MINIMUM LEARNING MATERIAL

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1 MINIMUM LEARNING MATERIAL FUNDAMENTAL OF PARTNERSHIP (1 mark question) Q1 If date or drawings of the partner is not giving in the questions interest is charged for how much time? (a)1 month (b) 3 months (c) 6 months (d) 12 months Ans:C Q2 The relation of the partner with the firm is that of :- (a) An owner (b) an agent (c) an owner and an agent (d) Manager. Ans:- C Q3 Ram and Mohan jointly purchased a plot in the city will they entered in partnership? Ans:- No Q4 A & B are partners in a firm having no partnership agreement. They had advanced a sum of Rs.30,000 as loan to the firm in their profit sharing ratio on 1 July Calculate the interest payable by the firm to partner A assuming that the books are closed on 31 st march every year. Ans 1350 (3 marks question) Q5 A, B and C are partner in a firm. You are informed that A. A draws Rs from the firm in the beginning of every month. B. B draws Rs from the firm at the end of every month, and C. C draws Rs from the firm in the middle of every month Interest on drawings is to be 15% p.a. Calculate interest on partner s drawings.

2 SOLUTION: A. 1,950 B. 1,650 C. 1,800 Q6. Calculate the interest on drawings of Mr. 10 %p.a. for the year ended 31 st march, 2007 in each of the following alternative cases: CASE A: if he withdraws Rs in the beginning of each quarter. CASE B: If he withdraws Rs at the end of each quarter. CASE C: If he withdraws Rs during the middle of each quarter. SOLUTION: A. 2,000 B. 1,200 C. 1,600 Q7 P, Q AND R are partners in a firm. You find that: (a) P drew Rs in the beginning of every month for 6 months ending 30 th September, (b) Q drew Rs at the end of every month for 6 month ending 30 th September, (c) R drew Rs at the middle of every month for 6 month ending 30 th September, Calculate the interest on 8 % p.a. SOLUTION: P. 840 Q. 600 R. 720 Q8 On 31 st March 2014 capital accounts of E M and A after making adjustments for the profits drawings etc. were as E Rs M Rs A Rs The partners were entitled to the interest on 5% p.a. Drawings during the year were E Rs , M Rs and Rs The profit sharing ratio of the partners was 3:

3 2:1 and the profit during the year is Rs calculate interest on capital. Ans. A=42500 B =32500 C= mark questions Q9 P and Q are partners with capitals of Rs. 6,00,000 and Rs. 4,00,000 respectively. The profit and Loss Account of the firm showed a net Profit of Rs. 4, 26,800 for the year. Prepare Profit and Loss account after taking the following into consideration:- (i) (ii) (iii) (iv) (v) Interest on P's Loan of Rs. 2,00,000 to the firm Interest on 'capital to be 6% p.a. Interest on 8% p.a. Drawings were ; P Rs 80,000 and Q Rs. 1000,000. Q is to be allowed a commission on 3%. Sales for the year was Rs % of the divisible profits is to be kept in a Reserve Account. Ans (profit) Q10 The net profit of X Y Z for the year ended March 31 st 2013 was Rs and the same was distributed among them in their agreed ratio of 3:2:1. It was subsequently discovered that the under mentioned transactions were not recorded in the books:- (I) Interest on 5% p.a. (II) Interest on drawings amounted to X:-Rs. 700 Y:- Rs. 500 & Z :- Rs (III) Partners salary X Rs & Y:- Rs p.a.

4 The capital account of partners X:-Rs , Y:- Rs & Z :- Rs PASS necessary adjustment entry. Ans:- Dr. X:- Rs Cr. Y:- Rs and Z Rs 100 Q11:- A and B are Partners in a firm sharing profits and losses in the ratio of 3:2. The following was the balance sheet of the firm as on :- LIABILITES AMOUNT ASSETS AMOUNT Capitals :A B Sundry assets The profits Rs for the year ended 31 st March 2010 were divided between the partners without allowing interest on 12% p.a. and salary to A Rs per month. During the year A withdrew Rs and B Rs Pass necessary adjustment entry and show your working clearly. Ans:- B;s capital Dr Rs C:s capital Cr. Rs Q12 P, D & K are partners sharing profit & loss in the ratio of 5:4:1. K is given a guarantee that his share of profit in any given year would not less than Rs Deficiency if any would be borne by P & D equally. Profits for the year amounted to Rs Prepare p and l appropriation a/c. Ans:- Deficiency borne by P & D Rs. 500 each. 6 mark question Q13 Simran and Puneet are partners in a firm sharing profits and losses equally. On 1 st April 2013 capitals of the partners were Simran Rs and Puneet Rs Profit and Loss account of the firm

5 showed net profit of Rs ( before interest on puneet loan ) for the year ended 31 st March 2014 considering the following information prepare profit and loss appropriation account of the firm and partners capital accounts. (1) Interest on capital to be 6% p.a. (2) Interest on loan amount of Puneet of Rs for the whole year. (3) Interest on drawings of the 6% drawings being Simran Rs Puneet Rs (4) Transfer 10% of the distributable profit to reserve. Ans: - Profit Rs each of the partners., Balance of the capital account Simran Rs Puneet Rs Q14 a)a and B are partners sharing profits and losses in the ratio of 2:1. A is a non- working partner and has contributed RS as his capital. B is a working partner. The partnership deed provides for interest on 10% p.a. and salary of RS.7500 per month to the working partner. The net profit for the year ended 31 st march 2008 before providing for interest on capital and salary amounted to RS you are required to show the distribution of profit. SOLUTION: PROFIT AND LOSS APPROPRIATION ACCOUNT DR. CR PARTICULAR AMOUNT PARTICULAR AMOUNT TO interest on A s capital (4/7 of 70000) By Net Profit as per profit and loss A/C To salary to B (3/7 of 70000)

6 b) A and B share profits in the ratio of 3:2. The drawings of A are as follows: 1 ST JAN, ST MAY, ST JULY, st NOV, ST DEC,2000 A AMOUNT Calculate the interest on for the year ended on 31 st December,2000. SOLUTION: DATE AMOUNT PERIOD PRODUCT ST JAN 31 ST MAY 31 ST JULY 1 ST NOV 31 ST DEC Rs Months Rs total Interest on drawings =Total of product/12*rate of interest /100 B = /12*15/100 = 1575

7 CHANGE IN PROFIT SHARING RATIO AND VALUATION OF GOODWILL 1 MARK QUESTIONS Q.1 Mention the situation in which reconstitution of a firm occurs a) Change in profit sharing ratio. b) Amalgamation of two firms c) Dissolution of a firm. d) None of these. Ans : a Q2 Lata and asha were partners having equal profit sharing ratios. This ratio has been changed to 3:2. Calculate the sacrificing and gaining ratio of partners a) 1/10 b) 2/10 c) 3/10 d) None of these Ans : a Q3 revaluation account is what type of account: a) Personal account b) Real account c) Nominal account d) None of these. Ans c Q.4 Goodwill is.assets. a) Intangible assets.

8 b) Fictitious assets. c) Liability. d) None of these. Ans A Q.5 Need of valuation of goodwill a) Admission of partner b) Retirement of partner c) Death of partner d) All of these. Ans. D Q6 Seema, poonam and Gori, were partners sharing profits and losses in ratio of 7: 3: 2.Goodwill is to be valued at the average of three year s profits preceding the date of change in profit sharing ratio. The profits for 1999, 2000, 2001 and 2002, were Rs. 208,000, Rs.1,92,000, Rs. 2,40,000 and Rs. 3,60,000 respectively. Find out the value of goodwill. Ans. Rs. 2,64,000; Q7 The average net profits expected in the future by Basanti firm are Rs. 4,00,000 per year. The average capital employed in the business by the firm is 20,00,000. The rate of interest expected from capital invested in this class of business is 15%.The remuneration of the partners is estimated to be Rs.40,000 per annum. Find out the value of goodwill on the basis of two years purchase of super profits. Q8 On April 1 st 2010, an existing firm had assets of Rs.20,00,000 including cash of Rs. 80,000.the firm had a Reserve Fund of Rs. 3,60,000, partner s capital accounts showed a balance of Rs.15,20,000 and creditors amounted to Rs. 1,20,000. If the normal rate of return is 20%and the goodwill of the firm is valued at Rs. 2,56,000 at 4 year s purchase of super profit, find the average profits of the firm. Ans 1,20,000and4,40,000

9 4 mark Question Q9 Raju, Jana, and Manju, were sharing profits and losses in the ratio of 5: 3:2 They decided to share future profits and losses in the ratio of 2: 3: 5 with effect from They decided to record the effect of the following, without effecting their book values :--- (1) Profit and loss account Rs. 48,000 (2) Advertisement Suspense Account Rs. 24,000 Pass the necessary adjusting entry Ans. Debit Manju by Rs. 7,200 and Credit Raju by RS. 7,200 Q.10. A,B and C are partners in a firm as per partnership agreement their profit sharing ratio is 5:4:3. On 1st April,2014 they agreed to share profits and losses in 4:5:3. At the end of accounting period the firm had workmen compensation fund of Rs. 30,000, Investment fluctuation fund of Rs. 15,000 and no accumulated profits and losses. During accounting period ended 31 st march,2014 the firm suffered a loss of Rs.12,000. Pass necessary adjusting entry and show your calculation. Ans. Capital a/c of A B & C to be credited by Rs. 13,750,11,000 and 8,250 respectively. Q.11. V,M and Z are partners in a firm as per partnership agreement their profit sharing ratio is 5:3:2. On 1st April,2014 they agreed to share profits and losses in equally.at the end of accounting period the firm had reserves of Rs. 50,000, and accumulated profits of Rs.35,000.The partners decided to show reserves and accumulated profits in the existing manner.. Pass necessary adjusting entry and show your calculation. Ans. Capital a/c of M & Z to be debited by Rs.2,833,11,334 and respectively, V s capital to be credited by Rs. 14,167.

10 Admission of partner: VERY SHORT ANSWER TYPE QUESTIONS (1 Mark each) Q1 Z is admitted for ¼ share for which he brings Rs10,000 in cash for goodwill. It will be taken by the old partners in: A. Old ratio B. Sacrifice ratio C. New ratio Ans: B. Q2 Which accounting standard is applicable for the treatment of goodwill at the time of admission of a partner? 1 Q3 Why and when a revaluation account is prepared? 1 3 marks Q4. X and Y are partners sharing profits in ratio of 2:1. Z joins the firm. X surrender ¼ of his share and Y 1/5 of his share in favour of Z. Find the new ratio. Ans: 15:8:7 Q5.Ram and shyam are partners in a firm sharing profits in the ratio of 7:5. Mohan is admitted on 1/6th share which he takes 1/24th from ram and 1/8th from shyam. Calculate the new profit sharing ratio of the partners. SOLUTION:13:7:4. Q6 A and B are partners in a firm sharing profits in the ratio of 7:3.C is admitted as a new partner. a sacrifices2/7th of his share in profits in favour of Cand B 1/7th of his share in favour of C. Calculate the new profit sharing ratio between A,B and C.

11 SOLUTION: 35:18:17 4 marks question Q7 RAM and SHYAM are partners. their profit -sharing ratio is 3:2.mohan joins the partnership for 1/4th share in profits(of which he acquires 2/3 from Ram and 1/3 from Shyam).Mohan brings in RS.6,00,000 for capital and RS.2,40,000 for goodwill.1/4 of the amount of goodwill is withdrawn by old partners. SOLUTION: JOURNAL DATE PARTICULAR Bank A/C Dr. TO Mohan s capital A/C TO Premium for goodwill A/C L.F. Dr Cr Premium for goodwill A/C Dr TO Ram s capital A/C To Shyam s capital A/C Ram s capital A/C Dr. Shyam s capital A/C Dr To Bank A/C Q8 Aand B are partners sharing pofits in the ratio of 3:2. T HEY ADMIT C into the firm for ¼ th share in the profit which he takes 1/6 th from a and 1/12 th

12 from b. c brings as goodwill out of his share of no goodwill account appear in the books of the firm. Pass necessary journal entries. Bank a/c dr To prem. For g/w A/C Prem. For g/w a/c dr C s current a/c dr To a s capital To b s capital Q9 1. Arti and Bharti are partners in a firm sharing profits in 3 : 2 ratio. They admitted Sarthian handicapped as a new partner and the new profit sharing ratio will be 2:1:1. Sarthi broughtrs. 10,000 for her share of goodwill. Goodwill already appeared in the books of Arti andbharti at Rs. 5,000.Pass necessary journal entries in the books of the new firm for the above transactions and mention any one value associated here. Ans Cash a/c dr To premium for g/w Premium for g/w a/c dr To arti 4000 To bharti 6000

13 Arti dr 3000 Bharti dr2000 To g/w 5000 LONG ANSWERTYPE QUESTIONS (8 Marks) Q10 X and Y were partners in a firm sharing profits in the ratio of 3 : 2. On their balance sheet was as follows: Liabilities Amount Assets Amounts Rs. Rs. Sundry Creditors 50,000 Land and Building 1,00,000 Bills payable 20,000 Machinery 80,000 Reserve 10,000 Stock 1,00,000 Outstanding Expenses 10,000 Bills Receivable 5,000 Capital account X 1,80,000 Debtors 40,000 Y 70,000 Cash 15,000 3,40,000 3,40,000 On the above date Z was admitted as a new partner in a firm for ¼ share in the profits on the following terms: (i) Z will bring Rs. 1,20,000 for his capital and Rs. 20,000 for his share as premium for goodwill. (ii) Machinery was to be depreciated by 10% and Land and building was to be appreciated by Rs. 30,000. (iii) Stock was overvalued by Rs. 20,000. (iv) A provision of 5% was to be created for doubtful debts. (v) Salary outstanding was Rs. 5,000. (vi) Capital of all partners to be adjusted in new profit sharing ratio; Current Accounts to be opened for this purpose.

14 Prepare Revaluation Account, Partner s capital Accounts and the Balance sheet of the new firm. Revaluation Loss=Rs. 5,000 Capital A/cs X Rs Y Rs Z Rs (Current A/csX Rs (Dr.); Y Rs64000(Dr.)) B/S Total Rs Q11- A and B are partners with profit-sharing ratio of 2:1. Their Balance Sheet on 31 st March, 2011 was as follows: Liabilities Rs. Assets Rs. Sundry Creditors B.P Gen. Reserve Capital A/Cs: x 40,000 Y 30,000 20,000 15,000 12,000 70,000 1,17,000 Sundry 40,000 Less: 3,600 Stock Building Patents Machinery Debtors Provision 36,400 20,000 25,000 2,000 33, They admitted Z into partnership on this date. New profit-sharing ratio is agreed as 3:2:1. Z brings in proportionate capital after the following adjustments: (i) Z brings Rs.10, 000 in cash as his share of goodwill. (ii) Provision for doubtful Debts is to be reduced by Rs. 2,400. (iii) There is an old typewriter valued at Rs. 2,600. It does not appear in the books of the firm. It is now to be recorded. (iv) Patents are valueless. Show necessary ledger accounts and the balance sheet of new firm. Ans Revaluation loss-rs

15 RETIREMENT AND DEATH OF A PARTNER Q1 Maya, Nidhi and Sonika are sharing profits in the ratio of 5 : 3 : 2. Nidhi retires and her share was taken by Maya and Sonika in the ratio of 2 : 1. The new profit sharing ratio will be: (a) 5 : 2 (b) 2 : 1 (c) 7 : 3 * (d) None of the above Q2 Arbind, Kalika and Viswanath are sharing profits in the ratio of 1/5, 1/3, 7/15. Viswanath retires and his share was purchased equally by Arbind and Kalika. The new profit sharing ratio will be: (a) 1 : 1 (b) 13 : 17 * (c) 3 : 5 (d) None of the above Q3 Gaining ratio means: (a) old ratio new ratio (b) new ratio old ratio * (c) old ratio sacrificing ratio (d) new ratio sacrificing ratio 3 MARKS QUESTION Q4 A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1. C decided to retire and on this date goodwill of the firm is valued at Rs. 20,000. Pass entries when goodwill account already appearing in the books at Rs. 15,000. Ans A DR B dr To C A DR 6000 B Dr 6000 C DR 3000 To G/W Q5 A,B and C were partner in a firm sharing profits in 3:2:1 ratio. The firm closes its books on 31 st march every year. B dies on On b s death the goodwill of the firm was valued at Rs On B s death his share in the profits of the firm till the time of his death was to be calculated on the basis of previous year s profit which was Rs Calculate B s share in the profit of the firm. Pass necessary journal entries for the treatment of goodwill and B s share of profit at the time of his death.

16 SOLUTION: Q6 A,B and C are sharing profits in the ratio of 3:2:1. C dies on 31th june,2011. Accounts are closed on 31 st march every year. Sales for the year ending 31 st march,2011 amounted to Rs sales from 1 st april 2011 to 3oth june 2011 amounted to Rs The profits for the year ending 31 st march.2011 amounted to Rs Calculate the deceased partner s share in the current year s profits. SOLUTION: MARKS QUESTIONS Q7 Following is the balance sheet of P, K and B as on 31 st March They share profits in the ratio of their capitals: Liabilities Amount Assets Amount Creditors 4600 Building Reserves 5400 Machinery Capital Stock 4700 P 24,000 Debtors 6500 K 12,000 Cash 6400 B 8, P died on Under the terms of partnership the executor s of deceased partner will entitled to: (a) Amount standing to the credit of partner s capital a/c (b) Interest on 12% p.a. (c) Share of Goodwill of the firm which was valued at Rs. 36,000 on P s death. (d) Share of profit from the closing of the last financial year to the date of death on the basis of last year s profit. Profit for the year ended 31 st March 2006 was Rs. 7,000. Prepare P s capital account to be rendered to his executor s. (Hint: P s capital A/c = Rs. 48,255) Q 8 (i) A and B are partners. The partnership deed provided inter alia as follows: That the accounts be balanced 31 st March each year.

17 (ii) That the profit be divided as follows: A one- half; B one-third and one sixth carried to a Reserve account. (iii) paid out: That in the event of death of partner, his Executor will be entitled to be (a) (b) (c) (d) (e) The capital to his credit at the date of death. Interest on capital be provided at 12% p.a. His proportion of profit to date of death based on the average profits of the last three completed years plus 10%. His share of goodwill based on three years purchased of the average profits for the three preceding completed years less 5%. His proportion of Reserve at the date of the last balance sheet. On 31 st March, 2007 the ledger balance were: Particulars Dr. balances Cr. Balances A s capital 93,000 B s capital 62,000 Reserve 25,000 Bills Receivable account 20,000 Investment 50,000 Cash 1,40,000 Creditors 30,000 2,15,000 2,15,000 The profits for the last three years were :Rs. 45,000; Rs. 42,000; Rs. 48,000 respectively.

18 A died on 1 st August, Prepare A s Executor s account as on 1 st August 2007 showing your workings clearly. ANS: Calculation of Interest on capital=rs Calculation of Share of profit=rs Calculation of Share of Goodwill=Rs Amount transferred to A s Executors Loan A/c=Rs MARKS QUESTIONS Q9 A, B and C are partners sharing profits in the ratio of their capital. B retired on 1 st January On that date Balance Sheet was as under: Liabilities Amount Assets Amount Creditors 3000 Bank 4400 Debtors 6,000 Capital Less: Prov A Stock B Furniture C Land and Building Other terms were: (a) Appreciate building by 20%. Depreciate stock by 10%. Create provision for D/D on 5%. Expenses outstanding Rs (b) Goodwill of the firm was Rs. 12,000. (c) Rs. 4,000 was paid to be in cash and rest is transferred to his loan account. (d) New profit sharing ratio of A & C is 3 : 2. Record revaluation A/c, Partner s Capital A/c and Balance Sheet of new firm. (Hint: Profit on revaluation: Rs. 4,200; Gaining Ratio 11 : 9; B s loan A/c : Rs. 25,400; B.S. : Rs. 76,100) Q10 F and G were partners in a firm sharing profits in the ration of 3 : 1 : 1. On their balance sheet was as follows:

19 Liabilities Amount Assets Amounts Rs. Rs. Sundry Creditors 90,000 Bank 31,000 Bills payable 30,000 Debtors 70,000 Provision for doubtful debts 2,000 Stock Capital accounts E 1,50,000 Building 2,70,000 F 1,00,000 Profit and Loss A/c 20,000 G 99,000 On the above data F retired on the following terms: 4,71,000 4,71,000 (i) Building was to be appreciated by 10%. (ii) 10% provision for doubtful debts was to be made on sundry debtors. (iii) Creditors Rs. 10,000 will not be claimed. (iv) There was an outstanding bill for repairs Rs. 2,000. (v) Goodwill of the firm was valued at Rs. 75,000 and no goodwill account was to be opened for its treatment. (vi) F was to paidrs. 20,000 in cash and the balance was to be transferred to his Loan account. Prepare Revaluation account, Partner s Capital account and Balance sheet of E and G after F s retirement. Revaluation Profit =Rs Capital A/cs E Rs G Rs F s Loan Rs Balance Sheet Total Rs Qs.11 Sonu,Monu and Tonu are partner in a firm sharing profits in the ratio of 5:3:2 on March the Balance Sheet of the firm was as follows:

20 Liabilities Assets Creditors 20,000 Bank 20,000 General Reserves 10,000 Debtors Capital Accounts 16,000 14,000 Sonu 40,000 Less : Provision of Bad Debt 2,000 1,00,400 Monu 36,000 Building 3,600 Tonu32,000 1,08,000 Profit and Loss Account 1,38,000 1,38,000 Monu retires from the firm on the following terms: (i) Goodwill of the firm is valued at Rs 72,000 which is not to be shown in the books (ii) The new profit sharing ratio between Sonu and Tonu will be 2:1 (iii) Provision for Bad debts was found in excess by Rs. 400 (iv) (v) (v) Creditors of Rs, 4,000 will no be claimed Monu to be paid Rs. 5,000 in ash immediately and balance to be transferred to his loan account. The total capital of the new firm was fixed at Rs. 1,20,000. Sonu an Tonu decide to maintain the capital balances in their new profit share in ratio. Prepare Revaluation Account, Partners Capital Account, Bank Account and the Balance sheet of the new firm after Monu s retirement Profit on Revaluation Rs Gaining Ratio 5:4

21 Balance of Capital Account before adjustments Sonu Tonu Balance of Capital Account after adjustments Sonu Tonu Bank Balance Rs. 77,040 Total of Balance Sheet Rs. 1,91,840 ( 2+3+3=8) DISSOLUTION OF PARTNERSHIP Q1 Outline the method of dissolution of partnership firm. Ans Following are the methods of dissolution: a) Dissolution by agreement b) Compulsory dissolution c) Dissolution by notice d) Dissolution by court Q2. On dissolution, goodwill account is transferred to which account: e) (a) Capital account (b) On credit of cash account f) (c) On the debit of realization account (d) On the credit of realization account Ans c Q3 Which of the following is not transferred to realization account (a) Balance of cash Account (b) Balance of Reserve (c) Balance of profit and loss account (d) All above

22 Ans d 6 marks questions Q4 Pass necessary Journal entries for the following transactions, at the time of dissolution of the firm: (i) Realization Expenses Rs paid. (ii) Realization Expenses paid Rs. 2000, Mr. X one of the partners has to b ear these expenses. (iii) Y, one of the partners, took over a machine for Rs. 20,000. (IV) Z one of the partners agreed to take over the creditor of Rs. 30,000 for Rs. 20,000. (v) A one of the partners has given loan to the firm of Rs. 10,000. It was paid back to him at the time of dissolution. (vi) Profit and Loss Account balance of Rs. 50,000 appeared on the assets side of the Balance Sheet. (6) (i) Realization A/c Dr. 3,000 To Bank A/c 3,000 (Realization expenses paid) (ii) X s Capital A/c Dr. 2,000 To Bank A/c 2,000 (X bears Realization Expenses) (iii) Y s Capital A/c Dr. 20,000 To Realization A/c 20,000 (Y took over machine) (iv) Realization A/c Dr. 20,000

23 To Z s Capital A/c 20,000 (Z s took over the creditor) (v) A s Loan A/c Dr. 10,000 To Bank A/c 10,000 (A s loan paid) (vi) All the Partners Capital A/c Dr. 50,000 To P & L A/c 50,000 (Loss charged to Partners Capital A/c) (1 x 6 = 6) 8 Marks Questions Q5 Prachi, Ritika and Ishita were partners in a firm sharing profits and losses in the ratio of 5:3:2. In spite of repeated reminders by the authorities, they kept dumping hazardous material into a nearby river. The court ordered for the dissolution of their partnership firm on 31 st March Prachi was deputed to realise the assets and pay the liabilities. She was paid Rs.1,000 as commission for her services. The financial position of the firm was as follows: Liabilities F Rs Assets Rs Creditors Investment Fluctuation 10,000 4,500 Furniture Stock 37,000 5,500 Fund Capital Prachi 70,000 Investment Cash Ishita s Capital 15,000 9,000 18,000 40,000 Ritika F30,000 84,500 84,500

24 following was agreed upon the dissolution of firm: Prachi took over investment for Rs. 12,500, Stock and furniture realised Rs.41, 500. There was old furniture which has written off completely from the books. Ritika agreed to take up the same at the price of Rs. 3,000. Compensation paid to the employees amounted to Rs. 8,000; this liability was not provided in the above Balance Sheet. Realisation expense amounted to Rs. 1,000. Prepare Realisation Account, Partner s capital account and cash account to close the book of the firm. Also identity, the value conveyed in the question. Ans. Loss on realisation Rs. 6,000; Final Payment to Prachi Rs. 25,500 and Ritika Rs. 25,200; Cash brought in by Ishita Rs. 19,200; Total of Cash Account Rs. 69,700. Values being conveyed: (i) Care of environment (ii) Enforcement of law regarding pollution control. Q6 X and Y were partners in a firm sharing profits & losses in the ratio of 3:2. As there was lack of faith and understanding among them, the firm was a continuously running into losses. As a result, they decided to dissolve the firm. There balance sheet as on 31 st March, 2009 were as follows: Liabilities Rs. Assets Rs. Creditors Bank overdraft X s brother loan Y,s loan Investment fluctuation fund Capital :- X s capital Y s capital 8,000 6,000 8,000 3,000 5,000 50,000 40,000 Buildings Goodwill Stock Debtors 17,000 Less provision2000 Cash at bank Investment Profit and loss A/c 25,000 10,000 15,000 15,000 20,000 25,000 10,000 The firm was dissolved on the above date and the following arrangement was decided upon:

25 a) X agreed to pay off his brother s loan b) Debtors of Rs proved to be bad. c) Other assets realized investment 20%less, and goodwill at 60% d) One of the creditors Rs 5,000 was paid only 3,000. e) Building was auctioned for 30,000 and the auctioneer s commission amounted to Rs. 1,000. f) Y took over part of the stock at Rs 4,000(being 20% less the book value). Balance stock were realized 50% g) Realization expenses of Rs. 2,000. Prepare Realisation A/c. Ans: Loss on realisation A/c Rs. 9,000. Q7 Following is the Balance Sheet of A and Bon March 31, Balance Sheet A and B as on March 31, 2007 Liabilities Amoun t Assets Amoun t Creditors 76,000 Cash at bank 17,000 Mrs.Ashwani s loan 10,000 Stock 10,000 Mrs.Bharat loan 20,000 Investments 20,000 Investment fluctuation fund Reserve fund 2,000 Debtors 40,000 20,000 Less: Provision 36,000 Creditors 1,68,000 The firm was dissolved on that date. The following was agreed transactions took place. (i) A promised to pay Mrs. Ashwani s loan and took away stock for Rs.8,000. (ii) B took away half of the investment at 10% less. Debtors realized for Rs.38,000. Creditor s were paid at less of Rs.380. Buildings realize for

26 Rs.1,30,000, Goodwill Rs.12,000 and the remaining Investment were sold at Rs.9,000. An old typewriter not recorded in the books was taken over by B for Rs Realization expenses amounted to Rs. 2,000. Prepare Realization Account, Partner s Capital Account and Bank Account Profit on realization =55980,capital account A 59990, B 48390,(4mark) bank account (2mark) Company accounts 1. Issue of shares Which of the following statement of true a. Authorized capital = issued capital b.authorized capital > issued capital c.paid up capital >issued capital d.none of these Ans b 2. Prorata allotment of shares is made when there is a. Under subscription b. over subscription c equal subscription d as and when desired by directors 1 Ans b 3. Subject to the permission allowed the maximum discount allowable are equity share is a. 5% b. 10% c. 12% d.20% 1 b. 3marks questions Q4 The directors of DHU Ltd., resolved on 1 st January 2007 that 100 equity shares of Rs. 10 each, 8 paid be forfeited for non-payment of final call of Rs. 2. On 1 st February 2007, 50 of these shares were re-issued at Rs. 7 per share fully paid up. Give necessary journal entries. Ans Capital Reserve= Rs. 250

27 Q5 50 shares of Rs. 10 each, issued at as premium of Rs. 5 per share, were forfeited by sohanltd.for the nonpayment of allotment money of Rs.9 per share (including premium). Thefirst and final call on these shares at Rs.3 per share was not made. Forfeited shares were Rs. 12 per share, fully paid up. Journalise Ans 150 capital reserve Q6 Give J/E for forfeiture and reissue of share a. X Ltd forfeited 600 share of Rs. 10 each Rs. 7 called up on which Mahesh paid application and allotment money of Rs. 5 per share of these 400 share were reissued as fully paid up for Rs. 6 per share. 4 marks question Q7 Vimal Ltd purchased machinery of Rs from Kamal Ltd. The payment to Kamal Ltd was made by issuing equity shares of Rs. 100 each. Pass the necessary journal entries in the books of Vimal Ltd for purchase of machinery and the issue of shares when shares were: i) issued at par iii) issued at 10% discount ii) issued at 25% premium Ans machinery a/c dr To kamal ltd 99oooo Kamal ltd Dr To equity share capital a/c Kamal ltd Dr Discount on shares a/c To equity share capital a/c Kamal ltd a/c dr To equity share capital a/c To security premium reserve a/c198000

28 Q8. Sunflower ltd. Has an auhorised capital of rs divided into one lakh equity shares of Rs. 10 each. The co. invited applications for shares. Applications for shares were received. All calls were made and were duly received except the final call of Rs. 2 per share on 1000 shares. Show how share capital will appear in the bal. sheet of the company. Also prepare notes to account. SOLUTION: Particulars Note no. Amount Current year Equity and Rs. liabilities Share holders fund: a)share capital Amount Previous year NOTES TO ACCOUNT: Rs. Share capital: Authorised capital: equity share of Rs. 10 each Issued capital: equity share of Rs. 10 each Subscribed and fully paid capital: equity share of Rs. 10 each fully called up Subscribed but not fully paid capital: 1000 equity share of Rs 10 each fully called up Less: calls in arrear(1000 shares *2)

29 Q 9 Chirag Ltd. Invited applications for the issue of 1,00,000 equity shares of Rs. 10 each payable as follows : On application and allotment Rs 3 per share On first call Rs. 4 per share On second and final call Rs. 3 per share Applications for 1,50,000 shares were received& pro rata allotment was made to all the applicants. Excess application money was utilized towards payment of first call.all moneys were duly received except a shareholder who had applied for 1500 shares failed to pay the first call money. subsequently his shares were forfeited. Later on these shares were reissued at Rs.12 per share fully paid up. Pass the necessary journal entries in the books of the company. ANS Capital Reserve Rs. 4,500. Q10 X Ltd. issued for public subscription 40,000 equity shares of Rs. 10 each at premium of Rs. 2 per share payable as under : On application On Allotment On Call Rs. 4 per share Rs. 5 per share (including premium) Rs. 3 per share Applications were received for 60,000 shares. Allotment was made prorata to the applicants for 48,000 shares, the remaining applications being rejected. Money overpaid on application was applied towards sums due on allotment. Shri HARI, to whom 1,600 shares were allotted, failed to pay the allotment money and Shri Jaitly, to whom 2,000 shares were allotted, failed to pay the call money. These shares were subsequently forfeited. Record journal entries in the books of the company to record the above transactions. (8)

30 6 ISSUE OF DEBENTURES Q1 Give the meaning of Issue of Debentures as a collateral security. 1 Q2. Debenture is a source of: (a) owner s fund (b) working capital (c) borrowed fund (d) none of the above Ans c Q3 Interest on debenture is treated as (a) expense (b) loss (c) charge (d) appropriation Ans c 3 marks Q4. A company had RS , 12% debentures outstanding as on 1 st April During the year company took a loan of Rs from the SBI for which the company placed with the bank debentures for RS as collateral security. Pass journal entries, if any. Also show how the debentures and bank loan will appear in the companies balance sheet as at 31 st march FIRST METHOD: No entries passed for the issue of debenture in this method. Entry is passed only for taking a loan from the bank as under : Bank a/c dr. To bank loan a/c (loan taken from the bank and Rs Debentures deposited as collateral security) Particulars. Note no. Current year Previous year

31 Equity and liabilities: Non- current liabilities : Long term borrowings Notes to accounts: Long term borrowings: 2% debentures (in addition, debentures for Rs have been issued as collateral security) Bank loan( on collateral security of debenture of Rs ) ============= Second method: Bank a/c To bank loan a/c (being loan taken from the bank) dr. Debenture suspense a/c dr. To 12%debenture a/c ( issue of debenture as collateral security to secure a loan of from the bank) Extract of balance sheet As on 31 st march 2012 Particulars Note Current year Previous year no. Equity and liabilities: Non-current liabilities: Long term borrowings: Notes to accounts:

32 Long term borrowings: 12% debentures Less: debenture suspense a/c Bank loan (on collateral security of debenture of Rs ) ============= Q5 ) Give journal entries for the issue of debentures in the following conditions. 1. Issued 2000, 12% debentures for Rs. 100 each at par, redeemable also at par. 2. Issued 2000, 12% deb. of Rs. 100 each at discount of 2%, redeemable at par. 3. Issued 2000, 12% deb. Of rs. 100 each at premimum of 5%, redeemable at par. 4. Issued 2000, 12% deb. Of 100 each at par but redeemable at 5% prem. 5. Issued 2000, 12% deb. Of Rs. 100 each at discount of 2%, redeemable at a premium of 5%. DATE PARTICULARS L.F DR. CR. 1. bank a/c dr. to 12% deb. App and allotment a/c (application money received) % deb app. And allotment a/c dr. To 12% deb a/c (transfr of app. Money to deb. a/c) BANK A/C dr. To 12% deb. App. And allotment a/c ( application money received) % deb app. And allotment a/c dr. Dicount on issue of deb. a/c dr. To 12% deb. a/c ( transfer of application money to deb. a/c) Bank a/c dr. To 12% deb app. And allotment a/c

33 ( app. Money received) 12%deb app. And allotment a/c To 12% deb a/c To sec. premium reserve a/c ( transfer of app. Money to deb a/c) dr Bank a/c To 12% deb app. And allotment A/C ( APP. Money received)\ dr. 12% deb app. And allotment a/c dr. Loss on issue of debenture a/c dr. To 12% deb a/c To premium on redemption a/c (transfer of app. Money to debenture a/c) Bank a/c To 12% deb app. Allotment a/c ( app. Money received ) dr % deb app. And allotment a/c dr. Loss on issue of deb a/c dr. To 12 % deb a/c To prem. On redemption a/c ( transfer of app. Money to deb. a/c) Redemption of debenture Q1 According To SEBI Guideline 50 % of surplus in statement of profit and loss a/c will Be Transferred To 1 (a) DRR account (b) general reserve account (c ) capital account (d) none of them Answer - a Q2 What is meant by redemption of debenture? 1

34 Answer - redemption refers to discharge of liability on account of debenture by repaying the due amount to debenture holder. Q3 Why does a company purchase its own debenture from open market? Answer a company may purchase its own debentures from open market 1. For immediate cancellation 2 as an investment ( to be cancelled when required ) 3 marks questions Q4 Gopalan ltd purchased 5000 of its own 8 % debenture of rs 1000 each at 987 per debenture.it also purchased another lot of 600 debenture of the same series at 986 per debenture. the debenture were purchased for the purpose of cancellation. Record necessary journal entries ( hint : gain on cancellation 73,400 ) 6 marks question Q5 Tata motors ltd issued 40,000,& % debenture of rs 100 each on 1stjuly 2009 redeemable at premium of 5 % as under On 31 stmarch ,000 debenture On 31 stmarch ,000 debenture On 31 st march debenture It was decided to transfer debenture redemption reserve rs 10,00,000 on rs 4,00,000 on 31st march 2012, pass journal entries ignore interest ( hint : amount transferred to DRR on 31 st march ,00,000 and the balance of this account transferred to general reserve 20,00,000 ) 8 marks questions 6. (a) Gupta construction Ltd. issued 10,000 8 % debentures of Rs 500 each. The board of directors decided to purchase 1,000 Rs 485 each for investment purpose.after few months, it sold Rs 510 each in the market. Pass journal entries to show the above transactions assuming that DRR has adequate balance. Answer: (a) Profit on sale of Debenture Rs.25,000

35 b)a company had issued 10% Rs. 100 debentures amounting to Rs. 80,000 redeemable at the option of the company by drawing at per or by purchase in the open market. The company decides to redeem 200 debentures by the purchase in the open market at Rs. 98 each and 100 debentures by draw of lot. Pass journal entries. Assuming that company had sufficient balance in Deb. Redemption Reserve before redemption.