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Accountancy Solved Question Papers' 2020 | AHSEC | Solved Question Papers

 AHSEC SOLVED QUESTION PAPERS
ACCOUNTANCY' 2020
Full Marks: 100
Pass Marks: 30
Time: Three hours

The figures in the margin indicate full marks for the questions

1. (a) Fill in the blanks with appropriate word / words:                  1x4=4

1)      Unrecorded liabilities when paid are debited to Realisation Account.

2)      Life membership Fee is a Capital receipt.

3)      A partner acts as an agent of the firm.

4)      A company is required to publish its financial statements every year.

(b) Choose the correct alternative:                         1x2=2

1)      When a new partner does not bring in his share of goodwill in cash, the amount of premium is debited to:

a)      Premium Account.

b)      Cash Account.

c)       Capital Account of new partner.

d)      Capital Account of old partner.

2)      Financial statements are:

a)      Summarised reports of recorded facts.

b)      Detailed reports of recorded facts.

c)       Summarised reports of only cash transactions.

d)      None of the above.

3)      State whether the following statements are “True” or “False”:           1x2=2

a)      Subscription received in advance is an asset.               False, Liability

b)      Interest on debenture is payable only when a company earns profits.            False, It is a charge

2. Mention two differences between Receipts and Payments account and Income and Expenditure account.    2

Basic

Receipt and Payment Account

Income and Expenditure Account

1. Nature

It is a Real Account in nature.

It is nominal Account in nature.

2. Basis

It is prepared on cash basis of accounting.

It is prepared on accrual basis of accounting.

3. What is Premium for Goodwill?                          2

Ans: Premium for Goodwill: When a new partner is admitted into the firm, he is required to compensate in favour of partners who sacrifices their shares in favour of new partner. The Compensation paid in cash by the new partner to the sacrificing partners is called premium for goodwill.

4. Give two situations under which a partnership firm is dissolved.                        2

Ans: A Partnership is dissolved when:

a)      On expiry of the term for which the firm was constituted.

b)      If firm is constituted for a particular venture and that venture is completed.

5. A, B and C are partners sharing profits in the ratio 3: 2: 1. A retires. B and C have decided to take up A’s share equally. Calculate the new ratio.                               2

Solution:-

A: B: C = 3:2:1 (old ratio)

A’s share = 3/6 (acquired by B’s C in 1:1 ratio)

Now’ A’s share acquired by B = 3/6 x ½ = ¼

A’s share acquired by C = 3/6 x ½ = ¼

Again, B’s New share = 2/6 + ¼ = 4+3/12 = 7/12

C’s new share = 1/6 + ¼ = 2+3 /12 = 5/12

 B: C = 7:5 (New ratio)

6. Name any two items of current assets.                             2

Ans: Cash in Hand, Cash at Bank

7. Mention three uses of financial statement.                   3

Ans: Uses of financial statements:

a)      To Management: Management is interested in knowing the existing profits, earnings per share, chances of survival, possibility of growth and diversification etc. from the financial statements so that is can frame suitable strategy for its entity.

b)      Potential investors: Potential investors are keen to know the earning potential of the business. They want to know how safe the investment already made is and how safe the proposed investment will be.

c)       Bankers and financial institutions: These institutions are interested in the security of the loan advanced, entity’s capacity to repay the principal interest as per terms. Financial statements help these institutions to check the operating efficiency and financial position.

8. What is common size statement? Mention its two uses.                         1+2=3

Ans: Common Size Statements: Common size statement is a statement in which amounts of individual item of balance sheet and profit and loss account for one or more years are expressed in terms of percentage of a common base. The common base can be net sales in the case of profit and loss account and total of balance sheet for the balance sheet.

Uses of Common size statement

(i)        A common size statement facilitates both types of analysis, horizontal as well as vertical. It allows both comparisons across the years and also each individual item as shown in financial statements.

(ii)      It helps in finding trend of percentage share of each asset in total assets and percentage share of each liability in total liabilities.

(iii)    These statements help the management in making forecasts for the future.

Or

Q.8. Current Ratio is 3: 5: 1 and Quick Ratio 2: 5: 1. Inventory is Rs. 50,000. Calculate current assets and current liabilities. 3

Solution:-

Given,

Current ratio = 3: 5: 1

Quick ratio = 2: 5: 1

Inventory = 50,000

Now, let the CA be 3.5x

LA be 2.5x

CL be x

A/q, CA-LA = Inventory

=> 3.5x – 2.5x = 50,000

=> x = 50,000

 CA = 3.5 x 50,000 = 1, 75,000

CL = 50,000

9. Explain the super profit method of valuation of goodwill.                      3

Ans: Super Profit Method: Super Profits means excess of actual average maintainable profits over normal Profit of a firm. Normal profits mean the profit which the firms could normally earns in a particular business. It is calculated by multiplying capital employed in the firm with normal rate of return. Goodwill under this method is calculated by multiplying super profit with the agreed number of year’s purchase.

Under this method, the following steps are to be followed for calculation of goodwill:

1.       Calculate average maintainable profit with the help of following formula: Total Actual maintainable profits /no of years.

2.       Calculate normal profit by multiplying capital employed with normal rate of return.

3.       Calculate super profit. Super profit is the excess of average maintainable profit over normal profit.

4.       Calculate the value of goodwill = super profit x no. of year’s purchase

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2019

10. State three features of Not-for-profit organisation.                                 3

Ans: Characteristics of Not-for-profit organisations: Following are the main characteristics or the salient features of Not for Profit organisations:                                      

a)      The main objective of not-for-profit organisations is not to make profit but to provide service to its members and to the society in general.

b)      The main source of income of these organisations is admissions fees, subscriptions, donations, grant-in-aid, etc.

c)       Financial statements of not for profit organisations include receipts and Payments A/C, Income and Expenditure A/c and Balance sheet.

Or

Calculate the amount of subscription to be credited to Income and Expenditure Account for the year ended 31st March, 2019.     3

1)      Subscription received during the year ended 31st March, 2019 Rs. 2, 50,000.

2)      Outstanding subscription on 1/4/2018 Rs. 50,000.

3)      Outstanding subscription on 31/03/2019 Rs. 35,000.

4)      Advance subscription on 01/04/2018 Rs. 25,000.

5)      Advance subscription on 31/03/2019 Rs. 30,000.

Solution: Calculation of subscription Income

Subscription received

Add: Out subscription (31-03-19)

Add: Advance subscription (1-4-18)

Less: Out subscription (1-4-18)

Less: Advance subscription (31-03-19)

Subscription Income

2, 50,000

35,000

25,000

50,000

30,000

2, 30,000                 

11. What is gaining ratio? Give two distinctions between gaining ratio and sacrificing ratio.                       1+2=3

Ans: Gaining Ratio: Gaining Ratio is calculated at the time of retirement or death of partner. It is the excess of new share over old share. It is calculated as follows: Gaining Ratio = New share - Old share. Calculation of gaining ratio is necessary to compensate the outgoing partners by payment of goodwill in their gaining ratio.

Distinguish between sacrificing ratio and gaining ratio:

Basis

Sacrifice Ratio

Gaining Ratio

Meaning

Sacrificing Ratio is a ratio in which the old partners have agreed to surrender their share of profit in favour of new partner.

Gaining Ratio is ratios in which remaining partners’ gain the retiring partner’s share.

Objective

The main purpose to calculate the sacrificing ratio is to ascertain the compensation to be paid by incoming partner to the sacrificing partner’s in the form of goodwill.

The main purpose to calculate the gaining ratio is to find out the compensation to be paid by the gaining partner’s to the retiring partner.

When to Calculate

Sacrificing Ratio is calculated at the time of admission of a new partner.

Gaining Ratio is calculated at the time of retirement or death of a partner.

Method

Sacrificing Ratio = Old Ratio – New Ratio

Gaining Ratio = New Ratio – Old Ratio

Effect

It reduces the profit sharing ratio of the existing partners.

It increases the profit sharing ratio of the remaining partners.

Or

What are the items shown under shareholders’ fund?                  3

Ans: Items shown under shareholder’s fund:

(1) Shareholders’ Funds

(a) Share capital

(b) Reserves and surplus

(c) Money received against share Warrants

12. Prepare Income and Expenditure A/c from the following Receipts and Payments A/c of Ekta Club for the year 31st December, 2018:              5

Receipts and Payments Account

Receipts

Rs.

Payments

Rs.

Cash in hand on 1/1/2018

Admission Fee

Subscriptions

Receipts from Billiard Rood

Interest on Investment

Life Membership FEE

Sale of Furniture

Miscellaneous Receipts

4,400

3,500

19,500

2,500

600

2,000

100

350

Salary

Rent

Investment

Postage

Telephone charges

Books Purchased

Outstanding Expenses

Cash in hand on 31/12/2018

6,800

8,250

3,500

1,250

750

6,000

700

5,700

 

32,950

 

32,950

Additional information:

1)      Outstanding subscription Rs. 1,000.

2)      60% of the admission fees and the whole of the life membership subscriptions are to be capitalized.

3)      Depreciation on Books Rs. 600.

Solution:

Income and Expenditure A/c of Ekta Club

For the year ended on 31-12-2018

Expenditure

Amount

Income

Amount

To Salary

To Rent

To Postage

To Telephone charges

To Depreciation on Books

To Surplus

(Excess of Income over Expenditure)

6,800

8,250

1,250

750

600

7,700

By Admission fees             3,500

Less:- Capitalised @ 60% 2,100

By Subscription 19,500

Add:- Outstanding Subscription 1,000

By Receipts From Billiard Room

By Interest on Investment

By Misc. receipts

 

1,400

 

20,500

2,500

600

350

 

25,350

 

25,350

Or

What is the meaning of Fund Based Accounting? Mention any three principles of Fund Based Accounting.         2+3=5

Ans: Fund Based Accounting: In fund based accounting separate funds are maintained for specific activities of the organisation such as sports fund, prize fund, building fund, etc. All items related the specific funds are recorded fund wise and consolidation of these statements or accounts are presented in the financial results. In order to retain the fund for specific use, such fund is invested into separate account known as sinking fund investment account.

Principles of Fund Based Accounting:

a) In order to keep a record for the funds received or raised for a particular period, a separate fund account is opened which is shown on liability side of the balance.

b) Investment of specific funds is shown as an asset in balance sheet.

c) Incomes of specific funds investments are added and expenses from the funds are deducted with respective funds.

13. X Ltd. made a profit of Rs. 5, 00,000 after considering the following items:                   5

 

Rs.

1)         Preliminary expenses written off

2)         Depreciation on fixed assets

3)         Loss on sale of machinery

4)         Provision for doubtful debts

5)         Gain on sale of Land

5,000

50,000

20,000

10,000

7,500

Position of current assets and current liabilities:

Particulars

2017 (Rs.)

2018 (Rs.)

Debtors

Bills Received

Prepaid expenses

Creditors

Bills Payable

Expenses Payable

52,000

15,000

2,000

40,000

19,000

34,000

78,000

12,000

3,000

51,000

12,000

20,000

Calculate cash from operating activities.

Solution:

Calculation of Cash Flow from operating activities

Particulars

Amount

Net profit as per P/L A/c

Add:- Non – cash and non – operating expenses & losses

Preliminary exp

Depreciation on fixed assets

Loss on sale of machinery

Provisions for doubtful debts

Less:- Non – cash and non – operating Income & gains

Gain on sale of Land

Net Cash Flow before working capital changes

Increase in Debtors

Decrease in B/R

Increase in prepaid exp

Increase in creditors

Increase in B/P

Decrease in exp payable

Cash Flow from operating activities

5,00,000

 

5,000

50,000

20,000

10,000

5,85,000

7,500

5,77,500

(26,000)

3,000

1,000

11,000

(7,000)

(14,000)

5,45,500

Or

What is meant by “cash equivalents”? Mention any three objectives of preparing cash flow statement.             2+3=5

Ans: Cash Equivalents: Cash Equivalents are short-term, highly liquid investments that are readily convertible cash. Examples of cash equivalents are: (a) treasury bills, (b) commercial paper, (c) money market funds and (d) Investments in preference shares and redeemable within three months.

Objectives/Importance/Uses/Significance of Cash Flow Statement:

The Cash Flow Statement is prepared because of number of merits, which are offered by it. Such merits are also termed as its objectives. The important objectives are as follows:

a)      To Help the Management in Making Future Financial Policies: Cash Flow statement is very helpful tool to the management. The management can base its future financial policies and is in a position to know about surplus or deficit of cash with the help of cash flow statement.

b)      Helpful in determining the ability to pay dividends: Cash flow statement indicates the various sources and uses of cash under different heads which helps the shareholders to know whether the business can make the payment of dividends on their investment or not.

c)       Efficient Cash Management: It helps in efficient management of cash resources. It will help the management to make the reliable cash flow projections for the immediate future and will tell surplus or deficit of cash so that management can make plan for the investment of surplus cash or to arrange the sources to meet the deficiency.

14. Calculate the values of opening and closing stock from the following information:                  5

Cost of goods sold

Stock Turnover Ratio

Stock at the beginning is 1.5 time more than the stock at the end

Rs. 2,00,000

8 times

Solution: Given,

Cost of goods sold = 2, 00,000

Stock Turnover ratio = 8

Now, 

STR = Cost of goods sold/Avg.stock

=>8 = 2,00,000 / Avg.stock

=> Avg.stock=2,00,000/8 = 25,000  

Again,

Let the C/S be X

Then O/S will be = X + 1.5x = 2.5x

Again,

(Opening Stock+closing Stock)/2=Avg.Stock

=> (x+2.5x)/2=25,000

=> 3.5x=50,000

=> X = 50,000/3.5=14,285.72

C/S = 14,285.72

O/S = 14,285.71 x 2.5 = 35,714.28

Or

What is Ratio Analysis? Mention any three uses of ratio analysis.                            2+3=5

Ans: A Ratio is an arithmetical expression of relationship between two related or interdependent items. If such ratios are calculated on the basis of accounting information, then they are called accounting ratios. Simply, accounting ratio is an expression of relationship between two accounting terms or variables or two set of accounting heads or group of items stated in financial statement. It is one of the techniques of financial analysis which is used to evaluate the operating efficiency and financial position of a business concern.

Advantages and Uses of Ratio Analysis

1. Helpful in analysis of financial situation: It helps the management to know about the financial strength and weakness of the business concern. Bankers, Investors, Creditors etc. analyse financial statements with the help of ratios.

2. Useful in judging the operating efficiency of business: Accounting ratios are useful in evaluating the operating results financial health of an enterprise. This is done by evaluating liquidity, solvency, profitability etc.

3. Helpful in inter-firm and intra-firm comparison: Ratio analysis helps in comparing the performance of business with that of other firms and of industry in general. This comparison is called inter-firm comparison. Ratio analysis also helps in comparing results of different units belonging to the same firm. This comparison is called intra-firm comparison.

4. Simplifies the accounting information: It simplifies and summarises the accounting figures to make them understandable to the users. It gives a brief idea about the whole story of changes in the financial condition of a business.

5. Useful for forecasting: Ratios are helpful in business planning and forecasting. What should be the course of action in the future can be decided with the help of trend percentage.

15. Ram, Shyam and Mohan were in partnership sharing profits and losses in the ratio of 3: 2: 1. On 31/12/2018 Shyam retired from the firm, Balance Sheet of the firm on that date was as under:                        2+3=5

Balance Sheet

Liabilities

Rs.

Assets

Rs.

Sundry Creditors

Reserve

Bills Payable

Capital:

Ram                       20,000

Shyam                   15,000

Mohan                  12,000

5,000

6,000

2,600

 

 

 

47,000

Cash

Debtors                                 15,000

Less: Provision                        1,500

Stock

Furniture

Machinery

600

 

13,500

18,500

8,000

20,000

 

60,600

 

60,600

The terms of retirement were:

1)         Goodwill of the firm to be valued at Rs. 12,000.

2)         Machinery to be appreciated by Rs. 5,000.

3)         Furniture to be depreciated by Rs. 1,000.

4)         Provision for bad debts to be increased by Rs. 400.

Prepare Revaluation A/c and Partners’ Capital A/c.

Solution:

Revaluation A/c

Particulars

Amount

Particulars

Amount

To Furniture

To Provision of bad debt

To Profit on revaluation

-         Ram      = 3,600*3/6

-         Shyam  = 3,600*2/6

-         Mohan = 3,600*1/6

1,000

400

 

1,800

1,200

600

By Machinery

 

5,000

 

5,000

 

5,000

Partner’s Capital A/c

 

Ram

Shyam

Mohan

 

Ram

Shyam

Mohan

To Shyam’s Capital A/c

To Shyam’s Loan A/c

 

To Balance c/d

3,000

 

 

21,800

 

22,200

1,000

 

 

12,600

By Balance b/d

By Reserve

By Revaluation A/c

By Ram’s Capital A/c

By Mohan’s Capital A/c

20,000

3,000

1,800

 

15,000

2,000

1,200

3,000

1,000

12,000

1,000

600

 

24,800

22,200

13,600

 

24,800

22,200

13,600

WORKING NOTES:

Value of goodwill = 12,000

Shyam’s share = 12,000 x 2/6 = 4,000

Ram’s contribution = 4,000 x ¾ = 3,000

Mohan’s contribution = 4,000 x ¼ = 1,000

Or

What is share? Explain different types of shares.                             2+3=5

Ans: A share is the interest of a shareholder in a definite portion of the capital. It expresses a proprietary relationship between the company and the shareholder. A shareholder is the proportionate owner of the company.

Section 2(84) of the Companies Act’ 2013 defines a share as, “A share in the share capital of a company and includes stock except where a distinction between stock and shares is expressed or implied”.  

In the words of Farwell J. “A share is the interest of a shareholder in the company, measured by a sum of money, for the purpose of liability in the first place, and of interest the second, but also consisting of a series of mutual covenants entered into by all the shareholder inter se in accordance with the companies act”.

Types of shares:

According to section 43 of the Companies Act 2013, a company can issue only two types of shares:

(b) Equity shares; and

(a) Preference shares.                  

Equity Share: According to Sec. 43 (a) of the Companies Act 2013 "an equity share is share which is not preference share". An equity share does not carry any preferential right. Equity shares are entitled to dividend and repayment of capital after the claims of preference shares are satisfied. Equity shareholders control the affairs of the company and have right to all the profits after the preference dividend has been paid.

16. What is Profit and Loss Appropriation A/c? Why is it prepared?                         2+3=5

Ans: Profit or loss appropriation account: For the purpose of distribution of net profit between or amongst the partners, an additional account known as profit and loss appropriation accounts is prepared. This account is nominal in nature. It is prepared after profit and loss accounts to show the distribution of net profit amongst the partners after all appropriations. It is credited with net profit as shown by profit and loss account, interest on drawings and fines/penalty charged on partners and debited with interest on capital, partner’s salaries & commission and transfer to reserves. The balance of this account is distributed between/amongst the partners in their agreed profit sharing ratio.

Purpose of preparing profit and loss appropriation: In case of sole trade business, the whole of the net profit is credited to the proprietor’s capital and the capital account is debited for any drawings. But in case of partnership business, a separate account is needed for appropriation and distribution of profits between or amongst the partners. So, a new account is added after profit and loss account which is prepared only in case of partnership business. This account will show how the net profit of the business is being appropriated among partners.

Or

Ajoy, Bijoy and Sanjay were partners in a firm sharing profits in the ratio of 3: 2: 1. On 31st March, 2019 their Balance Sheet was as under:                    5

Balance Sheet

Liabilities

Rs.

Assets

Rs.

Creditors

Reserve

Capital:

Ajoy                       24,000

Bijoy                       12,000

Sanjay                      8,000

4,000

6,000

 

 

 

44,000

Building

Machinery

Stock

Debtors

Cash at Bank

 

20,000

16,000

5,100

6,000

6,900

 

54,000

 

54,000

Ajoy died on 30/09/2019. Under the partnership agreement the executors of a deceased partner were entitled to:

a)      Amount standing to the credit of Partners’ Capital account.

b)      Interest on Capital @ 12% p.a.

c)       Share of goodwill on the basis of 4 years purchase of last 3 years average profits.

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.

e)      Profit for the last three years were:

Year

Profit

2016-17

2017-18

2018-19

8,000

12,000

7,000

Prepare Ajoy’s Capital A/c on the date of his death.

Solution:-

Ajoy’s Capital A/c

Particulars

Amount

Particulars

Amount

To Ajoy’s Executors A/c

45,190

By Balance b/d

By Interest on capital (24,000 x 12%x6/12)

By Bijoy’s capital

By Sanjoy’s  Capital

By P/L Suspense A/c (7,000 x 6/12 x 3/6)

24,000

1,440

12,000

6,000

1,750

 

45,190

 

45,190

WORKING NOTES

(i) Average profit = (8,000+12,000+7,000)3

                                =27,000/3=9,000

Value of goodwill = 9,000 x 4 = 36,000

Now, Ajoy’s share = 36,000 x 3/6 = 18,000

Bijoy’s contribution = 18,000 x 2/3 = 12,000

Sanjoy contribution = 18,000 x 1/3 = 6,000

17. What is dissolution of partnership? How does it differ from dissolution of firm?    2+3=5

Ans: Dissolution of a partnership means the termination of connections with the firm by some of the partners of the firm, and remaining partners of the firm continuing the business of the firm under the same firm’s name under an agreement. Hence, admission, retirement and a death of a partner are considered dissolution of partnership.

Difference between dissolution of partnership and dissolution of firm

Basis of distinction

Dissolution of partnership

Dissolution of firm

Relationship

Relationship amongst all the partners does not come to an end.

Relationship amongst all the partners comes to an end.

Continuation of business

Business of the firm may continue.

Business of the firm does not continue.

Inter relationship

Dissolution of partnership may or may not result in dissolution of the firm.

Dissolution of the firm necessarily results in dissolution of partnership.

Books of accounts

Books of accounts are not closed.

Books of accounts are closed.

Nature

Dissolution of partnership is voluntary.

Dissolution of partnership may sometimes compulsory or sometimes voluntary.

Account

Revaluation account is prepared.

Realisation account is prepared.

Or

Dipali and Rajshri were partners in a firm sharing profits and losses in the ratio of 3: 2. They decided to dissolve their firm on 31st December, 2019, when their Balance Sheet was as under:                            5

Balance Sheet

Liabilities

Rs.

Assets

Rs.

Capital:

Dipali                       18,400

Rajshri                     10,600

Sundry Creditors

 

 

29,000

2,000

Land

Investments

Sundry Debtors

Stock

Cash at Bank

16,000

4,000

2,000

3,000

6,000

 

31,000

 

31,000

Investments are sold at Rs. 3,800. Other assets realised as follows:

a)         Land Rs. 28,000, Sundry Debtors Rs. 1,800, Stock Rs. 2,800.

b)         Creditors agreed to accept 5% less. Expenses of realisation amounted to Rs. 400.

Prepare Realisation A/c, Partners’ Capital A/c and Bank A/c.

Solution:

Realisation A/c

Particular

Amount

Particulars

Amount

To Land

To Investments

To Sundry Debtors

To Stock

To Bank

-          Creditors = 1,900

-          Exp             = 400

To Profit on realisation

-         Dipali          = 11,000 x 3/5

-         Rajshri        = 11,000 x 2/5

16,000

4,000

2,000

3,000

 

 

2,300

 

6,660

4,440

By S/creditors

By Bank (Realisation of assets)

-         Land                = 28,000

-         S/debtors       = 1,800

-         Stock               = 2,800

-         Investments  = 3,800

2,000

 

 

 

 

36,400

 

38,400

 

38,400

Partner’s Capital A/c

 

Dipali

Rajshri

 

Dipali

Rajshri

To Bank A/c

25,060

15,040

By Balance b/d

By Realisation A/c

18,400

6,660

10,600

4,440

 

25,060

15,040

 

25,060

15,040

Bank A/c

Particular

Amount

Particulars

Amount

To Balance b/d

To Realisation A/c (Assets)

6,000

36,400

By Realisation A/c (Liabilities)

By Realisation A/c (Exp.)

By Dipali’s Capital A/c

By Rajshri’s Capital A/c

1,900

400

25,060

15,040

 

42,400

 

42,400

18. Explain the following terms: (any two)                          2 ½ + 2 ½ = 5

1)      Calls-in-advance.

Calls-in-Advance: Sometimes, it so happens that a shareholder may pay the entire amount on his shares even though the whole amount has not been called up. The amount received in advance of calls from such a shareholder should be credited to "calls in advance". The maximum rate of interest allowed on calls in advance is 12% per annum.

2)      Under Subscription.

Under subscription: When the number of shares applied is less than the number of shares issued by a company, the issue of shares is said to be under subscribed. In this case accounting entries are passed with the number of shares applied by the public.

3)      Pro-rata allotment of shares.

Oversubscription and Pro-rata allotment: When the number of shares applied is more than the number of shares issued by a company, the issue of shares is said to be oversubscribed. The company cannot allot shares more than those offered for subscription. In case of over-subscription, there are three possibilities arise:

(a) Some applicants may not be allotted any shares. This is known as ‘rejection of applications’.

(b) Some applicants may be allotted less number of shares than they have applied for. This is known as partial or pro-rata allotment.

(c) Some applicants may be allotted the full number of shares they have applied for. This is known as full allotment.

In such a situation if shares are allotted in proportion of shares issued to shares applied, then such an allotment is called partial or prorata allotment. For example, if company allots shares to the applicants of 70,000 shares. It is a pro-rata allotment in the proportion of 5:7. In such cases, excess application money is transferred to allotment. 

Or

Prepare a common size Income Statement from the following information:                       5

Particulars

(Rs.)

Sales

Cost of Goods Sold

Operating Expenses

Depreciation

Income from Investment

Income Tax

5,00,000

3,78,000

62,500

22,000

70,000

32,500

Ans:

Common size statement of _______

For the year ended on ___________

Particulars

Amount (Absolute)

Percentage of net sales (%)

Sales

Less: Cost of Goods sold

5,00,000

3,78,000

100.00

75.60

Gross Profit

Less: Operating Expenses

Less: Depreciation

1,22,000

62,500

22,000

24.40

12.50

4.40

Operating profit

Add: Non-operating income

Income from investment

37,500

 

70,000

7.50

 

14.00

Net profit before tax

Less: Income tax

1,07,500

32,500

21.50

6.50

Net profit after tax

75,000

15.00

19. Nanu and Manu are partners of a firm. The Trial Balance of the firm as on 31st March, 2019 was as under:     8

Trial Balance

Debit 

Rs.

Credit

Rs.

Plant and Machinery

Goodwill

Sundry Debtors

Closing Stock

Salaries

Depreciation on p/m

Stationery

Insurance

Cash in hand

Investment

Drawings:

Nanu             4,000

Manu            2,000

50,000

5,000

31,000

20,000

7,000

5,000

1,000

2,000

1,000

10,000

 

 

6,000

Capital:

Nanu          40,000

Manu         30,000

Sundry Creditors

Commission

Sundry Receipts

Outstanding wages

Interest on Investment

Trading A/c: Gross Profit

Bank Loan

 

 

 

70,000

10,000

3,000

200

600

200

50,000

4,000

 

1,38,000

 

1,38,000

Prepare Profit and Loss A/c, Profit and Loss Appropriation A/c, and the Balance Sheet of the firm for the year ended 31st March, 2019, after considering the following information:

1)      Write off of Rs. 1,000 as bad debt and provide 5% provision for doubtful debts on remaining debts.

2)      Commission received in advance Rs. 500.

3)      Transfer 10% of Net Profit to General Reserve.

4)      Allow Interest on Capital @ 5% p.a.

Ans:

Profit & Loss A/c of the firm

For the year ended on 31-3-2019

Particulars

Amount

Particulars

Amount

To Salaries

To Dep. On P/M

To Stationery

To Insurance

To Bad debt            1,000

And: Provision        1,500

To Net Profit

7,000

5,000

1,000

2,000


2,500

35,400

By Gross Profit

By Commission                  3,000

Less: Received in adv.          500

By Sundry Receipts

By Interest on investment

50,000


2,500

200

200


52,900


52,900

Profit & Loss Appropriation A/c

For the year ended on 31-3-2019

Particulars

Amount

Particulars

Amount

To Interest on Capital

Nanu: 40,000 x 5/100

Manu: 30,000 x 5/100

To Transfer to reserve @ 10%

To Share of Profit

Anima:     28,360 x ½   = 14,180

Pratima:  28,360 x ½   = 14,180


2,000

1,500

3,540



28,360

By Net Profit

35,400


35,400


35,400

Balance Sheet of the Reconstituted firm

As on 31-3-2019

Liabilities

Amount

Assets

Amount

Capital:

Nanu:                                       40,000

Add: Interest on Capital         2,000

Add: Share of Profit              14,180

                                                  56,180

Less: Drawings                          4,000  


Manu:                                    30,000

Add: Interest on Capital        1,500

Add: Share of Profit             14,180

                                                45,680

Less: Drawings                        2,000      

Reserve

Sundry Creditors

Commission received in advance

Outstanding wages

Bank loan






52,180






43,680

3,540

10,000

500

600

4,000

Plant & Machinery 

Goodwill

Sundry Debtors                31,000

Less: Bad debts                   1,000

                                             30,000

Less: Provision@ 5%           1,500 

Closing Stock

Cash in hand

Investment

50,000

5,000




28,500

20,000

1,000

10,000


1,14,500


1,14,500


20. Bijoya Ltd. issued 2,000 shares of Rs. 100 each at par, payable as follows:                      8

On Application

On Allotment

On First Call

On Final Call

Rs. 30

Rs. 30

Rs. 20

Rs. 20

All the shares were duly subscribed for, call-up and paid-up, except the following:

a)      Arnab holding 100 shares failed to pay first call and final call money.

b)      Ayushi holding 60 shares failed to pay the final money.

All the above shares were forfeited after final call.

Give journal entries in the books of the company to record the above transactions.

Journal Entries

In the Books of Bijoya limited

Particulars

L/F

Amount (Dr.)

Amount (Cr.)

Bank A/c                  Dr.

To Share application A/c

(For application money received on 2000 share @ Rs. 30 each)

 

60,000

 

 

60,000

 

 

60,000

 

 

60,000

 

 

 

40,000

 

 

38,000

2,000

 

 

 

40,000

 

 

36,800

3,200

 

 

60,000

 

 

60,000

 

 

60,000

 

 

60,000

 

 

 

40,000

 

 

 

40,000

 

 

 

40,000

 

 

 

40,000

Share application A/c              Dr.

To share Capital A/c

(For application money transferred share capital A/c)

Share allotment A/c          Dr.

To share Capital A/c

(For allotment money due on 2000 share @Rs. 30 each)

Bank A/c             Dr.

To share allotment A/c

(Being the allotment money received on 2000 shares @ Rs. 20 each)

Share first call A/c           Dr.

To share Capital A/c

(Being the first call money due on 2000 shares @ Rs. 20 each)

Bank A/c    Dr.

Call in arrear A/c        Dr.

To share first call A/c

(Being the first call money received on 1900 shares @ Rs. 20 each)

Share final call A/c        Dr.

To share capital A/c

(Being the final call money due on 2000 share @ 20 each)

Bank A/c      Dr.

Calls in arrear A/c         Dr.

To share final call A/c

(Being the final call money received on 1840 shares @ Rs. 20 each)

Or

a) Mention three differences between shares and debentures.                               3

Ans: Difference between Shares and Debentures

Basis of Difference

Shares

Debentures

Ownership

Shareholders are the owners of the Company.

Debenture holders are the Creditors of the Company.

Repayment

 

Normally, the amount of share is not returned during the life of the company.

Debentures are issued for a definite period.

Convertibility

Shares cannot be converted into debentures.

Debentures can be converted into shares.

b) Mention three uses of securities premium.                  3

Ans: Under Section 52 of the Company Act 2013, the amount of security premium may be used only for the following purposes:

a)      To write off the preliminary expenses of the company.

b)      To write off the expenses, commission or discount allowed on issued of shares or debentures of the company.

c)       To provide for the premium payable on redemption of redeemable preference shares or debentures of the company.

c) What is Authorised Capital of a company?                      2

Ans: Nominal/Authorized/Registered Capital: This is the amount of the capital which is stated in Memorandum of Association and with which the company is registered. Nominal capital is the maximum amount which the company is authorised to raise from the public.

21. Give journal entries in the books of PM Ltd. relating to issue of debentures under the following conditions:    2+3+3=8

a)      120, 8% Debentures of Rs. 1,000 each issued at a discount of 5% and redeemable at par.

b)      150, 8% Debentures of Rs. 1,000 each issued at 5% discount and redeemable at 10% premium.

c)       200, 7% Debentures of Rs. 100 each, issued at a premium of 5% and redeemable at 10% premium.

Solution:

Journal Entries

In the Books of PM Ltd

Particulars

L/F

Amount

Amount

(a) For issue of Debentures

Bank A/c              Dr.

Discount on issue of Debentures A/c        Dr.

To  8% Debentures A/c

(Being the 120, 8% Debentures of Rs. 1,000 each issued at a discount of 5%)

 

 

1,14,000

6,000

 

 

 

 

1,42,500

22,500

 

 

 

 

 

21,000

2,000

 

 

 

1,20,000

 

 

 

 

 

1,50,000

15,000

 

 

 

 

 

20,000

1,000

2,000

(b) For issue of Debenture

Bank A/c              Dr.

Loss on issue of Debentures A/c        Dr.

To 8% Debentures A/c

To Premium on redemption of Debentures A/c

(Being the 150, 8% Debentures of Rs. 1,000 each issued at 5% Discount but redeemable at 10% premium)

(c) For issue of Debentures

Bank A/c           Dr.

Loss on issue of Debentures A/c               Dr.

To 7% Debentures A/c

To Securities Premium reserve A/c

To Premium on redeemable of Debentures A/c

(Being the 200, 7% Debentures of Rs. 100 each, issued at a premium of 5% and redeemable at 10% premium)

Or

Explain different methods of redemption of debentures.                           8

Ans: Methods of Redemption of Debentures

i) Redemption of debentures in lump-sum at maturity: Under this method the entire debentures are redeemed at the end of stipulated date stated in the prospectus for the issue of debentures. The main drawback of this method is that the company has to arrange a large amount at the time of redemption.

Journal entries for redemption of debentures under this method

a) When debentures are due for redemption

Debentures a/c                                                                   Dr

Premium on redemption of debentures a/c                 Dr (If debentures are redeemed at a premium)

To Debenture holders a/c

b) When payment is made to the debenture holders

Debenture holder a/c                                                       Dr

To Bank

ii) By Draw of Lots: Under this method the company does not redeem all the debentures at the same time. Instead a part of debentures redeemed at the end of each year. The company selects the debentures for redemption by drawing lot and they are redeemed that year.

Journal entries for redemption of debentures in installments (these entries are passed every year)

a) When debentures are due for redemption

Debentures a/c                                                                   Dr

Premium on redemption of debentures a/c                 Dr (If debentures are redeemed at a premium)

To Debenture holders a/c

b) When payment is made to the debenture holders

Debenture holder a/c                                                       Dr

To Bank

c) When amount equal to the face value of debenture to be redeemed is transferred to DRR

Profit and loss appropriation a/c                                 Dr

To Debenture redemption reserve a/c

iii) By Purchasing in the Open Market: Debentures can be redeemed by purchasing them from the open market. If a company finds its debentures are available in the open market at cheap rate it will purchase those debentures and cancel them. The profit due to cancellation of such debentures is transferred to capital reserve.

Journal entries for cancellation of debentures under this method:

a) When own debentures are purchased for cancellation:

Own debentures a/c                               Dr

To Bank a/c

b) When debentures are cancelled

Debentures a/c                                        Dr

To Own debentures a/c

To Profit on cancellation of own debentures a/c

c) Transfer of profit to capital reserve

Profit on cancellation of own debentures a/c             Dr.

To Capital reserve a/c

iv) By Conversion into New Debentures or Shares: Conversion of debentures into shares or new debentures is another method of redemption. When debentures are converted to shares, the company does not pay money to debenture holders. Instead the company issues share or debenture certificates in place of debentures.

Journal entries for conversion of debentures

a) When debentures are due for redemption

Debentures a/c                                                                   Dr

Premium on redemption of debentures a/c                 Dr (If debentures are redeemed at a premium)

To Debenture holders a/c

b) When new share or debentures are issued to the debenture holders

Debenture holder a/c                                Dr.

Discount on issue of debentures a/c      Dr.

To Share Capital a/c

To Debentures a/c

To Securities premium reserve a/c (If shares or debentures are issued at a premium) 

22. Jugal and Govind are partners in a firm sharing profits and losses in the ratio 2: 1. Their Balance Sheet as on 1st June, 2019 was as under:          8

Balance Sheet

Liabilities

Rs.

Assets

Rs.

Capital:

Jugal                      30,000

Govind                   24,000

Reserve

Sundry Creditors

Bills Payable

 

 

54,000

6,000

12,000

3,000

Goodwill

Sundry Assets

Cash at Bank

 

12,000

57,000

6,000

 

75,000

 

75,000

On the date Khirod was admitted as a new partner. He paid Rs. 30,000 towards his capital but unable to pay anything for goodwill in cash. It was agreed that goodwill will be valued at Rs. 21,000. The new profit sharing ratio among Jugal, Govind and Khirod was agreed at 3: 2: 1 respectively. Pass Journal Entries to record the above transactions and show the Balance Sheet of the new firm.

Journal Entries

In the books of the Firm

Particulars

L/f

Amount Dr.

Amount Cr.

Cash A/c                         Dr.

To Khirod’s Capital A/c

(Being the Capital brought in cash by new partner)

30,000

 

30,000

Khirod’s Capital A/c               Dr.

To Jugal’s Capital A/c

(Being the goodwill adjusted amongst the partners)

3,500

 

3,500

Reserve A/c                           Dr. 

To Jugal’s Capital A/c

To Govind’s Capital A/c

(Being the reserve distributed between the partners)

6,000

 

4,000

2,000

Jugal’s Capital A/c                   Dr. 

Govind’s Capital A/c                Dr. 

To Goodwill A/c

(Being the goodwill written off)

8,000

4,000

 

 

12,000

Balance Sheet of the new firm

As on ___________

Liabilities

Amount

Assets

Amount

Capital:

Jugal:                   29,500

Govind:               22,000

Khirod:                26,500

Sundry Creditors

Bills payable

 

 

 

78,000

12,000

3,000

Cash at Bank (6,000 + 30,000)

Sundry Assets

36,000

57,000

93,000

93,000

Working Note

Sacrificing Ratio = (2/3 – 3/6): (1/3 – 2/6) = (1/6): 0

Goodwill of Jugal = 1/6 x 21,000 = 3,500

Goodwill of Khirod = 1/6 x 21,000 = 3,500

Or

a) Mention any three features of partnership business.                               3

Ans: Essential (Characteristics) of Partnership:

a)      Agreement: Partnership is the result of an agreement, either written or oral, between two or more persons. It arises from contract and not from status or process of law.

b)      Number of Persons: In a partnership firm there must be at least two people to form the business. Partnership Act 1932, does not specifies the maximum numbers of persons, but the Indian Company Act 2013, restricts the number of Partners to 100 for a partnership firm. But in case of limited liability partnership there is no maximum limit.

c)       Business: There must be a legal business. Business includes trade, vocation and profession.

b) Mention five distinctions between “Fixed” and ‘Fluctuating” Capital.                             5

Ans: Difference between fixed capital accounts and fluctuating capital Accounts:

Basic of difference

Fixed Capital Account

Fluctuating Capital Accounts

1. Opening and Closing balance

Opening and Closing balances normally remains the same.

Opening and Closing balance changed due to adjustment in capital account.

2. Current account

Current accounts of partners are opened in this case.

Current accounts of partners are not opened in this case.

3. Adjustment relating to capital

All adjustment relating to partners capital accounts are made in current account.

All such adjustments are made in capital account itself.

4. Closing capital

The closing balance of capital account always shows a credit balance.

The closing balances of partner’s capital account may be debit or credit.

5. Number of Accounts

Two accounts i.e. capital and current account is maintained.

Only one account i.e. capital account is maintained.

6. Specific mention

If capital is fixed, then it should be specifically mentioned in the deed.

It is not necessary to be mentioned in the deed.

 

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