
tax 50%; 10% debenture of 100 each 10,00,000; fixed assets at cost 22,50,000; accumulated depreciation on fixed
assets up to date 2,50,000; current assets 12,00,000; current liabilities 4,00,000.
Q.28) Determine Return on Investment and Net Assets Turnover ratio from the following information: -
Profits after Tax were ₹ 6,00,000; Tax rate was 40%; 15% Debentures were of ₹20,00,000; 10% Bank Loan was ₹
20,00,000; 12% Preference Share Capital ₹ 30,00,000; Equity Share Capital ₹ 40,00,000; Reserves and Surplus were ₹
10,00,000; Sales ₹ 3,75,00,000 and Sales Return ₹ 15,00,000.
Q.29) Determine Return on Investment and Net Assets Turnover ratio from the following information:-
Profits after Tax were ₹ 6,00,000; Tax rate was 40%; 15% Debentures were of ₹20,00,000; 10% Bank Loan was ₹
20,00,000; 12% Preference Share Capital ₹ 30,00,000; Equity Share Capital ₹ 40,00,000 ; Reserves and Surplus were ₹
10,00,000; Sales ₹ 3,75,00,000 and Sales Return ₹ 15,00,000.
Or
Debt to Capital Employed ratio is 0.3:1. State whether the following transactions, will improve, decline or will have
no change on the Debt to Capital Employed Ratio. Also give reasons for the same.
(i) Sale of Equipment’s costing ₹ 10,00,000 for ₹ 9,00,000.

(ii) Purchased Goods on Credit for ₹ 1,00,000 for a credit of 15 months, assuming operating cycle is of 18
months.
(iii) Conversion of Debentures into Equity Shares of ₹ 2,00,000.
(iv) Tax Refund of ₹ 50,000 during the year.
Q.30) Calculate Gross Profit Ratio from the following information :
Inventory Turnover Ratio : 6 times
Average Inventory : 4,00,000
Goods are sold at a profit of 25% on cost
Q.31) The Current Ratio of a company is 2 : 1. State giving reasons, which of the following transactions would
improve, reduce or not change the ratio :
(a) Purchased goods on credit 40,000
(b) Sale of furniture of 8,000 at a loss of 2,000
(c) Cash received from trade receivables 15,000
(d) Issued equity shares 6,00,000
Q.32) From the following information, calculate Operating Ratio :
Revenue from Operations : 10,00,000
Cost of Revenue from Operations : 4,00,000
Selling expenses : 80,000
Administrative expenses : 1,20,000
Q.33) From the following details, calculate Interest Coverage Ratio :
Net Profit before Tax : 2,00,000
10% Long term debt : 5,00,000
Tax rate 40%
Q.34) The Current Ratio of Zenith Ltd. is 2 : 1. State giving reasons, which of the following transactions will improve,
reduce or not change the current ratio :
(i) Payment to creditors 20,000
(ii) Purchased goods on credit 80,000
(iii) Cash received from debtors 15,000
(iv) Issue of equity shares 5,00,000
Q.35) A company had a liquid ratio of 1.5 and current ratio of 2 and inventory turnover ratio 6 times. It had total
current assets of ₹8,00,000. Find out annual sales if goods are sold at 25% profit on cost.
Q.36) Calculate debt to capital employed ratio from the following information.
Shareholder funds ₹ 15,00,000
8% Debenture ₹ 7,50,000
Current liabilities ₹ 2,50,000
Non -current Assets ₹ 17,50,000
Current Assets ₹7,50,000

COMPARATIVE AND COMMON SIZE STATEMENT
Q.1) From the following information, prepare comparative statement of Profit & Loss
Particulars Note no. 2022-23 2021-22

Revenue from operations 10,00,000 8,00,000
Other Income 2,20,000 1,50,000
Cost of materials consumed 4,00,000 3,00,000
Change in inventories of finished goods and work in progress 2,00,000 1,00,000
Other Expenses(% of Revenue from Operations 15% 10%
Tax Rate 30% 30%
Q.2) Prepare Comparative Statement of Profit and Loss from the following
Particulars Note no. 31st March 2023 31st March 2022

Revenue from operations (net sales) 5,00,000 3,20,000
Purchase of stock in trade 4,50,000 2,50,000
Change in inventories of stock in trade 50,000 50,000
Other expenses (% cost of revenue from operations or cost 8% 10%
of goods sold)
Tax 30% 30%
Q.3) From the information extracted from the statement of Profit & Loss of Zee Ltd for the year ended 31st March
2022 and 31st March 2023, prepare a common size statement of profit & loss:

Gross Profit 60% 70%
Other Expenses 2,20,000 2,60,000
Tax Rate 50% 50%
Q.4) Prepare Common-Size Balance Sheet of L.X. Ltd. from the following information

I. Equity and liabilities
1. Share holders’ fund 20,00,000 10,00,000
2. Non-current liabilities 20,00,000 5,00,000
3. Current liabilities 10,00,000 5,00,000
Total 50,00,000 20,00,000
II. Assets
1. Non-current assets 30,00,000 12,50,000
2. Current assets 20,00,000 7,50,000
Total 50,00,000 20,00,000
Q.5) from the following statement of profit and loss ltd. for the years ended 31-3-2022 and 31-3-23 prepare common
size statement

Employee benefit expenses 10,00,000 7,00,000
Other expenses 2,00,000 3,00,000
Tax rate 30% 30%
SUNIL PANDA COMMERCE CLASSES (SPCC)
XII ACCOUNTANCY
CASH FLOW STATEMENT

Q.1) Prepare Cash Flow Statement on the basis of information given in the Balance Sheets of Relga Ltd. as
at 31st March, 2022 and 31st March, 2023
Particulars Note 31st March 31st March

no. 2022 2023
I. Equity and Liabilities
(a) Share Capital 2,00,000 2,50,000
(b) Reserves and Surplus 1 50,000 70,000
2. Non-current Liabilities
Long-term Borrowings 2 1,00,000 80,000
(a) Trade payables 3 60,000 1,60,000
(b) Other current liabilities 4 25,000 20,000
Total 4,35,000 5,80,000
II. Assets
1. Non-current Assets
i) Fixed Assets
(a)Tangible 5 1,50,000 2,00,000
(b) intangible 6 10,000 2,000
ii) Long-term loans and advances 1,00,000 1,30,000
2. Current Assets
(a) inventories 70,000 90,000
(b) Trade receivables 40,000 60,000
(c) Cash and Cash Equivalents 65,000 98,000
Total 4,35,000 5,80,000
Notes to Accounts
Note Particulars 31st March 31st March

no. 2022 2023
1 Reserve and surplus
General reserve 50,000 70,000
2 Long term borrowings
12% Debentures 1,00,000 80,000
3 Trade payables
Creditors 40,000 60,000
Bill payables 20,000 1,00,000
4 Other current liabilities
Outstanding expenses 25,000 20,000
5 Tangible assets
Machinery 2,00,000 2,60,000
Less: Provision for Depreciation (50,000) (60,000)
6 Intangible assets
Goodwill 10,000 2,000
Additional Information:
1. During the year a piece of machinery with a book value of ₹ 30,000; provision for depreciation on it ₹
10,000 was sold at a loss of 50% on book value.
2. Debentures were redeemed on 31st March 2023.
Q.2) Following is the Balance Sheet of Mevanca Limited as at 31st March, 2023
Particulars Note 31st March 2023 31st March 2022

no.
(a) Share Capital 3,00,000 1,00,000
(b) Reserves and Surplus 1 25,000 1,20,000
Long-term Borrowings 2 80,000 60,000
(a) Trade payables 6,000 20,000
(b) Short term provisions 3 68,000 70,000
Total 4,79,000 3,70,000
II. Assets
(a) Fixed Assets 4 3,36,000 1,92,000
2. Current Assets
(a) Inventories 67,000 60,000
(b) Trade receivables 51,000 65,000
(d) Other current assets 4,000
Total 4,79,000 3,70,000
Note 31st March 31st March 2022

no. Particulars 2023
1. Reserve and surplus:
Surplus (balance in statement of profit and loss) 25,000 1,20,000
2. Long term borrowings:
10% Loan 80,000 60,000
3. Short term provisions:
Provision for tax 68,000 70,000
4. Tangible assets
Machinery 3,84,000 2,15,000
Less: Accumulated depreciation (48,000) (23,000)
Additional information:
a) Additional loan was taken on 1st July,2022
b) Tax of 53,000 was paid during the year.
Prepare Cash flow statement
Q.3) From the following balance sheet of Tamalika limited as at 31 st march,2023 and additional
information, prepare cash flow statement for the year ended 31 st march,2023:
Statement of profit and loss for the year ended 31st march,2023
Particulars Note 31st March 2023 31st March

no. 2022
(a) Share Capital 16,00,000 12,00,000
(b) Reserves and Surplus 1 6,60,000 4,40,000
Long-term Borrowings 2 3,20,000 2,00,000
(a) Short term borrowings 3 80,000 1,10,000
(b) trade payables 1,50,000 1,80,000
Total 28,10,000 21,30,000
II. Assets
(a) Fixed Assets - Tangible Assets 4 19,00,000 12,10,000
(b) Non-current investments 2,70,000 2,00,000
2. Current Assets
(a) current investment 1,60,000 80,000
(b) Inventories 1,80,000 4,00,000
(c) Cash and Cash Equivalents 5 3,00,000 2,40,000
Total 28,10,000 21,30,000
Notes to Accounts: -
Note Particulars 31st March 2023 31st March

no. 2022
1. Reserve and surplus:
Securities premium reserve 20,000
General reserve 3,00,000 2,40,000
Surplus i.e. balance in statement of profit and loss 3,40,000 2,00,000
6,60,000 4,40,000
2. Long term borrowings
10% debentures 3,20,000 2,00,000
3. Short term borrowings
Bank loan 80,000 1,10,000
4. Fixed assets tangible
Machinery (cost) 21,40,000 14,00,000
Less : Accumulated depreciation 2,40,000 1,90,000
19,00,000 12,10,000
5. Cash and cash equivalents
Cash in hand 1,40,000 1,10,000
Cash at bank 1,60,000 1,30,000
3,00,000 2,40,000
Additional information
i) During the year machinery costing ₹1,40,000 (accumulated depreciation provided thereon
₹1,10,000) was sold for ₹20,000.
ii) During the year, non-current investment costing ₹80,000 were sold at a profit of ₹16,000.
Additional debentures were issued on 31st march,2023
Q.4) Prepare Cash flow statement for the year ended 31st march,2023 from the following balance sheet of
Sankar limited as at 31st march,2023 and additional information provided
Particulars Note 31st March 31st March

no. 2023 2022
(a) Share Capital 6,00,000 5,00,000
(a) trade payables 2,80,000 1,80,000
Total 12,80,000 8,80,000
II. Assets
(a) Fixed Assets - Tangible Assets 2 5,00,000 3,00,000
2. Current Assets
(a) Inventories 1,00,000 1,50,000
(b) Trade Receivables 6,00,000 4,00,000
Total 12,80,000 8,80,000
Notes to Accounts
Note Particulars 31st March 2023 31st March

no. 2022
1. Reserve and surplus
Surplus i.e. balance in statement of profit and loss 4,00,000 2,00,000
2. Fixed assets – Tangible assets
Plant and machinery 5,00,000 3,00,000
Additional information
i) An old machinery having book value of 50,000 was sold for 60,000
ii) Depreciation provided on plant and machinery during the year was 30,000.
Q.5) Following are the Balance sheets of Krishtec Ltd. for the year ended 31-3-2022 and 2023:
Particulars Note 31-3-23 31-3-22

no.
(a) Share Capital 12,00,000 8,00,000
(b) Reserves and Surplus 3,50,000 4,00,000
Long-term Borrowings 4,40,000 3,50,000
Trade payables 60,000 50,000
Total 20,50,000 16,00,000
II. Assets
Fixed Assets
(a)Tangible assets 12,00,000 9,00,000
2. Current Assets
(a) inventories 2,00,000 1,00,000
(b) Trade Receivables 3,10,000 2,30,000
(c) Cash and Cash Equivalents 3,40,000 3,70,000
Total 20,50,000 16,00,000
Prepare a Cash flow statement after considering the following adjustments:

i) The company paid interest 36,000 on its long-term borrowings
ii) Depreciation charged on tangible fixed assets was 1,20,000.
Q.6) Read the following hypothetical text and answer the given questions on the basis of the same:
Aashna, an alumnus of CBSE School, initiated her startup Smart pay, in 2015. Smart pay is a service
platform that processes payments via UPI and POS, and provides credit or loans to their clients. During the
year 2021-22, Smart pay issued bonus shares in the ratio of 5:1 by capitalizing reserves. The profits of
Smart pay in the year 2021-22 after all appropriations was ₹ 7,50,000. This profit was arrived after taking
into consideration the following items: -
Particulars Amount (₹)

Interim Dividend paid during the year 90,000
Depreciation on Machinery 40,000
Loss of Machinery due to fire 20,000
Insurance claim received for Loss of Machinery due to Fire 10,000
Interest on Non-Current Investments received 30,000
Tax Refund 20,000
Additional Information:
Particulars 31.3.22 (₹) 31.3. 21(₹)

Equity Share Capital 12,00,000 10,00,000
Securities Premium Account 3,00,000 5,00,000
General Reserve 1,50,000 1,50,000
Investment in Marketable Securities 1,50,000 1,00,000
Cash in hand 2,00,000 3,00,000
Machinery 3,00,000 2,00,000
10% Non-Current Investments 4,00,000 3,00,000
Bank Overdraft 2,50,000 2,00,000
Goodwill 30,000 80,000
Provision for Tax 80,000 60,000
(i) Goodwill purchased during the year was ₹ 20,000.
(ii) Proposed Dividend for the year ended March 31, 2021 was ₹ 1,60,000 and for the year ended
March 31,2022 was ₹ 2,00,000.
You are required to:
1. Calculate Net Profit before tax and extraordinary items.
2. Calculate Operating profit before working capital changes.
3. Calculate Cash flow from Investing activities.
4. Calculate Cash flow from Financing activities.
5. Calculate closing cash and cash equivalents.
Q.7) From the following Balance Sheet of Jay Ltd. as at 31-3-2023, Calculate Cash flow from Operating
activities

(a) Share Capital 1 50,00,000 30,00,000
(a) Trade payables 2,00,000 3,00,000
(b) Other current liabilities 4 3,00,000 1,00,000
(b) Short term provisions 5 1,50,000 1,00,000
Total 74,50,000 45,00,000
II assets
1. non-current asset
a) fixed assets
i) tangible assets 6 60,00,000 40,00,000
ii) intangible assets 7 4,00,000 4,00,000
2. Current assets
a) inventories 7,00,000 40,000
b) cash and cash equivalents 3,50,000 60,000
Total 74,50,000 45,00,000

Notes to Account
Particulars 31-March-23 31-March-22
1. Share capital
Equity share capital 50,00,000 30,00,000
2. reserve and surplus
Surplus i.e. balance sheet 10,00,000 6,00,000
3. long term borrowing
10% Debenture 8,00,000 4,00,000
4. other current liabilities
Outstanding rent 3,00,000 1,00,000
5. short term provision
provision for tax 1,50,000 1,00,000
6. tangible assets
Land 60,00,000 40,00,000
7. intangible assets 4,00,000 4,00,000
Patents
4,00,000 10% Debentures were issued on 31-3-23
Q.8) State whether the following transactions will result in inflow, outflow or no flow of cash while
preparing cash flow statement:
(i) Cash deposited into Bank ₹12,500
(ii) Purchase of land & building for 2,00,000 and issue 9% Debentures for the same
Q.9) Read the following hypothetical text and answer the given questions on the basis of the same.
In 2011, two young Indian entrepreneurs, Vaishali Bhatia and Vivek Bhatia decided to start an online auto portal. At
that time, there were no major players in the market and they saw an opportunity to fill the gap. They used a user-
friendly website and mobile app which made it easy for users to research and buy cars. It was converted into a
company Car Easy Ltd. in 2018.
From the following Balance Sheet of the company as on 31st March, 2023. Calculate Cash Flow from Operating
Activities.
Particulars Note no 31st March 2023 31st March 2022

(a) Share Capital 9,00,000 3,00,000
(b) Reserves and Surplus 1 75,000 3,60,000
(b) Short term provisions 3 2,04,000 2,10,000
Total 14,37,000 11,10,000
II assets
1. non-current asset
a) fixed assets 4 10,08,000 5,76,000
2. Current assets
a) inventories 3,54,000 3,87,000
b) cash and cash equivalents 75,000 1,47,000
Total 14,37,000 11,10,000
Notes to Account

1. Reserve and Surplus
Surplus i.e. Balance in statement of Profit and Loss 75,000 3,60,000
2.long term borrowing
10% Debentures 2,40,000 1,80,000
3.Short term provisions
Provision for tax 2,04,000 2,10,000
4.Fixed assets
Machinery 11,52,000 6,45,000
Accumulated depreciation (1,44,000) (69,000)
Total 10,08,000 5,76,000
i) 10% Debenture were issued on 31st March, 2022
ii) Tax of 80,000 was paid during the year.
Q.10) Prepare a Cash Flow Statement from the following Balance Sheet of Arya Ltd.
Particulars Note no 31st March 2023 31st March 2022

(a) Share Capital 10,00,000 8,00,000
(b) Short term provisions 3 30,000 28,000
Total 18,50,000 14,80,000
II assets
2. Non-current asset
a) Property ,Plant and equipment and
intangible assets:
Property, Plant and Equipment 4 7,75,000 4,90,000
b) Non-current Investment 90,000 50,000
2. Current assets
a) inventories 6,20,000 4,13,000
b) Trade receivables 3,20,000 4,94,000
c) cash and cash equivalents 45,000 33,000
Total 18,50,000 14,80,000
Notes to Account

1. Reserve and Surplus
General Reserve 5,00,000 4,30,000
Capital Reserve 60,000 50,000
Surplus i.e. Balance in statement of Profit and Loss 80,000 60,000
2.long term borrowing
10% Debentures 1,50,000 1,00,000
3.Short term provisions
Provision for tax 30,000 28,000
4.Fixed assets
Plant and Machinery 7,75,000 4,90,000
1. Tax provided during the year is ₹17,000.
2. Depreciation charged on plant and Machinery during the year amounted to ₹1,20,000.
3. Non-current Investments costing ₹ 30,000 were sold for ₹ 40,000 during the year. Gain on sale of
Investments was credited to Capital Reserve.
4. Additional Debentures were issued on 31.03.2023.
SUNIL PANDA COMMERCE CLASSES (SPCC)
XII ACCOUNTANCY
ISSUE OF DEBENTURES
Q.1) Alka Ltd. issued 5,000, 10% debentures of₹1,000 each at a discount of 10% redeemable at a premium of
5% after 5 years. According to the terms of issue₹500 was payable on application and the balance amount on
allotment of debentures. Record necessary entries regarding issue of 10% debentures.
Q.2) A Ltd . issued 2,000; 9% Debentures of ₹ 100 each on the following terms: ₹40 on applications
;₹ 60 on allotment.
The public applied for 2,500 debentures. Applications for 1,800 debentures were accepted in full.
Applications for 500 debentures were allotted 200 debentures and applications for 200 debentures were
rejected . Pass necessary Journal entries.
Q.3) Anthony Ltd. issued 20,000, 9% Debentures of ₹ 100 each at 10% discount to Mithoo Ltd. from whom
Assets of ₹ 23,50,000 and Liabilities of ₹ 6,00,000 were taken over. Pass entries in the books of Anthony Ltd.
if these debentures were to be redeemed at 5% premium
Q.4) Shovan Limited took over the assets of 60,00,000 and liabilities of 10,00,000 from Swami Limited for an
agreed purchase consideration of 45,00,000. The amount was payable by issuing 10% debentures of 100
each at 25% premium. Pass necessary journal entries for the above transactions in the books of Shovan
Limited.
Q.5) On 01.04.2021, Bain Ltd. purchased from Cayres Ltd., Machinery at ₹17,00,000 and Land and Building at
₹40,00,000. It also took over its liabilities amounting to ₹7,00,000. The purchase consideration of ₹60,00,000
was paid as follows : ₹ 5,00,000 through a cheque and the balance by issue of 9% debentures of ₹100 each
at a premium of 10%.
Pass necessary journal entries for the above transactions in the books of Bain Ltd.
Q.6) Pioneer Fitness Ltd. took over the running business of Healthy World Ltd. having assets of ₹10,00,000
and liabilities of ₹ 1,70,000 by:
a) Issuing 8,000 8% Debentures of ₹ 100 each at 5% premium redeemable after 6 years @ ₹ 110; and
b) Cheque for ₹ 50,000.
Pass the Journal entries in the books of Pioneer Fitness Ltd.
Q.7) Suhana Limited purchased machinery from Vikrant manufactures limited. The company paid the
vendors by issue of some equity shares and debentures and the balance through bill payable on acceptance
in their favour payable after three months. The accountant of the company which journalizing the above
mentioned transaction left some items blank. You are required to fill in the blanks
Date Particular L.F. Amount ₹ Amount ₹
Machinery A/c Dr.

To ________________
(Being machinery purchased for ₹14,00,000 from
Vikrant manufactures limited)
Vikrant manufactures limited Dr.

Loss on issue of debentures A/c Dr.
To ______________________
To ______________________
To securities premium reserve A/c
To premium on redemption of debentures A/c
(Bing ₹2,00,000, 12% Debentures issued at a discount of
10%, redeemable at a premium of 10% and 1,00,000 equity
shares of ₹10 each issued at a premium of 15%)
______________________ Dr.
To ____________________________
(Being )
Q.8) On 1-04-2016 L and B Ltd issued 635, 9% debentures of ₹500 each. Pass necessary journal entries for
the issue of debentures in the following situations:
a) when debentures were issued at 5% discount, redeemable at 10% premium.
b) When debentures were issued at 12% premium, redeemable at 6% premium
Q.9) Pass necessary journal entries for the following transactions relating to the issue of debentures :
(a) Gagan Limited issued ₹10,00,000, 9% Debentures of ₹100 each at a premium of 5%, redeemable at par
after four years.
(b) KS Limited issued ₹10,00,000, 10% Debentures of ₹100 each at par, redeemable at 10% premium after
four years.
(c) QR Limited issued ₹10,00,000, 9% Debentures of ₹100 each at a discount of 10%, redeemable at a
premium of 5% after five years.
Q.10) Pass necessary journal entries for the issue of debentures in the books of YK Ltd. :
(i) Issued 500, 9% debentures of ₹1,000 each at par, redeemable at par.
(ii) Issued ₹20,00,000, 10% debentures at 6% discount, redeemable at par.
(iii) Issued 2000, 8% debentures of ₹100 each at a discount of 2%, redeemable at a premium of 4%.
Q.11) A Ltd obtained loan of ₹1,00,000 from Indian bank and issued 1,200, 10% debentures of ₹100 each as
collateral security. The company recorded the issue of debentures as collateral security by opening
Debenture suspense account. Present the issue of debentures in the balance sheet of the company.
Q.12) On 1-4-2015, KK Ltd. Issued 500 9% Debentures of ₹500 each at a discount of 4%, redeemable at a
premium of 5% after three years. Pass the necessary journal entries for the issue of debenture and
debenture interest for the year ended 31-3-2016 assuming that interest is payable on 30th September and
31st march. The company closes its books on 31st march every year.
Q.13) On 1st nov,2020, Tata Ltd. Issued 20,000, 10% debentures of ₹100 each at a discount of 5% redeemable
at par after four years. The debentures were fully subscribed. It has a balance of ₹40,000 in capital reserve
and ₹75,000 in securities premium reserve which the company decided to use for writing off the discount on
issue of debentures. Pass the journal entries for issue of debentures and writing off the discount also.
Prepare discount on issue of Debentures Account.
Q.14) Himadri Construction Limited engaged in the business of construction with registered office in
Bangalore, Karnataka was incorporated on 1st April,2016. The company is doing well and wants to penetrate
their roots in other cities with such objectives Himadri Construction Limited Purchased the running business
of Godavari Construction Limited having business in Coimbatore, Mysore and Salem for a sum of ₹90,00,000.
The assets and liabilities of Godavari construction Limited consisted of the following:
Land ₹42,00,000
Building ₹36,00,000
Inventories ₹12,00,000
Sundry debtors ₹18,00,000
Sundry creditors ₹12,00,000
Himadri Construction Limited paid ₹18,00,000 in cash and for the amount issued 10% Debentures of ₹100
each at par, redeemable after 6 years at par for the sum due to Godavari Construction Limited.
You are required to answer the following questions:
a) Calculate the amount to be transferred to Capital Reserve Account.

b) Pass journal entry to be passed at the time of purchase of business of Godavari Construction
Limited.
c) Pass journal entry for payment made in cash to Godavari Construction Limited.
d) Calculate the number of debentures issued to Godavari construction Limited.
e) Pass journal entry for the allotment of debentures to Godavari Construction Limited.
Q.15) Pacific food limited a FMCG company has an equity share capital of ₹20,00,000. The company earns a
return on investment of 15% on its capital. The company needed funds for diversification. The finance
manager had the following two options:
i)Borrow ₹10,00,000 @15% p.a. from a bank payable in four equal quarterly instalments starting form the
end of the fifth
s year.
ii)Issue ₹10,00,000, 9% Debentures of ₹100 each to the public at par, redeemable after five years at a
premium of 10%.
After all deliberations on 1st april,2021 the board of directors of the company opted for option
(ii) to increase the return to the shareholders. The balance sheet of the company on 1 st April,2021 shows a
balance of ₹3,00,000 in capital reserve which the company decided to use for writing off the discount on
issue of debentures.
You are required to answer the following questions.
a) Pass journal entry for receipt of application money of debentures

b) Pass journal entry to be passed at the time of allotment of debentures
c) Pass journal entry to write off loss on issue of debentures
d) Prepare loss on issue of debenture account
e) Calculate the amount of annual fixed obligation associated with debentures.
Q.16) Health2Wealth Ltd. had share capital of ₹ 80,00,000 divided in shares of ₹ 100 each and 20,000, 8%
Debentures of ₹ 100 each as part of capital employed. The company need additional funds of ₹ 55,00,000 for
which they decided to issue debentures in such a way that they got required funds after issuing debentures
of the same class as earlier, at 10% premium. These debentures were to be redeemed at 20% premium after
4 years. These debentures were issued on 01 October, 2021. You are required to
(a) Pass entries for issue of Debentures.
(b) Prepare Loss on Issue of Debentures Account assuming there was existing balance of Securities
Premium Account of ₹ 2,80,000.
(c) Pass entries for Interest on debentures on March 31, 2022 assuming interest is payable on 30
September and 31 March every year.
Q.17) On 01.04.2021, Aman Ltd. purchased from Kamal Ltd. Machinery ₹ 5,00,000, Furniture ₹ 3,00,000
and Land and Building ₹ 40,00,000. It also took over the sundry creditors of Kamal Ltd. of ₹ 8,00,000. The
purchase consideration was ₹36,00,000. Payment to Kamal Ltd. was made by issue of 9% Debentures of ₹
100 each at a discount of 10%. On 31.03.2022, the company decided to write off Discount on Issue of
Debentures Account according to the provision of Companies Act, 2013.
Pass necessary journal entries for the above transactions in the books of Aman Ltd.
Q.18) On July 01, 2022, Panther Ltd. issued 20,000, 9% Debentures of ₹ 100 each at 8% premium and
redeemable at a premium of 15% in four equal instalments starting from the end of the third year. The
balance in Securities Premium on the date of issue of debentures was ₹ 80,000. Interest on debentures was
to be paid on March 31 every year. Pass Journal entries for the financial year 2022-23. Also prepare Loss on
Issue of Debentures account.
ISSUE OF SHARAES
Q.1) Airforce Ltd. was registered with the authorized capital ₹4,00,000 divided into 4,000 shares of ₹100 each,
which were offered to the public. Amount payables as ₹30 per share on application, ₹50 per share on allotment
and ₹20 per share on first and final call. These shares were fully subscribed and all money was duly received.
Pass the necessary journal entries in the books of Airforce Ltd.
Q.2) Shyam Ltd. was incorporated with a capital of ₹2,00,000 divided into shares of ₹10 each. 2,000 shares were
offered to public. ₹3 per share (including ₹1 premium) was payable on application, ₹4 per share (including ₹1
premium) on allotment, ₹2 per share on first call and ₹3 per share on final call. All the money was received.
Give necessary journal entries in the books of Shyam Ltd.
Q.3) Joy Ltd. issued 1,00,000 equity shares of ₹ 10 each. The amount was payable as follows:
On application ₹ 3 per share
On allotment ₹ 4 per share
On 1st and final call Balance
Applications for 95,000 shares were received and shares were allotted to all the applicants. Sonam to whom 500
shares were allotted failed to pay allotment money and Gautam paid his entire amount due including the amount
due on first and final call on the 750 shares allotted to him along with allotment. What was the amount received
on allotment?
Q.4) XEROX Ltd. issued 80,000 shares of ₹100 each at par. The amount was payable as follows: On application ₹20
On allotment ₹40
On first and final call ₹40
Application for 1,20,000 shares were received. Allotment was made to the Applicants of 1,00,000 shares and
remaining applications rejected.
Excess money received on application was adjusted on sums due on allotment. Pass the necessary journal entries
in the books of XEROX Ltd.
Q.5) Tiny Toys Ltd. issued ₹10,00,000 shares of ₹100 each at a premium of ₹20 for subscription payable as
₹10 per share on application,
₹40 per share and ₹10 premium on allotment, and ₹50 per share and ₹10 premium on final payment.
Overpayments on application were to be applied towards amount due on allotment and overpayments on
application exceeding amount due on allotment was to be returned. Issue was oversubscribed 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. All the money due on allotment and final call was duly received Pass necessary entries in
the company's books to record the above transactions.
Q.6) Rajan Ltd. purchased assets from Geeta & Co. for ₹5,00,000. A sum of ₹1,00,000 was paid by means of a
bank draft and for the balance due Rajan Ltd. issued Equity Shares of ₹10 each at a premium of 25%. Journalize
the above transactions in the books of the company.
Q.7) Raftaar Ltd. took over Assets of ₹20,00,000 and liabilities of ₹3,00,000 from Raju chacha sons for
consideration of ₹15,00,000. The payment made as follow ₹5,00,000 through cheque and balance in equity
shares of ₹100 each at 25% premium. Pass entries in the books of Raftaar Ltd.
Q.8) Bhushan Lamps Ltd. issued 30,000 fully paid-up shares of ₹100 each for purchase of the following assets and
liabilities from Sharma & Co. Plant ₹7,00,000 Stock in Trade ₹9,00,000 Land and Building ₹12,00,000 Sundry
Creditors ₹2,00,000
You are required to pass necessary journal entries.
Q.9) Random Ltd. took over running business of Mature Ltd. comprising of Assets of ₹ 45,00,000 and Liabilities of
₹ 6,40,000 for a purchase consideration of ₹ 36,00,000. The amount was settled by bank draft of ₹ 1,50,000 and
balance by issuing 12% preference shares of ₹ 100 each at 15% premium.
Pass entries in the books of Random Ltd
Q.10) X Ltd. Purchased a building from Y Ltd. Consideration paid as follow issued Equity shares of ₹1,00,000 face
value of ₹10 each at Par 5,000 9% Preference shares of 100 each at 10% Premium s cheque ₹2,00,000 and
3 months bill payable of ₹47,000.
find out the value of building & pass the necessary journal entries.
Q.11) The subscribed capital of a company is ₹80,00,000 and the nominal value of the share is ₹100 each. There
were no calls-in-arrears till the final call was made. The final call money was received made on 77,500 shares
only. The balance in the calls in arrear amounted to ₹62,500. The final call on share will be ?
Q.12) Pass journal entries for the forfeiture and re-issue in the following cases:
i) A Ltd. forfeited 100 shares of ₹10 each fully called-up for non-payments of first call of ₹3 per shares and final
call of ₹3 per share. All of these shares were re-issued as fully paid for ₹10 per share.
ii) B Ltd. forfeited 400 shares of ₹10 each fully called-up for non-payments of final call of ₹3 per shares. 300 of
these share were re-issued as fully paid for ₹8 per share.
iii) C Ltd. forfeited 700 shares of ₹10 each fully called-up on which the holder has paid application money @₹3
per and allotment money @₹2 per share. Out of these 300 shares were re-issued as fully paid @₹7 per share.
iv) D Ltd. forfeited 1,000 shares of ₹10 each fully called-up on which the holder has paid only the application
money @₹3 per share. Out of these 600 shares were re-issued at ₹10.50 per share fully paid up
v) Virender Limited forfeited 20 shares of ₹100 each (₹60 called up) issued at par to Mukesh on which he had
paid ₹20 per share. Out of these, 15 shares were reissued to Sanjeev as ₹60 paid-up for ₹45 per share.
Q.13) Tata Ltd. forfeited 4000 shares of ₹10 each issued at 20% premium for non-payment of first call of ₹2 per
share. Final call of 3 per share was not yet made. Out of these 3000 shares were reissued for ₹9 per share fully
paid up. Pass journal entries for forfeiture and reissue of shares.
Q.14) Pass the necessary journal entries:
NK Ltd. forfeited 200 equity shares of ₹10 each, issued at a premium of ₹5 per share held by Ram for non-
payments of the final call of ₹3 per share. Of these 100 shares were reissued to vishu at a discount of ₹4 per
share.
Q.15) Pass necessary journal entries for the forfeiture and reissue of shares in the following cases:
(i) CC Ltd. forfeited 10,000 shares of 10 each, 8 called up, for non-payment of allotment money of 3 per share and
first call of 3 per share. Out of these, 2000 shares were reissued for 7 per share, 8 paid up.
(ii) GG Ltd. forfeited 2000 shares of 10 each fully called up, issued at a premium of 10% on which only application
money of 3 per share was received. Out of these, 500 shares were re-issued at 11 per share, fully paid up.
Q.16) X Ltd. issued 10,000 equity shares of ₹10 each at a par amount payable as follow
Application ₹5
Allotment ₹3
Final call ₹2
All the amount duly received except the final call money of 4000 shares. These shares were forfeited and reissued
for ₹12 per share.
Answer the following
a) Maximum permissible discount for 4000 shares at the time of reissue?
b) Balance in share forfeited account?
c) Minimum price of share reissued?
d) Capital reserve?
Q.17) Alfino Ltd. was registered with an authorized shares capital of ₹80,00,000 divided into equity share of ₹100
each, company offered 50,000 shares for public at 20% premium. The share amount was payable as follow:
On application ₹40 per share
On allotment ₹80 per share (including premium)
Application received for 80,000 shares pro rata allotment was made in ratio of 3:2 and rest application were
rejected All the money on allotment received except Miss Pooja holding 5000 shares her share immediately
forfeited and out of these 4000 shares reissued for ₹80 per share fully paid up. Pass the necessary journal entries
in the books of Alfino Ltd.
Q.18) Raja Ltd. invited applications for issuing 50,000 Equity Shares of ₹10 each. The amount was payable as
follows:
On Application ₹3 per share
On Allotment ₹5 per share
On First and Final Call - Balance
Application for 80,000 shares were received, allotment was made in the ratio of 5:4 and remaining applications
rejected. Excess money received on application was adjusted on sums due on allotment.
Neha, who had applied for 1,500 shares, did not pay the allotment money and on his failure to pay the allotment
money his shares were forfeited. Afterwards, the first and final call was made. Out of the forfeited shares 900
shares were reissued at ₹8 per share as fully paid-up. Pass necessary Journal entries for the above transactions in
the books of the company.
Q.19) Rotex Ltd. invited applications for issuing 50,000 equity shares of ₹10 each at par. The amount payable as
follows:
On application ₹2 per share
On allotment ₹4 per share
On First and final call- Balance amount
The issue was oversubscribed 2 times. Application for 25% shares were rejected and money refunded allotment
was made to the remaining applicants as follows:
Category Applied Allotted
(i) 40,000 30,000

(ii) 35,000 20,000
Excess money on applications was adjusted in allotment. Chinu a shareholder holding 600 shares belonging to
first category, failed to pay the allotment money his share forfeited immediately after allotment and re issued
same for ₹9 per share. First call was made and all the Money duly received.
Pass necessary journal entries in the books of Rotex Ltd.
Q.20) Pass entries for forfeiture and re-issue in both the following cases.
a) Kamla Ltd. forfeited 7,500 shares of Sumit, who had applied for 10,000 shares for nonpayment of allotment
money of ₹ 5 per share and first and final call of ₹ 2 per share. Only application money of ₹ 3 was paid by him.
Out of these 5,000 shares were re-issued @ ₹9 per share as fully paid.
b) KATI Ltd. forfeited 4,000 shares of ₹ 10 each (issued at ₹ 3 premium) for non-payment of first call of ₹ 2 per
share. Final call of ₹ 3 per share was not yet made. Out of these 3,000 shares were re-issued at ₹ 11 per share
as fully paid.
Q.21) Royal Fans Ltd. invited applications for 1,00,000 Equity Shares of Rs.100 each at a premium of 10%. The
amount was payable as follows: On Application Rs. 50 per share On Allotment Rs. 35 per share (including
premium) On First and Final Call Rs. 25 per share Applications for 1,50,000 shares were received. Applicants for
25,000 shares did not get any allotment and their money returned. Allotment was made pro-rata to the
remaining applicants. Excess application money was adjusted towards sum due on allotment. Mr. Hanoz who was
allotted 600 shares failed to pay the amount due on allotment and call money. The company forfeited his shares
and subsequently re-issued at Rs 110 per share fully paid-up. You are required to pass journal entries to record
the above transactions in the books of the company.
Q.22) Phizer Ltd. invited applications for 4,000 equity shares of Rs 100 each at a premium 30 per share. The
amount was payable as follows: On Application Rs. 40 (Including premium Rs 10) On Allotment Rs. 60 (Including
premium Rs 20) On First and Final Call Rs. 40 Applications for 5,000 shares were received. Allotment was made to
all the applicants on pro-rata basis. Excess application money was adjusted towards sum due on allotment. Rocky,
to whom 40 shares were allotted, failed to pay allotment and call money. Ali, to whom 90 shares were allotted,
failed to pay the call money. These shares were forfeited. The forfeited shares were re-issued @ Rs 80 per share
fully paid-up. You are required to pass journal entries to record the above transactions in the books of the
company.
Q.23) The Directors of Rockstar Ltd. invited applications for 2,00,000 Shares of ₹ 10 each, issued at 20% premium.
Share was payable as ₹ 5 on application, ₹ 4 (including premium) on allotment and balance on call. Public had
applied for 3,20,000 shares out of which applications for 20,000 shares were rejected and remaining were
allotted on pro-rata basis. Simba, an applicant of 15,000 shares failed to pay allotment and call money. His shares
were forfeited and out of these 6,000 shares were reissued at a discount of ₹2 per share. Journalise.
Q.24) Shaktimaan Ltd. invited applications for issuing 1,00,000 Shares of ₹ 10 each at a premium of ₹2 per share.
The amount was payable as₹ 4 on application (including premium); ₹ 5 on Allotment and balance on call.
Applications were received shares for 1,80,000 of which Applications for 30,000 shares were rejected and
remaining applicants were allotted on pro-rata basis. Manthan, holding 5,000 shares failed to pay call money and
his shares were forfeited. Out of these 2,000 shares were re-issued at premium of ₹ 3 per share.
Prepare Cash Book and pass necessary entries.
Q.25) OTUA Ltd. was registered with an authorised capital of 2,00,000 equity shares of ₹ 100 each. The company
offered 60,000 shares for public subscription at 25% premium. The share was payable as ₹ 40 on application and
balance on allotment, with premium. Public had applied for 85,000 shares. Pro-rata allotment was made in the
ratio of 5:4 and remaining applications were sent letters of regret. Mr. Anand holding 4,000 shares failed to pay
allotment money and his shares were forfeited. Out of these 3,000 shares were re-issued at a discount of ₹ 20 per
share. Pass necessary entries in the books of the OTUA Ltd.
Q.26) Pass entries for forfeiture and re-issue in both the following cases.
(a) Vikram Ltd. forfeited 5,000 shares of Rahul, who had applied for 6,000 shares for non-payment of allotment
money of ₹ 5 per share and first and final call of ₹ 2 per share. Only application money of ₹ 3 was paid by him.
Out of these 3,000 shares were re-issued @ ₹ 12 per share as fully paid.
(b) Ratan Ltd. forfeited 3,000 shares of ₹ 10 each (issued at ₹ 2 premium) for non-payment of first call of ₹ 2 per
share. Final call of ₹ 3 per share was not yet made. Out of these 2,000 shares were re-issued at ₹ 10 per share as
fully paid.
Q.27) CCL Ltd. invited applications for issuing 75,000 equity shares of 10 each at a premium of 3 per share. The
amount was payable as follows :
On Application 2 per share
On Allotment 6 per share (including premium)
On First Call 3 per share
On Second and Final Call Balance
Applications for 1,20,000 shares were received. Application for 45,000 shares were rejected and the excess
application money was refunded. Full allotment was made to remaining applicants. All moneys due were received
except for Harish, a shareholder holding 2000 shares, who failed to pay the first and second and final call money.
Pass necessary journal entries for the above transactions in the books of the company.
Q.28) Lilly Ltd. forfeited 100 shares of ₹10 each issued at10% premium (₹8 called up) on which a shareholder did
not pay ₹3 of allotment (including premium) and first call of ₹2. Out of these 60 shares were reissued to Ram as
fully paid for ₹8 per share and 20 shares to Suraj as fully paid up @ ₹12 per share at different intervals of time.
Prepare Share Forfeiture account.
Q.29) Frank Ltd. issued 1,00,000 Equity shares of Rs. 10 each. The amount was duly received except on 5,000
Equity shares on which Rs. 5 per share was received. These shares were forfeited and 2,500 Equity shares were
reissued for Rs. 9 each fully paid-up. You are required to prepare Share Forfeiture Account.
Q.30) Janta Ltd, had an authorized capital of 2,00,000 equity shares of ₹10 each. The company offered to the
public for subscription 1,00,000 shares. Applications were received for 97,000 shares. The amount was payable as
follows:
on application ₹2 per share;
₹4 payable each on allotment and first and final call.
A shareholders holding 600 shares failed to pay the allotment money. His shares were forfeited. The company did
not make the first and final call. Present the share capital in the balance sheet of the company as per schedule III
of the companies act 2013. Also prepare notes to accounts.
Q.31) Sankalp Ltd. was incorporated with an Authorized shares capital of ₹1,00,00,000 divided into 8,00,000
equity shares of ₹10 each and 2,00,000 11% Preference shares of ₹10 each. Company issued 5,00,000 equity
shares for public subscription at 10% premium. Payable ₹3 per share on application; ₹6 per share on allotment
(including premium) and balance on 1st & final call. Public had applied for 8,00,000 shares. All the shares allotted
on pro-rata basis. All the amount duly receipts except allotment money on 10,000 shares hold by Ramesh
another shareholder Suresh paid his call money along with allotment he has 15000 shares. Show the
presentation of share capital in company balance sheet as per schedule III of Indian companies act, 2013.
Q.32) Altaur Ltd. was registered with an authorised Capital of ₹ 4,00,00,000 divided in 25,00,000 Equity Shares of
₹ 10 each and 1,50,000, 9% Preference Shares of ₹ 100 each. The company issued 8,00,000 Equity Shares for
public subscription at 20% premium, payable ₹ 3 on application; ₹ 7 on allotment (including premium) and
balance on call. Public had applied for 10,00,000 shares. Excess Applications were sent letters of regret. All the
dues on allotment received except on 15,000 shares held by Sanju. Another shareholder Rocky paid his call dues
along with allotment on his holding of 25,000 shares. You are required to prepare the Balance Sheet of the
company as per Schedule III of Companies Act, 2013,
showing Share Capital balance and also prepare Notes to Accounts.
Q.33) MM Ltd. is registered with an authorised share capital of 10 each. The company invited applications for
issuing 10,00,000 equity shares. The amount per share was payable as follows : On Application - 3 per share On
Allotment - 4 per share On First and Final Call - 3 per share The issue was fully subscribed. All calls were made and
were duly received except the first and final call on 1000 shares. Present the share capital in the Balance Sheet of
the company as per the provisions of Schedule III Part I of the Companies Act, 2013 and also
Prepare Notes to Accounts.
Q.34) Atishyokti Ltd. company was registered with an authorized capital of ₹ 20,00,000 divided into 2,00,000
Equity Shares of ₹ 10 each, payable ₹ 3 on application, ₹ 6 on allotment (including ₹ 1 premium) and balance on
call. The company offered 80,000 shares for public subscription. All the money has been duly called and received
except allotment and call money on 5,000 shares held by Manish and call money on 4,000 shares held by Alok.
Manish’s shares were forfeited and out of these 3,000 shares were re-issued ₹ 9 per share as fully paid up. Show
share capital in the books of the company. Also prepare notes to accounts.
Q.35) K le n Ltd. was registered with an authorized capital of R s. 1 0,00,000 divided into Equity Shares of Rs 10.
Out of these 8,000 shares were issued to vendors as fully paid as purchase consideration for a business acquired.
The company offered 20,000 shares for public subscription and called up Rs.8 per share and received the entire
amount. You are required to prepare the Balance Sheet of the company as per Schedule III of Companies Act,
2013, showing Share Capital balance and also prepare Notes to Accounts
DISSOLUTION OF PARTNERSHIP FIRM
Q.1) Following is the balance sheet of A and B as at 31st march,2021:
Liabilities Amount Assets Amount

Trade creditors 90,000 Cash in hand 1,500
Bill payables 24,000 Cash at bank 24,000
Mrs. A’s loan 15,000 Stock 15,000
Mrs. B’s loan 30,000 Investments 30,000
Reserve fund 30,000 Book debts 60,000
Less: PFDD 6,000 54,000
Investment fluctuation 3,000 Building 45,000
reserve
Capital A/c Plant 60,000
A 30,000
B 30,000 60,000
Goodwill 12,000
Profit and loss account 10,500
2,52,000 2,52,000
The firm was dissolved on the above date under the following arrangement
i) A promised to pay off Mrs. A’s loan and took stock at ₹12,000.
ii) B took half the investments @10% discount.
iii) Book debts realized ₹57,000.
iv) Trade creditors and bill payables were due on average basis of one month after 31st march, but were paid
immediately on 31st march @2% discount per annum.
v) Plant realized ₹75,000; building ₹1,20,000; Goodwill ₹18,000 and remaining investments ₹13,500.
vi) An old typewriter, written off completely from the firm’s books now estimated to realise ₹900. It was
taken by B at this estimated price.
vii) Realization expenses were 3,000.
Prepare realization account.
Q.2) Arun, Bimal, Chandan were partners sharing profits in the ratio of 2:2:1. They decided to dissolve their
firm on 31st march,2019 when the balance sheet was:
Liabilities Amount ₹ Assets Amount ₹
Creditors 40,000 Cash 40,000
Bill payables 46,000 Debtors 70,000 Less
PFDD 6,000 64,000
Employment provident fund 32,000 Stock 50,000
Mrs. Arun’s loan 38,000 Investment 60,000
Chandan’s loan 30,000 Furniture 42,000
Investment fluctuation fund 16,000 Machinery 1,36,000
Capital Land 1,00,000
Arun 1,20,000
Bimal 1,00,000
Chandan 1,00,000 3,20,000
goodwill 30,000
5,22,000 5,22,000
Following transaction took place:
i) Arun took over stock at ₹36,000. He also took over his wife loan
ii) Bimal took over half of debtors at ₹28,000
iii) Chandan took over investments at ₹54,000 and half of creditors at their book value.
iv) Remaining debtors realized 60% of their book value. Furniture sold for ₹30,000; machinery ₹82,000 and
land ₹1,20,000.
v) An unrecorded assets was sold for ₹22,000
vi) Realization expenses amounted to ₹4,000.
Prepare Realization account
Q.3) Ashish and Kanav were partners in a firm sharing profits and losses in the ratio of 3:2. On 31 st
march,2018 their Balance sheet was as follows:
Balance sheet of Ashish and Kanav as at 31st march,2018
Trade creditors 42,000 Bank 35,000
Employee’s provident fund 60,000 Stock 24,000
Mrs. Ashish’s loan 9,000 Debtors 19,000
Kanav’s loan 35,000 Furniture 40,000
Workmen compensation fund 20,000 Plant 2,10,000
Investment fluctuation 4,000 Investment 32,000
reserve
Capital Profit and loss account 10,000
Ashish 1,20,000
Kanav 80,000 2,00,000
3,70,000 3,70,000
On the above date they decided to dissolve the firm.
a) Ashish agreed to take over furniture at ₹38,000 and pay off Mrs. Ashish’s loan.
b) Debtors realised ₹18,500 and plant realised 10% more.
c) Kanav took over 40% of the stock at 20% less than the book value. Remaining stock was sold at a gain
of 10%.
d) Trade creditors took over investments in full settlement.
e) Kanav agreed to take over the responsibility of completing dissolution at an agreed remuneration of
₹12,000 and to bear realization. Actual expenses of realization amount to ₹8,000.
Prepare the realization account
Q.4) Michael, Jackson and John were partners in a firm sharing profits in the ratio of 3:1:1. On 31 st
march,2017 they decided to dissolve their firm. On that date their balance sheet was as follows:
Creditors 11,500 Bank 6,000
Loan 3,500 Debtors 48,400
Less PFDD 2,400 46,000
Capital Stock in trade 16,000
Michael 50,000
Jackson 25,000
John 14,000 89,000
Furniture 2,000
Sundry assets 34,000
1,04,000 1,04,000
It was agreed that:
i) Michael was to take over the furniture at ₹2,600 and Debtors amounting to ₹40,000 at 34,400 and the
creditors of ₹10,000 were to be paid by him at this figure.
ii) Jackson was to take over all the stock in trade at 14,000 and some of the other sundry assets at
₹28,800 (being 10% less than book value)
iii) John was to take over the remaining sundry assets at 90% of the book value and assumed the
responsibility for the discharge of the loan.
iv) The remaining debtors were sold to a debt collecting agency for 50% of the book value. The expenses of
dissolution 600 were paid by John.
Prepare Realisation account.
Q.5) M, S and R were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2. On 31.03.2022, their
Balance Sheet was as follows :
Balance Sheet of M, S and R as at 31st March, 2022

Creditors 80,000 Fixed Assets 1,20,000
Capitals : Stock 70,000
M 60,000 Debtors 20,000
S 50,000 Bank 60,000
R 30,000
Profit and Loss A/c 1,40,000
50,000
2,70,000 2,70,000
On the above date the firm was dissolved. Fixed assets realised 1,20,000 and stock realised 10,000. Debtors
were realised at their book value and liabilities were paid in full.
Prepare Realisation Account and Partners’ Capital Account
Q.6) Gaurav, Saurabh and Vaibhav were partners in a firm sharing profits and losses in the ratio of 2:2:1.
They decided to dissolve the firm on 31st march,2018. After transferring sundry assets (other than cash in
hand and cash at bank) and third Party liabilities to realisation account, the assets were realised and
liabilities were paid off as follows:
i) A machinery with a book value of 6,00,000 was taken over Gaurav at 50% and stock worth 5,000 was
taken over by creditors of 9,000 in full settlement of his claim.
ii) Land and building (book value 3,00,000) was sold for 4,00,000 through a broker who charged 2%
commission.
iii) The remaining creditors were paid 76,000 in full settlement of their claim and the remaining assets were
taken over by Vaibhav for 17,000.
iv) Bank loan of 3,00,000 was paid along with interest of 21,000.
Pass the necessary journal entries for the above transaction in the book of the firm.
Q.7) Ravi, Shankar and Madhur were partners in a firm sharing profits in the ratio of 7:2:1. On 31st
march,2018 firm was dissolved, and after transferring sundry assets (other than cash in hand and cash at
bank) and third party liabilities in the realisation account the following transaction took place:
i) Debtors amounting to ₹1,40,000 were handed over to a debt collection agency which charged 5%
commission. The remaining debtors were ₹47,000 out of which debtors of ₹17,000 could not be recovered
because the same became insolvent.
ii) Creditors amounting to ₹5,000 were paid ₹3,500 in full settlement of their claim and balance creditors
were handed over stock of ₹90,000 in full settlement of their claim of ₹95,000.
iii) A bills receivables ₹2,000 discounted with the bank was dishonoured by its acceptor and the same had to
be met by the firm.
iv) Profit on realisation amounted to ₹6,000.
v) Ravi’s Loan of ₹ 80,000 to the firm and he took over Machinery of ₹ 60,000 as part payment
Pass the necessary journal entries for the above transaction in the books of Ravi, Shankar and Madhur.
Q.8) Pass Journal entries for the following transactions in the book of the firm on its dissolution:
i) Bills receivable of Rs. 20000 discounted with the bank is dishonoured as drawee was declared insolvent
and 30% amount is received in cash from him.
ii) 100 shares of Bajaj Auto Ltd. acquired at a cost Rs. 3,600 had been written of from the books. These
were valued at Rs. 12 per share, and were divided among partner's A and B in 2 : 1.
iii) Mr. Verma, a creditor to whom Rs. 6,000 are due, accepted office equipment at ` 4,000 and the balance
paid to him by cash.
iv) Debtors of ` 5,00,000 and provision for doubtful debts of Rs. 20,000 transferred to realisation account.
On dissolution bad debts were Rs. 1,00,000 and remaining debtors realised at 30% discount.
v) Loan owed by B towards firm is Rs. 30,000. It was decided by the firm that B will pay to the creditor Rs.
25,000 in settlement of his loan.
vi) The firm had borrowed Rs. 35,000 from Rashmi, a partner. The firm got dissolved; Rashmi decided to
take furniture against the payment of her loan.
Q.9) Carol and Lacy were partners. They decided to dissolve their firm. Pass the journal entries for the
following after various assets and external liabilities have been transferred to Realisation A/c:
1.Carol took over half of the investments worth Rs. 30,000 at 2% discount and the remaining investments
were sold at a profit of 18% of the book value.
2.Lacy is allowed a remuneration of Rs. 13,000 for dissolution work and is to bear all the expenses of
realisation which amounted to Rs. 5,000 were paid by the firm.
3. Carol had given a loan of Rs. 89,000 to the firm which was duly paid.
4. Lacy agreed to pay off her brother’s loan of Rs. 13,000 at a discount of 5%
Q.10) Sun and Kiran are partners sharing profits and losses equally. They decided to dissolve their firm.
Assets and Liabilities have been transferred to Realisation Account. Pass necessary Journal entries for the
following:
a) All partners are agreed that the process of realisation at the time dissolution will be accomplished by Sun
for which he will be paid ₹10,000 along with the amount of expense which amounted to 2% of total value
realised from the Assets on dissolution. Some assets were sold for Cash at a cumulative Value of ₹12,00,000
and the remaining were taken over by creditors at a valuation of ₹3,00,000.
b) Deferred Advertisement Expenditure A/c appeared in the books at ₹28,000.
c) Out of the Stock of ₹1,20,000; Kiran (a partner) took over 1/3 of the stock at a discount of 25% and 50% of
remaining stock was took over by a Creditor of ₹30,000 in full settlement of his claim. Balance amount of
stock realized at ₹25,000.
d) An outstanding bill for repairs and renewal of₹3,000 was settled through an unrecorded asset which was
valued at ₹10,000. Balance being settled in Cash.
Q.11) Charu, Dhwani, Iknoor and Paavni were partners in a firm. They had entered into partnership firm last
year only, through a verbal agreement. They contributed Capitals in the firm and to meet other financial
requirements, few partners also provided loan to the firm. Within a year, their conflicts arisen due to certain
disagreements and they decided to dissolve the firm. The firm had appointed Ms. Kavya, who is a financial
advisor and legal consultant, to carry on the dissolution process. In the first instance, Ms. Kavya had
transferred various assets and external liabilities to Realisation A/c. Due to her busy schedule; Ms. Kavya has
delegated this assignment to you, being an intern in her firm. On the date of dissolution, you have observed
the following transactions:
(i) Dhwani’s Loan of ₹ 50,000 to the firm was settled by paying ₹ 42,000.
(ii)Paavni’s Loan of ₹ 40,000 was settled by giving an unrecorded asset of ₹ 45,000.
(iii)Loan to Charu of ₹ 60,000 was settled by payment to Charu’s brother loan of the same amount.
(iv)Iknoor’s Loan of ₹ 80,000 to the firm and she took over Machinery of ₹ 60,000 as part payment.
You are required to pass necessary entries for all the above mentioned transactions.
DEATH OF A PARTNER
Q.1) In a partnership firm, Samar, Reeta and Gagan are partners sharing profits and losses in the ratio of
4:3:1. As per the terms of the Partnership Deed of the firm, on the death of any partner, goodwill was to be
valued at 50% of the net profits credited to that partner’s capital accounts during the last three completed
year before his/her death. The profits and losses for the last five years were:
2016-17 ₹1,20,000
2017-18 ₹1,94,000
2018-19 ₹2,10,000
2019-20 ₹60,000
2020-21 ₹1,68,000
On 1st April,2021, Samar dies. Calculate the amount of Samar’s share of goodwill in the firm and pass the
necessary adjusted journal entries of goodwill.
Q.2) In a partnership firm Lakshya limited; Lalit, Krishna and Gagandeep were partners with capitals of
₹12,00,000, ₹8,00,000 and ₹4,00,000 respectively. They shared profit and losses of the firm in the ratio of
their capitals.
On 31st may,2021 Gagandeep died, and the firm closes its books of accounts on 31st march every year.
According to their partnership deed, Gagandeep representatives would be entitled to get share in the
interim profits of the firm on the basis of sales. sales and profit for the year 2020-21 amounted to
₹32,00,000 and ₹9,60,000. Respectively and sales from 1st April,2021 to 31st may 2021 amounted to
₹6,00,000. The rate of profit to sales remained constant during these two years. You are required to:
A) Calculate Gagandeep’s share in profit
B) Pass journal entry to record Gagandeep share in profit.
Q.3) Rosy, Lily & Sunflowers are partners in a firm sharing profits & losses in the ratio of 5:3:2. Their books
are closed on 31st march every year. Rosy died on 30th September 2020. Her share of profits up to his date
of death is to be Calculated on the basis of sales. Sales for the year ended 31st march 2020 was 2,00,000
and profit for the same year was 20% on sales. sales show a growth trend of 10% and the percentage of
profit shows reduced trend of 1%. Find out Rosy share profit & pass the journal entry to record Rosy share
of profits.
Q.4) Amar, Bhuwan and Chaman were partners sharing profits and losses in the ratio of 3:2:1. Bhuwan died
on 30th June,2021. loss from the beginning of the accounting year till the date of his death was estimated
at 1,80,000. Amar and Chaman decided to share future profits in the ratio of 3:2 w.e.f 1st July,2021. Pass
the necessary Journal entry
Q.5) Meera, Sarthak and Rohit were partners sharing profits in the ratio of 2:2:1. On 31st march,2018 their
Balance Sheet was as follows:
Creditors 3,00,000 Fixed Assets 7,00,000

Contingency Reserve 1,00,000 Stock 2,00,000
Capital
Debtors 1,50,000
Meera 4,00,000
Cash at bank 3,50,000
Sarthak 3,50,000
Rohit 2,50,000
10,00,000
14,00,000 14,00,000
Sarthak died on 15th June, 2018. According to the Partnership Deed, his executors were entitled to:
a) Balance in his capital account
b) His share of goodwill will be calculated on the basis of thrice the average of the past 4 years’ profit
c) His share in profit up to the date of death on the basis of average profits of the last two year. The time
period for which he survived in the year of death will be calculated in months
d) Interest on capital @ 12% p.a. up to the date of his death.
The firms’ profits for the last four year were:
2014-15 1,20,000; 2015-16 2,00,000; 2016-17 2,60,000; 2017-18 2,20,000
Sarthak executors were paid the amount due immediately. Prepare Sarthak capital account to be
represented to his executors.
Q.6) A, B and C were partners sharing P&L in the ratio 5:3:2. A died on 30th June, 2019. Entry for treatment
of goodwill after his death was passed as follow
Date Particulars L.F. Debit Credit
B’s Capital A/c Dr. 1,80,000

1,20,000
C’s Capital A/c Dr.
To A’s Capital A/c 3,00,000
(Entry for goodwill treatment passed at the time of
death of partner)
A’s profit till date of death was estimated as ₹ 1,20,000, based on the average profits of past three years.
Final dues payable to A’s executors on the date of death was calculated as ₹ 8,40,000 out of which ₹
2,40,000 was paid immediately by giving him Furniture valued for the same and balance was to be paid in
three equal annual instalments starting from 30 June, 2020, together with interest rate as specified in
Section 37 of Indian Partnership Act, 1932. Pass necessary entry for profit share to be credited to A’s Capital
and also prepare A’s executors account till final settlement.
Q.7) Ester, Emma and Lucy were partners in a firm sharing profits in the ratio of 2: 2: 1. The firm closes its
books on 31st March every year. On 30th September, 2022 Lucy died. The partnership deed provided that
on the death of a partner her executors will be entitled to the following: (a)Balance in her capital account
which amounted to Rs. 3,15,000 and interest on capital @9%. (b)Her share in the profits of the firm till the
date of her death amounted to Rs.70,000. (c) Her share in the goodwill of the firm. The goodwill of the firm
on Lucy’s death was valued at Rs. 1,50,000. You are required to calculate the amount to be transferred to
Lucy’s Capital A/c.
Q.8) Sandeep, Maheep and Amandeep were partners in a firm sharing profits in the ratio of 2: 2: 1. The
firm closes its books on 31st March every year. On 30th June, 2020Maheepdied. The partnership deed
provided that on the death of a partner his executors will be entitled to the following:
a) Balance in his capital account which amounted to ₹1,15,000and interest on capital till date of death
which amounted to ₹5,000.
b) His share in the profits of the firm till the date of his death amounted to ₹20,000.
c) His share in the goodwill of the firm. The goodwill of the firm on Maheep’s death was valued at ₹
1,50,000.
d) Loan to Maheep amounted ₹ 20,000.
It was agreed that the amount will be paid to his executor in three equal yearly instalments with interest
@10% p.a. The first instalment was to be paid on 30.06.2021.
Calculate the amount to be transferred to Maheep’s executors Account and prepare the executor’s account
till it is finally settled.
Q.9) A, B and C were Partners in a firm sharing profits and losses in the ratio of 3:2:1. C died on 30th June,
2016. After all the necessary adjustments his capital account showed a credit balance of 70,600. C’s
executor was paid 10,600 on 1st July, 2016 and the balance in three equal yearly instalments starting from
30th June, 2017 with interest @10% p.a. on the unpaid amount. The firms closes its books on 31st March
every year.
Prepare C’s Executor’s Account till the amount is finally paid.
Q.10) Arun, Bhim and Nakul are partners in a firm sharing profit in the ratio of 1:1:3. Their capital account
showed the following balances on 1st April,2020:
Arun 2,00,000; Bhim 1,50,000 and Nakul 4,50,000
Firm closes its accounts every year on 31st March. Bhim died on 31st March, 2021. In the event of death of
any partner, the partnership deed provides for the following:
i) Interest on capital will be allowed to deceased partner only from the first of day of the accounting year till
the date of his death @10% p.a.
ii) The deceased partner’s share in the goodwill of the firm will be calculated on the basis of 2 years
purchase of the average profit of the last three years. The profit of the firm for the last three years ended
31st March were 2019 – 90,000; 2020 – 2,00,000 and 2021 – 1,60,000.
iii) His share of profit till the date of death: The profit of the firm for the year ended 31st March, 2021 was
1,60,000 before providing for interest on capital. Bhim Executors was paid the sum due in two equal annual
instalments with interest @10% p.a.
Prepare Bhim capital account as on 31st March, 2021 to be presented to his executor.
RETIREMENT OF A PARTNER
Q.1) X, Y, Z are partners sharing profit & losses in ratio of 4:3:2. Y retires find out new ratio & gaining ratio.
Q.2) A, B, & C are partners sharing profits in the ratio of 3:2:1. B retires and new ratio between A and C is 5:3
find out gaining ratio.
Q.3) Channi, Manni and Amar were partners Sharing profits and losses in the ratio of 4:3:2. Amar retired
from the firm. Channi took 4/9th of Amar’s share and the balance was taken by Manni. Calculate new profit-
sharing ratio and gaining ratio.
Q.4) Kumar, Lakshya, Manoj and Naresh are partners sharing profits in the ratio of 3:2:1:4. Kumar retires and
his share is taken by Lakshya and Manoj in the ratio of 3:2. Calculate new profit sharing ratio and gaining
ratio of the remaining partners.
Q.5) A, B and C were partners in a firm sharing profits in the ratio of 8:4:3. B retires and his share is taken up
equally by A and C. Find the new profit sharing ratio
Q.6) P, Q and R are partners sharing profits in ratio of 3:2:1. R retires from the firm by selling his share of
profit to P & Q and the following entry was passed.
Date Particulars L.F. Debit Credit
P’s Capital A/c dr. 90,000

Q’s Capital A/c dr. 60,000
To R’s Capital A/c 1,50,000
(Being Adjustment made for goodwill)
Find out New Profit-Sharing Ratio of P & Q.

Q.7) A, B and C are partners sharing profits and losses in the ratio of 3:2:1. B retires selling his share to A and
C for 36,000 and 24,000 being laid by A and 12,000 by C. The profit after B’s retirement is 63,000.
Pass necessary journal entries and show working clearly
Q.8) Anil, Nikhil & Sushil are partners sharing profits & losses in the ratio of 4:3:2. Nikhil retires and the
goodwill of the firm is 3,60,000. Pass the necessary journal entries for goodwill. Anil & Sushil decided to
share future profits in the ratio of 5:3. Goodwill appear in old books 1,80,000.
Q.9) Suresh, Ramesh and Tushar were partners of a firm sharing profits in the ratio of 6:5:4. Ramesh retired
and his capital after making adjustments on account of reserves, revaluation of assets and reassessment of
liabilities stood at ₹ 2,50,400. Suresh and Tushar agreed to pay him ₹ 2,90,000 in full settlement of his claim.
Pass necessary journal entry for the treatment of goodwill. Show workings clearly.
Q.10) Armaan, Anup and Sushant were partners in a firm sharing profits in the ratio of 3:2:1. Sushant retired
and the new profit-sharing ratio between Armaan and Anup was 1:2. On Sushant’s retirement goodwill of
the firm was valued at 30,000. Pass necessary journal entry for the treatment of goodwill on Sushant’s
retirement.
Q.11) X, Y and Z are partners sharing profits in the ratio of 3:2:1. Goodwill is appearing in the books at a
value of 60,000. Y retires and at the time of Y’s retirement goodwill is valued at 84,000. X and Z decided to
share future profits in the ratio of 2:1. Pass the necessary journal entries through goodwill account.
Q.12) Anshul, Babita and Chander were partners in a firm running a successful business of car accessories.
They had agreed to share profits and losses in the ratio of 1/2 : 1/3 : 1/6 respectively. After running business
successfully and without any disputes for 10 years, Babita decided to retire due to old age and the Anshul
and Chander decided to share future profits and losses in the ratio of 3 : 2. The accountant passed the
following journal entry for Babita share of goodwill and missed some information. Fill in the missing figures
in the following Journal entry and calculate the gaining ratio.
Anshul Capital A/c dr.
Chander Capital A/c dr. 21,000
To Babita Capital A/c
(Chander’s share of Goodwill debited to the amounts of continuing partners in their gaining ratio)
Q.13) Kanika, Disha and Kabir were partners sharing profits in the ratio of 2:1:1. On 31-32016, their Balance
sheet was as under:
Trade creditors 53,000 Bank 60,000
Employees provident fund 47,000 Debtors 60,000
Kanika capital 2,00,000 Stock 1,00,000
Disha capital 1,00,000 Fixed assets 2,40,000
Kabir capital 80,000 Profit and loss a/c 20,000
4,80,000 4,80,000
Kanika retired on 1-4-2016. For this purpose, the following adjustment were agreed upon:
i) Goodwill of the firm was valued at 2year purchase of average profits of three
completed years preceding the date of retirement. The profits for the year, 201314
were 1,00,000 and 2014-15 were 1,30,000.
ii) Fixed assets were to be increased to 3,00,000
iii) Stock was to be valued at 120%
iv) The amount payable to Kanika was transferred to her loan account.
Prepare Revaluation account, Capital account of the partner and the Balance sheet of the reconstituted
firm.
Q.14) Mohan, Vinay and Nitya were partners in a firm sharing in a firm sharing profit and losses in the
proportion of ½,1/3,1/6 respectively. On 31-march,2018 their balance sheet was as follows:
Balance sheet of Mohan, Vinay, and Nitya as at 31-3-2018
Creditors 48,000 Cash at bank 31,000
Employees provident fund 1,70,000 Bill receivables 54,000
Contingency reserve 30,000 Book debts 63,000

Less PFDD (2,000) 61,000
Capital Plant and machinery 1,20,000

Mohan 1,20,000
Vinay 1,00,000
Nitya 90,000 3,10,000
Land and building 2,92,000
5,58,000 5,58,000
Mohan retired on the above date and it was agreed that:
i) Plant and machinery will be depreciated by 5%

ii) An old computer previously written off was sold for 4,000
iii) Bad debts amounting to 3,000 will be written off and a provision of 5% on
debtors for bad and doubtful debts will be maintained.
iv) Goodwill of the firm was valued at 1,80,000 and Mohan share of the same was
credited in his account by debiting Vinay and Nitya accounts
v) Vinay and Nitya will share future profit in the ratio of 3:2.
Pass the necessary Journal Entries on the Retirement of Mohan.
Q.15) A, B and C were partners in a firm. Their balance sheet as at 31-3-2019 was as follow:
Balance sheet of A, B and C as at 31-3-2019
Bill payables 20,000 Bank 20,000
Creditors 40,000 Furniture 28,000
General reserve 30,000 Stock 20,000
Workmen compensation 6,000 Debtors 45,000

reserve Less: (PFDD) (5,000) 40,000
Capitals Land and building 1,20,000

A 60,000
B 40,000
C 32,000 1,32,000
2,28,000 2,28,000
B retired on 1st April,2019. A and C decided to share profits in the ratio of 2:1. The following terms were
agreed upon:
i) Goodwill of the firm was valued at 30,000

ii) Bad debts 4,000 were written off. The provision for doubtful debts was to be maintained
10% on debtors
iii) Land and building were to be increased to 1,32,000
iv) Furniture was sold for 20,000 and the payment was received by cheque
v) Liability towards workmen compensation was estimated at 1,500
vi) B was to be paid 20,000 through a cheque and the balance was transferred to his loan
account.
Prepare Revaluation account & partners’ capital accounts
Q.16) Gopi, Kishan and Ram were in partnership sharing profits and losses 4:2:1. Gopi retired from the firm.
After adjustments his capital account show a credit balance of 27,000 as on 1st April, 2019. amount is to be
paid in three equal annual instalment along with the interest @6% p.a. prepare Gopi’s loan account until he
is paid the entire amount due to him. The firm closes its book on 31st march every year
Q.17) A, B and C are partners in a firm sharing profits in the ratio of 5:3:2. on 1st April 2022
B retires from the firm. A and C agree that the capital of the new firm shall be fixed at 4,20,000 in their
profit-sharing ratio. The capital account of A and C after all adjustments on the date of retirement showed
balance of 2,45,000 and 1,50,000 respectively. State the amount cash to be brought in or to be paid to the
partners also pass necessary Journal entries.
Q.18) X, Y and Z were in partnership sharing profits in proportion to their Capitals. Their Balance sheet as on
31st march, 2018 was as follows:
Creditors 16,600 Cash in hand 15,000

Work men compensation fund 9,000 Debtors
21,000
General Reserve 6,000 19,600
Less: PFDD
Capital a/c 19,000
1,400
X 90,000 58,000
Stock
Y 60,000 1,00,000
Machinery
Z 30,000 1,80,000
Building
2,11,600 2,11,600
On the above date Y retired owing to ill health. The following adjustments were agreed upon for calculation
of amount due to Y:
a) Provision for doubtful debts to be increased to 10% of Debtors.

b) Goodwill of the firm be valued at 36,000 and be adjusted into the capital account of X and Z
who will share profits in future in the ratio of 3:1.
c) Included in the value of sundry creditors was 2,500 for an outstanding legal claim, which will
not arise.
d) X and Z also decided that the total capital of the new firm will be 1,20,000 in their profit-
sharing ratio. Actual cash to be brought in or to be paid off as the case may be.
e) Y to be paid 9,000 immediately and balance to be transferred to his loan account
Prepare Revaluation Account and Partner’s Capital Account.
Q.19) Amit, Balan and Chander were partners in a firm sharing profit in the proportion of ½, 1/3 and 1/6
respectively. Chander retired on 1st April, 2014. The Balance Sheet of the firm on the date of chander’s
retirement was as follows:

Provident fund 3,000 Debtors 30,000
General Reserve 9,000 Less: PFDD 1,000 29,000

Capital a/c Stock 25,000
Amit 40,000 Investment 10,000
Balan 36,500 Patents 5,000
Chander 20,000 96,500 Machinery 48,000
1,21,100 1,21,100
It was agreed that:
a) Goodwill will be valued at 27,000

b) Depreciation of 10% was to be provided on machinery
c) Patents were to be reduced by 20%
d) An old photocopier previously written off was sold for 600
e) Chander took over investment for 15,800
f) Amit and Balan decided to adjust their capitals in proportion of their profit-sharing ratio by
opening current account
Prepare Revaluation Account and Partner’s Capital Account on chander retirement.
Q.20) A, B and C are partners in a firm sharing profits and losses in the ratio of 3:2:1. Their Balance Sheet as
at 31st March, 2022 is:
Creditors 30,000 Cash in hand 18,000

Bill payable 16,000 Debtors
25,000
General Reserve 12,000 22,000
Less: PFDD
Capital a/c 18,000
3,000
A 40,000 30,000
Stock
B 40,000 70,000
Furniture
C 30,000 1,10,000 10,000
Machinery
Goodwill
1,68,000 1,68,000
B retired on 1st April, 2022 on the following terms:
a) Provision for Doubtful Debts be raised by 1,000

b) Stock to be reduced by 10% and Furniture by 5%
c) There is an outstanding claim of damages of 1,100 and it is to be provided for.
d) Creditors will be written back by 6,000
e) Goodwill of the firm is valued at 22,000.
f) B is paid in full with the cash brought in by A and C in such a manner that their capitals are in
proportion to their profit-sharing ratio and cash in hand remains at 10,000. Prepare Revaluation
Account and Partner’s Capital Account
Q.21) L, M and N were partners in a firm sharing profit & losses in the ratio of 2:2:3 . On 31st March 2023,
their Balance Sheet was as follows:
Creditors 80,000 Land and Building 5,00,000

Machinery 2,50,000
Bank Overdraft 22,000
Furniture 3,50,000
Long term debts 2,00,000 Investment 1,00,000
Stock 4,00,000
Capital a/c
Debtors 2,00,000
L 6,25,000 Bank 20,000
Deferred Advertisement 70,000
M 4,00,000
Expenditure
N 5,25,000 15,50,000
Employees Provident Fund 38,000
18,90,000 18,90,000
On 31st March 2023 , M retired from the firm and remaining partners decided to carry on business. It was
decided to revalue assets and liabilities as under :
a) Land and Building be appreciated by₹ 2,40,000 and Machinery be depreciated 10%.
b) 50% of investments were taken by the retiring partner at book value.
c) Provision for doubtful debts was to be made at5% on debtors.
d) Stock will be valued at market price which is ₹1,00,000 less than the book value.
e) Goodwill of the firm be valued at ₹5,60,000. L and N decided to share future profits and losses in the ratio
of 2:3.
f) The total capital of the new firm will be ₹32,00,000 which will be in proportion of profit sharing ratio of L
and N.
g) Gain on revaluation account amounted to ₹1,05,000.
Prepare Partner’s Capital accounts and Balance sheet of firm after M’s retirement.
Revaluation Account
Particulars Amount ₹ Particulars Amount ₹
To Increase in liability X By Decrease in liability X
To Decrease in assets X By Increase in assets X
To Unrecorded liability X By Unrecorded assets X
To Revaluation Gain transfer to X By Revaluation Loss transfer to X
Partner’s Capital/ Current A/c Partner’s Capital/ Current A/c
XX XX
Important points of revaluation account
1. One month salaries outstanding 50,000
2. Outstanding expenses 2,000
3. Outstanding bill of repairs 500
4. Creditors not likely to paid/ arise 1,000
5. Accrued income of 1,500
6. Unrecorded assets 500
7. Unrecorded liability 500
8. Provision for legal charges made 2,000
9. Creditors of ₹2,500 untraceable
10. Provision for doubtful debts made on Debtors 1,250
11. Unexpired insurance 1200
12. Creditors written back by 4000
13. A debtors whose due of 1,000 were written off as bad debts paid 800
in full settlement
14. All debtors are good Hence No provision is required
Debtors 20,000
Less: PFDD (1000)
15. Half investment take over by A at Book Value and Remaining valued at
₹15000
( Investment shown in Balance sheet 20,000 )
16. Bad debts recovered ₹4,000
17. Revaluation expenses Paid by A ₹500
18. Liabilities Amount ₹ Assets Amount ₹
Debtors 50,000
Additional :- Bad debts 5000 and 10% provision is created on remaining debtors
Debtors 80,000 76,000
- PFDD 4,000
Additional :- bad debts 5000 and provision of 10% is created on remaining

debtors
Debtors 50,000 45,000
- PFDD 5,000
Additional :- bad debts 1000 and provision is created @5% on remaining debtors
21
(A) ₹ 44,000
(B) ₹48,000
(C) ₹ 32,000
(D) ₹30,000
Q.7)
22
Stock 18000
Stock was found undervalued by 10% find the Value of

stock appear in New Balance sheet
a) 19800
b) 16200
c) 20000
d) 16000
ADMISSION OF A PARTNER
Q.1) A and B are partner sharing profits 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 takes this share as 1/24th from A and 1/8th from B.
Calculate new profit-sharing ratio.
Q.2) Mohan and Mahesh are partners in a firm sharing profits and losses in the ratio of 3:2. Nusrat is admitted as
partner with 1/4th share in profit. Nusrat takes her share from Mohan and Mahesh in the ratio 2:1. Calculate new
profit-sharing ratio.
Q.3) A, B and C are partners sharing profits in the ratio of 2:2:1. D is admitted as a new partner for 1/6th share. C will
retain his original Share. Calculate the new profit-sharing ratio and sacrificing ratio
Q.4) Mahi and Rajat were in partnership sharing profits and losses in the ratio of 4:3. They admitted Kripa as a new
partner. Kripa brought 60,000 as her share of goodwill premium which was entirely credited to Mahi’s capitals
account. On the date of admission, goodwill of new firm was valued at 4,20,00. Calculate the new profit-sharing ratio
of Mahi, Rajat and Kripa.
Q.5) A and B are partners. They admit C for 1/4th share in future the ratio between A and B would be 2:1. Calculate
new profit-sharing ratio.
Q.6) Gautam and Yashica are partners sharing profits and losses in the ratio of 3:2. They admit Asma into
partnership. Gautam gives 1/3rd of his share while Yashica gives 1/10th from his share to Asma. Calculate new profit-
sharing ratio and sacrificing ratio.
Q.7) X and Y are Partners sharing profits in the ratio of 5:3. They admit Z into partnership for 1/8th share. For this
purpose, he was to bring ₹1,20,000 as his share of capital and his is unable to bring ₹80,000 as his share of goodwill.
Pass the necessary journal entries.
Q.8) Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3:1. Goodwill appear in the books at
4,40,000. Raja was admitted to the partnership. New profit-sharing ratio among Anu, Bhagwan and Raja was 2:2:1.
Raja brought 1,00,000 for his capital and necessary cash for his goodwill premium. Goodwill of the firm was valued at
2,50,000.
Record necessary journal entries in the books of the firm for the above transactions.
Q.9) Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3:2. They admit Raghav as a
partner for 1/4th share in the profit of the firm. Raghav brings 6,00,000 as his capital and his share of goodwill in
cash. Goodwill of the firm is to be valued at two years purchase of average profit of the last four years.
The profit of the firm during the last four year are given below:
Year Profit
2013-14 3,50,000
2014-15 4,75,000
2015-16 6,70,000
2016-17 7,45,000
The following additional information is given:

i) To cover management cost an annual charge of 56,250 should be made for the purpose of valuation of
goodwill.
ii) The closing stock for the year ended 31st march, 2017 was overvalued by 15,000. Pass necessary journal
entries on Raghav’s admission showing the working notes clearly.
Q.10) A and B were partners in a firm sharing profits in the ratio of 4:3. They admitted C as a new partner for 3/7th
share in the profits of the firm. New profit-sharing ratio will be 2:2:3. C brought 2,00,000 as his capital and 60,000 for
his share of premium for goodwill, half of which was withdrawn by A and B from the firm.
Calculate sacrificing ratio and pass necessary journal entries in the books of the firm for the above transactions.
Q.11) Hemant and Nishant were partners in a firm sharing profits in the ratio of 3:2. Their capitals were 1,60,000 and
1,00,000 respectively. They admitted Somesh on 1st April, 2013 as a new partner for 1/5th share in the future profits.
Somesh brought 1,20,000 as his capital. Capital the value of goodwill of the firm and record necessary journal entries
for the above transaction on Somesh’s admission.
Q.12) Chander and Damini were partners in a firm sharing profits and losses equally. On 31st March, 2017 their

Sundry creditors 1,04,000 Cash at bank 30,000
Capitals: Bills receivables 45,000
Chander 2,50,000 Debtors 75,000
Damini 2,16,000 4,66,000 Furniture 1,10,000
Land and buildings 3,10,000
5,70,000 5,70,000
On 1st April, 2017 they admitted Elina as a new partner for 1/3rd share in the profits on the following conditions:
i) Elina will bring 3,00,000 as her capital and 50,000 as her share of goodwill premium, half of which will be
withdrawn by Chander and Damini.
ii) Debtors to the extent of 5,000 were unrecorded.
iii) Furniture will be reduced by 10% and 5% provision for bad and doubtful debts will be created on bill
receivables and debtors.
iv) Value of land and Building will be appreciated by 20%.
v) There being a claim against the firm for damages, a liability to the extent of 8,000 will be created for the
same.
Prepare Revaluation Account and Partner’s Capital Accounts.
Q.13) X and Y are partners in a firm sharing profits in the ratio of 3:2. The remaining capital of X and Y after
adjustments are 80,000 and 60,000 respectively. They admit Z as a partner on his contribution of 35,000 as capital
for 1/5th share of profits to be acquired equally from both X and Y. The capital account of the old partners are to be
adjusted on the basis of the proportion of Z’s capital to his share in the business. Calculate the amount of actual cash
to be paid off or brought in by the old partners for the purpose.
Q.14) Om, Ram and Shanti were partners in a firm sharing profits in the ratio of 3:2:1. On 1st April, 2014, their

Capitals Land and building 3,64,000
Om 3,58,000 Plant and machinery 2,95,000
Ram 3,00,000 Furniture 2,33,000
Shanti 2,62,000 9,20,000 Bills receivables 38,000
General reserve 48,000 Sundry creditors 90,000
Creditors 1,60,000 Stock 1,11,000
Bills payables 90,000 Bank 87,000
12,18,000 12,18,000
On the above date. Hanuman was admitted on the following terms:
a) He will bring 1,00,000 for his capital and will get 1/10th share in the profits
b) He will bring necessary cash for his share of goodwill premium. The goodwill of the firm was valued at
3,00,000.
c) A liability of 18,000 will be created against bills receivables discounted.
d) The value of stock and furniture will be reduced by 20%.
e) The value of land and building will be increased by 10%
f) Capital account of the partners will be adjusted on the basis of Hanuman’s capital in their profit-sharing ratio
by opening current accounts.
Prepare revaluation account and partners’ capital accounts.
Q.15) X and Y are in partnership sharing profits and losses in the ratio of 3:2. The capitals of X and Y after adjustment
are 80,000 and 60,000 respectively. They admit Z as a third partner who is to contribute proportionate capital to
acquire a 1/5th share of total capital of the new firm equally from both the partners X and Y. Calculate capital to be
brought in by Z. Also calculate new profit-sharing ratio of the partners in the new firm.
Q.16) A, B and C were partners in a firm sharing profits in the ratio of 3:2:1. On 31st March, 2015 their Balance Sheet
was as follows:

General reserve 21,000 Debtors 23,000
Capital Stock 1,10,000
A 60,000 Investments 30,000
B 40,000 Furniture and fittings 10,000
C 20,000 1,20,000 Machinery 35,000
2,25,000 2,25,000
On the above date D was admitted as a new partner and it was decided that:
i) The new profit-sharing ratio between A, B and C and D will be 2:2:1:1.

ii) Goodwill of the firm was valued at 90,000 and D brought his share of goodwill premium in cash.
iii) The market value of investment was 24,000
iv) Machinery will be reduced to 29,000
v) A creditor of 3,000 was not likely to claim the amount and hence to be written off.
vi) D will bring proportionate capital so as to give him 1/6th share in the profits of the firm.
Prepare Revaluation Account, Partner’ Capital Account and the Balance Sheet of the reconstituted firm.
Q.17) On 31st March, 2019 the Balance sheet of Madan and Mohan who share profits and losses in the ratio of 3:2
was as follows:

Employees provident fund 22,000 Less: PFDD 5,000 60,000
Capital Stock 33,000
Madan 60,000 Patents 57,000
Mohan 40,000 1,00,000
1,60,000 1,60,000
They decided to admit Gopal on 1st April, 2019 for 1/5th share which Gopal acquired wholly from Mohan on the
following terms:
i) Gopal shall bring 10,000 as his share of premium for goodwill
ii) A debtor who’s due of 3,000 were written off as bad debts paid 2,000 in full settlement
iii) A claim of 5,000 on account of workmen compensation was to be provided for
iv) Patents were undervalued by 2,000. Stock in the books was valued 10% more than its market value.
v) Gopal was to bring in capital equal to 20% of the combined capitals of Madan and Mohan after all
adjustments.
Prepare Revaluation Account, Capital Account of the partners and the Balance Sheet.
Q.18) On 31st March 2023 the Balance sheet of Zoya and Zara who were sharing profits and losses in the ratio of 3:2
was as follows.

Bills payable 6,000 Debtors 20,000
General reserves 16,000 Less : Provision 1000 19,000
Capitals Zoya 50,000 Stock 15,000
Zara 35,000 85,000 Land and Building 25,000
Plant and Machinery 30,000
Goodwill 10,000
Profit and Loss account 28,000
1,36,000 1,36,000
They decided to admit Sara for 1/5th share on 1st April, 2022 in the firm on the following terms:
(a) Goodwill of the firm is valued at Rs 28,000.
(b) Depreciate Plant and Machinery by 10%, appreciate Land and Building by 40%.
(c) The provision for doubtful debts was to be increased by Rs. 800.
(d) A liability of Rs. 1,000 included in the creditors is not likely to arise.
(e) New profit sharing ratio between Zoya, Zara and Sara shall be 5:3:2 respectively.
(f) Sara was to contribute capital equal to 1/5th of the total capital of Zoya and Zara after all adjustments.
You are required to prepare Revaluation Account and Partners’ Capital Accounts
Q.19) Rajinder and Vijay were partners in a firm sharing profits in the ratio 3:2. On 31st March 2023 their balance
sheet was as follows:

Capital A/c Fixed Assets (Tangible) 3,60,000
Rajinder 3,00,000 Goodwill 50,000
Vijay 1,50,000 4,50,000 Investment 40,000
Current A/c Stock 74,000
Rajinder 50,000 Debtors 1,00,000
Vijay 10,000 60,000 Less PFDD 4,000 96,000
General Reserve 60,000
6,45,000 6,45,000
With an aim to expand business it is decided to admit Ranvijay as a partner on 1st April 2023 on the following terms:
a) Provision for doubtful debts is to be increased to 6% of debtors.
b) An outstanding bill for repairs ₹ 50,000 to be accounted in the books

c) An unaccounted interest accrued of ₹ 7500 be provided for .
d) Investment were sold at book value.
e) Half of stock was taken by Rajinder at ₹42,000 and remaining stock was also to be revalued at the same rate.
f) New profit-sharing ratio of partners will be 5:3:2.
g) Ranvijay will bring ₹ 1,00,000 as capital and his share of goodwill which was valued at twice the average profit of
the last three years ended 31st March 2023, 2022 and 2021 were ₹ 1,50,000, ₹ 1,30,000 and ₹ 1,70,000 respectively.
Pass necessary journal entries.
Q.20) Following is the balance sheet of Jay and Veeru as at 31st March, 2023 who are partners in a firm sharing
profits and losses in the ratio of 3:2 respectively

Capital A/c of jay 1,80,000 Less PFDD (2,400) 57,600
Capital A/c of Veeru 90,000 Patents 44,400
Current A/c of Jay 30,000 Investment 24,000
Current A/c of Veeru 6,000 Fixed assets 2,16,000
goodwill 30,000
3,87,000 3,87,000
Sri is admitted as a new partner on 1st April,2023 on the following terms:
a) Provision for doubtful debts is to be maintained at 5% on debtors
b) Outstanding rent payable was 15,000
c) An accrued income of 4,500 does not appear in the books of the firm. It is now to be recorded
d) Jay takes over the investments at an agreed value of 18,000
e) New profit sharing ratio of partner will be 4:3:2
f) Sri will bring in 60,000 as his capital by cheque
g) Sri is to pay an amount equal to his share in firm goodwill valued at twice the average profit of the last three
years ended 31st March, 2023 , 2022 and 2021 which were 90,000; 78,000 and 75,000 respectively
h) Half of the amount of goodwill is to be withdrawn by Jay and Veeru
You are required to prepare revaluation account, Partners current and partners capital account.

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YOU TUBE: SUNIL PANDA -THE EDUCATOR

Section 4 of partnership act, 1932

Maximum partner 50 as per rule 10 of the companies’ rules, 2014

Essential condition of Partnership

Business + profits + Mutual agency

Essential Features of Partnership

a) Two or more persons

c) Lawful business (Existence of business & profit motive)

e) Principle and Agent relationship

f) No separate existence (legal point of View)

a) Right to participate in management

b) Right to inspect books of account and have a copy of it

c) Right to share profits or losses

d) Right to received interest on his/her loan to the firm @6% p.a.

It may be written or oral

It also called “Articles of partnership”

i) Name and Address of the firm & partners

ii) Nature of business, capital contribution, profit sharing ratio

iii) Interest on capital, salary, commission, etc.

iv) In partnership the liability of all partners are unlimited

v) Registration of Partnership firm is not Compulsory.

vi) LLP : Limited Liability Partnership (LLP ACT 2008)

vii) Here liability of partners are limited

viii) (Mix of Partnership and Company)

In the absence of partnership deed (Partnership Act provision are applicable)

a) Profit sharing ratio will equal

b) No interest on capital, no salary, no interest on drawings, etc.

c) Interest on (partners loan to firm) @ 6% p.a.

d) Interest on (firm loans to Partners) – NO INTEREST

It is a charge against profit hence provided even in case of losses

Methods of maintaining partners capital A/c

▪ Fixed capital A/c method

c) Capital a/c always shown a credit balance

Fluctuating partners’ capital A/c Method

a) Here balance of partners’ capital a/c fluctuate (Changes)

b) Only partners’ capital a/c is maintained

c) Partners capital a/c may have Dr. or Cr. Balance

(If nothing is mentioned we assumed Fluctuating Method)

It is a fixed intangible assets not a fictitious asset.

Two Types of goodwill

1. Purchased goodwill. Recorded in books

2. Self-generated goodwill. not recorded in books (AS-26)

Need for valuation of goodwill

a) When a new partner is Admitted

b) When a partner retires or dies

c) When there is a change in the profit-sharing ratio

d) At the time of sale of a business

e) When partnership firm is converted into a company

f) When two or more firm amalgamate

Factors affecting the value of goodwill

d) Longer establishment of business

g) Good customer relations

h) Sales after services, etc.

Sacrificing ratio = old ratio –new ratio

Gaining ratio = new ratio –old ratio

A firm is reconstituted in the event of

4) Change in profit sharing ratio