Accountancy OSWAAL

Highly Recommended For 2024 Exam
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BANK
Includes SOLVED PAPERS (2021 - 2023)
ACCOUNTANCY
Section-II (Domain Specific Subject)
Strictly as per the Latest Exam Pattern issued by NTA
The ONLY book you need to #AceCUET(UG)
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100% Previous Years’ Revision Concept 800+
Updated Questions Notes Videos Questions
With 2023 CUET (2022-2023) for for Crisp Revision for Complex for Extensive
Exam Paper Better Exam Insights with Smart Mind Maps Concepts Clarity Practice
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1st EDITION YEAR 2024
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SYLLABUS CUET (UG)

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This book is published by Oswaal Books and Learning Pvt Ltd (“Publisher”) and is intended solely for educational use, to
enable students to practice for examinations/tests and reference. The contents of this book primarily comprise a collection
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Preface
Welcome to the ultimate resource for your Common University Entrance Test (CUET) preparation!
The Common University Entrance Test (CUET) marks a significant shift in the admission process for
UG programs in Central Universities across India. The introduction of CUET aims to create a level playing
field for students nationwide, regardless of their geographical location, and revolutionize the way students
connect with these prestigious institutions.
CUET (UG), administered by the esteemed National Testing Agency (NTA), is a prestigious all-India
test that serves as a single-window opportunity for admissions. The NTA consistently provides timely
notifications regarding the exam schedule and any subsequent updates.
The curriculum for CUET is based on the National Council of Educational Research and Training
(NCERT) syllabus for class 12 only. CUET (UG) scores are mandatory required while admitting students to
undergraduate courses in 44 central universities.
A merit list will be prepared by participating Universities/organizations. Universities may conduct their
individual counselling on the basis of the scorecard of CUET (UG) provided by NTA.
Oswaal CUET (UG) Question Bank is your strategic companion designed to elevate your performance
and simplify your CUET journey for success in this computer-based test.
Here’s how this book benefits you:

• 100% Updated with 2023 CUET Exam Paper
• Previous years Questions (2022-2023)for Better Exam insights
• Revision Notes for Crisp Revision with Smart Mind Maps
• Concept Videos for complex concepts clarity
• 800+ questions for Extensive Practice
Almost 1.92 million candidates registered for CUET (UG) in 2023. Candidates have been quite anxious
about appearing for CUET (UG), however, with the right preparation strategy and resources, you can
secure a good rank in CUET (UG).
We believe that with dedication, hard work, and the right resources, you can conquer CUET and secure
your place in the Central Universities of your choice.
Good luck with your preparations, with this trusted companion on your journey to academic success!
All the best!

Team Oswaal Books
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Contents
l Know your CUET(UG) Exam 5 - 5
l Latest CUET (UG) Syllabus 6 - 7
l Examination Paper CUET 2023 10 - 16
Accounting for Not-for-Profit Organisation and Partnership Firms

Chapter-1 – Accounting Not-For-Profit Organisation 1-8
Chapter-2 – Accounting For Partnership 9 - 16
Chapter-3 – Reconstitution of Partnership 17 - 27
Chapter-4 – Dissolution of Partnership 28 - 36
Chapter-5 – Accounting For Share And Debenture Capital 37 - 45
Chapter-6 – Analysis of Financial Statements 46 - 55
Chapter-7 – Statement of Changes In Financial Position 56 - 64
Computerised Accounting System

Chapter-1 – Overview of Computerised Accounting System 65 - 71
Chapter-2 – Using Computerised Accounting System 72 - 77
Chapter-3 – Accounting Using Database Management (DBMS) 78 - 82
Chapter-4 – Accounting Application of Electronic Spreadsheet 83 - 88
qqq
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2 Languages + 6 Domain Specific 3 Languages + 5 Domain Specific
Subject + General Test OR Subjects + General Test
Subject/Language Choice
Objective Type
CBT with MCQs
Mode of Test
Test Pattern
Know Your
CUET (UG) Exam
SECTIONS
SECTION III
SECTION I (A)
SECTION I (B) SECTION II General Test
13 Languages (Compulsory)
20 Languages Domain Specific
Subjects ( 27 Subjects)
Tested through reading INCLUDES :

Comprehension • General Knowledge
NCERT Model
• Current Affairs
(i) Factual syllabus (only of 12th
Standard) is available • General Mental Ability
(ii) Literary
on all the Subjects • Numerical Ability
(iii) Narrative
• Quantitative Reasoning
• Logical & Analytical Reasoning
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Latest CUET (UG) Syllabus
SYLLABUS FOR LANGUAGES (IA AND IB)
Note:
There will be one Question Paper which will have 50 questions out of which 40 questions need to be
attempted.
Accounting for Not-for-Profit Organizations and Partnership Firms
Unit I: Accounting Not-for-Profit Organisation
• Not-for-profit organization: Meaning and Examples.
• Receipts and Payments: Meaning and Concept of fund-based and non-fund-based accounting.
• Preparation of Income and Expenditure Account and Balance sheet from receipt and payment account
with additional information.
Unit II: Accounting for Partnership
• Nature of Partnership Firm: Partnership deed (meaning, importance).
• Final Accounts of Partnership: Fixed v/s Fluctuating capital, Division of profit among partners, Profit,
and Loss Appropriation account.
Unit III: Reconstitution of Partnership
Changes in profit sharing ratio among the existing partners – Sacrificing ratio and Gaining ratio.
• Accounting for Revaluation of Assets and Liabilities and Distribution of reserves and accumulated
profits.
• Goodwill: Nature, Factors affecting and Methods of valuation: Average profit, Super profit, Multiplier,
and Capitalization methods.
• Admission of a Partner: Effect of admission of a partner, Change in profit sharing ratio, the Accounting
treatment for goodwill, Revaluation of assets and liabilities, Reserves (accumulated profits), and
Adjustment of capitals.
• Retirement/Death of a Partner: Change in profit sharing ratio, Accounting treatment of goodwill,
Revaluation of assets and liabilities, Adjustment of accumulated profits (Reserves).
Unit IV: Dissolution of Partnership Firm
• Meaning, Settlement of accounts: Preparation of realization account and related accounts (excluding
piecemeal distribution, sale to a company and insolvency of a Partner)
Company Accounts and Financial Statement Analysis
Unit V: Accounting for Share and Debenture Capital
• Share Capital: Meaning, Nature and Types.
• Accounting for Share Capital: Issue and Allotment of Equity and Preference Shares; Over subscription
and Under subscription; Issue at par, premium and at discount; Calls in advance, Calls in arrears, Issue
of shares for consideration other than cash.
• Forfeiture of Shares: Accounting treatment, Re-issue of forfeited shares.
• Presentation of shares and Debentures Capital in the company’s balance sheet.
• Issue of Debenture – At par, premium, and discount; Issue of debentures for consideration other than
cash.
• Redemption of the debenture.
• Out of proceeds of fresh issue, accumulated profits, and sinking fund.
Unit VI: Analysis of Financial Statements
• Financial Statements of a Company: Preparation of simple financial statements of a company in the
prescribed form with major headings only.
• Financial Analysis: Meaning, Significance, Purpose, Limitations.
• Tools for Financial Analysis: Comparative statements, Common size statements.
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Contd...
• Accounting Ratios: Meaning and Objectives, Types of ratios:
Liquidity Ratios: Current ratio, Liquidity ratio.
Solvency Ratio: Debt to equity, Total assets to debt, Proprietary ratio.
Activity Ratio: Inventory turnover, Debtors turnover, Payables turnover, Working capital turnover, fixed
assets turnover, Current assets turnover.
Profitability Ratio: Gross profit, Operating ratio, Net profit ratio, Return on Investment, Earning per
Share, Dividend per Share, Profit Earning ratio.
Unit VII: Statement of Changes in Financial Position
• Cash Flow Statement: Meaning and Objectives, Preparation, Adjustments related to depreciation,
dividend and tax, sale and purchase of non-current assets (as per revised standard issued by ICAI).
Computerized Accounting System
Unit I: Overview of Computerized Accounting System
• Concept and Types of Computerized Accounting System (CAS).
• Features of a Computerized Accounting System.
• Structure of a Computerized Accounting System.
Unit II: Using Computerized Accounting System
• Steps in the installation of CAS, Preparation of chart of accounts, Codification, and Hierarchy of account
heads.
• Data entry, Data validation, and Data verification.
• Adjusting entries, Preparation of financial statements, Closing entries, and Opening entries.
• Security of CAS and Security features are generally available in CAS (Students are expected to understand
and practice the entire accounting process using an accounting package.)
Unit III: Accounting Using Database Management System (DBMS)
• Concepts of DBMS.Objects in DBMS: Tables, Queries, Forms, Reports.
• Creating data tables for accounting.
• Using queries, forms, and reports for generating accounting information. Applications of DBMS in
generating accounting information such as shareholders’ records, sales reports, customers’ profiles,
suppliers’ profiles payroll, employees’ profiles, and petty cash registers.
Unit IV: Accounting Applications of Electronic Spreadsheet
• Concept of an Electronic Spreadsheet (ES).
• Features offered by Electronic Spreadsheet.
• Applications of Electronic Spreadsheet in generating accounting information, preparing depreciation
schedules, loan repayment schedules, payroll accounting, and other such company
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0808
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CUET Question Paper - 2023
NATIONAL TESTING AGENCY
Held on 24th May, 2023
Accountancy
Max. Marks : 200 Time allowed : 45 Minutes
General Instructions:
(i) This paper consists of 50 MCQs, attempt any 40 out of 50 .
(ii) Correct answer or the most appropriate answer: Five marks (+5) .
(iii) Any incorrect option marked will be given minus one mark (– 1) .
(iv) Unanswered/Marked for Review will be given no mark (0) .
(v) If more than one option is found to be correct then Five marks (+5) will be awarded to only those who have
marked any of the correct options .
(vi) If all options are found to be correct then Five marks (+5) will be awarded to all those who have attempted
the question .
(vii) If none of the options is found correct or a Question is found to be wrong or a Question is dropped then all
candidates who have appeared will be given five marks (+5).
(viii) Calculator / any electronic gadgets are not permitted.
1. On R’s retirement, the amount payable to him (3) Dissolution of partnership firm
after all adjustments, work out to be ` 60,000 but (4) Death of a partners
the remaining partners P and Q agreed to pay him 7. Which command reverse the last action performed
` 75,000 in full settlement of his claim. Identify the in the worksheet?
term which represent ` 15,000 extra, that is paid to R.
(1) Ctrl + Z (2) Ctrl +P
(1) Share in Profits
(2) Hidden Goodwill (3) Ctrl + Y (4) Ctrl +C
(3) Interest on his Capital 8. In which of the following case, claim is valid if the
(4) Compensation for Past work partnership agreement is silent?
2. Identify the term that is used to show the amount (1) Sanjay is an active partner and wants a salary of
received as per the will of a deceased person. ` 1,00,000 per year.
(1) Specific Donations (2) Life membership fees (2) Monika had advanced a loan to the firm and claims
(3) Subscription (4) Legacies interest @10% per annum.
3. Identify that account to which share of profit of a (3) Sanjay and Monika contributed ` 2,00,000 and
deceased partner is debited from the date of the last ` 5,00,000 as capital respectively and Monika wants
Balance Sheet to the date of his/her death. equal share.
(1) His capital account (4) Monika wants interest on capital to be credited
(2) Profit and loss account @ 10% per annum.
(3) Profit and Loss Suspense account 9. Read the following facts about admission of a
(4) Trading account
partner.
4. Find out cash flow form financing Activities from
A. A new partner acquires his share from the old
the following information.
partners that reduces the old partners share in
Issue of Equity Shares ` 80,000 profits.
Redemption of Preference Shares ` 30,000 B. The partnet's capital must be adjusted so as to be
Interim Dividend Paid ` 25,000 proportionate to their new profit sharing ratio.
Interest on Debentures ` 15,000 C. Assets and Liabilities may be revalued and
Issue of Debentures ` 30,000 reassessed on admission of a partner.
D. Adjustment for Reserves and Accumulated profits/
(1) Inflow ` 80,000 (2) Outflow ` 80,000 loss is done.
(3) Inflow ` 40,000 (4) Qutflow ` 40,000 E. Profit sharing ratio of existing partners may change
5. A, B, and C are partners with equal profit sharing on admission of a new partner.
ratio. Their fixed capitals are ` 30,000, ` 25,000 and Choose the correct answer from the options given
` 30,000 respectively. C decided to take retirement. below:
A and B decided to continue the partnership firm (1) A, B, C and D only (2) B, C, D and E only
and change their profit sharing ratio into Capital (3) C, D and E only (4) A, C, D and E only
Ratio. What is the gaining ratio of A and B? 10. Identify the ratio which is not computed for
(1) 6 : 5 (2) 1 : 1 evaluating solvency of the business.
(3) 7 : 4 (4) 3 : 2 (1) Debt-Equity Ratio
6. Out of the following when will the need for (2) Proprietary Ratio
valuation of goodwill does not arise:
(3) Operating Ratio
(1) Admission of a partner
(4) Interest Coverage Ratio
(2) Retirement of a partner
CUET (UG) Exam Paper 2023 11
11. A company can buy its own shares when: 16. Complete the sequence where interest on capital
(1) The debt-equity ratio is not more than 1 : 1 after the has to be provided as per partnership deed, but
buy back. available profits are not sufficient to provide full
(2) The amount of buy back shares in any financial amount of interest on capital.
year not exceeding 20% of the paid-up capital and A. If it is appropriation, calculate interest on capital
free reserves. for all partners at given rate
(3) Partly paid up shares are considered buy back. B. Divide the available amount in the capital ratio
(4) Article of Association must authorise and special among the partners
resolution has been passed for the buy back of C. Calculate ratio between capital of partners
shares.
D. Consider the partnership deed and decide whether
12. From the following, identify the items which interest on capital is a charge or an appropriation
are payable to retiring partner, if mentioned in
E. Consider the available profit
deed:
A. Credit balance of his/her Capital/Current Account Choose the correct answer from the options given
below:
B. Share of goodwill
C. Goodwill of the firm (1) A, B, C, D, E (2) B, C, D, E, A
D. Share in revaluation gain/loss (3) D, A, E, C, B (4) C, D, A, B, E
E. Share in accumulated profits (Reserves) 17. Identify the key that allows the access to the system.
Choose the correct answer from the options given (1) Security (2) Encryption
below: (3) Software (4) Password
18. Identify the correct sequence where new partner is
(1) A, B only (2) A, B, D, E only
to bring proportionate capital.
(3) B, C, D, E only (4) A, C, D, E only
A. Calculation of Capital Balance of old partners
13. W Ltd. has given you following information:
B. Preparation of Revaluation A/c
Machinery (opening balance) ` 50,000 C. Determination of Revaluation gain/loss
Machinery (closing balance) ` 60,000 D. Presentation of Treatment of Goodwill
Accumulated Depreciation (opening balance) ` 25,000 E. Calculation of Capital to be brought in by the
Accumulated Depreciation (closing balance) ` 15,000 new partner
During the year, a machine costing ` 25,000 with Choose the correct answer from the options given
accumulated depreciation of ` 15,000 was sold below:
for ` 13,000. Calculate Cash Flow from Investing (1) C, B, D, A, E (2) D, B, C, E, A
Activity: (3) D, C, B, A, E (4) B, C, D, A, E
(1) 22,000 (2) (22,000) 19. Which of the following will be shown on the credit
(3) (35,000) (4) 13,000 side of Deceased Partner A/c?
14. Match List I with List II: A. Revaluation Gain Share
List -I List - II B. Goodwill written off
(A) Loss on Revalu- (I) Credited to old part- C. Share of profit till date of death
ation ners in old ratio D. Drawings till date of death
(B) Profit on Reval- (II) Debited to Profit and E. Interest on capital till date of death
uation Loss Suspense A/c Choose the correct answer from the options given
(C) Premium brou- (III) Credited to old part- below:
ght by new ners in sacrificing (1) A and C only
partner ratio (2) B, D and E only
(D) On the death of (IV) Debited to old part- (3) A, B and D only
a partner, profit ners in the old ratio (4) A, C and E only
till the date of 20. In a partnership firm, partners share profit and
death is ` 2,000 loss in the ratio of 3 : 2. If the firm incurred a loss of
` 10,000 during the year then calculate the amount
Choose the correct answer from the options given of loss to be shared by partners.
below: (1) Equally
(1) (A)-(I), (B)-(IV), (C)-(III), (D)-(II) (2) According to profit sharing ratio.
(2) (A)-(IV), (B)-(I), (C)-(III), (D)-(II) (3) According to gaining ratio.
(3) (A)-(II), (B)-(II, (C)-(IV), (D)-(III) (4) According to sacrificing ratio.
(4) (A)-(III), (B)-(II), (C)-(IV), (D)-(I) 21. Which of the following will be added to operat-
ing profit before working capital changes, while
15. Identify those debentures on which no interest will
preparing Cash Flow statement from indirect
be paid/provided.
method?
(1) Debentures issued to underwriters
(1) Increase in Trade Receivable by ` 80,000
(2) Debentures issued for cash
(2) Decrease in Inventory by ` 50,000
(3) Debentures issued to vendor
(3) Increase in Prepaid Expenses by ` 30,000
(4) Debentures issued as collateral security
(4) Decrease in Trade Payable by ` 20,000
12 OSWAAL CUET (UG) Chapterwise Question Bank ACCOUNTANCY
22. Match List I with List II: 27. Arrange following in a sequence in which amount
realised from assets will be utilised to pay.
List -I List - II
A. Partner's Loan
(A) Interest on (I) Admission of partner
B. Partner's Capital
capital
C. Secured debts of the firm
(B) Gaining Ratio (II) Profit and Loss in the
D. Unsecured debts of the firm
old profit sharing
ratio E. Residue to partners
Choose the correct answer from the options given
(C) Sacrificing ratio (III) Continuing partners
below:
(D) Revaluation of (IV) When partnership (1) C, D, E, A, B (2) C, D, E, A, B
Assets and Li- deed specifically (3) C, D, A, B, E (4) C, D, A, E, B
abilities provide for it 28. A part of fixed assets costing ` 2,00,000 (Book value
Choose the correct answer from the options given 1,50,000) was sold at a gain of ` 10,000. How it will
below: affect the cash flow statement?
(1) Inflow ` 1,60,000 in Investing Activities and
(1) (A)-(I), (B)-(II), (C)-(III), (D)-(IV)
Add ` 10,000 in Operating Activities
(2) (A)-(III), (B)-(IV), (C)-(I), (D)-(II)
(2) Inflow ` 1,60,000 in Investing Activities and less
(3) (A)-(II), (B)-(III), (C)-(IV), (D)-(I) ` 10,000 in Operating Activities
(4) (A)-(IV), (B)-(III), (C)-(I), (D)-(II) (3) Inflow ` 2,10,000 in Investing Activities Add
` 10,000 in Operating Activities
23. Identify the term that indicate excess of Expenditure
(4) Inflow ` 2,10,000 in Investing Activities and
over Income, in case of a Not-for-profit Organisation.
Less ` 10,000 in Operating Activities
(1) Payment (2) Expenditure
29. Match List I with List II:
(3) Deficit (4) Loss
24. Identify the salient features of Income and List -I List - II
Expenditure account from the following: (A) Current (I) Other Non-Current
A. It is prepared on accrual basis. Maturities of Liabilities
long term Debt
B. It includes both revenue as well as capital items.
C. It is prepared after taking into account the (B) Securities (II) Short term
Premium Borrowing
additional information regarding outstanding
prepaid expenses and depreciation etc. (C) Outstanding (III) Other Current
salaries Liability
D. Its result is surplus or deficit.
E. It is prepared with the help of Receipts and (D) Premium on (IV) Reserves and
Redemption of Surplus
Payments Account.
Debentures
below: Choose the correct answer from the options given
(1) A, B, C and D only (2) A, B, C and E only below:
(3) B, C, D and E only (4) A, C, D and E only (1) (A)-(III), (B)-(IV), (C)-(II), (D)-(I)
25. C Ltd. made a profit of ` 10,000 after charging (2) (A)-(II), (B)-(I), (C)-(III), (D)-(IV)

depreciation of ` 2,000 on Assets, transfer to General (3) (A)-(II), (B)-(IV), (C)-(III), (D)-(I)
Reserve ` 3,000. Written off Goodwill ` 700, Profit on (4) (A)-(III), (B)-(II), (C)-(I), (D)-(IV)
sale of Asset ` 300, increase in Debtors ` 300, increase
30. What is the correct sequence to prepare company’s
in creditors ` 600, increase in prepaid expenses ` 20
Balance Sheet as per the standard format given
and decrease in outstanding expenses ` 200. What
according to Schedule III of Companies Act 2013?
will be the cash from operating activities?
A. Non Current Liability
(1) ` 15,500 (2) ` 15,480
B. Non Current Assets
(3) ` 5,000 (4) ` 16,000
C. Shareholder's Funds
26. On 1st July' 22, Centaur Ltd. issued ` 25,00,000 8%
D. Current Assets
debentures of ` 100 each as collateral security to
E. Current Liability
First Level Bank against loan dues of ` 20,00,000,
How much amount will be shown in the Balance Choose the correct answer from the options given
sheet? below:
(1) ` 25,00,000 (2) ` 45,00,000 (1) C, A, B, E, D (2) A, B, C, D, E
(3) ` 20,00,000 (4) ` 70,00,000 (3) C, A, E, B, D (4) A, C, E, B, D
31. When a company issues shares in open market Choose the choose answer from the option given

and the amount is payable in instalments. What below:
is the sequence of amount demanded by the (1) C and E only (2) C, D and E only
company?
(3) A, B and C only (4) A, C and E only
A. Money received on calls
35. Separate disclosure of cash flow arising from
B. Money due on calls Financial Activities is important because
C. Allotment money received (1) It helps in identifying the investment activities.
D. Application money transferred to Share Capital (2) It helps in gaining in investing activities.
A/c (3) It helps in making investing decision.
E. Allotment money due (4) It is useful in predicting claims on future cash
flow by providers of funds to the enterprise.
below: 36. How many blank worksheet(s) are shown, by
(1) D, C, B, A, E default when a new workbook is created?
(2) D, E, C, B, A (1) One (2) Two
(3) D, C, A, B, E (3) Three (4) Four
(4) D, E, C, A, B 37. Capital gain tax paid on sale of fixed assets should
32. Trade payables to be settled beyond 12 months from be classified as ......
the date of Balance sheet or beyond the operating (1) Cash inflow from Operating Activities
cycle are classified under: (2) Cash outflow from Operating Activities
(1) Long term provisions (3) Cash inflow from Investing Activities
(2) Other long term liabilities (4) Cash outflow from Investing Activities
(3) Deferred tax liabilities 38. Match List I with List II:
(4) Long term Borrowing
List -I List - II
33. Match List I with List II: (A) Interest charges (I) Employees Benefit
List -I List - II Expenses
(A) Transfer of (I) Realisation Account (B) Sale of services (II) Other incomes
accumulated (C) Salary (III) Revenue from
profits Operations
(B) Unrecorded (II) Profit and Loss (D) Dividend (IV) Finance cost
asset sold on Account Income
dissolution of
firm
(C) Manager's (III) Profit and Loss below:
commission Appropriation (1) (A)-(IV), (B)-(III), (C)-(I), (D)-(II)
Account
(D) Partner's (IV) Partner's Capital (2) (A)-(IV), (B)-(II), (C)-(I), (D)-(III)

commission Account (3) (A)-(II), (B)-(I), (C)-(III), (D)-(IV)
Choose the correct answer from the options given (4) (A)-(II), (B)-(IV), (C)-(I), (D)-(III)
below: 39. Select out of the following that leads to the need of
(1) (A)-(IV), (B)-(I), (C)-(III), (D)-(II) codification.
(2) (A)-(IV), (B)-(I), (C)-(II), (D)-(III)
(1) The Encryption of data
(3) (A)-(IV), (B)-(II), (C)-(III), (D)-(I) (2) To secure various accounts
(4) (A)-(IV), (B)-(III), (C)-(II), (D)-(I) (3) To keep proper records
34. Every company analyse its earning capacity of the (4) All of the above
business which is outcome of utilisation of resources 40. Select the sub-head under which loose tools will be
employed in the business. To analyse profitability shown in the Balance Sheet of a company -
company can use: (1) Current Assets
A. Dividend Payout Ratio (2) Trade Receivables
B. Return on Net Worth (3) Inventories
C. Gross Profit Ratio (4) Other current Assets
D. Quick Ratio 41. Based on following passage answer questions from
E. Inventory Turnover Ratio 41-45.
A Ltd. with an Authorised Capital of ` 10,00,000 is Select the amount that is received from Hari's
divided into shares of ` 10 each, issued 50,000 shares reissued shares:
at a premium of ` 2 per share payable as follows: (1) ` 4,800 (2) ` 4,000
on Application ` 3 per share (3) ` 8,000 (4) ` 9,600
on Allotment ` 5 per share 44. Based on following passage answer questions from
(including premium) 41-45.
on First and Final call Balance amount A Ltd. with an Authorised Capital of ` 10,00,000 is
Application were received for 60,000 shares and divided into shares of ` 10 each, issued 50,000 shares
the directors allotted shares to all on proportionate at a premium of ` 2 per share payable as follows:
basis. All money received except first and final call on Application ` 3 per share
from Hari who had applied for 1200 shares. His on Allotment ` 5 per share
shares were forfeited and later half of his forfeited (including premium)
shares were reissued at ` 8 per share as fully paid on First and Final call Balance amount
up. Application were received for 60,000 shares and
Identify the number of shares with which A Ltd. is the directors allotted shares to all on proportionate
registered. basis. All money received except first and final call
(1) 1,00,000 Shares (2) 50,000 Shares from Hari who had applied for 1200 shares. His
(3) 60,000 Shares (4) 10,00,000 Shares shares were forfeited and later half of his forfeited
42. Based on following passage answer questions from shares were reissued at ` 8 per share as fully paid
41-45. up.
A Ltd. with an Authorised Capital of ` 10,00,000 is Identify the account to which the discount allowed
divided into shares of ` 10 each, issued 50,000 shares on reissue of forfeited shares should be debited.
at a premium of ` 2 per share payable as follows: (1) Bank Account
on Application ` 3 per share (2) Forfeited Share Account
on Allotment ` 5 per share (3) Capital Reserve Account
(including premium) (4) Securities Premium Reserve Account
on First and Final call Balance amount 45. Based on following passage answer questions from
Application were received for 60,000 shares and 41-45.
the directors allotted shares to all on proportionate A Ltd. with an Authorised Capital of ` 10,00,000 is
basis. All money received except first and final call divided into shares of ` 10 each, issued 50,000 shares
from Hari who had applied for 1200 shares. His at a premium of ` 2 per share payable as follows:
shares were forfeited and later half of his forfeited
on Application ` 3 per share
shares were reissued at ` 8 per share as fully paid
on Allotment ` 5 per share
up.
Select the amount received on Share Allotment (including premium)
Account: on First and Final call Balance amount
(1) ` 2,50,000 (2) ` 50,000 Application were received for 60,000 shares and
(3) ` 2,20,000 (4) ` 3,00,000 the directors allotted shares to all on proportionate
43. Based on following passage answer questions from basis. All money received except first and final call
41-45. from Hari who had applied for 1200 shares. His
A Ltd. with an Authorised Capital of ` 10,00,000 is shares were forfeited and later half of his forfeited
divided into shares of ` 10 each, issued 50,000 shares shares were reissued at ` 8 per share as fully paid
at a premium of ` 2 per share payable as follows: up.
on Application ` 3 per share
The balance, if any, left in the share forfeited account
on Allotment ` 5 per share
relating to reissued shares, should be transferred to:
(including premium)
(1) Forfeited Share Account
on First and Final call Balance amount
Application were received for 60,000 shares and (2) Share Capital Account
the directors allotted shares to all on proportionate (3) Reserve Capital Account
basis. All money received except first and final call (4) Capital Reserve Account
from Hari who had applied for 1200 shares. His 46. Meena and Tina are partners in a firm and sharing
shares were forfeited and later half of his forfeited profit as 3 : 2. They decided to dissolve their firm
shares were reissued at ` 8 per share as fully paid on March 31, 2017 when their Balance Sheet was as
up. follows:
Balance Sheet Meena and Tina as on March 31, 2017 (3) Dissolution by court
Amount Amount (4) Dissolution on happening of contingencies
Liabilities Assets
(`) (`) 48. Meena and Tina are partners in a firm and sharing
Capital: Machinery 70,000 profit as 3 : 2. They decided to dissolve their firm
Meena 90,000 Investments 50,000 on March 31, 2017 when their Balance Sheet was as
Tina 80,000 1,70,000 Stock 22,000 follows:
Sundry creditors 60,000 Sundry Debtors 1,03,000 Balance Sheet Meena and Tina as on March 31, 2017
Bills payable 20,000 Cash at bank 5,000 Amount Amount
Liabilities Assets
2,50,000 2,50,000 (`) (`)
Capital: Machinery 70,000
The assets and liabilities were disposed off as
Meena 90,000 Investments 50,000
follows:
Tina 80,000 1,70,000 Stock 22,000
a. Machinery were given to creditors in full settle-
Sundry creditors 60,000 Sundry Debtors 1,03,000
ment of their account and stock were given bills Bills payable 20,000 Cash at bank 5,000
payable in full settlement. 2,50,000 2,50,000
b. Investment were took over by Tina at book val-
ue. Sundry debtors of book value ` 50,000 took The assets and liabilities were disposed off as

over by Meena at 10% less and remaining debt- follows:
ors realised ` 51,000. a. Machinery were given to creditors in full settle-
c. Realisation expenses amount to ` 2,000. ment of their account and stock were given bills
When a creditor accepts an asset whose value is payable in full settlement.
more than the amount due to him, he will ........ the b. Investment were took over by Tina at book val-
excess amount which will be credited to ..... Account. ue. Sundry debtors of book value ` 50,000 took
(1) Pay, Bank over by Meena at 10% less and remaining debt-
(2) Not pay, Creditors ors realised ` 51,000.
(3) Pay, Realisation c. Realisation expenses amount to ` 2,000.
(4) Not pay, Realisation Identify the amount realised in cash from Sundry
47. Meena and Tina are partners in a firm and sharing Debtors.
profit as 3 : 2. They decided to dissolve their firm (1) ` 96,000 (2) ` 1,03,000
on March 31, 2017 when their Balance Sheet was as (3) ` 1,00,000 (4) ` 51,000
follows: 49. Meena and Tina are partners in a firm and sharing
Balance Sheet Meena and Tina as on March 31, 2017 profit as 3 : 2. They decided to dissolve their firm
Amount Amount on March 31, 2017 when their Balance Sheet was as
Liabilities Assets
(`) (`)
follows:
Capital: Machinery 70,000
Balance Sheet Meena and Tina as on March 31, 2017
Meena 90,000 Investments 50,000
Tina 80,000 1,70,000 Stock 22,000 Amount Amount
Liabilities Assets
(`) (`)
Bills payable 20,000 Cash at bank 5,000 Capital: Machinery 70,000
2,50,000 2,50,000 Meena 90,000 Investments 50,000
Tina 80,000 1,70,000 Stock 22,000
follows: Bills payable 20,000 Cash at bank 5,000
a. Machinery were given to creditors in full settle- 2,50,000 2,50,000
ment of their account and stock were given bills

payable in full settlement.
follows:
b. Investment were took over by Tina at book val-
ue. Sundry debtors of book value ` 50,000 took a. Machinery were given to creditors in full settle-
over by Meena at 10% less and remaining debt- ment of their account and stock were given bills
ors realised ` 51,000. payable in full settlement.
c. Realisation expenses amount to ` 2,000. b. Investment were took over by Tina at book val-
Which mode of dissolution is highlighted in the ue. Sundry debtors of book value ` 50,000 took
above case? over by Meena at 10% less and remaining debt-
(1) Compulsory dissolution ors realised ` 51,000.
(2) Dissolution by agreement c. Realisation expenses amount to ` 2,000.
State Journal entry for payment of realisation


expenses. follows:
(1) Realisation Expenses A/c Dr. ` 2,000 a. Machinery were given to creditors in full settle-
To Realisation A/c ` 2,000 ment of their account and stock were given bills
(2) Realisation A/c Dr. ` 2,000 payable in full settlement.
To Realisation Expenses A/c ` 2,000 b. Investment were took over by Tina at book val-
(3) Realisation A/c Dr. ` 2,000 ue. Sundry debtors of book value ` 50,000 took
over by Meena at 10% less and remaining debt-
To Bank A/c ` 2,000
ors realised ` 51,000.
(4) Bank A/c Dr. ` 2,000
c. Realisation expenses amount to ` 2,000.
To Realisation A/c ` 2,000
State Journal entry for realisation of investment.

50. Meena and Tina are partners in a firm and sharing
(1) Tina's Capital A/c Dr. ` 50,000
profit as 3 : 2. They decided to dissolve their firm
on March 31, 2017 when their Balance Sheet was as To Realisation A/c ` 50,000
follows: (2) Tina's Capital A/c Dr. ` 30,000
Balance Sheet Meena and Tina as on March 31, 2017 Meena's Capital A/c Dr. ` 20.000
Amount Amount To Realisation A/c ` 50,000
Liabilities Assets
(`) (`) (3) Realisation A/c Dr. ` 50,000
Capital: Machinery 70,000 To Tina's Capital A/c ` 50.000
Meena 90,000 Investments 50,000 (4) Realisation A/c Dr. ` 50,000
Tina 80,000 1,70,000 Stock 22,000
To Tina's Capital A/c ` 30,000
To Meena's Capital A'c ` 20,000
Bills payable 20,000 Cash at bank 5,000
2,50,000 2,50,000

Accounting for Not-for-Profit Organisation and Partnership Firms
Study Time
CHAPTER Max. Time: 1:25 Hours
1
Max. Questions: 40
ACCOUNTING
NOT-FOR-PROFIT
ORGANISATION
 Its objective is to show the closing Balance of the cash in
 Revision Notes hand and at bank.
 Meaning of Non-trading Organisation: The organisations Scan to know
whose basic aim is to serve the society are called Non-trading  Income and Expenditure Account:
more about
or Not-for-profit organisations.  It is like Trading and Profit and Loss this topic
 Features: The basic features are as follows: Account.
 Main aim of the organisation is to provide service to  It is prepared to ascertain the surplus
its members or general public either free of cost or at a very or deficit arising out of organisation’s
minimal fee. activities. Income and
 It is not formed to earn profit.  Features: Expenditure
Account
 They are charitable trusts and societies.  It is a nominal Account.
 They are treated as separate entity from its members.  Only Revenue items are recorded.
 The major source of income is subscription fees, donations,  It is prepared in the same manner as the Profit and Loss
financial assistance, grant-in-aid etc. A/c.
 The surplus of funds is not distributed amongst its  It records activities pertaining to current year only.
members.  Its main purpose is to ascertain the surplus or deficit.
 They need to maintain accounts as per the legal  Balance Sheet:
requirements.  It is prepared to show the financial Scan to know
 Financial Statements of Not-for-Profit Organisations: position of the organisation. more about
this topic
Non-Trading Organisations must prepare the following basic  It contains only the capital items.
statements:  Consideration while preparing Balance
 Receipts and Payments Account: It shows the summary Sheet:
of all cash and bank transactions occurred during the accounting  Asset Side:
year. Balance Sheet
 Fixed Assets from opening Balance
 Income and Expenditure Account: It includes only those Sheet needs to be adjusted.
items which are revenue in nature.
 Prepaid expenses, Accrued Income and investments are to
 Balance Sheet: It is prepared in the same manner as in the
be shown in the Asset side.
case of business enterprise to show the financial position of the
organisation.  The closing balance of cash and Dr. Balance of Bank needs
 Receipts and Payments Account: to be shown.

Scan to know
According to Willian Pickles, “Receipts more about  Liability Side:
and Payments Account is nothing more this topic
 Net amount of Loans and new loans are shown.
than a summary of the Cash Book over a
 Donations are shown.
certain period, analysed and classified under
suitable headings. It is the form of Account  Outstanding Expenses and Prepaid Incomes are shown.
most adopted by the treasures of society Receipts and  Surplus is added and Deficit is subtracted from the Capital
clubs, associations etc. when preparing the Payments Fund.
results of the year’s working.” Account
 Important Items Relating To Non- Scan to know
 Features of Receipts and Payment Profit Seeking Organisations: more about
Account: this topic
 Subscription: It is the main source
 It is a real account just like Cash Account. of income. The amount paid in a year is
 It starts with the balances of cash and bank just like the shown on the receipts side of the Receipts
Cash Book. and Payments account and the subscription
 The cash receipts are shown on the debit side irrespective Subscription
pertaining to the current year is shown in the
of it being revenue or capital in nature. Income and Expenditure Account.
 The cash payments are recorded, irrespective of it being  Subscription to be transferred to Income and Expenditure
capital or revenue in nature, on the credit side. A/c:
 The closing balance of cash and bank balances the account.
Subscription Received – Outstanding Last Year + Outstanding
 The non-cash items are not recorded. Current Year + Prepaid Last Year – Prepaid Current Year.
2
• It commences with the opening balance of cash Receipts Amount Payments Amount
in hand/or at Bank. _ _
To Balance b/d By All Payments
• Only actual cash transactions are recorded.
To All Receipts in Cash
• It is a real account.
in Cash
• Closing balance shows how much cash balance
_ By Balance c/d _
is available. _ _
Feat
ur
at
Liabilities Amount Assets Amount
es
Not-for-profit organisations refer to that
_ _ rm
Capital Fund and All Assets Fo type of organisation whose main
Other Liabilities __ _ Receipts & objective is welfare and to serve the
_
B
g
Payments in
n
society. Profit is not the objective of
a la
n
ea
Account these ogranisations.
ce
M
She
et
• This account records only those transactions Examples • Udaan India Foundation
that are related to the current year. in Mumbai
• It is a nominal account. • BHUMI
Accounts Maintained by Not–for–Profit
• Closing balance shows either surplus or • The Dove Foundation
Not–for–Profit Organisation Organisation based in U.P.
deficit balance.
C
• Prepared on the basis of information ha

r ac
contained in Receipts and Payments Account. ter
isti • Service motive.
cs • Managed by elected members.
• Main sources of funds are donations,
S
Fea
tu
o
res
Income &
u
grants, etc.
r
Expenditure • Trustees are the members.

ce s
mat
o
For Account for-Pro • Does not work for the profitability

fF
u
Not-anisatiofit nd but for the social welfare.

Org ns s
Expenditure Amount Income Amount • Subscriptions

All Expenses _ All Income _ • Grants and Aids
• Income from different Activities
• Membership fees
Excess of income _ Excess of _ • Investment Income
over expenditure _ expenditure _ Trace the Mind Map • Loan financing

over income First Level Second Level Third Level

Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY
ACCOUNTING NOT-FOR-PROFIT ORGANISATION 3
 Life-Membership Fees: The fees paid by the members in of a deceased member as per the will. It appears on the receipts
lump sum pertaining to their lifetime membership. It is shown side of Receipts and Payment account and added to the Capital
in the Receipts side of Receipts and Payment A/c and added to Fund in the Liability side of the Balance Sheet.
the Capital Fund in the Liability side of the Balance Sheet.  Sale of Old Asset: Shown on the receipts side of Receipts
 Endowment Funds: It is created from the bequest, legacy and Payments account, Profit or Loss from the sale proceeds is
or gifts received in the non-profit organisations. The total shown in the Income and Expenditure account, and the book
amount received on such account is shown as receipts in the value is subtracted from the respective asset sold.
Receipts and Payments Account and amount of endowment  Sale of old Newspaper and Sports Material: It is shown
funds shall be shown on the liabilities side of Balance Sheet. on the receipts side of Receipts and Payment A/c and credit side
 Entrance or Admission Fee: The fee charged to the new of the Income and Expenditure A/c.
member apart from the periodic subscription fees is called  Payment of Honorarium: The payment made to the
Entrance or Admission Fees. It is shown on the Receipts side of persons who are not the organisation’s employee is called
Receipts and Payment A/c and added to the Capital Fund on the honorarium. It is shown on the Payment side of Receipts and
liabilities side of the Balance Sheet. Payment A/c and Debit side of Income and Expenditure A/c.
 Specific Donation: Donation received for a particular  Capital Fund: The difference between the asset and
purpose like building, swimming pool, rest room etc, is called outside liabilities of the organisation is Capital Fund.
specific Donation. It is shown in the liability side of the Balance  It is like the Capital A/c of business entity.
Sheet.
 Surplus from the Income and Expenditure A/c is added,
 General Donation: Donations received not for any specific
and Deficit is subtracted from the Capital Fund.
purpose are general donations. Such can be of two types:
 It is also called General Fund.
 Of Big Amount: It is shown in the Liability side of the
 Special Fund: Funds created for some specific purpose or
Balance Sheet.
requirement of contributions.
 Of Small Amount: It is shown in the income or credit side
 Income is added and expense is subtracted from the fund
of the Income and Expenditure Amount.
directly in the Balance Sheet.
 Legacy: Legacy is the amount received from the family
OBJECTIVE TYPE QUESTIONS

[A] MULTIPLE CHOICE QUESTIONS (D) Its result is surplus or deficit.
1. Identify the term that is used to show the amount received (E) I t is prepared with the help of Receipts and Payments
as per the will of a deceased person. [CUET 2023] Account.
(1) Specific Donations (2) Life membership fees Choose the correct answer from the options given below:
(3) Subscription (4) Legacies [CUET 2023]
2. Complete the sequence where interest on capital has to be (1) A, B, C and D only (2) A, B, C and E only
provided as per partnership deed, but available profits are (3) B, C, D and E only (4) A, C, D and E only
not sufficient to provide full amount of interest on capital.
5. As per Receipts and Payments Account for the year ended

on March 31, 2020, subscription received were ₹2,50,000
(A) If it is appropriation, calculate interest on capital for all subscriptions outstanding on 1-04-2019 ₹50,000. Subscription
partners at given rate received in advance as on 31-3-2020 are ₹30,000.
(B) Divide the available amount in the capital ratio among the Subscriptions for the year 2019-20 will be: [CUET 2022]
partners (1) ₹2,30,000 (2) ₹1,50,000 (3) ₹2,40,000 (4) ₹1,70,000
(C) Calculate ratio between capital of partners 6. Identify the steps in preparation of final accounts of not for
(D) Consider the partnership deed and decide whether interest profit organisation (NPO)
on capital is a charge or an appropriation (A) Prepare Balance Sheet of NPO
(E) Consider the available profit (B) Prepare Income and Expenditure Account from Receipts
Choose the correct answer from the options given below: and Payment Account.
[CUET 2023] (C) Prepare Receipts and Payments Account
(1) A, B, C, D, E (2) B, C, D, E, A (D) Adjust outstanding/prepaid expenditure/Income and
(3) D, A, E, C, B (4) C, D, A, B, E determine surplus/deficit.
3. Identify the term that indicate excess of Expenditure over (E) Prepare Cash Book
Income, in case of a Not-for-profit Organisation. Choose the correct answer from the options given below:
[CUET 2023] [CUET 2022]
(1) Payment (2) Expenditure (3) Deficit (4) Loss (1) E, C, B, D, A (2) D, E, A, B, D
4. Identify the salient features of Income and Expenditure (3) A, B, C, D, E (4) E, C, A, B, D
account from the following: 7. It is the amount-paid to the person who is not the regular
(A) It is prepared on accrual basis. employee of the institution: [CUET 2022]
(B) It includes both revenue as well as capital items. (1) Wages (2) Honorarium (3) Salary (4) Donation
(C) I t is prepared after taking into account the additional 8. Income and Expenditure Account records:
information regarding outstanding prepaid expenses and (1) Receipts and Payments of Revenue and Capital nature both
depreciation etc. (2) Income and Expenditure of Revenue nature only
4 Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY
(3) Expenditure of Capital nature only (1) ₹ 11,700 (2) ₹ 4,300

(4) Receipts of Revenue nature only (3) ₹ 20,300 (4) None of the above
9. Jaipur Club has a prize fund of ₹ 6,00,000. It incurs 15. The following is the extract of Receipts and Payments
expenses on prizes amounting to ₹ 5,20,000. The expenses Account of the Rajasthan Society for the year ending 31st
should be: December, 2021.
(1) debited to income and expenditure account. Receipts Amount Payments Amount
(2) presented on the assets side of the balance sheet. (₹) (₹)
(3) debited to income and expenditure account and presented By medicine 18,000
on the assets side of the balance sheet. A bill of medicine purchased during the year amounting
(4) deducted from the prize fund on the liabilities side of the to ₹2,000 was outstanding. The amount debited to Income
balance sheet. and Expenditure Account will be:
10. The following information has been extracted from the (1) ₹18,000 (2) ₹20,000 (3) ₹16,000 (4) ₹2,000
financial statements of a not-for-profit organization for the 16. Identity the type of fund stated below:
year ended 31st March 2019:
‘Himanshu Club has a fund which can only be used for the
Particulars Amount (₹) distribution of prizes.’
Opening Balance of Match Fund 5,00,000 (1) Prize fund (2) Endowment fund
Sale of Match tickets 3,75,000 (3) Non-approved fund (4) Honorarium
17. Donations for specific purpose are always capitalised and
Donation for Match Fund received 1,24,000
it is transferred to______, irrespective of the fact whether
during the year
the amount is big or small.
Match expenses 10,00,000 (1) Assets side of the Balance Sheet
hich of the following statements is correct for the
W (2) Liabilities side of the Balance Sheet
presentation of the above items in the financial statements
(3) Income side of the Income and Expenditure Account
of the not-for-profit organization?
(4) None of the above
(1) Negative Balance of Match fund ₹ 1,000 will be shown on
the liabilities side of the Balance Sheet as at 31st March, 18. Subscription received in cash during the year amounted to
2019. ₹40,000; subscription outstanding at the end of previous
year was ₹1,500 and outstanding at the end of current
(2) Opening Balance of Match Fund ₹ 5,00,000 will be shown
year was ₹2,000. Subscription received in advance for
on the liabilities side of Balance Sheet as at 1.4.2018.
next year was ₹800. The amount credited to Income and
(3) Negative balance of match fund ₹ 1,000 will be shown Expenditure Account will be:
on the expenditure side of the Income and Expenditure
(1) ₹38,700 (2) ₹39,700 (3) ₹40,300 (4) ₹41,300
Account for the year ended 31.3.2019.
19. The amount of ‘Entrance Fees’ received by a Not-for-
(4) Both (2) and (3).
profit organisation (if it is received regularly) is shown in
11. Subscription received in advance during the current year which of the following?
is:
(1) Liabilities side of Balance Sheet
(1) An income (2) An asset
(2) Assets side of Balance Sheet
(3) A liability (4) None of the above
(3) Debit side of Income and Expenditure Account.
12. The following information below is related to an NPO:
(4) Credit side of Income and Expenditure Account.
Dr. Receipts and Payments A/c [An Extract] Cr.
20. Sports expenses ₹27,000 (excluding ₹7,000 unpaid
Amount Amount expenses). The amount to be credited to Receipts and
Receipts Payments
(₹) (₹) Payments Account will be:
To Interest on Nil By 8% Invest- 60,000 (1) ₹20,000 (2) ₹27,000 (3) ₹7,000 (4) ₹34,000
Investments ments [01-10-18] [B] ASSERTION REASON QUESTIONS
I f the firm closes its accounts on 31st March every year, Directions: In the following questions, a statement of
what amount of accrued interest on investments will be assertion (A) is followed by a statement of reason (R). Mark
shown in the Balance Sheet of the firm on 31-03-19? the correct choice as:
(1) ₹ 2,400 (2) ₹ 4,800 (3) ₹ 6,000 (4) None of these (1) Both assertion (A) and reason (R) are true, and reason (R)
13. Which of the following is not a capital receipt? is the correct explanation of assertion (A).
(1) Donations for tournament (2) Both assertion (A) and reason (R) are true, but reason (R)
(2) Donations for building fund is not the correct explanation of assertion (A).
(3) Life membership fee (4) Entrance fees (3) Assertion (A) is true, but reason (R) is false.
14. Sports Star Charitable Club has income of ₹ 16,000 and (4) Assertion (A) is false, but reason (R) is true.
‘deficit’ debited to capital fund of ₹ 4,300 for the year 1. Assertion (A): The Subscription received during the year
2019-20, then expenditure for 2019-20 is: is recorded in the Receipts and Payments Account.
Reason (R): Receipts and Payments Account records all people of apartment and decided to open a dispensary named
the cash transactions whether pertaining to the current year as ₹Local Clinic’ to provide them cost free medical assistance
or previous year. and make them aware about hygienic living, physical fitness,
2. Assertion (A): The Income and Expenditure Account is and economic balance diet. Many of the apartment members
like the cash book. agreed to it. She approached health department of the town
Reason (R): Income and Expenditure Account shows the with her proposal which was accepted and an initial one-time
surplus or deficit that is earned during the financial year by grant of ₹ 2,00,000 was sanctioned immediately for purchase
the non-profit organisation. of medical equipment and test kits for pathological tests. 10
members of the apartment contributed ₹ 20,000 each as lifetime
3. Assertion (A): The amount of subscription of ₹15,000 subscription to the clinic. Rajani decided to charge ₹ 10 as one-
was paid out of which ₹3,000 is pertaining to the next year. time registration fee from patients. Apart from above Rajni
The amount of subscription to be recorded in the Income made following transactions for first year: Rajani informed
and Expenditure Account is ₹12,000. that during the first year 10,500 patients were registered for
Reason (R): The Income and expenditure account records treatment and for other services.
all the transactions that are relevant only for the current Taking reference from the above, answer following questions:
financial year.
1. Not for profit organization prepares :
4. Assertion (A): Endowment Fund is recorded only in the
(i) Income and Expenditure account
Balance Sheet.
(ii) Trading and Profit and Loss account
Reason (R): Endowment is treated as capital receipt hence
shown on the liabilities side of Balance Sheet. (iii) Receipt and Payment account
(iv) None of the above
5. Assertion (A): Endowment Fund is created from
the bequest, legacy or gifts received in the non-profit Options:
organisations. (1) Only (ii) (2) Only (iii)
Reason (R): Endowment fund is recorded in the Income (3) Both (i) and (ii) (4) Both (i) and (iii)
and Expenditure Account as Income of the not-for-profit 2. Honorarium paid to Physiotherapist and sports teacher
organisation. will be posted to :
6. Assertion (A): Donation received by the school for the (1) Debit side of Income and Expenditure Account.
purpose of repairing the library is a specific donation. (2) Debit side of Receipt and Payment Account
Reason (R): Such specific donations are recorded in the (3) Debit side of Profit and Loss Account
Receipts side of the Receipts and Payments account and (4) Credit side of Income and Expenditure Account
on the Liability side of the Balance Sheet. 3. “Donations received by Ms Rajani Mehta from health
7. Assertion (A): The accountant of Manita Club, recorded department should be capitalized.” Consider the statement
₹200 received as donations in the income side of the and chose the correct options:
Income and Expenditure Account. (1) The statement is True. (2) The Statement is False
Reason (R): Donation received in small amount are treated (3) The Statement is Partially True.
as revenue receipts and so are recorded in the Income and (4) The statement is incomplete.
Expenditure Account.
4. Lifetime subscription paid by 10 members will be posted
8. Assertion (A): Legacy is shown in the liability side of the in:
balance sheet of the not-for-profit organisation. (1) Expenditure side of Income and Expenditure Account
Reason (R): Legacy is a capital receipt for the not-for- (2) Liability side of closing Balance Sheet
profit organisation which is the amount received from the
(3) Income side of Income and Expenditure Account
family of a deceased member as per the will.
(4) Assets side of closing Balance Sheet
9. Assertion (A): The opening bank and cash balance and the
closing bank and cash balance is recorded in the Receipts 5. As Rajini informed that 10,500 patients were registered, so
and Payments Accounts of the not-for-profit organisation. how much money will be recorded as one-time registration
fees?
Reason (R): Receipts and Payments Account is prepared
(1) ₹1,05,000 (2) ₹1,00,500 (3) ₹1,00,050 (4) ₹1,00,005
at the end of the year.
10. Assertion (A): Profit and Loss Account is made after II. Based on following passage answer questions from
making the Income and Expenditure Account for the not- 6-10:
for-profit organisation. Talent Sports Club is engaged in the activity of identifying
Reason (R): Income and Expenditure Account is made to and promoting sports talent from rural and tribal areas of
ascertain the surplus or deficit earned during the financial the country. Identifying with this noble cause Mr Manohar a
year. renowned industrialist donated ₹ 50,00,000 on 1st July 2020,
for the construction of a new hostel and mess for upcoming
[C] COMPETENCY BASED QUESTIONS sportsmen. Besides this Mr Manohar offered the services of
I. Based on following passage answer questions from 1-5 his personal chartered accountant, free of charge, to streamline
Dr. Rajani Mehta a qualified M.B.B.S. doctor got voluntary the account of Talent Sports Club. The chartered accountant
retirement at the age of 50 years from a renowned hospital. She visited the office of the NPO on 31st March 2021 and found
was residing in a flat of a wide apartment which is surrounded that till date ₹ 35,00,000 had been spent on construction of
by a slum which is inhabited by economically weaker strata hostel and mess building. He also noted that the NPO had
a capital fund of ₹ 1,20,00,000 in the beginning of the year.
of the society. As the people in that area were not aware about
Other important points that he noted were that the NPO had
importance of health care, a widespread ailment had been
2000 regular members each having an annual subscription of ₹
persistently prevailing. Rajani met with some of the well-off 2000 per annum. On 1st April 2020, 180 members had not paid
for subscription of previous year and 20 members had paid II. reflected on asset side of balance sheet.
for 2020-2021 in advance (out of which 5 had paid in advance III. reflected as a deduction from Building fund and addition
of 2021-2022 as well). 31st March 2021, 110 members had
to capital fund.
outstanding balance (including 50 who had not paid for 2019-
20 as well) and 25 members had paid for 2021-2022 in advance IV. Not be recorded till the building is complete.
(including all 5 who had paid in advance in 2019-20). Since
On basis of given information choose which of the
the accountant of NPO was not clear about how to deal with
following stands true:
all the above information he drafted a set of questions for
guidance. Considering that you are the Chartered Accountant (1) Only IV (2) Both I and IV
of Mr. Manohar, answer the following questions based on the (3) Both II and III (4) None of these
information detailed above.
8. The amount of subscription in arrears on 1st April 2020 is:
6. The amount of ₹ 50,00,000 received from Mr Manohar
towards building and mess should be transferred to: (1) ₹ 3,60,000 (2) ₹ 3,00,000 (3) ₹ 2,000 (4) ₹ 1,80,000
(1) Capital fund (2) General fund 9.
The amount of subscription in arrears on 31st March 2021
(3) Income and Expenditure account is:
(4) Building fund (1) ₹ 2,20,000 (2) ₹ 3,60,000 (3) ₹ 3,20,000 (4) ₹ 1,80,000
7. The amount of ₹ 35,00,000 spent on construction of 10.
The amount of subscription in advance on 31st March
building should be: 2021 is:
I. reflected on debit side of income and expenditure account (1) ₹50,000 (2) ₹60,000 (3) ₹70,000 (4) ₹40,000
as an expense.
ANSWER KEY
[A] MULTIPLE CHOICE QUESTIONS
1. (4) 2. (3) 3. (3) 4. (4) 5. (4) 6. (1) 7. (2) 8. (2) 9. (4) 10. (4)
11. (3) 12. (1) 13. (4) 14. (3) 15. (1) 16. (1) 17. (2) 18. (2) 19. (4) 20. (2)
[B] ASSERTION REASON QUESTIONS

1. (1) 2. (4) 3. (1) 4. (1) 5. (3) 6. (2) 7. (1) 8. (1) 9. (2) 10. (4)
[C] COMPETENCY BASED QUESTIONS

1. (4) 2. (1) 3. (1) 4. (2) 5. (1) 6. (4) 7. (3) 8. (1) 9. (3) 10. (1)
ANSWERS WITH EXPLANATION

[A] MULTIPLE CHOICE QUESTIONS 3. Option (3) is correct.
1. Option (4) is correct. Explanation: The excess of expenditure over income is called
deficit and the excess of income over expenditure is called
Explanation: Specific Donation is the donation received for a surplus in the case of Not-for-profit organization.
particular purpose like building, swimming pool, rest room etc. 4. Option (4) is correct.
Life Membership Fees is the fees paid by the members in lump Explanation: The income and expenditure account only
sum pertaining to their lifetime membership. Subscription records the revenue item; the capital items are recorded in the
is the amount paid by the members periodically so that their balance sheet. Thus, statement B is incorrect.
membership continues. 5. Option (4) is correct.
Legacies is the amount received from the family of a deceased Explanation:
member as per the will. Subscription received ₹2,50,000
2. Option (3) is correct. Less: Outstanding Subscription of 1-04-2019 ₹50,000
Explanation: The sequence where interest on capital has to be ₹2,00,000
provided as per the partnership deed, but available profits are Less: Prepaid Subscription as on 31-04-2020 ₹30,000
not sufficient to provide the full amount of interest on capital,
₹1,70,000
is as follows:
6. Option (1) is correct.
D. Consider the partnership deed and decide whether interest
on capital is a charge or an appropriation. Explanation: In the case of a not-for-profit organisation, the
cash book is prepared first. From the cash book the Receipts
A. If it is an appropriation, calculate interest on capital for all and Payments account is made, which is as same as cash book
partners at the given rate. but without differentiating the cash and bank columns. The
E. Consider the available profit. Income and Expenditure Account is then prepared with the
C. Calculate the ratio between the capital of partners. help of receipts and payments account with the adjustment of
B. Divide the available amount in the capital ratio among the all the outstanding and prepaid income and expenses to find the
partners. surplus or deficit that may arise from the financial year. This
surplus or deficit is added or subtracted from the capital fund in 19. Option (4) is correct.
the balance sheet and the balance sheet is prepared at the end to Explanation: The amount of ‘Entrance Fees’ received by
ascertain the financial position of the organisation. a Not-for-Profit organisation (if it is received regularly) is a
7. Option (2) is correct. revenue receipt. It is shown on the credit side of Income and
Explanation: Wages and salaries are paid to regular Expenditure Account.
employees. Donations are mostly receipts from the not-for- 20. Option (2) is correct.
profit organisation. Honorarium is the payment made to an
individual who is not a regular employee of the institution but Explanation: As ₹27,000 is paid during the current year,
has rendered some service there off. the amount of ₹27,000 will only be credited to the Receipts
and Payments Account for that year. The outstanding amount
will be added and shown only in the Income and Expenditure
Explanation: Income and Expenditure account records the Account.
income and expenditure of only revenue nature. Capital income
and expenditure are recorded in the balance sheet. [B] ASSERTION REASON QUESTIONS
9. Option (4) is correct. 1. Option (1) is correct.
Explanation: The expenses incurred over the raised fund is Explanation: Receipts and Payments Accounts record all
deducted from the that fund. the cash transactions that is received during the year whether
10. Option (4) is correct. pertaining to the current year, next year or previous year. This
Explanation: In the case of specific funds, the opening balance is because the subscription received during the year is recorded
of such funds are shown on the liabilities side of the Balance in the Receipts and Payments Account.
Sheet and the negative balance is shown on the expenditure 2. Option (4) is correct.
side of the Income and Expenditure Account. Explanation: The Income and Expenditure Account is like
11. Option (3) is correct. the Profit and loss Account of the Business or Profit-Making
Explanation: Any income received in advance is a liability Firms. In the account all the revenue receipts and payments
for the firm during the current year. Subscription received in are recorded that are pertaining to the present year only, to find
advance is considered as liability because services are yet to the surplus and deficit of the present year, that the organisation
be rendered. has had. The cash book of the not-for-profit organisation is the
12. Option (1) is correct. Receipts and Payments Accounts, which records all the cash
8 6 transactions that happen during the year.
Explanation: Accrued Interest = ₹60,000 × × 3. Option (1) is correct
100 12
Explanation: As the amount of ₹3,000 is related to the next
= ₹2,400
year, and is the subscription received in advance, it will be
13. Option (4) is correct. deducted from the total amount received and the balance
Explanation: Entrance fees is a revenue receipt as it is paid by amount comes in the Income and Expenditure account.
the members when they become the members. 4. Option (1) is correct.
14. Option (3) is correct. Explanation: As endowment fund is a capital receipt, it will
Explanation: The deficit of ₹ 4,300 will be added to the be shown directly in the liabilities side of the Balance Sheet.
income of ₹16,000. 5. Option (3) is correct.
16. Option (1) is correct. Explanation: Endowment fund is not recorded in the Income
Explanation: As the fund is used for the distribution of prizes, side of the Income and Expenditure account as it is not a
it is a type of Prize Fund. revenue receipt. It is recorded in the receipts side of Receipts
and Payments Account and on the liability side of the Balance
17. Option (2) is correct. Sheet of the not-for-profit organisation.
Explanation: Donation received for a specific purpose it to 6. Option (2) is correct.
be utilized for the specific activity. This kind of donations are
Explanation: Specific donations are the donation received for
capital receipt. It should be recorded in a separate account and
a specific purpose in this case for the repair of library. This is
expenses to be reduced from this account only. Balance of the because specific donations are meant to be only used for the
account to be shown as liability in the Balance Sheet. purpose that is it received.
Explanation: Explanation: As the donation received is of small amount
Subscription Received ₹40,000 and is also not for a specific purpose, it will be recorded in the
Less: Subscription Outstanding for previous year ₹1,500 Income side of the Income and Expenditure account and the
receipts side of the Receipts and Payments Accounts.
38,500
Add: Subscription Outstanding for current year ₹2,000
Explanation: Legacy is a one-time amount received as per the
40,500 will of the deceased member of the not-for-profit organisation.
Less: Prepaid Subscription for Next year ₹800 This is treated as a capital receipt and so appears in the receipt
39,700 side of the receipts and payments accounts and the liability side
of the balance sheet.

Explanation: The opening bank and cash balance and the Explanation: 10,500 × ₹10 = ₹1,05,000
closing bank and cash balances are recorded in the Receipts II. Based on following passage answer questions from 6-1
and Payments Accounts of a not-for-profit organisation, 6. Option (4) is correct.
not because it is prepared at the end of the year, but this is
Explanation: Donations received for the specific purposes are
because it is a type of a cash book (prepared for profit making
shown as the name of the purpose for which these have been
organisation) that is prepared for the not-for-profit organisation.
received.
Explanation: The Profit and Loss Account is only made in
Explanation: Building is being constructed so the asset is
the case of the profit-making organisation. For a not-for-profit
increasing. Hence, it should be shown on the assets side
organisation, Receipts and Payments Account is made in place
of the balance sheet. The specific fund is available for the
of cash book, Income and Expenditure Account is made in
construction of building, so the amount spent on such item for
place of Profit and Loss Account and then only the Balance
which specific donation is available, the amount of spending
Sheet is made, as a part of the final accounts.
is shown by deducting from the corresponding specific fund.
8. Option (1) is correct
Explanation: Subscription in arrears on 1st April 2020:
Explanation: Not for profit organisation prepares Income and
180 Members did not pay subscription for the previous year @
Expenditure and Receipts and Payment Account. Trading and
2,000 per member
Profit and Loss Account is made to calculate the Gross Profit
or Loss and Net Profit or Loss by the Sole Proprietorship firm. Hence subscription outstanding on 1st April 2020 = 180 ×
2,000 = ₹3,60,000
Explanation: The payment made to the persons who are not
Explanation: Amount of subscription in arrears for the year
the organisation’s employee is called honorarium. Honorarium
2020-2021 = 110 members @ 2,000 per member = 110 × 2,000
is shown on the Debit side of Income and Expenditure Account.
= ₹2,20,000
Amount of subscription in arrears for the year 2019-2020 on
Explanation: The donation received by Ms. Rajani in this case 31st March 2021 = 50 members@ 2,000 per member = 50 ×
is a specific donation. In such a case it will be capitalised. 2,000 = ₹1,00,000
4. Option (2) is correct. Total amount of subscription in arrears on 31st March 2021 =
Explanation: The fees paid by the members in lump sum 2,20,000 + 1,00,000 = ₹3,20,000
pertaining to their lifetime membership. It is shown in the 10. Option (1) is correct.
Receipts side of Receipts and Payment A/c and added to the
Explanation: Amount of subscription in advance for the year
Capital Fund in the Liability side of the Balance Sheet.
2020 – 21 = 25 members @ ₹2,000 = ₹50,000
Study Time
2
Max. Questions: 40
ACCOUNTING FOR
PARTNERSHIP
 Revision Notes In this case, first the guaranteed amount of the partner is
 Partnership: Partnership is an association of two or more transferred to the guaranteed partner and remaining amount is
persons (should not be more than 50) who have agreed to share distributed among all the remaining partners. If the guaranteed
profits of a business carried on by them. amount is more than that of profit then the shortage amount
 Features of Partnership is borne by the other partner(s) as per the agreement made by
them.
(i) Association of two or more persons  Journal Entries regarding Profit and Loss Appropriation
(ii) Does not have a separate legal entity Account are as follows:
(iii) Unlimited liability of the partners Scan to know 1. Transfer of balance of Profit and Loss Account:
more about
(iv) Agreement may be oral or written this topic (a) If Profit & Loss Account shows a credit balance (Net
Profit):
 Partnership Deed: It is an agreement
between two or more than two partners Profit & Loss A/c Dr. Scan to know
for determining their mutual contract To Profit & Loss Appropriation more about
this topic
relationship and its limitation for better and Partnership A/c
effective operation of the business. Deed (Being transfer of net profit to
 Provisions of the Indian Partnership Profit & Loss Appropriation A/c)
Act, 1932 in the absence of Partnership Deed (b) If Profit & Loss Account shows
Profit and Loss
(i) Interest on Partner’s/s’ Loan — 6% p.a. debit balance (Net Loss): Appropriation
Profit & Loss Appropriation A/c Account
(ii) Interest on Capital — No interest to be paid
Dr.
(iii) Interest on Drawings — No interest to be charged To Profit & Loss A/c
(iv) Salary or Commission to Partners — No salary or (Being transfer of net loss to Profit & Loss
commission to be paid Appropriation A/c)
(v) Profit Sharing Ratio — Profits to be distributed 2. Interest on Capitals:
equally (a) For crediting interest on capital to Partners’ Capital
 Fixed and Fluctuating Capital Accounts of Partners Accounts:
1. If Partners’ Capital Accounts are Fixed, two accounts Interest on Capital A/c Dr.
are to be opened namely: To Partners’ Capital/Current A/cs
(i) Partners’ Capital A/c (Being interest on capital at ____% p.a. allowed to
(ii) Partners’ Current A/c partners)
(b) For transferring interest on capital to Profit and Loss
2. If Partners’ Capital Accounts are fluctuating, only
Appropriation Account:
one account is to be opened namely Partners’ Capital A/c.
Profit & Loss Appropriation A/c Dr.
(Note: All the adjustments are to be made in Partner’s
To Interest on Capital A/c
Capital A/c, if Capital Accounts of the partners are fluctuating.)
(Being interest on capital transferred to Profit & Loss
 Division of Profits among Partners
Appropriation A/c)
Profit is distributed among all partners after taking all
the adjustments into account like interest on capital, interest 3. Partners’ Salary/Commission:
on drawing, salary or commission of the partners, etc. After (a) For crediting salary/commission to Partners’ Capital
adjusting these items, the remaining amount will be distributed Accounts:
among the partners in their agreed profit sharing ratio . Salary/Commission A/c Dr.
 Guarantee of Profits To Partners’ Capital/Current A/cs
Guarantee is an assurance given to the partner (s) of the (Being ₹____Salary/Commission allowed to _____
firm that at least a fixed amount will be paid to him. partner for _____months)
ACCOUNTING FOR PARTNERSHIP 11
(b) For transferring partners’ salary/commission to Profit (Being profit transferred to Reserve A/c)
and Loss Appropriation Account:
6. Share in Profit:
Profit and Loss Appropriation A/c Dr.
To Salary/Commission A/c
To Partners’ Capital/Current A/cs
(Being Salary/Commission transferred to Profit and
(Being distribution of profit among partners)
Loss Appropriation Account)
 Interest on Capital
4. Interest on Drawings: Interest on Capital =
(a) For charging interest on drawings: Scan to know
more about Capital Invested × Rate of Interest × Period (months)
Partners’ Capital/Current A/cs Dr. this topic 100 × 12
To Interest on Drawings A/c  Interest on Drawings
(Being interest on drawings at Interest on Drawings =
_____% p.a. charged)
Drawings Amount × Rate of Interest × Average Period
(b) For transferring interest on Interest on
Drawings 100 × 12
Drawings to Profit & Loss
 Salary or Commission and Rent paid to a Partner:
Appropriation Account:
Interest on Drawings A/c Dr. 1. Before charging commission:
To Profit & Loss Appropriation A/c Commission = Net Profit before commission ×
(Being interest on drawings transferred to Profit & Rate of Commission
Loss Appropriation A/c) 100
5. Transfer of Profit to Reserve: 2. After charging such commission:
Commission = Net Profit before commission ×
To Reserve A/c
Rate of Commission
100 + Rate of Commission

[A] MULTIPLE CHOICE QUESTIONS (2) There is an agreement between all partners.
1. In which of the following case, claim is valid if the (3) Equal share of profits and losses
partnership agreement is silent? [CUET 2023] (4) Partnership agreement is for some business.
(1) Sanjay is an active partner and wants a salary of ₹1,00,000
5. Pick the odd one out:
per year.
(1) Interest on capital (2) Interest on drawings
(2) Monika had advanced a loan to the firm and claims interest
@10% per annum. (3) Interest on partner’s loan (4) Salary to partner
(3) Sanjay and Monika contributed ₹2,00,000 and ₹5,00,000 as 6. Identify the journal entry for transferring the interest on
capital respectively and Monika wants equal share. drawings to the Profit and Loss Appropriation A/c.
(4) Monika wants interest on capital to be credited @ 10% per (1) Partners’ Capital/Current A/cs Dr.
annum. To Interest on drawings A/c
2. In a partnership firm, partners share profit and loss in the (Being interest on drawings transferred to
ratio of 3 : 2. If the firm incurred a loss of ₹10,000 during Profit & Loss Appropriation A/c)
the year, then calculate the amount of loss to be shared by
(2) Interest on Drawings A/c Dr.
the partners. [CUET 2023]
To Partners’ Capital/Current A/cs
(1) Equally
(Being interest on drawings transferred to
(2) According to profit sharing ratio.
Profit & Loss Appropriation A/c)
(3) According to gaining ratio.
(3) Interest on Drawings A/c Dr.
(4) According to sacrificing ratio.
To Profit and Loss Appropriation A/c
3. The persons who have entered into a partnership are
(Being interest on drawings transferred to
individually known as:
(1) Partners (2) Firm
(4) Profit & Loss Appropriation A/c Dr.
(3) Associations (4) None of these
To Interest on Drawings A/c
4. Following are the essential elements of a partnership firm
except: (Being interest on drawings transferred to
(1) At least two persons
7. Which of the following items is not dealt through Profit and (3) Fluctuates only at the beginning of the year but is fixed at
Loss Appropriation Account? the end
(1) Interest on partner’s loan (2) Partner’s salary (4) Maintained
(3) Interest on partner’s drawings (4) Partner’s commission 17. Fluctuating capital account is credited with:
8.
When is the Profit and Loss Appropriation Account (1) Interest on capital (2) Profit of the year
prepared? (3) Remuneration of partners (4) All of the above
(1) When there are certain adjustments related to partnership. 18. The maximum number of partners allowed in a partnership
(2) When the firm is dissolved. firm are:
(3) When there is an audit to be done. (1) 50 (2) 100
(4) It is never prepared. (3) 200 (4) 400
9. Pick the odd one out: 19. Which of the following statements is not true?
(1) Rent to Partner (1) All partners share profit and losses equally in the absence of
(2) Manager’s Commission a partnership deed.
(3) Interest on Partner’s Loan (2) A minor can be admitted as a partner, only into the benefits
of the partnership.
(4) Interest on Partner’s Capital
(3) A sleeping partner is allowed to sleep during a meeting of
10. Mohit and Rohit were partners in a firm with capitals of
the partners.
₹80,000 and ₹ 40,000 respectively. The firm earned a profit
of ₹ 30,000 during the year. Mohit’s share in the profit will
be : 20. Guarantee of profit to a partner is given by:
(1) ₹ 20,000 (2) ₹ 10,000 (1) Only one partner of the firm
(3) ₹ 15,000 (4) ₹ 18,000 (2) Only two partners of the firm
11. Rahul and Shubham are partners in a partnership. Rahul (3) All the partners of the firm
withdrew ₹ 4,000 during the year as drawings. Interest on (4) All of the above
drawings is charged @ 15% p.a. The amount of interest on [B] ASSERTION REASON QUESTIONS
drawings at the end of the year will be: Directions: In the following questions, a statement of
(1) ₹ 300 (2) ₹ 600 assertion (A) is followed by a statement of reason (R). Mark the
(3) ₹ 1,200 (4) ₹ 150 correct choice as:
12. Ramesh and Suresh are partners in the ratio of 3 : 2. Before (1) Both assertion (A) and reason (R) are true, and reason (R) is
profit distribution, Ramesh is entitled to 5% commission the correct explanation of assertion (A).
on the net profit (after charging such commission). Before (2) Both assertion (A) and reason (R) are true, but reason (R) is
charging commission, firm’s profit was ₹84,000. Suresh’s not the correct explanation of assertion (A).
share in profit will be: (3) Assertion (A) is true, but reason (R) is false.
(1) ₹ 32,000 (2) ₹ 48,000 (4) Assertion (A) is false, but reason (R) is true.
(3) ₹ 56,000 (4) ₹ 32,800 1. Assertion (A): Commission provided to a partner is shown
in Profit and Loss Appropriation A/c.
13. The minimum number of partners allowed to open a
partnership firm: Reason (R): Commission provided to a partner is a charge
against profits and is to be provided at a fixed rate.
(1) 10 (2) 2
2. Assertion (A): Transfer to reserves is shown in Profit &
(3) 5 (4) 20
Loss Appropriation A/c.
14. In the absence of Partnership Deed, interest on loan of a
Reason (R): Reserves are charge against the profits.
partner is allowed:
3. Assertion (A): Co-ownership of property does not account
(1) at 8% per annum (2) at 6% per annum
to partnership.
(3) at 12% per annum (4) no interest is allowed
Reason (R): The element of business is present in co-
15. When only Partner‘s Capital Account is maintained, all the ownership.
adjustments are made in:
4. Assertion (A): Partners always share profits and losses
(1) Partners’ Capital Accounts equally.
(2) Partners’ Current Accounts Reason (R): Partnership is the relation between the persons
(3) Cash Account who have agreed to share the profits of a business carried on
(4) None of the above by all or any of them acting for all.
16. In Fluctuating Capital Method, the capital of a partner 5. Assertion (A): The fixed capital method is better as
___________. compared to the fluctuating capital method.
(1) Unchanged Reason (R): The capital of the partners is fixed, and all the
transactions are recorded in the current account.
(2) Fluctuates from time to time
6. Assertion (A): If percentage of interest on capital is not (1) ₹60,000 (2) ₹40,000
mentioned in partnership deed, partners will not receive (3) ₹20,000 (4) ₹30,000
any interest on capital. 2. How much commission is to be given to Ravi?
Reason (R): The interest on capital is charged on the (1) ₹19,047 (2) ₹18,200
capital invested by the partners.
(3) ₹19,200 (4) ₹18,047
7. Assertion (A): Partnership is defined as “Relation
3. How much salary is Asif entitled for the full year?
between the persons who have agreed to share the profits
of a business equally carried on by all or anyone of them (1) ₹24,000 (2) ₹20,000
acting for all.” (3) ₹18,000 (4) ₹21,000
Reason (R): If partnership deed is silent in respect of 4. How will the rent to be paid to Asif treated?
certain aspects, the relevant provisions of the Indian (1)
It will be in the debit side of Profit and Loss Appropriation
Partnership Act, 1932 become applicable. Account.
8. Assertion (A): The interest on drawings is calculated even (2)
It will be subtracted from the Net Profit.
if it is not mentioned in the partnership deed. (3) It will be added to the Capital Account of Asif.
Reason (R): Interest on drawing is charged on the drawings (4) It will be deducted from the Capital Account of Ravi.
done by the partners during the financial year.
5.
What will be the interest on drawings to be shown in the
9. Assertion (A): The distribution of profits among the Profit and Loss Appropriation Account for Ravi?
partners is shown through a Profit and Loss Appropriation
(1) ₹1,200 (2) ₹1,100
Account.
(3) ₹1,300 (4) ₹2,400
Reason (R): Profit and Loss Appropriation Account is
merely an extension of the Profit and Loss Account of the II.
Based on following passage answer questions from
firm. 6-10:
10. Assertion (A): Sandhya and Manoj entered into a Sonu and Rajat started a partnership firm on April 1,
partnership in the profit sharing ratio 1:2. Manoj agreed 2017. They contributed ₹ 8,00,000 and ₹ 6,00,000 respectively
to pay Sandhya if her share of profit falls short of ₹50,000. as their capitals and decided to share profits and losses in
The profit earned was ₹1,77,000. Sandhya asked him to the ratio of 3 : 2. The partnership deed provided that Sonu
pay ₹27,000, but Manoj refused to pay anything. was to be paid a salary of ₹20,000 per month and Rajat
a commission of 5% on turnover. It also provided that
Reason (R): Profit is guaranteed only when the minimum
interest on capital be allowed @ 8% p.a. Sonu withdrew
amount of profit is not earned by the partner.
₹ 20,000 on 1st December, 2017 and Rajat withdrew
[C] COMPETENCY BASED QUESTIONS ₹ 5,000 at the end of each month. Interest on drawings
I. Based on the following passage answer the questions was charged @ 6% p.a. The net profit as per Profit and
from 1-5: Loss Account for the year ended 31st March, 2018 was
₹ 4,89,950. The turnover of the firm for the year ended 31st
Asif and Ravi are partners in a firm, sharing profits and
March, 2018 amounted to ₹ 20,00,000.
losses in the ratio of 3 : 2. Their fixed capitals as on 1st April,
2016 were ₹ 6,00,000 and ₹ 4,00,000 respectively. Their 6. How much salary will Sonu get at the end of the year?
partnership deed provides for the following: (1) ₹20,000 (2) ₹2,20,000
(i) P
artners are to be allowed interest on their capital (3) ₹2,40,000 (4) ₹2,00,000
@ 10% per annum. 7. The commission earned by Rajat is:
(ii) They are to be charged interest on drawings @ 4% per (1) ₹2,00,000 (2) ₹1,00,000
annum. (3) ₹50,000 (4) ₹1,50,000
(iii) Asif is entitled to a salary of ₹2,000 per month. 8. The interest on capital of Sonu is:
(iv) Ravi is entitled to a commission of 5% of the net profit of (1) ₹64,000 (2) ₹60,000
the firm before charging such commission.
(3) ₹48,000 (4) ₹32,000
(v)
Asif is entitled to a rent of ₹ 3,000 per month for the use of
9. The Interest on Capital of Rajat is:
his premises by the firm.
(1) ₹64,000 (2) ₹48,000
The net profit of the firm for the year ended 31st March,
(3) ₹60,000 (4) ₹32,000
2017, before providing for any of the above clauses was ₹
4,00,000. Both partners withdrew ₹ 5,000 at the beginning of 10. What is the amount of interest on Sonu’s Drawings?
every month for the entire year. (1) ₹400 (2) ₹1,200
1.
The amount of Interest on Asif’s Capital, shown in the (3) ₹600 (4) ₹1,600
Profit and Loss Appropriation Account is:
ANSWER KEY
1. (3) 2. (2) 3. (1) 4. (3) 5. (3) 6. (3) 7. (1) 8. (1) 9. (4) 10. (3)
11. (1) 12. (1) 13. (2) 14. (2) 15. (1) 16. (2) 17. (4) 18. (1) 19. (3) 20. (4)
1. (3) 2. (3) 3. (2) 4. (4) 5. (4) 6. (2) 7. (4) 8. (4) 9. (2) 10. (1)
1. (1) 2. (2) 3. (1) 4. (2) 5. (3) 6. (3) 7. (2) 8. (1) 9. (2) 10. (1)

[A] MULTIPLE CHOICE QUESTIONS 8. Option (1) is correct.
1. Option (3) is correct. Explanation: The profit and loss appropriation account is
prepared when there are some cortain adjustments to be done
Explanation: In the absence of partnership deed, the partner
with related to the partnership due to the changes that have
cannot claim for the salary, interest on loan is charged at
occurred (appropriation of profits among the partners).
6%, and the interest on capital is also not to be charged.
In the absence of deed, the partners need to share profits 9. Option (4) is correct.
and losses equally irrespective of the capital contributed by Explanation: Interest on capital is the only one which is an
them. appropriation of profit (unitll and unless specified as charge
2. Option (2) is correct. against profit) and all the other items are the charge against profit.
Explanation: It doesn’t matter whether the firm earns profit or 10. Option (3) is correct.
loss, They are shared in the agreed profit and loss sharing ratio Explanation: As there is no partnership deed, the profit will be
as specified in a partnership deed. shared equally, that is ₹15,000 each.
Explanation: Persons who have agreed to come into an 1
Explanation: ₹ 4000 × 15% × = ₹300
agreement with a common purpose are individually known as 2
partners and collectively known as partnership firm. 12. Option (1) is correct.
5
4. Option (3) is correct. Explanation: Ramesh’s commission =
₹84,000 ×
105
Explanation: A partnership is an agreement between two = ₹4,000
or more persons to carry out a business, but they need not Firm’s Profit after commission = ₹84,000 − ₹4,000
necessarily share equal profit or losses unless otherwise provided
= ₹80,000
by the partnership deed or in the absence of partnership deed.
2
5. Option (3) is correct. Suresh’s share in profit = ₹80,000 ×
5
Explanation: Interest on partner’s loan is the only one allowed
= ₹ 32,000
even in the absence of a partnership deed.
Explanation: The number of persons required for the formation
Explanation: When the interest on drawings is transferred to of a partnership firm are 2 and the membership can go up to
Profit and loss appropriation account, interest on drawings in 50. Thus, the minimum number of members in a partnership
debited and profit and loss appropriation account is credited. firm are 2.
Explanation: Interest on partner’s loan directly comes in the 15. Option (1) is correct.
Profit and Loss Account as it is a charge against profit, and Explanation: When only Partner’s Capital Account is
will be allowed even in the case of loss. The partner’s salary, maintained, all the adjustments are made in the Capital
interest on partner’s drawings and partner’s commission are account itself and no separate account is opened for such
dealt through the Profit and Loss Appropriation Account. adjustments.

Explanation: With every transaction relating to the capital of Explanation: Assertion (A) is wrong as in partnership there
the partners, the capital keeps on fluctuating, in the fluctuating is no provision that the profits are shared equally. They can be
capital account. shared as per any agreed ratio.
Explanation: In case of the fluctuating capital account, the
Explanation: As per the Partnership Act, 1932 no interest is
capital account is credited with all the transactions related
to the capital of the partners, as no separate account is charged on drawings if the partnership deed is silent.
opened. 9. Option (2) is correct.
18. Option (1) is correct. Explanation: The profit is distributed among the partners
Explanation: Section 464 of The Companies Act,2013 restricts in a partnership firm with the help of the Profit and Loss
the number of partners to 50. Appropriation Account, after charging the interest on capital,
19. Option (3) is correct. interest on drawings, partner’s salaries, commission etc. It is
prepared to distribute the net profit for the year among the
Explanation: A sleeping partner only provides the capital and
partners.
also shares the profits and losses of the business. A sleeping
partner does not take an active part in the management of the 10. Option (1) is correct.
firm. Explanation: As the profit share of Sandhya is ₹77,000, which
20. Option (4) is correct. is more than the guaranteed amount, so Manoj need not to pay
her. In case the profit of the firm is inadequate then the excess
Explanation: Guarantee of profit to a partner is given by any
paid to the guaranteed partner is paid by the partner who gives
one or all partners in a particular ratio to one or more partners guarantee.
of the firm. The guaranteed amount is paid even in case of
loss. [C] COMPETENCY BASED QUESTIONS
[B] ASSERTION REASON QUESTIONS 1. Option (1) is correct.
1. Option (3) is correct. Explanation: ₹6,00,000 × 10% = ₹60,000
Explanation: Commission provided to a partner is an
appropriation of profit, hence it is shown in profit and loss Explanation: Net Profit = ₹4,00,000 – ₹36,000
appropriation Account. = ₹3,64,000
2. Option (3) is correct. Commission = 5% of 3,64,000
Explanation: Reserves are appropriation of profits and not a = ₹18,200
charge against the profit, hence it is shown in the Profit and 3. Option (1) is correct.
Loss Appropriation Account. Hence statement (A) is correct Explanation: Salary = ₹2000 × 12
but (R) is wrong.
= ₹ 24,000
Explanation: In case of partnership, neither does co-ownership
of property nor the element of business account to partnership.
It is an agreement between the partners to enter into a business. Explanation: Total amount of drawings =
₹5,000 × 12
4. Option (4) is correct. = ₹60,000
Explanation: Partners share profit and loss as per the 6.5 4
partnership deed. If deed is silent, then profit and loss are Interest on drawings = ₹60,000 × ×
12 100
shared equally
= ₹1,300
Explanation: It cannot be determined which method of
maintaining capital is better, it depends on the preference of Explanation: Salary = ₹20,000 × 12 = ₹2,40,000
the partners. 7. Option (2) is correct.
6. Option (2) is correct. Explanation: ₹20,00,000 × 5% = ₹1,00,000
Explanation: The interest on capital is charged in accordance 8. Option (1) is correct.
with the partnership deed, and if not mentioned it will not be Explanation: ₹8,00,000 × 8% = ₹64,000
charged.

Explanation: ₹6,00,000 × 8% = ₹48,000 Explanation: Interest on Drawings
4
= ₹20,000 × 6% × = ₹400
12
Study Time
3
Max. Questions: 40
RECONSTITUTION OF
PARTNERSHIP
Step V: Debit the capital of gaining partner(s) with the

 Revision Notes proportionate gain amount of goodwill and credit the capital of
 Goodwill sacrificing partner(s) with the proportionate sacrifice amount
Goodwill is an intangible asset. It is the capacity of of a goodwill.
earning more profit over the normal profit. It is earned with the  Preparation of Revaluation Account
reputation of the business. It is not depreciated.
Revaluation Account is opened to transfer the revaluated
 Methods of Valuation of Goodwill: amount of assets and liabilities.
1. Average Profit Method: 1. Debit the Revaluation Account if assets decrease or
Goodwill = Average profit × No. of years’ purchase liabilities increase.
2. Super Profit Method: 2. Credit the Revaluation Account if assets increase or
Goodwill = Super profit x No. of years’ purchase liabilities decrease.
(i) Super profit = Actual profit – Normal profit After this process, transfer the balance of Revaluation
(ii) Normal profit Account to the existing Partners’ Capital Accounts.
Average capital employed × Normal rate of return  Balance Sheet
=
100 After that, the balance sheet is prepared with the help of
3. Capitalisation Method: Adjusted Partners’ Capital Accounts and Revalued Assets and
100 Liabilities.
Goodwill =Super profit ×  Admission of a partner
Normal rate of return Scan to know
more about
Goodwill =Total Capitalised value of business – Capital In business of partnership, the existing this topic
Employed partners may allow a new partner to join the
Scan to know partnership in order to increase the capital
 Change in Profit sharing ratio
more about of the firm or to increase the reputation of
• Reconstitution of partnership this topic
the firm. Admission of
Reconstitution of Partnership refers Partner
Various ratios to be computed on the
to the change in a old agreement on
admission of partner(s) are:
the occasion of admission of a partner,
(i) Gaining ratio = New ratio – Old ratio
retirement of a partner or change in profit Profit Sharing
Ratio (ii) Sacrificing ratio = Old ratio – New ratio
and loss sharing ratio among the existing
partners. (iii) New profit sharing ratio of all the partners
Steps to be followed in a Reconstitution of Partnership are Steps to be followed to ascertain the new profit sharing
as follows: ratio:
Step I: Distribute all the reserves, accumulated profit or Step I: First subtract the part of the new partner from the
loss or any other balance of surplus in the old profit-sharing whole part.
ratio.
Step II: Now, divide the remaining part in proportion of the
Step II: Now, find the sacrificing and gaining ratio of the existing partners.
existing partners with the help of the following formulae:
Step III: Compute the ratio of all the partners.
Sacrificing ratio = Old ratio − New ratio
 Treatment of Goodwill
Gaining ratio = New ratio − Old ratio
Step III: Find the goodwill of the firm by any of the Condition I: A new partner brings his capital in cash.
methods. Step I: Find the gaining and sacrificing ratio of the existing
Step IV: Revaluate the assets and liabilities (if any). partners.
Distribute the profit or loss on revaluation of assets and Step II: Now debit the capital of gaining partners and credit
liabilities (if any) among the all existing partners in their old the sacrificing partners’ capitals in their gaining and sacrificing
profit sharing ratio. ratio respectively.
18
New Profit Sharing Ratio = Old Ratio – Sacrificing Ratio

• Transfer the increasing or decreasing
amount of assets and liabilities to
Revaluation Account.
f it
• Profits or losses arising from revaluation ro
P
t io
w
are distributed amongst the old partners Ra
g Sacrificing Ratio = Old Ratio – New Ratio
Ne
in
in their old profit sharing ratio.
ar
sh
Effect on Change in
Profit sharing Ratio
Revaluation of
Assets and Liabilities Accumulated
Profits, Losses
and Reserves
Accounting Reserves, losses and profits

should be transferred to
Treatment of
Capital / Current Accounts
Goodwill
of old partners in their old
profit sharing ratio.
• The new partner is required to pay his share of the tangible assets Reconstitution
as well as the goodwill according to the profit sharing ratio. tnership F
of Parion of a Pairm :
• On the admission of partner, goodwill must be revalued. iss rtner
• However, not all businesses keep a goodwill account in their Ad m
books. Goodwill adjustments can be done :
• Goodwill Account opened.
• Goodwill Account not opened. Trace the Mind Map

First Level Second Level Third Level

• Net effect of reserves, accumulated profits and losses is calculated.
• Gaining / Sacrificing ratio is calculated.
• The share of gaining partner and sacrificing partner in net effect
is calculated.
• In case of positive Net Effects–
• Debit the Revaluation Account if liabilities increase Gaining Ratio= New Ratio – Old Ratio
Gaining Partner’s Capital A/c Dr.
• Credit the Revaluation Account if liabilities decrease
To Sacrificing Partner’s Capital A/c • Debit the Revaluation Account if assets decrease
• Reverse entry is made in case of negative Net Effects. • Credit the Revaluation Account if assets increase
atio
n gR
Gaini
Change in Profit
RECONSTITUTION OF PARTNERSHIP
Sacrifi
Transfer to Partners' Capital c
Sharing Ratio ing R
atio
Accounts or Current Accounts
in old profit-sharing ratio.
Revaluation of
Wh
Assets and Liabilities Sacrificing Ratio= Old Ratio – New Ratio
en
Tr
an
sferr
ed to Part
ner
s' C
ap
• It is an intangible
ita
asset.
lA
• It is not depreciated.
cco
e
ur
Circumstances at
unts
N
when Reconstitution Reserves & Accumulated • Efficient management
takes place Profits & Losses • Favourable location
• Longer establishment of Business
on
ati ill • Market situations
lu
va o dw • Risk associated with business
i ng Go
ct of
ffe
• Change in profit-sharing ratio among

a
on of Goodwill
Reconstitution luati
rs
of va
existing partners' tnership F ds
cto
• Admission of a partner ho Average Profit method:

Fa
of Par ge in Pr irm : et
Chan ofit M Goodwill=Actual Average Profit×Number
• Retirement of an existing partner g R
Sh ar i n a ti o of Years’ Purchase
• Death of a partner Super Profit method:
• Amalgamation of two partnership firms Super Profit=Actual Profit–Normal Profit
Goodwill=Super Profit×Number
Goodwill of Years’ Purchase
Capitalisation method:
Capitalisation of Average Profit×100
Average Profit = Normal rate of return
Trace the Mind Map Goodwill=Total Capitalised value of

First Level Second Level Third Level Business – Capital Employed
19
20
• If capital of remaining partner falls short, he/she brings in cash.

• If capital of remaining partner has a surplus, he/she withdraws cash.
• Surplus or deficit in Capital Account is transferred or adjusted by
transferring to Current Account.
• When appears in books, write off
in old ratio.
• When does not appear, credit to
retiring partner’s capital account
and debit to continuing partners’
capital accounts in gaining ratio. Adjustments of
Capital Accounts Ratio New share= Old share + Acquired share
aring
fi t Sh
o
Pr
Accounting Treatment ew
N
of Goodwill of Retiring /
Deceased Partner io Gaining Ratio=New share – Old share
Gaining Rat
Effects on Change in
Profit Sharing Ratio
• Consider Opening Balance of Capital
• Share in Revaluation Account
• Share of reserves Preparation of Accumulated Profits
• Share in goodwill of firm Loan Account and Reserves
• Share of profit upto the date of
stitutio
Reconrtnersh n of
retirement Pa ip
: R e ti r e m
Firm f a P ent/ • Distribute in old ratio
Calculation of
h o artner • Profit and Loss A/c Dr.
Deat
Deceased Partner’s General Reserve A/c Dr.
Share of Profit Workmen Compensation Fund A/c Dr.
To All Partners’ Capital/ Current A/cs
• Take total profits of the required
number of past years.
• Calculate average profit.
• Reduce average profit for the Trace the Mind Map

period upto the date of death. First Level Second Level Third Level
RECONSTITUTION OF PARTNERSHIP 21
Condition II: If goodwill is valued and partner does not 2. Interest, salary, bonus, commission, etc. are payable.
bring goodwill in cash. 3. Share in firm’s goodwill.
Step I: Find the value of goodwill of the new partner. 4. Share in undistributed profit or loss.
Step II: Debit the capital of the new partner and credit the 5. Share in profit or loss on revaluation of assets and
capital of sacrificing partners. liabilities.
 Accumulated Profits  Methods of Payment
Distribute the undistributed reserves and Profit and Loss 1. Lump-sum payment method.
Appropriation balance among the existing partners in their old 2. Instalment payment method.
profit-sharing ratio.
Note: The amount of retiring partner is shown as loan

 Adjustment of capital account in balance sheet until it is not paid to the retiring
Adjustment of capital may be done based on two things: partner.
1. As per the new partners’ capital and his share in business.  Death of a Partner Scan to know
2. On the basis of the capital of the existing partners. more about

A partnership comes to an end with this topic
 Retirement of a partner the death of a partner, but the firm
Scan to know
When a partner leaves the partnership more about may continue its business with a new
firm due to the certain reasons like on this topic agreement.
retirement, old agreement of partnership Amount to be paid to a legal executor Death of a
comes to an end and a new agreement of the deceased partner consists of the Partner
comes into an existence. following items:
A partner may retire: Retirement of 1. Credit balance of Capital and Current A/c.
Partner
1. On a dispute with other partners, 2. Salary, commission, bonus etc. up to the date of death.
2. Having no interest in business activities, 3. Proportionate part in the goodwill of the firm.
3. Old age, 4. Proportionate share in undistributed profit or loss.
4. Illness, etc. 5. Share in profit or loss on revaluation of assets and
Determination of amount to be paid to the retiring partner: liabilities up to the date of death of the partner.
1. Balance of Capital and Current Account shown in balance Note: If the amount of deceased partner is not paid to the

sheet. executor, interest is paid @ 6% on the amount.

[A] MULTIPLE CHOICE QUESTIONS 4. Out of the following when will the need for valuation of
1. O n R’s retirement, the amount payable to him after all the goodwill does not arise: [CUET 2023]
adjustments, work out to be ₹ 60,000 but the remaining (1) Admission of a partner
partners P and Q agreed to pay him ₹75,000 in full settlement (2) Retirement of a partner
of his claim. Identify the term which represent ₹ 15,000 (3) Dissolution of partnership firm
extra, that is paid to R. [CUET 2023] (4) Death of a partners
(1) Share in Profits 5. Read the following facts about the admission of a partner.
(2) Hidden Goodwill A. A new partner acquires his share from the old partners that
(3) Interest on his Capital reduces the old partner’s share in profits.
(4) Compensation for Past work B. The partner’s capital must be adjusted, so as to be
2. Identify that account to which share of profit of a deceased proportionate to their new profit sharing ratio.
partner is debited from the date of the last Balance Sheet to C. Assets and Liabilities may be revalued and reassessed on
the date of his/her death. [CUET 2023] admission of a partner.
(1) His capital account D. Adjustment for Reserves and Accumulated profits/loss is
(2) Profit and loss account done.
(3) Profit and Loss Suspense account E. Profit sharing ratio of the existing partners may change on
(4) Trading account admission of a new partner.
3. A, B, and C are partners with equal profit sharing ratio. Choose the correct answer from the options given below:
Their fixed capitals are ₹ 30,000, ₹ 25,000 and ₹30,000 [CUET 2023]
respectively. C decided to take retirement. A and B decided (1) A, B, C and D only
to continue the partnership firm and change their profit (2) B, C, D and E only
sharing ratio into the Capital Ratio. What is the gaining ratio (3) C, D and E only
of A and B? [CUET 2023] (4) A, C, D and E only
(1) 6 : 5 (2) 1 : 1 6. From the following, identify the items which are payable to
(3) 7 : 4 (4) 3 : 2 retiring partner, if mentioned in deed: [CUET 2023]
A. redit balance of his/her Capital/Current Account

C (C) Sacrificing ratio (III) Continuing partners
B. Share of goodwill
(D) Revaluation of Assets (IV) When partnership
C. Goodwill of the firm
and Liabilities deed specifically
D. Share in revaluation gain/loss provides for it
E. Share in accumulated profits (Reserves) Choose the correct answer from the options given below:
Choose the correct answer from the options given below: [CUET 2023]
(1) A, B only (2) A, B, D, E only (1) (A)-(I), (B)-(II), (C)-(III), (D)-(IV)
(3) B, C, D, E only (4) A, C, D, E only (2) (A)-(III), (B)-(IV), (C)-(I), (D)-(II)
7. Match List I with List II: (3) (A)-(II), (B)-(III), (C)-(IV), (D)-(I)
List -I List -II (4) (A)-(IV), (B)-(III), (C)-(I), (D)-(II)
(A) Loss on Revaluation (I) Credited to old 11. Bishan and Sudha were partners in a firm sharing profits
partners in old ratio and losses in the ratio of 5 : 3. Alena was admitted as a new
partner. It was decided that the new profit-sharing ratio of
(B) Profit on Revaluation (II) Debited to Profit and Bishan, Sudha and Alena will be 10 : 6 : 5. The sacrificing
Loss Suspense A/c ratio of Bishan and Sudha will be:
(C) Premium brought by (III) Credited to (1) 5 : 3 (2) 25 : 78
new partner old partners in (3) 6 : 5 (4) 2 : 1
sacrificing ratio 12. Saurabh, Shirin and Somesh are partners in a firm sharing
(D) On the death of a (IV) Debited to old profits and losses in the ratio of 3 : 2 : 1. Somesh retires and
partner, profit till the partners in the old the new profit sharing ratio between Saurabh and Shirin is
date of death is ratio decided as 3 : 2. The gaining ratio between Saurabh and
₹ 2,000 Shirin will be:
Choose the correct answer from the options given below: (1) 3 : 2 (2) 3 : 1
[CUET 2023] (3) 1 : 1 (4) 2 : 1
(1) (A)-(I), (B)-(IV), (C)-(III), (D)-(II) 13. Which of the following statements is not true?
(2) (A)-(IV), (B)-(I), (C)-(III), (D)-(II) (1) When the partner is admitted it leads to a reconstitution of
(3) (A)-(II), (B)-(II, (C)-(IV), (D)-(III) the firm.
(4) (A)-(III), (B)-(II), (C)-(IV), (D)-(I) (2) When the partner dies it is considered as a reconstitution of
8. Identify the correct sequence, where the new partner is to the firm.
bring proportionate capital. (3) When the partners change their profit-sharing ratio it is said
A. Calculation of Capital Balance of old partners to be as a reconstitution of the firm.
B. Preparation of Revaluation A/c (4) When the partner buys an asset it is considered as a
C. Determination of Revaluation gain/loss reconstruction of the firm.
D. Presentation of Treatment of Goodwill 14. When the incoming partner brings his share of premium for
E. Calculation of Capital to be brought in by the new partner goodwill in cash, it is adjusted by crediting to:
Choose the correct answer from the options given below: (1) His Capital Account
[CUET 2023] (2) Premium for Goodwill Account
(1) C, B, D, A, E (2) D, B, C, E, A (3) Sacrificing Partners’ Capital Accounts
(3) D, C, B, A, E (4) B, C, D, A, E (4) None of the above
9. Which of the following will be shown on the credit side of 15. Z is admitted in a firm for 1/4th share in the profits for which
Deceased Partner’s Capital A/c? he brings ₹ 10,000 towards premium for goodwill. It will be
A. Revaluation Gain Share taken by the old partners in:
B. Goodwill written off (1) Old Profit-Sharing Ratio
C. Share of profit till the date of death (2) New Profit-Sharing Ratio
D. Drawings till the date of death (3) Sacrificing Ratio
E. Interest on capital till the date of death (4) None of the above
Choose the correct answer from the options given below: 16. If the incoming partner is to bring Premium for Goodwill
[CUET 2023] in cash and a balance exists in Goodwill Account, then this
Goodwill Account is written off among old partners in:
(1) A and C only (2) B, D and E only
(1) New Profit-Sharing Ratio
(3) A, B and D only (4) A, C and E only
(2) Old Profit-Sharing Ratio
10. Match List I with List II: [CUET 2023]
(3) Sacrificing Ratio
List -I List -II (4) None of the above
(A) Interest on capital (I) Admission of a partner 17. According to the Partnership Act, 1932, the interest payable
(B) Gaining Ratio (II) Profit and Loss in the to the deceased partner on the amount left by him will be:
old profit sharing ratio (1) 6% p.a. (2) 10% p.a.
(3) 12% p.a. (4) 16% p.a.
18. The old profit-sharing ratio among Rajendra, Satish and Reason (R): According to the Section 32 (1) of the Indian
Tejpal were 2 : 2 : 1. The new profit-sharing ratio after Partnership Act, 1932, “A partner may retire from the firm
Satish’s retirement is 3 : 2. The gaining ratio is: with the consent of all the partners or at his will, by giving
(1) 3 : 2 (2) 2 : 1 written notice to all the other partners of his intention to
(3) 1 : 1 (4) 2 : 2 retire.”
19. A, B and C are partners. C expired on 18th December, 5. Assertion (A): Partnership comes to an end with the death
2019 and as per agreement surviving partners A and B of a partner but the firm may continue its business with the
directed the accountant to prepare financial statement new partnership agreement.
as on 18th December, 2019 and accordingly the share Reason (R): Death of a partner leads to the restructuring of
of profits of C (deceased partner) was calculated as the firm and not to the dissolution of the partnership firm.
₹12,00,000. Which account will be debited to transfer C’s 6. Assertion (A): At the time of admission of a partner, if
share of profit: there is any General Reserve, Reserve Fund or the Balance
(1) Profit and Loss Suspense Account of Profit & Loss Account appearing in the balance sheet,
(2) Profit and Loss Appropriation Account it should be transferred to old partners’ capital/current
(3) Profit and Loss Account accounts in their old profit-sharing ratio.
(4) None of the above Reason (R): The General Reserve, Reserve Fund or the
20. In case of retirement, if full or part of the amount payable Balance of Profit and Loss Account are the result of the
to the retiring partner still remains to be paid, and there is past profits when the new partner was not admitted.
no agreement among the partners, then retiring partner will 7. Assertion (A): Goodwill is an intangible asset.
get: Reason (R): It is the value of the reputation of a firm in
(I) Interest @ 6% p.a. on the balance amount. respect of the profits expected in future over and above the
(II) Share of profit earned proportionate to his amount normal profits.
outstanding to total capital of the firm. 8. Assertion (A): At the time of change in profit sharing ratio,
(III) Interest @ 9% p.a. on the balance amount. it is important to determine the sacrificing ratio and gaining
Which out of the following is correct ? ratio of partners.
(1) (I) (2) (II) Reason (R): The gaining partners compensate the
(3) (III) (4) Have a choice to get sacrificing partners by paying them appropriate amount of
either (I) or (II) goodwill.
9. Assertion (A): The gaining partner transfers the amount of
goodwill to the sacrificing partners in proportion.
Directions: In the following questions, a statement of
Reason (R): The gaining ratio is the share of profit gained
assertion (A) is followed by a statement of reason (R). Mark
by a partner when there is a change in the profit-sharing
the correct choice as:
ratio.
(1) Both assertion (A) and reason (R) are true, and reason (R)
10. Assertion (A): Ram, Rahim and Ron share profits in the
is the correct explanation of assertion (A).
ratio 2 : 3 : 5. Ram decides to retire. The new profit sharing
(2) Both assertion (A) and reason (R) are true, but reason (R) is ratio is 3 : 5. If the profit earned was ₹ 1,50,000 before
not the correct explanation of assertion (A). retirement. Rahim’s share is ₹ 45,000.
(3) Assertion (A) is true, but reason (R) is false.
Reason (R): In case of retirement of a partner, profits are
(4) Assertion (A) is false, but reason (R) is true. shared in the new profit sharing ratio among the existing
1. Assertion (A): A new partner can be admitted into a partners.
partnership firm with the consent of all the existing partners.
Reason (R): According to Section 31 of the Indian
I. Based on following passage answer questions from 1-5.
Partnership Act, 1932, a new partner shall not be
introduced into a firm without the consent of all the existing Alia, Karan and Shilpa were partners in a firm sharing
partners, unless it is agreed otherwise by the partners in the profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books
partnership deed. at the value of ₹ 60,000. Karan decided to retire from the firm.
On the date of his retirement, goodwill of the firm was valued
2. Assertion (A): New Profit-Sharing Ratio is the ratio in
at ₹ 2,40,000. The new profit-sharing ratio decided among Alia
which old partners including the new partner, share the
and Shilpa was 2 : 3. Give the answers to the questions given
profits or losses of the firm.
below:
Reason (R): When a new partner is admitted to the firm,
1. How much will be transferred to Karan’s Capital Account
it is necessary to calculate the new profit-sharing ratio with
of the existing goodwill?
the help of the share agreed to forgo by the old partners.
(1) ₹18,000 (2) ₹30,000
3. Assertion (A): On retirement of a partner, the old
partnership agreement comes to an end and a new (3) ₹12,000 (4) ₹72,000
partnership agreement comes into an existence between the 2. What is Alia’s gaining or sacrificing ratio:
remaining partners. 1 1
Reason (R): Retirement of the partner leads to the (1) gain (2) Sacrifice
10 10
reconstitution of the firm.
4. Assertion (A): Retirement of a partner is a legal when done 4 4
(3) Gain (4) Sacrifice
at will and with the consent of the other partners. 10 10
3. What is Shilpa’s gaining or sacrificing ratio: was asked to introduce ₹1,30,000 for capital and ₹70,000 for
premium for goodwill. Besides this, Sundram was required
1 1 to provide ₹1,00,000 as loan for two years. Sundram readily
(1) gain (2) Sacrifice
10 10 accepted the offer. The terms of the offer were duly executed,
and he was admitted as a partner.
4 4
(3) Gain (4) Sacrifice 6.
Remuneration will be transferred to ________ of Amit and
10 10
Mahesh at the end of the accounting period.
4.
What amount of goodwill will be transferred to Karan’s
(1) Capital account (2) Loan account
Capital account?
(3) Current account (4) None of the above
(1) ₹ 96,000 (2) ₹ 72,000
7.
Upon the admission of Sundram, the sacrifice for providing
(3) ₹ 24,000 (4) ₹ 18,000
his share of profits would be done:
5.
What will be the amount of goodwill compensated by the
(1) by Amit only
gaining partner to the sacrificing partner?
(2) by Mahesh only
(1) ₹28,800 by Alia and ₹43,200 by Shilpa
(3) by Amit and Mahesh equally
(2) ₹43,200 by Alia and ₹28,800 by Shilpa
(4) by Amit and Mahesh in the ratio of 3:2.
(3) ₹96,000 by Shilpa
8.
Sundram will be entitled to a remuneration of _______ at
(4) ₹96,000 by Alia the end of the year.
II. Based on the following passage answer questions from (1) ₹ 15,000 (2) ₹ 27,000
6-10:
(3) ₹ 30,000 (4) ₹ 45,000
Amit and Mahesh were partners in a fast-food corner
sharing profits and losses in ratio 3:2. They sold fast food items 9.
While taking up the accounting procedure for this
across the counter and did home delivery too. Their initial fixed reconstitution the accountant of the firm Mr. Suraj Marwah
capital contribution was ₹1,20,000 and ₹80,000 respectively. faced a difficulty. For the amount of loan that Sundram has
At the end of the first year their profit was ₹ 1,20,000 before agreed to provide, he is entitled to interest there on at the
allowing the remuneration of ₹3,000 per quarter to Amit and rate of____________.
₹2,000 per half year to Ranju. Such a promising performance (1) 12% (2) 6%
for the first year was encouraging, therefore, they decided to (3) 5% (4) 10%
expand the area of operations. For this purpose, they needed
a delivery van, a few Scotties and an additional person to 10. What will be the new profit-sharing ratio of the partners?
support. Six months into the accounting year they decided to (1) 4: 6 : 3 (2) 10 : 5 : 2
admit Sundram as a new partner and offered him 20% as share (3) 12 : 8 : 1 (4) 12: 8 : 5
of profits along with monthly remuneration of ₹2,500. Sundram
ANSWER KEY
1. (2) 2. (3) 3. (3) 4. (3) 5. (4) 6. (2) 7. (2) 8. (4) 9. (4) 10. (4)
11. (1) 12. (1) 13. (4) 14. (3) 15. (3) 16. (2) 17. (1) 18. (3) 19. (2) 20. (4)

1. (1) 2. (2) 3. (1) 4. (1) 5. (1) 6. (1) 7. (1) 8. (1) 9. (2) 10. (3)

1. (1) 2. (2) 3. (3) 4. (2) 5. (3) 6. (3) 7. (4) 8. (1) 9. (2) 10. (4)

[A] MULTIPLE CHOICE QUESTIONS indicates the presence of hidden goodwill in the partnership.
Explanation: Hidden Goodwill is an intangible asset that is Explanation: The share of profit of a deceased partner until the
not recorded in the books of the partnership but is recognised date of his/her death is debited to the Profit and Loss Suspense
when there is an agreement among the remaining partners to Account. This adjustment is made to keep the partner’s share
pay more than the calculated amount in full settlement of a of profit separate until it is distributed among the legal heirs
retiring partner’s claim. In this case, the extra ₹ 15,000 paid or beneficiaries according to the terms of the partnership
to R is over and above his calculated claim of ₹ 60,000, which agreement or the deceased partner’s will.
3. Option (3) is correct. The following items will be shown on the debit side of the
Explanation: New Ratio of A : B = 30,000 : 25,000 = 6 : 5 deceased partner’s account:
(1) Debit capital balance of a deceased partner.
Old Ratio of A : B : C = 1 : 1 : 1
(2) Drawings of a deceased partner and interest on drawings.
Gaining Ratio = New Ratio – Old Ratio (3) Share of Goodwill written off.
6 1 18 11 7 (4) Share in the loss on revaluation of assets and liabilities.
For A :
11 3 33 33 (5) Share in undistributed loss.
5 1 15 11 4 10. Option (4) is correct.
For B : Explanation: Only when the partnership deed provides for
11 3 33 33
the interest on capital, it can be charged in the partnership
Gaining Ratio of A : B = 7 : 4
firm. In case of retirement/death of a partner, the continuing
4. Option (3) is correct. or remaining partners share the goodwill share of the
Explanation: In the event of dissolution, the need for valuation retiring or deceased partner in the gaining ratio. Sacrificing
of goodwill does not arise because there is no business to carry ratio is calculated during the admission of a partner as the
forward and no goodwill to be transferred to any continuing old partners sacrifice a part of their share to the new partner.
entity. Goodwill is typically realised and distributed among the The profit or loss on the revaluation of assets and liabilities
partners when a partnership is continuing, such as in the case is shared by the old or remaining partners in the old profit-
of admission, retirement, or death of a partner. sharing ratio.
Explanation: Statement B is wrong as it is not necessary for Explanation: Bishan’s Sacrificing ratio
the partners to adjust their capital in a proportion to their new 5 10 105 80 25
profit-sharing ratio. =
8 21 168 168 168
Explanation: The Goodwill of the firm is not payable to the 3 6 63 48 15
retiring partner, only the share of the retiring partner as per his/ Sudha’s Sacrificing Ratio =
8 21 168 168 168
her profit-sharing ratio is given to the partner.
Sacrificing Ratio = 25:15 = 5:3
Explanation: Loss of revaluation is debited to an old
Explanation:
partner’s capital account in the old profit-sharing ratio. Profit
on revaluation is credited to the old partner’s capital account Gaining ratio = New ratio – Old ratio
in their old profit-sharing ratio. Premium for goodwill 3 3 3
brought by the new partner is shared by the old partner in Saurabh’s gain =
5 6 30
the sacrificing ratio and it is transferred to the old partner’s
capital accounts by crediting it. On the death of a partner 2 2 2
Shirin’s gain =
profit till the date of death is to be debited to the profit and 5 6 30
loss suspense account. Gaining ratio = 3 : 2
Explanation: In the case of admission of a new partner, the Explanation: When the partner buys an asset it is considered
first step is to check for any change in the valuation of assets as increase in the assets of the firm.
and liabilities,or unrecorded assets or liabilities. That is the 14. Option (3) is correct.
revaluation account needs to be prepared first. This helps in
Explanation: When the incoming partner brings his share of
determining the loss or gain in revaluation, which is transferred
a premium for goodwill in cash, it is adjusted by crediting
to the old partners in the old profit-sharing ratio. There after,
to sacrificing partners’ capital account. His capital account is
the goodwill of the firm is treated or calculated. Finally, the
debited and premium for Goodwill account is credited when
capital of the old partner are ascertained and then the share of a the new partner doesn’t bring the goodwill in cash.
capital of the new partner is to be calculated.
Explanation: The amount of goodwill brought by the new
Explanation: The following items are shown in the credit side partner is shared by the sacrificing partners in their sacrificing
of the deceased partner’s account: ratio. The old profit-sharing ratio and new profit-sharing ratio
(1) Credit balance of capital and current account. help in the calculation of the sacrificing ratio. The Accumulated
(2) Salary, commission, interest, etc. up to the date of death. profits and revaluation profit or loss are also shared in the old
(3) Proportionate share in profit of firm till the date of death. profit-sharing ratio.
(4) Proportionate share in goodwill of the firm. 16. Option (2) is correct.
(5) Proportionate share in undistributed profits and reserves of Explanation: The goodwill shown in the balance sheet is shared
the firm as shown in the balance sheet. among the partners in the old profit-sharing ratio. Sacrificing
ratio is used to share the goodwill to be brought in by the new
(6) Proportionate share in the profit on revaluation of assets
partner. New profit-sharing ratio is used to reconstitute the
and liabilities.
capital of the firm if it is decided by the partners to make it 9. Option (2) is correct.
proportionate to their profit-sharing ratio. Explanation: The gaining partner transfers the amount of
17. Option (1) is correct. goodwill to the sacrificing partners in proportion in order
Explanation: The Partnership Act, 1932 states that the interest to compensate for the sacrificed goodwill as per the gaining
payable to the deceased partner needs to be a 6% p.a. ratio.
Explanation: Gaining Ratio = New Ratio -Old Ratio Explanation: Rahim will get ₹45,000 as his share of profit but
Rajendra’s Gain = 3/ 2 – 2/5 = 1/5 the profits are shared in the old profit sharing ratio among the
existing partners.
Tejpal’s Gain = 2/5 – 1/5 = 1/5
Gaining Ratio = 1:1 [C] COMPETENCY BASED QUESTIONS
Explanation: The existing goodwill will be transferred in the
Explanation: When a partner dies or retires, the profit is old profit sharing ratio.
appropriated to them as well in the profit and loss appropriation
account. 3
Karan’s share = ₹60,000 × = ₹18,000
10
Explanation: In case of no agreement the retiring partner will
either get @ 6% p.a. interest rate on the remaining amount or 5 2 5 4 1
Explanation: (Sacrifice)
share of profit earned proportionate to the amount outstanding 10 5 10 10 10
to the total capital of the firm. 3. Option (3) is correct.
[B] ASSERTION REASON QUESTIONS 2 3 2 6 4
Explanation: (Gain)
1. Option (1) is correct. 10 5 10 10 10
Explanation: As per the Section 31 of the Indian Partnership Act, 4. Option (2) is correct.
1932, all partners need to give the consent for the introduction of Explanation: Goodwill share will be determined as per the
a new partner into the firm. share of the retiring partner in the firm.
2. Option (2) is correct. 3
Karan’s Share = ₹2,40,000 × = ₹72,000
Explanation: New Profit Sharing Ratio is the ratio in which 10
old partners including the new partner, share the profits or 5. Option (3) is correct.
losses of the firm, calculated as agreed by the partners, as the Explanation: Amount to be compensated to Alia
future profit and loss need to be shared differently as a new 1
partner is added to the firm. = ₹2,40,000 × = ₹24,000
10
3. Option (1) is correct. Total amount to be bought by Shilpa =
₹24,000 + ₹72,000
Explanation: When a partner retires, the old partnership = ₹96,000
agreement comes to an end and a new partnership agreement 6. Option (3) is correct.
comes into existence as the partnership is reconstituted.
Explanation: As the partners are following fixed capital
4. Option (1) is correct. method, the remuneration and other adjustments apart from the
5. Option (1) is correct. additional capital brought in will be transferred to the Current
Explanation: Partners need to make a new agreement when Account and not to the Capital Account.
there is a death of a partner as the partnership ceases to exist but 7. Option (4) is correct.
the firm still goes on and can continue with a new agreement. Explanation: As the new ratio is not given, the old partners
6. Option (1) is correct. will sacrifice their profits in the old profit-sharing ratio. Thus,
Explanation: All accumulated profits, reserves need to be the sacrifice ratio will be same as their old profit-sharing ratio.
distributed among old partners in the case of reconstitution of 8. Option (1) is correct.
the partnership. Explanation: Amit’s Remuneration: ₹2,500 monthly
7. Option (1) is correct. ₹2,500 × 6 = ₹15,000
Explanation: Goodwill is an intangible asset as it cannot be 9. Option (2) is correct.
touched and is calculated as the value of the reputation of the
Explanation: If partnership deed is absent, then the partner is
firm with respect to the profits earned.
eligible for a 6% interest on loan to the firm.
Explanation: At the time of change in profit sharing ratio, it is
Explanation:
important to determine the sacrificing ratio and gaining ratio
of partners, as the gaining partners need to compensate the 1 5
Sundaram’s Share = 20% = =
sacrificing partners. 5 25
1 4 2 4 8
Share left for Amit and Mahesh = 1 − = Mahesh’s New Share = of =
5 5 5 5 25
3 4 12 Amit : Mahesh : Sundaram = 12 : 8 : 5
Amit’s New Share = of =
5 5 25
Study Time
4
Max. Questions: 40
DISSOLUTION OF
PARTNERSHIP FIRM
 Dissolution by Court (Section 44): On filing of a suit

 Revision Notes
by a partner, the court may pass orders for dissolution in the
 Meaning of Dissolution of Partnership: Dissolution of following conditions:
partnership means reconstitution of the
Scan to know  When any partner becomes of unsound mind.
firm due to change in the profit-sharing more about
ratio among existing partners, admission of this topic  When any partner becomes permanently incapable of
a new partner, retirement of a partner, death executing his duties as a partner.
of a partner, insolvency of a partner and the  When any partner is guilty of any such conduct which
firm continues as before. However, the may bring loss to the business.
dissolution of partnership does not lead to Dissolution of  When any partner knowingly violates the terms of
the dissolution of firm. Partnership agreement again and again.
Firm
 Meaning of Dissolution of  When any partner transfers or assigns all his interests to
Partnership Firm: Dissolution of partnership firm means that a third person.
the firm closes down its business and comes to an end. On  When it is not possible to run the business without loss.
the dissolution of partnership firm, assets of the firm are sold,
 When dissolution of firm is just and equitable in the
liabilities are paid off and out of the remaining amount the
opinion of the court.
accounts of the partners are settled.
 Settlement of Accounts: Section 48 of The Indian
 Modes of Dissolution of a Partnership Firm: Modes of
Partnership Act, 1932, provides the following rules for the
dissolution of a firm have been described in Sections 40 to 44
settlement of accounts between the partners:
of Indian Partnership Act, 1932, and they are as under:
 Payment of Losses: Losses shall be paid first out
 Dissolution by Agreement (Section 40): When
of profits, next out of capital and lastly, if necessary, by the
all the partners agree to dissolve the firm or if there is any
partners individually in their profit-sharing ratio.
such agreement in partnership deed or amongst the partners
 Distribution of Assets: Assets of the firm are first to
regarding dissolution of firm.
be applied in paying the debts of the firm to the third parties;
 Compulsory Dissolution or Dissolution by
next in paying to each partner rateably what is due to him from
the Operation of Law (Section 41): In the following
the firm for advances as distinguished from capital; in paying
circumstances, the firm will be dissolved compulsorily:
to each partner rateably what is due to him on account of
 When any such event happens which makes the capital, and the residue to be divided among the partners in the
operation of business of the firm unlawful. proportion in which they were entitled to share profits.
 When all partners or all partners except one are declared  Realisation Account: Realisation
as insolvent by the court. Scan to know
Account is opened on dissolution of firm more about
 Dissolution on the Happening of an Unexpected to close down the books of accounts of the this topic
Event (Section 42): In this, a firm will be dissolved in the firm. This account is a nominal account.
following conditions: The purpose of this account is to show the
 When partnership is formed for a particular period, profit or loss on realisation of assets and
then on the expiry of that period. payment of liabilities. Realisation
Account
 When formation of partnership was for some objectives, Preparation of Realisation Account
then on the fulfilment of those objectives. Step I: Transfer all the assets to the
 When any partner is declared as insolvent. debit side of Realisation Account.
 When any partner dies. Step II: Transfer all the liabilities to the credit side of the
 Dissolution by Notice of Partnership at will (Section Realisation Account.
43): If partnership is at will, then any partner may notify other Step III: Credit the Realisation Account by the amount
partners about his will in writing and then the firm may be realised by selling the assets.
dissolved. Step IV: Debit the Realisation Account by the amount
A nominal account prepared
Particulars Amount Particulars Amount
on dissolution of firm to close Change in economic relationship among the
To All Assets – By All Liabilities – down the books of accounts. partners but the firm continues its business.
To Cash paid for – By Cash received –
e
i
p
sh
Liabilities and for Assets
ctiv
er
j e
Expenses
r tn
b
By Partners Capital – Dissolution of partnership
Pa
To Partners Capital – A/cs among all the partners in a
of
A/cs Firm firm and the business of
DISSOLUTION OF PARTNERSHIP
on
hip
ti
t ners the firm is closed down.
r
Pa
Nature & O
solu
n of
io
Dis
Realisation ut
Format ol
Account iss • Dissolution by Agreement (Section 40)
D
Dissolution • Compulsory Dissolution (Section 41)
es of • Dissolution upon Contingency, if the
/ Bank Account Typ
Cash partnership deed so provides (Section 42)
Accounts Prepared • Dissolution by Notice (Section 43)
Dissolution
• Dissolution by Order of Court (Section 44).
Amount received from sale of assets
is debited and payment of liabilities
nt
rib ution of Assets
ou
and realisation expenses are credited Dist • First, out of profits
• Next, out of capital
Acc
to this account.
Settlement • At last, by the partners
Lo an
of Accounts individually in their profit
's
er
sharing ratio.
tal Account
tn
Pa
• Loan will be shown on the credit side of
r
my
partner’s loan account. Pa
C a pi
en
• Loan will be paid after outside liabilities.
r's
to
fL • First, in paying outside debts of the firm.
• Paid off by passing following entry :
tne
lutio oss
es • Next, in paying to each partner ratealy
Partner’s Loan A/c Dr.
Par
what is due to him on account of loan.
Disso rshi n of
To Cash / Bank A/c tne p Firm • Next, in paying to each partner ratealy
Par
what is due to him on account of capital.
• Residue to be divided in profit sharing
• Transfer the Current Account balance (if any) to Capital
ratio.
Account.
• Transfer the Undistributed Profits, Reserves or Losses to
Capital Account. Trace the Mind Map

• Transfer the Realisation Loss or Gain to Capital Account. First Level Second Level Third Level
• Make Final Settlement.
29
paid for liabilities and expenses. Note: Partner’s loan account is prepared before partners’
Step V: Transfer the balance amount to partners’ capital capital accounts because at the time of dissolution, capitals are
Accounts. paid off, only if, any balance is left after payment of partner’s
Treatment of Reserves and Accumulated Profits: loan.
The undistributed profits and losses and reserves are Treatment of Goodwill: In case of dissolution of a
always transferred to partners’ capital accounts in their profit- firm, goodwill should be treated just like other assets and
sharing ratio and not to the realisation account. is transferred to realisation account and in case nothing is
mentioned about the realisation of goodwill, it can be assumed
For distribution of reserves or accumulated profits:
that the goodwill is valueless and as such, nothing is received
General Reserve Dr. or realised from it.
Reserve Fund Dr. Cash or Bank Account: All the receipts are recorded on
Profit & Loss A/c Dr. the debit side and all the payments are recorded on the credit
To Partners’ Capital A/cs (in profit sharing ratio) side of cash account. At the time of dissolution, this account is
(Being undistributed profits and reserves transferred to closed at last and total of both the sides (Dr.and Cr.) must be
partners’ capital accounts) equal. It means all accounts are closed. Thus, this account also
helps in the verification of the arithmetical accuracy of all the
For distribution of accumulated losses:
accounts at the time of dissolution.
Partners’ Capital A/cs Dr.
If both cash and bank balances are given in the balance
To Profit & Loss A/c sheet, only one account, either cash account or bank account
(Being undistributed losses transferred to partners’ capital is prepared. If cash account is prepared, an entry is made for
accounts) withdrawing the bank balance and if bank account is prepared,
Partner’s Loan Account: If a partner has given any loan an entry is passed for depositing the cash balance into bank
to the firm, first, it will be shown on the credit side of partner’s which are as follows:
loan account. When all the outside liabilities are paid in full, (i) For cash deposited into bank:
afterwards this loan will be paid. Thus, partner’s loan account Bank A/c Dr.
is prepared separately and paid off by passing the following
To Cash A/c
entry:
(ii) For cash withdrawn from bank:
Partner’s Loan A/c Dr.
Cash A/c Dr.
To Cash/Bank A/c
To Bank A/c
(Being partner’s loan paid off)

[A] MULTIPLE CHOICE QUESTIONS hoose the correct answer from the options given below:
C
[CUET 2023]
1. Arrange following in a sequence in which amount realised (1) (A)-(IV), (B)-(I), (C)-(III), (D)-(II)
from assets will be utilised to pay.
(2) (A)-(IV), (B)-(I), (C)-(II), (D)-(III)
A. Partner’s Loan
(3) (A)-(IV), (B)-(II), (C)-(III), (D)-(I)
B. Partner’s Capital
(4) (A)-(IV), (B)-(III), (C)-(II), (D)-(I)
C. Secured debts of the firm
3. Aman and Mohan, partners of a firm decide to dissolve the
D. Unsecured debts of the firm business on 31-03-22. The firm decided to pay realisation
E. Residue to partners expenses of ₹1,000 on behalf of Mohan. ₹1,000 will be
Choose the correct answer from the options given below: debited to [CUET 2022]
[CUET 2023] (1) Realisation A/c
(1) C, D, E, A, B (2) C, D, E, A, B (2) Mohan’s Capital A/c
(3) C, D, A, B, E (4) C, D, A, E, B (3) Bank A/c
2. Match List I with List II: (4) Aman’s Capital A/c
List -I List -II 4. On the basis of the following data, how much final payment
will be made to a partner on firm’s dissolution?
(A) Transfer of (I) Realisation Account Credit balance of capital account of the partner was
accumulated profits ₹50,000. Share of loss on realisation amounted to ₹ 10,000.
(B) Unrecorded asset sold (II) Profit and Loss Account Firm’s liability taken over by him was for ₹ 8,000.
on dissolution of firm (1) ₹ 32,000 (2) ₹ 48,000
(C) Manager’s (III) Profit and Loss (3) ₹ 40,000 (4) ₹ 52,000
commission Appropriation Account 5. If in case of dissolution of partnership, there was no
(D) Partner’s commission (IV) Partner’s Capital Workmen Compensation Fund and firm had to pay ₹3,000
Account as compensation to workers where will this ₹3,000 be
recorded in the books of accounts?
DISSOLUTION OF PARTNERSHIP 31
(1) Debit side of Realisation Account March 2023, they decided to dissolve the partnership firm.
(2) Credit side of Realisation Account The following information is given to you on the dissolution
(3) Debit side of Partner’s Capital Account of the firm:
(4) Credit side of Partner’s Capital Account. The firm had total assets of ₹ 12,00,000 that realized
6. Vibhuti, Tiwari and Happu were partners in a partnership ₹10,80,000. The creditors were settled at 90% by paying
firm sharing profits and losses in the ratio of 1 : 2 : 3. On them ₹ 54,000. There was an unrecorded asset in the books
31ST March 2020, they decided to dissolve the partnership of the firm which was taken by Vaibhav for ₹ 12,000.
firm. The following information is given to you on the Realisation expenses amounted to ₹ 2,000 and were paid
dissolution of the firm: by Tina on behalf of the firm. There was general reserve in
the books of the company of ₹ 21,000. The capitals of the
The firm had total assets of ₹ 12,00,000 that realized
partners were in the proportion of their profit sharing ratio.
₹10,80,000. The creditors were settled at 90% by paying
Their balance sheet also showed a cash balance of ₹ 81,000.
them ₹ 54,000. There was an unrecorded asset in the books
of the firm which was taken by Vibhuti for ₹ 12,000. Calculate the final amount to be paid to Naina.
Realisation expenses amounted to ₹ 2,000 and were paid by (1) ₹6,00,000 (2) ₹52,000
Tiwari on behalf of the firm. There was general reserve in (3) ₹5,58,500 (4) ₹6,00,000
the books of the company of ₹ 21,000. The capitals of the
12. At the time of dissolution of a firm, Creditors are ₹ 70,000;
partners were in the proportion of their profit sharing ratio.
Firm’s Capital is ₹ 1,20,000; Cash Balance is ₹
Their balance sheet also showed a cash balance of ₹ 81,000.
10,000.Other assets realised ₹1,50,000. Gain/Loss in the
What was the loss on realization?
realisation account will be:
(1) ₹ 2,00,000 (2) ₹ 1,47,000
(1) ₹ 30,000 (Gain) (2) ₹ 40,000 (Gain)
(3) ₹ 1,37,000 (4) ₹ 1,04,000
(3) ₹ 40,000 (Loss) (4) ₹ 30,000 (Loss)
7. What Journal Entry will be passed on dissolution of
13. In the event of dissolution of a partnership firm, the
partnership firm, when creditors of ₹ 40,000accepted
provision for doubtful debts is transferred to:
investments of ₹ 50,000 (Book value)?
(1) Realisation Account
(1) Creditors A/c Dr. 40,000 (2) Partner’s Capital Accounts
To Realisation A/c 40,000 (3) Sundry Debtors Account
(2) Realisation A/c Dr. 40,000 (4) None of these
To Creditors A/c 40,000 14. On dissolution of the firm, ______ will be debited to the
(3) Creditors A/c Dr. 50,000 Realisation Account.
To Investments A/c 50,000 (1) Realisation expenses paid by the partner
(4) No Entry (2) Balance of Reserve Fund
8.
What Journal Entry will be passed on dissolution of (3) Amount of Unrecorded Asset
a partnership firm when a partner agreed to bear the (4) Creditor’s balance shown in the Balance Sheet
dissolution expenses for ₹ 10,000?
15. A partnership firm is compulsorily dissolved:
Actual expenses paid by partner were ₹ 15,000.
(1) When the business of the firm is declared illegal.
(1) Realisation A/c Dr. 15,000 (2) When a partner of the firm dies.
To Partner’s Capital A/c 15,000 (3) When a partner of the firm becomes insolvent.
(2) Realisation A/c Dr. 10,000 (4) When a partner transfers his share to some other person
To Partner’s Capital A/c 10,000 without the consent of other partners.
(3) Realisation A/c Dr. 5,000 16. On dissolution of a firm, a partner paid ₹700 for the firm’s
Dissolution Exp. A/c Dr. 10,000 realisation expenses. Which account will be debited?
To Bank A/c 15,000 (1) Cash Account
(4) No Entry (2) Realisation Account
9. Unrecorded liability when paid on dissolution of a firm is (3) Capital Account of the Partner
transferred to: (4) Profit & Loss Account
(1) Realisation Account 17. On dissolution of the firm, loss calculated in Realisation
(2) Partners’ Capital Accounts Account is debited/credited to which account?
(3) Liability Account (1) Cash Account (Credit)
(4) None of the above (2) Partners’ Capital Account (Debit)
10. At the time of dissolution, all assets are transferred to (3) Partners’Capital Account (Credit)
Realisation Account at their: (4) Realisation Account (Debit)
(1) Realised value 18. On taking responsibility for payment of a liability of
(2) Market value ₹50,000 by a partner, the account credited will be:
(3) Book value (1) Realisation Account
(4) Cost or market price whichever is less. (2) Cash Account
11. Vaibhav, Tina and Naina were partners in a partnership firm (3) Capital Account of the Partner
sharing profits and losses in the ratio of 1 : 2 : 3. On 31st (4) Liability Account
19. In the event of dissolution of the firm, the partner’s assets 7. Assertion (A): All the assets are transferred to the debit
are first used for payment of the following: side of the Realisation Account.
(1) Firm’s liabilities Reason (R): All the liabilities are transferred to the credit
(2) Partner’s personal liabilities side of the Realisation Account.
(3) None of the two 8. Assertion (A): The liabilities taken over by a partner,
(4) Any of the two is debited to the realisation account and credited to the
20. At the time of dissolution of partnership firm, the amount Partner’s Capital Account.
of ‘Bills Payable’ shown in the Liabilities Side of the Reason (R): This helps in the proper preparation of the
Balance Sheet is transferred to: Balance Sheet of the firm at the time of dissolution.
(1) Capital Accounts of Partners 9. Assertion (A): Revaluation Account is to be prepared at
(2) Realisation Account the time of dissolution of the firm.
(3) Cash Account Reason (R): It is very important to ascertain the profit or
(4) Loan Account of Partners loss during realisation of assets and payment of liabilities at
[B] ASSERTION REASON QUESTIONS the time of dissolution.
Directions: In the following questions, a statement of 10. Assertion (A): Partnership firm cannot be dissolved in any
assertion (A) is followed by a statement of reason (R). Mark case if, any one of the partners becomes insolvent.
the correct choice as: Reason (R): There is a compulsory dissolution of the firm,
(1) Both assertion (A) and reason (R) are true, and reason (R) when all except one partner become insolvent.
is the correct explanation of assertion (A). [C] COMPETENCY BASED QUESTIONS
(2) Both assertion (A) and reason (R) are true, but reason (R) is I. Based on following passage answer the questions from
not the correct explanation of assertion (A). 1-5. [CUET 2023]
(3) Assertion (A) is true, but reason (R) is false. Meena and Tina are partners in a firm and sharing profits as
(4) Assertion (A) is false, but reason (R) is true. 3 : 2. They decided to dissolve their firm on March 31, 2017
1. Assertion (A): Dissolution of partnership is different from when their Balance Sheet was as follows:
the dissolution of the partnership firm. Balance Sheet Meena and Tina as on March 31, 2017
Reason (R): Dissolution of partnership does not mean
Liabilities Amount Assets Amount
the dissolution of the firm compulsorily but in case of
dissolution, the business of the firm is compulsorily come (₹) (₹)
to an end. Capital: Machinery 70,000
2. Assertion (A): Realisation Account is prepared at the time Meena 90,000 Investments 50,000
of dissolution of the partnership firm. Tina 80,000 1,70,000 Stock 22,000
Reason (R): Dissolution of partnership firm involves the Sundry creditors 60,000 Sundry Debtors 1,03,000
partners selling the assets and settling the liabilities. Thus,
various amounts are recovered to settle the liabilities of the Bills payable 20,000 Cash at bank 5,000
firm by selling the assets of the firm. 2,50,000 2,50,000
3. Assertion (A): Rajiv and Vinod, who share profits and The assets and liabilities were disposed off as follows:
losses in the ratio 2:3, are dissolving the firm. There is a. Machinery were given to creditors in full settlement of their
general reserve balance of ₹60,000 in the balance sheet. account and stock was given against the bills payable in
The accountant transferred ₹24,000 in Rajiv’s Capital and full settlement.
₹ 36,000 in Vinod’s Capital Accounts.
b. Investments were took over by Tina at book value. Sundry
Reason (R): The undistributed profits and losses and debtors of book value ₹50,000 took over by Meena at 10%
reserves are always transferred to partners’ capital accounts less and remaining debtors realised ₹51,000.
in their profit-sharing ratio and not to the realisation
c. Realisation expenses amounted to ₹ 2,000.
account.
4. Assertion (A): Dissolution of a partnership firm automatically 1. When a creditor accepts an asset whose value is more than
leads to dissolution of partnership agreement. the amount due to him, he will........the excess amount
Reason (R): Internal liabilities are paid first on dissolution which will be credited to.....Account.
of partnership firm. (1) Pay, Bank
5. Assertion (A): Goodwill is distributed among all the (2) Not pay, Creditors
partners in the profit-sharing ratio during dissolution of the (3) Pay, Realisation
partnership firm. (4) Not pay, Realisation
Reason (R): Goodwill is an intangible asset and so amount
2. Which mode of dissolution is highlighted in the above
can be received or not by selling it.
case?
6. Assertion (A): Partners are paid the full amount of capital
(1) Compulsory dissolution
that they have invested in the firm.
(2) Dissolution by agreement
Reason (R): All the liabilities paid by the partner on
behalf of the firm are transferred to their respective capital (3) Dissolution by court
accounts. (4) Dissolution on happening of contingencies
3. Identify the amount realised in cash from Sundry Debtors. B 1,40,000 2,40,000 Debtors 50,000
(1) ₹ 96,000 (2) ₹ 1,03,000
Cash 50,000
(3) ₹ 1,00,000 (4) ₹ 51,000
2,60,000 2,60,000
4. State the Journal entry for the payment of realisation
It was agreed that following transactions will take place:
expenses by the firm.
A. A wanted to start the business in sole proprietorship, so he
(1) Realisation Expenses A/c Dr. ₹ 2,000 took Building and Furniture at 10% less than book value.
To Realisation A/c ₹ 2,000 B. All the debtors proved good except a person C who did not
(2) Realisation A/c Dr. ₹ 2,000 pay ₹10,000
To Realisation Expenses A/c ₹ 2,000 6. Due to ill health of B, they decided to dissolve the firm. It
comes under _______ form of dissolution.
(3) Realisation A/c Dr. ₹ 2,000
1. Dissolution by Notice
To Bank A/c ₹ 2,000
2. On the happening of certain contingencies
(4) Bank A/c Dr. ₹ 2,000
3. Dissolution by court
To Realisation A/c ₹ 2,000
4. Dissolution by Agreement.
5. State Journal entry for realisation of investment.
7. The amount recovered from the debtors is:
(1) Tina’s Capital A/c Dr. ₹ 50,000 1. ₹1,00,000 2. ₹40,000
To Realisation A/c ₹ 50,000 3. ₹50,000 4. ₹60,000
(2) Tina’s Capital A/c Dr. ₹ 30,000 8. Following items appear on the Debit side of Realisation
A/c except:
Meena’s Capital A/c Dr. ₹ 20.000
A. Transfer of Assets
To Realisation A/c ₹ 50,000
B. Payment of Liabilities
(3) Realisation A/c Dr. ₹ 50,000 C. Provisions
To Tina’s Capital A/c ₹ 50.000 D. Realisation expenses
(4) Realisation A/c Dr. ₹ 50,000 E. Asset taken over by partner.
To Tina’s Capital A/c ₹ 30,000 Choose the correct answer from the option given below:
To Meena’s Capital A/c ₹ 20,000 (1) A, C, E only (2) C, D, E only
II. Based on following passage answer questions from 6-10: (3) D, E only (4) C, E only
[CUET 2022] 9. The treatment of Goodwill appearing in the balance sheet
A and B were partners in a partnership firm. Due to some will be:
ill health of B they decided to dissolve the firm. The position of 1. Transferred to Debit of Realisation A/c.
Assets and Liabilities on the date of dissolution was: 2. Written off among partners in old ratio.
Balance Sheet 3. Transferred to credit of Realisation A/c.
Liabilities ₹ Assets ₹ 4. Raised and written off.
Loan by B 20,000 Goodwill 30,000 10. The accumulated profits and reserves are transferred to:
1. Revaluation A/c 2. Realisation A/c
Capitals Furniture 40,000
3. Partner’s Capital A/c 4. Cash/Bank A/c
A 1,00,000 Building 90,000
ANSWER KEY
1. (3) 2. (2) 3. (2) 4. (2) 5. (2) 6. (4) 7. (4) 8. (2) 9. (1) 10. (3)
11. (3) 12. (4) 13. (1) 14. (1) 15. (1) 16. (2) 17. (2) 18. (3) 19. (2) 20. (2)

1. (1) 2. (1) 3. (1) 4. (3) 5. (4) 6. (4) 7. (2) 8. (3) 9. (4) 10. (4)

1. (3) 2. (2) 3. (4) 4. (3) 5. (1) 6. (4) 7. (2) 8. (4) 9. (1) 10. (3)

[A] MULTIPLE CHOICE QUESTIONS of profit and is credited to the Profit and Loss Appropriation
Account, showing its allocation among the partners.
Explanation: In case of dissolution of a partnership firm, first,
all the secured debts are paid and then the unsecured debts. Explanation: ₹1,000 will be debited to the Mohan’s Capital
When it comes to partners, the loan is paid first, then from the Account and Bank A/c will be credited.
remaining amount, capital due is paid and if anything is left 4. Option (2) is correct.
after that, the residue is paid to the partner. Explanation: Final Payment made to Partner = Capital +
2. Option (2) is correct. Liabilities of firm taken over – Share of loss on Realisation
Explanation: When accumulated profits are distributed among = ₹ 50,000 + ₹ 8,000 – ₹ 10,000
the partners, it increases their respective capital accounts. The = ₹ 48,000
unrecorded asset’s sale during the dissolution of the firm is 5. Option (2) is correct.
accounted for in the Realisation account, helping to determine Explanation: The workmen compensation fund not being
the total gain or loss. The manager’s commission is treated as mentioned when being paid can be treated as an unrecorded
an expense and debited to the Profit and Loss Account, reducing liability. Thus, it will be recorded in the credit side of the
the firm’s profit. Partner’s commission is an appropriation realisation account when it is paid.
Explanation:
Dr. Realisation Account Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Sundry Assets 12,00,000 By Creditors A/c 60,000
To Cash A/c (payment to creditors) 54,000 By Cash A/c (assets sold) 10,80,000
To Tiwari’s capital A/c 2,000 By Vibhuti’s Capital A/c 12,000
(Realisation expenses)
By Partners’ Capital A/c:
Vibhuti 17,333
Tiwari 34,667
Happu 52,000 1,04,000
12,56,000 12,56,000
Explanation: When a liability is settled with the help of an Explanation: Amount paid to Naina : Capital + Share in
asset, no entry is passed in the books during dissolution as general reserve – Loss on realisation
nothing is recovered or paid in term of cash and bank. = ₹ 6,00,000 + ₹ 10,500 – ₹ 52,000
8. Option (2) is correct. = ₹ 5,58,500
Explanation: When the partner agrees to bear the dissolution 12. Option (4) is correct.
expenses, the partner’s capital account will be credited by the Explanation:
realisation account with the agreed amount of ₹10,000
9. Option (1) is correct. Memorandum Balance Sheet
Explanation: The unrecorded liabilities are not shown in the Liabilities Amount Assets Amount
book, yet they still need to be discharged off at the time of (₹) (₹)
dissolution and hence are debited to the Realisation Account. Creditors 70,000 Cash in Hand 10,000
10. Option (3) is correct. Capital A/c 1,20,000 Sundry Assets 1,80,000
Explanation: At the time of dissolution of the firm, the assets (Balancing figure)
that appear in the books are transferred at book value to the 1,90,000 1,90,000
realisation account.
Realisation A/c
Particulars Amount (₹) Particulars Amount (₹)
To Sundry Assets 1,80,000 By Creditors A/c 70,000
To Cash A/c (Paid Creditors) 70,000 By Cash A/c (Assets Realised) 1,50,000
By Loss on realisation 30,000
(Balancing figure)
2,50,000 2,50,000
13. Option (1) is correct. sharing ratio at the time of dissolution of the firm in their profit-
Explanation: In the event of the dissolution of a partnership firm, sharing ratio.
the provision for doubtful debts is transferred to the realisation 4. Option (3) is correct.
account along with liabilities Explanation: On dissolution of partnership firm, the external
14. Option (1) is correct. liabilities are paid first. The internal liabilities are settled
Explanation: On dissolution of the firm, realisation expenses through the capital account itself if any money is left for the
paid by the partner are debited to the realisation account. payment.
Explanation: A partnership firm is compulsorily dissolved when Explanation: In case of dissolution of a firm, goodwill should
the business of the firm is declared illegal. In the case of the death of be treated just like other assets if nothing is mentioned about
a partner or insolvency of a partner, it is dissolved on the happening the realisation of goodwill, it can be assumed that the goodwill
of an unexpected event. Transfer of shares to another person by the is valueless and as such, nothing is received or realised from it.
partner without the consent of other partners, can be the ground for 6. Option (4) is correct.
dissolution only if the other partner/s take the matter to the court and Explanation: Partners are paid the amount of the capital
the court dissolves the partnership by the action of law. adjusted with the profit or loss on realisation, other assets or
16. Option (2) is correct. liabilities taken over by the partner etc. Then only if there is
Explanation: Realisation Account will be debited, and any amount left after payment of all the external liabilities are
Partner’s Capital Account will be credited, when a partner paid paid to the partners in the form of their capitals.
for the firm’s realisation expenses. 7. Option (2) is correct.
17. Option (2) is correct. Explanation: It is completely true that the assets are transferred
Explanation: On dissolution of the firm, loss calculated in to the debit side of the realisation account and liabilities are
Realisation Account is debited to Partner’s Capital Account. transferred to the credit side of the realisation account. This is
There will be no effect on the Cash Account and Partner’s done in order to ascertain the profit or loss that the firm earns
Capital Account is credited during the profit of realisation. while realising the assets and payment to the external liabilities
18. Option (3) is correct. of the firm at the time of dissolution.
Explanation: On taking responsibility for payment of a liability 8. Option (3) is correct.
by a partner, the account credited will be Capital Account of Explanation: At the time of dissolution the Balance Sheet is
the Partner and Realisation Account will be debited. It will not not prepared as the business of the firm comes to an end.
affect the Cash Account. 9. Option (4) is correct.
19. Option (2) is correct. Explanation: Realisation Account is prepared at the time
Explanation: In the event of dissolution of the firm, the of dissolution and not Revaluation Account, which is made
partner’s assets are first used for payment of his personal during admission, retirement or death of the partnership firm.
liabilities. 10. Option (4) is correct.
20. Option (2) is correct. Explanation: If any of the partners becomes insolvent, the firm
Explanation: At the time of dissolution of partnership firm, can be dissolved as per Section 42 of the Partnership Act of
the amount of ‘Bills Payable’ is shown in the liabilities side 1932, that is through the happening of an unexpected event.
of Balance Sheet is transferred to credit side of realisation [C] COMPETENCY BASED QUESTIONS
account. 1. Option (3) is correct.
[B] ASSERTION REASON QUESTIONS Explanation: When the asset taken over by a creditor which has
1. Option (1) is correct. more value than the payment to be made to the creditor, the excess
Explanation: Dissolution of partnership means reconstitution amount is paid by the creditor to the firm.
of the firm due to change in the profit-sharing ratio among 2. Option (2) is correct.
existing partners, admission of a new partner, retirement of a Explanation: As it is clearly mentioned in the case study that
partner, death of a partner, insolvency of a partner and the firm Meena and Tina decided to dissolve the firm, it is a case of
continues as before. However, dissolution of the partnership Dissolution by agreement.
firm means the end of the business of the firm compulsorily. 3. Option (4) is correct.
2. Option (1) is correct. Explanation: As Meena did not give cash for the debtors taken
Explanation: At the time of dissolution of the partnership firm, over by her, only ₹ 51,000 were realized in cash from Sundry
Debtors.
realisation account is prepared as the liabilities are to be settled
as against the assets of the firm and to find the surplus that the
Explanation: Realisation expenses are debited to the
partners get or the deficit, they need to bring in order for the
realisation account.
process of dissolution.
Explanation: As Tina took over the investment, her capital
Explanation: General reserve is a type of undistributed profit
account will be debited and realisation account will be credited
which needs to be distributed by the partners in their profit
with the amount of investment taken over by her.
6. Option (4) is correct. taken over by partner are taken as the realised value of assets
Explanation: As per Section 40 of the Partnership Act, so these are shown on the credit side of the realisation account.
1932,when all the partners agree to dissolve the firm or if 9. Option (1) is correct.
there is any such agreement in partnership deed or amongst the Explanation: In case of dissolution of a firm, goodwill should
partners regarding dissolution of firm. In this case as well the be treated just like other assets if nothing is mentioned about
partners agreed to dissolve the partnership firm. the realisation of goodwill, it can be assumed that the goodwill
7. Option (2) is correct. is valueless and as such, nothing is received or realised from it.
Explanation: Amount collected from debtors 10. Option (3) is correct.
= ₹50,000 − ₹10,000 = ₹40,000 Explanation: In case of dissolution of the partnership firm, the
8. Option (4) is correct. accumulated profits and reserve are transferred to the partner’s
Explanation: Provisions are transferred to the credit side and capital account in their profit sharing ratio.
as they cannot be realised so never on the debit side. Assets
Company Accounts and Financial Statement Analysis
Study Time
5
Max. Questions: 40
ACCOUNTING
FOR SHARE AND
DEBENTURE
CAPITAL
 Revision Notes Employee stock option plan: It is a scheme under
 Accounting for Share capital which whole time directors, officers and employees of the
 Shares: It refers to the units into
company are given right to purchase securities of company at a
which the total share capital of a company predetermined rate.
Scan to know
is divided. Thus, a share is a fractional part more about  Forfeiture of Shares: When a member fails to pay allotment
this topic or calls of the issue price of his shares within a stipulated time
of the share capital and forms the basis of
ownership interest in a company. then the company has power to cease his membership and
 Share capital: Share capital means
forfeit his shares.
the capital raised by the company by the  Reissue of Forfeited Shares: Forfeited shares may be
Types of
issue of shares. Companies re-issued at par, premium or discount or cancelled as per the
 Types of Share capital: provisions of the Articles of Association of the company.
Normally the total amount is collected on discount. The amount
 Authorised or registered or Nominal capital.
of discount on re-issue should not exceed the amount already
 Issued capital and Unissued capital. credited to Shares Forfeiture Account. Such discount shall be
 Subscribed capital and Unsubscribed capital. debited to Shares Forfeiture Account in place of Discount on
 Called up capital and Uncalled capital. Shares Account. Any balance in Forfeiture Shares Account,
Paid up capital. after reissue shall be transferred to Capital Reserve Account.
 Scan to know
more about If all forfeited shares are not re-issued, proportionate amount
 Reserve capital. this topic shall be left in Share Forfeiture Account and the balance shall
 Procedure for Issue of Shares: be transferred to Capital Reserve Account
 Issue of prospectus,  Share Capital in the Balance Sheet of the Company
 Receiving the application form, Balance Sheet
 Preparing for application and Issue of
Shares: Calls Particulars Note Current year Previous year
allotment, in advance,
calls in arrears, no. (₹) (₹)
 Allotment of shares. forfeiture of 1. Equity and liabilities
 Ways to Issue Shares: shares, re-issue
of forfeited 2. Shareholders’ funds
 Issue of share at par. shares, pro-
rata allotment. (a) Share capital
 Issue of share at premium.
(b) Reserves and surplus
 Calls in Arrears and Calls in Advance: When any of the
due amount is not received on the number of shares, it is called (c) Money received against
Calls in arrear whereas, when a person share warrants
pays the amount of calls before the due Scan to know  Accounting for Debentures:
more about
date, it is called Calls in Advance. this topic  Debentures: When company needs funds for extension and
 Issue of Shares for Consideration development purpose without increasing its share capital, it
other than Cash: Sometimes, a company can borrow from the general public by issuing a loan certificate
may issue shares to promoters or vendors, for a fixed period at a fixed rate of interest. This loan certificate
etc. for acquiring some assets for running Issue of Shares is called debenture.
business or for paying their services to – Intro with  Features of Debentures:
Journal entries
company. This is termed as issue of shares  Debenture holders are the creditors of the company.
for consideration other than cash.
 Fixed rate of interest is paid.
Private placement of shares: It means any offer of
 Fixed maturity date.
securities or invitation to subscribe securities to a small number
 Do not have voting right.
of selected group of persons.
ACCOUNTING FOR SHARE AND DEBENTURE CAPITAL 39
 Different Types of Debentures: accumulated profits to redeem debentures. This is a common

 Ordinary debentures, practice, as it utilizes the company’s retained earnings, which
have been generated over time.
 Mortgage debentures,
3) Sinking Fund Method: The sinking fund method
 Non-convertible debentures,
involves the systematic creation of a Sinking Fund or Debenture
 Partly convertible debentures, Redemption Fund, funded through annual profits, with the
 Fully convertible debentures, amount determined using a Sinking Fund Table. This dedicated
 Registered debentures, fund is used to retire long-term debts, such as debentures.
The accumulated funds are invested in external securities and
 Unregistered debentures.
allowed to grow with compound interest. It’s worth noting that
 Ways to Issue Debentures: while the face value and market price of the securities may
 Issue at par: Face value = Issued value. differ, the interest is always calculated based on the face value
 Issue at premium: Face value < Issued value. of these securities.
 Issue at discount: Face value > Issued value.  Lump-Sum Method: Under this method, the company
 Issue of Debenture as Collateral Security: When company redeems whole of its debentures in lump-sum at the expiry
wants loan from bank or any other financial of a specified period. Such redemption can be made at par or
Scan to know premium according to the terms of issue.
institution and the security is not sufficient more about
with the company, in this case, company this topic It is necessary for an unlisted company to transfer an amount
may issue its own debentures as a security equal to 10% of the face value of debentures outstanding to
against the loan. This is termed as issue of Debenture Redemption Reserve from Surplus in Statement of
debentures as collateral security. Profit & Loss.
Note: No interest is to be paid on Issue of When all debentures are redeemed in lump-sum, the
debentures Debenture Redemption Reserve balance is transferred to
debentures issued as collateral security other than cash General Reserve.
 Interest on Debentures: Interest on consideration
 Draw of lots Method: According to this method, the
debentures is a charge against profit, so it
debentures are redeemed in annual instalments. The serial
has to be paid at a fixed rate whether company earns profit or
number of debentures which should be redeemed each year
not(except issued as collateral security).
are selected by lottery. This procedure is known as ‘Drawing
 Redemption of Debentures: Discharging the liability of of Lots’. In this case, 10% amount of outstanding debentures
debentures issued by paying back the (for unlisted company) is transferred to DRR before redemption
Scan to know
debenture holders is called redemption of more about begins. Proportionate amount of Debenture Redemption
debentures. Redemption is made on the due this topic Reserve is transferred to General Reserve in case of redemption
date or earlier as per the terms of issue. in instalments.
 Redemption of Debentures out of  Creation of Debenture Redemption Reserve: According
Profits: Redemption out of Profits means to Section 71(4) of the Companies Act, 2013, the companies
that an amount equal to debentures issued Redemption of are required to set aside an amount out of profit for redemption
Debentures
(i.e., 100% of the amount of debentures) is of debentures to a separate account. This account is known as
transferred from Surplus in Statement of Profit and Loss to a Debenture Redemption Reserve.
newly opened account named Debenture Redemption Reserve.  Redemption of Debentures by Purchase of own
This is called Redemption out of Profits. Debentures in the Open Market: When a company purchases
 Redemption of Debentures out of Capital: Listed its own debentures from the open market for immediate
Company can redeem its 100% debentures out of capital cancellation or for investment, it is called redemption of
while an unlisted company can redeem maximum 90% of its debentures by purchase of own debentures in the open market.
debentures out of capital. Here open market refers purchasing of own debentures from
 Methods of Redemption of Debentures the stock market.
1) Out of Proceeds of Fresh issue: When a company issues After purchasing the own debentures, a company can
new debentures to the public, the funds raised from this fresh use the following two options:
issue can be used to redeem the existing debentures. This is a (i) A company can immediately cancel its debentures but it
common method of raising funds for redemption as it does not is done only after passing the resolution by the board of directors
put a strain on the company’s existing resources. of the company.
2) Accumulated Profits: A company may use its (ii) Company can keep the debentures for the future as an
investment.

[A] MULTIPLE CHOICE QUESTIONS (1) The debt-equity ratio is not more than 1:1 after the buy
1.
A company can buy its own shares when: back.
[CUET 2023] (2) The amount of buy back shares in any financial year not
exceeding 20% of the paid-up capital and free reserves.
(3) Partly paid up shares are considered buy back. D. For premium on Redemption of Debentures or Preference
(4) Article of Association must authorise and special resolution Shares
has been passed for the buyback of shares. E. For buy back of shares
2. Identify those debentures on which no interest will be paid/ Choose the correct answer from the options given below:
provided. [CUET 2023] (1) A, B, C only (2) B, C, E only
(1) Debentures issued to underwriters (3) C, D, E only (4) B, D, E only
(2) Debentures issued for cash 8. What are different types of debentures from the view point
(3) Debentures issued to vendor of registration?
(4) Debentures issued as collateral security A. Convertible B. Bearer
3. On 1st July’ 22, Centaur Ltd. issued ₹ 25,00,000 8% C. Redeemable D. Secured
debentures of ₹ 100 each as collateral security to First E. Registered
Level Bank against loan dues of ₹ 20,00,000. How much Choose the correct answer from the options given
amount will be shown in the Balance sheet? below: [CUET 2022]
[CUET 2023] (1) A & E only (2) B & C only
(1) ₹ 25,00,000 (2) ₹ 45,00,000 (3) B & E only (4) C & D only
(3) ₹ 20,00,000 (4) ₹ 70,00,000 9. When debentures are issued at premium with the term of
4. When a company issues shares in open market and the redeeming them at par. The amount of premium received at
amount is payable in instalments. What is the sequence of the time of issue will be: [CUET 2022]
amount demanded by the company? (1) Debited to premium on Redemption of Debenture A/c
A. Money received on calls (2) Credited to Premium on Redemption of Debentures A/c
B. Money due on calls (3) Debited to Securities Premium Reserve A/c
C. Allotment money received (4) Credited to Securities Premium Reserve A/c
D. Application money transferred to Share Capital A/c 10. A company issued 10,000 equity shares @ ₹10 each to
E. Allotment money due public. Applications were received for 20,000 Shares.
5,000 applications were returned with letter of regret
Choose the correct answer from the options given below:
and the remaining applicants were allotted proportionals
[CUET 2023]
shares.
(1) D, C, B, A, E (2) D, E, C, B, A
Ravi was allotted 6,500 shares. For how many shares did
(3) D, C, A, B, E (4) D, E, C, A, B he apply for?
5. What is the correct sequence of allotment of shares? (a) 250 shares (b) 1,000 shares
A. Allotment money received. (c) 750 shares (d) None of these
B. Inviting application from investors. 11. The first stage of incorporating a company is:
C. Allotment Due (1) Registration
D. Application money received. (2) Promotion
E. Share call money due. (3) Commencement of business
Choose the correct answer from the options given below: (4) None of the above
[CUET 2022] 12. Those preference shares which do not carry the right to
(1) E, C, A, B, D (2) A, B, C, D, E receive arrears of dividend:
(3) B, D, C, A, E (4) C, A, E, D, B (1) Non-participating Preference Shares
6. Romi Ltd. Purchased building worth ₹1,50,000 machinery (2) Irredeemable Preference Shares
worth ₹1,40,000 and furniture worth ₹10,000 from xyz (3) Non-convertible Preference Shares
co. and took over its liabilities of ₹20,000 for a purchase (4) Non-cumulative Preference Shares
consideration of ₹3,15,000. They paid the purchase 13. Subscription of shares should not be less than_________ %
consideration by issuing 12% debentures of ₹100 each at of the issued shares.
a premium of 5%. What will be the number of debentures
(1) 85% (2) 90%
issued by Romi Ltd. [CUET 2022]
(3) 95% (4) 100%
(1) 4,000 (2) 3,500
14. Balance in Share Forfeiture Account is shown in the
(3) 3,000 (4) 2,000 balance sheet under the head of:
7. Securities premium reserve can be utilised _________ (1) Reserves and Surplus
[CUET 2022]
(2) Long-term Borrowings
A. To return excess money received on application
(3) Share Capital
B. To write off preliminary expenses
(4) Other Current Liabilities
C. To issue partly paid bonus shares
15. The Journal Entry to acquire an asset from vendor will be :

Date Particulars L.F. Amount Dr. Amount Cr.
(₹) (₹)
(1) Sundry Assets A/c Dr.
To Vendor’s A/c
(2) Vendor’s A/c Dr.
To Sundry Assets A/c
To Cash A/c
(4) Cash A/c Dr.
To Vendor’s A/c
16. HR Limited issued 10,000 equity shares @ ₹ 10each at 17. At the time of issue of debentures, Debentures Account is:
10% premium. All shares were subscribed and amount was (1) Credited by the amount received.
received. Identity the amount to be transferred to Securities (2) Credited by issues price of debentures.
Premium Reserve Account. (3) Credited by the nominal (face) value of the debentures.
(1) ₹ 10,000 (2) ₹ 1,000 (4) None of the above
(3) ₹ 1,00,000 (4) ₹ 9,000
18. What journal entry will be passed when purchase consideration is equal to net assets while purchasing business from vendor:
Date Particulars L.F. Amount Dr. (₹) Amount Cr. (₹)
Goodwill A/c Dr.
To Vendor’s A/c
To Capital Reserve A/c
To Vendor’s A/c
To Sundry Liabilities A/c
To Vendor’s A/c
(4) Capital Reserve A/c Dr.
To Vendor’s A/c
19. A company forfeited 4,000 shares of ₹ 10 each on which (3) Assertion (A) is true, but reason (R) is false.
application money of ₹ 3 has been paid. Out of these 2,000 (4) Assertion (A) is false, but reason (R) is true.
shares were reissued as fully paid up and ₹ 4,000 has been 1. Assertion (A): Issue of debenture does not result in
transferred to capital reserve. dilution of interest of equity shareholders.
Calculate the rate at which these shares were reissued: Reason (R): Debenture holders have voting rights.
(1) ₹ 10 per share (2) ₹ 9 per share
2. Assertion (A): Debentures save income tax.
(3) ₹ 11 per share (4) ₹ 8 per share
Reason (R): Interest on debenture is a tax deductible
20. Vanya Ltd. forfeited 20,000 equity shares of ₹ 100 each for expenditure.
non-payment of first and final call of ₹ 40 per share. The
3. Assertion (A): The equity shareholders are paid dividend
maximum amount of discount at which these share can be
on the shares held by them.
re-issued will be:
(1) ₹ 8,00,000 (2) ₹ 12,00,000 Reason (R): As the equity shareholders are the owners and
dividend form their earning.
(3) ₹ 20,00,000 (4) ₹ 20,000
4. Assertion (A): A share is a fractional part of the share
capital and forms the basis of ownership interest in a
Directions: In the following questions, a statement of company.
assertion (A) is followed by a statement of reason (R). Mark
Reason (R): Shares refer to the units into which the total
the correct choice as:
share capital of company is divided.
(1) Both assertion (A) and reason (R) are true, and reason (R)
5. Assertion (A): Preference shareholders are given a fixed
is the correct explanation of assertion (A).
rate of dividend even if the company earns no profit.
(2) Both assertion (A) and reason (R) are true, but reason (R)
is not the correct explanation of assertion (A). Reason (R): The preference shares have preferential
right of dividend to be paid as fixed amount or an amount
calculated at a fixed rate, which may either be free of or (1) ₹ 4,800 (2) ₹ 4,000
subject to income tax. (3) ₹ 8,000 (4) ₹ 9,600
6. Assertion (A): Authorised share capital is not issued to the 4. Identify the account to which the discount allowed on
public at once. reissue of forfeited shares should be debited.
Reason (R): Companies do not exhaust their authorised (1) Bank Account
capital in the beginning but only a part of the authorised (2) Forfeited Share Account
capital is issued for public subscription. Rest of the (3) Capital Reserve Account
authorised capital is raised by the company in a phased
(4) Securities Premium Reserve Account
manner depending on the need for funds.
5. The balance, if any, left in the share forfeited account
7. Assertion (A): Sarita Pvt. Ltd. issued 15% 10,000
relating to reissued shares, should be transferred to:
debentures at par @ ₹100 per debenture. The company
(1) Forfeited Share Account
suffered a loss but still the directors of the company paid
interest on debentures. (2) Share Capital Account
Reason (R): Interest on debenture is a charge against (3) Reserve Capital Account
profits and therefore, its payment is not subject to the (4) Capital Reserve Account
earning of profit. II.
Based on following passage answer questions from
8. Assertion (A): Debenture holders are the creditors of the 6-10: [CUET 2022]
company carrying a fixed rate of interest. XYZ Ltd is registered with an authorised capital of ₹20
Reason (R): Debentures are short-term loan taken from the Lakh divided into 2 Lakh equity shares of ₹10 each.
public. The company is in manufacturing of pickles and spices. Due
9. Assertion (A): The ‘discount on debentures’ issuance is to the increase in demand of packed food in the market they
charged to ‘Securities Premium Account’ and is reflected decided to diversify its operation. For this purpose they decided
as an asset. to issue 1 lakh equity share of ₹10 each. The company issued
20,000 equity shares to a vendor to supply the machinery required
Reason (R): The ‘discount on debentures’ issuance is noted
to manufacture the packed food. Rest of the equity shares were
as a capital loss in the asset side as a fictitious assets. Hence,
issued to general public for subscription. The applications were
has to be written off during the year of its issue.
received for 46,000 equity shares. Due to under subscription of
10. Assertion (A): The securities premium amount can be equity shares the shares were not issued to public.
used to issue partially paid-up bonus shares.
6. The company issued 20,000 equity shares of ₹10 each to
Reason (R): According to Section 52(2) of the Companies vendor. After issuing them the shares the vendor will be
Act, 2013, the amount of Securities Premium Reserve can considered as:
be used only for some specific purposes.
(1) Creditors (2) Owners
(3) Customers (4) Lenders
I. Based on following passage answer questions from 1-5.
7. In order to raise money by issuing the shares in the market
[CUET 2023]
the company must get application of at least ________.
A Ltd. with an Authorised Capital of ₹ 10,00,000 is divided (1) 1,00,000 shares (2) 80,000 shares
into shares of ₹ 10 each, issued 50,000 shares at a premium of
(3) 72,000 shares (4) 20,000 shares
₹ 2 per share payable as follows:
8. The process of issuing shares to a vendor in exchange of
on Application ₹ 3 per share
any asset is known as:
on Allotment ₹ 5 per share(including premium)
(1) Issue of share for cash
on First and Final call Balance amount (2) Issue of share at discount
Applications were received for 60,000 shares and the directors (3) Issue of share at premium
allotted shares to all on proportionate basis. All money received
(4) Issue of share for consideration other than cash
except first and final call from Hari who had applied for 1200
shares. His shares were forfeited and later half of his forfeited 9. If the company is unable to get minimum subscription, the
shares were reissued at ₹ 8 per share as fully paid up. shares cannot be issued and the amount must be refunded
within 8 days from the date of closure. If not, company
1. Identify the number of shares with which A Ltd. Is
shall be liable to pay ____ % interest p.a.
registered.
(1) 10% (2) 15%
(1) 1,00,000 Shares (2) 50,000 Shares
(3) 6% (4) 5%
(3) 60,000 Shares (4) 10,00,000 Shares
10. The following refers to the maximum amount of share
2. Select the amount received at the time of allotment:
capital issued by a company in its lifetime except:
(1) ₹ 2,50,000 (2) ₹ 50,000
(1) Subscribed Capital
(3) ₹ 2,20,000 (4) ₹ 3,00,000
(2) Authorised Capital
3.
Select the amount that is received from Hari’s reissued (3) Nominal Capital
shares:
(4) Registered Capital
ANSWER KEY
1. (4) 2. (4) 3. (3) 4. (2) 5. (3) 6. (3) 7. (4) 8. (3) 9. (4) 10. (3)
11. (2) 12. (4) 13. (2) 14. (3) 15. (1) 16. (1) 17. (3) 18. (3) 19. (2) 20. (2)

1. (3) 2. (1) 3. (1) 4. (2) 5. (4) 6. (1) 7. (1) 8. (3) 9. (1) 10. (4)

1. (1) 2. (3) 3. (2) 4. (2) 5. (4) 6. (2) 7. (3) 8. (4) 9. (2) 10. (1)

[A] MULTIPLE CHOICE QUESTIONS allotment is done on pro-rata basis. Thereafter, allotment
1. Option (4) is correct. money is due and then the allotment money is received. The
Explanation: A company can buy its own shares only when it is share calls are due and they are then subsequently received.
authorized to do so by its Articles of Association. Additionally, 6. Option (3) is correct.
a special resolution must be passed by the shareholders Explanation: Price of each 12% Debentures = ₹100 + 5% of
approving the buyback of shares. The other options listed (1, 2, ₹100 = ₹100 + ₹5 = ₹105
and 3) are not directly related to the conditions required for a Purchase Consideration
Number of debentures =
company to buy back its own shares. Price of each debentures
Explanation: The term ‘collateral security’ implies additional `3, 15, 000
= = 3000
security given for a loan. Where a company obtains a loan from a 105
banker insurance company and the security offered to the company 7. Option (4) is correct.
is not sufficient, the company may issue its own debentures to the Explanation: Statement A is wrong as the application money
lender as collateral security against the loan. In such a case, the is returned from the bank account where the application
lender has the absolute right over the debentures until and unless money was transferred. Statement C is wrong as the securities
the loan is repaid. On repayment of the loan, however, the lender premium is used to issue fully paid-up bonus shares.
is legally bound to release the debentures forthwith. But in case, Plus, the securities premium amount cannot be used to issue
the loan is not repaid by the company on the due date or in the partly paid up bonus shares to shareholders, as the shares are
event of any other breach of agreement, the lender has the right to partly paid up.
retain these debentures and to realize them. The lender is entitled It can only be used for:
to interest only on the amount of loan, but not on the debentures (i) To issue fully paid-up bonus shares to the shareholders.
issued as collateral security.
(ii) To write off preliminary expenses of the companies.
(iii) To write off the commission paid or expenses on issue of
Explanation: As the debentures are issued as collateral security shares/debentures.
for the bank loans, the amount to be shown will be ₹ 20,00,000 (iv) To pay premium on the redemption of preference shares or
as the debentures will be retained by the bank unless and until debentures of the company.
the loans are repaid back.
(v) Buy-back of equity shares and other securities as per
4. Option (2) is correct. Section 68.
Explanation: The sequence of amount demanded by the 8. Option (3) is correct.
company is:
Explanation: From the viewpoint of security debentures are
1. Application money received classified as Secured and Unsecured. From the viewpoint
2. Application money transferred to share capital of redemption, debentures can be either redeemable or
3. Allotment money due irredeemable. From the viewpoint of registration, debentures
4. Allotment money received can be either registered or bearers. From the viewpoint of
5. Money due on calls convertibility, debentures can be either convertible or non-
6. Money received on calls convertible.
Explanation: When the shares are allotted to the Public, first Explanation: When the debentures are issued at premium,
the application is invited, then the money of application is irrespective of being redeemed at a premium, par or discount,
received which is then transferred to Share Capital. In case the amount received as premium will be credited to the
of over subscription, the excess money is either refunded or Securities Premium Reserve Account.
10. Option (3) is correct. to the capital reserve account. Thus, ₹ 2,000 was the discount
Explanation: Total applications received = 20,000 shares given, making the discount ₹ 1 per share. Thus, the share was
Return applications = 5,000 shares. issued at ₹ 9 per share.
Remaining applications = 15,000 (20,000 – 5,000) shares 20. Option (2) is correct.
Ravi was allotted 500 shares Explanation: Amount forfeited at the time of forfeiture of
shares = ₹ 20,000 × 60 = ₹ 12,00,000 [Maximum amount of
No. of shares he applied for:
discount to be allowed]
15, 000
500 [B] ASSERTION REASON QUESTIONS
10 , 000
750 Shares 1. Option (3) is correct.
11. Option (2) is correct. Explanation: Issue of debenture does not result in dilution of
Explanation: The incorporation of a company as per the interest of equity shareholders as they do not have right either
Companies Act, 2013 begins with its promotion. to vote or to take part in the management of the company.
Explanation: The non-cumulative preference shares are Explanation: The debenture holders are paid a fixed rate of
the shares which do not carry the right to receive arrears of interest either annually or semi-annually as decided by the
dividend. management of the company. Debentures as a source of finance
Non-participating Preference Shares are the shares which do leads to the company saving Income Tax as the interest that is
not have a share in surplus profits and on which only a fixed paid on the debentures are a charge against profit and so the
rate of dividend is paid. taxable income of the company reduces.
Non-convertible Preference Shares are the preference shares 3. Option (1) is correct.
which don’t have the right to be converted into equity shares. Explanation: The equity shareholders are given dividend
Preference shares which don’t have any maturity date are as per the shares hold by them from the profit earned by the
called irredeemable preference shares. company as they get the ownership of the company to the
extent of shares hold by them.
Explanation: As per the Companies Act, the subscription
should not be less than 90% of the issued shares or else the Explanation: Shares are the fractional part or the unit of share
subscription money must be refunded. capital forming the basis of ownership of company because
buying a share by a person makes him/her a shareholder and
thus the owner to the extent of the shares purchased.
Explanation: As the share forfeiture form the share capital it is
shown in the share capital head of the Balance Sheet.
Explanation: If the company does not earn profit, the
preference shareholders are not given dividend as dividend
Explanation: When the asset is acquired from the vendor,
cannot be declared in case of no profit even if they have
the sundry asset account is debited and vendor’s account is
preferential rights.
credited with that amount.
Explanation: Authorised Capital is the lifetime capital of the
Explanation: Total value of shares =
10,000 ×₹ 10
company beyond which it cannot issue the shares as mentioned
= ₹ 1,00,000
in the capital clause of the memorandum of association of the
Premium = 10% of 1,00,000 = ₹ 10,000 company. The companies in order to not exhaust the authorised
Thus, ₹ 10,000 will be transferred to the securities premium capital do not issue the entire authorised share capital to the
account. public but issue them in a phased manner as and when they
17. Option (3) is correct. require the fund.
Explanation: At the time of issue of debentures the debenture 7. Option (1) is correct.
account is credited with the nominal or face value of the Explanation: The interest on debentures has to be paid by the
debentures. If the debentures are issued at discount, discount company even in the case of loss as it is a charge against the
at the issue of debentures is debited and if it is issued at a profit and has to be paid irrespective of the profit or loss earned
premium, the Securities premium account is credited with the by the company. This is the reason why the directors of Sarita
premium amount. Pvt. Ltd had to pay the interest on debentures even when the
18. Option (3) is correct. company suffered loss.
Explanation: When the purchase consideration is equal to 8. Option (3) is correct.
net assets while purchasing business from vender, the Asset Explanation: If a company needs funds for extension and
Account is debited and vendor account is credited. development purposes without increasing its share capital,
19. Option (2) is correct. it can borrow from the general public by issuing certificates
Explanation: As the amount in the forfeiture share account is called debentures for a fixed period of time and at a fixed rate
₹ 6,000 (for 2,000 debentures) and ₹ 4,000 were transferred of interest. Debenture is a long-term debt instruments.
9. Option (1) is correct. (iii) To write off the commission paid or expenses on issue of
Explanation: The ‘discount on debentures’ issuance is noted as shares/debentures.
a capital loss and is charged to ‘Securities Premium Account’ (iv) To pay premium on the redemption of preference shares or
and is reflected in the assets side as fictitious asset. Hence, has debentures of the company.
to be written off during the year of its issue. (v) Buy-back of equity shares and other securities as per
10. Option (4) is correct. Section 68.
Explanation: According to Section 52(2) of the Companies [C] COMPETENCY BASED QUESTIONS
Act, 2013, the amount of Securities Premium Reserve can be 1. Option (1) is correct.
used only for the following purposes: Explanation: The Authorised Capital = ₹ 10,00,000
(i) To issue fully paid-up bonus shares to the shareholders. Value of each share = ₹ 10
(ii) To write off preliminary expenses of thecompanies. 10 , 00 , 000
Number of shares = = 1,00,000
10
Explanation: Money to be received on Share
Allotment = 50,000 × ₹ 5 = ₹ 2,50,000
Money already received on application = 10,000 × ₹ 3 = ₹ 30,000
Money to be received = ₹ 2,50,000 - ₹ 30,000 = ₹ 2,20,000
50 , 000
Explanation: Shares allotted to Hari =
1,200 × Explanation: 90% of 80,000 shares = 72,000 shares
60 , 000
= 1,000 8. Option (4) is correct.
Number of shares reissued = 500 Explanation: As the issue of shares to the vendor is in exchange
Amount received on the reissued shares =
500× ₹ 8 of the asset, here it is the machinery required to manufacture
= ₹ 4,000 packed food, it is termed as Issue of share for consideration
4. Option (2) is correct. other than cash. It is called issue of shares at discount when
Explanation: The discount allowed on the reissue of forfeited the shares are issued at a price below the face value. It is called
shares should be debited to the “Forfeited Share Account.” issue of shares at premium when the shares are issued at a price
This account is used to record the reissue of forfeited shares at above the face value.
a price lower than the original subscription price. The discount 9. Option (2) is correct.
allowed is a reduction in the reissue price and is accounted for
in the Forfeited Share Account. Explanation: As per the Section 73(2) of the companies Act,
5. Option (4) is correct. 2013, if the company fails to refund the application money if
Explanation: The balance amount of the forfeited shares is minimum subscription is not received with 8 days, then it has
transferred to capital reserve account as it is a charge against to pay an interest of 15% per annum.
capital. 10. Option (1) is correct.
Explanation: As the vendors now have equity shares, so they
will enjoy all the rights of the equity shareholders that includes
being the owners of the company.
Study Time
6
Max. Questions: 40
ANALYSIS OF
FINANCIAL
STATEMENTS
 Revision Notes b. Inventories
 Financial Statements of a Company : These are the end c. Trade Receivables
products of any business organisation. They reveal the financial d. Cash and Cash Equivalents
position and financial result of that organisation on a particular e. Short-term Loans and Advances
date. They work as the magnifier to the management for
f. Other Current Assets
decision making. It includes the following statements:
 Analysis of Financial Statements : Analysis of financial
1. Statement of Profit and Loss: It
Scan to know statements implies or means a thorough,
reveals the financial result of the company. more about Scan to know
systematic,comprehensive and critical more about
2. Balance Sheet: It reveals the this topic
examination of the information contained this topic
financial position of the company. in the financial statements in order to
 Major Headings used in Balance understand them better and take decision
Sheet on them after drawing meaningful
Balance Sheet
I. EQUITY AND LIABILITIES as per Schedule conclusions, take planned steps towards Financial
III development and secure the future of the Statement
1. Shareholders’ Funds: Analysis
a. Share Capital organisation.
b. Reserves and Surplus  Objectives of Financial Statements
Analysis :
c. Money received against share warrants
1. Financial Statements Analysis presents financial data
2. Share application money pending allotment
in a simplified and understandable form, so that meaningful
3. Non-Current Liabilities:
conclusions can be drawn from it.
a. Long-term Borrowings
2. Financial analysis helps in assessing the profitability
b. Deferred Tax Liabilities (Net) positions and operational efficiency of the firm as well as of its
c. Long-term Provisions various departments so as to judge the financial health of the
d. Other Long-term Liabilities organisation.
4. Current Liabilities: 3. Financial analysis helps in ascertaining the relative
a. Short-term Borrowings importance of different components of financial position(such
b. Trade Payables as assets, liabilities, owners’ equity etc.) of the firm.
c. Other Current Liabilities 4. It helps in making intra-firm and inter-firm comparisons.
d. Short-term Provisions 5. It helps in identifying the causes for change in profitability
of financial positions of the firm.
II. ASSETS
6. Financial Statements Analysis helps in assessing future
1. Non-current Assets:
trends and thus, helps in Forecasting and Preparation of
a. Fixed Assets: budgets.
(i) Tangible Assets  Limitations of Financial Statements Analysis :
(ii) Intangible Assets 1. Financial statements analysis ignores the qualitative
(iii) Capital Work-in-progress information like quality of management, labour force,public
(iv) Intangible Assets under development relation, etc.
b. Non-current Investments 2. The analysis of financial statements does not disclose the
c. Deferred Tax Assets (net) current worth of the business. The financial statements of the
d. Long-term Loans and Advances company are prepared on cost principle.
e. Other Non-current Assets 3. In many situations, accountant has to make a choice
2. Current Assets: out of various alternatives available. He may choose that
alternative which may be beneficial to the company. In such
a. Current Investments
case, the financial statements are not free from bias.
ANALYSIS OF FINANCIAL STATEMENTS 47
48
• Historical Analysis
• To present financial data in a simplified
• Does not reflect future
• Ignores the Price Level Changes and understandable form
• Not free from Bias • To help in assessing financial health of
Presents side-by-side information the organisation
about operating activities of the • To help in ascertaining the relative
business for two or more accounting Presents side-by-side information about an importance of different components of
period. entity’s assets, liabilities and shareholders’
Lim
financial position of the firm
fund as of multiple points in time.
itat
• To help in making intra-firm and inter-
io
Co
ns
m firm comparisons.
m
Each item of assets is
on
converted into percentages
Siz
Comparative
es
to total assets (e.g., 100) and
tiv
Statement
e Ba
ec
each item of equity and j
liabilities is converted into Financial Statement Ob
percentages to total equity Analysis
and liabilities (e.g., 100).
Im
lance Sheet
po
Common Size rta
nce
Statement
• To make comparisons
• To sustain the position of Business
• To take financial decisions
• To get help for future planning
Each item is shown as
percentage to revenue Tools used in
from operations. Financial Analysis
Liquidity Ratio
Activity Ratio
Types
Debt to equity
• Inventory turnover Total assets to debt
• Debtors turnover Proprietary ratio
• Payables turnover Trace the Mind Map

• Working capital Solvency First Level Second Level Third Level

Current Ratio
turnover Ratio Liquidity Ratio
• Fixed assets turnover
• Current assets turnover • Gross profit
• Operating ratio
• Net profit ratio
• Return on Investment
Portability Ratio • Earning per Share
• Dividend per Share
• Profit earning ratio
4. Different firms may follow different accounting policies. business as disclosed by a single set of statements and a study
This may create difficulty in comparing the results of two of trends of these factors, shown in a series of statement.
companies. Objectives
 Tools for Analysis of Financial Statements: 1. To identify the problematic area,
1. Comparative Statements (Horizontal 2. To measure profitability,
Scan to know
Analysis) more about 3. To simplify accounting figures,
2. Common Size Statements (Vertical this topic
4. To facilitate comparative analysis,
Analysis)
5. To ascertain operational efficiency,
3. Ratio Analysis
6. To assess business solvency,
4. Cash Flow Statements.
Comparative 7. To gauge financial position.
 Comparative Statements: Statements and Classification of Ratios:
showing financial data for two or more Common-Size
Statements. 1. Liquidity ratio: To measure the
years, placed side by side to facilitate Scan to know
firm’s efficiency to pay its short-term debts. more about
comparison are called Comparative Financial Statements.
It contains following ratios: this topic
A. Comparative Balance Sheet: The Comparative Balance
i. Current ratio
Sheet shows increase and decrease in absolute terms as well as
in percentages various assets, liabilities and capital and thus, ii. Quick ratio
provides information regarding the progress of the business 2. Activity ratio: To represent
Financial
firm. the amount of assets and liabilities that a Ratios
B. Comparative Statement of Profit & Loss or company replaces in relation to its sales. It
Comparative Income Statement: Comparative Statement of contains following ratios:
Profit and Loss is the income statement which is prepared in i. Inventory turnover ratio
such a form to reflect the operating activities of the business ii. Trade receivables turnover ratio
for two or more accounting periods. iii. Trade payables turnover ratio
Common-Size Statements : According to Kohler. iv. Working capital turnover ratio
‘’Common-Size Statements are accounting statements 3. Profitability ratio: To measure a company’s operating
expressed in percentages of same base rather than rupees.” performance. It contains following ratios:
A. Common-Size Balance Sheet : In a Common-Size i. Gross profit ratio
Balance Sheet, each item of assets is converted into the
ii. Operating ratio
percentage to total assets (i.e., 100) and each item of equity and
liabilities is converted into the percentage to total equity and iii. Operating profit ratio
liabilities (i.e., 100). Thus, the Balance Sheet is converted into iv. Net profit ratio
percentage form and the converted Balance Sheet is called as v. Return on Investment
‘Common Size Balance Sheet’. 4. Solvency ratio: To measure the ability of a company to
B. Common-Size Income Statement : A common-size meet its long-term debts. It contains following ratios:
income statement is a statement in which the figure of net sales i. Debt- equity ratio
is assumed to be equal to 100 and all other figures are expressed ii. Total assets to debt ratio
as percentage of net sales. iii. Proprietary ratio
Ratio Analysis : Ratio analysis of financial statements is iv. Interest coverage ratio.
a study of relationship among various financial factors in a

[A] MULTIPLE CHOICE QUESTIONS (D) Premium on Redemption (IV) Reserves and
1. Identify the ratio which is not computed for evaluating of Debentures Surplus
solvency of the business. [CUET 2023] Choose the correct answer from the options given below:
(1) Debt-Equity Ratio (2) Proprietary Ratio [CUET 2023]
(3) Operating Ratio (4) Interest Coverage Ratio (1) (A)-(III), (B)-(IV), (C)-(II), (D)-(I)
2. Match List I with List II: (2) (A)-(II), (B)-(I), (C)-(III), (D)-(IV)
List -I List - II (3) (A)-(II), (B)-(IV), (C)-(III), (D)-(I)
(4) (A)-(III), (B)-(II), (C)-(I), (D)-(IV)
(A) Current Maturities of (I) Other Non-Current
long term Debt Liabilities 3. What is the correct sequence to prepare company’s Balance
Sheet as per the standard format given according to Schedule
(B) Securities Premium (II) Short term III of Companies Act 2013?
Borrowing
A. Non-Current Liability B. Non-Current Assets
(C) Outstanding salaries (III) Other Current C. Shareholder’s Funds D. Current Assets
Liabilities E. Current Liability
hoose the correct answer from the options given below:

C A. Issued Capital
[CUET 2023] B. Subscribed and fully paid up capital
(1) C, A, B, E, D (2) A, B, C, D, E C. Share Forfeited Balance
(3) C, A, E, B, D (4) A, C, E, B, D D. Authorised Capital
4. Trade payables to be settled beyond 12 months from the E. Subscribed but not fully paid up capital
date of Balance sheet or beyond the operating cycle are Choose the correct answer from the options given below:
classified under: [CUET 2023] [CUET 2022]
(1) Long term provisions (1) C, B, D, E, A (2) D, A, B, E, C
(2) Other long term liabilities (3) A, B, C, D, E (4) B, A, D, E, C
(3) Deferred tax liabilities 10. Identify the correct sequence to find out profit after tax
(4) Long term Borrowing while preparing comparative income statement.
5. Every company analyses its earning capacity of the A. Deduct expenses
business which is outcome of utilisation of resources B. Find out total revenue by adding other incomes to revenue
employed in the business. To analyse profitability company from operations
can use: [CUET 2023] C. Find out profit after tax
A. Dividend Payout Ratio B. Return on Net Worth D. Deduct tax
C. Gross Profit Ratio D. Quick Ratio E. Calculate profit before tax
E. Inventory Turnover Ratio Choose the correct answer from the options given below:
Choose the choose answer from the option given below: [CUET 2022]
(1) C and E only (2) C, D and E only (1) E, B, A, D, C (2) B, A, E, D, C
(3) A, B and C only (4) A, C and E only (3) B, E, A, C, D (4) E, C, B, A, D
6. Match List I with List II: 11. Common Size Analysis is also known as: [CUET 2022]
List -I List - II (1) Horizontal Analysis (2) Vertical Analysis
(A) Interest charges (I) Employees Benefit (3) Cash Flow Analysis (4) Ratio Analysis
Expenses 12. Identify the limitations of financial statements:
A. Can be biased B. Report on stewardship
(B) Sale of services (II) Other incomes
C. Aggregate information D. Only interim reports
(C) Salary (III) Revenue from E. Basis of fiscal policies
Operations Choose the correct answer from the option given below:
(D) Dividend Income (IV) Finance cost (1) A, C, B only (2) A, C, D only
C (3) E, A, D only (4) B, A, C only
[CUET 2023] 13. What are the different types of liquidity ratios
(1) (A)-(IV), (B)-(III), (C)-(I), (D)-(II) A. Interest coverage Ratio B. Current Ratio
(2) (A)-(IV), (B)-(II), (C)-(I), (D)-(III) C. Inventory Turnover Ratio D. Gross Profit Ratio
(3) (A)-(II), (B)-(I), (C)-(III), (D)-(IV) E. Acid Test Ratio
(4) (A)-(II), (B)-(IV), (C)-(I), (D)-(III) Choose the correct answer from the options given below:
7. Select the sub-head under which loose tools will [CUET 2022]
be shown in the Balance Sheet of a company : (1) A & B only (2) B & E only
[CUET 2023] (3) B & D only (4) D & E only
(1) Current Assets (2) Trade Receivables 14. Identify the component of equity:
(3) Inventories (4) Other current Assets A. Money received against share warrants
8. Match List I with List II: B. Working Capital
LIST I: Major Head LIST II: Sub Head C. Share Capital
A. Fixed Assets I. Short term provisions D. Reserve & Surplus
E. Cash Revenue from Operations.
B. Current Assets II. Money received against
Choose the correct answer from the options given below:
share warrants [CUET 2022]
C. Current Liabilities III. Non current investment (1) A, C & E only (2) B, C & D only
D. Shareholder’s Funds IV. Inventories (3) A, B & C only (4) A, C & D only
Choose the correct answer from the options given below: 15. Identify the correct sequence of current assets in company’s
[CUET 2022] Balance Sheet?
(1) A – IV, B – I, C – II, D – III A. Bills Receivables
(2) A – III, B – IV, C – I, D – II B. Cash & Cash Equivalents
(3) A – I, B – IV, C – II, D – III C. Short term loans & advances
(4) A – II, B – I, C – IV, D – III D. Inventories
9. What is the correct sequence of types of capital in company’s E. Current Investments
Balance Sheet while preparing notes to accounts.
Choose the correct answer from the options given below: (1) B
oth assertion (A) and reason (R) are true, and reason (R)
[CUET 2022] is the correct explanation of assertion (A).
(1) C, A, B, E, D (2) D, C, E, A, B (2) B
oth assertion (A) and reason (R) are true, but reason (R)
(3) B, D, E, C, A (4) E, D, A, B, C is not the correct explanation of assertion (A).
16. While preparing common-size Balance sheet, each item of (3) Assertion (A) is true, but reason (R) is false.
Balance sheet is expressed as % of: [CUET 2022]
(4) Assertion (A) is false, but reason (R) is true.
(1) Non-current assets
1. Assertion (A): Financial statements are the end products
(2) Current assets
of accounting process which reveal the financial results of
(3) Non-current liabilities
a specified period and financial position as on a particular
(4) Total assets or total liabilities
date.
17. As per Schedule III, Part I of the Companies Act, 2013
Reason (R): The basic objective of these statements is to
‘calls-in-arrears’ will be presented under which of the
following head/sub-head, in the Balance Sheet of a provide information required for decision making by the
company? management as well as other outsiders who are interested in
(1) Reserves and Surplus (2) Current Liabilities the affairs of the undertaking, as per Section 129 Schedule
III to the Companies Act, 2013 every year.
(3) Contingent Liabilities (4) Shareholders’ Funds
2. Assertion (A): Debt to Equity Ratio of 2 : 1 is considered
18. The following information are given:
satisfactory. Generally a Low Ratio is considered
Trade Receivables Turnover Ratio 4 times
favourable.
Current Liabilities ₹5,000
Reason (R): This ratio indicates the proportionate claims
Average Debtors ₹1,80,000
of owners and outsiders on firm’s assets. High Ratio shows
Working Capital Turnover Ratio 8 times
claims of outsiders are greater but Low Ratio shows
Cash Revenue from Operations 25% of Revenue from outsiders claims are less.
Operations
1 3. Assertion (A): The balance sheet of the company needs
Gross Profit Ratio 33 % to show the complete detail of the share capital of the
3
What is the revenue from operations? company.
(1) ₹9,60,000 (2) ₹6,40,000 Reason (R): As per Schedule III of Companies Act, 2013,
(3) ₹1,80,000 (4) ₹7,20,000 the Balance Sheet must disclose authorized capital, issued
19. Match the items given in Column I with the headings/ capital and subscribed capital for each class of share
sub-headings of Column II under which these are shown capital (i.e. for both Equity and Preference Shares) besides
according to Schedule III Part 1 of the Companies Act, the called-up amount made by the company and paid-up
2013: amount made by the shareholders.
Column I Column II 4. Assertion (A): Accounts Payables are recorded in the
heading of Current Liabilities in the Balance Sheet of the
(i) Securities Premium Reserve (a) Non-current
Liabilities company.
Reason (R): Accounts Payable is the money the company
(ii) Patents (b) Current Liabilities
currently owes to its suppliers, partners,and employees.
(iii) Short Term Loans and (c) Current Assets
5. Assertion (A): All contingent liabilities are shown in the
Advances
non-current liabilities section of the balance sheet.
(iv) Trade Payables (d) Intangible Assets Reason (R): A contingent liability refers to the claim which
(v) Long Term Borrowings (e) Reserves and is uncertain to arise/which may or maynot rise/which is
Surplus dependent on a happening in future.
Choose the correct alternative: 6. Assertion: Comparative statements are more useful for
(1) (i)-(e), (ii)-(d), (iii)-(c), (iv)-(b), (v)-(a) analysing financial performance over time than stand alone
(2) (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d). (v)-(e) statements.
(3) (i)-(b), (ii)-(c), (iii)-(a), (iv)-(d), (v)-(e) Reason: Comparative statements show changes in financial
(4) (i)-(a), (ii)-(b), (iii)-(e), (iv)-(d), (v)-(c) data over a period of time, making it easier to evaluate
20. Gross Profit Ratio of a Company is 25%. Cost of revenue trends and identify significant changes.
3 7. Assertion: Common size financial statements are useful
from operations are th of revenue from operations. If
4 for comparing the financial structure and performance of
revenue from operations is ₹60,00,000, the Gross Profit of different businesses.
the Company will be: Reason: Common size statements express different
(1) ₹ 25,00.000 (2) ₹ 45,00,000 financial items as a percentage of total sales or revenue,
(3) ₹ 15,00,000 (4) ₹ 11,25,000 making it easier to compare the financial structure of
[B] ASSERTION REASON QUESTIONS businesses in different industries.
Directions: In the following questions, a statement of 8. Assertion: Comparative statements are useful for
assertion (A) is followed by a statement of reason (R). Mark evaluating a company’s financial performance against
the correct choice as: industry benchmarks.
Reason: Comparative statements allow for an assessment (3) 1.55 times (4) 1.92 times
of how a company is performing compared to industry 4.
Cost of Revenue from Operations for the year 2020 would
benchmarks, which can provide helpful insights for making be ______________.
strategic decisions. (1) ₹ 21,12,000 (2) ₹ 21,13,000
9. Assertion (A): Operating ratio is = 100 – operating profit (3) ₹ 21,15,000 (4) ₹ 21,17,000
ratio. 5.
What will be Inventory Turnover Ratio for the year 2019?
Reason (R): Operating ratio is computed to reveal the (1) 1.42 times (2) 1.41 times
operating margin on products sold. (3) 1.39 times (4) 1.38 times
10. Assertion (A): Profitability ratios are calculated to analyse II Consider the following data and answer the questions
the combining capacity of the business. 6 – 10 that follows:
Reason (R): Profitability ratios are calculated to determine
Particulars Amount ₹
the ability of the business to service its debt in the long run.
Revenue From Operations 12,00,000
[C] COMPETENCY BASED QUESTIONS Cost of Revenue from Operations 9,00,000
I. Read the following information and answer the Operating Expenses 15,000
questions 1 to 5: Inventory 20,000
Year 2020 2019 2018 Other Current Assets 2,00,000
Amount (In ₹) (In ₹) (In ₹) Current Liabilities 75,000
Outstanding Expenses 50,000 40,000 25,000 Paid up Share Capital 4,00,000
Prepaid Expenses 3,00,000 2,50,000 3,50,000 Statement of Profit & Loss (Dr.) 47,500
Trade Payables 18,00,000 16,00,000 14,00,000 Total Debt 2,50,000
Inventory 12,00,000 10,00,000 11,00,000 6. What is the Operating ratio?
Trade Receivables 11,00,000 8,00,000 10,00,000 (1) 75.62% (2) 75%
(3) 76.25% (4) 76%
Cash in hand 17,00,000 12,00,000 15,00,000
7. What is the quick ratio?
Revenue from operations 24,00,000 18,00,000 20,00,000
(1) 2.67:1 (2) 2.17:1
Gross Profit Ratio 12% 15% 18% (3) 2:1 (4) 3:1
1.
Current Ratio for the year 2020 will be_____.(Choose the 8. What is the Debt to Equity Ratio?
correct alternative) (1) 0.75:1 (2) 1:2
(1) 2 : 1 (2) 1.8 : 1 (3) 2:1 (4) 0.63:1
(3) 2.32 : 1 (4) 2.4 : 1
9. What is working capital turnover ratio?
2.
Quick Ratio for the year 2018 will be__________. (1) 8 times (2) 8.28 times
(Choose the correct alternative) (3) 7.28 times (4) 8.78 times
(1) 1.75 : 1 (2) 1.8 : 1
10. What is the current ratio?
(3) 0.94 : 1 (4) 1.25 : 1
(1) 2.93:1 (2) 2.99:1
3.
Inventory turnover ratio for the year 2020 will be______. (3) 2.89:1 (4) 2.02:1
(Choose the correct alternative)
(1) 1.62 times (2) 1.82 times
ANSWER KEY
1. (3) 2. (3) 3. (3) 4. (2) 5. (3) 6. (1) 7. (3) 8. (2) 9. (2) 10. (2)
11. (2) 12. (2) 13. (2) 14. (3) 15. (4) 16. (4) 17. (4) 18. (1) 19. (1) 20. (3)

1. (2) 2. (1) 3. (1) 4. (1) 5. (4) 6. (1) 7. (1) 8. (1) 9. (3) 10. (3)
1. (3) 2. (1) 3. (4) 4. (1) 5. (2) 6. (3) 7. (1) 8. (4) 9. (2) 10. (1)

[A] MULTIPLE CHOICE QUESTIONS is shown in that head. Finally, Money received against share
1. Option (3) is correct. warrant is the charge on share capital, so it will be shown under
Explanation: Operating Ratio is a measure of operational the Shareholder’s Fund in the balance sheet.
efficiency and is used to assess the company’s ability to manage 9. Option (2) is correct.
its operating expenses in relation to its net sales. Explanation: While making the notes to accounts for the
2. Option (3) is correct. Shareholders Fund in the Balance Sheet, it always starts with
Explanation: Current Maturities of long term debt will be Authorised Capital. Thereafter the Issued Capital is mentioned.
shown as a short term borrowings; Securities Premium will For the amount to be mentioned in the Balance Sheet, the
be shown in the Reserves and Surplus; Outstanding Salaries Subscribed and fully paid up capital and the subscribed but
are shown in Other Current Liabilities and Premium on not fully paid up capital is added. Finally, the Share Forfeited
redemption of debentures will be shown under the Other Non- Balance is shown in the notes to Accounts.
Current Liabilities. 10. Option (2) is correct.
3. Option (3) is correct. Explanation: While making the comparative Income
Explanation: This order ensures that the Balance Sheet presents Statement, the Revenue from operations is found out. To this,
a systematic and organized view of the company’s financial the other incomes are added to find the total income of the
position, withthe owner’s equity and long-term liabilities first, company. Then the expenses that has been incurred during that
followed by short-term liabilities and the company’s long-term particular year is subtracted to find out the Profit before Tax.
and short-term assets. Then the tax is deducted and finally the profit after tax is what
is remaining.
11. Option(2) is correct.
Explanation: Trade payables that are to be settled beyond
Explanation: Horizontal Analysis is the other name for
12 months from the date of the balance sheet or beyond the
Comparative Statement Analysis. Vertical Analysis is the other
operating cycle are classified as other long-term liabilities in the
name for Common Size Analysis. In Cash Flow Analysis a
financial statements of a company. These liabilities represent
Cash Flow Statement is made and for analyzing Ratios, various
obligations that are not due for settlement in the short term and
formulae are used.
are typically considered as part of the long-term financing of
the company.
Explanation: Report on stewardship and Basis of fiscal policies
are the advantages or importance of financial statements.
Explanation: The profitability of the company is analyed with 13. Option (2) is correct.
the help of the profitability ratios. In the list, only Dividend Explanation: Current Ratio and Acid Test or Liquid or Quick
payout ratio,Return on Net Worth and Gross Profit Ratio are Ratio are Liquidity Ratio. Debt to equity ratio, Total Asset
the profitability Ratio. Quick Ratio is a liquidity ratio and to Debt Ratio, Proprietary Ratio, Interest Coverage Ratio
Inventory Turnover Ratio is a performance ratio. and Debt to Capital Employed Ratio are Solvency Ratios.
6. Option (1) is correct. Inventory turnover Ratio,Trade Receivables Turnover Ratio,
Explanation: Interest charged is a finance cost and so is Trade Payable Turnover Ratio, Working Capital Turnover
shown as an expense in the statement of profit and loss. Sale of Ratio, Net Assets or Capital Employed Turnover Ratio and
services is a type of revenue from operations as it is done as a Fixed Asset Turnover Ratios are Performance or Activity or
normal day to day functioning of the business. Salary is a part Turnover Ratio. Gross Profit Ratio, Net Profit Ratio, Operating
of Employee benefit scheme as it is the remuneration paid to ratio, Return on Capital Employed or Investment, Operating
employees for the services that they have rendered. Dividend Profit Ratio are called Profitability Ratios.
Income forms the part of other incomes, as it is not the actual 14. Option (3) is correct.
way for a company to earn income. Explanation: Working Capital is the difference between
7. Option (3) is correct. Current Assets and Current Liabilities. Cash Revenue from
Explanation: Loose tools are considered part of the inventories Operations is used to calculate the Profit or loss earned during
category in the Balance Sheet of a company. Inventories the particular year.
include various items that a company holds for production, 15. Option (4) is correct.
trading, or provision of services. Loose tools fall under this Explanation: The sequence as per the Company’s Act 2013 is:
category as they are essential for day-to-day operations and are (2) Current Assets:
not intended for resale. (a) Current Investments
8. Option (2) is correct. (b) Inventories
Explanation: Non-current investment is not a current asset, so (c) Trade Receivables
is shown in the head of Fixed Assets. Inventories is the stock (d) Cash and Cash Equivalents
that is in hand, so it is a current asset. When we talk about
(e) Short-term Loans and Advances
the short-term provisions, it is a type of Current Liabilities, so
(f) Other Current Assets

17. Option (4) is correct. Explanation: Accounts Payables include Sundry Creditors,
Explanation: The amount which is not paid by defaulter Bills Payables and other liabilities of the company that it owes
shareholders is called ‘Calls-in-arrears’.This shows a debit to the suppliers, partners and employees. Thus, it is a Current
balance. It is shown under Shareholders’ Fund as deduction Liability. Hence, it is shown in the heading of Current Liabilities
from called up capital. in the Balance Sheet of the company.
Explanation: Explanation: All contingent liabilities are shown as a footnote
Trade R
eceivables Turnover ratio to the balance sheet and not inside the Balance Sheet.
Credit Revenue from Operations 6. Option (1) is correct.
=
Average Trade Receivers Explanation: Comparative statements allow for easier
Credit Revenue from Operations comparison of financial data from multiple periods, which
4= can help analysts identify trends and changes in financial data.
₹1,80,000
Credit Revenue from Operations = ₹1,80,000× 4 This makes it simpler to assess the financial performance of a
= ₹7,20,000 company over time.
Credit Revenue from Operations = 75% of Revenue from 7. Option (1) is correct.
Operations Explanation: Common size financial statements are useful for
₹7,20,000 = 75% of Revenue from Operations comparing the financial structure of different firms in different
industries. The ability to express items as a percentage of total
Revenue from Operations = ₹9,60,000
sales or revenue eliminates differences in scale, providing a basis
19. Option (1) is correct. for meaningful comparisons that are useful for benchmarking.
Explanation: Securities Premium is a type of reserve, so is 8. Option (1) is correct.
shown under Reserves and Surplus. Patents is an Intangible
Explanation: Comparative statements are an effective way to
Fixed Asset, that is it cannot be seen or touched. Short Term
analyse a company’s performance against industry benchmarks.
Loans and Advances will be redeemed by the company in the
By comparing a company’s financial data to the industry
short run so it is a current asset. Trade Payables include Sundry average, an analyst canidentify areas where the company is
Creditors and Bills Payable, which are Current Liabilities. under performing or outperforming.
Finally, Long Term Borrowings are the loans taken for a very
long term like Debentures, Bank Loans etc, so it forms the Non-
current Liabilities. Explanation: Operating Ratio + Operating Profit Ratio = 100
20. Option (3) is correct. Operating Ratio is computed to find the efficiency of the
management to generate revenue.
Explanation:
Revenue from Operaations × Gross Profit Ratio 10. Option (3) is correct.
Gross Profit =
100 Explanation: Solvency Ratio and not the Profitability ratios are
Revenue from Operaations × Gross Profit Ratio calculated to determine the ability of the business to service its
100 debt in the long run.
₹60,00,000 × 25
= [C] COMPETENCY BASED QUESTIONS
100
= ₹15,00,000 1.Option (3) is correct.
[B] ASSERTION REASON QUESTIONS Explanation:
1.Option (2) is correct. Current Assets = Prepaid Expenses + Inventory + Trade
Explanation: Financial statements are the end products of Receivables + Cash in hand
the accounting process which are prepared with the objective = ₹3,00,000 + ₹12,00,000 + ₹11,00,000 + ₹17,00,000
to provide information required for decision making by the = ₹43,00,000
management as well as other outsiders who are interested in the Current Liabilities = Outstanding expenses + Trade Payables
affairs of the undertaking.
= ₹50,000 + ₹18,00,000
= ₹18,50,000
Explanation: Debt to Equity Ratio being 2:1, is not considered
Current Assets ₹43,00,000
good as the company has twice as much as debt as it has its Current Ratio =
=
Current Liabilities ₹18,50,000
capital. The company could have an issue when they are about
to wind up. = 2.32:1
Explanation: The Balance Sheet of the company needs to Explanation:
show complete details of the share capital of the company. All Quick Assets = Trade Receivables + Cash in Hand
the authorised share, issued share, subscribed share, unpaid = ₹10,00,000 + ₹15,00,000
subscribed share are all shown in the notes to account section
= ₹25,00,000
of the Balance Sheet, as per Schedule III of the Companies Act,
2013. Current Liabilities = Outstanding Expenses + Trade Payables
= ₹25,000 + ₹14,00,000 ₹14,76,000

= ₹14,25,000 = = 1.41 times
₹10,50,000
Current Assets ₹25,00,000 6. Option (3) is correct.
Quick Ratio = = = 1.75 : 1
Current Liabilities ₹14,25,000 Explanation:
Operating Ratio =
Explanation:
₹12,00,000 + ₹10,00,000 Cost of Revenue from Operations + Expenses
Average Inventory =
× 100
2 Revenue from Operations
= ₹11,00,000 ₹9,00,000 + ₹15,000
= × 100 = 76.25%
Cost of revenue from operations =
₹24,00,000 - ₹2,88,000 ₹12,00,000
= ₹21,12,000 7. Option (1) is correct.
Inventory Turnover Ratio = Explanation:
Liquid Assets ₹2,00,000
Cost of revenue from operation Quick Ratio = = = 2.67 : 1
Average Inventory
₹21,12,000
= = 1.92 times Explanation:
₹11,00,000 Total Debt
4. Option (1) is correct. Debt to equity Ratio =

Shareholder's Fund
Explanation: Cost of revenue from operations = `24,00,000 - ₹2,50,000
= = 0.63 : 1
₹2,88,000 = ₹21,12,000 ₹4,00,000
Explanation: Explanation:
₹10,00,000 + ₹11,00,000
Average Inventory =
Working Capital Turnover Ratio
2 Revenue from Operations
= ₹10,50,000 =
Working Capital
Cost of revenue from operations ₹12,00,000
= ₹18,00,000 –18% of ₹18,00,000 = = 8.28 times
₹1,45,000
= ₹18,00,000 – ₹3,24,000 = ₹14,76,000 10. Option (1) is correct.
Inventory Turnover Ratio Explanation:
Cost of revenue from operation
= Current Assets = ₹20,000 + ₹2,00,000 = ₹2,20,000
Average Inventory
Current Assets ₹2,20,000
Current Ratio = = = 2.93 : 1
Study Time
7
Max. Questions: 40
STATEMENT OF
CHANGES IN
FINANCIAL
POSITION
Scan to know
 Revision Notes the financial structure of the more about
this topic
business. Cash Flow statement helps
Cash Flow Statement: Cash flow Scan to know in identifying the profitability of the
statement is a statement that shows more about
this topic business when compared with the
the flow of cash and cash equivalents
ratio analysis, keeping in response to
during a given period of time. Cash Flow Cash
changing condition. Flow from
Statement shows the net increase or net
Operating Activities: Operating Activities Operating,
decrease of cash and cash equivalents Investing and
Basics of are the main revenue generating Financing
under each activity, i.e., Operating, Cash Flow
activities of a business firm. Operating Activities
Investing, Financing and collectively as Statement
well. activities are those transactions and
events whose cash flows affect the net profit or loss of a
Objectives of Preparing Cash Flow Statement: A Cash
business firm.
Flow Statement has the following objectives:
Cash Inflows: Cash Sales, Cash received from trade
1. To depict inflows and outflows of
receivables, Cash received as commission, Cash received
cash, i.e., sources and uses of cash. Scan to know
more about as Commission, Cash received as Fees, Cash Received as
2. To facilitate formulation of financial this topic Royalty.
policies such as dividend policy, etc.
Cash Outflows: Cash Purchases, Payments to Trade
3. To ascertain the liquidity of the Payables, Cash Operating Expenses, Payment of wages,
enterprise. salaries, Income Tax Paid.
Cash Flow
4. To ascertain the net change in cash Statement Investing Activities: Investing Activities are those activities
Preparation
and cash equivalents. which are related to acquisition and disposal of long-term
5. To study the trend of cash receipts and cash payments. assets and other investments not included in the cash
equivalents.
Benefits of Cash Flow Statement
Cash Inflows: Sale of fixed Assets, Sale of Investment (Non-
• Cash Flow Statement is useful in knowing the exact current and current, other than marketable securities),
figure of cash inflows and outflows from various Interest received on Investments, Dividend received.
operations of the business. It helps in assessing future
requirements of the cash by comparing the cash budgets Cash Outflow: Purchase of Fixed Assets, Purchase of
of past assessments with the present. It gives the Investments (Non-current and current other than
accurate information about the cash-based transactions marketable securities)
in the business. Financing Activities: Financing Activities are those activities
• Cash flow statement helps in knowing the periodical that result in the changes in size and composition of the
requirement of cash in the business as it is used in owners’ capital (including Preference Share Capital in case
preparing the cash budget for future needs. of a company and borrowings of the business firm).
• A cash flow statement when used along with other Cash Inflow: Issue of Shares in Cash, Issue of Debentures
financial statements reveals the key changes required for Cash, Proceeds from Long-term Loans, Proceeds from
for the financial positioning of the business and Bank Overdraft or Cash Credit
priorities important activities to the management. Cash Outflow: Payment of Loans, Payment of Interest,
• Cash flow statement also provides the information Payment of Dividend, Buy-back of Equity Shares,
about various investing and financing cash transactions Redemption of Preference Shares, Redemption of Long-
prefix that place during the year and helps in evaluating term Loans, Repayment of Bank Overdraft and Cash
Credit.
Particulars Amount Amount
• Payment of Loans
• Issue of Shares in Cash
• Payment of Interest (A) Net Cash Flow from _
• Issue of Debentures in Cash Operating Activities
• Payment of Dividend
• Proceeds from Long-term Loans
• Buy back of Equity Shares (B) Net Cash Flow from
• Proceeds from Bank Overdraft _
• Redemption of Preference Shares Financing Activities
• Repayment of Long-term Loans
• Repayment of Bank Overdraft (C) Net Cash flow from _
Investing Activities
Ca
sh Net Increase or Decrease
Ou _
tfl
o in Cash and Cash Equivalents
w
• Cash Sales Add : Cash and Cash Equivalents _
s
• Cash received from Debtors at the beginning of the period
Cash Inflow
s
• Cash received as Commission Cash and Cash Equivalents at the
Cas _
STATEMENT OF CHANGES IN FINANCIAL POSITION
• Cash received as Fees hI end of the period

nf
• Cash received as Royalty lo
w
s
Financing
Activities
• Cash Purchase • Purchase of Fixed Assets

Operating ws
• Payment to Creditors u tflo
Activities O • Purchase of Investment
• Cash Operating Expenses Format sh
• Payment of Wages
Ca
s
• Income Tax Cash Outflow
Investing
Activities
Ca • Sales of Fixed Assets
sh • Sales of Investment
Inf l
ows • Interest Received
Objectives
• Dividend Received
• To ascertain the sources of cash and cash equivalents Trace the Mind Map
• To ascertain applications of cash and cash equivalents


• To ascertain net change in cash and cash equivalents
57

[A] MULTIPLE CHOICE QUESTIONS (3) It helps in making investing decision.
1.
Find out cash flow from financing Activities from the (4) It is useful in predicting claims on future cash flow by
following information. [CUET 2023] providers of funds to the enterprise.
7. Capital gain tax paid on sale of fixed assets should be
Issue of Equity Shares ₹ 80,000
classified as......
Redemption of Preference Shares ₹ 30,000 (1) Cash inflow from Operating Activities
Interim Dividend Paid ₹ 25,000 (2) Cash outflow from Operating Activities
Interest on Debentures ₹ 15,000 (3) Cash inflow from Investing Activities
Issue of Debentures ₹ 30,000 (4) Cash outflow from Investing Activities
(1) Inflow ₹ 80,000 (2) Outflow ₹ 80,000 8. Match List I with List II
(3) Inflow ₹ 40,000 (4) Outflow ₹ 40,000 LIST I LIST II
2. W Ltd. has given you following information: A. Cash Equivalents I. Interim Dividend Paid
Machinery (opening balance) ₹ 50,000 B. Financing Activities II. Selling and Distribution
Machinery (closing balance) ₹ 60,000 expenses paid
Accumulated Depreciation (opening balance) ₹ 25,000 C. Operating Activities III. Marketable Securities
Accumulated Depreciation (closing balance) ₹ 15,000 D. Investing Activities IV. Dividend received
During the year, a machine costing ₹ 25,000 with on Shares held as
accumulated depreciation of ₹ 15,000 was sold for ₹ 13,000. investment
Calculate Cash Flow from Investing Activity: [CUET 2023] Choose the correct answer from the options given below:
(1) 22,000 (2) (22,000) [CUET 2022]
(3) (35,000) (4) 13,000 (1) A – IV, B – I, C – II, D – III
3. Which of the following will be added to operating profit (2) A – III, B – I, C – II, D – IV
before working capital changes, while preparing Cash Flow (3) A – III, B – IV, C – II, D – I
statement from indirect method? [CUET 2023] (4) A – III, B – IV, C – I, D – II
(1) Increase in Trade Receivable by ₹ 80,000 9. If debentures are converted into equity shares, it is
(2) Decrease in Inventory by ₹ 50,000 a/an ______ :
(3) Increase in Prepaid Expenses by ₹ 30,000 (1) Inflow of cash (2) No flow of cash
(4) Decrease in Trade Payable by ₹ 20,000 (3) Outflow of cash (4) Cash and Cash Equivalents
4. C Ltd. made a profit of ₹ 10,000 after charging depreciation 10. If net profit made during the year are ₹50,000 and bills
of ₹ 2,000 on Assets, transfer to General Reserve ₹ 3,000. receivables have decreased by ₹10,000 during the year then
Written off Goodwill ₹ 700, Profit on sale of Asset ₹ the cash flow from operating activities will be:
300, increase in Debtors ₹ 300, increase in creditors ₹ [CUET 2022]
600, increase in prepaid expenses ₹ 20 and decrease in (1) ₹40,000 (2) ₹60,000
outstanding expenses ₹ 200. What will be the cash from
(3) ₹30,000 (4) ₹20,000
operating activities? [CUET 2023]
11. If the net profit earned during the year is ₹1,00,000 and the
(1) ₹ 15,500 (2) ₹ 15,480 amount of Bills Receivables in the beginning and the end of
(3) ₹ 5,000 (4) ₹ 16,000 the year is ₹20,000 and ₹40,000 respectively, then cash flow
5. A part of fixed assets costing ₹ 2,00,000 (Book value from operating activities will be: [CUET 2022]
1,50,000) was sold at a gain of ₹ 10,000. How will it affect (1) ₹60,000 (2) ₹1,00,000
the cash flow statement? [CUET 2023]
(3) ₹80,000 (4) ₹1,20,000
(1) Inflow ₹ 1,60,000 in Investing Activities and Add ₹ 10,000 12. Sale of Copy rights are considered as a part of:
in Operating Activities [CUET 2022]
(2) Inflow ₹ 1,60,000 in Investing Activities and less ₹ 10,000 (1) Investing activities
in Operating Activities (2) Financing Activities
(3) Inflow ₹ 2,10,000 in Investing Activities Add ₹10,000 in (3) Operating Activities
Operating Activities (4) Financing and Operating Activities
(4) Inflow ₹2,10,000 in Investing Activities and Less ₹10,000 13. Match List I with List II in context of Cash flow Statement:
in Operating Activities LIST I LIST II
6. Separate disclosure of cash flow arising from Financial
Activities is important because [CUET 2023] A. Sale of fixed Asset I. Outflow in operating
activities
(1) It helps in identifying the investment activities.
(2) It helps in gaining in investing activities. B. Purchase of Goodwill II. Inflow in Investing
Activities
STATEMENT OF CHANGES IN FINANCIAL POSITION 59
C. Tax Paid III. Outflow in Investing (1) ₹ 1,20,000 (2) ₹ 1,00,000

Activities (3) ₹ 80,000 (4) ₹ 40,000
D. Dividend Paid IV. Outflow in Financing 18. From the following information, find out Cash Outflow
Activities from Financing Activities.
C Year I Year II
[CUET 2022] Proposed Dividend ₹ 1,20,000 ₹ 1,50,000
(1) A – II, B – I, C – IV, D – III
12% debentures ₹ 4,00,000 ₹ 5,00,000
(2) A – II, B – III, C = I, D – IV
Additional Information:
(3) A – II, B – I, C – III, D – IV
Additional Debentures were issued at the end of the year.
(4) A – III,B – II, C – IV, D – I
Interim Dividend paid ₹ 50,000
14.
Preference Share Capital Issued ₹ 2,00,000
Balance Sheet (Extract)
(1) ₹ 82,000 (2) ₹ 2,08,000
31-03-2018 (₹) 31-03-2017 (₹) (3) ₹ 2,38,000 (4) ₹ 2,48,000
Liabilities 19. From the following Information, find out the Cash Flow
Fixed Assets 23,80,000 17,50,000 from Financing Activities.
Additional Information: Proposed Dividend
Depreciation on fixed assets was ₹ 2,00,000 for the year. 31st March, 2013 ₹ 20,000
How much amount for ‘Purchase of fixed assets’ will be
31st March, 2014 ₹ 15,000
shown in investing activity for cash flow statement prepared
Additional Information:
on 31st March, 2018?
(1) Outflow ₹ 8,30,000 (2) Inflow ₹ 42,600 Equity Share Capital raised ₹ 3,00,000
10% Debentures Redeemed ₹ 1,00,000
(3) Outflow ₹ 6,30,000 (4) None of these
15. Preference Share Capital Redeemed, ₹ 50,000
Balance Sheet (Extract) Interim Dividend paid during the year ₹ 20,000
Liabilities 31-03-2019 (₹) 31-03-2020 (₹) (1) ₹ 1,25,000 (2) ₹ 1,00,000
(3) ₹ 1,50,000 (4) ₹ 1,30,000
12% debentures 2,00,000 1,60,000
20. Which of the following transactions will not result into flow
Additional Information: of cash?

Interest on debentures is paid on half yearly basis on 30th (1) Issue of equity shares of ₹ 1,00,000
September and 31st March each year.
(2) Purchase of machinery of ₹ 1,75,000
Debentures were redeemed on 30th September,2019.
(3) Redemption of 9% debentures ₹ 3,50,000
How much amount (related to above information)will
(4) Cash deposited into bank ₹ 15,000
be shown in Financing Activity for Cash Flow Statement
prepared on 31st March, 2020? [B] ASSERTION REASON QUESTIONS
(1) Outflow ₹ 40,000 (2) Inflow ₹ 42,600 Directions: In the following questions, a statement of
assertion (A) is followed by a statement of reason (R). Mark the
(3) Outflow ₹ 61,600 (4) Outflow ₹ 64,000
correct choice as:
16. If 12% Preference share capital of ₹ 20,00,000 were
redeemed at a premium of 5%, while preparing Cash Flow (1) Both assertion (A) and reason (R) are true, and reason (R) is
Statement, Cash Flow will be: the correct explanation of assertion (A).
(2) Both assertion (A) and reason (R) are true, but reason (R) is
(1) Cash used in Financing Activities ₹ 22,40,000
not the correct explanation of assertion (A).
(3) Assertion (A) is true, but reason (R) is false.
(4) Assertion (A) is false, but reason (R) is true.
(4) Cash used in Financing Activities ₹ 21,00,000 1. Assertion (A): Depreciation is added to the net profit before
17. From the following information, find out the inflow of cash: tax.

Reason (R): Depreciation is a non-cash item which is an
31st March, 2015 31st March, 2014 expense.
Plant and ₹ 6,00,000 ₹ 4,50,000 2. Assertion (A): Buy-back of equity shares comes under
Machinery financing activities.
Account Reason (R): Financing activities are the activities which
Accumulated ₹ 1,60,000 ₹ 1,00,000 result in change in size composition of owner’s capital and
Depreciation borrow of the enterprise from other sources.
Additional Information: 3. Assertion (A): Sale of a fixed asset is shown under the
Depreciation for the year 2014-2015 is ₹ 80,000. investing activities.
During the year Machinery was purchased for₹ 2,50,000 Reason (R): Sale of fixed asset leads to inflow of cash.
and a part of asset was sold at a profit of₹ 40,000.
4. Assertion (A): Proceeds from issue of shares and 1. How will goodwill written off be adjusted in the cash
debentures are recorded in financing activity. flow statement?
Reason (R): Issue of shares and debentures are the cash (1) Added to the Net Profit Before Tax
inflow made to finance the company. (2) Subtracted the Net Profit before Tax
5. Assertion (A): A Cash flow statement shows inflow and (3) Not recorded in the Cash Flow
outflow of cash and cash equivalents from various activities (4) None of these
of a company during a specific period. 2. What will be the amount of Trade payables added to get the
Reason (R): The primary objective of cash flow statement Cash flow from operations?
is to provide useful information about cash flows (inflows (1) ₹51,000 (2) ₹30,000
and outflows) of an enterprise during a particular period (3) ₹21,000 (4) ₹ 31,000
under various heads, i.e., operating activities, investing 3. What amount of Trade Receivables will be subtracted from
activities and financing activities. the Cash flow Statement to get Cash flow from operations?
6. Assertion (A): ‘Cash Flows’ implies movement of cash in (1) ₹78,800 (2) ₹52,000
and out due to some non-cash items. (3) ₹3,000 (4) ₹26,800
Reason (R): Receipt of cash from a non-cash item is 4. Which of the following items will be adjusted to Net Profit
termed as cash inflow while cash payment in respect of before Tax?
such items as cash outflow.
(1) Trade Receivables
7. Assertion (A): Cash flow statement is prepared based on (2) Prepaid Expenses
accrual concept.
(3) Loss on sale of Fixed Asset
Reason (R): Cash flow statement is one of the tools of (4) Expenses Payable
financial statement analysis.
5. What will be the cash flow from operations?
8. Assertion (A): Depreciation charged is subtracted from the
(1) ₹5,85,000 (2) ₹5,77,500
Net Profit.
(3) ₹5,98,500 (4) ₹5,56,700
Reason (R): Depreciation is a non-cash item, which has
II.
Read the following hypothetical text and answer the given
been charged to the profit of the company.
questions 6 - 10:
9. Assertion (A): When goodwill is purchased it is subtracted
Krishika, an alumni of IIM Ahemdabad initiated her startup
from the cash flow from investing activities.
Krishika Ltd. in 2018. The profits of Krishika Ltd. in the year
Reason (R): Goodwill when written off is added to the 2019-20 after all appropriations were ₹ 31,25,000. This profit
cash flow from investing activities. was arrived after taking into consideration the following items:
10. Assertion (A): Payment of dividend is a financing activity.
Reason (R): Dividend is paid to the shareholders.
S.No. Particulars Amount (in ₹)
[C] COMPETENCY BASED QUESTIONS 1. Gain on sale of fixed 12,50,000
I. Read the following information and answer the given tangible assets
questions 1 – 5:
2. Goodwill written off 7,80,000
X Ltd. made a profit of ₹ 5,00,000 after consideration of the
3. Transfer to General Reserve 8,75,000
following items :
4. Provision for taxation 4,37,500
₹
Additional information:
(i) Goodwill written off 5,000
Particulars 31.3.2020 (₹ ) 31.3.2019 (₹ )
(ii) Depreciation on Fixed 50,000
Tangible Assets Prepaid Expenses 7,50,000 5,00,000
(iii) Loss on Sale of Fixed 20,000 Inventory 10,50,000 8,20,000
Tangible Assets Trade Payable 4,50,000 3,50,000
(Machinery)
Trade Receivables 6,20,000 5,90,000
(iv) Provision for Doubtful 10,000
6. Net Profit before Tax will be ____________.
Debts
(v) Gain on Sale of Fixed 7,500 (1) ₹22,50,000 (2) 35,62,500
Tangible Assets (Land) (3) 39,67,500 (4) 44,37,500
7. What will be amount of Prepaid Expenses to be added/
Additional information :
subtracted to the Operating Profit before working capital
Particulars 31.3.2019 (₹) 31.3.2018 (₹) changes?
Trade Receivables 78,800 52,000 (1) ₹2,50,000 add (2) ₹2,50,000 sub
Prepaid Expenses 3,000 2,000 (3) ₹7,50,000 add (4) ₹5,00,000 sub
Trade Payables 51,000 30,000 8. Operating profit before working capital changes will be
Expenses Payable 20,000 34,000 _______.
(1) ₹52,17,500 (2) ₹64,67,500 10. Cash flow from Operating Activities will be___________.
(3) ₹39,67,500 (4) ₹39,69,500 (1) ₹39,95,000 (2) ₹31,20,000
9. Cash from operating activities before tax will (3) ₹40,67,500 (4) ₹31,00,000
be__________.
(1) ₹35,57,500 (2) ₹40,67,500
(3) ₹37,87,500 (4) ₹35,67,300
ANSWER KEY
1. (3) 2. (2) 3. (2) 4. (2) 5. (2) 6. (4) 7. (4) 8. (2) 9. (2) 10. (2)
11. (3) 12. (1) 13. (2) 14. (1) 15. (3) 16. (4) 17. (1) 18. (1) 19. (2) 20. (4)

1. (1) 2. (1) 3. (2) 4. (1) 5. (1) 6. (2) 7. (4) 8. (4) 9. (3) 10. (2)

1. (1) 2. (3) 3. (4) 4. (3) 5. (4) 6. (4) 7. (2) 8. (3) 9. (1) 10. (2)

[A] MULTIPLE CHOICE QUESTIONS Proceeds from the Issue of 30,000
1. Option (3) is correct. Debentures
Explanation: Redemption of Preference (30,000)
Cash Flow Statement (Extract) Shares
Interim Dividend paid (25,000)
Particulars Amount Amount
Interest on Debentures (15,000)
(₹) (₹)
Cash Inflow from Financing 40,000
III. Cash flow from Activities
Financing Activities:
Proceeds from the Issue of 80,000
Shares
Explanation:
In the books of W Ltd.
Dr. Machinery Account Cr.
Date Particulars J.F. Amount (₹) Date Particulars J.F. Amount (₹)
To Balance b/d 50,000 By Bank A/c 13,000
To Profit on sale of 3,000 By Accumulated 15,000
Machinery A/c Depreciation A/c
To Bank A/c (Purchase 35,000 By Balance c/d 60,000
of machinery -
Balancing Figure)
88,000 88,000
ash Flow from Investing Activities =
C ₹13,000 − ₹35,000 = − ₹22,000
Explanation: Increase in trade receivables, increase in prepaid Explanation: The asset is sold at a profit of₹ 10,000, so the
expenses and decrease in trade payables will be subtracted as sale of fixed asset is ₹1,60,000(₹ 1,50,000 + ₹10,000).
all involve outflow of cash. This amount will be an inflow of cash in the investing activities.
4. Option (2) is correct. Thereafter, ₹ 10,000 being a profit on sale of fixed asset is to be
Explanation: Cash from operating activity = ₹ 10,000 + subtracted while finding the cash flow from operating activities.
₹3,000 + ₹ 2,000 + ₹ 700 – ₹ 300 –₹ 300 + ₹ 600 – ₹ 20 – ₹200
= ₹ 15,480
6. Option (4) is correct. cash. As fixed asset is an investment, so sale of fixed asset is
Explanation: Financing activity will be helpful for the an inflow of cash in investing activities. Purchase of Goodwill
investors to see how the company uses the finances of the leads to decrease in cash, that is, outflow of cash. As Goodwill
company, so that they can predict the future cash flows. is an intangible fixed asset, so purchase of goodwill will be
an outflow of cash in investing activities. Tax is paid due to
the operation in business and as it leads to the outflow of
Explanation: As the sale of fixed assets forms apart of cash, it is an outflow of cash in operating activities. Finally,
Investing Activities, so the capital gains tax paid on the sale Dividends are paid to the shareholders. Shares whether equity
of fixed assets should be classified as the cash outflow from or preference form a part of sources of finance for the business.
Investing Activities. Thus, payment of dividend will be the outflow of cash in
8. Option (2) is correct. financing activities.
Explanation: Marketable Securities are Cash Equivalents as 14. Option (1) is correct.
they can be easily converted into cash. Interim dividends are Explanation: Cash Outflow = Value of Fixed Assets on
paid on shares, so it forms the part of Financing Activities. 31/3/2018 - Value of Fixed asset on 31/03/2017 + Depreciation
Operating Activities deals with the normal operations of the
business; thus, it will include the selling and distribution = ₹ 23,80,000 - ₹ 17,50,000 + ₹ 2,00,000
expenses. Finally, as dividend is received on investment, thus = ₹ 8,30,000
the investment is a non-current investment, making it a part of 15. Option (3) is correct.
investing activities. Explanation:
Cash Flow from financing Activities
Explanation: As the debentures are converted to equity shares,
it means that there was no cash involved in such a transaction. Redemption of debentures = ₹40,000
In such a transaction, there is no flow of cash in any form, only Interest on Debentures = ₹21,000
new certificates of issue of shares are done to cancel out the ₹61,600
debentures.
12
10. Option (2) is correct. Interest on Debentures = ₹1,60,000 ×
+ ₹40,000
100
Explanation: Cash flow from operating activities
12 6
= ₹50,000 + ₹10,000 = ₹60,000 × ×
100 12
= ₹19,200 + ₹2,400
Explanation:
= ₹21,600
Net Profit before tax ₹1,00,000
Less: Increase in Bills Receivable ₹20,000
Explanation: Issue and Redemption of Shares is a financing
Cash flow from operating activities ₹80,000 activity. Redemption of shares is outflow of cash from
12. Option (1) is correct. financing activity.
Explanation: Copyright is a type of intangible fixed assets. Cash used in Financing Activity = 12% Preference Share
Sale of copyrights will not be affecting the operations of the Capital + Premium on Redemption of Debentures
business and neither does it finance the business. It will just = ₹ 20,00,000 + (5% of ₹ 20,00,000)
lead to the increase in cash due to some investing activity.
= ₹ 20,00,000 + ₹ 1,00,000
= ₹ 21,00,000
Explanation: When the fixed asset is sold, it leads to inflow of
Explanation:
Dr. Plant and Machinery Account Cr.

(₹) (₹)
To Balance b/d 4,50,000 By Bank A/c (Sale) 1,20,000
To Bank A/c (Purchases) 2,50,000 (Balancing Figure)
To Statement of Profit and Loss 40,000 By Accumulated Depreciation A/c 20,000
(Profit on Sale) By Balance c/d 6,00,000
7,40,000 7,40,000
Dr. Accumulated Depreciation Account Cr.

(₹) (₹)
To Plant and Machinery A/c By Balance b/d 1,00,000
(Depreciation on Plant & Machine By Depreciation A/c 80,000
sold) (Statement of Profit & Loss)
(Balancing Figure) 20,000
To Balance c/d 1,60,000
1,80,000 1,80,000
18. Option (1) is correct. disposal of long-term assets and other investments not included
Explanation: in cash equivalents.
Calculation of Net Cash Flow ₹
from Financing Activities: Explanation: A company issues shares, debentures, takes
loans etc, in order to raise finances in the company. Thus, these
Proposed Dividend Paid (1,20,000)
are recorded in the financing activity while preparing a cash
12% Debentures Issued 1,00,000 flow statement.
Interest Paid on Debentures (48,000) 5. Option (1) is correct.
Interim Dividend Paid (50,000) 6. Option (2) is correct.
Preference Share Capital Issued 2,00,000 Explanation: Cash Flows implies movement of cash in and
Net Cash Used in Financing 82,000 out with the daily transactions that occur in the business. It
Activities includes all the activities that is operating, financing and
investing activities.
Explanation:
Explanation: cash flow statement is prepared based on cash
Calculation of Net Cash Flow from ₹ concept.
Financing Activities: 8. Option (4) is correct.
Equity Share Capital raised 3,00,000 Explanation: Depreciation is added back to the profit and not
10% Debentures Redeemed (1,00,000) subtracted from it as it is a non-cash item, which was subtracted
Preference Share Capital Redeemed (50,000) from the gross profit to reach to the net profit of the company.
Interim Dividend paid (20,000)
Explanation: Goodwill written off is added to the net profit
Proposed Dividend paid (20,000)
before tax, as it is a non-operating activity which has been
Interest Paid on Debentures (10,000) charged to the profit.
Cash Flow from Financing Activities 1,00,000 10. Option (2) is correct.
20. Option (4) is correct. Explanation: Payment of dividend is a financing activity as it
is financial in nature and it is the return the shareholders get for
Explanation: Cash deposited into bank is simply the movement
the shares held by them in the company.
between items of cash and cash equivalents.
Explanation: It is a non-cash item, in cash flow statement it
Explanation: Depreciation is just an amount kept aside for the
shall be added back to net profit so as to come out at the cash
wear and tear of the fixed asset, so that it can be repurchased.
flow from operating activities.
It is a non-cash charge against the profit. Thus, in case of
calculation of cash flow, the non-cash items needs to be added 2. Option (3) is correct.
back before finding the operating profit. Explanation: ₹51,000 − ₹30,000 = ₹21,000
Explanation: Buying back of equity shares leads to the cash Explanation: ₹78,800 − ₹52,000 = ₹26,800
outflow. Plus as it affects the finances of the company that is 4. Option (3) is correct.
the composition of the owner’s capital and borrowing of an Explanation: Loss on sale of Fixed Assets is a non-operating
enterprise, it is an outflow of cash in financing activity. item. Rest all Trade Receivables and Prepaid expenses are
3. Option (2) is correct. current assets and Expenses Payable is a current liability, so
will be added/subtracted to the Operating Profit before working
Explanation: Investing activities means the acquisition and capital changes to get the cash flow from operations.

Explanation: Cashflow Statement (Extract)
Particulars Amount Amount Amount
(₹) (₹) (₹)
A. Cashflow from operating Activities
Net Profit before Tax 5,00,000
Adjustment for non-cash and non-operating items
Add: Goodwill written off 5,000
Add: Depreciation of Fixed Tangible Assets 50,000
Add: Loss on the sale of Fixed Tangible Asset (Machinery) 20,000
Add: Provision for doubtful debt 10,000 85,000
5,85,000
Less: Gain on Sale of Fixed Tangible Asset (Land) (7,500) (7,500)
Operating Profit before working capital changes 5,77,500
Add: Increase in Current Liabilities or Decrease in Current Assets
Increase in Trade Payables 21,000
5,98,500
Less: Decrease in Current Liabilities or Increase in Current Assets
Increase in Trade Receivables (26,800)
Increase in Prepaid Expenses (1,000)
Decrease in Expenses Payable (14,000) (41,800)
Cash flow from operating Activities 5,56,700
6. Option (4) is correct. + Goodwill Written off
Explanation: Net Profit before Tax = Profit after all = ₹ 44,37,500 – ₹ 12,50,000 + ₹ 7,80,000
Appropriations + Provision for Taxation + Transfer to General = ₹ 39,67,500
Reserve 9. Option (1) is correct.
= ₹ 31,25,000 + ₹ 4,37,500 + ₹ 8,75,000 Explanation: Cash from Operating Activities before Tax =
= ₹ 44,37,500 Operating Profit before Working Capital changes – Increase in
7. Option (2) is correct. Current Assets + Increase in Current liabilities
Explanation: As prepaid expenses is a current asset for the = ₹ 39,67,500 – ₹ 2,50,000 – ₹ 2,30,000 – ₹ 30,000 + ₹1,00,000
company, increase in it will be subtracted. Increase = ₹7,50,000 = ₹ 35,57,500
- ₹5,00,000 = ₹2,50,000 10. Option (2) is correct.
8. Option (3) is correct. Explanation: Cash flow from Operating Activities = Cash
Explanation: Operating Profit before Working Capital Changes from Operating Activities before tax – Tax paid = ₹35,57,500
= Net Profit before Tax – Gain on sale of Fixed Tangible Assets – ₹ 4,37,500 = ₹ 31,20,000
Computerised Accounting System
Course of Action
CHAPTER Max. Time: 50 mins.
1
Max. Question: 15
OVERVIEW OF
COMPUTERISED
ACCOUNTING SYSTEM
3. Accuracy: Computerised systems are renowned for their
 Revision Notes
precision. When the hardware, software, and data input
Computerised Accounting System (CAS)
are maintained correctly, CAS ensures accurate outcomes,
Computerised Accounting System (CAS) is a method of reducing the risk of errors in calculations and data entry.
maintaining financial records using computers. It encompasses
4. Reliability: CAS processes vast amounts of data, resulting
the processing of accounting transactions with the aid of
in reliable financial information. This reliability supports
hardware and software to create and preserve accounting
confident decision-making and financial analysis.
records and generate various accounting reports. CAS processes
5. Versatility: CAS and accounting software can perform a
accounting transactions via accounting software and produces
wide range of tasks. For instance, with just a few accounting
reports that include:
Scan to know entries, you can generate essential financial reports, including
 Day books /Journals more about
the trial balance, trading account, profit and loss account,
this topic
 Ledger balance sheet, and customized reports, simplifying financial
reporting.
 Trial balance
6. Transparency: CAS enhances transparency in day-to-
 Trading account day business operations, providing stakeholders with clearer
Computerised
Accounting insights into financial transactions. This transparency promotes
 Profit and loss account System
Introduction accountability and informed decision-making.
 Balance sheet, etc.
7. Scalability: CAS adapts to changing business sizes and
In accounting, a computer is commonly used in the following complexities. It can effortlessly process increasing volumes of
areas: data as an organisation grows, without the need for extensive
(a) Recording of business transactions system overhauls.
(b) Payroll accounting 8. Online Access: CAS offers online capabilities for storing
(c) Stores accounting, and and processing transactions and data. This feature allows users
(d) Generation of accounting reports to retrieve financial information and generate reports from
It's important to emphasise that the fundamental principles anywhere in the world with an internet connection, promoting
of accounting remain consistent, whether accounting records accessibility and flexibility.
are maintained manually or using computerised systems. The 9. Security: CAS ensures that only authorized users have
timeless concepts of debit and credit continue to apply in a access to sensitive accounting data. In contrast, manual
computerized accounting environment. accounting systems lack these security measures and are open
Features of computerised accounting system to inspection by anyone dealing with the books of accounts.
Computerised Accounting System (CAS) facilitates the Components of Computerised System
management and other users to maintain accounts and prepare
Components of CAS can be classified into six categories, namely,
financial statements using computers. The reports generated
through CAS are used to analyse the financial status of a business 1. Hardware
and take necessary decisions to strengthen the financial soundness 2. Software
of the business. The CAS possesses the following features: 3. People
1. Simplicity and Integration: CAS simplifies and integrates 4. Procedure
various business operations, including purchasing, sales,
5. Data
finance, inventory management, and manufacturing. It can
be further enhanced with features like a robust Management 6. Connectivity
Information System (MIS) and multi-lingual support, making 1. Hardware: Hardware encompasses the physical
business processes more accessible and cost-effective. components of a computer system. These components include
2. Speed: CAS operates at a significantly higher speed devices that allow input (such as a keyboard, mouse, and
compared to manual methods. It performs financial functions scanner) and devices that produce output (such as a monitor
swiftly, leading to increased efficiency and productivity within and printer). Hardware is essential for the functioning of the
the organisation. CAS as it processes and displays financial data and reports.
OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM 67
2. Software: Software comprises a collection of programs that satellites, infrared, Bluetooth, and microwave transmission,
act as intermediaries between the computer's hardware and its enable this sharing to occur, enhancing collaboration and data
users. There are two main types of software: accessibility among connected computers.
i. System Software: This category includes programs These components collectively form the foundation of a
responsible for internal operations like reading data from Computerised Accounting System, providing the necessary
input devices and ensuring the proper functioning of hardware tools and infrastructure for efficient financial data management,
components. Examples include the operating system (e.g., security, and accessibility, which are crucial for modern
Windows, Linux), programming software (e.g., C, Pascal), and businesses and organisations.
utility software (e.g., antivirus programs). Differences between manual and computerised
ii. Application Software: These programs are designed to accounting systems
perform specific tasks for users. General-purpose software, like
Manual Computerised
Microsoft Office, can handle various functions, while specific- Basis
accounting accounting
purpose software, such as payroll software, is customized for
particular needs. (i) Recording of Transactions Transactions are
transactions are recorded recorded using
3. People: The most vital element of a computer system is
manually. computers.
its users, often referred to as "live-ware." These individuals
interact with the system in different roles: (ii) Storage Transactions are Transactions are
i. System Analysts: These professionals design the operations stored in volumes stored in well-
of books. designed databases.
and processing of the computer system, ensuring it meets the
organisation's needs. (iii) Preparation of Ledger accounts, Once journal
ii. System Programmers: They are responsible for writing ledger accounts, trial balance entries are passed
code and creating programs to implement the system's trial balance and financial or subsidiary books
operations. and financial statements are entered, data
statements are prepared are processed
iii.System Operators: These individuals operate the CAS and
manually. automatically and
use it for various purposes, often referred to as end-users. They ledger accounts,
input data, run reports, and make use of the system to support trial balance and
business operations. balance sheet are
4. Procedure: Procedures are step-by-step instructions that automatically
guide the execution of specific functions and the attainment of prepared.
desired outcomes in the CAS. Within a computer system, there (iv) Preparation of Analysis Financial statement
are three main types of procedures: report of financial analysis such as
i. Hardware-Oriented Procedure: These procedures define statements and ratio analysis,
how hardware components function, ensuring they operate as preparation of preparation of cash
intended. report are to be flow statement, etc.
ii. Software-Oriented Procedure: This set of instructions done manually. is automatically
provides detailed guidance on how to use software applications done.
effectively. (v) Time involved It takes lot of time It saves lot of time.
iii.Internal Procedure: Internal procedures manage the overall as everything Time is taken only
operation of each part of the computer system by directing the from journalising for passing journal
flow of information between various components, ensuring to report entries or entering
smooth operation. generation is done data in subsidiary
manually. books. Once date are
5. Data: Data are the raw facts and figures that are input
entered, preparation
into the computer system for further processing. These
of ledger, trial
inputs are initially unprocessed but are interpreted using
balance, financial
machine language, stored in memory, classified for
statements or report
processing, and then produce results in accordance with
generation is done
the given instructions. Processed and useful data are known within seconds.
as information, which is used for decision-making in the
organisation. (vi) Cost involved The cost is The cost is less
high in manual compared to manual
6. Connectivity: Connectivity allows for the interconnection
accounting as accounting as all the
of multiple computers to facilitate the sharing of information
several books of records are kept in
and resources. This includes sharing files (data, music, etc.), account are to be soft copy.
sharing printers, and sharing facilities like internet access. maintained.
Various communication methods, such as wires, cables,
(vii) Retrieval of It becomes Retrieval of data is ongoing maintenance of accounting software can be
data difficult and flint easier as the records relatively expensive. Consequently, many businesses opt for
consuming to are kept in soft copy computerized accounting systems once they have reached a
retrieve data as in data base. By certain level of growth and financial stability.
several books giving instructions, 2. Skill and Expertise Requirements: Some business owners
have to be gone data can be retrieved prefer to maintain in-house control over their accounting
through. quickly. processes. As a result, they may choose to use manual accounting
systems until they have the resources and personnel with the
(viii) Accuracy Certain clerical If the input given is
necessary expertise to implement computerised accounting tools.
errors such as correct, the output
arithmetical, will also be correct. 3. High Costs of Installation and Training: The costs
error in carrying Arithmetical error, associated with accounting software can vary significantly
forward, etc., can error in carrying depending on the complexity and features of the software.
happen. forward will not Additionally, the expenses related to installation and training can
happen provided be substantial and may exceed the budget of some businesses.
the programming is 4. Potential Work-flow Disruption: The introduction of
correct. newer versions of both hardware and software can necessitate
(ix) Communication Communication It is easier and takes regular updates within the organisation. This often requires
of report of report takes lesser time. The employee retraining to ensure efficient use of the new tools.
time and it is report is in soft copy The process of reinstalling and retraining can disrupt work-
difficult as it and if online facility flow and business operations.
has to be done is available, it can 5. Job Insecurity: Adoption of computerised accounting
manually to be communicated to software can lead to fewer employees handling a larger volume
the users of the users very easily of work, potentially resulting in layoffs. Even without layoffs,
information. at any time and at employees might fear the possibility of losing their jobs due to
any place. automation.
6. Accuracy Concerns: The reliability of financial records
Advantages of Computerised Accounting System: depends on the accuracy of data inputted into the accounting
1. Enhanced Accuracy: Accounting errors are a common software. If the quality of the entered data is compromised,
challenge in businesses, but accounting software is designed to the software may produce erroneous or misleading accounting
identify and rectify these errors before they affect the company's information, adhering to the principle of 'garbage-in, garbage-
records, making it more accurate than manual systems. out.'
2. Simplicity: Regardless of a company's size, accounting 7. Increased Fraud Risks: Storing financial data in the cloud
software is user-friendly and easy to use. This ensures that even exposes it to potential security breaches by skilled hackers.
new employees can quickly grasp how to operate the system Such breaches can jeopardize a company's assets, posing
and record financial transactions. greater risks to its financial integrity.
3. Financial Report Precision: Accounting software is 8. Technical Vulnerabilities: The functionality of accounting
engineered for complete accuracy. Companies can rely on their
software might be compromised in cases where a business
financial reports to be error-free, enabling managers to make
faces technical issues like frequent power outages or computer
prompt decisions based on the accounting data.
virus attacks, impacting its reliability and usability.
4. Standardized Financial Reporting: The use of accounting
Types of Computerised Accounting Software
software ensures consistent financial statements over time.
These reports are invaluable for comparing a company's Multiple accounting software programs are used by
financial performance over the years or when evaluating professionals across the globe. They can be classified into three
similar businesses in the same industry. types, which are -
5. Enhanced Control: CAS empowers management to 1. Readymade Software: Readymade accounting software
exert greater control over its operations. This is especially is designed for general users and doesn't include specific
advantageous for larger companies with multiple departments. features tailored to a particular category of users. It is ideal
All essential information is readily accessible with a simple for businesses with relatively low accounting workloads.
click, facilitating better decision-making. Readymade software typically has low system requirements, is
6. Seamless Integration: Most accounting systems are cost-effective, and offers an easy learning curve.
designed to integrate smoothly with other crucial accounting 2. Customised Software: Customised accounting software is
tools, including online banking services. This integrated derived from readymade software but has been modified to meet
approach streamlines business processes and enhances the specific requirements of a particular user or organisation.
operational efficiency. It is commonly used by large and medium-sized enterprises.
Disadvantages of Computerized Accounting System: While the installation expense is relatively higher, the main
1. Initial Costs: While CAS simplifies book-keeping cost lies in ongoing maintenance. Users may also need to pay a
and reduces accounting service expenses, the setup and customisation fee to the software vendor. Customised software
offers benefits like enhanced data security and confidentiality, Accounting Information System (AIS)
but users must undergo proper training to use it effectively. An Accounting Information System (AIS) involves the
3. Tailor-Made Software: Tailor-made accounting software is collection, storage, and processing of financial and accounting
developed exclusively for specific businesses and is an integral data used by internal users to report information to investors,
part of their Management Information System (MIS). These creditors, and tax authorities. It is generally a computer-based
programs are typically designed for large-scale enterprises and method for tracking accounting activity in conjunction with
require specialized training for users to operate them accurately information technology resources. An AIS combines traditional
and efficiently. accounting practices, such as the use of Generally Accepted
Structure of a Computerised Accounting System: Accounting Principles (GAAP), with modern information
1. Database Management System (DBMS): CAS is technology resources.
structured around a database management system that stores Accounting Information System (AIS) and its various subsystems
and organizes accounting data. It provides a structured format may be implemented through the Computerised Accounting
for storing transaction records. System (CAS). Such a system of AIS is described below.
2. User Interface: CAS features a user-friendly interface that 1. Cash and Bank sub-system: Receipts and payments of cash
allows users to input, retrieve, and manage financial data. This 2. Sales and Accounts Receivable sub-system: Maintaining of
can include graphical user interfaces and dashboards. sales and Receivables ledgers.
3. Data Files: Data files within CAS store various types of 3. Inventory sub-system: Purchase and sale of goods, Specifying
financial data, such as general ledgers, accounts payable, the price, quantity, and date.
accounts receivable, and payroll records. 4. Purchase and Accounts Payable sub-system: Maintaining of
4. Reports and Outputs: CAS generates financial reports, purchase and payable ledgers.
including balance sheets, income statements, cash flow 5. Pav Roll Accounting sub-system: Payment of salaries and
statements, and various management reports. wages.
5. Chart of Accounts: A critical component that organizes 6. Fixed Assets Accounting sub-system: Purchases, additions,
sales and usage of fixed assets.
financial transactions into categories and accounts for reporting
and analysis. 7. Expense Accounting sub-system: Various types of expenses.
6. Security and User Access Controls: CAS includes 8. Tax Accounting sub-system: Deals with GSTIN, Income
mechanisms to control user access to different parts of the Tax etc.
system, ensuring data security. 9. Final Accounts sub-system: Preparation of nil accounts.
7. Integration with Other Systems: For larger organizations, 10. Costing sub-system: Ascertainment of cost of goods
CAS may be integrated with other business systems such as produced.
inventory management or customer relationship management
11. Budget sub-system: Preparation of budgets.
(CRM).
12. Management information sub-system (MIS): Preparation
8. Data Backup and Recovery: CAS includes features for
of reports that are vital for management decision making.
regular data backup and recovery to prevent data loss.
Cash and Bank

Management sub system Sales & Accounts
Information sub Receivable sub
system system
Budget sub Inventory sub

system system
Accounting Purchase &

Costing sub Information system Accounts Payable
system
sub system
Final Accounting PayRroll

sub system Accounting sub
system
Tax Accounting Fixed Assets
sub system Accounting sub
Expense
Accounting sub system
system

1. What is a Computerised Accounting System (CAS)? (2) To reduce data entry errors
(1) A system used to count physical inventory. (3) To recover data in case of loss or corruption
(2) A manual accounting system. (4) To create multiple copies of the same data
(3) An automated system to record financial transactions. 9. What does the acronym ERP stand for in the context of
(4) A system to calculate tax returns. Computerised Accounting Systems?
2. Which of the following is NOT a type of Computerized (1) Electronic Reporting Platform
Accounting System? (2) Efficient Resource Processing
(1) Enterprise Resource Planning (ERP) (3) Enterprise Resource Planning
(2) Spreadsheet software (4) Effective Revenue Processing
(3) Online banking 10. What is the purpose of a chart of accounts in a Computerised
(4) Stand-alone accounting software Accounting System?
3. Which feature of a Computerised Accounting System (1) To track inventory levels
allows for quick and accurate data entry? (2) To create invoices
(1) Data encryption (3) To organize and categorise financial transactions
(2) Data validation (4) To perform payroll calculations
(3) Data backup 11. If an organisation wants to develop a computerised
(4) Data reconciliation accounting system according to its needs as the business of
4. Which type of Computerised Accounting System integrates the organisation is complex, which software it should opt
various business processes like HR, inventory, and finance for?
into a single system? (1) Ready to use software
(1) Spreadsheet software (2) Customised software
(2) Stand-alone accounting software (3) Tailor-made software
(3) Enterprise Resource Planning (ERP) (4) None of these
(4) Online banking 12. What are the advantages of tailor-made software?
5. Which of the following is a primary feature of a
(1) These are ready-made software
Computerised Accounting System?
(2) Low cost
(1) Manual data entry
(3) High secrecy of data
(2) Data redundancy
(3) Real-time financial reporting
13. What type of Software is an Accounting Package?
(4) Limited storage capacity
(1) System Software
6. What is the structure of a Computerised Accounting
System based on? (2) Application Software
(1) Physical architecture of the computer (3) Utility Software
(2) Database management system (4) Basic Software
(3) Software development tools 14. The components of computerised accounting system are:
(4) None of the above (1) Data, Report, Ledger, Software, Hardware
7. Which type of Computerised Accounting System is (2) Software, Hardware, People, Procedure, Data
typically used by small businesses and individuals for (3) Data, Coding, Procedure, Objective, Output
basic financial tracking? (4) People, Procedure, Hard ware, software
(1) Enterprise Resource Planning (ERP) 15. _______________________ refers to the system of
(2) Online banking recording, organising, summarising, analysing, interpreting
(3) Spreadsheet software and communicating the financial data of a business.
(4) Stand-alone accounting software (1) Manual Accounting
8. What is the purpose of data backup in a Computerised (2) Computerised Accounting
Accounting System? (3) Auditing
(1) To prevent data from being accessed by unauthorised (4) Human Resource Accounting
users
ANSWER KEY
1. (3) 2. (3) 3. (2) 4. (3) 5. (3) 6. (2) 7. (3) 8. (3) 9. (3) 10. (3)
11. (3) 12. (3) 13. (2) 14. (2) 15. (2)

Explanation: Data: A Computerized Accounting System Explanation: For an organization with complex business
(CAS) is an automated system used to record, store, and manage operations, tailor-made software is the most suitable choice.
financial transactions and accounting data electronically. It is specifically designed to meet the unique requirements of
2. Option (3) is correct. the organization, ensuring it aligns perfectly with the complex
Explanation: Online banking is a service provided by banks accounting needs. This type of software is highly customized
and financial institutions and is not a type of Computerized and often integrated into the organization's Management
Accounting System. Information System (MIS).
Explanation: Data validation in CAS ensures that the data Explanation: Tailor-made software is known for its high data
entered is accurate, consistent, and follows predefined rules. security and confidentiality. Since it's designed for a specific
4. Option (3) is correct. organization, it offers a higher level of control and protection
Explanation: ERP systems integrate various business processes, over sensitive financial data, making it a preferred choice for
including accounting, into a single system for better coordination. organizations with stringent data security requirements.
Explanation: Real-time financial reporting is a key feature of
CAS, allowing for up-to-date financial information. Explanation: An Accounting Package is considered application
6. Option (2) is correct. software. Application software is designed to perform specific
Explanation: The structure of a CAS is based on the database tasks or functions for end-users, in this case, accounting-related
management system used to organize and store accounting data. functions.
Explanation: Spreadsheet software like Microsoft Excel is Explanation: The components of a computerized accounting
often used for basic financial tracking by small businesses and system include software (accounting software), hardware
individuals. (computers and devices), people (users and operators),
8. Option (3) is correct. procedures (step-by-step instructions), and data (financial
Explanation: Data backup is essential for data recovery in case information). These elements work together to enable efficient
of loss or data corruption. and accurate accounting processes.
Explanation: ERP stands for Enterprise Resource Planning,
Explanation: Computerized accounting involves using
which integrates various business processes into a single system.
software and technology to handle financial data, making
the process more efficient and accurate compared to manual
Explanation: The chart of accounts in CAS is used to organize
accounting.
and categorize financial transactions for reporting and analysis.

Course of Action
CHAPTER Max. Time: 50 mins.
2
USING
Max. Question: 15
COMPUTERISED
ACCOUNTING
SYSTEM
testing to confirm that all features and functionalities are
 Revision Notes Scan to know
more about
operating correctly. Additionally, users who will be utilising
STEP IN INSTALLATION OF CAS this topic
the accounting software should receive training to familiarise
Installing CSA involves several steps to themselves with the software's interface, features, and best
ensure a successful installation. practices, ensuring its effective use.
1. Initial Preparation: Before initiating Grouping of accounts:
Using
the installation process, it is essential to Computerised In any organisation, the primary unit of account classification
Accounting
prepare the system. This involves verifying System is the major head, which is subsequently subdivided into minor
that the computer meets the hardware and heads. Each minor head may further include several sub-heads.
software prerequisites specified by the accounting software. It
Once the accounts are categorised into various groups, such as
is important to ensure that the computer has adequate storage
major, minor, and sub-heads, and assigned unique codes to each
space available.
account, they are integrated into the computer system. Proper
2. Software Procurement: The next step involves obtaining codification necessitates a methodical organisation of accounts.
the accounting software from a reputable source. This can be The major groups or heads typically encompass categories like
done by purchasing the software from an authorised vendor
Assets, Liabilities, Revenues, and Expenses. The sub-groups
or by downloading it from a trusted website. It is imperative
or minor heads may include divisions such as capital, non-
to confirm that the software is compatible with the computer's
operating system. current liabilities, current assets, sales, and more. In essence,
the fundamental classification of different accounts within a
3. Data Backup: In preparation for the installation, it is of
transaction is carried out by applying the accounting equation.
paramount importance to perform a comprehensive backup
of all critical data and files on the computer. This precaution Assets = Liabilities + Capital + (Revenues – Expenses)
ensures that in the event of unexpected issues during Each component of the above equation can be divided into
installation, data can be restored without any loss or damage. groups of accounts as follows:
4. Installation Procedure: - Locate the installation file for A. Liabilities and capital
the software, which can either be downloaded or from a disc, Capital
and insert it into the computer's CD/DVD drive. - Initiate  Capital
the installation process by double-clicking on the setup  Reserves and surplus
file. - Follow the step-by-step instructions provided by the
Non-Current Liabilities
installation wizard. - Choose the preferred installation location
and, if prompted, create a shortcut on the desktop. - Carefully  Long-term borrowings
review and accept the terms and conditions outlined in the  Other long-term liabilities
license agreement. - Allow the installation process to run to Current liabilities
completion, which may take a few minutes.  Short-term borrowings
5. Registration and Activation: After the installation is  Trade payables
completed, some accounting software may require registration  Other current liabilities
and activation. This typically involves entering a valid license
B. Assets
key or serial number to unlock the software's full functionality.
Users should follow the software's instructions to complete the Fixed tangible assets
registration and activation process.  Land and building
6. Customisation: Following successful installation and  Plant and machinery

activation, it's time to configure the accounting software to align  Furniture and fixtures
with the specific needs of the organisation. This entails setting up Intangible assets
user accounts, entering company information, defining the chart  Goodwill
of accounts, configuring tax rates, and adjusting other relevant  Copyright
settings to tailor the software to the organisation's requirements.
 Patents
7. Testing and Training: Before fully integrating the software
Current Assets
into regular operations, it is advisable to conduct initial
 Short-term investments
USING COMPUTERISED ACCOUNTING SYSTEM 73
 Inventories specific documents. Since the codes are assigned in numerical

 Trade receivables or alphabetical order, they provide a systematic and organized
 Cash and cash equivalents way to identify and retrieve documents when needed. For
 Short-term loans and advances example:
 Other current assets Code Accounts
C. Revenues CL001 ABC LTD
 Sales CL002 XYZ LTD
 Other income CL003 SCERT
D. Expenses (b) Block codes
 Material consumed In a block code, a set of numbers is divided into distinct sub-
 Wages
ranges, and each sub-range is allocated to a particular group or
category. Block codes are often used to systematically categorize
 Manufacturing expenses
and organize data. Within each of these sub-ranges, the numbers
 Depreciation
are typically assigned in a sequential order, where each number
 Administrative expenses
follows the previous one in a consecutive manner. This sequential
 Interest coding scheme within the sub-ranges helps maintain an orderly
 Selling and distribution expenses, etc. structure and makes it easier to manage and identify data within
Codification of accounts each group. For example:
Codification of accounts is the process of assigning Code Dealer type
unique identification codes to different account heads in 100 – 199 Small pumps
an organisation. This practice is commonly employed in 200 – 299 Medium pumps
computerised accounting systems. The need for codification 300 – 399 Pipes
arises when there are a large number of account heads in an 400 – 499 Motors
organisation. This coding system establishes a hierarchical (c) Mnemonic codes
relationship between account groups and their respective
A mnemonic code is a coding system that employs alphabets
components, ensuring that the structure is maintained.
or abbreviations as symbols to represent and encode specific
The coding scheme for account heads should be designed in a pieces of information. This method is often used to create
way that facilitates the grouping of accounts at various levels, memorable and easy-to-recall codes that aid in quickly
allowing for the generation of various reports and financial retrieving or understanding information without the need for
statements. This systematic approach to codification aids in numerical or complex coding systems. For example:
organising financial data and streamlining the reporting process, Code Information
making it more efficient and comprehensible. For example, the SJ Sales Journals
codes for various accounts may be allotted as follows:
HQ Head Quarters
i. Liabilities and Capital
METHODOLOGY TO DEVELOP CODING
ii Assets STRUCTURE AND CODING
iii. Revenues Let us expect that we should do coding for students in considered
iv. Expenses one of seven colleges run through a trust. The first step is to
Under Liabilities and Capital broaden a coding structure (scheme), in an effort to be used to
i. Capital develop individual codes for every student. The development
ii. Non-current liabilities of coding structure calls for the identification (finalisation) of
iii. Current liabilities a hierarchy of training devices and that of diverse attributes
Under Assets (parameters) related to a student. A hierarchy in such a state of
affairs will be as follows:
i. Non-current assets
Trust → College → Entry-year → Stream → Class →
ii. Current assets
Section → Student
The above codification scheme utilises the hierarchy present in
Data Entry:
the grouping of accounts. A major advantage of such coding is
that if the account codes are listed in ascending order, these will Data entry is the process of transcribing information into an
be automatically listed as per the desired hierarchy. electronic medium such as a computer or other electronic device.
It can either be performed manually or automatically by using a
Methods of codification
machine or computer. Most data entry tasks are time-consuming
Following are the three methods of codification.
in nature, however, data entry is considered a basic, necessary
(a) Sequential codes task for most organisations.
A sequential code is a system where numbers and/or letters Data entry is considered a non–core process for most
are assigned in a consecutive or sequential order. These organisations and is usually performed on data forms such as
codes are typically used for labeling source documents like spreadsheets, handwritten or scanned documents, and audio or
cheques, invoices, and similar items. The primary purpose video. Addition, modification and deletion are the three modes
of a sequential code is to make it easier to track and locate of operation in data entry.
Main Data Entry Tasks Data Validation

While the most popular data entry task is copying and pasting Data validation in Excel is a feature that allows you to control
information from one source to a database, there are also several the type of data entered into your worksheet. For example,
other more specific tasks that a data entry employee can manage. Excel data validation allows you to limit data entries to
Data Tagging a selection from a dropdown list and to restrict certain data
The process of tagging adds a short piece of information or entries, such as dates or numbers, outside of a predetermined
description to an item, allowing it to be indexed, searched on a range. Data validation can also help you control formulas and
database, browsed in a catalogue, classified, etc. If a company the input from those formulas. You can even craft custom
has big data to tag, they would usually outsource the data entry
Excel data validation messages that help guide users toward
process as it can be very time-consuming.
the right data entry when they hit a limit. As a result, Excel data
Data Annotation
validation helps reduce the amount of unstandardised data,
This is the process of selecting the data, framing or highlighting it
errors, or irrelevant information in your worksheet.
and then labelling it. It is used to annotate all types of data, such
as pictures, audio, sounds, text, etc. Data annotation is usually It’s a helpful feature, especially when widely sharing an Excel
used to analyse big data with the help of automation and machine worksheet with others for completion. Many data analysts find
learning. The software that uses machine learning will recognise data validation in Excel to be beneficial when they are working
 the annotations with many users or with strict guidelines in data entry. In addition,
 find patterns data validation in Excel can help save analysts valuable resources
 learn more about the data that are spent when the data isn’t input correctly. Overall, data
 make predictions validation in Excel is a beneficial feature, but even beneficial
 and be more accurate in general.
features have limitations that can impede its ability to help users.
Data Capture Data Validation Form
This is the process of capturing, recording and collecting data To input data into a spreadsheet, often we type the data into
and information to be later used or processed by a machine. Data cells directly. That’s where data validation comes in handy.
capture can be performed manually by a data entry employee or Instead of typing the same thing again and again, we can enter
automatically by software. data into cells using drop-down lists or using data input form.
Some technologies used for capturing data are Using a data form can make data entry easier than moving from
 Optical Character Recognition (OCR) tools column to column when we have more columns of data than
 Intelligent Character Recognition (ICR) can be viewed on the screen.
 Optical Mark Reading (OMR). Data Formatting
Data Transcription Data formatting is a crucial step in data preparation and analysis,
When the source of data or information is an audio/video file as it can greatly affect the quality and usability of the data.
that needs to be converted to text, the process is referred to Whether you’re preparing a report, working with spreadsheets,
as data transcription. As the name suggests, it is the process or creating data visualisations, understanding and applying
of transcribing audio and voice files. Another feature of data appropriate data formatting techniques is essential for effective
transcription is adding subtitles or even captions to the videos.
data communication and decision-making.
Speech recognition or automatic subtitling can also be used to
Security Features of CAS
aid data transcription in cases when a fast solution is needed.
Yet, machines are not fully able to provide a 100% accurate Every accounting software ensures data security, safety, and
transcription and they cannot substitute human labour. confidentiality by providing features like Password Security,
Data Logging Data Audit and Data Vault.
This is the process of recording and collecting data to be stored for 1. Password Security: The use of a password is the gateway
a specific time-frame for later analysis. Data logging is used for to access the system. A computerized accounting system
discovering trends, recording parameter information, behaviours, safeguards business data from unauthorized access. Only
activity, etc. It is often used for scientific purposes or as an IT individuals granted access with the correct password can enter
solution for monitoring networks and systems. This process is the system.
almost always performed by a machine rather than a human.
2. Data Audit: This functionality allows users to track and
Data Processing
monitor changes made to the original data. It plays a crucial
After the data has been collected, the data can be processed
role in identifying who made alterations and what specific
for several purposes. The main reason for processing data is to
changes were made. This feature is essential for accountability
analyse it and to produce reports. Data processing can also be
used for storage, archiving, organisation, classification, etc. and maintaining data integrity.
Data Cleansing 3. Data Vault: The software offers an added layer of security
This process is used to organise and correct information stored through data encryption. Encryption involves the transformation
in a database, identify duplicates, errors, outdated information, of data in a way that renders it indecipherable, making it
and delete irrelevant data. Data Cleansing is used as a form of impossible for unauthorised parties to interpret. This method
database maintenance and update. ensures that sensitive data remains confidential and secure.

[A] MULTIPLE CHOICE QUESTIONS Choose the correct option:
1. Accounting Packages are developed on the basis of: (1) A-III, B-I, C-IV, and D-II
(1) Accounting concepts (2) A-IV, B-I, C-II, and D-III
(2) Accounting conventions (3) A-I, B-IV, C-III, and D-II
(3) Both Accounting concepts and Conventions (4) A-IV, B-I, C-III, and D-II
(4) None of the above 9. What is the first step in the installation of a Computerised
2. Grouping of Accounts means the classification of data Accounting System (CAS)?
from: (1) Data entry
(1) Assets, Capital, and Liabilities (2) Data validation
(2) Assets, Capital, Liabilities, Revenues & Expenses (3) Preparation of chart of accounts
(3) Assets, Owners equity, Revenue & Expenses (4) Adjusting entries
(4) Capital, Liabilities, Revenues & Expenses 10. Which step in the accounting process involves adjusting
3. Codification of Accounts required for the purpose of: entries to ensure accurate financial reporting?
(1) Hierarchical relationship between groups and components (a) Data entry
(2) Data processing faster and preparing of final accounts (b) Data verification
(3) Keeping data and information secured (c) Closing entries
(4) None of the above (d) Data validation
4. The need of codification is: 11. In a Computerised Accounting System (CAS), which of
(1) Easy to process data the following is responsible for ensuring the accuracy and
(2) Keeping proper records integrity of data entered?
(3) The generation of block codes (1) Data verification
(4) The encryption of data (2) Data entry
5. Method of codification should be: (3) Data validation
(1) Such that it leads to grouping of accounts (4) Data processing
(2) An identification mark 12. What is the purpose of opening entries in the accounting
(3) Easy to understand and leads to grouping of accounts process?
(4) None of the above (1) To begin a new accounting period
6. Which type of codes are usually assigned to source (2) To close the books at the end of the year
documents for facilitating document search? (3) To verify data accuracy
(1) Range Codes
(4) To prepare financial statements
(2) Mnemonic Codes
13. Which of the following steps involves the actual input of
(3) Block Codes financial data into the CAS?
(4) Sequential Codes
(1) Data validation
7. Which of the following is a step in installation of CAS?
(2) Data verification
(1) Selection of Hardware and Software
(2) Planning (3) Data processing
(3) Generation of Reports (4) Codification
(4) All of the above. 14. What is the primary purpose of a hierarchy of account
8. Match List I with List II: heads in CAS?
(1) To simplify data entry
List I List II (2) To enhance data validation
(A) Record of inflow and (I) Accounting equation (3) To organize accounts in a structured manner
outflow of resources (4) To prevent data verification errors
(B) Equality of assets and (II) Encryption 15. What is the primary purpose of closing entries in a
liabilities Computerised Accounting System (CAS)?
(C) Codification (III) Hierarchy (1) To end the accounting process
(2) To open a new accounting period
(D) Difficult interpretation of (IV) Transaction (3) To calculate the company's income
information
(4) To reset revenue and expense accounts to zero
ANSWER KEY
1. (3) 2. (2) 3. (1) 4. (4) 5. (3) 6. (4) 7. (4) 8. (4) 9. (3) 10. (3)
11. (1) 12. (1) 13. (2) 14. (3) 15. (4)

[A] MULTIPLE CHOICE QUESTIONS locate documents by their assigned numerical or sequential
1. Option (3) is correct. order.
Explanation: Accounting packages, or accounting software, are 7. Option (4) is correct.
developed based on both accounting concepts and accounting Explanation: All these steps are vital components of the CAS
conventions. Accounting concepts provide the fundamental installation process, collectively ensuring a comprehensive
principles and guidelines for preparing financial statements, setup that aligns with the organisation's needs and facilitates
while accounting conventions are generally accepted practices efficient accounting operations.
and rules that are followed in accounting. Both concepts and 8. Option (4) is correct.
conventions are essential in designing accounting software to Explanation:
ensure that financial transactions are recorded and reported A. Transactions represent the record of inflow and outflow of
accurately. resources within an accounting system.
2. Option (2) is correct. B. The accounting equation reflects the fundamental balance
Explanation: Grouping of accounts refers to the classification between a company's assets and liabilities.
of data into categories. In accounting, accounts are grouped C. Codification refers to the process of assigning codes
into various categories, which typically include assets, capital, or categories in a hierarchical structure for organised data
liabilities, revenues, and expenses. This grouping helps in management.
organizing financial data, making it easier to understand, D. Encryption involves encoding data to protect sensitive
analyze, and prepare financial statements. information, potentially making interpretation difficult without
3. Option (1) is correct. decryption keys or methods.
Explanation: Codification of accounts involves assigning 9. Option (3) is correct.
specific codes or numbers to different accounts in the chart of Explanation: The first step in installing a CAS is to prepare
accounts. This is done primarily for the purpose of establishing a chart of accounts, which involves defining the accounts and
a hierarchical relationship between groups and components their categories for organising financial data.
within the accounting system. It helps in organizing accounts 10. Option (3) is correct.
in a structured manner, making data processing more efficient Explanation: Closing entries are made at the end of an
and aiding in the preparation of final accounts. accounting period to adjust accounts and prepare the financial
4. Option (4) is correct. statements.
Explanation: The primary need for codification in accounting 11. Option (1) is correct.
is to ensure the encryption of data. This means that codifying Explanation: Data verification involves checking data for
accounts helps keep financial data and information secure by accuracy and consistency to ensure that it is correct and reliable.
assigning codes or numbers to various accounts and financial 12. Option (1) is correct.
transactions. It doesn't directly relate to data processing but Explanation: Opening entries are made at the start of a new
rather focuses on data security and integrity. accounting period to carry over balances from the previous
5. Option (3) is correct. period and start with accurate account balances.
Explanation: When codifying accounts, it's important to use 13. Option (2) is correct.
a method that is easy to understand and leads to the grouping Explanation: Data entry involves the physical input of
of accounts logically. The purpose of codification is to provide financial data into the CAS.
a structured system for classifying accounts and transactions, 14. Option (3) is correct.
making it easier for users to navigate and comprehend the Explanation: The hierarchy of account heads in CAS helps
accounting data. An identification mark (code or number) in organizing and categorizing accounts for efficient data
should be meaningful and organized to facilitate efficient management.
accounting processes. 15. Option (4) is correct.
6. Option (4) is correct. Explanation: Closing entries are made to reset revenue and
Explanation: Sequential codes involve assigning numbers or expense accounts to zero at the end of an accounting period,
codes in a sequential order, making it easier to organize and preparing them for the next period.

Course of Action
Max. Time: 50 mins.
CHAPTER
3
Max. Question: 15
ACCOUNTING
USING DATABASE
MANAGEMENT
(DBMS)
Forms can be customized to control data input, ensure data
more about
this topic consistency, and enhance the user experience when interacting
Database Management System
with the database.
A Database Management System (DBMS)
Reports:
is a comprehensive software package that
Reports are documents or outputs generated from the data
provides users with the ability to create,
stored in the database. They present data in a structured and
maintain, and control access to databases. It Accounting
using (DBMS) organised format for analysis, presentation, or distribution.
serves as a computer-based record-keeping
system, offering a structured and efficient way to manage and Reports can be customised to display specific data elements
manipulate data. DBMS software is used to manage databases and calculations, making them valuable for decision-making,
and can come in various forms, such as MySQL, INGRES, MS- communication, and documentation purposes.
ACCESS, and more. It acts as a versatile tool for performing Accounting Reports
a wide range of operations on data within a database, enabling Accounting reports are the scorecard by which a business’s
users to store, retrieve, modify, and analyze data in a systematic financial health is measured. A report is a collection of related
and organized manner. information for a particular need and purpose and must meet the
Objects of database objectives of reporting. An accounting report, therefore is the
physical form of accounting information.
The main database objects in MS access are as follows:
Business owners, investors, suppliers and banks use accounting
1. Table
reports to understand the financial position, financial performance
2. Query and cash flows of business.
3. Forms Every report is prepared with a definite objective. The three main
4. Reports accounting reports for any business are the trial balance, the
The table in the database is used to store and organized data in income statement (also called the profit and loss statement) and
the database. The query in the database is used to recover data the balance sheet. Every accounting report must be able to fulfill
from the database. the following criterion:
Tables:  Relevance
Tables are fundamental database objects that store data in a  Timeliness
structured manner. They consist of rows (records) and columns  Accuracy
(fields), with each column representing a specific attribute or  Completeness
data element.  Summarisation
Tables are used to organise and store data into logical categories, Types of Reports
making it easy to search, retrieve, and manipulate information. Accounting reports can take the following form
They are the building blocks of a database. 1. Summary Reports
Queries: In this report, all activities of the organisation are summarised,
Queries are commands or requests used to extract specific e.g. profit and loss account and balance sheet.
information from a database. They allow users to filter and 2. Demand Reports
retrieve data that meets certain criteria. This report will be prepared only when the management requests
Queries can be simple or complex, using SQL (Structured Query it, e.g. bad debts report for a given product, a stock valuation
Language) or visual query builders, and they play a crucial role report.
in generating meaningful insights from the database. 3. Customer/Supplier Reports
Forms: These reports are prepared according to the specifications of the
Forms are user interfaces designed to input and display data management, e.g. top 10 customers report, interest on customer
in a user-friendly manner. They provide a structured way for account/invoices, statements of account, customer reminder
users to enter and edit data. letters outstanding/open delivery order, purchase analysis/
vendor analysis report.
• Wizard • Label • Table
• Design • Text box • Query • Allows user to create and
• List box • Forms manipulate the database.
• Combo box
ls
• Reports
• Sub-form
• Option group
• Common button
• Control wizard • Organise data into manageable
related units.
• Enter, locate and modify data.
Common Contro
• Extract subsets of data based on
specific criteria.
• Create custom forms and reports.
Objects • Automatic common database
MS Access tasks.
Forms • Graph data relationships.
• Simple
• Parameter
• Summary
Prop erties
ACCOUNTING USING DATABASE MANAGEMENT (DBMS)
e the • General
es crib • Look-up
D
Query
• Wizard Data T
Creating ype • Text
• Design Table • Memo
• SQL view • Member
Fie • Data/time
ld • Currency
Accounting N am
e • Hyperlink etc.
Report
Designing the Report
Column name of the
Identifying accounting table being created.
Information Queries i

t ng Using Dat
Using the Record Set of
un agement Sys
n
t
final SQL
ase
Acc
ab em
Ma o
Trace the Mind Map
• Programmed Report

- Scheduled report First Level Second Level Third Level

- On demand report
• Casual report
79
4. Exception Reports (b) Field type or data type

These are the reports that are specially sought by the (c) Field size
management. In other words, exception reports are reports upon (d) Field properties
matters happening as per instructions, conditions or exceptions, (e) Primary key
e.g., inventory report in short supplies, stock status query, 2. Creating Tables
overstocked status etc.
A table can be created using the following three methods
5. Responsibility Reports
 Create a table using a design view
These are the various reports prepared by the managers
 Create a table by using a wizard
responsible, e.g., report on cash position, to be submitted by
 Create a table by entering data
the head of finance and accounts department.
3. Forms
6. Debtors’ Reports
Forms are used to easily view, enter, and change data directly
These are user specific reports but are generally obtained with
in a table. When you open a form, MS Access retrieves the
respect to the age of debtors.
data from one or more tables, and displays it on the screen, in a
7. Other Reports layout you choose. A form is made up of controls. A control is
Besides the specific activities, management may seek reports used to facilitate the entry of information into the table(s) that
on any other activities of the organisation. the form represents.
Steps Involved in Designing Accounting Reports Controls can be of various types such as text boxes, radio
The various steps involved in designing accounting reports from buttons, pull-down lists, pack lists, etc.
accounting data are as follows To facilitate easier data entry, forms are often designed with
Step 1 Definition of Objectives several special features.
Step 2 Structure of the Report 4. Querying
Step 3 Querying with the Database Queries select records from one or more tables in a database so that
Step 4 Finalising the Report they can be viewed, analysed, and sorted on a common datasheet.
Accounting and Database Management System The resulting collection of records called a dynaset (short for a
A Database Management System (DBMS) is a software system dynamic subset), is saved as a database object and can, therefore,
that allows access to data contained in a database, be easily used in the future. The query will be updated whenever
the original tables are updated.
The objective of DBMS is to provide a convenient and effective
Types of the queries are select queries that extract data from
method of defining, storing and retrieving the information
tables based on specified values, find duplicate queries that
contained in the database. The DBMS makes it possible to share
display records with duplicate values for one or more of the
the data in the database among multiple applications or users.
specified fields, and find unmatched queries which display
Benefits of Database Management System records from one table that do not have corresponding values in
 Database management system reduces data redundancy, a second table.
i.e. duplicacy of data. 5. Report Generation
 Database management system removes inconsistency. A report is an effective way to present your data in a printed
 Database management system facilitates data sharing. format. Since you have control over the size and appearance of
 Database management system helps enforce standards everything on a report, you can display the information the way
and data integrity. you want to see it. Most of the information in a report comes
 Database management system ensures security. from an underlying table, query or SQL statement, which is the
 Database management system saves resources.
source of the report’s data. Other information in the report is
stored in the report’s design.
Disadvantages of Database Management System
A report is printed information that like a query result, is assembled
 Database technology or system is complex, and without
by gathering data based on user-supplied criteria. Reports can
having sufficient expertise, it cannot run efficiently. range from simple lists of records to customised formats for
 Database management system lacks data security and specific purposes.
integrity. The report can be created in the following ways
 Acquiring and maintaining the database management (a) Creating a report by auto report: Auto report creates a report
system is very costly. that displays all fields and records in the underlying table or query:
Functions of DBMS in Context to Accounting System (b) Creating a report by wizard.
1. Designing Simple Tables Applications of DBMS in Accounting Information:
A table is a collection of related data on a specific topic, such as a 1. Shareholders' Records:
student’s personal details, marks, competition, participation, etc. DBMS allows for the efficient management of shareholders'
A table is organised into columns called fields and rows called records. It stores information about shareholders, including their
records. Two or more tables can have common fields, which are names, contact details, shareholdings, and transaction history.
used to make relations between tables. Before a table is created, This data is crucial for communicating with shareholders and
it needs to be designed. Designing the table means deciding the maintaining accurate ownership records.
type of data that is to be stored in the table and based on that, 2. Sales Reports:
deciding the fields, the type of fields and these properties. DBMS stores and organises sales data, including transaction
While designing a table, the following issues need to be details, customer information, product descriptions, and
decided first pricing. It enables the generation of sales reports, which provide
(a) Field name insights into revenue, sales trends, and product performance.
ACCOUNTING USING DATABASE MANAGEMENT (DBMS) 81
3. Customers' Profiles: facilitates accurate and timely payroll processing, helping to

DBMS maintains comprehensive customer profiles, including generate payslips and comply with tax regulations.
contact information, purchase history, preferences, and credit 6. Employees' Profiles:
terms. These profiles assist in personalised marketing, customer Employee data, such as personal information, job roles,
relationship management, and addressing customer inquiries. performance evaluations, and training records, is stored
4. Suppliers' Profiles: in the DBMS. This information supports human resource
Supplier information, such as contact details, payment terms, management, workforce planning, and employee development.
product offerings, and transaction history, is stored in the 7. Petty Cash Registers:
DBMS. This data streamlines supplier management, order DBMS helps in tracking and managing petty cash expenses.
processing, and payment tracking. It records transaction details, reimbursement requests, and
5. Payroll: approvals, making it easier to reconcile and audit petty cash
DBMS manages employee payroll information, including accounts.
salary details, tax deductions, and attendance records. It

[A] MULTIPLE CHOICE QUESTIONS (3) Singular Quantity Loading
1. ‘DBMS’ stands for: (4) Structured Que Language
(1) Drawing Board Management Software 9. The default extension of the MS Access (2007) file is:
(2) Dividend Based Marking System (1) .accbd (2) .exl
(3) Data Base Management System (3) .doc (4) .exe
(4) Data Base Marking Software. 10. Wizards in MS Access means
2. MS Access is a: (1) Person who develops programmes
(1) Word processing Software (2) Tools for simplifying the programme usage
(2) Presentation Software (3) Relating between tables
(3) Spreadsheet Software (4) Reporting generated by a programme.
(4) Data Base Management Software. 11. ‘Join line’ in the context of Access Tables means:
3. The term ‘field’ as applied to the database table means: (1) Graphical representation of the relationship between tables
(1) Vertical column of the table (2) Size of the table (2) Lines bonding the data within a table
(3) Horizontal row of the table (4) Name of the table. (3) Line connecting two fields of a table
4. The term ‘record’ as applied to a database table means: (4) Line connecting two records of a table.
(1) Vertical column of the table (2) Size of the table 12. In order to retrieve select data meeting specified criteria
(3) Horizontal row of the table (4) Name of the table. from two different tables of the Access database, we may
make use of the following:
5. The common fields used in a relationship between tables
(1) Table (2) Query
are called:
(3) Form (4) Report
(1) Joint fields (2) Main fields
13. To expect a well-formatted printable data from the Access
(3) Key fields (4) Table fields. database, we may use:
6. The existence of data in a Primary key field is: (1) Table (2) Query
(1) Not necessarily required (3) Form (4) Report
(2) Required but need not be unique 14. A ________ is a software package that can be used for
(3) Required and must be unique creating and managing databases.
(4) All of the above (1) Database Management System
7. The existence of data in a secondary key field is : (2) Basedata Management System
(1) Not necessarily required (3) Database Manage System
(2) Required but need not be unique (4) None of the above
(3) Required and must be unique 15. Example of the database ________.
(1) Microsoft Access
(4) All of the above
(2) OpenOffice Base
8. SQL stands for:
(3) MySQL
(1) Simple Questions Language (4) All of the above
(2) Simple Que line-up
ANSWER KEY
1. (3) 2. (4) 3. (1) 4. (3) 5. (3) 6. (3) 7. (2) 8. (4) 9. (1) 10. (2)
11. (1) 12. (2) 13. (4) 14. (1) 15. (4)

[A] MULTIPLE CHOICE QUESTIONS Explanation: Wizards in MS Access are tools designed to
1. Option (3) is correct. simplify and automate certain tasks or processes within the
Explanation: DBMS stands for Data Base Management program. These tools guide users through a series of steps
System. It is a software system that provides an interface to to perform a specific operation, making it easier for users
interact with databases. to accomplish tasks without needing advanced technical
knowledge.
Explanation: Microsoft Access is a Database Management
Software (DBMS) that allows users to create and manage Explanation: In Access, a 'Join line' is a graphical representation
databases. It is not a word processing, presentation, or of how tables are related or joined in a query, illustrating the
spreadsheet software. connections between tables.
Explanation: A “field” refers to a vertical column that represents Explanation: A query in Microsoft Access is a tool used to
a specific attribute or characteristic of the data being stored. retrieve specific data from one or more tables based on defined
criteria. It allows you to filter, sort, and display the data that
meets certain conditions.
Explanation: In a database table, a record refers to a horizontal
row containing a collection of related data elements or fields.
Explanation: A report is the object designed specifically for
presenting well-formatted and printable data. Reports allow
Explanation: The fields that are used to establish a relationship
users to organise and format data from tables or queries in a
between two tables are commonly referred to as key fields. These
way that is suitable for printing or sharing.
fields are typically the primary key in one table and a foreign key
in another, creating a link between the records in the two tables.
Explanation: A Database Management System (DBMS) is
a software package designed for creating, managing, and
Explanation: Data in a Primary key field is required, and each
controlling databases. It provides tools and functionalities to
value must be unique. This key uniquely identifies each record
create, store, update, and retrieve data efficiently, ensuring
in a table.
data integrity, security, and accessibility. Common examples
7. Option (2) is correct. of DBMS software include MySQL, Oracle, Microsoft SQL
Explanation: Data in a secondary key field is required but does Server, and PostgreSQL, among others.
not need to be unique. It is used for indexing and searching 15. Option (4) is correct.
purposes.
Explanation: The provided options (Microsoft Access,
8. Option (4) is correct. OpenOffice Base, and MySQL) are examples of database
Explanation: SQL stands for Structured Query Language. It is management systems (DBMS) that are used to create and
a programming language specifically designed for managing and manage databases. Microsoft Access is a widely used DBMS,
manipulating relational database management systems (RDBMS). OpenOffice Base is an open-source alternative, and MySQL is
9. Option (1) is correct. a popular open-source relational database management system.
Explanation: The default file extension for Microsoft Access Each of these software applications enables users to work with
databases in Access 2007 and later versions is “.accdb.” databases, although they may have different features and use
10. Option (2) is correct. cases.

Course of Action
Max. Time: 55 mins.
CHAPTER
4
Max. Question: 20
ACCOUNTING
APPLICATION
OF ELECTRONIC
SPREADSHEET
(b) the purpose of the function
more about
this topic (c) the arguments needed by the function to carry on the
A spreadsheet is a software application
assignment, and
designed to organise, display, and manipulate
data presented in rows and columns. (d) the result of the function.
Spreadsheets are among the most widely Functions are a set of in-built formulas that start with an equal to
used tools on personal computers, and they Accounting sign. The most common functions in the spreadsheet are SUM
Application
are primarily tailored for handling numerical of Electronic
(), AVERAGE (), etc.
information and brief text entries. Each cell Spreadsheet What are the must-have features of spreadsheet software?
within a spreadsheet grid contains specific When most people think of spreadsheets, they think of data entry
data and can be customised with user-defined labels, enhancing and simple calculations. But modern spreadsheet software is
data clarity and organisation. To reference and locate data more than a financial tool. These applications serve as a robust
efficiently, spreadsheets employ a system of row numbers and way to help collect, organise and analyse important business data.
column letters. Spreadsheets can serve as individual worksheets While every product is different, most come standard with the
for specific tasks or be integrated into a larger workbook to following features.
manage and analyse multiple datasets or related information Rows and columns: All of your information is neatly organised
within a single file. in one easy-to-read space through a spreadsheet’s grid system
Basic Concept of Spreadsheet of rows and columns.
Spreadsheets are used for calculating and comparing numerical
and financial data. Data Entry: Data Entry Forms are designed to facilitate the
The values in the spreadsheet can be either basic or derived. process of inputting data in Excel. These forms provide a
Basic values are independent values, and the derived values are structured interface for adding, searching, and deleting data,
the outcome of any function or an arithmetic expression. making the data entry process more efficient. When data is
Spreadsheet applications are computer programs that allow entered in Excel without the use of forms, two significant
users to add and process data. One of the most widely used challenges arise:
spreadsheet software that is used is Microsoft Excel. Time-Consuming: Data entry without forms can be a time-
A file in an Excel Sheet is referred to as a workbook, and each consuming process. Users must enter data one cell at a time,
workbook consists of worksheets where the data is entered for
move to the next cell, enter the relevant data, and repeat this
further processing.
process for each cell. This can lead to inefficiencies as users
The concept of spreadsheet can be understood with the following
terminologies, which are as follows. may need to scroll back and forth to locate the correct column
Label: In spreadsheets, text or special characters are used and data, resulting in a loss of time.
as identifiers for rows, columns, or descriptive purposes. Error-Prone: Large datasets with numerous entries increase
It's important to note that these labels are not subject to the likelihood of data entry errors. Without the structured
mathematical operations such as multiplication or subtraction. guidance of a form, users may inadvertently input incorrect data
Formulas: A formula in a spreadsheet refers to a mathematical into cells, leading to inaccuracies and the need for subsequent
calculation applied to a set of cells. Formulas are denoted by an data corrections.
equal sign at the beginning of a cell, initiating the calculation.
Utilising data entry forms in Excel effectively addresses these
Spreadsheets handle arithmetic operations and complex nested
conditional scenarios, such as "what-if" scenarios, by adhering limitations, streamlining the data entry process and reducing the
to the established rules of mathematical expressions. potential for errors. These forms offer a user-friendly interface
Functions: Functions are specific keywords entered into that simplifies data input and retrieval, ultimately enhancing the
spreadsheet cells to process data contained within brackets. efficiency and accuracy of data management in Excel.
They provide a means of performing various operations on the Data filtering and visualisation: You can create tables, dropdown
data, making it easier to manipulate and analyse information. lists, filters and other tools to organise the information in your
Functions can be added directly into the formula bar. There are spreadsheet. Most spreadsheet software also comes with built-in
four parts of a function which are: tools to showcase your data visually, including bar charts, graphs
(a) the name of the function and pie charts in various styles and colours.
84
• Workbook and Worksheet

• Rows, columns and cells
A large sheet which contains data
and information arranged in Movement Keys Strokes
rows and columns.
s One cell up Up arrow key ( )
ti on
b ina One cell left Left arrow key ( )
m
Co
y
e
Top of the worksheet CTRL + HOME
gK
(cellA1)
i n
Basic
Us
Spreadsheet
• Grid layout Elements
Spreadsheet
• Data Entry
Using Name Bo
• Formulas and Functions x
• DataAnalysis Methods of
• Data Validation Navigating in
a worksheet • Type the cell address in the name box.
• What-ifAnalysis
• Press ENTER to reach the desired cell.
• Data Protection Features
Usi
• Conditional Formatting ng
Go
• Import and Export To
D ial
og
ue
Bo
x
Applications
• Press F5 or CTRL + G or choose Go to

• Generating accounting information option from the Edit menu to invoke the go
• Preparing deprecation schedules to dialogue box.
• Loan repayment schedules • Enter the cell coordinates in the Reference
text.
• Payroll accounting App • Click OK to move the desired cell.
• Budgeting and financial forecasting n ting Sp licatio
• Inventory management ou ronic readsh n
ct
A
f
e
• Sales and revenue analysis
Ele cc
s o et
• Cost analysis
Trace the Mind Map


ACCOUNTING APPLICATION OF ELECTRONIC SPREADSHEET 85
Custom Formatting: Easily accomplished with just a Application of Electronic Spreadsheets in general
few clicks, custom formatting allows you to apply various accounting information
formatting styles to differentiate information, establish headers, Generating Accounting Information:
consolidate cells into larger containers, and personalize the Electronic spreadsheets, such as Microsoft Excel or Google
visual appearance of your spreadsheet. Furthermore, you can Sheets, are widely used for maintaining general ledgers and
harness the power of conditional formatting features, which journals. They allow accountants to record transactions,
enable you to alter a cell's color or text style based on the prepare trial balances, and create financial statements.
presence or absence of specific information. This functionality
Formulas and functions in spreadsheets enable automated
simplifies the process of quickly tracking down specific
calculations, making it easier to maintain accurate and up-to-
information, sparing you the tedious task of manually searching
date financial records.
through every cell to locate the data you require.
Preparing Depreciation Schedules:
Output Reports: We can print entire or partial worksheets and
workbooks, one at a time, or several at once. The MS Excel can Spreadsheets are essential for calculating and maintaining
print just the Excel table, or it provide to: depreciation schedules for assets. Various methods such as
straight-line, declining balance, and units of production can be
 Print a partial or entire workbook and worksheet.
easily implemented using spreadsheet formulas.
 Print several worksheets at once.
Accountants can create templates to input asset details,
 Print several workbooks at once. acquisition costs, estimated useful life, and salvage values,
 Print an Excel table. and the spreadsheet will automatically compute depreciation
 Print a workbook to a file. expense.
 Print graphic charts and Pivot Table Loan Repayment Schedules:
Preparation of reports using Pivot Table: A Pivot Table Electronic spreadsheets are invaluable for managing loan
is a way to present information in a report format. A Pivot repayment schedules. By setting up a loan amortisation
Table report often provides an enhanced layout, attractive template, accountants can track and analyse loan payments,
and formatted report with improved readability. This report is including principal and interest.
prepared from the spreadsheet once we add the fields with an Spreadsheets can generate detailed schedules, helping
appropriate level of details, calculations and group the data as businesses understand the impact of different repayment
per the required information. The Pivot Table feature allows us to strategies and providing clarity on when loans will be fully
create a cross-tabulation summary of data in which the heading paid off.
can subsequently move to give different views of the data. Payroll Accounting:
What should you consider when choosing spreadsheet Payroll processing often involves complex calculations,
software? including tax withholdings, deductions, and overtime.
When you’re ready to choose spreadsheet software for your Spreadsheets simplify this task by allowing accountants to set
company, here are a few specific factors to consider. up payroll templates.
Cost: Determine whether your company's spreadsheet needs Accountants can enter employee data, working hours, and
can be met with free spreadsheet software or if a paid option other relevant information to automatically calculate net pay,
with advanced features is necessary. Consider your budget and generate pay stubs, and keep payroll records organised.
the cost-effectiveness of the software. Budgeting and Forecasting:
Ease of Use: The usability of the spreadsheet software is crucial. Electronic spreadsheets are excellent tools for creating and
While there might be a learning curve for all applications, look managing budgets and financial forecasts. Accountants can
for software with user-friendly interfaces and features that are input historical data, set assumptions, and use formulas to
easy for your team to grasp once the basics are learned. project future financial performance.
Functionality: Assess how your team will utilise the software. These forecasts are vital for financial planning, resource
Features like data visualisation and compatibility with other allocation, and decision-making within a company.
applications can enhance your work-flow and productivity.
Variance Analysis:
Choose software that aligns with your specific requirements.
Spreadsheets facilitate variance analysis by comparing
Integrations and Compatibility: Ensure that the spreadsheet
budgeted figures with actual results. Accountants can use
program can easily interact with other software used by your
conditional formatting and charts to visualise discrepancies
business partners or clients. Compatibility between different
and identify areas that need attention.
file types and the availability of plugins and integrations can
enhance the software's versatility. This analysis helps organisations make informed decisions and
adjust their strategies as needed.
Collaboration and Version History: In an era of remote work,
prioritize software that facilitates collaboration and offers Data Visualisation and Reporting:
version history. Cloud-based solutions often allow real-time Spreadsheets offer robust data visualisation capabilities,
collaboration, commenting, and tracking changes to prevent enabling the creation of charts, graphs, and dashboards to
data loss or overwriting of information. represent financial data in a visually appealing manner.
These visual aids can enhance communication and help that only authorised personnel can view or edit sensitive
stakeholders understand financial information more effectively. information.
Data Security and Collaboration: Cloud-based spreadsheets enable real-time collaboration
Electronic spreadsheets allow for controlled access and sharing among team members, making it easier to work together on
of financial data. Accountants can set permissions, ensuring accounting tasks.

[A] MULTIPLE CHOICE QUESTIONS 10. How many blank worksheets are shown when a new
1. Which of the following options in a financial function workbook is created?
indicates the interest for a period? (1) One (2) Two
(1) FV. (2) PV. (3) Three (4) Four
(3) N-per. (4) Rate. 11. Which command reverses the last action performed in the
2. Which of the following arguments in a financial function worksheet?
represents the total number of payments? (1) Cut (2) Undo
(1) FV. (2) PV. (3) Redo (4) Paste
(3) N-per. (4) Rate 12. When navigating in a workbook, which command is used
3. What category of functions is used in this formula: to move to the beginning of the current row?
=PMT(C10/12,C8,C9,1) (1) [Ctrl]+[Home] (2) [Page Up]
(1) Logical. (2) Financial. (3) [Home] (4) [Ctrl]+[Backspace]
(3) Payment. (4) Statistical. 13. Which step completes an entry and moves the pointer to
4. How can electronic spreadsheets enhance the efficiency of the cell to the right?
generating accounting information?
(1) Pressing [Enter]
(1) By automating data entry
(2) Pressing [Tab]
(2) By providing graphic design tools
(3) Pressing [Shift]+[Tab]
(3) By securing confidential data
(4) Pressing [Shift]+[Enter]
(4) By managing physical assets
14. Which key, when pressed, displays the access keys?
5. Which formula would result in TRUE if C4 is less than 10
and D4 is less than 100? (1) [Alt] (2) [Ctrl]
(1) =AND(C4>10, D4>10). (3) [Shift] (4) [Esc]
(2) =AND(C4>10, C4<100) 15. Which command allows you to reverse an Undo command?
(3) =AND(C4>10, D4<10) (1) Redo (2) Reset
(4) =AND(C4<10, D4<100) (3) Repeat (4) Reverse
6. Which of these is not an argument of the IF function? 16. Which function results can be displayed in Auto-Calculate?
(1) Logical_test. (2) Value_if_false. (1) SUM and AVERAGE (2) MAX and LOOK
(3) Value_when_false. (4) Value_if_true. (3) LABEL and AVERAGE (4) MIN and BLANK
7. In what cell is the Rate for PMT function where = PMT 17. Which cell alignment is assigned to most values by default?
(C8, C9, C10, C11, C12)?
(1) C8. (2) C9. (1) Right (2) Centre
(3) C10. (4) C12. (3) Left (4) Decimal
8. Which of the following statements is not correct? 18. Which function automatically totals a column or row of
(1) A spreadsheet is a configuration of rows and columns. values?
(2) A spreadsheet is different from a worksheet. (1) TOTAL (2) SUM
(3) A spreadsheet application is a computer programme (3) ADD (4) AVG
(4) Spreadsheet can be used for making Graphs also. 19. Which mathematical operator is represented by an asterisk
9. The data that is entered in a cell may be either: (*)?
(A) Numeric (B) Alpha-numeric (1) Exponentiation (2) Subtraction
(C) Date (D) Label (3) Addition (4) Multiplication
Choose the correct answer from the option given below: 20. Where is the address of the active cell displayed?
(1) C and D only (2) A, B and D only (1) Row heading (2) Status bar
(3) A, C and D only (4) A, B and C only (3) Name Box (4) Formula bar
ANSWER KEY
1. (4) 2. (3) 3. (2) 4. (1) 5. (4) 6. (3) 7. (1) 8. (2) 9. (4) 10. (3)
11. (2) 12. (3) 13. (2) 14. (1) 15. (1) 16. (1) 17. (1) 18. (2) 19. (4) 20. (3)
ACCOUNTING APPLICATION OF ELECTRONIC SPREADSHEET 87

[A] MULTIPLE CHOICE QUESTIONS (B) Alpha-numeric: This refers to data that can include both
1. Option (4) is correct. letters (alphabets) and numbers, like a product code, a phone
Explanation: The "Rate" option in financial functions number, or a combination of text and digits.
represents the interest rate or the periodic interest rate for a (C) Date: You can enter dates in a cell, such as calendar dates
financial calculation, such as calculating future value (FV), or time stamps, which are often used for tracking events,
present value (PV), or the number of periods (N-per). appointments, or other time-related information.
Explanation: In financial functions, particularly those used in Explanation: When you create a new workbook in Microsoft
contexts like loan calculations or investments, the “N-per” or Excel, it starts with three blank worksheets or tabs. These
“Number of Periods” argument represents the total number of worksheets are labeled as Sheet1, Sheet2, and Sheet3. Each
payment periods. worksheet is a separate page where you can enter and organise
3 Option (2) is correct. data, perform calculations, and create charts and graphs.
Explanation: The formula involves financial calculations related 11. Option (2) is correct.
to loan payments; it falls into the category of financial functions. Explanation: The “Undo” command allows you to reverse the
4. Option (1) is correct. last action or series of actions in a worksheet. It is a common
feature in spreadsheet software like Microsoft Excel, and it
Explanation: Electronic spreadsheets enhance accounting
helps users correct mistakes or revert changes that were made
efficiency by automating data entry, reducing errors through
in the document.
predefined formulas, and offering tools for easy organisation
and analysis of financial data. This automation saves time and
ensures accurate accounting information. Explanation: Pressing the "Home" key allows you to jump to the
first cell in the current row, which is a useful navigation shortcut
when working with spreadsheets or worksheets.
Explanation: AND: This logical function returns TRUE if all
of its arguments are true.
Explanation: When you press the "Tab" key after entering data
C4<10: This checks if the value in cell C4 is less than 10.
into a cell, it confirms the entry in the current cell and moves
D4<100: This checks if the value in cell D4 is less than 100 the selection to the cell to the right. This is a convenient way to
6. Option (3) is correct. quickly input data into multiple adjacent cells in a row.
Explanation: The three essential arguments of the IF function 14. Option (1) is correct.
in Excel (or similar spreadsheet applications) are: Explanation: Pressing the “Alt” key in many applications,
1. Logical_test: This is the condition that you want to test. including those in the Microsoft Office suite, activates key tips
4. Value_if_true: The value or expression to return if the or access keys. These are keyboard shortcuts that allow you to
condition (Logical_test) is true. quickly navigate and perform actions in the application without
2. Value_if_false: The value or expression to return if the using the mouse.
condition (Logical_test) is false. 15. Option (1) is correct.
3."Value_when_false" is not a standard argument name in the Explanation: The "Redo" command is used to reapply the
IF function. last action that was undone using the "Undo" command,
7. Option (1) is correct. effectively reversing the undo and restoring the changes that
Explanation: In the PMT function in Excel (or similar were previously made.
spreadsheet applications), the rate is typically specified in 16. Option (1) is correct.
the cell that corresponds to the interest rate. Therefore, in the Explanation: SUM and AVERAGE are common functions that
formula =PMT(C8, C9, C10, C11, C12), the rate is represented can be displayed in Auto-Calculate, allowing you to quickly
by the value in cell C8. see the sum and average of a selected range of values.
Explanation: In the context of spreadsheet applications like Explanation: In many spreadsheet applications, including
Microsoft Excel or Google Sheets, the terms "spreadsheet" and Microsoft Excel, numerical values are typically right-aligned
"worksheet" are often used interchangeably. In this context, in cells by default. This makes it visually easier to distinguish
a spreadsheet typically refers to the entire document or file, them from text values, which are often left-aligned.
which can contain one or more worksheets (also called sheets 18. Option (2) is correct.
or tabs). Worksheets are the individual pages within the Explanation: The SUM function is commonly used in
spreadsheet document where you work with rows and columns spreadsheet applications and accounting software to calculate
to input and manipulate data. the total (sum) of a range of numbers, making it a convenient
9. Option (4) is correct. way to add up values in a column or row.
Explanation: (A) Numeric: This includes any numbers, such 19. Option (4) is correct.
as integers or decimals, that you want to use for calculations Explanation: In computerised accounting, the asterisk (*) is
or display. typically used to represent the multiplication operator when
performing calculations involving numerical values, similar to Explanation: The Name Box is typically located near the left
its usage in mathematics. For example, it is used in formulas to end of the formula bar. It can display the cell reference (such
calculate the product of values like quantities and unit prices in as "A1" for the active cell) or the name of a named range,
accounting software. depending on the context.


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Accounting for Not-for-Profit Organisation and Partnership Firms

Chapter-2 – Accounting For Partnership 9 - 16

Chapter-3 – Reconstitution of Partnership 17 - 27

Chapter-4 – Dissolution of Partnership 28 - 36

Chapter-5 – Accounting For Share And Debenture Capital 37 - 45

Chapter-6 – Analysis of Financial Statements 46 - 55

Chapter-7 – Statement of Changes In Financial Position 56 - 64

Computerised Accounting System

Chapter-2 – Using Computerised Accounting System 72 - 77

Chapter-3 – Accounting Using Database Management (DBMS) 78 - 82

Chapter-4 – Accounting Application of Electronic Spreadsheet 83 - 88

Tested through reading INCLUDES :

HARDOI Mittal Pustak Kendra, 9838201466

Entrance & Competition Distributors

HARYANA UTTAR PRADESH

MADHYA PRADESH GORAKHPUR Central Book House, 9935454590

INDORE Bhaiya Industries, 9109120101 KANPUR Raj Book Dist, 9235616506

MUMBAI New Student Agencies LLP, 7045065799 WEST BENGAL

State Journal entry for payment of realisation

 Receipts and Payments Account: to be shown.

• Prepared on the basis of information ha

Expenditure • Trustees are the members.

For Account for-Pro • Does not work for the profitability

Not-anisatiofit nd but for the social welfare.

Expenditure Amount Income Amount • Subscriptions

over income First Level Second Level Third Level

OBJECTIVE TYPE QUESTIONS

(3) Expenditure of Capital nature only (1) ₹ 11,700 (2) ₹ 4,300

[B] ASSERTION REASON QUESTIONS

[C] COMPETENCY BASED QUESTIONS

ANSWERS WITH EXPLANATION

9. Option (2) is correct. 5. Option (1) is correct.

OBJECTIVE TYPE QUESTIONS

[B] ASSERTION REASON QUESTIONS

[C] COMPETENCY BASED QUESTIONS

ANSWERS WITH EXPLANATION

16. Option (2) is correct. 7. Option (4) is correct.

9. Option (2) is correct. 10. Option (1) is correct.

Step V: Debit the capital of gaining partner(s) with the

New Profit Sharing Ratio = Old Ratio – Sacrificing Ratio

Accounting Reserves, losses and profits

First Level Second Level Third Level

• Change in profit-sharing ratio among

• Admission of a partner ho Average Profit method:

• If capital of remaining partner falls short, he/she brings in cash.

OBJECTIVE TYPE QUESTIONS

A.  redit balance of his/her Capital/Current Account

[B] ASSERTION REASON QUESTIONS

[C] COMPETENCY BASED QUESTIONS

ANSWERS WITH EXPLANATION

 Dissolution by Court (Section 44): On filing of a suit

• Loan will be shown on the credit side of

partner’s loan account. Pa

• Loan will be paid after outside liabilities.

OBJECTIVE TYPE QUESTIONS

[B] ASSERTION REASON QUESTIONS

[C] COMPETENCY BASED QUESTIONS

Chapter-2 – Accounting For Partnership 9 - 16

Chapter-3 – Reconstitution of Partnership 17 - 27

Chapter-4 – Dissolution of Partnership 28 - 36

Chapter-5 – Accounting For Share And Debenture Capital 37 - 45

Chapter-6 – Analysis of Financial Statements 46 - 55

Chapter-7 – Statement of Changes In Financial Position 56 - 64

Chapter-2 – Using Computerised Accounting System 72 - 77

Chapter-3 – Accounting Using Database Management (DBMS) 78 - 82

Chapter-4 – Accounting Application of Electronic Spreadsheet 83 - 88

9. Option (2) is correct. 5. Option (1) is correct.

A. redit balance of his/her Capital/Current Account

15. The Journal Entry to acquire an asset from vendor will be :

hoose the correct answer from the options given below: