SOLUTION

FIRST TERM EXAMINTAION – 2024

SUBJECT – ACCOUNTS
CLASS – XII
Time – 3 hours M.M – 80
(SECTION – A)
Question 1
In subparts (i) to (iv) choose the correct option and in subparts (v) to (x) answer the questions as instructed:
(i) Capital balances of Kiran and Kusum before admission of new partner were ₹32,500 and ₹47,500
respectively. After admitting the new partner and after all adjustments, their capital balances
amounted to ₹35,000 and ₹45,000 respectively.
The Capital A/c of the partner having surplus capital was adjusted through his current account by
passing the journal entry: [1]
(a) Debit Kiran’s Capital A/c ₹2,500; Credit Kiran’s Current A/c ₹2,500
(b) Debit Kiran’s Current A/c ₹2,500; Credit Kiran’s Capital A/c ₹2,500
(c) Debit Kusum’s Capital A/c ₹2,500; Credit Kusum’s Current A/c ₹2,500
(d) Debit Kusum’s Current A/c ₹2,500; Credit Kusum’s Capital A/c ₹2,500
(ii) A company forfeited 700 Equity Shares of ₹10 each, fully called up, on which ₹8 per share
(including premium of ₹2 per share) was received. The company later re-issued 200 of these shares
at maximum possible discount. What is the maximum possible discount allowed by company on
re-issue of these 200 shares? [1]
(a) ₹1,200
(b) ₹800
(c) ₹1,600
(d) ₹200
(iii) P, Q and R have been sharing profits in the ratio of 5:3:2. Q dies. His share is taken over by P and
R in the ratio of 2:1. What will be the new profit-sharing ratio? [1]
(a) 3:2
(b) 7:3
(c) 7:2
(d) 2:1
(iv) In the absence of partnership deed: [1]
P: Partners are allowed interest on capital @ 6% p.a.
Q: Interest @ 6% is to be allowed on a partner’s loan to the firm.
R: Interest @ 6% p.a. is to be allowed on a partner’s loan to the firm.
S: Each partner can participate in the conduct of business.
Choose the correct option:
(a) Only Q
(b) Q and R
(c) Q and S
(d) R and S
(v) Assertion: On dissolution of firm, creditors are paid off before paying partner’s loan. [1]
Reason: As per section 48 of Indian Partnership Act, 1932 outside liabilities have to be paid off
before any other liability.
Which one of the following is correct?
(a) Both Assertion and Reason are correct, and Reason is the correct explanation for
Assertion.
(b) Both Assertion and Reason are correct, but Reason is not the correct explanation for
Assertion.
(c) Assertion is false and Reason is true.
(d) Assertion is true and Reason is false.
(vi) A partner withdrew ₹3,500 per month at the beginning of each month for the first eight months of
the year. You are required to calculate interest on his drawings @ 12% p.a. and pass adjustment
entry for it. (28,000*12%*8.5/12 = ₹2,380) [1]
Partner’s Capital A/c Dr. 2,380
To Interest on drawings A/c 2,380
(vii) Vikas has given a loan of ₹70,000 to a partnership firm. It is decided to admit Vikas as a partner in
the same firm. It is agreed that his loan will be converted into his capital and in addition Vikas will
also invest ₹45,000 in cash towards his capital.
You are required to pass journal entry for capital contribution of Vikas. [1]
Cash A/c Dr. 45,000
Vikas’s Loan A/c Dr. 70,000
To Vikas’s Capital A/c 1,15,000
(viii) A partner agrees to bear the dissolution expenses of a firm, but ultimately pays the realisation
expenses from the firm’s money. What will be the journal entry to record such payment. [1]
Partner’s Capital A/c Dr.
To Cash A/c
(ix) State any two applications for money received against securities premium by a joint stock company.
(x) Give any two differences between dissolution of partnership and dissolution of partnership firm.
Question 2 [3]
Sanchita and Prajakta are the partners sharing profits in the ratio of 3:2. Their Capitals as on 01.04.2023
amounted to ₹7,00,000 and ₹6,00,000 respectively. According to their partnership deed partners are to be allowed
interest on capitals @ 10% p.a. Net profit for the year ended on 31.03.2024 amounted to ₹39,000.
You are required to prepare Profit & Loss Appropriation A/c for the year ended on 31.03.2024.
Profit & Loss Appropriation A/c
for the year ended on 31.03.2024
Particulars Amount Particulars Amount
To Interest on Capital By P/L A/c 39,000
Sanchita's Capital 21,000
Prajakta's Capital 18,000 39,000
39,000 39,000
OR
Vikrant and Sushant are partners sharing profits in the ratio of 2:1. Their capitals after adjusting
drawings and their share of profits on 31.03.2024 amounted to ₹3,35,000 and ₹2,27,000 respectively. Drawings made
by the partners during the year 2023-24 were:
(i) Vikrant withdrew ₹5,000 per quarter.
(ii) Sushant’s drawings were:
31st August, 2023 - ₹7,500
30th September, 2023 - ₹12,500
31st January, 2024 - ₹10,000
Net profit made by the firm for the year ending on 31.03.2024 amounted to ₹60,000. Subsequently in the
next year it was noticed that partners were not allowed interest on their capitals @ 8% p.a. despite of the provision for
it in the partnership deed.
You are required to pass single journal entry to rectify the lapse in accounting.
Calculation of Opening Capital
Vikrant Sushant
Closing Capital 3,35,000 2,27,000
(+) Drawings 20,000 30,000
(-) Share of Profit -40,000 -20,000
Opening Capital 3,15,000 2,37,000
Adjustment Table
Particulars Vikrant Sushant Total
Interest on Capital Cr. 25,200 18,960 44,160
Dr. 29,440 14,720
4,240 4,240
Dr. Cr.
Journal
Date Particulars LF Dr. Cr.
Vikrant's Capital A/c Dr. 4,240
To Sushant's Capital A/c 4,240

Question 3 [3]
Rashmi and Sanjeevani are partners sharing profits in the ratio of 4:3. They admitted Mona as new partner
from 01.04.2024. New PSR is agreed at 5:3:2. Following is an extract of their balance sheet on this date:
Liabilities Amount Assets Amount
Contingency Reserve 35,000 Advertisement Suspense 12,000
Profit & Loss A/c 9,000

Partners decided not to distribute any accumulated profits or accumulated losses but prefer to record the same
with an adjustment entry.
You are required to pass the adjustment entry for treatment of accumulated profits/losses.
(Sacrificing Ratio = 5:9)
Journal
Date Particulars LF Dr. Cr.
Mona's Current A/c Dr. 2800
To Rashmi's Capital A/c 1000
To Sanjeevani's Capital A/c 1800

Question 4 [3]
Amar, Anna and Advika were partners in a firm. Advika died on 30.06.2023. After all the necessary
adjustments, her capital account showed a credit balance of ₹80,000. It was decided to pay this amount in two equal
half yearly instalments along with interest @ 8% p.a. The firm closes its books every year on 31st March.
You are required to prepare Advika’s Executor’s Loan A/c till the amount is finally paid.
 Advika's Executor's Loan A/c
Date Particulars Amount Date Particulars Amount
31.12.23 To Bank A/c 43200 30.06.23 By Advika's Capital A/c 80000
(40,000+3,200) 31.12.23 By Interest on loan A/c 3200
31.03.24 To balance c/d 40800 31.03.24 By Interest on loan A/c 800
84000 84000
30.06.24 To Bank A/c 41600 01.04.24 By balance b/d 40800
(40,000+800+800) 30.06.24 By Interest on loan A/c 800
41600 41600

OR
Krisha, Navya and Rebecca were partners sharing profits in the ratio of 5:4:3. Their capital balances as at
31.03.2023 were ₹80,000; ₹78,400 and ₹75,000 respectively. On the same date General Reserve appearing in the
balance sheet amounted to ₹60,000.
Krisha died on 31.07.2023. Navya and Rebecca decided to share future profits in the ratio of 7:5. It was
agreed that Krisha’s executor’s will be entitled to:
• The capital to her credit and her share of reserves.
• Interest on her capital @ 6% p.a.
• Proportionate profit up to date of death based on the average profits of the last three completed years.
• Her share of goodwill based on two years of purchase of the average profits of the three preceding completed
years.
The profit for the three preceding years were:
2020-21 - ₹56,000
2021-22 - ₹45,000
2022-23 - ₹61,000
From the details provided above, you are required to prepare Krisha’s Capital A/c to be rendered to her legal
representatives.
Krisha's Capital A/c
Date Particulars Amount Date Particulars Amount
31.07.23 To Krisha's Executor's A/c 1,59,100 31.07.23 By balance b/d 80,000
By General Reserve 25,000
By Navya's Capital A/c 4,500
By Rebecca's Capital A/c 3,000
By Navya's Capital A/c 27,000
By Rebecca's Capital A/c 18,000
By Interest on Capital A/c 1,600
1,59,100 1,59,100
Krisha's Executor's A/c
Date Particulars Amount Date Particulars Amount
31.07.23 To Krisha's Executor's Loan A/c 1,59,100 31.07.23 By Krisha's Capital A/c 1,59,100

Average Profit 54,000

Share of profit 7,500
Goodwill 1,08,000
Share of goodwill 45,000

Question 5 [3]
Ravi, Shankar and Madhur are the partners sharing profits in the ratio of 4:3:3. Their partnership firm was
dissolved on 31.03.2023. Pass the necessary journal entries for the following transactions after various assets (other
than cash) and third-party liabilities had been transferred to Realisation A/c:
(i) The firm had stock of ₹75,000. Ravi took over 50% of the stock at a discount of 20% while the
remaining stock was sold at profit of 30% on cost.
(ii) A liability under a suit for damages included in creditors was settled at ₹67,000 as against only
₹43,000 provided in the books. Total creditors of the firm were ₹52,000.
(iii) Loan taken from Madhur of ₹15,000 was settled at ₹16,000.
Journal
Date Particulars LF Dr. Cr.
(i) Ravi's Capital A/c Dr. 30,000
Cash A/c Dr. 48,750
To Realisation A/c 78,750
(ii) Realisation A/c Dr. 76,000
To Cash A/c 76,000
(iii) Madhur's Loan A/c Dr. 15,000
Realisation A/c Dr. 1,000
To Cash A/c 16,000
 Question 6 [6]
Leena, Meena and Teena are partners in a firm sharing profits in the ratio of 2:2:3. On 31.03.2024, their
balance sheet is as follows:
Liabilities Amount Assets Amount
Creditors 27,500 Building 2,96,000
Bank overdraft 14,600 Machinery 2,68,000
Provident Fund 32,500 Investments 43,200
Leena's Capital 3,25,000 Stock 1,65,000
Meena's Capital 2,75,000 Debtors 1,12,400
Teena's Capital 2,45,000 Deferred Advertisement Expenditure 35,000
9,19,600 9,19,600
On this date, Meena retired from the partnership and the remaining partners decided to carry on the business
sharing future profits in the ratio of 3:2. Following is agreed upon:
• Goodwill of the firm be valued at ₹4,20,000 and Meena’s share of goodwill be adjusted in the
accounts of Leena and Teena.
• Half of the investments are taken over by the retiring partner at 20% discount.
• An old customer whose account was written off as bad debt has promised to pay ₹3,480 in full and
final settlement.
• The total capital of the firm is to be same as before retirement which will be in the PSR of Leena
and Teena.
You are required to prepare Partner’s Capital A/c to show the effect of above.
Partner's Capital A/c
Particulars Leena Meena Teena Particulars Leena Meena Teena
To Meena's Capital A/c 1,20,000 By balance b/d 3,25,000 2,75,000 2,45,000
To Teena's Capital A/c 12,000 By Leena's Capital A/c 1,20,000 12,000
To Revaluation A/c 240 240 360
To Def Adv Exp 10,000 10,000 15,000
To Meena's Loan A/c 3,84,760
To balance c/d 1,82,760 2,41,640
3,25,000 3,95,000 2,57,000 3,25,000 3,95,000 2,57,000
To balance c/d 5,07,000 3,38,000 By balance b/d 1,82,760 2,41,640
By Bank A/c 3,24,240 96,360
5,07,000 3,38,000 5,07,000 3,38,000
Working Notes:
Revaluation A/c
Particulars Amount Particulars Amount
To Investments A/c 4,320 By Debtors A/c 3,480
By Leena's Capital A/c 240
By Meena's Capital A/c 240
By Teena's Capital A/c 360
4,320 4,320

Question 7 [6]
Angad and Bakshi are partners sharing profits in the ratio of 3:2. Their Balance Sheet as at 31.03.2024
appeared as follows:
Liabilities Amount Assets Amount
Angad's Capital 85,000 Stock 80,000
Bakshi's Capital 78,000 Machinery 48,700
Workmen Compensation Reserve 23,000 Debtors 53,800
Creditors 17,500 Motor Car 16,500
Bank Overdraft 4,500 Profit & Loss A/c 9,000
2,08,000 2,08,000
Partners decide to admit Charan as new partner with effect from 01.04.2024 on the following terms:
• Charan is to bring ₹75,000 as his capital. Goodwill of the firm is valued at ₹36,000, but Charan is unable to
bring his share of goodwill.
• Stock is found to be undervalued by 20%.
• Liability on Workmen Compensation Reserve amounted to ₹27,500.
• Motor Car is taken over by Angad at agreed value of ₹14,000.
• Revaluation expenses of ₹3,500 paid by Bakshi.
• The new profit-sharing ratio agreed is 4:3:2.
You are required to pass necessary journal entries to record the above.
 Journal
Date Particulars LF Dr. Cr.
Bank A/c Dr. 75,000
To Charan's Capital A/c 75,000
Charan's Current A/c Dr. 8,000
To Angad's Capital A/c 5,600
To Bakshi's Capital A/c 2,400
Stock A/c Dr. 20,000
To Revaluation A/c 20,000
Workmen Compensation Reserve A/c Dr. 23,000
Revaluation A/c Dr. 4,500
To Prov against WCR A/c 27,500
Angad's Capital A/c Dr. 14,000
Revaluation A/c Dr. 2,500
To Motor Car A/c 16,500
Revaluation A/c Dr. 3,500
To Bakshi's Capital A/c 3,500
Revaluation A/c Dr. 9,500
To Angad's Capital A/c 5,700
To Bakshi's Capital A/c 3,800
Angad's Capital A/c Dr. 5,400
Bakshi's Capital A/c Dr. 3,600
To Profit & Loss A/c 9,000
OR
1 1 1
Anjali and Ahana are partners and the profit is divided as to Anjali; to Ahana and to Reserve. They admit
2 3 6
Ishaan as new partner on 01.04.2024 at which date the balance sheet of the firm was as under:
Liabilities Amount Assets Amount
Creditors 27,500 Bank 1,25,800
Outstanding Expenses 19,200 Debtors 61,950
Reserve 14,000 Stock 31,850
Anjali's Capital 1,26,350 Plant & Machinery 74,250
Ahana's Capital 1,14,300 Advertisement Expenditure 7,500
3,01,350 3,01,350
Following terms were agreed upon:
• Ishaan is to be given 1/5th share in profits which he acquires equally from Anjali and Ahana.
• Plant & Machinery is overvalued by 10%.
• Stock is to be increased by ₹32,000.
• Creditors include a contingent liability of ₹15,000 which has been decided by the court at ₹12,500.
• Goodwill of the firm is valued at ₹27,500. Ishaan is unable to bring his share of goodwill.
• Ishaan is to bring in capital proportionate to his share of profits in the firm.
You are required to prepare Revaluation A/c and Partner’s Capital A/c from the details provided above.
Revaluation A/c
Particulars Amount Particulars Amount
To Plant & Machinery 6,750 By Stock A/c 32,000
To Anjali's Capital 16,650 By Creditors 2,500
To Ahana's Capital 11,100
34,500 34,500
Partner's Capital A/c
Particulars Anjali Ahana Ishaan Particulars Anjali Ahana Ishaan
To Advertisement Exp A/c 4,500 3,000 By balance b/d 1,26,350 1,14,300
To balance c/d 1,49,650 1,30,750 70,100 By Ishaan's Current A/c 2,750 2,750
By Reserve 8,400 5,600
By Revaluation A/c 16,650 11,100
By Bank A/c 70,100
1,54,150 1,33,750 70,100 1,54,150 1,33,750 70,100
Ishaan’s share = 1/5
Remaining share = 4/5
Old P. Capital = 1,49,650+1,30,750 = 2,80,400
Total Capital = 2,80,400*5/4 = 3,50,500
Ishaan’s Capital = 3,50,500*1/5 = 70,100
Question 8 [6]
Chaya, Jhalak and Damini were partners in a firm sharing profits in the ratio of 5:3:2. They dissolved their
partnership on 31.03.2024, on which date the firm’s balance sheet was as follows:
Liabilities Amount Assets Amount
Employees Provident Fund 7,500 Bank 65,800
Creditors 10,000 Debtors 25,000
Investment Fluctuation Reserve 6,000 (-) Provision (2,000) 23,000
Workmen Compensation Reserve 8,000 Stock 26,000
Loan from Damini 6,500 Plant & Machinery 30,000
Chaya's Capital A/c 58,000 Land & Building 42,000
Jhalak's Capital A/c 74,500 Investments 17,000
Damini's Capital A/c 36,500 Advertisement Suspense 3,200
2,07,000 2,07,000
The following additional information is given:
• Plant & Machinery costing ₹10,000 was taken over by Chaya at ₹12,500 and the remaining machineries
realised ₹15,000.
• Investments were taken over by Jhalak at ₹1,4500.
• Sundry debtors included a bad debt for ₹1,000 and the amount was realised from good debtors subject to
cash discount of 10%.
• A creditor of ₹2,000 was untraceable and other creditors accepted payments allowing discount of 10%.
• Compensation to workmen paid by the firm amounted to ₹9,200.
• Damini’s Loan was settled at ₹7,000.
• Chaya was allowed to retain the whole of the stock as her remuneration for services rendered by her in the
course of dissolution of the firm.
You are required to prepare Realisation A/c and Damini’s Loan A/c from the details provided above.
Realisation A/c
Particulars Amount Particulars Amount
To Debtors 25,000 By Provision 2,000
To Stock 26,000 By Employees Provident Fund 7,500
To Plant & Machinery 30,000 By Creditors 10,000
To Land & Building 42,000 By Investment Fluctuation Reserve 6,000
To Investments 17,000 By Workmen Compensation Reserve 8,000
To Bank A/c (crs) 7,200 By Chaya's Capital A/c (P/M) 12,500
To Bank A/c ((WCR) 9,200 By Bank A/c (P/M) 15,000
To Bank A/c (EPF) 7,500 By Jhalak's Capital A/c (Inv) 14,500
To Damini's Loan A/c 500 By Bank A/c (Debtors) 21,600
By Bank A/c (Building) 42,000
By Chaya's Capital A/c 12,650
By Jhalak's Capital A/c 7,590
By Damini's Capital A/c 5,060
1,64,400 1,64,400
Loan from Damini
Particulars Amount Particulars Amount
To Bank A/c 7,000 By balance b/d 6,500
By Realisation A/c 500
7,000 7,000

Question 9 [10]
Azad and Ghulam are partners sharing profits in the ratio of 3:2. Their capitals as on 01.04.2023 amounted
to ₹1,50,000 and ₹2,00,000 respectively. On 1 st October of the same year Azad invested further amount to make his
capital equal to Ghulam’s capital.
On 01.10.2023 Azad advanced loan of ₹40,000 to the partnership firm. This loan was repaid on 31.12.2023
along with interest.
On 01.12.2023, Firm advanced loan of ₹15,000 to Ghulam. This loan account was also settled on 31.03.2024
along with interest @ 9% p.a.
Following is agreed as per partnership deed:
• Partners are to be allowed interest on capital @ 8% p.a. and are to be charged interest on drawings @ 12%
p.a.
• Ghulam is to be paid rent @ ₹4,000 per month.
• Azad is to be paid salary of ₹10,000 per quarter.
• Azad has guaranteed that Ghulam’s share of profit after all the adjustments will not be less than ₹30,000 per
annum.
Drawings made by partners:
• Azad withdrew ₹3,000 per month at the end of every month for nine months.
• Ghulam withdrew ₹2,000 per month at the beginning of every month for ten months.
Net profit made by the firm for the year ended on 31.03.2024 amounted to ₹1,80,970.
You are required to prepare:
• Profit & Loss Appropriation A/c for the year ended on 31.03.2024;
• Azad’s Loan A/c; and
 • Ghulam’s Loan A/c
Profit & Loss Appropriation A/c
for the year ended on 31.03.2024
Particulars Amount Particulars Amount
To Interest on Capital By P/L A/c 1,80,970
Azad's Capital 14,000 (-) Int on loan from Azad -600
Ghulam's capital 16,000 30,000 (+) Int on loan to Ghulam 450
To Azad's Salary 40,000 (-) Rent to Ghulam -48,000 1,32,820
To Azad's Capital 39,000 - 4,000 35,000 By Interest on drawings A/c
To Ghulam's Capital 26,000 + 4,000 30,000 Azad's Capital 1,080
Ghulam's Capital 1,100 2,180
1,35,000 1,35,000
Loan from Azad
Date Particulars Amount Date Particulars Amount
31.12.23 To Bank A/c 40,600 01.10.23 By Bank A/c 40,000
31.12.2023 By Interest on loan 600
40,600 40,600
Loan to Ghulam
Date Particulars Amount Date Particulars Amount
01.12.23 To Bank A/c 15,000 31.03.24 By Ghulam's Capital A/c 15,000

OR

Noah and Owen entered into partnership on 01.04.2023 by investing capital of ₹5,00,000 and ₹4,00,000
respectively. On 01.07.2023 they decided to adjust their capitals as per their PSR which is 2:1 by introducing or
withdrawing cash, as the case may be.
As per the partnership deed:
• Partners are to be provided interest on their capitals @ 6% p.a.
• Partners are to be charged interest on their drawings @ 9% p.a.
• Noah is to be provided rent of ₹8,000 p.a.
• Owen is to be allowed commission of 10% on net profit made by the firm after charging his own
commission.
• 5% of the net profit of the firm is to be transferred to general reserve every year.

Owen withdrew ₹26,000 from the business for his personal use on 01.08.2023. Net profit made by the firm
for the year ending on 31.03.2024 before adjusting any of the above is ₹3,60,000.

You are required to:

(a) Pass adjustment entry and closing entry for interest on capital provided to Noah. [2]
(b) Pass adjustment entry and closing entry for drawings made by Owen. [2]
(c) Pass adjustment entry and closing entry for interest on drawings charged from Owen. [2]
(d) Pass adjustment entry and closing entry for rent provided to Noah. [2]
(e) Pass closing entry for commission allowed to Owen. [1]
(f) Pass journal entry for transfer to general reserve. [1]
Journal
Date Particulars LF Dr. Cr.
(a) Interest on Capital A/c Dr. 34500
31.03.2024 To Noah's Capital A/c 34,500
P/L Appropriation A/c Dr. 34,500
To Interest on Capital A/c 34,500
(b) Drawings A/c Dr. 26,000
01.08.2023 To Cash A/c 26,000
Owen's Capital A/c Dr. 26,000
To Drawings A/c 26,000
(c) Owen's Capital A/c Dr. 1,560
31.03.2024 To Interest on Drawings A/c 1,560
Interest on Drawings A/c Dr. 1,560
To P/L Appropriation A/c 1,560
(d) Rent A/c Dr. 8,000
To Noah's Capital A/c 8,000
P/L Appropriation A/c Dr. 8,000
To Rent A/c 8,000
(e) P/L Appropriation A/c Dr. 32,000
To Owen's Commission A/c 32,000
(f) P/L Appropriation A/c Dr. 17,600
To General Reserve A/c 17,600
Question 10
Grand Ltd. issued 15,000 shares of ₹10 each to the public at par. The issue was over-subscribed. The company
decided to allot shares to all the applicants on pro-rata basis in the ratio of 4:3.
The face value of the shares is payable in three instalments.

Following is the extract of ledger Accounts and Cash Book of Grand Ltd. relating to the shares issued above:
Cash Book (Bank Column only) (extract)
Particulars Amount Particulars Amount
To Share Application A/c 60,000

Share Capital A/c (extract)

Particulars Amount Particulars Amount
To Share Forfeiture A/c By Share Application A/c
To Calls in Arrear A/c By Share Allotment A/c 75,000
By Share First Call A/c

Based on the information provided above, answer the following questions:

(i) What are the number of shares applied for by the public? [1]
(ii) What is the amount payable per share with application? [1]
(iii) What is the amount payable per share with allotment? [1]
(iv) What is the amount payable per share with first and final call? [1]
(v) Grand Ltd. did not receive allotment money and call money form a shareholder, Richa, who applied
for 400 shares.
Ascertain the arrears made by Richa in allotment. [2]
(vi) What is the amount received by Grand Ltd. with First and final call? [1]
(vii) Grand Ltd. forfeited the shares of Richa after first and final call. It then re-issued 200 shares @ ₹11
per share, fully paid up.
(a) Pass journal entry for forfeiting the shares of Richa [2]
(b) What is the amount to be transferred to capital reserve? [1]
(i) Applied by Public 20,000
(ii) Amount payable on application ₹3 per share
(iii) Amount payable on allotment ₹5 per share
(iv) Amount payable on first call ₹2 per share
(v) Arrears made by Richa in allotment ₹1,200
(vi) Amount received with first call ₹29,400
(vii) (a) Share Capital A/c Dr. 3,000
To Calls in Arrears A/c 1,800
To Forfeited Shares A/c 1,200

(b) ₹800
Working Notes:
Issued - 15,000 shares@ 10
Applied - 20,000

App - 3
Allot - 5
I -2

Richa - applied for 400 shares - Allot/I -----> F

Re-issued 200 shares @ ₹11 per share fully paid up

OR
Sterling Ltd. issued a prospectus inviting applications for 60,000 shares of ₹10 each. These shares were issued
at premium of 30% on the following terms: [10]
On Application - ₹4 (including premium of ₹1)
On Allotment - ₹6 (including premium of ₹2)
On First Call - balance
Applications were received for 85,000 shares and the allotment was made as follows:

(i) To the applicants of 30,000 shares : 20,000 shares on pro-rata basis

(ii) To the applicants of 45,000 shares : 40,000 shares on pro-rata basis
(iii) To the applicants of 10,000 shares : NIL

It was also decided to adjust any excess amount paid on application towards sum due on allotment. The shares
were duly called and paid with the exception of the following:
A shareholder of 1,200 shares, belonging to first category, failed to pay allotment money. As a result, his
shares were forfeited. The first call was made thereafter.
Another shareholder of 3,000 shares paid the first call amount along with allotment in advance.
Out of the shares forfeited, 900 shares were re-issued @ ₹5 per share, ₹7 paid up.
You are required to pass necessary journal entries to record the above transactions in the books of Sterling
Ltd. and also prepare Calls in Arrears A/c.
 Journal of Sterling Ltd.
Date Particulars LF Dr. Cr.
Bank A/c Dr. 340000
To Share Application A/c 340000
Share Application A/c Dr. 340000
To Share Capital A/c 180000
To Securities Premium A/c 60000
To Bank A/c 40000
To Share Allotment A/c 60000
Share Allotment A/c Dr. 360000
To Share Capital A/c 240000
To Securities Premium A/c 120000
Bank A/c Dr. 304200
Calls in Arrear A/c Dr. 4800
To Share Allotment A/c 300000
To Calls in Advance A/c 9000
2400 Share Capital A/c Dr. 8400
Securities Premium A/c Dr. 2400
To Calls in Arrear A/c 4800
To Forfeited Shares A/c 6000
Share First Call A/c Dr. 176400
To Share Capital A/c 176400
Bank A/c Dr. 167400
Calls in Advance A/c Dr. 9000
To Share First Call A/c 176400
900 Bank A/c Dr. 4500
Forfeited Shares A/c Dr. 1800
To Share Capital A/c 6300
Forfeited Shares A/c Dr. 450
To Capital Reserve A/c 450
Calls in Arrear A/c
Date Particulars JF Amount Date Particulars JF Amount
To Share Allotment A/c 4800 By Share Capital A/c 2400
By Securities Premium A/c 2400
4800 4800

(SECTION – B)
Answer all questions
Question 11
In subparts (i) to (ii) choose the correct option and in subparts (iii) to (v) answer the questions as instructed:
(i) On issue of debentures as collateral security, which of the following account will be credited? [1]
(a) Debenture Suspense A/c
(b) Debenture A/c
(c) Bank Loan A/c
(d) Debenture holder’s A/c

(ii) According to SEBI Guidelines, an unlisted company (other than NBFC and HFC) can redeem maximum ---
-------- of their debentures out of capital. [1]
(a) 10%
(b) 90%
(c) 100%
(d) None of the above

(iii) No debenture redemption reserve is required for debenture issued by: [1]
(a) Manufacturing companies
(b) Infrastructure Companies
(c) Banking Companies
(d) Trading Companies

(iv) Write the formula for calculating Capital Employed of a partnership firm. [1]
Capital Employed = All Assets except purchased goodwill, Non-Trade Investments and fictitious
assets – outside liabilities
(v) Give any two differences between premium on issue of debentures and premium on redemption of debentures.
[1]

Question 12 [3]
Sudheer and Arnab are partners in a business. Following are the balances of their Capital A/c’s and Current
A/c’s as at 31.03.2024:
 Capital A/c Current A/c
Sudheer ₹3,30,000 ₹35,000 (Cr.)
Arnab ₹2,75,000 ₹15,000 (Dr.)
Profit made by the firm for the last three years:
2021-22 ₹95,200 (including goods lost by fire of ₹4,600)
2022-23 ₹87,200
2023-24 ₹86,000
It is also informed that:
• Closing stock for the year ended on 31.03.2023 was overvalued by ₹2,000.
• Normal rate of return prevailing in the industry is 13%.
You are required to find out the value of goodwill by Capitalisation of Average Profit of the last three years.
2021-22 2022-23 2023-24
Profits 95,200 87,200 86,000
(+) Abnormal loss 4,600
Overvaluation of closing stock -2,000 2,000
Adjusted Profit 99,800 85,200 88,000

Average Profit 91,000

Capitalisation of Average Profit 7,00,000
Capital Employed 6,25,000
Goodwill 75,000
Question 13 [6]
Give journal entries to record the following:
a) A company issued 9,500, 12%Debentures of ₹200 each at premium of 10%, redeemable after 5 years at
premium of 5%.
b) 3,000, 9%Debentures of ₹150 each were issued to New India Ltd. as underwriting commission.
c) A cheque of ₹2,50,000 and 4,000, 6%Debentures of ₹500 each were issued to promoters of a company in
return of the services provided by them to the company.
d) Monday Ltd. purchased assets of ₹12,00,000 and liabilities of ₹4,00,000 from Tuesday Ltd. at an agreed
purchase consideration of ₹7,70,00. This purchase consideration was discharged by issue of 6%Debentures
of ₹200 each at premium of 10%.
e) Assets of ₹5,20,000 were purchased from Sunshine Ltd. Payment for this purchase was made by issue of
₹5,00,000, 7%Debentures.
Journal
Dat
e Particulars LF Dr. Cr.
a) Bank A/c Dr. 20,90,000
To Debenture Application and Allotment A/c 20,90,000
Debenture Application and Allotment A/c Dr. 20,90,000
Loss on Issue of Debentures A/c Dr. 95,000
To 12%Debentures A/c 19,00,000
To Securities Premium A/c 1,90,000
To Premium on Redemption A/c 95,000
EOY Securities Premium A/c Dr. 95,000
To Loss on Issue of Debentures A/c 95,000
b) Underwriting Commission A/c Dr. 4,50,000
To New India Ltd. 4,50,000
New India Ltd. Dr. 4,50,000
To 9%Debentures A/c 4,50,000
EOY Statement of P/L Dr. 4,50,000
To Underwriting Commission A/c 4,50,000
c) Incorporation Cost A/c Dr. 22,50,000
To Bank A/c 2,50,000
To 6%Debentures A/c 20,00,000
d) Assets A/c Dr. 12,00,000
To Liabilities A/c 4,00,000
To Tuesday Ltd. 7,70,000
To Capital Reserve A/c 30,000
Tuesday Ltd. Dr. 7,70,000
To 6%Debentures A/c 7,00,000
To Securities Premium A/c 70,000
(No. of Deb = 7,70,000/220 = 3,500 debentures)
e) Assets A/c Dr. 5,20,000
To Sunshine Ltd. 5,20,000
Sunshine Ltd. Dr. 5,20,000
To 7%Debentures A/c 5,00,000
To Securities Premium A/c 20,000
 OR
On 01.04.2023, Positive Ways Ltd. issued 9,000, 12%Debentures of ₹100 each at premium of 5%. Interest
on these debentures is payable half yearly on 30th September and 31st March every year. Rate of tax deducted at source
is 10%.
You are required to pass necessary journal entries for the year 2023-24.
Journal of Positive Ways Ltd.
Date Particulars LF Dr. Cr.
01.04.23 Bank A/c Dr. 9,45,000
To Debenture Application and Allotment A/c 9,45,000
Debenture Application and Allotment A/c Dr. 9,45,000
To 12%Debentures A/c 9,00,000
To Securities Premium A/c 45,000
30.09.23 Interest on Debentures A/c Dr. 54,000
To Debentureholders A/c 48,600
To Tax Payable A/c 5,400
Debentureholders A/c Dr. 48,600
Taxpayable A/c Dr. 5,400
To Bank A/c 54,000
31.03.24 Interest on Debentures A/c Dr. 54,000
To Debentureholders A/c 48,600
To Tax Payable A/c 5,400
Debentureholders A/c Dr. 48,600
Taxpayable A/c Dr. 5,400
To Bank A/c 54,000
Statement of P/L Dr. 1,08,000
To Interest on Debentures A/c 1,08,000

Question 14 [6]
Gama Ltd. (an unlisted company) has 8,000, 8%Debentures of ₹100 each due for redemption at par on
313.03.2023. Debenture Redemption Reserve has a balance of ₹50,000. On 31.03.2023, it was decided to transfer the
required amount into Debenture Redemption Reserve as per SEBI guidelines. It was also decided to invest the required
amount towards Debenture Redemption Investment. These investments realised 105% less 0.5% brokerage. Debenture
were redeemed on the due date.
You are required to pass necessary journal entries to record the redemption of these debentures. (Ignore
interest)
Journal
Date Particulars LF Dr. Cr.
30.04.23 Debenture Redemption Investment A/c Dr. 1,20,000
To Bank A/c 1,20,000
31.03.24 Bank A/c Dr. 1,25,370
To Debenture Redemption Investment A/c 1,20,000
To Profit on sale of investments A/c 5,370
St. of P/L Dr. 30,000
To Debenture Redemption Reserve A/c 30,000
8%Debenture A/c Dr. 8,00,000
To Debenture holder A/c 8,00,000
Debenture holder A/c Dr. 8,00,000
To Bank A/c 8,00,000
Debenture Redemption Reserve A/c Dr. 80,000
To General Reserve A/c 80,000
Profit on sale of Investments A/c Dr. 5,370
To St. of P/L 5,370
Calculation of profit on sale of investments:
Investments were sold at 105% = ₹1,26,000
Brokerage @ 0.5% = ₹630
Amount realised on sale = ₹1,25,370
Thus, profit on sale of investments = ₹5,370