Solution

ACCOUNTS 12 SUPERFAST REVISION

Class 12 - Accountancy
1. PROFIT AND LOSS ACCOUNT
for the year ended 31st March, 2018
Dr. Cr.

Particulars ₹ Particulars ₹

To Interest on B's Loan 12,000 By Profit before interest 3,04,080

To Profit transferred to Profit & Loss Appropriation A/c 2,92,080

3,04,080 3,04,080
PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2018
Dr. Cr.

Particulars ₹ Particulars ₹

To Interest on Capital: By Profit & Loss A/c

A's capital 45,000 (Net Profit) 2,92,080

B's capital 27,000 72,000 By Interest on Drawings:

To Salary (A's capital) 48,000 A's capital 3,600

To General Reserve A/c 9,000 B's capital 4,320 7,920

To Profit transferred to:

A's Capital A/c 1,14,000

B's Capital A/c 57,000 1,71,000

3,00,000 3,00,000
Hints:
i. Profit & Loss Appropriation A/c will be completed First. Based on A's share of profit, profit transferred to Capital Accounts
will be ₹1,71,000.
ii. Profit before transfer to General Reserve:
1,71,000 × 100

95
= ₹1,80,000
iii. Interest on Drawings will be calculated for six months.
iv. Figure of net profit ₹2,92,080 will be the balancing figure of P & L Appropriation A/c. It will be transferred to the Dr. side of
P & L A/c.
v. Interest on B's Loan will be calculated @ 6% p.a.
2. JOURNAL of A, B and C
Date Particulars L.F. Dr. (₹) Cr. (₹)

2019 March 31 Interest on A's Loan A/c Dr. 3,000

To A's Loan A/c 3,000

(Interest allowed on A's Loan A/c for 6months @6%p.a.)

March 31 Profit & Loss A/c Dr. 3,000

To Interest on A's Loan A/c 3,000

(Transfer of interest on A's Loan to P & L A/c)

March 31 C's Current A/c Dr. 7,500

1 / 56
 To Interest on C's Loan A/c 7,500

(Interest charged on Loan to C for six months @10%p.a.)

March 31 Interest on C's Loan A/c Dr. 7,500

To Profit & Loss A/c 7,500

(Transfer of Interest on Loan to C to P & L A/c)

PARTNER'S CURRENT ACCOUNT
Dr. Cr.

A B C A B C
Particulars Particulars
₹ ₹ ₹ ₹ ₹ ₹

To Interest on C's Loan A/c 7,500 By P & L Appropriation A/c(1) 1,41,500 1,41,500 1,41,500

To Bal. c/d 1,41,500 1,41,500 1,34,000

1,41,500 1,41,500 1,41,500 1,41,500 1,41,500 1,41,500

Working Note:
1. Divisible Profits: 4,20,000 - 3,000 + 7,500 = 4,24,500
It will be divided equally among all partners.
2. If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall be
entitled to get an interest on the amount at the rate of 6 per cent per annum.
3. When capitals are fluctuating
Capital Accounts of Amit and Sumit
Particulars Amit (₹) Sumit (₹) Particulars Amit (₹) Sumit (₹)

To Drawing A/c 4,000 8,000 By Balance A/c (Capital) 40,000 25,000

To Balance c/d 52,400 22,500 By Salary A/c 6,000

... ... By Interest on capital A/c 2,400 1,500

... ... By Profit and Loss 8,000 4,000

56,400 30,500 56,400 30,500

When capital are Fixed Capital accounts
Capital Account
Particulars Amit (₹) Sumit (₹) Particulars Amit (₹) Sumit (₹)

To Balance c/d 40,000 25,000 By Balance A/c (Capital) 40,000 25,000

40,000 25,000 . 40,000 25,000

Current Account
Particulars Amit (₹) Sumit (₹) Particulars Amit (₹) Sumit (₹)

To Drawing A/c 4,000 8,000 By Salary A/c 6,000

To Balance c/d 12,400 ... By Interest on capital A/c 2,400 1,500

... ... By Profit and Loss Appropriation a/c 8,000 4,000

By Balance c/d 2,500

16,400 8,000 16,400 8,000

Working Notes: Profits after salary and interest ₹ 12,000 Amit share =
2 1

3
× 12, 000 = 8,000 Sumit share = 3
× 12, 000 = 4,000
4. The profit and loss appropriation account is an extension of the profit and loss account. The main intention of preparing a profit
and loss appropriation account is to show the distribution of profits among the partners. So as per the particulars available in this
question the Profit & Loss Appropriation A/c is prepared as follows:-
Profit and Loss Appropriation Account

2 / 56
 Dr. Cr.

Particulars (Rs) Particulars (Rs)

To Interest on Capital: By Net Profit 1,56,000

A 3,000

B 3,000

C 4,000 10,000

To Salary to C 6,000

To Profit transferred to Current A/cs:

A(6,000 + 15,000 + 30,000) 51,000

B(6,000 + 9,000 + 30,000) 45,000

C(8,000 + 6,000 + 30,000) 44,000 1,40,000

1,56,000 1,56,000
JOURNAL
Date Particulars L.F Dr(Rs) Cr(Rs)

Profit and Loss Appropriation A/c Dr. 1,40,000

To A’s Current A/c 51,000

To B’s Current A/c 45,000

To C’s Current A/c

44,000
(Being profit appropriated among the partners)
5. JOURNAL
Date Particulars L.F. Dr.(Rs) Cr.(Rs)

1 A's Capital A/c Dr. 48,000

B's Capital A/c Dr. 48,000

C's Capital A/c Dr. 24,000

To Profit and Loss Adjustment A/c 1,20,000

(Being rectification entry passed.)

2 Profit and Loss Adjustment Dr. 12,000

To A's Capital A/c 6,000

To B's Capital A/c 6,000

(Being salary credited to A and B.)

3 Profit and Loss Adjustment A/c Dr. 6,000

To C's Capital A/c 6000

(Being commission credited to C.)

4 Profit and Loss Adjustment A/c Dr. 1,02,000

To A’s Capital A/c 36,000

To B’s Capital A/c 48,000

To C's Capital A/c 18,000

(Being credit balance in P & L Adjustment A/c distributed to partners.)

3 / 56
 Working Notes:
For calculation of profit share
(Rs)

P & L Adjustment A/c balance 1,02,000

Less : B’s guaranteed share 48.000

54.000
Distributed between A & C in the ratio of 4 : 2
54,000
A's Share = 6
× 4 = Rs 36,000;
54,000
C's Share = 6
× 2 = Rs 18,000
₹48,000 + 60,000 + 90,000
6. Value of goodwill = 3
= ₹ 66,000
Old Ratio of A, B, and C = 7 : 3 : 2
New Ratio of A, B, and C = 8 : 4 : 3
Sacrifice or Gain:
7 8 35 − 32 3
A= 12
−
15
=
60
=
60
(Sacrifice)
15 − 16
B= 3

12
−
4

15
=
60
=
1

60
(Gain)
2 3 10 − 12 2
C= 12
−
15
=
60
=
60
(Gain)
In the books of Firm
Journal
Date Particular L.F. Dr. (₹) Cr. (₹)

2015 April 1 B's Capital A/c (1/60 of ₹ 66,000) Dr. 1,100

C's Capital A/c (2/60 of ₹ 66,000) Dr. 2,200

To A's Capital A/c (3/60 of ₹ 66,000)

3,300
(Adjustment for goodwill due to change in profit sharing ratio)(Refer Working Note)
7. Journal
Date Particulars L.F. Dr.(₹) Cr.(₹)

X's Capital A/c Dr. 30,000

Y's Capital A/c Dr. 20,000

To Profit and loss A/c

(Being the undistributed loss transferred to the Capital Accounts of the Partners on change in 50,000
the profit-sharing ratio)
Note: At the time of change in profit sharing ratio, reserves and accumulated profits and losses exist in the books of the firm will
be distributed in their old profit sharing ratio.
8. Journal
Date Particulars L.F. ₹ ₹

A's Capital A/c [30,000 × (1/10)] Dr. 3,000

To B's Capital A/c 3,000

(Being amount of net change transfer in Sacrifice/Gain)

Working Note-
A = (2/5) - (5/10) = (4 - 5)/10 = -1/10 Gain
B = (2/5) - (3/10) = (4 - 3)/10 = 1/10 Sac.
C = (1/5) - (2/10) = (2 - 2)/10 = 0
Statement Showing Net effect of Revaluation
Particulars Book Value Revised Value Net Change

Machinery 2,50,000 3,00,000 50,000

4 / 56
 Computers 2,00,000 1,75,000 (25,000)

Sundry Creditors 90,000 75,000 15,000

O/s Expenses 15,000 25,000 (10,000)

Total Net Change 30,000

9. Journal
Dr. Cr.
Date Particulars L.F.
(₹) (₹)

2016
April Charu’s Capital A/c Dr. 9,000
1

To Brijesh’s Capital A/c 4,500

To Dilip’s Capital A/c 4,500

(Adjustment for revaluation of assets and liabilities and for reserves, profits and goodwill on
change in profit sharing ratio)
BALANCE SHEET
as at 1st April, 2016
Liabilities ₹ Assets ₹

Creditors 87,000 Cash 30,000

Reserve 42,000 Debtors 62,000

Profit & Loss A/c (Profits) 21,000 Less : Provision for doubtful debts 2,000 60,000

Capital Accounts: Stock 1,80,000

Brijesh 3,04,500 Furniture 30,000

Charu 2,91,000 Plant 2,00,000

Dilip 54,500 6,50,000 Building 3,00,000

8,00,000 8,00,000
Workings:
Calculation of Net Amount to be adjusted :
Particulars ₹

Loss due to decrease in the value of Stock (36,000)

Loss due to provision for doubtful debts (1,500)

Loss due to decrease in the value of Furniture (6,000)

Loss due to decrease in the value of Plant (30,000)

Loss due to unrecorded liability (i.e., Outstanding salary) (3,500) (77,000)

Profit due to increase in the value of Building 50,000

Loss on Revaluation (-) 27,000

Adjustment for Reserves (+) 42,000

Adjustment for Profit & Loss A/c (Profits) (+) 21,000

Adjustment for Goodwill (+) 45,000

(+) 81,000
Old Ratio of Brijesh, Charu and Dilip = 3: 2: 1
New Ratio of Brijesh, Charu and Dilip = 4: 4: 1

5 / 56
 Sacrifice or Gain: Old share - New Share
Brijesh = − = 3

6
(Sacrifice)
4

9 18
1

Charu = 2

6
−
4

9
=
18
2
(Gain)
Dilip = 1

6
−
1

9
=
1

18
(Sacrifice)
Share of Brijesh = 81,000 × 18
1
= ₹ 4,500 (Cr.)
Share of Charu = 81,000 × 18
2
= ₹ 9,000 (Dr.)
Share of Dilip = 81,000 × 1

18
= ₹ 4,500 (Cr.)

10. Dr Revaluation Account Cr

Amt
Particulars Particulars Amt (₹)
(₹)

By Loss on Revaluation Transferred to Capital A/

To Depreciation on Fixed Assets A/c 25,000
cs

To Provision for Workmen Compensation

5,000 A 9,000
Fund

B 6,000

C 9,000

D 6,000 30,000

30,000 30,000

Partner's
Dr Capital Cr
Account

Particulars A(₹) B (₹) C (₹) D (₹) Particulars A (₹) B (₹) C (₹) D (₹)

To Revaluation A/c
9000 6000 9000 6000 By Balance b/d 2,00,000 2,50,000 2,50,000 3,10,000
(loss)

To C's Cap. A/c 27,000 - - - By A's Cap. A/c - - 27,000 -

To D's Cap. A/c - 27,000 - - By B's Cap. A/c - - - 27,000

By Current A/c
To Current A/cs
- - 72,000 2,33,000 (Balancing 2,28,000 77,000 - -
(Balancing Figure)
Figure)

To Balance c/d 3,92,000 2,94,000 1,96,000 98,000

4,28,000 3,27,000 2,77,000 3,37,000 4,28,000 3,27,000 2,77,000 3,37,000

Balance Sheet
as at 1st April, 2016
Liabilities Amit (₹) Assets Amit (₹)

Capital A/Cs Fixed Assets 8,25,000

A 3,92,000 (-) Depreciation (25,000) 8,00,000

B 2,94,000 Current Assets 3,00,000

C 1,96,000 Current A/Cs

D 98,000 9,80,000 A 2,28,000

Current A/Cs D 77,000 3,05,000

C 72,000

D 2,33,000 3,05,000

6 / 56
 Workmen Compensation Reserve 30,000

Sundry Creditors 90,000

14,05,000 14,05,000
Working Note:
Calculate of Sacrificing/(Gaining) Share
Sacrificing/(Gaining) Share = Old Share - New Share
3 4 3−4 1
A= − = = ( ) Gain
10 10 10 10

2 3 2−3 1
B= − = = ( ) Gain
10 10 10 10

3 2 3−2 1
C = − = = Gain
10 10 10 10
2 1 2−1 1
D = − = = Gain
10 10 10 10

Calculation of Goodwill
A's share of goodwill = 270, 000 × 1

10
= ₹ 27,000
B's share of goodwill = 270, 000 × 1

10
= ₹ 27,000
C's share of goodwill = 270, 000 × 1

10
= ₹ 27,000
D's share of goodwill = 270, 000 × 1

10
= ₹ 27,000
Calculation of Adjusted Capitals
Adjusted Capital of A = ₹ 1,64,000
Adjusted Capital of B = ₹ 2,17,000
Adjusted Capital of C = ₹ 2,68,000
Adjusted Capital of D = ₹ 3,31,000
Total Combined Capital = ₹ 1,64,000 + ₹ 2,17,000 + ₹ 2,68,000 + ₹ 3,31,000 = ₹ 9,80,000
New Capital of A = 9, 80, 000 × = ₹ 392,000 4

10

New Capital of B = 9, 80, 000 × 3

10
= ₹ 294,000
New Capital of C = 9, 80, 000 × 2

10
= ₹ 1,96,000
New Capital of D = 9, 80, 000 × 1

10
= 98,000
Journal Entry Showing Adjustment for Goodwill
A's Capital A/c Dr 27,000

B's Capital A/c Dr 27,000

To C's Capital A/c 27,000

To D's Capital A/c 27,000

While posting in ledger, it has been assumed than A pays to C and B pays to D.
11. Calculation of new profit sharing ratio:-
Old Ratio of A and B = 3 : 1
New Ratio of B and C = 3 : 1
C's Share = 1

Remaining Share = 1 - 1

4
=
3

4
3 3 9
A's New Ratio = 4
×
4
=
16
3 3
B's New Ratio = 4
×
1

4
=
16

C's New Ratio = 1

New Ratio of A, B and C = 9 : 3 : 1

Calculation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio - New Ratio
3 3 12−9 3
A's Sacrificing Ratio = 4
−
16
=
16
=
16
4−3
B's Sacrificing Ratio = 1

4
−
16
3
=
16
=
1

16

Sacrificing Ratio = 3 : 1
12. Old ratio of X and Y = 9 : 6
X's sacrifice = 9/15 × 3/15 = 27/225
Y's sacrifice = 6/15 × 6/15 = 36/225

7 / 56
 X's new share = 9/15 - 27/225 = 108/225
Y's new share = 6/15 - 36/225 = 54/225
Z's share = 27/225 + 36/225 = 63/225
New ratio between X, Y and Z = 108: 54 : 63 = 12 : 6 : 7

13. Date Particulars L.F. Amount Dr. Amount Cr.

Bank A/c Dr. 2,00,000

To Premium of Goodwill A/c 2,00,000

(Being amount of goodwill brought in by C for his share)

Goodwill A/c Dr. 2,00,000

B's Current A/c Dr. 75,000

To A's Capital A/c 2,75,000

(Being goodwill brought in by C credited to A with goodwill

Working Note:
Old Ratio = 3 : 1
New Ratio = 4 : 3 : 2
Sacrificing or Gaining Ratio:
27−16
A's Share = 3

4
−
4

9
=
36
=
11

36
(Sacrifice)
9−12
B's Share = 1

4
−
3

9
=
36
=
3

36
(Gain)
C's Share = 2

9
(Gain)
Sacrificing Ratio = 11

36
:
3

36
:
2

Sacrificing Ratio = 11 : 3 : 8
C's Share in Goodwill = ₹2,00,000 × 9

2
= ₹9,00,000
The amount of goodwill to be contributed by B will be ₹9,00,000 × 3

36
= ₹75,000
14. Revaluation Account
Particulars (Rs.) Particulars (Rs.)

To Provision for D.D. 1,500 By Land and Building A/c 3,000

To Capital A/cs:
Shashi - 2,400 4,000 By Stock 2,500
Ashu - 1,600

5,500 5,500
====== ======
Partners’ Capital Account
Particulars Shashi Ashu Tanya Particulars Shashi Ashu Tanya

By Balance b/d 15,000 10,000 -

By general reserve 15,000 10,000 -

To Balance c/d 40,200 26,800 15,000 By Claim against workmen’s compensation fund A/C 1,800 1,200 -

By Revaluation A/c 2,400 1,600 -

By Bank A/c - - 15,000

By Premium for goodwill 6,000 4,000 -

40,200 26,800 15,000 40,200 26,800 15,000

====== ====== ====== ====== ====== =====
Balance Sheet of the New Firm
Liabilities (Rs.) Assets (Rs.)

Creditors 18,000 Debtors 21,000

8 / 56
 Claim against Workmen compensation fund 12,000 Less: Provision for DD 1,500 19,500

Capital: Land and Building 21,000

Shashi 40,200 Plant and machinery 12,000

Ashu 26,800 Stock 13,500

Tanya 15,000 Bank 46,000

1,12,000 1,12,000
====== =====

15. Date Particulars L.F. Amount Dr. Amount Cr.

Bank A/c Dr. 4,00,000

To Premium for Goodwill A/c 4,00,000

(Being goodwill brought in cash)

Premium for Goodwill A/c Dr. 4,00,000

To A's Capital A/c 2,00,000

To B's Capital A/c 1,00,000

To C's Capital A/c 1,00,000

(Being Goodwill is transferred to partner's capital account)

A's Capital A/c Dr. 1,00,000

B's Capital A/c Dr. 50,000

C's Capital A/c Dr. 50,000

To Bank A/c 2,00,000

(Being half of goodwill withdrawn by partners)

Bank A/c Dr. 5,00,000

To Premium for Goodwill A/c 5,00,000

(Being goodwill brought in cash)

Premium for Goodwill A/c Dr. 5,00,000

To A's Capital A/c 1,00,000

To B's Capital A/c 50,000

To C's Capital A/c 50,000

To D's Capital A/c 3,00,000

(Being Goodwill is transferred to partner's capital account in 2 : 1 : 1 : 6)

Calculation of New Profit Sharing Ratio:-
1
i. C admitted for 4
th Share
Remaining Share = 1 - 1

4
=
3

A's Share = 2

3
of 3

4
=
2

B's Share = 1

3
of 3

4
=
1

C's Share = 1

New Share = 2 : 1 : 1
ii. D admitted for th Share
3

Remaining Share = 1 - 3

5
=
2

A's Share = 2

4
of 2

5
=
4

20
=
2

10

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 B's Share = 1

4
of 2

5
=
2

20
=
10
1

C's Share = 1

4
of 2

5
=
1

10

D's Share = 3

5
=
6

10

New Share = 2 : 1 : 1 : 6
iii. E admitted for th Share
1

Remaining Share = 1 - 1

6
=
5

A's Share = 2

10
of 5

6
=
10

60
=
1

B's Share = 1

10
of 5

6
=
5

60
=
1

12
5 5
C's Share = 1

10
of 6
=
60
=
1

12
6 5 5
D's Share = 10
of 6
=
10

E's Share = 1

6
5
New Profit Sharing Ratio = 1

6
:
1

12
:
1

12
:
10
:
1

6
10:5⋅5:30:10
New PRofit Sharing Ratio = 60

New PRofit Sharing Ratio = 10 : 5 : 5 : 30 : 10

New PRofit Sharing Ratio = 2 : 1 : 1 : 6 : 2
Point of Knowledge:-
Here C has paid the premium privarely and hence no entry will pass for this transaction.
16. In the books of firm
Journal Entries
Amount Amount
Date Particulars L.F.
Dr. Cr.

2014

April
Revaluation A/c Dr. 3,400
1

To Provision for doubtful debts A/c 400

To Furniture A/c 3,000

(Being assets and liabilities revalued through revaluation account)

Gautam's Capital A/c Dr. 1,360

Rahul's Capital A/c Dr. 2,040

To Revaluation A/c 3,400

(Being loss on revaluation distributed to old partners in old profit ratio)

Gautam's Capital A/c Dr. 22,000

To Furniture A/c 22,000

(Being furniture taken by Gautam)

General Reserve A/c Dr. 10,000

To Gautam's Capital A/c 4,000

To Rahul's Capital A/c 6,000

(Being General Reserve transferred to old partner's capital account in old profit
sharing ratio)

Gautam's Capital A/c Dr. 4,000

Rahul's Capital A/c Dr. 6,000

To Goodwill A/c 10,000

(Being goodwill written off from the capital accounts of the old partners in the old
ratio)

10 / 56
 Cash A/c Dr. 50,000

To Karim's Capital A/c 40,000

To Goodwill A/c 10,000

(Being capital and goodwill brought in cash by Karim)

Gautam's Capital A/c Dr. 5,000

Goodwill A/c Dr. 10,000

To Rahul's Capital A/c 15,000

(Being Rahul compensated for sacrifice of 3/10 share of profit)

Balance Sheet
Dr. Cr.

Liabilities Amount Assets Amount

Sundry Creditors 5,000 Stock 15,000

Bills Payable 15,000 Cash in hand 90,000

Capital account balances: Sundry Debtors 12,000

Gautam 1,640 Less: Provision for Doubtful debts 2,400 9,600

Rahul 52,960

Karim 40,000 94,600

1,14,600 1,14,600
Working Note:-
Old Ratio Gautam and Rahul = 2 : 3
New Ratio Gautam, Rahul and Kabir = 5 : 3 : 2
2 5 4−5 1
Sacrificing Share = 5
−
10
=
10
=
12
(Gain)
6−3
Rahul's Share = 3

5
−
3

10
=
10
=
3

10
(Sacrifice)
Kabir's Share = 2

10

Value of Goodwill of Firm = ₹10,000 × 10

2
= ₹50,000
Compensation paid by B = ₹50,000 × 1

10
= ₹5,000
Partner's Capital Account
Dr. Cr.

Particulars Gautam Rahul Karim Particulars Gautam Rahul Karim

To Revaluation A/c 1,360 2,040 --- By Balance b/d 30,000 40,000 ---

To Furniture A/c 22,000 --- --- By General Res. A/c 4,000 6,000 ---

To Goodwill A/c 4,000 6,000 --- By Cash A/c --- --- 40,000

To Balance c/d 1,640 52,960 40,000 By Gautam's A/c --- 5,000 ---

By Goodwill A/c --- 10,000 ---

34,000 61,000 40,000 34,000 61,000 40,000

17. Books of A, B and C
Journal
Dr. Cr.
Date Particulars L.F.
(Rs) (Rs)

1. Cash A/c Dr. 15,000

Stock A/c Dr. 24,000

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 Furniture A/c Dr. 30,000

Machinery A/c Dr. 36,000

To Sumit's Capital A/c 85,000

To Premium for Goodwill A/c 20,000

(Being the premium for goodwill and capital brought in by Sumit for his l/4th share)

2. Premium for Goodwill A/c Dr. 20,000

To Prasant's Capital A/c 12,000

To Nilesh's Capital A/c 8,000

(Being the premium for goodwill distributed between Prasant and Nilesh according to their
sacrificing ratio 3 : 2)
Working Notes :
1. Calculation of Sumit’s share of goodwill: Total Goodwill of the firm = 80,000. Hence, Sumit’s share of Goodwill = 1/4 ×
80,000 = Rs 20,000.
2. Calculation of the new profit sharing ratio of the partners in the new firm :
Sumit’s share = 1/4th. Hence, the total share of Prasant and Nilesh in the new firm afer Sumit's share would be = 1 - 1/4 = 3/4
th.
3. Calculation of new profit Sharing ratio
4. Prasant’s new share = 3/5 of 3/4th = 3/5 × 3/4 = 9/20
5. Nilesh’s new share = 2/5 of 3/4th = 2/5 × 3/4 = 6/20
Therefore, the new profit sharing ratio of Prasant, Nilesh and Sumit would be as follows :
Prasant : Nilesh, Sumit = 9/20 : 6/20 : 1/4 = 9/20 : 6/20 : 5/20 = 9 : 6 : 5
18. Working Note :
1. Calculation of sacrificing ratio:
Sacrifice = Old Share - New Share
Old Ratio of B,C = 3 : 2
New Ratio of B,C and D = 2:2:1
B's Sacrifice = 3/5 - 2/5 = 1/10
C's Sacrifice = 2/5 - 2/5 = 0
Only B is sacrificing. hence Premium for Goodwill brought by D will be credited to B's capital A/C
2. Adjustment of capital :
For 1/5th share, D Brought capital = 30,000
Therefore, the total Capital of the Firm= 30,000× 5/1= 1,50,000
thus, B's Capital- 1,50,000× 2/5= 60,000
C's Capital - 1,50,000× 2/5= 60,000
D's Capital- 1,50,000× 1/5= 30,000
3. Cash A/c

Dr. Cr.

Particulars Amount Particulars amount

To balance b/d 16,000 By B's Capital (goodwill) 7,500

To D's Capital 30,000 By B's Capital (Capital ) 1,170

To Premium for goodwill 15,000 By balance c/d 76,550

To C's capital 24,220

85,220 85,220
Revaluation A/c
Particulars Amount Particulars Amount

To Provision For Doubtful Debts 250 By Creditors 500

12 / 56
 To Provision For Claim For Damages 800 By Revaluation Loss

B 330

C 220 550

1,050 1,050
Partners Capital A/c
Particulars B C D Particulars B C D

To revaluation (Loss) 330 220 ........ By Balance b/d 60,000 40,000 .......

To P&L A/c 6,000 4,000 ........ By Premium For Goodwill 15,000 ........ .......

To Cash(Goodwill) 7,500 By Cash ....... ....... 30,000

To Cash (Bal. Fig.) 1,170 By Cash(Bal. Fig.) 24,220

To Bal c/d 60,000 60,000 30,000

75,000 64,220 30,000 75,000 64,220 30,000

Balance Sheet
as at 31.3.2019
Liabilities Amount Assets Amount

Creditors 59,500 Land and building 80,000

Provision For Claim For damages 800 Machinery 20,000

Capital A/c's Furniture 10,000

B 60,000 Debtors 25,000

C 60,000 (-) Provision for Bad Debts (1250) 23,750

D 30,000 1,50,000 Cash 76,550

2,10,300 2,10,300
19. Revaluation A/c
Particulars Rs. Particulars Rs.

To Stock A/c 16,000 By Loss transferred:

Leena 9,600

Rohit 6,400 16,00

16,000 16,000
Partner's Capital A/c
Particulars Leena Rohit Manoj Particulars Leena Rohit Manoj

To Revaluation A/c (Loss) 9,600 6,400 by Balance b/d 1,60,000 1,40,000

To Balance c/d 217400 1,91,600 102250 By General Reserve 27,000 18,000

By Premium for Goodwill 40,000 40,000

By Cash 102250

2,27,000 1,98,000 102,250 2,27,000 1,98,000 102,250

Working Note:
Sacrificing Share = Old Share - New Share
Leen's Sacrifice = − 3

5
=
5

10
1

10

Rohit's Sacrifice = 2

5
−
3

10
=
1

10

Sacrificing Ratio = 1 : 1

13 / 56
 Balance Sheet
as at 31st March, 2018
Liabilities Amount (Rs.) Assets Amount (Rs.)

Creditors 80,000 Cash (42,000+80,000+92,250) 2,29,250

Bills Payable 38,000 Debtors 1,32,000

Less: Provision for Doubtful Debts 7000 125000

Partner's Capital A/cs.:

Leena 217400 Pant & Machinery 1,50,000

Rohit 1,91,600 Stock 1,14,000

Manoj 102,250 5,11,250 Bank 16000

6,29,250 6,29,250

20. Dr Revaluation Account Cr

Particulars Amt (Rs) Particulars Amt (Rs)

To Stock A/c 2,500 By Plant A/c 2,500

To Provision for Doubtful Debts A/c 150 By Loss Revaluation transferred to

W's Capital A/c (150×3/5) 90

R's Capital A/c (150×2/5) 60 150

2,650 2,650

Dr Partners' Capital Account Cr

Particulars W (Rs) R(Rs) B(Rs) Particulars W (Rs) R(Rs) B (Rs)

To Revaluation A/c 90 60 - By Balance b/d 20,000 15,000 -

To Goodwill A/c 2,400 1,600 - By Cash A/c - - 15,000

To Balance c/d 23,210 17,140 15,000 By Investment Fluctuation Fund A/c 2400 1600

By Premium for Goodwill A/c 3,300 2,200 -

25,700 18,800 15,000 25,700 18,800 15,000

Balance Sheet
Liabilities Amt (Rs) Assets Amt (Rs)

Creditors 17,500 Cash 23,000

Bank Loan 10,000 Debtors 10,000

Capital A/cs (-) Provision for Doubtful Debts (500) 9,500

W 23,210 Stock (12,500-2,500) 10,000

R 17,140 Patents 10,350

B 15,000 55,350 Plant (17,500+2,500) 20,000

Investments 10,000

82,850 82,850
Working Note
10,000+7,000+8,500+7,500
Average Profit = 4
= Rs8, 250

Goodwill = Average Profit × Number of Years’ Purchase

14 / 56
 = 8,250× 2.5= Rs 20,625
B's share = 20, 625 × = Rs5, 500 which will be distributed among W and R in their sacrificing ratio, i.e. 3:2.
4

15

W's share = 3/5 × 5500 = 3300

R's share = 2/5 × 5500 = 2200
Loss on Revaluation transferred to
W's Capital A/c (150×3/5) = 90
R's Capital A/c (150×2/5) = 60
Distribution of Investment fluctuation Fund in old Ratio
W's share = 4,000×3/5 = 2400
R's share = 4,000×2/5 = 1600
Goodwill appearing in the balance sheet is to be written off in old sharing ratio
W's share = 4,000×3/5 = 2400
R's share = 4,000×2/5 = 1600
21. Momita's Capital Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Drawings A/c 10,000 By Balance b/d 60,000

To Interest on Drawing A/c 300 By Interest on Capital A/c 1,800

To Momita's Executor's A/c 83,000 By Profit and Loss Suspense A/c 4,500

By Vika's Capital A/c 13,500

By Gagan's Capital A/c 13,500

93,300 93,300
W.N.:
i. Calculation of Interest on Momita's Capital
Interest on Capital (6 Months) = 60,000× 6

100
×
6

12
= ₹ 1,800
ii. Calculation of Momita's share in Profits
30,000+50,000+60,000+40,000 1,80,000
Average Profit = 4
=
4
= ₹ 45,000
Momita's profit = 45,000 × 1

5
×
6

12
= ₹ 4,500
iii. Adjustment of Goodwill
Average Profit = 45,000
Goodwill = Average Profit × Number of year's purchase
Goodwill = 45,000 × 3 = ₹ 1,35,000
Momta's Goodwill = 1,35,000 × = ₹ 27,000
1

Momta's share of goodwill is to be distributed between Vikas and Gagan in their = 1 : 1

Vikas's = 27,000 × = ₹ 13,500
1

= ₹ 13,500
1
Gagan = 27,000 × 2

22. Revaluation Account

Dr. Cr.

Particulars ₹ Particulars ₹

To Bad Debts A/c 2,000 By Revaluation Loss Transferred to:

To Patents A/c 9,000 X's Capital A/c 4,400

Y's Capital A/c 4,400

Z's Capital A/c 2,200 11,000

11,000 11,000
Partners Capital Account
Dr. Cr.

15 / 56
 Particulars X Y Z Particulars X Y Z

To Revaluation A/c 4,400 4,400 2,200 By Balance b/d 82,000 60,000 75,500

To Y's Capital A/c 18,667 9,333 By Reserve A/c 7,400 7,400 3,700

To Y's Loan A/c 91,000 By X's Capital A/c 18,667

To Balance c/d 66,333 67,667 By Z's Capital A/c 9,333

89,400 95,400 79,200 89,400 95,400 79,200

Balance Sheet
as on 1st April 2018 (after Y's Retirement|)
Liabilities ₹ Assets ₹

Creditors 49,000 Cash 8,000

Y's Loan 91,000 Debtors (19,000 - 2,000) 17,000

Capital account balances: Stock 42,000

X 66,333 Building 2,07,000

Z 67,667 1,34,000

2,74,000 2,74,000
W.N.:
i. Journal
Particulars L.F. Debit ₹ Credit ₹

X's Capital A/c Dr. 18,667

Z's Capital A/c Dr. 9,333

To Y's Capital A/c 28,000

(Being adjustment of goodwill made on Y's retirement)

Adjustment of Goodwill
Goodwill of the firm = ₹ 70,000
Y's retired in the firm
Y's Goodwill = 70,000× = ₹ 28,000
2

Y's share of goodwill is to be distributed by X and Z = 2:1 (Gaining Ratio)

X's share of goodwill = 28,000 × = ₹ 18,667
2

Z's share goodwill = 28,000 × 1

3
= ₹ 9,333
23. REVALUATION ACCOUNT
Dr. Cr.

Particulars ₹ Particulars ₹

To Bad Debts A/c 8,000 By Unexpired Insurance A/c 4,320

To Provision for Doubtful Debts A/c 1,500 By Land and Building A/c 10,000

To Machinery A/c 820

To Revaluation Profit transferred to:

1,600
Pawan's Capital A/c (2/5)

Qatir's Capital A/c (2/5) 1,600

Ram's Capital A/c (1/5) 800 4,000

14,320 14,320
PARTNER'S CAPITAL ACCOUNTS

16 / 56
Dr. Cr.

Particulars Pawan (₹) Qatir (₹) Ram (₹) Particulars Pawan (₹) Qatir (₹) Ram (₹)

To Profit & Loss A/c 2,400 2,400 1,200 By Balance b/d 30,000 30,000 15,000

To Qatir's Capital A/c 4,800 - 2,400 By General Reserve A/c 2,400 2,400 1,200

To Balance c/d 26,800 38,800 13,400 By Revaluation A/c 1,600 1,600 800

By Pawan's Capital A/c - 4,800 -

By Ram's Capital A/c - 2,400 -

34,000 41,200 17,000 34,000 41,200 17,000

To Bank A/c 5,000 By Balance b/d 26,800 38,800 13,400

To Qatir's Loan A/c 33,800 By Bank A/c 18,200 - 1,600

To Balance c/d 45,000 38,800 15,000 45,000 38,800 15,000

BALANCE SHEET (After Qatri's Retirement)
as at April 1, 2016
Liabilities ₹ Assets ₹

Creditors 48,200 Cash at Bank 44,800

Employee's P.F. 17,000 Debtors 30,000

Qatir's Loan 33,800 Less: Provision for doubtful debts 1,500 28,500

Capital Account balances: Stock 14,000

Pawan 45,00 Unexpired Insurance 4,320

Ram 15,000 60,000 Machinery 7,380

Land and Buildings 60,000

1,59,000 1,59,000
Note:
i. Accounting treatment of Debtors:
JOURNAL
Dr. Cr.
Date Particulars L.F.
(₹) (₹)

2016 April
Bad Debts A/c Dr. 10,000
1

To Debtors A/c 10,000

(Bad debts written off)

2016 April
Provision for Doubtful Debts A/c Dr. 2,000
1

Revaluation A/c (₹ 10,000 - ₹ 2,000) Dr. 8,000

To Bad Debts A/c 10,000

(Part of bad debts met from provision for doubtful debts and balance debited to
Revaluation A/c)

2016 April
Revaluation A/c Dr. 1,500
1

To Provision for Doubtful Debts A/c 1,500

(Provision created @ 5% on remaining debtors of ₹ 30,000)

17 / 56
 QATIR'S CAPITAL ACCOUNT

i. Dr. Cr.

Date Particulars ₹ Date Particulars ₹

2017 March 31st To Bank (16,900 + 2,704) 19,604 2016 April 1st By Qatir's Capital A/c 33,800

2017 March 31st To Balance c/d 16,900 2017 March 31st By Interest on ₹ 33,800 @ 8% p.a. 2,704

36,504 36,504

2018 March 31st To Bank A/c 18,252 2017 April 1st By Balance b/d 16,900

2018 March 31st By Interest on ₹ 16,900 @ 8% p.a. 1,352

18,252 18,252

24. REVALUATION ACCOUNT

Dr. Cr.

Particulars Rs. Particulars Rs.

To Stock 5,000 By Loss Transferred to:

To Furniture 1,000 Rashmi 10,000

To Machinery 6,000 Pooja 5,000

To Provision for Doubtful Debts 3,000

15,000 15,000
PARTNERS' CAPITAL ACCOUNT
Rashmi Pooja Santosh Rashmi Pooja Santosh
Particulars Particulars
Rs. Rs. Rs. Rs. Rs. Rs.

To Revaluation A/c
10,000 5,000 -- By Balance b/d 1,35,000 1,25,000 --
(Loss)

To Balance c/d 1,45,000 1,30,000 -- By Premium for Goodwill A/c 20,000 10,000 --

Total 1,55,000 1,35,000 -- Total 1,55,000 1,35,000 --

To Balance 1,45,000 1,30,000 1,37,500 By Balance b/d 1,45,000 1,30,000 --

By Cash(145000+130000)x 3/2
. -- -- 1,37,500
x 1/3

Total 1,45,000 1,30,000 1,37,500 Total 1,45,000 1,30,000 1,37,500

BALANCE SHEET OF A, B & C
Dr. Cr.

Liabilities Rs. Assets Rs.

Creditors 30,000 Cash [W.N.1] 2,57,500

Bills Payable 10,000 Machinery 1,14,000

Rashmi's Capital 1,45,000 Furniture 9,000

Pooja's capital 1,30,000 Stock 45,000

Santosh's capital 1,37,500 Debtors 30,000

. Less:Provision 3,000 27,000

. 4,52,500 . . 4,52,500
W.N.1 Calculation of Closing Cash:-
90,000 + 30,000 + 1,37,500 = 2,57,500.

18 / 56
25. IN THE BOOKS OF THE FIRM
JOURNAL ENTRIES
Debit Credit
Particulars L.F.
₹ ₹

Profit and Loss Adjustment A/c Dr. 6,000

To Plant and machinery A/c 4,000

To Provision for Doubtful Debts A/c 1,500

To Furniture A/c 500

(Being decrease in value of Assets and provision for doubtful debts transferred to profit and Loss
adjustment Account)
Stock A/c Dr. 3,750

Factory Building A/c Dr. 5,000

To Profit and Loss Adjustment A/c 8,750

(Being increases in Value of Assets transferred to Profit and Loss Adjustment Account)

Profit and Loss Adjustment A/c Dr. 2,750

To A's Capital A/c 917

To B's Capital A/c 1,375

To C's Capital A/c 458

(Being profit distributed among old partners A, B and C in their old profit sharing ratio)

A's Capital A/c Dr. 6,400

To B's Capital A/c 2,400

To C's Capital A/c 4,000

(Being C's Share of goodwill and B's gain in goodwill adjustment)

C's Capital A/c Dr. 32,125

To C's Loan A/c 32,125

(Being loan transfer from bank)

Reserve Fund A/c Dr. 16,000

To A's Capital A/c 5,333

To B's Capital A/c 8,000

To C's Capital A/c 2,667

(Being Reserve Fund distributed among old partners in their old profit sharing ratio)
Profit and Loss Adjustment Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Plant and machinery A/c (40,000 × 10%) 4,000 By Stock A/c (25,000 × 15%) 3,750

To Furniture A/c (10,000 × 5%) 500 By Factory building A/c (50,000 × 10%) 5,000

To Provision for Doubtful Debts A/c (2,000 - 500) 1,500

To Revaluation Profit transferred to:

A's Capital A/c 917

19 / 56
B's Capital A/c 1,375

C's Capital A/c 458 2,750

8,750 8,750
Partners Capital Account
Dr. Cr.

Particulars A B C Particulars A B C

To B's Capital A/c 2,400 By Balance b/d 30,000 40,000 25,000

To C's Capital A/c 4,000 By Reserve fund A/c 5.333 8,000 2,667

To C's Loan A/c 32,125 By Revaluation A/c 917 1,375 458

To Balance c/d 29,850 51,775 By A's Capital A/c 2,400 4,000

36,250 51,775 32,125 36,250 51,775 32,125

Balance Sheet
as on 1st April 2019 (after C's Retirement)
Liabilities ₹ Assets ₹

Sundry Creditors 25,000 Factory Building 55,000

Loan Payable 15,000 Plant and Machinery 36,000

C's Loan 32,125 Furniture 9,500

A's capital account 29,850 Stock 28,750

B's capital account 51,775 81,625 Debtors 18,000

Less: Provision for Doubtful Debts (2,000) 16,000

Cash in Hand 8,500

1,53,750 1,53,750
W.N.:
A B C
i. Old Ratio 1 1 1
= 2:3:1
: :
3 2 6

C's retired on the firm

A:B = 3:2 (New Ratio)
Gaining Ratio = New Ratio - Old Ratio
′
A s=
3
−
5
=
2
−
6
= (Gain) 18

30
10

30
8

30
3 15 −3
′
B s=
2

5
−
6
=
12

30
−
30
=
30
(Sacrifice)
ii. Goodwill on the firm = ₹24,000
C's Share of Goodwill = 24, 000 × 1

6
= ₹ 4,000
= ₹ 4,000
8
A's Share = 24, 000 × 30
( Gain )

(Sacrifice) ₹ 2,400
3
B's Share = 24, 000 × 30

iii. A:B:C = 1

3
:
1

2
:
1

6
= 2:3:1 (Old Ratio)
C retired from the firm.
A:B = 2:3 (New Ratio)
Gaining Ratio = New Ratio - Old Ratio
′ 2 2 12 10 2
A s= − = − =
5 6 30 30 30

′ 3 3 18 15 3
B s= − = − =
5 6 30 30 30

Gaining Ratio = 2:3

iv. Adjustment of Goodwill
Goodwill of the firm = ₹ 24,000
C's of Goodwill = 24, 000 × = ₹ 4,000 1

20 / 56
 C's Share of goodwill is to be distributed between A and B in 2;3
A's Goodwill = 4, 000 × = ₹ 1,600 (Sacrifice)
2

B's Goodwill = 4, 000 × 3

5
= ₹ 2,400 (Sacrifice)
26. Journal
Date Particulars L.F. Dr. Cr.

i Realisation A/c........Dr. 1,500

To Cash A/c 1,500

(Being expense on realisation paid.)

ii Realisation A/c........Dr. 600

To Mohan's Capital A/c 600

(Being expense on realisation paid by partner.)

iii Realisation Account........Dr. 2,000

To Mohan's Capital A/c 2,000

(Being expense on realisation paid to Mohan.)

iv No Entry
27. Books of Anup and Sumit
Realisation Account
Dr. Cr.

Particulars Amount ₹ Particulars Amount ₹

Sundry Debtors 12,000 Sundry Creditors 27,000

Plants 47,000 Loan 40,000

Stock 42,000 Bank:

Leasehold land 60,000 Leasehold Land 72,000

Furniture 25,000 Furniture 22,500

Bank: Stock 40,500

Creditors 25,500 Plant 48,000

Loan 40,000 Sundry Debtors 10,500 1,93,500

Expenses 2500 68,000

Profit transferred to:

Anup’s Capital A/c 3,250

Sumit’s Capital A/c 3250 6,500

2,60,500 2,60,500
Partners’ Capital Account
Dr. Cr.

Particulars Anup Sumit Particulars Anup Sumit

Bank 68,250 68,250 Balance b/d 60,000 60,000

Reserve Fund 5,000 5,000

Realisation 3,250 3,250

68,250 68,250 68,250 68,250

Bank Account

21 / 56
 Dr. Cr.

Particulars Amount ₹ Particulars Amount ₹

Balance b/d 11,000 Realisation (Expenses and Liabilities) 68,000

Realisation (Assets) 1,93,500 Anup’s Capital A/c 68,250

Sumit’s Capital A/c 68,250

2,04,500 2,04,500
28. JOURNAL
Date Particulars L.F. Dr. (₹) Cr. (₹)

(i) Workmen Compensation Reserve A/c Dr. 1,50,000

To Lavanya's Capital A/c 1,00,000

To Priya's Capital A/c

(Workmen Compensation Reserve transferred to Partners' Capital Accounts in their profit- 50,000
sharing ratio)

(ii)
Workmen Compensation Reserve A/c Dr. 90,000
(a)

To Realisation A/c
(Workmen Compensation Reserve to the extent of liability transferred to Realisation 90,000
Account)

(b) Workmen Compensation Reserve A/c Dr. 60,000

To Lavanya's Capital A/c 40,000

To Priya's Capital A/c

(Surplus of Workmen Compensation Reserve transferred to Partners' Capital Account in 20,000
their profit- sharing ratio)

(c) Realisation A/c Dr. 90,000

To Bank A/c
90,000
(Payment of liability on account of Workmen Compensation)

(iii)
Workmen Compensation Reserve A/c Dr. 1,50,000
(a)

To Realisation A/c
1,50,000
(Workmen Compensation Reserve transferred to Realisation Account)

(b) Realisation A/c Dr. 1,50,000

To Bank A/c
1,50,000
(Payment of liability on account of Workmen Compensation)

(iv)
Workmen Compensation Reserve A/c Dr. 1,50,000
(a)

To Realisation A/c
1,50,000
(Workmen Compensation Reserve transferred to Realisation Account)

(b) Realisation A/c Dr. 2,00,000

To Bank A/c
2,00,000
(Payment of liability on account of Workmen Compensation)

(v) Realisation A/c Dr. 40,000

To Bank A/c 40,000

(Payment of liability on account of Workmen Compensation)

22 / 56
29. Books of X and Y
MEMORANDUM BALANCE SHEET
as at March 31, 2018
Liabilities ₹ Assets ₹

Capital Cash 18,000

X 1,50,000 Sundry Assets (Balancing figure) 3,42,000

Y 10,000 1,60,000

Creditors 1,20,000

Bank Loan 60,000

Reserve 20,000

3,60,000 3,60,000
REALISATION ACCOUNT
Dr. Cr.

Particulars ₹ Particulars ₹

To Sundry Assets A/c 3,42,000 By Creditors A/c 1,20,000

To Cash A/c (Creditors) 1,20,000 By Bank Loan A/c 60,000

To Cash A/c (Bank Loan) 60,000 By Cash A/c (Assets realised) 3,02,000

By Loss transferred to:

X's Capital A/c 32,000

Y's Capital A/c 8,000 40,000

5,22,000 5,22,000
PARTNER'S CAPITAL ACCOUNT
Dr. Cr.

Particulars X Y Particulars X Y

₹ ₹ ₹ ₹

To Realisation A/c (Loss) 32,000 8,000 By Balance b/d 1,50,000 10,000

To Cash A/c (Final Payment) 1,34,000 6,000 By Reserve 16,000 4,000

1,66,000 14,000 1,66,000 14,000

CASH ACCOUNT
Dr. Cr.

Particulars ₹ Particulars ₹

To Balance b/d 18,000 By Receivable A/c (Creditors) 1,20,000

To Realisation A/c (Assets realised) 3,02,000 By Realisation A/c (Bank Loan) 60,000

By X's Capital A/c 1,34,000

By Y's Capital A/c 6,000

3,20,000 3,20,000
30. Books of Rose and Lily
Realisation Account on March 31 2017
Particulars Amount ₹ Particulars Amount ₹

Debtors 80,000 Provision for Doubtful Debts 3,600

23 / 56
 Inventory 1,09,600 Creditors 40,000

Bills Receivables 40,000 Cash:

Buildings 2,80,000 Motor cycle 10,000

Cash: Other Assets 4,84,000 4,94,000

Outstanding Electricity Bill 5,000 Rose’s Capital (Bills Receivable) 33,000

Creditors 38,000

Expenses 2,400 45,400

Profit transferred to:

Rose' Capital 6,240

Lily's Capital 9,360 15,600

5,70,600 5,70,600
Partners’ Capital Accounts
Particulars Rose Lily Particulars Rose Lily

Realisation (Bills Receivable) 33,000 Balance b/d 2,40,000 1,60,000

Cash A/c 2,33,240 1,99,360 Profit and Loss 20,000 30,000

Realisation (Profit) 6,240 9,360

2,66,240 1,99,360 2,66,240 1,99,360

Lily's Loan Account
Particulars Amount Rs Particulars Amount Rs

Cash 32,000 Balance b/d 32,000

32,000 32,000
Cash Account
Particulars Amount ₹ Particulars Amount ₹

Balance b/d 16,000 Realisation:

Realisation: Creditors 38,000

Motor Cycle 10,000 Outstanding Electricity Bill 5,000

Other Assets 4,84,000 4,94,000 Expenses 2,400 45,400

Lily's Loan 32,000

Rose’s Capital A/c 2,33,240

Lily’s Capital A/c 1,99,360 4,32,600

5,10,000 5,10,000
Note: Contingent Liability of Electricity Bill 5000 has been treated as Electricity Bill Payable.
Working note: 1
Profit on Realisation = 15,600
Profit on realisation transferred to rose's capital account = 15600 × 2/5 = 6,240
Profit on realisation transferred to lily's capital account = 15600 × 3/5 = 9,360
Working note: 2
Profit for the year = 50,000
Profit transferred to rose's capital account = 50000 × 2/5 = 20000
Profit transferred to lily's capital account = 50000 × 3/5 = 30000
31. In the Books of Rohit Ltd.

24 / 56
 JOURNAL
Date Particulars L.F. Dr.(₹) Cr.(₹)

Sundry Assets A/c Dr. 3,50,000 ...

To Rohan & Co. ... 3,50,000

(Being assets purchased from Rohan & co.)

Rohan & Co. Dr. 75,000 ...

To Bank A/c ... 75,000

(Being amount paid to Rohan & Co.)

Rohan & Co. dr. 2,75,000 ...

To equity share capital A/c(2,500 x 100) 2,50,000

To securities Premium Reserve A/c(2,500 x 10) 25,000

Working Note :
Number of shares to be issued = 275000/110 =2500 share
32. Balance Sheet
Particulars Note No. ₹

I. Equities & Liabilities

1. Share holder’s Fund:

(a) Share Capital 1. 5,88,000

5,88,000
Notes to Account
Particulars ₹

1. Share Capital:

(a) Authorized Share Capital:

2,00,000 equity share @ ₹ 10 each 20,00,000

(b) Issued share capital:

60,000 equity share @ ₹ 10 each 6,00,000

(c) Subscribed & Fully Paid-up Share Capital :

56,000 equity share @ ₹ 10 each 5,60,000

(d) Subscribed & not fully Paid-up Share Capital:

2,000 equity shares @ ₹ 10 each 20,000

Calls in Arrears ( 2000 share × 3) (6,000)

Share Forfeited 14,000 28,000

5,88,000
33. In this question, Nominal Capital means the Capital, represents the securities that are designated for shareholders. Companies that
release nominal capital to shareholders do so in order to generate income through traded shares. Ideally, the traded shares increase
in value, thus increasing the overall capital for the company. Of course, the shares can also decrease in value, and as a result,
nominal capital is clearly designated to protect the company's other assets. Nominal capital, also known as authorized capital
Journal
Date Particulars L.F. Dr. (₹) Cr. (₹)

Bank A/c Dr. 5,00,000

To Equity Share Application A/c 5,00,000

25 / 56
 (Being the application money received on 2,00,000 equity shares)

Share Application A/c Dr. 5,00,000

To Equity Share Capital A/c 5,00,000

(Being the application money transferred to Share Capital Account)

Equity Share Allotment A/c Dr. 5,00,000

To Equity Share Capital A/c 5,00,000

(Being the allotment money due on 2,00,000 shares)

Bank A/c Dr. 5,03,750

Calls-in-Arrears A/c 6,250

To Equity Share Allotment A/c 5,00,000

To Calls-in-Advance A/c 10,000

(Being the allotment money received on 1,97,500 shares with Calls-in-Advance money on
2,000 shares).
BALANCE SHEET as at...
Particulars Note No. Amount(₹)

1. EQUITY AND LIABILITIES

1. Shareholders’ Funds

Share Capital 1 9,93,750

2. Current Liabilities

Other Current Liabilities 2 10,000

Total 10,03,750

II. ASSETS

1. Current Assets 10,03,750

Cash and Cash Equivalents: Bank

Total 10,03,750

Notes to Accounts:

1. Share Capital

Authorised Capital

5.00,000 Equity Shares of ₹10 each 50,00,000

Issued Capital

2.00,000 Equity Shares of ₹10 each 20,00,000

Subscribed Capital

Subscribed but not fully paid-up

2.00,000 Equity Shares of ₹10 each, called-up ₹5 10,00,000

less : Calls-in-Arrears (2,500 × ₹2.50) (6,250)

2. Other Current Liabilities 9,93,750

Calls in Advance 10,000

Working Note

26 / 56
 1. Share Capital
10,00,000 - 6,250(Calls in Arrears)
₹9,93,750
2. Current Liabilities
Calls in Advance = ₹10,000
34. Authorised Capital 20,000 shares of ₹ 10 each
Issued Capital 2,000 shares Applied 1,800 shares
Payable as:

Application ₹3 (2+1)

Allotment ₹4 (3+1)

First Call ₹2

Final Call ₹3

12 (10+2)
Books of Bharat Limited
Journal
Dr. Cr.
Date Particulars L.F.
(₹) (₹)

Bank A/c Dr. 5,400

To Share Application A/c 5,400

(Application money received for 1,800 shares at ₹ 3 per shares)

Share Application A/c Dr. 5,400

To Share Capital A/c 3,600

To Securities Premium A/c 1,800

(Application money of 1,800 share transferred to Share Capital at ₹ 2 per share and Securities
Premium ₹ 1 per share)

Share Allotment A/c Dr. 7,200

To Share Capital A/c 5,400

To Securities Premium A/c 1,800

(Share allotment due on 1,800 shares at ₹ 4 per share including ₹ 1 securities premium)

Bank A/c Dr. 7,200

To Share Allotment A/c 7,200

(Share Allotment money received)

Share First Call A/c Dr. 3,600

To Share Capital A/c 3,600

(Share first call due on 1,800 shares at ₹ 2 per shares)

Bank A/c Dr. 3,600

To Share First Call A/c 3,600

(Share first call money received)

Share Final Call A/c Dr. 5,400

To Share Capital A/c 5,400

(Share final call due on 1,800 shares at ₹ 3 per share)

27 / 56
 Bank A/c 5,400

To Share Final Call A/c Dr. 5,400

(Share final call money received)

As per the Schedule III of Companies Act, 2013, the Company's Balance Sheet is presented as follows.
Bharat Limited
An extract of Balance Sheet
Particulars Note No. ₹

I. Equity and Liabilities

1. Shareholders’ Funds

a. Share Capital 1 18,000

NOTES TO ACCOUNTS
Note No. Particulars ₹

1 Share Capital

Authorised Share Capital

20,000 shares of ₹ 10 each 2,00,000

Issued Share Capital

2,000 shares of ₹ 10 each 20,000

Subscribed, Called-up and Paid-up Share Capital

1,800 shares of ₹ 10 each 18,000

35. JOURNAL OF S LTD.
Date Particulars L.F. Dr. (₹) Cr. (₹)

Bank A/c Dr. 1,50,000

To Share Application A/c

1,50,000
(Application money received)

Share Application A/c Dr. 1,50,000

To Share Capital A/c

1,50,000
(Transfer of Application money to Share Capital A/c)

Share Allotment A/c Dr. 2,00,000

To Share Capital A/c 1,50,000

To Securities Premium Reserve A/c (Allotment due) 50,000

Bank A/c Dr. 1,96,000

To Share Allotment A/c

1,96,000
(Amount received on Allotment on 4,900 shares)

Bank A/c
Dr. 2,00,000
(First & Final Call due)

To Share Capital A/c 2,00,000

Share Capital A/c Dr. 10,000

Securities Premium Reserve A/c(1) Dr. 1,000

To Share Allotment A/c 4,000

To Share First & Final Call A/c 4,000

28 / 56
 To Share Forfeiture A/c 3,000
(100 shares forfeited for non-payment of Allotment and First & Final Call money)

Bank A/c Dr. 10,500

To Share Capital A/c 10,000

To Securities Premium Reserve A/c

500
(100 shares re-issued @ ₹ 105 per share)

Share Forfeiture A/c Dr. 3,000

To Capital Reserve A/c

3,000
(Balance of Forfeiture A/c transferred to Capital Reserve A/c)
Hint : (1) Allotment money on 100 forfeited shares has not been received and as the premium was also due on allotment,
therefore, premium also has not been received. As such, Securities Premium Reserve Account has been debited in the entry for
forfeiture of shares.
36. Books of ________ Ltd.
JOURNAL
Date Particulars L.F. Dr. (₹) Cr. (₹)

Equity Share Application A/c Dr. Dr. 30,000

10% Preference Share Application A/c Dr. Dr. 15,000

To Equity Share Capital A/c 30,000

To 10% Preference Share Capital A/c

15,000
(Transfer of application money)

Equity Share Allotment A/c Dr. Dr. 50,000

10% Preference Share Allotment A/c Dr. Dr. 20,000

To Equity Share Capital A/c 30,000

To Securities Premium Reserve A/c 20,000

To 10% Preference Share Capital A/c

20,000
(Amount due on allotment)

Equity Share First & Final Call A/c Dr. Dr. 40,000

10% Preference Share First & Final Call A/c Dr. Dr. 15,000

To Equity Share Capital A/c 40,000

To 10% Preference Share Capital A/c

15,000
(Amount due on first and final call)
CASH BOOK (Bank Column)
Dr. Cr.

Particulars ₹ Particulars ₹

To Equity Share Application A/c 30,000 By Balance c/d 1,70,000

To 10% Preference Share

Application A/c 15,000

To Equity Share Allotment A/c 50,000

To 10% Preference Share

Allotment A/c 20,000

To Equity Share First & Final

29 / 56
 Call A/c 40,000

To 10% Preference Share First

& Final Call A/c 15,000

1,70,000 1,70,000
37. JOURNAL
Date Particulars L.F Amt (Dr) Amt (Cr)

Bank A/c (1,50,000 × 2) Dr. 3,00,000 ...

To Equity Share Application A/c ... 3,00,000

(Being application money received) ... ...

Equity Share Application A/c Dr. 3,00,000 ...

To Share Capital A/c (1,00,000 × 2) ... 2,00,000

To Bank A/c (50,000 × 2) ... 1,00,000

(Being application money transferred to share capital account) ... ...

Equity Share Allotment A/c (1,00,000 × 4) Dr. 4,00,000 ...

To Share Capital A/c ... 4,00,000

(Being allotment money due) ...... ...

Bank A/c Dr. 3,90,800 ...

To Equity Share Allotment A/c (97,000 × 4) ... 3,88,000

To Calls-in-advance A/c (700 × 2) + (700 × 2) ... 2,800

(Being allotment money received) ... ...

Equity Share First Call A/c (1,00,000 × 2) Dr. 2,00,000 ...

To Share Capital A/c ... 2,00,000

(Being first call money due) ... ...

Bank A/c Dr. 2,08,600 ...

Calls-in-advance A/c (700 × 2) Dr. 1,400 ...

To Equity Share First Call A/c (99,000 × 2) ... 1,98,000

To Equity Share Allotment A/c (3,000 × 4) ... 12,000

(Being first call money received) ... ...

Equity Share Second and Final Call A/c (1,00,000 × 2) Dr. 2,00,000 ...

To Share Capital A/c ... 2,00,000

(Being final call money due) ... ...

Bank A/c (98,300 × 2) Dr. 1,96,600 ...

Call-in-advance (700 × 2) Dr. 1,400 ...

To Share Second and Final Call A/c ... 1,98,000

(Being amount received on second and final call) ... ...

Equity Share Capital A/c (1,000 × 10) Dr. 10,000 ...

To Share Forfeiture A/c (1,000 × 6) ... 6,000

To Equity Share First Call A/c (1,000 × 2) ... 2,000

30 / 56
 To Equity Share Second Call A/c(1,000 × 2) ... 2,000

(Being shares forfeited) ... ...

Bank A/c (1,000 × 11) Dr. 11,000 ...

To Share Capital A/c (1,000 × 10) ... 10,000

To Securities Premium Reserve (1,000 × 1) ... 1,000

(Being shares reissued @ Rs. 11 per share, fully paid-up) ... ...

Share Forfeiture A/c Dr. 6,000 ...

To Capital Reserve A/c ... 6,000

(Being gain on reissue transferred to capital reserve) ... ...

category applied alloted share application share capital share allotment bank

A 1,00,000 1,00,000 3,00,000 3,00,000 --------------

B 50,000 ------- 1,00,000 ------------ 1,00,000

TOTAl 1,50,000 1,00,000 4,00,000 3,00,000 ------------------- 1,00,000

share/call application allotment 1st call 2nd call

Due 1,00,000x2=2,00,000 1,00,000x4=4,00,000 1,00,000x2=2,00,000 1,00,000x2=2,00,000

4,00,000-(3000x4)calls in 2,00,000-(1,000x2)calls in arrears 2,00,000-(1,000 x

1,50,000x2=3,00,000
Received arrears +(700x4) calls in +12000(3000x4)allotment arrear 2)calls in arrears
-1,00,000(Rejected)
advances =3,90,800 received with first call =1,98,000
38. X Ltd.
JOURNAL
Date Particulars L.F. Dr. Cr.

₹ ₹

Bank A/c Dr. 2,27,500

To Share Application A/c

2,27,500
(Money received on application for 65,000 shares @ ₹ 3.50)

Share Application A/c Dr. 2,27,500

To Share Capital A/c 1,75,000

To Share Allotment A/c 35,000

To Bank A/c
(Transfer of application money to Share Capital A/c for 50,000 shares @ ₹ 3.50 to
17,500
Share Allotment A/c; on 10,000 shares @ ₹ 3.50 and money refunded on 5,000 shares
@ ₹ 3.50)

Share Allotment A/c Dr. 2,50,000

To Share Capital A/c 1,25,000

To securities Premium Reserve A/c

1,25,000
(Amount due on Allotment @ ₹ 5 including premiums of ₹ 2.50)

Bank A/c Dr. 2,13,850(2)

To Share Allotment A/c

2,13,850
(Allotment money received on 49,700 shares)

Share First and Final Call A/c Dr. 2,00,000

31 / 56
 To Share Capital A/c 2,00,000
(Amount due on First and Final Call)

Bank A/c Dr. 1,98,800

To Share First and Final Call A/c

1,98,800
(Amount received on 49,700 shares)

Share Capital A/c (300 × ₹ 10) Dr. 3,000

Securities Premium Reserve A/c (300 × ₹ 2.50) Dr. 750

To Share Allotment A/c 1,150

To Share First & Final Call A/c 1,200

To Share Forfeiture A/c

1,400
(300 shares forfeited for repayment of allotment money and call money)

Bank A/c Dr. 2,700

Share Forfeiture A/c Dr. 300

To Share Capital A/c

3,000
(300 shares re-issued at ₹ 9 as fully paid)

Share Forfeiture A/c Dr. 1,100

To Capital Reserve A/c

1,100
(Profit on 300 reissued shares transferred to Capital Reserve A/c)
Working Notes:

i. Scheme of Allotment:
Shares Applied Shares Allotted

5,000 Nil

20,000 20,000

40,000 30,000

65,000 50,000
40,000
(A) Shareholder holding 300 shares must have applied for 300 × = 400 Shares ₹
ii. 30,000

Excess Application money received from him:

400 shares - 300 shares = 100 shares × ₹ 3.50 350

(B) Amount due on allotment on these shares = 300 shares × ₹ 5 1,500

Less: Excess received on these shares on application 350

Amount not received on allotment 1,150

(C) Total amount due on allotment 50,000 shares × ₹ 5 2,50,000

Less: Excess received on applications 35,000

Balance due 2,15,000

Less: Amount not received on allotment 1,150

Net amount received on allotment in Cash 2,13,850

39. JOURNAL
Date Particulars L.F. Amt. (Dr.) Amt. (Cr.)

Bank A/c (4,00,000 × 3) Dr. 12,00,000

To Equity Share Application A/c 12,00,000

32 / 56
(Being share application money received.)

Equity Share Application A/c Dr. 12,00,000

To Equity Share Capital A/c (3,20,000 × 2) 6,40,000

To Securities Premium Reserve A/c (3,20,000 × 1) 3,20,000

To Equity Share Allotment A/c 1,20,000

To Bank A/c (40,000 × 3) 1,20,000

(Being share application money transferred.)

Equity Share Allotment A/c (3,20,000 × 5) Dr. 16,00,000

To Equity Share Capital A/c (3,20,000 × 3) 9,60,000

To Securities Premium Reserve A/c (3,20,000 × 2) 6,40,000

(Being share allotment due.)

Bank A/c (16,00,000 - 1,20,000 - 3,700) Dr. 14,76,300

To Equity Share Allotment A/c 14,76,300

(Being share allotment received.)

Equity Share Capital A/c (800 × 5) Dr. 4,000

Securities Premium Reserve A/c (800 × 2) Dr. 1,600

To Share Forfeiture A/c 1,900

To Share Allotment A/c 3,700

(Being 800 shares of Jeevan forfeited.)

Equity Share First and Final Call A/c (3,19,200 × 7) Dr. 22,34,400

To Equity Share Capital A/c (3,19,200 × 5) 15,96,000

To Securities Premium Reserve A/c (3,19,200 × 2) 6,38,400

(Being share first and final call due on 3,19,200 shares)

Bank A/c (22,34,400 - 16,800) Dr. 22,17,600

To Equity Share First and Final Call A/c 22,17,600

(Being share first and final call received.)

Equity Share Capital A/c (2,400 × 10) Dr. 24,000

Securities Premium Reserve A/c (2,400 × 2) Dr. 4,800

To Equity Share Forfeiture A/c 12,000

To Equity Share First and Final Call A/c (2,400 × 7) 16,800

(Being 2,400 shares forfeited.)

Bank A/c (1,500 × 8) Dr. 12,000

Share Forfeiture A/c (1 500 × 2) Dr. 3,000

To Equity Share Capital A/c (1,500 × 10) 15,000

(Being 1,500 forfeited shares reissued @ ₹8 per share fully paid up.)

Equity Share Forfeiture A/c Dr. 2,400

To Capital Reserve A/c 2,400

(Being share forfeiture transferred to capital reserve.)

33 / 56
 Categories Shares Shares Money Money Money Excess Amount Money
Applied Allotted Received on Transferred to Transferred to Application Adjusted Refunded
Application @ Share Capital Securities Money on
₹3 each @ ₹2 each Premium @ ₹11 Allotment
each

I 40,000 __ 1,20,000 __ __ 1,20,000 __ 1,20,000

II 3,60,000 3,20,000 10,80,000 6,40,000 3,20,000 1,20,000 1,20,000 __

4,00,000 3,20,000 12,00,000 6,40,000 3,20,000 2,40,000 1,20,000 1,20,000

Calculation of Amount Unpaid on Allotment
360,000
Shares applied by Jeevan = 3,20,000
× 800 = 900 shares

Excess money received from Jeevan 300 (100 × 3)

Amount due on allotment 2,400 (800 × 3)

(-) Excess application money (300)

Amount unpaid on allotment 2,100

(+) Amount unpaid on securities premium reserve 1,600 (800 × 2)

Total amount unpaid on allotment 3,700

Calculation of Amount Received from Jeevan
Amount received on application = 1,600 (800 × 2) excluding premium
(+) Excess application money = 300
= ₹1,900
Unpaid Amount of First and Final Call
3,20,000
Shares allotted to Ganesh = 3,60,000
× 2700 = 2400 Shares
Unpaid amount on first and final call = Rs. 16,800 (2,400 × 7)
Calculation of Amount Received from Gupta
Amount received on application = 4,800 (2,400 × 2) excluding premium
{+-) Amount received on allotment = 7,200 (2,400 × 3)
= ₹12,000
Calculation of Capital Reserve
(i) 800 shares of Jeevan

Share forfeiture (Cr) 1,900

(-) Share forfeiture (Dr) (1,600) (800 × 2)

Capital reserve 300

(ii) 200 shares of Ganesh

12000
Share forfeiture (Cr) 3, 500 (
2400
× 700)

(-) Share forfeiture (Dr) (1,400) (700 × 2)

Capital reserve 2,100

Total capital reserve Rs. 2,400 (2,100 + 300)

40. JOURNAL
Date Particulars L.F. Dr. (₹) Cr. (₹)

1. Bank A/c (80,000 × 30) Dr. 24,00,000 .

To Equity Share Application A/c . 24,00,000

(Being share application money received.) .

2. Equity Share Application A/c Dr. 24,00,000 .

34 / 56
 To Share Capital A/c . 24,00,000

(Being share application money transferred.) . .

3. Equity Share Allotment A/c (80,000 × 40) Dr. 32,00,000 .

To Share Capital A/c (80,000 × 20) . 16,00,000

To Securities Premium Reserve A/c (80,000 × 20) . 16,00,000

(Being share allotment money due.) . .

4. Bank A/c (79,800 × 40) Dr. 31,92,000 .

To Equity Share Allotment A/c . 31,92,000

(Being share allotment money received, except on 200 shares.) . .

5. Equity Share First and Final Call A/c (80,000 × 50) Dr. 40,00,000 .

To Share Capital A/c . 40,00,000

(Being share first and final call money due.) . .

6. Bank A/c (79,400 × 50) Dr. 39,70,000 .

To Equity Share First and Final Call A/c . 39,70,000

(Being share first and final call money received except on 600 shares.) . .

7. Equity Share Capital A/c (600 × 100) Dr. 60,000 .

Securities Premium Reserve A/c (200 × 20) Dr. 4,000 .

To Equity Share Allotment A/c (200 × 40) . 8,000

To Equity Share First and Final Call A/c (200 × 50) + (400 × 50) . 30,000

To Share Forfeiture A/c (200 × 30) + (400 × 50) . 26,000

(Being 600 shares forfeited.) . .

8. Bank A/c (600 × 80) Dr. 48,000 .

Share Forfeiture A/c (200 × 20) + (400 × 20) Dr. 12,000 .

To Equity Share Capital A/c (600 × 100) . 60,000

(Being all forfeited shares reissued @ ₹ 80 fully paid-up.) . .

9. Share Forfeiture A/c Dr. 14,000 .

To Capital Reserve A/c . 14,000

(Being share forfeiture transferred to capital reserve account.) . .

Cash Books
Dr. Cr.

Particulars ₹ Particulars ₹

To Equity Share Application A/c 24,00,000 By Balance c/d 96,10,000

To Equity Share Allotment A/c 31,92,000

To Equity Share First and Final Call A/c 39,70,000

To Equity Share Capital A/c 48,000

96,10,000 96,10,000
41. In the books of Raha Ltd.
Journal
Date Particulars L.F. Debit Amount Credit Amount

35 / 56
 (₹) (₹)

Statement of Profit & Loss A/c Dr. 90,000

By the end of year of To Loss on Issue of Debentures A/c 90,000

Allotment
(Being loss on issue of debentures written
off)
Loss on Issue of Debentures A/c
Dr. Cr.

Amount Amount
Date Particulars Date Particulars
(₹) (₹)

On the date of To 8% Debentures By the end of Year of By Statement of Profit & Loss
90,000 90,000
Issue A/c allotment A/c

90,000 90,000
42. Books of ABC Limited
Journal
Date Particulars L.F. Dr. (₹) Cr. (₹)

Bank A/c Dr. 2,70,000

To 12% Debenture Application A/c 2,70,000

(Application money on 9,000 debentures received)

12% Debenture Application A/c Dr. 2,70,000

To 12% Debentures A/c 2,70,000

(Application money transferred to debentures Account on allotment)

12% Debenture Allotment A/c Dr. 6,30,000

To 12% Debentures A/c 6,30,000

(Amount due on 9,000 debentures on allotment @ ₹ 70 per debenture)

Bank A/c Dr. 6,30,000

To 12% Debenture Allotment A/c 6,30,000

(Amount received on allotment)

ABC Limited
*Balance Sheet as at ....
Note No. ₹

I. Equity and Liabilities

Non-current liabilities 1 9,00,000

Long-term borrowings

II. Assets

Current assets

Cash and cash equivalents 2 9,00,000

Relevant data only
Notes to Accounts
Particulars ₹

1. Long-term borrowings

9,000, 12% Debentures of ₹ 100 each 9,00,000

36 / 56
 2. Cash and cash equivalents

Cash at bank 9,00,000

43. In the Books of XYZ Ltd.
Journal Entries
Debit Credit
Date Particulars L.F.
Amount (₹) Amount (₹)

2015

April
Bank A/c Dr. 4,50,000
01
To Debenture Application A/c 4,50,000

(Debenture application money received)

April
Debenture Application A/c Dr. 4,50,000
01

Loss on Issue of Debentures A/c Dr. 1,00,000

To 10% Debentures A/c 5,00,000

To Premium on Redemption A/c 50,000

(5,000 Debentures of ₹100 each issued at 10% discount with the term
repayable at a premium of 10%)
2015

Sept.
Interest on Debentures A/c Dr. 25,000
30

To Debenture holders’ A/c 22,500

To Income Tax Payable A/c 2,500

(Interest due on 10% Debentures)

Sept.
Debenture holders’ A/c Dr. 22,500
30
To Bank A/c 22,500

(Interest on debentures paid to debenture holders)

Sept.
Income Tax Payable A/c Dr. 2,500
30

To Bank A/c 2,500

(Payment of tax on interest on debentures)

2016

March
Interest on Debentures A/c Dr. 25,000
31

To Debenture holders’ A/c 22,500

To Income Tax Payable A/c 2,500

(Interest due on 10% Debentures)

March
Debenture holders’ A/c Dr. 22,500
31

To Bank A/c 22,500

37 / 56
 (Debenture Interest paid to Debenture holders)

March
Income Tax Payable A/c Dr. 2,500
31

To Bank A/c 2,500

(Payment of tax on interest on debentures)

March
Profit and Loss A/c Dr. 50,000
31

To Interest on Debentures A/c 50,000

(Interest on debentures transferred to Profit and Loss Account)

44. Journal
Date Particulars L.F. Dr. (₹) Cr. (₹)

(a) Bank A/c (280 debentures × 115) Dr. 32,200

To Debenture Application and Allotment A/c 32,200

(Application money received)

Debenture Application and Allotment A/c Dr. 32,200

To 10% Debentures A/c 28,000

To Securities Premium Reserve A/c 4,200

(280; 10% Debentures issued at a premium of 15%)

(b) Bank A/c Dr. 33,000

To Debenture Application and Allotment A/c 33,000

(Application money received)

Debenture Application and Allotment A/c Dr. 33,000

Loss On Issue of debentures A/c Dr. 4,500

To 10% Debentures A/c 30,000

To Securities Premium Reserve A/c 3,000

To Premium on Redemption of debentures A/c 4,500

(300; 10% Debentures issued at a premium of 10% and redeemable at a premium of 15%)

(c) Bank A/c Dr. 80,000

To Debenture Application and Allotment A/c 80,000

(Application money received)

Debenture Application and Allotment A/c Dr. 80,000

Loss on Issue of debentures A/c Dr. 8,000

To 10% Debentures A/c 80,000

To Premium on Redemption of debentures A/c 8,000

(800; 10% Debentures issued at par and redeemable at premium of 10%)

45. JOURNAL OF EXE LTD.
Date Particulars L.F. Dr.(₹) Cr.(₹)

Bank A/c Dr. 3,75,000

To Debentures Application A/c 3,75,000

38 / 56
 (Being the application money received for 15,000 debentures @₹25 each)

Debentures Application A/c Dr. 3,75,000

To 9% Debentures A/c 2,50,000

To Debentures Allotment A/c 1,25,000

(Being the application money adjusted)

Debentures Allotment A/c Dr. 3,50,000

To 9% Debentures A/c 2,50,000

To Securities Premium Reverse A/c 1,00,000

(Being the allotment money due on 10,000; 9% Debentures)

Bank A/c Dr. 2,25,000

To Debentures Allotment A/c 2,25,000

(Being the balance of allotment money received on 10,000 debentures)

Debentures First and Final Call A/c Dr. 5,00,000

To 9% Debentures A/c 5,00,000

(Being the first and final call money due on 10,000; 9% Debentures)

Bank A/c Dr. 5,00,000

To Debentures First and Final Call A/c 5,00,000

(Being the first and final call money received on 10,000 debentures @₹50 each)
Exe Ltd.
BALANCE SHEET as at...
Particulars Note No. ₹

I. EQUITY AND LIABILITIES

1. Shareholders' Funds

Reserves and Surplus 1 1,00,000

2. Non-Current Liabilities

Long-term Borrowings 2 10,00,000

Notes to Accounts
1. Reserves and Surplus ₹

Securities Premium Reserve 1,00,000

2. Long-term Borrowings

10,000; 9% Debentures of ₹100 each 10,00,000

46. S. No. Items Major-Heading of Balance Sheet Sub-Heading of Balance Sheet

i. Stores and Spares Current Assets Inventories

ii. Debentures due for Redemption Current Liabilities Other Current Liabilities

iii. Live Stock Non-Current Assets Fixed Assets-Tangible Assets

iv. Intellectual Property Rights Non-Current Assets Fixed Assets-Intangible Assets

v. Advance from Customers Current Liabilities Other Current Liabilities

vi. Advance to Suppliers Current Assets Other Current Assets

vii. Commission Received in Advance Current Liabilities Other Current Liabilities

39 / 56
47. While classifying the liabilities into Current and Non-Current following points should be taken into consideration:
a. All liabilities, of which the payment is expected to be made within 12 months from the date of the Balance Sheet, shall be
treated as Current. Hence, trade payables in case of (i), (ii) and (iv) shall be treated as Current Liabilities.
b. Liabilities, of which the payment is expected to be made beyond 12 months from the date of Balance Sheet:
i. If the payment period is less than the period of the operating cycle, the liability shall be treated as a current liability.
Hence, trade payables in the case of (v) and (vii) shall be treated as Current Liabilities.
ii. If the payment period is more than the period of the operating cycle, the liability shall be treated as a non-current liability.
Hence, trade payables in the case of (iii) and (vi) shall be treated as Non-Current Liabilities.

48. S.No. Items Major Headings Sub-Headings

(i) Bank Overdraft Current Liabilities Short-term Borrowings

(ii) Cash and Cash Equivalents Current Assets Cash and Cash Equivalents

(iii) Securities Premium Reserve Shareholders' Funds Reserves and Surplus

Negative Balance of the Statement of Profit and Reserves and Surplus (As negative
(iv) Shareholders' Funds
Loss amount)

(v) Goodwill Non-current Assets Intangible Fixed Assets

(vii) Trademark Non-current Assets Intangible Fixed Assets

Non-current
(viii) 5 Years Loan Obtained from S.B.I. Long-term Borrowings
Liabilities

(ix) Investments Non-current Assets Non-current Investments

Notes :
Securities Premium Reserve is a reserve to which amount is received in excess of the nominal(face) value of securities
(shares, debentures, etc.) is credited.It can be used by a company for some defined purposes stated by Companies
Act,2013.
An Overdraft allows the individual to continue withdrawing money even if the account has no funds in it or not enough to
cover the withdrawal. Bank Overdraft means that the bank allows customers to borrow a set amount of money. It is
possible when there is prior agreement between bank and account holder. Bank charges interest on overdraft.
49. BALANCE SHEET OF X LTD.
as at ...
Current year Previous year
Particulars Note No.
₹ ₹

I. EQUITY AND LIABILITIES:

Shareholder’s Funds:

Reserve and Surplus 1 (50,000)

Non-Current Liabilities

Long term Borrowings 2 10,00,000

II. ASSETS:

Non-Current Assets

Other Non-Current Assets 3 30,000

Current Assets

(a) Inventory 6,40,000

(b) Trade Receivables 1,50,000

(c) Other Current Assets 4 15,000

Notes to Accounts of balance sheet:
₹

40 / 56
 (1) Reserve and Surplus:

Surplus:

Statement of Profit & Loss (Cr.) 70,000

Preliminary Expenses Written Off (1,20,000) (50,000)

(2) Long term Borrowings:

9% Debentures 10,00,000

(3) Other Non-Current Assets:

Discount on Issue of 9% Debentures (2/3 × 45,000) 30,000

(4) Other Current Assets:

Discount on Issue of 9% Debentures (1/3 × ₹ 45,000) 15,000

50. In the books of Sonu Ltd.
BALANCE SHEET
as at 31st March 2015
31st March 2015
Particulars Note No. Amount
(Rs.)

I. EQUITY AND LIABILITIES

1. Shareholders’ Funds

(a) Share Capital 10,00,000

(b) Reserve and Surplus 1 50,000

2. Non-Current Liabilities

(a) 12% Debentures 5,00,000

3. Current Liabilities

(a) Trade Payables 2,00,000

(b) Short - term Provisions 2 50,000

Total 18,00,000

II. ASSETS

1. Non - Current Assets

(a) Fixed Assets: Tangible Assets 3 9,00,000

(b) Non - Current Investments 4 4,00,000

2. Current Assets

(a) Inventories 5 4,00,000

(b) Cash and Cash Equivalents 1,00,000

Total 18,00,000
Note to Accounts:
31st March 2015
Particulars Amount
(Rs.)

1. Reserves and Surplus

Securities Premium Reserve 1,00,000

41 / 56
 Surplus, i.e., Balance in Statement of Profit and Loss (50,000)

50,000

2. Short - term Provisions

Proposed Dividend 50,000

3. Fixed Assets(Tangible)

Machinery 9,00,000

4. Non - Current Investments

Government Bonds 4,00,000

5. Inventories

Work in Progress 4,00,000

New section 129 of the Companies Act,2013 corresponds to existing section 210. It provides that the financial statements shall
give a true and fair view of the state of affairs of the company and shall comply with the accounting standards notified under new
section 133. It is also provided that the financial statements shall be prepared in the form provided in new schedule III of
Companies Act, 2013.
51. Extract of Balance Sheet of V.T. Ltd.
as at 31st March, 2019
Particulars Note No. Rs.

I. Equity & Liabilities

1. Share holders' Fund:

(a) Share Capital 5,000

(b) Reserves & Surplus 1 4,200

2. Non-current Liabilities:

(a) Long-term Borrowings 2 3,000

3. Current Liabilities 2,500

II. Assets

1. Non-current Assets:

(a) Fixed Assets:

Tangible Assets 3 8,300

2. Current Assets 6,400

Notes of Accounts
1. Reserves & Surplus:

(a) General Reserve 3,000

(b) Statement of P&L 1,200

4,200

2. Long-term Borrowings:

8% Debentures 3,000

3. Tangible assets

Cost 9,000

Less: Accumulated Depreciation 700

8,300

42 / 56
52. Classification is as follows:
Operating Activities: Rent received by a Real Estate Company.
Investing Activities: Sale of Investments, Dividend received on Shares, Interest received on Investments, Rent received by a
Company whose main Business is Manufacturing.
Financing Activities: Interest paid on Debentures or Long-term Loans, Proceeds from Shares issued, Interest paid on Bank
Overdraft.
Cash and Cash Equivalents: Marketable Securities.
53. CASH FLOW STATEMENT for the year ended 31st March, 2019
Particulars ₹

(A) Cash Flow from Operating Activities

Net Profit for the year before Tax and Extraordinary Items 20,000

Add: Decrease in Current Assets and Increase in Current Liabilities:

Increase in Trade Payables 7,000

Decrease in Trade Receivables 5,000 12,000

Cash Flow from Operating Activities 32,000

(B) Cash Flow from Investing Activities

Proceeds from Sale of Fixed Assets 20,000

Cash Flow from Investing Activities 20,000

(C) Cash Flow from Financing Activities

Redemption of Debentures (50,000)

Cash Used in Financing Activities (50,000)

(D) Net Increase in Cash and Cash Equivalents (A + B + C) 2,000

Add: Cash and Cash Equivalents in the beginning of the year 10,000

(E) Cash and Cash Equivalents at the end of the year 12,000
Cash flow statement records all cash transactions made during the year.
54. Cash Flow from Financing Activities
for the year ended March 31, 2019
Particulars ₹ ₹

Cash Flow from Investing Activities

Purchase of Machinery 20,000

Sale of Machinery 4,000

Net Cash from (used in) Investing Activities (16,000)

Cash Flow from Financing Activities

Proceeds from Issue of Equity Shares 5,000

Repayment of Bank Loan (10,000)

Net Cash Flow from Financing Activities (5,000)

Working Notes:
Machinery Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Balance b/d 40,000 By Accumulated Depreciation A/c 4,000

43 / 56
 To Bank A/c (Bal. Fig.) 20,000 By Bank A/c (Sale) 4,000

By Profit and Loss A/c (Loss on Sale) 2,000

By Balance c/d 50,000

60,000 60,000
Accumulated Depreciation Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Machinery A/c (Bal. Fig.) 4,000 By Balance b/d 10,000

To Balance c/d 12,000 By Profit and Loss A/c (Depreciation charged during the year) 6,000

16,000 16,000
55. Cash Flow from Financing Activities
Particulars (Rs.)

Proceeds from issue of Equity Share Capital

(Rs 4,00,000 + Securities Premium Rs 1,60,000 - 5,40,000
Underwriting Commission Rs 20,000)

Redemption of Preference Shares (Rs 1,00,000 + Premium Rs 5,000) (1,05,000)

Proceeds from issue of Debentures (Rs 50,000 - Rs 1,000) 49,000

Dividend paid on Preference Shares (18% on Rs 4,00,000) (72,000)

Interim Dividend paid on Equity Shares (15% on Rs 6,00,000) (90,000)

Interest paid on Debentures (14% on Rs 2 ,00,000) (28,000)

Net Cash used in Financing Activities (2,94,000)

Cash flow from financing activities is a section of a company’s cash flow statement, which shows the net flows of cash that are
used to fund the company. Financing activities include transactions involving debt, equity, and dividends.
56. Cash Flow Statement of RSB Ltd.
for the year ended March 31, 2019
Particulars ₹ ₹

A. Cash Flow from Operating Activities

Net Profit (as per Statement of Profit and Loss) 6,50,000

Add: Dividend proposed (5,00,000 × 10%) 50,000

Add: Interim dividend 1,00,000

Add: Provision for Tax Made (WN 3) 3,45,000

Net Profit before tax and extraordinary items 11,45,000

Add: Depreciation charged during the year (WN1) 40,000

Finance Cost 27,500

Less: Interest on Deposits 15,000

Dividend received on Investments 10,000

Gain on sale of fixed asset 10,000

Net Profit before working capital changes 11,77,500

Add: Increase in Trade Payables 20,000

Decrease in Inventories 1,00,000

44 / 56
Less: Decrease in Outstanding expenses 1,000

Increase in Trade receivables 2,50,000

Net Profit before Tax 10,46,500

Less: Tax Paid 3,10,000

Cash Flows from Operating Activities 7,36,500

B. Cash Flow from Investing Activities

Sale of Fixed Asset 30,000

Purchase of Investments (5,00,000)

Dividend received on Investments 10,000

Interest Received on deposits 15,000

Cash Used in Investing Activities (4,45,000)

C. Cash Flow from Financing Activities

Proceeds form Issue of Shares 2,50,000

Proceeds form Issue of debentures 5,00,000

Cash outflow on the redemption of debentures (WN 2) (2,00,000)

Finance Cost paid (20,000 + 27,500 - 35,000) (12,500)

Interim Dividend paid (1,00,000)

Proposed Dividend paid (50,000)

Cash Flow from Financing Activities 3,87,500

D. Net Increase Decrease in Cash and Cash Equivalents (A + B + C) 6,79,000

Add: Opening Balance of Cash 1,00,000

Opening Balance of Current Investments 95,000 1,95,000

Closing Balance of Cash and Cash Equivalents 8,74,000

Current Investments Closing Balance 6,74,000

Closing Balance of Cash 2,00,000

8,74,000
Working Notes:
i. Accumulated Depreciation Account
Dr. Cr.

Date Particulars ₹ Date Particulars ₹

2019 2018

March To Fixed Asset A/c (Depreciation on Mach. April

80,000 By Balance b/d 2,45,000
31 Sold) 1

March By Statement of Profit & Loss

To Balance c/d 2,05,000 40,000
31 A/c

2,85,000 2,85,000
Fixed Assets Account
Dr. Cr.

Date Particulars ₹ Date Particulars ₹

45 / 56
 2018 2019

March
April 01 To Balance b/d 9,90,000 By Accumulated Depreciation A/c 80,000
31

March By Bank A/c Sale of Machine (Bal.

2019 30,000
31 Fig.)

March To Statement of Profit & Loss A/c March

10,000 By Balance c/d 8,90,000
31 Profit 31

10,00,000 10,00,000
ii. 10% Debentures Account
Dr. Cr.

Date Particulars ₹ Date Particulars ₹

2018 2018

Oct. 01 To Bank A/c (Redemption)(Bal. Fig.) 2,00,000 April 01 By Balance b/d 4,00,000

2019 2018

March 31 To Balance c/d 7,00,000 Oct. 01 By Bank A/c (Issue) 5,00,000

9,00,000 9,00,000
iii. Provision for Tax Account
Dr. Cr.

Date Particulars ₹ Date Particulars ₹

2019 2018

March 31 To Bank A/c Tax Paid 3,10,000 April 01 By Balance b/d 2,25,000

2019

March 31 To Balance c/d 2,60,000 March 31 By Statement of Profit & Loss A/c 3,45,000

5,70,000 5,70,000
iv. Dividend proposed of previous year is added in operating activity and deducted in financing activity.
57. Cash Flow Statement of Samta Ltd.
for the year ended March 31, 2019
Particulars ₹ ₹

A. Cash Flow from Operating Activities

Profit as per Statement of Profit and Loss [(1,50,000 - (-1,40,000)] 2,90,000

Provision for Tax 45,000

General Reserve 30,000

Profit before Taxation 3,65,000

Items to be Added:

Depreciation on Fixed Assets 60,000

Loss on Fixed Assets 20,000

Interest on Debentures (6,000 + 10,400) 16,400

Interest on Bank Loan (2,000 + 1,600) 3,600

Premium on Redemption of Preference Shares 5,000

Goodwill written off 25,000 1,30,000

46 / 56
Operating Profit before Working Capital Adjustments 4,95,000

Less: Increase in Current Assets

Inventories (95,000)

Add: Increase in Current Liabilities

Trade Payables 10,000 (85,000)

Cash Generated from Operations 4,10,000

Less: Tax Paid (35,000)

Net Cash Flows from Operating Activities 3,75,000

B. Cash Flow from Investing Activities

Sale of Fixed Assets 20,000

Purchase of Fixed Assets (3,40,000)

Purchase of Investment (45,000)

Net Cash Used in Investing Activities (3,65,000)

C. Cash Flow from Financing Activities

Proceeds form Issue of Shares Capital 1,00,000

Proceeds from Issue of Debentures 1,10,000

Interest on Debentures Paid (16,400)

Redemption of Preference Share Capital (1,00,000)

Premium on Redemption of Preference Share Capital (5,000)

Security Premium Reserve 10,000

Repayment of Bank Loan (10,000)

Interest on Bank Loan Paid (3,600)

Net Cash Flow from Financing Activities 85,000

D. Net Increase Decrease in Cash and Cash Equivalents (A+B+C) 95,000

Add: Cash and Cash Equivalent in the beginning of the period (25,000 + 15,000) 40,000

Cash and Cash Equivalents at the end of the period (1,30,000 + 5,000) 1,35,000
Working Notes:
i. Fixed Assets Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Balance b/d 6,20,000 By Bank A/c (Sale) (40,000 × 50%) 20,000

To Bank A/c (B/F) 3,40,000 By Depreciation 60,000

By Profit and Loss A/c 20,000

By Balance c/d 8,60,000

9,60,000 9,60,000
ii. Provision for Taxation Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Bank A/c (B/F) 35,000 By Balance b/d 40,000

47 / 56
 To Balance c/d 50,000 By Profit and Loss A/c 45,000

85,000 85,000

58. Cash Flow Statement

for the year ended March 31, 2019
Particulars ₹ ₹

A. Cash Flow from Operating Activities

Profit as per Statement of Profit and Loss 1,80,000

Provision for Taxation 40,000

Profit before Taxation 2,20,000

Items to be Added:

Finance Cost 15,000

Depreciation and Amortisation Expenses 80,000

Operating Profit before Working Capital Adjustments 3,15,000

Less: Increase in Current Assets

Inventories (65,000)

Trade Receivables (38,000)

Add: Increase in Current Liabilities

Trade Payables 47,000

Cash Generated from Operations 2,59,000

Less: Tax Paid (26,000)

Net Cash Flows from Operating Activities 2,33,000

B. Cash Flow from Investing Activities

Purchase of Fixed Assets (3,00,000)

Net Cash Used in Investing Activities (3,00,000)

C. Cash Flow from Financing Activities

Proceeds form Issue of Shares Capital 1,00,000

Bank Overdraft 13,000

Redemption of Long-Term Loan (30,000)

Interest (Finance Cost) (15,000)

Net Cash Flow from Financing Activities 68,000

D. Net Increase Decrease in Cash and Cash Equivalents (A+B+C) 1,000

Add: Cash and Cash Equivalent in the beginning of the period (17,000 + 28,000 + 20,000) 65,000

Cash and Cash Equivalents at the end of the period (32,000 + 34,000) 66,000
Working Notes:
i. Provision for Taxation Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Bank A/c (Tax Paid) (B/f) 26,000 By Balance b/d 30,000

To Balance c/d 44,000 By Profit and Loss A/c 40,000

48 / 56
 70,000 70,000
ii. Fixed Assets Account
Dr. Cr.

Particulars ₹ Particulars ₹

To Balance b/d 4,00,000 By Depreciation A/c 80,000

To Bank A/c (B/F) 3,00,000 By Balance c/d 6,20,000

7,00,000 7,00,000
Note: Short-term Investments are considered as a part of Cash and Cash Equivalents for cash flow statement so added in cash and
cash equivalents.
59. In the books of JY Ltd.
Cash Flow Statement
For the year ending 31st March, 2017
Particulars ₹ ₹

A. Cash flow from operating activities:

Net Profile before Tax (Note 1) 3,75,000

Adjustments for non-cash and non-operating items

Add: Depreciation on Machinery 62,500

Interest Paid on Debentures 15,000

Operating Profile before Working Capital Changes 4,52,500

Less: Increase in Current Assets: -

Trade Receivable 50,000

Short term Loans and Advances 1,00,000 1,50,000

Less : Payment of Tax 1,25,000

Net cash from operating activities 1,77,500 1,77,500

B. Cash flows from Investing Activities:

Purchased of Machinery (2,12,500)

Net cash used in investing activities (2,12,500) (2,12,500)

C. Cash flows from financing activities:

Proceeds from Long-term Borrowings (Debentures) 1,00,000

Increase in Bank Overdraft 50,000

Payment of Proposed Dividend (50,000)

Interest paid on Debentures (15,000)

Net Cash from financing activities 85,000 85,000

Net increase in cash and cash equivalents (A+B+C) 50,000

Add: Cash and cash equivalents in the beginning of the period 75,000

Cash and cash equivalents at the end of the period 1,25,000

Notes :
1. Calculation of Net Profit before Tax:
₹

Balance of Statement of Profit & Loss as on 31 st March, 2017 1,00,000

49 / 56
 Add: Balance of Statement of Profit & Loss as on 31 st March, 2016 25,000

1,25,000

Add: Proposed Dividend for 2016 50,000

Add:Provision for Tax for 2017 2,00,000

3,75,000

60. In the books of Kabir and Farid

Journal

Date Particulars L.F. Dr. (₹) Cr. (₹)

2019 Apr.01 Premium for Goodwill A/c Dr. 56,000

To Kabir’s Capital A/c 42,000

To Farid’s Capital A/c 14,000

(Being share of goodwill credited to the existing partners in 3:1)

Working Notes:
90,000+1,30,000+(86,000+30,000)
Average Profit for the last three years = = ₹ 1,12,000
3

= Average Profits of the last three years × Number of Years’ Purchase = ₹

Goodwill of the firm
(1,12,000 × 2) = ₹ 2,24,000

Manik’s share of goodwill = ₹ (2,24,000 × ¼) = ₹ 56,000

Sacrificing Ratio among the partners will be the

=3:1
same as the old ratio

Note: Loss due to fire has not been accounted for thus; the profits for the year 2018-19 is taken before deducting loss by fire.
61. Goodwill = Capitalised Value - Net assets of business.
Capital Employed = Assets - External Liabilities
= 10,00,000 - 1,80,000
= ₹ 8,20,000
Normal Profit = Capital Employed × Normal Rate of Return

100

= 8,20,000 × 10

100

= ₹ 82,000
Super Profit = Actual Profit - Normal Profit
= 1,00,000 - 82,000
= ₹ 18,000
Goodwill = Super Profit × 100

Normal Rate of Return

= 18,000 × 100

10

= ₹ 1,80,000
62. There are various methods for calculation of the goodwill, they are outlined below:
i. Average Profits Method: For calculation of goodwill through this method, The average of the profits of last few years is
multiplied by no of year purchases. Average profit method is also know as simple profit method. Goodwill = Adjusted
Average Profit × No. of Years Purchase.
ii. Super Profit Method: In this method the future maintainable profit are compared with the normal profits of the firm. The
Term super profit is described as an excess profit of a business made over normal profit. In simple words, it is the difference
(excess) between Average Annual Earning (actual) of the business and the expected or normal return on capital invested.
To calculate the goodwill under the method of super profit, first we calculate the actual average profit and than Normal Profit
(which is calculated on the basis of capital employed) difference of average profit and normal profit is known as super profit.
Super Profit = Average Profit – Normal Profit, Value of Goodwill = Super Profit × No. of years purchase.

50 / 56
 iii. Capitalisation of Average Profits: According to this method it is assumed that goodwill is difference of the capitalized value
of Average profits and actual capital employed.
Value of Goodwill = Capitalised value of Average profit - Net Assets.
Capitalized Value = Average Profit / Normal Rate of Return × 100
iv. Capitalisation of Super Profit: This is another method of calculating goodwill under capitalisation termed as capitalisation of
super profit , goodwill amount calculated by this method will be the same as calculated according to the capitalisation of the
average profit method.
Value of Goodwill = Super profit × 100/Normal rate of return.
63. Calculation of Adjusted Profits
31st 31st 31st 31st 31st
Year ended March March March March March
2015 2016 2017 2018 2019

₹ ₹ ₹ ₹ ₹

Profits (₹) 36,000 1,70,000 1,90,000 2,00,000 3,50,000

Add: Abnormal Loss 50,000

Less: Abnormal Gain (30,000)

Less: Repair expenses that should have been debited to P & L

(40,000)
A/c

Add: Depreciation wrongly debited to P & L A/c (There should

1,000(1) 4,000(2)
have been no depreciation at all)

Add: Closing Stock under- valued 50,000(3)

Less: Opening Stock undervalued (50,000)(4)

Adjusted Normal Profits 86,000 1,40,000 1,90,000 2,11,000 3,04,000

Calculation of Weighted Average Profits
Year ended Profits (1) Weight (2) Products (1 × 2)

₹ ₹

31.3.2015 86,000 1 86,000

31.3.2016 1,40,000 2 2,80,000

31.3.2017 1,90,000 3 5,70,000

31.3.2018 2,11,000 4 8,44,000

31.3.2019 3,04,000 5 15,20,000

15 33,00,000

Weighted Average Profit = Sum of Profits multiplied by weights / Sum of weights

33,00,000
= 15
= ₹ 2,20,000
Goodwill = Weighted Average Profit × Number of Year’s Purchase = ₹ 2,20,000 × 2 = ₹ 4,40,000
Working Notes:
i. Depreciation for the year ended 31.3.2018: 10% on ₹ 40,000 for 3 months = ₹ 1,000.
ii. Depreciation for the year ended 31.3.2019: 10% on ₹ 40,000 (Under Straight Line Method) = ₹ 4,000.
iii. Closing Stock under-valued reduced the profits of the year ended 31.3.2018. Hence, it is to be added to profits.
iv. Closing Stock of previous year becomes Opening Stock of next year. Since the Closing Stock of the year ended 31.3.2018 was
undervalued, it means Opening Stock as of 1.4.2018 is also under-valued as a result of which profit for the year ended
31.3.2019 is higher by ₹ 50,000. Hence, profits will have to be reduced by this amount.
v. Abnormal loss of a year should be added back to the net profit of that year.
vi. Abnormal income of a year should be deducted out of the net profit of that year.

51 / 56
64. i. Calculation of Goodwill at three year's purchase of Average profit:
₹1,60,000+ ₹1,40,000+ ₹2,70,000
Average profit = 3

₹5,70,000
=
3
= ₹1,90,000
Average Normal Profit = ₹1,90,000 - Remuneration of Partners
= ₹1,90,000 - (₹2,500 × 2 × 12)
= ₹ 1,90,000 - ₹60,000 - ₹1,30,000
Goodwill = Average Normal Profit × No. of year's Purchase
= ₹1,30,000 × 3 = ₹3,90,000.
ii. Calculation of Goodwill at three year's purchase of super profit:
Normal Profit = Capital Employed × Normal rate of return/100
= ₹10,00,000 × 11/100 = ₹1,10,000
Super profit = Average Profit - Normal profit
= ₹1,30,000 - ₹1,10,000 = ₹20,000
Goodwill = Super profit × No. of years Purchase
= ₹ 20,000 × 3 = ₹60,000.
iii. Calculation of Goodwill under capitalisation of super profit:
Goodwill = Super profit × 100

Normal Rate of Return

= ₹ 20,000 × 100/11 = ₹1,81,818.18 or ₹1,81,818.

iv. Calculation of Goodwill under Capitalisation of Average Profit:
Goodwill = Total Capitalized Value of Business - Net Assets
Average Normal Profit ×100
Total Capitalised Value of the Firm = Normal Rate of Return

₹1,30,000×100
=
11
= ₹11,81,818.18 or ₹11,81,818
Net Assets = Total Assets (excluding goodwill) - Outside Liabilities
= ₹11,00,000 - ₹1,00,0000 = ₹10,00,000
Goodwill = ₹11,81,818 - ₹10,00,000 = ₹1,81,818
65. i. Profitability is the basic objective of every business. Efficiency in business is measured by profitability. Profitability arises
when the aggregate amount of revenue is greater than the aggregate amount of expenses in a reporting period.The various
ratios which helps to measure the profitability of a business are gross profit ratio, net profit ratio, operating ratio, operating
profit ratio and return on capital employed ratio. All these ratios are used to assess a business's ability to generate earnings as
compared to its expenses.
ii. Operating Profit Ratio
Operating Profit ∗
= × 100
Revenue from Operations **

2,10,000
= × 100 = 54.55
3,85,000

*Operating Profit = Revenue from Operations** - Cost of Revenue from Operations (Opening stock + Purchases -Purchase
return - Closing stock) - Selling Expenses - Administrative Expenses
= 3,85,000 - [(10,000 + 1,20,000 - 5,000 - 60,000) - 70,000 - 40,000]
= 3,85,000 - 65,000 - 70,000 - 40,000 = Rs. 2,10,000
**Revenue from Operations = Revenue from Operations i.e.Net sales - Returns from Revenue from Operations
= 4,00,000 - 15,000 = Rs. 3,85,000
NOTE: Operating profit ratio measures the relationship between operating profit and revenue from operations.
operating ratio is different from operating profit ratio.
Credit Revenue from Operations
66. Trade Receivable Turnover Ratio = Average Trade Receivables

3,00,000
3= A veram Trade Rercivahle
3,00,000
Average Trade Receivables = 3
= ₹ 1,00,000
Opening Trade Receivables + Closing Trade Receivables
Average Trade Receivables = 2
x+4x
1,00,000 = 2

So, x would be ₹ 40,000

∴ Opening receivables would be ₹ 40,000 and,Closing Receivables would be ₹ 1,60,000 (40,000 × 4)

Revenue from operations = Cost of revenue from operations+Gross profit

Revenue from Operations = 3,00,000 + × 3,00,000 = ₹ 4,00,000
25

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 Credit Revenue from Operations = Total Revenue from Operations - Cash Revenue from Operations
x = 4,00,000− x 1

Credit Revenue from Operations = ₹ 3,00,000

67. Current Ratio as given in the question 2.5 : 2. Hence, it may be assured that Current Assets are ₹2,50,000 and current Liabilities
are ₹1,00,000.
i. Payment to trade payables: Suppose, trade payables amounting to ₹25,000 are repaid, the revised current ratio would be:
₹2,50,000− ₹25,000( Cash ) 3,00,000
= =3:1
₹1,00,000+ ₹25,000( prade Payables ) 1,00,000

The current ratio is improved.

ii. Sell machinery against cheque: Suppose a machinery is solid for ₹50,000, the revised current ratio would be:
₹2,50,000− ₹50,000(bank) 3,00,000
= =3:1
₹1,00,000 1,00,000

The current ratio is improved.

iii. Sale of inventory at loss against Cheque: Suppose, inventory costing 50,000 is sold for ₹40,000 ON credit, the revised
current ratio would be:
₹2,50,000− ₹40,000 (Trade Receivables) − ₹50,000 ( Inventory) 2,40,000
= = 2.4 : 1
₹1,00,000 1,00,000

The current ratio is reduced.

iv. Cash collected from trade receivables: Suppose cash amounting to ₹50,000 is collected from received trade received, the
revised current ratio would be:
₹2,50,000− ₹50,000 (Trade Receivables) − ₹50,000 ( inventory) 2,50,000
= = 2.5 : 1
₹1,00,000 1,00,000

The current ratio has not charged.

v. B/P dishonored: Suppose, a B/R for ₹50,000 is dishonored, it will result in decrease in B/R and increases in trade
receivables. Hence, the revised current ratio would be:
B
₹2,50,000− ₹50,000( )+50,000( Trade Receivables )
2,25,000
= =3:1
R

₹1,00,000+ ₹25,000( prade Payables ) 1,00,000

The current ratio is improved.

vi. Issue of shares against the purchase of a building: Suppose, share of ₹1,00,000 are issued against the purchase of Building.
It will result increase in Capital on the one hand and increase in building on the other hand since there is no either on Current
assets or a current liabilities, the current ratio would not change.
Long term Debts
68. Debt-Equity Ratio = Debt

Equity
or Shareholder's Funds

In the above question, Debt-Equity Ratio is given as 1 : 2, therefore, it may be assumed that Long term Debts are ₹ 1,00,000 and
Shareholder’s Funds are ₹ 2,00,000.
i. By the repayment of Long term Borrowings of ₹ 40,000, Long-term Debts will be reduced by ₹ 40,000, and these will stand
at ₹ 1,00,000 - ₹ 40,000 = ₹ 60,000.
Therefore, the revised ratio will be:
₹60,000
= = 3:1
₹2,00,000
Before the repayment of Long term Borrowings, the ratio was 1:2 (or .5:1) which is now reduced to 3:1. It means that the ratio
has decreased.
Therefore, it can be concluded that decrease in long term debts decreases this ratio.
ii. As a result of credit purchase of a fixed asset for ₹50,000 on long-term payment basis, long term debts will increase by
₹50,000, and these will stand at ₹1,00,000 + ₹50,000 = ₹ 1,50,000.
Therefore, the revised ratio will be
₹1,50,000
= = .75:1
₹2,00,000
Before the purchase of fixed asset, the ratio was 1:2 (or 5:1) which now stands at 75:1. It means that the ratio has increased.
Therefore, it can be concluded that increase in long term debts increases the ratio.
iii. By the issue of new equity shares, shareholder’s funds will be increased and
will stand at ₹ 2,00,000 + ₹ 75,000 = ₹ 2,75,000. Therefore, the revised ratio will be:
₹1,00,000
= = .36:1
₹2,75,000
Before the issue of equity shares the ratio was 1 : 2 (or 5: 1) which is now reduced to 36 : 1. It means that the ratio has
decreased.
Therefore, it can be concluded that increase in shareholder’s funds decreases the ratio.

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 iv. Payment of dividend payable means the payment of a current liability.
Hence, there will be no change in debt-equity ratio because neither the long-term debts nor the Shareholder’s Funds are
affected.
v. Goods purchased on credit will affect only the Inventory and Trade Payables.
Hence, there will be no change in debt-equity ratio because neither the long-term debts nor the Shareholder’s Funds are
affected.
vi. No, change since both Long term Debts and equity remain unchanged.
69. The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It
tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and
other payables.
a. Let current liabilities to be paid out of current assets = x
Current Assets
Current Ratio = Current Liabilities

2 3,00,000−x
=
1 2,00,000−x

3,00,000 - x = 4,00,000 - 2x
2x - x = 4,00,000 - 3,00,000
x = Rs 1,00,000
So in order to maintain the current ratio of 2: 1, current liabilities to be paid are Rs. 1,00,000.
b. Current Ratio = Current Assets

Current Liabilities

i. Calculation of Current Liabilities:

Current Liabilities = Total Debts or Liabilities - Long-term Debts or Liabilities
= Rs. 3,90,000 - Rs. 3,00,000
= Rs. 90,000
ii. Calculation of Current Assets:
Working Capital = Current Assets - Current Liabilities
1,80,000 = Current Assets - Rs. 90,000 = Rs. 2,70,000
2,70,000
Current Ratio = 90,000
= 3: 1
70. Quick Ratio = 2 : 1
Let Quick Assets be = ₹ 20,000
Current Liabilities = ₹ 10,000
a. Purchase of goods for Cash- Reduce
Reason: This transaction will result decrease in cash and increases in stock. Liquid Asset will decrease due payment for goods
purchased.
b. Purchase of goods on Credit- Reduce
Reason: Purchase of goods on credit will result increase in Current Liabilities and no change in Quick Assets.
c. Sale of goods for ₹ 10,000- Improve
Reason: Sale of goods will result in increase in Quick Assets by the amount of ₹ 10,000 in the form of either in cash or debtor.
This transaction will result no change in current liabilities.
(20,000+10,000)
Quick Ratio after purchase of assets will be = 10,000
=3:1
d. Sale of goods costing ₹ 10,000 of or ₹ 11,000- Improve
Reason: This transaction will increase the Quick Assets by ₹ 11,000 in the form of either in cash or debtors but no effect on
the Current Liabilities.
Quick Assets after sale of goods = 20,000 + 11,000 = ₹ 31,000
(20,000+11,000)
Quick Ratio after sale of goods = 10,000
= 3.1 : 1
e. Cash received from debtors- No change
Reason: This transaction results increase in one quick asset in the form of cash and a decrease in other quick asset in the form
of debtor with equal amount. Therefore it results in no change in the total of Quick Assets.

If If If
Tr. Quick Quick Quick
Reasons of impact on quick ratio due to transactions
No. Ratio is Ratio is Ratio is
71. 1.4 : I 1:1 0.75: 1

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 (i) Not Not Not Neither the liquid assets nor the current liabilities are affected since there is only a
Change Change Change conversion of one liquid asset into another liquid asset.

Not
(ii) Improve Reduce Both the liquid assets and current liabilities are decreased by the same amount.
Change

(iii) Reduce Reduce Reduce Current liabilities remain unchanged but liquid assets are decreased by out flow of cash.

(iv) Reduce Reduce Reduce Liquid assets remain unchanged but current liabilities are increased.

(v) Improve Improve Improve Current liabilities remain unchanged but liquid assets are increased.

(vi) Improve Improve Improve The reason being same as given in point (v) above.

Not Not Not

(vii) The reason being same as given in point (i) above.
Change Change Change

Not
(viii) Improve Reduce The reason being same as given in point (ii) above.
Change

Not Not Not

(ix) The reason being same as given in point (i) above.
Change Change Change

Not Not Not The reason being same as given in point

(x)
Change Change Change (i) above.

Not Not Not Neither the liquid assets nor the Current liabilities are affected since there is only
(xi)
Change Change Change conversion of one current liability into another current liability.

Not
(xii) Improve Reduce The reason being same as given in point (ii) above.
Change

Not
(xiii) Improve Reduce The reason being same as given in point (ii) above.
Change

Not Not Not

(xiv) Neither the liquid assets nor the current liabilities are affected.
Change Change Change
72. Areas of interest for suppliers/creditors of goods:
i. They are also interested to determine the capability of the company to meet its debts as and when they fall due.
ii. Suppliers and trade creditors are interested in the financial strength of business so that they can extend credit for goods
accordingly.
Above information can be obtained from the financial statements.
73. i. To compare inter firm position and identify the strong and weak areas if any and to corrective steps.
ii. To help determine the credit worthiness and earning potential of business.
iii. To Determine operational efficiency with which resources are utilized in generating revenue.
iv. To determine profitability with respect to sales and investment.
74. Cash Flow Analysis: This analysis is presented in the form of a statement showing inflows and outflows of cash and cash
equivalents from operating, investing and financing activities of a company during a particular period of time. It helps in
analysing the reasons for receipt and payment in cash and change in the cash balances during an accounting year in a company.
Trend Analysis: This analysis undertakes the study of tending in the financial positions and the operating performance of a
business over a series of successive years. In this technique, a particular year is assumed to be the base year and the figures of all
other years are expressed in percentage terms of the base year's figures. These trends (or the percentage figures) not only helps in
assessing the operational efficiency and the financial position of the business but also helps in detecting the problems and
inefficiencies.
The limitations of Financial Analysis are:
i. Misleading and Wrong Information: The financial analysis fails to reveal the change in the accounting procedures and
practices. Consequently, they may provide wrong and misleading information.
ii. Ignores Changes in the Price level: The financial analysis fails to capture the change in price level. The figures of different
years are taken on nominal values and not in real terms (i.e. not taking price change into considerations).

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75. Financial Analysis has great importance to various accounting users on various matters. Income Statements, Balance Sheets and
other financial data provide information about expenses and sources of income, profit or loss and also helps in assessing the
financial position of a business. These financial data are not useful until they are analyzed. There are various tools and methods
such as Ratio Analysis, Cash Flow Statements that make the financial data cater to varying needs of various accounting users.
The following are the reasons that advocate in favor of Financial Analysis:
i. It helps in assessing the long-term solvency of the business.
ii. It helps in evaluating the profit earning capacity and financial feasibility of a business.
iii. It assists management in the decision-making process, drafting various plans and also in establishing an effective controlling
system.
iv. It helps in evaluating the relative financial status of a firm in comparison to other competitive firms.

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