CA Foundation

FUNDAMENTALS OF ACCOUNTING

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 THEORETICAL FRAMEWORK

Represent all documents in business which contains

Source financial records and act as evidence of the transactions
Book Keeping
Documents which have taken place.

These are books which are used in recording the

Book of Original transactions for the first time. The books are maintained
for memorandum purpose only and will not form part of
Recording Entry
the double entry system. Examples include; Purchase day
(Journalizing) (Chorological
book, Cash book, Sales day book and purchases return day
manner) book. (Principal Books)

These form part of double entry system and used to

record the Transactions for the period. These are
Classifying Ledger Accounts
accounts where information relating to a particular asset,
(Posting & (Analytical
liability, capital, income and expenses are recorded.
Balancing) Manner)
(Secondary Books)

Contains the totals from various ledger accounts and act as

a Preliminary check on accounts before producing final
Trial Balance
accounts. (Arithmetic Accuracy)(List of
Summarizing (Statement form)
Accounts)(Not a conclusive proof)
*(Net Profit is
ascertained)
Financial Statements are produced to show the financial
Final Accounts Performance and financial position of a business entity.

After the preparation of final accounts, the results and

financial position is analyzed using ratio analysis
Ratio Analysis &
techniques and meaningful results is interpreted. Various
decision of owner are based on this analysis and
Analyzing Cash flow
interpretation. Various charts are also used for
statement
interpretations and communication of results to the
owner.

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 ACCOUNTING CONCEPTS

Entity Concept Business is separate from its owner.

Effects:
 Owner’s Capital is shown as a Liability in the Business.
 Amount taken by Owner from business is recorded as Drawings.
 Owner’s expenses are not recorded in the books of business and if
payment is made from business, it is recorded as Drawings.
 Proprietor cannot use the bank account of business for his personal
transactions.

Money Only those transactions, which can be measured in terms of money, are
Measurement recorded.
Concept Effects:
 Employees are not recorded as an Asset in the Balance Sheet.
 Inherently generated goodwill is not recorded in the books.
 Qualitative information is not recorded in the books of account.

Periodicity According to this concept accounts should be prepared after every period &
Concept not at the end of the life of the entity. Usually this period is one calendar year.
In India we follow from 1st April of a year to 31st March of the immediately
following year.
Effects:
 Adjustment of Prepaid and outstanding is done at the end of the
period. (Matching Principle)

Accrual Concept Accrual means recognition of revenue and costs as they are earned or incurred
and not as money is received or paid. Expenses accrue when benefit is
received and income is accrued when benefit is given.
Effects:
 Advance money received is not treated as a sale.

Matching In this concept, all expenses matched with the revenue of that period should
Concept only be taken into consideration. This concept is based on accrual concept
as it considers the occurrence of expenses and income and do not
concentrate on actual inflow or outflow of cash.
Effects:
 Adjustment of Prepaid and outstanding is done at the end of the
period.

Going Concern The financial statements are normally prepared on the assumption that an
Concept enterprise is a going concern and will continue in operation for the
(indefinite life) foreseeable future. Hence, it is assumed that the enterprise has neitherthe
intention nor the need to liquidate or curtail materially the scale of its
operations; if such an intention or need exists, the financial statements may
have to be prepared on a different basis and, if so, the basis used is disclosed.
Effects:
 That the assets are classified as current assets and fixed assets.
 The liabilities are classified as short-term liabilities and long-term
liabilities.

Cost Concept By this concept, the value of an asset is to be determined on the basis of
historical cost, in other words, acquisition cost. Hence, All the fixed assets
are recorded at Historical Cost only and market value of fixed assets is
ignored.

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Conservatism Conservatism states that the accountant should not anticipate income and
Concept should provide for all possible losses. When there are many alternative
values of an asset, an accountant should choose the method which leads
to the lesser value.
Effects:
 Provision for doubtful debts is created at the end of the year.
 Stock is valued at Cost or NRV, Whichever is less.

Consistency In order to achieve comparability of the financial statements of an

Concept enterprise through time, the accounting policies are followed consistently
from one period to another; a change in an accounting policy is made only
in certain exceptional circumstances.

An enterprise should change its accounting policy in any of the following

circumstances only:
a. To bring the books of accounts in accordance with the issued
Accounting Standards.
b. To compliance with the provision of law.
c. When under changed circumstances it is felt that new method will
reflect more true and fair picture in the financial statement.

Materiality Materiality principle permits other concepts to be ignored, if the effect is not
Concept considered material. This principle is an exception of full disclosure
(Exception to principle. According to materiality principle, all the items having significant
Full disclosure economic effect on the business of the enterprise should be disclosed in the
concept)
financial statements and any insignificant item which will only increase the
work of the accountant but will not be relevant to the users’ need should
not be disclosed in the financial statements.
Effects:
 Assets with low value like calculators, books, tools, etc are written off
in one year instead of capitalizing the same.
 Omission of paisa and showing the round figure in the financial
statements.

Dual Aspect Every Transaction has two effects: Debit and Credit. Both are opposite and
Concept equal also known as Double Entry System. Accounting equation has been
derived on the basis of dual aspect concept as under:
Assets = Liabilities + Equity (Balance Sheet Equation) Net
Profit = Income – Expenses (Profit & Loss Equation)

CLASSIFICATION OF ACCOUNTS

Real Account Related to Assets of the Machinery, Furniture, Land

business(tangible and intangible both) and building, Vehicles,
Goodwill, Patents, copyrights,
Stock, etc
Person Account Related to natural, artificial persons & Debtors, creditors, proprietor,
representational person bank, Bank Loan, Dividend
payable, Outstanding
liabilities, Prepaid expenses,
etc
Nominal Account Related to Income, Expenses, Loss and Salary, Advertisement,
Gains Stationery, Travelling, Sales,
Interest, etc

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 PROFIT & LOSS ACCOUNT (For the year)

Particular Type Particulars Type

Opening Stock Real Sales Nominal
Purchases Nominal Closing Stock Real
Direct Expenses Nominal
Gross Profit Not an
Account
Salary Nominal Gross Profit
Rent Nominal Discount Received Nominal
Legal Fees Nominal Interest Received Nominal
Travelling Nominal Commission Received Nominal
Printing & Stationery Nominal Rent Received Nominal
Electricity Exp Nominal Dividend Received Nominal
Telephone Expense Nominal
Office Exp Nominal
Interest Paid Nominal
Repairs & Maintenance Nominal
Insurance Exp Nominal
Advertisement Exp Nominal
Discount Allowed Nominal
Accounting Charges Nominal
Bad Debts Nominal
Depreciation Nominal
Net Profit Not an
Account
BALANCE SHEET (Only Real & Personal Accounts)(As on a date)

Liabilities Type Assets Type

Non Current Liabilities Non Current Assets
Share Capital Personal Goodwill & Patent Real
Reserves & Surplus Personal Plant and Machinery Real
Bank Loan Personal Land and Building Real
Debentures Personal Furniture and Fixtures Real
Public Deposits Personal Vehicles Real
Unsecured Loans Personal Long term investments Real
Current Liabilities Current Assets
Sundry Creditors Personal Sundry Debtors Personal
Dividend Payable Personal Loans and Advances Personal
Bill Payable Personal Cash Real
Bank Overdraft Personal Bill Receivable Personal
Outstanding Expenses Personal Stock Real
Prepaid Expenses Personal
Bank balance Personal

GOLDEN RULES OF ACCOUNTING: (Lucas Pacioli is the father of accounting)

1. Personal account is governed by the following two rules:

Debit the receiver
Credit the giver

2. Real account is governed by the following two rules:

Debit what comes in
Credit what goes out

3. Nominal account is governed by the following two rules:

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Debit all expenses and losses
Credit all incomes and gains

Users of Financial Statements Are:

Proprietor, Creditors, Government, Employees, Customers, Lenders, Public at Large.

Sub Fields of Accounting:

Management Accounting, Cost Accounting, Financial Accounting, Human Resource
Accounting & Social Responsibility Accounting.

Fundamental Accounting Assumptions:

Going Concern, Accrual & Consistency

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TYPES OF SUBSIDIARY BOOKS:
Purchase Book It records the credit purchase of goods traded in. Example: stationery
dealer purchased stationery in credit from Ram.

Sales Day Book It records the credit sale of goods dealt in (traded in )
Example: Furniture dealer sold furniture on credit.

Purchase It records the goods or material returned to the suppliers that have been
Return Book purchased on credit. When goods are returned to supplier a debit note is
(DEBIT NOTE) issued to him indicating that his account has been debited with the
amount mentioned in the debit note.

Sales Return It records the goods or material returned by the purchaser that had
Book (CREDIT been sold on credit. When goods are returned by a customer a credit note
NOTE) is sent to him mentioning that his account has been credited with the
value of goods returned.

Bills Receivable It records the bills of exchange or promissory note received by a

Book business entity.

Bills Payable It records the acceptances given to the creditor in the form of bills or
Book promissory notes.

Cash Book It is used to record all cash transactions of the business whether related
(Both Journalas to goods, fixed assets, expenses or income.
well as Ledger)
Examples: Payment of expenses in cash, receipt of cash from debtors,
payment to creditors in cash, purchase of fixed assets in cash, sale of fixed
assets in cash, etc.

Cash Book is of 3 types:

a. Simple Cash Book (No need to open a separate Cash Account)

b. Double Column Cash Book (Cash & Bank) or (Cash & Discount) (No Need
to open separate cash and bank account)(However, Separate Discount
Allowed and Discount Received Account needs to be opened)

c.Three Column Cash Book

 Cash, Bank & Discount columns are there.
 No Need to open separate cash and bank account.
 However, Separate Discount Allowed and Discount Received Account
need to be opened.
 Discount columns are merely totalled and never balanced. Debit side
total is transferred to Discount Allowed Account and Credit side total
is transferred to Discount Received Account.

Petty Cash Book is one of the subsidiary books which is used for the
purpose of recording payment of petty cash expenses. Balance of petty
cash book is an Asset.

Under Imprest system, The chief cashier makes the reimbursement of

the amount spent by the petty cashier and the petty cashier again has the
same amount of petty cash at the end as in the beginning.

“Imprest or Float” means the amount which the main cashier hands
over to the petty cashier in order to meet the petty cash expenses of a
given period.

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Journal Proper All entries which cannot be recorded in the above subsidiary books are
recorded in this book. Example: opening entries, Closing entries,
rectification entries, etc

CAPITAL VS REVENUE:
Amount spent for replacement of worn out part of machine Revenue Expense
Expenses incurred on the repairs and white washing for the Capital Expense
first time on purchase of an old building.
Amount spent for the construction of temporary huts, which Capital Expense
were necessary for construction of cinema house and were
demolished when the cinema house was ready
Heavy advertisement to introduce a new product or to explore Deferred Revenue
a new market. Expenditure
Expenses of trail run of a newly installed machine Capital Expense
A bad debt recovered during the year Revenue Expense
Compensation of `2.5 crores paid to workers, who opted for Revenue Expense
voluntary retirement.
Legal fees to acquire property Capital Expense
Amount spent as lawyer’s fee to defend a suit claiming that Revenue Expense
the firm’s factory site belonged to the plaintiff’s land
Insurance claim received on account of machinery damaged Capital Expense
completely by fire
Subsidy of `40000 received from the government for working Revenue Expense
capital by a manufacturing concern
Office rent paid in advance for three years Prepaid Expense
Cost of formation of new company Capital Expense
Cost of annual taxes paid and the annual insurance premium Revenue Expense
paid on the truck
`5150 spent on repairs before using a second-hand car Capital Expense
purchased recently, to put it in usable condition.
Interest on investments received from UTI. Revenue Receipt

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LIST OF ACCOUNTING STANDARDS:

Number of the TITLE OF THE ACCOUNTING STANDARD Applicable

Accounting Standard
(AS)
AS 1 Disclosure of Accounting Policies All
AS 2 (Revised) Valuation of Inventories All
AS 3 (Revised) Cash Flow Statements Level 1
Contingencies and Events Occurring after the Date All
AS 4 (Revised) Balance Sheet
Net Profit or Loss for the Period, Prior Period Items All
AS 5 (Revised) and
Changes in Accounting Policies All
AS 6 (Revised) Depreciation Accounting All
AS 7 (Revised) Accounting for Construction Contracts All
AS 9 Revenue Recognition All
AS 10 Accounting for Fixed Assets All
AS 11 (Revised) The Effects of Changes in Foreign Exchange Rates All
AS 12 Accounting for Government Grants All
AS 13 Accounting for Investments All
AS 14 Accounting for Amalgamations All
AS 16 Borrowing Costs All
AS 19 Leases All
Level 1 and All
AS 20 Earnings Per Share Companies
AS 26 Intangible Assets All
AS 29 Provisions, Contingent Liabilities & Contingent All
Assets

 Accounting Standards are formulated by ASB and issued by the Council of ICAI.
 Accounting standards cannot override the statue.
 Accounting Standards are mandatory for companies as per companies act, 1956.
 So far 32 Accounting standards have been issued by ICAI.

ABBREVIATIONS

ASB Accounting Standard Board

GAAP Generally Accepted Accounting Principles
AS Accounting Standard
IASB International Accounting standard board
ICAI Institute of Chartered Accountants of India

Accounting Policy:

Accounting Policies refer to specific accounting principles and methods of applying these
principles adopted by the enterprise in the preparation and presentation of financial
statements.

The areas wherein different accounting policies are frequently encountered can be given
as follows:

(1) Methods of depreciation, depletion and amortization;

(2) Valuation of inventories;
(3) Treatment of goodwill;
(4) Valuation of investments;
(5) Valuation of fixed assets.
This list should not be taken as exhaustive but is only illustrative. As the course
will progress, students will see the intricacies of the various accounting policies.

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 Book Keeping Accounting
It is a process concerned with It is a process concerned with the
the recording of transactions. summarizing of the recorded transactions.
It constitutes the base of It is considered as the language of the
accounting business.
Financial statements do not Financial statements are prepared in this
form part of this process process on the basis of the book keeping
records.
Managerial decisions cannot be Management takes decisions on the basis of
taken on the basis of these these records.
records.
There is no sub field of book It has several sub fields of accounting like
keeping cost accounting, financial accounting,
management accounting, etc
Financial position of the Financial position of the business is
business cannot be ascertained ascertained on the basis of accounting
through book keeping records. reports.
VALUATION PRINCIPLES:

There are four generally accepted measurement bases or valuation principles.

a. Historical Cost: It means acquisition price. According to this base, assets are
recorded at an amount of cash or cash equivalent paid.

b. Current Cost: Assets are carried out at the amount of cash or cash equivalent that would
have to be paid if the same or an equivalent asset was acquired currently.

c. Realisable value: As per realisable value, assets are carried at the amount of cash or
cash equivalent that currently could be obtained by selling the assets in an orderly disposal.

d. Present Value: As per present value, an asset is carried at the present discounted
value of the future net cash inflow that the asset is expected to generate in the normal
course of business.

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 INVENTORY (Matching Concept)

VALUATION OF INVENTORY (AS-2)

COST NET REALISABLE VALUE

Includes: 

 

Excludes:






INVENTORY VALUATION TECHNIQUES

FIFO LIFO Adjusted Selling Price or

Recognized by IT  Retail method
department & AS2  

 

Standard Cost Method

WEIGHTED AVERAGE METHOD

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Inventory Record Systems:

Periodic Inventory System Perpetual Inventory System

Physical Verification of Inventory at It is based on Book Records and is
periodic intervals determined automatically after each
receipt and issue
Inventory control is not possible Inventory control can be exercised
Requires closure of business for physical Inventory can be determined without
count of stock affecting operations of business
Cost of goods sold includes loss of goods Closing inventory includes loss of goods
as goods not in stock are assumed to be as all unsold goods are assumed to be in
sold Inventory

Important Points:

 Cost of goods sold = Opening stock + Purchases + Direct expenses - Closing stock.
 Inventories are written down to NRV on an Item-on-Item Basis.
 AS 2 allows FIFO and Weighted Average Method but does not allow LIFO Method.
 Valuation of Inventory is based on Conservatism on the other hand; recording of
Inventory is based on matching principle.

Closing Stock Profit Opening Stock Profit

Closing Stock Profit Opening Stock Profit

BASE CONVERSION

There are 3 elements: Profit, Sale and Cost

Step 1: Assume the base of % as 100.
Step 2: Apply the percentage on the base and calculate the profit.
Step 3: Calculate the third element as you know the two elements using the equation:
Sales = Cost + Profit
Step 4: Now, you know all the three elements, calculate the desired percentage on
desired base.

25% on Cost then how much % of Sale?

Step 1: As the base of % is Cost, Assume the cost as 100.
Step 2: By applying 25% on cost 100, profit will be ` 25.
Step 3: Sale = Cost + Profit
Sale = 100+ 25 = 125.
Step 4: Profit/Sales = Profit as % of sales
25/125*100=20%

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 DEPRECIATION

Important Features:

 Depreciation is charged on Fixed Asset (Tangible as well as Intangible).

 Depreciation is non cash expenditure and does not affect the cash flow statement.
 Value of such fixed assets decreases over a period of time due to usage, normal wear and
tear, passage of time, obsolescence of technology and market changes.
 Depreciation of a fixed asset starts from the date when it is put to use.
 Schedule II of the Companies Act, 2013 prescribes the rate of depreciation for companies.
 Depreciation is not chargeable on Land as the useful life of land is unlimited.
 Amortization means writing off intangible Assets.
 Obsolescence means decline in the value of Fixed Asset due to Innovations and Inventions
which is an external factor.

Straight Line Method: Cost of Asset – Scrap Value

Useful Life
Reducing Balance Method: A fixed percentage is charged to the written down value of asset each
year so as to reduce the value of asset to its break-up value at the end of its life. Annual charge of
depreciation decreases from year to year and Annual charge of repairs increases from year to
year and hence a proper amount is charged to Profit each year for the use of fixed asset. (Widely
Used in Income Tax)

Sum of year of Digit Method:

Depreciation =(Original Cost – Scrap Value) * Number of years of remaining life of asset
Total of all digits of the life of the Asset

Total of all digits of the life of asset = n(n+1)

2

Production Units Method:

Depreciation = Depreciable Amount * Production during the period/ Estimated total
production

Annuity Method:
This method of depreciation takes into account the element of interest on capital outlay on fixed
asset and seeks to write off the value of asset as well as the interest lost over the life of the asset.
It assumes that amount paid out in acquiring asset, if invested elsewhere, would have earned
interest which is considered as a cost of asset.

Machine Hour Method:

Where it is practicable to keep a record of the actual running hours of each machine, depreciation
may be calculated on the basis of hours that the concerned machine worked. The machine hour rate
of the depreciation is calculated after estimating the total number of hours that machine would
work during its whole life.

Sinking Fund Method:

The amount of depreciation set out annually may be available in cash or may be not able to realize
in cash at the time of replacement of asset, so to avoid this situation, the amount ofdepreciation set
out annually can be invested annually in government securities and interest earned on such
government securities will be reinvested and the amount thereof shall be credited to sinking fund
account.

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 At the time of depreciation:

Depreciation A/c .......... Dr

To Sinking Fund Account
At the time of Transfer of depreciation to P & L

Profit & Loss A/c …..Dr

To Depreciation A/c
At the time of investment:

Sinking Fund Investment Account ….Dr

To Bank A/c
Credit of Interest earned on Government Securities:
1. Bank A/c .................... Dr
To Interest on Sinking Fund Investment A/c

2. Interest on Sinking Fund Investment A/c ….Dr

To Sinking Fund Account

3. Sinking Fund Investment A/c ............ Dr

To Bank A/c

At the time of sale of Sinking Fund investment at the end of useful life

Bank A/c ............................ Dr

To Sinking Fund investment Account

If sale is a profit
Sinking Fund investment Account
To Sinking Fund A/c

If sale is a Loss
Sinking Fund Account….Dr
To Sinking Fund Investment A/c

Transfer of Book Value of asset to sinking fund account

Sinking fund account A/c

To Asset Account

Closure of Sinking Fund Account on replacement of Asset

Sinking Fund A/c

To General Reserve

Profit & Loss Account .............Dr

To Sinking Fund Account

Change in Method of Depreciation: (Retrospective Effect)

Whenever any change in depreciation method is made, depreciation should be recalculated in

accordance with the new method from the date of asset coming into use. The deficiency or
surplus arising from retrospective recomputation of depreciation should be debited or credited
to P&L A/c in the year in which the method of depreciation is changed. Such change is treated
as change in accounting policy.

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Revision of the Estimated Useful Life Of The Depreciable Asset: (Prospective Effect)

There should be a periodical review of the useful life of depreciable assets. Whenever there is a
revision in the estimated useful life of the asset, the unamortized depreciable amount should be
charged to the asset over the revised remaining estimated useful life of the asset.

Revaluation Of Depreciable Assets: (Prospective Effect)

Whenever the depreciable asset is revalued, the depreciation should be charged on the
revalued amount on the basis of the remaining estimated useful life of the asset.

Upward Revaluation:
Fixed Asset A/c………Dr
To Revaluation Reserve A/c

Downward Revaluation:
Profit & Loss A/c…..Dr
To Fixed Asset A/c

Profit Or Loss On The Sale Disposal Of Depreciable Assets:

Profit or Loss = Sale proceeds – WDV at the time of Sale
The resulting profit or loss on sale of the asset is ultimately transferred to profit and loss
account.

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 FINAL ACCOUNT OF SOLE PROPREITORS

Manufacturing Cost:

Raw Material Consumed* *****

Direct Manufacturing Wages *****
Direct Manufacturing Expenses *****
Prime Cost *****
Indirect Manufacturing Cost *****
Manufacturing Overhead *****
Total Manufacturing Cost *****
*Raw Material Consumed: Opening RM + Purchase of RM – Closing Stock of RM

Raw Material Consumed = Opening Stock + Purchases – Closing Stock

Cost of Finished Goods Produced = Total Manufacturing cost (as above) + Opening WIP –
Closing WIP

Cost of Finished Goods Sold = Cost of Finished Goods Produced + opening stock of Finished
Goods – Closing Stock of Finished Goods.

MANUFACTURING ACCOUNT
Particulars Amount Particulars Amount
To Raw Material Consumed: By Closing WIP
Opening RM By Trading Account – Cost of
Production
+ Purchase of RM Sale of Scrap
- Closing Stock of RM

To Direct Wages
To Direct Expenses
To Factory Overheads
Royalty
Hire charges
Depreciation on Machinery
Repairs and Maintenance
To Opening WIP

MANAGERIAL REMUNERATION:

Profit before MR = Sale

Profit after MR = Cost

Base of Profit Base of MR % Effect

Before Before Base is same, apply the % of MR directly on the profit
After After Base is same, apply the % of MR directly on the profit
Before After Here, Base of % of MR is After i.e Cost, so we have to
convert it on Sale using Base Conversion.
After Before Here, Base of % of MR is Before i.e Sale, so we have to
convert it on Cost using Base Conversion.

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 IMPORTANT ADJUSTMENTS:

Recording of Closing Stock:

Closing Stock A/c…….Dr

To Trading/Purchase A/c

Opening Entry: (recorded in Journal Proper)

Machinery A/c ......................................... Dr

Building A/c….......................................... Dr
Furniture A/c… ....................................... Dr
Cash A/c .............................................. Dr
Bank A/c ................................................... Dr
Debtors A/c… ......................................... Dr
Investment A/c… ...................................Dr
To Sundry Creditors
To Tax Payable
To Capital A/c
To Reserves and Surplus
To Bank Loans

Expenses & Incomes Accrued but not due at end of financial year:

Expenses A/c……………..Dr Accrued Income A/c…...... Dr

To Accrued Expenses A/c To Income A/c

Expenses & Income Accrued and Due at the end of the financial Year:

Expenses A/c……………Dr Outstanding Income A/c…..Dr

To Outstanding Expenses To Income A/c
Provision for bad and Doubtful Debts (balance is shown by way of deduction from debtors in
the balance sheet)

Creation of Provision:
Profit & Loss A/c… ...........Dr
To Reserve for Bad and Doubtful Debts

At the time of Actual Bad debts:

Reserve for Bad and Doubtful debts A/c… ......... Dr
To Debtors A/c
Provision for depreciation:

Depreciation A/c .............. Dr

To Fixed Assets

Abnormal Loss by Fire/Theft:

At the time of loss:

Abnormal Loss A/c ............ Dr
To Purchase/Trading A/c

At the time of receipt of money from insurance company:

Bank A/c ................ Dr
To Abnormal Loss A/c

Balance in Abnormal Loss is transferred at the end of the financial Year:

Profit & Loss A/c ......... Dr
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To Abnormal Loss A/c

If amount is receivable from insurance company at the end of financial year as the claim has
been accepted by the insurance company, the amount receivable from insurance company is
shown as an Asset in the balance sheet.

Goods sent on Approval basis:

When transactions are few, Goods sent on approval are treated as actual sales.

At the time of sending goods:

Debtors A/c …..Dr
To Sales

At the time of receipt of approval:

No Entry as sales has already been recorded

At the time of rejection of goods:

Sales A/c…..Dr
To Debtors

At the year end, for Goods sent but no approval received:

Sales A/c……Dr
To Debtors
Stock lying with the customers on approval basis is added to our stock at cost.

When the transaction are large:

At the time of sending goods:

No entry in the books, but the same is recorded on subsidiary books.

At the time of receipt of approval:

Debtors A/c………Dr
To Sales

At the time of rejection:

No Entry in the books, but the same is recorded on subsidiary books.

At the year end, for goods sent on approval but no approval received:
No entry but stock lying with the customers on approval basis is added to our stock at cost.

Goods used or taken away be proprietor for personal use:

Drawings A/c… ......... Dr

To Purchase
Goods given away as charity or advertising:

Charity / Advertisement A/c………Dr

To Purchase
Income tax of proprietor paid by business:

Drawings A/c………Dr
To Bank/Cash

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 Distinction Trade Discount Cash Discount
Meaning It is a reduction granted by a A reduction granted by a supplier from the
supplier from the list price (MRP) invoice price in consideration of
of goods or services on business immediate payment or payment within a
considerations (such as quantity stipulated period of time.
bought, etc) other than for prompt
payment.
Purpose It is allowed to promote the sale or It is allowed to encourage the prompt
as a trade practice. payment.
Time when It is allowed on purchase of goods It is allowed on immediate payment or
allowed payment within specified period.
Disclosure in It is shown by way of deduction in It is not shown in the invoice.
the invoice the invoice itself.
Ledger Trade discount account is not Cash discount account is opened in the
Account opened in the ledger ledger
Variation It may vary with the quantity It may vary with the period within which
purchased the payment is made.

Working Capital = Current Assets – Current Liabilities

Sales = COGS + Gross Profit

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 CONSIGNMENT ACCOUNTS

Account Sales= Sales (Cash) + Debtors Collection –

All Consignee Exp – Commission= Net Remittance

Storage
Goods along with Proforma invoice
Cost:
Consignor Consignee
Rent

Electricity
Consignor Expenses:
Freight, LBT, Loading Insurance
charges, etc

Ultimate
customer

Types of Commission

DEL CREDERE
ORDINARY OVER RIDING
(For bearing the loss
(For sale of goods at a (For selling the
different location)(Paid arising due to bad goods above invoice
debts)(Paid on total
on Total Sales) price or for
sales if not give)
introduction of new
product)
(Logically it should be
paid on credit sales

TYPES OF LOSSES

NORMAL LOSS ABNORMAL LOSS (at cost)

20 | P a g e
 VALUATION OF CONSIGNMENT STOCK

INCLUDES DOES NOT INCLUDE

Consignment Sale
Ownership remains with the consignor, Ownership of goods transfers with the
no matter the goods are transferred to transfer of goods from seller to buyer.
consignee.
Consignor bears the loss of goods held It is the buyer of goods who has to bear
by consignee the loss after the delivery of goods
Expenses done by consignee to receive Expenses incurred by buyer after delivery
the goods and to keep it safely is borne of goods are to be borne by buyer himself
by consignor
The relationship between the consignor The relationship between the buyer and
and consignee is that of principal and seller is that of creditor and debtor.
agent

Important Points:
√ Consignment Account = Nominal Account
√ Consignee Account = Personal Account
√ Consignment Stock Account = Real Account
√ Consignor is the owner of goods, even if goods are destroyed while in transit or in
godown of consignee, the loss will be borne by the Consignor only.
√ Consignment Account is done on Accrual Basis only.
√ Stock reserve Account is created, when goods are invoiced above cost.
√ Consignment Stock in shown in the books of Consignor on the Assets side of B/S.
√ Consignment stock is valued at Cost or NRV, whichever is less.

21 | P a g e
 ACCOUNTING ENTRIES IN THE BOOKS OF CONSIGNOR
On dispatch of Goods to consignee:

Consignment A/c
To Goods sent on Consignment A/c

If goods are consigned on a price above cost, adjustment entry is required for the
difference between the cost and invoice price:

Goods Sent on Consignment A/c

To Consignment A/c

For expenses incurred by Consignor

Consignment A/c
To Cash/Bank A/c

On receipt of advance from Consignee:

Cash/Bank A/c
To Consignee A/c

If consignee has accepted a bill of exchange:

Bill Receivable A/c

To Consignee A/c

With the sale price of goods sold by consignee:

Consignee A/c
To Consignment A/c

For expenses incurred by consignee:

Consignment A/c
To consignee A/c

For closing stock held by consignee:

Consignment Stock A/c

To Consignment A/c
For adjustment of Profit in Closing Stock:

Consignment A/c
To Consignment Stock Reserve A/c

Abnormal Loss of Goods:

(i) For total value of goods damaged:

Loss of Stock A/c
To Consignment A/c

(ii) For amount of insurance claim:

Bank A/c
To Loss of Stock A/c

(iii) For net loss of stock:

Profit and Loss Account

22 | P a g e
 To Loss of Stock A/c

For profit on consignment:

Consignment A/c
To Profit and Loss Account

ACCOUNTING IN THE BOOKS OF CONSIGNEE

On payment of expenses for consignor:

Consignor A/c
To Cash
On sale of goods for Cash:

Cash A/c
To Consignor A/c
On sale of goods on credit:

Sundry Debtors A/c

To Consignor A/c
For commission of consignee:

Consignor A/c
To Commission A/c

Bad debt on sales, when no del credere commission is payable:

Consignor A/c
To Sundry Debtors A/c

Bad Debt on sale, when del credere commission is received by consignee:

Commission A/c
To Sundry Debtors A/c
Realisation from sundry debtors

Cash A/c
To Sundry Debtors A/c
Payment of final sum due to consignor:

Consignor A/c
To Cash A/c

23 | P a g e
 JOINT VENTURE ACCOUNTING

(I) SEPARATE SET OF BOOKS ARE MAINTAINED

Initial contribution by the co-venturer’s in Joint bank account:

Joint Bank A/c
To Co-Venturer’s A/c

For expenses paid out of joint bank account

Joint Venture A/c
To Joint Bank A/c

For material supplied by co-venturer or direct payment by co-venturer

Joint Venture A/c
To Co-venturer A/c

For Sale or payment received

Joint Bank A/c
To Joint Venture A/c

For sale or payment received directly by co-venturers

Co-venturer A/c
To Joint Venture A/c

For profit on Joint Venture

Joint Venture A/c
To Co-venturer A/c

For closing the Joint Bank A/c

Co-venturer A/c
To Joint Bank A/c

(II) NO SEPARATE SET OF BOOKS ARE MAINTAINED

1st APPROACH: When no separate books of accounts are maintained for joint venture, each venture
maintains accounts independently for the venture transactions. The standard practice is to
keep full records of own transactions as well as the transactions of the co- venturer relating to
the venture.

When each co-venturer keeps record of all transactions, following accounts are prepared:

i. Joint Venture Account

ii. Co-venturer’s Account

2ND APPROACH: But sometimes the parties to a venture keep record of their own transactions only.
In such a case, memorandum joint venture account is prepared by the parties.

When each co-venturer keeps records of own transactions only, following accounts are prepared:

i. Memorandum Joint Venture Account

ii. Joint Venture with co-venturer Account

Sometimes the venturer’s find it useless to keep full record of venture transactions. Rather it
is considered convenient to keep record of own transactions only. For this purpose, it is
necessary to open 'Joint Venture with Co-venturer A/c'. All expenses incurred, materials sent,
etc. are debited to this account. Profit earned is also debited to this account while the loss
sustained is credited. Any receipt from joint venture or from co-venturer is credited to this
account, while any payment to the co-venturer is debited to this account, profit/loss on joint

24 | P a g e
venture cannot be determined from this account. For determination of profit/loss a Memorandum
Joint Venture Account is prepared.

Memorandum Joint Venture account is a rough statement prepared by ventures for

determination of venture profit when they do not maintain full records of venture transactions
in the books of account. Unless this account is prepared, venturer cannot compute the profits
of venture.

Treatment of accounting:

Going concern assumption of accounting is not appropriate for joint venture accounting. There
does not arise problem of distinction between capital and revenue expenditure. Plant,
Machinery and other fixed assets when used in venture are first charged to venture account at
cost. On completion of venture, such assets are revalued and shown as revenue of the venture.
Thus accounting approach for measurement of venture profit is totally different.

Basis of Distinction Joint Venture Partnership

Scope It is limited to a specific venture
It is not limited to a
specific venture
Persons involved The persons carrying on The persons carrying on
business are called as Co- the business are called as
ventures partners
Ascertainment of P & The P & L is ascertained at the The P & L are ascertained
L end of specific venture on an annual basis
Act Governing No specific Act is there Partnership firm are
governed by Indian
Partnership Act, 1932
Name There is no need for firm name A partnership firm always
has a name
Separate set of books There is no need for separate set Separate set of books have
of books. The accounts can be to be maintained
maintained even in one of the
co-venturer’s books only
Admission of minor A minor cannot be a co-venturer A minor can be admitted to
as he is incompetent to contract the benefits of the firm
Accounting Accounting for JV is done on Accounting for partnership
liquidation basis firms is done on going
concern basis

25 | P a g e
 BILL OF EXCHANGE

Transaction Books of DRAWER Books of DRAWEE

Acceptance of bill is received Bill Receivable ….Dr Creditor/Drawer….Dr
To Drawee/Debtor A/c To Bills Payable A/c
Discounting of Bill by Drawer Cash A/c .......... Dr No Entry
from Bank Discount A/c ......Dr
To Bill Receivable A/c
Bill is endorsed by Drawer to Creditor A/c…….Dr No Entry
his creditor as a payment To Bill Receivable A/c
Bill is kept till maturity as it No Entry No Entry
is
When bill is sent for collection Bill for Collection A/c….Dr No Entry
to a bank To Bill Receivable A/c
HONOR OF BILL UNDER DIFFERENT SENARIO
Bill is with Drawer himself Cash A/c Bill Payable A/c……Dr
To Bill Receivable A/c To Cash A/c
Bill was discounted with No Entry Bill Payable A/c……Dr
bank To Cash A/c
Bill was endorsed by the No Entry Bill Payable A/c……Dr
drawer To Cash A/c
Bill was sent for collection to Bank A/c Bill Payable A/c……Dr
bank To Bill for Collection A/c To Cash A/c
DISHONOR OF BILL UNDER DIFFERENT SENARIO
Bill is with Drawer Himself Drawee/Debtor A/c……Dr Bill Payable A/c….Dr
To Bill Receivable A/c To Creditor/Drawer A/c
Drawee A/c Noting Charges ….Dr
To Cash A/c (Noting Charges) To Creditor
Bill was discounted with Bill Receivable A/c …..Dr Bill Payable A/c….Dr
bank To Cash Account To Creditor/Drawer A/c
Drawee/Debtor A/c…..Dr Noting Charges …..Dr
To Bill Receivable A/c To Creditor
Drawee A/c
To Cash A/c (Noting Charges)
Net Entry:
Drawee ….Dr
To Cash
Bill was endorsed by the Bill Receivable A/c…….Dr Bill Payable A/c….Dr
drawer To Creditor A/c To Creditor/Drawer A/c
Debtor/Drawee….Dr
Noting Charges …..Dr
To Bill Receivable A/c
To Creditor
Drawee A/c
To Cash A/c (Noting Charges)
Net Entry:
Debtor.......... Dr
To Creditor
Bill was given for collection Drawee A/c…..Dr Bill Payable A/c….Dr
To Bill for Collection To Creditor/Drawer A/c

26 | P a g e
Bill of exchange:

 A bill of exchange must be in writing & Stamped.

 It must be dated.
 There are Three parties to a bill of exchange: Drawer, Drawee(Acceptor) and Payee.
 Drawee and Payee can be same person.
 It must contain an written unconditional order to pay a certain sum of money.
 The money must be payable to a definite person or to his order to the bearer.
 The draft must be accepted for payment by the party whom the order is made.
 When a bill is drawn “after date”, the term of bill starts from the date of drawing the bill.
 When a bill is drawn “after sight”, the term of the bill starts from the date of acceptance of
bill by drawee.
 A bill received from a debtor is known as “Bill Receivable”.
 A bill given to a creditor is known as “Bill Payable”.

Promissory Note: (Example Indian Currency)

 It must be in writing & Properly Stamped.

 It must contain a clear promise to pay. Mere acknowledgment of debt is not a promise.
 The promise to pay must be unconditional. “ I promise to pay ` 5000 as soon as i can”
 The promisor or maker must sign the promissory note.
 The sum payable must be certain.

MISCELLANEOUS POINTS:

 In case of time bills, 3 days of grace are added to the due date of the bill.
 When the day when bill or promissory note is falling due (including days of grace) is a
public holiday or Sunday, the due date will be preceding business day.
 However, if the holiday is a sudden or unforeseen holiday, then the due date shall be
Succeeding working date.
 Liability on account of bills discounted with bank will treated as Contingent Liability.
 Noting charges is the expense of the drawee who has dishonored the bill of exchange.
 In such a case, a new bill will be drawn and the old bill be cancelled. If this happens,
entries should be passed for cancellation of old bill.
 In the books of drawee of the bill, the amount not ultimately paid by him due to
insolvency, should be credited to deficiency account.
 When bills are drawn for mutual benefit/need, it is known as accommodation bills.
 The discount is borne in the ratio in which proceeds of bills are shared, in case of
accommodation bills.

27 | P a g e
 PARTNERSHIP ACCOUNTS

Profit and Loss Appropriation:

During the course of business, a partnership firm will prepare Trading Account and a Profit and
Loss Account at the end of every year. This is done exactly on the lines already given in the
chapter 6. This is to say that final accounts of a sole proprietorship concern will not differ from
the accounts of a partnership firm. The Profit and Loss Account will show the profit earned by
the firm or loss suffered by it. This profit or loss has to be transferred to the Capital Accounts of
partners according to the terms of the Partnership Deed or according to the provisions of the
Indian Partnership Act (if there is no Partnership Deed or if the Deed is silent on a particular
point).

For allowing interest on Capital:

Interest on Capital A/c

To Partner’s Capital/Current A/c
For Interest on Drawings:

Partner’s Capital/Current A/c

To Interest on drawings
For Partner’s Salary/Remuneration/Commission:

Salary/Remuneration to Partner A/c

To Partner’s Capital/Current A/c
For transfer of Profits to Reserve:

Profit and Loss Appropriation A/c

To Reserve A/c
Fixed Capital method & Fluctuating Capital method:

In Fixed Capital method, generally initial capital contributions by partners are credited to
partner’s capital account and all subsequent transactions and events are recorded through
partner’s current account. On the contrary, under fluctuating capital method, no current
account is maintained. All such transactions and events are recorded in capital account itself.
So the balance of partner’s capital keeps on fluctuating hence the name of the method.

Interest on Capital:

Interest is generally allowed on capitals of the partne` Interest on capital of partners is

calculated for the relevant period for which the amount of capital has been used in the business.
Normally, it is charged for full year on the balance of capital at the beginning of the year unless
some fresh capital is introduced during the year. On the additional capital introduced, interest
for the relevant period of utilisation is calculated.

In case of fixed capital accounts, interest is calculated on the balance of capital accounts only
and no interest is payable / chargeable on the balance of current accounts.

Subject to contract between the partners, interest on capitals is to be provided out of profits
only. Thus in case of loss, no interest is provided. But in case of insufficient profits( i.e., net profit
less than the amount of interest on capital), the amount of profit is distributed in the ratio of
capital as partners get profit by way of interest on capital only.

Interest on Drawings:

Sometimes interest is not only allowed on the capitals, but is also charged on drawings. In
such a case, interest will be charged according to the time that elapses between the taking out
of the money and the end of the year.

28 | P a g e
If the dates on which amounts are drawn are not given, the student will do well to charge
interest for six months on the whole of the amount on the assumption that the money was
drawn evenly throughout the year.

If withdrawals are made evenly in the beginning of each month, interest can be calculated easily
for the whole of the amount of 6.5 months;

if withdrawals are made at the end of each month, interest should be calculated for 5.5 months.

Important Points:
 In the absence of any agreement to the contrary;
1. No partner has the right to a salary,
2. No interest is to be allowed on capital,
3. No interest is to be charged on the drawings,
4. Interest at the rate of 6% is to be allowed on a partner’s loan to the firm, and
5. Profits and losses are to be shared equally.
 Interest and salary to partner is an appropriation of profits.
 Registration of the firm is not compulsory, but non-registration restricts the partners or
the Firm from taking any legal action.


29 | P a g e
 METHODS OF GOODWILL:

Average profit method

An average is taken of Profits of past few years and is adjusted for any expected change in future.
For averaging the profits of past profits, either simple average or weighted average maybe taken
depending upon the circumstances of each case.

Weighted average is preferred where there is any trend in profits of past years either increasing
or decreasing etc.

Super profit method

Super profit means excess profits that can be earned by a firm over and above the normal profits
earned by similar firms under similar circumstances. Under this method, the partner who gains
in terms of profit sharing ratio has to contribute only for excess profit because normal profit he
can earn by joining any partnership. Under super profit method, what excess profit a
partnership firm can earn is to be determined first. The steps to be followed are given below:
a. Identify the capital employed by the partnership firm;
b. Identify the average profit earned by partnership firm based on past few year’s profits;
c. Determine the normal rate of return prevailing in the locality of similar firms;
d. Apply normal rate of return on the capital employed by the partnership firm to arrive at
normal profit;
e. Deduct normal profit from average profit of the firm. If the average profit of the firm is
more that the normal profit, there exists super profit and goodwill.

Annuity method

In super profit method, time value of money is not considered. As the Super profit is expected
to receive over future years, hence time value of future cash flows becomes critical as the actual
value of that will be different depending upon rate of interest.

Capitalization method

In this method, using the normal rate of return, value of whole business is determined. If such
value of whole business is higher than the capital employed in the business, then the difference
is goodwill.

Following steps are to be followed:

1. Determine the normal rate of return
2. Find out the average profit of firm for which goodwill is to be determined
3. Determine the capital employed by the firm
4. Find out the value of business by dividing average profits by normal rate of return.
5. Deduct the average capital employed from the normal value of business as computed to
arrive at the amount of goodwill.

30 | P a g e
 ADMISSION OF A PARTNER

Change in Profit Sharing Ratio:

On admission of a new partner profit sharing ratio of partners will change. New ratio will
depend upon the share given to new partner and also on the ratio in which old partners are
sacrificing or contributing towards the share of new partner. The ratio in which old partners
are sacrificing towards the share of new partner is called as Sacrificing Ratio.
New Ratio = Old Ratio – Sacrifice Ratio
Sacrifice Ratio = Old Ratio – New Ratio

Transfer of General Reserves:

Whenever a new partner is admitted, any reserve etc. which may be lying in the Balance Sheet
should be transferred to the Capital Accounts of the old partners in the old profit sharing ratio.

Revaluation Account or P & L Adjustment Account:

When a new partner is admitted into the partnership, assets are revalued and liabilities are
reassessed. A Revaluation Account (or Profit and Loss Adjustment Account) is opened for the
purpose. This account is debited with all reduction in the value of assets and increase in
liabilities and credited with increase in the value of assets and decrease in the value of
liabilities. The difference in two sides of the account will show profit or loss. This is transferred
to the Capital Accounts of old partners in the old profit sharing ratio.

Adjustment of Goodwill:

When a new partner is admitted to a firm, the old partners generally sacrifice in favour of the
new partner in terms of lower profit sharing ratio in the future. Therefore, the premium for
goodwill brought in by the new partner shall be given to the existing partners on the basis of
profit sacrificing ratio. The profit sacrificing ratio is computed by deducting the new profit
sharing ratio from the old profit sharing ratio. If the difference is positive, there is a profit
sacrifice and in case the difference is negative, there is a gain in terms of higher future profit
sharing ratio.

Situation 1: Goodwill brought in cash: in this cash, Cash Account is debited and goodwill
account is credited. Then, immediately, the goodwill account is transferred to Capital Accounts
of the old partners in the ratio of Sacrifice. It has been made clear above that goodwill is
compensation to old partne` Therefore, the amount brought in as goodwill by the incoming
partner should be credited to the old partners in the ratio of their sacrifice and notin the old
profit sharing ratio.

Situation 2: Goodwill raised and written off immediately: it may not be considered proper
by a firm to continue to show goodwill in the balance sheet. This is because goodwillis an
asset which can be realised or converted into cash only if the firm is sold. Therefore, if goodwill
is raised on admission of a partner, it is often written off immediately. This is done by debiting
all partners, including the new partner, in the new profit sharing ratio and by crediting
goodwill.

Proportionate Capital And Inference Of Goodwill

‘Proportionate Capital’ means Capital Account balances of partners in accordance with the profit
sharing ratio. In other words, ratio of Capital Account balances is equal to profit sharing ratio.
Proportionate capital is maintained generally following ‘fixed capital method’ (Unit 1).
For example, A and B are in partnership, sharing profit or loss in the ratio of 3:2.
If total capital is ` 1,00,000. A should contribute ` 1,00,000 × 3/5 i.e. ` 60,000 and B
should contribute ` 1,00,000 × 2/5 i.e. ` 40,000.

31 | P a g e
The question of inferring goodwill arises only in case of proportionate capital. If the newly admitted
partner brings capital more than what is required as per profit sharing ratio, then it is to be
presumed that he has contributed the excess for goodwill. For example, A and B are in
partnership who contributed proportionate capital of ` 60,000 and ` 40,000. Now they want
to admit C giving him 1/5th share for which C agrees to bring ` 30,000. Since total capital is `
1,00,000, C should contribute ` 20,000 (` 1,00,000 x 1/5) for1/5th share. Instead he agrees
to pay ` 30,000. So for 1/5th share he is paying ` 10,000, for goodwill. Thus total value of
goodwill is ` 10,000 × 5 i.e. ` 50,000

RETIREMENT OF A PARTNER

Change in Profit Sharing Ratio:

On retirement of a partner, the continuing partners will gain in terms of profit sharing ratio.
For example, if A, B and C were sharing profits and losses in the ratio of 5 : 3 : 2 and B retires,
then A and C have to decide at which ratio they will share profits and losses in future. If it is
decided that the continuing partners will share profits and losses in future at the ratio of 3:2,
then A gains 1/10th [(3/5)-(5/10)] and C gains 2/10 [(2/5)-(2/10)]. So the gaining ratio
between A and C is 1:2. If A and C decide to continue at the ratio 5:2, this indicates that they
are dividing the gained share in the previous profit sharing ratio.

Gaining Ratio = New Ratio – Old Ratio

New Ratio = Old Ratio + Gaining Ratio

Transfer of General Reserves:

On the retirement of a partner any undistributed profit or reserve standing at the Balance
Sheet is to be credited to the Partners’ Capital Accounts in the old profit sharing ratio.

Revaluation Account or P & L Adjustment Account:

On retirement of a partner, it is required to revalue assets and liabilities just as in the case of
admission of a partner. If there is revaluation profit, then such profit should be distributed
amongst the existing partners including the retiring partner at the existing profit sharing
ratio. On the other hand, if there is loss on revaluation that is also to be distributed to all the
partners including the retiring partner at the existing profit sharing ratio. To arrive at, profit
or loss on revaluation of assets and liabilities, a Revaluation Account or Profit and Loss
Adjustment Account is opened. Revaluation Account or Profit and Loss Adjustment Account
is closed automatically by transfer of profit or loss balance to the Partners’ Capital Accounts.

Adjustment of Goodwill:

In case of retirement of a partner, the continuing partners will gain in terms of profit sharing
ratio. Therefore they have to pay to retiring partner for his share of goodwill in the firm in the
gaining ratio. Similarly, in case of death of the partner, the continuing partners should bear
the share of goodwill due to the heirs of the deceased partner. For this purpose, the goodwill
is valued on the date of the retirement of death and adjusted through the capital accounts of
the partne`

Capital Account to be transferred to Loan Account:

After ascertaining the amount due to the retiring partner and making all entries, the amount
standing to the credit of the retiring partner’s capital account will be transferred to his loan
account and will be paid according to the agreement with the remaining partne` This means
that loan account will carry an interest rate at agreed terms. If there is no agreement, the
retiring partner is entitled to receive interest at the rate of 6% per annum on the amount due
to him but remaining in the business, that is to say on his loan.

32 | P a g e
Final Payment to retiring partner:
The following adjustments are necessary in the Capital A/cs:
(i) Transfer of reserve,
(ii) Transfer of goodwill,
(iii) Transfer of profit/loss on revaluation.
After adjustment of the above mentioned items, the Capital Account balance standing to the
credit of the retiring partner represents amount to be paid to him.

Paying the partners Loan in Instalments:

Strictly speaking, paying a partner’s loan is only a matter of arranging finance. However,
sometimes it is stated that the loan is to be paid off in so many equal instalments and that
the balance is to carry interest. In such a case, what should be done is that the loan should
be divided into equal parts. The interest for the period should be calculated and the payment
should consist of the instalment on account of loan plus interest for the period.

DEATH OF A PARTNER

The procedure is same as in the case of retirement of a partner.

 Assets and liabilities are revaluated and profit or loss on revaluation is transferred to all
partne`
 Goodwill of the firm is valued and share of goodwill of deceased partner is given to his legal
representative.
 The only additional point is that as death may occur on any day, the representatives of the
deceased partner will be entitled to partner’s share of profit from the beginning of the year to
the date of death.
 The amount due to the deceased partner carries interest at the mutually agreed upon rate.
In the absence of agreement, the representative of deceased partner can receive, at their
option, interest at the rate of 6% p.a. or share of profits earned with the use of the
amount due to the deceased partner. (Section 37)(in capital ratio and not profit sharing
ratio).

33 | P a g e
 JOINT LIFE POLICY: (taken for all partners jointly and severally)

The following are the different methods for the treatment of joint life policy insurance policy,
and out of them, any one may be followed by the partnership firm:

a. Premium paid is treated as an expense

According to this method, insurance premium paid is treated as a business expenditure and
is charged to Profit & Loss Account regularly. When cash is realized from insurance company at
the time of death of any of the partner or at the time of surrender of policy, the said amount is
distributed among partners in their profit sharing ratio.

When premium is paid

Premium on Joint life policy A/c ................ Dr
To Bank A/c
Charging of expense to Profit and loss account at year end
Profit & Loss Account ........................................... Dr
To Premium on Joint Life Policy A/c
When cash is realized at the time of death or surrender of policy
Bank A/c ...............Dr
To Joint Life Policy A/c
Distribution of policy amount among partners
Joint Life Policy A/c .................. Dr
To Partner’s Capital A/c

b. Premium paid is treated as an asset

According to this method, Joint life policy is treated as an asset for its surrender value (amount
realizable from insurance company if the policy is surrendered). The premium when paid is
debited to Joint Life Policy Account and at the end of the year, the amount which is in excess
(joint life policy balance – its surrender value) is transferred to Profit & Loss as a Loss. When
cash is realized, the net income of the policy amount is distributed among the partners in their
partner sharing ratio.

When premium is paid

Joint Life Policy A/c ................... Dr
To Bank
The excess of policy amount being written off at the year end
Profit & loss A/c .............. Dr
To Joint Life Policy A/c
When cash is realized at the time of death or surrender
Bank A/c Dr
To Joint Life Policy A/c
Transfer of net income in Joint Life policy account to partner’s capital account
Joint Life Policy A/c ….Dr
To Partners Capital A/c

c. When joint life policy reserve is maintained

Under this method, joint life policy account is debited for the payment of premium like an asset.
At the end of the year, an amount equal to premium paid is charged to profit & loss account and
is credited to joint life policy reserve account and an adjustment is made for the excess of
premium paid over the surrender value by debiting joint life policy reserve account and by
crediting the joint life policy account. When cash is realized against the policy, first the balance
in joint life policy reserve account is transferred to joint life policy account and then the balance
in the joint life policy account is distributed among partners in their profit sharing ratio.

34 | P a g e
When premium is paid
Joint life policy A/c .............. Dr
To Bank A/c
At the end of the year
Profit & Loss A/c……Dr
To Joint Life policy reserve A/c

Joint life policy reserve A/c… ..... Dr

To Joint life policy A/c
(reduction of value to surrender value at year end)
When cash is realized
Bank A/c .........................Dr
To Joint life policy A/c
Transfer of joint life policy reserve to joint life policy A/c
Joint Life Policy Reserve A/c ............ Dr
To Joint Life policy A/c
Closing the joint life policy account by transfer to partner’s capital account
Joint Life Policy A/c… .......... Dr
To Partner’s Capital A/c

35 | P a g e
 COMPANY ACCOUNTS

Important Points:
 As per Section 78 of Companies Act, Maximum commission payable on underwriting of SHARES is5%
of the issue price of the shares or rate authorised by the Articles, whichever is less.

 As per Section 78 of Companies Act, Maximum commission payable on underwriting of DEBENTURES

is 2.5% of the issue price of the shares or rate authorised by the Articles, whicheveris less.

 As per Section 69(3), the amount payable on application shall not be less than 5% of the nominal
amount of the share. As per SEBI Guidelines, the minimum application moneys to be paid by an
applicant alongwith the application money shall not be less than 25% of the issue price.

 Portion of the uncalled capital which a company has decided to call only in case of liquidation of the
company is called Reserve Capital.

 As per guidelines of the Securities Exchange Board of India (SEBI), a company must receive a
minimum of 90% subscription against the entire issue. If the Company does not receive the minimum
subscription of 90% of the issue, the entire subscription shall be refunded to the applicants within
15 days after the date of closure of issue w.e.f. 28.8.2008. In case of delayed refund, interest for
the delayed period as per section 73 of the Companies Act shall be payable. (No such limit in the
companies act 2013)

 According to Section 55A, matters related to issue and transfer of securities will be administered by
SEBI and not by the Company Law Board.

 As per SEBI Guidelines, the company has to complete the issue of shares within 12 months if the issue
is upto 500 crores.

JOURNAL ENTRIES FOR ISSUE OF SHARES:

On receipt of Application money

Bank A/c ...........Dr

To Share Application Money A/c
On allotment of shares

Share application money A/c ..,…Dr

Share Allotment A/c ...................... Dr
To Share Capital Account A/c
On Receipt of allotment money

Bank A/c .................. Dr

To Share Allotment A/c
On a call being Due

Share Call Account A/c…..Dr

To Share Capital A/c
On Receipt of call money

Bank A/c ….Dr

To Share Call a/c

CALLS IN ARREARS:

Shareholders may fail to pay the amount due on allotment or calls. The total amount on one
or more instalment is known as “Calls in Arrears” or “Unpaid Calls”

36 | P a g e
As such amount represents uncollected amount from shareholders, it is shown by way of
DEDUCTION FROM THE “CALLED UP CAPITAL” to arrive at the “Paid up Capital” to be shown
in the balance sheet.

Journal Entry:

Calls in Arrears ...................... Dr

To Share Allotment A/c
To Share Calls A/c

The articles of association of a company usually empower the directors to charge interest at a
stipulated rate on calls in arrears. According to table A, interest maximum at the rate of 5%
pa is to be charged on unpaid calls for the period intervening between the due date and the
date of actual payment. However, the directors have a power either to waive the interest to be
charged or charge a higher rate of interest.

Shareholder’s A/c ........... Dr

To Interest on Calls in Arrears

Bank A/c ............................ Dr

To Shareholder’s A/c

CALLS IN ADVANCE:
Shareholders may the pay the amount, which is yet to be called up, such amount is called as
“Calls in Advance”. According to Table A, Interest maximum at the rate of 6%pa is to be paid
on such advance call money.

The balance in Calls in Advance is shown as a separate item on the liabilities side of company’s
balance sheet under the Share Capital but is not added to the amount of “paid up capital”.

Journal Entry:
Receipt of Calls in advance

Bank A/c….Dr
To Calls in Advance
Adjustment of Calls in Advance

Calls in Advance A/c ..........Dr

To Particular Call (allotment/First/Final)
Interest due for payment on calls in advance

Interest on Calls in Advance A/c…..Dr

To Shareholder’s A/c
Actual payment of interest due

Shareholder’s A/c ......... Dr

To Bank A/c

ISSUE OF SHARE OTHER THAN CASH:

When Assets are purchased in exchange of shares

Asset A/c ............. Dr

To Share Capital A/c

When shares are issued to promoters:

Goodwill A/c……Dr

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To Share Capital A/c

UTILISATION OF SECURITIES PREMIUM ACCOUNT:

According to Section 78 of the Companies Act, 1956, Securities Premium Account may be
used by the company:
(a) In paying up un-issued securities of the company to be issued to members of the company
as fully paid bonus securities.
(b) To write off preliminary expenses of the company.
(c) To write off the expenses of, or commission paid, or discount allowed on any of the
securities or debentures of the company.
(d) To pay premium on the redemption of preference securities or debentures of the company.
(e) Loss/Premium on buy back of shares

FORFEITURE OF SHARES:

Forfeiture of share means taking away the shares for non-payment of call money. It is the action
taken by the company for cancellation of shares. The articles of company usually authorize the
board of directors to exercise the right of forfeiture of shares of defaulting shareholders on
account of non-payment of call money or interest thereon after serving propernotice as may be
prescribed by the Articles of Company.

When shares are forfeited, the title of shareholder is extinguished by the company and the
amount already received by the company is also not refunded to the shareholder. The
shareholder has no further claim on the shares.

Forfeited shares account will be ADDED TO THE PAID UP SHARE CAPITAL in the
balance sheet.

IF SHARES ARE ISSUED AT PAR:

Share Capital A/c (called up value of shares)

To Share Forfeiture A/c
To Allotment Money A/c
To Share Call A/c
To Share Final Call A/c

If the due amount has been transferred to Call in Arrears A/c

Share Capital A/c (Called up Value)

To Share Forfeiture A/c
To Calls in Arrears A/c

IF SHARES WERE ISSUED AT DISCOUNT:

Same as above. But when shares are issued at a discount, Discount A/c is debited. Therefore
at the time of forfeiture of such shares, Discount A/c will be credited to cancel the same.

Share Capital A/c (Called up value)

To Share Forfeiture A/c
To Calls in Arrears A/c
To Discount A/c

IF SHARES WERE ISSUED AT A PREMIUM:

Share Capital account is debited with the called up value of shares forfeited. If premium on
such shares has not been paid by the shareholder, the securities premium account will be

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debited to cancel the same. If the premium is already received by the company, it cannot
be cancelled by the company if the shares are forfeited by the company in future.

Share Capital A/c ................. Dr (Called up value)

Securities Premium A/c ….Dr
To Share Forfeiture A/c
To Calls in Arrears A/c

REISSUE OF FORFEITED SHARES:

A forfeited share is merely a share available to the company for sale and remains vested in the
company for that purpose only. Reissue of forfeited shares is not allotment of shares but only a
sale.

The share, after forfeiture, in the hands of the company is subject to an obligation to dispose
it off. In practice, forfeited shares are disposed off by auction. These shares can be re-issued at
any price so long as the total amount received (from the original allottee and the second
purchaser) for those shares is not less than the amount in arrears on those shares.

Issue at Par, Reissue at Loss Issue at Par, Reissue at Premium

Issue price: ` 10 Issue price: ` 10
Forfeited Amount: ` 5 Forfeited Amount: ` 5
Reissue Price: ` 7 Reissue Price: ` 12

Loss of Reissue = 10-7=3 Loss of Reissue = 0 as issued above nominal

Capital Reserve = Forfeited Amount – Loss value
= 5-3=2 Capital Reserve = Forfeited Amount – Loss
Securities Premium = 0 as issued below nominal = 5-0=5
value Securities Premium= 12-10=2 as reissued above
nominal value

Issue at Discount, Reissue at Loss Issue at Discount, Reissue at Premium

Issue price: ` 9 Issue price: ` 9
Forfeited Amount: ` 5 Forfeited Amount: ` 5
Reissue Price: ` 7 Reissue Price: ` 12

Loss of Reissue = 2 as originally 1 Re. was Loss of Reissue = 0 as issued above nominal
discount value
Capital Reserve = Forfeited Amount – Loss Capital Reserve = Forfeited Amount – Loss
= 5-2=3 = 5-0=5
Securities Premium= 0 as issued below nominal Securities Premium= 12-10=2 as reissued above
value nominal value
No Effect of discount.

Issue at Premium, Reissue at Loss Issue at Premium, Reissue at Premium

Issue price: ` 12 Issue price: ` 12
Forfeited Amount: ` 5 Forfeited Amount: ` 5
Reissue Price: ` 7 Reissue Price: ` 12

Loss of Reissue = 3 Loss of Reissue = 0 as issued above nominal

Capital Reserve = Forfeited Amount – Loss value
= 5-3 Capital Reserve = Forfeited Amount – Loss
Securities Premium= 0 as issued below nominal = 5-0
value Securities Premium= 12-10=2 as reissued above
nominal value
If premium on issue of shares is received then
it cannot be cancelled, it is transferred to If premium on issue of shares is received
securities premium but if it is not collected in then it cannot be cancelled, it is transferred
cash, it can be cancelled on forfeiture of to securities premium but if it is notcollected
shares. in cash, it can be cancelled on

39 | P a g e
 forfeiture of shares.

In connection with re-issue, the following points are important:

i. Loss on re-issue should not exceed the forfeited amount.
ii. If the loss on re-issue is less than the amount forfeited, the surplus should be transferred
to Capital Reserve.
iii. The forfeited amount on shares not yet reissued should be shown in the Balance Sheet
as an addition to the share capital.
iv. When only a portion of the forfeited shares are re-issued, then the profit made on reissue
of such shares must be transferred to Capital Reserve.
v. When the shares are re-issued at a loss, such loss is to be debited to “Forfeited Shares
Account”.
vi. If the shares are re-issued at a price which is more than the face value of the shares,
the excess amount will be credited to Securities Premium Account.
vii. If the re-issued amount and forfeited amount (taken together) exceeds the face value of
the shares re-issued, it is not necessary to transfer such amount to Securities Premium
Account.
viii. When shares, originally issued at a discount, are reissued at a loss, the loss to the extent
of original discount is debited to Discount on Issue of Shares Account and the balance
loss is debited to Forfeited Shares Account.

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 REDEMPTION OF PREFERENCE SHARES

Compliance of Section 55

Preference shares can be redeemed only when Nominal value

of capital is increased either out of free reserves or out of fresh
issue of shares.

Free Reserves are to be transferred to Capital Redemption

Reserve A/c. CRR is treated like an permanent reserve as it
can be only used for issue of fully paid up bonus shares.

Wholly out of Fresh Issue Wholly out of free Partly out of Free reserves
reserves and partly out of fresh issue
Number of shares to be issued Free reserves includes of shares
= General Reserves and Firstly all free reserves available
Nominal value of shares to be Profit & Loss A/c however are deducted from the nominal
redeemed ÷ Proceeds of one it does not include Capital value of preference shares
reserve, securities redeemed.
share.
premium, revaluation Then for the balance, fresh
reserve, etc. issue of shares shall be made.
Proceeds of one share is Par
value if issue is at par or Number of shares to be issued =
premium, but it means Nominal value of shares to be
discounted value if issue is
at discount.
redeemed ÷ Nominal value of
one share
ACCOUNTING ENTRIES:
Issue of new shares at par

Bank A/c Dr
To Share Capital A/c
Issue of new shares at Premium

Bank A/c Dr
To Share Capital A/c
To Securities Premium A/c
Issue of new shares at a discount

Bank A/c Dr
Discount A/c Dr
To Share Capital A/c
Preference shares are redeemed at par

Redeemable preference share capital A/c Dr

To Preference Shareholders A/c
Preference shares are redeemed at Premium

Redeemable preference share capital A/c Dr

Premium on redemption of P S C A/c Dr
To Preference shareholders A/c
Payment is made to preference shareholders

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Preference Shareholders A/c
To Bank A/c
Adjustment of premium paid

Securities Premium Account Dr

To Premium on redemption of PSC A/c
Minimum number of Shares = Nominal value of shares to be redeemed – Maximum Free
Reserves available to be transferred to CRR

Minimum number of shares = Minimum proceeds required to comply with Section 80

divided by Proceeds of one share

Proceeds of one shares = Par value in case issue is at Par or Premium but if issue is at
discount then it means the discounted value only.

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 ISSUE OF DEBENTURES

Issue of debenture for cash is same as issue of shares for cash.

ISSUE OF DEBENTURES AS COLLATERAL SECURITY

Collateral security means secondary or supporting security for a loan, which can be realizedby
the lender in the event of the original loan not being repaid on the due date.

Sometimes companies issue their own debentures as collateral security for a loan or a
fluctuating overdraft. When the loan is repaid on the due date, these debentures are at once
released with the main security. In case, the company cannot repay its loan and the interest
thereon on the due date, the lender becomes the debenture holder who can exercise all the
rights of a debenture holder. The holder of such debentures is entitled to interest only on the
amount of loan, but not on the debentures.

Method 1: No entry is passed at the time of issue. In the balance sheet, the fact of debentures
being issued and outstanding is shown by way of a note.

Method 2:
At the time of issue of debentures
Debenture Suspense A/c….Dr
To Debentures A/c

The Debentures Suspense Account will appear on the assets side of the Balance Sheet and
Debentures on the liabilities side of the Balance Sheet. When the loan is repaid, the entry is
reversed in order to cancel it.

DEBENTURES ISSUED FOR CONSIDERATION OTHER THAN CASH

Only Assets taken over
Assets A/c…......... Dr
To Debentures A/c

Both Assets and liabilities taken over

Assets A/c….Dr
To Liabilities A/c
To Vendor A/c

Vendor A/c… .. Dr
To Debentures A/c

Important Points:
 After the commencement of the Companies (Amendment) Act, 1996, a company cannot
issue any preference share, which is irredeemable or is redeemable after the expiry of a
period of twenty years from the date of its issue.
 Interest payable on debentures is a charge against profits of the company.
 Debenture is a document which evidences a loan made to a company.
 It is a fixed interest bearing security. (Interest at Fixed Rate is payable)
 Interest is always paid on the face value of debentures.

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Treatment of Discount or Loss on issue of debentures:

The discount on issue of debentures is amortised over a period between the issuance date and redemption
date. It should be written off in the following manner depending upon the terms of the redemption:

a. If the debentures are redeemable after a certain period of time, say at the end of 5 or 10 years, the total
amount of discount should be written off equally throughout the life of the debentures (apply SLM Method).

b. If the debentures are redeemable at different dates, the total amount of discount should be written
off in the ratio of benefit derived from the debentures in any particular year (applying Sum of years of digit
method).

c. if the debentures are irredeemable, the discount should be written off gradually over a long period.

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CLASSIFICATION OF ACCOUNTS:

Name of Account Type of Account

Bill Receivable Personal Account
Goodwill/Patent/Copyright/Trademark Real Account
Bill Payable Personal Account
Suspense Not classifiable
Share Capital, Securities Premium Account Personal Account
Call in arrears Personal Account
Call in advance Personal Account
Outstanding Expenses like rent payable, etc Personal Account
Share Application, Allotment Account & Call Personal Account
Trading Account Nominal Account
Drawings Personal Account
Consignment Account Nominal Account
Consignee Account Personal Account
Goods sent on consignment account Real Account
Joint Venture Account Nominal Account
Co-venturer Account Personal Account
Debenture Redemption Premium Account Personal Account
Bank Overdraft Personal Account
Premium on Redemption of Debentures Nominal Account
Discount on Issue of Debentures Nominal Account
Loss on Issue of Debentures Nominal Account
Unclaimed Dividend Personal Account

PRESENTATION OF ELEMENT IN FINANCIAL STATEMENTS:

Name of Account Presented at

Discount of issue of shares Other Non Current Assets/Other Current Assets
Contingent Liability Notes to Account
Outstanding Expense Current Liability
Unearned income Current Liability
Preliminary Expenses Other Non Current Assets/Other Current Assets
Suspense Account Balance Sheet
Call in arrears Deducted from called up share capital
Call in advances Liability side of balance sheet below share capital
Share Forfeiture Amount Added to Paid up capital
Securities Premium Reserve and Surplus
Unclaimed Dividend Current Liabilities
Closing Stock & WIP Current Assets
Debentures Secured Loans
Proposed Dividend Short Term Provisions under Current Liability

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 BANK RECONCILIATION STATEMENT

Causes of differences Favourable Unfavourable Favourable Unfavourable

balance(Dr.) balance (Cr.) balance balance (Dr.)
as per as per cash- (Cr.) as per pass-
cash- book book as per pass- book
book
Cheque deposited but not Subtract Add Add Subtract
cleared
Cheque issued but not Add Subtract Subtract Add
presented to bank
Cheque directly deposited in Add Subtract Subtract Add
bank
by a customer
Income (e.g., interest from UTI) Add Subtract Subtract Add
directly received by bank
Expenses (e.g., telephone bills) Subtract Add Add Subtract
directly
paid by bank on standing
instructions
Bank charges levied by bank Subtract Add Add Subtract
Locker rent levied by bank Subtract Add Add Subtract
Wrong debit in the cash book Subtract Add Add Subtract
Wrong credit in the cash book Add Subtract Subtract Add
Wrong debit in the pass book Subtract Add Add Subtract
Undercasting of Dr. side of Add Subtract Subtract Add
bank account in the cash book
Overcasting of Dr. side of bank Subtract Add Add Subtract
account in cash book
Undercasting of Cr. side of Subtract Add Add Subtract
bank account in cash book
Overcasting of Cr. side of bank Add Subtract Subtract Add
account in cash book
Bill receivable collected directly Add Subtract Subtract Add
by bank

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 RECTIFICATION OF ERRORS

Types of Errors

Errors of Principle

Clerical Errors

Error of Omission Error of Commission Compensating Errors

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 LIST OF PRACTICAL QUESTIONS ASKED

AMOUNT OF CLOSING CAPITAL/NET PROFIT DURING THE YEAR

1. A had started business with ` 20,000 in the beginning of the year. During the year he
borrowed ` 10,000 from B. He further introduced ` 20,000 in the business. He also gave `
5,000 as loan to his son. Goods given away as charity by him was ` 2,000. Profits earned
by him were ` 25,000. He also withdrew ` 3,000 from the business. His capital at the end of
the year would be:
a. ` 50,000
b. ` 40,000
c. ` 62,000
d. ` 48,000

2. Capital introduced in beginning by Ram ` 40,000. Further capital introduced during the year
` 1000. Drawings ` 200 per month and closing capital is ` 53,600. The amount of profit or
loss for the year is:
(a) `15,000 Profit
(b) `5000 Loss
(c) `20,000 Profit
(d) Can’t say

AMOUNT OF RDD TO BE MADE IN THE CURRENT YEAR.

3. D’s trial balance contains the following information:

Bad debts ` 500
Provision for bad debts ` 4,000
It is desired to maintain a provision of ` 3,000 at the end of the year, accounting treatment of
this adjustment is:
a. ` 1500 to be debited to Profit and Loss
b. ` 500 to be debited to Profit and Loss
c. ` 500 to be credited to Profit and Loss
d. ` 3,500 to be debited to Profit and Loss

4. Trial Balance contains the following information: Bad debts `2,000, Provision for Doubtful debts
`1,500. It is desired to make a Provision for Doubtful Debts of `2,000 at the end of the
year. The amount to be debited to the P & L A/c is:
(a) `5,500
(b) `6,000
(c) `2,500
(d) `4,500

5. Sundry Debtors on 31st March, 2006 are `55,200. Further Bad debts are `200:
Provision for doubtful debts are to be made on debtors @ 5% and also provision of discount is
to be made on debtors @ 2%. The amount of provision of discount on debtors will be:
(a) `1,045
(b) `2,750
(c) `1,100
(d) `2,760

6. Bad debts `3,000

Provision for bad debts `3,500
It is desired to make a provision of `4,000 at the end of the year.
The amount debited to P & L A/c is:
(a) `4,000

48 | P a g e
(b) `5,000
(c) `6,500
(d) `3,500

7. Y’s trial balance contains the following information:

Bad debts `5,000
Provision bad debts `6,000
Sundry debtors `50,000

It is desired to create a provision for Bad debts at 10 per cent on Sundry debtors at the end of
the year. Sundry Debtors will appear in the balance sheet at a figure of
(a) 45,000
(b) 42,500
(c) 46,000
(d) 34,000

8. A Trial Balance contains the following information:

Discount allowed `1500. Provision for discount on debtors `1,100. It is desired to make a
provision for discount on debtors of `1,800 at the end of the year. The amount to be debited to
the Profit and Loss Account is:
(a) `2,200
(b) `4,200
(c) `1,700
(d) `3,200

AMOUNT OF GROSS PROFIT

9. A new firm commenced the business on 1 st January 2006 and purchased goods costing `
90000 during the year. A sum of ` 6000 was spent on freight inwards. At the end of the
year the cost of goods still unsold was ` 12,000. Sales during the year was ` 1, 20,000. What
is the gross profit earned by the firm?
a. ` 36,000
b. ` 30,000
c. ` 42,000
d. `38,000

10. Trial balance of a trader shows the following balances

Particulars `
Opening Stock 9600
Purchases less returns 11850
Salaries and wages 3200
Commission on Purchases 200
Carriage out 300
Sales 24900
Closing Stock 3500

Gross profit will be

(a) `6750
(b) `6500
(c) `3250
(d) `3200

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VALUE OF CLOSING STOCK (FIFO, LIFO & WEIGHTED AVERAGE METHOD )

11. If cost of physical stock on 31.3.2009 is ` 2,80,000 and out of which stock of ` 1,20,000 is held
as consignee. Goods costing ` 25,000 were damaged beyond repair and were expected to
realize ` 5,000 only. The value of own stock on 31.3.2009 will be:
a. ` 2,60,000
b. ` 1,60,000
c. ` 1,35,000
d. ` 1,40,000

VALUE OF PURCHASE MADE DURING THE YEAR

12. If cost of goods sold is ` 80,700/-. Opening stock ` 5,800/- and closing stock ` 6,000/-,
then the amount of purchase will be –
a. ` 80,500/-
b. ` 74,500/-
c. ` 74,700/-
d. ` 80,900/-
VALUE OF COGS

13. Consider the following information pertaining to a firm as on March 31, 2005:
Particulars `
Opening inventory 15,00,000
Purchases during the year 45,00,000
Sales during the year 50,00,000
Gross profit on sales has been 25%. The cost of goods sold during the year will be:
a. ` 60,00,000
b. ` 39,10,000
c. ` 50,00,000
d. ` 37,50,000

14. Given the following data extracted from the book of A Trades –
Particulars (`)
Opening stock 30,000
Closing stock 40,000
Purchases 1,25,000
Carriage inwards 2,000
Carriage outwards 3,000
Return outwards 5,000
Sales 1,50,000

The cost of goods sold will be

(a) `1,30,000
(b) `1,12,000
(c) `1,20,000
(d) `1,15,000

AMOUNT OF DEPRECIATION TO BE CHARGED (SLM, WDV, SUM OF YEARS OF DIGIT METHOD ,

PRODUCTION HOURS METHOD , ANNUITY METHOD)

15. Original cost of an asset ` 2,52,000, salvage value ` 12,000 depreciation for 2nd Year @
10% pa under WDV method will be
a. ` 21,600
b. ` 22,680
c. ` 30,000
d. ` 28,000
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16. Original cost is ` 1,30,000, salvage value is ` 4,000. Useful life is 6 years. Depreciation for
the first year under sum of years digits method will be:
a. ` 6,000
b. ` 12,000
c. ` 18,000
d. ` 36,000

17. A new machine costing ` 1,10,000 was purchased by a company to manufacture a special
product. Its useful life is estimated to be 5 years and scrap value of `20000. The production plan
for the next 5 years using the above machine is as follows: Year 1: 10000 units Year 2: 20000 units
year 3: 24000 units year 4: 40000 units Year 5 : 50000. The depreciation for
the 1st year under units of production method will be
a.6250 b.12500 c.15000 d.25000

RELATED TO INDIRECT EXPENSES (P & L)

17. Rent paid on 1 Oct’04 for the year to 30 Sep’05 was `1,200 and rent paid on1 Oct’05 for
the year to 30th Sep’06 was `1,600. Rent payable, as shown in the P & L for the year ended
31st Dec’05, would be –
(a) `1,200
(b) `1,600
(c) `1,300
(d) `1,500

18. Rekha purchased a machinery for `50,000 on 1.4.2006. She paid electricity and and salary
amounting `1,000 and `2,000 respectively. Telephone bill amounting `200 was outstanding
on 31.3.2006. The amount of expenses for the year ended 31st March, 2006 will be
(a) `53,200
(b) `3,000
(c) `53,000
(d) `3,200

19. A Trial Balance contains he following information:

I. 15% Bank Loan `40,000
II. Interest Paid `4,500
Interest debited to P & L A/c will be
(a) `6,000
(b) `3,000
(c) `4,500
(d) `1,500

PROFIT OR LOSS ON SALE OF FIXED ASSET

20.A machine of ` 3,000 was sold for ` 4,200. Depreciation provision to date was ` 400 and
commission paid to selling agent was ` 420 and wages paid to workers for removing the machine
was ` 30. Profit on sale of machine will be:
a. ` 1200
b. ` 1000
c. ` 1150
d. None of above

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21.A transport company purchases a truck for `2,00,000 on 1st January, 2005. It charges
20% depreciation p. a. according to w. d. v. method. The truck was sold on 1st July, 2006
for a sum of `1,60,000. The profit or loss on sale of truck is
(a) Loss of `16,000
(b) Profit of `16,000
(c) Profit of `12,000
(d) Loss of `12,000

WDV OF AN ASSET
22.A second hand car is purchased for `2,00,000, the amount of `25,000 is spent on itsrepairs,
`5,000 is incurred to get the car registered in owner’s name and `2,000 is paid as dealer’s
commission. The amount debited to car account will be –
(a) `2,32,000
(b) `2,25,000
(c) `2,30,000
(d) `2,05,000

23. If the equipment account has a balance of `22,500 and the accumulated depreciation account
has a balance of `14,000, the book value of the equipment is –
(a) `36,500
(b) `22,500
(c) `14,000
(d) `8,500

24. If a machine is purchased at a cost of `50,000, freight expenses are `500 and Installation
expenses are `1,500 the cost of machinery is –
(a) `50,000
(b) `50,500
(c) `51,500
(d) `52,000

25. An asset was purchased for `12,500 and under the reducing balance method 20 per cent of
the reducing value of the asset is written off each year. What is the value of the asset at the
end of three years?
(a) `8,000
(b) `7,500
(c) `6,400
(d) `5,000

26. The Written Down Value of an asset after three years of depreciation on the reducing
balance method @ 10% p. a. is `36,450. Its original value must have been –
(a) `1,00,000
(b) `50,000
(c) `72,900
(d) `47,385

RATE OF DEPRECIATION ALREADY CHARGED

27.A company purchased a plant for `5,000. The useful life of the plant is 10 years and the
residual value is `500. SLM rate of depreciation will be
(a) 9%
(b) 8%
(c) 10%
(d) None of the three

28.Satish purchased a Car for `2,00,000. He spent `50,000 for alteration of Car the Estimated
life of Car is 5 years and after 5 years car can realize only `25,000. Find the rate of
depreciation (on SLM basis)
(a) 16%
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(b) 20%
(c) 18%
(d) 15%

29.A fixed asset has a life of 4 yea` If it is depreciated by the WDV method, its book value at
the end of 4 years is 24% of its original cost. Hence the rate of depreciation applied is –
(a) 24%
(b) 25%
(c) 30%
(d) 35%

AMOUNT OF ESTIMATED SCRAP OR RESIDUAL VALUE

30. Purchase price of Scooter – `17,000, Expenses to be capitalized. `3,000. The rate of depreciation
on SLM basis is 9%, estimated useful life is 10 yea` The Estimated Residual Value will be
(a) `2000
(b) `5000
(c) Nil
(d) `20000

AMOUNT OF SALES

31. If gross profit is 20% on sales, the Gross Sale will be:

Opening Stock 40,000

Purchases 5,50,000
Closing Stock 50,000
Return Outward 5,000
Return Inward 20,000
Carriage inward 5,000
a. ` 6,95,000
b. ` 6,75,000
c. ` 5,40,000
d. ` 6,68,750
AMOUNT OF MANAGER ’S COMMISSION

32. The General Manager is entitled to a commission of 10% on net profit after charging the
commission of Works Manager. The Works Manage is entitled to a commission of 5% on
the net profits after charging the commission of General Manager. The profit before
charging any commission is `7,500. The commission of the Work Manager to the nearest
rupee will be
(a) `321
(b) `333
(c) `337
(d) `339

33. X, the Works Manager, gets 5% commission of net profits after charging his commission
and Y’s commission. Y, the General Manager, gets 10% commission on net profit after
charging his commission and X’s commission. If the profit before charging commission of
X and Y is `1,000, the commission of X will be
(a) `42.50
(b) `43.50
(c) `47.00
(d) `49.00

34. Net profit before commission has been `1,20,000. Manager’s commission is 20% of net
profit before charging such commission. The amount of manager’s commission is
(a) `22,000

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 (b) `25,000
(c) `24,000
(d) `20,000

AMOUNT OF LOSS BY FIRE (AbNORMAL)

35. Goods sent on consignment Invoice value 2,00,000 at cost + 33 ½ % 1/5 th of the goods were
lost in transit. Insurance claim received `10,000. The amount of abnormal loss to be transferred
to general P/L is –
(a) `30,000
(b) `20,000
(c) `35,000
(d) `20,000

36. X of Kolkata send out 1000 bag to Y of Delhi costing `200 each. Consignor’s expenses
`2000. Y’s expenses non-selling `1,000, selling `2,000. 100 bags were lost in transit. Value
of lost in transit will be:
(a) `20,200
(b) `20,300
(c) `20,000
(d) `23,000

37. X of Kolkata sends out 100 boxes to Y of Delhi costing `2,000 each. Consignor’s expenses
`1,000. Consignees expenses selling `500. 3/5th of the goods sold by consignee, ½ of the
balance goods were lost in consignee’s godown due to fire. The value of abnormal loss will
be:
(a) `3,000
(b) `2,200
(c) `4,000
(d) None

VALUE OF CONSIGNMENT STOCK

38. X sends out 400 bags to Y costing `200 each. Consignor expenses were `4000. Y expenses
non selling `2000, selling 1000. 300 bags were old by Y. Value of consignment stock will be:
(a) `20,400
(b) `20,700
(c) `22,000
(d) `21,500

39. X of Kolkata sends out 100 boxes to Y of Delhi costing `200 each. Consignor’s expenses
`4,000. Consignee’s expenses non-selling 900, selling 500. 1/10 th of the boxes were lost in
transit. 2/3rd of the boxes received by consignee were sold. The amount of consignment
stock will be:
(a) `7,200
(b) `7,500
(c) `7,000
(d) `6,000

40. X of Kolkata sends out 500 bags to Y costing `400 each at an invoice price of `500 each.
Consignor’s A/c expenses `4,000 consignee’s expenses, non-selling `1,000, selling `2,000.
400 bags were sold
The amount of consignment stock at Invoice Price will be:
(a) `50,900
(b)`50,800
(c) `50,000
(d) `51,000

54 | P a g e
41.A of Ahmadabad consigned goods of `10,000 to M of Madras and paid `500 for expenses.
The consignee paid `100 for freight and `50 godown rent. 80% of goods were sold and
commission of `500 was paid. Find the value of closing stock
(a) `2,000
(b) `2,120
(c) `2,100
(d) `2,030

AMOUNT OF COMMISSION OF CONSIGNEE

42.X of Kolkata sends out certain goods at cost + 25%. Invoice value of goods sends out
`2,00,000. 4/5th of the goods were sold by consignee at `1,76,000. Commission 2% upto
invoice value & 10% of any surplus above invoice value. Amount of commission is
(a) `4,800
(b) `5,200
(c) `3,200
(d) `1,600

43.X sends out goods costing `1,50,000 to Y of Delhi. Commission agreement – 2% on sales +
3% on sales as del-credere commission. The entire goods is sold by consignee for `3 lacs.
However, consignee is able to recover `2,95,000 from the debto` The amount of profit to be
transferred to P/L as net commission by consignee will be:
(a) `10,000
(b) `17,000
(c) `16,000
(d) `20,000

44.A of Mumbai sold goods to b of Delhi, the goods are to be sold at 125% of cost which is invoice
price. Commission 10% on sales at IP and 25% of any surplus realized above IP. 10% of the
goods sent out on consignment, invoice value of which is `12,500 were destroyed. 75% of
the total consignment is sold by B at `1,00,000. What will be the amount of commission
payable to B?
(a) `10,937.50
(b) `10,000
(c) `9,000
(d) `9,700

45.X of Kolkata sends out goods costing `1,00,000 to Y of Delhi. 3.5th of the goods were sold by
consignee for `70,000. Commission 2% on sales plus 20% of gross sales less all commission
exceeds cost price. The amount of commission will be:
(a) `2833
(b) `2900
(c) `3000
(d) `2800

46.X of Kolkata sends out goods costing 1,00,000 to Y of Mumbai at cost + 25%. Consignor’s
expenses `2,000.3/5th of the goods were sold by consignee at 85,000. Commission 2% on
sales + 20% of gross sales less all commission exceeds invoice value. Amount of commission
will be:
(a) `3,083
(b) `3,000
(c) `2,500
(d) `2,000

47.X sends out goods costing `2,00,000 to Y. 3/5th of the goods were sold by consignee for
`1,40,000, Commission 2% on sales plus 20% of gross sales less all commission exceeds
cost price. The amount of Commission will be:
(a) `5,667
(b) `5,800
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 (c) `6000
(d) `5,600

PROFIT ON CONSIGNMENT

48.X sends out goods to Y, costing `1,00,000 at cost + 25%, with the instruction to sell it at
cost + 50%. If 4/5th of the goods are sold at stipulated selling price and commission
allowable 2% on sales. What will be the profit on consignment in the books of consignor?
(a) `43,100
(b) `35,000
(c) `37,600
(d) `38,400

49.X of Kolkata sends out 1000 boxes to Y of Delhi costing `20 each. Consignor’s expenses
2,000. 4/5th of the boxes were sold at 25 each. The profit on consignment will be:
(a) `2,400
(b) `2,000
(c) `3,000
(d) `3,500

50. Dravid of Delhi sends out goods to Sourav of Kolkata, goods costing `2,00,000 at cost + 25%,
with the instruction to sell it at cost + 50%. If 4/5th of the goods are sold at stipulated selling
price and commission allowable 2% on sales. What will be the profit on consignment in the
books of consignor?
(a) `86,200
(b) `70,000
(c) `75,200
(d) `76,800

AMOUNT OF STOCK RESERVE

51. Goods of the Invoice value `2,40,000 sent out to consignee at 20% profit on cost. The loading
amount will be:
(a) `40,000
(b) `48,000
(c) `50,000
(d) None

52. Ram of Kolkata sends out goods costing 1,00,000 to Y of Mumbai at 20% profit on invoice
price. 1/10th of the goods were lost in transit. ½ of the balance goods were sold. The amount
of stock reserve on consignment stock will be:
(a) `4,500
(b) `9,000
(c) ` 11,250
(d) None

53. X send out 500 bags to Y costing `400 each at an invoice price of `450 each. Consignor’s
expenses `4000. consignee’s expenses, freight `1000, selling `2000. 400 bags were sold. The
amount of Consignment Stock Reserve will be –
(a) `5000
(b) Nil
(c) `10,000
(d) `10,200

NORMAL LOSS ON CONSIGNMENT

54.1000 kg of apples are consigned to a wholesaler, the cost being `3 per kg plus `400 of freight,
it is known that a loss of 15% is unavoidable. The cost per kg will be:
(a) `5

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 (b) `4
(c) `3.40
(d) `3

PROFIT ON JV
55.A purchased goods costing `2,00,000. B sold the goods for `2,80,000. Unused material
costing `10,000 taken over by a at `8,000. A is entitled to get 1% commission on purchase.
B is entitled to get 2% commission on sales. Profit sharing ratio equal. A’s share of profit
on venture will be –
(a) `40,000
(b) `40,400
(c) `40,600
(d) `40,200

56.A and B entered into a joint venture. They opened an joint bank account by contributing
`2,00,000 each. The expenses incurred on venture is exactly equal to `2,00,000. Once the
work is completed, contract money received by cheque `4,00,000 and in shares `50,000.
The shares are sold for `40,000. What will be the profit on venture?
(a) `2,50,000
(b) `2,40,000
(c) `4,40,000
(d) `4,50,000

57.A and B were partners in a joint venture sharing profits and losses in the proportion of 4/5th
and 1/5th respectively. A supplies goods to the value of `50,000 and incurs expenses
amounting to `5,400.
B supplies goods to the value of `14,000 and his expense amount to `800. B sells goods on
behalf of the joint venture and realizes `92,000. B is entitled to a commission of 5 per cent
on sales. B settles his account by bank draft. What will be the profit on venture?
(a) `17,200
(b) `17,000
(c) `18,000
(d) `18,200

58.A, for joint venture with B, purchased goods costing 2,00,000. B sold 80% of the goods for
`250000. Balance of goods were taken over by B at cost less 25%, find out profit on venture?
(a) `80,000
(b) `90,000
(c) `50,000
(d) None of these

VALUE OF STOCK TAKEN OVER BY CO -VENTURER

59.A purchased goods costing 45,000 B sold goods costing `40,000 at `50,000. Balance goods were
taken over by A at same gross profit percentage as in case of sale. The amount of goods taken
over will be:
(a) `6250
(b) `5000
(c) `6000
(d) `10,000

60.A purchased 1000 kg of rice costing `200 each. Carriage 2,000, insurance 3,000. 4/5th of the
boxes were sold by B at `250 per boxes. Remaining stock were taken over by B at cost. The
amount of stock taken over will be –

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 (a) `40,000
(b) `41,000
(c) `50,000
(d) `50,200

AMOUNT OF REMITTANCE TO BE MADE

61.A and B enter into a joint venture sharing profits and losses equally. A purchased 5,000 kg.
of rice @ `50/kg. B purchased 1,000 kg. of wheat @ `60/kg. A sold 1,000 kg. of wheat @
`70/kg. and B sold 5,000 kg. of rice @ Rs/60./kg. What will be the final remittance?
(a) B will remit `2,10,000 to A
(b) A will remit `2,10,000 to B
(c) A will remit `2,00,000 to B
(d) B will remit `1,80,000 to A

62.A and B enter into a joint venture sharing profits and losses equally. A provides goods from
his stock `10000. H pays expenses amounting to R 1000. B incurs further expenses on
carriage `2000. He receives cash for sales `15000. He also takes over goods to the value of
`3000. What will be the amount to be remitted by B to A? (a)
`13,500
(b) `15,000
(c) `11,000
(d) `10,000

63.P and Q enter into a Joint Venture sharing profits and losses in the ratio 3:2. P purchased
goods costing `200,000. Other expenses of P `20000. Q sold the goods for `2,00,000.
Remaining goods were taken over by Q at ` 10000. The amount of final remittance to be paid
by Q to P will be:
(a) 2,10,000
(b) 2,14,000
(c) 2,20,000
(d) None

64.A and B were partners in a joint venture sharing profits and losses in equal ratio. A supplies
goods to the value of `60000 and incurs expenses amounting `6,000. B supplies goods to
the value of `14000 and his expenses amount to `1000. B sells goods on behalf of the joint
venture and realizes `100000. B is entitled to a commission of 5% on sales and settles his
account by bank draft, Find out the amount of Bank draft –
(a) `66,000
(b) `73,000
(c) `14,000
(d) `27,000

INTEREST CHARGED BY CO-VENTURER

65.A and B enter into a joint venture sharing profits and losses in the ratio 3:2. A will purchase
goods and B will affect the sale. A purchase goods costing `2,00,000. B sold it for
`3,00,000. The venture is terminated after 3 months. A is entitled to get 10% interest on capital
invested irrespective of utilization period. The amount of interest received by A will be
(a) 20,000
(b) 10,000
(c) 15,000
(d) 25,000

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AMOUNT OF INTEREST ON BILL OF EXCHANGE

66. On 1.6.05 X draw a bill on Y for `50,000. At maturity Y requested X to accept `10,000 in cash
and nothing charges incurred `200 and for the balance X draw a bill on Y for 2 months at
12% p. a. Interest amount will be:
(a) 820
(b) 840
(c) 880
(d) 804

67. On 1.1.05 X draws a bill on Y for `30,000 for 3 months. At maturity Y requested X to
renew the bill for 2 month at 12% a interest. Amount of interest will be:
(a) 600
(b) 300
(c) 360
(d) 380

68. On 1.1.05 X draws a bill on Y for `30,000 for 3 months. At maturity Y request X to accept
`10,000 in cash and for balance to draw a fresh bill for 2 months together with 12% p. a.
interest, amount of interest will be:
(a) 400
(b) 600
(c) 480
(d) 760

AMOUNT OF DISCOUNT TO BE DEDUCTED BY BANK ON DISCOUNTING OF BILL

69. Mr. A draws a bill on Mr. Y for `30,000 on 1.1.03 for 3 months. On 4.2.06. X got the bill
discounted at 12% rate. The amount of discount will be:
(a) 900
(b) 600
(c) 300
(d) 650

70. On 1.1.05 X draws a bill on Y for `50,000 for 3 months. X got the bill discounted 4.1.05 at
12% rate. The amount of discount on bill will be:
(a) 1500
(b) 1600
(c) 1800
(d) 1450

AMOUNT OF REBATE ON RETIREMENT OF BILL OF EXCHANGE

71.A draws a bill on B for `60,000. A endorsed it to C in full settlement of `60,500. On due date,
the bill was dishonoured Noting charges of `500 was paid. A wanted to pay the amount to C
at 2% discount. The amount to be paid by A to C will be:
(a) 60,000
(b) 60,500
(c) 59,780
(d) 61,000

72.A draws a bill on B for `50,000. A endorsed it to C in full settlement of `50,500. Nothing
charges of `200 as the bill returned dishonoured. A want to pay the amount to C at 2%
discount. The amount to be paid by A to C will be:
(a) 49,000
(b) 49,490
(c) 49,686
(d) 50,500

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73. On 1.1.05 X draws a bill on Y for 3 months for `10,000. On 4.3.05 Y pay the bill to X at
12% discount, the amount of discount will be:
(a) 100
(b) 200
(c) 300
(d) 50

DUE DATE OF A BILL OF EXCHANGE

74. On 15.8,08 X draws a bill on Y for 3 months for `20,000. 18th Nov was a sudden holiday
due date of the bill will be:
(a) 17th Nov
(b) 18th Nov
(c) 19th Nov
(d) 15th Nov

75. On 16.6.09 X draws a bill on Y for `25,000 for 30 days. 19th July is a public holiday, due
date of the bill will be:
(a) 19th July
(b) 18th July
(c) 17th July
(d) 16th July

76. X draws a bill on Y for `30,000 on 1.1.09. X accepts the same on 4.1.09. Period of the bill
3 months after date. What will be the due date of the bill –
(a) 4.4.09
(b) 3.4.09
(c) 7.4.09
(d) 8.4.09

77. X draws a bill on Y for `20,000 on 1.1.09 for 3 months after sight, date of acceptance is
6.1.09. Due date of the bill will be:
(a) 8.4.09
(b) 9.4.09
(c) 10.4.09
(d) 11.4.09

INSOLVENCY OF DRAWEE IN BILL OF EXCHANGE

78.A draws a bill on B for `50,000 for 3 months. On, maturity, the bill returned dishonoured,
noting charges `500, 40 paise in a rupee is recovered from B’s estate. The amount of
deficiency to be recorded on insolvency in the books of B will be:
(a) `20,200
(b) `30,300
(c) `19,800
(d) `19,800

79. Mr. A sold goods worth `50,000 to Mr. B. B immediately accepted a bill on 1.11.05 payable after
2 months. A discounted this bill @ 18% p. a. on 15.11.05. On the due date B failed to discharge
the bill. Later on B became insolvent and 50 paise in a rupee is recovered from his estate.
Bad debt recorded in the books of A will be –
(a) 25,000
(b) 60,500
(c) 59,780
(d) 61,000

INTEREST ON CAPITAL TO PARTNERS

80. X & Y started business on 1st April, 2009 with capitals of `5,00,000 and `3,00,000
respectively. There is no withdrawal or addition of Capital during the year. Calculate the
Interest on Capital @ 12% p. a. if the books of accounts are closed on 31st March.

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(a) X – `60,000 and Y – `36,000
(b) X – `45,000 and Y – `36,000
(c) X – `36,000 and Y – `60,000
(d) X – `60,000 and Y – `60,000

81. X and Y started business on 1st April, 2008 with capitals of `5,00,000 and `3,00,000
respectively. On 1st May 2008, X introduced an additional Capital of `1,00,000 and Y
withdraw `50,000 form his Capital. On 1st October 2008, X withdraw `2,00,000 from his
Capital and Y introduced `2,50,000 on his Capital. Interest on Capital is allowed @ 6% p.
a. Calculate the interest on Capital for the year ending 31 st March, 2009.
(a) X – `22,750 and Y – `29,500
(b) X – `29,000 and Y – `22,000
(c) X – `27,000 and Y – `45,000
(d) X – `29,500 and Y – `22,750

INTEREST ON DRAWING BY PARTNER

82. Calculate the Interest on Drawings of Mr. B @ 10% p. a. for the year ended 31st December
2008, if he withdrew `1,200 p. m. in the beginning of every month.
(a) `720
(b) `660
(c) `780
(d) None of the above

83. Calculate the Interest on Drawings of Mr. C @ 10% p. a. for the year ended 31st December
2008, if he withdrew `1,200 p. m. at the end of every month.
(a) `720
(b) `660
(c) `780
(d) None of the above

84. Calculate the Interest on Drawings of Mr. D @ 10% p. a. for the year ended 31st December
2008, if he withdrew `1,200 p. m. at the middle of every month.
(a) `780
(b) `660
(c) `1,440
(d) `720

85. Calculate the Interest on Drawings of Mr. G @ 10% p. a. for the year ended 31st Dec. 2008,
if he withdrew `3,600 at the end of each quarter.
(a) `540
(b) `900
(c) `720
(d) `1,440

86. Calculate the interest on Drawings of Mr. F @ 10% p. a. for the year ended 31st Dec. 2008,
if he withdrew `3,600 at the beginning of each quarter.
(a) `1,440
(b) `900
(c) `540
(d) `720

87. Calculate the Interest on Drawings of Mr. H @ 10% p. a. for the year ended 31st Dec. 2008,
if he withdrew `3,600 during the middle of each quarter.
(a) `540
(b) `720
(b) Rs,900
(d) `1,440

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GUARANTEED PROFITS TO A PARTNER

88. A, B and C are Partners sharing profits in the ratio of 5:4:1. C is given a guarantee that his
share in any year will not be less than `5,000. The profits for the year ended 31st December
2008 amounted to `40,000. Amount excess given to C will be borne by B. Calculate the
deficiency borne by B.
(a) Deficiency of C `5,000 met by B
(b) Deficiency of C `1,000 met by B
(c) Deficiency of C `4,000 met by B
(d) None of the above

89. A, B and C entered into Partnership on 1st April, 2008 to share profits & losses in the ratio of
4:3:3. A, however, personally guaranteed that C’s share of profit after charging Interest on
Capital @ 5% p. a. would not be less than `40,000 in any year.
The Capital contribution were – A – `3,00,000, B – `2,00,000 and C – `1,50,000.
The profit for the year ended on 31st March 2009 amounted to `1,60,000.
Show the Profit & Loss Appropriation A/c.
(a) NP transferred to A – `38,250, B – `49,250, C – `40,000
(b) NP transferred to A – `49,250, B – `38,250, C – `40,000
(c) Loss transferred to A – `49,250, B – `38,250, C – `40,000
(d) None of the above

VALUATION OF GOODWILL (AVERAGE PROFIT, SUPER PROFIT , ANNUITY , CAPITALIZATION METHOD )

90.The profits of last 5 years are `85,000, `90,000 `70,000, `1,00,000 and `80,000. Find the
value of Goodwill, if it is calculated on average profits of last 5 years on the basis of 3 years
purchases.
(a) `85,000
(b) `2,55,000
(c) `2,75,000
(d) `2,85,000

91.Profit for 2006-07 is `2,000, for 2007-08 is `26,100 and for 2008-09 is `31,200. Closing stock
for 2007-08 and 2008-09 includes defective items of `2,200 and `6,200 respectively which were
considered as having market value NIL. Calculate Goodwill on 2 years purchase of average
profit. (Use Simple Average Method)
(a) `47,400
(b) `35,400
(c) `27,400
(d) `34,600

92.A Firm employs `10,00,000 as Capital. Investors expect an income of 15%. The actual profits
(likely to be continued) is `2,00,000. What will be the value of Goodwill of the Firm according to
Super Profit method if it is to be valued at 3 years purchase?
(a) `50,000
(b) `1,50,000
(c) `2,00,000
(d) `2,15,000

93. The present average Net Profit of Praful & Shobha Partnership Firm, before deducting
Partner’ remuneration is `27,000 p. a. The Capital employed in the business by the Partners
is Praful – `1,00,000, Shobha – `50,000. The profit expected from the Total Capital invested
is 10% p. a. The total remuneration of the Partner is estimated to be
`6,000 p. a. Find out the value of Goodwill on the basis of 2 years purchases of super profits.
(a) Negative
(b) `12,000
(c) `24,000
(d) `22,000

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94. Calculate Goodwill if a Firm earns a net profit of `12,000 with a Capital of `60,000. The
normal rate of return in the business is 10%. Use capitalization of super profit method to
value Goodwill.
(a) `60,000
(b) `12,000
(c) `6,000
(d) None of these

AMOUNT OF AVERAGE PROFIT (REVERSE QUESTION)

95. On 1st April 2009, an existing Firm had Assets of `1,50,000, including cash of `10,000. Its
Creditors amounted to `10,000 on that date. The Firm had a Reserve Fund of `20,000 while
Partner’ Capital A/c’s showed a balance of `1,20,000. If the normal rate of return is 20% and
the Goodwill of the Firm is valued at `48,000 at 4 years’ purchase of super profits, Find the
average profits p. a. of the existing Firm.
(a) `60,000
(b) `40,000
(c) `50,000
(d) `48,000

96. What would be the amount of actual average profit if goodwill is valued at ` 98,000 at 5 years
of purchase of super profit? Normal rate of return is 10% and average capital employed is `
5, 00,000.
a. ` 69, 600
b. ` 1,48,000
c. ` 4,40,000
d. ` 48,000

NEW PROFIT SHARING RATIO (AdMISSION , RETIREMENT & DEATH )

97. X and Y are sharing profits and losses in the ration of 3:2. Z is admitted with 1/5th share
in profits of the Firm which he gets from X. Find out the New Profit sharing ratio?
(a) 12:8:5
(b) 8:12:5
(c) 2:2:1
(d) 2:2:2

98. X and Y share profits and losses in the ratio of 4:3. They admit Z in the Firm with 3/7th
share which he gets 2/7th from X and 1/7th from Y. The new profit sharing ratio will be –
(a) 7:3:3
(b) 2:2:3
(c) 5:2:3
(d) 2:3:3

99.A and B are Partners, sharing profits in the ratio of 5:3. They admit C with 1/5th share in
profits which he acquires equally from both A and B.
(a) 21:11:8
(b) 20:10:4
(c) 15:10:5
(d) None of the above

100. R and S are Partners sharing profits in the ratio of 5:3. T joins the Firm. R gives 1/4th
of his share and S gives 1/5th of his share to the new Partner. Find out the new profit sharing
ratio –
(a) 75:48:37
(b) 45:32:27
(c) 13:7:4
(d) None of the above

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101. X, Y, Z are Partners sharing profits in the ratio 3:4:3 Y retires and X and Z share his
profits in equal ratio. Find the new ratio of X and Z.
(a) 1:2
(b) 2:1
(c) 3:1
(d) 1:1

GAINING RATIO & SACRIFICE RATIO

102. A and B are partner sharing profit an losses in the ratio 5:3 on admission , C bring Rs
70,000 cash and Rs 48,000 against goodwill. New profit sharing ratio between A,B,C is 7:5:4.
The sacrificing ratio among A and B is:
a) 3:1
b) 4:7
c) 5:4
d) 2:1

CAPITAL TO BE BROUGHT BY NEW INCOMING PARTNER ON ADMISSION

103. A and B are partners sharing profit in the ratio of 3:2
A’s capital is Rs 30,000
B’s capital is Rs 15,000
They admit C and agreed to give 1/5th share of profit to him. How much C should being in
towards his capital?
a) Rs 9,000
b) Rs 12,000
c) Rs 14,500
d) Rs 11,250

104. A and B are partners C is admitted for 1/5th share C brings Rs 1,20,000 as his share
towards capital. The total networth of the firm is:
a) Rs 1,00,000
b) Rs 4,00,000
c) Rs 1,20,000
d) Rs 6,00,000

105. A and B are partner C is admitted with a guarantee profit of Rs 10,000 from A with a new
profit sharing ratio of 3:2:1. Profit for the year 2009-10 is Rs 1, 20,000. How much profit C
will get?
a) Rs 10,000
b) Rs 20,000
c) Rs 30,000
d) None of these

GOODWILL TO BE SHARED BY OLD PARTNERS ON ADMISSION /RETIREMENT:

106. A and B are equal Partners in a Firm. They admitted C as 1/6th Partner who brought in
`60,000 as Capital. The new profit sharing ratio is 3:2:1. If Goodwill of `60,000 is to be paid
to the old Partners as per profit sacrificing ratio, B will receive –
(a) `30,000
(b) `60,000
(c) `45,000
(d) Nil

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107. X and Y are Partners sharing profits in the ratio of 3;1. They admit Z as a Partner who
paid `40,000 as Goodwill. The new profit sharing ratio being 2:1:1 among X, Y and Z
respectively. The amount of Goodwill will be credited to –
(a) X and Y as `30,000 and `10,000 respectively
(b) X only
(c) Y only
(d) None of the above

108. A, B and C are Partners with profits sharing ratio 4:3:2. B retires and Goodwill
`10,800 was shown in Books of Accounts. If A & C share profits of B in the ratio 5;3, then find
the value of Goodwill shared between A and C.
(a) `1,850 and `1,950
(b) `1,650 and `1,750
(c) `2,000 and `1,600
(d) `1,950 and `1,650

HIDDEN GOODWILL
109. A and B are Partners with capitals of `10,000 and `20,000 respectively and sharing profit
equally. They admitted C as their third Partner for 1/4th share for all purpose on payment of
`15,000. The amount of hidden Goodwill is –
(a) `15,000
(b) `8,000
(c) `10,000
(d) None of the above

AMOUNT TO BE PAID TO RETIRING PARTNER

110. A, B and C were Partners in a Firm sharing profits and losses in the ratio of 2:2:1
respectively with the Capital balance of `50,000 for A, `70,000 for B, `35,000 for C. B
declared to retire from the Firm and balance in Reserve on that date was `25,000. If Goodwill
of the Firm was valued at `30,000 and Profit on revaluation was `7,500, then what amount
will be payable to B?
(a) `70,820
(b) `76,000
(c) `75,000
(d) `95,000

111. A, B, C are Partners sharing profits in the ratio of 2:2:1. A’s Capital is `50,000. B’s Capital
`70,000 and C `35,000. B retires from the Firm and balance in Reserve on the date was
`25,000. If Goodwill of the Firm was `30,000 and Profit on Revaluation was `7,500, then
amount payable to B is –
(a) `70,820
(b) `76,000
(c) `75,000
(d) `95,000

PROFIT OR LOSS ON REVALUATION ON ADMISSION , RETIREMENT AND DEATH

112. A and B are partner of a firm sharing profit in ratio of 3:2. They admitted C with 1/5 th
share in profit. Machinery would be appreciated by 10% (book value Rs 80,000) and
building would be deprecated by 20 %( Rs 2, 00,000). Unrecorded debtor of Rs 1,250. Would
be bought to books and creditors of Rs 2,750 died and needn’t to pay anything. What will
be the profit and loss on revaluation?
a) Loss-28,000
b) Loss-40,000
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 c) Profit-28,000
d) Profit-40,000

JOINT LIFE POLICY

113. A, B and C take a Joint Life Policy, their profit sharing ratio is 2:2:1. On death of B, A
and C decide to share profits equally. They had taken a joint life policy of ` 2,75,000 with the
surrender value ` 75,000. What will be the treatment in the partner’s capital account on
receiving the JLP amount if the JLP is maintained at the surrender value?
a. ` 50,000 credited to all partner in old ratio
b. ` 2,75,000 credited to all the partners in old ratio
c. ` 2,00,000 credited to all partners in the old ratio
d. no treatment is required.

114. A, B and C are partner sharing profit and losses in the ratio of 3:2:1. They had a joint
life policy of Rs 3, 00,000. Surrender value of JLP in balance sheet is Rs 90,000. C dies
what is share of each partner in JLP:
a) Rs1,05,000; Rs70,000; Rs35,000
b) Rs45,000; Rs30,000; Rs15,000
c) Rs1,50,000; Rs1,00,000; Rs50,000
d) Rs1,95,000; Rs1,30,000; Rs65,000

115. A, B and C take a JLP. After 5 years, B retires from the firm. Old profit sharing ratio is
2:2:1. After retirement, A and C decide to share profits equally. They had taken a JLP of `
2,00,000 with surrender value of ` 30,000. What will be the treatment in the partner’s
capital account on receiving the JLP amount if JLP a/c is maintained at the surrender value?
a. ` 30,000 credited to all partners in old ratio
b. ` 2,00,000 credited to all partners in old ratio
c. ` 1,70,000 credited to all partners in old ratio
d. No treatment is required.

AMOUNT OF PROFIT TO BE GIVEN TO EXECUTOR

116. A, B and C are Partners sharing profits and losses in the ratio 2:2:1. C died on 31st
March 2009. The profits of the financial year ending 31st March 2009 is `64,000. The share
of Deceased Partner in the profits will be –
(a) `9,200
(b) `12,800
(c) `3,100
(d) `6,100

AMOUNT OF DIVIDEND

117. The following information pertains to X Ltd.

i. Equity share capital called up ` 5,00,000 ii. Calls in arrear ` 40,000
iii. Calls in advance ` 25,000 iv. Proposed dividend 15%
The amount of dividend payable = ?
(a) ` 75,000 (b) ` 72,750 (c) ` 71,250 (d) ` 69,000

118. The authorized capital of M Ltd. consists of both cumulative preference shares and equity
shares. Each 5% cumulative preference share has a par value ` 100. Each equity

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 share has a par value ` 10. At the end of the year 2009-10 and 2010-11, the cumulative
preference share capital balance was ` 2,00,000 and the equity share capital balance was
` 5,00,000.
If dividend declarations totalled ` 8,000 and ` 15,000 in the year 2009-10 and 2010-11
respectively, the dividends allocated to the equity share holders in the year 2010-11 = ?
(a) ` 3,000 (b) ` 5,000 (c) ` 10,000 (d) ` 12,000

FINAL CALL
119. The subscribed Share Capital of S Ltd. is `80,00,000 of `100 each. There were no calls-
in-arrear till the final call was made. The final call made was paid on 77,500 Shares. The
calls-in-arrear amounted to `75,000. The final call on per Share is
(a) `25
(b) `30
(c) `20
(d) `15

INTEREST ON CALL IN ADVANCE

120. IJK Ltd. issued 20,000 shares of `10 each at a premium of 20% on May 01, 2009,
payable as follows:
On application ` 4.50 (inclusive of premium)
On allotment ` 2.50
On first and final call ` 5.00

M` M, to whom 1,000 shares were allotted, has paid ` 5,000 on June 01, 2009. At the time of
remitting the allotment money, she indicated that the excess money should be adjusted towards
the call money. The directors of the company made the first and final call on October 31, 2009.
The company has a policy of paying interest on calls-in-advance. The amount of interest paid to
M` M on calls-in-advance = ?
(a) ` 62.50 (b) ` 52.08 (c) ` 125.00 (d) ` 150.00

INTEREST ON CALL IN ARREARS

121. The Directors of a Company made the final call of `30 per Share on June 15, 2008
indicating the last date of payment of call money to be June 30, 2008. Mr. X, holding 5,000
Shares paid the call money on Aug. 15, 2008.
According to Table A, the amount of interest on call-in-arrear to be paid by shareholder
(a) `625.00
(b) `937.50
(c) `750.00
(d) `1,125.00

AMOUNT TO BE TRANSFERRED TO FORFEITURE ACCOUNT

122. B Ltd. issued Shares of `10 each at a discount of 10% Mr. C purchased 30 Shares and paid
`2 on application but did not pay the allotment money of `3. If the Company forfeited his
entire Shares, the forfeiture A/c will be credited by……………
(a) `90
(b) `81
(c) `60
(d) `54

123. Mr. Sharma holding 1000 equity Shares of `10/- each issued at a discount of 10%
could pay `3.50 on application, but could not paid the allotment money of `2.5 per Share
and his Shares were forfeited. In the books of the Company, Shares forfeited A/c will be
credited by
(a) `2,500
(b) `1,500
(c) `3,500
(d) `2,000

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AMOUNT TO BE DEBITED TO SHARE CAPITAL ON FORFEITURE
124. A Company forfeited 1,000 Shares of `10 each (which were issued at par) held by Mr.
John for non-payment of allotment money of `4 per Share. The called-up value per Share
was `9. On forfeiture the amount debited to Share Capital will be
(a) `5,000
(b) `4,000
(c) `1,000
(d) `9,000

125. Z Ltd. issued 10,000 Shares of `10 each. The called up value per Share was `8. The
Company forfeited 200 Shares of Mr. A for non-payment of 1st call money of `2 per Share. He
paid `6 for application and allotment money. On forfeiture, the Share Capital A/c will be
…………….
(a) Debited by `2,000
(b) Debited by `1,600
(c) Credited by `1,600
(d) Debited by `1,200

126. X Ltd. forfeited 100 Shares of `10 each issued at a discount of 10% to Ravi on which he
had paid `2.50 per Share on application and `2.50 per Share on allotment but on which
he had not paid `2 on First Call. In case of forfeiture, Share Capital A/c will be debited
by…………………..
(a) `800
(b) `700
(c) `900
(d) `1000

BALANCE IN SHARE FORFEITURE AFTER PART REISSUE

127. The Directors of M Ltd. resolved on 1st May, 2009 that 2,000 Equity Shares of `10 each
`7.50 paid be forfeited for non-payment of final call of `2.50. On June 10, 2009, 1,800 of
these Shares were re-issued for `6 per Share. Balance in Share Forfeited A/c is
(a) `1,500
(b) `6.300
(c) `13,500
(d) `10,800

128. The Directors of a Company forfeited 100 Shares of `10 each fully called up for non-
payment of First call of `2 per Share and Final call of `3 per Share. 60 of these Shares were
subsequently re-issued at `6 per Share fully paid up. Balance in Share Forfeiture A/c is
(a) `60
(b) `200
(c) `360
(d) `640

AMOUNT TO BE TRANSFERRED TO CAPITAL RESERVE ON REISSUE OF FORFEITED SHARES

129. A Limited Company forfeited 100 equity Shares of the face value of `10 each, `6 per Share
called up, for non-payment of first call of `2 per Share. The forfeited Shares were
subsequently reissued as fully paid @ `7 each. Amount transferred to Capital Reserve A/c is
(a) `100
(b) `400
(c) `700

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 (d) `80

130. A Company forfeited 100 equity Shares of `100 each issued at a premium of 50% (to be
paid at the time of allotment) on which first call money of `30 per Share was not received,
final call of `20 is yet to be made. These Shares were subsequently re-issued at `70 per Share
as `80 paid up. Amount transferred to Capital Reserve A/c is
(a) `5,000
(b) `9,000
(c) `2,000
(d) `4,000

131. Z Ltd. forfeited 300 Shares of `10 each, `8 called up, held by Mr. A for non-payment of
second call money of `3 per Share. These Shares were re-issued to Karim for `8 per Share.
Amount transferred to Capital Reserve A/c
(a) `3,000
(b) `1,500
(c) `1,750
(d) None of these

NO . OF SHARES/DEBENTURE TO BE ISSUED FOR PURCHASE OF FIXED ASSET

132. G Ltd. acquired assets worth `7.50,000 from H Ltd. by issue of Shares of `100 at a
premium of 25%. The number of Shares to be issued by G Ltd. to settle the purchase
consideration = ?
(a) 6,000 Shares
(b) 7,500 Shares
(c) 9,375 Shares
(d) 5,625 Shares

133. K Ltd bought a Machinery for `4,00,000 payable as to `1,30,000 in cash and the balance
by issue of 12% Debentures of `100 each at 10% discount. Number of Debentures issued is
–
(a) 4,000
(b) 3,000
(c) 2,700
(d) 30,000

134. How many Debentures will a Company be required to issue for satisfying the purchase
consideration of `28,80,000, if Debentures of `100 are issued at a premium of 20 per Debenture?
(a) 24,000
(b) 28,800
(c) 36,000
(d) 32,000

135. F Ltd purchased Machinery from G Company for a book value of `4,00,000. The
consideration was paid by issue of 10% Debentures of `100 each at a discount of 20%. The
Debenture account will be credited by –
(a) `4,00,000
(b) `5,00,000
(c) `3,20,000
(d) `4,80,000

PRORATA ALLOTMENT:
136. E Ltd. has allotted 10,000 Shares to the applicants of 14,000 Shares on pro-rate basis.
The amount payable on application is `2. F applied for 420 Shares. The number of Shares
allotted and the amount carried forward for adjustment against allotment due from F:
(a) 60 Shares, `120
(b) 340 Shares, `160

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 (c) 320 Shares, `200
(d) 300 Shares, `240

137. A Company invited application for subscription of 5,000 Shares. The applications were
received for 6,000 Shares. The Shares were allotted on pro-rata bases. If Shyam applied for
180 Shares, how many Shares would be allotted to him?
(a) 180
(b) 200
(c) 150
(d) 175

138. A Company invited application for subscription of 5,000 Shares. Applications were
received for 6,000 Shares. Shares were allotted pro-rata basis.

(i) If Shyam has applied for 180 Shares, how many Shares would be allotted to him?
(a) 180 Shares
(b) 200 Shares
(c) 150 Shares
(d) 175 Shares

(ii) If Shyam had been allotted 350 Shares, how many Shares he would have applied for?
(a) 300 Shares
(b) 400 Shares
(c) 420 Shares
(d) 425 Shares

AMOUNT TO BE CREDITED TO SHARE PREMIUM ACCOUNT

139. O Ltd. has redeemed its 12% Preference Shares of `2,00,000 at a premium of 4%. To meet
the redemption, it has issued `1,98,000 Shares of `20 each at a premium of 5%. The balance
outstanding to the credit of Share premium A/c after adjusting premium on redemption of
Preference Shares will be –
(a) Nil
(b) `1,904
(c) `1,900
(d) `8,000

AMOUNT TO BE TRANSFERRED TO CRR

140. Redeemable Preference Shares of `1,00,000 are redeemed at par for which purpose fresh
Equity Shares of `80,000 are issued at a discount of 10%. The amount to be transferred to
Capital Redemption Reserve Fund will be –
(a) `20,000
(b) `28,000
(c) `1,00,000
(d) `80,000

141. A Limited Company has to redeem Redeemable Preference Shares of the value of
`1,00,000 for which the Company has issued 3,000 Equity Shares of `10 each at a premium
of 10%. The amount to be transferred to Capital redemption reserve account will be –
(a) `1,00,000
(b) `97,000
(c) `70,000
(d) `67,000

142. Rich Ltd had 3,000, 12% Redeemable Preference Shares of `100 each, fully paid up. The
Company issued 25,000 Equity Shares of `10 each at par and 1,000 14% debentures of
`100 each. All amounts were received in full. The payment to Preference Shareholders was
made in full. The amount to be transferred to Capital Redemption Reserve A/c is –
(a) Nil
(b) `2,00,000

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(c) `3,00,000
(d) `50,000

143. Light Ltd has 10,000, 5% Preference Shares of `10 each to be redeemed after 5 year. The
Company forfeited 500 Preference Shares on which final call of `2 has not been received
after due notice and cancelled these Shares on account of redemption. Remaining Shares
were redeemed out of reserves of the Company. The amount to be credited to Capital
redemption reserve will be –
(a) `1,00,000
(b) `95,000
(c) `99,000
(d) `99,500

144. X Co Ltd has to redeem, 1,000 Preference Shares of `100 each at 10% premium. It issues
5,000 Equity Shares of `10 each at 10% premium. General Reserve amount transferred to
Capital redemption reserve will be –
(a) `1,00,000
(b) `50,000
(c) `55,000
(d) `1,10,000

MINIMUM NUMBER OF SHARES TO BE ISSUED ON REDEMPTION OF PS

145. A Company’s Balance Sheet contains `1.6 Lakhs fully paid 10% Redeemable Preference
Shares and `1,00,000 as Revenue Reserve. It decides to redeem the Shares at 5% premium
by maximum utilization of earnings and from fresh issue of Shares.
If the issue is made at 20% premium, the minimum amount of fresh Equity issue will be –
(a) `28,800
(b) `60,000
(c) `36,000
(d) `37,000

146. Company decided to redeem these Preference Shares at par by the issue of sufficient
number of Equity Shares of `10 each fully paid up at a discount of 10%. The number of
Equity Shares issued should be –
(a) 9,000
(b) 11,000
(c) 10,000
(d) None of the above

AMOUNT OF LOSS ON DEBENTURE TO BE WRITTEN OFF EVERY YEAR.

147. P Ltd issued 5,000, 12% Debentures of `100 each at a premium of 10%, which are
redeemable after 10 years at a premium of 20%. The amount of loss on redemption of
Debentures to be written off every year is –
(a) `80,000
(b) `40,000
(c) `10,000
(d) `8,000

148. W Ltd issued 20,000, 8% Debentures or `10 each at par, which are redeemable after 5 years
at a premium of 20%. The amount of loss on redemption of Debentures to be written off
every year –
(a) `40,000
(b) `10,000
(c) `20,000
(d) `8,000

TOTAL LOSS ON ISSUE OF DEBENTURES

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149. A Ltd issued `1,00,000 12% Debentures at 5% discount redeemable at 5% premium after
10 year. Loss on issue of Debentures will be –
(a) `15,000
(b) `10,000
(c) `12,000
(d) `20,000

150. X Ltd issued 1,00,000 Debentures of `100 each at a discount of 4% redeemable after 5
years at a premium of 6%. Loss on issue of Debentures will be –
(a) `10,00,000
(b) `6,00,000
(c) `16,00,000
(d) `4,00,000

151. Green Ltd issued 5,000, 6% Debentures of `100 each at a discount of 5% repayable after
5 years at a premium of 5%. Total loss on issue of Debentures will be –
(a) `40,000
(b) `50,000
(c) `60,000
(d) `70,000

INTEREST ON DEBENTURES
152. T Ltd. has issued 14% Debentures of `20,00,000 at a discount of 10% on April 01,
2009 and
the company pays interest half-yearly on June 30, and December 31 every year. On March
31, 2011, the amount shown as “interest accrued but not due” in the Balance Sheet will be
(a) ` 70,000 (b) ` 2,10,000
(c) ` 1,40,000 (d) ` 2,80,000

153. On May 01, 2010, U Ltd. issued 7% 10,000 convertible debentures of `100 each at a premium
of 20%. Interest is payable on September 30 and March 31 every year. Assuming that the
interest runs from the date of issue, the total amount of interest expenditure debited to profit
and loss account for the year ended March 31, 2011 will be
(a) ` 70,000 (b) ` 58,333 (c) ` 84,000 (d) ` 64,167

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