12th Assignments

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FUNDAMENTALS OF PARTNERSHIP INTEREST ON DRAWINGS CASE I

Product method for Irregular Drawings: When partners withdraw the Different Amount on Different Dates. Rate 1 Interest on Drawings = Sum of Products of Drawings x 100 x 12 Product of Drawings = Amount of Drawings x No. of Months for which it has been used

1.

A is partner in a firm. For the year ending 31.12.2005, A’s drawings were : Rs. 1st March 1,000 1st May 750 1st July 1,250 1st September 500 1st November 500 Interest on drawings is charges @10% per annum. Calculate interest on drawings of A.

2.

In a partnership, partners are charged interest on drawings at 15% p.a. During the year ended 31st Dec., 2006, a partner drew as follows: Feb. 1 May 1 June 30 Oct. 31 Dec. 31

Rs. 2,000 Rs. 5,000 Rs. 2,000 Rs. 6,000 Rs. 2,000

What is the interest chargeable to the partner? 3.

During the year ended 31-12-2005, a partner made the following drawings: January 21 Rs. 2,000; April 1 Rs. 5,000; July 31 Rs. 4,000; December 1 Rs. 3,000; December 31 Rs. 2,000. Calculate interest on drawings when it charged @10% p.a.

CASE II

When a Fixed Amount is Withdrawn on a Fixed Date:

1.

If the Partners withdraw same Amount in the beginning of every month for full year. Rate 1 1 Interest on Drawings = Total Drawings x 100 x 6 2 x 12

2.

If the Partners Withdraw same Amount in the Middle of Every Month for full year. Rate 1 Interest on Drawings = Total Drawings x 100 x 6 x 12

3.

If the Partners Withdraw same Amount at the End of Every Month for full year. Rate 1 1

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Interest on Drawings = Total Drawings x 100

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x 5 2

x

12

4.

When the same Amount is Withdrawn at the beginning of Each Quarter. Rate 1 1 Interest on Drawings = Total Drawings x 100 x 7 2 x 12

5.

When the same Amount is Withdrawn at the end of Each Quarter. Rate 1 1 Interest on Drawings = Total Drawings x 100 x 4 2 x 12

6.

If the Partners Withdrawn at the end of Each Quarter. Rate 1 Interest on Drawings = Total Drawings x 100 x 3 2

x

1 12

7.

If the Partners Withdraw same Amount at the End of Every Month for 6 Months Regularly and Books are Closed Half Yearly Ending. Rate 1 1 Interest on Drawings = Total Drawings x 100 x 2 2 x 12

8.

If Partners Withdraw same Amount the middle of every month for 6 months regularly and books are closed half yearly ending. Rate 1 Interest on Drawings = Total Drawings x 100 x 3 x 12

CASE III (a)

If the Partners Withdraw Amount during the year. But Date of Drawings is not given:

If interest on Drawings is charged @ 10% p.a. 10 Interest on Drawings = Total Drawings x 100

x

6 12

(b)

If Interest on Drawings is charged @ 10% p.a. 10 Interest on Drawings = Total Drawings x 100

4.

A and B are partners in a firm. They share profits and losses equally. Their monthly drawings are Rs. 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on A’s drawings for the year 2005 assuming drawings are made (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month. (Ans: (i) Rs. 1,300; (ii) Rs. 1,200; (iii) Rs. 1,100) Calculate interest @ 8% p.a. on drawings made by the following partners: (a) Raj withdrew Rs. 600 at the end of every month. (b) Deepak withdrew Rs. 700 in the beginning of every month. (c) Mukesh withdrew Rs. 800 in the mid of every month. (Ans: Rs.264;Rs.364;Rs.384) How will you calculate interest on drawings in following cases? (i) Rs. 500 drawn on last day of every month. (ii) Rs. 500 drawn on 15th of every month? (Ans: (i) int. = 6000 x Rate of Int. / 100 x 5 1/2 x 1/12 (ii) int. = 6000 x Rate of Int. / 100 x 6/12)

5.

6.

7. 8.

9.

A partner makes a drawing of Rs. 1,000 p.m. Under the Partnership Deep, interest is to be charged at 15% p.a. What is the interest that should be charged to the partner? (Ans. Rs. 900) A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the end of every month for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a. (Ans: Interest on Drawings Rs. 25) A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the beginning of every month for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a. (Ans: Interest on Drawings Rs. 35)

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10.

Ram and Mohan, two partners, draw for private use Rs. 6,000 and Rs. 4,000. Interest is chargeable @ 6% p.a. on the drawings. What is the interest on Drawings? Also calculate interest on Drawings if interest is chargeable @ 6%. (Ans: Ram Rs. 180 and Mohan Rs. 120; Ram Rs. 360 and Mohan Rs. 240)

11.

A and B are partners sharing profits and losses equally with capitals of Rs. 30,000 and Rs. 20,000 respectively. Their drawings during the year are as follows: A’s drawings on 31-3-1992 Rs. 500 30-4-1992 Rs. 600 01-7-1992 Rs. 450 1-12-1992 Rs. 1,400 B drew Rs. 300 at the end of each month. The deed provides interest on capitals and drawings at 6% p.a. Calculate interest on capitals and drawings. (Ans: Int. on Capitals: A Rs. 1,800 : B Rs. 1,200 ; Interest on Drawings: A Rs. 67; B Rs. 99) B and M are partners in a firm. They withdrew Rs. 48,000 and Rs. 36,000 respectively duri9ng the year evenly at the middle of every month. According to the partnership agreement, interest on drawing is to be charged @ 10% p.a. Calculate the interest on drawings of the partners using appropriate formula. (Ans: Rs. 2,400 ; B Rs. 1,800) (CBSE Sample Paper 1,2003)

11(B).

INTEREST ON CAPITAL 12.

Rajendra Mohan and Radhey Mohan are partners and they had Rs. 40,000 and Rs. 60,000 in capital accounts as on 1st January, 1990 respectively. Rajendra Mohan paid in further Rs. 5,000 on 18-90 and another Rs. 5,000 on 15-11-90.Compute the interest on capital to be allowed to Rajendra Mohan assuming the rate of interest to be 6% (Ans: Total Interest to be paid on Rajendra Mohan’s Capital Rs. 2,562.50) (CBSE Comptt. 1991) 13.

A and B started business on 1.1.2001 with capitals of Rs. 60,000 and Rs.40, 000 respectively. During the year, A introduced Rs. 10,000 to the firm as additional capital on 1.7.2001. They withdrew Rs .500 per month for the house expenses in lieu of profit . Interest on capital is to be allowed @ 10% per annum. Calculate the interest payable to A and B for the year ending 31.12.2001. (Ans. Rs. 6,500; Rs. 4000)[C.B.S.E.Comptt.1991]

14.(a)

X and Y contribute Rs. 20,000 and Rs. 10,000 respectively. They decide to allow interest on capital @6% p.a. Their respective share of profits is 2:3 and the business profit (before interest) for the year is Rs.1, 500. Show the distribution of profits (a) where there is no agreement except for interest on capitals, and (b) where there is a clear agreement that the interest on capitals will allowed even if it involves the firm in loss. [Ans. (a) int. on capital: A Rs.1,000; B Rs.500;(b) Loss: A Rs. 120;B Rs . 180]

14.(b)

A and B are partners sharing profit or loss in the ratio of 3:2 having capital balances of Rs.50,000 & Rs.40,000 on 1.4.2003. On 1st July, 2003 A introduced Rs.10,000 as his additional capital whereas B introduced only Rs. 1,000. If the interest on capital is allowed to partners @10% p.a. calculate the interest on capital if the financial year closes on 31st of march every year. (Ans. Rs.5,750;Rs.4075)[C.B.S.E Sample Paper 11, 2003] INTEREST ON LOAN

15.

A and B are Partners in a firm sharing profits in the ratio of 3:2. They had advanced to the firm a sum of Rs.30,000/- as a loan in their profit sharing ratio on 1st July 2005. The partnership deed cis silent on the question of interest on loan from partners . Compute the interest payable by the firm to the partners ; assuming the firm closed its books on 31st dec. (Ans. Rs. 540; Rs 360)[CBSE 1999]

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Commerce Classes 16.

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M and N are partners in a firm. M has given a loan of Rs.8, 000 to the firm on 1st April 2004. The partnership deed is silent upon the question of provision of interest on partners’ loan . Compute the amount of Interest payable of the loan advanced by M to the firm assuming the Books are closed on 31st December each year. (Ans. Rs. 360)[CBSE 1998] DISTRIBUTION OF PROFITS

If A’s Interest on capital Rs.5,000, B’s Interest on capital Rs. 3,000 and B’s salary Rs.6,000. Case 1. Profit for the year before charging Interest on capital and B’s Salary Amounted to Rs.25, 000. OR Net Profit for the year amounted to Rs. 25,000. Dr. Cr.

Profit & Loss appropriation Amount For the year ending …………..

Particulars Interest on capital A/c : A 5,000 B 3,000 B’s Salary A/c Profit transferred to : A’s Capital A/c 5,500 B’s Capital A/c 5,500

Amount

Particulars Profit Loss A/c (profit for the year )

Amount 25,000

8,000 6,000 11,000 25,000

25,000

Case 2. Profit for the year before charging Interest on capital but after charging B’s Salary Amounted to Rs. 25,000. Dr. Profit & Loss Appropriation Amount Cr. Particulars B’s Salary A/c Interest on Capital A/c: A 5,000 B 3,000 Profit transferred to : A’s Capital A/c 8,500 B’s Capital A/c 8,500

Amount 6,000

Particulars Profit and Loss A/c (Profit for the year ) (25,000+6,000)

Amount 31,000

8,000 17,000 31,000 31,000

A and B are partners with capitals of Rs. 60,000 and Rs. 20,000 respectively on 1st Jan, 2005. The trading profit (before taking into account the provisions of the deed) for the year 2005 was Rs. 24,000.Interest on capitals is to be allowed at 6% per annum . B is entitled to salary of Rs. 6,000 per annum. The drawings of the partners were Rs.6, 000 and Rs. 4,000; the interest for A being Rs. 200 and for B Rs.100.Prepare Profit and Loss appropriation A/c . (Ans: Rs. 13,500) 18.(a) On 1st jan,2005 , X and Y entered into partnership contributing Rs.20,000 and Rs.15,000 respectively and sharing profits in the ratio of 3:2. Y is to be allowed a salary of Rs. 4,000 per year. Interest on capital is to be allowed at 6 % per annum . During the year, X withdrew Rs. 3,000 and Y Rs. 6,000, interest on the same will be 6%. Profit in 2005 before the above-noted adjustment was Rs.10,560. Prepare profit and Loss Appropriation A/c . (Ans: Profit : Rs. 5,000) 18.(b) A and B are partners in a firm , sharing profits and Losses in the ratio of 3:2.The Profit and Loss Account of the firm for the year ending March 31,2005 shows a net profit of Rs.1,51,900 17.

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Prepare the Profit and Loss Appropriation Account by taking into consideration the following Information: (i) Partners’ Capitals on April 1.2001: A—Rs.32, 000; B—Rs.12, 000. (ii) Partners’ drawings during the year amounted to A—Rs.14, 000; B –Rs.12, 000. (iii) Interest on Capital was allowed @10 % p.a. (iv) Interest on drawings was to be charged @ 10 % p.a. (v) Partners’ salaries: A Rs .14, 000 and B Rs. 12,000. (Ans:Profit1,20,000) 19.

Amit and Vijay started a partnership Business on 1st Jan, 2005.Their capital contribution were Rs.2, 00,000 and Rs.1, 50,000 respectively. The partnership deed provided inter alia that : (i) Interest on capital at 10% p.a. (ii) Amit to get a salary of Rs. 2,000 p.m. and Vijay Rs. 3,000 p.m. (iii) Profits are to be shared in the ratio of 3:2. The profits for the year ended 31st December, 2005 before making above appropriation were Rs. 2, 16,000. Interest on drawings amounted to Rs.2, 200 for Amit and Rs.2, 500 for Vijay. Prepare Profit and Loss Appropriation Account and Partner’s Capital Account. (Ans: Profit :Amit Rs.75,420; Vijay Rs. 50,280)(CBSE. Annual Exam (Delhi),1992,set 3)

20.

Kaku and Polu started a Partnership business on 1st Jan, 1985. They contributed Rs. 80,000 and Rs.60, 000 respectively, as their capitals. The terms of the partnership agreement are as under: (i) Interest on capital and drawing @ 12 % per annum. (ii) Kaku and Polu to get a monthly salary of Rs. 2,000 and Rs. 3,000 respectively. (iii) Sharing of profit or Loss will be in the ratio of their capital contribution. The Profit for the year ended 31st December, 1985, before making above appropriation was Rs. 1, 00,300. The drawing of Kaku and Polu were Rs. 40,000 and Rs. 50,000 respectively. Interest on drawings amounted to Rs. 2,000 for Kaku and Rs. 2,500 for Polu. Prepare profit and Loss appropriation account and partners’ capital accounts assuming that their Capitals are fluctuating. (Ans: Profit Kaku Rs.16,000;Polu Rs.12,000) (Delhi S.S.C.E,1986)

21.

A and B formed a partnership on 1st Jan,1992. They agreed that out of profits: (i) A should receive a salary of Rs.500 per month. (ii) Interest on capital should be allowed @ 6 % p.a. and (iii) Remaining profits be divided equally . A contributed a capital of Rs. 50,000 on 1st jan,1992 but B brought in his capital of Rs.1,00,000 On 1st April,1992. During the year, the drawing were A Rs.15,000 and B, Rs 20,000. Profits Before the above noted salary and interest were Rs.50,000. Prepare Profit and Loss Appropriation Account and capital account of the partners and Partner’s Current Account. (Ans: Current A/c :A, Rs. 12,250; B, Rs.2,750)

22.(a) A,B and C are partnership with respective capitals of Rs. 20,000. Rs. 15,000 and Rs.10,000. B and C are entitled to annual salaries of Rs.1,000 and Rs. 1,500 respectively payable before division of profits. Interest on capital is allowed at 5 percent per annum , but interest is not Charged on drawings of the first Rs.6,000 divisible as profit in any year, A is entitled to 50 per Cent ,B to 30 percent and C to 20 percent. Annual profits in excess of Rs.6,000 are divisible Equally. The profit for the year ended 31st December ,1992 was Rs.10,050 after debiting Partner’s salaries but before charging interest on capital . The partner’s drawings for the year were : A Rs. 4,000 ; B Rs.3,750 and C Rs. 2,000. The balance on the partner’s current accounts on 1st Jan,1992 were A Rs.1,500 credit ; B Rs. 250 credit ; C Rs. 500 debit . Prepare Profit and Loss Appropriation Account and the partner’s Current Accounts for the year 1992 and Partners Capital Account. (Ans: Profit: A Rs. 3,600; B Rs. 2,400; C Rs. 1,800) 22.(b)

Pappu and Munna are partners in a firm sharing profit in the ratio of 3:2. The partnership deed provided that Pappu was to be paid salary of Rs. 2,500 per month and Munna was to get a commission of Rs.10,000 per year. Interest on capital was to be allowed @ 5 % per annum and interest

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on drawings was to be charged @ 6 % per annum. Interest on Pappu’s drawings was Rs.1,250 and on Munna’s drawings Rs.425. Capital of the Partners were Rs. 2,00,000 and Rs.1,50,000 respectively, and were fixed. The firm earned a profit of Rs.90,575 for the year ended 31.03.2004. Prepare Profit and Loss Appropriation Account of the firm . (Ans: Profit Rs. 34,750) (CBSE 2005) 23.

24.

A,B and C are partners sharing profits and Losses in the proportion of A ½,B 3/10, C 1/5 after providing for interest at 5 % on their respective capitals, viz. A Rs. 50,000, B Rs. 30,000 and C Rs. 20,000 and allowing B and C a salary of Rs. 5,000 each p.a.. During the year 1992. A has drawn Rs. 10,000 and B and C in addition to their salaries have drawn Rs. 2,500 and Rs 1,000 respectively . The profit and Loss A/c for the year ended 31 st Dec. 1992 showed a net profit of Rs. 45,000 before charging (1) interest on capital, and (2) partners salaries. On 1st Jan, 1992 , the balances in the Current A/c s of the partners were A (Cr.) Rs. 4,500 , B (Cr.)Rs. 1,500 and C (Cr.)Rs. 1,000. Interest is not charged on drawing on Current Account Balances . Show the Partners Capital and Current Accounts as at 31st December ,1992 after division of profits in accordance with the partnership agreement . ( Ans: Balances in Current A/c: A(Cr.)Rs.12,000;B(Cr) Rs.9,500;C(Cr.) Rs.7,000) Ali and Bahadur are partners in a firm sharing profits and Losses as ali 70 % and Bahadur 30 %. Their Capital Accounts, as on 1st April,1992 stand as Ali Rs. 25,000 and Bahadur Rs. 20,000 . The partners are allowed 5% per annum by way of interest on capitals. The drawings of the partners during the year ended 31st march ,1993 amounted to Rs.3,500 and Rs. 2,500 respectively. The profit during the year , before charging interest on capital and annual salary of Bahadur at the of Rs. 3,000 , amounted to Rs. 40,000, 10 % of this profit is to be kept in a Reserve account. Prepare Profit and Loss Appropriation Account and Current Account. (Ans: Ali’s Current A/c Bal. Rs 19275; Bahadur’s Current A/c Rs.10,725 )

25.

A and B are partners sharing profits in proportion of 3:2 with capitals of Rs.40,000 and Rs. 30,000 respectively. Interest on capital is agreed at 5 % p.a. B is to be allowed an annual salary of Rs. 3,000 which has not been withdrawn . During 1991, the profit for the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 42,000. A provision of 5 % of this amount is to be made in respect of commission to the manager . Prepare an Account showing the allocation of profits. (Ans: A & B each gets Rs.66,614 as profit and A gets Rs. 2,250 as interest on loan )

26.

Mahesh and Ramesh are partners with capital of Rs. 50,000 and Rs. 60,000 respectively . On 1st jan,1998, Mahesh gives a loan of Rs 10,000 and Ramesh introduced Rs.20,000 as a additional capital. Profit for the year ending 31st march 1998 was Rs. 15,200. There is no partnership deed . Both Mahesh and Ramesh expect interest @ 10 % p.a. on the loan and additional capital advanced b them. Show how the profit would be divided ? Give Reason ? (Ans. Profit Rs. 7,525 each ) (CBSE 2001 Comptt.) PAST ADJUSTMENT

CASE I: Omission of Interest on Capital : Ex . A,B,C and D are partners sharing profits and losses in the ratio of 4:3:3:2 and their respective capitals on 31st December, 2005 were Rs. 3,000, Rs 4,500 ,Rs. 6,000 and Rs. 4,500. After closing and finalizing the accounts, it was found that interest on capital @ 6% p.a was omitted . Instead of altering the signed accounts ,it was decided to pass a single adjustment entry on 1st Jan, 2006 crediting or debiting the respective partners accounts . sol: A’s Capital A/c …..Dr. 180 C’s Capital A/c 90 C’s Capital A/c 90 (Being the adjustment entry due to omission of interest on capital) Working : A Dr.

B Cr .

Dr.

C Cr.

Dr.

D Cr

Dr.

Cr.

Total

Interest on Capital to be

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Credited @ 6 % p.a Excess Profit taken back in profit sharing ratio

-360

180 --

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--

270

--

270

--

270

360 --

--

270

1080

180

--

1080

Difference (Net Effect) 180 -- ---90 -90 27. A,B and C are partners. Theirs capital accounts on 1st Jan,1992, A Rs . 3000 ; B Rs.5,000 ,C Rs. 8,000 and D Rs. 10,000. After the accounts for the year have been Prepared , it is discovered that interest at 5 % p.a. as Provided for in the partnership agreement has not been credited to the Partners capital accounts before distributing profits. Instead of altering the signed Balance Sheet it is decided to make an adjusting entry at the beginning of the next year . Give the Necessary journal entry. (Ans: Dr. A & B Rs.175 & Rs. 75 & Cr. C & D Rs . 75 & Rs .175) (SSE Delhi ) 28.

On 31st December 1995 , After closing the capital accounts, capitals of X,Y and Z stood at Rs. 80,000, Rs.60,000 and Rs. 40,000 respectively . It was subsequently discovered that interest @ 5 % p.a. on capital at the beginning of the year was left out. Their drawing during the year were Rs. 20,000, Rs. 15,000 and Rs. 9,000 respectively . Profit for the year was Rs. 1,20,000. Partners share profit as 3:2:1. Give necessary adjustment entry and show the working notes. (Ans: Dr. X Rs. 600, Cr .Y Rs. 17. Cr. Z Rs.583) (CBSE AI 1999)

29.

A, B and C were partners in a firm sharing profits in the ratio of 5:4:3. After division of the profit for the year ended 31.3.2001 their capital were Rs 5,00,000;Rs.4,00,000; and Rs.3,00,000 respectively . During the year they withdrew Rs . 30,000 each . The Profit of the year was Rs. 1,20,000. The partnership deed provided that interest on capital will be allowed @ 10 %p.a . While preparing the final accounts interest on capital was not allowed . You are required to calculate the capitals of A,B and C as on 1.4.2000 and pass the necessary Adjustment entry for providing interest on capitals. Show Your workings clearly. (Ans: Dr. A Rs . 750,Cr. Rs.750) (CBSE delhi 2002)

30.

The net trading profits of X, Y and Z for the year ended 31st December 1992 was Rs.60,000 and the same was distributed amongst the partners X,Y and Z in their agreed ratio of 3:2:1. It was subsequently discovered that the under-mentioned transactions were not passed through Accounts . (i) Interest on capital @ 5 % p.a. (ii) Interest on drawings amounting to X Rs.700,Y Rs.500, Z Rs. 300. (iii) Partnership salary --- X Rs. 10,000 and Y Rs.1,500 p.a. (iv) An agreed commission of Rs. 6,000 payable to X arising out of a special transaction of the firm . The capital accounts of partners were fixed X Rs.1,00,000, Y Rs. 80,000 and Z Rs. 60,000. Give a single journal entry to record necessary adjustment. (Ans: Dr. Y’s Current A/c by Rs. 600 and Z’s Current A/c by Rs. 2,900 and Cr. X’s current A/c by Rs. 3,500)

31.

Mohan , Vijay and Anil are partners , the balances on their capital accounts being Rs. 30,000 Rs.25,000 and Rs. 20,000 respectively . In arriving at these figures , the profits for the year ended December 31,1992 Rs. 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were Rs. 5,000(Mohan ), Rs. 4,000(Vijay) and Rs. 3,000(Anil) in 1992. Subsequently the following omission were noticed and it was decided to bring them into account: (i) Interest on capital at 10 % per annum . (ii) Interest on drawings Mohan Rs. 250, Vijay Rs. 200, and Anil Rs. 150. Make the necessary corrections through a journal entry a3nd show your workings clearly . (Ans: Journal :Dr. Anil by Rs. 550 and Cr. Mohan by Rs. 550;Corrected profit transferred to each partners Rs. 6,100)

Case II: When Interest on capital allowed at Higher Rate in Past : (Cancellation of Excessive Interest )

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Ex.

Ram , Mohan and Sohan sharing profits and losses equally have capital Rs. 1,20,000, Rs.90,000 an Rs. 60,000. For the year 1992, Interest was credited to them at 6 % instead of 5 %. Give adjusting journal entry .

32.

P,Q and R are partners in a firm sharing profits and losses in the ratio 2:5:3. Their –fixed capital were Rs. 2,00,000, Rs.3,00,000 and Rs.3,00,000 respectively .For the year 20X1 Interest on capital was credited to them @ 12 % instead of 10 % . Show your working notes clearly and pass the necessary adjusting entry . (Ans: Dr. P & R Rs.800 and Rs. 1200; Cr. Q Rs. 2000) (CBSE 1997) Ram and Mohan were partners in a firm sharing profits in 3:2 ratio . Their capitals were: Ram Rs.1,20,000 and Mohan Rs. 90,000. For the year 1999 interest on capital was credited to them @ 6 % instead of 5 %. Give the necessary adjusting entry for the rectification of the error . Show also the working notes clearly. (Ans: Mohan Rs. 60(Dr.), Ram Rs.60(Cr.))[CBSE 2000 Comptt.]

33.

Case III: If Interest on Capital allowed at lower rate Interest : 34.

P and Q were partners in a firm sharing profits in 7:3 ratio. Their capitals were P Rs.5,00,000 and Q Rs. 8,00,000. For the year 20X1 interest on capital was credited @ 7% instead of 11%. Show the necessary adjusting entry for the rectification of the error .Also show the working notes clearly . (Ans: Dr. P Rs. 16,400 and Cr. Q Rs. 16,400)(CBSE 2000) A,B and C are partners in a firm sharing profits and losses in the ratio of 2:2:1. Their capital (Fixed) are Rs. 1,00,000. Rs.,80,000 and Rs.70,000 respectively . For the year 1989, interest on capital was credited to them @ 9 % p.a. instead of 12 %. Give adjusting journal entry . (Ans: Dr. B Current A/c Rs.600 and Cr. C’s current A/c Rs.600)

35.

Case IV: Change in Profit Sharing Ratio with Retrospective Effect: Ex. The firm of X, Y and Z who have been sharing profits in the ratio of 2:2:1 respectively , Have existed fro some years. Z wants that he should share equally on the profits with X and Y and he further wants that change in the profit –sharing ratio should come into effect retrospectively from the last 3 years. X and Y have no objection to this . The profits for the last three years were Rs. 24,000;Rs.23,000 and Rs. 28,000. Show the adjustment of profit for the last three years by means of journal entries .

36.

37.

Sachin, Kapil and Rashmi have been sharing profits in the ratio of 3:2:1 respectively. Rashmi wants that she should share equally in profits with Sachin and Kapil. She further wants that change in profit sharing ratio should be applicable retrospectively for the last three years . Other partners have no objection to this . The profits for the last three years were Rs. 60,000, Rs.47,000 and Rs.55,000. Record the adjustment by means of journal entry. Give workings. (Ans: Dr. Sachin by Rs. 27,000 and Cr, Rashmi by Rs.27,000) Jagdish, Ashish and Deepak are partners sharing profit ratio of 3:2:1. The firm has been in existence for many years. Now the partners decide to share profits in the ratio of 2:2:1.They have also decided that the change shall be carried out with retrospective effect from 1995. The profits and losses during the last few years have been 1994 Rs.16,000,1995 Rs. 12,000, 1996 Rs. 14,000, 1997 Rs. 19,000 and 1998(loss)Rs. 15,000. Show the adjustment of the profit for the last 4 years by means of a single adjustment entry . (Ans: Jagdish Rs.3,000(Dr.), Ashish Rs.2,000(Cr.),Deepak Rs. 1,000(Cr.) (CBSE 2001)

Case V:

Manager to be Treated as a Partner with Retrospective Effect :

Ex:

A and B are partners sharing profits and losses in the ratio of 3:2. At the end of the year, i.e., on 31st December ,1992, They decided to take their manager C into partnership. As manager C was getting annual salary of Rs 4,500.He had also advanced Rs.30,000 to the firm by way of a loan on which he is getting interest @ 10 % p.a. During the three years, firm’s profit after adjusting salary to C, interest on loan and interest on the capital of the partners were: 1990 Profit Rs.40,000

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1991 Loss Rs.20,000 1992 Profit Rs.60,000 According to the new agreement , C is to be given annual salary of Rs.3,500 and 1/5th share in the profits of the firm . C’s loan shall be treated as his capital from the beginning and similar to other partners , his capital will carry interest @ 6% p.a. Record the necessary journal to give effect to the above arrangement. 38.

A and B are partners sharing profits and losses in the ratio of 3:2. They employed C as their manager to whom they paid of Rs.750 p.m . C had deposited Rs.20,000 on which interest was payable @ 9% per annum . At the end of 1992(after division of the year’s profits), it was decided that C should be treated as partner with effect from jan.1.1989 with 1/6th share of profit . his deposit being considered as capital carrying interest at 6 % per annum like capital of other partners. The firm’s profit and losses after allowing interest on capitals were as follows: 1989 Profit Rs. 59,000 1990 Profit Rs. 62,600 1991 Loss Rs. 4,000 1992 Profit Rs. 78,000 Record the necessary journal Entries to give effect to the above . (Ans: Debit A by Rs. 360, B by Rs.240 and Credit C , by Rs. 600) (S.S.C 1980)

39.

X and Y are partners sharing profit and losses in the ratio of 3:2. At the end of the year, i.e.., on 31st December ,1998, they decided to take their manager Z into partnership. As manager Z was getting annual salary of Rs.3,000.He had also advanced Rs. 20,000 to the firm by way of a loan on which he is getting interest @ 10% per annum. During the three years, firm’s profits after adjusting salary to Z, interest on loan and interest on the capital of the partners were : 1996 Profit Rs.30,000 1997 Loss Rs.15,000 1998 Profit Rs. 45,000 According to the new agreement Z is to be given annual salary of Rs.2,500 and 1/5th share in the profit of the firm. Z’s loan shall be treated as his capital from the beginning and similar to other partners, his capital will carry interest @ 6% per annum .Record the necessary entries to give effect to the above arrangement . (Ans: X Rs.5,328(Dr.),Y Rs. 3,552(Dr.),Z Rs8,880(Cr.)) GUARANTEE OF PROFIT TO A PARTNER

e.g.

A,B and C are partners in the ratio of 3:2:1. Guarantee to Mr. C minimum profit of Rs.1,000.

Case 1.

If divisible profit Rs.15,000

Particulars Profit Transferred to : A’s Capital A/c 7,500 B’s Capital A/c 5,000 C’s Capital A/c 2,500 Case 2.

Amount

Particulars

Amount

15,000

If divisible profit Rs.3,600

Particulars Profit Transferred to: A’s Capital A/c 1,800 - C’s deficiency borne 240 1,560 B’s Capital A/c 1,200 - C’s deficiency borne 160 1,040 C’s Capital A/c 600 + deficiency recovered from A 240 + deficiency recovered from B 160 1,000

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Amount

Particulars

Amount

3,600

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A bears = 400 x 3/5 =240; B bears = 400 x 2/5 =160 Case 3.

If divisible profit Rs.3,600 and any deficiency will be borne by A and B in the ratio of 1:3

Particulars Profit Transferred to: A’s Capital A/c 1,800 - C’s deficiency borne 100 1,700 B’s Capital A/c 1,200 - C’s deficiency borne 300 900 C’s Capital A/c 600 + deficiency recovered from A 100 + deficiency recovered from B 300 1,000 (i)

P & L Appropriation A/c. A’s Capital A/c B’s Capital A/c C’s Capital A/c

Amount

Particulars

Amount

3,600 …Dr.3,600

(ii) 1,800 1,200 600

(Being the division of profit if there is no guarantee)

A’s Capital A/c ..Dr. 100 B’s Capital A/c ..Dr. 300 C’s Capital A/c ..Dr. 400

(Being the deficiency of C is borne by A and B)

40.

A,B and C were partners in a firm sharing profits in the ratio in the ratio of 2:2:1. C was guaranteed to be given a profit of Rs.50,000 per year. Deficiency, if any , on that account shall be borne by A and B in the ratio of 3:2. The net profit of the firm for the year ended 31.3.2004 was Rs. 2,00,000. Prepare Profit and Loss Appropriation Account of A,B and C . (Ans: A Rs.74,000; B Rs.76,000; C Rs.50,000) (CBSE 2005)

41.

A and B are partners in a firm sharing profit in the ratio of 2:1. On 1-4-2002 they decide the admit C for 1/5 share in profits with a guaranteed amount of Rs.25,000 per annum . A under took to meet the liability arising out of the guaranteed amount to C . The firm earned a profit of Rs. 75,000 for the year ended March 31,2003. Prepare Profit and Loss Appropriation Account . (Ans. A Rs. 30,000; B Rs.20,000; C Rs.25,000) (CBSE 20004)

42.

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 Rs.5,000. The profit for the year ending 31st march 1995 amounts to Rs.35,000 . Amount of shortfall in the profits given to C will be Borne by A and B in the ratio of 3:2. Pass necessary journal entry regarding deficiency borne by A and B. (Ans: A Rs.900(Dr.), B Rs. 600(Dr.),C Rs.1,500(Cr.))[CBSE 1997]

43.

Ram ,Mohan and Sohan are partners with capitals of Rs. 10,000, Rs. 5,000 and Rs. 2,000 respectively . After providing interest on capital at 6% per annum , the profit are divisible as follows: Ram ½, Mohan 1/3 and Sohan 1/6. But Ram and Mohan have guaranteed that Sohan’s share shall not amount to less than Rs. 500 in any one year. During the year 1992, Ram and Mohan have each withdraw Rs.1,000 and sohan Rs.500. the net profit for the year before providing interest on partners capital ,was Rs.2400. You are required to show the current Accounts of the partners. (Ans: Balances of current A/c :Ram Rs.128(Cr.);Mohan ,Rs.348(Dr.);Sohan,Rs.120(Cr.))

44.

A,B and C entered into partnership on 1st jan ,1992 to share profit and losses in the ratio of 5:3:2. A, however , personally guaranteed that C’s share of profit, after charging interest on Capital @ 5% p.a.. would not be less than Rs.30,000 in any year . The capital was provided as follows: A Rs.3,20,000, B Rs.2,00,000 and C Rs.1,60,000. The profit for the year ended 31st December ,1992 amounted to Rs1,59,000 before provided

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for interest on capitals. Show the Profit & Loss Appropriation Account . (Ans: Share of profit :A Rs.57,500, B Rs.37,500, C Rs.30,000) 45.

Three Chartered Accountants A,B and C form a partnership, profit being divisible in the ratio of 3:2:1 subject to the following : (i) C’s share of profits guaranteed to be not less than Rs. 15,000 per annum (ii) B gives guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceding five years when he was carrying on profession alone (which average works out at Rs.25,000). The profit for the first year of the partnership is Rs.75,000. The gross fees earned by B for firm Rs.16,000. You are required to show profit and loss Appropriation Account (After giving effect to the above ) (Ans: A’s share Rs.41,400, B shareRs.18,600 and C’s share Rs.15,000)

46.

A,B,C and D are partners in a firm . Their Capital Accounts stood at Rs. 60,000, Rs.30,000, Rs.30,000 and Rs.20,000 respectively on 1st jan ,1992. They share profit and losses in the proportion of 5:3:2:2. D’s share of profit (excluding interest on capital )is guaranteed by the firm to be not less than Rs.16,000 per annum .C’s share of profit (including interest on capital and salary)is guranteed by A at a minimum of Rs.26,000 p.a . The profit for the year ended 31 st December 1992,amounted to Rs .91,000 before considering interest on capital @ 5% per annum and salary to C @ Rs.1,000 per month which under the partnership deed are allowable. Prepare the profit and loss Appropriation Account for the year ended 31st december1992. (Ans: Share of profit: A Rs26,700; B Rs16,800; C Rs. 12,500;D Rs.16,000)

47.

A,B and C entered into partnership on 1st April 1990, to share profits & losses in the ratio of 4:3:3:,. A , however , personally guaranteed that C’s share of profits after charging interest on capitals @ 5 % p.a. would not less than Rs.40,000 in any year. The capital contributes were: A—Rs.3,00,000 , B – Rs. 2,00,000 and C –Rs.1,50,000. The profit for the year ended on 31st March , 1991 amounted to Rs.1,60,000. Show the profit & loss Appropriation Account. (Ans: Profit: A Rs. 49,250;B Rs.38,250 ;C Rs.40,000) (CBSE Delhi 1992) X and Y share profit & losses in the ratio of 3:2. As from 1st jan,1992, they admit Z who is to have one-tenth share of the profit with a guaranteed minimum of Rs. 7,500. X and Y continued to share profit as before but agree to suffer any excess over 1/10th going to Z. The profit of the firm in respect of the year are Rs. 50,000. Prepare Profit and Loss Appropriation Account. (Ans: Profit: X Rs.25,000;Y Rs.17,000;Z Rs. 7,500)

48.

MISCELLANEOUS PROBLEMS 49.

50.

P,Q and R are partners in the firm. Their capital accounts stood at Rs.30,000, Rs.15,000 and Rs. 15,000 respectively on 1st January ,20X1. As per the provision of the deed : (i) R was to be allowed a remuneration of Rs. 3,000 p.a. (ii) Interest at 5% p.a was to be provided on capital (iii) Profits were to be divided in the ratio of 2:2:1..Ignoring the above terms , net profit of Rs. 18,000 for the year ended 20X1 was divided among the three partners equally. Pass an adjustment entry to rectify the error . Show the working clearly. (Ans: Dr. Q Rs.450 and Cr. P & R Rs.300 and 150) (CBSE 1998 Delhi ) A,B and C were partners in a firm . On 1-1-2001 their capitals stood at Rs.50,000 Rs.25,000 and Rs.25,000 respectively . As per the provisions of the partnership deed : (a) C was entitled for a salary of Rs.1,500 p.m. (b) Partners were entitled to interest on capital at 5% p.a. (c) Partners were to be shared in the ratio of capitals. The net profit for the year 20X1 of Rs.45,000 was divided equally without providing for the above terms . Pass an adjustment entry to rectify the above error . (Ans: Dr. A Rs. 1500 and B Rs. 8250 & Cr. C Rs. 9750)(CBSE 1999 Delhi )

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51.

X,Y and Z partners have omitted interest on capital for three years ended 31st December ,1992. Their fixed capitals on which interest is based were throughout X Rs. 20,000,Y Rs.16,000; and Z Rs.14,000. Interest is to be allowed at 5% per annum . Their profit –sharing ratios were : 1990—1 :2:2; 1991—5:3:2; 1992—4:5:1. Give the necessary adjusting entry . (Ans: Dr. Y’s Current A/c by Rs.600 and Cr. X’s Current A/c by Rs.250 and Z’s Current A/c by Rs.200)

52.

A,B and C are partners in a firm. Through there is no provision in the partnership deed for interest on capital, this has been provided to the accounts @ 5% p.a. for the two years ended on 31st dec,1991, and 31st dec,1992. Their fixed capital on which interest was calculated were throughout ---A Rs.50,000. B Rs.40,000 and C Rs.30,000. During the two years, they share profit as follows: 1991-----5 : 3 : 2 1992-----2 : 2 : 1 You are required to put through an adjustment entry as on 1st jan,1993. (Ans: Dr. C Rs.600; Cr. A and B Rs.400 and Rs.200)

53.

A and B are partners in a firm. A is to get a commission of 10 % of Net Profit before charging any commission .B is to get commission of 10 % on Net Profit after charging all commission . Net Profit before charging any commission was Rs.55,000. Find out the commission of A nad B. (Ans: A commission 5,500; B’s commission 4,500)(CBSE 1991 Delhi )

54.

Ram and Gopal were partners in a firm sharing profits in the ratio of 3:2. On 1:1 20x1 their fixed capitals were Rs.1,00,000 and Rs.1,50,000 respectively. On 31.3.2001, they decided that their total capital(Fixed)should be Rs.3,00,000 in their profit sharing ratio. Accordingly they introduced or withdrew the necessary capital. The partnership deed provided the following : (i) Interest on capital @ 12 %p.a. (ii) Interest on drawings @ 18%p.a. (iii) Monthly salary to Ram @ Rs.2000 per month and to Gopal @ Rs.3,000 per month. The drawings of Ram and Gopal during the year were as follows: Date Ram Gopal 2001 Rs. Rs. July 1 10,000 12,000 September 30 15,000 12,000 The profit earned by the firm for the year ended 31.12.2001 was Rs.2, 00,000. 10% of this profit was to be kept in a reserve. You are required to prepare profit and loss appropriation account. (Ans: Profit Rs. 88,695)[CBSE 1998 Delhi]

55.

A, B and C are partners sharing profit in the ratio 5:4:1. C is given a guaranteed that his share in any year will not be less than Rs.5,000. The profit for the year ended December 31,20X1 amounted to Rs.40,000. Amount excess given to C will be borne by B. Pass the journal entries in the books of A, B and C. (Ans: Dr. B Rs. 1000 and Cr. Rs. 1000)[CBSE 1991 Delhi (C)]

56.

A, B and C are partners sharing profits in the ratio 5:4:1. C is given a guarantee that his share of profits in any given years would be Rs.5,000. Deficiency, if any, would be borne by A and B equally. The profits for the year 20X1 amounted to Rs. 40,000. Pass necessary entries in books of the firm. (Ans: Dr. A and B Rs. 500, 500 and C Cr. Rs. 1000)[CBSE 1999 Delhi]

57.

The partners of a firm distributed the profits for the year ended 31st March 2003, Rs. 90, 000 in the ratio of 3:2:1 without providing for the following adjustments : (i) A & B were entitled to a salary of Rs. 1,500 each per annum (ii) B was entitled to a commission of Rs. 4,500. (iii) B & C had guaranteed a minimum profit of Rs. 35, 000 p.a. to A. (iv) Profits were to be shared in the ratio of 3:3:2. Pass necessary journal entry for the above adjustment in the books of the firm .

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(Ans: Dr. A Rs.8,500,B Cr. Rs.4,500,C Cr.Rs.4,000)[CBSE 2004] 58.

A and B are partners sharing profits in the ratio of 5:3 . C was to receive salary of Rs.150 per month, plus a commission of 5 % on the profits after charging such salary and commission or 1/5th of the profits of the firm ,whichever is larger. Any excess of the latter over the former is under the partnership agreement to be borne personally by A. Prepare the profit & Loss Appropriation Account in each of the following alternative cases: Case (a): If the profits before charging C’s salary and commission for the year amounted to Rs.24,900. Case (b): If the profits for the year amounted to Rs.10,710 after charging C’s salary. Case (c): If the profits for the year amounted to Rs.12,000 after charging C’s salary and commission . 59.

A is a partner in a firm for the year ending 31 march 2006. A’s drawings were : 31 may 2005 Rs.5,000; 30 Sept. 2005 Rs.4,000; 31 dec. 2005 Rs.6,000; 31 Jan. 2006 Rs.7,000. Calculate A’s interest on drawings @ 12 % p.a. [Ans: Rs.1,060]

ADMISSION OF A PARTNER -1 VALUATION OF GOODWILL (I)

Average Profit Method Goodwill = Average Profit * No. of Years Purchase

Q1.

Calculate Goodwill by average profit method if the profit for 2002 to 2005 are Rs.5,000; Rs. 8,000; Rs.4,000 and Rs.7,000 and the value of goodwill is at two years purchase. (Goodwill Rs.12,000)

Q2.

A and B are partners in a firm. The admit C into the firm. The goodwill for the purpose is to be calculated at 2 years purchase of the average normal profits of the last three years which were Rs.10,000; Rs.15,000 and Rs.30,000 respectively. Second years profit included profit on sale of machinery Rs.10,000. Find the value of goodwill of the firm on C’s admission .

Q3.

Calculate Goodwill if : The goodwill of a firm is estimated at three years purchase of the average profit of the last five years which are as follows: Years: 2000 2001 2002 2003 2004 Profits(Loss) Rs.20,000 30,000 8,000 (10,000) 12,000

Q4.

Ram and Shyam were partners from 1st April 2002. They disclosed the profit for the last three years : 2002-2003----Rs..2,800(Including an abnormal gain of Rs.800) 2003-2004----Rs. 2,100(Including an abnormal loss of Rs.100) 2004-2005----Rs. 3,000(Excluding Rs.600 as insurance premium of the firm.) Calculate the value of the firm’s goodwill on the basis of 3 years purchase of the average

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profits for the last 3 years. (Ans: Goodwill Rs.6,600) (II)

Weighted Average Profit Method Goodwill =Weighted Average Profit * No. of Years Purchase Weighted Average Profits = Total of Products of Profits Total of Weights

Q1.

The profits of a firm for the year ended 31st March for the last five years were as follows: Year Profit(Rs.) Year Profit(Rs.) 2001 2,000 2002 2,400 2003 3,000 2004 2,500 2005 1,800 Calculate the value of goodwill on the basis of three years purchase of weighted average profits after weights 1,2,3,4 and 5 respectively to the profits 2001,2002,2003,2004 and 2005. (Ans: Goodwill Rs.6,960) Super Profit Method Goodwill = Super Profit * No. of Years Purchase Super Profit = Average Actual Profit---Normal Profit Normal Profit = Capital Employed * Normal rate of return 100

(III)

Q1.

The average net profits expected in the future by the firm are Rs.46,000 per year. The average capital employed in the business by the firm is Rs. 3,00,000. The rate of return expected from capital invested in this class of business is 10% . The remuneration of the partners is estimated to be Rs. 8,000 per annum . Find out the value of goodwill on the basis of two years purchase of Super Profits. (Goodwill Rs.16,000)

Q2.

The average net profit expected in the future by ABC firm are Rs. 86,000 per annum . The average capital employed in the business by the firm is Rs.5,00,000. The rate of interest expected from capital invested in this class of business is 10 %. The remuneration of the partners is estimated to be Rs. 6,000 per annum .Find out the value of goodwill on the basis of two years purchase of Super Profits. (Goodwill Rs.60,000)

Q3.

A firm earned net profit during the last three years as follows: 1st year 2nd year 3rd year 18,000 20,000 22,000 The capital investment of the firm is Rs.60,000. A fair return on the capital having regard to the risk involved is 10% . Calculate the value of goodwill on the basis of 3 years purchases . (Goodwill Rs. 42,000)

Q4.

Dutta and Bose had a firm in which they had Invested Rs.50,000, On the average the profits were Rs. 16,000. The usual rate of earning in the industry is 15 % . Goodwill is to be valued at 4 years purchase of profits in excess of profits @15 % on the money invested . Value the goodwill. (Goodwill Rs.34,000)

Q5.

A firm earned net profit during the last five years as follows : I—Rs. 7,000; II—Rs 6,500; III--Rs. 6,00; IV--Rs.7,500 and V—Rs. 8,000 The capital investment of the firm is Rs.40,000. A fair return on capital in the market is 12%. Find out the value of goodwill of the business if it is based on three years purchase of average super profits of the past five years. (Goodwill Rs. 5400)

Q6.

On April 1st 1998, an existing Firm had assets of Rs.75,000/- including cash of Rs.5,000/-. The partner’s capital accounts showed a balance of Rs.60,000/- and reserve constituted the rest . If the normal rate of return is 10% and the goodwill of the firm is valued at Rs. 24,000/- at 4 years purchase of super profits find the average profits of the firm .

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Commerce Classes Q7.

(IV)

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(Goodwill Rs. 13,500) On 1st April 1994, an existing Firm had assets of Rs. 75,000 including cash of Rs.5,000. It’s creditors amounted to Rs.5,000 on that date . The firm had a Reserve Fund of Rs. 10,000 while partners capital accounts showed a balances of Rs.60,000. If the Normal Rate of return is 20%, and the goodwill of the firm is valued at Rs.24,000, at four years purchase of super profit, find the average profits per year , of the firm . (Ans:Rs.20,000) Capitalization Method (a) Capitalization of Average Profit Method Goodwill = Total Capitalized Value of Average profit – Capital Employed (Net Tangible Assets) Total Capitalized Value of Average Profits =Average Profits *

100 Normal Rate of Return

Capital Employed (Net Tangible Assets)= Total Tangible Assets(other than goodwill, fictitious assets )- Outsider’s Liabilities Q1.

A firm earns Rs. 3,00,000 as its annual profits, the rate of return being 12%. The assets of the firm amount to Rs. 36,00,000 and liabilities Rs. 12,00,000. Calculate the value of goodwill by capitalization method. (Goodwill Rs. 1,00,000)

Q2.

A firm earns a profit of Rs.16,00,000 per year .In the same business at 10% return is generally expected . The total assets of the firm are Rs.1,70,000. The value of other liabilities is Rs.60,000. Find out the value of goodwill. (Goodwill Rs.50,000)

Q3.

A business has earned average profit Rs.10,000 during the last few years and the normal rate of return in a similar type of business is 10%. As certain the value of goodwill by capitalization method , given that the value of net assets of the business is Rs.82,000. (Goodwill Rs.18,000)

Q4.

A firm has earned an average profit of Rs.55,000 during the last years and the normal rate of return in similar type of business is 10 %. Find out the goodwill by capitalization method assuming that the firm owns total assets worth Rs.5,50,000 including there in a goodwill of Rs.50,000 and the firm has to pay Rs.1,00,000 to the outside liabilities. (Goodwill Rs.1,50,000) (b) Capitalization of Super Profits Method: Goodwill = Super Profit * __________100_________ Normal Rate of Return

Q1.

Calculate goodwill if : A firm earn net profit of Rs.12,000 with a capital of Rs.80,000. The normal rate of return in the business is 10%. Use capitalization of Super Profit method I in to value the goodwill . (Goodwill Rs 40,000)

Q2.

The average net profit expected in future a co. are Rs.3,000 per year. The average capital employed in the business by firm is Rs.20,000. The normal rate of return on the capital employed in similar business is 10%. Calculate goodwill of the firm by Capitalization Method of Super Profits. (Goodwill Rs. 10,000)

Q3.

The average profit of the firm is Rs. 15,000. The total tangible assets in the firm is Rs. 1,40,000 and outside liabilities are Rs.40,000. In the same type of business , the normal rate of return is 10% of the capital employed . Calculate the value of goodwill by capitalization of super profit method. (Goodwill Rs. 50,000)

NEW PROFIT SHARING RATIO Commerce Classes

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Rules:

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Sacrificing share = Old Share – New Share New Share = Old Share – Sacrificing Share C’s New Share = A’s Sacrificing Share + B’s Sacrificing Share

Type 1: When the incoming partner is given a specific share of the future profits . Que.

A 3 :

B 2

C was admitted for 1/7th share Calculate New Ratio& Sacrificing Ratio

Q1.

A and B are partners sharing profits and losses in the ratio of 3:2.. C is admitted for 1/5th share of profit . Calculate the new profit sharing ratio. (New Ratio 12:8:5)

Q2.

Ravi and Mukesh were partners sharing profits in the ratio of 7:3. Ashok was admitted on 3/7 share in the profits. Calculate new profit –sharing ratio of the partners. (New Ratio 14:6:15) A,B and C sharing profits in the ratio of 6:5:3 agreed to admit D for 1/8 th share. Calculate the new profit sharing ratio. (New Ratio 6:5:3:2)

Q3. Q4.

Ques.

A and B shared profit in the ratio of 3:2. C was admitted to get 4/15th of profits. Calculate the new profit sharing ratio. (New Ratio 33:22:20)

Type 2: When the incoming partner acquires his share of profits from the old partners. A B C was admitted for 1/6th share . 3 : 2 Which he took 1/8 from A & 1/24 from B . Calculate New ratio.

Q1.

A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7th profits which he takes 2/7th from A and 1/7th from B .Calculate the new profit sharing ratio. (New Ratio 11:9:15)

Q2.

A and B are partners sharing profit and losses in the proportion of 7:5. They agree to admit C their manager into partnership who is to get 1/6th share in the profits. He acquires his share as 1/24th from A and 1/8th from B . Calculate the new profit sharing ratio. (New Ratio 13:7:4) A and B are partners sharing profits in the ratio of 5:3.. C is admitted as partner, he acquires 3/16 of the profits from A and B 1/16 from B. Calculate the new profit sharing ratio. (New Ratio 7:5:4) A and B are partners in a firm sharing profits and losses in the ratio of 3:2.. C is admitted as partner, he gets 3/20 of the profits from A and 1/20 from B. Calculate the new profit sharing ratio. (New Ratio 9:7:4)

Q3. Q4.

Q5.

A and B are partners sharing profits and losses in the ratio of 5:3.. C is admitted in the firm with 1/5th share in the profits which he acquired 1/10 the from A and 1/10th from B. Calculate the new profit sharing ratio. (New Ratio 21:11:8)

Q6.

A and B are partners sharing profits in the ratio of 2:1. They admit C into partnership giving him 1/5 share in the profit which he acquires from A and B in the ratio of 1:2.. Calculate the new profit sharing ratio. (New Ratio 3:1:1)

Q7.

A and B are partners sharing profits in the ratio of 3:2..C is admitted for 1/5th share in the profits which he acquires equally from A and B . Calculate the new profit sharing ratio. (New Ratio 5:3:2) A and B are partners sharing profits in the ratio of 4:1.. C is admitted for ¼ share in profits which he acquires wholly from A. Calculate the new profit sharing ratio.

Q8.

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(New Ratio 11:4:5) A and B are partners sharing profits in the ratio of 3:2.. C is admitted for 1/5 share in the profit of the firm. which he acquires wholly from B . Calculate the new profit sharing ratio. (New Ratio 3:1:1)

Q9.

Type 3: When the old partners surrender a particular fraction of their share in favour of incoming partner. Ex. A 3

B 2

Q1. Q2. Q3. Q4. Q5. Q6.

C was admitted for A surrendered 1/5th of his share and B surrendered 1/10th of his share Calculate New Ratio and Sacrificing share.

A and B are partners sharing profits in the ratio of 7:3.. C is admitted . A sacrifices 2/7th of his share and B 1/7 of his share in favour of C. Calculate the new profit sharing ratio. (New profit sharing Ratio 3:3:2 Sacrificing Ratio 13:5) A and B are partners sharing profits in the ratio 7:3. A surrenders 1/7th of his share and B surrenders 1/3rd of his share in favour of C, a new partner . What is the new ratio and what is the sacrificing ratio? (New Ratio 4:3:1) R and S are partners in a firm sharing profits and losses in the ratio of 3:2. They admit T as a new partner. R surrenders 1/5th share of his profit in favour of T and S surrenders 2/5th of his share in favour of T. Calculate their new profit sharing ratio. (New Ratio 12:6:7) A and B are partners sharing the profits in the ratio of 3:2. C is admitted , A sacrifices 1/3 of his share and B ¼ of his share in favour of C. Calculate the new profits sharing ratio. (New Ratio 4:3:3) X and Y are partners in a firm sharing profits and losses in the ratio of 9:6.. A new partner Z is admitted .X surrenders 3/15th of his share and Y surrender 6/15 of his share n favour of Z. Calculate the new profit sharing ratio. (New Ratio 12:6:7) Shanno and Sukesh are two partners sharing profits in the ratio of 3:2.. They admit Susheem into partnership as a partner from 1st April 1997. Shanno gives 1/3 of his share while Sukesh gives 1/10 from his share. Calculate new profit sharing ratio and sacrificing ratio. (New Ratio sharing ratio 4:3:3,sacrificing ratio 2:1) Type 4: When the new profit sharing ratio of old partners is given.

Ex.

A:B=3:2 C was admitted for 1/5th share. A & B agree to share future profit equally. Calculate the new ratio.

Q1.

A and B are partners sharing profit and losses in the ratio of 5:4.. C was admitted for 1/4th share . A and B decided to share equally in future . Find the sacrificing ratio and new profit sharing ratio. (New profit sharing ratio 3:3:2 Sacrificing ratio 13:5)

Q2.

A and B are partners sharing profits in the ratio of 3:2.. They admit C with 1/8th share in the profits. The new profit sharing ratio between A and B is 4:3. Calculate the new profit sharing ratio. (New Ratio 4:3:1)

Q3.

A, B,C and D are in partnership sharing profits and losses in the ratio of 36:24:20:20 respectively. E joins the partnership for 20% share, A ,B ,C and D would in future share profit among themselves as 3/10:4/10: 2/10:1/10. Calculate the new profit sharing ratio after E’s admission. (New Ratio A,B ,C,D & E 6:8:4:2:5) X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. Z is admitted as partner with 1/8th share in profits . It is decided that X and Y will share profits and losses in future in the ratio of 5:3. Calculate the new profit sharing ratio and the sacrificing ratio. (New Ratio 35:21:8)

Q4.

Type 5: When the old ratio & new ratio both are given. Q1.

A and B are partners sharing profits in the ratio of 5:3. They admit C and the new profit sharing ratio is agreed at 4:2:1. Calculate the sacrificing ratio. (Sacrificing Ratio 3:5)

Q2.

A and B are partners sharing profits in the ratio of 3:2. C is admitted into partnership. The new profit

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Sharing ratio among A,B and C is 5:3:2. Calculate the sacrificing ratio. (Sacrificing Ratio 1:1) Q3.

A,B and C are partners sharing profits and losses in the ratio of 3:2:1. D is admitted . The new profit Sharing ratio between A, B and C and D will be 3:3:2:2. Calculate the gain /sacrifice. (A sacrificed 6/30, B sacrificed 1/30, C gained 1/30)

Q4.

A and B are partners sharing profit in the ratio of 3:1. They admit C and the new ratio of A,B and C is agreed at 3:1:1. Calculate the sacrificing ratio. (Sacrificing Ratio 3:1)

Q5.

A,B and C partners sharing profit in the ratio 4:3:2. D is admitted . The new profit sharing ratio of A,B and C will be 3:2:2:2 respectively. Calculate the sacrificing ratio. (A & B 1:1 )

Q6.

A and B are partners who share the profits in the ratio of 2:1. They admit C , and decide to share the future profit in the ratio of 2:2:1. Calculate the gain or sacrifice. (A Scarified 4/15 & B Gain 1/1) A and B share profit in the ratio of 3:2.. c is admitted for 1/6th share . A and B will in future get 2/6th and 3/6th share of profits . Calculate the gain or sacrifice .

Q7.

MISCELLANEOUS Q1.

X, Y and Z are partners in the ratio of 3:2:1. W is admitted with 1/6 share in profit. Z would retain his original share . Find out new profit sharing ratio. (New Ratio 12:8:5:5)

Q2.

X and Y are partners sharing profit and losses in the ratio of 3:2. Z is admitted for 1/4th share. Thereafter W enters for 20paise in the rupee. Compute the profit sharing ratio of X,Y and Z and W after W’s admission . (New Ratio 9:6:5:5)

TREATMENT OF GOODWILL CASE 1: WHEN A NEW PARTNER BRINGS AMOUNT OF GOODWILL IN CASH A : B = 3 : 2. C’s share = 1/6 C’s Share of goodwill = Rs.10,000 C’s Share of Capital = Rs.80,000 Goodwill already appears at Rs.25,000 1st STEP : ENTRY FOR WRITING OFF THE OLD GOODWILL (If old goodwill is given in old balance sheet ) A’s Capital A/c ………….Dr.15,000 B’s Capital A/c ………….Dr.10,000 (This entry is done in the old ratio 3:2)

3rd STEP : ENTRY FOR TRANSFERRING THE AMOUNT OF GOODWILL (Premium A/c……………Dr. 10,000 A’s capital A/c 6,000 B’s capital A/c 4,000 (This entry is done by sacrificing ratio.)

2nd STEP : ENTRY FOR BRINGING AMOUNT OF GOODWILL & CAPITAL

4th STEP : IF MENTIONED IN QUESTION ENTRY FOR WITHDRAWING THE AMOUNT OF GOODWILL

CASH A/c …………….Dr. 90,000 C’s Capital A/c 80,000

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A’S Capital A/c …………Dr. 6,000

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Premium A/c Q1.

Q2.

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10,000

B’s Capital A/c ………….Dr. 4,000

(This entry is done by sacrificing ratio.) A and B, sharing profits and losses in the ratio of 3:2, admit C partnership , C paying Rs.1,000 as goodwill for ¼ share and Rs.10,000 as capital . No goodwill account appears in the books . Partners withdrew amount of goodwill . Give journal entries to record these transactions. (Goodwill credited to A Rs.600, B Rs.400) A and B share profits in the ratio : A, 5/8 and B , 3/8 . C was admitted as a partner. He brings in Rs.10,000 as his capital and Rs.8,000 as remaining for goodwill . The new profit –sharing ratio will be 7:5:4, Make journal entries. (Goodwill credited to A Rs.6,000, B Rs.2,000)

Q3.

A and B sharing profit in the ratio of 5:3, admit C who brings in Rs.1,40,000 as his capital and Rs.36,000 as goodwill . They new profit sharing ratio will be 7:5:4. Pass journal entries . (Sacrificing Ratio 3:1, Goodwill credited to A Rs.27,000, B Rs.9,000)

Q4.

A and B are in partnership with capitals of Rs.10,000 and Rs.6,000 and sharing profit two-thirds and one –thirds respectively. On 1st Jan , 1992, they agree to admit C into partnership with a one –sixth share on condition that he brings in Rs.5,500(Rs.4,000 to represent his capital and Rs,1,500 to represent goodwill). The whole of Rs.5,500 is to remain in the business . give the journal entries to record these transactions, the relative shares of A and B remaining the same as before , and state the future shares of the partners . (Goodwill Credited to A Rs.1,000: B Rs.500, New ratio 10:5:3)

Q5.

P and S are partners sharing profit in the ratio of 3:2. Their books showed goodwill at Rs.20,000. R is admitted with 1/5th share which he acquires equally from P and S . R brings in Rs.40,000 as his capital and Rs.10,000 as his share of goodwill . Profits at the end of the year were the amount of Rs.1,00,000 You are required to give journal entries to carry out the above arrangement . (Goodwill credited to A and B Rs.5,000 each)

Q6.

A and B are partners sharing profits and losses in the ratio 7:3. C is admitted as a new partners for 3/7th share which he acquires 2/7th from A and 1/7th from B . C brings in Rs.24,000 as capital and Rs.18,000 as his share of goodwill . Pass the necessary journal entries in the books of the firm . (Sacrificing Ratio 2:1, Goodwill credited to A Rs.12,000, B Rs.6,000)

Q7.

A and B are partners in a firm. Their profit sharing ratio is 5:3. They admit C into partnership for 1/4th share. As between themselves A and B decide to share profits equally in future . C brings in Rs.12,000 as his capital and Rs.6,000 as premium . Calculate the sacrificing ratio and pass the necessary journal entries. (Sacrificing Ratio 1:0, Goodwill credited to A Rs.6,000) On 1st Jan,1999, A and B sharing profits in the ratio of 2:1 respectively agree to admit to C into partnership on the condition that he pays Rs.30,000 as capital and Rs.6,000 for 1/6th share of goodwill which he acquires equally from A and B . Pass necessary journal entries . (Goodwill credited to A and B Rs.3,000 each)

Q8.

Q9.

A and b are partners ,sharing profits and losses in the ratio of 3:2. Goodwill appears in their balance sheet at Rs.24,000. When C is admitted into partnership for 1/5th share in profit, he pays Rs.50,000 for capital and Rs.18,000 for goodwill. The ratio of the partners A ,B and C in the new firm would be 2:2:1. It is decided that goodwill account will not appear in the books . Pass journal entries in the books of the new firm to Record above adjustment. (Goodwill credited to A Rs.18,000)

Q10.

A and B are partners sharing profits and losses in the ratio of 3:2. They admit into partnership for 1/4th share. C brings in Rs.10,000 fro capital and the requisite amount premium in cash. The goodwill of firm is valued at Rs.4,000.Partners withdrew their share of goodwill .Give the necessary journal entries. (Goodwill credited to A Rs.600 and B Rs.400)

Q11.

A and B are partners sharing profit in the ratio of 2:1. They admit C who brings in Rs.10,000 as his capital and the requisite share of goodwill in cash . A, B and C agree share future profits equally . The

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amount of Goodwill is withdrawn from the business. The value of goodwill was determined as Rs.9,000. Give the necessary journal entries. (Goodwill credited to A Rs.3,000 Sacrificing ratio 1:0) Q12.

X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit Z into Partnership with ¼ share in the profits, Z will brings in Rs.18,000 for capital and the requisite amount of Premium in cash . The goodwill of the firm is valued at Rs.12,000.The new profit sharing ratio becomes 2:1:1. X and Y withdraw their share of goodwill . Give necessary journal entries. (Goodwill credited to X Rs.1,200, Y Rs.1,800, Sacrificing ratio 2:3)

Q13.(a) A and B are in partnership sharing profit and losses in the ratio of 5:3. C is admitted as a partner paying Rs.40,000 as capital and the necessary amount of goodwill which is valued at Rs.30,000 for the firm. His share of profits is 1/5th of which he takes 1/10th from A and 1/10th from B . The profit for the first year of new partnership amounts to Rs.24,000. Appropriation the first years profit among the partners. (Goodwill credited to A & B Rs.3,000each) Q13.(b) A,B and C are partners sharing profits in the ratio of 5:3:2. Goodwill is appearing in the book at Rs.50,000.D is admitted in to the partnership, the new profit sharing ratio between A,B ,C and D being 3:3:2:2. Give the journal entries for goodwill if the new partner D brings Rs.1,00,000 for capital and cash for his share of goodwill . The goodwill of the firm is valued Rs.1,20,000 and it is not to appear in the books after D’s admission. (Goodwill credited to A Rs.24,000) Q14. Give journal entries to record the following arrangements in the books of the firm : A,B and C are partners sharing profits in the ratio of 3:2. D is admitted paying a premium (goodwill) of Rs.4,000 for 1/4th share of the profits Share of B and C remaining as before . No goodwill account appears in the books . (Goodwill credited to B Rs.2,400, C Rs.1,600) Q15.

B and C are partners sharing profits in the ratio of 3:2, D is admit paying a premium of Rs.21,000 for 1/4th Share of profit which acquires 1/6th from B and 1/12th from C. No goodwill account appear in the books . (Goodwill credited to B Rs.14,000, C Rs.7,000)

Q16.(a) P and Q are partners sharing profits in the ratio of 4:3. They admit R into partnership for 1/5th share who pays Rs.7,000 in cash for goodwill . P and Q decide to share future equally among themselves . No goodwill account appears in the books .Pass the necessary journal entries . (Goodwill credited to P Rs.6,000, Q Rs.1,000 Sacrificing Ratio 6:1) Q16.(b) A and B are partners sharing profit and losses in the ratio of 3:2 respectively. They admit C paying a Premium of Rs.1,000 for ¼ share while A and B as between sharing profit and losses equally in future . Give the necessary journal entries . (Goodwill credited to A Rs.900,B Rs.100 sacrificing Ratio 9:1) Q17.

Give journal entries to record the following arrangement in the books of a firm. A and B are partners Sharing profits in the ratio of 3:2. Goodwill appears in their books at Rs.3,000. They admit C into Partnership, C paying a premium of Rs.2,000 for one-fourth share of the profits. A and B as between themselves sharing profit as before . (Goodwill A/c raised in the ratio of 9:6:5,Goodwill credited to A Rs.1,200,B Rs.800)

Q18.

B and C are partners sharing profits in the ratio of 3:2. Goodwill appears in the books at Rs.3,000. Disadmitted into partnership on payment Rs.20,000 fro Goodwill for 1/4th share, B and C sharing profits between themselves in the same proportion as before: (a) Calculate the Sacrificing Ratio./ (b) Record the transactions assuming Goodwill account will not appear in the books of B,C and D. (Goodwill credited to B Rs.12,000, C Rs.8,000 Sacrificing Ratio 3:2) Q19.(a) A and B are partner sharing profits in the ratio of 3:2. They admit C into partnership . C paying a premium of Rs.2,000 for 1/4th share of profit. The new ratio is 3:3:2. Goodwill account appears in the books at Rs.1,000.Pass the necessary journal entries . (Goodwill credited to A Rs.1,800, B Rs.200 )

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Q19.(b) A and B are partners sharing profits in the ratio of 3:2. They admit C as new partner. C pays a premium of Rs.3,000 for 3/10th share of profits , which he acquires from A and B in the ratio of 2:1. goodwill account appears in the books at Rs.2,000. Give the necessary journal entries . (Goodwill credited to A Rs.2,000, B Rs.1,000 ) Q20.(a) A and B are partners sharing profit in the ratio of 3:2. They admit C into partnership and he is to pay Rs.3,000 as a premium for 1/4th share of profit. Goodwill account already appears in the books at Rs. 4,000.It is decided to write off the goodwill account the new profit –sharing ratio is 3:3:2. (Goodwill credited to A Rs.2,700, B Rs.300 ) Q20.(b) A and B are partners sharing profits in the ratio 3:2. They admit C into partnership. C pays a premium of Rs.1,000 for 1/4th share of profit . The new ratio is 3:3:2. Goodwill account appears in the books at Rs.1,000.Give the necessary journal entries . (Goodwill credited to A Rs.900, B Rs.100 ) Q21.(a) Pass the journal entries to record the following adjustment in the books of a partnership firm: X and Y are partners profits equally, they admit Z into partnership and has to pay a premium (goodwill) of Rs.12,000 for 1/3rd share of profit. The amount is withdrawn by the partners . No goodwill account appears in the books. (Goodwill credited to X & Y Rs.6,000each ) Q21.(b) Vimal and Kamal admit Amal as a new partner who brings Rs.15,000 as his share of goodwill (premium). Amal is entitled to 1/3rd share in profits. As between themselves , Vimal and Kamal agre to share future profit and loss equally. Calculate the new profit sharing ratio and pass the journal entries showing the appropriation of premium. (New Ratio 1:1:1,Sacrificing ratio 1:1, Goodwill credited Vimal & Kamal Rs.7,500each ) Q22.

A and B carrying on business as partners used to share profits and losses thus: A 4/7th and B 3/7th and Goodwill appeared in the books of the firm at Rs.5,600 when C was admitted as a partner having 1/7th Share in profit and losses . C was asked to pay a premium of Rs.1,400 for goodwill and the profit sharing ratio as between A and B remained uncharged . Show journal entries . (Goodwill credited to A Rs.800, B Rs.600 )

Q23.(a) A and B are partners sharing profits and losses in the ratio of 3:2. They admit C as a new partner for 1/5th share in profit . The goodwill is valued at Rs.30,000, C brings in the necessary amount of premium. Pass the necessary journal entries . (Goodwill credited to A Rs.3,600,B Rs.2,400 Sacrificing Ratio 3:2) Q23.(b) A and B are partners sharing profits and losses as 2:1, C and Dare admitted and profits sharing ratio becomes 4:2:3:1. Goodwill is valued at Rs.40,000. D brings required goodwill and Rs.5,000 cash for capital. C brings in Rs.5,000 cash and Rs.6,000 worth stock as his capital in addition to the required amount of goodwill in cash .Show the necessary journal entries . (D’s share of Goodwill Rs.4,000, C’s share of goodwill Rs.12,000 ) Q24.

X and Y are partners sharing profits and losses in the ratio of 3:2. They agree to admit Z upon payment in cash of Rs.4,800 for 2/7th share of goodwill and Rs.6,000 as his capital. Give the necessary journal entries to give effect to these arrangement. (S.R.3:2 G/W credited to X Rs.2,880,Y Rs.1,920)

Q25.

A,B and C are partners sharing profits in the ratio of 4:3:2. D is admitted for 2/9th share of profit and brings Rs.30,000 as his capital and Rs.10,000 for his share of goodwill. The new profit sharing ratio of A,B ,C and D will be 3:2:2:2. journalize the above arrangement in the books . (Goodwill credited to A Rs.5,000, B Rs.5,000 )

Q26.(a) A and B are partners in a firm sharing profit and losses in the ratio of 5:3. C is admitted in the firm for 1/5th share of profits. He is to bring in Rs.12,000 as capital and Rs.2,400 as his share of goodwill . Give the necessary journal entries in each of the following alternative cases: (a) When the amount of goodwill is retained in the business .

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When the amount of goodwill is fully withdrawn. When 50% of the amount of goodwill is withdrawn. (Goodwill credited to A Rs.1,500, B Rs.900 Sacrificing Ratio 5:3)

Q27.

B and C are in partnership sharing profits and losses at 3:1. They admit D into the firm , paying a premium of Rs.15,000 for one third share of the profits. As between themselves, B and C agree to share future profits and losses equally. Draft journal entries showing the appropriation of the premium money.

Q28.

A,B and C are partners sharing profit and losses in the ratio of 3:2:1. D is admitted . The new profit sharing ratio between ratio A,B ,C and D will be 3:3:2:2. Goodwill of the firm is valued at Rs.3,00,000. D brings his share of goodwill in cash. Give the journal entries relating to adjustment of goodwill .

Q29.

A ,B ,C are partners sharing ratio 3:2:1. D is admitted for 1/4th share D brings Rs.1,20,000 as his share of Capital & Rs.30,000 as his share of goodwill. The new ratio of all partners will be equally. Give journal.

Q30.

P and Q share profits in the ratio of 3:2. R is admitted as a partner with 1/6th share, P and Q will in future get 2/6th and 3/6th share of profits. R pays Rs.30,000 as goodwill. Partners decide to maintain a goodwill account at Rs.60,000. Record the concerned entries in the journal of the firm.

CASE 2: WHEN A NEW PARTNER DOES NOT BRING THE AMOUNT OF GOODWILL IN CASH. A : B = 3 :2 . C’s share = 1/6 C’s share of goodwill = Rs.10,000 C’s share of capital = Rs.80,000 Goodwill already appears at Rs.25,000. 1st STEP : ENTRY OF WRITING OFF THE OLD 3rd STEP : ENTRY FOR TRANSFERRING THE GOODWILL ACCOUNT AMOUNT OF GOODWILL (If old goodwill is given in old balance sheet) A’s capital A/c …………..Dr. 15,000 C’s Capital A/c ……….Dr. 10,000 B’s Capital A/c ………….Dr. 10,000 A’S Capital A/c 6,000 Goodwill A/c 25,000 B’s capital A/c 4,000 (Amount of old G/W written off in old ratio) (The amount of C’s share of goodwill transfer in S.R)

2nd STEP: ENTRY FOR BRINGING AMOUNT OF CAPITAL Cash A/c ……………Dr. 80,000 C’s Capital A/c 80,000 (The amount of Capital brought in by C) Q1.

Santosh and Brij are partners in a business sharing profits and losses in the ratio of 4:3. On 1st Jan 1993, their Capital were Rs.20,000 and Rs.15,000 respectively. They admitted Ravinder into partnership as form 1st Jan 1993, on the following : (a) Ravinder to be given one –eight share in future profits of the business. (b) He should bring in Rs.20,000 as his capital. (c) As he was unable to bring his share of goodwill in cash, the goodwill of the firm was valued at Rs.14,000.

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Give the necessary journal entries, and prepare partners capital accounts and Goodwill accounts. Calculate the future profit-sharing ratio. (Goodwill credited to Santosh Rs.1,000, Brij Rs.750) Q2.

A and B are partners sharing profits in the ratio of 3:2. Their books showed goodwill at Rs.2,000. C is admitted with 1/4th share of profit and brings Rs.10,000 as his capital but is not able to b ring in cash his share of goodwill Rs.3,000, Draft journal entries . (Goodwill credited to A Rs.1,800, B Rs1,.200)

Q3.

A and B are partners sharing profits in the ratio of 3:2. They admit C as a partner who is unable to bring Goodwill in cash but pays Rs.60,000 his capital . The goodwill of the firm is to be valued at 2 years purchase of 3 years profits. The profits for the three years were Rs.30,000 ,Rs.24,000 and Rs.27,000. The new ratio will be 5:2:2 . Make journal entries . (Goodwill credited to A Rs.2,400, B Rs.9,600)

Q4.

A and B are partners sharing profit and losses equally. They admit C into partnership and the new ratio is fixed as 4:3:2. C is unable to bring anything for goodwill but is to bring Rs.15,000 as capital. Goodwill of the firm is valued at Rs.10,800 . Give the necessary journal entries of admission of C. (Goodwill credited to A Rs.600, B Rs1,800)

Q5.

A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decided to admit C into Partnership for 1/5th share of profits which he acquires equally from A and B . Goodwill is valued at Rs.20,000, C brings in Rs.9,600 for his capital but is not in a position to bring any amount for goodwill. No goodwill account appears in books of the firm. Pass the necessary journal entries . (Goodwill credited to A Rs.2,000, B Rs.2,000)

Q6.

A and B are partners in a firm sharing profit and losses in the ratio 3:2. C is admitted into partnership . He will bring in Rs.60,000 as capital fro 1/3rd share in profit. The goodwill of the firm has been valued at Rs.18,000. Give journal entries under the following circumstances: Case (a) When there is no goodwill appearing in the books of the firm. Case (b) When the goodwill account appears at Rs.9,000 in the books of the firm. Case (c) When the goodwill account appears at Rs.21,600 in the books of the firm .

Q7.

A and B are partners sharing profits and losses in the ratio of 3:2. They decide to admit C as a partner and all the partners share future profits and losses equally. C brings in Rs.30,000 as his capital. Goodwill of the firm is valued at Rs.36,000.Pass the necessary journal entries . Case (a) When no goodwill appears in books . Case (b) When goodwill appears at Rs.30,000 and Case (c) When goodwill appears at Rs.60,000

Q8.

(b) (c)

A and B are partners sharing profits and losses in the ratio of 3:2. They admit C into partnership for 1/3rd share in profits, C brings capital Rs.20,000. Goodwill is valued at Rs.12,000. Show what entries shall be passed in the following cases: (a) Goodwill does not appear in the books . Goodwill appears in the books at Rs.9,000. Goodwill appears in the books at Rs.18,000. Q9.

A and B are partners sharing profits in the ratio of 3:2 .Their books showed goodwill at Rs.2,000. C is admitted with 1/4th share of profit; C brings 25,000 as his capital but is unable to bring his share of goodwill of Rs.3,000 in cash. Give necessary journal entries fro the following.

Q10.

A and B are partners in a firm sharing profits and losses in the ratio of 5:3., C is admitted as a new partner for 1/8th share in the profit of the firm . C brings in Rs.48,000 as his capital but is not in a position to bring any amount by way of goodwill. Goodwill of the firm is valued at Rs.32,000. It was decided that the new profit sharing ratio will be 9:5:2 and adjustment regarding goodwill is to be made without raising any goodwill account in books . Pass the necessary journal entries in the books of the firm. (Goodwill credited to A Rs.2,000, B Rs.2,000)

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Commerce Classes Q11.

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X and Y are partners in a firm sharing profits and losses in the ratio of 5:3. On March 1, 2004 they admitted Z as a new partner . The new profit sharing ratio will be 4:3:2. Z brought in Rs.1,00,000 in cash as his share of capital but could not bring any amount for goodwill in cash The firm’s goodwill on Z’s admission was valued at Rs.1,80,000. At the time of Z’s admission goodwill existed in the books of the firm at Rs.2,40,000 Pass the necessary journal entries in the books of the firm on firm on Z’s admission .Show your workings clearly. (Goodwill credited to X Rs.1,50,000, Y Rs.90,000)

HIDDEN GOODWILL Goodwill = Normal Capital of Firm – Actual Capital of Partners Normal Capital of firm = Capital of New Partner x Reciprocal of his share Actual Capital of partners (after all Adjustments) = Adjusted Capital Balances of Old Partners + New Partners Capital Q1.

A and B are partners with capital of Rs.8,000 and Rs.6,000 respectively. They admit C as a partner with 1/4th share in the profits of the firm . C bring Rs.8,000 as his share of capital. Give journal entries to record goodwill. (Goodwill credited to A & B Rs.1,250each)

Q2.

A and B are partners with capital of Rs.16,000 and Rs.12,000 respectively. They admit C as a partner with 1/4th share in the profits of the firm. C brings Rs.16,000 as his share of capital. Give journal entries to record goodwill. (Goodwill credited to A & B Rs.2,500each)

Q3.

A & B are partners with capitals of Rs.30,000 and Rs.10,000 respectively. They admit C as a partner for 1/4th share in the profits of the firm. C brings Rs.15,000 as his capital. Give journal entries to record goodwill. (Goodwill credited to A & B Rs.625each)

Q4.

A & B are partners sharing ratio 3:2 with a capitals of Rs.10,000 & Rs.12,000 respectively. They admitted C as a partner for 1/5th share . He brings Rs.7,000 as his share of Capital & necessary Amount of Goodwill in cash. Give journal. (Goodwill credited to A & B Rs.720 & Rs.480) A : B = 3 :2 . C’s share = 1/5 Goodwill already appears=Rs.6,000 C’s share of goodwill = Rs.10,000 C’s share of capital = Rs.80,000 But he brings only Rs.7,000

2nd STEP: ENTRY FOR BRINGING AMOUNT OF CAPITAL & PART OF GOODWILL Cash A/c ……………Dr. 87,000 C’s Capital A/c 80,000 Premium A/c 7,000

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1st STEP : ENTRY FOR WRITING OFF THE OLD GOODWILL ACCOUNT A’s capital A/c …………..Dr. 3,600 B’s Capital A/c ………….Dr. 2,400 Goodwill A/c 6,000 (This entry is done in the ratio 3:2)

3rd STEP : ENTRY FOR TRANSFERRING THE AMOUNT OF GOODWILL Premium A/c ………..Dr. 7,000 A’s Capital A/c 4,200 B’s capital A/c (S.R.3:2) 2,800 C’s Capital A/c ………….Dr. 3,000 A’s Capital A/c 1,800 B’s Capital A/c 1,200

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CASE 3.: WHEN A NEW PARTNER BRINGS ONLY A PART OF HIS SHARE OF GOODWILL IN CASH Q1.

A and B are partners sharing profit equally. They admit C into partnership. C paying only Rs.2,000 for Premium out of his share premium of Rs.2,800 for 1/4th share of profit. Goodwill A/c appears in the books at Rs.5,000. Give the necessary journal entries . Q2. A and B are partners sharing profits and losses in the ratio 3:2. They admit C into the firm for 1/4th share in profit which he takes 1/6th from A and 1/12th from B . New partner bring in only a part of his share of Goodwill C brings Rs.1,800 as goodwill out of his share of Rs.3,000. No goodwill account appears in the books of the firm . Pass the necessary journal entries to record this arrangement. Q3. X,Y and Z were partners sharing profits and losses as to X one-half ; Y one-third and Z one-sixth. As from 1st Jan 1992, they agreed to admit a into partnership for a one-sixth share in profits and losses, which he acquires equally from X and Y and he brings in Rs.20,000 for his capital and Rs.10,000 as premium for goodwill. A paid in his capital money but in respect of premium for goodwill . he could bring in only Rs.5,000. You are required to : (i) Give the journal entries to carry out the above arrangements, and (ii) Work out the new profit sharing ratio of the partners. Q4. A and B are partners sharing profit equally . They admit C into partnership. C paying only Rs.1,000 for Premium, out of his share of premium of Rs.1,800 for 1/4th share of profit. Goodwill account appears in the Books at rs.6,000. All the partners have decided that goodwill should not appear in the new books of the firm. Give the necessary journal entries. Q5.(a) A and B are partners in the ratio of 3:4. They admit C for 3/7th which he acquires 2/7th from A and 1/7th from B and brings Rs.1,000 as premium out of his share of Rs.1,900. Goodwill account does not appear in the Books . Q5.(b) A and B are partners sharing profits equally. They admit C into partnership. C paying only Rs.1,000 for Premium out of his share of premium of Rs.1,800 for 1/4th share of profit. Goodwill account appears in the Books at rs.6,000. All the partners have decided that goodwill should not appear in the new books of the Firm. Give the necessary journal entries. Q6. A and B are partners sharing profits in the ratio of 3:2. they admit C for 1/5th share in profits. C brings Rs.30,000 for his capital and Rs.8,000 out of his share of Rs.10,000 for goodwill. Before admission goodwill appeared in books at Rs.18,000. Give the journal entries to give effect to above arrangement. Q7. Q8. Q9. Q10.

Q.11.

A & B are partners sharing profits and losses equally. They admit C for 1/4th share by paying Rs.5,000 out of his share of Rs.9,000 of goodwill. Goodwill already appears at Rs.30,000. Give journal entries to record the above transactions. A and B profits in the ratio of 2:1, admit C for 1/4th share in profits. C pays Rs.20,000 for capital and Rs.3,000 out of his share of Rs.4,000 for goodwill. Give journal entries in connection with C’s admission. A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7th share in profit of which he takes 2/7th from A and 1/7th from B and brings Rs.1,000 as premium out of his share of Rs.1,800.goodwill account does not appears in the books of A and B. Give the journal entries. A and B are partners sharing profits in the ratio of Rs.5:3. They admit C into the firm for 3/10th share in Profit which he takes 2/10th from A and 1/10th from B . C brings Rs.3,00,000 as premium in cash out of his share of Rs.7,800 . Goodwill account does not appear in the books of A and B . Give necessary journal entries in the books of new firm. A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7thy profits (which he takes 2/7th from A and 1/7th from B ) and brings Rs.3,000 as premium out of his share of Rs.3,600. Goodwill account does not appear in the books of A and B . Draft the necessary journal entries .

ASSIGNMENT --- II ADMISSION OF A PARTNER Q1.

The following was the balance sheet of A and B who were sharing profits 2:1 on 1st December 1980:

Commerce Classes

By:- SUBHASH THAKUR

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Liabilities Sundry Creditors General Reserve Capital’s accounts A 30,000 B 20,000

Rs. 65,900 30,000 50,000 _______ 1,45,900

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Assets Building Plant and Machinery Stock Sundry Debtors Cash in Hand Bank

Rs. 50,000 35,000 20,000 9,700 1,200 30,000 _______ 1,45,900

On this date C is admitted into the partnership on the following terms: (a)

(b) (c) (d) (e)

C was to bring Rs.15,000 as his capital and Rs.6,000 as goodwill for one-fourth share in the firm . That the value of the stock and plant and machinery was to be reduced by 5% . That a Reserve was to be created in respect of sundry Debtors, Rs.750. That the building Account was to be appreciated by 10% . That Goodwill money was to be retained in the business. Prepare Profit and loss Adjustment Account (Revaluation Account), Partners Capital accounts, and The Balance sheet of the new firm. (Ans. Profit on Revaluation Rs.1,500; B ‘s 1,68,400) Q2.(a)

A an B were partners sharing profits and losses in the ratio of 3:2. on 31st March 1999. their Balance sheet was as follows:

Liabilities Creditors Bills payable General Reserve Capitals : A B

Rs. 15,000 7,500 10,000

Assets Cash in Hand Cash at Bank Debtors Stock Furniture Land & Building

Rs. 500 8,000 40,000 20,000 12,000 32,000 ____________ 1,12,500

30,000 50,000 _____________ 1,12,500 On that date they admitted C as a partner on the following terms : (a) C will get 1/4th share in profits. (b) New profit sharing ratio be 3:3:2. (c) C shall bring Rs.10,000 for 1/4th share of goodwill and Rs.25,000 as his capital. (d) Stock was to be reduced by 20% and the furniture be depreciated by 15%. (e) Land & building were revalued at Rs.39,400.

Prepare Revaluation Account, Partners capital Accounts and the Balance Sheet of the new firm . (Ans. Profit on revaluation Rs.1,600 Total of balance sheet A/c Rs.1,49,100) Q2.(b) The balance sheet of A and B as on 31st March 1991 is given below : Liabilities A’s Capital B’s Capital General Reserve Creditors

Rs. 60,000 30,000 24,000 16,000

Assets Freehold property Furniture Stock Debtors Cash

____________ 1,30,000

Rs. 20,000 6,000 12,000 80,000 12,000 ____________ 1,30,000

A and B share profits and losses in the ratio of 2:1 they agree to admit P into the firm subject to the following terms and conditions: (a) P will bring in Rs.21,000 of which Rs.9,000 will be treated as his share of goodwill to be retained in the business.

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By:- SUBHASH THAKUR

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Commerce Classes (b) (c) (d) (e)

By:- SUBHASH THAKUR

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P will be entitled to 1/4th share of profits of the firm. A reserve for Bad and Doubtful Debt is to be created at 3% of the debtors. Furniture is to be depreciated by 5% . Stock is to be revalued at Rs.10,500. Prepare Revaluation Account, Capital accounts and Opening Balance Sheet of the new firm. (Ans. Loss on Revaluation Rs.4,200 Balance sheet Rs.1,46,800) Q3.(a)

A and B are carrying on business in partnership sharing profits and losses in the ratio of 2:3 respectively. Their balance sheet as at 31st March,1999 was as under:

Liabilities Sundry Creditors Reserve Capital’s: A B

Rs. 24,870 50,000

Assets Cash in Hand Cash in Bank Sundry Debtors Stock Furniture Building

Rs.

1,420 23,850 11,000 48,100 36,000 38,100 8,800 80,000 _____________ ____________ 1,61,070 1,61,070 On that date they admit C into partnership and give him one-third share in future profits on the following Terms: (a) (b) (c) (d)

Stock and furniture are to be reduced in value by 12 ½ %. Buildings are to be appreciated by Rs.16,000. A provision of 5% is to be created on Sundry Debtors for doubtful debts. C is to bring in Rs.60,000 as his capital and Rs.40,000 as goodwill, which is to remain in the Business. Prepare necessary ledgers. Show the opening Balance Sheet of the new firm. (Ans: Profit on Revaluation Rs.9,850;B/S 2,70,920) Q3.(b) A and B are partners in a firm sharing profits and losses in the ratio of 2:1 respectively. On 31st December, 1991, their Balance sheet stood as follows: Liabilities A’s Capital B’s Capital General Reserve Creditors

Rs. 1,60,000 1,20,000 96,000 64,000 ________________ _ 4,40,000

Assets Buildings Furniture Stock Debtors Cash at bank

Rs. 80,000 24,000 48,000 2,40,000 48,000 ________________ 4,40,000

It was decided to admit C into the firm subject to the following terms and condition : (a) C will bring in Rs.84,000 of which Rs.36,000 will be treated as his share of goodwill to be Retained in the business . (b) C will be entitled to 1/4th share of the profits. (c) Rs.9,000 is to be provided for doubtful debts. (d) Depreciation on furniture is to be provided @ 5% . (e) Stock is to be revalued at Rs.42,000. You are required to prepare the necessary ledger accounts and the Balance sheet of the firm after the admission of from the above information. (Ans: Loss on Revaluation Rs.16,200 ; Capital A/c A: Rs.2,37,200;B Rs.1,58,600 and C Rs.48,000; B/S Rs.5,07,800)

Commerce Classes

By:- SUBHASH THAKUR

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Commerce Classes Q4.

By:- SUBHASH THAKUR

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M and N are partners in a firm sharing profits and losses in the ratio of 5:3. On 31st December 1985, their Balance sheet was as under :

Liabilities Sundry Creditors Bills payable Capitals: M 12,000 N 10,000

Rs. 4,000 2,000 22,000 ____________ 28,000

Assets Machinery Stock Sundry Debtors Bank Balance Cash in hand

Rs. 12,000 8,000 7,200 500 300 __________ 28,000

On the above date the partners decide to admit R as a partner on the following terms : (a) The new profit sharing ratio of M,N and R will be 7:5:4 respectively. (b) R shall bring Rs.8,000 as his capital and Rs.4,000 for his share of goodwill. (c) M and N will draw half of the goodwill in cash. (d) Machinery is to be valued at Rs.15,000,Stock at Rs.10,000 and a provision for bad debts of Rs.1,000 is to be created. (e) There is a liability of Rs.2,000, being the outstanding salary payable to employees of the firm. This liability is not included in the creditors . Partners decide to show this liability in the books of accounts of the new firm. Prepare Revaluation Account, Partners Capital accounts and Balance sheet of the M,N and R. (Ans. Profit on Revaluation Rs.2,000 Balance sheet total Rs.42,000 ) Q5.

A and B were carrying on business in partnership sharing profits and losses in the ratio of 3:2 respectively. On December 1986, their balance sheet as follows:

Liabilities A’s Capital Account B’s Capital Account Bank loan Sundry Creditors Bills Payable

Rs. Assets Rs. 30,200 Land and Buildings 40,000 35,400 Furniture 10,600 20,000 Stock 38,500 20,800 Sundry Debtors 19,000 10,000 Cash 8,300 _______ _______ 1,16,400 1,16,400 C was admitted to partnership on the following conditions : (a) C would be entitled to one-third share in profits. (b) C would bring Rs.30,000 as capital and Rs.10,000 as his share of goodwill. (c) The book value of land and buildings would be increased by Rs.10,000 and a provision for bad debts @ 5% of Sundry Debtors would be created. (e) Bank loan would be paid off.

Q6.

You are required to : (i) Prepare Revaluation Account, Cash book and Partners Capital Accounts. (ii) Show initial Balance Sheet of the new firm. (Ans. Profit on Revaluation Rs.9,050; B/S Rs.1,45,450) Vimal and Nirmal are partners in a firm sharing profits and losses in the ratio of 3:2. On 31st December ,1983, the position of the business was as follows:

Liabilities Sundry Creditors Capital Accounts : Vimal Nirmal Profit and loss A/c

Commerce Classes

Rs. 20,000 60,000 32,000 10,000 ___________

By:- SUBHASH THAKUR

Assets Cash Debtors Plant and machinery Stock

Rs. 14,000 18,000 50,000 40,000 ___________

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1,22,000

1,22,000

On this day, Kailash agree to join the business on the following terms and condition : (a) He will introduce Rs.40,000 as his capital and pay Rs.20,000 to the existing partners for his share of Goodwill. (b) The new profit sharing ratio is 2:1:1 respectively for Vimal, Nirmal and Kailash . (c) A revaluation of the assets will be made by reducing plant and machinery to Rs.35,000 and stock by 10%. Provision of Rs.1,000 is to be created for bad and doubtful debts. Prepare necessary ledgers. Give the balance sheet of the newly constituted firm. Also specify the sacrificing Ratio. (Ans. Loss on Revaluation Rs.20,000 Balance Sheet Rs.1,62,000) Q7.

A and B were partners sharing profits and losses equally. The balance sheet as on March 31,1999 was as follows:

Liabilities Creditors Bills Payable Outstanding expenses General Reserve Capitals : A B

Rs. 50,000 15,000 3,000 20,000

Assets Cash in hand Cash at Bank Debtors 20,000 Less : Provision Stock Furniture Machinery Land & building

50,000 30,000 ________ 1,68,000

Rs. 12,000 15,000 500

19,500 20,000 10,000 18,000 73,500 ______ 1,68,000

On that date, They agreed to admit C as a partner on the following terms: (a) C shall get 1/5th share in profits and he will bring Rs.20,000 as Capital and Rs.5,000 as his share of goodwill. (b) Goodwill brought in by C shall be withdrawn by A and B . (c) Provision for doubtful debts should be brought up to 5% debtors. (d) Machinery be depreciated by Rs.1,000 and furniture by 12 ½ %. (e) Stock be revalued at Rs.23,000. (f) Land & Building be appreciated by 20% and (g) Investment of Rs.2, 000 which did not appear in books should be recorded. Prepare Revaluation A/c, Partners Capital A/c and Balance sheet. (Ans. Profit on Revaluation Rs.16,950; Balance sheet Rs.2,04,950) Q8.

The following is the Balance sheet of X and Y sharing profits and losses in the ratio of 2:1.

Liabilities Sundry Creditors Capitals : X 2,50,000 Y 2,00,000

Rs. 1,00,000 4,50,000

Assets Cash Stock Debtors Furniture Property

_________ 5,50,000

Rs. 60,000 60,000 3,00,000 30,000 1,00,000 ____________ 5,50,000

They agreed to admit Z into partnership on the following Conditions : (a) Z to pay Rs.45,000 as goodwill. (b) Z to bring Rs.55,000 as his capital for 1/4th share of profit in the business .

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(c)

Property and Furniture to be depreciated at 5%.Stock to be reduced by Rs.8,000 and a bad debt Reserve of Rs.60,000 to be provided for . Assuming the above terms to have been effect to, show the necessary ledgers and prepare the initial Balance Sheet. (Ans. Loss on Revaluation 74,500; Balance sheet Rs.5,75,500) Q9.

Following is the Balance sheet on 31st March ,1999 of Sushil and Satish who are in partnership sharing profits and Losses in the ratio of 3:2 respectively.

Liabilities Creditors Reserve Capital Accounts Sushil Satish

Rs. 18,000 5,000 22,000 7,000

Assets Freehold Premises Machinery Stock Debtors 22,500 Less: Provision 4,000 Cash at Bank

______________ 52,400

Rs. 10,000 5,400 12,000 18,500 6,000 ____________ 52,400

They admit Samir into partnership with effect from 1st April 1999, on the following conditions : (a) Samir to bring in Rs.6,000 as Capital and Rs.4,800 for two-seventh share of Goodwill , Both the Sums remaining in the business . (b) Freehold Premises have been revalued at Rs.15,000. Stock to be discounted at 10% and Provision For doubtful debts to be reduced by Rs.1,000. Pass the journal entries in the books of the firm to record the transactions relating to Samir’s admission, and prepare the Balance sheet of sushil, Satish and Samir on 1st April,1999. (Ans. Profit on Revaluation Rs.4,750; Balance sheet Rs.67,950) Q10.

A and B are partners in a firm sharing profits in the ratio of 3:2. On 1st Jan,1982 the position of the business was as follows:

Liabilities Capital Accounts A B Sundry Creditors General reserve

Rs. 30,000 25,000 10,000 5,000

Assets Goodwill Stock Plant and Machinery Debtors 20,000 Less : Provision for 1,000 Bad and doubtful debts Cash

Rs. 5,000 19,000 25,000 19,000 2,000 ___________ 70,000

____________ 70,000

C agree to join the business on the following conditions: He will introduce Rs.20,000 as his capital and pay Rs.10,000 to the partners as premium for goodwill . The new profit sharing ratio is 2:1:1 for A,B and C respectively. A revaluation of the assets of the firm will be made by reducing plant and machinery to Rs.22,000 stock is to be reduced by Rs.2,000 and create provision for bad and doubtful debts at 6% on debtors. You are asked to give necessary ledgers and give the new balance sheet (Ans. Loss on Revaluation Rs.5,200; B/S A/c Rs.89,800)

(a) (b)

Q11.

A and B share profits in the proportion of 3/4th and ¼. Their Balance sheet on December 31,1981 was as follows:

Liabilities Sundry Creditors

Commerce Classes

Rs. 41,500

By:- SUBHASH THAKUR

Assets Cash at Bank

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Rs. 26,500

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Commerce Classes

By:- SUBHASH THAKUR

Reserve Fund Capitals: A B

4,000 30,000 16,000

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Bills Receivable Debtors Stock Fixtures Land and Buildings

______________ 91,500

3,000 16,000 20,000 1,000 25,000 _____________ 91,500

On Jan,1,1982 , C was admitted into partnership on the following terms:

(a)

That C pays Rs.10,000 as his capital for 1/5th share. (b) That C pays Rs.5,000 for goodwill . Half of this sum is to be withdrawn by A and B . (c) That stock and fixtures be reduced by 10% and a 5% provision for doubtful debts be created on Sunday Debtors and Bills Receivable . (d) That the value of land and buildings be appreciated by 20%. (e) There being a claim against the firm for damages, a liability to the extent of Rs.1,000 should be created. (f) An item of Rs.650 included in sundry creditors is not likely to be claimed and hence should be written back. Record the above transactions(journal entries )in the books of the firm assuming that the profit sharing ratio between A and B has not changed . Prepare the new balances sheet on the admission of Mr. C. Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B has not changed . Prepare the new balance sheet on the admission of Mr. C. (Ans. Profit on Revaluation Rs.16,000;Balance sheet A/c Rs.1,05,950) Q12.

A and B are partners sharing profits in the ratio of 3:1. Their Balance sheet are as on 31-12-90 was as follows:

Liabilities Capital Accounts A B Creditors Workman’s Compensation Fund

Rs. 9,000 3,000 2,000 2,000 _______________ _ 16,000

Assets Bank Debtors Stock Investment Goodwill

Rs. 1,000 6,000 3,000 5,000 1,000 ______________ 16,000

C is admitted for 2/5th share in future profits. For this purpose ,following adjustments are agreed upon: C will bring Rs.8,000 for capital and Rs.2,000 for goodwill . Market value of investment is Rs.4,500; claim on account of workmen’s compensation is Rs.1,000. Goodwill is not to appear in the new firm at all. Prepare ledger accounts i.e. Revaluation Account, Partners Capital Accounts, to record the above and show the balance sheet . (Ans. Loss on Revaluation 500; Total B/S=24,500) Q13.

A and B are partners sharing profits in the ratio of 2:1. Their Balance sheet as at 31st December,1996 was as under:

Liabilities Sundry Creditors Capital A B

Commerce Classes

Rs. 44,000 30,000 20,000

By:- SUBHASH THAKUR

Assets Cash at bank Sundry Debtors Bills receivable Stock Furniture Land and Building

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Rs. 17,000 15,000 4,000 25,000 3,000 30,000

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_________________ 94,000

______________ 94,000

C is admitted to partnership with effect from 1st Jan 1997, on the following terms: That he brings in Rs.15,000 as his capital for 1/4th share and pays Rs.6,000 for goodwill , half of which is to be withdrawn by A and B. (b) That there is likely to be a claim against the firm for damages for which a provision to the extent of Rs.1,500 is to be made. (c) That all bill for Rs.300 for electric charges is omitted from the books. It should be provided for . (d) That the value of stock would be reduced to Rs.23,000 and furniture and fixtures by Rs.1,000. (e) That provision for doubtful would be created at 5% on debtors. (f) That the value of land and buildings would be appreciated by 20%. (g) That included in sundry creditors is an item of Rs.1,200 which is not to be paid and therefore has to be written back. Prepare Capital Accounts and other necessary accounts . Also prepare the balances sheet as at 1.1.1997. (a)

(Ans. Profit Rs.1,650; Capital A 33,100; B -21,550; C 15,000; B/s 1,14,250;Cash at Bank 25,000) Q14.

Balance Sheet of A,B and C sharing profit in the ratio of 3:2:1 is given below:

Liabilities A’s Capital B’s Capital C’s Capital Contingency Reserve Trade Creditors

Rs. 4,00,000 4,00,000 2,00,000 1,20,000 1,80,000

Assets Bank Debtors 2,00,000 Less : Provision 3,000 For Doubtful debts Stock Furniture Machinery Buildings

______________ _ 13,00,000

Rs. 40,000 1,97,000 2,03,000 30,000 5,30,000 3,00,000 ______________ 13,00,000

It was decided to admit D into partnership on the following terms and conditions: (a) New profit Sharing ratio between A,B,C and D will be 3:3:2:2. (b) Goodwill of the firm is valued at Rs.3,00,000. D brings his share of goodwill in cash which is credited to the old partners . (c) D brings Rs.1,50,000 as his share of capital. (d) Contingency Reserve is not required an more. (e) Provision for bad and doubtful debts to be raised to 5% on debtors. (f) Machinery is revalued at Rs.5,00,000 and Buildings is revalued at Rs.3,67,000. Prepare Revaluation A/c Capital A/c’s of A,B ,C and D and the Balances Sheet of the firm after D’s admission .Also show the calculation regarding goodwill. Q15.

(Ans. Profit 30,000 B/s 1,54,000; Capital A’s 5,35,000; B’ 4,60,000, C’s 2,15,000) Surrender and Narender share profit and losses in the ratio of 3:2. On 1st Jan 1994, Mahender was admitted who paid Rs.40,000 for capital and Rs.20,000 for Goodwill, Surrender and Narender withdrew half of the goodwill . The Balance sheet of surrender and Narender as on 31st dec,1993 was as follows:

Liabilities Creditors Bills Payable

Commerce Classes

Rs. 14,000 4,000

By:- SUBHASH THAKUR

Assets Cash Stock

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Rs. 7,000 40,000

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Capital Accounts Surrender Narender

Q16.

56,000 30,000

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Sundry Debtors Less: Provision For bad debts Furniture Plant Buildings

22,000 2,000

20,000 7,000 10,000 20,000 _______________ 1,04,000

______________ 1,04,000 The assets and liabilities of the firm were revalued as under : (a) Stock at Rs.36,000, Furniture at Rs.8,000, plant at Rs.8,000 and building at Rs.24,000. (b) Provision for doubtful debts is to be maintained at 10% of the debtors. (c) A liabilities of Rs.1,000 included in creditors was not likely to be paid . Prepare Revaluation Account , partners Capital Accounts and balance sheet of the reconstituted firm. Mahender was admitted for 1/6 share in future . (Ans. Loss Rs.200 B/s 1,52,800 Capital Surrender 61,880; Narender 33920) X and Y are partners in a firm sharing profits and losses as X-6% and Y, 40%. On 31st March ,1999 the position of the business was as follows:

Liabilities Sundry Creditors Loan Reserve Capital X’s Y’s

Rs. 15,000 20,000 10,000

Assets Plant and Machinery Furniture and fitting Stock Debtors Cash

Rs. 30,000 15,000 20,000 18,000 7,000

24,000 21,000 ________________ __________________ _ 90,000 90,000 Z agrees to join the business on the following conditions : (a) He will introduce Rs.20,000 as his capital and pay Rs.10,000 to the partners as premium for goodwill 1/4th share of the furniture profits of the firm . (b) A revaluation of the assets of the firm will be made by reducing plant and Machinery Account to Rs.20,000 and Stock by 10% and by raising provision for doubtful debts to 6 ¼ % of debtors. You are asked to give the necessary entries in the books of account , recording the above transactions and give the Balance sheet of the new firm on completion of the transactions. How will the partners share profits in the new firm, assuming that the relative ratios of X and Y remains unaltered ? (Ans. Loss on Revaluation Rs.13,125; X Capital Rs.28,125; Y’s Capital Rs.23,750;Z Capital Rs.20000)

Q17.

Given below is the balance sheet of A and B, who share profit & losses in the ratio of 2:1.

Liabilities Bills Payable Creditors Outstanding Express Reserve Capital : A B

Rs. 10,000 58,000 2,000 30,000

Assets Cash in hand Cash at bank Sundry Debtors Stock Plant Buildings

Rs. 10,000 40,000 60,000 40,000 1,00,000 1,50,000

1,60,000 1,40,000 ________________ _______________ 4,00,000 4,00,000 C is admitted as a partner on the date of the balance sheet on the following terms : (a) C will Bring in Rs.1,00,000 as his capital and Rs.60,000 as his share of goodwill for 1/4th share in the profits. (b) Plant is to be appreciated to Rs.1,20,000 and the value of building is appreciated by 10%. (c) Stock is found overvalued by Rs.3,000. (d) A provision for doubtful debts to be created at 5% of debtors . (e) Creditors were unrecorded to the extent of Rs.1,000.

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Prepare the revaluation account and partner ‘s capital accounts and show the balance sheet after the admission of C. (Ans. Profit on Revaluation Rs.28,000;Total of B/s Rs.5,89,000) Q18.

A and B are partners sharing profit and losses in the ratio of 4:3. On 31st March 1999, their balance sheet was as follows:

Liabilities Creditors Reserve Capital Accounts A B

Rs. 27,200 7,000 1,20,000 80,000

Assets Cash in hand Cash at bank Sundry Debtors 31,000 Less: Provision 1,000 Stock Machinery Buildings Patients

Rs. 1,500 28,000 30,000 30,000 60,000 80,000 4,200 _______________ 2,34,200

_______________ 2,34,200 On this date they agree to admit C into partnership on the following terms : (a) C will be entitled to 1/8 share in the profit of the firm and he will bring in Rs.30,000 as his capital. (b) C will be also bring in Rs.14,000 as his share of goodwill. (c) Building have been valued at Rs.76,500 and machinery at Rs.67,000. (d) A provision of Rs.1,700 is to appear in respect of bad and doubtful debts. (e) Patents should be written off. Prepare the necessary ledgers and balance sheet . (Ans. Loss on Revaluation Rs.1,400,Total of .B/s Rs.2,76,800) Q19.

The balance sheet of A and B who shared profits in the ratio of 3:2 was as follows on 1st Jan 1999: Liabilities Sundry Creditors Reserve A’s Capital B’s Capital

Rs. 20,000 20,000 28,000 22,000

Assets Cash in hand Sundry Debtors 20,000 Less: Provision 700 Stock Plant and Machinery Patients

Rs. 5,000 19,300 25,000 35,000 5,700 _________________ 90,000

________________ _ 90,000 On this date , C was admitted as a partner on the following terms : (a) He was to get 4/15th of profit; (b) He was to introduce Rs.30,000 as capital; (c) He would pay cash for goodwill which would be based on 2 ½ years purchase of the average profits of past four years; (d) A and B would withdraw half the goodwill in cash; (e) Assets would be revalued as under; Sundry Debtors at book value less a provision of 5%. stock at Rs.20,000. Plant and Machinery at Rs.41,000 and patents at Rs.12,000 and (f) Liabilities were proved at Rs.23,000 one bill for goods purchased having been omitted from book. Profits for the purchase of calculation of goodwill were : 1995 Rs.15,000 1997 Rs.14,000 1996 Rs.20,000 1998 Rs.17,000 Give ledger accounts to record the above and the Balance sheet on C’s admission . What will be the new profit sharing ratio ? (Ans. Profit on Revaluation Rs.4,000;Total of B/s Rs.1,32,500; New Profit Sharing Ratio:33:22:20)

Commerce Classes

By:- SUBHASH THAKUR

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9810190005

Commerce Classes Q20.

9810190005

P & Q are partners in a firm sharing profits and losses in the ratio of 3:1. Their Balance sheet as on march 31,1999 was as follows:

Liabilities Creditors Reserve Capital P Q

Q21.

By:- SUBHASH THAKUR

Rs. 75,000 8,000 60,000 32,000

Assets Cash in hand Cash at bank Sundry Debtors Bills receivable Stock Furniture Building

Rs. 5,000 40,000 32,000 6,000 40,000 2,000 50,000 ________________ 1,75,000

________________ _ 1,75,000 On this day they admit R as a partner for 1/5th share in profits on the following terms : (a) R will brings Rs.20,000 as his capital. (b) Goodwill of firm valued Rs.40,000. (c) The values of stock and furniture be reduced by 10% (d) A provision for doubtful debts be created @ 5% on debtors. (e) Buildings be appreciated by 20%. Prepare Revaluation account partner’s capital accounts , and the balances sheet of the new firm. (Ans. Profit on Revaluation Rs.4,200;Total of B/s Rs.1,99,200) The following was the balance sheet of A,B and C as on 30th June 1992:

Liabilities Creditors Bills Payable Capital Accounts A 40,000 B 33,500 C 25,000

Rs. 11,000 6,000

Assets Land and Building Furniture Stock Debtors Cash

Rs. 50,000 7,500 30,000 26,000 1,500

98,500 ________________ _______________ 1,15,500 1,15,500 They share profits and losses in the ratio 6:5:3. On 1st July 1989 , they agreed to admit D in to partnership and give him a share of 10 paise in the rupee on the following terms : (a) That D should bring in Rs.14,000 as Capital. (b) That Stock be depreciated by 10% and furniture by Rs.900 (c) That a reserve of Rs.1,300 be made for outstanding repair bill. (d) That the value of land and building be brought up to Rs.65,000. (e) That s goodwill of firm valued at Rs.8,400

Q22.

Pass necessary Journal entries to record the above arrangements and prepare the new balance sheet of the firm . (Ans. Profit Rs.9,800;Total of B/s Rs.1,40,600) X and Y are partners sharing profits and losses in the ratio of 3:1 respectively. Their balances sheet as at 31st December 1986 was as under :

Liabilities Sundry Debtors Profit & Loss A/c Capital X 60,000 Y 32,000

Rs. 75,000 8,000 92,000

Assets Bank Bills receivable Debtors Less: Reserve for Doubtful debts Stock Furniture Land and Building

_________________ _

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By:- SUBHASH THAKUR

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Rs. 45,000 6,000 32,000 2,000

32,000 50,000 3,000 41,000 ________________ 1,75,000

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By:- SUBHASH THAKUR

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1,75,000 Z is admitted as a partner on 1.1.86 on the following terms: (a) Z pays Rs.20,000 as capital for 1/5th share in partnership profits. (b) Goodwill of the new firm valued at Rs.40,000. (c) Stock and furniture to be reduced by 10% each . (d) Reserve for doubtful debts is to be made up to 5% on the debtors. (e) Appreciate land and building by 20%.

Q23.

Prepare Revaluation account, Goodwill Account ,Partner’s Capital Accounts and the Balance Sheet of the reconstituted new firm. (Ans. Profit on Revaluation Rs.3,300;Total of B/s Rs.1,98,300) L and M share the profits of a business in the ratio of 5:3. They admit N into the firm for a ¼ share in the profit to be contributed equally by L and M . On the date of admission the balance sheet of the firm was as follows :

Liabilities L’s Capital M’s Capital Workmen’s compensation fund Bank loan Creditors

Rs. 30,000 20,000 4,000

Assets Machinery Furniture Stock Debtors Bank

Rs. 26,000 18,000 10,000 8,000 6,000

12,000 2,000 ________________ _______________ 68,000 68,000 Terms of N’s admission were as follows : (a) N will bring Rs.25,000 as his capital. (b) Goodwill of the firm is to be valued at 4 years purchase of the average super profits of the last three years . Average profits of the last three years are Rs.20,000 while the normal profits that can be earned with the capital employed are Rs.12,000. Furniture appreciated by Rs.6,000. Stock reduced by 20%. (Ans. Profits 4,000; Capital 39,000; M 27,000; N 17,000 B/s 97,000)

Q24.

B and C are partners in a firm, sharing profits and losses in the ratio of 5:3. They admit A into the firm on 1st April 1991, When their balance sheet was as follows:

Liabilities B’s Capital C’s Capital General Reserve Bank loan Creditors

Rs. 32,000 34,000 8,000 6,000 6,000

Assets Goodwill Machinery Furniture Debtors Stock Bank

_______________ 86,000 Terms of A’s admission were as follows :

Rs. 8,000 38,000 5,000 23,000 7,000 5,000 ______________ 86,000

(a)

A will bring Rs.30,000 through cheque, as his share of capital and will be entitled to 1/3rd share in the profits. (b) A is not to bring goodwill in cash. Goodwill of firm valued on the basis of 2 years purchase of the average Profit of the last three years . (c) Average profits of the last three years are Rs.6,000. (d) Machinery and stock are revalued at Rs.45,000 and Rs.8,000 respectively. (e) Goodwill is not to be shown in the books of the firm. Prepare necessary ledgers and balance sheet. (Ans. Profit 8,000; capital A 39,500 B 38,500, C 26,000 B/s 1,16,000)

Commerce Classes

By:- SUBHASH THAKUR

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9810190005

Commerce Classes Q25.

By:- SUBHASH THAKUR

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A and B sharing profits in the ratio of 5:3 admit C as a partner with 1/3rd share in profits. He has to contribute Rs.25,000 as his capital . The balance sheet of A and B before admission was as follows :

Liabilities Sundry Debtors Bills payable Capital A B General Reserve

Rs. 21,000 6,000 50,000 35,000 16,000

Assets Goodwill Land and Building Plant and Machinery Stock Sundry Debtors 20,000 Less: provision 1,500 Investment Cash

______________ _ 1,28,000

Rs. 10,000 25,000 30,000 15,000 18,500 20,000 9,500 ______________ 1,28,000

Other terms agreed upon were : (a) (b) (c) (d) (e) (f)

Q26.

Goodwill of the firm was to be valued at Rs.22,000. Land and building were to be valued at Rs.35,000 and Plant and Machinery at Rs.25,000. The provision for doubtful debts was found to be in excess by 400. A liability for Rs.1,000 included in Sundry Creditors was not likely to arise . Rs.12,000 of investment were to be taken over by A and B in their profit sharing ratio. B is to withdraw Rs.3,400 in Cash.

Give journal entries to record the above transactions and show the balance sheet of the firm after C’s admission . (Ans. Profit on Revaluation Rs.6,400; Total of balance sheet Rs.1,33,000) Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3:2. On 31st December 1987, their balance sheet was as under :

Liabilities Sundry Debtors Public Deposits Bank overdraft Outstanding liabilities Capital Accounts : Deepika 48,000 Rajshree 40,000

Rs. 16,000 61,000 6,000 2,000 88,000

Assets Cash in hand Cash at bank Stock Prepaid Insurance Sundry Debtors 28,800 Less: Reserve for Doubtful debts 800 Plant and Machinery Land and Building Furniture

______________ _ 1,73,000

Rs. 1,200 2,800 32,000 1,000 28,000 48,000 50,000 10,000 ______________ 1,73,000

On the above date, the partners decided to admit Anshu as a partner on the following terms : (a) The new profit sharing ratio of Deepika ,Rajshree and Anshu will be 5:3:2 respectively. (b) Anshu shall bring Rs.32,000 as his capital. (c) Anshu is unable to bring in cash for his share of goodwill . They decide to calculate goodwill on the basis of Anshu’s share in the profits and the capital contribution made by him to the firm. (d) Plant and machinery is to be valued at Rs.60,000. Stock at Rs.40,000 and the reserve for doubtful debts is to Be maintained at Rs.4,000.Value of land and Building has appreciated by 20%. Furniture has depreciated by 10%.

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By:- SUBHASH THAKUR

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Commerce Classes (e)

By:- SUBHASH THAKUR

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There is an additional liability of Rs.8,000 being outstanding salary payable to employees of the firm. This Liability is not included in the outstanding liabilities, stated in the above balance sheet. Partners decide to show this liability in the books of accounts of the reconstituted new firm.

Prepare Revaluation Account, Partners Capital Accounts and the balance sheet of Deepika,Rajshree and Anshu. (Ans. Revaluation A/c –Profit Rs.17,800;B/s Rs.2,30,800;Bank A/c Rs.34,800) Q27. Rajesh and Ravi are partners sharing profits in the ratio of 3:2. Their balance sheet stood as under on 31-12-1991: Liabilities Creditors Contingency reserve Capital : Rajesh 26,000 Ravi 13,000 Employee’s Provident fund Workmen’s compensation reserve

Rs. 38,000 2,500 39,000 4,000 2,500

Assets Cash Stock Prepaid Insurance Debtors 9,400 Less: Provision 400 Machinery Building Furniture

________________ 86,500

Rs. 2,000 15,000 1,500 9,000 19,000 35,000 5,000 _______________ 86,500

Raman is admitted as a new partner introducing a capital of Rs.16,000. The new profit sharing ratio is decided as 5:3:2. Raman is unable to bring in cash for goodwill . So. It is decided that the amount of goodwill calculated on the basis of Raman’s share in the profits and the capital contributed by him. Following revaluation are made : (a) Stock to depreciate 5%. (b) Provision for Doubtful debts is to be Rs.500. (c) Furniture to depreciate 10% (d) Building are valued at Rs.40,000. Show the necessary Ledger Account and the balance sheet of the new firm. (Ans. Profit 3,650, B/s 1,06,150) Q28.

A and B are partners sharing profits in the ratio of 2:1. On Jan 1, 1990, they agree to admit C as a partner , C agreeing to contribute Rs.50,000 as his capital. A ,B and C agree to share profits and losses in the ratio of 2:3:3 respectively. The balance sheet of A and B on December 31, 1992 was as under :

Liabilities Sundry Debtors Capital Accounts : A 62,500 B 37,500

Rs. 50,000 1,00,000

Assets Cash at Bank Stock on Hand Debtors Plant Premises

Rs. 6,250 50,000 31,000 25,000 37,500 1,50,000

1,50,000

They agree to revalue the assets as under : Stock in hand Rs.45,000; Plant Rs.18,000; Premises Rs.50,000; a provision of 5 per cent for doubtful debts is to be maintained. C agrees to transfer Rs.15,000 to A’s capital for goodwill from his capital Account. Pass the necessary Journal entries and Prepare revised balance sheet (Ans. Loss on Revaluation A/c Rs.1,062; B/s Rs.1,98,938) Q29.

Following is the balance sheet of the firm , Ashirvad , owned by A,B and C who share profits and losses of the business in the ratio of 3:2:1.

Liabilities A’s Capital

Commerce Classes

Rs. 1,20,000

By:- SUBHASH THAKUR

Assets Furniture

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Rs. 95,000

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By:- SUBHASH THAKUR

B’s Capital C’s Capital Sundry Debtors Outstanding Salaries and wages

1,20,000 1,20,000 20,000 7,200

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Business Premises Stock in Trade Debtors Cash in Hand Cash at Bank

2,05,000 40,000 28,000 4,200 15,000 3,87,200

3,87,200 On 1st June 1992, they admit D as a partner on the following conditions : (a)

D will bring Rs.1,20,000 as his capital and also Rs.30,000 as goodwill premium for a quarter of the share in The future profit/Loss of the firm. (b) The values of the fixed assets of the firm will be increased by 10% before the admission of D . (c) The future profits and losses of the firm will be shared equally by all the partners . Show the journal entries , Revaluation Account, Partner Capital Account and the Opening balance sheet of the new firm to include the above mentioned transactions assuming that the conditions were duly satisfied. (Ans. Profit on Revaluation Rs.30,000; Capital balance : A Rs.1,65,000, B Rs.1,40,000, C Rs.1,15,000, D Rs.1,20,000; Balance sheet Total Rs.5,67,200) Q30.

The balance sheet of X and Y , who are partners sharing profits in the ratio of 3:2. On 31st December 1990 is a under:

Liabilities Creditors Bills payable General Reserve Capital X Y

Rs. 6,200 3,300 5,000 16,000 13,200 44,500

Assets Cash Stock Debtors Plant and Machinery Investments Goodwill

Rs. 2,000 7,700 8,800 18,000 3,000 5,000 44,500

On the above date Z is admitted as partner , X surrendered 1/6th of his share and Y 1/3rd of his share in favor of Z .Goodwill is worth Rs.60,000. Z brings only ½ of his share of goodwill in cash and Rs.15,000 as his capital. The following revaluation are made : Stock and Plant and machinery are worth 10% less than the book value . The Market value of investment is Rs.12,000. Make a provision of 5 % for bad & doubtful debts on debtors and a provision of 5% for discount on creditors . Calculate New ratio, Sacrificing Ratio and Pass Journal entries to record the above arrangement. Also Prepare The balance sheet of the firm as newly constituted. (Ans. Profit on Revaluation of 6,300; Capital Accounts: X Rs.26,580; Y Rs.23,720; Z Rs.15,000; B/s Rs.67,490) Q31.

Ram and Shyam are partners sharing profits and losses in the ratio of 3:1. They agreed to admit Mohan into the Partnership firm. Mohan is to bring Rs.40,000 as his capital and Rs.12,000 as goodwill for 1/4th share of future profits. This he acquires in the ratio of 2:1. from Ram and Shyam .The amount of goodwill brought by Mohan is to remain in the business at the time of Mohan’s admission a general reserve of Rs.16,000 existed in the books of the old firm. For the purpose of admission , the assets and liabilities are to be revalued as under: (a) Building was appreciated by Rs.20,000. (b) Provision for Rs.1,000 was to be made for an outstanding bill for repairs . Pass the necessary journal entries in connection with Mohan’s admission and also calculate the future profit sharing ratio of the partners.

Commerce Classes

By:- SUBHASH THAKUR

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9810190005

Commerce Classes Q32.

By:- SUBHASH THAKUR

9810190005

(Ans. Profit on Revaluation Rs.20,000; New ratio :7:2:3) A and B are partners in a firm sharing profit in the ratio of 3:1 the balance sheet of the firm on 31st December 1992 was as follows:

Liabilities Creditors Workmen’s Compensation Fund General Reserve Capital : A B

Rs.

Assets Bank Bills Receivable Sundry Debtors Less: Provision Stock Investment Goodwill

18,000 12,000 21,000 60,000 49,000 1,60,000

Rs. 10,000 25,000 40,000 5,000

35,000 30,000 50,000 10,000 1,60,000

On the above date C is admitted for 2/5th share in the profits of the firm and the following revaluations were made: (a) (b) (c) (d)

Q33.

Accrued incomes not appearing in the books Rs.1,000. Market value of investments is Rs.45,000. Claim on account of workmen’s compensation is estimated at Rs.1,500. X , an old customer , whose account was written off as bad has promised to pay Rs.3,500 in settlement of his fulldebt. (e) C is required to bring Rs.80,000 as capital and Rs.20,000 as goodwill . his share of goodwill was calculated as Rs.24,000. You are required to make journal entries and prepare initial balance sheet of the firm . (Ans. Loss on Revaluation A/c Rs.500 ; Balance sheet Total Rs.2,49,500) A, B and C were in partnership sharing profits as to A ½, B 1/3 , C 1/6. As from 1st Jan 1999, they admitted D into Partnership on the following terms: D to have 1/6th share , which he purchased entirely from A , Paying Rs.8,000 for his share of goodwill. Of this amount A retained Rs.6,000 and put the balance in the firm as additional capital. D also brought Rs.5,000 as his Capital into the firm . It was further agreed that investment should be reduced to their market value . viz. Rs.3,600 and that Plant should be reduced to Rs.5,800. The balance sheet of the firm at 31st December 1998 was as follows :

Liabilities Creditors Reserve Capital A B C

Rs. 21,000 6,000 9,000 6,000 3,000 45,000

Assets Cash at bank Debtors 28,800 Stock Investment(at cost) Furniture Plant

Rs. 8,000 12,000 10,000 6,000 2,000 7,000 45,000

(Ans. Loss on Revaluation Rs.3,600; Total of opening balance sheet Rs.48,400) Q35.

L and M are partners sharing profits in the ratio of 5:3. The balance sheet of the firm as at march 31,2003 is given below:

Liabilities Capitals : L 12,85,000 M 7,16,000 Reserve fund Sundry Creditors

Rs. 20,01,000 2,40,000 1,49,000

Assets Land Building Other Fixed Assets Stock Debtors Cash in Hand and at Bank

23,90,000

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By:- SUBHASH THAKUR

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Rs. 6,00,000 8,80,000 3,90,000 1,98,000 1,83,000 1,39,000 23,90,000

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On 1.4.2003 N is admitted into partnership on the following terms : (a)

(b) (c) (d)

L,M and N will share profits in the ratio of 7:5:3. The Assets were revalued for the purpose of admission : land Rs.7,50,00; Buildings Rs.8,00,000. Goodwill of the firm was valued at Rs.3,60,000 N was to bring his share of goodwill in cash which was to be retained in the business . N has to bring Rs.6,00,000 towards his share of capital.

Prepare Revaluation A/c , capital A/c ,cash A/c and balance sheet of the reconstituted firm. (Ans. Profit on Revaluation Rs.70,000; balance sheet Rs.31,32,000) Q36.

P and S were partners in a firm sharing profits in the ratio of 3:2. Their balance sheet as on 31-3-2001 was as follows

Liabilities Bank overdraft Creditors Provision for bad debts General Reserve V’s loan Capital P 1,00,000 S 1,80,000

Rs. 20,000 30,000 1,000 15,000 20,000

Assets Cash Debtors Bills Receivable Stock Building Land

2,80,000 3,66,000

Rs. 8,000 30,000 40,000 50,000 90,000 1,48,000

3,66,000

On 1.4.2001 they admitted V as a new partner on the following Conditions : (a) V will be get 1/8th share in profits of the firm. (b) V’s loan will be converted into his capital. (c) The goodwill of the firm was valued at Rs.80,000 and V brought his share of goodwill premium in cash. (d) Provision for bad debts was to be made equal to 5% of the debtors . (e) Stock was to be depreciated by 5 % (f) Land was to be appreciated by 10 % . Prepare Revaluation Account , Capital Accounts of P,S and V and the balance sheet of the firm as on 1.4.2001. Q37. A and B are partners in a firm sharing profits in the ratio of 3:2. On April 1,2003 they admit C as anew partner for 3/13 share in the profits. The new ratio will be 5:5 :3, C contributed the following assets towards his capital and for his share of goodwill. Stock Rs.40,000, Debtors Rs.60,000, Land Rs.1,00,000, Plant and Machinery Rs.60,000. On the date of admission of C, the goodwill of the firm was valued at Rs.5,20,000. Record necessary journal entries in the books of the firm on C’s admission and prepare Cs’ capital account . Q38.

E and F are partners in a firm sharing profits in the ratio of 3:2. They admitted G as a new partner on March 1,2003. G brought Rs.70,000 as her capital. On G’s admission the firm had a joint life policy of Rs.5,00,000.The annual premium paid on the policy was Rs.12,000 and E and F had debited the same into their profit and loss account. On G’s admission, the surrender value of the policy was Rs.30,000. Record the necessary journal entries in the books of the firm.

Q39.

S and G are partners in a firm sharing profits in 3:1 ratio. They admit M as a new partner for 1/4th share in the profit. The new profit sharing ratio of S,G nad M is 2:1:1. M brought Rs.75,000 as her capital. On the date of M’s admission on Jan.1.2002 the firm had a joint life policy of Rs.10,00,000. S and G considered the annual premium paid on the policy as revenue expenditure . The surrender value of the policy was Rs.80,000. S ,G and M decided not to show joint life policy in the balance sheet of the new firm. Show the treatment of joint life on M’s admission .

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By:- SUBHASH THAKUR

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By:- SUBHASH THAKUR

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Q40.

On the admission of N on April 1,2003 in the firm of D and G there existed a balance of Rs.30,000 each in the joint life policy account and joint life policy reserve account . It was decided that these accounts will not be shown in the books of the new firm. Record the necessary journal entries for the same .

Q41.

R and S are partners in a firm sharing profits in the ratio of 4:1. On April 15, 2003 they admit N as anew partner . On that date there was a balance of Rs.20,000 in general reserve and a balance of Rs.50,000 in the profit and loss account of the firm. Record necessary journal entries .

Q42.

X and Y were partners in a firm , sharing profits in 2:3 ratio. On April 1.2003, they admitted Z as a new partner for 1/6th share in the profits. Z brought Rs.1,25,000 for his capital and Rs.25,000 for his share of premium .At the time of Z admission the balance sheet of the firm showed Rs.40,000 in joint life policy account. It was decided that the joint life policy would not be shown in the books of the firm. Record necessary journal entries for the above transactions in the books of the firm.

Q43.

Usha and Asha are partners in a firm sharing profits in the ratio of 3:2. Their balance sheet on 31st march 2003 was as Follows :

Liabilities Creditors General Reserve Bills payable Capital Usha Asha

Rs. 27,000 18,000 5,000 40,000 35,000

Assets Cash Debtors 48,000 Less: Provision for 4,800 Bad Debt Stock Patents Building

Rs. 24,000 43,200 30,000 7,400 20,400 1,25,000

1,25,000

Neelam is admitted into the partnership giving her 1/5th share in profits. Neelam to bring in Rs.30,000 as her capital and her share of goodwill in cash subject to the following terms: (a) Goodwill of the firm to be valued at Rs.50,000. (b) Stock to be reduced by 10% and provision for bad debts be reduced by Rs.2,400. (c) Patents are valueless. (d) There was a claim against the firm for damages amounting to Rs.2,000. The claim has now been accepted . Prepare Revaluation Account , Partners Capital Accounts and the balance sheet of the firm. (Ans. Profit on Revaluation Rs.8,000; Balance sheet Rs.1,95,000) Q44.

A and B are partners in a firm sharing profits in the ratio of 2:1. C is admitted into the firm with 1/4th share in profits . He will bring Rs.30,000 as his capital. The balance sheet of A and B as on 31.3.2002 was as under :

Liabilities Creditors General Reserve Bills payable A’s Capital B’s Capital

Rs. 8,000 6,000 4,000 52,000 30,000

Assets Cash Debtors Stock Furniture Machinery Building

Rs. 12,000 8,000 10,000 5,000 25,000 40,000 1,00,000

[

1,00,000

Other terms of the agreement are as under : (a) C will bring in Rs.12,000 as his share of goodwill. (b) Building was valued at Rs.45,000 and machinery at Rs.23,000. (c) A provision for bad debts is to be created @ 6% on debtors. Prepare Revaluation Account, Partners Capital Accounts and the balance sheet of the new firm. (Ans. Profit on Revaluation Rs.2,520; balance sheet Rs.1,44,520)

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By:- SUBHASH THAKUR

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Commerce Classes Q45.

By:- SUBHASH THAKUR

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M and N were partners in a firm sharing profits in the ratio of 3:1. Their balance sheet as on 31.3.2004 was as follows:

Liabilities Creditors Bills payable Outstanding salary Capital Accounts : M 2,00,000 N 1,30,000

Rs. 28,000 40,000 2,000

Assets Cash Debtors Stock Plant Land and Building

Rs. 50,000 60,000 40,000 1,00,000 1,50,000

3,30,000 4,00,000

4,00,000

On the above date ‘O’ was admitted as a partner for 1/4th share in profits on the following terms: (i) O will bring Rs.1,50,000 as his capital and Rs.90,000 as his share of premium for goodwill for his share of profits. (ii) Plant is to be appreciated to Rs.1,30,000 and the value of land and building is to be appreciated by 5%. (iii) Stock is overvalued by Rs.6,000. (iv) A provision for bad and doubtful debts is to be created at 5%on debtors. (v) There were unrecorded creditors Rs.4,500.

Q46.

Prepare Revaluation Account, Partners Capital Accounts and the balance sheet of the new firm. (Ans. Profit on Revaluation Rs.24,000) Balance sheet of A,B,C ,D as on 01,Jan,2005

Liabilities Capitals : A 2,00,000 B 90,000 C 60,000 Creditors General Reserve Workmen’s Compensation Fund

Rs.

3,50,000 20,000 30,000 10,000 4,10,000

Assets Land and building Plant and Machinery Stock Investments Debtors 50,000 Less: Provision 1,000 Bank

Rs. 1,00,000 80,000 70,000 60,000 49,000 51,000 4,10,000

A, B , C had been sharing profits in the ratio 2:2:1. From 01-01-2005 they decide to admit D into partnership for 1/10th share of profit. The new Ratio is 4:3:2:1. (1) Land & Building is revalued at Rs.1,30,000. (2) Plant and Machinery is to be reduced to Rs.75,000. (3) Stock is to be reduced by Rs.10,000. (4) An investment with book value of Rs.10,000 is taken over by A at a valuation of Rs.16,000. Rest of the investment are revalued 20% above their book value . (5) Provision for doubtful debts is to be maintained at 5% of debtors. (6) Insurance premium amounting to Rs.3,000 was charged to profit and loss A/c. However , Rs.1,000 out of this is still unexpired. (7) Creditors include Rs.4,000 which is not likely to be claimed. (8) Liabilities for Workmen Compensation is Estimated at Rs.3,000. (9) A claim for damages against the firm for Rs.5,000 is likely to materials suitable provision should be made therefore. (10) Goodwill of the firm valued at Rs.60,000. (11) D will bring Rs.35,000 as his share Capital & necessary amount of goodwill in cash . Prepare Revaluation A/c , Capital A/c , & new balance sheet . Dr. REVALUATION ACCOUNT Cr. Particulars

Commerce Classes

Amount

By:- SUBHASH THAKUR

Particulars

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Amount

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Commerce Classes

By:- SUBHASH THAKUR

To Plant & Machinery To Stock To Pro. Fro D.D To Provision for claim for damages Capitals : A 11,800 B 11,800 C 5,900

5,000 10,000 1,500 5,000

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By Land & Building By Investments(6,000 +10,000) By Prepaid Insurance By Creditors

30,000 16,000 1,000 4,000

29,500 51,000

51,000

PARTNER’S CAPITAL ACCOUNTS To Investment To Balance C/d

A 16,000

B ____

C ____

D ____

2,10,60 0

1,22,60 0

73,300

35,000

2,26,60 0

1,22,60 0

73,300

By Balance b/d By Bank A/c By Workmen’s Comp. Fund By General By Revaluation By premium A/c

35,000

A 2,00,00 0 ----2,800 12,000 11,800 --------

2,26,60 0

B 90.000 ----2,800

C 60,000 -----1,400

12,000 11,800 -------

6,000 5,900 -------

D - ----35,000 --------------------------

1,22,60 0

73,300

35,000

Balance Sheet of A,B,C ,D as on 01 Jan 2005 Liabilities Capitals Account A 2,10,600 B 1,22,600 C 73,300 D 35,000 Creditors Workmen’s Compensation Fund Provision for claim for damages

Rs.

4,41,500 16,000 3,000 5,000

Assets Land & Building Plant & Machinery Stock Investment Debtors 50,000 Less: Provision for 2,500 B/D Prepaid Insurance Bank

Rs. 1,30,000 75,000 60,000 60,000 47,500 1,000 92,000

4,65,500

4,65,500

CAPITAL ADJUSTMENT IF MENTIONED IN QUESTION: OR

Capital accounts of all partners be adjusted on the basis of their profit sharing ratio. Capital accounts of old partners be adjusted on the basis of proportion of new partners capital to his share in the firm. Total Capital of Firm = Closing Balance of new Partner’s Capital x Reciprocal of new partner share 1st STEP : Close the new Partners Capital A/c . 2nd STEP: Find the Total capital of firm on the basis of new partner’s capital 3rd STEP : Distribute the total capital of the firm in their (all partners) new profit sharing ratio.

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4th STEP: Write new capitals of partner as ‘balance c/d’ on the debit side of their capital accounts. 5th STEP: Put the balancing figure under the head “ Cash A/c. “ on Debit or Credit side. OR

(If mentioned ) Any excessor deficiency be transferred to their Current A/c . Then put the balancing figure under the Head “Current A/c” on debit or credit side.

Q1.

The following was the balance sheet of A,B and C sharing profits and losses in the ratio of 6:5:3 respectively.

Liabilities Creditors Bills payable Capital Accounts : A B C

Rs. 10,000 4,000 19,000 16,000 8,000 57,000

Assets Land and building Furniture Stock Debtors Cash

Rs. 24,000 3,500 14,000 12,600 2,900 57,000

They agreed to take D into partnership and give him a share of 1/8th in the Profits on the following terms : (a) (b) (c) (d) (e) (f)

That D should bring in Rs.4,200 as goodwill and Rs.7,000 as his capital. That furniture be depreciated by 12%. That stock be depreciated by 10%. That a provision of 5% be created for doubtful debts. That the value of Land and building be brought up to Rs.31,000. That after making the above adjustment the capital account of the old partners (who continue to share in the same proportion as before)be adjust on the basis of the proportion of D’s Capital to his share in the business i.e. actual cash to be paid off to or brought in by the old partners as the case may be .

Prepare the cash A/c ,profit & loss adjustment A/c and the opening balance sheet of the new firm. Q2.

(Profit : Rs.4,550; Cash:Rs.11,350; B/s-70,000) A,B and C are partners sharing profits and losses in the ratio 2:3:5. On 31st march 1995 , their balance sheet was as follows :

Liabilities Capital Accounts : A 36,000 B 44,000 C 52,000 Creditors Bills payable Profits & loss A/c

Rs.

Assets Cash Bills Receivable Furniture Stock Debtors Investment Machinery Goodwill

Rs. 18,000 24,000 28,000 44,000 42,000 32,000 34,000 20,000 2,42,000

1,32,000 64,000 32,000 14,000 2,42,000 They admit D into partnership on the following terms: (1) Furniture , Investment and machinery to be depreciated by 15%. (2) Stock is revalued at rs.48,000 (3) Goodwill to be valued at Rs.36,000. (4) Outstanding Rent amounted to Rs.1,800. (5) Prepaid Salaries Rs.800 (6) D to bring Rs.38,000towards capital for 1/6 share and other partnership to readjust their capital accounts on the basis of their profit sharing ratio. (7) Adjustment of capital to be made in cash. Prepare Revaluation Account, Partner’s Capital Accounts , Cash Account and Balance sheet of the new firm . (Loss Rs.11,100; Capitals: A-32,000; B-48,000; C-80,000; D-32,000; Cash -95,100; B/s-2,89,800)

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By:- SUBHASH THAKUR

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A and B are partners in a firm, sharing profits and losses in the ratio of 3:2. Their balance sheet was as follows on 1st Jan. 1985..:

Liabilities Sundry Creditors Capital Accounts: A 60,000 B 50,000 General Reserve

Rs. 30,000

Assets Plant Patent Stock Debtors Bank

Rs. 60,000 20,000 40,000 36,000 4,000 1,60,000

1,10,000 20,000 1,60,000 C was admitted to the firm on above date on the following terms : (a) He would pay rs.20,000 as goodwill for 1/4th share in profits. (b) Assets were revalued as under : Plant Rs.64,000; Stock Rs.36,000; Debtors at book value less 5% provision for bad debts. (d) It was found that the creditors include Rs.2,800, which were not to be paid . But it was also found that there Was liabilities for compensation to workers amounted to Rs.4,000. (e) C was to introduce Rs.40,000 as capital and the capitals of other partners were to be adjusted in new profit Sharing ratio. For this purpose , current accounts were to be opened . (Any excess or Deficiency be transfer to current A/c ). Give Revaluation Account, Capital Accounts and balance sheet after C’s admission . Q4.(a)

A and B are partners in a firm sharing profits and losses in the ratio of 7:3. Their balance sheet as at 31st march 1993 is as follows :

Liabilities Sundry Creditors Bank Overdraft Reserve Capital A 50,000 B 40,000

Rs. 40,000 20,000 10,000

Assets Cash in hand Sundry debtors 46,000 Less: Provision for 2,000 Doubtful debt Furniture Stock in Trade

Rs. 36,000 44,000

30,000 90,000 50,000 1,60,000 1,60,000 On 1st April 1993, C joins the firm as a third partner for 1/4th share of the future profits on the following terms and conditions : (a) Goodwill is valued at Rs.40,000 and C is to bring the necessary amount in cash as premium for goodwill. (b) 20% of the reserve is to remain as a provision against bad and doubtful debts . (c) Stock in trade is to be reduced by 40% and furniture is to be reduced to 40%. (d) A is to pay off the bank Overdraft. (e) C is to introduce Rs.30,000 as his share of capital to which amount other partner’s capital shall have to be adjusted . Show the necessary journal entries to carry out the above transaction and prepare balance sheet of the firm immediately after C has become a partner. (Loss Rs.38,000; B/s -1,60,000; Capitals :A-63,000; B-27,000;C-30,000) Q4.(b) Ram, Rahim and Bhaji are equal partners in a firm, their balance sheet as on 31st march 1999 was as follows:

Liabilities Sundry Creditors Employees Provident Fund Bills Payable General Reserve Capital Accounts : Ram

Commerce Classes

Rs. 27,000 6,000 45,000 15,000 2,17,000

By:- SUBHASH THAKUR

Assets Goodwill Buildings Machinery Furniture Stock Book debt

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Rs. 1,17,000 1,25,000 72,000 24,000 1,14,000 1,02,000

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Rahim Bhajji

1,66,000 90,000 5,66,000

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Cash

12,000 5,66,000

On that date they agree to take peter as equal partner on the following terms : (a) Peter should bring in Rs.1,60,000 as his capital and goodwill . He share of goodwill is valued at Rs.60,000. (b) Goodwill appearing in the books must be written off . (c) Provision for loss on stock and provision for bad debt is to be made at 10% and 5% respectively . (d) The value of building is to be taken at Rs.2,00,000. (e) The total capital of the new firm has been fixed at Rs.4,00,000 and the partners capital accounts are to be Adjusted in the profit sharing ratio.Any excess is to be transferred to current account and any deficit is to be brought in cash. Prepare the Revaluation Account, Partners Capital accounts ,and the balance sheet of the new firm. (Profit –Rs.58,500; B/s -6,72,000;) Q4.(c)

Saddam and Osama are partners in s firm sharing profit and losses in the ratio of 3:2. They admit C into partnership of 1/5th share in profits on 31st December , 1996. On that date their balance sheet stood as under :

Liabilities Capital Accounts : Saddam Osama General reserve Sundry Creditors

Rs. 60,000 50,000 10,000 50,000

Assets Goodwill Plant and Machinery Furniture Investments Stock Sundry Debtors Cash in hand

1,70,000

Rs. 5,000 65,000 15,000 20,000 20,000 30,000 15,000 1,70,000

Bush was admitted on the following terms : (a) Bush is to bring capital Rs.40,000 and goodwill Rs.15,000. (b) Partners agreed to share the future profits in the ratio of 5:3:2. (c) Investment will be appreciated by 20% and furniture depreciated by 10%. (d) One customer who owed the firm Rs.2,000 become in solved and nothing could be realized from him. (e) Creditors will be written back by Rs.2,000. (f) Outstanding bills for repairs Rs.1,000 will be provided for (g) Interest accrued on investment Rs.2,000. (h) Capital of the partners shall be in proportion to their profit sharing ratio. For this , adjustment be made through cash. Prepare Revaluation Account, capital Account and balance sheet of the new firm . (Profit rs.3,500; Capitals:Saddam:Rs.1,00,000; Osama rs.60,000; Bush Rs.40,000; B/s Rs.2,49,000)

PROPORTIONATE CAPITAL IF MENTIONED IN QUESTION : OR

New partner is to be contribute proportionate capital. New partner is to be contribute a fraction of total capital of firm .(total capital of partners) Proportionate capital = Closing balance of old partner’s Capital A/c’s x Reciprocal of Remaining Share x New partner’s share .

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1st STEP : Close the old partners capital accounts. 2nd STEP: Find the total capital of firm on the basis of old partners combined capitals . 3rd STEP : Calculate the new partners capital on the basis of total capital of firm. Q5.

Daler and Mikka are partners with profit sharing ratio of 2:1.Theri balance sheet on 31-3-1996 was as follows : Liabilities Creditors Bills Payable Reserve Fund Capital Accounts : Daler Mikka

Rs. 20,000 15,000 12,000 40,000 30,000 1,17,000

Assets Sundry Debtors Less: Provision Stock Building Patents Machinery

Rs. 40,000 3,600

36,400 20,000 25,000 2,000 33,600 1,17,000

They admitted Jassi into partnership on the date . New profit sharing ratio is agreed as 3:2:1. Jassi brings in proportionate capital after the following adjustment : (a) Jassi brings Rs.10,000 in cash as his share of goodwill . (b) Provision for doubtful debts is to be reduced by Rs.2,400. (c) There is an old type writer valued at Rs.2,600. It does not appear in the books of the firm. It is now to be recorded. (d) Patents are valueless. Prepare Revaluation Account, Capital Accounts and the opening Balance sheet of Daler , Mikka and Jassi. (Profit : 3,000; Capital: daler:60,000;Mikka:35,000;Jassi:19,000; B/s:1,49,000) Q6. sheet

A,B and C are partners sharing profits and losses in the ratio 2:3:5. On March 31st 1998 their Balance was as follows : Liabilities Capital Accounts : A 36,000 B 44,000 C 52,000 Creditors Bills Payable General Reserve

Rs.

1,32,000 64,000 22,000 14,000 2,32,000

Assets Cash Bills receivable Stock Debtors Machinery Goodwill

Rs. 18,000 14,000 44,000 42,000 94,000 20,000 2,32,000

They decided to admit D into the partnership on the following : (a) Machinery is to be depreciated by 15%. (b) Stock is to be revalued at Rs.48,000. (c) A,B and C have a joint life policy whose surrender value is Rs.12,000. (d) Outstanding rent is Rs.1,900. (e) D is to bring Rs.6,000 as goodwill and sufficient capital for a 2/5th share in the total capital of the firm. Prepare Revaluation Account, Partner Capital A/c, Cash A/c and Balance sheet of new firm. (Loss Rs.12.000; Capitals: A-36,000; B-44,000;C-52,000;D-88,000;Cash-1,12,000;B/s-3,07,900)

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The following is the Balance sheet as on 31st December 2002 of A and B, who share profits and losses

Q7. in

the ratio of 3:2.: Liabilities Capital Accounts : A B General Reserve Workman’s Compensation Fund Creditors

(i) (ii) (iii) (iv) (v) (vi)

Rs. 10,000 10,000 15,000 5,000

Assets Plant and Machinery Land and Building Debtors 12,000 Less : Provision 1,000 for D.D Stock Cash

Rs. 10,000 8,000 11,000

12,000 10,000 9,000 50,000 50,000 On 1st Jan 2003, they agreed to admit C into partnership of the following terms : Provision of doubtful debts would be increased by Rs.2,000. The value of land and building would be increased to Rs.18,000. The value of stock would be increased by Rs.4,000. The liability against Workmen’s Compensation Fund is determined at Rs.2,000. C brought in as his share of goodwill Rs.10,000 is cash . C would brings further cash as would make his capital equal to 20% of the total capital of the

new firm after the above revolution and adjustment are carried out. Prepare Revaluation Account, Partner Capital A/c and Balance sheet of the firm after C’s admission. (Profit Rs.12.000; Capitals: A-34,000; B-26,000;C-15,000;Cash-34,000;B/s-87,000) Q8.

Below is the Balance sheet of Khanna and Seth who share profit and losses in the ratio of 3:2. Liabilities Sundry Creditors Bills Payable General Reserve Capital Accounts : Khanna Seth

Rs. 15,000 2,750 10,250

Assets Plant and Machinery Patents Furniture Stock Sundry Debtors Cash Goodwill

Rs.

30,000 5,000 1,000 16,000 30,000 15,000 20,000 1,000 10,000 78,000 78,000 On the date of the Balance sheet Mehta is admitted as a partner with 1/4th share in profits upon the

following conditions : (a) He is to contribute proportional capital. (b) Goodwill is to be valued at 2 years purchase of four years average profit which were Rs.10,000, Rs.9,000,Rs.8,000 and Rs.13,000 respectively. Plant and Machinery is to be written down to Rs.25,000 and Patents written up to Rs.9,000. A provision of 5 % on debtors is required . A liability of Rs.500 included in Sundry creditors is not likely to arise . A joint life policy for Rs.50,000 taken out by Khanna and Seth on which premium totaling Rs.10,000 have been paid has a surrender value of Rs.6,000. Pass entries to record transactions on Mehta’s admission and give the balance sheet after admission is complete assuming that joint life policy is to appear in the books of the new firm. (Loss on Revaluation Rs.1,250 Total of B/s .Rs.97,250) (c)

Q9. date

The following is the balance sheet of X and Y as at 31st March 1991. Z is admitted as a partner on that when the position of X and Y was as under : Liabilities X ‘s Capital

Commerce Classes

Rs. 10,000

Assets Debtors

By:- SUBHASH THAKUR

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Rs. 11,000

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Y’s Capital Creditors General Reserve Workman’s Compensation Fund

8,000 12,000 16,000 4,000

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Stock Cash in hand Buildings Machinery

12,000 9,000 8,000 10,000

50,000

50,000

X and Y shared profit in the proportion of 3:2. The following terms of admission are agreed upon : (a) Revaluation of assets : Buildings Rs.18,000; stock Rs.16,000. (b) The liability on workmen’s compensation fund is determined at Rs.2,000. (c) Z brought in as his share of goodwill Rs.10,000 in cash . (d) Z was to bring further cash as would make his capital equal to 20% of the combined capital of X and Y are at above revaluation and adjustment are carried out. (e) The future profits sharing proportions were as under X 2/5th , Y 2/5th and Z 1/5th. Prepare the new balance sheet of the firm and the capital account of the partners. (Revaluation Profit rs.14,000 B/s Rs.86,000) Q10. Rahul Vaidya & Amit Sana were partners in a firm sharing profits and losses in the ratio of 4:3. The following is the balance sheet of the firm as on 31st December ,2001: Liabilities Sundry Creditors Bank Overdraft Employees Provident Fund Workman’s Compensation Reserve Rahul’s Capital A/c Amit Capital A/c

Rs. 20,000 17,000 3,000 7,000

Assets Cash Debtors 20,000 Less : Provision 300 Stock Plant Buildings

66,000 57,000 1,70,000

Rs. 14,000 20,000 20,000 40,000 75,000

1,70,000

They agreed to admit Abhijeet Sawant with effect from 1st Jan 2002 with 1/4th share in profits on the following terms : (a) Abhijeet bring in capital to the extent of 1/.4th of the total capital of the new firm after all adjustment have been made. The necessary adjustment should be made through the current accounts of partners. (b) (c) (d)

Buildings are to be appreciated by Rs.14,000 and plant to be depreciated by Rs.7,000. The provision on debtors is to be raised to Rs.1,000. The goodwill of the firm has been valued at Rs.21,000 but no goodwill is to appear in the

books. Prepare the Revaluation account, Partner Capital accounts and the balance sheet of the new firm after Mishra admission . Q11. his share

(Profit: Rs.6,300;Capital: Rahul 76,600: Amit 64,950;abhijeet 47,183 B/s Rs.2,28,733) R and T are partners in a firm sharing profits in the ratio of 3:2. S joins the firm. R surrenders 1/4th of and T 1/5th of his share in favour of S. Find the new profit sharing ratio.

Q12. anew

(NPSR : 45:32:23) X and Y are partners in a firm sharing profits in the ratio of 5:3. On 1, March 20004 they admitted Z as partner. The new profit sharing ratio will be 4:3:2. Z brought in Rs.1,00,000. in cash as his share of

capital

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but could not bring any amount for goodwill in cash. The firms goodwill on Z’s admission was valued at Rs.1,80,000. At the time of Z’s admission goodwill existed in the books of the firm at Rs.2,40,000. Pass necessary journal entries in the books of the firms on Z’s admission .Show your workings clearly. (S.R 13:3) Ram and Mohan were partners in a firm sharing profits in the ratio of 4:1. On 1.03.2005 , they

Q.13. admitted

Sohan as a new partner for 1/3rd share in the profit of the firm. They fixed the new profit sharing ratio as 4:2:3.On the date of Sohan’s admission , the firm had a joint life policy for Rs.60,000(surrender value Rs.20,000). The P & L A/c on the date of admission showed a balanced of Rs.32,000(Dr.). The firm also had a reserve of Rs.1,00,000. Sohan is to bring Rs.60,000 as premium for his share of goodwill. Showing your calculation clearly, pass necessary journal entries to record the above transactions . (Ram Sacrifice 16/45, Mohan gains 1/45)

CHANGE IN PROFIT SHARING RATIO Q1.

X,Y and Z are partners sharing profits and losses in the ratio of 4:3:2.Goodwill does not appear in the books but it is worth Rs.36,000. The partners decide to share future profits in equal proportional .Give a journal entry to record the above change. Also indicate the individual partner’s gain or loss due to change in the ratio. Show your working clearly. (Z (Dr.4,000; X (Cr.)4,000)

Q2.

A and B are partners in a firm sharing profits in the ratio of 3:2. On March 31,2003, their balance sheet showed a general reserve of Rs.54,000, Profit and loss Account Rs.27, 000 (Cr. Balance) , Surrender value of Joint life policy Rs.9,000. On that date they decided to admit C as a new partner. The new profit sharing ratio between A,B and C will be 4:3:2. Record the necessary journal entry in the books of the firm under the following circumstances : (a) When they want to transfer the general reserve profit & loss A/c and joint life policy A/c in their capital accounts . (b) When they don’t want to transfer general reserve , Profit and loss A/c ; Joint life policy A/c in their capital accounts and prefer to record adjustment entries for the same . (A’s Sacrifice 7/45, B’s Sacrifice 3/45, C gains 10/45)

Q3.

Sharma and Verma were in partnership sharing profits in the ratio of 2:3. With effect from 1st May 2003 they agreed to share profits in the ratio of 1:2. For this purpose the goodwill of the firm is to be valued at two years purchase of the average profits of last three years, which were Rs.1,50,000, Rs.1,40,000 and Rs.2,20,000 respectively .Reserve appear in the books at Rs.1,10,000. Partners neither want to show goodwill in the books nor want to distribute the reserve .You are required to give effect to the change by passing a single journal entries . (Verma (Dr.) 30,000; Sharma (Cr.) 30,000)

Q4.

Dhruv and Sonu are partners in a firm sharing profits in the ratio of 3:2. They decided to share future profits equally. On the date of change in the profit sharing ratio the profit and loss account showed a debt balance of Rs.20,000. Record the necessary journal entry for the distribution of the balance in the profit and loss account immediately before the change in the profit sharing ratio. (Dhruv (Dr.)12,000; Sonu(Cr.)8,000)

Q5.

Sunny, Anu and Mohit are partners sharing profits and losses in the ratio 5:3:2. Their balance sheet on 31st December,2001 was as follows :

Liabilities

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Rs.

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Assets

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Rs.

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Capitals : Sunny 75,000 Anu 45,000 Mohit 30,000 Workmen Compensation Fund Bills payable General reserve Creditors

1,50,000 15,000

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Bank Buildings Furniture Debtors Stock Profit and Loss A/c

20,000 1,00,000 35,000 45,000 75,000 25,000

55,000 10,000 70,000 3,00,000

3,00,000

On 1st Jan,2002, They decide to share future profits and losses in the ratio 3:3:1 and following adjustment were agreed Upon : (a) A provision for debt @ 5% is to be made on debtors. (b) Buildings is to be appreciated by 25%. (c) 5% of stock has been spoiled . (d) Furniture to be depreciated by 10%. (e) Goodwill is to be valued at Rs.90,000. Prepare Revaluation Account, Partner Capital Accounts and Balance sheet of the reconstituted firm. (Profit Rs.15,500; Capital Rs.82,750,46,650,36,100; B/s 2,90,500)

Q6.

X ,Y and Z are partners in a firm sharing ratio of 2:2:1. Their balance sheet as at March 31, 20X3 was as follows:

Liabilities Creditors Bills payable X’s Capital Y’s Capital Z’s Capital General Reserve

Q7.

Rs. 30,000 15,000 60,000 30,000 15,000 12,000 1,62,000

Assets Land Building Plant Stock Debtors Cash

Rs. 30,000 30,000 60,000 30,000 9,000 3,000 1,62,000

X,Y and Z decide to share the profit equally w.e.f. April 1, 20X3, For this purpose it was agreed that : (a) The goodwill of the firm should be valued at Rs.18,000. (b) Land should be revalued at Rs.48,000 and building should be depreciated by 6%. (c) Creditors amounting to Rs.1,000 were not likely to be claimed and hence should be written off . You are required to : (a) Record the necessary journal entries to give effect to the above agreement, without opening Revaluation account. (b) Prepare the capital account of the partners and (c) Prepare the balance sheet of the firm after reconstitution . (Capitals Rs.67,200,37,200,12,600; B/s 1,62,000) X ,Y and Z are partners in affirm sharing profits and losses in the ratio of 5:3:2. They decide to share future profits and losses in the ratio of 2:5:3 with effect from 1st April, 20X2. Their Balance sheet showed a debit a Balance of Rs.4,000 in profit and loss Account and a balance of Rs.24,000 in General Reserve . For this purpose , it was agreed that --(a) The goodwill of the firm be valued at Rs.30,000. (b) The Land (having book value of Rs.50,000) be valued at Rs.80,000. (c) The Stock (having book value of Rs.50,000) be depreciated by 6%.

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(d) (e)

Creditors amounting to Rs.400 were not likely to be claimed . Joint life policy of which premium were written off to P and L A/c be valued at a surrender value of Rs.22,600. Give the necessary single adjusting entry to record the above arrangement. (Y(Dr.20,000; Z (Dr.)10,000 X (Cr.) 30,000) Parul, Swati and Neha are partners in a firm, sharing profits equally. Following is the balance sheet as on December 31st ,2004 :

Q8.

Liabilities Capitals : Parul Swati Neha General Reserve Creditors

Rs. 1,20,000 90,000 80,000 45,000 71,000

Assets Fixed Assets Stock in Trade Sundry Debtors (---)Provision Bank Balance Investment Profit & Loss A/c

Rs. 2,50,000 35,000 28,000 4,800

23,000 16,000 60,000 21,000

4,06,000 4,06,000 They decided to change the ratio as 2:3:5. For this purpose following revaluations were agreed upon : (a) Fixed Assets depreciated by 20%. (b) Stock appreciated by 10%. (c) Investment valued at Rs.48,000 (d) All the debtors proved good. (e) Goodwill of the firm valued at Rs.30,000. Pass the journal entries if partners decided to keep all the assets at their present book values and to keep general reserve undisturbed. (Parul Sacrifice 4/30 ; Swati Sacrifice 1/30 ; Neha gains 5/30)

TREATMENT OF ADJUSTMENTS

ADMISSION OF A PARTNER Dr.

REVALUATION ACCOUNT

Decrease in value of Assets Increase in value of Liabilities + Provision

Any Assets or Liabilities

Cr.

Increase in value of Assets Decrease in value of Liabilities + Provision

Increase by Decrease by

Same Amount to be Shown in Revaluation Account Any Assets or liabilities Increase up to Decrease up Increase at Decrease at Brought up to Brought up to

--------------------------------------------------------------------------------------------------------------------------------------------

Then compare with old figure and put the difference amount only in Revaluation Account

 Un expired Insurance, Accrued Income -------------- Revaluation A/c Cr. Side & balance sheet assets 

side Provision for outstanding Legal Charges or Provision fro outstanding repair bills .

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Revaluation A/c Dr. side & balance sheet Liability Side . Liability

OLD BALANCE SHEET Machinery Furniture

Assets 30,000 20,000

Machinery is under valued by Rs.5,000. Furniture is over valued by Rs.3,000. Dr. Furniture

REVALUATION ACCOUNT 3,000 Machinery

Cr. 5,000

NEW BALANCE SHEET Machinery Furniture Liability

1.

35,000 17,000

OLD BALANCE SHEET Debtors Less : Provision for B/D

Assets 30,000 2,000

28,000

Provision for bad debt increased by Rs.2,600

Dr. REVALUATION ACCOUNT Provision for b/d 2,600 Liabilities

Cr.

New balance sheet Debtors (-)Pro. For b/d

2.

Assets 30,000 4,600

25,400

Provision for bad debts increase up to Rs.2, 600.

Dr. Revaluation Account Provision for b/d 600

Cr.

Liabilities

New balance sheet Assets Debtors 30,000 (-) Pro for b/d 2,600 27,400

Liabilities

New balance sheet Assets Debtors 30,000 (-) Pro for b/d 800 29,200

Liabilities

New balance sheet Assets Debtors 30,000 (-) Pro for b/d 1,300 28,700

3. Provision for bad debts decreased by

Rs.1, 200. Dr.

Revaluation Account Pro for b/d

Cr. 1,200

4. Provision for bad debts decreased up to Rs.1,300. Dr.

Revaluation Account Pro for b/d

Cr. 700

5. Provision for bad debts brought up to 5%

of debtors. debtors = 30,000 and Provision for b/d = 5% of 30,000=1,500 Dr.

Revaluation Account Pro for b/d

Commerce Classes

Cr. 500

Liabilities

By:- SUBHASH THAKUR

New balance sheet Assets Debtors 30,000 (-) Pro for b/d 1,500 28,500

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Existing Provision for bad debts increase by 30%.

Dr. Revaluation Account Pro for b/d 600

Cr.

Liabilities

New balance sheet Assets Debtors 30,000 (-) Pro for b/d 2,600 27,400 7. Provision for bad debts is not necessary.(All debtors are good)

Dr.

Cr. 2,000

Liabilities

Revaluation Account Pro for b/d

8.

New balance sheet Assets Debtors 30,000

Provision for bad debts was found to be excess by Rs.400. Liabilities

Dr.

Revaluation Account Cr. Pro for b/d 400 When any unrecorded Assets realized: Dr.

New balance sheet Assets Debtors 30,000 (-) Pro for b/d 1,600 28,400

Revaluation Account Cash A/c (unrecorded Assets sold )

Cr. -----

When any unrecorded Liabilities paid: Dr. Revaluation Account Cash A/c (unrecorded Liabilities paid) -----

Cr.

Investment worth Rs.2, 000 not mentioned in the Balance sheet were taken into account: Dr.

Revaluation Account Cr. Investment A/c 2,000 Liabilities Old balance sheet Investment A/c 20,000 (a)

Liabilities

New balance sheet Investment A/c

Assets 2,000

Assets

Investment worth Rs.12, 000 was taken over by A and B in ratio of 3:2. A’s Capital A/c ………..Dr. B’s Capital A/c ……….. Dr. Investment A/c

(b)

Rs.7, 200 Rs.4, 800 12,000

Liabilities

New balance sheet Investment A/c

Assets 8,000

A & B took over investment at Rs.12,000 in the ratio of 3:2. Dr. Investment A/c

Revaluation Account 8,000

A’s Capital A/c ………..Dr

Rs.7,

B’s Capital A/c ……….. Dr.

Rs.4,

200

Cr.

Liabilities

New balance sheet Investment

800 Investment A/c Liabilities Machinery (i)

Assets XXX

12,000 Old balance sheet 30,000

Assets

B took over machine at Rs.34, 000.

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B’s Capital A/c ……… Dr. 34,000

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Liabilities

New balance sheet Machinery

Machinery A/c 34,000

(ii)

B took over machine at Rs.25, 000. B’s Capital A/c ……… Dr. 25,000 Machinery A/c 25,000

Liabilities

Revaluation Account Machinery A/c

balance sheet

Assets XXX

5,000

Assets Machinery

Nil

Accrued income not appearing in the books is Rs.100. Dr.

Liabilities

New balance sheet Assets Accrued income 100 It was found that there was a liability for Rs.1,500 for goods

Revaluation Account Cr. Accrued income 100 received but not recorded in books.

Dr. Revaluation Account Creditors 1,500

Liabilities New balance sheet Creditors -----Add: liab. for goods Received 1,5000

Cr.

Assets

Out of insurance Premium which was debited to P & L A/c Rs.1, 000 be carried forward as unexpired insurance Dr.

Revaluation Account unexpired insurance

Liabilities

Cr.

New balance sheet Assets unexpired insurance 1,000

1,000

Liabilities Creditors

Old balance sheet 10,000

Assets

Provision for discount of 2.5% on Creditors be made. Dr.

Revaluation Account Prov. for dis. on Crs.

Cr. 250

A and

Liabilities Creditors (-) Pro for Crs.

New balance sheet 10,000 250

Assets 9, 750

B are partners in the ratio of 3:2. C 1/6. Liabilities Workmen Compensation Fund

Old balance sheet 2,000

Assets

Claim on account of Workmen Compensation is estimated at Rs.1,300. Workmen Compensation Fund A/c ………Dr.700 A’s Capital A/c 420 B’s Capital A/c 280 (This entry is done in the ratio of 3:2) Liabilities Workmen Compensation Fund

Commerce Classes

Liabilities New balance sheet Workmen Compensation Fund

Old balance sheet 5,000

By:- SUBHASH THAKUR

Assets 1,300

Assets

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Claim on account of Workmen Compensation is estimated at Rs.8, 000. Dr. Revaluation Account Workmen Compensation Fund Liabilities Workmen Compensation Fund

Cr. 3,000

Liabilities New balance sheet Workmen Compensation Fund

Old balance sheet 5,000

Assets 8,000

Assets

No adjustment of claim of Workmen’s Compensation. Workmen Compensation Fund A/c ………Dr.5,000 A’s Capital A/c 3,000 B’s Capital A/c 2,000 Liabilities New balance sheet (This entry is done in the old ratio of 3:2) Workmen Compensation Fund

Assets X

X, an old customer whose account was written off as bad has premium to pay Rs.350 in settlement of his full debt. Dr.

Revaluation Account Cr. Debtors(bad debts recovered ) 350

Liabilities Bank loan Outstanding Expenses Creditors (i)

New balance sheet Assets Debtors Add: 350 Assets

Old balance sheet 2,000 7,000 4,000

A agrees to pay creditors: Creditors A/c …….. Dr.4,000 A’s Capital A/c 4,000

(ii)

Liabilities

Liabilities New balance sheet Creditors XXX Bank loan 2,000 Outstanding Expenses 7,000

Outstanding Expenses Amount Rs.2,000 paid by B. Outstanding Expenses A/c …..Dr.2,000 B’s Capital A/c 2,000 Liabilities New balance sheet Outstanding Expenses 5,000 Bank loan 2,000 Creditors 4,000

(iii)

Bank Loan would be paid off. Bank loan A/c ……. Dr. 4,000 Cash A/c 4,000

Liabilities New balance sheet Bank loan XXX Outstanding Expenses 7,000 Creditors 4,000

Assets

Assets

Assets

A:B = 3:2. C is admitted for 1/6th Share . A joint policy for Rs.50,000 was taken out by A & B, on which premium totaling Rs.10,000 has been paid, has a surrender value of Rs.6,000. Joint life policy A/c ……..Dr.6,000 A’s Capital A/c 3,600 B’s Capital A/c 2,400 (This entry is done in the ratio of 3:2. old ratio)

Commerce Classes

Liabilities

By:- SUBHASH THAKUR

New balance sheet Joint life policy

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Assets 6,000

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A:B = 3:2. C is admitted for 1/6th Share . A joint policy for Rs.50,000 was taken out by A & B, on which premium totaling Rs.10,000 have been paid has a surrender value of Rs.6,000.JLP is not to appear in new balance sheet . (They decided not to keep any account in books in respect of Joint life policy) C’s capital A/c ………..Dr. 1,000 A’s Capital A/c 600 B’s Capital A/c 400 (Being adjustment entry for surrender value of Joint life policy in S.R.)

Liabilities Sundry Creditors

Old balance sheet 15,000

Assets

It was found that creditors included a sum of 1,400 which was not to be paid and hence they should be written back. (An unclaimed Liabilities for Rs.1,400 should be written back) Dr.

Revaluation Account Creditors

Liabilities

Cr.

New balance sheet Creditors

1,400

Liabilities Accident fund

Old balance sheet 9,000

Assets 13,600

Assets

Liabilities Against accident fund is estimated to be Rs.10,000. Dr.

Revaluation Account Accident fund

Liabilities

Cr.

New balance sheet Accident fund

1,000

Assets 10,000

Interest accrued on investment Rs.2,000.

Dr.

Revaluation Account Acc. Int. on Inv.

Cr. 2,000

A&B

Liabilities

are partner in the ratio 3:2.

Liabilities

New balance sheet Acc. Int. on Inv.

Old balance sheet

Assets 2,000

Assets

Investment

20,000

Half of the investment were to be over by A and B in their profit sharing ratio at book value . Remaining investment are valued at Rs.13,000. A’s Capital A/c 6,000 B’s Capital A/c 4,000 investment A/c 10,000

Dr.

Revaluation Account Investment

Liabilities

Cr. 3,000

New balance sheet

Assets

Investment

13,000

Rs.3,600 for damages claimed by a customer had been disputed by a firm. It was settled at Rs.1,500 by a compromise between the customer and the firm:

Dr.

Revaluation Account

Pro against Claim for damages Liabilities

1,500

General Reserve

Commerce Classes

Liabilities

Cr.

Pro against Claim for damages

Old balance sheet 10,000

debtors (-) Pro. for B/d

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New balance sheet 1,500

Assets

Assets 40,000 500

39,500

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20% of General reserve is to remain as a provision for bad debts. General Reserve Dr. 10,000 provision for bad debts 2,000 A’s Capital A/c 4,800 B’s Capital A/c 3,200 Liabilities

New balance sheet

Assets

debtors 40,000 (-) Pro. for B/d 2,500

Liabilities

Old balance sheet

provision for D/D

4,000

Assets

Debtors

Case I to write off bad debts Rs.2,500 Provision for bad debts A/c Dr. 2,500 Debtors A/c 2,500

37,500

50,000

Liabilities

New balance sheet

(-) Pro. for B/d

1,500 debtors (-)bad debt

Assets

50,000 2,500 47,500

Case II To write off bad debts Rs.6, 000 Provision for bad debts A/c Dr. 4,000 Revaluation A/c Dr.2,000 Debtors A/c 6,000

Dr.

Revaluation Account

Debtors

Cr.

Liabilities

2,000

New balance sheet

Provision for B/d

Liabilities

XXX

debtors

44,000

Old balance sheet

Investment Fluctuation fund

10,000

Assets

Assets

Investment

90,000

Case I If No Adjustment Given

Liabilities

New balance sheet

Investment Fluctuation fund 10,000

Assets

investment

90,000

Case II Market Value of Investment Rs.75,000

Dr. I.F Fund

Revaluation Account

Liabilities

Cr.

New balance sheet

Assets

Investment Fluctuation fund 10,000 investment 90,000

5,000

Case III Market Value of Investment Rs.82,000

Dr.

Revaluation Account

I.F Fund

Liabilities

Cr.

New balance sheet

Assets

Investment Fluctuation fund 8,000 investment 90,000

2,000

Unrecorded investment Rs.4,000 are taken over by A at Rs.3,000.

Dr.

Revaluation Account A’s capital A/c

Liabilities

Liabilities

Cr.

New balance sheet

Assets

No effect

3,000

Old balance sheet

Creditors

Assets

20,000

A liability of Rs.5, 000 included in the creditors is settled at Rs.7, 000. Creditors A/c Cash A/c

Commerce Classes

Dr. 7,000 7,000

By:- SUBHASH THAKUR

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Commerce Classes Dr.

By:- SUBHASH THAKUR

Revaluation Account

Creditors

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Liabilities

Cr.

New balance sheet

Creditors

20,000

Assets

20,000

A : B = 3 : 2. C is admitted for 1/6th share.. C Brings Rs.6,000 as capital and Rs.4,800 as goodwill. Rs.4,800 Paid by C is transferred to loan accounts of A & B. Cash A/c C’s capital A/c Premium A/c Premium A/c A’s capital B’s capital

Dr.

10,800 6,000 4,800

Dr.

4,800 2,880 1,920

(This entry is done in Sacrificing Ratio)

Liabilities

New balance sheet

A’s Loan B’s Loan

Assets

2,880 1,920

RETIREMENT OF A PARTNER New Profit Sharing Ratio New Share = Old Share + Gaining Share Gaining Share = New Share - Old Share 1st Type A, B and C are partners in the ratio 3:2:1. B retiProv. Calculate New ratio. A Gains = 2/6 x ¾ = 6/24 C Gains = 2/6 x ¼ = 2/24 G.R = 3: 1 New Share = Old Share + Gaining Share

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By:- SUBHASH THAKUR

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B’s Share 2/6

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A’s New Share = 3/6 + 6/24 = 18/24 C’s New Share = 1/6 + 2/24 = 6/24 A : C = 18 : 6 or 3:1 New Ratio = 3:1

A

B

2nd Type A,B and C are partners in the ratio 3 :5 : 2. C retires and his Share was taken up by A and B in the ratio of 1 :4 . Calculate New ratio. A Gains = 2/10 x 1/5 = 2/50 C’s Share B Gains = 2/10 x 4/5 = 8/50 G.R = 1:4 2/10 New Share = Old Share + Gaining Share A’s New Share = 3/10 + 2/50 = 17/50 B’s New Share = 5/10 + 8/50 = 33/50 New Ratio of A and B = 17:33 A B 3rd Type

Gaining Share = New Share – Old Share TREATMENT OF JOINT LIFE POLICY

Case 1 : A,B and C are partners sharing ratio 3 : 2 : 1, B retires New Ratio of A and C 3:2. The firm had a joint life policy for Rs.40,000 on which premium paid Rs.23,000, has a surrender value Rs.9,000. Joint life policy A/c Dr. 9,000 A’s Capital A/c 4,500 B ‘s Capital A/c 3,000 C’s Capital A/c 1,500 (This entry is done in the ratio of 3 : 2 : 1)

Liabilities

New balance sheet

Assets

Joint Life Policy

9,000

Case 2 : (Information of Case 1st is given) Partners decides that the joint life policy not to appear in the balance sheet A’s Capital A/c Dr. 900 C’s Capital A/c Dr. 2,100 B’s Capital A/c 3,000

Liabilities

New balance sheet Joint Life Policy

Assets X

RETIREMENT Q.1.

X, Y and Z were partners sharing profits and losses in the ratio of 5: 4: 1. X retires from the firm. Calculate New Ratio. (N.R. 4:1)

Q. 2.

A, B and C share profits as ½ to A, 1/3 to B and 1/6 to C. Calculate the new profit sharing ratio if B retires. (3:1)

Q.3.

From the following particulars calculate the new profit sharing ratio of the partners. A, B and C are partners in a firm sharing profits and losses in the ratio 5: 3: 2. B retires from the firm and his

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By:- SUBHASH THAKUR

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share was taken up by A and C at the ratio of 2:1.

(N.R.7:3)

Q. 4.

A, B and C are partners sharing profits in the ratio of ½, 2/5 and 1/10. B retires and his share is taken up by A and C in the ratio of 1:5. Calculate the new ratio of A and C. (17:13)

Q. 5.

A, B and C share profits in the ratio of 4/9, 1/3 and 2/9. B retires. Calculate the new ratio if B’s share is purchased by (i) A : (ii) C {(i) 7:2; (ii) 4:5}

Q. 6.

W, X, Y and Z are partners sharing profits and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Y retires and W, X and Z decide to share the profit and losses equally in future. Calculate the gaining ratio. (0 : 1 : 1)

Q. 7.

Kangli, Mangali and Sanvali are three partners sharing Profits in the ratio of 4:3:2. Kangli retires. Assuming Mangali and Sanvali will share profits in future in the ratio of 5:3 determine he gaining ratio. (21 : 11)

Q. 8.

X, Y and Z are partners sharing profits and losses in the ratio ½, 3/10 and 1/5. Y retires from the firm and X and Z decide to share the profits and losses equally in future. Calculate the gaining ratio. (G.R. 0 : 1)

Q. 9.

X, Y and Z are partners sharing profits losses in the ratio of ½, 1/8 and 3/8. Z retires and surrenders 4/9th of his share in favour of X and remaining in favour of Y. Calculate the new profit sharing ratio and the gaining ratio. (NR 2 : 1. G.R. 4 : 5)

Q. 10.

A, B and C are partners sharing profits in the ratio of 3:4:2. B retires and the goodwill of the firm is valued at Rs. 16,200. No goodwill account appears in the books of the firm. A and C decide to share profits in the ratio of 5:3. Give journal entries (with full narration) to record the above. (GR of A and C =21 : 11; B’s share of goodwill Rs. 7,200)

Q.11.

P, Q and R equal partners in a firm. Goodwill has been valued at Rs.36, 000; On R’s retirement from the firm P and Q agree to share profits in the ratio of 3:2. Pass necessary journal entry for treatment of R’s share of goodwill. (P’s A/c Dr. 9, 600, Q‘s A/c Dr. 2, 400, R’s A/c Cr. 12, 000)[CBSE 2004]

Q. 12.

X, Y and Z are partners sharing profits and losses in the ratio of 2/5, 2/5 and 1/5 respectively. Z retires and X and Y decide to share the future profits and the losses in the ratio of 2:1 respectively. There is no goodwill account in the books of the firm. Give necessary journal entries to record this arrangement. Goodwill of firm valued Rs. 3, 000. (X’s A/c Dr. 800, Y’s A/c Cr. Rs. 200, Z’s A/c Cr. 600)

Q. 13.

A, B and C are partners sharing profits and losses in the ratio of 4:3:1. B retires selling his share of profits to A and C for Rs. 8, 100; Rs. 3, 600 being paid by A and Rs. 4, 500 by C. The profit for the year after B retirement was Rs. 10, 500. You are required to give necessary journal entries. (New ratio 2:1)

Q. 14.

A, B and C were partners, sharing profits in the proportion of one half, one third and one-sixth respectively. The firms Balance Sheet as on 31st M arch 2005, stood as under: Liabilities

Commerce Classes

Rs.

By:- SUBHASH THAKUR

Assets

Rs.

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Commerce Classes Sundry Creditors Bills Payable Reserve Capital Accounts: A B C

By:- SUBHASH THAKUR

19, 000 5, 000 12, 000 40, 000 30, 000 25, 000 1, 31, 000

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Cash at Bank Debtors 16, 000 Less Provision 500 Stock Motor Vans Plant & Machinery Factory Buildings

2, 500 15, 500 25, 000 8, 000 35, 000 45, 000 1, 31, 000

B retires on that date subject to the following adjustment: (a) The goodwill of the firm to be valued at Rs. 18, 000. (b) Plant and Machinery to be depreciated b 10% and Motor Vans by 15%. (c) Stock to be appreciated by 20% and Buildings by 10%. (d) Provision for Doubtful Debts to be increased to Rs. 2, 450. Prepare Revaluation A/c, Capital Accounts to Partners and the Balance Sheet of the new firm. (Capital: A - 42, 925, C – 25, 975, B’s Loan – 40, 950; Profit Rs. 2, 850; Balance Sheet Rs. 1, 33, 850) Q.15

Ram, Shyam and Mohan were in partnership sharing profits and losses in the proportion of 3:2:1. On 31st March. 2005 shaym retires from the firm. On that date, their Balance Sheet was as follows: Liabilities

Rs.

Assets

Trade Creditors Bills Payable Expenses Owing Reserve Capital: Ram Shyam Mohan

3, 000 4, 500 4, 500 13, 500

Cash in hand Cash at Bank Debtors Stock Factory Premises Machinery Loose Tools

15, 000 15, 000 15, 000

Rs.

70, 500

1, 500 7, 500 15, 000 12, 000 22, 500 8, 000 4, 000

70, 500

The terms were: (a) Goodwill of the firm was valued at Rs. 13, 500. (b) Expenses owing to be brought down to Rs. 3, 750. (c) Machinery and loose tools are to be valued at 10% less than their book value. (d) Factory premises to be revalued at Rs. 24, 300. Show the Revaluation A/c, Partners Capital Accounts and Prepare the Balance Sheet of the firm after the retirement of Shyam. (Profit on Revaluation Rs. 1, 350: Balance Sheet Rs. 71, 100; A.I.S.S.E. 1983)

Q. 16.

N, B and S are partners sharing profits in the ratio of ½: 1/3: 1/6. Their Balance Sheet as at 31st Dec. 2005 was as under: Liabilities

Commerce Classes

Rs.

Assets

By:- SUBHASH THAKUR

Rs.

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Capital: N B S Reserve Sundry Creditors Bills Payable

5, 000 4, 000 4, 000 6, 000 4, 000 800

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Cash Stock Debtors Plant and Machinery Buildings

800 5, 200 6, 000 4, 800 7, 200

24, 000

Q. 17.

24, 000

On 1st January, 2006, N retired from the firm and the assets of firm were revalued as follows: Goodwill Rs. 1, 600; Stock Rs. 4, 800; Debtors Rs. 5, 600, Plant and Machinery Rs. 4, 400; Buildings Rs. 8,800; Creditors agreed to a discount of 2 ½ %. Assuming that above adjustments were duly carried through. Prepare Revaluation Account, Partners Capital Accounts, and the Balance Sheet of B and S. Amount due to N on retirement was agreed to be transferred to his Loan Account. (Profit on Revaluation Rs. 500; Total of Balance Sheet Rs. 24, 400){D.S.S.E. (Comptt.) 1992} Mukesh, Naresh and Kamlesh are equal partners and their Balance Sheet as on 31st Dec.2005 was as follows: Liabilities

Rs.

Creditors Reserve Capitals Accounts : Mukesh Naresh Kamlesh

22,400 15,000 60,000 50,000 50,000

Assets

Rs.

Cash at bank Debtors Less: Reserve Investment Stock Plant Buildings

6,200 27,000 1,000

26,000 7,000 32,000 51,200 75,000

1,97,400

1,97,400

Kamlesh retires on that date subject to the following conditions: (a) Goodwill of firm valued Rs.21,000. (b) Plant be depreciated by 10% and the stock be appreciated by 20%. (c) Reserve for doubtful debts be raised to 6%. (d) Interest accrued on investment Rs.348. Pass the necessary Journal entries ,prepare necessary ledger accounts and the openings balance sheet of the new firm. (Profit Rs.1,008,Capital A/c 61,836;51,836;B/s 1,98,408 Kamlesh ‘s loan Rs.62,336) Q18. X,Y and Z were partners sharing profits and losses in the ratio of ½: 1/3:1/6 respectively. The Balance sheet of the firm on 31st December ,2005 stood as follows: Liabilities

Rs.

Assets

Creditors Bills payable Reserve fund Capitals Accounts : X 20,000 Y 15,000 Z 12,500

9,500 2,500 6,000

Cash at bank Debtors Less: Reserve Stock Motors Vans Machinery Buildings

47,500

Rs. 1,250 8,000 250

65,500

7,750 12,500 4,000 17,500 22,500 65,000

Y retires on that date subject to the following conditions: (a) Goodwill of the firm is valued Rs.9, 000. (b) Machinery to be depreciated by 10% and Motor Vans by 15%.

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(c) Stock to be appreciated by 20% and buildings by 10%. (d) The provision for doubtful debts is to be increased by Rs.975. (e) Liability for workmen’s compensation to the extent of Rs.825 is to be created. It was agreed that X and Z will share profits in future in the ratio of 3:2 respectively. You are required to prepare the revaluation account, Capital accounts of the partner and the balance sheet of the firm after the retirement of Y. (Profit Rs.600; Capital 22,400; 11,500; Y’s Loan 20,200;B/s Rs.66,925) Q19.

Ram & Co. is a partnership firm with ram , Vijay and Shyam sharing profits and losses in the ratio of 5:3:2. The balance sheet of the firm on 31st March 2005 is as under : Liabilities Capitals : Ram Shyam General Reserve Long term Loan Bank overdraft Trade Creditors

Rs. 80,000 20,000 30,000 20,000 3,00,000 44,000 1,63,000 6,57,000

Assets Land and Building Plant and Machinery Furniture Investments Stock Debtors

Rs. 2,10,000 1,30,000 40,000 12,000 1,26,000 1,39,000 6,57,000

It was mutually agreed that Vijay will retire from partnership , and for this purpose the following adjustment are to be made : (i) Goodwill is to be valued at Rs.1 Lakh but the same was to be treated without opening goodwill a/c. (ii) Land and Building ; Plant and machinery are to be depreciated by 10% and 5% respectively . (iii) Provision for doubtful debts is maintained by 20% on debtors . (iv) Investment are to be taken over by Vijay at Rs.15,000. Ram and Shyam will share future profits equally. The amount due to Vijay is to be transferred to his loan account . Prepare Revaluation Account, Capital Accounts of the partners and balance sheet of the reconstituted firm. (Loss 52,300; Vijay’s Loan 25,310; Capital 63,850(Dr.); 6460(Cr.) B/s Rs.5,96,160) Q20. 3:2:1

A,B and C were carrying on business in partnership sharing profits and losses in the ratio of Respectively . On 31st march,2005 Balance sheet of the firm stood as follows : Liabilities Sundry Creditors Reserve Capitals : A 12,000 B 8,000 C 9,000

Rs. 14,590 6,000

Assets Cash Debtors Stock Building

Rs. 6,900 8,000 11,000 23,000

29,000 49,590

49,590

B retired on the above –mentioned date on the following terms : (a) buildings be appreciated by Rs.7,000. (b) Provision for doubtful debts be made at 5% on Debtors . (c) Goodwill of the firm be valued at Rs.9,000 and adjustment in this respect be made without raising goodwill account . (d) Rs.5,000 be paid to B immediately and the balance due to him to be treated as a loan carrying interest at 6% per annum. Pass Journal entries to respect the above mentioned transactions and show the balance sheet of the Firm as it should appear immediately after ‘B’ retirement. (Profit Rs.6,600. B/s Rs.51,190)

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On 31st March 2005, the balance sheet of M/s A,B and C sharing profits and losses in

Q21. proportion

To their capitals, stood as follows : Liabilities Creditors Capitals : A B C Reserve

Rs. 1,08,000 4,20,000 2,80,000 1,40,000 60,000

Assets Cash at Bank Debtors 1,00,000 Less : Provision 2,000 Stock Machinery Land and Buildings

Rs. 80,000 98,000 90,000 2,40,000 5,00,000

10,08,000

10,08,000

On that date , B wants to retire from the firm and the remaining partners decide to carry on . The Following readjustments of assets and liabilities have been agreed upon before the ascertainment of the amount payable to B: (a) (b) (c) (d) (e)

(f) (g)

That out of the Fire Insurance Premium paid during 1998-99, Rs.10,000 be carried forward As unexpired. That the land and building be appreciated by 10%. That the provision for doubtful debts be brought up to 5% on debtors. That machinery be depreciated by 5% . That a provision for Rs.15,000 be made in respect of an outstanding bill for repairs . That the goodwill of the entire firm be fixed at Rs.1,80,000 and B’s share of the same be adjusted in the A/c of A and C who share future profit in the proportion of 3/4th and 1/4th respectively. That B be paid Rs.50,000 in cash and the balance be transferred to his loan A/c .

Prepare Revaluation Account, Capital Accounts of the partners and the balance sheet of the firm of A and C. (Revaluation Profit Rs.30,000; Balance sheet total Rs.10,03,000) Q22. 31st

X,Y and Z are partners sharing profits in the ratio of their capitals . Y retired from the firm on December ,2006. the date on which the balance sheet of the firm was as follows : Liabilities Sundry Creditors Bills payable Outstanding Salary Capitals : X Y Z

Rs. 4,000 2,500 500 30,000 24,000 18,000 79,000

Assets Cash Debtors 6,000 Less : Provision 400 Stock Machinery Land and building

Rs. 5,400 5,600 10,000 28,000 30,000 79,000

The following adjustment were made : (a) (b) (c) (d)

Buildings appreciated by 20%, stock depreciated by 10% and Provision for doubtful debts Was to be 5%.. A reserve for legal charge payable was to be made at Rs.900. Goodwill of the firm be valued at Rs.12,000 and Y’s share in it be adjusted into the capitals Accounts of X and Z without opening goodwill A/c . Rs.24,000 from Y’s capital accounts be transferred to his loan account and balance be paid In cash. New profit sharing ratio of X and Z decided to be 3:2.

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Give the necessary ledger accounts and the balance sheet of the firm after Y’s retirement. (Profit Rs.4,200 Y’s loan 24,000 Capital 29,550 ; 17,250 B/s 78,700) Odd and Even are partners sharing profits and losses equally. On 31st December 2005. Their

Q23. balance

Sheet was under: Liabilities Sundry creditors Capitals : Odd Even

Rs. 7,000

Assets Buildings Machinery Stock Sundry debtors Bank balance

Rs.

3,000 1,500 5,000 3,250 4,000 8,150 100 16,000 16,000 It is agreed that odd shall retire on 31st December 2005 and that Even shall continue the

business on The following terms : (a) (b) (c) (d)

The goodwill of the firm to be agreed as worth Rs.1,000. Stock to be agreed as worth Rs.2,750. A provision for doubtful debts (4% on the sundry debtors ) to be made . Odd to be paid out as to Rs.2,000 of the amount due to him in cash and the balance by a bill of exchange (without interest ) at 12 months.

Give journal entries regarding the above and the balance sheet of Even on 31st December 1991 after the adjustment have been made . (Loss 826, Even‘s Capital 3,087 B/s 15,074) The following was the balance sheet of A and B as on 31st December 2005:

Q24.

Liabilities Capitals : A B Reserve Employees Provident Fund Sundry creditors Profit and loss A/c

Rs. 10,000 7,500 6,000 500

Assets Machinery and Plant Patents Stock in Trade Sundry Debtors Cash

Rs. 20,000 2,000 5,000 4,000 1,000

2,000 6,000 32,000

32,000

A retired from the business on 1st Jan,2006, According to the partnership deed , goodwill is to be Calculated at two years purchased of the average profit in the three years preceding dissolution of the partnership. The profit of the years ending 31stdecember, 2003 and 31st December 2004, were Rs.6,000 and Rs.3,000 respectively. The patents are valueless. Machinery and plant is to be depreciated by 10% . A provision @ 5% for doubtful debts is to be created on the book debts. Assuming that these adjustment are duly carried out, show the capitals accounts of the partners and The balance sheet of B after A has been paid off. B borrows money from his bank on the security of plant and stock to pay off A. (Capital A—6,400; Loss on Revaluation Rs.4,200 Total of balance sheet 27,800)

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Commerce Classes

By:- SUBHASH THAKUR

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A,B and C are partners sharing profits in the ratio of 4:3:2. Their balance sheet on 31st march

Q25. 2005

Was as follows : Liabilities Creditors General Reserve Capitals : A 70,000 B 45,000 C 30,000

Rs. 33,000 27,000

Assets Cash Debtors Stock Machinery Land and Building

Rs. 10,000 15,000 30,000 50,000 1,00,000

1,45,000 2,05,000

2,05,000

The firm had a joint life policy for Rs.40,000. The surrender value of the policy was Rs.13,500 as on 31st March,2005. B retires on the above date on the following conditions : (a) (b) (c) (d)

Land and building be appreciated at rs.18,000. Goodwill is to be valued at Rs.18,000. A provision for doubtful debts of 5% is to be created and machinery be written down by 10% and stock by 5%. A provision of Rs.1,500 be made in respect of legal charges .

B to be paid Rs.5,000 and balance be transferred to his loan account. Prepare Revaluation Account, Partners capital accounts and balance sheet of A and C . (Capitals 89,000, 39,500 Profit Rs.11,250 B’s loan Rs.63,250 B/s 2,26,250) A,B and C were partners sharing profits in the ratio of 3:2:1. Their balance sheet on 31st was as follows :

Q26. March 2005 Liabilities Sundry Creditors General Reserve Capitals : A B C

Rs. 20,000 9,000 40,000 30,000 20,000 1,19,000

Assets Goodwill Patents Stock Debtors Machinery Cash

Rs. 10,000 8,000 25,000 20,000 45,000 11,000 1,19,000

The firm had a joint life policy for Rs.60,000 on which premium were paid in all amounting to Rs.25,000 . The surrender value of the policy was Rs.9,000 on 31st March, 2005. B retires on the above date upon the following terms : (a) Goodwill of the firm be valued at Rs.25,000. (b) Machinery be written down by 10%, Partners be written up by 25%, a provision of 5% be created on debtors and a Reserve of 2/12 % on creditors be made. (c) B to be paid Rs.15,000 immediately, which is to be contributed by the other partners in the ratio of their capitals. A and C agreed to share profits in future in the ratio of 3:2 and decided not to keep any account in books in respect of joint life policy. Give journal entries to record the above and the balance sheet of the firm after B’s retirement. (Loss on Revaluation Rs.3,000; B’s loan a/c .Rs.25,000 B/s Rs.1,05,500) Q27. when

A,B and C were in partnership sharing profits and losses equally. On 14thJan 2005, A retired The firm balance sheet was as under : Liabilities

Commerce Classes

Rs.

By:- SUBHASH THAKUR

Assets

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Rs.

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Commerce Classes

By:- SUBHASH THAKUR

Sundry Creditors Capitals : A 16,000 B 12,000 C 7,800

6,928

22,600 29,528

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Land and building Plant and machinery Sundry Debtors Investments Cash

4,200 6,980 8,915 8,000 1,433 29,528

According to partnership deed , assets were to be revalued on A’s retirement as under : (a) (b) (c)

Land and building Rs.5,800, Plant and machinery Rs.6,564; Investment Rs.8,400. Besides , goodwill was then valued at Rs.9,600. A accepted the investment at their revalued figures in part payment of his dues: B paid in Rs.4,000 as further capital and A was paid off the balance of his account.

Prepare the Revaluation account, partners capital accounts and the revised balance sheet of B and c. (Profit rs.1,584, cash paid to A rs.3,328 ; B/s Rs.23,384; capital A/c B Rs.9,728 and C Rs.6,728) Q28. on

The balance sheet of A,B and C who were sharing the results in proportion to their capitals as 31st march 2005, stood as follows : Liabilities Bills payable Sundry Creditors Capitals : A 16,000 B 12,000 C 8,000 General Reserve

Rs. 6,250 11,000

36,000 9,000 62,250

Assets Factory Buildings Debtors 12,000 Less : Provision 500 Stock Plant and machinery Bank balances

Rs. 16,000 12,000 14,000 14,000 6,000 62,250

B retired on that date and the following adjustment were made : (a) (b) (c) (d) (e)

Stock was depreciated by 8%. Factory building were appreciated by 20%. Provision for doubtful debts to be created up to 5%. Provision for legal charges to be made at Rs.135. The goodwill of the entire firm was fixed at Rs.10,800 and B’s share was to be

adjusted into the accounts of A and C who will share profits in future in the ratio of 5:3 respectively. (f)

The entire capital of the new firm be fixed at rs.28,000 in the profit and loss sharing

ratio. Pass journal entries and prepare the initial balance sheet of A.B and C after transferring the balance In B’s capital account tot his loan account. (Ans. Profit Rs.1,800 Total of B/s Rs.64,585) A,B and C are partners in the ratio of 5:3:2. Their balance sheet as at 31st march 2005 was as

Q29. follows Liabilities Trade Creditors General Reserve Capitals :

Commerce Classes

Rs. 37,000 12,000

Assets Deferred Advertisement Expenditure Land and building

By:- SUBHASH THAKUR

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Rs. 18,000 16,000

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By:- SUBHASH THAKUR

A B C

10,000 12,000 4,000

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Machinery Stock Sundry Debtors Bank

9,000 14,500 16,000 1,500 75,000

75,000

(i) (ii) (iii) (iv) (v) (vi) (vii)

It was agreed that A shall retire on 31st March 2005 as per the following conditions : Goodwill of the firm is to be valued at three years purpose of the annual profits of the last f four years. The profits for the preceding years were Rs.30,000; Rs.8,000; Rs.12,000; Rs.14,000. Stock is agreed to be valued at Rs.13,500. Land and buildings are to be revalued at Rs.24,000 and Machinery at Rs.6,400. Provision for doubtful debts at 5% on Sundry debtors is to be created. An unclaimed liability of Rs.400 is to be written off. A to be paid the amount due to him by raising a loan of Rs.20,000 on the security (Mortgage)of the land and building and the balance by exchange (without interest ) payable at the expiry of 12 months. B and C to bring in or take out cash so as to maintain the capital of the new firm at Rs.40,000 in their profit sharing ratio.

Show the calculation of goodwill , and record the above adjustment and prepare the balance of B and C on 31st March , 2005 after the retirement of A. (Profit on Revaluation Rs.4,000; Total of B/s Rs.1,09,600) Q30.

On 31st march 2005, the balance sheet of P, Q and R who were sharing profits and losses in proportion to their capitals stood as follows : Liabilities Bills Payable Creditors General Reserve Capitals : P Q R

Rs. 6,000 12,000 6,000 42,000 28,000 14,000 1,08,000

Assets Land and Machinery Machinery Debtors 10,000 Less : Pro. 200 Stock Cash at bank

Rs. 55,000 25,000 9,800 10,000 8,200 1,08,000

Q retired and the following re-adjustments of the assets and liabilities have been agreed upon before the ascertainment of the amount payable to Q. (a) That out of the amount of insurance which was debited entirely to profit and loss account Rs.1,400 be carried forward as an unexpired insurance . (b) That the land and building be appreciated by 10%. (c) That the provision for doubtful debts be brought up to 5% as debtors. (d) That machinery be depreciated by 6%. (e) That a provision of Rs.1,500 be ,made be made in respect of an outstanding bill for repairs. (f) That the goodwill of the entire firm be fixed at Rs.18,000 and Q’s share of the same be adjusted into the accounts of P and R who are going to share future profits in the proportion of three –fourth and one- fourth, respectively. (g) That the entire capital of the firm as newly constituted be fixed at Rs.60,000 between P & R in the proportion of three- fourth and one-fourth after passing entries inn their accounts for adjustments, i.e. actual cash to be paid off or to be brought in by the continuing partners as the case may be . (h) That Q be paid Rs.5,000 in cash and the balance be transferred to his loan account. Prepare necessary accounts and the balance sheet of the firm of P & R. (Profit on Revaluation Rs.3,600 Total of b/s Rs.1,11,700)

Commerce Classes

By:- SUBHASH THAKUR

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9810190005

Commerce Classes Q31. at 31st

By:- SUBHASH THAKUR

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A,B and C were partners sharing profits and losses in the ratio of 3:2:1. their balance sheet on March 2005 was as follows : Liabilities Sundry Creditors Bank Overdraft Capitals : A B C General Reserve

Rs. 16,000 5,000 33,000 22,000 16,000 6,000

Assets Goodwill Land and buildings Plant and machinery Stock Sundry debtors 22,000 Less: Provision 500 Cash in hand

Rs. 6,000 26,000 30,000 15,000 19,000 1,500

98,000

98,000

B retires on the date of Balance sheet on the following conditions: (a) Goodwill is to be valued at 2 years purchase of the average profits of the past years which (b) (c)

were Rs.14,000;Rs.16,000; Rs.13,000;Rs.29,000. Land and buildings are to be revalued at Rs.30,000.Plant and machinery is to be written Down to Rs.25,000; the provision for doubtful debts to be increased to 5% on Sundry debtors and a liabilities of Rs.1,500 is to be created for a claim against the firm. B is to be paid Rs.10,000(by increase in bank overdraft) immediately and the balance is to be left as loan at 9% p.a.

The capitals of the newly constituted firm is fixed at Rs.80,000 to be divided among A and C in their Profit sharing ratio; adjustment to be made by payment into or out of cash. Journalize the entries required and give the balance sheet after B’s retirement . (Loss on revaluation Rs.3,000 : Total of B/s Rs.1,35,500) Q32. 31,

A , B and C were partners sharing profits in the ratio of 5:4:3. Their final position as on March 2005 was as below: Liabilities Trade Creditors Capitals : A B C General Reserve

Rs. 15,000 45,000 36,000 27,000 12,000

Assets Cash at bank Debtors 22,000 Less: Provision 200 Stock Machinery & Equipment Buildings

1,35,000

Rs. 32,200 9,800 20,000 23,000 50,000 1,35,000

B decide to retire . The partners agreed upon the following adjustment to assets and liabilities for determining the amount payable to B: (a) (b) (c) (d) (e) (f)

That the provision for doubtful debts be increased to 5%. That the stock be depreciated by 5% and building be appreciated by 20%. That a provision of Rs.1,500 to be made for setting a dispute with a former employee. That the goodwill of the firm to be valued at Rs.32,400. No goodwill account to be raised . That A and C to be equal partners for future . That cash is to be brought in by or paid off to the partners in the new firm to maintain tha capital of Rs.96,000 in equal proportion.

Commerce Classes

By:- SUBHASH THAKUR

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Commerce Classes

By:- SUBHASH THAKUR

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Pass the necessary journal entries and prepare Revaluation account , Bank account , partners capital accounts and the balance sheet of the new firm after B’s retirement . (Profit on Revaluation Rs.7,200; Total of B/s Rs.1,65,700) The balance sheet of A, B and C as at 31st march 2006 is as under :

Q33. Liabilities Creditors Capitals A B C General Reserve

Rs. 1,31,000 2,90,000 2,90,000 2,90,000 15,000

Assets Goodwill Land and buildings Printing Press Stock of Papers etc. Debtors 1,00,000 Less: Provision 10,000 Cash at bank

Rs. 15,000 5,00,000 2,00,000 50,000 90,000 1,61,000 10,16,000

10,16,000

C decided to retire on 31st March 2006 as he got some foreign assignment. The partners agreed for The following terms and conditions: (a) (b) (c) (d) (e) (f) (g)

Stock to be depreciated by 30% and sale of old papers realized at Rs.1,000. Provision for doubtful debts to be increased to 18% of sundry debtors. Printing Press to be depreciated by 40% and Land and building to be appreciated by 15%. The goodwill of the entire firm to be valued at Rs.75,000. A and B to share future profit in the ratio of 5:3 and maintain the capital of the firm at Rs.8 lakhs in that ratio. A and B to bring in sufficient cash in case of deficiency and withdraw the surplus balance , if any. Final settlement of retiring partners share to be done immediately on his retirement .

Pass the journal entries and prepare the necessary ledger accounts and the balance sheet of the firm on the retirement of C. (Loss on Revaluation Rs.27,000; Total of b/s Rs.9,31,000) Q34. on 31st

J,R and Y were sharing profits and losses in proportion to their capitals . Their balance sheet December 2005 was as under: Liabilities Sundry creditors Capitals: J 76,000 R 57,000 Y 38,000 Employees provident fund Contingency Reserve fund Employees compensation reserve

Rs. 20,000

1,71,000 1,600 4,500 4,500 2,01,600

Assets Buildings Machinery Stock Debtors 20,000 Less: provision 400 Bank Cash

Rs. 1,00,000 48,000 18,000 19,600 8,000 8,000 2,01,600

R decided to retire due to old age . They agreed to the following adjustment in the books of accounts to decide R’s share: (a) (b) (c)

Buildings to be appreciated by 20%. Provision for bad and doubtful debts is to be increased to 5% on debtors. Out of total insurance premium paid Rs.2,800 is to be treated as prepaid insurance. This amount was earlier debited to profit and loss account .

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(d) (e)

Machinery is to be depreciated by 20% . Goodwill of the entire firm is to be valued at Rs.72,000. R’s share is to be adjusted in the account of J and Y. (f) J and Y also decide that the total capital of the firm after R’s retirement will be in their new profit sharing ratio,(i.e.5:3) actual cash to be brought in or paid to a partner as the case may be . You are required to prepare Revaluation account , the capitals Accounts of all the partners and the balance sheet of J and Y. (Capitals Rs.65,250;39,150, R’s loan 88,200;B/s 2,13,800; Profit 12,600 Amount paid to J Rs.7,350; Amt. Brought in by Y Rs.7,350) Q35. 31st

A,B and C are partners sharing profits and losses in the ratio of 3:2:1. Their balance sheet as at December 2005 stood as under: Liabilities Creditors Bills payable General Reserve Capitals : A 70,000 B 80,000 C 50,000

Rs. 45,000 18,000 9,000

2,00,000

Assets Cash in hand Debtors 35,000 Less: Provision 5000 For D/D Stock Investment Furniture Plant and furniture Goodwill

Rs. 22,000 30,000 40,000 20,000 24,000 1,24,000 12,000 2,72,000

2,72,000 A retires and the following is agreed upon: (a) (b) (c) (d) (e) (f)

Debtors are all good . Depreciate furniture by 5% and stock by 10%. Interest accrued on investment is Rs.3,000. Creditors will be written back by Rs.3,000 . Goodwill of the firm is valued at Rs.30,000. The firm had taken a joint life policy of Rs.1,00,000. The surrender value of the

policy on (g) (h) (i)

31st December ,2005 was R.15,000. A takes over investment at a valuation of Rs.25,000. Joint life policy are not to appear in the new balance sheet . Capital of the newly constituted firm shall remain the same as before and capital of B and C shall be in proportion to their new profit sharing ratio 3:2.

Prepare Revaluation Account, Partners capital account and the balance sheet of B and C after retirement assuming that amount due to A is paid off on retirement . (Profit rs.10,800: Capital 1,20,000; 80,000; Amt. paid to A-71,000; B/s 2,60,000) Q36. was

The balance sheet of X, Y and Z who shared profits in the ratio of 4:3:2 as on 31st March 2005 As follows: Liabilities Sundry Creditors General Reserve Capitals X 19,000 Y 14,000 Z 12,000

Commerce Classes

Rs. 7,700 1,800

45,000 54,500

Assets Cash at bank Debtors 6,000 Less: Provision 300 Stock Plant and Machinery Buildings

By:- SUBHASH THAKUR

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Rs. 6,300 5,700 7,000 10,500 25,000 54,500

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By:- SUBHASH THAKUR

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Y retired on the above date:

(g)

(a) Stock be depreciated by 5%. (b) buildings be appreciated by 5%. (c) A provision of Rs.320 be made for legal charges. (d) Goodwill of the firm is valued at Rs.14,400. (e) X and Z to share the future profits in the ratio of 5:3. (f) Y to be paid Rs.5,000 in cash and the balance to be transferred to his loan account. X and Z to maintain their capitals in the new profit sharing ratio and to bring in or withdraw cash for the purpose. Capital of the new firm be fixed at Rs.28,000.

Prepare Revaluation account, Capital accounts of all partners , bank account and the balance sheet of X and Z after retirement of Y. (Profit rs.580. Capital A/c 17,500;10,500;bank Rs.6,513; B/s 50,613 Y’s loan 14,593) Q37. They

P,Q and R were partners sharing profits and losses in the ratio of 5/10 P; 3/10 Q; and 2/10 R. Had taken a joint life policy of the face value of Rs.20,000. On 31st March 2006 its surrender

value Was Rs.4,000.On this date the balance sheet of the firm stood as under: Liabilities Sundry creditors Expenses Outstanding Reserve Capitals P 20,000 Q 10,000 R 8,000

Rs. 5,300 700 3,000

Assets Fixed Assets Stock Book Debts Cash at Bank (Minimum balance)

Rs. 25,000 11,000 9,000 2,000

38,000 47,000

47,000

On this date Q decided to retire and for this : (a) (b) (c)

Goodwill was valued at Rs.15,000. Fixed Assets were valued at Rs.30,000. Stock was considered as worth Rs.10,000.

Q was to be paid through cash brought in by P and R in such a way as to make their capitals proportionate to their new profit sharing ratio which was to be P 3/5 and R 2/5. Goodwill was passed through books without raising as goodwill account; the joint life policy was not to appear in the balance sheet . Record these matters in the journal of the firm and prepare the resultant balance sheet. (Revaluation Profit Rs.4,000; Total of B/s Rs.51,000) Q38. life

A,B and c were partners sharing profits and losses in the ratio of 5:3:2. They had taken a joint Policy for a sum assured of Rs.1,00,000. On 31st December ,2006, its surrender value was

Rs.20,000 On that date, the balance sheet of the firm stood as under: Liabilities Sundry Creditors Expenses due Reserve A’s Capital B’s Capital

Commerce Classes

Rs. 26,500 3,500 15,000 1,00,000 50,000

Assets Bank Debtors Stock Fixed Assets

By:- SUBHASH THAKUR

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Rs. 10,000 45,000 55,000 1,25,000

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Commerce Classes

By:- SUBHASH THAKUR

C’s capital

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40,000 2,35,000

2,35,000

B retires on 31st dec,2006. For the purpose the following adjustment were agreed upon: (a) That Goodwill be valued at Rs.75,000. (b) That Fixed assets be appreciated by 20%. (c) That Stock be reduced to Rs.50,000. (d) That B be paid through cash brought in by A and C in such a way as to make their capitals proportionate to their new profit sharing ratio which is to be A 3/5 and C 2/5. (e) That Joint life policy are to appear in the balance sheet .

Q39.

Prepare the partners capital A/c and the balance sheet of A and C. (Profit Rs.20,000 capital 1,47,000; 98,000;B/s 2,75,000 Payment to B 89,000) The balance sheet of A,B and C on 31st December 2006 was as follows: Liabilities Creditors Capitals Accounts A B C

Rs. 50,000 80,000 80,000 60,000

Assets Goodwill Land and buildings Plant and machinery Motor car Debtors Cash at bank

Rs. 30,000 80,000 56,000 54,000 48,000 2,000 2,70,000

2,70,000

The following terms have been agreed upon on A’s retirement: Goodwill of firm valued Rs.42,000. The value of land and building would be appreciated by Rs.20,000. The value of plant and machinery would be reduced to Rs.46,000. Create provision for doubtful debts at 5% on debtors. Create provision of Rs.1,400 on creditors. The remaining partners decided not to show goodwill as an asset. The entire sum payable to A is to be brought by B and C in such a manner that their capital accounts are in proportion to their profit sharing ratio, which is equal. Prepare necessary ledger accounts. (Profit 9,000; Capital 99,500; 99,500; B/s 2,47,600 Payment to 87,000) A,B and C were partners sharing profits and losses in the ratio of 3:2:1. Their balance sheet as (a) (b) (c) (d) (e) (f) (g)

Q40. at

31st dec,2006 stood as under: Liabilities Creditors Expenses owing Loan General Reserve Capital Accounts: A B C

Rs. 24,000 8,000 20,000 12,000 40,000 30,000 30,000 1,64,000

Assets Cash in hand Debtors 32,000 Less: Provision 3,000 Stock Investment Furniture Machinery Goodwill

Rs. 15,000 29,000 25,000 20,000 15,000 50,000 10,000 1,64,000

On that date B retired on the following terms: (a) (b) (c) (d) (e)

Provision for doubtful debts would be brought down to Rs.2,000. Expenses owing would be reduced by Rs.3,000. Interest accrued on investment was Rs.2,600. Depreciate furniture by 10% and machinery by 5%. There was an outstanding bill for repairs of Rs.2,500 and it was to be provided for .

Commerce Classes

By:- SUBHASH THAKUR

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Commerce Classes (f) (g) (h) (i)

By:- SUBHASH THAKUR

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The firm had taken a joint life policy of Rs.80,000 in the name of partners . The surrender value of the policy at the time of retirement of B was Rs.9,000. Goodwill of the firm was valued at Rs.25,000. A and C decided that joint life policy would not appear in the books of the firm . B was paid in full with the cash brought in by A and C in such a manner that their capitals remain proportionate to their profit sharing ratio 3:2. and cash in hand must be maintained at Rs.20,000.

Prepare Revaluation Account, Partners Capital Accounts and Balance sheet of A and C. (Capital 64,200,42,800; Payment to B 42,000 B/s 1,58,500) Q41. respectively,

The balance sheet of M,N and O who are sharing profit and losses ratio of ½,1/3,1/6 Was as follows on 30.6.2005:

Liabilities Bills payable Sundry Creditors Capital Accounts : M N O Profits & loss A/c

Rs. 6,000 12,900 40,000 25.000 20,000 4,500

Assets Cash in hand Cash at Bank Bills receivable Book debt Stock Furniture Plant and machinery Building

Rs. 150 25,000 5,400 17,800 22,300 3,500 9,750 24,000 1,08,400

1,08,400

M retires from business 1st July 2005. Assets were revalued as under: Stock rs.20,000; Furniture rs.3,000; Plant and machinery Rs.9,000; Building Rs.20,000; and Rs.850 are to be provided for doubtful debts. The goodwill of the firm is agreed to be valued at Rs.6,000. M is to be paid Rs.11,050 in cash on retirement and balance in the three equal yearly installments with interest at 5% per annum. Prepare Revaluation Account, Partners capital Accounts and M’s loan account till it is finally closed. (Loss 8,400 M’s loan 30,000; B/s 88,950; Int. on loan 1,500;1,000;500) Q42. ratio of

Following is the balance sheet on 31st dec,2005 of M/s A,B and C who share profits in the 4:2:1 respectively: Liabilities Capital Accounts : A B C Sundry creditors Bills payable General reserve

Commerce Classes

Rs. 30,000 20,000 15,000 15,000 3,000 10,500 93,500

Assets Goodwill Stock Sundry debtors Land and building Plant and machinery Motor Vehicle Cash

By:- SUBHASH THAKUR

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Rs. 10,000 15,000 11,000 20,000 26,500 10,000 1,000 93,500

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By:- SUBHASH THAKUR

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On the above date , A retired and the following arrangements were agreed upon: (a) (b) (c)

Goodwill of the firm is to be valued at Rs.24,000. The assets and liabilities are to be valued as under : Stock Rs.12,000; Sundry Debtors Rs.10,500; Land and buildings Rs.22,600, Plant and machinery Rs.25,000 and sundry creditors Rs.14,000. B and C were to introduce Rs.20,000 and Rs.5,000 respectively into the business and Rs.16,200 was to be paid to A. The balance due to A was to be paid in three equal annual installments together with interest at 9% p.a.

Give journal entries to record the above transactions , the balance sheet of the firm after A’s retirement and A’s loan account until it is paid off. (Loss on Revaluation Rs.1,400; total of B/s Rs.89,900) Q43. balance

A,B and C were partners sharing profits in the proportion of ½,1/3,and 1/6 respectively. The Sheet of the firm on 31st march 2005 was as follows: Liabilities Sundry Creditors Provident Fund Reserve fund Capitals : A B C

Rs. 12,600 3,000 9,000 40,000 36,500 20,000 1,21,100

Assets Cash at Bank Debtors 30,000 Less: Provision 1,000 Stock Investment Patents Plant and machinery

Rs. 4,100 29,000 25,000 10,000 5,000 48,000 1,21,100

C retired on the above date on the following terms: (a) (b)

Goodwill of the firm was valued at Rs.27,000. Value of the patents was to be reduced by 20% and that of plant and machinery by

10%. (c) (d) (e)

Provision for doubtful debts was to be raised to 6%. C took over the investment at a value of Rs.15,800. Liability on account of Provident fund was only Rs.2,500.

Show the necessary journal entries for the treatment of goodwill, prepare revaluation account, capital accounts of the partners and the balance sheet of A and B after C’s retirement. (Loss Rs.300; Capital 41,650;37600; C’s loan 10,150;B/s 1,04,500) Q44. firm as

P,Q and R are in the partnership sharing profits in the ratio of 5:3:2. The balance sheet of the on April 1,2006 was as follows: Liabilities Capitals : P 40,000 Q 61,000 R 24,000 Reserve Sundry Creditors Profit & loss A/c Bills payable

Commerce Classes

Rs.

1,25,000 30,000 50,000 28,000 5,000 2,38,000

Assets Bills Receivable Machinery Furniture Sundry debtors 70,000 Less: Provision 3,000 For D/D Stock Cash at bank

By:- SUBHASH THAKUR

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Rs. 15,000 82,000 4,000 67,000 20,000 50,000 2,38,000

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Commerce Classes

By:- SUBHASH THAKUR

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On April 1,2006 , Q retire due to his foreign assignment and P and R continued in partnership, sharing profits and losses in the ratio 3:2. It was agreed that following adjustment were to be made on the retirement of Q. (a) The machinery was to revalued at Rs.85,000. (b) The stock was to be reduced by Rs.1,000. (c) The furniture was to be reduced to Rs.1,600. (d) The provision for doubtful debts would be 6%. (e) A provision of Rs.800 was to be made of outstanding expenses . (f) A liability on account of damages of Rs.7,000 included in creditors is settled at Rs.12,000. The partnership agreement provides that in case of retirement of a partner goodwill was to be valued at three years purchase of average profits, which are 10,000. Q was paid off in full. P and R were to deposit such an amount in bank so as to make capital in proportionate to the new profit sharing ratio, subject to the condition that a bank balance of Rs.40,000 was to be maintained as working capital. Record the necessary journal entries to give effect to the above arrangements and prepare the partners capital accounts as on 1st April 2006 and also the balance sheet after retirement. (Loss Rs.7,400; P=Rs.99,360;R=Rs.66,240;Payment to Q Rs.85,180; B/s Rs.2,26,400) Q45. capitals

The balance sheet of A,B and C who are partners in a firm sharing profits according to their as on 31st March 2005 was as under: Liabilities Creditors A’s Capital B’s Capital C’s capital General Reserve

Rs. 21,000 80,000 40,000 40,000 20,000

Assets Buildings Machinery Stock Debtors 20,000 Less: Provision 1,000 For B/d Cash at bank

Rs. 1,00,000 50,000 18,000 19,000 14,000 2,01,000

2,01,000

On that date, B decided to retire from the firm and was paid for his share in the firm subject to the following: (a) (b) (c) (d) (e)

Buildings to be appreciated by 20%. Provision for bad debts to be increased to 15% on debtors. Machinery to be depreciated by 20%. Goodwill of the firm is valued at Rs.72,000 and the retiring partners share is adjusted through the capital accounts of remaining partners . The capitals of the new firm be fixed at Rs.1,20,000.

Prepare Revaluation account, capital accounts of the partners and the balance sheet after retirement of B. (Profit Rs.8,000; A=Rs.80,000; C=Rs.40,000; B/s Rs.1,95,000) Q46.

X,Y and Z were partners in a firm sharing profits in the ratio of 2:2:1. Their balance sheet on 31.3.2005 was as follows: Liabilities Creditors Reserve X’s Capital Y’s Capital Z’s Capital

Rs. 49,000 18,500 82,000 60,000 75,500 2,85,000

Assets Cash Debtors Stock Buildings Patents

Rs. 8,000 19,000 42,000 2,07,000 9,000 2,85,000

Y retired on 31.3.2005 on the following terms:

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Goodwill of the new firm was valued at Rs.70,000 and was not to appear in the books. Bad debts amounting to Rs.2,000 were to be written off. Patents were considered as valueless.

Prepare Revaluation Account, Partners capital accounts and the balance sheet of X and Z after Y’s retirement. Q47.

(Loss Rs.11,100; X =Rs.66,333; Z=Rs.67,667;B/s Rs.2,74,000) P,Q and R were partners in affirm sharing profits in the ratio of 2:3:5. On 31.3.2005 their balance sheet was as follows: Liabilities Creditors Capitals Accounts : P 80,000 Q 70,000 R 60,000

Rs. 70,000

2,10,000

Assets Bank Debtors 40,000 Less: Provision 5,000 for D/D Stock Building Profit & loss A/c

2,80,000

Rs. 45,000 35,000 50,000 1,40,000 10,000 2,80,000

On the above date R retire from the firm due to his illness on the following terms: (a) (b) (c) (d) (e)

Building was to be depreciated by Rs.40,000. Provision fro doubtful debts was to be maintained at 20% on debtors. Salary outstanding Rs.5,000 was to be recorded and creditors Rs.4,000 will not be claimed . Goodwill of the firm was valued at Rs.72,000 and the same was to be treated without opening goodwill account. R was to be paid Rs.15,000 in cash, through bank and the balance was to be transferred to his loan account.

Prepare Revaluation Account, Partner’s capital Accounts and the balance sheet of P and Q after R’s retirement. (Ans. Loss Rs.44,000; B/s Rs.2,12,000)

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DEATH OF A PARTNER Q1. of profit of the were

Ram, Manohar and Joshi were partners in a firm. Joshi died on 28th February 1994. His share from the closer of the last accounting year till date of death was to be calculated on the basis average of three completed years of profits before death. Profits for 1991, 1992 and 1993 Rs.7,000, Rs. 8,000 and Rs.9, 000 respectively. Calculate Joshi’s share of profit till his death and Pass the necessary entry for the same. (Joshi’s share of profit = Rs.Rs.444)

Q2. closed on amounted 1998 amounted to

A,B and C are sharing profits in the ratio of 2:2:1. B died on 31st March, 1999. Accounts are 31st December. Sales for the year 1998 amounted to Rs.3, 00,000. Sales of Rs.1, 00,000 between the period from 1st Jan,1999 to 31st March ,1999. The profit for the year, Rs.30, 000. Calculate the deceased partner’s share in the profits of the firm. (B’s share = Rs.4, 000)

Q3.

Following in the balance sheet of Ram, Mohan and Sohan as on 31st December 1999: Liabilities Sundry Creditors Reserve Fund Capital Accounts: Ram Mohan Sohan

Rs 2, 000 3, 200 10, 000 5, 000 5, 000

Assets

Rs

Plant & Machinery Stock Sundry Debtors Cash at Bank Cash in Hand

25, 200

deceased

10,000 4,000 6,000 5,000 200

25,200

Sohan died on 31st March 2000. Under the terms of partnership deed, the executors of a partner were entitled to: (a) (b) (c) (d)

basis of

Amount standing to the credit of the Partners Capital Account. Interest on capital at 5% per annum. Share of goodwill on the basis of twice the average of the past three years profit . Share of profit from the closing of the last financial year to the date of death on the the last year’s profit.

Profit for 1997, 1998 and 1999 were respectively Rs.6, 000, Rs.8, 000 and Rs.7, 000. Profit was shared in the ratio of capitals. Pass the necessary journal entries and drawn up Sohan’s account to be rendered to his executors. (Balance TFR to Sohan’s Executor A/c Rs.9, 800) Q4. ratio of 3:2

Bhatt and Seth were carrying on a business in partnership sharing profits and losses in the

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Respectively. They closed their books of account every year on 31st December. Their balance on 31st December, 1991 was as follows:

sheet as

Liabilities Bhatt’s Capital Seth’s Capital Reserve Creditors

Rs 90,000 60,000 30,000 20,000

Assets

Rs

Furniture Stock Debtors Cash

20,000 1,00,000 50,000 30,000

2,00,000

2,00,000

Seth died on 1st May, 1992, Partnership deed provided that in the event of death of a partner his heirs Would be entitled to be paid out: (a) (b) (c) (d)

Capital to his credit at the date of death. His share of reserve at the date of the last Balance sheet. His share of profit to the date of his death based on the average profit of the last three accounting years. His share of goodwill based on the total profits of the preceding three accounting

years.

Q5. Rs.75, 000 date of the are

The profits for the three preceding accounting years were as follows: 1989----Rs.41, 800 1990---- Rs.39, 200 1991----Rs.45, 000 Prepare Seth’s capital account transferring amount due to Seth’s Heir’s loan account. Clearly show your calculations. (Amount TFR to Heirs loan A/c Rs.1, 28,000) A and B are in partnership sharing profits and losses 3:2. They insure their lives jointly for at an annual premium of Rs.3, 400 to be debited to the business. B dies three month after the last Balance sheet. According to the partnership deed, the legal personal representatives of B entitled to the following payments: (a) (b) (c)

Q6.

His capital as per the last Balance sheet. Interest on above capital at 3 per cent annum to date of death. His share of profit to date of death calculated on the basis of last years profit.

His drawings are to bear interest at an average rate of 2% on the amount irrespective of the period. The net profit for the last three years , after charging insurance premium ,were Rs.20,000, Rs.25,000 and Rs.30, 000 respectively. B’s capital as per Balance sheet was Rs.40, 000 and his drawings to date of death were Rs.5, 000. Draw B’s Account to be rendered to his representatives. (Balance due, Rs.68, 200) Bimla and Nutan were partners. The partnership deed provides inter alia: (i) (ii)

That the accounts be balanced on 31st December each year. That the profit be divided as follows: Bimla one- half, Nutan one-third and carried to

reserve (iii) (b) (c)

Account one-sixth. That in the event of death of a partner, his executor will be entitled to the following: (a) The capital to her credit at the date of death. Her proportion of profit to date of death based on the average profit of the last three completed years. Her share of Goodwill based on three years purchases of the average profit for the three preceding completed years.

On 31st December ,1991 the trial Balance was as under :

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Particulars

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(Dr.)

Bimla’s Capital Nutan’s Capital Reserves Bills receivable Investment Cash Creditors

Rs.

(Cr.)

Rs 90,000 60,000 30,000

50,000 40,000 1,10,000 2,00,000

20,000 2,00,000

The profit for the three years was: 1989---Rs.42, 000, 1990---Rs.39, 000 and 1991---Rs.45, 000. Nutan died on 1st May, 1992. Show the calculations of Nutan’s (i) Share of profits, (ii) Share of Goodwill, and (iii) draw up Nutan’s Executor’s account as would appear in firm’s ledger transferring the amount to her Executer loan account. (Nutan’s Share of Reserve Rs.12,000; Nutan’s Share of profits Rs.5,600; Share of goodwill Rs.50,400; Nutan’s Executors loan A/c Rs.1,28,000) Q7. P, R and S are in partnership sharing profit 4/8, 3/8 and 1/8 respectively. It is provided under the partnership deed that on the death of any partners his share of goodwill is to be valued at one-half of the net profit credited to his account during the last 4 completed years (books of accounts are closed on 31st December.) R died on 1st Jan, 1985.The firm’s profits for the last 4 years were as follows: 1981(Profits Rs 1,20,000); 1982 (Profit Rs.60, 000); 1983(Loss Rs.20, 000) and 1984 (Profit Rs.80, 000). (i)

Determine the amount that should be credited to R in respect of his share of

(ii)

Pass a journal entry without raising Goodwill account for its adjustment assuming sharing Ratio between P and S in future will be 3:2. Show your workings clearly.

goodwill. that profits

(Dr. P by Rs.12, 000 and S by Rs.33, 000 and Cr. R by Rs.45, 000) R,S and T were partners sharing profits and losses in the ratio of 5:3:2 respectively. On 31st 1990 their balance sheet stood as under :

Q8. December

Liabilities

Rs

Sundry Creditors Reserve Fund Capital Accounts: R 1,50,000 S 1,25,000 T 75,000

55, 000 30, 000

3,50,000

Assets

Rs

Goodwill Leasehold Patents Machinery Stock Debtors Cash at Bank

4,35,000

25,000 1,00,000 30,000 1,50,000 50,000 40,000 40,000 4,35,000

T died on1st May 1991, It was agreed that: (a)

(c)

Goodwill be valued at 2 ½ years purchase of last four years profits which were: 1987---Rs.65, 000, 1988---Rs.60, 000, 1989----Rs.80, 000 and 1990----Rs.75, 000. (b) Machinery be valued at Rs.1, 40,000; patents be valued at Rs.40, 000; Leasehold be valued at Rs.1, 25,000 on 1st May, 1991. For the purpose of calculating T’s share in the profits of 1991 the profits in 1991 should be taken to have accrued on the same scale as in 1990.

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A sum of Rs.21, 000 to be paid immediately to the executors of T and the balance to be paid four equal half-yearly installments together with interest @ 10% interest per annum.

Pass the necessary journal entries to record the above transactions and T’s executors account for 1991. (T’s Executors A/c Rs.1,21,000) Q9. Balance

A,B and C were partners sharing profits in the proportion of ½,1/4 and ¼ respectively. Their sheet on 31st December ,1991 was as follows: Liabilities Sundry Creditors A’s Capital B’s Capital C’s Capital

Rs 4,000 10,000 6,000 4,000

Assets

Rs

Cash Sundry Debtors Stock in Trade Loan to A Buildings

24,000

1,000 4,500 5,500 3,000 10,000

24,000

A died on 1st Jan,1992. The firm had effected an assurance for Rs.10,000 on the joint lives of the three partners and the amount of the policy was realised on 1 st February ,1992. According to the partnership agreement , Goodwill was to be calculated at two years purchase of the average profit of three completed years preceding the death or retirement of a partner . The deceased partners share of capital and goodwill, etc. was paid out in cash on 1st March ,1992, the available cash balance supplemented by a loan from the firm’s banker on the security of the building. The net profits of three preceding years were Rs.5,500, Rs.4,800 and Rs.6,500. You are required to show the ledger accounts of the partners, and the balance sheet of B and C as it would stand after A’s share is paid off. (Amount paid to A’s Executors Rs.17,600; Loan taken from bank Rs.6,600;balance sheet total Rs.31,200) Q10.

A,B and C are partners sharing profits of 2:1:1. They closed their books on 31st December each year. A died on 38th February, 1991 when their balance sheet was as follows: Liabilities Creditors Joint life policy Reserve Profit for 2 months (before interest & salaries) A’s Capital B’s Capital C’s Capital

Rs 3,700 3,600 3,110

Assets

Rs

Cash Sundry Debtors Loan to A Joint life policy

20,000 3,900 4,000 3,600

21,000 31,500

31,500

According to the partnership deed: (a)

Interest on capital is allowed @ 6% p.a. A and B are entitled to salaries @ R.300 and Rs.250

p.m.

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Commerce Classes (b)

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In the event of death of a partner Goodwill was to be valued at 2 years purchase of the average

net profits of 3 completed years preceding death. The net profits for the year 1988, 1989 and 1990 was

partners’

Rs.5,500, Rs.4,800 and Rs.6,500 respectively. Firm had taken a joint life policy (with profit policy) of Rs.10,000. The insurance company claim of Rs.12,600 including bonus. A’s share was paid to his executors. B and C continued the firm. Prepare profit &Loss A/c, capital A/c, and balance sheet of B and C .

paid to

(Profit after Interest and salary Rs.1,800; capital B Rs.12,960 and C Rs.11,450; Amount A’s Executor Rs.19,500; Balance sheet Total Rs.28,200)

admitted a

Q11.

You are given the balance sheet of Jassi, Jaipaul and Jyoti who are partners sharing profits in the ratio of 2:2:1. as on 31 march 1993: Liabilities Creditors Reserve Fund Capitals: Jassal Jaipaul Jyoti

Rs. 40,000 25,000 30,000 25,000 15,000

Assets

Rs.

Goodwill Fixed Assets Stock Sundry Debtors Cash Bank

1,35,000

30,000 60,000 10,000 20,000 15,000

1,35,000

Jaipaul died in 15th June 1993, According to the deed, his legal representatives were entitled to: (i) (ii)

Balance in Capital A/c . Share of goodwill valued in the basis of thrice the average of the past four year’s

(iii)

Share in profits up to the date of death on the basis of average profits for the past four

profit. year . Interest on capital A/c @12%p.a. Profits for the years ending on March 31 of 1990, 1991, 1992 and 1993 respectively were Rs.15, 000; Rs.17, 000; Rs.19, 000; Rs.13, 000. The firm had taken insurance policies in the lives of the partners, premium being charged to every year. The policy amount and surrender value (on 15.6.93)were:

profit

partners representatives.

Policy Amount Surrender value Jassal 70,000 30,000 Jaipaul 70,000 30,000 Jyoti 60,000 25,000 Jaipaul’s legal representatives were to be paid the amount due . Jassal and Jyoti continued as by taking over Jaipaul’s share equally. Work out the amount payable to Jaipaul’s legal (Balance Transfer to Jaipaul’s Executors A/c Rs.94,158)

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ISSUE OF SHARES AT PAR Q1

Q2. amount

Nisha Ltd. Invited applications for 20,000 shares of Rs.10 each payable as follows: Rs.2 on application, Rs.3 on allotment, Rs.2 on first call and the balance on final call. All the shares were applied and allotted. All the money duly received. You are required to journalize these transactions. Ashu Limited invited applications for 10,000 equity shares of the value of Rs.10 each. The is payable at Rs.2.50 on application and Rs.3.50 on allotment and balance on first call. The whole of the above issue was applied for and shares were allotted to all of them. Money was duly received. Give the journal entries for the above transactions.

Q3. Equity

A company was registered with an Authorized Capital of Rs.1,00,000 divided into 80,000 Shares of Rs.100 each and 20,000, 9% Preference shares of Rs.100 each. 30,000 Equity and 10,000 Preferences shares were offered to public on the following term-Equity shares payable Rs.10 on application , Rs.40 on allotment and the balance in two calls of Rs.25 each. Preference shares are payable Rs.25 on application. Rs.25 on allotment and Rs.50 on first and final call . All the shares

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applied for and allotted . All the money was duly received . Pass the necessary journal entries to record the above issue of shares. Q4.

The Hardik Cotton Mills Ltd. was registered on 1st Jan 1999, with a capital of Rs.20,00,000 divided into 2,00,000 shares of Rs.10 each. The company issued 70,000 shares of which 50,000 Shares were taken up by the public and Rs.1 share was received with application. On 1 st February, these share were allotted and Rs.2 per share was duly received on 28th February as allotment money. A first call of Rs.3 per share was made on 1st march and the call money on all shares with the exception of 100 shares was received . The final call of Rs.4 per share was made on 1st june and the amount due with the exception of 400 shares, was received by 30th June . Pass the necessary journal and cash book entries.

ISSUE OF SHARES AT PREMIUM Q5. issued

Sonu Ltd. was registered with a capital of Rs.2,00,000 divided into shares of Rs.10 each. It a prospectus inviting application for 8,000 shares on the following terms : Rs.2 per share on application, Rs.5 per share (including Rs.2 premium) on allotment, Rs.3 per share on first call and Rs.2 per share on final call.

Q6.

Harish limited company offered for subscription 20,000 shares of Rs.25 each, payable Rs.5 per share on application, Rs.10 per share on allotment (including Rs.5 per share as premium) Rs.5 per share as first call on the shares and the balance in two equal amounts at intervals of three months. All the shares were applied for and allotted . All the money were received excepting the 2 nd call and final call moneys on 200 and 400 shares respectively. You are asked to show the entries in the Company journal, Cash book. Show also the company’s balance sheet on completion of the above transactions. (Cash book Bal, Rs.4,97,000)

Q7.

Raju Ltd. was floated with a capital of Rs.6,00,000 divided into shares of Rs.10 each. It offered 5,000 shares on the following terms: Rs.2 per share on application, rs5 per share (including Rs.2 premium) on allotment, Rs3 per share on first call and Rs.2 per share on final call . Applications were received for 7,000 shares. Applicants for 2,000 shares were sent letters of regret and application money was refunded. All the money due on shares were duly received . Give the necessary journal entries.

Q8.

A company issued 20,000 shares of Rs.15 each at a discount of Rs.1 per share payable Rs.5 on application and the balance on allotment. All the shares offered were applied for and allotted. The money due on allotment was received Pass the necessary Journal entries.

Q9.

Anmol Ltd. issued 25,000 equity shares of Rs.10 each at a discount 5%. Payments were to be made as on application Rs.2.50; on allotment Rs.3 and balance on first and final call . Application were received for all the shares and allotment made in full. All money was duly received except first and final call on 250 shares. Pass necessary entries.

Q10.

Saloni Limited issued 20,000 equity shares of Rs.10 each at Rs.9 per share. The amount on these shares were payable as Rs.5 on application. Rs2 on allotment, Rs.2 on first and final call. All the money were duly received except A who had 100 shares paid in full on allotment and b who had 1,000 shares failed to pay first and final call . Give journal entries.

ISSUE OF SHARES AT DISCOUNT

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Commerce Classes Q11.

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Gandhi Ltd. was incorporated with a capital of Rs.50,00,000 divided into shares of Rs.100 each. It invited applications for 10,000 shares at a discount of 4% payable as follows: Rs.20 on application, Rs30 on allotment and Rs.46 on first and final call. Applications were received for 9,000 shares and all of these were accepted . All money due was received. Give the journal entries.

ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH Q12.

Sony Ltd. Purchased the business of Ram Bros. for Rs.1,80,000 payable in fully paid shares of Rs.100 each. What entries will be made in the books of Sony Ltd. If such issue is : (i) at par, (ii) at a premium of 20%, and (iii) at a discount of 10 % ?

Q13.

Manish Limited purchased land for Rs.80,000 from Ram Bros. It issued equity shares of Rs.10 each fully paid – up in satisfaction of their claim. Give the necessary journal entries .

Q14.

CTC Ltd. purchased the assets of shyam Ltd. for Rs.5,40,000. The consideration was payable in fully paid equality shares of Rs.10 each. Give the necessary journal entries if such shares are to be issued at a premium of 20%.

Q15.

Dev. Limited purchased assets of Rs.3,80,000 from RAJ traders , it issued shares of Rs.100 each fully paid at a discount of 5 % in satisfaction of purchase consideration .

Q16.

Chanu Ltd. Purchased business of Naresh Ltd. fro Rs.4,50,000 payable in fully paid shares of Rs.10 each . Give the necessary journal entries if such shares are to be issued at a discount of 10%.

Q17.

Hindu Ltd. acquired Plant and machinery from Krishan Ltd. .for Rs.6,00,000 payable in 25% in cash and the balance in fully paid shares of Rs.100 each. Give the necessary journal entries if such shares are to be issued at a discount of 10%.

Q18.

Lata Limited purchased the assets of Hari Ltd. For Rs.5,00,000 payable 16% in cash and the balance in fully paid shares of Rs.100 each. Give the necessary journal entries if such shares are to be issued at a Premium of Rs.40 per share.

Q19.

(a)

(b)

Anmol was formed with 20,000 shares of Rs.50 each. Out of These 4,000 shares were issued to the vendors as fully paid up as purchase consideration . 10,000 shares were offered to the public and of these 8,000 shares were applied for and allotted . Rs.5 per share was payable on application and Rs.20 on allotment and the balance was to be called in two equal installments whenever required. All money were duly received on allotment except in the case of one share holder holding 100 share who failed to pay the allotment money . You are required to give journal entries. Lagaan Ltd. was registered with a capital of Rs.4,00,000 divided into shares of Rs.10 each. Out of these 10,000 shares were issued to the vendors a fully paid up as purchase consideration . 30,000 shares were offered to the public and of these 25,000 shares were applied for and allotted Rs.2 per share on application, Rs.4 per share on allotment (including Rs.2 per share as premium), Rs.2 per share on first call and the balance in two equal amounts at interval of 3 month. All the money were duly received except the 2 nd call and final call money on 500 and 1,000 shares respectively. Give the journal & cash book.

CALLS IN ADVANCE Q20. 40,000

Dalip Ltd. was registered with a capital of Rs.10,00,000 in share of Rs.10 each and issued Such shares at a premium of Rs.2 per share, payable as to Rs.2 per share on first call made three months later. All the money payable on application, and allotment was duly received but when the first call was made, one share holder paid the entire balance on his holdings of 600 shares, and another shareholder holding 2,000 shares failed to pay the first call money. Give journal entries to record the above transactions.

Q21.

Rupesh Limited company with an authorized capital of Rs.3,00,000 in shares of Rs.100 each issued 2,000 of such shares, payable Rs.25 per share on application, Rs.20 on allotment , Rs.20 three months later, and the balance as and when required.

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Q22.

Y, the holder of 200 shares, paid his arrears in respect of shares first call of Rs.25 on 1 st august, 1992, the due date of call being 1st may 1992. The interest charges on calls – in arrears are 5%p.a. Pass journal entries.

Q23.

X, the holder of 100 shares, paid his second call of Rs.10 per share along with the share first call money of Rs.20 on 1st May,1992. The second call, made by the company on 1st August 1992. The interest allowed on calls – in – advance as per Articles is 6%p.a. Interest paid to the holders on 1 st August 1992. Pass journal entries to record the above transactions.

OVERSUBSCRIPTION Q24.

The Atlas Cycle Ltd. was registered with a capital of Rs.10,00,000 divided into 40,000 shares of Rs.25 each. The company offered to the public for subscription 10,000 shares payable Rs.5 per share on application, Rs5 per share on allotment and the balance in two calls of Rs.7.50 each. The company received applications fro 11,600 shares. Applications for 1,000 shares were rejected Altogether and application money was returned to the applicants. A person who applied for Rs.1,000 shares was allotted only 400 shares and excess of his application money was carried forwards the payment of allotment and calls. Give the journal entries to record the above issue of shares.

Q25.

Sonu company issued Rs.10,00,000 new capital divided into Rs.100 shares at a premium of Rs.20 per share payable thus: Rs.10 per share on application. Rs.40 per share and Rs.10 premium on allotment; and Rs.50 per share and Rs.10 premium on final payment. Over- payments on application were to be applied towards sums due on allotment and over- payments on application exceeding sums due on allotment were to be returned. Where no allotment was made, money was to be returned in full. The issue was over-subscribed to the extent of 13,000 shares. Applicants for 12,000 shares were allotted only 1,000 shares and applicants for 2,000 shares were sent letters of regret and application deposits were returned to them. All the money due on allotment and final call was duly received. Make the necessary entries in the company books to record the above transactions. FORFEITURE AND REISSUE OF SHARES WHEN ORIGINALLY ISSUED AT PAR

Q26.

A company issues 20,000 shares of the face value of Rs.10 each, payable Rs.3 on application, Rs.3 On allotment, Rs.2 on first call and Rs.2 on final call. All the shares are subscribed and duly allotted and both the calls are made. All cash is duly received except the final call on 400 shares. These are subsequently forfeited by the directors and are resold as fully paid for Rs.2500. give entries necessary to record these transactions in the company journal. (Ans. Capital Rs.1,700)

Q27.

Ram Ltd. makes an issue of 10,000 Rs.100 equity shares , payable as follows: On Application and allotment Rs.50 On first call Rs.25 On second call Rs.25 Members holding 400 shares do not pay the second call and the shares are duly forfeited, 200 of which are re-issued as fully paid at Rs.60 per share. Pass journal entries in the books of the company. (Ans. Capital Rs.7000)

Q28.

(a)

A company issued 30,000 share of Rs.100 each payable Rs.25 per share on application, Rs.25 per share on allotment, and the balance in two calls of Rs.25 each. The company did not make the final call of Rs.25 per share. All the money was duly received with the exception of the amount due on the first call on 400 shares held by Mr. Ram. The board of directors forfeited these shares and subsequently re-issued them, Rs.75 per share paid –up, for a sum of Rs.28,000. Journalize the above transactions and prepare share capital account. (Ans. Capital Res.18,000) (b) Escorts Ltd. having an authorized capital of Rs.30,00,000 in shares of Rs.100 each invited applications for 20,000 shares payable as follows:

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On Application Rs.20 On allotment Rs.30 On First call Rs.25 On Final call Rs.25 The company received applications For 22,000 shares. Applications for 20,000 share Were accepted in full and the money on the applications rejected was returned . All money due as stated above was received with the exception of the final call on 250 shares. Half of these were forfeited and re-issue as fully paid at Rs.90 per share. Pass necessary journal entries and show how the share capital account will account will stand in the balance sheet . (Ans. B/s 20,05,000) (c)

Q29.

Q30.

Q31.

A Ltd. with the registered capital of Rs.6,00,000 in shares of Rs.10 each, invited applications for 30,000 shares payable as under: Rs.2 per share on application Rs.2 per share on allotment Rs.3 per share on first call Rs.3 per share on final call An applicants who had been allotted 250 shares failed to pay allotment and first call money due from him. His shares were forfeited . After this the final call was made, and the forfeited shares were re3issued as fully paid up at Rs.8.50 per share . Make journal entries and show the company balance sheet. (Ans. B/s 3, 00,125)

Ashu Ltd. company with registered capital of Rs.5, 00,000 in shares of Rs.10 each issued, 20,000 Of such shares payable Rs.2 on application, Rs.4 on allotment, Rs.2 on 1st call and Rs.2 on final call . All the moneys payable on allotment were duly received , but on the first call being made one shareholder paid the entire balance on his holding of 300 shares and five shareholders with a Total holding of 1,000 share Failed to pay their dues on the first call. These shares were forfeited for non-payment of 1st call money. Final call was made and all the money due was received . Later on, forfeited shares were re-issued at Rs.6 per share fully paid up. Record the above in the company’s journal and prepare the balance sheet. (Ans. B/s Rs.2, 02,000) (a) The directors of a company forfeited 200 equity shares of Rs.10 each on which Rs.8 has Been paid. The shares were re-issued upon payment of Rs.1, 500. journalize the above. (Ans. Capital Reserve Rs.1, 100) (b) The directors of a company forfeited 100 share of Rs.10 each fully called up for non-payment of first call of Rs.2 per share and final call of Rs.3 per share . Sixty of these shares were subsequently re-issued at Rs.6 per share fully paid up. Pass necessary journal entries to record the above. (Ans. Capital Reserve Rs.60) The directors of a company forfeited 200 equity shares of Rs.10 each (Rs.8 called) on which Rs.1,000 had been paid . These shares were re-issued upon payment of Rs.1,050. Journalize the transactions of forfeited and re-issue of shares. (Ans. Capital Reserve Rs.450)

Q32.

J.M.D. Ltd. forfeited 80 shares of Rs.10 each for non-payment of a first call of Rs.3 per share and a final call of Rs.2 per share and re-issued to C as fully paid for Rs.9 per share. Journalize. (Ans. Capital Reserve Rs.320)

Q33.

Sharvan Ltd. 600 shares of Rs.10 each on which first call of Rs.3 per share was not received the second and final call of Rs.2 per share has not yet been called. Out of these 150 shares were reissued to J as Rs.8 called up for Rs.3 per share. Journalize. (Ans. Capital Reserve nil)

Q34.

The director of Manu Ltd. resolved that 2,000 equity shares of Rs.10 each Rs.7.50 paid be forfeited for non- payment of final call of Rs.2.50, 1800 of these share were re-issued as fully paid for Rs.6 per share. Journalize. (Ans. Capital Reserve Rs.6300)

Q35.

Rishi Ltd. forfeited 30 shares of Rs.10 each fully called up, held by Karim for non-payment of allotment money of Rs.3 per share and final call of Rs.4 per share. He had paid the application money of Rs.3 per share. These shares were re-issued to Salim for Rs.8 per share.

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(Ans. Capital Reserve Rs.30) Q36.

Manu Ltd. forfeited 20 shares of Rs.10 each, Rs.7 called up on which Mahesh had paid application and allotment money of Rs.5 per share. Of these 15 shares were re-issued to Naresh as fully paid up for Rs.6 per share. (Ans. Capital Reserve Rs.15)

Q37.

Alok Ltd. forfeited 300 shares of Rs.10 each fully called up held by Ram for non –payment of allotment money of Rs.3 per share and final call money of rs.4 per share. Out of These shares 250 were re-issued to shyam for a payment of Rs.2, 000. Give journal entries for forfeited and re-issue. (Ans. Capital Reserve Rs.250)

Q38.

The directors of Devendra Ltd. resolved on 1st Jan,1992 that 100 equity shares of Rs.10 each.Rs.8 paid be forfeited for non-payment of final call of Rs.2. On 1st February, 60 of these share were re-issued at Rs.7 per share fully paid up. (Ans. Capital Reserve Rs.300)

Q39.

(a)

A holds 100 shares of Rs.10 each on which he has paid Rs.1 per share on application. B holds 200 shares of Rs.10 each on which he has paid Rs.1 and Rs.2 per share on application and allotment respectively. C holds 300 shares of Rs.10 each and has paid Rs.1 on application, Rs.2 on allotment and Rs.3 on first call. They all fail to pay their arrears and the second call of Rs.2 per share. Shares are forfeited and subsequently re-issued at Rs.11 per shares as fully paid. Journalize the above. (Ans. Share premium A/c Rs.600)

(b)

Rupesh Ltd. invited applications for 10,000 equity shares of Rs.10 each for public subscription. The amount of these shares was payable as under: On Application Rs.1 per share, On allotment Rs.2 per share , On first call Rs.3 per share, On second call Rs.4 per share. All sums payable on application, allotment and calls were duly received with the following exceptions: (i) A, who held 200 shares, failed to pay the money on allotment and calls. (ii) B, to whom 150 shares were allotted , failed to pay the money on first call and final call. (iii) C, who held 50 shares , did not pay the amount of final call. The shares of A,B and C were forfeited and were subsequently re-issued for cash as fully paid at a discount of 5%. Give necessary journal entries to record these shares capital transactions in the books of Rupesh ltd. (Ans. Capital Reserve Rs.750)

(c)

A limited company has a nominal capital of Rs.2,50,000 in Rs.10 shares. Of these, 4000 shares were issued as fully paid in payment of building purchased, 8,000 shares were subscribed for by the public and during the first year Rs.5 per share were called up, payable Rs.2 on application, Rs.1 on allotment, Rs.1 on first call, Rs.1 on second call. The amounts received in respect of these shares were as follows: On 6,000 shares the full amount called On 1,250 shares Rs.4 per share On 500 shares Rs.3 per share On 250 shares Rs.2 per share The directors forfeited the 750 shares on which less then Rs.4 had been paid. The shares were subsequently re-issued at Rs.3 per share. Give the journal entries recording the above transactions and prepare the company balance sheet . (Ans. B/sRs.79,250) FORFITTURE OF SHARES WHEN ORIGINALLY ISSUED AT PREMIUM

Q40.

A company invited applications for 10,000 shares of Rs.100 each at a premium of Rs.20 per share. The share were payable as under: On application Rs.40(including premium )

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On Allotment Rs.30 On First & final call Rs.50 The public applied for 8,000 shares. These were allotted. All moneys due were received with the exception of the call on 200 shares. These shares were forfeited and re-issued at Rs.80 per share.. Give journal entries and the balance sheet. (B/s Rs.9, 66,000) Friends Car Ltd. Forfeited 100 shares of Rs.100 each issued at 20% premium (to be paid at the time of allotment) for non-payment of a first call of Rs.30 per share and second & final call of Rs.20 per share. Out of these 40 shares were re-issued as fully paid up for Rs.90 per share. Journalize. (Ans. Capital Reserve Rs.1, 600)

Q42.

Kitu Ltd. Forfeited 400 shares of Rs.100 each, issued at 20% premium (to be paid at the time of allotment) for non-payment of a first call of Rs.30 per share. The second and final call of Rs.20 per share has not yet been called. Out of these, 160 shares were re-issued as Rs.80 paid up for Rs.70 per share. (Ans. Capital Reserve Rs.6, 400)

Q43.

Gadar Ltd. forfeited 800 shares of Rs.100 each(Rs.70 called up, issued at a premium of 30%(to be paid at time of allotment) for non-payment of a first call of Rs.20 share. Out of these 320 shares were reissued as Rs.70 paid – up for Rs.30 per share, Journalize. (Ans. Capital Reserve Rs.3, 200)

Q44.

(a)

PCC Ltd./ forfeited 3,200 shares of Rs.100 each issued at 10% premium for nonPayment of allotment money of Rs.40 per share (including premium) and first call of Rs.30 per share. The second and final call of Rs.20 has not yet been called. Out of these 1,280 shares were re-issued as Rs.80 paid up for Rs.70 per share. Journalize. (Ans. Capital Reserve Rs.12,800)

(b) X Ltd. forfeited 100 shares of Rs.10 each (Rs.8 called up ) issued at a premium of Rs.2 per share to Mr. R on which he had paid application money of Rs.5 per share , for non-payment of allotment money of Rs.5 per share (including premium). Out of these 70 shares were re-issued to Mr. Sanjay as Rs.8 called for Rs.7 per share. Give necessary journal entries relating to forfeiture and reissue of shares. (Ans. Capital Reserve Rs.280) Q45. under:

Geetanjali Ltd. issued 50,000 Equity shares of Rs.10 each at a premium of 10 % payable as On Application On First call

Q46.

Q47.

Rs.2 Rs.2

On allotment Rs.5 On Final call Rs.2

The whole of the issue was called for by company and all the money was duly received except the allotment and call money on 500 share. These shares were, Therefore, forfeited and later on re-issued at Rs.9 per share as fully paid. Pass the necessary journal to record the above transactions. (Ans. Capital Reserve Rs.500) Bheem Ltd. has authorized capital of Rs.2,00,000, divided into shares of Rs.20 each, the whole of which is issued and subscribed at a premium of Rs.2 per share . The amount was payable as follows: On application and allotment Rs.12 per share(including premium) and on first call Rs.2 per share, the balance as and when required. The application and allotment money (including premium) was duly received, but a shareholder holding 500 shares failed to pay the first call and his shares were forfeited. They were later re-issued for Rs.16 per share fully paid. Give the journal entries for the above. (Ans. Capital Reserve Rs.3,000)

(a)

A company forfeited 100 shares of Rs.10 each issued at 20% premium (to be paid at time of allotment) on which first call money of Rs.3 was not received; the final call money of Rs.2 is not yet called. These shares were subsequently re-issued at Rs.7 per share as Rs.8

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paid up. Give necessary journal entries regarding forfeited and re-issue of share. (Ans. Capital Reserve Rs.400) (b)

A limited company issued 20,000 equity shares of Rs.10 each at a premium of Rs.5 per Share , payable as to Rs.7 (including premium) on application, Rs.5 on allotment and the balance after three months of allotment. A shareholder to whom 200 shares were allotted Failed to pay the allotment and the call moneys and his shares were forfeited . 160 of the forfeited shares were re-issued for Rs.1600. Give necessary company’s journal entries and balance sheet. (Ans. B/s 3,00,000; Capital Reserve Rs.320, Balance of share forfeited A/c Rs.80)

Q48.

A share of Rs.100 issued at a premium of Rs.10 on which Rs.80 (including premium) was called and Rs.60 (including premium) was paid , has been forfeited . The share was afterwards re-issued as fully paid for Rs.70. Give journal entries to record the above. (Ans. Capital Reserve Rs.20)

Q49.

A company issued 10,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable Rs.5 on application Rs.5 (including premium) on allotment and the balance on 1st call. All the shares offered were applied for and allotted. All the money due on allotment was received except on 200 shares. Call was made. All the amount due thereon was received except on 300 shares. Directors forfeited 200 shares on which both allotment and call money was not received. Pass the necessary journal entries to record the above. (Shares forfeited A/c Rs.1,000) Rajesh Limited has an authorized capital of Rs.4,00,000 divided into shares of Rs.20 each, the whole of which is issued and subscribed at a premium of Rs.2 per share. The amount was payable as follows: On application and allotment Rs.10 per share; On 1st call Rs.4 per share (including premium) The balance as and when required. The company made both the calls. The application and allotment money was duly received. But a shareholder holding 2,000 shares failed to pay both the calls and his shares were forfeited. They were later re-issued at Rs.14 per share as fully paid. Give journal entries regarding the above. (Ans. Capital Reserve Rs.8, 000)

Q50.

Q51.

(a)

On 1st February,1991 the directors of anmol Ltd. issued 50,000 equity shares of Rs.10 each at Rs.12 per share, payable as to Rs.5 on application (including the premium) Rs.4 on allotment and the balance on 1st may 1991. The lists were closed on 10th February,1991 by which date applications for 70,000 shares had been received. Of the cash received Rs.40,000 was returned and Rs.60,000 was applied to the amount due on allotment , the balance of which was paid on 16th February,1991. All shareholders paid the call due on 1st may 1991, with the exception of one allotted of 500 shares. These shares were forfeited on 29th September,1991. Give journal entries to record these transactions and prepare company’s balance sheet. (Ans. Sh.forfeited A/c of Rs.3500)

(b)

A co. Ltd offered to the public 20,000 equity shares of Rs.100 each at a premium of Rs.10 per share. The payment was to be as follows: On Application Rs.20 On allotment Rs.40(including premium) On First call Rs.25 On Second call Rs.25 Applications were received for 35,000 shares. Applications for 10,000 shares were rejected. Applicants fro 15,000 shares were allotted 10,000 shares and remaining applications are accepted in full. The directors made both the calls. One shareholder holding 500 shares failed to pay the two calls and as a consequences his share were forfeited 200 of these shares were re-issued as fully paid at Rs.80 per share. Expenses of issue came to Rs.10,000. Prepare cash book, the journal and the balance sheet on the basis of information given above. (B/s Rs.21, 91,000)

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FORFEITURE OF SHARE WHEN ORIGINALLY ISSUED AT DISCOUNT Q52.

Subhash Ltd. forfeited 40 shares of Rs.10 each, issued at a discount of 10% for non-payment of a final call of Rs.2 per share. Out of these 10 shares were re-issued as fully paid for Rs.8.50 per share. Journalize. (Ans. Capital Reserve Rs.65)

Q53.

Anurag Ltd. forfeited 10 shares of Rs.10 each(Rs.6 called up) issued at a discount of 10% to Mr. Y on which he had paid an application money of Rs.2 per share . Out of These, 8 shares were re-issued to Z as Rs.8 called up for Rs.9 per share. Journalize. (Ans. Capital Reserve Rs.16)

Q54.

Harish Ltd. Forfeited 10 shares of Rs.10 each. Rs.6 called issued at a discount of 10% to Neeta on which she had paid Rs.2 per share. Out of these 8 shares were re-issue to Meenu as Rs.8 called up for Rs.6 per share. Give journal entries for the forfeiture and re-issue. (Ans. Capital Reserve Rs.8)

Q55.

Mother Ltd. forfeited 100 equity shares of Rs.10 each issued at a discount of 10% for non-payment of first call of Rs.2 per share and the final call of Rs.3 per share on 31st March 1995. 50 Forfeited shares were re-issued as fully paid for Rs.8 per share and the balance of the share were reissued on 30th June 1995 at Rs.7 per share. Give journal entries to record forfeiture and re-issued of shares. (Ans. Capital Reserve Rs.250)

Q56.

Shyam Ltd. invited applications for 1, 00,000 shares of Rs.10 each at a discount of 6% payable as follows: On application Rs.2.50 On first and final call Rs.3.50 On allotment Rs.3.40 The applications received were for 90,000 shares and all of these were accepted. All money due was received except the first call on 1,000 shares which were forfeited. Of these 500 shares were reissued at Rs.9 as fully paid. Pass necessary entries in the Cash book and in the journal of the company. Also show how these transactions would appear in balance sheet of the company. (Ans. B/s Rs.9, 00,700)

Q57.

A ltd. Company invited applications for 20,000 shares of Rs.100 each at a discount of Rs.5 per share (allowed at the time of allotment). The amount was payable as under: On application Rs.25 On allotment Rs.50 Balance on call The public applied for 18,000 shares and these were allotted. All money due was received with the exception of allotment and call money on 300 shares. These shares were forfeited afterwards 200 of these shares were re-issued as fully paid for a payment of Rs.75 per share. Journalize the transactions in the books of the company. (Ans. Capital Reserve Rs.1, 000)

PRORATA Q1.

A company offered 10,000 shares of Rs.10/- each payable of Rs.2/- on application, Rs.3/- on allotment, Rs.3/- on 1st call and Rs.2 on final call. The public applied for 15,000 shares. The shares were allotted on a pro-data basis to the applications of 12,000 shares. All shareholders paid the allotment money excepting one shareholder X who was allotted 200 shares. These shares were forfeited. The first call was made thereafter. The forfeited shares were re-issued @ Rs.9/- per share, Rs.8/- paid up. The final call was yet made. You are required to prepare the cash book and pass journal entries. (Ans. Amt. Received on allotment Rs.25,480, Capital Reserve 480)

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Q2.

Shagoon India Ltd. issued for public subscription 40,000. Equity Shares of Rs.10 each at a premium of Rs.2 per share payable as under: On application Rs.2 per share On allotment Rs.5 per share (including premium) On first call Rs.2 per share On second call Rs.3 per share Applications were received for 60,000 shares. Allotment was made pro-data to the applicants for 48,000 shares, the remaining applications being refused. Money overpaid on application was applied towards sums due on allotment. A to whom 1,600 shares were allotted failed to pay the allotment money and B to whom 2,000 shares were allotted failed to pay the two calls. These were subsequently forfeited after the second Call was made. Pass journal entries in the books of Shagoon India ltd. to record the above transactions including the bank entries. (Ans. Amount received on allotment Rs.1, 76, 640; Sh. Forfeiture A/c Rs.13,840)

Q3.

K limited has been registered with an authorized capital of Rs.4,00,000 divided into 4,000 shares of Rs.100 each, of which 2,000 shares were offered for public subscription at a premium of Rs.5 per share payable as under: On application Rs.10 On allotment Rs.25(including premium) On first call Rs.40 On final call Rs.30 Applications were received for 3,600 shares; of which applications for 600 shares were rejected the rest of the applicants were allotted 2,000 shares on pro-data basis. Excess application money was transferred to allotment. All the money were duly received except from sunder , holder of 200 shares , who failed to pay allotment and first call money. His share were later forfeited, and re-issued to shyam at Rs.60 per share Rs.70 paid up. Final call has not been made. Pass necessary cash book and journal entries in the books of K limited. (Ans. Arrears on allotment rs.4,000; bank balance Rs.1,50,000, capital Reserve Rs.1,000)

Q4.

A company issued fro public subscription 50,000 equity shares of Rs.10 each at a premium of Rs.2 per share payable as under: On application Rs.2 per share On allotment Rs.5 per share(including premium ) On first call Rs.2 per share On second call Rs.3 per share Applications were received for 75,000 shares. Allotment was made pro-data to the applicants for 60,000 shares, the remaining applications being refused. Money overpaid on application was utilized towards sum due on allotment. A to whom 2000 shares were allotted failed to pay the allotment money and the two calls. B to whom 2,500 shares were allotted failed to pay the two calls. These shares were subsequently forfeited after the second call was made. All the forfeited shares were sold to X as fully paid at Rs.8 per share. Give the necessary journal entries for the above transactions. (Ans. Amt. Received on allotment Rs.2,20800: Capital Res. Rs.8300)

Q5.

A company issued for public subscription 75,000 equity shares of Rs.10 each at a premium of Rs.2 per share payable as under: On application Rs.2 per share On allotment Rs.5 per share (including premium) On first call Rs.2 per share On second call Rs.3 per share Applications were received for 1, 12, 500. Shares were allotted to the applicants for 90,000 shares the remaining applications being rejected. Money overpaid on application was utilized towards sum due on allotment. A to whom 3,000 shares allotted failed to pay the allotment money and the two calls and B to whom 3,750 shares were allotted failed to pay the two calls. All these shares were forfeited after the final call. 5,000 shares including all shares of A were re-issued as fully paid share for Rs.7.50 per share excluding premium. Give journal entries to record the above transaction in the books of the company.

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Q6.

X Ltd .invited applications for 2, 00,000 equity shares of Rs.10 each at a premium of Rs.2 per share Payable as to Rs.2 on application, Rs.5 on allotment including premium, Rs.2 on first call and Rs.3 on Final call. Applications were received for 3, 00,000 shares. Applications for 60,000 shares were rejected and prorata allotment was made to the remaining applicants.. Ram, who applied for 9,600 shares failed to pay allotment money. Shyam, the holder of 12,000 shares failed to pay two calls. These shares were forfeited subsequently all these shares were re-issued at Rs.8 per share as fully paid up. Pass necessary Journal entries in the books of X ltd. (Ans. Capital Reserve Rs.39200; Arrears on allotment Rs.36800)

Q7.

AB Ltd. invited applications for 1, 00,000 12% Preferences Shares of Rs.100 each issued at a discount of 10 %. The amount was payable as follows: On application Rs.20 On allotment Rs.30 On first and final call Balance Applicants for 1, 50,000 shares were received. Applications for 30,000 shares were rejected and pro-rata allotment was made to the remaining applicants. All calls were made and were duly received except the first and final call on 1,000 shares held by Kumar. His shares were forfeited. Out of the Forfeited shares 750 were re-issued at Rs.120 per share fully paid up. Pass the necessary journal entries in the books of AB ltd. (Ans. First and Final call money Received Rs.39, 60,000 Capital Reserve Rs.37, 500) Q8.

M/s Reliable Investments issued a prospectus inviting applications for 4,000 Equity Shares of Rs.20/each at a premium of Rs.4/- per share payable as under: On application Rs.4/- per share On allotment Rs.10/-per share (including premium) On first call Rs.6/-per share On Second call Rs.4/- per share Applications were received for 6,000 shares and allotment was made pro-rata to the applicants of 4,800 shares, the application for remaining shares being refused. Money overpaid on application was Used on account of sums due on allotment. Harish, to whom 80 shares were allotted, could not pay allotment money and on his subsequent failure to pay the first call , his shares were forfeited after the first call. Mukesh to whom 120 shares were allotted , failed to pay the two calls and his shares were forfeited after the second call. Of the shares forfeited, 160 share were sold to Suresh credited as fully paid at Rs.18/- per share all of Harish’s forfeited shares being included . Pass journal entries in the books of the company to record the above transactions. (Ans. Arrears on allotment Rs.736; Capital reserve Rs.864)

Q9.

A Company offered 1,00,000 shares of Rs.10 each to the public on the following terms : Rs.3 payable on application, Rs.4 on allotment , the balance as and when required . Applications were received for 1,40,000 shares. Allotment was made as under: 80,000 Applications were given 80,000 shares. 50,000 Applications were given 20,000 shares. 10,000 Applications were given nil. Application money is to be applied towards allotment and balance beyond that is to be returned. A share holder who applied for 1,000 shares and was given 1,000 shares failed to pay the allotment money. His shares were forfeited . Pass journal entries to record the above transactions. (Ans. Allotment money received Rs.3,06,000; Balance in share forfeited A/c Rs.3000)

Q10.

A,B Ltd . invited applications for issuing 1,00,000 equity shares of Rs.10 each. The amount was payable as follows: On application Rs.2 per share

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On Allotment Rs.3 per share On First & final call Rs.5 per share Application for 1,50,000 shares were received and pro-rata allotment was made to all applicants as follows: (i) Applications for 80,000 shares were allotted 60,000 shares on pro-rata basis . (ii) Applicants for 70,000 shares were allotted 40,000 shares on pro-rata basis. Sudha to whom 600 shares were allotted out of the group applying for 80.000 shares failed to pay the Allotment money. Her shares was forfeited immediately after allotment . Asha who had applied for 1,400 shares out of the group applying for 70,000 shares failed to pay the first and final call. Her shares were also forfeited. Out of the forfeited shares 1,000 were re-issued @ Rs.8 per share fully paid up. The re-issued shares included all the forfeited shares of Sudha. Pass necessary journal entries to record the above transactions. (Ans. Allotment money Rs.1, 98,600; Capital Reserve Rs.1600) Q11.

A Limited Company invites application for 50,000 equity shares of Rs.10 each payable as follows: On application Rs.3 On Allotment Rs.4 On First call Rs.2 in final call the balance Applications were received for 55,000 shares. Allotment were made on the following basis: (i) To Applicants for 35,000 shares –in full (ii) To Applicants for 20,000 shares – 15,000 shares. Excess money paid on application was utilized towards allotment money. A shareholder who was allotted 1,500 shares out of the group applying for 20,000 shares failed to pay allotment money and money due on calls. These shares were forfeited. 1,000 forfeited shares were re-issued as fully paid on receipt of Rs.8 per share. Show the journal entries in the book of company. (Ans. Amount Received on Allotment Rs.1,80,500; Capital Reserve Rs.2,000)

Q12.

Sudershan Ltd. invited applications for 1, 00,000 equity shares of Rs.10 each. The shares were issued at a premium of Rs.5 per share. The amount was payable as follows: On Application and allotment Rs.8 per share (including premium Rs.3) Balance including premium on first and final call. Applications for 1,50,000 shares were received . Applications for 10,000 shares were rejected and prorata allotment was made to the remaining applicants on the following basis: (i) Applicants for 80,000 shares were allotted 60,000 shares; and (ii) Applicants for 60,000 shares were allotted 40,000 shares. X who belonged to the first category and was allotted 300 shares, failed to pay the first call money. Y who belonged to the second category and was allotted 200 shares also failed to pay the first call money. Their shares were forfeited. The forfeited shares were re-issued @Rs.12 per share fully paid up. Pass necessary Cash book and journal entries. (Ans. Arrears on first and final call Rs.1900, Bank balance Rs.15,04,100;Capital Reserve 4,100)

Q13.

(a)

X Ltd. invited applications for 20,000 Equity shares of Rs.10 each, payable Rs.2.50 on application; Rs.5 on allotment (including premium Rs.2.50) and Rs. 5 on first and final call. The company received applications for 25,000 shares. It was decided: (i) to refuse allotment to the applicant for 1,000 shares . (ii) to allot full to the applicant for 4,000 shares. (iii) to allot balance of the available shares pro-rata among the other applicants (iv) to utilize the excess application money in part payment of the allotment money. All the money due was received except from one applicant to whom shares had been allotted on pro-rata basis. He failed to pay allotment and call money and his 100 shares were forfeited . These shares were reissued at Rs.9 as fully paid . Give journal entries to record the above transactions in the books of the company. (Ans. Capital Reserve Rs.212.50)

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Bharti Ltd. issued a prospects inviting applications for 50,000 shares of Rs.10 each. These shares were issued at par on the following terms . On application Rs.3, on allotment Rs.4,on first call Rs.2 and on final call the balance. Applications were received for 60,000 shares. Allotments were made on the following basis : (i) To applicants for 10,000 shares – in full (ii) To applicants for 20,000 shares – 15,000 shares (iii) To applicants for 30,000 shares – 25,000 shares All excess amount paid on applications is to be adjusted against amount due on allotment The share were fully called and paid up except amount of allotment , first and final call not paid by those who applied for 2,000 shares out of the group applying for 20,000 shares. All the shares on which calls were not paid were forfeited by the board of directors . 1000 forfeited shares were re-issued as fully paid on receipt of Rs.8 per share. Show the journal entries in the books of Bharti Ltd.

Q14.

Amrit Ltd. issued a prospectus inviting applications for 20,000 shares at a premium of Rs.2 per share payable as follows: On applicable Rs.5(including premium) On allotment Rs.4 On call Rs.3 Applications were received for 30,000 share and pro-rata allotment made on application for 24,000 shares Excess money paid on application for these shares was utilized towards allotment money. Atul who applied for 600 share failed to pay the allotment money and on his subsequent failure to pay the call, his shares were forfeited . Pass necessary entries in the books of Amrit Limited. (Ans. Share forfeited A/c Rs.2,0000; Allotment money Received Rs.58,500)

Q15.

S.M Ltd issued 5,000 Equity shares of Rs.10 each at a premium of Rs.15 per share payable Rs.12.50 on application (including premium Rs.7.50) and the balance on allotment. Applications were received for 9,000 equity shares, out of which letters of regret were issued to 2,000. Full allotment was made to applications for 1,000 shares. pro –rata allotment was made on the balance . Money overpaid on application was used in allotment. All money due on allotment was received except from a shareholder holding 100 shares to whom prorata allotment was made.

Q16.

A company invited applications for 50,000 equity shares of Rs.10 each on the following terms: On application Rs.3 On allotment Rs.2 On first and final call Rs.5 Applications were received for 1, 10,000 shares . it was decided (i) to refuse allotment to the applicants for 10,000 shares (ii) to allot 50% to Mr. X who has applied for 20,000 shares (iii) to allot in full to Mr. Y who has applied for 10,000 shares (iv) to allot balance of the available shares pro-rata among the other applicants and (v) to utilize excess application money in part payment of allotment and final call. Give journal entries till the stage of allotment assuming that the entire sum due on allotments is received in full. (Ans. Amt Received on Allotment Rs.20,000)

Q17.

Hindustan Steel Ltd. invited applications for 50,000 equity shares of Rs.10 each at a premium of Rs.4 per share. The amount was payable as under : On application Rs.4(including premium Rs.2) On allotment Rs.6 (including premium Rs.2) On first and final call Balance Applicants for 60,000 shares were received. Allotment was made to all applications of pro-rata basis . Excess application money was adjusted towards sums due on allotment and call money Ram to whom 400 shares were allotted, failed to pay allotment and call money. Shyam to whom 200 shares were issued failed to pay the call money. These shares were forfeited. The forfeited

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shares were re-issued @ Rs.8 per share fully paid up. Pass the necessary journal entries in the books of the company. (Ans. Allotment money received Rs.2, 57,920; Capital Reserve Rs.1120) Q18.

Radhika Textiles Ltd. Invites application for 75,000 equity shares of Rs. 10 each issued at a premium of Rs.5 per share. The amount was payable as follows: On application Rs7 (including Rs.3 premium) On allotment Rs.5 (including Rs.2 premium) Balance on first and final call Application for 1, 00,000 shares were received. Allotment was made to all applicants on pro-rata basis. Puneet to whom 300 shares were allotted, failed to pay allotment and call money. Sumeet to whom 150 shares were allotted failed to pay the call money. These shares were forfeited. The forfeited shares were re-issued @Rs.8 per share fully paid up. Pass the necessary journal entries. (Ans. Allotment money received Rs.199200)

Q19.

10,000 equity shares of Rs.20 each are issued for public subscription at a premium of 10%. The full amount is payable on application. Applications were received for 20,000 shares and it was decided to make pro-rata allotment to all the applicants, journalize the transactions.

Q20.

Azad Co. Ltd. Offered to public for subscription 10,000 12% preferences shares of Rs.100 each at a premium of Rs.5 per share. Payments were to be made as follows: With Application Rs.20 With allotment Rs.55(including premium) On first and final call Rs.30 Applications were received for Rs.34,000 shares . Appliances for 2,000 shares were accepted in full. The remaining 8,000 shares were allotted to the applicants for 32,000 shares on pro-rata basis. No money was refunded , the surplus being treated as calls in advance on which interest was payable @ 6% per annum. The call was made three months after the date of the allotment. All money were duly received . The company promptly paid interest on calls in advance to shareholders . Journalize the above mentioned transactions. Also prepare callas in advance account and 12 % preferences share capital accounts . (Interest on calls in adv.Rs.600)

Q21.

A Ltd. forfeited 60 shares of Rs.10 each issued at a premium of 20% to dev who had applied for 72 shares for non payment of allotment money of Rs.5 per share (including premium ) and the first and final call of Rs.5 per share . Out of these 20 shares were re-issued to shyam credited as fully paid up for Rs.9 per share. Give journal entries to record forfeited and re-issue of shares assuming that A ltd. follows the policy of adjusting excess application money towards other sums due on shares . (Capital Reserve Rs.28)

Q22.

Z Ltd. invited application for issuing 40,000 equity shares of Rs.10 each at a premium of Rs.2 per share. The amount was payable as follows: On application Rs.6 (including premium) and balance on allotment Application for 50,000 shares were received. Pro-rata allotment was made to all applicants. Excess money received on application was adjusted towards sums due on allotment. A shareholder to whom 8,000 shares were allotted failed to pay the allotment money and therefore, his shares forfeited. Later on the forfeited shares were re-issued for Rs.70,000 as fully paid up. Pass necessary journal entries in the books of Z ltd.

Q23.

Sonam Ltd. invited applications for issuing 10,000 equity shares of Rs.10 each at a discount of 10%. Rs.4 per shares were payable on application and the balance after discount on allotment. Applications for 20,000 shares were received. Shares were allotted proportionately to all applicants. An applicant who was allotted 1,500 shares failed to pay the allotment money. His shares were , therefore , forfeited. The forfeited shares were re-issued at Rs.6 per share as fully paid up. Pass necessary journal entries in the books of the company.

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ISSUE OF DEBENTURES Q1.

X ltd. issued 4,000, 6% Debentures of Rs.100 each payable as follows: Rs.25 on application; Rs.25 on allotment and Rs.50 on first and final call. Application were received for all the debentures along with the application money and allotment was made. The call money was also received on the due date. Pass necessary journal entries in the books of the company.

Q2.

Exe. Ltd , issued 20,000, 9% debentures of Rs.100 each at a premium of 10% payable Rs.25 on application, Rs.35 on allotment (including premium) and the balance on first and final call. Applications were received for 35,000 debentures. All allotment was made proportionality, oversubscription being applied to the due on allotment. All sums due were received by the company in due course. Journalize the above transaction on the book of Exe. Ltd.

Q3.

Exe. Ltd issued 10,000 , 9% debentures of Rs.100 each at a discount of 4% payable Rs.30 on application and the balance on allotment. Give the necessary journal entries and the resulting balance sheet.

Q4.

XYZ company limited issued 10,000, 10 % debentures of Rs.100 each at a premium of Rs.5 payable as follows: On application Rs.40(including premium) On allotment Rs.65 All the debentures were subscribed for and the money was duly received. Pass the journal entries to Record the above issue of debentures.

ISSUE OF DEBENTURES FOR CONSIDERATION OTHER THAN CASH Q5.

A building has been purchased for Rs.1,10,000 from X.. X has been issued 12% debentures in purchase consideration at a premium of 10%. Journalize.

Q6.

A limited company issued 1,000 debentures of Rs.100 each as fully paid up in consideration of the purchase of plant and machinery worth Rs.99,000. Make entries in company’s journal.

Q7.

M Ltd. issued debentures of Rs.80 each at a premium of Rs.10 per debentures for satisfying the purchase price of machinery at Rs.45,000. Pass the journal entries for the same.

Q8.

Rama Ltd purchase machinery worth Rs.72,000. This company issued 12% debentures of Rs.100 each at a discount of 4% in satisfaction of the purchase price. Pass the required journal entries.

Q9.

Make Journal entries for the following transaction: Z ltd purchased plant and machinery for Rs.2,00,000 payable as to Rs.65,000 in cash and the balance by an issue of 6% debentures of Rs.1,000 each at a discount of 10 per cent.

Q10.

X ltd. purchased building from Z Ltd. for Rs.2,00,000 . Half the payment was made in cash and the remaining half by issue of 12% debentures issued at a premium of 10%. Pass the necessary journal entries.

Q11.

AB ltd. Purchased building costing Rs.4,05,000. It was agreed that the purchase consideration be paid by issue of 12 % debentures of Rs.100 each. Assuming that debentures have been issued (i) at par and (ii) at a discount of 10%.Pass necessary journal entries.

Q12.

Suvidha Ltd. purchased machinery Rs.1,98,000 from Suppliers Ltd. The payment was to be made by issue of 12% debentures of Rs.100 each. Pass the necessary journal entries for the purchase of machinery and issue of debentures when:

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(a) Debentures are issued at par . (b) Debentures are issued at 10% premium. Q13. Q14.

R Ltd. purchased the assets of S Ltd .for Rs.4,50,000. It also agreed to take over the liabilities of S Ltd. amounting to Rs.2,00,000 for a purchase consideration of Rs.2,80,000. The payment to S Ltd. was made by issue of 12% debentures of Rs.100 each at par. Pass the journal entries in the books R ltd. A company purchased assets of Rs.4,20,000 and took over liabilities of Rs.40,000 at an agreed value of Rs.3,60,000. The company issued debentures at 10% discount in full satisfaction of the purchase price . Give journal entries in the book of purchasing company . (1/90 x 3,60,000=4,000 Deb, Dis.10% of 4,00,000= 40,000)

Q15.

The Ram Ltd. took over assets of Rs.7,00,000 and liabilities of Rs.60,000 of shyam Ltd. for the purchase consideration of Rs.6,60,000. The Ram Ltd. paid the purchase consideration by issuing debentures of Rs.100 each at 10% premium. Give journal entries in the book of Ram Ltd.

Q16.

The Jai Ltd . purchased assets of Rs.8,40,000 and took over liabilities of Rs.80,000 at an agreed value of Rs.7,20,000. The Jai Ltd. issued debentures at 10% discount in full satisfaction of the purchase price. Give journal entries in the books of Jai Ltd.

Q17.

D Ltd . purchased machinery worth Rs.2,00,000 from E ltd.. On 1.1.2001 Rs.50,000 were paid immediately and the balance was paid by issue of Rs.1,60,000 12% debentures in D Ltd.. Pass the necessary journal entries for recording the transactions in the books of D Ltd.

Q18.

A Ltd. took over assets of Rs.10,000 and creditors of Rs.1,00,000 from B Ltd. and issued 6% debentures of Rs.100 each at a premium of 25% as purchase consideration . Pass necessary journal entries in the books of Ltd.

Q19.

LG LTD. purchased assets of the book value of Rs.4,00,000 and took over the liabilities of Rs.50,000 from Samsung Ltd. It was agreed that the purchase consideration , settled at Rs.3,80,000, be paid by issuinf debentures of Rs.100 each. What journal entries will be made in the following three cases if debentures are issued: (a) at par, (b) at discount of 10% and (c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash. (Goodwill Rs.30,000; case (a) 3,800 debentures of Rs.100 each ; case (b) 4,222 debentures of Rs.100 each; case (c) 3454 debentures of Rs.100 each (d) paid cash Rs.20 ; paid cash Rs.60)

Q20.

A Ltd . secured a loan of Rs.1,80,000 from the Canara bank by issuing 2,000, 15% debentures of Rs.100 each as collateral security. How will you treat the issue of such debentures ?

ISSUE OF DEBENTURES AS A COLLATERAL SECURITY

Q21A. A Ltd issued 5,000, 13% debentures of Rs.100 each at par and raised a loan of Rs.80,000 from bank, collaterally secured by Rs.1,00,000 13%Debentures . how will you show the debentures in the balance sheet of the company assuming that the company has recorded the issue of debentures as collateral security in the books. Q21B. JMD Ltd. raised a loan of Rs.20,00,000 from State bank of India on 1.4.2000. Interest @ 10% was payable on 30th Sept. and 31st March every year. As per terms of the agreement, loan amount was to be repaid after three years. The company has offered its plant and machinery as primary security and 8% debentures of Rs.12,00,000 as collateral security. Due to shortage of funds, company could not pay interest on loan after two years. Company has also failed to repay the loan amount on due date. The State bank of India took the possession of plant and machinery at an agreed value of Rs.18,00,000 and invoked its right vested in the collateral security through Court of Law on 1.7.2003. Pass necessary entries.

ISSUE OF DEBENTURES CONSIDERARTION THE TERMS AND CONDITION OF REDEMPTION Q22.

Give journal entries in each of the following alternatives cases: (a) A debentures issued at Rs.1000 repayable at Rs.1000 (b) A debentures issued at Rs.950 repayable at rs.1000

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(c) A debentures issued at Rs.1050 repayable at Rs.1000. (d) A debentures issued at Rs.1000 repayable at Rs.1050. (e) A debentures issued at Rs.950 repayable at Rs.1050. (f) A debentures issued at Rs.1025 repayable at Rs.1050. (g) A debentures issued at Rs.1000 repayable at Rs.950. (h) A debentures issued at Rs.980 repayable at Rs.950. (i) A debentures issued at Rs.1030 repayable at Rs.950. Note: The face value of each debentures is Rs.1000. What journal entries will be made in the following cases: (a) A company issued Rs.40,000, 12% Debentures at a discount of 10% redeemable at par. (b) A company issued Rs.40,000, 12% Debentures at a premium of 5% redeemable at par. (c) A company issued Rs.40,000, 12% Debentures at par redeemable at 10% premium, and (d) A company issued Rs.40,000, 12% Debentures at a discount of 5% and redeemable at 5% premium. A company issued Rs.1,00,000, 15% Debentures at a discount of 5% redeemable after 10 years at premium of 10%. Pass journal entries.

Q25.

Pass the journal entries to record the issue of debentures in the following cases; (a) 5,000 15% Debentures of Rs.100 each issued at a discount of 5% and premium after 5 years. (b) 10,000 15% Debentures of Rs.100 each issued at a premium of 10% and redeemable at par after 6 years.

Q26.

Journalize the following transactions; (a) X Ltd issues Rs.2,00,000 , 12% debentures at discount of 5% redeemable at par . (b) Y ltd. issues Rs.5,00,000 , debentures at discount of 5% redeemable at a premium of 7%.

Q27.

Show by means of journal entries the following at the time of issue on 1st Jan 1981 and redeemable after 6 years on 31st December,1986. (a) A ltd.issues 20,000,13% debentures of Rs.100 each at a discount of 3% to be redeemable at par at the end of sixth year. (b) B ltd.issues 10,000,13% debentures of Rs.100 each at a discount of 3% to be redeemable at premium of 3% at the end of sixth year. (c) C ltd.issues 15,000,14% debentures of Rs.100 each at par to be redeemable at a premium of 4% at the end of sixth year. (d) D ltd.issues 12,000,15% debentures of Rs.100 each at a premium of 3% to be redeemed at par at the end of sixth year.

Q28.

What journal entries will be made in the following cases for issue of debentures ; (a) A company issued Rs.30,000, 12% Debentures at a discount of 10% redeemable at par. (b) A company issued Rs.40,000, 12% Debentures at a premium of 5% redeemable at par. (c) A company issued Rs.50,000, 12% Debentures at par redeemable at 10% premium . (d) A company issued Rs.60,000, 12% Debentures at a discount of 5% and redeemable at 5% premium. Note. The face value of a 12% debenture is Rs.100.

Q29.

J.M.D Ltd. issued 3,000, 7% debentures of Rs.100 payable as follows: On application Rs.30 On allotment Rs.70 The debentures were fully subscribed and all the money was duly received . As per terms of issue, the debentures are redeemable at Rs.110 per debenture. Record necessary entries regarding issue of debenture.

Q30.

Guru Nanak Ltd. issued 10,000, 8% debentures of Rs.100 each at a discount of 6% redeemable at a premium of 10% after 3 years payable as: Rs.50 on application and Rs.44 on allotment .Record necessary journal entries for issue of debentures.

Q31.

On 1.1.2005, Fast Computers Ltd. issued 20,000, 6% debentures of Rs.100 each at a discount of 4%. Redeemable at a premium of 5% after three years . The amount was payable as follows: On application Rs.50 per debentures Balance on allotment

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Record the necessary journal entries for issue of debentures. Q32.

You are required to show by means of journal entries how to record the following issues: (a) A company issued 14,000 Debentures of Rs.100 each at a discount of 5% to be repaid at par at the end of 5 years. (b) A company issued 5,000 December of Rs.100 each at a discount of 5%repayable at a premium of 10% at the end of 5 years.

Q33.

On 1.1.2000, X Ltd. issued 5,00,000, 8% debentures of Rs.100 each, redeemable after 10 years. Debentures holders were given the option to get their debentures redeemed at any time after 3 years at Rs.105 per debentures. At the end of four years, debenture holding 40,000 exercised their option and got their debentures redeemed. Record the necessary journal entries for issue and redemption of debentures in the books of the company.

WRITING OFF DISCOUNT/LOSS ON ISSUE OF DEBENTURES Q34.

On 1st Jan 1992 A Limited company issues Rs.40,000 debentures at a discount of 5%, repayable at the end of five years. Show the discount account in the ledger for the period.

Q35.

X Ltd issued debentures @ 94% for Rs.1,00,000 on 1st Jan 2001 repayable by five equal annual drawing of Rs.20,000 each. Calculate the amount of discount to be written off each year assuming that the company closes its accounts on calendar year basis.

Q36.

On 1st Jan2001 A limited company issued Rs.2,00,000 debentures at 6% discount repayable by draw of lots starting from 31st December 1991 of Rs.40,000 every year. Show discount in issue of debentures account till all debentures are redeemed.

Q37.

X Limited issued 12% debentures of Rs.10,00,000 at 8% discount redeemable at par. Assuming that the debentures are redeemed by drawings method in the following manner: Year end Face Value (Rs.) Year end Face Value (Rs.) 2 1,00,000 4 3,00,000 3 2,00,000 5 4,00,000 Required : Prepare discount on issue of debentures account.

Q38.

X Limited issued 6,000, 12% debentures of Rs.100 each at a discount of 6% on 1-1-1991. The debentures were payable in installments of Rs.2,00,000 starting from 31-12-1993. Show the discount on issue of debentures account for the year 1991 to 1995. Calculate debentures discount to be written off.

Q39.

Limited issued 12% debentures of Rs.20,00,000 at 8% discount redeemable at par. Debentures are to be redeemed in the following manner: Year end Face value (Rs.) Year end face value(Rs.) 2 2,00,000 4 6,00,000 3 4,00,000 5 8,00,000 Required : Write discount on issue of debentures account for five years.

Q40.

P Ltd. issued 6,000 12% Debentures of Rs.100 each at a discount of 6% to be redeemed as follows: 1st year : Nil; 2nd year : Nil; 3rd year : Rs.4,00,000; 4th year : Rs.2,00,000.

Q41.

On 1st Jan,1990 Exe. Ltd issued Rs.2,20,000 , 9% debentures at a discount of 5% repayable as follows: On 31st December, 1990 Rs.40,000 On 31st December, 1991 Rs.80,000 On 31st December,1992 Rs.1,00,000 Show the amount of discount to be written off in each of the three years.

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Q42.

A company issued 10% debentures of the value of Rs.2,20,000 at a discount of 6% on 1st Jan,2005. The debentures are payable by annual drawings of Rs.40,000 commencing from the end of 3rd year. How will you deal with discount on debentures? Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on 31st December.

Q43.

Green Ltd. issued 5,000, 6% debentures of Rs.100 each at a discount of 5% repayable after 5 years at a premium of 5%. You are required to show (i) Journal entries at the time of issue and redemption of debentures. (ii) Show the Loss on issue of debentures account over the period.

Q44.

X Ltd. issued debentures at 94% for Rs.50,000 on 1st April,1985 repayable by five equal annual drawing of Rs.10,000 each. The company prepares its final accounts on 31st December every year. Indicate the amount of discount to be written off every accounting year assuming that the company decides to write off the debentures discount during the life of the debentures.

Q45.

Pass the necessary journal entries for the following transactions in the books of Y Ltd. (a) Purchased machinery Rs.1,65,000. The vendors were paid by issuing 12 % debentures of Rs.100 each at premium of 10%. (b) Issued 12% debentures of Rs.1,50,000 as collateral security. (c) Paid half yearly interest on Rs.1,80,000 12% debentures. (d) Issued 1,000, 12% debentures of Rs.100 each at a discount of 5%.These debentures were repayable at a premium of 10%.

FINAL ACCOUNTS OF COMPANIES

Figures for the previous year Rs.

HORIZONTAL FORM OF BALANCE SHEET Balance sheet of ………. Co. Limited As on …….. Liabilities Figures Figures Assets for the for the current previous year Rs. year Rs. Share Capital: Fixed Assets: Authorized Capital: (a) Goodwill ………..Share of Rs…….each (b) Land Issued capital : (c) Building ………..Share of Rs…….each (d) Leaseholds Subscribed Capital: (e) Railway ………..Share of Rs…….each Sidings Less: Calls unpaid (f) Plant and (i) By directors ….. machinery (ii) By others……. (g) Furniture and Add: Forfeited shares fittings ( Amount originally paid up (h) Development on forfeited shares) and property Reserves and surplus: (i) Patents, Trade (1) Capital Reserve marks and (2) Capital Redemption Designs Reserve (j) Live stock (3) Securities Premium (k) Vehicles A/c Investment: (4) Other Reserve (1) Investment in (5) Surplus i.e. balance Government or Trust in P& L A/c after Securities providing proposed (2) Investment in Shares, dividend, Bonus or debentures and bonds

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Figure for the current year Rs.

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Reserve (6) Proposed addition to reserve (7) Sinking Fund Secured Loans: (1) Debentures (2) Loans and Advances from subsidiaries (3) Short term loans & advance (a) From bank (b) From others (4) Other loans and advances Current Liabilities and provision: A. Current Liabilities: (1) Acceptance (2) Sundry Companies (3) Subsidiary Companies (4) Advance payment (and unexpired discount for which value is still to be given) (5) Unclaimed dividend (6) Other liabilities (if any) (7) Interest accrued but not due on loans B. Provision: (8) Provision for taxation (9) Proposed dividends (10) For contingencies (11) For Provident Fund Schemes (12) For Insurance and other staff benefit schemes (13) Other provisions Contingent Liabilities (1) Claim against the company not acknowledged as debt (2) Uncalled liability on Shares, partly paid (3) Arrears of Fixed cumulative dividend (4) Estimated amount of contract remaining to be executed (5) Other contingent liabilities

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(3) Investment in immovable properties (4) Investment in the capital of partnership firms Current Assets, Loans and Advances: A. Current accrued: (1) Interest accrued (2) Stores and spare parts (3)Loose tools (4) Stock in trade (5) Work in progress (6) Sundry debtors (a) Debts outstanding for a period exceeding six months (b) Other debts (7) (a) Cash balance in hand (7) (b) bank balances (a) With scheduled banks (b)With debts B. Loans and Advance (8) (a) Advances and Loans to subsidiaries (b) Advances and loans to partnership firms in which company or any of its subsidiary is a partner. (9) Bills of exchange (10) Advances receivable, prepaid rates, taxes and insurance (11) balance with customers, port trust(where payable on demands) Miscellaneous Expenditure: (To the extent not written off or adjusted) (1) Preliminary expenses (2) Expenses including commission or brokerage or under writing on subscription of shares of shares or debentures (3) Discounts allowed on issue of shares and debentures (4) Interest paid out of capital (5) Development expenditure, not adjusted (6) Other sums(Specify

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nature) Profit and loss A/c. (Debit balance): (This is shown only when its debit balance could not be written off out of uncommitted reserves.) Note: (1) (2) (3)

Fixed assets are shown at original cost less total depreciation to date. Investments should be divided in tow parts: (I) quoted and (II) unquoted. In the case of quoted investments market price must be shown. Contingent liabilities are not included in the total of the liabilities side.

REDEMPTION OF DEBENTURES REDEMPTION OF DEBENTURES BY PURCHASE IN THE OPEN MARKET Q1.

Ram Ltd. purchased for cancellation its own 10, 00,000; 9% debentures of Rs.500 each at Rs.480 each. Record necessary journal entries.

Q2.

Shyam Ltd. has outstanding 11, 00,000, 10% debentures of Rs.200 each. On April 1,2003. The board of directors have decided to purchase 20% of own debenture for cancellation at Rs.200 each. Record necessary entries for the same.

Q3.

On August 1, 2002 Hutch Ltd. buys 100, 9% debentures of Rs.100 at Rs.95 each cum-interest , the dates of interest being March 31 and September 30.Record necessary journal entries when debenture are purchased for cancellation.

Q4.

Anurag Ltd. buys 400, 12% debentures of Rs.100 at Rs.95 each. Ex-interest on March 1, 2002, the dates of interest being June 30 and Dec 31. Record necessary entries if debentures are purchased for cancellation.

Q5.

A company purchases from the market its own 400,12% debentures of Rs.100 each at Rs.90 on 31-12-2002. Calculate the price paid exclusively for the debentures of the quotation are: (a) Cum – interest (b) Ex- interest Debentures interest is paid on march 31 and September 30 every year. Also journalize in both the cases assuming that these debentures are not yet cancelled.

Q6.

On June 1st, 2003 Moon Ltd. purchased 5,000, 8% debentures of Rs.100 each at the rate of Rs.98. The interest is payable on March 31 and September 30 every year. Calculate the real price of the Debentures acquired if the price quoted above is (i) Cum-interest and (ii) Ex-interest and give journals.

Q7.

Mohan Ltd. has 1, 00,000; 9% debentures of Rs.100 each outstanding on April1, 2002. The interest is payable on March 31 and September 30 every year. On July 1, 2002 Company purchased 8,000 debentures at Rs.97 (cum-interest) for immediate cancellation. Record journal entries for purchase of debentures and cancellation and payment of interest on September 30, 2002.

Q8.

Manoj India Ltd. has 1,00,000. 9% debentures of Rs.100 each outstanding on April 1,2002. tHe company pays interest on Sept.30 and March 31 every year. Company purchased 10,000 debenture at Rs.96.(Ex-interest) on May 1,2002. It further purchased 2,000 debentures at Rs.98 (cum-interest) on

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Jan 1, 2003. All these debentures were cancelled on March 31, 2003. Record the journal entries for purchase of debentures, payment of interest and cancellation of dcebenture. Q9.

On 1st Jan,1999 a company made an issue of 1,000 6% debentures of Rs.1,000 each at Rs.960 per debenture. The terms of issue provided for the redemption of Rs.20,000 debentures every year commencing from 2000 either by purchase or by drawings at par at company’s option. Rs.10,000 was also written off the debenture discount account in each of the years 1999 and 2000. During 2000 the company purchased for cancellation debentures of the face value of Rs.6,000 at Rs.950 per debenture and of Rs.12,000 at Rs.900 per debenture. Journalize the above transactions dealing with the profit on redemption in way you consider fit.

Q10.(a)

Sonu Ltd. has an authorized capital of Rs.1,50,00,000 divided into equity shares of Rs.10 each and its balance sheet as at March 31, 2003 was as follows:

Liabilities

Rs.

Share Capital issued and fully paid up General Reserve 8% debenture Sundry creditors

50,00,000 10,00,000 20,00,000 10,00,000

Assets

Rs.

Fixed Assets Current Assets Own Debentures (nominal value Rs.5,00,000) Cash at bank

90,00,000

60,00,000 15,00,000 4,50,000 10,50,000

90,00,000

The Company decided the following: (1) To redeem the 8% debenture due for redemption on September 30, 2003 and also to cancel its own debenture . (2) To pay interest to debenture holders being due on the date of redemption. Record necessary entries to give effect to the above transactions. (b)

Given below is the balance sheet of Sarika Ltd. as at March 31, 2003. Liabilities

Rs.

Share Capital Authorized share of Rs.50 each issued, Called up and paid up shares of Rs.50 each General Reserve 8%Debentures Sundry creditors

5,00,00,000

Assets

Rs.

Fixed Assets Current Assets Own Debentures (face value Rs.9,00,000) Cash at bank

1,00,00,000 20,00,000 40,00,000 25,00,000 1,85,00,000

80,00,000 90,50,000 8,50,000 6,00,000

1,85,00,000

The following decided the following : (a) To redeem all the 8% debentures due for redemption on September 30, 2003 and also to Cancel its own debenture. (b) To pay interest to debenture holders due on the date of redemption. Pass necessary Journal entries on September 30, 2003.

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Q11.

Raju Electronics Ltd. has an outstanding balance of 40,00,000, 8% debenture of Rs.100 each and sufficient funds in debenture Redemption Reserve to meet legal requirements. The board of directors decided to purchase 1,00,000 debenture at a price of Rs.96 for investments purpose. But after few months they took decision to sell them @ Rs.99 in the market. Record necessary entries to show above transactions.

Q12.

On 31.3.2003 Govind Ltd. had Rs.8,00,000 ,9% debentures due for redemption . The company had a balance of Rs.3,40,000 in its debenture Redemption Reserve Account. Pass necessary journal entries for redemption of debentures.

Q13.

On 31.3.2003 Ram Ltd. had Rs.10,00,000 ,9% debentures due for redemption. The company had a balance of Rs.4,60,000 in its Debenture Redemption Reserve Account. Pass necessary journal entries for redemption of debentures.

Q14.

Rakesh Ltd. had Rs.20,00,000 , 8% debenture. The same were to be redeemed at 5% premium on 31.03.2004, out of profits. Show the journal entries at the time of redemption, if Debenture Redemption Reserve has a balance of Rs.4, 00,000.

Q15.

Vishal Ltd. issued 20,000 , 9% debentures of Rs.100 each of 1.1.2000. As per the terms of the issue threes debentures were to be redeemed at a premium of 5% on 30th June, 2004. The company decided to transfer out of profits Rs.6,00,000 to debenture Redemption Reserve on March 31, 2001; Rs.3,00,000 on March 31,2002 and Rs.1,00,000 on march 2003. Pass necessary journal entries regarding issue and redemption of debentures. Ignore writing off loss on issue of debentures and interest paid thereon.

Q16.

Guru Nanak Ltd. issued Rs.4,00,000, 11% debenture divided into debenture of Rs.100 each on April 1, 2001, redeemable in four equal annual installments starting from April 1, 2003. The board of directors have decided to create Debenture Redemption Reserve of Rs.1,00,000 on March 31, 2002 and 2003. Record necessary journal entries at the time of issue and at the time of redemption of debenture and creation of debenture Redemption Reserve .

CONVERSION Q1.

On 1st Jan 1999, a limited company issued Rs.2, 00,000. 10% debentures of Rs.1,000 each at par repayable at 5% premium . As per terms of issue the debenture holders had an option to at 5% premium. As par terms to issue, the debenture holders had an option to convert their holdings into equity shares of Rs.100 each at any time after 3 years. On 31st December , 2000 a holder of 40 debenture gave a notice of exercising the option . Interest on debentures for full one year had accrued and remained unpaid until 31st December , 2000. Interest for the pats two years had been paid as and when due. Pass journal entries.

Q2.

On 1st Jan 2000, a company issued 800, 12% Debentures of Rs.500 each at Rs.450 each. Debenture Holders were given an option to get their debentures converted into equity shares of Rs.100 each at a premium of Rs.50 per share. On 31st December,2000, one year’s interest had accrued on these debentures which was not paid. A holder of 100 debentures informed that he wanted to exercise the option for conversion of debentures into equity shares. The company, therefore, accepted his request and redeemed these 100 debentures by issuing him equity shares. The interest , however, on these 100 debentures was paid to the debenture holders. Pass the necessary journal entries to record the above transactions in the books of the company. Q3.

Manoj Ltd. issued 5,000, 6% Debentures of Rs.100 each at Rs.105. The debenture holders had the option of converting within a year, Debenture into 8%. Preference Shares of Rs.100 each at Rs.1 25. At the end of the 1st year interest on Debentures was outstanding. Holders of 200 Debentures to take the advantage of the option. Give the journal entries.

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Q4.

Exe. Ltd. issued Rs. 20, 000, 9% Debentures of Rs. 10 each at per redeemable at a premium of 5%. According to the terms of issue debenture holders were given an option to convert their holding into 9%. Preference shares of Rs. 100 each at a premium of 20% at any time after two year. On 31 st December, 1999, (the third year of issue) a holder of 400 debentures gave a notice of exercising his option to the company. Interest on Debentures for the full one year had accrued and remained unpaid until 31st December, 1999. Give necessary Journal entries for the year 1997 and 1999.

Q5

On July 1, 1999, A Ltd. gave notice of its intention to redeem its outstanding Rs. 4, 00, 000 4 ½% debentures on January 1, 2000 at 102 percent and offered the holders the following option: To subscribe for:

(i) (a) (b)

6% cum Preference Shares of Rs. 20 each at Rs. 22.50 per share accepted by holders of Rs. 1, 71, 000 stock OR 6% debentures stock at 96 percent accepted by the holders of Rs. 1, 44, 000 stock.

(ii)

To have their holding redeemed for cash if neither of option under (i) was accepted.

Q6.

You are required to give Journal entries necessary to record the redemption and allotment under (i) (a) and (b) and to state the amount of cash required to satisfy the option (ii). On Jan 1, 1999, a company issued 400, 5% debentures of Rs.1, 000 @ Rs.980. Holders of these debentures had an option to convent their holding into 8% preference shares of Rs.100 each at a premium of Rs.20 per share at any time within five years. On December 31, 1999, one year’s interest had accrued on debentures and remained unpaid. A holder of 24 debentures notified his intention to exercise the above option. Pass the necessary Journal entries and show how the items affected would appear in the company Balance sheet.

Q7.

Hussain Ltd. assets 8,000, 8% debentures of Rs.100 each redeemable at a premium of 10%. According to the terms of redemption the company redeemed 25% of the above debentures by Converting them into shares of Rs.50 each issued at a premium of 60%. Pass journal entries regarding issue & redemption of debentures.

Q8.

Ansh Ltd. redeemed 6,000, 9% debentures of Rs.100 each issued at par by converting them into equity shares of Rs.20 each at par. Journalize.

Q9.

Joshi Ltd. redeemed 10,000,12% Debentures of Rs.50 each which were issued at par , at 10% premium by converting them into equity shares of Rs.10 each issued at a premium of 25% . Journalize.

Q10.

Bansal Ltd. Redeemed 20,000, 11% debentures of Rs.10 each at Rs.12 by converting them into equity shares of Rs.25 each at 20% of discount each. Journalize.

Q11.

Harish Ltd. redeemed Rs.1, 00,000, 10% debentures of Rs.100 each, at 108% by converting them into 14% debentures of Rs.10 at 90%. Journalize.

Q12.

Puneet Ltd. redeemed 1,000, 10% debentures of Rs.10 each which were issued at par by converting them into equity shares of Rs.20 each at 25% premium, Journalize.

Q13.

Nikhil Ltd. redeemed 37,500; 10% debentures of Rs.25 each issued at premium of Rs.5 by converting them into equity shares of Rs.100 each. Journalize.

Q14.

Sumit Ltd. redeemed Rs.12, 000, 7% debentures of Rs.100 each which was issued at par at 110 per cent by converting them into equity shares Rs.10 each issued at par. Journalize.

Q15.

Umesh Ltd. redeemed Rs.15,000; 11% debentures of Rs.10 each which were issued at par , at 105 per cent by converting them into equity shares of Rs.100 each issued at a discount of 10%.Jounalize.

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Q16.

Gopi Ltd. redeemed 10,000; 12% debentures of Rs.10 each which were issued at a discount of 5% by converting them into equity shares of Rs.100 each issued at a premium of 25%.Journalize.

Q17.

Pass necessary journal entries in the books of the company in following cases for redemption of 1,000. 12% debentures of Rs.10 each issued at par: (a) Debentures redeemed at par by conversion into 12% preference shares of Rs.100 each. (b) Debentures redeemed at a premium of 10% by conversion into Equity shares issued at Par. (c) Debentures redeemed at a premium of 10% by conversion into Equity shares issued at Premium of 25%.

Q18.

On 1.4.1999 Manoj Ltd. issued 2,000 7% debentures of Rs.100 each at a discount of 10% redeemable at par after 4 years by converting them into equity shares of Rs.100 each issued at a premium of 25%. Pass necessary journal entries for the issue and redemption of debentures.

RATIO

ANALYSIS

LIQUIDITY RATIO 1.

Current/working capital ratio: Current ratio depicts the relationship between current assets and current liabilities and can be calculated as under: Current Ratio =

Current Assets Current liabilities

Current assets are those which can be converted into cash within one year. Current Assets = Cash + bank + Closing Stock (Raw material + Work in progress + Finished Goods) + Debtors / Accounts Receivable (Less: provision for D/D) + Bills Receivable +Short term investment / Marketable Securities / Temporary investment + prepaid Express (Unexpired Expenses) +Accrued incomes, Advances, loose tools Current liabilities are those which are repayable within a year. Current Liabilities = Creditors / Accounts payable +Bills payable + Bank overdraft +provision for Taxation + proposed Dividends + Unclaimed Dividend +Loans payable within a year, Short term loan, temporary loan + Un-expired income /Unearned income(income received in advance), Dividend payable , income Tax payable Expenses payable (outstanding Expenses ). Generally, Current Ratio of 2:1 is considered to be satisfactory. 2.

Quick Ratio:

It is also called Liquid ratio or Acid test ratio. It is a ratio between quick assets and Current liabilities .It is calculated as follows: Quick Ratio = Quick Assets or liquid Assets or Acid test Assets Current Liabilities

Liquid Assets means those assets which will yield cash very soon. (Short period)

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i.e. Quick assets = Current Assets = Current Assets – (Stock + prepaid Expenses) OR Except stock and prepaid expenses all other current assets are liquid assets. Generally, Liquid Ratio of 1:1 is considered to be satisfactory. Q1.

From the following compute the current ratio and liquid ratio .

Particulars Sundry Debtors Cash in hand and at bank Machinery Sundry Creditors Stock

Rs. 20,000 10,000 7,000 40,000 40,000

Particulars Prepaid Expenses Short term investment Bills payable Debentures Expenses payable

Rs. 30,000 1,00,000 20,000 2,00,000 40,000

(Current Ratio 2:1 ; Liquid Ratio 1.3:1) Q2.

From the following compute the current ratio and liquid ratio: Liabilities Share Capital Profit and Loss A/c Bank Loan Bank overdraft Sundry Creditors

Rs 21,000 1,500 2,500 2,000 6,000

Assets Fixed Assets Stock Cash Debtors

33, 000 Q3.(a)

Rs 17,000 6,000 3,400 6,600 33,000 (Current Ratio 2:1; Liquid Ratio 1.25:1)

Following is the Balance sheet of Z Ltd as on 30th June 2005:

Liabilities Equity Share Capital Capital Reserve Reserve for Contingencies Profit and Loss A/c 15%Bank Loan Provision for Tax Sundry Creditors outstanding Expenses Dividend payable Bank overdraft

Rs 50,000 10,000 5,000 9,000 6,000 5,000 3,200 700 3,400 2,700

Assets Premises Plant & Machinery Loose Tools Patents Closing Stock Debtors 20,600 Less: Provision for d/d 600 Cash Marketable Securities Prepaid Expenses Share issue expenses

Rs 20,000 30,000 1,500 6,000 10,000

20,000 2,000 3,000 1,000 1,500 95,000 (Current Ratio 2.5:1; Liquid Ratio 1.77:1)

95, 000

Q3.(b) Following is the Balance sheet of Crescent Chemical Works Limited as on 31st December 2004. Liabilities Equity Share Capital 10% Preference share Capital General Reserve Reserve for Contingencies 12%MortagageDebentures Income Tax payable Bills Payable Bank overdraft Sundry Creditors outstanding Expenses

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Rs 55,000 15,000 25,000 10,000 25,000 4,000 3,000 3,000 8,000 2,000

Assets Land and Building Plant & Machinery Furniture and Fixtures Trade investment Bills Receivable Debtors Stock Prepaid Expenses Cash and bank balances

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Rs 20,000 22,000 3,000 5,000 20,000 10,000 50,000 2,000 18,000

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1,50, 000

Q4.(a)

1,50,000

Throw light on the short term financial Position of the company with the help of suitable ratio. (5:1; 2.4:1) Calculate Current Ratio and Quick ratio from the following information:

Particulars Bills Receivable Cash Stock of Finished Goods Loose Tools Bills payable Sundry Creditors

Rs.

Particulars Sundry Debtors Stock of Raw material Prepaid Insurance Goodwill bank overdraft 15% Debentures

13,000 26,000 90,000 26,000 25,000 60,000

Rs. 20,000 59,500 6,000 1,00,000 45,000 40,000

(Current Ratio 2.2:1; Liquid Ratio 1:1) Q4.(b) Calculate the current ratio and Acid test ratio from the given particulars and give your comments about the same. Particulars Debtors Short term investment Closing Stock: Raw material 1,00,000 Finished Product 40,000 Creditors Outstanding Expenses

Rs. 10,000 20,000 1,40,000 1,00,000 5,000

Particulars Rs. Cash 71,000 Long term investment 40,000 Prepaid Expenses 9,000 Plant & machinery 2,00,000 Loose Tools 50,000 Provision for Taxation 25,000 Profit & Loss A/c 80,000 (Current Ratio 2.31:1; Liquid Ratio 1.16:1)

Q5.

Current liabilities of a company are Rs.4, 00,000. Its current ratio is 4:1 and liquid ratio is 2.5:1. Calculate the value of stock. (Value of Stock = Rs.6, 00,000)

Q6.

The current ratio of B Ltd. is 4:5:1 and liquid ratio is 3:1. Stock is rs.3, 00,000. What are the current liabilities? (Current liabilities =Rs.2, 00,000)

Q7.

Working capital of a company is Rs.60,000. Its current ratio is 2:5:1. Calculate the value of (i) current liabilities (ii) Current assets and (iii) Acid Test ratio, assuming stock of Rs.40, 000.

Q8.

X Ltd. has a liquid (acid test ) ratio 2:1. If its stock is Rs.20, 000 and its total current liabilities are Rs.50, 000, Find out its current ratio. (Current ratio = 2.4:1)

PROFITABILITY RATIOS 1.

Gross Profit Ratio: This ratio expresses the relationship of gross profit to net sales. It’s expressed in percentage. Gross Profit Ratio =

Gross Profit Net Sales

x 100

Gross Profit = Net Sales – Cost of goods sold Cost of goods sold = Net sales – gross profit Net Sales = Sales – Sales returns

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Net Purchases = purchases – Purchases Return Direct Expenses are all those expenses which have been incurred in relation to the production / purchases e.g. wages, carriage , power, freight, fuel, carriage inward , octroi cleaning charges, custom duty, dock dues, cartage non – recurring expenses etc. 2.

Operating Ratio : It may be defined as a ratio which indicates operating cost as a percentage of total sales Operating ratio is calculated as operating cost divided by net sales. Formula is as follows: Operating Ratio = OR

Operating Cost x 100 Net Sales

Operating Ratio = Cost of Goods Sold + Operating Expenses Net Sales

x 100

Operating Expenses includes all office and administrative Expenses e.g. salary, electricity, rent, etc. and all the expenses incurrent for Selling and Distribution Expenses e.g. advertising, commission etc. General Expenses, Depreciation. Q1.

Calculate Gross Profit ratio from the following: Particulars

Rs.

Sales

2,80,000 Gross Profit Return inwards

90,000 40,000 (Gross Profit ratio = 37.5%)

Q2.

Compute Gross Profit Ratio from the following Particulars Opening Stock Credit Sales Returns outward Advertisement Expenses

Rs. 50,000 1,00,000 15,000 30,000

Particulars Closing Stock Cash sales Purchase Carriage inward

Rs. 70,000 1,70,000 2,41,000 10,000 (Gross Profit ratio = 20%)

Q3.

Calculate Gross Profit Ratio: Particulars Sales return Closing stock Cash Sales Purchases

Rs. 5,000 45,000 55,000 90,000

Particulars Opening Stock Credit Sales Purchase Returns Direct Expenses

30,000 50,000 5,000 25,000 (Gross Profit ratio = 5%)

Q4.

Determine Operating ratio: Particulars Opening Stock Purchases Net sales Office & Administration Expenses

Rs. 50,000 1,33,000 2,80,000 10,000

Particulars Closing Stock Purchase Returns Carriage & Wages Selling and distribution Expenses

75,000 13,000 5,000 30,000

(Gross Profit ratio = 50%) Q5.(a)

Calculate Gross Profit from the following: Sales Rs.4, 00,000

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Gross Profit is 25% on Sales. (Gross Profit = Rs.1, 00,000) Q5.(b)

Calculate Gross Profit from the following: Sales Rs.3,30,000 Gross Profit is 25% on cost.

Q6.(a)

Calculate Gross Profit from the following: Cost of goods Sold Rs.6, 00,000 Gross Profit is 25% on sales.

(Gross Profit = Rs.66,000)

(Gross Profit = Rs.2,00,000) Q6.(b) Calculate Gross Profit from the following: Cost of goods Sold Rs.30,000 Gross Profit is 30% on cost. (Gross Profit = Rs.15,000) Q7. 2005.

The following is the Trading and Profit and Loss Account of Wye Ltd. for the year ended 31st March Particulars Stock Purchases Carriage Wages Gross Profit c/d

Rs 70,000 3,00,000 6,000 14,000 2,00,000 5,90,000 1,02,000 20,000

Administrative Expenses Selling and Distribution Expenses Interest Net Profit

Particulars Sales Stock

Rs 4,00,000 1,90,000

Gross Profit b/d Dividend Received

5,90,000 2,00,000 5,000

3,000 80,000 2,05, 000

2,05,000

You are required to calculate : (a) Gross Profit Ratio (b) Operating ratio. (Gross Profit ratio =50%; Operating ratio= 80.5%)

Q8.

Calculate Operating ratio and Gross Profit ratio from the following: Particulars Sales Sales Return Office and Administrative Expenses Closing Stock Carriage

Rs. 3,16,000 16,000 25,000

Particulars Purchases Purchases selling and Distribution Expenses Opening Stock

Rs. 2,00,000 14,000 32,500 11,000

27,500 500 (Operating Ratio= 75.83%; Gross Profit ratio = 43.33%)

Q9.

Calculate the Gross Profit ratio and Operating ratio from the following details: Particulars Sales

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Rs. 6,30,000

Particulars Sales Return

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Rs. 30,000

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1,50,000 14,000 12,000

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Office Expenses Interest on Loan Income from Investment

16,000 10,000 6,000

(Operating Ratio= 80%; Gross Profit ratio = 25%) Q10.

Calculate the gross Profit Ratio from the following data: Cash Sales being 25% of Total sales, purchases Rs.6,90,000, Credit sales Rs.9,00,000. Excess of closing stock over opening stock Rs.50,000. (Gross Profit ratio= 46.67%)

SOLVENCY RATIO 1.

Debt to Equity Ratio : Debt to equity ratio is the relation between borrowed funds and owners capital in the firm. Debt to equity ratio = Long Term Debt or Long Term Loans Shareholder’s Fund OR Debt Equity

2.

Total assets to Debt Ratio: This ratio shows the relationship between total assets and long term debts . Total Assets to debt Ratio = Total Real Assets Long Term Loan

3.

Proprietary Ratio: It is also called Equity Assets Ratio or Ratio of net Worth to total assets or stock holder equity ratio. It shows the relationship between Proprietors funds and total assets. It indicates the extent to which the shareholders own the business. Proprietary Ratio = Shareholder’s funds Total Real assets

OR

Shareholder’s funds total real assets

x 100

Internal Equities (Share holder fund or Proprietary fund or net worth) : Equity share capital Preference share capital, Reserve and Surplus, Profit and Loss A/c, Capital Reserve , General Reserve , Retained Earning, Sinking fund, Security Premium, Reserve for contingencies, Accumulated Profit capital Redemption Reserve – (Fictitious Assets), Preliminary Expenses , Discount on Share, Discount on Debentures. Profit and Loss Account (Dr.).Under writing Commission. Total Assets = Current Assets + Net Fixed Assets + Investment Total Assets = Shareholder’s Fund + Total Debts Long Term Loans = Debentures , Public Deposits, Mortgage Loan, Secured loan, Unsecured loan Bank loans , Long Term loans. Q1.

From the following information. Calculate Debt equity Ratio, Total assets to Debt ratio and Proprietary ratio: Liabilities Equity Share Capital General Reserve 12%Debentures Bank overdraft Sundry Creditors

Rs 12,00,000 6,00,000 9,00,000 2,00,000 11,00,000

Assets Fixed Assets Investments (Long term) Stock in trade Debtors Cash at bank

40,00,000

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Rs 16,50,000 1,60,000 9,10,000 12,40,000 40,000 40,00,000

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(Debt Equity Ratio = 0.5:1; Total Assets to Debt Ratio = 4.44:1; Proprietary Ratio=45%) Q2.

From the following , Calculate Debt Equity Ratio, total assets to debt ratio and Proprietary . Equity Share capital Rs.1,00,000. Preference Share capital Rs.50,000, General Reserve 1,50,000. Accumulated Profit Rs.60,000, Debentures Rs.1,50,000, Sundry Creditors Rs.80,000. Expenses Payable Rs.20,000, Preliminary expenses not yet written off Rs.10,000. (Debt Equity Ratio = 0.43:1; Total Assets to Debt Ratio = 4.:1; Proprietary Ratio=58.33%)

Q3.

Calculate Debt Equity Ratio, Total Assets to Debt Ratio and Proprietary ratio from the balance sheet of Raj Ltd. as on 31st March, 20x1:

Liabilities 90,000 Equity shares of Rs.10 each, fully paid up 4,000, 11% redeemable pref. Shares of Rs.100 each , fully paid up Securities Premium A/c General Reserve Profit and Loss account 10,000, 12% convertible debentures of Rs.100 each. Fully paid up Bills payable Trade creditors Outstanding expenses Provision for Tax

Rs 9,00,000 4,00,000 80,000 5,00,000 1,40,000 10,00,000 80,000 1,40,000 60,000 2,20,000 35,20,000

Assets Land and building Plant and machinery Furniture and Fitting Stock Trade debtors Cash in hand Cash at bank Bills payable Preliminary expenses

Rs 6,20,000 12,00,000 1,80,000 5,30,000 4,70,000 65,000 3,00,000 1,35,000 20,000

35,20,000

(Debt Equity Ratio = 0.5:1; Total Assets to Debt Ratio = 3.5.:1; Proprietary Ratio=56.82%) Q4.

From the following balance sheet , calculate debt-equity ratio, total assets to debt ratio. Proprietary ratio. Liabilities Equity Share Capital 12% Preference share capital Reserve Securities Premium Profit & loss A/c 15% debentures Loan from bank Current Liabilities

Q5.

Rs 60,000 15,000 10,000 8,000 18,000 30,000 21,000 21,000 1,83,000

Assets Fixed Assets Current Assets Preliminary Expenses

Rs 1,14,000 66,000 3,000

1,83,000

(Debt Equity Ratio = 0.47:1; Total Assets to Debt Ratio = 3.53.:1; Proprietary Ratio=60%) Following is the balance sheet of Reliance India Ltd. as on 31st march 2001. Liabilities Equity Share Capital 12% Preference share capital Profit & loss A/c General Reserve Bank loan 15% debentures Sundry Creditors Provision for Taxation

Rs 90,000 40,000 37,000 33,000 50,000 80,000 56,000 14,000 4,00,000

Assets Fixed Assets Investment Stock Sundry debtors Cash Miscellaneous Expenditure

Rs 1,60,000 90,000 40,000 77,000 23,000 10,000 4,00,000

Calculate (a) debt equity ratio (b) Total assets to debt ratio and (c) proprietary ratio.

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(Debt Equity Ratio = 0.68:1; Total Assets to Debt Ratio = 3:1; Proprietary Ratio=48.72%) Q6.

From the following balance sheet calculate Proprietary Ratio and debt-equity ratio . Total assets to debts ratio. Liabilities Equity Share Capital 12% Preference share capital Reserve Profit & loss A/c 15% debentures Current liabilities

Rs 50,000 10,000 15,000 12,000 17,000 18,000 1,22,000

Assets Fixed Assets Current Assets Underwriting Commission

Rs 82,000 38,000 2,000

1,22,000

(Proprietary Ratio=70.83%;Debt Equity Ratio = 0.2:1; Total Assets to Debt Ratio = 7.06:1) Q7.

From the following balance sheet calculate (i) Total Assets to debt ratio and (ii) Proprietary ratio (iii) Debt equity ratio. Liabilities Equity Share Capital 12% Preference share capital Reserve Debentures Current liabilities

Rs 60,000 10,000 30,000 40,000 20,000

Assets Land and building Furniture Plant and machinery Stock Debtors Cash and bank balance Prepaid Expenses

1,60,000

Rs 50,000 25,000 40,000 19,000 20,000 5,500 500 1,60,000

(Total assets to debts Ratio = 4:1; Proprietary ratio= 62.5%; debt equity ratio = 4:1)

ACTIVITY RATIOS 1.

Debtors (or Receivable) Turnover ratio: debtors Turnover Ratio expresses the relation between receivable and net credit sales. Debtors Turnover Ratio =

Net credit sales Average Accounts Receivable Average accounts Receivable = Opening Debtors + Opening B/R + Closing Debtors + Closing B/R 2 OR Debtor + Bills Receivable Net Credit Sales = Total sales – Cash Sales – sales Returns 2.

Inventory Turnover Ratio/ Stock Turnover ratio: It shows the relationship between the cost of goods sold and the inventory level. It is also called Stock or Merchandise Ratio. Inventory/ Stock Turnover Ratio =

Cost of Goods Sold Average Stock

Average Stock =

3.

Opening Stock + Closing Stock 2 Working Capital Turnover Ratio: It is a ratio between cost of goods sold (or sales) and net working capital. It is a measure of efficiency in the utilization of working capital. It is calculated as follows: Working Capital Turnover Ratio = Net sales or Cost of Goods Sold

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Q1.

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Net working capital Net working capital is calculated as follows: Net working capital = current Assets – Current Liabilities Calculate Stock Turnover ratio. Particulars Stock(Opening) Purchases Sales

Rs. 25,000 85,000 1,14,000

Particulars Stock(Closing) Carriage inwards

Rs. 35,000 15,000

(Stock Turnover Ratio= 3 Times) Q2.

Total Sales for the year Rs.60, 000. Debtors Rs.8, 000; Bills Receivable rs.4, 000. Calculate Debtors Turnover Ratio. (Debtors Turnover ratio = 5 times)

Q3.

From the following data, calculate stock(inventory) Turnover Ratio: Total sales Rs.2,10,000. Sales returns Rs.20,000, Gross Profit Rs.50,000. Closing Stock Rs.80,000, Excess of Closing Stock over Opening stock Rs.20,000. (Stock Turnover Ratio= 2 Times)

Q4.

Calculate Stock Turnover ratio from the data given below: Stock at the beginning of the year Rs.20,000, Stock at the end of the year Rs.10,000, Purchase Rs.50,000. carriage inwards Rs.5,000. Total Sales Rs.1,00,000, Cash Sales Rs.20,000. (Stock Turnover Ratio= 4.33 Times)

Q5.

Opening Stock Rs.59,000, Closing Stock Rs.61,000. Sales Rs.4, 80,000. . Gross Profit 25% on Sales. Calculate Stock Turnover Ratio. (Stock Turnover Ratio= 6 Times)

Q6.

Calculate the debtors Turnover Ratio from the following: Rs. Total Sales for 2005 2, 00,000 Cash Sales for 2005 40,000 Debtors as on Jan1,2005 35,000 Debtors as on December 31, 2005 45,000 (Debtors Turnover ratio = 4 times)

Q7.

Calculate (i) debtors turnover ratio, and (ii) average collection period from the following as on 31st dec.1998 assuming 365 working days in a year:

Particulars Total Gross Sales Sales Returns Total Debtors on 31-12-1998 Bills Receivable on 31-12-1998

Rs. 60,000 5,000 4,800 1,600

Particulars Cash Sales Total Debtors on 31-12-1997 Bills Receivable on 31-12-1997

Rs. 13,000 4,400 1,200

(Debtors Turnover ratio = 7 times; Average Collection period = 52.14 days) Q8.

From the following details, calculate Debtors Turnover ratio: Rs. Total Sales for the year 1,75,000 Cash Sales 20% of total sales Sales Returns --- out of credit sales 10,000 Opening balance 18,000 Closing balance 8,000 (Debtors Turnover ratio 10 times)

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Commerce Classes Q9. Sales

By:- SUBHASH THAKUR

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Calculate the working Capital turnover ratio from the following: Current Assets Rs.8,00,000, Total Rs.30,50,000. Current Liabilities Rs.3,00,000, Sales Returns Rs.50,000. (Working Capital Turnover ratio 6 times)

Q10. The following is the Balance sheet of Gyan Ltd. You are required to calculate Working Capital Turnover ratio, Debtors Turnover Ratio, Stock Turnover ratio. Liabilities Equity Share Capital General Reserve Bills payable Creditors Provision for income tax

Rs 5,00,000 2,00,000 2,20,000 30,000 50,000

Assets Fixed Assets Less: Accumulated Depreciation Short term Investments Sundry debtors Stock Bills Receivable Cash in hand Cash at bank

10,00,000

Rs 5,00,000 1,00,000 4,00,000 1,00,000 1,00,000 2,00,000 50,000 50,000 1,00,000 10,00,000

(i) Total Sales during the year Rs.32,00,000 (ii) Sales Returns during the year Rs.2,00,000 (iii) Cash Sales Rs.1,50,000 (iv) Gross Profit Rs.18,00,000 (Working capital Turnover Ratio 10 times; Debtors turnover Ratio 19 times; Stock turnover Ratio 6 times)

EXAMINATION PROBLEMS Q1

X Ltd. has a current ratio of 2.5:1 and quick ratio of 1.5:1. Its current assets are Rs. 2, 00, 000. Calculate the value of stock. (Value of Stock 80, 000; CBSE 1991)

Q2

X Ltd. has a current ratio of 4.5:1 and quick ratio of 3:1. If its inventory is Rs. 36, 000, find out its Total Current Assets, and Total Current Liabilities and Quick Assets. (Current Liabilities 24, 000; Current Assets 1, 08, 000 Quick Assets 72, 000; CBSE 1991)

Q3

Calculate the stock Turnover Ratio from the following: Particulars

Rs.

Opening Stock Purchases Carriage Inward Wages Manufacturing Expenses Gross profit

75, 000 1, 00, 000 4, 000 11, 000 9, 000 61, 000

Particulars Sales 3, 00, 000 Less Return 50, 000 Closing Stock

2, 60, 000

Q4

Q5

Rs. 2, 50, 000 10, 000

2, 60, 000

(Stock Turnover Ratio 4.45 Times; COGS 1, 89, 000; Average Stock 42, 500; CBSE 1991) From the following information, determine the Opening Stock and Closing Stock. Stock Turnover Ratio 5 times. Total Sales Rs. 2, 00, 000, Gross Profit Ratio 25%. Closing Stock is more by Rs. 4, 000 than the opening stock. (Closing Stock 32, 000; Opening Stock 28, 000; CBSE 1991) Calculate the Stock Turnover Ratio from the following: Opening Stock Rs. 29, 000; Closing Stock Rs. 31, 000; Sales Rs. 3, 20, 000; Gross Profit Ratio 25%. (Stock Turnover Ratio 8 Times; CBSE 1991)

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Q6

Following figures have been extracted from J.M.D Ltd.: Stock in the beginning of the year Rs. 60, 000; Stock at the end of the year Rs. 1, 00, 000; Stock Turnover Ratio 8 Times; Selling Price 25% above cost. Compute the amount of gross profit and sales. (Gross Profit 1, 60, 000; Sales 8, 00, 000; CBSE 1991)

Q7

A trader carries an average stock of Rs. 40, 000 (cost). His stock turnover is 8 times. If he sells goods at a profit of 20% on sales, find out his profit. (Gross Profit 80, 000; CBSE 1991) Commute the Debtors Turnover ratio from the following: 20X1 20X2 Year I Year II (Rs) (Rs) Gross Sales 9, 00, 000 7, 50, 000 Debtors in the beginning of year 83, 000 1, 17, 000 Debtors at the end of year 1, 17, 000 83, 000 Sales Returns 1, 00, 000 50, 000

Q8

(Debtor Turnover Ratio 2001-8; 2002-7 Times; CBSE 1991) Q9

Following is the Trading and Profit and Loss A/c of a firm for the year ending 31.3.20X2: Particulars Stock Purchases Wages Gross Profit c/d

Rs.

Particulars

Rs.

35,000 2,25,000 6,000 1,84,000

Sales Stock at end

4,00,000 50,000

4,50,000 Administrative Expenses Selling and Distribution Expenses Loss on Sale of plant Net profit

10,000 14,000 10,000 1,50,000

4,50,000 Gross profit b/d

1,84,000

1,84,000

1,84,000

Calculate Operating ratio. Q10.

(Operating ratio 60 %;) Following figures have been extracted from the books of Elite Electrical: Net Sales Rs.30,00,000; Cost of goods sold Rs.20,00,000; Net Profit Rs.3,00,000; Current Assets Rs.6,00,000; Current Liabilities Rs.2,00,000; Paid up share Capital Rs.5,00,000; Debentures Rs.2,50,000. Compute: (i) Gross Profit Ratio (ii) Working Capital Turnover ratio (iii) Debt Equity (GPR 33 1/3%; WCTR 7.5 Times DER 1.2)

Q11.

A firm had current assets of Rs.1, 50,000.It then paid a current liability of Rs.30, 000. After this Payment the current ratio was 2:1. Determine the size of current liability and working capital later and before the Payment was made. (Current liabilities After Payment 60,000; Current Liabilities before Payment 90,000; Working Capital before Payment 60,000; Working Capital after Payment 60,000)

Q12.

From the following figures compute the Debtors Turnover Ratio: Year I (Rs.) Year II(Rs.) Gross Sales 9, 50,000 8, 00,000 Sales Returns 50,000 50,000 Debtors in the beginning 86,000 1, 17,000 Debtors at the end of year 1, 17,000 86,000

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Provision for doubtful debts Q13. Q14. Q15. Q16. Q17.

Q18. Q19.

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7,000

6,000

Current Ratio is 2:5 working capital is Rs.60, 000.Calculate the amount of current assets and current liabilities. (Current Assets 1, 00,000; Current Liabilities 40,000) X Ltd. has a current ratio of 4:5 and quick ratio of 3:1.If its inventory is Rs. 72, 000, find out its total current assets and total Current liabilities. (Current Assets 2, 16,000; Current Liabilities 48,000) Quick Ratio 1:5, Current Assets Rs.1, 00,000; current liabilities Rs.40, 000. Calculate the value of Stock. (Value of Stock 40,000) A firm has current ratio of 4:1 and quick ratio of 2.5:1. Assuming inventories are Rs.22, 500.find out total Current assets and total current liabilities. (Current Assets 60,000; Current Liabilities 15,000) From the following as certain Debt-equity ratio: Equity Share Capital Rs.2,00,000, General Reserve Rs.1,60,000, 10%Debentures Rs.1,50,000,Current liabilities Rs.1,00,000. Preliminary Expenses Rs.10, 000. (Debt Equity Ratio-3:7) Opening Stock Rs.29, 000; Closing Stock Rs.31, 000; Sales Rs.3, 00,000. Gross profit 25%on cost. Calculate Stock Turnover Ratio. (Stock Turnover Ratio-8 times) Calculate Debtors Turnover Ratio and Average Collection period in terms of months from the following: Credit Sales for the year Rs. 60,000. Debtors Rs.5, 000, Bills Receivable Rs.5, 000. (Debtor Turnover ratio 6 times; Average Collection period 2 months)

Q20.

From the following data, calculate: (a) Gross profit ratio. (b) Current Ratio (c) Debt equity ratio Net Sales Rs.30, 000; Cost of Sales Rs.20, 000, Net profit Rs.3, 000, Current Assets Rs.6, 000. Stock Rs.1, 000, Current liabilities Rs.2, 000, paid up share capital Rs.5, 000, Debentures Rs.2, 500. (GPR 331/3 % Current Ratio 3:1; Debt Equity Ratio 1:2)

Q21.

A business has a current ratio of 3:1. Its net working capital is Rs.4, 00,000 and its stocks are valued at Rs.2, 50,000. Calculate Quick ratio. (Quick Ratio 7:4) From the following information, calculate the Stock Turnover Ratio and the gross profit ratio. Opening Stock Rs.18, 000. Closing Stock Rs.22, 000. Purchases Rs.46, 000, Wages Rs.14, 000, Sales Rs.80, 000. Carriage inwards Rs.4, 000. (Stock Turnover Ratio 3 times; Gross Profit ratio 25%)

Q22.

Q23.

Q24.

From the following information, calculate the Debt Equity Ratio and the current ratio: share capital Rs.1,50,000, Bills Payable Rs.13,000, Creditors Rs.57,000, Debentures Rs.2,75,000 debtors Rs.95,000. Bank balance Rs.45, 000, Long term loan Rs.1, 00,000, General Reserve Rs.20, 000. (Debt Equity Ratio-2.2:1; Current Ratio 2:1) From the following information, calculate the Debt Equity Ratio and the current ratio: Particulars

Rs.

Debentures Bank Balance General Reserve Share Capital

Q25.

1,40,000 30,000 40,000 1,20,000

Particulars

Rs.

Long term Loans Debtors Creditors Bills payable

70,000 70,000 66,000 14,000

(Debt Equity Ratio-1.31:1; Current Ratio 1.25:1) From the following information, calculate the Debt Equity Ratio and the current ratio: Particulars Opening Stock

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Rs. 24,000

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Particulars Closing Stock

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Rs. 26,000

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Purchases Sales

73,000 1,20,000

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Wages Carriage inwards

20,000 9,000

(Stock Turnover Ratio 3 times; Gross Profit ratio 25%) Q26.

From the following particulars, you are required to compute (i) Current Ratio (ii) Gross profit Ratio. Stock Rs.50, 000, Debtors Rs.40, 000, Bills receivable Rs.10, 000, Advantage paid Rs.4,000.Cash in hand Rs.30,000, Creditors Rs.60,000, Bills Payable Rs.40,000, Bank Overdraft Rs.4,000.Net Sales Rs.7,00,000. Gross Profit Rs.50, 00,000, Net Profit Rs.30, 000. (Current Ratio 1.29:1; Gross Profit ratio 7.14%)

Q27.

Calculate the amount of opening Debtors and closing debtors from the following figures: Debtors Turnover Ratio 4 times, Cost of Goods Sold Rs.6, 40, 000, Gross profit ratio 20%, Closing Debtors were Rs.20, 000 more than at the beginning, Cash Sales being 33 1/3 % of Credit Sales. (Total sales Rs.8, 00,000; Opening Debtors 1, 40,000, Closing Debtors 1, 60,000)

Q28.

Calculate Current Assets of a Company from the following information: Stock Turnover Ratio 4 times, Stock at the end Rs.20,000 more than that in the beginning Sales Rs.3,00,000. Gross profit Ratio 25% current liabilities Rs.40, 000. Quick Ratio 0.75. (Current Assets 96,250)

Q29.

Calculate the current Assets of a Company from the following information: (i) Stock Turnover Ratio: 5 times (ii) Stock at the end is Rs.15, 000 more than stock in the beginning. (iii) Sales Rs.2, 00,000 (iv) Gross profit Ratio 25% (v) Current Liabilities Rs.50, 000 (vi) Quick ratio 0.75 (Closing stock 37,500; Current Assets 75,000)

Q30.

The following is the Balance sheet of X Ltd. as on 31st December, 1998: Liabilities Equity Share Capital Reserves Profit of the year Bank overdraft Trade Creditors

Rs 2,00,000 90,000 60,000 30,000 1,00,000

Assets Land and Building Plant & Machinery Stock Debtors Cash

4,80,000

Rs 1,50,000 80,000 1,40,000 80,000 30,000 4,80,000

Calculate quick ratio. (Quick ratio 0.85:1) Q31.

From the following information, calculate the Debt Equity Ratio and the current ratio: Particulars Share Capital Creditors 12% debentures Long term loan

Q32. Q33.

Rs. 2,50,000 45,000 2,80,000 1,10,000

Particulars Bills Payable Debtors Bank balance General Reserve

Rs. 15,000 60,000 30,000 25,000

(Debt Equity Ratio-1.42:1; Current Ratio 1.5:1) X Ltd. has a current ratio of 3.5:1 and quick ratio of 2:1.If the stock is Rs.24, 000, calculate total current liabilities and current assets. (Current liabilities 16,000; Current Assets 56,000) Priya Ltd. has a current ratio of 3:1. If its Stock is Rs.40, 000 and total current liabilities are Rs.75, 000. Find out its quick ratio, (Quick ratio 2.46:1)

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Q34.

A Ltd. has a current ratio of 3.5:1 and acid test ratio of 2:1. If the inventory is Rs.30, 000. Find out its total current assets and total current liabilities. (Current liabilities 20,000; Current Assets 70,000)

Q35.

From the following details, calculate (i) Opening Stock (ii) Closing Stock: Stock turnover ratio 6 times. Gross profit 20% on Sales. Sales Rs.1, 80,000. Closing Stock is Rs.15, 000 in excess of opening stock. (Opening Stock 16,500; Closing Stock 31,500)

Q36.

From the following information, calculate Debtors Turnover ratio and average collection period. Opening Debtors Rs.37,000 Closing Debtors Rs.43,000 Sales Rs.6, 00,000 Cash Sales Rs.80, 000 (Debtors Turnover Ratio 13 times; Avg. collection period 28.08 days)

Q37.

Calculate Opening ratio from the following Trading & Profit and loss account of M/s Sudhi Ltd. for the Year ending 31st December, 20X1. Particulars

Rs.

Stock (1.1.20X1) Purchases Wages Gross Profit

Particulars

45,000 1,10,000 15,000 1,85,000

Rs.

Sales (Less: Sales Returns) Closing Stock(31.12.20X1)

3,00,000 55,000

3,55,000 Administrative Expenses Selling Expenses Interest Paid Net profit

6,000 8,000 14,000 1,67,000

3,55,000 Gross profit Rent Received

1,85,000 10,000

1,95,000

1,95,000 (Operating Ratio 43%)

Q38.

On the basis of following information, calculate (i) Gross profit ratio (ii) Working capital turnover ratio (iii) Debt equity ratio. Net Sales Rs.30,00,000; Cost of goods sold Rs.20,00,000; current assets Rs.6,00,000; current liabilities Rs.2,00,000; Paid up share capital Rs.5,00,000; Debentures Rs.2,50,000; loan Rs.1,25,000. (Gross Profit ratio 331/3%; Working capital turnover ratio 7.5 times; debt equity ratio 0.75)

Q39.

From the following information, calculate: (i) Gross profit ratio (ii) Stock turnover ratio (iii) Debtors turnover ratio Sales Rs.1, 50,000; Cost of goods sold Rs.1, 20,000: Opening stock Rs.27, 000; Closing Stock Rs.33, 000; Debtors Rs.14, 000; Bills Receivable Rs.6,000. (Gross Profit ratio 20%; Stock turnover ratio 4 times; debtor turnover ratio 7.5times)

Q40.

From the following information, calculate the Gross profit ratio and Stock turnover ratio. Particulars Sales Opening stock

Rs. 2,00,000 35,500

Particulars Purchases Closing Stock

Rs. 1,69,000 44,500

(Gross Profit ratio 20%; Stock turnover ratio 4 times) Q41.

Mr.Atul owns a business and give the following figures:

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Particulars Sales Gross profit Current Assets Current liabilities

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1993(Rs.) 9,00,000 2,25,000 3,00,000 1,50,000

1994(Rs.) 18,00,000 3,60,000 4,50,000 2,50,000

He is of the opinion that his manager Rajeev is very efficient as there is an increase in profit from Rs.2, 25,000 to Rs.3, 60,000 by his efforts. A gain his current assets are increasing from Rs.3, 00,000 to Rs.4, 50,000 whereas current liabilities are increasing only by Rs.1, 00,000 and thus his short term financial position is also becoming strong. Do you agree with him? State yes/no. Give reasons for your answer. Q42.

Calculate (i) Stock turnover ratio (ii) Debtors turnover ratio from the following details : Particulars Annual Sales Opening Stock Credit Sales Bill receivable

Rs.

Particulars Gross profit Closing Stock debtors

2,00,000 38,000 60,000 5,000

Rs. 25% on cost 41,500 5,000

(Stock turnover ratio 4 times; ; debtor turnover ratio 6 times) Q43.

The following are the summarized Trading , profit and loss account of Hindustan product for the year ended 31.12.1996 and the balance sheet of the Company as on that date: Particulars

Rs.

Opening Stock Purchases Direct Expenses Gross Profit

Particulars

99,000 5,45,000 15,000 3,40,000

Sales Closing Stock

9,99,000 Selling and Distribution Expenses Loss on sale of assets Net profit

8,00,000 1,99,000

9,99,000 Gross profit

2,40,000 40,000 60,000

Rs.

3,40,000

3,40,000

3,40,000

Balance Sheet Liabilities Equity Share Capital Profit and Loss A/c Creditors Outstanding Expenses

Rs 2,90,000 60,000 1,15,000 15,000

Assets Land Stock Debtors Cash

Rs 2,30,000 1,99,000 21,000 30,000

4,80,000 Calculate the following ratio: (i) Quick Ratio;

4,80,000 (ii)

Stock Turnover Ratio.

(Quick ratio 0.39:1; Stock; Stock turnover ratio 3.09 times)

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Q44.

From the following information calculate Stock Turnover ratio, operating ratio. Opening Stock Rs.28.000; Closing Stock Rs.22.000; purchases Rs.46, 000; Sales Rs.90, 000. Sales Returns Rs.10, 000; Carriage inwards Rs.4, 000; Office Expenses Rs.4, 000; Selling and Distribution Expenses Rs.2, 000; Capital Employed Rs.2, 00,000. (Stock turnover ratio 2.24 times; Operating Ratio 77.5%)

Q45.

From the following information calculate following ratio: (i) Gross profit ratio (ii) Working Capital Turnover ratio (iii) Debt equity ratio (iv) Proprietary ratio Information: Net Sales Rs.20,00,000; Cost of Goods Sold Rs.12,00,000; Current assets Rs.6,00,000; Current liabilities Rs.3,00,000; Paid up share capital Rs.8,00,000; 12% Debentures Rs.4,00,000. (Gross Profit ratio 40%; Working capital turnover ratio 6.67 times; debt equity ratio 0.50:1; Proprietary ratio 50.33%)

Q46.

From the following information given below, calculate any three of the following ratio: (i) Gross profit ratio (ii) Working Capital Turnover ratio (iii) Debt equity ratio (iv) Proprietary ratio Information: Net Sales Rs.5,00,000; Cost of Goods Sold Rs.3,00,000; Current assets Rs2,00,000; Current liabilities Rs.1,40,000; Paid up share capital Rs.2,50,000; 13% Debentures Rs.1,00,000. (Gross Profit ratio 40%; Working capital turnover ratio 8.33 times; debt equity ratio 0.40:1; Proprietary ratio 51%)

Q47. (a)

The current ratio of a Company is 2:1 State giving reasons which of the following would improve, reduce or not change the ratio: (a) Repayment of a current liability (b) purchasing goods on cash (c) Sale of office equipment for Rs.4,000(Book Value Rs.5,000) (d) Sale of goods for Rs.11,000(cost Rs.10,000) (e) payment of dividend.

Q47. (b)

The Debt Equity ratio of X Ltd. is 1:2. Which of the following would increase, decrease or not change the debt equity ratio? (a) Issue of Equity Shares (b) Cash received from Debtors (c) Sale of goods on cash basis (d) Redemption of Debentures (e) Purchase of goods on credit (f) Issue of Debentures (g) Conversion of Debenture into Preference shares

Q48.

Calculate: (a) Stock Turnover ratio (b) Debtors Turnover Ratio from the following details: Annual Sales Rs.2, 00, 000: Gross profit 25% on cost: Opening Stock Rs.38, 500; Closing Stock Rs.41,500: Credit Sales Rs.60,000; Debtors Rs.5,000; Bills Receivable 5,000. (Stock turnover ratio 4 times; ; debtor turnover ratio 6 times)

Q49.

The following information is provided to you: Particulars Share Capital 15% Loan Tax paid during the year

Rs. Particulars 1,60,000 General Reserve 1,00,000 Sales for the year 40,000 profit after interest and Tax

Rs. 50,000 2,00,000 80,000

From the above information, calculate debt equity ratio. (Debt Equity Ratio-0.31:1) Q50.

AB Ltd. has a current ratio of 4.5:1 and a quick ratio of 3:1. If its stock is Rs.36,000 find out its current assets and current liabilities. (Current liabilities 24,000; Current Assets 1, 08,000)

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A Company earns a gross profit of 20% on cost. Its credit sales are twice its cash sales. If the credit sales are Rs.4, 00,000. Calculate the gross profit ratio of the Company. (Gross Profit ratio 16.67%) With the help of the given information calculate the following ratio: (i) Operating ratio (ii) Quick ratio (iii) Working capital turnover ratio and (iv) Total Assets to debt ratio. Information: Equity Share Capital Rs.1,00,000; 12% Preferences share capital Rs.80,000; 12% debentures Rs.60,000; General Reserve Rs.40,000; Sales Rs.3,00,000; Opening Stock Rs.10,000; Purchases Rs.1,20,000;Wages Rs.30,000; Closing Stock Rs.30,000;Selling and distribution expenses Rs.10,000. Other current Assets Rs.2, 00,000 and Current Liabilities Rs.1, 20,000. (Operating Ratio 46.67%; Quick ratio 5:3; WCTR 2.73 times; Total assets to debt ratio 6.67:1)

Q53.

Calculate the following ratio with the help of the following information: (i) Operating Ratio (ii) Current Ratio Information: Equity Share Capital Rs.5,00,000; 12% debentures Rs.6,00,000;9% Preferences share capital Rs.3,00,000; General Reserve Rs.1,00,000; Sales Rs.10,00,000; Opening Stock Rs.80,000; Purchases Rs.6,00,000;Wages Rs.1,00,000; Closing Stock Rs.1,00,000;Selling and distribution expenses Rs.20,000. Other current Assets Rs.5, 00,000 and Current Liabilities Rs.3, 00,000. (Operating Ratio 70%; Current Ratio 2:1)

Q54.

Calculate the following ratio with the help of the following information: (i) Operating Ratio (ii) Quick Ratio Information: Equity Share Capital Rs.1,00,000; 9% debentures Rs.60,000; 8% Preferences share capital Rs.80,000; General Reserve Rs.10,000; Sales Rs.2,00,000; Opening Stock Rs.12,000; Purchases Rs.1,20,000;Wages Rs.8,000; Closing Stock Rs.18,000;Selling and distribution expenses Rs.2,000. Other current Assets Rs.50,000 and Current Liabilities Rs.30,000. (Operating Ratio 62%; Quick Ratio 1.67:1)

Q55.

Current Liabilities of a Company are Rs.2, 80,000.Current Ratio is 4:3 and Quick ratio is 1:1. Find the value of stock. (Value of stock 93,333) From the following information:

Q56.

Particulars Opening Stock Cost of Goods Sold Operating Expenses Current liabilities Closing Stock

Rs. 5,00,000 18,00,000 4,80,000 6,00,000 7,00,000

Particulars Fixed Assets Net Sales Interest Charge Current assets

Rs. 5,25,000 30,00,000 1,80,000 9,75,000

Calculate: (i) Opening Ratio (ii) Stock Turnover ratio. (Operating Ratio 76%; Stock Turnover Ratio 3 times) Q57.

Compute the Gross profit ratio from the following information: Sales = Rs.4,20,000 and Gross profit 20%on Cost. (Gross Profit ratio 16.67%)

Q58.

Calculate current Assets of a Company from the following information: (i) Stock Turnover 4 times (ii) Stock in the end is Rs.20,000 more than Stock in beginning (iii) Sales Rs.3,00,000 (iv) Gross profit ratio 20%of Sales (v) Current liabilities Rs.40,000 (vi) Quick ratio 0.75. (Current Assets 1, 00,000)

Q59.

Current Liabilities of a Company are Rs.5, 60,000, Current ratio is 5:2 and Quick ratio is 2:1.Find the value of stock.

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(Value of stock 2, 80,000) Q60. Q61.

Q62.

X Ltd has a Liquid ratio 7:3. If its Stock is Rs.25,000 and its Current liabilities are Rs.75,000.Find the current ratio. (Current Ratio 2.67:1) From the data given below, calculate the current ratio and debt equity ratio. 12% debentures Rs.6, 00,000; Total current liabilities Rs.3, 60,000 ;equity share capital Rs.20,00,000; Preferences share capital Rs.8,00,000; General Reserve Rs.2,00,000; Cost of goods sold Rs.4,48,000;Total current assets Rs.6,00,000; debtors Rs.2,80,000; Net profit Rs.1,80,000. (Current Ratio 1.67:1; Debt Equity Ratio-0.2:1) The following information is given about a Company: Particulars Sales Cost of Goods Sold Closing Stock Net profit

Rs. 1,50,000 1,20,000 29,000 14,000

Particulars Gross profit Opening Stock Debtors Net Fixed Assets

Rs. 30,000 28,000 18,000 1,10,000

Calculate the gross profit ratio and Stock turnover ratio. (GPR 20%; STR 4.14 times) Q63.

Gross profit ratio of a Company was 25%. It s cash sales Rs.2, 00,000 and its credit sales was 80% of the total sales. If the indirect expenses of the Company were Rs.20, 000, calculate its Net profit ratio. (Net profit ratio 24%)

Q64.

From the information given below calculate the following ratio: (i) Current Ratio (ii) Debt equity ratio Information: Net profit of the year Rs.80,000; Fixed assets Rs.2,00,000;Closing Stock Rs.10,000; Other current assets Rs.1,00,000; Current liabilities Rs.30,000; Equity share capital Rs.1,00,000; 10% Preferences share capital Rs.70,000; 12% debentures Rs.60,000 and sales during the year Rs.5,00,000. (Current Ratio 3.67:1; Debt Equity Ratio-0.35:1)

Q65.

Calculate Current ratio, quick ratio and debt equity ratio from the figures given below: Particulars Stock Other Current Assets 12% debentures Equity Share Capital

Rs. 30,000 50,000 30,000 1,00,000

Particulars Prepaid expenses Current liabilities Accumulated Profit Long term investment

Rs. 2,000 40,000 10,000 18,000

(Current Ratio 2.05:1; Quick ratio 1,25:1; Debt Equity Ratio-0.27:1) Q66.

A Company had a liquid ratio of 1.5 and current ratio of 2 and inventory turnover ratio 6 times . If has total current assets of Rs.8,00,000 in the year 2003.Find out annual sales if goods are sold at 25%rofit on cost. (Sales = Rs.15,00,000;Cost of goods Sold Rs.12,00,000)

Q67.

Calculate following ratios from the given information : (i) Operating ratio (ii) Stock turnover ratio (iii) Proprietary ratio Information: Net Sales Rs.3,75,000; Cost of Goods Sold Rs.1,08,500; Administrative expenses Rs.42,000;Selling expenses Rs.47,500; Share capital Rs.8,00,000; Reserves Rs.3,50,000;Long term loans Rs.8,20,000; Fixed assets (net) Rs.4,62,000;Investment Rs.2,42,000; Debtors Rs.72,000; Opening Stock Rs.2,00,000; Closing stock Rs.2,20,000 and bank balance Rs.3,15,000. (Operating Ratio 52.80%; Stock Turnover Ratio 0.516 times; Proprietary ratio 87.69%)

Commerce Classes

By:- SUBHASH THAKUR

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Commerce Classes

By:- SUBHASH THAKUR

9810190005

Q68.

Rs.2,00,000 is the cost of goods sold, inventory turnover 8 times ; Stock at the beginning is 1.5 times more than the stock at the end . Calculate the values of opening & Closing stocks. (Closing Stock 14,286; Opening Stock 35,715)

Q69.

The ratio of current assets (Rs.6,00,000) to current liabilities (Rs.4,00,000) is 1.5:1. The accountant of the firm is interested in maintaining a current ratio of 2:1, by paying off a art of the current liabilities. Compute the amount of current liabilities that should be paid , so that the current ratio at the level of 2:1 may be maintained. (Current liabilities to be paid off is 2, 00,000)

Q70.

On the basis of information given below, calculate of the following ratio: (i) Gross profit ratio (ii) Debt profit ratio (iii) Working Capital turnover ratio Information: Particulars Net Sales Cost of Goods Sold Current Liabilities Loan

Rs. 3,75,000 2,50,000 1,20,000 60,000

Particulars Current Assets Equity Share Capital Debentures

Rs. 4,25,000 1,90,000 75,000

(Gross Profit ratio 33.3%; Debt Equity Ratio-0.7:1; Working Capital turnover ratio 1.23 times) Q71.

Current Liabilities of a Company are Rs.1, 20,000. Its current ratio is 3.00 and liquid ratio is 0.90. Calculate the amount of current assets: Liquid assets and inventory. (Current Assets 3, 60,000; Liquid Assets 1, 08,000; Inventory 2, 52,000)

Q72.

Current Liabilities of a Company are Rs.4, 50,000. Its current ratio is 3 and liquid ratio is 1.60. Calculate the amount of current assets: Liquid assets and inventory. (Current Assets 13, 50,000; Liquid Assets 7, 20,000; Inventory 6, 30,000)

Commerce Classes

By:- SUBHASH THAKUR

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9810190005

Commerce Classes

By:- SUBHASH THAKUR

9810190005

FORMAT OF CASH FLOW STATEMENT (Indirect Method) FOR CLASS Xll CASH FLOW FROM OPERATING ACTIVITIES NET PROFIT TAX & EXTRA ORDINARY ITEMS ADD: Non Cash and Non Operating Charges Depreciation written off, Goodwill, Patents, Trade Marks written off, Discount on issue of shares written off, Discount on issue of debentures written off, underwriting commission, written off, Preliminary Exps. written off, Loss on sale of fixed assets/investments, premium redemption of Debentures, interest on Debentures/interest on Loan, Share issue expenses. LESS: Non Cash and Non Operating Receipt Profit on sale of fixed Assets, Profit on Redemption of Debentures Interest Received, Rent Received. Dividend Received, Excess Depreciation. Operating Profit Before Working Capital Changes. ADD: Decrease in Current Assets, Except Cash, Bank, Bank O.D., Increase in Current Liabilities Short Term Investment, LESS: Increase in Current Assets Marketable Securities, Short Term Decrease in Current Liabilities Loans. Cash From Operating LESS: Income Tax Paid (Net of Refunds) Extra Ordinary Expenses. ADD: Extra Ordinary Income Net Cash from Operating Activities (if-ive Ans) Net Cash used in Operating Activities. CASH FLOW FROM INVESTING ACTIVITIES Sale of Machinery, Land & Building and Other Fixed Assets, Sale of investments, Sale of Goodwill/ Patents/ Trade Mark/Copy Right, Dividend received on shares held as investments, Interest Received on Debentures held as investments, Rent Received from property held as investments. LESS: Purchase of Machinery, Land & Building & other fixed Assets, Purchase of Investments, Purchase of Goodwill/Patents/ Trade Marks. Net Cash from investing Activities (if-ive Ans. Cash Used in investing Activities) CASH FLOW FROM FINANCING ACTIVITIES Cash From Issue of Equity Shares/ Preference Shares, Cash From Issue of Debentures, Cash From Raising of Loans (Short term & Long term). LESS: Redemption of Preference shares, Payment of Loans ( Short term & Lon term). Payment of Dividend (interim and Final), Payment of interest on loans and Debentures Net Cash from Financing Activities (if-ive Ans. Net Cash Used in Financing Activities) Net Increase (Decrease) in Cash and Cash Equivalents (I +II+III) Cash and Cash Equivalents at the Beginning of Period. Cash in hand, Cash at bank, Marketable Securities/Short-term investments. LESS: Bank Overdraft Cash and Cash Equivalents at End of period (IV+V) Cash in hand, Cash at bank, Marketable Securities/Short-term investments. LESS: Bank Overdraft WORKINGS Net profit for the year (Closing Balance of P & L A/c---Opening Balance of P & L A/c) Add: Proposed Dividend for the current year. Add: Interiem Dividend paid for the current year.

Commerce Classes

By:- SUBHASH THAKUR

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Amount (Rs.) ........ ........ ........ ........ ........ ......... (........) (........) (........) ......... ......... (........) (........) ......... (........) (........)

Amount (Rs.)

......... (........)

......... ......... ......... ........ (.......) (.......) ........ ........ (.......) (.......)

......... ......... (........)

……… ………..

9810190005

.......... (.........)

.......... (........)

……… ………

Commerce Classes Add: Add: Add: Less:

By:- SUBHASH THAKUR

9810190005

Transfer to reserves (General Reserve, Sinking fund),(Debenture Redemption fund) Capital Redemption Reserve, Dividend Equalization fund. Provision for Taxation made (Provided) during the current year. Extra Ordinary Expenses. Extra Ordinary incomes. =NET PROFIT BEFORE TAX & EXTRA ORDINARY ITEMS

(……….)

……….

CASH FLOW STATEMENT (ADJUSTMENTS) (i) Assets Plant and machinery

1. 2004 90,000

2005 30,000

Depreciation charged on plant & machinery Rs.24,000 PLANT AND MACHINERY Particulars Balance b/d

Amount 90,000

Particulars Depreciation A/c Cash A/c(Sale) Balance c/d

(v)

Particulars Cash A/c(Sale) Balance c/d

Amount 1,00,000 78,000

Amount 26,000 11,000 1,000 1,40,000

2.

Commerce Classes

Amount 30,000 28,000

58,000

2004 30,000

2005 40,000

Provision for tax Rs.24, 000 made (provide) during the year. Particulars Cash A/c (Tax Paid) Balance c/d

Amount 14,000

Particulars Balance b/d Profit & loss A/c (tax provide )

40,000 54,000 1.

Amount 30,000 24,000

54,000

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: provision for tax provided 24,000 Cash from Operation: Less: payment of Tax (14,000) Liabilities Proposed dividend

26,000 1,000

By:- SUBHASH THAKUR

Dr

(vi)

1,78,000

11,000 78,000

Dr.

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: provision for tax provided 28,000 Cash from Operation: Less: payment of Tax 18,000 Liabilities Provision for taxation

2. 1,78,000 1. Non Cash & Non operating Charges: Add: depreciation on plant & machinery Add: Loss on Sale of plant & machinery 2. Investing Activities: Add: Sale of plant & machinery Less: Purchases of plant & machinery

2005 40,000

Income Tax Paid Rs.18, 000 during the year. Tax Paid: Tax A/c………………. To cash A/c …………….. Tax provided (made): profit and loss A/c To Tax A/c Particulars Amount Particulars Cash A/c 18,000 Balance b/d (Tax Paid) Profit & loss Balance c/d 40,000 A/c (tax provide )

1.

Amount 64,000 20,000

Particulars Depreciation A/c Cash A/c(Sale) Profit & Loss A/c Balance c/d

2004 30,000

58,000

84,000 84,000 1. Non cash & Non operating Receipts: Less: Gain on Sale of plant (4,000) 2. Investing Activities: Add: Sale of Plant & machinery 64,000 (iii) Assets 2004 2005 Plant and 1,00,000 1,00,000 machinery Depreciation charged on plant & machinery Rs.26,000, A part of plant & machinery costing Rs.15,000 (accumulated depreciation provided on it Rs.3,000) was sold for Rs.11, 000. Particulars Balance b/d Cash A/c(Purchase)

Liabilities Provision

90,000

Depreciation A/c Dr. 24,000 To Plant and machinery A/c 24,000 1. Non Cash & Non Operating Charges: Add : Depreciation on plant & machinery 24,000 2. Investing Activities: Add: Sale of plant and machinery 36,000 (ii) Assets 2004 2005 Plant and 80,000 20,000 machinery Gain on Sale of Plant & machinery Rs.4,000 Amount 80,000 4,000

2.

Amount 24,000 36,000 30,000

90,000

Particulars Balance b/d Profit & Loss A/c

Calculation of Net profit before Tax and Extra ordinary Items: Net profit for the year Add: provision for Tax provided 40,000 Cash from Operation: Less: payment of Tax 30,000

2004 42,000 (div. paid )

2005 50,000 (Div. proposed)

(vii)

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9810190005

Commerce Classes (iv) Liabilities Provision for Tax

2004 30,000 (tax paid)

By:- SUBHASH THAKUR

1.

2005 40,000 (tax provide)

No adjustment

2.

(viii)

1. Liabilities Proposed dividend

2004 30,000 (div. paid )

2005 45,000 (Div. proposed)

2.

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: Proposed dividend 45,000 Add: Interim dividend 20,000 Financing Activity: Less: payment of Dividend 30,000 Less: payment of Interim Dividend 20,000

(ix) Liabilities Proposed dividend

2004 ------

2.

No adjustment Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: Proposed dividend 50,000 Financing Activity: Less: payment of Dividend

(42,000)

Non Cash & Non Operating Charges: Add: Depreciation on plant & Machinery Investing Activities: Less: purchases of plant & Machinery

2.

2005 ------

2004

2005

Assets

2004

2005

Provision for Depreciation on plant & Machinery

18,000

24,000

Plant & Machinery

80,000

1,00,000

During the year a machinery costing Rs.15, 000(accumulated Deprecation provided on its Rs.3, 000) was sold for Rs.11, 000. Plant & Machinery Account Particulars Balance b/d

Amount 80,000

Cash A/c (purchase)

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: Dividend paid 18,000 Financing Activity: Less: payment of Dividend 18,000 2004 40,000

Dividend paid Rs.18, 000 during the year. Particulars Amount Particulars Cash A/c 18,000 Balance b/d (Tax Paid) Profit & loss Balance c/d 50,000 A/c (Proposed dividend ) 68,000 1. 2. (xi)

Provision for Depreciation = Depreciation Reserve = Accumulated depreciation Either given on liabilities side or subtracted from a particular Assets.

Commerce Classes

Particulars Machinery A/c (Depreciation on selling part) Balance c/d

Amount 40,000 28,000

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: Proposed dividend 28,000 Financing Activity: Less: payment of Dividend 18,000

By:- SUBHASH THAKUR

Amount 11,000 1,000 3,000 1,00,000 1,15,000

Provision for Depreciation on plant & Machinery Account

2005 50,000

68,000

35,000

Particulars Cash A/c Profit & loss A/c Pro. for Depreciation A/c Balance c/d

1,15,000

(x) Liabilities Proposed dividend

20,000

Liabilities

Dividend paid Rs.18, 000 during the year. 1.

6,000

(xii)

Interim dividend paid Rs.20, 000 1.

9810190005

1. 2.

Amount 3,000

Particulars Balance b/d Depreciation A/c

24,000 27,000

27,000

Non Cash & Non Operating Charges: Add: Depreciation on machinery add: Loss on sale of Machinery Investing Activities: Add: Sale of plant & Machinery Less: purchases of plant & Machinery Calculation: Cost (-)Depreciation Book value (-) Sold for Loss

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Amount 18,000 9,000

= = = = =

9,000 1,000 11,000 35,000 15,000 3,000 12,000 11,000 1,000

9810190005

Commerce Classes

By:- SUBHASH THAKUR

Liabilities

2004

2005

Assets

2004

2005

Provision for Depreciation on plant & Machinery

18,000

24,000

plant & Machinery

80,000

1,00,000

9810190005

Assets Machinery

MACHINERY ACCOUNT Particulars Balance b/d (80,000 + 25,000)

Amount 1,05,000

Particulars Cash A/c (Sale) Profit & loss A/c (loss) Pro. for Depreciation A/c Balance c/d (55,000 + 40,000)

FURNITURE ACCOUNT Amount 5,000

Particulars Balance c/d Profit & loss A/c Bank A/c

2,000 3,000

Particulars Furniture A/c (Dep. on selling part) Balance c/d

1,05,000

Amount 3,000

Particulars Balance b/d Depreciation A/c

40,000 43,000

(xv)

Commerce Classes

Opening 20,000

35,000

2,000

Particulars Balance c/d Dep. A/c

Amount 6,000 5,000

10,000 3,000 7,000 5,000 2,000 Closing 28,000

2004 30,000

2005 40,000

Net profit for the year Rs.14, 000

Amount 4,000 40,000

Particulars Balance b/d P & L A/c (Net profit)

Amount 30,000 14,000

44,000 1. 2. (b)

By:- SUBHASH THAKUR

11,000

For partnership Firm & proprietorship Firm

Particulars Cash A/c (Drawing) Balance c/d

5,000

(xiv) Assets Furniture(at cost)

28,000

CAPITAL ACCOUNT

18,000 2,000

= = = = =

Amount

Liabilities Capital (a)

Calculation: Cost (-)Depreciation on selling part Book value (-) Sold for Loss

Amount 5,000 2,000

9,000 11,000

Amount 25,000 18,000

43,000

Non Cash & Non Operating Charges: Add: Depreciation on machinery Add: Loss on sale of Machinery Investing Activities: Add: Sale of Machinery

12,000

Particulars Bank A/c Accumulated Dep. A/c Balance c/d

Accumulated Depreciation Account

Provision for Depreciation on Machinery Account Particulars Machinery A/c (Depreciation on selling part) Balance c/d

Amount 20,000 3,000

35,000

95,000

1,05,000

2.

31.12.04 55,000

During the year a machinery costing Rs.10, 000(accumulated deprecation Rs.3, 000) was sold for Rs.5, 000. The provision for depreciation against machinery as on 1st Jan. 2004 and 31st December, 2004 were of Rs.25, 000 and Rs.40, 000 respectively

No Adjustment

1.

1.1.04 80,000

44,000

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. 14,000 Financing Activity: Less: Drawing 4,000 Drawing made during the year Rs.8, 000

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Commerce Classes

By:- SUBHASH THAKUR

Accumulated Dep. on Furniture

6,000

9810190005

9,000

CAPITAL ACCOUNT Particulars Cash A/c (Drawing) Balance c/d

During the year a furniture costing Rs.4, 000 was sold at a profit of Rs.3, 000. Depreciation on furniture charged during the year amounted to Rs.5,000. Investing Activities: Add: Sale of furniture Less: purchase of furniture

(xvi)

(b)

1. 2.

Amount 30,000 18,000

48,000

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. 18,000 Financing Activity: Less: Drawing 8,000

(xx) Liabilities Debentures

2.

40,000

Particulars Balance b/d P & L A/c (Net profit)

48,000

2.

1.

8,000

5,000 (12,000) 1.

(a)

Amount

2004 1,50,000

2005 1,10,000

Assets Profit & Loss

If debentures were redeemed at 10% premium. Redemption of Debenture (Face value) = 40,000 (+) 10% premium = 4,000 Redeemed at = 44,000 Non Cash & Non Operating Charges: Add: premium on redemption of debentures Financial Activities: Less: Redemption of debentures

(xxi)

4,000 44,000

6,000

Balance sheet as on………….

Liabilities Profit & Loss

(xxii)

Commerce Classes

2004 30,000

2005 ----

2005 ----

Assets Profit & Loss

2004 ----

2005 30,000

Balance sheet as on………….

Liabilities Pro. for B/D 1.

Rs.

14,400

By:- SUBHASH THAKUR

2004 2,000

2005 2,800

Assets Debtors (good)

2004 30,000

2005 40,000

Calculation of Net profit before tax and extra ordinary items: Net profit for the year ……………. Add: provision for b/d 800 Operating profit before working capital changes: Less: Increase in debtors 10,000

2.

Cash Flow From Investing Activities Rs. 22,000 7,600

2004 50,000

(xxiii)

During the year the Company had sold 40% of its Investment held in the beginning of the period at a profit of Rs.8, 400.Calculate cash flows from investing Activities.

Particulars Add: Sale of Investment Less: purchase of Investment Net Cash Flow from Investment Activities

Assets Profit & Loss

Calculation of Net profit before Tax and Extra Ordinary items: Net profit for the year [-30,000-50,000] = (-) 80,000

Rs. 34,000 28,000

2005 50,000

Balance sheet as on………….

Liabilities Profit & Loss

(xvii)

Investments at the beginning of the period Investments at the end of the period

2004 ---

Calculation of Net profit before Tax and Extra Ordinary items: Net profit for the year [50,000-(-30,000)] = (+) 80,000

34 ,000

Particulars

2005 50,000

Calculation of Net profit before Tax and Extra Ordinary items: Net profit for the year [(-) 50,000-(-30,000)] = (-) 20,000

If debentures are redeemed at discount of 15%. Redemption of Debenture (Face value) = 40,000 (-) 15% discount = 6,000 Redeemed at = 34,000 Non Cash & Non Operating Charges: Add: Discount on redemption Financial Activities: Less: Redemption of debentures

2004 30,000

(xxiv) Assets Plant & machinery

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2004 90,000

2005 50,000

9810190005

Commerce Classes

By:- SUBHASH THAKUR

A part of plant costing Rs.15, 000(Depreciation provided on it Rs.3, 000) was sold for Rs.11, 000

INVESTMENT ACCOUNT Particulars Balance b/d P & L A/c Bank A/c

Amount 34,000 8,400 7,600

Particulars Bank A/c (13,600 + 8,400) (40% of 34,000=13,600) Balance c/d

9810190005

Amount 22,000

PLANT & MACHINERY ACCOUNT Particulars Balance b/d

Amount 90,000

28,000 50,000

50,000

Particulars Cash A/c (Sale) Profit & Loss A/c (Loss) Prov. for Depreciation A/c Balance c/d

Amount 11,000 1,000 28,000 50,000

90,000

(xviii) Liabilities Provision for Tax

2004 X

90,000

2005 X

Tax provided during the year Rs.4, 000. It means Tax paid Rs.4, 000; Tax provide Rs.4, 000 COMPARISON OF FINANCIAL STATEMENT Comparison of Financial Statements Income Statement

Balance Sheet

COMPARATIVE INCOME STATEMENTS for the year ended 31st December 2006 & 2007 Particulars Less: Less:

Add: Less:

Less:

Net Sales Cost of Goods Sold Gross Profit Operating Expenses (Office & Admn. Exp Selling & Dist. Exp., General Exp.) Operating Net Profit Non Operating Incomes (Other Incomes) Non Operating Expenses (Other Expenses) Net Profit Before Tax Income Tax Net Profit After Tax

2006 Rs. ……. ……. ……. …….

2007 Rs. ……. ……. ……. …….

……. …….

……. …….

…….

…….

…….

…….

……. …….

……. …….

…….

…….

Absolute Change (Rs.)

Percentage Change (%)

When Non-operating Income and Non-operating Expenses both are not given COMPARATIVE INCOME STATEMENTS for the year ended 31st December 2006 & 2007 Particulars Less: Less: Less:

Net Sales Cost of Goods Sold Gross Profit Operating Expenses Net Profit Before Tax Income Tax Net Profit After Tax

2006 Rs. ……. …….

2007 Rs. ……. …….

…….

…….

Absolute Change (Rs.)

Percentage Change (%)

Format of Comparative Balance Sheet of N. Co. Ltd. COMPARATIVE BALANCE SHEET as at 2006 and 2007

Commerce Classes

By:- SUBHASH THAKUR

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9810190005

Commerce Classes

By:- SUBHASH THAKUR

Particulars 1. 2. 3.

4. 5. 6. 7. 8. 9.

Net Fixed Assets Investment Working Capital (Current Assets) Less: Current Liabilities) Capital Employed (1+2+3) Less: Long Term loans Shareholders Funds (4-5) Represented by Equity Share Capital Preference Share Capital All Reserves & Surplus Less: Fictitious Assets

2006 Rs. ……. …….

2007 Rs. ……. …….

…….

…….

…….

…….

……. …….

……. …….

……. ……. …….

……. ……. …….

9810190005

Absolute Change (Rs.)

Percentage Change (%)

Operating Net Profit = Income from Operation = Operating Net Income (Expenses, Indirect Expenses = Operating Expenses) (Materials Consumed = Cost of Goods Sold)

Commerce Classes

By:- SUBHASH THAKUR

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